The City of Newport Beach won an Award for Excellence for this project in the Internal Administration category of the 2008 Helen Putnam Award for Excellence program. For more information about the program, visit www.cacities.org/helenputnam.

As the City of Newport Beach celebrated its 100th birthday in 2006, its focus was more on the future than the past. The city’s imminent challenge was how to fund the replacement or renovation of nearly two dozen of its major facilities over a 12- to 15-year timeline. Estimated to cost approximately $250 million, the projects carried significant financial ramifications. City leaders recognized the need to consider the timing and cost of all the projects as an overall replacement program rather than addressing and funding each project individually.

Embarking on such a program would require the city to issue more debt than it had ever incurred in its entire history. The prospect of this unprecedented cash outflow over an extended period created concern because the debt service alone was projected to gradually increase from a negligible level to more than $20 million annually.

City Council Member Keith Curry explained, “Newport Beach has conservative fiscal policies, so we wanted to be sure that the full capital improvement plan could be accomplished without placing an undue burden on our ability to provide ongoing services.”

Formulating a Facilities Master Plan

The city’s leaders realized it was necessary to establish a pace of progress that could be supported with a long-term, affordable funding plan incorporated into the city’s annual budget process. The city formed a special Facilities Financing Committee, consisting of two city council members, staff and several community members with expertise in related fields, to create the plan.

The committee was responsible for developing a comprehensive master facilities replacement and financing schedule, which became known as the Facilities Master Plan, to:

• Project the timing of construction for individual projects;
• Project the schedule of debt issuance;
• Include all relevant revenue sources and expenditures on a yearly, project-by-project basis; and
• Determine the long-term “level funding” annual budget commitment that would be required to support the program.

The goal was to achieve a balance between the cash flow requirements for the new facilities program, including debt service, and the cash flow requirements of ongoing city operations. The ideal tool for this was a graphic illustration that would readily enable annual review and revision as conditions changed. In the final analysis, the controllable variables would be the amount of General Fund resources that could be dedicated to the program on an annual basis and the speed with which the facility needs could be addressed. The objectives were to plan for these variables and be able to react and adjust when real-world changes occur.

Prioritizing and Planning

The committee members visited all selected facilities and prioritized the projects for preliminary planning purposes. They considered age and suitability, current condition and upkeep costs, among other things, and determined which projects would best be accomplished simultaneously or separately. The initial overall survey was an essential first step, though some facilities would later require further evaluation, such as a needs assessment.

The committee then estimated the current replacement costs and agreed on a number of clearly stated assumptions. These assumptions included potential changes in the location of facilities, other potential sources of funding (such as community donations and grants from other government agencies), long-term inflation rates and the prospective cost of debt. As it becomes necessary to revise these assumptions over time, other parameters of the program will be modified accordingly.

For debt issuance purposes, the committee then grouped the projects based primarily on timing. Finally, they created a projected cash flow schedule that incorporated all of these elements. The city established a special Facilities Replacement Fund to track and control all revenues and expenditures for the comprehensive program. Initial “seed” money would come from an existing Reserve for Capital Projects fund.

The ultimate variable input was the annual contribution required from the General Fund to keep the Facilities Replacement Fund from running out of money over time. It was established at the minimum amount, with set increases at a predetermined rate intended to approximate inflation. If the city could afford to budget that amount on an ongoing basis, the facilities replacement program could continue as scheduled. If not, the program would have to be slowed or other adjustments made.

The Facilities Master Plan puts more funds into the program during the early years to accumulate funds for the growing expenses in subsequent years. This “level funding” pattern, which fits closely with the city’s revenue structure, is one of the plan’s primary objectives.

Putting the Plan to Work

The city council adopted the committee’s recommendations and introduced the Facilities Master Plan in spring 2006. In its final form, the master plan is a large spreadsheet containing all of the program’s parameters.

“The plan is an integral part of the city council’s annual planning session and the city’s budget process,” said Mayor Edward Selich. “In terms of facility replacement, we can clearly see what we need to do, when we need to do it and how much it will cost. It doesn’t eliminate the ability to take on a new or unanticipated project, but it spells out the effect of that decision on the city’s long-term needs.”

Dennis Danner, administrative services director, emphasized the importance of fiscal discipline in taking on such a program: “The plan has enabled Newport Beach to demonstrate to the rating agencies and the financing community that the city has the ability to finance the replacement of these facilities over a 12- to 15-year time frame without taxing its ability to maintain the high level of service and commitment to quality that our residents, businesses and visitors have come to expect.”

As anticipated, changes have been made to several projects’ scheduling and priority, and the plan has been revised and updated each year since its inception. The latest revision still indicates that the city can afford the annual General Fund contribution required to support the projected schedule of work.

“We’ve always had solid and well-funded master plans for city infrastructure, such as pavement, water, sewer and storm drains,” said Public Works Director Steve Badum. “The Facilities Master Plan puts buildings into that mix and completes the city’s strategic plan to maintain key public infrastructure.”

Mayor Selich summed it up: “The plan focuses the organization on a common objective. We don’t want to run out of money before we run out of projects.”

Contact: Dick Kurth, deputy director, Administrative Services, City of Newport Beach; phone: (949) 644-3124; e-mail: dkurth@city.newport-beach.ca.us.

---

This article appears in the November 2008 issue of Western City
Did you like what you read here? Subscribe to Western City

---