Newport Beach emerges from pandemic with $31 million budget surplus

The Newport Beach City Council on Tuesday learned the city has a surplus of $31 million in its budget, exceeding initial projections set for the end of the last fiscal year.

A staff report prepared for the council’s regular meeting said most revenue categories performed at or higher than expected levels projected in the budget adopted in April 2020. Primary city revenues come largely from the city’s property taxes, sales tax and transient occupancy tax, also known as the hotel tax, with property taxes typically representing just under 50% of the city’s general funds.

Chief finance officer Scott Catlett said property taxes came in at about $2 million above budget and sales tax had a “record” year, coming in at $454,000 higher than in 2018-19 and was about $4.4 million above budget. The transient occupancy tax was the most significantly impacted, but Catlett said the city was in a better position than originally assumed during budget revision.

“Bottom line for the general fund results, we ended with a $31-million surplus, but it’s important to put that number in context. Of that number, $24 million ... was prior year surpluses from the prior two years that we carried forward to weather the pandemic,” said Catlett. “$7 million is current year revenues and the budget for the new year we’re in now is fully balanced, which essentially means this is all now one-time money. That’s a great place to be in.

“This is an accumulation of three years of our year-end surpluses and kind of a unique situation for our city because of COVID,” said Catlett, which Councilman Will O’Neill agreed won’t happen again because of a change in surplus spending.

The results of the financial report are still considered preliminary in nature and are subject to adjustments through December while city financial records are being routinely audited, according to city staff.

Those adjustments are not expected to significantly impact what was presented to the City Council this week.

The council members voted unanimously to allocate the surplus funds in accordance with city staff’s recommendation, placing $5 million to bring the city’s CalPERS unfunded liability contribution to $40 million. About $10.5 million will be put toward long-term infrastructure liabilities in the city’s facilities financial plan and harbor and beaches capital improvement plan.

Additionally, $15.5 million will go to the capital improvement program to include neighborhood enhancement projects for the upcoming budget. About $10.1 million from the American Rescue Plan Act funds will also be put toward the capital improvement program for that same budget planning process.

City Manager Grace Leung said the capital improvement projects are not currently specified, but that city staff does intend to return to discuss what those projects are with community and council input.

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