Commentary: Newport Beach is making progress on pension and other debts but prudence is advised
Mayor Marshall “Duffy” Duffield’s State of the City speech recently highlighted a handful of Newport Beach’s strengths. One highlighted strength is our fiscal picture and outlook, for which our council is cautiously optimistic.
Indeed, we project a $12.5 million surplus, will move toward a faster discretionary pay-down of pension liabilities and project an unfunded pension liability decrease for the first time in four years.
Our fiscal strengths undoubtedly outnumber our weaknesses, but that balance continues only if we guard against weaknesses consuming cities across our Golden State.
First, our fiscal strengths. Our property-tax revenue continues its steady climb as Newport Beach’s real estate market remains hot and many Proposition 13 tax bases remain well below market prices. Our reserves meet our well-established thresholds, and our credit rating remains the highest in California.
Our roads are paved, our streets are swept, our police patrol, our fire department responds, and our capital improvement program is on schedule. We are even looking toward rebuilding two new fire stations built in the 1950s, which will increase first-responder safety and decrease response times to our Peninsula Point residents.
But weaknesses exist and threaten our future residents and city councils with terrible choices unless our current residents and current City Council address them head-on. We continue to pay $8 million to $10 million per year toward Civic Center debt service. We see our sales tax flattening as people increasingly turn to online retailers rather than local shops.
No weakness, though, is larger than the pension tsunami off our shores.
Over the past two weeks alone, article after article sounds alarms of looming deficits in neighboring cities. The Voice of OC reported that Santa Ana faces a $17 million budget hole that city officials attribute to skyrocketing pension costs and employee raises awarded last year. Santa Monica faces a deficit starting in 2019 thanks to a $460 million unfunded pension liability, according to the Santa Monica Lookout.
And the League of California Cities released a report last week projecting that cities’ payments for pensions will increase an estimated 50% percent by 2025. These are big numbers of taxpayer dollars.
Some cities have addressed these holes by increasing sales taxes like Stanton did in 2014 and Fountain Valley and Westminster did in 2016. But those fixes are quickly engulfed when a City Council like Fountain Valley’s gives their police 11.5% increases over three years less than a year after citizens approved the sales tax increases.
Ultimately, we must balance current residents’ expectations with our obligation to future generations. We must not make decisions now that will force future councils to cut core services.
To that end, Newport Beach has continued its aggressive pension pay-down started in 2014. We no longer carry two years of interest that the California Public Employees’ Retirement System (CalPERS) regularly charges its members.
We no longer sit back and wait for discount rates to fall and payments to increase. We make calculated and prudent decisions that are equal parts vitally important to our ongoing fiscal health and terribly boring to discuss at cocktail parties.
To paraphrase an ancient saying, Newport Beach grows great when leaders plant trees in whose shade they know they shall never sit. And if all goes well, we will even make sure there are funds to trim those trees while they are growing too.
Councilwoman DIANE DIXON chairs the Newport Beach City Council Finance Committee. WILL O’NEILL is mayor pro tem of Newport Beach.
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