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2003/01/22 City Council Agenda PacketCity of Rohnert Park♦ 6750 Commerce Boulevard ♦ Rohnert Park, California 94928 Phone: (707)58$2227*FAX: (707)588-2274+ WEB:'wtir—peitv.org ROHNERT PARK CITY COUNCIL SPECIAL MEETING AGENDA Wednesday, January 22, 2003 6:30 p.m. Special Session - Open/Call to Order Roll Call (Flores Mackenzie_ Nordin Spradlin Vidak-Martinez_) Public Comment: For public comment on agenda items if unable to speak at the scheduled time (limited to 3-5 minutes per person, or allocation of time based on number of speaker cards submitted, not to exceed a 30 minute total time limit) - Public comments for SMial Meetings are restricted to items listed on the agenda 1G C 54954.3(a)l ITEMS FOR DISCUSSION &/OR ACTION I. BUDGET MATTERS 1. Mid -Year Budget Presentation - Fiscal Year 2002-03 • Council Discussion/Direction 2. Level of Service Approach to Budgeting • Review of multiple approaches to budgeting • Council Discussion/Direction 3. Draft Financial Policies • Examples from other cities • Council Discussion/Direction IL Public Comments M. Presentation on City Hall options • Council Discussion/Direction/Action CONSENT CALENDAR All items on the consent calendar will be considered in toto by one action of the Council unless any Councilmember or anyone else interested in any matter on the consent calendar has a question about same. • Resolution for Adoption: 2003-16 Urging the California Legislature to Reject the Governor's Proposed Shift of Local VLF (Vehicle License Fee) Revenues and to Honor the 1998 Commitment to Restore the VLF ADJOURNMENT no later than 9:00 p.m. DISABLED ACCOMMODATION: If you have a disability which requires an interpreter or other person to assist you while attending this City Council meeting, please contact the City Offices at (707) 588-2227 at least 72 hours prior to the meeting to ensure arrangements for accommodation by the City. Pleasemake sure the City Manager's office is notified as soon as possible if you have a visual impairment requiring meeting materials to be -produced in another format Braille audio -tame etc.. (This agenda has been posted in accordance with State Brown Act rseequirlre�cmenCo� cu Review of Multiple Approaches to Budgeting • Line Item Budget • Performance Budget • Program Budget • Zero -base Budget • Recommended Approach Line Item Budget • Only form of budgeting used until the 1950's • Easiest to prepare and implement • Designed to ensure financial accountability • Control is exerted by objects of expenditure format • Weakness — Review and analyses focuses on what is purchased rat her than the role of actions in achieving goals Performance. Budget Originated in the late 1940' s • Break up of activities to further goals • Activities must yield an identifiable output • Outputs are reviewed for cost-effectiveness • Managers provide workload plans to the Governing Board • Outputs are measured throughout the year and reported to the Governing Board Performance Budget (cont.) Weaknesses —.Difficultly in measuring outputs (especially for services) Lack of analysis of benefits. Outputs are assumed to be,effective, while they may not be. — Burdensome to track, requires significant use of staffing resources Program Budget • Developed in the 1960's Programs are designed based on goals • Funding is budgeted based on achieving objectives • Programs are funded in lump sum with operational flexibility to mix expenditures Program Budget (cont.) • Weaknesses - Difficulty in formulating goals to translate into programs - When goals change, the foundation of the budget is no longer relevant — Difficulty in measuring the achievement of goals Zero -base Budget • Developed in the 1970's • Focused on improving cost -efficiency of operations • Budget funding requests are submitted in three different funding levels by dept./prog: • Minimum • Current • Improved Funding levels are ranked Zero -base Budget (cont.), • Weaknesses — Not always meaningful in achieving goals — Focus on program or department may, discourage "big picture" view Recommended Approach • Level of Service Budget, • Combination of elements from program budgeting and zero -base budgeting • Integration of Council goals with budget — Create and Sustain Financial Stability — Acceptable Level of Services and Programs — Maintain Existing and Establishing New Partnerships - Maintain City Infrastructure and Enhance as Possible Level of Service Budget • City Management Team provides tiers of services and programs based on the City Council's goals • City Council decides on the level of service to be provided • Gaps in funding the desired level of services are then compared to available . contingency resources — Grants — Reserves — Interagency cooperation — Partnerships Example o.f Level of Service Budgeting • Park Maintenance - IMPROVED OPTION • Improved maintenance levels - CURRENT • Maintain existing maintenance levels - MINIMUM • Enhanced maintenance of playing fields, minimal maintenance of passive areas vvfiA "A city is a partnership for living welLff", -Aristotle END (result): A satisfactory Quality Of Life I+A4 j k� Council Goals to meet the End: 1. Create and sustain Financial' Stability' 2. Provide an acceptable Level of Service 3. Maintain existing Partnerships and, establish newt ones 4. Maintain City Infrastructure,, enhance as Possible - m The question should be, is it worth trying to do, not can it be done., From the Carver Guide_ Three Stens to Fiduciary+ Responsbilitw Definitions of -BudgeC. ❑ The planning of fiscal performance 0 Illustrates management's fiscal planning Focus at the Governance level_ deciding upon the values underlying the budget numbers for fiscal planning and actual fiscal condition Focus at the Staff level. crunch the numbers; gather and summarize performme, data glaving a budget - even a good one - does not demonstrate fiscal responsib W docs not say whether your programs are worth their cost, and does not show protection df your assets. A budgd at its very best shows only'your well -organized int' n O`n " Fiscal Policies = Putting your money where your mouth is ie., Do total expenditures produce sufficient human outcomes? And deals with proportionality of outlays in relation to m%ded results Council's Job is to 1_ Control budget values (ratherthan budget numbers) 2. Pro -Ade safeguards for fiscal health 3. Monitor fiscal management (compare actuals to policies) A budget is never approved (ie. "blessing' the numbers). Instead, the council awes a set of financial planning principles and policies_ The numbers are left to management, as long as they stay within the policy guidelines. Policy Idem The proportion of expenditures bear close relationship to the array of impacts the council wants for the city. Resources are allocated toward the council's desired endstgoals. Imprudence is avoided. Expenses never exceed revenues - Revenues must be conservatively projected - The budget must consider long-range planning. MO_RENO VALLEY Makes' Customer .Service Its Top Priority The City of Moreno Valley incorporated in 1984. Because its offices. were located in several leased buildings, the city's development, planning and building services were provided at multiple locations. Customers.were confused and exasperated by having to visit numerous locations, and building projects were often delayed due to a lack of communication or miscommunication. Different methods of maintaining infor- mation were also being used, with no overall system for providing common access to development information. With the recession of the 1990s and the slowdown in business development, the city council asked staff to develop "business friendly?' practices. In 1992, serious efforts were initiated to solve the identified problems. Consolidating and eamlining Services o increase communication and establish better coordination among divisions, the planning, building and safety, and eco- nomic development :departments were combined into one Community and Economic Development Department. The director was given broad authority to coordinate all development services functions, including fire prevention and land development. This reorganization helped considerably, -but the multiple building configuration remained a signif- icant obstacle. After evaluating facility ' options, the city purchased 26 acres . for its civic center, including a shell office building. This building was trans- formed into a new city hall, where all city development services could be locat- ed:in one place. Prior to the move, a task force composed of key development services staff re- viewed department functions with the objective of establishing "one-stop shop- ping" for all services. In 1995, city staff moved to the new city hall facility and opened the One - Stop Development Services Center. While the center immediately resolved some customer service issues, many new challenges emerged that required ongo- ing attention and fine-tuning. The center includes an assistance desk to greet and screen customers. Counter staff from several divisions are located side by side to provide customers "one- stop shopping" for services. The center includes the divisions of land develop- ment, building and safety, planning,, code compliance, fire prevention and finance (cashiering). A counter coordinator position was created to manage all functions and work with a "counter team of staff from the assistance desk and all divi- sions represented at the one-stop center. Facilitated by the counter coordinator, the team meets monthly to address the one-stop center's issues and has: Established a check-in and tracking procedure at the assistance desk to ity of Moreno Valley won an Award ;ellence in the 2002 California Helen Putnam Award for ence program. 10 League of California Cities 2 wH,w.cacities.org D Southern California Housing h k out our SoCal Hous Development Corporation Ci eC g A:Von•ProJltHousing CoWration ;develo ments a 8265 Aspen St, Suite 100 +- Q Rancho Cucamonga, CA 91730 -888.9150 CAL • 888.917.6225 www.schdc.org �. a Rebecca Clark, extension 184 ' 427, Southern California Housing h k out our SoCal Hous Development Corporation Ci eC g A:Von•ProJltHousing CoWration ;develo ments a 8265 Aspen St, Suite 100 +- Q Rancho Cucamonga, CA 91730 -888.9150 CAL • 888.917.6225 www.schdc.org �. a Rebecca Clark, extension 184 ' ti Moreno Valley Makes Customer Service Its Top Priority, continued from page 11 The center includes an assistance desk to greet and screen customers. Counter staff from several divisions are located side by side to provide customers "one-stop shopping" for services. • Established main phone lines for each division, which are answered by staff during city business hours. Voice mail is available as a back-up so no caller is lost, but no main phone lines use voice mail as first response; • Created an appointment system for customers with lengthy transactions or submittals; • Instituted the use of performance measures and standards as a manage- ment tool to track processes and out- put levels, identify service goals and hold staff accountable; and • Required all staff to attend customer service training and specify customer service goals and objectives. in their .performance plans. The city's Pay for Performance Plan rewards those employees who achieve and exceed customer service objectives. The team also developed a customer ser- vice survey program to measure service effectiveness. Survey forms are available for people who are. served by the build- ing and safety, planning, code compli- ance, land development, fire prevention and cashiering staff. After a permit i completed or a case is closed, surveys are Margarita Harper, office assistant, provides information on home occupatiompermits. www.westerncity.com generated from the computer system and mailed twice a month. Each customer is invited to fill out the survey and return it in a postage -paid envelope. Returned surveys are forwarded to the appropriate division manager for review. The manag- er follows up all negative responses with a phone "call to the customer to address concerns and provide feedback for im- prove ment. m-provement. Quarterly reports of survey results are compiled. The results of the surveys have been, on average, 98 to 100 percent satisfaction in all services except code compliance, which still receives at least 88 percent approval. Meeting Customers' Needs Efficiently The City of Moreno Valleys Develop - went Services One -Stop Center pro- vides customers with a fast, convenient method of conducting their business transactions. By streamlining the way that services are provided, customers are served in a timely manner and have access to the expertise of all the divisions represented in the center. City staff work as a team to provide the best customer service possible with the resources avail- able. City Manager Gene Rogers says, "The staff have worked diligently to continuously improve and refine our ability to serve our residents, businesses and developers in the one-stop center. They are a top-notch team, and their success in meeting our customers' needs is exceptional. Our one-stop center is the, real deal." Contact. • Linda Guillis, community and economic development director, City of Moreno Valley; phone: (909) 413-3469; e-maik <LindaG@moval.org>. Western City, January 2003 13 ping for the Future ANew B Providing Efficien ty Administrative & Developmen ervices Restructuring City Administrative Faciliti Accommodating Future Business & Citizen Needs Providing Efficie City Administrative & Developmen ervices *Make customer service a p ity •Eliminate or decrease the sepa a of services, where possible •Improve internal & external communications •Provide consolidated & streamlined Development Services to the business community Providing Efficie t City Administrative & Developmen ervices eWhile reducing overhead *Decreasing liability exposure •Decrease 03/04 potential budget de it Restructuring Cidministrative Facilities Accom da' Future Business & Citize eeds Options City Hall Option 1: New city hall building with counc' mb Option 2: New city hall building without council 17 O0tion 3: Add on to existing City Hall & return balance of the unused COP'S ($4.8 thus eliminating $3.5k per yr. debt paymt Also moving BD to expanded city hall. 1 Options City Hall (continue Option 4• Move all City administrative development services to an exish City -owned building (return COP fu s) Option 5: Continue operations as they exist (return COP funds) n1. New • Project concept and design began in arl� 1999 • Bid received in April of 2002 ($5.2m) • Project deferred until after November elections • October 2002 meeting with city hall archit( to reduce costs by looking at rebid options. Rebid A atives • Downsize Council Chambers ced seating from 160 to 123, exclude floor & downsize audio/visual equipmen • Modify city hall structural system • Provide full mechanical, electrical & plumbing designs (These systems were previously design build) Opfpn 2: City Hall w/o Cou 1 Chambers • Saves a minimum of $800,000 - $1, 00 in project costs, not including entry Ian ca • City Council to meet in Library Commu 'ty Room until full funding is available for the construction of the council chambers and landmark entry landscaping • Eliminates risk of ADA complaint/lawsuit exposure at existing facility 2 • Provide "one stop" services to cit" & business community • Allows for the sale of current City Hall s e. Thus contributing to a decreased 03/04 bu gi deficit. (+$950k) • Makes Use of $1.9m of Specific Plan financin which is being allocated for the new city hall. 2 K • Yearly savings in city administra ' ove of $75,000 (BD lease $25k, utility sa 'n & interest earnings on existing city haN, $35k). Does not include obvious soft cosi savings such as greater staff efficiency, sl equipment & lower facility maintenance 2 • Favorable construction economi ' ale • Would allow for solar voltaic system, hi< would pay for itself in 7 years • Could increase the cost of future council chambers by dividing the one project into projects. New City Hall witho ouncil Chambers .- ��L .fin. New City Hall Witl�ut Council Chambers, situated on City Hall Drive Opt3: Add on to Exisg.City Hall • 1998 Budget for expanding south e existing building was $367k • Cost for expanding north & south sectio of the building would be approximately $700 excluding seismic, foundation & roof upgra 4 • Large expenditure of funds on a building whi is well past its maintainable life. '43 • ($50k upgrade) non -complying exi ' om the south and north sections of the buil ' A liability ($25k upgrade), roof upgrade Ok) inadequate foundation ($100k upgrade) • No realization of revenue from land sale 3 K • Loss of affordable housing site • No COP payments (+$350k) & no D payments (+$25k) • Does not allow for Finance Departmen inclusion (critical to "one stop" services) 0-pbn 4: Move City Hall sta , " cluding BD staff, to an existingCJ uilding • Eliminates COP payment • Allows for the sale of the existing city h 11 site • Eliminate the $25k yearly Building Department lease �I • Realizes savings through conso ted operations • An interior design could be develope wl may facilitate "one stop" services • Would displace a current City service or program • Entails design & construction costs Z? 1 'on 5: Continue City Ha E They Currently • Eliminates COP payment • Does not allow for sale of city hall prop • Does not eliminate Building Department Lease +I W) • Continues ADA compliant/law suit posur, • No savings through consolidation of s ice; • Continues the inability to heat the offic in the north end of the building k • Structural & roof problems remai \ • Continued elevated maintenance requirements • Continues Finance Department operatio s in another facility • Will not accommodate "one stop" services e 0 Effectively serving our citizenry w accommodating the needs of the ess community through efficient & c s - ated City services means sustained nefi 'all. 5 Budgeting 163 for removing ineffective ones—is then linked to the budget and to the attainment of program goals. Budgetary approaches The previous sections have focused on two sometimes conflicting purposes of pub- lic budgeting: goal attainment and financial control. A third purpose of budgeting is managerial productivity, which hasgoalattainment, as its implicit goal. The different budgetary approaches used in local governments reflect variations in the political importance of these three purposes. Financial control has been associated with the line -item budget; goal attainment with both program budgeting and lan- ning-programming-budgeting systems (PPB S); an managerial productivity with is both pe ormance u getmg and zero base budgeting (ZBB). Other budget reforms and innovations in use are merely' variations of these four approaches." Beca use there is considerable diversity in practice, each budgetary approach is described in its "ideal," form in the following discussion. Line -item budgeting The line -item budget (which is still the predominant form) was, for all. practical purposes, the only budgetary approach employed by local governments until the 15Qs. Developed in response to the substantial governmental corruption that pre- L/ vailed at the turn of the twentieth century, the line -item bud et was desi ed to ensure financial accountability of public officials a nder a line -item budget, fi- nancial control is exerte mainly through an objects -of -expenditure format t at este a s the types of inputs to be purchased. Generally, the objects are classuiea by character—current items (operating costs), long-term items (capital outlays), and past services (debt service). The separate organizational units and subunits are usually required to submit their budget expenditure estimates in accordance with these objects -of -expenditure classifications, as shown in Figure 6-5. Line -item budgets are fixed budgets with monies appropriated only, for a particular time pe- riod, most commonly one year. The discretion of the chief administrator can be limited further if the governing body makes appropriations more detailed. Appro- priations may be approved for different classes of expenditure (e.g., personal ser- vices, supplies), subclasses (e.g., wages, salaries, travel, overtime, office supplies), or even specific, separate items (e.g., compensation for individual positions, sup- plies of pencils and paper). The governing body also exerts financial control by setting overall spending limits and by conducting financial audits of the executive branch. The major responsibility for exercising financial control rests with the chief ad- ministrator in the preparation and implementation phases. However, decision mak- ing by the chief administrator, the budget office,. and the operating units is un- coordinated. The chief administrator initiates the budget cycle by developing a general policy orientation and spending guidelines, which may allow estimates to be open ended or subject to a fixed ceiling. Budget units prepare estimates inde- pendently for the services for which they are responsible, and request spending for particular objects. After the governing body adopts the budget, the chief adminis- trator secures control over the budget units' budget implementation through speci- fying allotments for the funded objects and pre -auditing expenditures in accordance with allotments or appropriations. The budget office authorizes encumbrances and spending only for those items that fall within the scope of applicable allotments and may refuse expenditures if the spending is not deemed suitable for the service. Finally, ,bimonthly and monthly financial reporting provides information on the legality of spending and on spending trends that could potentially interfere with the achievement of a balanced budget. Because information.is organized according to inputs, budgetary analysis focuses 1 ��.�� f r �� ,_ 164 Management Policies in Local Government Finance on what is purchased rather than on the role of governmental actions in achievigg; r oa s. Program elements are not coordmatea, evaivanon oaives is couraged, and the budget estimates submitted to the chief administrator do not contain information on intersector efficiency or intraprogram efficiency. There is ?: no incentive for such analysis because the chief administrator's budget allocations,. are not based on determinations of the most efficient alternatives Since, in a strict°' line -item approach, budget units do not provide 1 orma ion on what is to be ac- complished with the requested expenditures, the chief administrator and the gov- , erning body cannot a whether a s ce ' eing provided effectively ven efficient y. The chief administrator has no criteria for eva uatmg mg re-,: quests, because he or she does not know what is to be lost or gained by increasing.':.' or decreasing expenditures. Thus, efficient trade-offs among services are impossi- ble; the chief administrator must make subjective judgments on service effective-.: ness and arbitrarily cut spending on particular objects. The line -item approach as- T sumes that the chief administrator has greater expertise on service issues than the budget unit managers. Performance budgeting Iv The major impetus for performance budgeting originated in the late 1940s, with 4 the Hoover Commission Report on federal government budgeting. Performance _ \ budgeting was viewed as a mechanism to improve the management of service,,,"., delivery, with cost efficiency being the principal indicator of managerial effective- ness.;' This orientation required that a program budget format (entailing a slightly different terminology) be adapted to the existing organizational structure (see Fig- ure 6-7). Under a performance budget approach,governnent activities are divided .into major function Park of whtrh P— �n a��es a number of programs that further 9 o Programs, in turn, are made up of a number of activities, each of which is undertaken by a separate performance unit. A unit may be an entire department, a division, or a work group; and any one unit may be responsible for more than one activity. Each activity must yield an identifiable output, etimesref_ erred to as v ,The initiative in budget preparation lies with the performance unit. Output (or end product) measures are developed for each activity of a performance unit. A performance unit manager considers different mixes of objects of expenditure en- tailing different costs (expenses),and different levels of output; he or she selects the alternative that yields the lowest unit cost. To obtain a budget estimate for the service activity of the performance unit, the performance unit manager estimates the number of required units of output and multiplies it by the chosen unit cost fi ure . with budget estimates, the performance unit manager submits a nar- ative statement that (1) describes how each activity pertains to the unit's service esponsibilities and goals, (2) outlines the tasks to be performed in carrying out each activity, (3) demonstrates how the appropriations will facilitate each activity, and (4) sets forth a workload plan that specifies guideposts for output units to be accomplished during the budget year and that schedules the type and amount of work to be undertaken to reach the guideposts. `ince budget estimates are based on unit cost, management, administration, and other overhead should be distributed among the various activities undertaken by the performance unit. This cost allocation ensures that spending authorizations for each activity.will cover the entire costs of the performance unit's operations. In addition, pre -auditing by the budget office should be limited to checking allotment or appropriation balances and should not include evaluation of the suitability of encumbrances. This restraint on executive oversight allows performance unit man- agers to exercise discretion in conducting activities and gives them primary re- sponsibility for service provision. Managerial accountability can be reinforced by a performance reporting system, which is maintained by the budget office. The Budgeting 165 budget office can .monitor the activities of a performance unit by collecting data on outputs and comparing these data with the guideposts in the performance plan. Monthly reports enable performance unit managers to make adjustments in the timing, quantity, or mix of inputs to keep the performance unit on track in relation to the guideposts. Finally, managerial accountability can be fostered through per- formance audits. performance budgeting has several weaknesses.. First, as explained. previously, unit cost measures are not always meaningful indicators .of progress toward goals. Secondthe separate activities assigned to performance units may not include all the orga izational actions that contribute to a particular` output. Because a program format i superimposed on the existing organizational, structure, cost centers may \� not torr spond to responsibility centers. As a result; total costs may not be compiled accurate y and unit cost can become a misleading indicator of cost efficiency - Third, \n since be a not measured, there are no indicators of intersector efficiency. terprogram efficiency cannot be established because unit cost does not indicate a net value yielded by each program. ally, because funding requests each ctivity consist of only a single estimate=based on lowest unit cost— for v performa ce budgeting does not facilitate interprogram efficiency: a chief admin- `� istrator who needs to decide how to distribute available funding among competing x=: F activities cannot make that decision on the basis of the net benefits that would be gained or lost. Program budgeting The most elaborate form of program budgeting was Planning, Programming, and Budgeting Systems (PPBS), which was initiated by the federal government in the early 1960s.33 Many state and local governments have adopted scaled-down vari- ations of PPBS. Thiprogram budgeting process is more centralized than other ante at the nreparation phase pn the asis of the goals, a program structure is designed—as illustrated in Figure 6- to prescribe how the goals will be achieved organizationally. Under a program forat, all alternatives that could con- tribute to the achievement of, goals. are systemmatically examined. The intent is to reexamine past programmatic commitments to determine whether resources should be reallocated to new programs. The alternative with the greatest net benefits for kX a given cost becomes the basis of the program's budget request. ✓✓,� is within (l Analysisand evaluation of alternatives �� inducted by the�udgeiurni� the context of lon -ran a lan Consequently, multiyear plans are prepared along wit the budget estimates. These plans describe how resources will be used to meet specified targets over the life of the program. For each program element the chief administrator receives one funding request. Funding is awarded according to the greatest net benefits—or if benefits cannot be calcu ated, the greatest ams in the achievement of objectives. In the same time period that the chief aaminis- tra or ma cgs n mg choices, he or she also reviews revenue and expenditure fore- casts for three to five years to identify potential resources and the demands on them—so that future revenue needs can.be determined. When funding requests for program alternatives are submitted to the governing t body, the budget should be authorized through lump sum and continuing appro- priations for each program alternative so that programana e ve the exi ity [' L �`�� to mix ject's_-of ex Den iture—as ong as spending is compatible with long- ge i planning goals. Similarly, while appropriations must be allotted to be consistent with revenue flows, the chief administrator's allocations to program elements ror the appropriations. Equally important in should be lump sum in order to mir protecting program managers' discretion, pre -audit controls should be restricted to determining available unencumbered balances. Chief administrators can hold pro - 4. gram managers accountable for spending by,comparing the targets in the pro - ,ti 166 Management Policies in Local Government Finance gram's multiyear plan with actual achievement of objectives and (2) undertaking program results audits to assess program effectiveness. Using their multiyear plans, managers can adjust program actions when changes occur that affect targets or workload requirements. A program bu et creates several difficulties. Fir , goals are difficult to define an ormu ate. econ a s are sub c c ange, and program structure must be changed concomitantl . it ,form oals, it is impossible to obtain objective measures of benefits an jective . urth, systematic evaluati f alternatives is subject to human limitations and d cost constraints. fifth while cost - benefit analysis of program alternatives can enable the chief administrator to de- termine intersector and intraprogram efficiency, he or she lacks adequate infor- mation to improve interprogram efficiency: a single budget request does not provide a basis for reducing or expanding a program in accordance with the overall size of the budget. I Zero -base budgeting L �\ J Zero -base budgeting (ZBB) originated in the private sector and gained popularity with the advent of the Carter administration in 1972.34 The ZBB approach arose from concern about the cost.efficienc 7 of government services. Under ZBB, outputs `o are the basis for assessing the usefulness an activity, and budget preparation and approval are focused on the effect of increments in financing. These alternative finding -levels -are used t. � snt-p ' ^ng activities. __ The first step of ZBB is to establish decision units: these are organizational subunits with a designated manager who has responsibility and authority over spe- cific sets of activities. Unlike other approaches to budgeting, ZBB is not identified with a particular budget format. If a program format were adopted, decision units would be the program elements. Most commonly, however, under ZBB, decision units are simply grafted onto the existing objects -of -expenditure format: a depart- ment or division can thus encompass more than one decision unit. In the second step of ZBB, decision units prepare a number of decision packages—one for each alternative funding level. The package identifies the mis- sion and goal of the unit, outlines different ways to deliver the services, and de- scribes the benefits of each alternative. Generally, the decision unit manauer selects - . the option_that provides tht-g eatestgain in nutnuts. In most cases, packages have three different funding levels—most commonly, the, minimum, current, and im - prs—and are stated in terms of percentages above and below current - oved level year tunding (e.g., 90 percent, 100 percent, and 110 percent). The minimum level is the amount of funding needed to keep the activities viable. %ecause the precise funding level required for viability is so difficult to determine, however, in practice the minimum funding level is generally set at 80, 85, or 90 percent of current funding. When the current level of funding is specified by the E 1 decision unit, it requests 100 percent of its last year's expenditures. Finally, an f improved level of funding could be obtained if decision units were permitted or required to submit requests for more than 100 percent of their previous year's 4 r spending. For example, if the improved level of funding were 110 percent, a de- cision unit that had received an appropriation of $4 million in the previous year ' could request a maximum of $4.4 million for the next fiscal year. j` The third step in ZBB is to rank the decision packages. First, higher-level man- agers rank the packages of the decision units under their authority; these ranked packages are ranked in turn by the chief administrator, who selects the packages j to be funded by starting with the highest -ranked package and continuing until the j expenditure total equals the maximum allowable spending for the budget. This total ry? =ttpudget—with its ranked packages—is then submitted to the governing body. j Several factors must be considered when ZBB is employed. First, the flexibility needed by managers of decision units to adapt to changes that affect cost and output Budgeting 167 levels requires lump sum appropriations and. allocations and executive pre -audits that are limited to checking unencumbered balances. Sec'ond,.without measurement of costs and benefits, the -chief administrator and governing body cannot judge intersector or interprogram efficiency. Third, without a program structure, *decision makers cannot conduct coherent analyses of alternatives. Fourth, since activities in several decision units may contribute to the same output, authority over services is diffused. Conclusion The line -item budget, the most popular approach to local government budgeting, is easier to prepare and implement than performance, program, or zero -base budg- ets. Although these other approaches have an advantage over the line -item budget—in that they shift the focus of public budgeting from financial control to goal attainment—they require at least in heir pure forms, large amounts of pa- perwork and adminisstr;1 , '. considerable supervisory tun , an bi accounting, information sis costs -This level of complexity and expense is unneces- sary for small local governm ts. Since the 1950s, however, many local govern- ments have implemented variations on performance, program, or zero -base budg- eting; others have incorporated into line -item budgeting some of the concepts embodied in the alternative approaches. Neither these adaptations, however, nor the ideal forms of performance, program, or zero -base budgeting integrate all the major elements required for pursuing the basic purpose of public budgeting: the efficient attainment of governmental goals: 's inte afion does occur with the rational budget m rib the chapter, which combines ma'or elements of ro ram bud etin ero-base budg- �etin�. owever, the rational budget model entails the same administrative costs and difficulties associated with other non -line -item approaches, and it also brings its own set of disadvantages—specifically, measurement obstacles and a lack of ade- quate information needed for analysis. As a consequence, the model must be ad- justed in practice, but those adjustments may impair one of its principal advantages: the determination of intersector, interprogram, and intraprogram efficiency. The rational budget model also necessitates various fiscal and accounting prac- tices to decentralize decision-making authority, moving it from the chief executive to the. program managers. As was noted earlier in the chapter, allowing program managers more discretion can improve goal attainment, but it requires the chief administrator and his or her financial staff to relinquish significant control. The chief administrator nevertheless continues to exercise long-term policy and fiscal control through a system of accountability: managers are held responsible for achieving the outcomes they have explicitly stated as the expected results of their programs. Although it has drawbacks—e.g., diminished financial control; signifi- cant costs associated with administration, analysis, and implementation—the ra- tional budget model is the most effective budgetary approach for realizing goals that reflect public preferences and values. Much of the 'discussion in this section is based on the following sources: Government Finance Officers Association of the United States and Canada (GFOA); Governmental Accounting, Auditing and Financial Reporting (Chicago: GFOA, 1988); Robert J. Freeman, Craig D. Shoulders, and Edward S. Lynn; Fund Accounting: Theory and Practice, 3d ed. (En- glewood Cliffs, NJ: Prentice -Hall, 5988); Leon E. Hay, Accounting for Governmental and Non -Profit Entities, 7th ed. (Homewood, IL: Richard D. Irwin, 1985). See also John L. Mikesell; Fiscal Administra- tion: Analysis and Applications for the Public Sector, 4th ed. (Belmont, CA: Wadsworth Publishing, 1995); Leo Herbert et,al., GovernmentAccounting:and Con- trol (Pacific Grove, CA; Brooks/Cole Publishing Co., 1984), part 1; Alan Walter Steiss, Financial Man- agement in Public Organizations (Pacific Grove, CA: Brooks/Cole Publishing Co., 1989), ch. 2; and Robert Lamb et al., The Handbook of Municipal Bonds and Public Finance (New York: New York Institute of Finance, 1993), part 3. The authoritative source on these matters is GFOA, Governmental Accounting, often referred to as GAAFR. GFOA, GAAFR, 11. Government Accounting Standards Zoard_(GASB), IN1TRODUCTION TO PUBLIC SECTOR BUDGETING, I. WTIAT IS A BUDGET? A: Textbook definition: a,mechanism to allocate resources for the pursuit of goals that are consistent with community. preferences and needs. B.. Components of a budget 1.. determines how resources are allocated over a fixed period 'of time 2. provides citizens the quality and quantity of desired services C. Types of budgets 1. operating budget — plans annual recurring/non-recurring expenses (one fiscal year, focus of discussion) 2. capital budget -- plans long term, capital expenditures (usually five years) II. BUDGET TERMS Fiscal Year — the length of the 12 month budget year, for most local and state governments it begins July 1 and ends June 30; for the Federal Government it begins October 1 and ends September 30. Appropriation — the autliority to spend money, given by governing body (e.g., City Council, Board of Supervisors, Legislature). This does not always mean that the money is available to spend. General Fund — the primary fund of the City used to account for all unrestricted revenues and expenditures of the City. Examples of departments financed by the General Fund include the City Council, Police, and Fire Departments. Special Revenue Funds — this fund type collects revenues that are restricted by the City, State, or Federal Government. Examples include Transportation funds, CDBG fiords. Proprietary Proprietary Funds — two types, enterprise and internal service funds. Activities of these funds are analogous to private commercial operations. Examples of enterprise funds: Sewer, Refuse, Golf Course operations. Examples of internal service funds: motor pool, equipment replacement. Both funds are supported by user fees. J. - Budgeting, page 2 III. BUDGET CYCLE A. Preparation, when the budget units and the chief administrator estimate their resources and expenditures (focus of tonight's discussion). B: Adoption, when the chief administrator's budget estimates' are submitted to the governing board for approval. C. Implementation, when the adopted budget is executed during the fiscal year. D. Evaluation, when the implementation is assessed. IV. SAMPLE BUDGET CALENDAR FY 1.998-99 (starts July 1, 1998, ends June 30, 1999) Preparation of FY 1998-99 Budget December 1997 - April 1998' Adoption of FY 1998-99 Budget May 1998 - June 1998 Implementation of FY 1998-99 Budget July 1998 - June 1999 Evaluation of FY 1998-99 Budget Mid -year evaluation -- January 1999 - February 1999 Post -year evaluation — July 1999 - Aub�ust 1999 V. BUDGET PREPARATION A. Revenue estimates B. Appropriations estimates C. Fund balances VI. REVENUE ESTIMATES A. Revenue estimates for governmental funds (includes General Fund and Special Revenue Funds) 1. Examine revenue sources (refer to revenue section in Burbank budget) 2. Examineimpacts of recent and pending legislation on revenue sources (examples) Budgeting. page 3. Determine what fees and taxes need to be adjusted (for CPI, PPI) 4. Estimate revenues from current data 5. Shortfall. or Surplus? [This drives how appropriations are approached] B. Revenue estimates for proprietary funds 1. Determine changes in environment that may impact revenues (e.g., large business leaving the area, moving into the area). 2. Examine what fees/charges need to adjusted VII. APPROPRIATION ESTIMATES A. Types of Budgets 1. line item (traditional) 2. program — what do we want to accomplish? 3. performance -- what we will accomplish? B. Identify One -Time Appropriations and Recurring Appropriations 1. One time — capital outlay, capital improvements, program of limited scope '2. Recurring — salaries and benefits for permanent staff C. Surplus 1. Estimate neat year's appropriations using current year data (refer to Burbank budget). 2. Determine additional expenses and savings anticipated for the fiscal, year. 3. Determine the City's funding priorities and create a plan to meet those priorities. D. Shortfall 1. Determine appropriate areas to cut expenses a. Example: if crime is rising, it would not be wise to cut law enforcement. 2. Prepare. a clear and concise plan to meet the shortfall. VIII. FUND BALANCES A. Beginning fund balances 1. Positive or negative? B. Ending fund balances 1. Positive or negative? 2. Impact of one-time vs. recurring expenditures IX. Budget Impacts A. Inflation 1. impact on wages J 2. impact on supplies Budgeting. page 4 B. Materials & Services ' C. Liability & Worker's Compensation Insurance L. number of current claims 2. estimate of future. claims D. Retirement Costs 1. safety personnel 2. non -safety personnel E. Funding Reserves ; I. recalculate reserves based on budget X. ADOPTION A. Presentation of proposed budget to the governing board 1. Presentation of main policy issues 2. Presentation of department budgets 3. Receive public input (refer to chart) B. Incorporate governing board's adjustment into proposed budget C. Governing Board adopts budget XI. BUDGET EXERCISE Revi", the Appropriation Summary and the Projected Change in Financial Position summary and analyze the state of the funds listed: Which funds look healthy and which funds look unhealthy? (ignore the Proprietary Funds) Consider all of the components discussed (revenue estimates, appropriation estimates, fund balances) when analyzing the funds. Budget Calendar for FY 1998-99 Preparation Adoption Implementation Mid -Year Evaluation Post -Year Evaluation .10/1/97 1/1/98 4/1/98 7/1/98 10/1/98 1/1/99 4/1/99 7/1/99 10/1/99 INDIRECT Citizens Special Interest Groups Employee Unions Business BUDGET DECISION MAKERS DIRECT Governing Board (City Council) Chief Administrator (City Manager) Management Staff r: / $2461102,613 \ Proprietary, Special Revenue,. Redevelopment Agency, Housing Authority, and Parking Authority Funds Utility Users Taxes S13,242,510 Source of Funds' FY 1997-98 Total Resources $333,064,230 roperty Taxes 513,476,500 Sales Taxes $16,388,625 :70 Service Charges - 0°0 . Assessments o --5212,500 14.1% 3.1% --S1,4F,074 4.1% Contrib'from Other Funds —-'s1,7o2,soo 5-3% Fines, Forfeitures • 52,736,975' $12,269,129 12.5% 6.7% Licenses & Permits Service Charges - Intra City $4,111,072 Interest/Use of Money 54,600,253 Intergovemmental Revenues 510,904,406 S5,650,079 Other Local Taxes Service Charges (vote: Sources represent the total sources available to each fund, such as taxes, Tees, charges; sales, interest, use of fund balance (from bonds, depreciation, and retained earnings). SUM -3 Use. of Funds FY 1997-98 $242,679,809 Proprietary, Special Revenue Redevelopment Agency, Housing Authority, and Total Appropriations = $327,008,500 Parking Authority Funds $84,3281691 General Fund Police $24,941,867 Fire ' - S15.fi12,297 29.6% 1B.5% 2:3°io 12.9% 2.7% 4.3°�0 --51,978,635 _ Other r 4.8% $2,307,086 510,917.,093 Finance Park & Recreation 12.296 6.2% 6.4%, \ 53,655,622 General Administration' 54,007,373 Library 510,258,706 55,251,s95 Public Works Management Services 55,395,217 _ Community Development General Admin includes— City Council, City Manager, City Clerk, City Treasurer, and City Attorney. Other includes BUSD assistance, the Capital Projects Office, and Non -Departmental. SUM -4 TOTAL PROPRIETARY !FUNDS S 25,746,970 $126,477,257 S 5,143,787 S 32,231,114 S REDEVELOPMENT AGENCY FUNDS 101 GOLDEN STATE CAP PROJECTS 102 CITY CENTREE - CAP PROJECTS 103 WEST OLIVE - CAP PROJECTS 105 S SAN FERNANDO - CAP PROJECTS 111 LOW '& MODERATE INCOME HOUSING 181 GOLDEN STATE - DEBT SERVICE 182 CITY CENTRE - DEBT SERVICE 183 WEST OLIVE_ - DEBT SERVICE TOTAL REDEV. AGENCY FUNDS 0 $189,599,128 S 614,863 5 1,612,518 S CITY OF BURBANK . 1,582,251 S 4,132,782 97,908 843,736 0., APPROPRIATION D SUMMARY 37,096 219,310 0 0 0 -256,406 (ALL FUNDS) 173,500 0 D 0 282,251 291,336 FY 1997-98 -2,500,000. 1,190,000 0, 6,532,975 0 SALARIES MATERIALS 0 1,926,900 9,951,225 0 4,814,720 0 AND AND CAPITAL CAPITAL OPERATING TOTAL FUND 750-000 BENEFITS SUPPLIES OUTLAY IMPROVEMENT TRANSFERS 1997-98 NO. TITLE PARKING RUTH - DEBT SERVICE D 242.394 0 0 D 242.394 CITY GOVERNMENTAL FUNDS TOTAL PARKING AUTHORITY S 0 S 5.18,412 S 60,000 'S 0 01 GENERAL FUND S 64,749,528' S 18,293,129 S 126,034 S - 0 S 1,160,000 S 84,328,691 04 PROP A - TRANSPORTATION 0 1,539,722 D 75,DOO 0 1,614,722 05 PROP C - TRANSPORTATION 0 843,045 D 60,000 0 903,045 06 AQMD FEES - TRANSPORTATION 0 110,783 0 0 0 0 0 D 848,205 110,783 848,205 12 CAPITAL OUTLAY D 586,010 20, ODD 0' 0 0 606,D1D 21 22 OPERATING GRANTS HDUSNG/COMM DEV GRANTS (CDBG) 0 1,61.2,074 0, 0 0 1,612,074 24 DRUG ASSET FORFEITURE 0 0 0 0 3,285 -U 0 1,424,145 0 1,011,063 3,285 2,435,208 25 27 STATE GAS TAX PUBLIC IMP CDEV IMPACT FEES) 0 9,462 924,167 0 933,629 28 HOME PROGRAM (HUD) D 145,000 435,000 0 0 580,ODO 29 STREET LIGHTING 0 1,040,000 160,000: 0 0 1,200,,000 70 PUBLIC IMPROVEMENTS 0 0 0, 385,DOD 1,061,502 1,446,502 112 YOUTH ENDOWMENT SERVICES (YES) 0 75.030 _0 '25-000 0 100.030 TOTAL CITY GOVERNMENTAL S 65,335,538 S 23,688,245 S 724,319 S 2,893,312 S 4,080,770 S'96,722,184 PROPRIETARY FUNDS 30 GENERAL LIABILITY INSURANCE 5 0 S 2,520,867 S 0, S 0 5 0 S 2,520,867 31 WORKERS COMP INSURNCE 0 2,378,166 0. 0 0 2,378,166 32 VEHICLE EQUIPMENT REPLACEMNT 1,331,429 2,829,873 2,673,344 0 0 6,834,646 33 OFFICE EQUIPMENT REPLACEMENT 0 705,057 981,448 0 0 1,686,505 34 MUNICIPAL BLDG. REPLACEMENT 0 490,834 0 2,730,950 0 3,221,784 35 COMM EQUIP REPLACEMENT 562,062 1,052,278 552,000- 0 0 2,166,340 94 WATER RECLAMATION & SEWER 640,357 10,193,644 222,000 18,247,214 0 29,303,215 95 GOLF 0 1,505,019 0 989,150 0 2,494,169 96 PUBLIC SERV DEPT (ELEC & WATP,) 20,696,896 97,942,243 714,995 8,160,300. 0 127,514,434 98 REFUSE COLLECTION & DISPOSAL 2.516.226 6.859.276 0 2.103.500 0 11.479,002 TOTAL PROPRIETARY !FUNDS S 25,746,970 $126,477,257 S 5,143,787 S 32,231,114 S REDEVELOPMENT AGENCY FUNDS 101 GOLDEN STATE CAP PROJECTS 102 CITY CENTREE - CAP PROJECTS 103 WEST OLIVE - CAP PROJECTS 105 S SAN FERNANDO - CAP PROJECTS 111 LOW '& MODERATE INCOME HOUSING 181 GOLDEN STATE - DEBT SERVICE 182 CITY CENTRE - DEBT SERVICE 183 WEST OLIVE_ - DEBT SERVICE TOTAL REDEV. AGENCY FUNDS 0 $189,599,128 S 614,863 5 1,612,518 S 1,35D S 321,800 S 1,582,251 S 4,132,782 97,908 843,736 0., 0 D 941,644 37,096 219,310 0 0 0 -256,406 108,751 173,500 0 D 0 282,251 291,336 2;551,639 -2,500,000. 1,190,000 0, 6,532,975 0 8,024,325 0 0 1,926,900 9,951,225 0 4,814,720 0 0 983,700 5,798,420 0 4.226.668 0' 0 750-000 4.976,668 S 1,149,954 S 22,466,416 S 2,501,350, S 1,511,800 S 5,242,851 S 32,872,371 SUM -7 HOUSING AUTHORITY FUNDS 201 SECTION 8- CERTIFICATES 5- 0 S 4,740,001 S 0 S 0 S 0 S 4,7401001 203 HOUSING VOUCHERS 0 2.496,404 0 0 0 2,496.404 TOTAL HOUSING AUTHORITY S 0 S 7,236,405 S 0 S 0 S 0 S 7,236,405 PARKING AUTHORITY 301 PARKING AUT.H - CAP PROJECTS S 0 S 276,018 S 60,DOO S 0 S 0 S 336,018 386 PARKING RUTH - DEBT SERVICE D 242.394 0 0 D 242.394 TOTAL PARKING AUTHORITY S 0 S 5.18,412 S 60,000 'S 0 S 0 S 578,412 TOTAL APPROPRIATIONS S 92.232.462 S18Q-386.735 S 8.429;456 S 36.636.226 S 9.323.621 5327.008.500 SUM -7 CITY OF BURBANK PROJECTED CHANGE IN FINANCIAL POSITION Government Funds FY 1997-98 FUND N0. TITLE CITY GOVERNMENTAL FUNDS 01 GENERAL FUND D4 PROP A - TRANSPORTATION 05 PROP C - TRANSPORTATION 06 TRANSPORTATION.(AOMD) 12 CAPITAL DUTLAY- 21 OPERATING GRANTS 22 HOUSING & COMM DEV.GRANTS (CDBG) 24 DRUG ASSET FORFEITURE 25 STATE GAS TAX 27 PUBLIC IMP (DEV IMPACT FEES) 28 HOME PROGRAM - (HUD) 29 STREET LIGHTING 70 GENERAL,CITY CAPITAL PROJECTS 112 YOUTH ENDOWMENT SERVICES (YES) TOTAL CITY GOVERNMENTAL FUNDS ESTIMATED AVAILABLE APPROPRIATIONS FUND BAL ESTIMATED USE OF FROM 6-30-97 REVENUES FUND-BAL REVENUES TOTAL S 5,384,ODD S.B6,961,617 S D 3,388,006 -1,490,DOD 1,220,9B6 12,000 11D,783• 193,DDD 862,559 306,010 30D,DDD 1DD,301 1,511,773 3,285 0 604,00D 2,792,748 1,483,000 1,873,859 0 580,DD0 229,00D 1,258,988 0 1,685',000 347.000 113.D00 S 10,151,596, S102,659,319 S ESTIMATED AVAILABLE FUND BAL 6-3D-98 0 'S 84,328,691 S 84,328,691 S 8,016,926 D 1,614,722 1,614,722 1,773,284 D 903,045 903,045 1,807,941, 0 11D,783 110,783 12,000 0 848,205 648,205 207,354 306,010 300,DOD 606,010 0 1D0,301 1,511,773 1,612,074 0 3,285 0 3,285 0 0 2,435,2DB 2,435,208 961,54D D 933,629 933,629 2,423,230 D 58D,DDD 5BD,D00 0 0 1,2DD,DDD 1,20D,D0D 287,988 0 1,446,502 1,446,502 238,498 0 100.030 100.D3D 359:470 182 CITY CENTRE - DEBT SERVICE 1, 5,080,000 409,596 S 96,312,588 S 96,722,184 S 16,D88,731 TOTAL REDEV. AGENCY FUNDS S 31,499,169 S 25,,749,644 S 7,437,80,1 S 25,434,570 S 32,872,371 S 24,376,442 HOUSING AUTHORITY FUNDS 2D1 SECTION 8 - CERTIFI'CATES- S 2,3BS,ODO S 4,795,000 S 0 S, 4,740,DD1 S 4,740,001 S 2,442,999 202 AFFORDABLE HOUSING Z2,000 25,OOD 0: D 0 47,DOD 203 HOUSING VOUCHERS 256.00D 2.500,000 0 2'.496.404 2.496.404 259.596 TOTAL HOUSING AUTHORITY FUNDS S 2,666,000 5 7,320,000 'S 0 $ 7;236,405 S 7,236,405 S 2,749,595 - PARKING AUTHORITY 301 PARKING AUTH - CAPITAL PROJECTS 5 336 PARKING AUTH :-.D=-BT SERVICE TOTAL PARKING AUTHORITY S TOTAL GOVERNMENT FUNDS 117,000 S 230,313 $ 250.000 260.500 s`- 367,000 S 490,813 S 105,705 S REDEVELOPMENT AGENCY FUNDS 336,018 S 11,295 0 242.394 242-394268,106 101 GOLDEN STATE CAPITAL PROJECTS S 232,169 S 3,900,613 S 232,169 S 3,,900,613 S 4,132,782 S 0 102 CITY CENTRE - CAPITAL PROJECTS 3,245,DDD 327,700 613,944 327,700 941,644 2,631,056 103 WEST OLJVE CAPITAL PROJECTS 372,000 571,480 0 256,406 256,406 687,074 105 S SAN FERNANDO - CAPITAL PROJECTS D 282,251 0 282,251 282,251 0 111 LOW & MODERATE'INCOME HOUSING 8,98D,OOD, 4,367,60D 2,165,375 4,367,600 6,532,975 6,814,625 181 GOLDEN STATE - DEBT SERVICE 14,218,000 7,390,000 2,561,225 7,390,000 9,951,225 . 11,656,775 182 CITY CENTRE - DEBT SERVICE 3,114,000 5,080,000 718,420 5,080,00D 5,798,420 2,395,580 i83 WEST OLIVE DEBT SERVICE 1,338.000 3.830.000 1.146.668 3.830,000 4,976,668 191.332 TOTAL REDEV. AGENCY FUNDS S 31,499,169 S 25,,749,644 S 7,437,80,1 S 25,434,570 S 32,872,371 S 24,376,442 HOUSING AUTHORITY FUNDS 2D1 SECTION 8 - CERTIFI'CATES- S 2,3BS,ODO S 4,795,000 S 0 S, 4,740,DD1 S 4,740,001 S 2,442,999 202 AFFORDABLE HOUSING Z2,000 25,OOD 0: D 0 47,DOD 203 HOUSING VOUCHERS 256.00D 2.500,000 0 2'.496.404 2.496.404 259.596 TOTAL HOUSING AUTHORITY FUNDS S 2,666,000 5 7,320,000 'S 0 $ 7;236,405 S 7,236,405 S 2,749,595 - PARKING AUTHORITY 301 PARKING AUTH - CAPITAL PROJECTS 5 336 PARKING AUTH :-.D=-BT SERVICE TOTAL PARKING AUTHORITY S TOTAL GOVERNMENT FUNDS 117,000 S 230,313 $ 250.000 260.500 s`- 367,000 S 490,813 S 105,705 S 230,313 S 336,018 S 11,295 0 242.394 242-394268,106 105,705 'S 472,707 S 578,412 S 279,401 S 44.683.765 5136.219.776 S 7.953.102 5129,456.270 5137,409,372 S 43.494.169 suns -6 .. rr REVENUE VARIANCE DECEMBER 31, 2002 �; DEPAR�TMEN�' n V�RIAI CE " k` EIEC !LANA�'I'0 � y k.,'" RPTT $102,029 Still receiving tax at rate of $1.10/$1,000 assessed value. Budgeted at correct rate of $.55/$1,000. TOT $52,986 Occupancy for 1 Qtr is usually higher than other times of the year; however, TOT revenue is still 14% less than the year 2000. Sales Tax ($353,671) Revenue is about 7% less than last year at this time ($1661). Costco revenue will not post until December. Investment $1,676 Average Yield dropped from 5.5% in Oct Earnings 2001 to 3.8% in Sept 2002 even though idle cash grew b $2.5M. Golf Course Rent ($66,667) Prior year loss of $100,000 being deducted from 2002-03 revenue pera eement Motor Vehicle Fee $116,638 Governor proposed cut of $814K for FY 2002-03 and $1.7M for 2003-04. SB 90 Mandated ($37,500) State budgeted froze all SB 90 claims. They Costs will be paid at $1,000 per claim and balance is deferred. Engineering Fees $80,254 Plan Check Fees, not budgeted. Sports Center $17,105 Timing of revenue recognition. Performing Arts Ctr $90,942 Reader Board Sign projection $150,000 Recreation Grants $15,000 H Pool Replaster. Reimbursement filed? CITY OF ROHNERT PARK.- DECEMBER 31., 2002 REVENUE REPORT ' $FAV (=AV) { 2002-03 12/31/2002 50% OF 50% OF 50% or REVENUES BUDGET BALANCE BUDGET BUDGET BUDGET Property 'Taxes Property Taxes -Secured $2,020,000 $456,727 22.61% 565,600 ($108,873) Property Taxes -Unsecured 135,000 129,414 95.86% 37,800 91,614 H.O.P.T.R. 50,000 0 0.00% 0 0 ' Total Property Taxes . $2,205,000 $586,141 26.58% $603,400 ($17,259) Other Taxes Real.Property Transfer. Tax $120,000 $162,029. 135.02%' $60,1000 $102,029 Transient Occupancy Tax 1,350,000 727,986 53.92% 675,000 52,986 Sales and Use Tax 6,350,000 2,828,146 44.54% 3,175,000 (346,854) Franchises P.G..& E!. 300,000 150,167 50.06% 150,000 167 - Century Cable TV 275,000 132,2'69 48.10% 137,500 (5,231) Refuse Franchise Fee 355,215' 203,752 57.36% 177,608 26,1.44 Total Other Taxes $8,75.0,215 $4,204,348 48.05% $4,375,108 ($170,759) Licenses and Permits Business Licenses $485,000 $253,792 52.33% 242,500 $11,292 Animal Licenses 55,000 21,607 39.29% $27,500 (5,893) Building Permits 225,000 128,944 57.31% 112,500 16,444 ' Plan Check Fees 80,000 67,94.4 8.4.93% 40,000 27,944 Total License & Permits $845,000 $472,287 55.89% $422,500 $49,787 Fines, Forfeits & Penalties Vehicle Code Fines $100,000 $48,858 48.86% $50,000 S° ($1,142) Parking Fines 70,.000 34,971 49.96% 35,000 (29) Impound Fees 20,000 6,890 34.45% 10,000 (3,110) Other Court .Fines_ 15,OOQ 3,678 24..52% 7,500 (3,82.2) Total Fines, Forfeits & Pen. $205,000 $.94,397 46.05% $102,500 ($8,103) Revenue Fr Use Of Money Prop. Investment Earnings $1,200,000 $6.01,676 50.14%, $600,000 $11"676 CITY OF ROHNERT PARK - DECEMBER 31, 2002 REVENUE REPORT REVENUES. 2002-03 BUDGET - 12/31/2002 BALANCE 50% OF BUDGET 50% OF BUDGET $FAV(UNFAV) 50% OF BUDGET Rent -Golf Courses, 200,000 33,333 16.67% 100,000 (66,667) Rent-Stadium 15,000 13,071 87.14% ..7,500 5,571 Rent -Channel 22 Lot Rental 18,000 9,204 51.13%. 9,000 . 204 Rent -Billboard Land Lease 10,000 8,775 87.75% 5,000 3.,775 Rent -Land North of.Big 4/YMCA,etc 3,200 1,572 49.13% 1,600 (28) Lease -Main Station'Cell Towers 15,500 8,339 53.80% 7,750 589 CDC Land Lease(3 Buildings) 210,000 105,000 50.00% 105,000 0 Rent -Royal Coach Chevron 7,800 978 12.54% 3,900 (2,922) YMCA Building Lease 600 0 0.00% 300 (300) Rent-Alernative Educ. School 2,500 1,254 50.16% 1,250 4 Lease-Wine.Center 45,000 19,808 44.02% 22,500 (2,692) Lease -Wellness Center 98,000 40,847 41.68% 49,000 (8,153) Total Rev Use of Money &'Prop. ------------ $1,825,600 ----------= $843,857 ------- 46.22% ---------- .$912,800 ---------- ($68,943) Revenue from Other Agencies . State Motor Vehicle In Lieu $2,200,000 $1,216,638 55.30% $1,100,000 $11.6,638 Off Highway MV License Fee 1,000 441 44.10% 500 . (59) Public Safety Aug Fund 19Q,000 98,313 51.74% 95,000 3,313 Grants -General Fund 150,000 74,971- 4998% -75,000 (29) Misc. Other Revenues 105,000 56,678, 53.98%. 52,500 4,178 P-.O.S.T. Reimbursements 45,000 14,091 31.31% 22,500 (8,409) SB 90 Mandated Costs 75,000. 0 0.00% 37,500 (37',500) Total Rev Other Agencies $2,766,000 $1,461,131 52.82% $1,383,000 $78,131 Charges for Current Services Zoning'& Subdivision Fees $28,000 $45,448 162.31% $14,000 $31,448 General Plan Maintenance Fee 40,000 18,340 45.85% 20.,.0'00 (1,660) Plan Review Fee (Fire) 20,00.0 0 0.00% 10,000 (10,000) Sale of Maps and Lists 1,300 754' 58.03% 650 104 Spec. Public Safety Svcs. 45,000 14,249 31.66% 22,500 (8,251) Fire Inspection Fee 50,000 •10,492 20.98% 25,000 (14,508) Vehicle Abatement Revenue 70,0'00 36,202 51.72% 35,000 1,202 Animal Shelter Fees 45,000 23,733 52.74$ 22,500 1,233 CITY OF ROHNERT PARK - DECEMBER 31, 2002 REVENUE REPORT 40.39% 186,665 $17,105 210,000 123,979 $FAV(UNFAV) 2002-03 12/31/2002 50% OF 50% OF 50% OF REVENUES BUDGET BALANCE BUDGET BUDGET BUDGET Engineering 10,000 $5,254 852.54% 5,000 80,254 Weed Abatement 2,00Q 0 0.0.0.% 1,000 (1,000) Sub -Total Chgs. For Curr Svc. $311,300 $234,473 75.32% -$155,.650 $78,823 'Recreation Related Income Sports Center Income Swimming Pools Special Contract Classes Teen Center R.P. Community Cntr Rentals Burton Ave Cntr Rentals Benecia.Youth Center Ladybug Rec Building Recreation Programs Senior Center Total Recreation Income Performing Arts Center Assess. District Admin Library Landscape Maint. School Grounds Maint. Recreation Grants Total Charges Current Svcs. Misc Income/Donations- Sale ncome/DonationsSale of Land/Buildings TOTAL GF REVENUES $504,500 $203,770 40.39% 186,665 $17,105 210,000 123,979 59.04% 119,700 4,279. 164,000 67,084 40.90% 67,240 (157) 600 2,080 346.65% 300 1,780 98,500 43,996 44.67% 50,235 (6,239) 21,000 9,214 43.8,8% 10,290 (1,076) 0 0 0.00% 0 0 . 1,000 166 16.63% 400 (234) 425,800 205,434 48.25% 229,932 (24,498) 55,175 29,297 53.10% 24,277 5,020 $1,480,515 $6.85,019 46.27% $689,.039 ($4,020) 655,300 $236,708 36.12% $327,650 ($90,942) 0 1,320 0.00% 0 1,320 1,600. 810 50.63% 800 10 136,500 66,924 49.03% 68,250 (1,326) 30,000 0 0.00% 15,000 (15,000) $2,615,275 $1,225,253 46.85% $1,256,389 ($31,136) $88,000 $63,741 72..43% $44,000 $19,741 $1,000,'000' 502,311 50.23% $500,000 $2,311 $20,300,090 xcxxxxxx---- $9,453,468 xxx=xxcsxxa 46-.57% -xxxxxa $9,599,697 xxx==xxxxx ($146,229) =xxxcxxx== TOTAL GF REVENUE W/O NON-RTN FAC MAINT AND SALE OF LAND/BUILDINGS. $19,270,0H $8,951,157 46.45% .$9,084,697 ($133,539) EXPENDITURE VARIANCE DECEMBER 31, 2002 01 Legal Services ($81,321) Penngrove Lawsuit ($102,000) Gen Govt -Non Dept ($168,858) Wetlands Mitigation ($ 95,100) Legal Expense $ 40,000) Retired Employees $15,031 Eye Care $ 14,182 Public Safety $52,551 Salary & Benefits $157,267 Overtime $104,716 Police Protection $69,282 Training $ 20,994 Supplies $ 27,723 Contractual Expense $ 31,658 Vehicles $ 47,463 PS Bldg — Main $44,021 Facility Maintenance $ 25,029 Telephone $ 18,783 Public Works ($61,430) Salaries & Benefits (offset in Dept. 4001 Traffic Signals $34,734 Signals Repairs Recreation Admin. $40,356 Rec. Manager Position Honeybee Pool ($44,752) Salaries & Benefits ($ 25,219) Replaster Pool $ 28,845 Teen Center ($1,869) PG&E $ 1,733 Benecia Youth Ctr $3,711 PG&Eand Bldg. Maint. Performing Arts Ctr ($16,718) Production ($ 15,386) Advertising ($ 9,166) Salaries/Benefits $ 13,199 CITY OF ROHNERT PARK -DECEMBER 31, 2002 EXPENDITURE REPORT $ FAV (UNFAV) CATEGORY/DEPARTMENT 2002-03 12/31/2002 OF 509d OF 5096 OF BUDGET BALANCE BUDGET BUDGET BUDGET GENERAL GOVERNMENT City Council $93,441' $32,887 35.20% $46,721 $13,833 City Manager, 524,330 263,976 50.35% 262,165 (1,811) Finance & Accounting' 1,003,714 478,224 47.65% 501,857 23,633 Data Processing 454,307 196,728 43.30% 227,154 30,425 Legal Services 169,014 174,822 103.44% 84,507 (90,315) Planning Dept. & Comm. 363,876 148,964 40.94% 181,938 32,974 Personnel 383,154 159,985 41.75% 191,577 31,592 Rent Appeals Board 56,142 19,065 33.96% 26,071 9,006 Administrative Support 99,358 48,389 48.70% 49,679 1,290 City Office Building 547,180 240,252 43.91% 2731590 33,338 City Office Annex 73,700 28,157 38.20% 36,850 8,693 General Gov't -Non Dept. 1,516,849 927,282 61.13% 758,425 (168,858) Retired Empl. Benefits 376,229 203,146 54.00%. 188,115 (15,0.31 ) .Non -Department Leases 909,597 454,798 50.00% 454,799 _ 0 TOTAL GENERAL GOV T ----------- $6;570,891 ----------- $3,376,676 ------ 51,39% ------------ $3,285,446 ------------ ($91,230) PUBLIC.SAFETY ----------- ----------- ------ ------------ ------------ Public Safety Personnel- $10,066,138 $4,9801518 49.48% $5,033,069 $52,551, Police Protection 766,985 $314,211 40.97% 383,493 69,282 Fire Protection 232,500 77,045 33.14% 116,250 .39,205 Animal Control 261,827 104,508 39'.92% 130,914 26,405 Animal Shelter 54,410 14,710 27.04% 27,205 12,495 Public Safety'Bldg-SW - 3,400 1,432 42.13% 1,700 268 Public Safety Bldg -Main 314,000 112, 97 9 35.98% 157,000 44,021 Public Safety Bldg -North 20,300 7,929 39.06% :10,150 2,221 Public Safety Bldg -South 9,100 3,789 41.64%, 4,550 761 Civil Defense/Haz Mat 31,550 912 2.89% 15,775 14,863 Youth & Family Services 336,103 144,451 42.98% 168,052 23,601 TOTAL PUBLIC SAFETY. $12,'096,313 $5,762,485 47.64%. $6,048,157. $285,671 CITY OF ROHNERT PARK -DECEMBER 31, 2002 EXPENDITURE REPORT $FAV (UNFAV) . CATEGORY/DEPARTMENT 2002-03 12/31/2002 96 OF 50$ OF 50% OF BUDGET: BALANCE. BUDGET BUDGET BUDGET PUBLIC WORKS City Engineer $419,818 $215,661 51.37% $209,909 ($5,752) Building Department 422,770 240,552 56.90% 211,385 (29,167) General 1,873,753 998,306 53.28% 936,877 (61,430) Maint. of Trees & Parkways 150,700 60,087 39.87% 75,350 15,263 Maintenance of Streets 99,600 28,979 .29.10% 49,800 20,821 Street Lighting 276,'600 92,515 33.45% 138,300 45,785 Traffic Signals 90,000 79,734 88.59%. .45,000 (34,734) Storm Drains & Drainage 200 0 0.00% 100 100 Weed Abatement 2,000 416 20.8'0%.. 1,000 584 TOTAL PUBLIC WORKS .$3,335,441 $1,716,252 51.46% $1,667,721 ($48:,531) PARKS AND RECREATION Park Maintenance General $719,474 $259,633 36.09% $359,737. $100,104 Alicia Park 30,700 11,363 37.01% 15,350 3,987 Benecia Park 33,500 14,079 42.03% 16,750 2,671 Caterpillar Park 6,200 2,314 37.33% 3,100 786 Colegio Park Area 17;400 6,138 35.28% 8,700 2,562, Dorotea Park 21,900- 7,323 -,33.44% 10,950 3,627- ,627=Eagle EaglePark 28,10D 11,722 41.72% 14,050 2,328 Golis Park 27;500 10,104 36.74% 13,750 3,646 Honeybee Park 22,400 7,973 35.59$ 11,200 3,227 Ladybug Park Area 16,000 6,398 39.99% 8,000 1,602 Sunrise Park 43,500 15,131 34.78% 21,750' 6,619 Magnolia Park 51,300 24,212 47.20% 25,650 1.,438 Roberts Lake Park 19,500 4,007 20.55% 9,,750 5,743 Rainbow Park 12,100 4,341 35.88% 6,050 1,709 Recreation Commission 975 893 91.55% 488 (405) Recreation Administration 544,042 215,343 39.58% 255,700 40,356 Contract Classes 90,500 46,333 51.20% 37,105 (9,2-28) Recreation Programs 366,084 238,657 65.19% 226,972 (11,684) Senior Citizen Center: 255,717 105,65.3 41.32% 120,187 14,534 Senior, Citizen Mini -Bus 5,000 847 16.93% .2,500 1,653 R.P. Community Stadium 20,700 12,422_ 60.01% 10,350 (2,072) Alicia Pool 47,8.00 36,148 75.62% 38,240 2,092 CITY OF ROHNERT PARK -DECEMBER 31, 2002 EXPENDITURE REPORT CATEGORY/DEPARTMENT 2002-03 BUDGET 12/31/2002. BALANCE OF BUDGET 50% OF BUDGET $FAV(UNFAV) 50% OF BUDGET Benecia Pool 41,,850 28,143 67.25% 28,040 (103)' Ladybug Pool 38,20.0. 24,589 64.37% 28,268 3,679 Honeybee Pool 127,200 121,072. 95.18% 76,320 (44,752) Magnolia Pool 49,800 26,.674 53.56% 33,366 6,692 Sports Center 408,830 186,121 45.53 188,062 1,940 Comm. -Center Complex Gr. 45,000 19,434 43.19% 22,500 3,066 Teen Center 3,000 3,369 112.30% 1,500 (1,869) R.P. Community Center 166,600 53,792 32.29% 59,976 6,184 Burton Avenue Rec. Center 33,550 12,049 35.91% 15,433 3•,384 Benecia Youth Center 0 .3,711 N/A 0 (3,711) Ladybug Recreation Bldg. 21,400 6,754 31.56% 10,700 3_;946 Scout Hut 900 339 37.63% - 693 354 Library 3,400 1,490 43.81% 1,700 210 School Grounds 108,900 41,150 37.79% 54,450 13,300 TOTAL•PARKS AND REC. $3,429,022 $1,569,721_ 45.78% $1,737,336 $167,614 OTHER Golf Course General- $0 $0 N/A -, $0 $0 Cultural'Arts 0 0 N/A - $0 $0 Performing Arts Center 781,749 407,592 52.14% 390,875 (16,718) Booking Fees/County 160,000 73,197 45.75% 80,000 6,803 Prop Tax,Admin Fee/County 50,000 12,500 25.00% 25,000 12,500 Sexual Assault Exams 15,000 6,777 45.18% 7,500 723 TOTAL OTHER $1,0061749 $500,066 49.67% $503,375 $3,309 TOTAL GF EXPENDITURES $26,438,416 ecssacssses $12,925,200 ssecscseassc 48.89% . ssasoc $13,242,033 sssssaassc $316,833 ssocsoc-secs I Communications 1 1 0 to: MID-YEAR BUDGET PRESENTATION FISCAL YEAR 2002-03 REVENUES 19.2 19.6 19.3 20.0 � o.o REVENUES CATEGORY 1% TAXES O LICENSES & PERMITS p FINES m INTERESTS & RENTS p REVENUE FROM OTHER AGENCIES ■ CHARGES FOR SERVICES MISCELLANEOUS MAJOR REVENUE SOURCES 0 SALES TAX 31% 0 PROPERTY TAX 12% 0 MOTOR VEHICLE 12% 0 TOT 7% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% SALES TAX DISTRIBUTION (Sales Tax is 7.59/6} STATE CITY COUNTY 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 ANNUAL SALES TAX REVENUE 1993-94 199495 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 (budget) r SALES TAX 7,000,000 6,100,0006,350,000 5,977,737 COSTCO $450,000 6,000,000 •, 5,000,000. i Christmas sales ' In March Allocation 4,000,000 3,175,,000 -3,000,000 ,E 21828,146 2,000,000 BUDGET' ACTUAL BUDGET BUDGET ACTUAL 2001-02 2001-02 2002-03 6 -MONTH 6 -MONTH 1,000,000. g� SNE BUDGET' ACTUAL BUDGET BUDGET ACTUAL 2001-02 2001-02 2002-03 6 -MONTH 6 -MONTH SALES TAX PER CAPITA FISCAL YEAR 2001-02 250 201 195 194 200- 16 159 140 150 114 80 100Y 69 50 t 0 °( TOP -TEN SALES, TAX. GENERATORS * Target * Home Depot * McPhail's * Yardbirds' • Walmart, Chevron Big 4 Rents W.W. Grainger I $0.43,. PROPERTY TAX DISTRIBUTION (Cents. Received Per $1 Property Tax Paid) ❑ CITY m COUNTY ❑ SCHOOLS PROPERTY TAX 14, 000, 000, 000 12, 000, 000, 000 10,000,000,000 8,000,000,000 6,000,000,000 4, 000, 000, 000 2,000,000,000 ASSESSED VALUE FISCAL YEAR 2002-03 12, 506,171, 325 5,370,936,905 ,e, 279 1,977,137,884 A 1 A5.6 47;157; 6� ' ,994,498 486,458,790 ° Oyu �� 5` �� J�� Q0 �` ��. �a�� '`Q `tea °�° �� aye° Go oS, �5eP Geo F- . 16,000,000 14, 000, 000 12,000,000 10,000,000 - 8,000 ,000 6,000aaa 4,000,000 2,000,000 PROPERTY TAX FISCAL YEAR.2001-02 13,400,209 4,631,819 2,293,882 2,207,496 863,713 768,663 692,599 411,559 305,028 5a a �`� ok a me 0� a'� IV e `J� e`�Qa `�a5 o�oc�` �� g,�oQ .pJ 60 dao Q 0 ys 5 cYO IV PROPERTY TAX GROWTH 1991-92 THROUGH 2001-02 3,000,000 ........ .:................................. ................ _...... _.:_.......... _..... _..... ..... _._._........ -.-_..... .... _.................... 2,282,000 2,293,882 2,150,800 2,072,920 2,000,000 1 912 700 2,043,200 1,813,000 ' - 1,953,000 1,861,600 1,776,000 Total ERAF 9% ERAF 15% ERAF Shift in Shift in Shift in 1993-94 ($300k)_ 2001-02 1,000,000 1992-93 $776K ($200K) One-time Revenue of $327K due to County Teeter Plan 0 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 TRANSIENT OCCUPANCY TAX [IL 675,000 _n BUDGET 6 -MONTH 12% TOT Rate Voter Approved And Effective January 1, 2003 727.986 ACTUAL 6 -MONTH 0% D ,- ., 0()-() ' [IL 675,000 _n BUDGET 6 -MONTH 12% TOT Rate Voter Approved And Effective January 1, 2003 727.986 ACTUAL 6 -MONTH BEST WESTERI 17% MOTEL 11% GOOD'N ITE INN 8% i HOTEL/MOTEL OPERATORS' . 11 PERCENT OF TOTAL TOT RAMADA LTD BUDGET INN 6O6. 3% DOUBLETREE 55% STATE MOTOR VEHICLE IN -LIEU FEE. 2,600,000 2,000,000 1,500,000 1,000,000 A8181K 2,379,893 2,100,000 2,200,000 Proposed cut of backfill � For 2002.-03 $815K 1,100,000 1,216,638 INVESTMENT EARNINGS INS Original budget Revised by $400K 1;600,000 1,400,000- ,400,000-1,400,000 1,40%000 , 123 9 7, 122003,000 Idle cash $2.5M higher 15200,000 Than previous year, but 11000,000 - Investment -yield 1.7% Lower. 800,000 600,000 601,676 600,000 400,000 r 200,000 EPA ' 0 BUDGET ACTUAL BUDGET BUDGET ACTUAL 2001-02 2001-02 2002-03 6 -MONTH . 6 -MONTH INS RECREATION INCOME 5% 24% 6% 22% o SPORTS CENTER E SWIMMING POOLS ❑ CONTRACT CLASSES ❑ COMMUNITY CENTER M REC PROGRAMS Ei SENIOR CENTER RECREATION IN -COME 1-1600 ,000 ' 4001000 sj= 17226166 pyo 112009000 11000 ,000Nmii x ...• -0 8005006005000 nP. 400000 200,000 ®r BUDGET ACTUAL 200 1-02 200 1-02 1,480,575 6891'039 6855019 BUDGET BUDGET ACTUAL 2002-03 6 -MONTH 6 -MONTH RECREATION SUBSIDIES FY'2001=02 Sports Recreation Comm Centers Senior Performing ; i Center Pools Programs Rentals CenterlVan Arts Center Revenues$371,715 $264,203 $2845776 I $67,588 $65,875 Tom^ $469,08 Expenditures 406,49 372,508 380,297 ' 133,040 225,585 830,758 ,,,,Profit/(Loss) Before ;Admin. allocation ($34,778) 4. ($108,305) ($95,521) ($65,452) 1 ($159,710) ($361,674) lAllocation of Rec_ � Adm inistration 56,622 771212 190,457 = 41,180 l 51,475 NIA City Subsidy After I - , Adm in. allocation ($91,400) ($185,517 ) $285,978 ( ) ($106 632) ($211 185 ) Z NOTE: Sports Center subsidy Includes one-time accounting Adjustment of $92,903 EXPENDITURES t. _ a . 30.0 -4 41 25.0-1Z.-` .1 2 12. i�' ti ,20.0- 15.0- 10.0 - A BUDGET ACTUAL 002-03 6 -MONTH 6 -MONTH Ai 00 BUDGET ACTUAL 2001-02 2001-02 2 BUDGET t. _ a . 26 4 -4 41 .1 2 12. ti A BUDGET ACTUAL 002-03 6 -MONTH 6 -MONTH 12.0 10.0 8.0 6.0 4.0 2.0 0.0 EXPENDITURES BY CATE 6.6 6.6 GORY FY 2001-02 RESULTS X11.1 f- Savings in Salary/Benefits By not being at full staff. $207K 4.1 4.0 BUDGET ®ACTUAL 0.2 0.2 GEN GOVT PUBLIC PUBLIC WORKS PARKS & REC OTHER SAFETY COST PER CAPITA OTHER PUBLIC WORKS PARKS & REC GEN GOVT PUBLIC SAFETY REGULAR EMPLOYEES PER 1,000 POPULATION' 12.00 10.00 8.00 6.00 4.00 2.00 0.00 10.17 1 6.71 5.98 Windsor RohnertPark Petaluma Cotati Sebastopol Cloverdale Santa Rosa Sonoma Healdsburg I 4 . I I 25.0 20.0 15.0 10.0 5:0 0.0- 1997 1998 1999 2000 2001 2002 2003 2004 2005 PERS RATES' -4-MISCELLANEOUS -0-PUBLIC SAFETY 13.1 12.9 $288K 11.5 10.4 8.6 7.9 7.0 7.9 7.2 _ $424K 6.5 oo� 2.2 $116K 0.0 0.0 0.0 0.0 1.4 1 % rate increase in PS = $57,700 1 % rate increase in MISC. = $83,200 i REVENUE & EXPENDITURES PER FISCAL YEAR 25 20 15 N O c 10 5 0 1997 1998 1999 - 2000 2001 2002 2003 budget a TOTAL REVENUES a TOTAL EXPENDITURES FINANCIAL HIGHLIGHTS FY 20'01=02 Sold land to COSTCO for $5.5M Sold four well sites: $480K Postponed construction of new City Hall -and sale of existing City Hall budgeted at $1.5M Created Endowment Reserve'and Capital Replacement Reserve with proceeds from COSTCO Hand sale. Balance at 6/30/02 was $3.2M and $785K i respectively. -Operating Revenue $340K favorable; Operating Expense $270K favorable. General Fund Cash Shortfall $450K balanced from Endowment Reserve. :4ZZ41M:ATIME:fII4I ITS Will 01=MCiOW411I t 6/30/02 ■ri s. r, ■ rs `°� �• 3 ■ ■ RESERVE BALANCES 12� 10 FY 2002-03 BUDGET GENERAL FUND CASH BALANCE 7/1/02 GENERAL FUND REVENUES Plus: Transfers from other funds Reserve Transfers TOTAL GENERAL FUND REVENUES GENERAL FUND EXPENDITURES Minus: Water/Sewer Fund Allocation Refuse Fund Allocation CDC- Fund Allocation RPHFA Allocation TOTAL GENERAL FUND EXPENDITURES GENERAL FUND CASH BALANCE 6/30/03 $ 0 $20,300,090 877,000 1,666,719 $221843,809 $26,438,416 (2,419,000) ( 197,607) ( 962,000) ( 16,000) $22,843,809 *Shortfall of $2.7M made up by $1.7M from Reserves and $1M from the sale of the library. 2003-04 FINANCIAL OUTLOOK FY 2002-03 SHORTFALL POTENTIAL REVENUES: Full Year of Costco Increase in TOT (I%) New Retail Stores, Golf Course Rent TOTAL REVENUES: POTENTIAL EXPENDITURES Salaries PERS Rate Increase CAD/RMS Annual Support MVLF Backfill Eliminated CAD/RMS Project Balance Infrastructure Maintenance Health Care Costs Two Eqpt. Leases Paid Off Wine Center Funding Ended TOTAL EXPENDITURES: $ 150,000 135,000 150,000 200,000 ($500,000) (400,000) (250,000) (1,700,000) (500,000) (200,000) (140,000) 322,000 60,000 ($2,700,000) $ 635,000 ($3,308,000) FY 2003-04 POTENTIAL SHORTFALL ($5,373,000) SURPLUS PROPERTIES ■ Stadium Lands * -Wine Center * Southwest Fire Station * City Hall ■ Wellness Center 0 Vision Teen Center ■ "D" Mini -.Park $6,000,000 $2,000,000 $ 900,000 $ 950,000 $5,000,000 $1,300,000 $ 175,000 BUDGET OPTIONS - * Reduce programs/services + Reduce workforce Reduce salary and benefits 0 Contract services Partner with other agencies Use reserves Sell surplus assets CITY OF ROHNERT PARK 6750 Commerce Boulevard *Rohnert Park, Ca.94928 Phone: (707) 588-2226•FAX: (707) 588-2263•WEB: www.rpcity.org OFFICE of the CITY MANAGERXITY CLERK Memo Letter TO: Honorable Mayor and Members of the City Council RE: Budget matters/Draft Financial Policies FROM: Steve Donley Acting City Manager DATE: January 17, 2003 Attached is some background information for the City Council to consider prior to discussion of the agenda item for the January 22, 2003 special meeting regarding financial policies. L' t f terials rovided� is oma Source Description - Title or Chapter 1. International City Management Association, Establishing Financial Policies: What, Why, and Practical Management Series, "Practical How Financial Management - New Techniques for Local Government" 2. "Recommended Practices for State and Local GFOA Recommended Practice - Adoption of Governments" - Approved by Government Financial Policies (2001) Finance Officers Association, May 2001 3. Budget User's Guide City Council Financial Policies 4. 2001 Government Finance Officers Practice 4.1 - Develop Policy on Stabilization Association "Best Practices in Public Funds Budgeting" 5. City of San Luis Obispo Budget and Fiscal Policies 6. City of Rohnert Park - Resol. No. 2001-159 A Resolution of the City Council of the City of Rohnert Park Adopting Financial Policies for City Reserves JH -h.012203 Financial Policies Memo 10 Practicai Financial Management New Techniques for Local Government Establishing Financial Policies: What, Why, and How W. Maureen Godsey What are financial policies? The financial performance of a city is difficult to assess. Unlike pri- vate entities, local governments have no "bottom line" profit figures by which they can measure their financial performance, nor are there any authoritative standards by which they can judge them- selves. In recent years, many public organizations have adopted dif- ferent types of management by objectives (MBO) systems as a means of measuring the performance of their programs and ser- vices. Under such systems, the governing board and management work together to set goals for the city as well as targets that allow officials to judge how well the goals are being met. Once these goals and targets are established, performance is. evaluated by comparing actual results with the targets. This article discusses how a local government can use long- range financial policies to establish similar types of goals and tar- gets for the financial operations so that the manager, council, and community can monitor how well the city is performing and keep informed on its financial condition. The following pages contain a brief discussion of the uses of financial policies and suggestions on how to establish them. Why set financial policies? Establishing financial policies has many benefits. One of the most important is that it can help local officials view their present ap- proach to financial management from an overall, long-range van - Reprinted with permission from Financial Performance Goals: A Guide for Setting Long -Range Policies, handbook 4 in Evaluating Local Government Financial Condi- tion (Washington, D.C.: International City Management Association, 1980). 28 Practical Financial Management Establishing Financial Policies 29 tage point. In most communities, 'policies already exist in budgets, in capital improvement plans, in the general or comprehensive plan, 6. Discussing the financial issues and adopting a formal posi- tion will help prepare for a financial emergency and thereby in a charter, in grant applications, in council resolutions, and in ad- avoid relying on short -run solutions that may be creating worse problems in the long run. ministrative practices. When financial policies are scattered among these kinds of documents, are unwritten, or are developed on a case- 7. Setting policy can improve the city's fiscal stability. It can by -case basis, it is likely that decisions will be made without consid- decisions, _ : help city officials look down the road, set tax_ rates and plan expenditures for a two- to three-year period, and create a eration of other current policy decisions, past policy or future policy alternatives. This kind of policy making can lead to: consistent planning approach. 8. Finally, having explicit policy contributes to a continuity in 1. Conflicting policies. The governing board may be making deci- handling the city's financial affairs. The manager and mem- sions that are in conflict with each other. F bership of the council may change over time, but policies can 2. Inconsistent policies. The governing board may be making cer- still guide whoever holds these positions. tain decisions and following certain policies on one issue, then reversing themselves on a similar issue. In summary, establishing explicit financial policy can in many 3. Incomplete policies. The governing board may not be making ways help both management and elected officials make financial de - any policy or reaching any decision on some aspect of finan- cisions. The extent to which these benefits can be enjoyed by a com- cial management. munity will depend on how the policy is formulated and who partici- Having a formal set of policies can help the chief executive and pates in that process, what substantive issues the policies deal with, and what policy is actually adopted. the governing board identify these conflicts, inconsistencies, and gaps in the present approach to financial policy. It can also help the manager and the council develop similar expectations regarding, :, How. to set financial policies P both managerial and legislative financial decision making. There is no single best way to set financial policy. In any particular There are other benefits to establishing financial policy. Some community, successful policy setting will depend on such things as of these are: the relationship between the manager and the council the kind of financial 1. Having publicly adopted policy statements contributes policies that already exist, the kinds of uses to be made of the policies, and the present and projected financial condition of the greatly to the credibility of and public confidence in the gov- ernmental organization. To the credit rating industry and <. city. In some communities a comprehensive, systematic approach may work, where a variety of financial management policies are prospective investors, such statements show a city's commit -considered ment to sound financial management and fiscal integrity. at one time. In other communities, a step-by-step ap- proach may work better, where selected areas of financial policies 2. Having established policy can save time and energy for both the manager and council. Once certain decisions are made at *<' are considered incrementally over a period of years. Whatever the approach chosen, the steps involved are very sim- the policy level, the issues do not need to be discussed each ilar. These are: time a decision has to be made. 3. The process of developing overall policy directs the attention 1. Determine who will be active in setting policy of management and council members to the city's total finan- 2. Determine what areas of financial management will be ad- cial condition rather than single issue areas. Moreover, this dressed process requires management and council to think about link- 3. Determine the content and format of the actual policy state- ing long -run financial planning with day-to-day operations. .`- ments. 4. As overall policies are developed, the process of trying to tie issues together can bring new information to the surface and First, a policy study group should be selected that will consist of reveal further issues that need to be addressed. 5. Discussing financial policy can be an educational process for the persons who will identify and develop the policy issues to be dealt with. This group could include the manager, the finance direc- the council. It can help make the council more aware of the importance of their policy making role in maintaining good x ' for administrative assistants the department heads the finance committee of the council, the council as a whole, citizen groups, or financial condition."i �'' t other persons as appropriate. Strong council involvement and lead - 30 Practical Financial Management ership at this initial stage can be the key to the acceptability of the financial policies that are eventually established. After this group has been selected, its first task is to choose the areas of financial management that it will study. One way to make this choice is to consider just the basic functional areas of financial management: budgeting, accounting, capital programming, debt management, and cash management. Another way to identify pol- icy areas is to focus on current financial problems. Figures 1, 2, and 3 following this article show sample policy statements in the areas of debt, capital improvements, and revenues. Once the areas of financial policy have been selected, the next step is to develop the actual statements of policies. For instance, if policy statements are to be formulated within the area of budgeting, a process needs to be developed to decide on the specific statements regarding policy. Here are some suggestions for that process: 1. Pull together existing explicit and implicit policies. Studying and pulling together existing policies can set the groundwork and indicate what further policy work is needed. Internal documents and manuals are probably the best starting place for this task. Local and state laws that apply to financial management need to be considered in setting policies. 2. Use department heads. Another way of developing policy items is to ask department heads to submit recommenda- tions, both for setting new policy and for changing existing policy. The finance director especially should be active in this process. 3. Focus on problems. If a community undertakes a systematic evaluation of municipal financial condition, problem areas can be identified. The problem areas can then be used to pin- point where policy statements need to be made. 4. Use technical assistance materials and people. There are many organizations and individuals who can be resources in the policy -setting process. Organizations such as public interest groups, state departments of community affairs, bond rating firms, consultants, and municipal leagues may be able to pro- vide written materials, such as handbooks. Persons connected with these organizations may be able to help with their own personal expertise. 5. Talk urith other communities. Another source of ideas for pol- icy statements is to examine the policies of other communi- ties. Figures 1, 2, and 3 are composites, taken for the most part from policy statements used in many_cities. 6. Get community input.. A sense of how citizens view the future is important and can be valuable in gaining community sup- port. Key business organizations, such as the Chamber of Commerce or banks, and existing citizen groups, such as a Establishing Financial Policies homeowners' association, can participate in the process of developing policy statements. From these sources of information, a range of possible policy statements can be formulated, including those that set broad policy goals and those that set specific targets for meeting those goals. Sample debt policies The city will confine long-term, borrowing to capital improvements or projects that cannot be financed from current revenues. When the city finances capital projects by issuing bonds, it will pay back the bonds within a period not to exceed the expected useful life of the project. The city will try to keep the average maturity of general obligation bonds at or below _ years. On all debt-financed projects, the city will make a down payment of at least _ percent of total project cost from current revenues. Total debt service for general obligation debt will not exceed _ percent of total annual locally generated operating revenue.' Total general -obligation debt will not exceed _ percent of the assessed valuation of taxable property.' Where possible, the city will use special assessment, revenue, or other self-supporting bonds instead of general obligation bonds. The city will not use long-term debt for current operations. The city will retire tax anticipation debt annually and will retire bond anticipation debt within six months after completion of the project.' The city will maintain good communications with bond rating agencies about its financial condition. The city will follow a policy of full disclo- sure on every financial report and bond prospectus.' Source: W. Maureen Godsey, Financial Performance Goals. A Guide for Setting Long -Range Policies, Hand- book 4 in Evaluating Local Govern- ment Financial Condition (Wash- ington, D.C.: International City Management Association, 1980). " 1. Also see: Handbook 8, Indicator 20, "Debt Service." 2. Also see: Handbook 2, Indicator 19, "Long -Term Debt." 3. Also see: Handbook 2, Indicator 18, "Short -Term Liabilities." Tax Figure L anticipation and bond anticipation debt are two forms of short-term liabilities. Tax anticipation debt is issued in anticipation of the receipt of revenues, and helps to even out a city's cash flow. Bond anticipa- tion notes are issued in anticipa- tion of bond revenues. 4. Also see: Municipal Finance Offi- cers Association. Disclosure Guide- lines for Offerings by State and Lo- cal Governments, 1976. 32 Practical Financial Management Sample capital improvement budget policies The city will make all capital improvements in accordance with an adopted capital improvement program.' The city will develop a multi-year plan for capital improvements and up- date it annually. The city will enact an annual capital budget based on the multi-year cap- ital improvement plan. Future capital expenditures necessitated by changes in population, changes in real estate development, or changes in economic base will be calculated and included in capital budget projec- tions.' The city will coordinate development of the capital improvement budget with development of the operating budget. Future operating costs associ- ated with new capital improvement will be projected and included in op- erating budget forecasts. The city will use intergovernmental assistance to finance only those capi- tal improvements that are consistent with the capital improvement plan and city priorities, and whose operating and maintenance costs have been included in operating budget forecasts. The city will maintain all its assets at a level adequate to protect the city's capital investment and to minimize future maintenance and re- placement costs' The city will project its equipment replacement and maintenance needs for the next several years and will update this projection each year. From this projection a maintenance and replacement schedule will be de- veloped and followed. The city will identify the estimated costs and potential funding sources for each capital project proposal before it is submitted to council for ap- proval." The city will determine the least costly financing method for all new projects' Source: W. Maureen Godsey, Financial Performance Goals: A Guide for Setting Long -Range Policies, Hand- book 4 in Evaluating Local Govern- ment Financial Condition (Wash- ington, D.C.: International City Management Association, 1980). 1. Also see: Municipal Finance Offi- cers Association. A Capital Im- provement Programming Handbook for Small Cities and Other Govern- mental Units, 1979. 2. Also see: Handbook 5, Analyzing Financial Impacts. 3. Also see: Handbook 2, Indicator 26, "Maintenance Effort." 4. Also see: Municipal Finance Offi- cers Association. A Capital Im- provement Programming Handbook for Small Cities and Other Govern- mental Units, Appendix A, 1979. 5. Also see: Handbook 5, Discounting 7b Present Value. Establishing Financial Policies 33 Sample revenue policies The city will try to maintain a diversified and stable revenue system to shelter it from short -run fluctuations in any one revenue source. The city will estimate its annual revenues by an objective, analytical pro- cess.' The city will project revenues for the next (three/five/other) years and will update this projection annually. Each existing and potential revenue source will be re-examined annually.' The city will maintain sound appraisal procedures to keep property val- ues current. Property will be assessed at — percent of full market value. y The year-to-year increase of actual revenue from the property tax will generally not exceed percent. Reassessments will be made of all property at least every — years. The city will follow an aggressive policy of collecting property tax reve- nues. The annual level of uncollected property taxes will generally not ex- ceed percent.' The city will establish all user charges and fees at a level related to the cost of providing the services.' Each year, the city will recalculate the full costs of activities supported by user fees to identify the impact of inflation and other cost increases. The city will automatically revise user fees (with/without) review of the governing board to adjust for the effects of inflation. The city will set fees and user charges for each enterprise fund such as water, sewer, or electricity at a level that fully supports the total direct and indirect cost of the activity. Indirect costs include the cost of annual ".' depreciation of capital assets. The city will set fees for other user activities, such as recreational ser- vices, at a level to support — percent of the direct and indirect cost of the activity.' Source: W. Maureen Godsey, Financial Performance Goals: A Guide for Setting Lang -Range Policies, Hand- book 4 in Evaluating Local Govern- ment Financial Condition (Wash- ington, D.C.: International City Management Association, 1980). 1. Also see: Municipal Finance Offi- cers Association. An Operating Budget Handbook for Small Cities and Other Governmental Units, u'. 1979. 2. Also see: Handbook 5, Forecasting Figure 2. K Figure S. Revenues and Expenditures. 3. Also see: Handbook 2, Indicator 7, "Uncollected Property Taxes." 4. Also see: Galambos, Eva C., and Arthur F. Schreiber. Making Sense Out of Dollars: Economic Analysis for Local Government, Chapter 7, "Pricing for Local Government: User Charges in Place of Taxes." 5. This may vary by activity. Also to be considered is the equity and ease of administration of the fee. RECOMMENDED PRACTICES FOR STATE AND LOCAL GOVERNMENTS APPROVED BY GOVERNMENT FINANCE OFFICERS ASSOCIATION MAY 2001 GFOA Recommended Practice Adoption of Financial Policies (2001) Background. The National Advisory Council on State and Local Budgeting (NACSLB) has developed a comprehensive set of recommended budget practices. The recommendations have been endorsed by a number of key governmental associations, by academia and by labor groups associated with state and local _ governments. These practices and the associated framework outline a budget process that encompasses the broad scope of governmental planning and decision-making with regard to the use of resources. This work is recognized as one of the most important advances in governmental finance in decades. The Government Finance Officers Association (GFOA) has adopted a recommended practice endorsing the NACSLB practices and the associated framework.- However, the policies included in this Recommended Practice are those considered fundamental to the budget process and relevant to the broadest number of jurisdictions. The work of the NACSLB provides a framework for describing the overall budget process. The framework is organized around the four principles of the budget process: • Establish Broad Goals to Guide Government Decision Making • Develop Approaches to Achieve Goals • Develop a Budget Consistent with Approaches to Achieve Goals • Evaluate Performance and Make Adjustments Each of these principles has additional elements that provide guidance for an effective budget process. Element #4, of Principle .2, Adopt. Financial Policies, addresses the need for jurisdictions to establish policies to help frame resource allocation decisions. Recommendation. The Government Finance Officers Association (GFOA) recommends that, at a minimum, financial policies in the following areas be developed by professional staff and formally adopted by the jurisdiction's governing board as well as the governing boards of those component units; state, provincial and municipal corporations and organizations; and other bodies under their jurisdiction. • Financial Planning Policies • Revenue Policies • Expenditure Policies The jurisdiction's adopted financial policies should be used to frame major policy initiatives and be summarized in the budget document. It is further recommended that these policies, along with any others that may be adopted, be reviewed during the budget process. Professional staff should review the policies to ensure continued relevance and to identify any gaps that should be addressed with new policies. The results of the review should be shared with the governing board during the review of the proposed budget. Policy categories that should be considered for development; adoption and regular review are as follows: Financial Planning Policies These policies address both the need for a long-term view and the fundamental principle of a balanced budget. At a minimum, jurisdictions should have policies that support: 1. Balanced Budget -A jurisdiction should adopt a policy(s) that defines a balanced operating budget, encourages commitment to a balanced budget under normal circumstances, and provides for disclosure when a deviation from a .balanced operating budget is planned or when it occurs. (NACSLB Practice 4.5) 2. Long -Range Planning - A_ jurisdiction should adopt a policy(s) that supports a financial planning process that assesses the long-term financial implications of current and proposed operating and capital budgets, budget policies, cash management and investment policies, programs and assumptions. (NACSLB Element 9, GFOA Recommended Practice) 3. Asset Inventory - A jurisdiction should adopt a policy(s) to inventory and assess the condition of all major capital assets. This information should be used to plan for the ongoing financial commitments required to maximize the public's benefit. (NACSLB Practice 2.2) Revenue Policies Understanding the revenue stream is essential to prudent planning. Most of these policies seek stability to avoid potential service disruptions caused by revenue shortfalls. At a minimum jurisdictions should have policies that address: 1. Revenue Diversification - A jurisdiction should adopt a policy(s) that encourages a diversity of revenue sources in order to improve the ability to handle fluctuations in individual sources. (NACSLB Practice 4.6) 2.. Fees and Charges - A jurisdiction should adopt policy(s) that identify the manner in which fees and charges are set and the extent to which they cover, the cost of the service provided. (NACSLB Practice 4.2) 3. Use of One-time Revenues - A jurisdiction should adopt a policy(s) discouraging the use of one-time revenues for ongoing expenditures. (NACSLB Practice 4.4) 4. Use of Unpredictable Revenues - A jurisdiction should adopt a policy(s) on the collection and use of major revenue sources it considers unpredictable. (NACSLB Practice 4.4a) 86 ft. Expenditure Policies The expenditures of jurisdictions define ,the ongoing public service commitment. Prudent expenditure planning and accountability will ensure fiscal stability. At a minimum jurisdictions should have policies that address: 1. Debt Capacity, Issuance, and Management -A jurisdiction should adopt a. policy(s) that specifies appropriate uses for debt and identifies the maximum amount of debt and debt service that should be outstanding at any time. (NACSLB Practice 4.3, 4.3a, GFOA Recommend Practices pp.90-92) 2. Reserve or Stabilization Accounts - A jurisdiction should adopt a policy(s) to maintain a prudent level of financial resources to protect against the need to reduce service levels or raise taxes and fees due to temporary revenue shortfalls or unpredicted one-time gfpoaexpenditures. (NACSLB Practice 4. 1) 3. Operating/Capital Expenditure Accountability - A jurisdiction should adopt a policy(s) to compare actual expenditures to budget periodically (e.g., quarterly) and decide on actions to bring the budget into balance, if necessary. (NACSLB Practice 7.2) References • National Advisory Council on State and Local Budgeting. Recommended Budget Practices: A Framework for Improved State and Local Government Budgeting. GFOA, 1998. • A Guide for Preparing a Debt Policy, Patricia Tigue, GFOA, 1998. • GFOA Recommended Practice. "Setting of Government Charges and Fees" (1996). • "Elements of a Comprehensive Local Debt Policy," Government Finance Review, October 1994. • 'Developing Formal Debt Policies,"' Government Finance Review, August 1991. FSM T Ft . LrrY ensure Fong -term fiscal stability. In most instances, the January 1996 revision fine-tuned, clarified, and/or strengthened the existing Financial Policies. Combined with the City Treasurer's formal Investment Policies, these Financial Policies serve as a solid foundation in guiding both elected officials and staff with respect to managing the City's resources. Continued adherence to these Financial Policies will help the City avoid operating practices which could have adverse financial consequences. The most recent amendment took place in May 1998 when the City Council amended Financial Policy Number VII by reducing ,the 45 -day working capital reserve to 30 days for each Enterprise Fund. This followed a recommendation from the Barrington - Wellesley review of Burbank Water & Power. The Financial Policies are as follows: CITY COUNCIL FINANCIAL POLICIES Maintain a designated General Fund working capital reserve equivalent to 15% of the General Fund's operating budget and a designated emergency reserve equivalent to 5% of the General Fund's operating budget. II. Maintain a balanced operating budget for all governmental funds with on-going revenues equal to or greater than on-going expenditures. Appropriations of available fund balance will only be permitted for "one- time" non-recurring expenditures. III. Assume that normal revenue inflation and/or growth will- go to pay normal inflation. expenditures: In no event will normal expenditure increases be approved which exceed normal revenue inflation and/or growth. Any new or expanded programs will be required to identify new funding sources and/or offsetting reductions in expenditures in other programs. IV. Require that all Enterprise Funds have revenues . (customer charges, interest income; and all other income) sufficient to meet all cash operating expenses, depreciation expense(s) (excluding depreciation from assets acquired through. aid -in -construction), prescribe cash reserves per Financial Policies, and debt service coverage requirements set forth in any related bond covenants. Budget User's Guide, cont. V. Require that -'all Vehicle and Equipment Internal Service Funds have revenues (City user charges, interest income, and all other income) sufficientto meet all cash operating expenses, depreciation expenses, and the related inflation factor -for replacement purposes. The related revenues should also be sufficient to maintain cash reserves that approximate the balance in accumulated depreciation. VI. Maintain appropriate reserves in the General Liability Insurance Fund and the Worker's. Compensation Fund to meet statutory requirements and actuarially projected needs. VII. Maintain a cash working capital reserve to support 30 days of operations for each Enterprise Fund. In addition, a cash capital improvement reserve will be maintained for each Enterprise Fund on an individual basis, as approved by the City Council. VIII. Maintain a long-range fiscal perspective through the use of an annual operating budget and five-year business plan. IX. Major capital improvements and acquisitions will be made using long-term financing methods or from cash accumulated in excess of policy requirements. X. Require each budget appropriation request to include a fiscal impact analysis. XI. Comply with all the requirements of "Generally Accepted Accounting Principles." XII. Continue to pay competitive market level compensation to our employees. However, it must be stressed that the information presented in the Budget is not audited nor necessarily in full compliance with GAAP. The information presented in the Budget is designed to enhance management, control and fiscal planning on a program -by -program basis and is not intended to directly correlate with the data presented in financial reports such as the Comprehensive Annual Financial Report—which is designed to provide a retrospective overview on a fund -by -fund basis. BG -5 BG -6 b j Best Practices in Public Budgeting Page 1 of 1 Practice 4.1 Develop Policy on Stabilization Funds Examples: Practice: A government should develop policies to guide the creation, maintenance, and City of Portland, OR: use of resources for financial stabilization purposes. General Reserve Fund Use Policy Rationale: Mission Viejo, CA: Governments should maintain a prudent level of financial resources to protect Reserve Policy against reducing service levels or raising taxes and fees because of temporary - revenue shortfalls or unpredicted one-time expenditures. Element 4 Outputs: The policies should establish how and when a government builds up stabilization funds and should identify the purposes for which they may be used. Development of a policy on minimum and maximum reserve levels may be advisable. Policies on stabilization funds should be publicly available and summarized in materials used in budget preparation. They also should be identified in other government documents, including planning and management reports. Notes: Stabilization funds are called by many names including rainy day funds, unreserved, undesignated fund balances, and contingency funds. These funds may be used at a government's discretion to address temporary cash flow shortages, emergencies, unanticipated economic downturns, and one-time opportunities. They provide flexibility to respond to unexpected opportunities that may help a government achieve its goals. Policies on the use of these funds may also be tied to an adverse change in economic indicators .(such as declining employment or personal income) to ensure that the funds are not depleted before an emergency arises. The minimum and in amounts to be accumulated may be based on the types of revenue, the level of uncertainty associated with revenues, the condition of capital assets, or the government's level of security, with its financial position. Stabilization funds may be constrained by state or local laws. Legally required reserves should be distinguished from discretionary reserves. 2001 Govemment Finance Officers Association. All Rights Reserved. http://www.gfoa.org/services/nacslb/Practices/`4—I.htm - 1/17/2003 Best Practices in Public Budgeting Page 1 of 1 Practice 4.2 Develop Policy on Fees and Charges Examples: Practice: A government should adopt policies that identify the manner in which City of Fort Collins, CO: fees and charges are set and the extent to which they cover the cost of the User Fee Policies service provided. City of San Luis Obispo, CA: Rationale: User Fee Cost Recovery Goals Policies that require identification of both the cost of the program and the portion of the cost that will be recovered through fees and charges allow Element 4 governments and stakeholders to develop a better understanding of the cost of services and to consider the appropriateness of established fees and charges. Outputs: Policies may address a requirement to review all fees and charges, the level of cost recovery for services and the reason for any subsidy, and the frequency with which cost -of -services studies will be undertaken. Stakeholders should be given an opportunity to provide input into formulation of these policies. Policies on fees and charges should be publicly available and summarized in materials used in budget preparation. They should also be identified in other government documents, including planning and management reports. Notes: Costs of service include direct and indirect costs such as operating and maintenance costs, overhead, and charges for use of capital (depreciation and debt service). A government may choose not to recover all costs, but it should identify such costs. Reasons for not recovering full costs should be identified and explained. State and local law may govern the establishment of fees and charges. 2001 Government Finance Officers Association. All Rights Reserved. 1, — I- 'A Best Practices in Public Budgeting Page 1 of 1 Practice 4.3 Develop Policy on Debt Issuance and Examples: Management City of Portland, OR: Practice: Debt Management Policy A government should adopt policies to guide the issuance and management of debt. Howard County, MD: Debt Management Policy Rationale' Element 4 Issuing debt commits a government's revenues several years into the future, and may limit the government's flexibility to respond to changing service priorities, revenue inflows, or cost structures. Adherence to a debt policy helps ensure that debt is issued and managed prudently in order to maintain a sound fiscal position and protect credit quality. Outputs: Elements of policies on debt issuance and management include: purposes for which debt may be issued; matching of the useful life of an asset with the maturity of the debt; limitations on the amount of outstanding debt; types of permissible debt; structural features, including payment of debt service and any_limitations resulting from legal provisions or financial constraints; refunding of debt; and investment of bond proceeds. Legal or statutory limitations on debt issuance should be incorporated into debt policies. Debt. policies should be made available to the public and other stakeholders. Because these policies are essential to budget decision making, particularly capital budgets, they should be reviewed by decision makers during the annual budget process' and summarized in the budget document. The legislative body should formally adopt debt policies and compile them with other financial policies. Notes: Debt policies should be integrated with other financial policies, particularly operating and capital budget policies. The policies should reflect statutory and legal requirements as well as the government's financial condition and philosophy. The GFOA has adopted a recommended practice on the development of a debt policy. © 2001 Government Finance Officers Association. All Rights Reserved. http://www.gfoa.org/services/nacslb/Practices/4_3.htm 1/17/2003 ,r► Best Practices in Public Budgeting Page 1 of 1 Practice 4.3a Examples: Clark County, NV: Debt Management Policy State of Florida• Debt Capacity Study Element 4 Develop Capacity Policy on Debt Level and Practice: A government should adopt a policy on the maximum amount of debt and debt service that should be outstanding at any one time. Rationale: Policies guiding the amount of debt that may be issued by a government help ensure that outstanding and planned debt levels do not exceed an amount that can be supported by the existing and projected tax and revenue base. Outputs: A government should develop distinct policies for general obligation debt, debt supported by revenues of government enterprises, and other types of debt such as special assessment bonds, tax increment financing bonds, short-term debt, variable-rate debt, and leases. Limitations on outstanding debt and maximum debt service may be expressed in dollar amounts or as ratios, such as debt per capita. Policies on debt level and capacity should be incorporated into other debt policies and adopted by the legislative body. Notes: Policies on debt level .and capacity should be developed in accordance with an analysis of debt capacity. Factors that are recommended in evaluating debt capacity include current financial capacity, projected future capacity, statutory and constitutional limitations, and bond covenants. The GFOA has adopted a recommended practice on analysis of debt capacity. Also, the International City/County Management Association publication Evaluating Financial Condition provides a set of indicators that can be used to evaluate debt capacity. © 2001Govemment Finance Officers Association. All Rights Reserved. Best Practices in Public Budgeting Page 1 of 1 Practice 4.4 Develop Policy on Use of One-time Examples: Revenues Practice: Mesa County co: Revenue Policies A government should adopt a policy limiting the use of one-time revenues for ongoing expenditures. City of Bend, OR: Revenue Policies Rationale: Element 4 By definition, one-time revenues cannot be relied on in future budget periods. A policy on the use of one-time revenues provides guidance to minimize disruptive effects on services due to non -recurrence of these sources. Outputs: One-time revenues and allowable uses for those revenues should be explicitly defined. The policy should be publicly discussed before adoption and should be readily available to stakeholders during the budget process. The policy, and compliance with it, should be reviewed periodically. Notes: Examples of one-time revenues include: infrequent sales of government assets, bond refunding savings, infrequent revenues from development, and grants. These revenues may be available for more than one year (e.g., a three- year grant), but are expected to be non-recurring. Examples of expenditures for which a government may wish to use one-time revenues include startup costs, stabilization (e.g., to cover expenditures that temporarily exceed revenues), early debt retirement, and capital purchases. Uses that add to the ongoing expenditure base should be carefully reviewed and minimized, e.g., capital expenditures that significantly increase ongoing operating expenses without a sustainable and offsetting long-term revenue plan. Certain variable components of major revenue sources are similar to one-time revenue sources. While they may be addressed in a one-time revenue policy, they also may be considered separately. (See Practice 4.4a entitled: Evaluate the Use of Unpredictable Revenues.) © 2001 Government Finance Officers Association. All Rights Reserved. hq://www.gfoa.org/services/nacslb/Practices/4-4.htm 1/17/2003 Best Practices in Public Budgeting Page 1 of 1 Practice 4.4a Evaluate the Use of Unpredictable Examples: Revenues City of Germantown, TN: Practice: General Economic Setting A government should identify major revenue sources it considers unpredictable and define how these revenues may be used. Prince William County, VA: Revenue Estimates Element 4 Rationale: Unpredictable revenue sources cannot be relied on as to the level of revenue they will generate. Particularly with major revenue sources, it is important to consider how significant variation in revenue receipts will affect the government's financial outlook and ability to operate programs in the current and future budget periods. Outputs: For each major unpredictable revenue source, a government should identify those aspects of the revenue source that make the revenue unpredictable. Most importantly, a government should identify the expected or normal degree of volatility of the revenue source. For example, revenues from a particular source may fluctuate, but rarely, if ever, fall below some predictable minimum base. A government should decide, in advance, on a set of tentative actions to be taken if one or more of these sources generates revenues substantially higher or lower than projected. The plans should be publicly discussed and used in budget decision making. Notes: Many of the most important revenue sources relied on by state and local governments are unpredictable to some degree. Examples may include intergovernmental revenues, inheritance taxes, taxes on mineral production, interest income, sales and use tax, lottery revenues, and revenues subject to future judicial rulings. These revenues are often used to fund ongoing programs. A financial plan for governments should take into account the unpredictable nature of key revenues. This ensures that a government understands the potential impact on its ability to cover service costs and develops contingency plans in advance to address unpredictable revenue fluctuations. Specific allocation and contingency plans do not have to be developed for all unpredictable revenues, but become increasingly necessary as the size or unpredictability of the revenue source increases. This practice may address or refer to a separate policy on the use of stabilization funds. (See Practice 4.1 entitled: Develop Policy on Stabilization Funds and Practice 4.7 entitled: Develop Policy on Contingency Planning.) © 2001. Government Finance Officers Association, All Rights Reserved. Best Practices in Public Budgeting Page 1 of 2 Practice .4.5 Develop Policy on Balancing the Examples: Operating Budget City of Manhattan Beach, CA; Oaeratina Budget Policies PI'aCtlCe: A government should develop a policy, that defines a balanced operating Cuyahoga County, oH: budget, encourages commitment to a balanced budget under normal Budgetary Policies circumstances, and provides for disclosure when a deviation from a balanced operating budget is planned or when it occurs. Element 4 Rationale: A balanced budget is a basic budgetary constraint intended to ensure that a government does not spend beyond its means. At a minimum, balance should be defined to ensure that a government's use of resources for operating purposes does not exceed available resources over a defined budget period. A more stringent definition requires that a government maintain a balance between operating expenditures and operating revenues over the long term, not just during the current operating period. This latter definition of balance. is referred to as structural balance, and is the goal of this practice. . Outputs: The policy should provide clear definition as to how budgetary balance is to be achieved. Definitions of items to be counted as operating resources (e.g., revenues) and operating resource uses (e.g., expenditures) should be explicitly identified. All funds should be included. Statutory and other legal "balanced" budget requirements should be met, but this practice recommends additional policies and practices, if necessary, to achieve and report on structural balance. The policy should explicitly note and, if necessary, explain the relevant constitutional, statutory,or case law provisions that impose a balanced budget requirement upon the government. The policy also should identify the circumstances when deviation from a balanced budget may occur. The policy should be written in nontechnical language or have a nontechnical summary. Because of its importance in budget decisions, it should be readily available to stakeholders and publicly discussed at key points in the budget process. Compliance with the policy should be reviewed and disclosed during each budget period. Notes: Some states and local governments define resources and resource uses to include fund balance or changes to fund balances. There may be statutory or other requirements that a budget must be balanced based on this definition. These types of statutory balanced budget requirements are a component of and not in conflict with the goal of achieving structural balance. Additional or even separate reporting may be required to demonstrate that both statutory balance and structural balance have been achieved. http://www.gfoa.org/services/nacslb/Practices/4_5.htm 1/17/2003 Best Practices in Public Budgeting Page 2 of 2 This practice does not directly apply to capital budgets. Capital budgets are often funded at least partially from one-time resources. However, the ongoing maintenance or replacement of capital equipment or facilities is an important part of the budget process. Such items, particularly maintenance or equipment replacements, are often defined as operating items to ensure their inclusion in operating budget decisions. A balanced budget policy may include the following: . Identification of and rationale for what operating resources and resource uses are included or excluded from the definition of a balanced budget calculation. For example, does the calculation include operating revenues and expenditures only; does it include capital maintenance or replacement; does it include interfund transfers; and does it include highly variable components of ongoing revenues (such as the volatile component of sales tax revenues or development -related revenue). . The circumstances when fund balances may be used as a resource. . The point(s) at which the budget must be balanced, e.g., upon adoption, throughout the year, or at year-end. A The accounting basis (cash, accrual, other) that is used to define revenues and expenditures. . The circumstances in which noncompliance with the balanced budget policy is permitted (e.g., during the early stages of an economic downturn so that services can be reduced in an orderly fashion). . The official, agency, or legislative body (or combination of authorities) responsible for making any necessary decisions on whether or not a budget is in balance. The authority that must take action to bring the budget into balance if adjustments are needed in the course of a fiscal period. © 2001 Government Finance Officers Association. All Rights Reserved. • Best Practices in Public Budgeting Page 1 of 1 Practice 4.6 Develop Policy on Revenue Examples: Diversification City of Omaha, NE: Practice: Revenue Policies A government should adopt a policy that encourages a diversity of revenue sources. Hillsborough County FL Rationale: Element 4 All revenue sources have particular characteristics in terms of stability, growth, sensitivity to inflation or business cycle effects, and impact on tax and rate payers. A diversity of revenue sources can improve a government's ability to handle fluctuations in revenues and potentially help to better distribute the cost of providing services. Outputs: The policy should identify approaches that will be used to improve revenue diversification. An analysis of particular revenue sources is often undertaken in implementing the policy. This analysis should address the sensitivity of revenues to changes in rates, the fairness of the tax or fee, administrative aspects of the revenue source, and other relevant issues. The policy and the approach to implementation should be periodically reviewed. Notes: Over time a government should strive to improve its revenue diversity to the extent feasible. When a government is statutorily or otherwise limited as to the types of revenues it may raise, it should consider options to enhance flexibility within the constraints of available revenue sources. For example, governments that must rely heavily on property taxes may seek to diversify the tax base on which the property tax is levied. A government should recognize that changes in the diversity of revenue sources can affect the relative tax burden on different stakeholders. © 2001 Government. Finance Officers Association. All Rights Reserved. http://www.gfoa'.org/services/nacslb/Practices/4_6.htm 1/17/2003 Best Practices in Public Budgeting Page 1 of 1 Practice 4.7 Develop Policy on Contingency Examples: Planning City of Federal Way, WA: Practice: Contingency Plan A government should have a policy to guide the financial actions it will take in the event of emergencies, natural disasters, or other unexpected events. Park City Municipal Corporation UL Rationale: Policies and Objectives When emergencies or unexpected events occur, having a policy that can be Element 4 applied, or at least serve as a starting point, for financial decisions and actions improves the ability of a government, to take timely.action and aids in the overall management of such situations. Outputs: This policy should identify types of emergencies or unexpected events and the way in which these situations will be handled from a financial management perspective. It should consider operational and management impacts. The policy should be publicly discussed and reviewed periodically. Notes: Policies on contingency planning are used as a general guide when an emergency or unexpected event occurs. A set of actions and strategies will be identified for each type of situation. Examples of financial emergencies that require contingency plans are sudden and severe decreases in locally collected revenues or intergovernmental aid, and unexpected major capital maintenance requirements. Development of a contingency plan in advance of such situations may be viewed positively by the rating agencies when evaluating a government's credit quality. It can also help expedite relief efforts when an emergency does occur and allow the government to recover funds more quickly or more effectively in the event of a natural disaster. (See Practice 4.1 entitled: Develop Policy on Stabilization Funds.) © 2001 Government Finance Officers Association. All Rights Reserved. �i��Ill►IIII ��!►u�� i city or San US OBI SPO Budget and Fiscal Policies FINANCIAL PLAN PURPOSE AND ORGANIZATION A. Financial Plan Objectives. Through its Financial Plan, the City will link resources with results by: 1. Identifying community needs for essential services. 2. Organizing the programs required to provide these essential services. 3. Establishing program policies and goals, which define the nature and level of program services required. 4. Identifying activities performed in delivering program services. 5. Proposing objectives for improving the delivery of program services. 6. Identifying and appropriating the resources required to perform program activities and accomplish program objectives. 7. Setting standards to measure and evaluate the: a. Output of program activities. b. Accomplishment of program objectives. c. Expenditure of program appropriations. B. Two -Year Budget. Following the City's favorable experience over the past eighteen years, the City will continue using a two-year financial plan, emphasizing long-range planning and effective program management. The benefits identified when the City's first two-year plan was prepared for 1983-85 continue to be realized: 1. Reinforcing the importance of long-range planning in managing the City's fiscal affairs. 2. Concentrating on developing and budgeting for the accomplishment of significant objectives. 3. Establishing realistic timeframes for achieving objectives. 4. Creating a pro -active budget that provides for stable operations and assures the City's long-term fiscal health. 5. Promoting more orderly spending patterns. 6. Reducing the amount of time and resources allocated to preparing annual budgets. C. Measurable - Objectives. The two-year financial plan will establish measurable program objectives and allow reasonable time to accomplish those objectives. D. Second Year Budget. Before the beginning of the second year of the two-year cycle, the Council will review progress during the first year and approve appropriations for the second fiscal year. E. Operating Carryover. Operating program appropriations not spent during the first fiscal year may be carried over for specific purposes into the second fiscal year with the approval of the City Administrative Officer (CAO). F. Goal Status Reports. The status of major program objectives will be formally reported to the Council on an ongoing, periodic basis. G. Mid -Year Budget Reviews. The Council will formally review the City's fiscal condition, and amend appropriations if necessary, six months after the beginning of each fiscal year. H. Balanced Budget. The City will maintain a balanced budget over the two-year period of the Financial Plan. This means that: Budget and Fiscal Policies Page 2 Operating revenues must fully cover operating expenditures, including debt service. 2. Ending fund balance (or working capital in the enterprise funds) must meet minimum policy levels. For the general and enterprise funds, this level has been established at 20% of operating expenditures. Under this policy, it is allowable for total expenditures to exceed revenues in a given year; however, in this situation, beginning fund balance can only be used to fund capital improvement plan projects, or other "one-time," non-recurring expenditures. 1 1 1 1 p.:= . .. A. Annual Reporting. The City will prepare annual financial statements as follows: In accordance with Charter requirements, the City will contract for an annual audit by a qualified . independent certified public accountant. The City will strive for an unqualified auditors' opinion. 2. The City will use generally accepted accounting principles in preparing its annual financial statements, and will strive to meet the requirements of the GFOA's Award .for Excellence in Financial Reporting program. 3. The City will issue audited financial statements within 180 days after year-end. B. Interim Reporting. The City will prepare and issue timely interim reports on the City's fiscal status to the Council and staff. This includes: on-line access to the City's financial management system by City staff; monthly reports to program managers; more formal quarterly reports to the Council and Department Heads; mid -year budget reviews; and interim annual reports. C. Budget Administration. As set forth in the City Charter, the Council may amend or supplement the budget at any time after its adoption by majority vote of the Council members. The CAO has the authority to make administrative adjustments to the budget as long as those changes will not have a significant policy impact nor affect budgeted year-end fund balances. GENERAL REVENUE MANAGEMENT A. Diversified and Stable Base. The City will seek to maintain a diversified and stable revenue base to protect it from short-term fluctuations in any one revenue source. B. Long -Range Focus. To emphasize and facilitate long-range financial planning, the City will maintain current projections of revenues for the succeeding five years. . C. Current Revenues for Current Uses. The City will make all current expenditures with current revenues, avoiding procedures that balance current budgets by postponing needed expenditures, accruing future revenues, or rolling over short-term debt. D. Interfund Transfers and Loans. In order to achieve important public policy goals, the City has established various special revenue, capital project, debt service and enterprise funds to account for revenues whose use should be restricted to certain activities. Accordingly, each fund exists as a separate financing entity from other funds, with its own revenue sources, expenditures and fund equity. Any transfers between funds for operating purposes are clearly set forth in the Financial Plan, and can only be made by the Director of Finance in accordance with the adopted budget. These operating transfers, under which financial resources are transferred from one fund to another, are distinctly different from interfund borrowings, which are usually made for temporary cash flow reasons, and are not intended to result in a transfer of financial resources by the end of the fiscal year. In summary, interfund transfers result in a change in fund equity; interfund borrowings do ff` V Budget and Fiscal Policies Page 3 not, as the intent is to repay in the loan in the near term. From time -to -time, interfund borrowings may be appropriate; however, these are subject to the following criteria in ensuring that the fiduciary purpose of the fund is met: The Director of Finance is authorized to approve temporary interfund borrowings for cash flow purposes whenever the cash shortfall is expected to be resolved within 45 days. The most common use of interfund borrowing under this circumstance is for grant programs like the Community Development Block Grant, where costs are incurred before drawdowns are initiated and received. However, receipt of funds is typically received shortly after the request for funds has been made. 2. Any other interfund borrowings for cash flow or other purposes require case-by-case approval by the Council. Any transfers between funds where reimbursement is not expected within one fiscal year shall not be recorded as interfund borrowings; they .shall be recorded as interfund operating transfers that -affect equity by moving financial resources from one fund to another. A. Ongoing Review Fees will be reviewed and updated on an ongoing basis to ensure that they keep pace with changes in the cost -of -living as well as changes in methods or levels of service delivery. B. User Fee Cost Recovery Levels In setting user fees and cost recovery levels, the following factors will be considered: Community -Wide Versus Special Benefit The level .of user feecost recovery should consider the community -wide versus special service nature of the program or activity. The use of general-purpose revenues is appropriate for community -wide services, while user fees are appropriate for services that are of special benefit to easily identified individuals or groups. 2. Service Recipient Versus Service Driver. After considering community -wide versus special benefit of the service, the concept of service recipient versus service driver should also be considered. For example, it could be argued that the applicant is not the beneficiary of the City's development review efforts: the community is the primary beneficiary. However, the applicant is the driver of development review costs, and as such, cost recovery from the applicant. is appropriate. 3. Effect of Pricing on the Demand for Services. The level of cost recovery and related pricing of services can significantly affect the demand and subsequent level of services provided. At full cost recovery, this has the specific advantage of ensuring that the City is providing services for which there is genuinely a market that is not overly -stimulated by artificially low prices. Conversely, high levels of cost recovery will negatively impact the delivery of services to lower income groups. This negative feature is especially pronounced, and works against public policy, if the services are specifically targeted to low income groups. 4. Feasibility of Collection and Recovery. Although it may be determined that a high level of cost recovery may be appropriate for specific services, it may be impractical or too costly to establish a system to identify and charge the user. Accordingly, the feasibility of assessing and collecting charges should also be considered in developing user fees, especially if significant program costs are intended to be financed from that source. Budget and Fiscal Policies Page 4 C. Factors Favoring Low Cost Recovery Levels Very low cost recovery levels are appropriate under the following circumstances: 1. There is no intended relationship between the amount paid and the benefit received. Almost .all "social service" programs fall into this category as it is expected that one group will subsidize another. 2. Collecting fees is not cost-effective or will significantly impact the efficient delivery of the service. There is no intent to limit the use of (or entitlement to) the service. Again, most "social service" programs fit into this category as well as many public safety (police and fire) emergency response services. Historically, access to neighborhood and community parks would also fit into this category. 4. The service is non-recurring, generally delivered on a "peak demand" or emergency basis, cannot reasonably be planned for on an individual basis, and is not readily available from a private sector source. Many public safety services also fall into this category. Collecting fees would discourage compliance with regulatory requirements and adherence is primarily self -identified, and as such, failure to comply would not be readily detected by the City. Many small- scale licenses and permits might fall into this category. D. Factors Favoring High Cost Recovery Levels The use of service charges as a major source of funding service levels.is especially appropriate under the following circumstances: The service is similar to services provided through the private sector. 2. Other private or public sector alternatives could or do exist for the delivery of the service. For equity or demand management purposes, it is intended that there be a direct relationship between the amount paid and the level and cost of the service received. 4. The use of the service is specifically discouraged. Police responses to disturbances or false alarms might fall into this category., The service is regulatory in nature and voluntary compliance is not expected to be the primary method of detecting failure to meet regulatory requirements. Building permit, plan checks, and subdivision review fees for large projects would fall into this category.., E. , General Concepts Regarding the Use of Service Charges The following general concepts will be used in developing and implementing service charges:. 1. Revenues should not exceed the reasonable cost of providing the service. 2. Cost recovery goals should be based on the total cost of delivering the service, including direct costs, departmental administration costs, and organization -wide support costs such as accounting, personnel, data processing, vehicle maintenance and insurance. 3. The method of assessing and collecting fees should be as simple as possible in order to reduce the administrative cost of collection.. 4. Rate structures should be sensitive to the "market" for similar services as well as to smaller, infrequent users of the service. A unified approach should be used in determining cost recovery levels for various programs based on the factors discussed above. Budget and Fiscal Policies Page 5 F. Low Cost -Recovery Services Based on the criteria discussed above, the following types of services should have very low cost recovery goals. In selected circumstances, there may be specific activities within the broad scope of services provided that should have user charges associated with them. However, the primary source of funding for the operation as a whole should be general-purpose revenues, not user fees. 1. Delivering public safety emergency response services such as police patrol services and fire suppression. 2. Maintaining and developing public facilities that are provided on a uniform, community- wide basis such as streets, parks and general-purpose buildings. 3. Providing social service programs and economic development activities. G. Recreation Programs The following cost recovery policies apply to the City's recreation programs: 1. Cost recovery for activities directed to adults should be relatively high, 2. Cost recovery for activities directed to youth and seniors should be relatively low. In those circumstances . where services are similar to those provided in the private sector, cost recovery levels should be higher. Although ability to pay may not be a concern for all youth and senior participants, these are desired program activities, and the cost of determining need may be greater than the 'cost of providing a uniform service fee structure to all participants. Further, there is a community -wide benefit in encouraging high -levels of participation in youth and senior recreation activities regardless of financial status. 3. Cost recovery goals for recreation activities are set as follows: High -Range Cost Recovery Activities (60% to 100916) a. Classes (Adult and Youth) b. Day care services c. Adult athletics (volleyball, basketball, softball, lap swim) d. Facility rentals (Jack House, other in- door facilities except the City/County Library) Mid -Range Cost Recovery Activities. (30% to 60%) e. City/County Library room rentals f. Special events (triathlon, other City - sponsored special 'events) g. 'Youth track h. Minor league baseball i. Youth basketball j. Swim lessons k. Outdoor facility and equipment rentals Low -Range Cost Recovery Activities (0 to 30%) 1. Public swim in. Special swim classes n. Community garden o. Youth STAR p. Teen services q: Senior services 4. For cost recovery activities of less than 100%, there should be a differential in rates between residents and non-residents. However, the Director of Parks and Recreation is authorized to reduce . or eliminate non-resident fee differentials when it can be demonstrated that the fee is reducing attendance and that there are no appreciable expenditure savings from the reduced attendance. ' Charges will be -assessed for use of rooms, pools, gymnasiums, ball fields, special -use areas, and recreation equipment for activities not sponsored or co-sponsored by the City. Such charges will generally conform to the fee guidelines described above. However, the Director of Parks and Recreation is authorized to charge fees that are closer to full cost recovery for . facilities that are Budget and Fiscal Policies Page 6 heavily used at peak times and include a majority of non-resident users. 6. A vendor charge of at least 10 percent of gross income will be assessed from individuals or organizations using City facilities for moneymaking activities. 7. Director of Parks and Recreation is authorized to offer reduced fees such as introductory rates, family discounts and coupon discounts on a pilot basis (not to exceed 18 months) to promote new recreation programs or resurrect existing ones. 8. The Parks and Recreation Department will consider waiving fees only when the City Administrative Officer determines in writing that an undue hardship exists, H. Development Review Programs The following cost recovery policies apply to the development review programs: 1. Services provided under this category include: a. Planning (planned development permits, tentative tract and parcel maps, rezonings, general plan amendments, variances, use permits). b. Building and safety (building permits, structural plan checks, inspections). c. Engineering (public improvement plan checks,, inspections, subdivision requirements, encroachments). d. Fire plan check. 2. Cost recovery for these services should generally be very high. In most instances, the City's cost recovery goal should be 100%. Exceptions to this, standard include planning services, as this review process is clearly intended to serve the broader community as well as the applicant. In this case, the general level of cost recovery is set at 45% to 100%, except for appeals, where no fee is charged. 3. However, in charging high cost recovery levels, the City needs to clearly establish and articulate standards for its performance in reviewing developer applications to ensure that there is "value for cost." I. Comparability With Other Communities In setting user fees, the City will consider fees.. charged by other agencies in accordance with the following" criteria: 1. Surveying the comparability of the City's fees to other communities provides useful background information in setting fees for several reasons: a. They reflect the "market" for these fees and can assist in assessing the reasonableness of San Luis Obispo's fees. b. If prudently analyzed, they can serve as a benchmark for how cost-effectively San Luis Obispo provides its services. 2. However, fee ' surveys should never be the sole or primary criteria in setting City fees as there are many factors that affect how and why other communities have set their fees at their levels. For example: a. What level of cost recovery is their fee intended to achieve compared with our cost recovery objectives? b. What costs have been considered in computing the fees? c. When was the last time that their fees were comprehensively evaluated? d. What level of service do they provide compared with our service or performance standards? e. Is their rate structure significantly different than ours and what is it intended to achieve? 3. These can be very difficult questions to address in fairly evaluating fees among different communities. As such, the V Budget and Fiscal Policies Page 7 comparability of our fees to other communities should be one factor among many that is considered in setting City fees. ENTERPRISE FUND FEES AND RATES A. Water, Sewer and Parking. The City will set fees and rates at levels which fully cover the total direct and indirect costs—including operations, capital outlay, and debt service—of the following enterprise programs: water, sewer and parking. B. Golf. Golf program fees and rates should fully cover direct operating costs. Because of the nine -hole nature of the golf course with its focus on youth and seniors, subsidies from the General Fund to cover indirect costs and capital improvements may be considered by the Council as part.of the Financial Plan process. C. Transit. Based on targets set under the Transportation Development Act, the City will strive to cover at least twenty percent of transit operating costs with fare revenues. D. Ongoing Rate Review. The City will review and adjust enterprise fees and rate structures as required to ensure that they remain appropriate and equitable. E. Franchise and In -Lieu Fees. In accordance with long-standing practices, City will treat the water and sewer funds in the same manner as if they were privately owned and operated. In addition to setting rates at levels necessary 'to fully cover the cost of providing water and sewer service, this means assessing reasonable franchise and property tax in -lieu fees. Franchise fees are based on the statewide standard for public utilities like electricity and gas: 2% of gross revenues from operations. The appropriateness of charging the water fund a reasonable franchise fee for the use of City streets is further supported by the results of recent studies in Arizona, California, Ohio and Vermont which concluded that the leading cause for street resurfacing and reconstruction is street cuts and trenching for utilities. 2. For the water fund, property tax in -lieu fees are established under the same methodology used in assessing property tax in -lieu fees to the Housing Authority under our 1976 agreement with them. Under this approach, water fund property tax in -lieu charges are about $29,000 annually, and grow by 2% per year as allowed under Proposition 13. , The Council recognizes that generally accepted accounting principles for state and local governments discourage the "earmarking" of General Fund revenues,, and accordingly, the practice of designating General Fund revenues for specific programs should be minimized in the City's management of its fiscal affairs: Approval of .the following revenue distribution policies does not prevent the Council from directing General Fund resources to other functions and programs as necessary. A. Property 'Taxes. With the passage of Proposition 13' ' on June 6, 1978, California cities no longer can et their own property tax rates. In addition to limiting annual increases in market value, placing a ceiling on voter - approved indebtedness, and redefining assessed valuations, Proposition 13 established a maximum county -wide levy for general revenue purposes of 1% of market value. Under subsequent state legislation, which adopted formulas for the distribution of this countywide levy, the City now receives a percentage of total property tax revenues collected countywide as determined by the County Auditor -Controller. Until November of 1996, the City had provisions in its Charter that were in conflict with Proposition 13 relating to the setting of property tax revenues between various funds. For several years following the passage of Proposition 13, the City made property tax allocations between funds on a policy basis that were generally in proportion to those in place before Proposition 13. Because these were Budget and Fiscal Policies Page 8 general-purpose revenues, this practice was C. discontinued in 1992-93. With the adoption of a series of technical revisions to the City Charter in November of 1996, this conflict no longer exists. B. Gasoline Tax Subventions. All gasoline tax revenues (which are restricted by the State for street -related purposes) will be used for maintenance activities. Since the City's total expenditures for gas tax eligible programs and projects are' much greater than this revenue source, operating transfers will be made from the gas tax fund to the General Fund for this purpose. This approach significantly reduces the accounting efforts required in meeting State reporting requirements. C. Transportation Development Act (TDA) Revenues. All TDA revenues will be allocated to alternative transportation programs, including regional and municipal transit systems, bikeway improvements, and other programs or projects designed to reduce automobile usage. Because TDA revenues will not be allocated for street purposes, it is expected that • alternative transportation programs (in conjunction with other state or federal grants for this purpose) will be self-supporting from TDA revenues. D. ,Parking Fines. All parking fine revenues will be allocated to the parking fund. INVESTMENTS . e:..; .:, ,_ : ... ... wee.... =.: x ,00 . A. Responsibility. . Investments and cash management is the responsibility of the City Treasurer or designee. B. Investment Objective. The City's primary investment objective is to achieve a reasonable rate of return while minimising the potential for capital losses arising from market' changes or issuer default. Accordingly, the following factors will be considered in priority order in determining individual investment placements: 1. Safety 2. Liquidity 3. Yield Tax and Revenue Anticipation Notes—Not for Investment Purposes. There is an appropriate role for tax and revenue anticipation notes (TRANS) in meeting legitimate short-term cash needs within the fiscal year. However, many agencies issue TRANS as a routine business practice, not solely for cash flow purposes, but to capitalize on the favorable difference between the interest cost of issuing TRANS as a tax -preferred security and the interest yields on them if re -invested at full market rates. As part of its cash flow management and investment strategy, the City will only issue TRANS or other forms of short-term debt if necessary to meet demonstrated cash flow needs; TRANS or any other form of short-term debt financing will not be issued for investment purposes. As long as the City maintains its current policy of maintaining fund/working capital balances that are 20% of operating expenditures, it is unlikely that the City would need to issue TRANS for cash flow purposes except in very unusual circumstances. D. Selecting Maturity Dates. The City will strive to keep all idle cash balances fully invested through daily projections of cash flow requirements. To avoid forced liquidations and losses of investment earnings, cash flow and future requirements will be the primary consideration when selecting maturities. E. Diversification. As the market and the City's investment portfolio change, care will be taken to maintain a healthy balance of investment types and maturities. F. Authorized Investments. The City will invest only in those instruments authorized by the California Government Code Section 53601. The City will not invest in stock, will not speculate and will not deal in futures or options. The investment market is highly volatile and continually offers new and creative opportunities for enhancing interest earnings. Accordingly, the City will thoroughly investigate any new investment vehicles before committing City funds to them. Budget and Fiscal Policies Page 9 G. Authorized Institutions. Current financial statements will be maintained for each institution in which cash is invested. Investments will be limited to 20 percent of the total net worth of any institution and may be reduced further or refused altogether if an institution's financial situation becomes unhealthy. APPROPRIATIONS LIMITATION A. H. Consolidated Portfolio. In order to maximize yields from its overall portfolio, the City will consolidate cash balances from all funds for investment purposes, and will allocate B. investment earnings to each fund in accordance with generally accepted accounting principles. I. Safekeeping. Ownership of the City's investment securities will be protected through third -party custodial safekeeping. J. Investment Management Plan. The City The Council will annually adopt a resolution establishing the City's appropriations limit calculated in accordance with Article XIII -B of the Constitution of the State of California, Section 7900 of the State of California Government Code, and any other voter approved amendments or state legislation that affect the City's appropriations limit. The supporting documentation used in calculating the City's appropriations limit and. projected appropriations subject to the limit will be available for public and Council review at least 10 days before Council consideration of a resolution to adopt an appropriations limit. The Council will generally consider this resolution in connection with final approval of the budget. Treasurer will develop and maintain an C. The City will strive to develop revenue sources, Investment Management Plan that addresses the both new and existing, which are considered City's administration of its portfolio, including non -tax proceeds in calculating its investment strategies, practices and procedures. appropriations subject to limitation. K. Investment Oversight Committee. As set forth in the Investment Management Plan, this committee is responsible for reviewing the City's portfolio on an ongoing basis to determine compliance with the City's investment policies and for making recommendations regarding investment management practices. Members include the City Administrative Officer, Assistant CAO, Director- of Finance/City Treasurer, Revenue Manager and the City's independent auditor. L. Reporting. The City Treasurer will develop and maintain a comprehensive, well-documented investment reporting system, which will comply with Government Code Section 53607. This system will provide the Council and the Investment Oversight Committee with appropriate investment performance information. D. The City will annually review user fees and charges and report to the Council the amount of program subsidy, if any, that is being provided by the General or Enterprise Funds. E. The City 'will actively support legislation or initiatives sponsored or approved by League of California Cities which would modify Article XIII -B of the Constitution in a manner which would allow the City to retain projected tax revenues resulting from growth in the local economy for use as determined by the Council. F. The City will seek voter approval to amend its appropriation limit at such time that tax proceeds are in excess of allowable limits. FUND BALANCE DESIGNATIONS AND RESERVES A. Minimum Fund and °Working Capital Balances. The City will maintain fund or working capital balances of at least 20% of operating expenditures in the General Fund and Budget and Fiscal Policies Page 10 water, sewer and parking enterprise funds. This is considered the minimum level necessary to maintain the City's credit worthiness and to adequately provide for: 1. Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy. 2. Contingencies for unseen operating or capital needs. 3. Cash flow requirements. B. Equipment Replacement. For General Fund assets, the City will establish and maintain an Equipment Replacement Fund to provide for the timely replacement of vehicles and capital equipment with an individual replacement cost of $15,000 or more. The City will maintain a minimum fund balance in the Equipment Replacement Fund of at least 20% of the original purchase cost of the items accounted for in this fund. The annual contribution to this fund will generally be based on the annual use allowance which is determined based on the estimated life of the vehicle .or equipment and its original purchase cost. Interest earnings and sales of surplus equipment as well as any related damage and insurance recoveries will be credited to the Equipment Replacement Fund. C. Future Capital Project Designations. The Council may designate specific fund balance levels for future development of capital projects that it has determined to be in the best long-term interests of the City. D. Other Designations and Reserves. In addition to the designations noted above, fund balance levels will be sufficient to meet funding requirements for projects approved in prior years which are carried forward into the new year•, debt service reserve requirements; reserves for encumbrances; and other reserves or designations required by contractual obligations, state law, or generally accepted accounting principles. CAPITAL IMPROVEMENT MANAGEMENT A. CIP Projects—$15,000 or More. Construction projects and equipment purchases which cost $15,000 or more will be included in the Capital Improvement Plan (CIP); minor capital outlays of less than $15,000 will be included with the operating program budgets. B. CIP Purpose. The purpose of the CIP is to systematically plan, schedule, and finance, capital projects to ensure cost-effectiveness as well as conformance with established policies. The CIP is a four-year plan organized into the same functional groupings used for the operating programs. The CIP will reflect a balance between capital replacement projects that repair, replace or enhance existing facilities, equipment or infrastructure; and capital facility projects that significantly expand or add to the City's existing fixed assets. C. Project Manager. Every CIP project will have a project manager who will prepare the project proposal, ensure that required phases are completed on schedule, authorize all project expenditures, ensure that all regulations and laws are observed, and periodically report project status. D. CIP Review Committee. Headed by the City Administrative Officer or designee, this Committee will review project proposals, determine project phasing, recommend project managers, review and evaluate the draft CIP budget document, and report CIP project progress on an ongoing basis. E. CIP Phases. The CIP will emphasize project planning, with projects progressing through at least two and up to ten of the following phases: 1. Designate. Appropriates funds based on projects designated for funding by the Council through adoption of the Financial Plan. 2. Study. Concept design, site selection, feasibility analysis, schematic design, environmental determination, property Budget and Fiscal Policies appraisals, scheduling, grant application, grant approval, specification preparation for equipment purchases. 3. Environmental Review. EIR preparation, other environmental studies. 4. Real Property Acquisitions. Property acquisition for projects, if necessary. 5. Site Preparation. Demolition, hazardous materials abatements, other pre -construction work. 6. Design. Final design, plan and specification preparation, and construction cost estimation. 7. Construction. Construction contracts. 8. Construction Management. Contract project management and inspection, soils and material tests, other support services during construction. 9. Equipment Acquisitions. Vehicles, heavy machinery, computers, office furnishings, other equipment items acquired and installed independently from construction contracts. 10. Debt 'Service. Installment payments of principal and interest for completed projects funded through debt financings. Expenditures for this project phase are included in the Debt Service section of the Financial Plan. Generally, it will become more difficult for a project to move from one phase to the next. As such, more projects will be studied than will be designed, and more projects will be designed than will be constructed or purchased during the term of the CIP. F. CIP Appropriation. The City's annual CIP appropriation for study, design, acquisition and/or construction is based on the projects designated by the Council through adoption of the Financial Plan. Adoption of the Financial Plan CIP appropriation does not automatically authorize funding for specific project phases. Paqe 11 This authorization generally occurs only after the preceding project phase has been completed and approved by the Council and costs for the succeeding phases have been fully developed. Accordingly, project appropriations are generally made when contracts are awarded. If project costs at the time of bid award are less than the budgeted amount, the balance will be unappropriated and returned to fund balance or allocated to another project. If project costs at the time of bid award are greater than budget amounts, five basic options are available: 1. Eliminate the project. 2. Defer the project for consideration to the next Financial Plan period. 3. Rescope or change the phasing of the project to meet the existing budget. 4. Transfer funding from another specified, lower priority project. 5. Appropriate additional resources as necessary from fund balance. G. CIP Budget Carryover. Appropriations for CIP projects lapse three years after budget adoption. Projects which lapse from lack of project account appropriations may be resubmitted for inclusion in a subsequent CIP. Project accounts, which have been appropriated, will not lapse until completion of the project phase. . H. Program Objectives. Project phases will be listed as objectives in the program narratives of the programs, which manage the projects. I. Public Art. CIP projects will be evaluated during the budget process and prior to each phase for conformance with the City's public art policy, which generally requires that 1% of eligible project construction costs be set aside for public art. Excluded from this requirement are underground projects, utility infrastructure projects, funding from outside agencies, and costs other than construction such as study, environmental review, design, site preparation, land acquisition and ,equipment purchases. Budget and Fiscal Policies Page 12 It is generally preferred that public art be incorporated directly into the project, but this is not practical or desirable for all projects; in this case, an in -lieu contribution to public art will be made. To ensure that funds are adequately budgeted for this purpose regardless of whether public art will directly incorporated into the project, funds for public art will be identified separately in the CIP. 1 1 i .. _.r.. � *... � �. to � .r.;�;�,6.7i'�w�;•�:.:.-:� .. ... .. �' .,.... tee" y. A. Capital Financing 1. The City will consider the use of debt financing only for one-time capital improvement projects and only under the following circumstances: a. When the project's useful life will exceed the term of the financing. b. When project revenues or specific resources will be sufficient to service the long-term debt. 2. Debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures. The issuance of short-term instruments such as revenue, tax or bond anticipation notes is excluded from this limitation. (See Investment Policy) Capital improvements will be financed primarily through user fees, service charges, assessments, special taxes or developer agreements I when benefits can be specifically attributed to users of the facility. Accordingly, development impact fees should be created and implemented at levels sufficient to ensure that new development pays its fair share of the cost of constructing necessary community facilities. 4. Transportation impact fees are a major funding source in financing transportation system improvements. However, revenues from these fees are subject to significant fluctuation based on the rate of new development. Accordingly, the following guidelines will be followed in designing and building projects funded with transportation impact fees: a. The availability of transportation impact fees in funding a specific project will be analyzed on a case-by-case basis as plans and specification or contract awards are submitted for CAO or Council approval. b. If adequate funds are not' available at that time, the Council will make one of two determinations: • Defer the project until funds are available. Based on the high-priority of the project, advance funds from the General Fund, which will be reimbursed as soon as funds become available. Repayment of General Fund advances will be the first use of transportation impact fee funds when they become available. 5. The City will use the following criteria to evaluate pay-as-you-go versus long-term financing in funding capital improvements: Factors Favoring Pay -As -You -Go Financing a. Current revenues and adequate fund balances are available or project phasing can be accomplished. b. Existing debt levels adversely affect the City's credit rating. c. Market conditions are unstable or present difficulties in marketing. Factors Favoring Long Term Financing d. Revenues available for debt service are deemed sufficient and reliable so that long-term financings can be marketed with investment grade credit ratings. • Budget and Fiscal Policies Page 13 e. The project securing the financing is of the type, which will support an investment grade credit rating. f. Market conditions present favorable interest rates and demand for City financings. g. A project is mandated by state or federal requirements, and resources are insufficient or unavailable. h. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. The life of the project or asset to be financed is 10 years or longer. B. Debt Management 1. The City will not obligate the General Fund to secure long-term financings except when marketability canbe significantly enhanced. 2. An. internal feasibility analysis will be prepared for each long-term financing which analyzes the impact on current and future budgets for debt service and operations. This analysis will also address the reliability of revenues to support debt service. 3. The City will generally conduct financings on a competitive basis. However, negotiated financings may be used due to market volatility or the use of an unusual or complex financing or security structure. 4. The City will seek an investment grade rating (Baa/BBB or greater) on any direct debt and will seek credit enhancements such as letters of credit or insurance when necessary for marketing purposes, availability and cost-effectiveness. The City, will monitor all forms of debt annually. coincident with the City's Financial Plan preparation and review process and report concerns -and remedies, if needed, to the Council. 6. The City will diligently monitor its compliance with bond covenants and ensure its adherence to federal arbitrage- regulations. rbitrageregulations. 7. The City will maintain good, ongoing communications with bond rating agencies about its financial condition. The City will follow a policy of full disclosure on every financial report and bond prospectus (Official Statement). C: Debt Capacity General Purpose Debt Capacity. The City will carefully monitor its levels of general- purpose debt. Because our general purpose debt capacity is limited, it is important that we only use general purpose debt financing for high-priority projects where we cannot reasonably use other financing methods for two key reasons: a. Funds borrowed for a project today are not available to fund other projects tomorrow. b. Funds committed for debt repayment today are not available to fund. operations in the future. In evaluating debt capacity, general-purpose annual debt service payments should generally not exceed 10% of General Fund revenues; and in no case should they exceed •15%0. Further, direct debt will not exceed 2% of assessed valuation; and no more than 60% of capital improvement outlays will be funded from long-term financings. Enterprise Fund Debt Capacity. The. City Will set enterprise fund rates at levels needed to fully cover debt service requirements as well as operations, maintenance,. administration and capital improvement costs. The ability to afford new debt for enterprise operations will be evaluated as an integral part of the City's rate review and setting process. Budget and Fiscal Policies Page 14 D. Independent Disclosure Counsel The following criteria will be used on a case-by- case basis in determining whether the City should retain the services of an independent disclosure counsel in conjunction with specific project financings: 1. The City will generally not retain the services of an independent disclosure counsel when all of the following circumstances are present: a. The revenue source for repayment is under the management or control of the City, such as general obligation bonds, revenue bonds, lease -revenue bonds or certificates of participation. b.The bonds will be rated or insured. 2. The City will consider retaining the services of an independent disclosure counsel when one or more of following circumstances are present: a. The financing will be negotiated, and the underwriter has not separately engaged an underwriter's counsel for disclosure purposes. b. The revenue source for repayment is not under the management or control of the City, such as land-based assessment districts, tax allocation bonds or conduit financings. c. The bonds will not be rated or insured. d. The City's financial advisor, bond counsel or underwriter recommends that the City retain an independent disclosure counsel based on the circumstances of the financing. E. Land -Based Financings 1. Public Purpose. There will be a clearly articulated public purpose in forming an assessment or special tax district in financing public infrastructure improvements. This should include a finding by the Council as to why this form of financing is preferred over other funding options such as impact fees, reimbursement agreements or direct developer responsibility for the improvements. Active Role. Even . though land-based financings may be a limited obligation of the City, we will play an active role in managing the district. This means that the City will select and retain the financing team, including the financial advisor, bond counsel, trustee, appraiser, disclosure counsel, assessment engineer and underwriter. Any costs incurred by the City in retaining these services will generally be the responsibility of the property owners or developer, and will be advanced via a deposit when an application is filed; or will be paid on a contingency fee basis from the proceeds from the bonds. Credit Quality. When a developer requests a district, .the City will carefully evaluate the applicant's financial plan and ability to carry the project, including the payment of assessments and special taxes during build- out. This may include detailed background, credit and lender checks, and the preparation of independent appraisal reports and market absorption studies. For districts where one property owner accounts for more than 25% of the annual debt service obligation, a letter of credit further securing the financing may be required. 4. Reserve Fund A reserve fund should be established in the lesser amount of the maximum annual debt service; 125% of the annual average debt service; or 10% of the bond proceeds. 5. Value -to -Debt Ratios. The minimum value - to -date ratio should generally be 4:1. This means the value of the property in the district, with the public improvements, should be at least four times the amount of the assessment or special tax debt. In special circumstances, after conferring and receiving the concurrence of the City's financial advisor and bond counsel that a lower value -to -debt ratio is financially Budget and Fiscal Policies Page 15 prudent under the circumstances, the City may consider allowing a value -to -debt ratio of 3:1. The Council should make special fmdings in this case. 6. Capitalized Interest During Construction. Decisions to capitalize interest will be made on case-by-case basis, with the intent that if allowed, it should improve the credit quality of the bonds and reduce borrowing costs, benefiting both current and future property owners. 7. Maximum Burden. Annual assessments (or special taxes in the case of Mello-Roosor similar districts) should generally not exceed 1 % of the sales price of the property; and total property taxes, special assessments and special taxes payments collected on the tax roll should generally not exceed 2%. 8. Benefit Apportionment Assessments and special taxes will be apportioned according to a formula that is clear, understandable, equitable and reasonably related to the benefit received by --pr burden attributed to—each parcel with respect to its financed improvement. Any annual escalation factor should generally not exceed 2%. Special Tax District Administration. In the case of Mello -Roos or similar special tax districts, the total maximum annual tax should not exceed 110% of annual debt service. The rate and method of apportionment should include a back-up tax in ,the event of significant changes from the initial development plan, and should include procedures for prepayments. 10. Foreclosure Covenants. In managing administrative costs, the City will establish minimum delinquency amounts per owner, and for the district as a whole, on a case-by- case basis before initiating foreclosure proceedings. 11. Disclosure to Bondholders. In general, each property owner who accounts for more than 10% of the annual debt service or bonded indebtedness must provide ongoing disclosure information annually as described under SEC Rule 15(c)-12. 12. Disclosure to Prospective Purchasers. Full disclosure about outstanding balances and annual payments. should be made by the seller to prospective buyers at the time that the buyer bids on the property. It should not be deferred to after the buyer has made the decision to purchase. When appropriate, applicants or property owners may be required to provide the City with a disclosure plan. F. Conduit Financings 1. The City will consider requests for conduit financing on a case=by-case basis using the following criteria: a. The City's bond counsel will review the terms of the financing, and render an opinion that there will be no liability to the City in issuing the bonds on behalf of the applicant. b. There is a clearly articulated public purpose in providing the conduit financing. c. The applicant is capable of achieving this public purpose. 2. This means that the review of requests for conduit financing will generally be a two- step process: first asking the Council if they are interested in considering the request, and establishing the ground rules for evaluating it; and then returning with the results of this evaluation, and recommending approval of appropriate financing documents if warranted. This two-step approach ensures that the issues are clear for both the City and applicant, and that key policy questions are answered. The workscope necessary to address these issues'will vary from request to request, and will have to be determined on a case-by-case basis. " Additionally, the City should generally be fully reimbursed for our costs in evaluating the request; however, this Budget and Fiscal Policies Page 16 should also be determined on a case-by-case basis. HUMAN RESOURCE MANAGEMENT A. Regular Staffing The budget will fully appropriate the resources needed for authorized regular staffing and will limit programs to the regular staffing authorized. 2. Regular employees will be the core work force and the preferred means of staffing ongoing, year-round program activities that should be performed by full-time City employees rather than independent contractors. The City will strive to provide competitive compensation and benefit schedules for its authorized regular work force. Each regular employee will: a. Fill an authorized regular position. b. Be assigned to an appropriate bargaining unit. . c. Receive salary and benefits consistent with labor agreements or other compensation plans. 3. To manage the growth of the regular work force and overall staffing costs, the City will follow these procedures: a. The Council will authorize all regular positions. b. The Human Resources Department will coordinate and approve the hiring of all regular and temporary employees. c. All requests for additional regular positions will include evaluations of- The fThe necessity, term and expected results of the proposed activity. Staffing and materials costs including salary, benefits, equipment, uniforms, clerical support and facilities. The ability of private industry to provide the proposed service. • Additional revenues or cost savings, which may be realized. 4. Periodically, and before any request for additional regular positions, programs will be evaluated to determine if they can be accomplished with fewer regular employees. (See Productivity Review Policy) 5. Staffing and contract service cost ceilings will limit total expenditures for regular employees, temporary employees, and independent contractors hired to provide operating and maintenance services. B. Temporary Staffing 1. The hiring of temporary employees will not be used as an incremental method for expanding the City's regular work force. Temporary employees include all employees other than regular employees, elected officials, and volunteers. Temporary employees will generally augment regular City staffing as extra -help employees, seasonal employees, contract employees, interns and work-study assistants. 3. The City Administrative Officer (CAO) and Department Heads will encourage the use of temporary rather than regular employees to meet peak workload requirements, fill interim vacancies, and accomplish tasks where less than full-time, year-round staffing is required. Under this guideline, temporary employee hours will generally not exceed 50% of a regular, full-time position (1,000 hours annually). There may be limited circumstances where the use of temporary employees on an ongoing basis in excess of this target may be appropriate due to unique programming or staffing requirements. However, any such exceptions must be approved by the CAO based on the review and recommendation of the Human Resources Director. Budget and Fiscal Policies I Page 17 4. Contract employees are defined as temporary employees with written contracts approved by the CAO who may receive approved benefits depending on hourly requirements and' the length of their contract. Contract employees will generally be used . for medium-term (generally between six months and two years) projects, programs or activities requiring specialized or augmented levels of staffing for a specific period. The services of contract employees will be discontinued upon completion of the assigned project, program or activity. Accordingly, contract employees will not be used for services that are anticipated to be delivered on an ongoing basis. C. Independent Contractors Independent contractors are not City employees. They may be used in two situations: Short-term, peak workload assignments to be accomplished using personnel contracted through an outside temporary employment agency (OEA). In this situation, it is anticipated that City staff will closely monitor the work of OEA employees and minimal training will be required. However, they will always be considered the employees of the OEA and not the City. All, placements through an OEA will be coordinated through the Human Resources Department and subject to the approval of the Human Resources Director. 2. 'Construction of public works projects and delivery of operating, maintenance or specialized professional services not routinely performed by City employees. Such services will be provided without close supervision by City staff, and the required methods, skills and equipment will generally be determined and provided by the contractor. Contract awards will be guided by the City's purchasing policies and procedures. (See Contracting for Services Policy) PRODUCTIVITY Ensuring the "delivery of service with value for cost" is one of the key concepts embodied in the City's Mission Statement (San Luis Obispo Style— Quality With Vision): To this end, the City will constantly monitor and review our methods of operation to ensure that services continue to be delivered in the most cost-effective manner possible. This review process encompasses a wide range of productivity issues, including: A. Analyzing systems and procedures to identify and remove unnecessary review requirements. B. Evaluating the ability of new technologies and related capital investments 'to improve productivity. C. Developing the skills and abilities of all City employees. D. Developing and implementing appropriate methods of recognizing and rewarding exceptional employee performance. E. Evaluating the ability of the private sector to perform the same level of service at a lower cost. F. Periodic formal reviews of operations on a systematic, ongoing basis. G. Maintaining a decentralized approach in managing the City's support service functions. Although some level of centralization is necessary for review and control purposes, decentralization supports productivity by: 1. Encouraging accountability by delegating responsibility to the lowest possible level. 2. Stimulating creativity, innovation and individual initiative. 3. Reducing the administrative costs of operation by eliminating unnecessary review procedures. Budget and Fiscal Policies Page 18 4. Improving the organization's ability to respond to changing needs, and identify and implement cost-saving programs. 5. Assigning responsibility for effective operations and citizen responsiveness to the department. A. General Policy Guidelines Contracting with the private sector for the delivery of services provides the City with a significant opportunity for cost containment and productivity enhancements. As such, the City is committed to using private sector resources in delivering municipal services as a key element in our continuing efforts to provide cost-effective programs. 2. Private sector contracting approaches under this policy include construction projects, professional services, outside employment agencies and ongoing operating and maintenance services. 3. In evaluating the costs of private sector contracts compared with in-house performance of the service, indirect, direct, and contract, administration costs of the City will be identified and considered. 4. Whenever private sector providers are available and can meet established service levels, they will be seriously considered ,as viable service delivery alternatives using the evaluation criteria outlined below. 5. For programs and activities currently provided by City employees, conversions to contract services will generally be made through attrition, reassignment or absorption by the contractor. B. Evaluation Criteria 1. Within the general policy guidelines stated above, the cost-effectiveness of contract services in meeting established service levels will be determined on a case-by-case basis using the following criteria: 2. Is a sufficient private sector market available to competitively deliver this service and assure a reasonable range of alternative service providers? 3. Can the contract be effectively and efficiently administered? 4. What are the consequences if the contractor fails to perform, and can the contract reasonably be written to compensate the City for any such damages?' 5. Can a private sector contractor better respond to expansions, contractions or special requirements of the service? 6. Can the work scope be sufficiently defined to ensure that competing proposals can be fairly and fully evaluated, as well as the contractor's performance after bid award? 7. Does the use of contract services provide us with an opportunity to redefine service levels? 8. Will the contract limit our ability to deliver emergency or other high priority services? 9. Overall, can the City successfully delegate the performance of the service but still retain accountability and responsibility for its delivery? RESOLUTION NO. 2001-159 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROHNERT PARK ADOPTING FINANCIAL POLICIES FOR CITY RESERVES WHEREAS, the City Council of the City of Rohnert Park recognizes the need to establish sound reserves to maintain a prudent level of financial resources to protect against the need to reduce service levels or raise taxes and fees due to temporary shortfalls or unpredicted one-time expenditures; and WHEREAS, the City desires to establish, dedicate, and- maintain Reserves to meet known and estimated future obligations; and WHEREAS, the City desires.to maintain the following specific Reserve accounts: 1. ` General Fund Reserve a minimum of 10% of General Fund expenditures 2. General Fund Endowment, Reserve. All proceeds from surplus lands will be deposited into an interest bearing account and the prin pl will not be spent 3. Property and Liability Reserves per actuarial recommle6dations 4. Worker's Compensation Reserves per actuarial recommendations 5. Retired Employee Health Insurance Reserves per actuarial recommendations 6. Reserve for the Development of Additional Recreational Facilities 7. Reserve for Retirement Costs for Safety and Miscellaneous Employees to prevent a fluctuation in the PERS rates that would adversely impact the City's budget. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Rohnert Park directs the City Manager or his designee(s), to develop the parameters, terms and conditions, timing and notification of changes in Reserve, and identification of what the money is projected to be used for, for the implementation of each Reserve account. DULY AND REGULARLY ADOPTED this 20 day of July, 2001. CITY OF ROHNERT PARK CITY . ATTEST: FLORES: AYE REILLY: AYE SPIRO: A`il+ & 40 VIDAK-MARTINEZ: AYE MACKENZIE: AYE AYES: (5) NOES: (0) ABSENT: (0) ABSTAIN: (0) Resolution Na 2003-16 A Resolution of the City Council of the City of Rohnert Park Urging the California Legislature to Reject the Governor's Proposed Shift of Local VLF (Vehicle License Fee) Revenues and to Honor the 1998 Commitment to Restore the VLF WHEREAS, prior to 1935, cities and counties collected property taxes on motor vehicles to fund essential local public health and safety services and the Legislature first enacted the Vehicle License Fee (VLF) Act, replacing the property tax on vehicles with a 1.75 percent fee charged against the value of the motor vehicle; and WHEREAS, in 1948, the rate of the VLF was increased to 2 percent of the value of the vehicle; and WHEREAS, in 1986, the voters voted overwhelmingly to constitutionally dedicate the proceeds of the VLF to.fund city and county services; and WHEREAS, in 1998, a period of strong economic growth, the Legislature approved the use of a portion of the rapidly growing ,state General ' Fund to reduce the VLF payments of vehicle owners. This amount, known as the "offset", grew in future years to a 67.5 percent offset against the amount owed. The amount paid to local governments in lieu of the reduced VLF payment is known as the "VLF backfill"; and WHEREAS, the 1998 legislation and subsequent enactments contain clear provisions that when insufficient funds are. available to be transferred from the General Fund to fully fund the offsets and backfill amount that the VLF offset shall be reduced and VLF payments increased; and WHEREAS, VLF and backfill revenues constitute 15 to 25 percent of typical city and county general purpose revenues. On average, more than 60% of city general funds and more than half of county general funds go to front line law enforcement, fire, emergency medical services, and health care programs making revenues derived from the VLF and backfill of critical importance in funding vital local public health and safety services; and WHEREAS, any failure by the Legislature to maintain the VLF backfill or restore the VLF will cause widespread disruption in local government services essential to the well-being of California citizens; and WHEREAS, Governor Davis' proposal to divert $4 billion in local VLF backfill payments over the next 17 months fails to honor the 1998 commitment and is a direct assault on local services that will be felt by every California resident; and WHEREAS, shifting $4.2 billion in locally controlled revenues for local services is neither equitable nor fair. No state program or department has been asked to shoulder such a disproportionate share of the budget pain. These cuts come on top of the nearly $5 billion annually already transferred from local services to fund state obligations. Resolution 2003-16 (continued) NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Rohnert Park requests that if the state General Fund can no longer afford the expense of part or all of the VLF "backfill" that the Legislature and Governor of California are hereby respectfully urged to implement the provisions of current law providing for the reduction of the VLF offset in bad economic times and to restore the VLF in an amount necessary to reduce the VLF backfill. BE IT FURTHER RESOLVED that the City Council of the City of Rohnert Park hereby expresses its profound appreciation to the legislators who support such VLF restoration legislation. Duly and Regularly Adopted this 22nd day of January, 2003 City of Rohnert Park Mayor ATTEST: Deputy City Clerk League of California Cities 1400 K Street, Suite 400 • Sacramento, California 95814 Phone: (916) 656-8200 Fax: (916) 658-6240 www.cacities.org January 15, 2002 ra Spee«c MediI TO: Mayors, Council Members, City Managers and Other City Officials FROM: Executive Committee, League Board of Directors John Russo, President and City Attorney, Oakland Ron Loveridge, First Vice President and Mayor, Riverside Pat Eklund, Second Vice President and Mayor Pro Tem, Novato Beverly O'Neill, Past President and Mayor, Long Beach Chris McKenzie,' Executive Director Subject: Letters and Resolutions Needed to Support Restoration of VLF ACTION REQUESTED Act now to protect VLF funding by sending letters, resolutions and emails and phoning Assembly Members to support partial restoration of the VLF to offset the reduction in the VLF backfill proposed by Governor Davis. Things are moving quickly here in Sacramento. As you know, last Friday the Governor recommended the shift of over $4 billion in VLF backfill funds away from cities and counties over the next 18 months to fund other priorities. Yesterday we sent you a packet of information on proposed budget cuts, and asked you to carry out a series of near- and long-term actions relating to local government impacts in the Governor's budget proposal. Today we have a new and more urgent mission that really supersedes our memo of January 14. Yesterday afternoon Speaker Herb Wesson announced that he plans to move swiftly to introduce legislation to allow for restoration of the VLF funding for cities and counties. He said, "We're prepared to clarify the law to operate as intended — and restore the VLF to its normal level." The Speaker has specifically asked that cities and counties take action to support this effort. After conferring today by conference call with the League board of directors, we are writing to ask that your city use whatever internal processes you have in place to authorize the immediate transmittal of a letter to your legislators urging them to keep the promise legislators made to local government in 1998, and vote to restore the VLF. We further ask that you act immediately to adopt a resolution urging the legislature to reject the Governor's budget proposal to eliminate the VLF backfill, and (More> instead to vote to honor the 1998 commitment to restore the VLF; and that you transmit that resolution to your legislators. Copies of a sample letter, draft resolution and specific talking points are attached. You can also access these materials online by visiting the League's Advocacy Center at www. cacities. org/advocac cam. Please be sure to send us copies of any letters or resolutions you send to legislators. They should be addressed to: Jean Korinke, League Lobbyist, 1400 K Street, Sacramento, CA 95814, email: ikorinke e,cacities.org; fax 916.658.8240. (Please be advised that, because of the urgency of generating this visible support for restoration of the VLF, we are removing from our website Advocacy Center the materials we posted there yesterday relating to the VLF and cuts to redevelopment agencies. We will update and repost materials relating to other budget impacts in the near future.) The League will also work through the LOCAL coalition (Leave Our Community Assets Local) to encourage similar actions by our coalition partners among counties, special districts, unions, chambers of commerce, seniors' groups and other organizations that understand the importance of preserving local services. We believe that a vote on restoring the VLF will likely come in the next two weeks. Our failure to support this legislation (we have no bill number yet) could mean the end of VLF backfill payments to cities of over $1 billion each year.. This could very well be our one and only chance to get this issue off the budget table, and we need to act now. We urge you to contact your legislators immediately to ask for their vote in favor of the partial VLF restoration, and to follow up with a letter and resolution as quickly as possible. Attachments: VLF Restoration Resolution Draft Legislative Letter VLF Restoration Talking Points OF �Q�g3ERT F p,�K COUNCIL: Mil'SCELLANEOUS COMMUNICATIONS AGENDA 1 -22 - COPY -as - COPY TO: VLF Losses Under Governor's Proposed B " " : FY02-03 estimated FY03-04 estimated VLF Total Governor's VLF Total Governor's -_(incl backfill) _ Proposed Cut _(incl back5ln 'Proposed Cut _;. -, UNTV DORRIS , --•-'---------------------------- DUNSMUIR __ $ ___. 47,631 T $ _____(16=076) ........................................ , - - -- - 132 088 $ 44 580 $-----------1•----' $ --_ • $ 511204_; $ ____534,562); 141 995 ' $-- 595 846 ' ------------ ---- ETNA ; $ 43,176 ; $ (141572) - 43 176 ' $ -;-526 29 144 ----------------------------------------------------------.--------- FORTJONES : $ 35,980: $ (121143) _ -- .$ - -: 38 678: $ 1__•__,___.__.. 0 _ 11-. , - ------------------------------------------------------------ 88L324y$------�291810� __MONTAGUE _____________ ---------------------------------(160,671); --1-$___--_ $.._. 94 1948-� $------'090 238 031 $ , MT SHASTA-$ 221425 $ :-----------1-----�------- _.: _ ---------L-----L--------X741731) -------------------------•------------- 62 482 $ ' $ ---L---- TULELAKE ; .......................................�,...__... y_....... $ 195;231 �$_-----(6518912 21 088 ( ) .. 18 : $ 67 169 $ 3 r........._. r........ ---1-----' - 2091874 $___ 141,665); (--- ---- ---WREKA --- --- -- - ------------ ------- ' 453,8811$-___(15311852 __: r----------- 487 922: $ _ (329,348) : ---------- ---Coup --:$---------1-----•---.......-=•--.. of SISKIYOU �• ----------•---- :�--------------- -; -----------------t- ------------: ..................r........... $____(58314932 ' __r$___1,..... 1_$___(1,254,509); . •-_BENICIA___________________________$_-_11728,866 -------------- DIXON908 ------------------------------------4,014 FAIRFIELD 762 $ ; ---------- 51532,047 �_ $ (30617U n (1,8671066) _ _ $ _ _ _--� $--- _ 9'161919 $- _ 5'9461951 $_. (659,420 192), (------ , ' ---------------- ------------------------$ RIO VISTA ---- -- ' $ 270716 ; $ 91367) __ $ 2911019_; $ 196 438 :_ ---------------------------------------+• SUISUNCITY - --------- ..: $ >----------- 1,719 834: $ 1-----•-----1.L_..R._. (1 160 888 . -------------------------------- VACAVILLE________________________$_-_52911$__(1,804,3.73) -------$---115.99,84ti�$----(5391948) _-1 $___5,7471263_ $-__(3,879,402); -- VALLEJO _ -- ------------=- 7 070 590 ; $ (2,3861325) ----1--•-;--' ---- __: $ :----------•1-- 7,600 885_ -- Coun of. SOLA NO ._ ---------------;---------------- -r..---------------:----- ----•---� fi-----------------—----------------- CLOVERDALE ____-;_$_____357,2931$____(1201587) ---- ---------------------------------- ---t-----------------------------------• $ - `-----------1--...:.•----- - 384090' $ 43. 414 (259,261); 580 COTATI 405 67.: $ ,9 137 014 --: $ (294 --------------------=-�---•----'"------------•1--------------1-----�-'----- ---"�--�•�•--'-'-'- 614 388 ' $ 207 35 ' ( .. '---1 ; $ 660 467 $ (445 815 ... 1----- 1---- . ---r----------- ------- ............................... �.� ............. y ------. ---HEALDSBURG . PETALUMA_ 31033,581 $-_ (1,0231834) _ $ r----------- 3,2611100_: $(?,?01,242): --------------------- •�-ROHNERT PARK -- 414 312: $ (814 830) : $___ --- 2:5951385 -- --- ----- --------------------------------------- ROSH_____________________$ ... - ----1-•--L-•••.--•-•.. 8 382 353 $ -'-1-'-- (2,829,0441 ___. $____: 9 011 029 _..1.----L__.._(.L__.J_---); ---SANTA ._-...------- SEBASTOPOL ' $ 477 761: $ (161,244 _ 513 593 $ (346,675)- 75), __ $ 1_____ _______ _- ------------------------ ----------------------- - $ 565 740 ' $ SONOMA '- ( $ 608' 171 ' $ . -- --1-----%------.( 410 SLS ' ...�.._.); ---------------------------------------' WINDSOR -- ---- ---L----.-------1901938) '11252 335 ' $ --------L---•�-------- 422 663 $ --------- 1,346,260 $ ------•-•------- 908 725 ---�---- ---------------------------------------'- Coup of SONOMA --------------- --------•------ -:-----------------; ............. .................................... CERES : $ 1 950 882: $ - ----- (6581423 - ...�............ _....�............ 2,0971199_, $___(1,415,609); ---- . ---HUGHSON--------------------- ---1----L--- --$- 217,2691$.-----(7313282 $--- 2331564 ; $ .23 --- •- -----(---1.. 157 656): ----------------------- $ 11166,731 $__(3,7681772) -__L$__12,0041236_� $___(8,1022... -----------------------------------•---:-------1-----•------- NEWMAN ' $ 363 150 ; $ (122,563] - $ 3901386_; $ (263,510) .......................................�........- OAKDALE .r....... ' $ 880 385 $ (29711302 L._..�--_---- --- : $ 9461414_. $_____(638,829 PATTERSON...................... ""�-��----��•---- $ _-.•-625,7561$____ (21111932 603,762 ' $ 203 770) _: $ . -........2..... $ 672 687: $ 649 044: $ (454:064); ..... ---- (438 105 RIVERBANK-------;-$ -- ------------- TURLOCK ---------'-------------- ---1 3 160728 ; $ (1,066,746) _: - L--------.._1------------ 3 97 783 ' $ 2 293 504 ; $ ,3 1_--_.: _.(_L. .2__ _); _ ; $ 400,366 ' $ - (135124% ' $ 430 394: $ 290 51 __WATERFORD --- - Coun of STANISLAUS tY �---------�----------------- --- -----------------i ................. ; --- ------------•--------------•---------- Source: State Con troller Annual re rts A VLF allocation tables. Computations by Coleman Advi Services ' C'O--------------------------- ------------------------- ----------------------: RrLF !s among t 1 rgeSt �ouraes of general W;; ; �e for c +ies I� clty general revenue is spent on police a , 0 1Wan03 GaliforniaGiiyFinance.com page 13 of 15 Dettling, Troy From: Lipitz, Sandy Sent: Friday, January 17,-2003 12:05 PM To: Donley, Steve Cc: Dettling, Troy Subject: FW: [members] Call to Action on VLF from Bob Torrez - S Meeting 122/2003 You might want to put this on the consent calendar. MISCELLANEOUS COMMUNICATIONS AGENDA I/99, COPY TO: Page 1 of 1 -----Original Message ----- From: John_Zanier@ci.long-beach.ca.us [mailto:John_Zanier@ci.long-beach.ca.us] Sent: Friday, January 17, 2003 9:51 AM To: CSMFO Members Subject: [members] Call to Action on VLF from Bob Torrez,- Senate Local Government Committee Meeting 1/22/2003 Long Beach, January 17, 2003 Fellow CSMFO Members: By now you are all aware of the potential devastating impact of the Governor's proposed Vehicle License Fee cutbacks. Because these funds are a primary revenue source for many localities, their loss would seriously impede our collective ability to provide basic services. H 'ti+�.r LA In recognition of both the consequences and the fundamental unfairness of the Govemor's proposal, we are marshaling our forces for action in Sacramento. On Wednesday, January 22nd, the Senate Local Government Committee will meet at 9AM to discuss .the entire VLF issue. We are asking that all cities send representatives to Lis hearing, preferably�eileGted�ffi tis not �ee le for you to sffi n o to the meetan vue as c ar i ounc n support o ra ono LF . In addition, it would also be helpful if you send correspondng your conceyour egis a oacramento. Toassist you in your efforts we have attached a sample resolution and letter. Our main hope of thwarting the Governor's actions lies in our unity and our determination: Together I am confident we can overcome this challenge to our way of life. Robert Torrez CFO/Director of Financial Management City of Long Beach 0 3 A c�P.r� 1/17/2003 WHEREAS, Governor Davis' proposal to divert $4 billion in local VLF backfill payments over the next 17 months fails to honor the 1998 commitment and. is a direct assault on local services that will be felt by every California resident; and WHEREAS, Long Beach alone could lose up to $12 million this fiscal year and another $19 million next Fiscal Year (FY 04); and WHEREAS, before hearing of the Governor's new proposal, Long Beach city staff had already begun developing a three-year plan to address the City's structural deficit, which included serious reductions in service, significant impacts to employee compensation and/or benefits, and approximately a 15 percent reduction in the City's workforce; and WHEREAS, without the consideration of the Governor's budget proposal, the City of Long Beach was already facing potential layoffs in key departments and with this proposal, layoffs will be. certain and swifter than we had anticipated, with even public safety personnel at risk of job loss; and WHEREAS, cities are limited in raising fees and taxes by Proposition 218, while the State has the ability to do this without the requisite vote of the people; and WHEREAS, the City of Long Beach currently loses over $15 million annually in property taxes to the State, due to the revenue shift created by the Educational Revenue Augmentation Fund (ERAF) in 1991; and WHEREAS, shifting $4.2 billion in locally controlled revenues for local services is neither equitable nor fair. No state program or department has been asked to shoulder such a disproportionate share of the budget pain. These cuts come on top of the nearly $5 billion each year that is transferred from local services to fund state obligations. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LONG BEACH, CALIFORNIA, that if the state General Fund can no longer afford the expense of part or all of the VLF "backfill" that the Legislature and Governor of California are hereby respectfully urged to implement the provisions of current law providing for the reduction of the VLF offset in bad economic times and to restore the VLF in an amount necessary to reduce the VLF backfill; and RESOLVED FURTHER, that the City of Long Beach hereby expresses its profound appreciation to the legislators who support such VLF restoration legislation. APPROVED on this day of , 2003. January. 14, 2003 The Honorable Jenny Oropeza, Chair California State Assembly Budget Committee State Capitol Building Sacramento,. California 95814 Subject: GOVERNOR'S PROPOSED BUDGET — IMPACT ON LONG BEACH Dear Assemblymember Oropeza, If enacted, the Governor's Proposed Budget, with its recommended elimination of the Vehicle License Fee (VLF) backfill.to cities, will have a devastating impact on the City of Long Beach. Upon hearing his press conference, we were left feeling shocked and dismayed. As you know, the VLF backfill accounts for significant portions. of larger cities' general fund budgets and, in our case, this funding source is not far behind the amounts received in property, sales, and transient occupancy taxes. Additionally, the VLF backfill accounts for $18 million, or about 7% of the City's general fund. Approximately two-thirds of that funding is committed to supporting essential public safety services for our residents. By proposing the total elimination of the VLF backfill, the Governor has seriously jeopardized the fiscal health of Long Beach and many other cities throughout the State. Long Beach alone would lose approximately $12 million this fiscal year and another $19 million next Fiscal Year (FY04). This means that our already anticipated FY '04 structural deficit would grow from $52 million to over $66 million. Before hearing of the Governor's new proposal, City Staff had already begun developing a three year plan to address the City's structural deficit, which included serious reductions in service, significant impacts to employee compensation and/or benefits, and approximately a 15 percent reduction in the City workforce. Without ,the consideration of the Governor's budget proposal, we were already facing potential layoffs in key departments. With this proposal, layoffs will be certain and swifter than we had anticipated, with even public safety personnel at risk of job loss. Other areas of the Governor's proposal that will impact the City include: • Booking Fees — Long Beach will lose approximately $31,000 annually in booking fees paid to the County of Los Angeles and not reimbursed by the State. Redevelopment Agency — The Governor proposes increasing the shift of property tax dollars collected within redevelopment agencies and distributed to school districts from $75 million to $250 million. He also proposes that the entire share of property taxes collected from redevelopment agencies be transferred to school districts. This action will affect several projects:in North Long Beach, including the much needed construction of a new North Police Station, and could mean the loss of up to $8 million to our City. • Low and Moderate -Income Housing Funds — The absorption of unencumbered funds for low and moderate -income housing developments would cost Long Beach $3 million and the loss of critically needed housing for low-income residents. Local Transportation Funding — Long Beach will lose approximately $1 million per year from this cut, which is currently programmed for slurry seal work. An indirect hit could be our future Surface Transportation Program to Locals (STPL) allocations, which typically go to the MTA, which then distributes a portion to cities in LA County as a subvention. Our recent share is approximately $1.4 million. annually. Maintenance of City streets was ranked highest among essential services in a recent survey of over 10,000 Long Beach residents. • Public Library Fund (PLF)— A reduction in PLF revenues will cause the loss of $500,000 or 70 percent to the Long Beach Public Libraries, and will have a devastating impact on services to the public, causing the full closure of at least two branches and rolling closures for 10 of 11 remaining branches. Health Department Funding — The Governor's proposed cuts to the Department of Health and Human Services would reduce the City's Health Department budget by $800,000, and would mean the elimination of our Pregnancy ,Prevention and Long Term Family Self -Sufficiency programs. We know by our current local budget experience that the State's leadership is facing many difficult choices, and we do not expect to make it through this crisis unscathed. However, cities are limited, in raising fees and taxes by Proposition 218, while State has the ability to do this without the requisite vote of the people. In addition, as a result of the 1999 vote to roll -back the Utility Users Tax, the City is losing approximately $7 million per year. Some may argue that local governments are doing fine now, even though the State took our property taxes and diverted them to the Educational Revenue Augmentation Fund {ERAF) in the early nineties. It is important to note that cities' response to the ERAF shift were drastic across the board increases in local taxes and fees, that led to the enactment of Proposition 218. Thus, cities are in a much different situation now than we were in the early nineties. Under the Prop 218 structure, we have no hope of replacing, this lost revenue. Serious reductions in all city services will be the only possible result from the proposed cuts. Therefore, we urge your support for the reinstatement of the VLF rates to their pre -rebate levels, rather than eliminating the much-needed VLF •backfill to cities. With this method, the State will follow the original intent of the VLF rebate, (which was meant to be temporary during California's fiscal high times) and without devastating local governments fairly distribute the responsibility to Califomia residents. Cordially, Beverly O'Neill MAYOR cc: Honorable Betty Kamette Honorable Edward Vincent Honorable Debra Bowen Honorable Alan' Lowenthal Honorable Mervyn Dymally A RESOLUTION URGING THE CALIFORNIA LEGISLATURE TO REJECT THE GOVERNOR'S PROPOSED SHIFT OF LOCAL VLF REVENUES AND TO HONOR THE 1998 COMMITMENT TO RESTORE THE VLF WHEREAS, prior to 1935, cities and counties collected property taxes on motor vehicles to fund essential local public health and safety services; and WHEREAS, in 1935, the Legislature first enacted the Vehicle License Fee (VLF) Act, replacing. the property tax on vehicles with a 1.75 percent fee charged against the value of the motor vehicle; and WHEREAS, in 1948, the rate of the VLF was increased to 2 percent of the value of the vehicle; and WHEREAS, in 1986, the voters voted overwhelmingly; to constitutionally dedicate the proceeds of the VLF to fund city and county services; and WHEREAS, in 1998, a period of strong economic growth, the Legislature approved the use of a portion of the rapidly growing state General Fund to reduce the VLF payments of vehicle owners. This amount, known as the "offset", grew in future years to a 67.5 percent offset against the amount owed. The amount paid to local governments in lieu of the reduced VLF payment is known as the "VLF backfill"; and WHEREAS, the 1998 legislation and subsequent enactments contain clear provisions that when insufficient funds are available to be transferred from the General Fund to fully fund the offsets and backfill amount that the VLF offset shall be reduced and VLF payments increased; and WHEREAS, VLF and backfill revenues constitute 15 to 25 percent of typical city and county general purpose revenues. On average; more than 60 percent of city general fund spending and more than half of county general funds go to front line law enforcement, fire, emergency medical services, and health care programs. WHEREAS, the VLF backfill accounts for $27 million in the general fund, which equates to approximately 10% of our general fund budget, with roughly two-thirds of that funding committed to support essential public safety services for our residents. WHEREAS, revenues derived from the VLF and backfill are of critical importance in funding vital local public health and safety services; and WHEREAS, any failure by the Legislature to maintain the VLF backfill or.restore.the VLF to pre -rebate levels will cause widespread disruption in local government services` essential to the well-being of California citizens and their cities and counties; and STATE CAPITOL P.O. BOX 942849 SACRAMENTO, CA 94249-0006 (916) 319-2006 DISTRICT OFFICE 3501 CIVIC CENTER DRIVE ROOM 412 SAN RAFAEL, CA 94903 (415) 479-4920 (707) 938-8157 joe.nation@asm.ca.gov January 15, 2002 The Hon. Greg Norden City of Rohnert Park 6750 Commerce Blvd. Rohnert Park, CA 94928 Dear Vice Mayor Norden: �Ssrmhlv JOE NATION ASSEMBLYMAN, SIXTH DISTRICT Representing Marin and Sonoma Counties CHAIR, ASSEMBLY RULES COMMITTEE Earlier this month, Governor Gray Davis introduced his 2003-04 Budget Proposal. I thought you would appreciate an update on California's fiscal outlook as it pertains to local government. As you are undoubtedly aware, California is currently experiencing its worst budget crisis in state history. Recent estimates place the State's fiscal deficit at approximately $34.8 billion. It is important to note that California is not alone. Virtually every other state in the Union — whether governed by -'a Democrat or Republican governor or legislature — is feeling the budget squeeze. The contributing factors vary befwee'nstates, but California'has'felt_them all: lower ue sales, tax revenfrom the* ongoing economic slowdown, reduced federal assistance for federally - mandated programs, lower income tax receipts from ffie-dot.com/stock market dive, increasing health care costs, increased enrollment in public schools, and the effects of September 11t". These factors have combined to form what amounts to. the "perfect fiscal storm:" The magnitude of this crisis can be illustrated with the following examples: shutting down every University of California and California State University campus for the next year would eliminate only 20% of the budget gap. If our state's health insurance program for the working poor (Healthy Families) were completely eliminated, the state would still experience a very large budget shortfall. Moreover,, if every state employee were fired tomorrow; every park ranger, every college professor, every DMV employee, and every Highwav Patrol officer. California would eliminate only about one-half of its shortfall. With this in mind, the Legislature recently convened a Special Session, at the request of the Governor. At the commencement of this session, Governor Davis proposed approximately $10.2 billion in current -year spending reductions for which he sought legislative approval. However, the leadership of both parties and houses determined that it would be unwise to blindly accept the Governor's proposals without a clearer picture of California's budget future. This has been Somewhat clarified with the release of Governor Davis' 2003-04 Budget Proposal last week. .Governor Davis has proposed a multitude of spending reductions and revenue increases to' achieve a balanced budget. Among those is a historic State -Local Program Realignment initiative. As you may know, the State enacted State -Local Program Realignment in 1991 involving a number of health and social services programs. The 1991 -Realignment consisted of a Printed on Recycled Paper transfer of responsibility from State to county for certain mental health, public health and indigent health programs. This realignment was coupled with a revision of State -county cost-sharing ratios for additional public health programs and contained an increase in the state sales tax along with a revision of the vehicle license fee to generate revenues for the counties to administer these programs. Governor Davis' 2003-04 Budget Proposal contains a similar Realignment initiative (a.k.a. Realignment II). This proposal will include the realignment of mental health and substance abuse programs, some children and youth programs, Healthy Communities, some long-term care programs and court security. I have enclosed a list of specific programs proposed for Realignment H for your information. In addition, the Budget Proposal includes revenue increases totaling approximately $8.3 billion to support the increased financial obligations for counties under realignment. These revenue increases will consist of: (1) an increase in the sales tax rate by one cent ($4.6 billion), (2) a reinstatement of the 10% and 11% personal income tax brackets on individual incomes over $136,000 per year ($2.6 billion) and (3) an increase in the excise tax by $1.10 on cigarettes. -and other tobacco products, ($1.2 billion). In addition, Governor Davis has proposed a $4.2 billion reduction in the vehicle license fee "backfill." The budget proposes urgency legislation to eliminate, as of February 2003, state General Fund payments to cities and counties that replace local general revenue reductions due to the existing reduction in the vehicle license fee. Furthermore, the 2003-04 Budget Proposal also includes $250 million in savings in state K-14 education costs by forcing local redevelopment agencies to shift their property tax revenues to the Educational Revenue Augmentation Fund. I firmly believe that tax increases must remain on the table for discussion as a means to offset further spending reductions to our local governments. However, I believe that California's revenue -raising options should be prioritized as follows: 1) restoring the high-income tax bracket upon California's wealthiest persons; 2) restoring the vehicle license fee schedule to its pre -1998 levels and providing those monies directly to local government; 3) raising the tobacco tax to a significant — not debilitating — level. Some of these options have been proposed by the Governor. As mentioned, the Governor's January Budget Proposal also contains a one -cent statewide sales tax increase. I am hopeful that these revenue -generating proposals will curtail California's need to reduce and/or borrow monies from our local governments. Again, thank you for writing me. If you should have any additional questions concerning this or any other state matter, please do not hesitate to contact me. Sl_ �ereiy, -• E N TION A blyman, Marin & Sonoma Counties JN -jab B2 Enclosure . a ,. PRESERVING CRITICAL PROGRAMS FIGURE A State -Local Realignment (Dollars in Millions) Department Program GF Cost to Savings Counties Mental Health and Substance Abuse DADP Local Programs $219 $219 DADP Drug Courts/State Operations 12 11 DMH Children's System of Care/State Operations 20 20 DMH Integrated Services For Homeless/State Operations 55 55 Mental Health and Substance Abuse Total $306 $305 Children and Youth DSS Child Abuse Prevention, Intervention, and Treatment $13 $13 DSS Foster Care Grants 460 460 DSS Foster Care Administration 34 34 DSS Child Welfare Services. 596 596 DSS Adoption Assistance 217 217 DSS Kin -GAP 19 19 SDE Child Care 968 11.9M Children and Youth Total $2,307 $2,370 Healthy Communities DHS 15 Percent County Share of Medi -Cal Benefits Costs $1,620 $1,620 DHS Adolescent Family Life Program 14 14 DHS Black Infant Health Program 4 4 DHS Local Health Department Maternal and Child Health (MCH) 3 3 Program. DHS Expanded Access to Primary Care (EAPC) 24 24 DHS Indian Health Program (IHP) 7 7 DHS Rural Health Services Development Program (RHSD) and 9 9 Grants in Aid (GIA) for Clinics Program DHS Seasonal Agricultural and Migratory Workers (SAMW) Program 7 7 DHS Managed Care Counties (0.9) DHS California Health Care for Indigents (CHIP) (46.2) DHS Rural Health Services (4.4) DHS County Health Services Public Health Subvention 1 1 DHS Reductions to Rural Health Care and MCH State Operations 2 DSS Cash Assistance Program for Immigrants 95 95 DSS Adult Protective Services 61 61 DSS California Food Assistance Program 15 15 DSS Food Stamp Administration 268 268 DSS Ca1WORKs Administration 120 120 DSS CalWORKs Employment Services 423 423 Cost of Prop 99 -funded Programs 58 Healthy Communities Total $2,671 $2,727 Long -Term Care DHS Realign Medi -Cal Long -Term Care $1,400 $1,400 DSS In -Home Supportive Services 1,086 1,086 DSS In -Home Supportive Services Administration 85 85 Long -Terre Care Total $2,571 $2,571 Court Security Thal Courts Court Security $300 $300 Total Realignment $8,154 $8,273 GOVERNOR'S BUDGET SUMMARY 12003-04 25