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HomeMy WebLinkAbout12-18-2012 b2 budget foundation-financial plan process & policiescounci lj acenba Repor t C I T Y O F S A N L U I S O B I S P O FROM : Katie Lichtig, City Manage r Michael Codron, Assistant City Manage r Shelly Stanwyck, Parks and Recreation Directo r SUBJECT :2013-15 FINANCIAL PLAN PROCESS AND POLICIE S RECOMMENDATIO N 1.Review and approve the 2013-15 Financial Plan Goal Setting Process . 2.Review and approve the proposed changes to the 2013-15 Financial Plan Policies . REPORT-IN-BRIE F The purpose of this agenda item is to finalize the process for establishing the City's 2013-1 5 Financial Plan including the development of Major City Goals . The report will further review th e policies that past financial plans have relied upon and address recommended changes to a few fo r consistency amongst all City policies . BACKGROUN D The following four features describe the City's Financial Plan process : goal-oriented, policy-driven, multi-year and technically rigorous . For 2013-15, staff plans to continue using a two-year budge t that emphasizes long-range planning and effective program management . The benefits identifie d when the City's first two-year plan budget 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-ter m fiscal health . 5.Promoting more orderly spending patterns . 6.Reducing the amount of time and resources allocated to preparing annual budgets . Appropriations continue to be made annually ; however, the Financial Plan is the foundation fo r preparing the budget for the second year . Additionally, unexpended operating appropriations fro m the first year may be carried over for specific purposes into the second year with the approval of th e City Manager . This practice has successfully avoided the tendency in large organizations to mak e "use it or lose it" expenditures at the end of a fiscal year . •The fundamental purpose of the City's Financial Plan is to link what the City wants to accomplis h over a two-year period with the resources required to do so . The Financial Plan process used by the Meeting Dat e12-18-1 2 m Number 2 • B2-1 2013-15 Financial Plan : Process and Policies Page 2 Council does this by engaging the community to identify the most important things for the City t o accomplish for the community, establishing a timeframe and organizational responsibility fo r achieving them, and allocating the resources needed to do so . Attachments 1 and 2 contain th e community-wide priorities survey and the flyer sent to over 200 groups and individuals invitin g participation in this process, both of which are examples of methods to solicit input from resident s and other community member s In order to identify key goals which will drive the budget process, the City begins its Financial Pla n process with Council goal-setting to determine major objectives to be accomplished over the nex t two years . These key goals, "Major City Goals", are in addition to the routine, ongoing services th e City provides to the community . Two major elements of the goal-setting process are the Community Forum and the Council Goal - Setting Workshop which are both held in January . Goals approved by the Council are incorporate d into the budget preparation process . In April, staff returns with draft work plans and requests fo r policy direction which is used to formulate a Preliminary Financial Plan for public comment .A series of study sessions and public hearings are then held prior to approval of the Financial Plan an d Budget by June 30 `s . A visual depiction of the Goal-Setting and Budget Process elements and thei r interactions is included in Attachment 3 . Measure Y Integration Measure Y was approved by City voters in November 2006 to preserve essential services for th e community . Measure Y established a %2-cent City sales tax that keeps all revenues local . Thi s general purpose revenue measure generated $6 .2 million in revenue during 2011-12, which is bein g used for important public safety, infrastructure maintenance, traffic congestion relief, neighborhoo d code enforcement and open space acquisition projects . Measure Y includes accountability an d citizen oversight provisions, including an 8-year sunset and annual auditing requirements . In addition, Measure Y includes the following provisions to ensure that consideration of this important revenue source is integrated into the financial planning process . The proposed goal-setting proces s for 2013-15 is designed to meet these two requirements . 1.Integration into the City's budget and goal-setting process .The estimated revenue an d proposed use of funds generated by this measure shall be an integral part of the City's budge t and goal-setting process, and significant opportunities will be provided for meaningfu l participation by citizens in determining priority uses of these funds . 2.Annual citizen meeting .An invitation will be extended each year to the entire communit y asking Community members to participate in a forum to review and discuss the use o f the revenue generated by this measure . City staff will also be available to meet with any grou p that requests a specific briefing with their members to discuss and answer questions about th e revenues generated by the measure and their uses . It is important to know that Measure Y is a general purpose measure, and the proceeds are no t restricted to specific purposes . However, the language on the ballot measure approved by voters i n 2006 provided examples of the types of uses that would be funded . The language on the ballot was : • • • • • • 2013-15 Financial Plan : Process and Policies Page 3 "To protect and maintain essential services—such as neighborhood street paving and pothole repair ; traffic congestion relief public safety, including restorin g eliminated traffic patrol, Fire Marshal an d fire/paramedic training positions; flood protection; senio r citizen services or facilities ; neighborhood code enforcement ; open space preservation and other vita l general purpose services—shall the sales tax b e increased by one-half cent for eight years only, wit h citizen oversight and independent annual financial audits?" In short, while the ballot language provided examples o f the types of uses that could be funded - based o n community input received before placing the measure o n the ballot - Measure Y is a general purpose tax providin g Council with flexibility to respond to new circumstance s and challenges . With each financial plan, staff prepares a Measure Y integration report to show how use of Measure Y revenues is connected to the Council's goals (Attachment 4). The report discusses how Measure Y priorities are determined, and include s detailed information about the types of expenditures made (operating and capital) since the local , half-cent sales tax was approved . As noted above, the Community Forum will give the community an opportunity to provide input t o the Council as to their views on Measure Y priorities . This will help the Council connect Major Cit y Goals and Measure Y priorities . DISCUSSION 2013-15 Goal Setting Proces s The first purpose of this agenda item is to fmalize the goal-setting process for 2013-15 . With adoption of the Goal Setting and Budget calendar on September 4, 2012 (Attachment 5) an d tonight's workshop as the foundation, the City is using a "two-step" approach to the Council goal - setting process . The two principal elements to this approach are the Community Forum,to be hel d on the evening of Tuesday, January 8, 2013,at the Ludwick Community Center and the Council Goal-Setting Workshop to be held on Saturday, January 26, 2013 at the City/County Librar y Community Room. Staff and facilitator Don Maruska plan to build on past successes in integrating Council goal-settin g into the budget process following an approach similar to the one used for many years includin g integration of Measure Y goal identification . The specifics are outlined below . Community Forum The January 8 th Community Forum is intended to solicit suggestions from Council advisory bodies , community groups, other groups of stakeholders and interested individuals on proposed City goals an d fiscal issues . It is also intended to meet the "forum" requirements of Measure Y to "review an d 2011-13 Measure Y Prioritie s •Infrastructure maintenanc e •Preservation of essentia l services : public safety , maintenance service s •Traffic congestion relief •Neighborhood cod e enforcement B2-3 2013-15 Financial Plan : Process and Policies Page 4 discuss the use of the revenue generated by this measure ." To ensure that adequate space i s available for the forum, it will be held at the Ludwick Community Center . The proposed agenda for the Community Forum is provided in Attachment 6 .As reflected in th e agenda, it is recommended that the facilitator be responsible for calling speakers to allow the Mayo r to focus on the content. As noted in the agenda details, the facilitator will help organize comment s by general topic and encourage groups to select a spokesperson and have others in the grou p indicate support for the same position with a show of hands . Each speaker will be invited to addres s the "what, why, and how" of his/her suggested goal . The Department Head responsible for th e budget function (i .e ., Public Safety ; Public Utilities ; Transportation ; Leisure, Cultural and Socia l Services ; Community Development ; and General Government) in which the comment falls wil l write the idea on a flip chart sheet and clarify any linkages with existing programs or plans . Staff will post the flip chart sheets with the public comments in the relevant budget functional areas o n the walls . Participants will also receive half-page "post-it" notes for audience members to offer writte n comments such as resource suggestions or concerns to be posted next to goals . To involv e participants further and garner direct citizen feedback on all suggestions offered, "voting with dots " will be used again . At the end of the meeting, each attendee will receive adhesive dots to apply t o the posted items : six green for overall goal priorities and six orange dots for top Measure Y priorities will be provided to each participant . When using the dots the same goal could receive bot h a green and orange dot . That decision is within the control of community member participating in the process . Participants will be advised to avoid assigning more than one green and one orange dot to any one goal . However, because this is an informal way to gather input for the Council to b e considered for the coming two year-cycle there will be no monitors or ways to prohibit participant s from applying as many dots to any item as they wish . City staff will summarize the results of th e forum and distribute them to the Council on January 15,2013 before the Goal-Setting Workshop . It is also planned for the Community Forum to be videotaped so there will be a historical record othe r than the flip charts and individual recollections . This will be done in a way that will be low key (on e camera, no lights) so the quality may not replicate a regular council meeting . Should the Counci l object to this effort, concern should be expressed at the December 18 th Council meeting . Council Homework Assignment (Due to Finance by January 22, 2013) Provided in Attachments 7 and 8 are the Council's first "homework assignments" for the Januar y 26 `h workshop . Based on all input received, it is requested that Council members prepare an d submit up to seven candidate goals as Major City Goals by January22,2013 .Council member s are also asked to prepare and submit suggestions for changes in other programs and services to fun d their desired goals . Staff will then compile verbatim, composite lists organized by common topics , without identifying who submitted the particular statements for review and consideration before th e workshop . This lists will be distributed to all Council members and the community on January 24 , 2013 .While staff will retain individual submissions in the working files it is recommended tha t Council members refrain from releasing their personal lists so that each Council member ha s flexibility to review all of the submissions and discuss them at the Goal-Setting Workshop befor e taking a position . • • • 2013-15 Financial Plan : Process and Policies Page 5 Council Goal-Setting Workshop At the all-day January 26 `h workshop, the Council will review the consolidated goals presented b y Council members to ensure clarity, completeness and understanding ; and then narrow the list t o finalist goals that are supported by at least three Council members . The discussion will note which goals address Measure Y priorities . While the Council proceeds with the discussion outlined above, the staff will prepare a final listin g that the Council can use in prioritizing goals . In years past, the Council has used a ranking syste m of 5 through 0 for each candidate goal . Staff recommends continuing to use this ranking system fo r 2013-15, summarized as follows : 5 Most important, highest priority for City to achieve over the next two years . 4 Very important goal to achieve . 3 Important goal to achieve . 2 Address if resources are available . 1 Defer to 2015-17 for consideration . 0 Not a priority goal . Depending on the number of candidate goals, total points available to individual Council member s have ranged in the past from 50 to 75 based on 3 points per candidate goal . For example, if there are 15 goals in the final listing, then 45 points might be about right ; if there are 25, then 75 might be appropriate . The exact number of points is typically figured out on the day of the workshop . Staff will summarize the results of the Council's ranking during a break at the workshop . Based on past experience, it is likely that three priority "tiers" will emerge from this process : 1.Major City Goals . These represent the most important, highest priority goals for the City t o accomplish over the next two years, and as such, resources to accomplish them should b e included in the 2013-15 Financial Plan . If the work program approved by the Council for a Major City Goal is not included in the City Manager's Preliminary Financial Plan, compellin g reasons and justification must be provided as to why resources could not be made available t o achieve this goal . 2.Other Important Objectives .Goals in this category are important for the City to accomplish , and resources should be made available in the 2013-15 Financial Plan if at all possible . 3.Address as Resources Permit .While it is desirable to achieve these goals over the next tw o years, doing so is subject to existing resource availability . In determining these groupings, the Council will note which goals address Measure Y priorities an d determine the desired emphasis among the areas that Measure Y funding supports . Thes e discussions will provide guidance at a policy level, while details of work plans and budget figure s will come forward in April . The outline for the goal setting workshop is provided in Attachment 9 ; and suggested guidelines fo r •Council members during the goal-setting process are provided in Attachment 10 . Included a s Attachment 11 are the suggested "Criteria for Major City Goals" which have been used by th e • • B2-5 2013-15 Financial Plan : Process and Policies Page 6 Council for the past twenty years . These criteria capture the relevant considerations to determine a Major City Goal but the Council could refine the criteria at this time if desired. Continued consideration of goals for 2013-15 is scheduled for the next regular Council meetin g following the workshop . This will be held on February 5, 2013,if needed .No follow-up meeting has been needed in the last several goal-setting sessions as the Council concluded all necessar y actions at the Saturday Goal-Setting Workshop . Next Steps : Council Goal Work Program s After the Council finalizes goals and objectives for 2013-15, staff will prepare detailed wor k programs for each Major City Goal . Based on past experience, it is important for the Council t o reach consensus not only on the objective for Major City Goals, but also on the program, actio n plan and resources that will be needed to accomplish it . Unless staff fully understands the scope an d timeframe that the Council intended, needed resources cannot be identified ; and without thi s understanding, the Preliminary Financial Plan may significantly over (or under) fund the desire d work effort. Accordingly, the purpose of each work program is to : 1.Define the scope, scale and intended outcomes of the adopted goal . 2.Ensure that there is consensus about the action steps to be used in accomplishing it s o appropriate resources are allocated . 3.Ensure specific action steps are associated with measurable deliverables so that progress i n achieving the goal can be articulated . For each "Major City Goal," staff will prepare a detailed work program describing the objective o f the goal, the key factors driving the need, work that has already been completed, anticipate d challenges or obstacles, stakeholders, and key assumptions . Also included will be a detailed actio n plan with targeted completion dates for key tasks, a description of the financial and staff resource s necessary to complete the work, and the desired outcome and community benefit of the goal . For each "Other Important Objective," staff will prepare an outline highlighting the objective, actio n plan, responsible department, overview of financial and staff resources, and desired outcome an d community benefit . Finally, for each "Address as Resources Permit," staff will prepare a brie f summary of the objective and the key activities needed to accomplish it . The work programs for Major City Goals will be presented to the Council at a special budge t workshop on April 9, 2013 .This meeting will result in strategic budget direction about levels o f investment in the Major City Goals as well as additional investments in the City's general fun d supported capital improvement program . This direction is then translated into the operating an d capital budgets contained in the Financial Plan . In other words, this meeting is used to get broad - brush direction and guidance from the Council which typically helps ensure that the draft financia l plan reflects the wishes of the City Council . Programs and projects related to goals in the other tw o priority categories will be reflected in the Preliminary Financial Plan as appropriate . • • • • • • 2013-15 Financial Plan : Process and Policies Page 7 Continued Enhancements or Discontinued Elements to the Goal-Setting Proces s The following key enhancements to the process were implemented in the 2011-13 Financial Plan an d will continue with this fmancial plan to build on past experience : 1.Inclusion of carryover goals, Major City Goals and Other Important Goals underway or no t fully funded in the goal-setting process .This ensures that the Council is looking at the ful l plate of major activities during the process . 2.Integration and identification of Measure Y funding with other goals .This emphasizes clarity and accountability for Measure Y funding . In preparation of the 2011-13 Financial Plan, staff completed a new initiative which gave the Council and the community another tool to compare and contrast services in deciding how t o address the City's then budget gap (called Service Categorization). Since the circumstances ar e substantially different now it is an imprudent dedication of staff resources to update this assessmen t and staff has not incorporated a service categorization project into the schedule . Summary Goal-Setting Calendar s The following summarizes key dates leading to the January 26 a'Goal-Setting Workshop : The following summarizes the remaining key dates after January 26 th . Wha t Council receives goal-setting notebooks, which includes advisory body goal recommendations, initial results from Community Prioritie s Survey ; and written suggestions as of December 14 . Council holds Community Forum . Council receives written results from Community Forum . Council members submit goals to Finance Department. Staff distributes consolidated Council member goals organized b y similar topics . Council holds Goal-Setting Workshop . Whe n Friday, December 2 1 Tuesday January 8 Tuesday, January 1 5 Tuesday, January 2 2 Thursday, January 2 4 Saturday, January 2 6 Remainin g Ke Dates A ter anua 26 th Goal-Settin Worksh o Wha t Follow-up to Council Goal-Setting, if needed . Continue d consideration of goal-setting at the next regularly scheduled Counci l meeting following the January 26 workshop, if needed . Whe n Tuesday, February 5 Regular Meeting B2-7 2013-15 Financial Plan : Process and Policies Page 8 Goal-Setting Workshop Notebook s To help organize all the background information that Council members will receive as part of thi s goal-setting process, notebooks will be distributed by December 21, 2012 with the followin g sections : Agendas 1.Agendas for the January 8 Community Forum and January 26 Goal-Setting Workshop . Goal Recommendation s 2.Goals received from Council advisory bodies . 3.Goals from the "Community Priorities Survey" as of December 14, 2012 (additiona l submissions received after this date will be distributed to the Council in a three-hole punc h format for inclusion in the notebook, along with an updated summary). 4.Goals received by December 14, 2012, from community groups and interested individual s (additional submissions received after this date will be distributed to the Council in a three-hol e punch format for inclusion in the notebook). 5.Summary of results from the January 8 `' Community Forum (to be distributed by January 15 , 2013). 6.Consolidated Council member candidate goals (to be distributed by January 24, 2013). Tuesday, February 1 9 Regular Meetin g Tuesday, April 9 Special Budget Worksho p Thursday, May 2 4 June 10, 11, 1 2 Special Budget Workshop s Tuesday, June 1 8 Regular Meetin g Tuesday, June 2 5 Special Meeting (if needed) Mid-Year Budget Review . Consider the City's fiscal status at the mid - point of the fiscal year and make appropriation adjustments a s necessary ; review status of 2011-13 goals and objectives . Major City Goal Work Programs. Review and approve detaile d work programs to accomplish Major City Goals ; provide other budge t direction as needed . Preliminary Financial Plan .Receive 2013-15 Preliminary Financia l Plan . Budget Workshops . Review the Financial Plan and consider Genera l Fund operating programs . Consider General Fund CIP projects . Consider Enterprise Fund operating programs, CM projects, revenu e requirements and rates . Public Hearing and Budget Adoption .Continue to discuss an d receive public comment on the Preliminary Financial Plan ; adopt th e budget. Hold special meeting to continue review and adopt budget, i f required . • • • B2-8 2013-15 Financial Plan : Process and Policies Page 9 •Background Materials 7.Status reports on the General Fund Fiscal Outlook ; General Plan programs ; long-term CIP ; 2011-13 goals and objectives ; and current CIP projects as included in the Setting the Table : Background Materials for 2013-15 Goal-Setting and Financial Plan Process report date d November 13, 2012 . 8.General Fund Five-Year Fiscal Forecast presented to the Council separately this evening . 9.Other background information, such as the 2013-15 Financial Plan schedule, Budget-in-Brief, Financial Plan policies and public notifications . 10.Notes and space for other supplemental materials that the Council may receive . 2013-15 FINANCIAL PLAN POLICIE S As noted in the discussion above, Council goal-setting is an important "first step" in the City's Financial Plan process . The second major feature in the City's Financial Plan Process is relianc e upon clear polices . In looking at cities across the nation that have reputations for being financiall y well-managed, and have maintained their fiscal health through good times and bad, one finds tha t they have in common clearly articulated fiscal policies used in financial decision-making . •Formal statements of key budget and fiscal policies provide the foundation for assuring long-ter m fiscal health by establishing a clear framework for effective and prudent financial decision-making . The City's Budget and Fiscal Policies are traditionally set forth in the Policies and Objective s section of the Financial Plan (Attachment 12 contains proposals outlined below). The policies cover a broad range of fiscal issues, including: •Financial Plan organizatio n •General Revenue Management •User Fee Cost Recovery Goal s •Enterprise Fund Fees and Rate s •Revenue Distribution •Investment s •Appropriations Limitatio n •Fund Balances and Reserve s •Capital Improvement Managemen t •Capital Financing and Debt Managemen t •Human Resource Managemen t •Productivit y •Contracting for Services . Each financial planning cycle the City reviews the policies in place to see if any updating i s necessary. At this point, several policy changes, focused primarily on revisions and updating o f definitions within different policies, are proposed . These changes are intended to create consistenc y •amongst City fiscal policies and create a system that is efficient and effective to administer. Further, as staff begins preparing the 2013-15 Financial Plan, other additions or revisions to th e B2-9 2013-15 Financial Plan : Process and Policies Page 1 0 City's budget and fiscal policies may arise; if so, these will be presented for Council consideration at that time . Proposed Policy Change s 1 . Capital Improvement Project (CIP) Managemen t The 2011-13 Financial Plan Budget and Fiscal Policies regarding Capital Improvemen t Management section A currently reads : CIP Projects $15,000 or More .Construction projects and equipment purchase s which cost $15,000 or more will be included in the Capital Improvement Pla n (CIP); minor capital outlays of less than $15,000 will be included in the operating program budgets . The following changes are proposed for the 2013-15 Financial Plan as noted below in strikeout an d replace : CIP Projects $15-,000 $25,000 or More.Construction projects and equipment purchases which cost $441000 $25,000 or more will be included in the Capita l Improvement Plan (CIP); minor capital outlays of less than $-1000 $25,000 wil l be included in the operating program budgets . The reason for this modification is two-fold – efficiency and consistency. As it relates to efficiency , currently every CIP proposal of $15,000 to $25,000 receives the same amount of attention as doe s every other project. As best as can be discerned from staff's research this amount has been in plac e since the two-year financial plan was implemented . As an example, in the 2009-11 fmancial plan a project to replace the pool cover at the Swim Center is included in the CIP budget as opposed to b e included at a capital outlay in the operating budget . It would be more efficient and effective use o f staff time to incorporate this expenditure in the operating budget . This isn't to say that the Counci l would not be involved in the decision making about whether this expenditure is necessary as th e Council would get the opportunity to consider this expenditure because the Council would revie w the addition of the expenditure through consideration of increase over the threshold for Significan t Operating Program Changes (SOPC). As for consistency with other policies, the City's current Financial Management Manual Sectio n 200, Purchasing Policies and Procedures, currently articulates very clearly the City's purchasing policies and procedures including ethics, objectives, competitive bidding requirements, an d specifications . In setting forth the policies and procedures which govern staff's purchasin g activities (Purchasing Policy approved by Council on September 4, 2007), the Financia l Management Manual establishes authority, responsibility, and accountability for purchasin g activities on behalf of the City . Fundamental to these activities is the securing of goods an d services at the lowest costs commensurate with quality requirements . Departments hav e responsibility to evaluate and select goods and services up to a certain fiscal threshold following th e clear guidelines of the City's policies . As provided in the City's purchasing ordinance, th e responsibility and accountability for purchasing activities has been delegated to the City Manage r for purchases between $25,000 and $100,000 without prior Council authorization . In addition to th e City Manager, the Director of Finance and IT, and the City Engineer have the authority to approve • • • B2-10 2013-15 Financial Plan : Process and Policies Page 1 1 purchase orders for construction projects or general purposes of $25,000 or less .Depaent Heads have purchasing authority for projects under $7,500 . Given this backdrop of existing policies and the fiscal reality that $15,000 is not a significan t amount of capital in today's dollars, staff proposes that only construction projects and or equipmen t purchase over $25,000 become a Capital Improvement Plan project . Those that are under tha t amount would be subject to all of the normal purchasing checks and balances as described abov e and specifically outlined in the City's Financial Management Manual . By following a mor e streamlined process, many minor projects will be accomplished with more staff time spent on th e completion of the project itself. Staff conducted research on benchmark cities' thresholds for CIP projects (i .e ., what qualifies as a CIP project and requires Council approval) and found a wide range . Several cities require Counci l approval for all capital projects, regardless of the cost . For those cities that do have a specifi c Council approval threshold, the average is $48,000 . The table below shows the findings : Agency Council Approval Threshol d City of Monterey All capital project s City of Paso Robles All capital project s City of Santa Maria $5,000 or mor e City of Palm Springs $5,000 or mor e City of Davis $30,000 or more City of Santa Barbara $100,000 or mor e City of Santa Cruz $100,000 or mor e Based on the requests submitted during the past three financial plans, if the current Counci l approval threshold for CIPs was increased to $25,000, 16 CIP projects (4% of the total 383 projects) would be incorporated into the operating budget which is approved by the City Council . However to implement the project it would have been approved at the City Manager level . A summary of thes e findings is below : Financial Plan All CIP Projects CIP projects greate r than 515,000 an d less than $25,000 % of Total Projects Tha t Would be Affected b y Policy Chang e 2007-09 147 9 6 % 2009-11 116 5 4 % 2011-13 120 2 2 % Total 383 16 4% This minor modification would create consistency between City policy documents and woul d facilitate more time spent on achieving projects . 3 .Significant Program Operating Changes (SOPCs ) •Currently staffs practice is for any significant operating change to a City program in excess o f $5,000 (either increases or decreases) must be written up and included in the documentation fo r • • B2-1 1 2013-15 Financial Plan : Process and Policies Page 1 2 SOPCs . The purpose is to summarize and compile all materials used to develop the recommende d changes in the Financial Plan . SOPCs are defined as : 1.Major service curtailments or expansions 2.Any increases or decreases in regular position s 3.Significant one-time cost s 4.Major changes in the method of delivering service s 5.Changes in operation that will significant affect other departments or customer service s 6.Changes that affect current policie s Staff does not recommend any change in what is considered an SOPC . The only chang e recommended is to raise the threshold to $7,500 to provide consistency with the City's Financia l Management Manual which allows Department Heads purchasing approval of up to $7,500 . Staff conducted research on the approval process for operating budget modifications at benchmar k cities . hi general, most of these cities require Council approval for all budget increases but have a much less rigorous request process . None of them require full page requests as the City of San Lui s Obispo does but instead utilize budget committees comprised of department heads to revie w requests and decide on recommendations to present to their City Councils . The table below show s the findings : Agency Council Approval Threshold Approval Process Departments submit brief request vi a online system ; Budget Committee reviews requests and make s recommendations to Council . City of Santa Barbara No specific threshold Small changes can be approved b y Finance Director and City Manager ; others must go to Council via Budge t Policy Steering Committe e recommendations . City of Paso Robles All budget increases Department Heads review propose d changes and make recommendation s to Council . Council sees all requests (including those not recommended b y Department Head team). City of Palm Springs All budget increases Requests approved by Finance Department and City Manager; Council receives final proposed budge t which incorporates these changes . Based on the requests submitted during the past three financial plans, if the current Counci l approval threshold for SOPCs was increased to $7,500, seven program changes (5% of the total 13 5 requests) could have been approved at the department head level . A summary of these findings i s below : B2-1 2 City of Monterey All budget modifications appropriations and new • • • 2013-15 Financial Plan : Process and Policies Page 1 3 •Financia l Plan All SOPCs SOPCs greater tha n $5,000 and less tha n $7,500 % of Total SOPCs Tha t Would be Affected b y Policy Chang e 2007-09 77 6 8 % 2009-11 30 1 3 % 2011-13 28 0 0% Total 135 7 5% This minor modification would create consistency between City policy documents . 3.Establishment of an Information Technology (IT) Replacement Fun d Under the section Fund Balances and Reserves, staff recommends the addition of a new sectio n focused on the establishment of an IT Replacement Fund . This fund would be analogous to the existing Fleet Replacement Fund. The purpose of this fund is to recognize the significant capita l investment that the City makes in technology on an annual basis . It further recognizes that value o f technology as an asset and a tool for Council, the public, and staff . In today's world, IT is a critica l component to the health and welfare of a City and should be budgeted for on an annual basi s reflecting the costs associated with this key component of the City's fiscal sustainability . Th e establishment of this mechanism to save for and replace critical IT resources is consistent with th e Information Technology Strategic Plan adopted by the City Council earlier this year . The proposed policy addition reads in Attachment 12 as follows : Information Technology (IT)Replacement Fun d The City will establish an IT Replacement Fund for the General Fund to provide for the timely replacement of information technology, both hardware an d software, with an individual replacement cost of $25,000 . The City will begi n building the fund balance with the long term objective of maintaining a minimu m fund balance in the IT Replacement Fund of at least 20% of the original purchas e costs of the items accounted for in this fund . 4.Enterprise Fund Reserves — Proposed Modifications to Water and Sewe r As part of the development of the City's Enterprise Fund Budgets, each fund : Parking, Transit , Water, and Sewer, will present information during their fund reviews about each funds' minimu m fund balance (reserves). The appropriate valuation of fund balance varies by fund . Staff does not recommend changes to either the Parking or Transit funds accounting of their minimum fun d balances . However, there are recommended changes to the policies for maintaining fund balance s for both the Water and Sewer Funds discussed below . Rate Stabilization Reserve s Staff recommends adding a section to the Fund Balance and Reserves fiscal policy section t o establish rate stabilization reserves in the Water and Sewer Funds . The goal of rate stabilizatio n reserves (and all reserves) is to provide a level of stability to both the City and the customer . • Reserves help the City to adequately provide for things such as cash flow requirements, emergenc y repairs, local disasters or catastrophic events, and loss of significant revenue sources . The purpos e of rate stabilization reserves is to offset unanticipated fluctuations in sales revenues that woul d • B2-1 3 2013-15 Financial Plan : Process and Policies Page 1 4 otherwise require increases to rates . These reserves are not intended to replace regular and pruden t rate increases that are necessary to maintain the water and wastewater systems, but they allo w flexibility in implementation of rate increases should unforeseen circumstances occur (such as a major ratepayer ceases operation). Staff recommends adding the following language to the City's fiscal policies : C.Water and Sewer Rate Stabilization Reserves .The City will maintain a reserve for the purposes of offsetting unanticipated fluctuations in Water Fund o r Sewer Fund revenues to provide financial stability, including the stability o f revenues and the rates and charges related to each Enterprise . The funding targe t for the Rate Stabilization Reserve will be 10% of sales revenue in the Water Fun d and 5% of sales revenue in the Sewer Fund . Conditions for utilization and plan for replenishment of the reserve will b e brought to Council for its consideration during the preparation and approval of th e Financial Plan or as it becomes necessary during any fiscal year . Staff is not proposing to change the current policy regarding minimum level of reserve required t o maintain the City's credit worthiness and provide for general uncertainties (a minimum workin g capital balance of at least 20% of operating expenditures in the Water and Sewer Funds). Rather , staff is proposing the designation of an additional reserve of working capital that would be utilize d to provide temporary relief or to "soften" the impact of necessary rate increases that are due to unanticipated loss of revenues . Annual water and sewer sales can be difficult to predict as they ar e influenced by many factors, such as weather and customer consumption and conservation patterns . There are certain things that can assist in providing revenue stability and predictability (such a s minimum fixed charges or sewer caps) however, the weather can have significant impact on revenues and is not predictable . As such, the fiscal analysis of these funds typically provides fo r working capital balances in excess of the 20% minimum in order to respond to changin g circumstances without an immediate need for adjustments to the rates . Therefore, in concept, th e City has traditionally provided for a de-facto rate stabilization reserve in the water and sewer funds , it just wasn't identified as such . Why implement a rate stabilization reserve now ? There are several reasons to formally establish rate stabilization reserves . One is the City's continued efforts for transparency and accountability of funds . Historically, the Water and Sewe r Funds have maintained fund balances in excess of the minimum reserve policy for various purpose s including providing rate stability or positioning the fund for future large capital projects . Identifying fund balance amounts that are reserved or designated for specific purposes will provid e the readers of the fund analysis with a better picture of the financial status of the fund . An example of how the reserve and designations would be displayed on the fund analysis statement appear s below . Another reason to formally establish a rate stabilization reserve is to demonstrate strong financia l management to outside entities, particularly to rating agencies . The City's bonds are rated b y agencies such as Standard & Poor's and Fitch Ratings . These agencies look favorably on stron g financial policies and on maintaining adequate reserves . Of the many factors that contribute to a City's bond rating, one analysis calculates the amount of revenue available to provide the annual • • • B2-14 2013-15 Financial Plan : Process and Policies Page 1 5 debt service payment . This is commonly called the "debt coverage ratio" and gives investors som e sense of the creditworthiness of a city . The City's bond documents include language tha t guarantees to bond holders that the City will set rates that will ensure a coverage ratio of at least 125%; that is available revenues will exceed the annual bond payment by at least 125%. Generally, rating agencies would like the ratio to be higher than that, in fact in its recent rating o f the Water bonds, Fitch Ratings indicated that the City needs to return to coverage level s approaching 200% by 2015 . Having formal acknowledgement of the use and replenishment o f these specific reserves can alter the calculation of the debt coverage ratio ; therefore it is importan t for the City to establish these policies . How was the reserve amount established ? Staff reviewed original revenue budgets and actual revenue outcomes for the past ten fiscal year s and analyzed the variances each year . In the case of the Water fund, as recently as 2010-11, th e fund experienced revenue shortfalls of about 10% of sales revenue budgets . This was the larges t variance for the fund during the ten-year analysis period and staff is comfortable that the rat e stabilization reserve does not need to be any larger than the largest variance . At the time thi s recommendation was being developed, Council was considering possible changes to the water rat e structure that could increase the fund's revenue stability and predictability ; however it is too soon t o see the impact of those decisions . Staff therefore recommends initially establishing the Water Fund's rate stabilization reserve at 10% of sales revenue . hi the Sewer Fund, there are already wel l established revenue stability measures, which don't entirely eliminate volatility in sewer sale s •revenues, but do help mitigate the variance . Because of this, staff recommends establishing th e Sewer Fund's rate stabilization reserve at 5% of sales revenue . Using and replenishing the reserv e The use of any or all of the rate stabilization reserves would depend on the financial circumstance s facing the affected fund(s) at the time . The degree to which reserves are utilized or replenished wil l depend on the short term and long term financial projections for the fund . Consistent with th e City's adopted Fiscal Health Contingency Plan, the use of reserves (including rate stabilizatio n reserves) would be recommended as a first line of defense in adverse circumstances and wil l provide "breathing room" while comprehensive response plans are developed . Staff anticipates that the discussion of the use and/or the replenishment of the reserve would occur with the development of each Financial Plan or during the annual fund review ; however, unforeseen circumstances ma y occur at any time that would render it necessary to discuss the topic with the Council . In other words, use or replenishment of the rate stabilization would be a policy decision by the Council . B2-15 2013-15 Financial Plan : Process and Policies Page 1 6 Example of Changes in Financial Position with rate stabilization reserve and capital designatio n identi ted. Revenues Investment and Property Revenues 249,800 154,600 169,900 215,400 311,600 Service Charge s Customer Sale s Sewer Service Charges 14,266,000 14,836,600 15,281,700 15,740,200 16,212,400 Sales to Cal Poly 799,200 831,200 856,100 881,800 908,300 Development Impact Fees 200,000 106,000 109,000 112,300 115,700 Account Set-Up Fees 116,400 118,000 120,400 123,800 126,900 Industrial User Charges 65,700 66,600 67,900 69,800 71,500 Connection Charges and Meter Sales 20,000 20,300 20,700 21,300 21,800 Other Revenue 3,600 3,700 3,800 3,900 4,000 Total Revenue 15,720,700 16,137,000 16,629,500 17,168,500 17,772,200 Expenditures Operating Programs Public Utilities 7,264,200 6,533,300 6,766,500 7,038,800 7,217,700 General Govemment 1,394,100 1,413,600 1,441,900 1,477,900 1,514,800 Total Operating Programs 8,658,300 7,946,900 8,208,400 8,516,700 8,732,500 Capital Improvement Plan 15,843,000 5,773,000 4,371,700 3,787,900 63,218,100 Debt Service 2,995,000 1,698,500 1,697,300 1,695,700 5,440,000 Total Expenditures 27,496,300 15,418,400 14,277,400 14,000,300 77,390,600 Other Sources (Uses ) Operating Expenditure Adjustments (62,900)(64,200)(65,800)(67,400)(69,100) Projected MOA Adjustments 82,000 110,100 (15,500)(18,800)(33,900) Proceeds from Debt Financing 7,000,000 49,800,000 Total Other Sources (Uses)7,019,100 45,900 (81,300)(86,200)49,697,000 Revenues andOther Sources Over (Under ) Expenditures andOther Uses (4,756,500)764,500 2,270,800 3,082,000 (9,921,400) Working Capital, Beginning of Year 12,488,900 7,732,400 8,496,900 10,767,700 13,849,700 Working Capital,End of Year 7,732,400 8,496,900 10,767,700 13,849,700 3,928,300 Reserve (20% of operating)1,731,700 1,589,400 1,641,700 1,703,300 1,746,500 Rate Stabilization Reserve (5% of sales)753,300 783,400 806,900 831,100 856,000 Capital Reserve for WRF upgrade 4,000,000 5,000,000 8,000,000 11,000,000 Unreserved Working Capital 1,247,400 1,124,100 319,100 315,300 1,325,800 5. Investment Oversight Committee The 2011-13 Financial Plan Budget and Fiscal Policies includes specific policies regardin g Investments including the role and membership of the Investment Oversight Committee . At a recen t City Council meeting the issue of expanding membership of this committee to include a city council member and a financial professional from the public was raised . The appropriate section of the Policies currentl y reads : B2-16 • • • 2013-15 Financial Plan : Process and Policies Page 1 7 •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 t o determine compliance with the City's investment policies and for makin g recommendations regarding investment management practices . Members include th e City Manager, Assistant City Manager, D irector of Finance & Informatio n Technology/City Treasurer, Finance Manager and the City's independent auditor . Staff has not had an opportunity to fully research this issue but on the face of the issue sees little issue with a Council member being appointed to the committee . On the flip side and on its face, there may be som e potential issues with a member of the public serving in this advisory role in that they would have no fiduciar y obligations to the City and may have significant potential conflicts of interest . Staff will do some research o n this issue before the City Council meeting and will be prepared to share best practices with the City Counci l at the meeting . No proposed changes have been incorporated in Attachment 12 regarding this issue . ATTACHMENT S 1."Community Priorities Survey" Inserted in City Utility Bill s 2.Notice Sent to Community Groups and Interested Individual s 3.Goal-Setting Process Schemati c 4.Measure Y Integration Repor t 5.2013-15 Financial Plan Calendar 6.Outline for Community Forum (January 8 ) 7.Sample Fonn for Council Members to Submit Candidate Goal s • 8 . Sample Form for Council Members to Submit Changes in Other Programs and Service s 9.Outline for Council Goal-Setting Workshop (January 26 ) 10.Guidelines for Council Members During the Goal-Setting Proces s 11.Criteria for Major City Goal s 12.Proposed 2013-15 Financial Plan Policie s \khstore4\team\coundl agenda repods@0122012-12-18\budget foundation - polities and process (lichtig-codron-stanwyck)lrar (polioesandprocess).docx • B2-17 ATTACHMENT 1 ‘I‘Fa7 city o f san Luis OBISP O COMMUNITY PRIORITIES SURVE Y What are the most important issues facing the City of San Luis Obispo ? The City wants your input ! Every two years, the City establishes the top priorities to make San Luis Obispo an even better place to live, work and play . Then the City Council matches the resources to achieve these priorities through adopting the budget in June . This sets the City's course of action for the next two years and helps the City to continue to provide the exceptional services and program s the community cherishes . The City anticipates entering the 2013-15 budget planning process in bette r financial shape than two years ago . Some revenue sources have rebounded, budget s have been trimmed and the City has taken steps to reduce costs . All of these action s have helped keep the City financially healthy, even in a time of the "Grea t Recession ." However, other economic uncertainties linger with the State and Federal budgets, the City's budget is still tight, and we face an ongoing need t o reinvest in streets, bridges, technology, vehicles and facilities . All of these may lead to potentially complex budget decisions . So regardless of the specific fiscal circumstances, it is critical that we have an effective process for setting the mos t important, highest priority things for the City to do in the next two years . That's where you can help ! The City Council needs to know your thoughts on what the community's priorities should be so that available resources ca n be best allocated to achieve them . Now it's time for you to share your ideas for 2013-2015 priorities . The City needs the hel of the community in two im ortant ways : O Fill out and return the short survey on the reverse side of this bulletin . You can mail it to City Hall at 990 Pal m Street, 93401 or drop it by any City office . If you prefer to complete the survey online, please visit www .slocitv.org . ©Attend the Community Forum on Tuesday, January 8, 2013 from 6 :00 p.m. to 9 :00 p.m. at the Ludwic k Community Center, 864 Santa Rosa Street.This forum is an opportunity to present your ideas to the Council and discus s them with other community members . City staff will compile the community feedback for the Council to review in advance of its goal-setting workshop o n Saturday, January 26, 2013 . During this public workshop, the Council will deliberate to set the Major City Goals an d Other Important Objectives for the next two years . If you have any questions about the City's goal-setting and budget process, please contact Charle s Bourbeau, Director of Finance & Information Technology, at 781-7125 or cbourbea@slocity .org. ® The City of San Luis Obispo is committed to including disabled persons in all of our services, programs and activities .oTelecommunications Device for the Deaf (805) 781-7410 .B2-1 8 2011-2013 Major City Goal s •Economic Developmen t Preservation of Essentia l Services & Fiscal Healt h •Neighborhood wellnes s Traffic Congestion Relie f .• What issues are important to the community ? .• What priorities should the City focus on during the next two years ? •How might the City adjust other service needs to accomplish thes e priorities ? Share YourThoughtson the City's Priorities ! This survey is your opportunity to tell the City : The City Council wants to hea r from you about what is truly important for the community . • • • 0 0 0 0 0 Community Priorities for 2013 - 201 5 What should be the City's most important,highest priority goals during 2013-15? How might the City adjust other programs &services to accomplish these priorities? Fold and Tape Here for Mailing Key Date s Budget Foundation Worksho p Tuesday, December 18, 201 2 6 :011 pm. Written Suggestion s flea rand them to Oates Bourbon by: Friday, Duvetnber 14, 201 2 99D Palm Street San Lori Obispo: CA 93441 Fax : 781 .70 1 .email ;ebou hmaslocity ore Community Forum T uesday, January 8 .201 3 6:00p.m . to 9OD p .m . Ludwig* Ccnurnanty Canto r 864 Santa Rosa Street Goal-Setting Worksho p Saturday. January 26, 2111 3 8 :30 am, to 4;00 pm. Mid-Year Budget Revie w Tuesday, Febmaty 19, 201 3 6 :00 pm . Strategic Budget Direction & Major City Goal Programs Worksho p Tuesday, April 9, 201 3 606) pan . Budget Workshop s Jmte10,I&12,20th 6 :00 p .m . 2e13-15 Budget Adoption Thestby, June 18.201 3 600 p .m . Contact informatio n Please submit your written cormnnts try Friday, leaember 14, 20 .1E to Chutes ltoutheu, Director of Firutree Infonuatk m Tsrhnology,Mr mail at 9% Palm Street, San Lola Obispo, CA, 9340r by lax at 78l•7401 ; or by email at Cbnuthea`iucleitv .nrg.For more information on the goal-setting and budge t poem, attest Mirka at 7 g t-? 124. The (My aSariLUU oe$toh csnSrtJbeteartetgds.ted perms s in alt d ou r eaattaes,pOorama aridTekeanMmmietas dines tattle that: 0O5)TSt- ?410 . city ofsonUm OB1s1J 0 2013-15 Financial Pla n What are the mos t mportant issues facin g the City of San Luis Obispo ? The City Council wants to hear from you abou t what is truly importan t for the community . Of all the things that ca n be done to make the City an even better place t o live, work and play, whic h are the most important ? ••• S S S What Are the Most Important Needs o he City Ove he Next Two Years ? The City Wattle Year lapttt away two yeas, the City establishes the to p priorities to maize San Luis Obispo an evco bona place to live,wet end pity .Theft the City Coated matebes the resources to achiev e thee primates throughadopting the hedge S. Juno This sets the City's ccanse of action fo r the next two yearn and helps the City to ammo to provide the mwopttal Anto s std programs the ante*cherishes The City anticipates entering the 2013 .15 budget plamhhg. process des hotter MI *ape than two yeas ago.Some revenu e deuces have rdmamdcd,budgets Ito beat trirmned and the City hat taken . steps to tewece costs .All of these adlas have helped keep the City fitmrelally healthy, even in a time of th e "Great Reeasion ." Hewett. other woman i e uncestaintie linger with the State and Paths ' budgets, the City's budget is still tight and w e faze m ensuing need to reinvest in death bridges,tecisalogy,vehicles aid facilities. All efthese may lead to potentially complex budge t desists, So mgwdloas of de specific GA M thatistahon, it is timid MA es hue a m e* live process fur tatting the most impart, highest patty things for die City to do it the neat twayears . That's tiSreyou can help I Share Year Thoaghts no eke City's Prierilieat You have the cpponunity to tell the City : •What besot am nyw ittTht le be camnmityi • what punaie timid the C ay Mon an darin g thenexttina yeas t •How might the City atjmi other aervkt needs foaamtopiish these pnontiesl 1 .13 Major City Gelds The City Council needs to know your dtatgh s on what the tmmnutty priorities thou]d be so that available nesouuces can he best allocated t o achieve then . Now it's time for you to dare yew ideas lbr 2013-15 putties . Major City Goals are identified as the mos t impudent. highest priority gets fir the City to avccanplids over thenext two y su s Current Majar City Goats t Mantic +ofllssetdd Swvites&.lrl: *}&ighbmhned Wellness .mealacongestima Relie f Currant Measure Y Prioritie s Adopted by the votes sr November 200&, Measure Y At an added Wcent City ales tax . This Lading enables the City to provide salna p aflecs to the community Mr both day-toda y operating pregame and one-time epiu l itntwovanwts: The Council prioritizes the us e of tae trout, so it is impnriset that the y integrate Measure Y goal idetifi anion into th e overall god-setting proems . •lnfasvwtae Mainbnenc a 'fmf k Cw aeston l diet' .1bwmowaMal .P o Public Satdy o t4alnUmance Stokes o lileightethoed Putt emit YenImpartsertRokhtthin Process The City nett the help of th e community in two Important way sit q Attend the Community forum en January 8.2x13 from 6:59 pat. to 9.90 pm- at the Ludwdek Communit y Center, 844 Santa Rosa Street . T hie fonts is an opportunity to ptasmt ye w ideas to the Council and discuss them with other community members . Council to review in . tdvmoxof t swing workshop on Saturday, January 2013.lkuing this public work t ap,die Courted will deliberate to set the Major City Goals an d Otter Important Council Objectives Mr the net t twoyeara . •Provide feedback, Community input will be presented to al l Council members. It will be especially hdptt l if you written carruneras additsa : what need s you believe are the highest priority goals for th e community: why they are important : and any ereativo ideas you have about how to adhieve then,AM as alternative appetites or opportunities for partnering with ode= ATTACHMENT3 S Goal-Setting and the Budget Proces s 20_1345 Financial Pla n pry Bodie s Community Surveys Letters fro m Community Group s Letters fro m Individuals Goal-Setting inpu t Community Foru m January 8, 2013 Fiscal Foreca Long-Term Mans , Goals &Policies •Current 2-Ye Goals "* Council Goal-Settin g Worksho p January 26, 201 3 Staff Budget Pr ratio n 4 Major City Goal'a' ork Programs & Strategic Budget Direction: April 9 Preliminary Budget May 2 4 Budget Workshops : June 10, 11, 1 2 Adopted Budget : June 18, 201 3 c o san .up s of spo 201 2 at/on' p • Measure Y Integration –2013-15 Financial Plan Attachment 4 -Page 1 • MEASURE Y INTEGRATION REPORT - OVERVIE W The purpose of this report is to provide the Council with information about the reporting, uses, accountability, and priorities of Measure Y funds. Backgroun d Measure Y was approved by City voters in November 2006 to preserve essential services for ou r community . Measure Y established a ''A-cent City sales tax that keeps all revenues local . Thi s general purpose revenue measure generated $6 .2 million in revenue during 2011-12, which i s being used for important public safety, infrastructure maintenance, traffic congestion relief , neighborhood code enforcement and open space acquisition projects . Measure Y include s accountability and citizen oversight provisions, including an 8-year sunset and annual auditin g requirements . In addition, Measure Y includes the following provisions to ensure tha t consideration of this important revenue source is integrated into the financial planning process . The proposed goal-setting process for 2013-15 is designed to meet these two requirements . 1.Integration into the City's budget and goal-setting process .The estimated revenue an d proposed use of funds generated by this measure shall be an integral part of the City's budge t and goal-setting process, and significant opportunities will be provided for meaningfu l participation by citizens in determining priority uses of these funds . 2.Annual citizen meeting.An invitation will be extended each year to the entire communit y • inviting them to participate in a forum to review and discuss the use of the revenue generate d by this measure . City staff will also be available to meet with any group that requests a specific briefing with their members to discuss and answer questions about the revenue s generated by the measure and their uses . It is important to know that Measure Y is a general purpose measure, and the proceeds are no t restricted to specific purposes . However, the language on the ballot measure approved by voter s in 2006 provided examples of the types of uses that would be funded . The language on the ballo t was : "To protect and maintain essential services—such as neighborhood street paving and pothol e repair; traffic congestion relief public safety, including restoring eliminated traffic patrol, Fir e Marshal and fire/paramedic training positions ; flood protection ; senior citizen services o r facilities; neighborhood code enforcement ; open space preservation and other vital genera l purpose services—shall the sales tax be increased by one-half cent for eight years only, wit h citizen oversight and independent annual financial audits?" In short, while the ballot language provided examples of the types of uses - based on communit y input received before placing the measure on the ballot - Measure Y is a general purpose tax , clearly providing Council with flexibility to respond to new circumstances and challenges . • B2-23 Measure Y Integration — 2013-15 Financial Plan Attachment 4 - Page 2 • DISCUSSION How are Measure Y priorities determined ? Measure Y is a general purpose revenue source and the City Council maintains discretion ove r decisions regarding how these funds are allocated . Initially the City did surveying and public education/outreach so staff would know where to start, but priorities can change over time , depending upon circumstances . The Measure Y ballot language is always an important source o f information when determining Measure Y priorities . The public goal setting process also play s an important role, which is why the public has an opportunity to weigh in on Measure Y priorities during the Community Forum . Ultimately, the Council will provide priority guidance on the use of Measure Y funds . This wil l initially occur during the Goal Setting Workshop on January 26 .The Council has made great efforts in the past to connect Council goals with Measure Y priorities, and it is anticipated tha t this will continue to be the case for the 2013-15 Financial Plan . How are Measure Y Funds Used ? Measure Y funds have been used for both ongoing operations and capital projects to address th e priorities identified . The following table identifies that approximately $2 .3 million of Measure Y funds have been incorporated into day-to-day operations during the current fiscal year . Measure Y funding allocated to ongoing day-to-day operations in 2011-1 2 Operating Progra m Public safety communications technician 123,100 Operating Progra m Paving crew $77,30 0 Traffic sergeant 229,800 Traffic signal operations 29,00 0 Police patrol officer 186,300 Stormwater management plan : Fire Marshall 147,100 Code enforcement officer 104,500 Fire Training Battalion Chief 188,800 GIS specialist 50,70 0 Fire Administrative Assistant 77,000 Collection operators 187,100 Park restroom maintenance 82,900 Utilities workers 119,800 Park landscape maintenance contract 237,100 Building & Zoning : Park maintenance worker 64,500 Code enforcement officer 95,200 Field engineering assistant 113,900 Permit technician 19,300 Neighborhood Services Special 19,000 Total Measure Y funding allocated to operating programs $ 2,152,400 To the degree that these operating programs remain priorities, the amount of Measure Y fundin g available for capital projects, or additional operating programs, is the difference between thi s amount and the total amount of Measure Y funding available . If Measure Y is expected t o generate $6 .5 million during the 2013-14 fiscal year, and $2 .5 million is devoted to thes e B2-24 • • Measure Y Integration –2013-15 Financial Plan Attachment 4 - Page 3 • ongoing operating programs, $4 million would be available to accomplish other Measure Y priorities . During the upcoming goal-setting process, Council will be asked to affirm if the ongoin g operating programs remain a priority use of Measure Y funds, and to prioritize the use of th e remaining revenues . Provided at the end of this report is a list of the Measure Y uses during 2011-12 . This list is included in the City's Comprehensive Annual Financial Report (CAFR) and has been audited b y the City's independent auditors . It provides information on the operating and capita l expenditures during 2011-12 as well as a reconciliation of all Measure Y revenues and uses sinc e 2006-07 . SUMMARY Measure Y is now expected to provide over $6 million in funding each year to enable the City t o provide important and valued services to the community ; for both day-to-day operating program s and one-time capital improvements . It is the Council's obligation to prioritize the use of thi s resource, just as it is their job to prioritize the use of all City resources . For this reason it i s important that as the Council sets goals for the 2013-15 Financial Plan, it also considers th e prioritized use of Measure Y funds . • • B2-25 Measure Y Integration - 2013-15 Financial Plan Attachment 4 - Page 4 CITY OF SAN LUIS OBISPO, CALIFORNIA • MEAS URE Y FUNDING SUMMARY S CHEDUL E FOR THEFISCAL YEAR ENDED JUNE30, 2012 Operating Programs Capital Improvement Pla n Encumbered / Actual Assigned Actual Encumbered/ Assigne d Infrastructure Maintenanc e Fire Engine Bay Slab Replacement $ $$ 11,900 $ 20,000 Andrews Creek Bypass 396,400 49,000 Storm Drain Replacements 206,300 6,800 Toro Street Creek Bank Stabilization 48,300 Playground Equipment Replacement 59,900 163,300 Warden Bridge/Mission Plaza Walkway 2,500 5,000 Street Reconstruction & Resurfacing 2,570,800 438,700 Total Infrastructure Maintenance 3,247,800 731,10 0 Traffic Congestion Relie f Traffic Engineer 21,600 Traffic Safety Report Implementation 29,700 1,900 27,800 Traffic Operations Report Implementation 174,700 Roadway Sign Replacement 4,800 86,600 Bob Jones City to Sea Trail LOW Bridge 124,800 110,800 •Total Traffic Congestion Relief 51,300 131,500 399,90 0 Preservation of Essential Service s Public Safety Police Services 539,300 251,900 98,20 0 Fire Prevention & Training 412,900 Fire Engine/Truck Replacement : Debt Service 129,90 0 Maintenance Services Streets, Sidewalks and Traffic Signal Operations 106,300 11,800 17,10 0 Creek & Flood Protection 462,100 Parks 384,500 45,600 Project Management & Inspection 114,000 Neighborhood Code Enforcemen t Enhanced Building & Zoning Code Enforcement 114,500 Neighborhood Service Specialists 19,000 Total Preservation ofEssential Services 2,152,600 439,200 115,30 0 Open Space Preservatio n Froom Ranch Improvements 62,50 0 Open Space Acquisition 240,100 495,90 0 Total $ 2,203,900 4,058,600 1,804,700 • B2-2 6 Measure Y Integration — 2013-15 Financial Plan Attachment 4 - Page 5 • • • Measure YRevenues & Uses Summary Revenues : Carryover from 2006-07 $ 1,000,000 Revenues for 2007-08 5,996,600 Revenues for 2008-09 5,641,400 Revenues for 2009-10 5,252,500 Revenues for2010-11 5,616,300 Revenues for 2011-12 6,237,500 Total Revenues 29,744,300 Uses : Operating programs 2007-08 (1,463,700) Capital improvement plan 2007-08 (2,434,100) Operating programs 2008-09 (2,418,300 ) Capital improvement plan 2008-09 (3,684,400) Operating programs 2009-10 (2,267,100 ) Capital improvement plan 2009-10 (2,161,200) Operating programs 2010-11 (2,430,200) Capital improvement plan 2010-11 (3,443,000) Operating programs 2011-12 (2,203,900) Capital improvement plan 2011-12 (4,058,600) Total Uses (26,564,500) Measure Yfunding available for future year expenditures $ 3,179,800 Encumbered or assigned for carryover for future year expenditures (1,804,700) Net available for future year appropriations $ 1,375,100 B2-27 ATTACHMENT 5 2013-15 Master Financial Plan Calendar As of 11/2/1 2 When Who Wha t A'Irguslx~ '-1 `y`a S$ 'r'F Y a :r§t°S"~i a ¢.:x ,."`f k . '§t +r3{ August 21, 2012 Public Works • Issue CIP budget instructions / overview . y~w October 2, 2012 CIP Committee Reviews schedule and commitments of Committee . October 4, 2012 Public Works / Finance / Departments Holds briefing on 2013-15 CIP instructions . October 11, 2012 CM/Finance • Updates advisory body chairs on the goal-setting process . October 17, 2012 Departments • Complete status of General Plan programs, long-term capita l improvement plan (CIP), status of current Major City Goals, objective s and CIP projects ; general fiscal outlook. October 22-24, 2012 Departments • Meet with Fleet Manager and/or IT Manager to review Fleet & IT carry forward projects . October 29-31, 2012 Departments • Review CIP draft write-up with Engineer for carry forward construction projects . October 29, 2012 Finance • Agenda report due for November 13 meeting (Setting the Table). I ini#Y"err "x ER?n',~'m~~r ('d x ,,r a y'c 1 fi `'v 4 November 5, 2012 Finance • Begins sending letters inviting participation in goal-setting process to community groups and interested individuals . • Begins inserting Community Budget Bulletins in utility bills . November 6, 2012 CIP Committee • Establish process and outcomes for carry forward and new project reviews . November 8, 2012 Departments • Provide recommended advisory body goals to Finance . November 13, 2012 Special Workshop 6:00 to 10:00 p.m. Council • Holds workshop on status of General Plan programs, long-term capita l improvement plan (CIP), status of Major City Goals and objectives, and CIP projects . November 14, 2012 Finance • Distributes consolidated listing of draft recommended goals to advisory bodies for their review . November 15, 2012 Departments • CIP write-ups due to Finance for Fleet & IT carry forward projects . November 20, 2012 Finance • Distributes CIP packets to CIP Committee for Fleet & IT carry forward projects . November 26, 2012 OP Committee • Questions to departments on Fleet & IT carry forward projects . • Review and confirm Fleet &IT carry forward projects . November 29, 2012 Departments • CIP write-ups due to Finance for general carry forward projects . ~,{j December 3, 2012 Finance • Agenda report due for December 18 meeting (Budget Foundation). December 4, 2012 Finance CIP packets to CIP Committee for general carry forward projects . December 10, 2012 OP Committee • Questions to departments on general carry forward projects . December 11, 2012 CIP Committee • Review and confirm general carry forward projects . December 14, 2012 Departments Finance • Submit any changes in advisory body goals to Finance. • Receives written comments from community groups and intereste d individuals, and any changes in goals from advisory bodies . B2-28 • • • • • • When Who Wha t December 18, 2012 Regular Meeting Council Finalizes goal-setting process and plans for Community Forum . Reviews and provides guidance regarding Financial Plan policies an d organization of Financial Plan . Reviews financial results for 2011-1 2 and general fiscal outlook, including General Fund Five-Year Fisca l Forecast . December 21, 2012 Finance • Binders due to Council members for Community Forum . January 2-4, 2013 Departments Review draft write-ups with Engineer for new construction projects . January 8, 2013 Special Workshop 6:00 to 9:00 p.m. Council • Holds Community Forum at the Ludwick Community Center t o receive and review goals presented by individuals, community groups , and advisory bodies . January 10, 2013 Finance & Departments • Distributes and holds briefing on 2013-15 Budget Instructions . January 14, 2013 Departments • CIP write-ups due to Finance for new Fleet & IT projects . January 15, 2013 Finance • Distributes Community Forum results . January 17, 2013 Finance CIP packets to CIP Committee for new Fleet & IT projects . January 22, 2013 Council Submits goals to Finance . January 24, 2013 Finance • Distribute consolidated Council member goals . January 25, 2013 CIP Committee • Questions to departments on new Fleet & IT projects . • Ranking and recommendation to City Manager on all Fleet & I T projects . January 26, 201 3 Special Workshop 8:30 a.m. to 4 :00 p.m. Council • Holds Saturday goal-setting workshop to discuss candidate goal s presented at January 8 Community Forum ; discusses Council membe r goals distributed on January 24 ; prioritizes and sets Major City Goals . January 28, 2013 Departments • CIP write-ups due to Finance for new general projects . January 29, 2013 Departments • Attend "usual suspects" briefing on outcome of Council goal-settin g and coordinate work program preparation and next steps . January 31, 2013 Finance • CIP packets to CIP Committee for new general projects . -~-y°,fgn'Y x~~^.., x .r,66{d +e d..LJ62K `f3 Xf February 4, 2013 d ro rw y$C~~~~:,. u'~,.~,"~~-X <~.+f~+b'~$Yfl,~vY=~. Finance „„,.'{£rr`.f!kt r `f x f~sa bf F'`C3'~{T,~,r,,~,.%kyw.f , f3 >~~~',..tiSS SJ ~v ~f 3rr 45 r.PN_•.~'~9`Y.ify'>4 .~:?.. • Agenda report due for February 19 meeting (Mid-Year Review). February 5, 2013 Department Heads • Brainstorm Major City Goal work programs . February 12, 2013 CIP Committee • Questions to departments on new general projects . February 13, 2013 CIP Committee • Questions to departments on new general projects (continued). February 13, 2013 Departments • Submit operating budget requests, SOPC's, Major City Goal wor k programs, department revenue estimates and narratives . February 15, 2013 Finance • Summarize, compile and distribute Major City Goal work programs , SOPC's and operating budgets to Budget Review Team . February 15, 2013 CIP Committee • Ranking and recommendation to City Manager on all general projects . February 19, 2013 Departments • CIP recommendation to project management staff to begin draft scheduling . February 19, 2013 Council • Considers mid-year budget review . February 19-22, 2013 Budget Analysts • Meet with departments to review operating budgets, SOPC 's an d narratives . February 25-March 1 , 201 3 March 5, 2013 Operatin g departments/BRT/City Manager Finance Review operating budget requests and Major City Goal work program s with operating department representatives . • Summarize results of budget reviews for distribution to BRT and Cit y B2-29 When Who What Budget Review Team Manager. •Review financial position and craft SOPC recommendation for Cit y Manager. March 7, 2013 BRT/City Manager •Brief City Manager on Major City Goal work programs . •Present operating budget recommendations to City Manager . March 11, 2013 Finance •Begin preparing preliminary financial plan . •Begin finalizing Major City Goal work programs packet and Counci l agenda report for 4/9 meeting . March 18, 2013 Finance •Agenda report due for April 9 meeting (Major City Goals). April 9, 201 3 Special Workshop 6:00 to 10:00 p.m . Council Approves detailed work programs for Major City Goals . Sets strategic budget direction in preparing Preliminary Financial Plan . April 15, 2013 Departments Draft CIP schedule submitted to City Manager . April 16, 2013 Department s Finance •Revised SOPC's and CIP's due to Finance by noon. •Begin work on Appendix B . yy May 16, 2013 City Manager Finalizes budget recommendations and approves preliminary budget . May 21, 2013 Finance •Completes Preliminary Financial Plan and sends to printer . May 22, 2013 Planning Commission Reviews CIP for General Plan consistency . May 24, 2013 City Manager •Issues Preliminary Financial Plan . May 28, 2013 Finance •Agenda reports due for June 10, 11 and 12 meetings (Budge t Workshops). June 3, 2013 Enterprise funds •Agenda report due for June 18 meeting . June 10, 11, 12, 201 3 Special Workshops Preliminary Budge t 6 :00 to 10 :00 p .m . Council •Holds evening workshops to review and discuss Preliminary Budget : —June 10 : Overview and General Fund operating programs . —June 11 : General Fund CIP projects . —June 12 : Enterprise Fund programs, CIP projects and rates . June 18, 2013 Council •Holds continued Financial Plan review and adopts budget . June 25, 2013 Council •If required, holds special meeting to continue review and adopt budget. Key Council Dates in Bold • • • B2-3 0 S • • ATTACHMENT 6 Community Foru m 6 :00 PM to 9 :00 PM, Tuesday, January 8, 201 3 Ludwick Community Cente r 6 :00 Welcome Mayor 6 :05 Process, Current Goals, Measure Y Priorities and Fiscal Outlook City Manager/ Interim Finance & IT Directo r 6 :30 Public Commen t 1 . Members of public who desire to speak complete public comment cards and indicate topic . Where a group has several members present, we encourage them to select a spokesperson an d have others in their group indicate support for the same position with a show of hands . 2 . We invite each speaker to address : a.What do you recommend as a Major City Goal ? b.Why is it important to you and the City? c.How do you suggest that it might be accomplished ? 3 . Facilitator calls upon a speaker and identifies general topic . 4 . Department Head in the budget category for the topic steps up to write the idea on a flip char t sheet and clarifies any linkages with existing programs or plans . 5 . Staff posts the public comment in the relevant budget category . 6 . All participants provided with half-page "post-its" to note any suggestions or concerns abou t the ideas . 8 :40 Closing remarks Mayo r 8 :45 Participants Vote on Top Priorities with Dots (no more than 1 green and orange dot per item ) 9 :00 Adjourn Preparatio n •Prepare handouts on budget process ; current goals & objectives and Measure Y Priorities ; and Community Priorities Survey results . •Set up the room with posting area for each of the budget categories . •Provide participants with half-page post-its . •After receiving public comments, provide the following adhesive dots per attendee : 6 orange for top Measure Y priorities and 6 green for overall goal priorities . B2-31 ATTACHMENT 7 S Council Member Candidate Major City Goal s Please prepare up to 7 candidates for Major City Goals below and submit them to Finance b y Tuesday, January 22, 2013 . Since the Council will identify connections between the use o f Measure Y revenues and Major City Goals, please note which suggestions address Measure Y priorities. Finance will then compile a verbatim, composite list by topic without identifyin g who submitted the particular statements . Please refrain from releasing your personal list s o that each Council member has flexibility to review all of the submissions and discuss them a t the Council Goal-Setting Workshop before staking a position . An electronic version of thi s form will be provided to you. 0 Measure Y? Yes/No 0 Measure Y? Yes/No 0 Measure Y? Yes/No 0 Measure Y? Yes/No 0 Measure Y? Yes/No 0 Measure Y? Yes/No 0 Measure Y? Yes/No Note: Council Members will receive a copy of this form in the notebooks and via e-mail • • B2-3 2 S • ATTACHMENT 8 Suggestions for Changes in Other Programs and Service s Please provide ideas about possible changes in other programs and services to fund desire d goals. Please submit them to Finance by Tuesday, January 22, 2013 . Finance will then compile a verbatim, composite list by topic without identifying who submitted the particula r statements. Please refrain from releasing your personal list so that each Council member ha s flexibility to review all of the submissions and discuss them at the Council Goal-Settin g Workshop before staking a position. An electronic version of this form will be provided to you. Note : Council Members will receive a copy of this form in the notebooks and via e-mai l • B2-3 3 0 0 0 ATTACHMENT 9 Council Goal-Setting Worksho p 8 :30 AM to 4 :30 PM Saturday, January 26, 201 3 City-County Library Community Roo m 8 :30 - 9 :00 a .m.Refreshment s 9 :00 - 9 :05 a .m.Welcome and Introductions Mayor 9 :05 - 9 :10 a .m.Purpose, Process & Guidelines Facilitato r 9 :10 – Noo n Noon – 12 :15 p .m. Review Goals by Categor y Discuss Relationship of Goals to Current Activitie s Formulate and Select Candidate Goal s [Council may accept further comments from th e public that have not been previously presented] Counci l 12 :15 – 1 :15 Lunch Break [staff compiles candidate goals] • 1 :15 - 2 :15 p .m.Discuss and Clarify the Goal s Each Member Prepares a Written Ballot Ranking the Goals Counci l 2 :15 - 3 :15 p .m.Break while staff tabulates the results Staff 3 :15 - 4 :00 p .m.Review and Identify Major City Goals Counci l 4 :00 - 4 :30 p .m.Discuss Next Steps Council/Staff Preparatio n •Staff compiles and distributes composite list of candidate goals to Council members . •Staff prepares a template for Council ballot sheet . •Assign staff to enter goal statements into spreadsheet as Council formulates them . B2-34 • ATTACHMENT 1 0 Suggested Guidelines for Council Member s During the Goal-Setting Proces s 1. Encourage advisory boards, community groups and citizens to submi t written comments about desired goals . 2. Invite citizens to participate in Community Forum and to listen and lear n from their neighbors . 3. Receive comments from community and acknowledge their input withou t prematurely expressing your point of view . 4. Assure the community that you are willing to listen openly to al l perspectives . 5. Focus your submission of suggested goals on a short list of key priorities t o target City resources (not to exceed seven candidate goals fo r • consideration). 6. Avoid publicizing your submission of suggested goals . Let staff compil e your submissions verbatim into a composite list of goals by category withou t identification of who made each suggestion . This enables you to see th e whole picture . 7. Give yourself flexibility by not publicly staking positions in advance of th e January 26, 2013 Council Goal-Setting Workshop . 8. Use this process as a way to learn from citizens and Council colleague s about what's important . 9. Explore areas where the Council can come together for positive action . 10.Recognize that this is an important step, but only the first step, in th e planning and budgeting for the next two years . • B2-35 ATTACHMENT 1 1 Criteria for Major City Goal s 1. Be legitimate to our genuine beliefs (real, supported). 2. Agreed upon by a Council majority . 3. Limited in number for comprehension, communication and focus . 4. Set forth in one document—the Financial Plan . 5. Be clear and understandable . 6. Established as a high priority and a real commitment . 7. Reflect major goals that cannot be achieved without Council support . 8. Can be translated into the performance goals and objectives of employees a t all levels of the organization . 9. Created within a supportive atmosphere where participants are not afraid t o state their suggestions for improving goals or objectives . 10.Reflect genuine consensus : while unanimous agreement is not required, the y should be accepted to the point where resistance to them is reduced o r eliminated . • • B2-36 ATTACHMENT 1 2 • BUDGET AND FISCAL POLICIE S FINANCIAL PLAN PURPOS E AND ORGANIZATIO N A . Financial Plan Objectives . Through it s Financial Plan, the City will link resources wit h results by : 1.Identifying community needs for essentia l services . 2.Organizing the programs required to provid e these essential services . 3.Establishing program policies and goals, which define the nature and level of progra m services required . 4.Identifying activities performed in deliverin g program services . 5.Proposing objectives for improving th e delivery of program services . • 6 . Identifying and appropriating the resource s required to perform program activities an d accomplish program objectives . 7 . Setting standards to measure and evaluat e 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, the City will continue usin g a two-year financial plan, emphasizing long - range planning and effective program management . The benefits identified when th e City's first two-year plan was prepared for 1983 - 85 continue to be realized : 1.Reinforcing the importance of long-rang e planning in managing the City's fiscal affairs . 2.Concentrating on developing and budgeting for the accomplishment of significan t objectives . •3 . Establishing realistic timeframes fo r achieving objectives . 4.Creating a pro-active budget that provide s 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 fmancia l plan will establish measurable program objectives and allow reasonable time to accomplish those objectives . D . Second Year Budget.Before the beginning o f the second year of the two-year cycle, th e Council will review progress during the first yea r and approve appropriations for the second fisca l year . E . Operating Carryover . Operating program appropriations not spent during the first fiscal year may be carried over for specific purpose s into the second fiscal year with the approval o f the City Manager . F . Goal Status Reports . The status of majo r program objectives will be formally reported t o the Council on an ongoing, periodic basis . G . Mid-Year Budget Reviews. The Council wil l formally review the City's fiscal condition, an d amend appropriations if necessary, six month s after the beginning of each fiscal year . H . Balanced Budget.The City will maintain a balanced budget over the two-year period of th e Financial Plan . This means that : 1 . Operating revenues must fully cove r operating expenditures, including deb t service. 2 . Ending fund balance (or working capital i n the enterprise funds) must meet minimu m policy levels . For the general and enterpris e funds, this level has been established at 20 % of operating expenditures . B2-37 BUDGET AND FISCAL POLICIES Attachment 12 —Page 2 •Under this policy, it is allowable for tota l expenditures to exceed revenues in a give n year ; however, in this situation, beginning fund balance can only be used to fund capita l improvement plan projects, or other "one - time," non-recurring expenditures . FINANCIAL REPORTIN G AND BUDGET ADMINISTRATIO N A.Annual Reporting. The City will prepar e annual financial statements as follows : 1.In accordance with Charter requirements, the City will contract for an annual audit by a qualified independent certified publi c accountant. The City will strive for a n unqualified auditors' opinion . 2.The City will use generally accepte d accounting principles in preparing its annua l financial statements, and will strive to mee t the requirements of the GFOA's Award fo r Excellence in Financial Reporting program . 3.The City will issue audited financia l statements within 180 days after year-end . B .Interim Reporting. The City will prepare an d issue timely interim reports on the City's fisca l status to the Council and staff . This includes : on-line access to the City's financial managemen t system by City staff; monthly reports to program managers ; more formal quarterly reports to th e Council and Department Heads ; mid-year budge t reviews ; and interim annual reports . C .Budget Administration .As set forth in the City Charter, the Council may amend or supplemen t the budget at any time after its adoption b y majority vote of the Council members . The City Manager has the authority to mak e administrative adjustments to the budget as long as those changes will not have a significan t policy impact nor affect budgeted year-end fun d balances . GENERAL REVENUE MANAGEMENT A.Diversified and Stable Base.The City will seek to maintain a diversified and stable revenue bas e to protect it from short-term fluctuations in an y one revenue source . B.Long-Range Focus .To emphasize and facilitate long-range financial planning, the City wil l maintain current projections of revenues for th e succeeding five years . C.Current Revenues for Current Uses . The City will make all current expenditures with current revenues, avoiding procedures that balanc e current budgets by postponing needed expenditures, accruing future revenues, or rollin g over short-term debt . D.Interfund Transfers and Loans . In order to achieve important public policy goals, the City has established various special revenue, capita l project, debt service and enterprise funds t o account for revenues whose use should b e 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 Financia l Plan, and can only be made by the D irector o f Finance & Information Technology i n accordance with the adopted budget . Thes e operating transfers, under which fmancia l resources are transferred from one fund t o another, are distinctly different from interfun d borrowings, which are usually made fo r temporary cash flow reasons, and are no t intended to result in a transfer of financia l resources by the end of the fiscal year . In summary, interfund transfers result in a change in fund equity ; interfund borrowings d o not, as the intent is to repay in the loan in th e near term . From time-to-time, interfund borrowings may b e appropriate ; however, these are subject to th e following criteria in ensuring that the fiduciary purpose of the fund is met : B2-38 • • BUDGET AND FISCAL POLICIES Attachment 12 —Page 3 • 1 . The Director of Finance & Informatio n Technology is authorized to approv e temporary interfund borrowings for cash flow purposes whenever the cash shortfall i s expected to be resolved within 45 days . The most common use of interfund borrowin g under this circumstance is for gran t programs like the Community Development Block Grant, where costs are incurred befor e drawdowns are initiated and received . However, receipt of funds is typicall y received shortly after the request for fund s has been made. 2.Any other interfund borrowings for cash flo w or other purposes require case-by-cas e approval by the Council . 3.Any transfers between funds wher e reimbursement is not expected within on e fiscal year shall not be recorded as interfun d borrowings ; they shall be recorded a s • interfund operating transfers that affec t equity by moving financial resources fro m one fund to another . USER FEE COST RECOVERY GOAL S A.Ongoing Revie w Fees will be reviewed and updated on an ongoin g basis to ensure that they keep pace with change s in the cost-of-living as well as changes i n methods or levels of service delivery . In implementing this goal, a comprehensiv e analysis of City costs and fees should be made a t least every five years . In the interim, fees will b e adjusted by annual changes in the Consume r Price Index . Fees may be adjusted during thi s interim period based on supplemental analysi s whenever there have been significant changes i n the method, level or cost of service delivery . B.User Fee Cost Recovery Level s •In setting user fees and cost recovery levels, th e following factors will be considered : 1.Community-Wide Versus Special Benefi t The level of user fee cost recovery shoul d consider the community-wide versus special service nature of the program or activity . The use of general-purpose revenues i s appropriate for community-wide services, while user fees are appropriate for service s that are of special benefit to easily identifie d individuals or groups . 2.Service Recipient Versus Service Driver . After considering community-wide versu s special benefit of the service, the concept o f service recipient versus service driver should also be considered. For example, i t could be argued that the applicant is not th e beneficiary of the City's development revie w efforts : the community is the primar y beneficiary . However, the applicant is th e driver of development review costs, and a s such, cost recovery from the applicant i s appropriate . 3.Effect of Pricing on the Demand fo r Services.The level of cost recovery and related pricing of services can significantl y affect the demand and subsequent level o f services provided . At full cost recovery, thi s has the specific advantage of ensuring tha t 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 wil l negatively impact the delivery of services t o lower income groups . This negative feature is especially pronounced, and works agains t 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 hig h level of cost recovery may be appropriate fo r specific services, it may be impractical or to o costly to establish a system to identify an d charge the user . Accordingly, the feasibilit y of assessing and collecting charges should also be considered in developing user fees, B2-39 Attachment 12 — Page 4 The service is similar to services provide d through the private sector . Other private or public sector alternative s could or do exist for the delivery of th e service . For equity or demand management purposes , it is intended that there be a direct relationship between the amount paid and th e level and cost of the service received . • BUDGET AND FISCAL POLICIE S especially if significant program costs are 1 . intended to be financed from that source . C .Factors Favoring Low Cost Recovery Levels 2 . Very low cost recovery levels are appropriate under the following circumstances : 3 . 1.There is no intended relationship between the amount paid and the benefit received. Almost all "social service" programs fall int o this category as it is expected that one group will subsidize another. 2.Collecting fees is not cost-effective or wil l significantly impact the efficient delivery o f the service . 4.The use of the service is specificall y discouraged. Police responses t o disturbances or false alarms might fall into this category . 5.The service is regulatory in nature an d voluntary compliance is not expected to b e the primary method of detecting failure t o meet regulatory requirements . Buildin g permit, plan checks, and subdivision revie w fees for large projects would fall into thi s category . E . General Concepts Regarding the Use o f Service Charge s The following general concepts will be used i n 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 th e total cost of delivering the service, includin g direct costs, departmental administration costs and organization-wide support cost s such as accounting, personnel, informatio n technology, legal services, fleet maintenanc e and insurance. 3.There is no intent to limit the use of (o r entitlement to) the service . Again, mos t "social service" programs fit into thi s category as well as many public safet y (police and fire) emergency respons e services . Historically, access t o neighborhood and community parks woul d also fit into this category . 4.The service is non-recurring, generall y delivered on a "peak demand" or emergenc y basis, cannot reasonably be planned for o n an individual basis, and is not readil y available from a private sector source . Many public safety services also fall into thi s category. 5.Collecting fees would discourage complianc e with regulatory requirements and adherenc e is primarily self-identified, and as such , failure to comply would not be readil y detected by the City . Many small-scal e licenses and permits might fall into thi s category. 3 . D.Factors Favoring High Cost Recovery Level s The use of service charges as a major source o f funding service levels is especially appropriate 4 . under the following circumstances : The method of assessing and collecting fee s should be as simple as possible in order t o reduce the administrative cost of collection . Rate structures should be sensitive to th e "market" for similar services as well as t o smaller, infrequent users of the service . B2-40 • • BUDGET AND FISCAL POLICIES Attachment 12 — Page 5 5 . A unified approach should be used i n determining cost recovery levels for variou s programs based on the factors discusse d above. F . Low Cost-Recovery Service s Based on the criteria discussed above, th e following types of services should have very lo w 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, no t user fees . 1.Delivering public safety emergency respons e 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 an d economic development activities . G . Recreation Program s The following cost recovery policies apply to th e City's recreation programs : 1.Cost recovery for activities directed to adult s should be relatively high . 2.Cost recovery for activities d irected to yout h and seniors should be relatively low . In those circumstances where services ar e similar to those provided in the privat e sector, cost recovery levels should be higher . Although ability to pay may not be a concer n for all youth and senior participants, thes e are desired program activities, and the cost o f determining need may be greater than the • cost of providing a uniform service fe e structure to all participants . Further, there is a community-wide benefit in encouraging high-levels of participation in youth and senior recreation activities regardless o f fmancial status . 3 . Cost recovery goals for recreation activitie s are set as follows : High-Range Cost Recovery Activitie s (60% to 100%) a.Adult athletic s b.Banner permit applications c.Child care services (except Yout h STAR) d.Facility rentals (indoor and outdoor ; excludes use of facilities for internal City uses ) e.Triathlon f.Golf Mid-Range Cost Recovery Activities (30% to 60%) g.Classe s h.Holiday in the Plaz a i.Major commercial film permi t applications Low-Range Cost Recovery Activitie s (0to30%) j.Aquatic s k.Batting cages 1. Community garden s m.Junior Ranger camp n.Minor commercial film permit applications Skate park Special events (except for Triathlon an d Holiday in the Plaza ) q.Youth sport s r.Youth STAR s.Teen services t.Senior/boomer service s 4. For cost recovery activities of less tha n 100%, there should be a differential in rate s between residents and non-residents . However, the Director of Parks an d Recreation is authorized to reduce o r eliminate non-resident fee differentials when it can be demonstrated that : o . p . B2-41 BUDGET AND FISCAL POLICIES Attachment 12 —Page 6 c .Engineering (public improvement plan • a .The fee is reducing attendance .checks,inspections,subdivisio n b .And there are no appreciable expenditur e savings from the reduced attendance .d. requirements, encroachments). Fire plan check . 5.Charges will be assessed for use of rooms , pools, gymnasiums, ball fields, special-use areas, and recreation equipment for activitie s not sponsored or co-sponsored by the City . Such charges will generally conform to th e 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 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 fro m individuals or organizations using City facilities for moneymaking activities . 2.Cost recovery for these services shoul d generally be very high . In most instances, the City's cost recovery goal should b e 100%. 3.However, in charging high cost recover y levels, the City needs to clearly establish an d articulate standards for its performance in reviewing developer applications to ensur e that there is "value for cost ." I . Comparability With Other Communitie s In setting user fees, the City will consider fee s charged by other agencies in accordance with th e following criteria : 7 .Director of Parks and Recreation is 1 . authorized to offer reduced fees such a s introductory rates,family discounts and coupon discounts on a pilot basis (not t o exceed 18 months) to promote new recreatio n programs or resurrect existing ones . 8 . The Parks and Recreation Department wil l consider waiving fees only when the Cit y Manager determines in writing that an undu e hardship exists . H . Development Review Programs Surveying the comparability of the City's fees to other communities provides useful background information in setting fees fo r several reasons : a.They reflect the "market" for these fee s 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 Sa n Luis Obispo provides its services . • The following cost recovery policies apply to th e development review programs : 1 . Services provided under this categor y 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). 2 . However, fee surveys should never be th e sole or primary criteria in setting City fees a s there are many factors that affect how an d why other communities have set their fees a t their levels . For example : a.What level of cost recovery is their fe e intended to achieve compared with ou r cost recovery objectives ? b.What costs have been considered i n computing the fees ? c.When was the last time that their fee s were comprehensively evaluated ? B2-42 • BUDGET AND FISCAL POLICIES Attachment 12 — Page 7 •d . What level of service do they provid e compared with our service or performance standards ? e . Is their rate structure significantl y different than ours and what is it intended to achieve ? 3 . These can be very difficult questions t o address in fairly evaluating fees among different communities . As such, the comparability of our fees to other communities should be one factor amon g many that is considered in setting City fees . ENTERPRISE FUND FEES AND RATE S A .Water, Sewer and Parking .The City will se t fees and rates at levels which fully cover the tota l d irect and ind irect costs—including operations , capital outlay, and debt service—of the followin g enterprise programs : water, sewer and parking . •B . Transit. Based on targets set under th e Transportation Development Act, the City wil l strive to cover at least twenty percent of transi t operating costs with fare revenues . C.Ongoing Rate Review .The City will review and adjust enterprise fees and rate structures a s required to ensure that they remain appropriat e and equitable . D.Franchise Fees .In accordance with long - standing practices, the City will treat the wate r and sewer funds in the same manner as if the y were privately owned and operated . This mean s assessing reasonable franchise fees in full y recovering service costs . At 3 .5%, water and sewer franchise fees are based on the mid-point of the statewide standar d for public utilities like electricity and gas (2% o f gross revenues from operations) and cabl e television (5% of gross revenues). As with other utilities, the purpose of the •franchise fee is reasonable cost recovery for the use of the City's street right-of-way . The appropriateness of charging the water and sewer funds a reasonable franchise fee for the use o f City streets is further supported by the results o f studies in Arizona, California, Ohio and Vermon t which concluded that the leading cause for stree t resurfacing and reconstruction is street cuts an d trenching for utilities . REVENUE DISTRIBUTIO N The Council recognizes that generally accepte d accounting principles for state and local government s discourage the "earmarking" of General Fund revenues, and accordingly, the practice of designatin g General Fund revenues for specific programs shoul d be minimized in the City's management of its fiscal affairs . Approval of the following revenu e 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 citie s no longer can set their own property tax rates . In addition to limiting annual increases in marke t value, placing a ceiling on voter-approve d indebtedness, and redefining assessed valuations , Proposition 13 established a maximum county - wide levy for general revenue purposes of 1% o f 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 revenue s collected countywide as determined by the Stat e and administered by the County Auditor- Controller . The City receives 14 .9% of each dollar collected in property tax after allocation s to school districts . Accordingly, while property revenues are ofte n thought of local revenue sources, in essence they are State revenue sources, since the Stat e controls their use and allocation . With the adoption of a Charter revision i n November 1996, which removed provisions tha t were in conflict with Proposition 13 relating t o the setting of property tax revenues betwee n various funds, all property tax revenues are no w accounted for in the General Fund . B2-43 BUDGET AND FISCAL POLICIES Attachment 12 —Page 8 3 . Yield • B.Gasoline Tax Subventions . All gasoline ta x revenues (which are restricted by the State fo r street-related purposes) will be used fo r maintenance activities . Since the City's tota l expenditures for gas tax eligible programs an d projects are much greater than this revenu e source, operating transfers will be made from th e gas tax fund to the General Fund for thi s purpose. This approach significantly reduces th e accounting efforts required in meeting Stat e reporting requirements . C.Transportation Development Act (TDA) Revenues .All TDA revenues will be allocate d to alternative transportation programs, includin g regional and municipal transit systems, bikewa y improvements, and other programs or project s designed to reduce automobile usage . Because TDA revenues will not be allocated for stree t purposes, it is expected that alternativ e transportation programs (in conjunction wit h other state or federal grants for this purpose) wil l be self-supporting from TDA revenues . D.Parking Fines.All parking fine revenues will be allocated to the parking fund, except for thos e collected by Police staff (who are funded by th e General Fund) in implementing neighborhoo d wellness programs . INVESTMENT S A.Responsibility . Investments and cas h management are the responsibility of the Cit y Treasurer or designee. It is the City's policy t o appoint the Director of Finance and Informatio n Technology as the City's Treasurer . B.Investment Objective . The City's primar y investment objective is to achieve a reasonabl e rate of return while minimizing the potential fo r capital losses arising from market changes o r issuer default . Accordingly, the following factor s will be considered in priority order in determinin g individual investment placements : 1.Safety 2.Liquidity C.Tax and Revenue Anticipation Notes : Not fo r Investment Purposes .There is an appropriat e role for tax and revenue anticipation notes (TRANS) in meeting legitimate short-term cas h needs within the fiscal year . However, man y agencies issue TRANS as a routine busines s practice, not solely for cash flow purposes, but t o capitalize on the favorable difference between the interest cost of issuing TRANS as a tax - preferred security and the interest yields on the m if re-invested at full market rates . As part of its cash flow management an d investment strategy, the City will only issue TRANS or other forms of short-term debt i f necessary to meet demonstrated cash flow needs ; TRANS or any other form of short-term debt financing will not be issued for investmen t purposes . As long as the City maintains its current polic y of maintaining fund/working capital balances tha t are 20% of operating expenditures, it is unlikely that the City would need to issue TRANS fo r cash flow purposes except in very unusua l circumstances . D.Selecting Maturity Dates . The City will strive to keep all idle cash balances fully investe d through daily projections of cash flo w requirements . To avoid forced liquidations an d losses of investment earnings, cash flow an d future requirements will be the primar y consideration when selecting maturities . E.Diversification . As the market and the City's investment portfolio change, care will be taken t o maintain a healthy balance of investment type s and maturities . F.Authorized Investments . The City will inves t only in those instruments authorized by the California Government Code Section 53601 . The City will not invest in stock, will no t speculate and will not deal in futures or options . The investment market is highly volatile an d continually offers new and creative opportunitie s B2-44 • • BUDGET AND FISCAL POLICIES Attachment 12 — Page 9 •for enhancing interest earnings . Accordingly, th e City will thoroughly investigate any ne w investment vehicles before committing City fund s to them . G.Authorized Institutions.Current financia l statements will be maintained for each institutio n in which cash is invested . Investments will be limited to 20 percent of the total net worth of an y institution and may be reduced further or refused altogether if an institution's financial situatio n becomes unhealthy . H.Consolidated Portfolio . In order to maximiz e yields from its overall portfolio, the City wil l consolidate cash balances from all funds for investment purposes, and will allocate investmen t earnings to each fund in accordance wit h generally accepted accounting principles . I.Safekeeping. Ownership of the City's investmen t securities will be protected through third-part y custodial safekeeping . •J. Investment Management Plan.The City Treasurer will develop and maintain a n Investment Management Plan that addresses th e City's administration of its portfolio, includin g investment strategies, practices and procedures . K.Investment Oversight Committee . As set forth in the Investment Management Plan, thi s committee is responsible for reviewing the City's portfolio on an ongoing basis to determine compliance with the City's investment policie s and for making recommendations regardin g investment management practices . Members include the City Manager, Assistant City Manager, Director of Finance & Information Technology/City Treasurer, Financ e Manager and the City's independent auditor . L.Reporting.The City Treasurer will develop an d maintain a comprehensive, well-documente d investment reporting system, which will compl y with Government Code Section 53607 . This •reporting system will provide the Council and th e Investment Oversight Committee wit h appropriate investment performance information . APPROPRIATIONS LIMITATION A. The Council will annually adopt a resolutio n establishing the City's appropriations limi t calculated in accordance with Article XIII-B o f the Constitution of the State of California , Section 7900 of the State of Californi a Government Code, and any other voter approved amendments or state legislation that affect th e City's appropriations limit . B . The supporting documentation used i n calculating the City's appropriations limit an d projected appropriations subject to the limit will be available for public and Council review a t 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 . C . The City will strive to develop revenue sources , both new and existing, which are considered non - tax proceeds in calculating its appropriation s subject to limitation . D . The City will annually review user fees an d charges and report to the Council the amount o f program subsidy, if any, that is being provide d by the General or Enterprise Funds . E. The City will actively support legislation o r initiatives sponsored or approved by League o f California Cities which would modify Articl e XIII-B of the Constitution in a manner whic h would allow the City to retain projected ta x revenues resulting from growth in the loca l economy for use as determined by the Council . F . The City will seek voter approval to amend it s appropriation limit at such time that tax proceed s are in excess of allowable limits . FUND BALANCE AND RESERVE S A .Minimum Fund and Working Capita l Balances .The City will maintain a minimu m fund balance of at least 20% of operating B2-45 BUDGET AND FISCAL POLICIES Attachment 12 —Page 10 •expenditures in the General Fund and a minimu m working capital balance of 20% of operatin g expenditures in the water, sewer and parkin g enterprise funds . This is considered th e minimum level necessary to maintain the City's credit worthiness and to adequately provide for : 1.Economic uncertainties, local disasters, an d other financial hardships or downturns in th e local or national economy . 2.Contingencies for unseen operating or capita l needs . 3.Cash flow requirements . B.Fleet Replacement. For the General Fund fleet, the City will establish and maintain a Flee t Replacement Fund to provide for the timel y replacement of vehicles and related equipmen t with an individual replacement cost of $15,00 0 or more . The City will maintain a minimum fun d balance in the Fleet Replacement Fund of at leas t 20% of the original purchase cost of the item s accounted for in this fund . The annual contribution to this fund wil l generally be based on the annual use allowance , which is determined based on the estimated life o f the vehicle or equipment and its original purchas e cost. Interest earnings and sales of surplu s equipment as well as any related damage an d insurance recoveries will be credited to the Flee t Replacement Fund. C.Information Technology (IT) Replacemen t Fund .The City will establish an IT Replacemen t Fund for the General Fund to provide for th e timely replacement of information technology , both hardware and software, with an individua l replacement cost of $25,000 . The City will begi n building the fund balance with the long ter m objective of maintaining a minimum fund balanc e in the IT Replacement Fund of at least 20% o f the original purchase costs of the items accounte d for in this fund. D.Water and Sewer Rate Stabilization Reserves . The City will maintain a reserve for the purpose s of offsetting unanticipated fluctuations in Wate r Fund or Sewer Fund revenues to provide financial stability, including the stability o f revenues and the rates and charges related t o each Enterprise. The funding target for the Rat e Stabilization Reserve will be 10% of sales revenue in the Water Fund and 5% of sale s revenue in the Sewer Fund. Conditions for utilization and plan fo r replenishment of the reserve will be brought t o Council for its consideration during th e preparation and approval of the Financial Plan o r as may become necessary during any fiscal year . E.Future Capital Project Designations . Th e Council may designate specific fund balanc e levels for future development of capital project s that it has determined to be in the best long-term interests of the City . For example, replacement o f critical information technology infrastructure o r other projects . F.Other Designations and Reserves . In addition to the designations noted above, fund balanc e levels will be sufficient to meet fundin g requirements for projects approved in prior year s which are carried forward into the new year ; deb t service reserve requirements ; reserves fo r encumbrances ; and other reserves or designations required by contractual obligations, state law, o r generally accepted accounting principles . CAPITAL IMPROVEMENT MANAGEMEN T A.CIP Projects : $25,000 or More.Construction projects and equipment purchases which cos t $25,000 or more will be included in the Capita l Improvement Plan (CIP); minor capital outlays of less than $25,000 will be included with th e operating program budgets . B.CIP Purpose .The purpose of the CIP is t o systematically plan, schedule, and finance capita l projects to ensure cost-effectiveness as well a s conformance with established policies . The CIP is a five-year plan organized into the sam e functional groupings used for the operatin g programs . The CIP will reflect a balanc e between capital replacement projects that repair , replace or enhance existing facilities, equipmen t B2-46 • • BUDGET AND FISCAL POLICIES Attachment 12 —Page 1 1 • or infrastructure ; and capital facility projects tha t significantly expand or add to the City's existin g fixed assets . C . Project Manager . Every CIP project will have a project manager who will prepare the project proposal, ensure that required phases ar e completed on schedule, authorize all project expenditures, ensure that all regulations and law s are observed, and periodically report projec t status . D .CIP Review Committee . Headed by the Cit y Manager or designee, this Committee will revie w project proposals, determine project phasing , recommend project managers, review an d evaluate the draft CIP budget document, an d report CIP project progress on an ongoing basis . E. CIP Phases . The CIP will emphasize projec t planning, with projects progressing through at least two and up to ten of the following phases : •I .Designate.Appropriates funds based o n projects designated for funding by th e Council through adoption of the Financia l Plan. 2.Study.Concept design, site selection , feasibility analysis,schematic design , environmental determination, propert y appraisals, scheduling, grant application , grant approval, specification preparation fo r equipment purchases . 3.Environmental Review.EIR preparation , other environmental studies . 4.Real Property Acquisitions .Property acquisition for projects, if necessary . 5.Site Preparation.Demolition, hazardou s materials abatements, other pre-constructio n work . 6.Design.Final design, plan and specificatio n preparation and construction cost estimation. •7 .Construction.Construction contracts . 8.Construction Management Contrac t project management and inspection, soils and material tests, other support services durin g construction. 9.Equipment Acquisitions.Vehicles, heavy machinery, computers, office furnishings , other equipment items acquired and installe d independently from construction contracts . 10.Debt Service.Installment payments o f principal and interest for completed project s funded through debt financings . Expenditures for this project phase ar e 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 b e designed, and more projects will be designed tha n will be constructed or purchased during the ter m of the CIP . F .CIP Appropriation .The City's annual CIP appropriation for study, design, acquisitio n and/or construction is based on the project s designated by the Council through adoption o f the Financial Plan. Adoption of the Financia l Plan CIP appropriation does not automaticall y authorize funding for specific project phases . This authorization generally occurs only after th e preceding project phase has been completed an d approved by the Council and costs for th e succeeding phases have been fully developed . Accordingly, project appropriations are generall y made when contracts are awarded . If projec t costs at the time of bid award are less than th e budgeted amount, the balance will b e unappropriated and returned to fund balance o r allocated to another project . If project costs a t the time of bid award are greater than budge t amounts, five basic options are available : 1.Eliminate the project . 2.Defer the project for consideration to the nex t Financial Plan period . B2-47 BUDGET AND FISCAL POLICIES Attachment 12 —Page 12 •3.Rescope or change the phasing of the projec t 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 budge t adoption . Projects which lapse from lack o f 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 projec t phase. H.Program Objectives. Project phases will be listed as objectives in the program narratives o f the programs, which manage the projects . Public Art .CIP projects will be evaluate d during the budget process and prior to each phas e for conformance with the City's public art policy, which generally requires that 1% of eligibl e project construction costs be set aside for publi c 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 . It is generally preferred that public art be incorporated directly into the project, but this i s not practical or desirable for all projects ; in thi s case, an in-lieu contribution to public art will b e made . To ensure that funds are adequatel y budgeted for this purpose regardless of whethe r public art will be directly incorporated into th e project, funds for public art will be identifie d separately in the CIP . Given the City's fiscal situation for 2011-13 , public art will be funded at the same leve l required by the private sector : 0 .5% rather tha n 1%. J .General Plan Consistency Review .Th e Planning Commission will review the Preliminary CIP for consistency with the General Plan an d provide is findings to the Council prior t o adoption . CAPITAL FINANCIN G AND DEBT MANAGEMEN T A . Capital Financin g 1 . The City will consider the use of deb t financing only for one-time capita l improvement projects and only under th e following circumstances : a.When the project's useful life will excee d the term of the fmancing . b.When project revenues or specifi c resources will be sufficient to service th e long-term debt . 2 . Debt financing will not be considere d appropriate for any recurring purpose suc h as current operating and maintenanc e expenditures . The issuance of short-ter m instruments such as revenue, tax or bond anticipation notes is excluded from thi s limitation . (See Investment Policy) 3 . Capital improvements will be finance d primarily through user fees, service charges , assessments, special taxes or develope r agreements when benefits can be specifically attributed to users of the facility . Accordingly, development impact fees shoul d be created and implemented at level s sufficient to ensure that new developmen t pays its fair share of the cost of constructin g necessary community facilities . 4 . Transportation impact fees are a majo r funding source in financing transportatio n system improvements . However, revenue s from these fees are subject to significan t fluctuation based on the rate of ne w development . Accordingly, the following guidelines will be followed in designing an d building projects funded with transportation impact fees : B2-48 • • BUDGET AND FISCAL POLICIES Attachment 12 — Page 1 3 •a.The availability of transportation impac t fees in funding a specific project will b e analyzed on a case-by-case basis a s plans and specification or contrac t awards are submitted for City Manage r or Council approval . b.If adequate funds are not available at that time, the Council will make one o f two determinations : •Defer the project until funds ar e available . •Based on the high-priority of the project, advance funds from th e General Fund, which will b e reimbursed as soon as funds becom e available . Repayment of General Fund advances will be the first us e of transportation impact fee fund s when they become available . 5 . The City will use the following criteria to •evaluate pay-as-you-go versus long-ter m financing in funding capital improvements : a. Factors Favoring Pay-As-You-Go Financing 1.Current revenues and adequate fun d balances are available or project phasin g can be accomplished . 2.Existing debt levels adversely affect th e City's credit rating . 3.Market conditions are unstable o r present difficulties in marketing. b. Factors Favoring Long Term Financing 1.Revenues available for debt service ar e deemed sufficient and reliable so that long-term financings can be markete d with investment grade credit ratings . 2.The project securing the financing is o f the type, which will support a n investment grade credit rating . 3.Market conditions present favorabl e interest rates and demand for Cit y fmancings . 4.A project is mandated by state or federa l requirements, and resources ar e insufficient or unavailable . 5.The project is immediately required t o meet or relieve capacity needs an d current resources are insufficient or unavailable . 6.The life of the project or asset to b e financed is 10 years or longer . 7.Vehicle leasing when market condition s and operational circumstances present favorable opportunities . B . Debt Management 1.The City will not obligate the General Fund to secure long-term financings except whe n marketability can be significantly enhanced . 2.An internal feasibility analysis will b e prepared for each long-term financing whic h analyzes the impact on current and futur e budgets for debt service and operations . This analysis will also address the reliabilit y of revenues to support debt service . 3.The City will generally conduct fmancings o n a competitive basis . However, negotiate d fmancings may be used due to marke t volatility or the use of an unusual or complex financing or security structure . 4.The City will seek an investment grade ratin g (Baa/BBB or greater) on any direct debt an d will seek credit enhancements such as letter s of credit or insurance when necessary fo r marketing purposes, availability and cost - effectiveness . 5.The City will monitor all forms of deb t annually coincident with the City's Financia l Plan preparation and review process and• B2-49 BUDGET AND FISCAL POLICIES Attachment 12 —Page 1 4 report concerns and remedies, if needed, t o the Council .D . Independent Disclosure Counsel • 6.The City will diligently monitor it s compliance with bond covenants and ensure its adherence to federal arbitrage regulations . 7.The City will maintain good, ongoin g communications with bond rating agencie s about its financial condition . The City wil l follow a policy of full disclosure on ever y financial report and bond prospectu s (Official Statement). C . Debt Capacity 1 .General Purpose Debt Capacity.The City will carefully monitor its levels of general - purpose debt. Because our general purpos e debt capacity is limited, it is important tha t we only use general purpose debt financin g for high-priority projects where we cannot reasonably use other financing methods fo r two key reasons : 1.Funds borrowed for a project today ar e not available to fund other project s tomorrow . 2.Funds committed for debt repaymen t today are not available to fun d operations in the future . In evaluating debt capacity, general-purpos e annual debt service payments shoul d generally not exceed 10% of General Fund revenues ; and in no case should they excee d 15%. Further, direct debt will not exceed 2% of assessed valuation; and no more than 60% of capital improvement outlays will b e funded from long-term financings . 2 .Enterprise Fund Debt Capacity.The City will set enterprise fund rates at levels neede d to fully cover debt service requirements a s well as operations, maintenance , administration and capital improvemen t costs . The ability to afford new debt fo r enterprise operations will be evaluated as a n integral part of the City's rate review an d setting process . The following criteria will be used on a case-by- case basis in determining whether the City should retain the services of an independent disclosur e counsel in conjunction with specific projec t financings : 1 . The City will generally not retain the service s of an independent disclosure counsel when al l of the following circumstances are present : 1.The revenue source for repayment i s under the management or control of th e City, such as general obligation bonds , revenue bonds, lease-revenue bonds or certificates of participation . 2.The bonds will be rated or insured . 2 . The City will consider retaining the service s of an independent disclosure counsel whe n one or more of following circumstances ar e present : 1.The financing will be negotiated, and th e underwriter has not separately engage d an underwriter's counsel for disclosur e purposes . 2.The revenue source for repayment is no t under the management or control of the City, such as land-based assessment districts, tax allocation bonds or condui t financings . 3.The bonds will not be rated or insured . 4.The City's financial advisor, bond counsel or underwriter recommends tha t the City retain an independent disclosur e counsel based on the circumstances o f the financing . E .Land-Based Financing s 1 .Public Purpose.There will be a clearly articulated public purpose in forming a n assessment or special tax district in financing public infrastructure improvements . This should include a finding by the Council as t o why this form of financing is preferred ove r B2-50 • • BUDGET AND FISCAL POLICIES Attachment 12 — Page 1 5 • • • other funding options such as impact fees , reimbursement agreements or direc t developer responsibility for th e improvements . 2 .Eligible Improvements.Except a s otherwise determined by the Council whe n proceedings for district formation ar e commenced, preference in fmancing publi c improvements through a special tax distric t shall be given for those public improvement s that help achieve clearly identifie d community facility and infrastructure goal s in accordance with adopted facility an d infrastructure plans as set forth in key polic y documents such as the General Plan, Specific Plan, Facility or Infrastructure Maste r Plans, or Capital Improvement Plan . Such improvements include study, des lam , construction and/or acquisition of : 1.Public safety facilities . 2.Water supply, distribution and treatmen t systems . 3.Waste collection and treatment systems . 4.Major transportation syste m improvements, such as freewa y interchanges ; bridges ; intersectio n improvements ; construction of new o r widened arterial or collector street s (including related landscaping an d lighting); sidewalks and other pedestria n paths ; transit facilities ; and bike paths . 5.Storm drainage, creek protection an d flood protection improvements . 6.Parks, trails, community centers an d other recreational facilities . 7.Open space. 8.Cultural and social service facilities . 9.Other governmental facilities an d improvements such as offices , information technology systems an d telecommunication systems . School facilities will not be financed except under appropriate joint community facilities agreements or joint exercise of power s agreements between the City and schoo l districts . 3.Active Role.Even though land-base d fmancings may be a limited obligation of th e City, we will play an active role in managin g the district . This means that the City wil l 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 thes e services will generally be the responsibility of the property owners or developer, and wil l be advanced via a deposit when a n application is filed ; or will be paid on a contingency fee basis from the proceeds fro m the bonds . 4.Credit Quality.When a developer requests a district, the City will carefully evaluate th e applicant's financial plan and ability to carr y the project, including the payment o f assessments and special taxes during build - out . This may include detailed background , credit and lender checks, and the preparatio n of independent appraisal reports and marke t absorption studies . For districts where one property owner accounts for more than 25 % of the annual debt service obligation, a lette r of credit further securing the financing ma y be required . 5.Reserve Fund.A reserve fund should b e established in the lesser amount of : the maximum annual debt service ; 125% of the annual average debt service; or 10% of the bond proceeds . 6.Value-to-Debt Ratios.The minimum value- to-debt ratio should generally be 4 :1 . Thi s means the value of the property in th e district, with the public improvements , should be at least four times the amount o f the assessment or special tax debt . In special circumstances, after conferring and receivin g the concurrence of the City's financial advisor and bond counsel that a lower value- to-debt ratio is fmancially prudent under th e circumstances, the City may conside r B2-51 BUDGET AND FISCAL POLICIES Attachment 12 — Page 16 •allowing a value-to-debt ratio of 3 :1 . The Council should make special fmdings in thi s case. 7.Appraisal Methodology .Determination of value of property in the district shall b e based upon the full cash value as shown on the ad valorem assessment roll or upon a n appraisal by an independent Membe r Appraisal Institute (MAI). The definitions , standards and assumptions to be used for appraisals shall be determined by the City o n a case-by-case basis, with input from Cit y consultants and district applicants, and b y reference to relevant materials an d information promulgated by the State of California, including the Appraisal Standard s for Land-Secured Financings prepared by th e California Debt and Investment Advisor y Commission. 8.Capitalized Interest During Construction . Decisions to capitalize interest will be made on case-by-case basis, with the intent that i f allowed, it should improve the credit quality of the bonds and reduce borrowing costs , benefiting both current and future property owners . 9.Maximum Burden.Annual assessments (o r special taxes in the case of Mello-Roos o r 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 ta x roll should generally not exceed 2%. 10.Benefit Apportionment.Assessments an d special taxes will be apportioned accordin g to a formula that is clear, understandable, equitable and reasonably related to the benefit received by—or burden attribute d to—each parcel with respect to its finance d improvement . Any annual escalation factor should generally not exceed 2%. 11.Special Tax District Administration .In the case of Mello-Roos or similar special ta x districts, the total maximum annual ta x should not exceed 110% of annual debt service. The rate and method of apportionment should include a back-up ta x in the event of significant changes from th e initial development plan, and should includ e procedures for prepayments . 12.Foreclosure Covenants.In managing administrative costs, the City will establis h minimum delinquency amounts per owner , and for the district as a whole, on a case-by- case basis before initiating foreclosure proceedings . 13.Disclosure to Bondholders .In general , each property owner who accounts for mor e than 10% of the annual debt service o r bonded indebtedness must provide ongoing disclosure information annually as describe d under SEC Rule 15(c)-12 . 14.Disclosure to Prospective Purchasers.Full disclosure about outstanding balances and annual payments should be made by th e seller to prospective buyers at the time tha t the buyer bids on the property . It should no t be deferred to after the buyer has made th e decision to purchase . When appropriate, applicants or property owners may b e required to provide the City with a disclosur e plan. F .Conduit Financings 1 . The City will consider requests for condui t financing on a case-by-case basis using th e following criteria : a.The City's bond counsel will review th e terms of the financing, and render a n opinion that there will be no liability t o the City in issuing the bonds on behalf o f the applicant . b.There is a clearly articulated publi c purpose in providing the condui t financing. c.The applicant is capable of achievin g this public purpose . B2-52 • • BUDGET AND FISCAL POLICIES Attachment 12 — Page 1 7 •2 . This means that the review of requests for conduit financing will generally be a two-ste p process : a.First asking the Council if they ar e interested in considering the request, and establishing the ground rules fo r evaluating it . b.And then returning with the results o f this evaluation, and recommendin g approval of appropriate fmancin g documents if warranted . This two-step approach ensures that th e issues are clear for both the City an d applicant, and that key policy questions ar e answered . 3 . The workscope necessary to address thes e issues will vary from request to request, an d will have to be determined on a case-by-cas e basis . Additionally, the City shoul d generally be fully reimbursed for our costs i n •evaluating the request ; however, this shoul d also be determined on a case-by-case basis . B . Refinancing s 1 .General Guidelines.Periodic reviews of al l outstanding debt will be undertaken to determine refinancing opportunities . Refinancings will be considered (within federal tax law constraints) under th e following conditions : a.There is a net economic benefit . b.It is needed to modernize covenants tha t are adversely affecting the City's fmancial position or operations . c.The City wants to reduce the principa l outstanding in order to achieve futur e debt service savings, and it has availabl e working capital to do so from othe r sources . 2 .Standards for Economic Savings .In •general, refmancings for economic savings will be undertaken whenever net present value savings of at least five percent (5%) o f the refunded debt can be achieved . a . Refinancings that produce net presen t value savings of less than five percen t will be considered on a case-by-cas e basis, provided that the present valu e savings are at least three percent (3%) o f the refunded debt . b. Refinancings with savings of less tha n three percent (3%), or with negativ e savings, will not be considered unles s there is a compelling public polic y objective . HUMAN RESOURCE MANAGEMEN T A . Regular Staffing 1 . The budget will fully appropriate the resources needed for authorized regula r staffing and will limit programs to th e regular staffing authorized . 2 . Regular employees will be the core wor k force and the preferred means of staffin g ongoing, year-round program activities that should be performed by full-time Cit y employees rather than independen t contractors . The City will strive to provid e competitive compensation and benefi t schedules for its authorized regular wor k force . Each regular employee will: a.Fill an authorized regular position . b.Be assigned to an appropriate bargainin g unit. c. Receive salary and benefits consisten t with labor agreements or othe r compensation plans . 3 . To manage the growth of the regular work force and overall staffing costs, the City wil l follow these procedures : a. The Council will authorize all regular positions . B2-53 BUDGET AND FISCAL POLICIES Attachment 12 — Page 18 •b.The Human Resources Department wil l coordinate and approve the hiring of al l regular and temporary employees . c.All requests for additional regula r positions will include evaluations of: •The necessity, term and expecte d results of the proposed activity . •Staffing and materials cost s including salary,benefits , equipment,uniforms,clerical support and facilities . •The ability of private industry t o provide the proposed service. •Additional revenues or cost savings , which may be realized . 4.Periodically, and before any request fo r additional regular positions, programs will b e evaluated to determine if they can b e accomplished with fewer regular employees . (See Productivity Review Policy ) 5.Staffing and contract service cost ceiling s will limit total expenditures for regula r employees, temporary employees, an d independent contractors hired to provid e operating and maintenance services . B . Temporary Staffing 1.The hiring of temporary employees will no t be used as an incremental method fo r expanding the City's regular work force . 2.Temporary employees include all employee s other than regular employees, elected officials and volunteers . Temporary employees will generally augment regula r City staffing as extra-help employees , seasonal employees, contract employees , interns and work-study assistants . 3.The City Manager and Department Head s will encourage the use of temporary rather than regular employees to meet pea k workload requirements, fill interi m vacancies, and accomplish tasks where less than full-time, year-round staffing i s required. Under this guideline, temporary employee hours will generally not exceed 50% of a regular, full-time position (1,000 hour s annually). There may be limite d circumstances where the use of temporar y employees on an ongoing basis in excess o f this target may be appropriate due to uniqu e programming or staffing requirements . However, any such exceptions must b e approved by the City Manager based on th e review and recommendation of the Huma n Resources Director . 4.Contract employees are defined as temporar y employees with written contracts approve d by the City Manager who may receiv e approved benefits depending on hourl y requirements and the length of their contract . Contract employees will generally be use d for medium-term (generally between si x months and two years) projects, programs o r activities requiring specialized or augmente d levels of staffing for a specific period . The services of contract employees will b e discontinued upon completion of the assigne d project, program or activity . Accordingly , contract employees will not be used for service s that are anticipated to be delivered on an ongoin g basis . C . Overtime Management 1.Overtime should be used only whe n necessary and when other alternatives are no t feasible or cost effective . 2.All overtime must be pre-authorized by a department head or delegate unless it i s assumed pre-approved by its nature . For example, overtime that results when a n employee is assigned to standby and/or mus t respond to an emergency or complete an emergency response . 3.Departmental operating budgets shoul d reflect anticipated annual overtime costs an d B2-54 • • BUDGET AND FISCAL POLICIES Attachment 12 —Page 1 9 departments will regularly monitor overtim e use and expenditures. 4 . When considering the addition of regular or temporary staffing, the use of overtime as a n alternative will be considered . The department will take into account : a.The duration that additional staff resources may be needed . b.The cost of overtime versus the cost o f additional staff. c.The skills and abilities of current staff. d.Training costs associated with hirin g additional staf f e.The impact of overtime on existing staff. D .Independent Contractors Independent contractors are not City employees . They may be used in two situations : • 1 . Short-term, peak workload assignments to b e accomplished using personnel contracte d through an outside temporary employment agency (OEA). In this situation, it i s anticipated that City staff will closel y monitor the work of OEA employees an d minimal training will be required . However , they will always be considered the employee s of the OEA and not the City . All placements through an OEA will be coordinated throug h the Human Resources Department an d subject to the approval of the Huma n Resources Director . 2 . Construction of public works projects an d delivery of operating, maintenance or specialized professional services not routinely performed by City employees . Such services will be provided without clos e supervision by City staff, and the required methods, skills and equipment will generall y be determined and provided by th e contractor . Contract awards will be guided by the City's purchasing policies and •procedures . (See Contracting for Service s 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— Qualit y With Vision). To this end, the City will constantly monitor and review our methods of operation t o ensure that services continue to be delivered in th e most cost-effective manner possible . This review process encompasses a wide range o f productivity issues, including : A. Analyzing systems and procedures to identify and remove unnecessary review requirements . B . Evaluating the ability of new technologies an d related capital investments to improve productivity . C . Developing the skills and abilities of all Cit y employees . D . Developing and implementing appropriat e 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 i n managing the City's support service functions . Although some level of centralization i s 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 o f operation by eliminating unnecessary revie w procedures . B2-55 BUDGET AND FISCAL POLICIES Attachment 12 — Page 20 • 1 . 5 . Assigning responsibility for effective operations and citizen responsiveness to th e department . CONTRACTING FOR SERVICES 2 . 3 .A .General Policy Guidelines 4 . Improving the organization's ability t o respond to changing needs, and identify and implement cost-saving programs . 1.Contracting with the private sector for the delivery of services provides the City with a significant opportunity for cost containmen t and productivity enhancements . As such, the City is committed to using private secto r resources in delivering municipal services a s a key element in our continuing efforts t o provide cost-effective programs . 2.Private sector contracting approaches under this policy include construction projects , professional services, outside employment agencies and ongoing operating an d maintenance services . 3.In evaluating the costs of private secto r contracts compared with in-hous e performance of the service, indirect, direct , and contract administration costs of the Cit y will be identified and considered . 4.Whenever private sector providers ar e available and can meet established servic e levels, they will be seriously considered a s viable service delivery alternatives using the evaluation criteria outlined below . determined on a case-by-case basis using the following criteria : Is a sufficient private sector market availabl e to competitively deliver this service an d assure a reasonable range of alternativ e service providers ? Can the contract be effectively and efficiently administered ? What are the consequences if the contracto r fails to perform, and can the contrac t reasonably be written to compensate the Cit y for any such damages ? 4.Can a private sector contractor bette r respond to expansions, contractions o r special requirements of the service ? 5.Can the work scope be sufficiently defined to ensure that competing proposals can be fairl y and fully evaluated, as well as the contractor's performance after bid award ? 6.Does the use of contract services provide u s with an opportunity to redefine servic e levels ? 7.Will the contract limit our ability to delive r emergency or other high priority services ? 8.Overall, can the City successfully delegat e the performance of the service but still retai n accountability and responsibility for it s delivery? • 5 . For programs and activities currentl y provided by City employees, conversions t o contract services will generally be mad e through attrition, reassignment or absorptio n by the contractor . B .Evaluation Criteria Within the general policy guidelines stated above , the cost-effectiveness of contract services i n meeting established service levels will be • B2-5 6