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HomeMy WebLinkAbout03/18/1991, 1 - FINANCIAL PLAN FORMAT AND POLICIES II����pI��INlllll�lll.l�lll � MErTING DATE: c� I�mui� of Sat- SUIS OBISp0 = - COUNCIL AGENDA REPORT ITEM NUMBER: FROM: William C. Statler, Director of Finance Uzj�_ SUBJECT: FINANCIAL PLAN FORMAT AND POLICIES CAO RECOMMENDATION Receive and file this status report on the format and policies to be used in preparing the 1991-93 Financial Plan. OVERVIEW The purpose of this study is to review the following areas related to the Financial Plan: ■ Organization and format of the 1991-93 Financial Plan. ■ Consideration of Financial Plan policies regarding the use of Transportation Development Act (TDA) funds; allocation of Transient Occupancy Tax (TOT), sales tax, and business tax revenues; Human Resource Management Policy as it affects the use of temporary employees; user fee cost recovery goals; and development impact fees. Although no specific action is requested from the City Council at this study session, the Council's general concurrence to proceed with the proposed concepts outlined in this report will assist in establishing an overall framework for the development of the 1991-93 Financial Plan. FINANCIAL PLAN ORGANIZATION The submittal of the 1991-93 Financial Plan to the Council has been tentatively scheduled for April 22, 1991. To facilitate the Council's review of the content of the Financial Plan document at that time, the attached overview of the proposed format and organization of the 1991-93 Financial Plan has been prepared with specific emphasis on the Operating Program section. It is anticipated that the Financial Plan will continue to use a multi- year, policy-oriented approach that emphasizes long-range planning and effective program management. Financial Plan Sections As described in the attached overview document (Exhibit A-1), the 1991-93 Financial Plan will be composed of the following nine major sections, which are currently in use: A. Introduction F. Debt Service Requirements B. Policies & Objectives G. Changes in Fund Balance C. Budget Graphics & Summaries H. Financial & Statistical Tables D. Operating Programs 1. Budget Reference Materials E. Capital Improvement Plan 1 �i��H�►bH�IVIIIII�III����N City Of San LUIS OBISPO MIGe COUNCIL AGENDA REPORT Operating Program Section The attached overview document also includes the following information regarding the sixty-six Operating Programs included in Section D of the Financial Plan: ■ Organization and purpose of the Operating Program Section (Exhibit A-2) ■ Summary of major functions and operations by responsible department and funding source (Exhibit A-3). ' ■ Overview of the contents of each Operating Program narrative (Exhibit A-4). As reflected in these summaries, the format and organization of the Operating Program section will be very similar to the 1989-91 Financial Plan with the following changes: New Programs There will be two new programs identified in the 1991-93 Financial Plan: ■ Solid Waste Management ■ Risk Management These programs were included in previous Financial Plan documents as activities within Public Works Administration (Solid Waste Management) and Personnel Administration and Non-Departmental (Risk Management). Separately identifying these program activities will more appropriately reflect their emerging importance. Expanded Recreation Programs In previous Financial Plans, only the Aquatics Program has been separately identified from the other Recreation programs. For 1991-93, Recreation will be expanded to individually identify the following program areas: ■ Recreation Administration ■ Adult Athletic Leagues ■ General Recreation Activities ■ Special Recreation Activities ■ Special Instruction ■ Sun and Fun (Day Care) ■ Trips and Outings ■ Aquatics Commissions and Committees Funding for the Human Relations Commission and the Promotional Coordinating Committee (PCC) will be consolidated within their respective program budgets. Functional Reclassification In previous Financial Plans, the Community Promotion Program was classified under the "Leisure, Cultural, and Social Services" function. However, in considering this program's current responsibility"to promote, in a manner consistent with long-range community goals, the development of San Luis Obispo as a regional trade, recreational, and tourist center" (page D-63 of the 1989-91 Financial Plan), reclassification of this program to "Economic Development" under the Community Development function (which is the same grouping currently used for the BIA) more appropriately reflects the nature of this program. k'L city of San LUIS OBISPO MaCom COUNCIL AGENDA REPORT Performance and Workload Indicators As described in Exhibit A-4, the format for the Operating Program Narratives will be very similar to that used in the 1989-91 Financial Plan. The only notable change is the addition of "Performance and Workload Indicators" for each of the programs. The purpose of this new part is to better describe the Operating Program by providing historical and projected information for key "indicators" that provide a feel for "how much" (or "how well") service is delivered by the program Although they are not substitutes for a comprehensive review and analysis of program needs and services, "performance and workload indicators" can assist in better measuring the achievement of program goals and objectives as well as providing a better picture for the Council and the public of a program's workscope and effectiveness. FINANCIAL PLAN POLICIES As noted in the accompanying overview of the Financial Plan organization, Section B of the Financial Plan (Policies & Objectives) outlines the policies and general framework which guide the preparation and management of the budget and financial plan. At this time, the following modifications to the General Budget Policies are recommended for Council consideration: Transportation Development Act (TDA) Revenue Allocations Background Under the City's current Financial Plan policies, all TDA revenues allocated for street- related purposes are transferred to the General Fund and used for maintenance activities (page B-5 of the 1989-91 Financial Plan). However, no policy guidance is currently provided for how TDA revenues should be allocated between streets and alternative forms of transportation such as transit, bikeways, or pedestrian trails. As reflected by the following summary, approximately 65% of TDA revenues have been historically allocated for transit purposes: Regional Municipal Transit Transit Streets Total 1986-87 $ 235,629 $ 282,527 $ 323,139 $ 841,295 1987-88 192,489 327,644 355,301 875,434 1988-89 217,076 383,508 219,817 820,401 1989-90 138,590 324,600 357,233 820,423 1990-91 135,080 383,200 301,257 819,537 Policy Recommendation Alternative transportation programs require a stable, predictable funding source. In order to achieve this goal, alternative transportation programs should be self-supporting from TDA revenues. Accordingly, effective with Fiscal Year 1991-92, all TDA revenues should be allocated to alternative transportation programs, including regional and municipal transit MY Of San tins OBISPO ON COUNCIL AGENDA REPORT systems, bikeway improvements, and other programs or projects designed to reduce automobile usage. Correspondingly, the use of TDA revenues for street purposes should be discontinued. With this reallocation of TDA revenues away from the General Fund ($658,000 during 1989-91), it is expected that alternative transportation programs -in conjunction with other state or federal grants for this purpose - will be self-supporting from TDA revenues. What is the impact of this change on the General Fund? The 1991-93 Financial Plan is still under development, and as such, it is not possible to fully assess the General Fund impact of this policy change. However, a review of how TDA revenues were used during 1989-91 may be useful in answering this question. As discussed above, $658,000 in TDA revenues were transferred to the General Fund for street maintenance purposes during 1989-91. However, the City's General Fund made direct contributions during this period to alternative transportation programs that would also be TDA-eligible under this proposed policy. The following is a summary of alternative transportation programs and funding sources during 1989-91: 1989-90 1990-91 TOTAL Sources TDA Revenues $ 8209400 $ 819,500 $1,639,900 Transit Beginning Fund Balance 201,900 201.900 Total Sources 190229300 819,500 1,841,800 Alternative Transportation Uses Bikeways 200,000 200,000 400,000 Trolley 90,000 90,000 TDA Allocations to Regional Transit 138,600 135,100 273,700 TDA Allocations to City Transit 324.600 383.200 707.800 Total Uses 753,200 718,300 19471,500 SOURCES OVER (UNDER) USES $ 269,100 $ 101,200 $ 370,300 Based on the above chart, the net impact of this policy on the General Fund for 1989-91 would have been a reduction in financial position of$370,400. However, the future impact primarily depends upon the level of transit and other alternative transportation programs that the Council chooses to fund. For example, any funding at levels greater than those in place during 1989-91 will reduce the potential impact of this change on the General Fund. Does this mean less funding for street maintenance? Not necessarily. Under the City's current revenue distribution policies, TDA revenues not allocated for Transit purposes are transferred to the General Fund for street maintenance activities. Since the City incurs costs for street maintenance that are significantly in excess of this transfer, TDA revenues for street maintenance purposes are essentially just another General Fund source like sales tax, property tax or motor vehicle in-lieu fees. As such, any �- city of San Luis OBISpo iWorms COUNCIL AGENDA REPORT General Fund revenue shortfall would impact all of the City's General Fund programs, of which street maintenance constitutes only 8%. By comparison, Police and Fire represent almost 50% of General Fund operating programs. In summary, any General Fund reductions that might be necessary due to this policy change will be evaluated in the context of overall General Fund needs and priorities, and will not be focussed solely on street maintenance activities. Does this mean more funding for the City's transit system? Not necessarily. Under the recommended policy, TDA revenues would be available for all forms of alternative transportation,which also includes the regional transit system,bikeways, downtown trolley, or any other programs designed to reduce automobile usage. Based on 1989-91 funding levels, over the next two years an additional $370,000 would be made available for these types of programs, but it would not necessarily all be targeted for the City's transit system. Would additional General Fund support be made available for alternative transportation programs under this policy? No, at least not during the 1991-93 Financial Plan period. Under the proposed policy as outlined above, with its potential negative impact on the General Fund ranging from $150,000 to $300,000 annually, it is expected that alternative transportation programs - in conjunction with other state or federal grants for these purposes - will be self-supporting from TDA revenues. What happens if not all TDA revenues are allocated? It is possible that there may be more TDA revenues available over the next two years than there are alternative transportation programs recommended or approved for funding. In this event, it is recommended that any unallocated TDA revenues remain in the TDA fund balance where they will be available for funding programs, capital improvements, or acquisitions in future years. Why should we adopt this policy? ■ There is currently no articulated policy regarding the allocation of TDA revenues between transportation types. This policy will reduce the confusion caused by this lack of clarity. ■ Allocating all TDA revenues to alternative transportation programs more clearly meets the goals and objectives of the TDA program, which views the use of TDA revenues for street purposes as a secondary priority after the community's transit needs have been met. ■ This policy will provide a more stable source of funding for alternative transportation programs while minimizing the peaks and valleys of funding these programs through the General Fund. ����H�i ►�Illll���n ►���� City Of San LUIS OBS SPO COUNCIL AGENDA REPORT ■ Our opportunities for grant funding will be s0dficmrtly enhwwad if all TDA revenues are allocated for alternate transportation programs. ■ The City's transit needs are expected to grow significantly over the next several years (e.g. expanded system, vehicle replacement, decreased headways). TOT, Sales Tax, and Business Tax Allocations Background Under a formula developed by the Council in 1970, 20% of TOT revenues, 2% of sales tax revenues, and 15% of general business tax revenues are allocated for community promotion and cultural facility purposes; at least 50% of the revenues generated from this formula should be devoted to operating activities (page B-5 of the 1989-91 Financial Plan). The exact derivation of this very specific formula after 21 years is not readily identifiable, and, as such, review of this revenue distribution formula is appropriate at this time. Under this revenue distribution policy, $511,900 is allocated for community promotion and cultural facilities during 1990-91 summarized as follows: Projected Revenue Allocated Base Revenues TOT @ 20% $ 1,500,000 $ 300,000 Sales Tax @ 2% 6,575,000 130,500 General Business Tax @ 15% 536.000 80.400 TOTAL $ 8,611,000 $ 511,900 For 1990-91, these revenues have been allocated as follows: Community Promotion Program Promotional Coordinating.Committee $ 10000 Advertising 85,700 Visitor Services and Promotion (Chamber) 77,100 Visitors & Conference Bureau 46,000 Activity Grants 75,000 Public Art 5.000 Total Community Promotion Program 289,800 Cultural Facilities 222.100 TOTAL $ 5119900 It should be noted that all three sources are General Fund revenues,.and as such, may be used for any governmental purpose; any internal policy allocation is solely at the discretion of the Council. When the City's first two-year financial plan was prepared in 1983, the following policy statement was included regarding this allocation formula (page B-6, 1983- 85 Financial Plan): _6 ��� ►�►�uulllllll�ll ��lll My of San Luis OBISPO COUNCIL AGENDA REPORT 'The City Council recognizes that the practice of earmarking general fund revenues for specific programs should be minimized Approval of this policy statement does not prevent future Councils from directing these general fund resources to other functions and programs as necessary.if This statement appropriately recognizes that generally accepted accounting principles discourage the "earmarking" of General Fund revenues, and that any such policy allocations are subject to change by the Council at any time. Inclusion of this statement regarding revenue distributions is recommended in all future Financial Plans. Policy Recommendation Although coincidental, the amount of funds generated by the 20% allocation of TOT revenues ($300,000) is very close to the level of funding for the City's community program ($2899800). In recognizing the General Fund nature of these revenues while remaining sensitive to their historical use, the following change to the City's revenue allocation policies is recommended: ■ Specific allocations of sales tax and general business tax revenues should be discontinued; all revenues from these sources should be placed in the General Fund and remain unrestricted as to their use. ■ 20% of TOT revenue should be allocated within the General Fund for community promotion and economic development activities. As indicated above, this would be equal to (or slightly greater than) current allocations for community promotion under the current 6% TOT rate. It should be highlighted that this revised revenue allocation policy also includes economic development activities.within its scope. As discussed under the Financial Plan format section, the City's community promotion program already includes the "development of San Luis Obispo as a regional trade, recreational, and tourist center" as a key program goal. Accordingly, extending the use of funds from this 20% allocation to specifically include economic development activities is not only consistent with current program goals, but also reinforces the Council's high priority goal for 1991-93 for greater emphasis in our economic development activities. ■ The remaining TOT revenues (80%) should be unrestricted within the General Fund and used in funding programs or projects that benefit our residents as well as visitors. ■ Any General Fund balances currently designated for cultural facilities should be transferred to the Capital Outlay Fund and available for use in funding any non- enterprise Capital Improvement Plan projects. The basics of this recommendation were reviewed by the Promotional Coordinating Committee (PCC) at their February 13, 1991 meeting in conjunction with their review of the recommended increase in the TOT rate from 6% to 9%. The PCC did not specifically act on the proposed rate increase or funding formula; their formal action was to �.. 1111111111$1111001��IIU city of San Luis OBISPO COUNCIL AGENDA REPORT recommend that the Council allocate a specific portion of any TOT rate increase to community and visitor promotion activities. Although the staff recommendation is slightly different from the PCC's, it would facilitate the PCC's request that additional funds be made available on a formula basis for community promotion activities if an increase in the TOT rate is approved. What is the impact of this policy on the General Fund? As discussed above, the amount currently generated from a 20% allocation of TOT revenues and the amount allocated to community promotion is very close ($300,000 compared with $289,900). However, with the recent increase in the TOT rate from 6% to 9%, this formula could generate an additional $100,000 to $200,000 annually for these activities which would otherwise be available for other General Fund programs. Does this mean that more funds will be available for visitor promotion and advertising? Overall, yes. However, under the recommended policy, these funds are also available for other community promotion activities - such as grants-in-aid - as well as the broader concept of economic development activities. What are "economic development" activities? Conceptually, it is any program or activity included under the "Economic Development" category of the Financial Plan. Currently, only the BIA Program - to which the City currently contributes $45,000 annually - is included under this category. However, as discussed under the Financial Plan format section of this report, it is recommended that the Community Promotion program be classified under this category to better reflect its overall goals. Specifically, economic development can include a broad range of activities: ■ Defining appropriate economic development goals and policies. ■ Developing strategic plans and preparing economic base studies. ■ Implementing business retention and expansion programs. ■ Preparing and distributing marketing materials. ■ Streamlining development review procedures. ■ Providing financial incentives for targeted businesses and industries. ■ Maintaining positive links to the business community. For many California cities, these types of efforts are major objectives, and as such, significant staff and other financial resources are committed to them. p /' �►►N�►�►Il�lilllp��in �i���� City of San LUIS OBISPO j110sGs COUNCIL AGENDA REPORT The initial components of a more focused economic development effort are still under consideration by the staff, and as such, it is not possible to describe at this time what the City's economic development activities might look like for 1991-93 and how much they might cost. However, this revenue allocation policy will provide an overall framework for funding the City's commitment to community promotion and economic development activities on an ongoing, stable basis. Human Resource Management Policy Background The City's Human Resource Management Policy was first introduced in the 1987-89 Financial Plan. Review of the Human Resource Management Policy as it relates to temporary staffing was a key Management Team and Recreation Program objective in the 1989-91 Financial Plan (pages B-48 and D-52). This review has been completed, and the Personnel Director's recommended changes are reflected in Exhibit B. Policy Recommendation The revised Human Resources Management Policy retains its emphasis on managing the growth of the City's regular work force and ensuring that the hiring of temporary employees is not used as an incremental method for expanding the City's regular work force. The primary change in the Human Resource Management Policy is provided in Paragraph E.1 which limits the use of temporary employees to meet peak workload requirements, fill interim vacancies, and accomplish tasks where less than full-time, year-round staffing is required. Under this guideline,temporary employee hours should not generally exceed 50% of a regular, full-time position (1,000 hours annually). Although there may be limited circumstances where the use of temporary employees in excess of this target on an ongoing basis may be appropriate due to unique programming or staffing requirements, any exceptions must be approved by the CAO based on the review and recommendation of the Personnel Director. User Fee Cost Recovery Goals Background The need for a comprehensive user fee policy was identified in the 1987-89 Financial Plan. This need was reinforced in the findings of the Comprehensive Financial Management Plan presented to the Council in response to this 1987-89 objective. Accordingly, the development and implementation of a comprehensive user fee policy was identified as a key objective in the 1989-91 Financial Plan (pages B-5 and B-51). In January of 1990, a conceptual framework for the development of a comprehensive user fee policy was presented to Council for their review and consideration. At that time, the need for citizen participation and review in developing such a policy was identified, and �►►h����iI�IIIIIplip �►�II city of San tins OBISPO Ultra COUNCIL AGENDA REPORT accordingly, this task was assigned to the Citizen's Advisory Committee (CAC) in conjunction with their broader review of the City's long-term financial needs. After extensive discussions and evaluation, the CAC submitted their report on the City's long-term financial health to the Council on February 5, 1991. Included in this report is a recommended comprehensive user fee policy. Policy Recommendation The comprehensive user fee policy recommended by CAC should be adopted (Exhibit Q. Staffs only recommended change to the CAC's report is that consideration of increasing the current overall Recreation Program cost recovery goal from 40% to 50% should be deferred until the Winter of 1991. This is consistent with the Action Plan submitted by the CAO in the Council Agenda Report that transmitted the CAC's recommendations to the Council (Exhibit D). As noted in this Action Plan, Council discussion of "development review fees" is scheduled for April of 1991. Development Impact Fees Background The City has had very little experience in using development impact fees to finance capital facilities required by new development. Consistent with the practices of most California cities, the comprehensive Financial Management Plan and the CAC's report to Council dated February 5, 1991 both identified the need for the City to make greater use of development impact fees in financing our Capital Improvement Plan needs. Policy Recommendation Development impact fees should be implemented in order to ensure that new development pays its fair share of the cost of constructing necessary community facilities. Consistent with the Action Plan submitted by the CAO when the CAC's recommendations were submitted to the Council, review and adoption of a broad range of development impact fees is scheduled over the next six months (Exhibit D). User Fee Implementation During the Mid-Year Budget Review, Council member Rappa suggested that all user fees and development impact fees be addressed at one time rather than following the phased approach outlined in Exhibit D. The Council may wish to further discuss the best approach for us to follow at this budget study session. CONCURRENCES The Personnel Director, Transit Manager, and Director of Public Works have reviewed this report and concur with its recommendations. ���na►�fl��lllllll�I► ��lU city of San to S OBI SPO COUNCIL AGENDA REPORT SUMMV my The following areas related to the 198991 Financial Plan development process have been scheduled for City Council consideration at this study session: ■ Proposed format and organization of the 1989-91_Financial Plan. • Modifications to. existing General Budget Policies in the Financial Plan. As noted in the Overview section, no specific action is.required by the Council at this study session. However, it is anticipated that the concepts outlined in this report will be used in preparing the Preliminary 1991-93 Financial Plan,.and as such, general Council consensus or direction on these issues is requested. EXHIBITS A. Financial Plan Organization and Format 1. Overview of the Financial Plan Organization 2. Operating Program Section.Organization 3. Summary of Major Functions and Operations by Responsible Department and Primary Funding Source 4. Operating Program Narrative Contents B. Human Resource Management Policy C. Comprehensive Use Fee Policy D. Action Plan from February 5, 1991 Council.Agenda Report on the City's Long-Term Financial Health. 91-93FP4/ARFORMAT.WPF _ Exhibit. " FINANCIAL PLAN ORGANIZATION The following is a.summary of the organization of the City's Financial Plan and Budget document: Section A - Introduction Includes the Budget Message, a Directory of Officials and Advisory Bodies, Organization Chart, and Award for Distinguished Budget Presentation. Section B - Policies and Objectives Summarizes general budget policies and new significant program policies that guide the preparation and management of the budget. This section also includes major city-wide goals. Section C - Budget Graphics and Summaries Provides charts and graphs which highlight key financial relationships and summarize the overall budget document. Section D - Operating Programs Presents the City's operating programs which form the City's basic organizational units; allows for the provision of essential services to citizens; enables the City to establish policies and goals which define the nature and level of services to be provided; identifies activities performed in delivering program services; proposes objectives for improving the delivery of services; and appropriates the resources required to perform activities and accomplish objectives. Section E - Capital Improvement Plan Presents the City's Capital Improvement Plan (CIP) which includes all of the City's construction projects and capital purchases (other than replacement vehicles or equipment to be purchased through the Equipment Replacement Fund) which cost more than $10,000. Through the CIP, the City systematically plans, schedules, and finances capital projects to ensure cost-effectiveness and conformance with policy. Section F - Debt Service Summarizes the City's debt obligations at the beginning of the Financial Plan period. Section G - Changes in Fund Balance Provides combined and individual statements of revenues, expenditures, and changes in fund balance for each of the City's 15 operating funds. Section H - Financial and Statistical Tables Includes tables designed to provide supplemental financial planning and statistical data such as detailed revenue estimates, total expenditures by function and type, interfund transactions, authorized regular positions by Department, summary of significant operating program changes, and demographic characteristics and trends. Section I - Budget Reference Materials Describes the major policy documents that guide the preparation-and execution of the Financial Plan and provides a Budget Glossary of terms that may be unique to local government finance or the City's Financial Plan l_1A OPERATING PROGh,,MS Exhibi OVERVIEW - PURPOSE AND ORGANIZATION. The operating programs described in this section of the Financial Plan form the City's basic organizational units, provide for the delivery of essential services, and allow the City to accomplish the following tasks: ■ Establish policies and goals which define the nature and level of services to be provided. ■ Identify activities performed in delivering program services. ■ Propose objectives for improving the delivery of services. ■ Appropriate the resources required to perform activities and accomplish objectives. The City's operating expenditures are organized into the following hierarchical categories: Function The highest level of summarization used in the City's Financial Plan, the "function" classification represents a grouping of related operations and programs which may cross organizational(departmental)boundaries aimed at accomplishing a broad goal or delivering a major service. The six functions in the Financial Plan are: ■ Public Safety ■ Leisure, Cultural, and Social Services ■ Public Utilities ■ Community Development ■ Transportation ■ General Government Operation Grouping of related programs within a functional area such as police protection within Public Safety or water service within Public Utilities. Program Grouping of related activities organized to accomplish basic goals and objectives. Activity Specific service performed within a program in the pursuit of its objectives and goals. The following is an example of the relationship between functions, operations, programs, and activities: FUNCTION Public Utilities OPERATION Water Service PROGRAM Water Treatment ACTIVITY Laboratory Analysis 91-93FP4/OPRGOVRV.YPF OPERATING PROGr 'AS Exhibit_ f OVERVIEW - SUMMARY OF MAJOR FUNCTIONS AND OPERATIONS Responsible Primary Department/Office Funding Source Public Safety Police Protection Police General Fund Fire & Environmental Safety Fire General Fund Public Utilities Water Service Utilities Water Fund Wastewater Service Utilities Sewer Fund Whale Rock Reservoir & Fishing Utilities Whale Rock Solid Waste Management Public Works General Fund Transportation Streets & Flood Control Public Works General Fund Parking Public Works Parking Fund Municipal Transit System Administration Transit Fund Leisure, Cultural, and Social Services Parks and Recreation Recreation Programs Recreation General Fund Maintenance Programs Public Works General Fund Golf Course Public Works General Fund City/County Library Public Works Library Fund Human Relations Administration General Fund Community Development Planning Community Development General Fund Construction Development Engineering Public Works General Fund Building & Safety Community Development General Fund Economic Development Community Promotion Administration General Fund Business Improvement Area (BIA) Council & Advisory Bodies BIA Fund General Government Legislation & Policy Council & Advisory Bodies General Fund General Administration City Administrative Officer Administration General Fund Public Works Administration Public Works General Fund Legal Services City Attorney General Fund Records Administration & Elections City Clerk General Fund Organizational Support Services Finance Administration Finance General Fund Personnel Administration Personnel General Fund Risk Management Personnel General Fund Information Systems Management Administration General Fund Buildings & Equipment Building Maintenance Public Works General Fund Vehicle & Equipment Maintenance Public Works General Fund OPERATING PROM 3 EAUL2 OVERVIEW - OPERATING PROGRAM NARRATIVES Each operating program narrative provides the following information: Program Iltle The function, program name, operation, department responsible for program administration, and the primary funding source are shown at the top of the page. Program Costs Four years of historical and projected expenditure information (1989-90 through 1992-93) is provided in this part divided into four categories: ■ Staffing. All costs associated with City personnel, including salaries for all regular, temporary, and contract employees as well as related costs for benefits and overtime. ■ Contract Services All expenditures related to contract services (maintenance as well as professional). ■ Other Operating Expenditures Purchases of supplies, tools, utilities, and similar operating expenditures. ■ Minor Capital New capital acquisitions or projects with a life in excess of one year and costs-between $3,000 and $10,000. New capital acquisitions or projects with a cost in excess of $10,000 are included in the Capital Improvement Plan (CIP) section; and replacement capital equipment items are included in the Equipment Replacement Fund. Program Description Program purpose, goals, and activities are described in this part. Staffing Summary This part provides a four year summary of authorized regular positions allocated to this program along with full-time equivalents (FTE's) for temporary staffing. Generally, whole. regular positions are assigned to programs based on where employees spend at least 50% of their time. Significant Expenditure and Staffing Changes Significant expenditure and staffing changes from the prior Financial Plan are summarized in this part, which include: major service curtailments or expansions; any increases or decreases in regular positions; significant one-time costs; major changes in the method of delivering services; changes in operation that will significantly affect other departments or customer services; and changes that affect current policies. Major 1991-93 Objectives This part provides a listing of major 1991-93 program objectives to improve service delivery, including Capital Improvement Plan projects that will be managed by the program. Performance and Workload Indicators Four years of historical and projected performance and workload indicators (1989-90 through 1992-93) are provided in this part in order to better measure the achievement of program goals and objectives as well as provide the Council and public with a better picture of the Program's workscope and effectiveness. 91-93FP4/OPRATPRG.MPF Exhibit POLICIES AND OBJ. nVES GENERAL BUDGET POLICIES HUMAN RESOURCE MANAGEMENT A. The budget.will fully appropriate the resources needed for authorized regular staffing and will limit programs to the regular staffing authorized. B. Staffing and contract service cost ceilings will limit total expenditures for regular employees, temporary employees, and independent contractors hired to provide operating and maintenance services. C. Regular employees will be the core work force and the preferred means of staffing ongoing, year-round program activities that should be performed by full-time City employees rather than independent contractors. The City will strive to provide competitive compensation and benefit schedules for its authorized regular work force. Each regular employee will: 1. Fill an authorized regular position. 2. Be assigned to an appropriate bargaining unit. 3. Receive salary and benefits consistent with labor agreements or other compensation plans. D. To manage the growth of the regular work force and overall staffing costs, the City will follow these procedures: 1. The Council will authorize all regular positions. 2. The Personnel Department will coordinate and approve the hiring of all regular and temporary employees. 3. All requests for additional regular positions will include evaluations of: a. The necessity, term, and expected results of the proposed activity. b. Staffing and materials costs including salary, benefits, equipment, uniforms, clerical support, and facilities. C. The ability of private industry to provide the proposed service. d. Additional revenues or cost savings which may be realized. 4. Periodically, and prior to any request for additional regular positions, programs will be evaluated to determine if they can be accomplished with fewer regular employees. (See: Productivity Review Policy) POLICIES AND OBJEt,a IVES GENERAL BUDGET POLICIES (continued) HUMAN RESOURCE MANAGEMENT (continued) E. The hiring of temporary employees will not be used as an incremental method for expanding the City's regular work force. 1. Temporary employees will include all employees other than regular employees, elected officials, and volunteers. Temporary employees will generally augment regular City staffing as extra-help employees, seasonal employees, contract employees, interns, and work-study assistants. The City Administrative Officer and Management Team will encourage the use of temporary rather than regular employees to meet peak workload requirements, fill interim vacancies, and accomplish tasks where less than full-time, year- round staffing is required. Under this guideline, temporary employee hours will generally not exceed 50% of a regular, full-time position (1,000 hours annually). There may be limited circumstances where the use of temporary employees on an ongoing basis in excess of this target may be appropriate due to unique programming or staffing requirements. However, any such exceptions must be approved by the CAO based on the review and recommendation of the Personnel Director. 2. Contract employees will be defined as temporary employees with written contracts approved by the CAO who may receive approved benefits depending on hourly requirements and the length of their contract. Contract employees will generally be used for medium-term (generally between six months and two years) projects, programs, or activities requiring specialized or augmented levels of staffing for a specific period of time. The services of contract employees will be discontinued upon completion of the assigned project, program, or activity. Accordingly, contract employees will not be used for services that are anticipated to be delivered on an ongoing basis. H. Independent contractors will not be considered City employees. Independent contractors may be used in two situations: 1. Short-term, peak work load assignments to be accomplished through the use of personnel contracted through an outside temporary employment agency (OEA). In this situation, it is anticipated that the work of OEA employees will be closely monitored by City staff and minimal training will be required. However, they will always be considered the employees of the OEA and not the City. All placements through an OEA will be coordinated through the Personnel Department and subject to the approval of the Personnel Director. 2. Construction of public works projects and the provision of operating, maintenance, or specialized professional services not routinely performed by City employees. Such services will be provided without close supervision by City staff, and the required methods, skills, and equipment will generally be determined and provided by the contractor. Contract awards will be guided by the Purchasing Control Manual. (See: Contracting for Services Policy) 1.17 EAIbi� POLICIES AND OBJ. rIVES SIGNIFICANT NEW POLICIES - USER FEE COST RECOVERY GOALS The City needs to adopt a comprehensive user fee policy that incorporates the following features: A. Ongoing Review Fees need to be reviewed and changed on an ongoing basis to ensure that they keep pace with changes in the cost-of-living. Many of the City's existing development review fees have not been reviewed or modified since 1983. In bringing fees to appropriate 1991 levels, significant percentage increases will be required solely to account for the passage of time. B. User Fee Cost Recovery Levels In setting user fee cost recovery levels, the following factors should be considered: 1. Community-Wide vs Special Benefit The level of user fee cost recovery should consider the community-wide versus special service nature of the program or activity. The use of general purpose (tax) revenues is appropriate for community-wide services, while user fees are appropriate for services which are of special benefit to easily identified individuals or groups. 2. Service Recipient vs Service Driver After considering community-wide versus special benefit of the service, the concept of service recipient versus service driver should also be considered. For example, it could be argued that the applicant is not the beneficiary of the City's development review efforts: the community is the primary beneficiary. However, the applicant is the driver of development review costs, and as such,. cost recovery from the applicant is appropriate. 3. Effect of Pricing on the Demand for Services The level of cost recovery and related pricing of services can significantly affect the demand and subsequent level of services provided. At full cost recovery; this has the specific advantage of ensuring that the City is providing services for which there is genuinely a market that is not overly-stimulated by artificially low prices. Conversely, high levels of cost recovery will negatively impact on the delivery of services to lower income groups. This negative feature if especially pronounced, and works against public policy, if the services are targeted to low income groups. 4. Feasibility of Collection and Recovery Although it may be determined that a high level of cost recovery may be appropriate for specific services, it may be impractical or too costly to establish a system to identify and charge the user. Accordingly, the feasibility of assessing and collecting charges should also be considered in developing a user charge policy, especially if significant program costs are intended to be financed from that source. l.l� POLICIES AND OBJEt, IVES SIGNIFICANT NEW POLICIES - USER FEE COST RECOVERY GOALS (continued) Q Factors Which Favor Low Cost Recovery Levels Very low cost recovery levels are appropriate under the following circumstances: 1. When there is no intended relationship between the amount paid and the benefit received. Almost all "social service" programs fall into this category as it is expected that one group will subsidize another. 2. When collecting fees is not cost-effective or will significantly impact the efficient delivery of the service. 3. When there is no intent to limit the use of (or entitlement to) the service. Again, most "social service" programs fit into this category as well as many public safety (police and fire) emergency response services. Historically, access to neighborhood and community parks would also fit into this category. 4. When the service is non-recurring, generally delivered on a "peak demand" or emergency basis, can not reasonably be planned for on an individual basis, and is not readily available from a private sector source. Many public safety services also fall into this category. 5. When collection of fees would discourage compliance with regulatory requirements and adherence is primarily self-identified, and as such, failure to comply would not be readily detected by the City. Many small-scale licenses and permits might fall into this category. D. Factors Which Favor High Cost Recovery Levels The use of service charges as a major source of funding service levels is especially appropriate under the following circumstances: 1. The service is similar to services provided through the private sector. 2. Other private or public sector alternatives could or do exist for the delivery of the service. 3. For equity or demand management purposes, it is intended that there be a direct relationship between the amount paid and the level and cost of the service received. 4. The use of the service is specifically discouraged. Police responses to disturbances or false alarms might fall into this category. 5. The service is regulatory in nature and voluntary compliance is not expected to be the primary method of detecting failure to meet regulatory requirements. Building permit, plan checks, and subdivision review fees for large projects would fall into this category. POLICIES AND OBAIVES SIGNIFICANT NEW POLICIES - USER FEE COST RECOVERY GOALS (continued) E. General Concepts Regarding the Use of Service Charges The use of service charges should be subject to the following general concepts: 1. Revenues should never exceed the reasonable cost of providing the service. 2. Cost recovery goals should be based on the total cost of delivering the service, including direct costs, departmental administration costs, and organization-wide support costs such as accounting, personnel, data processing, vehicle maintenance, and insurance. 3. The method of assessing and collecting fees should be as simple as possible in order to reduce the administrative cost of collection. 4. Rate structures should be sensitive to the "market" for similar services as well as to smaller, infrequent users of the service. 5. A unified approach should be used in determining cost recovery levels for various programs based on the factors discussed above. F. Low Cost-Recovery Services Based on the criteria discussed above, the following types of services should have very low cost recovery goals. -In selected circumstances, there may be specific activities within the broad scope of services provided that should have user charges associated with them. However, the primary source of funding for the operation as a whole should be general purpose revenues, not user fees. 1. Delivery of public safety emergency response services such as police patrol services and fire suppression. 2. Maintaining and developing public facilities that are provided on a uniform, community- wide basis such as streets, parks, and general purpose buildings. 3. Delivery of social service programs and economic development activities. G. Recreation Programs The following cost recovery policies should be adopted for the City's recreation programs: 1. Cost recovery for activities directed to adults should be relatively high. i-ao POLICIES AND OBJE%,i IVES SIGNIFICANT NEW POLICIES - USER FEE COST RECOVERY GOALS (continued) 2. Cost recovery for activities directed to youth and seniors should be relatively low. Although ability to pay may not be a concern for all youth and senior participants, these are desired program activities, and the cost of determining need may be greater than the cost of providing a uniform service fee structure to all participants. Further, there is a community-wide benefit in encouraging high-levels of participation in youth and senior recreation activities regardless of financial status. 3. The current overall cost recovery goal for recreation programs is 40%, although the cost study performed in 1988 would indicate an actual recovery level of 35%. During the Winter of 1991, the Council should consider increasing this overall cost recovery goal to 50%. 4. For cost recovery activities of less than 100%, there should be a differential in rates between residents and non-residents. 5. These policy guidelines are sufficient in themselves in providing direction for the setting of recreation fees. Accordingly, it is recommended that the use of formal cost recovery goals for specific recreation activities (page B-4 of the 1989-91 Financial Plan) be discontinued. Although these targets may be internally useful in administering recreation fees, the City's management should have as much flexibility as possible in setting specific activity fees as long as they meet the objectives and criteria provided above. H. Development Review Programs 1. Services provided under this category include: a. Planning (planned development permits, tentative tract and parcel maps, rezonings, general plan amendments, variances, use permits). b. Building and Safety (building permits, structural plan checks, inspections). C. Engineering (public improvement plan checks, inspections, subdivision requirements). 2. Cost recovery for these services should be very high. In most instances, the City's cost recovery goal should be 100%. Recommended exceptions to this standard include ARC review fees, which is a review process clearly intended to serve the broader community as well as the applicant, and public information services such as agenda subscriptions. 3. However, in charging full cost recovery, the City needs to clearly establish and articulate standards for its performance in reviewing developer applications to ensure that there is "value for cost". POLICIES AND OBJ., .JIVES SIGNIFICANT NEW POLICIES - USER FEE COST RECOVERY GOALS (continued) I. Comparability With Other Communities 1. Surveys of the comparability of the City's fees to other communities is useful background information in setting fees for several reasons: a. They reflect the "market" for these fees and can assist in assessing the reasonableness of San Luis Obispo's fees. b. If prudently analyzed, they can serve as a benchmark for how cost-effectively San Luis Obispo provides its services. 2. However, fee surveys should never be the sole or primary criteria in setting City fees as there are many factors that affect how and why other communities have set their fees at their levels. For example: a. What level of cost recovery is their fee intended to achieve compared with our cost recovery objectives? b. What costs have been considered in computing the fees? C. When was the last time that their fees were comprehensively evaluated? d. What level of service do they provide compared with our service or performance standards? e. Is their rate structure significantly different than ours and what is it intended to achieve? These can be very difficult questions to address in fairly evaluating fees among different communities. As such, the comparability of our fees to other communities should be one factor among many that is considered in setting City fees. 91-93FP4/POLICIES.YPF Exhibi- _ �II!ii�iVillllli�►illuljl city of San Luis OBISPO Glii% COUNCIL AGENDA REPORT 2. Implementing development impact fees to ensure that new development pays for itself, which will prevent existing residents and businesses from subsidizing new developments. 3. Relying on user fees to a greater extent than in the past to finance municipal programs. This is consistent with the practices of the majority of California cities. ACTION PLAN There are a number of specific actions that the Council must take in implementing the recommended policy and revenue measures necessary to ensure the City's long-term financial health. The policy issues - such as economic development strategies and a j comprehensive user fee cost recovery program - will be addressed during the 1991-93 Financial Plan process. However, it is recommended that the Council consider revenue actions on a case-by-case basis under the following schedule: Review Council Groups Consideration I i Downtown Parking Fees BIA Parking Committee February 1991 Parking Management Committee Transient Occupancy Tax Chamber of Commerce February 1991 Increase from 6% to 9% Hotel/Motel Association Water and Sewer Chamber of Commerce April 1991 Connection Fees Contractor's Association Development Review Fees Chamber of Commerce April 1991 (Planning, Building & Safety, Contractor's Association Engineering) Planning Commission Architectural Review Commission i Traffic Impact Fee Chamber of Commerce May 1991 Contractor's Association Business Tax Ordinance Chamber of Commerce May 1991 Update BIA Other Development Chamber of Commerce Fall 1991 Impact Fees Contractor's Association Recreation Fees Chamber of Commerce Winter 1991 Parks and Recreation Commission