The URL can be used to link to this page

Home My WebLink About12/12/2006, BW 2 - FINANCIAL PLAN POLICIES AND ORGANIZATION counat him.,W 12-12-06 acjcnc)a izEpont 'umnumk Lo .1 CITY OF SAN LUIS OBISPO FROM: Bill Statler, Director of Finance & Information Technology SUBJECT: FINANCIAL PLAN POLICIES AND ORGANIZATION CAO RECOMMENDATION Review and discuss Financial Plan policies and organization. DISCUSSION Overview The following four features describe the City's Financial Plan process: goal-oriented, policy- driven, multi-year and technically rigorous. For 2007-09, we plan to continue using a two-year budget that emphasizes long-range planning and effective program management. We believe the benefits identified 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- term 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 for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Administrative Officer. Financial Plan Policies Fiscal health is lot like your personal health: it's not what you live for, but it's hard to enjoy your life without it. Cities don't exist to be fiscally healthy: they exist to make our communities better places to live, work and play. However, this requires the fiscal capacity to link community goals with the resources needed to achieve them. In short, fiscal health is not an end in itself; but it's an important part of the tool kit in achieving"ends." a - � i Financial Plan Policies and Organization Page 2 And like personal health, fiscal health is rarely luck—clear, articulated fiscal policies are an important foundation for fiscal health. In looking at cities across the nation that have reputations for being well-managed financially—and have maintained their fiscal health through good times and bad—the one thing they have in common are clearly articulated fiscal policies, and they use them in financial decision-making. Effective fiscal policies are not just for the "good times"— they are equally important (perhaps even more)in"bad times," too. Like the role that "good genes" in determining personal health, the underlying strength of the local economy is certainly a factor in determining a city's fiscal health—but it is not the most critical factor in determining fiscal health. All we have to do is look at the billion-dollar Orange County bankruptcy to know that financial management counts. Their bankruptcy was not due to faltering performance of the local economy—Orange County is one of the wealthiest areas in the world—but due to either a lack of clear, appropriate investment policies or a failure to follow them. Formal statements of key budget and fiscal policies provide the foundation for assuring long- term fiscal health by establishing a clear framework for effective and prudent financial decision-making. Policies are the north star that guide the preparation of long-term financial plans and budget plans, and help make tough decisions easier by telling you what your values are before they are placed under stress by adverse circumstances. You might actually do something else, but they serve as a powerful "but for" starting point. The City's Budget and Fiscal Policies are set forth in the Policies and Objectives section of the Financial Plan. They cover a broad range of fiscal issues, including: Financial Plan organization, revenue management, user fee cost recovery goals, enterprise fund rates and fees, revenue distribution, investments, appropriations limit, minimum fund balance and working capital levels, capital improvement management, capital financing and debt management, human resource management, productivity and contracting for services. The City's current Budget and Fiscal Policies are provided in Attachment 1. No changes are recommended at this time. However, as we begin preparing the 2007-09 Financial Plan, we may identify other areas where we will recommend additions or revisions to our budget and fiscal policies; if so, these will be presented for Council consideration at that time. Financial Plan Organization The purpose of the City's Financial Plan is to link what we want to accomplish for the community over the next two years with the resources necessary to do so. In doing this, the Financial Plan document plays four roles: 1. Policy Document Sets forth goals and objectives to be accomplished, and the fundamental fiscal principles upon which the budget is prepared. a �� Financial Plan Policies and Organization Page 3 2. Fiscal Plan. Identifies and appropriates the resources necessary to accomplish objectives and deliver services; shows where our resources come from and how they are used; and ensures that the City's fiscal health is maintained by demonstrating our ability to pay for budgeted services—not just this year, but into the foreseeable future. 3. Operations Guide. Shows how we are organized to deliver services; describes programs and activities; provides measures on how effectively and efficiently we are doing this; discusses what we do and why, not just how much it costs. 4. Communications TooL Provides the public, policy makers and staff with a blueprint of how public resources are being used and how these allocations were made; and communicates key economic and fiscal issues. In meeting these roles, the City's Financial Plan is organized into nine main sections: Section A: Introduction Includes the Budget Message from the City Administrative Officer, highlighting key issues in the Financial Plan. Section B: Policies and Objectives Summarizes the fiscal policies that guide preparation and management of the budget and presents major City goals. Section C: Budget Graphics and Summaries Provides simple pie charts and tables that highlight key financial relationships and summarize the overall budget. Section D: Operating Programs Presents the City's 74 operating programs that form the City's basic organizational units, allow for providing essential services to citizens and enable the City to accomplish the following tasks: 1. Establish policies and goals that define the nature and level of services to be provided. 2. Identify activities performed in delivering program services. 3. Propose objectives for improving the delivery of service. 4. Identify and appropriate the resources required to perform activities and accomplish objectives. Section E: Capital Improvement Plan Summarizes the City's capital improvement plan (CIP), which includes all of the City's construction projects and equipment purchases that cost $15,000 or more. Section F: Debt Service Requirements Presents the City's debt obligations at the beginning of the Financial Plan period and summarizes any proposed changes.. �-3 f Financial Plan Policies and Organization Page 4 Section G: Changes in Financial Position Provides combined and individual statements of revenues, expenditures and changes in fund balance/working capital for each of the City's operating funds. Section H: Financial and Statistical Tables Includes supplemental financial and statistical information such as revenue estimates and assumptions, interfund transactions, authorized staffing levels, appropriations limit history and general demographic information about the City. Section I: Budget Reference Materials Describes the major policy documents and preparation guidelines used in developing and executing the Financial Plan; and provides a Budget Glossary of terms that may be unique to local government finance or the City's Financial Plan. Functional Presentation The Financial Plan presents operating programs, CIP projects and debt service costs on a functional basis. This helps focus the budget on what we do and why, rather than who (which department) is responsible for managing the service or the funding source (although this information is provided in the Financial Plan as well). The highest level of summarization in the Financial Plan is the function level, which represents a grouping of related operations and programs that may cross organizational (departmental) boundaries aimed at achieving a broad goal or service. The six functions in the Financial Plan are: 1. Public Safety 2. Public Utilities 3. Transportation 4. Leisure, Cultural & Social Services 5. Community Development 6. General Government In general, our City organization is aligned very closely to these basic functional categories. For example: 1. All Police and Fire Department programs fall under Public Safety. 2. The Utilities Department manages all Public Utilities programs. 3. The Public Works Department manages all Transportation programs. On the other hand, a department like Public Works is responsible for a wide range of services besides Transportation, such as: 1. Park and tree maintenance—Leisure, Cultural&Social Services 2. Engineering—Community Development 3. Building and fleet maintenance--General Government a -� Financial Plan Policies and Organization Page 5 Provided in Attachment 2 are updated excerpts from the 2005-07 Financial Plan further describing the organization of the City's operating programs. Financial Plan Appendices In addition to the Financial Plan, the Council will receive two Appendices providing supplemental detail information: 1. Appendix A provides detailed information on all proposed significant operating program changes. This includes: any regular staffing changes, major service expansions (or curtailments), major changes in the method of delivering services, significant one-time costs, changes in operations that affect other departments or customer service, and changes that affect current policies. Each significant operating program change request will identify: key objectives, factors driving the need for the change, alternatives, cost and implementation issues. 2. Appendix B provides detailed information on each proposed capital improvement plan (CIP) project. Each request will describe the project and identify: project objectives; the existing situation; goal and policy links; environmental review considerations; project work completed; project phasing, costs and funding sources; effect on the operating budget; alternatives; and location via a site map or schematic design if applicable. ATTACHMENTS 1. Financial Plan Policies 2. Operating Programs: Excerpts from the 2005-07 Financial Plan a. Purpose and Organization b. Summary of Major Functions and Operations c. Operating Program Narratives G:Budget Folders/Financial Plans/2007-09/Council Goal-Setting/12-12 Workshop/Agenda Reports/Financial Plan Policies and Organization Q ATTACHMENT City Of j san Luis osispo Budget and Fiscal Policies FINANCIAL PLAN PURPOSE 1. Reinforcing the importance of long-range AND ORGANIZATION planning in managing the City's fiscal affairs. A. Financial Plan Objectives. Through its 2. Concentrating on developing and budgeting Financial Plan, the City will link resources with for the accomplishment of significant results by: objectives. 3. Establishing realistic timeframes for 1. Identifying community needs for essential achieving objectives. services. 4. Creating a pro-active budget that provides 2. Organizing the programs required to provide for stable operations and assures the City's these essential services. long-term fiscal health. 3. Establishing program policies and goals, 5. Promoting more orderly spending patterns. which define the nature and level of 6. Reducing the amount of time and resources program services required. allocated to preparing annual budgets. 4. Identifying activities performed in delivering program services. C. Measurable Objectives. The two-year 5. Proposing objectives for improving the financial plan will establish measurable program objectives and allow reasonable time to delivery of program services. accomplish those objectives. 6. Identifying and appropriating the resources required to perform program activities and D. Second Year Budget. Before the beginning of accomplish program objectives. the second year of the two-year cycle, the 7. Setting standards to measure and evaluate Council will review progress during the first the: year and approve appropriations for the second fiscal year. a. Output of program activities. b. Accomplishment of program objectives. E. Operating Carryover. Operating program appropriations not spent during the fust fiscal c. Expenditure of program appropriations. year may be carried over for specific purposes into the second fiscal year with the approval of B. Two-Year Budget. Following the City's the City Administrative Officer(CAO). favorable experience over the past eighteen years, the City will continue using a two-year F. Goal Status Reports. The status of major financial plan, emphasizing long-range planning program objectives will be formally reported to and effective program management. The the Council on an ongoing,periodic basis. benefits identified when the City's fust two-year plan was prepared for 1983-85 continue to be G. Mid-Year Budget Reviews. The Council will realized: formally review the City's fiscal condition, and amend appropriations if necessary, six months after the beginning of each fiscal year. a - Lo ATTACHMENT 1 Budget and Fiscal Policies H. Balanced Budget. The City will maintain a Heads; mid-year budget reviews; and interim balanced budget over the two-year period of the annual reports. Financial Plan. This means that: C. Budget Administration. As set forth in the 1. Operating revenues must fully cover City Charter, the Council may amend or operating expenditures, including debt supplement the budget at any time after its service. adoption by majority vote of the Council 2. Ending fund balance (or working capital in members. The CAO has the authority to make the enterprise funds) must meet minimum administrative adjustments to the budget as long policy levels. For the general and enterprise as those changes will not have a significant. funds, this level has been established at 20% policy impact nor affect budgeted year-end fund of operating expenditures. balances. Under this policy, it is allowable for total GENERAL REVENUE MANAGEMENT expenditures to exceed revenues in a given year; however, in this situation, beginning fund A. Diversified and Stable Base. The City will balance can only be used to fund capital improvement plan projects, or other"one-time," seek to maintain a diversified and stable revenue non-recurring expenditures. base to protect it from short-term fluctuations in any one revenue source. FINANCIAL REPORTING AND BUDGET ADMINISTRATION B. Long-Range Focus. To emphasize and facilitate long-range financial planning, the City will maintain current projections of revenues for A. Annual Reporting. The City will prepare the succeeding five years. annual financial statements as follows: C. Current Revenues for Current Uses. The 1. In accordance with Charter requirements, City will make all current expenditures with the City will contract for an annual audit by current revenues, avoiding procedures that a qualified independent certified public balance current budgets by postponing needed accountant. The City will strive for an expenditures, accruing future revenues, or unqualified auditors' opinion. rolling over short-term debt. 2. The City will use generally accepted D. Interfund Transfers and Loans. In order to accounting principles in preparing its annual achieve important public policy goals, the City financial statements, and will strive to meet has established various special revenue, capital the requirements of the GFOA's Award for project, debt service and enterprise funds to Excellence in Financial Reporting program. account for revenues whose use should be restricted to certain activities. Accordingly, 3. The City will issue audited financial each fund exists as a separate financing entity statements within 180 days after year-end. from other funds, with its own revenue sources, expenditures and fund equity. B. Interim Reporting. The City will prepare and Any transfers between funds for operating issue timely interim reports on the City's fiscal purposes are clearly set forth in the Financial status to the Council and staff. This includes: Plan, and can only be made by the Director of on-line access to the City's financial management system by City staff; monthly Finance & Information Technology in reports to program managers; more formal accordance with the adopted budget. These quarterly reports to the Council and Department operating transfers, under which financial resources are transferred from one fund to -2- a - q ATTACHMENT 1 Budget and Fiscal Policies another, are distinctly different from interfund changes in the cost-of-living as well as changes borrowings, which are usually made for in methods or levels of service delivery. temporary cash flow reasons, and are not intended to result in a transfer of financial In implementing this goal, a comprehensive resources by the end of the fiscal year. analysis of City costs and fees should be made at least every five years. In the interim, fees will hi summary, interfund transfers result in a be adjusted by annual changes in the Consumer change in fund equity; interfund borrowings do Price Index. Fees may be adjusted during this not, as the intent is to repay in the loan in the interim period based on supplemental analysis near term. whenever there have been significant changes in the method, level or cost of service delivery. From time-to-time, interfund borrowings may be appropriate; however, these are subject to the B. User Fee Cost Recovery Levels following criteria in ensuring that the fiduciary purpose of the fund is met: In setting user fees and cost recovery levels, the following factors will be considered: 1. The Director of Finance & Information Technology is authorized to approve 1. Community-Wide Versus Special Benefit temporary interf ind borrowings for cash The level of user fee cost recovery should flow purposes whenever the cash shortfall is consider the community-wide versus special expected to be resolved within 45 days. The service nature of the program or activity. most common use of interfund borrowing The use of general-purpose revenues is under this circumstance is for grant appropriate for community-wide services, programs like the Community Development while user fees are appropriate for services Block Grant, where costs are incurred that are of special benefit to easily identified before drawdowns are initiated and individuals or groups. received. However, receipt of funds is typically received shortly after the request 2. Service Recipient Versus Service Driver. for funds has been made. After considering community-wide versus special benefit of the service, the concept of 2. Any other interfund borrowings for cash service recipient versus service driver flow or other purposes require case-by-case should also be considered. For example, it approval by the Council. could be argued that the applicant is not the beneficiary of the City's development 3. Any transfers between funds where review efforts: the community is the reimbursement is not expected within one primary beneficiary. However, the fiscal year shall not be recorded as interfund applicant is the driver of development borrowings; they shall be recorded as review costs, and as such, cost recovery interfund operating. transfers that affect from the applicant is appropriate. equity by moving financial resources from one fund to another. 3. Effect of Pricing on the Demand for Services. The level of cost recovery and USER FEE COST RECOVERY GOALS related pricing of services can significantly affect the demand and subsequent level of services provided. At full cost recovery, A. Ongoing Review this has the specific advantage of ensuring that the City is providing services for which Fees will be reviewed and updated on an there is genuinely a market that is not ongoing basis to ensure that they keep pace with overly-stimulated by artificially low prices. Conversely, high levels of cost recovery will -3- Q U ATTACHMENT Budget and Fiscal Policies negatively impact the delivery of services to 5. Collecting fees would discourage lower income groups. This negative feature compliance with regulatory requirements is especially pronounced, and works against and adherence is primarily self-identified, public policy, if the services are specifically and as such, failure to comply would not be targeted to low income groups. readily detected by the City. Many small- scale licenses and permits might fall into 4. Feasibility of Collection and Recovery. this category. Although it may be determined that a high level of cost recovery may be appropriate D. Factors Favoring High Cost Recovery Levels for specific services, it may be impractical or too costly to establish a system to identify The use of service charges as a major source of and charge the user. Accordingly, the funding service levels is especially appropriate feasibility of assessing and collecting under the following circumstances: charges should also be considered in developing user fees, especially if 1. The service is similar to services provided significant program costs are intended to be through the private sector. financed.from that source. 2. Other private or public sector alternatives C. Factors Favoring Low Cost Recovery Levels could or do exist for the delivery of the service. Very low cost recovery levels are appropriate under the following circumstances: 3. For equity or demand management purposes, it is intended that there be a direct 1. There is no intended relationship between relationship between the amount paid and the amount paid and the benefit received. the level and cost of the service received. Almost all "social service" programs fall into this category as it is expected that one 4. The use of the service is specifically group will subsidize another. discouraged. Police responses to disturbances or false alarms might fall into 2. Collecting fees is not cost-effective or will this category. significantly impact the efficient delivery of the service. 5. The service is regulatory in nature and voluntary compliance is not expected to be 3. There is no intent to limit the use of (or the primary method of detecting failure to entitlement to) the service. Again, most meet regulatory requirements. Building "social service" programs fit into this permit, plan checks and subdivision review category as well as many public safety fees for large projects would fall into this (police and fire) emergency response category. services. Historically, access to neighborhood and community parks would E. General Concepts Regarding the Use of also fit into this category. Service Charges 4. The service is non-recurring, generally The following general concepts will be used in delivered on a"peak demand" or emergency developing and implementing service charges: basis, cannot reasonably be planned for on an individual basis; and is not readily 1. Revenues should not exceed the reasonable available from a private sector source. cost of providing the service. Many public safety services also fall into this category. 2. Cost recovery goals should be based on the total cost of delivering the service,including -4- a , 9 l ATTACHMENT Budget and Fiscal Policies direct costs, departmental administration 2. Cost recovery for activities directed to youth costs, and organization-wide support costs and seniors should be relatively low. In such as accounting, personnel, data those circumstances where services are processing, vehicle maintenance and similar to those provided in the private insurance. sector, cost recovery levels should be higher. 3. The method of assessing and collecting fees should be as simple as possible in order to Although ability to pay may not be a reduce the administrative cost of collection. concern for all youth and senior participants, these are desired program 4. Rate structures should be sensitive to the activities, and the cost of determining need "market" for similar services as well as to may be greater than the cost of providing a smaller, infrequent users of the service. uniform service fee structure to all participants. Further, there is a community- 5. A unified approach should be used in wide benefit in encouraging high-levels of determining cost recovery levels for various participation in youth and senior recreation programs based on the factors discussed activities regardless of financial status. above. 3. Cost recovery goals for recreation activities F. Low Cost-Recovery Services are set as follows: Based on the criteria discussed above, the High Range Cost Recovery Activities following types of services should have very (60% to 100%) low cost recovery goals. In selected a. Classes (Adult and Youth) circumstances, there may be specific activities within the broad scope of services provided that b. Day Gaze services should have user charges associated with them. c. Adult athletics (volleyball, basketball, However, the primary source of funding for the softball, lapp swim) d. Facility rentals (Jack House, other in- operation as a whole should be general-purpose revenues,not user fees. door facilities except the City/County Library) 1. Delivering public safety emergency Mid-Range Cost Recovery Activities response services such as police patrol (30% to 606) services and fire suppression. e. City/County Library room rentals 2. Maintaining and developing public facilities f. Special events (triathlon, other City- that are provided on a uniform, community- sponsored special events) wide basis such as streets, parks and g. Youth track general-purpose buildings. h. Minor league baseball i. Youth basketball 3. Providing social service programs and j. Swim lessons economic development activities. k. Outdoor facility and equipment rentals G. Recreation Programs Low-Range Cost Recovery Activities (0 to 30%) The following cost recovery policies apply to 1. Public swim the City's recreation programs: m. Special swim classes 1. Cost recovery for activities directed to n. Community garden adults should be relatively high. o. Youth STAR -s- a - tD ATTACHMENT Budget and Fiscal Policies_ p. Teen services 1. Services provided under this category q. Senior services include: 4. For cost recovery activities of less than a. Planning(planned development permits, 100%, there should be a differential in rates tentative tract and parcel maps, between residents and non-residents. rezonings, general plan amendments, However, the Director of Parks and variances,use permits). Recreation is authorized to reduce or eliminate non-resident fee differentials b. Building and safety (building permits, structural plan checks, inspections). when it can be demonstrated that: c. Engineering (public improvement plan a. The fee is reducing attendance. checks, inspections, subdivision b. And there are no appreciable requirements, encroachments). expenditure savings from the reduced d. Fire plan check. attendance. 2. Cost recovery for these services should 5. Charges will be assessed for use of rooms, generally be very high. In most instances, pools, gymnasiums, ball fields, special-use the City's cost recovery goal should be areas, and recreation equipment for 100%. activities not sponsored or co-sponsored by the City. Such charges will generally 3. However, in charging high cost recovery conform to the fee guidelines described levels, the City needs to clearly establish above. However, the Director of Parks and and articulate standards for its performance Recreation is authorized to charge fees that in reviewing developer applications to are closer to full cost recovery for facilities ensure that there is"value for cost." that are heavily used at peak times and include a majority of non-resident users. I. Comparability With Other Communities 6. A vendor charge of at least 10 percent of In setting user fees, the City will consider fees gross income will be assessed from charged by other agencies in accordance with individuals or organizations using City the following criteria: facilities for moneymaking activities. 1. Surveying the comparability of the City's 7. . Director of Parks and Recreation is fees to other communities provides useful authorized to offer reduced fees such as background information in setting fees for introductory rates, family discounts and several reasons: coupon discounts on a pilot basis (not to exceed 18 months) to promote new a. They reflect the "market" for these fees recreation programs or resurrect existing and can assist in assessing the ones. reasonableness of San Luis Obispo's fees. 8. The Parks and Recreation Department will consider waiving fees only when the City b. If prudently analyzed, they can serve as Administrative Officer determines in a benchmark for how cost-effectively writing that an undue hardship exists. San Luis Obispo provides its services. H. Development Review Programs 2. However, fee surveys should never be the sole or primary criteria in setting City fees The following cost recovery policies apply to as there are many factors that affect how the development review programs: -6- ATTACHMENT Budget and Fiscal Policies and why other communities have set their D. Ongoing Rate Review. The City will review fees at their levels. For example: and adjust enterprise fees and rate structures as required to ensure that they remain appropriate a. What level of cost recovery is their fee and equitable. intended to achieve compared with our cost recovery objectives? E. Franchise and In-Lieu Fees. In accordance b. What costs have been considered in with long-standing practices, the City will treat computing the fees? the water and sewer funds in the same manner as if they were privately owned and operated. In c. When was the last time that their fees addition to setting rates at levels necessary to were comprehensively evaluated? fully cover the cost of providing water and d. What level of service do they provide sewer service, this means assessing reasonable compared with our service or franchise and property tax in-lieu fees. performance standards? 1. At 3.5%, water and sewer franchise fees are e. Is their rate structure significantly based on the mid-point of the statewide different than ours and what is it standard for public utilities like electricity intended to achieve? and gas (2% of gross revenues from operations) and cable television (5% of 3. These can be very difficult questions to gross revenues). As with other utilities, the address in fairly evaluating fees among purpose of the franchise fee is reasonable different communities. As such, the compensation the use of the City's street comparability of our fees to other right-of-way. The appropriateness of communities should be one factor among charging the water and sewer funds a many that is considered in setting City fees. reasonable franchise fee for the use of City streets is further supported by the results of ENTERPRISE FUND FEES AND RATES recent studies in Arizona, California, Ohio and Vermont which concluded that the leading cause for street resurfacing and A. Water, Sewer and Parking. The City will set reconstruction is street cuts and trenching fees and rates at levels that fully cover the total for utilities. direct and indirect costs—including operations, capital outlay and debt service—of the 2. For the water fund, property tax in-lieu fees following enterprise programs: water, sewer are established under the same methodology and pazking• used in assessing property tax in-lieu fees to the Housing Authority under our 1976 B. Golf. Golf program fees and rates should fully agreement with them. Under this approach, cover direct operating costs. Because of the water fund property tax in-lieu charges are nine-hole nature of the golf course with its focus about $30,000 annually, and grow by 2% on youth and seniors, subsidies from the per year as allowed under Proposition 13. General Fund to cover indirect costs and capital improvements may be considered by the REVENUE DISTRIBUTION Council as part of the Financial Plan process, along with the need to possibly subsidize direct operating costs as well. The Council recognizes that generally accepted accounting principles for state and local C. Transit. Based on targets set under the governments discourage the "earmarking" of Transportation Development Act, the City will General Fund revenues, and accordingly, the strive to cover at least twenty percent of transit practice of designating General Fund revenues for operating costs with fare revenues. specific programs should be minimized in the City's -7- a - I �-- ATTACHMENT 1 Budget and Fiscal Policies management of its fiscal affairs. Approval of the to alternative transportation programs, including following revenue distribution policies does not regional and municipal transit systems, bikeway prevent the Council from directing General Fund improvements; and other programs or projects resources to other functions and programs as designed to reduce automobile usage. Because necessary. TDA revenues will not be allocated for street purposes, it is expected that alternative A. Property Taxes. With the passage of transportation programs (in conjunction with Proposition 13 on June 6, 1978, California cities other state or federal grants for this purpose) no longer can set their own property tax rates. will be self-supporting from TDA revenues. In addition to limiting annual increases in market value, placing a ceiling on voter D. Parldng Fines. All parking fine revenues will approved indebtedness, and redefining assessed be allocated to the parking fund. valuations, Proposition 13 established a maximum county-wide levy for general revenue INVESTMENTS purposes of 1% of market value. Under subsequent state legislation, which adopted formulas for the distribution of this countywide A. Responsibility. Investments and cash levy, the City now receives a percentage of total management is the responsibility of the City property tax revenues collected countywide as Treasurer or designee. determined by the County Auditor-Controller. B. Investment Objective. The City's primary Until November of 1996, the City had investment objective is to achieve a reasonable provisions in its Charter that were in conflict rate of return while minimizing the potential for with Proposition 13 relating to the setting of capital losses arising from market changes or property tax revenues between various funds. issuer default. Accordingly, the following For several years following the passage of factors will be considered in priority order in Proposition 13, the City made property tax determining individual investment placements: allocations between funds on a policy basis that were generally in proportion to those in place 1. Safety before Proposition 13. Because these were 2. Liquidity general-purpose revenues, this practice was discontinued in 1992-93. With the adoption of a 3. Yield series of technical revisions to the City Charter C. Tax and Revenue Anticipation Notes: Not for in November of 1996, this conflict no longer Investment Purposes. There is an appropriate exists. role for tax and revenue anticipation notes B. Gasoline Tax Subventions. All gasoline tax (TRANS) in meeting legitimate short-term cash revenues (which are restricted by the State for needs within the fiscal year. However, many street-related purposes) will be used for agencies issue TRANS as a routine business maintenance activities. Since the City's total practice, not solely for cash flow purposes, but expenditures for gas tax eligible programs and to capitalize on the favorable difference between projects are much greater than this revenue the interest cost of issuing TRANS as a tax- source, operating transfers will be made from preferred security and the interest yields on the gas tax fund to the General Fund for this them if re-invested at full market rates. purpose. This approach significantly reduces As part of its cash flow management and the accounting efforts required in meeting State reporting requirements. investment strategy, the City will only issue TRANS or other forms of short-term debt if C. Transportation Development Act (TDA) necessary to meet demonstrated cash flow Revenues. All TDA revenues will be allocated needs; TRANS or any other form of short-term debt financing will not be issued for investment -8 - 0 ^ 13 ATTACHMENT 1 Budget and Fiscal Policies purposes. As long as the City maintains its I. Safekeeping. Ownership of the City's current policy of maintaining fund/working investment securities will be protected through capital balances that are 20% of operating third-party custodial safekeeping. expenditures, it is unlikely that the City would need to issue TRANS for cash flow purposes J. Investment Management Plan. The City except in very unusual circumstances. Treasurer will develop and maintain an Investment Management Plan that addresses the D. Selecting Maturity Dates. The City will strive City's administration of its portfolio, including to keep all idle cash balances fully invested investment strategies,practices and procedures. through daily projections of cash flow requirements. To avoid forced liquidations and K. Investment Oversight Committee. As set losses of investment earnings, cash flow and forth in the Investment Management Plan, this future requirements will be the primary committee is responsible for reviewing the consideration when selecting maturities. City's portfolio on an ongoing basis to determine compliance with the City's E. Diversification. As the market and the City's investment policies and for making investment portfolio change, care will be taken recommendations regarding investment to maintain a healthy balance of investment management practices. Members include the types and maturities. City Administrative Officer, Assistant CAO, Director of Finance & Information F. Authorized Investments. The City will invest Technology/City Treasurer, Finance Manager only in those instruments authorized by the and the City's independent auditor. California Government Code Section 53601. L. Reporting. The City Treasurer will develop The City will not invest in stock, will not and maintain a comprehensive, well- speculate and will not deal in futures or options. documented investment reporting system, which The investment market is highly volatile and will comply with Government Code Section continually offers new and creative 53607. This reporting system will provide the opportunities for enhancing interest earnings. Council and the Investment Oversight Accordingly, the City will thoroughly Committee with appropriate investment investigate any new investment vehicles before performance information. committing City funds to them. APPROPRIATIONS LEVIITATION G. Authorized Institutions. Current financial statements will be maintained for each institution in which cash is invested. A. The Council will annually adopt a resolution Investments will be limited to 20 percent of the establishing the City's appropriations limit total net worth of any institution and may be calculated in accordance with Article XIII-B of reduced further or refused altogether if an the Constitution of the State of California, institution's financial situation becomes Section 7900 of the State of California unhealthy. Government Code,and any other voter approved amendments or state legislation that affect the H. Consolidated Portfolio. In order to maximize City's appropriations limit. yields from its overall portfolio, the City will consolidate cash balances from all funds for B. The supporting documentation used in investment purposes, and will allocate calculating the City's appropriations limit and investment earnings to each fund in accordance projected appropriations subject to the limit will with generally accepted accounting principles. be available for public and Council review at least 10 days before Council consideration of a resolution to adopt an appropriations limit. The x - 14 -9- ATTACHMENT 1 Budget and Fiscal Policies Council will generally consider this resolution B. Fleet Replacement. For the General Fund in connection with final approval of the budget. fleet, the City will establish and maintain a Fleet Replacement Fund to provide for the timely C. The City will strive to develop revenue sources, replacement of vehicles and related equipment both new and existing, which are considered with an individual replacement cost of$15,000 non-tax proceeds in calculating its or more. The City will maintain a minimum appropriations subject to limitation. fund balance in the Fleet Replacement Fund of at least 20% of the original purchase cost of the D. The City will annually review user fees and items accounted for in this fund. charges and report to the Council the amount of program subsidy, if any, that is being provided The annual contribution to this fund will by the General or Enterprise Funds. generally be based on the annual use allowance, which is determined based on the estimated life E. The City will actively support legislation or of the vehicle or equipment and its original initiatives sponsored or approved by League of purchase cost. Interest earnings and sales of California Cities that would modify Article surplus equipment as well as any related damage XIII-13 of the Constitution in a manner that and insurance recoveries will be credited to the would allow the City to retain projected tax Fleet Replacement Fund. revenuesresulting from growth in the local economy for use as determined by the Council. C. Future Capital Project Designations. The Council may designate specific fund balance F. The City will seek voter approval to amend its levels for future development of capital projects appropriation limit at such time that tax that it has determined to be in the best long-term proceeds are in excess of allowable limits. interests of the City. FUND BALANCE AND RESERVES D. Other Designations and Reserves. In addition to the designations noted above, fund balance levels will be sufficient to meet funding A. Minimum Fund and Working Capital requirements for projects approved in prior Balances. The City will maintain a minimum years which are carried forward into the new fund balance of at least 20% of operating year; debt service reserve requirements; reserves expenditures in the General Fund and a for encumbrances; and other reserves or minimum working capital balance of 20% of designations required by contractual obligations, operating expenditures in the water, sewer and state law, or generally accepted accounting parking enterprise funds. This is considered the principles. minimum level necessary to maintain the City's credit worthiness and to adequately provide for: CAPITAL IMPROVEMENT MANAGEMENT 1. Economic uncertainties, local disasters, and other financial hardships or downturns in A. CIP Projects: $15,000 or More. Construction the local or national economy. projects and equipment purchases which cost 2. Contingencies for unseen operating or $15,000 or more will be included in the Capital capital needs. Improvement Plan (CIP); minor capital outlays of less than $15,000 will be included with the 3. Cash flow requirements. operating program budgets. As part of the City's budget-balancing strategy B. CIP Purpose. The purpose of the CIP is to for 2005-07, the projected ending fund balance systematically plan, schedule, and finance at June 30, 2007 will be 15% of operating capital projects to ensure cost-effectiveness as expenditures. It is the City's goal to return to well as conformance with established policies. the full policy level in 2007-09. _ 10- a - � S " ATTACHMENT Budget and Fiscal Policies The CIP is a four-year plan organized into the 6. Design. Final design,plan and specification same functional groupings used for the preparation and construction cost operating programs. The CIP will reflect a estimation. balance between capital replacement projects that repair, replace or enhance existing facilities, 7. Construction. Construction contracts. equipment or infrastructure; and capital facility projects that significantly expand or add to the 8. Construction Management Contract City's existing fixed assets. project management and inspection, soils and material tests, other support services C. Project Manager. Every CIP project will have during construction. a project manager who will prepare the project proposal, ensure that required phases are 9. Equipment Acquisitions. Vehicles, heavy completed on schedule, authorize all project machinery; computers, office furnishings, expenditures, ensure that all regulations and other equipment items acquired and laws are observed, and periodically report installed independently from construction project status. contracts. D. CIP Review Committee. Headed by the City 10. Debt Service. Installment payments of Administrative Officer or designee, this principal and interest for completed projects Committee will review project proposals, funded through debt financings. determine project phasing, recommend project Expenditures for this project phase are managers, review and evaluate the draft CIP included in the Debt Service section of the budget document, and report CIP project Financial Plan. progress on an ongoing basis. Generally, it will become more difficult for a E. CIP Phases. The CIP will emphasize project project to move from one phase to the next. As planning, with projects progressing through at such, more projects will be studied than will be least two and up to ten of the following phases: designed, and more projects will be designed than will be constructed or purchased during the 1. Designate. Appropriates funds based on term of the CII'. projects designated for funding by the Council through adoption of the Financial F. CIP Appropriation. The City's annual CIP Plan. appropriation for study, design, acquisition and/or construction is based on the projects 2. Study. Concept design, site selection, designated by the Council through adoption of feasibility analysis, schematic design, the Financial Plan. Adoption of the Financial environmental determination, property Plan CIP appropriation does not automatically appraisals, scheduling, grant application, authorize funding for specific project phases. grant approval, specification preparation for This authorization generally occurs only after equipment purchases. the preceding project phase has been completed and approved by the Council and costs for the 3. Environmental Review. EIR preparation, succeeding phases have been fully developed. other environmental studies. Accordingly, project appropriations are 4. Real Property Acquisitions. Property generally made when contracts are awarded. If acquisition for projects, if necessary. project costs at the time of bid award are less 5. Site Preparation. Demolition, hazardous than the budgeted amount, the balance will be materials abatements, other pre-construction unappropriated and returned to fund balance or work. allocated to another project. If project costs at a � lLP ATTACHMENT Budget and Fiscal Policies the time of bid award are greater than budget Given the City's fiscal situation for 2005-07, amounts, five basic options are available: public art will be funded at the same level required by the private sector: 0.5% rather than 1. Eliminate the project. 1%. 2. Defer the project for consideration to the CAPITAL FINANCING next Financial Plan period. AND DEBT MANAGEMENT 3. Rescope or change the phasing of the project to meet the existing budget. 4. Transfer funding from another specified, A. Capital Financing lower priority project. 1. The City will consider the use of debt 5. Appropriate additional resources as financing only for one-time capital necessary from fund balance. improvement projects and only under the following circumstances: G. CIP Budget Carryover. Appropriations for CIP projects lapse three years after budget a. When the project's useful life will adoption. Projects that lapse from lack of exceed the term of the financing. project account appropriations may be resubmitted for inclusion in a subsequent CII'. b. When project revenues or specific Project accounts, which have been appropriated, resources will be sufficient to service will not lapse until completion of the project the long-term debt. phase. 2. Debt financing will not be considered H. Program Objectives. Project phases will be appropriate for any recurring purpose such listed as objectives in the program narratives of as current operating and maintenance the programs,which manage the projects. expenditures. The issuance of short-term instruments such as revenue, tax or bond I. Public Art. CIP projects will be evaluated anticipation notes is excluded from this during the budget process and prior to each limitation. (See Investment Policy) phase for conformance with the City's public art policy, which generally requires that 1% of 3. Capital improvements will be financed eligible project construction costs be set aside primarily through user fees, service charges, for public art. Excluded from this requirement assessments, special taxes or developer are underground projects, utility infrastructure agreements when benefits can be projects, funding from outside agencies, and specifically attributed to users of the costs other than construction such as study, facility. Accordingly, development impact environmental review, design, site preparation, fees should be created and implemented at land acquisition and equipment purchases. levels sufficient to ensure that new development pays its fair share of the cost It is generally preferred that public art be of constructing necessary community incorporated directly into the project, but this is facilities. not practical or desirable for all projects;in this case, an in-lieu contribution to public art will be 4. Transportation impact fees are a major made. To ensure that funds are adequately funding source in financing transportation budgeted for this purpose regardless of whether system improvements. However, revenues public art will be directly incorporated into the from these fees are subject to significant project, funds for public art will be identified fluctuation based on the rate of new separately in the CIP. development. Accordingly, the following guidelines will be followed in designing and - 12- Q �-1 ATTACHMENT Budget and Fiscal Policies building projects funded with transportation f. Market conditions present favorable impact fees: interest rates and demand for City financings. a. The availability of transportation impact g. A project is mandated by state or federal fees in funding a specific project will be analyzed on a case-by-case basis as requirements, and resources are insufficient or unavailable. plans and specification or contract awards are submitted for CAO or It. The project is immediately required to Council approval. meet or relieve capacity needs and current resources are insufficient or b. If adequate funds are not available at unavailable. that time, the Council will make one of i. The life of the project or asset to be two determinations: financed is 10 years or longer. • Defer the project until funds are B. Debt Management available. • Based on the high-priority of the 1. The City will not obligate the General Fund project, advance funds from the to secure long-term financings except when General Fund, which will be marketability can be significantly enhanced. reimbursed as soon as funds become available. Repayment of General 2. An internal feasibility analysis will be Fund advances will be the first use prepared for each long-tern financing that of transportation impact fee funds analyzes the impact on current and future when they become available. budgets for debt service and operations. This analysis will also address the reliability 5. The City will use the following criteria to of revenues to support debt service. evaluate pay-as-you=go versus long-term financing in funding capital improvements: 3. The City will generally conduct financings on a competitive basis. However, Factors Favoring negotiated financings may be used due to Pay As-You-Go Financing market volatility or the use of an unusual or complex financing or security structure. a. Current revenues and adequate fund balances are available or project phasing 4. The City will seek an investment grade can be accomplished. rating (Baa/BBB or greater) on any direct debt and will seek credit enhancements such b. Existing debt levels adversely affect the as letters of credit or insurance when City's credit rating. necessary for marketing purposes, c. Market conditions are unstable or availability and cost-effectiveness. present difficulties in marketing. 5. The City will monitor all forms of debt Factors Favoring Long Term Financing annually coincident with the City's Financial Plan preparation and review process and d. Revenues available for debt service are report concerns and remedies, if needed, to deemed sufficient and reliable so that the Council. long-term financings can be marketed with investment grade credit ratings. 6. The City will diligently monitor its e. The project securing the financing is of compliance with bond covenants and ensure the type, which will support an its adherence to federal arbitrage investment grade credit rating. regulations. � - Ig - 13 - ATTACHMENT Budget and Fiscal Policies 7. The City will maintain good, ongoing disclosure counsel in conjunction with specific communications with bond rating agencies project financings: about its financial condition. The City will follow a policy of full disclosure on every 1. The City will generally not retain the financial report and bond prospectus services of an independent disclosure (Official Statement). counsel when all of the following circumstances are present: C. Debt Capacity a. The revenue source for repayment is 1. General Purpose Debt Capacity. The City under the management or control of the will carefully monitor its levels of general- City, such as general obligation bonds, purpose debt. Because our general purpose revenue bonds, lease-revenue bonds or debt capacity is limited, it is important that certificates of participation. we only use general purpose debt financing b. The bonds will be rated or insured. for high-priority projects where we cannot reasonably use other financing methods for 2. The City will consider retaining the services two key reasons: of an independent disclosure counsel when a. Funds borrowed for a project today are one or more of following circumstances are not available to fund other projects present: tomorrow. a. The financing will be negotiated, and b. Funds committed for debt repayment the underwriter has not separately today are not available to fund engaged an underwriter's counsel for operations in the future. disclosure purposes. In evaluating debt capacity, general-purpose b. The revenue source for repayment is not annual debt service payments should under the management or control of the generally not exceed 10% of General Fund City, such as land-based assessment revenues; and in no case should they exceed districts, tax allocation bonds or conduit 15%. Further, direct debt will not exceed financings. 2% of assessed valuation; and no more than c. The bonds will not be rated or insured. 60% of capital improvement outlays will be d. The City's financial advisor, bond funded from long-term financings. counsel or underwriter recommends that the City retain an independent 2. Enterprise Fund Debt Capacity. The City disclosure counsel based on the will set enterprise fund rates at levels circumstances of the financing. needed to fully cover debt service requirements as well as operations, E. Land-Based Financings maintenance, administration and capital improvement costs. The ability to afford 1. Public Purposes There will be a clearly new debt for enterprise operations will be articulated public purpose in forming an evaluated as an integral part of the City's assessment or special tax district in rate review and setting process. financing public infrastructure improvements. This should include a D. Independent Disclosure Counsel finding by the Council as to why this form of financing is preferred over other funding The following criteria will be used on a case-by- options such as impact fees, reimbursement case basis in determining whether the City agreements or direct developer should retain the services of an independent responsibility for the improvements. -11- 14- ATTACHMENT 1 Budget and Fiscal Policies 2. Eligible Improvements. Except as 3. Active Role. Even though land-based otherwise determined by the Council when financings may be a limited obligation of proceedings for district formation are the City, we will play an active role in commenced, preference in financing public managing the district. This means that the improvements through a special tax district City will select and retain the financing shall be given for those public team, including the financial advisor, bond improvements that help achieve clearly counsel, trustee, appraiser, disclosure identified community facility and counsel, assessment engineer and infrastructure goals in accordance with underwriter. adopted facility and infrastructure plans as set forth in key policy documents such as Any costs incurred by the City in retaining the General Plan, Specific Plan, Facility or these services will generally be the Infrastructure Master Plans, or Capital responsibility of the property owners or Improvement Plan. Such improvements developer, and will be advanced via a include study, design, construction and/or deposit when an application is filed; or will acquisition of: be paid on a contingency fee basis from the proceeds from the bonds. a. Public safety facilities. b. Water supply, distribution and treatment 4. Credit Quality. When a developer requests systems. a district, the City will carefully evaluate the applicant's financial plan and ability to c. Waste collection and treatment systems. carry the project, including the payment of d. Major transportation system assessments and special taxes during build- improvements, such as freeway out. This may include detailed background, interchanges; bridges; intersection credit and lender checks, and the improvements; construction of new or preparation of independent appraisal reports widened arterial or collector streets and market absorption studies. For districts (including related landscaping and where one property owner accounts for lighting); sidewalks and other more than 25% of the annual debt service pedestrian paths; transit facilities; and obligation, a letter of credit further securing bike paths. the financing may be required. e. Storm drainage, creek protection and 5. Reserve Fund A reserve fund should be flood protection improvements. established in the lesser amount of: the f. Parks, trails, community centers and maximum annual debt service; 125% of the other recreational facilities. annual average debt service; or 10% of the g. Open space. bond proceeds. h. Cultural and social service facilities. 6. Value-to-Debt Ratios. The minimum value- to-date ratio should generally be 4:1. This i. Other governmental facilities and means the value of the property in the improvements such as offices, district, with the public improvements, information technology systems and should be at least four times the amount of telecommunication systems. the assessment or special tax debt. In special circumstances, after conferring and School facilities will not be financed except receiving the concurrence of the City's under appropriate joint community facilities financial advisor and bond counsel that a agreements or joint exercise of powers lower value-to-debt ratio is financially agreements between the City and school prudent under the circumstances, the City districts. may consider allowing a value-to-debt ratio —�v - 15- '1 ATTACHMENT Budget and Fiscal Policies of 3:1. The Council should make special apportionment should include a back-up tax findings in this case. in the event of significant changes from the initial development plan, and should include 7. Appraisal Methodology. Determination of procedures for prepayments. value of property in the district shall be based upon the full cash value as shown on 12. Foreclosure Covenants. In managing the ad valorem assessment roll or upon an administrative costs, the City will establish appraisal by an independent Member minimum delinquency amounts per owner, Appraisal Institute (MAI). The definitions, and for the district as a whole, on a case-by- standards and assumptions to be used for case basis before initiating foreclosure appraisals shall be determined by the City proceedings. on a case-by-case basis, with input from City consultants and district applicants, and 13. Disclosure to Bondholders. In general, by reference to relevant materials and each property owner who accounts for more information promulgated by the State of than 10% of the annual debt service or California, including the Appraisal bonded indebtedness must provide ongoing Standards for Land-Secured Financings disclosure information annually as described prepared by the California Debt and under SEC Rule 15(c)-12. Investment Advisory Commission. 14. Disclosure to Prospective Purchasers. Full 8. Capitalized Interest During Construction. disclosure about outstanding balances and Decisions to capitalize interest will be made annual payments should be made by the on case-by-case basis, with the intent that if seller to prospective buyers at the time that allowed, it should improve the credit quality the buyer bids on the property. It should not of the bonds and reduce borrowing costs, be deferred to after the buyer has made the benefiting both current and future property decision to purchase. When appropriate, owners. applicants or property owners may be required to provide the City with a 9. Maximum Burden. Annual assessments(or disclosure plan. special taxes in the case of Mello-Roos or similar districts) should generally not F. Conduit Financings exceed 1%of the sales price of the property; and total property taxes, special assessments 1. The City will consider requests for conduit and special taxes payments collected on the financing on a case-by-case basis using the tax roll should generally not exceed 2%. following criteria: 10. Benefit Apportionment Assessments and a. The City's bond counsel will review the special taxes will be apportioned according terms of the financing, and render an to a formula that is clear, understandable, opinion that there will be no liability to equitable and reasonably related to the the City in issuing the bonds on behalf benefit received by—or burden attributed of the applicant. to—each parcel with respect to its financed b. There is a clearly articulated public improvement. Any annual escalation factor spurpose in providing the conduit should generally not exceed 2%. financing. 11. Special Tax District Administration. In the c. The applicant is capable of achieving case of Mello-Roos or similar special tax this public purpose. districts, the total maximum annual tax should not exceed 110% of annual debt service. The rate and method of - 16- ATTACHMENT Budget and Fiscal Policies 2. This means that the review of requests for value savings of at least five percent (5%)of conduit financing will generally be a two the refunded debt can be achieved. step process: a. Refinancings that produce net present a. First asking the Council if they are value savings of less than five percent interested in considering the request, will be considered on a case-by-case and establishing the ground rules for basis, provided that the present value evaluating it savings are at least three percent (3%) b. And then returning with the results of of the refunded debt. this evaluation, and recommending b. Refinancings with savings of less than approval of appropriate financing three percent (3%), or with negative documents if warranted. savings, will not be considered unless there is a compelling public policy This two-step approach ensures that the objective. issues are clear for both the City and applicant, and that key policy questions are HUMAN RESOURCE MANAGEMENT answered. 3. The workscope necessary to address these A. Regular Staffing issues will vary from request to request, and will have to be determined on a case-by- 1. The budget will fully appropriate the case basis. Additionally, the City should resources needed for authorized regular generally be fully reimbursed for our costs staffing and will limit programs to the in evaluating the request; however, this regular staffing authorized. should also be determined on a case-by-case basis. 2. Regular employees will be the core work force and the preferred means of staffing G. Refinancings ongoing, year-round program activities that should be performed by full-time City 1. General Guidelines. Periodic reviews of all employees rather than independent outstanding debt will be undertaken to contractors: The City will strive to provide determine refinancing opportunities. competitive compensation and benefit Refinancings will be considered (within schedules for its authorized regular work federal tax law constraints) under the force. Each regular employee will: following conditions: a. Fill an authorized regular position. a. There is a net economic benefit. b. Be assigned to an appropriate b. It is needed to modernize covenants that bargaining unit. are adversely affecting the City's c. Receive salary and benefits consistent financial position or operations. with labor agreements or other c. The City wants to reduce the principal compensation plans. outstanding in order to achieve future debt service savings, and it has available 3. To manage the growth of the regular work working capital to do so from other force and overall staffing costs, the City will sources. follow these procedures: 2. Standards for Economic Savings. In general, refinancings for economic savings will be undertaken whenever net present - 17- 1 ATTACHMENT Budget and Fiscal Policies a. The Council will authorize all regular meet peak workload requirements, fill positions. interim vacancies, and accomplish tasks b. The Human Resources Department will where less than full-time, year-round coordinate and approve the hiring of all staffing is required. regular and temporary employees. Under this guideline, temporary employee c. All requests for additional regular hours will generally not exceed 50% of a positions will include evaluations of: regular, full-time position (1,000 hours • The necessity, tens and expected annually). There may be limited results of the proposed activity. circumstances where the use of temporary employees on an ongoing basis in excess of • Staffing and materials costs this target may be appropriate due to unique including salary, benefits, programming or staffing requirements. equipment, uniforms, clerical However, any such exceptions must be support and facilities. approved by the CAO based on the review • The ability of private industry to and recommendation of the Human provide the proposed service. Resources Director. • Additional revenues or cost savings, 4. Contract employees are defined as which may be realized. temporary employees with written contracts approved by the CAO who may receive 4. Periodically, and before any request for approved benefits depending on hourly additional regular positions, programs will requirements and the length of their be evaluated to determine if they can be contract. Contract employees will generally accomplished with fewer regular employees. be used for medium-term (generally (See Productivity Review Policy) between six months and two years)projects, programs or activities requiring specialized 5. Staffing and contract service cost ceilings or augmented levels of staffing for a will limit total expenditures for regular specific period. employees, temporary employees, and independent contractors hired to provide The services of contract employees will be operating and maintenance services. discontinued upon completion of the assigned project, program or activity. B. Temporary Staffing Accordingly, contract employees will not be used for services that are anticipated to be 1. The hiring of temporary employees will not delivered on an ongoing basis. be used as an incremental method for expanding the City's regular work force. C. Independent Contractors 2. Temporary employees include all employees Independent contractors are not City employees. other than regular employees, elected They may be used in two situations: officials and volunteers. Temporary employees will generally augment regular 1. Short-term, peak workload assignments to City staffing as extra-help employees, be accomplished using personnel contracted seasonal employees, contract employees, through an outside temporary employment interns and work-study assistants. agency (OEA). In this situation, it is anticipated that City staff will closely 3. The City Administrative Officer (CAO) and monitor the work of OEA employees and Department Heads will encourage the use of minimal training will be required. temporary rather than regular employees to However, they will always be considered ATTACHMENT Budget and Fiscal Policies the employees of the OEA and not the City. F. Periodic formal reviews of operations on a All placements through an OEA will be systematic, ongoing basis. coordinated through the Human Resources Department and subject to the approval of G. Maintaining a decentralized approach in the Human Resources Director. managing the City's support service functions. Although some level of centralization is 2. Construction of public works projects and necessary for review and control purposes, delivery of operating, maintenance or decentralization supports productivity by: specialized professional services not routinely performed by City employees. 1. Encouraging accountability by delegating Such services will be provided without close responsibility to the lowest possible level. supervision by City staff, and the required methods, skills and equipment will 2. Stimulating creativity, innovation and generally be determined and provided by the individual initiative. contractor. Contract awards will be guided by the City's purchasing policies and 3. Reducing the administrative costs of procedures. (See Contracting for Services operation by eliminating unnecessary Policy) review procedures. PRODUCTIVITY 4. Improving the organization's ability to respond to changing needs, and identify and implement cost-saving programs. Ensuring the "delivery of service with value for 5. Assigning responsibility for effective cost" is one of the key concepts embodied in the operations and citizen responsiveness to the City's Mission Statement (San Luis Obispo Style— department. Quality with Vision). To this end, the City will constantly monitor and review our methods of CONTRACTING FOR SERVICES operation to ensure that services continue to be delivered in the most cost-effective manner possible. This review process encompasses a wide range of A. General Policy Guidelines productivity issues, including: 1. Contracting with the private sector for the A. Analyzing systems and procedures to identify delivery of services provides the City with a and remove unnecessary review requirements. significant opportunity for cost containment and productivity enhancements. As such, B. Evaluating the ability of new technologies and the.City is committed to using private sector related capital investments to improve resources in delivering municipal services productivity. as a key element in our continuing efforts to provide cost-effective programs. C. Developing the skills and abilities of all City employees. 2. Private sector contracting approaches under this policy include construction projects, D. Developing and implementing appropriate professional services, outside employment methods of recognizing and rewarding agencies and ongoing operating and exceptional employee performance. maintenance services. E. Evaluating the ability of the private sector to 3. hi evaluating the costs of private sector perform the same level of service at a lower contracts compared with in-house cost. performance of the service, indirect, direct, and contract administration costs of the City will be identified and considered. _ 19- Q -o ' ATTACHMENT 1 Budget and Fiscal Policies 4. Whenever private sector providers are 8. Overall, can the City successfully delegate available and can meet established service the performance of the service but still levels, they will be seriously considered as retain accountability and responsibility for viable service delivery alternatives using the its delivery? evaluation criteria outlined below. 5. For programs and activities currently provided by City employees, conversions to contract services will generally be made V through attrition,reassignment or absorption by the contractor. B. Evaluation Criteria Within the general policy guidelines stated above, the cost-effectiveness of contract services in meeting established service levels will be determined on a case-by-case basis using the following criteria: 1. Is a sufficient private sector market available to competitively deliver this service and assure a reasonable range of alternative service providers? 2. Can the contract be effectively and efficiently administered? 3. What are the consequences if the contractor fails to perform, and can the contract reasonably be written to compensate the City for any such damages? 4. Can a private sector contractor better respond to expansions, contractions or special requirements of the service? 5. Can the work scope be sufficiently defined to ensure that competing proposals can be fairly and fully evaluated, as well as the contractor's performance after bid award? 6. Does the use of contract services provide us with an opportunity to redefine service levels? 7. Will the contract limit our ability to deliver emergency or other high priority services? -20- a- ATTACHMENT; OPERATING ■ ■ ■ ■ • ■ OVERVIEW—PURPOSE AND ORGANIZATION PURPOSE ■ Public Safety ■ Public Utilities M Transportation The operating programs set forth in this section of the ■ Leisure, Cultural and Social Services Financial Plan form the City's basic organizational ■ Community Development units, provide for the delivery of essential services ■ General Government and allow the City to accomplish the following: Operation o Establish policies and goals that define the nature and level of services to be provided. An operation is a grouping of related programs within a functional area such as Police Protection within ■ Identify activities performed in delivering Public Safety or Water Service within Public Utilities. program services. Program ■ Set objectives for improving the delivery of services. Programs are the basic organizational units of the ■ Appropriate the resources required to perform Financial Plan establishing policies, goals and objectives that define the nature and level of services activities and accomplish objectives. to be provided. ORGANIZATION Activity The City's operating expenditures are organized into Activities are the specific services and tasks the following hierarchical categories: performed within a program in the pursuit of its objectives and goals. ■ Function ■ Operation Sample Relationship: Public Utilities ■ Program ■ Activity The following is an example of the hierarchical Function relationship between functions, operations, programs and activities: The highest level of summarization used in the City's FUNCTION Public Utilities Financial Plan, functions represent a grouping of related operations and programs that may cross OPERATION Water Service organizational (departmental) boundaries aimed at accomplishing a broad goal or delivering a major PROGRAM Water Treatment service. The-six functions in the Financial Plan are: ACTIVITY Laboratory Analysis a - 3kp ATTACHMENT 2 OPERATING ■ e • OVERVIEW—SUMMARY OF FUNCTIONS AND OPERATIONS Responsible Department Funding Source Public Safety General Fund Police Protection Police Fire&Environmental Safety Fire General Fund Public Utilities Water Service Utilities Water Fund Wastewater Service Utilities Sewer Fund Whale Rock Reservoir Utilities Whale Rock Fund Transportation Transportation Planning&Engineering Public Works General Fund Streets Public Works General Fund Creek&Flood Protection Public Works General Fund Parking Public Works Parking Fund Municipal Transit System Public Works Transit Fund Leisure, Cultural&Social Senices Parks and Recreation Recreation Programs Parks&Recreation General Fund Golf Course Parks&Recreation Golf Fund Maintenance Programs Public Works General Fund Cultural Activities Administration General Fund Social Services`. Human Relations Human Resources CDBG Fund Community Development Development Review&Long Range Planning Community Development General Fund Housing Community Development CDBG Fund Construction Regulation Building& Safety Community Development General Fund Engineering Public Works General Fund Natural Resources Protection Administration General Fund Economic Health Economic Development Administration General Fund Community Promotion Administration General Fund Downtown Association(DA) Council&Advisory Bodies DA Fund General Government Legislation&Policy Council&Advisory Bodies General Fund General Administration City Administration Administration General Fund Public Works Administration Public Works General Fund Legal Services City Attorney General Fund Records&Elections City Clerk General Fund Organizational Support Services Human Resources Administration Human Resources General Fund Risk Management Human Resources General Fund Accounting&Revenue Management Finance&Information Technology General Fund Information Technology Finance&Information Technology General Fund Geographic Information Services Public Works General Fund Building&Fleet Maintenance Public Works General Fund -2- ATTACHMENT 2 OPERATING • • • • OVERVIEW—OPERATING PROGRAM NARRATIVES The following information is provided for each STAFFING SUMMARY operating program: PROGRAM TITLE Provides a four-year summary of authorized regular positions allocated to this program (2005-06 through 2008-09) along with full-time equivalents (FTE's) for Presents the function, program name, operation, temporary staffing. Unless there are compelling department responsible for program administration reasons to do otherwise, regular positions are and the primary funding source at the top of the page. assigned to programs based on where employees spend 50%or more of their time. PROGRAM COSTS SIGNIFICANT PROGRAM CHANGES Provides four years of historical and projected expenditure information (2005-06 through 2008-09) Summarizes significant program changes from the organized into four categories: prior Financial Plan such as: ■ Staffing. All costs associated with City staffing, ■ Major service curtailments or expansions. including salaries for all regular, temporary and ® Any increases or decreases in regular positions. contract employees as well as related costs for ■ Significant one-time costs. benefits and overtime. E Major changes in the method of delivering ■ Contract Services. All expenditures related to services. contract services. ■ Changes in operation that will significantly affect other departments or customer service. ■ Other Operating Expenditures. Purchases of ■ Changes that affect current policies. supplies, tools, utilities, insurance and similar ■ Reductions needed to balance the budget. operating expenditures. Detailed supporting documentation for each of the ■ Minor Capital.. Capital acquisitions or projects significant operating program changes(both increases with a life in excess of one year and costs and decreases) is provided in Appendix A of the between $5,000 and $15,000. Capital Financial Plan. acquisitions or projects with a cost in excess of $15,000 are included in the Capital Improvement 2007-09 PROGRAM OBJECTIVES Plan(CII')section of the Financial Plan. PROGRAM DESCRIPTION Identifies major objectives for the next two years, including major City goals. Describes program purpose,goals and activities. WORKLOAD MEASURES Provides four years of historical and projected workload measures (2005-06 through 2008-09) in order to provide the Council and public with an overview of the program's workscope and effectiveness. -3 -