HomeMy WebLinkAbout12/16/2008, 2 - FINANCIAL PLAN POLICIES AND ORGANIZATION councit M f gD� 12-16-08
Aacenaa uepont ��N CITYOF SAN LUIS OBISPO
FROM: Bill Statler; Director of Finance& Information Technology ✓
SUBJECT: FINANCIAL PLAN POLICIES AND ORGANIZATION
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 2009-11, 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 Manager.
Financial Plan Policies
Fiscal health is a 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."
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" play 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 2009-11 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.
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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 Manager, 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. It also includes the detailed work programs for the Major City Goals adopted
by the Council.
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.
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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 terns 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 Goverment
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
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Financial Plan Policies and Organization Page 5
Provided in Attachment 2 are updated excerpts from the 2007-09 Financial Plan that finther
describe 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; links to Measure Y priorities; key factors driving the need for the change; goal
and policy links; environmental review considerations; constraints and limitations;
stakeholders; key assumptions; alternatives; cost; and implementation issues.
As needed, it will also include detailed information on any oyeratine program reductions
required to balance the budget, including impacts on service levels.
2. Appendix B provides detailed information on each proposed capital improvement plan (CIP)
project. Each request will describe the project and identify: project objectives; links to
Measure Y priorities; the existing situation; goal and policy links; environmental review
considerations; project work completed; constraints and limitations; stakeholders; key
assumptions; 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 2007-09 Financial Plan (Updated for 2009-11)
a. Purpose and Organization
b. Summary of Major Functions and Operations
c. Operating Program Narratives
G:Budget Folders/Financial Plans/2009-1 I/Council Goal-Setting/12-16 Workshop/Financial Plan Policies and Organization
2-s
City Of
j san tins OBIspo
ATTACHMENT
�Budget and Fiscal Policies
FINANCIAL PLAN PURPOSE 2. Concentrating on developing and budgeting
AND ORGANIZATION for the accomplishment of significant
obj ectives.
A. Financial Plan Objectives. Through its 3. Establishing realistic timeframes for
Financial Plan, the City will link resources with achieving objectives.
results by: 4. Creating a pro-active budget that provides
1. Identifying communityneeds for essential for stable operations and assures the City's
services. long-term fiscal health.
2. Organizing the programs required to provide 5. Promoting more orderly spending patterns.
these essential services. 6. Reducing the amount of time and resources
3. Establishing program policies and goals, allocated to preparing annual budgets.
which define the nature and level of C. Measurable Objectives. The two-year
program services required. financial plan will establish measurable program
4. Identifying activities performed in objectives and allow reasonable time to
delivering program services. accomplish those objectives.
5. Proposing objectives for improving the D. Second Year Budget. Before the beginning of
delivery of program services.
the second year of the two-year cycle, the
6. Identifying and appropriating the resources Council will review progress during the first
required to perform program activities and year and approve appropriations for the second
accomplish program objectives. fiscal year.
7. Setting standards to measure and evaluate
the: E. Operating Carryover. Operating program
appropriations not spent during the first fiscal
a. Output of program activities. year may be carried over for specific purposes
b. Accomplishment of program objectives. into the second fiscal year with the approval of
the City Manager.
c. Expenditure of program appropriations.
F. Goal Status Reports. The status of major
B. Two-Year Budget. Following the City's program objectives will be formally reported to
favorable experience over the past twenty four the Council on an ongoing,periodic basis.
years, the City will continue using a two-year
financial plan, emphasizing long-range planning G. Mid-Year Budget Reviews. The Council will
and effective program management. The formally review the City's fiscal condition, and
benefits identified when the City's first two-year amend appropriations if necessary, six months
plan was prepared for 1983-85 continue to be after the beginning of each fiscal year.
realized:
H. Balanced Budget. The City will maintain a
1. Reinforcing the importance of long-range balanced budget over the two-year period of the
planning in managing the City's fiscal Financial Plan. This means that:
affairs.
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Budget and Fiscal Policies ATTACHMENT 1
1. Operating revenues must fully cover, supplement the budget at any time after its
operating expenditures, including debt adoption by majority vote of the Council
service. members. The City Manager has the authority
2. Ending fund balance (or working capital in to make administrative adjustments to the
the enterprise funds) must meet minimum budget as long as those changes will not have a
policy levels. For the general and enterprise significant policy impact nor affect budgeted
funds, this level has been established at 20% year-end fund balances.
of operating expenditures. GENERAL REVENUE MANAGEMENT
Under this policy, it is allowable for total "
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 seek to maintain a diversified and stable revenue
improvement plan projects, or other"one-time," base to protect it from short-term fluctuations in
non-recurring expenditures. any one revenue source.
FINANCIAL REPORTING B. Long-Range Focus. To emphasize and
AND BUDGET ADMINISTRATION facilitate long-range financial planning, the City
will maintain current projections of revenues for
the succeeding five years.
A. Annual Reporting. The City will prepare
annual financial statements as follows: C. Current Revenues for Current Uses. The
City will make all current expenditures with
1. In accordance with Charter requirements, current revenues, avoiding procedures that
the City will contract for an annual audit by balance current budgets by postponing needed
a qualified independent certified public expenditures, accruing future revenues, or
accountant. The City will strive for an rolling over short-term debt.
unqualified auditors' opinion.
D. Interfund Transfers and Loans. In order to
2. The City will use generally accepted achieve important public policy goals, the City
accounting principles in preparing its annual has established various special revenue, capital
financial statements, and will strive to meet project, debt service and enterprise funds to
the requirements of the GFOA's Award for account for revenues whose use should be
Excellence in Financial Reporting program. restricted to certain activities. Accordingly;
each fund exists as a separate financing entity
3. The City will issue audited financial from other funds, with its own revenue sources,
statements within 180 days after year-end. 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 Finance & Information Technology in
management system by City staff; monthly accordance with the adopted budget. These
reports to program managers; more formal operating transfers, under which financial
quarterly reports to the Council and Department resources are transferred from one fund to
Heads; mid-year budget reviews; and interim another, are distinctly different from interfund
annual reports. borrowings, which are usually made for
temporary cash flow reasons, and are not
C. Budget Administration. As set forth in the intended to result in a transfer of financial
City Charter, the Council may amend or resources by the end of the fiscal year.
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Budget and Fiscal Policies ATTACHMENT 1
In summary, interfund transfers result in a Price Index. Fees may be adjusted during this
change in fund equity; interfund borrowings do interim period based on supplemental analysis
not, as the intent is to repay in the loan in the whenever there have been significant changes in
near term. the method, level or cost of service delivery.
From time-to-time, interfund borrowings may be B. User Fee Cost Recovery Levels
appropriate; however, these are subject to the
following criteria in ensuring that the fiduciary In setting user fees and cost recovery levels, the
purpose of the fund is met: following factors will be considered:
1. The Director of Finance & Information 1. Community-Wide Versus Special Benefit
Technology is authorized to approve The level of user fee cost recovery should
temporary interfund borrowings for cash consider the community-wide versus special
flow purposes whenever the cash shortfall is service nature of the program or activity.
expected to be resolved within 45 days. The The use of general-purpose revenues is
most common use of interfund borrowing appropriate for community-wide services,
under this circumstance is for grant while user fees are appropriate for services
programs like the Community Development that are of special benefit to easily identified
Block Grant, where costs are incurred individuals or groups.
before drawdowns are initiated and
received. However, receipt of funds is 2. Service Recipient Versus Service Driver.
typically received shortly after the request After considering community-wide versus
for funds has been made: special benefit of the service, the concept of
service recipient versus service driver
2. Any other interfund borrowings for cash should also be considered. For example, it
flow or other purposes require case-by-case could be argued that the applicant is not the
approval by the Council. beneficiary of the City's development
review efforts: the community is the
3. Any transfers between funds where primary beneficiary. However, the
reimbursement is not expected within one applicant is the driver of development
fiscal year shall not be recorded as interfund review costs, and as such, cost recovery
borrowings; they shall be recorded as. from the applicant is appropriate.
interfund operating transfers that affect
equity by moving financial resources from 3. Effect of Pricing on the Demand for
one fund to another. Services.. The level of cost recovery and
related pricing of services can significantly
USER FEE COST RECOVERY GOALS affect the demand and subsequent level of
services provided. At full cost recovery,
this has the specific advantage of ensuring
A. Ongoing Review that the City is providing services for which
there is genuinely a market that is not
Fees will be reviewed and updated on an overly-stimulated by artificially low prices.
ongoing basis to ensure that they keep pace with Conversely,high levels of cost recovery will
changes in the cost-of-living as well as changes negatively impact the delivery of services to
in methods or levels of service delivery. lower income groups. This negative feature
is especially pronounced, and works against
In implementing this goal, a comprehensive public policy, if the services are specifically
analysis of City costs and fees should be made targeted to low income groups.
at least every five years. In the interim, fees will
be adjusted by annual changes in the Consumer
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Budget and Fiscal Policies ATTACHMENT 1
4. Feasibility of Collection and Recovery. scale licenses and permits might fall into
Although it may be determined that a high this category.
level of cost recovery may be appropriate
for specific services, it may be impractical D. Factors Favoring High Cost Recovery Levels
or too costly to establish a system to identify
and charge the user. Accordingly, the The use of service charges as a major source of
feasibility of assessing and collecting funding service levels is especially appropriate
charges should also be considered in under the following circumstances:
developing user fees, especially if
significant program costs are intended to be 1. The service is similar to services provided
financed from that source. through the private sector.
C. Factors Favoring Low Cost Recovery Levels 2. Other private or public sector alternatives
could or do exist for the delivery of the
Very low cost recovery levels are appropriate service.
under the following circumstances:
3. For equity or demand management
1. There is no intended relationship between purposes, it is intended that there be a direct
the amount paid and the benefit received. relationship between the amount paid and
Almost all "social service" programs fall the level and cost of the service received.
into this category as it is expected that one
group will subsidize another. 4. The use of the service is specifically
discouraged. Police responses to
2. Collecting fees is not cost-effective or will disturbances or false alarms might fall into
significantly impact the efficient delivery of this category.
the service.
5. The service is regulatory in nature and
3. There is no intent to limit the use of (or voluntary compliance is not expected to be
entitlement to) the service. Again, most the primary method of detecting failure to
"social service" programs fit into [his meet regulatory requirements. Building
category as well as many public safety permit, plan checks and subdivision review
(police and fire) emergency response fees for large projects would fall into this
services. Historically, access to category.
neighborhood and community parks would
also fit into this category. E. General Concepts Regarding the Use of
Service Charges
4. The service is non-recurring, generally
delivered on a"peak demand"or emergency The following general concepts will be used in
basis, cannot reasonably be planned for on developing and implementing service charges:
an individual basis, and is not readily
available from a private sector source. 1. Revenues should not exceed the reasonable
Many public safety services also fall into cost of providing the service.
this category.
2. Cost recovery goals should be based on the
5. Collecting fees would discourage total cost of delivering the service, including
compliance with regulatory requirements direct costs, departmental administration
and adherence is primarily self-identified, costs, and organization-wide support costs
and as such, failure to comply would not be such as accounting, personnel, data
readily detected by the City. Many small- processing, vehicle maintenance and
insurance.
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Budget and Fiscal Policies ATTACHMENT 1
3. The method of assessing and collecting fees sector, cost recovery levels should be
should be as simple as possible in order to higher.
reduce the administrative cost of collection.
Although ability to pay may not be a
4. Rate structures should be sensitive to the concern for all youth and senior
"market" for similar services as well as to participants, these are desired program
smaller,infrequent users of the service. activities, and the cost of determining need
may be greater than the cost of providing a
5. A unified approach should be used in uniform service fee structure to all
determining cost recovery levels for various participants. Further, there is a community
programs based on the factors discussed wide benefit in encouraging high-levels of
above. participation in youth and senior recreation
activities regardless of financial status.
F. Low Cost-Recovery Services
3. Cost recovery goals for recreation activities
Based on the criteria discussed above, the are set as follows`.
following types of services should have very
low cost recovery goals. In selected High-Range Cost Recovery Activities
circumstances, there may be specific activities (60% to 100%)
within the broad scope of services provided that a. Classes (Adult and Youth)
should have user charges associated with them.
However, the primary source of funding for the b. Day care services
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operation as a whole should be general-purpose c. Adult swim)(volleyball, basketball,
revenues,not user fees. softball,,.laapp swim)
d. Facility rentals (Jack House, other in-
t. Delivering public safety emergency door facilities except the City/County
response services such as police patrol Library)
services and fire suppression. Mid-Range Cost Recovery Activities
2. Maintaining and developing public facilities (30% to 60%)
that are provided on a uniform, community- e. City/County Library room rentals
wide basis such as streets, parks and f. Special events (triathlon, other City-
general-purpose buildings. sponsored special events)
g. Youth track
3. Providing social service programs and h. Minor league baseball
economic development activities. i. Youth basketball
j. Swim lessons
G. Recreation Programs k. Outdoor facility and equipment rentals
The following cost recovery policies apply to Lo"-Range Cost Recovery Activities
the City's recreation programs: (0 to 30016)
1. Public swim
1. Cost recovery for activities directed to m. Special swim classes
adults should be relatively high. n. Community garden
o. Youth STAR
2. Cost recovery.for activities directed to youth p. Teen services
and seniors should be relatively low. In
those circumstances where services are q Senior services
similar to those provided in the private 4. For cost recovery activities of less than
100%, there should be a differential in rates
Budget.and Fiscal Policies ATTACHMENT 1
between residents and non-residents. a. Planning(planned development permits,
However, the Director of Parks and tentative tract and parcel maps,
Recreation is authorized to reduce or rezonings, general plan amendments,
eliminate non-resident fee differentials variances,use permits).
when it can be demonstrated that: b. Building and safety (building permits,
a. The feeds reducing attendance. structural plan checks, inspections).
b. And there are no appreciable c. Engineering (public improvement plan
expenditure savings from the reduced checks, inspections, subdivision
attendance. requirements, encroachments).
d. Fire plan check.
5. Charges will be assessed for use of rooms,
pools, gymnasiums, ball fields, special-use 2. Cost recovery for these services should
areas, and recreation equipment for generally be very high. In most instances,
activities not sponsored or co-sponsored by the City's cost recovery goal should be
the City. Such charges will generally 100%.
conform to the fee guidelines described
above. However, the Director of Parks and 3. However, in charging high cost recovery
Recreation is authorized to charge fees that levels, the City needs to clearly establish
are closer to full cost recovery for facilities and articulate standards for its performance
that are heavily used at peak times and in reviewing developer applications to
include a majority of non-resident users. ensure that there is"value for cost."
6. A vendor charge of at least 10 percent of I. Comparability With Other Communities
gross income will be assessed from
individuals or organizations using City In setting user fees, the City will consider fees
facilities for moneymaking activities. charged by other agencies in accordance with
the following criteria:
7. Director of Parks and Recreation is
authorized to offer reduced fees such as 1. Surveying the comparability of the City's
introductory rates, family discounts and fees to other communities provides useful
coupon discounts on a pilot basis (not to background information in setting fees for
exceed 18 months) to promote new several reasons:
recreation programs or resurrect existing
ones. a. They reflect the "market" for these fees
and can assist in assessing the
8. The Parks and Recreation Department will reasonableness of San Luis Obispo's
consider waiving fees only when the City fees.
Manager determines in writing that an
undue hardship exists. b. If prudently analyzed, they can serve as
a benchmark for•how cost-effectively
H. Development Review Programs San Luis Obispo provides its services.
The following cost recovery policies apply to 2. However, fee surveys should never be the
the development review programs: sole or primary criteria in setting City fees
as there are many factors that affect how
1. Services provided under this category and why other communities have set their
include: fees at their levels. For example:
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Budget and Fiscal Policies ATTACHMENT 1
a. What level of cost recovery is their fee required to ensure that they remain appropriate
intended to achieve compared with our and equitable.
cost recovery objectives?
b. What costs have been considered in E. Franchise Fees. In accordance with long-
computing the fees? standing practices, the City will treat the water
and sewer funds in the same manner as if they
c. When was the last time that their fees were privately owned and operated. This means
were comprehensively evaluated? assessing reasonable franchise fees .in fully
d. What level of service do they provide recovering service costs.
compared with our service or
performance standards? At 3.5%, water and sewer franchise fees are
based on the mid-point of the statewide standard
e. Is their rate structure significantly for public utilities like electricity and gas (2%of
different than ours and what is it gross revenues from operations) and cable
intended to achieve? television(5%of gross revenues).
3. These can be very difficult questions to As with other utilities, the purpose of the
address in fairly evaluating fees among franchise fee is reasonable compensation the use
different communities. As such, the of the City's street right-of-way. The
comparability of our fees to other appropriateness of charging the water and sewer
communities should be one factor among funds a reasonable franchise fee for the use of
many that is considered in setting City fees. City streets is further supported by the results of
recent studies in Arizona, California, Ohio and
ENTERPRISE FUND FEES AND RATES Vermont which concluded that the leading cause
77 for street resurfacing and reconstruction is street
cuts and trenching for utilities.
A. Water, Sewer and Parking. The City will set
fees and rates at levels which fully cover the REVENUE DISTRIBUTION
total direct and indirect costs—including F,7 ~"
operations, capital outlay and debt service—of
the following enterprise programs: water, sewer The Council recognizes that generally accepted
and parking. accounting principles for state and local
governments discourage the "earmarking" of
B. Golf. Golf program fees and rates should fully General Fund revenues, and accordingly, the
cover direct operating costs. Because of the practice of designating General Fund revenues for
nine-hole nature of the golf course with its focus specific programs should be minimized in the City's
on youth and seniors, subsidies from the management of its fiscal affairs. Approval of the
General Fund to cover indirect costs and capital following revenue distribution policies does not
improvements may be considered by the prevent the Council from directing General Fund
Council as part of the Financial Plan process, resources to other functions and programs as
along with the need to possibly subsidize direct necessary.
operating costs as well.
A. Property Taxes. With the passage of
C. Transit. Based on targets set under the Proposition 13 on June 6, 1978, California cities
Transportation Development Act, the City will no longer can set their own property tax rates.
strive to cover at least twenty percent of transit In addition to limiting annual increases in
operating costs with fare revenues. market value, placing a ceiling on voter-
approved indebtedness, and redefining assessed
D. Ongoing Rate Review. The City will review valuations, Proposition 13 established a
and adjust enterprise fees and rate structures as maximum county-wide levy for general revenue
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Budget and Fiscal Policies ATTACHMENT 1
purposes of 1% of market value. Under INVESTMENTS
subsequent state legislation, which adopted : =
formulas for the distribution of this countywide
levy, the City now receives a percentage of total A. Responsibility. Investments and cash
property tax revenues collected countywide as management is the responsibility of the City
determined by the County Auditor-Controller. Treasurer or designee.
Until November of 1996, the City had B. Investment Objective. The City's primary
provisions in its Charter that were in conflict investment objective is to achieve a reasonable
with Proposition 13 relating to the setting of, rate of return while minimizing the potential for
property tax revenues between various funds. capital losses arising from market changes or
For several years following the passage of issuer default. Accordingly, the following
Proposition 13, the City made property tax factors will be considered in priority order in
allocations between funds on a policy basis that determining individual investment placements:
were generally in proportion to those in place
before Proposition 13. Because these were 1. Safety
general-purpose revenues, this practice was 2. Liquidity
discontinued in 1992-93. With the adoption of a 3. Yield
series of technical revisions to the City Charter
in November of 1996, this conflict no longer C. Tax and Revenue Anticipation Notes: Not for
exists. Investment Purposes. There is an appropriate
B. Gasoline Tax Subventions. All gasoline'tax role for tax and revenue anticipation notes
revenues (which are restricted by the State for (TRANS) in meeting legitimate short-term cash
street-related purposes) will be used for needs within the fiscal year. However, many
maintenance activities. Since the City's total agencies issue TRANS as a routine business
expenditures for gas tax eligible programs and practice, not solely for cash flow purposes; but
projects are much greater than this revenue to capitalize on the favorable difference between
source, operating transfers will be made from the interest cost of issuing TRANS as a tax-
the gas tax fund to the General Fund for this preferred security and the interest yields on
purpose. This approach significantly reduces them if re-invested at full market rates.
the accounting efforts required in meeting State
As part of its cash flow management and
reporting requirements.
investment strategy, the City will only issue
C. Transportation Development Act (TDA) TRANS or other forms of short-term debt if
Revenues. All TDA revenues will be allocated necessary to meet demonstrated cash flow
to alternative transportation programs, including needs; TRANS or any other form of short-term
regional and municipal transit systems, bikeway debt financing will not be issued for investment
purposes. As long as the City maintains its
improvements, and other programs or projects current policy of maintaining fund/working
designed to reduce automobile usage. Because capital balances that are 20% of operating
TDA revenues will not be allocated for street
purposes, it is expected that alternative expenditures, it is unlikely that the City would
need to issue TRANS for cash flow purposes
transportation programs (in conjunction with
other state or federal grants for this purpose) except in very unusual circumstances.
will be self-supporting from TDA revenues. D. Selecting Maturity Dates. The City will strive
D. Parking Fines. All parking fine revenues will to keep all idle cash balances fully invested
be allocated to the parking fluid. through daily projections of cash flow
requirements. To avoid forced liquidations and
losses of investment earnings, cash flow and
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Budget and Fiscal Policies ATTACHMENT 1
future requirements will be the primary City's portfolio on an ongoing basis to
consideration when selecting maturities. determine compliance with the City's
investment policies and for making
E. Diversification. As the market and the City's recommendations regarding investment
investment portfolio change, care will be taken management practices. Members include the
to maintain a healthy balance of investment City Manager, Assistant City Manager, Director
types and maturities. of Finance & Information Technology/City
Treasurer, Finance Manager and the City's
F. Authorized Investments. The City will invest independent auditor.
only in those instruments authorized by the
California Government Code Section 53601. L. Reporting. The City Treasurer will develop
and maintain a comprehensive, well-
The City will not invest in stock, will not documented investment reporting system, which
speculate and will not deal in futures or options. will comply with Government Code Section
The investment market is highly volatile and 53607. This reporting system will provide the
continually offers new and creative Council and the Investment Oversight
opportunities for enhancing interest earnings. Committee with appropriate investment
Accordingly, the City will thoroughly performance information.
investigate any new investment vehicles before
committing City funds to them. APPROPRIATIONS LIMITATION
G. Authorized Institutions. Current financial
statements will be maintained for each A. The Council will annually adopt a resolution
institution in which cash is invested. establishing the City's appropriations limit
Investments will be limited to 20 percent of the calculated in accordance with Article XIII-B of
total net worth of any institution and may be the Constitution of the State of California,
reduced further or refused altogether if an Section 7900 of the State of California
institution's financial situation becomes Government Code,and any other voter approved
unhealthy. amendments or state legislation that affect the
City's appropriations limit.
H. Consolidated Portfolio. In order to maximize
yields from its overall portfolio, the City will B. The supporting documentation used in
consolidate cash balances from all funds for calculating the City's appropriations limit and
investment purposes, and will allocate projected appropriations subject to the limit will
investment earnings to each fund in accordance be available for public and Council review at
with generally accepted accounting principles. least 10 days before Council consideration of a
resolution to adopt an appropriations limit. The
I. Safekeeping. Ownership of the City's Council will generally consider this resolution
investment securities will be protected through in connection with final approval of the budget.
third-party custodial safekeeping.
C. The City will strive to develop revenue sources,
J. Investment Management Plan. The City both new and existing, which are considered
Treasurer will develop and maintain an non-tax proceeds in calculating its
Investment Management Plan that addresses the appropriations subject to limitation.
City's administration of its portfolio, including
investment strategies,practices and procedures. D. The City will annually review user fees and
charges and report to the Council the amount of
K. Investment Oversight Committee. As set program subsidy, if any, that is being provided
forth in the Investment Management Plan, this by the General or Enterprise Funds.
committee is responsible for reviewing the
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Budget and Fiscal Policies ATTACHMENT 1
E. The City will actively support legislation or The annual contribution to this fund will
initiatives sponsored or approved by League of generally be based on the annual use allowance,
California Cities which would modify Article which is determined based on the estimated life
XIII-B of the Constitution in a manner which of the vehicle or equipment and its original
would allow the City to retain projected tax purchase cost. Interest earnings and sales of
revenues resulting from growth in the local surplus equipment as well as any related damage
economy for use as determined by the Council. and insurance recoveries will be credited to the
Fleet Replacement Fund.
F. The City will seek voter approval to amend its
appropriation limit at such time that tax C. Future Capital Project Designations. The
proceeds are in excess of allowable limits. Council may designate specific fund balance
levels for future development of capital projects
FUND BALANCE AND RESERVES that it has determined to be in the best long-term
interests of the City.
A. Minimum Fund and Working. Capital D. Other Designations and Reserves. In addition
Balances. The City will maintain a minimum to the designations noted above, fund balance
fund balance of at least 20% of operating levels will be sufficient to meet funding
expenditures in the General Fund and a requirements for projects approved in prior
minimum working capital balance of 20% of years which are carried forward into the new
operating expenditures in the water, sewer and year; debt service reserve requirements; reserves
parking enterprise funds. This is considered the for encumbrances; and other reserves or
minimum level necessary to maintain the City's designations required by contractual obligations,
credit worthiness and to adequately provide for: state law, or generally accepted accounting
principles.
1. Economic uncertainties, local disasters, and
other financial hardships or downturns in CAPITAL IMPROVEMENT MANAGEMENT
the local or national economy.
2. Contingencies for unseen operating or
capital needs. A. CIP Projects: $15,000 or More. Construction
projects and equipment purchases which cost
3. Cash flow requirements. $15,000 or more will be included in the Capital
Improvement Plan (CIP); minor capital outlays
As part of the City's budget-balancing strategy of less than $15,000 will be included with the
for 2005-07, the projected ending fund balance operating program budgets.
at June 30, 2007 will be 15% of operating
expenditures. It is the City's goal to return to B. CIP Purpose. The purpose of the CIP is to
the full policy level in 2007-09. systematically plan, schedule, and finance
capital projects to ensure cost-effectiveness as
B. Fleet Replacement. For the General Fund well as conformance with established policies.
fleet, the City will establish and maintain a Fleet The CIP is a four-year plan organized into the
Replacement Fund to provide for the timely same functional groupings used for the
replacement of vehicles and related equipment operating programs. The CIP will reflect a
with an individual replacement cost of$15,000 balance between capital replacement projects
or more. The City will maintain a minimum that repair, replace or enhance existing facilities,
fund balance in the Fleet Replacement Fund of equipment or infrastructure; and capital facility
at least 20% of the original purchase cost of the projects that significantly expand or add to the
items accounted for in this fund. City's existing fixed assets.
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Budget and Fiscal Policies ATTACHMENT 1
C. Project Manager. Every CIP project will have 9. Equipment Acquisitions. Vehicles, heavy
a project manager who will prepare the project machinery, computers, office furnishings,
proposal, ensure that required phases are other equipment items acquired and
completed on schedule, authorize all project installed independently from construction
expenditures, ensure that all regulations and contracts.
laws are observed, and periodically report
project status. 10. Debt Service. Installment payments of
principal and interest for completed projects
D. CIP Review Committee. Headed by the City funded through debt financings.
Manager or designee, this Committee will Expenditures for this project phase are
review project proposals, determine project included in the Debt Service section of the
phasing, recommend project managers, review Financial Plan.
and evaluate the draft CIP budget document, and
report CII'project progress on an ongoing basis. Generally, it will become more difficult for a
project to move from one phase to the next. As
E. CIP Phases. The CIP will emphasize project such, more projects will be studied than will be
planning, with projects progressing through at designed, and more projects will be designed
least two and up to ten of the following phases: than will be constructed or purchased during the
term of the CIP.
1. Designate. Appropriates funds based on
projects designated for funding by the F. CIP Appropriation., The City's annual CIP
Council through adoption of the Financial appropriation for study, design, acquisition
Plan. and/or construction is based on the projects
designated by the Council through adoption of
2. Study. Concept design, site selection, the Financial Plan. Adoption of the Financial
feasibility analysis, schematic design, Plan CIP appropriation does not automatically
environmental determination, property authorize funding for specific project phases.
appraisals, scheduling, grant application, This authorization generally occurs only after
grant approval, specification preparation for the preceding project phase has been completed
equipment purchases. and approved by the Council and costs for the
succeeding phases have been fully developed.
3. Environmental Review. EIR preparation,
other environmental studies. Accordingly, project appropriations are
generally made when contracts are awarded. If
4. Real Property Acquisitions. Property project costs at the time of bid award are less
acquisition for projects, if necessary. than the budgeted amount, the balance will be
unappropriated and returned to fund balance or
5. Site Preparation. Demolition, hazardous allocated to another project. If project costs at
materials abatements, other pre-construction the time of bid award are greater than budget
work. amounts, five basic options are available:
6. Design. Final design, plan and specification
preparation and construction cost 1. Eliminate the project.
estimation. 2. Defer the project for consideration to the
7. Construction. Construction contracts. next Financial Plan period.
3. Rescope or change the phasing of the
8. Construction Management. Contract project to meet the existing budget.
project management and inspection, soils 4. Transfer funding from another specified,
and material tests, other support services lower priority project.
during construction.
Budget and Fiscal Policies ATTACHMENT 1
5. Appropriate additional resources as a. When the project's useful life will
necessary from fund balance. exceed the term of the financing.
G. CIP Budget Carryover. Appropriations for b. When project revenues or specific
CIP projects lapse three years after budget resources will be sufficient to service
adoption. Projects which lapse from lack of the long-term debt.
project account appropriations may be
resubmitted for inclusion in a subsequent CII'. 2. Debt financing will not be considered
Project accounts, which have been appropriated, appropriate for any recurring purpose such
will not lapse until completion of the project as current operating and maintenance
phase. expenditures. The issuance of short-term
instruments such as revenue, tax or bond
H. Program Objectives. Project phases will be anticipation notes is excluded from this
listed as objectives in the program narratives of limitation. (See Investment Policy)
the programs,which manage the projects.
3. Capital improvements will be financed
I. Public Art. CIP projects will be evaluated primarily through user fees, service charges,
during the budget process and prior to each assessments, special taxes or developer
phase for conformance with the City's public art agreements when benefits can be
policy, which generally requires that 1% of specifically attributed to users of the
eligible project construction costs be set aside facility. Accordingly, development impact
for public art. Excluded from this requirement' fees should be created and implemented at
are underground projects, utility infrastructure levels sufficient to ensure that new
projects, funding from outside agencies, and development pays its fair share of the cost
costs other than construction .such as study, of constructing necessary community
environmental review, design, site preparation, facilities.
land acquisition and equipment purchases.
4. Transportation impact fees are a major
It is generally preferred that public art be funding source in financing transportation
incorporated directly into the project, but this is system improvements. However, revenues
not practical or desirable for all projects; in this from these fees are subject to significant
case, an in-lieu contribution to public art will be fluctuation based on the rate of new
made. To ensure that funds,are adequately development. Accordingly, the following
budgeted for this purpose regardless of whether guidelines will be followed in designing and
public art will be directly incorporated into the building projects funded with transportation
project, funds for public art will be identified impact fees:
separately in the CIP.
a. The availability of transportation impact
CAPITAL FINANCING fees in funding a specific project will be
AND DEBT MANAGEMENT analyzed on a case-by-case basis as
plans and specification or contract
awards are submitted for City Manager
A. Capital Financing or Council approval.
1. The City will consider the use of debt b. If adequate funds are not available at
financing only for one-time capital that time, the Council will make one of
improvement projects and only under the two determinations:
following circumstances:
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Budget and Fiscal Policies ATTACHMENT 1
• Defer the project until funds are i. The life of the project or asset to be
available. financed is 10 years or longer.
• Based on the high-priority of the B. Debt Management
project, advance funds from the
General Fund, which will be 1. The City will not obligate the General Fund
reimbursed as soon as funds become to secure long-term financings except when
available. Repayment of General marketability can be significantly enhanced.
Fund advances will be the first use
of transportation impact fee funds 2. An internal feasibility analysis will be
when they become available. prepared for each long-term financing which
5. The City will use the following criteria to analyzes the impact on current and future
evaluate pay-as-you-go versus long-term budgets for debt service and operations.
This analysis will also address the reliability
financing in funding capital improvements: of revenues to support debt service.
Factors Favoring 3. The City will generally conduct financings
Pay-As-You-Go Financing on a competitive basis. However,
a. Current revenues and adequate fund negotiated financings may be used due to
balances are available or project phasing market volatility or the use of an unusual or
can be accomplished. complex financing or security structure.
b. Existing debt levels adversely affect the 4. The City will seek an investment grade
City's credit rating. rating (Baa/BBB or greater) on any direct
c. Market conditions are unstable or debt and will seek credit enhancements such
present difficulties in marketing. as letters of credit or insurance when
necessary for marketing purposes,
Factors Favoring Long Term Financing availability and cost-effectiveness.
d. Revenues available for debt service are 5. The City will monitor all forms of debt
deemed sufficient and reliable so that annually coincident with the City's Financial
long-term financings can be marketed Plan preparation and review process and
with investment grade credit ratings. report concerns and remedies, if needed, to
the Council.
e. The project securing the financing is of
the type, which will support an 6. The City will diligently monitor its
investment grade credit rating. compliance with bond covenants and ensure
f. Market conditions present favorable its adherence to federal arbitrage
interest rates and demand for City regulations.
financings.
7. The City will maintain good, ongoing
g. A project is mandated by state or federal communications with bond rating agencies
requirements, and resources are about its financial condition. The City will
insufficient or unavailable. follow a policy of full disclosure on every
h. The project is immediately required to financial report and bond prospectus
meet or relieve capacity needs and (Official Statement).
current resources are insufficient or
unavailable.
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Budget and Fiscal Policies ATTACHMENT 1
C. Debt Capacity a. The revenue source for repayment is
under the management or control of the
1. General Purpose Debt Capacity. The City City, such as general obligation bonds,
will carefully monitor its levels of general- revenue bonds, lease-revenue bonds or
purpose debt. Because our general purpose certificates of participation.
debt capacity is limited, it is important that b. The bonds will be rated or insured.
we only use general purpose debt financing
for high-priority projects where we cannot 2. The City will consider retaining the services
reasonably use other financing methods for of an independent disclosure counsel when
two key reasons:
one or more of following circumstances are
a. Funds borrowed for a project today are present:
not available to fund other projects a. The financing will be negotiated, and
tomorrow. the underwriter has not separately
b. Funds committed for debt repayment engaged an underwriter's counsel for
today are not available to fund disclosure purposes.
operations in the future. b. The revenue source for repayment is not
In evaluating debt capacity, general-purpose under the management or control of the
annual debt service payments should City, such as land-based assessment
generally not exceed 10% of General Fund districts, tax allocation bonds or conduit
revenues; and in no case should they exceed financings.
15%. Further, direct debt will not exceed c. The bonds will not be rated or insured.
2% of assessed valuation; and no more than d. The City's financial advisor, bond
60% of capital improvement outlays will be counsel or underwriter recommends that
funded from long-term financings. the City retain an independent
disclosure counsel based on the
2. Enterprise Fund Debt Capacity. The City circumstances of the financing.
will set enterprise fund rates at levels
needed to fully cover debt service E. Land-Based Financings
requirements as well as operations,
maintenance, administration and capital 1. Public Purpose. There will be a clearly
improvement costs. The ability to afford articulated public purpose in forming an
new debt for enterprise operations will be assessment or special tax district in
evaluated as an integral part of the City's financing public infrastructure
rate review and setting process. improvements. This should include a
finding by the Council as to why this form
D. Independent Disclosure Counsel of financing is preferred over other funding
The following criteria will be used on a case-by- options such as impact fees, reimbursement
agreements or direct developer
case basis in determining whether the City responsibility for the improvements.
should retain the services of an independent
disclosure counsel in conjunction with specific 2. Eligible Improvements. Except as
project financings: otherwise determined by the Council when
1. The City will generally not retain the proceedings for district formation are
wcommenced, preference in financing public
counsel
services w an independent disclosure improvements through a special tax district
when all of the following shall be given for those public
circumstances are present: improvements that help achieve clearly
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V
i
Budget and Fiscal Policies ATTACHMENT 1
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
bond proceeds.
g. Open space.
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
School facilities will not be financed except special circumstances, after conferring and
under appropriate joint community facilities receiving the concurrence of the City's
agreements or joint exercise of powers financial advisor and bond counsel that a
agreements between the City and school lower value-to-debt ratio is financially
districts. prudent under the circumstances, the City
may consider allowing a value-to-debt ratio
3. Active Role. Even though land-based of 3:1. The Council should make special
financings may be a limited obligation of findings in this case.
the City, we will play an active role in
managing the district. This means that the 7. Appraisal Methodology. Determination of
City will select and retain the financing value of property in the district shall be
team, including the financial advisor, bond based upon the £till cash value as shown on
counsel, trustee, appraiser, disclosure the ad valorem assessment roll or upon an
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Budget and Fiscal Policies ATTACHMENT 1
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 I% 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
improvement. Any annual escalation factor b. There is a clearly articulated public
should generally not exceed 2%. purpose in providing the conduit
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 2. This means that the review of requests for
service. The rate and .method of conduit financing will generally be a two-
apportionment should include a back-up tax step process:
in the event of significant changes from the
initial development plan, and should include a. First asking the Council if they are
procedures for prepayments. interested in considering the request,
and establishing the ground rules for
12. Foreclosure Covenants. In managing evaluating it
administrative costs, the City will establish
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Budget and Fiscal Policies ATTACHMENT 1
b. And then returning with the results of savings are at least three percent (3%)
this evaluation, and recommending of the refunded debt.
approval of appropriate financing b. Refinancings with savings of less than
documents if warranted. three percent (3%), or with negative
This two-step approach ensures that the savings, will not be considered unless
issues are clear for both the City and there is a compelling public policy
applicant, and that key policy questions are objective.
answered. HUMAN RESOURCE MANAGEMENT
3. The workscope necessary to address these
issues will vary from request to request, and A. Regular Staffing
will have to be determined on a case-by-
case basis. Additionally, the City should 1. The budget will fully appropriate the
generally be fully reimbursed for our costs resources needed for authorized regular
in evaluating the request; however, this staffing and will limit programs to the
should also be determined on a case-by-case regular staffing authorized.
basis.
G. Refinancings 2. Regular employees will be the core work
force and the preferred means of staffing
ongoing, year-round program activities that
1. General Guidelines. Periodic reviews of all should be performed by full-time City
outstanding debt will be undertaken to employees rather than independent
determine refinancing opportunities. contractors. The City will strive to provide
Refinancings will be considered (within competitive compensation and benefit
federal tax law constraints) under the schedules for its authorized regular work
following conditions: force. Each regular employee will:
a. There is a net economic benefit. a. Fill an authorized regular position.
b. It is needed to modernize covenants that b. Be assigned to an appropriate
are adversely affecting the City's bargaining unit.
financial position or operations.
c. The City wants to reduce the principal c. Receive salary and benefits consistent
outstanding in order to achieve future with labor agreements or other
debt service savings, and it has available compensation plans.
working capital to do so from other 3. To manage the growth of the regular work
sources. force and overall staffing costs, the City will
2. Standards for Economic Savings. In follow these procedures:
general, refinancings for economic savings a. The Council will authorize all regular
will be undertaken whenever net present positions.
value savings of at least five percent(5%)of
the refunded debt can be achieved. b. The Human Resources Department will
coordinate and approve the hiring of all
a. Refinancings that produce net present regular and temporary employees.
value savings of less than five percent c. All requests for additional regular
will be considered on a case-by-case positions will include evaluations of:
basis, provided that the present value
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Budget and Fiscal Policies ATTACHMENT 1
• The necessity, term and expected circumstances where the use of temporary
results of the proposed activity. 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.
However, any such exceptions must be
equipment, uniforms, clerical approved by the City Manager based on the
support and facilities. review and recommendation of the Human
• The ability of private industry to Resources Director.
provide the proposed service.
4. Contract employees are defined as
• Additional revenues or cost savings, temporary employees with written contracts
which maybe realized. approved by the City Manager who may
4. Periodically, and before any request for receive approved benefits depending on
additional regular positions, programs will hourly 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 The services of contract employees will be
independent contractors hired to provide discontinued upon completion of the
operating and maintenance services. 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 en an ongoing basis.
be used as an incremental method for C. Independent Contractors
expanding the City's regular work force.
Independent contractors are not City employees.
2. Temporary employees include all employees 'They may 6e used in two situations:
other than regular employees, elected
officials and volunteers. Temporary 1. Short-term, peak workload assignments to
employees will generally augment regular be accomplished using personnel contracted
City staffing as extra-help employees, through an outside temporary employment
seasonal employees, contract employees, agency (OEA). In this situation, it is
interns and work-study assistants. anticipated that City staff will closely
monitor the work of OEA employees and
3. The City Manager and Department Heads minimal training will be required.
will encourage the use of temporary rather However, they will always be considered
than regular employees to meet peak the employees of the OEA and not the City.
workload requirements, fill interim All placements through an OEA will be
vacancies, and accomplish tasks where less
than full-time, year-round staffingcoordinated through the Human Resources
is Department and subject to the approval of
required. the Human Resources Director.
Under this guideline, temporary employee 2. Construction ofks works projects and
hours will generally not exceed 50% of a p p
regular, full-time position (1,000 hours delivery of operating, maintenance or
annually). There may be limited specialized professional services not
1�
Budget and Fiscal Policies ATTACHMENT 1
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
review procedures.
Policy)
4. Improving the organization's ability to
PRODUCTIVITY respond to changing needs, and identify and
.77
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. In 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
F. Periodic formal reviews of operations on a will be identified and considered.
systematic, ongoing basis.
4. Whenever private sector providers are
G. Maintaining a decentralized approach in available and can meet established service
managing the City's support service functions. levels, they will be seriously considered as
Although some level of centralization is viable service delivery alternatives using the
necessary for review and control purposes, evaluation criteria outlined below.
decentralization supports productivity by: 5. For programs and activities currently
provided by City employees, conversions to
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Budget and Fiscal Policies ATTACHMENT 1
contract services will generally be made
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?
8. Overall, can the City successfully delegate
the performance of the service but still
retain accountability and responsibility for
its delivery?
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ATTACHMENT 2
OPERATING
s PROGRAMS
OVERVIEW—PURPOSE AND ORGANIZATION
PURPOSE ■ Public Safety■ Public Utilities
■ 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
■ 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
e Identify activities performed in delivering Public Safety or Water Service within Public Utilities.
program services.
■ Set objectives for improving the delivery of Program
services. Programs are the basic organizational units of the
■ Appropriate the resources required to perform Financial Plan establishing policies, goals and
activities and accomplish objectives. objectives that define the nature and level of services
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
■ Program Sample Relationship:
■ 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
D-I
i
ATTACHMENT2
OPERATING PRO
OVERVIEW—SUMMARY OF FUNCTIONS AND OPERATIONS
Responsible Department 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 Utilities Whale Rock Fund
Transportation
Transportation Planning&Engineering Public Works General Fund
Streets,Sidewalks,Signals&Street Lights 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 Services
Parks&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 General 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 Business Improvement District Administration D-BID Fund
Tourism Business Improvement District Administration T-BID 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
D-2 - .
ATTACHMENT 2
OPERATING PROGRAMS
OVERVIEW—OPERATING PROGRAM NARRATIVES
The following information is provided for each Unless there are compelling reasons to do otherwise,
operating program: regular positions are assigned to programs based on
where employees spend 50%or more of their time.
PROGRAM TITLE
SIGNIFICANT PROGRAM CHANGES
Presents the function, program name, operation,
department responsible for program administration Summarizes significant program changes from the
and the primary funding source at the top of the page. prior Financial Plan such as:
PROGRAM COSTS ■ Major service curtailments or expansions.
■ Any increases or decreases in regular positions.
Provides four years of historical and projected
■ Significant one-time costs.
expenditure information (2007-08 through 2010-11) ■ Major changes in the method of delivering
organized into four categories: services.
■ Changes in operation that will significantly affect
■ Staffing. All costs associated with City staffing, other departments or customer service.
including salaries for all regular, temporary and ■ Changes that affect current policies.
contract employees as well as related costs for ■ Reductions needed to balance the budget.
benefits and overtime.
Detailed supporting documentation for each of the
■ Contract Services. All expenditures related to significant operating program changes(both increases
contract services. and decreases) is provided in Appendix A of the
Financial Plan.
■ Other Operating Expenditures. Purchases of
supplies, tools, utilities, insurance and similar 2009-11 PROGRAM OBJECTIVES
operating expenditures.
■ Minor Capital. Capital acquisitions or projects Identifies major program objectives for the next two
with a life in excess of one year and costs years to improve service delivery. This includes
between $5,000 and $15,000. Capital Major City Goals and other program objectives.
acquisitions or projects with a cost in excess of
$15,000 are included in the Capital Improvement WORKLOAD MEASURES
Plan(CIP) section of the Financial Plan.
PROGRAM DESCRIPTION Provides four years of historical and projected
workload measures (2007-08 through 2010-11) in
Describes program purpose, goals and activities. order to provide the Council and public with an
p pine g overview of the programs workscope and
effectiveness.
STAFFING SUMMARY
Provides a four-year summary of authorized regular
positions allocated to this program (2007-08 through
2010-11) along with full-time equivalents (FTE's) for
temporary staffing.
D-3