HomeMy WebLinkAbout12/10/2002, 2 - FINANCIAL PLAN POLICIES AND ORGANIZATION council M. D" 12-10-02
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CITY OF SAN LUIS 0BISY0
FROM: Bill Statler, Director of Finance
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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 2003-05, 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 carred over for specific purposes into the second year with the
approval of the City Administrative Officer.
Financial Plan Policies
Fiscal heath is a lot like your personal health—it's not what you live for, but it's hard to enjoy
life without it.
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
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Financial Plan Policies and Organization Page 2
them in financial decision-making. Effectivefiscal policies are not just for the "good times"—
they are equally important (perhaps even more) in"bad times," too.
While the underlying economic health of a community is important, it is not the most critical
factor in determining fiscal health. All we have to do is look at the 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 if they were clear and appropriate, 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.
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.
Since approval of the 2001-03 Financial Plan, the only change to the City's Budget and Fiscal
Policies was in conjunction with the 2002-03 Financial Plan Supplement, when the new Creek
and Flood Protection Fund was established as an enterprise fund. There are two areas we would
like to highlight at this time: debt management policies regarding refinancings and the status of
Creek and Flood Protection Fund.
1. Bond Refinancings. As we discussed with the Council as part of the recent refinancing of
the 1993 Water Revenue Bonds, under commonly accepted criteria, a refinancing should be
seriously considered whenever the net present value savings is 3% or higher; and at 5%, they
are a definite "go." We believe that we should formally include this guideline in our debt
management policies, and the Budget and Fiscal Policies provided in Exhibit A (page 16)
reflect this change.
2. Creek and Flood Protection Fund As part of the 2002-03 Financial Plan Supplement
process, the Council established the Creek and Flood Protection Fund and adopted a multi-
year fee program that phased-out General Fund support for this program over a five-year
period, with the fund becoming self-supporting by 2007-08. However, a recent court
decision regarding similar fees in the City of Salinas resulted in the Council rescinding these
fees pending a fuller analysis of how this decision might affect them. In the interim, we have
maintained the Creek and Flood Protection Fund, although at this point the only funding
sources for it are Zone 9 revenues and transfers from the General Fund..
For now, we recommend retaining the Creek and Flood Protection Fund, pending completion
of a full analysis of the options available to us should we decide to proceed with this fee
program. This will be reviewed as an integral part of the 2003-05 Financial Plan process.
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Financial Plan Policies and Organization Page 3
Based on this review, we may decide not to account for creek and flood protection programs
and projects within a separate enterprise fund, and return to budgeting and accounting for
them within the General Fund. However, we do not have to make this decision now (in fact,
doing so would be premature): we recommend considering this further as part of the 2003-05
Financial Plan process. Accordingly, the Budget and Fiscal Policies provided in Exhibit A
continue to reflect the Creek and Flood Protection Fund as an enterprise fund, recognizing
that this may change.
As we begin preparing the 2003-05 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.
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.
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Financial Plan Policies and Organization Page 4
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 73 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
obj ectives.
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.
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 is
responsible for managing the service or the funding source (although this information is provided
in the Financial Plan as well).
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Financial Plan Policies and Organization Page 5
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 vehicle maintenance—General Government
Provided in Exhibit B are updated excerpts from the 2001-03 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
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Financial Plan Policies and Organization Page 6
completed; project phasing, costs and funding sources; effect on the operating budget;
alternatives; and location via a site map or schematic design if applicable.
EXHIBITS
A. Financial Plan Policies
B. Operating Programs: Excerpts from the 2001-03 Financial Plan
1. Purpose and Organization
2. Summary of Major Functions and Operations
3. Operating Program Narratives
G:.2001-03 Financial Plan/Council Goal-Setting/Agenda Reports/Financial Plan Policies and Organization
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EXHIBIT A
Budget and Fiscal Policies
FINANCIAL PLAN PURPOSE 2. Concentrating on developing and budgeting
AND ORGANIZATION for the accomplishment of significant
objectives.
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 community needs for essential for stable operations and assures the City's
long-term fiscal health.
services.
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 Administrative Officer(CAO).
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 sixteen years, the Council on an ongoing,periodic basis.
the City will continue using a two-year financial
plan, emphasizing long-range planning and G. Mid-Year Budget Reviews. The Council will
effective program management. The benefits formally review the City's fiscal condition, and
identified when the City's first two-year plan amend appropriations if necessary, six months
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.
Budget and Fiscal Policies EXHIBIT A
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 CAO has the authority to make
2. Ending fund balance (or working capital in administrative adjustments to the budget as long
the enterprise funds) must meet minimum as those changes will not have a significant
policy levels. For the general and enterprise policy impact nor affect budgeted year-end fund
funds, this level has been established at 20% 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 protect it from short-teen fluctuations in
non-recurring expenditures. any onn e 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 in accordance with the adopted budget.
management system by City staff; monthly These operating transfers, under which financial
reports to program managers; more formal resources are transferred from one fund to
quarterly reports to the Council and Department another, are distinctly different from interfund
Heads; mid-year budget reviews; and interim borrowings, which are usually made for
annual reports. temporary cash flow reasons, and are not
intended to result in a transfer of financial
C. Budget Administration. As set forth in the resources by the end of the fiscal year.
City Charter, the Council may amend or
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Budget and Fiscal Policies EXHIBIT A
In summary, interfund transfers result in a whenever there have been significant changes in
change in fund equity; interfund borrowings do the method, level or cost of service delivery.
not, as the intent is to repay in the loan in the
near term. B. User Fee Cost Recovery Levels
From time-to-time, interfund borrowings may be In setting user fees and cost recovery levels, the
appropriate; however, these are subject to the following factors will be considered:
following criteria in ensuring that the fiduciary
purpose of the fund is met: 1. Community-Wide Versus Special Benefit
The level of user fee cost recovery should
1. The Director of Finance is authorized to consider the community-wide versus special
approve temporary interfund borrowings for service nature of the program or activity.
cash flow purposes whenever the cash The use of general-purpose revenues is
shortfall is expected to be resolved within appropriate for community-wide services,
45 days. The most common use of interfund while user fees are appropriate for services
borrowing under this circumstance is for that are of special benefit to easily identified
grant programs like the Community individuals or groups.
Development Block Grant, where costs are
incurred before drawdowns are initiated and 2. Service Recipient Versus Service Driver.
received. However, receipt of funds is After considering community-wide versus
typically received shortly after the request special benefit of the service, the concept of
for funds has been made. service recipient versus service driver
should also be considered. For example, it
2. Any other interfund borrowings for cash could be argued that the applicant is not the
flow or other purposes require case-by-case beneficiary of the City's development
approval by the Council. review efforts: the community is the
primary beneficiary. However, the
3. Any transfers between funds where applicant is the driver of development
reimbursement is not expected within one review costs, and as such, cost recovery
fiscal year shall not be recorded as interfund from the applicant is appropriate.
borrowings; they shall be recorded as
interfund operating transfers that affect 3. Effect of Pricing on the Demand for
equity by moving financial resources from Services. The level of cost recovery and
one fund to another. related pricing of services can significantly
affect the demand and subsequent level of
USER FEE COST RECOVERY GOALS services provided. At full cost recovery,
this has the specific advantage of ensuring
that the City is providing services for which
A. Ongoing Review there is genuinely a market that is not
overly-stimulated by artificially low prices.
Fees will be reviewed and updated on an Conversely, high levels of cost recovery will
ongoing basis to ensure that they keep pace with negatively impact the delivery of services to
changes in the cost-of-living as well as changes lower income groups. This negative feature
in methods or levels of service delivery. is especially pronounced, and works against
public policy, if the services are specifically
In implementing this goal, a comprehensive targeted to low income groups.
analysis of City costs and fees should be made
at least every five years. In the interim, fees will 4. Feasibility of Collection and Recovery.
be adjusted by annual changes in the Consumer Although it may be determined that a high
Price Index. Fees may be adjusted during this level of cost recovery may be appropriate
interim period based on supplemental analysis for specific services, it may be impractical
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Budget and Fiscal Policies EXHIBIT A
or too costly to establish a system to identify D. Factors Favoring High Cost Recovery Levels
and charge the user. Accordingly, the
feasibility of assessing and collecting The use of service charges as a major source of
charges should also be considered in funding service levels is especially appropriate
developing user fees, especially if under the following circumstances:
significant program costs are intended to be
financed from that source. 1. The service is similar to services provided
through the private sector.
C. Factors Favoring Low Cost Recovery Levels
2. Other private or public sector alternatives
Very low cost recovery levels are appropriate could or do exist for the delivery of the
under the following circumstances: service.
1. There is no intended relationship between 3. For equity or demand management
the amount paid and the benefit received. purposes, it is intended that there be a direct
Almost all "social service" programs fall relationship between the amount paid and
into this category as it is expected that one the level and cost of the service received.
group will subsidize another.
4. The use of the service is specifically
2. Collecting fees is not cost-effective or will discouraged. Police responses to
significantly impact the efficient delivery of disturbances or false alarms might fall into
the service. this category.
3. There is no intent to limit the use of (or .5. The service is regulatory in nature and
entitlement to) the service. Again, most voluntary compliance is not expected to be
"social service" programs fit into this the primary method of detecting failure to
category as well as many public safety meet regulatory requirements. Building
(police and fire) emergency response permit, plan checks, and subdivision review
services. Historically, access to fees for large projects would fall into this
neighborhood and community parks would category.
also fit into this category.
E. General Concepts Regarding the Use of
4. The service is non-recurring, generally Service Charges
delivered on a "peak demand" or emergency
basis, cannot reasonably be planned for on The following general concepts will be used in
an individual basis, and is not readily developing and implementing service charges:
available from a private sector source.
Many public safety services also fall into 1. Revenues should not exceed the reasonable
this category. cost of providing the service.
5. Collecting fees would discourage 2. Cost recovery goals should be based on the
compliance with regulatory requirements total cost of delivering the service, including
and adherence is primarily self-identified, direct costs, departmental administration
and as such, failure to comply would not be costs, and organization-wide support costs
readily detected by the City. Many small- such as accounting, personnel, data
scale licenses and permits might fall into processing, vehicle maintenance and
this category. insurance.
3. The method of as and collecting fees
should be as simple as possible in order to
reduce the administrative cost of collection.
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Budget and Fiscal Policies EXHIBIT A
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 b. Day care services
within the broad scope of services provided that
should have user charges associated with them. c. Adult athletics (volleyball, basketball,
softball, lap swim)
However, the primary source of funding for the d. Facility rentals (Jack House, other in-
operation as a whole should be general-purpose door facilities except the City/County
revenues,not user fees. Library)
1. Delivering public safety emergency Mid-Range Cost Recovery Activities
response services such as police patrol (30% to 60916)
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 I. Public swim
the City's recreation programs: in. Special swim classes
n. Community garden
I. Cost recovery for activities directed to o. Youth STAR
adults should be relatively high. p. Teen services
2. Cost recovery for activities directed to youth q. Senior services
and seniors should be relatively low. In 4. For cost recovery activities of less than
those circumstances where services are 100%, there should be a differential in rates
similar to those provided in the private between residents and non-residents.
sector, cost recovery levels should be However, the Director of Parks and
higher. Recreation is authorized to reduce or
eliminate non-resident fee differentials
Although ability to pay may not be a when it can be demonstrated that the fee is
concern for all youth and senior reducing attendance and that there are no
participants, these are desired program
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Budget and Fiscal Policies EXHIBIT A
appreciable expenditure savings from the c. Engineering (public improvement plan
reduced attendance. checks, inspections, subdivision
requirements, encroachments).
5. Charges will be assessed for use of rooms, d. Fire plan check.
pools, gymnasiums, ball fields, special-use
areas, and recreation equipment for 2. Cost recovery for these services should
activities not sponsored or co-sponsored by generally be very high. In most instances,
the City. Such charges will generally the City's cost recovery goal should be
conform to the fee guidelines described 100%. Exceptions to this standard include
above. However, the Director of Parks and planning services, as this review process is
Recreation is authorized to charge fees that clearly intended to serve the broader
are closer to full cost recovery for facilities
that are heavily used at peak times and community as well as the applicant. In this
include amajority of non-resident users. case, the general leve] of cost recovery is set
at 45% to 100%, except for appeals, where
6. A vendor charge of at least 10 percent of no fee is charged.
gross income will be assessed from 3. However, in charging high cost recovery
individuals or organizations using City levels, the City needs to clearly establish
facilities for moneymaking activities. and articulate standards for its performance
7. Director of Parks and Recreation is in reviewing developer applications to
authorized to offer reduced fees such as ensure that there is value for cost.
introductory rates, family discounts and I. Comparability With Other Communities
coupon discounts on a pilot basis (not to
exceed 18 months) to promote new In setting user fees, the City will consider fees
recreation programs or resurrect existing charged by other agencies in accordance with
ones. the following criteria:
8. The Parks and Recreation Department will 1. Surveying the comparability of the City's
consider waiving fees only when the City fees to other communities provides useful
Administrative Officer determines in background information in setting fees for
writing that an undue hardship exists. several reasons:
H. Development Review Programs a. They reflect the "market" for these fees
The following cost recovery policies apply to and can assist in assessing the
the development review programs: reasonableness of San Luis Obispo's
fees.
1. Services provided under this category
include: b. If prudently analyzed, they can serve as
a benchmark for how cost-effectively
a. Planning (planned development permits, San Luis Obispo provides its services.
tentative tract and parcel maps, 2. However, fee surveys should never be the
rezonings, general plan amendments, sole or primary criteria in setting City fees
variances, use permits). as there are many factors that affect how
b. Building and safety (building permits, and why other communities have set their
structural plan checks, inspections). fees at their levels. For example:
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Budget and Fiscal Policies EXHIBIT A
a. What level of cost recovery is their fee improvements may be considered by the
intended to achieve compared with our Council as part of the Financial Plan process.
cost recovery objectives?
b. What costs have been considered in D. Transit. Based on targets set under the
computing the fees? Transportation Development Act, the City will
strive to cover at least twenty percent of transit
c. When was the last time that their fees operating costs with fare revenues.
were comprehensively evaluated?
d. What level of service do they provide E. Ongoing Rate Review. The City will review
compared with our service or and adjust enterprise fees and rate structures as
performance standards? required to ensure that they remain appropriate
and equitable.
e. Is their rate structure significantly
different than ours and what is it F. Franchise and In-Lieu Fees. In accordance
intended to achieve? with long-standing practices, City will treat the
water and sewer funds in the same manner as if
3. These can be very difficult questions to they were privately owned and operated. In
address in fairly evaluating fees among addition to setting rates at levels necessary to
different communities. As such, the fully cover the cost of providing water and
comparability of our fees to other sewer service, this means assessing reasonable
communities should be one factor among franchise and property tax in-lieu fees.
many that is considered in setting City fees.
1. Franchise fees are based on the statewide
ENTERPRISE FUND FEES AND RATES standard for public utilities like electricity
and gas: 2% of gross revenues from
operations. The appropriateness of charging
A. Water, Sewer and Parking. The City will set the water fund a reasonable franchise fee for
fees and rates at levels which fully cover the the use of City streets is further supported
total direct and indirect costs—including by the results of recent studies in Arizona,
operations, capital outlay, and debt service—of California, Ohio and Vermont which
the following enterprise programs: water, sewer concluded that the leading cause for street
and parking. resurfacing and reconstruction is street cuts
and trenching for utilities.
B. Creek and Flood Protection. The City will
budget and account for all direct and indirect 2. For the water fund, property tax in-lieu fees
costs related to the City's creek and flood are established under the same methodology
protection efforts in this fund, including used in assessing property tax in-lieu fees to
operations, capital outlay and debt service. In the Housing Authority under our 1976
phasing in this new fund, some level of General agreement with them. Under this approach,
Fund subsidy—in declining levels annually—is water fund property tax in-lieu charges are
expected through 2006-07. Further, due to a about $29,000 annually, and grow by 2%
recent court decision regarding similar fees in per year as allowed under Proposition'13.
the City of Salinas, the City will not implement
user fees pending a fuller analysis of how this REVENUE DISTRIBUTION
decision may affect them.
C. Golf. Golf program fees and rates should fully The Council recognizes that generally accepted
cover direct operating costs. Because of the accounting principles for state and local
nine-hole nature of the golf course with its focus governments discourage the "earmarking" of
on youth and seniors, subsidies from the General Fund revenues, and accordingly, the
General Fund to cover indirect costs and capital practice of designating General Fund revenues for
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Budget and Fiscal Policies EXHIBIT A
specific programs should be minimized in the City's to alternative transportation programs, including
management of its fiscal affairs. Approval of the regional and municipal transit systems, bikeway
following revenue distribution policies does not improvements, and other programs or projects
prevent the Council from directing General Fund designed to reduce automobile usage. Because
resources to other functions and programs as TDA revenues will not be allocated for street
necessary. purposes, it is expected that alternative
transportation programs (in conjunction with
A. Property Taxes. With the passage of other state or federal grants for this purpose)
Proposition 13 on June 6, 1978, California cities will be self-supporting from TDA revenues.
no longer can set their own property tax rates.
In addition to limiting annual increases in D. Parking Fines. All parking fine revenues will
market value, placing a ceiling on voter- be allocated to the parking fund.
approved indebtedness, and redefining assessed
valuations, Proposition 13 established a INVESTMENTS
maximum county-wide levy for general revenue
purposes of 1% of market value. Under
subsequent state legislation, which adopted A. Responsibility. Investments and cash
formulas for the distribution of this countywide management is the responsibility of the City
levy, the City now receives a percentage of total Treasurer or designee.
property tax revenues collected countywide as
determined by the County Auditor-Controller. B. Investment Objective. The City's primary
investment objective is to achieve a reasonable
Until November of 1996, the City had rate of return while minimizing the potential for
provisions in its Charter that were in conflict capital losses arising from market changes or
with Proposition 13 relating to the setting of issuer default. Accordingly, the following
property tax revenues between various funds. factors will be considered in priority order in
For several years following the passage of determining individual investment placements:
Proposition 13, the City made property tax
allocations between funds on a policy basis that 1. Safety
were generally in proportion to those in place 2. Liquidity
before Proposition 13. Because these were 3. Yield
general-purpose revenues, this practice was
discontinued in 1992-93. With the adoption of a C. Tax and Revenue Anticipation Notes: Not for
series of technical revisions to the City Charter
in November of 1996, this conflict no longer Investment Purposes. There is an appropriate
exists. role for tax and revenue anticipation notes
(TRANS) in meeting legitimate short-term cash
B. Gasoline Tax Subventions. All gasoline tax needs within the fiscal year. However, many
revenues (which are restricted by the State for agencies issue TRANS as a routine business
street-related purposes) will be used for practice, not solely for cash flow purposes, but
maintenance activities. Since the City's total to capitalize on the favorable difference between
expenditures for gas tax eligible programs and the interest cost of issuing TRANS as a tax-
projects are much greater than this revenue preferred security and the interest yields on
source, operating transfers will be made from
them if re-invested at full market rates.
the gas tax fund to the General Fund for this As part of its cash flow management and
purpose. This approach significantly reduces investment strategy, the City will only issue
the accounting efforts required in meeting State TRANS or other forms of short-term debt if
reporting requirements. necessary to meet demonstrated cash flow
C. Transportation Development Act (TDA) needs; TRANS or any other form of short-term
Revenues. All TDA revenues will be allocated debt financing will not be issued for investment
Budget and Fiscal Policies EXHIBIT A
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/City Treasurer, Revenue
F. Authorized Investments. The City will invest Manager and the City's 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 system will provide the Council
continually offers new and creative and the Investment Oversight Committee with
opportunities for enhancing interest earnings. appropriate investment performance
Accordingly, the City will thoroughly 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-13 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
Council will generally consider this resolution
in connection with final approval of the budget.
I �
Budget and Fiscal Policies EXHIBIT A
C. The City will strive to develop revenue sources, original purchase cost of the items accounted for
both new and existing, which are considered in this fund.
non-tax proceeds in calculating its
appropriations subject to limitation. The annual contribution to this fund will
generally be based on the annual use allowance,
D. The City will annually review user fees and which is determined based on the estimated life
charges and report to the Council the amount of of the vehicle or equipment and its original
program subsidy, if any, that is being provided purchase cost. Interest earnings and sales of
by the General or Enterprise Funds. surplus equipment as well as any related damage
and insurance recoveries will be credited to the
E. The City will actively support legislation or Equipment Replacement Fund.
initiatives sponsored or approved by League of
California Cities which would modify Article C. Future Capital Project Designations. The
XIII-B of the Constitution in a manner which Council may designate specific fund balance
would allow the City to retain projected tax levels for future development of capital projects
revenues resulting from growth in the local that it has determined to be in the best long-term
economy for use as determined by the Council. interests of the City.
F. The City will seek voter approval to amend its D. Other Designations and Reserves. In addition
appropriation limit at such time that tax to the designations noted above, fund balance
proceeds are in excess of allowable limits. levels will be sufficient to meet funding
requirements for projects approved in prior
FUND BALANCE years which are carried forward into the new
DESIGNATIONS AND RESERVES year; debt service reserve requirements; reserves
for encumbrances; and other reserves or
designations required by contractual obligations,
A. Minimum Fund and Working Capital state law, or generally accepted accounting
Balances. The City will maintain fund or principles.
working capital balances of at least 20% of
operating expenditures in the General Fund and CAPITAL IMPROVEMENT MANAGEMENT
water, sewer and parking enterprise funds. This
is considered the minimum level necessary to
maintain the City's credit worthiness and to A. CIP Projects: $15,000 or More. Construction
adequately provide for: projects and equipment purchases which cost
$15,000 or more will be included in the Capital
1. Economic uncertainties, local disasters, and Improvement Plan (CII'); minor capital outlays
other financial hardships or downturns in of less than $15,000 will be included with the
the local or national economy. operating program budgets.
2. Contingencies for unseen operating or
capital needs. B. CIP Purpose. The purpose of the CIP is to
systematically plan, schedule, and finance
3. Cash flow requirements. capital projects to ensure cost-effectiveness as
well as conformance with established policies.
B. Equipment Replacement. For General Fund The CIP is a four-year plan organized into the
assets, the City will establish and maintain an same functional groupings used for the
Equipment Replacement Fund to provide for the operating programs. The CIP will reflect a
timely replacement of vehicles and capital balance between capital replacement projects
equipment with an individual replacement cost that repair, replace or enhance existing facilities,
of $15,000 or more. The City will maintain a equipment or infrastructure; and capital facility
minimum fund balance in the Equipment projects that significantly expand or add to the
Replacement Fund of at least 20% of the City's existing fixed assets.
_10-
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Budget and Fiscal Policies EXHIBIT A
C. Project Manager. Every CIP project will have and material tests, other support services
a project manager who will prepare the project during construction.
proposal, ensure that required phases are
completed on schedule, authorize all project 9. Equipment Acquisitions. Vehicles, heavy
expenditures, ensure that all regulations and machinery, computers, office furnishings,
laws are observed, and periodically report other equipment items acquired and
project status. installed independently from construction
contracts.
D. CIP Review Committee. Headed by the City
Administrative Officer or designee, this 10. Debt Service. Installment payments of
Committee will review project proposals, principal and interest for completed projects
determine project phasing, recommend project funded through debt financings.
managers, review and evaluate the draft CIP Expenditures for this project phase are
budget document, and report CIP project included in the Debt Service section of the
progress on an ongoing basis. Financial Plan.
E. CIP Phases. The CIP will emphasize project Generally, it will become more difficult for a
planning, with projects progressing through at project to move from one phase to the next. As
least two and up to ten of the following phases: such, more projects will be studied than will be
designed, and more projects will be designed
1. Designate. Appropriates funds based on than will be constructed or purchased during the
projects designated for funding by the term of the CIP.
Council through adoption of the Financial
Plan. F. CIP Appropriation. The City's annual CIP
appropriation for study, design, acquisition
2. Study. Concept design, site selection, and/or construction is based on the projects
feasibility analysis, schematic design, designated by the Council through adoption of
environmental determination, property the Financial Plan. Adoption of the Financial
appraisals, scheduling, grant application, Plan CIP appropriation does not automatically
grant approval, specification preparation for authorize funding for specific project phases.
equipment purchases. This authorization generally occurs only after
the preceding project phase has been completed
3. Environmental Review. EIR preparation, and approved by the Council and costs for the
other environmental studies. succeeding phases have been fully developed.
4. Real Property Acquisitions. Property Accordingly, project appropriations are
acquisition for projects, if necessary. generally made when contracts are awarded. If
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
the time of bid award are greater than budget
6. Design. Final design,plan and specification amounts, five basic options are available:
preparation and construction cost
estimation. 1. Eliminate the project.
2. Defer the project for consideration to the
7. Construction Construction contracts. next Financial Plan period.
8. Construction Management. Contract 3. Rescope or change the phasing of the
project management and inspection, soils project to meet the existing budget.
11 a -11
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Budget and Fiscal Policies EXHIBIT A
4. Transfer funding from another specified, a. When the project's useful life will
lower priority project. exceed the term of the financing.
5. Appropriate additional resources as b. When project revenues or specific
necessary from fund balance. resources will be sufficient to service
G. CIP Budget Carryover. Appropriations for
the long-term debt.
CIP projects lapse three years after budget 2. Debt financing will not be considered
adoption. Projects which lapse from lack of appropriate for any recurring purpose such
project account appropriations may be as current operating and maintenance
resubmitted for inclusion in a subsequent CIP. expenditures. The issuance of short-term
Project accounts, which have been appropriated, instruments such as revenue, tax or bond
will not lapse until completion of the project anticipation notes is excluded from this
phase. limitation. (See Investment Policy)
H. Program Objectives. Project phases will be 3. Capital improvements will be financed
listed as objectives in the program narratives of primarily through user fees, service charges,
the programs,which manage the projects. assessments, special taxes or developer
agreements when benefits can be
I. Public Art. CIP projects will be evaluated specifically attributed to users of the
during the budget process and prior to each facility. Accordingly, development impact
phase for conformance with the City's public art fees should be created and implemented at
policy, which generally requires that 1% of levels sufficient to ensure that new
eligible project construction costs be set aside development pays its fair share of the cost
for public art. Excluded from this requirement of constructing necessary community
are underground projects, utility infrastructure facilities..
projects, funding from outside agencies, and
costs other than construction such as study, 4. Transportation impact fees are a major
environmental review, design, site preparation,
funding source in financing transportation
land acquisition and equipment purchases. system improvements. However, revenues
It is generally preferred that public art be from these fees are subject to significant
fluctuation based on the rate of new
incorporated directly into the project, but this is development. Accordingly, the following
not practical or desirable for all projects, in this guidelines will be followed in designing and
case, an in-lieu contribution to public art will be building projects funded with transportation
made. To ensure that funds are adequately impact fees:
budgeted for this purpose regardless of whether
public art will directly incorporated into the a. The availability of transportation impact
project, funds for public art will be identified fees in funding a specific project will be
separately in the CIP. analyzed on a case-by-case basis as
CAPITAL FINANCING plans and specification or contract
AND DEBT MANAGEMENT awards are submitted for CAO or
Council approval.
b. If adequate funds are not available at
A. Capital Financing that time, the Council will make one of
1. The City will consider the use of debt
two determinations:
financing only for one-rime capital . Defer the project until funds are
improvement projects and only under the available.
following circumstances:
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Budget and Fiscal Policies EXHIBIT A
• 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
analyzes the impact on current and future
5. The City will use the following criteria to budgets for debt service and operations.
evaluate pay-as-you-go versus long-term 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,
negotiated financings may be used due to
a. Current revenues and adequate fund market volatility or the use of an unusual or
balances are available or project phasing complex financing or security structure.
can be accomplished.
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
debt and will seek credit enhancements such
c. Market conditions are unstable or as letters of credit or insurance when
present difficulties in marketing. necessary for marketing purposes,
availability and cost-effectiveness.
Factors Favoring Long Term Financing
5. The City will monitor all forms of debt
d. Revenues available for debt service are annually coincident with the City's Financial
deemed sufficient and reliable so that Plan preparation and review process and
long-term financings can be marketed report concerns and remedies, if needed, to
with investment grade credit ratings. 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
its adherence to federal arbitrage
f. Market conditions present favorable regulations.
interest rates and demand for City
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
financial report and bond prospectus
h. The project is immediately required to (Official Statement).
meet or relieve capacity needs and
current resources are insufficient or C. Debt Capacity
unavailable.
i. The life of the project or asset to be 1. General Purpose Debt Capacity. The City
financed is 10 years or longer. will carefully monitor its levels of general-
purpose debt. Because our general purpose
debt capacity is limited, it is important that
we only use general purpose debt financing
13 CQ, 1
1
Budget and Fiscal Policies EXHIBIT A
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
present:
a. Funds borrowed for a project today are
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
under the management or control of the
In evaluating debt capacity, general-purpose City, such as land-based assessment
annual debt service payments should districts, tax allocation bonds or conduit
generally not exceed 10% of General Fund financings.
revenues; and in no case should they exceed c. The bonds will not be rated or insured.
15%. Further, direct debt will not exceed
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
options such as impact fees, reimbursement
The following criteria will be used on a case-by- 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. Active. Role. Even though land-based
project financings: financings may be a limited obligation of
the City, we will play an active role in
1. The City will generally not retain the managing the district. This means that the
services of an independent disclosure City will select and retain the financing
counsel when all of the following team, including the financial advisor, bond
circumstances are present: counsel, trustee, appraiser, disclosure
counsel, assessment engineer and
a. The revenue source for repayment is underwriter. Any costs incurred by the City
under the management or control of the in retaining these services will generally be
City, such as general obligation bonds, the responsibility of the property owners or
revenue bonds, lease-revenue bonds or developer, and will be advanced via a
certificates of participation. deposit when an application is filed; or will
b. The bonds will berated or insured. be paid on a contingency fee basis from the
proceeds from the bonds.
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Budget and Fiscal Policies EXHIBIT A
3. Credit Quality. When a developer requests 8. Benefit Apportionment Assessments and
a district, the City will carefully evaluate the special taxes will be apportioned according
applicant's financial plan and ability to to a formula that is clear, understandable;
carry the project, including the payment of equitable and reasonably related to the
assessments and special taxes during build- benefit received by—or burden attributed
out. This may include detailed background, to—each parcel with respect to its financed
credit and lender checks, and the improvement. Any annual escalation factor
preparation of independent appraisal reports should generally not exceed 2%.
and market absorption studies. For districts
where one property owner accounts for 9. Special Tax District Administration. In the
more than 25% of the annual debt service case of Mello-Roos or similar special tax
obligation, a letter of credit further securing districts, the total maximum annual tax
the financing may be required. should not exceed 110% of annual debt
service. The rate and method of
4. Reserve Fund A reserve fund should be apportionment should include a back-up tax
established in the lesser amount of. the in the event of significant changes from the
maximum annual debt service; 125% of the initial development plan, and should include
annual average debt service; or 10% of the procedures for prepayments.
bond proceeds.
10. Foreclosure Covenants. In managing
5. Value-to-Debt Ratios. The minimum value- administrative costs, the City will establish
to-date ratio should generally be 4:1. This minimum delinquency amounts per owner,
means the value of the property in the and for the district as a whole, on a case-by-
district, with the public improvements, case basis before initiating foreclosure
should be at least four times the amount of proceedings.
the assessment or special tax debt. In
special circumstances, after conferring and 11. Disclosure to Bondholders. In general,
receiving the concurrence of the City's each property owner who accounts for more
financial advisor and bond counsel that a than 10% of the annual debt service or
lower value-to-debt ratio is financially bonded indebtedness must provide ongoing
prudent under the circumstances, the City disclosure information annually as described
may consider allowing a value-to-debt ratio under SEC Rule 15(c)-12.
of 3:1. The Council should make special
findings in this case. 12. Disclosure to Prospective Purchasers. Full
disclosure about outstanding balances and
6. Capitalized Interest During Construction. annual payments should be made by the
Decisions to capitalize interest will be made seller to prospective buyers at the time that
on case-by-case basis, with the intent that if the buyer bids on the property. It should not
allowed, it should improve the credit quality be deferred to after the buyer has made the
of the bonds and reduce borrowing costs, decision to purchase. When appropriate,
benefiting both current and future property applicants or property owners may be
owners. required to provide the City with a
disclosure plan.
7. Maximum Burden. Annual assessments (or
special taxes in the case of Mello-Roos or F. Conduit Financings
similar districts) should generally not
exceed 1% of the sales price of the property; 1. The City will consider requests for conduit
and total property taxes, special assessments financing on a case-by-case basis using the
and special taxes payments collected on the following criteria:
tax roll should generally not exceed 2%.
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Budget and Fiscal Policies EXHIBIT A
a. The City's bond counsel will review the a. There is a net economic benefit.
terms of the financing, and render an b. It is needed to modernize covenants that
opinion that there will be no liability to are adversely affecting the City's
the City in issuing the bonds on behalf financial position or operations.
of the applicant..
bc. The City wants to reduce the principal
. There is a clearly articulated public
purpose in providing the conduit outstanding in order to achieve future
financing. debt service savings, and it has available
working capital to do so from other
c. The applicant is capable of achieving sources.
this public purpose.
2. Standards for Economic Savings. In
2. This means that the review of requests for general, refinancings for economic savings
conduit financing will generally be a two- will be undertaken whenever net present
step process: value savings of at least five percent(5%)of
the refunded debt can be achieved.
a. First asking the Council if they are
interested in considering the request, Refinancings that produce net present value
and establishing the ground rule's for savings of less than five percent will be
evaluating it considered on a case-by-case basis,provided
b. And then returning with the results of that the present value savings are at least
this evaluation, and recommending three percent(3%)of the refunded debt.
approval of appropriate financing
documents if warranted. Refinancings with savings of less than three
percent (3%), or with negative savings, will
This two-step approach ensures that the not be considered unless there is a
issues are clear for both the City and compelling public policy objective.
applicant, and that key policy questions are HUMAN RESOURCE MANAGEMENT
answered.
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- 1. The budget will fully appropriate the
case basis. Additionally, the City should
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
regular staffing authorized.
should also be determined on a case-by-case
basis.
2. Regular employees will be the core work
G. Refinancings 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:
_16_ a. as
Budget and Fiscal Policies EXHIBIT A
a. Fill an authorized regular position. 2. Temporary employees include all employees
b. Be assigned to an appropriate other than regular employees, elected
bargaining unit. officials, and volunteers. Temporary
employees will generally augment regular
c. Receive salary and benefits consistent City staffing as extra-help employees,
with labor agreements or other seasonal employees, contract employees,
compensation plans. interns and work-study assistants.
3. To manage the growth of the regular work 3. The City Administrative Officer(CAO) and
force and overall staffing costs, the City will Department Heads will encourage the use of
follow these procedures: temporary rather than regular employees to
meet peak workload requirements, fill
a. The Council will authorize all regular interim vacancies, and accomplish tasks
positions. where less than full-time, year-round
b. The Human Resources Department will staffing is required.
coordinate and approve the hiring of all
regular and temporary employees. Under this guideline, temporary employee
hours will generally not exceed 50% of a
c. All requests for additional regular regular, full-time position (1,000 hours
positions will include evaluations of: annually). There may be limited
• The necessity, term and expected circumstances where the use of temporary
results of the proposed activity. employees on an ongoing basis in excess of
this target may be appropriate due to unique
• Staffing and materials costs programming or staffing requirements.
including salary, benefits, However, any such exceptions must be
equipment, uniforms, clerical approved by the CAO based on the review
support and facilities. 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 may be realized. approved by the CAO who may receive
approved benefits depending on hourly
4. Periodically, and before any request for requirements and the length of their
additional regular positions, programs will contract. Contract employees will generally
be evaluated to determine if they can be be used for medium-term (generally
accomplished with fewer regular employees. between six months and two years)projects,
(See Productivity Review Policy) programs or activities requiring specialized
or augmented levels of staffing for a
5. Staffing and contract service cost ceilings specific period.
will limit total expenditures for regular
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.
Accordingly, contract employees will not be
B. Temporary Staffing used for services that are anticipated to be
delivered on an ongoing basis.
1. The hiring of temporary employees will not
be used as an incremental method for
expanding the City's regular work force.
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a-a3
i
Budget and Fiscal Policies EXHIBIT A
C. Independent Contractors C.- Developing the skills and abilities of all City
employees.
Independent contractors are not City employees.
They may be used in two situations: D. Developing and implementing appropriate
methods of recognizing and rewarding
1. Short-term, peak workload assignments to exceptional employee performance.
be accomplished using personnel contracted
through an outside temporary employment E. Evaluating the ability of the private sector to
agency (OEA). In this situation, it is perform the same level of service at a lower
anticipated that City staff will closely cost,
monitor the work of OEA employees and
minimal training will be required. F. Periodic formal reviews of operations on a
However, they will always be considered systematic,ongoing basis.
the employees of the OEA and not the City.
All placements through an OEA will be G. Maintaining a decentralized approach in
coordinated through the Human Resources managing the City's support service functions.
Department and subject to the approval of Although some level of centralization is
the Human Resources Director. necessary for review and control purposes,
decentralization supports productivity by:
2. Construction of public works projects and
delivery of operating, maintenance or 1. Encouraging accountability by delegating
specialized professional services not responsibility to the lowest possible level.
routinely performed by City employees.
Such services will be provided without close 2. Stimulating creativity, innovation and
supervision by City staff, and the required individual initiative.
methods, skills and equipment will 3. Reducing the administrative costs of
generally be determined and provided by the
contractor. Contract awards will be guided operation by eliminating unnecessary
by the City's purchasing policies and review procedures.
procedures. (See Contracting for Services 4. Improving the organization's ability to
Policy) respond to changing needs, and identify and
PRODUCTIVITY implement cost-saving programs.
5. Assigning responsibility for effective
operations and citizen responsiveness to the
Ensuring the "delivery of service with value for department.
cost" is one of the key concepts embodied in the
City's Mission Statement (San Luis Obispo Style— CONTRACTING FOR SERVICES
Quality With Vision). To this end, the City will
constantly monitor and review our methods of
operation to ensure that services continue to be A. General Policy Guidelines
delivered in the most cost-effective manner possible.
This review process encompasses a wide range of 1. Contracting with the private sector for the
productivity issues, including: delivery of services provides the City with a
significant opportunity for cost containment
A. Analyzing systems and procedures to identify and productivity enhancements. As such,
and remove unnecessary review requirements. the City is committed to using private sector
resources in delivering municipal services
B. Evaluating the ability of new technologies and as a key element in our continuing efforts to
related capital investments to improve provide cost-effective programs.
productivity.
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Budget and Fiscal Policies EXHIBIT A
2. Private sector contracting approaches under fairly and fully evaluated, as well as the
this policy include construction projects, contractor's performance after bid award?
professional services, outside employment
agencies and ongoing operating and 7. Does the use of contract services provide us
maintenance services. with an opportunity to redefine service
levels?
3. In evaluating the costs of private sector
contracts compared with in-house 8. Will the contract limit our ability to deliver
performance of the service, indirect, direct, emergency or other high priority services?
and contract, administration costs of the 9. Overall, can the City successfully delegate
City will be identified and considered.
the performance of the service but still
4. Whenever private sector providers are retain accountability and responsibility for
available and can meet established service its delivery?
levels, they will be seriously considered as
viable service delivery alternatives using the
evaluation criteria outlined below.
5. For programs and activities currently
provided by City employees, conversions to
contract services will generally be made
through attrition,reassignment or absorption
by the contractor.
B. Evaluation Criteria
1. Within the general policy guidelines stated
above, the cost-effectiveness of contract
services in meeting established service
levels will be determined on a case-by-case
basis using the following criteria:
2. Is a sufficient private sector market
available to competitively deliver this
service and assure a reasonable range of
alternative service providers?
3. Can the contract be effectively and
efficiently administered?
4. What are the consequences if the contractor
fails to perform, and can the contract
reasonably be written to compensate the
City for any such damages?
5. Can a private. sector contractor better
respond to expansions, contractions or
special requirements of the service?
6. Can the work scope be sufficiently defined
to ensure that competing proposals can be
_19_ � ^r
OPERATING PROGRiausiS EXHIBIT B
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
■ 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
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
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OPERATING PROGRARAS EXHIBIT B
OVERVIEW-SUMMARY OF FUNCTIONS AND OPERATIONS
Responsible Department Main 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 Public Works General Fund
Creek and Flood Protection Public Works Creek and Flood Protection Fund
Parking Public Works Parking Fund
Municipal Transit System Public Works Transit Fund
Leisure, Cultural&Social Services
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 General Fund
Housing Assistance Human Resources CDBG Fund
Community Development
Planning Community Development General 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
Financial Management Finance General Fund
Information Systems Finance General Fund
GeoData Services Public Works General Fund
Building&Vehicle Maintenance Public Works General Fund
D-2 /�f
OPERATING PROGRAuriS EXHIBITS
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 (1999-00 through
2002-03) along with full-time equivalents (FTE's) for
Presents the function, program name, operation, temporary staffing. Generally, whole regular
department responsible for program administration positions are assigned to programs based on where
and the primary funding source at the top of the page. employees spend at least 50%of their time.
PROGRAM COSTS SIGNIFICANT PROGRAM CHANGES
Provides four years of historical and projected Summarizes significant program changes from the
expenditure information (1999-00 through 2002-03) prior Financial Plan such as:
organized into four categories:
■ Major service curtailments or expansions.
■ Staffing. All costs associated with City staffing, ■ Any increases or decreases in regular positions.
including salaries for all regular, temporary and ■ Significant one-time costs.
contract employees as well as related costs for
benefits and overtime. • Major changes in the method of delivering
services.
■ Contract Services. All expenditures related to ■ Changes in operation that will significantly affect
contract services. other departments or customer service.
■ Changes that affect current policies.
® Other Operating Expenditures. Purchases of
supplies, tools, utilities, insurance, and similar Detailed supporting documentation for each of the
operating expenditures. significant operating program changes is provided in
Appendix A of the Financial Plan.
® Minor Capital.. Capital acquisitions or projects
with a life in excess of one year and costs 2003-05 PROGRAM OBJECTIVES
between $5,000 and $15,000. Capital
acquisitions or projects with a cost in excess of
$15,000 are included in the Capital Improvement Identifies major program objectives for the next two
Plan(CII')section of the Financial Plan. years to improve service delivery.
PROGRAM DESCRIPTION WORKLOAD MEASURES
Describes program purpose,goals and activities. Provides four years of historical and projected
workload measures (2001-02 through 2003-05) in
order to provide the Council and public with an
overview of the program's workscope and
effectiveness.
D-3