HomeMy WebLinkAbout12/14/2004, BUDGET WORKSHOP 2 - FINANCIAL PLAN POLICIES AND ORGANIZATION council M�nD� 12-14-04
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CITY OF SAN LUIS OBISPO
FROM: Bill Statler, Director of Finance&Information Technology
SUBJECT: FINANCIAL PLAN POLICIES AND ORGANIZATION
CAO RECOMMENDATION
Review and discuss Financial Plan policies and organization.
DISCUSSION
Overview
The following four features describe the City's Financial Plan process: goal-oriented, policy-
driven, multi-year and technically rigorous. For 2005-07, we plan to continue using a two-year
budget that emphasizes long-range planning and effective program management. We believe the
benefits identified when the City's first two-year plan budget was prepared for 1983-85 continue
to be realized:
1. Reinforcing the importance of long-range planning in managing the City's fiscal affairs.
2. Concentrating on developing and budgeting for the accomplishment of significant objectives.
3. Establishing realistic timeframes for achieving objectives.
4. Creating a pro-active budget that provides for stable operations and assures the City's long-
term fiscal health.
5. Promoting more orderly spending patterns.
6. Reducing the amount of time and resources allocated to preparing annual budgets.
Appropriations continue to be made annually; however, the Financial Plan is the foundation for
preparing the budget for the second year. Additionally, unexpended operating appropriations
from the first year may be carried over for specific purposes into the second year with the
approval of the City Administrative Officer.
Financial Plan Policies
Fiscal health is lot like your personal health: it's not what you live for, but it's hard to enjoy your
life without it. Cities don't exist to be fiscally healthy: they exist to make our communities
better places to live, work and play. However, this requires the fiscal capacity to link
community goals with the resources needed to achieve them. In short, fiscal health is not an end
in itself; but it's an important part of the tool kit in achieving "ends."
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
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for being well-managed financially—and have maintained their fiscal health through good times
and bad—the one thing they have in common are clearly articulated fiscal policies, and they use
them in financial decision-making. Effective fiscal policies are not just for the "good times"—
they are equally important(perhaps even more) in"bad times,"too.
Like the role that"good genes" in determining personal health, the underlying economic strength
of 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 focal 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 A. No changes are
recommended at this time. However, as we begin preparing the 2005-07 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.
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3. Operations Guide. Shows how we are organized to deliver services; describes programs and
activities; provides measures on how effectively and efficiently we are doing this; discusses
what we do and why,not just how much it costs.
4. Communications TooL Provides the public,policy makers and staff with a blueprint of how
public resources are being used and how these allocations were made; and communicates key
economic and fiscal issues.
In meeting these roles,the City's Financial Plan is organized into nine main sections:
Section A: Introduction
Includes the Budget Message from the City Administrative Officer, highlighting key issues in
the Financial Plan.
Section B: Policies and Objectives
Summarizes the fiscal policies that guide preparation and management of the budget and
presents major City goals.
Section C: Budget Graphics and Summaries
Provides simple pie charts and tables that highlight key financial relationships and summarize
the overall budget.
Section D: Operating Programs
Presents the City's 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
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..
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 fiords.
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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).
The highest level of summarization in the Financial Plan is the function level, which represents a
grouping of related operations and programs that may cross organizational (departmental)
boundaries aimed at achieving a broad goal or service. The six functions in the Financial Plan
are:
1. Public Safety
2. Public Utilities
3. Transportation
4. Leisure, Cultural& Social Services
5. Community Development
6. General Government
In general, our City organization is aligned very closely to these basic functional categories. For
example:
1. All Police and Fire Department programs fall under Public Safety.
2. The Utilities Department manages all Public Utilities programs.
3. The Public Works Department manages all Transportation programs.
On the other hand, a department like Public Works is responsible for a wide range of services
besides Transportation, such as:
1. Park and tree maintenance—Leisure, Cultural&Social Services
2. Engineering—Community Development
3. Building and fleet maintenance—General Government
Provided in Attachment B are updated excerpts from the 2003-05 Financial Plan further
describing the organization of the City's operating programs.
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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.
It will also detail any proposed cost and service reductions that are needed to balance the
budget, including a description of the service impact, affect on regular staffing and ongoing
cost savings.
2. Appendix B provides detailed information on each proposed capital improvement plan (CIP)
project. Each request will describe the project and identifyc project objectives; the existing
situation; goal and policy links; environmental review considerations; project work
completed; project phasing, costs and funding sources; effect on the operating budget;
alternatives; and location via a site map or schematic design if applicable.
ATTACHMENTS
A. Financial Plan Policies
B. Operating Programs: Excerpts from the 2003-05 Financial Plan
1. Purpose and Organization
2. Summary of Major Functions and Operations
3. Operating Program.Narratives
G:Budget Folders/2005-07 Financial Plan/Council Goal-Setting/Agenda Reports/Financial Plan Policies and Organization
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SAn LUIS OBISPO ATTACEDIENTA
Budget and Fiscal Policies
FINANCIAL PLAN PURPOSE management. The benefits identified when
AND ORGANIZATION the City's first two-year plan was prepared
for 1983-85 continue to be realized:
A. Financial Plan Objectives. Through its 1. Reinforcing the importance of long-
Financial Plan, the City will link resources range planning in managing the City's
with results by: fiscal affairs.
2. Concentrating on developing and
1. Identifying community needs for budgeting for the accomplishment of
essential services. significant objectives.
2. Organizing the programs required to 3. Establishing realistic timeframes for
provide these essential services. achieving objectives.
3. Establishing program policies and goals, 4. Creating a 'pro-active budget that
which define the nature and level of provides for stable operations and
program services required. assures the City's long-term fiscal health.
4. Identifying activities performed in 5. Promoting more orderly spending
delivering program services. patterns.
5. Proposing objectives for improving the 6. Reducing the amount of time and �•
delivery of program services. resources allocated to preparing annual
6. Identifying and appropriating the budgets.
resources required to perform program
activities and accomplish program C. Measurable Objectives. The two-year
objectives. financial plan will establish measurable
program objectives and allow reasonable
7. Setting standards to measure and time to accomplish those objectives.
evaluate the:
a. . Output of program activities. D. Second Year Budget. Before the beginning
of the second year of the two-year cycle, the
b. Accomplishment of program Council will review progress during the first
objectives. year and approve appropriations for the
c. Expenditure of program second fiscal year.
appropriations..
E. Operating Carryover. Operating program
B. Two-Year Budget. Following the City's appropriations not spent during the first
favorable experience over the past sixteen fiscal year may be carried over for specific
years, the City will continue using a two- purposes into the second fiscal year with the
year financial plan, emphasizing long-range approval of the City Administrative Officer
planning and effective program (CAO).
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Budget and Fiscal Policies ATTACHMENT A
F. Goal Status Reports. The status of major annual financial statements, and will
program objectives will be formally reported strive to meet the requirements of the
to the Council on an ongoing,periodic basis. GFOA's Award for Excellence in
Financial Reporting program.
G. Mid-Year Budget Reviews. The Council
will formally review the City's fiscal 3. The City will issue audited financial
condition, and amend appropriations if statements within 180 days after year-
necessary, six months after the beginning of end.
each fiscal year.
B. Interim Reporting. The City will prepare
H. Balanced Budget. The City will maintain a and issue timely interim reports on the
balanced budget over the two-year period of City's fiscal status to the Council and staff.
the Financial Plan. This means that: This includes: on-line access to the City's
financial management system by City staff,
1. Operating revenues must fully cover monthly reports to program managers; more
operating expenditures, including debt formal quarterly reports to the Council and
service. Department Heads; mid-year budget
2. Ending fund balance (or working capital reviews; and interim annual reports.
in the enterprise funds) must meet C. Budget Administration. As set forth in the
minimum policy levels. For the general City. Charter, the Council may amend or
and enterprise funds, this level has been
established at 20% of operating supplement the budget at any time after its
expenditures. adoption by majority vote of the Council
members. The CAO has the authority to
Under this policy, it is allowable for total make administrative adjustments to the
expenditures to exceed revenues in a given year; budget as long as those changes will not
however, in this situation, beginning fund have a significant policy impact nor affect
balance can only be used to fund capital budgeted year-end fund balances.
improvement plan projects, or other "one-time,"
non-recurring expenditures. GENERAL REVENUE MANAGEMENT
FINANCIAL REPORTING
AND BUDGET ADMINISTRATION A. Diversified and Stable Base. The City will
seek to maintain a diversified and stable
revenue base to protect it from short-term
A. Annual Reporting. The City will prepare
annual financial statements as follows: fluctuations in any one revenue source.
1. In accordance with Charter B. Long-Range Focus. To emphasize and
requirements, the City will contract for facilitate long-range financial planning, the
an annual audit by a qualified City will maintain current projections of
independent certified public .accountant.
revenues for the succeeding five years.
The City will strive for an unqualified C. Current Revenues for Current Uses. The
auditors' opinion. City will make all current expenditures with
2. The City will use generally accepted
current revenues, avoiding procedures that
accounting principles in preparing its balance current budgets by postponing
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Budget and Fiscal Policies ATTACHMENT A
needed expenditures, accruing future drawdowns are initiated and received.
revenues, or rolling over short-term debt. However, receipt of fiords is typically
received shortly after the request for
D. Interfund Transfers and Loans. In order funds has been made.
to achieve important public policy goals, the
City has established various special revenue, 2. Any other interfund borrowings for cash
capital project, debt service and enterprise flow or other purposes require case-by-
funds to account for revenues whose use case approval by the Council.
should be restricted to certain activities.
Accordingly, each fund exists as a separate 3. Any transfers between funds where
financing entity from other funds, with its reimbursement is not expected within
own revenue sources, expenditures and fund one fiscal year shall not be recorded as
equity. interfund borrowings; they shall be
recorded as interfund operating transfers
Any transfers between funds for operating that affect equity by moving financial
purposes are clearly set forth in the resources from one fund to another.
Financial Plan, and can only be made by the
Director of Finance in accordance with the USER FEE COST RECOVERY GOALS
adopted budget. These operating transfers,
under which financial resources are
transferred from one fund to another; are A. Ongoing Review
distinctly different from mterftmd
borrowings, which are usually made for Fees will be reviewed and updated on an
temporary cash flow reasons, and are not ongoing basis to ensure that they keep pace
intended to result in a transfer of financial with changes in the cost-of-living as well as
resources by the end of the fiscal year. changes in methods or levels of service
delivery.
In summary, interfund transfers result in a
change in fund equity; interfund borrowings In implementing this goal, a comprehensive
do not, as the intent is to repay in the loan in analysis of City costs and fees should be
the near term. made at least every five years. In the
interim, fees will be adjusted by annual
From time-to-time, interfund borrowings changes in the Consumer Price Index. Fees
may be appropriate; however, these are may be adjusted during this interim period
subject to the following criteria in ensuring based on supplemental analysis whenever
that the fiduciary purpose of the fund is met: there have been significant changes in the
method, level or cost of service delivery.
1. The Director of Finance is authorized to
approve temporary mterfund borrowings B. User Fee Cost Recovery Levels
for cash flow purposes whenever the
cash shortfall is expected to be resolved In setting user fees and cost recovery levels,
within 45 days. The most common use the following factors will be considered:
of interfimd borrowing under this
circumstance is for grant programs like 1, Community-Wide Versus Special
the Community Development Block Benefit The level of user fee cost
Grant, where costs are incurred before recovery should consider the
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Budget and Fiscal Policies ATTACFIMENT A
community-wide versus special service system to identify and charge the user-.
nature of the program or activity. The Accordingly, the feasibility of assessing
use of general-purpose revenues is and collecting charges should also be
appropriate for community-wide considered in developing user fees,
services, while user fees are appropriate especially if significant program costs
for services that are of special benefit to are intended to be financed from that
easily identified individuals or groups. source.
2. Service Recipient Versus Service C. Factors Favoring Low Cost Recovery
Driver. After considering community- Levels
wide versus special benefit of the
service, the concept of service recipient Very low cost recovery levels are
versus service driver should also be appropriate under the following
considered. For example, it could be circumstances:
argued that the applicant is not the
beneficiary of the City's development 1. There is no intended relationship
review efforts: the community is the between the amount paid and the benefit
primary beneficiary. However, the received. Almost all "social service"
applicant is the driver of development programs fall into this category as it is
review costs, and as such, cost recovery expected that one group will subsidize
from the applicant is appropriate. another.
3. Effect of Pricing on the Demand for 2. Collecting fees is not cost-effective or
Services. The level of cost recovery and will significantly impact the efficient
related pricing of services can delivery of the service.
significantly affect the demand and
subsequent level of services provided. 3. There is no intent to limit the use of(or
At full cost recovery, this has the entitlement to) the service. Again, most
specific advantage of ensuring that the "social service" programs fit into this
City is providing services for which category as well as many public safety
there is genuinely a market that is not (police and fire) emergency response
overly-stimulated by artificially low services. Historically, access to
prices. Conversely, high levels of cost neighborhood and community parks
recovery will negatively impact the would also fit into this category.
delivery of services to lower income
groups. This negative feature is 4. The service is non-recurring, generally
especially pronounced, and works delivered on a "peak demand" or
against public policy, if the services are emergency basis, cannot reasonably be
specifically targeted to low income planned for on an individual basis,and is
groups. not readily available from a private
sector source. Many public safety
4. Feasibility of Collection and Recovery. services also fall into this category.
Although it may be determined that a
high level of cost recovery may be 5. Collecting fees would discourage
appropriate for specific services, it may compliance with regulatory requirements
be impractical or too costly to establish a and adherence is primarily self-
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Budget and Fiscal Policies ATTACHMENT A
identified, and as such, failure to comply 1. Revenues should not exceed the
would not be readily detected by the reasonable cost of providing the service.
City. Many small-scale licenses and
permits might fall into this category. 2. Cost recovery goals should be based on
the total cost of delivering the service,
D. Factors Favoring High Cost Recovery including direct costs, departmental
Levels administration costs, and organization-
wide support costs such as accounting,
The use of service charges as a major source personnel, data processing, vehicle
of funding service levels is especially maintenance and insurance.
appropriate under the following
circumstances: 3. The method of assessing and collecting
fees should be as simple as possible in
1. The service is similar to services order to reduce the administrative cost of
provided through the private sector. collection.
2. Other private or public sector 4. Rate structures should be sensitive to the
alternatives could or do exist for the "market" for similar services as well as
delivery of the service. to smaller, infrequent users of the
service.
3. For equity or demand management
purposes, it is intended that there be a 5. A unified approach should be used in
direct relationship between the amount determining cost recovery levels for
paid and the level and cost of the service various programs based on the factors
received. discussed above.
4. The use of the service is specifically F. Low Cost-Recovery Services
discouraged. Police responses to
disturbances or false alarms might fall Based on the criteria discussed above, the
into this category. following types of services should have very
low cost recovery goals. In selected
5. The service is regulatory in nature and circumstances, there may be specific
voluntary compliance is not expected to activities within the broad scope of services
be the primary method of detecting provided that should have user charges
failure to meet regulatory requirements. associated with them. However,the primary
Building permit, plan checks and source of funding for the operation as a
subdivision review fees for large whole should be general-purpose revenues,
projects would fall into this category. not user fees.
E. General Concepts Regarding the Use of 1. Delivering public safety emergency
Service Charges response services such as police patrol
services and fire suppression.
The following general concepts will be used
in developing and implementing service 2. Maintaining and developing public
charges: facilities that are provided on a uniform,
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Budget and Fiscal Policies ATTACHMENT A
community-wide basis such as streets, Mid-Range Cost Recovery Activities
parks and general-purpose buildings. (30% to 60%)
3. Providing social service programs and e. City/County Library room rentals
economic development activities. f. Special events (triathlon,other City-
sponsored special events)
g. Youth track
G. Recreation Programs h. Minor league baseball
The following cost recovery policies apply i. Youth basketball
to the City's recreation programs: J Swim lessons
k. Outdoor facility and equipment
1. Cost recovery for activities directed to rentals
adults should be relatively high. Low-Range Cost Recovery Activities
2. Cost recovery for activities directed to (0 to 30%)
youth and seniors should be relatively 1. Public swim
low. In those circumstances where m. Special swim classes
services are similar to those provided in n. Community garden
the private sector, cost recovery levels o. Youth STAR
should be higher. p. Teen services
q. Senior services
Although ability to pay may not be a
concern for all youth and senior 4. For cost recovery activities of less than
participants, these are desired program 100%, there should be a differential in
activities, and the cost of determining rates between residents and non-
need may be greater than the cost of residents. However, the Director of
providing a uniform service fee structure Parks and Recreation is authorized to
to all participants. Further, there is a reduce or eliminate non-resident fee
community-wide benefit in encouraging differentials when it can be
high-levels of participation in youth and demonstrated that:
senior recreation activities regardless of
financial status. a. The fee is reducing attendance.
b. And there are no appreciable
3. Cost recovery goals for recreation expenditure savings from the
activities are set as follows: reduced attendance.
High-Range Cost Recovery Activities 5. Charges will be assessed for use of
(60% to 10091o) rooms, pools, gymnasiums, ball fields,
a. Classes (Adult and Youth) special-use areas, and recreation
b. Day care services equipment for activities not sponsored or
c. Adult athletics(volleyball, co-sponsored by the City. Such charges
basketball, softball, lap swim) will generally conform to the fee
d. Facility rentals(Jack House, other guidelines described above. However,
in-door facilities except the the Director of Parks and Recreation is
City/County Library) authorized to charge fees that are closer
to full cost recovery for facilities that are
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Budget and Fiscal Policies ATTACHMENT A
heavily used at peak times and include a However, in charging high cost recovery
majority of non-resident users. levels, the City needs to clearly establish
and articulate standards for its performance
6. A vendor charge of at least 10 percent of in reviewing developer applications to
gross income will be assessed from ensure that there is`value for cost."
individuals or organizations using City
facilities for moneymaking activities. I. Comparability With Other Communities
7. Director of Parks and Recreation is In setting user fees, the City will consider
authorized to offer reduced fees such as fees charged by other agencies in
introductory rates, family discounts and accordance with the following criteria:
coupon discounts on a pilot basis (not to
exceed 18 months) to promote new 1. Surveying the comparability of the City's
recreation programs or resurrect existing fees to other communities provides
ones. useful background information in setting
fees for several reasons:
8. The Parks and Recreation Department
will consider waiving fees only when the a. They reflect the "market" for these
City Administrative Officer determines fees and can assist in assessing the
in writing that an undue hardship exists. reasonableness of San Luis Obispo's
fees.
H. Development Review Programs
b. If prudently analyzed, they can serve
The following cost recovery policies apply as a .benchmark for how cost-
to the development review programs: effectively San Luis Obispo provides
its services.
1. Services provided under this category
include: 2. However, fee surveys should never be
the sole or primary criteria in setting
a. Planning (planned development City fees as there are many factors that
permits, tentative tract and parcel affect how and why other communities
maps, rezonings, general plan have set their fees at their levels. For
amendments, variances,use permits). example:
b. Building and safety (building
permits, structural plan checks, a. What level of cost recovery is thein
inspections). fee intended to achieve compared
with our cost recovery objectives?
c. Engineering (public improvement
plan checks, inspections, subdivision b. What costs have been considered in
requirements, encroachments). computing the fees?
d. Fire plan check c. When was the last time that their
fees were comprehensively
2. Cost recovery for these services should evaluated?
generally be very high. In. most d. What level of service do they
instances, the City's cost recovery goal provide compared with our service
should be 100%. or performance standards?
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Budget and Fiscal Policies ATI'ACIIMENT A
e. Is their rate structure significantly the same manner as if they were privately
different than ours and what is it owned and operated. In addition to setting
intended to achieve? rates at levels necessary to fully cover the
cost of providing water and sewer service,
3. These can be very difficult questions to this means assessing reasonable franchise
address in fairly evaluating fees among and property tax in-lieu fees.
different communities. As such, the
comparability of our fees to other 1. At 3:5%, water and sewer franchise fees
communities should be one factor are based on the mid-point of the
among many that is considered in setting statewide standard for public utilities
City fees. like electricity and gas (2% of gross
revenues from operations) and cable
ENTERPRISE FUND FEES AND RATES television (5% of gross revenues). As
with other utilities, the purpose of the
franchise fee is reasonable compensation
A. Water, Sewer and Parking. The City will the use of the City's street right-of-way.
set fees and rates at levels which fully cover The appropriateness of charging the
the total direct and indirect costs—including water and sewer funds a reasonable
operations, capital outlay, and debt franchise fee for the use of City streets is
service—of the following enterprise further supported by the results of recent
programs: water, sewer and parking. studies in Arizona, California, Ohio and
Vermont which concluded that the
B. Golf. Golf program fees and rates should leading cause for street resurfacing and
fully cover direct operating costs. Because reconstruction is street cuts and
of the nine-hole nature of the golf course trenching for utilities.
with its focus on youth and seniors,
subsidies from the General Fund to cover 2. For the water fund, property tax in-lieu
indirect costs and capital improvements may fees are established under the same
be considered by the Council as part of the methodology used in assessing property
Financial Plan process, along with the need tax in-lieu fees to the Housing Authority
to possibly subsidize direct operating costs under our 1976 agreement with them.
as well. Under this approach, water fund
property tax in-lieu charges are about
C. Transit. Based on targets set under the $29,000 annually, and grow by 2% per
Transportation Development Act, the City year as allowed under Proposition 13.
will strive to cover at least twenty percent of
transit operating costs with fare revenues. REVENUE DISTRIBUTION
D. Ongoing Rate Review. The City will
review and adjust enterprise fees and rate The Council recognizes that generally accepted
structures as required to ensure that they accounting principles for state and local
remain appropriate and equitable. governments discourage the "earmarking" of
General Fund revenues, and accordingly, the
E. Franchise and In-Lieu Fees. In practice of designating General Fund revenues
accordance with long-standing practices, for specific programs should be minimized in
City will treat the water and sewer funds in the City's management of its fiscal affairs.
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Budget and Fiscal Policies ATTACHMENT A
Approval of the following revenue distribution General Fund for this purpose. This
policies does not prevent the Council from approach significantly reduces the
directing General Fund resources to other accounting efforts required in meeting State
functions and programs as necessary. reporting requirements.
A. Property Tager. With the passage of C. Transportation Development Act (TDA)
Proposition 13 on June 6, 1978, California Revenues. All TDA revenues will be
cities no longer can set their own property allocated to alternative transportation
tax rates. In addition to limiting annual programs, including regional and municipal
increases in market value, placing a ceiling transit systems, bikeway improvements, and
on voter-approved indebtedness, and other programs or projects designed to
redefining assessed valuations, Proposition reduce automobile usage. Because TDA
13 established a maximum county-wide levy revenues will not be allocated for street
for general revenue purposes of 1% of purposes, it is expected that alternative
market value. Under subsequent state transportation programs (in conjunction with
legislation, which adopted formulas for the other state or federal grants for this purpose)
distribution of this countywide levy, the City will be self-supporting from TDA revenues.
now receives a percentage of total property
tax revenues collected countywide as D. Parking Fines. All parking fine revenues
determined by the County Auditor- will be allocated to the parking fund.
Controller.
INVESTMENTS
Until November of 1996, the City had
provisions in its Charter that were in conflict
with Proposition 13 relating to the setting of A. Responsibility. Investments and cash
property tax revenues between various management is the responsibility of the City
funds. For several years following the Treasurer or designee.
passage of Proposition 13, the City made
property tax allocations between funds on a B. Investment Objective. The City's primary
policy basis that were generally in investment objective is to achieve a
proportion to those in place before reasonable rate of return while minimizing
Proposition 13. Because these were general- the potential for capital losses arising from
purpose revenues, this practice was market changes or issuer default.
discontinued in 1992-93. With the adoption Accordingly, the following factors will be
of a series of technical revisions to the City considered in priority order in determining
Charter in November of 1996, this conflict individual investment placements:
no longer exists.
1. Safety
B. Gasoline Tag Subventions. All gasoline 2. Liquidity
tax revenues (which are restricted by the 3. Yield
State for street-related purposes) will be
used for maintenance activities. Since the C. Tag and Revenue Anticipation Notes: Not
City's total expenditures for gas tax eligible for Investment Purposes. There is an
programs and projects are much greater than appropriate role for tax and revenue
this revenue source, operating transfers will anticipation notes (TRANS) in meeting
be made from the gas tax fund to the legitimate short-term cash needs within the
- A
Budget and Fiscal Policies ATI'ACIIMENT A
fiscal year. However, many agencies issue creative opportunities for enhancing interest
TRANS as a routine business practice, not earnings. Accordingly, the City will
solely for cash flow purposes, but to thoroughly investigate any new investment
capitalize on the favorable difference vehicles before committing City funds to
between the interest cost of issuing TRANS them.
as a tax-preferred security and the interest
yields on them if re-invested at full market G. Authorized Institutions. Current financial
rates. statements will be maintained for each
institution in which cash is invested.
As part of its cash flow management and Investments will be limited to 20 percent of
investment strategy, the City will only issue the total net worth of any institution and
TRANS or other forms of short-term debt if may be reduced further or refused altogether
necessary to meet demonstrated cash flow if an institution's financial situation becomes
needs; TRANS or any other form of short- unhealthy.
term debt financing will not be issued for
investment purposes. As long as the City H. Consolidated Portfolio. In order to
maintains its current policy of maintaining maximize yields from its overall portfolio,
fund/working capital balances that are 20% the City will consolidate cash balances from
of operating expenditures, it is unlikely that all funds for investment purposes, and will
the City would need to issue TRANS for allocate investment earnings to each fund in
cash flow purposes except in very unusual accordance with generally accepted
circumstances. accounting principles.
D. Selecting Maturity Dates. The City will I. Safekeeping. Ownership of the City's
strive to keep all idle cash balances fully investment securities will be protected
invested through daily projections of cash through third-party custodial safekeeping.
flow requirements. To avoid forced
liquidations and losses of investment J. Investment Management Plan. The City
earnings, cash flow and future requirements Treasurer will develop and maintain an
will be the primary consideration when Investment Management Plan that addresses
selecting maturities. the City's administration of its portfolio,
including investment strategies, practices
E. Diversification. As the market and the and procedures.
City's investment portfolio change, care will
be taken to maintain a healthy balance of K. Investment Oversight Committee. As set
investment types and maturities. forth in the Investment Management. Plan,
this committee is responsible for reviewing
F. Authorized Investments. The City will the City's portfolio on an ongoing basis to
invest only in those instruments authorized determine compliance with the City's
by the California Government Code Section investment policies and for making
53601. recommendations regarding investment
management practices. Members include
The City will not invest in stock, will not the City Administrative Officer, Assistant
speculate and will not deal in futures or CAO, Director of Finance/City Treasurer,
options. The investment market is highly Revenue Manager and the City's
volatile and continually offers new and independent auditor.
-10- a- (4;�,
Budget and Fiscal Policies ATTACHMENT A
L. Reporting. The City Treasurer will develop Article XIII-B of the Constitution in a
and maintain a comprehensive, well- manner which would allow the City to retain
documented investment reporting system, projected tax revenues resulting from
which will comply with Government Code growth in the local economy for use as
Section 53607. This reporting system will determined by the Council.
provide the Council and the Investment
Oversight Committee with appropriate F. The City will seek voter approval to amend
investment performance information. its appropriation limit at such time that tax
proceeds are in excess of allowable limits.
APPROPRIATIONS LIMITATION
FUND BALANCE AND RESERVES
A. The Council will annually adopt a resolution
establishing the City's appropriations limit A. Minimum Fund and Working Capital
calculated in accordance with Article XIII-B Balances. The City will maintain fund or
of the Constitution of the State of California, working capital balances of at least 20% of
Section 7900 of the State of California operating expenditures in the General Fund
Government Code, and any other voter and water, sewer and parking enterprise
approved amendments or state legislation funds. This is considered the minimum
that affect the City's appropriations limit. level necessary to maintain the City's credit
worthiness and to adequately provide for:
B. The supporting documentation used in
calculating the City's appropriations limit 1. Economic uncertainties, local disasters,
and projected appropriations subject to the and other financial hardships or
limit will be available for public and downturns in the local or national
Council review at least 10 days before economy.
Council consideration of a resolution to 2. Contingencies for unseen operating or
adopt an appropriations limit. The Council capital needs.
will generally consider this resolution in
connection with final approval of the 3. Cash flow requirements.
budget.
B. Fleet Replacement. For the General Fund
C. The City will strive to develop revenue fleet, the City will establish and maintain a
sources, both new and existing, which are Fleet Replacement Fund to provide for the
considered non-tax proceeds in calculating timely replacement of vehicles and related
its appropriations subject to limitation. equipment with an individual replacement
cost of $15,000 or more. The City will
D. The City will annually review user fees and maintain a minimum fund balance in the
charges and report to the Council the Fleet Replacement Fund of at least 20% of
amount of program subsidy, if any, that is the original purchase cost of the items
being provided by the General or Enterprise accounted for in this fund.
Funds.
The annual contribution to this fund will
E. The City will actively support legislation or generally be based on the annual use allowance,
initiatives sponsored or approved by League which is determined based on the estimated life
of California Cities which would modify of the vehicle or equipment and its original
purchase cost. Interest earnings and sales of
a - fLO
Budget and Fiscal Policies ATTACHMENT A
surplus equipment as well as any related damage C. Project Manager. Every CIP project will
and insurance recoveries will be credited to the have a project manager who will prepare the
Fleet Replacement Fund. project proposal, ensure that required phases
are completed on schedule, authorize all
C. Future Capital Project Designations. The project expenditures, ensure that all
Council may designate specific fiord balance regulations and laws are observed, and
levels for future development of capital periodically report project status.
projects that it has determined to be in the
best long-term interests of the City. D. CIP Review Committee. Headed by the
City Administrative Officer or designee, this
D. Other Designations and Reserves. In Committee will review project proposals,
addition to the designations noted above, determine project phasing, recommend
fund balance levels will be sufficient to meet project managers, review and evaluate the
funding requirements for projects approved draft CIP budget document, and report CIP
in prior years which are carried forward into project progress on an ongoing basis.
the new year; debt service reserve
requirements; reserves for encumbrances; E. CIP Phases. The CIP will emphasize
and other reserves or designations required project planning, with projects progressing
by contractual obligations, state law, or through at least two and up to ten of the
generally accepted accounting principles. following phases:
CAPITAL IMPROVEMENT 1. Designate. Appropriates funds based on
MANAGEMENT projects designated for funding by the
Council through adoption of the
Financial Plan.
A. CIP Projects: $15,000 or More.
Construction projects and equipment 2. Study. Concept design, site selection,
purchases which cost $15,000 or more will feasibility analysis, schematic design,
be included in the Capital Improvement Plan environmental determination, property
(CIP); minor capital outlays of less than appraisals, scheduling, grant application,
$15,000 will be included with the operating grant approval, specification preparation
program budgets. for equipment purchases. .
B. CIP Purpose. The purpose of the CIP is to 3. Environmental Review. EIR
systematically plan, schedule, and finance preparation, other environmental studies.
capital projects to ensure cost-effectiveness
as well as conformance with established 4. Real Property Acquisitions. Property
policies. The CIP is a four-year plan acquisition for projects, if necessary.
organized into the same functional
groupings used for the operating programs. 5. Site Preparation. Demolition,
The CIP will reflect a balance between hazardous materials abatements, other
capital replacement projects that repair, pre-construction work.
replace or enhance existing facilities,
equipment or infrastructure; and capital 6. Design. Final design, plan and
facility projects that significantly expand or specification preparation and
add to the City's existing fixed assets. construction cost estimation.
-12-
Budget and Fiscal Policies ATTACHMENT A
7. Construction. Construction contracts. project costs at the time of bid award are
greater than budget amounts, five basic
8. Construction Management Contract options are available:
project management and inspection,
soils and material tests, other support 1. Eliminate the project
services during construction. 2. Defer the project for consideration to the
9. Equipment Acquisitions. Vehicles, next Financial Plan period.
heavy machinery, computers, office 3. Rescope or change the phasing of the
furnishings, other equipment items project to meet the existing budget
acquired and installed independently 4. Transfer funding from another specified,
from construction contracts. lower priority project.
10.Debt Service. Installment payments of 5. Appropriate additional resources as
principal and interest for completed necessary from fund balance.
projects funded through debt financings.
Expenditures for this project phase are G. CIP Budget Carryover. Appropriations
included in the Debt Service section of for CIP projects lapse three years after
the Financial Plan. budget adoption. Projects which lapse from
lack of project account appropriations may
Generally, it will become more difficult for be resubmitted for inclusion in a subsequent
a project to move from one phase to the CIP. Project accounts, which have been
next. As such, more projects will be studied appropriated, will not lapse until completion
than will be designed, and more projects of the project phase.
will be designed than will be constructed or
purchased during the term of the CIP. H. Program Objectives. Project phases will
be listed as objectives in the program
F. CIP Appropriation. The City's annual CIP narratives of the programs, which manage
appropriation for study, design, acquisition the projects.
and/or construction is based on the projects
designated by the Council through adoption L Public.Art. CIP projects will be evaluated
of the Financial Plan. Adoption of the during the budget process and prior to each
Financial Plan CIP appropriation does not phase for conformance with the City's public
automatically authorize funding for specific art policy, which generally requires that 1%
project phases. This authorization generally of eligible project construction costs be set
occurs only after the preceding project phase aside for public art. Excluded from this
has been completed and approved by the requirement are underground projects,utility
Council and costs for the succeeding phases infrastructure projects, funding from outside
have been fully developed. agencies, and costs other than construction
such as study, environmental review, design,
Accordingly, project appropriations are site preparation, land acquisition and
generally made when contracts are awarded. equipment purchases.
If project costs at the time of bid award are
less than the budgeted amount, the balance It is generally preferred that public art be
will be unappropriated and returned to fund incorporated directly into the project, but
balance or allocated to another project. If this is not practical or desirable for all
projects; in this case, an in-lieu contribution
-13- a - Q
Budget and Fiscal Policies ATTACHMENT A
to public art will be made. To ensure that ensure that new development pays its
funds are adequately budgeted for this fair share of the cost of constructing
purpose regardless of whether public art will necessary community facilities.
directly incorporated into the project, funds
for public art will be identified separately in 4. Transportation impact fees are a major
the CIP. funding source in financing
transportation system improvements.
Given the City's fiscal situation, for 2003-05 .However, revenues from these fees are
public art will continue to be funded but at a subject to significant fluctuation based
reduced level that is still greater than private on the rate of new development.
sector requirements (0.75%rather than 1%). Accordingly, the following guidelines
will be followed in designing and
CAPITAL FINANCING building projects funded with
AND DEBT MANAGEMENT transportation impact fees:
a. The availability of transportation
A. Capital Financing impact fees in funding a specific
project will be analyzed on a case-
1. The City will consider the use of debt by-case basis as plans and
financing only for one-time capital specification or contract awards are
improvement projects and only under the submitted for CAO or Council
following circumstances: approval.
a. When the project's useful life will b. If adequate funds are not available at
exceed the term of the financing. that time, the Council will make one
of two determinations:
b. When project revenues or specific
resources will be sufficient to service . Defer the project until funds are
the long-term debt. available.
2. Debt financing will not be considered
• Based on the high-priority of the
appropriate for any recurring purpose project, advance funds from the
such as current operating and General Fund, which will be
maintenance expenditures. The issuance reimbursed as soon as funds
of short-term instruments such as become available. Repayment of
revenue,tax or bond anticipation notes is General Fund advances will be
excluded from this limitation. (See the first use of transportation
Investment Policy) impact fee funds when they
become available.
3. Capital improvements will be financed
primarily through user fees, service 5. The City will use the following criteria
charges, assessments, special taxes or to evaluate pay-as-you-go versus long-
developer agreements when benefits can term financing in funding capital
be specifically attributed to users of the improvements:
facility. Accordingly, development
impact fees should be created and
implemented at levels sufficient. to
Budget and Fiscal Policies ATTACHMENT A
Factors Favoring 2. An internal feasibility analysis will be
Pay-As-You-Go Financing prepared for each long-term financing
which analyzes the impact on current
a. Current revenues and adequate fund and future budgets for debt service and
balances are available or project operations. This analysis will also
phasing can be accomplished: address the reliability of revenues to
b. Existing debt levels adversely affect support debt service.
the City's credit rating.
3. The City will generally conduct
c. Market conditions are unstable or financings on a competitive basis.
present difficulties in marketing. However; negotiated financings may be
used due to market volatility or the use
Factors Favoring Long Term of an unusual or complex financing or
Financing security structure.
d. Revenues available for debt service 4. The City will seek an.investment grade
are deemed sufficient and reliable so rating (Baa/BBB or greater) on any
that long-term financings can be direct debt and will seek credit
marketed with investment grade enhancements such as letters of credit or
credit ratings. insurance when necessary for marketing
e. The project securing the financing is purposes, availability and cost-
of the type, which will support an effectiveness.
investment grade credit rating.
5. The City will monitor all forms of debt
f. Market conditions present favorable annually coincident with the City's
interest rates and demand for City Financial Plan preparation and review
financings. process and report concerns and
g. A project is mandated by state or remedies, if needed, to the Council.
federal requirements, and resources
are insufficient or unavailable. 6. The City will diligently monitor its
h. The project is immediately required compliance with bond covenants and
to meet or relieve capacity needs and ensure its adherence to federal arbitrage
current resources are insufficient or
regulations.
unavailable. 7. The City will maintain good, ongoing
i. The life of the project or asset to be communications with bond rating
financed is 10 years or longer. agencies about its financial condition.
The City will follow a policy of full
B. Debt Management disclosure on every financial report and
bond prospectus (Official Statement).
1. The City will not obligate the General
Fund to secure long-term financings C.. Debt Capacity
except when marketability can be
significantly enhanced. 1. General Purpose Debt Capacity. The
City will carefully monitor its levels of
general-purpose debt. Because our
15- a . 2u
Budget and Fiscal Policies ATTACEMUNT A
general purpose debt capacity is limited, a. The revenue source for repayment is
it is important that we only use general under the management or control of
purpose debt financing for high-priority the City, such as general obligation
projects where we cannot reasonably use bonds, revenue bonds, lease-revenue
other financing methods for two key bonds or certificates of participation.
reasons: b. The bonds will be rated or insured.
a. Funds borrowed for a project today 2. The City will consider retaining the
are not available to fund other services of an independent disclosure
projects tomorrow. counsel when one or more of following
b. Funds committed for debt repayment circumstances are present:
today are not available to fund
operations in the future. a. The financing will be negotiated, and
the underwriter has not separately
In evaluating debt capacity, general- engaged an underwriter's counsel for
purpose annual debt service payments disclosure purposes.
should generally not exceed 10% of b. The revenue source for repayment is
General Fund revenues; and in no case not under the management or control
should they exceed 15%. Further, direct of the City, such as land-based
debt will not exceed 2% of assessed assessment districts, tax allocation
valuation; and no more than 60% of bonds or conduit financings.
capital improvement outlays will be
funded from long-term financings. c. The bonds will not be rated or
insured.
2. Enterprise Fund Debt Capacity. The d. The City's financial advisor, bond
City will set enterprise fund rates at counsel or underwriter recommends
levels needed to fully cover debt service that the City retain an independent
requirements as well as operations, disclosure counsel based on the
maintenance, administration and capital circumstances of the financing.
improvement costs. The ability to afford
new debt for enterprise operations will E. Land-Based Financings
be evaluated as an integral part of the
City's rate review and setting process. 1. Public Purpose. There will be a clearly
articulated public purpose in forming an
D. Independent Disclosure Counsel assessment or special tax district in
financing public infrastructure
The following criteria will be used on a improvements. This should include a
case-by-case basis in determining whether finding by the Council as to why this
the City should retain the services of an form of financing is preferred over other
independent disclosure counsel in funding options such as impact fees,
conjunction with specific project financings: reimbursement agreements or direct
developer responsibility for the
1. The City will generally not retain the improvements.
services of an independent disclosure
counsel when all of the following 2. Eligible Improvements. Except as
circumstances are present: otherwise determined by the Council
_16- a -
Budget and Fiscal Policies AT FACBMENT A
when proceedings for district formation exercise of powers agreements between
are commenced, preference in financing the City and school districts.
public improvements through a special
tax district shall be given for those 3. Active Role. Even though land-based
public improvements that help achieve financings may be a limited obligation
clearly identified community facility and of the City, we will play an active role in
infrastructure goals in accordance with managing the district. This means that
adopted facility and infrastructure plans the City will select and retain the
as set forth in key policy documents financing team, including the financial
such as the General Plan, Specific Plan, advisor, bond counsel, trustee, appraiser,
Facility or Infrastructure Master Plans, disclosure counsel, assessment engineer
or Capital Improvement Plan. Such and underwriter. Any costs incurred by
improvements include study, design, the City in retaining these services will
construction and/or acquisition of: generally be the responsibility of the
property owners or developer, and will
a. Public safety facilities.. be advanced via a deposit when an
b. Water supply, distribution and application is filed; or will be paid on a
treatment systems. contingency fee basis from the proceeds
c. Waste collection and treatment from the bonds.
,systems. 4. Credit Quality. When a developer
d. Major transportation system requests a district, the City will carefully
improvements, such as freeway evaluate the applicant's financial plan
interchanges; bridges; intersection and ability to carry the project, including
improvements; construction of new the payment of assessments and special
or widened arterial or collector taxes during buildout. This may
streets (including related landscaping include detailed background, credit and
and lighting); sidewalks and other lender checks, and the preparation of
pedestrian paths; transit facilities; independent appraisal reports and
and bike paths. market absorption studies. For districts
e. Storm drainage, creek protection and where one property owner accounts for
flood protection improvements. more than 25% of the annual debt
service obligation, a letter of credit
f. Parks, trails, community centers and further securing the financing may be
other recreational facilities. required.
g. Open space.
5. Reserve Fund A reserve fund should
h. Cultural and social service facilities. be established in the lesser amount of:
i. Other governmental facilities and the maximum annual debt service; 125%
improvements such as offices, of the annual average debt service; or
information technology systems and 10% of the bond proceeds.
telecommunication systems.
6. Value-to-Debt Ratios. The minimum
School facilities will not be financed value-to-date ratio should generally be
except under appropriate joint 4:1. This means the value of the
community facilities agreements or joint property in the district, with the public
-17-
QI �,a
i ( 1
Budget and Fiscal Policies ATTACHMENT A
improvements, should be at least four taxes payments collected on the tax roll
times the amount of the assessment or should generally not exceed 2%.
special tax debt. In special
circumstances, after conferring and 10.Benefit Apportionment Assessments
receiving the concurrence of the City's and special taxes will be apportioned
financial advisor and bond counsel that a according to a formula that is clear,
lower value-to-debt ratio is financially understandable, equitable and
prudent under the circumstances, the reasonably related to the benefit received
City may consider allowing a value-to- by--or burden attributed to—each
debt ratio of 3:1. The Council should parcel with respect to its financed
make special findings in this case. improvement. Any annual escalation
factor should generally not exceed 2%.
7. Appraisal Methodology. Determination
of value of property in the district shall 11. Special Tax District Administration. In
be based upon the full cash value as the case of Mello-Roos or similar special
shown on the ad valorem assessment roll tax districts, the total maximum annual
or upon an appraisal by an independent tax should not exceed 110% of annual
Member Appraisal Institute (MAI). The debt service. The rate and method of
definitions, standards and assumptions to apportionment should include a back-up
be used for appraisals shall be tax in the event of significant changes
determined by the City on a case-by- from the initial development plan, and
case basis, with input from City should include procedures for
consultants and district applicants, and prepayments.
by reference to relevant materials and
information promulgated by the State of 12. Foreclosure Covenants. In managing
California, including the Appraisal administrative costs, the City will
Standards for Land-Secured Financings establish minimum delinquency amounts
prepared by the California Debt and per owner, and for the district as a
Investment Advisory Commission. whole, on a case-by-case basis before
initiating foreclosure proceedings.
8. Capitalized Interest During
Construction. Decisions to capitalize 13.Disclosure to Bondholders. In general,
interest will be made on case-by-case each property owner who accounts for
basis, with the intent that if allowed, it more than 10% of the annual debt
should improve the credit quality of the service or bonded indebtedness must
bonds and reduce borrowing costs, provide ongoing disclosure information
benefiting both current and future annually as described under SEC Rule
property owners. 15(c)-12.
9. Maximum Burden. Annual assessments 14.Disclosure to Prospective .Purchasers.
(or special taxes in the case of Mello- Full disclosure about outstanding
Roos or similar districts) should balances and annual payments should be
generally not exceed 1% of the sales made by the seller to prospective buyers
price of the property; and total property at the time that the buyer bids on the
taxes, special assessments and special property. It should not be deferred to
after the buyer has made the decision to
J
Budget and Fiscal Policies ATTACHMENT A
purchase. When appropriate, applicants reimbursed for our costs in evaluating
or property owners may be required to the request; however, this should also be
provide the City with a disclosure plan. determined on a case-by-case basis.
F. Conduit Financings G. Refinancings
1. The City will consider requests for 1. General Guidelines. Periodic reviews of all
conduit financing on a case-by-case outstanding debt will be undertaken to
basis using the following criteria: determine refinancing opportunities.
Refinancings will be considered (within
a. The City's bond counsel will review federal tax law constraints) under the
the terms of the financing, and following conditions:
render an opinion that there will be a. There is a net economic benefit.
no liability to the City in issuing the
bonds on behalf of the applicant. b. It is needed to modernize covenants that
are adversely affecting the City's
b. There is a clearly articulated public financial position or operations.
purpose in providing the conduit c. The City wants to reduce the principal
financing. outstanding in order to achieve future
c. The applicant is capable of achieving debt service savings, and it has available
this public purpose. working capital to do so from other
sources.
2. This means that the review of requests
for conduit financing will generally be a 2. Standards for Economic Savings. In
two-step process: general, refinancings for economic savings
will be undertaken whenever net present
value savings of at least five percent(5%)of
a. First asking the Council if they are the refunded debt can be achieved.
interested in considering the request,
and establishing the ground rules for a. Refinancings that produce net present
evaluating it value savings of less than five percent
b. And then returning with the results will be considered on a case-by-case
basis, provided that the present value
of this evaluation, and savings are at least.three percent(3%)of
recommending approval of the refunded debt.
appropriate financing documents if
warranted b. Refinancings with savings of less than
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 A. Regular Staffing
request, and will have to be determined
on a case-by-case basis. Additionally, 1. The budget will fully appropriate the
the City should generally be hilly resources needed for authorized regular
-19- ca i29
Budget and Fiscal Policies ATTACHMENT A
staffing and will limit programs to the 4. Periodically, and before any request for
regular staffing authorized. additional regular positions, programs
will be evaluated to determine if they
2. Regular employees will be the core work can be accomplished with fewer regular
force and the preferred means of staffing employees. (See Productivity Review
ongoing, year-round program activities Policy)
that should be performed by full-time
City employees rather than independent 5. Staffing and contract service cost
contractors. The City will strive to ceilings will limit total expenditures for
provide competitive compensation and regular employees, temporary
benefit schedules for its authorized employees, and independent contractors
regular work force. Each regular hired to provide operating and
employee will: maintenance services.
a. Fill an authorized regular position. B. Temporary Staffing
b. Be assigned to an appropriate
bargaining unit. 1. The hiring of temporary employees will
not be used as an incremental method for
c. Receive salary and benefits expanding the City's regular work force.
consistent with labor agreements or
other compensation plans. 2. Temporary employees include all
employees other than regular employees,
3. To manage the growth of the regular elected officials, and volunteers.
work force and overall staffing costs, the Temporary employees will generally
City will follow these procedures: augment regular City staffing as extra-
help employees, seasonal employees,
a. The Council will authorize all contract employees, interns and work-
regular positions. study assistants.
b. The Human Resources Department
will coordinate and approve the 3. The City Administrative Officer (CAO)
hiring of all regular and temporary and Department Heads will encourage
employees. the use of temporary rather than regular
employees to meet peak workload
c. All requests for additional regular requirements, fill interim vacancies, and
positions will include evaluations of: accomplish tasks where less than full-
• The necessity, term and expected time,year-round staffing is required.
results of the proposed activity.
Under this guideline, temporary
• Staffing and materials costs employee hours will generally not
including salary, benefits, exceed 50% of a regular, full-time
equipment, uniforms, clerical position (1,000 hours annually). There
support and facilities. may be limited circumstances where the
• The ability of private industry to use of temporary employees on an
provide the proposed service. ongoing basis in excess of this target
may be appropriate due to unique
• Additional revenues l cost programming or staffing requirements.
savings, which may be realized.
-20- ,q ,
i
Budget and Fiscal Policies ATTACIIMENT A
However, any such exceptions must be 2. Construction of public works projects
approved by the CAO based on the and delivery of operating, maintenance
review and recommendation of the or specialized professional services not
Human Resources Director. routinely performed by City employees.
Such services will be provided without
4. Contract employees are defined as close supervision by City staff, and the
temporary employees with written required methods, skills and equipment
contracts approved by the CAO who will generally be determined and
may receive approved benefits provided by the contractor. Contract
depending on hourly requirements and awards will be guided by the City's
the length of their contract. Contract purchasing policies and procedures.
employees will generally be used for (See Contracting for Services Policy)
medium-term (generally between six
months and two years) projects, PRODUCTIVITY
programs or activities requiring
specialized or augmented levels of
staffing for a specific period. Ensuring the "delivery of service with value for
cost" is one of the key concepts embodied in the
The services of contract employees will be City's Mission Statement (San Luis Obispo
discontinued upon completion of the Style— Quality With Vision). To this end, the
assigned project, program or activity. City will constantly monitor and review our
Accordingly, contract employees will not be methods of operation to ensure that services
used for services that are anticipated to be continue to be delivered in the most cost-
delivered on an ongoing basis.
effective manner possible. This review process
C. Independent Contractors encompasses a wide range of productivity
issues, including:
Independent contractors are not City
employees. They may be used in two A. .Analyzing systems and procedures to
situations: identify and remove unnecessary review
requirements.
1. Short-term, peak workload assignments B. Evaluating the ability of new technologies
to be accomplished using personnel
contracted through an outside temporary and related capital investments to improve
employment agency (OEA). In this productivity.
situation, it is anticipated that City staff C. Developing the skills and abilities of all City
will closely monitor the work of OEA
employees and minimal training will be employees.
required. However, they will always be
considered the employees of the OEA D. Developing and implementing appropriate
and not the City. All placements methods of recognizing and rewarding
through an OEA will be coordinated exceptional employee performance.
through the Human Resources E. Evaluating the ability of the private sector to
Department and subject to the approval
of the Human Resources Director. perform the same level of service at a lower
cost.
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i
Budget and Fiscal Policies ATTACHMENT A
F. Periodic formal reviews of operations on a employment agencies and ongoing
systematic,ongoing basis. operating and maintenance services.
G. Maintaining a decentralized approach in 3. In evaluating the costs of private sector
managing the City's support service contracts compared with in-house
functions. Although some level of performance of the service, indirect,
centralization is necessary for review and direct, and contract, administration costs
control purposes, decentralization supports of the City will be identified and
productivity by: considered.
4. Whenever private sector providers are
1. Encouraging accountability by available and can meet established
delegating responsibility to the lowest service levels, they will be seriously
possible level. considered as viable service delivery
2. Stimulating creativity, innovation and alternatives using the evaluation criteria
individual initiative. outlined below.
3. Reducing the administrative costs of 5. For programs and activities currently
operation by eliminating unnecessary provided by City employees,
review procedures. conversions to contract services will
generally be made through attrition,
4. Improving the organization's ability to reassignment or absorption by the
respond to changing needs, and identify contractor.
and implement cost-saving programs.
B. Evaluation Criteria
5. Assigning responsibility for effective
operations and citizen responsiveness to 1. Within the general policy guidelines
the department. stated above, the cost-effectiveness of
contract services in meeting established
CONTRACTING FOR SERVICES service levels will be determined on a
case-by-case basis using the following
criteria:
A. General Policy Guidelines
2. Is a sufficient private sector market
1. Contracting with the private sector for available to competitively deliver this
the delivery of services provides the City service and assure a reasonable range of
with a significant opportunity for cost alternative service providers?
containment and productivity
enhancements. As such, the City is 3. Can the contract be effectively and
committed to using private sector efficiently administered?
resources in delivering municipal 4. What are the consequences if the
services as a key element in our contractor fails to perform, and can the
continuing efforts to provide cost-
effective programs. contract reasonably be written to
compensate the City for any such
2. Private sector contracting approaches damages?
under this policy include construction
projects, professional services, outside
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Budget and Fiscal Policies ATTACHMENT A
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 fairly and fully
evaluated, as well as the contractor's
performance after bid award?
7. Does the use of contract services provide
us with an opportunity to redefine
service levels?
8. Will the contract limit our ability to
deliver emergency or other high priority
services?
9. 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 B
OPERATINGPROGRAMS
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 and ■ General Government
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 performed
the following hierarchical categories: within a program in the pursuit of its objectives and
goals.
■ Function
■ Operation Sirnp4 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
ATTACHMENT B
OPERATING PROGRAMS
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 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 and Recreation
Recreation Programs Parks&Recreation General Fund
Golf Course Parks&Recreation Golf Fund
Maintenance Programs Public Works General Fund
Cultural Activities Administration General Fund
Social Services:Human Relations Human Resources CDBG Fund
Community Development
Development Review&Long Range Planning Community Development General Fund
Housing Community Development CDBG Fund
Construction Regulation
Building& Safety Community Development General Fund
Engineering Public Works General Fund
Natural Resources Protection Administration General Fund
Economic Health
Economic Development Administration General Fund
Community Promotion Administration General Fund
Downtown Association(DA) Council&Advisory Bodies DA Fund
General Government
Legislation&Policy Council&Advisory Bodies General Fund
General Administration
City Administration Administration General Fund
Public Works Administration Public Works General Fund
Legal Services City Attorney General Fund
Records&Elections City Clerk General Fund
Organizational Support Services
Human Resources Administration Human Resources General Fund
Risk Management Human Resources General Fund
Accounting&Revenue Management Finance&Information Technology General Fund
Information Technology Finance&Information Technology General Fund
Geographic Information Services Public Works General Fund
Building&Fleet Maintenance Public Works General Fund
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�' r1
ATTACIi1VIENT B
OPERATING PROGRAMS
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 (2003-04 through
2006-07) along with full-time equivalents (F l7s) for
Presents the fimction, program name, operation, temporary staffing. Unless there are compelling
department responsible for program administration reasons to do otherwise,regular positions are assigned
and the primary fimding source at the top of the page. to programs based on where employees spend 50%or
more of their time.
PROGRAM COSTS
SIGNIFICANT PROGRAM CHANGES
Provides four years of historical and projected
expenditure information (2003-04 through 2006-07) Summarizes significant program changes from the
organized into four categories: prior Financial Plan such as:
■ Staffing, All costs associated with City staffing, ■ Major service curtailments or expansions.
including salaries for all regular, temporary and ■ Any increases or decreases in regular positions..
contract employees as well as related costs for ■ Significant one-time costs.
benefits and overtime.
■ Major changes in the method of delivering
■ Contract Services. All expenditures related to services.
contract services. ■ Changes in operation that will significantly affect
other departments or customer service.
■ Other Operating Expenditures. Purchases of ■ Changes that affect current policies.
supplies, tools, utilities, insurance and similar E Reductions needed to balance the budget.
operating expenditures.
Detailed supporting documentation for each of the
■ Minor Capital. Capital acquisitions or projects significant operating program changes (both increases
with a life in excess of one year and costs and decreases) is provided in Appendix A of the
between $5,000 and $15,000. Capital Financial Plan.
acquisitions or projects with a cost in excess of
$15,000 are included in the Capital Improvement 2005-07 PROGRAM OBJECTIVES
Plan(CIP)section of the Financial Plan.
PROGRAM DESCRIPTION Identifies major objectives for the next two years,
including major City goals.
Describes program purpose,goals and activities. WORKLOAD MEASURES
Provides four years of historical and projected
workload measures (2001-02 through 2003-05) in
order to provide the Council and public with an
overview of the program's workscope and
effectiveness.
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