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CITY OF SAN LUIS . B I S P O
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FROM: Katie Lichtig, City Manager
Mary Bradley, Interim Director of 'nance & Information Technology—��
SUBJECT: PRELIMINARY 2011-13 FINANCIAL PLAN
RECOMMENDATION
Review and consider the Preliminary 2011-13 Financial Plan at the budget workshops scheduled
for June 2, 9 and 14, 2011.
DISCUSSION Financial Plan
Summary
Financial Plan Introduction and Summary This Financial Plan
presents a path to
Enclosed for your review and consideration is the Preliminary follow to achieve
2011-13 Financial Plan for the City of San Luis Obispo. Here are long-term financial
sustainability while
some highlights: providing vital
■ Ensures General Fund Reserve at 20% of operations by the community services
end of the second year.
• Aligns revenues with expenditures in the second year of the Financial Plan.
■ Uses any fund balance above the required 20% for one-time, not ongoing,purposes.
■ Addresses escalating staffing costs while maintaining ability to attract and retain well-
qualified employees. Employee salary and benefits costs drop from 79% to 73% of the
General Fund operating budget by the second year of the Financial Plan.
■ Achieves a reduction equivalent to 7.4% of employee salary and salary driven benefits.
■ Balances delivery of essential services with resources available on ongoing basis.
■ Implements a growing re-investment during the five-year Capital Improvement Plan to
maintain infrastructure, fleet,building facilities & IT assets; and
• Honors and implements Measure Y priorities
This Financial Plan presents a recommended path to follow toward long-tern financial
sustainability. It identifies and funds vital community services, enables the implementation of
Major City Goals, and allows us to maintain our assets and infrastructure in a responsible
manner.
The following reflects the key principles used in preparing the 2011-13 Financial Plan and
conceptual budget-balancing strategy:
1. Develop a budget that balances the City's delivery of essential services to the community
with the resources available on an ongoing basis.
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Preliminary 2011-13 Financial Plan Page 2
2. Identify a five-year capital improvement plan which reflects funds needed to maintain
the City's essential infrastructure, fleet, building facilities, and information technology
assets.
3. Engage the community and employees for development of budget balancing ideas.
4. Explore streamlining and simplifying City operations and alternative service delivery
models as appropriate.
5. Ensure service reductions are balanced and retain highest priority services.
6. Incorporate personnel cost savings, subject to the meet and confer process, and consider
all elements of total compensation. Balance these savings with the need to attract and
retain well-qualified employees to provide City services.
7. Surface budget reduction options based on service priorities, not vacant positions. Use
attrition, or vacancies, to create flexibility and mitigate the need for lay-offs if
operationally feasible.
8. Maintain the General Fund Reserve at 20% of operations to deal with the many financial
uncertainties facing us now and in the future.
9. Use any fund balance available above the required 20% of operations for one-time rather
than on-going expenditures..
10. Stay true to and focused on the purpose of Measure Y.
The challenge this year was to craft a financial strategy that aligns the City's delivery of services
with our "new normal" revenue base and increasing costs. This involved addressing a $4.4
million structural gap in the General Fund as well as making appropriate cost reductions in the
Enterprise Funds to mitigate impacts on rate payers.
Budget Balancing Strategies
The Preliminary 2011-13 Financial Plan focuses on permanent, on-going changes as much as
possible, with departmental operating reductions totaling $1.8 million and employee concessions
totaling $2.6 million as the two largest elements of our budget balancing strategy. Our strategy
also involved limited revenue enhancements ($300,000).
A fourth component was added as an accountability measure after the Council provided Strategic
Budget Direction. Staff has consistently worked to implement efficiency measures and focus on
continuous improvement but clear financial metrics have not been proposed to gauge progress.
To address this we added an element to the budget balancing strategy called Operational
Efficiencies, which amounts to $50,000 in the first year and $100,000 in the second year,
growing in each subsequent year. These financial targets will be one important gauge of how
well staff implements recommendations from the organizational assessments, collects revenues
owed to the City and implements cost saving measures from ideas offered by employees and
community members via Non-Operating Budget Balancers (NOBBs).
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Preliminary 2011-13 Financial Plan Page 3
Consistent with Council priorities and direction, the results of
the Council's goal-setting process have been integrated into the The Budget Message provides
Preliminary Financial Plan. The way this has been a concise summary of the
accomplished is discussed at some length in the Budget proposed budget balancing
Message and in the Policies and Objectives section overview. actions based on the direction
As discussed in the Budget Message, all of the Major City provided by the Council on
Goals set by the Council as well as the "Other Important
April 19,2011.
Council Objectives" are reflected in the Preliminary Financial
Plan based on the work programs approved by the Council on April 19, 2011. The Budget
Message also discusses how the "Other Council Objectives" are reflected in the Preliminary
Financial Plan
Preparation of the 2011-13 Financial Plan involved teamwork, shared sacrifice, and common
vision on the part of the Council, the residents, community partners, and our City workforce.
Adoption of the Financial Plan will put us in a strategic position to sustain the projected
expenditure increases that the City will experience in the next several years and maintain the
quality of life that our community enjoys.
Changes to Financial Plan Since April 19 Strategic Budget Direction Meeting
The Preliminary 2011-13 Financial Plan contains two changes from the information presented to
Council at the April 19, 2011 Strategic Budget Direction meeting.
First, a Significant Operating Program Change (SOPC) Addition has been included which
appropriates $20,000 to the Police Department operating budget for Suspected Abuse Response
Team (SART) exam fees. These very specialized exams have been provided by the San Luis
Obispo County Health Agency free of charge for many years. Recently we received notice
indicating that the County will begin charging cities for these costs effective July 1, 2011 as a
result of State budget pressures.
Second, following the March 2, 2011 approval by Council of 2011 CDBG funding allocations,
we received information from the County that our allocation would be less than originally
estimated. Council will be considering a recommended modification of CDBG funding at the
June 7, 2011 regular meeting. In the proposed 2011-13 Financial Plan, the Community
Development Department has adjusted the Housing Programs operating budget to reflect
additional General Fund support in the amount of $11,846 for the Maxine Lewis Homeless
Shelter and $7,600 for the Housing Programs Manager position.
Policy Changes Reflected in Financial Plan
The following summarizes changes in the City's Budget and Fiscal Policies for 2011-13.
Public Art. The City's public art policy generally requires that 1% of eligible project
construction costs be set aside for public art. However, given the City's fiscal situation for 2011-
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Preliminary 2011-13 Financial Plan Page 4
13, public art will be funded at the same level required by the private sector: 0.5% rather than
1%. This was also the situation in 2009-11.
Golf. At the April 19, 2011 meeting, the City Council directed staff to incorporate golf
operations into the General Fund, rather than continuing to account for golf as an enterprise fund.
The 2011-13 Financial Plan reflects this change.
Fleet Replacement Revisions to the Fleet Management Policy have been made to formalize best
practices that are currently in place. Specifically, the useful lives of certain classes of vehicles
have been lengthened to reflect actual experience and the use of condition indicators in addition
to age and mileage to guide future fleet replacements has been memorialized. These revisions
have been incorporated into the 2011-13 Financial Plan.
Format of Financial Plan
The 2011-13 Financial Plan consists of three documents:
1. Preliminary Financial Plan. This includes:
a. The budget message from the City Manager highlighting challenges facing us and
proposed solutions in addressing them (Section A)
b. Policies and objectives, including work programs for Major City Goals and Other
Important Council Objectives (Section B)
c. Simple graphics and charts summarizing the City's budget(Section C)
d. Operating programs (Section D)
e. Summary of capital improvement plan (CIP) projects and funding sources(Section E)
f. Debt service requirements (Section F)
g. Changes in financial position for each of the City's operating funds (Section G)
It. Financial and statistical tables (Section H)
i. Budget reference materials (Section n
2. Appendix A: Significant Operating Program Changes. as
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This Appendix provides additional supporting documentation These are intended to be
for each of the significant operating program changes used as supplemental
proposed in the Preliminary Financial Plan. This also resources if Council
includes detailed information on proposed operating members have questions on
program reductions to balance the budget.. An overview is a program or project as they
included in the Appendix that further describes its purpose, review the PreliminaryFinancial Plan. In short,
organization and content. while the Council may
choose to read the
3. Appendix B: Capital Improvement Plan Projects. This Appendices from "cover-to-
Appendix provides supporting documentation for each of the cover," this information is
CIP projects proposed in the Preliminary Financial Plan. An summarized in the
overview is included in the Appendix that further describes Preliminary Financial Plan.
its purpose, organization and content.
Best Place to Start. The Budget Message and Financial
Highlights (starting on page A-1) are recommended as a good starting point in reviewing the
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Preliminary 2011-13 Financial Plan Page 5
Preliminary Financial Plan and in preparing for the June 2 workshop. It has been written with the
goal in mind of discussing all of the key issues reflected in the Preliminary Financial Plan in a
concise but comprehensive manner.
Financial Plan Review Schedule and Process
The following four dates have been scheduled for review and adoption of the 2011-13 Financial
Plan:
Council B,udget Review Schedule' RemainingSteps
June.2 Preliminary Financial Plan review; General Fund Operating Programs
June 9 Continued General Fund Operating Program review(if needed); General Fund CIP and
other non-enterprise fund projects
June 14 Enterprise Fund programs,projects, revenues and rates
June 21 Financial Plan adoption.
The June 2 workshop is the first of several study sessions and public hearings scheduled to
review the Preliminary Financial Plan. One of the fundamental purposes of these workshops is
to review these documents with the Council in some depth. Accordingly, we do not anticipate
that the Council will have reviewed all of this material in detail by the June 2 workshop.
Focus of the Budget Workshops and Budget Adoption. As summarized below, the primary
focus of the first two workshops will be on General Fund programs and projects.
June 2 Budget Workshop (Starts at 4:00 PM)
4:00 PM 1. Overview of key budget issues and strategies
2. Fiscal outlook
3. General Fund operating programs
June 9 Budget Workshop (Starts at 7.00 PM
7.00 PM 1. Continued review of General Fund operating programs, if needed
2. General Fund CIP projects (and other non-enterprise fund projects)
3. Follow-up direction from the Council for subsequent workshops and hearings
A separate budget workshop/public hearing has been scheduled for June 14, 2011 to review
enterprise fund programs,projects and revenues, and adopt rates for 2011-13.
June 14 Budget Workshop (Starts at 7.00 PM)
7:00 PM 1. Enterprise Fund operating programs
2. Enterprise Fund CIP projects
3. Enterprise Fund revenues:key assumptions
4. Adopt rates for 2011-13
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Preliminary 2011-13 Financial Plan Page 6
Adoption of the Preliminary 2011-13 Financial Plan is schedule for June 21, 2011.
Proposed Council Review Process
Due to the depth and breadth of the information that will be presented at each budget workshop,
the following process is recommended to ensure a smooth and cohesive review process. First, the
City Manager will provide an overview of the agenda and requested Council action. Next, the
Interim Finance & IT Director will review the financial background of the Financial Plan.
Finally, the Department Head Team will review the operating programs by functional area:
General Government; Community Development; Leisure, Cultural and Social Services; Public
Safety; Public Utilities; and Transportation. Ample opportunity will be provided for Council
questions, public comment, and Council discussion and direction to staff.
Community Engagement
The City is committed to providing the community with meaningful opportunities to participate
in the goal-setting and budget process. Provided in Attachment 1 is the notice we sent to over
200 community groups and interested individuals about the budget workshops and hearings
ahead of us, and how to find out more information about the budget. Additionally, links to
budget information are provided on the home page of the City's web site at www.slociiy.org.
ATTACHMENTS
Notice on upcoming budget workshops and hearings
ENCLOSURES
1. Preliminary Financial Plan
2. Appendix A: Significant Operating Program Changes
3. Appendix B: Capital Improvement Plan Projects
\\chstore4\FiT\Budget Folders\A. Financial Plans\2011-13 Financial Plan\Preliminary Financial Plan Document\Council
Agendas\Agenda Report-Preliminary Financial Plan 2011-13.doc
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- - city o� ATTACHMENT
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j San WIS OBISPO
990 Palm Street■San Luis Obispo,CA 93401 ■(805)781-7125■Fax:(805)781-7401 ■Email:mbradley@siocity.org
BUDGET WORKSHOPS AND HEARINGS
May 20, 2011
The City's Preliminary 2011-13 Financial Plan has been prepared and distributed to the Council for their
review in preparation for a series of workshops and public hearings as outlined below. Each of these will be
held in the Council Chambers at City Hall, 990 Palm Street and begin at 7:00 pm,unless otherwise specified.
Council Budget Review Schedule
June 2 Budget workshop Preliminary Financial Plan review;General Fund operating programs.
*Begins at 4:00 pm*
June 9 Budget workshop General Fund capital improvement plan(CIP)projects
June 14 Public Hearing Enterprise fund operating programs,CIP projects,revenues and rates:water,
sewer,parking and transit.
June 21 Public Hearing Continued review and adoption of the Financial Plan
All interested Council advisory bodies, community groups and individuals are encouraged to attend any of
these workshops or hearings.
Responding to Measure Y Priorities. Along with highlighting the City's financial situation, operating
programs and CIP projects, the Preliminary Financial Plan clearly sets forth proposed uses for the added
revenues from Measure Y, which was approved by City voters in November 2006, in meeting community
priorities in areas like public safety, traffic congestion relief, flood protection, senior services, neighborhood
code enforcement and open space preservation.
Budget Documents Available for Public Review. Copies of the Preliminary 2011-13 Financial Plan and
supporting documents (Appendix A for Significant Operating Program Changes and Appendix B for Capital
Improvement Plan Projects) are available for public review as follows:
Electronic copies are available at no cost on the City's web site at: www.slocity.org/finance/finplan.m.
"Hard copies"are available as follows:
Selections • Budget Message,Financial Highlights,Major City Goals and up to 10 other
at no cost selected pages from the Preliminary Financial Plan,Appendix A or Appendix B
Full review • City Clerk's Office, 990 Palm Street, San Luis Obispo
copies at no cost • City/County Library, 995 Palm Street, San Luis Obispo
Complete"hard copies"of these documents are available at the City's direct printing costs.
If you have any questions concerning the City's budget process,or require additional information,please call
me at 781-7125. Please join us at any of these sessions as we plan the City's course of action for the next
two years, including the use of Measure Y revenues.
Sincerely,
Mary Bradley, Interim Director of Finance&Information Technology
® The City of San Luis Obispo is committed to including disabled persons in all of our services, programs and activities.
Telecommunications Device for the Deaf(805)781-7410.
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