HomeMy WebLinkAboutSection H.2 - Budget and Fiscal PoliciesSection H.2
Background Materials
BUDGET AND FISCAL POLICIES
BUDGET REFERENCE MATERIALS Attachment X
BUDGET AND FISCAL POLICIES
FINANCIAL PLAN PURPOSE AND ORGANIZATION
A. Financial Plan Objectives. Through its Financial Plan, the City will link resources with results by:
1. Identifying community needs for essential services.
2. Organizing the programs required to provide these essential services.
3. Establishing program policies and goals, which define the nature and level of program services required.
4. Identifying activities performed in delivering program services.
5. Proposing objectives for improving the delivery of program services.
6. Identifying and appropriating the resources required to perform program activities and accomplish program
objectives.
7. Setting standards to measure and evaluate the:
a. Output of program activities.
b. Accomplishment of program objectives.
c. Expenditure of program appropriations.
B. Two-Year Budget. Following the City's favorable experience, the City will continue using a two-year financial
plan, emphasizing long-range planning and effective program management. The benefits identified when the
City's first two-year plan 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.
C. Measurable Objectives. The two-year financial plan will establish measurable program objectives and allow
reasonable time to accomplish those objectives.
D. Second Year Budget. Before the beginning of the second year of the two-year cycle, the Council will review
progress during the first year and approve appropriations for the second fiscal year.
E. Operating Carryover. Operating program appropriations not spent during the first fiscal year may be carried
over for specific purposes into the second fiscal year with the approval of the City Manager.
F. Goal Status Reports. The status of major program objectives will be formally reported to the Council on an
ongoing, periodic basis.
G. Mid-Year Budget Reviews. The Council will formally review the City’s fiscal condition, and amend
appropriations if necessary, six months after the beginning of each fiscal year.
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BUDGET AND FISCAL POLICIES
LONG - TERM FINANCIAL PLANNING
A. Balanced Budget. The City will maintain a balanced budget over the two-year period of the Financial Plan.
This means that:
1. Operating revenues must fully cover operating expenditures, including debt service.
2. Ending fund balance (or working capital in the enterprise funds) must meet minimum policy levels. For
the general and enterprise funds, this level has been established at 20% of operating expenditures.
Under this policy, it is allowable for total expenditures to exceed revenues in a given year; however, in this
situation, beginning fund balance can only be used to fund capital improvement plan projects, or other “one-
time,” non-recurring expenditures.
B. Long-Term Liabilities and Maintenance of Infrastructure. The City will give priority to applying unassigned
fund-balance due to one-time expenditure savings or one-time increase in revenue to pay down long-term unfunded
liabilities and invest in infrastructure and equipment. In applying unassigned fund balances to pay down long-
term unfunded liabilities a two-part strategy will be used to address the liability to the greatest extent
possible. One, annual payments to CalPERS for unfunded liabilities will address interest and principal.
Two, analysis of a Section 115 Trust as mechanism to address future pension obligations and uncertainties
will continue and a recommendation about formation of the same will be made during the term of the
adopted Fiscal Health Response Plan.
FINANCIAL REPORTING AND BUDGET ADMINISTRATION
A. Annual Reporting. The City will prepare annual financial statements as follows:
1. In accordance with Charter requirements, the City will contract for an annual audit by a qualified
independent certified public accountant. The City will strive for an unqualified auditors’ opinion.
2. The City will use generally accepted accounting principles in preparing its annual financial statements, and
will strive to meet the requirements of the GFOA’s Award for Excellence in Financial Reporting program.
3. The City will issue audited financial statements within 180 days after year-end.
B. Interim Reporting. The City will prepare and issue timely interim reports on the City’s fiscal status to the
Council and staff. This includes: on-line access to the City’s financial management system by City staff;
monthly reports to program managers; more formal quarterly reports to the Council and Department Heads;
mid-year budget reviews; and interim annual reports.
C. Budget Administration. As set forth in the City Charter, the Council may amend or supplement the budget at
any time after its adoption by majority vote of the Council members. The City Manager has the authority to
make administrative adjustments to the budget as long as those changes will not have a significant policy impact
nor affect budgeted year-end fund balances.
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D. Development Services Revenue. The City Manager may allocate or designate 75% of over-realized
Development Services revenues exceeding adopted budget for the current fiscal year for temporary
Development Services expenditures for the purpose of timely processing of development permit applications
in the current fiscal year or throughout life of applicable projects. Any and all City Manager authorized
allocations and funds set aside in a designation for future use, shall be reported to the Council on a semi-annual
basis.
GENERAL REVENUE MANAGEMENT
A. Diversified and Stable Base. The City will seek to maintain a diversified and stable revenue base to protect it
from short-term fluctuations in any one revenue source.
B. Long-Range Focus. To emphasize and facilitate long-range financial planning, the City will maintain current
projections of revenues for the succeeding five years.
C. Current Revenues for Current Uses. The City will make all current expenditures with current revenues,
avoiding procedures that balance current budgets by postponing needed expenditures, accruing future revenues,
or rolling over short-term debt.
D. Interfund Transfers and Loans. In order to achieve important public policy goals, the City has established
various special revenue, capital project, debt service and enterprise funds to account for revenues whose use
should be restricted to certain activities. Accordingly, each fund exists as a separate financing entity from other
funds, with its own revenue sources, expenditures and fund equity.
Any transfers between funds for operating purposes are clearly set forth in the Financial Plan, and can only be
made by the Finance Director in accordance with the adopted budget. These operating transfers, under which
financial resources are transferred from one fund to another, are distinctly different from interfund borrowings,
which are usually made for temporary cash flow reasons, and are not intended to result in a transfer of financial
resources by the end of the fiscal year.
In summary, interfund transfers result in a change in fund equity; interfund borrowings do not, as the intent is
to repay the loan in the near term.
From time-to-time, interfund borrowings may be appropriate; however, these are subject to the following
criteria in ensuring that the fiduciary purpose of the fund is met:
1. The Finance Director is authorized to approve temporary interfund borrowings for cash flow purposes
whenever the cash shortfall is expected to be resolved within 45 days. The most common use of interfund
borrowing under this circumstance is for grant programs like the Community Development Block Grant,
where costs are incurred before drawdowns are initiated and received. However, receipt of funds is
typically received shortly after the request for funds has been made.
2. Any other interfund borrowings for cash flow or other purposes require case-by-case approval by the
Council.
3. Any transfers between funds where reimbursement is not expected within one fiscal year shall not be
recorded as interfund borrowings; they shall be recorded as interfund operating transfers that affect equity
by moving financial resources from one fund to another.
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BUDGET AND FISCAL POLICIES
USER FEE COST RECOVERY GOALS
A. Ongoing Review
Fees will be reviewed and updated on an ongoing basis to ensure that they keep pace with changes in the cost-
of-living as well as changes in methods or levels of service delivery.
In implementing this goal, a comprehensive analysis of City costs and fees should be made at least every five
years. In the interim, fees will be adjusted by annual changes in the Consumer Price Index. Fees may be
adjusted during this interim period based on supplemental analysis whenever there have been significant
changes in the method, level or cost of service delivery.
B. User Fee Cost Recovery Levels
In setting user fees and cost recovery levels, the following factors will be considered:
1. Community-Wide Versus Special Benefit. The level of user fee cost recovery should consider the
community-wide versus special service nature of the program or activity. The use of general-purpose
revenues is appropriate for community-wide services, while user fees are appropriate for services that are
of special benefit to easily identified individuals or groups.
2. Service Recipient Versus Service Driver. After considering community-wide versus special benefit of the
service, the concept of service recipient versus service driver should also be considered. For example, it
could be argued that the applicant is not the beneficiary of the City's development review efforts: the
community is the primary beneficiary. However, the applicant is the driver of development review costs,
and as such, cost recovery from the applicant is appropriate.
3. Effect of Pricing on the Demand for Services. The level of cost recovery and related pricing of services
can significantly affect the demand and subsequent level of services provided. At full cost recovery, this
has the specific advantage of ensuring that the City is providing services for which there is genuinely a
market that is not overly-stimulated by artificially low prices.
Conversely, high levels of cost recovery will negatively impact the delivery of services to lower income
groups. This negative feature is especially pronounced, and works against public policy, if the services are
specifically targeted to low income groups.
4. Feasibility of Collection and Recovery. Although it may be determined that a high level of cost recovery
may be appropriate for specific services, it may be impractical or too costly to establish a system to identify
and charge the user. Accordingly, the feasibility of assessing and collecting charges should also be
considered in developing user fees, especially if significant program costs are intended to be financed from
that source.
C. Factors Favoring Low Cost Recovery Levels
Very low cost recovery levels are appropriate under the following circumstances:
1. There is no intended relationship between the amount paid and the benefit received. Almost all "social
service" programs fall into this category as it is expected that one group will subsidize another.
2. Collecting fees is not cost-effective or will significantly impact the efficient delivery of the service.
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3. There is no intent to limit the use of (or entitlement to) the service. Again, most "social service" programs
fit into this category as well as many public safety (police and fire) emergency response services.
Historically, access to neighborhood and community parks would also fit into this category.
4. The service is non-recurring, generally delivered on a "peak demand" or emergency basis, cannot
reasonably be planned for on an individual basis, and is not readily available from a private sector source.
Many public safety services also fall into this category.
5. Collecting fees would discourage compliance with regulatory requirements and adherence is primarily self-
identified, and as such, failure to comply would not be readily detected by the City. Many small-scale
licenses and permits might fall into this category.
D. Factors Favoring High Cost Recovery Levels
The use of service charges as a major source of funding service levels is especially appropriate under the
following circumstances:
1. The service is similar to services provided through the private sector.
2. Other private or public sector alternatives could or do exist for the delivery of the service.
3. For equity or demand management purposes, it is intended that there be a direct relationship between the
amount paid and the level and cost of the service received.
4. The use of the service is specifically discouraged. Police responses to disturbances or false alarms might
fall into this category.
5. The service is regulatory in nature and voluntary compliance is not expected to be the primary method of
detecting failure to meet regulatory requirements. Building permit, plan checks, and subdivision review
fees for large projects would fall into this category.
E. General Concepts Regarding the Use of Service Charges
The following general concepts will be used in developing and implementing service charges:
1. Revenues should not exceed the reasonable cost of providing the service.
2. Cost recovery goals should be based on the total cost of delivering the service, including direct costs,
departmental administration costs and organization-wide support costs such as accounting, personnel,
information technology, legal services, fleet maintenance and insurance.
3. The method of assessing and collecting fees should be as simple as possible in order to reduce the
administrative cost of collection.
4. Rate structures should be sensitive to the "market" for similar services as well as to smaller, infrequent
users of the service.
5. A unified approach should be used in determining cost recovery levels for various programs based on the
factors discussed above.
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F. Low Cost-Recovery Services
Based on the criteria discussed above, the following types of services should have very low cost recovery goals.
In selected circumstances, there may be specific activities within the broad scope of services provided that
should have user charges associated with them. However, the primary source of funding for the operation as a
whole should be general-purpose revenues, not user fees.
1. Delivering public safety emergency response services such as police patrol services and fire suppression.
2. Maintaining and developing public facilities that are provided on a uniform, community-wide basis such as
streets, parks and general-purpose buildings.
3. Providing social service programs and economic development activities.
G. Recreation Programs
The following cost recovery policies apply to the City's recreation programs:
1. Cost recovery for activities directed to adults should be relatively high.
2. Cost recovery for activities directed to youth and seniors should be relatively low. In those circumstances
where services are similar to those provided in the private sector, cost recovery levels should be higher.
Although ability to pay may not be a concern for all youth and senior participants, these are desired program
activities, and the cost of determining need may be greater than the cost of providing a uniform service fee
structure to all participants. Further, there is a community-wide benefit in encouraging high-levels of
participation in youth and senior recreation activities regardless of financial status.
3. Cost recovery goals for recreation activities are set as follows:
High-Range Cost Recovery Activities - (60% to 100%)
a. Adult athletics
b. Banner permit applications
c. Child care services
d. Facility rentals (indoor and outdoor; excludes use of facilities for internal City uses)
Mid-Range Cost Recovery Activities - (30% to 60%)
e. Triathlon
f. Golf
g. Summer and Spring Break Camps
h. Classes
i. Major commercial film permit applications
Low-Range Cost Recovery Activities- (0 to 30%)
j. Aquatics
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k. Community gardens
l. Junior Ranger camp
m. Minor commercial film permit applications
n. Skate park
o. Parks and Recreation sponsored events (except for Triathlon)
p. Youth sports
q. Teen services
r. Senior/boomer services
4. For cost recovery activities of less than 100%, there should be a differential in rates between residents and
non-residents. However, the Director of Parks and Recreation is authorized to reduce or eliminate non-
resident fee differentials when it can be demonstrated that:
a. The fee is reducing attendance.
b. And there are no appreciable expenditure savings from the reduced attendance.
5. Charges will be assessed for use of rooms, pools, gymnasiums, ball fields, special-use areas, and recreation
equipment for activities not sponsored or co-sponsored by the City. Such charges will generally conform
to the fee guidelines described above. However, the Director of Parks and Recreation is authorized to
charge fees that are closer to full cost recovery for facilities that are heavily used at peak times and include
a majority of non-resident users.
6. A vendor charge of at least 10 percent of gross income will be assessed from individuals or organizations
using City facilities for moneymaking activities.
7. Director of Parks and Recreation is authorized to offer reduced fees such as introductory rates, family
discounts and coupon discounts on a pilot basis (not to exceed 18 months) to promote new recreation
programs or resurrect existing ones.
8. The Parks and Recreation Department will consider waiving fees only when the City Manager determines
in writing that an undue hardship exists.
H. Development Review Programs
The following cost recovery policies apply to the development review programs:
1. Services provided under this category include:
a. Planning (planned development permits, tentative tract and parcel maps, rezonings, general plan
amendments, variances, use permits).
b. Building and safety (building permits, structural plan checks, inspections).
c. Engineering (public improvement plan checks, inspections, subdivision requirements, encroachments).
d. Fire plan check.
2. Cost recovery for these services should generally be very high. In most instances, the City's cost recovery
goal should be 100%.
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3. However, in charging high cost recovery levels, the City needs to clearly establish and articulate standards
for its performance in reviewing developer applications to ensure that there is “value for cost.”
I. Comparability with Other Communities
In setting user fees, the City will consider fees charged by other agencies in accordance with the following
criteria:
1. Surveying the comparability of the City's fees to other communities provides useful background
information in setting fees for several reasons:
a. They reflect the "market" for these fees and can assist in assessing the reasonableness of San Luis
Obispo’s fees.
b. If prudently analyzed, they can serve as a benchmark for how cost-effectively San Luis Obispo provides
its services.
2. However, fee surveys should never be the sole or primary criteria in setting City fees as there are many
factors that affect how and why other communities have set their fees at their levels. For example:
a. What level of cost recovery is their fee intended to achieve compared with our cost recovery objectives?
b. What costs have been considered in computing the fees?
c. When was the last time that their fees were comprehensively evaluated?
d. What level of service do they provide compared with our service or performance standards?
e. Is their rate structure significantly different than ours and what is it intended to achieve?
3. These can be very difficult questions to address in fairly evaluating fees among different communities. As
such, the comparability of our fees to other communities should be one factor among many that is
considered in setting City fees.
ENTERPRISE FUND FEES AND RATES
A. Water, Sewer and Parking. The City will set fees and rates at levels which fully cover the total direct and
indirect costs—including operations, capital outlay, and debt service—of the following enterprise programs:
water, sewer and parking.
B. Transit. Based on targets set under the Transportation Development Act, the City will strive to cover at least
twenty percent of transit operating costs with fare revenues.
C. Ongoing Rate Review. The City will review and adjust enterprise fees and rate structures as required to ensure
that they remain appropriate and equitable.
D. Cost of Service Fees. The City will treat the water and sewer fund in the same manner as if they were privately
owned and operated. This means assessing reasonable cost of service fees in fully recovering services costs.
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The purpose of the cost of service fee is reasonable cost recovery for the use of the City’s services such as street
right-of-way and public safety. The appropriateness of charging the water and sewer fund a reasonable cost of
service fee for the use of the City streets is further supported by the results of studies from Arizona, California,
Ohio, and Vermont which concluded that the leading cause of street resurfacing and reconstruction is street cuts
and trenching for Utilities.
REVENUE DISTRIBUTION
The Council recognizes that generally accepted accounting principles for state and local governments discourage
the “earmarking” of General Fund revenues, and accordingly, the practice of designating General Fund revenues
for specific programs should be minimized in the City's management of its fiscal affairs. Approval of the following
revenue distribution policies does not prevent the Council from directing General Fund resources to other functions
and programs as necessary.
A. Property Taxes. With the passage of Proposition 13 on June 6, 1978, California cities no longer can set their
own property tax rates. In addition to limiting annual increases in market value, placing a ceiling on voter-
approved indebtedness, and redefining assessed valuations, Proposition 13 established a maximum county-wide
levy for general revenue purposes of 1% of market value. Under subsequent state legislation, which adopted
formulas for the distribution of this countywide levy, the City now receives a percentage of total property tax
revenues collected countywide as determined by the State and administered by the County Auditor-Controller.
The City receives 14.9% of each dollar collected in property tax after allocations to school districts.
Accordingly, while property revenues are often thought of local revenue sources, in essence they are State
revenue sources, since the State controls their use and allocation.
With the adoption of a Charter revision in November 1996, which removed provisions that were in conflict with
Proposition 13 relating to the setting of property tax revenues between various funds, all property tax revenues
are now accounted for in the General Fund.
B. Gasoline Tax Subventions. All gasoline tax revenues (which are restricted by the State for street-related
purposes) will be used for maintenance activities. Since the City's total expenditures for gas tax eligible
programs and projects are much greater than this revenue source, operating transfers will be made from the gas
tax fund to the General Fund for this purpose. This approach significantly reduces the accounting efforts
required to meet State reporting requirements.
C. Transportation Development Act (TDA) Revenues. All TDA revenues will be allocated to alternative
transportation programs, including regional and municipal transit systems, bikeway improvements, and other
programs or projects designed to reduce automobile usage. Because TDA revenues will not be allocated for
street purposes, it is expected that alternative transportation programs (in conjunction with other state or federal
grants for this purpose) will be self-supporting from TDA revenues.
D. Parking Fines. All parking fine revenues will be allocated to the parking fund, except for those collected by
Police staff (who are funded by the General Fund) in implementing neighborhood wellness programs.
INVESTMENTS
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A. Responsibility. Investments and cash management are the responsibility of the City Treasurer or designee. It
is the City’s policy to appoint the Finance Director as the City’s Treasurer.
B. Investment Objective. The City's primary investment objective is to achieve a reasonable rate of return while
minimizing the potential for capital losses arising from market changes or issuer default. Accordingly, the
following factors will be considered in priority order in determining individual investment placements:
1. Safety
2. Liquidity
3. Yield
C. Tax and Revenue Anticipation Notes: Not for Investment Purposes. There is an appropriate role for tax
and revenue anticipation notes (TRANS) in meeting legitimate short-term cash needs within the fiscal year.
However, many agencies issue TRANS as a routine business practice, not solely for cash flow purposes, but to
capitalize on the favorable difference between the interest cost of issuing TRANS as a tax-preferred security
and the interest yields on them if re-invested at full market rates.
As part of its cash flow management and investment strategy, the City will only issue TRANS or other forms
of short-term debt if necessary to meet demonstrated cash flow needs; TRANS or any other form of short-term
debt financing will not be issued for investment purposes.
As long as the City maintains its current policy of maintaining fund/working capital balances that are 20% of
operating expenditures, it is unlikely that the City would need to issue TRANS for cash flow purposes except
in very unusual circumstances.
D. Selecting Maturity Dates. The City will strive to keep all idle cash balances fully invested through daily
projections of cash flow requirements. To avoid forced liquidations and losses of investment earnings, cash
flow and future requirements will be the primary consideration when selecting maturities.
E. Diversification. As the market and the City's investment portfolio change, care will be taken to maintain a
healthy balance of investment types and maturities.
F. Authorized Investments. The City will invest only in those instruments authorized by the California
Government Code Section 53601.
The City will not invest in stock, will not speculate and will not deal in futures or options. The investment
market is highly volatile and continually offers new and creative opportunities for enhancing interest earnings.
Accordingly, the City will thoroughly investigate any new investment vehicles before committing City funds
to them.
G. Authorized Institutions. Current financial statements will be maintained for each institution in which cash is
invested. Investments will be limited to 20 percent of the total net worth of any institution and may be reduced
further or refused altogether if an institution's financial situation becomes unhealthy.
H. Consolidated Portfolio. In order to maximize yields from its overall portfolio, the City will consolidate cash
balances from all funds for investment purposes, and will allocate investment earnings to each fund in
accordance with generally accepted accounting principles.
I. Safekeeping. Ownership of the City's investment securities will be protected through third-party custodial
safekeeping.
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J. Investment Management Plan. The City Treasurer will develop and maintain an Investment Management
Plan that addresses the City's administration of its portfolio, including investment strategies, practices and
procedures.
K. Investment Oversight Committee. As set forth in the Investment Management Plan, this committee is
responsible for reviewing the City’s portfolio on an ongoing basis to determine compliance with the City’s
investment policies and for making recommendations to the City Treasurer (Finance Director regarding
investment management practices.
Members include the City Manager, Assistant City Manager, Finance Director/City Treasurer, Accounting
Manager, Budget Manager, the City’s independent auditor, one City Council member, and one member of the
public.
The member of the public shall be appointed by the City Council in accordance with the City’s process for
appointing advisory body members.
L. Reporting. The City Treasurer will develop and maintain a comprehensive, well-documented investment
reporting system, which will comply with Government Code Section 53607. This reporting system will provide
the Council and the Investment Oversight Committee with appropriate investment performance information.
APPROPRIATIONS LIMITATION
A. The Council will annually adopt a resolution establishing the City's appropriations limit calculated in
accordance with Article XIII-B of the Constitution of the State of California, Section 7900 of the State of
California Government Code, and any other voter approved amendments or state legislation that affect the City's
appropriations limit.
B. The supporting documentation used in calculating the City's appropriations limit and projected appropriations
subject to the limit will be available for public and Council review at least 10 days before Council consideration
of a resolution to adopt an appropriations limit. The Council will generally consider this resolution in
connection with final approval of the budget.
C. The City will strive to develop revenue sources, both new and existing, which are considered non-tax proceeds
in calculating its appropriations subject to limitation.
D. The City will annually review user fees and charges and report to the Council the amount of program subsidy,
if any, that is being provided by the General or Enterprise Funds.
E. The City will actively support legislation or initiatives sponsored or approved by League of California Cities
which would modify Article XIII-B of the Constitution in a manner which would allow the City to retain
projected tax revenues resulting from growth in the local economy for use as determined by the Council.
F. The City will seek voter approval to amend its appropriation limit at such time that tax proceeds are in excess
of allowable limits.
FUND BALANCE AND RESERVES
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A. Minimum Fund and Working Capital Balances. The City will maintain a minimum fund balance of at least
20% of operating expenditures in the General Fund and a minimum working capital balance of 20% of operating
expenditures in the water, sewer and parking enterprise funds. This is considered the minimum level necessary
to maintain the City's credit worthiness and to adequately provide for:
1. Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national
economy.
2. Contingencies for unseen operating or capital needs.
3. Cash flow requirements.
B. Fleet Replacement. For the General Fund fleet, the City will establish and maintain a Fleet Replacement
Fund to provide for the timely replacement of vehicles and related equipment with an individual replacement
cost of $15,000 or more. During the 2015-17 Financial Plan period, the City will establish and maintain a
minimum fund balance in the Fleet Replacement Fund equal to $500,000 for the emergency replacement of
vehicles that are damaged beyond repair, and are either not covered under the City’s property insurance
program or the vehicle has a high replacement cost and insurance proceeds will be inadequate to provide for
the vehicle’s replacement (fire engine). Above this contingency level, the amount retained in this fund,
coupled with the annual contributions received by it from any source, shall be adequate to fully fund the
equipment replacements approved in the Financial Plan.
Interest earnings and the proceeds from the sales of surplus equipment as well as any related damage and
insurance recoveries will be credited to the Fleet Replacement Fund.
C. Information Technology (IT) Replacement Fund. The City will establish an IT Replacement Fund for the
General Fund to provide for the timely replacement of information technology, both hardware and software,
with an individual replacement cost of $25,000 or more. During the 2015-17 Financial Plan period, the City
will establish and maintain a minimum fund balance in this fund equal to $400,000 for the emergency
replacement of equipment that is damaged beyond repair and not covered under the City’s property insurance
program.
Interest earnings and the proceeds from the sale of surplus equipment as well as any related damage and
insurance recoveries will be credited to the fund.
D. Major Facility Replacement Fund. The City will maintain a reserve within this fund for the purpose of
funding the cost of improvements having a cost of $25,000 or more to city-owned, general government building
and structures. The amount retained in this fund, coupled with annual contributions received by it from any
source, to adequately fund maintenance and replacement of City facilities.
E. Infrastructure Investment Fund. The City will maintain a reserve within this fund for the purpose of funding
infrastructure projects that contribute to improved economic development and enhanced quality of life in the
City of San Luis Obispo. The following evaluation criteria shall be applied to project eligibility:
1. The use of City funds shall not offset any cost that would be expected to be paid to meet the fair share
obligation of any developer.
2. The use of City funds shall not offset a project specific cost identified through the environmental review
process or under existing regulations or policies.
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3. The use of funds shall support a project that would not otherwise be feasible due to economic, timing or
other issues outside control of the project proponents or the City.
4. The project shall provide public benefit by contributing to economic development and quality of life within
the City.
E. Insurance Benefit Fund. The City will establish an Insurance Benefit Fund for the purposes of setting funds
aside to manage the fluctuations in liability and worker’s compensation insurance programs. A reserve within
the Insurance Benefit Fund for the Liability Excess Insurance Program will be maintained at approximately
75% funded confidence level based on the prior five-year average claims experience.
F. Water and Sewer Rate Stabilization Reserves. The City w ill maintain a reserve for the purposes of offsetting
unanticipated fluctuations in Water Fund or Sewer Fund revenues to provide financial stability, including the
stability of revenues and the rates and charges related to each Enterprise. The funding target for the Rate
Stabilization Reserve will be 10% of sales revenue in the Water Fund and 5% of sales revenue in the Sewer
Fund.
Conditions for utilization and plan for replenishment of the reserve will be brought to Council for its
consideration during the preparation and approval of the Financial Plan or as may become necessary during any
fiscal year.
G. Future Capital Project Designations. The Council may designate specific fund balance levels for future
development of capital projects that it has determined to be in the best long-term interests of the City. For
example, replacement of critical information technology infrastructure or other projects.
H. Other Designations and Reserves. In addition to the designations noted above, fund balance levels will be
sufficient to meet funding requirements for projects approved in prior years which are carried forward into the
new year; debt service reserve requirements; reserves for encumbrances; and other reserves or designations
required by contractual obligations, state law, or generally accepted accounting principles.
I. General Fund Revenue Stabilization Fund. The City will maintain a reserve for the purposes of
offsetting unanticipated fluctuations in general fund revenues to provide financial stability. The
funding target for the Revenue Stabilization Reserve will be $1,000,000 during the term of the adopted
Fiscal Health Response Plan. Use and allocations of funds of the Revenue Stabilization Fund will be
made upon Council approvals of the Financial Plan or as becomes necessary during any fiscal year.
J. Capital Projects Reserve Fund. The City will maintain a reserve for the purposes of offsetting
unanticipated cost increases, unforeseen conditions, and urgent unanticipated projects to provide
continued investment in infrastructure maintenance and enhancement. Use and allocations of funds
from the Capital Projects Reserve Fund will be made to Capital Projects including Fleet, Information
Technology, and Major Facility Replacement upon Council approvals of the Financial Plan or as
necessary during any fiscal year.
CAPITAL IMPROVEMENT MANAGEMENT
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A. CIP Projects: $25,000 or More. Construction projects and equipment purchases which cost $25,000 or more
will be included in the Capital Improvement Plan (CIP); minor capital outlays of less than $25,000 will be
included with the operating program budgets. Such projects are accounted for in the Capital Outlay Fund.
B. CIP Purpose. The purpose of the CIP is to systematically plan, schedule, and finance capital projects to ensure
cost-effectiveness as well as conformance with established policies. The CIP is a five-year plan organized into
the same functional groupings used for the operating programs. The CIP will reflect a balance between capital
replacement projects that repair, replace or enhance existing facilities, equipment or infrastructure; and capital
facility projects that significantly expand or add to the City's existing fixed assets.
C. Project Manager. Every CIP project will have a project manager who will prepare the project proposal, ensure
that required phases are completed on schedule, authorize all project expenditures, ensure that all regulations
and laws are observed, and periodically report project status.
D. CIP Review Committee. Headed by the City Manager or designee, this Committee will review project
proposals, determine project phasing, recommend project managers, review and evaluate the draft CIP budget
document, and report CIP project progress on an ongoing basis.
E. CIP Phases. The CIP will emphasize project planning, with projects progressing through at least two and up
to ten of the following phases:
1. Designate. Appropriates funds based on projects designated for funding by the Council through adoption
of the Financial Plan.
2. Study. Concept design, site selection, feasibility analysis, schematic design, environmental determination,
property appraisals, scheduling, grant application, grant approval, specification preparation for equipment
purchases.
3. Environmental Review. EIR preparation, other environmental studies.
4. Real Property Acquisitions. Property acquisition for projects, if necessary.
5. Site Preparation. Demolition, hazardous materials abatements, other pre-construction work.
6. Design. Final design, plan and specification preparation and construction cost estimation.
7. Construction. Construction contracts.
8. Construction Management. Contract project management and inspection, soils and material tests, other
support services during construction.
9. Equipment Acquisitions. Vehicles, heavy machinery, computers, office furnishings, other equipment items
acquired and installed independently from construction contracts.
10. Debt Service. Installment payments of principal and interest for completed projects funded through debt
financings. Expenditures for this project phase are included in the Debt Service section of the Financial
Plan.
Generally, it will become more difficult for a project to move from one phase to the next. As such, more
projects will be studied than will be designed, and more projects will be designed than will be constructed or
purchased during the term of the CIP.
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F. CIP Appropriation. The City’s annual CIP appropriation for study, design, acquisition and/or construction is
based on the projects designated by the Council through adoption of the Financial Plan. Adoption of the
Financial Plan CIP appropriation does not automatically authorize funding for specific project phases. This
authorization generally occurs only after the preceding project phase has been completed and approved by the
Council and costs for the succeeding phases have been fully developed.
Accordingly, project appropriations are generally made when contracts are awarded. If project costs at the time
of bid award are less than the budgeted amount, the balance will be unappropriated and returned to fund balance
or allocated to another project. If project costs at the time of bid award are greater than budget amounts, five
basic options are available:
1. Eliminate the project.
2. Defer the project for consideration to the next Financial Plan period.
3. Rescope or change the phasing of the project to meet the existing budget.
4. Transfer funding from another specified, lower priority project.
5. Appropriate additional resources as necessary from fund balance.
G. CIP Budget Carryover. Appropriations for CIP projects lapse three years after budget adoption. Projects
which lapse from lack of project account appropriations may be resubmitted for inclusion in a subsequent CIP.
Project accounts, which have been appropriated, will not lapse until completion of the project phase.
H. Program Objectives. Project phases will be listed as objectives in the program narratives of the programs,
which manage the projects.
I. Public Art. CIP projects will be evaluated during the budget process and prior to each phase for conformance
with the City's public art policy, which generally requires that 1% of eligible project construction costs be set
aside for public art. Excluded from this requirement are underground projects, utility infrastructure projects,
funding from outside agencies, and costs other than construction such as study, environmental review, design,
site preparation, land acquisition and equipment purchases.
It is generally preferred that public art be incorporated directly into the project, but this is not practical or
desirable for all projects; in this case, an in-lieu contribution to public art will be made. To ensure that funds
are adequately budgeted for this purpose regardless of whether public art will be directly incorporated into the
project, funds for public art will be identified separately in the CIP.
J. General Plan Consistency Review. The Planning Commission will review the Preliminary CIP for
consistency with the General Plan and provide is findings to the Council prior to adoption.
CAPITAL FINANCING AND DEBT MANAGEMENT
A. Capital Financing
1. The City will consider the use of debt financing only for one-time capital improvement projects and only
under the following circumstances:
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a. When the project’s useful life will exceed the term of the financing.
b. When project revenues or specific resources will be sufficient to service the long-term debt.
2. Debt financing will not be considered appropriate for any recurring purpose such as current operating and
maintenance expenditures. The issuance of short-term instruments such as revenue, tax or bond anticipation
notes is excluded from this limitation. (See Investment Policy)
3. Capital improvements will be financed primarily through user fees, service charges, assessments, special
taxes or developer agreements when benefits can be specifically attributed to users of the facility.
Accordingly, development impact fees should be created and implemented at levels sufficient to ensure that
new development pays its fair share of the cost of constructing necessary community facilities.
4. Transportation impact fees are a major funding source in financing transportation system improvements.
However, revenues from these fees are subject to significant fluctuation based on the rate of new
development. Accordingly, the following guidelines will be followed in designing and building projects
funded with transportation impact fees:
a. The availability of transportation impact fees in funding a specific project will be analyzed on a case-
by-case basis as plans and specification or contract awards are submitted for City Manager or Council
approval.
b. If adequate funds are not available at that time, the Council will make one of two determinations:
x Defer the project until funds are available.
x Based on the high-priority of the project, advance funds from the General Fund, which will be
reimbursed as soon as funds become available. Repayment of General Fund advances will be the
first use of transportation impact fee funds when they become available.
5. The City will use the following criteria to evaluate pay-as-you-go versus long-term financing in funding
capital improvements:
a. Factors Favoring
Pay-As-You-Go Financing
1. Current revenues and adequate fund balances are available or project phasing can be accomplished.
2. Existing debt levels adversely affect the City's credit rating.
3. Market conditions are unstable or present difficulties in marketing.
b. Factors Favoring Long Term Financing
1. Revenues available for debt service are deemed sufficient and reliable so that long-term financings can
be marketed with investment grade credit ratings.
2. The project securing the financing is of the type, which will support an investment grade credit rating.
3. Market conditions present favorable interest rates and demand for City financings.
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4. A project is mandated by state or federal requirements, and resources are insufficient or unavailable.
5. The project is immediately required to meet or relieve capacity needs and current resources are
insufficient or unavailable.
6. The life of the project or asset to be financed is 10 years or longer.
7. Vehicle leasing when market conditions and operational circumstances present favorable opportunities.
B. Debt Management
1. The City will not obligate the General Fund to secure long-term financings except when marketability can
be significantly enhanced.
2. An internal feasibility analysis will be prepared for each long-term financing which analyzes the impact on
current and future budgets for debt service and operations. This analysis will also address the reliability of
revenues to support debt service.
3. The City will generally conduct financings on a competitive basis. However, negotiated financings may be
used due to market volatility or the use of an unusual or complex financing or security structure.
4. The City will seek an investment grade rating (Baa/BBB or greater) on any direct debt and will seek credit
enhancements such as letters of credit or insurance when necessary for marketing purposes, availability and
cost-effectiveness.
5. The City will monitor all forms of debt annually coincident with the City's Financial Plan preparation and
review process and report concerns and remedies, if needed, to the Council.
6. The City will diligently monitor its compliance with bond covenants and ensure its adherence to federal
arbitrage regulations.
7. The City will maintain good, ongoing communications with bond rating agencies about its financial
condition. The City will follow a policy of full disclosure on every financial report and bond prospectus
(Official Statement).
C. Debt Capacity
1. General Purpose Debt Capacity. The City will carefully monitor its levels of general-purpose debt.
Because our general purpose debt capacity is limited, it is important that we only use general purpose debt
financing for high-priority projects where we cannot reasonably use other financing methods for two key
reasons:
a. Funds borrowed for a project today are not available to fund other projects tomorrow.
b. Funds committed for debt repayment today are not available to fund operations in the future.
In evaluating debt capacity, general-purpose annual debt service payments should generally not exceed
10% of General Fund revenues; and in no case should they exceed 15%. Further, direct debt will not exceed
2% of assessed valuation; and no more than 60% of capital improvement outlays will be funded from long-
term financings.
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2. Enterprise Fund Debt Capacity. The City will set enterprise fund rates at levels needed to fully cover debt
service requirements as well as operations, maintenance, administration and capital improvement costs.
The ability to afford new debt for enterprise operations will be evaluated as an integral part of the City’s
rate review and setting process.
D. Independent Disclosure Counsel
The following criteria will be used on a case-by-case basis in determining whether the City should retain the
services of an independent disclosure counsel in conjunction with specific project financings:
1. The City will generally not retain the services of an independent disclosure counsel when all of the
following circumstances are present:
a. The revenue source for repayment is under the management or control of the City, such as general
obligation bonds, revenue bonds, lease-revenue bonds or certificates of participation.
b. The bonds will be rated or insured.
2. The City will consider retaining the services of an independent disclosure counsel when one or more of
following circumstances are present:
a. The financing will be negotiated, and the underwriter has not separately engaged an underwriter’s
counsel for disclosure purposes.
b. The revenue source for repayment is not under the management or control of the City, such as land-
based assessment districts, tax allocation bonds or conduit financings.
c. The bonds will not be rated or insured.
d. The City’s financial advisor, bond counsel or underwriter recommends that the City retain an
independent disclosure counsel based on the circumstances of the financing.
E. Land-Based Financings
1. Public Purpose. There will be a clearly articulated public purpose in forming an assessment or special tax
district in financing public infrastructure improvements. This should include a finding by the Council as
to why this form of financing is preferred over other funding options such as impact fees, reimbursement
agreements or direct developer responsibility for the improvements.
New development should generally be expected to “pay its own way,” (i.e., provide funding through
one mechanism or another that funds its “proportional share” of public improvement and infrastructure
costs and ongoing operations and maintenance costs).
(1) The City will consider the use of city-based funding sources to fund public facility and
infrastructure improvements that provide for the health, safety and welfare of existing and
future residents and/or provide measurable economic development and fiscal benefits. In
evaluating whether the City will use city-based funding sources, the following evaluation
criteria should be considered:
(a) Significant public benefit, demonstrated by compliance with and furtherance of
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General Plan goals, policies, and programs
(b) Alignment with the Major City Goals and other important objectives in place at the
time of the application
(c) Head of Household Job Creation
(d) Housing Creation
(e) Circulation/Connectivity Improvements
(f) Net General Fund fiscal impact
(2) The City generally will not fund or offer public financing for infrastructure
improvements that confer only private benefit to individual property owners or
development projects.
(3) The City shall seek continuity (or improvements to) existing levels of municipal service
by assuring adequate funding for the City’s operation, maintenance and infrastructure
replacement costs.”
2. Eligible Improvements. Except as otherwise determined by the Council when proceedings for district
formation are commenced, preference in financing public improvements through a special tax district shall
be given for those public improvements that help achieve clearly identified community facility and
infrastructure goals in accordance with adopted facility and infrastructure plans as set forth in key policy
documents such as the General Plan, Specific Plan, Facility or Infrastructure Master Plans, or Capital
Improvement Plan.
Such improvements include study, design, construction and/or acquisition of:
a. Public safety facilities.
b. Water supply, distribution and treatment systems.
c. Waste collection and treatment systems.
d. Major transportation system improvements, such as freeway interchanges; bridges; intersection
improvements; construction of new or widened arterial or collector streets (including related
landscaping and lighting); sidewalks and other pedestrian paths; transit facilities; and bike paths.
e. Storm drainage, creek protection and flood protection improvements.
f. Parks, trails, community centers and other recreational facilities.
g. Open space.
h. Cultural and social service facilities.
i. Other governmental facilities and improvements such as offices, information technology systems and
telecommunication systems.
School facilities will not be financed except under appropriate joint community facilities agreements or
joint exercise of powers agreements between the City and school districts.
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3. Active Role. Even though land-based financings may be a limited obligation of the City, we will play an
active role in managing the district. This means that the City will select and retain the financing team,
including the financial advisor, bond counsel, trustee, appraiser, disclosure counsel, assessment engineer
and underwriter. Any costs incurred by the City in retaining these services will generally be the
responsibility of the property owners or developer, and will be advanced via a deposit when an application
is filed; or will be paid on a contingency fee basis from the proceeds from the bonds.
4. Credit Quality. When a developer requests a district, the City will carefully evaluate the applicant’s
financial plan and ability to carry the project, including the payment of assessments and special taxes during
build-out. This may include detailed background, credit and lender checks, and the preparation of
independent appraisal reports and market absorption studies. For districts where one property owner
accounts for more than 25% of the annual debt service obligation, a letter of credit further securing the
financing may be required.
5. Reserve Fund. A reserve fund should be established in the lesser amount of: the maximum annual debt
service; 125% of the annual average debt service; or 10% of the bond proceeds.
6. Value-to-Debt Ratios. The minimum value-to-debt ratio should generally be 4:1. This means the value of
the property in the district, with the public improvements, should be at least four times the amount of the
assessment or special tax debt. In special circumstances, after conferring and receiving the concurrence of
the City’s financial advisor and bond counsel that a lower value-to-debt ratio is financially prudent under
the circumstances, the City may consider allowing a value-to-debt ratio of 3:1. The Council should make
special findings in this case.
7. Appraisal Methodology. Determination of value of property in the district shall be based upon the full cash
value as shown on the ad valorem assessment roll or upon an appraisal by an independent Member
Appraisal Institute (MAI). The definitions, standards and assumptions to be used for appraisals shall be
determined by the City on a case-by-case basis, with input from City consultants and district applicants,
and by reference to relevant materials and information promulgated by the State of California, including
the Appraisal Standards for Land-Secured Financings prepared by the California Debt and Investment
Advisory Commission.
8. Capitalized Interest During Construction. Decisions to capitalize interest will be made on case-by-case
basis, with the intent that if allowed, it should improve the credit quality of the bonds and reduce borrowing
costs, benefiting both current and future property owners.
9. Maximum Burden. Annual assessments (or special taxes in the case of Mello-Roos or similar districts)
should generally not exceed 1% of the sales price of the property; and total property taxes, special
assessments and special taxes payments collected on the tax roll should generally not exceed 2%.
10. Benefit Apportionment. Assessments and special taxes will be apportioned according to a formula that is
clear, understandable, equitable and reasonably related to the benefit received by—or burden attributed
to—each parcel with respect to its financed improvement. Any annual escalation factor should generally
not exceed 2%.
F. Development Impact Fees Guidelines and Policies
Development impact fees are one-time fees levied on new development, typically levied at the
time building permits are issued, to fund a range of the City’s public facilities and infrastructure.
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Such fees are levied both on a citywide basis as well as for specific areas (e.g., the Specific Plan
Areas). The levy of development impact fees is regulated by the State’s Mitigation Fee Act
(Government Code Section 66000 et seq.).
1. Development impact fees should be set, consistent with the statutory “nexus” analysis
and findings, to fund new development’s proportional share of public facility and
infrastructure costs.
2. Improvements funded by development impact fees should be referenced generally in the
appropriate planning documents (e.g., General Plan, Specific Plans, etc.) and reflected
in the City’s Capital Improvement Program.
3. An exception to this policy may be created by a development agreement between the
City and a private developer. In this case public investments are offset by measurable
public benefits.
4. The City’s development impact fees can be “leveraged” through the use of fee credit
and reimbursement agreements with developers and landowners.
5. The City’s aggregate fee levels should not render new development that is otherwise
consistent with City plans and regulations economically infeasible. Aggregate fee levels
should be evaluated in terms of a reasonable standard, but not a strict limit (e.g.,
aggregate fee levels should not exceed an average of approximately 10 to 12 percent of
the market value of the new development, either on a per-unit or per-square foot basis).
6. The City may consider reductions or waivers of its development impact fees in cases
where a development project meets specific City planning or economic development
policies such as affordable housing projects. In such cases the amount of funding
foregone must be replaced with other funding sources available to the City.
1. Special Tax District Administration. In the case of Mello-Roos or similar special tax districts, the total
maximum annual tax should not exceed 110% of annual debt service. The rate and method of
apportionment should include a back-up tax in the event of significant changes from the initial development
plan, and should include procedures for prepayments.
1. Community Facilities Districts or Assessment Districts offer a way to fund
infrastructure, maintenance, or municipal services through special taxes or assessments
levied on property owners benefiting from the thus-funded improvements or services. It
can be used for both capital improvements and ongoing facility maintenance or services.
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2. The City will consider the formation of financing districts using the State’s assessment
law or the Mello-Roos Community Facilities Act for its newly developing areas on a
case- by-case basis, consistent with technical analysis and City priorities (i.e., capital or
ongoing funding).
3. The City will consider the effect of the special tax on the City’s ability to issue General
Obligation bonds or other property-based tax measures.
4. Such districts should fund infrastructure or services serving or otherwise providing
benefit to the area subject to the assessment or special tax.
5. Such districts can fund public facilities or infrastructure otherwise funded with the
City’s development impact fees or project-specific exactions. In such cases the area’s
development impact fee obligations will be adjusted proportionately.
6. Within any such districts, property value-to-lien ratio should, consistent with typical
underwriting standards, be at least 4.0:1 after calculating the value of the financed
public improvements to be installed and considering any prior or pending special taxes
or improvement liens.
7. Consistent with underwriting standards and market considerations, and as a matter of
policy, the City will limit the maximum amount of special taxes to be levied on any parcel
of property within a Community Facilities District, in any given fiscal year, together with
the general property taxes, general obligation bonds, and other special taxes and
assessments levied on such parcel, shall not exceed an amount equal to one and eight-
tenths percent (1.8 percent) of the projected assessed value of the parcel (and
improvements if applicable). How the special tax capacity is allocated between capital
and ongoing expenditures will depend upon the City’s priorities.
8. The City shall have discretion to allow a special tax in excess of the established limits for
any lands within the CFD which are designated for commercial or industrial uses.
9. As a part of such district formations, the City will retain a special tax consultant to prepare a report
which recommends a special tax rate and method for the proposed CFD and evaluates the special
tax proposed to determine its ability to adequately fund identified public facilities, City
administrative costs, services (if applicable) and other related expenditures.
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2. Foreclosure Covenants. In managing administrative costs, the City will establish minimum delinquency
amounts per owner, and for the district as a whole, on a case-by-case basis before initiating foreclosure
proceedings.
3. Disclosure to Bondholders. In general, each property owner who accounts for more than 10% of the annual
debt service or bonded indebtedness must provide ongoing disclosure information annually as described
under SEC Rule 15(c)-12.
4. Disclosure to Prospective Purchasers. Full disclosure about outstanding balances and annual payments
should be made by the seller to prospective buyers at the time that the buyer bids on the property. It should
not be deferred to after the buyer has made the decision to purchase. When appropriate, applicants or
property owners may be required to provide the City with a disclosure plan.
G. Conduit Financings
1. The City will consider requests for conduit financing on a case-by-case basis using the following criteria:
a. The City’s bond counsel will review the terms of the financing, and render an opinion that there will
be no liability to the City in issuing the bonds on behalf of the applicant.
b. There is a clearly articulated public purpose in providing the conduit financing.
c. The applicant is capable of achieving this public purpose.
2. This means that the review of requests for conduit financing will generally be a two-step process:
a. First asking the Council if they are interested in considering the request, and establishing the ground
rules for evaluating it.
b. And then returning with the results of this evaluation, and recommending approval of appropriate
financing documents if warranted.
This two-step approach ensures that the issues are clear for both the City and applicant, and that key policy
questions are answered.
3. The workscope necessary to address these issues will vary from request to request, and will have to be
determined on a case-by-case basis. Additionally, the City should generally be fully reimbursed for our
costs in evaluating the request; however, this should also be determined on a case-by-case basis.
B. Refinancings
1. General Guidelines. Periodic reviews of all outstanding debt will be undertaken to determine refinancing
opportunities. Refinancings will be considered (within federal tax law constraints) under the following
conditions:
a. There is a net economic benefit.
b. It is needed to modernize covenants that are adversely affecting the City’s financial position or
operations.
c. The City wants to reduce the principal outstanding in order to achieve future debt service savings, and
it has available working capital to do so from other sources.
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2. Standards for Economic Savings. In general, refinancings for economic savings will be undertaken
whenever net present value savings of at least five percent (5%) of the refunded debt can be achieved.
a. Refinancings that produce net present value savings of less than five percent will be considered on a
case-by-case basis, provided that the present value savings are at least three percent (3%) of the
refunded debt.
b. Refinancings with savings of less than three percent (3%), or with negative savings, will not be
considered unless there is a compelling public policy objective.
C. Enhanced Infrastructure Financing District Guidelines and Policies
a. EIFD financing should be considered for public facilities or infrastructure improvements that confer
Citywide and/or regional benefits. This may include the “City share” of infrastructure included in the
City’s development impact fees.
b. Unless there is a Development Agreement in place that provides otherwise, EIFDs should not be used
to fund real estate projects’ proportional share of infrastructure costs otherwise included in the City’s
development impact fees or charged as project-specific exactions (e.g., subdivision improvements).
c. City should consider EIFDs when more than one local government jurisdiction is participating to
produce maximum benefit.
d. At the time of formation of the EIFD (or if changes to the EIFD are contemplated), the City should
require a fiscal impact analysis to determine if an EIFD is fiscally prudent and analyze opportunity cost
to the City’s General Fund.
HUMAN RESOURCE MANAGEMENT
A. Regular Staffing
1. The budget will fully appropriate the resources needed for authorized regular staffing and will limit
programs to the regular staffing authorized.
2. Regular employees will be the core work force and the preferred means of staffing ongoing, year-round
program activities that should be performed by full-time City employees rather than independent
contractors. The City will strive to provide competitive compensation and benefit schedules for its
authorized regular work force. Each regular employee will:
a. Fill an authorized regular position.
b. Be assigned to an appropriate bargaining unit, unless designated as an unrepresented management or
confidential classification.
c. Receive salary and benefits consistent with labor agreements or other compensation plans.
3. To manage the growth of the regular work force and overall staffing costs, the City will follow these
procedures:
a. The Council will authorize all regular positions.
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b. The Human Resources Department will coordinate and approve the hiring of all regular and
supplemental staff.
c. All requests for additional regular positions will include evaluations of:
x The necessity, term and expected results of the proposed activity.
x Staffing and materials costs including salary, benefits, equipment, uniforms, clerical support and
facilities.
x The ability of private industry to provide the proposed service.
x Additional revenues or cost savings, which may be realized.
4. Periodically, and before any request for additional regular positions, programs will be evaluated to
determine if they can be accomplished with fewer regular employees. (See Productivity Review Policy)
5. Staffing and contract service cost ceilings will limit total expenditures for regular employees, supplemental
staff, and independent contractors hired to provide operating and maintenance services.
B. Supplemental Staff
1. The hiring of supplemental staff will not be used as an incremental method for expanding the City's regular
work force.
2. Supplemental staff include all employees other than regular employees, elected officials and volunteers.
Supplemental staff include temporary employees, interns, and contract employees. Supplemental staff may
work on a full-time or part-time basis and will generally augment regular City staffing. Supplemental staff
may be used as extra-help during peak workloads, as coverage during extended absences of regular
employees, seasonal workforce, as a means to assess ongoing staffing needs, or as the staffing method for
program delivery that is most effectively staffed using part-time hours to ensure adequate coverage.
3. The City Manager and Department Heads will encourage the use of supplemental staff rather than regular
employees to meet peak workload requirements, fill interim vacancies, and accomplish tasks where less
than full-time, year-round staffing is required.
Under this guideline, supplemental staff hours will generally not exceed 50% of a regular, full-time position
(1,000 hours annually). There may be limited circumstances where the use of supplemental staff on an
ongoing basis in excess of this target may be appropriate due to unique programming or staffing
requirements. However, any such exceptions must be approved by the City Manager based on the review
and recommendation of the Human Resources Director.
4. Contract employees are defined as supplemental staff with written contracts approved by the City Manager
who may receive approved benefits Contract employees will generally be used for medium-term (generally
between six months and two years) projects, programs or activities requiring specialized or augmented
levels of staffing for a specific period.
The services of contract employees will be discontinued upon completion of the assigned project, program or
activity. Accordingly, contract employees will not be used for services that are anticipated to be delivered on
an ongoing basis and as such, a determination as to the expected need will be made at the end of each contract
term and prior to extending or renewing a contract.
C. Overtime Management
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1. Overtime should be used only when necessary and when other alternatives are not feasible or cost effective.
2. All overtime must be pre-authorized by a department head or delegate unless it is assumed pre-approved
by its nature. For example, overtime that results when an employee is assigned to standby and/or must
respond to an emergency or complete an emergency response.
3. Departmental operating budgets should reflect anticipated annual overtime costs and departments will
regularly monitor overtime use and expenditures.
4. When considering the addition of regular or temporary staffing, the use of overtime as an alternative will
be considered. The department will take into account:
a. The duration that additional staff resources may be needed.
b. The cost of overtime versus the cost of additional staff.
c. The skills and abilities of current staff.
d. Training costs associated with hiring additional staff.
e. The impact of overtime on existing staff.
D. Independent Contractors
Independent contractors are not City employees. They may be used in two situations:
1. Short-term, peak workload assignments to be accomplished using personnel contracted through an outside
temporary employment agency (OEA). In this situation, it is anticipated that City staff will closely monitor
the work of OEA employees and minimal training will be required. However, they will always be
considered the employees of the OEA and not the City. All placements through an OEA will be coordinated
through the Human Resources Department and subject to the approval of the Human Resources Director.
2. Construction of public works projects and delivery of operating, maintenance or specialized professional
services not routinely performed by City employees. Such services will be provided without close
supervision by City staff, and the required methods, skills and equipment will generally be determined and
provided by the contractor. Contract awards will be guided by the City's purchasing policies and
procedures. (See Contracting for Services Policy)
PRODUCTIVITY
Ensuring the “delivery of service with value for cost” is one of the key concepts embodied in the City's Mission
Statement (San Luis Obispo Style— Quality With Vision). To this end, the City will constantly monitor and review
our methods of operation to ensure that services continue to be delivered in the most cost-effective manner possible.
This review process encompasses a wide range of productivity issues, including:
A. Analyzing systems and procedures to identify and remove unnecessary review requirements.
B. Evaluating the ability of new technologies and related capital investments to improve productivity.
BUDGET REFERENCE MATERIALS Attachment X
BUDGET AND FISCAL POLICIES
C. Developing the skills and abilities of all City employees.
D. Developing and implementing appropriate methods of recognizing and rewarding exceptional employee
performance.
E. Evaluating the ability of the private sector to perform the same level of service at a lower cost.
F. Periodic formal reviews of operations on a systematic, ongoing basis.
G. Maintaining a decentralized approach in managing the City's support service functions. Although some level
of centralization is necessary for review and control purposes, decentralization supports productivity by:
1. Encouraging accountability by delegating responsibility to the lowest possible level.
2. Stimulating creativity, innovation and individual initiative.
3. Reducing the administrative costs of operation by eliminating unnecessary review procedures.
4. Improving the organization's ability to respond to changing needs, and identify and implement cost-saving
programs.
5. Assigning responsibility for effective operations and citizen responsiveness to the department.
H. Maintaining City purchasing policies and procedures that are as efficient and effective as possible.
CONTRACTING FOR SERVICES
A. General Policy Guidelines
1. Contracting with the private sector for the delivery of services provides the City with a significant
opportunity for cost containment and productivity enhancements. As such, the City is committed to using
private sector resources in delivering municipal services as a key element in our continuing efforts to
provide cost-effective programs.
2. Private sector contracting approaches under this policy include construction projects, professional services,
outside employment agencies and ongoing operating and maintenance services.
3. In evaluating the costs of private sector contracts compared with in-house performance of the service,
indirect, direct, and contract administration costs of the City will be identified and considered.
4. Whenever private sector providers are available and can meet established service levels, they will be
seriously considered as viable service delivery alternatives using the evaluation criteria outlined below.
5. For programs and activities currently provided by City employees, conversions to contract services will
generally be made through attrition, reassignment or absorption by the contractor.
B. Evaluation Criteria
BUDGET REFERENCE MATERIALS Attachment X
BUDGET AND FISCAL POLICIES
Within the general policy guidelines stated above, the cost-effectiveness of contract services in meeting
established service levels will be determined on a case-by-case basis using the following criteria:
1. Is a sufficient private sector market available to competitively deliver this service and assure a reasonable
range of alternative service providers?
2. Can the contract be effectively and efficiently administered?
3. What are the consequences if the contractor fails to perform, and can the contract reasonably be written to
compensate the City for any such damages?
4. Can a private sector contractor better respond to expansions, contractions or special requirements of the
service?
5. Can the work scope be sufficiently defined to ensure that competing proposals can be fairly and fully
evaluated, as well as the contractor's performance after bid award?
6. Does the use of contract services provide us with an opportunity to redefine service levels?
7. Will the contract limit our ability to deliver emergency or other high priority services?
8. Overall, can the City successfully delegate the performance of the service but still retain accountability and
responsibility for its delivery?