Summary of Finance and Budget Commission Discussion of the Budget

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By Jeff Miller and Dan Carson

This summary was prepared by Jeff Miller and Dan Carson at the request of the Finance and Budget Commission and sent to the Davis City Council.

The commission discussed a broad range of technical and strategic budget issues. City staff members were able to address many of the questions asked by commissioners, and we appreciate their help. The list below highlights significant issues that we believe warrant further consideration by the City Council in its own budget deliberations:

— The budget plan should be adjusted to reflect a $397,000 payment expected June 23 from the State Controller’s Office as reimbursement for past claims filed by the city for carrying out various state-mandated programs. Only $78,000 was previously assumed from this source in the city budget. Staff indicated these monies could offset a potential 2014-15 gap in property tax collections discussed below.

— We are in agreement with city staff that two critical pieces of information are needed to determine if the city budget should assume more property tax revenues in the budget plan. First, the May distribution of property taxes is (according to the June 16 staff report) $200,000 below expectations. City staff is investigating these numbers with the county to determine if they will change between now and the end of 2014-15. Second, the Yolo County Assessor has not yet released the 2015-16 property tax assessment roll, which greatly affects the city’s future property tax receipts. The issue should be revisited later this year when more is known.

— The assumption in the budget of just 1% growth in sales tax revenues in 2015-16 appears low, given the city’s past growth in sales tax-related activity and economic trends. City staff has agreed to further discuss its sales tax assumptions with its consultant. The council should consider in the range of 4% to 5% growth for 2015-16.

— City staff indicates that none of the money set aside in a $1.2 million “litigation reserve” in 2014-15 will be spent. We believe these monies should be recognized in the budget plan as being available for other purposes. City staff is suggesting part of the money could be used to help address a $1.5 million deficit in funding for certain employee benefits, which would reduce future budgeted costs for these purposes.

— What had been a $1.6 million balance in the city Cable TV Fund as of 2013-14 is starting to be used for city infrastructure projects. The balance is expected to be $375,000 lower by the end of 2015-16. We recommend the council determine later this year how surplus monies in the fund should be put to work, and that the balances in other special funds be examined to see if they are appropriate.

— While work has continued on developing a new information technology project we believe the project should be accelerated so that it would, among other things, allow better accounting and management of city spending.

— Although tracking of capital projects in the new budget presentation has improved, there are concerns that monies for the actual implementation of the project has not been budgeted or reflected in the five year fiscal forecast. As part of our continuing efforts to implement our new mission statement we believe we need a reporting system that can map the percentage of a particular capital project that is complete against the monies spent to that point on that project. The reporting should also include information on a completed projects adopted budget versus actual total dollars spent on the project, and a comparison of the project timeline for each project versus its actual timeline.

— The commission requested information on salary cost by employee in the Department of Public Works to determine why some of these costs seem high.

— Additional information was sought from staff regarding the $315,000 budgeted for support within the RDA Successor Agency budget.

— The commission expressed interest in the potential for implementing “lean management” principles to reduce budgeted costs. (By one definition, lean management seeks to eliminate any waste of time, effort or money by identifying each step in a business process and then revising or cutting out steps that do not create value.) For example, costs for purchases of printers and copying might be reduced by new work rules and procedures.

— The commission inquired about what the city’s goals are in the pending negotiations with employee associations, and whether under current trends average compensation costs are being contained.

— The commission expressed interest in moving toward fuller use of scenario analysis in the consideration of the budget plan. For example, scenarios could be developed to spell out what additional spending items would be prioritized in the event that revenues were better than expected, as well as what reductions should be implemented in the event of an unanticipated downturn in city finances.

— The commission expressed interest in modifying the budget projections in the future to display information pertaining to long term unfunded/accrued liabilities, such as personnel or deferred maintenance costs not covered within budgeted expenditures.

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18 Comments

  1. Gunrocik

    What is the specific purview of the FBC?   While there are many useful suggestions, it seems like an already over taxed staff is getting micromanaged by the Commission.  I don’t think it is the purview of the Commission to recommend lean management principles or to get into the details of their capital budget tracking.

    And I continue to be appalled that the Commission continues to be overly aggressive in projecting revenues.  It is Govt 101 to be conservative in projecting revenues — if more money comes in, great (we have plenty of unfunded liabilities to use it on)– but if it doesn’t materialize, you’ve now created a hole in the budget that will be difficult to fill.

    This is a Council-Manager form of Government, not a Council-Commission form of government.

    1. Don Shor

      http://city-council.cityofdavis.org/commissions/finance-and-budget-commission

      Function/Purpose:
      Providing transparency of City Finances to the citizens of Davis.

      Reviewing the spending outlined in the city budget in order to advise the Public that City Council/City Management is accountable for spending taxpayer dollars effectively and in keeping with important city priorities.

      Searching for and advising actions that could maximize city revenues and reduce governmental costs and help ensure municipal fiscal stability.

      Providing recommendations/special studies on financial and economic issues to the City Council.

      1. Matt Williams

        It is worth noting that the language of that Function/Purpose statement was reviewed and approved in an amended authorizing resolution by unanimous vote of the City Council exactly six months ago on 12/16/2014.  The Staff Report for that amended authorizing resolution reads as follows:

         

        NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Davis creates a Finance and Budget Commission to achieve the following:

        1. PURPOSE

          The Davis Finance and Budget Commission is to focus on an independent analysis of technical, financial and budgeting issues.

         

        1. FUNCTIONS OF THE COMMISSION

          The Finance and Budget Commission shall have the responsibilities as provided in this section and such other duties as the Council may, from time to time, decide:

          1. Providing transparency of City Finances to the citizens of Davis.
          2. Reviewing the spending outlined in the city budget in order to advise the Public that City Council/City Management is accountable for spending taxpayer dollars effectively and in keeping with important city priorities.
          3. Searching for and advising actions that could maximize city revenues and reduce governmental costs and help ensure municipal fiscal stability.
          4. Providing recommendations/special studies on financial and economic issues to the City Council.

         

         

    2. jeff

       
      Gunrocik
       
      I think you may have misconstrued our mission. First, we don’t provide any policy suggestions regarding either macro or micromanaging staff or the CC. Regarding “lean management principles”  or “detailed capital budget tracking”,  we would not be concerned if the city staff knew how much it cost to maintain a mile of bike path or road, a swimming pool, a soccer field, etc. Or if they had an up to date map of the status of all ongoing and completed projects.  They don’t. Hence the suggestion reflects that staff should be requesting the tools including a new “information system” that can provide themselves this information to better manage our city.
       
      We believe it is important to identify potentially underreported taxes (which you refer to as revenues) so that if they do materialize we understand staff’s/CC  plan as to where/how to spend the money versus this money slipping into a GF reserve or some other fund. The intent of these additional tax dollars are intended for infrastructure not additional employee compensation or CC specialty projects. (Staff or CC may certainly propose new MOU’s or new projects along with how to fund them.) Again, do not misinterpret  my comment as a policy statement or my personal opinion but that of a member of the FBC who is charged via our new mission statement with reporting on policy compliance by staff and CC. Staff needs to be held accountable for what they propose and CC needs to held accountable for what they adopt. Part of our mission statement is to develop a model and report/s that displays this accountability. Additionally, this model should be survivable irrespective of changes in city management, CC of FBC members. We are working on this.  
      I wholeheartedly agree with you if we actually included our real long term accrued infrastructure, pension and OPEB liabilities  we are probably running at a $10 million plus per year deficit not a surplus. We will continue to monitor and report on this to the citizens of Davis as well as CC.
       
      From your comments and as the chair of the commission, I guess my question to you is what do think our role is or should be?
      Jeff

      Chairman of Finance & Budget Commission

      1. hpierce

        “if the city staff knew how much it cost to maintain a mile of bike path or road…”  On roads, that info has been made available by staff since the late ’80’s.  Maybe not in the parameters you seek. The warnings were ignored for years.

        Bikepaths, sidewalks, etc. maintenance needs have been worked on, but resources to do it well have not been forthcoming, although PW staff have advocated for it for 15-20 years.

        In short, don’t look to staff for blame,except at CM /CC level.

        1. Davis Progressive

          “In short, don’t look to staff for blame,except at CM /CC level.”

          i might go down a layer.  don’t you think department heads play a role here?

        2. jeff

          hpierce

          I do not blame staff other than the usual and understandable reluctance to change. At this time blame seems pointless.  This problem must be resolved at the CM level and his management team with full financial support from CC.

        3. hpierce

          DP, the Department Head(s) for PW [Pelz, Weir] were the ones who tried to get the word out for over two decades. [related to transportation infrastructure and utilities]

      2. Anon

        Additionally, this model should be survivable irrespective of changes in city management, CC of FBC members. We are working on this.”

        Very crucial point.  One of the problems this city has is that every two years there is a potential (or actual) turnover of City Council members, which disrupts continuity, since it is the City Council that if the final arbiter of the city’s budget.  We have also had a frequent turnover in City Managers, and commissioners come and go.  But this frequent turnover should not disrupt continuity of basic ongoing budget items that need to be regularly addressed.

        1. Matt Williams

          DP, being proactive about any course correction (either up or down) avoids the long delays we have historically experienced waiting for the course correction item to be put on a future agenda, researched by Staff, heard and voted on, and then finally realized as an action plan and actual actions/results.

  2. Frankly

    The commission expressed interest in the potential for implementing “lean management” principles to reduce budgeted costs.

    Just posted the same for another article on the VG.  Great minds think alike.

    Thanks to the Finance and Budget Commission for working on behalf of the citizens and taxpayers of Davis.  It seems that the city’s accounting and financial reporting systems are antiquated and not meeting our needs.  This project should be prioritized.   Unfortunately, part of me thinks there are forces within city government that like having a system that prevents timely transparency.  I hope I am wrong about that and this project is given highest priority.

    Lastly, there is little ongoing reporting on and discussion of the city balance sheet.  We have an insolvent balance sheet… meaning our total liabilities exceed our total assets.  And more alarming, the gap is growing every year.

    Private business generally use accrual accounting, while government business tends to account on a cash basis.  For private business using accrual accounting, this means that all known revenue/assets and expenses/liabilities need to be recorded in the books (recognized) when they are known.  So a private business that knows about ongoing infrastructure maintenance and pension commitments would need to book long-term liabilities on their balance sheets.  They would be able to offset those long-term liabilities with long-term assets… for example, a loan or some other financing mechanism.  Without an offset in the asset side of the balance sheet, the company would be considered insolvent.

    Many cities in California, the State of California and the entire US government is insolvent.  They all have long-term liabilities far outstripping their expected long-term assets.

    Part of the reason that they have grown insolvent is that politicians and government bureaucrats have been able to hide the problem due to the lack of reporting requirements.

    The Finance and Budget Commission should ensure that their mission is to be the intermediary/liaison between government and the citizens and taxpayers: primarily supporting the citizens and taxpayers in demanding government transparency and high-quality financial management practices to ensure optimum steward ship of the tax dollars we provide.  And with this, I think the City of Davis F&B Commission should demand the city provide a timely balance sheet that complies with accrual accounting methods.  And with this, the citizens and tax payers should demand that our politicians have as a primary goal to bring the city to solvency.  In fact, this goal should be a prerequisite to any additional increase in city employee pay or benefits.

    Remember the reports of the bank giving bonuses and raises to employees while it was known to be failing and being bailed out?   Remember the outrage?  Well this is basically what we are experiencing in government at most levels these days… the business of government is failing, yet employees are still being given raises.  And the bailout is the constant return to demand higher taxes from the citizens.

    Davis should be a leader in putting a stop to this.

    The Finance and Budget Commission is a key to making it happen.

  3. Davis Progressive

    – We are in agreement with city staff that two critical pieces of information are needed to determine if the city budget should assume more property tax revenuesin the budget plan. First, the May distribution of property taxes is (according to the June 16 staff report) $200,000 below expectations. City staff is investigating these numbers with the county to determine if they will change between now and the end of 2014-15. Second, the Yolo County Assessor has not yet released the 2015-16 property tax assessment roll, which greatly affects the city’s future property tax receipts. The issue should be revisited later this year when more is known.

    – The assumption in the budget of just 1%growth in sales tax revenuesin 2015-16 appears low, given the city’s past growth in sales tax-related activity and economic trends. City staff has agreed to further discuss its sales tax assumptions with its consultant. The council should consider in the range of 4% to 5% growth for 2015-16.

    i don’t really understand why we continue down this road.  the short term economic growth underestimate is unlikely to change the big picture.

  4. Anon

    – The commission expressed interest in moving toward fuller use of scenario analysis in the consideration of the budget plan. For example, scenarios could be developed to spell out what additional spending items would be prioritized in the event that revenues were better than expected, as well as what reductions should be implemented in the event of an unanticipated downturn in city finances.”

    Very important concept – identifying what should be spent on and what should be cut in times of plenty and times of scarcity, respectively.  That is true responsible budgeting IMO.  Too often in the past, in times of plenty, basic necessities have been ignored, like road repairs, building maintenance, unfunded employee benefits, in favor of funding frills – like skateboard parks, teen centers, renovating old theaters, and the like.  This type of “frills” spending sows seeds of distrust in citizens.

    “– The commission expressed interest in modifying the budget projections in the future to display information pertaining to long term unfunded/accrued liabilities, such as personnel or deferred maintenance costs not covered within budgeted expenditures.”

    Yes, let’s stop putting unfunded liabilities and deferred maintenance costs in a “parking lot” category somewhere and start including it in the budget.  This is crucial to responsible budgeting.

    Many thanks to the current Finance & Budget Commission for staying on top of things and holding the city’s feet to the fire.  It needs to be done to ensure transparency, responsible budgeting, and fiscal sustainability.  It hopefully will prevent the creation of an “unmet needs” category and declaring the budget “balanced” as a creative bookkeeping gimmick to hide the financial truth from citizens, as has happened in the past.

    1. Davis Progressive

      this is a good point. if you recall i believe it was 2011 or 2012 that the council passed a motion by sue greenwald that unfunded liabilities and deferred maintenance would be reflected in the budget, but i have yet to see that occur.

  5. Gunrocik

    Jeff: From your comments and as the chair of the commission, I guess my question to you is what do think our role is or should be?

    I was a bit over provocative in my initial comment.  I’ve been a Commissioner in a number of cities over the past few decades and through the good and bad economies.  In my 20s, I think I was far more idealistic as to the ability for Commissions to shape and mold policies for each community.  Decades later, I’ve become far more realistic about the ability of a Commission to make a difference.

    Both Commissioners and staff have very limited time and resources to actually effectuate change through a City Commission.  Both the Commissioners and the staff already have full time workloads.  And post recession, Davis staff is expected to continue to support nearly two dozen commissions and committees with 25% less staff than they had a decade ago.

    Effective commissions keep it simple.  Focus on a couple of key issues a year that can have maximum impact.  Your commission doesn’t have the time or staff support to restructure the City’s budget.

    I would hope that you’d focus ways to address our unfunded liabilities and get out of the business of nitpicking revenue projections, espousing management theories, and recommending new information systems.

     

    1. Frankly

      This is a strong recommendation, although the information system seems to be a prerequisite to the reporting needed to do much of anything else of use.

    2. Matt Williams

      Gunrocik, thank you for your acknowledgement of the “reach” of your initial comment.  As an individual citizen who is a member of the Finance and Budget Commission, I can understand your thoughts about “nitpicking revenue projections” and the reason I proposed the scenario analysis consideration was to allow the City to spend less time on fine-tuning the specifics of a projection, while at the same time recognizing that generating revenues above whatever the projection is, presents the City with opportunities to proactively address the capital infrastructure issues our City faces.

      With that said, the FBC Chair, Jeff Miller forcefully made the point that changes in economic condition could just as easily produce less revenue than the projections, and having a proactive plan for tightening the City’s belt was/is equally important.

      Anon’s comment above supporting this very important concept is spot on.

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