Finance Advisory Committee Agenda 02/13/2002 Finance, Advisory, Committee, Agenda, For the first time, in early 1999 the City Council approved the preparation of a two-year budget. The budget period was July 1, 1999 through June 30, 2001. In June 1999 the Council adopted the first year of the two-year budget after extensive workshops and hearings. In June 2000 the Council adopted the second year of the budget after only one workshop session. In adopting the multi-year budget, the City of Rancho Palos Verdes was consistent with other local governments with relatively small budgets that are heavily weighted toward recurring expenses. The primary advantage of adopting a two-year budget is forcing the staff and Council to think ahead further and make long-range plans for revenues and expenditures. A second advantage is saving of City Council and staff time that is required to prepare the budget and present it at numerous workshops and hearings, most of which are very lightly attended. A typical budget process starts in January and is not complete until June. For a City with only 42 employees, the level of effort required to do an annual budget completely dominates the four to five month period of preparation and presentation RPV Finance Advisory Committee Meeting Agenda for 02/13/2002 Rancho Palos Verdes Finance Committe Agenda Febraury 13, 2002



AGENDA
CITY OF RANCHO PALOS VERDES
MEETING OF THE FINANCE ADVISORY COMMITTEE

FEBRUARY 13, 2002
7:00 P.M.

CITY HALL
COMMUNITY ROOM
  1. Roll Call.

  2. Approval of Agenda.

  3. Approval of Minutes for the meeting conducted January 17, 2002.

  4. Status report of economic trends that may have an impact on the City (if any) (Downs).

  5. Assignment by the City Council, Consideration of Long Term Financing of Infrastructure and Securing Other Revenue Sources (McLean).

  6. Public Comments.

  7. Adjournment.


TO: HONORABLE CHAIR AND MEMBERS OF THE FINANCE ADVISORY COMMITTEE

FROM: DENNIS McLEAN, FINANCE DIRECTOR

DATE: FEBRUARY 13, 2002

SUBJECT: CONSIDERATION OF LONG TERM FINANCING OF INFRASTRUCTURE AND SECURING OTHER REVENUE SOURCES

BACKGROUND AND DISCUSSION:

During the City Council meeting on January 31, 2002, the City Manager presented a plan for the FY 2002-03 budget process.

City Council Staff Report, January 31, 2002, Proposed Fiscal Year 2002-03 Budget Process

To provide the members of the Finance Advisory Committee (the "FAC") with additional background regarding the assignment made by the City Council on January 31, 2002, I have copied the staff report written by the City Manager below:

TO: HONORABLE MAYOR & COUNCILMEMBERS

FROM: CITY MANAGER

DATE: JANUARY 31, 2002

SUBJECT: PROPOSED FISCAL YEAR 2002-03 BUDGET PROCESS

RECOMMENDATION

Approve a budget process for review and adoption of the second year (FY 2002-03) of the current Two-Year Budget.

BACKGROUND

For the first time, in early 1999 the City Council approved the preparation of a two-year budget. The budget period was July 1, 1999 through June 30, 2001. In June 1999 the Council adopted the first year of the two-year budget after extensive workshops and hearings. In June 2000 the Council adopted the second year of the budget after only one workshop session. In adopting the multi-year budget, the City of Rancho Palos Verdes was consistent with other local governments with relatively small budgets that are heavily weighted toward recurring expenses. The primary advantage of adopting a two-year budget is forcing the staff and Council to think ahead further and make long-range plans for revenues and expenditures. A second advantage is saving of City Council and staff time that is required to prepare the budget and present it at numerous workshops and hearings, most of which are very lightly attended. A typical budget process starts in January and is not complete until June. For a City with only 42 employees, the level of effort required to do an annual budget completely dominates the four to five month period of preparation and presentation.

The success of the first multi-year budget led to the preparation of the current two-year budget in June 2001. The budget process involved three "budget outreach" workshops held at different locations throughout the City in February and March. These workshops provided residents an overview of where City revenues came from and how they were spent. Residents were encouraged to suggest new programs. In late March, the City Council spent all day on a Saturday in a goal-setting session with a facilitator. In April the Council hosted another all day Saturday budget policy session. The City Council heard a presentation of the preliminary budget document at an adjourned meeting in May and adopted the first year of the two-year budget after a public hearing at a regularly scheduled Council meeting in June.

DISCUSSION

The second year of the current two-year budget will guide City expenditures for the period of July 1, 2002 until June 30, 2002. It would be appropriate for the City Council to decide what process should be utilized to finalize the Fiscal Year 2002-03 budget.

City staff would like to utilize the existing two-year budget document with its existing narratives, charts and graphs and department operating budgets. We do not anticipate preparing a new budget document or initiating the full budget preparation and hearing process unless the City Council feels that a fresh start is required.

Staff believes that the following budget documents need to be reviewed by the City Council prior to adoption of the Fiscal Year 2002-03 Budget:

      1. An updated Capital Improvement Plan that reflects three different scenarios:
        1. The State does not reduce VLF backfill or take other City revenues.
        2. The State takes $800,000 (or ½) of City VLF revenue.
        3. The State takes $1,600,000 (all) of City VLF revenue.

      2. An updated 5-Year Financial Model (to be heard by the Finance Advisory Committee on March 13, 2002).
      3. Updated Fund Balance information.

Capital Improvement Plan

The capital improvement plan (CIP) is prepared and presented as part of the two-year budget. The CIP included in the current two-year budget is attached for information. The City Council has previously expressed an interest in re-visiting the CIP.

2001 Five Year Model (attached)

The attached 2001 Five Year Model has been updated to include the actual revenue, expenditures and fund transfers of FY 2001-02. It has also been updated to include the impact of FY 002-03 budget adjustments to date. No changes have been made to the underlying assumptions for future years.

Staff anticipates completion of the first draft of the 2002 Five Year Financial Model for presentation to the Finance Advisory Committee on March 13, 2002.

Upon completion of the Committee’s review, Staff anticipates presenting the 2002 Model to the City Council on or before the proposed Budget Policy Workshop. Staff will revise the spending plan to eliminate the deficit ending fund balances for the Environmental Excise fund and LLESS/COPS fund during the preparation of the 2002 Model.

In addition, staff believes the City Council should set a Budget Policy Workshop for April 30, 2002 to review the information described above, hear public testimony and give staff direction. At the Workshop, the staff will present reports on issues that the City Council or staff believe are not reflected in the current two-year budget. Council policy initiates should be made known to staff as soon as possible in order that they can be heard at the April 30, 2002 workshop.

Budget Policy Workshop

Budget policy issues are those significant new projects, programs or other unanticipated impacts to the budget that were not considered at the time the two-year budget was presented. One of the policy issues relates to employee cost of living wage increases and is normally associated with the March cost of living index. An unanticipated project, such as a failed roadway, or storm drain may also be presented to Council as a budget issue. This year the Council may have to deal with loss of revenues (VLF) as a policy issue. For the City Council’s information the staff report for the Fiscal Year 2000-01 budget (the second year of the initial two year budget) is attached as a sample of what the Council should anticipate.

The proposed budget for Fiscal Year 2002-03 will be presented at a public hearing on June 4, 2002 and may be adopted at the discretion of the Council. The City Code states that the City Council will adopt the budget prior to June 30th each year.

Respectfully submitted,
Les Evans, City Manager

City Council Action, January 31, 2002, Proposed Fiscal Year 2002-03 Budget Process and Assignment to the FAC

Upon completion of the City Manager’s presentation, the City Council discussed the City’s budget process for FY 2002-03 and took the following actions:

  • Scheduled the budget workshop for April 30th.
  • Invited the FAC to attend the budget workshop.
  • Decided to conduct its own review of the 2002 Five-Year CIP Program in conjunction with the FY 2002-03 budget process.
  • Assigned the FAC with the following project:

    Consideration of the use of long-term ("LT") financing of infrastructure and securing other revenue sources leading to a strategic schedule prior to April 30th workshop.

Long Term Financing

During City Council discussion, Mayor Pro Tem Stern questioned whether current property taxpayers should be responsible to pay for the cost of infrastructure improvements (e.g. storm drain improvements) that have a substantial future useful life. The genesis of the question appears to be whether current property tax revenues should be used to pay for the cost of long-term infrastructure assets. Mayor Pro Tem Stern’s view is to match taxpayer’s cost to build and repair infrastructure with the timing of the benefit derived. Accordingly, Mayor Pro Tem Stern suggested, that the City should consider the use of LT financing to spread out the cost of infrastructure improvements over the useful lives of such improvements. The entire City Council concurred and acted to assign the project to the FAC.

Except for the 1997 RDA bonds used to re-finance the original $10,000,000 county bonds in conjunction with the Horan Settlement, the City has no other debt obligations to other parties. Though both the FAC and Finance staff has the expertise to perform the work, staff will retain an independent financial advisor, experienced with municipal financing, to assist the FAC and staff during our review of LT financing issues, including the following considerations:

  • An assessment of cash flow available for debt repayment.
  • Identification of qualifying infrastructure projects and/or available assets to utilize LT financing.
  • Analyze the cost/benefits of using LT financing (e.g. interest cost, advisor fees and issuance costs) compared with the current use of operating revenues and fund balance reserves to finance infrastructure.
  • Review other LT financing issues.

The participation of an independent financial advisor will provide a fresh perspective and more effectively utilize the time of FAC members and Finance staff.

Securing Other Revenue Sources:

Like most municipalities, each City department is responsible for seeking out, securing and managing its respective revenue sources. Accordingly, several members of City Hall staff will assist the FAC and Finance staff with this portion of the project. Again, to provide a fresh perspective and more effectively utilize the time of FAC members and Finance staff, an open discussion regarding this topic is encouraged, including consideration of the following:

  • Retain a financial consultant, experienced with municipal financing, to evaluate whether all federal, state and county funding sources have been maximized;
  • Retain a financial consultant, experienced with municipal financing, to secure federal, state and county funding sources on a contingency basis;
  • As an alternative, Councilmember Clark suggested the formation of 2 sub-committees of the FAC to evaluate whether all federal, state, county and other funding sources have been maximized. One sub-committee could evaluate federal and other sources while the other sub-committee could evaluate state and county revenue sources. If the FAC chooses this alternative, it may wish to meet with appropriate federal, state and county officials, appropriate staff of respective City Hall departments and others.
  • Arrange for the participation of appropriate departments to meet with the FAC to provide an overview and discuss the status regarding the City’s funding sources.
  • Other revenue source issues.

Other Significant Factors Regarding The FAC Assignment

Finance staff believes that the FAC will want to consider several other significant factors while conducting this project, including the following:

  • The evolution of the FY 2002-03 state budget and its result on the City’s portion of state shared revenue.
  • A review of proposed infrastructure projects included in the 2002 Five Year CIP program, prepared by the Director of Public Works, to be included in the 2002 Five Year Financial Model. Finance staff expects to present the first draft of the 2002 Five Year Financial Model during the March 13th meeting of the FAC.

Several other recurring issues will impact LT financing:

  • As a contract city with limited engineering staff, the number of concurrent CIP construction projections is limited by the City’s ability to manage multiple projects.
  • CIP projects are inherently delayed by the delayed timing of regulatory approvals. This timing event provides additional cash flow compared with the expectations presented in the Five Year Financial Model.
  • CIP project costs are frequently greater than expectations, resulting from unknown factors, including environmental problems and unexpected geological complications. Such unanticipated CIP costs will complicate LT financial planning.

FAC Assignment Timeline

The FAC will participate with the City Council at the April 30th Budget Workshop. The City Council has asked the FAC to present a strategic schedule regarding its completion of this project at that time. Finance staff offers the following ideas regarding the timeline:

  • Present the 2002 Five-Year Financial Model to the City Council on or before the April 30th Budget Workshop.
  • Consider the inclusion of a preliminary recommendation regarding LT financing of infrastructure in the report accompanying the 2002 Five Year Financial Model.
  • Provide the City Council with a project status report.

Respectfully submitted,

Dennis McLean
Finance Director

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