HomeMy WebLinkAbout0189.092Mar.o::h 19. 1992
THE HONORABLE CITY COUNCIL
Palo Alto, California
Atte.ntion: Financ!;.'O Committee
Members of the Council:
This is an infor::"l3.tional report; no Council action is necessary.
Report in Brief
The Finance committee expressed interest in working with 3taff to
gain a better understanding of the City b·..ldget process I to assist
them in establishing their COITL:"ittee pric-rities for the next year.
A budget retreat, .... 'as held on February 19, 1992 for the Finance
Cornmitte~. Staff presentpd the budget process fro~ the issuance of
initial budget guidelines through Council adoption of the final
budget.
Attached is an agenda fro:::, tbe retreat. alc,ng '",ith minute.s covering
the meeting. A follow-up session to discuss issues rai5e~ during
the budget retreat is scheduled as a special F ina.nce Ccrt1mi ttee
meeting on Harch 24.
Respectfully submitted,
LrBBY D,JU.\E
Senior Financial Analyst
,---~,. (j CLcuVO ~L'i HARRISON
Director of Fi~ance
CMR:1S9:92
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JUNE FLE:V,r'NG \ \
Assistant Cit~~anager
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.ltGENDA
FINANCE COMMITTEE BODGE~ RETREAT
lw BCDGET OVERVIEW {Bil! Zaner)
The city Manager's charge from (har-ter/Mul1icipal Code to
prepare budget. Establishing budget guidelines.
2. llEVENUE PROJECTICNS (Kevin Rip~r)
An eccn,:;mic and revenue picture of Pa 10 Alto is taken
e~rly in the year to determine budg~t direction.
3. OPBRATING BUDGET AND CAPITAL IMPROVEMENT PROJECTS
A. S;::~edule/Automation/Budget
and Reserves/Fee Schedule
Format/Utilities
(Jim Steele)
5. HO'o,,' a department prepares its budget
(Lynne Johnson)
C. Personnel Request Process [Jay Rounds)
Rates
D. Capital IThprove~,ent Program Sched;,.:le and Format
(Mitzie Eddy)
E. He ... CTP project requests are prepared
(George Bagdon)
F. H.ow the City Manager's Office reviews budgets and
the elP (Jur,e Fle;ning)
G. Closure (£~ily Harrisorl)
Final budget dOCUhlent presented to Finance Commit
tee
4. FINANCIAL OVERVIEW OF 1992-94 BUDGET (Emily Harrison)
Discussion of mdjor issues facing Palo Alto over the
next t"NO years.
5. COMMITTEE PRIORITY SETTING O-like Cobb)
General Committee dIScussion
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MINUT'ES
FINANCE COMMITTEE BUDGET RETREA1'
FebnJC"ry 19, 1992
Con-.. "ittee Chair r<!.ike cobb ope'ned the rne.~ting by stating the pu:pose
of th2 retreat and setting the ground rules for discussion during
the session. He thanked staff for their work in preparing for the
retreat.
BUDGET_OV!!RVIEW
Ci ty Manager Bill Zaner gave a general overvie' ... · of the budget
process. The Cit)· Chart.er directs the City Manager to prepar.e the
budget docurt1J?'lt. The Palo ~.lto Nunicipal Code defir,es h:yw the
budget is to be preseT'ted. Mr. Zaner-stat-ed that there are t;.,lO
budget tracks which run si1!1ul tanec)l.ls1y to produce thE: budget: a
policy track and a ... lorking budget trade The policy track involves
the City Manager's Offic~ and the Direct0rs of Finance and Person
nel. They consider conce~n9 raised by the COL!rlcil '3.nd the public,
and evaluate the major policy and budget. issues fac:ing the City.
These consideratioi"ls result in the C'i ty Manager' 5 guide} ines for
depart:rner,ts to follow in preparing their bl.dget requests. The City
Manager gets the Council's Bulget Guidelines, ' .... hich ei1sure that he
is headed in the appropriate direction.
The working budget tra-=k in t.he b·0.dget proco:.ss is directeo b'l' tl'",e
Assistant City Manager and the Finance Director. This track trans
lates the established policies ~nto action for the completion of a
proposed budget, and includes all work 'Wit.h t.h-e departments. It is
an ite.rativE process of feedback bet'",·e~n the ...,orking budget track
and policy track ",'hich directs additional changes and buclget cuts.
The resul tif'g product is present.:.cd to the. Counc i1 for tr.eir recom
mer.dat":'ons.
Committee Mer.,ber Ron Andersen af,ked hO'..' the Co . .J.I1cil members, as
pol icy makers, arE: able to r.-aJr_e sug'3Estic.1nS about .structural issues
regarding the budget. Mr. Zaner-expla"ined that he keeps a file af
comments received :f~cm Council !'1embers throughout the ye,u·. Also,
Finance CDmmittee meetings otter. Q8al ... ·ith structural issues.
During the actual budget hearings Ccrnmittee members raise issues
~hich staff then address.
Committee MembEo'r Dick Rosenba>..I.n expressed concern about the amount
of time the Committee had t,., revie,,': tho:. proposed bud'~et, and aJ:.,out
suggestions t.he City Manager may give to depart~en!s for cuts, Mr.
Zaner assured him that the Committee had a r.-~cnth and a ha lf from
the ti:mt:' th~y received the budget docunent uiltil Council adoption.
Finance Director Er:-.ily Harrison advised that the budget process
actually begins in October and tha~ a two-year budget requires an
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extensive amount of 'Work.. The City Manager assured the CO'ITl.."Tlittee.
that he uses his best judgment in advising any service cuts, but
that Council always has the right to reverse any of his recommenda
tions. He feels that it is irnp':Jr-tant to put his best professional
recommendations into the .., .. ritten document ar.d to evaluate the
consequences of any s~ggested ~uts.
Assistant Finance Director Kevin Riper gave a pr.;sentation on
revenue projections, to show the steps involved in formulating the
r-evenue esti1!'.'ltes ut:on 'lIir,ich the budget is based. Revenue proj ec
tions playa key role in determining the City's direction in the
budget process. The City's revenue forecast for the General Fund
is based on the sum of val" ious reVel";I.leS, t:-'e key ones being
property taxes and sales tax:, Property taxt?s, accounting for
approximately one-eighth of the General Fund budget, are fairly
certain for at least the first year. The seccnd year is less
certain, dep-ending on the real E'state mc:.rket and property values.
Sales tax, ho .... ever, aCC01..lT,t,s for one-fourth of the City's revenues~
and is an extrsmely volatile revenue source, sensitive to changes
in the ecc-nomy. Sales tax is composed of taxes from retail sales
as well as busincss-to-business sales; one quarter of Palo Alto's
sales tax revenue comes from the Stanford Shopping center. The
City has retained a sales tax consultant familiar with California
cities to assist in information gathering and forecasting.
Mr. Riper stated that the reve!'"1Ue forecast inc; process for the
following year begins in November r a point at which not much data
is available (Christmas sales taxes are a key indicator).
Forecasts are revised throughout the }'e.Jr as mure information is
obtained.
OP_~'.i'I:NG BUDGET l'RQC;;_§S
Budget Manager Ji~ $'Ceele presented the budget Fr-I:)cess 'to sho .... ' the
steps involved in producing the final tn ... dget. The Budget Office
staff 'Work over a period of time on several simultaneous inteI'nal
processes. They are 'JorKing to control the current year's bUdget
while preparing for the next yearrs budget. The budget document is
the result of translating ra .... · number-s :from departments into a
higher level document te'r the decision makers. The COl!U'llittee
members were interested LI"J the cost allocdtiof'l_ ~ethod that Budget
uses to spread the City's administrative casts (Finan;::e Department,
Attorney's Office, Hum,~n Resources, etc.) among the other depart
ments. Mr. Steele explained that a d~tail€d, structured method
ology is used such that depart:nents are charged according to the
actual amount of time tlley require fron the administrative
departments; the costs are not simply spread evenly across the
City.
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There was more disc'.J.ssiof! about the tirr.illg of tl'.e COU1JCli ttee l s
involvement i~ the budget, with the idea of perhaps beginning the
process earlie~ in the year to al10w fo~ ~ore committee reviev.
staff indicated that the proce~s begin~ in Novpmher, and that the
final budget is adopted in June. .~s soon as the budget is corr.
pleted, staff starts working on the a~dit of the previous year, a
process which carri~s into the following Novembe=. Develcpnent of
the Capital HprovE<rr.er,t Program (elP) already requires staff ti:!le
as early' as s~ptember. The rIP docutt12nt is given to the commit tee
by the end of March, giving the!!, time to review that document
before th~ operating budget is revie ..... e.d.
Committee Member Rosenbaum remarked that cne of the items in the
Budget Retreat booklet that he found esp'"":':'ally i.'lter-esting ...,"as the
excerpt from a staff-generated Bu.dget Critique. He ""Quld be
interested in discussing that item at a later date.
Assistant Chief of Police Lynna Joh~son talked about the process
that the Police Depa!"trnent uses to pr-oduce its proposed budget~ to
demonstrate the internal process ,jepart:':",ents go through. The
Police Department actually beg ins its budget in Octccer. and
involves many staff members in the operation. An internal intern
is selected to assist ih developDent, which also allows thIs 5~aff
member to gain a good understanding of the department's budget and
finar,ci~l constraints.
The Pol ice Depart-.me:1t spends a large a~ount of time evaluating
services it provides and needs, and looki~g at current trends that
..... ill affect its opera.tions. CUrrent issues and potential IDandates
are considered. The department oeve lops its own internal dollar
targets and requires each division to propos.; cuts to meet a
specified dollar reduction. This forces Lrh1nagers to re-evaluate
their prograws and ho',"' they are spc-:.ding Jr1o:le:f, and also gives t'he
Police Chief a pool of money to sperLd on u;)foreseen expenses. The
Chief pr lori ti zes any requ8sts iC'r over-target expenditures to
figure out how to best Dtili~e the funds. Ms. Johnson noted that
mandated programs usually usc up the ma.jority of the: pool of money.
1"ERS01.JNEL REQUEST PROCESS
Director of Human Resources Jay Rounds presented the process for
personnel changes in the budget. The budget cycle is an oppor
tunity for departments to change their organizational s~ructures.
In a two-year budget =ycle, departments plan their allocation of
human resources fo:::-a t'",lo-year peri ad. Hum-"l.n Resources staff
evaluates all proposed personnel change.s and makes recamrnendaticms
to the City Manage='s Office. Ideas for changes typically come
from department heads; HUr:lan Pesources ' .. 'orks '''''ith departments to
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figure out y,'hat position classificatiorJ5 would most al.JtJrcpriately
fill their need~, The Finance D=pa:: trrLent r:1a.)~ d ls':) r".ake suggestions
for org~nization changes and '",rill uti) ize Human Resources l
e~~ertise to evaluate propos~15.
The >_ssistant ci ty Mar,ager and the Director of Human PesQurces meet
throughout the year on all personnel req;;csts; they determine
'W'hether or not a position should be filled. Usually staff is given
a fair arr.ount Gf adva1"lced notice if position cuts -.. rill be required.
HUl!'lan Resources then can work 'With departments to evaluate such
cuts. Mr. Rounds felt that depa.:-tment heads are under tremendous
pressure to provide required sE'rvices and therefore do not
nece.ssarily protect posi.ticns. The Cit_}' ~ S job classi fication
syste!ll allo·.,rs for some standar-dl".ation and flexibility to permit
the merging of services b!:!t ... ·een various stat: f members.
CAPITAL lMPROVEMENT PROGRAM--PROJECT OEVELq_p_!!t~ __ !IT_
The Assistant Director of Fublic 'I'.'orks, George Bagdon, talked abow.t
thg development of proj ects fer the Capi ta 1 Irr.p:ccvernerot Progra:ll.
Public Works develops many of the prcject propcsals, and assists
other departments in preparing their 5ubnittals. The first step is
to evaluate what problem the project is trying to solve and if the
proposed solution appears to be the best. Ne>.:t, staff may visit
the project site, calculate construction costs, decide if public
input is required, and define 'mandates thO'll:. may impact the project.
Staff will evaluate which projects can actually be accomplished
during the time frame~ and ~hich ~ill require outside contractual
assista"ce. The ClP is on a rolling five-year-basis, so each year
the council has already revie-w'e.j and apprcved l":1Ost of the projects.
CAprT~L IMPROVEMENT PROGRAM ~~OCES~
Mitzie Eddy. Senior Financial .:t.nalyst, gave a detailed presentation
on the steps invol .... ed in develc'pirlg the Capital Improvement
Program. Depar-trr.ents beg] n cr:mceptu,~l i? i ng projects in september,
and the process fOrl7·ally b2gir:s in Cctob€t". The City Manager
establishes criteria fer acceptable ne;'" projects~ i3.nd staff makes
sure thc;.t all proposals ar-e COl1sistent ' .. 'ith the Compr.ehensive Plan.
A ClP screening ComTI'.ittee provides recornrr-.endations to the City
~anage:::-, who then passes en a oocur-.ent to the F in-ance committee.
The elP document is sent for Finance COTI"liilitt.ae revie ..... at least one
mor.th be.fore the ope_rati ng budget docur:1ent is co:npleted j the two
documents are adopted togetller. The CIP comprl SE!S approximately $3
million of the General Fu~d budget. The city is also evaluating
alternative funding mecnanisDs for elP projects.
CITI MANAGER REVIEW
Assistant City !-tanager June Fleming ta lked about the role of the
City Manager l s Office in the budget prol;ess. Staff sees the budget
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at three levels: 1) the department~l budget; 2) the draft recom
mended budget (prod~ced fl·om the depart~ental budgets and given to
the City Man2ger) -; ~.nd J) the City Ma,nager's recor:1.':iended bud:;Jet
{the fl.n31 b\J.dget docu:-:~ent p~esent.(!d to Council). The process
wor~s well becduse staff keeps cc~rnunication lines open. The City
Manager, Assistant City Manager, a~d Fir.ance Director m~et ~eekly
dut'lng the: b'...Idge.t process to disc\.:ss budget issues .?nd handle
policy questions as they a~ise. The Assistant City Manager meets
daily ,.,rith the City Manager to u?dat.e hitr;. on impendinq jSS,Je.s.
The Assistant Cit.y Man.:;oger alsc, receives a copy of each depart
ment's detailed budget submittal. She r!1eets ... ith the departnents
to raise questions and address issues, consider all requests, and
revie' .... pe.':"for"rr.ance measures, gc.::-als ~nd objectives. The City
Manager reviews her recor:1!"nend3.tions alQng \i,:ith projected revenue
levels. Basec on those, he asks further qupstior,s and mak.es
adjustments re~.ulting in the City Manager-'s recc·mmended budget.
The proposed CIP blJaget goes to the Plonnir:g CO:r.l."l1ission; the
proposed operating budget is 5.;nt to the Cti 1 ities Advisory
Co~mission. Both then are fc-r"'·ardeo to thp finance C·:H:lmi ttee.
Finance Director Emily K'3.rrisoT'. tnen dis.'.:.ussed .... hat. ,"Jccurs after
r.he bud.get docu!'icnt is issued. Finance Committee budget hearings
are back-to-bad: T:Jesday and Thursday nights for three "Weeks in
May~ After a comprehensive revie ..... · oI the doct::mel1t, the Committee
asks their questions. Staff begins '!,..Io:d~ to anSio'er those questions
immediately following the meetings. Final decisions are roade at
the. budget wrap-up r'1ce.ting; final changes are presented to Council
in June. Hs. Ha~rison noted that tr.e printed budget d:J-cument is
not the final document be.cauG€ the FinanCE: COIClIllittee and Council
make changes during the budget hear 1ngs. These changes are
reflected in I1'Schedule B", an att.C!ch;-:-,ent to the b~dget documen"t
that is submitt~d for ~doption. Staff d02S no~ wait until after
all of the hear·ings to produce the f lll.'3.1 dOCllment because th"E:Y feel
it is iroportant to present.::. cle2.!J, prcf.essional pr0po5r?d budget to
the Council and the pUDlic for consideration. No resources are
available to reprint the document after-wards. It also was noted
that the final numbers ace incur to the auto~ated Financial Data
Base sj.'stem so depart"r:1e.nts ~nd F i ndnce ..,'c·r'i<: 'with the correct
numbers throughout the year,
Ms. Harris';:lr. dist.r.i..buted excerpts fcom the !':idyear Financi.al Report
.... hich summarized the major issues facing the City over the next two
years. She noted that the Co~mittee was scheduled to discuss the
re.port at the next Finance Cor;;nittee TC1.eetinq.
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COlOl.ITTEE I::'':IORTTY SETTING
committee Chair Cobb led the Committee in the discussion of
priority se.tting a.nd deterrl'lining what to do ·,.:ith the information
gleaned ever the course of the evening, The Comnitte~ decided to
postpone n.e actual discussion to a later date; b1...<t to state sone
of the issues that they would like to e~plore in mo~e detail. They
all agreed to submit thei!'" idE.~S to committee Chair Corb by the
next OJeek's Fir-arlee Co:tr.mittee meeti:1g.
COlMl.i ttel<;. Nember Dick Rosenbaum sta':.ed that he W01J Id be interested
in discu5sing the issues raised in the Bueget critique~ "which ,"'as
included in their "city oE Palo ~lto Budget Process ll binders.
COlr-mi ttee Mcrrber LarJie Wheeler suggested they eva luate the budgst
document as a decision-making too] for policy :;lakers. She ... as not
'Conce:rned with the ni...l.rnbers ...... hi":'r. seemed good, but with the text.
The text provides an oppor-tuni ty to make the doclJl'r1ent useful for
reade:ts .... 'ho are not nurnbers-Ciriel"',tE:d. The current. varie.ty of
goals, objectives and performance neasures is sometimes meaningless
to some readers 'Jho have n.~ basis for comparing Palo Alto to other
cities. s~e ... ·ould lik.e to see those measllrernents made mere
meaningf'Jl to sho...,. if a departnent is doing a good job.
Committee Member Ror. Andersen thought that it ",as important to
figure out how to give staff ll".orale boosts during difficult budget
years. The City needs tc effectively motivEate employees during a
time of budget and position cuts to ease the pain of those cuts.
Employees need to have a good "Work.ing envi ron~er"lt,
committee chair Mike Cobb wanted to examine the iSSue of public
involvement in the budget process. The Cit'j is under tremendous
pressure to maintain output and service levels even in times of
cuts. Can the City use volunteers to a higher level? Can
public/private partnerships help O'.lt? Poe ',,;ants t"he City to look at
different sources of funding and dj fferent ' ... ays of doing things.
He ... ould 1 ike the budget process tc t.ecc!":',e :!:1cre proactive and
for-ward -look i ng .
Commi ttee Member Andersen also IT;entioned that he \.'ou10 1 ik.e to
evalUate historical health care costs, especially as they compare
to sEalary cost increases.
The meeting adjourned at 7:45 p.m.
Note: The follow-up !"1eeting to this ~lJdget retreat has been
scheduled as a spec.ial Finance COr:J::,:",ittee meetirJg or. March 24.
Minutes prepared by Libby Dame, Senior Financial Analyst
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