TO:
Honorable Mayor and Members of the City Council
THROUGH:
John Jalili, Interim City Manager
FROM:
Bruce Moe, Finance Director
Eden Serina, Financial Analyst
SUBJECT:Title
Budget Process for Fiscal Year 2014-2015 (Continued from the December 3, 2013, City Council Meeting) (Finance Director Moe).
DISCUSS AND PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council discuss the budget process for fiscal year 2014-2015 and provide direction.
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FISCAL IMPLICATIONS:
There are no fiscal implications associated with the recommended action.
BACKGROUND:
The City Council's Strategic Plan includes a goal that the City Council be provided options for reviewing and revising the City budget consideration and adoption process. This goal was generated out of a desire to receive earlier input by the City Council into the content of the budget. This report provides information on current budget development methods, describes recommended changes to increase public engagement, and provides the City Council the basis for discussion of the budget process for fiscal year 2014-2015.
DISCUSSION:
Constructing the City's annual budget is a process that starts in January with a staff budget kickoff meeting and culminates with the adoption of the budget by the City Council, generally at the first City Council meeting in June. During that five month process, staff analyzes current year revenue and expenditure trends, develops program needs, reviews personnel rosters, develops program narratives for the budget document and creates detailed descriptions of each program expense which are input into the financial system for proper documentation. A schedule of events is created at the outset to guide the process (see Attachment #1 - Budget calendar for FY 2014-2015).
The Proposed Budget has traditionally been presented for City Council review in May, at which time Finance discusses an overview of revenues, expenditures, major assumptions and cost items, and any other significant issues being addressed in the spending plan. In the days following budget introduction, study sessions are held at which each operating department provides City Council and the community an overview of their programs and the associated budgets, typically with a focus on major expenditures or changes in funding levels. Departments also discuss Performance Indicators and any major initiatives planned for the coming fiscal year.
Building the Budget
Before discussing options for the coming budget cycle, a review of the budget creation process may be helpful. From this, a sense of the effort and scrutiny may be established.
The process of creating the budget involves all departments and multiple staff members. After receiving direction from the City Manager at budget kickoff, the departments internally hold meetings to review their spending patterns from the current year, analyze their program plans and needs for the upcoming year, identify areas of additional spending or savings, and create the text and financial detail of the expenditures in each "controllable" object (e.g. those items budgeted by the departments as opposed to those budgeted by Finance, including contract services, part time salaries, departmental supplies, etc.) emphasizing a bottom-up approach. Each department gives careful consideration to the City's economic challenges and its ability to maintain a high level of service to its customers. This part of the process takes several weeks to complete.
At this time, each department's baseline budget excludes any supplemental request by departments for additional staffing, equipment, service levels, vehicles, etc. Those supplemental requests are first submitted to the Finance Department on a separate form that provides the rationale for the request as well as identifies all associated costs. These requests are vetted through Human Resources if personnel-related, Information Systems if technology-centric or Public Works if fleet-related. All non-technological supplemental requests also go through Purchasing for cost estimation verification. Once those reviews occur and any issues have been resolved, the requests are reviewed with the department head by the Finance Director and then the City Manager in the department review meetings. If the City Manager deems the request to be desirable, the amount is included in the proposed budget for consideration by the City Council.
After the departments build their baseline budgets, each department team meets individually with the Finance department (Director of Finance, Controller and Financial Analyst) to review each item line-by-line within the budget. The department head provides a general overview for the upcoming year which may include significant program changes and goals. Then, program by program, each budgeted line-item is scrutinized and compared to the current year's budgeted amount; year-end estimates and year-to-date actuals; and prior year actuals. Proper justification must be made for any significant changes in budgetary requests and any variances in the current year spending from the adopted budget. There are also discussions focused on program initiatives for the upcoming year and any additional needs or savings. The Director of Finance, with trends and the goals of each program in mind, suggests/directs necessary changes to the budget. Departments' supplemental requests are also addressed.
With the feedback from the Finance department, budgets are then revised and prepared for individual department meetings with the City Manager. Similar to the previous round of review meetings, the department head provides a general overview of the department and its goals for the upcoming year. Each program is then discussed as the City Manager examines the individual line-item financials, which include the requested budget amount, current year budget, year-end estimate and year-to-date actuals, and prior year actuals. In-depth discussion of each program's goals and initiatives occurs, as well as cost effective alternatives to providing service. The City Manager directs necessary changes to the budget and approves the line-item detail. The City Manager also reviews the Supplemental requests and determines which will be included in the proposed budget.
Concurrent with the review meetings, departments assemble their respective narrative sections of the budget. Each department is broken down into its major programs and includes the following information: description, goals, initiatives, staffing, performance measures (orm service indicators) and budget line-item detail. The Finance department also generates the revenue estimates with the assistance of relevant departments, and discusses the results with the City Manager. Salary and benefit costs, allocations and all other universal costs such as postage, telephone and utility expenses are generated by the Finance department. Once the financials and narratives are completed, a draft of the proposed budget is created and submitted to the City Manager for review and input prior to submission to the City Council.
The proposed budget that is presented to City Council is the result of several iterations of careful examination of each individual line-item, by the department and its director, the Director of Finance and the City Manager. Changes to the budget from prior years are thoroughly discussed and challenged for proper justification. Throughout the budget process there are lengthy discussions involving the overall direction of each department, the purpose and goals of its programs, as well as any cost-efficient alternatives to providing services. It is these efforts as a whole that produce a sound, balanced budget that supports the City's high level of services provided to the community, reducing expenses wherever practical, meeting employee obligations and maintaining acceptable and appropriate reserves.
City Council Input into the Spending Plan
As previously mentioned, early substantive input into the budget by the City Council is the objective. Staff has several suggestions/recommendations to that end, which also create more opportunity for community engagement.
The FY 2014-2015 budget calendar (Attachment #1) guides the preparation of the annual budget, and reflects several opportunities for City Council and community input (please note that dates are tentative and subject to change at this early stage):
12/3/13 Regular City Council meeting - budget process planning
1/9/2014 Town Hall Meeting - Community input on budget priorities
1/21/2014 Regular City Council meeting - Town Hall meeting report/direction
2/25/2014 FY 2013-2014 mid-year budget review, survey results/budget discussion
3/18/2014 Regular City Council meeting - Budget Performance Measures review
5/6/2014 Regular City Council meeting - FY 2014-2015 budget introduction
5/8/2014 Budget Study Session #1
5/13/2014 Budget Study Session #2
5/14/2014 Budget Study Session #3
5/21/2014 Budget Study Session #4 (finalize budget for adoption)
6/3/2014 Regular City Council meeting - public hearing and adoption of budget
The Town Hall meeting scheduled for January 9th is a new recommended feature of the budget process. This staff-hosted community meeting will be held in the Council Chambers for live broadcast purposes, and will provide the community an opportunity to voice opinions on fiscal year 2014-2015 budget priorities. Staff will collect the input and provide it to the City Council for discussion at the January 21st City Council meeting. The event will be advertised in The Beach Reporter and through the City's standard notification processes (website, Facebook, Twitter, etc.).
As indicated on the calendar above, the City will be conducting a community survey (selection of a firm to conduct the survey is in process). The survey is intended to measure resident satisfaction with City Council, City Executive Management and City staff, as well as City services. It may also serve to gather opinions on selected issues in the community and to gauge community priorities. The survey results will be used to understand existing successes, as well as deficiencies and opportunities for improvement. It will also assist in prioritization of needs and resource allocation. This will be a key tool in building the FY 2014-2015 budget. Staff expects the survey to be conducted in January 2014 with results available in February.
Performance measurement can be a key indicator of how well the organization is functioning and the value it delivers to its stakeholders. Most City departmental programs include service indicators or performance measurements as part of the annual budget. While in past years these measurements have been reviewed with the City Council during the Budget Study Sessions, staff has proposed to focus on the performance measurements separately at the March 18 City Council meeting. Each department will report on current year measurements as well as discuss potential changes for fiscal year 2014-2015.
The budget study sessions, scheduled for May 2014, are designed to provide City Council and the community the opportunity to review departmental programs, objectives, initiatives and funding for the coming year, and for the City Council to provide the City Manager with further direction for the spending plan. Consistent with the FY 2013-2014 budget process, a total of four study sessions (increased from three prior to last year) will be conducted, providing time for detailed review and input.
Additional outreach efforts recommended include:
1. Repeating last year's well-received direct mail invitation to all residents (using the utility billing database) to the budget meetings. The City Manager's office received many positive comments in response to this outreach effort (see last year's letter - Attachment #2).
2. Include budget meeting information inserts in the City's utility bills, announcing meeting dates and directing residents to the City's website for additional information.
3. Produce and broadcast slides on cable TV (Time Warner Cable channel 8 and Verizon channel 35) with information on budget meetings, and inviting the community to participate in the process.
4. Utilize the City's newly launched Facebook and Twitter social media accounts to encourage participation, along with the City's own website tools such as e-notifications. MB Forum and e-comment may also be utilized to receive community input.
5. Issue press releases before and during the budget process to maximize community notification of important meetings in which resources are planned and allocated.
In addition to these recommendations, staff is looking into producing and broadcasting a video of the FY 2014-2015 proposed budget. The video, which can be shown on the cable channels as well as on the City's website, would provide a high level overview of revenues and expenditures, and short presentations by each department on goals, objectives and initiatives. An example of this medium is the City of West Hollywood's budget video which can be viewed at:
Of course, there are many other public outreach methods utilized by local government including creation of budget advisory committees; live cable and on-line programs with email/call-in comments and questions; and budget workshops with community groups such as Rotary, Chamber of Commerce, business groups (ex: business improvement districts), Neighborhood Watch, etc. The options are limited only by the resources necessary to support those efforts.
CONCLUSION:
Staff recommends that the City Council discuss the budget process for fiscal year 2014-2015 and provide direction. With the commencement of the budget process for fiscal year 2014-2015 set to begin in January, staff will include the City Council's direction in the coming budget cycle.
Attachments:
1. Budget Calendar for Fiscal Year 2014-2015 Budget
2. Fiscal Year 2013-2014 Budget Process Participation letter