Consider Directing Staff to Initiate Steps in Preparing a Structurally Sustainable General Fund Budget.  (Councilmember Matarrese) [Continued from January 20, 2015]
Three F Instead of directing staff to initiate steps in preparing a structurally sustainable general fund budget, this item was put on the agenda at the request of Vice Mayor Nutter. I thank you. And this is meant to be fairly simple, and it requests that the city council directs the city manager to take specific steps in preparing a structurally sustainable general fund budget and a. My intent on this is to actually establish principles for us to make a judgment on the budget, not necessarily to. Direct the city manager steps. And what I'm looking for is this council to establish working principles where we have defined one time revenues. That it's clear that their one time revenues by definition and they are not incorporated as general fund revenues. And that we have the opportunity to look at a general fund that's constructed without advances, loans or other transfers from funds outside the general fund. And we look at a way to further define that the reserve that fund balance is not included in the general fund revenue line. And. The reason is, is operations I think of have to do with operational income and. I think with these principles we can evaluate the budget that comes to us. And I'd also like us to afford this. This the ability to consult and obtain advice from parties separate from dysfunction. That is, the city treasurer and the city auditor, not the city treasurer. The city auditor is a treasure, but is the treasurer and all that and spell check audit. But I didn't. And that we apply these principles to our upcoming general fund. I also put this out there with an understanding that the city is already taking steps in these directions and it's much appreciated. The staff has the same thing in mind, but because we get so many people attending our budget sessions, at least in my experience in the past, I think it is very important to make sure that people are aware that when we talk about free bus passes or free park services, nothing is free. It it comes from a line item in a budget. And in order to sustain that, we have to live within our means. And our means doesn't include dependance on one time funding. And. I think because we have recovery fever, it's not recovery for everybody. I think we have very large unfunded liability. As the speaker who spoke at the at the opening of the meeting referenced that we still have a lot of work to do on that. And again, that's the the. Genesis of this referral and this one, unlike my other referrals, is open to. I'm perfectly open to hearing how people want to amend it. I have no. No set. That desire to see any one of these stay in tact other than keeping the principles that we live within our means. Member Ashcraft Well, if I could just suggest what would be helpful to me would be to hear from staff, specifically Ms. Warmer Dam, because she takes such an active role in the budget and really understands all the intricacies of it. And I think so to help us understand this, this Council referral better and the implications of it. Before we do that, I'd like to ask you have other council member comments. All right. Arthur. All right. Thank you. Thank you, Madam Mayor. So I in fact, today I just sat in a presentation about Prop eight adjustments, and it talked about our property taxes and and how we see out in the economy that it's doing so well. And yet there are some adjustments because of reassessments that are are going to impact our property taxes. We'll see improvements in the future and probably next year and the year after. But this year, it's not as great as we, you know, we had all hoped. As we all know, the public sector lags the private sector. And it's that's just a fact. So I do appreciate I mean, I think the I think where you're headed with this vice mayor is the dependency on one time funding. And I totally recognize that. And we that is how we budget. We do not we don't budget when we know we have one time money and we're forecasting for the future, we take that one time money out and then we forecast based on what is sustainable and not that one time money. So and I think that that addresses your first bullet. I would like to ask, though, because I don't have the benefit of the finance director here tonight to discuss these in particular as we move forward through the budget process. In the very beginning, our very first kickoff meeting, we'll talk about assumptions and we can address this very specifically to make sure that that we're addressing your your concerns. But as we develop the budget, we absolutely are not considering one time money as our source of revenue. And then the other thing I just would like to say is I haven't been in contact with the city treasurer or auditor. I'm hoping that you have and they're okay with participating in this. So. I think we can invite them. I don't personally. Participate. In the past. Okay. Yeah. And we have a good relationship with them, so I'm sure that's not going to be that won't be an issue. Any other member, council member disagree. Oh, well, thank you. Let me address this in several ways, in two ways. First, let me talk about my interactions with this and previous city managers. And then second, let me talk about. You know how I see the matter before us. As a council member, the way that I've always interacted with the city manager is, you know, we I go there and I sit down and, you know, I talk with we have regularly scheduled meetings. I think it was back in October, for example, in a Thursday meeting with city manager Russo. Liz Warm Adam was there as well. And, and and finance director Julian Boyer was there as well. We were talking about the fact that, you know, we were anticipating he was talking about that we were anticipating more revenues, that our reserves looked quite healthy. But it was city manager Russo who took the initiative to point out that. But don't get too excited because a lot of this is also one time reserves a one time, one time upside hits. So, you know, don't don't be making these long term plans as if, you know, you're going to always have X amount of dollars . And, you know, during the course of the conversation, we further talked about, you know, the nature of one time reserves and how, you know, we treat that from one budget to one budget planning to another budget planning. So I. And it's a type of conversation that I've had with previous city managers. Jim Flint, Rest in peace. This is city manager, acting city manager at the time. Rob Wonder when I first began. So. For the most part, you know, I've seen city managers and also Debbie Greta city managers who really are on top of their game when it comes to dealing with these issues. But by the same token. Now. Now to the second point. A lot of times when the information is put into, you know, pages 200 page budget document or the supporting reports that go to the you know, a lot of times it looks very opaque for persons who and it doesn't mean that you have to have gone to city planning school or or have been a council member for a long time. I mean, it's just opaque. And what I think that what council member, Matt Oreskes, vice mayor of address, is getting at, is making sure that that we're clear on certain key areas when it comes to tracking budget items, whether we're whether we're clear on one time reserves and revenues or we're clear on advance loans. But in my mind, these specific areas around which I believe Vice Mayor Matarese wants us to be clear when we interact with the public. I think these three specific items fall under kind of the general notion of what our best practices. So it's altogether possible that, you know, the conversation that we might want to have are, you know, what are the best practices when it comes to any kinds of financial items and in among any kind of financial items, perhaps these three items, Race to the Top. So it's probably a larger conversation that we as a city council might have to understand, you know, what are the best practices when it comes to one time revenues? As you know, it's true that while you ought not to make permanent plans around one time revenues, it's also true that from one year to the next, you have these one time revenues that bump up. They might bump up from different sources. You know, some property got sold and suddenly you get a lot of transfer tax. Or maybe the state makes this decision regarding paying back the city, some sales tax that that had accidentally given to another city, which I did, which did happen, by the way. Went the other way, though. It went the other way. To somebody else. Exactly. It was a company called Van Star that moved out to, I think, Livermore area. But anyways, these kinds of revenue one time hits happened in different ways. So. You know, it's. It's getting a handle on how to treat it. And I think that's where the best practices notion comes in place. I think it's fine to have principles and hard and fast policies, but. You know, based upon my experience and working with the different city managers, I trust that I can give them the leeway. So long as we're clear as to what constitutes best practices, I trust that we can give them the leeway to make decisions. I mean, in the big picture of things, I think the fact that we had after Sony's the fact that we had a big one time hit a one time revenue jump, that was actually good news because it meant that we could then begin to kind of. Stash it away towards dealing with like the OPEB unfunded liabilities to start up the trust fund for that. And you know, I've seen the city manager make some alterations to previous employee negotiating bargaining agreements. You know, getting the police and fire to pay more towards their their retirement. So. With this city manager and with previous city managers, you know, I'm confident that they can do the job and that where we are. So I wouldn't want to. And cut them into, you know, specifying, you know, in our budget this is how you're going to do things. Rather, I think if we give them the leeway and so they're clear as to what we think are best practices. And when we go through the budget session, we just simply have to ask, you know, to what extent have you followed the best practices that we had in mind? And I think and in part, if we if we're not if we don't agree with the city manager at that point in time or the finance director at that point in time, you know, we spell out our differences. So and the other member. I think going first a. Lot, you. Hear it. I'll be brief. So I want to echo that. My thoughts are very similar to Councilmember de songs and Councilmember training. They said, if your colleague has said it already and don't repeat, so I'm not going to you. But I'm just a little concerned that, you know, we're setting policy without understanding the consequences of it. If we set a policy that, you know, certain revenues or or certain budget items should not be included, then are we setting a policy now that sets us up for potential service cuts? And I don't know if that's if that's something we want to do at this point. You know, I do agree that I think we do need to follow best practices. But I think the proper time to talk about that and think about that is when we get closer to the budget. At that am I my quick, quick thoughts on. I'm going to let member vice mayor respond first. And I just wanted to respond to those two sets of comments because I used the word principle on purpose rather than policy. And I prefaced my remarks because this is not so well written, because the preparation of the budget, according to our charter, belongs to the city manager. So we're not I my intention is not to direct the steps, but I think Ms.. Vollmer damn. Helped me out here saying that these are talking points. And if I would, I would really want to see out of here and and to get a motion passed that says that, first of all, we define all of these things . So we have a clear definition of of what a one time and I know you have something like that. What a one time revenue is. And we're reminded of it as we're going through our budget process that we understand and and it's highlighted in explaining the budget to us, because you mentioned that the the text on the paper is opaque. It's more than that. It could be gibberish, you know, if it's late at night, which doesn't always happen. Right. But advances loans and other transfers have a habit. And I have experienced some city manager, some good city managers. They have a habit of drifting off the high radar and they they drift down someplace. And by the time your eyes get down there, you don't see them. And that's why I think it's a good talking point to highlight those, so that we can either decide we we want to approve that that approach or send that approach back for adjustment. And the last is and this goes back directly to the graphic from the the midterm report, the projected our general fund reserves going to zero in fiscal year 2018. I don't know if that's still the case. But that graphic was put together with a lot of thought, and it's going to be adjusted, I'm sure, given the runs that we have. But we have to keep our eye on that ball because and I think it's important to remind the public of that, because that's in a public document. It hasn't been revised yet. It needs to be pointed out. And I think if we follow those and have those pointed out during our budget discussion and we give that direction to the manager, then I'll be satisfied that the intent of this council referral to accomplish. I think we're fine with that is momentum. I remember Ashcroft. Oh, I think that because the vice mayor was referring to something that had been said by staff before that was appropriate. I didn't mind at all. That you had wanted to. Speak. I did, but I'm always happy to. You know, more information is better than less. But thank you. I. I'm grappling with this because I feel that. We are following these principles. I think they're good principles to be aware of. At the same time, we. We have recently had some one time revenue and I think the previous council dealt with it very responsibly. We we had a divided into separate pots and some immediate needs. We were able to take off the list, as I recall, some public works, you know, repairs that needed to be done. And and and we also set aside to start paying down, not start, but to continue paying down our OPEB liability. We took part of that way. I think that we need flexibility when we're dealing with the budget. I would like to see all of these ideas discussed when we start hearing the budget talks coming up by doing a council referral and singling out these particular principles, three principles seems to elevate them to a certain level that maybe they should share with other principles of good budget practice. And I, I, I do understand in, in vice mayor matters. He has certainly served in different administrations. Different administrations change. And but I think we've learned a lot from the past. I think that we, or at least those of us and I believe our new colleagues are all very mindful of what we face in our budget, the deficit and what we need to the debts we need to pay down. And so I think that I. I've been very satisfied with the work and the reports that have come out of the finance department. I miss terribly our former finance director, Fred Marsh. But I think our interim Jo-Anne Boyer is doing a good job too. But they have, I think, managed to breakdown the budget into clear, understandable language. And so I'm I'm just not sure that this needs to be a direction to the city manager at this time, but yet these principles can be considered along with others when we come to our budget talks. In November day. So thank you. You know, I think maybe this is the crux of the issue as I see it. And I'm not saying that this is a crux for anyone else. For me, the crux of the issue is that. We have we have known for the longest time since the 1990s. Particularly starting in 2000, that our budget is structurally. Impaired, so to speak. We have known that in the late 1990s. We knew that with the base closure and the impending impacts that were coming down, that the impacts were large and they were going to always be there. But the revenue with which we are going to deal with the incremental impacts weren't adequate. Likewise in the 2000. With the increase in our outstanding liabilities. OPEB as well as CalPERS, that we can see that we had not just the ongoing liabilities, but we also had to do the, you know, as as former Councilmember Doug Haan used to say in the out years. So and that our revenue stream coming in relative not just on an annual basis but on a cumulative basis relative to our our current and ongoing and unfunded liabilities. It was inadequate that it it it at that so that there was a structural problem with regard to our budget. We've known that. By necessity. It is the city managers ask whether it's in Flint, Rob Wonder or. Or Debbie Carita or. John Russo. By necessity, it is their task to juggle a lot of balls, to chip away at our long term obligations while trying to maintain current services as as well as possible. And as a result, sometimes that they will take a look at the general fund reserves, perhaps dip into it to pay to help pay for ongoing operations. Or other times maybe they will take some make some cuts and then put that savings into the general fund reserve. Or by necessity, they will deal with one time revenues and deal to sometimes perhaps deal with ongoing needs. All the information is always out there. It's the responsibility of the council members on behalf of the residents to ask the tough questions that if we didn't solve, you know, the structural deficit, our budget. Are we moving in the right direction or it's not resolving it? And the question is always, do you trust staff? Ultimately, that's what it comes down to. You trust staff that they're working in the interest of solving these outstanding issues. In the city manager and previous city managers. I know that we've always worked our level best. So to me, that's the crux of the matter is I'm not I don't think we have to prescribe to a tee what it is that the city manager has to do. So long as we're clear as to what our best practices are as well as what are our expectations. And we transmit our are and communicate that with the city manager as well as the residents. So I'd like to speak to the side of I was just at a conference member OTI was also there for training for new mayors and council members and when it got to the fiscal issue for the state of California, they discussed Alameda County City's unfunded OPEB liability, which is in regards to as a percent of our general fund. And they had a chart that showed that the range from all the cities in the county of Alameda. And this goes to why this is very significant. And the range was 7% to 140% of this unfunded liability as a percent of the general fund as of June 2013. And Albany was at 7% and Alameda was at 140%. We had the highest percentage in regards to our general fund. And being the mayor of this city, when this chart was flashed in front of a room full of new members and mayors, all of a sudden everyone was looking at me. So we all recognized statewide that this is an important issue. So I truly do appreciate why the vice mayor's bringing this referral. And in regards to these other comments, and I and I also support and this is. I want to look at this language because. We have each of us do have a responsibility of due diligence to ask questions when the budget is presented. I have had meetings with staff in regards to the budget process and we will be having ample public meetings, workshops to include the public in this discussion. And the first part of it is, you know, request city council, direct city manager to take specific steps in preparing a structurally sustainable general fund budget for the upcoming fiscal year 2015 2017 cycle. And I actually have concerns in regards to that language. This is a long term process. We all know we are not going to be able to address this issue in this two year cycle that is here. And what I am actually looking for is a long term plan in regards to how we are going to chip away and and address this issue. And and these points are good principles that I'm sure we all out of context would say, yes, we fully support. However, without the information of our finance director and I also agree in regards to our city treasurer, our city auditor, having their input. I it's my understanding this is what the process will be, that we will have the opportunity, we will discuss assumptions, we will have input. And this is why. And so now City Manager Warming Dam, could you clarify what will be happening with the budget process? Certainly. So we are looking at kicking off the budget process. I'm sorry, I don't have the actual date in my head. Do you remember me? Okay. Was it March coming? I think we're coming to council in the beginning of March and we'll be the very first meeting will be a kick off meeting, and I'll be talking about assumptions, sort of some of the the the the actual schedule. And that would be the time that we would talk about this. And if I may, I think I also do appreciate the flexibility from the other council members. I also appreciate the fiscal your concern. The vice mayor is concerned with the fiscal health. And I think I'd like to suggest maybe some some language that might help, which would be requests that the city manager, the city council direct the city manager, prepare the general fund budget for the upcoming two year cycle and ensure that the following principles are defined and critically evaluated during the budget process. And I think that's kind of what you're looking at to make sure that we really these are important I have gone to. Right. So you just want us to make sure that these are very important principles. We should be following them. We may not be able to follow them for particular reason, like we were in a recession and we couldn't follow them and we had to use our rainy day fund. So we needed that flexibility. But I think what your what the vice mayor is asking is that we critically evaluate these pieces and we included in the budget process. I think we are totally okay pursuing that and again, defining. Exactly. Exactly. Because you're right. Advances, loans and transfers from other funds. That has a whole set of definitions that I think are really important because some of these things you are ongoing, you get them every year and you would include them as your revenue. Some things are not there one time and you would not include them. So I think we do want to define them and we can do that in in our in the process. So so and that is something that I actually I'm confident staff would do without our direction. And I truly do. And if if there is ever a definition that we don't think staff has adequately defined, then I'm confident that we can always remind, you know, and ask the question and then it comes back to us. So I'll go back to Vice Mayor, if you'd like to frame a referral that you think is appropriate. May I make a comment motion? Oh, yes, yes. So I just want to say I've really enjoyed watching and listening to this discussion. I think it's been a really nice example of interaction among all the council and staff, and we have created something that I think I'm prepared to actually support where I didn't think I would, because I think this former dam really honed in on the concerns on both sides of this issue and just made it better. I also appreciate the affirmation of the respect for staff, their input, their expertize and their abilities. I think too often people don't realize how much is done by staff before the five of us ever get up here to do our deliberating. So I think that's really nice to have that affirmation in public. I mean, with this, I'll turn the floor back over. And I like the language. I really appreciate help in having. It's obvious that you listened what I was saying to what my colleagues were saying, and I think that that makes this useful. So if the city clerk can read back the motion, that would be the motion I would make because it captured what my intention was. It would be the city council directed the city manager to prepare the general fund budget and ensure the items listed would be defined and critically evaluated. And those are those three points. And I would make that motion and also make a comment that. Even though it I specified fiscal year 20 1517 cycle it was so that would start right now and I do understand that we have a long way to go, but I think it's important that we do this ahead of the discussion so it doesn't get swallowed in. And I think we all agree with you. We have a motion. Is there a second member? Yes. Is the last paragraph still in the motion? Okay. No. I'm sorry. Can I hear it one more time, please? Direct. The City Council would direct the city manager to prepare the General Fund budget and ensure the three items listed would be defined and critically evaluate. The three items are one. One time revenues, advance loans and reserves. Yes. Thank you. We have emotion. Is there a second? Um. Okay. Our second. And then at this point, the last paragraph was stricken. That was. Yes, because I think the assumption is that the Treasurer and the auditor are already involved. Remember what hesitation I exhibited moments ago was? Because I think going into this, I saw this discussion as being framed as something addressing the structural deficit, the nature of the structural deficit of the general of our of our budget, which we all know is there. But my sense then is that we've kind of moved away from from indicating that that this will indeed actually solve the structural general fund budget, a promise which I would say that was probably beyond the scope to begin with. So to go to the extent that that interpretation of what I guess is correct, and I'm supportive of this, I'm supportive of the literal wording of how it is now. QUESTION So are you the that. Is. Because I think this is important. What I'm trying to say is this is that if we follow the little wording of of the motion, there is no implied predicate of dot, dot, dot. Therefore, we are on the path of solving the structural deficit is that's a promise which I think we can't make. But I think the motion, as it stated now in and of itself, has value to the public. It is valuable to specify these three items. And my question to you is going to be, were you having trouble with the wording in preparing a structurally sustainable budget? No, because I didn't hear that word in the way that you read out. We did take that out. That's okay. Okay, then. Yeah. So that's fine. Yeah, I'm fine with the literal wording. That's why I appreciate this word. So I actually would like to go back member day to give comment regarding the three the three principles. Mm hmm. So it's my understanding that we're not saying that these are things. These would be assumptions we would be considering along with other assumptions. That's right. We're going to define them and evaluate them. So this is intentionally broad. And I personally. I expect this is something that staff would have done without the referral. I don't think the referral is necessary to do this. I do expect that we will be working with staff. We will have the opportunity to do all of this. However, I will support the motion, but I do think it's redundant. So I'll call the question. All those in favor. I, I opposed. Abstain. On. So forth. Four in favor. One abstention. Thank you. And our next item. Three G can. Consider directing staff to reestablish the Economic Development Commission. This item was placed on the agenda at the request of Vice Mayor Madam.