April 2, 2005
SUBJECT: Service and Program Budget Review
REPORT IN BRIEF
This report describes a recommended process that the City Council can use in completing its service and program budget review for selected programs at a special meeting scheduled for Saturday, April 2, 2005. The recommended process can be used by Council in reviewing and providing preliminary policy direction on four programs. They are: Water Supply and Distribution, Solid Waste Management, Wastewater Management, and Utility Billing, Collecting, and Revenue Management. Staff will use the preliminary policy direction to prepare the City Manager’s FY 05/06 Recommended Budget and 20 Year Financial Plan, or to prepare study issues for consideration by Council at the December 2005 Study Issues Workshop. Two alternatives and a staff recommendation are provided.
BACKGROUND
The City Council completed a comprehensive review of all City services, service levels, and program budgets in March/April 2004. This work was undertaken to address a continuing structural gap in the City’s budget and long-term financial plan. As part of this effort, Council indicated that it wanted to complete a service and budget review of selected City programs on a regular basis. In December 2004 (RTC 04-423), the City Council adopted a six-step process for reviewing a selected set of City programs every year. This review process will allow for Council to review all City services and programs at least once every eight years. The City Manager will recommend and the City Council will approve the specific programs that will be included in the service and budget review each year as part of the annual budget issues workshop.
In January 2005, Council selected four programs for this year’s service and budget review process. These programs are:
· Program 312: Water Supply and Distribution
· Program 322: Solid Waste Management
· Program 342: Wastewater Management
· Program 720: Utility Billing. Collection, and Revenue Management.
The first three programs are managed by the Public Works Department. The last program is managed by the Finance Department. A review of these programs will provide Council the opportunity to review services, service levels, and program budgets for the City’s public utilities. User fees and charges are used to pay for the costs for all three programs. These fees and charges include water and sewer fees, solid waste fees, and development and permit fees. The first three programs are located in the City’s Water Distribution Fund, Solid Waste Management Fund, and Wastewater Management Fund. The last program is located in the General Fund, but 100 percent of program costs are allocated to and paid for by the three utility enterprise funds.
The City Council scheduled a special meeting on Saturday, April 2, 2005 to complete the FY 04/05 service and budget review for these selected programs.
EXISTING POLICY
Fiscal Sub-Element of the General Plan
Goal 7.1B: Financial Practices: Maintain Sound Financial Practices Which Meet All Applicable Standards and Direct the City's Financial Resources Toward Meeting the City's Long-Term Goals.
Policy 7.1B.5: Performance Budget System: Maintain and refine the Performance Budget System to assure its use for multi-year planning, full cost accounting, and budget monitoring.
DISCUSSION
The primary purpose of the service and budget review process completed by Council in 2003 was to reduce costs. Council completed this effort to close a structural gap in the City’s budget. The purposes for this year’s review are different. This year’s review process is designed to produce the following results:
· To inform Council and the public more completely about the services, service levels, costs, and revenues (where appropriate) that are associated with the selected City programs that are being reviewed;
· To provide Council with earlier and more involvement in the development of the City Manager’s Recommended Budget and Long-Range Financial Plan;
· To encourage more involvement and participation in the annual budget process by residents, business representatives, and community groups, and
· To give Council the opportunity to provide preliminary policy direction regarding services, levels of service, program costs, and the fees and charges for a selected set of City programs.
Council agreed to expand the service and review process to include all City programs if the City is faced with a financial crisis or a structural budget gap. At this time, staff is preparing the 10 and 20 year financial plans for all City funds. This information will be presented as part of the City Manager’s recommended budget. The review process described in this report will allow Council to complete its review of selected City programs this year.
Review Process
City staff will provide an overview for each program included in this year’s review process. The overview will provide a context for the City’s public utilities services. The following points will be highlighted during the staff presentation on each program:
· Program structure and services;
· Program outcome statement;
· Program outcome measures;
· Service Delivery Plans; and
· Program and budget costs.
This Report to Council contains two documents for each program included in this year’s review. The Attachment A is the Management by Objectives (MBO) Accounting Period 9 Report. This report provides the most current information available on program costs, revenues and activities for the current fiscal year. Attachment B is a modified Management by Objectives (MBO) report. This report provides a three year history of program costs, performance measures, and performance results. Staff will provide a brief explanation of the differences between each report and how the reports are used.
Council will be asked to provide preliminary policy direction for each program. It is suggested that this preliminary policy direction address changes as needed for each program in these areas:
· Program Services and Costs.
· Program Outcome Statement.
· Outcome Measures.
Staff will address Council’s preliminary policy direction in one of two ways. Minor changes to a program outcome statement, outcome measure, or program costs or revenues will be addressed in the City Manager’s Recommended FY 05/06 Budget and 20 Year Financial Plan. For minor revisions, the text for program outcome statements or outcome measures will be changed. More substantial revisions will be presented as proposed budget supplements. Council will re-address both text changes and budget supplements as it considers and adopts a final budget for next fiscal year.
City staff may suggest that a study issue be created to address a more significant change to a program, such as the development of a new City service. Again, this recommendation will be incorporated into the City Manager’s recommended budget. If accepted by Council, the study issue(s) would be included and ranked by Council during the annual Study Issues Workshop in December.
FISCAL IMPACT
There will be no direct fiscal impact for completing the service and budget review process described in this report. Departments will absorb the additional work hours required to complete the process. This process will require fewer work hours than the process that was used as part of preparing the recommended FY 04/05 budget and long-term financial plan.
There could be a fiscal impact if Council provides preliminary policy direction creating a significant or major change in an existing program. The fiscal impact on a specific program or service will be described and quantified by preparing budget supplements or recommending a study issue. Proposed budget supplements will be included in the City Manager’s Recommended FY 05/06 Budget and 20 Year Financial Plan. The study issue paper will describe the estimated fiscal impact of studying and potentially implementing the study issue. Council will consider these study issues as part of the December 2005 Study Issues Workshop.
Conclusion
The City Council has selected four programs that comprise the City’s public utility services for the FY 04/05 service and budget review process. Staff has prepared two documents that provide a current year-to-date and three year history of the services, performance measures and results, and costs and revenues (where appropriate) for each program. Staff will also provide a presentation to describe the services, service levels, and program costs and revenues at a special City Council meeting scheduled for Saturday, April 2, 2005. Following the presentation on each program, Council may provide preliminary policy direction regarding the program’s services, program outcome statement, performance measures and performance results, and costs and revenues. Staff will use this preliminary policy direction in preparing the City Manager’s Recommended FY 05/06 Budget and 20 Year Financial Plan. Or, staff may recommend a new study issue for policy direction that results in major or significant changes to existing programs or new services. These study issues will be considered by the City Council at its December 2005 annual Study Issues Workshop.
PUBLIC CONTACT
Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City’s web page, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk’s office.
ALTERNATIVES
Two alternatives are presented for Council to consider.
- Following City staff’s presentation for each program, Council can decide to make no changes to the current program, or can provide preliminary policy direction regarding changes to any of the following: program services and costs, program outcome statements, and outcome measures. Staff will use this preliminary policy direction in preparing the City Manager’s Recommended FY 05/06 Budget and 20 Year Financial Plan, or in preparing a study issue(s) for consideration by the Council at the December 2005 Study Issues Workshop.
- Following City staff’s presentation for each program, Council can discuss each program and provide preliminary policy direction using a different process than outlined in this report. Staff will use this preliminary policy direction in preparing the City Manager’s Recommended FY 05/06 Budget and 20 Year Financial Plan, or in preparing a study issue(s) for consideration by the Council at the December 2005 Study Issues Workshop.
RECOMMENDATION
Staff recommends Alternative 1.
Approved by:
Amy Chan
City Manager
Prepared by: Charles J. Schwabe
Deputy City Manager
Attachments
Attachment A: Management by Objectives (MBO) Period 9 Accounting Reports
Attachment B: Management by Objectives (MBO) Reports