Smart Planning in an Upturns3.us-east-1.amazonaws.com/media.csmfo.org/wp-content/...San Mateo...
Transcript of Smart Planning in an Upturns3.us-east-1.amazonaws.com/media.csmfo.org/wp-content/...San Mateo...
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Drew Corbett, Finance Director, City of San Mateo
Grace Leung, Administrative Services Director, City of Irvine
Smart Planning in an Upturn
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San Mateo • Incorporated 1894, Chartered 1922
• Population 102,000+
• 14.6 Square Miles
• $110 Million General Fund
• Full Service
Irvine • Incorporated/Chartered 1971
• Population 250,000+
• 66 Incorporated Square Miles, Sphere of influence
• $172.8 Million General Fund
• Mix of City and Contract Services
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Core Message
▪ Strategic resource management key in upturn – Assess capacity to increase service levels and/or add new services
– Prioritize adds carefully
▪ Take advantage of a good economy to position your agency for the next downturn
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Assessment Areas 4
Revenue Sustainability
Expenditure Growth
Reserve Levels
Infrastructure
Unfunded Liabilities
Service-level Deficiencies
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Revenue Sustainability
▪ Careful evaluation of revenue growth –What are the drivers?
– Is it sustainable?
▪ Volatility is a key indicator
▪ Increasing service levels based on volatile revenues can lead to cuts
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Property Tax
$0
$5
$10
$15
$20
$25
$30
$35
$40
Millio
ns
San Mateo
6
$0
$10
$20
$30
$40
$50
$60
Millio
ns
Irvine
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Sales Tax
$0
$5
$10
$15
$20
$25
Millio
ns
San Mateo
7
$0
$10
$20
$30
$40
$50
$60
$70
Millio
ns
Irvine
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Transient Occupancy Tax
$0
$2
$4
$6
$8
Millio
ns
San Mateo
8
$0
$2
$4
$6
$8
$10
$12
Millio
ns
Irvine
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Property Transfer Tax
$0
$2
$4
$6
$8
$10
$12
Millio
ns
San Mateo
9
$0
$2
$4
$6
$8
Millio
ns
Irvine
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Expenditure Growth
▪ Projected expenditure growth in relation to projected revenue growth – Strong long-term plan is key
▪ Focus on personnel cost growth
▪ What you can afford now less important than what you can sustain over the long term
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Expenditure Growth
0
100
200
300
400
500
600
700
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Cost Per Employee Number of Employees
City of San Mateo – General Fund
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Expenditure Growth
0
200
400
600
800
1000
1200
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Cost Per Employee Number of Employees
City of Irvine – General Fund
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Reserve Levels
▪ Policy levels –GFOA best practices for unrestricted fund balance
▪ At least 2 months operating expenditures
– Some governments hold more than this
▪ Appropriate reserve levels depends on risk – Revenue volatility must be considered
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Reserve Levels
▪ Great time to assess creation of a stabilization fund – Provides service level stability
– Increase during upturns; draw down in bad times
▪ Especially effective with volatile revenues
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City of Irvine Contingency Reserve Balance History
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$5
.3
$6
.2 $8
.3
$1
0.0
$7
.8 $
11
.9
$1
9.9
$2
3.5
$1
8.4
$2
1.8
$1
3.4
$2
0.1
$2
0.6
$2
3.2
$3
0.3
$3
4.6
$0
$5
$10
$15
$20
$25
$30
$35
Mill
ion
s
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City of Sunnyvale Budget Stabilization Fund Scenarios
-$40
-$30
-$20
-$10
$0
$10
$20
$30
$40
$50
09/10 11/12 13/14 15/16 17/18 19/20 21/22
Millions
BSF with Tier 2 Savings
BSF with Tier 2 Savings + Historical Safety SalaryIncreases
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Infrastructure
▪ Infrastructure maintenance at risk during downturns – Potentially less painful than other cuts
▪ Significant downside to deferral
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Pavement Condition Index
It is more cost effective to maintain a road while still in good condition over its life, as opposed to letting it deteriorate to the point that it requires major reconstruction.
Irvine
San Mateo City Average
72 PCI
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Infrastructure
▪ Streets
–Current Pavement Condition Index = 72
– 19 miles of failed/failing streets
– $34 million additional funding needed
▪ Flood Control
– Limited funding but enormous need ($85M)
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City of San Mateo
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Infrastructure
▪ Streets – Current Pavement Condition Index = 86.6
– Pavement Management Program – Fully Funded
– High Council priority
▪ Facilities & Parks – Facilities Condition Assessment
– Parks, Facilities & Playground Master Plan
▪ Funding Sources – Dedicated Transportation Funds
– Developer Impact Fees
– General Fund
– Assessment District Fund
– Asset Management Plan Reserve
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City of Irvine
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Infrastructure
▪ Utilizing capacity for infrastructure is good investment
▪ Properly maintained infrastructure is the most cost effective
▪ Allows best allocation of resources across all priorities
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Unfunded Liabilities
▪ Pension and OPEB
▪ Increased public scrutiny
▪ Growing portion of personnel costs
▪ Addressing liability more aggressively a consideration
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Unfunded Liabilities
Unfunded Liability - Safety
Funded Status - Safety
Unfunded Liability -
Miscellaneous
Funded Status - Miscellaneous
Irvine $36M 82% $70M 78%
San Mateo $108M 67% $48M 79%
Sunnyvale $125M 74% $126M 75%
Menlo Park $15M 81% $20M 82%
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Pension
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Unfunded Liabilities
Unfunded Liability Funded Status
Irvine $5M 0%
San Mateo $12M 4%
Sunnyvale $65M 47%
Menlo Park $0 100%
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OPEB
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Options to Address Unfunded Liabilities
Irrevocable Trust
Shorter Amortization
Period
One-Time Payments
Internal Service Funds
Unfunded Liabilities 25
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Shorter Amortization
▪ Request 15- or 20-year amortization from CalPERS (cost impact in actuarial report)
–Pros:
▪ Less overall funds spent on interest payments
▪ Lower payments in the long term
–Cons:
▪ Higher payments now
▪ Reduced flexibility
▪ Risk and reward
– Additional funds subject to investment gains and losses
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One-time Payments
▪ Utilize one-time funds to accelerate payments to CalPERS
–Pros:
▪ Less overall spend on interest payments
▪ Not locked into a shorter amortization period
▪ Lower long-term rates
–Cons:
▪ Risk and return
– Funds subject to investment gains and losses
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Internal Services Fund
▪ Set funds aside internally for unfunded liabilities
–Pros:
▪ Funds stay in the agency’s control
–Creates flexibility if conditions change
▪ Can be utilized to stabilize rates
–Cons:
▪ Funds stay in the agency’s control
– Lowest investment return option
–Could be used for other purposes
▪ No reduction to GASB 68 liability
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Irrevocable Trust
▪ Establish Irrevocable Supplemental Trust – Pros:
▪ Can be used to stabilize rates
▪ Reduced GASB 68 liability
▪ Less restriction on investments
– Higher return than agency’s portfolio
–Cons:
▪ Funds can only be used for established purpose
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City of Irvine Pension Scorecard 6/30/2014 CalPERS Valuation & 6/30/2015 Estimate
68.0%
73.0%
78.0%
83.0%
88.0%
93.0%
98.0%
Pe
nsi
on
Fu
nd
ing
Actuarial Date
Adopted Plan Target Plan Status 6/30/2014* No Action
Plan Target
Plan Status 6/30/2014
*Projected by CalPERS on the basis of 7.5% future annual investment returns and other actuarial assumptions
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Service-Level Deficiencies
▪ Most challenging area to assess – Any operation can point to services not optimized
▪ Community preferences important to consider – An optimal service level may not be the preference
– Resource demand a key factor
▪ Return on investment of available capacity
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$8
36
$7
79
$7
33
$7
30
$7
53
$7
72
$7
75
$7
70
$7
29
$6
41
$6
31
$6
15
$6
26
$6
35
$6
49
110,000
130,000
150,000
170,000
190,000
210,000
230,000
250,000
270,000
$400
$500
$600
$700
$800
$900
City Population
Cost Per Capita
General Fund Expenditures Per Capita CPI Adjusted (baseline of December 31, 2014)
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Prioritizing
▪ Prioritizing capacity – Service-level deficiencies?
– Enhance existing services?
– Add new services?
▪ Likely answer is “All of the above”
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Prioritizing
▪ Focus on best return on investment
▪ Compare competing priorities by analyzing outcomes from adding resources – Largest impact at lowest cost = best investment
▪ Utilization of performance metrics adds objectivity
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Barriers to Success
▪ Discipline during good times can be difficult – Political pressure
– Employee association pressure
– Less focus on agency financials
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Overcoming Barriers
▪ Good long-term planning model – Evaluating long-term impacts of decisions
▪ Strong financial policies – Reserve levels
–Compensation
– Infrastructure
–One-time revenues
▪ Opportunity to strengthen sustainability and resiliency
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