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Approved Minutes - 2009-04-13 OE LAKE°sip, /W CITY OF LAKE OSWEGO CITIZENS' BUDGET COMMITTEE MINUTES April 13, 2009 Proposed FY 2009-2010 Budget OREGON Chair Ron Smith called the meeting to order on April 13, 2009 at 6:35 p.m. in the Santiam Room of the West End Building, 4101 Kruse Way, Lake Oswego, Oregon. Members present: Jack Hoffman, Mayor Ron Smith, Chair Donna Jordan, City Council Katherine Shallenberger, Vice President Chair Kristen Johnson Frank Bearden Sally Moncrieff Kelly Calabria Mary Olson Jeff Gudman Bill Tierney Daniel Williams Members excused: Roger Hennagin and Gary Logsdon Staff present: Alex McIntyre, City Manager Darin Rouhier, Finance Director Jordan Wheeler, Management Analyst David Powell, City Attorney David Donaldson, Assistant City Manager Robyn Christie, City Recorder Brant Williams, Economic and Capital Development Department Director Carol Bryck, Assistant Finance Director Kam Frederickson, Budget & Financial Analyst Ed Wilson, Fire Chief Bill Baars, Library Director Joel Komarek, LOIS Jane Heisler, Public Affairs Director LOIS Kim Gilmer, Parks & Recreation Director Dan Duncan, Police Chief Guy Graham, Public Works Director Megan Phelan, Human Resources Director I. Welcome & City Manager's Budget Message Chair Ron Smith called the meeting to order at 6:35 p.m. He explained that state law required public disclosure and involving citizens in the budgeting process. He advised that as the City's fiscal planning board the Citizens Budget Committee had the authority to change the proposed budget, including tax rates, the total amount of property taxes levied, and expenditure limits. City of Lake Oswego Citizens' Budget Committee Page 1 of 6 Minutes of April 13, 2009 They were to forward the budget to the City Council by June 30th. Each Committee member had an equal vote. Hennagin and Logsdon were not present, but each of the other members present introduced themselves. Smith asked the Committee members to stay engaged, respectful, open and focused. Alex McIntyre, City Manager introduced the budget. He explained he had taken a new approach to the budgeting process and the budget format to make the process more transparent and the format easier to read and understand. He introduced and thanked the members of his budgeting team and the department heads who had helped fashion the budget. He said each department administrator would present that department's budget and explain what the department did for the City. He pointed out that time had also been allocated for the Committee to gain a good understanding of ten, high-issue, budget-driving themes that required significant resources. He advised the budgeting process met the requirements of Oregon law and the City Council had to approve a budget by June 30tn II. Schedule of Meetings & Public Input Opportunities McIntyre pointed out the proposed schedule offered opportunities for the public to weigh in, starting with the Mayor's informal roundtable on April 18, then on the April 28, May 4 and May 11 Committee agendas. Citizens would hear the background and explanation of the budget at those meetings and then have an opportunity to comment on it. Committee members then discussed what were appropriate times to invite public questions and comments, whether public input should be invited after presentation of a topic and limited to that evening's topic; or if more time could be allotted at the end of each meeting or during breaks in the meeting when the Committee members or staff would answer questions. Smith decided to set time for citizen input related to the meeting's topic after the presentation and Committee discussion at all Committee meetings, including April 20th. He also asked for a recap report of the issues raised at the Saturday, April 18th roundtable discussions. Olson was concerned that some citizens who could not attend all the meetings would not be able to ask off-topic questions, Smith suggested they could ask questions, but they might not get an answer until the particular topic was discussed. He said he would ensure public comments were relevant and to the point. Jordan suggested scheduling an additional "open mike" forum for comments. Smith suggested the Committee make space on each agenda for public input first and wait to consider scheduling another forum. III. Budget Changes and Highlights McIntyre explained that he and the City Council needed to be able to be responsive to change, especially in the current economic environment. The budgeting process the City had been using was not transparent enough to the community. There should be more opportunity for the public to get good information so they could ask meaningful questions and get timely answers. He had made a lot of changes. The Finance Department used to develop the budget. Now the City Manager's new budgeting team and the department administrators had an active role in developing and communicating the budget. He proposed an annual budget that could project ending conditions with more certainty than a biennial budget; that was more transparent; and because he was using a new process with new "players." City of Lake Oswego Citizens' Budget Committee Page 2 of 6 Minutes of April 13, 2009 McIntyre had consolidated five property-tax-funded funds (along with the Municipal Court Fund and Planning/Building) into one General Fund to run the City. Spending would be more transparent and the City Council would have more flexibility to shift property tax revenue to where it was needed to accomplish their goals. Reserves associated with each of the funds were also rolled into one large reserve account. He wanted to designate reserves to use to pay for currently unfunded accrued leave liability and designate reserves that would grow large enough over time to eventually pay for purchases of City vehicles and fire trucks. Gudman agreed that the value of leave as it was earned was a cost of doing business and funding accrued leave liability was reasonable. Shallenberger observed it was hard for a department head to predict the effect on the department operating budget when accrued leave had to be paid out at the time employees left. Jordan recalled that auditors had recommended budgeting for accrued leave. Calabria questioned allowing money from the library fund to be spent on a fire truck. McIntyre advised that the City Council could designate a reserve or "undesignate" it at any time, and they had the authority to shift property tax money between reserves. Jordan recalled it had been hard to move money between departments, even when some departments had both a contingency fund and large reserves that were carried over year after year. She said what was proposed was a more transparent way to show the public how funds were spent and would allow the City Council to spend money where it was needed in a public process. Olson agreed that consolidating the General Fund would mean that spending would be easier to follow and understand. Gudman agreed the proposed roll-up of General Funds was a very good idea. Shallenberger asked what other items auditors wanted to see reserves for. Gudman noted the $6 million post-employment healthcare plan liability was also unfunded and he thought the total PERS liability might be in excess of$100 million. Rouhier said there were other items auditors had commented on, but the City had such strong reserves that this was the extent the City wanted to shield itself from risk by designating reserves. Tierney suggested that if there was to be a budget policy to control the cost of unused leave there should be a policy related to the cost of healthcare too. McIntyre discussed new funds, departments and programs. There were two big projects. The Lake Oswego Interceptor Sewer project (LOIS) would cost $125 million. The Lake Oswego/Tigard Water Partnership project would cost $200 million (Tigard would contribute to that). The City Council had already formed a LOIS team of five professional employees who were to manage the project and facilitate communications. He asked for money for another team of three to manage the Lake Oswego/Tigard Water Partnership program. The City Council had created the new Economic and Capital Development Department and the Public Works Department was now a stand-alone department. A Tourism Fund would account for the percentage of Hotel/Motel Tax money mandated for that purpose by state law. The budget document contained a "Budget Crosswalk" spreadsheet. It showed overall revenue of approximately $75 million and expenditures of about $114 million. McIntyre explained the budget was actually close to balanced, because most of the difference between revenue and expenditures was $38 million in LOIS bond revenue that the City would receive, put in the operating fund, and spend during the year. When asked, Rouhier explained the difference between operating revenue and overall revenue was mainly the contribution from the City of Tigard for the water project. He planned to provide the Committee with a more detailed report on that. Gudman asked why the City Manager's letter said the City was adding four employees, but his summary to the City Council at their January goal-setting session said the City would add 10.5 City of Lake Oswego Citizens' Budget Committee Page 3 of 6 Minutes of April 13, 2009 employees. McIntyre confirmed that some had already been hired, some positions would not be created or not filled, and there would be some layoffs. The LOIS team was technically 4.5 Full Time Equivalent (FTE) employees and the Lake Oswego/Tigard water team was 3 FTEs. Wheeler clarified the total "headcount" was 357.7 FTEs to serve a city population of 36,698. IV. 2009-10 Revenues, Expenses and Reserves Overview Rouhier pointed out that total revenue was approximately $75 million. Franchise fees had been growing and investment income had declined dramatically over the past year, but property tax was the biggest source of unrestricted City revenue. The budget did not change the current property tax rate of 4.9703. Tierney was concerned that counting "transfers" between departments as revenue would make it appear the City was getting more revenue than it actually received. Rouhier explained that was a function of fund accounting to track money from one fund to another so the City's cost of providing a particular service to the community would not be understated and could be fully recovered. For example the cost of providing wastewater management would include the cost of internal services such as HR and GIS services. He agreed that kind of accounting tended to inflate the budget and said he would try to fashion future reports in a manner that might eliminate the confusion. Rouhier advised that the net affect of each one-cent increase in property taxes was about $56,000 per year, or about $3 per year for a house with an assessed value of$300,000. He said the budget projected 3% growth in assessed value and slowing of new construction to only 1%. Gudman questioned the new construction projection, because it was a one-third reduction in previous years' projections, but permitting fees were down 50%. He asked the staff to verify the current projection because it would impact property tax revenue. Rouhier said the budgeting team had relied on the county assessor, who anticipated 1% new construction growth. He pointed out the graphed breakout of a typical property tax bill that showed the City received 29% of that revenue and part of it went to bonded debt service (see Page i-7). He promised Tierney he would provide more information about what Bonds (Outside Tax Limits) were. He confirmed for Jordan that the library levy was in the "County and Other General Government" category. Rouhier pointed out changes in expenditures from last year (see the table on Page i-7). Salaries, wages and benefits increased about 1%. An increase in Materials & Services was primarily due to the cost of gearing up the LOIS and water projects. Tierney asked if the cost of the LOIS and water project teams would be recorded as capital expense or operating expense. Rouhier said most of the cost would be capitalized, but there were some administrative expenses that would come from the operating budget. McIntyre confirmed for Williams that the water project team would be dissolved at the conclusion of that project. Rouhier explained the $40.5 million drop in reserves by the end of the budget year (see the table on Page i-8). The General Fund was anticipated to drop due to use of capital and paying for some positions in Planning and Building that were not funded out of current revenue. Most of the overall drop was drawdown of Public Works reserves, which would start the year with bond proceeds that would be drawn down over the course of the year to pay for LOIS and other capital projects. He clarified for Williams that there was no need to replace reserves from bond proceeds that were to be spent for their specific purpose during the year. He confirmed to Jordan that the City might decide it needed to sell more bonds during the year and, if so, that would be in a supplemental budget. It was not in the currently proposed budget. He advised the City currently had a "cushion" over and above the minimum reserve balances City policy City of Lake Oswego Citizens' Budget Committee Page 4 of 6 Minutes of April 13, 2009 mandated. (See the fund-by-fund schedule in the budget document for the minimums for each fund.) The staff then distributed bound copies of the Proposed Budget 2009-10 to the audience. Tierney and Williams asked if LOIS and water project funds could be segregated for discussion purposes to make it easier to understand the rest of the budget. McIntyre agreed. Gudman observed that LOIS was a capital project, and suggested that the money spent on it be isolated in a separate capital expenditures line item and not included in city operating revenues and operating expenses. Rouhier said that could be done, except for some administrative costs associated with it. He explained that the budgeting team had segregated LOIS into its own fund to make it more understandable. Wheeler discussed the format of the budget binder and said the team's goal was to make it reader friendly. McIntyre confirmed for Williams that the City would make copies of the proposed budget available to the public in the meeting room, at City Hall, at the Library and online. McIntyre clarified that the Lake Oswego/Tigard Water Partnership was a "done deal," and the Committee's role was to understand the background and reason for doing it and decide if the numbers made sense. When Jordan asked if Lake Oswego and Tigard could form a joint team, McIntyre explained that Lake Oswego was the managing partner and the City's team was planning the entire project. Jordan suggested ensuring the message that was communicated to the citizens of both cities was the same. McIntyre confirmed for Tierney that potential "wage adjustments through the negotiating process" were accounted for in a separate reserve account; were not reflected in department salaries; and the 1.08% increase in Personal Services did not include those wage adjustments. Gudman wanted the Committee to be involved in the quarterly review of actual budget results by the City Council. McIntyre explained he had been hired by the City Council to manage the budget and report back to them. He advised that it was the City Council's role to scrutinize the budget and he was not sure what role the Committee could play, but he would be happy to update them on a quarterly basis as well. Gudman wanted the schedule to allow the Committee to spend the most time on the big expense items, such as the wage adjustments reserve. McIntyre said the discussion of that item was not in his presentation, but it was within the Committee's purview to ask about it. He acknowledged the City was a labor-intensive organization. McIntyre advised the Committee members to use terminology that was meaningful to their audience and avoid spending a lot of discussion time on very arcane accounting issues they might not understand. He suggested if they had technical questions they ask Rouhier during the week so the budgeting team could provide answers in terms that made sense to everyone. Williams said participants should ensure their comments were to relevant and to the point. He explained that he planned to press the staff to clarify the probabilities, risks and relevant factors whenever he read the words, "could likely." Gudman said if he was the only member who thought the Committee ought to be fully engaged in a monthly or quarterly review of results he would withdraw his request. But he wanted discussion before the suggestion was rejected. Smith suggested the Committee postpone that discussion until after they had addressed the budget. Then they could discuss what their role was going to be. City of Lake Oswego Citizens' Budget Committee Page 5 of 6 Minutes of April 13, 2009 Gudman observed the Financial Trends— Operating Budget graph on Page i-45 broke down the total operating expenditures on a per capita, inflation-adjusted, basis. He advised that was an excellent measure of how efficiently the City was using their operating dollars. He wanted to know why that spending was at the highest level it had been in 20 years. Smith asked the staff to come back with the answer. V. Adjournment Chair Smith thanked everyone for attending and adjourned the meeting at 8:15 p.m. Respectfully submitted, Kam Frederickson /s/ Kam Frederickson Budget & Financial Analyst APPROVED BY THE CITIZENS' BUDGET COMMITTEE: 4/28/09 City of Lake Oswego Citizens' Budget Committee Page 6 of 6 Minutes of April 13, 2009