MINUTES OF THE METRO COUNCIL BUDGET COMMITTEE MEETING

Wednesday, February 25, 1998

Metro Council Annex

Chair McCaig called the meeting to order at 3:35 PM.

1.  CONSIDERATION OF MINUTES OF DECEMBER 3 AND 4, 1997 AND FEBRUARY 19, 1998

Councilor Morissette stated his “aye” vote would apply to the December 4, 1997 and February 19, 1998 minutes only inasmuch as he was not present at the December 3, 1997 meeting.

2.  ORDINANCE NO. 98-724, FOR THE PURPOSE OF ADOPTING THE ANNUAL BUDGET FOR FISCAL YEAR 1998-99, MAKING APPROPRIATIONS, CREATING FUNDS, LEVYING AD VALOREM TAXES, AUTHORIZING INTERFUND LOANS, AND DECLARING AN EMERGENCY

PUBLIC HEARING

Chair McCaig opened a public hearing to receive testimony on Ordinance No. 98-724. No one appeared to testify on the ordinance. Chair McCaig closed the public hearing.

LONG TERM FUNDING DISCUSSION

Chair McCaig introduced Jennifer Sims, Director of Administrative Services, who gave a report on the status of Metro’s long term funding needs. A copy of a document entitled “Long Range Funding Outlook” dated February 25, 1998 was distributed to councilors and is included as part of the meeting record. Ms. Sims said Metro is maintaining the status quo for the FY 1998-99 budget, however, several items continue to loom that will ultimately require Council attention. She said a major issue will be to find a General Fund funding source. Currently, Metro relies on the excise tax as its only funding source.

Ms. Sims said staff is working to be less conservative in its tonnage forecasts. This will result in a reduced excise tax windfall at the end of the year. When the reduced difference is matched up with Metro’s needs, staff continues to project a shortfall for FY 99-00. Ms. Sims said the shortfall looks better this year due to the tonnage forecast, and the fact that staff has added to the mix, an assumption of traditional underspending.

Ms. Sims said some programs that will place pressure on the excise tax will be implementation of the Framework Plan, Urban Reserve master planning, ongoing service to local governments for Framework Plan implementation, Regional Transportation Plan project funding, the allocation to Parks for operations, master and actual planning for the openspaces properties, and any future operating costs as Metro moves openspaces from landbanking mode to actual use. Ms. Sims said there will be a gap in Parks funding as FY 99-00 approaches, even without the conversion from landbanking.

Ms. Sims said staff is unsure of the status of ongoing federal grants, upon which the Transportation Planning budget relies heavily. She said the last area of concern surrounds the Metro Washington Park Zoo. She reminded the committee that Metro’s authority to increase property tax to be used for operations at the Zoo (six percent per year under Measure 5) is reduced under Measure 50. Ms. Sims said Metro plans to compensate for this reduction with an admission increase and more aggressive enterprise revenues.

Chair McCaig said last year the committee worked very hard to offset cuts at the Zoo that would occur as a result of Measures 47 and 50. At that time Ms. Sims painted a grim picture of the fiscal future at the Zoo. Chair McCaig said she had been concerned last year that people would be laid off during the FY 98-99 budget cycle, and this was one of the reasons she opposed funding OMSI. Now, however, the proposed budget shows not only are no positions lost at the Zoo, but in fact, positions are being added due to the Oregon Project. She said this year $1 million in Contingency funds will be used to offset Measure 50 cuts that the committee objected to using last year. She said her comments should not be taken to mean she is advocating cuts at the Zoo, however, she questioned why Metro is choosing to postpone implementing management strategies to begin dealing with the problems that exist at the Zoo. She felt she had made it clear last year that these strategies would need to be developed this year.

Ms. Sims responded that last year there were no lay-offs, however, FTE was reduced. Chair McCaig agreed, but said it had been very hard to reach this decision, and it had come with many conditions. Ms. Sims said staff seriously looked at an admission fee increase for the FY 98-99 budget, however, because they will also be instituting a parking fee at the Zoo, they felt it was not a good time to have both of these changes occur. Ms. Sims said the Executive’s strategy is to use the Fund Balance to make up for operations cost shortages in the current fiscal year and in the proposed FY 1998-99 budget. She said staff believes that increased enterprise revenues from the Oregon Project, increased admissions due to increased visitors, and a fee increase at a later date will help deal with Zoo funding problems.

Chair McCaig said she remembers when Measure 5 passed all of the gloomy predictions that government could not survive, yet it was able to adjust. She said Metro’s response to Measure 50 feels the same; that the government continues to find ways to adapt and adjust, and that it is never as bad as we predict it is going to be. She said while this is good news, it is confusing to people.

Councilor McLain said the Oregon Project was not part of the mix in last year’s budget discussions, however, Chair McCaig said it was. Councilor McLain said she was not speaking to efficiencies or administrative restructuring. Chair McCaig said Metro is still taking $1 million from Contingency in place of making serious cuts. This was something Metro wished to avoid last year, that was very controversial, and yet this year, there is no reduction in personnel funding, setting aside the Oregon Project, which Council was aware of last year. She said her point is not to cut Zoo employees, but that the proposed budget is not consistent with discussions of last year.

Ms. Sims said the reason the Zoo is on the long term funding problem list is that it continues to draw down on the Fund Balance, and the fact that taxes are not coming in as expected. Chair McCaig said it makes it harder to find a long-term funding strategy when Metro keeps putting off making we keep pushing off some of the decisions that are necessary to effectively manage what it perceives to be the loss of revenue over the next five or ten years.

Councilor Naito said when the budget was adopted last year Council did not know what effect Measure 50 would have if it passed. Ms. Sims said the effect was that Metro was about $.5 million better off than anticipated. Chair McCaig said that difference was applied to buying back FTE last year. Councilor Naito asked if Metro has now received true, accurate figures. Ms. Sims responded affirmatively.

Councilor Morissette said it is the manager’s responsibility to paint the picture of possible pitfalls, and it is up to Council to gauge how to respond. He said he believes the numbers are still conservative as to the numbers Metro will receive on excise tax, especially considering the factors of more competitive rates and a growing region.

Ms. Sims said two areas that appear to have a more positive outlook are MERC, with its new funding structure, and REM, with the reduced tip fee. However, she said there is still a need to monitor these changing situations. She pointed there are still $241 million of unfunded capital improvement projects listed in the CIP. Of that, a range of $200 to $400 million is earmarked for community roads and bridges, however, this leaves $41 million in other unfunded projects such as the Blue Lake water system and EXPO Hall B replacement.

Chair McCaig handed out copies of long range funding tables from previous budget years. She said many of the issues had been resolved. She referred to last year’s chart that showed those items that had been resolved. She said Metro needs to develop a strategy to look for a funding source for the government if the Sizemore initiative is defeated in November. She said Council needs to care about the fact that there is a $17 million shortfall in capital needs. She said urban arterial funding has been resolved, in that it will not be happening soon. Light rail expansion is now a public/private partnership, and open spaces acquisition is resolved. Open spaces landbanking has a shortfall and there is no money for parks, greenspaces administration, or capital development. Councilor Kvistad asked if the committee resolved part of this with the shift last year. Chair McCaig said there had been debate about this question.

Chair McCaig asked Ms. Sims to update last year’s list to show which items had been resolved or were no longer at issue. Councilor Naito asked about the status of cultural funding. Councilor Kvistad said arts representatives have asked for a place holder, and that Metro would like to be able to address cultural funding in the future, however, it is not currently a priority. Chair McCaig suggested leaving it on the list.

Councilor Naito asked how items came to be placed on the list, and who had reviewed them. Chair McCaig said that the Budget Committee used an informal process and discussion to arrive at estimates of capital outlay and operations needs. Councilor Kvistad said Civic Stadium capital needs should be shifted back to the city of Portland.

OFFICE OF THE AUDITOR BUDGET

Chair McCaig invited Alexis Dow, Metro Auditor, to present her budget to the committee. Three reports were distributed to committee members during deliberations, 1) the Auditor’s Office Department Overview, dated February 25, 1998, prepared by the Finance staff, 2) a written report prepared by Ms. Dow, and 3) a memorandum from John Houser setting forth his analysis and recommendations with regard to the Auditor’s budget. Copies of these documents are included as part of the meeting record.

Ms. Dow reviewed the department overview document. She then reviewed her written report, which listed accomplishments from the last year, works in progress, projects planned for the next twelve months, and outlined the Auditor’s FY 1998-99 budget changes. These budget changes include a request for an additional $25,000 in Capital Outlay for private offices for auditors and $30,000 for post-implementation reviews for InfoLink modules. Ms. Dow said she has discovered that the department’s auditors spend much more time in their cubicles than she had initially anticipated, and therefore, private offices would be more efficient. She said she realizes that due to political realities, this expenditure may not be approved, however, she plans to make the request again at a future date.

Ms. Dow explained her request for $30,000 for post-implementation reviews for InfoLink modules in greater detail. When she drafted the budget, she knew the audit would be undertaken, however, at the time, she was unaware of what such an audit would involve. In subsequent research, she has come to realize the study will be more costly than she originally envisioned. She said she normally budgets $10,000 to $15,000 for outside consulting contracts to supplement the Auditor’s function. InfoLink module audit quotes have been coming in at around $15,000 to $20,000 per module and about $30,000 for an overview of the project. Ms. Dow said this would come to between $100,000 to $150,000, depending upon achieving certain efficiencies of scale. She said she would not expect to have money of this magnitude built into her budget from year to year. She has some available money within her budget to get the project started. Ms. Dow said she has met with Mr. Houser to find extra money in her budget. They are in agreement that there is money to be found, however, they do not agree about the amount of money available. She believes she can find $30,000 to $35,000, whereas Mr. Houser thinks $40,000 to $50,000 will be available.

Ms. Dow asked that her request for $25,000 in Capital Outlay be delayed for a year and put into Outside Contracting Services, and that the other money that Mr. Houser has identified in the Auditor’s budget be used. She said she believes there would be a need of an additional $20,000 that is not in Mr. Houser’s proposal.

Mr. Houser gave a report on his analysis and recommendations related to the Auditor’s budget. He said the Auditor’s proposed budget is a seven percent increase over the current FY budget. Personal Services have increased 4.4 percent, and Materials and Services increased three percent. He said the only proposed Capital Outlay expenditure is the $25,000 budgeted for the private office remodel.

With regard to the InfoLink Audit, Mr. Houser reported no money had been budgeted in the current FY budget, and no money has been proposed for FY 1998-99 budget. He said he had attempted to find available funds to support this project in the current and proposed FY budgets without having to request additional funding from some other source that would be transferred into the Auditor’s budget.

Chair McCaig asked Mr. Houser and Ms. Dow to explain the urgency and timing issues related to the InfoLink audit. Ms. Dow said there are two elements to the audit. One is a review of the project management, and the second element would look at the implementation of each module. Three modules are currently functioning -- General Ledger, Payables, and Procurement. Payroll and Human Resources are scheduled to begin in April. Additional modules are scheduled to begin in July. Ms. Dow said auditors do not have the specialized skill necessary to undertake an audit of the module implementation. She has spoken with experts to determine how to approach such an audit. She said the recommendations she received state that the modules should be reviewed within three to six months after implementation. She reported that the PeopleSoft software is slated to be upgraded from version 5.0 to 6.0 in July, and to 7.5 in December. Ms. Dow said she would recommend beginning the module audit immediately. She said version 6.0 is in hand, and is ready to be implemented. Experts have advised she should wait until 6.0 is implemented, which would be around July 1 to begin the audit. In addition to looking at the transition from the main frame to the client server environment, the Auditor would also look at the steps to take in handling upgrades as part of the management process. She said the review of the module would begin in the next fiscal year.

Chair McCaig restated that there is a $140,000 project with two components, including a project management component that can be done internally. The second component is the review of the modules, which is very technical and will require outside help. She said the main question is the timing issue. If it is done mid-stream, the information may not as valuable because it may not be applicable when the project is completely finished. Therefore, the question for the Council is not where to find the $140,000, but rather if and when we agree to undertake the proposal.

Councilor Naito said the issue brings to light the committee’s ongoing discussion about the fact that policy makers are not well equipped to make reasoned decisions about high tech systems purchases and monitoring. She reminded the committee they had discussed establishing a technical advisory committee of independent experts who could analyze Metro’s system independently, without a vested interest in the software or Metro. She said she would prefer this option to making an investment in a system review, when that review is just part of a bigger picture of the overall investment in technology.

Mr. Houser said one of the principal purposes of the module audit is to examine whether the modules as installed have retained all of the accounting, business practice, and security controls needed in order to make them operate successfully. Timing is an issue because the longer the modules remain operational without having checked the controls, the greater the risk that any flaw within the module will not be caught. This could result in accounting or audit related problems in future years. He said an outside group would probably not be able to deal with this kind of issue, but would deal, rather, with purchase and upgrade decisions. The module audit will require an expert in accounting system installation. There will be three different upgrades in the next nine months, and the question is will the system be complete enough to allow work to begin on an audit of the modules. Mr. Houser said based on the number of upgrades coming through, it is possible the system will not experience an extended period of time without an upgrade becoming available. It is Mr. Houser’s understanding that future upgrades will probably not have a significant impact on internal controls. Therefore, he recommends using the incoming 6.0 version as a basis for the audit.

Chair McCaig asked for committee input. Councilor Morissette asked why the Council should worry about reviewing a new system, and whether there is a possibility the new system could be flawed. Chair McCaig said most agencies that invest in large computer systems recommend a check be made of them after they are up and running, as a matter of practice. Ms. Dow said the reason for the review is that a standard package is customized to the purchaser of the software, and it is necessary to that none of the checks and balances have been compromised in implementation. Chair McCaig said the fact that an audit is ordered, should not lead anyone to assume there is a problem with the system.

Councilors Morissette, Naito, and McLain said they believed this review had been represented by staff to be part of the original package. Chair McCaig and Ms. Sims pointed out that the proposed audit would be an independent review, separate from the system review included in the package. Chair McCaig said she believes it is very typical to have a separate entity review the system once it is in place. She Council is not required to approve this audit, however, Council may deem it smart to do so.

Councilor McLain asked what the expected outcome of this audit will be. Ms. Dow said the audit will ensure that checks and balances are functioning. There will also be feedback on how the system was implemented, and suggestions for fine tuning and the re-engineering processes.

Councilor Morissette said he does not think Council can approve the $25,000 remodel. He said further consideration of Mr. Houser’s recommendations is needed before he could agree to fund the audit. Ms. Dow reminded the committee she is not asking for $140,000. She said the completion date of the project is not yet known, so she does not have a firm date for finishing the audit. Councilor Morissette said it is important when beginning a project to look at the full scope of that project, including completion. Ms. Dow said following completion of the audit of the first three modules, she believes a different approach can be utilized to save money by using an auditor on staff. She said she is preparing an RFP, assuming approval of the project by Council, wherein Mr. U’ren of her staff will work with the outside team, and during that process, he will become more knowledgeable so he can have a larger role or a lead role in the review of future modules.

Councilor Morissette asked about the 17%, internal service charge.

Councilor Naito said it may be best to have a expert on staff to handle reviews of this nature. She said money could be set aside to hire a person to review all of Metro’s computer systems. A discussion followed regarding salary ranges for computer specialists.

Councilor McLain said the committee is working to best determine how to spend the excise tax dollars throughout the agency. She said she is not convinced from what she has heard today that the audit project is at the top of her list. She said if she does look at the project she will definitely consider Mr. Houser’s recommendations for how to fund it. Chair McCaig said first the committee needs to find if there is commitment to the project, and then it will be a matter of finding the necessary funding.

Councilor Kvistad said he has felt the need to receive more information on the InfoLink project. He said he believes an audit to be a standard procedure on implementations of this size and complexity, and that an audit is probably warranted. However, he said he does not know when it should occur. He said he needs more information.

Chair McCaig said Mr. Houser’s memorandum pointed out that the state of Oregon and the city of Portland have undertaken similar projects and both entities recommend doing an audit. It appears to be the right thing to do, however, she said it is probably necessary for committee members to have a better understanding of the components, the modules, and the timing. She recommended Ms. Dow talk to councilors individually. She also recommended inviting a representative from the city of Portland or the state of Oregon to explain to the committee the value of the audit.

Ms. Dow said she has information from the Coopers and Lybrand audit that described was accomplished in the audit of the city’s system. In addition, her draft RFP includes a two-page description of scope. She said this information would assist the committee in reaching a decision. Chair McCaig asked Ms. Dow to provide this information to councilors prior to next week’s meeting. Chair McCaig said that while the amount of money is not exorbitant, the committee needs to know what it will purchase, because it is competing with other needs throughout the agency for that same money.

Councilor McLain echoed Councilor Naito’s earlier concerns about whether this will be an ongoing process with obtaining high technology systems. She said she does agree that the independent audit is the only feasible review process available to Metro. She said the most important decision regarding this audit will be when to undertake it in order to get the most value for the dollar. She pointed out that unfortunately, there is nothing in Ms. Dow’s report that provides her with the necessary information.

Mr. Houser recommended proceeding with reductions in Materials and Services and Capital Outlay as set forth in his memorandum, independent of the committee’s decision about whether to proceed with the audit. He said reductions in line items in Materials and Services in the amount of $10,526, and in Capital Outlay in the amount of $25,000 appeared to be justified on their face. Chair McCaig asked the committee to look at these recommendations and include them as part of the decision package for next week.

Ms. Dow said she had not paid attention to individual line items, but rather, she added three percent to the total amount shown in Materials and Services. Therefore, her analysis is not as complete as Mr. Houser’s. She said if she goes ahead with the project and does not transfer to Outside Contract Services, she will need to spend more time in order to review all of the individual line items.

Chair McCaig said the committee will look at the modules and how to pay for them. If it is decided not to go with the modules the committee will consider what to do with the line items, and it will also review the 17% to Support Services.

OFFICE OF GENERAL COUNSEL BUDGET

Chair McCaig asked Daniel Cooper, General Counsel, to give an overview of the budget of the Office of General Counsel. Mr. Cooper said personnel expenses are in accordance with the executive officer’s guidelines covering merit increases and the CPI. He reported there are no new staff members or major changes. In the Support Services Fund, there is a $10,000 increase in printing expenses to cover reproducing records for land use cases and potential appeals. Mr. Cooper said he and Charles Ciecko, Director of Regional Parks and Greenspaces, have agreed it is more appropriate to budget expense for the outside appraisals that are done in each of the open spaces transactions through the Office of General Counsel because Mr. Cooper’s staff order the appraisals, they come addressed to General Counsel, and they are used by OGC staff as part of the due diligence program. Since all of the work is being done by the Office of General Counsel, it was decided to move that money to the Counsel Office budget.

Chair McCaig asked for Mr. Houser’s review. Mr. Houser reported he had no questions. Councilor Morissette asked about the 227% increase in Materials and Services. Mr. Cooper reported that this is due to the transfer of open space appraisal services. Councilor Morissette pointed out the portion of Mr. Cooper’s budget that is Support Services is .27% versus 17% for the Auditor. He said the General Counsel figure seemed more in line.

Chair McCaig asked Ms. Sims why the Auditor’s allocation of internal services would be 17%. Ms. Sims responded that the allocation of internal service charges varies from year to year, so based on usage of services it will change. She said in total there will be some increase, however, the amount for any given department will increase or decrease from year to year.

Chair McCaig asked why Mr. Cooper states in his department overview that a major objective of his department is to provide legal services to the Auditor this year. Mr. Cooper said this is not a new responsibility, but it is the first time he has listed it.

3.  RESOLUTION NO. 98-2614, FOR THE PURPOSE OF AMENDING THE FY 1997-02 CAPITAL IMPROVEMENT PLAN

Mr. Prosser gave a presentation on Resolution No. 98-2614, which would amend the FY 1997-02 Capital Improvement Plan to add a project to remodel the Zoomer Barn at the Metro Washington Park Zoo to house koalas on loan from the San Diego Zoo. The substance of Mr. Prosser’s report is set forth in the staff report to the resolution, which is included as part of the meeting record.

Councilor Morissette will carry the resolution to full Council.

Chair McCaig said Mr. Morrissey’s questions on the Transportation Planning department budget will be available on Monday. She distributed the Transportation Planning Department Budget Overview to members of the committee. She said there will also be an update on the InfoLink project, and the completion of the review of the Auditor’s budget.

There being no further business before the committee, Chair McCaig adjourned the meeting at 4:50 PM.

Prepared by,

Lindsey Ray

Senior Council Assistant

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