MINUTES OF THE METRO COUNCIL BUDGET & FINANCE COMMITTEE

Wednesday, September 12, 2001

Council Chamber

Members Present:  Susan McLain (Chair), Carl Hosticka (Vice Chair), Bill Atherton, David Bragdon, Rex Burkholder, Rod Monroe, and Rod Park.

Members Absent:  None.

Chair McLain called the meeting to order at 2:07 p.m.

1.  Consideration of the Minutes of July 25, 2001, Budget and Finance Committee Meeting.

4.  Report on Metro Departmental Budget Priorities.

Mike Burton, Executive Officer, addressed the budget cycle and the transition year. He said that, starting September 2001, a budget for the transition fiscal year would be created in a much more integrated process. He recognized that Budget Buddies were successful in the previous year, and wanted Council staff to work directly with Executive Staff to bring a single budget before Council. He suggested that discussion of the proposed working process be a high priority item for the upcoming retreat. Departments had already discussed internal priorities, and this information would be shared with Council at a later date.

Chair McLain said that in the single budget process Mr. Burton would still have an opportunity to review the budget. Mr. Burton said that a discussion sheet outlining the process would be available at the retreat. Chair McLain said a review of the budget, including citizen review, would occur at the detail level after the budget was presented. Councilor Burkholder said he agreed that this discussion should be included in the retreat. Mr. Burton said he would look at budget practices in anticipation of this discussion.

2. Report from the Chief Financial Officer (CFO).

Jennifer Sims, Chief Financial Officer, spoke to the September 12, 2001, CFO Report, which is included as part of this record.

Councilor Burkholder asked how a continued civic stadium revenue decline would affect Metro. Ms. Sims responded that the pro forma structure to pay for stadium debt involved three primary revenues which followed a prioritized flow: the revenues would pay first the debt, then operating revenues. If, for some reason, debt and operating requirements could not be covered, that was where Metro would be affected.

Councilor Burkholder asked about the predicted drop in lodging tax revenue. Ms. Sims responded that the current reserve for covering Oregon Convention Center (OCC) operations during the construction period was funded. Mr. Burton added that in initial discussions, the bond was originally intended just for the convention center. At the time, hotel growth and revenue projections from the City of Portland were conservative. He recognized that the current occupancy rate, at under 70%, was mediocre, but thought Metro was reasonably protected. Ms. Sims agreed, saying that what was in question was whether the amount planned and scheduled to be paid would be adequate once the building was operating. Councilor Park agreed with Councilor’s Burkholder’s concern, and said that even though the structured deal protected Metro, the critical point would occur after Year Seven. Mr. Burton added that the legal question of whether a government could devolve its responsibility for public dollars to a non-governmental body would also have to be answered at that time.

3.  FY 2000-01 4^th Quarter Financial Report.

Tony Mounts, Financial Planning Manager, referred to the attached FY 2000-01 4^th Quarter Financial Report. He distributed an amended page 34, which is included as part of this record. He said that the report occurred as of the second interim close, and did not include grant reconciliations which the Planning Fund would undergo in October, nor the cost allocation plan reconciliation. A $1.5 million transient lodging tax payment received from Multnomah County the previous week, which went towards the Metropolitan Exposition-Recreation Commission (MERC) fund, was also not included in these numbers. He said these changes would be reflected in December’s final audit.

Councilor Park asked for clarification about the Regional System Credit Program – whether Metro had authorized $900,000 for that particular fund, but would now be paying out $980,000. Chair McLain responded that Councilor Park was correct and that a cap would be suggested for the next year. Councilor Park asked when authorization for additional funds to make up a particular balance would come back to Council. Mr. Mounts said his understanding was that it was an offset for the Regional Systems Fee, and that it was a credit rather than paying a debit; an agreement with the department in terms of how much credit would be given out. Chair McLain suggested continuing the conversation with Terry Petersen, Regional Environmental Management (REM) Director. Ms. Sims said that if the department was unable to pay the cost, and they could fit it within their appropriation, they would not be required to go before the Council. If they were going to overspend their budget, then an amendment would be required. Councilor Park said he would need more clarification of the budget process, and that if a program was exceeding cost, Council would need to be apprised. Chair McLain appreciated Councilor Park’s question, and said that an answer would be provided via memo to the committee from the Chair and Financial Staff.

Councilor Burkholder referred to a general principle, raised by Councilor Park, that budgeting for departments over programs raised a question about how much influence and direction Council should give to departments. He suggested discussing this issue at the retreat. Chair McLain said this issue could be added to the retreat agenda. She pointed out that the REM program was unusual in that it fluctuated with credit numbers. Presiding Officer Bragdon said that it was somewhat different in that if the department satisfied certain conditions, they were entitled to a certain credit as opposed to a certain allocation.

Mr. Mounts noted that appropriations occurred at the fund level and said that those appropriations would hold steady as long as the departments stayed within their bottom line. Councilor Park clarified his concern that if line items weren’t important and departments didn’t have to stay within those line items, then departments were receiving funds that they could reprioritize at will. He thought that funding line items specific to programs was Council policy. He agreed that the program was important, but asked when new priorities would come back to Council for discussion. Chair McLain said that the issue of maintaining or revising the current policy-making process should be discussed at the retreat.

Councilor Burkholder asked how the Oregon Zoo Foundation (OZF) factored into the report. Mr. Mounts responded that the OZF was not part of the report. Ms. Sims said the foundation was a separate non-profit organization and had never been included in the financial statement. Councilor Park asked how Tony Vecchio’s, Oregon Zoo Director, supervision of the OZF affected the apportionments for Mr. Vecchio. Chair McLain responded that there was no immediate answer, and that she and Councilors Burkholder and Park had requested more clarification on the relationship between the Zoo budget and the OZF budget. She asked Mr. Mounts to respond to this question in writing either to Councilor Park or to the entire Council.

Councilor Atherton said that investment earnings were running substantially above the 100% mark and asked if there was a standard investment policy for all of these funds. Mr. Mounts responded that there was a standard policy, and that the earnings on investment projections were two years old and conservative.

Mr. Mounts said that once reconciliation was completed, Support Services would be about 7% below their budgeted transfers for support services. Councilor Hosticka asked what would happen to the money. Mr. Mounts responded that the dollars would go back into the fund balance as a positive adjustment.

Councilor Burkholder asked why administrative expense would still exist in the Open Spaces Fund after the need disappeared. Mr. Mounts responded that Charlie Ciecko, Parks Director, had necessarily divided his time between Open Spaces and Parks, and that he assumed Mr. Ciecko would remain full-time after the Open Spaces project was completed. Chair McLain said that Parks needs could likely replace acquisition needs. Mr. Mounts added that many acquisitions positions would be eliminated. Councilor Burkholder said that if a full-time equivalent (FTE) was divided between departments, it should not be assumed that the FTE would remain constant once a program closed. He said that once a need was gone, funds should be reallocated rather than fed back into the system. Mr. Mounts said that a budget would be presented with certain positions fully funded in the Regional Parks Fund, and that there would be an opportunity to review and discuss at that time.

Councilor Hosticka asked whether reports were like cash reports rather than accruals. He asked how to determine how much money a certain department had. Mr. Mounts replied that a balance sheet would indicate how much cash was in a fund, but that the charts in the Quarterly Report were not balance sheets – these charts reflected revenues and expenditures of the fund as of second close. They would not reflect a current cash balance or payables. Don Cox, Accounting Manager, said that the financial statements in the Quarterly Reports were based on the modified accrual method, which meant that the revenues were amounts available to spend within 60 days of year-end. On the expense side, if expense or liability had been incurred by June 30, the expense would be reflected in the statement even if it were not paid until September.

Councilor Park asked if Mr. Mounts anticipated that the Solid Waste Fund would underperform again. Mr. Mounts said that he would withhold responding until the first quarter. August tonnage was down 4% from the previous year and the restabilization reserve could potentially disappear in the current year. Depending on how the economy went, a potential loss of revenue was possible.

Chair McLain reiterated that the numbers were constantly changing, and that the quarterly report was a freeze frame method of presenting information. Mr. Mounts added that once the audit was released, financial staff would provide a schedule reconciling the second close with the final audit numbers. Chair McLain asked that if any upcoming changes or issues arose before the retreat they be presented via memorandum so they could be addressed during the retreat.

5.  Update from Committee Chairs regarding Pending Budget Issues.

Councilor Hosticka said the Green Ribbon Committee, in looking at opportunities and priorities for upgrading acquisition property, posed an upcoming impact to the budget. Chair McLain asked if any of the Upland work related to Goal 5 would affect the budget. Councilor Hosticka responded that that work was to occur within already established budget priorities. He said there was a resolution regarding the Blue Lake Conceptual Plan, which would have budgetary implications but would be contained within itself.

Councilor Atherton said that on the Solid Waste front there was considerable uncertainty with the numbers. The potential removal of tonnage caps on dry and wet waste would affect the revenue stream. The Rate Review Committee’s recommendation to increase the system fee would bring it closer to full cost, but would not make the facilities tonnage-neutral.

Councilor Park said that definitive needs could not be identified in Planning because both the Goal 5 implications and the direction of transportation projects were unclear. Chair McLain asked what had to be done in Performance Measure and Periodic Review work. Councilor Park responded that that answer would be dependent on what would arise in the Upland piece; how much more work the Metro Policy Advisory Committee (MPAC) would need to be convinced; and whether an MPAC subcommittee would be needed. The Urban Growth Boundary (UGB) work was on track; but it remained to be seen what would be added to the project.

Councilor Hosticka said that the continuing discussion regarding public involvement and notification was budget-driven. He suggested having that discussion drive the budget rather than the other way around.

Councilor Burkholder referred to an upcoming proposal from the Zoo to raise its admission fee, and mentioned the upcoming ballot measure in May which would require that Metro provide public notice about every land use action.

Councilor Atherton said he did not believe that the findings from the Systems Performance Task Force would affect the budget, but that it should be kept in mind that budgeting for technical systems would most likely occur at a high cost.

6.  Presentation of GASB 34 Implementation Plan.

Don Cox, Accounting Manager, gave a PowerPoint presentation on the Governmental Accounting Standards Board (GASB) Statement No. 34 Implementation Plan, a hard copy of which is included as part of this record. He said that the significant year-long impact on Accounting staff workload would soon result in an Request For Proposal (RFP) coming from the department.

Councilor Monroe asked if the Tax Supervising and Conservation Commission (TSCC) would also require a report, and what they would do if Metro didn’t follow the GASB 34 procedure. Mr. Cox replied that TSCC would require a report, and that they would make a comment in their annual review of Metro’s information in the case that Metro didn’t follow the new procedure.

Councilor Hosticka asked about the value of the government-wide statement. Mr. Cox replied that GASB 34 did not remove any existing requirements, so fund-based information would still be available. GASB 34 would add a new requirement to show a consolidated look at the information.

Councilor Hosticka asked how Metro classified capital costs. Mr. Cox replied that the accounting requirement for the presentation of financial statements was on historical cost. Councilor Hosticka asked if it was straight line. Mr. Cox assented.

Mr. Cox addressed a previous question posed by Councilor Burkholder regarding the OZF by saying that current requirements did not include OZF in the financial report. However, GASB, in the last month, had issued an exposure draft that would change that requirement and would put in place three tests that an entity would have to meet to be included in the report. In an early reading, it appeared that the OZF would have to be included.

Chair McLain recognized that GASB 34 was required and that the committee would need to be more familiar with the procedure before making budget choices. She asked that staff include the complexity of policy, accounting, and reporting issues as a future agenda item. Mr. Cox replied that one element of the implementation year was for the Accounting Services Division to identify what issues were before them. Chair McLain referred to the upcoming Green Ribbon Committee recommendations and ballot measures. She foresaw a longer process to take a comprehensive look at GASB 34. Councilor Burkholder said he felt the important issues were the policy questions.

Chair McLain asked about the timeline. Mr. Cox replied that Metro had to present all its financial statements in the new format by June 30, 2002. Chair McLain reiterated that a discussion regarding policy would need to take place as soon as possible.

7.  Update on Budget Notes

Chair McLain spoke to the September 1, 2001, executive response to Budget Notes 4-7. Chair McLain asked that Peggy Coats, Council Analyst, first address these issues briefly as Ms. Sims referred to each budget note, and then more fully in writing after the meeting.

Ms. Sims referred to Budget Note 4. Ms. Coats asked Ms. Sims to explain why simple adjustments could not be made to Cost of Living Adjustment (COLA) agreements. Ms. Sims responded that bargaining units’ agreements dictated how and when COLA adjustments could be made. Depending on the timeframe for each agreement, Metro was locked into those agreements. Councilor Burkholder asked for clarification of when agreements would come up for renegotiation, and how that related to FY 2002-03 budget planning. Ms. Sims replied that the American Federation of State, County and Municipal Employees (AFSCME) contracts would expire June 30, 2002. As the budget manual was being prepared, assumptions needed to be made regarding COLA and the negotiation of other issues. A specific set of recommendations would be developed, and Lilly Aguilar, Human Resources Director, would discuss them in an executive session. Ms. Aguilar would use the results of the classification compensation study and the pay structure for exempt employees in a broader compensation philosophy discussion. Key negotiations for the AFSCME contract would occur from late spring to June 30, 2002. Councilor Burkholder asked if the April 1, 2002, study date would be too late. Ms. Sims replied that Ms. Aguilar was using that date to ensure the study would be completed. Chair McLain suggested that work rearrangement be done so that the study would be useful.

Ms. Sims referred to Budget Note 5 (1) and said that this might be discussed in more detail under budget priorities. Chair McLain suggested leaving it at that and seeing what happened in the next budget season.

Ms. Sims referred to Budget Note 5 (2). Chair McLain requested a copy of MERC’s established standards relating to operations. She said that the budget note didn’t address a situation that was deemed unacceptable in the last several years by the Budget Committee. She said standards should outline a process and criteria for internal and external hiring, and any budgeting for this to occur ought to be slim. Councilor Atherton asked what instrument Council would put in place to direct the Executive Office to create this criteria. Chair McLain responded that there should be standards rather than having managers make the decision. She said she understood that common sense would come into the decision, and that more detail was needed as to why they needed funds. She said that limited funds required an explanation of process before additional funds were requested. Ms. Sims said she understood that Chair McLain was asking for a process and criteria rather than an explanation of dollars. A quorum indicated continuing interest on this issue.

Ms. Sims referred to Budget Note 6. Ms. Coats referred to the in-house team which would include representatives from all areas, and said she was assuming that human resources from the MERC and the Zoo would be an intrinsic part of the team. Ms. Sims assented. Councilor Monroe asked why MERC needed to have separate Human Resources staff, and whether it was the most cost-effective way to provide human resources services in the agency. Chair McLain said that this was one of the top three questions two budget cycles ago. She said she believed that there would be savings there, and asked why $50,000 in outside consulting was needed to resolve this issue. She asked if an in-house team could address the issue. Ms. Sims responded that the intent was to have an in-house team look at the system. If findings showed that external consulting was needed, that avenue would be pursued. Councilor Burkholder said that if it were more cost-effective to have a separate system, it should remain. The issue was to investigate whether a separate system was a benefit to the agency. He said contract negotiations should also be considered.

Ms. Sims referred to Budget Note 7. Chair McLain asked how it related to the GASB 34 presentation. Ms Sims responded that GASB 34 was an information tool that could be incorporated into the budget note response. She said this needed to be driven by a strategic planning process. Chair McLain said she felt it was handed back to Council, which was fine since the strategic plan did need to come first. Councilor Burkholder said Ms. Sims had answered the question about positives and negatives of Performance-Based Budgeting (PBB). Ms. Coats commended staff for not approaching the issue from an all-or-nothing perspective, and suggested a pilot program to see how PBB might work.

8.  Presentation of NACSLB Recommended Budget Practices.

Chair McLain asked if this agenda item could be moved to the next committee meeting. Mr. Mounts assented. He noted that the next committee meeting already had a full agenda, and asked the committee to read through the materials before the September 25, 2001, Budget & Finance Committee meeting.

9.  Councilor Communications.

None.

There being no further business before the committee, Chair McLain adjourned the meeting at 4:23 p.m.

Respectfully submitted,

Cary Stacey

Council Assistant

ATTACHMENTS TO THE PUBLIC RECORD FOR THE MEETING OF SEPTEMBER 12, 2001

The following have been included as part of the official public record:

i:\minutes\2001\budget&finance/091201bdm.doc