MINUTES OF THE METRO COUNCIL BUDGET & FINANCE COMMITTEE

Wednesday, September 26, 2001

Council Chamber

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

Members Absent:  Bill Atherton

Chair McLain called the meeting to order at 2:06 p.m.

2.  Report from the Chief Financial Officer

None.

3.  5-Year Financial Forecast

Jennifer Sims, Chief Financial Officer, noted that the meeting’s agenda items tied into the September 25, 2001, Council Retreat discussion. She presented her interpretation of the Retreat discussion and asked for further direction from Council. She reported a concern for the economic outlook and the shift that had occurred since the forecast preparation. She also reported a need to recalculate the forecast and closely monitor the economy, as it specifically related to Metro’s operations.

Ms. Sims noted three specific requests for Finance staff to follow-up on: 1) materials regarding what Metro could and couldn’t do regarding new revenue sources; 2) what percent of materials and services was in personal services contracts; and 3) impacts of the Open Spaces program completion in terms of existing staff and overhead.

Councilor Park said he was concerned with in-house areas that were not revenue operations and excise-tax-funded items. Ms. Sims said she intended to provide that information by department.

Councilor Burkholder asked if Ms. Sims had received a copy of his detailed issues. Ms. Sims she had not received it. Councilor Burkholder said he would get Ms. Sims a copy.

Chair McLain referred to Mike Burton, Executive Officer, and his comment that there would be no bond measure this fall, and that a deadline for a referral for Spring 2002 would be February 19, 2002. She said that staff would need direction regarding a bond measure, and that her understanding was that no action had yet been taken.

4.  Budget Assumptions for FY 2002-03

Ms. Sims spoke to the September 26, 2001, FY 02-03 Budget Framework PowerPoint presentation, a hard copy of which is included as part of this record.

Chair McLain spoke to the September 20, 2001, memorandum from Peggy Coats regarding the Outline of FY 2002-03 Budget Review/Approval Process, which is included as part of this record.

Peggy Coats, Council Analyst, spoke to the September 20, 2001, memorandum, which arose from conversations with the Executive Office, other agency staff, and the Budget & Finance Committee Chair to identify a process that would work for all parties during the coming year. She said Council analysts would work more closely with Finance Staff than they had in the previous year.

Chair McLain reiterated that decision packages needed to be completed by end of October or in early November. She said she had asked in the Retreat for individual committee chairs to start a package discussion with their committees.

Ms. Sims said the packages needed to start with the Council’s discussion of priorities. The needs assessment work had begun exploring a long-term funding program and identifying some topic areas, but, in the interest of staff time, it would be necessary to know what support there was for priorities. She asked that a preliminary list be submitted to financial staff by October so they could gauge support before assembling the full package, and offered a template to get the work started. Regarding anticipated excise tax and facility operations portions, staff would prepare base budgets that would match the redrafted yet-to-be-prepared revenue projections, and then would prepare, in conjunction with Council, decision packages addressing the uncertainties. Where new or increased activities were proposed, staff would bring ideas of how they would be funded and would focus on where existing similar project work was occurring. She understood that Council did not want to draw down the fund balance, and that excise tax allocations were based on reasonable assumptions. She also said that Council wanted to retain funding for planning. For major cost items, such as cost of living adjustments (COLA), Council would like to see explanatory information.

Chair McLain said that the Council request regarding COLA, personal services and health care was both for information and for a comprehensive package addressing all services.

Ms. Sims added that some personnel-related costs were dependent on contract bargaining, which would require an executive session to discuss those elements as they related to budget assumptions. Chair McLain responded that the Presiding Officer had requested an executive session, and that he would decide whether it would occur at a Council Informal or at a Budget and Finance Committee meeting.

Councilor Burkholder said he felt an Executive Session was important to give direction to the negotiators. He said he didn’t feel that budget priorities had been formulated at the Retreat. He asked who was responsible for outlining cost, savings, and the affected portion of the budget for proposed items. Chair McLain responded that Council staff, namely Ms. Coats, should be approached to prepare a proposal and identify the revenue source through the budget amendment process.

Presiding Officer Bragdon said that a ballot referral had two different implications for the budget. The first was the election cost itself – a May election would occur in the current budget year so would need a budget amendment. In terms of the revenue implications for a measure’s substance, that would relate to the fiscal year to come. A referral in November would apply to the next fiscal year.

Chair McLain spoke to the FY 02-03 Budget Assumptions and invited discussion. She said that the COLA hike at 3% should be in the package. Ms. Sims said it should be discussed in the executive session, and that all personal services items would ultimately relate back to bargaining. Councilor Hosticka asked how dollar figures corresponded to the percentages. Ms. Sims said that financial staff could provide that information separately or in the executive session. Chair McLain asked for a time estimate for the provision of that information.

Presiding Officer Bragdon said the Charter clearly stated that the planning functions were the top priority for the agency. Chair McLain added that there were programs and services supported by the public, and that cuts would focus on services not highly used or supported by the public. She said it was important for facilities and department managers to review input from citizen groups and advisory committees.

Councilor Burkholder said that when the Open Spaces Acquisition program ended, he would prefer that instead of spending down the fund balance, the budget would be based on existing income until a new funding source could be found for Parks operations. Councilor Monroe said he agreed with Councilor Burkholder unless it was found prudent and viable to go for a Phase II bond, which would have to occur in short order. He said that the original measure was clearly a Phase I bond, and that voters had approved it on condition that Metro used the money properly and expeditiously. Chair McLain reminded Councilor Burkholder that integrated services fell under both Open Spaces and Parks, citing landbanking as an example. Councilor Burkholder stated that if there was a specific task to accommodate those department employees who had directed some of their time to Open Spaces, that should require a separate budget proposal. He said that a major bond measure would need a lot of pre-work to build public support and that since that work had not yet occurred, it was necessary to plan to let some good people go.

Presiding Officer Bragdon said the current bond measure funds could be used for structure demolition stabilization, and that this issue had been part of the September 11, 2001, Informal discussion. He and Councilor Hosticka had worked on a resolution, to be discussed the next day at Council, which would include a directive that $1.5 million be left as a reserve for lingering acquisitions-related costs. The program wouldn’t end without a cushion. Chair McLain asked for clarification that there had been Council assent that departments would not be asked to cut a certain percentage, and that they would be asked to do a base budget after their needs assessments were completed. Councilor Burkholder said his submitted proposal was intended to give the departments a target, using flexibility within their department budget to determine how they would achieve their major goals. Instead of budgeting automatic increases, department limits would depend on revenue projections for the entire agency. He said he wanted to get away from line item budgeting. New or expanded programs should occur beyond basic department funding and would require debate. He asked that his proposal, as a budgetary tool to help departments, be considered. Chair McLain said that if the proposal was implemented in the current year, department managers would need to implement it in the next month. She said it would be a drastic change from percentage budgeting. Councilor Burkholder said that his proposal was not preventing Council from setting budget priorities, but that it was a way of targeting expenditures based on revenue.

Councilor Park said that a discussion of Council priorities was still lacking, and that decisions would have to be made regarding program cuts. Ms. Sims proposed having Councilor Burkholder temper his request to have departments work with defined resources, and start with Council priorities. She advised going back to the forecast to provide revised excise tax projections to Council and the department directors. She sought confirmation that once a starting point for real available resources was provided, budgeting would occur within what revenue was reasonably expected, and the planned process would be used through October to identify decision packages. She said that once Council provided decision packages reflecting priorities, staff would further develop the packages to match projected revenue. The department director’s responsibility would be to take Council’s direction and priorities, evaluate the available revenue, and prepare a budget accordingly.

Councilor Hosticka said that the discussion seemed to be asking to trade cuts in certain programs for enhancements in other programs, with programs defined as sets of activities, rather than as departments. He asked if there was a current capability to display a budget in those terms. Ms. Sims responded that the departments currently compiled their budgets on a program or project basis, but because of budget law, historical purposes, and software limitations, there hadn’t been a focus on that basis. She said there was no true program budget, although several budgets did present the information in that way because of the nature of those departments’ grant funding. Councilor Hosticka said that since the discussion revolved around excise tax-funded agency activities, it would be necessary to see available program budgets in that format.

Tony Mounts, Financial Planning Manager, said that a shift to program budgets could not be easily carried out by February 2002. If Council desired this change, he estimated a year’s work with the decision packet piece as the first step. He suggested using the Planning Department for a pilot program budget to assess changes to the decision-making process. Rebuilding budget documents with a program focus would be a wholesale change. Councilor Hosticka said that the more information Council could get to make policy decisions, the better. Regarding decision packages, he asked for clarification that both positive and negative decision packages were included. Mr. Mounts said that 45 to 50 positive needs assessment packages had come in from departments, and that the next month would be an ideal time to address negative decision packages. The current budgeting practice was to determine what revenue would be available, fit expenditures within that figure, and then discuss whether the model fit the Council’s policy priorities. A way to force the down side would be to constrain the available excise-tax revenue and ask, from the department’s perspective, what should be cut first. Councilor Hosticka said that his experience in working with percentages was that it resulted in relying on attrition and delaying raises, which prevented a policy discussion. He said that discussing program issues was preferable, regardless of the final budget format. Mr. Mounts said that the current budget was contained in 65 unlinked spreadsheets and shifting the focus would require an investment in software. Councilor Hosticka noted that the shift could still begin with the decision packages. Mr. Mounts agreed.

Councilor Burkholder suggested that the shift not be to full program budgeting but to aid the current process. He agreed with Councilor Hosticka that they were mostly looking at excise tax-funded planning for Parks, Executive, Council, and the Administrative Services Division (ASD). He proposed a worksheet that outlined program activities and costs, and then allowed for priority ranking on a numerical scale. Chair McLain spoke to the Service Level Decision Package document, which is included as part of this record. She referred to a past strategic plan for Regional Environmental Management (REM) and said that establishing performance measures and a policy for good packages were steps in the right direction. She said the shift in focus could be accomplished in a calm, transitional way. She asked what else was needed to make the focus shift viable before deciding to proceed, which would include defining a program budget vs. a line-item budget. This would parallel some of the work on the current budget. Ms. Sims said that Chair McLain’s point was well taken, and referred to a program/division overview form received from departments. Lack of a true definition of program and of preparation consistency prevented the form from becoming a decision tool for Council. She said finance staff had a good start in terms of gathering the relevant information. Chair McLain asked Ms. Coats to get a copy of the form, and to use it as a springboard for defining a program budget and determining a potential program-focused process.

Councilor Park asked if this discussion was part of the next agenda item. Chair McLain said it was an attempt to describe what the packages would look like. Councilor Park referred to language on the Service Level Decision Package form reading, “Include adopted Council policies that support the effort. He said the form should also ask what goals and requirements Metro was trying to fulfill through the program/project. Chair McLain asked Ms. Coats to revise the form so that mandated goals versus Metro-imposed goals would be identified.

Chair McLain asked if the priority discussion was complete. Councilor Burkholder asked for a table reflecting the relative importance of priorities for the Council. Chair McLain responded that what made the priority assessment difficult was the source of revenue. Ms. Coats said that the past year had been the first year that priorities had been determined agency-wide, and that the current timeline had an earlier start date. The process had been for the Executive Officer to meet with each Councilor to determine individual priorities, after which Executive staff compiled the results and determined strong support for a particular goal or objective. This information was brought to a Council Informal for Council and the Executive Officer to further determine priorities. She said that the decision had to be made whether to follow the previous year’s process, which would mean the work would need to start soon, or to have a Council Informal. Staff could bring potential priorities to the Informal, providing a springboard for the group to bring forward individual priorities and subsequently formulate a final list. Chair McLain said she would prefer for the work to happen either in an Informal or with the Budget and Finance Committee, preferably in an Informal. Councilor Burkholder reiterated his request for a list outlining priorities. Ms. Coats suggested that Council and Finance Staff discuss known priorities expressed by department heads, Executive and Council. Staff could then combine known priorities with priorities gleaned from individual interviews, and bring the combined list to the Informal for review. Chair McLain asked if the committee was in favor of this method; the committee assented.

5.  Budget/Calendar Process

Chair McLain said that the previous discussion had covered agenda items 2, 3, 4 and 5.

1.  Consideration of the Minutes of September 12, 2001, Budget and Finance Committee Meeting

6.  Presentation of NACSLB Recommended Budget Practices

Mr. Mounts referred to the results of the FY 01-02 Budget process debrief, and spoke to Appendix 4, his annotated schedule based on recommended budget practices. He said the National Advisory Council on State and Local Budgeting (NACSLB) was a multiple stakeholder group composed of mayors, cities, state legislators, school board associations, city managers, finance officers, and academics. The NACSLB took a broad perspective to determine state of the art methods for organizational budget practices. He spoke to Appendix 4, saying it would provide a context for future decisions. He said that, outside of the annual financial audit, Metro had no structure to receive feedback on what was spent in terms of performance measures. Councilor Hosticka asked about the material in the boxes in Appendix 4. Mr. Mounts responded that those were his own comments on how Metro met the recommended practices.

Mr. Mounts referred to Element 4, noting that the Systems Performance Task Force’s look at capital policies would meet some of the criteria. Chair McLain agreed that budget policies had not been acted upon, other than through the budget process. Presiding Officer Bragdon said that Metro had an investment policy with a supervisory board. Mr. Mounts said that policies published in the budget documents were those by which Metro operated, so in that sense operational policies were in place. He said the Budget Manual was a set of policies and practices around which the budget was developed. He referred to Element 5, saying that the capital budget, facility operating policies, and human resource policies helped meet that element’s criteria. He referred to Element 6, noting that the committee’s bias towards program budgeting would help meet that element’s criteria. He referred to Principle 4, saying that experimentation in Regional Environmental Management (REM), and Planning function performance measures had met some of the criteria, but explicating broad program measures into programmatic levels would be challenging.

Chair McLain said that in looking at a Strategic Plan for the agency, one portion of that plan would have these types of funding principles. Councilor Burkholder said that establishing goals at the forefront was important. One of Metro’s highest priorities was to make sure centers work, but was there a mechanism to translate that into programs? He asked, regarding adopting financial policies, how much work had been done to create a single agency-wide policy. Mr. Mounts said that, relative to strategic planning, understanding the business portfolio relative to the planning effort was the first step to organizing planning.

7.  Councilor Communications.

Chair McLain thanked Mr. Mounts for his contributions to the agency, and wished him well in his new position. Councilor Monroe said that he also appreciated Mr. Mounts’ work and said that he would be a benefit to his new employer.

There being no further business before the committee, Chair McLain adjourned the meeting at 3:30 p.m.

Respectfully submitted,

Cary Stacey

Council Assistant

ATTACHMENTS TO THE PUBLIC RECORD FOR THE MEETING OF SEPTEMBER 26, 2001

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

i:\minutes\2001\budget&finance/092601bdm.doc