MINUTES OF THE METRO COUNCIL

BUDGET AND FINANCE COMMITTEE REGULAR MEETING

Wednesday, March 27, 2002

Metro Council Chamber

Members Present:  Rex Burkholder (Chair), Bill Atherton (arrived at 1:40 p.m.), David Bragdon, Rod Monroe

Members Absent:  Susan McLain (excused)

Chair Burkholder called the meeting to order at 1:37 p.m.

1.  Consideration of the Minutes

Approval of the March 12 and March 13, 2002 minutes was delayed due to the lack of a quorum of members that attended those meetings.

2.  ORDINANCE NO. 02-940, For the Purpose of Adopting the Annual Budget for Fiscal Year  2002-03, Making Appropriations, and Levying Ad Valorem Taxes, and Declaring an  Emergency

John Houser, Council Analyst, provided background information on the meeting agenda items and on issues scheduled for discussion on April 1 and drew the committee’s attention to supporting documents in the agenda packet. A copy of his outline is attached to this record.

Discussion of Zoo Fund Balance

Tony Vecchio, Director of the Oregon Zoo, discussed the Zoo’s declining fund balance. He and the committee reviewed a projection of Zoo operating fund balances through 2006-07, a copy of which is attached to this record. Mr. Vecchio said that the declining fund balance was not at a crisis point but was a cause for concern. He said the Zoo had been working hard to maximize revenues and minimize expenses, but that 80 percent of the total budget was dedicated to fixed costs such as salaries and benefits, animal food, and utility costs. He noted that annual admissions were close to capacity so visitation projections were flattening out, and the focus needed to be on increasing revenues.

Mr. Vecchio listed two actions that the Zoo planned to initiate in the near future to address the long-term fund balance decline:

•  The Zoo would propose adding a budget and finance officer position, which would be included in the budget amendment request, to assist in focussing attention on day-to-day numbers.

•  The Zoo would initiate a strategic plan, which would formalize the current informal retreat process and bring in outside expertise to look at long-term financing.

Mr. Vecchio distributed a handout (a copy of which is attached to this record) that compared various zoo and aquarium admissions and noted that the Portland Zoo’s admission fee is the lowest of comparably-sized facilities on the west coast. Even with proposed increases over the next few years, admission fees would still be well below average. He said that fee increases provided an opportunity to generate more revenue by being more in line with industry standards.

Councilor Monroe asked if there was an industry standard in terms of the percentage of the annual budget that should be in reserves. Kathy Kiaunis responded that the Zoo should have a total reserve of $3.2 million, which included $2 million for operating cash flow and $600,000 each for renewal and replacement and a business cycle reserve.

Pete Sandrock, Chief Operating Officer, added that the Accounting and Financial Planning Divisions agreed that $3.2 million was a good fund balance target. He pointed out that while the fund balance decreases, the amount of fund balance used each year is also projected to decline, and that the problem was that revenues were projected to increase 4 percent per year and expenses 5 percent per year. Mr. Vecchio explained that the major reason for the 5 percent increases in expenses was utility costs, which have increased between 40 and 50 percent, despite the fact that the Zoo has taken energy conservation steps.

Councilor Atherton asked if there had been any further negotiations on the parking issue. Mr. Sandrock said that the Executive Officer would address that issue at the April 4 Council meeting.

Review of Decision Packages

Chair Burkholder reviewed a list of add and cut packages (a summary of which is attached to this record) and stressed that the committee could revisit all of the packages during the upcoming work sessions for further consideration. None of the packages were eliminated from further discussion at this meeting. Some of the decision packages generated discussion, as summarized below.

Parks Cut 1 & 2

Chair Burkholder said that if Council did not approve the Parks funding excise tax increase on March 28, the committee would consider these two cut packages at its work session on April 1.

Planning Cut 1

Councilor Monroe asked if this cut would affect the Planning Department’s annual trips to Washington, DC that are important to Metro’s ability to attract federal dollars for transportation needs. Andy Cotugno, Planning Director, replied that the department was limited to cutting in areas that depended strictly on excise tax so that grants would not be affected. Since the annual trips to Washington DC were excise tax-funded, they, as well as travel, training and tuition in growth management areas, would be impacted by this cut. The committee decided that, unless raised again in the future, this cut package would not be considered.

Planning Add 3

Chair Burkholder said he planned to put forward an amendment on this add package to identify the most effective component that that would allow the continuation of the Affordable Housing Program. Councilor Monroe said that he, too, would like to consider ways to continue the program.

HR Cut 1

Councilor Monroe asked Lilly Aguilar, Human Resources Director, how this cut package would impact the functioning of the Human Resources Department. Ms. Aguilar responded that the cuts identified in this package were across a number of functional areas and would affect the services that HR provided to departments on a regular basis.

HR Add 1

Chair Burkholder explained that the Human Resources Department originally proposed adding a 1.00 FTE employee to analyze and assess Metro’s training needs and to develop and begin the implementation of a training program. Lilly Aguilar provided the committee with a letter which identified scenarios which would not require hiring a full-time employee during the current year (a copy of which is attached to this record). The committee will consider these scenarios at a later meeting.

ASD Add 1 and Add 2

Jennifer Sims, Administrative Services Director, introduced two add packages that addressed the risk management and benefits areas. She explained that the purpose of the first add package was to provide more resources to help with benefits administration by allowing the person who is now working in both risk and benefits to work exclusively on benefits and to put more resources into the risk management area. She explained that the second add package added one full-time position to serve as receptionist at the security desk in the main lobby. That would free up security staff to fulfill their security functions such as patrolling the building and responding to incidents. This function is currently being provided under a pilot project that will end with this fiscal year.

There was some confusion about how the two add packages fit together. Chair Burkholder suggested clarifying the relationship between the two packages and bringing them back to the committee for further consideration.

IT Cut 1

David Biedermann, IT Director, explained that the first cut package eliminated two positions and removed any possibility of implementing a software training program, which is currently being worked on by a temporary employee. The package also eliminated IT’s ability to consult with departments on their software choices.

IT Cut 2

Mr. Biedermann said that IT budgeted within the CIP to upgrade the desktop operating system and desktop applications to current software. This cut would delay the project until some future date.

IT Add 1

Mr. Biedermann explained that a suggestion was made to implement a records management program (TRIM) in a poll taken of the Council several months ago. TRIM is currently used by the Council Office and the Office of General Counsel. This would be a first step towards accomplishing implementation across all departments. The REM Department would pay for a major piece of the project because it uses the system and has an interest in upgrading it.

Chair Burkholder encouraged committee members to read the narratives on each of these decision packages and repeated that there will be additional opportunities to consider any or all of the packages.

Identification of Budget Issues

Chair Burkholder explained that the following budget issues were identified by the Budget Buddies group and/or the Budget and Finance Committee for further discussion. Most were flagged for additional study because they required major investments by Metro.

PeopleSoft upgrade

Chair Burkholder said that the committee had a number of discussions about the PeopleSoft upgrade over the past year and received a presentation from IT. He said that staff recommended the upgrade as a reasonable effort, given Metro’s cost constraints, to ensure that the PeopleSoft package was up-to-date and met the needs of the agency. Committee members agreed that they were comfortable going forward with this project.

Transition

Chair Burkholder noted that the Council recently discussed how the transition would affect the FY 2002-03 budget. The issue was whether the Council could predict staffing changes, resulting from merging the Council and Executive Offices, during the budget process or whether it should wait until after the May elections or until later in the fall when the Council would have more information. There was a consensus to delay the decision until late spring or fall.

Transportation Investment Task Force

Chair Burkholder said that the Executive Officer would discuss the Transportation Investment Task Force at the April 4 Council meeting and asked if the budget committee wanted to have additional discussion. He pointed out that the committee would still have two budget work sessions after the April 4 Council meeting to discuss any budgetary impacts.

Councilor Monroe said that he supported the initiative and wanted to see it go forward. He said he believed it would ultimately be crafted by both the Executive Officer and the Council.

Health Insurance Costs

Chair Burkholder asked staff when the committee would have the health cost information necessary to make budget decisions. Pete Sandrock, Chief Operating Office, and Lilly Aguilar, HR Director, responded that the Joint Labor and Management Committee expected to bring its recommendation to the Executive Officer and Council around the third week in April. They expected to have actual costs some time in May.

Councilor Atherton requested an estimate of health cost increases. Ms. Aguilar responded that it was not possible to predict the outcome of the discussions that were ongoing, but that Metro anticipated a substantially higher increase than the 15 percent national average. She said it was almost certain that costs would be higher than annual caps negotiated with the unions.

Chair Burkholder said that any changes in the budget resulting from health costs would not take place until June because the committee would not have the information needed to make adjustments to the budget until then.

MERC Issues

Chair Burkholder explained that the committee was looking at two areas of MERC’s budget: 1) the OCC expansion grand opening; and 2) the transfer of funds from the Operating Fund to the Pooled Capital Fund for projects. Documents showing the budget associated with the grand opening and a projection of fund balances related to the OCC are attached to this record.

Jeff Blosser, Oregon Convention Center Director, explained that the OCC expansion opening ceremonies and events were similar to, but not as extensive as, the original OCC opening. The program would take place over three days and would include client award luncheons, a thank you for construction workers, an art dedication, and a chance for the public to tour the new facility, among other activities. He said that expenses were estimated at $291,500, with revenues estimated at $224,000, but he hoped to generate additional trade show revenue and keep expenses low, allowing them to break even.

Councilor Monroe said that he was initially concerned about the cost of the dedication. However, if the celebration was directly related to marketing the new facility, he thought the expense was fiscally prudent. He urged Mr. Blosser to continue to keep marketing the facility as the primary purpose of the celebration. Mr. Blosser confirmed that this was his goal.

Chair Burkholder talked about the transfer in the convention center budget of $1,787,000 from the Operating Fund into the Pooled Capital Fund. He questioned the prudence of the transfer in light of the OCC’s declining fund balance and the fact that there was an issue with the potential OCC operating subsidy from the Visitors’ Development Fund. He asked if there were some parts of the seamless projects not visible to the users that might be postponed.

Jeff Blosser explained that the purpose of the original project was to ensure that there was not an old and new building, which would allow staff to sell the whole convention center as one rather than offer reduced rates for the older part of the building. He said the largest expense was new carpeting, which was already four years beyond its expected replacement date. The other projects were all maintenance and/or efficiency issues, such as painting and replacing systems (HVAC, telecommunications, AV, lighting) to be centrally located and managed. Some projects that were less crucial were delayed until a later date.

Bryant Enge, MERC Director of Administration, pointed out that the current five-year plan projected a much more favorable fund balance than what was projected two years ago. The original projection indicated that the fund balance would be depleted by 2005-06. He said they supported moving forward with the improvements discussed above in FY 2002-03 because the $1.7 million being spent on maintenance would have to be spent anyway. Spending it now would actually save money in the long run because it would be less expensive to make the changes while the building was under construction. He also pointed out that these projects were necessary for efficiency gains.

Councilor Monroe said that the seamless approach was critical and that it made sense to go forward with these projects at this time.

Councilor Atherton asked how the renewal and replacement issue was being addressed relative to the declining fund balance. Mr. Enge responded that the OCC was addressing an operating reserve fund as part of its strategic plan. He said after they had fully funded a three-month operating reserve, they would move forward with a renewal and replacement reserve. Mr. Blosser added that they anticipated low renewal and replacement costs over the next three to four years because carpeting and systems would be new and under warranty for the first year. The money saved would be dedicated to the renewal and replacement fund. Mr. Enge added that they did not expect any significant maintenance issues in the next two or three years but had set aside roughly $300,000 a year for capital maintenance needs, so that amount could start funding the renewal and replacement reserve.

3.  Councilor Communications

Chair Burkholder reviewed the next steps in the budget process. The committee will start reviewing decision packages and any amendments proposed by the councilors at work sessions on April 1, April 9, and if necessary, April 10. John Houser noted that the committee will also be considering technical amendments generated by departments.

There being no further business before the committee, Chair Burkholder recessed the meeting at 3:10 p.m.

Respectfully submitted,

Claudia Wilton

Council Assistant

ATTACHMENTS TO THE PUBLIC RECORD FOR THE MEETING OF MARCH 27, 2002