MINUTES OF THE METRO COUNCIL

BUDGET AND FINANCE COMMITTEE REGULAR MEETING

Wednesday, July 24, 2002

Metro Council Chamber

Members Present:  Rex Burkholder (Chair), David Bragdon (Vice Chair), Bill Atherton (arrived at 1:40, left at 2:55), Susan McLain

Members Absent:  Rod Monroe (excused)

Chair Burkholder called the meeting to order at 1:39 p.m.

1.  Consideration of the Minutes of the July 10, 2002 Budget and Finance Committee Meeting

2.  Ordinance No. 02-956, An Ordinance Amending the FY 2002-03 Budget and Appropriations Schedule by Recognizing $28,039 in Additional Grant Funds and Increasing Appropriations in the General Revenue Bond Fund for the Council Chambers Camera Project; and Declaring an Emergency

Chair Burkholder explained that the purpose of Ordinance 02-956 was to recognize additional grant funds that were received to allow the Council Chamber camera system to record digitally.

Chair Burkholder opened a public hearing. No one appeared to speak. Chair Burkholder closed the public hearing.

Councilor Bragdon agreed to carry the ordinance to the full Council.

3.  FY 2003-04 Budget Assumptions – Enterprise Department Presentations

Regional Environmental Management Department (REM)

Terry Petersen, REM Director, reviewed REM’s revenue and forecast assumptions for FY 2003-04. His handout is included as a part of this meeting record.

Chair Burkholder identified two areas of particular interest: 1) How do departments set contingency levels, and are they sufficient? 2) Do departments maintain a reserve for unanticipated capital needs? He said Mr. Petersen had answered the first question but asked him to elaborate on the second.

Mr. Petersen answered that his department had adequate capital reserve funds to cover planned capital projects, but if significant unanticipated capital projects emerged, REM would have to identify a funding source and come to the Council with a budget amendment.

Councilor McLain and Mr. Petersen discussed the St. Johns Landfill and agreed that the St. Johns Reserve Fund was probably inadequate. Mr. Petersen said he might recommend an increase in the reserve account this fall. Chair Burkholder said the committee would revisit the issue of increasing the reserve during the 2003-04 budget process.

Councilor McLain discussed the importance of tracking the budget implications of any policy changes having to do with the transfer stations, franchises, waste sheds, etc. She said the forecasting model currently in use had not been very effective anticipating the affect that policy changes had on revenue streams.

Oregon Zoo

Tony Vecchio, Oregon Zoo Director, summarized the Zoo’s revenue sources. He said that property tax accounts for slightly under 38% of the budget, with other sources, including the Oregon Zoo Foundation, interest, and enterprise revenue, providing 62%.

He discussed assumptions and said that he tended to be conservative in projecting attendance and aggressive in predicting per capita revenue. He talked about the difficulty of predicting attendance because of its dependence on weather and other non-Zoo functions occurring around the city. Despite dismal economic factors, the Oregon Zoo had its second best year in FY 2001-02, with over 1.3 million visitors.

Mr. Vecchio said that the Zoo is working with Pete Sandrock, Metro’s Chief Operating Officer, to change the way it sets contingencies, using best case and worst case scenarios. Chair Burkholder and Councilor McLain stressed the importance of forecasting and recommended that the Zoo make it a top priority to find a more accurate way of forecasting for contingency, basing it on historical knowledge of good and bad years. They encouraged further work to ensure sufficient contingency funds.

Councilor Bragdon asked how the Zoo forecast energy costs. Mr. Vecchio replied that they assumed utility costs would increase but that they had been unprepared for the huge increases of the last two years. He added that they had been so effective conserving energy that there was little margin for additional savings. Councilor McLain asked about the idea that was discussed during the light rail tunnel construction to use “tunnel water” at the zoo to save on water costs. Mr. Vecchio said that it was still a possibility, but that the tunnel water quantity was about 20 percent of what was expected and at this time did not justify the expense of pumping it out of the tunnel.

Mr. Vecchio addressed the issue of unanticipated capital expenditures by saying that he assumed a part of the facilities budget would be used for unforeseen repairs. Money set aside for major renovations could be re-routed to cover those unanticipated expenses if necessary.

In response to a question from Councilor Bragdon, Mr. Vecchio said that corporate and individual giving had declined and that although foundations were still strong, they would probably follow that trend. However, the amount the Zoo received from the Oregon Zoo Foundation had been increasing, due in part to efforts to identify new sources of revenue.

Regional Parks and Greenspaces

Charles Ciecko, Director of Regional Parks and Greenspaces, reviewed an outline of FY 2003-04 preliminary revenue assumptions, covering the areas of revenue sources, breakdown of enterprise revenue, FY 2003-04 forecast methodologies, variables/uncertainties, and enterprise revenue history. A copy of his handout is included as part of this meeting record.

Mr. Ciecko said that the department calculated contingency based on a 4 percent factor and added that, to date, the department had never tapped contingency. Regarding unanticipated capital projects, he said in the case of a casualty loss, the department would look first at insurance, second at the risk fund, and third at contingency. If all else failed, the department would request funds from the Council or close a certain facility or structure.

Councilor McLain emphasized the importance of implementing a capital asset management plan. Mr. Ciecko said that the department had begun that process.

Councilor Bragdon asked about the Smyth and Bybee Lakes Fund. Mr. Ciecko said that due to declining interest rates, interest revenue from the approximately $3 million in the fund could no longer support operations and maintenance of the facility and that it had been necessary to supplement those revenues during the current fiscal year.

Councilor Atherton said that, in terms of renewal and replacement, the next step should be to ensure that fees at facilities such as boat ramps and golf courses were adequate to cover costs at those facilities. Mr. Ciecko said that, with the exception of enterprise operations such as boat ramps and golf courses, the issue was whether to take into account the public service aspect of parks and greenspaces and the impact that pricing had on the ability of all segments of the community to access the facilities and programs.

MERC

Mark Williams, MERC General Manager, provided the committee with a handout listing a breakdown of MERC revenue and included as part of this meeting record. He began by reviewing budget assumptions. He said that as a result of a downward year in terms of the travel, meeting and convention industry, MERC would assume no increase in lodging tax for FY 2003-04 but would assume sufficient car rental and lodging tax dollars to fund all scheduled payments to MERC from the Visitor Development Initiative (VDI).

He listed highlights of each of the facilities. MERC reached an agreement for a one dollar increase in user fees, from $.50 to $1.50, with PCPA resident companies, beginning in FY 2003-04. The goal was to have a $3.2 million fund balance at the PCPA (6 months of operating expenses) at the end of the five-year planning period. He said that the Oregon Convention Center anticipated a good year in FY 2002-03 and that the expanded portion of OCC would open on schedule in April of 2003. The biggest concern for OCC in the long term was competition from convention centers in other cities, which had increased over the past year. He indicated that the main factor that would enhance OCC’s competitive place in the marketplace would be to move forward on development of the headquarters hotel. He added that Expo business increased 20-30% over last year, which was contrary to the national downward trend in exposition business. He said they would budget moderate increases in Expo business revenues and would recommend the institution of a user fee to go toward building funds for phase 3 of the redevelopment of that property.

Regarding setting contingencies, Mr. Williams said MERC followed the recommendations of Metro’s Administrative Services Department. In the case of unanticipated capital needs, they would rely on insurance and the risk management fund. The MERC strategic plan called for each of the facilities to attain sufficient operating reserves by the end of a five-year period. He said that different requirements had been set for each of the facilities: the goal at the PCPA was to amass six months of operating expenditures; at Expo the goal was to accrue one year’s annual debt service plus six months operating expenditures; and at OCC the target of 90 days operating expenditures had been set.

4.  Resolution No. 02-3213, For the Purpose of Formalizing Budget Assumption Guidelines for Departmental use in Preparing the Fiscal Year 2003-04 Budget, and Directing the Executive Officer and/or Council President to Advise Council of Any Substantive Changes in the Assumptions Prior to the Submission of the Budget to Council for Public Review

Chair Burkholder asked for clarification on how the 4 percent contingency assumption was arrived at. Jennifer Sims, Director of Administrative Services, said that 4 to 5 percent was generally accepted as a reasonable number in budgeting circles. She added that where there were significant variables, that number needed to be adapted to the operating conditions of the department.

Chair Burkholder opened discussion on the issues of setting conservative assumptions of a 5 percent increase for PERS and a 3 percent COLA, which could constrain budget development, and on the use of excise tax earnings on solid waste revenues over the base amount allowed in the excise tax ordinance.

Regarding solid waste excess tax earnings, Chair Burkholder said that the current direction had been that the budgeting and/or expenditure of those funds would be subject to review and approval by the Council and that any additional amount would be put in the General Fund reserve to help meet the $1 million goal. After some discussion, the committee agreed that specific action by the Council should be required in order to use excess excise tax in any way other than that for which it was originally earmarked. Chair Burkholder said he would replace the existing assumption in the budget assumptions matrix with language to the effect that those funds would remain in the stabilization account.

Regarding PERS and COLA assumptions, Ms. Sims said that she was comfortable using assumptions of 4 percent for PERS and 3 percent for COLA, but she added that she was also comfortable with a 5 percent PERS assumption in that it was easier to add resources at a later time than to cut them.

John Houser, Council Analyst, noted that the amount of PERS increase would be known this fall, in time to make adjustments in the budget preparation process if necessary. Regarding COLA, he said most union contracts established a minimum 2 percent COLA payment so using a 3 percent assumption allowed for some leeway.

Chair Burkholder recommended changing the PERS assumption to 4.5% from the current 5% and also making the changes, discussed above, to the solid waste revenue assumption, and then passing the resolution on to the full Council for approval on August 8.

Introduction

The Council welcomed Brad Stevens, who joined the Financial Planning Division staff as Budget Analyst for the Council and Executive Offices.

5.  Councilor Communications

There were no Councilor communications.

There being no further business before the committee, Chair Burkholder adjourned the meeting at 3:26 p.m.

Prepared by,

Claudia Wilton

Council Assistant

ATTACHMENTS TO THE PUBLIC RECORD FOR THE MEETING OF JULY 10, 2002