Two Noteworthy City Council Agenda Items On & One Noteworthy Agenda Item Not On the 4 January 2011 City Council Agenda

ABSTRACT: Two noteworthy 4 January 2011 City Council Agenda Items, namely Present FY 2009-10 Draft Audited Financial Statements by Ralph Marcello, Marcello & Company CPAs and a Resolution entering into a five-year Joint Strategic Plan with the Harrison Memorial Library Board of Trustees and the Carmel Public Library Foundation whereby the Carmel Public Library Foundation will incrementally assume City costs up to $100,000 for part-time library staffing and one noteworthy item not on the agenda, namely PAYGO-like Budgeting, an agenda item submitted by City Council Member Jason Burnett, are presented. Selected excerpts from the Financial Statements, Agenda Item Summary and Staff Report are presented. Additionally, Burnett’s Agenda Item Request is reproduced with link to the document on his web site.

AGENDA PACKET
Regular Meeting
Tuesday, January 4, 2011
4:30 p.m., Open Session

Live and Archived Video Streaming

City Hall
East side of Monte Verde Street between Ocean and Seventh Avenues

V. Announcements from Closed Session, from City Council Members and the City Administrator.

C. Announcements from City Administrator.
1. Present FY 2009-10 Draft Audited Financial Statements by Ralph Marcello, Marcello & Company CPAs.

Annual Financial Report
June 30, 2010
MANAGEMENT’S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
The City’s assets exceeded liabilities at June 30, 2010, by $28.5m. The current year change in net assets was a decrease of $740k.

• Of the total net assets, $18.4m was invested in capital assets, net of depreciation and related debt

• $539k was restricted for bond covenants

• As of June 30, 2010, the City’s governmental funds (general fund and special revenue funds) had a combined fund balance of $11m, a decrease of $523k from the previous year. Of the total fund balance, $613k was reserved; $9.1m was designated for capital acquisitions for replacements and future expenditures; and $1.2 was neither reserved nor designated

CHANGE IN NET ASSETS (FY 2009 to FY2010; Total Percent Change)
REVENUE
Program Revenue:
Operating grants and contributions (71%)

General Revenue:
Investment earnings and use of property (50%)
Sales and Use taxes (26%)
Other taxes (20%)
Property tax 3%
TOT 1%
Miscellaneous 266%
Total Revenue (6%)

EXPENSES
Interest on long-term debt (26%)
General government (11%)
Public works (8%)
Public Safety 10%
Total Expenses (1%)

CHANGE IN NET ASSETS $(740)

Net Cost of Services:
The total 2010 costs of $13,152,341 were offset by charges for services $446,853 and grants and contributions of $117,841, bringing the net cost of services down to $12,587,646.

GENERAL FUND BUDGETARY HIGHLIGHTS
Total revenue for the year was $364,702 under budget. The main items contributing to this negative variance were as follows:

Property taxes: $ (329,712)
Use of money and property: $ (102,989)
Business license taxes: $ (55,834)
Franchise fees: $ (35,215)
Sales taxes: $ (20,032)

One of the major revenue sources came in over budget; Transient Occupancy Tax came in $276,432 over budget, which helped offset these other budget shortages.

Total expenditures were under budget by $95,000. The main reasons were that the City had positive expenditure variances related to the savings on capital improvements expenditures that have been postponed, and reduced spending in all departments wherever possible.

GOVERNMENT-WIDE FINANCIAL STATEMENTS
Total Assets: $38,681,265
Total Liabilities: $10,422,534
Total Net Assets: $28,258,731

Total Primary Government
Expenses:$13,152,341
Net (Expense) Revenue and Change in Net Assets: $ (12,587,646)
Note: Operating Grants and Contributions: $117,841

General Revenue:
Property taxes: $4,189,288
Transient occupancy taxes: $3,830,432
Sales and use taxes: $1,619,968
Business license and fees: $625,600
Total General Revenue: $11,847,088

FUND FINANCIAL STATEMENTS
Total Fund Balances – Governmental Funds: $11,031,434

Capital Assets $26,599,340

Long-term Debt Obligations:
Funds Balance Sheet:
Bonds payable – SCC $ (7,680,000)

Total Net Assets – Government-wide Financial Statements: $28,258,731

Notes to Financial Statements
Note 11 – Defined Benefit Pension Plan
Annual Pension Cost
The City’s annual pension cost of $1,545,914 for PERS was equal to the City’s required and actual contributions.

Annual Pension Cost (APC)
FY 6/30/08: $1,419,667
FY 6/30/09: $1,505,897
FY 6/30/10: $1,545,914

Note 14 – Commitments and Contingencies
The City is a member of a joint powers authority that provides emergency ambulance, medical, and rescue services. The agreement renews annually. The other two members are the Carmel Valley Fire Protection District and the Mid-Carmel Valley Fire Protection District. The City contributed $454,381 to the JPA for the year ended June 30, 2010.

Through City Council resolution, and mutual agreement with two nonprofit organizations, the City provides annual support to the Harrison Memorial Library Board of Trustees, and Sunset Cultural Center, Inc., a nonprofit organization. Support for the year ended June 30, 2010 totaled $935,989 and $680,000, respectively.

Note 15 – Dependence upon Tourism Industry
The City’s general fund revenue is strongly dependent on tourism generated tax dollars. For example, in fiscal year 2009-2010, transient occupancy tax (TOT) generated approximately 31% of general fund revenue while sales tax accounted for approximately 13% of general fund revenue.

The tourism industry accounts for all the transient occupancy taxes collected and a significant portion of all sales taxes collected. Consequently, a downturn in the tourism industry for the City would result in a substantial reduction in the general fund revenues. In the event of such a downturn, the City may have insufficient resources in its general fund to pay all of its obligations or provide services at the current level.

REQUIRED SUPPLEMENTAL INFORMATION (unaudited)
Schedule of Funding Progress
Defined Benefit Pension Plan
Year Ended June 30, 2010

CalPERS Cost Sharing Pool
Since the City has less than 100 active members in each plan, it is required by CalPERS to participate in a cost sharing pool...The following valuation reports the activity of the cost sharing pools as a whole, and not the specific activity of individual members such as the City.

Miscellaneous Plan – 2% at 55 Risk Pool (as of June 30, 2009)
Accrued Liabilities (AL): $3,104,798,222
Unfunded Liabilities (UL): $346,287,121
Annual Covered Payroll: $742,981,488
UL as a % of Payroll: 46.7%
Note: UL as a % of Payroll has increased from 33.1% (June 30, 2007) to 33.8% (June 30, 2008) to 46.7% (June 30, 2009)

Safety Plan -3% at 50 Risk Pool
Accrued Liabilities (AL): $9,721,675,347
Unfunded Liabilities (UL): $1,694,516,623
Annual Covered Payroll: $973,814,168
UL as a % of Payroll: 174.0%
Note: UL as a % of Payroll has increased from 139.4% (June 30, 2007) to 135.1% (June 30, 2008) to 174.0% (June 30, 2009)

X. Resolutions
A. Consideration of a Resolution entering into a five-year Joint Strategic Plan with the Harrison Memorial Library Board of Trustees and the Carmel Public Library Foundation whereby the Carmel Public Library Foundation will incrementally assume City costs up to $100,000 for part-time library staffing.

Description: The Harrison Memorial Library Board of Trustees and the Carmel Public Library Foundation propose to enter into a five-year Joint Strategic Plan with the City whereby the Carmel Public Library Foundation will incrementally assume the City’s costs, up to $100,000, for part-time library staffing. The plan will allow the Library to maintain current staffing, hours and services while reducing the amount of the City’s funding for part-time library staff. The plan calls for a partnership between the three entities and consists of specific goals and action steps regarding its implementation. A detailed financial/ fundraising plan for the Carmel Public Library Foundation is included.

Staff Recommendation: Adopt the Resolution.

Important Considerations: If the City adopts the Resolution, it can expect to realize from the Carmel Public Library Foundation the following revenues to offset library staffing costs through Fiscal Year 2014/15:
• FY 2011/12 $60,000
• FY 2012/13 $90,000
• FY 2013/14 $100,000
• FY 2014/15 $100,000

RECOMMENDED MOTION
Adopt the Resolution.

BACKGROUND
The Harrison Memorial Library Board of Trustees and the Carmel Public Library Foundation (CPLF) want to ensure that the Library continues to be an integral part of the community, maintaining current open hours while providing a high level of free public service. The two Boards also recognize that the City of Carmel-by-the Sea faces budget constraints that affect its ability to fully fund all City departments. Therefore, the Board of Trustees and the Carmel Public Library Foundation propose entering into a Joint Strategic Plan with the City that will ensure that their mutual goals for library funding will be met.

The following goals are outlined in the proposed Joint Strategic Plan:
• CPLF will set as its goal the responsibility to provide funds to defray more of the annual costs of library part-time staffing.

• The City will add a footnote which reflects CPLF’s contributions toward Library staff funding under the “Part-Time Assistance” line item on the Library’s Departmental Expenditures page of the City’s adopted budget.

• The City will continue to fund a core staff of eight full-time positions that are critical to running the Library. Note: if the Strategic Plan is adopted by Council, the hiring freeze currently in effect will not apply to the core staff positions.

• The Library Director will investigate the feasibility of reducing the Library’s use of on-call staff while maintaining present services and open hours.

The action steps of the plan state that:
• Beginning Fiscal Year 2011/12, CPLF will contribute 2/3 of the amount needed to offset the projected 10% reduction in part-time library staff and will contribute additional funding thereafter until a funding level of $100,000 is achieved in FY 2014/15.

• Since Library staff cutbacks (and the resulting reductions in service hours) hamper CPLF’s ability to raise funds, during this five-year plan the City’s goal will be to hold Library staff cuts to no more than one 10% reduction, and only if that is absolutely necessary.

• The City, the Library Board, and CPLF will meet at least once before the beginning of each Carmel Public Library Foundation Annual Campaign to discuss ways in which the City and Trustees can assist CPLF with its fundraising efforts.

• The success of the plan depends upon the Carmel Public Library Foundation’s ability to increase contributions from the citizens of Carmel-by-the-Sea and outlying communities. The plan will necessitate CPLF raising enough money to
continue current funding levels for Library programs and services in addition to funding Library staff. If CPLF finds itself unable to fund staff quickly enough, all parties will meet and confer with the aim of finding solutions to the problem before the City takes any action with regard to staffing levels.

STAFF REVIEW
Staff recommends entering into the Joint Strategic Plan as it will be mutually beneficial for all parties involved. The City can reduce the amount spent on the Library while allowing the Library to maintain current open hours and staffing levels, thereby eliminating a situation that could have the potential to negatively affect the Carmel Public Library Foundation’s fundraising efforts.

FISCAL IMPACT
The City can expect to realize the following revenues from the Carmel Public Library Foundation through Fiscal Year 2014/15:
• FY 2011/12: $60,000
• FY 2012/13: $90,000
• FY 2013/14: $100,000
• FY 2014/15: $100,000

SUMMARY
The success of the Joint Strategic Plan depends on the Carmel Public Library
Foundation’s continued ability to raise funds. CPLF’s five-year financial/fundraising strategy is outlined in Attachment “A”. The strategy has been structured conservatively to ensure a realistic chance of success. The Plan was created so that all three parties could participate in a partnership to further the goal of quality Library service to the citizens of Carmel-by-the-Sea and outlying communities.

HARRISON MEMORIAL LIBRARY BOARD OF TRUSTEES, CARMEL PUBLIC LIBRARY FOUNDATION, AND CITY OF CARMEL-BY-THE-SEA JOINT STRATEGIC PLAN

The Harrison Memorial Library Board of Trustees, the Carmel Public Library Foundation and the City of Carmel-by-the-Sea agree that they need to work together in partnership to ensure that the Harrison Memorial Library continues to be an important, integral and vital part of our community. The goal of this partnership will be to sustain the historic tradition of providing free public library service of excellent quality for the residents of the City of Carmel and the Monterey Peninsula. To achieve this goal, the parties need to develop and to agree to a strategic plan.

FIVE-YEAR STRATEGIC PLAN
Acknowledge that the goal of the five-year plan is for the City of Carmel-by-the-Sea to hold steady with regard to library operations for the next five years and for the Carmel Public Library Foundation to incrementally assume the cost of the funding currently being split between the City, the Board of Trustees and CPLF, and eventually increase it to $100,000 per Fiscal Year while still maintaining the library’s quality and level of service.

To accomplish this goal:
• The Carmel Public Library Foundation will set as its goal the responsibility to provide funds to defray more of the annual costs of library part-time staffing, in addition to its current role of funding books, programs, materials and services.

• The City will add a footnote which reflects the Carmel Public Library
Foundation’s contributions toward funding part-time staffing under the “Part-Time Assistance” line item on the Harrison Memorial Library Departmental Expenditures page of the City’s Adopted Budget, currently page E-14. The note will read: “The Carmel Public Library Foundation contributed $________ to this line item. The City’s portion of this same line item is $________.”

• The City will continue to fund a core staff of eight full-time positions that are critical to running the library: Library Director, Circulation Supervisor, Local History Librarian, Youth Services Librarian, Reference Librarian, Technical Services Library Assistant and two Library Assistants.

• The Library Board will direct the Library Director to regularly investigate the feasibility of reducing the library’s use of on-call staff while still maintaining present services and open hours and to propose the steps to make that happen.

Success factor:
The success of this strategic plan depends upon the ability of the Carmel Public Library Foundation to increase its portion of the total annual expenditures for the Library. To do this it must continue to increase the contributions and support it receives not only from citizens of Carmel-by-the-Sea and but also from the greater Carmel library community.

Action steps:
The Carmel Public Library Foundation needs adequate time to achieve its long-term funding goals and the implementation of all the elements in this five-year plan provides that time for a successful transition.

In Fiscal Year 2011/12 the Carmel Public Library Foundation will contribute 2/3 of the amount needed to offset the projected 10% reduction in Library staffing (with the City contributing the other 1/3). The Foundation will, beginning Fiscal Year 2012/13, contribute additional funding for Library staffing each fiscal year until the additional funding level of $100,000 per year is achieved, which will commence Fiscal Year 2014/15 (see Attachment A).

This plan will necessitate the Carmel Public Library Foundation raising enough money to continue to fund library programs, materials and services as well as library staff. Library staff funding needs cannot impact or take away from the above-mentioned programs, materials, and services. If CPLF finds itself in the position of not being able to fund staff quickly enough, the parties will meet and confer with the aim of finding solutions to the problem before the City takes any action with regard to staffing levels.

It is vital to recognize that any library staff reductions - and the resulting reductions in open hours at the Library – are a strong negative factor in the community, hampering the Carmel Public Library Foundation’s ability to raise funds. During this five-year plan, therefore, the City’s goal is to hold library staff cuts to no more than one 10% reduction (and only if that is absolutely necessary) during the time it will take CPLF to accomplish its long term strategy for providing additional funding for library staff.

The Carmel Public Library Foundation needs the full support of all the parties involved to provide assistance in its Annual Campaign fundraising activities. The Carmel Public Library Foundation, the Trustees and the City will meet at least once before the beginning of each CPLF Annual Campaign to discuss ways in which the City and the Trustees can assist the Foundation with its fund-raising efforts.

MAYOR OR CITY COUNCIL

AGENDA ITEM REQUEST

TO: City Administrator

FROM: Jason Burnett

DATE: December 21, 2010

The following item is requested to be put on an upcoming City Council agenda:

TOPIC:

It would be good financial management for the City Council to formalize a policy that any unbudgeted expenses should be combined with offsetting expense cuts or revenues.

This is similar to PAYGO budgeting used in other governments.

MEETING DATE REQUESTED: January 2011

REASONS FOR REQUEST:

Twice at the October City Council meeting and once at the November City Council meeting the City Council considered expense items that were not in the 2010--‐2011 budget. In all three cases the City Council unanimously voted to approve the expense along with a direction to staff to find offsetting expense cuts. The purpose of this action was to keep the net draw from reserves no greater than in the final 2010--‐2011 budget. The aggregate impact of all three items means that the City Council is awaiting staff recommendations for over $100,000 in expense cuts (or unbudgeted revenues) so as to not increase our budgeted draw from reserves.

If the City Council were to approve PAYGO budgeting, staff would be asked to
Present offsetting expense cuts (or revenues) for City Council approval as part of any unbudgeted expense.

If you believe the PAYGO approach to budgeting would be too cumbersome for smaller expenses, we also may want to allow of a small on--‐budget Special Opportunities expense category that could be used to accommodate small, unforeseen expenses without the need to find an offsetting expense cut.

At the December City Council meeting Dewey Evans expressed support for using the PAYGO approach for Carmel.

SUGGESTED BACKUP DATE (if any): February 2011

c: Mayor, Council, and City Clerk


FILED PER COUNCIL POLICY C90--‐07