From the City Manager's budget message:
During the downturn, Roseville never stopped planning for its future. To provide long-term sustainability for retiree medical expenses, for example, the City’s OPEB trust was created in February 2011 with an initial contribution of $34 million. It has performed well in the equity markets, achieving a return of 8.66 percent since inception, growing to a balance of $52 million. With increased contributions projected for FY2015-16 (the third year of a five-year plan), the City is on track to fund 100 percent of the annual required contribution by FY2017-18.
The market has affirmed its confidence in Roseville’s diligent and effective budget oversight and sound fiscal management in significant ways. In March 2014, Standard & Poor’s upgraded the City’s bond rating to AA+, an uncommonly strong rating for a California municipality, especially during an economic downturn. And in December 2014, the City completed a successful post-recession bond sale for the Westbrook Community Facilities District (CFD). Prior to the recession, it was fairly common for cities to issue bonds on land with no infrastructure (roads, water pipes, electricity), finished lots, or model homes. Since many bond owners lost their investment when similar developments went bankrupt during the recession, rules changed.
Post-recession, institutional firms would require a district to have all the infrastructure done and homes built before they would commit their capital to buy bonds. Knowing it has a good reputation in the market, especially for administration of these districts, Roseville brought the Westbrook CFD bond to the market as a raw land deal to test the waters. This deal was time consuming, complex, and one that every community and underwriter watched closely. When the underwriter took the transaction to the market on December 11, 2014, it was in high demand. Many institutions put in orders for more bonds than were available. The significance of this level of market confidence cannot be overstated since it will enable future development and similar transactions to move forward as well.
Balancing priorities for financial stability
While weathering the recession of 2007-2009 and its lingering effects, the City of Roseville implemented a five-year strategy to close its structural deficit. With the approval of the FY2015-16 budget, the City has reached the milestone of closing the gap. Proactive management of expenses continues to play a key role, and now the focus turns to replenishing the reserve funds, setting new fiscal policies, implementing a new budgeting approach, and strategically expanding staffing and services.
This year’s budgeting approach allots all General Fund departments at least 95 percent of the previous year’s spending for materials and supplies and accounts for a 3 percent vacancy factor in all funded positions to account for the time it takes to recruit and hire staff as well as for unexpected vacancies that occur in funded positions. The resulting pool of unbudgeted funds will go into a contingency fund that will be available to General Fund departments for unforeseen operational issues that emerge during the year.
In effect, we will now budget expenses in line with revenues generated in the current year and not dip into reserves to fund ongoing expenses. This allows for fiscal decisions to be made based on data that reflects the real-time availability of funds.
Replenishing the reserves and setting new fiscal policies
Using reserve funds proved critical to bridge the gap between expenses and declining revenues in the economic downturn, allowing the City to maintain high levels of service. It also left several funds at underfunded levels that now need to be replenished in accordance with sound fiscal policy. To this end, the City Council directed staff at its FY2015-16 goal-setting workshop to develop fiscal policies addressing these areas. The City is undertaking an ongoing, comprehensive process to identify appropriate funding levels for a variety of funds and to create formal policies to document Council’s intent. The policies will be reviewed, modified as necessary, and submitted to Council for approval during the budget process each year. In April 2015, Council approved policies that will result in the more effective use of city fund balances.
A new fund, the Litigation Reserve Fund, was established in the FY2015-16 budget to cover unforeseen, unusual, or infrequent legal matters. Although the circumstances giving rise to such matters are infrequent and difficult to predict, it is anticipated that this fund, with an initial balance of $250,000, will serve as a contingency fund for significant litigation pertaining to matters such as contract disputes, municipal code enforcement and other public safety and public nuisance enforcement matters. These types of items are not funded by the General Liability Fund, the City Attorney’s Office outside attorneys’ fees budget line item, nor any other account.
With workload approaching pre-recession levels, resources including staff, have been added to strategically expand to accommodate the new reality of demands.
New budgeting approach
This budget also marks a change in budgeting philosophy for the General Fund. In previous years, projected General Fund revenues were allocated to General Fund departments during the annual budgeting process, and traditionally 95 percent of those funds were spent. This left 5 percent, or roughly $6-7 million in unspent funds at the end of the year, which could have been either allocated to other priorities or factored into other decisions made during the year. By ensuring that budgets more closely reflect anticipated expenses, a General Fund contingency fund will be created that will allow more flexibility to address unanticipated needs that arise during the year.
It is critical to identify a cost-recovery strategy that fairly allocates cost to the service provided and creates value and predictability for our customers. The City has hired a firm to identify the total cost of providing each City service and the cost-recovery target, compare our fees with neighboring or similar jurisdictions, and recommend appropriate fees and charges based on their analysis. Once the data is collected and analyzed, these recommendations will be brought forward to the City Council for consideration. When fees are approved, the City will prepare a comprehensive fee booklet that will consolidate all fees charged for services, which are currently maintained by respective departments.
Efficiency of workforce operations
- Efficiency and performance audits—The audit cycle that began in 2011 with yearlong citywide audits conducted by the Matrix Group established baseline recommendations on operations, personnel, and processes throughout all City departments. The four-year cycle approved by the City Council in 2012 includes a rotational schedule of audits to ensure city departments operate efficiently, manage risks effectively, and perform well with respect to internal controls and as stewards of public funds and resources. Audits for the Electric and Environmental Utilities departments were completed in FY2013-14. In FY2014-15, Parks, Recreation & Libraries and Public Works were audited, and in FY2015-16, the City’s administrative departments will be audited.
- Budget oversight—In FY2014-15, the City expanded the scope of the Finance Department to allow for quarterly meetings with departments. This positioned Finance to provide strategic oversight of departments’ budgets to ensure accountability and transparency and the support of departmental goals.
- Employment models and training— A key city strategy continues to be balancing how we provide services and respond to community needs while minimizing long-term costs. We continue to determine on a case-by-case basis whether a service requires a full-time regular position, a temporary position, or a contract position. Along with this, the City continues to evaluate and monitor the optimal mix of full-time and temporary labor to successfully provide various city services. In the FY2015-16 budget, the City is continuing a paid internship program that began the previous year with a $100,000 allocation to help diversify and train our future workforce as well as strengthen our partnerships with universities and the community.