Budgeting in Simi Valley

1. Budgeting inSimi Valley February 2014

2. Agenda • Budget 101 • Budget Structure • Budget Process Overview • Budget 102 • The City’s Fiscal Environment • City Fiscal Policies and Practices • Department Budget Prep • In Conclusion… Your Role • Questions and Answers

3. What is the Annual Budget? • Like at home, it is a spending PLAN for the next year • Circumstances change over the year • The budget changes frequently as items are added or deleted (Supplemental Budget Requests) • City fiscal year is July 1 to June 30 • Ideally, the budget should be a prioritization of resources • This is the idea of Priority Based Budgeting • “What is most important gets funded”

4. Simi Valley Budget Structure

5. VOCAB: Fund Accounting • Fund accounting is an accounting system used by government and non-profits which emphasizes accountability rather than profitability • A fund is a self-balancing set of accounts, segregated for specific purposes in accordance with laws and regulations.

6. VOCAB: Fund Types • General Fund = general government • Internal Service Fund = provides service to internal customers • Enterprise Fund = internal “businesses” that should be self-supporting; revenues usually paid by customers/ratepayers • Special Revenue Fund = specific, segregated revenue stream • Capital Fund = for capital purchases and projects

7. What’s In Our Budget? PARKS = RSRPD TRANSIT GENERAL FUND Police Public Works Environmental Svcs. Community Svcs. Admin. Svcs. City Attorney City Administration WATER SCHOOLS = SVUSD SANITATION FIRE = VENTURA COUNTY

8. Pop Quiz:How Big is our Budget? • For Fiscal Year 2013-14 • Total Budget is over $175 Million • This includes $10 Million for capital projects • General Fund is $66 Million • Over 130 individual funds • Governed by federal and state law, GFOA and GASB accounting standards

9. General Fund Revenues

10. General Fund Expenditures

11. What Does it Pay For? Salaries & Benefits = 80.7% Supplies & Materials = 9.5% Services = 9.0%

12. Other Documents • Comprehensive Annual Financial Report (CAFR) • Like financial statements for private company showing year-end situation • CAVEAT: different fund groupings than budget (per requirements); tough to compare • Extremely useful notes; READ IT for the detail • Supporting Document • Provides justification/explanation for any increases in budget line items • Includes requests for additions and proposed reductions to the budget for that year

13. Capital Improvement Program (CIP) • We prepare a five-year “Capital Improvement Program” (CIP) book with the spending plan for capital items • Since they are most costly, it makes sense to plan ahead • Capital Projects = large projects, often constructed and budgeted over multiple years • $5,000 for vehicles, machinery & equipment • $25,000 for infrastructure & building improvements • $50,000 for buildings • $100,000 for intangibles (such as computer software and licenses) • The current year of the CIP is included in the annual budget

14. Capital Projects

15. CIP Summary

16. CIP Project Breakdown

17. VOCAB: “Fund Balance” • Fund Balance = a measure of resources available in the fund, the difference between assets and liabilities

18. VOCAB: Reserves • If the budget is for your checking account, reserves are like your savings account • Reserves are funds accumulated for use in emergency • The City’s “rainy day fund” • Reserves are restricted (held for specific uses) and unrestricted (available for use) • City Council policy is to maintain at least 17% operating expenditures as unrestricted reserves (two months’ expenditures) • 17% is recommended by GAAP

19. Budget Process Overview

20. How is the Budget Prepared? • Departments submit information to Budget Officer • Budget Officer compiles • City Manager reviews, adds, and subtracts • City Manager submits preliminary base budget to City Council • Council deliberates and makes decisions • Council adopts balanced budget • Fiscal year starts on July 1st of each year

21. Budget Timeline

22. Budget is a Living Document • It is adopted in balanced form in July • As soon as Council approves a supplemental, we are in imbalance again • The numbers change with every item going to Council • Key for departments to plan ahead as much as possible and include things in the budget

23. Moving toward Priority Based Budgeting • Tie budget/goals to City priorities • Strategic Plan • Council goals • Keep base budget for existing operations • Add for new items • Subtract for reduction • Begin evaluating City programs for value • Cost recovery • Mandate • Demand

24. Cost Allocation Plan (CAP) • Prepared annually • Determines amount charged to departments for indirect costs • For example: • the cost of the Human Resources Division is charged to other departments based upon number of authorized regular positions • The cost of the City Attorney’s Office is charged to other departments based upon number of Council agenda items prepared

25. Vehicle Replacement Plan • Keep rolling inventory of vehicle stock • Have set replacement schedule; departments charged each year for portion of replacement cost • Example: Department with $40,000 vehicle with 10 year replacement life is charged $4,000 each year it is in service so $40,000 is available upon replacement • If vehicle deferred for replacement past its life, there is no charge to the department • Each year Budget Officer recommends which to replace and which to defer; City Manager makes final decision

26. City’s Fiscal Environment

27. Overview • The City’s overall financial position is very strong with excellent reserves • Regular reserves + former Lighting Maintenance District on top + receivables (money due us) • Water, Wastewater, and Transit Utilities need attention • No fee increases in several years while costs have risen • Infrastructure projects are being deferred • General Fund subsidy to Transit

28. Overview (continued) • General Fund (operating) deficit last year • Expenditures greater than revenues • Why? Primarily revenue drops in past few years • City has limited ability to raise revenues (Prop 13, Prop 218) • 81% of General Fund is salaries and benefits… • Some overspending by depts.

29. Revenues Hit Hard

30. Overview (continued) • Does not mean City is going bankrupt • But… THIS IS NOTSUSTAINABLE! • We have plan to address but some solutions take time • How are we addressing this? • Cuts to budgets and staffing in past • Held on raises until this year • Been carefully tapping reserves to balance the budget; planned, with full disclosure to Council • Operational changes and reducing subsidies

31. Result = General Fund Deficit

32. Five Year GF Forecast • Try to project revenues and expenditures • Adjust over time with known changes • Update to include costs/savings of recent negotiations with labor groups, development changes, etc. • Use as a long-range budget plan

33. Five Year GF Forecast

34. The View for FY14-15 • Ended FY 2012-13 with ~$400,000 deficit in General Fund • Revenues up slightly in FY 2013-14, primarily thanks to one-time bumps • Expenditures up and impact of raises will begin to be felt • Council will direct 10% reduction target again • In summary: We are still at the edge and need to remain conservative.

35. Priority Based Budgeting • We will be making an incremental move to PBB over the next few years • Current concept is baseline budget plus any approved enhancements less any approved reductions • Future, based on evaluation of City programs; that which is important gets funded • What’s the “priority” for funding? Must have, need to have, nice to have…

36. City Fiscal Policies and Procedures

37. City Account Numbers • City account number structure example: 100 – 1505 – 44010 Fund = General Fund Cost Center = AS Admin G/L (line item)= Professional Services • Capital Projects also have Internal Order (I/O) Number, e.g. 950380 (Minor Streets FY 13-14 • Keeps track of that project separately • They will need both the City account number AND the Internal Order

38. Chart of Accounts • The BIBLE of finance and budgeting! • List of funds, cost centers (divisions), and line items to be used for various purposes • Found at W:Citywide Forms/Chart of Accounts

39. Supplemental Budget Request (SBR) • Form used to request changes to the Budget • Found on W:/Citywide Forms (Word and Excel versions available) • Need BOTH sides – revenues and expenditures • If with agenda item to Council, goes with staff report • If administrative, goes directly to Budget Officer

40. Budget Control • PLEASE READ POLICY A-29 (provided) • Budget control is at the fund level except for General Fund • For General Fund, at the Department level • Interfund moves and all changes to Revenues/Expenditures must go to Council • City Manager can make administrative amendments that don’t impact fund balance • Line item transfers can occur administratively (Budget Officer)

41. Budget Processing • Always charge items to the correct codes (not just where there is money) • This helps you know how to budget next year • This provides transparent, useful info on spending • No work can occur until budget is authorized • Donations of $500 or more should be handled through Supplemental Budget Request (add to revenue and budget side)

42. Department Budget Prep

43. Department Duties: • Review salaries and benefits info provided by Budget Officer and verify/adjust • Most important since biggest part of budget! • Enter estimated actual for current year and requested new budget amounts • Prepare narratives/descriptions • Review authorized staffing numbers/titles • Prepare charts and materials for City Manager Meetings • Appear at public meeting and Council to answer questions and justify requests

44. Where to Get Info? • SAP Financial System • 100% *best* source for accurate information • Use RHOSKEN variants for department/fund budgets • City budget and financial documents (online or hard copy) • OpenGov.com isn’t as accurate; only updated twice per year • Useful for trends over time

45. How to Project the Future? • Analyze the Past • Chart past budget vs. actual experience • Track percentage changes • Look at timing of revenues/expenditures • Identify known changes for next year and adjust accordingly • Read about trends • For statewide, www.californiacityfinance.org is excellent! • Commercial News Outlets • Economic updates (Cal Lutheran, etc.) • Include staff • Ask them for input for next year’s budget and items that might impact it • Make your best guess!

46. In Conclusion…

47. Your Role • You are a steward of the public’s money; take that role seriously • Would you do the same thing with your own money? • Would you like this to be on the front page of the newspaper? • Read and follow the City’s fiscal and budget policies • It is your responsibility to monitor your own budget • Stay within your budget • Any increase in expenditures requires Council approval • Even the City Manager can’t increase budget without approval

48. Questions? RebekkaHosken Budget Officer rhosken@simivalley.org x6328