IT'S BUDGET TIME AGAIN! -A $200 Million Exercise

This subject is so boring to some folks, that I've decided to give them a choice;

Read the quips, then quit.

Or, scroll down to read the recommendations developed by our Budget Advisory Committee after they studied the City's budget process for over a year.
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Shaw's Principle: Build a system that even a fool can use, and only a fool will want to use it.

Peer's Law: The solution to the problem changes the problem.

Beware of the man who works hard to learn something, learns it, and finds himself no wiser than before. He is full of murderous resentment of people who are ignorant without having come by their ignorance the hard way. - Bokonon-

Rule of Accuracy: When working towards the solution of a problem, it always helps if you know the answer.

Inside every small problem is a large problem struggling to get out.

Wiker's Law: Government expands to absorb revenue and then some.

Weiler's Law: Nothing is impossible for the man who does not have to do it himself.

Langsam's Law: Everything depends.

Grossman's Misquote: Complex problems have simple, easy to understand wrong answers.

The Sausage Principle: People who love sausage and respect the law should never watch either one being made.

Jacquin's Postulate on Democratic Government: No man's life, liberty, or property are safe while the legislature is in session.

Sevareid's Law: The chief cause of problems is solutions.

Democracy encourages the majority to decide things about which the majority is blissfully ignorant. --John Simon--
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As most folks know, the City Council's main roles are to pass legislation to set City policy, and to approve the annual budget needed to pay for the services and programs the City provides.
But, the budget is where these things come together.

After the contentious 2004 budget sessions, which seemed to demonstrate a progressively worsening 'Gator' gap between projected revenues and expenditures, the Council decided to get a diverse citizen's committee together to review its process through new eyes.
We did that, set up the BAC, spent considerable staff time in briefing them, then awaited their recommendations, which are printed below for those who wish to read them.

During this process, some predictable things happened.
There was controversy about some of the appointments.
There were more reports and meetings than most could easily tolerate.
There was discomfort among some staff about some of the questions that were asked.
There was considerable learning that took place.
There was an attempt to evaluate the 'Priorities of Government'.
There were some attitudes, grandstanding and personal prejudices displayed.
There was an ad hoc, competing group set up for political purposes.
There was more demand for staff time than was contemplated.
There was a small rebellion that demanded the BAC ask more of its own questions.
There was an eventual loss of enthusiasm experienced by BAC, staff and Council.
There was a final push to summarize findings.
There were the inevitable mixed feelings of achievement, disappointment, relief and encouragement.

Some Council members were relieved when the BAC ended.
Some wanted it to continue in some fashion.
Some had felt it wasn't necessary in the first place, if Council had just had the courage to do its job.
Some thanked the BAC members for their service.
Some may have thanked the BAC for acting as a human shields.

In the end, this was probably a worthwhile exercise that produced some good ideas -some of which were already being considered.

BUDGET ADVISORY COMMITTEE RECOMMENDATIONS
To the Bellingham City Council
Monday, June 12, 2006
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ECONOMIC VITALITY RECOMMENDATIONS

We were specifically requested to provide a recommendation regarding the allocation of current Economic Development funds. We provide in the list of recommendations below guidelines for the allocation of economic development funds. We also provide additional recommendations that speak directly to City Council goals regarding the development of a more diverse and sustainable economy, continuing to support a high quality of life, and increasing the number of high paying jobs in Bellingham.

Recommendation #1: Regarding the allocation of current Economic Development funds, we note that $205,640 in grants was given to 7 community organizations in 2005. Reports from these organizations are highly variable and tend to focus on the activities undertaken with the grant money but not on the economic impact of the activities. Our committee found it was not possible to do an adequate review of the return on investment from the grants made and therefore we are unable to provide a specific recommendation on current allocations of Economic Development funds. However, one grant recipient, the Small Business Development Center, stood out positively in our review. To be able to better analyze the allocation of Economic Development funds in the future we recommend the City of Bellingham adopt process improvements such as the following:

1. All entities applying for grants should provide written statements of purpose and explanations for what they believe will be accomplished with the grant. Sample work products or deliverables should be encouraged.

2. Key criteria for evaluating proposals should include the expected impact of funded work on economic vitality within the City. Specifically, funds should be used for programs that enhance business retention, expansion, attraction, and redevelopment within the city boundaries. All qualified requests should have measurable outcomes that improve the City’s economy – such as increasing sales taxes, B&O taxes, etc.

3. Grant approvals should include the approvers’ signatures and rationale for approval (see recommendation below for Economic Advisory Group.)

4. All organizations receiving grants must provide year-end reports documenting what was accomplished with the grant.
Recommendation #2: Establish a plan and create a senior level planner position within the Executive Department in city government to guide the economic vitality of the city so that the city can fund the services that support the high quality of life we wish to sustain. This person’s responsibilities would include:

1. Proactively meeting with local businesses of all types to discuss their needs
2. Convene a regular business roundtable as a means of building better city-business relations.
3. Assist business in navigating government regulatory requirements
4. Assist new business in assessing opportunities in Bellingham and work with existing businesses to maximize the retention of those businesses within the city.

5. Be the conduit for communicating business perspectives to local government and be the coordination point for economic issues with the port, the county and state.

6. Evaluating other cities’ economic development plans to determine “best practices” and incorporating these practices into Bellingham’s plans.

7. Develop an economic strategic plan for the COB including an analysis of local business/economic trends
8. Provide an annual “state of the city economy” report to the Mayor and City Council
The individual in the position should have experience in the private sector; some formal training in economics or a related field would be considered a plus, but could be offset by experience. We also envision a selection process that would include members of the business community (see next item). The position should report directly to the mayor, thereby assuring proper access and communication to the executive and legislative departments of the city government.

The on-going funding for this position would come from the increased tax revenues realized by the efforts of the individual. Attracting just one high-paying job employer, or retaining a current employer considering leaving the city, would more than cover the cost of the position. For the first year or two we recommend funding all or part of the employment costs by using funds from the current Economic Development fund.

Recommendation #3: Form an Economic Advisory Group of local business representatives to provide input to City Council on matters related to economic vitality and to assist in the selection of the City’s Economic Development Liaison.

Recommendation #4: Commission a series of studies to determine what businesses were and are currently located within the city limits, with information on the number of jobs, wages, etc. in each sector. For example, the City might request the information for the years 1990, 1995, 2000, and 2005. This information will form part of the analytical foundation upon which an economic development plan can be created.

Recommendation #5: Promote the creation of new, high wage jobs by offering a B&O tax credit (see Tacoma example). This direct incentive would be a tangible statement of the city’s resolve to foster high wage jobs across all components of private sector employers. While insufficient data is available at this time to assess the costs of the program, on judgment we believe it will be self-funding due to the incremental jobs it will create.

Recommendation #6: Charge the new Economic Development Liaison and the Economic Advisory group with creating a written economic development plan for the city of Bellingham. This is an imperative. The COB must take control of economic development and plan for it, not allow it to evolve haphazardly.

Recommendation #7: In addition to the already identified downtown/waterfront development priority, identify other business “clusters”, for example health care, marine services and organic/natural products industries where Bellingham might evolve into regional centers of excellence. Task forces for each cluster should be formed to facilitate economic development and high paying job creation for that cluster.
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“JAWS” RECOMMENDATIONS

Recommendation #1: The City should consider raising property taxes each year by the allowable 1% (about $0.12 million a year). These additional funds should be banked in the GF reserves to protect against out year deficits and used to pre-fund LEOFF-1 obligations (Appendix B).

Recommendation #2: Any GF surpluses should be used to increase GF reserves and pre-fund the LEOFF-1 obligations (Appendix B). The City should establish a policy to assign surplus GF revenues (i.e., beyond that required to meet the 12% reserve requirement) to these pension funds.

Recommendation #3: The City should commit to fully fund its LEOFF-1 obligations by 2021. If future trends play out as expected, this implies continued annual contributions from the GF, growing from $1.3 million in 2006 to $2.1 million in 2011, $3.0 million in 2016, and $4.3 million in 2021.

Recommendation #4: Once the LEOFF-1 Fire Pension Fund is fully funded, the revenues collected from the 22.5¢ property tax and tax on fire-insurance premiums, currently allocated to the fire pension fund, should be reassigned. Initially, these revenues should be assigned to the other LEOFF-1 obligations. After 2021, these property tax revenues could become part of the City’s GF.

Recommendation #5: The City should continue, both on its own and through the Association of Washington Cities, to seek state assistance in paying these LEOFF-1 obligations. *We noted last year, in our review of the Fire Department, that a typical Bellingham firefighter enjoys an annual salary (exclusive of benefits) at least $14,000 more than highly skilled technical staff working in other departments. The City should both explain and justify this difference or work to reduce it.

Recommendation #6: The City should bargain aggressively with its unions to shift increasing amounts of benefit costs (primarily for health insurance premiums) from the City to employees.

Recommendation #7: The City should bargain aggressively with the firefighter union to, over time, bring firefighter compensation in line with that for employees in other unions/ departments.* This shift in compensation should recognize differences among groups of employees in, as examples, the requirements for prior education and training, provision of on-the-job training, on-the-job risks, and the number of qualified applicants seeking these jobs.

Recommendation #8: The City should explain the basis for growth in employee compensation below that of inflation and population growth. In particular, does City management plan for a decline in the amount and quality of services offered to City residents?

Recommendation #9: The City should explain why the budgets for the police and fire departments are expected to increase more rapidly than the overall GF. For example, are costs in these two departments expected to increase rapidly, or is the City planning to increase the level of service provided by these departments?

Recommendation #10: The City should use alternative qualitative and quantitative methods to estimate future GF revenues and expenses, including sensitivity and scenario analysis. In addition, the City should periodically review the accuracy of its past forecasts (backcasting).

Recommendation #11: The City should include in the annual budget document a discussion and explanation of expected trends in GF revenues, expenditures and reserves and how and why they differ from historical trends (Appendix A). *We do not discuss Charges for Goods and Services and Other Revenues because they are subject to definitional changes over time and because they are smaller revenue sources than the taxes.
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BUDGET POLICY RECOMMENDATIONS

Recommendation #1: Adopt a policy on target levels of service – including mechanisms for determining whether funds are being spent efficiently to meet the desired service levels.

Recommendations related to policy #1:

a) Divide this policy into a guiding principle (noting the difference between principal and principle) and two separate policies

b) The discussion about providing a healthy balance of services to residents and quality of life should be moved up to the list of guiding principles (section in budget immediately above budget policies)

c) There should be a budget policy – or goal statement – to say that the city strives to have revenues sufficient to provide a particular service level.

o We recommend that the City conduct a study or have one prepared to determine appropriate benchmarks and target service levels for each department and key function. This work should be done as soon as possible. Without this information it is not possible to know if expenditures to maintain or improve service levels are money well spent; what cuts might be acceptable when cuts are needed; etc.

o We recommend that the study include a statement about the frequency with which the target service levels should be reviewed, by whom, and how.

d) There should be a policy describing what the city will do when net revenues increase or decrease. See recommendation 3 for detail.

Recommendation #2: Revise existing budget policy #3 to ensure it provides a pragmatic guide with regards to employee compensation.
Recommendations related to policy #3:

Delete the second sentence of the policy. Compensation levels for city workers should exceed compensation levels for workers in the private sector only if the city is unable to fill open positions with qualified workers.

Recommendation #3: Establish a new policy on banking excess revenues
There should be a policy describing what the city will do when net revenues increase or decrease. The City of Bellingham should bank excess revenues received in any given year to minimize the impact of rising health care costs and known pension (LEOFF-1) obligations.

Recommendation:
We recommend that excess revenues be banked to minimize the future impact of known pension obligations and, possibly, health care costs for current City workers. (We note the creation of pension funds by cities such as the City of Everett for this purpose.)

Recommendation #4: Establish a new policy on public involvement
The City of Bellingham should adopt a new policy to encourage more public involvement in the budget process. The BAC notes the absence of any policy regarding public involvement. We recommend the addition of the following new policy. Rather than a separate recommendation to the City of Bellingham, (COB), our committee suggests this be included with the recommendations from the “Policies” committee.

Recommendations for wording related to this new policy:
The City of Bellingham shall provide for systematic, transparent and ongoing citizen involvement and input, through regular surveys and other feedback mechanisms, of city residents to help determine funding priorities.

Regardless of the method, the process would be transparent, systematic and ongoing. Our committee recommends a community involvement process that is:

• Inclusive and representative of all neighborhoods with an opportunity for every resident to participate.

• An ongoing, systematic process that includes both an opportunity for citizen input and process for ongoing feedback and evaluation.

• A timeline of January to June in the year preceding the upcoming budget.
Recommendation #5: Provide a link to the city’s investment policy

RE: General Operating Policy #8
The City will use the ‘Prudent Person’ policy when investing funds. Preservation and safety of assets is a higher priority than return on investment. The City’s investment policy provides greater detail on this subject.

Recommendation #6: This policy is not a budget policy, but rather an operational guideline.

RE: General Operating Policy #9
“The City will use recycled paper whenever costs are less than or similar to costs for virgin paper stocks.”

Suggestion:
The City could develop scorecards for the various departments to encourage savings or efficiencies since it already has five year forecasts by department, division and program.