The draft budget was heard and discussed at the March 27, 2014 meeting (the staff report is attached for reference). Following much discussion, the Commission directed staff to do the following:
- Apply the $43,405 of "extra" current fund balance to offset agency costs for Fiscal Year 2014/15; and
- Determine LAFCo’s estimated OPEB liability with the next audit which is planned for July 2015 (we currently have a $50,000 estimated liability that we expect to reduce significantly since we successfully negotiated a MOU with the County to share the previous Executive Officer's retirement costs per time served at each agency); and
- In the future, combine budget hearing discussions with a discussion of shared services so that the value of LAFCo’s work on shared services can be assessed along with the costs. These discussion will include a review of the Shared Services Strategic Plan (adopted in December 2012) including but not limited to criteria for selecting shared services projects based on the opportunity for cost saving, non-monetary benefits, measurement of performance, and jurisdictions benefited by the project.
Expenditures
The LAFCo expenditures have not changed since the Commission reviewed the budget in March. Overall, the total salary and benefits is projected to increase 10% from the current year's adjusted budget. This is due to a County 2% cost of living adjustment, 5% annual step salary increases for two positions (which are discretionary), and hiring a new half time Associate Management Analyst (which the Commission approved on September, 26 2013 with the fiscal impact of $43,795 noted).
LAFCo’s expenditures in services and supplies are projected to increase by 15% in the next fiscal year. This increase is primarily due to two Municipal Service Reviews coming up next year per the FY 14/15 Work Plan (adopted at the February 27, 2014 meeting), which identified that staff would likely need to contract out the MSRs for (1) the fire protection districts and (2) the City of Davis and the County Service Areas it provides services to.
Revenues
The Revenues in the FY 14/15 budget include anticipated income from other agencies, interest, and fees. Additionally, following the March 27, 2014 meeting, staff added the $43,405 fund to the revenues, as directed by the Commission. Applying the "extra" fund balance to the revenues reduces the agency costs from what was reviewed in March by roughly half. However, if the Commission wishes to entirely mitigate those increased costs it may choose to also include the remaining contingency appropriation from this current year's budget as detailed below.
Option 1: Apply "Extra" Fund Balance per Commission Direction
The list below describes the budget cost to each agency after the $43,405 fund balance is applied (also showing net change as compared to FY 13/14 and compared to what was shown for the draft budget in March). This option would require increases in the payments from each local agency (but roughly half of the increase proposed at the March meeting) to ensure that LAFCo has adequate funding for its expected activities in FY 14/15.
City of Davis: $68,737 (increase of $6,617 - draft budget in March showed increase of $14,120)
City of West Sacramento: $67,728 (increase of $8,139 - draft budget in March showed increase of $13,608)
City of Winters: $6,509 (increase of $635 - draft budget in March showed increase of $1,326)
City of Woodland: $59,792 (increase of $5,304 - draft budget in March showed increase of $12,405)
County of Yolo: $202,767 (increase of $20,697 - draft budget in March showed increase of $41,469)
Option 2: Apply "Extra" Fund Balance Plus Existing FY 13/14 Unused Contingency
The Commission’s second option is to use the remaining contingency fund from the current FY to ensure adequate funding for LAFCo activities. The FY 13/14 budget has an unused contingency appropriation of $40,829, which could be "rolled over" into next year’s budget if it remains unspent. Staff does not expect that the contingency funds will be spent, as the agency budget is on target with expected expenditures and no significant unplanned expenditures are foreseen in the remainder of the fiscal year. If the Commission selects this option the agency costs will remain relatively flat as compared to FY 13/14. The list below describes the cost to each agency if Option 2 is selected:
City of Davis: $61,816 (decrease of $304 from FY 13/14)
City of West Sacramento: $60,909 (increase of $1,320 from FY 13/14)*
City of Winters: $5,854 (decrease of $20 from FY 13/14)
City of Woodland: $53,772 (decrease of $716 from FY 13/14)
County of Yolo: $182,352 (increase of $282 from FY 13/14)
* West Sacramento's relatively higher cost increase is due to the increase in apportionment percentage (which is due to their increased tax revenues).
Although the Commission currently has budgetary options that would either partially or completely offset what is anticipated to be a one-time bump in agency costs, the fact remains that the LAFCo budget has increased (due to the expenditures detailed above) and any offset is only temporary. The first option, which would apply/use roughly half of our "extra" fund balance would effectively phase-in or step the increase in agency costs over two years, as well as maintaining a more conservative fund balance. Under Option 2, most of our "extra" fund balance would be used to offset agency costs for FY 14/15, meaning that little would remain next year to offset agency costs for FY 15/16. While Option 2 would keep agency costs relatively flat this year, it may be only deferring the increases until next year. Additionally, without any remaining fund balance the budget would not have as much of a buffer to allow LAFCo to take on unexpected shared services projects or contracts (as was the case with the Yolo Broadband Strategic Plan) without having to return to the agencies to request additional funds midyear.
Cost Control Options
When LAFCo considers the annual work program each February, staff and the Commission can study more closely which agencies require Municipal Services Reviews and which may not. Under CKH, some LAFCo’s take the position that MSRs are only required prior to considering an amendment to an agency’s sphere of influence. Although staff’s understanding is that the Commission would like to be proactive in Yolo County with agency streamlining and efficiency, there may be some cases where a complete MSR is not necessary. Staff has recently developed a MSR checklist tool (attached) that will assist in the evaluation of whether a MSR is warranted at all, and if so what scope is needed. Being more strategic with MSRs going forward can help to reduce professional services costs for any potential contracts and save staff resources for other priorities.
Another option to reduce costs would be to reduce the contingency amount in the LAFCo budget. The Commission adopted more recent policy that LAFCo should "strive to maintain" a contingency equal to 20% of the overall budget. Although that percentage may seem high, for the FY 14/15 budget that equals approximately $90,000. There is no prescribed rule of thumb for how much contingency is necessary, but considering that LAFCo's highest organizational risk is probably a lawsuit, the Commission may determine that LAFCo's contingency need not be so high.
When the Commission considered the draft budget in March, there was discussion regarding the cost and value of LAFCo’s shared services program. Scaling back or eliminating LAFCo's Shared Services Program is another option in the Commission's toolbox of controlling costs, which is discussed in more detail below.
Shared Services
In 2011, when the Executive Officer position was in transition, the Commission considered whether to reduce or contract out the position and decided in closed session that it wanted a more dynamic organization. Subsequently an "in-house" Executive Officer was hired with the intention of being more proactive with shared services and agency consolidations.
Since that time, LAFCo's has adopted a Shared Services Strategic Plan (attached) and the Shared Services Initiative has evolved in the following areas:
- Yolo Leaders - Fostering a culture of collaboration and providing an opportunity to discuss issues of shared interest among local leaders.
- Animal Services - LAFCo has completed two studies and is currently working on an RFP for services with the goal of reducing agency costs and providing more control over those costs.
- Human Resource Training - The County has a robust training program and already barters with Yolo County Housing (YCH) for training classes. LAFCo has provided training course listings to the city managers, although, staff is not currently able to measure whether any cities are utilizing the program to save money.
- Housing/CDBG (Community Development Block Grant) - LAFCo facilitated conversations between Lisa Baker and the city managers and county administrator regarding Yolo County Housing's capacity to consolidate housing services for what is typically a 1/4 or 1/2 time position at a city. Staff is aware of subsequent contracts with the City of Winters and Yolo County to consolidate these services with YCH. The remaining cities have not elected to take advantage of this option to our knowledge.
- Broadband - LAFCo is currently preparing a Yolo Broadband Strategic Plan for the cities and County. Broadband has the potential to increase economic development opportunities within all of our communities, but success on this project will be difficult to measure in terms of increased revenues or cost savings.
- Purchasing - This topics is currently being studied by graduate students at CSU, Sacramento’s Masters of Public Policy and Administration program (for free) to determine the feasibility of taking on purchasing as a shared services project.
In addition to these county wide efforts, LAFCo staff facilitated conversations between the City of Woodland and Yolo County to potentially consolidate building and facility maintenance services and corporation yard facilities. However, the City of Woodland did not appear receptive and those discussions have not continued.
In staff's opinion, LAFCo has been proactive in shared services, but the agencies are receptive and engaged in varying degrees. LAFCo can't impose shared services on agencies, and agencies will derive value out of shared services according to how engaged they are with the potential opportunities. The challenge for the Commission with regard to the budget is to ensure that agency costs are reasonably aligned with the perceived value of the Shared Services Program. The Commission should also be reminded that shared services is a voluntary program that is not required of LAFCo to perform. The Commission can reduce the scope of or eliminate the program at any time. |