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M A G A Z I N E
MAY 2017 #14
1 CSMFO MAGAZINE MAY 2017
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2017-18 Board of Directors President Drew Corbett, City of San Mateo President-Elect Margaret Moggia, West Basin MWD Past President John Adams, City of Thousand Oaks Scott Catlett, City of Yorba Linda Jimmy Forbis, City of Gilroy Brent Mason, City of San Bernadino Karan Reid, City of Concord Chu Thai, City of Monterey Park Jennifer Wakeman, City of Lafayette Executive Director Melissa Dixon, MBA, CAE Editorial Designer & Photographer David Blue Garrison Cover Photographer David Blue Garrison Editors Steve Heide, Chino Valley Independent Fire District Joan Michaels Aguilar, City of Dixon Additional Photography Pexels, Pixabay and Stocksnap The California Society of Municipal Finance Officers is the statewide organization serving all California municipal finance professionals. We promote excellence in financial management through innovation, continuing education and the professional development of our members. CSMFO members are deeply involved in the key issues facing local agencies. We value honesty and integrity, and adhere to the highest standards of ethical conduct. Thank you to all the authors in this issue for sharing with us their time and expertise. If you have an idea for a future article, please contact Melissa Dixon at the CSMFO office at firstname.lastname@example.org.
For more information on CSMFO or this Magazine, please contact the CSMFO office at 916.231.2137 or visit the website at www.csmfo.org. 4
CSMFO MAGAZINE MAY 2017
The views and opinions expressed in these articles are those of the authors and do not necessarily reflect the official policy or position of CSMFO.
CONTENTS MAY 2017 #14 FEATURES
Budgeting Straight Through a Fiscal Crisis P.
Municipal Financial Health Diagnostic P.
Setting Reserve Policies – and Living Within Them P.
Road Repair & Accountability Act Of 2017 P.
Fiscal Sustainability – Local Revenue Measures P.
The Raging Storm
Five Ideas to Maximize TOT Revenues P.
Historical Perspective for CalPERS Pension Crisis Today P.
INSIDE CSMFO President Drew Corbett’s Letter P.
Riverside – Here We Come! P.
Executive Director Letter P.
CSMFO Shines a Spotlight On Marvin Lopez P.
CSMFO At GFOA P.
Call For Sessions The 2018 CSMFO Annual Conference P.
Chapter Chair Spotlight P.
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PRESIDENT’S LETTER Drew Corbett
A President Abroad
n early March, about a month after the CSMFO conference in Sacramento, I had the great pleasure of attending the Oregon Government Finance Officers Association (OGFOA) 2017 Spring Conference. OGFOA has two conferences each year, one in the spring and one in the fall, with the spring conference usually at a “destination” location. This spring’s conference was held on the coast at the Salishan Resort and Spa. Before I get to the conference itself, I must tell you about my trip from San Jose to the Oregon Coast. I left San Jose to sunny skies and mild temperatures, which is not a stretch for early March in California. I flew into Portland and arrived to overcast skies and temperatures in the low 40s…not my favorite weather. From there, things got strange, but offered me a glimpse into Oregon weather. The resort was approximately a 120-mile drive from the airport, and on that drive I encountered sun, clouds, rain, snow, hail…and a rainbow. When I arrived, I had to tell my story to a few native Oregonians to find out if what I experienced was real or if I just imagined it. Fortunately for me, the folks I spoke with were able to confirm that what I experienced was typical for Oregon in March. The conference itself was great. From the opening reception on Sunday to the final speaker on Wednesday, it was clear that OGFOA and its professional association, Western Advocates, know how to put on a conference. And they definitely rolled out the red carpet for the out of town guests, which included Ade Ariwoola from Washington and Carmen Randle from Alaska, both of whom attended the CSMFO conference in Sacramento. Throughout my time in Oregon, the OGFOA leadership and its members made all of the out-of-state guests feel incredibly welcome at their conference. The conference itself was a lot like ours, only much smaller. With about 250 attendees, the feel of the conference was a lot more intimate than our conference, which has swelled to over 1,200 attendees, (not that I am complaining!). Otherwise, the OGFOA conference featured keynote speakers, breakout
sessions, a great exhibit hall (where they did breakfast instead of dessert), and a fun evening event. I think my favorite “educational” part of the conference was the breakfast keynote speaker on Tuesday, Oregon-based political analyst, Dr. Jim Moore. He reminded me a lot of Chris Thornberg in terms of his ability to educate while entertaining at the same time. As far as my favorite “non-educational’ part of the conference, that one is more difficult to pin down since the folks from Oregon showed me such a good time. I suppose if I had to pick one, it was a low-key Tuesday night dinner for the out-of-state guests hosted by outgoing OGFOA President Don Hudson. He took us to a nice restaurant right on the coast, and it was a great opportunity to get a chance to get to talk to folks in a smaller, informal setting. In addition to the out-of-state guests, the OGFOA President and Past President, and the OGFOA Executive Director, there were also a few special guests from GFOA. Emily Brock, the GFOA Federal Liaison Center Director, who came out from Washington D.C. to make a keynote on Friday, and GFOA President Marc Gonzales, an Oregonian, also joined us at dinner. OGFOA has two conferences Overall, the OGFOA each year, one in the spring Spring Conference and one in the fall, with the was an amazing spring conference usually at experience, and I a “destination” location. This am very grateful for spring’s conference was held on the opportunity to be the coast at the Salishan Resort able to represent our and Spa. great organization. During my time as President, I will get to also represent our organization at the California Municipal Treasurers Association, Washington Finance Officers Association, and Alaska Government Finance Officers Association conferences. I look forward to those conferences to continue to foster the great relationships CSMFO has with all of its partner associations. Thank you for the opportunity to serve you as your President. Respectfully, Drew Corbett
WHAT HOGWARTS HOUSE ARE YOU? Hufflepuff! 6 CSMFO MAGAZINE MAY 2017
EXECUTIVE DIRECTOR’S LETTER Melissa Dixon
contracted with Smith Moore & Associates toward the end of 2008. I wrote my first “Executive Director’s Message” in January 2009, and have done so every month since then. That’s ninety-nine (99) executive director’s messages. That’s a lot. So when CSMFO went to an every-other-month schedule on their Magazine this year, and for the first month in nine years I didn’t have to write a message, I almost didn’t know what to do with myself! And now that it’s time to write my May message—my 100th message!!—I don’t know what to say. The 100th message should be important, right? It should be monumental. And yet, all I can think of to tell you all is that the membership directory is later this year because, for all those years, we’ve been remembering the policy wrong in terms of when to cut off membership. We thought it was March 1, but it turns out it’s March 31, which means the directory is a full month later this year than last. So, heads up for those of you who look for this every year! Every year CSMFO hosts a gathering at the GFOA conference of folks from California.
Also coming up of note is the CSMFO reception at the GFOA conference. Every year CSMFO hosts a gathering at the GFOA conference of folks from California. With an event as big as GFOA’s, it would be easy to not even run into anyone from your home state! We want to make sure that doesn’t happen to you!
Let me know, if you get a moment, what you think of the every-other-month format. The idea is that we’ll be sending out our Magazine on the months that GFOA is not sending theirs— so our members get some finance news every month. Is this effective for you? Let me know at email@example.com.
WHAT HOGWARTS HOUSE ARE YOU? Gryffindor!
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Budgeting Straight Through a Fiscal Crisis Impending CalPERS Cost Run Up Written By Dan Matusiewicz
Dan Matusiewicz, Finance Director, City of Newport Beach
y general philosophy is to take incremental steps each year to build prudent reserves and strategic savings programs to insulate your agency from a fiscal crisis, thereby causing the least organizational disruption possible. With appropriate discipline, you do not always need to take drastic action to sail through a fiscal crisis. I say budget straight through a “fiscal crisis,” but budgeting in good times should not be that much different from the difficult years.
I have always maintained that a good finance director never runs out of money. I would recommend setting resources aside today for those programs, projects and liabilities that will result cash flows in the later years. Therefore, before a surplus is available for appropriation, survey the funding status of your agency’s contingency reserves and potential liabilities. If the basic need to be a financially prudent organization have not yet been meet, I would recommend that surplus NOT be declared available to fund new shiny projects. The same goes for your revenue estimates. Survey the status of your reserves each year. To the extent your revenue estimates reveal an increase, recommend to your governing body to fill your financial prudence buckets first.
While it may be Impending CalPERS Cost Run Up While the PERF is on track a populist view Organizational disruption is not always to meet or beat its target that governments avoidable and agencies should be prepared earnings rate for 2017, should be as nimble to take immediate action in the midst of CalPERS own investment as private sector or in the wake of an impending crisis. The consultants expect that the companies, the fact of primary impetus for this article is planning for PERF will only earn 6.1% on the matter is that there the impending California Public Employees average over the next ten are too many legal Retirement Systems (CalPERS) pension crisis years. and political barriers today. Advance planning would have been for governments better yesterday but let us start with what we to execute strategies and tactics as know today. quickly. I am not going to address the Recent Results: unwieldly nature of governments, but I liken governments to an aircraft carrier • 2015 CalPERS Public Employee Retirement Fund (PERF) of sorts, with all the accompanying investment earnings amounted to 2.4%, resulting in a ropes, chains and anchors. It takes 5.1% experience loss that has started to affect the 2017four nautical miles at full reverse (all 18 minimum contribution rates. propellers are spinning against the • 2016 PERF investment earnings amount to .6% resulting ship’s forward momentum) to bring an in a loss of 6.9% that will start affecting the 2018-19 aircraft carrier to a full and complete minimum contribution rates. stop. That is why it is imperative for the ship’s captain and crew to plan and • Pressure to reduce the assumed discount rate resulted in: carry out maneuvers, course directions • A reduction of the current 7.5% discount rate to and complete stops well in advance 7.375% effective in the 2016 actuarial valuation which of the present moment, with multiple will start to impact the minimum contribution rates in contingency plans in place. In my view, 2018-19 budgeting for governments requires similar planning.
CSMFO MAGAZINE MAY 2017
• A further reduction of the discount rate to 7.25% in the 2017 valuation will start to impact the 2019-20 contribution rates • A further reduction of the discount rate to 7.0% in the 2018 valuation that will start to impact the 2020-2021 contribution rates • The investment losses and any other experience losses will be phased-in over five years and fully amortized over 30 years. • The discount rate changes will be phased-in over five years and fully amortized over 20 years. This chart depicts the default payment schedule on the City of Newport Beach’s new loss bases. This would be true even if the City’s Unfunded Actuarial Liability (UAL) were zero. As you can see, the phase-in of these five new loss bases are rather extreme, especially in the next seven years. By 2025, the minimum default payment loss would approach $12 million per year and peak at nearly $16 million by 2034, assuming all future actuarial assumptions and experiences are met as expected. While more modest, the chart does not include the go-forward cost of active employees (normal cost) due to the aforementioned lower discount rate assumptions. In addition to the losses described above, agencies are likely still paying off sizable UAL balances. While the PERF is on track to meet or beat its target earnings rate for 2017, CalPERS
own investment consultants expect that the PERF will only earn 6.1% on average over the next ten years. This means that more investment losses will likely to compound the current situation in future years. Recommendations • Start paying on the five known losses described above in 2017-18. There is a high cost of waiting for future years to start paying on a very generous repayment schedule; generous means low introductory payment with a significant amount of interest added to your obligation. If you missed the opportunity to increase your payment during the proposed budget process, do not be shy about amending your budget in the new year. • Lose the 30-year levelpercent-of-pay, inclining repayment schedules. The 30-year level-percent-of-pay schedules are inconsistent with Government Finance Officers Association (GFOA) best practices as well as the California Actuarial Advisory Panel (CAAP), and are obscenely expensive. These schedules negatively amortize for about seven years and do not get back to your original principal balance until year 18.
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• Consider a 20-year repayment plan and consider leveldollar payment on your UAL, versus the inclining levelpercent-of-pay schedule. That is, identify your current UAL balance from your 2015 valuation, add in an estimate of your 2016 investment loss (2015 MVA x 5.9%), then add in ½ of the UAL increase from the 1% discount rate sensitivity analysis included in your 2015 valuation. Next, calculate the annual payment just as you would an annual mortgage payment. Use the end-of-period payment convention to be conservative. When you receive your 2016 balance, reamortize your schedule using 7.375% and reduce your selected amortization schedule by one year. Compare either of your computations to the minimum suggested payment by CalPERS. You will be surprised how vast the divide is between the minimum payment suggested by CalPERS and your calculation. While you may not be able to afford your preferred repayment schedule in one year, make it a goal to get there within two to three years. Repeat the calculation each year and stay up on it. Do not let the UAL get further away from you again! This process could save millions of dollars. • Call your actuary and compare notes. They are staffers just like us and will steer you in the right direction. Consider making the payments on a discretionary basis so if you get into budget trouble, you can always let off the gas since you are paying in excess of the minimum payment. • Continue to outsource or let go of programs and bodies that no longer meet today’s needs. While they will not relieve the UAL obligation, do not discount the immediate impact on salary savings. These are difficult decisions but consider how much harder the decisions will be in, say, five to seven years. • Continue to bargain for increase employee contributions. Newport Beach is up to 14% of pay, amounting to some $10 million dollars per year. If you have any questions or if I can be a resource to you, feel free to reach out to me. I can be reached at the City of Newport Beach at 949.644.3123 or at firstname.lastname@example.org Dan Matusiewicz has more than 25 years of municipal experience in public finance, treasury, accounting and financial reporting. He currently is the Finance Director/Treasurer of the City of Newport Beach, managing a $300 million budget, a $230 million investment portfolio and has issued and refunded numerous debt obligations. He started his career in public accounting, specializing in local government audits. He has a Bachelor’s of Science degree in accounting from the Leavey School of business at Santa Clara University. He was one of the first non-CalPERS staff members invited to speak at the CalPERS Education forum and have been a guest speaker at numerous professional association conferences and meetings including CSMFO, GIOA, SACA and Leadership Tomorrow. He has also been a frequent contributor to the CSMFO Magazine and in CSMFO webinars.
For a Historical Perspective for CalPERS Pension Crisis Today, see Dan Matusiewicz’s Bonus Content on p.31 10 CSMFO MAGAZINE MAY 2017
In Memoriam Kurt Hahn, City of Healdsburg, 1993 CSMFO President, passed away on April 8, 2017 after undergoing open heart surgery earlier in the year. Mr. Hahn’s wife notified us of his passing in a note that read, in part:
“Please extend to all members and specifically the Past Presidents our appreciation for the many fond memories during Kurt’s membership. CSMFO is a testimony to professional excellence.” Thank you, Kurt, for your years of service—to CSMFO and the profession. You will be missed.
CSMFO At GFOA J
oin us at Peaks Lounge on the 27th floor of the Hyatt Regency for a Nightcap with CSMFO on Sunday Night. There will be desserts, coffee and cocktails to close out your evening after the GFOA opening event at the Wings Over the Rockies Air & Space Museum. When: Sunday, May 21, 2017 Time: starts at 8pm Where: Peaks Lounge, Hyatt Regency Denver, 650 15th Street, 27th Floor Note: All buses back from the Museum will return to the Convention Center, which is directly adjacent to the Hyatt.
Please RSVP if you plan to attend, so we can get a head count. Guests are welcome!
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Setting Reserve Policies – and Living Within Them What Reserves Do – and Don’t
Written By Bill Statler
Bill Statler, Retired Finance Director, City of San Luis Obispo
trong reserves reflect ability to manage risk, not fiscal strength. Reserves – whether large or small – do not per se reflect on an agency’s financial capacity or underlying fiscal strength. There are much better indicators than fund balance for this; most notably the ability over time for ongoing revenues to adequately meet day-to-day service needs, capital improvement goals and debt service requirements. Then what does retaining a prudent level of fund balance reflect? It measures an agency’s ability to manage risk. How much can things adversely turn out differently than “usual?” And how much fiscal capacity (measured in time) does the organization think is prudent in developing and implementing plans to respond to unexpected circumstances? For organizations with a high tolerance for risk, small reserve levels will work. When adverse circumstances hit, just close fire stations and libraries right away; and start laying-off employees by the next payroll. For those with a lower tolerance for risk, strong reserves will allow for breathing room in responding to one-time circumstances or developing longer-term strategies for closing the gap between revenues and expenditures. The following are four suggested steps in setting reserve policies and living within them.
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1. Assess Risk in Determining Reserve Policy The first step in assessing an appropriate reserve level is to assess fiscal risks, which likely fall into seven categories: Economic. How dependent are the agency’s key revenues on local economic performance? And how dependent is it on the fortunes of a few key tax or rate payers – or are revenue sources broadly distributed? In short, are all of the agency’s revenue “eggs in one basket?” And if so, how large and strong is the basket? Stated simply, how stable or volatile are your key revenue sources? Cash Flow. What cash resources does an agency need in balancing when it receives key revenues and when it incurs expenses? For example, in California, most local agencies must operate for six months before receiving their first installment of property tax revenues; and for many, this is a key revenue source. This requires each agency to review its own unique circumstances in evaluating “lumpy” receipts and disbursements, as well as cash flow commitments from and to other funds. In short, every agency has a different cash flow story to tell. Expenditure Flexibility. How much of an agency’s costs are relatively “fixed” or ongoing, like debt service and regular staffing; versus more flexible costs like capital projects or other “one time” costs? The more “flexible” an agency’s costs, the more flexibility it will have in not disrupting day to day services in responding to adverse circumstances, while it figures out a longer term strategy. Reliance by Other Funds. How dependent are other funds on the General Fund? General Contingencies for “Extreme Events.” What is the likelihood of a major, unanticipated cost? Disasters. What is the likelihood (and frequency) of natural or human disasters like floods, fires or earthquakes in increasing response and recovery costs, or reducing revenues? Stability of State Local Government Relationships. How likely is it that the federal or state government will structurally change revenue sources or no longer allow an agency to set a key fee or a tax that it has relied upon for many years? Or charging agencies for services that the state or federal agency has traditionally provided at no cost?
The Power of Policies One of the most powerful aspects of fiscal policies is making tough decisions easier when adverse circumstances arise by articulating your values before they are placed under stress. This means that identifying when it is appropriate to use reserves is a critical component of an effective policy. If you have been successful in building reserves at policy levels (or beyond), there will be calls from many places to use them when adverse circumstances arise - when your fiscal condition improves. Being forearmed with “when” will help you respond to these pressures.
This surfaces the second point about the use of reserves: you can only spend them once. And accordingly, they should ideally only be used for one-time purposes. This could include serving as a bridge in tough times as part of a multi-year strategy to close a systemic gap in bringing operating costs in line with lower ongoing revenues (the “new normal”). However, smart agencies will strongly resist using reserves to fund operating costs – let alone operating cost increases, such as labor agreements.
4. Restoring Reserves to Policy Minimums Agencies should also consider setting policies for how reserves should be restored to policy levels after they’ve been used for appropriate purposes. In recognition that as things improve, there will be a legitimate public policy interest in restoring/ improving service levels and funding capital projects, an example might be: • Restore reserves to policy levels within 5 years. • And as revenues improve, split the improved financial condition evenly (“50/50”) between services and reserve restoration.
SUMMARY Placed in context, over the past thirty years, even in adverse local economic circumstances, State budget takeaways have consistently been the largest single fiscal threat to local government in California.
2. What’s the Right Amount? In comparing reserve levels between government agencies, it is important to recognize that “one size does not fit all.” In short, other than having a reserve at all, there is no “right” level: it depends on the circumstances in each agency. GFOA Structured Assessment Tool. Because of this, beyond generally addressing the risk factors above, for many years there wasn’t really a satisfactory response to “how much” other than saying “it depends.”
Reserves act as an insurance policy – a risk management tool. Accordingly, in setting appropriate reserve policies, an agency should ask itself: • What risks are we exposed to? • And how much risk are we willing to take when adverse circumstances emerge? After setting minimum reserve policies based on this assessment, effective reserve policies will then identify when it is appropriate to use reserves and strategies for restoring them to policy levels when they have been drawn-down for these appropriate policy reasons. Knowing how other agencies answer these questions can be helpful; but ultimately, each agency needs to be guided by its own facts and circumstances.
However, the Government Finance Officers Association of Bill Statler served as the Director of Finance & Information the United States and Canada (GFOA) recently developed an Technology for the City of San Luis Obispo for 22 years and for excellent analytical resource in translating these conceptual 10 years prior as finance officer for the City of Simi Valley. Bill risks into specific reserve targets. It does this by creating a has also played a large leadership role in the municipal finance structured assessment of the risk factors facing each agency. profession. He served on the Board of Directors of the League It looks at eight risk factors (like those above); asks questions of California Cities in 2009-10 and as President of the League’s about them; and based on the agency’s situation, assigns a Fiscal Officers Department in 2002-03. He was President of score to each risk category on a scale of 1 (low risk) to 5 (high CSMFO in 2001 and served on its Board of Directors and as a risk). The tool then provides suggested reserve levels based on Chair and Senior Advisor on several committees. Additionally, the total score (along with adjustments he served as a member of the California Committee for other factors such as population). For those with a lower on Municipal Accounting and on the GFOA’s This straight forward spreadsheet tolerance for risk, strong Budget and Fiscal Policy Committee. After 37 years tool (no special software required) is reserves will allow of public service, Bill retired from the City of San available on-line at no cost from the for breathing room in Luis Obispo in May 2010. In the “third act” of his GFOA on its web site at: responding to one-time career, Bill continues to be deeply involved in the http://gfoa.org/financial-policycircumstances or developing municipal finance profession as a consultant, trainer examples-general-fund-reserves longer-term strategies for and writer, including co-authoring the Guide to closing the gap between Local Government Finance in California, published 3. Using Reserves revenues and expenditures. by Solano Press Books in July 2012. Along with setting minimum reserve policies, agencies should also consider adopting policies for when the use of reserves below policy targets is appropriate. There are several circumstances where doing so makes sense. For example, reserves are often referred to as “rainy day funds,” so it makes sense to use them when it rains – at least, when it rains unexpectedly. For rain that can be reasonably expected every year, however, it doesn’t make sense to use reserves.
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Fiscal Sustainability – Local Revenue Measures Written By Stephen Parker with color commentary by David Cain
In November 2016, voters went to the voting booth in record numbers and voted on the largest number of local revenue measures in California history . . . . . 430 different measures. Of that total, 353 succeeded. What made many successful and some fail? Here is the story of the City of Stanton’s fight for fiscal sustainability, with some colorful commentary from Fountain Valley and their perspective. The City of Stanton was facing its
Stephen Parker with seventh consecutive structural deficit in its annual budget when City Council color commentary placed a one-cent sales tax measure by David Cain
on the ballot in 2014, but there was a long process to get to that place. In 2011, a couple of years into the Great Recession and right before Governor Brown dissolved redevelopment (cost the City $4 million a year in funding), the City Council made significant cuts to City operations including renegotiating all vendor contracts, reducing full and part-time employees by over 30%, having employees pick up all increases in health insurance and creating a new pension tier (COLA’s had already been frozen since 2008). When that wa snot enough, in 2012, the City made cuts to emergency services in the contract with Orange County Sheriff’s Department including a reduction of deputies that rose to more than 25% and office staff being reduced by over 30%. In the contract with Orange County Fire Authority there was a reduction of 38% of firefighters and the elimination of a
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ladder truck (replaced with a paramedic van). Despite all these deep cuts, the City still faced a structural deficit of $1.8 million, or 20% of the City’s $16 million budget. City Council began monthly neighborhood Keep the messaging simple meetings in 2013 to and consistent…engage the explain the situation to community residents and hear their concerns. The response was clear – further cuts to public safety were not desired. A Blue Ribbon Committee was established to research options for closing the structural deficit before reserves were completely drained. The only solution that worked by itself, and the recommendation from that Committee was asking the residents to add a one-cent transactions and use tax. Getting the facts of the situation to the residents was the key. The City engaged Lew Edwards Group to help focus the message. Cities are not allowed to advocate for measures, but are allowed to educate residents. Just sharing facts about the City’s cuts and deficit faced was very powerful. The message was clear – a transactions and use tax measure would protect further cuts to public safety. The City shared the message throughout the City with neighborhood meetings, as well as letters from the City Manager, articles in a recreation brochure and lots of social media. The result (despite a well-funded opposition that shared much misinformation) was an approval of 55% to 45%. With the additional funds, the City closed its budget gap and then augmented spending on public safety. The City hired two additional deputies (a 10% increase) to focus specifically on traffic and prostitution/homelessness – issues that came up repeatedly during the neighborhood meetings. A consultant that connects the homeless to available programs was also brought on. A code enforcement officer was hired to address issues that cropped up on the weekends (when no officer previously was available). Funding was provided for crossing guards at local schools. In addition, to promote transparency, all revenue and corresponding expenditures of the transactions and use funds were recorded in a separate fund, and Open Gov was engaged to make it easier for residents to look up the City’s financial information online.
Most importantly, the resources dedicated to reducing crime and homelessness were productive, resulting in fewer of both. When a local businessman with a dislike for a City Councilmember pumped money into a repeal effort that received enough votes to be on the 2016 ballot, the City highlighted to residents what the transactions and use tax funds were spent on and what would be lost if the funds went away. Neighborhood meetings never stopped, and the other avenues of distributing information were pursued again. The residents dismissed the repeal by a margin of more than 2:1. How to: 1. Keep the messaging simple and consistent – over and over and over 2. Engage the community – as many different approaches as you can 3. Try other approaches before this – show that you’ve done your due diligence 4. (Fountain Valley) Tell the community what your agency has already done to permanently cut costs. / Get feedback on what cuts they would make to services
Lessons learned: 1. It’s much easier to get approval if you have no active opposition – see if you can address their concerns early. By not being successful in that effort, it required a lot more time and energy from the City’s side 2. The City’s message needs to be supported by a political side that doesn’t have the same advocacy limitations a City does What went right - we followed the items in “How to” above. What went wrong – we didn’t suppress the opposition with oneon-one meetings early. The City of Fountain Valley placed a sales tax measure on the ballot in November 2016 and was very fortunate to be able to learn from Stanton’s ballot measure process they went through in 2014. We applied both the lessons learned and what went wrong early in our process. Fountain Valley held over 65 community engagement meetings, we got community “patriots” on board early to proactively support the measure. City staff met with groups that had opposed other Orange County tax measure, one-on-one, to tell our own fiscal story and get buy in from them or at least a commitment to not actively oppose our revenue measure. Fountain Valley has appointed a Measure HH – Essential City Services Oversight Board which will review this revenue measure for the next 20 years. By the way, our measure was successful 59.8% yes!
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475 Sansome Street, Suite 1700 San Francisco, CA 94111 415.391.5780 tel 415. 276.2088 fax email@example.com www.joneshall.com 16 CSMFO MAGAZINE MAY 2017
Call For Sessions The 2018 CSMFO Annual Conference CSMFO
promotes excellence in financial management through innovation, continuing education, and the professional development of our members. One of the primary ways we do that is through the CSMFO Annual Conference. • Do you have an idea for a concurrent session at the CSMFO Annual Conference? • Do you have special expertise or innovative solutions to share with our members? The Call for Sessions process will begin in June - so be on the lookout for an email with that announcement and the submission form. Here are some key things to keep in mind as you begin to think about proposing a session: • Concurrent sessions are typically 1 hour 15 minutes in length. • The number of speakers should generally be limited to 3 (CSMFO will provide a non-speaker moderator for each session). • Sessions should ideally include at least one practitioner from a public agency. • Topics should be educational, non-commercial, and provide value to a wide-ranging group of attendees. • Sales pitches or marketing of products and/or services submitted as proposals will NOT be considered. • All CSMFO members, as well as nonmembers, are invited to submit session proposals. • Make sure your proposal is complete, and is submitted on time. Again - watch your email in late May/early June for more information about how to submit a proposal for a concurrent session at the 2018 CSMFO Annual Conference.
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CSMFO Shines a Spotlight On Marvin Lopez Senior Accountant, City of Simi Valley
Interviewed By James Russell-Field 1 – Tell the readers a little bit about yourself…
James RussellField, City of Thousand Oaks
Marvin Lopez: I was born and raised in the San Fernando Valley. I attended California State University - Northridge, and worked in retail at Fry’s Electronics and Carmax while I completed my Bachelors of Science in Accounting. After graduating, I worked as an external auditor at KPMG for about 2.5 years and acquired my CPA. I then joined Tutor Perini Corporation as a senior internal auditor, before coming to the City of Simi Valley in August 2016 as a Senior Accountant. I’m married with my first child arriving any day!
Marvin Lopez Senior Accountant, City of Simi Valley
2 – What have you worked on in the last month? ML: In the last month I’ve worked on ERP implementation and conversion, daily cash management, accounts payable oversight, investment accounting entries, cash receipt, billings, and miscellaneous journal entry review. 3 – What aspect(s) of your job do you enjoy the most?
Welcome to the CSMFO Member Spotlight! Because CSMFO has a diverse membership spread across California, we wanted to give our members a chance to share their backgrounds, accomplishments, and perspectives.
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ML: I enjoy the aspect of public service the most. I felt like my career was lacking the aspect of selffulfillment until I started working with the City of Simi Valley. By working for the City, I have found a way to combine my professional career with my desire to help my
community. In addition, I see many opportunities to grow as a leader, both within the accounting/finance profession, and government in general. One of my short-term goals is to find and mentor young finance professionals who are eager to come work for the public and use their skills and perspectives to make an impact. 4 – What has been your favorite project at Simi Valley? ML: My favorite project at Simi Valley has been the ERP implementation. I currently spend about half my time working with various pieces of the implementation and conversion, including developing new processes to maximize efficiency, problem solving new issues, and training staff on the G/L modules. This project has allowed me to expand my City network by meeting Directors, Deputy Directors, and other department staff that I otherwise would not be working with. 5 – What is the most challenging situation you’ve faced in your career? ML: The challenging situations I have faced in my career have stemmed from a lack of transparency within organizations, the “SALY” approach (same as last year), and low technology competence. 6 – What are some of the important issues you foresee in the future of California finance? ML: There needs to be a shift in focus from short-term thinking to long-term financial sustainability. 7 – What do you enjoy outside of work? ML: I enjoy spending time with family and friends, following and playing ice hockey, and driving cars. I have a Honda S2000 that I take to the racetrack when I have time. 8 – Do you have a favorite quote? ML : I have two quotes, both from Elon Musk. Elon is someone who educated himself, and used his knowledge to innovate and lead his companies in a non-traditional manner,
simply because he did not think anything else made sense. “The first step is to establish that something is possible; then probability will occur.” “What makes innovative thinking happen? …. I think it’s really a mindset. You have to decide.” 9 – If Hollywood made a movie about your life, what actor/actress would you like to see cast as you? ML: Whoever is most famous at the time the move is filmed. Publicity! Welcome to the CSMFO Member Spotlight! Because CSMFO has a diverse membership spread across California, we wanted to give our members a chance to share their backgrounds, accomplishments, and perspectives. If you are interested in being highlighted or nominating another CSMFO member for the spotlight, please contact James Russell-Field at JRussellField@toaks.org. Last October, James Russell-Field moved from Utah, where he was working for the Federal Government (Department of Interior), to Thousand Oaks to become a Senior Accountant for the City.
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Five Ideas to Maximize TOT Revenues Written By Jennifer Farr & Marcus Pimentel
Jennifer Farr, Davis Farr LLP
ost cities and counties in California impose a hotel tax on visitors called a Transient Occupancy Tax (TOT). The tax ranges from 6% to 15% of the room rate. There were 14 successful ballot initiatives in California to increase the TOT rate in 2016. In times of rising retirement and other costs for government agencies, it is prudent to make sure your agency is maximizing its TOT revenues using these five reasoned methods. 1. Update Your TOT Ordinance & Help Operators Comply
Marcus Pimental, City of Santa Cruz
Most TOT ordinances look about the same and may have collected a decade or more of dust. You will find a list of definitions, including “occupancy” typically defined as “the use or possession, or the right to use or possess a room, or portion of a room in any hotel for dwelling, lodging or sleeping purposes,” and “rent” typically defined as “the consideration charged for the occupancy of space in a hotel.” You might also find references such as: a three-year or shorter statute of limitations period; that remittance is due quarterly unless a shorter period of time is established; or, that when there’s a change of ownership, that new operators/owners must withhold in the purchase price, any TOT balances due to the local government. Many cities or counties are updating their TOT ordinances to take the guess work out of the code. For example, the definition of occupancy could be expanded by stating, “the right to use or possess includes any nonrefundable deposit or guaranteed no-show fee paid, whether or not the use or possession is exercised.” Additionally,
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the statute of limitations should be aligned with the four year period included in the California Revenue and Tax Code section 7283.51. The ordinance could specify a monthly remittance period but allow for the Finance Director to authorize extended reporting periods. And new owners/operators should be held liable for any potential TOT amounts due from the prior operator, only until the agency confirms there is no tax liability. Also, changing your TOT ordinance to ensure it includes nontraditional lodging may be an easy update. The more vague the ordinance, the more likely it will be interpreted differently by hotel and vacation rental operators. For example, most operators will appropriately tax the rental of a room, but they may not consider other taxable revenues that the guest is mandated to pay such as resort fees, cancellation and no-show fees, attrition, roll away beds, or pet fees. The operator may argue that a resort fee is for the use of the pool, gym, and other hotel facilities; however, if the guest is required to pay the fee whether or not they use the facilities, the fee is really part of the cost of renting the room. Similarly, hotels might charge for rooms that are not used due to attrition or cancellation. Those operators need to be reminded that the tax is based on the right to use a room, regardless of whether the room is used. The City of Irvine has a 47 page online TOT manual that includes clarifications on the treatment of pet charges, cancellation fees, attrition fees, energy surcharges and more. The City of Santa Cruz has a resource listing of items that are and are not taxable, and most active TOT cities post a Frequently Asked Questions document on their website to help operators remain in compliance. Clearly defining taxable revenues will lead to increased understanding and compliance with a TOT ordinance. 2. Think Outside the Hotel Box When we think of TOT, we typically think of hotels. However, with the rising popularity of online rental services like Airbnb, VRBO, and Home Away, almost anyone who owns property can offer transient lodging and is subject to TOT compliance. Airbnb, an online community marketplace that allows people to rent their homes to travelers, has already become the largest “hotel” chain with more than three million listings worldwide. Yet, many online service providers are not voluntarily acting as the operator, but rather insisting it is only the local property owner or operator who is responsible for TOT compliance.
Many cities in California are noticing a decline in TOT revenue despite reports of an increase in tourism and improving economy as online rental services have increased, particularly by the younger traveler. If your agency has not restricted vacation rentals, you could be missing out on a significant source of income if you are not proactively finding and contacting these local operators who use online rental services. Some agencies have hired firms to help identify local vacation rentals; some have signed up for reporting services (like Airdna); others have used their 311 system to have citizens self report vacation rentals or still others have used interns and live map views to locate rentals. What other short-term lodging occurs within your agency? Have you considered extending TOT to campsites and RV parks? Educating the rental community and enforcing compliance with your TOT ordinance will likely take some staff effort but is probably worth it in the long run. 3. Trust but Verify Remember that you have the legal right to ask for additional detail supporting a TOT return. If you identify anomalies in the data such as a large increase in government exemptions for a month, or a low occupancy rate in a period when all other hotels are reporting a higher occupancy rate, consider utilizing your finance department staff to review the operator’s records for the period under question. Also consider the other data sources in your agency that can help to validate tax reporting trends (such as water or power usage, if applicable).
Many government agencies engage external auditors to review one to three years of a hotel’s records for compliance with a TOT ordinance, but keep in mind that a review of a hotel’s records doesn’t necessarily need to be something that occurs once every three years, and could be simply and efficiently performed by your own staff. Consider performing a limited period review whenever your agency is notified of a change in ownership, as it can be difficult to obtain a prior owner’s records after a sale has occurred. Whether you choose to internally or externally review a hotel’s records supporting the TOT tax remitted, you will find that a consistent culture of oversight will result in increased dollars to your agency, along with increased levels of understanding and compliance within your community. 4. Tighten Controls on Exemptions Certain guest fees for renting a room are not taxed. While guests who stay longer than 30 days are exempted from paying TOT, not all ordinances are clear about whether the first 30 days of a long-term stay are taxable, or if advance payment and/or a contract is required. Most TOT ordinances also exempt government employee stays; some for all government employees and others for only federal government employees. Some agencies require the hotel to complete a government exemption form for all guests and obtain a copy of a government ID or other evidence that the guest is a government employee. The more controls and forms your agency uses to monitor exemptions, the better chance you have at ensuring maximum compliance with the TOT ordinance. 21 CSMFO MAGAZINE MAY 2017
5. Turn the TOT Return into a Tool Most agencies that assess a TOT require operators to complete a standard tax return form monthly or quarterly that accompanies the tax payment. A simple form may only include the name of the hotel, the tax period, the taxable rent for that period, the tax rate, and the tax due. While certain trend information could be accumulated based on this simple reporting, there is much more information you could be asking for to help your agency more accurately and timely detect noncompliance. A robust tax return form could facilitate the gathering of additional data and act as a self-review for the operator. The tax return should include additional information about gross rent, total 30-day exemptions, government exemptions, and other exemptions. You may also find value in gathering data about occupancy, the number of complimentary rooms offered during the period, and whether there has been a change in hotel ownership. By gathering additional data, your agency can evaluate trends and identify anomalies in the data that could be a result of reporting errors, as well as provide data to evaluate code compliance. Lastly, consider using the tax return form to remind the operator to consider all taxable revenue sources, by adding check boxes inquiring if certain taxable revenues (cancellation fees, resort fees, etc.) are included in the tax period. This is the first in a two-part TOT article series. Part two will discuss local agency collection agreements with online companies and work by the League of California Cities with Airbnb. Jennifer Farr, CPA, MBA has been providing audit and consulting services to California government agencies for over 20 years. After 1o years of experience with a national CPA firm, Ms. Farr became a founding partner of Davis Farr LLP in 2015. Marcus Pimentel is the Finance Director the City of Santa Cruz. Marcus has over 20 years of California municipal finance experience and is an active member of CSMFO, having served as a past member of the CSMFO Board of Directors. Marcus is also a past chapter chair of the Monterey Bay Chapter of CSMFO and currently serves on multiple CSMFO committees.
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Municipal Financial Health Diagnostic – The Rancho Cucamonga Experience Written By Tamara Layne
Tamara Layne, Finance Director City of Rancho Cucamonga
he City of Rancho Cucamonga started using the League of California Cities’ Municipal Financial Health Diagnostic during the Fiscal Year 2014/15 Budget process. We weren’t quite sure what to expect or what the Diagnostic would tell us about our financial condition, but we were determined to find out and, hopefully, learn from it. For that first year, we applied the Diagnostic to the City’s General Fund only. The data gathering worksheet included actuals for multiple fiscal years and projections for future years – it definitely takes a lot of effort to gather and analyze the information required to effectively utilize the Diagnostic. But it was worth it! After we finished inputting our City’s data, the Diagnostic provided us with 13 indicators of fiscal health (now 14 indicators with the 2016 version). Each indicator is ranked in one of three categories: Warning-Red, CautionYellow, and Good-Green. Our City’s General Fund had 11 indicators ranked Good-Green, indicating that it is in a very healthy condition, and 2 ranked Caution-Yellow. The areas identified as Caution-Yellow included: • Fixed costs & labor costs – for increasing costs in the areas of utilities, fuel, medical and pension costs; and • General fund subsidies of other funds – for ongoing challenges in certain underlying special districts that have not yet been resolved; and continuous longterm contributions to balance the Sports Complex Enterprise Fund.
The results of the Diagnostic were not a surprise to City management; however, they did confirm areas of concern that had been noted during the budgeting process and during City Council team building sessions. Having our concerns reaffirmed by a financial tool was a good thing. We also learned that the “non-Green” colors were not to be feared, but rather embraced and utilized as a catalyst for future changes and strategies to make the City fiscally stronger. Once we realized the benefit of the Diagnostic, beginning in FY 2015/16, a separate Diagnostic was also completed for the Rancho Cucamonga Fire Protection District (District), a component of the City’s operating budget. Of the 14 indicators, the District Fund had 13 ranked Good-Green, indicating that it is in a very healthy condition, and 1 ranked Caution-Yellow. Similar to the City’s General Fund, the one indicator ranked Caution-Yellow was Fixed costs & labor costs. The City has now incorporated the Diagnostic into its annual budgeting cycle and incorporates the Financial Health Indicators Summary into it final budget document which is published on the City’s website. Annually updating the Diagnostic enables management to track the City’s and the District’s progress over time. Determining fiscal health is not just a matter of numbers. It requires analysis, forecasting and proper context for a measurement to be meaningful. The Diagnostic is intended to be a positive reinforcement of a job well done or a kind of early-warning system for financial problems. Rancho Cucamonga remains one of a handful of cities in California that have both completed the Diagnostic and shared those results with the public. The initiative supports the City Council’s goal to increase public transparency and share information regarding the City’s sound financial underpinnings. Tamara Layne is the Finance Director for the City of Rancho Cucamonga. She’s worked at the City for 19 years. Her areas of responsibility include the Accounting and Financial Reporting; Budget Management; Treasury Management; Business Licensing; and Special Districts functions of the City.
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Road Repair & Accountability Act Of 2017 Written By Michael Coleman
Michael Coleman, CSMFO Local Government Consultant
n April, the California State Legislature passed the Road Repair and Accountability Act of 2017 and Governor Brown signed the bill on April 28th. Below is a brief overview of the new act.
• A new vehicle registration tax called the “transportation improvement fee,” effective January 1, 2018, based on the market value of the vehicle.
Revenue Allocations – Streets & Highways Code Sec 2031 “RMRA”
• Annual rate increases to these taxes beginning July 1, 2020 (July 1, 2021 for the ZEV fee), and every July 1 thereafter for the change in the California Consumer Price Index. The first adjustment to be made on July 1, 2020 will cover CPI change for two years: November 1, 2017 through November 12, 2019.
The Road Repair and Accountability Act of 2017 (SB1 Beall) is a significant new investment in California’s transportation systems of approximately $5.2 billion per year. The Act increases per gallon fuel excise taxes, diesel fuel sales taxes and vehicle registration taxes, stabilizes the problematic pricebased fuel tax rates and provides for inflationary adjustments to rates in future years. The Act will more than double local streets and road funds allocated through the Highway Users Tax Account, allocating funds from new taxes through a new “Road Maintenance and Rehabilitation Account (RMRA). The RMRA receives funds from the following new taxes imposed under the Road Repair and Accountability Act of 2017: • A 12 cent per gallon increase to the gasoline excise tax effective November 1, 2017. • A 20 cent per gallon increase to the diesel fuel excise tax effective November 1, 2017, half of which will be allocated to Trade Corridors Enhancement Account (TCEA) with the remaining half to the RMRA.
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• An additional new $100 vehicle registration tax on zero emission vehicles model year 2020 and later effective July 1, 2020.
Use of Funds: RMRA [Streets and Highways Code Section 2030] The use of RMRA local streets and roads funds is similar but, not identical, to HUTA use rules. Pursuant to Streets and Highways Code Section 2030, RMRA local streets and roads allocations must be used for projects “that include, but are not limited to,” the following: • Road maintenance and rehabilitation / Safety projects / Railroad grade separations / Traffic control devices • Complete street components, “including active transportation purposes, pedestrian and bicycle safety projects, transit facilities, and drainage and stormwater capture projects in conjunction with any other allowable project.” • RMRA funds may also be used to satisfy a match requirement in order to obtain state or federal funds for eligible projects. For more detailed information, FAQ and revenue projections for FY2017-18 and FY 2018-19 please go to Michael Coleman’s website at: http://californiacityfinance.com/ LSR1704.pdf
Chapter Chair Spotlight – Central Los Angeles Written By Monica Lo
rom A to W, that’s Artesia to Whittier for the cities that are covered within the Central Los Angeles Chapter, with Bellflower, Cerritos, Commerce, Downey, Lakewood, Los Angeles, Maywood, Norwalk, and South Gate amongst the 25 cities that comprise this chapter. Monica Lo serves as the Assistant City Controller/Assistant Finance Director for the Monica Lo, City of Whittier and has been the Central LA Chapter Chair since 2014. Monica has over Assistant City Controller/Assistant 17 years of municipal accounting and auditing experience and holds both a Bachelor and Master of Science degrees in accounting. Prior to coming to the City of Whittier (Whittier) in Finance Director, 2009, she served as an audit manager for a national public accounting firm, specializing City of Whittier in municipal audits and managed numerous engagements throughout Southern California. Heraudit experience included regulatory compliance monitoring, evaluating internal controls, cash & investment compliance reviews, fraud examinations, and financial statement preparation. Monica noted, “While I tremendously enjoyed being an auditor, I eventually felt the need to find a better work life balance. During our audit busy season, it was not uncommon to work long days and weekends to ensure deadlines were met. My son was fours year old at the time I came to Whittier and I was really looking for an opportunity that would allow me to consistently spend more time with him.” Whittier’s Controller’s Office oversees the City’s administrative services functions, which include accounting, budget, human resources, risk and emergency management. Monica’s current position oversees the Accounting & Budget Division, while also assisting with human resources and risk management duties. The department is fairly small with only thirteen full-time and three part-time employees. She further shared, “When I initially started at the City, I worked long hours while learning my new role. I had very little municipal budget experience prior to working for Whittier, so I had to quickly become familiar with the process and procedures. Fortunately, as the years passed my schedule has become more manageableI enjoy spending my free time with my husband and son, tending to my garden, and baking.In conclusion, although my position continues to be demanding, I sincerely enjoy my job and feel that I found both a professional challenge and quality of life balance at Whittier.” Besides her job duties in Whittier, Monica continues her role as a Chair for the Central Los Angeles Chapter. Meetings are typically held each quarter with attendance running from 37 – 73 attendees. As one might expect, the meeting with Michael Coleman as the keynote speaker garnered the highest attendance. In order to increase attendance, meetings have been held jointly with the South Bay Chapter. Monica Lo serves as the Assistant City Controller/Assistant Finance Director for the City of Whittier and is the Central L.A. Chapter Chair.
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The Raging Storm Funding The Spectrum of Stormwater Needs in California
Written By Tim Seufert
Tim Seufert, NBS
Virtually every community in California is facing significant and unfunded needs within the spectrum of stormwater. The problem is no longer maintaining a permit and providing basic services to comply with the National Pollutant Discharge Elimination System (NPDES). It has evolved into a veritable raging financial storm, which can engulf the general fund. It is imperative to review your needs, and consider the tools in your financial toolbox. This effort must be broadbased, across virtually all departments, and include a healthy dialogue within your community. The following is a list of many stormwater challenges which may be brewing within your community, and it’s possible that all of them apply: • Inadequate or failing infrastructure, as your baseline • Additional infrastructure needs, in existing and newly developing communities • Groundwater management and recharge • Degraded local environment, including creeks, bays, marshes, etc. • NPDES requirements, including trash capture in storm drains • Sanitary sewer implications (inflow and infiltration) • Recurring flooding Responding to any or all of the above is a challenge, but it is doubly so considering the competing financial needs for public safety, streets and transportation improvements, community services and so on. Some background: The requirements that will be effective in the next few years for eliminating trash and pollutants
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from the storm drain systems, creating green infrastructure, and water quality monitoring will be arduous, and very expensive. Along with these water quality requirements, California’s storm drain systems are aging, the population is increasing, the climate is changing, and the demands on our systems are higher than ever. A well-vetted and technically appropriate storm drain master plan is needed. Storm drain management requires proactive planning and the right infrastructure, along with regular operations and maintenance. Developing, or updating, a storm drain master plan is a good place to start, as you contemplate the needs, design requirements, and unique attributes of your community. For many years in many communities, storm drain management has been low on the priority list, until recently. With more population and increased impervious surface area due to development, storm drain management, with significantly increasing water quality standards, must be a priority. The funding options: After the technical issues have been addressed, it is necessary to formulate strategies to fund both capital improvements as well as ongoing maintenance and operations. The history of funding storm drain projects in the Western United States is technically complex, and politically charged. California has many unique facets curbing the creation of storm drain utilities, as allowed in Washington and Oregon. The passage of Proposition 218, and later Proposition 26, created challenging hurdles to communities in establishing storm drain funding sources. Any community facing these challenges must first ask if all has been done in terms of enhancing current revenue streams. Then, one must investigate additional options: Storm drain financing and funding can be accomplished via a number of elements, as listed below. Items 1 to 3 should be most any community’s first steps, while the next may or may not apply: 1. Water/sewer/trash utilities – In some cases, there are justifiable methods to allocate some revenues from these funded utilities. This should be a primary consideration for many communities. 2. Development Impact Fees – These are one-time fees to fund capital only for newly-developing areas (can also be part of a development agreement). There is no ongoing maintenance component. 3. Regulatory Fees – Plan review and inspection fees can fund specific functions. 4. Property-related Fees – A property-owner ballot process, with a 50% + hurdle or a voter-approved measure with
a 2/3 requirement of registered voters are options to fund capital or maintenance or both. A detailed study is required for such an effort. 5. General Obligation Bonds – Voter-approved bonds to fund capital is an option. 6. Special Parcel Taxes/Community Facilities Districts (CFD) – A voter-approved (or landowner- approved in the case of undeveloped land) CFD or parcel tax mechanism can fund capital or maintenance or both. A 2/3 positive vote is required. 7. Assessment Districts – A property-owner approved Assessment District can fund capital or maintenance or both, typically for a well-defined area within the larger community. 8. Grants and Other Sources – Federal (FEMA et al), State and local grant sources are sometimes available, particularly as a match to the other funds mentioned herein. State Revolving Funds (SRF) loans are also a possibility. 9. The General Fund – This has been the source of most stormwater funds, and is the last recourse when all of the above don’t meet the need (a very challenged fund for many). These nine items are the funding alternatives that can be implemented to generate funds for storm system improvements, operation and maintenance in your community. While a stormwater utility can be created in California and there may be a good reason to do so in your community, there are no inherent funding options available beyond those discussed above.
In Summary: Funding stormwater requires a broad and multi-disciplined effort. Establishing a multi-disciplined team, including staff, community leaders and specialists in engineering, public finance and public outreach is the key to success. Reaching out to the public early and often in the process and maintaining a focused approach can improve the chances of successfully creating a suite of funding tools that will allow your agency to endure the storm.
SB 231 Senate Bill 231 is in its third reading in the California Senate as of April 2017. This bill would amend the Proposition 218 Omnibus Act to add stormwater fees to the current list of water, sewer, and trash as “noticed, but not balloted” fees. It is supported by some municipal and environmental groups, and opposed by some taxpayer groups. Legal challenges are on the horizon if it passes. Tim Seufert is Managing Director at NBS in the San Francisco office. He has worked with local government finances and revenues for two decades, and has been a member and supporter of CSMFO for most of those years. He has addressed audiences at the CSMFO annual conferences and weekend trainings, League of California Cities conferences, the California Special District Association (CSDA), CDIAC, and other working groups. Prior to working in local government finance, he worked for a decade in corporate finance and analysis. He holds a Master of Arts in Public Administration from San Francisco State University as well as a Bachelor of Science degree from the University of Southern California in Business Finance and German Language Studies. 27 CSMFO MAGAZINE MAY 2017
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FEBRUARY 20 - 23
CSMFO RIVERSIDE 2018 CONFERENCE SAVE THE DATE 28
SETH HEDSTROM, Senior Manager firstname.lastname@example.org berrydunn.com
CSMFO MAGAZINE MAY 2017
Riverside – Here We Come! Written By Margaret Moggia
Margaret Moggia, West Basin MWD
ave you ever had to plan a large event and wondered how you were going to make it all work? The CSMFO annual conference is one of those awe inspiring annual events that continues to evolve each year in both the level of participation and the richness of the attendee experience.
When the 2018 conference site was selected four years ago, CSMFO had been averaging roughly 800 people at our annual conferences, and now, in 2018, we expect well over 1,000 attendees join us in Riverside. A couple of years ago, we thought that Monterey’s conference I am telling you – this is attendance at over no easy task when past 900 was fantastic; conferences have been so then we had record wonderful, but we are up setting numbers of to the task to showcase over 1,300 people Riverside. in Anaheim in 2016 and a highly impressive mark of more than 1,200 attendees in Sacramento this year. Isn’t it awesome to be associated with such a relevant organization where we are reaching an increasing number of agencies and staff members through our annual conferences? If you look at the conference attendance lists from recent conferences, you’ll see that we have staff accountants and supervisors learning alongside directors. Our annual conferences are critical to CSMFO’s mission to provide continuing education and professional development opportunities to the current and future generations of California municipal finance leaders.
And the conference content has expanded too. It used to be that we started the conference at noon on Wednesday and concluded two days later. Pre-conference would be Wednesday morning. Now, we have reserved Wednesday morning time to have an early bird session to share additional content, and the pre-conference sessions have been moved and expanded to almost a full day on Tuesday. This is a reflection of the vibrancy of CSMFO. In April, several host committee members and a representative from program committee met at the Mission Inn in Riverside and toured this facility along with the nearby Marriott Riverside and Riverside Convention Center to begin to space plan where to fit all the program elements – general session, breakout sessions, actuarial meetings, and the exhibit hall where so many of our great partners come to network and share their local government products and services. Following the site visit, the host committee met in person to begin to make the critical decisions to shape the Riverside conference. We shared our experiences from Sacramento (Thank you Drew and your host committee for an amazing experience!) to see where we can build upon the successes of past conferences. I am telling you – this is no easy task when past conferences have been so wonderful, but we are up to the task to showcase Riverside. It is also an opportunity to build upon the legacy of CSMFO. We just celebrated 60 years as an association; here is to ensuring that we stay relevant for the next 60 years. The host committee is scheduled to meet again in person for the next couple of months. May’s focus is on the conference theme and schedule. My hope for the conference theme is to convey a message of who we are as an association that extends beyond our few days together next February, and can help sustain us throughout the year. 10 months and counting… Sincerely,
Margaret Moggia, CSMFO President Elect
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JOB OPPORTUNITIES Controller, Southern California Regional Rail Authority Salary Range: $116,229.00 - $181,619.00 Annually Application Deadline: ISD DIVISION MANAGER OF ADMINISTRATION AND FINANCE, County of San Mateo Salary Range: $61.74 - $77.17/Hour Application Deadline: 9-Jun-17
CONTROLLER, South Coast Air Quality Management Distr Salary Range: $9,616.75 - $11,694.23 Monthly Application Deadline: 19-May-17 Administrative Services Director, Avery Associates Salary Range: $135,200-$176,800 annually, DOQ Application Deadline: 9-Jun-17
ISD DIVISION MANAGER OF OPERATIONS, County of San Mateo Salary Range: $61.74 - $77.17/Hour Application Deadline: 9-Jun-17
Accountant II, Rocklin Salary Range: $62,785 - $80,131 Application Deadline: This position will remain open until filled.
Senior Accountant, Big Bear Lake Salary Range: $73,216 - $89,003 Application Deadline: 1st application review date 6/5/2017
Director, Financial Services, TBI Airport Management, Inc. Salary Range: 145,000 Application Deadline:
Finance Director, Prothman Salary Range: $105,007 - $125,515 Application Deadline: First review: June 11, 2017 (open until filled).
Finance Director, Avery Associates Salary Range: The salary range is $140,000 - $165,000 annually, DOQ. Application Deadline: 2-Jun-17
Compensation and Benefits Analyst, City of West Hollywood Salary Range: $7,777 - $9,937/monthly Application Deadline: 23-May-17
Sr. Accounting & Financial Analyst, Union Sanitary District Salary Range: $104,381.68 - $137,000.86 Annually Application Deadline: 4:00 p.m. June 5, 2017
Director of Administrative Services, City of San Marino Salary Range: $10,588 - $13,499 /mo., DOQ Application Deadline: 1-Jun-17
Accountant, Indio Salary Range: $5,529 - $8,168 Monthly Application Deadline: 5/21/2017
Director of Finance, Ralph Andersen & Associates Salary Range: $139,543 - $187,001 DOQ Application Deadline: 16-Jun-17
Financial Services Manager, San Bruno Salary Range: $102,216 - $125,424 Application Deadline: Open Until Filled
Senior Finance Analyst, City of Huntington Beach Salary Range: $7,618 - $9,436 Monthly Application Deadline: June 6, 2017 at 5:00 PM
Finance Director, San Bruno Salary Range: $145,668 ? $178,752 Application Deadline: Open Until Filled
Accounting Technician, Turlock Salary Range: $3,773.00 - $4,586.00 Application Deadline: 5/19/2017
Financial Operations Supervisor, Monrovia Salary Range: $73,105 - $97,969 Application Deadline: 9-May-17
PROGRAM ADMINISTRATOR (SUPERVISING) (Rates and Forecasting Administrator), Santa Clara Valley Water District Salary Range: See job description Application Deadline: Monday May 5, 2017
Finance Director, City of Orinda Salary Range: $130,390-$159,101 based upon qualifications Application Deadline: May 30, 2017 @ 5:00 p.m.
Controllerâ€™s Division Manager, San Mateo County Salary Range: $9,705-$12,133/month Application Deadline: 16-May-17 Finance Manager, City of Novato Salary Range: $108,252 - $131,580 annually Application Deadline: 5/29/17 by 5:00 p.m. Accountant/Sr. Accountant, City of Elk Grove Salary Range: Annual Salary $58,809.00 - $86,887.00 + excellent benefits Application Deadline: 05/19/17 at 5:00 pm Financial Services Manager, Ben Franklin Transit Salary Range: $59,050 - $93,959 per year Application Deadline: Open until filled 30 CSMFO MAGAZINE MAY 2017
Accounting Supervisor, Livermore Salary Range: $91,861 - $114,826/year Application Deadline: 5:00 PM, Monday, May 22, 2017 Administrative Services Manager, City of Belvedere Salary Range: $10,270 ? 12,484/month Application Deadline: May 23, 2017, 4:30 PM Director of Finance, Ralph Andersen & Associates Salary Range: $150,414 to $183,533 Application Deadline: 29-May-17 Senior Grants Planner, San Joaquin Regional Rail Commission Salary Range: 65,000 - 85,000 Application Deadline: Until Filled Operations Development Officer, City of Long Beach, CA Salary Range: Annual salary range: $85,000 to $125,000 Application Deadline: Friday, May 19, 2017
Historical Perspective for CalPERS Pension Crisis Today Written By Dan Matusiewicz •
Dan Matusiewicz, Finance Director, City of Newport Beach
Senate Bill 400 in 1999 provided robust pension benefit enhancements. Agency after agency gobbled up the new benefits as if they were free. They competed with each other, believing the benefits were necessary to attract and retain employees. As a result, regardless of what the market value of assets (MVA) are doing, chances are your actuarial accrued liability (AAL) is growing at a rapid pace, likely faster than your revenue growth. The Public Employers Pension Reform Act (PEPRA) will soften this ascent but we all know this will take decades to have a meaningful impact. Even if your agency’s unfunded actuarial liability (UAL) is currently zero or insignificant, you should not discount the rapid growth of your AAL. For many, it took the investment losses in 2008 to reveal how susceptible agencies are to the market value losses on assets in order to fully understand how vulnerable their agencies are to the AAL associated with their promised benefits. The investment losses of 2008 and the years that followed were beyond the scope of could have been reasonably expected. As a result, the CalPERS Public Employers’ Retirement Fund (PERF) has not fully bounced back today to the levels it should be, had the 2008 financial crisis not occurred. According the to the CFA institute, some banks during the financial crises were incurring losses 25 standard deviations below the mean. An event that is expected to occur once every 47 billion years, or roughly 3.5 times the age of the universe.
The collision of the two events above have resulted in large UALs and lower than expected funded status even after today’s record highs in most equities markets.
We also know that increased mortality assumptions further exacerbated UALs but that 2014 investment earning north of 18% largely offset the change in mortality assumptions for most agencies.
Build Strategic Savings Plans into your Budget If you just bought that million dollar fire truck, do not wait until year five to start setting funds aside for its eventual replacement. Set up an internal service fund and charge that department each year an equipment replacement rate for each piece of vehicle in the department’s fleet. It creates a level expenditure for the department and provides assurance to all parties that funds will be available to replace the truck when the time comes. The charge should include some estimate of future price inflation and consideration of early replacement needs. It is not necessary to go to great lengths to estimate inflation and adverse operating experience. Make your best estimate, move on and then monitor the funding progress for the fleet as a whole. With any luck, some vehicles will last longer than expected and can offset those vehicles that meet an early demise. Perhaps your equipment cash reserves should bear some relationship to accumulated depreciation on the entire fleet. Consider a policy that targets equipment reserves equal to 50-100% of relevant accumulated depreciation. Apply a similar logic for critical facilities, infrastructure, workers’ compensation, general liability, OPEB prefunding, contingency reserves and so on. By taking care of the organization’s basic needs ahead of time, your agency may have only need to make minor course corrections when faced with rough financial waters. Long Term Financial Forecasting Newport Beach used to consider each of these savings programs in a bit of a vacuum. It was not until we slapped our annual budget together did we find out whether we could truly afford all of our saving strategies. Taking things to the next level, we began stacking each of our savings plans on top of one another into a consolidated long-term financial plan matching our best estimates for each of our major inflows and outflows. This process helps up ensure we can indeed afford our savings and payment strategies and helps us identify which inflows and outflows our forecast is most sensitive to. Our next endeavor will be to use this sensitivity analysis to measure whether our target reserve balances align well with our potential volatility. I suspect we will review our long-term forecast results annually and reassess our target reserve policies every few years.
CSMFO MAGAZINE MAY 2017
32 CSMFO MAGAZINE MAY 2017
Included in the May 2017 edition of CSMFO Magazine are stories about finance here in California and the professionals who make it work.