Ronald Wastewater District and City of Shoreline Assumption Transition Committee of Elected Officials (CEO) Shoreline City Hall, Conference Room 104

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1 Ronald Wastewater District and City of Shoreline Assumption Transition Committee of Elected Officials (CEO) Shoreline City Hall, Conference Room 104 Thursday, June 26, 2014, 9:00-10:30 am Time Agenda Item 1. 9:00 Welcome and Confirm Agenda 2. 9:05 Adoption of Draft Summary Notes of CEO Meeting 3. 9:10 Recap of Staff Meeting Work plan/work break down and timeline What the Transition Plan will cover 4. 9:20 Finalize Draft Project Charter Discussion of proposed priority work order of assumption issues to consider 5. 9:30 Review of Draft Financial Policies Issue Paper Are all the issues covered? Review of Policy Questions 6. 10:20 Jurisdictional Items/Issues to Share 7. 10:30 Adjourn CEO-1

2 Ronald Wastewater District and City of Shoreline Assumption Transition Committee of Elected Officials (CEO) June 5, 2014, 9:00-10:30 am Conference Room 104, Shoreline City Hall Midvale Avenue North Summary Meeting Notes PRESENT: ABSENT: STAFF: GUESTS: Commissioner Atkinson, Councilmember McConnell, Commissioner Ransom, and Councilmember Roberts None Debbie Tarry, City Manager; John Norris, Assistant City Manager; Mark Relph, Public Works Director, Dan Repp, Utilities and Operations Manager, Michael Derrick, General Manager, Mark Gregg, District Accounting Manager Julie Ainsworth-Taylor, Assistant City Attorney, City of Shoreline Welcome, Introductions and Confirm Agenda The meeting began with introductions and a confirmation of the agenda. As no meeting chair was prescribed, Councilmember Roberts assumed the subcommittee chair duties for the initial meeting of the group. Filing of the Notice of Intent with the Boundary Review Board The CEO first heard from Shoreline Assistant City Attorney Julie Taylor regarding the current status of the City's Boundary Review Board filing with King and Snohomish Counties. Questions were asked of the City Attorney about the filing process and the status of the filings. One question was asked specifically about who could invoke jurisdiction in the process, and if this could be an individual rate payer. Ms. Taylor noted that individual rate payers could not invoke jurisdiction, and that it would need to be a governmental entity or some other type of entity with standing, or it could be a petitioning group of rate payers. Review of Draft Project Charter The CEO reviewed the draft project charter that was provided in their meeting materials. The CEO was generally comfortable with the charter with some proposed amendments. These primarily included adding items to section of the charter for issues for the CEO to review. The CEO agreed to rotate the chair duties of the subcommittee meeting in the order of last name. As Councilmember Roberts chaired this first meeting, Commissioner Atkinson agreed to chair the next meeting. CEO-2

3 The CEO also agreed to use less formal language when communicating with one another, and did not think it was necessary to refer to one another by their formal elected titles. It was agreed that the CEO meetings would be held on the 4th Thursday of the month at Shoreline City Hall, Conference Room 104 from 9:00 to 10:30 am. The CEO agreed that these meetings would be open to the public. It was also agreed that these meetings would be publicized on the City s and District s organizational calendars on their respective websites, that the City would create a webpage in its utility section dedicated to the CEO and assumption transition, that the meetings would be noted by the City Manager during her City Manager report, that they would be formally noticed by the City Clerk s Office, and that the District would note the meetings on their billing statements. Next Steps The CEO provided direction to staff to start with the issue of bond debt and other financial policy issues (Charter Section h). This issue will be discussed at the next meeting along with a proposed prioritization of the issues in Section The CEO would then like to begin focusing on Personnel Issues (Section b), as it was acknowledged that this will be a significant and complex issue. Staff also mentioned that a timeline that incorporated the agreed upon issue priorities could be created. This would then serve as the proposed work plan for the project. There was also a discussion regarding how individual jurisdictional issues may affect the Transition Plan and how those types of issues should be addressed. Rate setting was brought up as an example. It seemed that there was consensus around the idea that until assumption occurs, the Board is ultimately in control of decisions they make, as is the City, as long as those decisions conform to any terms agreed to in the 2002 Interlocal Operating Agreement. However, the CEO also acknowledged that the CEO Committee Meetings would provide a good forum to discuss any issues which may have a larger impact on assumption, and that the members of the CEO should use this forum to have those discussions. It was then suggested that it may be a good idea to create a standing agenda item regarding germane issues occurring in each jurisdiction that the other members should be aware of. The meeting adjourned at 10:30 am. 2 CEO-3

4 Ronald Wastewater District and City of Shoreline Transition Team for Assumption Project Charter June 526, 2014 Project Charter Approval Table Name Title Signature Date Robert Ransom Gretchen Atkinson Doris McConnell Chris Roberts Michael Derrick Debbie Tarry Ronald Wastewater District Commissioner Ronald Wastewater District Commissioner Shoreline City Council member Shoreline City Council member General Manager, RWD City Manager, City of Shoreline 1 CEO-4

5 Table of Contents 1. Project Overview Project Statement Project Objective Statement Project Scope Project Plan Project Structure and Approach Committee Reporting Appointments and Assignments Revision History Attachments: CEO-5

6 1. Project Overview 1.1. Project Statement The Ronald Wastewater Commissioners and City of Shoreline City Council have jointly agreed to create two subcommittees, a Committee of Elected Officials ("CEO") and a Staff Committee, to plan for the eventual assumption of the District by the City per the 2002 Inter-local Operating Agreement (IOA) Project Objective Statement The CEO shall develop, evaluate and recommend to their respective elected bodies a "Transition Plan" (Plan) for the assumption of the District by the City. This Plan shall identify and address all policy issues necessary for the assumption of the District. The CEO shall be in place until the Plan is finalized, or until some other action is taken by either elected body Project Scope 1. The Plan shall include a list of the issues and recommended actions to be considered necessary for the assumption of the District. Each issue shall include, but not be limited to: a. Brief description of the issue b. Statement as to why it is being considered c. Specific policy issues needing to be addressed d. Alternatives or options being considered e. Recommendations for policies and/or actions f. Work plan and schedule for addressing each action 2. A preliminary list of issues to consider include (in priority order): a. Financial Policies - debt issuance and all of the transition terms identified in Section 5.6 of the IOA (call of bonded debt, liability and indebtedness assumption, use of cash reserves, maintenance of reserve funds, etc.) b. Communication - with the public and internal to each entity c. Personnel - wages, benefits, job descriptions, policies d. Budget - format, timing, forecasting, rates e. Capital Improvement Program (CIP) - coordination, forecasting f. Facilities g. Financial Systems - accounting, utility billing, IT services h. Asset Management - inventory, GIS i. Purchasing j. Equipment - fleet, tools, clothing k. Utility Advisory Board as contemplated in Section 4.7 of the IOA l. Policy and Code Changes for Council and/or Board m. Interim Opportunities - shared resources (staffing, equipment, facilities, etc.) 3 CEO-6

7 a. Financial Systems - accounting, utility billing, IT services b. Personnel - wages, benefits, job descriptions, policies c. Asset Management - inventory, GIS d. Facilities e. Equipment - fleet, tools, clothing f. Purchasing g. Budget - format, timing, forecasting, rates h. Financial Policies - debt issuance i. Capital Improvement Program (CIP) - coordination, forecasting j. Communication - with the public and internal to each entity k. Interim Opportunities - shared resources (staffing, equipment, facilities, etc.) 2. Project Plan 2.1. Project Structure and Approach 1. The CEO: a. Shall be comprised of two District Commissioners and two City Council members appointed from their respective elected bodies. b. At the completion of the Plan, the CEO shall submit a final Plan to each elected body for review and adoption. c. The CEO shall rotate one member at each meeting to act as the Chair of the Committee with the responsibility to facilitate the discussion. d. The CEO shall confirm and set the agenda of each meeting. 2. Staff Committee: a. There shall be a staff committee ("Staff Committee") responsible for supporting the CEO, and will discuss, review, and prepare the materials for each CEO meeting. This Staff Committee will include: i. City Manager ii. District General Manager iii. Assistant City Manager iv. Public Works Director v. District Accounting Manager vi. Public Works Operations & Utilities Manager b. The Staff Committee may invite other staff from either entity to participate as necessary. c. The Staff Committee will provide policy recommendations to the CEO for their consideration and direction. 3. Project Manager: a. There shall be a single Project Manager (PM), who will coordinate the activities and distribute information of the CEO and the Staff Committees. 4 CEO-7

8 b. The PM shall be responsible for developing summary notes from each CEO and Staff Committee meeting. i. Draft notes from each CEO meeting shall be included in the next agenda material for the following CEO meeting. ii. Draft notes from each Staff Committee meeting shall be included in the next agenda material for the following Staff Committee meeting. iii. The CEO shall review, modify and approve summary notes at each CEO meeting. iv. The Staff Committee shall review, modify, and approve summary notes at each Staff Committee meeting. c. The PM shall be responsible for preparing and maintaining a project schedule. 4. Communications Plan: a. The Staff Committee shall propose a Communication Plan (CP) for the CEO to review and approve. i. The CP shall include a specific work plan to communicate the CEO's purpose, scope, progress and recommendations to the public. ii. The CP shall address external interests as well as internal interests of both entities. iii. The PM shall coordinate and distribute information to be shared for each respective web page and other external communications. 5. Meeting schedule: a. The CEO shall meet on the 1st 4th Thursday of each month at from 9:00 am to 10:30 am in Conference Room 104 of Shoreline City Hall, or unless modified by consensus of the CEO. The Committee meetings will be noticed as open public meetings. b. The Staff Committee shall meet once a month, at least one week prior to the CEO meeting, or unless modified by either the City Manager or General Manager Committee Reporting The CEO members shall periodically report to their respective elected bodies as each entity deems appropriate Appointments and Assignments 1. Ronald Wastewater District Elected Representatives: Robert Ransom and Gretchen Atkinson 2. Shoreline City Council Representatives: Doris McConnell and Chris Roberts 3. Project Manager: City of Shoreline Assistant City Manager 5 CEO-8

9 3. Revision History Document all changes and updates to the Charter throughout the project process Date Version Name Description Change 4. Attachments 2002 Inter-local Operation Agreement between the City of Shoreline and the Ronald Wastewater District 6 CEO-9

10 Ronald Wastewater District Assumption Transition Financial Policies Issue Paper Brief description of the issue As per the Interlocal Operating Agreement, the following financial policy and debt topics are to be addressed during the assumption transition period: call of bonded debt, liability and indebtedness assumption, use of cash reserves, and maintenance of reserve funds. The City also feels that financial policies should be in place at the City prior to assumption to address how capital needs and operations and maintenance needs of the City's new sewer utility are financed. The City currently has financial and debt policies for the City's various funds (attached), and the new sewer fund should be added to these policies. Statement as to why it is being considered Currently, RWD has no outstanding debt; all prior bond and Public Works Trust Fund debt has been retired. Thus, there is no current issue with calling bonded debt prior to assumption or assumption of outstanding liabilities that the City would take on. However, there are four main issues that should be addressed in this section of the Transition Plan: What should the RWD policy be between now and the formal assumption date regarding the use of District cash and the maintenance of reserves; What should the RWD policy be regarding any new debt incurred between now the formal assumption date; What should the financial and debt policies be for the City regarding the new sewer utility after assumption occurs; and What is the policy and procedure regarding expenditures related to assumption (i.e., costs that might be incurred to move assumption forward)? Specific policy issues needing to be addressed District cash reserve levels - What is the District's current reserve level and can this be maintained within the current rate structure while providing for current operations and maintenance and implementation of the current capital improvement program? Is there a desired cash reserve level at the time of assumption? Given that the District last completed their Comprehensive Plan in 2010, staff recommends updating the plan in 2016 (or sometime prior to assumption). What would be the capital need and financial considerations included in the plan? How might these financial considerations affect cash reserve levels? District Interim Debt Policy - Does the District have any plans to issue debt between now and the end of 2017? If so, for what? Should the District take on any new debt at all? If so, under what circumstances? CEO-10

11 City sewer utility debt and financial policies - What is the appropriate reserve level (example: continues CIP and other expenditures as stated but maintains a $1 million or greater reserve)? Pay as you go or debt finance? Combined operations and capital funds or separate? Financial planning and rate period (commonly six years and consistent with CIP)? Fund depreciation or not (aka direct funding capital repair and replacement)? Maintain Industry standard metrics (operating reserve level, capital reserves, rate stabilization reserve, debt service coverage, etc)? Bill payment/non-payment requirements? Assumption Costs - Are there any identified costs that might be incurred to implement assumption? Consultant costs? Other? If so, who pays for these costs? Cost split? One entity or the other? Alternatives or options being considered Alternatives can be crafted after first discussing the policy questions with the CEO. Recommendations for policies and/or actions Staff recommends that the CEO discuss these policy questions. As options are considered and direction is provided and agreed to, staff will identify these as proposed policies in the Transition Plan, which will ultimately be adopted by the CEO and accepted by the City Council and RWD Board of Commissioners. Work plan and schedule for addressing each action The Transition Plan should answer the policy questions regarding RWD cash reserve levels, RWD use of debt prior to assumption, and how incurred assumption expenditures are dealt with. Adoption of the Transition Plan will then serve as the District's and City's commitment to adhere to these agreed upon interim policies prior to assumption. The Transition Plan should identify the financial and debt policy questions for the City Council to consider (and potentially provide recommendations for policy language) regarding how the City's sewer utility should be operated. After adoption of the Transition Plan, the City Council will need to amend their financial and debt policies to incorporate the new sewer utility financial and debt policies. This future work task will be indentified in the Issue Paper for Policy and Code Changes. Attachment - City of Shoreline Debt and Financial Policies from 2014 Budget 2 CEO-11

12 Municipal Debt Capacity There are four types of General Obligation Debt that the City is currently authorized to use for financing purposes. They each have statutory limitations and require approval by either the City Council or City voters. 1. General Purpose Voted Debt: As authorized by the Revised Code of Washington (RCW) (2), the public may vote to approve bond issues for general government in an amount not to exceed 2.5% of the value of all taxable property within the City. This requires a 60% vote of the City electorate and must have a voter turnout of at least 40% of the last State general election. The debt would be repaid from an increase to the City s existing property tax levy. An amount up to 2.5% of the City s assessed value can be levied or an estimated $161,707,943 for General Purpose Councilmanic Debt: The City Council may approve bond issues without voter approval up to 1.5% of the City s assessed valuation. Prior to the passage of new legislation in 1994, councilmanic debt was available for lease-purchase contracts only (RCW ). This statutory authority can be used for any municipal purpose now, including using the entire 1.5% for bonds. Councilmanic debt must be approved by a majority of the City Council and must be repaid from existing operational revenue sources. In July of 2009, the City Council authorized the issuance of bonds totaling $22,145,000 to purchase the Civic Center/City Hall. The bonds will be repaid over the next 30 years. In 2013 the City Council can levy up to $76,194,766 or 1.5% of the City s estimated assessed value. The total General Purpose General Purpose Voted Debt and Councilmanic Debt cannot exceed 2.5% of the City s assessed value. Under RCW (4), the public may also vote to approve park facilities and utility bond issues, each of which is also limited to no more than 2.5% of the City s assessed valuation. 3. Parks and Open Space Debt: The City is authorized to issue debt and increase the property tax levy for acquiring or developing open space and park facilities. This requires a 60% vote of the City electorate and must have a voter turnout of at least 40% of the last State general election. Debt is repaid from the increased property tax levy. In May of 2006, Shoreline voters approved a bond levy totaling $18,795,000 for open space acquisition and parks improvements. The bonds will be repaid over the next 15 years. An amount up to 2.5% of the City s estimated assessed value, less outstanding debt, can be levied or $149,072,943 for The projected rate for 2012 is 25 cents per $1,000 assessed valuation. 4. Utility Purpose Debt: The City is authorized to issue debt and increase the property tax levy for utility purposes if a utility is owned and controlled by the City. This requires a 60% vote of the City electorate and must have a voter turnout of at least 40% of the last State general election. Debt would be repaid from the increased property tax levy. An amount up to 2.5% of the City s estimated assessed value can be levied $161,707,943 for CEO

13 CITY OF SHORELINE TOTAL DEBT CAPACITY Assessed Valuation: $ 6,468,317,709 General Purpose Debt Parks & Open Space Debt Utility Purpose Debt Legal Limits Councilmanic (Non-Voted) Voted Debt (60% of Voters) Voted Debt (60% of Voters) Voted Debt (60% of Voters) TOTAL DEBT CAPACITY 1.50% $ 97,024,766 $ 97,024, % $ 161,707,943 $ 161,707,943 $ 161,707,943 $ 485,123,828 Debt Limit: $ 97,024,766 $ 161,707,943 $ 161,707,943 $ 161,707,943 $ 582,148,594 Outstanding Debt: $ (20,830,000) $ - $ (12,635,000) $ - $ (33,465,000) Remaining Debt Capacity $ 76,194,766 $ 161,707,943 $ 149,072,943 $ 161,707,943 $ 548,683,594 LONG-TERM DEBT General obligation bonds have been issued for general government activities only and are being repaid from a voter-approved excess property tax levy, real estate excise tax and lease revenue. All principal and interest payments on the general obligation debts are recorded as expenditures in the City s debt service funds. The City issued unlimited tax general obligation bonds in 2006 to finance the acquisition of open space and for the construction of improvements to parks and recreation facilities. The debt service for the 2006 bonds are funded by a voter approved property tax levy. The City issued limited general obligation bonds of which a portion were direct pay taxable (BABS) Build America Bonds in 2009 to finance the lease pre-payment of the City s administration building. As a result of the federal sequestration, the BABS subsidy was reduced during The General Fund provided support to offset the BABS reduction. The remaining debt service for these bonds is funded by the amount of former lease payments made by the City and with REET proceeds. During the recovery from the Great Recession REET collections fell below the required debt payments, which required the General Fund to temporarily subsidize the debt service. For 2014, we are projecting sufficient REET revenues to meet the debt service requirements. General obligation bonds currently outstanding are as follows: Original Amount Outstanding 12/31/2012 Purpose Maturity Range Interest Rate Unlimited Tax General Obligation Bonds, Parks and Open Space % % $18,795,000 $12,635,000 Limited Tax General Obligation Bonds, 2009 Series A - City Hall % % $3,805,000 $2,490,000 Limited Tax General Obligation Bonds, 2009 Series B (Taxable Build America Bonds-Direct Pay)- City Hall % % $18,340,000 $18,340,000 Total $40,940,000 $33,465,000 CEO

14 The annual debt service requirements to maturity for general obligation bonds are as follows: Governmental Activities Year Ending December 31, 2012 Principal Interest 2013 $ 1,665,000 $ 1,698, ,730,000 1,636, ,795,000 1,574, ,860,000 1,508, ,930,000 1,433, ,470,000 5,926, ,280,000 4,681, ,465,000 3,796, ,615,000 2,386, ,655, ,840 Total $ 33,465,000 $ 25,366,295 Other Long Term Debt In addition to general obligation debt, the City can utilize a number of other long-term debt instruments, including special assessment bonds and loans from the State of Washington s Public Works Trust Fund. Special assessment bonds are used to finance public improvements that benefit a specified group of property owners, and are funded from the collection of special assessment payments from property owners. Loans from the Public Works Trust Fund (PWTF) can be used for pre-construction and construction activities for the repair, replacement, rehabilitation, reconstruction, or improvement of eligible public works systems to meet current standards for existing users, and may include reasonable growth as part of the project. Public Works Trust Fund Loan Debt The City currently has two PWTF Loans, both of which are being used to fund improvements to the City s drainage facilities. These loans are the obligation of the Surface Water Fund and are backed by the surface water fees collected from property owners and are not considered in the City s general obligation debt and are not subject to the limitation of indebtedness calculation. Ronald Bog Drainage Improvements This public works trust fund loan was approved for a total of $4,055,500 on 6/18/2001, but the City used only $3,852,725. The interest rate of the loan is 0.5%. This project is located in the Ronald Bog Basin whose boundaries are Stone Ave. N., N. 190 th St., 15 th Ave. N.E., and N.E. 167 th St. Improvements will be made to the watercourse from the Ronald Bog outlet to N. 167 th Street along Corliss Avenue N. and near Corliss Place. This project will reduce the potential for flooding and high maintenance requirements of the existing system by replacing the existing pipe along the west side of Corliss Avenue North. This will eliminate the reverse grade that has resulted in silt blocking the pipe and root intrusion issues with the existing system. The fish barriers that exist in the open channel section of the storm system west of Corliss Place will be replaced with fish friendly boxes. This step will significantly reduce the potential for debris dams to build up, blocking the flow and causing flooding. A Thornton Creek Basin Plan will also be initiated to develop a model of the basin and identify additional solutions to flooding and establish a floodplain elevation for Ronald Bog. CEO

15 3rd Avenue N.W. Drainage Improvements This public works trust fund loan was approved for a total of $1,959,500 on 6/18/2001 with an interest rate of 0.5%. This project is located between 3 rd and 6 th Avenues N.W. from N.W. 176 th Street to Richmond Beach Road. This project constructed drainage improvements to alleviate flooding impacts to approximately 20 homes. The existing North Pond facility was expanded to mitigate for the peak flows from the new conveyance system and prevent increased erosion in downstream Boeing Creek. Business-Type Activities Year Ending December 31, 2012 Principal Interest 2013 $ 326,475 $ 14, ,475 13, ,475 11, ,475 9, ,632,374 24,486 Total $ 2,938,272 $ 73,457 Schedule of All Long Term Debt Fund Fund Name Type of Debt Issue Date Maturity Date Total Amount Authorized Unltd. Tax GO Bond Fund, Fund Parks & Open Space Bonds 12/13/ /1/2021 $ 18,795,000 Fund 211 N/A Ltd Tax GO Bond 2009 General Purpose Councilmanic Bonds - City Hall 8/10/ /1/2039 $ 22,145,000 General Purpose Voter Approved Bonds N/A N/A Utility Purpose Bonds N/A N/A Special Assessment Bonds N/A Public Works Trust Fund Loans Interest Rate Outstanding Debt 12/31/2012 Avg. Annual Debt Service 3.55% % $ 12,635,000 $ 1,689, % - 6.4% $ 20,830,000 $ 1,282,472 Fund 401 Fund 401 Surface Water Utility Fund Ronald Bog Drainage Improvements 6/18/2001 7/1/2021 $ 4,055, % $ 1,910,353 $ 212,261 Surface Water Utility Fund 3rd Avenue Drainage Improvements 6/18/2001 7/1/2021 $ 1,959, % $ 1,027,919 $ 114,213 Total Public Works Trust Fund Loans $ 6,015,000 $ 2,938,272 $ 326,474 Total Long Term Debt $ 46,955,000 $ 36,403,272 $ 3,298,921 City of Shoreline Debt Polices The Objectives of the City's Debt Management Policy are: A. To limit the use of debt so that debt service payments will be a predictable and manageable part of the operating budget. B. To raise capital at the lowest cost, consistent with the need to borrow. This will be accomplished by: 1. Keeping a high credit rating (while making attempts to strengthen credit rating). 2. Maintaining a good reputation in the credit markets by adjusting the capital program for regular entry to the bond market and by managing the annual budget responsibly. 3. Institute and maintain procedures that ensure full and timely repayment of City obligations. CEO

16 General Debt Policies Before issuing any debt, the City will consider the impacts of such debt on the operating budget, the effect on the City s credit rating, the debt capacity remaining under constitutional and statutory limitations, the most cost-effective term, structure, and type of debt, and the impact on taxpayers. Disclosure statements will be used to keep taxpayers and investors informed of the City's financial position. These include printed copies of: A. Annual reports B. Operating budget and Capital Facilities Plan C. Official Statements Debt issues will be sold on a competitive basis (except when conditions make a negotiated sale preferable) and awarded to the bidder who produces the lowest true interest cost. Debt issues may be sold on a negotiated basis if the issue is unusually large or small, the project is complex, the issue is a refunding, flexibility is desired in the structure, the market is volatile, or other conditions make it in the City s best interest to conduct a negotiated sale. Long Term Debt: Long term debt will be used to maintain and develop the municipal infrastructure when the economic life of a fixed asset exceeds five years. Revenue bonds will generally be used for projects which are financially self-sustaining. General Obligation bonds can be used to finance public works projects which benefit the community and where there are sufficient dedicated revenues to amortize the debt. General Obligation pledges can be used to back self-sustaining projects financed through revenue bonds when costs can be reduced and the municipal credit rating is not put in jeopardy by this action. The City may rely on a local improvement district program for certain local or neighborhood street and utility improvements. The City will use interfund borrowing where such borrowing is cost effective to both the borrowing and the lending fund. Such borrowing shall implement Council directed policy in a simplified manner, such as borrowing associated with interim financing for local improvement district projects. CEO

17 As Adopted by the Shoreline City Council I. Financial Planning Policies Financial Policies II. General Budget Policies A. No Operating Deficit B. Resources Greater than Estimates C. Budget Adoption Level D. Necessary to Implement City Council Goals Identified in Annual Workplan E. Public Safety Protection F. Degradation of Current Service Levels G. Investments that are Primarily funded by Additional Fees or Grants H. Investments that delay Future Cost Increases I. Investments that Forestall Adding Permanent Staff J. Commitments that can Reasonably be Maintained over the Long Term K. Overhead and Full Cost Allocation L. Maintenance of Quality Service Programs M. Distinguished Budget Presentation III. IV. Formulation and Approval of Budgets Budget Adjustment and Amendment Process A. Adjustment B. Amendment V. Reserve and Contingency Fund Policies A. General Policy B. Revenue Stabilization Fund C. General Fund Operating Reserves D. Equipment and Vehicle Replacement Reserves E. City Street Fund Reserve F. Surface Water Utility Fund Reserve VI. VII. Capital Improvement Program Plan Policies A. Relationship of Long-Range Plans to the CIP B. Capital Improvement Plan Coordination Team C. Establishing CIP Priorities D. Types of Projects Included in the CIP E. Scoping and Costing Based on Predesign Study F. Required Project Features and Financial Responsibility G. Predictability of Project Timing, Cost and Scope H. CIP Maintenance and Operating Costs I. Local Improvement Districts (LID) J. Preserve Existing Capital Infrastructure Before Building New Facilities K. New Facilities Should be of High Quality, Low Maintenance, Least Cost L. Public Input at All Phases of Projects M. Basis for Project Appropriations N. Balanced CIP Plan O. Use of Debt in the CIP P. Finance Director s Authority to Borrow Q. CIP Plan Update and Amendment R. Formalization of Monetary Agreements S. Applicable Project Charges Debt Policy CEO

18 I. FINANCIAL PLANNING POLICY The City shall develop and maintain a 6-year financial forecast that estimates resource and expenditure behavior for the five years beyond the current budget period. This forecast will provide the City s decision makers with an indication of the long-term fiscal impact of current policy and budget decisions. This planning tool must recognize the effects of economic cycles on the demand for services and the City's resources. To this end, the forecast should differentiate between revenue associated with one-time economic activities and revenues derived as a result of base economic growth. City financial planning should ensure the delivery of needed services (many of which become more critical during economic downturns) by assuring adequate reliance on ongoing resources in order to support continued City services during economic downturns. II. GENERAL BUDGET POLICIES These general budget policies are the basis on which staff develops budget recommendations and establishes funding priorities within the limited revenues the City has available to provide municipal services. A. No Operating Deficit: Current revenues will be sufficient to support current expenditures. Revenue estimates will be realistic and debt financing will not be used for current operating expenses. B. Resources Greater than Budget Estimates: Resources (fund balance) greater than budget estimates in any fund shall be considered one-time resources and shall not be used to fund ongoing service delivery programs. C. Budget Adoption Level: Budget adoption by the City Council shall be at fund level. Any changes in appropriations at fund level require City Council approval. D. Necessary to Implement City Council Goals Identified in Annual Workplan: The City Council identifies specific goals as part of its work-plan, and departmental budgets should include adequate resources to accomplish those goals in the expected timeframes. E. Public Safety Protection: Public safety is a top priority, and as such, unmet needs in this area should have a priority over other service areas. F. Degradation of Current Service Levels: When increased service demands are experienced over a sustained period of time, resources should be provided to prevent service level degradation below an acceptable level. G. Investments that are Primarily Funded by Additional Fees or Grants: Programs and investments that are funded through a dedicated revenue source (i.e., non-tax revenue), that meet the goals of the City Council, will receive priority consideration. H. Investments that Delay Future Cost Increases: When practical, resources should be allocated for selective preventative investments that can be made to avoid even larger costs in the future. I. Investments that Forestall Adding Permanent Staff: Recognizing that personnel related expenditures represent the largest portion of the City s budget, methods to increase efficiency and effectiveness of the delivery of City services through technology improvements should receive priority funding if it can forestall the addition of permanent staff. J. Commitments that can Reasonably be Maintained over the Long-Term: Funding for new programs and services in operating funds should be limited to the extent that they can be reasonably funded over the near-to-long-term given the current revenue stream. K. Overhead and Full Cost Allocation: Department budgets should be prepared in a manner to reflect the full cost of providing services. L. Maintenance of Quality Service Programs: The City of Shoreline will offer quality service programs. If expenditure reductions are necessary as a result of changing economic status, selective service elimination is preferable to poor or marginal quality programs that are caused by across the board cuts. CEO

19 M. Distinguished Budget Presentation: The City will seek to comply with the suggested criteria of the Government Finance Officers Association in producing a budget document that meets the Distinguished Budget Presentation program criteria as policy document, as an operations guide, as a financial plan, and as a communication device. III. FORMULATION AND APPROVAL OF BUDGETS In accordance with RCW 35A.33, departments shall be requested by the Finance Director to prepare detailed estimates of revenues and expenditures for the next fiscal year by no later than the second Monday of September. Responses will be due by no later than the fourth Monday in September, and by no later than the first business day in October, the Finance Director will present to the City Manager a proposed preliminary budget setting forth the complete financial program, showing expenditures requested by each department and sources of revenue by which each program is proposed to be financed. Although the schedule outlined above meets the requirements of the Revised Code of Washington, the Shoreline budget process usually follows an accelerated time schedule. The Finance Director typically requests departments to prepare their detailed estimates of revenues and expenditures for the next fiscal year in July, with those responses due in August. By no later than the first Monday in October, the City Manager will provide the City Council with current information on estimates of revenues from all sources as adopted in the budget for the current year. The City complies with this requirement by providing the City Council with a quarterly report and a comprehensive overview of the City s current financial position at a summer Budget Retreat. The administration will analyze program priorities and needs and recommend funding levels for each program in a proposed operating budget and six-year capital improvement program, which will be submitted to the Council by no later than 60 days prior to the end of the fiscal year. The City Manager typically presents the proposed budget to the City Council in late October. As part of the budget document, a budget message will be prepared that contains the following: An explanation of the budget document. An outline of the recommended financial policies and programs of the City for the ensuing fiscal year. A statement of the relation of the recommended appropriation to such policies and programs. A statement of the reason for salient changes from the previous year in appropriation and revenue items. An explanation of any recommended major changes in financial policy. The operating budget proposal for the general fund will include a financial plan that shows projected revenues and expenditures for at least the next five fiscal years. The financial plan will provide an explanation of the assumptions used in projecting future year expenditure and revenue levels, such as growth in tax revenues, inflation, cost of services, and other factors that may impact the financial condition of the City. The operating budget will be classified and segregated according to a standard classification of accounts as prescribed by the State Auditor. The Council will hold public hearings as required and approve operating and capital budgets prior to the end of the fiscal year in accordance with State law. CEO

20 IV. BUDGET ADJUSTMENT & AMENDMENT PROCESSES Under the provisions of State law and the City's operating procedures, the operating budget may be adjusted or amended in two different ways. Adjustment of the budget involves a reallocation of existing appropriations and does not change the budget bottom line. Amendment of the budget involves an addition to or reduction of existing appropriations. A. Adjustment The City departmental expenditures and program goals are monitored throughout the year. Certain departments may develop the need for additional expenditure authority to cover unanticipated costs that cannot be absorbed within the budget, while other departments may unexpectedly not require their full budget authorizations. The Finance Department reviews and analyzes all department and/or fund budgets to determine what adjustments are necessary and whether the adjustments can be made within existing appropriation limits and within the City Council and Departmental goals as provided in the budget. Necessary adjustments are then reviewed with the affected department and/or fund managers. When an adjustment is needed, the Finance staff will look first to savings within the department and then consider budget transfers between departments. The Finance Director, in conjunction with the Department Directors and the City Manager, reviews and decides if any specific budget reductions are needed. No City Council action is needed as State law allows budget adjustments to be done administratively and approved by the City Manager. As a matter of practice, staff will include any adjustments made between departments with the quarterly financial information provided to the City Council. B. Amendment Amending the City's budget occurs whenever the requested changes from departments and/or funds will cause the existing appropriation level for the fund to change. This situation generally occurs when the City Council authorizes additional appropriation. This is done by an ordinance that amends the original budget and states the sources of funding for the incremental appropriations. V. RESERVE AND CONTINGENCY FUND POLICIES Adequate fund balance and reserve levels are a necessary component of the City s overall financial management strategy and a key factor in external agencies measurement of the City s financial strength. Maintenance of fund balance for each accounting fund assures adequate resources for cash flow and to mitigate short-term effects of revenue shortages. Reserve funds are necessary to enable the City to deal with unforeseen emergencies or changes in condition. A. General Policy The City shall maintain reserves required by law, ordinance and/or bond covenants. All expenditures drawn from reserve accounts shall require prior Council approval unless previously authorized by the City Council for expenditure within the City s annual budget. If reserves and/or fund balances fall below required levels as set by this policy, the City shall include within its annual budget a plan to restore reserves and/or fund balance to the required levels. All reserves will be presented in the City s annual budget. CEO

21 B. Revenue Stabilization Fund The City will establish a Revenue Stabilization Fund and shall accumulate a reserve equal to thirty percent (30%) of annual economically sensitive revenues within the City s operating budget to cover revenue shortfalls resulting from unexpected economic changes or recessionary periods. C. General Fund Operating Reserves The City shall maintain a General Fund Operating Reserve to provide for adequate cash flow, budget contingencies, and insurance reserves. The General Fund Operating Reserves will be determined as follows: 1. Cash Flow Reserve: The City shall maintain a cash flow reserve within the General Fund in an amount equal to $3,000,000. This is approximately equal to 1.5 months of operating expenditures. The City will review annually the required cash flow reserve level that is necessary to meet the City s cash flow needs. If it is determined than $3,000,000 is not adequate, the Finance Director shall propose an amendment to these policies. 2. Budget Contingency: The City shall maintain a budget contingency reserve within the General Fund equal to 2% of budgeted operating revenues. 3. Insurance Deductible Reserve: The City shall maintain an insurance reserve within the General Fund to be used for potential substantial events that cause damage to the City s fixed assets and/or infrastructure. D. Equipment and Vehicle Replacement Reserves The City will maintain fully funded reserves for the replacement of vehicles, computer equipment, and equipment identified on the City s fixed asset listing. Contributions will be made through assessments to the using funds and maintained on a per asset basis. E. City Street Fund Reserve The City shall maintain an operating reserve within the City s Street Fund an amount equal to 20% of annually budgeted operating revenues. F. Surface Water Utility Fund Reserve The City shall maintain an operating reserve within the Surface Water Utility Fund an amount equal to no less than 20% of budgeted operating revenues. VI. CAPITAL IMPROVEMENT PROGRAM PLAN POLICIES A number of important policy considerations are the basis for the Capital Improvement Program (CIP) Plan. These policies provide guidelines for all financial aspects of the CIP, and ultimately affect the project selection process. A. Relationship of Long-Range Plans to the CIP The CIP will be updated annually as part of the City s budget process. The City Council may amend the CIP Plan at any time as required. Virtually all of the projects included in the CIP are based upon formal long-range plans that have been adopted by the City Council. This ensures that the City s Capital Improvement Program, which is the embodiment of the recommendations of these individual planning studies, is responsive to the officially stated direction of the City Council as contained in the Comprehensive Plan, Council work goals, and supporting documents. Examples of these supporting documents: Pavement Management System Plan and the Parks and Open Space and Recreation Services Plan. There are CEO

22 exceptions, but they are relatively small when compared to the other major areas of expenditure noted above. B. CIP Coordination Team A CIP Coordination Team is a cross-departmental team which participates in the review and recommendation of the CIP program to the City Manager. The Team will review proposed capital projects in regards to accurate costing (design, capital, and operating), congruence with City objectives, and prioritize projects by a set of deterministic criteria. The Finance Director, or his/her designee, will serve as the lead for the team. C. Establishing CIP Priorities The City uses the following basic CIP project prioritization and selection process: 1. Each CIP program area establishes criteria to be used in the prioritization of specific projects submitted for funding. These specific criteria are developed by staff in conjunction with City Council priorities and input from citizens, associated City boards and commissions. The criteria are identified in the City s budget document. The City has divided its CIP projects into the following program areas: General Facilities & Parks Capital Projects, Roads Capital Projects, and Surface Water Capital Projects. 2. Designated personnel within City departments recommend project expenditure plans to the Finance Department. The project expenditure plans include all capital costs and any applicable maintenance and operation expenditures along with a recommended funding source. 3. The CIP Coordination Team evaluates the various CIP projects and selects those with the highest priority based on input from citizens, project stakeholders, appropriate advisory committees, and City Council goals. 4. A Preliminary CIP Plan is developed by the Finance Department and is recommended to the City Council by the City Manager. 5. The City Council reviews the Operating and Preliminary CIP Plan, holds a public hearing(s) on the plan, makes their desired alterations, and then officially adopts the CIP and establishes related appropriations as a part of the City s budget. 6. Within the available funding, the highest priority projects are then selected and funded in the CIP. D. Types of Projects Included in the CIP Plan The CIP Plan will display, to the maximum extent possible, all major capital projects in which the City is involved. It is difficult to define precisely what characteristics a project should have before it is included in the CIP Plan for the public's and City Council's review and approval. While the following criteria may be used as a general guide to distinguish among projects which should be included or excluded from the CIP Plan, there are always exceptions which require management's judgment. Therefore, the City Manager has the administrative authority to determine which projects should be included in the CIP Plan and which projects are more appropriately contained in the City s operating budget. For purposes of the CIP Plan, a CIP project is generally defined to be any project that possesses all of the following characteristics: 1. Exceeds an estimated cost of $10,000; 2. Involves totally new physical construction, reconstruction designed to gradually and systematically replace an existing system on a piecemeal basis, replacement of a major component of an existing facility, or acquisition of land or structures; and 3. Involves City funding in whole or in part, or involves no City funds but is the City's responsibility for implementing, such as a 100% grant-funded project or 100% Local Improvement District funded project. CEO

23 4. Involves the skills and construction needs beyond those needed for a general repair and maintenance project. These should be considered general guidelines. Any project in excess of $25,000 meeting the criteria of (2), (3) and (4) above, or various miscellaneous improvements of a like nature whose cumulative total exceeds $25,000 (i.e., street overlays) should be considered as part of the CIP process. Program area managers are responsible for the cost estimates of their proposed programs, including future maintenance and operations costs related to the implementation of completed projects. E. Scoping and Costing Based on Predesign Study For some projects it is difficult to develop accurate project scopes, cost estimates, and schedules on which no preliminary engineering or community contact work has been done. To address this problem, some projects are initially proposed and funded only for preliminary engineering and planning work. This funding will not provide any monies to develop final plans, specifications, and estimates to purchase rights-of-way or to construct the projects. Future project costs are refined through the predesign study process. F. Required Project Features and Financial Responsibility: If a proposed project will cause a direct impact on other publicly-owned facilities, an equitable shared and funded cost plan must be coordinated between the affected program areas. G. Predictability of Project Timing, Cost and Scope: The predictability of timing and costs of projects is important to specific private developments, such as the provision of street improvements or the extension of major sewer lines or water supply, without which development could not occur. These projects generally involve significant financial contributions from such private development through developer extension agreements, LIDs, and other means. Once a project has been approved by the City Council in the CIP, project scheduling is a priority to maintain. The City Council authorizes the City Manager to administratively approve the acceleration of project schedules so long as they can be accomplished within budgeted and any allowable contingency expenditures, with the understanding that all controversial issues will be brought before the City Council. All project additions or deletions must be approved by the City Council. H. CIP Maintenance and Operating Costs: CIP projects, as approved by the City Council, shall have a funding plan for maintenance and operating costs identified in the project description. These costs will be included in the City s long-term financial planning. I. Local Improvement Districts (LID) Examples of when future LIDs may be formed are as follows: 1) where old agreements exist, committing property owners to LID participation on future projects; 2) when a group of property owners wish to accelerate development of a certain improvement; 3) when a group of property owners desire a higher standard of improvement than the City's project contemplates; or 4) when a group of property owners request City assistance in LID formation to fund internal neighborhood transportation facilities improvements, which may or may not have City funding involved. If City funding is proposed by the project sponsors (property owners), they shall so request of the City Council (through the City Clerk) in writing before any LID promotion activity begins. The City Manager shall analyze such request and report his conclusions and recommendation to Council for their consideration. The Council shall by motion affirm or deny the recommendation. The CEO