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12 Staff Report - FY 2005/06 Budget Balancing ProposalsMEETING DATE: 03/07/05 .~pW N OF ITEM NO. COUNCIL/AGENCY AGENDA REPORT !ps 6 A,-1 DATE: March 7, 2005 TO: MAYOR AND TOWN COUNCIL/ CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY JY75--~ FROM: DEBRA J. FIGONE, TOWN MANAGER/EXECUTIVE DIRECTOSUBJECT: DISCUSS AND PROVIDE DIRECTION REGARDING PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET RECOMMENDATION: Discuss and provide direction on the preliminary FY 2005/06 budget balancing proposals to be incorporated into the Town's FY 2005/06 Proposed Budget. PURPOSE: The purpose of this Council Agenda Item is to discuss the preliminary budget reduction and revenue enhancement proposals currently under consideration to balance the FY 2005/06 Operating Budget. An overview is included which reviews the Town's current financial situation, discusses relevant circumstances for consideration in forthcoming decisions, and describes the approach taken by the departments to develop budget proposals. The proposals presented at this time are preliminary and will be further developed and refined before they are presented as part of the Proposed Operating Budget in May, 2005. Staff anticipates that Council's review, discussion, and consensus guidance on the impacts and affected service levels from these proposals will bring better alignment to the FY 2005/06 proposed budget considered by Council in May. PREPARED BY: STEPHEN D. CONWA1. Finance & Administrativ e - es Di r SDC:pg NiTINANCECouncil Agenda Reports\BudgetTY 2005-06TY 2005-06 Preliminary Budget Proposals Report.wpd Reviewed by: " Assistant Town Manager Town Attorney Clerk Finance Community Development Revised: 3/3/05 4:39 pm Reformatted: 5130/01 PAGE 2 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 THE REPORT: This report examines the evolving process and preliminary proposals of budget development for FY 2005/06. Items for Town Council consideration include: • A brief review of the Town's financial outlook as illustrated through the five-year financial plan • An update of the considerations and criteria used by the Town in developing plans to meet the Town's budgetary challenges, and the efforts that have been implemented since FY 2001/02 • A matrix of departmental proposals presented in priority order, including a discussion by departments of the service level impacts to the community of each proposal DISCUSSION: FIVE-YEAR FINANCIAL PLAN: Staff recently updated the Town's Five-Year Financial Plan for Council's review in conjunction with the Mid-Year Budget report. This updated financial plan, with five years of projections for the General Fund spanning fiscal years 2005/06 through 2009/10, incorporates the mitigating organizational changes made to date, yet continues to illustrate a widening gap in outlying years and the need to take additional action to maintain the Town's fiscal health. The plan's summary level schedule is included in this report again, on a following page, for your reference. Financial Plan Assumptions: Please note that known State ERAF III takes which are built into the FY 2005/06 financial structure, are offset by appropriated reserves as approved by Council last year. There are several additional assumptions that should also be noted for this financial review: State Takes - The projections assumes that: (1) the State's VLF "back-fill" equal to two-thirds of the VLF tax (approximately $1.2 million for FY 2004/05) will continue in future years as promised by the State; (2) that the State takes of General Fund revenues are limited to the two planned ERAF takes of $476,000 in each of FY 2004/05 and FY 2005/06; (3) that the State will not issue a proclamation declaring there is a "severe state fiscal hardship" which requires the State to temporarily suspend Proposition 1 A's basic protection of the property tax; and (4) a suspension of unfunded state mandates (with certain exemptions) is upheld as promised under Proposition I A. Revenues - A conservatively optimistic revenue outlook is presented with varying growth rates. On average, the plan assumes a 5% growth rate for tax revenues and in the 3 to 4% ranges for service fees and charges, permits and licences, and other miscellaneous revenues. Revenues with strong uncertainties were reduced in the out-years, including COPS/SLESF annual funding from $200,000 to $61,000, and POST training reimbursements from approximately $35,000 to $5,000. Numerous grant-based funding sources, such as LI,EBG technology grants and OTS traffic safety grants, were eliminated as planned revenues as they are unpredictable and unlikely to be substantial in the future. PAGE, 3 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 Expenditures- With a close scrutiny of multiple years of actual costs, projections are developed with both historical information and ongoing communication of planned department work plans and core service levels. Exact labor cost adjustments are made for future known increases if multi-year labor agreements are in effect, and anticipated adjustments are made for years with no agreements in place. Health and retirement projections are based on industry studies and reflect a significant portion of the expenditure budget increase, despite the recently negotiated cash-back limits incorporated into the projections. Town of Los Gatos Five Year Financial Plan FY 2005/06 Through FY 2009/10 Summary Data ACTUAL ADOPTED PROJECTED PROJECTED PROJECTED PROJECTED PROJECTED Revenue Summary 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Sales Tax Property Tax Charges for Services VLF Prop Tax Swap Other Lic. and Permits Intergovernmental Rev. Business Licenses Franchise Tax Investment Earnings Hotel/Motel Tax Transfers Miscellaneous Fines & Forfeitures Total Revenues Town Expenditures Salaries Benefits Temporary Sal & Ben. Paid Overtime 'Total Sal. & Ben. Grants & Awards Training Employee Retiree Med. Animal Control Oper. Supplies and Services Utilities Capital Purchases Internal Service Funds Debt Service/Transfers Storm Drains Road Maintenance/Rep. 6,914,526 6,900,000 7,245,000 7,607,250 7,987,613 8,386,993 8,806,343 5,207,381 5,428,893 5,754,627 6,099,904 6,465,898 6,853,852 7,265,083 2,526,198 2,758,725 2,837,846 2,997,484 3,172,418 3,306,118 3,446,503 1,298,455 1,700,000 1,796,334 1,898,165 2,005,808 2,119,597 2,239,885 936,313 1,276,055 1,314,337 1,353,767 1,394,380 1,436,211 1,479,297 1,914,766 1,194,135 1,299,730 1,803,727 1,833,633 1,865,120 1,897,657 1,071,865 1,080,000 1,1 12,400 1,145,772 1,180,145 1,215,550 1,252,016 930,997 957,000 1,005,655 1,055,938 1,108,735 1,164,171 1,222,380 37,407 931,836 912,619 932,974 953,838 980,145 1,007,232 829,026 900,000 870,000 913,500 959,175 978,359 997,926 1,425,019 809,920 605,938 454,076 364,738 325,448 314,994 194,445 473,078 488,682 513,416 539,337 566,504 594,979 214,232 144,950 150,858 157,020 163,450 168,955 174,656 23,500,630 24,554,592 25,394,025 26,932,993 28,129,167 29,367,022 30,698,951 11,469,874 12,143,287 12,820,561 13,375,535 13,898,008 14,429,285 141961,480 3,277,273 4,290,300 5,196,506 5,607,872 5,984,094 6,430,348 6,501,127 428,163 331,300 397,781 411,286 425,396 439,573 454,949 341,814 346,800 417,461 438,334 460,250 480,710 504,746 15,517,124 17,111,687 18,832,308 19,833,026 20,767,748 21,779,916 22,422,302 186,431 175,380 175,380 175,380 175,380 184J49 49 193,356 104,511 190,625 196,344 202,234 208,301 218,716 229,652 131,586 153,100 211,000 290,000 363,000 381.150 400,208 173,553 168,200 185,020 203,522 223,874 235,068 246,821 2,424,379 3,123,170 3,216,865 3,313,371 3,412,772 3,583411 3,762,581 402,503 380,215 351,477 369,051 387,503 406,879 427,223 90,378 20,400 21,012 21,642 22,292 23,406 24,577 3,056,215 2,699,700 2,780,691 2,864,1 12 2,950,035 3,097,537 3,252,414 1,203,947 1,152,265 1,152,265 1,152,265 1,152,265 1,231,626 1,236,684 Total Expenditures 23,290,627 25,174,742 27,122,362 28,424,603 29,663,170 31,141,857 32,195,818 *Authorized Use of Reserves 620,150 800,150 - - - Ongoing Shortfall Mitigation 928,188 563,423 970,580 804,225 Revenues Over (Under) Exp. 210,003 - (928,188) (563,423) (970,580) (804,255) (692,642) PAGE 4 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 Financial Plan Overview: As illustrated in the preceding Financial Plan schedule, projected FY 2005/06 budget shortfalls under the current fiscal structure are estimated at approximately $1.7 million, offset by the planned use of $800,150 in reserves for a net shortfall of just over $928,000. The following overview provides some details into the predominant causes for this ongoing imbalance: Revenue Influences - The five-year projection portrays a modest recovery in economically sensitive revenues, with the assumption that the economy and its linked revenues grow in line with inflation factors at an overall approximate rate of 4.5%. In the case of Property Taxes however, it is assumed property values will continue to increase at a 6% growth rate, consistent with the high desirability of Town properties. Sales Tax continues to demonstrate a steady rate of increase. It is imperative to note, however, that this gain reflects a netting of the rapidly growing NETFLIX contribution, offset by the overall decline and subsequent tepid re-growth since 2001 of the Town's auto dealerships sales and numerous economic segments. With the understanding that advances in technology and/or a change in NETFLIX's ownership could quickly alter the current situation, the Town would do well to heed a cautious dependence upon this one star sales tax generator. As noted in prior reports, developing a well balanced sales tax base continues to be an important objective. In an effort to keep a consistent pace with inflation factors each year, the Town undertakes an ongoing annual review of User Fees. This review is critical to ensuring licenses, permits, fees, and service charges are all in line with the cost of doing business. Its continuance is reflected in the financial projections with an average 3% growth rate into the outlying years. Expenditure Influences - As the above financial plan illustrates, the driving factor in future expenditure increases is the cost of labor. Town government is in the business of providing services which depend on people to deliver; consequently, salaries and benefits of employees comprise the largest share of the Town's General Fund operating expenditures (approximately 70%). With PERS suffering from several years of negative investment returns in the pension system, and with enhanced retirement formulas for Public Safety, funding costs associated with the pension system have resulted in significant increases in the Town's retirement contributions. Public Safety contribution rates will climb to 32.56% in FY 2005/06, from 28.32% in FY 2004/05, and are expected to remain in this 32 - 33% range in the forthcoming years. This equates to a $250,000 jump from FY 2004/05, an increase on top of the PERS costs doubling from FY 2003/04. In two years time, the Town's budgeted PERS costs for the 44 safety officers will have increased from $638,000 in FY 2003/04 to approximately $1.5 million in FY 2005/06. PAGE 5 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 Miscellaneous staff pension contributions will increase to 13.813% in FY 2005/06, a significant jump from the FY 2004/05 rate of 8.005%, and rising from 0% actual rates in 2003/04. As the Town continued to charge itself a 7% PERS expense during the 0% rate years (which the Town reserved in a "savings" account), the resulting expenditure impact is not as great of an increase from prior year budgets, however it does represent a doubling of PERS costs in two years: from $581,000 in FY 2003/04 for 130 FTEs to approximately $1.3 million in FY 2005/06 for 123 FTEs. While lower rates are expected to return under improved investment earnings in the pension system, the typical 7% (Miscellaneous) and 9% (Safety) employer rates of a few years back are not expected to return in the foreseeable future. Health care costs are also experiencing substantial increases; in the last two years health care rates have grown approximately 16 - 20% annually, with similar rate increases expected over the next five years. It is not anticipated that insurance premium amounts will decrease in future years. The remainder of projected expenditures are calculated to increase along the rate of inflation at about 4%, with the exception of contractual expenditures which are tied to labor costs. Staff's focus on increasing efficiencies and reducing costs is evident in the overall decrease of operating costs from prior years; however, staff qualifies this forecast with the understanding that there is a lack of capacity to absorb future unplanned expenses under this limited structure. Use of Reserves - With this current version of the five-year financial plan, FY 2005/06 projections include the planned use of reserves to fund the State's ERAF III Take, to replenish the Manager's Productivity and Contingency accounts, and to fund the Parking Management Program's excess of expenses over revenues. Reserve appropriations are not built into future year projections as staff will be recommending changes in the following discussion which will impact the current fiscal structure, and the use of reserves is a Council decision in relation to the fiscal structure in place at the time. BUDGET CONSIDERATIONS AND CRITERIA: Strategic Reductions Since the Town wisely began strategic cost reductions in FY 2001/02, cumulative reductions total approximately S3.8 million in Town operating expenditures. To date, staff s efforts have been notably successful in achieving operational efficiencies and cost savings, and developing alternative methods of service delivery without perceptibly impacting Town services. PAGE 6 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 While one-time cost savings are considered and utilized as appropriate for budget savings, staff has emphasized changes of a more permanent nature as part of the long-range economic correction. "Structural" cost reductions to-date are fixed permanently in the Town's operating costs under the assumption they will carry forward cumulatively each year, lessening the reductions required in subsequent years. To date, these structural changes include the defunding of 22.9 FTE positions and elimination of approximately 18,000 temporary hours, (correlating with a reduction of non-essential services), improving financial linkages between labor costs and expenditures to appropriate non- General Fund funding sources, reducing discretionary expenditures, delaying and/or eliminating facility improvements and equipment replacement, and increasing fees in line with the cost of providing services. At the same time, the Town has tried to remain a competitive employer providing fair compensation and benefits to it employees, and investing in training and productivity enhancements. Bridge Funding As a portion of the budget gap is a product of the economic slump and State takes, reserves have been utilized to buffer ongoing operations while structural corrections are made. The availability of excess fund balance is a potential funding option the Town describes as "bridge funding." Sources of bridge funding include: 1) the balance of General Fund revenues over expenditures at the close of the fiscal year (classified as "undesignated" until Council designates elsewhere); 2) "designated" General Fund reserves - which may be re-assigned at Council's discretion; 3) excess fund balance in the Internal Service Funds - which exceed immediate needs or safety levels; and 4) excess funding in the Town's PERS liability account - set-aside funding accumulated as an ongoing labor cost during the very low PERS rates a few years back as a source to help offset future rate increases (as we are currently experiencing). The strategic use of reserves is conceptualized as a funding source to buy time during a period of downsizing and/or organizational transformation. The availability of bridge funding provides the Town a planning and implementation horizon to develop appropriate organizational structures that align with the new fiscal reality; inform the Town's employees of potential reductions in the workforce; inform the community about potential service level impacts; and to establish appropriate service levels that balance with revenues projected for next fiscal year. The Town has utilized several of these bridge funding sources in recent budgets. With $3 million in the PERS liability account, the Town Council authorized transferring $300,000 into the General Fund annually, as needed, beginning with the FY 2004/05 adopted budget. A thorough assessment of the Internal Service Funds in early 2002 provided a source for annual transfers from the more than adequate Equipment Replacement, Workers Compensation, and Liability Insurance fund balances PAGE 7 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 into the General Fund, beginning with the FY 2002/03 budget. The Internal Service fund balances are assessed each fiscal year to determine prudent transfers back to the General Fund for the next fiscal year. Beginning with a total transfer of $800,000 in FY 2002/03, $650,000 was transferred in FY 2003/04, and $520,000 in FY 2004/05. Staff is reducing the transfers by 20% each fiscal year to reduce the General Fund's financial dependence on these prior year savings during this time of organizational transformation, as structural corrections are implemented. Additional fund balance uses include: (1) the Reserve for Parking transfers to help support the undertaking of the enhanced Parking Management Program approved by Council in FY 2001/02. Approximately $630,000 of the $774,000 reserve will be utilized through FY 2004/05 year-end; and (2) year-end undesignated Fund Balance (net surplus) accumulated since FY 2001/2002 was utilized to pay for the unexpected State takes in FY 2004/05 and FY 2005/06. Revenue Enhancements With an understanding of the Town's limited revenue base, staff has become diligent in ensuring user fees and charges adequately recover the cost of services, so as not to subsidize private development or other specialized services the Town provides. To that end, a comprehensive cost study update is included in the March 7" budget discussion session as part of the FY 2005/06 budget process. Through undertaking these annual User Fee Updates in the last two years, staff has identified approximately $1 million in revenue enhancements ($700,000 in FY 2004/05 and $300,000 in FY 2005/06). This additional funding was generated through both increasing ongoing fees, and through analysis and evaluation of workload functions for new service and fee areas. Staff continues to assess services provided to the community and seek out funding opportunities which were not utilized in the past. This includes pursuing new grant opportunities, aligning fees with market rates, implementing administrative citation processes for failure to comply with town regulations, and employing environmental and technological fees where appropriate and applicable. Vulnerabilities Town revenues continue to be susceptible to State funding needs. While Proposition 1 A provides some protections for the Town's Property Tax, Sales Tax, and VLF revenues, local governments are cautious of their continued dependence on other State revenues such as Public Library Foundation funding, Booking Fees, and POST reimbursements. Additionally, the Town is experiencing significant service rate increases for contractual services and administrative fees from other government agencies as they too feel the impact of revenue takes from the State. Several of the Town's federally funded programs may be in jeopardy as well. The Community Orientated Policing PAGE 8 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 Services program (COPS), transportation funding, and Community Development Block Grant (CDBG) funding have all been mentioned as potential areas of reduction in the federal budget for next year. The Town remains dependent upon, and vulnerable to, the performance of local revenues. Upward trending revenues have given the appearance that an economic recovery is underway, however Sales Tax receipts clearly illustrate that various business segments in the Town continue to lag behind where they were before the slump. Numerous factors such as retail competition outside of Los Gatos, the increase of internet shopping, and the Town's overall business mix may also contribute to the local revenue decline, and should be considered impediments which are likely to impact Sales Tax revenues far into the future. Infrastructure needs may represent the Town's greatest area of vulnerability. Staff is currently compiling asset management information to better understand Town-wide infrastructure needs and the timing schedules associated with maintaining infrastructure. With the Town's objective to maintain streets at a minimum PCI rating of 72, present information indicates $1.9 million (current year dollars) in annual funding is needed to achieve this goal. Additional maintenance information and annual funding is needed for retaining walls, sidewalks, lighting and signals, trees, parks, street plantings, and medians. Facility funding is needed for both capital maintenance and future renovation of the Town's public buildings. These needs clearly demonstrate a capital funding shortfall not currently built into the Town's five-year plan, as well as representing potential areas for emergency funding, and significant issues for the future. Budget Reduction Efforts to Date Since FY 2001/02 the Town has taken numerous steps to keep the Town's operating revenues in balance with operating expenses. In a brief recap , these steps include: • $3.8 million in expenditure reductions, inclusive of 22.9 FTE reductions, elimination of 18,000 temporary employee hours, and severe reductions in operating materials, supplies, outside services, and training. • $700,000 in revenue enhancements which include increasing valuation rates for planning and building pen-nit computations up to the community's actual development rates, and bringing various service fees closer to cost levels. • Implementation of an informal policy to extend equipment replacements where possible. Changes include extending police vehicle replacement from three years to four years, with some low-mileage police vehicles extended to five years. Replacement schedules for Parks and Public Works vehicles were extended out far past their scheduled lives, to the point where PAGE 9 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 vehicles and equipment are retained until maintenance issues force replacement. • The re-alignment of cost centers to appropriate non-General Fund programs has generated approximately $350,000 in General Fund savings. This includes the shifting of solid waste duties, such as trash maintenance and street cleaning duties to the Solid Waste Fund, and funding redevelopment engineering project work from the Redevelopment Fund. While it should be recognized that shifting expenditures is not a reduction from a Town-wide perspective, the proper alignment of services with their appropriate funding sources provides more accurate funding information for supportable General Fund operational services. PROPOSED FY 2005/06 BUDGET REDUCTION & REVENUE ENHANCEMENTS The Town Manager's office will continue to communicate the ongoing budget challenges we face with employee groups, boards and commissions, service clubs, and other stakeholders who are associated closely with Town Services. These outreach efforts include discussions of the steps the Town has taken over the last several years to reduce costs while maintaining service levels, and the arduous struggle the Town continues to face in State takes, revenue declines, expenditure increases, and the spiraling benefit costs that are outside of Town control. The FY 2005/06 budget planning will prove even more difficult as most of the operational "low hanging fruit" has already been harvested through the cost reduction and revenue enhancements implemented by the organization over these past three fiscal years. The attached proposals that follow this report are both innovative and painful, and recognize the necessity of correcting the Town's fiscal imbalance. The overarching principles that guided these proposals were (1) managing in a fiscally responsible manner, (2) preserving valued Town services to the community, and (3) mitigating the impact of labor force reductions that provide these services to the community. The preliminary proposals total approximately $954,100, and include $648,600 in departmental budget reductions and $305,500 in revenue enhancements. There are approximately 4.85 net FTE General Fund reductions (which includes a combination of full and part-time reductions for both vacant and filled positions, offset by partial additions for three positions) and a net reduction of approximately 900 temporary labor hours (exclusive of two proposed Library reduction options). An additional .55 FTE in non-General Fund positions are eliminated in conjunction with the above FTE reductions. Employees impacted by these reductions were notified by February 25, 2005. The Town's Human Resources Department will provide affected employees with transitional support in preparation for this layoff. PAGE 10 MAYOR AND TOWN COUNCIL/CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: PRELIMINARY FY 2005/06 BUDGET BALANCING PROPOSALS TO BE INCORPORATED INTO TOWN'S FY 2005/06 PROPOSED OPERATING BUDGET. March 07, 2005 It is stressed that the proposals presented at this time are preliminary and will be further developed and refined through Town Council feedback to the Town Manager and continued staff analysis over the next seven weeks before they are presented as part of the Town Manager's Proposed Operating Budget for FY 2005/06. While the matrices provide reduction efforts by department, the Town Manager will approach the final proposed reductions from a service perspective aligned with community priorities as informed by these Council discussions. Staff would like Town Council's feedback through this review for use in further developing and refining the Town's Proposed FY 2005/06 Operating Budget to be brought to the Town Council in May 2005. At the March 7t' Council meeting, each department director will present their proposals to the Council and be able to discuss service impacts and respond to Council questions about core services and service delivery. Council may want to review this report using the FY 2004/05 Adopted Budget document as a point of reference for the full scope of services provided by each department to the Community so that these proposals are understood in their full context. ENVIRONMENTAL ASSESSMENT: This budget report is not a project defined under CEQA, and no further action is required. FISCAL IMPACT: There is no fiscal impact generated from this report as this budget session is for Council to review staff's preliminary proposals in developing the Town's FY 2005/06 Proposed Operating Budgets. Information and direction obtained from this study session will be utilized for further budget proposal development; no financial changes or appropriation requests are included at this time. Attachments: General Fund Departmental Budget Reductions/Revenue Enhancement Proposal Matrix a. Administration: Town Offices/Town Manager b. Community Development Department c. Community Services Department d. Library Department e. Parks & Public Works Department Police Department V1 W V N~ ~1 Wr^ Vl H c/1 A V1 I~ r~r^ V1 Q O a~ a~ Ao z~ N w ~ W z w C7 3 0 E~ u 0 'C O H F ' r F:.~ ~1 rwr,_, F+'1 do ~ ~ o ~ a~ o a 0 !n O O N ~x ~w 0 xo a ~fI Q 0 fJ f~ C ~1 O FY 2005/06 Reduction Proposal Town Offices and Town Manager's Department Proposed Administrative Restructuring General Fund Reduction Target for All Administrative Services: $109,900 Purpose The purpose of this FY 2005/06 Reduction Proposal is to provide a high-level overview of a proposed administrative restructuring. This proposal addresses the 4% reduction target of all administrative services, including Town Offices, Town Manager's Department (including Town Manager's Office and Clerk, Finance, and Human Resources Departments), and Community Services Department. This report discusses phase one and two of the restructuring concept, outcomes, and service impacts. It also addresses the restructuring implementation process and estimated savings. Administrative Restructuring Concept Understanding that our fiscal situation is an ongoing one, the Town Manager's Office is evaluating operational efficiencies in administrative services. This evaluation involves assessing the current clerical and administrative capacity and needs in the Town Offices, Town Manager's Department, and Community Services Department. As a result, a preliminary FY 2005/06 administrative restructuring concept is proposed to reduce costs and further improve department efficiencies and customer service. The proposed FY 2005/06 budget reductions reflect a preliminary administrative restructuring of the Town Attorney's Office, Clerk's Department, Town Manager's Office, and Finance, Human Resources, and Community Services Departments. The administrative restructuring concept involves the implementation of a customer service center and consolidation of support functions and staff. Implementation of the restructuring would occur through a phased process involving Full-Time Equivalent (FTE) reductions, increases, and work reallocations. Implications of these FTE actions are discussed in further detail in the restructuring outcomes and impacts section below. Administrative Restructuring Outcomes and Impacts - Phase 1 The first phase of the administrative restructuring would be effective August 1, 2005 and involves the implementation of a customer service center and consolidation of administrative and clerical support services. The following section discusses the proposed outcomes and impacts. Customer Service Center The implementation of a customer service center would begin the process of centralizing customer requests for information and other Town-wide administrative processes to improve customer service and achieve inter-departmental operational efficiencies. This concept also begins to initiate the efficiency and service recommendations identified in the Civic Center Master Plan. The customer service center would be located in the Clerk's Department and serve as the main point of contact for customers seeking assistance via telephone or in person. The customer service center would initially be designed to address community inquiries and/or requests for information typically received by the Town Manager's Office, Cleric's Department, and Community Services Department. Examples of customer service center duties would include, but are not limited to: providing general telephone information about Town events, board, commissions, and committee vacancies, recycling, and volunteer and senior services programs. Other duties would include coordinating Town facility rentals, reservations, and the preferential parking program. The Clerk's Department would continue to be responsible for cleric-related duties, including records management and retention, public meeting notification, insurance coordination, and Fair Political Practices Commission filing and tracking requirements among others. The initial expectation of the customer service center is to increase workload capacity within the administrative services division and begin centralizing general information requests received by the Town Manager's Office, Town Attorney's Office, and Clerk and Community Service Departments. This centralization would improve the productivity levels of administrative services support staff. This proposed first phase would also involve exploring the center's capacity to assume other responsibilities including, but not limited to, special events permit coordination, park reservations, and other document processing activities. A future phase of the customer service center would be to centralize all general information requests/inquiries through the introduction and marketing of a new Town telephone number. A new phone system may be needed to complete this centralization. Service Impacts The implementation of the customer service center would involve the elimination of passport services. Elimination of passport services would provide the capacity needed for a customer service center and allow the Clerk's Department to address a wide range of customer service issues and inter-departmental duties. This capacity could also help mitigate other Town-wide service impacts. Although passport services have benefited customers who use this service, it is not a core Town service. In addition, the provision of passport services has not been cost recoverable. In FY 2003/04, the Los Gatos U.S. Postal Service began providing passport services. Since that time, the Town's passport revenue has decreased by $46,000. The FY 2004/05 estimated annual passport revenue of $35,000 would not sufficiently support salary and benefit costs required for passport services. As discussed earlier, the implementation of the customer service center would require the Clerk's Department to address calls and/or requests for information received by the Community Services Department. Currently, the Community Services Department uses a temporary Secretary 11 position to provide customer service and clerical support for community services and solid waste activities. Under the proposed administrative restructuring, the Secretary 11 position would continue to support the Solid Waste program at a reduced capacity and hours for community services customer and clerical assistance would be eliminated. The additional capacity gained as a result of eliminating passports would allow the Cleric's Department to assume the position's community services clerical/customer service responsibilities and continue its core duties, such as records maintenance and retention, public notification coordination, and legal document tracking. Consolidation of Clerical and Administrative Support Services The proposed administrative restructuring would consolidate existing clerical and administrative support services through several FTE reductions and moderate FTE increases. The FTE changes and impacts are discussed below and occur in the Town Attorney's Office and Cleric, Finance, and Human Resources Departments. Clerk's Department and Town Attorney's Office Under the proposed administrative restructuring, the clerical and administrative duties in the Town Attorney's Office would be merged with those in the Cleric's Department. To accomplish this consolidation, the Legal Assistant position (.50 FTE) would be defended. Given the nature of the work performed in the Clerk's Department coupled with its knowledge of Town processes as it relates to resolutions, ordinances, contracts, and other time-sensitive, legal documents, it is believed that consolidation with the Cleric's Department would be the most effective and efficient to provide support services to the Town Attorney and Self-Insurance Liability Fund under a budget reduction scenario. This consolidation would require a .25 FTE increase in the Clerk's Department. Approximately .05 FTE would provide clerical and administrative needs of the Town Attorney's Office. The remaining .20 FTE would support Town claims processing, which is funded through the Liability Self Insurance Fund. Reception support for the Town Attorney's Office could be addressed through the Customer Service Center. It is important to note that although a .25 FTE is proposed, the consolidation generates a significant budget savings. Finance Department The administrative restructuring proposes to defund the Finance Project Coordinator position (.80 FTE). This position provides support to the Finance Department (.55 FTE) and Management Information Systems - MIS Department for web site support (.25 FTE). The defunding of the Finance Project Coordinator position would slow financial administrative duties related to the Capital Improvement Program (CIP), invoice processing, and accounts payable/payroll staff report generation and other finance-related projects. To mitigate service impacts, the financial, clerical, and administrative responsibilities would be further evaluated and partially assigned to existing Finance and Parks and Public Works staff. Further consolidation of these duties would be explored through a second administrative restructuring phase (discussed later in this report). Web site management would be assigned to the Town Manager's Office, as part of a broader emphasis on public information and marketing. Implementation of the web site redesign and new content management program, scheduled for Summer, 2005 will allow this transition to occur. Human Resources Department The administrative restructuring also proposes to further reduce the Human Resources Specialist positions. The positions would be reduced from .75 and .65 FTE to .50 FTE. Both of these positions were partially defended in the FY 2004/05 budget. The proposed FTE reductions would impact the department's ability to deliver Human Resources programs and service in a timely manner. Service impacts could include delays in benefit and workers' compensation claims administration and employee relations activities. Clerical back- up for the Town Manager's Office would also be reduced. Mitigation of these impacts could be addressed by exploring the consolidation of the Human Resources Specialist positions through a second administrative restructuring phase (discussed later in this report). Additional Operational Reductions The restructuring process also involves a partial reduction of temporary hours in the Town Council and Town Manager's Office. It is anticipated that defunding the temporary hours would not have a service impact as they were not used during FY 2004/05. Operating expenses, including material and supplies are also proposed to be reduced. These reductions would generate minimal service impacts, however, the loss of these funds would reduce capacity and flexibility to address unanticipated service requests. Administrative Restructuring Outcomes and Impacts - Phase 2 A preliminary second phase of the administrative restructuring involves the complete defunding of the Human Resources Specialist positions and would be brought forward to Council as part of the mid-year budget review in Fall 2005. While phase two continues to evolve, it is tentatively proposed that the responsibilities of the defunded Human Resources positions and the Finance Project Coordinator (defunded in phase one) be consolidated into an Administrative Analyst position. The Analyst position would assume some of the duties of the defunded positions and other higher-level responsibilities, including but not limited to budget analysis and policy development. The position would be shared between the Finance and Human Resources Department. Although this consolidation generates both efficiency and savings, further assessment would be required given that the responsibilities of 1.95 FTEs would be merged into one position. This assessment would determine the appropriate workload for the Analyst position and need for additional support. If additional support was warranted, a variety of alternatives would be explored, including the reevaluation of the organization's collective capacity and use of temporary hours and/or FTE increases, especially for clerical and paraprofessional duties. Administrative Restructuring Implementation Process Given sensitive and complex nature of the restructuring, supervision of the process will be necessary. To ensure a smooth transition, the Administrative Analyst would be increased from .80 FTE to its authorized level of 1.00 FTE to oversee and coordinate the implementation of the -4- administrative restructuring. Supervision and coordination of the restructuring would include an assessment of service and organizational impacts and development of transitional training, processes, and policies. The Analyst would also assume other managerial duties, including web management. Web management support would be funded through the MIS Fund. Given the managerial level of responsibility delegated to the Analyst, it is recommended that the position be reconfigured to the role of Administrative Officer. The technical title and classification will be determined by the Human Resource Director based on a review of duties through the benchmarking of other public agencies. The Administrative Analyst position would be defunded. The reconfiguration of the Analyst position would occur in phase one of the restructuring process. Administrative Restructuring Estimated Saving Under phase one of the proposed administrative restructuring, the combined FTEs for the Town Attorney's Office, Town Manager's Office, and Clerk, Finance, and Human Resources Departments would be reduced from 21.50 FTE to 19.80 FTE. It is anticipated that the proposed administrative restructuring would generate a general fund savings of $110,184 and other non-general fund savings of $16,109. The estimated total savings would be $126,293. It is important to note that the estimated total savings does not reflect the $35,000 loss of passport revenue. (`nn~h~cinn Successfully controlling costs and balancing the needs of the community and Town organization are a priority. Given the Town's ongoing fiscal challenges, it is prudent to evaluate our collective capacity to provide services, both internally and externally. The Town Manager's Office has examined, and will continue to assess the clerical and administrative support needs of the Town Offices and Town Manager's Department. This initial evaluation revealed a phased administrative restructuring opportunity to further improve department efficiencies and customer service. Effective August 1, 2005, the proposed first phase of the administrative restructuring would involve the implementation of a customer service center and consolidation of administrative and clerical support services. 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