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HomeMy WebLinkAbout06-17-2019 Special City Council AgendaSpecial City Council Meeting J une 17, 2019 - 6:00 P M City Hall Council Chambers AGE ND A I .C AL L T O O RD E R A.Roll Call I I .D I S C US S IO N IT E M S A.B udget O ptions I I I .AD J O URNM E NT Agendas and minutes are available to the public at the City Clerk's Office, on the City website (http://www.auburnwa.gov), and via e-mail . Complete agenda packets are available for revi ew at the City Clerk's Office. Page 1 of 15 AGENDA BILL APPROVAL FORM Agenda Subject: Budget Options Date: June 11, 2019 Department: Finance Attachments: BERK Propos al Budget Impact: Administrativ e Recommendation: Background Summary: The City of Auburn is one of the fastest growing cities in the State of W ashington with a 16.7% population increase since 2010. W ith growth and a strong economy, the cost to provide services is increasing at a greater rate than City revenues. I n order to meet the growing demands and costs for services, the City has requested a proposal f rom BERK Consulting. Attached is a proposal by BERK to perform a f iscal sustainability analysis, review the City’s six year f orecast, benchmark revenue and expenditure levels, strategize f or revenue enhancement and cost containment, provide budget scenarios, and provide a summary report and presentation to Council. Rev iewed by Council Committees: Councilmember:Staff:Coleman Meeting Date:June 17, 2019 Item Numb er:DI .A Page 2 of 15 City of AuburnFISCAL SUSTAINABILITY ANALYSIS JUNE 11, 2019 PROPOSAL Page 3 of 15 June 11, 2019 Attn: Shelley Coleman, Finance Director City of Auburn SENT VIA EMAIL RE: City of Auburn Fiscal Sustainability Analysis | REVISED PROPOSAL Dear Shelley and the Consultant Selection Panel: Thank you for the opportunity to provide a proposal to support the City of Auburn with a Fiscal Sustainability Analysis. Based on our conversation, we have developed this preliminary scope and budget outlining our approach to this work. We have refined our proposal based on your initial feedback of our proposed scope of work. We have also included relevant staff and some recent project qualifications to highlight our experience with this type of analysis. BERK has enjoyed good working relationships with City of Auburn staff on a variety of past projects, including the recent SCORE studies and support for the Comprehensive Plan Update. We understand that City staff has a good understanding of the current financial situation and has already taken measures to limit expenditures. We view our role as supporting staff in confirming and communicating the fiscal situation and analyzing options appropriate to the magnitude of the challenge. We look forward to discussing this proposal with you in more detail. In the interim, more information about our firm, approach, team, and client satisfaction can be found on our website: www.berkconsulting.com. Sincerely, Allegra Calder, Principal Emily Walton Percival, Project Manager BERK Consulting, Inc. BERK Consulting, Inc. Page 4 of 15 PROJECT UNDERSTANDING The City of Auburn has shared in the benefits of the recent growth in the Puget Sound region, including rising employment, property values, and population – Auburn had the highest population growth rate (tied with Redmond) at 3.1% in 20171. Currently, the U.S. Census Bureau estimates that 81,905 people reside in Auburn, a 16.7% growth in population from 2010. Despite this growth, the City of Auburn is facing an uncertain financial future as the City’s expenses are beginning to out pace revenues. The structural factors underlying this future are shared among cities in the Puget Sound region: resident demand for high-quality city services, rising labor costs, and tax-limiting measures that constrain a city’s flexibility in generating revenues. For Auburn, this scenario is playing out with some major release valves already exhausted: Auburn has used up its banked capacity and cannot generate property tax revenue above its annual statutory maximum increase; and Auburn’s staffing level is already sized for efficient operations, having never regained pre-recession employment levels even as the City’s service population has swelled. The City of Auburn recognizes its financial trajectory and in the 2019-2020 biennial budget identified strategies to postpone reaching a financial tipping point, including avoiding adding permanent staff positions, reconsidering replacing staff, limiting new programs, and leveraging City technology and tools for enhanced productivity. There is a natural limit to the “do more with less” strategy: Auburn expects a challenge in balancing the City’s 2021- 2022 biennial budget and then, without structural, long-term adjustments, a budget cycle wherein the City’s available revenues cannot support its expenses. Carried forward, this unsustainable operating paradigm could exhaust the City’s reserves and in the worst case, lead to bankruptcy. The City is looking for a fiscal sustainability study to identify revenue enhancement measures that are sized to meaningfully impact the City’s financial future and surface opportunities to change the services it governs, mode of service delivery, and level of service to reduce the overall cost of services. 1 https://www.seattletimes.com/seattle-news/data/114000-more-people-seattle-now-this-decades-fastest-growing-big-city-in-all-of-united-states/ CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 1PROPOSAL · JUNE 11, 2019 Page 5 of 15 PROJECT APPROACH TASK 1: PROJECT KICK-OFF AND ONGOING PROJECT MANAGEMENT BERK staff will participate in a project kick-off with the City of Auburn’s core project team. During this meeting, we will discuss desired outcomes from the effort along with the relevant context of this project, including any key political, legal, and administrative issues we should be aware of. We will also review a detailed project schedule and discuss how we will communicate and collaborate effectively through completion of the final deliverables and presentation to Council. To achieve this, we propose five project team virtual meetings over the course of the study as opportunities for BERK to share analysis, findings, and interim products and garner project team feedback, questions, and direction. The kick-off meeting can be an opportunity for scheduling these virtual meetings. We will also use the kick-off meeting to discuss some key analytic questions for each task, including: ƒDoes the City have a financial forecast that we should use for modeling or should we develop our own model? ƒWhat is the desired level of detail for budget scenarios? What is the best way to engage with staff in developing strategies and scenarios? ƒDoes the City want to benchmark against comparison cities? If so, what are the criteria for selection? ƒAre there any options the City already knows it wants to focus on? Deliverables ƒAgenda for and attendance at in-person kick-off meeting at the City of Auburn. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 2PROPOSAL · JUNE 11, 2019 Page 6 of 15 TASK 2: DEVELOP FISCAL MODEL BERK will build a fiscal model leveraging the City’s current six-year financial forecast and using historical financial, staffing, and operational data from the City. When considering assumptions with which to project the City’s financial condition, BERK will review and test the City’s internal assumptions used in the six-year financial forecast. As part of this task we will: ƒCompare forecasts under several projection methodologies: City assumptions, average per capita growth, and changes in per capita revenue growth and expenditures. ƒCollaborate with the project team to identify current or expected departmental trends in staffing, operations, service delivery, and costs. ƒDevelop the fiscal model to respond to a range of possible assumptions or trends, including: –Growth of revenues and expenditures. –Population growth and rate of change. –Recessionary periods and accompanying declines in revenues. The fiscal model will project the City’s financial condition to the 10-year timeframe under any permutation of inputs. During the project team’s first virtual meeting, BERK will present a selection of fiscal scenarios and material on the structural factors affecting the financial health of Washington cities, with analysis on the strengths and vulnerabilities of financial tools available to cities, including the financial tools used by the City of Auburn. BERK will select fiscal scenarios that underscore the impact of these structural factors on financial health, ability to continue to provide current service levels and meet future demand for service, and stability during an economic downturn. Deliverables ƒProject Team Virtual Meeting 1, including slide deck materials sent in advance with a summary of the fiscal model, illustrative fiscal scenarios, and analysis of major financial factors. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 3PROPOSAL · JUNE 11, 2019 Page 7 of 15 TASK 3: BENCHMARK KEY REVENUE SOURCES AND LEVELS In collaboration with the project team, we will select up to 10 comparison cities against which to measure Auburn’s relative level and mix of revenue generation. This benchmarking analysis will be iterative based on findings from Task 2 and project team guidance, with a focus on benchmarking revenue mechanisms, such as levy lid lifts and business and occupation tax (B&O), that are available to the City. BERK will use benchmarked revenue options to determine the viability of options given Auburn’s context, revenue mix, and existing taxing levels. The below metrics are a starting point to assess Auburn’s current and potential revenue generation strategies: ƒGeneral fund revenues generated per capita with breakouts for major revenue sources including property tax, sales and use taxes, business and occupation taxes if applicable, and utility taxes. ƒMix and share of general fund revenues by source, including: –Property and sales tax reliance. –Magnitude, timing, and success levels of voted measures. This benchmarking will support analysis in future tasks (including assessing revenue enhancement strategies in Task 4) and identify which revenue options the City may be under- utilizing. For example, comparing B&O taxes and levels among comparison cities may show that the City has room to enact a B&O tax while remaining an attractive business location in the region. Conversely, it may reveal that the regional cities with whom Auburn competes for business have not enacted a B&O tax, and doing so in Auburn may reduce the city’s regional competitiveness. Benchmarking also captures, at a high level, how other cities manage the financial structural constraints they share with Auburn, including the tradeoffs they make. For example, cities may rely on regular levy lid lifts to support property tax revenues in the general fund and minimize other voted measures to avoid resident fatigue. Deliverables ƒProject Team Virtual Meeting 2, including slide deck sent in advance with benchmarking results and findings, including how the benchmarking results will guide next steps. Alternatively, BERK could interview comparison cities for information on the impetus for voted measures, the implementation process, and lessons learned. Priorities for this task will be discussed at the kick- off meeting. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 4PROPOSAL · JUNE 11, 2019 Page 8 of 15 TASK 4: EVALUATE STRATEGIES FOR REVENUE ENHANCEMENT AND COST CONTAINMENT The objective of this task is to identify strategies to increase revenues and/or reduce costs, quantify their fiscal impacts, and evaluate each for equity (who pays and who benefits), magnitude (size and timeframe of fiscal impact), and sustainability (administrative feasibility and community support). BERK will research and quantify service delivery alternatives and bring forward any under- utilized revenue tools identified in Task 3. For voted revenue enhancement strategies, BERK will use previous benchmarking and analysis to show success levels for voted options in comparison cities and estimate feasibility and community support in the Auburn context. When identifying strategies for cost containment, BERK will distinguish between the City’s discretionary and non-discretionary expenditures to identify where there may be elasticity for change. For example, the City’s labor costs are not currently identified as discretionary – approved departmental FTE positions are filled in order to provide the level of service Auburn has promised its residents. However, there may be opportunities to realign programs and service delivery. To surface these opportunities, we will conduct interviews. We will plan to speak with departmental staff, Council members, and any other stakeholders suggested by the project team to hear their perspectives on existing options and to suggest their own. This task will provide an opportunity to summarize the current financial situation and cost containment measures already in place during our meetings with Council members to ensure a common understanding and provide an opportunity to ask questions ahead of the final project presentation. Deliverables ƒInterview guide. ƒProject Team Virtual Meeting 3, including slide deck of strategies, fiscal impact, and evaluation. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 5PROPOSAL · JUNE 11, 2019 Page 9 of 15 TASK 5: PROVIDE BUDGET SCENARIOS ADDRESSING FISCAL GAP This task will leverage findings from earlier tasks, especially strategies reviewed and vetted by the project team, for a set of three budget scenarios to be included in the fiscal model. We will facilitate an in-person workshop to identify the mix of strategies the project team would like to include in each budget scenario. As with the evaluation of the individual strategies, we will work with the project team to select mixes that balance equity, magnitude, and sustainability. With budget scenarios developed, we will program the fiscal model to project the City’s general fund balance and identify strengths and weaknesses of each scenario. Deliverables ƒIn-person workshop facilitation, including activities and materials. TASK 6: SUMMARY MEMO AND COUNCIL PRESENTATION Our analysis, findings, and recommendations will be synthesized and organized into a concise and readable memo oriented towards City staff and elected officials. All findings, conclusions, and any recommendations will be fully supported by the work conducted in tasks 1 through 5. We will submit a draft memo to City staff for one round of review with consolidated comments and a phone call to discuss any changes if needed. The final report will incorporate City staff feedback and will form the basis for a PowerPoint Presentation to be delivered to the City Council. Deliverables ƒDraft and final summary memo. ƒPowerPoint presentation to City Council. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 6PROPOSAL · JUNE 11, 2019 Page 10 of 15 COST PROPOSAL The table below outlines our anticipated level of effort by staff person by task. This is based on our revised scope of work. Allegra Calder Emily Walton Percival Sherrie Hsu Principal Project Manager & Lead Analyst Analyst 2019 Hourly Rate $250 $135 $135 Task 1: Project Kick-off and Ongoing PM Kickoff 6 6 6 Ongoing Project Management 2 10 Subtotal 8 16 6 30 $4,970 Task 2: Develop Fiscal Model Develop Fiscal Model 2 20 20 Review and Test Financial Forecast Assumptions 2 10 10 Sensitivity Analysis 2 6 6 Revenue and Expenditures Analysis and Material 2 10 10 Virtual Meeting 1 2 5 5 Subtotal 10 51 51 112 $16,270 Task 3: Benchmark Governmental Funds' Key Revenue Sources and Expenditure Levels Selection 2 5 5 Analysis 2 14 14 Virtual Meeting 2 2 5 5 Subtotal 6 24 24 54 $7,980 Task 4: Evaluate Strategies for Revenue Enhancement and Cost Containment Interviews (12)2 18 18 Follow-up and/or Staff Workgroup 2 12 12 Meeting 3 (in person)4 6 6 Research and evaluation 2 8 8 Subtotal 10 44 44 98 $14,380 Task 5: Provide Budget Scenarios Addressing Fiscal Gap Adapt Fiscal Model 2 15 15 Preliminary Scenario Analysis 2 10 10 In-person Meeting 4 4 8 8 Final Scenario Analysis 2 20 20 Subtotal 10 53 53 116 $16,810 Task 6: Summary Memo and Council Presentation Draft Memo 6 6 Final Memo and PPT 2 10 10 Presentation to Council 4 4 Subtotal 6 20 16 42 $6,360 Total Estimated Hours 50 208 194 452 Cost (Hours*Rate)$12,500 $28,080 $26,190 $66,770 Subtotal Consultant Cost $66,770 Project Expenses @ ~1% of project budget $730 Estimated Project Total $67,500 BERK Consulting Total Hours and Estimated Cost by Task CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 7PROPOSAL · JUNE 11, 2019 Page 11 of 15 FIRM QUALIFICATIONS BERK is an interdisciplinary consultancy integrating strategy, planning, and policy development; financial and economic analysis; and facilitation, design, and communications. Founded in 1988, our passion is working in the public interest, helping public and nonprofit agencies address complex challenges and position themselves for success. Our Mission is: Helping Communities and Organizations Create Their Best Futures. We do this by: ƒIntegrating the art of effective decision-making with the science of rigorous quantitative and qualitative analysis; ƒBringing people, ideas, and analysis together to generate understanding and consensus on the best strategies and decisions; and ƒBridging across disciplines to synthesize diverse information and facilitate relationships. A hallmark of our approach is our ability to communicate complex information to a wide range of audiences, using words, numbers, pictures, and maps to convey information in accessible, understandable formats. We believe that when participants truly understand the issues and options before them, they are able to make good decisions, and then communicate and explain those decisions to the broader community. Municipal Finance Expertise. BERK staff are among the most knowledgeable professionals in the state about fiscal issues. Washington State’s tax structures and local government budgeting processes are complex, and BERK has experience developing modeling tools and financial analysis that works within this environment. We bring a level of rigor and expertise to financial analysis that helps build credibility and ensures that recommendations and agency objectives are implementable. Project Staffing The BERK team will be led by Allegra Calder as Principal in Charge. She will have final authority over the project deliverables. Emily Walton Percival will serve as Project Manager and Lead Analyst and the main point of contact for City staff. Sherrie Hsu will provide additional analytic support. As needed, BERK has a team of 22 full-time planners, analysts, and facilitators who could support the City with additional capacity. More information about each proposed staff person is below. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 8PROPOSAL · JUNE 11, 2019 Page 12 of 15 STAFF EXPERIENCE Allegra Calder (Principal in Charge) brings two decades of experience in policy and program development, evaluation, and strategic planning. She has a background in community development, housing, and land use policy. A skilled facilitator, she enjoys working with committees to develop recommendations on complex questions. For the City of Shoreline, Allegra developed an outreach strategy to engage local business owners about a potential B&O tax. The engagement included interviews, surveys, and a “City Finance 101” by City staff to the community. Allegra also facilitates the City’s annual Council Retreat and provides expert strategic advice on a number of questions. Allegra received her B.A. with distinction from McGill University and her M.A. in Urban Design from Oxford Brookes University. She is Chair of the Seattle Parks Foundation, Chair of the Downtown Residents Council, and a member of King County’s Parks Levy Oversight Board. She is a 2011 graduate of Leadership Tomorrow. Emily Walton Percival (Project Manager and Lead Analyst) has a background in policy and financial analysis. She uses data and financial analysis to craft innovative solutions for the public good. Emily is currently leading the financial analysis for level of service and efficiency study related to criminal justice and legal services for Clallam County and the cities of Port Angeles and Sequim. She was the Lead Analyst for the City of Everett Benchmarking, Organizational Structure, and Tax Burden Analysis completed in 2018. She also led the cost of service analysis for South Snohomish County Fire and Rescue and Port Townsend Public Library. She recently finished working with SCORE on an analysis of financial alternatives to the current funding structure. Emily received her B.A. with Honors in Politics from Whitman College and her M.P.A. from the University of Washington Evans School of Public Policy and Governance, graduating with a focus in public finance and a certificate in Technology Entrepreneurship from the Foster School of Business. Sherrie Hsu (Analyst) focuses on economic and policy analysis. She enjoys creating data- driven quantitative and qualitative analyses that can inform decision-making. Sherrie was an analyst on the Everett Benchmarking, Organizational Structure, and Tax Burden Analysis. She is currently working on a transportation funding assessment for the Joint Transportation Committee that will identify current city transportation funding responsibilities, sources, and gaps and provide recommendations on alternative sources of funding to address gaps and future needs. She is also providing financial analysis to the City of Issaquah as part of their Mobility Master Plan. Sherrie received her Master’s from The Fletcher School of Law and Diplomacy at Tufts University with a focus on international economic policy. She graduated from the University of Washington with a B.S. in Economics and a B.A. from the Jackson School of International Studies. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 9PROPOSAL · JUNE 11, 2019 Page 13 of 15 RECENT PROJECT EXPERIENCE City of Everett, Benchmarking, Organizational Structure, and Tax Burden Analysis 2018 BERK, in direct collaboration with City of Everett staff and City Council, completed a benchmarking study comparing Everett to its peer cities. We compared Everett to peer cities on topics including community population and characteristics; employment and employment base; land base and land use; city revenues, including tax base and tax burden; city expenditures, including city services and level of service; and overall financial position. We also completed a tax structure and burden analysis that assessed Everett’s current tax policies and the overall tax burden on its residents. We completed an organizational and span of control analysis, looking at the services the City currently delivers and the efficiency of its current staffing model. The study generated useful insights into the City’s current position relative to its peers, surfacing Everett’s advantages and disadvantages, and opportunities to refine organizational structure and staffing model, increase revenues while minimizing tax burden impacts to residents, and evaluate service delivery and level of service. Findings were documented in a final report and presented to Everett City Council. City of Shoreline, Business Owner Outreach for Potential B&O Tax In 2017, the City of Shoreline hired BERK to assist with outreach to Shoreline business owners to solicit their perspectives on a potential business and operations (B&O) tax. The City was exploring a B&O tax because it faced a structural imbalance in funding core operations, where the cost of maintaining services was growing faster than the revenues available to support them. Outreach consisted of an online survey, telephone interviews, and in-person meetings at City Hall that included a City Finance 101 presentation from City staff followed by a question and answer period. The interviews and in-person meetings allowed for dialogue with business owners around desire for enhanced services such as public safety and parks and the limited options available to the City to fund services. The City implemented a B&O tax on businesses with over $500,000 in annual taxable revenue in January of 2019. South Snohomish County Fire & Rescue Cost of Service Study 2018 BERK is engaged in assisting South Snohomish County Fire and Rescue (South County Fire), a recently authorized regional fire authority, in a cost of service analysis to determine costs of service across its critical fire protection, emergency response, prevention and inspection, and community services. Formerly a partnership between Fire District 1 and the City of Lynnwood, South County Fire now has taxing authority over those regions and additionally serves surrounding cities by contract. BERK crafted a dynamic, 10-year fiscal model and cost CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 10PROPOSAL · JUNE 11, 2019 Page 14 of 15 of service analysis that meets multiple needs: estimates the fully-loaded costs of adding staffing, units, and stations; evaluates future contract costs; and determines fairness of contract pricing. South Correctional Entity (SCORE), Financial Analysis The South Correctional Entity (SCORE) is a regional jail owned and operated by seven member cities since 2012. In the fall of 2018, member city Federal Way gave notice of its intent to leave the partnership. SCORE’s governing body, the Administrative Board, charged a subcommittee to examine alternatives to (1) reduce costs, (2) increase revenues, and/or (3) restructure the allocation of funding obligations among agencies. SCORE engaged the services of BERK Consulting to support the subcommittee’s work. Two pieces of analysis were core to this discussion: ƒCost allocation. BERK allocated actual operating expenses across 15 products and services, including four types of housing, booking, transportation, and several services currently available to member cities only. ƒOperating scenarios and funding formula alternatives. BERK developed a simple two- part model to estimate member city funding obligations, both individual and collective, as a function of SCORE’s level of operations, inmate mix and true cost of housing, and available non-member revenue. City of Port Townsend, Public Library Level of Service Analysis The Port Townsend Public Library is a department of the City of Port Townsend. Prior to 2008, the Library was primarily funded through City general funds. In 2008, Port Townsend residents demonstrated their commitment to the Library through the overwhelming passage of a library-dedicated levy lid lift. This levy lid lift increased residents’ property taxes by $0.75 per $1,000 of assessed value phased in between 2009 and 2011. Revenues generated at the onset of this levy were sufficient to increase hours of operation, staffing, and acquisitions. Due to inflation, the purchasing power of the revenues from the levy decreased, and the City projects that operating costs will exceed revenues and absorb the existing fund balance by 2025. Compounding this challenge, Port Townsend, like many Washington cities, is financially constrained by the 1% limit on annual tax revenue growth. Without correction, this structural imbalance will erode valued citywide services, such as the Library, public safety, and parks. The City commissioned BERK to evaluate opportunities to balance the community’s desired level of service with its willingness to pay. BERK created a dynamic fiscal model to triangulate library levels of service with available revenues over 10 years to identify immediate and near-term strategies. CITY OF AUBURN · FISCAL SUSTAINABILITY ANALYSIS 11PROPOSAL · JUNE 11, 2019 Page 15 of 15