1.	CONSIDER NEW FORMAT AND PROVIDE GUIDANCE TO STAFF FOR PREPARATION OF 2005-2006 MPWMD BUDGET
Meeting Date:		January 19, 2004	Budgeted:	N/A
From:		David A. Berger,	Program/	N/A
		General Manager	Line Item No.:
Prepared By:		Rick Dickhaut	Cost Estimate:	N/A
General Counsel Approval: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: Staff proposes to restructure the District’s 2005-2006 budget to a program and performance-based budget, as opposed to the current line item type of budget. Each Division has identified major service program categories as listed and described on Exhibit 1-A. In the new budget format, labor related costs and other expenditures for each program would be accumulated in one place so that the Board and staff would be able to see what each program actually costs. The level of service to be provided by various performance measures established for each program would also be indicated as shown on Exhibit 1-B. Exhibit 1-C is an example of what the summary of the budget for fiscal year 2004-2005 would have looked like if it had been prepared in the proposed format. In addition to these new components, the budget will continue to present information by division, fund, etc. as has been done in the past. Exhibit 1-D is the Proposed Timeline for User Fee Increase document that was presented to the Board on several previous occasions. It is included with this item as a reminder that from the time the Board authorizes staff to begin the process of increasing the user fee to the time the first revenue is actually received is approximately nine months. Exhibit 1-E is a listing of current and proposed fees for various services provided by the District. Staff proposes structuring permit and other processing fees to fully recover service costs in conjunction with the 2004-2005 mid-year budget adjustment. The proposed Budget Process Calendar for preparation of the 2005-2006 budget has been revised (See Exhibit 1-F). Staff has included a Board workshop prior to the scheduled budget adoption, and other changes intended to insure that the District successfully achieves its balanced budget Strategic Plan objective.

RECOMMENDATION: Staff recommends the Board consider first reading of an ordinance to restructure permit and other processing fees, to fully recover services costs as required by law, in conjunction with the 2004-2005 mid-year budget adjustment to be presented at the February 2005 Board meeting.

Staff also recommends adoption of the new budget format as presented for the 2005-2006 budget, the updated calendar and approval of a multi-part strategy to develop a balanced budget, as follows:

v Minimize impact on District constituents (reductions should seek to avoid significant adverse impacts on existing service levels)

v Phase out the use of operating reserves (diminish the use of operating reserves to balance the 2005-2006 budget while maintaining a minimum operating reserve level of 5% to 10%, and planning for re-establishing operating reserves to a prudent level of approximately 50% of the annual budget over the subsequent five fiscal years)

v Structure permit and other processing fees to fully recover service costs (establish and institute fees that are sufficient to cover costs of issuing permits and providing other services)

v Explore ways to be more efficient and economical (review the way tasks are currently accomplished and solicit ideas from employees on how to be more efficient and economical in daily activities)

v Minimize impacts on existing staffing level (reductions should seek to avoid significant adverse impact on existing regular staff in order to maintain satisfactory services levels for current programs and activities)

v Invest in strategic projects (budget funds as needed to develop Aquifer Storage & Recovery and other long-term water supplies)

v Minimize environmental impacts (providing District services while minimizing the effects on, and improving, the environment)

v Seek outside funding sources to leverage District revenues (pursue available Federal and/or State grants for priority locations on Carmel River where bank stabilization/restoration/channel clearing is needed and steelhead spawning habitat should be improved)

v Adjust the 7.125% User Fee as required to meet service program needs (if the above measures are not adequate to balance the budget, increase user fees to a level required to balance the budget, while striving to achieve objectives in the District’s Strategic Plan, including Mission and Vision Statements)

BACKGROUND: District budgets have been balanced over the past six years by using large amounts of previously accumulated reserves. This includes the 2004-2005 budget, totaling $4,726,300, which was balanced by using $1,027,300 from general operating reserves. It is important to note that even with the use of these reserves, the 2004-2005 budget includes very limited funding and no capital dollars for Aquifer Storage and Recovery and other new water supply projects. As indicated on the Analysis of Reserves worksheet, Exhibit 1-G, it is projected that there will be a general operating reserve balance of $1,113,173 at the end of fiscal year 2004-2005 which is approximately 25% of the total budget. These general operating reserves do not include special Board designated reserves such as the Capital, Litigation and Flood/Drought reserves. If we assume a status quo, or the use of an additional $1,027,300 of general operating reserves in fiscal year 2005-2006, the general operating reserve balance at the end of that fiscal year would be only $85,873. The Capital Projects Fund and the Conservation Fund would each have to borrow money from the Mitigation Fund in order to avoid a deficit position. Allowing general reserves to diminish to this level is neither desirable nor prudent. At the District’s strategic planning session on September 29, 2004, staff recommended that the 2004-2005 mid-year budget adjustment include only typical mid-year adjustments, and that a balanced budget be prepared for fiscal year 2005-2006 using a combination of revenue and expenditure adjustments and a diminishing use of reserve funds. Staff also recommended changing to a program and performance-based budget and implementing necessary changes to balance the budget for fiscal year 2005-2006. At that time the Board indicated concurrence with this suggested course of action.

EXHIBITS

1-A Service Program Categories and Descriptions

1-B Performance Measures for Service Program Categories

1-C Sample Budget Format

1-D Proposed Timeline for User Fee Increase

1-E Listing of Current & Proposed Fees

1-F Budget Process Calendar

1-G Analysis of Reserves Worksheet

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