Pacific Progressive

City of Orange Budget Study Session - 2 Notable Absences, Consultants and Are Swimming Lessons on the Chopping Block

Updated 3/13/11

Orange City Council met for a budget study session before the March 8, 2011 council meeting.  This meeting, which isn't televised or taped, gives a great deal of insight into what to expect in the upcoming budget process.  Look for:

• Consultants!
• Cuts that don't make sense
• Pressure to get rid of public employees

First thing to notice at the meeting is that both Denis Bilodeau and Jon Dumitru were absent for the study session.  Mayor Pro-Tem Tita Smith commented on their absence, and her comments made it sound like both Bilodeau and Dumitru did not discuss missing the meeting with the rest of Council and the absences were a surprise. (Update:  The City Manager was informed that the meeting interfered with both Bilodeau's and Dumitru's work schedules and a request was made to cancel or reschedule the meeting.  The policy on notifying Council members of anticipated absences isn't known to the public.)   Both Bilodeau and Dumitru work for Orange County, which can be assistive of employees serving on city councils and other public functions. Bilodeau is Supervisor Shawn Nelson's chief of staff. Dumitru works in the command center coordinating fire fighting and emergency activities. Dumitru is also a union member of Orange County Employees Association (OCEA) which represents many County employees.

Consultants!

Bottom line:  If there is money for consultants, then we need to find a way to not use that money for consultants and avoid more cuts.

There is a budget gap of about $10 million which can be bridged by strategic use of reserves, trimming hours and asking bargaining units to not take raises this cycle.  Council doesn't think that department heads can handle this and wants to bring in consultants to do a study and make recommendations. In 1999, a similar project took 9 months and cost $150,000, and the recommendations were rejected.  The rejected recommendations were to hire additional staff at a cost of about $500,000.

Contracting that Works: A Toolkit for State and Local Governments

By David Madland, Karla Walter, Paul K. Sonn, Tsedeye Gebreselassie

This material was created by the Center for American Progress Action Fund.

Download this memo (pdf)

State and local governments finance millions of jobs across our economy with the hundreds of billions of dollars they spend each year to purchase goods and services. Yet jobs created through government contracting are often substandard, paying very low wages and involving poor working conditions where employment law violations are common. Such jobs not only hurt America’s workers; they also undermine the quality of goods and services delivered to government agencies and the public, and often result in significant hidden costs for taxpayers.

Growing numbers of state and local governments are therefore adopting “responsible contracting” reforms to improve the quality of jobs generated by their procurement spending. This report identifies the best practices in government contracting that are allowing state and local governments to significantly raise standards for workers and secure better value for taxpayers. They are accomplishing these goals by reducing the hidden costs taxpayers often bear when workers are paid poverty wages such as income assistance and health benefits for the uninsured, improving the quality of goods and services taxpayers receive, and increasing the number of companies competing for government contracts.

This toolkit outlines reforms that can improve the quality of the jobs generated by government contracting and supplements other contracting reform blueprints that chiefly focus on improving transparency and accountability. The key strategies inventoried in the toolkit are:

• Careful review of decisions to contract out
• Prescreening contractors for responsibility
• High standards for wages and benefits
• Incentives to raise wages and benefits above the legal floor
• Strong post-award enforcement
• Increased data collection and transparency

OC Continues Risky Financial Habits - Back Using Derivatives

Item 40 on the July 14, 2009 agenda for the Board of Supervisors is  a report on the Orange County Employee Retirement System (OCERS) using derivatives to help manage pension funds.  http://cams.ocgov.com/Web_Publisher/agenda07_14_2009.htm The objective is to get higher returns and level out risk by using returns from derivatives to offset losses in other areas of the pension portfolio.  However, derivatives come with their own set of problems.

What is a Derivative?

A derivative is an asset that exists and gets its value from another asset.  For example, if you have a bond, you will receive a series of interest payments over the life of the bond and have the principal of the bond returned to you when the bond matures.  You can make the bond into a derivative by separating the interest payments from the principal.  You could then sell the right to receive the principal when it is due to one person and the rights to receive the interest payments to another person. You have created a derivative.

Are there other Derivatives?

Separating the principal and interest of a bond is the simplest form of derivative and the least risky.  Other examples of derivatives include currency swaps (example - selling US dollars and buying Chinese Yuan), forward contracts (agreeing to buy 5 train cars of Number 1 Idaho potatoes on June 1, 2012), option contracts (having the right to buy but not being obligated to buy the 5 train cars of Number 1 Idaho potatoes on June 1, 2012.)  These are simple examples of common derivatives.  There are many more complicated and exotic derivatives which are used.

Are Derivatives Risky?

How Much Money Did You Save with Your Library Card?

Huntington Beach Public Library has a calculator on their website that lets you see how much money you saved by using your public library.http://www.surfcity-hb.org/Government/Departments/Library/contact_us_about/valuecalculator.cfm

For example, 2 books, 2 magazines, 1 movie, 1 newspaper, 6 online searches and 6 online database searches (a typical month for me, minimum) is almost $113.  

Try this and see what you're saving!

Do Tax Breaks for Business Create Jobs? - Enterprise Zone Results

Is it possible to actually create jobs by giving tax breaks?  A recent study by the Public Policy Institute of California, Do California's Enterprise Zones Create Jobs? http://www.ppic.org/main/publication.asp?i=742 , looks at the impact on employment of the Enterprise Zone program.  Enterprise Zones give significant tax breaks to businesses on the theory that businesses will use the cash not paid in taxes to expand the business and more jobs will be created.

But is this happening? Or are taxpayers losing revenue from businesses without getting the benefits?

According to the most recent study, there is little job creation attributable to Enterprise Zones.  The Public Policy Institute study did a detailed statistical analysis to see if there are measurable effects on job creation in these zones.  There is no statistically significant effect on employment levels or the growth rate of jobs within Enterprise Zones. 

Do Tax Breaks for Business Create Jobs? - Enterprise Zone Background

California has created 42 zones in the state where businesses are eligible for special tax breaks.  The idea behind Enterprise Zones is to create jobs in distressed areas by giving tax breaks to businesses located in the zones.  If things work as planned, businesses within the zones will grow and hire more employees, and attract more businesses to support them.  New businesses would choose to locate in the Enterprise Zone to receive the tax breaks and then grow to create more jobs.

A recent California Public Policy Institute study , Do California's Enterprise Zones Create Jobs? http://www.ppic.org/main/publication.asp?i=742 , found no effect on job creation in Enterpise Zones.  A previous report by the Legislative Analyst's Office (LAO)  http://www.lao.ca.gov/handouts/Econ/2005/CA_Enterprise_Zones_120505.pdf  also found little positive economic impact from the zones.  There are 42 of the zones, one in Santa Ana, but how the tax breaks work and the impact of the zones are not well understood by the public.  This two part series looks at how Enterprise Zones work and the actual benefits resulting from the zones.

What is an Enterprise Zone?

Enterprise zones are four types of Economic Development Areas used by California. http://www.hcd.ca.gov/fa/cdbg/ez/#EZ  The theory behind creating these area is this:  

Economic Alphabet Soup - Understanding the Chapman Forecast - Pt 1

Economists have a lingo all their own. When economists talk, people smile and nod, but many of them don't understand what was said or what it really means.  Let's start with some common terms.  Getting thru these will arm you for your next battle of wits with some one who thinks they know what they are talking about!

A great reference is the Economist Economics A-Z.  http://www.economist.com/research/Economics/

GDP - Gross Domestic Product

Countries have GDP, cities and counties do not.  GDP measures the total output of goods and services.  

GDP = What consumers spent + Investment in buildings, tools, equipment + Investments in Wall Street and other financial markets + Government spending + Inventory + Exports - Imports

AAA Rating for Mission Viejo - What Does it Mean?

Mission Viejo http://cityofmissionviejo.org/News.aspx has received an upgraded credit rating of AAA from Standard & Poor's.  This makes us feel good, but what does it mean?  

Some people believe that AAA ratings mean there cannot be a default, that Standard & Poor's is a "rating agency" that is chartered by the government, and that ratings are absolute.

Let's start with Standard & Poor's (S&P). http://www2.standardandpoors.com/portal/site/sp/en/us/page.category/ratings/2,1,1,0,0,0,0,0,0,0,0,0,0,0,0,0.html S&P is a company (not a government agency or entity!) registered as a nationally recognized statistical rating organization (NRSRO) under the US Credit Rating Agency Reform Act of 2006.  NRSRO companies are governed by the Securities and Exchange Commission (SEC) http://www.sec.gov/divisions/marketreg/ratingagency.htm  S&P has been owned by McGraw-Hill since 1966.  McGraw-Hill is a publishing company.  S&P sells information.

Credit ratings are relative, not absolute, rankings, although S&P does attempt to make the ratings comparable over different sectors at different times. In other words, S&P grades on a curve, not a straight scale.  Like in any grading system, there can be grade inflation over time.

County Library Does Not Get General Fund Revenue

Many of the services provided by Community Services do not receive money from the General Fund.  These services include the Public Libraries, Parks, Fish and Game Propagation (stocking lakes with fish, among other activities) are several areas many of we as residents use.  A summary of these areas follows.  These figures are from the proposed FY 09-10 budget.

http://egov.ocgov.com/ocgov/Info%20OC/Departments%20&%20Agencies/Finance%20&%20Budget

Community Services has quite a few services which are considered essential by many people which are not funded by the General Fund but are designed to generate their own revenues thru fees, charges, grants, and other governmental transfers.

OC Budget Pt 3 - A Short Primer on Budget Terms

Cutting Thru Budget Confusion - - A Short Primer on Budget Terms

The County budget can be confusing to read and analyze due to the nature of the accounting system.  We are all used to budgeting for ourselves, but when it comes to reading a City, County, State or Federal budget, we can easily get lost and frustrated.

Let's work with the FY 09-10 County budget and take a look at how the Revenues are categorized.  

Total County Revenue (pg 30 in Budget, pg 2 in Charts)

Revenue Source	FY 09-10 ($ Million)	% of Revenue
General Purpose Revenue	696.8	12.8
Other General Fund	2,083.7	38.2
Dedicated Revenue	2,676.4	49.0
Total	$5,456.9	100.0%

General Purpose Revenue are revenues which go into the County's General Fund.  The money comes from a variety of sources.  Primary sources are:  property taxes, vehicle license fees, interest, and sales tax.  The use of these revenues is unrestricted, which means the Board of Supervisors can spend them on whatever programs they want to.  

City Govt Finance Glossary

ACCRUAL BASIS OF ACCOUNTING:  Revenues are recognized when both measurable and available; expenditures are recorded when services have been substantially performed or goods have been received and the liabilities incurred. 

 

ADOPTED BUDGET:  The official budget as approved by the City Council at the start of each fiscal year. 

 

AD VALOREM TAX:  (which means “according to its value”)  A state or local government tax based on 

the value of real property as determined by the county tax assessor. 

 

AGENCY FUND:  Used to account for assets held by the City in a fiduciary capacity for individuals, government entities, and others. 

Understanding Types of City Govt Funds

Types of Governmental Funds

Governmental funds are used to account for most, if not all, of a government’s tax-supported activities.  The  general fund, special revenues funds, debt service funds, and capital projects funds are considered governmental  funds. 

1.  GENERAL FUND 

GENERAL FUND:  The General Fund is the general operating fund of the City.  All general tax revenues  and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in  this fund. 

 

2.  SPECIAL REVENUE FUNDS 

Special Revenue Funds are used to account for proceeds of specific sources (other than for major capital  projects) that are legally restricted to expenditure for specified purposes. 

 

AIR QUALITY IMPROVEMENT FUND (AQMD): Established to account for the City's share of funds  received under Health & Safety Code Section 44223 (AB 2766) to finance mobile source air pollution reduction  programs consistent with the California Clean Air Act of 1988. 

 

COMMUNITY DEVELOPMENT BLOCK GRANT FUND (CDBG):  This fund accounts for revenues received  from the Department of Housing and Urban Development. These revenues must be expended to accomplish one  of the following objectives: elimination of slum or blight, benefit low and moderate income persons, or to meet  certain urgent community development needs.