Well, here we go again. At the December 17 meeting, I addressed the Council about its running commentary on the 2nd Floor Staffing/Finance Workout Plan, hoping to put that baby to bed once and for all.
It was going pretty well; in fact, the Mayor was very polite and asked me some clarifying questions — and then allowed me to answer. The Administrative Services Director followed up with positive comments, acknowledging that previous staff had taken action to address the plummeting Fund balances. I was pretty satisfied with that much progress.
But then Mark Sorensen jumped right back into full assault mode — seemingly driven by some sort of clandestine, private-frequency radio transmission (perhaps from a spy drone?) reaffirming his theory that former staff had conspired to harm the Council and destroy the City by secretly driving Fund balances into the red.
You think I’m kidding? I’ll link you to the one-minute video clip so you can see for yourself, but I just want to point out that he actually used the words “top secret operation.” Yes, he really did say those words. Out loud. He did.
Here’s the clip: Sorensen “Top Secret Operation”
After Sorensen made his ill-advised (and ill-informed) remark, I emailed him to let him know he was off base, that it would have been more beneficial if he had simply asked me about it during the discussion, and that I would be happy to speak with him publicly or privately to fill him in on the details of the mini-allocation.
He responded by telling me it was something Quené said during her comments that had triggered the thought, as if that excused it, and so I politely replied and repeated my offer to talk with him openly and honestly about anything he wanted to know.
I received no further response, which has unfortunately earned him a dose of embarrassing public enlightenment in lieu of a pleasant, informative conversation. I swear, I just can’t figure the guy out.
Back in September, we three gals had some pretty lively conversations with the Mayor about believing media reports, after which Alicia finally pinned him down and asked him, if we aren’t to believe the media, can we at least rely on what is said during Council meetings? After a little soft shoe routine and some political double speak, the Mayor finally said, “Everybody holds one another accountable in this chamber.”
Mr. Sorensen, consider yourself on notice that you are going to be held accountable. You don’t get to just say whatever you want from the dais and expect it to be accepted as truth simply because you’re the one who said it. There is a truth to be told, but you have been so preoccupied with your personal mission to ruin the professional reputations of honorable public servants that you refuse to listen and therefore can’t possibly understand it, much less explain it to anyone else. You need to stop. Really.
Now, here is some factual information about the Private Development Allocation (known internally as the “mini-allocation”):
As we explored in a recent post, allocations distribute costs, as opposed to transfers, which distribute dollars. The mini-allocation distributes operating costs from the Private Development Fund (Fund 862) to a handful of other Funds that benefit from work efforts by Planning staff, and to a lesser extent, Building staff. Keep that in mind as you read along.
This particular allocation was first developed in fiscal year 2010-11, as part of the 2nd floor finance plan. It was a tool we used to clean up accounting for the Planning Services Department’s operations, so we could quantify the true cost of processing development applications. For the moment, please just trust me that it resulted in a net reduction in costs to the impacted Funds. There was no additional money being spent.
As you can see in the following document, staff cleverly hid this “top secret operation” from the Council on page 2 of the City Manager’s fiscal year 2010-11 budget message — that would be the second page of the proposed budget — where they would be sure to overlook it.
Ooooooh, and in the next document you will see that former Finance Director Hennessy went to great lengths to bury the mini-allocation in the budget page dedicated to Fund 862 by assigning it a specific department called Private Development Cost Allocation, so no one would recognize it.
That was such a sneaky move that Administrative Services Director Constantin and his new-and-improved budget team mustn’t have even noticed it when they put it in the current fiscal year’s budget! According to Sorensen, it took the City’s super-duper fraud seeking auditors to finally discover it and bring it to everyone’s attention.
(Also notice how Ms. Hennessy mistakenly revealed the uber-classified negative Fund balance at the bottom of the page… Bad form!)
And the final straw: The next document is an example of how the mini-allocation was hidden in the Funds that received the allocation. I’m using the Sewer Fund (Fund 850) budget page, since Sorensen specifically called that out in his “top secret operation,” but if you go to the City’s published budget, you can find the same line item on every single impacted Fund. This is certainly advanced trickery and foul play!
In the documents above, you can see that the allocation appears in the Operating Expenditures section for both Funds. It is a negative number for Fund 862, since it is technically an offset to expenses, and a positive number for Fund 850, since it is a true expense. The numbers aren’t the same for both Funds, because Fund 862 shows the aggregate allocation, whereas Fund 850 only shows its portion of the allocation.
Now that we’ve established there was absolutely nothing “top secret” about the mini-allocation, let’s look into why we created it.
Since at least as far back as 1991, when the Private Development Fund was created, some Planning salaries were budgeted to other Funds, including the Sewer Fund and the Subdivision Fund. Unfortunately, I no longer have access to my paper files (I had to dig through dusty old budget binders to figure out what had originally happened… ack!), so I don’t have the complete list of funding sources to share with you. Suffice it to say that Fund 862 never fully funded Planning’s operations.
Instead of development staff charging their time to what they were actually doing, they charged time based on where they were funded in the budget. To make the funding ratio work out properly, some staff were charging up to 60% of their time directly to other Funds. (Click here if you’d like to see an example of pre-Private Development Allocation funding for Planning staff.) This was specific direction that came from the City Manager’s office, and it was a source of considerable concern for both Finance and development staff.
Don’t get me wrong, I am not being critical of the funding sources; there is a legitimate nexus between development staff work and benefit to other funds. The problem was a lack of accountability and transparency, which translated into the inability to properly quantify costs and develop appropriate User Fees. How can the cost of processing a Use Permit be accurately tracked when the staff person working on it is charging time to Sewer or Transportation or Redevelopment, just to make the budget numbers work?
There is much more to this, and I promise you I will break it all down when I write the dedicated Private Development Fund post, but for now it is enough to say that we unwound that particular problem by allocating costs, eliminating direct staff charges to the benefiting Funds, and then fully accounting for private development costs in Fund 862.
Here’s an oversimplified explanation of how it worked: We added up all of the private development staff charges to Funds other than Fund 862. We applied a 10% discount factor, since we were attempting to cut budgets in all impacted Funds. Then, via the mini-allocation, the costs were distributed as expenses to the benefiting Funds. Here is the official calculation for the original mini-allocation (which, incidentally, is included in the City’s files for anyone to examine — nothing top secret here):
Once the allocation was in place, we tied it to a percentage of staff salaries for development work, rather than allowing it to continue as a fixed cost to the benefiting Funds. The effect of this can be seen in the dollar decrease from fiscal year 2010-11 to fiscal year 2011-12. In other words, the more we reduced Fund 862 salaries, the more the allocation was reduced, for a net savings to the benefiting Funds. (There was also a reduction in the allocation due to the loss of RDA funds, but that is immaterial to this discussion.)
The other effect of allocating the costs and direct charging only Fund 862 was the ability to assign cost centers to specific Planning staff work efforts and other operating expenses. This was critical in our effort to establish solid data for a new User Fee Study. Incorrect underlying data will always result in incorrect fees, no matter how skillful the technical analysis and mathematical calculations used in the study might be.
We cleaned up Fund 862 to enable us to use a formula based on actual costs for processing the various types of applications, divided by the actual volume of applications. Unfortunately, however, once ACM Rucker and BDSD McKinley mysteriously vanished, the authority behind the effort vanished with them. But that’s another story in and of itself. What a waste.
And so, the mini-allocation was a good part of the finance plan. I doubt it is still functioning properly at this point, since there is no one left who understands the mechanism of tying it to salaries or the process we put in place for monitoring the Fund balance on a bi-weekly basis. Fund 862 finished fiscal year 2012-13 in the black (annual revenues exceeded annual expenditures); it was the first time that happened since 2001. It will be interesting to see how the Fund finishes for fiscal year 2013-14.
So much for Sorensen’s “top secret operation” conspiracy theory. Hopefully, someone who loves him will splurge on a tin foil hat for him, to keep those wacky cloak-and-dagger ideas in check. Hey, it could help…
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Although this post is related to the Private Development Fund, known internally as Fund 862, its purpose is not to explain what happened to cause the balance to go negative. That subject requires its own post, which will be forthcoming in the following weeks. (For any of you who are fans of self-torture, I will go ahead and provide a link at the end of this post to my February 2013 Finance Committee report that does explain what happened, and you can read it at your leisure.)
Rather, this post explains the measures taken to correct the annual structural deficit; in short, it describes the plan we developed and implemented to stop the hemorrhaging. It was a good, solid plan, and it worked.
Now is probably a good time to point out that the $9m negative Fund balance always was, and still is, a General Fund obligation. Fund 862 is what is known as an Enterprise Fund — it provides services for a fee — and new fees are not permitted to pay for old debt. What that means is any annual shortfall in Fund 862 revenues should have been matched by a transfer from the General Fund.
Of course, therein lies the problem: General Fund dollars are premium, since they pay for Police and Fire. Fund 862 can legally carry a negative balance, so the General Fund transfer to cover operating shortfalls was pretty far down on the list of budget priorities. But enough of that for now; we need to get back to the purpose of this post, which is to explain how we arrested the annual operating losses.
While it may seem the two Fund 862 posts are being published in reverse order, this one is in direct response to the ongoing sarcastic commentary emanating from the Council dais, which I addressed from the podium at the December 17 meeting. I’ve just really had enough of the Council’s political grandstanding at the expense of staff who worked diligently (and successfully) to correct a decades-long error in funding development operations.
Here is the video clip of my 3-minute presentation and responses to questions posed by the Mayor:
And here is the chart I distributed to the Council during the meeting:
Note that the chart represents the annual structural deficit. To reiterate, nothing but General Fund dollars will ever correct the negative Fund balance.
And now, for your edification, here is the detailed version of the workout plan story:
In February of 2010, former Assistant City Manager John Rucker, whom l had never met, stopped by and asked me to walk across the street with him to get coffee. Although l was very nervous, l went along to see what he had on his mind.
He opened the dialogue by saying, “Mary, tell me about the Private Development Fund.”
And so, he and I talked at length, and I explained what I knew, although at that time I had never even seen the Fund-level accounting. I only knew what I could see from a Planning operations standpoint.
I cautioned him that the Council would never let him daylight what had gone wrong with the Fund, since it was a political bomb that would get everyone very messy when it went off. Nevertheless, he assured me that he had been directed to analyze the Fund and repair the structural (annual) deficit, and that the Council did in fact want an explanation of what had caused it.
I had been trying for some time to call attention to things that weren’t working right for Planning operations, although I had never been included in City Manager level budget meetings until the lead-up to fiscal year 2007-08, after Steve Peterson was hired as Planning Director and needed me there to explain his budget. Once I got into the meetings and was able to express my concerns, former Finance Director Jennifer Hennessy began making adjustments based on my working knowledge of Planning’s operations and funding. I suspect that either she or former City Manager Dave Burkland had pointed Mr. Rucker in my direction, since I had been a squeaky wheel for a few years.
But once Mr. Rucker put his shoulder behind the effort in 2010, and I was given full access to the City’s financial software and the ability to request custom reports to see all the moving parts, what a can of worms that Fund turned out to be! While the funding adjustments Ms. Hennessy had made were definitely steps in the right direction, they had really only scratched the surface of the operational issues that still needed to be addressed.
Former Building & Development Services Director Fritz McKinley led the 2nd floor team, collaborating with former Capital Projects Services Director Tom Varga to identify work efforts that had been pushed to the back burner after two rounds of early retirements had cost the 2nd floor 31% of its staff — that amounted to 22 bodies.
I have such a fond memory of watching the two of them using different colored markers to draw floor-wide organizational charts on sheets of butcher paper and brainstorming to identify opportunities to cross-train staff and build interdepartmental project teams. It was the beginning of an enormous undertaking, but they committed themselves to the plan and worked together even when things got very uncomfortable.
Meanwhile, I was working on developing the finance plan, coordinating with Ms. Hennessy and my current partner-in-crime, Alicia Meyer. We built an interdepartmental alliance, where in the past there had been distrust, and we developed a plan to properly finance 2nd floor operations. Ms. Hennessy made changes to the budget that allowed for greater transparency, so 2nd floor staff could clearly see what was impacting our funding.
Alicia taught me to run complex financial reports, and together we unwound decades of less-than-transparent time card coding. Direct charges to other Funds ceased, in favor of a multi-Fund allocation tied to Fund 862 salaries. Cost centers were assigned to specific staff activities to provide solid data for the User Fee Study projections. These changes enabled us to identify the true cost of processing development applications.
Revenues and expenses were monitored on a bi-weekly basis in an effort to stay ahead of any negative trends. Historically, 2nd floor Departments simply monitored their Operating Budgets, without regard for whether or not revenue projections were being met. That obviously didn’t work out very well.
Citywide Indirect Cost Allocation Plan (CAP) bases were analyzed to determine which allocations should be redirected to operating budgets in Funds other than Private Development. The allocation to Fund 862 was reduced to reflect what was being used in the most recent User Fee Study.
Development projects subject to time and materials billing (rather than flat fees) were moved into the Subdivision Fund. This enabled us to more accurately identify true City costs, without having to sort them from charges that would be passed through to project applicants.
A General Fund operating budget was established for Planning, to account for unrecoverable operating costs related to non-fee activities (e.g., Tree Ordinance, Historic Preservation Ordinance, Economic Development Committee).
Floor-wide operations were thoroughly analyzed to maximize service levels while living within constricted means. Staff were cross-trained across department lines to ensure they were working where there were both need and funding. There was no “created” work. As I mentioned earlier, the 2nd floor had lost 22 bodies, all of whom left work behind that needed to be redistributed. In addition, the Federal ARRA (Obama’s shovel-ready) grant projects had come in, which required extensive staff work and reporting. There was plenty of work, and we built a team to get it done.
Specifically, we consolidated the remaining six administrative staff into a floor-wide team to absorb the duties of seven who had opted for retirement; we transferred one Building Inspector to Construction Inspection to absorb the duties of two retired Inspectors; we assigned double duty to the Senior Development Engineer, who absorbed the work of the retired Senior Civil Engineer in Construction Inspection; we transferred a Senior Planner and an Associate Planner to Capital Projects Services to work on environmental review, the ARRA projects, the update to the Bike Master Plan, and the “ultimate annexation” that was to incorporate the entire Chapman-Mulberry area; we moved an Assistant Planner to Sewer/Storm Drain Engineering to work on the Nitrate Action Plan projects and provide backup support for the public counter. In short, everyone was working on whatever needed to be done.
Here is an email from Mr. Rucker reinforcing the cross-department assignments during the workout plan. This was serious business, not some ploy to avoid making tough decisions.
What the 2nd floor staff accomplished — working at that level of efficiency to give the taxpayers the maximum bang for their buck — should serve as a model for all City departments. Yet the Council continues to say staff did nothing.
Now, as promised, here is the report I wrote for presentation at the February 26, 2013 Finance Committee meeting. This is the last iteration before Nakamura directed me to strike all references to Council actions. He told Mr. McKinley, in my presence, that the Council actually did not want to know what had happened. (Odd, isn’t it, that the Council has subsequently spent so much of their grandstanding efforts accusing staff of withholding information?)
As it turned out, Mr. McKinley “mysteriously resigned” the night before the meeting, so the report did not get presented. As I mentioned earlier, lots of important folks would have had messy stuff blown all over their pretty faces if that bomb had been detonated. And we can’t have that…
Next up will be the Private Development Fund, I guess. If you read that memo, you’ll likely want it to be translated from bureaucrat-speak to English, so I will oblige. I’m really sorry this stuff is so complicated, but if it were simple, the government would have to find some other way to do it, right?
Thank you for your continued readership. As always, your comments and questions are welcome. Please continue to share with your family, friends, and neighbors. An informed citizenry can create an accountable government.
And finally, a very special Merry Christmas to all City staff, former and present, who made the 2nd floor staffing and finance plan work. You did an excellent job.