Menlo Park City staff will be preparing an information piece that identifies
the important distinctions between the various dollar figures that are
circulating and their origin. Our hope is that it brings clarity to what has
been confusing to a number of our residents. When it is available, I will
email it to you and it will be posted on the City's website.
In the meantime, please be aware that the City Council will be reviewing a
report at its February 6th meeting that details where we are
fiscal-year-to-date, and will also be discussing the timing of the Utility
User Tax.
The following is an email reply previously sent to some writers who had
asked similar questions.
I apologize at the outset for the length of my reply, but feel that it is
important to provide a reasonably comprehensive answer to your recent email.

The City of Menlo Park has long been recognized for its prudent and
progressive financial management practices. In fact, the City's
extraordinary credit rating and receipt of numerous awards is testimony to
this fact.

The budget that is adopted by the City Council to start the fiscal year is
recognized as a set of estimates, particularly with respect to revenues that
are estimated far in advance and are influenced by a variety of factors.
Expenditures are forecasts based on planned services and projects along with
assumptions about staffing levels, utility and other variable costs. The
2005-6 Adopted Budget was essentially a carryover of the previous year,
since the Council was in the midst of the Your City/Your Decision (YC/YD)
community engagement process. As decisions were made about service
reductions and fee increases, some were implemented immediately and
positively impacted the year-end closing, and others were incorporated into
the current fiscal year budget for 2006-7.

I need to clarify that the deficit for 2005-06 was never projected to be
$2.9 million. We always acknowledged that there are ways to avoid deficit
spending in a single fiscal year - some of which were employed in 2005-06,
like not funding infrastructure or certain liabilities we know to be
outstanding. $2.9 million was the long-term structural imbalance that was
identified if the City did not implement some more deficit-reduction budget
strategies. YC/YD budget strategies were made more difficult in light of
the fact that we had been cutting the General Fund budget the previous 5
years. The need for a UUT was not be tied to one year of operating results,
but was instead one of the alternatives identified for solving the long-term
challenge of balancing expenditures with revenues. Going forward, it will
be necessary and important for us to identify what portion of the 2005-6
surplus is on-going, and what portion is the result of departmental
vacancies and other one-time savings.

The last couple years, we implemented a mid-year review at which time staff
updates both revenues and expenditures year-to-date, and projects those
through to the end of the fiscal year. In fiscal year 2005-2006, the
adopted budget originally anticipated a deficit of $800K, but the mid-year
adjustment revised this downward to $400K. When we presented the
FY2006-2007 Budget for adoption, we were explicit about our assumptions, the
fact that the budget is built on best estimates, and that we knew that our
fiscal year end would reflect that the deficit had further shrunk to the
point where little or no drawdown from the general fund reserve would be
required. This was due to savings resulting from staff turnover and other
belt-tightening measures, including certain YC/YD strategies, as well as
some revenues exceeding earlier estimates.

In October 2006, we received the preliminary results of the auditors field
work. Even though the fiscal year ends on June 30th each year, it typically
takes us until mid-August to close out accounts payable and to update
balances for all of our different funds. The auditors begin their review in
September and present their initial findings in early to mid-October. Even
though their letter to the City is dated October and reads as if their work
is done at that point, the City's Finance Director takes that information
and begins her process of reviewing and discussing their findings, which
lasts until early December. At that point, she drafts the Management's
Discussion and Analysis, reviews that with the independent auditor and I
work with her on the transmittal letter. The final CAFR is put together and
transmitted to Council by the end of December, in accordance with government
accounting practices.

This year, we added a step, in light of the preliminary information received
from the auditors in October, while the audit was still in process, and in
response to the Council's expressed concern regarding the accrued Other Post
Employment Benefits (OPEB; essentially, the City's obligation to pay retiree
health insurance) liability. Staff presented a report seeking Council
approval to allow an adjustment in closing the fiscal year 2005-2006
financial report with an $800K designation for the actual cost of the City's
OPEB expense and prorated liability for that year. In addition, staff
recommended that the Council amend the current year budget by transferring
an additional $800K to cover this year's OPEB expense and liability. The
combined $1.6 million was to come from the identified FY2006 year-end
surplus. At that point in time, based on the audit information available,
we were confident that there would be at least that much as a surplus. We
did not know, however, until after the audit review process was completed
that that figure would be as large as was finally reported in the CAFR as
$3.7 million.

Staff has met with Council Member John Boyle on several occasions to answer
his questions and provide clarification about what was known when, and how
the City's practices compare to the private sector. Like we did several
years ago when we added the mid-year review and budget revision step, there
may be opportunities in the future to provide periodic updates to the City
Council to keep it regularly informed. Staff has planned an extensive
update for the City Council on February 6th, at which time we will present
specific revisions to the current fiscal year budget. This step is part of
our ongoing commitment to provide to Council the best, most current
financial information that is available.
Received on Thu Jan 25 18:58:41 2007