An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday,
February 5, 2002 commencing at 7:00 a.m.

Present: Council Members – Hitchcock, Howard, Land, Nakanishi, and Mayor Pennino

Absent: Council Members – None

Also Present: City Manager Flynn, Deputy City Attorney Schwabauer, and City Clerk Blackston

City Clerk Blackston reviewed the weekly calendar (filed).

C-1 "Review of major budget preparation milestones and discussion of recommended changes to Budget Policies"

Finance Director McAthie outlined the following benefits of two-year budgets:

Serves to increase credibility and public confidence

Encourages sound financial management and fiscal integrity

Increases efficiency

Directs attention to the total financial condition

Establishes a forward looking approach to planning

Allows for continuity in handling financial affairs

Spans the additional time it typically takes to get a new activity or service up and running

Ms. McAthie explained that as this is the second year of a two-year budget, the focus of discussion will be on significant changes to the figures disclosed in the 2001-03 budget. She reviewed the draft calendar entitled "Major Budget Preparation Milestones" (filed). She stated that policies are a guide to the preparation and execution of the budget. They cover a variety of items including general revenue management, debt management, and projected targets for fund balance reserves. She reported that Fitch, one of the top three rating agencies, stated that Lodi’s budget policy addresses everything they consider when determining a rating for an agency. She noted that Fitch used the City’s budget document as a prelude to their own. Ms. McAthie read a quote from the Government Finance Officers Association reviewers who stated, "your document is outstanding as a policy document." She noted that the Association also asked if they could use Lodi’s policy document in their book of illustration examples for other agencies.

Ms. McAthie reviewed the following changes to the budget policies as recommended by the City Manager:

Pages B-1 and B-7, ‘Revenue Distribution’ – eliminate the word "distribution".

Page B-9, Section D – correct the in-lieu percentages for water and sewer to 12%.

Page B-9 – add a new section entitled "Grants and Donations" and note that Council must approve applications for grants or acceptance of donations containing restrictions that may have an impact on future budgets.

Page B-12, Section F, ‘Debt Management’ – add the words "other than enterprise fund projects". No more than 60% of all capital projects other than enterprise fund projects would be funded from long term financing. Direct debt would not exceed 2% of the City’s assessed valuation. Ms. McAthie reported that currently the City has one general fund long term financing and it is under 60%. The current assessed valuation is $3.1 billion, 2% of which would amount to $61.2 million. The direct General Fund debt would be $26 million.

Page B-21, Fleet Policy – update the target funding for enterprise funds based on the vehicle replacement requests that are listed on page E-83 of the 2001-03 budget document. The recommended change would be: Water Fund – 0; Wastewater Fund – $71,000; and Electric Fund – $435,000.

Mayor Pro Tempore Hitchcock requested that the Council be given a copy of the appraisal done on City assets.

City Manager Flynn introduced the subject of the Electric Utility Market Cost Adjustment (MCA) and associated in-lieu transfer.

Council Member Land stated that he did not approve of the $900,000 from the MCA being transferred; however, it had been included in the budget. He voiced support for bringing this matter back to Council to consider possible elimination or reductions in services or programs to offset the $900,000. He noted that both revenues and the overall budget should be considered.

City Manager Flynn reported that there was no projection of MCA in the second year of the budget. He clarified that the in-lieu transfer takes place at the end of the year.

At the request of Mayor Pro Tempore Hitchcock, Ms. McAthie described the history of the in-lieu fee. She explained that prior to 1993, it was a dollar amount. Due to difficulties in projecting budget impacts, it was subsequently decided to determine a percentage based on prior year’s revenues.

In response to Council Member Nakanishi, Mr. Flynn reported that at the time the water and sewer rates were increased, staff anticipated that the General Fund would help bear some of the costs.

Mayor Pro Tempore Hitchcock felt that the Electric Utility in-lieu transfer of 12% was too high.

Electric Utility Director Vallow confirmed that rates have remained flat since 1997. Revenues have increased due to selling more kilowatt hours. He reported that the months of May and June can account for a 3% to 4% overall budget fluctuation. He projected that the transfer to the General Fund will be 4% lower that what was anticipated, due to low summer temperatures and increased conservation last summer.

Council Member Nakanishi pointed out the irony in the fact that Council is now considering that the in-lieu transfer may be too high, when only a few years ago, there was discussion about the implications of deregulation and borrowing $40 million to protect the transfer to the General Fund and profit margin. He stated that Lodi has the lowest electric rates even with the 12% transfer, and questioned whether it would be a good business plan to decrease it.

Discussion ensued regarding the budget calendar and proposed adoption date of April 17, 2002; general consensus was to delay budget adoption until June.

Deputy City Manager Keeter asked Council for clarification on a previous request that was made for public monthly expenditure reports.

Mayor Pro Tempore Hitchcock stated that the School District provides a public report at each board meeting listing every check and who it was written to.

Mayor Pennino and Council Member Land were not in favor of the request to provide detailed expenditure reports.

In response to Council Member Nakanishi, Ms. McAthie estimated that it would take two hours each month to produce such a report.

City Manager Flynn stated that one of the debates against publishing warrant registers is that it tends to focus attention on the minutiae of operations, rather than major issues.

Mayor Pennino and Council Member Nakanshi pointed out that this information is available to any member of the public who requests it from the Finance Department. Council Member Nakanishi suggested that when Ms. Hitchcock becomes Mayor, she use the platform of public accountability.

COMMENTS BY THE PUBLIC ON NON-AGENDA ITEMS

None.

No action was taken by the City Council. The meeting was adjourned at 7:47 a.m.

ATTEST:

Susan J. Blackston

City Clerk