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HomeMy WebLinkAboutStatler, William C. 2015-07-07COU No. 1516003 AGREEMENT FOR PROFESSIONAL CONSULTING SERVICES This Agreement, made and entered into this 7th day of July, 2015 ( "Effective Date "), by and between CITY OF UKIAH, CALIFORNIA, hereinafter referred to as "City" and William C. Statler, a sole proprietor, organized and in good standing under the laws of the state of California, hereinafter referred to as "Consultant ". RECITALS This Agreement is predicated on the following facts: a. City requires consulting services related to Phase 1 Indirect Cost Allocation Assessment. b. Consultant represents that it has the qualifications, skills, experience and properly licensed to provide these services, and is willing to provide them according to the terms of this Agreement. c. City and Consultant agree upon the Scope -of -Work and Work Schedule attached hereto as Attachment "A ", describing contract provisions for the project and setting forth the completion dates for the various services to be provided pursuant to this Agreement. TERMS OF AGREEMENT 1.0 DESCRIPTION OF PROJECT 1.1 The Project is described in detail in the attached Scope -of -Work (Attachment "A "). 2.0 SCOPE OF SERVICES 2.1 As set forth in Attachment "A ". 2.2. Additional Services. Additional services, if any, shall only proceed upon written agreement between City and Consultant. The written Agreement shall be in the form of an Amendment to this Agreement. 3.0 CONDUCT OF WORK 3.1 Time of Completion. Consultant shall commence performance of services as required by the Scope -of -Work upon receipt of a Notice to Proceed from City and shall complete such services to the City's reasonable satisfaction, even if contract disputes arise or Consultant contends it is entitled to further compensation. 4.0 COMPENSATION FOR SERVICES 4.1 Basis for Compensation. For the performance of the professional services of this Agreement, Consultant shall be compensated on a time and expense basis not to exceed a guaranteed maximum dollar amount of $10,000. Labor charges shall be based upon hourly billing rates for the various classifications of personnel employed by Consultant to perform the Scope of Work as set forth in the attached Attachment A, which shall include all indirect costs and expenses of every kind or nature, except direct expenses. The direct expenses and the fees to be charged for same shall be as set Std — ProtSvcsAgreement- November 20. 2008 PAGE 1 OF 7 COU No. 1516003 forth in Attachment A. Consultant shall complete the Scope of Work for the not -to- exceed guaranteed maximum, even if actual time and expenses exceed that amount. 4.2 Changes. Should changes in compensation be required because of changes to the Scope -of -Work of this Agreement, the parties shall agree in writing to any changes in compensation. "Changes to the Scope -of- Work" means different activities than those described in Attachment "A" and not additional time to complete those activities than the parties anticipated on the date they entered this Agreement. 4.3 Sub - contractor Payment. The use of sub - consultants or other services to perform a portion of the work of this Agreement shall be approved by City prior to commencement of work. The cost of sub - consultants shall be included within guaranteed not -to- exceed amount set forth in Section 4.1. 4.4 Terms of Payment. Payment to Consultant for services rendered in accordance with this contract shall be based upon submission of monthly invoices for the work satisfactorily performed prior to the date of the invoice Tess any amount already paid to Consultant, which amounts shall be due and payable thirty (30) days after receipt by City. The invoices shall provide a description of each item of work performed, the time expended to perform each task, the fees charged for that task, and the direct expenses incurred and billed for. Invoices shall be accompanied by documentation sufficient to enable City to determine progress made and to support the expenses claimed. 5.0 ASSURANCES OF CONSULTANT 5.1 Independent Contractor. Consultant is an independent contractor and is solely responsible for its acts or omissions. Consultant (including its agents, servants, and employees) is not the City's agent, employee, or representative for any purpose. It is the express intention of the parties hereto that Consultant is an independent contractor and not an employee, joint venturer, or partner of City for any purpose whatsoever. City shall have no right to, and shall not control the manner or prescribe the method of accomplishing those services contracted to and performed by Consultant under this Agreement, and the general public and all governmental agencies regulating such activity shall be so informed. Those provisions of this Agreement that reserve ultimate authority in City have been inserted solely to achieve compliance with federal and state laws, rules, regulations, and interpretations thereof. No such provisions and no other provisions of this Agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between Consultant and City. Consultant shall pay all estimated and actual federal and state income and self - employment taxes that are due the state and federal government and shall furnish and pay worker's compensation insurance, unemployment insurance and any other benefits required by law for himself and his employees, if any. Consultant agrees to indemnify and hold City and its officers, agents and employees harmless from and against any claims or demands by federal, state or local government agencies for any such taxes or benefits due but not paid by Consultant, including the legal costs associated with defending against any audit, claim, demand or law suit. Std - ProfSvcsAgreement- November 20. 2008 PAGE 2 OF 7 COU No. 1516003 Consultant warrants and represents that it is a properly licensed professional or professional organization with a substantial investment in its business and that it maintains its own offices and staff which it will use in performing under this Agreement. 5.2 Conflict of Interest. Consultant understands that its professional responsibility is solely to City. Consultant has no interest and will not acquire any direct or indirect interest that would conflict with its performance of the Agreement. Consultant shall not in the performance of this Agreement employ a person having such an interest. If the City Manager determines that the Consultant has a disclosure obligation under the City's local conflict of interest code, the Consultant shall file the required disclosure form with the City Clerk within 10 days of being notified of the City Manager's determination. 6.0 INDEMNIFICATION 6.1 Insurance Liabilit Without limiting Consultant's obligations arising under Paragraph 6.2 A. Minimum Scope of Insurance Coverage shall be at least as broad as: 1. Insurance Services Office ( "ISO) Commercial General Liability Coverage Completed Operations Form No. CG 20 37 10 01. 2. ISO Form No. CA 0001 (Ed. 1/87) covering Automobile Liability, Code 1 �. Errors and Omissions I -- - ..-e - ee - - - -- _1 .. - profec ion. Architects' and engineers' coverage is to be endorsed to include contractual liability. B. Minimum Limits of Incuraesc 1. General Liability: $1,000,000 combined single limit per occurrence for bodily injury, personal injury and property damage including operations, per occurrence limit. 2. Automobile Liability: $1,000,000 combined single limit per accident for bodily injury and property damage. Std — ProtSvcsAgreement. November 20. 2008 PAGE 3 OF 7 C. COU No. 1516003 4. Errors and Omissions liability: $1,000,000 per occurrence. such deductibles or self insured retentions as respects to the City, its officers, O. Other Insurance Provisions and completed operations of the Consultant, premises owned, essupiesl-ar- e City, its officers, officials, employees or volunteers shall be in +t not affect coverage provided to the City, its officers, officials, d. The Consultant's insurance shall apply separately to each insured to the limits of the insurer's liability. its officers, officials, employees and volunteers for loses arising from Std — ProfSvcsAgreement- November 20. 2000 PAGE 4 OF 7 •- - - - - -- COU No. 1516003 3. Professional Liability Coverage If written on a claims made basis, the retroactivity date shall be the to 4. All Coverages Each Insurance poi that coverage shall not be suspended, voided, canceled by either party, City. E. Acceptability of Insurers AMB 1 for short term credit rating. F Verification of Coverage authorized by that insurer to bind coverage on its behalf. The Certificates and statute, the City's Workers' Compensation related forms cannot be used, equivalent forms approved by the Insurance Commissioner are to be substituted. before Consultant begins the work of this Agreement. The City rescrvcs e-r-+g4t have the right, but not the obligation, to purchase any or all of them. In that G. Subcontractors contractor or sub consultant. AU coverage for sub contractors or sub consultants 6.2 Indemnification. Notwithstanding the foregoing insurance requirements, and in addition thereto, Consultant agrees, for the full period of time allowed by law, surviving the termination of this Agreement, to indemnify the City for any claim, cost or liability that arises out of, or pertains to, or relates to any negligent act or omission or the willful misconduct of Consultant in the performance of services under this contract by Consultant, but this indemnity does not apply to liability for damages for death or bodily injury to persons, injury to property, or other loss, arising from the sole negligence, willful misconduct or defects in design by the City, or arising from the active negligence of the City. Std — RnlScesAereement- Nocemher 20. 2000 PAGE 5 OF 7 COU No. 1516003 "Indemnify," as used herein includes the expenses of defending against a claim and the payment of any settlement or judgment arising out of the claim. Defense costs include all costs associated with defending the claim, including, but not limited to, the fees of attorneys, investigators, consultants, experts and expert witnesses, and litigation expenses. References in this paragraph to City or Consultant, include their officers, employees, agents, and subcontractors. 7.0 CONTRACT PROVISIONS 7.1 Ownership of Work. All documents furnished to Consultant by City and all documents or reports and supportive data prepared by Consultant under this Agreement are owned and become the property of the City upon their creation and shall be given to City immediately upon demand and at the completion of Consultant's services at no additional cost to City. Deliverables are identified in the Scope -of -Work, Attachment "A ". All documents produced by Consultant shall be furnished to City in digital format and hardcopy. Consultant shall produce the digital format, using software and media approved by City. 7.2 Governing Law. Consultant shall comply with the laws and regulations of the United States, the State of California, and all local governments having jurisdiction over this Agreement. The interpretation and enforcement of this Agreement shall be governed by California law and any action arising under or in connection with this Agreement must be filed in a Court of competent jurisdiction in Mendocino County. 7.3 Entire Agreement. This Agreement plus its Attachment(s) and executed Amendments set forth the entire understanding between the parties. 7.4 Severability. If any term of this Agreement is held invalid by a court of competent jurisdiction, the remainder of this Agreement shall remain in effect. 7.5 Modification. No modification of this Agreement is valid unless made with the agreement of both parties in writing. 7.6 Assignment. Consultant's services are considered unique and personal. Consultant shall not assign, transfer, or sub - contract its interest or obligation under all or any portion of this Agreement without City's prior written consent. 7.7 Waiver. No waiver of a breach of any covenant, term, or condition of this Agreement shall be a waiver of any other or subsequent breach of the same or any other covenant, term or condition or a waiver of the covenant, term or condition itself. 7.8 Termination. This Agreement may only be terminated by either party: 1) for breach of the Agreement; 2) because funds are no longer available to pay Consultant for services provided under this Agreement; or 3) City has abandoned and does not wish to complete the project for which Consultant was retained. A party shall notify the other party of any alleged breach of the Agreement and of the action required to cure the breach. If the breaching party fails to cure the breach within the time specified in the notice, the contract shall be terminated as of that time. If terminated for lack of funds or abandonment of the project, the contract shall terminate on the date notice of termination is given to Consultant. City shall pay the Consultant only for services Std - ProfSvcsAgreement- November 20. 2008 PAGE 6 OF 7 COU No. 1516003 performed and expenses incurred as of the effective termination date. In such event, as a condition to payment, Consultant shall provide to City all finished or unfinished documents, data, studies, surveys, drawings, maps, models, photographs and reports prepared by the Consultant under this Agreement. Consultant shall be entitled to receive just and equitable compensation for any work satisfactorily completed hereunder, subject to off -set for any direct or consequential damages City may incur as a result of Consultant's breach of contract. 7.9 Execution of Agreement. This Agreement may be executed in duplicate originals, each bearing the original signature of the parties. Alternatively, this Agreement may be executed and delivered by facsimile or other electronic transmission, and in more than one counterpart, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. When executed using either alternative, the executed agreement shall be deemed an original admissible as evidence in any administrative or judicial proceeding to prove the terms and content of this Agreement. 8.0 NOTICES Any notice given under this Agreement shall be in writing and deemed given when personally delivered or deposited in the mail (certified or registered) addressed to the parties as follows: CITY OF UKIAH DEPT. OF THE CITY MANAGER 300 SEMINARY AVENUE UKIAH, CALIFORNIA 95482 -5400 WILLIAM C. STATLER 124 CERRO ROMAULDO AVENUE SAN LUIS OBISPO, CA 93405 9.0 SIGNATURES IN WITNESS WHEREOF, the parties have executed this Agreement the Effective Date: WILLIAM C. STATLER / m llysignedby Bill Statler DN. cn =Bill Stager, o, ou, sall il= bstatler @pacbell net c =US BY: Date: 2015.07.08 01 -10 27 - 07'00' PRINT NAME: WILLIAM C. STATLER IRS IDN Number: 556 -86 -1109 CITY OF UKIAH BY: Cr) / AGE SA GIACOMO CITY MA AGER ATTEST K'ISTINE LAWLER CITY CLERK Std — ProfSvcsAgreement- November 20. 2008 PAGE 7 OF 7 Date Date -71 ells- Date ATTACHMENT A 124 Cerro Romauldo Avenue San Luis Obispo, CA 93405 805.544.5838 • Cell: 805.459.6326 bstatler @pacbell.net www.bstatler.com William C. Statler Fiscal Policy • Financial Planning • Analysis • Training • Organizational Review July 2, 2015 Proposal to the City of Ukiah INDIRECT COST ALLOCATION ASSESSMENT This proposal is in response to the City of Ukiah's interest in assessing the City's indirect cost allocation practices. As outlined below, the workscope includes two phases: • Assessment of current practices and methodology. • And based on this assessment, possible further assistance in refining current practices or developing a new methodology for allocating indirect costs. As discussed under compensation, given the undetermined nature of the workscope pending completion of the assessment, Phase 1 services will be billed on a time and materials basis. Once the assessment is completed, a fixed cost proposal will be prepared for any Phase 2 services. The target is to complete Phase 1 services within 30 days; and if needed and depending on the scope, to complete Phase 2 within 30 days after that. Background. Concerns have surfaced about how the City allocates indirect costs. While some may be concerned that indirect cost reimbursements to the General Fund from other funds (like water, wastewater, airport, electricity and solid waste) to are too high, others may be concerned that the General Fund is under- recovering its costs. However, the overarching concern appears to be a lack of clarity, transparency and "understandability" of how allocations are made. Providing these three key elements to the process is the underlying goal of the proposed work. Indirect Cost Allocation History. Based on telephone discussions on July 2 with Karen Scalabrini, Finance Director, prior to 2014 -15 the City used a "central services" cost allocation plan. However, based on concerns with that model, the City moved to a combination of allocating some indirect costs through internal service funds (like purchasing, garage, information technology and building maintenance) and direct allocations through payroll and accounts payable for others. However, given recent concerns with this approach, the City is currently preparing a "central services" cost allocation plan, which should be available in draft form by Monday, July 6. ATTACHMENT A Indirect Cost Allocation Assessment Proposal WORK PROGRAM As noted above, the work program consists of two phases: Phase 1: Review Current Practices and Methodology 1. Hold teleconferences as needed with key staff. 2. Provide on -site briefing with key staff on July 9. 3. Review key financial management documents, such as Preliminary 2015 -16 Budget and cost allocation/internal service fund spreadsheets. 4. Provide draft report on findings and recommendations. 5. Brief key staff on draft report (most likely via teleconference). 6. Prepare and issue fmal report. Phase 2: Follow -up Assistance as Needed Based on the Phase 1 assessment, provide further assistance in refining current practices or developing a new methodology for allocating indirect costs as needed. This may be as simple as confirming that current practices are appropriate but may require some fine - tuning in how they are presented. On the other hand, it may mean developing a new model for allocating costs that is simpler, more transparent and intuitive, and that better meets the needs of an agency like Ukiah. Simply as an example, below is a link to a cost allocation plan I recently prepared for the City of Guadalupe, where there were similar concerns about the basis for the allocations. While the issues and costs will certainly be different for Ukiah, it shows three key principles: • Preparation of the plan as a separate document from the budget, with a clear discussion in the Introduction about its purpose and methodology • Reconciliation of the direct and indirect costs allocated in the plan to its parent document (in Guadalupe's case, the adopted budget). • Clear path on how allocations are made, with an easy to see recap of allocations by fund and division. City of Guadalupe Cost Allocation Plan Complicating Issue. One area of complication is the extensive use of internal service funds (there six of them), especially for services like purchasing, building maintenance, dispatch and billings /collections, which are not commonly accounted for this way. It is more common for the other two: garage and information technology. However, even in these cases, I have reservations about the use of internal services in meeting management goals as being a better way of allocating these kinds of costs than through a "central services" indirect cost plan. In surfacing this issue, attached is a "white paper" on the use of internal service funds. -2- ATTACHMENT A Indirect Cpst Allocation Assessment Proposal COMPENSATION Phase 1: Time and Materials Given the indeterminate nature of the workscope, it is not possible to propose a fixed fee for Phase 1 services. Accordingly, services will be billed on a time and materials basis, at $125.00 per hour. Travel time for any on -site meetings or presentations will be billed at 50% of the hourly rate for services ($62.50). Reasonable reimbursable expenses include meals, hotels and vehicle use at the IRS mileage rate. Services will be billed monthly based on hours worked and expenses incurred. Phase 2: Phase 2: Follow -up Assistance as Needed Once the assessment is completed, a fixed cost proposal will be prepared for any Phase 2 services. COMPLETION DATE This will largely depend on staff availability but I will be diligent in completing the work in a timely manner. That said, as noted above, the target is to complete Phase 1 services within 30 days; and if needed and depending on the workscope, to complete Phase 2 within 30 days after that. DELIVERABLES All written materials will be provided to the City in electronic form via email in Excel, Word, Adobe Acrobat or PowerPoint as appropriate. Any "hard- copy" reproduction will be at the City's expense. QUALIFICATIONS As set forth in the following Qualifications Summary, I have extensive experience in strategic planning, organizational review and policy analysis, as well as in a broad range of financial management practices, which have received state and national recognition for excellence in financial planning and reporting. My work ranges from San Luis Obispo (the city that Oprah Winfrey calls the "Happiest City in America ") to volunteer service helping the troubled City of Bell reform their government. My senior management experience includes serving as the Director of Finance & Information Technology /City Treasurer for the City of San Luis Obispo for 22 years and as the Finance Officer for the City of Simi Valley for ten years before that. Since retiring from local government in 2010, the "third act" of my career includes over 30 consulting and training assignments for wide range of local government agencies and professional associations. My experience also includes playing key leadership roles in the profession, which included serving as a member of the Board of Directors of the League of California Cities, President of the League's Fiscal Officer Department and President of the ATTACHMENT A Indirect Cost Allocation Assessment Proposal California Society of Municipal Finance Officers; and setting accounting and financial reporting standards as a member of the California Committee on Municipal Accounting. I have also published extensively on municipal finance best practices, including co- authoring the Guide to Local Government Finance in California, which has gained wide recognition as the industry standard on this topic; and provided highly -rated training for a number of professional organizations. As detailed in the Qualifications Summary, my consulting work has included: • Strategic planning and long -term financial plans. • Organizational analysis and policy advice, including organization reviews, reserve policies, benchmarking, financial condition assessments and operational reviews. • Interim finance director for the City of Monterey, San Diego County Water Authority and City of Capitola. • Rate studies, revenue option analysis and cost allocation plans. In each case, I believe the contracting agencies were delighted with the high- quality results they received at a very reasonable cost. (References from the senior managers of these agencies are available upon request.) SUMMARY I appreciate the opportunity to assist the City in assessing its cost allocation plan practices and methodology. Please call or email me if you have any questions concerning this proposal. Sincerely, William C. Statler Fiscal Policy • Financial Planning • Analysis • Training • Organizational Review ATTACHMENT "White Paper" on Internal Service Funds - 4 - ATTACHMENT A Indirect Cost Allocation Assessment Proposal QUALIFICATIONS SUMMARY SENIOR FINANCIAL MANAGEMENT EXPERIENCE Bill Statler has over 30 years of years of senior financial management experience, which included serving as the Director of Finance & Information Technology /City Treasurer for the City of San Luis Obispo for 22 years and as the Finance Officer for the City of Simi Valley for 10 years before that. Under his leadership, the City of San Luis Obispo received national recognition for its financial planning and reporting systems, including: • Award for Distinguished Budget Presentation from the Government Finance Officers Association of the United States and Canada (GFOA), with special recognition as an outstanding policy document, financial plan and communications device. San Luis Obispo is one of only a handful of cities in the nation to receive this special recognition. • Awards for excellence in budgeting from the California Society of Municipal Finance Officers (CSMFO) in all four of its award budget categories: innovation, public communications, operating budgeting and capital budgeting. Again, San Luis Obispo is among a handful of cities in the State to earn recognition in all four of these categories. • Awards for excellence in financial reporting from both the GFOA and CSMFO for the City's comprehensive annual financial reports. • Recognition of the City's financial management policies as "best practices" by the National Advisory Council on State and Local Budgeting. The financial strategies, policies and programs he developed and implemented resulted in strengthened community services and an aggressive program of infrastructure and facility improvements, while at the same time preserving the City's long -term fiscal health. CONSULTANT SERVICES Strategic Plans, Fiscal Forecasts and Long -Term Financial Plans • Strategic Planning: City of Monrovia (in collaboration with HSM Team) • Council Goal- Setting: City of Willits (in collaboration with the HSM Team) • Council Goal- Setting and Long -Term Financial Plan: City of Bell • Long -Term Financial Plan: City of Salinas • Long -Term Financial Plan: City of Camarillo • Long -Term Financial Plan: City of Pismo Beach • Long -Term Financial Plan: Bear Valley Community Services District ATTACHMENT A Indirect Cost Allocation Assessment Proposal Organizational Analysis and Policy Advice • Pro Bono Financial Management Transition Team and Policy Advice: City of Bell • Preparation for Possible Revenue Ballot Measure: City of Monterey • Financial Assessment: City of Guadalupe • Financial Condition Assessment: City of Grover Beach • General Fund Reserve Policy: City of Lompoc • General Fund Reserve Policy: City of Willits • Benchmark Analysis: City of Capitola • Financial Management Improvements: City of Capitola • Organizational Review: City of Willits (in collaboration with the HSM Team) • Finance Division Organizational Review: Sacramento Metropolitan Fire District • Finance Department Organizational Review: City of Ceres (in collaboration with national consulting firm) Interim Finance Director • City of Monterey • San Diego County Water Authority • City of Capitola Other Financial Management Services • Revenue Options Study: City of Greenfield • Revenue Options Study: City of Pismo Beach • Cost Allocation Plan: City of Guadalupe • Cost Allocation Plan: City of Port Hueneme • Cost Allocation Plan: City of Grover Beach • Water and Sewer Rate Reviews: Avila Beach Community Services District • Water and Sewer Rate Reviews: City of Grover Beach • Joint Solid Waste Rate Review of Proposed Rates from South County Sanitary Company: Cities of Arroyo Grande, Grover Beach, Pismo Beach and Oceano Community Services District PROFESSIONAL LEADERSHIP • Member, Board of Directors, League of California Cities (League): 2008 to 2010 • Member, California Committee on Municipal Accounting: 2007 to 2010 • Member, GFOA Budget and Fiscal Policy Committee: 2005 to 2009 • President, League Fiscal Officers Department: 2002 and 2003 • President, CSMFO: 2001 • Member, Board of Directors, CSMFO: 1997 to 2001 • Chair, CSMFO Task Force on "GASB 34" Implementation • Fiscal Officers Representative on League Policy Committees: Community Services, Administrative Services and Environmental Quality: 1992 to 1998 - 6 - ATTACHMENT A Indirect Cost Allocation Assessment Proposal • Chair, Vice -Chair and Senior Advisor for CSMFO Committees: Technology, Debt, Career Development, Professional and Technical Standards and Annual Seminar Committees: 1995 to 2010 • Member, League Proposition 218 Implementation Guide Task Force • Chair, CSMFO Central Coast Chapter: 1994 to 1996 TRAINER • League of California Cities • Institute for Local Government • California Debt and Investment Advisory Commission • Government Finance Officers Association of the United States and Canada • California Society of Municipal Finance Officers • Municipal Management Assistants of Southern California and Northern California • National Federation of Municipal Analysts • Probation Business Manager's Association • Humboldt County • California Association of Local Agency Formation Commissions Topics included: • Long -Term Financial Planning • The Power of Fiscal Policies • Financial Analysis and Reporting • Fiscal Health Contingency Planning • Effective Project Management • Providing Great Customer Service in Internal Service Organizations: The Strategic Edge • Strategies for Downsizing Finance Departments in Tough Fiscal Times • Top -Ten Skills for Finance Officers • Telling Your Fiscal Story: Tips on Making Effective Presentations • What Happened in the City of Bell and What We Can Learn from It • Debt Management • Transparency in Financial Management: Meaningful Community Engagement in the Budget Process • Financial Management for Non - Financial Managers • Preparing for Successful Revenue Ballot Measures • Integrating Goal- Setting and the Budget Process • Multi -Year Budgeting • Financial Management for Elected Officials • 12 -Step Program for Recovery from Fiscal Distress • Strategies for Strengthening Organizational Effectiveness - 7 - ATTACHMENT A Indirect Cost Allocation Assessment Proposal PUBLICATIONS • Planning for Fiscal Recovery, Government Finance Review, February 2014 • Guide to Local Government Finance in California, Solano Press, July 2012 (Co- Author) www.solano.com • Managing Debt Capacity: Taking a Policy -Based Approach to Protecting Long -Term Fiscal Health, Government Finance Review, August 2011 • Fees in a Post - Proposition 218 World, League of California Cites, City Attorney's Department Spring Conference, May 2010 • Municipal Fiscal Health Contingency Planning, Western City Magazine, November 2009 • Understanding the Basics of County and City Revenue, Institute for Local Government, 2008 (Contributor) • Financial Management for Elected Officials, Institute for Local Government, 2010 (Contributor) • Getting the Most Out of Your City's Current Revenues: Sound Fiscal Policies Ensure Higher Cost Recovery for Cities, Western City Magazine, November 2003 • Local Government Revenue Diversification, Fiscal Balance /Fiscal Share and Sustainability, Institute for Local Government, November 2002 (Co- Author) • Why Is GASB 34 Such a Big Deal ?, Western City Magazine, November 2000 • Understanding Sales Tax Issues, Western Cities Magazine, June 1997 • Proposition 218 Implementation Guide, League of California Cities, 1997 (Contributor) HONORS AND AWARDS • Cal -ICMA Ethical Hero Award (for service to the City of Bell) • CSMFO Distinguished Service Award for Dedicated Service and Outstanding Contribution to the Municipal Finance Profession • National Advisory Council on State and Local Government Budgeting: Recommended Best Practice (Fiscal Polices: User Fee Cost Recovery) • GFOA Award for Distinguished Budget Presentation: Special Recognition as an Outstanding Policy Document, Financial Plan and Communications Device • CSMFO Awards for Excellence in Operating Budget, Capital Improvement Plan, Budget Communication and Innovation in Budgeting - 8 - ATTACHMENT A Indirect Cost Allocation Assessment Proposal • GFOA Award of Achievement for Excellence in Financial Reporting • CSMFO Certificate of Award for Outstanding Financial Reporting • National Management Association Silver Knight Award for Excellence in Leadership and Management • American Institute of Planners Award for Innovation in Planning • Graduated with Honors, University of California, Santa Barbara Visit my web site for additional information at www.bstatler.com • • • • ATTACHMENT A 124 Cerro Romauldo Avenue San Luis Obispo, CA 93405 805.544.5838 • Cell: 805.459.6326 bstatler @pacbell.net www.bstatler.com William C. Statler Fiscal Policy • Financial Planning • Analysis • Training • Organizational Review Internal Service Funds The following is largely based on my reply when I was the Director of Finance & Information Technology for the City of San Luis Obispo to a "CSMFO ListServ" survey regarding the use of internal service funds. The policy in the City of San Luis Obispo is to avoid using internal service (IS) funds. (And we follow this policy: right now, the City doesn't have any IS funds). For example, rather than setting -up an IS fund for information technology services like some cities do, we allocate these costs through our cost allocation plan. The end result is the same (a reasonable allocation of shared, organization -wide support costs, which is especially important for enterprise operations) but with a lot less organizational effort. We take this approach in allocating costs for a number of internal support service costs. We don't view allocating copier costs (or vehicle maintenance costs) as being conceptually any different than allocating costs for the City Manager's Office (or City Attorney or Finance). I'm not aware of anyone who accounts for these kind of organizational support services as IS funds (although many distribute these kind of costs through indirect cost allocation plans), yet the concept of charging for these services based on use by the operating departments is no different than for any other internal support costs (including those most -often accounted for in IS funds). Some specific reasons for limiting the use of IS funds to where they are truly the best management (not accounting) solution: • Operating departments generally don't like them; they result in charges to their budget that they don't control. A lot of organizational energy can get consumed in sincerely dealing with these often very legitimate concerns. • It's a lot of work to correctly capture use data and set fees. (And if you're not going to devote the effort needed to do this correctly, why bother to do it at all ?) If your ability to get financial management resources is limited (ours are, at any rate), then don't you want to ensure that you are using them for the highest priority, "value- added" services? If you're doing detailed accounting for printing or postage costs, then you don't have the resources to do something else that might have a more meaningful community or organizational impact. And the fact is that many agencies that account for these types of services as an IS fund don't develop a true charge -back system: they just charge what they budgeted, based on ... what they've charged in past. As discussed below, if this is the case, a reasonable allocation of costs can be addressed in much less complicated and more transparent ways. ATTACHMENT A Internal Service Funds Page 2 • It can often result in a misleading picture of overall city costs. In budget documents, IS funds are either ignored (in which case a large part of the organization might be overlooked); or more commonly, they are included in city -wide totals, resulting in an overstatement of city costs (since the same costs are conceptually included in both the operating department budgets as well as the IS fund). This is why generally accepted accounting principles (GASB Statement No. 34) eliminate IS funds at the government -wide level. • Related to this, IS funds can also result in a misleading picture of the agency's financial condition. Because they are often below- the - radar, IS funds can often have adverse working capital /cash positions (especially where agencies fail to charge /transfer required funds for full cost recovery as a budget - balancing tactic in tough fiscal times); however, this may not be transparent to senior management, elected officials or the community. In other cases, IS funds are often used to build reserves below- the - radar. And even when appropriately funded, their purpose and financial condition may not be clear. In short, regardless of the circumstances, IS funds make transparency — and trust — more difficult to achieve. • One argument for IS funds is that they improve organizational accountability (and thus, hopefully, productivity) and resource allocation by better linking services with fees. Maybe, but I'm from Missouri on this one. (As the saying goes: no hog ever got fatter just by weighing it.) In fact, it may obscure problems. If the vehicle maintenance staff is doing a poor job of meeting my department's needs, I'm not sure how this gets improved by directly charging my budget for it. (In fact, it seems to just add insult to injury.) The underlying issue isn't how my budget is being charged, but whether I have reliable transportation to meet my service needs — and whether this is being provided efficiently and cost - effectively. This should just be straightforwardly addressed as the management (not accounting) problem that it really is. And since the IS fund needs to recover its costs, if there are efficiency and effectiveness problems, it seems to me that the end - result (without addressing the real problem) will simply be to increase internal "per unit" charges than to address fundamental customer service and productivity concerns. In short, IS funds are often the result of looking for an accounting solution to fix something that isn't really an accounting problem at all (something we've accused GASB of doing with its infrastructure reporting requirements and attempts at setting "service efforts and accomplishments" standards), but rather, a management one. • Lastly, for agencies that have a longstanding practice of using IS funds, the existential question to ask is: why? If the quickest and most compelling reason that comes to mind is "because that's how we've always done it," it's time to find a better answer. In the final analysis, IS funds are just a cost allocation tool. They don't result in additional City resources (although they may result in a better allocation of resources, but that's a leap of faith that I'm not likely to easily make, either). If there are equally reasonable ways of allocating costs that get you the same basic result, such as a formal indirect cost allocation plan, why use a harder one? In summary, there may very well be cases where an IS fund is really the best accounting approach in helping solve a management problem. But I think these are far fewer than actual practice. In short, IS funds are often the proverbial "high cost, low value" proposition. ATTACHMENT A Internal Service Funds Page 3 Accordingly, in deciding to set -up an IS fund (or continue using one), the primary policy considerations should be: • Will this result in much better management of the operation? • Will the end service delivery be significantly better or cheaper simply because of the way we account for it? If the answers to both of these questions are "yes," and you strongly believe that the benefits outweigh the costs, then by all means set -up the IS fund (or continue using it). But if the answers are "probably not" (or no), then save your "car fare" and allocate your limited financial management resources to something else where you can answer "yes." Lastly, attached is an excellent article on why one Chief Information Officer discontinued accounting for information technology services as an internal service fund, and moved to incorporating General Fund cost recovery for these services from other funds via the organization -wide cost allocation plan. ATTACHMENT Article from e- Government Magazine: Hey, No Charge! A CIO discusses elimination of the city's charge -back system for IT services • • ' • • ,!,• • • • OCL e- • overnment BY MICHAEL ARMSTRONG I CONTRIBUTING WRITER Editor's note Michael Armstrong is ClO of Des Moines, Iowa. Government Technology named him to its Top 25 list of IT thought leaders last year Icame to Des Moines, Iowa, in the fall of 1997 to build a new IT Department and help change the organization. I found an aging mainframe environment and an IT operation that lost respect from the rest of the organization. I also found an excellent charge -back application — the most sophisticated application we had. It did exactly what it was supposed to do, did it very well — and everyone hated it! In a charge -back Des Moines also lacked other elements that would make a charge -back application useful — 5 gover- nance structure, a technology investment strategy and a dear explanation of how the system worked. Not Fitting the Mold The system was seen as both obstructive and unfair — with predictable results. The IT operation was ignored as individual departments built their own incompatible systems. Multiple manufacturers and platforms proliferated, and there was a definite "haves vs. have -nots" Hey, No Charge! A ClO discusses elimination of the city's charge -back 'system for IT services. "Talking to stakeholders throughout the organization. I realized the charge -bac,c applicat»on carne to symbolize much that was wrong with the IT operation H Des Moines." Michael Armstrong, C ';^ -!new iowa system, IT usage is tracked and charged to depart- ments according to the technology they use. Talking to stakeholders throughout the organization, I realized the charge -back application came to symbolize much that was wrong- with the IT operation-in Des Moines. The first question asked of a department need- ing assistance was, "How are you going to pay for this ?" This was coupled with assessing the entire development cost of a new report or application to the initial requestor, with subsequent users paying only incremental costs for the same applica- tion or report. 46 APRIL 2005 mentality in the organization. Individual depart- ments submitted separate technology - budget requests with little coordination, and IT involve- ment with server -based systems that departments were building was minimal. There was great frustration within the organiza- tion about the inability to deploy modern technology, and a great hunger and willingness to move in a different direction. There were other reasons to examine how IT was funded. City Manager Eric Anderson was determined to change the culture of the organization and develop a view of the city as a single enterprise. He envisioned a collaborative and cooperative organization that would operate horizontally across departments, as well as vertically within the traditional government service structure. He saw IT as a tool to promote that change. It was dear that a charge -back system, as it existed then, would be counterproductive to this goal. Individual budget battles for IT funding and the perpetuation of an uneven playing field would inhibit us rather than move us forward. We both wanted an IT. model involving central coordina- tion and funding, with strong emphasis on building an enterprise. The organization was about to enter a period of rapid change — both in IT and overall manage- ment. Part of that change was to move from a mainframe environment to a distributed server - based system. Our charge -back model would not fit this new environment. We also planned to reduce staff substantially, and re- creating and oper- ating a charge -back system would be difficult. Both Anderson and I believe radical change requires rapid movement. We didn't envision an evolutionary path for IT, but determined that the existing model should be "blown up" — and blow it up we did. Finally, as a new CIO, I was concerned about the position of IT within the organizational food chain. I thought building an organization dedicated to excellence required that IT be strategic, that technology become an essential part of the organi- zational infrastructure. IT must operate politically on tqual footing with other back -office departments, such as finance and human resources. If these depart- ments don't charge for their services, why should IT? If IT were to assume a leadership role in the organization, and it absolutely. should, it could not be viewed as an internal vendor from which services were purchased. Making the Change Having determined that a charge -back system was not presently useful to us, and would not help us in the future, I approached the CFO. Finance and budgeting were the principal bene- ficiaries of data from the charge -back system.To their great credit, the CFO and budget officer understood my viewpoint and agreed to the change in business model I proposed. We determined that an existing, indirect cost - allocation system could distribute costs sufficiently across the enterprise for their purposes. The early 1998 announcement of our decision to discontinue the charge -back system for IT services was met with great enthusiasm by other departments. Hey, No Charge! . •• : •■ • The accompanying announcement that all The bad: ± +> b rtt "�gty� technology funding would be consolidated in the r�e8 • • c .0I. es became . W no longer have a `;dernand throttle.'° IT: IT Department budget was greeted a bit less enthu- joint ventures, i»itb TT joining departments in resource allocation decisions have become siastically, but was accepted nonetheless. funding battles and implementations. more problematic. The decision to eliminate the charge -back • We moved IT investment decisions to an • Enterprise versus departmental tension remains system was only one of a half dozen decisions that enterprise level, with all departments participating an issue, though we have successfully maintained have guided us over the intervening years. Taken as in those decisions. IT is now viewed as an an adequate balance thus far. a group, these decisions let us move very rapidly enterprise, not a departmental, matter. • Planning is a bit more complex, though as from a position of technical challenge and frustra- tion to one of national prominence in IT use • IT became a "rising tide:'As we changed how our IT investments T s we have improved our enterprise capability, our respon9e;'has bee/ touch better. Des Moines has never finished lower than third in realized it was use8.d a c� + ". " ; • Budget difficulties shed by departments have the Center for Digital Government's Digital Cities departments other 4an thee[ clSvrT accrued to IT Survey (finishing first in 2002 and 2004), our Web site were lifted During budget hearings the following • IT staffing has become an enterprise issue. was a Best of the Web finalist in 2004, and many year, every department had something good to • Cost allocation is imperfect . of our enterprise applications received national say about IT in their presentation. attention. Des Moines is a very different organization • Standards implementation became much simpler. Worst Practice today than it was in 1998. I'm very proud of the role It's amazing how quickly brand loyalty can Would I make the same decision again? In IT played in that development process. disappear when someone else is paying the bill. a heartbeat. , ,a Although at least one Gartner analyst calls lack Practical Assessment { y sy v 9 s a of of a charge -back system a "worst practice," I am So, after living without charge -back for six years, what are the upsides and downsides of that decision? • We have maintained a focus on building enterprise IT, with all departments coming to understand convinced it was the right decision for our vision and our organization. The good: they are important parts of a whole. Making the Other organizations have charge -back systems • We made a valuable symbolic statement, indicating early on we were determined to enterprise stronger made them more effective. We t 1r1, arc : '+ that work very well. For the strategic role that IT plays in Des Moines, however, our new model has snake radical changes and provide better service -: o£ 5 . 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