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Home My WebLink About04/02/04 B A K E R S F I E L D CITY MANAGER'S OFFICE MEMORANDUM April 2, 2004 TO: Honorable Mayor and City Council FROM: Alan Tandy, City Manager SUBJECT: General Information 1. As you are aware, we announced the move of the Bakersfield Business Conference to Centennial Garden this week. Thanks are due to both George Martin of Borton, Petrini & Conron and Jim Foss for their cooperation in bringing this together. Even in its sixth year, the Garden continues to diversify and bring good things downtown! 2. A number of years ago, the Park and Landscape Maintenance Districts were very controversial. Under City Council guidance, we merged 30+ districts into a consolidated one, which stabilized the rates. We also implemented an equity component into it, so that all parts of the City received the same General Fund contribution. With those reforms, and with 8 years of not increasing the rates, public acceptance is nearly universal. In fact, last year we mailed 31,837 notices and received 16 protests. It cost us $13,586 for staff time, mailing, and postage to send notices of no increases in rates to the taxpayers who do not seem to care; That is $849 per protest letter! We are not required by State law to mail the notices. It is only required by the City Code, and the Code requirements go back to a very different time. Staff would rather put the $13,586 into a timely mowing of the grass. We think the taxpayers would agree. We would like to place an ordinance change on the next agenda, accordingly. If the State is unkind to us, we will come forward, in the future, with a proposal to increase the rates. That would require not only a notice, but an election, but that is for a future date. 3. In last week's packet, you received a memo from Public Works regarding the City's street standards. Enclosed is additional information from City Attorney Gennaro on that subject. There is liability associated with narrow and unusual designs. 4. In order to maintain current service levels for refuse and sewer rates, Public Works staff has recommended an increase in single family rates of an additional .59 cents per month for refuse service and .33 cents per month for sewer service. The attached memo includes more information on the current and proposed rates. Honorable Mayor and City Council April 2, 2004 Page 2 5. In a recent interview with the Los Angeles Times, Governor Schwarzenegger hinted that he might be receptive to a tax increase to balance the State budget. The March 30th article mentions that he has recently been occupied with the reform of the workers' compensation system but will be reviewing budget figures during the next few weeks before he decides on a tax raise. 6. We've done some physical relocation of staff to more efficiently utilize our available office space. The Recreation and Parks staff has been consolidated to the 1st Floor from the 2nd floor at 900 Truxtun Avenue. The Fire Prevention and CUPA employees will move to the offices vacated bY Recreation and Parks. They have been occupying the 3rd floor of the Development Services building. The Building Division, which has needed more room, will be able to use that space now. The costs associated with the moves will be fee supported, rather than General Fund supported. 7. Two weeks ago, I indicated that we were going to add temporaries to help with streets and maintenance districts. We are having trouble getting sufficient applicants to fill the positions! As soon as we can get people on board, we will try to address the backlog. 8. As you may have read in the newspaper, the donations to open the Beale Pool this season reached the $70,000 goal and have surpassed that by $4,368, as of this date. We will continue to collect donations until April 15th, and the excess monies will be used to subsidize the voucher program to transport children to the pools that will be open this year and, possibly, for swimming lessons. The request for the appropriation of the funds will appear on the ~t 28th Council agenda. 9. The City will participate in a special ceremony to commemorate the bicycle path and riparian area restoration and the installation of informational signs along the Kern River Parkway on Friday, April 16th at 11:00 a.m. The event will be held at Yokuts Park. The new signs were made possible through a joint effort of the Water Resources Department with the Rotary Club of Bakersfield East. 10. According to a recent report of the National Association of Home Builders, Bakersfield ranked third in the nation in the percentage of housing starts during 2003. The five highest ranked cities were Honolulu, with a 48% increase, San Francisco at 45%, Bakersfield at 43%, Lakeland-Winterhaven, Fla. At 42%, and El Paso, Tx. at 40%. This information was reported in the El Paso Times. 11.Responses to Council requests are enclosed, as follows: Councilmember Benham · Participation of the People First organization in the Great American Clean Up; Councilmember Couch · Analysis of GARVEE bonds and the feasibility of using them for transportation projects and information and information on overturning GASB 34; · Analysis of recommendation concerning the Southern California Military Greenway Commission; Honorable Mayor and City Council April 2, 2004 Page 3 · Analysis and staff recommendation regarding TIPS as an authorized suitable investment; · Results of speed survey and police patrol on Hageman between Coffee Road and Patton Way and near Centennial High School; · Correspondence to KernCOG reaffirming the City's position on the preferred alignment of the high speed rail project and station location; · Pothole repair on southbound VVible Road at Hosking Road; · Report on the specific plan regarding the Abbott project at Meacham Road and Calloway; traffic volume and distribution, and the feasibility of a stop sign at Abbott and Goldbar (dual response from Development Services and Public Works). Councilmember Sullivan · Pothole repair on Real Road, south of Stockdale Highway before the Highway 58 off-ramp. Councilmember Salva.q.qio · Graffiti removal on Panama Lane between South H, east of South Union Avenue, and on South H at Lemay; aT:m cc: Department Heads Pam McCarthy, City Clerk Trudy Slater, Administrative Analyst MEMORANDUM CITY ATTORNEY'S OFFICE [CITY MANAGER April 1, 2004 TO: ALAN TANDY, CITY MANAGER SUBJECT: STREET STANDARDS Per your request, here is the research concerning street standards. This memo should be read in conjunction with the one you recently received from Raul Rojas on the same issue. Let me know if you have any further questions concerning this matter. VG:ls S:\Public Works\MEMOS\StreetStandardsCvrMmo.doc MEMORANDUM CITY ATTORNEY'S OFFICE March 31, 2004 TO: VIRGINIA GENNARO, CITY ATTORNEY FROM: ALAN D. DANIEL, DEPUTY CITY ATTORNEY SUBJECT: STREET STANDARDS AASHTO stands for American Association of State Highway and Transportation Officials. The City's street standards are set by Ordinance; Bakersfield Municipal Code (BMC herein) 13.12.020, & .030 et al (please see attachment). The most pertinent Section is 13.12.030 which reads: 13.12.030 Standards and specifications. A. Those certain standard manuals known and designated in subsection B of this section, copies of which are on file with the Bakersfield City Clerk for use and examination by the public, and each portion and provision thereof are adopted by reference, as they may be amended from time to time, and are declared to be the development improvement standards and specifications for the purpose stated therein. [Emphasis added.] B. The following standard manuals are adopted for the purposes stated in subsection A of this section: 1. Subdivision Design Manual, City of Bakersfield, 1989 2. Standard Specifications, CalTrans, 2002, Dual Units 3. Standard Plans, CalTrans, 2002, Dual Units 4. Greenbook, Standard Specifications for Public Works Construction, APWA, 2003 5. Standard Special Provisions, CalTrans, 2002 Dual Units 6. Sign Specification Manual, Vol. 1 and 2, CalTrans, 1992 7. Traffic Signal Control Equipment Specifications, CalTrans, current edition 8. Highway Design Manual, CalTrans, 4th Edition 9. Traffic Manual, CalTrans, 1992 10. Construction Manuals, CalTrans, 1992 11. A Policy on Geometric Design of Highways and Streets, AASHTO, 1990 12. Manual on Uniform Traffic Control Devices, FWHA, Millennium Edition 13. Fundamentals of Traffic Engineering, Institute of Transportation Studies, U.C. Berkeley, 15th Edition 14. Equipment and Materials Standards, ITE, 1991 VIRGINIA GENNARO, CITY A'T'TORNEY April 2, 2004 Page 2 15. Traffic Engineering Handbook, ITE, 1992 16. Transportation Planning Handbook, ITE, 1992 17. Transportation and Land Development, ITE, 1988 18. Residential Street Design and Traffic Control, ITE, 1989 19. Guidelines for Residential Subdivision Street Design, A Recommended Practice, ITE, 1993 20. Guidelines for Urban Major Street Design, A Recommended Practice, ITE, 1984 21. Guidelines for Driveway Location and Design, ITE, 1987 22. Guidelines for the Design and Application of Speed Humps, A Recommended Practice, ITE, 1993 23. Guidelines for Planning and Designing Access Systems for Shopping Centers, ITE, 1988 24. Traffic Access and Impact Studies for Site Development, ITE, 1991 25. Guide for The Preparation of Traffic Impact Studies, CalTrans -- District 6, 2001. (Ord. 4136 § 1,2003: Ord. 3885 § 1 (part), 1999) BMC Section 16.28.010, et seq, states each subdivision shall conform to adopted City standards. Thus, the City has adopted its design standards by ordinance. These design standards can be changed by modifying the ordinance; however, we cannot unilaterally change Cai Trans specifications or State Codes. The City Engineer can modify the standards for individual cases under BMC 13.12.050 but must find 1) the strict letter of the code impractical to enforce, 2) the modification conforms to the code's intent, 3) the modification would not lessen public safety and 4) the City Engineer's determination is final and conclusive. BMC Chapter 16.36 does allow optional design and improvement standard modification under certain specified conditions, but once more it is the City Engineer who approves the modification and the conditions are limited (see attachment). I therefore conclude the City Engineer can approve a design modification which varies from City Design Standards under certain limited circumstances, and this modification can apply to a single project if the pre-conditions are deemed satisfied by the City Engineer. If we change the conditions for one developer and not others, and the conditions encountered by the various developers are similar, it can be alleged that we are unfairly administering the BMC. This would be critical if one of the developers not receiving the requested change was in a protected class (minority status, handicapped etc). Equal protection arguments can be made and, of course, political problems can be encountered. It is important to administer all City standards fairly and treat all applicants equally. Only conditions that truly alter the applicant's position versus other applicants should be considered for modification of the standards. VIRGINIA GENNARO, CITY ATTORNEY April 2, 2004 Page 3 Liability issues concerning narrower streets will result in some speculation. We will have design immunity protections from lawsuits involving accidents concerning street design; however, there are numerous ways to avoid the design immunity defenses. The nature of the accident will determine whether our immunities can be overcome and these circumstances will vary widely. One common method to overcome design immunity is to show that something has changed (changed circumstances) and this is often involved with line of sight issues. If bushes grow up and block the view the Plaintiff will attempt to argue the City should have taken care of the line of sight problem if the vegetation is in City right of way or somehow should have been involved with controlling the problem. Narrow streets may increase the line of sight issues and give Plaintiff's a better argument that the City should have exercised additional control because of the problems with narrow streets. If a court believes the City should have stepped in to trim or alter the location of the plant, and that this involved a changed condition, the design immunity may be defeated. The City can expect more accidents from its own vehicles, such as garbage trucks, moving through narrower streets. This may increase the number of claims faced by the City. As a practical matter, City working vehicles will often have to traverse those narrower streets and the risk of increased accidents will be ours if our drivers make an error. BMC section 13.12.050 sets forth the considerations the City Engineer must evaluate before issuing a modification to our adopted design standards. The code section makes it clear that the design standards should not be changed unless there are exceptional circumstances. This is especially true in light of the requirement that public safety not be lessened. Thus, the standards should not be changed by the City Engineer for esthetic or appearance purposes. If the design standards can be followed (they are not impractical for a project) they should be followed. Changing City design standards that have been adopted by Ordinance should be done through the public process of an ordinance change. The standards are set by ordinance so they will not be altered except for unusual circumstances. If a developer wants to change a design standard for all projects the proper approach is to request an ordinance change through the City Council. ADD:dll Attachment cc: Raul Rojas, Public Works Director S:~Public Works\MEMOS\StreetStandardsMmo.doc ," 1'6.36:010Scope and fiuthority. Page 1 of 1 Title 16 SUBDIVISIONS* Chapter 16.36 OPTIONAL DESIGN AND IMPROVEMENT STANDARDS 16.36.010 Scope and authOrity. In considering a tentative map for a condominium, stock cooperative, or community apartment project, or for any subdivision wherein physical constraints or the extraordinary amenities to be provided render application of the design and improvement standards of this title inappropriate, the advisory agency, with the concurrence of the city engineer, may agree to the substitution of alternate design and improvement standards which do not literally comply with the requirements of these subdivision regulations but which serve to facilitate the ultimate development of the property in a manner that will be consistent with the general plan. (Ord. 3515 § 1 (part), 1993) http:/Popc.iserver.net/codes/bakersfld/_DATA/TITLE16/Chapter 16 36 OPTIONAL_DE... 3/31/2004 · ~ 1~6.36~.020. Maintenance of non,dedicated improvements--Failure unlawful. Page 1 of 1 Title 16 SUBDIVISIONS* Chapter 16.36 OPTIONAL DESIGN AND IMPROVEMENT STANDARDS 16.36.020 Maintenance of non-dedicated improvements-Failure unlawful. A. Where a subdivision has been approved by the advisory agency under the provisions of this chapter, full and adequate provisions acceptable to the city shall be made for the preservation and maintenance of all commonly owned land, improvements and facilities, which are not dedicated to public use, within twenty-five feet of the exterior boundaries of the project. B. Such provision may be satisfied by a declaration of covenants, conditions and restrictions duly signed and acknowledged by the owner; articles of incorporation'forming a homeowner's association or some other legal entity, which shall include provisions empowering the entity created to own and maintain all the properties within its jurisdiction and to exercise the powers and duties of the entity to be set forth in the declaration; and bylaws setting forth rules of membership, fees and assessments; and forms of deeds incorporating the declaration by reference to its recording data. C. All documents must be referred to the city attorney for review as to their sufficiency, to accomplish their purpose. D. The owners of the individual lots shall, as a condition of ownership of said lots, be required to participate in the legal entity so formed and be responsible to said legally formed entity for the cost of performing the necessary maintenance. E. Any failure to so maintain shall be, and the same is declared to be, unlawful and a public nuisance endangering the health, safety, and general welfare of the public. (Ord. 3515 § 1 (part), 1993) http://bpc.iserver.net/codes/bakersfld/_DATA/TITLE16/Chapter 16 36 OPTIONAL_DF... 3/31/2004 B A K E R S F I E L D CITY OF BAKERSFIELD MEMORANDUM April 1, 2004 TO: ALAN TANDY, CITY MANAGER FROM: RAUL M. ROJAS, PUBLIC WORKS DIRECTOR ~["L...~' SUBJECT: PROPOSED SINGLE FAMILY RATE INCREASES FOR REFUSE AND SEWER SERVICES To maintain current service levels for refuse and sewer services, rate increases will be required. Staff recommends the following single family rate increases for FY 2004-05: Proposed Current Annual Rate Annual Rate Difference % Refuse $154.68 $147.60 $7.08 (59 cents/mo) 4.8% Sewer $121.00 $117.00 $4.00 (33 cents/mo) 3.4% Staff will immediately begin the public notification process for the proposed rate increases. cc: Kevin Barnes Derrill Whitten Georgina Lorenzi RECEIVED !.'!'Y MANAGER S OFF~C;: C:\Documents and Settings\glorenzi.000\Local Settings\Temp\Refuse-Sewer Fee Increase.doc ~Los ~geles Times: Tax Opposition May Be 'Wishful,' Gov. Says Page 1 of 3 http://www.latimes.com/news/local/la-me-arnold31 mar31,1,1331417.story?coil=la-home-headlines Tax Opposition May Be 'Wishful,' Gov. Says Schwarzenegger admits there is great pressure on him to increase revenue and balance the books. He judges that Bush can win here by helping the state. By Robert Salladay and Peter Nicholas Times Staff Writers March 31, 2004 SACRAMENTO -- Gov. Arnold Schwarzenegger, with little cash on hand to close a $14-billion budget shortfall, reiterated Tuesday his opposition to new taxes but said it might be "wishful thinking." "I'm going through wishful thinking that I'll never have to go there," Schwarzenegger said. "Because I just don't like it. I try to work around and find ways so we don't have to do that. So that's the stage I'm in right now. Maybe someone else will say it's denial, but I'm at that stage where I say you can't do that." Schwarzenegger argued that new taxes would punish ordinary Californians for the failure of the government to control spending. But he acknowledged extraordinary pressures on him to increase state revenue and declined to rule out any tax increases to balance the books. The Republican governor's comments came during an interview with The Times that touched on his own campaign fundraising; the powerful role his wife, Democrat Maria Shriver, and other members of the Kennedy clan play in advising him on state policy; and President Bush's prospects in California in the upcoming election. Schwarzenegger is consumed with negotiations over reforming the workers' compensation system, and his attention has not turned in earnest to the 2004-05 state budget. The spending document must be approved this summer, and negotiations will accelerate in mid-May. The governor said he needed to see more updated budget figures over the next few weeks before he made up his mind about the possibility of raising taxes. "When I look at the numbers, I can make up my mind about what that means," he said. Rob Stutzman, Schwarzenegger's communications director, said the governor was not softening his stance on raising taxes but "expressing his optimism ... for a solution without taxes." Stutzman said the governor was preoccupied with workers' compensation and would turn his full attention to the budget once a deal was reached. "Once he is set on a direction, he's relentless, and he is set on solving the budget without tax increases," Stutzman said. Lawmakers interviewed Tuesday said they had not heard from the governor that he intended to raise taxes, nor did they think he was even sending signals to gauge reaction fi.om lawmakers. "We've never had that discussion," said Assembly Minority Leader Kevin McCarthy (R-Bakersfield). The governor has steadfastly insisted that he does not want to raise taxes. But he made conservatives uneasy'l'ast year http://www.latimes.com/news/local/la-me-amold3 lmar31,1,7664500,print.story?coll=la-home-headlines 3/31/2004 vL0s ~geles Times: Tax Opposition May Be 'Wishful,' Gov. Says Page 2 of 3 when he suggested that he would reconsider his pledge if "there is a change in mood in the state" and Californians embraced tax increases. He said Tuesday that there was no such public demand right now. During the interview, which took place in a conference room adorned with busts of Ronald Reagan, Abraham Lincoln and John F. Kennedy, Schwarzenegger discussed presidential politics in California. He said Bush's success Would hinge on the president's commitment to help the state with its problems, such as illegal immigration. Schwarzenegger, wearing cowboy boots decorated with the California state seal, dismissed the notion that he could help Bush capture California in a matchup with presumptive Democratic presidential nominee John F. Kerry. "As I've said many times, I cannot do that. Only he can do that," Schwarzenegger said about Bush. "The only way he can do it is by letting the California people know that he's there for them and we're going through some difficult times right now. The federal government has to come through with those things the state needs." As the governor spoke, Shriver was working in her office nearby. She left her job at NBC News in February and is now playing a more visible role in her husband's administration. The govemor made it clear that Shriver was an equal partner in everything he did but said she didn't try to convert him into a Kennedy-style Democrat. Schwarzenegger said he doubted that the 2004 presidential election would divide his household, despite differing political allegiances. Asked whether his wife would work for Kerry, the governor said: "No, I doubt that will ever happen. "My wife is a team player," he said. ~. "She knows that I'm governor of this state, that I'm a Republican and that it was a huge majority of Republicans who voted for me to be in that position. She has grown up in a political family and is very much aware of the fact that, if you're a Republican governor, you are supporting the Republican presidential candidate, our president. That is clear." Schwarzenegger said he was constantly getting advice from members of the Kennedy clan, including his wife's uncle, Sen. Edward M. Kennedy (D-Mass.), and her parents, Eunice and Sargent Shriver. "It's like ideas, ideas, ideas," the governor said about the Shriver family. "So many times you have to comb through it very quickly to figure out which ones you want to use and the other ones you dismiss. If you throw a problem at them, it will wind them up, all of them -- that's the way they are. They will talk and talk and talk and talk." Having served now more than four months, Schwarzenegger said he was surprised by the powerful influence of special interests in the capital. But he said his administration would not be swayed. The governor has taken in millions of dollars from businesses and interest groups with dealings before state government. Whatever the appearance might suggest, the governor said, the reality is that no one has gotten special favors. He said he had felt no pressure from campaign donors or his team of political consultants to trade favors for Support "I told my team I'm not here to take any money because of a favor," Schwarzenegger said. "I'd rather give it back. No one can buy me. I don't want to be bought by anybody. It would make me feel horrible." If you want other stories on this topic, search the Archives at latimes.conVarchives. Article licensing and reprint options http://www.latimes.com/news/local/la-me-arnold31 mar31,1,7664500,print, story?coll=la-home-headlines 3/31/2004 B A K E R S F I E PUBLIC WORKS DEPARTMENT CITY OF BAKERSFIELD MEMORANDUM April 1, 2004 TO: ALAN TANDY, CITY MANAGER FROM: RAUL M. ROJAS, PUBLIC WORKS DIRECTOR///~ SUBJECT: PEOPLE FIRST OF KERN COUNTY Council Referral #732 Councilmember Benham requested staff contact representative from the People First of Kern County organization, provide information regarding the Great American Cleanup event in April and encourage their participation. Staff contacted Mr. Roy Rocha of the People First organization, and provided information on how to participate in the Great American Cleanup on April 24th. Mr. Rocha indicated that a team will be recruited for participation in the event. G:\GROUPDAT~Referrals~.004\03-24\732 - SW.doc MEMORANDUM TO: Alan Tandy, City Manager FROM: Nelson K. Smith, Assistant Finance Director DATE: March 31, 2004 SUBJECT: Response to Council Referral # 730 Original Referral Text: Vice Mayor Couch requested staff prepare a memorandum analyzing the use of GARVEE Bonds and the feasibility of using them for transportation projects; also include information on overturning GASB 34. Response to item #1: GARVEE Bonds - Grant Anticipation Revenue Vehicle (GARVEE) bonds were first authorized by the U.S. Government as part of the National Highway System Designation Act of 1995. These bonds are tax exempt anticipation notes backed by annual federal appropriations for federal aid transportation projects. The bonds can only be issued by State agencies. The State of California Transportation Commission (CTC) establishes the policies and guidelines regarding which projects qualify for GARVEE bond consideration. The State Treasurer determines the GARVEE bonding capacity for the State of California in any given year. GARVEE bonds cover only the Federally funded portion of a project's cost. This requires that the entire non-Federal portion of the cost (including costs of issuance and interest) be provided up front on a pay-as-you-go basis. Projects are proposed to the State by the regional agency (KemCOG) and approved for consideration by the California Transportation Commission. Current State project criteria for GARVEE bonding reads as follows: "The Commission will select projects for GARVEE bonding that are major improvements to corridors and gateways for inter-regional travel and goods movement, especially projects that promote economic development and projects that are too large to be programmed within current county and inter-regional shares ... the Commissions expectation is that, generally, these will be projects that require bond proceeds exceeding $25 million. Major improvements include projects that increase capacity, reduce travel time, or provide long-life rehabilitation of key bridges or roadways." In summary, the City is not in control of issuing this type of bond financing. If a large project in the KemCOG jurisdiction warranted "accelerated construction", KernCOG could propose to the State that the project be considered for GARVEE funding. If this action were to be pursued, the City would have to be prepared to fully fund the local portion of the project. Council referral # 730 - page 2 Response to item #2: Overtuming GASB 34 - The Governmental Accounting Standards Board (GASB) establishes Generally Accepted Accounting Principles (GAAP) for governmental agencies. GASB Statement # 34, which was issued in June 1999, established a new framework for the financial reports of state and local governments. GASB Statement #34 affects ALL state and local governments that issue financial statements in conformity with GAAP. The bottom line is that we cannot "overturn" this new accounting standard. In fact, we must follow the new rules to remain in compliance with GAAP. We are enclosing a booklet created by the Government Finance Officers Association (GFOA) titled "An Elected Officials Guide to the New Governmental Financial Reporting Model" to provide you with additional information regarding the new reporting requirements, should you be interested in the topic. You may wish to review pages 13 through 16, which attempt to answer the question of "why" GASB thought it necessary to issue Statement # 34. There are also some specific comments regarding the requirement of "infrastructure reporting", which begin at the bottom of page 19 and continue on page 20. Enclosure cc: Gregory J. Klimko S:\nelson~klimko\memo-garvee bond and gasb34response.doc An Elected Official's Guide to the NEW GOVERNMENTAL FINANCIAL REPORTING MODEL IBy Stephen J. Gauthier GOVERNMENT FINANCE OFFICERS ASSOCIATION Copyright 2000 by the Government Finance Officers Association of the United States and Canada 180 N. Michigan Ave., Suite 800 Chicago, IL 60601 ISBN 0-89125-218-5 Library of Congress Control Number 00-130993 All rights reserved. First printing, March 2000 Second printing, June 2000 CONTENTS vi Exhibits vii Foreword /x Preface I Introduction 6 PART 1: BACKGROUND AND OVERVIEW What is a financial reporting model? How many financial reporting models are there? Why has there been a need for a separate governmental financial reporting model? What are the key differences between the governmental financial reporting model and the financial reporting model used for private-sector business enterprises? Why was there a perceived need for a new governmental financial reporting model? What is the basic structure of the new governmental financial reporting model? 23 PART 2: KEY COMPONENTS OF THE NEW MODEL 23 Management's Discussion and Analysis (MD&A) What is the purpose of management's discussion and analysis? What specific types of information can be found in MD&A? Does MD&A have the same level of reliability as the basic financial statements? 26 Government-wide financial statements What are the government-wide financial statements? What is the purpose of the government-wide financial statements? iii What is included as part of the government-wide financial statements? Why are governmental activities reported separate from business-type activities? What is the meaning of a deficit balance in unrestricted net assets? Does a positive balance in unrestricted net assets mean that a government has money to spend? How should the net cost information presented on the government-wide statement of activities be interpreted? What are extraordinary items and special items, and why are they reported separate from revenues and expenses? 41 Governmental Fund Statements · What are the governmental fund financial statements? What is the purpose of the governmental fund financial statements? ': What is the meaning of a deficit unreserved fund balance? What is the meaning of an excess of expenditures over revenues in a governmental fund? Why are the numbers that appear in the governmental fund financial statements different from those that appear for governmental activities in the government-wide financial statements? 53 Proprietary Fund Statements , What are the basic financial statements for proprietary funds? Should all enterprise funds be self-supporting? , What is the meaning of a significant ongoing surplus or deficit in an internal service fund? 59 Fiduciary Fund Statements What are the basic financial statements for fiduciary funds? Does a positive balance in net assets for a defined benefit pension trust fund indicate that the plan is fully funded? 62 Required Supplementary Information What are the essential components of a budgetary comparison? What is the meaning of a significant difference between the original budget and the final amended budget? How should variances be interpreted in the budgetary comparison? What are the purpose and meaning of the required supplementary information presented for defined benefit pension plans? What are the purpose and meaning of the required supplementary information presented for infrastructure assets? 71 APPENDIX A Comparison of the Traditional and New Governmental Financial Reporting Models 73 APPENDIX B f Index EXHIBITS 4 Implementation Schedule for Provisions of GASB Statement No. 34 7 Exhibit 1 Scope of the financial reporting model 9 Exhibit 2 Financial reporting models encountered in practice 17 Exhibit 3 Key improvements resulting from the new governmental financial reporting model 19 Exhibit 4 Basic financial statements under the new governmental financial reporting mode] 21 Exhibit 5 The new governmental financial reporting model 22 Exhibit 6 Relationship of the financial reporting model to the comprehensive annual financial report 28 Exhibit 7 Elements of the government-wide statement of net assets 29 Exhibit 8 Basic structure of the government-wide statement of activities 43 Exhibit 9 Structure of the governmental fund balance sheet 52 Exhibit 10 Key differences between the governmental fund financial statements and the government-wide financial statements 56 Exhibit 11 Common differences between operating income and cash flows from operating activities 66 Exhibit 12 Nature of the unfunded actuarial accrued liability vi FOREWORD In June 1999, the Governmental Accounting Standards Board (GASB) established a new framework for the financial reports of state and local governments. This new framework or financial reporting model represents the biggest single change in the history of governmental accounting and finan- cial reporting. It affects all state and local governments that issue financial reports in conformity with generally accepted accounting principles. The adoption of a new governmental financial reporting model is not just a matter for accountants and auditors. Be- cause the information in state and local government finan- cial reports is so important, a basic understanding of the financial reporting model is essential for anyone connected with public finance, and especially for decision makers such as elected officials. This publication is designed to meet the needs of elected officials and other potential users of state and local government financial reports who may need or de- sire a concise, nontechnical overview of the new model. It also should be useful to accounting and auditing profession- als in their efforts to explain the model to others. It is important that elected officials and other decision makers be able to understand and fully profit from all that the new governmental financial reporting model has to offer. The Government Finance Officers Association (GFOA) hopes that this publication will contribute to achieving that objective. GFOA wishes to thank Stephen J. Gauthier, Director of the GFOA Technical Services Center, for writing this publica- tion. We hope this booklet, along with others in the Elected Official's Guide series, will provide needed guidance to vii elected officials seeking to improve the financial manage- ment of their governments. Jeffrey L. Esser Executive Director Government Finance Officers Association February 2000 viii PREFACE GASB Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, changed forever the structure and content of state and local government financial reports. Understanding a change of this magnitude is a daunting task, especially for elected officials and others who may not have an extensive background in public-sector accounting and finance. This publication is designed to meet the specific needs of such lay users of state and local government financial reports. The introduction to this publication provides a brief, narra- tive overview of the new governmental financial reporting model. It includes a table indicating when different-sized governments are required to implement the various provi- sions of the new model. Readers are strongly encouraged to read this introduction before proceeding to the questions and answers that follow. The questions and answers describe in practical terms all key features of the new governmental financial reporting model. Perhaps even more important, they also address a number of analytical issues that may arise in connection with this model. For example, how should financial state- ment users interpret a deficit balance in unrestricted net as- sets in the new government-wide financial statements? Does a positive balance in that same account indicate that a gov- ernment has money to spend? Why must care be taken in us- ing the cost information provided in the government-wide statement of activities? A number of exhibits are provided to enhance discussion of several key issues. In addition, the appendices in this guide furnish a chart identifying key differences between the old and new financial reporting models, as well as a detailed in- dex for users desiring quick access to specific information. For reviewing the manuscript and offering suggestions for improvement, I gratefully acknowledge Gregory S. Allison, Institute of Government, University of North Carolina at Chapel Hill; E. Barrett (BarrY) Atwood Sr., Ft. Lauderdale (Florida) Airport Authority; David R. Bean, Governmental Accounting Standards Board; Douglas R. Ellsworth, Village of Mount Prospect, Illinois; Dr. Robert J. Freeman, Govern- mental Accounting Standards Board and Texas Technical University; Robert Scott, City of Carrollton, Texas; Robert V. Stout, City of Modesto, California; and Jon A. Wise, State of Michigan. It also is my pleasure to thank Jake W. Lorentz and James Falconer of GFOA's staff, who assisted in the same way, as well as Sheryl Feminis and the other individuals who helped throughout the editing and production process. Stephen J. Gauthier February 2000 Introduction In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Financial Statements- and Management's Discussion and Analysis - for State and Local Governments. That pronouncement estab- lished a whole new financial reporting framework, or governmental financial reporting model, for state and local governments. The result is the biggest change in the history of public-sector accounting and financial reporting. The pur- pose of this publication is to help elected officials and other potential users of state and local government financial state- ments to understand the new governmental financial report- ing model so they can fully utilize its many benefits. Background. The traditional financial reporting model for state and local governments has roots in the early decades of the twentieth century. The National Council on Governmen- tal Accounting (NCGA) gave this traditional model its defini- tive form in NCGA Statement 1, Governmental Accounting and Financial Reporting Principles (1979). There is little ar- gument that NCGA Statement 1 contributed greatly to standardization and improvement of accounting and finan- cial reporting for state and local governments. A consensus gradually emerged that additional improvements were needed if public-sector financial reporting was to fully achieve its objective of promoting fiscal and operational ac- countability. This consensus led the GASB to undertake a comprehensive reexamination of the traditional financial re- porting model that eventually resulted in GASB Statement No. 34 and establishment of a new governmental financial re- porting model. It would be a mistake to see GASB Statement No. 34 as dis- carding traditional public-sector financial reporting in favor of some entirely new form of financial reporting. Rather, the GASB has elected to incorporate many of the most popular features of traditional financial reporting into the new gov- ernmental financial reporting model. Accordingly, the GASB hopes that the new governmental financial reporting model will retain and even better serve current users of state and local government financial reports and, at the same time, attract new users whose needs were not met by the pre- vious model. Key features of the new n~odel. Even though the new gov- ernmental financial reporting model has deep roots in tradi- tional public-sector accounting and financial reporting, it offers many new features. The most important of these new features are: · Government-wide financial reporting. For the first time, users of state and local government financial reports, have access to government-wide financial statements that pro- vide a clear picture of the government as a single, unified entity. These new government-wide financial statements complement rather than replace traditional fund-based fi- nancial statements. · Additional long-term focus for governmental activities. Tra- ditional reporting for tax-supported (governmental) activi- ties has focused on near-term inflows, outflows, and balances of spendable financial resources. The new finan- cial reporting model retains this short-term focus in the governmental fund financial statements while providing a long-term perspective on these same activities in the gov- eminent-wide financial statements. · Narrative overview and analysis. The new governmental fi- nancial reporting model provides financial report users with a simple narrative introduction, overview, and analy- sis of the basic financial statements in the form of manage- ment's discussion and analysis (MD&A). · Information on major funds. It is widely agreed that fund information is most useful when presented for individual funds rather than for aggregations of funds (e,g., all spe- cial revenue funds). Accordingly, the new governmental fi- nancial reporting model presents individual fund data for each of a government's major funds. · Expanded budgetary reporting. In the past, budgetary com- parisons were based solely on the final amended budget. 2 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Under the new governmental financial reporting model, in- formation on the original budget also is presented. In addi- tion, the new model eliminates aggregated budget presentations (e.g., totals for all budgeted special revenue funds) in favor of comparisons for the general fund and each individual major special revenue fund. Infrastructure reporting. As with any major change, adoption of a new governmental financial reporting model sparked some controversy. Specifically, many preparers of state and local government financial statements generally supported the new model but were not persuaded that the proposed benefits of capitalizing and depreciating a govern- ment's general infrastructure assets (e.g., roads, bridges, dams) outweigh the related costs. Accordingly, the Government Finance Officers Association (GFOA) has formally taken the position that each govern- ment must make its own decision on whether to comply with the infrastructure reporting provisions of GASB Statement No. 34 based on its own evaluation of the relative costs and benefits of infrastructure reporting. For governments that elect to implement the infrastructure reporting provisions of GASB Statement No. 34, GFOA recommends adopting a least-cost implementation strategy consistent with the provi- sions of that statement. The practical application of such a strategy would reflect the following recommendations: · Limit the retroactive reporting requirements for infra- structure to major classes of infrastructure assets. · Define major classes of infrastructure as narrowly as possible. · Limit infrastructure reporting to assets acquired during fiscal years ended after June 30, 1980. · Use estimates whenever possible. · Use composite approaches to calculate depreciation expense. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 3 · Resist vendor conversion and implementation proposals that unnecessarily raise fees by going beyond the strict re- quirements of GASB Statement No. 34. Timing of implementation. The mandatory deadline for implementing the provisions of GASB Statement No. 34 de- pends upon each government's total revenues for its first fis- cal year ending after June 15, 1999. Total revenues for this purpose includes only the governmental funds and enter- prise funds of the primary government, and excludes other fi- nancing sources and extraordinary items. On that basis, implementation dates have been established and are listed in the accompanying Implementation Schedule for Provi- sions of GASB Statement No. 34. Implementation Schedule for Provisions of GASB Statement No. 34 : ~ ~ovisio~ of ~B Statement No. ~ Retroactive Reporting ~Tot~Revenues Except for RetroacHVe of ~~ct~ Reporting of~ ~ets Infrastructure ~sets $100 Millio~~ ' Starting fiscal years Starting fiscal years or more ending June 30, 2002 ending June 30, 2006 $10 Million Starting fiscal years Starting fiscal years to $100 Million ending June 30, 2003 ending June 30, 2007 Less than Starting fiscal years Retroactive reporting $10 Million ending June 30, 2004 of infrastructure assets not required Using this guide. This guide, like others in GFOA's Elected Official's Guide series, is presented using a simple question- and-answer format. The questions may be approached con- secutiVely to provide a comprehensive overview of the new governmental financial reporting model; or, users may choose' to look specifically for questions and answers that most interest them. Collectively, the questions in this guide describe the new governmental financial reporting model as well as provide practical information on how to evaluate and interpret the information in the new model. ~ AN ELECTED OFFICIAL'S GUIDE TO THE , ! Government finance officers may wish to provide copies of this guide to their elected officials. If finance officers choose to use the material in the guide as a basis for presentations to these officials, it may still be useful to provide the officials with a copy of the guide to serve as a reference as questions arise. Two appendices are included in this guide. Appendix A is a chart providing a brief overview of the key differences between the new reporting model and its predecessor. Appen- dix B is an index designed to help users easily find informa- tion on specific topics. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 5 PART 1 BA CKGR 0 UND AND 0 VER VIE W What is a financial reporting model ? Public-sector financial reports are designed to serve the needs of a wide range of users, including investors and credi- tors, legislative and oversight bodies, citizens, taxpayers, and the media. It is impractical for a single published finan- cial report to provide all information needed or desired by such a broad range of users. Consequently, those who prepare financial reports aim in- stead at providing the basic information needed for fair pres- entation of a government's finances. The criteria that accountants use to determine whether a financial report is fairly presented are known as generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for setting GAAP for state and local governments. The Financial Accounting Standards Board establishes the criteria for private-sector business en- terprises and not-for-profit organizations. There are three ways to present required information within a financial report: · Much of the needed data is displayed in the form of finan- cial :statements. · These financial statements are accompanied by disclosures in the form of notes to the financial statements to ensure that a complete picture is presented in the financial state- ments. The financial statements and notes together form a single, integrated whole known simply as the basic finan- cial statements. 6 AN ELECTED OFFICIAL'S GUIDE TO THE ii · Finally, financial analysis sometimes requires certain addi- tional information that cannot in its own right be consid- ered essential to the fair presentation of a government's finances. Financial reports provide this extra data in the 'form of required supplementary information (RSI). The financial statements and accompanying notes (i.e., basic financial statements) are the focus of the independent audit. RSI, on the other hand, falls outside the scope of the inde- pendent audit. The auditor, though, is required to perform certain limited procedures in connection with RSI, such as making inquiries of management regarding RSI measure- ment and presentation. The term financial reporting model is used to describe the minimum set of: 1) financial statements (number, type, for- mat, and contents); 2) note disclosures; and 3) RSI that must be presented in a financial report for an independent auditor to be able to assert, without qualification or further com- ment, that a government's finances are fairly presented in conformity with GAAP. Exhibit i illustrates the scope of the financial reporting model. EXHIBIT 1 Scope of the Financial Reporting Model Basic Financial Statements ~ Within the ~ Notes to theI scope of the Financial Financial independent Statements Statements audit Financial Reporting Model -]- (Defined by GAAP) Suppiement~y Information scope of the , independent audit NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 7 How many financial reporting models are there ? In the not-too-distant past, there existed many financial re- porting models. Recently, the number of models has been re- duced to three: 1) business enterprises, 2) not-for-profit organizations, and 3) state and local governments. In the private sector, there are two separate financial report- ing models: one for business enterprises and one for not-for- profit organizations. While both models prescribe three basic financial statements (a balance sheet, an operating state- ment, and a statement of cash flows), there are crucial differ- ences between the two models. The business enterprise model is designed to demonstrate the degree to which a business's capital (i.e., the investment by owners/stockholders) has been maintained. Thus, the bal- ance sheet of a business distinguishes net assets based on whether they are the product of investment (i.e., owner's equity, capital stock, paid-in-capital in excess of par) or of earnings (i.e., retained earnings). Likewise, the operating statement of a business focuses on transactions and events that affect earnings (i.e., revenues, expenses, gains and losses). Because not-for-profit organizations are concerned with pro- viding services rather than making a profit, there is no pre- sumption of an intent to preserve capital. Accordingly, the net assets of a not-for-profit organization are classified based on their availability for use in operations (e.g., investment in capital assets, restricted, unrestricted) rather than their origin (i.e., investment versus earnings). Likewise, the operating statement of a not-for-profit organization includes all trans- actions and events that affect the organization's net assets. 8 AN ELECTED OFFICIAL'S GUIDE TO THE ~ In the public sector, a single financial reporting model applies to all governmental entities. While the governmental finan- cial reporting model is unique, it bears many similarities to the not-for-profit and business enterprise models, especially for a government's business-type or proprietary activities. Exhibit 2 lists the three financial reporting models. EXHIBIT 2 Financial Reporting Models Encountered in Practice Financial Reporting Models ;,~!~:!,~i~ ~, ~, ~iV~: ~i~ · Public Sector ~ ~ En ~se · ~ ~NO~r,~fi~ Financial M~el M~el RepoSing Model NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 9 Why has there been a need for a separat~ governmental financial reporting model. For a~ least two important reasons, governments have always used a financial reporting model separate from the one used by private-sector businesses and not-for-profit organizations. First, there are important legal restrictions on how a govern- ment uses its resources. These restrictions are imposed exter- nally (e.g., grant contracts and bond indentures) and internally (i.e., the annual or biennial operating budget). Moreover, in a government based on the separation of execu- tive and legislative powers, even the internal restrictions im- posed by the operating budget are significant. That is, the operating budget in the public sector is not just a financial plan; it also serves as a control device with legal sanctions to ensure compliance. Because governments must be account- able for their stewardship of public resources, a stated goal of governmental accounting and financial reporting has been to demonstrate compliance with finance-related legal and contractual provisions. The second reason for a separate governmental financial re- porting model is that private-sector financial reporting has always emphasized the ultimate effect of transactions and events of the period rather than their near-term financing implications. In the public sector, however, virtually all finan- cial decisions are made in the context of the annual or bien- nial aPpropriated operating budget, which focuses primarily on balances and transactions associated with a government's near-term financing. Consequently, state and local govern- ment financial statements have placed a premium on provid- ing information that makes sense to decision makers in the context of the operating budget's short-term financing focus. 1(I AN ELECTED OFFICIAL'S GUIDE TO THE ~' What are the key differences between the governmental financial reporting model and the financial reporting model used for private-sector business enterprises ? Traditionally, there have been three key differences between the reporting model used by governments and the model used by private-sector businesses. These differences reflect the special public-sector emphasis on demonstrating compli- ance with finance-related legal and contractual provisions, as well as the desire to provide information relevant for deci- sion making in a budgetary environment. The key elements that distinguish the governmental finan- cial reporting model are: · Fund accounting. Governments establish separate funds to segregate financial resources that are subject to special regulations, restrictions, or limitations. These funds are presented in a government's financial report to demon- strate legal compliance. · Special accounting for tax-supported activities. Tradition- ally, the funds used to report tax-supported or governmen- tal activities have focused exclusively on near-term inflows and outflows of spendable financial resources, consistent with the near-term financing focus of the annual or bien- nial appropriated operating budget. · Presentation of budgetary comparison statements. Al- though businesses adopt budgets as financial plans, they do not present budget-to-actual comparisons in connection with their financial reports. The budget is much more than a financial plan, however, in the public sector; there NEW GOVERNMENTAL FINANCIAL REPORTING MODEL it serves also as a key control device that is backed by le- gal sanctions. Accordingly, given the premium that public- sector accounting and financial reporting have placed on demonstrating compliance with finance-related legal and contractual provisions, budgetary comparisons tradition- ally have been presented in connection with the financial reports of state and local governments. 12 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Why was there a perceived need for a new governmental financial reporting model ? Accountability is the paramount objective of financial report- ing for state and local governments. There are two separate and equally important aspects of accountability. Fiscal ac- countability requires that governments demonstrate compli- ance with public decisions concerning the raising and spending of public monies in the short term (usually one budgetary cycle or one year). Operational accountability re- quires that a government demonstrate the extent to which it has met its operating objectives efficiently and effectively, us- ing all resources available for that purpose, and whether it can continue to do so. The traditional governmental financial reporting model, with its strong emphasis on legal compliance, was generally successful at providing a high level of fiscal accountability. Over the years, however, a consensus emerged that change was needed to enhance the operational accountability compo- nent of financial reporting for state and local governments. This change came in June 1999, in the form of GASB State- ment No. 34, Basic Financial Statements -and Manage- ment's Discussion and Analysis-for State and Local Governments. The new financial reporting model instituted by GASB State- ment No. 34 seeks to improve operational accountability by highlighting the big picture that was sometimes lost in the detail of fund accounting. Some key specific changes in this regard are: · Introduction of government-wide financial statements. In the past, a government was not presented as a single, uni- NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 13 fled entity. Instead, financial reporting focused on aggrega- tions of similar individual funds known as fund types (e.g., special revenue funds, capital projects funds). Under the new governmental financial reporting model instituted by GASB Statement No. 34, governments continue to provide fund-based information. With the new model, however, these fund-based presentations are complemented by a set of government-wide financial statements that for the first time present the government as a single, unified entity comparable in many ways to a consolidated, private-sector business enterprise. · Expanded focus for governmental activities. In the past, fi- nancial reporting for tax-supported (governmental) activi- ties focused solely on near-term inflows and outflows of spendable resources (consistent with the near-term financ- ing focus of the annual or biennial appropriated operating budget). This same focus continues for fund-based presen- tations of governmental activities. Operational account- ability, however, requires that financial reporting also address the long-term implications of near-term financing decisions. To do so, governmental activities are now ac- counted for in the same way as business-type activities in the new government-wide financial statements. · Presentation of cost data. Operational accountability re- quires that a government demonstrate the extent to which it has met its operating objectives efficiently and effec- tively, using all resources available for that purpose, and whether it can continue to do so. An essential step toward this goal is calculating the cost of each of a government's funCtional activities (e.g., general government, public safety, public works). Accordingly, the new government- wide statement of activities provides cost information for both governmental and business-type activities. Pre- viously, no cost information was available in financial re- ports for governmental activities because of their special focus on near-term inflows and outflows of spendable re- sources. The government-wide statement of activities also demonstrates the degree to which each government func- tion is self-financing (i.e., financed in whole or in part 14 AN E~.ECTrO O~r~C~AL'S aW~r TO TH~ through resources provided by customers, grantors, or con- tributors). · Narrative overview and analysis. It is often difficult for those who are not accountants to know what to look for in a set of financial statements. This problem is especially acute in the public sector because of fund accounting. To ensure that readers do not get lost in the detail, the new fi- nancial reporting model requires that financial statements be introduced by a brief narrative overview and analysis, known as management's discussion and analysis, provid- ing management's perspective on the financial picture pre- sented in the accompanying financial statements. The new governmental financial reporting model also seeks to improve fiscal accountability in several important ways: · Shift in focus to major individual funds. As noted, past fi- nancial reporting focused on aggregations of individual funds known as fund types. Since each individual fund rep- resents the segregation of resources for a specific purpose, such aggregated presentations have not been useful in demonstrating legal compliance (a primary objective of fund accounting) or for other decision-making purposes. To remedy this deficiency, the new governmental financial re- porting model refocuses the fund-based presentations in the basic financial statements on individual governmental and enterprise funds. Since it typically is not practical to present information on each individual governmental and enterprise fund as part of the basic financial statements, the requirement to present individual fund data is limited to a government's major individual governmental and en- terprise funds. · Shift in focus to individual fund budgets. In the past, infor- mation was aggregated by fund type also for budget-to-ac- tual comparisons associated with the basic financial statements. Once again, such aggregated information rarely proved useful for demonstrating legal compliance, a primary objective of budgetary comparison reporting. Con- sequently, the new governmental financial reporting model limits budgetary comparison in connection with the NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 15 basic financial statements to the general fund and major individual special revenue funds. · Inclusion of data from the original budget. The annual or biennial operating budget is not a static document. Indeed, the original appropriated budget typically is amended at least once during the fiscal year. Traditionally, budget-to- actual comparisons have focused exclusively on comparing actual results (presented on a budgetary basis) with the fi- nal amended budget. Limiting budget-to-actual compari- sons to the final amended budget, however, usually confuses those familiar with the budget as originally adopted. Therefore, the new governmental financial report- ing model requires that actual results be compared with both the original and the final amended budget. Exhibit 3 summarizes the key improvements resulting from the new governmental financial reporting model. 16 AN ELECTED OFFICIAL'S GUIDE TO THE ~ EXHIBIT 3 Key Improvements Resulting from the New Governmental Financial Reporting Model Improvements Designed to Enhance Operational Improvements Designed to Accountability Enhance Fiscal Accountability Pre~ous Model New Model Previous M~el New Model information in Information in basic financial statements Introduction of basic fi~ presented separately All, repo~ government-wide b~d ~n ~ds statements · md ftmd ~S financial aggregated by for major individual statements Md He governmental and enterprise funds Information on Budgetary Budgetary gove~m~ Government-wide comparisons comparisons associated with the activities lii~ited financial statements a~ociated wi~ basic financial ~ nea~m provide additional the basic inflo~ ~d long-term focus for financi~ statements b~tI10ws o~ governmental ~mente presented for the general fund and spendable activities a~ted by individual major resources ~d type special revenue funds Cost ~ Cost data provided for both av~ab~e .~ty for bu~inesS.ty~pe governmental and acti~tie~ business-type activities Budgeta~ Budgetary ,,, compariso~ comparisons report ' · ~' '~'" Narrative overview ~porto~ly~nal both original and and analysis amended budget final amended budget NO~ative · required in the form · ~ of Management's Discussion and Analysis NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 17 What is the basic structure of the new governmental financial reporting model? The governmental financial reporting model defines the minimum combination of financial statements, note disclo- sures, and RSI necessary for fair presentation in conformity with GAAP. The new model provides for both government- wide and fund financial statements. The fund financial state- ments are further subdivided into three separate categories: governmental, proprietary, and fiduciary funds. Governmen- tal funds are used primarily to account for a government's tax-supported (governmental) activities. Proprietary funds typically are used in connection with a government's busi- ness-type (fee-supported) activities. Fiduciary funds are used to account for government-held resources that are not avail- able to support the government's own programs, such as pen- sion plan assets. A single set of note disclosures is to accompany both the government-wide and fund-based finan- cial statements. Exhibit 4 illustrates the basic set of financial statements un- der the new governmental financial reporting model, includ- ing information on each required individual financial statement. AN ELECTED OFFICIAL'S GUIDE TO THE EXHIBIT 4 Basic Financial Statements Under the New Governmental Financial Reporting Model wide Financial Fund Financial Statements Governmental Proprietary Fiduciary ,: Funds Funds Funds ii~' ~S ~ °fnet~i:~ Balance sheet Statement of · ~sets net assets · ~ ' i' Statement of ,, ~ Statement of Statement of net assets revenues, revenues, expenditures, and expenses, and changes in changes in fund balances net assets i ~tatement of ~fiVv~ ' Budgetary Statement of comparison Statement of cash changes in '~ ~ ';:~ statement flows net assets (optional) The new governmental financial reporting model calls for the basic financial statements to be accompanied by several types of RSI. In all cases, the basic financial statements are to be preceded by a narrative overview and analysis in the form of management's discussion and analysis (MD&A). Ad- ditional RSI follows the notes to the financial statements in these circumstances: · Budgetary comparisons. For governments that report one or more governmental funds, a budget-to-actual compari- son is to be presented as RSI for the general fund and any individual major special revenue funds with appropriated annual or biennial operating budgets. Alternatively, these budgetary comparisons may be presented as part of the ba- sic financial statements for the governmental funds. In this case, the budgetary comparisons fall within the scope of the independent audit. · Infrastructure data. The new governmental financial re- porting model requires that governments report their in- frastructure assets on the face of the financial statements. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 19 Infrastructure assets include roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems. Normally, capital assets including infra- structure must be depreciated. Governments, however, may avoid the requirement to depreciate a given network or subsystem of infrastructure assets by promising to maintain the network or subsystem at a condition level predetermined by the government. Governments that elect this modified approach must disclose as RSI certain infor- mation regarding the condition level of such assets, as well as a comparison of estimated and actual expenses for pres- ervation and maintenance. · Pension trend data. Governments that report pension trust funds generally are required to report certain actuar- ial trend data as RSI after the notes to the financial state- ments. A similar requirement applies to employers who participate in single-employer or agent multiple-employer pension plans. In an agent multiple-employer pension plan, each participating employer has a separate actuarial valuation. In contrast, in a cost-sharing multiple-employer pension plan, a single actuarial valuation is used to set rates for all participating employers. · Claims development trend data. Public-entity risk pools are required to present as RSI certain revenue and claims development trend data. Exhibit 5 illustrates how the basic financial statements and RSI combine to form the new governmental financial report- ing model. ~(~ AN ELECTED OFFICIAL'S GUIDE TO THE ~ EXHIBIT 5 The New Governmental Financial Reporting Model F I Management's A discussion and RSI N analysis C I + A L Government. Wide ~fl ~ Statements Audited Statements funds l ~ds I ~d~ ~StatementsFinancial Ep 0 Notes to the Financial Statements R -t- T I Other required G supplementary RSI information M O The financial reporting model is concerned with the mini- mum requirements for fair presentation in conformity with GAAP. Governments are encouraged, however, to go beyond these minimum requirements and to present a comprehen- sive annual financial repor~ (CAFR). A CAFR has three basic sections: introductory, financial, and statistical. The introductory section furnishes general infor- mation on government structure, services, and operating en- vironment. The financial section contains all basic financial statements and RSI, as well as information on all individual funds not reported separately in the basic financial statements. Governments also sometimes use the financial section to pro- vide other supplementary information that is not required. The statistical section provides trend data and nonfinancial data useful in interpreting the basic financial statements. The CAFR and its relationship to the financial reporting model are illustrated in Exhibit 6. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 21 EXHIBIT 6 Relationship of the Financial Reporting Model to the Comprehensive Annual Financial Report } Introductory Introductory Section Section ~ Management's DiscussiOn Basic Financial ~ ..] Sa~t~t~ntsl Financial t Section CAFR [ ~quired SuPPlementary [ i I Information on Individual I Nomajor Funds and Other I Supplementary Information That Is Not Required Statistical Section Statisical Section j 22 AN ELECTED OFFICIAL'S GUIDE TO THE PART 2 KEY COMPONENTS OF THE NEW MODEL Management's Discussion and Analysis What is the purpose of management's discussion and analysis ? The role of management's discussion and analysis (MD&A) is to provide the narrative introduction and overview that users need to interpret the basic financial statements. MD&A also provide analyses of key data presented in the basic financial statements. For example, what is the explanation for signifi- cant increases or decreases in revenues or expenses? Why is the final amended budget for the general fund different from the original budget? Why have fund balances increased or de- creased in the general fund? NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 23 What specific types of information can be found in MD&A? At minimum, MD&A must provide the following information: · Brilef explanation of the types of presentations that make up the basic financial statements and their relationship to each other; · Condensed financial information allowing readers to com- pare the current and prior fiscal periods. (GAAP do not require the presentation of comparative financial state- ments; therefore, in many cases, this will be the sole source of government-wide comparative data in the financial report); · Analysis of the government's overall financial position (net assets) and results of operations (changes in net assets); · Analysis of the balances and transactions of major individ- ual funds; · Analysis of variations from the original and final amended budget for the general fund; · Significant capital asset and long-term debt activity (e.g., major capital construction and debt issues); · AnY facts, decisions, or conditions known as of the close of audit field work that are expected to have a significant ef- fect on financial position or results of operation. 24 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Does MD&A have the same level of reliability as the basic financial statements ? While financial statement users have good cause to rely on MD&A information, there are three reasons MD&A is not as reliable as the basic financial statements themselves. First, to serve their intended purpose, MD&A must present select information. A comprehensive presentation such as the basic financial statements usually is more reliable. Second, a key component of MD&A is the presentation of management's analysis of the financial information. Because a degree of subjectivity is inherent in any analytical presen- tation, analytical data are not as reliable as the more objec- tive information presented in the basic financial statements. Finally, MD&A are not included within the scope of the inde- pendent audit of the financial statements. As a result, the auditor does not offer an opinion regarding MD&A reliabil- ity. The independent auditor is responsible, however, for per- forming certain limited procedures in connection with MD&A, such as making inquiries of management regarding RSI measurement and presentation. If in conducting these procedures the auditor finds the MD&A presentation some- how deficient, the auditor must disclose the deficiency in the independent auditor's report on the fair presentation of the financial statements. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 25 Government-wide Financial Statements What are the government-wide financial statements ? There are two government-wide basic financial statements: the statement of net assets and the statement of activities. The statement of net assets is used to repor~ all that a government owns (assets) and owes (liabilities). A govern- ment's assets include financial resources such as cash, receiv- ables, and investments. Also included are capital assets (such as land, buildings and improvements, and equipment), including infrastructure (such as roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and light- ing sYstems). A government's liabilities include vendor pay- ables and various debt instruments (such as bonds, notes, and leases), as well as obligations incurred in connection with government operation (such as salaries payable, vaca- tion leave, and claims and judgments). There are two ways assets and liabilities can be presented in the statement of net assets. One method is to present ac- counts in the order of their relative liquidity. Using this ap- proach, classes of assets that are more readily spendable (e.g., cash, receivables, investments) precede classes of as- sets less easily converted to cash (e.g., capital assets). Like- wise, classes of liabilities expected to be liquidated in the near future (e.g., vendor payables) precede items expected to be liquidated at some later date (e.g., bonds payable). HO- AN ELECTED OFFICIAL'S GUIDE TO THE ~ The relative order of liquidity for asset and liability classes is determined by the average of all items within a given class. That is, there may be significant variations in liquidity for in- dividual items within an asset or liability class. Still, any class of liabilities with an average maturity greater than one year must be reported in two components--the amount due within one year, and the amount due in more than one year. Alternatively, governments may follow the private-sector practice of classifying assets and liabilities based on whether an individual item (rather than a class) is current or long- term. For this purpose, a current asset or liability generally is expected to mature within one year of the fiscal period end. The difference between assets and liabilities is reported as net assets, a classification subdivided into three categories to indicate limitations on the use of net assets. First, a sizable portion of any government's net assets reflects the govern- ment's investment in capital assets. Therefore, a portion of net assets must be classified as invested in capital assets, net of related debt to indicate that this amount is not really ac- cessible for other purposes. A second portion of net assets re- flects resources not accessible for general use because their use is subject to restrictions enforceable by third parties (e.g., grant resources). Any remaining net assets are classi- fied as unrestricted. Exhibit 7 illustrates the elements of the government-wide statement of net assets. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL EXHIBIT 7 Elements of the Government-Wide Statement of Net Assets Unrestricted Net Assets LEGEND: ~ Assets ~ Liabilities ~ Net Assets The statement of activities is used to report all changes in a government's net assets. This statement focuses on ex- penses (cost) rather than expenditures (near-term outflows of spendable resources). Expenses include depreciation on a government's capital assets. At a minimum, expenses are presented separately for each of the government's functional activities (e.g., general government, public safety, public works). For a private-sector business enterprise, revenues is the first item in the operating statement, reflecting the universal business goal of maximizing revenues. Government operates quite differently. In the public sector, the goal is to provide needed services, not to maximize revenues. Revenues in the public sector are viewed as a means to an end (providing services) rather than as an end in themselves (profit). Conse- quently, the first item in the statement of activities for state and local governments is expenses, not revenues. The full cost of government services need not be financed ex- clusively from a government's own resources. The cost of pro- viding specific services may be offset by outside resources such as fees, charges, grants, and contributions. The state- ment of activities is presented using a net cost format de- signed to highlight the portion of each functional activity that must be financed from the government's own resources. The statement first reports all direct costs associated with 28 AN ELECTED OFFICIAL'S GUIDE TO THE each functional activity, then reports dedicated outside re- sources (program revenues) as a direct reduction to arrive at the program's net cost to the government. Exhibit 8 illustrates the basic structure of the government- wide statement of activities. EXHIBIT 8 Basic Structure of the Government-Wide Statement of Activities · · , Less:,Program Revenues Total Direct ~ F~s~'~l °poring~ capital Net Expenses Expenses by Func- · ~ 'Md ~I~'Gran~;an~d [Grants and by Functional Activity tional Activity Charges IContribufions~on~ribution~, (Net Program Cost) [A] I ~ [X~: ] [Y] t [Z] A- (X+Y+Z) = [Al] General Revenues [BI "Special" "Special" and and STar Similar Items Items [C] ID] Increase or (Decrease) in Net Assets B + C - (Al + D) =[E] LEGEND: NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 29 What is the purpose of the government-wide financial statements ? There are three primary reasons why government-wide fi- nancial statements are needed along with the more tradi- tional'fund-based presentations. First, a government is more than simply the sum of its parts (funds). The presentation of a government-wide set of financial statements is a practical way of focusing users' attention on this crucial fact. Second, governmental funds, as discussed earlier, focus solely on near-term inflows and outflows of spendable re- sources. While such information is vital, especially in a budg- etary environment, information is still needed regarding the total impact of transactions and events on a government's fi- nances. Government-wide financial reporting gives financial statement users the information they need to understand the long-term effect of the short-term financing decisions made in connection with activities reported in governmental funds. FinallY, while governments are not driven by the profit mo- tive, they still wish to know the cost of providing different types of services. Governmental funds focus on inflows and outflows of spendable resources (expenditures) rather than cost (expenses). Therefore, financial statement users must turn to the government-wide statement of activities for cost information on activities reported in governmental funds. 30 AN ELECTED OFFICIAL'S GUIDE TO THE What is included as part of the government-wide financial statements ? Accounting and financial reporting place a premium on eco- nomic substance over legal form. Accordingly, financial reports for state and local governments include the govern- ment as legally defined (i.e., the primary government), and any legally separate entities for which the primary govern- ment is financially accountable (i.e., component units). This combination of the primary government and component units is referred to as the financial reporting entity. Not all resources of the financial reporting entity are neces- sarily available to support government programs of the re- porting entity. Specifically, some resources may be held in a purely fiduciary capacity on behalf of third parties. No par- ticular problem arises when such resources are included in fund-based presentations, because their fiduciary character is clearly conveyed to financial statement users by the use of one or more separate funds. Inclusion of these same re- sources in government-wide financial statements, however, could easily be misinterpreted as indicating that those re- sources are somehow available to support government pro- grams. Therefore, to avoid any potential misunderstanding regarding the availability of fiduciary resources to support government programs, both fiduciary funds of the primary government and component units of a fiduciary character are excluded from the government-wide financial statements. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 31 Why are governmental activities reported separate from business-type activities ? The net-cost format of the government-wide statement of ac- tivities is designed to highlight the extent to'which each of a government's various functional activities is self-financing. Governments, however, ordinarily have different financing expectations for different activities. Most typical government activities--public safety, for example--are funded entirely or almost entirely from tax revenues. Other activities--an elec- tric utility; for example--are financed entirely or almost en- tirely from user fees and charges. Still other activities, such as mass transit, are funded through a combination of fees, charges, and operating subsidies. Presenting cost information for all of a government's func- tional activities together could invite unwarranted compari- sons. For example, a police department is not expected to be self-financing; but a public utility that is not self-financing could signal serious financial difficulties. To assist financial statement users in making appropriate comparisons, govern- mental activities are reported separate from business-type activities in the government-wide financial statements. Pro- gram revenues are not expected to cover the costs of govern- mental activities; they are expected to cover at least a substantial portion of the costs of business-type activities. 32 AN ELECTED OFFICIAL'S GUIDE TO THE ~ What is the meaning of a deficit balance in unrestricted net assets ? Governments recognize a liability on the government-wide statement of net assets as soon as an obligation is incurred. For example, a liability for vacation leave is recognized as soon as employees earn the leave, even though a portion of the leave will not be taken (and paid for) until some sub- sequent period. Likewise, claims and judgments are recog- nized as liabilities as soon as the cause occurs, even though payment may not be made for some time. While accounting is primarily concerned with when a liabil- ity is incurred, financing focuses on when a liability will be paid. As a rule, governments raise resources to meet their fi- nancing needs. That is, the resources needed to liquidate a li- ability typically are raised and budgeted during the year in which the liability is to be liquidated rather than during the year in which the liability is incurred. Vacation leave best illustrates this rule. Employees routinely build up banks of unused vacation leave because they fre- quently earn vacation leave in one fiscal period, but take it in another. No payment occurs until the period in which the leave is actually taken. Moreover, even when employees eventually use deferred vacation leave, the leave taken is likely replaced immediately by additional amounts of de- ferred vacation leave. Consequently, a typical government never really pays off its liability for vacation leave. Instead, the liability normally remains and grows indefinitely. Accord- ingly, most governments do not budget vacation leave as such. Instead, they simply budget their regular payroll for each period (which includes vacation leave, since employees commonly are paid the same whether they are working or on NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 33 vacation), plus any additional amounts they anticipate for termination payments for unused vacation leave. Because governments tend to raise resources based on when liabilities are expected to be paid rather than on when they are incurred, most governments normally do not have suffi- cient current resources on hand to cover current and long- term liabilities. A deficit balance in unrestricted net assets reflects this situation. The situation just described does not occur in the business sector, because equity related to capital assets is not re- ported separately, per se, from other equity. Thus, a busi- ness's equity in its capital assets is available to offset long-term accrued liabilities like compensated absences, thereby avoiding a deficit. In summary, a deficit in unrestricted net assets should not be considered, of itself, evidence of economic or financial diffi- culties. Rather, the deficit simply reflects the extent to which a government has elected to defer to future periods the fi- nancing of certain liabilities, which is a matter of public pol- icy. Of course, financial statement users value the number reported as a deficit, since it provides an excellent measure of how far the current and previous governing bodies have al- ready committed the government's future taxing power for purposes other than capital acquisition. 34 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Does a positive balance in unrestricted net assets mean that a government has money to spend? Recall that net assets invested in capital assets are reported net of related debt. Of course, the capital assets against which this related debt is netted cannot actually be used to repay the debt. Rather, the amounts needed for debt service on capital-related debt must come from a combination of re- stricted and unrestricted net assets. Therefore, a positive bal- ance in unrestricted net assets in no way indicates that a government has surplus resources. This positive balance question raises the crucial issue of the relationship between the government-wide financial state- ments and the governmental fund financial statements. The latter, which focus on a government's near-term financing needs, must be consulted in all matters involving the avail- ability of spendable resources. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 35 How should the net cost information presented on the government-wide statement of activities be interpreted? A key goal of the government-wide statement of activities is to provide financial statement users with information on the cost of each of a government's functional activities. Care must be taken, however, to properly interpret the cost infor- mation provided in the statement of activities. Direct costs versus indirect costs. The costs reported for each of a government's functional activities generally include only those costs that can be directly associated with that par- ticular function. Functional activities, however, often benefit substantially from indirect (overhead) costs that are reported separately as part of another functional category (e.g., gen- eral government). As a result, the amounts reported as expense for a given functional activity ordinarily do not represent the full cost (direct and indirect costs) of that activity. In some cases, governments voluntarily provide the addi- tionaI data needed to determine the full cost of each func- tionai activity. Specifically, such governments present a separate column on the statement of activities--immediately following the column reporting direct costs--that allocates the government's various indirect costs to each of the benefit- ing functional activities. Management enjoys considerable discretion in how indirect costs are allocated in such situ- ations. GAAP require only that indirect costs be allocated in a systematic and rational manner (e.g., relative percentage of budgeted payroll), and that the method used for allocation be disclosed in the notes to the financial statements. 36 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Avoidable versus unavoidable costs. It is tempting to think that all costs related to a given activity could be avoided simply by eliminating that activity. As a practical costs related to functional activity matter, however, many a are not eliminated simply by eliminating that activity. For example, dropping a given activity typically will not produce any significant savings in payroll processing costs. Also, it is unlikely that the government office space devoted to the ac- tivity will be rented out to a third party when the activity ends. Accountants often refer to such unavoidable costs as fixed or sunken costs. At the same time, from a long-term perspective, all costs are ultimately avoidable. For example, while it is unlikely that payroll staff will be laid off as the result of eliminating a sin- gle activity, the additional time made available by eliminating that activity might make it unnecessary to hire additional payroll staff. Similarly, office space availability resulting from termination of an activity might eliminate or delay the need for new construction. In making cost-based decisions, it is essential to distinguish avoidable costs from unavoidable costs. Only avoidable costs can be saved, at least in the near term, by eliminating or re- ducing a given functional activity. This consideration is par- ticularly important when comparing costs for purposes of making a decision whether to contract out for services cur- rently performed by the government. Capital costs. An important part of the cost of providing a service is the cost of the capital assets used for that purpose. Accountants calculate the cost of capital assets used in pro- viding services by depreciating those assets over their useful service life. Depreciation is the allocation of the historical cost of a capital asset to each period that benefits from its use. Because assets are reported in the financial statements at their historical cost, and because depreciation is based on his- torical cost, there is no natural relationship between the net book value of a capital asset (historical cost less accumulated depreciation) and its current fair value or replacement NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 37 value. Nor is there any relationship between the net book value of a capital asset and its service value. For example, because of inflation, two virtually identical buildings built 10 years apart are likely to have significantly different historical costs even though they may offer essen- tially the same service value (e.g., square footage of office space). This disparity is most pronounced, of course, for as- sets with particularly lengthy useful lives, such as buildings and infrastructure. Moreover, some governments depreciate their infrastructure assets, such as roads and bridges, while other governments are not required to do so because they use the modified approach for one or more networks or sub- systems of infrastructure assets. For these reasons, care must be taken when making cost comparisons for functional activities between governments, particularly for those activities involving substantial amounts of depreciation expense. Otherwise, financial state- ment users might wrongly conclude that governments with newer, more costly assets are somehow automatically less ef- ficient than governments with older, less expensive assets. (This cost difference may be at least partially balanced, of course, by the increased costs often associated with maintain- ing and operating older assets.) Depreciation expense versus replacement cost. Govern- ments sometimes speak of funding depreciation on their capi- tal assets. This means that governments sometimes set aside resources during the life of a capital asset to finance its replaCement at the end of its useful life. Because deprecia- tion is based on the historical cost of an asset, setting aside amounts equal to depreciation expense over the life of a capi- tal asSet rarely produces sufficient resources to fund its re- placement. Accordingly, governments should remember that planning for the ongoing replacement of capital assets should be based on the estimated replacement cost of those assets, not upon depreciation expense.~ 1Grantors normally are unwilling to fund the cost of replacement assets from which they may or may not benefit. Accordingly, grantors will only reimburse depreciation expense on capital assets used for grant purposes. 38 AN ELECTED OFFICIAL'S GUIDE TO THE ~' Depreciation expense and rate setting. While deprecia- tion is the allocation of the historical cost of a capital asset throughout its useful life, governments often finance the ac- quisition of capital assets by means of debt with maturity dates considerably sooner than the end of an asset's useful life. In such cases, rates based on depreciation could expense result in significant cash flow difficulties (for instance, col- lecting resources over 40 years of useful life for debt pay- ments due over 15 years). Accordingly, governments commonly use debt service requirements rather than depre- ciation expense for rate-setting purposes. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 39 What are extraordinary items and special items, and, why are they reported separate from revenues and expenses ? It is hard to make decisions based on financial data for a sin- gle year, so financial statement users routinely rely on trends over time in analyzing a government's financial per- formanee. Unfortunately, certain one-time events and trans- actions could easily obscure such trends. Accordingly, GAAP require that such items be reported separate from a govern- ment's regular ongoing revenues and expenses. Two types of one-time items qualify for separate reporting. An extraordinary item is an event unusual in nature and in- frequent in occurrence (e.g., hurricane damage in New Eng- land)~ Aspecial item is a transaction subject to management's contrOl that is either--not both--unusual in nature or infre- quent in occurrence (e.g., a major sale of park land). Extraor- dinary items are common to public- and private-sector financial reporting; special items are unique to government. Either extraordinary items or special items are reported as a separate line item near the bottom of the statement of activi- ties. If a government has extraordinary items and special items to report in the same year, the two types of items are reported separately. AN ELECTED OFFICIAL'S GUIDE TO THE Governmental Fund Statements What are the governmental fund financial statements ? At least two basic financial statements are reported for gov- ernmental funds: the balance sheet, and the statement of revenues, expenditures, and changes in fund balances. Op- tionally, a budgetary comparison may be presented as a third basic financial statement. Governmental fund balance sheet. Because governmen- tal funds focus on a government's near-term financing needs, the balance sheet for governmental funds reports only the fi- nancial assets associated with governmental activities. Fi- nancial assets include cash as well as other assets that will convert to cash in the course of their ordinary lives (e.g., re- ceivables and investments). Financial assets also sometimes include inventories (e.g., materials and supplies) and pre- paid items (e.g., prepaid rent and insurance), which are con- sidered financial assets not because they will convert to cash, but because they avoid near-term outflows of financial resources that otherwise would have occurred. Governmen- tal funds do not report capital assets (land, buildings and im- provements, equipment, infrastructure, and intangibles), because such assets will be used in operations rather than converted to cash and therefore are not spendable. Liabilities also are recognized in governmental funds only to the extent that they are expected to affect a government's near-term financing needs. A typical government, for in- stance, does not provide resources for debt service payments until the period in which payment is due. Usually, then, no li- NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 41 ability is recognized in a governmental fund for the unma- tured principal and accrued interest related to long-term debt. Likewise, a government's liabilities for vacation leave, claims and judgments, special termination benefits, and landfill closure and postclosure care costs are reported in the governmental funds in the period when payment becomes due. The difference between assets and liabilities reported in a governmental fund is known as fund balance. Ideally, this amount represents the balance of financial resources avail- able for appropriation at the end of the current fiscal period if the government budgeted on a basis consistent with GAAP. Two modifications are needed, however, before fund balance can serve this purpose. First, not all financial resources reported in a governmental fund are currently available for appropriation. For example, long-term receivables associated with loans to other funds (advances receivable) are not converted to cash quickly enough to permit their appropriation in the near future. Likewise, while inventories and prepaid items may indi- rectly qualify as financial assets, they certainly are not avail- able for spending. Therefore, a portion of fund balance must be reserved to indicate that such resources are not available for appropriation, even though they are reported in a govern- mental fund and so are reflected in fund balance. Second, restrictions involving third parties can render finan- cial resources unavailable for new spending. For example, a government may issue purchase orders or enter into con- tracts near the end of one fiscal period that it intends to honor in the subsequent fiscal period (i.e., encumbrances). These arrangements with third parties effectively prevent the amounts in question from being available for new spend- ing. Thus, a portion of fund balance must be reserved to indi- cate the unavailability of such assets for appropriation. Once all necessary reserves have been established, the re- maining unreserved fund balance can serve as a measure of the financial resources available for appropriation had the government budgeted on a GAAP basis. 42 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Governments have the option of designating all or a portion of unreserved fund balance to indicate that they already have tentative plans for using those resources. The critical distinction between reserved fund balance and designated unreserved fund balance is that the former involves some de- gree of external limitation on the use of resources (e.g., tim- ing of cash flows, agreements with third parties), while the latter is subject solely to the government's discretion. Exhibit 9 illustrates the structure of the governmental fund balance sheet. EXHIBIT 9 Structure of the Governmental Fund Balance Sheet Liabilities Normally Assets Available Expected for Spending To Be Paid From and Not Subject Current to Legal Financial Limitations Resources Undesignated Unreserved Md Financial Balance Assets Designated ~ Subject Unreserved Fundf to Tentative Balance Management Plans Assets Subject %Fund to Legal ~ Balance Limitations Reserved Fund Unavailable Balance Assets (e.g., Long-term Leans Receivable) LEGEND: ~-~ Amounts available for appropriation NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 43 The governmental fund statement of revenues, expen- ditures, and changes in fund balances is used to report all transactions, events, and interfund activity that increase or decrease fund balances. Certain increases and decreases in fund balances are classi- fled separately from revenues and expenditures as other fi- nancing sources and other financing uses to avoid distorting regular ongoing revenue and expenditure trends. Other fi- nancing sources include proceeds of long-term debt, amounts transferred from other funds, and proceeds of the sale of capi- tal assets (if not classified as a special item). Also, GAAP require that a capital lease be reported as though resources had been borrowed from a third party and then remitted to the vendor. Accordingly, governmental funds report an other financing source and an expenditure equal to the amount of the net present value of the minimum lease payments at the inception of a capital lease agreement. Other financing uses include the transfer of resources to another fund; the redemption of outstanding debt using re- sources provided by refunding debt (i.e., a current refund- ing); and the placement of the proceeds of refunding bonds into an escrow account for the redemption of outstanding debt at a specified future date (i.e., an advance refunding). Budgetary comparison. GAAP require that a budgetary comparison be provided in connection with the basic finan- cial statement for the general fund and any major individual special revenue funds. GAAP prescribe that this budgetary comparison be reported as RSI. Alternatively, GAAP specifi- cally permit this budgetary comparison to be included as a third basic financial statement for the governmental funds. In this latter case, the budgetary comparison would fall within the scope of the independent audit of the financial statements. Conversely, RSI is specifically excluded from the scope of the audit, although auditors are responsible for per- forming certain limited procedures in regard to RSI (e.g., making inquiries of management regarding RSI measure- ment and presentation). 44 AN ELECTED OFFICIAL'S GUIDE TO THE What is the purpose of the governmental fund nanc a statements Most decisions involving governmental (tax-supported) ac- tivities are made in the context of the annual or biennial ap- propriated operating budget, where the focus is on meeting a government's near-term financing needs. Governmental funds, with their distinctive emphasis on inflows and out- flows of spendable resources, provide information uniquely useful for making decisions in a budgetary context. For ex- ample, governmental funds report a number of transactions that are significant from a budgetary or financing perspec- tive, but that do not appear in the government-wide state- ment of activities. Such items include receipt of the proceeds of long-term debt, construction and other capital outlays, and debt service principal payments. Conversely, governmental funds do not report a number of items that appear in the government-wide statement of ac- tivities because they typically are considered irrelevant for budgetary purposes. Such items include depreciation, amorti- zation of debt-related premiums and discounts, and amorti- zation of debt issuance costs. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 45 What is the meaning of a deficit unreserved fund'balance? A deficit unreserved fund balance occurs whenever the avail- able financial resources in a governmental fund are insuffi- cient to cover the liabilities normally expected to be paid from those resources. A deficit unreserved fund balance should always be taken seriously as a possible indication that the government may have difficulty meeting its obliga- tions in a timely manner. There are, however, at least two situations in which a deficit unreserved fund balance may not indicate potential financing problems. Governments sometimes encumber the entire amount of a construction contract scheduled to proceed over the course of several fiscal periods. In that case, a deficit unreserved fund balance may result if a government does not finance the en- tire mUlti-year project up front. In that situation, the result- ing deficit reflects no more than the government's intent to fund a. portion of the long-term construction contract in fu- ture years (e.g., by issuing bonds), and it need not be consid- ered a sign of potential financing problems. Also, as noted, governmental funds ordinarily do not report long-term liabilities. GAAP specifically require, however, that borrowings from other funds always be reported as a li- ability of the borrowing governmental fund, even when the interfund borrowing is long-term in character. As a result, a deficit unreserved fund balance may occur simply because a governmental fund borrowed needed resources internally rather' than from an external source. Once again, a deficit un- reserved fund balance in such a case would not necessarily signal potential financing problems for the fund. 46 A~V ELECTED OFFICIAL'S GUIDE TO THE riod, followed in subsequent periods by an excess of expen- ditures over revenues. Such operating deficits resulting from the upfront funding of capital projects should not, of course, be considered an indication of potential financing problems. The same phenomenon occurs when govern- ments deliberately build up fund balance over a number of periods to finance a major project. · Debt-financed capital projects. It is common for govern- ments to issue debt to finance capital construction and other capital acquisition. Because the proceeds of debt are reported as an other financing source rather than as reve- nue, a governmental fund used to report such a project typically would report an excess of expenditures over reve- nues. This excess of expenditures over revenues indicates only that the project is being financed through debt rather than through a government's regular revenues and does not indicate potential financing problems. · Expenditure-driven (reimbursement) grants. Sometimes governments become eligible for grant resources by incur- ring qualifying expenditures. Such arrangements are com- monly referred to as expenditure-driven grants or reimbursement grants. While a government is eligible for reimbursement in such situations as soon as qualifying ex- penditures have been incurred, it cannot recognize the re- lated revenue until it actually becomes available for spending. Accordingly, an excess of expenditures over reve- nues may result simply from a grantor's delay in reimburs- ing a government's grant-related expenditures, which normally does not indicate potential financing problems. · Operating subsidies. It is common for one fund to provide a subsidy to another fund. Such interfund subsidies are re- ported in state and local government financial statements as transfers (i.e., an other financing source) rather than as revenue. Expenditures exceeding revenues for a given gov- ernmental fund need not indicate a financing problem if it is the government's policy to provide regular operating sub- sidies to finance the difference. However, transfers that do not reflect a government's policy to provide ongoing operat- ing subsidies to a given fund should be carefully examined 48 AN ELECTED OFFICIAL'S GUIDE TO THE What is the meaning of an excess of expenditures over revenues in a governmental fund? Governmental funds are expected to raise sufficient revenues in each period to cover the expenditures of that period. An ex- cess of expenditures over revenues may indicate that a fund is living beyond its means. There are, however, a number of valid reasons why expenditures may properly exceed revenues in a given fiscal period. Examples of such reasons include: · "Budgeting" fund balance. Budgeting involves the use of estimates. Naturally, the conservative use of revenue esti- mates over time can produce a significant fund balance surplus. While it is usually good financial practice to main- tain a healthy fund balance surplus, such amounts may eventually exceed a government's needs as expressed in its fund balance policy. In that case, a government may decide to fund a portion of the annual or biennial appropriated op- erating budget with existing fund balance (budgeting fund balance) rather than by raising new resources, thereby putting fund balance back within the range established by the government's fund balance policy. In such cases, an ex-. cess of expenditures over revenues will occur in the year in which fund balance is budgeted in place of additional reve- nues. Clearly, it would be wrong to interpret such a planned reduction of fund balance as an indication of a po- tential financing problem. · Up-front contributions for capital projects. Sometimes grantors or other contributors provide resources up front for capital projects that will continue over several fiscal pe- riods. In that case, there typically will be a large excess of revenues over expenditures in the project's first fiscal pe- NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 47 to ensure that they do not represent a stopgap measure that may be masking a serious financing problem. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 49 Why are the numbers that appear in the governmental fund financial statements different from those that appear for governmental activities in the government-wide financial statements ? For various reasons, the numbers reported in the governmen- tal fund financial statements differ from those reported for governmental activities in the government-wide financial statements. The most important of these reasons are summa- rized here: Financial assets versus total assets. The governmental fund balance sheet reports only financial assets, while the government-wide statement of net assets reports all of a gov- ernment's assets, including capital assets. Liabilities that are due and payable. The governmental fund balance sheet reports only liabilities that are due and payable with current available financial resources. Accord- ingly, governmental funds typically do not report liabilities for unmatured long-term debt, vacation leave, claims and judg- mentsi special termination benefits, and landfill closure and postcl°sure care costs. Conversely, the government-wide statement of net assets reports all of a government's liabi]i- ties, regardless of when they mature. Capital outlay versus depreciation. The governmental statement of revenues, expenditures, and changes in fund balances reports an expenditure when capital assets are con- structed or purchased. The government-wide statement of ac- tivities, on the other hand, reports depreciation expense over the useful life of capital assets. Tnt 1' Debt issuance and principal repayment. The govern- mental fund statement of revenues, expenditures, and changes in fund balances reports an inflow of resources (i.e., receipt of debt proceeds) and an outflow of resources (i.e., debt service principal payments) in connection with debt is- suance and subsequent repayment of principal. The govern- ment-wide statement of activities reports neither. Immediate recognition versus deferral and amortiza- tion. The governmental fund statement of revenues, expen- ditures, and changes in fund balances reports issuance costs, premiums, and discounts when they first occur; the govern- ment-wide statement of activities spreads out recognition of these amounts over the related period. For example, govern- mental funds debt issuance costs when they are recognize paid, while the government-wide statement of activities rec- ognizes an expense over the life of the related debt. Revenue when available versus revenue when earned. Governmental funds recognize revenues only to the extent that related cash inflows are available to liquidate liabilities of the current period. The government-wide statement of ac- tivities recognizes revenues as soon as they are earned, re- gardless of when the cash is received. Internal service fund activities. Internal service funds use the same accounting and financial reporting used by en- terprise funds, so both are classified as proprietary funds. In most cases, however, governmental activities are the pri- mary customers of a government's internal service funds. Thus, internal service funds normally are included as part of governmental activities in the government-wide financial statements, even though they are treated as proprietary funds in the fund-based financial statements. GAAP require that governments present a simple reconcili- ation between the governmental fund financial statements and the government-wide financial statements. This recon- ciliation must be presented either on the face of the govern- mental fund financial statements or as an accompanying schedule. Governments present a more detailed reconcili- NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 51 ation of these differences in the notes to the financial state- ments when the accounts being adjusted are not clearly evident. A summary of the.key differences between the governmental fund financial statements and the government-wide finan- cial statements is presented in Exhibit 10. EXHIBIT 10 Key Differences Between the Governmental Fund Financial Statements and the Government-Wide Financial Statements ii i Treatment~ ~at~nent ~ Item: '~ Gove=enta] Fn~d ~ ~wide · ,' ~'~ /' · Statements F'mancialStatements' Financial Assets Reported Reported Capital Assets Not Reported Reported Liabilities That Are Due and Payable Reported Reported Liabilities That Are Not Due and Payable Not Reported Reported Capital Outlay Reported Not Reported Depreciation Not Reported Reported Receipt of Debt Proceeds Reported Not Reported Debt Service Principal Payments f Reported Not Reported Issuance Costs, Premiums, and Discounts Recognized as Incurred Deferred and Amortized Revenue Recognition When Measurable Available and When Earned Available) (Even if Not Internal Service Funds Not Reported as Normally Included Governmental Funds as Part of Governmental Activities 52 AN ELECTED OFFICIAL'S GUIDE TO THE Proprietary Fund Statements What are the basic financial statements for proprietary funds ? There are three basic financial statements for proprietary funds: the statement of net assets; the statement of reve- nues, expenses, and changes in net assets; and the state- ment of cash flows. Statement of net assets. The statement of net assets for proprietary funds is prepared in essentially the same way as the government-wide statement of net assets. Both report all assets and liabilities, including capital assets and long-term liabilities. One difference between the two statements, how- ever, is that the proprietary fund statement of net assets al- ways presents assets and liabilities on a classified basis. That is, current assets and liabilities are reported separate from long-term assets and liabilities. The government-wide statement of net assets, on the other hand, frequently pre- sents assets and liabilities in the order of their relative li- quidity (based on the average maturity of items within each class), although a classified presentation also is acceptable. Current assets and liabilities normally are expected to ma- ture within one year of the end of the fiscal period. An impor- tant exception to this general rule involves restricted assets (e.g., special accounts established to comply with revenue bond covenants), which are not included as part of current as- sets because of significant restrictions placed on their use. Likewise, liabilities to be repaid from restricted assets are not reported as current liabilities because their liquidation NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 53 will involve the use of noncurrent (restricted assets) rather than current resources. The difference between assets and liabilities is reported as net assets. Unlike private-sector businesses, which distin- guish invested net assets (e.g., owner's equity, capital stock, paid-in-capital in excess of par) from accumulated profits (re- tained earnings)', proprietary funds classify the various com- ponents of their net assets based on their accessibility for use. Thus a proprietary fund's net investment in its capital assets (capital assets less related debt) and its restricted re- sources (e.g., unspent grant proceeds) are reported separate from its unrestricted net assets (the same classifications used for net assets in the government-wide financial statements). Proprietary funds may present a balance sheet rather than a statement of net assets. Even then, the difference between assets and liabilities should be reported as net fund assets or net fund equity. Statement of revenues, expenses, and changes in net assets. All proprietary funds are intended to recover from customers a significant portion of the cost of providing goods and services. To help financial statement users assess the de: gree to which this goal has been achieved, the statement of revenues, expenses, and changes in net assets isolates operat- ing revenues and operating expenses from other changes in net asSets. Operating expenses represent the costs incurred to proVide goods and services to customers (cost of goods sold or cost of services provided). Operating revenues represent the amounts received from customers in exchange for those goods and services. Accordingly, operating income (loss) serves :as a measure of how sufficiently a given activity has been able to pay its own way. A proprietary fund also commonly reports increases and de- creases in its net assets that do not directly arise in connec- tion with proViding goods or services to customers. For example, a proprietary fund may receive a capital grant from another government (capital contribution), or an operat- ing subsidy from the general fund (transfer). Likewise, pro- prietary funds may have extraordinary items or special 54 AN ELECTED OFFICIAL'S GUIDE TO THE items whose inclusion as part of operating revenues and op- erating expenses could distort trend data. All such nonoper- ating items are reported immediately following operating income. Statement of cash flows. It is not enough that a proprie- tary fund recover all or a portion of its costs. It also must generate sufficient cash flows to meet its obligations in a timely manner. The cash flows statement allows financial statement users to assess the adequacy of a proprietary fund's cash flows. Cash flows for proprietary funds are classified into four cate- gories: · Cash flows from operating activities. This category is used mostly to report cash inflows and outflows associated with operating revenues and operating expenses. Such cash flows would include cash received from customers, collec- tions of receivables, cash paid to employees, cash paid to vendors, and liquidation of payables. · Cash flows from noncapital financing activities. This cate- gory is used for items such as receipt of cash from grantors and other funds, receipt of debt proceeds from debt not as- sociated with capital acquisition, and debt service pay- ments on debt not associated with capital acquisition. · Cash flows from capital and capital-related financing ac- tivities. This category is used for capital outlays, the receipt of debt proceeds from capital-related debt, debt- servic.e payments on capital-related debt, and receipt of proceeds from the sale of capital assets. · Cash flows from investing activities. This category is used for the purchase and sale of investments, interest earn- ings, and receipt of dividends. The statement of cash flows includes or is accompanied by a reconciliation that summarizes the reasons why cash from operating activities is different from operating income. Some NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 55 of the most common reasons for these differences are illus- trated in Exhibit 11. EXHIBIT 11 Common Differences Between Operating Income and Cash Flows from Operating Activities Adjustment Effect on Effect on Cash That Needs To Transaction Operating Flows from Be Made to Income Operating Operating Activities Income in Reconciliation Incurrence of ~ Payables and Add to Arrive Other Operating Decrease None at Net Cash Liabilities Flows Liquidation of Payables and Subtract to Other Operating None Decrease Arrive at Net Liabilities Cash Flows ~ ~n~en~e~ ~,, · .~. OWS Depreciation Add to Arrive ~ Expense Decrease None at Net Cash Flows Amortization Add to Arrive Expense Decrease None at Net Cash Flows 56 AN ELECTED OFFICIAL'S GUIDE TO THE ~ Should all enterprise funds be self-supporting? Enterprise funds are used only when a government intends for user fees and charges to fund at least a substantial por- tion of the cost of providing goods and services. Still, there are significant and legitimate differences in the financing goals that governments set for different enterprise funds. Some activities, of course, are intended to be fully self-financ- ing. For example, many public utilities are required by law or management policy to recover the full cost of providing services through user fees and charges. In other cases, how- ever, a government may intend for user charges to finance only a portion of the cost of providing goods and services. Such situations are especially common when a given service (e.g., public transportation) provides direct benefits to users as well as substantial indirect benefits to the public at large (e.g., decreased traffic congestion, decreased need for road construction and maintenance, decreased need for parking, decreased air pollution levels, increased availability of trans- portation for low-income citizens). It clearly is a cause for concern when an enterprise fund in- tended to be fully financed by fees and charges proves un- able to pay its own way. Such is not the case, however, for enterprise funds intended to be parti~ally self-financing. In this case, concern is warranted only When the size of the sub- sidy exceeds the indirect benefits to the public. Of course, elected officials must ultimately determine the appropriate subsidy level. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 57 What is the meaning of a significant ongoing surplus or deficit in an internal service fund? Internal service funds, in contrast to enterprise funds, are de- signed to serve as cost-allocation devices. That is, the role of an internal service fund is to accumulate the costs associated with providing a particular service (e.g., motor pool) and then to charge those who use that service for their fair share of the Cost. Ideally, an internal service fund should break ev. en (revenues should equal expenses). In practice, however, it is appropriate for an internal service fund to maintain a small Surplus to ensure adequate working capital as well as sUfficient resources to replace capital assets used to provide services (e.g., charges to users based on estimated replace- ment cost rather than historical cost depreciation). While a temporary surplus or deficit in an internal service fund should not cause concern, substantial, long-term sur- pluses or deficits ought to raise questions regarding the cal- culation of user charges. For example, an ongoing material surplus in an internal service fund could represent an at- tempt to use the internal service fund as a secret reserve. At very least it raises issues regarding the fairness of the amount rePorted as expenses or expenditures in the user funds. Indeed~ such a surplus could cause grantors to disallow a por- tion of any related costs charged to their programs. Even more troubling, an ongoing material deficit in an internal service fund may indicate that equity (e.g., fund balance) may be overstated in the user funds, given that user charges clearly have not been sufficient to cover related expenses. In that case, the internal service fund may need to be terminated. 58 AN ELECTED OFFICIAL'S GUIDE TO THE Fiduciary Fund Statements What are the basic financial statements for fiduciary funds? There are two basic financial statements for fiduciary funds: the statement of fiduciary net assets and the statement of changes in fiduciary net assets. Agency funds are reported only in the statement of fiduciary net assets. The statement of fiduciary net assets reports all assets and liabilities associated with the fiduciary funds. The differ- ence between assets and liabilities is reported as net assets. Unlike proprietary funds, fiduciary funds are not required to divide their net assets into separate components based on their availability for use in operations. The statement of changes in fiduciary net assets re- ports all changes in the net assets of fiduciary funds without distinguishing earnings-related changes (i.e., revenues and expenses) from other types of changes. Consequently, all changes in fiduciary net assets are classified as additions and deductions. Further, costs associated with investment ac- tivities are reported as an adjustment (decrease) to invest- ment income in the additions section of the statement of changes in fiduciary net assets rather than as separate items in the deductions section of that statement. As noted, agency funds are not included in the statement of changes in fiduciary net assets because by definition all as- sets in an agency fund are offset by a corresponding liability. Therefore, since assets and liabilities are always equal, there is no balance of net assets for which changes can be reported. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 59 Also as noted, fiduciary activities are excluded from the gov- ernment-wide financial statements because the resources re- ported in fiduciary funds are not available to support the government's programs. 60 AN ELECTED OFFICIAL'S GUIDE TO THE Does a positive balance in net assets for a defined benefit pension trust fund indicate that the plan is fully funded? A defined benefit pension plan promises specific benefits to employees after retirement based on a predetermined bene- fit formula. These benefits are financed by a combination of contributions (from employers and sometimes from employ- ees) and investment earnings. The present value of the pension benefits earned by employ- ees based on service already performed is known as the actu- arial accrued liability. This amount is an actuarial liability rather than an accounting liability and therefore is not re- ported on the statement of fiduciary net assets. Conse- quently, the statement of fiduciary net assets presents the assets that have been accumulated to pay pension benefits but not the present value of the pension benefits to be paid from those assets. Therefore, a positive balance in net assets for a defined benefit pension plan trust fund does not indi- cate that the plan is fully funded (i.e., assets equal or exceed the actuarial accrued liability). Financial statement users desiring to know the degree to which a defined benefit pension plan has been funded should consult the schedule of funding progress, which is presented as RSI. That schedule compares the actuarial value of plan assets (i.e., an average of the market value of plan assets over a specified period) and the actuarial accrued liability over time, expressing the former as a percentage of the lat- ter (e.g., 90 percent funded). NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 61 Required Supplementary Information What are the essential components of a budgetary comparison ? A budgetary comparison must be presented in connection with the basic financial statements for the general fund and any major individual special revenue funds. The key compo- nents of that presentation are: · ExPenditures and revenues as approved in the original ap- propriated budget (i.e., generally the budget passed prior to the start of the fiscal period); · ExPenditures and revenues per the final amended version of the appropriated budget at the end of the fiscal period; and · Actual expenditures and revenues calculated using the same basis of accounting used for budgeting (e.g., cash ba- sis, cash basis plus encumbrances, modified accrual basis, modified accrual basis plus encumbrances). Governments commonly present a separate column to report variances between the final amended budget and actual amounts, although they are not required to do so. 62 AN ELECTED OFFICIAL'S GUIDE TO THE What is the meaning of a significant difference between the original budget and the final amended budget ? The annual or biennial appropriated budget normally is ap- proved prior to the start of the fiscal period, so a government must rely on its best estimates of resource inflows and out- flows for the coming fiscal period. The original budget, then, often must be amended to reflect subsequent developments. In some cases, significant differences between the original budget and the final amended budget may indicate a weak- ness in the budget process. For example, budgetary amend- ments may be needed because a government has failed to fully integrate the process used for developing the operating budget with its other planning activities (e.g., capital budget- ing, strategic planning). Usually, however, budgetary amendments represent an ap- propriate response to unforeseeable changes in a govern- ment's circumstances. For example, a government highly dependent on a volatile revenue source such as sales tax might need to amend its operating budget in response to changes in the economy. In the same way, a major plant clos- ing may require a budgetary amendment to reflect a de- crease in tax revenues and an increase in expenditures related to government services to the unemployed. Accordingly, great care must be exercised in interpreting the significance of changes between the original budget and the final amended budget. Any analysis of such changes should always begin with careful consideration of management's dis- cussion of budgetary changes presented in management's dis- cussion and analysis. NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 63 HoW should variances be interpreted in the ~ budgetary comparison ? One goal of the budgetary comparison is to permit financial statement users to compare actual revenues and expendi- tures with the final amended budget. Indeed, most govern- ments voluntarily present a separate column as part of the budgetary comparison presentation to highlight variances. Care must be taken, however, to avoid misinterpreting the true significance of variances. The goal of most private-sector business enterprises is to maximize profit (i.e., excess of revenues over expenses). Therefore, anything that increases revenues or decreases ex- penses may properly be considered favorable to the business. The profit motive, however, is absent from the public sector, where the goal is to provide services. For state and local gov- ernments, revenues are a means to an end rather than an end in themselves; so, there is nothing inherently favorable about reducing expenditures asa result of reducing services. Likewise, there is nothing inherently favorable about gener- ating revenues in excess of a government's needs. Users of state and local government financial statements, then, should avoid applying private-sector notions of variance analysis to the budgetary comparison of a state or local gov- ernment. To help minimize the possibility of misinterpreting the significance of variances, governments often attempt to use neutral or arithmetic terminology such as positive and negative or over and under to describe the variance column, rather than more subjective terms like favorable and unfa- vorable commonly encountered in private-sector cost accounting. 64 A~V ELECTED OFFICIAL'S GUIDE TO THE What are the purpose and meaning of the required supplementary' information presented for defined benefit pension plans ? As noted, a defined benefit pension plan promises specific benefits to employees after retirement based on a predeter- mined benefit formula. Participating employees and others with an interest in the pension plan will wish to make their own assessment of the pension plan's ability to pay benefits to employees. Therefore, the presentation of two schedules of actuarial trend data to permit financial statement users to make such an assessment is required. Schedule of funding progress. The key to assessing a pen- sion plan's eventual ability to make timely payments to bene- ficiaries, as promised, is to compare the accumulated assets of the pension plan with the present value of estimated fu- ture benefit payments. The values needed to make a valid comparison for this purpose, however, are the actuarially cal- culated amounts rather than the accounting amounts re- ported on the statement of plan net assets. Thus, the actuarial value of plan assets is based on their av- erage fair value over time, whereas accountants report plan assets on the statement of net assets based on their fair value at a point in time (i.e., the end of the fiscal period). Likewise, the actuarial accrued liability represents the full measure of benefits owed to employees based upon services rendered, whereas an accounting liability is reported only to the extent that benefits are due and payable (pension plans) or that an- nual required contributions are not fully funded (employees). The schedule of funding progress is designed to allow finan- cial statement users to directly compare the actuarial value NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 65 of plan assets with the actuarial accrued liability. The differ- ence between these numbers is then highlighted in two ways. First, the difference between the two amounts is re- ported separately on the schedule of funding progress. Since pension plans are systematically funded over many years, it is common for the actuarial accrued liability to exceed the ac- tuarial value of plan assets, resulting in an unfunded actuar- ial accrued liability even in situations where employers consistently fund 100 percent of their annual required contri- bution to the pension plan. Second, the degree to which the actuarial accrued liability has been funded is highlighted by reporting the actuarial value of plan assets as a percentage of the actuarial accrued liability (funded ratio). These concepts are illustrated in Ex- hibit 12. EXHIBIT 12 Nature of the Unfunded Actuarial Accrued Liability Unfunded Actuarial Accrued A/B= Liability '~ ~?T~ ~ ~? ~ Ratio i A~i~l '~rah/e of ~s~e~s iii: ~ Financial statement users need some point of reference to be able to assess the si~ifieance of the unfunded actuarial ae- c~ed liability for a pa~icular pension plan. Accordingly, the schedule of funding pro~ess compares the unfunded actuar- ial accrued liability to that potion of the employer's pa~oll covered by the pension plan. Thus, an employer may repoN that the unfunded actua~al accrued liability represents 50 percent or 150 percent of covered pa~oll, just as a home- owner might indicate that house pa~ents represent 35 per- cent of ~oss pay. 66 The key factors in evaluating funding progress for pension plans are the direction in which the funding ratio is headed and the rate at which progress is occurring. Both factors can only be assessed over time. So information on a pension plan's funding progress must be presented as trend data over a period of years. Assume, for example, that one pension plan is now 90 per- cent funded, while another pension plan is only 85 percent funded. At first, a financial statement user might be tempted to assume that the first pension plan is making better fund- ing progress than the second. This would not be the case, however, if the first pension plan was 100 percent funded just five years ago, when the second plan was only 70 per- cent funded. The trend data provided on the schedule of funding progress is essential for assessing the true signifi- cance of a pension plan's funding progress. No schedule of funding progress is presented in connection with defined benefit pension plans that use the aggregate ac- tuarial cost allocation methodology, since that methodology does not involve the separate calculation of an unfunded ac- tuarial accrued liability. Schedule of employer contributions. Employers finance their pension promises by making annual, actuarially deter- mined pension contributions. By definition, a defined benefit pension plan should have adequate accumulated resources to pay all of its pension benefits in a timely manner as long as each year's annual required contribution (ARC) is fully funded, provided that the actuarial assumptions used to cal- culate the ARC prove sound. Consequently, a pattern of fully funding the ARC is another key indicator that a pension plan's resources will be adequate to make promised benefit payments. The schedule of employer contributions provides the informa- tion that financial statement users need to determine whether an employer is consistently funding the ARC. Ac- cordingly, the ARC and actual contributions are compared over several years, with the actual amount funded being ex- pressed as a percentage of the ARC. A pattern of full (100 NEW GOVERNMENTAL FINANCIAL REPORTING MODEL percent) funding is a good indicator that a pension plan's as- sets will be adequate to make pension benefit payments in full and in a timely manner. 68 AN ELECTED OFFICIAL'S GUIDE TO THE What are the purpose and meaning of the required supplementary information presented for infrastructure assets ? Infrastructure assets, usually treated the same way as other capital assets, initially are capitalized at their historical cost and subsequently depreciated over the estimated useful lives of the assets. Still, governments have the option of avoiding the requirement to report depreciation expense for networks or subsystems of infrastructure assets that meet the follow- ing requirements: · The government must have an up-to-date inventory of the assets of those networks and subsystems. · The government must perform or obtain condition assess- ments of those assets and summarize the results using a measurement scale. It is essential that such condition as- sessments be replicable (i.e., conducted using methods that would allow different measurers to reach substan- tially similar results). · The government must make an annual estimate of the amount needed to maintain and preserve those assets at a condition level established and disclosed by the government. · The government must document that infrastructure assets are being preserved at or above the condition level estab- lished and disclosed by the government. Governments electing this option--or modified approach to infrastructure reporting--for one or more networks or sub- systems of infrastructure assets are required to present two types of information regarding those assets. First, they must NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 69 present the results of the three most recently completed condi- tion assessments to demonstrate that infrastructure assets have been maintained at or above the condition level estab- lished by the government. Second, they must disclose both their estimates of the amount needed to maintain or pre- serve infrastructure assets at the level established by the government and actual amounts of expense for each of the past five reporting periods. The purpose of this second sched- ule is to allow users of the financial statements to make their own assessment of the government's long-term commit- ment to maintaining those infrastructure assets. AN ELECTED OFFICIAL'S GUIDE TO THE APPENDIX A Comparison of the Traditional and New Governmental Financial Reporting Models Terminology for minimum General purpose financial Basic financial statements GAAP presentation statements Combined financial Highest level of aggrega- statements (data Government-wide tion/consolidation financial statements presented by fund type) Measurement focus for Funds=current financial governmental funds/activi- Current financial resources ties resources Government- wide=economic resources Basis of accounting for Funds=modified accrual governmental funds/activi- Modified accrual ties Government-wide=accrual General capital assets Reported in general fixed Reported in government- (other than infrastructure) assets account group and wide financial statements not depreciated and depreciated Reported in government- General infrastructure as- Reporting optional wide financial statements sets and (normally) depreciated General long-term liabili- Reported in general long- Reported in government- ties term debt account group wide financial statements Major funds (governmental and enterprise funds) Focus of fund reporting Fund types Fund types (internal service and fiduciary funds) General, special revenue, General, special revenue, Governmental fund types capital projects and debt capital projects, debt service service and permanent Equity of proprietary Contributed capital and Net assets funds retained earnings Reporting cash flows from Direct method or indirect operating activities in the method Direct method statement of cash flows (continued on page 72) NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 71 Appendix A, continued item, ~, TraCtional Model New Model Required for individual enterprise funds or identifiable activities Required in a variety of within an individual Segment information situations for individual enterprise funds enterprise fund for which revenue-backed debt with an identifiable revenue ~, stream is outstanding Expendable trust, Private-purpose trust, nonexpendable trust, Fiduciary fund types pension trust, investment pension trust, investment trust and agency trust and agency Escheat assets Reported in expendable Reported in private- trust fund purpose trust fund State unemployment com- Reported in expendable Reported in enterprise )ensation benefit plans trust fund fund IRC Section 457 deferred Reported in expendable Reported in pension (and compensation plans trust fund other employee benefits) trust fund Residual equity and Transfers (1 category) Transfers operating (2 categories) Object of budgetary com- Final amended budget Both original and final parison amended budget General fund and major Focus of budgetary com- Governmental fund type individual special revenue parison funds Required supplementary information Status of budgetary com- Basic financial statement (Option to report as basic parison ' financial statement) Management's discussion Narrative introduction, Not required and analysis (required overview and analysis supplementary information) Option to use specialized Use governmental Colleges and universities reporting model reporting model Governmental entities us- ~ing not-for-profit account- Option to use specialized Use governmental 'lng reporting model reporting model 72 AN ELECTED OFFICIAL'S GUIDE TO THE APPENDIX B Index Actuarial accrued liability (defined benefit pension plans) Defined 69-70 Agency funds Not included in statement of changes in fiduciary net as- sets 59-60 Avoidable costs Compared to unavoidable costs 36-39 Budgetary comparison Essential components 62 Meaning of difference between original and final amended budget 63 Meaning of variances 63 Optional presentation as basic governmental fund finan- cial statement 41-44 Budgeting fund balance As cause of excess of expenditures over revenues 47-49 Business enterprise model 8-9 Business-type activities Reported separately from governmental activities in the government-wide financial statements 32 Capital costs 36-39 Cash flows from operating activities Reconciliation to operating income 56 Cash flows reporting Description of statement of cash flows for proprietary funds 53-56 Cost data Interpretation 36-39 Debt-financed capital projects As cause of excess of expenditures over revenues 47-49 NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 73 Deficit in internal service fund Meaning 58 Deficit "unreserved fund balance" Meaning 46 Deficit "unrestricted net assets" Meaning 33-34 Depreciation expense Compared to replacement cost 36-39 Role in rate setting 36-39 Direct costs Compared to indirect costs 36-39 Enterprise funds Degree of self-financing required 57 Excess of expenditures over revenues (governmental funds) Meaning 47-49 Expenditure-driven grants As cause of excess of expenditures over revenues 47-49 Extraordinary items Defined 40 Fiduciary funds Basic financial statements 59-60 Not included within government-wide financial state- ments 31 Final amended budget Meaning of differences from original budget 63 Financial Accounting Standards Board (FASB) Sets GAAP for business enterprises and not-for-profit or- ganizations 6-7 Financial reporting models (see governmental financial re- porting model) Definition and elements 6-7 Need for separate governmental model 10 Number of models 8-9 Scope 7 Fixed costs 36-39 Generally accepted accounting principles (GAAP) Criteria for financial reporting 6-7 74 AN ELECTED OFFICIAL'S GUIDE TO THE Governmental activities Reconciliation to governmental funds 50-52 Reported separately from business-type activities in gov- ernment-wide financial statements 32 Government Finance Officers Association (GFOA) Position on infrastructure reporting 3-4 Governmental fund balance sheet Described 41-44 Structure 43 Governmental fund financial statements Described 41-44 Differences from "governmental activities" in govern- ment-wide financial statements 52 Purpose 45 Governmental fund statement of revenues, expenditures, and changes in fund balances Described 41-44 Government-wide financial statements Description 26-29 Need to separate governmental and business-type activi- ties 32 Purpose 30 Scope 31 Governmental Accounting Standards Board (GASB) Sets GAAP for governments 6-7 Governmental financial reporting model Basic structure 18-22 Key features summarized Introduction, 12-17 Need for separate model 10 Need for new model 12-17 Relationship to the comprehensive annual financial re- port 22 Indirect costs Compared to direct costs 36-39 Infrastructure assets GFOA position on infrastructure reporting Introduction Modified approach 65-68 Related RSI 65-68 NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 75 Internal service funds Meaning of significant surplus or deficit 58 Management's discussion and analysis (MD&A) Contents 24 Purpose 23 Reliability 25 Modified approach (infrastructure reporting) GFOA position (Introduction) Related RSI 65-68 Net assets Categories 26-29 Net cost format (government-wide statement of activities) 26- 29 Not2for-profit model 8-9 Operating income Reconciliation to "cash flows from operating activities" 56 Operating subsidies As cause of excess of expenditures over revenues 47-49 Original Meaning of differences from final amended budget 63 Other financing sources/uses "Described 41-44 Pension plans Related RSI 69-70 Pension trust fund Meaning of surplus 61 Program revenues (government-wide statement of activities) 26-29 Proprietary funds Basic financial statements 53-56 Rate setting Role of depreciation expense 36-39 Reconciliation Governmental funds and governmental activities 50-52 Reimbursement grants As cause of excess of expenditures over revenues 47-49 76 AN ELECTED OFFICIAL'S GUIDE TO THE Replacement cost Compared to depreciation expense 36-39 Schedule of employer contributions (defined benefit pension plans) Described 69-70 progress (defined benefit pension plans) Schedule of funding Described 69-70 Special items Defined 40 Statement of activities (government-wide financial state- ments) Description 26-29 Net cost format 26-29 Statement of cash flows (proprietary funds) Description 53-56 Reconciliation of operating income to cash flows from op- erating activities 56 Statement of changes in fiduciary net assets Description 59-60 Statement of fiduciary net assets Description 59-60 Statement of net assets (government-wide financial state- ments) Categories of net assets 26-29 Description 26-29 Elements 28 Order of presentation of assets and liabilities 26-29 Statement of net assets (proprietary funds) Description 53-56 Statement of revenues, expenses, and changes in net assets (proprietary funds) Description 53-56 Sunken costs 36-39 Surplus Meaning in internal service fund 58 Meaning in pension trust fund 61 Unavoidable costs Compared to avoidable costs 36-39 NEW GOVERNMENTAL FINANCIAL REPORTING MODEL 77 Unfunded actuarial accrued liability Defined 69-70 Nature 66 Unreserved fund balance Meaning of deficit balance 46 Unrestricted net assets Meaning of deficit balance 33-34 Meaning of positive balance 35 Upfront contributions for capital projects As cause of excess of expenditures over revenues 47-49 Variances Meaning in budgetary comparisons 64 78 NEW GOVERNMENTAL FINANCIAL REPORTING MODEL B A K E R S F I E L D OFFICE OF THE CITY MANAGER MEMORANDUM March 29, 2004 TO: ALAN TANDY, CITY MANAGER FROM: TRUDY SLATER, ADMINISTRATIVE ANALYST III SUBJECT: SB 1462 (KUEHL), SOUTHERN CALIFORNIA MILITARY GREENWAY COMMISSION: ANALYSIS AND STAFF RECOMMENDATION (COUNCIL REFERRAL #000738) SB 1462, by Senator Kuehl, establishes the Southern California Military Greenway Commission comprising of Los Angeles, Ventura, Kern and Kings Counties, with 17 specified voting members. It authorizes the commission, in consultation with appropriate state agencies and ex officio members "to promote, facilitate, and administer the acquisition of voluntary private and public conservation easements or other voluntary transfers of fee or lesser interests in real property." Membership would consist of: I member of the board of supervisors selected from each of the four counties; 1 elected city council member from each county selected by city selection committees, the State Director of the Office of Planning and Research or designee, the Director of the California Military Department or designee, the Director of CalTrans or designee, the Director of the Office of Military Support or designee, the Secretary of Resources or designee, 2 members of the public appointed by the Governor, 1 member of the public appointed by the Senate Committee on Rules, 1 member of the public appointed by the Speaker of the Assembly, and three Department of Defense ex officio nonvoting members or designees. Members serve without compensation. A majority of the members of the Commission constitutes a quorum. The commission does not have the power of eminent domain unless requested by the landowner. It may apply for and accept federal grants or other federal funds. Among other things, the bill requires the commission to review proposed land uses within member counties that may affect military flight paths and requires the counties to attempt to resolve, with the aid of the commission, any identified issues of proposed land use that are inconsistent with the purposes for which the commission is established. The bill increases the duties of local planning officials and creates a state-mandated local program. Arqument in Favor of SB 1462 - California contains an integrated system of military installations and special use airspace, connected by Iow-level flight corridors, that supports a key foundation for our nation's security. The military training routes that form the linkages of this integrated system are under considerable pressure from urban and other development in key portions of southern California. Land use decisions made in other jurisdictions that would affect the ability of the military to use military training routes and airspace may result in direct threats to the long-term viability of military installations in Kern, Kings, Los Angeles, and Ventura Counties. The bill states the Legislature finds that the creation of a Southern California Military Greenway Commission that will plan and provide oversight of certain land use decisions is necessary while maintaining, to the maximum extent feasible, county control over land use decisions in each of the counties comprising~,he commission. Similar to Texas and Florida, the establishment of the commission is intended to increas_e~_security for important military installations and military training routes. The institution Of a Southern California Military Greenway Commission w encourage military security and economic activities for California communities depending on military exercise or training activities connected with military Alan Tandy, City Manager March 29, 2004 Page 2 Re: SB 1462 (Kuehl), So. California Military Greenway Commission: Analysis and Staff Recommendation installations. Through the use of a regional authority, land use decisions will take on a broader scope of review and decision making. Argument in Opposition to SB 1462 - SB 1462 establishes an additional regional level of governance over local municipal land use decisions. It increases the duties of local planning officials without consideration of local planning processes without consideration of the expertise and/or needs of the local community to grow or to preserve. Local communities are well aware of the importance of a military presence in the State of California. Compelling participation in a regional commission with little direct or indirect participation by cities, which comprise the major growth and development components within California, intrudes into local land use decisions and is bad public policy. Secondarily, the commission would oversee only four of California's 58 counties for conditions which potentially has an impact on all of California. Establishing a regional commission with such oversight imposes additional duties on local planning officials while taking away their ability to participate in local land use decisions. Additionally, it sets the stage for further intrusions into local control by the State and Federal government and should be opposed. Staff recommendation - Oppose. SB 1462 establishes an additional level of government to oversee decisions impacting the local level. It will increase duties upon local planning officials while at the same time reducing their ability to control local land use decisions. Cities are aware of the importance of national security issues and the economic impact of military installations and training routes in California. Taking away municipal land use abilities through the establishment of a regional commission will exacerbate rather than .reduce mutually acceptable solutions to problems which arise as growth and development occur in California communities. Mutually beneficial solutions of military issues at the local level should remain an integral part of any federal efforts to ensure the safety and viability of California communities and the nation as a whole. P:~A'I-~M0403291 -SB1462 ~ ~tastorm e-work client Page 1 of I Referral Display .o: I Requester. IOavid Couch Ward: ]4 .... · Referral Created: Req. Completion Date: 14/1./2004 Meeting: 13/2412004 13/25/200~ .... Initial Referral Information Short Description: ISAN.JOAQU!N VALLEY REGIONAL. PLANNING BOARD Long Description: '*'REFERRAL TO TRUDY SLATER, MANAGER'S OFFICE*" ~ VICE-MAYOR COUCH REQUESTED STAFF PROVIDE AN ANALYSIS AND " ~ RECOMMENDATION CONCERNING THE PROPOSED SAN JOAQUIN Attachment A VALLEY REGIONAL PLANNING BOARD. Attachment B Attachment C ~ Attachment D -Lead: i Assigned To: Response? I _~ R1 (1) JCity Manager Reassigned To: Response? R3 (3) j I Optional Citizen Contact Information Name: Name: I I I I Address: Address: I I I I Phone: Phone: I I http://ew~rk/s~ripts/eWeb~d~l/F~~derPage?Page=Referra~%2524Disp~ay&F~~derID=EW~R~~~ 3/25/2004 BUILDING 'INDUSTRY ASSOCIATION OF KERN COUNTY BAKERSFIELD,-CA 93301 PHONE (661) 633-1316 FAX (661) 633-1317 M~cb [7, ~004 ~esidenl David Le.o.~' H..~.~' ~¢ Eonorab]e David Couc~ V{cc Mayor, B~ersfield Ci~ Co~cil Ext~ufivc Vice Pm~dent 12007 ~ver Front Park Drive Brian J. To~ B~em~e[d, CA 9331 i First Vice President R~gcr Mclnto~h Re: SB 1462 (Kuehl - Los ~geles), San Joaquia Valley Regional Plying Secund Vice President Dear Vice Mayor Couch: Miuhael Hair. Jr. BittgJey We want to alert you to a significant threat to your city's local land use authority, I)evelop.~e.t,lnc. and encourage you to help in defeating th~s proposal tot regiona! planning in the ~cretary Southern San Joaquin Valley. Calvin R. Stead, E.~l. BrJrt~.t. Pefri. i & Contort, LLP State Senator Shells Kuehl has introduced SB 1462. It would establ[s~a the Treasurer "Southern-California Military Greenway Commission" to oversee land use David Dmohowski decisions in Kern, Ki_rtgs, Los Angeles and Ventura Counties (Ms. Kuehl Pro. b't't Design ('o~sttlta~tls apparently considers Kern and Kings Cotmties a part of Sou~¢m California). Immediate Past President This Commission would be dominated by appointees from Sacramento and Pat Henncbcrry Greater Los Angeles. Before any land use decision could be made by a city C'¢t.','l/t' ~' ('o~,~k('. /ITC. Kern or Kings Counties for land under a milita_,3r lxaining route, the city could be Board ~f.Directo~ r¢c[uired to seek approval from ttds sta~e-dominated conunission. .~am Wi Ikcrson Coleman Hr,roes. a Lennar Mitita~ training routes are little known, but cover vast areas in Kern and Kings Family t3tdlder Counties. SB 1462 would seriously impair cities' ability to attract locally des[red David Turner growth - housing, commercial, industrial and infrastructure. Essentially, it would D~vid A. ?'t,',er Homes create the ea_uivalent of a Coastal Commission for ttte Southern -San Joaquin Ron Ray Valley, blocldng the economic development we ail so desperately need. I)owtti..g I)evelopntent. Itt('. We respectfully request that the Bakersfield City Council do two things to stop Gr~g Hash Ftt/~galtet'.Rht,th.s this bill. First, promptly contact Debbie Olson at the League of California Cities lltsttrallt.t, Age. ties Central Valley Division at (209) 365-1156 or by email at dolson~cacities.ora, and tel! her that'you wast the League to oppose SB1462. Second, pac, s a resolution Mike'G,'~mlec opposing SB 1462 and send a copy of it to Senator Tom Torlakson~ Chair, Senate Fitle[ity Ntttitutol Title Local Government Committee, State Capitol, Room 410, Sacramento CA 95814. Matron Maiamma Firx! .4,tericalt T#le A copy of SB 1462 is enclosed. If you have any questions, please call Joe Drew Mike Katie with Tejon Eanch at (661) 663-4224, or myself at the above number. Thar~k you. J~esPheJ J'~tit iteA. ('t ,.$tr tt¢'liott Leal K.~'/(' Cttrtcr Homes. u Corky M~.Milli. Van Roberts '"J '~fia~ J'. Todd S.K.Y M,t,agement. LLC Executive Vice President C;/c~m Davis [?tilt? I.th'pe.t/ett! B(/nk Darryl Tucker Cc: Bob Keenan, BIA of Tulare-Kings Counties Willis Math,ck. LLC Timothy Coyl¢, CBIA SENATE BILL No. 1462 Introduced by Senator Kuehl February 19, 2004 An act to add Title 7.15 (commencing with Section 66550).to the Government Code, relating to regional planning. LEGISLATIVE COUNSEL'S DIGF-.ST SB 1462, as introduced, Kuekl. Southern Califomia Military Greenway Commission. (1) The Pluming and Zonin§ Law requires'the land use element to consider the impact of new growth on military readiness activities carried out on military bases, installations, and operating and training are~, when proposing zoning 'ordinances or designating land uses covered by the general plan for land or other territory adjacent to those military Facilities, or underlying designated military aviation routes and airspace. Existing law, with respect to the open-space element, defines open-space land to include areas adjacent to military installations, military training routes, ~md restricted airspace. The bill would create the Southern California Military Greenway Commission comprised of Los Angeles, Ventura, Kern, and Kings Counties and consisting of 17 specified voting members. The bill would authorize the commissiOn, in consultation with appropriate state agencies and exofficio members and advisory contras, to promote, facilitate, and administer the acquisition of voluntary private and public conservation easements or other voluntary transfers of fee or lesser interests in real property. The .bill would require the commission, among other things, to review proposed land uses within member counties that may affect military flight paths, as specified, and would require these counties, upon receipt of notification by the commission, to attempt to resolve I SB 1462 2 with the aid of the commission, any identified issues of proposed land usc that are inconsistent with the purposes for which the commission is established. By increasing the duties of local planning officials, the bill would create a state-mandated lOCal program. The bill would also authorize the commission to apply for and accept federal grants or other federal funds and receive gifts, donations, rents, royalties, state funds derived from bond sales, the proceeds of taxes or funds from any other state revenue sources, or any other financial support from public or private sources. (2) The California Constitution requires the state to reimburse local agencies and-school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement, including thc creation of a State Mandates Claims Fund to .pay the costs of mandates that do not exceed $1,000,000 statewide and other procedures for claims whose statewide costs exceed $1,000,000. This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes. The people of the State of California do enact as follows: t SECTION 1. Tide 7.15 (conunencing with Section 66550) is 2 added to the Government Code, to read: 3 4 TITLE 7.15. THE SOUTHERN CALIFORNIA MILITARY 5 GREENWAY COMMISSION 6 7 C~Ar~r£R 1. FINDINGS AND DECLARATIONS OF POLICY 8 9 66550. The Legislature finds and declares all of the 10 following: 11 (a) In 2002, the Legislature found that California contains an 12 integrated system of military installations and special use airspace, 13 connected by low-level flight corridors, that supports a key 14 foundation for our nation's security. This integrated system 15 provides for the training of military personnel, as well as the 3 SB 1462 I research, development? testing, and evaluation of milita~ 2 hardware. These findings are contained in Section 1 of Chapter 3 971 of the Statutes of 2002 (Senate Bill 1468). 4 (b) The military training routes tl~at form the linkages of this 5 integrated system are under considerable pressure from-urban and 6 Other development in key portions of southern California. These 7 development issues b. ave arisen in the following two states where 8 a signi£tcant portion of those states' eConomic activity comes ~rom 9 military air installations: I0 (1) The State of Florida has created the "Northwest Florida 11 Grecnway" program to protect opes space below military flight 12 paths. According to the Florida Department of Environmental 13 Quality, "The Northwest Florida Greenway" establishes a 14 750,000 acre, 100-mile corridor, which follows the flight path of 15 military aircraft on training exercises. That particular greenway is 16 intended to preserve environmentally sensitive areas, sustain 17 existing military lands and airspace, maintain the economic 18 viability of forest lands, and provide recreation. 19 Bush stated, "Florida is among the £trst in the nation to joia 20 forces with the Depar~nent of Defense to increase security for 21 important military installations while at the same time protecting 22 valuable natural resources. This groundbrealdng partnership 23 aft'inns Florida's resolute commitment to the envixonment and our 24 nation's military." 25 (2) The S~ate of Texas ha~ also recognized the importance of 26 protectkng military training routes. Ia 2003, legislation signed by 97 the Texas Governor required that open-space elemen~ include a 28 restricted airspace element that creates buffer zones, if needed, 29 between the defense base and the defense community, and a 30 military training route element that identifies existing routes artd 31 proposes plans for additional routes, ifneedect. 32 The following language from legislation adopted in Texas 33 establishes a compelling argument for California to eo~sider land 34 use options that work to preserve military airspace flightpaths: "If 35 a defense community determines that an ordinance, rule, or plan 36 proposed by the community may impact a defense base or the 37 military exercise or training activities cormccted to the base, the 38 defense community shall seek comments and analysis from the 39 defense base authorities concerning the compatibility of the 40 proposed ordinance, rule, or plan with base operations. The SB 1462 4 1 defense.community shah consider and analyze the comments and 2 analysis before making a final determination relating to the 3 proposed ordinance, rule, or plan." 4 (c) Long-term, anticipatory measures by Texas and Florida, 5 together with the significant development pressures existing 6 adjacent to, and underlying California military flight path-training 7 areas, may disadvantage California in terms of maintaining 8 military bases and contracts within the state. The Legislature is 9 concerned about the possible closure or relocation of military 10 missions outside the slate and the possibility that other states enjoy 11 an advantage because of their long-term programs to protect 12 military training. 13 (d) The Defense Department's proposed Base Realignment and 14 Closure (BRAC) criteria has specific relevance to the issue of I5 long-term programs to protect military training in California. 16 Those criteria state that consideration will be given to "the 17 availability and condition of land, facilities, and associated 18 airspace (including training areas suitable for maneuver by 19 ground, naval, or air forces throughout a diversity of climate and 20 terrain areas and staging areas for the use of the Anted Fomes in 21 homeland defense missions) at both existing and potential 22 . receiving locations." It is therefore necessary to create a program 23 to provide a level of protection to military airspace similar to the 24 programs in Florida and Texas. 25 (e) The Environmental Action Plan prepared by the 26 Oovernor's Environmental Policy Task Force recognizes, as do 27 the States of Florida and Texas with respect to their land uses, that 28 "the military is a key sector of the California economy and 29 environmental stewardship, and California open space resoerces 30 are vital .to the military's national security mission, in evaluating 31 alternatives for Califomia's future, an evaluation should consider 32 how a land use pattern will impact resources necessary for the 33 military's national security mission. These include preservation of 34 California's rural landscape and other open spaces., In amending 35 Section 65302 of the Government Code by the enactment of 36 Chapter 971 of the Statutes of 2002, the Legislature found that 37 direct military expenditures in California amount to nearly $30 38 billion annually and that protection of this integrated system of 39 military installations and special use airspace is in the public 40 interest. -- 5 -- SB 1462 1 (f) Kern, Kings, Los Angeles, and Ventura Counties all contain 2 major milita.ry installations highly dependent on the existence of 3 this integrated system of military installations and military 4 training routes. Each of these counties has located all or partially 5 within its boundaries major military airfields and additional 6 research, development, test, and evaluation facilities for aircraft 7 and airborne weapons systems. These facilities include, but are not 8 limited to, Edwards Air Force Base, China Lake Naval Air 9 Weapons Station, Lemoore Naval Air Station, and Point Mugu 10 Naval Air Station. According to the Department ofthe Navy, ia a t I letter from Rear Admiral J.L. Betancourt, Commander oft he Navy 12 Region Southwest, headquartered in San Diego and sent to then 13 Governor-elect Arnold Schwarzenegger on October 21, 2003, 14 these and similar facilities "are essential to ongoing operations" 15 and are "crucial to maintaining highly perishable pilot skills 16 necessary for safe execution ... ora combat mission." 17 (g) Direct military spending in Ventura County was $1.148 15 billion and included 11,203 military and civilian jobs. The 19 Legislature finds that the direct military spending in Kings County 20 was 13.5 percent of the county's total personal income, and 21. civilian and military jobs were 15.2 percent of the total number of 22 jobs in the county. One in six jobs in Kings County is therefore 23 directly attributable to the military. In both of these counties 24 consideration of economic multipliers makes the military 25 spending even more substantial. 26 (la) Land use decisions made in other jurisdictions that would 27 affect the ability of the military to use military training routes and 28 airspace may result ia direct threats to the long-term viability of 29 military installations in Kern, Kings, Los Angeles, and Ventura 30 Counties. The Legislature therefore finds that the creation of a 31 Southern California Military Greenway Commission that will 3;[ plan and provide oversight of certain land use decisions is 33 necessary while maintaining, to the maximum extent feasible, 34 county control over land use decisions in each of the counties 35 comprising the commission. 36 37 CHAPTER 2. THE COMPOSITION OF THE COMMISSION 38 39 66555. (a) The Southern California Military Greenway 40 Commission is hereby created comprising Los Angeles, Ventura, SB 1462 6 I Kern, and Kings Counties and consisting of 17 voting members, 2 as follows: 3 (1) One member of the board of supervisors selected from each 4 of the tour counties comprising the commission. 5 (2) One elected city council member from each county selected 6 by city selection committees from regional and area councils of 7 government. g (3) The Director of the Office of Planning and Research, or a 9 designee. 10 (4) The Director of the California Military Department, or a 11 designee. 12 (5) The Director of the California Department of 13 Transportation, Or a designee. 14 (6) The Director of the Office of Military Support, its 15 successor, or a designee. 16 (7) The Secretary. of Resources, or a designee. 17 (8) Two members of the public appointed by the Governor who 18 shall represent the military's interest in sustaining the operation of 19 Department of Defense facilities in southern California. 20 (9) One member of the public appointed by the Senate 21 Committee on Rules who shall represent the interests supportive 22 of maintaining open space'below military flight paths in southern 23 California. 24 (I 0) One member of the public appointed by the Speaker of the 25 Assembly who shall represent the nonmotorized recreational 26 interests of the public on land below military flight paths in 27 southern California. 28 Co) Exofticio nonvoting members of the commission shall 29 include three representatives of the Department of Defense, or 30 their designees, each of whom shall serve a four-year term and 31 each of whom may be reappointed. 32 66556. The term of office of the members shall be for four 33 years. Vacancies shall be filled by the appointing authority within 34 30 days of the vacancy. Nonattendance by a member at two 35 consecutive regulaxly scheduled meetings shall create a vacancy. 36 66557. (a) Members shall serve without compensation, 37 except for per diem. 38 (b) All members of the commission are subject to Title 9 39 (commencing with Section 81000). -- 7 m SB 1462 I 66558. The commission shall elect from its own members a 2 chairperson and vice chairperson whose terms of office shall be 3 two years and who may be reelected. Ifa vacancy occurs in either 4 office, the commission shall fill the vacancy for the expired term. 5 66559.. (a) The commission shall meet.at least quarterly. The 6 time and place of the tn'st meeting shall be chosen by the Governor. 7 Thereafter, the commission shall establish its own schedule and 8 place of meeting. However, all meetings shall occur in one of the 9 counties that comprise the commission. 10 (b) All commission meetings shall be open to the public, as Il required by law. 12 (e) A majority ortho voting members of the eornmission shall 13 constitute a .quorum for the transaction of the business of the 14 commission. A majority vote of the voting members present shall I$ be required to take action with respect 'to any matter unless 16 otherwise specified in this section. The-vote of each member shall 17 be individually recorded. 18 (d) The commission shall adopt its own rules, regulations, and 19 procedures necessary for its organization and operation. 20 66560. The commission may appoint military, open-space, 21 recreational, or other advisory committees for the purpose of 22 providing the commission with timely comments, advice, and 23 information. The commission may appoint committees from its 24 own membership. It may seek advice and recormnendations from 25 advisory committees appointed by local governments which are 26 involved in subject matters affecting the purpose for which the 27 commission is established. 2g 66561. The Office of Planning and Research shall maintain 29 the public records ofthe commission and shall make those records 30 available to the public consistent with state law. 31 32 CH^P'reR 3. POWERS AND DUTIES OF THE COMMISSION 33 34 66565. In consultation with appropriate state agencies, the 35 commission may promote, facilitate, and administer the 36 acquisition of voluntary private and public conservation 37 easements or other voluntary transfers of fee or lesser interests in 38 real property. The commission shall not have the power of eminent 39 domain unless requested by the landowner. SI~ 1462 8 1 66566. The commission may apply for and accept federal 2 grants or other federal funds and receive gifts, donations, rents, 3 royalties, state funds derived from bond sales, the proceeds of 4 taxes or funds from any other state revenue sources, or any other 5 financial support from public or private sources. 6 66567. (a) In consultation with th, ex officio member~ and 7 any advisory committees, the commission shall review proposed 8 land uses within the counties that comprise the commission that 9 potentially affect military flight paths. Ihe commission shall 10 inform any member county of proposed projects that may 11 significantly and adversely diminish the effectiveness of the 12 military's flight paths and the necessary commitment of open 13 space beneath those flight paths or appropriate buffer zones that 14 are necessary to maintain those flight paths. 15 (b) A county, upon receipt of notification by the commission of 16 a proposed land use that is determined to be inconsistent with the 17 purposes for which the commission is established, shall attempt to 18 resolve any .and all identified issues with the commission. The 19 commission shall attempt to resolve these issues with due regard 20 for the primary land use planning responsibilities of local 21 governments. 22 (c) This title does not confer any permitting authority upon the 23 commission. 24 66568. The commission, with assistance fi.om the 25 Department of Defense, shall make available to the public in a 26 format that is understandable and accessible, sufficient 27 information about the exact locations of military flight paths and 28 the land under those flight paths, along with any reasonably 29 necessary buffer zones. The commission, with the assistance of the 30 Department of Defense, shall prepare maps for all such flight paths 31 that are no smaller in scale than 1:24,000, or 7.5 minute maps, in 32 which one inch on the map represents approximately 2,000 feet. 33 SEC. 2. Notwithstanding Section 17610 of the Government 34 Code, if the Commission on State Mandates determines that this 35 act contains costs mandated by the state, reimbursement to local 36 agencies and school districts for those costs shall be made pursuant 37 to Part 7 (commencing with Section 17500) of Division 4 of Title 38 2 of the Government Code. If the statewide cost of the claim for 39 reimbursement does not exceed one million dollars ($1,000,000), m 9 -- SB 1.462 1 reimbursement shall be made from the State Mandates Claims o 2 Fund. O BAKERSFIELD POLICE MEMORANDUM TO: ALAN TANDY, CITY MANAGER FROM: ERIC W. MATLOCK, CHIEF OF POLICE~_~(¢~- DATE: March 31,2004 SUBJECT: Speed Survey and Patrol on Hageman Council Referral No. 724 (Ward 3) Council Member Couch requested a speed survey and police patrol for speeding on Hageman between Coffee Road and Patton Way, and also in front of Centennial High School. Council Member Couch's request was referred to the Operations Division for action. The SMART Trailer was placed in the area to remind drivers of their speed, and officers issued 15 citations on March 30 and March 31, before and after school near Centennial High. Staff is aware the area is problematic and they will continue enforcement efforts. Sgt. Gary Moore has left a message for the concerned constituent to inform her about the police department's efforts. EWM/vd MEMORANDUM TO: ALAN TANDY, CITY MANAGER FROM: CHERYL PERKINS, CITY TREASURER (ACTING) DATE: APRIL 1, 2004 SUBJECT: COUNCIL REFERRAL #000737 This is in response to a Council referral from Vice-Mayor Couch requesting staff analyze the use of TIPS as an authorized suitable investment, and if desirable, include them Section 8 of the City Investment Policy. Treasury Inflation Protection Securities (TIPS) is a fairly new type of security issued by the U.S. Treasury. It is a very complicated security and difficult to account for because the principal is adjusted monthly by the CPI-U (Consumer Price Index for All Urban Consumers) from three months earlier. (For example, it would be adjusted on December 1 for the CPI-U reported in September.) The interest payments would then be calculated on the inflation-adjusted principal value, in other words, a variable rate. The cash flows from this type of investment would be inconsistent over the term of the investment. The City strives to maintain a level of investment of all funds as close to 100% as possible through daily and projected cash flow determinations. This type of investment would make those determinations more difficult. Currently, I cannot find any municipalities that have invested in TIPS. The City's current investment software cannot record or track this type of investment and when I contacted the company, they said there had been no requests to add TIPS. The City would have to pay the software company to rewrite the software. The rates the City has been able to get by investing in U.S. agencies are equal to or better than TIPS, but without the complicated bookkeeping. Per GASB 40, which will be implemented beginning 2004, TIPS would have to be disclosed in the City's financial statements (CAFR). The Investment Policy would also need to contain this disclosure. This is because of the inconsistent cash flows from TIPS and the sensitivity of this type of issue to interest rates because it is adjusted by an index. ~,~ ~ ~ RECEIVED ~ MANAGER S C.' B A K E R S F I E L D PUBLIC WORKS DEPARTMENT CITY OF BAKERSFIELD MEMORANDUM April l, 2004 TO: ALAN TANDY, CITY MANAGER FROM: RAUL M. ROJAS, PUBLIC WORKS DIRECTOR/~_.__..._~ SUBJECT: REAFFIRM HIGH SPEED RAIL LOCATION Council Referral #739 Vice-Mayor Couch requested staff provide a letter to Kern COG reaffirming our position regarding the preferred alignment of the project and the preferred station location. The attached letter was sent to the Kern Council of Governments on March 30, 2004. G:\GROUPDA3%Referrals~2004\03-24\739 - Jack.doc BAKERSFIELD PUBLIC WORKS DEPARTMENT 1501 TRUXTUN AVENUE BAKERSFIELD, CALIFORNIA 93301 ¢661) 326-3724 RAUL M. ROJAS, DIRECTOR · CITY ENGINEER March. 30, 2004 Ron Brummett, Executive Director Kern Council of Governments 1401 19th Street Bakersfield CA 93301 Dear Mr. Brummett: The City has reviewed the draft Environmental Impact Report for the High Speed rail. With respect to station locations and routes for Bakersfield the City has the following comments: 1. The City Council and the Board of Supervisors has unanimously approved a preferred station location in downtown Bakersfield adjacent to the current Amtrak station. This preferred alternative was also adopted by the Kern Council of Governments. As such, a final Environmental Docl.,ment should include this downtown location as the actual station location site for Bakersfield. 2. With respect to track alignment, any of the various track alignments as outlined in the Draft EIR is acceptable to the COB as long as it supports a downtown station location. Please note that an extensive study was commissioned by the Kern Council of Governments to determine the preferred location for the station. This extensive study identified the downtown site as the most desirous location and was unanimously approved by the City and the County. This study also included an extensive amount of public input and therefore should weigh heavily on the decision to locate the station downtown. Please feel free to give me a call at 326-3596 if you have any questions. Very truly yours, RAUI~M. ROJAS Public Works Director B A K E R S F I E L t CITY MANAGER'S C' MEMORANDUM TO: ALAN TANDY, CITY MANAGER FROM: JACK HARDISTY, DEVELOPMENT SERVICES DATE: April 1, 2004 . SUBJECT: ABBOTT PROJECT AT MEACHAM ROAD Council Referral No. REF000735 VICE-MAYOR COUCH REQUESTED STAFF PAY CLOSE ATTENTION TO THE SPECIFIC PLAN REGARDING THE ABBOTT PROJECT ON MEACHAM ROAD AT CALLOWAY DRIVE, TO REVIEW TRAFFIC TRIP GENERATION, THE EFFECT ON NEIGHBORHOOD TRAFFIC AND THE FEASIBILITY OF A STOP SIGN AT ABBOTT AND GOLDBAR. The Development Services Director has met with Dean Brown (complainant) and reviewed the approved site plan with respect to Mr. Brown's concerns over compliance with the Riverlakes Specific Plan. He has also consulted with the City Traffic Engineer concerning traffic volume and distribution. Mr. Brown's primary concern is that a driveway from the office development will result in more traffic through the residential neighborhood in violation of the Riverlakes Specific Plan. He points out that traffic also poses a threat to the safety of children who are picked up at a bus stop on the east side of Abbott Drive northerly of the entrance. He also contends that a wall should have been required along the east side of the office complex. His fourth concern was that application for site plan approval was accepted prior to final approval by the Riverlakes Design Review Committee. The project consists of eight medical and general office buildings for a total of 41,180 square feet of office space at the northeast corner of Calloway Drive and Meacham Road. It is separated from single family homes to the north by a wall and landscaping. Abbott Drive runs along its eastern side and separates it from a large drainage basin to the east. There are no homes directly across Abbott Drive from the project. One of the goals of the Riverlakes Ranch Specific Plan cited by Mr. Brown is: "Serve residential neighborhoods by local streets from the arterial and collector street system. Minimize through traffic in residential neighborhoods. (Incorporate screen wall and landscaping treatment at the right-of-way or easement line separating arterial and collector streets from Iow density residential areas)." Alan Tandy, City Manager March 31, 2004 Page 2 This goal is addressed by placement of the office complex at Calloway Drive (an · arterial) and Meacham Road (a collector). Convenient access is provided for nearby residents of Riverlakes by the driveway to Abbott Drive. Left turns out of the office complex are blocked by medians in Calloway Drive and Meacham Road and clients must exit to Abbott Drive to make a left (eastbound) turn at its intersection with Meacham Road. The City Traffic Engineer has estimated this complex will generate about 1115 trips per day (1/2 arriving and Y2 leaving) about 100 of those trips would come and go by way of the Abbott Drive entrance. Most would likely head to Meacham. But even with a 50% split, traffic to the north on Abbott Drive would amount to 25 trips in and 25 trips out. Staff's opinion is that 100 trips per day on Abbott Drive is minimal. Staff offered to ask the developer to place a "right turn only" sign at the exit but Mr. Brown didn't think that would help since it would be unenforceable. There was also a concern that traffic would increase in front of the school on Meacham Road, a collector street with a median. It is expected that about 30-35% of the trips would be carried by Meacham Road. Not all of them would pass by the school but if theYdid the traffic would increase from 335 to 390 trips (half coming and half going). This is not a significant portion of triPs for a collector. The matter of access to/from Abbott Drive was addressed by the Planning Commission in its review of Parcel Map 10923 in a November 2002 noticed pubic hearing which resulted in approval of the access to Abbott Drive. Parcel maps must be consistent with general plans, specific plans and zoning to be approved. The developer has relied on that and conditional site plan approval to proceed with grading that includes the access points. As to the issue of children being endangered at the bus stop, staff has been informed that they are picked up around 7:30 a.m. and returned before 5:00 p.m. This would be before peak traffic hours for the offices. There is also sidewalk and landscape areas for the children to walk on and congregate so they would have little reason to be in the street. However, as a precaution staff will install warning signs to alert motorists of the presence of children in advance of the bus stop in both directions. This does not appear to be any different then most bus stops that staff could see. Mr. Brown's statement that a wall should have been required along the Abbott Drive frontage is based on a plan standard that walls should separate residential uses and commercial developments. There is also an illustration which schematically shows a wall between this office commercial site and residentially zoned property to the east. However, it does not show a street with the wall nor the drainage basin on the other side of it. There are no residential uses to the east of this project. Staff required 25 feet of landscaped area along Abbott Drive because of the plan's objectives and standards which are: · "Provide areas for landscape enhancement and visual buffering." · "Locate buildings and other improvements to complement that portion of the site on which they are to be placed and to enhance adjoining street scapes." Alan Tandy, City Manager March 31~, 2004 Page 3 · "Locate buildings and parking areas according to the City of Bakersfield Zoning Ordinance requirements, except that the following standards of this plan which are more restrictive than the Zoning Ordinance shall apply." · "A twenty-five foot landscaping minimum setback is required along street frontages." · "All Commercial and Commercial-Office land uses shall have a minimum front yard landscaped setback of 25 feet measured from the street right-of-way line. No building, structure or parking area shall be permitted within this setback." · "Minor deviations from the development programs and plans, illustrated herein, will be permitted due to new and more detailed information that will be available at the time that the precise plans are prepared and submitted for approval. Any deviations may be approved by the Planning Director, based upon his review of such precise plans. However, increases in the total amount of development specified in the Land Use Program will require an amendment of this Specific Plan." Mr. Brown is concerned that the developer filed application for approval with the city prior to Development Standards Review Committee approval. The policy states: "All precise development plans including architectural and landscape architectural plans shall be submitted to the Development Standards Review Committee for their review prior to submittal for approval by the City of Bakersfield." This policy requires submittal (not approval) to the Development Standards Review Committee prior to the submittal for approval to the city. Over the past 18 years the process of plan review has been that both the review committee and city review the initial plans at the same time while at the site plan review level. The review committee sends its findings to the developer and the city prior to issuance of a building permit. At this point the committee and city both require the same plan corrections be made before they are released for building plan check. But, neither city nor the Development Standards Review Committee has identified defects in the plan corresponding to Mr. Brown's. Upon amendment of the plan and approval by the Development Standards Review Committee to reflect the following it will be released for approval of building permits: -A. Development Services - Buildinq (staff contact- Phil Burns 661/326-3718) 1. The developer shall submit 4 copies of grading plans and 2 copies of the preliminary soils report to the Building Division. A final soils report shall also be submitted to the Building Division before they can issue a building permit. Please note that approved grading plans must also match final building site plans and landscaping plans. B. Development Services- Planninq (staff contact- Dave Reizer 661/326-3673) 1. The minimum pa~'king requirement for this project has been computed based on use and shall be as follows: Alan Tandy, City Manager March 31, 2004 Page 4 Square Parking Required Use Footaqe Ratio Parkina General Office Complex 41,160 sq. ft. 1 space/230 sq. ft. 179 spaces Or Medical Office Complex 30,250 sq. ft. I space/125 sq. ft. 242 spaces (Note: 248 parking spaces are shown on the proposed site plan. A mix of general office and medical office uses maybe permitted provided the above noted parking ratios are maintained.' By ordinance, compact and tandem spaces cannot be counted toward meeting minimum parking requirements.) 5. The developer shall include a copy of a final landscape plan with each set of the final building plans submitted to the Building Division. Building permits will not be issued until the Planning Division has approved the final landscape plan for consistency with approved site plans and minimum ordinance standards (please refer to the attached landscaping requirements in Chapter 17.61). (Note: At the time a final site inspection is conducted, it is expected that plants will match the species identified and be installed in the locations consistent with the approved landscape plan. Changes made without prior approval of the Planning staff may result in the removal and/or relocation of installed plant materials and delays in obtaining building occupancy). 6. A solid masonry wall is required to be constructed adjacent to residentially zoned property as indicated by staff on the returned site plan. This wall must be shown on the final building plans and shall be constructed a minimum, height of 6 feet as measured from the highest adjacent finished property grade. If the parking lot, including drive aisles, delivery areas, loading and unloading areas are within 10 feet of residentially zoned property, a 7-foot wide landscape strip that includes landscaping consistent with Chapter 17.61 shall be installed between the wall and parking/drive areas (this will also be noted on the returned plan). 12. The Riverlakes Specific Plan requires that there be a minimum yard landscaped setback of 25 feet from any adjacent street right-of-way for commercial office land uses.. This setback applies to all buildings and parking (except parking that is bermed and screened of which a 10 foot setback must be observed). ConditiOns of Parcel Map No. 10923 14. If during construction activities or ground disturbance, cultural resources are uncovered, the subdivider shall stop work and retain a qualified archeologist for further study. Subdivider shall notify the proper authorities and be subject to any mitigation measures required of the archeologist. 15. Prior to or concurrently with recordation of a final map, subdivider shall provide a common access and parking easement encumbering the subject parcel map. Easement shall be submitted to the City Attorney and Planning Director for review and approval prior to recordation of a final map. Alan Tandy, City Manager March 31,2004 Page 5 C. Fire Department (staff contact- Dave Weirather 661/326-3706) 1. Show on the final building plans the following items: a. All fire hydrants, both off-site (nearest to site) and on-site. Include flow data on all hydrants. Hydrants shall be in good working condition and are subject to testing for verification. Fire flow requirements must be met prior to construction commencing on the project site. Please provide 2 sets of the engineered water plans to Dave Weirather. (Note: All new fire hydrants must be purchased from the Fire Department.) b. Project address, including suite number~ if applicable. If the project is within a shopping or business center, note the name and address of the center. c. Name and phone number of the appropriate contact person. D. Public Works - Enqineerinq (staff contact- George Gillburg 661/326-3997) 4. The developer shall install new connection(s) to the pubic sewer system. This connection shall be shown on the final building plans submitted to the Building Division before any building permits will be issued. 14. The legal description (i.e. Lot and tract number and/or assessor's parcel number) shall be shown on the final building plans. E. Public Works -Traffic (staff contact- George Gillburg 661/326-3997) 2. Street return type approach (es), if used, shall have 20' minimum radius with a 24' minimum throat width. All dimensions shall be shown on the final building plans. F. Pubic Works - Solid Waste (staff contact - John Wilburn 661/326-3114) 1. You must contact the staff person noted above before building permits can be issued or work begins on the property to establish the level and type of service necessary for the collection of refuse and/or recycled materials. Collection locations must provide enough containment area for the refuse that is generated by the businesses without violating required zoning restrictions (see Planning Division items). Levels of service are based on how often collection occurs as follows: · Can or cart service -- I cubic yard/week or less · Front loader bin service -- 1 cubic yard/week- 12 cubic yards/day · Roll-off compactor service -- More than 12 cubic yards/day 2. Show on the final building plans 4 (four, 8' x 10' (inside dimension) refuse bin enclosures designed according to adopted city standards (Detail #S-43). Before occupancy of the building or site is allowed, 8 (eight), 3 cubic yard front loading type refuse bins shall be placed within the required enclosures. Alan Tandy, City Manager March 31, 2004 Page 6 4. Facilities that require grease containment must provide a storage location that is separate from the refuse bin location. This shall be shown on the final building plans. DeWalt Corporation - Development Standards Review Committee: 1. Side-yard/rear-yard setbacks do not appear to be in full compliance with BMC §17.20.080.A. and §17.20.090.A. where the side or rear lots abut adjacent lots in the R-1 zones. The minimum setback should be twenty feet (20'). (Affects Parcel 1). 2. Front-yard setbacks (i.e. street-frontage setbacks) do not appear to be in full compliance with Specific Plan §11.6.2.3. The minimum setback is twenty-five feet (25') from the City Right-of-Way, or twelve feet (12')from the City Right-of-Way at' parking stalls if a berm and retaining wall is constructed (refer to Parking Lot Screening Exhibit 25-A). (Affects Parcels 3 & 5 at right-turn lane on Calloway Drive; affects Parcel 7, and possibly Parcel 8, on Meacham Road; affects parking stalls fronting Meacham Road.) Incorporate berm & retaining wall at parking stalls into grading plan, and submit grading plan for review. 3. The Specific Plan "Wall and Fence Plan" Exhibit C (5) indicates a Community Theme Wall, Level Three, to be constructed on the north and east property lines. This level of theme wall is intended to separate commercial use from residential use sharing a common property line. a. East Property Line: Please contact the City Planning Director to determine whether or not a wall will be required along the east property line, since the east property line is now a residential collector road (Abbott Drive), and the project does not share a common property line with residential properties along the east property line. b. North Property Line: For the wall on the north property line, include structural details indicating a 6-ft. high masonry wall (height measured from highest side), with grey splitface block and appropriate cap to match the existing masonry wall on Calloway Drive. Wall height should be reduced to 4-ft. maximum height within the front yard setback of the existing single family lot fronting Abbott Drive, immediately adjacent to the Project. 4. All roof-top equipment shall be property screened so as not to be visible from any adjacent streets or properties. 5. Consider making sidewalk on Calloway Drive a 6-ft. wide meandering sidewalk, to match existing sidewalk north and south of the project site on Calloway Drive. JH:djl CC: Raul Rojas, Public Works Director Steve Walker, Traffic Engineer Michael S. Walker, MS Walker & Associates Paul Andre, MS Walker & Associates P:\CCReferral~Ref735.doc ~,- ~ RECEIVED ANAGER'S O~ B A K E R S F I E L D PUBLIC WORKS DEPARTMENT CITY OF BAKERSFIELD MEMORANDUM April 1, 2004 TO: ALAN TANDY, CITY MANAGER FROM: RAUL M. ROJAS, PUBLIC WORKS DIRECTOR~_... SUBJECT: POTHOLE AT WIBLE AND HOSKING Council Referral #731 Vice-Mayor Couch requested staff repair pothole on southbound Wible Road at the turn on Hosking Road. The pothole was filled Monday, March 29, 2004. G:\GROUPDA~Referrals~004\03-24\731 - Streets.doc B A K E R S F I E L D PUBLIC WORKS DEPARTMENT CITY OF BAKERSFIELD MEMORANDUM April 1, 2004 TO: ALAN TANDY, CITY MANAGER FROM: RAUL M. ROJAS, PUBLIC WORKS DIRECTOR ~ SUBJECT: ABBOTT PROJECT AT MEACHAM ROAD Council Referral #735 Vice-Mayor Couch requested staff pay close attention to the specific plan regarding the Abbott project on Meacham Road at Calloway Drive, to review traffic trip generation, the effect on neighborhood traffic and the feasibility of a stop sign at Abbott and Goldbar. The Planning Department is working on the land use aspect of the office project on the north east corner of Meacham Road and Calloway Drive which also borders Abbott Drive. Meacham Road is a Collector class roadway, Calloway Drive is an Arterial class roadway and Abbott Drive is a local The Traffic Engineer will conduct stop sign studies at the intersection of Abbott Drive and Tonasket Lane (the connection to Goldbar Drive) and collect traffic volumes for Abbott. The Traffic Engineer will also place additional school pedestrian signs on Abbott in the area of the existing junior high school bus stop, adjacent to the drainage sump between Bearclaw Avenue and Meacham Road. G:\GROUPDAT~Referrals~004\03-24\735 - Traffic.doc --- 1"' i RECEIVE_~, B A K E R S F I E L D PUBLIC WORKS DEPARTMENT CITY OF BAKERSFIELD MEMORANDUM April 1, 2004 TO: ALAN TANDY, CITY MANAGER FROM: RAUL M. ROJAS, PUBLIC WORKS DIRECTOR ~ SUBJECT: POTHOLES ON S REAL ROAD Council Referral #729 Councilmember Sullivan requested staff repair potholes on Real Road, south of Stockdale highway, before the Highway 58 off-ramp. A street maintenance crew was assigned to patch all potholes on Real Road, between Stockdale Highway and Elcia Drive this week. G:\GROUPDAT~Referrals~2004\03-24\729 - Streets.doc B A K E R S F I E L D PUBLIC WORKS DEPARTMENT CITY OF BAKERSFIELD MEMORANDUM April 1, 2004 TO: ALAN TANDY, CITY MANAGER FROM' RAUL M. ROJAS, PUBLIC WORKS DIRECTOR /~ ~ SUBJECT: GRAFFITI REMOVAL ON PANAMA LANE Council Referral #733 Councilmember Salvaggio requested staff abate graffiti on Panama Lane between South H east to South Union Avenue, on both sides of the road. Additionally, removal on masonry wall on South H at Lemay, on the west side. The anti-graffiti team has removed the graffiti at both locations. G:\GROUPDAT~Referrals~2004\03-24\733 - GS.doc