Bending the Cost Curve - MRSC

Bending the Cost CurveA Roadmap to Fiscal Sustainability

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Michael HodginsPrincipal at BERK Consulting and the

firm’s Finance + Economics practice

manager.

Adam LincolnManagement Analyst for the City of Lakewood.

BENDING THE COST CURVE:

A ROADMAP TO FISCAL SUSTAINABILITY

APRIL 1, 2015

BUILDING A FISCALLY SUSTAINABLE COMMUNITY

SPEAKER:

Michael Hodgins, Principal, BERK

BENDING THE COST CURVE: A ROADMAP TO FISCAL SUSTAINABILITY1

INTRODUCTION

ABOUT BERKBERK’s Sustainable Communi� es prac� ce

fosters resilient municipali� es, able to

navigate tradeoff s, meet daily challenges,

and make wise long-term decisions. We work

collabora� vely to:

¡ Create a shared community vision

¡ Analyze underlying dynamics, such as

regional economies, level of service

commitments, and environmental

condi� ons

¡ Align stakeholders and partners

¡ Cra! strategies that op� mize the

community’s human, natural, and

fi nancial assets


BUILDING A FISCALLY SUSTAINABLE COMMUNITYThe great recession has forced most ci� es to drama� cally reduce their budgets to refl ect the current

revenue reali� es. While the recession was the precipita� ng blow, the resul� ng fi scal crisis refl ects

much deeper underlying structural challenges facing ci� es trying to meet community expecta� ons

in a low tax environment.

The primary challenge is one of revenue adequacy related to the 1% limit on current expense

property taxes:

¡ Property tax levy has been limited to 1% plus new construc� on since 2002 making it very

diffi cult for property tax revenues to keep up with infl a� on

¡ This has led to an erosion of a cri� cal component of a jurisdic� ons tax base

Illustra! on of the Impact of 1% Limit on Levy Growth 1% Property Tax Levy as Pct of the Prior 6% Limit


FISCAL SUSTAINABILITY

A Model for Sustainable Municipal Services

Level ofService (LOS)ManagementAdministrationDirect Services

< =

Land Base

Population

Employment

Commercial Activity

Developable Land

Location

Mode ofServiceDelivery

Demand forServices

Cost ofServices

Gov’tRevenues

FiscalPolicies

Tax Laws

Tax Base

Governance/Scope ofServices

For long-termfiscal sustainability,these two elementsmust be in balance.

©


POSITIONING FOR LONG-TERM SUSTAINABILITY

¡ It is useful to think about sustainability in two primary ways:

» Ac! ons designed to infl uence the land base over " me

» Ac! ons designed to align costs and revenues given a par" cular land base

¡ In terms of taking a strategic long-term view, ci! es might consider

framework policies that would guide:

» Land base decisions which ul! mately drive the long-term sustainability challenge

¡ Comprehensive Plan that considers fi scal implica! ons of land use policies

» Cost effi ciency and cost eff ec! veness of service delivery

¡ Tracking and managing to effi ciency and eff ec! vess goals

» Financial policies that seek to balance:

¡ Opera! ons and capital investment needs

¡ Tax burdens and the land base driven mix of tax base components

¡ One-! me versus ongoing revenues


KEY QUESTIONS ¡ Land base drives everything:

» The geography of the city

» The mix, scale, and type of exisitng land uses

» The level of development ac! vity

» Future development opportuni! es

¡ How well does the current land base set the City up

for longer-term fi scal sustainability?

¡ How well does the City’s Comprehensive Plan address

the issue of long-term fi scal sustainability? The zoning

code?

¡ Are there risks in the current regulatory and/or market

environment that could make fi scal sustainability more

diffi cult to achieve?

VISION

COMPREHENSIVE

PLANECONOMIC & FISCAL

SUSTAINABILITY

LAND BASE


< =

Land Base

Population

Employment

Commercial Activity

Developable Land

Location


Demand forServices

Cost ofServices

Gov’tRevenues

FiscalPolicies

Tax Laws

Tax Base



©


KEY QUESTIONS ¡ How do you think about the ques� on of revenue adequacy?

» Opera� ons - cover exis� ng costs with reasonable reserves?

» Capital - how much general tax revenue should go to capital investments?

¡ How are, or how should, rela� ve and absolute tax burdens be weighed in the sustainability

discussion?

» Commercial versus residen� al

» New development versus exis� ng residents and businesses

» Current tax burdens versus historic levels

» Rela� ve to peer and neighbor jurisdic� ons

¡ How is, or how should, tax diversity be weighed in the

sustainability discussion?

» Commercial versus residen� al

» Demographic and income considera� ons

» What is the appropriate role for fees for service versus

tax-supported services?

REVENUE ADEQUACY, TAX BURDEN AND TAX EQUITY


< =

Land Base

Population

Employment

Commercial Activity

Developable Land

Location


Demand forServices

Cost ofServices

Gov’tRevenues

FiscalPolicies

Tax Laws

Tax Base



©


KEY QUESTIONS ¡ Are there services that can be reduced because the current level-of-service is higher than the

community is willing to support?

¡ Are there services that the City should not be directly engaged in?

¡ How might specifi c services be priori" zed and right-sized rela" ve to what the community is

willing to support?

¡ Are there opportuni" es to think of levels-of-service in " ers and " e these to specifi c funding

mechanisms?

» Example: a basic parks maintenance program funded from ongoing revenues and a more robust

parks and recrea" on program with addi" onal

voter-approved funding.

¡ How to think about internal levels-of-service versus

external levels-of-service?

LEVEL-OF-SERVICE


< =

Land Base

Population

Employment

Commercial Activity

Developable Land

Location


Demand forServices

Cost ofServices

Gov’tRevenues

FiscalPolicies

Tax Laws

Tax Base



©


A Model for Sustainable Municipal Services


< =

Land Base

Population

Employment

Commercial Activity

Developable Land

Location


Demand forServices

Cost ofServices

Gov’tRevenues

FiscalPolicies

Tax Laws

Tax Base



©

¡ Level-of-service (LOS) is about how

much of a par� cular service is desirable,

considering:

» Statutory and regulatory requirements

» Public interest and priori� es

» Aff ordability

¡ Typically, level-of-service decisions are

made based on revenue adequacy each

budget cycle

¡ There is othen a clear tension between

what people want (LOS) and what they

are prepared to pay for (tax burden)

LEVEL-OF-SERVICE


KEY QUESTIONS ¡ What is the City doing that someone else could do for less?

» How to think about tradeoff s between control and poten" al cost savings?

¡ What could the City do to deliver the same service at a lower cost? Or grow services within

current resources, such as through investments in technology?

¡ How can the City manage the growth in its core cost elements, such that cost growth can more

reasonably track revenue growth?

» Labor costs

» Benefi ts

¡ What might the City be able to do on behalf

of other jurisdic" ons and to leverage

economies of scale?

SERVICE DELIVERY


< =

Land Base

Population

Employment

Commercial Activity

Developable Land

Location


Demand forServices

Cost ofServices

Gov’tRevenues

FiscalPolicies

Tax Laws

Tax Base



©

Maximizing Efficiency Through

Interlocal Service DeliverySpeaker: Adam Lincoln

4/1/2015

4

Where is Lakewood

5

Key Topics

• Why is it important to conduct this

analysis?

• Sustainable budgets and cost savings

• Know what you can afford

• Create strong regional partnerships

• Efficient services

• Transparency

6

Why Lakewood?

• Well established Municipal Court

• Respected Judge

• Nice facility

• Easily accessed with ample parking, etc.

• Big enough to handle the caseload

• Small enough to be responsive

• Cost effective

7

The Model is Based on Time

• Available time to process cases

• Based on number of cases and staff required to process

cases.

• Court cases and Infractions are considered together.

• Costs are pulled out if cases are not seen by the judge,

or if a public defender is needed to process the case.

8

Unit Costs

• Cases are widgets.

• Cost of each type of widget determines how much the system costs

tax payers and our partners.

9

How do we reduce the caseload?

• Diversion

• Can lower the sentence and may not require time in front of the

Judge meaning a less expensive case.

• Paid Infractions

• Paying for tickets at the counter and not holding a hearing to

discuss the matter is a much cheaper way to process infractions.

10

Where are the cases coming from?

11

2015 Case/Infraction Estimates

Lakewood 12,135

University Place 792

Steilacoom 559

DuPont 528

TOTAL 14,014

What does it cost?

* Employees number includes partial employees and not

an FTE count.

12

Municipal Court

12.5 Employees/Wages/Benefits $1,178,912

1 Court Sgt (paid via Police

Department budget)

$145,356

Public Defenders $345,000

Operating Expenses $490,018

TOTAL $1,941,013

Legal Department- Criminal Division

9 Employees/Wages/Benefits $318,820

Contract Prosecutors $130,000

Operating Expenses $75,048

TOTAL $523,868

Grand Total = $2,683,154

In-court costs

(includes all cases, even those not seen by public defenders)

13

What it takes to process cases

1 Judge

1 Courtroom Specialist

90% of Criminal Division

Total Cost = $1,023,756

What it takes to reduce cases

10% of Courtroom Specialist

10% of Criminal Division

Total Cost = $40,011

$1,023,756 divided by 12,485 cases =

$54.37 per case

$40,011 divided by 1,613 cases = $24.81

per case


In-court costs for processing a full caseload

Paid Infraction Costs

14

What it takes to process infractions at the front counter

15% of Office Assistant

Total Cost = $9,978

$9,978 divided by 2,050 Infractions = $4.87 per paid

infraction

Public Defense Costs

15

Public Defense Costs

Public Defenders $345,000

Number of Cases 1,529

Cost per case $226

MunicipalityPublic Defense

Cases

Cost of Public

Defense Cases

Percent of Total

Cost

Lakewood 1,300 $293,329 85.0%

University Place 200 $45,128 13.1%

Steilacoom 15 $3,385 1.0%

DuPont 14 $3,159 0.9%

Total 1,529 $345,000 100%

Courtroom Costs by Municipality

16

Municipality%

Caseload

Criminal

Cases/

Infractions

Case CostReduced

Cases

Cost of

Reduced

Licensing

Cases

Total Cost

Lakewood 86.8% 12,149 $882,382 1,455 $36,092 $924,493

University Place 5.6% 792 $77,312 117 $2,902 $60,818

Steilacoom 4.0% 559 $32,960 41 $1,017 $41,894

DuPont 3.6% 500 $31,103 - - $36,563

Total 100% 14,000 $1,023,756 1,613 $40,011 $1,063,767

$2,683,286 $1,063,767The total budget does not equal the total in-court cost…

The remaining $1,619,519 budget costs are driven by the

operations of the Municipal Court offices and the Legal

Department – Criminal Division offices.

17

Other Costs of Running a Court System

Other Costs of Running a Court System

18

Running Municipal Court Offices

11 Employees (wages & Benefits) $898,987

1 Court Sgt. $145,356

Administrative & Operating Expenses $490,018

TOTAL $1,534,361

Running the Legal Department- Criminal Division

Offices

No additional employees $0

Administrative & Operating Expenses $75,049

TOTAL $75,049


City Hall Maintenance

19

City Hall Maintenance

2015 City Hall Maintenance = $338,070

City Hall = 72,432 Square Feet

Municipal Court Square Footage (11,714 Sq ft) = $54,767 or 16.2% of City Hall

Criminal Division (2,960 Sq ft) = $13,861 or 4.1% of City Hall

Both square footage calculations include shared space

16.2% of $338,070 = $54,767

4.1% of 338,070 = $13,861

Total Cost = $68,628

Shared Resource Calculations

20

Shared Resource Calculations

Several departments share services

To determine the amount that is utilized by the Municipal Court

and the Criminal Division the number of FTE was divided by the

total number of FTE

16.32 FTE /220.25 TOTAL FTE = 7.4% of total employees

Finance Support

21

Finance Support

Assistant City Manager for Administrative Services, Payroll, and

Accounts Payable = $355,680

7.4% of $355,680 = $26,320

IT Support

22

IT Support

IT Personnel ($420,240 X 7.4%) $31,098

Computers (33 units X $2,100) $69,300

Desk Phones (28 units X $500) $14,000

Cell Phones (9 units X $600) $5,400

TOTAL $119,798

Administrative Costs

23

Municipality

City Hall

MaintenanceFinance

Support

Human

Resources

Support

IT Support

WCIA

Assessment Total

Lakewood

86.8%$59,569 $22,846 $28,375 $103,984 $36,035 $250,809

University

Place

5.6%

$3,843 $1,474 $1,831 $6,709 $2,325 $16,182

Steilacoom

4.0%$2,745 $1,053 $1,307 $4,792 $1,661 $11,558

DuPont

3.6%$2,471 $947 $1,177 $4,313 $1,494 $10,402

Total $68,628 $26,320 $32,690 $119,798 $41,515 $288,951

Cost per Municipality

24

MunicipalityPercent of

caseload

Courtroom

costs

Non-courtroom costs (based on %

caseload)Total

Lakewood 86.8% $918,473 $1,396,968 + ($8,761 paid tickets) $2,324,202

University

Place5.6% $80,214 $90,127 + ($243 paid tickets) $170,584

Steilacoom 4.0% $33,977 $64,376 + ($973 paid tickets) $99,326

DuPont 3.6% $31,103 $57,939 $89,042

Totals 100% $1,063,767 $1,609,410 + ($9,978 paid tickets) $2,683,154

2015 Total Budget Amount = $2,683,154

Current ILA vs. Court Cost Analysis

Municipality

Contract

for

Services

(ILA)

Revenue

(ILA)Totals (ILA)

Contract for Services

(Cost Analysis)

University

Place$225,000 $100,000 $325,000 $170,584

Steilacoom $10,000 $40,000 $50,000 $99,326

DuPont $0 $0 $0 $89,042

Total $235,000 $140,000 $375,000 $358,952

25

Under Previous ILA Under Cost Analysis ILA

Additional Savings

• Ensuring that the staff level is appropriate for the workload

• Video Arraignment

• Paperless systems

• Strong understanding of all cost drivers

26

Discussion/Questions?

27

Documents

Bending the Cost Curve - MRSC