SR 10-09-2018 8B
City Council
Report
City Council Meeting: October 9, 2018
Agenda Item: 8.B
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To: Mayor and City Council
From: Katie Lichtig, Assistant City Manager, City Manager's Office, Administration
Gigi Decavalles-Hughes, Director, Finance Department
Subject: Update on the City's Performance-Based Biennial Budget and Adoption of the
Performance Management Policy
Recommended Actions
Staff recommends that the City Council:
1. Receive an update on the City’s transition to a reimagined, performance-based
biennial budget; and
2. Approve the proposed Performance Management Policy that will be incorporated
in the City’s Fiscal Policies.
Summary
Santa Monica’s fiscal health remains strong. Out of California’s 482 cities, only about a
dozen others also have AAA bond ratings from all three national credit rating agencies.
The City’s financial policies, reserves and biennial budget cycle are all cited as best
practices.
Looking ahead, however, flattening revenues from changes in the modern economy and
rising personnel costs, primarily to address statewide unfunded public pension liabilities
have spurred a focus on how to revamp our budget process to promote a government
that works better and costs less.
The transition to a reimagined, performance-based biennial budget provides Council,
staff and the community with a data-driven methodology by which to prioritize the
allocation of resources. By using metrics to analyze what works, resources can be
more reliably directed to areas that help achieve measurable outcomes. The
Framework for a Sustainable City of Wellbeing adopted in the last budget c ycle is the
basis for identifying the results that matter most to the City Council and the community.
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The move from a more traditional line item departmental revenue and expense
budgeting approach will be gradual. The ultimate objective is to achieve th e most
important functions of the City at the lowest possible cost. The FY 2019-21 Biennial
Budget process is the first step in a multi-year process towards a Performance-Based
Budget that integrates performance management into resource allocation decision s.
This report provides an update on the transition, and highlights where staff will seek
direction from the Council and community as the City works towards a more transparent
and effective resource allocation process. Additionally, staff recommends that Council
approve a policy that institutionalizes the City’s commitment to performance
management as a tool and mechanism to achieve a sustainable city of wellbeing that
works for everyone. By directly connecting our targets for managing performance and
allocating fiscal resources, the re-imagined budget process will foster continued data-
driven innovation and improvement to ensure long-term fiscal sustainability.
Background
In FY 2017-18, with the introduction of the Framework for a Sustainable City of
Wellbeing and its identification of high level outcomes the City aims to achieve, staff
began efforts to establish a performance management program for the City designed to
create a culture of data-driven decision making. Over the past year and a half, the City
implemented several programs to integrate performance management into ongoing
operations, including:
(1) Identification of high level outcomes and defining sub -outcomes the City hopes to
achieve, through the Framework for a Sustainable City of Wellbeing;
(2) Engagement of staff through the implementation of a training program and
providing technical assistance to divisions;
(3) Development of plans of action for each of the Council’s strategic goals to set
measurable goals and implement strategies to achieve them;
(4) Creation of SaMoStat as a process to monitor our success in achieving key goals
and outcomes;
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(5) Establishment of a Citywide dashboard to provide transparency to the process of
working towards achieving measurable outcomes; and
(6) Development of an approach to Performance-Based Budgeting.
On June 12, 2018 (Attachment A), Council adopted the FY 2018-19 Budget that furthers
the City’s transition to a fiscally sustainable and outcome-based method of allocating
resources. This approach focuses on using performance data to fully fund important,
effective activities and eliminate or restructure programs that do not deliver high priority
results. This is an iterative process, with a continued commitment to the process as a
way of making stronger decisions and priorities in service through a combination of cost
analysis, data, and qualitative information, designed to create a model of a 21 st Century
government that works for everyone.
Through these efforts, the City began a process of creating structures to embed
performance management into the operational structure of city government. To
continue to operationalize performance management and reaffirm the City’s
commitment to using performance management as a good governance tool, staff
recommends the Council adopt a Performance Management Policy that contains
specific guidance and direction on required performance management processes.
Discussion
Performance-Based Budgeting is a best practice through which City leaders can more
effectively use data to measure how programs perform and how well activities lead to
desired outcome results that matter most to this community. By more directly tying how
dollars are allocated to the results they produce, elected officials, the public and our
workforce can better understand, and have more influence over, budget decision -
making.
The transition to performance-based budgeting is important due to twin fiscal challenges
of flattening revenues and rising pension costs. First, the robust prosperity that has
supported the quality, breadth, and scope of city services is reaching a point of
diminishing returns. The City’s major sources of revenue are either leveling off or
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beginning to decline due to structural changes in the local, regional, and national
economy. Second, tackling the City’s most significant financial liability, the unfunded
pension obligation which is approximately $450 million, will take an increasing share of
the City’s resources in coming years. While this is a statewide problem and the City is
in better shape than most cities, maintaining fiscal health to safeguard community
services in future years requires the City to act to ensure we live within our means.
Reimagined, Performance-Based Biennial Budget
In the summer of 2018, building from the work presented in the Framework for a
Sustainable City for Wellbeing, staff developed a phased process to transition to a
performance-based budgeting model that integrates performance management and
emphasizes community engagement. This report summarizes the process for the
upcoming budget and shares with City Council the longer-term plan to fully transition to
a performance-based budget.
The FY 2019-21 Biennial Budget will lay the foundation for performance-based
budgeting. The new budget process has already begun and will run through to budget
adoption in June. This summer, staff came together to collaboratively develop this new
process. From September through December 2018, staff will create an inventory of all
City activities and services with estimated associated costs, and prioritized according to
established criteria. The City will use this information to look at the budget as a whole,
and identify areas where staff can recommend changes to reallocate resources to meet
anticipated needs. This will be done with an eye towards financial sustainability,
achieving the outcomes outlined in the Framework and prioritizing the community’s
greatest needs. This process, in which the City will make decisions in a holistic manner
and based on consistent criteria, is a first step towards changing how budget decisions
are made. The results will put the City on a pathway to ensuring we can do more of the
highest priority services and activities, reallocate resources (money, people equi pment)
if more is needed to achieve a particular outcome, discontinue services and activities
that no longer meet a pressing need and/or reorganize services and activities so the
City is providing those services in the most efficient and effective manner. Staff expects
that this information, along with input from the community, a pension analysis and the
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new Pension Advisory Committee, as well as other stakeholders, will better inform and
prepare Council to make difficult budget decisions as the City faces future fiscal
challenges.
The reimagined Performance-Based Budget includes the development and
implementation of an enhanced community outreach program on budget priorities and
involves Council actions at various points during the process to help guide budget
development. Our community engagement strategy builds on existing tools, and runs
throughout the planning process to provide the time and opportunity to receive and use
budget information. The summary below highlights key dates for the community an d
Council.
October-December 2018: Pension Advisory Committee. The group will hold
meetings over a several month time-period, with the goal that recommendations
to the City Manager will be available to share with Council in January 2019.
October 2018-March 2019: Survey, pop-ups, community conversations, special
editions of SaMo News. Staff will share a citywide survey starting in October
2018 to gather input on community priorities. Staff will share results with Council
in January to assist with priority setting. And, across the six-month time period,
staff will schedule community conversations and pop-up engagements at City
events at which Council members and staff can interact and build stronger
understanding of the new budgeting model and learn which outcome and sub-
outcome areas that are most relevant to community members.
January 2019: Financial information and priority setting. As the City does each
year, staff will provide the Council with a midyear report and financial for ecast.
New this year will be an extended, 10-year forecast to better focus on long-term
planning. Staff will also share with Council the results of department work to
identify city activities, link them to the City’s high-level goals in the Outcome/Sub-
outcome areas and to Strategic Goals, with an estimated cost and prioritization.
Staff will share feedback from the Pension Advisory Committee, as well as the
results of fall community engagement to identify community priorities. Staff will
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request that Council provide direction on priorities at this time to assist staff in the
development of the budget.
April 2019: Strategic Budget Direction. Staff will provide Council a preview of
budget high-level decisions for FY 2019-21. These may include potential
tradeoffs as the City seeks to close the projected FY 2020 -21 budget shortfall
and to reallocate resources to outcome areas that may require greater
investment. They may also include discontinuation of services or activities and/or
reallocations to improve efficiency and effectiveness.
Council will consider the final proposed budget at its regularly scheduled May budget
study session, in time for adoption in June 2019.
The process to fully implement this new approach to budgeting will occu r over a six-year
period, across three budget cycles. While the City uses criteria to prioritize programs
for the upcoming budget, staff will move towards using performance data gathered over
the two-year budget as a basis for resource allocation.
FY 2021-23: Use of performance data to redesign and restructure service
delivery. In this biennial budget, staff expects to use data gathered in the prior
two years to allocate resources towards what works.
FY 2023-25: Full transition to Performance-Based Budgeting.
Performance Management Policy
A Performance Management Policy will institutionalize the City’s commitment to data -
driven decision-making by establishing a written policy to guide citywide efforts. It is a
best practice to have such a policy. The policy defines the City’s approach to
developing, establishing, monitoring, and reporting on outcomes, and establish the
commitment to use this outcome data in resource allocation decisions. Staff
recommends that Council approve the proposed Performance Management Policy that
will be incorporated in the City’s Fiscal Policies:
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City of Santa Monica Performance Management Policy
The City of Santa Monica City Council supports the use of data to drive and
inform decision making processes and deliver reliable results to create a model
21st Century government and a sustainable city of wellbeing that works for
everyone. The City will manage performance and focus resources to achieve the
community-focused outcomes included in the Framework for a Sustainable City
of Wellbeing.
The Framework for a Sustainable City of Wellbeing defines the measurable outcomes
that the City is striving to achieve. On a biennial basis, as part of the budget setting
process, staff will ask Council to approve the outcomes, along with applicable outcome
metrics, that will drive these efforts. SaMoStat, a management system based on best
practices from other municipalities, will be used by staff to monitor the City’s progress in
achieving outcomes. A Citywide dashboard, located on the City’s website, will serve as
the method of reporting on progress in achieving outcomes. The dashboard and budget
documents will present outcome metrics.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action as a result of the recommended
action. Staff will identify funding within existing budget for associated costs to support
the budget process, which will include community engagement activities. Staff expects
that over the longer term, a performance-based budget and commitment to performance
management principles will lead to more effective and efficient use of resources.
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Prepared By: Tim Dodd, Chief Performance Officer
Approved
Forwarded to Council