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(upbeat music) – Hi Matt – Hey Ray – So you’ve been the finance director for over six years with the city of Salinas Can you tell us sort of what all your overall responsibilities to the city as the finance director? – Sure, so I manage and direct department, finance department Includes two main sections, the finance and IT pieces and in the finance section we have accounting, purchasing, differ comp, payroll, paying our bills, collecting money, and we also have miscellaneous billing So we’re largely a support department to the other departments in the city The information services manages our city network All the computers, equipping all the departments to do their business and software integration so all the programs that we use, making sure they all connect and are working and supported by the hardware, software, and the network And help desk for all the departments so we send deploy individuals out to help with printer problems and so forth So largely a support department And then of course supporting the annual budget is a big part of our annual work program Preparing the annual financial statements which includes an audit from an external audit auditor that they come in and audit our books And so those are the two main bookends of our work product and of course all the day to day things that go on – So one of the major initiatives was to really come into the 21st century with your technology right? – That’s right – So in the last year and a half, you had some technological new applications right? – That’s right – That you implemented, you selected, and then implemented right? So tell us a little bit about that system and what it will do for the city – Sure, that was a big accomplishment, took a lot of hours and a lot of grit and sweat by all of the departments and my staff implemented It was a citywide, what they call ERP Enterprise Resource Planning app tool A new software application that was about a million and a half budget and it involved all the departments and there’s a financial management component of it There’s a HR human resource payroll component and another business license component So the financial management component took us from a 30 year old legacy system – Wow – Existing software system that we used and leverage for 30 years Got our money’s worth out of it And so it was a big investment to upgrade and modernize the whole software that we used to manage our operations from an accounting standpoint, from processing a purchase order to paying our bills That’s now done paperless We were heavy paper driven in our processes and now each department can manage their own budget and have more autonomy and discretion on moving dollars around They don’t have to fill out paper and say submit it to us and we make the adjustment for them They get online There’s an electronic approval process so it goes to the different levels of approval to help us help them manage their budget, help us manage overall our stewardship of the public funds so a great improvement and very exciting of course I mean it touched all areas The payroll, employees can look at their pay stubs electronically online, they can request changes to the information, they can do some of it manage themselves, and so a big improvement for everybody Even vendors now can register as a vendor

and submit invoices electronically And we can pay them electronically So really a big investment and to modernize and help us be more efficient – Right so, it took a while to implement that right? It was a big change in the culture and how you complete and initiate your transactions through all those different functions that you’re responsible for So that must’ve been quite a challenge Getting people used to the system, training them – Yes and that was a great and fun part of the process is we involved all the departments from the initial selection to making a final decision and then in the training and we did extensive training of all the department personnel, got them up to speed, how to use the system Our budget system is another example of we just annually we do refresher training and so each department now can enter their proposed budget and make changes themselves, run reports to see, and review it at a detailed level or at a high level So it was again citywide and everybody rose up to the challenge I’ve done five of these in my career and so there is always a question whether people will embrace change and managing that change is important and they are city employees really rose up to that challenge and loved it And I think in this day in age they expect it so we recognize that we needed to make a change and it was widely embraced in our environment so I was very impressed and there’s continual refinement of that Each of the processes as we implement and kind of step back and evaluate how well it’s working and we’ve done some refinements and even implemented some new features that come on board or kind of phase in some of the features that we didn’t quite get to – Right – As we go along – So give us a little overview of where we are in the current budget process because the city’s fiscal year starts July one of every year And then ends the following year on June 30th So we’re winding down our current fiscal year – Getting close – Right and so we’re preparing to close that out in the next few months and then we’re going to be asking the counselors to consider and review and approve the next fiscal year budget right? – That’s right – So give us an up to date status of where we are on the budge Matt and what some of the challenges might be – Sure so maybe starting with the budget process, we look at all of the city’s revenue That’s one place that we start and we project out over a five year, sometimes longer horizon what the future stream of revenue for the city is is gonna be and as you know and have gone through many cycles of economic changes where the revenues of the city go through some valleys and then peaks So that’s very important we keep a close eye on all of our revenue stream and understand what those are For our city the major revenue stream is sales tax, retail sales, there’s a percentage that comes through the city It’s 1% so of every dollar spent, 1% of the state initiated sales tax comes to the city for our services We also have two revenue measures, the voters of the city entrusted the city with an additional one and a half cent through measure V, half cent in measure G a one cent So that’s the main revenue source Property tax is number two Our utility users tax is number three And then we have business license in franchise fee some other revenues but the two biggest are property tax and sales tax So making sure we’re that’s our starting point It tells us how much of resources we have available and then we go to the departments Eighty percent of our costs in each department is personnel We’re a service oriented business We provide service to the community and accordingly 80% the largest portion is people

providing service and then about 20% is for other costs such as outsourcing certain things, contractual services, and so we ask the departments here’s our estimated revenue and it’s only increased X amount or we’re projecting it to increase to X amount and so the labor costs with everything built in which continue to go up We only have a little bit left over so this is our constraint so we need you to formulate your budget Either hold the line or we do have some room capacity to grow and with the passage of measure G we were gonna…part of what we promised the community to do with those funds is restore services to the community and help with building our community – But on a scale I mean, just scope of when we talk about revenues how many millions of dollars might we be looking at for next fiscal year in terms of total revenue? – Yeah it’s gonna be roughly three additional million on top of our about 90 million so it’ll be in the 93 million so a small percentage Just a little less than 3% growth We’re expecting a lot of that will be part of our employee cost that grow We have health insurance which is out of our control but it’s been growing There’s other retirement costs based on policy changes at the state level are beyond our control that are hitting us so it is a challenge to have additional resources to do a little more Our departments are very proactive in their desire to serve the community and grow the services and add even staffing which is a challenge to do the work which they are all good things it’s just we don’t always have the resources And financial management is a big part of this job is to look at the resources and let the departments know Communicate to the departments, keep you abreast of where we’re at and where we’re heading and what constraints we may be faced with – So sounds like a few of the challenges for the upcoming year may be a change in retirement system, discount formula, and then of course as you mentioned there’s no direct control over healthcare costs We are subject to whatever those are that’s provided by our healthcare providers And even though we try to look for the best deal if you will for our employees so tell us a little bit more in terms of the state How does that affect the budget? It is a direct cost right off the top in terms of what we are contributing our share with the retirement system right? For the city of Salinas is like first priority or first lean on the budget it seems – Yes, yeah it is one that we are committed to and locked into providing benefits to our employees We’ve negotiated that with our labor groups and we’ve done a lot to try to help control those costs and I’ll touch on that So just to describe So we have all our employees and they have a share It’s a retirement pension plan and the city has a cost associated so each pay period We calculate based on the formula they give us what portion of the payroll the cost is So we calculate that and then we remit it to Calipers each month or each pay period actually So they control the pension They have a board and that board makes policy decisions on how to manage the fund or the pension fund And they look at future trends They have to make assumptions that are built in and one of the assumptions is the return on investment And historically Calipers has done very well

investing this pension fund and 60% of pension funds are actually funded through investment returns and not a lot of people realize that 60% of the money that to retirement retirees are actually from investment earnings that the pension fund generates which is huge It’s not all coming from the city They estimate seven and a half They change their policy to reduce it to seven which is a big impact to all – Seven percent – Seven percent so that’s what they’re projecting There is even some talk about reducing even further The result of that policy change is good for them because they can sleep at night but the impact on the city is significant because now the city needs to pay a little more to make up for that short fall in the investment returns So our rates are gonna go up There’s three different rate changes that are phased in and beyond the three they phase it in over a seven year period So we know about it ahead of time and the impact will begin not next fiscal year but the year after and then seven years So we’re already looking ahead We’ve projected out what the full impact will be by the seventh year and it’s significant It’s something that will impact how much resources are available to do other things so we wanna manage that as best we can – The dilemma always has been whether or not you can change the current benefit of packages that are under this obligation retirement Right Can you reduce the benefits of the current Calipers recipients or the future Calipers recipients if they already joined in the plan Can you reduce those benefits? So there are probably more to come at the state and federal level There are some cases right and I know that a couple other cities tried to push an initiative so that flexibility in terms of the benefit And how you might define those was not passed by didn’t get enough votes to even put it on the ballot But I know there will be other attempts Some of the larger cities have huge unfunded liabilities And so it’s a big state wide problem – Yeah it is a big challenge especially with the last market decline Most of the plans were on a stable footing and were earning good returns but with this last great recession It really has come to re fruition I know with our city we’ve been successful at a number of pension reform initiatives We are actually on our third tier We had one that I think it was 2013 and then another one in ’14 and then the state did theirs and then one more where we are not changing existing employees but we were able to create different new tiers reducing the benefit formula for new employees so they already when they sign on to be an employee with the city they already realized what the formula is and it’s still attractive pension packet – And the other uncontrollable cost basically is what we’re charged for our health cost or health premiums or we pay to our health provider right? – That’s right – And what does that run in terms of the scope and scale of that issue related to the budget? I know that we have really good benefits for city employees and health is one of those – Right Yeah, healthcare employees can either insure themselves or them, themselves and their spouse or there’s a family coverage and we have a whole menu of different plans and we have a cap at one level so it can, they can go for the premium package they have to chip in a little money to pay for that which is good And so we, that health coverage includes dental, vision, and then regular medical health and it is good package for employees and we have

in the last bargaining round of bargaining with the laboring group Since healthcare costs have been going up a lot more than our revenue as far as percentage changes, we have been looking in the industry municipal industry is becoming more and more common to see employees share in the cost so as healthcare goes way up the employees are getting the benefit of that but now we’re asking them to pay a little, a share of that increase to cost which is helpful to defray the big increases that aren’t sustainable so they recognize that one everybody else is doing it and two the private sectors been doing it a lot longer already and so this is the right thing to do – So going back to where we are in the budget process, we’re now preparing a budget for the counsels review and approve for the next fiscal year so tell us a little bit more about the timing of how that will work – So we have completed all the departments have completed their proposed budget and now we’re doing final compilation of the budget and part of that compilation is to make sure it’s balanced – Right – And then – And that’s a state law – Yes – All right – And so we will present an initial draft of the proposed budget to the city council on May 30th at a study session that’ll be a public meeting and it will be the only agenda item so we’re pretty much dedicating the whole afternoon and evening to reviewing and departments will present their basically budget proposal for the coming fiscal year We do have some committees We have the measure V committee and a measure G committee that our body that’s elected by the council of community members that will review and provide guidance and make sure we’re spending the measure V funding and measure G on the original intent of those revenue measures so there’s a little bit of accountability there And so they will also present and show them here’s our spending plan for the measure V funds and how we’re gonna use it And also the measure G committee and so that’ll happen actually next Thursday and the Thursday after will be the two meetings and then so after the council study session on the 30th then we’ll move forward to city council meeting for adoption – How’s it look at the state and federal level? I know there’ve been messages from for example from the federal government then there might be substantial cutbacks in the some of the domestic programs The states concerned about perhaps not receiving as much revenue that the near projection I know the governor has a May revise which is coming up and there might be sort of some dampening of some state expenditures and how that may affect cities like ours So both of the federal state level, it’s quite at least it looks like it’s a mixed bag at this point in turn you’re trying to figure out what the opportunities are We know that infrastructures important but we know that also other programs are probably headed for either elimination or severe reduction – That’s right What I’ve seen with the new President Trump is that he wants to invest in building America as far as capital infusing and making funds available to do things internationally, state, and regional, and local So we will probably see funds related to that At the same time there’s other a lot of federal grant money that we’ve historically received that we’re gonna see decrease and we’ve already been seeing somewhat of a change but we expect so receive an even bigger decrease in that So we’ll have to react and shuffle things around a little bit And obviously the focusing on the defense spending that new administration has a different way of allocating

their resources so we’ll see an impact to us on that As far as the state Governor Brown has been very keen on the future and a recession is looming and we, historically we look back and we see market corrections and cyclical nature of our economy going up and down And we have revenue sources that are keenly tied into these ups and downs such as sales tax So we have to be really careful and we are planning for another correction and we are revenue growth estimates for the future are conservative and we factor in those cyclical changes So the state, the transportation funding is something new that they’ve signed in and agreed to so that’s helping with their infrastructure but there may be other things that they’ll cut back on and we’ll be watching that closely to see kind of what impact that is – So there is more to come on the budget for the next 30 days And the fiscal year then starts July 1 So sounds like we’re in decent shape in terms of being able to have a balanced budget and continue most of the essential services of the city into the next fiscal year – That’s right, yeah We’re managing our budget like we’ve continued to do and with the resources we have we put those to good use – Well this has been very interesting The overview of finance and all the responsibility you have as a finance director Of course you know people see that working as we put the budget together and then it kind of disappears We have the budget is approved and then people have services and carry those out And then you’re in the background trying to make sure that all the systems are working and there’s accountability, checks and balances, insuring that we’re complying with all the requirements so it’s quite a big job – It is I love my job and I appreciate working with you You make my job easy being a great leader of the community and we have great departments and great staff so it’s a really blessed and fortunate to have be able to serve the community and work with such a great team Thanks – Thank you very much Matt – Thank you Ray Appreciate it

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