The City Council was asked to provide guidance to staff about the Fiscal Year (FY) 2014 budget at a March 4, 2013, work session.  That meeting lasted longer than anticipated, however, and the Council agreed to postpone the discussion to the business session of March 11, 2013.  Documents from that meeting are shown as Attachment A.

The City has been one of the first 35 communities nationally to participate in Priority Based Budgeting (PBB), which now is recognized as a leading practice in local government by the International City/County Management Association's Center for Management Strategies.  Through PBB, the City has identified more than 360 City programs and ranked them from a high of 1 to a low of 4 in their support of the City's strategic plan.

FY14 budget preparations have been underway in City departments since a Jan. 16, 2013, pre-budget workshop between the Council and department heads.  Finance and Administration are scheduled to begin compiling a recommended budget starting the week of March 11 for presentation to the Council on May 6.  Before the finalization begins, Council is asked how it wishes staff to handle the following items:

• Increase revenues or cut services, or both?
• Use reserves to fund 1-time capital projects, or postpone cuts?
• Undertake new strategic planning & program re-evaluation before cuts or revenue requests made?
• Are there any areas that should not be addressed?
• Are there additional, long-term areas that should be addressed?
• What other items does Council wish to discuss?
   

The City Council may:

• Answer the six questions listed in the problem/issue statement and allow staff to proceed to the annual budget presentation on May 6 while using PBB as the Council directs; 
• Direct the City Administrator to prepare an FY14 budget that keeps departments in the General Fund and Public Safety Fund at the same dollar amount as in FY13, while presenting budgets that allow departments in other funds to adopt increases commensurate with their revenue from other sources, as has been discussed previously; 
• Direct the City Administrator to freeze hiring in FY14, as also has been discussed previously.  Since the Council has budget authority but the City Charter gives the City Administrator the sole authority to hire and fire employees, research would have to be done to determine how this was achieved in the past; or
• Direct the City Administrator to review other cost-saving measures which, depending on their scope, could delay the budget adoption past the July 1, 2013, start of the FY14 budget year. While State law permits some latitude in this area, it is considered poor budget practice. 

Due to conservative fiscal practices in past years, the City Council and staff at the end of FY12 had met the General Fund's required reserve of $9,276,000 and had an unassigned General Fund balance of $10,284,980.  Much of the unassigned money has been saved to offset the effects on revenue of a Charter mill levy cap, slower growth because of the economy, and the impacts of Statewide reappraisal.  Council and staff also are aware that, unless other revenue sources are found, there soon may need to be significant reductions in future years' expenditures to sustain current operations and to meet future needs. One of the major reasons for engaging in PBB has been to provide a balanced method for judging the relative merits of existing programs with others that currently are being offered and with those that might be suggested in the future while dealing with limited funds.

Since the March 3 work session, staff has devoted considerable time to identify more exact costs of a reduction and their impact on service, as outlined in Attachment B.  A direction to present General Fund and Public Safety Fund budgets for FY 14 financed at the same level as in FY13 would result in a savings of $87,946 in the General Fund after the loss of cost allocation fees are taken into account, and a savings of $1,068,272 in the Public Safety Fund, for a total savings of $1,156,218. However, it also would result in additional lost revenues, reductions in service and layoffs or furloughs.   These occur in part because the City has kept increases in general operations and maintenance funds flat for more than a decade, leaving little to cut.  A flat-line budget also will create significant challenges in contract negotiations that are scheduled to begin in April with all 3 existing bargaining units. It may significantly encourage trained employees to seek work elsewhere in Billings' growing economy.  Finally, it clashes philosophically with the concepts of PBB.

A direction to freeze hiring will have an unknown savings, since it is unpredictable in any year how many employees will leave the City for various reasons. This also raises questions of what happens if critical services or mandates require an employee be hired. Attachment C outlines some of those impacts.

Answer the six questions listed in the problem/issue statement and allow staff to proceed to the annual budget presentation on May 6 while using PBB as the Council directs.