Councilwoman Kell: ...Gary, last year you also asked for more money for more staff, did you not?

City Auditor Burroughs: That is correct.

Councilwoman Kell: And...we said yes, and then you hired how many more staff people last year?

City Auditor Burroughs: We asked for three additional people last year and we did not fill those positions and that's why we're able to give some of that money back. That's why we're giving back about $265,000.

Councilwoman Kell: OK, and I see that you've reduced your budget by 6.4%.

City Auditor Burroughs: Correct.

Councilwoman Kell: And I thank you for doing that...

...

Councilwoman Lowenthal: [In view of the cuts in Auditor's positions]...how are we as Councilmembers going to experience that? What does that mean?...

City Auditor Burroughs: ...We want to make sure that the internal control system is in place. I gotta tell you, it's not the glamorous work that we do. It's in the trenches, it's the lineman kind of work, but if that system ever breaks down then I think we're really at risk...[I]f we don't get the system of internal control in place, that's what went wrong really at Enron and all these other failures that we know about. So, we're going to make sure that that's in place so that the level of confidence that you as policymakers can have, that the information you get is legitimate and real. The same thing for the City Manager and his staff, that the information that we get is complete, that it's real, and that it's the right information...

...

Vice Mayor Frank Colonna: ...I like the objective of a three year overview in looking at what we could do to get our house in order. But I think it's going to be important also that we hear a lot from you in terms of what we see in terms of our forecasting in this next coming three year period in order to get a better sense of incoming revenue versus the outgo, especially if what I hear up at the state level may actually happen where they could be some potential spending freezes at the state level.

City Auditor Burroughs: Well you've opened the door so I don't want to make a long speech here, but this is the key thing that has to be looked at [in] the next few months.

I am in 100% support of the proposed budget plan put together and submitted by the City Manager, Jerry Miller, and his staff. But I can't emphasize, and I don't know how to make this stronger: it is critically important that step by step, week by week, month by month, that the comparison between what that plan has projected and what actual results are, that those two comparisons be made ongoing.

We all know that plans are plans, and actual results are always different than what plans are. And as well intended as our plan is, and as well intended as the City Manager and his staff is, and you are as a policy board, on a go-forward basis for us -- because of the critical nature that we're in today financially -- for us to pay attention to where we are at on a go-forward basis I hope is at the front of everybody's mind, at least on a month to month basis. And I hope, Mr. Miller would you concur with that? [apparently receives agreement]

And nobody should have anything to hide. This should all be out in the open for the citizens to see, for policymakers to see, for management to see. I really hope you approve the City Manager's budget plan for next week or whenever you're going to do it. But the key is on a go-forward basis to track and maintain a direct vigilance, observation of what's going on week to week, month to month, in relation to what that plan is because it's critical, Frank, that we stay on track.

And if we get derailed because something else happens in Sacramento or other surprises, we're going to have to react to that and deal with that...I hope that what I'm saying to us is, I've tried to say this bluntly, and here's my concern.

My concern is that if we really don't deal with this budget, if we don't get the financial house in order then, you know, Charter Committees won't mean very much. Nothin' else'll mean anything because there'll be some judge down here and he'll be making the decisions, and what I have to say, or what you have to say, or what Mr. Miller has to say, won't matter. That will be determined by a judge and I don't want to get us into that position. So I would appreciate your diligence.

Mayor O'Neill: I agree. I was going to wait until after the budget was completed, but I do think that maybe every other week if we just had a five minute presentation on where we were on what has happened in the two weeks...

City Auditor Burroughs: [interjecting] We'll be happy to participate in that process.

Mayor O'Neill: ...because that's something that is number one on our agenda for the next three year and I think we've got to see how we start and see it quickly rather than wait for six months or a quarterly report...

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City Manager Miller: ...Of the $7.7 million [in additional state reductions to City Hall] hit to the [LB] General Fund, we had actually predicted $2 million in hits...so really our target here...is for us to offset a $5.7 million General Fund loss, caused by $5.5 million in one time VLF backfill losses, and then $213,000 that have been taken away from library funding...

[City Manager displays a chart showing $6.5 million in revenue from a mixture of reduced spending, accelerated reductions and one time sources. The one time revenue is derived from $1.5 million from a Redevelopment Agency early repayment of a promissory note to City Hall and $500,000 from the Airport Enterprise Fund advanced to the General Fund on a loan repayment. $600,000 ($6.5 million minus $5.7 million) would go into an operating reserve fund.]

...Core to the first year of the three year Financial Strategic Plan is to reduce the structural deficit, to come up with reductions that contribute towards reducing the structural deficit of about $27 million. And if we are successful, and many people wonder if we will be, but if we are successful in 04 in doing that, we've to come back in 05 and make another $32 million in reductions. So whether we do it now or we do it later, we have to do it, and I would recommend to you that the easier ones we go ahead and get started on so we can get to work on the harder ones as soon as you adopt the budget...

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Councilman Lerch: ...And then my question to Mr. Burroughs, [about] the additional one time sources.

City Auditor Burroughs: Councilmember Lerch, I think your question deals with the use of one time reserves which is now $17.5 million, and I think originally proposed to be $2.5 million [actually $2.6 million]. Maybe just a little reflection on history. I think I issued a report, and I can't remember exactly when I issued it but it was several months ago dealing with the budget, and we made reference at that point to I think over a last four year period there had been a utilization of $85 million in one time reserves, of which most of that $85 million was last year. And I can't remember the exact number but it seemed like it was around $40 million.

And we also said at that time that that was a course of activity and a way of balancing the budget that over time we really needed to get out of and quit doing as soon as we could. So obviously what's happening here is not favorable, but I think this is in response to a dilemma faced by the City Manager and his staff dealing with three elements. One is an increase in these worker comp costs which I think was around $8 million, general insurance and health insurance costs, and if we add all those together I would guess they come to about $15 million, so that the major increase from $2.5 million to $17.5 million was dealing with the three increases in either workers comp, general insurance and health.

If we look really at the use of one time reserves, that $15 million increase in that, that comes from two places basically. It comes from the employee benefit fund, which is pulling more money from that than what had been planned to be pulled from it. That's justified in some way because we do have lower employment now and less need for some of the employee benefit funds that have been put in there. And then really the second issue is a refinancing of SERFF bonds which I'm not sure I would characterize as a use of reserves, but it is a use of basically kind of when you refinance your house and get some cash and suck some money out of it and so there's a major increase in what they want to pull from the employee benefit funds and also the amount of money that they would take from refinancing the SERFF bonds...

These are activities that [are] justified probably based on what's happened this one year, but your question is well raised too because we just cannot continue in this format...

...Mr. Miller just mentioned a while ago that he has to get $27 million out of this coming year's budget, and I think it was $30-something out of [FY] 05.

Mayor O'Neill:: 32 [million]

City Auditor Burroughs: Those are significant numbers and to be very candid about it, 04 starts in about two weeks, maybe three weeks. So it's very critical that we get this budget approved and that Mr. Miller get on with putting his plan in place, and it makes me want to emphasize once again why it's critically important that beginning....October 1...to beginning to have a vigilance about watching and comparing what the plan is compared to what the actual results are, because once that meter starts ticking in about 20 days, or 21 days, it is critical and the log jam just gets bigger, because as he mentioned it's $30+ million in the next year.

So out of the next $24 months, we're basically cutting over $60 million out of this budget...

...The key cuts that are gonna come are gonna come from two places. They're gonna come from 74% of the cost of running this city comes from personnel costs, and those personnel costs are made up of the salary and the overtime that we pay people, and then the employee benefit piece...[which] includes FICA [set by fed'l gov't], PERS [Public Employee Retirement System], and I think you all know that while it's been zero for a while, it's about to kick back in and we're gonna have those payments face us in 05 and they're going to be substantial [plus] health insurance and workers comp, and we just mentioned that health insurance and workers comp is on the rise.

So the way this budget's going to get reduced, if we're gonna get to the numbers that has be there, we're going to have to either reduce what we pay people or reduce the number of people we make payments to, and there's just no getting around that. When it's [personnel costs] 74% of our total budget and we're trying to cut $64 or $67 million out of this thing in the next 24 months, those kind of cost savings are going to have to be realized.

And whether it's done in contracting out, or whether it's done in...the Departments of this city...being willing to cut their budgets but also elected officials like myself and other appointed offices...

When cuts have to be made, management people, policy makers as yourself, you guys draw the line and ask management to manage according to that line. And I think that kind of action's going to have to be taken here...

...This City Hall is in a position today where we're going to have to be able to do more with less, and it's probably with less people, because 74% of our cost is people...

...We can cut other things like smaller kinds of items, some small contracts or some supplies and we can get better prices, we can reduce the number of cell telephones, and we can do those kind of things, but that will not get us to the number that we're trying to get to, and to get to that number we're gonna have to deal with the number of people we have here and how much we pay them.

Councilman Lerch: Mr. Miller, Mr. Burroughs, do you both feel at the end of the Three Year Plan that we've weaned ourselves from one time resources, revenues I mean?

City Manager Miller: ...I would guess that we would have less dependence on one time [revenue sources] and as long as you have a policy that anticipates that and then directs staff as to how your going to use those one times, I think we're going to be OK. But I'm trying to get us past the dependency on the one times and living on basically our doing magic.