Expenditure Plan From the Office

¶ … Expenditure Plan

From the Office of the Chief Administrative Officer

The city of Encinitas is a diverse and vibrant city that should reflect the allocated resources from the city budget and the federal funds matching program that will match the $10mm dollar for dollar. The aggregate operating budget for the city will be a handsomely sum of $20mm.

The economic constraints facing the southern California region are generally energy related as well as based on job creation. The city of Encinitas is a coastal city that has a population approaching 60k and needs to ensure that the current and future population is able to obtain a financial future within our city. Investment into the energy industry is a function of focusing on obtaining renewable resource technologies.

Capital Requirements

Renewable resource technologies are the means to generate wealth for our current and future residents. Energy costs should not be an out of pocket cost for our residents. Discretionary Income should not have part of its equation, energy, it's that simple. To free up disposable income for our residents, which is necessary for reinvesting into our local economy by purchasing goods and services rather than purchasing for personal energy consumption, investment into this area is critical.

Renewable resource infrastructure such as digester gas plants will convert methane obtained from the city effluent into energy for distribution. Indeed, the question of allocating through the ration of these renewable resources to the population may bring the question of energy over usage. However, the generation of electricity via digester gas is extremely efficient and does generate Kw power constantly through methane uptake from effluent generated by the regional population.

Johnson Control Systems has implemented digester gas or what is also known as 'biogas' in cities such as Baltimore, Maryland. JCS has implemented the Back River Wastewater Treatment Plant in Baltimore, Maryland. The Wastewater Treatment Plant "generates more than 2.4 megawatt hours of electricity per year. The plant also generates steam to offset process heating requirements and produce hot water for boiler use." (Johnson Controls, 2007)

Certainly, the digester gas system will provide a tremendous amount of value for the taxpayer dollar. Additionally, establishing subsidies for business in the renewable resource area will enable houses to undergo photovoltaic systems or PVS installation and therefore a greater percentage of the houses within Encinitas should have the combination of PVS and digester gas which should generate enough energy for aggressive daily use.

Additional capital requirements, to which New York City has most recently added, is free access to WIFI throughout the city. The notion of free WIFI as a boost to the economic velocity exchange of money is not spurious. WIFI has inherent economic value via the link of communication, which enables exchange of data and information, which is has intrinsic and external value.

The idea is a win-win. The wireless carrier gets name recognition and a promotion as the designated WIFI carrier for the city of Encinitas. Free WIFI for the citizens and the potential for them to switch cell phone carriers to the city's wireless network carrier. "Users can enjoy connectivity via their laptop computers, smartphones, tablets, and other Wi-Fi enabled devices. The digital city plan will increase access to digital technology to New Yorkers via Wi-Fi in more parks and public spaces by making private sector partnerships. This will serve the needs of individuals through federally funded programs, said officials." (Janakiraman, 2011)

Indeed, Encinitas is a much smaller city, encompassing a much lower square mile radius and the public/private partnership provides the technology without the cost of capital. The estimated cost of the WIFI will be set aside in funds to be invested in assets that generate a return greater than the rate of real inflation, (nominal + core). By restricting capital outflow yet generate a real return while receiving economic value from the inclusion of new capital infrastructure, the city becomes well positioned to enable future growths.

Capital outlay for the conversion of city of Encinitas buildings to be outfitted with photovoltaic will reduce the operating cost of public utility usage by converting to the renewable resources model. The PVS in recent years has been improve to provide greater solar to electricity conversion capability than solar panels sold on the market in previous years. The digester gas system coupled with the PVS will enable city buildings to remove themselves from the inelastic demand curve established by the public utilities. The utility companies will provide energy should demand peak with a demand of energy that is over the current supply. Although, the forecasted energy supply from renewable resources appears to provide ample energy for city needs.

The conversion of the city's fleet of public vehicles is an additional capital outlay that will provide a return on investment by removing the cost of energy requirement to power the fleet for daily use. The idea of capital expenditures is to yield a real return on capital investment by reducing the operating expenses.

Operational Requirements

The city's operational cost outlay is split between labor and technology. The labor component can be reduced by the institution of more technology. Additionally, the cost of technology does not require an extensive benefits package that could cripple the city over the long-term. The technology component is seen as the conversion of public utility vehicles to a renewable resources-based vehicle to where the energy cost to fuel or power the vehicle becomes nominal. The cost of purchase electric vehicles is quite high and somewhat cost prohibitive when considering the alternatives.

Again, the operational cost reduction is in the area of energy cost for the vehicles however the conversion of the vehicles is a capital outlay rather than one reflected in the operating budget. Subsequently, the reduction in operating costs for the fleet of public vehicles for the city will be reduced to nil.

Private Sector Growth

There is no doubt of the key to Encinitas' future. The growth of the private sector is critical to yield sustainable job growth and facilitate economic expansion. Many cities are experiencing population attrition, a sort of 'brain-drain'. The native population, the children are relocating to cities where there is a lack of workers. Additionally, the cities experiencing the attrition are experiencing diminishing marginal growth from the return on labor from the new migrants.

The city of Encinitas wishes to keep its youth from leaving their city. The goal with the budget and federal match is to ensure that expenditures will decrease as a function of expenses to our incumbent population (taxpayer) and therefore free up capital to be actively engaged in the economy. More money circulating through the economy will enable entrepreneurialism, which is indeed the new norm. Southern California has not traditionally been the home of new age economic infrastructure or business however the time is now to forge relationships and engage businesses domestic and international to establish operations in the city.

The city can facilitate public/private partnerships along with universities in the area to establish technology parks with office space where businesses can grow business operations at a nominal expense and remain actively engaged with the city to actively employ city residents. The technology park will enable technology transfer from the university's to the city and provide a world-class job environment and learning environment to our citizens.

Subsidizing Non-Profits

Not for profit or 501-c tax-free entities have the ability to establish the services that were once provided by the city. The services that include care for the homeless, including the provision of food and shelter, food and support for young parents, and ostensibly the scope of social welfare services that city government does provide as a taxpayer service. The not for profit model is the most efficient and effective methodology to address the social welfare issue given the change in economic conditions, which may be a long-term function of the economy.

Subsidizing the not for profits that provide social welfare services is an effective solution for government to enable social welfare services without the burden of continuing with the ongoing cost of operational expenses. Donations to non-profit organizations from the city will directly benefit the residents of the city whist providing the operating capital for the non-profit to enable its mission.

The operational cost of funding the social welfare services for the city via internal department oversight provides less in efficiency and effectiveness as government has a higher cost for bureaucratic operation than do non-profits. The city will additionally provide tax incentives to local businesses to donate resources to the non-profits to render for the social welfare population. This is to include food items such as what is generally donated at the end of the business day from pizza shops, restaurants, and fast food establishments such as El Pollo Loco.

Fund Accounting

The question of whether Fund Accounting is appropriate for local government has been proposed by public administration scholars to determine if an alternative pursuit is necessary. The need for fund accounting was defined by the Municipal Officers Association in 1968. According to MOA, "..governments are created by law and are continuously regulated by legal provisions found in constitutions, statutes, charters, ordinances, administrative regulations, legislative resolutions and judicial interpretation… the accounting system must produce data and information which indicate the extent to which the financial operations carried out by all agencies of the government pursuant to their designated objectives comply with applicable laws and legal requirements. The existence of a vast network of legal provisions and the diverse nature of governmental operations make necessary the utilization of fund account." (Snodgrass, 1993)

The fund accounting system is ostensibly the full gamut of accounting services and compliance protocol. "The general ledger, financial statements, accounts payable, purchase order processing with encumbrances, payroll including payroll projections and encumbrances, grants management and reporting, grants receivable, human resources, fixed assets management, central stores/inventory." (Reis, 1996)

The city therefore should increase its capacity to more properly manage the financial and managerial accounting practices inherent in local government administration. The federal match at 100% is a match that must be reported dollar for dollar to the treasury department to provide accountability regarding the matching in funds for purposes that benefit the city and facilitate a more efficient and effective environment.

A grants department may also be facilitated given the integrated fund accounting system to provide accountability and a fully integrated system with Raisers Edge and donor foundation databases, which will streamline the grants process and reduce operational time for the grant life cycle. Many cities do not have grant departments or the capacity to utilize grant monies from the federal government via the www.grants.gov website.

The recommended solution to facilitate fund accounting is to procure ERP fund accounting software for implementation to handle all associated accounting endeavors as well as to link the donations to non-profits and to report to the treasury with regard to the federal match program. ERP systems are a full accounting solution that provides the means to enable business accounting solutions for all related business, non-profit, and government accounting needs.

CDC Software provides ERP solutions for local government and non-profit agencies. In fact, CDC is an outsourcing solution that removes the need for internal ERP by enabling the executing of fund accounting via remote means. The use of cloud computing is the future of business and government. By enabling the use of the solution, the city is establishing the precedence of forward thinking and is utilizing the funds provided to facilitate the most up-to-date accounting system and cost management methodology.

Financial Controls

Ideally, the city should focus on establishing the internal control structure pertaining to financial reporting. Financial controls will reduce the propensity for insidious embezzlement or the commingling of funds, and indeed the theft of funds from the internal accounts. Additionally, the city will seek to establish the following parameters to better serve and facilitate the city's financial controls.

All transactions that actually occurred during the reporting period are recorded and these transactions comply with all laws and regulations.

All assets and liabilities that actually existed at the reporting date are recorded.

All assets, liabilities and transactions that the agency should have reported for the period are reported.

All assets and liabilities are reported at their proper value.

All financial information is in the proper form and includes all required disclosures.

All assets that the agency legally owns and all liabilities that the agency legally owes are recorded.

All agency assets have been safeguarded against fraud and abuse.

Documentation for internal controls, all transactions and other significant events is readily available for examination.

Source: Berkowitz, (2005) The Journal of Government Financial Management

The integration of Fund Accounting and Financial Controls is a function of the CDC Software that enables the support of financial controls through the implementation of fund accounting methodologies. Specific monitoring of financial controls will enable a lower variance on expenditures by monitoring and controlling monthly expenditures. Additionally, the revenue and expense side of the ledger is monitored for possible fraud by internal control procedures.

The recommendation of establishing an internal control environment is provided by Berkowitz, (2005). "First, I recommend that agencies conduct a pre-assessment that would include obtaining and reviewing existing documentation that describes the policies and procedures related to internal controls over financial reporting at the major organizations within the agency for major financial statement accounts and significant business processes." (Berkowitz, 2005)

Additionally, according to Berkowitz, "For example, one may select financial statement accounts such as fund balance, investments, accounts receivable, inventory, property plant and equipment, entitlement benefits payable, grant liability, appropriations used, non-exchange revenue, transfers in and out, undelivered orders, and intra-governmental assets, liabilities, revenue and expense. The specific accounts will vary by agency. For business processes, one could select grants, contracts and payroll. (Berkowitz, 2005)

The added internal controls ostensibly are derived from federal management accounting procedures. According to Lunney (2011), "Agencies really are under constant pressure to do more with less," Kay Daly, director of financial management and assurance at the Government Accountability Office, said during a March conference on preventing and recovering improper payments. Cracking down on such payments, achieving clean audits, strengthening internal controls, integrating technology systems and training people to use them effectively are just a few of the items on a CFO's (Treasurer's) checklist." (Lunney, 2011)

Internal controls are a function in the ability to conduct a proper internal audit that can track fiduciary inconsistencies that can cause a lack of trust from the public with regard to the manner to which local government handles its internal controls. The integration of technology systems does mean a greater level of IT sophistication as well as computer management skills. The training of staff to handle the newfound job responsibility is imperative to the overall function of these systems.

Government Financial Reporting

The Joint Legislative Auditing Committee (Legislative Auditing Committee, 2011), enforces federal reporting requirement standards to local government operations. According to the Legislative Auditing Committee, "All counties, municipalities, and special districts are required to complete an annual financial report (AFR) for each fiscal year. Counties, municipalities and independent special districts are required to submit the AFT to the Department of Financial Services (DFS). The Financial Reporting Entity of the county of the city to which it is dependent is required to provide that entity the financial information necessary to comply with the AFR reporting requirements." (Online Sunshine, 2011)

Government Accounting Standards Board Statement No. 34 was established in June of 1999 to address issues associated with the reporting of fund-based fiscal management that may, at times, exceed tens of public accounts internally controlled and monitored. The required basic financial statements that must be provided and reported to the federal government to establish compliance include those that establish compliance with GAAP, which include two separate yet related financial statements (Wiley, 2001)

Fiscal Management

The capital and operating budget are separate but symbiotic financial statements that disclose the expenditure with the requisite capital and operating outlay. As mentioned within the report, the capital budget includes infrastructure upgrades to establish a lower operating cost when compared to the current infrastructure. The integration of the fund accounting as a function of the oversight by the internal controls provides the fiscal compliance with federal reporting standards, as these are the exact systems that federal agencies deploy throughout their departments to fiscally monitor operations.

The $10mm budget before matching funds are dispersed to the city for purposes of matching are to meet federal expectations with regard to receiving the 100% match. Therefore, the procurement and administration of these integrating cost accounting and financial management systems are imperative to establish the necessary compliance to federal reporting standards whilst further establishing the trust to facilitate further grant disbursement in the future.

Applying the budget as a disciplinary process is a function of establishing an allowable variance that establishes whether the operations are efficient as well effective. Many budgets do not track the actual in comparison the expected. The expected costs are just that, expected and therefore are depicted within the budget. Additionally, zero-based budgeting practices are not adhered to across the board and so each year many programs must establish a new operating budget respective to the current capital budget outlay.