City of Santa Monica
California

Staff Report
3293

Update on the City's Performance-Based Biennial Budget and Adoption of the Performance Management Policy

Information

Department:City Manager's Office, AdministrationSponsors:Director Gigi Decavalles-Hughes
Category:08. Administrative Item

Attachments

  1. Printout
  2. Powerpoint Presentation

Recommended Action

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.

Staff Report Body

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 cycle is the basis for identifying the results that matter most to the City Council and the community.

 

The move from a more traditional line item departmental revenue and expense budgeting approach will be gradual. The ultimate objective is to achieve the 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 decisions.

 

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;

(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 21st 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 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 equipment) 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 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 and 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 forecast.  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 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 occur 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:

 

              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. 

Meeting History

Oct 9, 2018 5:30 PM  City Council Regular Meeting
draft Draft