City of Jacksonville Budget Transition Committee Presented to Mayor Brown on August 8, 2011 Overarching Issues The City of Jacksonville

(COJ) is facing an unprecedented financial crisis driven by the confluence of a perfect storm of numerous factors including: 1. The Great Recession significantly reducing: a. Assessed value of real property comprising ~50% of COJ tax revenue; b. Sales tax revenue passed through from the State of Florida. 2. Unsustainable growth of pension and health care obligations for COJ employees, particularly public safety employees, based on many factors including: a. Extraordinary growth in the public safety budget (64% increase since FY03): i. To reverse adverse crime rate statistics; ii. Possible inappropriate use of urban statistics justifying increase in head count for the largest geographic City in the continental US. b. Future effect of benefit changes not likely fully understood when approved many years earlier; c. Unrealistic investment return assumptions; d. Inability/failure to react in a timely and prudent manner to properly consider the above factors. 3. Planned and obligated capital expenditure requirements based on future growth expectations of both tax base and infrastructure requirements that have not occurred. Additionally, while funding sources were identified for capital expenditures, funding sources were not identified to cover staffing, operational, and maintenance requirements for the facilities. 4. Continued growth in certain aspects of City government. 5. Failure to achieve/maintain prudent financial reserves for subsequent downturns in the economy. Mayor Elect Brown has clearly stated the long-term solution to the financial crises facing the COJ will be solved with effective job creation and economic growth increasing the tax base. However, he has also required that the COJ must first put its fiscal house in order by shrinking the size and scope of City government to live within the limits of its presently available resources without increasing taxes or fees. Further, the 2012 and subsequent budgets must reflect and facilitate his stated priorities of job creation, economic growth, public safety and education. The Budget Transition Committee (the Committee) has reviewed the in-process results of the Peyton Administrations 2012 budget (the Budget). The Committee has concluded that the Peyton Administration has, to date, conducted

a comprehensive and effective preliminary Budget analysis based upon the present Administrations priorities and objectives. The Committee has also reviewed the results of the Budget Workshops conducted by the Peyton Administration (as summarized and analyzed by the JCCI) and interviewed various department heads to identify programs not considered critical to an effective City government, and additional opportunities for further budget cuts. The results of these steps are attached as Appendix M. However, much work remains to be done in an extraordinarily short time frame. The Committee recommends that the Brown Administration continue the Budget process to conclusion with appropriate full-time staff in accordance with the following guidelines: 1. Business as usual is a prescription for failure. Creative thinking is the order of the day. 2. Structural budget issues must be resolved now through a collaborative effort with the City Council. The can cannot be kicked further down the road. To do so only exacerbates the problem and makes future solutions extraordinarily difficult, if not impossible. 3. Recurring expenses can only be paid with recurring revenue. Reserves/one-time revenue or temporary grant funding cannot be used to fund expenditures without identified future funding sources. Adequate reserves need to be built into the budget. 4. The overall size of City government must be reduced. a. All departments, including functions managed by constitutional officers, must appropriately share in the sacrifices necessary to balance the budget. This is particularly true of public safety budgets since they presently comprise 50% of general fund expenditures yet have not participated materially in prior budget reductions. b. We cannot effectively balance the budget solely on the backs of non-public safety departments. There is simply not enough ability to absorb that level of cuts without severely curtailing the provision of City services. c. While there are priorities, there are no sacred cows that cannot be touched. 5. A balanced budget can only be achieved through significant reductions in full-time head count. a. Reductions need to be initially focused on middle management and administrative overhead. b. Technological advances no longer require or allow staffing based on a 20th century model. c. Only after the above is accomplished should services or programs be considered for elimination/reduction.

i. This concept is particularly applicable to public safety operations cuts historically are presented as reductions in officers on the street or number of fire stations. Middle management and administrative overhead savings must occur first before front line positions are eliminated. 6. Current and future pension obligations are unsustainable and must be addressed immediately to insure the future fiscal health of the COJ. a. The COJs Chief Financial Officer has estimated the COJ contribution to the Police and Fire Pension Fund could rise from its current 49% of payroll (unsustainable even at that level) to as high as 65-70% of payroll as soon as FY13, only two budget years away. This is a significant driver of forecasted budget deficits of $200MM by FY16. i. Current proposals for pension reform do nothing: 1. To impact these very near term budget deficits in an effective or timely manner. 2. To resolve the $1.6 Billion unfunded pension liability - perhaps our Citys greatest financial challenge in many decades (up from $200 million 10 years ago). b. It is clear that more work is required to develop pension reforms that address these crucial issues. It would be a disservice to our City if taxpayers and employees conclude that needed pension reforms were completed with these reform proposals when so much difficult reform must still be done to insure the future financial security of the COJ. 7. We must improve the efficiency of the methods used to deliver required public services: a. Many government services are best provided by public employees using conventional technologies, tools and methods. However, in cases where more cost effective, new technologies, and methods are available, government is slow and ineffective at using them. Too often, the lack of budget funding to invest in new technologies and systems results in substantial lost cost saving opportunities. b. When budget funding exists for such cost saving investments, however, the risks of attempting to learn and apply new technologies and methods falls on the taxpayer. With properly designed and executed Public Private Partnerships (P3s), private sector capital can be applied for new and innovative work methods and systems with the financial risk of performance shifted from taxpayers to the private partners. c. P3s must be an essential part of the strategy to improve the efficiency and therefore reduce the cost of Jacksonvilles government services. P3s are the best approach to quickly

harness private sector capabilities for the public good and taxpayer savings. d. In addition, P3s provide public co-investment with job-creating, tax base enhancing private investments we require for the COJs future growth. P3s can work when conventional local government practices do not. Leading cities across the US are successfully using P3s for these purposes and we must do so too to maintain local services without raising taxes or fees. e. The decision to privatize is inherently the function of the Administration. However, in appropriate circumstances, i.e. large-scale privatization, this should be a collaborative effort with the City Council and the Mayors Office. However, once that determination is made, the actual procurement process should be executed by the Administration. All the parties involved should be asked to share some part of the changes required in the future to restore our Citys budget and pension system to a sound, sustainable condition.