BOARD MEETING DATE: June 9, 2006
AGENDA NO. 1
(Continued from June 2, 2006 Board Meeting)

Adopt Executive Officer’s FY 2006-07 AQMD Budget and Work Program

SYNOPSIS:

The Executive Officer's Budget for FY 2006-07 represents the input over the past several months from Board members, staff, and the public.  This year's process included meetings of the Budget Advisory Committee; a public hearing on February 3, 2006 to receive input on the AQMD's Program Goals and Objectives; and two budget workshops, one for the public held on April 12 and one for the Board held on April 28, 2006.  This submittal transmits the required appropriations and reserves necessary to adopt the proposed budget.

COMMITTEE:

Administrative, May 12, 2006, Recommended for Approval
Board Budget Workshop, April 28, 2006

RECOMMENDED ACTIONS:

1. Remove from Reserves and Designations all amounts associated with the FY 2005-06 Budget;
2. Approve appropriations in the Major Objects for:

Salary and Employee Benefits	$  87,543,893
Services and Supplies	30,581,783
Capital Outlays	998,000
Total	$119,123,676

3. Approve a Fund Balance of the following:

Reserve[1] for Encumbrances	$    5,200,000
Reserve for Inventory of Supplies	80,000
Designated for Community Health Projects	6,000,000
Designated for Enhanced Compliance Activities	291,061
Designated for Facility Refurbishing	1,390,000
Designated for Equipment Replacement	2,000,000
Designated for Self-Insurance	2,000,000
Designated for Litigation/Enforcement	3,000,000
Designated for Permit Streamlining	2,000,000
Designated for Unemployment Claims	80,000
Designated for Budget Stabilization [2]	8,000,000
Total	$   30,041,061
Undesignated:
@ 10.0%/3.65% Fee Increases	$   25,435,404
@ 3.65% Fee Increases	$   21,435,195

4. Recognize estimated revenues of:

@ 10.0%/3.65% Fee Increases	$117,109,069
@ 3.65% Fee Increases	$113,108,860

5. Establish an Executive Staff Permit Application Review Committee, to resolve permit processing issues presented by applicants which are within the authority of the Executive Officer.  Institute quarterly reporting to the Governing Board’s Stationary Source Committee, regarding the status of and progress in reducing the permit backlog.
6. Direct staff to develop and present for Board consideration a long-term Debt Reduction proposal utilizing one-time penalty/settlement revenue at the July Board meeting.
7. Direct staff to add to the Legislative Committee 2006-07 State and Federal Goals & Objectives the following task:  explore the feasibility of adding an additional retirement tier option to the San Bernardino County Employees’ Retirement Association.
8. Adjust Board Assistant/Consultant Compensation as identified under Proposal listed below.
9. Amend Administrative Code Section 120.1, regarding travel expense limits, to increase the reimbursement limits associated with lodging and meals for the first time in six years.
10. Adopt the attached Resolution amending the reimbursement for travel, meals, and lodging for members of the AQMD Hearing Board in an amount not to exceed $8,000 per year.
11. Transfer $290,000 from the BP/ARCO Settlement Fund (Fund 46) to the General Fund reflecting the May 5, 2006 Board action approving funding for Three Additional Air Quality and Public Health-Related Projects as detailed in the Proposal section listed below.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The Executive Officer’s Budget for Fiscal Year (FY) 2006-07 represents the input over the past several months from staff, Board members, and the public.  This year’s process included meetings with the Budget Advisory Committee; a public hearing, held on February 3, 2006 to take input on the AQMD’s FY 2006-07 Program Goals and Objectives; and two budget workshops, one held for the public on April 12, 2006 and one held for the Governing Board on April 28, 2006.

Over the last thirteen years, the AQMD has implemented regulatory reform to introduce market-based principles in cleaning up urban air, has streamlined aspects of permit processing, privatized to improve operational efficiency, and remained committed to treating regulated businesses fairly.  This year’s budget proposal reflects staffing levels which are 32% (374 FTEs) below FY 1991-92 levels.  Program costs, however, will exceed by $6.1 million (approximately 5.4%) the 1991-92 Budget, which is the first time the FY 1991-92 Budget has been exceeded in 15 years.  Using inflation adjusted dollars, however, this year’s budget request is 36.1% less than the budget approved in FY 1991-92.

Proposal

This budget request is based on the goals and objectives presented to the Board at the February 3, 2006 meeting.  These goals emphasize continued efforts to improve efficiency and productivity; implement the 2003 AQMP; develop the 2007 AQMP; implement the Board’s initiatives; implement the Fleet Rules; pursue environmental justice enhancement activities; reduce air toxics; and continue to address other priority issues.

This proposal reflects an increase of $3.6 million in expenditures from the FY 2005-06 amended budget and an $8.5 million increase over the budget adopted last June.  This budget request includes the full cost increases associated with new labor agreements (the FY 2005-06 Budget included only six-months of salary and benefit increases for most employees), which in the long-term will reduce the agency’s overall retirement cost by shifting a portion of the cost of retirement to its employees and reducing retirement benefits for new employees.  This proposal also includes four additional funded positions (two new positions and the refunding of two positions) targeted to permit streamlining and Refinery/Energy permit processing and compliance, bringing total staffing to 789.  Included are one Staff Specialist to replace a long-term temporary position dedicated to permit streamlining/permit processes; two Air Quality Engineer II positions to process permits in the Refinery/Energy unit; and one Air Quality Inspector II targeted to Refinery operations.  Services and Supplies and Capital Outlays have been increased by $1.1 million (excluding debt service) to perform critical contract work and to replace several high-mileage fleet vehicles.

In addition to the staffing request to enhance permit processing, staff is also committing to move forward on several suggestions received from the business community regarding permit evaluation efficiency.  For example, a budget Designation of $2,000,000 for permit streamlining (permit processing improvements) has now been included in the budget.  In addition; staff is committing to process permit to construct applications within 180 days of being deemed complete wherever possible in order to reduce the time it takes to issue permits and reduce the backlog of all permits older than 180 days in all permit units; quarterly reporting to the Stationary Source Committee regarding the status of and progress in reducing permit processing time; and the establishment of an Executive Staff Permit Application Review Committee (made-up of senior District staff from Engineering and Compliance, Legal, Rule Development and others as required) and an annual update training program for permit engineers on District permit policies, promoting consistency in permit processing between engineering units.  The implementation plan for these initiatives will be developed by the Board’s Permit Streamlining Committee

Based upon input received last year and this year from the Budget Advisory Committee regarding the use of one-time penalty/settlement revenues to reduce the agency’s long-term debt, thereby lowering the cost of its programs, it is recommended that the Board direct staff, working under the direction of the Finance Committee, to develop a debt reduction proposal for Board consideration of up to $30 million.  Such analysis will include paying down the pension retirement program investment bonds secured due to the downturn in revenues.

Upon Board direction, staff will develop and present for Legislative Committee and Board consideration a proposal for Legislative changes necessary to add a second retirement tier option aimed at further reducing long-term retirement costs.  Currently, the San Bernardino County Employees’ Retirement Association offers for its participating agencies only one retirement tier schedule (2% at 55).  This task is directed to evaluating the legal, fiscal and employment impacts of adding an additional (lower) retirement schedule option to the Retirement system.

Board members must address an ever-increasing range of complex issues related to performance of their duties, requiring increased assistance and it is appropriate to make an adjustment to compensation for the Board Member Assistants at this time.  Consistent with the 4.0% salary adjustments afforded most AQMD employees for FY 2006-07 it is recommended that the contract and hourly compensation amount for a Board Member Assistant/Consultant be similarly adjusted by 4.0%.

The AQMD Administrative Code Section 120 – Travel Expenses – contains the existing reimbursement policies regarding travel, lodging and meals expense.  Current AQMD rates have not been adjusted since January 1, 2000.  Staff is proposing, consistent with rates established at several of the counties represented on the AQMD Board, to adjust the reimbursement rates effective July 1, 2006 for lodging and meals.  In addition, staff is recommending increasing the reimbursement amount afforded Hearing Board members to reflect increases in mileage and meal expense.

At the May 5, 2006 Governing Board meeting, Agenda Item #14 was approved directing staff to modify the Fiscal year 2006-07 draft budget request to include three additional expenditure items funded from the BP/ARCO settlement.  These items included: (1) the addition of one Air Quality Inspector II position (Refinery Section) plus vehicle, (2) the addition of $105,000 in contract support for Stationary Source Research & Development in the Technology Advancement office, and (3) the addition of $60,000 in consultant support for Program Management in the Technology Advancement office.

Resource Impacts

In order to finance the FY 2006-07 Budget, staff is recommending a 30% cost recovery increase phased in over three years (10% annually) to recover the program cost supported by permit processing fees, annual operating and emissions fees, and a 3.65% increase for all other stationary source fees, plus an appropriation from the Undesignated Fund Balance of $2,014,607.  In addition, staff has prepared one alternative for Board consideration.  This alternative is a 3.65% across-the-board increase to all fees consistent with the change in the California Consumer Price Index, plus an appropriation from the Undesignated Fund Balance of $6,014,816.  Both options may require future staff reductions from the current budget.

Copies of the proposed budget have been transmitted to the Board under separate cover.  Copies for public review have been available in the AQMD Library since early April.  The Draft Budget and Work Program is available via AQMD’s web site at http://www.aqmd.gov/finn/financialinformation.htm.  Budget abstracts are available by request from the Public Information Center (909) 396-3600.

Attachments (EXE 566kb)
A.  Administrative Code – Section 120.1
B.  Resolution amending Hearing Board member annual reimbursement limits (fiscal year)
     for travel, meals, and lodging
C.  Addendum to the FY 2006-07 Draft Budget and Draft Work Program

[1] The terms Reserve, Designated, and Undesignated are terms established by the Government Accounting Standards Board.  

[2] Set-aside for projected budget for FY 2007-08 through FY 2009-10