July 6, 2006

The Honorable Mayor Mike Amyx and

Lawrence City Commissioners

City Hall

Lawrence, Kansas

Dear Mayor Amyx and Commissioners,

Budgets reflect priorities. It is my privilege to provide the 2007 recommended City of Lawrence budget which seeks to reflect the priorities and goals of the City Commission for the coming year.

A Note on Budget Format and Preparation

One of your staff’s top goals in the preparation of the 2007 budget was to make the budget easier to understand and more transparent to all readers. To this end, we are budgeting the revenues that we believe we will actually receive, not underestimating them to achieve statutory fund balance requirements. To achieve these budget fund balance requirements we are budgeting transfers to reserve funds and other operating funds which will only occur if we exceed our revenue projections. These transfers and reserve fund practices are clearly identified in the budget document and memos provide more detailed explanation. The 2007 recommended budget allows for an ending balance (12/31/2007) for the general fund of $10,461,115, which will represent 18.71% of 2007 expenditures (within the Commission’s general fund ending balance policy goal of 15% to 30%.) If we include our estimate for the 12/31/2007 balances of the equipment reserve fund and the capital improvement reserve fund our general fund ending balance will equal 26% of general fund expenditures.

We have enjoyed the benefit of discussing budget and financial issues with Springsted, our financial advisors. Budgeted revenue estimates for growth in the sales tax of 4% are confirmed with best practices for this estimate. Attached is a sales tax revenue summary. Improving our “budget literacy” is neither easy nor complete. We will continue to strive to improve the budget process and the decision-making which attends it.

This recommended budget is only achieved based on a mill levy increase and phased-in franchise fee increase as outlined further in this letter.

Street Maintenance

A clear priority for funding in 2007 is continued work on street maintenance. At our April 27, 2006 study session, the Public Works Department presented an ambitious, multi-year plan to begin returning more of our streets to an acceptable pavement condition. The City did not get behind in one year – and we will not catch up to our desired standards within one year. Instead, it will take re-directed resources and additional resources to begin implementation of this funding plan in 2007 and in future years. This recommended budget responds to street maintenance priorities with:

° Maintaining the 2006 general fund supported street maintenance activities – already $1 million above 2005 levels – which will total $2,500,000.

o Continue funding through the Special Gas Tax and Stormwater funds at levels similar to the 2006 budget – for a total of $1,400,000

° Adding in 2007 the 3-person Street Maintenance Division crew (with truck), a program improvement request from the Public Works Department, which will allow us to do additional preventative maintenance and repair work on our streets ($140,852 general fund).

° Adding $1,500,000 in additional funds (cash) for street maintenance activities. This will include $867,000 in sales tax funds received from the County-wide sales tax, $233,000 in funds supported by property taxes and franchise fees (from the capital improvement reserve fund), and $400,000 in additional funds from the stormwater utility fund for curb and gutter repair work as part of our stormwater efforts.

° We will also budget $450,000 in debt activity for street maintenance work related to the KLINK project overlay of Iowa Street, Harvard to 6^th Street/Irving Hill to 23^rd Street.

The goal of the street maintenance plan in 2007 is to expend $6 million on street maintenance work (mill, overlay and micro-surfacing). That goal is achieved with the following resources:

$2,500,000 general fund resources (2006 commitment was $ 2,365,000)

1,400,000 special gas tax and stormwater fund resources

867,000 portion of City share of County-wide sales tax

233,000 capital improvement reserve fund

400,000 storm water utility resources for curb and gutter improvements

450,000 debt finance for main trafficway street maintenance (KLINK)

200,000 KDOT funding (KLINK)

$ 6,050,000 Total

The only one-time expenditure in this 2007 plan is from the capital improvement reserve fund. We would seek to duplicate the funding effort in 2008 – pursuant to the street maintenance plan – with the substitution of additional general fund resources coming from the phase-in of franchise fee revenue increases and other increases in general fund resources. I agree with the Commission’s desire to eliminate debt service for mill and overlay projects – debt financing overlay work which does not last the length of the bond issuance is not preferred financial stewardship. However, in order to achieve our program goals, we are not able to go “cold turkey” in 2007. I would point out that $450,000 of debt in the $6,050,000 program represents 7% of the total program.

The $6 million street maintenance program, along with the new 3 person crew for street maintenance, represents a significant commitment to placing public resources on community priorities. We are proceeding this year to hire an Assistant Director of Public Works, a position to ensure that we have adequate managerial resources to focus on street maintenance activities. Our investment in preventative maintenance and street repair in this important infrastructure will pay substantial dividends for years to come and will be a major step in catching up to our desired level of service. Additionally, by providing adequate resources for this basic City infrastructure we can move with greater confidence to consider funding for other requests.

Sidewalks and Traffic Calming Devices

The recommended 2007 capital improvement debt service budget includes $250,000 in planned debt service for sidewalk gap projects (new sidewalks identified as a priority from our sidewalk inventory primarily along collector and arterial streets) and neighborhood priority traffic calming devices. Improvements to our sidewalk networks is an important Commission priority, and this budget allocates some resources to allow the City to “bridge the gap” that our sidewalk inventory will document. We also continue to see the benefit to neighborhoods from appropriately designed and installed traffic calming devices. We have been accumulating neighborhood requests for traffic calming devices and we need to devote resources to these projects on an annual basis.

Improving our Development and Planning Process

The recommended 2007 budget includes resources in the general fund ($112,000) for positions in the Neighborhood Resources Department and the Planning Department to enhance our development and planning efforts in anticipation of staff resource needs (inspectors, plan examiner, planners, etc.) identified by the Development Review process currently being conducted by Matrix Consultants. I believe that one of the recommendations will likely focus on the needs to provide additional staff resources for our historic preservation efforts – since 2000 we have grown from two historic districts to 10 historic districts – a commitment to our wonderful historic heritage which needs to be matched with a resource commitment to ensure adequate staff resources. The recommended budget also includes one planner ($62,359) which would be paid 100% by Douglas County since this position will be focused entirely on enforcement of proposed new County subdivision regulations – if this position is not funded by the County or we are unable to enact new regulations the position would not be filled. More later on our City – County funding relationships.

The 2007 budget includes funding for the development and implementation of a “parallel” development code. Requests for proposals are currently out for this project. New urbanism development and redevelopment represents an exciting opportunity for the community, and your staff will seek to ensure timely consideration and adoption of any recommended code changes.

These improvements – along with process and other improvements as part of our review, plus the additional staff attorney and planner added during 2006 – will provide your staff with the resources to meet our development and planning goals.

Additionally, this year we are progressing with a number of development and planning related processes which I have initiated beginning in March. This includes transferring sanitary sewer functions (plan review, approval, and inspection) from the Public Works Department to the Utilities Department. We are hiring an Infrastructure and Development Coordinator to improve our efforts in this area as well.

Enhancing our Neighborhoods and our Downtown

In addition to the planning and development initiatives and corresponding resources, the recommended budget includes efforts which seek to improve the quality of life in our neighborhoods. Efforts already mentioned include sidewalk improvements, street maintenance, traffic calming, and historic preservation planning resources. Additionally, I am proposing the addition of two sergeants to the police department management staff to enhance the patrol resources. This will allow a program in the Police Department to be initiated with the concurrent designation of two “Neighborhood Resource Officers” who will enhance our law enforcement efforts with a focus on neighborhood livability efforts. The enforcement of our misdemeanor ordinances for noise, party and nuisance houses, and similar “un-neighborly” conduct requires special time-intensive law enforcement efforts, and much like our successful “school resource officer” program we need to have a focused multi-department effort in this area. (I am also recommending funding one County dispatcher position in 2007, if one is funded by the County. More on the City-County funding relationship later.)

Additionally, I am recommending that we devote staff time this year to establish Neighborhood Revitalization Districts in selected neighborhoods and downtown pursuant to the Kansas Neighborhood Revitalization Act (KNRA). The recommended budget will provide adequate staff resources to implement this program in 2007 utilizing a multi-department approach.

I am recommending the funding of a downtown fire sprinkler incentive program, funded through the water account in the Utility Department, with a recommended funding of $250,000. The program would allow qualifying Massachusetts Street businesses (6^th Street to South Park) to receive up to a 75% rebate on qualifying expenditures to install fire sprinkler systems in the businesses, provided the system complies with applicable Code requirements, the business is current in tax and other obligations, and the property owner agrees to maintain the new fire sprinkler system. Our downtown is at risk – and an incentive for downtown property owners to install a fire sprinkler system will go a long way to reduce this risk. I believe I have adequately briefed the Commission on the nature of this risk and how we are responding with our downtown waterline project. This program allows us to do more.

Improving the Efficiency and Effectiveness of City Services

Your City staff is committed to the wise expenditure of every tax and rate dollar provided by the community we serve. Removing inefficiency and waste is not as simple as “zeroing-out an inefficiency and waste line item” – instead our City organization must continuously strive to improve our operations, seek the implementation of best practices which maximize our resources, never shy from constructive criticism which challenges the way we have done things in the past, and finally – and perhaps most important – embrace an attitude that spends the public’s dollar is if it were their own.

The 2007 recommended budget includes funding for a City auditor position. This position will bring an independent review that will improve program outcomes, better policy decisions, and enhance the efficiency of program delivery. I view funding for this position as an investment which, if properly implemented, will pay for itself. The decision as to whether the position reports to the City Manager or the City Commission can be determined this fall. My initial recommendation based on my study to date is to have a position which reports to the City Manager and whose work plan and schedule of audits is approved by the City Commission after a recommendation from the auditor. All of the audits will be received by the City Commission and shall be accessible to the public. The final authority and scope of this position, including whether non-City staff should be retained to conduct or assist with the audits (e.g. a third party vendor providing a portion of the audit services) will be determined by the City Commission.

As the Commission knows, we are well into the development of performance measures for the City organization. The final report from Management Partners will be received in early fall 2006, and will be the first comprehensive measures of the inputs, efficiency and effectiveness of the many services and programs we provide. We will not let these performance measures gather dust – instead we will implement this new management system and use the Balanced Scorecard as an important tool in the evaluation of personnel, the review of existing and future programs, and in the determination of budget recommendations to ensure that resources are placed were they will deliver the best value for citizens. As part of the performance measurement activities we will conduct a citizen survey to learn citizen views on various city services and programs.

As was indicated in a recent memorandum, City staff does devote time and effort in seeking grant opportunities. We should do more, and perform it in a coordinated, comprehensive manner. With existing staff, I have created a Grant Team which will meet periodically to review grant opportunities, seek training opportunities in “Grantsmanship” and work with all impacted departments. Mindful that not ever grant opportunity is beneficial and many grants contain City financial commitments, we have room to improve our grant seeking efforts. The Commission will receive reports on the work of the Grant Team as the work begins and continues.

The 2007 budget also includes adequate resources to allow for twice-a-year travel to Washington, D.C. on behalf of our efforts to build relationships with our federal legislators and their staff. Strong relationships built on a better understanding of Lawrence’s needs can translate into better funding opportunities.

An important element of improving the efficiency of the City organization is improving the energy efficiency of City operations. The 2007 budget includes funds for an energy audit of major City facilities and vehicles. As indicated in a recent staff report, we can point to a number of energy conservation improvements within the City. What we can not answer is whether we have implemented all of the recognized best practices City-wide and where we can be a leader in providing City services and programs in a sustainable, environmentally-friendly manner. The City of Lawrence should be an example and leader on this topic to inspire others in the community to do the same. Staff is currently exploring the Zephyr energy green tag program and will have a recommendation on City of Lawrence participation in the coming weeks.

Examples of improving the efficiency and effectiveness of City operations which will be funded by the 2007 budget, include: a “grease ordinance” to place additional responsibility for grease contaminants entering the City’s sanitary sewer system on the businesses generating the grease, thereby freeing up valuable crew time to concentrate on other portions of the City’s sewer system; the purchase of a backhoe by the Utility Department with the used backhoe going to the Parks and Recreation Department for their use; an interactive voice response system for utility billing operations to improve customer service and reduce administrative demands; and the increased utilization of staff for necessary in-house design work for City projects.

Lawrence and Douglas County have a recognized, strong history of partnership and cooperation. Lawrence and Douglas County residents have benefited from this cooperation over the years in a number of service areas. I believe it is important for both the City and the County to re-examine the agreements establishing the funding requirements for certain jointly funded services: emergency communications, planning, health department, and fire and emergency medical services. The attached report further highlights this issue. We should approach this examination without preconceived notions as to the final outcome, except with the commitment of both the County and the City to continue to provide excellent services within the limited public resources our constituents provide.

A final note on improving the efficiency and effectiveness of City operations should highlight the daily work of the City staff providing excellent and efficient City services. We should continuously seek to make the City efficient and effective because that is what a good organization does – it seeks to continuously improve and never rest on its past accomplishments, but always strive to accomplish its mission in better ways.

Economic Development

To put it bluntly, the Lawrence community must do more to achieve our economic development aspirations and increase our non-residential tax base. As was noted in an earlier report, we significantly lag behind area communities in non-residential tax base. Without quality growth in our tax base we risk reduced resources and the inability to maintain desired service levels. This is not a plea for growth solely for the sake of growth. This is a call to refresh our vision toward quality growth which retains our community values while providing better and higher paying employment opportunities and an enhanced tax base for the community. Quality economic development will not occur overnight – it is an investment, which will create a better future.

The 2007 recommended budget includes funding the 2^nd year of the biosciences program ($200,000) and funding of the City/County/Chamber partnership. This will continue our existing efforts and provide the Chamber with additional marketing assistance in 2007.

I believe it is necessary to enlarge our “economic development toolbox.” We have traditionally relied upon tax abatements as the sole inducement to attract qualifying employers to our community. I am recommending the creation of a $250,000 infrastructure account, funded from the Water and Sewer Fund, as an inducement for qualifying employers that meet our economic development objectives and seek to have City infrastructure installed as part of their expansion or attraction to Lawrence. Expenditure of any of these funds will be dependent upon the adoption of a Commission policy and specific Commission approval. Other communities have successfully used incentives in addition to tax abatements to attract the employers they desire for their city - Lawrence should do the same.

Finally, I am recommending funding in 2007 of an Economic Development Coordinator position. This position is not a substitute for our partner economic development efforts through the Chamber. Those efforts should continue and grow. Instead this position will concentrate on providing economic analysis and coordination for a number of City programs and projects: downtown revitalization proposals – including the attraction and retention of businesses to our downtown; tax increment financing proposals; Kansas neighborhood revitalization efforts; retail market analysis; public incentive proposals and monitoring; and economic development proposals. This position will assist the Planning Department, Neighborhood Resources Department and the Finance Department – along with the City Manager and the City Commission on important economic development efforts, coordinated with our partners, and focused on our goals and values.

Improving the Lives of Lawrence Residents through Social Services

The recommended 2007 budget includes a separate accounting which illustrates recommended expenditures on social services programs. There has been Commission interest in a dedicated revenue source or mill levy amount for social service funding, as well as the establishment of a funding board to review requests and provide the Commission with a recommendation. Commission direction on this is desired – hopefully the budget narrative will assist in this decision. The 2007 recommended funding includes $100,000 from alcohol funds and $ 250,000 from general funds for the WRAP program administered by Bert Nash. There is clearly great value in this mental health program, conducted in our schools, for the youth of our community. It is important for the Commission to appreciate as the City takes on additional partial funding for the WRAP program, that this funding is likely to be permanent (it is unlikely that federal or state funding will return or become available) and is likely to grow in future years.

In addition to the 2007 funding recommendations and the interest in an oversight board and dedicated funding sources, I believe it is appropriate to recommend that the City and the Lawrence community undertake a social service needs assessment to better calibrate funding from the public and private sector, prioritize un-met needs in the community, establish a multi-year plan for responding to needs, and seek to coordinate/consolidate existing social service programs which are dependent upon local tax resources. The City is not the only entity which should be involved, however, it may be necessary for the City to take the lead in convening a task force or work group to launch this effort. The retreat from federal and state funding is likely to continue and the needs will likely grow. We should also explore opportunities to modernize social service delivery, including 211 / 311 customer service technology which has application for City operations and social service systems. The City does not have inexhaustible resources and should plan its funding to maximize its expenditures.

Enterprise Funds: Water/Sewer; Storm water and Sanitation

The recommended 2007 budget includes program improvements in the water/sewer fund. As noted above, we have made the important transition of moving sanitary sewer projects from the Public Works Department to the Utilities Department. We are moving forward on a number of sanitary sewer projects in the community to address needs in the north and west portions of the system. We are proceeding with the sitting and design of the new Water Reclamation Facility along the Wakarusa River. As part of the approval of the 2007 budget, the Commission will approve the recommended water and sewer rates.

Transfers from all enterprise funds to the general fund have been adjusted to reflect a number of policy goals: correlation to franchise fees, administrative overhead, and impact on other infrastructure.

With the 10 year anniversary of our stormwater utility we continue to see the benefits of this investment in our community. During the next year I recommend that we examine our unfinished list of projects from the original master plan, as now supplemented by the North Lawrence drainage study, and chart a course for reaching our desired standard for stormwater service.

The recommended budget includes funding for a hazardous waste technician. The Commission will be requested to approve a rate ordinance concurrent with approval of the budget for this fund as well.

Transit

The community’s investment in public transit continues to see growing returns. As the City – University of Kansas study is completed later this year we will learn more about opportunities to continue growing our ridership and possible coordination opportunities with KU. We will also begin planning efforts in response to federal earmarks for improvements to our transit system.

Capital Debt Budget Summary

Attached is the recommended summary of capital debt projects for 2007, including the proposed $900,000 in debt for parks and recreation projects funded through the City’s share of the County sales tax. We are able to add property tax supported debt obligations which total no greater than $5 million without increasing the 2007 mill levy. The City has previously committed to a number of debt projects with State or Turnpike partners: 23^rd Street access management, Kasold, north of Peterson, N. 2^nd Street and Locust Street improvements, Turnpike bridge improvements at North Michigan and North Iowa to allow for sidewalks. We also will debt the mill and overlay on the State KLINK project for Iowa. I am recommending that we complete our debt projects in 2007 with the following projects: sidewalk connectivity and traffic calming projects; modernization of selected traffic signal locations; replacement of Quint 4 in our Fire and Medical Department, improvement of Runway 15-33 at our airport, and a limited share (no greater than $200,000 of City participation) of necessary improvements at 6^th and George Williams Way as this area develops.

Additionally, I am recommending that we proceed with debt financing for certain Parks and Recreation projects totaling $900,000 which can be financed pursuant to our recommended allocation of sales tax funding. These projects are located at: Clinton Park, Sesquicentennial Point, the unnamed park at Harvard and George Williams Way, the Burroughs Creek trail project, and the skateboard park at Centennial Park.

We remain challenged to meet our capital needs without raising property taxes or seeking other revenue sources. A partial list of projects which we will face in future years includes: City office space to include a “one-stop” development center; refurbishment of Fire Station No. 1 to match improvements in other stations; homeless shelter needs; additional park and open space improvements; public works facility along Wakarusa Drive; North Lawrence improvements for the Train Whistle rule; recommendations from the ECO2 Commission and Economic Development Board; the City share of a transit maintenance facility, and North Lawrence drainage improvements and other stormwater projects. These projects are also coupled with traffic capacity and intersection improvement issues which face our growing community. Additionally, the Commission may choose to pursue funding and/or election approval of a library proposal; any City involvement in proposals coming from the PLAY initiative; or any capital initiatives which may come from our review of housing needs in the community.

While a list may appear daunting, I am optimistic that we can meet the challenge. By stepping up to the challenge of street maintenance we can have confidence that this basic infrastructure is receiving necessary resources. In planning future capital budgets we will need to closely examine alternative revenue sources (e.g. impact fees), seek other partners and grant opportunities for projects, and prioritize our spending. Long-range transportation planning needs to be focus of the Lawrence community and we must devote resources to ensure necessary planning is conducted and resources are available to implement planned improvements in a timely manner. Additionally, we should maximize “in-house” design and engineering work. We are already proceeding with our Parks and Recreation staff for design work at the Harvard/George Williams Way park site; and the addition of Public Works managerial staff will likewise assist in this ability.

My recommendation on capital debt budget can be summarized with: attention to basic infrastructure first; followed with seeking additional resources for appropriate infrastructure components (e.g. impact fees, annexations, etc.) while we map out a multi-year plan for our future capital needs.

Resources Needed to Achieve the Recommended 2007 Budget

This recommended 2007 budget requires a mill levy increase of 0.98 mills. As is necessary to point out, this is only part of the property tax increase. Most property owners will also see a growth in their assessed valuation, averaging 6.5 %. For the owner of a home in Lawrence with a market value of $160,000, this assessed value increase and mill levy increase means a City property tax increase of $51.12 over 2006, or about $4.25 a month.

Without minimizing the impact of the recommended 2007 mill levy increase (along with the recommended increase in franchise fees), this increase should be placed in the context of recently approved program improvements or enhancements, plus those recommended in this budget. The City mill levy for the 2005 budget was decreased to 27.86, and several service enhancements were added to the budget (Employee Assistance Program, staff attorney position for the public safety departments, enhancement of the street crack sealing program, Municipal Court software replacement, and clerical assistance for the Master Street Tree Program). The City mill levy for the 2006 budget was decreased from 27.86 to 26.36 (1.5 mill decrease) in the context of continued funding for initiatives from earlier Commission decisions, including absorbing the traffic unit grant positions, fire station construction and corresponding personnel, support for Biosciences, enhanced street maintenance funding, case management for homeless services, enhanced downtown beautification, Memorial Park Cemetery operations and maintenance, and additional staffing for code enforcement and building maintenance. Additionally, we have committed to major capital projects such as the reconstruction of Kasold Drive – the largest City-only funded road project in our history.

The recommended budget requires the increase of electric franchise fees to 5%, and the phased increase of telephone and cable franchise fees to the 5% level. The Commission will consider ordinances to accomplish this with adoption of the budget. Additionally, we will be presenting ordinances and resolutions for other fee increases, including development related fees and cemetery fees. I am not recommending an increase in fees for our public swimming pools, although such an increase may be necessary in future years. As already noted, we are making additional transfers from enterprise funds to the general fund as well.

Future Budgets

Right-sizing the level of City participation in new infrastructure needs to be a priority for future budgets. This has the opportunity to positively impact future City budgets as development pays for the installation of certain improvements. Neighborhood interests, the development community and others should convene in the fall of 2006 to consider draft impact fee ordinances for park improvements and arterial street corridor improvements. Implementation of these ordinances, if enacted, can allow for additional park and infrastructure improvements in future years as these impact fee ordinances come on line. The Commission should also favorably consider initiation of key annexations which will enhance the City’s tax base in future budget years. We should also benefit in future budgets from the addition of a City auditor who can point to efficiency and effectiveness opportunities. Additionally, discussions with the County may yield funding changes for our partnership programs.

Conclusion

The recommended City budget seeks to maximize public resources to achieve the most public good for our community based on the Commission’s goals and priorities. This is accomplished with bricks and mortar (and some crack sealing); but our greatest asset is our personnel. The recommended budget includes a 3% wage adjustment for City personnel in 2007. We remain fortunate to attract and retain dedicated, hard-working staff. I challenged our department heads to not shy away from budget proposals which would advance the mission of their departments – but also recognize that we were not going to be able to fund every worthy program improvement. Attached is commentary on the requested program improvements. There is a great deal of merit in many of these programs, however, not all of them will be funded in 2007. The program improvement requests generally do identify issues which I respond to in the commentary with plans for attention to these items in the future.

I want to thank Debbie Van Saun, Casey Liebst, Ed Mullins and Jonathan Douglass for their work in the preparation of this recommended budget. We are eager to respond to Commission input on the clarity of the information provided and the important budget decisions before us.

Budgets reflect priorities. I look forward to discussion and direction from the Commission in the coming days to ensure that this budget reflects the priorities of the Commission.

Respectfully submitted,