Blue Ribbon Commission on Waste & Efficiency in Government

M March h 25, 25 2014 1

AGENDA

 IIntroductions t d ti & Goals G l off th the W Waste t & Effi Efficiency i Commission  Snapshot of the City’s Current State  Discussion: Initial Ideas  Next Steps

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Introducing the Mayor’s Blue Ribbon Commission on Waste & Efficiency in Government CITY COUNCIL  Howard Shook (Co-Chair) District 7

 Yolanda Adrean Di t i t 8 District

 Keisha Lance Bottoms, District 11  C.T. Martin District 10

 Mary Norwood At Large Post 2

 Joyce Jo ce Shepard Shepa d District 12

 Alex Wan District 6

BUSINESS  Richard Anderson (CoChair) CEO, Delta

 Martin L. Flanagan President & CEO, Invesco

 William Taggart President & CEO, Atlanta Life Financial Group

 Geri Thomas State President of Georgia, Bank of America

LABOR  Ken Allen International Brotherhood of Police Officers

 Stephen Borders Atlanta Professional Firefighters union

 Alan Lee American A i F Federation d ti off State, County and Municipal Employees

 Gina Pagnotta Professional Association of City Employees

 Terrance Simon Progressive Firefighters of Atlanta union

Collectively, the Commission is charged with strengthening the City of Atlanta’s fiscal health by identifying efficiencies that support investment in infrastructure and ensure operational excellence in all parts of the City 3

Objectives

CHARGE

URGENCY

UNIQUE ROLE OF COMMISSION

 The Commission is charged with making recommendations to the Mayor that identify savings and efficiencies to put the City on a sustainable fiscal path  Recommendations will enable the City to address the infrastructure backlog and ongoing infrastructure maintenance requirements  Efforts will strengthen Atlanta’s position as a leader among cities in finding new ways to ensure a strong financial and operational position  Th The state t t off Atlanta’s Atl t ’ iinfrastructure f t t poses a th threatt tto th the Cit City’s ’ competitiveness as an economic leader in the Southeast and the nation  Addressing the highest priority items must begin immediately; opportunities pp for savings g identified byy the Commission are essential to meet annual debt financing requirements of the bond  City Operations and Council are always looking at our operations and ways to save money—this hi iis not unusuall  However, the scope of the challenge requires us to step back from incremental cost improvements and consider bolder, structural changes

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Commission on Waste & Efficiency Timeline

KICK-OFF

IDEA COLLECTION

IDEA DEVELOPMENT

PRIORITIZATION

RECOMMENDATIONS

Week of March 28th

Week of April 21stt

April 28th to May 9th

Week of May 11th

Week of June 24th

Idea Development / Analysis

Initial Prioritizations of Ideas

Review and Finalize Recommendations

Prioritize Potential Ideas

Identify FY15 vs FY16 Timing

Goals / Objectives Review Current State Launch Idea Collection Process

Assign Preliminary Ideas to Working Groups Review Prioritization Criteria

Develop Phased Approach for FY15/FY16

Review of Key Opportunity Themes And Creation of Sub-groups

Keyy Budget g Dates: -Council Break April 7-18 -Proposed Budget Book Delivery: April 25 -Budget Amendments, Full Council: May 29 (Finance/Exec Committee: May 14) -Budget Amendments, FINAL Input to Full Council: June 16 (Finance/Exec Committee: June 11)

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AGENDA

 IIntroductions t d ti & Goals G l off th the W Waste t & Effi Efficiency i Commission  Snapshot of the City’s Current State  Discussion: Initial Ideas  Next Steps

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State of Atlanta’s Infrastructure 

In the midst of a nationwide economic downturn, the City of Atlanta has been working in a constrained fiscal environment, grappling with strategies to enable us to do more with less



During this time we have pursued a fiscal strategy focused on stabilizing City services and increasing efficiencies – since 2007, the city has cut over $125M f om a Gene from General al Fund F nd budget b dget of $670M down do n to a budget b dget of $544M, $544M while hil also improving services to Citizens



This strategy comes at a cost, and the City has under-invested in core infrastructure



The City Th Cit currently tl has h a $1.1B $1 1B infrastructure i f t t b backlog; kl fi financing i the th ffull ll backlog , would require ~$75M in incremental revenue per year to cover debt service



Additionally, the City needs approximately $95M in incremental operating Additionally funds to maintain infrastructure and avoid future backlogs



Forecasted revenue growth of ~1% per year would bring in a total of $30-35M incremental revenue over the next 3 years, y , which is insufficient to address core infrastructure issues



Ensuring fiscal stability in future years, requires that the City take dramatic steps to increase efficiencies and change the way we do business

Source: City of Atlanta CAFR; Office of Budget; 2010 State of the City’s Transportation Infrastructure & Fleet Inventory Report; 2012 Bain Infrastructure Report; Department conversations

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The General Fund’s inability to capture City growth is unsustainable

Inflation-adjusted revenue and expenditures currently below 1993 levels

Note: GDP, Revenue, and Expenditures all adjusted for inflation based on CPI-U for the metropolitan Atlanta region. Fiscal year change-over occurred in 2006; thus, FY2006 numbers are estimated assuming constant growth from 2005-2007 Source: Bureau of Economic Analysis, Bureau of Labor Statistics, City of Atlanta CAFR

8

The City identified a $1.1B backlog in 2012 that continues to grow due to lack of annual funding PRELIMINARY

TOTAL INFRASTRUCTURE BACKLOG CURRENTLY EXCEEDS $1.1B

Funding an Infrastructure Bond to address the full backlog would require ~$75M/year in financing costs Note: $922M in public right of way infrastructure may be reduced by ~30K due to recent investment in bridges Source: FY13 City of Atlanta Adopted Budget; City of Atlanta Departments; 2010 State of the City’s Transportation Infrastructure & Fleet Inventory Report; 2012 Bain Infrastructure Report

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In addition, the City needs ~$95M more per year to prevent future backlogs g PRELIMINARY

Assumes backlog is addressed; increase below reflects the requirements necessary to prevent future deferred needs High-end L Low-end d

~$95M steady-state need based on refined 2014 analysis by the Department off Public bli Works

Source: 2011 CAFR; Department estimates; 2010 State of the City’s Transportation Infrastructure & Fleet Inventory Report

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A tightly prioritized list still requires an immediate need for $250M to address the highest-priority $ g p y backlog g items EXAMPLE LIST OF INVESTMENT NEEDS FOR FIRST $250M

PRELIMINARY

PROPER EXECUTION OF THE INITIAL INVESTMENTS IS PARAMOUNT •

Baseline prioritization to be developed with key stakeholders

Rate all potential projects on a detailed basis, for example: -

Compliance with federal, state, local laws

-

Safety assessments, age, useful life

-

Cost, return on investment, funding /sources

-

Alignment with the City’s long-term vision

-

Future operations and management costs

-

Environmental/sustainability concerns

•

For highly ranked projects, refine cost estimates with respective departments

•

Iterate internally within departments

•

Work with City Council, Departments and other key stakeholders to finalize prioritization

•

Communicate proactively with the public and focus on positive impact and transparency

Source: City of Atlanta Departments; 2010 State of the City’s Transportation Infrastructure & Fleet Inventory Report

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Failing infrastructure, both chronic and acute, can significantly g y hamper p Atlanta’s economy y CHRONIC: General traffic ff congestion costs the city economy:

ACUTE: A major j bridge g failure could cost the city economy:

$313 Million per year

$28 Million per week

• • • •

Wear and tear on roads Excess fuel consumption Increased CO2 emissions Shi i congestion Shipping ti

• Lost productivity and increased commute times • Reduced spending on local b i businesses

Source: Texas A&M Transportation Institute; 2011 COA Community Development Plan report; City internal analysis and assumptions

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The City cannot fund this work with current budgets and is projecting budget over over-runs runs in FY14 through FY16 $700 $600 $500

$MM

$ $400 $300 $200 $ $100 $$(100) Revenues Expenses p Surplus/Deficit

FY 10

FY 11

FY 12

FY 13

FY 14*

FY 15*

FY 16*

$552 $487 $4 7 $65

$559 $539 $20

$556 $523 $5 3 $33

$532 $521 $5 $11

$537 $540 $54 $(3)

$545 $581 $5 $(36)

$552 $587 $5 7 $(35)

Revenues

Expenses

Surplus/Deficit

General Fund expenses must be streamlined to avoid going into deficit Note: City of Atlanta Published Budget Book, FY10-FY13; FY14 Q2 Budget Update; FY14 Five Year Budget Plan; Department of Finance

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Atlanta’s tax base does not support infrastructure needs PRELIMINARY

City of Atlanta Regional Position is not reflected in population tax base 20,000,000

Atlanta receives far less state support than peers 45%

2012 METRO AREA POPULATION

18 000 000 18,000,000

40%

CITY POPULATION AS % OF METRO POPULATION

16,000,000

35%

14,000,000 30% 12,000,000 25% 10,000,000 20% 8 000 000 8,000,000 15%

6,000,000

10%

4,000,000

Attlanta

Washington, D.C.

Minnea apolis

Bo oston

Dallas D

Porrtland

De enver

Philade elphia

Chiccago

Los Ang geles

oenix Pho

0% Nashville

0 Hou uston

5%

New Yorkk City

2,000,000

Source: Fiscal Research Center for Georgia State University, Governor’s Adopted FY2013 Budget Report, GA Dept. of Revenue, GA Dept. of Transportation, Bureau of Economic Analysis, GA Dept. of Education, city CAFRs

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Property inflation does not automatically increase property tax revenue for the city Atlanta property tax revenue growth forecast 2014 - 2024

Estimated annual rollback $20M - $59M

Estimated property tax revenue $169M; growing at $1 2M each year $1-2M

 New N properties ti and d iimprovements t are th the source off fforecasted t d revenue iincreases ffor the city  State Law requires cities to rollback revenue from property inflation on existing properties p p or declare a tax increase 15

This has forced Atlanta to already be one of the most efficient Cities General Fund Expenditure per Capita Already Lower than Peer Cities

PRELIMINARY

Further improvements will require new operating norms; however, these changes will move us from good to best in class Note: *Capita = daytime population; 2010 most recent year for which all cities’ data is available; average includes peers and Atlanta status quo Source: City CAFRs

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However, despite efficiencies, cost of personnel is trending g upward p Following a sharp decline in FY10, headcount and salary expenditures have trended upward Employee headcount over time 4,800

$420

4 700 4,700 $400 4,600 4,500

$380

4 400 4,400 $360 4,300 4,200

$340

4 100 4,100 $320 4,000 3,900

$300 FY 09

FY 10

FY 11

FY 12

FY 13

FY 14

Headcount

4,668

4,156

4,443

4,552

4,488

4,492

Salaries and Benefits ($MM)

$397

$311

$331

$327

$333

$335

H d Headcount t

Source: Department of Human Resources Headcount Report; COA Budget Books

S l i and Salaries dB Benefits fit ($MM) 17

Given increase in headcount and current state of the healthcare systems, healthcare costs are projected to continue ti growing i significantly i ifi tl for f retiree ti population l ti Projected retiree healthcare costs projected to increase at 4% per year for next 30 y years

PRELIMINARY

Annual Cash Cost for Retirees ($M) CAGR (FY14FY44)

$160 $140

4%

$120

 More than 65% of healthcare costs sit with the General Fund  Retiree healthcare costs t are projected j t d tto grow at 4% per year for the next 30 years

$100 $80

 Total cash costs are forecast to double in the next 13 years and triple over the next 30 years

$60 $40 $20 $0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044

Current retirees

Current employees

Future employees

Note: Rough, initial valuation; should not be relied upon for City or State decisions; nominal values shown Source: Actuarial reports; Segal July 1, 2011 valuation and projection of OPEB plan; Expert interviews

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Growing pension costs are also expected to continue, triggering gg g employee p y cost sharing g With a change in annual required contributions, City anticipates hitting 35% cap on pension funds by 2029

PRELIMINARY

Given current trajectory, City expects to hit 35% cap (and trigger employee cost sharing) by 2029.

50 bps p improvement p Estimate that 5 in rate of return delays trigger by 35 years; 100 bps improvement likely avoids trigger altogether

Note: Rough initial valuation based on Segal valuation as of July, 1, 2012 uses 30 years and 6% discount rate; additional analysis required Source: Segal projection of General Employees plan and rough estimate of Fire and Police plans

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AGENDA

 IIntroductions t d ti & Goals G l off th the W Waste t & Effi Efficiency i Commission  Snapshot of the City’s Current State  Discussion: Initial Ideas  Next Steps

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Collectively, the Mayor has formed this Commission to find ways to address these challenges Over the next 3 months, the Commission on Waste & Efficiency will be tasked with recommending a series of opportunities that have the potential to:  Provide the City with necessary funds to support investment in the infrastructure backlog and ongoing operating & maintenance expenditures along with core operations  Create excellence in City operations and position Atlanta as a best-in-class City for operational effectiveness

One-time revenue b boost/ cost reduction

Mid-Term id Recurring savings that h d do not require upfront investment

Wave e II

Short-term h

Wav ve I

QU UICK WIN NS

 Put City on a trajectory for long-term fiscal stability

Longer-Term Longer Term Larger recurring savings that may require upfront investment

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We are asking all Committee members to spend the next 3 weeks collecting ideas for the Commission to consider GUIDING PRINCIPLES

 Think big and bold; nothing is off the table  Generate as many options as possible F Frame recommendations d i with i ha focus on impact

Questions to Consider

How will the recommendation:  IImprove the th efficiency ffi i off Cit City operations?  Generate savings or revenue for the Ci iin the City h short, h medium di and d llongterm?

 Maintain focus on public impact of recommendations

 Be sustained?

 Ensure mix of short, medium and long-term opportunities

 Impact City staff?

 Impact public services and citizens?  Enhance the City of Atlanta?

The Blue Ribbon Panel will serve in an advisory capacity, making recommendations to the Mayor that will ensure the appropriate mix of short and long-term efficiency opportunities 22

In addition to Commission ideas, we will be soliciting input from the public  Efficiency.Commission@atlantaga.gov inbox is live and accepting ideas from the public, staff members and Commission members Th inbox The i b will ill b be monitored it d b by the th M Mayor’s ’ Offi Office and d ideas will be collected and shared with the Commission  The City will also be hosting a public hearing to collect ideas from the public

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AGENDA

 IIntroductions t d ti & Goals G l off th the W Waste t & Effi Efficiency i Commission  Snapshot of the City’s Current State  Discussion: Initial Ideas  Next Steps

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Next steps

 Review City of Atlanta Fiscal Fact Book to identify potential areas of opportunity  Discuss Commission charge with stakeholders and gather ideas  Submit ideas via Efficiency.Commission@atlantaga.gov  S Second d meeting i will ill b be scheduled h d l d ffor W Week k off A April il 21stt : City staff will follow-up with date, time, logistics

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Appendix

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Implementation & Referendum Timeline  JULY 2014 City assesses Commission recommendations; d i releases l Efficiency Plan laying out timeline and implementation roadmap  AUGUST 2014 L Launch h quick i k win i program (FY15 budget) Q2 2014

 Realize benefits f from ““quick i k wins” i ”  Launch Wave I initiatives  FALL 2015 Issue Bond

Q1/Q2 2015 Q3/Q4 2014

 MAY 2014 Bond announced  JUNE 2014 Commision recommendations submitted to Mayor  JUNE 2014 CoA FY15 Budget Established

 FY17: Realize “run rate” benefits from implemented recommendations

Q1/Q2 2017

Q1/Q2 2016 Q3/Q4 2015

 MARCH 2015 Bond Referendum  Wave I Initiatives Submitted in FY16 Budget Plan

Q3/Q4 2016

 Wave I Initiatives Implemented; initial savings realized  Incorporate Wave II Initiatives in FY17 Budget

Community outreach and engagement for the Infrastructure Bond will take place in a separate, parallel effort

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INFRASTRUCTURE BACKLOG

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Deferred capital projects and infrastructure investments exceed $1B today PRELIMINARY

BACKLOG* CONSISTS PRIMARILY OF DEFERRED INFRASTRUCTURE

BACKLOG FOR PUBLIC WORKS GROWS EXPONENTIALLY

$3.2B deficit in 2027 if City does not address backlog or annual maintenance need

The CoA must address the infrastructure backlog before the need exceeds reasonable funding f capacity *$922M in public right of way infrastructure may be reduced by ~30K due to recent investment in bridges Source: FY13 City of Atlanta Adopted Budget; City of Atlanta Departments; 2010 State of the City’s Transportation Infrastructure & Fleet Inventory Report; 2012 Bain Infrastructure Report

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Right-of-way has a backlog of ~$922M* as of 2010 PRELIMINARY

* $922M in public right of way infrastructure may be reduced by ~30K due to recent investment in bridges Source: 2010 State of the City’s Transportation Infrastructure & Fleet Inventory Report; Bain analysis

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Atlanta must double public works budget in order to meet peer city average per centerline mile PRELIMINARY

FY2010 public works expenditures per centerline mile

$100K

80

77

60

$28M increase in public works

38

40

37

Average = $27K

29

20

12

10

9 3 Cl ev el an d

Ch ar lo tt e

st Atl ea an dy ta st at e A st tla at n us ta qu o Ka ns as Ci ty

Lo ui s St .

D en ve r

M ia m i

0

Note: Seattle public works expenditure data not available; centerline mile is agnostic of road width—it effectively measures distance of yellow centerline; 2010 most recent year for which all cities’ data is available; average includes peers and Atlanta status quo Source: City CAFRs

31

Transportation & transit: Atlanta’s traffic is frustrating and timeconsuming for metro area residents PRELIMINARY

ATLANTA’S TRAFFIC IS HIGHLY UNPREDICTABLE UNPREDICTABLE…

…AND CONGESTION RESULTS IN THE LONGEST AVERAGE COMMUTE

Buffer index

Mean travel time to work (minutes)

Source: Texas A&M Transportation Institute (2012); US Census 2010

Pittsburgh P

Houston H

New Haven N

New York N

Norfolk N

New York N

New York N

Atlanta A

Atlanta A

(The extra time built into planned trip, as percent of typical travel time)

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REVENUES AND EXPENSES

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Atlanta’s State and local tax burden is slightly higher than average PRELIMINARY

Note: Excludes Cincinnati, Cleveland, Miami, Pittsburgh, Sacramento, St. Louis, and Tampa due to lack of comparable data; sales tax based on information from 2010 Consumer Expenditure Survey; property tax based on estimated home values at the $50,000 income level Source: Bureau of Labor Statistics, U.S. Census, “Tax Rates and Tax Burdens in the District of Columbia—A Nationwide Comparison”

34

Atlanta’s recovery from the recession is close to peer city average PRELIMINARY

EMPLOYMENT RATE Growth in employment rate since recession peak

Source: Brookings Institution

OUTPUT (GDP) Growth in GDP since recession trough

35

City of Atlanta is a net exporter to State of Georgia and receives far less state support than peers PRELIMINARY

COA receives only ~70¢for each d ll it contributes dollar t ib t to t state t t

Atlanta receives far less state support th peers than

Note: *Methodology based on research by Andrew Young School of Policy Studies at Georgia State University, Atlanta based on Fulton County due to data availability; **FY2010 most recent year for which all peer data is available Source: Fiscal Research Center for Georgia State University, Governor’s Adopted FY2013 Budget Report, GA Dept. of Revenue, GA Dept. of Transportation, Bureau of Economic Analysis, GA Dept. of Education, city CAFRs

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Revenues in peer cities have grown in line with or above regional inflation DENVER

CAGR (’02’12) 1.8% 0.5% 0.4%

MINNEAPOLIS

CAGR (’02’12) 3.0% 3.0% 1.6%

Note: GDP represents metro region for Denver and Minneapolis. Inflation adjusted using CPI-U for Denver and Minneapolis metro regions.

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, City CAFRs

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Employee healthcare costs are growing rapidly PRELIMINARY $140 000 000 $140,000,000

$16 000 $16,000

$120,000,000

$14,000 $12,000

$100,000,000

$10,000 $80,000,000 $8,000 $60,000,000 $6,000 $40,000,000

$4,000

$20,000,000

$2,000

$0

 Total medical and dental expenses faced by the City and City employees have grown by 3.4% a year in recent years.  This is a $22M increase between 2008 ($101M) and 2014 ($123.5M).  The total cost per employee has grown even more quickly, rising from $10,500 in 2008 to $14,600 in 2014.  The pace of growth in medical and dental expenses is much faster than City revenues or employee earnings can continue to sustain sustain.

$2008 2009 2010 2011 2012 2013 2014

Annual Total Medical/Dental Expense

Expense per Employee 38