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June 2013 MiniNews

  • Willdan Financial Services
  • Harris.
  • Cutwater Asset Management
  • Bartle Wells

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*Please note that updates are continually made to the Job Board section of the MiniNews (PDF format) after its original release. Check the Job Board regularly.


President’s Message

By: Pauline Marx, City and County of San Francisco

Robust California Turnout at 2013 GFOA Annual Conference

I’m filing this month’s President’s Message while attending the Government Finance Officers Association annual conference in San Francisco.

California — you all did a great job! Representatives of our State and our membership were everywhere: presenting at sessions, attending sessions, representing and talking with service providers at the exhibit hall and attending a variety of wonderful hospitality and networking events.

I want to thank everyone who helped to make the CSMFO Monday night happy hour a great success. At least 150 of us connected and enjoyed food, drink and lively conversation.

It was a great few days…now back to getting the proposed budget passed!

 


Executive Director’s Message

By: Melissa Dixon, CAE

Well clearly you already “like” us. You’re a member in good standing and you’re reading this MiniNews issue! But did you know you can “Like” us as well? CSMFO just created a Facebook page!

I understand that some of you may be overwhelmed by the incessant onslaught of technology these days…in fact I recently heard that the average smart-phone owner checks their phone an average of once every six minutes. That’s 240 times a day. Or 7,200 times per month. Or 86,400 times per year.

It’s daunting.

Because of this CSMFO has resisted creating a Facebook page in the past. However, Facebook didn’t like that idea, and they made a page for us (based on information found on Wikipedia). Our Technology Committee felt it better to take ownership and control the content than to let it sit idle under CSMFO’s banner. So here we are.

Like” us on Facebook to be easily reminded of upcoming chapter meetings, webinars and training; to stay up-to-date with the Board’s activities; and (perhaps most importantly) to see all the fantastic pictures from our events (like 2013 conference photos). “Like” wise, if you have pictures from a chapter meeting or other CSMFO event, or if your agency is doing something noteworthy, please forward them to me. We’d love this page to be filled with content from all angles.

See you in cyberspace…

 


Save the Date for CSMFO’s 2014 Annual Conference!

Renaissance-Hotel-in-Palm-Springs

Your 2014 CSMFO Annual Conference Host Committee is busy at work preparing for an exciting event that will provide you with outstanding sessions, special Thursday evening activities and first class speakers and breakout sessions. Mark your calendars.
February 19-21, 2014
Renaissance Hotel
Palms Springs, California

Picking a Conference Theme
Over 40 suggestions have been made by our members. The winner will be announced next month!

Annual Conference Host Committee:
Pamela Arends-King, CSMFO President–Elect/Conference Committee Chair, City of Tustin
Mark Alvarado, City of Monrovia
John Adams, City of Thousand Oaks
Terrence Beaman, City of Desert Hot Springs
David Cain, Retired / Urban Futures
Nancy Klukan, City of Palm Springs
Jennifer Leisz, City of Tustin
Margaret Moggia, West Basin MWD
Laura Nomura, Riverside Public Utilities
Chu Thai, City of Stanton
Danielle Wood, NBS
Elena Zaretsky, Wedbush Securities

 


California Municipal Bond Market Outlook

by Rob Larkins, Raymond James

As we move towards the end of FY 13, we thought it would be useful to provide some perspective on the state of the California municipal bond market and what local governments can expect in the fiscal new year.

The View From 40,000 Feet

From a macro vantage point, conditions look favorable. Muni interest rates, which take their primary cue from the Treasury market, remain near long term lows, though we have seen considerable volatility the last several weeks as the benchmark 10-year Treasury has been whipsawed by conflicting economic signals about the economy. On the one hand, the roaring stock market appears to be drawing money out of bonds, pushing the 10-year back towards 2%, while relatively anemic employment data and continued concerns about a slowing global economy (especially Europe and China) exert countervailing pressure to bring rates down towards 1.6%. We expect continued volatility within this relatively narrow band. Keep in mind, however, that the upper end of the band for the 10-year Treasury is 2%, and 30-year MMD is at 3.08% as of May 23. These rates are extremely attractive when viewed in a historical context.

graph-1

A Generally Favorable Environment in California
Specific to California, Proposition 30’s passage in November has definitely restored some of the Golden State’s luster, boosting the State’s revenues, providing counties more assurance of funding for Realignment, and increasing demand for tax-exempt income among high wage earners who now face a top marginal income tax rate of 13.9%. As illustrated in the adjacent chart, California GO spreads tightened in November, although rates bounced back up in March reflecting a surge of supply as well as the rise in Treasury rates noted above.
graph-2

Another important factor impacting the California muni market has been the resurgence of mutual funds. Despite seasonal dips reflecting tax payment dates, California bond fund assets have climbed steadily over the last year and a half, rising over $10 billion since January 2012 to approximately $58.4 billion in April of this year. Bond funds have returned as key investors in the new issue market, and no deal of consequence gets priced without significant bond fund participation.
graph-3

A third driver of the California bond market is the pattern of redemptions, which are projected to peak at a record $18.3 billion in June. Redemptions include scheduled principal and interest payments on outstanding bonds, as well as bonds called as a result of refundings. One way to think of redemptions is as “negative supply.” Redemptions take assets out of the market, and assuming investors don’t reallocate those funds into other markets (like equities or real estate), it can set up a sort of “supply squeeze” in which investors are faced with the choice of reinvesting in new issues, buying bonds in the secondary market, or staying in cash, which puts pressure on their overall performance. Absent a deluge of new supply, we expect the June reinvestment to provide important support for the market, which could see a strong rally.
graph-4

The Annual TRANs Season

June normally kicks off the annual TRANs season in California, and short-term fixed rates look remarkably similar to last year’s. Though the short term SIFMA index rose sharply in April, reflecting huge outflows from the tax-exempt money market funds related to income tax payments, the one-year fixed rate market seems to have flatlined in the 20 basis point range. Due to Proposition 30 tax receipts, and a generally rebounding California recovery, we expect the State’s annual Revenue Anticipation Note borrowing to be smaller than the $10 billion issued in 2012 (the 2013-14 Governor’s Budget projected the issuance of $7 billion of RANs), and with prevailing reinvestment rates so low, we expect local issuers to limit the size of their TRANs as well, so overall volume should be quite manageable.

graph-5

We expect top rated local government TRANs to clear the market in a narrow band between 18 and 22 basis points for one year maturities, and shorter “stub” maturities (particularly an early April date that money funds use to match expected redemptions for the April 15, 2014 income tax deadline) may see a 2-3 basis point advantage. Depending on an issuer’s reinvestment options, going the full twelve months may be economically advantageous.

The dominant investors for TRANs remain the money market funds, whose assets are currently approximately $260 billion, reflecting recent withdrawals for April tax payments, but “professional retail” investors (money managers, investment advisors and bank trust departments investing on behalf of retail) should also play an important role in this year’s cashflow management borrowing season, as the demand for high quality tax-exempt paper has increased as a result of higher federal and state income tax rates affecting the highest income taxpayers.

graph-7

Bond funds may also participate in the larger, more liquid offerings, using the notes as a “liquidity vehicle” to provide a buffer against redemptions, as well as a place to park cash in advance of buying higher yielding longer duration assets.

Overall, we expect that this year’s TRANs season should go smoothly.
graph-6

Longer Term Credit Issues to Watch

Lest we seem too Pollyannaish, there are a number of “big picture” credit considerations lurking in the background that will likely play out over the longer term—and impact the fixed rate bond market more than the 2013-14 TRANs market, where investors’ focus is primarily on intra-fiscal year cashflows.

Among the biggest drivers of municipal borrowing rates over the next year will be the outcome of efforts to address the massive federal deficit, especially attempts to limit or cap deductions. Last December, the market was hammered by the prospect of a “universal cap” on deductions including interest paid on municipal securities, and threats to tax-exemption remain very much alive in Washington. The President has proposed a universal cap at 28%, and if that proposal advances, we would expect significant upward pressure on rates, as the value of tax-exemption would be materially impaired.

In California, the drivers of rates are more credit related, including the recently announced dramatic increase in PERS rates beginning in FY 15-16 for local agencies, reflecting major changes to PERS actuarial methodology (mainly shortening of smoothing and amortization periods). PERS has indicated that the median miscellaneous plan employer contribution rates will rise from approximately 18% of payroll in FY 16 to approximately 23% of payroll in FY 21, while median safety plan rates will rise from approximately 30% of pay in FY 16 to approximately 39% of pay in FY 21. PERS has done an excellent job of briefing its members on these changes, and investors will be looking to see how issuers plan to accommodate these major cost increases in their budget planning.

Two other major credit concerns are the unknown cost of implementing Obamacare and the longer term impacts of Realignment, which is proving to be a lot more expensive for counties than was originally anticipated. With respect to the Affordable Care Act, the Governor’s May Revision indicates the State will be looking to counties for about $1.5 billion of cost-sharing support to offset the State’s increased responsibility for healthcare. So despite Proposition 1A, counties remain a “source of funds” for legislative priorities. Counties appear to have aggressively embraced Realignment, implementing an impressive array of local services intended to address a range of behaviors associated with criminal activity and putting in place many thoughtful programs to help transition nonviolent offenders back into productive citizens, but the net financial burden on county finances remains a big unknown.

In short, credit remains a key aspect of the credit markets, and investors will continue to focus on management and how local government leaders proactively manage their way through an ever-evolving thicket of challenges. The good news is that the California economy seems to be bouncing back, and revenue growth seems certain….at least for the foreseeable future!
Robert Larkins is a managing director and manager of California Public Finance for Raymond James & Associates. A resident of Menlo Park, he is a fourth generation Californian with 27 years’ experience in the California market.

Robert Larkins is a managing director and manager of California Public Finance for Raymond James & Associates. A resident of Menlo Park, he is a fourth generation Californian with 27 years’ experience in the California market.

The author’s opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. A basis point is 1/100th of one percentage point. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bond investments may involve market risk if sold prior to maturity, credit risk and interest rate risk. Municipal securities may not be suitable for all investors. Further information regarding these investments is available from your financial advisor. As federal and state tax rules are subject to frequent changes, you should consult with a qualified tax advisor prior to making any investment decision.

Investors should consider the investment objectives, risks, and charges and expenses of mutual funds carefully before investing. The prospectus contains this and other information about this investment. The prospectus should be read carefully before investing.

Raymond James & Associates, Inc. member New York Stock Exchange/SIPC
Raymond James Financial Services, Inc. member FINRA/SIPC

 


Surprises are Bad

by Scott Thorpe, Revenue & Cost Specialists

Does your agency have a Revenue Book and someone assigned as Revenue Czar? The Revenue Czar is charged with knowing everything there is to know about every revenue source your agency receives and the Revenue Book catalogs that information. Or, in the alternative, are these revenue responsibilities autonomously decentralized throughout the organization with the people that are most knowledgeable about them?

There are some benefits to each method and as finance staff you will have to learn to work hand in glove with line staff to maximize those benefits. Line staff members often are the ones to find grants specific to their area of expertise, (i.e. street and road grants), or are responsible for unusual revenue sources and have to be depended upon for that information.

Let’s take as an example a federally-funded $100,000 flood control project that will be financed by your agency but only reimbursed at completion of the project. Sounds simple; one merely budgets and appropriates the $100,000 project with the $100,000 from the federal government listed as the revenue source. Then reality sets in and the project may start late in your fiscal year, take months to construct, inspect and accept before the final reimbursement is issued, thus dragging that $100,000 reimbursement well into a next fiscal year. There is also the factor of paying the contractor monthly payments with a 10- 15 percent retention to be paid after the final inspection and acceptance. Does all of this sound familiar? The project cost is relatively immediate but the reimbursements will most likely take many more months. Certainly no one in finance could know all of this without adequate communication with the line staff, but it is important cash-flow information nonetheless.

Clearly someone in engineering will have the best knowledge about the revenue flow of this project. However this does not reduce the responsibility of central management staff to be aware of this source and make sure proper reimbursement occurs. Keep in mind that line department staff have other responsibilities, such as providing direct services to the local citizens and business community. They are good at that but maybe not as good at keeping track of the financing issues, so problems can ensue if you do not support them.

In my early government central management employee years, one of the things I did annually was to look through the city’s many revenue sources for any errors or omissions. I figured it wouldn’t hurt my chance of continued employment if I “found” revenue equal to my annual cost. One year I came upon the fact that over a number of years the city had forgotten to invoice some contiguous cities for their proportional share of traffic signal maintenance and power costs for some shared traffic signals. The engineering technician with the long-term responsibility for this process had moved on to another agency and no one noticed it and thought to assign it to someone else, since the revenue was merely assigned to a very broad miscellaneous reimbursements category. I also suggested that since there is typically room for 999 revenue account codes that perhaps a few more to highlight some more obscure revenue sources wouldn’t hurt. I always found that finance types did not like to add accounts. Anyway, I learned that mistakes can and will be made, that right hand – left hand thing seems to be too true.

I then went to a larger agency with a commensurately larger finance operation and was quickly assigned maintenance of that city’s revenue book. This document identified every revenue source in the city and important information such as the application, timing, process, who in the organization was responsible for it and any other pertinent information necessary for a full understanding of that revenue source.

It can be a daunting task to keep such a book updated, but someone in your agency simply has to have a precise understanding of each and every agency revenue source, not just the property, sales and hotel/motel tax pool revenues. The Book, as we simply referred to it, took time to keep current, but I know that those of us in central management never missed a revenue source deadline or revenue collection opportunity. You, the finance specialists, are charged with making sure that all revenues owed to the city are identified and collected as rapidly as possible. In addition the finance operation has the responsibility to report revenue collection exceptions (i.e. changes from when you originally anticipated collection) via a periodic (I suggest monthly) analysis to see if revenues come in as estimated and expected. No city manager wants to hear at the end of the fiscal year that sales taxes fell short of what were predicted. They don’t like surprises.

No one likes surprises or errors. A revenue book assigned to a revenue czar with the authority to quiz anyone about revenue information could help to eliminate problems and surprises. Even if it is hard to find the time to create and maintain a revenue book, having one will probably save you time, money and the occasional red face.

Scott Thorpe
Revenue & Cost Specialists
scott@revenuecost.com
714.992.9026

 


Coaching Corner

Webinar – How the 2010 Health Care Bills Will Affect Your Agency

June 26, 2:00 – 3:30 p.m. PST

Advance registration required for this no-charge webinar: https://www1.gotomeeting.com/register/957404120

This session will identify critical cost and management issues that local finance professionals need to know. Invite your HR colleagues to join you for an excellent shared learning and planning opportunity.

Panel topics:

  1. Key taxes, fees, and reporting that you need to know
  2. Individual mandate and marketplaces issues
  3. Critical employer compliance responsibilities, liabilities, and implementation
  4. Your questions & answers

Presenters:
* Bill Morgan, Principal, White Nelson Diehl Evans, LLP
* Daniel Kopti, Compliance Consultant, Wells Fargo Insurance Services USA, Inc.

We’ll be using webinar tools (including real-time questions and live polling) to make this a great opportunity for audience interaction.

Are you a member of CSMFO and want to earn CPE credit for participation in the webinar? Note the requirements at registration.

Post-Webinar Group Discussions
Many agencies are organizing groups to participate in the webinars (live or recorded) and discuss the topics among themselves after the webinars. Some are summarizing their discussions and distributing them to managers throughout their organizations. Use the CSMFO Coaching Program as an effective way to enhance professional development in your agency.

Here are some discussion starters for this session:
a. What issues do we face in implementation with our health plans?
b. How are we set up to satisfy the compliance and reporting requirements?
c. What information and ideas from today’s webinar will help us deal with these issues effectively?

MORE RESOURCES–See the “Coaching Corner” at www.csmfo.org/coaching for valuable resources to boost your career. These include a Financial Management Skills Inventory, Resource Matrix, Coaches Gallery of 24 volunteer CSMFO Coaches willing to help you on a one-to-one basis, and an archive of digital recordings and materials from past webinars.


Professional Development at Your Fingertips–PERS, Comp, Budgets, and More

Want to keep up with the latest in the profession, but your days are jammed?

CSMFO’s professional development programs are available when you are. Here are two webinars and a hot topic call in the last two months that you can access online 24/7 — along with dozens of others.

  • “Managing Employee Compensation–issues and options” [webinar on March 20]
  • “PERS Rates” [hot topic call on March 21 with Alan Milligan, Chief Actuary, PERS]
  • “Communicating Your Budget Effectively” [webinar on April 24]

You’ll find digital audio recordings and PDFs of presentation materials at http://www.csmfo.org/training/webinars/audio-archives/

Be sure to sign up for podcasts of all sessions on iTunes or your other music media provider to listen while you are on the go [keyword: CSMFO].

Do you have requests for webinars and hot topic calls? Please send your ideas to Scott Catlett, Chair of the Career Development Committee SCatlett@riversideca.gov.

 


Welcome New CSMFO Members!

  • Anna Marie Acosta, Management Service Officer, Los Angeles
  • Daisy Bañuelos, Associate Financial Analyst, Western Municipal Water District
  • Sandra Becerra, Administrative Services Officer, County of Riverside
  • Ruby Carrillo, Manager,Lance, Soll & Lunghard, CPA’s LLP
  • Paul Champlin, Vice President, BBVA Compass
  • Marshall Eyerman, Budget Officer, Moreno Valley
  • Candice Huot, Accountant, Montebello
  • Peggy Lefebvre, Interim Finance Director, Monterey
  • Ryan Luetkemeyer, Senior Manager, Moss Adams LLP
  • Elizabeth Reta, Administrative Services Manager
  • Patricia Salazar, Senior Administrative Analyst, City of Malibu
  • Kelly Spire, Accountant II / Utility Billing Manager, Escondido

 


Education Opportunities

Introduction to Government Accounting
June 12, 9:00 a.m. – 4:30 p.m.

  • Ahmed Badawi

Intermediate Governmental Accounting
June 18, 8:00 a.m. – 5:00 p.m.

  • Susan Mayer

Introduction to Government Accounting
June 19, 9:00 a.m. – 4:30 p.m.

  • Ahmed Badawi

Intermediate Governmental Accounting
June 20, 8:00 a.m. – 5:00 p.m.

  • Susan Mayer

 


Chapter Meetings

CSMFO Central Los Angeles & CMTA South Bay Chapters
June 27

 


CSMFO’s Accounting and Fiscal Policy Classes

CSMFO offers Introductory, Intermediate Governmental Accounting and Fiscal Policy Training classes throughout the year. Each class is taught separately by highly respected instructors. We are thankful to our instructors for their time and commitment. One of our long time instructor’s, Kathryn Beseau, for the Intermediate Governmental Course, retired and we want to thank her for her years of service to CSMFO. In February the Board approved a new contract with Susan Mayer who will assume the role of instructor. We are excited to have her on board to teach this important intermediate course, and will begin to schedule courses soon. We have also been busy scheduling courses for the upcoming years but we are still looking for host agencies. To date, we are excited to offer the following Accounting and Fiscal Policy Classes. Please look to see where you or your staff can benefit from these courses.

Interested in Hosting? Here are the requirements:

The accounting classes are appropriate for individuals that have some accounting background, but may be new to the government sector or for employees who have recently assumed responsibility for financial and accounting reporting. The classes are also appropriate for anyone interested in brushing up on basic government accounting skills. Once a basic understanding of accounting concepts is reached, these concepts can easily be applied to the unique requirements of the governmental area.

Host site requirements for the accounting classes include:

  • A minimum of 20 registrants
  • Seating for 60 participants with tables and chairs
  • One rectangular table up front for speaker
  • Table and chair in back for registration
  • ***Room open and available at 8:00 a.m. for set-up (*** 7:30 a.m. for Intermediate classes)
  • Parking alternatives for up to 60 participants, preferably free parking
  • A computer with a remote to advance PowerPoint slides
  • A port to allow for a USB flash drive
  • A screen and projector

The host site will need to provide lunch (with beverages) and light morning/afternoon refreshments for the attendees. The host site will be reimbursed actual costs up to $15 per attendee, including the instructor, by CSMFO.

The Fiscal Policy Training classes are offered as half-day or one-day sessions. Good times come and go, but your values shouldn’t – which is what fiscal policies are all about. Setting clearly articulated fiscal policies builds a strong foundation for protecting your agency’s long-term fiscal health. As recent economic events have shown, no agency is immune to economic downturns. But agencies with clear fiscal policies in place with a tradition of following them have a significant strategic edge over those that don’t. Policies make tough decisions easier by providing guidance both when times are good by preventing problems to begin with, as well as when the inevitable tough times do arrive.

Host site requirements for the fiscal policy training classes include:

  • A minimum of 10 registrants
  • Seating for 60 participants with tables and chairs
  • One rectangular table up front for speaker
  • Table and chair in back for registration
  • ***Room open and available at 7:30 a.m. for set-up (*** 12:30 p.m. for afternoon sessions)
  • Parking alternatives for up to 60 participants, preferably free parking
  • A computer with a remote to advance PowerPoint slides
  • A port to allow for a USB flash drive
  • A screen and projector
  • Location convenient to lunch options for attendees (preferred)

The host site will NOT need to provide lunch or refreshments for the attendees. Attendees are on their own for lunch.

For all classes, the host site gets two free attendees. Unless otherwise provided by the hosting agency, one of the attendees will be designated to registering participants, checking room set-up, assisting the presenter, assisting with food and assisting with set-up as needed.

CSMFO will handle the online registrations and fees for the classes.

CSMFO and the host site will be responsible for marketing and promoting the courses. The host site is strongly encouraged to market and promote the courses to local agencies and chapters to maximize attendance.

If you are interested and able to host any of the classes in 2013, or for more information please contact Margaret Moggia, Board Liaison to Career Development Committee, at margaretm@westbasin.org.


Career Opportunities

CSMFO provides government finance professionals with numerous resources for enhancing and advancing their careers. Visit the job opportunities page of the CSMFO website for a list of current job openings.

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