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By: Jesse Takahashi
During the month of October, I traveled to Portland OR to attend the OGFOA conference. The program included many of the mainstay topics of budgeting and finance you would expect including debt financing, continuing disclosure, capital budgeting, reporting, grants and investments. Heather Johnston, GFOA President, was a featured keynote speaker who shared updates of GFOA’s current efforts on financial resiliency, retention and recruitment of finance professionals as well as opportunities for getting involved in the GFOA organization. Apparently, GFOA has had a number of its presidents who originated from Oregon. Another highlight of the conference was an economic panel on State and demographic trends which indicated Portland to be one of the fastest growing cities of young professionals. There was also a panel on State and local government impacts of the recent passage of recreational use marijuana. Discussion covered not only operational and regulatory issues, but how the State was planning to administer a new marijuana tax with local jurisdictions. With Alaska, Washington and now Oregon having legalized recreational use of marijuana, it is believed by many that California will be next. If that is true, there are lessons to be learned from the states that are now dealing with this situation in terms of not only how regulatory oversight and control will be managed at both the State and local levels, but also how taxation and revenue allocation will be handled.
October Board Meeting Items
At its October meeting, the Board approved a new core training class—Revenue Fundamentals I. This course was developed by the Career Development Committee with the assistance of Michael Coleman, Lloyd De Llamas and Paula Cone of HdL. The course will discuss various tax revenues such as sales tax, property tax, utility user’s tax, transient occupancy tax, business license tax, and related issues for local agencies including forecasting exercises. A secondary course, addressing fee and other revenue types is also being developed for release in late 2016.
Addressing one of the strategic plans for this year regarding Communications Strategy, the Board approved a proposal to develop a style guide and a communications policies and procedures manual to improve upon the way CSMFO communicates with our members and others outside of our organization. The proposal also includes creating a new Communications Task Force that will consist of representation from each standing committee as well as from our chapters.
The Board also approved a new three-year contract for Smith Moore Associates for management services and a request by the Professional Standards and Recognition Committee to bring on Advisors to assist the Committee with establishing an inventory of existing professional standards, including best practices and white papers. Our next Board meeting will be held in person at the City of Campbell on December 4.
Making This Thanksgiving Meaningful
This month is a great time to take a moment to reflect on our lives and how much we have to be thankful for. It is also a time to remember those individuals that are not as fortunate as us and to consider what opportunities we might take advantage of to do something about it. Volunteering is an outstanding opportunity that presents numerous ways to help others. There are so many organizations that can use your help, especially during the holiday season, to assist the hungry, homeless and those with other challenges of need. Why not lend a helping hand by donating your time or by contributing to a worthy cause? Another way is to perform a random act of kindness or “pay it forward” to someone you don’t know. You never know what kind of impact you may have on a person by just one kind gesture. After all, we are in the business of public service. I would like to hear from you about any examples or stories you may have of philanthropy or “paying it forward” and any results you may have observed. I will write about these in a future article.
In the meantime, I want to wish all of you and your families a very happy, joyous and safe Thanksgiving holiday.
Executive Director’s Message
Anxious to register for the 2016 Annual Conference? I get it. I’m anxious for you to start registering too. Online registration will be open soon, but let me tell you the reason we’ve delayed it a few days:
We’ve been told that a lot of you have your administrative assistants take care of registering you, but in order to do that online they would need your usernames and passwords for the CSMFO database. Instead of finding/using those, most of them fill out a PDF form, then send it into our office…at which point we have to take all that information and enter it into the system. That’s two people doing the same job, and it’s just inefficient. So this year we’re giving every member a unique code. You can give this code over to your assistants, and they’ll use it to register you. They don’t have to log in to the system at all; instead, they’ll click on the “I’m registering for someone else” option, enter your code and the system will auto-populate the fields with your information.
You’ll be receiving your unique code via email when registration opens for the Annual Conference. If it goes well, you’ll be able to use this same code to have your assistants register you for anything for CSMFO in 2016. I’d love to hear some feedback once you get a chance to use them!
PS—If you haven’t already, you’ll soon be receiving your membership renewal notices for 2016. I hope you choose to continue supporting CSMFO!
A Finance Life for Me
March 1-4, 2016 Disneyland — Anaheim, Ca
Yo ho, yo ho, CSMFO Annual Conference ‘tis the time for me! Me be sailin’ fer Disneyland March 1-4, 2016.
Land ho! Ye goin’ t see two gnarly keynote speakers without havin’ to walk the plank.
Jon Gordon is passionate about developing positive leaders, organizations and teams. Jon has written a number of best-selling books including The Energy Bus that provides a road map to overcome common life and work obstacles and bring out the best in yourself and your team. The following day watch the amazing talents of “The Passing Zone”. Many speakers talk about teamwork but Jon and Owen do it. Their success is proven, their talent unique, and nowhere else will you see such an existing demonstration of the amazing things that can be accomplished when people work together.
Keep a weather eye open matey! Thursday night you might get to singin’ a Yo-ho-ho a finance life for me. More details to follow as ye ship gets closer to “X” marks t’ spot. Have a jolly day.
News from California’s Bond Buyer Conference
By Joan Michaels Aguilar, City of Dixon & Dennis Kauffman, City of Sacramento
The Bond Buyer’s 25th Annual California Public Finance Conference took place in October in San Francisco with over 800 attendees. The event included a CDIAC pre-conference, general sessions, and focused sessions in three tracks: transparency and disclosure, financing, and infrastructure. It was interesting that most of the educational sessions consisted of a panel of vendor representatives with a moderator asking questions of the panel members. Among the topics covered:
- Direct Purchase/Private Placements: Pros, Cons & Trends
- The Post Bankruptcy World
- The Aging Infrastructure of Water
- The Municipal Advisor (MA) Rule and How it Affects You
- EIFDS: Tax Increments of a Different Ilk
- Public Finance: The Next Generation
The timing of the Fed raising interest rates was a popular point of discussion throughout the sessions. The ‘live market survey” interactive session where attendees could vote on various issues (similar to the polling done on CSMFO webinars) had a majority of attendees predicting the 1st quarter of 2016 as the likely timeframe for the next Fed increase. The Chief Fixed Income Strategist from Stifel presented a 2016 economic outlook noting that businesses have healthier balance sheets and the economy has more robust labor markets boosting confidence and consumer consumption.
During the first nine months of 2015, $309 billion in municipal debt was issued in California, with much being related to refinancing in the continued low interest rate environment. If you are an issuer contemplating new issues, the market is hungry for deals. One possible adverse impact of higher interest rates discussed was fewer debt refundings.
One key topic throughout the sessions focused on public agencies pension costs and OPEB obligations. When analysts are reviewing potential deals, funding levels and prudent financial management in these areas can be critical for the success of the debt issue.
As with the CSMFO Annual Conference, the Bond Buyer conference provided great opportunities to network including vendor-sponsored breakfasts with industry leaders discussing relevant topics in a smaller setting. Women in Public Finance (WPF) sponsored a lunch at the conclusion of the conference that had over 100 attendees with members from all over the state. Joan talked to Katie Koster, a managing director at Piper Jaffray and current WPF Board Member, about starting a chapter in the Sacramento area. Any interest out there? Contact Katie at Katherine.email@example.com about how to start or join a local chapter.
The Challenges & Opportunities of Medical Marijuana Taxes and Regulations
By Scott Johnso, Partner, MGO
As cities and counties across the state face increasing cost pressure, many government executives are turning to the Medical Marijuana business as a source of additional tax revenue. At a minimum, this strategy is the logical choice for meeting the unique cost burdens driven directly by the marijuana industry. At a maximum, it has the potential to help ease cost pressures in other areas of the budget. Regardless, the potential benefit of medical marijuana taxes come with their own unique risks and challenges. As these waters insist on being navigated, those in decision-making positions—as well as those affected by the decisions—find themselves with many more questions than answers.
Opportunities for Revenue
Certainly the question exists over whether or not the amount of potential revenue for municipalities is even enough to bother with taxation on marijuana businesses. A recent report from a “Blue Ribbon Commission” authored by Stanford University stated, the tax revenue from medical marijuana may be “noticeable and substantial”, although the report goes on to say that it is not likely to make a “dramatic impact” on the state budget. Even so, the potential for increased revenue comes hand-in-hand with increased cost. So ignoring it is clearly not an option. Even if the amount of increased revenue isn’t about to make the state or local agencies rich, opportunities must be sought to pay for the additional expenses incurred from the regulation, growth, distribution, and use of medical marijuana. Creating a regulatory tax system is critical not only to promote fiscal strategies but it can also be helpful to provide motivation for marijuana businesses to comply with safety and control policies related to the drug and its distribution.
One successful example in balancing revenue raising and regulatory compliance was the City of San Jose. In 2010, after the significant impact on the financial health of state and local governments due to the fallout from the great recession, the City of San Jose was exploring budget balancing strategies. While Finance Director of the City, I had the opportunity to participate on the City Manager’s budget balancing Task Force. The Task Force initiated a number of teams to explore budget balancing strategies. I participated in and facilitated a “revenue generation team” (RGT). The RGT developed a number of revenue raising strategies to bridge the City’s budget gap, which I presented to the Mayor’s General Fund Budget Deficit Task Force and then to the City Council. The City Council directed us to pursue a number of revenue strategies, one of which was to implement a marijuana business tax. After working with the police and planning departments and the City Attorney’s office on regulations and enforcement policies, I presented a strategy to the City Council to develop a ballot measure for the voter’s to consider establishing a business tax on gross receipts on all medical and non-medical marijuana related businesses. After working with the City Attorney’s Office in drafting a ballot measure and marijuana business tax ordinance, San Jose’s voters overwhelmingly approved the tax during the November 2010 election (at a rate not to exceed 10% of gross receipts).
Once the ballot was approved, we put our work plan in place to develop an outreach and training program for medical marijuana businesses. The Council also approved permit and regulatory fees – to recover the City’s costs for the permitting and regulatory efforts. In addition, I worked with the finance team to develop an audit program for compliance of medical marijuana dispensaries on state and local medical marijuana laws, including the City’s marijuana business tax. The City currently collects over $4 million per year from the tax.
State and Federal governments are conflicting on the legalities of Medical Marijuana. In fact, from a federal standpoint, marijuana is still a controlled substance. Under federal law, it is illegal for financial institutions to take money for marijuana sales if they depend on the Federal Reserve. Because of this, banks are treating funds earned through dispensation of Medical Marijuana as something akin to the plague. With few exceptions, the mainstream banking industry has chosen to completely avoid working with such business dealings. This forces the business to work in a cash-only system, creating a whole separate host of problems. Cash businesses increase the opportunity for fraud and criminal activity as well as creating difficulty for taxing and regulation. Because marijuana dispensary businesses are identified as cash-heavy, they become easy targets for theft and burglary, increasing the cost on a local law enforcement level. In addition, engaging in the enforcement of tax laws associated with medical marijuana can result in a variety of negative consequences such as loss of revenue, public safety, and threats to other businesses can create problems.
Although complicated, the IRS certainly has continued to require reporting and payment of taxes from cash businesses, no matter if they are selling funnel cakes at a carnival or medical marijuana at a dispensary. With dozens of tax audit appeals related to the legal sale of marijuana over the past few years, the IRS continues to be entangled in these contradictory policies, and satisfactory decisions over business deductions and other policies seem to be consistently delayed. Using the IRS as an example of how to handle these issues is probably not going to get anyone very far.
During September 2015, the California Legislature passed AB 243, AB 266, and SB 643, which collectively contain key provisions of the Medical Marijuana Regulations and Safety Act and establish California’s comprehensive regulatory framework for medical cannabis businesses. Businesses are prohibited from engaging in commercial cannabis activity without processing both a state license and a license or permit from the local governments. Local governments have the authority to enforce provisions in the state law and to adopt ordinances that establish additional standards for local licenses and permits for commercial cannabis activities. With the expanded responsibilities in regulating commercial cannabis activities, local governments also have the opportunity to increase its revenue base by taxing such activities.
One reasonable goal is to treat enterprises trading in marijuana in a way that is universal and consistent with other comparable businesses, while providing revenue for the localities where it is bought and sold. But there is much to be done to get to that place. In the meantime, what is the course of action?
A recent article from the Brookings Institute illustrates that guidance from Washington is getting more conflicted – pushing the industry further away from a banking solution. Municipal governments do not have the luxury to wait for the federal government to resolve these problems. Instead, those responsible for their own local areas need to take it upon themselves to create workable solutions.
The guidance of the Stanford Blue Ribbon Commission to “engage the federal government” on the banking issue provides little assistance to public administrators who have to deal with the dangerous realities of a burgeoning cash business operating in their municipalities today.
As government executives on various levels continue to tread these murky waters, there remains a need to identify best practices and controls that work in other municipalities–whether related to the marijuana industry or other cash-intensive businesses. Diligent research and candid conversation exist as vital parts of the ongoing effort toward a workable solution. It is clear that additional solutions are needed, at the federal, State and local level and standard “best practices” to be developed that “level the playing field” with well thought out compliance audits and risk assessments to ensure state and local coffers receive what is due from the industry.
About the Author
Scott Johnson has over 29 years of experience in government, successfully managing city finances and budgets. He has led multi-billion dollar operations in government including the cities of Santa Clara, Milpitas, San Jose, Oakland, Concord and the County of Santa Clara. Scott is currently a partner with Macias Gini & O’Connell LLP (MGO) leading the Advisory Services sector, specializing in State & Local Governments. He welcomes any questions or comments via email: firstname.lastname@example.org. Benjamin Lau, an Assurance Director at MGO and the sector lead in this industry, was co-contributor to this article.
Welcome New CSMFO Members!
• Matthew Hawkesworth, Pasadena, Director of Finance, San Gabriel Valley Chapter
• Dennis McGuire, Piper Jaffray & Co., Managing Director, Sacramento Valley Chapter
• Jeanette Cervantes, Rancho Cordova, Management Technician, Sacramento Valley Chapter
• MeganSiren, Rancho Cordova, Management Analyst II, Sacramento Valley Chapter
• Francis Law, San Rafael, North Coast Chapter
• Heather Renschler, Ralph Andersen & Associates, President/CEO, Sacramento Valley Chapter
• Scott Whitney, Oxnard, Assistant City Manager, Channel Counties Chapter
• Shannon Collins, El Cerrito, Accounting Supervisor, East Bay Chapter
• Sherie Colesberry, Soledad, Assistant to the City Manager, Monterey Bay Chapter
• Myles Dixon, Fairfield, Principal Accountant, East Bay Chapter
• Kimberly McKinney, Woodland, Finance Officer, Sacramento Valley Chapter
• Harjot Sangha, City of Morgan Hill, Accountant I, Monterey Bay Chapter
• Shannon Esenwein, Hughson, Finance Director, Central Valley Chapter
• Glenna McShane, Lakeside, Fire Protection District Administrative Analyst, San Diego County Chapter
• Susan Wolfson, La Canada Flintridge, Account Clerk, San Gabriel Valley Chapter
• Megan Kavand, Riverside County, Transportation Commission Accountant, Inland Empire Chapter
Intermediate Governmental Accounting, San Bernadino
– November 6, 8:00am – 5:00pm
– Instructed by Susan Mayer
2015 CSMFO Annual Weekend Training
– November 20 – 22, 9:00am – 12:00pm
Central Coast Chapter Meeting
– 12 November 12:00pm – 1:30pm
– Speakers: Brad Wilkie, Management Services Director, City of Lompoc
San Gabriel Chapter Meeting
– 18 November 11:30am – 1:30pm
– Speakers: Leisa Reid, Productive Learning
Central Valley Chapter Meeting
– 19 November 11:30am – 1:30pm
– Speakers: David Pollino, SVP Fraud Prevention Officer – Bank of the West
Inland Empire Chapter Meeting
– 19 November 11:30am – 1:30pm
– Panelists: Todd Corbin, General Manager, Jurupa Community Services
Stephen Dunn, City Manager (Retired), Upland
Andy Okoro, City Manager, Norco
Bob Hartwig, Assist General Manager, WESA
“Implementing the State Controller’s Internal Controls Guidelines” – Webinar
2:00 – 3:30 p.m., Wednesday, November 18, 2015
Sponsored by CSMFO Coaching Program
Avoid disasters with effective internal controls. Learn how with guidance from the State Controller’s Office and concrete examples from local governments in California.
The State Controller issued the Internal Controls Guidelines in January 2015 in response to a legislative mandate to “assist local agencies in establishing a system of internal control to safeguard assets and prevent and detect financial errors and fraud.”
*** Advance registration required for this no-charge webinar ***
* What are the key vulnerabilities that local government agencies face?
* What are the critical internal financial controls to protect your agency?
* How can you implement the State Controller’s Internal Controls Guidelines* applicable to all local agencies?
* Jeff Brownfield, CPA, Chief, Division of Audits, CA State Controller’s Office
* Mike Spalj, Acting Chief, Local Government Audits Bureau, CA State Controller’s Office
* John Adams, President-elect CSMFO, Finance Director, Thousand Oaks
Audience: all local government finance professionals
“What Finance Officers Need to Know about Cyber Security” – Webinar
10:00 – 11:30 a.m., Wednesday, December 9, 2015
Sponsored by CSMFO Coaching Program
Are you spending scarce government dollars on cyber security technologies that may or may not protect your organization’s data? Do you feel like you have been throwing dollars at the wall to see what will stick? Do you have a strong cyber security plan and want to validate your investment? Are you trying to be transparent and safe at the same time? If you answered yes to any of these questions, this webinar’s for you.
*** Advance registration required for this no-charge webinar ***
Vote now for your 2016 Board of Directors!
Each year the CSMFO membership elects a Northern California Board member, a Southern California Board member and a new President-Elect. This year the nominees are:
Joan Michaels Aguilar, City of Dixon
Drew Corbett, City of San Mateo
Jimmy Forbis, City of Monterey
Robert Harmon, City of Tracy
Steve Heide, Chino Valley Fire District
Chu Thai, City of Monterey Park
Good luck to this year’s nominees!
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.