United States Public Administration: to analyze, synthesize, think critically, solve problems and make decisions

Deanna’s Input for Question 3:

As Chief Financial Management Officer of Riverside County, water resources are a top priority to ensure public needs are adequately being met for all county communities. The sources of drinking water (both tap water and bottled water) include rivers, lakes, streams, ponds, springs, and wells. It is extremely important to eliminate as many contaminants in drinking water for the public health. As such high demands in the county for clean drinking water, there is a need to create a new water management policy, which includes the development of a new drinking water treatment plant to respond to this critical need. The proposed drinking water treatment plant could produce close to 3 million gallons of drinking water per day diminishing the water crises. In addition, the county could potentially sell water to neighboring counties and the agricultural sector to help increase local revenue to the county. The policy requires an initial outlay of $20M and subsequent annual outlays of $5M for the foreseeable future.

How would I approach this task?

The first step would be to convene an interdepartmental capital allocation committee to examine the proposed policy in combining existing capital improvement projects and the overall county master plan for land use. If committee members agree to the feasibility of moving forward the next step would be to update the existing capital improvement plan (CIP), which spans multiple years to ensure adequate resources are available for the proposed water management policy and new facility. Edits to the existing CIP would include the follow:

1. Capital budget manual – contains a calendar or flowchart of the process, instructions, and forms for departments to use when completing requests

2. Cost projections – determining exact costs of each project

3. Revenue estimations – detailed estimate and availability of revenue, both reoccurring and from bond sales

4. Debt planning – outlining debt needs; scheduling voter referendum to authorize debt funding; obtaining voter approval on bond sales

5. Public hearing – schedule public hearing, prior to capital budget approval

6. Prepare final executive budget request

Information, I would need to know:

· Goals, timeliness and identification of various funding sources

· Financial analysis to include: 1) Cost-Benefit analysis – cost v. overall net benefit;

· Financial Condition Analysis

I. Existing long-term debt commitments/obligations

II. Population Growth Trends (e.g., housing, business)

· History of existing and recent user and property taxes – provides insight into existing taxes currently being levied on the community; property sales and tax info would be instrumental in helping to determine trends in sales and ability to generate revenue through levies (impose, “a tax, fee, or fine) and regional commerce activity.

· Fiscal Stability

I. 7 Structural drivers and political facilitators of municipal bankruptcy

- Tax revenue loss, fiscal imbalances, financial shock, poor financial management, ineffective state government oversight, lack of transparency, and fiscal policy competence/incompetence

· Potential legal liabilities

· Economic impact on county

· Insight into public opinion

o Public awareness campaign

-Transparent

o Public forums/Town Halls

o Explore multigenerational impacts

Possible alternatives to capital projects with pro and cons

· Equity (retained earnings, issuance of stock, taxation and capital campaigns) vs

o Don’t have to pay back

· Long-term debt financing (long-term notes, mortgages, bonds)

o Must be reimbursed with interest

o Capital Appreciation Bonds (CABs)

- Pros

o Can defer payments over much longer periods of time

o Provides immediate funding for capital facilities without the associated increase in tax rates.

- Cons

o When bond hits maturity, payments are extremely high

o Requires robust/growing tax base to cover cost

o Detriment to future generations (social equity concern)

o High interest rates – 10x original costs

o Expose a city to greater potential for bankruptcy

o Current Interest Bonds (CIBs)

- Pros

o Typically, callable (refinance) after 10 years

o Cost ratio is typically 2, or 2.5 to 1

o Repayments count against property tax rate

- Cons

o Repayment begins in the first year

o The term of the bond is usually 10 to 25 years

· Pay as you go

o Increased user and property taxes

· Phased approach

o Focus on issues of safety and legal compliance

Make a recommendation

· For $20M = Federal and state grants and Current Interest Bonds. Back in December of 2019, the U.S. Environmental Protection Agency (EPA) awarded more than $187.3 million to California for drinking water and wastewater infrastructure improvements. As the County CFO it is critical to outlay the plan on how the grant will be used towards drinking water infrastructure improvements. The fund will be used towards a drinking water treatment plant to improve service to disadvantaged communities in our county, such as residents in Indio by providing them clean drinking water.

· For $5M = Pay as you go

· Increased population growth and property sales indicating that the county could support repayment of CIB. Also, review of existing pay as you go taxes show that the city has not levied any new taxes in several years. As a result, the community is not currently overwhelmed with excess taxes making proposals more acceptable.

Supported by evidence and reasoning

Above all when making decisions and setting up plans, an effective leader needs to ensure that choices are rational and based on facts to the highest extent possible. This will help to reduce the tendency for decisions to be driven by individual and/or groups who may be motivated by personal and political interests. One way to go about this is to use a rational choice framework to help guide the process.

· Rational Choice Theory

o Concept that administrators should base their decisions on economic principles which factor opportunity cost between choices.

o Public managers can, and should, rely on findings from scientifically based studies which can then be used to shape equitable, informed, cost-effective and operationalizable decisions.

o Rational-choice theory may also be used to help mitigate the impact of the politics-administration dichotomy as the approach reduces the level of personal bias and ensures decisions are made through an informed and cost-savings lens.

o Reality that there is never enough time and resources to review all possible options, as a result the actual becomes more of a Bounded Rational approach, which administrators factor in as much information as possible prior to making decisions.