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March 28, 2000 Employees also have the opportunity to "sharpen their saws," to borrow a term from Stephen Covey, through training opportunities supported by the individual department budgets. These opportunities include professional certifications, technology workshops and best management practices seminars. I firmly believe that benefits received from further development of our employees' skills and abilities far outweigh the costs associated with this effort. Another program that employees are taking advantage of is our Employee Incentive Program. This program provides cash awards to employees for implementing suggestions and ideas that increase efficiencies and yield savings. Over the past three years, more than $30,000 in awards have been given to employees whose initiative has generated $500,000 in annual cost savings. For anyone who invests in the stock market, the rate of return on investment is the measure of success. This program has yielded a return in these three years that is 16 times the level of the investment and will provide dividends well into the future. Retirees In FY 1997, the City began funding cost of living adjustments (COLAs) for retirees on a current year basis, meaning they were not folded into the base pension, nor were they guaranteed. This change from past practice was necessary for the City to be able to afford providing any level of COLAs at all, as the previous method of fully funding the COLAs at the time they were given was beyond our means. Retirees have accepted these increases but have remained anxious about the continuation of these COLAs since they were not considered permanent and were subject to annual renewal. This budget proposes a change in the funding methodology for COLAs that is actuarially sound and is an accepted accounting practice. The change will amortize the COLAs over time, through the accrued liability of the retirement system rather than through one- time, upfront funding. This change slightly increases the unfunded liability of the system in the short-term, but does not materially impact the long-term financial position of the retirement system. Most importantly, this change will permit the City to make the 10.6% of COLAs given over the last four years permanent. In a survey conducted to compare the amount of COLAs granted to Portsmouth retirees over the last four years to the other eight independent municipal retirement plans in Virginia, Portsmouth ranked number one in the total amount of COLAs granted. It is my recommendation that in lieu of an additional COLA for fiscal year 2001, the COLAs previously granted be made permanent. PUBLIC EDUCATION One of the core services local governments must provide is public education. While City government has a responsibility to provide funding for the Schools, it is only one of the many needs of government that must be balanced within the finite resources available. Under law, the City appropriates funds for the Schools, but the decisions on how these funds are expended rests entirely with the elected School Board and its appointed School Administration. In the Superintendent's Budget Message of February 10th, Dr. Hawkins noted that the preparation of the Schools' budget was guided by the priorities established by the School Board that include: pay increases for all employees, upgrading of textbooks, purchase of school buses, facility maintenance and a vocational career center. As the Schools are challenged to balance their priorities, they face an additional challenge of declining enrollment. Since FY 1997, enrollment will have declined 6% as of FY 2001. Despite the declining enrollment, the total resources available to the Schools from both State and local sources has increased a total of 17%. The City continues to consider the funding for education a priority. I am once again proposing an increase in the appropriation to the School system in the amount of $500,000. This increase represents the fifth consecutive year of increased funding for education and also equals approximately 42% of the expected revenue growth being derived from the increase in our real estate base. Together with the funds appropriated by the State, the total budget for the schools will be $128 million and represents 34% of the total City Budget. [Figure 9]