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HomeMy WebLinkAbout10-12-15 Finance Committee - minutesDUBLIN CITY COUNCIL FINANCE COMMITTEE MEETING Monday, October 12, 2015 Council Chambers Minutes of Meeting Ms. Chinnici-Zuercher, Chair, called the meeting to order at 5:45 p.m. Finance Committee members present: Ms. Chinnici-Zuercher, Vice Mayor Gerber and Mr. Lecklider. Also present was Mayor Keenan. Mr. Reiner arrived later in the meeting. Staff present: Ms. Mumma, Ms. Crandall, Chief von Eckartsberg, Ms. Gibson, Mr. Smith, Mr. Papsidero, Mr. Hammersmith, Mr. Earman, Mr. Stiffler, Mr. O’Brien and Ms. Wilson. Vice Mayor Gerber moved approval of the minutes of the August 10, 2015 Finance Committee meeting. Ms. Chinnici-Zuercher seconded the motion. Motion carried unanimously.  Financial Update – Third Quarter 2015 Ms. Mumma stated that the City continues to be in strong financial health. General Fund revenues for the quarter year to date totaled $55.8 million. Income Tax Revenue The primary source of that revenue is Income Tax Revenue. As shared in the CIP discussions last month, the 2015 estimate was revised to reflect a 5.4% decrease over the amount collected in 2014. The 2014 Income Tax actual was $88,068.530. The original 2015 estimate was $81,650.00. It has been revised to $83,285.00, but staff believes those expectations will be exceeded. There has been an improvement of approximately 2% based on where we were through the second quarter. The main driver behind the decrease in projected income tax revenue for 2015 was the loss of revenue from Verizon. However, even with this loss, the City’s Withholdings showed an increase of 1.4% over 2014. General Fund Revenue Excluding advances, General Fund revenue totaled $55,788,520 through September. This was a decrease of $888,261 over year-to-date collections through the 3rd quarter 2014. As previously stated, this was driven in large part by the decrease in income tax collections, which decreased $663,170 in the General Fund alone. General Fund Expenditures General Fund expenditures totaled $80.2 million through the third quarter. That includes the advance of $23,280,000 to the Capital Construction Fund for construction of the roundabout in the Riverside Drive realignment. Bonds were issued last month; that revenue was posted and the advance was repaid on October 1. Excluding that large advance, the total Expenditures were $56.9 million. When all the advances made to the TIF funds are excluded, the General Operating Expenditures were actually $45.7 million. That does represent an increase over what was spent in Operating Expenditures in 2014. The two areas in which there was an increase were: - Contractual Services, which was up $1.6 million. The City paid the CORMA fee last year in the fourth quarter; this year, it was paid in the third quarter. Finance Committee of Dublin City Council October 12, 2015 Page 2 - Additional property taxes that were payable as a result of the recoupment on the Houchard Road property – an additional $235,000 paid this year over the amount paid last year. - Increase in Legal Services and Other Professional Services. Often, the City uses Contractual Services rather than hiring staff for projects that are limited in scope. That factor, in addition to the legal negotiations related to the Bridge Street District are reflected in the increase in Expenditures. - Personnel Services – increased $883,000 or 6.1% over 2014. Much of that is attributable to employee benefits. That increase was anticipated when the 2015 Operating Budget was prepared. - Salaries and Wages – increased almost $300,000. That was a combination of planned increases and backfilling key positions that had become vacant. General Fund Summary Although Expenditures are up as compared to 2014, when the advances made to the Capital Construction Fund for the Riverside Drive realignment and roundabout are excluded, the Expenses were $56.9 million with revenue of $55.8 million. This is a net General Fund balance decrease of $1.1 million over where the City was at the end of 2014. Again, this does include advances that were made to other TIF funds. Those will be repaid to the General Fund, acting as a revenue stream in future years. Hotel/Motel Tax Revenue The Hotel/Motel Tax Revenue collected through the third quarter 2015 totaled $1,624,758, which represents a $143,050 or 9.7% increase over collections through the third quarter 2014. This increase, in part, is due to the Residence Inn opening during the second quarter and remitting bed tax payments beginning in July. However, of the existing fourteen hotels, ten remitted more taxes through the third quarter of 2015 versus 2014. Property Taxes and Service Payments Revenues generated from service payments, or payments in lieu of taxes, on properties within the Tax Increment Financing (TIF) areas decreased substantially over 2014. The majority of those were the result of Refunds that were issued due to Board of Revision decisions. The City is not required to receive notification by the County when a complaint is filed, although the School District receives notification. Therefore, staff did not realize these decisions had been made and reductions in values and refunds had been granted until the Third Quarter payment was received. Many of those refunds were for 2011, 2012 and 2013. However, the appraisal in 2014 is the same as what is was before the Board of Revision decision, so City collections may not be impacted moving forward. Staff will continue to monitor that. Mr. Lecklider inquired how appointments to the Board of Revision are made. Ms. Mumma indicated she is not certain. Vice Mayor Gerber stated that he believes that may be under the Auditor’s office. Ms. Mumma indicated that stuff would obtain and forward that information to Council. Vice Mayor Gerber noted that the City is not authorized to contest those decisions. Ms. Mumma responded that is correct. However, the School District does, and often takes a very aggressive approach in contesting those. From an economic development standpoint, that may Finance Committee of Dublin City Council October 12, 2015 Page 3 be an advantage to us for the School District to do so versus opposing some of the City businesses that seek a reduction in property valuation. Vice Mayor Gerber noted that when the economy took a downturn in 2008, many of the residential and commercial landowners did file for adjustments with the Board of Revision. In retrospect, perhaps the City should have anticipated this reduction. Ms. Chinnici-Zuercher inquired why it takes such a long period of time for the Board of Revision to rule on the requests. This is nearly three years later. Vice Mayor Gerber responded that there is a backlog due to caseload. Ms. Chinnici-Zuercher stated that although we do have the funds to issue reimbursements, if the decision had been made in a timelier manner, the City would not have conducted those two years of collection. She requested clarification regarding the statement about the 2014 revision. Is Ms. Mumma indicating that because they now know the revised amount, that will be the new bottom line with which they will work? Ms. Mumma responded that each January, the City receives a listing from the County of the values of all of the City’s TIF properties, and that is used as the basis for anticipating the revenue. In the information received in January, she saw no changes made in recent years. This occurred in the intermediate time period. The Board of Revision just made this decision within the past couple of months, which has resulted in the need of a refund for the past three years. With that refund now taken care of, next year staff will be using the adjusted value for tax year for 2014 as the base. She will obtain the clarification from the County for Council. Mayor Keenan stated that these are non-school TIFs, so the schools would have no reason to contest the adjusted values. Ms. Mumma responded that if the value of any property decreases, their distribution is decreased, as well. However, the schools are made whole in non-school TIFs. The City does not make them whole; the County does so. Mayor Keenan responded that the Schools would have had an issue with this. Ms. Mumma indicated that they did. Mayor Keenan stated that they probably contested it. Vice Mayor Gerber stated that perhaps the next time Council’s liaison meets with the School Board, he could inquire about a possible mechanism to keep Council apprised of these filings. Mayor Keenan noted that it could be a simple notification. Ms. Mumma stated that she attends the Board meetings with Mr. McDaniel and Mr. Peterson and frequently meets with Mr. Osborne, so she will ask him to provide that information. Mayor Keenan stated that this information should be public record. Mr. Lecklider stated that, whatever the reason for the backlog, he believes it is not acceptable to be that far in arrears. Regardless of that, he is not as surprised at the reductions as he is at the size of the reductions – 83%, 46% and 38%. Ms. Mumma clarified that the reductions were on our revenue from that year to this year. It was shown in actual dollars, not in terms of the valuation. She could provide that, as well. Overall, when the City received the listing in January, we saw very little change in the majority of the property values. For that reason, this was a surprise. With many of the properties that were provided reductions, she has seen no increase from 2010 to 2014; it has been consistently the same value or only slightly less. There has been nothing of the magnitude that would have led her to believe that this was occurring. Finance Committee of Dublin City Council October 12, 2015 Page 4 Vice Mayor Gerber stated that the Board of Revision does keep an agenda, which includes a listing of cases that have been filed. It is a public record that can be obtained from the Auditor’s Office. Mayor Keenan inquired if the reappraisals on commercial properties are based upon an income approach. For residential properties, they look at market value in that area. For commercial properties, do they look at lease holds and cap rate? That is what is used for commercial appraisals. How does the Board of Revisions conduct that reappraisal? Vice Mayor Gerber responded that it is based on all of the above. Mayor Keenan stated that because of the time lag – this was for 2011, 2012 and 2013, there isn’t much that can be done at this point. He reiterated the need for staff to begin to obtain this information from the Schools. Ms. Mumma responded that she would do so. She will also obtain information on the Board of Revision composition, as well as ensure what will now be the new basis. Vice Mayor Gerber stated that he believes the person to contact is Karen Rose, whose contact information he has at his office. He will forward that to her. Ms. Mumma noted that the packet also includes information Council requested on the number of employees and employers within the City historically. Vice Mayor Gerber inquired if staff is working on the 2016 Operating Budget. Ms. Mumma responded affirmatively. Vice Mayor Gerber stated that, previously, Council has requested information regarding the basic assumptions and parameters for the budget preparation. It would be helpful to have that up front, in case Council has something in mind that is not addressed. Ms. Mumma responded that she will forward Council a copy of the memo that was provided to staff regarding budget preparation. In summary, the memo indicates that the City’s income tax revenue projections reflect that the City is facing the loss of a major employer – Nationwide. Currently, staff is projecting no growth in income tax revenues for 2016. Consequently, we have asked departments to keep their operating budgets as close to zero percent growth as possible, but we also indicated that they should not hesitate to bring forward any new initiatives that they believe are important to providing the services. New initiatives or services would be considered, but, in general, there should be no growth. Vice Mayor Gerber stated that, alternatively, programs could be eliminated that are past their prime. Mayor Keenan that in preparing the 2016 budget, there are also challenges in regard to health insurance, specifically the reduction in deductibles that will impact those premiums. The proposed rules have not yet been adopted. Ms. Mumma responded that staff is moving forward assuming the status quo. When the law goes into effect, it might dramatically change the amount that the City can contribute to the employees’ HSAs. From a funding standpoint, they are using the most conservative approach – that the HSAs will be funded at the current levels. If limitations are put in place, that will reduce the amount that is actually expended. The HR director and City Manager are looking at alternatives. Those will be balanced with the need not to increase Operating Budget expenditures, due to the Nationwide reduction. Finance Committee of Dublin City Council October 12, 2015 Page 5 Mayor Keenan stated that the health insurance premiums will increase because of the need to reduce the deductibles and co-pays, in compliance with the Affordable Care Act. The differential would be greater if the City tries to maintain the same level of benefit to employees. Ms. Chinnici-Zuercher stated that her understanding is that it was encouraged that staffing remain at their current levels or exchange positions. That will be important because there was a significant increase in personnel costs over the last year, although, with the change in administration, there was a need to take some time filling vacant positions. Is there an expectation of adjusting the pay ranges in the near future? Ms. Crandall responded that there will be some amendments to the Classification and Compensation Plan, and staff anticipates bringing forward some additional positions as part of the 2016 budget. Ms. Chinnici-Zuercher stated that Council will have to look at that closely, as that is one of the things about which Council receives citizen complaints – the number of employees, staffing rates and benefits. Every time the City adds positions, it means additional funding. There may even be more employees taking the City health care than before. These are high increases in personnel expenditures. Ms. Mumma stated that the two focus areas for staffing are Economic Development and Information Technology. We will make sure that clear rationales are provided regarding the need for those additional positions, and then it will be Council’s discretion. Vice Mayor Gerber stated that the Affordable Care Act will have some expensive implications for the City budget. He assumes outside consultants will assist with this. Ms. Mumma responded that the City works with United HealthCare as its third party administrator and Oswald in reviewing the anticipated expenditures. That review considered the Affordable Care Act factors as well as the City’s usage/history to project claims for the year.  2014 Comprehensive Annual Financial Report (CAFR) and Audit Jerry O’Brien, Chief Accountant, presented an overview of the CAFR and audit results. The report will also be provided at the City’s website and a copy provided to the Dublin library. The City once again received a clean audit, which means the auditors did not have any material adjustment that needed to be made to the Financial Statements, nor did they identify any material weaknesses in the internal controls. Furthermore, this year, they had no immaterial adjustments to recommend. The CPA firm of Clark Schaefer Hackett conducted the audit. This was their tenth and final year for performing the City’s audit. Staff is working with the State Auditor’s Office to select a new CPA firm to conduct the next audit. The Auditor of State allows certain firms to bid on that audit, rates them based upon certain criteria, and then makes a selection. The City has some input, but the decision is primarily made by the Auditor of State. Mayor Keenan asked if the law requires that a different auditor be used every ten years. Mr. O’Brien indicated that it is an Auditor of State requirement. Vice Mayor Gerber noted that it is required per Ohio Revised Code. Mr. Lecklider indicated that he was aware of the requirement to change auditors after a period of years, but he did not realize it was not the City’s selection. Mr. O’Brien indicated that the City has some input, but it is primarily the State Auditor’s decision. Finance Committee of Dublin City Council October 12, 2015 Page 6 Ms. Chinnici-Zuercher inquired upon what basis they make their decision to assign an auditor to our community. Mr. O’Brien responded that some of the criteria are: timely submissions of reports, quality of the reports, etc. Ms. Chinnici-Zuercher responded that there is more than one firm available, so is it limited to firms located within central Ohio, so that all municipalities within central Ohio would have the same firm? Mr. O’Brien responded that there were five firms available. A list of those is provided at the Auditor’s website. He does not know if they are located within central Ohio. Ms. Chinnici-Zuercher requested clarification of how one of those is selected for Dublin, and perhaps another for Westerville. Ms. Mumma responded that it is based upon who bids for the Dublin audit. There could be a different group of auditors that bid for Dublin’s audit versus those that bid on another city’s audit. Of the total numbers that bid on Dublin’s, five bids were forwarded to the City, along with the Auditor of State’s rating of each, based on the criteria. Our input is requested. The bid amounts are listed. Mr. O’Brien reviewed the information, including the staff member’s qualifications and the hours they have available to attribute to the auditor, and provided the requested input to the Auditor’s office. Ultimately, the Auditor of State’s Office makes the decision. Mr. O’Brien stated that although this year there were no comments in the Audit report itself, the Management’s letter contained two comments: 1. First, the Finance Department does not have a formal Policies and Procedures manual in place. This comment was in the 2013 management letter, as well, but it could not be implemented in 2014 because the department was in the process of instituted a new software accounting system that would alter the process. They are in the process of working with the software vendor to write those Policies and Procedures. Vice Mayor Gerber inquired when they anticipate having the manual completed. Mr. O’Brien responded that they anticipate having it implemented in 2016. Ms. Chinnici-Zuercher noted that there would be one more audit conducted before then. Mr. O’Brien responded that it would not be implemented in 2015. Vice Mayor Gerber inquired if that manual would come to the Finance Committee for review. Ms. Mumma responded that it would not. It is related to the day-to-day actions and workflow within the Finance division. Mayor Keenan stated that, typically, Policies and Procedures are included with a new software package, so they may already have a basic template for a manual. Mr. O’Brien confirmed that they do have a template, and they are working with them on it. Mayor Keenan inquired if they anticipate implementing it in January or July 2016? Ms. Mumma responded that they do not anticipate implementing it until, tentatively, March 2016. Mayor Keenan noted that, ideally, it should be in place by July 2016. 2. The second items related to an incident in which an incorrect pay rate was entered into the system for a new employee. This was later detected and corrected by staff, but the auditors thought it was appropriate to include that in the management letter. In response to that, staff has implemented further review procedures. There are payroll forms that have the pay rates and any pay rate changes. Each pay period, those are submitted along Finance Committee of Dublin City Council October 12, 2015 Page 7 with the total payroll to the supervisor who reviews those and ensures that those changes are implemented. When the new system is implemented, the process is expected to be more electronic. Streamlining the process will eliminate some of the opportunity for human error in the process. Mr. O’Brien noted that the main challenge they face for the 2015 audit is the implementation of the GASB (Government Accounting Standards Board) Statement 68 – the new statement on pension reporting. This is a large liability that will be presented on the City’s Financial Statement. It is the present value of the estimated future payments for pensions for City employees. At this time, this won’t change their process or obligations. In Ohio, there is no legal means to enforce this unfunded liability; no one is assigned by law responsibility for the unfunded pension. This is a statement that GASB has implemented that may be appropriate for some entities in other states, but the way it is done in Ohio, it will not change the way in which they do business. Mr. Reiner noted that it is probably a very good “wake up call” for some municipalities who may not be up to speed on that. Vice Mayor Gerber noted that last year Council discussed this fact and all are aware that there is a large obligation in the future that we believe we can comfortably handle within that period of time. It is good and appropriate to have this in place. It is beneficial for Council to remain aware of it along with everything else that needs to be considered. Ms. Mumma stated that when the CAFR is published next year, which will include this information, it will be important to provide a good explanation so that the public will not mistakenly interpret the City’s net financial position as negative or dramatically reduced. We have discussed this with other colleagues, entities and the Ohio GFOA (Government Finance Officers Association) regarding how they are explaining this in their CAFR, because it really is not reflective of the City’s net position. Mayor Keenan stated that what was reflective was the vacation and earned time. A few years ago, that was handled by encumbering funds or creating a “sinking fund” for that item. Ms. Mumma stated that the City has an accrued liability fund set up for that purpose. Mayor Keenan stated that it is different than the OPERS or Police and Firemen’s Pension. Mr. O’Brien stated that the City was awarded the Auditor of State’s award with distinction, which is their version of an award for excellence in financial reporting. A representative from the Auditor’s Office will be present tonight to present that award. Ms. Chinnici-Zuercher asked if the Committee desires that the audit firm, Clark Schaefer Hackett attend a Council meeting to present this information, or do they believe this report and explanation is sufficient. It was the Committee consensus that there is no need for them to provide further information at a Council meeting.  Proposed Adjustments to the Schedule of Fees and Service Charges for City of Dublin Services for 2016 (Ordinance 76-15) Ms. Chinnici-Zuercher noted that the proposed adjustments were minimal. Mr. Stiffler responded that they amounted to an approximately 1.2% change. He noted that:  All department heads were consulted and are aware of the proposed changes. Finance Committee of Dublin City Council October 12, 2015 Page 8  First reading of this ordinance will occur at the October 26, 2015 Council meeting.  Police, Parks, Public Works - no changes proposed, and only inflationary changes in some other departments.  Building Standards - one new service proposed that mirrors a current service. Proposed is an after-hours plan review to mirror after-hours inspections.  Mayor’s Court – an increase proposed in Mayor’s Court Computer Fund fee from $5.00 to $8.00. This will allow the fund to grow slightly on an annual basis, and over time, the fund balance will be used to purchase computers and future software upgrades. The $8.00 rate is comparable with charges in other communities. Vice Mayor Gerber inquired what is defined as an after-hour review. Mr. Stiffler responded that he believes it is to accommodate needs to expedite a review for an applicant. Ms. Chinnici-Zuercher inquired at whose request this after hours plan review is done – the applicant’s or the City’s, because the City is behind in its workload? Ms. Mumma responded that we would not impose a charge on an applicant if City staff were to be behind due to workload. We will provide a response for that question at the first reading of this ordinance. Vice Mayor Gerber stated that he would assume that it is not due to City workload; however, if it is a “rush job” that the applicant has requested – it is appropriate.  Proposed Adjustments to the Water and Sewer Rates for 2016 (Ordinance 75-15) Ms. Mumma stated that this document will be proposed for first reading at the next Council meeting (October 26). It is consistent with the proposed 2016-2020 Operating Budget. This legislation re-allocates $0.25/mcf from the Water Fund to the Sewer Fund. This is based on the health of the Water Fund and the need for substantial ongoing maintenance from the Sewer Fund. The Sewer rate will increase by $0.25. The net impact to water/sewer users would be $0.25, but the Sewer Fund would be increased by $0.50 and the Water Fund would be decreased by $0.25. In 2017, consistent with the CIP, an additional $0.25 is proposed in the Sewer rate. Based on the average use of 1,100 cubic feet per quarter, the current rate for water/sewer is $47.52. In 2016, it would increase to $48.35; in 2017, to $49.18. The Water Fund is very healthy; the Sewer Fund has debt for the Upper Scioto West Branch Interceptor, which will be paid off in 2018. None of these increases are attributable to the extensions of the water and sewer lines. We will use existing fund balance for Water as well General Fund dollars. The need in the Sewer Fund is to ensure funding for the ongoing maintenance and repair of the lines. It is not to fund new lines. Vice Mayor Gerber stated that this is to supply materials and labor to maintain the lines. Ms. Mumma responded that, as an overview, the City just issued $2.5 million of debt for sewer lining repair and manhole rehabilitation. Per Engineering staff, that investment will remain consistent over the next couple of years, and probably into the foreseeable future, as the lines age. Vice Mayor Gerber stated that he is pleased Dublin is able to stay on top of this situation. Mr. Reiner inquired if Ms. O’Callaghan has been able to complete her review of the bikepath maintenance costs. She was working on an estimate of projected maintenance costs. Ms. Mumma responded that, with this CIP budget, it was her goal to begin to compile that maintenance schedule. She does not believe it is yet complete. Staff will provide an update to