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HomeMy WebLinkAbout10-14-13 Finance Committee Minutes (2)DUBLIN CITY COUNCIL FINANCE COMMITTEE MEETING Monday, October 14, 2013 Council Chambers Minutes of Meeting Ms. Chinnici-Zuercher, Chair, called the meeting to order at 6:00 p.m. Finance Committee members present: Ms. Chinnici-Zuercher and Mr. Gerber. Mr. Keenan was absent. Council members present: Mayor Lecklider, Vice Mayor Salay, Mrs. Boring and Mr. Reiner. Staff present: Ms. Grigsby, Ms. Mumma, Mr. McDaniel, Mr. Smith, Mr. Sova, Mr. Thurman, Ms. Ott, Ms. Crandall, Mr. Hammersmith, Mr. Wagner, Mr. Hahn. Consent Agenda • Finance Committee Minutes of August 12, 2013 Ms. Chinnici-Zuercher moved approval of the minutes of the August 12, 2013 Finance Committee meeting. Mr. Gerber seconded the motion. Vote on the motion: Ms. Chinnici-Zuercher, yes; Mr. Gerber, yes. Ms. Chinnici-Zuercher noted that an item from the last agenda – Council compensation comparison with other municipalities – will not be discussed tonight. This topic is better suited for discussion after the election. • Third Quarter 2013 - Financial Update Ms. Mumma, Director of Finance reported: General Fund Revenue The City’s financial status remains healthy, with a General Fund balance totaling $54.3 million, which is 91 percent of the General Fund expenditures for the year. This exceeds the target balance of 50 percent. Income Tax Revenue 1. The main driver of that healthy balance is the income tax revenue. Through the third quarter, the total receipts were up 8.5 percent over 2012. There were some previous concerns about withholdings not meeting expected growth levels, but at the end of the second quarter, they were even with last year. Through the third quarter, the withholdings were up 3.1 percent. That is important, given the reduction in employment that occurred with two of the City’s top employers. However, the remaining top employers more than compensated for the decline in revenue from the other two employers. 2. Net profits were up 43.4 percent. This is likely an anomaly and is not expected year to year. 3. The Individual category is up 13.1 percent. 4. In breaking down the top 10, top 50, top 100, top 250 and top 500 employers’ withholdings, the top 10 were up 1.16 percent; the top 50 went up 3.5 percent; and the top 100 showed a .7 percent increase. For the top 100 and 250, the withholdings are Finance Committee of Dublin City Council October 14, 2013 Page 2 up 1.4 percent; for the top 500, the withholdings are up 2 percent. Overall, the withholdings were up 3.1 percent. 5. At the last quarterly review, the Committee asked for more information specific to income tax returns. The W2s remitted by employers within the City of Dublin through 2012 reflect over 94,000 W2s. This number is generally even with last year. October is a key filing deadline for those who filed for an extension. Once the reconciliation process is completed, the number of W2s is expected to increase. In 2008, the W2s numbered 96,900; 2009 W2s - 89,100; 2010 W2s - 91,600; 2011 – 94,400 W2s; and 2012 to date – 94,000 W2s. At this point, we are on pace to meet or exceed last year’s W2s. Those W2s are comprised of approximately 4,000 withholding accounts from City businesses. 6. Electronic Filings - From an individual preparer standpoint, the City encourages electronic filing. For tax year 2012, the City added the Thompson software. That doubled the number of electronic filers the City had. Last year, we had approximately 3,600 preparers or individuals file electronically, while this year, it was approximately 6,500 preparers. We will continue to encourage businesses and residents to file electronically. Vice Mayor Salay inquired how much money that saves the City. Ms. Mumma indicated she would determine that amount and forward it to Council. 7. Active accounts, excluding any business withholding accounts, have grown from 21,600 in 2011 accounts to 23,800 active accounts in 2012. Ms. Chinnici-Zuercher inquired if the numbers for the top employer categories is obtained by job category or is it an aggregate number. It would be interesting to know if there are certain job classifications experiencing more increase than others. That information could be beneficial to economic development, as it could influence the kinds of employment the City encourages. Ms. Mumma responded that she would inquire, and if that information is available, she will forward it to Council members. Other Revenue Property Tax Revenue increased two percent over 2012, which was driven by commercial property valuations within Delaware County. As we indicated previously, there have been certain State Department of Taxation Board of Revision decisions that have resulted in less TIF revenue, and, in 2012, there was a 6.2% reduction in TIF revenue for the City. Revenues, over all, were up six percent over 2012, which was driven by the income tax revenue. In addition, Licenses, Fines and Permits revenue were up 24%. That is not necessarily due to the number of permits issued, but the size of the permits. There were some large commercial building permits, including the Nestle expansion and the Vrable skilled nursing facility. General Fund Expenditures Overall, Expenditures were up 13.8%. However, when extraordinary expenses are excluded – transfers and advances to other funds and the Eiterman Road land acquisition, Expenditures were up approximately four percent over the same period last year. Finance Committee of Dublin City Council October 14, 2013 Page 3 In summary, the revenues are healthy and the expenditures are in-line with projections. Ms. Chinnici-Zuercher inquired if the Hotel-Motel Tax Revenue for August 2013 is accurate, and if so, why was the revenue $30,000 less than last year. The Irish Festival event is in August, and hotels are full during that timeframe. Is there a specific reason that revenue is down? Ms. Mumma responded that she would follow up with the Dublin Convention and Visitors Bureau to see if they have information related to this. When she saw the decline, she checked to see if there was a timing difference, but that did not seem to be the case. Nine of the 14 hotels experienced increases over last year, but the others did not bring in the revenue they had the year before. She will provide a follow-up memo to Council within the next two weeks. Mr. Gerber stated that he believes that from 2009 – 2013, August hotel-motel revenue has been lower than July revenue. Mrs. Boring stated that it may be because the hotels are offering special rates during that time frame. Ms. Mumma c that factor has impacted revenue numbers before. 2012 Comprehensive Annual Financial Report (CAFR) and Audit Mr. Sova stated that the City submits its Comprehensive Annual Financial Report to the Government Finance Officers Association to enable it to be awarded a Certificate of Excellence. The City has done this for 23 consecutive years. We anticipate this year’s report will also receive that award and anticipate notice to that effect before the end of the calendar year. This is the only financial report that the City prepares on a GAP basis. This is required for the City to receive an audit opinion. The auditors did opine that this report was in compliance with their standards. The audit was also submitted to the State Auditor, which they reviewed and signed off on. If Council approves the report tonight, it will be posted online for the public’s review. Ms. Chinnici-Zuercher inquired about the management letter included with the CAFR packet material, which noted that appropriations exceeded estimated resources. The City’s original appropriations exceeded the estimated resources, which the City had recognized and corrected. Mr. Sova responded that the Ohio Revised Code requires that whenever the City appropriates monies to be spent from any given fund, there must be adequate resources in that fund to appropriate. In this case, the issue is related to the timing of some internal fund transfers. The money was being transferred into the fund for the expenditure, but the expenditure was approved before the transfer was approved. This was strictly a timing issue. Every year, the City submits a certificate of estimated resources to the County for approval. At the beginning of every year, we demonstrate that the resources we anticipate receiving throughout the year are sufficient to meet all of the expected appropriations. Ms. Chinnici-Zuercher stated that the statement of estimated appropriations to the County is not timed with the budget approval. She had believed that those were estimates only, not hard numbers. It seems that it is necessary to move the money before approval of the appropriation of it is requested. Finance Committee of Dublin City Council October 14, 2013 Page 4 Mr. Sova stated that is essentially what occurred. However, the revenues are estimated. We have the ability to amend that official certificate with the County at any point during the year to reflect any additional revenue that is anticipated, which would then support additional appropriations. Ms. Chinnici-Zuercher inquired if there is an expectation that by the end of the year there would be a reconciliation to ensure that the numbers match. Mr. Sova responded that it isn’t necessary to match dollar for dollar, but there is the expectation that the total resources will equal or exceed the total appropriations at the end of the year. Mr. Gerber inquired if this is relative to the collection of last year’s income taxes. Mr. Sova responded affirmatively. Mr. Gerber inquired how the City collects past-due taxes. Ms. Mumma responded that the City does stay “on top” of past-due collections. They are sent to a collection agency for collection and actively monitored. Mr. Gerber inquired if most of the past-due items are individual or business filings. Mr. Sova responded that he does not know the breakdown, but he would expect that it would be in the same proportion as the regular revenue stream – 80% business withholdings. Ms. Grigsby noted that the City’s rate of income tax delinquencies is probably one of the best in the state of Ohio. This is primarily because a significant proportion of our revenue does come from withholdings, and those are typically paid. Dublin’s delinquency rate is very low, particularly when comparing outstanding dollars versus dollars collected. Mr. Gerber noted that he would expect that for individuals, it would be those extra items that are not reflected on their W2s – they must handle those on a different payment plan. Ms. Mumma stated that the City works with any residents who are experiencing this type of challenge, setting up payment plans to help them achieve compliance. Mayor Lecklider noted that the Attorney General’s office handles that type of collection work for entities, as well. Ms. Chinnici-Zuercher inquired how this report would be impacted if HB 5 were to pass as currently conceived. Ms. Mumma responded that the impact would probably would be in the area of net profits – the time period a loss can be carried forward. Ms. Gibson has been involved in this process and has evaluated it from both the City of Dublin’s standpoint and the overall perspective. She is not sure what the final reconciliation is, but Ms. Gibson has not indicated significant concern about its potential impact. Ms. Chinnici-Zuercher inquired about the provision concerning a certain number of days an individual is required to work within a city before they must pay income tax to the city. Ms. Mumma responded that the debate is whether at Day 20, the collection begins from that point forward, or if it then reverts to Day one. We are starting to see many more individuals reporting days worked outside the City. Although there are entities that are tracking hours of work performed within their corporation limits, this probably will not have much impact on Dublin. For example, we are not concerned about the florist who enters Dublin corporation limits and delivers flowers to the hospital. Finance Committee of Dublin City Council October 14, 2013 Page 5 Ms. Chinnici-Zuercher stated that her interest concerns the amount of revenue Dublin now receives that could be impacted by the eventual result of this debate. What is the current law’s provision concerning number of days worked within the City? Ms. Mumma responded that the current provision is 12 days. Ms. Chinnici-Zuercher noted that wouldn’t affect the golf tournament participants, then. Ms. Grigsby responded that, actually, they are an exception. We do receive tax revenue in their case. Ms. Chinnici-Zuercher stated that if the law changes to 20 days, Dublin could potentially lose 100% of that revenue. Ms. Mumma responded that when HB 5 has reached a final form, she would ask Ms. Gibson to provide an update for the Finance Committee. Ms. Chinnici-Zuercher stated because some Council members are involved in various groups where this discussion is referenced, it would be beneficial to have a report on the final resolution. Investment Policy Ms. Mumma stated that she has been working with the City’s investment advisor, Mr. Dennis Yacabozzi, the last two weeks to evaluate the City’s investment policy. They meet quarterly to discuss the City’s overall portfolio, investment strategies, and the current market. He will describe the proposed changes. Dennis Yacabozzi, United American Capital Corporation (UACC), stated that the changes they are proposing for the City’s investment policy are based upon the past financial crisis, the fact that the City’s bond policy has not been changed in many years, and the fact that the bond market is different today. The primary policy changes they propose are: • A language update to provide flexibility for the City’s Finance Director, in conjunction with the investment advisor, to make changes when market conditions prevail. For example, in the case of certificates of deposit -- the existing language provides for two methods of collateralization – the pooling method and the individual assignment method. They believe the City should have the ultimate right to determine which collateralization process they will have, based upon current market conditions. Their recommended changes are consistent with the Ohio Revised Code sections that govern the investments of political subdivisions. • Re-purchase agreements be permitted as an option. The Federal Reserve has indicated intent to taper their accommodations. Although that has not yet occurred, it is anticipated. Interest rates are higher now than they were in the spring. If, in the future, inflation occurs and the Fed’s rates increase, the City may elect to engage in a re- purchase agreement. That should only be done with a primary U.S. government securities dealer, as recognized by the Federal Reserve. This could be a specific flexibility for the Finance Director in conjunction with recommendations of the City’s investment advisor regarding the types of collateral that would be pledged. The collateral must be transmitted to a third-party custodian. There is also flexibility to require the counter party to pledge more excess market value over the re-purchase agreement. • The ratings criteria proposed years ago for corporate obligations should remain intact. The longer the maturity, the higher the required credit rating to buy those corporate securities. To date, they have not purchased any corporate securities, although they Finance Committee of Dublin City Council October 14, 2013 Page 6 recently purchased commercial paper. We have not purchased corporate obligations, because we did not believe that, for the added credit risk, there was sufficient yield spread over and above what we were receiving on federal agency securities to warrant the purchase of corporate obligations. None the less, the ratings criteria we proposed years ago, we still believe are appropriate, should we choose to recommend this purchase in the future. • In accordance with other changes in law in the State of Ohio, they have also suggested that the City of Dublin be permitted to buy obligations of other political subdivisions throughout the State, if they are rated sufficiently, which would be detailed in the policy. If the City should ever choose to do so, it would probably be an entity within the County. Franklin County is one of their investment accounts, and they have recently purchased the subdivision debt of other issuers, such as the Columbus Metropolitan Library. They certainly would consider purchasing City of Dublin debt, given the high credit rating of Dublin. There is also precedent to allow cities such as Dublin to purchase their own debt. That is a way in which to save interest costs. This would be done with as an “arm’s length” transaction. It would have to be delivered to your third party custodian versus payment, reported to Council, listed in the City’s portfolio and priced every month. • Safekeeping and custody – For years the City has required that there be a third party custodian bank, so that their investment advisor or broker dealer would not be permitted to engage in investment activity at the same time they had custodial responsibilities over the City’s assets. UCC has never had, nor believed they should have, that responsibility. Their sole responsibility is to make investment decisions on a fully discretionary basis, and bonds must be delivered to the City’s custodian versus payment. Therefore, their final recommendation is that any assets purchased and owned by the City must be held in entirety by the City’s current custodian bank. No broker dealer shall be permitted to act as a broker dealer and, at the same time, safe keep the City’s assets. Mr. Gerber inquired, in regard to the purchasing of political subdivision debt, would this item come to Council first for approval, or simply be reported to Council after it has occurred. Mr. Yacabozzi responded that they would make a recommendation for the City’s investment in a political subdivision debt -- other than the City of Dublin’s, to the City Manager and Finance Director. If they had no objection, they would proceed with the purchase, which would subsequently be reported to the Finance Committee and City Council as another asset added to the City’s inventory of securities. Ms. Chinnici-Zuercher noted that if the Finance Committee approves these investment recommendations, an ordinance adopting the amended investment policy will be scheduled for a first reading of Council on October 28 and a vote on November 4. Committee Discussion: Ms. Chinnici-Zuercher inquired what would be their recommendation for frequency for review of the investment policy. Mr. Yacabozzi responded that he would recommend the policy be reviewed more frequently. However, the recommendations that have been incorporated in this modification are very extensive and should remain intact for a period of time unless something significant happens in Finance Committee of Dublin City Council October 14, 2013 Page 7 the market. That is probably what initiated this modification. The last five to six years have been very different for the market. Mr. Gerber noted that it would be appropriate to review the policy annually, but not necessarily make any changes. Ms. Chinnici-Zuercher responded that it would be necessary to allow a sufficiently long period of time to see what is occurring, although not so long that it would hinder consideration of issues in a timely manner. She would suggest that staff annually report market trends to the Finance Committee. Ms. Mumma responded that they have been meeting quarterly with the City’s investment advisor and his team. That not only provides the opportunity to discuss the City’s portfolio but any changes in the overall market. If they were to see something that would necessitate bringing something forward to Council, they would do so. At a minimum, they will provide an annual report to Council. Mr. Gerber stated that if they are meeting quarterly with the investment advisor, the Finance Committee also meets quarterly. Perhaps staff could provide a short paragraph in that quarterly update. Ms. Mumma agreed to do so. Ms. Chinnici-Zuercher thanked Mr. Yacabozzi and staff for the report. The meeting was adjourned at 6:42 p.m. ____________________________________ Clerk of Council