Finance Advisory Committee

AGENDA Finance Advisory Committee Meeting Thursday September 11, 2014 5:30 p.m. City Hall Council Chambers (Second Floor) 1. Call to Order 2. Roll Call for Attendance 3. Approval of Minutes a. Finance Advisory Committee Meeting August 20, 2014 4. Refunding Opportunity Series 2004 Bonds 5. Discussion on Infrastructure and Capital 6. TIF Expenditures 7. Other 8. Recommendations to City Council 9. Member Reports 10. Confirm Next Meeting Date and Time a. October 16, 2014 5:30 p.m. 11. Adjournment The Finance Advisory Committee’s role (as listed in Chapter 54-11) is to provide well-reasoned, financially sound recommendations to the Council. Meetings and reporting shall be on a project- by-project basis or as otherwise assigned by the City Council. The Finance Advisory Committee shall work in cooperation with the City Council and the City Manager to analyze the City’s financial policies, long term financial stability, options for greater efficiencies and possible revenue and expenditure modifications.  MINUTES FINANCE ADVISORY COMMITTEE CITY OF DEKALB August 20, 2014 The Finance Advisory Committee of the City of DeKalb, Illinois held a meeting on Wednesday, August 20, 2014 in the City Council Chambers of the DeKalb Municipal Building, 200 South Fourth Street, DeKalb, Illinois. 1. CALL TO ORDER Chairman Peddle called the meeting to order at 6:00 p.m. 2. ROLL CALL: Deputy City Clerk Wright called the roll and the following members of the Finance Advisory Committee were present: David Conlin, Chris Fricker, Connie Golden, Mike Peddle, and Mike Verbic. Absent were Gary Peele and Tom Teresinski. Also present were: Anne Marie Gaura, City Manager; Rudy Espiritu, Assistant City Manager; Cathy Haley, Finance Director; Gene Lowery, Police Chief; Greg Hoyle, Deputy Fire Chief; T.J. Moore, Public Works Director; Jeff Birtell, I&T Technician;, and Diane Wright, Deputy City Clerk. 3. INTRODUCTION OF FINANCE DIRECTOR CATHY HALEY City Manager Gaura introduced Cathy Haley who came from Carpentersville where she was the Finance Director for two years. She also previously worked for the Village of Roselle and Dundee and brings over twenty years of experience in municipal finance. Ms. Haley said she started her career in the private sector of Northrup Grumman and is excited to be in DeKalb. Chair Peddle stated this is a change in the manner in which the City has used the Finance Advisory Committee and complimented Council and staff for utilizing the committee and allowing them to have input in policy issues. 4. WORK ACCOMPLISHMENTS APRIL AND MAY 2014 – STAN HELGERSON AND DAVE RICHARDSON Ms. Gaura introduced Mr. Helgerson and Mr. Richardson who were financial consultants to the City for a period of time and addressed financial issues for the City prior to Ms. Haley’s arrival. Finance Advisory Committee August 20, 2014 Page 2 of 5 Mr. Richardson stated Mr. Helgerson’s focus was on budget, cash management and purchasing and he focused on day-to-day financial issues and policies. They provided a recap of their progress and recommendations. Mr. Helgerson added he worked on the budget and developed revenue projecting schedules and a purchasing policy for staff, drafted a revised investment policy, reviewed concerns of DSATS committee and made recommendations to the City Manager. Mr. Richardson said he reviewed financial policies, developed a property tax priority schedule, performed accounting work on the Police Station, reviewed TIF figures, and assisted with staffing structure in Finance Department. Mr. Espiritu stated that the list doesn’t indicate all the guidance Mr. Richardson and Mr. Helgerson provided staff. The City Manager initiated a financial policy initiative and they assisted with its implementation. Their input in the budget was tremendous, he added. Mr. Peddle asked how their suggestions coincided with the EPI report. Mr. Richardson replied that he believes that coincide. He added that reports are one thing; how solutions are implemented is the challenge. It is not an easy environment to lead, he said and patience will be the key. Mr. Peddle said it is important to remember where we are today is not where we began, and the cooperation of Council is appreciated. There was not a finance director when the Finance Advisory Committee was formed; the EPI report recommended that and Council took it very seriously. DeKalb has been able to move through some very difficult times because Council is serious about their responsibilities and are willing to listen to a wide variety of opinions. 5. FINANCIAL POLICIES REVIEW Ms. Haley advised that new policies have been added and new ones or revisions will be brought forward annually with the budget. She added that policies are meant for guidance and to keep the City in good financial management. She briefly went over the policies for review. Mr. Verbic commented on the staff’s spending limit and suggested lowering it from the $20,000 figure. The process of spending has started before it going to Council, he said, and would be more comfortable setting the limit at $10,000. Ms. Gaura responded that has been one of the issues she has addressed early on. Any item she discovered that was close to $20,000 was brought before Council. She added that she takes the spending very seriously and have had conversations with Department Heads and does not plan on exceeding that spending authority. With a size of DeKalb’s community, she asked that the limit remain at $20,000. Mr. Helgerson added that the purchasing policy has a $20,000 limit, but also tracks vendors; there is a report to monitor activity of vendors. Ms. Haley noted that the purchasing policy manual will come before the Finance Advisory Committee soon and there will be procedures to go with the policies. Discussion followed on the actuarial figures on Fire and Police pensions. Mr. Peddle noted that we do receive a number from the state and as with most municipalities we employ someone to come with an independent estimate. He stated he believes it should be explained clearly if the estimate comes in lower. There is an incentive to reduce what you contribute annually; that cumulative variance becomes a post-employment responsibility. Mr. Helgerson stated that the  Finance Advisory Committee August 20, 2014 Page 3 of 5 actuary that the City uses runs it both ways; their actuary uses the same procedure as the State of Illinois. Mr. Peddle stated there needs to be affirmative policy about government obligation debt vs. revenue bonds. Mr. Espiritu replied that the majority are government obligation. Ms. Gaura asked for a Motion to approve formal adoption of policies and forward to City Council. She added that staff will establish a financial policies manual; these will be Chapter 1 of the manual. MOTION Mr. Verbic moved to endorse the appropriateness of each of the policies without respect to content; seconded by Mr. Conlin. Motion carried on voice vote. Mr. Peddle declared the motion passed. MOTION Mr. Golden moved to recommend to Council each of the policies as provided; seconded by Mr. Fricker. Motion carried on voice vote. Mr. Peddle declared the motion passed. 6. INFRASTRUCTURE STATUS AND REVENUE OPTIONS Ms. Gaura stated that the City Council established six budget priorities; the first priority is infrastructure. Staff is moving forward with comprehensive street inventory of streets not in the TIF, and a report will be submitted early next year. Our goal was to begin looking at infrastructure as they relate to the budget, she said and is seeking the Committee’s assistance. Policy decisions will help us frame FY16 budget, she added. Mr. Laskowski provided presentation on the current status of the City’s streets, both in the TIF districts and out. This year’s street maintenance program consists of $500,000 from TIF 1 and $500,000 from TIF 2. Additionally, $400,000 has been allocated for street maintenance outside the TIF districts, he said. He noted that the main challenge is associated with TIF district; we are limited in ability to support street maintenance program. There are other projects that compete for the funding, he said. TIF district contains 24% of total miles of roads and accounts for 71% of the expenditures; non TIF areas account for 76% of total miles of roads and accounts for 39% of the expenditures. Mr. Laskowski pointed out that the TIFs expire in 2018 and 2020. Additionally, he compared funds spent on roads in DeKalb and Sycamore. In order to maintain the same level of service, the City would need to spend $6.6 million annually, he said. Allocation of TIF funds will not always be there, and the City needs a sustainable source of revenue, he added. Mr. Peddle asked what will be added to the General Fund when the TIFs expire. Mr. Espiritu replied the City would receive 7% of the $1.35 million from TIF. Ms. Gaura noted that staff is bringing forward considerable topics; the goal is for the Committee not to make recommendation Finance Advisory Committee August 20, 2014 Page 4 of 5 on streets or sales tax at this time, but bring all topics as they relate to TIF and allow the Committee to look at all and determine how to fund infrastructure or general operations. Mr. Espiritu stated we could spend $6.6 million to maintain streets. A 1% increase in sales tax will gain $4 million; $6million would be realized from a 1 ½% increase. Mr. Fricker stated he would be interested on seeing the percentage of revenue allocated in other communities; it doesn’t appear that we allocate any of the sales tax. He asked what Sycamore allocates from sales tax to infrastructure. Mr. Peddle stated that none of the funds from property taxes have gone outside the TIF for roads. He noted that when the TIFs expire there will be no funds put back into those TIFs from property taxes. The money will go to roads in the rest of the community. He stated he liked the idea of sales tax on one hand, but the majority are residential streets. The City may have to bite the bullet – if the residents want better streets, the main tie-in is residents, and we may be looking at property taxes. Ms. Gaura referred to a table with other municipalities and what those communities have for sales tax. Mr. Verbic stated it is difficult to absorb a tax increase at this time. He asked if we get more of a global idea of TIF expenditures. Ms. Gaura replied that the TIF phase out team is presenting a phase-out plan – how can the funds be utilized. Mr. Peddle stated that if the City were to increase property taxes on an average home at $500 per year – that would be huge increase. Roads and infrastructure play into the value of your home, he added. If we can make a big dent in infrastructure he predicted the value of my house would increase more than the $5,000 over the ten years I’ve paid additional $500 per year. Ms. Gaura replied that staff is looking to the Finance Advisory Committee to look at all options on the table. We will not be able to accomplish everything we want on operational and capital side. Mr. Helgerson pointed out that if streets are in failing condition, the water and sewer lines would most probably need to be rebuilt. Mr. Conlin asked if this study was performed in past years to determine if the road conditions have changed or have we compared to other towns. Mr. .Laskowski replied that additional research can be done to see how we compare to other towns. Mr. Peddle asked if there is any explicit effort to do truck enforcement in the City. Chief Lowery replied there is an effort, however, many of the investigations are complaint-driven, and the amount of time dedicated is limited. Additionally, the City has solicited State Police with truck enforcement especially on Fairview and on 4th. 7. OTHER 8. RECOMMENDATIONS TO CITY COUNCIL 9. MEMBER REPORTS  Finance Advisory Committee August 20, 2014 Page 5 of 5 10. CONFIRM NEXT MEETING DATE AND TIME Ms. Gaura stated that the next meeting is September 11th at 5:30 p.m. 11. ADJOURNMENT MOTION Mr. Verbic moved to adjourn the meeting; seconded by Mr. Conlin. Motion carried on voice vote. Chairman Peddle declared the meeting adjourned at 7:28 p.m. ______________________________________ DIANE K. WRIGHT, Deputy City Clerk City of DeKalb, Illinois Refunding Option September 11, 2014 Refunding Opportunity Executive Summary  William Blair was hired by the City of DeKalb in a request for proposal in February of 2012.  Since then they have acted as financial advisory to the City on three bond issues for the construction of the Police Station and expansion of the Library issued via competitive sale.  William Blair has performed a comprehensive refunding analysis on the City of DeKalb’s 2004 G.O. Refunding Bonds.  These bonds can be currently refunded after October 1, 2014. There are no restrictions to the amount of times a bond can be refunded on a current refunding basis while maintaining its tax-exempt status.  The next two slides show how interest rates have come down over the last 7 months and the short term rates are the lowest affording us this refunding opportunity. 1 Historical AAA MMD Interest Rates AAA Municipal Market Data (“MMD”) During the Past Five Years (%) 6.0 5.5 5.0 20-Yr AAA MMD 4.5 4.0 3.5 3.0 2.80% 2.5 2.08% 2.0 1.5 10-Yr AAA MMD 1.0 Aug-09Oct-09 Feb-10 Dec-09 Apr-10 Jun-10Aug-10Oct-10 Feb-11 Dec-10 Apr-11 Jun-11Aug-11 Oct-11 Feb-12 Dec-11 Apr-12 Jun-12Aug-12 Oct-12 Feb-13 Dec-12 Apr-13 Jun-13Aug-13 Oct-13 Feb-14 Dec-13 Apr-14 Jun-14 Note: Reflects market conditions as of August 28, 2014 Source: Thomson Financial 2 Municipal Yield Curve Comparison AAA MMD Curves During the Past Seven Years (%) 5.0 4.5 MMD Yield Curve 08/28/14 4.0 08/28/13 08/28/12 3.5 08/26/11 08/28/09 3.0 08/28/07 2.5 2.0 1.5 1.0 0.5 0.0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Note: Reflects market conditions as of August 28, 2014 Source: Thomson Financial 3 Outstanding Debt 4 Outstanding Debt (continued) 5 Outstanding Debt (continued) 6 Refunding Opportunity • The Series 2004 Bonds are callable on January 1, 2015 • The Series 2004 Bonds refunded the Series 2000 bonds and therefore are not refundable on a tax-exempt basis until the call date. • Based on current interest rates, savings are just over $200,000. • This results in a net present value savings as a percent of bonds refunded ration of 7.112% 7 Method of Sale 8  Proposed Financing Schedule Date Activity Responsibility Status Finance Advisory Committee Review refunding bond options City/WBC 11-Sep-14 12-Sep-14 Refunding Bond Ordinance delivered to City for Council packets KMR City Council Meeting Approval of Bond Ordinance allowing the City to proceed with refunding bond issue City/WBC/KMR 22-Sep-14 23-Sep-14 Rating agency meeting City/Moody's 30-Sep-14 Mail Preliminary Official Statement WBC Week of October 7th Price Bonds if market conditions appropriate with approval of City officials City/WBC Ongoing Process documentation KMR/WBC 23-Oct-14 Close bond issue All Parties City of DeKalb, Issuer City William Blair & Company, Financial Advisor WBC Katten Muchin Rosenman, Bond Counsel KMR Katten Muchin Rosenman, Disclosure Counsel KMR *Preliminary, subject to change. 9 Notice and Disclaimer The accompanying information was obtained from sources which William Blair & Company, L.L.C. believes to be reliable but does not guarantee its accuracy and completeness. The material has been prepared solely for informational purposes and is not a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy. Historical data is not an indication of future results. The opinions expressed are our own unless otherwise stated. Additional information is available upon request. Contact Information: Elizabeth M. Hennessy William Blair & Company Managing Director 222 West Adams ehennessy@williamblair.com Chicago, Illinois 60606 Phone: (312) 364-8955 www.williamblair.com Fax: (312) 236-0174 10 DATE: September 5, 2014 TO: Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Rudy Espiritu, Assistant City Manager Cathy Haley, Finance Director TJ Moore, Public Works Director John Laskowski, City Engineer SUBJECT: Discussion on Infrastructure and Capital Needs Over the next few Finance Advisory Committee meetings, staff plans to bring forth issues that were outlined in the budget transmittal letter and discussed during budget workshops. Staff plans to discuss some of the City’s capital costs, particularly vehicles and equipment, including technology. The impact of the expirations of both TIF Districts to the General Fund will also be reviewed. At our next meeting in October, the plan is to discuss pension obligations, as well as long term debt. At the last Finance Advisory Committee Meeting on August 20, 2014, staff outlined that the City is only be spending $400,000 per year on street improvements, outside of the TIF Districts. However, according to the study by Infrastructure Management Systems (IMS), approximately $6,626,166.67 per year would be required to maintain roads over a five year period. Obviously this is a large financial gap to make up for our road improvements. To put this in perspective, staff presented that a 1% increase in the home rule sales tax would generate $4,000,000 per year. This would still leave the City short on street improvements by $2,226,166.67 per year. Another issue that was brought up in the budget transmittal letter is the other capital needs of the City. Beside the road improvement needs the City is facing, the City also does not have funding sources for our fleet and equipment needs. The City’s fleet and equipment needs are funded primarily though the General Fund by an inter-fund transfer. Because funding for City operations must get priority before any other capital needs, the replacement schedule for many of these items gets pushed off annually. Most often, these items are replaced only when it is barely useable, rather than a regular replacement schedule. As the attached FY 2013-2019 Fleet and Equipment Summary shows, for FY 2013-2015, the City only spent on average about $650,000 for fleet and equipment replacement. However, for FY 2016- 2019, the costs for fleet and equipment average about $2,000,000. This shows that the City has been forced to defer its fleet and equipment costs over the coming years because there are no proper funding sources for these items. The FY 2013-2019 Fleet and Equipment Summary shows that over the next four years, the City’s fleet replacement costs will total $5,445,031 or $1,361,257.70 annually. The City’s equipment replacement costs total $2,595,400. Again, these costs are primarily funded through a General Fund intra-fund transfer and these funds are not self-sustaining. For FY 2015, the General Fund had to transfer $162,500 to the Fleet Fund and $35,000 to the Equipment Fund. By dedicating additional revenues to these funds, the City can eliminate major expenditure jumps or future long- term leases to create a pay-as-you-go environment for the City. Page |2  FY 2013 - 2019 Fleet & Equipment Summary FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 Department Fleet Equipment Fleet Equipment Fleet Equipment Fleet Equipment Fleet Equipment Fleet Equipment Fleet Equipment Total Police 32,000 245,600 156,500 138,000 77,270 125,000 288,511 33,000 209,405 33,000 240,343 13,200 142,104 0 1,733,933 Fire 0 3,000 30,000 21,200 336,666 0 837,667 265,200 451,667 50,000 61,667 25,000 201,667 0 2,283,734 Engineering 0 0 25,000 0 0 0 65,000 15,000 35,000 0 30,000 0 30,000 0 200,000 Public Works-Street Div. 70,000 12,000 135,000 60,500 0 3,000 407,000 325,000 590,000 263,000 625,000 204,000 670,000 250,000 3,614,500 Public Works-Airport Div. 0 0 0 11,000 0 0 0 160,000 0 174,000 0 0 0 0 345,000 Public Works-Water Div. 0 80,000 70,000 25,000 70,000 28,000 135,000 85,000 215,000 120,000 135,000 0 75,000 0 1,038,000 Administration 0 65,600 0 100,700 0 37,000 0 388,000 0 64,000 0 74,000 0 54,000 783,300 Total $102,000 $406,200 $416,500 $356,400 $483,936 $193,000 $1,733,178 $1,271,200 $1,501,072 $704,000 $1,092,010 $316,200 $1,118,771 $304,000 9,998,467 Fiscal Year Totals $508,200 $772,900 $676,936 $3,004,378 $2,205,072 $1,408,210 $1,422,771 9,998,467 Totals by Category (FY13-15): Totals by Category (FY16-19): Totals by Category (FY13-19): Fleet $1,002,436 Fleet $5,445,031 Fleet $6,447,467 Equipment $955,600 Equipment $2,595,400 Equipment $3,551,000 Fiscal Year Totals $1,958,036 Fiscal Year Totals $8,040,431 Fiscal Year Totals $9,998,467 ED048-14 DATE: September 5, 2014 TO: Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Jennifer Diedrich, Economic Development Coordinator SUBJECT: Consideration of Tax Increment Financing Expenditures FY2015-FY2023 I. Summary Both of the City’s Tax Increment Financing (TIF) Districts are set to expire by 2020. The following is a review of the annual funding amounts that have traditionally been transferred to support the General Fund and the negative impact of those funds at the expiration of the TIF. II. Background The City of DeKalb has two TIF districts currently in existence, the Central Area TIF District and TIF#2, created in 1986 and 1994 respectively. The Central Area TIF is set to expire in 2020 (FY2021), and TIF#2 is set to expire in 2018 (FY2018). The final collection and retirement of each TIF District is completed by December 31st of the fiscal year after expiration. Through FY15, 8% of the revenues generated in each TIF have been transferred to the General Fund as support for administrative costs. At this point, this practice is planned to continue, through the expiration of each TIF district with the goal of annually decreasing this amount. In addition, the City receives a portion of the surplus monies paid out annually. In 2007, in exchange for agreeing to extend the Central Area TIF district twelve years to implement the Downtown Revitalization Plan, the City entered into an intergovernmental agreement with the taxing bodies to declare 50% of the annual revenues received in the Central Area TIF a surplus beginning in FY2011 and continuing through the expiration of the TIF. These monies are unencumbered and distributed to the taxing bodies based on their tax rate. The City receives two separate payouts from the surplus, a sales tax portion and a property tax portion, both of which are deposited into the General Fund as revenues in funds 01-00-00-008-3965 and 01-00-00-008-3965 respectively. See the attached spreadsheet for more detail. When all of the funds being transferred from both TIF districts (administrative transfer and surplus distributions) are totaled, the amount equals $1,203,165 in FY2016. This amount will continue to increase through FY2019, and decrease in FY2020 with the close of TIF#2. The Central Area TIF closes in FY2022, with a final negative impact to the general fund of $1,168,763 annually. A TIF Phase Out Team has been created by the City Manager and is made up of staff from the City Manager’s Office, Community Development, Finance and Public Works. The team meets bi-weekly and has reviewed the history of revenues and expenditures within the districts and potential future uses of funding in the remaining years. Currently, debt service is limited to one existing bond, payable with TIF revenues from the Central Area TIF that was issued in 2010 to front the costs of the downtown improvements project which encompassed Lincoln Highway, Locust Street, Second Street and Third Street. The group has discussed the potential of repeating the success of this project by again issuing a bond to pay the up-front costs associated with of several large scale, transformative projects. Staff anticipates presenting a phase-out plan recommendation to City Council before the end of the year. III. Community Groups/Interested Parties Contacted improvements to the Egyptian Theatre and Barb City Manor in the amount of $100,000 each. In addition, the City is in year three of a five year agreement with the Ellwood House Association to fund $75,000 annually in improvements at the Nehring House. This agreement expires in FY2017. All of the organizations have been made well aware that when the TIF districts expire, the City no longer has a funding source to continue this practice. IV. Legal Impact The City has obtained the services of Kathleen Field Orr & Associates as the City’s special TIF legal counsel. With the expiration of the TIF districts drawing to a close, and the number of potential large scale projects on the horizon, staff believed the services of a TIF attorney were crucial in assisting staff to create a phase-out plan for the City’s remaining TIF districts. Kathleen Field Orr is highly regarded as a leading authority on the establishment, administration and implementation of the Tax Increment Allocation Redevelopment Act. IV. Conclusion The TIF districts expiration is quickly approaching and planning for this event needs to begin now. The TIF districts provide support to the General Fund through administrative transfers and surplus payouts. If these transfers were not made in FY15, the reserve fund balance would drop close to 10%, well below the policy goal of 25%. In FY15, a total of $1,435,193 is being transferred from the TIF districts into the General Fund. At the expiration of the Central Area TIF in FY2022, the total negative effect of the loss in revenue from the TIF districts will be approximately $1,168,763 annually. A funding source will need to be identified prior to the expiration to address this revenue deficit and its impending impact on the fund balance. Page |2 TIF Expenditures FY2015-FY2022 TIF#2 exp TIF#1 exp Type of Transfer FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 Total Admin Transfer to GF TIF#1 791,672 519,135 519,135 526,862 534,705 542,666 550,746 558,947 3,752,195 TIF#2 150,931 126,328 128,223 130,146 132,099 0 0 0 516,796 Surplus - Sales Tax TIF#1 332,389 365,038 370,514 376,071 381,712 387,438 393,250 399,148 2,673,172 Surplus - Property Tax TIF#1 160,201 192,664 195,554 198,487 201,465 204,487 207,554 210,667 1,410,878 Total Annual Transfer to GF 1,435,193 1,203,165 1,213,426 1,231,567 1,249,981 1,134,590 1,151,549 1,168,763 8,353,041 Current Debt Service FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 Total G.O. Bond (2010-A) 1,063,975 1,068,663 1,065,675 1,060,600 1,172,800 1,171,200 1,172,900 1,167,900 8,943,713 9/5/2014