Finance Advisory Committee

MINUTES FINANCE ADVISORY COMMITTEE CITY OF DEKALB JUNE 2, 2015 The Finance Advisory Committee meeting of June 02, 2015, was called to order at 5:02 p.m. by Committee Chair Peddle. ROLL CALL Committee members present were Mike Peddle, Connie Golden, Lynn Neeley, Mike Verbic and Tom Teresinski. Absent committee members were David Conlin and Thomas Gearhart. City staff present were City Manager Anne Marie Gaura, Finance Director Cathy Haley, Police Chief Gene Lowery, Fire Chief Eric Hicks, Assistant City Manager Patty Hoppenstedt (left at 6:30 p.m.), Interim Public Works Director/City Engineer John Laskowski (arrived at 6:23 p.m.), Community Development Director Ellen Divita, Utilities Superintendent Bryan Faivre, and Account Technician Carri Parker. FY16 BUDGET DISCUSSIONS AND RECOMMENDATIONS Committee Chair Peddle introduced Finance Director Haley and how the meeting will be conducted. Finance Director Haley gave an overview of the previous meeting. The budget will be going to the City Council on June 8th Public Hearing as purposed with a few recommended changes. One of these changes is the IT Director has been removed and there has been $50,000 added to the budget to possibly do a strategic IT assessment during the course of FY16 and incorporate some dollars for project implementation for such things as software upgrades. The other change is adding $24,000 for the new heated patch mix trailed for the Public Works. She added that changes can be made from now until June 8th too. She then explained the two handouts she provided General Fund Summary, which is falling out in a surplus, including the changes mentioned. The other handout is the listing of all of the funds and where the fund balances are falling out at the end of FY16. Committee Chair Peddle purposed strategic discussions with respect to alternative kind of recommendations or advice to council. He stated that the direction he was given by the Council is to accurately note any disagreement within the Committee, and need to capture any difference in opinion on crucial items. He added that the Committee should use Committee Member Teresinski’s suggestions as a baseline. City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 2 of 8 Committee Member Teresinski’s Recommendations: Recommendations GF: (5 yr. projection is in deficit for yr. two & that is optimistic) - Budget a $750k surplus for '16B - needed to get toward 25% goal - Freeze hiring at current level -- until revenue growth exceeds 3% - Positions needed - backfill from openings ( retiree's/quits) - Backfill stores to minimize revenue impact : JCP/B&N/ Big Lots - Would not support other tax/rev increase for operations - without tax rate data Recommendations Capital: - TIF - $1mm in road repairs for TIF areas - Water Rates: Increase by 3%/yr. for 4yrs & bid needed projects @$1mm/yr. - Capital - Tax Increase for roads/veh & equip needs add'l analysis of our entire package of existing taxes and their rank with university towns, Sycamore & other communities with our mean income. Committee member Teresinski provided a summary of the suggestions. One suggestion is that the City budget for a surplus of $750,000 to maintain the City’s commitment to increasing the general fund to 25%. Committee Member Teresinski explained his reasoning behind his recommendations. He stated that the two concepts are linked: one-time items and accounting adjustments are the same, without those there would be an operating budget deficit of $800,000. Committee Chair Peddle clarified that in the FY16 budget, when to take into account the one-time items and the accounting changes would end up balanced and self-sustaining as a balanced budget forward until you made any change. Committee Member Teresinski agreed. Committee Chair Peddle commented on the recommendations to Capital, he asked the Committee focus on the General Fund and not worry so much on the Capital budget. He added that the Capital budget is not the Committee’s primary responsibility, but the Operating budget is for the June 8th Public Hearing. Committee Member Teresinski thanked staff for the support on timely responses, primarily Finance Director Haley. He then presented his recommendations for the Operating budget for FY16. He stated that there is a Workers Comp transfer to the General Fund of $250,000 and that is due to lower pay-outs of claims in FY15 which is showing in FY16. The administration fees that are charged to the Sanitary District for billing that were part of the Water Fund is now moving to the General Fund. He stated that these two items are favorable to the General Fund. By moving the Water employee and benefit costs from the General Fund and directly hitting the Water Fund and then void the transfer of $702,000, which leaves a net effect of $117,000 favorable to the General Fund for those accounting changes. The Hotel/Motel Tax is an increase of $125,000, by closing the Economic Development Fund and moving that into the General Fund, and the Airport subsidy is $200,000 that is not renewed. He emphasized that this is where he is getting the $800,000 deficit from. He wanted to provide real operating budget with real operating costs and not one-time items and accounting changes. Committee Chair Peddle agreed that the items needed to be cleaned up. He then explained that two or at least three of the items are not one-time items. He stated that the Sanitary and the Water Fund City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 3 of 8 changes are not a one-time item. He added that the payment in lieu of taxes from the enterprise fund is a good idea. Committee Member Teresinski then replied stating with the information provided he would suggest a $300,000 surplus and have the $750,000 in real reductions. Finance Director Haley responded to the recommendations stating that the Hotel/Motel, closing of the General Fund is being done in FY15. The $125,000 is the difference in the revenue/expense in the current FY16 budget. The Hotel/Motel revenue has been increasing and that will be continuing in the General Fund. She explained that the three recommendations are not one-time items, but are accounting changes and are helping the General Fund moving forward. She added that there will always be one-time revenues to the General Fund, especially with the internal Service Fund which is the Workers Comp Fund. The internal service fund is a subsidy of the General Fund, these are not required, but stated they are a great subsidy to help mitigate risks and spikes to the General Fund. She commented that the Workers Comp transfer is actually from three years of good claims. The other two internal service funds, health insurance and liability insurance, have healthy fund balance reserves, better than what the policy states. She mentioned that since January 1, there have been some one-time items, and added that you will always have one for one, expenditure vs. revenue. Committee Member Golden stated that she agrees with the middle of Committee Member Teresinski and Committee Chair Peddle. She added that the $800,000 is the high side as far as one- time contributions. She agrees that three of the items are ongoing. She added that she would not call them accounting changes but a transfer of the funds and a continual transfer. She stated that she would not take those three items into account when stating that the General Fund is not balancing as these transfers happen year after year and are ongoing. She suggested that the recommendation be $450,000 instead of $750,000 in cost reductions. She added that $450,000 would be on the high side. Committee Chair Peddle agreed and added $400,000 would be good too. Committee Member Neeley responded to the recommendations as they are accounting changes, but it will be an ongoing. She agreed with the three items total $350,000 and that we do not need to be overly concerned. She added that both persons are correct. Committee Member Verbic commented that both persons are right and stated that more towards Committee Member Teresinski’s view. He added that as the revenues are increasing at 2% and expenditures increase at 6%, how we will get a balanced budget. Committee Member Golden stated that the Committee needs to consider alternate revenue sources. Committee Member continued with the recommendations by explaining the hiring freeze, back filling stores and tax increase for operations suggestions. Committee Chair Peddle responded that there is a consensus on the last item of taxes. There has been no talk of any kind of tax or revenue increase for operations for the City. He added that the situation come December with pensions, so the recommendation to Council would be that we not support it, depending on the numbers from the actuarial study that would come in before setting the property tax levy and it would be up to the Council. City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 4 of 8 Committee Member Golden asked about the $50,000 to assess if there is a need for an IT Director. Finance Director Haley clarified that it is an assessment to look at the entire IT Department and what our needs are going to be. This would include a 2-3 year strategic plan. Committee Member Golden clarified that the financial software is in the budget. She recommended that the IT Director be deferred for 8 months. Committee Chair Peddle commented that the software is a placeholder and that the consensus was by Council that we not include the IT Director in the budget as they will be involved with the process of upgrading the IT needs for the City. Finance Director Haley added that there are three options: assessment would be if we were not going to hire an IT Director, defer the IT Director eight months, and no Director period. Committee Member Teresinski stated that discussing the IT Director is very specific, he wants to focus on the total budget and at a larger scale. City Manager Gaura explained that staff can only follow the budget as the budget is documented. Committee Member Peddle stated that the HR Director is essential in the next year. How you structure that in with Committee Member Teresinski’s recommendations is possible. He asked for comments from the Committee on the hiring freeze, and IT. Golden confirmed that HR Director is in the budget, and added that you will need an IT person for the new accounting package. She suggested an IT Director for eight months down the road. Neeley asked for clarification on enterprise or financial software. Finance Director Haley confirmed Enterprise Software. Committee Member Neeley agreed with Committee Member Golden, the City needs to get an IT person to get them up and going and to get the software. She added that a good Enterprise System will take care of a lot of things and solve so many problems that are worrisome. She mentioned that if there is a way to get the IT Director on board, she would be on board. Committee Member Teresinski explained the rationale on the hiring freeze. He stated that the labor costs are more than the revenue coming in. He added that the number of employees be capped until the revenue surpasses the labor cost percentage. City Manager Gaura commented that you will need to grow the base, industrial and commercial base like Project Black Bear. She asked that you keep in mind that there is revenue that helps, and working with other entities and sharing services will help. She concluded that the City needs to look at the delivery of services and how they can be delivered differently than before. Committee Chair Peddle commented has some nominal appeal, but it’s under the current circumstance that is unrealistically that is difficult to accomplish. He suggested to take the water position off the table. It does not affect the fund balance. Committee Chair Peddle wanted to talk about two director level positions. He understood the pressing need of these administrative positions, and strongly supports the HR Director and somewhat supports the IT Director. He added that if they are Director level salaries you will need to give up more than two positions to keep the head count and salaries equal. Committee Member Teresinski stated that he was not suggesting dollar for dollar, but if you lock in the number of positions at 225, you will have the benefit hit. Committee Member Verbic asked how services are sustained as there is a limited amount of resources. Committee Member Golden added that she is hesitant to spend the $50,000 on the City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 5 of 8 assessment, it seems like a lot of money to spend on something that has already spent a lot of time on need wise. Committee Member Teresinski suggested that what if the number is $450,000, would we support a $450,000 deficit budget. Committee Member Verbic answered, no. Committee Chair Peddle replied with no, if I was convinced that it was an actual $450,000 deficit budget. If I could match the one time expenditures with the one-time revenues. He stated that he does not have a good picture of the deficit. Finance Director Haley totaled $383,120 in one-time costs with a surplus of $84,000. Committee Chair Peddle suggested that he is more comfortable with an $84,000 deficit than an $800,000 deficit. He added the financial software is just the beginning of the enterprise system. He recommended that we find a vendor that will have the technology for the departments to talk to each other. Discussions took place for decision on the recommendations: 1. Budget a $450,000 surplus to achieve a truly balanced budget and to work toward the City’s 25% Fund Balance Policy (unanimous). 2. Freezing hiring at current levels until revenue growth exceeds 3% (Yes- Teresinski, Verbic; No- Peddle, Golden and Neely) 3. Would not support other tax/revenue increases for operations – without tax rate data (unanimous) 4. TIF - $ 1million for TIF dollars going to road repairs – (Yes – Teresinski, Verbic and Golden; No- Peddle and Neely) Committee Chair Peddle introduced Capital. He added that staff would need to run numbers for the water rates. For roads, vehicles and equipment, agreed that we need to analysis. He stated that Alderman Baker said in the last meeting that there was a Roads and Bridges on his tax bill, which is township that does not go to the City. He added that there was a discussion to take money from TIF to go towards the roads. Committee Member Teresinski Tom is suggesting that we use $1 million of TIF on the City roads per year. Committee Member Verbic favored committee Member Teresinski’s point, there are difference amongst us all, but to keep the consistency the City needs to utilize TIF for the infrastructure. He added that he would continue to recommend the idea. Committee Member Neeley would rather see TIF funds to help with a deficit in an area other than regular road repairs. She added that she would like to consider some additional revenue sources. Committee Chair Peddle stated that the Committee would need to look at alternative revenue sources if we were to have a City-wide street repair program. He added that we can short-circuit the need by 5-7 years taking $1 million from TIF for the road repairs. Committee Member Teresinski added that is the third point to compare all of the tax rates, so we can see if we are missing a tax and compare tax package across all of them and look at other communities. Committee Member Neeley asked if the Committee could discuss the recreational fees for City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 6 of 8 alternative revenue sources. Committee Chair Peddle stated that it does not affect the budget as that will not come into effect until July. He then suggested that Committee Member Neeley continue with her concerns. Committee Member Neeley stated that she does not want to TIF funds used for something that they were not intended for. Committee Member Neeley states that movie tickets and movie/game rentals are declining and will continue to decline as everyone is streaming or downloading now. She would like to see if you can add internet access to cable television as many people are accessing their TV through the internet. She suggested that performing arts, sporting events and convocation center events are all three related and they are a matter of fairness and equity. She added that things are changing, society has changed. NIU has been a marvelous asset to the community. It has grown over the years, NIU owns over 700 acres of property in DeKalb, 60 major buildings, and they only pay property tax on two very small parcels within Holmes Student Center. Now because they are non-profit institution they do not pay tax on supplies, food, etc. Committee member Neeley thanked Interim Director Laskowski for the maps he provided to her, as they had a lot of information. The City has built and maintains NIU roads but the City is not seeing anything going into the pot to help take care of these roads. At large events, DeKalb Police are called out to help on a regular basis. She mentioned that she was happy to see that NIU is helping with the DeKalb Fire Department on a Ladder Truck, but does not have their own Fire Department. Fire Chief Hicks explained that we do have a contract with an annual fee to supply fire and ems services to the university. In addition, the City gets ambulance fees and fire call fees. The City also gets paid per hour for special events. Committee Member Neeley commented that is marvelous. She mentioned property and sales taxes. NIU has 3,300 full-time estimated employees and because society has changed they do not live in this community anymore. The City would love to see those people part of this community and spending their money here. They are walking out at the end of the night. Committee Chair Peddle responded that if you were to look at that list the tax would be written more generally so it would not apply just to NIU, but it is a very good point. It has been argued for a long time. He thanked Committee Member Neeley. Committee Member Verbic commented that he appreciate the comments. The alternative revenue sources cannot be discussed without looking at reductions, in addition, making sure we are looking at the benefits of these costs. Finance Director Haley thanked Committee Member Teresinski for his time as his institutional knowledge is fabulous. She added that she is very cognizant of the fund balance. She does a quarterly report and in this report she monitors it on a regular basis. She suggested that the City be cognizant of trying to wean off the TIF revenues. She believes that the FY15 coming in at a positive balance is a good thing. She added that some things to monitor costs and capture some savings. Finance director Haley is hoping that the Purchasing Manual will get recommended and staff can centralize purchasing. General Fund Support wages dropped and the net pension obligation will be taken off in FY17. By implementing best practices, the City is able to get these items off the list. City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 7 of 8 Committee Member Peddle stated that if he were a member of City Council, he would like to see a list of one-time expenditures, requested this to be provided for fFY15 and FY16 and compare to what is in the numbers and have a discussion of what is in the numbers if they are truly one offs that will reduce that amount. He thinks that the council would appreciate it. PUBLIC PARTICIPATION Lynn Fazekas, resident, stated that she has seen improvements in the Finance Department. She added that swapping work with other governmental bodies is a good idea. She suggested that the City is being conservative about the revenues and stated that if revenues are stagnate, then personnel will need to be stagnate as well. Bessie Chronopoulos, resident, thanked the Finance Advisory Committee, for their participation in this process. She stated that some of the comments that Committee Member Neeley made where biting, but those are the types of conversations that are needed. She added that even though most of NIU employees do not live in DeKalb, the City has most of its staff living outside of DeKalb. She suggested not to change the calendar year as it will be hard to compare in the future. In addition, she emphasized to stop the studies, she claimed that the City has top notch staff that can tap into Boards and Commissions that currently exist. She supported the hiring freeze and states that the financial software is fine, the City just needs to have more training as it works for the park district. Pam Verbic, resident, commented that the Finance Advisory Committee is very important, and does not think it is fair to the Council to just go along. This Committee does a wonderful job allowing each member to speak and discuss their opinion. She agreed with Committee Member Teresinski with the hiring freeze. She then added that a lot of the duties of the HR position can be done by one person if you have the correct people in the right position. Ms. Verbic agrees that every position needs to be looked at and justified. She concluded that using $1 million of TIF funds for street repairs is a good thing. FINANCIAL POLICES AND PURCHASING MANUAL Committee Chair Peddle stated that an additional meeting will need to be scheduled to go over the financial policies and purchasing manual as the Committee members have not reviewed the material provided in the agenda packet. OTHER ITEMS Finance Director Haley explained that the Council packet will be delivered tomorrow, but were told any recommendation from Finance Advisory Committee will be presented to the Council on Monday, June 8th. Committee Chair Peddle requested to see a summary before any recommendations are sent to Council. Finance Director Haley went through the items and will have a memorandum circulated for approval by the Finance Advisory Committee. City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015  Finance Advisory Committee Meeting June 02, 2015 Page 8 of 8 ADJOURNMENT Committee Chair Peddle requested a move to adjourn, moved by Committee Member Teresinski and seconded by Committee Member Verbic. Meeting adjourned at 7:10 p.m. __________________________________________ CARRI PARKER, Account Technician City Council approved minutes on July 6, 2015 / Finance Advisory Committee approved minutes on July 14, 2015