City Council

May 20, 2024, Council Work Session The City Council of the City of Idaho Falls met in the Council Work Session, on Monday, May 20, 2024, in the Council Chambers in the City Annex Building located at 680 Park Avenue in Idaho Falls at 3:00 p.m. Call to Order and Roll Call There were present: Mayor Rebecca L. Noah Casper Council President Lisa Burtenshaw Councilor John Radford Councilor Kirk Larsen Councilor Jim Freeman Councilor Michelle Ziel-Dingman Councilor Jim Francis Also present: Pam Alexander, Municipal Services Director Mark Hagedorn, Finance Manager / Treasurer Brooks Slyter, Assistant Finance Manager AJ Argyle, GBS Benefits Darrin Jones, Human Resources Director Heather Wade, Human Resources Manager PJ Holm, Parks and Recreation Director Wade Sanner, Community Development Services, Director Josh Roos, Chief Financial Officer Bruce Young, Assistant Director of Finance and Administration Duane Nelson, Fire Chief Margaret Wimborne, Chief of Staff Michael Kirkham, City Attorney Corrin Wilde, City Clerk Mayor Casper called the meeting to order at 3:00 p.m. with the following items: Municipal Services: Presentation and Discussion: Annual Comprehensive Financial Report for the Year Ending September 30, 2023. Municipal Services Director Pam Alexander gave opening remarks. City Treasurer Mark Hagedorn and Assistant Finance Manager Brooks Slyter provided an overview. Mr. Hagedorn discussed the annual audit process, focusing on its timeline, the roles of various city officials, and the procedures followed to ensure compliance with state law. Audit Manager Kailey Holt presented her findings on the Annual Comprehensive Financial Report (ACFR). The audit process, which she oversees, involves a risk-based approach examining the City’s financial accounts. Special attention is given to major ‘opinion units’ or funds within the City of Idaho Falls. The audit opinion is based on these major funds. Ms. Holt then shares her screen to present several deliverables. The first one is the Independent Auditor's Report, found on page 11 of the ACFR. This report provides their opinion on the financial statements. For the 2023 financial statements, they have given an 'unmodified' or clean opinion, similar to previous years. 1  May 20, 2024, Council Work Session On the same page, there's an 'Emphasis of Matter' paragraph highlighting the adoption of a new accounting standard, GASB Statement No. 96. This standard pertains to Subscription-Based Information Technology Arrangements (SBITAs), which are now required to be reported on the balance sheet. On page 12, there's a paragraph about a correction of an error. This refers to a restatement in the financial statements due to the opioid money received from the National Opioid Settlement. Ms. Holt emphasizes that many governments, including the City of Idaho Falls, have had to make similar restatements due to the lack of guidance when the money was first distributed. This is the first of four opinions provided in the ACFR. The second opinion is the Independent Auditor's Report on Internal Controls over Financial Reporting, also known as the Yellowbook opinion. This report assesses the internal controls over financial reporting and compliance. If any deficiencies are found during the audit, they are identified in this report. Some deficiencies were found and classified as material weaknesses, but they have been corrected. Therefore, the financial statements do not contain any material misstatements. This is still considered a clean opinion. The third opinion is the Independent Auditor's Report on Compliance for each Major Federal Program. This opinion is given over the federal programs or single audits conducted each year. This year, the audit looked at the Airport Improvement Program, the Transit Program, and the Coronavirus funding received by the City. If any deficiencies were found during the audit of these federal programs, they are pointed out in this opinion. A few findings were identified as material weaknesses, and one as a significant deficiency. The severity of findings is ranked from least severe (significant deficiency) to most severe (material non-compliance). The City does not have any material non-compliance, but there is a material weakness in internal controls. The fourth opinion is the Independent Auditor's Report on Compliance for the Passenger Facility Charge Program. This report is required when collecting Passenger Facility Charge (PFC) money and reporting it to the Federal Aviation Administration (FAA). The opinion confirms that the quarterly reports submitted to the FAA are accurate. This is also a clean opinion. These are the four opinions contained within the financial statements. Ms. Holt noted that Mr. Hagedorn and Ms. Slyter will discuss the corrective action plan for the findings. Ms. Holt stated that the details of the material weaknesses and significant deficiencies identified during the audit procedures can be found on the back of the Annual Comprehensive Financial Report (ACFR). The last deliverable is the 'Letter to Those Charged with Governance', a required communication at the end of every audit. This letter provides a summary of the audit and details about different accounting estimates, including pension and other post-employment benefits (OPEB) amounts. The letter also mentions uncorrected misstatements, which are divided into two categories: 1. Corrections that were identified and recorded in the ACFR. These were actual journal entries that were posted. 2. Uncorrected misstatements, which were not material to the financial statements and thus were not reported in the financial statements. These are journal entries that were not booked. The document also draws attention to the fact that there was no 'Correction of an Error' paragraph in the auditor's report this year, which is a change from previous years. Mr. Hagedorn and Ms. Slyter have a corrective action plan for the findings. They will go through each finding and provide some background information. The first thing they’ll talk about is the status of the audit findings from last year. Mr. Hagedorn said that last year, there was a problem with the collection of Passenger Facility Charge (PFC) funds. These are fees paid by each passenger that goes to the airport. The issue was that these fees were collected and mixed with the general cash in our bank accounts. The resolution was to separate these funds into 2  May 20, 2024, Council Work Session their bank accounts. While these funds were accounted for and presented separately in the audit and the general ledger, the bank account itself needed to be separate. As a result, we opened a new account specifically for PFCs and transferred all the funds from the general ledger into this new account. This new account is interest-bearing. This issue was resolved shortly after the audit was issued last year. For this year, these funds have been in their separate bank account for about half the year. Mr. Hagedorn pointed out that another issue was the quarterly tallies, which are due on September 30 and December 30, were submitted a few days after January 1. This is a recurring finding because it occurred last year during the audit period, so it appears in both years' audits. Ms. Slyter spoke about material weaknesses identified in our internal controls for preparing financial statements. Ms. Slyter stated that as Ms. Holt pointed out, there were three main areas of concern. • Book Closure: This year, we had several new team members, including the speaker, who were involved in new roles. The speaker led most of the audit preparation, during which a few issues were overlooked. • Asset Depreciation: One of these issues was related to the depreciation of certain assets. Specifically, there was an over-depreciation of new assets in our sanitation fund due to an error in bonus depreciation. • Contributed Capital: Another issue was with our contributed capital, which includes infrastructure built by developers. We receive a list of these contributions from public works, which are then added to our books. This primarily affects our water and sewer accounts. Mr. Hagedorn interjected, stating that the issue of retainage payable comes down to whether retainage is considered earned. He expressed his opinion that retainage is earned by the developer and directed staff not to book it. However, he acknowledged that there is a general belief and practice to consider it as payable. He clarified that this is just a difference of opinion. Ms. Slyter discussed three main issues: the monthly closing process, inventory management, and the handling of national opioid settlements. • Monthly Closing Process: The city is improving its monthly closing process to review financials regularly and rectify discrepancies promptly. This will expedite the investment process and reduce the need for retrospective reviews. The city is committed to addressing these issues throughout the year and training new staff accordingly. • Inventory Management: Discrepancies were found between reported and actual inventory at the end of the fiscal year. The city is now working with each department to reconcile their numbers and improve processes. Regular meetings for inventory management training and discussions are being considered to avoid year-end rushes. • National Opioid Settlements: The city now has access to a report detailing these settlements, which are distributed based on predefined schedules. The city will manage these settlements appropriately and maintain records for the duration of each settlement. The focus is on ensuring accurate record-keeping moving forward, with a shift from a cash basis to an accrual basis. The next topic discussed was the single audit findings, which included two material weaknesses and one significant deficiency. The materiality of these findings can be complex, as in some cases, the granting organization defines what constitutes a material weakness. The first issue was a repeat finding from the previous year's audit, which appeared twice in the current fiscal year's audit. This issue has been addressed and corrected as finding number 23. 3  May 20, 2024, Council Work Session Mr. Hagedorn discussed the next two issues about the transportation program. The first issue arose during the purchasing process, where it is required to check on a federal database if a vendor has been disbarred, meaning they are not allowed to bid on federal programs. It was discovered during the audit that this check did not occur in one instance, which is considered a material weakness. The corrective action for this is to provide training to the procurement staff to ensure they know which items need to be checked for each department. The second issue involves training departments to identify which Purchase Orders (POs) are funded by a grant. This will ensure that these POs are correctly identified and searched on the department website. Mayor Casper highlighted the risk of vendor fraud and proposed a system for random checks across all operations. Mr. Hagedorn emphasized their commitment to prevent vendor fraud through stringent checks, including verifying services before payment and confirming vendor information. ARPA Quarterly Reports: Mr. Hagedorn discussed the filing and correction of ARPA quarterly reports. Despite some initial errors, corrections were made within the available window. Uncorrected vs Corrected Misstatements: Mr. Hagedorn explained that any material issue discovered during the audit is included in the financial statement. The decision to correct an issue depends on various factors, and there are currently a mix of corrected and pending issues. Corrections will be made either immediately or in the next year, depending on the situation. Council President Burtenshaw asked if corrections made in the upcoming year would appear as audit findings in the next year. Hagedorn clarified that they would not, as the uncorrected issues are considered immaterial. Mr. Hagedorn addressed the issue of past adjustments, stating that they occur every year and are often minor. The focus is on major categories, with capital assets being the primary one. He mentioned a document detailing all donated items and their values. There was a miscommunication between accountants regarding the booking of these items, which will be addressed next year. The goal is to have enough time for a thorough review before handing it off to auditors, a process that was not adequately followed in previous years, leading to numerous findings. Mr. Hagedorn also discussed new lease agreements, a new standard that will use data for two years. The aim is to ensure staff understand the new standard. He mentioned the recognition of opioid settlements, stating that they now understand what these are and that they are coming from a state source. Councilor Francis asked about the quick recognition of retainage payable. Mr. Hagedorn explained that retainage is the amount held back on a contract, typically 5-7%, to ensure project completion. There was a debate about whether this should be booked as a liability. Mr. Hagedorn argued it’s not a liability as there are still tasks to be completed. However, auditors pointed out that best practices in the construction industry involve booking the whole amount. There is no standard on retainage in government, leading to disagreements. The auditors considered this a liability, leading to an increase in the amount related to the safety facility. Mr. Hagedorn noted that Public Works is expected to include the retainage amount in every document they submit. This allows us to be aware of the specific dollar amount, though agreement on a specific date remains a point of discussion. Other entities, like Power, use different methods such as date and bonds. Despite the variety of approaches, we continue to use retainage. Director Alexander began by expressing gratitude to Ms. Holt and Jody for their efforts on the audit, which took longer than usual. She noted that other clients of similar size typically complete their year-end close by the end of October and have a solid trial balance by December 1. Due to challenges faced by our team and issues with timeliness, Director Alexander announced plans to seek a new path for the next audit period (2023-2024). Despite 4  May 20, 2024, Council Work Session having a clean audit, an RFP will be issued to bring in a new team to address these challenges. Director Alexander expressed confidence that these issues are preventable and achievable. Council President Burtenshaw inquired about the timeline for the new audit RFP. Director Alexander responded, explaining the City’s efforts to establish a timeline that accommodates the complexities of their systems. The Council discussed the challenges related to the integration of the systems and the need for more time than typically offered by firms. Councilor Dingman questioned Ms. Holt about the resources of other municipalities she works with. Ms. Holt clarified that the work largely involves manual processes for financial reconciliation and praised the dedication of the City of Idaho Falls staff. She also acknowledged the limitations of the current systems. The Council discussed the significant findings of the audit. Mr. Hagedorn provided an update on the RFP process for a software upgrade, mentioning the expected implementation timeline of one to two years. He highlighted the need for new software and the ongoing work with all departments to identify systems that need updating. Mayor Casper predicted a three-year timeline for an updated audit system and pointed out the unique complexities of Idaho Falls. Ms. Holt agreed, noting the numerous opinion units in Idaho Falls. Mr. Hagedorn acknowledged the challenges of the past year and shared plans for improving the review process before the trial balance is issued. Director Alexander discussed the transition to a comprehensive annual audit and the current focus on regrouping the team and setting clear expectations. Despite high turnover, the team is fortunate to have many accountants with four-year degrees. Ms. Slyter shared strategies to manage turnover, such as creating checklists for new employees and desk references for critical roles. Councilor Francis agreed that a robust system could mitigate the impact of turnover. Councilor Larsen asked about the department’s accounting knowledge and training needs. Mr. Hagedorn and Ms. Slyter plan to transfer their audit knowledge to new accountants. Mayor Casper expressed concerns about high turnover and supported a culture of training and accountability. Director Alexander discussed the success in converting interns to full-time employees and the challenges in staff retention. Mr. Hagedorn reported a decrease in the accounting environment and a shortage of recent graduates for recruitment, causing audits to scale back. Mayor Casper acknowledged the past year’s audit challenges due to high turnover and new processes. She urged Council members to consider management techniques that support professional development. Councilor Burtenshaw asked about additional staff for the ERP project. Mr. Hagedorn confirmed the hiring of an administrative assistant and another experienced individual. Director Alexander mentioned a drafted RFP for a new audit consultant. Transition to Enterprise Management: Councilor Radford recalled the challenging transition to enterprise management. Mr. Hagedorn shared plans to form teams, hire interns, and improve the review process. He emphasized the focus on ensuring proper use of resources. Mayor Casper made a brief observation that mistakes should be taken seriously. She expressed hope that, through their management style, mistakes are not solely owned by one person but are shared with all relevant individuals for improvement. This way, everyone is working towards the same goal. 5  May 20, 2024, Council Work Session Parks and Recreation, Public Works, Power, and Legal Departments: Discussion: Fourth of July Fee Waiver Resolution: City Attorney Michael Kirkham and Parks and Recreation Director PJ Holm presented a Fee Waiver Resolution for the upcoming Fourth of July Celebration. The request is similar to previous years with minor increases. The group requesting waivers typically sends a letter to the City and other departments outlining their needs. The list of waivers, originally compiled four years ago, is updated annually. An additional document detailing an indemnity agreement for streetlight usage during the event is being prepared and will be presented to the Council before the Fourth of July. The agreed decision is to include this item for consideration in the upcoming Thursday night Council meeting agenda. Human Resources and Municipal Services: Presentation and Discussion: Initial Health Insurance Renewal Information. Human Resources Director Darrin Jones, Human Resources Manager Heather Wade, and AJ Argyle, with GBS Benefits, are presenting information about Health Insurance renewal information. Director Jones provided an overview of employee health insurance and benefits, including fully insured and self- funded models. They discussed that under a fully insured model, an insurer picks up the risk and the city knows premium costs for the year. Self-funding was presented as an option where the city takes on more of the risk itself. They noted some self-funded groups have successfully reduced costs, while others have faced losses or become insolvent if not properly funded. They covered that being fully insured provides more data access through brokers, while self-funding access to data is more limited. Joining a pool group was another option presented where cities and other organizations band together in a large risk pool. Director Jones reviewed the City's options for its health insurance: Remaining fully insured, as they currently provide stability in knowing annual costs, but premium increases have outpaced budgets in recent years. Moving to a self-funded model could potentially reduce costs based on past data, but also carries risks of losses in high claims years that the city would be responsible for replenishing. Proper funding and reserves would be needed. Joining a pool group. Two potential pool groups were identified - the state employee plan and a group called Triple AAA. The state plan could provide savings currently but requires a large upfront cost and a five-year commitment. Triple AAA was not accepting new members for a few years to stabilize costs after high claims. The benefits, risks, and requirements of each option were discussed, to control rising premium costs while maintaining stability and reducing volatility for City budgets and employees. Director Jones presented data showing that over the past 20 years, health insurance premiums for the City had increased at an average annual rate of 6.08%, while the CPI inflation rate was around 2.5-3%. It was noted that health insurance inflation has consistently outpaced overall budgets, creating challenges. More recently over the past 5 years, the city's average annual increase was 9.6%. There was discussion on how costs rise in peaks when high claimants drive up premiums, followed by plateaus when claims decrease. The city is still experiencing the effects of past peaks in increases. This rate of increase for health insurance significantly 6  May 20, 2024, Council Work Session outpaces the city's annual 3% budget increase limit. They highlighted this divergence between insurance inflation and budget constraints as a key ongoing problem and headache to solve with no easy answers. Director Jones presented data on what would have happened if the city had been self-funded in recent years: • 2020: Potential savings of $1 million • 2021: Loss of $2.1 million • 2022: Loss of an additional $2.6 million, for a total loss of $3.8 million This highlighted the risks of peaks and valleys that can occur with self-funding. Councilor Radford asked for clarification on the reinsurance structure. AJ Argyle explained there is a $250,000 specific deductible, with the city taking on the first $50,000 of claims and reinsurance covering amounts above that. There is also aggregate insurance that protects against overall group losses exceeding 25% of premiums. Director Jones provided information on the state employee health insurance plan as a potential pool group option. It was noted that joining would require an upfront cost of $2.5-3 million and a mandatory 5-year commitment. They estimated potential annual savings of $2,000-3,000 currently for the city if they switched to the state plan based on preliminary comparisons. However, Councilor Freeman raised a concern about losing control over the plan design and costs. As a member of the state pool, the city would have no input on plan features or premium splits which would all be determined by the larger state group. This loss of autonomy was identified as a downside to joining the state plan. They discussed the difficulty in directly measuring the success and cost savings of the city's wellness programming. While it could encourage healthier behaviors and catch issues early, they said it's impossible to know if specific individuals would have gotten illnesses anyway. Councilor Freeman and AJ Argyle agreed the value is in early identification of potential health problems through screenings and case management. This could catch major health issues earlier when treatment is less expensive. Councilor Francis expressed interest in exploring a stabilization fund to offset peaks and valleys in insurance costs over time. Director Jones agreed it would be worth looking into budgeting more robustly in lower-cost years to help cushion higher percentage increases in other years. This could help reduce fluctuations in costs and maintain coverage. Director Jones suggested that if savings are achieved from a lower health insurance renewal rate, the City should use some of those savings to fund an increase in employee salary schedules. This would help address compensation issues. Councilor Radford encouraged the city to be as aggressive as possible in exploring all options to reduce costs and not just accept increases. He didn't want decisions taken out of the City's hands by just sitting back and not fighting rising costs aggressively through all available avenues. Director Jones confirmed that the city plans to conduct an open Request for Proposal (RFP) process for a fully insured health insurance renewal for the 2024-2025 plan year. This will allow competition between carriers to potentially drive costs down from the initial 19.9% rate increase proposed by their current insurer. It was noted they may need to change carriers if savings of 3-4% or more can be found elsewhere. They also agreed to consider plan design changes, such as increased deductibles or copays, if the Request for Proposal (RFP) process does not yield sufficient savings to reduce premium costs without compromising the richness of coverage 7  May 20, 2024, Council Work Session for employees. Additionally, Director Jones and the accounting staff may investigate the possibility and draft a proposal for creating an insurance stabilization fund, which would help in managing costs over time. The council also advised Director Jones to proactively seek other cost-reduction strategies. This could include switching pharmacy benefit managers or looking into international drug programs. If the Request for Proposal (RFP) renewals remain high, Director Jones was asked to contemplate changes in the plan design to further decrease costs. While the Council supports Director Jones in remaining fully insured for the next year, they also recommended continuous evaluation of alternative models such as self-insurance or pool groups for future consideration. Acceptance and/or Receipt of Minutes: It was moved by Councilor Francis, seconded by Councilor Larsen, that the Council receive the recommendations from the May 7, 2024, meeting of the Planning and Zoning (P&Z) Commission pursuant to the Local Land Use Planning Act (LLUPA). The motion carried with the following vote: Aye – Councilors Burtenshaw, Larsen, Radford, Dingman, Freeman, Francis. Nay – none. Mayor and Council: Calendars, Announcements, Events, Reports, Updates, Concerns, Questions, and Discussion: Mayor Casper commends our first responders for their dedication over the weekend. She mourns the tragic loss of lives in a recent car accident and appreciates the swift action and exceptional service of the first responders. She urges everyone to stay safe while enjoying their activities and to express their gratitude to these everyday heroes. Mayor Casper announced that tomorrow marks the day of the primary elections in Idaho. Over the past weekend, some maintenance work was carried out, including mowing and removal of signs that were placed within the public right of way. Candidates who are looking for their missing signs can rest assured. The City of Idaho Falls has collected these signs and stored them safely in two locations: the Horse Barn in Tautphaus Park and the Elk Pasture across from Tautphaus Park. If you're a candidate trying to locate your sign, you can reach out to the park’s office. The staff there will be more than happy to assist you in finding your sign. Please note that the signs will only be stored for a limited period, so it's advisable to retrieve them as soon as possible. Mayor Casper noted that she has asked Chief Nelson to present his Budget Priority Planning on Thursday night and will be at the end of the agenda. On Thursday, May 23rd Funland committee appreciation in the afternoon as well as 24th at Broulims 7 am there is a veterans appreciation breakfast. The 25th is a Funland event. Memorial Day Field of Honor ceremonies will be held at Freeman Park • Council President Burtenshaw shared updates from the Airport Department. A preauthorization bill was passed by the US House last Wednesday, which should enable the FAA to issue grants. This is significant as we’ve been awaiting FAA funds for the Johnson Legacy property payment. Additionally, Heidi Despain has been hired as a new Prosecuting Attorney by the Legal Department • Councilor Freeman reported that the railroad property visible from the police complex has been thoroughly cleaned. He also attended a lunch with the Military Affairs Committee, where they discussed the christening of the USS Idaho in Connecticut. Although no one from the meeting could attend the event, it was a topic of extensive discussion. Freeman also urged everyone to vote tomorrow if they haven’t done so already. • Councilor Dingman announced that tomorrow the pool will need some maintenance and will be closing at 6 pm. • Councilor Radford noted that the library’s fencing was damaged in a windstorm and has since been repaired in collaboration with Public Works. • Councilor Francis had no items to report. • Councilor Larsen announced that the police department will conduct SWAT team tests on Friday. He also shared Deputy Chief Galbraith’s remarks on a recent accident with six fatalities, a first of its kind. The 8  May 20, 2024, Council Work Session incident was challenging for the responders. Mayor Casper expressed gratitude for the emphasis on mental health support for first responders, given the harsh realities they face. Councilor Freeman reported that the tennis courts at Tautphaus Park are currently under construction. Additionally, the Rec Center is preparing to paint the floor, which has already been laid with wood. Executive Session: It was moved by Councilor Francis, seconded by Councilor Larsen to move into an Executive Session being called to the provisions of Idaho Code Section 74-206(1)(j) to consider labor contract matters authorized under Idaho Code Section 74-206(1)(a) and (b), Idaho Code. The Executive Session will be held in the City Annex Conference Room. The Council will not reconvene in an open session after the executive sessions. The motion was carried by the following vote: Aye – Councilors Dingman, Burtenshaw, Francis, Freeman, Larsen, and Radford. Nay – None The City Council of the City of Idaho Falls met in Executive Session, on Monday, May 20, 2024, in the City Annex Conference Room in the City Annex Building located at 680 Park Avenue in Idaho Falls, Idaho at 5:37 p.m. There were present: Mayor Rebecca L. Noah Casper Council President Lisa Burtenshaw Councilor John Radford Councilor Michelle Ziel-Dingman Councilor Jim Freeman Councilor Jim Francis Councilor Kirk Larsen Also present: Pam Alexander, Municipal Services Director Darrin Jones, Human Resources Director Heather Wade, Human Resources Manager Duane Nelson, Fire Chief Michael Kirkham, City Attorney The Executive Session was called pursuant to the provisions of Idaho Code Section 74-206(1)(j) to consider labor contract matters authorized under section 74-206A (1)(a) and (b), Idaho Code. The Council reconvened in an open session after the executive session at 5:55 p.m. There being no further business, the meeting adjourned at 5:55 PM s/Corrin Wilde s/Rebecca L. Noah Casper Corrin Wilde, City Clerk Rebecca L. Noah Casper, Mayor 9