Finance Committee

REPORT OF THE FINANCE COMMITTEE FEBRUARY 2, 2011 A meeting of the Finance Committee was held on Wednesday, February 2, 2011 at 7:00 p.m. in the Aldermanic Chamber. Mayor Donnalee Lozeau presided. Members of the Committee present: Alderman-at-Large David W. Deane, Vice Chair Alderman-at-Large Ben Clemons Alderman Arthur T. Craffey, Jr. Alderman Paul M. Chasse, Jr. Alderman Kathy Vitale Members not in Attendance: Alderman-at-Large Barbara Pressly Also in Attendance: Alderman Clemons Alderman Pressly called to say that she would not be able to make it this evening. COMMUNICATIONS From: Robert Gabriel, Purchasing Manager Re: Lease and Operating Agreement for a Compressed Natural Gas Station MOTION BY ALDERMAN CLEMONS TO ACCEPT, PLACE ON FILE AND, CONTINGENT UPON FINAL PASSAGE OF R-11-88, AUTHORIZE THE CITY TO ENTER INTO THE LEASE AND OPERATING AGREEMENT WITH AVSG-LP ON THE QUESTION Mayor Lozeau I would let the committee know that we had a special Board of Public Works meeting on Monday and took this up at that time. As you know it was referred to both the Finance Committee and the Board of Public Works. The Board of Public Works recommended unanimous passage of this legislation, which accompanies this contract. Is there discussion on the item? Alderman Deane Thank you. I had requested a cost benefit analysis from the Director of Public Works. Mayor Lozeau There is not a paper copy of a cost benefit analysis Alderman Deane as I talked about that at the Board of Public Works meeting on Monday. Alderman Deane There isn’t a copy of it. So how do you read it? Finance – 02/02/11 Page 2 Mayor Lozeau It is really quite simple actually in this instance based on the costs associated with the gas station, the costs associated with our savings for fuel and the company operating it, we are saving $1/gallon right now for CNG versus diesel prices. We have a company that is going to put a million dollars into the project to build it and operate it. We are collecting rent every month starting at $500 per month, which will go up as our usage increases. We have royalty payments in the contract that give us $.02 per gallon beginning at greater than 5,000 gallons. When you start adding all of those up and then you look at the City side, a cost benefit analysis says what are the positives, what are the negatives, and what is the difference. The City side of the ledger comes up with $6,100 for costs associated for materials for the site work and that $6,100 is being paid out of our energy grant. Then there is the cost of our labor from our staff on straight time, which will run somewhere, our best estimate is between $50,000 and $60,000. It seems like a no brainer. Alderman Deane Did CitiStat do a cost benefit analysis on this? Mayor Lozeau I didn’t ask them to do a cost benefit analysis on it. Alderman Deane Okay. When we figure the City’s contribution to the project through labor, do we factor in the City’s overhead as well? Mayor Lozeau You mean their health benefits and those types of things? Alderman Deane Yes. Mayor Lozeau No. Alderman Deane No? Mayor Lozeau No. Frankly I don’t think we should figure in the staff time at all. They would be working on this project or another project. This year we have made some changes in how they do work including things like plowing more sidewalks and doing sewer work and the mill and fill and pothole programs and things like that. This is stuff that I think is part of their day-to-day jobs, and when you make it a priority it makes perfect sense to me. A cost benefit analysis sounds like a very important document that should be done, and that not having one makes it look like we haven’t done our homework here, but it really is just as simple as the things that I laid out and the income that we are going to generate and our move to head in that direction. When you start looking Finance – 02/02/11 Page 3 at the numbers and one side of the ledger is much higher than the other it makes perfect sense. There is really not a lose here for the City. Alderman Deane I wasn’t implying that the City didn’t do their homework. I never said that. Mayor Lozeau I understand that. Alderman Deane Well that is what was stated earlier. I didn’t say that. I was under the impression that the CitiStat would be deriving all sorts of data associated with different items that go on within the City and that might have been done, and obviously from what you are telling me this is more than enough information to settle the score on even bothering to have them produce some sort of a document like that. That is fine too. Thank you. Alderman Chasse We’re going to be getting 500 a month. Are they also paying taxes? Mayor Lozeau They are. Alderman Chasse They are going to pay taxes. Mayor Lozeau And our assumption is between $2,500 to $3,000 a year in taxes on land that right now sits behind our existing property. Alderman Chasse We get a building on the books instead of taking them off. Thank you. Mayor Lozeau You are welcome. Alderman Deane But you have to understand or the way I would understand it is the cost of their product that we are buying is going to cover their property tax bill so they are just going to tack that on to the gallon price I would imagine. It is a business. Mayor Lozeau We have negotiated the price Alderman Deane at $2.30 a gallon, which is pretty close to a dollar less than diesel. Finance – 02/02/11 Page 4 Alderman Deane That is fine. You have already brought that point up earlier, but my point is that we will be paying the property tax bill as well out of the cost even though the fuel at this point in time is cheaper. As any other fossil fuel it is just as volatile down the road as oil and everything else, probably not as volatile as oil, but natural gas does have its tendencies to rise and fall as we all know. Alderman Vitale I don’t know, in the presentation that we had and they showed how volatile the prices were, over the time period that they showed on the presentation that we had, it is shown to be less volatile as almost any other type of energy source. If I am wrong about that, that is what I remember from the presentation. Mayor Lozeau We also have negotiated in for year 3 to go down to $2.27. One of the beauties of what was negotiated here, I am quite proud of the team that worked on it, is the royalty payments. We have put something in our community that is going to encourage private business to come in and purchase a product and every gallon that they purchase we reap a benefit from. I don’t know that it gets much better than that. I am quite excited about that. Alderman Clemons I would just like to say that I agree with everything that you said Mayor regarding this. It is a pretty simple thing that I don’t think you need to look into too much further than the fact that we are going to save $1/gallon every time one of those trucks comes in. The other point that I wanted to mention too was that the trucks we purchased basically were the same price as what we would have received if we got regular diesel trucks because of the grant that we received. The other point that I wanted to make was that I was reading an article in I believe it was Business New Hampshire Magazine about an energy forecast by Gary Long, the President of PSNH. He was saying that natural gas is going to be pretty much the standard in the future because they are finding new deposits of natural gas all the time all over North America and that it was actually going to be competing with traditional alternative fuel energies like wind and solar because there is so much of an abundance of it that he is afraid that natural gas while cleaner than oil is going to end up being so cheap that it is going to be a disincentive for folks to go with wind and solar and things like that. I think this is a very good move for the future because what it shows me is that, and from everything that I have read and everything that I have heard, natural gas is the way to go because it is going to be the least costly in the future. I plan on supporting this, and my feeling is the committee does, I’m not going to speak for everyone, but I think this is the right thing to do certainly. Mayor Lozeau Thank you. Is there further discussion on this item? MOTION CARRIED UNFINISHED BUSINESS – None Finance – 02/02/11 Page 5 NEW BUSINESS – RESOLUTIONS R-11-88 Endorser: Mayor Donnalee Lozeau Alderman-at-Large Ben Clemons Alderman Michael J. Tabacsko Alderman Arthur T. Craffey, Jr. Alderman Kathy Vitale Alderman Mary Ann Melizzi-Golja Alderman Jeffrey T. Cox Alderman Diane Sheehan AUTHORIZING A LEASE AND OPERATING AGREEMENT WITH AVSG LP FOR A COMPRESSED NATURAL GAS STATION ON A PORTION OF 9-11 RIVERSIDE STREET MOTION BY ALDERMAN CLEMONS TO RECOMMEND FINAL PASSAGE MOTION CARRIED NEW BUSINESS - ORDINANCES – None DISCUSSION Alderman Clemons Kind of unrelated and I hope you will allow some leeway, but with all of the snow that we have had, is our snow trust fund in good shape? Mayor Lozeau We haven’t had to touch the snow trust fund. We are about 62% into our snow budget. Alderman Clemons Excellent. Mayor Lozeau We are very lucky all things considered, but it can quickly change. That is not counting today’s storm. Figure that it runs us anywhere from $10,000 to $15,000 an inch, that is pretty typical. Alderman Clemons It is just good to hear that because you hear of places like Boston and New York City, and granted they are bigger cities, however, they are having to ask the Federal Government for help, and to not be in that situation I think we’re doing good. Thank you. Mayor Lozeau So far so good. Alderman Chasse We can always throw it in the river. Finance – 02/02/11 Page 6 Mayor Lozeau No apparently we cannot. Alderman Chasse That is the next move for Boston. Mayor Lozeau Didn’t they request a waiver? Alderman Chasse Yes. Mayor Lozeau Is there further discussion? WARRANT MOTION BY ALDERMAN CLEMONS TO APPROVE WARRANT #14 IN THE TOTAL AMOUNT OF $13,560,024.69 OF WHICH $2,092,799.10 ARE ACCOUNTS PAYABLE, $5,767,193.45 ARE PAYROLL AMOUNTS, $245,928.60 ARE PREPAY AMOUNTS AND $5,454,103.54 ARE WIRE TRANSFERS MOTION CARRIED ADJOURNMENT MOTION BY ALDERMAN CHASSE TO ADJOURN MOTION CARRIED The Finance Committee meeting was adjourned at 7:14 p.m. Alderman-at-Large Ben Clemons Committee Clerk