City Council Finance Committee Meeting

FINANCE COMMITTEE MINUTES December 14, 2017 The City Council Finance Committee of the City of Norman, Cleveland County, State of Oklahoma, met at 8:30 am in the Municipal Building Multi-Purpose Room on the 14th day of December, 2017, and notice and agenda of the meeting were posted in the Municipal Building at 201 West Gray and the Norman Public Library at 225 North Webster 24 hours prior to the beginning of the meeting. PRESENT: Members Wilson and Allison and Chairman Castleberry ABSENT: Member Bierman OTHERS PRESENT: Mayor Lynne Miller Steve Lewis, City Manager Anthony Francisco, Finance Director Suzanne Krohmer, Budget Manager Gala Hicks, Director of Human Resources Ken Komiske, Director of Utilities Kathryn Walker, Assistant City Attorney Shawn O’Leary, Director of Public Works Scott Sturtz, City Engineer Item 1, being: DISCUSSION REGARDING A BUDGET APPROPRIATION TO ALLOW FOR FINAL PAYMENT TO THE OKLAHOMA DEPARTMENT OF TRANSPORTATION FOR VARIOUS AUDITED PROJECTS Scott Sturtz gave the presentation. He gave background on the Oklahoma Department of Transportation (ODOT) audit process for federal and state funded road projects. This is the time of year that we start preparing our packet to be submitted for Federal Highway Administration (FHWA) funding consideration. ODOT administers the funding and the construction of the projects themselves. The first thing the City does is identify a project, which is then submitted to Council. Once application is approved by Council, we submit it to ODOT. The next step is the project design, which is submitted to ODOT at various completion stages. This is also the time that we are getting the right-of-way acquired for the project, the environmental studies completed, and the utility relocations completed. This engineering design, right-of-way acquisition, and utility relocation gives the project better qualification (“readiness points”) to compete for construction funding. The ODOT contract includes both parties’ responsibilities, as both parties share construction costs based on the engineer’s estimate, and at this point the City is invoiced for our portion of the estimated construction costs. ODOT manages the construction, but City staff stays very involved in the construction process. Mayor Miller stated that the City is responsible for the community aspect of the projects, such as talking to the businesses affected. Sturtz stated that sometimes, like in the Lindsey Street project, ODOT hires outside firms to contact businesses and speak to the property owners. They Finance Committee Minutes December 14, 2017 Page 2 Item 1, continued: are also trying to do construction on the weekends and after hours. Some owners of businesses are more involved than others. Shawn O’Leary stated that every City project has a project manager that can be contacted. Sturtz stated that during project closures, a final “punch list” is completed and after items are fixed the project is accepted as complete. Sometime in the future, (no time limit) ODOT will perform a project audit, which reviews the actual costs of the project. Chair Castleberry asked if we could put a provision in the contract stating a time limit on the audits. Sturtz stated that we can’t put a time limit on the audits because ODOT says when the audit is completed. O’Leary stated that there is no warranty with ODOT projects. Chair Castleberry asked how much involvement the City has in the audit. Sturtz stated that the City gets the audit back, when sometime we owe extra money and sometimes we receive a refund. Sometimes there is a final change order, but we are working on involving ourselves more in the process to be more proactive. Chair Castleberry asked how we know they are not coming back with fictitious numbers. O’Leary stated that these are unit-priced bids so they can’t make anything up and we do double check the amount of materials used in the field. Sturtz stated that everything is reconciled with the original bid items. Sturtz stated that the 2017 ODOT audit was unusual because it included 19 different projects in 15 different locations in Norman. The oldest completed was in 2004 and the newest was in 2014. The Robinson Street underpass was the largest, exceeding $20 million. The total construction cost of the projects included in this audit was $38,684,994 with the federal participation at 78%, or $30 million. The audit found an additional required City payment of $605,246, and a refund on one project was for $518,383. We worked with Finance and ODOT to double check the payments. Mayor Miller asked if changes were made to any of the projects that we challenged. Sturtz stated that no changes were made but they were willing to work with us. Member Wilson asked if they audit every project. Sturtz stated they do. Member Wilson asked if we know of any projects not audited from our past. Sturtz stated we are aware of some that have yet to be audited. Member Wilson asked if we have a contingency for this. Anthony Francisco stated that we put back $100,000 per year for this contingency; however this is anomalous due to the 19 projects being audited. Sturtz stated that the first thing we did when considering how to pay the additional $605,246 was to look at the current ODOT audit account, which had $250,000. We propose to use only $200,000 in order to leave some money for any audits that could occur. Next, we propose taking $24,000 from the Bridge Maintenance program and would like to have the Committee consider using $64,000 out of the Duffy Street project and $52,000 out of the Robinson Rail Road Underpass project. The remaining $266,594 would have to be appropriated out of the Capital Fund balance. Finance Committee Minutes December 14, 2017 Page 3 Item 1, continued: Chair Castleberry asked if they could be provided with a list of the projects that have not yet been closed out at the next meeting. Sturtz stated that the Lindsey Street project will be the big one, but the rest will be our most recent projects. Member Allison asked if ODOT has started the process of submitting any change orders for the Lindsey Street program as of yet. Sturtz stated that we are currently working on those change orders and we are trying to be more involved. Sturtz stated that the audit identified a $518,000 refund from ODOT for the Rock Creek Overpass project, due to extra funding being added and getting good unit costs. The total project was $5.3 million and the City paid about $700,000. This project was funded out of the University North Park Tax Increment Finance (UNP TIF) Fund, so the refund will go back into this Fund and be used for future authorized projects. Chair Castleberry asked if the Council was allowed to transfer funds out of the UNP TIF Fund into the General Fund. Kathryn Walker stated that the development agreement prevents the Council from doing this and caps this at 40%. Sturtz stated that the total appropriation from the Capital Fund will be $784,978 with $518,383 going back into the UNP TIF Fund. The funds are currently available but this will affect the FYE 19 projects. Chair Castleberry asked if the $1 million going into the Capital Fund from the refund of $5.2 million out of the UNP TIF Fund would help to off-set this cost. Sturtz stated that this will be taken into account while preparing the upcoming budget for the capital projects. Shawn O’Leary stated that the two largest projects on the Lindsey Street project have been split into multiple projects in order to access more federal funding. We will know in January or February how we are going to do on funding for this project. Sturtz stated that we are looking at the traffic impact fees to reduce the City’s share, and we are also looking at other alternative funding sources to pay for projects. Sturtz stated that this is all tentatively on the agenda for Council on the 19th. Member Allison stated that the packet with this information needs to be emailed to the rest of City Council. Chair Castleberry stated that we could maybe have a Study Session before the Council meeting to discuss the issues. The public needs to see this presentation in order to understand why we are doing what we are doing with all of the funds for these projects. City Manager Steve Lewis stated that we can push the item to January. Chair Castleberry stated we should move this to January and try to condense it to a 30 minute presentation. O’Leary stated that the construction funding is usually 80/20%, but overall with utility relocation and right-of-way, it is closer to 50/50% of the total project costs. ***** Finance Committee Minutes December 14, 2017 Page 4 Item 2, being: SUBMISSION OF THE REVENUE/EXPENDITURE REPORTS Anthony Francisco gave the presentation. Chair Castleberry stated that the sales tax numbers that we submit are City-wide sales tax. This includes General, Capital, Norman Forward, and TIF numbers combined. Most other cities’ sales tax collections are up and we need to know why ours isn’t. Even though our sales tax is down, our overall revenue is up collections to date. Member Wilson asked about the effect of traffic construction on the sales tax collection. Chair Castleberry stated that we should try to get more data on the economic activity of Norman to help us analyze the trends. City Manager Lewis stated that part of the problem is that government jobs have been reduced in the last few years. Mayor Miller stated that the housing starts and population growth is slowing down. Member Allison asked about the visitor tax. Francisco stated that it is coming up from a year ago. Chair Castleberry stated that the TIF is down year-to-date. Francisco stated that we are now receiving less than 60% due to average of annualized growth. The growth rate fell below 4.5% growth rate, which makes the amount of apportionment closer to 50% than the original 60%. Items submitted for the record: 1. Summary of Major Fund Revenue Sources vs. Budget FYE 2018 as of November 30, 2017 2. Summary of Major Fund Expenditures vs. Budget FYE 2018 as of November 30, 2017 3. Appropriations from Fund Balance FY18 4. General Fund Transfers over $50,000 between Expenditure Categories FYE 18 November 2017 ***** Item 3, being: SUBMISSION OF THE REPORT ON OPEN POSITIONS Chair Castleberry asked if we have an internal auditor yet. Gala Hicks stated we did not. Francisco stated that we did a request for qualifications (RFQ) for the audit of the $5.2 million in sales tax revenue that was incorrectly apportioned to the UNP TIF Fund over the past ten fiscal years. We received 2 qualifications and hired Arledge Associates out of Edmond. They are currently looking at all of the documents to confirm the $5.2 million figure. They have 2-3 weeks to do the work, and we will try to have Council actions items prepared to transfer the funds to the correct funds in early January. Finance Committee Minutes December 14, 2017 Page 5 Item 3, continued: Items submitted for the record: 1. City of Norman Position Vacancy Report dated 12/6/17 ***** Item 4, being: MISCELLANEOUS COMMENTS None ***** The meeting adjourned at 9:42 am.