City Council Finance Committee Meeting

FINANCE COMMITTEE MINUTES January 11, 2018 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 11th day of January, 2018, 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 Castleberry ABSENT: Members Bierman and Allison 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 Tim Powers, Director of Information Technology Sara Kaplan, Retail Marketing Coordinator Scott Sturtz, City Engineer Jeanne Snider, Assistant City Attorney II Stephen Ellis, Citizen Cynthia Rogers, Citizen Sara Kaplan gave a presentation on information that was requested at the December meeting. Sara Kaplan gave the presentation. On the PowerPoint presentation, she showed the factors that affect sales tax. These include population changes, changing consumer patterns, changes in surrounding communities, taxes on new services, non-residential consumers, and national and local economies. E-commerce is growing at a faster rate than retail sales, and overall, compared to metro area municipalities, our market is healthy with a 2.3% vacancy rate. There has been a local recession since 2015, but we are slowly coming back from this. Anthony Francisco stated that the Amazon effect is real and that, while Amazon.com is collecting sales/use tax, third-party retailers selling through Amazon are hurting us. Kaplan stated that big retail stores are growing everywhere, but they look at the population and want the locations to have at least 100,000 people within a 20 minute drive. Chair Castleberry stated that building permits are down 30%. Member Wilson stated that she would like to see a 10-20 year growth trend for building permits. ***** Finance Committee Minutes January 11, 2018 Page 2 Item 1, being: DISCUSSION REGARDING A MID-YEAR BUDGET REVIEW Anthony Francisco gave the presentation. He stated that this review was required by the Rainy Day Fund Ordinance to decide whether to make a deposit or withdraw from the Rainy Day Fund. On page 1 of the handout in column A are the audited actual figures from fiscal year 2016-2017 (FYE 2017). Line 59 shows that the General Fund actually spent $3.6 million dollars more than it brought in. We are about $200,000 better off in the beginning of FYE 18 than we thought we would be. We are projecting $1 million less in sales tax than budgeted, and use tax is up $900,000 more than budgeted. There is more revenue going toward the General Fund right now due to a reduction in apportionment to the University North Park Tax Increment Finance District Fund (UNP TIF), brought about by the average annualized growth rate factor. The reduction to 50% instead of 60% is due to the overall average growth rate city-wide not maintaining at least 4.5%, which triggers a reduction in the apportion rate. Francisco stated that line 49 shows that we project to spend our 2% emergency reserve. We have it budgeted but we hope we don’t actually have to spend it. Line 55 shows the budgeted savings in maintenance and operating accounts from the 2% reduction in operations budgets mandated by the City Manager. This leaves us projecting that we will lose $2.2 million dollars from the General Fund, which leaves us with a balance of only $177,000. This is a dangerously low reserve level. Line 65 shows us almost $2 million below our mandated reserve. This would normally mean we would need to go to the Finance Committee to decide whether we need to make a withdrawal from the Rainy Day Fund. Chair Castleberry asked how we spent more than we budgeted. Francisco stated that a lot of it was carry-over encumbrances. Mayor Miller stated that we have been tracking this information for years and it is not new news. Member Wilson asked if we have made any attempts to fix the problems since we have been aware of it for some time. Francisco stated that we have made attempts such as the 2% operations budgets cuts and various other attempts. Mayor Miller stated that the City Manager has done a lot to hold the line, such as keeping positions vacant, etc. Chair Castleberry stated that we thought we would have a Stormwater Utility by now. We are currently spending $3 million per fiscal year from the General Fund on stormwater. Chair Castleberry stated that another option to help with this problem would be to end the UNP TIF apportionment. We are growing our expenses and our sales tax is not growing. Francisco stated that page 3’s numbers are the same as we just went over, except for the “found money” on line 24. This assumes that the approximate $4 million gets moved to the General Fund from the UNP TIF Fund and not spent. Under that assumption, we would end the fiscal year with a balance of $4,194,000 in the General Fund. This would be about $2 million above our reserve amount. He pointed out that on line 59 is the continuing trend of spending more than we are taking in, which means something big has to change. Finance Committee Minutes January 11, 2018 Page 3 Item 1, continued: Francisco stated that page 4 talks about the Rainy Day Fund which is funded at its full targeted level. This is available for draw down for emergencies or to stabilize the General Fund if the Council chooses. Francisco that page 5 discussed the Public Safety Sales Tax Fund (PSST). This Fund is projected to be about $400,000 below budgeted revenues for sales tax, and the use tax is projected to be about $200,000 above budgeted revenues. Line 26 shows we are projecting to spend down a lot of funds that are on hand for two major projects. Lines 43 and 45 show a “megatrend” that is of concern regarding that fact that this Fund is not growing at the same rate that we are adding personnel expenses. Francisco stated that the Room Tax Fund ended fiscal year 17 with a balance of $166,000, but of that, $189,000 was reserved for Parks and the Convention Visitors Bureau, which overdrew their reserve. This fiscal year we are projecting an increase in about $100,000, but parks projects will overspend in fiscal year 18. This would leave us with an illegal negative fund balance for the Room Tax Fund. We will have to make sure that Parks backs off of some of those projects in order to prevent this. Francisco stated that the University North Park Tax Increment Finance (UNP TIF) Fund would have a one-time apportionment on line 24 for the transfer back to the General Fund. Line 15 shows the impact of the ODOT audit and the money for the Rock Creek Overpass coming back into the TIF Fund. We project the TIF Fund will end with a balance of $15.4 million this fiscal year. If we pay off the outstanding debt, we would still have about $4 million left for any remaining authorized projects. We still project to be apportioning about $4 million per year until the full $54 million has been collected, and we project stopping the apportionment to the TIF Fund in fiscal year 2021. Francisco asked the Committee if they would like for him to make a deposit into the General Fund from the Rainy Day Fund. Chair Castleberry stated that the Committee consensus was not to do this at this time. ***** Item 2, being: SUBMISSION OF THE REVENUE/EXPENDITURE REPORTS Chair Castleberry stated that these reports show the same trends as were discussed in the mid-year review. Items submitted for the record: 1. Summary of Major Fund Revenue Sources vs. Budget FYE 2018 as of December 31, 2017 2. Summary of Major Fund Expenditures vs. Budget FYE 2018 as of December 31, 2017 3. Appropriations from Fund Balance FY18 4. General Fund Transfers over $50,000 between Expenditure Categories FYE 18 December 2017 ***** Finance Committee Minutes January 11, 2018 Page 4 Item 3, being: SUBMISSION OF THE REPORT ON OPEN POSITIONS Gala Hicks stated that Animal Control is almost completely staffed. Mayor Miller stated that she liked the article in the paper on the new Animal Control Manager. Chair Castleberry stated that we are very low in total personnel compared to other cities. Scott Sturtz stated that we currently have 2 Project Engineers and we are filling the third vacancy. Industry-wide the recruitment of engineers is slowing. Items submitted for the record: 1. City of Norman Position Vacancy Report dated 1/4/18 ***** Item 4, being: MISCELLANEOUS COMMENTS Sturtz said that we went to the Oklahoma Department of Transportation (ODOT) Comptroller and asked for a list of all the City projects with Federal Highway matching funds that have not been audited. He provided the list to the Committee. We did hit the cap of Association of Central Oklahoma Government (ACOG) funding on the Lindsey Street project. We really don’t have a strong feeling on where we are at on the projects that are listed. ODOT has now started giving us change orders more frequently instead of at the project audit. We are looking at alternate funding methods and any errors in the plans. We will work with Legal on these issues. Francisco stated that we have a $100,000 line in the Capital Project Budget every year for ODOT audits. Sturtz stated that we try to over-budget by 5% from the Engineer’s estimate. We are watching the Lindsey Street project closely and all 8 bond projects for possibilities. City Manager Lewis stated that we will have a full presentation for Council in a couple of weeks. ***** The meeting adjourned at 10:00 am.