Finance Committee

123 Madison Street Village of Oak Park Oak Park, Illinois 60302 www.oak-park.us Meeting Minutes Finance Committee Monday, June 22, 2015 7:00 PM Room 130 1. Call To Order The meeting was called to order at 7:01 p.m. by Acting Chair Bob Tucker. 2. Roll Call Present: Trustees Salzman and Tucker Absent: President Abu-Taleb and Trustee Brewer Staff in Attendance: CFO Lesner, Village Manager Pavlicek, Village Clerk Powell and Village Attorney Stephanides Others in Attendance: Trustee Barber and Daniel A. Berg, CPA, of Sikich LLP 3. Public Comment There was no public comment. 4. Approval of Minutes (No Minutes/last meeting was in Executive Session) 5. New Business ID 15-208 Review and discussion of the FY 2014 Comprehensive Annual Financial Report (CAFR) and Supporting Documents. Manager Pavlicek introduced Mr. Berg, the independent auditor with Sikich LLP, who will review the annual audit with the Finance Committee. She explained that the Village is required to file this audit with the State of Illinois by June 30, so the Board will meet to review the audit on June 29. CFO Lesner explained that state statutes require an annual audit, and since 2013 has used Sikich LLP for this process. He noted that the Board receives quarterly financial reports with this audit providing a third party review of this information. Mr. Berg will provide a review of the audit. Mr. Berg invited questions as he provides the highlights of the report. Initial work was done in January as the Village receives significant Federal funding and the testing for this area is more rigorous; they wanted to get Village of Oak Park Page 1 Printed on 11/16/2015 Finance Committee Meeting Minutes June 22, 2015 this work done ahead of time, and then returned for three weeks in April and May to complete their field work and testing. He noted excellent cooperation from all staff involved in the process, including former Deputy CFO Paprocki, who prepared materials prior to his departure. Mr. Berg explained that the final draft of the audit was delayed due to late arrival of actuarial reports. This is a new GASB #67 requirement implemented this year. All actuaries that Sikich works with have run late this year. Mr. Berg began his review of the audit. In the introductory section is a transmittal letter with an overview of finances and the Village in general prepared by the CFO. One page 1-3 is the Sikich opinion reports that the audit presents in all material respects the financial position of the Village as of 12/31/14, a clean or unmodified opinion, the best available, and noted that they have implemented GASB #67. On page 16 is a comparison of 2013 to 2014 prepared by the CFO to explain changes year to year. He noted that some small tweaks are needed and provided one example of a correction in characterization of an expenditure; this will not change the fund balance. Manager Pavlicek also noted that language about the Parking Fund will be cleaned up to make it clear that it was paid off in 2014. CFO Lesner and Mr. Berg discussed how the IMET Fund was reported in the audit. This cannot be reported as an investment as the money was removed; there is no underlying value at this time so it is reported as a long-term receivable, although the time frame is not known, nor is the recoverable amount, although some of Mr. Berg's clients have anticipated recovery of as much as 90%. Five percent of the Village's funds have been recovered to date. On page 4, Statement of Net Position, Mr. Berg referred to the net position items summary. He noted that all restricted capital assets other than parking and water assets (streets, buildings, etc.) are valued at $55 million net of debt. Restricted assets are those reserved for specific purposes of $14 million. Unrestricted assets are $1.9 million;going forward this will be a negative number as implementation of GASB #67 will require unfunded Police and Fire pension obligations to be listed there. Business activities has been reduced; payments back to the General Fund have ended as on-street and off-street parking have been combined. Pages 5-6 are designed to show whether the Village is better off in 2014 than in 2013. With a net gain in governmental activities of $1.7 million and 3.8 million for enterprise funds the total increase is $5.6 million. Manager Village of Oak Park Page 2 Printed on 11/16/2015 Finance Committee Meeting Minutes June 22, 2015 Pavlicek noted that the Board had directed staff to spend only 98% of funds and has been very judicious in where personnel salvage has been spent, allowing to build the fund balance. Trustee Tucker asked if this was the expected amount. Manager Pavlicek noted that changes in scope of some projects had helped to boost this total. CFO Lesner added that this is proceeding at the right pace. Manager Pavlicek noted that the General Fund will face an added challenge without any additional funds coming in from the Parking Fund now that that loan has been fully repaid. She added that funding from the State is also an unknown at this time. Mr. Berg then addressed reports on specific funds, beginning on pages 7-8 and reviewed the restricted funds. He noted a negative $2.9 million in the capital improvement funds which will need to be funded, funded at this point through the General Fund. Page 9 provides a list of the transfers among funds. Trustee Tucker asked about the negative $2.9 million. Manager Pavlicek explained that the Village did not go to bonding capital improvements before year end, but will go out for bonds for some of these projects. CFO Lesner noted that the Village was under budget for some projects due to deferral of some work. Pages 10-11 show a grand total of negative $3.9 million. Debt service is generally kept to a steady level. Trustee Barber asked about the cash fund balance. Mr. Berg explained that cash funds are allocated to other funds, so the fund balance is the current resource equity or current assets net of current liability. Business type activities are shown on page 13-14; the enterprise funds have positive net position in the Water and Parking Funds, but there is a deficit in the Internal Service Fund. He added that the non-major fund is the Environmental Services Fund. Manager Pavlicek noted the non-spendable equity of $45 million was for the historical cost of infrastructure (sewers) which is required to be accounted for so that fees can be set to anticipate eventual replacement. CFO Lesner noted that these are split from unrestricted assets for the Water/Sewer Fund, which is the starting point for the next budget. Notes to Financial Statements on pages 34-35 show the actual historical cost and depreciation. General fixed assets combined have $188 million in historical costs, with $5 million in depreciation in 2014 with net reduction in value of nearly $1 million. He reviewed the business-type activities which were down by about $2 million net of depreciation. Over time, bond houses look at net investment in capital assets, with an expectation of ongoing investment, something that has been deferred by many communities in recent years. Risk Management has been stagnant over the past year. Long-term debt has been going down about $1 million. Village of Oak Park Page 3 Printed on 11/16/2015 Finance Committee Meeting Minutes June 22, 2015 Page 69, Employee Retirement Systems, shows a liability for net pension obligation of $1 million for IMRF. For Police ($3.9 million) and Fire ($3.2 million) the contributions made are higher than required. However, this is the last year that this will be noted as an asset, due to changes in reporting requirements noted above. Items shown as unfunded actuarial accrued liability (UAAL) will show as a deficit in future reports. Trustee Salzman noted that this is the amount the Village is "short" if pensions were funded at 100%, and noted that this will be the subject of a future meeting in more detail. Manager Pavlicek noted that Police is funded at 60%, Fire at 47% and IMRf at 81%, and noted that the Village continues to fund annual obligations. Police and Fire Pension funds as separate taxing bodies.receive some of their funds through TIF distributions. Trustee Salzman noted that Illinois requires 100% funding by 2040. CFO Lesner requires use of an actuary to determine funding, and the Fire Pension Fund also provides an actuarial recommendation. Income assumption is 7% over 15-20 years, average growth in salary (4.5-5%) and mortuary tables, recently changed by the State. Trustee Salzman noted that the Board will meet to talk about all of this in more detail. Mr. Berg noted that the Fire Pension funding is on the low side, but also noted that as an older community with many beneficiaries, the pension liability for retirees overall is higher than many others. Mr. Berg pointed out that on page 66 the impact of a 1% change in the discount rate leads to a significant change in net pension liability. Trustee Salzman noted that he wants to be prepared when the Board meets with Fire and Police Pension representatives and asked for more information prior to that meeting. Manager Pavlicek noted that later this summer the rating companies will probably provide some feedback based on the current audit information. Mr. Berg pointed out starting on page 78 that six year trend information are shown, to build to 10 year reports in the future. He noted that the IMRF reports still include 2009 which drags down the total; as of the end of 2014 the Village was 102% funded. The Police and Fire Pension Funds have been relatively stagnant over the past six years, despite $3 million in tax dollars every year. On page 84 the Income Statement was replicated with more detail (to grow to 10 year trend). This will be shown each year. On pages 109-111 non-major funds are shown; the Garfield TIF funds will be going to Volvo by next year. The SSA #1 is administered by DTOP; CFO Lesner noted that a small positive balance is kept in this fund based on a contract with DTOP with a new contract to be considered by the Board. Trustee Salzman asked to what fund the monies will be paid back when the Madison TIF ends in 2015. More information on this will be provided. Some of the non-major Village of Oak Park Page 4 Printed on 11/16/2015 Finance Committee Meeting Minutes June 22, 2015 capital funds have negative balances; bonds will be issued for these. Page 136, the Self-Insurance Retention Fund, has been funded for current charges, but not for anticipated liabilities and has a net deficit of $2.7 million. Mr. Berg noted that the TPA had made estimates for future liability and the audit scrubbed the data to bring the likely total down to $3.6 million. For 2015 the total per occurance will be reduced from $2 million to $750,000. Manager Pavlicek asked for Board guidance on how to shore up this fund, as the Board is interested in remaining self-insured. Trustee Salzman asked about the timeline for future payments; this is included in the analysis. Mr. Berg noted that there are no "contingent" assets if the Village expects to recover claims. Manager Pavlicek noted that workers' comp cases are to be expected given the physical nature of some positions. On page 142, the net position for Police and Fire Funds were not as good; the markets were weaker than at the end of 2013. Trustee Tucker asked about any bumps in the road. Mr. Berg noted that there were 14 adjusting journal entries compared to 2 last year; some might have been caught if the Deputy CFO had been available longer. This is much better than five years ago, in any case. Manager Pavlicek reported briefly on the hiring of a new Deputy CFO and the skill sets sought. Mr. Berg noted that a new State law requires that the Management Letter be posted on the website. He has also prepared a report to management on additional issues. Manager Pavlicek noted that the Management Letter has always been posted on the website. There was general agreement that both items will be posted on the website. Manager Pavlicek will have all edits done by Tuesday or Wednesday; Trustee Salzman asked that the presentation deal with big-picture issues and the impact on the bond market, as well as the Self-Insurance Retention Fund. Manager Pavlicek announced that they will again use the bifurcated budget process, with a five year plan adopted in September with Board review of the budget in October. A meeting in July 13 provide an opportunity for the Board to provide parameters for staff to prepare their budgets 6. Adjournment It was moved by Trustee Salzman and seconded by Trustee Tucker to adjourn. The motion was approved. Meeting adjourned at 8:12 p.m., Monday, June 22, 2015. Village of Oak Park Page 5 Printed on 11/16/2015