City Council

Minutes from the Petersburg City Council Work Session meeting held on: March 14, 2017 -1– ______________________________________________________________________________ The work session of the Petersburg City Council was held on Tuesday, March 14, 2017, at the Union Train Station. Mayor Parham called the work session meeting to order at 6:30p.m. 1. ROLL CALL: Present: Council Member Charles H. Cuthbert, Jr Council Member Annette Smith-Lee Council Member Darrin Hill Vice Mayor John A. Hart, Sr. Mayor Samuel Parham Absent: Council Member W. Howard Myers Council Member Treska Wilson-Smith Present from City Administration: Interim City Manager Tom Tyrrell Interim Finance Director Nelsie Birch City Attorney Joseph E. Preston Clerk of Council Nykesha D. Jackson, CMC 2. PURPOSE: a. Discussion on draft strategic plan for restructuring the City’s Long Term Debt and a plan to pay off all outstanding obligations to Inter-Governmental Agencies and vendors. Mr. Tyrrell stated that today is a work session that they have been asking for. He stated that this is for their journey of physical stability. He stated that this is very serious business tonight and that they are going to get a lot of information. He stated that Mr. Bobb will give an introduction and then there will be presentations to follow. He stated that they believe that this is a fundamental tenant and a successful future for Petersburg. He stated that the physical emergency that exist is still with the City. He stated that they have managed it and it has not gone away. He stated that the City has miles to go before they can get to where they want to be. He stated that this information will be discussed tonight. He stated that the most critical information this evening is the debt restructure. Robert Bobb, President and CEO of The Robert Bobb Group, LLC, stated that he would like to thank City Council for agreeing to schedule a special workshop. He stated that they are working really hard to bring the City back to its financial stability. He stated that there are some very difficult decisions that City Council will have to make in the next several months. He stated that they will present the 2018 budget on next Tuesday night. He stated that there are a series of work sessions with respect to the budget. He stated that a component of the budget will be the financial policy. He stated that City Council has approved financial policies before and managed financial resources. He stated that the policy is incorporated in the document that they are receiving tonight. He stated that they are in the process of amending and strengthening the financial policies. He stated that in making the difficult decisions over the next several weeks they will provide the analytical data for which they are to make their decisions. He stated that they will continue to make this statement that the City needs a liquidity event. He stated that he knows that a potential liquidity event keeps getting put off into the future. He stated that they know that they are in a critical stage where they cannot cut their way out of the situation that the City is in. He stated that during the budget process they will see all the options and alternatives that the City has. He stated that fundamentally it is important that the City has a general fund fund balance. He stated that currently the City has zero. He stated that as they present the restructuring of the City’s debt tonight and as they go through the budget process the reality stood in 2009. He stated that in 2009 is when those in charge then were here the City started experiencing cash flow problems. *Audio available  Minutes from the Petersburg City Council Work Session meeting held on: March 14, 2017 -2– ______________________________________________________________________________ He stated that since 2009 it has cascaded down. He stated that there is a significant difference between budget and cash flow. He stated that they will continue to make that point. He stated that when you go through the financial statements there is a lot of good things in it. He stated that the only debt that will carry into the next physical year is the agreement that the City has with the Virginia Retirement System. He stated that he would like to introduce David Rose from Davenport. He stated that he does not know any other person in the City that knows about the City finances then Davenport. David Rose, Representative from Davenport, stated that they have a presentation in front of all council members. He stated that he had the opportunity to write the report back in 2012 that talked about the dollars that went down starting in 2009. He stated that they repeated and updated the report since then. He stated that they have several sections and that they are going to go through three tabs. He stated that he is delighted to take questions and that if there is a question that he doesn’t have the answer too he will take notes and get the answer back to them through Mr. Bobb. He stated that he is not going to repeat every word. He stated that the 3rd an 4th quarter is printed and listed in the presentation on a six-year basis. He stated that the financial crisis hit hard in both structurally balanced budgets. He stated that as Mr. Bobb stated that they will be making sure that the budgets of FY18 are structurally balanced and that they finish off FY17 as balanced as possible. He stated that this was not the case in the utility area. He stated that the request was made in the summer by the commonwealth and that they were one of the three parts of this. He stated that it was the commonwealth itself, the governor’s office and Davenport that Mr. Bobb alluded to for public management that ended up talking about budget amendments. He stated that their report should how the budget had deteriorated the fund balance. He stated that this is critical to have many reasons. He stated that he thinks that this will become more clear soon. He stated that this presentation occurred on August 4th. He stated that from that a number of things occurred. He stated that the Robert Bobb Group was hired and the 2017 budget was amended. He stated that the City got a Revenue Anticipation Note (RAN) to secure and pay the bills. He stated that the City needed to get into high gear which the Robert Bobb Group did. He stated that the group inherited about $19 million dollars in bills that we piled up. He stated that they walked into a draw of checks in a draw when they came into town. He stated that after the RAN was closed on successfully it was recognized that they had to put something bold in place that reset the bar. He stated that this is what will be talked about tonight which begins with the restructuring of the current outstanding debt. He stated that there are things that need to be done. He stated that one of those things is to move quickly as possible to make sure to take care of old outstanding bills. He stated that it is exactly around $8.9 million dollars. He stated that the number has come down with the help of the Robert Bobb Group and staff. He stated that because of where the City was, there is still a negative fund balance. He stated that there is a policy that calls for the City to have a 10% fund balance but that the City currently has a negative fund balance. He stated that the key is on how the City moves to go from a negative to a break even and then to positive. He stated that part of the restructuring will help speed things up. Council Member Cuthbert asked Mr. Rose if they can go back to the statement that says that while the City is objected to owe various creditors an estimated $8.7 million dollars excluding the 2016 RAN. He stated that $8.7 million sounds much better than $19 million. He stated that when he adds back the $6.5 million from the RAN then the City is up to $15.2. He stated that this is better than $19 million but not light years better than $19 million. He stated that $8.7 million is better in light years. Mr. Rose stated that the City had a RAN last year. He stated that they should add to the $19 million the RAN that existed last year. He stated that the best way to say this is that they had a RAN prior to the Robert Bobb Group and that they have a RAN in place now. He stated that what they have effectively done is taken the roughly $18.8 million and welded it down to about $8.7 million. He stated that they have made about $10 million worth of progress regarding the old bills. Council Member Cuthbert that this is encouraging. He stated that they cannot print money so how is it that they found $10 million dollars. *Audio available  Minutes from the Petersburg City Council Work Session meeting held on: March 14, 2017 -3– ______________________________________________________________________________ Mr. Rose stated that he will leave that to the finance director to talk about this. Mr. Bobb stated that when you go back to one of the documents that they presented. He stated that at the end of FY16 the City had about $2 million dollars in over spending. He stated that from his back of the envelope from what the state gave the City was that they had over $20 million dollars’ worth of issues that they had to address. He stated that he will let Ms. Birch speak to where the City is today. Mr. Birch stated one of the stress points for her happened around December. She stated that she could not explain why they did not have any cash after they got the RAN. She stated before they got to the City there was a significant amount of bills that were paid that were from FY16. She stated that the current revenues should pay for the current expenses in any budget. She stated that this created a major stress for her. She stated that it was about $6 million dollars that they know of before they got in the door. She stated they instituted several spending freezes in February for anything that is not an emergency. She stated that she does not know the savings from this. She stated that it is very hard to do a year over year comparison but it has not been a normal year over several years in the City of Petersburg. She stated that they have also instituted hiring freezes and travel freezes. She stated that they have continued to have to tell people no. She stated that this is how they are managing it. She stated that they did not produce more money but that they have found a way to manage the compounds of what they currently have in the budget. She stated when they approved the second amendment for the budget it incorporated all the decisions that they had to make to make the budget balanced. She stated that the only new money was the $1.3 million dollars from the capitalized interest that they got from VRA. She stated that they used this to offset a lawsuit that the City had. She stated that the 2nd amendment made some adjustments. She stated that in her estimates that the amount that the City owes vendors is about $1.9 million and that this is for 2016 and 2017. She stated that the biggest piece is for the City to pay themselves back. She stated that the storm water fund is paid for by user fees. She stated that they issued a very short bond through Capital One to pay for storm water projects. She stated that instead of using it for storm water they took $1.8 million dollars and spent it likely on payroll. She stated that this is money that they have to pay back. She stated that they City issues bonds. Council Member Hill asked are they realizing any savings that the council took to cut the $12 million dollars out. Ms. Birch stated that when they made the modifications to the second amendment it included what they could realize from the PMF recommendations. She stated that the 10% they could not restore. She stated that they were only able to restore the 10% for public safety on April 7, 2017. She stated that it does not negotiate the work that was done in the first quarter of the fiscal year. She stated that they had to take more severe measures because the budget was still not realistic because they still had to continue to cut various items in the budget to make it balanced. Mr. Rose stated that they are not out the woods by any means. He stated that there has been some progress made. He stated that one of the national rating agencies “Standard and Poor’s” has the City at a BB with a negative outlook. He stated that there is a write up. He stated that this is basically the lowest grade in the commonwealth. He stated that it is considered below investment grade. He stated that this has not changed since they last saw City Council. He stated that the important things are some of the commentary highlights. He stated that it goes to what Mr. Bobb was speaking on. He stated that the negative outlook recognizes that structural imbalance historically. He stated that they are working towards this to stop it and get it back to a structural balance. He stated that it also speaks about a very weak liquidity. He stated that it is a fancy way of saying no cash flow. He stated that this is the information that Mr. Bobb was talking about. He stated that it is very good to have money on hand for a rainy day. He stated that the good news is that the Robert Bobb Group is moving towards creating an incredible plan. He stated that all of this is moving towards making changes. He stated that there were some policies adopted back in 2014 and that they just were not adhere to the way that they would expect. He stated that the current state of the City unsigned fund balance he *Audio available  Minutes from the Petersburg City Council Work Session meeting held on: March 14, 2017 -4– ______________________________________________________________________________ has eluded to this a couple of times and Mr. Bobb has talked about this as well. He stated that it is being viewed negative to $5 million dollars as well. He stated that when they realize and look at some of the overdue bills they realize they have a lot of wood to chuck. He stated that they have talked about a 10% level. He stated that this is on the low end. He stated that the budget is based on $80 million dollars. He stated that it is okay to talk about the past but the goal is to focus on the future of the City and its finances. He stated that with the plan it starts with restructuring. He stated that they’re going to work with the City and talk about what the enterprise zone needs to look like. He stated that if they are going to talk about it then they all have to agree with goals and objections. He stated that they will talk about leveling it out and the cash flow relief. He stated that they will be taking the excess dollars to take away the $5 million. He stated that they are not out of the woods. He stated that if they bring down the debt services they can use it on capital services. He stated that there is very little cushion to do anything. He stated that he has went over the debt structure. He stated that they are not talking about new money debt. He stated that they are talking about existing debt. He stated that if they move towards restructuring it will allow them to move quicker towards getting rid of the Revenue Anticipation Note (RAN) that he mentioned earlier that they will have to do again in October. He stated that this has cost the City up to $500,000 a year. He stated that they want to try and clip away the $6.5 million dollar RAN. He stated that if they would defer projects in the amount of $5 million dollars for up to five years this alone would cost them between $800,000 and $1 million dollars. He stated that this restructuring has a cost. He stated that when they take in the other factors it will be saving the City considerable money and putting the City in a position with the rating agency moving towards an improved credit standing. He stated that this may take a couple of years but that this is something that they want to do. He stated that when they go out and do a revenue anticipation note again it will be smaller and less costly and it will not be difficult. He stated that they do not want to do this again. He stated that he knows that they have to do this again in October. He stated that during that time it will be a better situation. He stated that he has been in this business for about 35 years. He stated that the two most important factors today is absolute structure balance and having unassigned fund balance. He stated that they look at and that cash is king. He stated that the City is ready to roll and implement the given information. He stated that they are waiting on the audit financial statements. He stated that they expect to have this information done by the end of May. He stated that this is one of the things that they have no control over. He stated that the Robert Bobb Group is working as hard as they can. He stated that once this is in place then the City has the ability to go and try again and implement the bond. He stated that he is not present tonight to take any formal action. He stated that this is meant as an education session. He stated that they can see in the schedule that the month of April they are going to go and look at the revisit the status of unpaid obligations. He stated that they are going to look at the revenues of 2017 versus expenditures. He stated that they will pull all these things together for the structure of the 2018 balanced budget. He stated that they will work with the staff to meet with credit agencies and get the formal rating form from them. He stated that then they will get an approval from City Council sometime in May. He stated that Mr. Siegel with Sands Anderson will begin working on this. He stated that Mr. Siegel will take the lead on this process. He stated that the goal is late May to have City Council take formal action and then by the end of May have the audit financials done. He stated that this allows them to work towards the goal of the end of June to close this. He stated that no one can control this but that this will be driven by the audit financial statement. Mr. Bobb stated that one thing that they would like to do in working with the rating agency they would like to invite them to come to Petersburg and see everything for themselves. He stated that they will be able to see the growth, changes and improvements in the City. There was discussion among City Council and staff. 3. ADJOURNMENT: City Council adjourned at 7:31 p.m. *Audio available  Minutes from the Petersburg City Council Work Session meeting held on: March 14, 2017 -5– ______________________________________________________________________________ _________________________ Clerk of City Council APPROVED: _________________________ Mayor *Audio available