Informational Meeting

MINUTES Informational Meeting Tuesday, April 18, 2023, at 4:00 PM Carnegie Town Hall, 235 West 10th St., Sioux Falls, SD 57104 1. Call To Order Council Members Present: David Barranco, Sarah Cole (arr. 4:46 p.m.), Alex Jensen (arr. 4:03 p.m.), Rich Merkouris, Greg Neitzert, Marshall Selberg, Curt Soehl, Pat Starr Council Members Absent: None Council Chair Curt Soehl called the meeting to order at 4 p.m. and noted that there was a quorum. 2. Councilor Remarks Councilor Marshall Selberg spoke about the recent Coffee with Councilors that he and Councilor Pat Starr participated in. He said there was a good crowd and conversation. Selberg encouraged people to attend the Coffees, which occur on the second Saturday of the month. Starr thanked Councilor Rich Merkouris for restarting Coffee with Councilors. He then spoke about issues with the Sustainability Plan and an upcoming protest march; and thanked the Sioux Falls Police Department and Sioux Falls Fire Rescue for their open house. Starr concluded by mentioning the Lions Pancake feed and the Shrine Circus. Merkouris spoke about the Audit working group and their discussion of the future of Internal Audit. He said Council members will be getting a request for one-on-one meetings to share information and to get their feedback. Discussion will be held at the Audit Committee Meeting on May 17th and then will go before the Council at a later date. 3. Presentations A. 2022 Financial Results by Shawn Pritchett, Finance Director Presentation: Approximately 10 minutes followed by discussion Pritchett presented the end of year financials and summary, ahead of the first 2023 financial statement, which will be presented next week. He pointed out that Sioux Falls is the fastest audited city in the nation. They get their audits done in half time of other municipalities. Their goal is to get the audit done in 90 days, to allow for informed and timely decisions. Pritchett said this takes a lot of strong relationships and work with external auditors to make happen. Normally audited end of year financial results are presented. This year's results will be unaudited due to the implementation of some Governmental Accounting Standards Board (GASB) guidelines. Pritchett said it has been a challenge and delayed the process a bit. The final audit has been submitted to the Department of Legislative Audit and is under review by the State. The Audit Committee will review the audit at its May 17th meeting. Pritchett said, the final audit and final consolidated financial report numbers will match. Overall, it was considered a good year. He said that residents can rest easy knowing that this is a stable, well-run city that is financially strong. He spoke about GASB, which sets the rules for financial reporting. They have found that some of the rules being produced, have minimal value but take an extraordinary amount of time to implement. GASB 87 was implemented this year, which requires looking at leases and lease-like agreements. The review determines if the items must be treated like debt or a debt-like instrument. He said this applies even if it is not a capital lease. The process required hundreds and hundreds of leases to be reviewed; thousands of pages; assistance from two independent agencies alongside of staff; auditors; and assistance from an organization called Debt Book. The work resulted in booking $4M in operating leases as debt, based on a total balance sheet of $2.3B. Pritchett said it was very minimal impact but an extraordinary amount of time that went into this effort. He explained how leases are now expensed with the budget; and the changes that will be made. This year, software licensing subscriptions have become impacted. They will have to be reviewed to see if any of them need to be treated as debt. The Finance staff will be working on this this summer. Investments for 2022 were featured on a slide, which showed a combined investment for each of the City's service areas. Pritchett spoke about the key areas, which included: Water, Water Reclamation and Utilities; Public Safety; Highways & Streets; Culture, Recreation and Entertainment; and Housing. Capital Investments totaled $208.1M, of which Utilities and Highways & Streets, combined accounted for 77% or more than $150M. Pritchett provided an overview of the 2022 Enterprise Funds, which is comprised of: Water, Water Reclamation, Sanitary Landfill, Power and Distribution, and Public Parking. These are self supporting funds, based on user fees. The funds, which support capital programs, ended with positive balances. Pritchett said rate adjustments will need to continue to ensure that the City continues to be investable and growing. Total investments from the Sales/Use Tax Fund were $88.2M in 2022. This was capital supported primarily by the second penny use sales tax. Pritchett provided a breakdown of how the funds were spent. This included paying down $16.1M in debt service. Next, he spoke about the Sales Tax Collections without Audits, which were described as a rollercoaster. They were 6.6% in December 2019; -0.7% in December 2020; 19.3% in December 2021; and 12.2% in December 2022. He said we have been hovering around at a 4% rate for long-term trajectory. The 2022 Sales Tax remaining available balance is $12.9M. The 2023 Sales Tax Reserves and Available Balance is $3M in Reserves and $11.8M is available. This total includes a recommendation to replenish reserves. The 14.5% for December 2022 Entertainment Tax Collections without Audit is slightly higher than the general sales  tax. The available fund balance is $16.4M, with $6.2M being held by the Events Complex Manager. The most profitable year for the Events Center was 2022. The 2022 General Fund Revenues indicate: $196.2M Final Budget; $217.1M for Actual Results; and $20.9 for Budget Variance. The 2022 General Fund Expenses were $219.2M Final Budget; $212.2M Actual Results; with a $7.1M Budget Variance. Pritchett used a slide to walk the Council through the formula to show the creation of the 2022 General Fund Available Fund Balance. Next, he reviewed the General Fund Reserves 2022 Yearend Updated Forecast. Pritchett spoke about what's ahead for the City. Among the items included were: normalized expectations of revenues; inflation continues to be stubborn; and keep focused on high value quality of life investments. Discussion followed, regarding: the General Fund; PowerPoint graphics; the Entertainment Tax and no reserve; Sales Tax, with no double-digit projections; the Enterprise Fund; ARPA Funds; Transit Funds; and a comparison of the 2022 and 2023 Sales Tax, ending and starting balance. B. 22-06 Bidding Selection Process for A/E Services by Ryan Lauseng, Internal Auditor Presentation: Approximately 10 minutes followed by discussion Lauseng began the presentation by stating the audit was approved at the last Audit Committee Meeting; and provided some background. The City's Engineering Department works with other City departments to determine if a project requires outside professional services, referred to as Architectural/Engineering (A/E) services. The Engineering Department is the primary coordinator for these projects. A/E firms are selected by a process called Qualifications-Based Selection (QBS). The QBS framework selects A/E firms for projects based on expertise and experience rather than cost alone. Lauseng said QBS evaluates a firm's experience, expertise, training, availability, and references. He said projects that require these types of services fall into two major categories: ones that require a Request for Proposals (RFP) and those that do not. Any project that involves federal funding must undergo a rigorous and detailed RFP process. Lauseng said consultants must have their qualifications reviewed, scored, and ranked. Non-RFP projects utilize the QBS method, however the detailed federal requirements are used as guidelines. He said this audit reviewed projects that did not need an RFP, which are governed by Executive Order 104. They do not require the same type of detailed scoring process for each potential firm. Also, there are no specific requirements for what type of documents must be maintained, regarding the selection process. Lauseng explained the current selection process for A/E services; 1) Convene the selection committee; 2) Select a firm based on the qualifications of the available options; 3) The specific decision-making process, criteria considered by the committee, and factors weighed are not formally documented for most non-RFP A/E firm selections; 4) The conversations typically occur informally and are discussed in meetings and emails. The Objective of the audit was to evaluate the effectiveness of the processes, policies, and procedures pertaining to the selection of A/E service contracts. The Scope of the audit was detailed testing of non-RFP A/E service contracts from January 1, 2021, through December 31, 2021. Lauseng spoke about the three findings from the audit, which were: EO 104 Language Out of Date; Lack of Documentation for the Selection Process; and Maintenance of Approved A/E Firms list does not comply with EO  104. He said they recommended updating EO 104 to reflect the current qualifications-based selection practices; and that updated verbiage provide significantly more detail outlining the procedural steps and documentation required to enhance internal controls, accountability, and consistency. Management concurred with the recommendation and provided an improvement plan. Discussion followed regarding: the importance of the process; the following of the process; how a company can see the list of firms and how they can get on the list; can someone be removed from the list; is the list broken down into categories; can anyone see the list; how does the process work; can a firm speak to someone if they aren't selected; documentation; and a thank you to Lauseng for his work. 4. Public Comment There was none. 5. Executive Session A. Consulting with legal counsel or reviewing communications from legal counsel about proposed or pending litigation or contractual matters pursuant to SDCL 1-25- 2(3) A motion was made by Council Member Jensen and seconded by Council Member Barranco to enter Executive Session at 5:05 p.m. Roll call vote to enter Executive Session. 7 Yes: Barranco, Cole, Jensen, Merkouris, Neitzert, Selberg, Soehl; 0 No: (None). Motion Passed. 6. Adjournment The meeting adjourned at 5:17 p.m. Denise D. Tucker, MMC, Assistant City Clerk