Audit and Investment Commission

City of Woodbury Audit and Investment Commission Minutes August 5, 2020 Pursuant to due call and notice thereof, a meeting of the Audit and Investment Commission was held at Woodbury City Hall, 8301 Valley Creek Road, on the 5th day of August, 2020. Item 1: Call to Order Acting Chair Ken Johnson called the meeting to order at 7:34 a.m. Roll Call Upon roll call, the following members of the Audit and Investment Commission were present: Heidi Conrad, Blake Darsow, Jeanine Kuwik, John Lehman, Rick Osborn and Acting Chair Ken Johnson. Ross Dahlin and Aileen Lyle were in attendance via telephone. Others present: Matt Mayer, CPA - Auditor, BerganKDV; Clint Gridley, City Administrator, Amy Scoggins, Council Member, Tim Johnson – Finance Director; Judy Afdahl – Assistant Finance Director and Roxy Nowicki – Recording Secretary. Jody Brown, Human Resources Manager was in attendance via telephone. Item 2: Approval of Minutes – December 11, 2019 Moved by member Osborn, seconded by members Conrad and Lyle to approve the December 11, 2019 minutes. Voting in favor: All present Voting Against: None Item 3: City of Woodbury Audit Results – Presentation by Matt Mayer, CPA of BerganKDV Acting Chair Johnson thanked Auditor Mayer for being at the meeting to present the audit results. Independent Auditor’s Report: Auditor Mayer handed out the audit presentation and stated the City has a responsibility each year to prepare financial statements for the public and the auditor’s job is to test, examine and give an opinion on those financial statements. He commended the work of the Finance Department under the leadership of Mr. Johnson and Ms. Afdahl. As in years past, BerganKDV offered an “unmodified opinion” which is the best they can offer. This means the numbers are materially accurate and a true picture of the City’s financial performance for the year. They also issue a report as required by the Office of the State Auditor, looking at compliance with certain state statutes, and there were no findings. Auditor Mayer also stated there were no findings when it came to internal controls. Auditor Mayer then stated the City goes above and beyond the minimum requirements for financial reporting. The Comprehensive Annual Financial Report is the most complete, transparent document that is possible when it comes to local government. It is not mandated that the City prepare this report; therefore, it shows the desire for full transparency. It is an award-winning document that gets submitted to a national organization to be evaluated. The City received the award in 2018 and it is anticipated the award will be received for the 2019 fiscal year as well. General Fund Budget - Auditor Mayer stated the General Fund is the main operating fund of the City. The original budget for the year was balanced, it was $33 million of in-flows, $35 million of spending and $2 million of transfers from utility funds. During the year, Council amended the budget, moved revenue projections up approximately $500,000 and allowed for another $500,000 of spending. The plan was to spend down the fund balance by about $400,000. Revenue for the year was approximately $2 million better than anticipated - $35.6 million on a $33.3 million budget. Licenses and permits came in better than anticipated and investment income for 2019 Audit and Investment Commission Minutes August 5, 2020 Page 2 was significantly over the planned amounts. Expenditures for the year were $1.5 million under budget. All departments and all functions of the General Fund contributed. The transfers that were budgeted were ultimately made. Rather than fund balance going down $400,000 during the year according to the budget, the fund balance in the General Fund for 2019 increased $3.2 million. Auditor Mayer continued with his presentation reviewing the five-year history of the fund balance. He stated the first four years show a nice graduated increase from 2015 to 2018, but then it spikes up in 2019. He then went on to talk about the City’s financial health as measured by fund balance in relation to the City’s fund balance policy. The City’s fund balance policy states that you want to have 30 percent of next year’s budget in fund balance at the end of each fiscal year. The City generally manages that amount, so if there is a surplus over and above that amount at the end of each year, that is swept out to capital improvement funds to help fund future renewal and replacement costs. That decision was not made in 2019. There are a lot of unknowns related to the Covid situation and the choice of the City was to take what would have been a sweep to capital, which was about $2.2 million, let that stay in the General Fund and use that as a contingency for what might lie ahead from City operations. For 2019, because the transfer to the capital funds was not made, the fund balance represents about 44 percent at the end of 2019. General Fund Revenues – Auditor Mayer stated the General Fund is a little bit unique in its revenue stream. About 2/3 of the revenue stream comes from property taxes. What is unusual about property taxes in Minnesota is that they do not arrive until May or June. General Fund revenue was up about $2.1 million, which is approximately six percent over 2018. About half of the increase is from property taxes; the other category that contributed was fines, forfeitures and other, which was $775,000 higher than the 2018 number. General Fund Budget to Revenue – Auditor Mayer continued by stating the budget to actual for the different categories have been very consistent, with the exception of licenses and permits which outperformed by approximately $1 million (development activity was better than anticipated). General Fund Revenues by Sources – About 70 percent of General Fund Revenue is based on property tax. Licenses and permits is one of the main sources (15 percent of the budget), intergovernmental revenue is low (five percent), charges for services is development driven (engineering costs, plan check fees, etc.) and then fines, forfeitures and investment income make up about five percent of the budget. General Fund Expenditures – Auditor Mayer stated that expenditures in 2019 actually went down 1.1 percent. If transfers out (which represents the amount that goes to the Capital Improvement Fund to manage the fund balance levels in the General Fund each year) are cut out of the equation, it was approximately a four percent increase from 2018. Some areas where spending increased was Public Safety, approximately one-half million dollars for the year due to some special work done for professional fee activity, a property room audit, staffing studies, and record management system with Washington County. Public Works also had expenditures during the year that were mostly personnel related. That spending was in the context of the budget, and if we compare it to the budget, it was actually approximately $1.5 million under the budgeted amounts. General Fund Expenditures by Function – Auditor Mayer stated that that the main function of the City as far as the dollars being spent is Public Safety. Forty-one percent of the budget went to Public Safety in 2019. Public Works (Streets Department) was the next highest at 19 percent and then General Government at 17 percent. These numbers are very consistent from year to year. Audit and Investment Commission Minutes August 5, 2020 Page 3 Auditor Mayer asked if anyone had any questions on the General Fund. A question was asked related to licenses and permits – there was over $1 million increase compared to budget. When looking at the MD&A, they talked about conservative estimating on that category. Mr. Johnson stated that some of the numbers are year to year. In the MD&A, when compared to budget, the City prepares a very conservative budget for licenses and permits, primarily because it is very difficult to understand how many new homes are going to be built, as well as the commercial activity. The City is conservative with the numbers and we do outperform our numbers consistently in permit activity. Those monies that we would collect above and beyond the budget are swept into the Capital Fund and the Capital Fund assumes a certain level of transfer from the General Fund. If we were to change and get more aggressive on the permits, we would have to change how we budget the Capital Fund. Mr. Gridley then stated that there is project coming up regarding parks and trails. A project was started where everything in the parks system was counted (trail, playground, ballfield, net, hoop, etc.). This has all been accounted for and a preliminary number has been submitted to the Council. A discussion then ensued about the upcoming meetings of the Audit and Investment Commission and the Parks and Natural Resources Commission regarding funding the parks and trails system. Debt Service Funds – Auditor Mayer reviewed the Annual Debt Service Payments chart. This chart shows the capacity of the City to take on new debt and amortize that debt. He also stated a better metric is the Debt Per Capita. Bonded debt per population, the number for 2019 is approximately $536 per person in the City. Of that debt, approximately one-third is special assessment debt. The true per capita debt is closer to $350-$400 range, which is on the low end compared to the City’s peers. A question was asked if the City intends to refinance any of the long-term debt. Mr. Johnson stated that there is an upcoming bond issue related to the street reconstruction project which was pushed to the fall because there is a 2010 bond issue that is eligible for refinancing. The Treasury changed the regulations and eliminated advanced refunding which allowed the City to sell bonds and refinance years in advance of the call date; we now have to wait until 90 days within the call date to refinance. The City has a bond issue from 2010 that the City will lower the interest rates on come the call date on February 1, 2021. This is the only bond issue that is within that 90-day window. A discussion ensued regarding the issuance of debt, and how the City does not issue debt for equipment unless it is for a long-term asset such as a building, etc. The City does not have a lot of debt in the operational side. After discussion, Auditor Mayer continued with his presentation. He stated that depreciation expense for the enterprise funds are very significant, they are very infrastructure heavy and there is not the rate structure built in to cover major capital improvements. Enterprise Funds - HealthEast Sports Center (HSC) – Auditor Mayer stated that revenue was up $100,000. Expenses were also up $100,000. There was some success in renting out additional ice time and field house time. The personnel cost associated with running HealthEast is where the additional expenses occurred from an operating standpoint. If depreciation is factored out, operating income is approximately $578,000. Mr. Johnson stated that there is a long-term capital plan for the use of those funds – everything at HSC except for replacement of the building. Street Lighting Operation – Auditor Mayer stated that this fund is consistent. Water and Sewer Utility – This is a well-performing fund. The depreciation expense of over $3 million drives a gap loss each year of about $1 million; however, factoring that depreciation expense back out, cash flow is showing positive in this fund of $2.3 million. This money represents a contribution towards a long-term replacement plan. Audit and Investment Commission Minutes August 5, 2020 Page 4 After a short discussion, Auditor Mayer continued by stating that water usage in 2019 was down approximately 8.7 percent – partly due to conservation efforts and partly due to weather. Revenue growth this year was strictly related to the sewer portion of the fund. Auditor Mayer said that Woodbury is outperforming a typical city when it comes to depreciation. A discussion ensued regarding the gap between pumpage and billing. A question was asked if street lighting charge is on the City of Woodbury water bill. Mr. Johnson stated that yes, the street lighting charge is on the water bill (except for older neighborhoods that do not have street lights). The City gets a bill from Xcel and this charge is passed through to the residents on the utility bill. Storm Water – Auditor Mayer continued by stating that the rates and the number of customers both went up in 2019, which resulted in an increase in the revenue. The main spending in this fund has to do with storm water maintenance. Depending on the timing of those, that can go up and down from year to year. There was some planned maintenance which was deferred into the next year. Eagle Valley Golf Course – This fund has shown consistent operating income, with and without depreciation factored in. That number has actually been growing the last couple of years (2017-2019). 2019 was a very good year. The course was shut down the early part of the year, but has had historically high rounds since it has been open. Woodbury has been perceived as a benchmark course. Tax Capacity, Levy and Rates – The growth of the tax capacity of the City over the last five years has been steady. The total property tax levy of the City has grown nominally over the last five years. 2019 represented the lowest property tax rate at approximately 33 percent. Government Funds Revenue - Auditor Mayer stated a typical city in the peer group receives $1,008 in revenue per capita. In 2018, Woodbury received $1,032. For property taxes, Woodbury is right in line with the peer group of $483, compared to $493. Woodbury is much more special assessment heavy. Regarding intergovernmental revenue, Woodbury receives little to none local government aid. A typical city is getting $157 per capita, and Woodbury is receiving less than half of that, at $88 per capita. A short discussion ensued regarding the $2.2 million contingency fund. Mr. Johnson projects that when you take the expense savings and the revenues, the City will be below approximately $500,000 and $1 million. However, the City did carry over a significant fund balance from 2019 to 2020 to help buffer this. Expenditures per Capita - Auditor Mayer continued with Expenditures per Capita. Expenditures are broken into three categories: 1. Current spending which is the every day operating cost of running the City. Typically a city the size of Woodbury spent about $686 per capita in 2018, Woodbury spent approximately $100 less than that. 2. Capital shows the development activity of the City. A typical city spent about $300 per capita, Woodbury is approximately 50 percent higher than that, continuing to be in development mode. 3. Debt service is the payments of principal and interest on outstanding debt. A typical city is approximately $140, Woodbury is half of that at approximately $83. Item 5: Questions and Review of Audit Materials Following Auditor Mayer’s presentation, Acting Chair Johnson asked if there were any questions. Hearing none, he then thanked Mr. Mayer and the City on another clean audit. Audit and Investment Commission Minutes August 5, 2020 Page 5 Item 6: Review of City Council and Mayoral Compensation Acting Chair Johnson referenced the memo and chart that Mr. Gridley sent to the Commission members. He stated there were two questions that were sent in: Question 1 – How much time do Council Members and the Mayor spend working? The dollars don’t mean much without a unit of measurement. Mr. Gridley stated that it is hard to quantify how much time the Council spends. As the City grows, the demand grows. The email volume so far this year has been a lot and there have also been a lot of meetings. Others may put more time in than others – just going to meetings versus getting involved. Activity level has really jumped and citizen engagement demands are growing. A discussion ensued related to peer group comparison, per capita consideration and the offering of health insurance. Member Lyle asked how many council members actually use the health insurance. Mr. Johnson stated that none of the council members use the health insurance (health insurance is offered to council members at 100 percent cost). In the past, one council member did utilize it. Acting Chair Johnson stated the second question that was asked related to per capita analysis, which was discussed previously. After a short discussion, it was decided to leave health insurance as an option. Member Lyle stated her recommendation would be to not change the policy right now and continue to collect the data and maybe after another year or two of per capita comparisons the policy can be modified. All commission members agreed to leave the policy as is and continue to collect the data and revisit in two years. Item 7: Other Business 1. Mr. Johnson handed out agenda materials for the August 13 meeting regarding Parks and Trails Replacement Fund. 2. The City extended the audit contract another three years with BerganKDV. Auditor Mayer gave a proposal with a no cost increase over 2019 for the next three years. This is driven primarily by the fact that the City received a very significant grant (the Coronavirus Aid Grant) of $5.2 million. This is going to be subject to single audit. The rules are very murky right now and the City needs someone under contract regarding that. 3. Mr. Johnson also shared that he is retiring October 2. He will be staying on another six months in a part-time capacity as Treasurer. The Commission offered congratulations to Mr. Johnson. Item 8: Adjournment The meeting adjourned at 9:05 a.m. Approved by the Audit and Investment Commission on November 12, 2020