HomeMy WebLinkAbout2011-02-22 Finance Committee Minutes
FINANCE COMMITTEE
February 22, 2011
Minutes
Council Attendance: Bronson, Durgin, Nealley, Blanchette, Longo
Staff Attendance: Cyr,
Others: Roger LeBreux, Jen Connors
1. Presentation of FY 2010 Audit Results
Cyr noted that Roger LeBreux and Jen Connors of Runyon Kersteen Ouelette were in
attendance to review the FY2010 audited financial statements. Copies were previously
provided to the Committee. LeBreux noted that the City has received an unqualified
opinion which means it is a clean opinion in all material respects. Materiality is
calculated and is used as a threshold for auditing procedures. The City received a CAFR
(Comprehensive Annual Financial Report) award in 2009 and he is confident that it will
receive a 2010 award as well. Government Finance Officers Association (GFOA) puts
out a Comprehensive Annual Financial report and an audit report has to include more
than a typical audit in a specific format. It is then reviewed by people independent of
Maine to make sure it passes all requirements. The City has received the CAFR for
thirteen years.
LeBreux and Connors reviewed the financial statements. Bronson spoke of the total
assets which had increased by $367,000 and asked if the Penn National/Hollywood
Slots money was included. Cyr responded that it is held elsewhere.
Cyr asked the limit of carry-forward for education. LeBreux said it is 3% of the School’s
budget. Bronson said that the school has some form of an undesignated fund balance.
LeBreux clarified that it is all within the designated. If the school has revenue in excess
of expenditures in any given year, Cyr said it all ends up in designated fund balance.
Responding to Bronson, Cyr said that the defined purpose is education. Durgin clarified
that a school surplus could be used to offset a state revenue reduction, as an example.
LeBreux agreed.
In total the City’s fund balance for all four components increased by $463,000. LeBreux
commended the City and School. Nealley asked what other communities have as a
percentage of undesignated fund balance. LeBreux noted that it is contained in the
report. Nealley spoke about comparative mil rates. LeBreux said that the valuation
needs to be considered along with the mil rate. Nealley wondered if some communities
had used the undesignated fund balance so as to avoid a mil rate increase.
Connors reviewed a summary of the general fund revenues. Cyr noted that the
negative variance of $1.2M is mostly related to the School Department as they carry
forward a significant portion of fund balance on an annual basis in excess of a million
dollars. It shows up as a negative. Responding to Durgin, LeBreux noted that the City
is reimbursed 50% of what it pays out for general assistance. Once a specified
spending threshold is crossed, Cyr said the City receives a 90% reimbursement rate.
Conlow noted that the State did delay payments last year until after July 1. LeBreux
said that would be included in receivables. Cyr said that the City is currently at 98.3%
of its budgeted expenditure. LeBreux credited the City’s Finance Department for having
current financial data month after month.
The largest percentage of revenues come from taxes followed by intergovernmental
revenue and then from charges for services. Under expenditures, education is the
biggest piece followed by public safety, public buildings, and general government.
Longo asked how 51.19% of the school education funding compares to other
communities. LeBreux said it never seems higher than 55% or lower than 49%.
Comparatively, it is within a 5% range.
LeBreux reviewed comparative tax collection rates for the five largest Maine
communities. Cyr said the percentage reflected is the percentage of collection on the
current year assessment. It does not include past year assessments. In total for real
estate and personal property taxes for 2010, the City actually received 99% of the
commitment when counting all of the back years.
Connors reviewed the tax rate chart for the past ten years. LeBreux reviewed the same
tax rate charge for the same five municipalities.
Connors reviewed the General Fund’s fund balance broken down by the different
categories over the past 10 years. The undesignated fund balance has remained
relatively the same with some slight fluctuation. The designated fund balance has
increased steadily over the past few years. The biggest pieces are carry-over balances
for the School Department and self-insurance. The reserve fund balance has stayed
relatively the same. Responding to Bronson regarding self-insurance, Cyr said the
major portion of risk for which the City is self-insured is workers’ comp. The City pays
out an estimated $700,000-$800,000 in actual claims, safety and training as opposed to
purchasing commercial insurance which would be in the area of $1M. The City does
purchase an excess policy for workers’ comp in case there is a claim that exceeds
$500,000. In that case, the policy would kick in.
LeBreux reviewed the Enterprise Funds. Because of significant amounts of capital grants
at the harness racing facility, the Bass Park total fund balance is in the black. This is
the unrestricted piece. The reserved piece would put it in the black for the first time in
a long time. The Parking Fund has a slight deficit, the Golf Course has always held its
own, and Park Woods has some shortfalls. Connors discussed the larger Enterprise
Funds: Airport, Sewer, and Economic Development Funds. The Sewer Fund had a
slight decrease over the prior year. The unrestricted net assets are the piece of net
assets that is not already in there as capital assets and that of related debt. Total net
assets for the Sewer Fund actually increased by $997,000. This is the piece that is
available for future use. LeBreux noted that the Enterprise Funds run as a business,
they carry their own debt, carry their assets and depreciate these assets over the
expected life. The Airport Fund has decreased steadily and total net assets have
decreased as well. This year, expenses did exceed revenues and the total decrease
was $3.9M. In the Economic Development Fund, both unrestricted and total net assets
decreased over the prior by $94,000.
Responding to Bronson asked, Cyr said she is working on proformas because the City
needs to consider instituting a rate increase. This will come forward at an upcoming
Infrastructure Committee meeting. In 2014, the Sewer Fund debt payment will be paid
off which will drop the debt service nearly $2M per year. This will allow monies for
other needed improvements. The Water District is planning a rate increase of 10-15%
in June or July of 2011. The City’s practice has been to stay off the District’s rate
increase.
Lebreux addressed the undesignated fund balance. The City has a policy that controls
its undesignated fund balance as a percentage of its operating expenditures excluding
debt service. A more common calculation is a percentage of the budget. Runyon likes
to see anything from 8% to 16% which is one to two months expenditures on hand.
The City is at 8.93%. LeBreux said it could be doubled and not be quite where the
credit agencies would like but it doesn’t mean a black mark in terms of bonding.
Connors discussed the debt service as percent of the budget. The City’s debt service as
a percentage of its expenditures is 2.4%. A portion of the debt service is actually
buried in the education piece making the number actually around 8%. This is non-self
supporting debt and does not include the Enterprise Fund debts. Cyr asked if it
includes the pension obligation bond debt. LeBreux said yes; it is about $8M of debt
service. Credit agencies also look at the debt per capita – population divided into the
outstanding debt. Debt per capita is non-self supporting. Being at just over 2,000 is a
favorable indicator for the City. Cyr and Nealley discussed the pension obligation bond
debt. Nealley and LeBreux discussed the difficulty of raising the undesignated fund
balance.
LeBreux said the City receives many grants which require a single audit testing over ten
major programs. The City received and spent over $20M in grant monies. He noted
two findings which were school related. One was because of the stimulus funds and an
unusual requirement related to reporting. Another was cash management. The funds
should not be drawn down faster than needed. This has been discussed with the
School Department and corrective action has been taken to resolve it.
Blanchette spoke about tightening up policies of cash being accepted by three
employees at Bangor PD and the need to have a paper trail. Responding to Longo,
LeBreux said his firm has performed the City’s audits for 14 years. LeBreux noted that
any comments he makes are limited to internal controls. Cyr said the audit contracts
goes out for bid every five years for a three-year contract with the ability to extend for
an additional two one-year periods. The current contract has one year remaining.
LeBreux said that the compliance portion of Bangor’s audit is one of the most
complicated. In response to Blanchette, he said that inventory has been an internal
control problem. It would be a disservice not to do inventory. (There was more
conversation from Blanchette but her mic was not on). Cyr talked about the greatly
improved computerized inventories at Public Works and Fleet Maintenance. Durgin
agreed with Blanchette on the importance of the audit. As a relatively new Councilor,
he is very pleased to find a complete auditing system in place, inventory control
systems that are being worked on, and control systems that are working. Nealley and
LeBreux talked about the bond market and interest rates. Cyr noted that the
Government Accounting Standards Board has issued a new standard with which the City
has to comply. The City has to change the way it defines and segregates the fund
balance. The designated and undesignated terminology will be changed effective June
30, 2011. Cyr is working on the policy change which will need to be adopted by June
th
30. The City’s financial advisor, Joe Cutera, will be asked to meet with the Council.
Responding to Bronson, Cyr said the audit cost is about $65,000/annually.
2. Bids/Purchasing
a. Request to Award Contract for Catch Basin & Manhole Components Citywide
to American Concrete Industries
The City has a supply contract for catch basin and manhole components. The City went
out for bid notifying seven area businesses, it was posted on the website and posted in
the BDN. On the due date, no responses had been received. Cyr was subsequently
called by American Concrete, the vendor who has been supplying the contract since the
closing of Gagne PreCast, who had intended to submit a bid but it didn’t reach City Hall
that day. She asked for them to submit a proposal as to what they were going to bid.
The estimated annual cost is over $22,000 based on estimated annual quantities. Their
pricing offer is not unreasonable when compared to what was bid six years ago. They
are virtually the only supplier of this component within ninety miles of Bangor. Cyr
recommended award of the contract to American Concrete. A motion was made and
seconded to accept staff recommendation.
b. Discussion of Current Bid/Contract Award Policy Provisions
At the last Finance Committee, the Committee discussed trying to move away from of
the supply type issues and moving more towards policy type discussions at the
Committee level. Cyr said the Committee spends a significant amount of time
discussing bids and contract awards. Any bid or contract in excess of $10,000 must be
reviewed, approved and/or recommended to the full Council by the Finance Committee.
Cyr suggested that consideration be given to allow staff to award certain bids and
contracts within certain defined parameters. There are three areas: supplies
(manholes, catchbasins, boots), services (surveying, marketing, advertising,
engineering), and capital equipment and improvements (runway sweepers). As a
starting point, Cyr suggested that staff be allowed to award bids or contracts where
items are within the current budget allocation, when the recommended vendor is the
low bidder, and the City has direct past experience with the vendor. She reviewed a list
of caveats as presented to the Committee by memo.
Cyr noted that all of the provisions are included within the Purchasing Policy asking if
the Committee would want to amend that policy or roll this out as a pilot program for a
year. Responding to Blanchette, Conlow said that after hearing the auditor’s
presentation it is clear that the controls are in place in the Finance Department are
adequate. You have to be careful anytime that bids become complicated and those
should come to the Committee. Conlow felt that Cyr’s presentation was well thought
out and is comfortable with Cyr’s suggestions. If this process is approved, Blanchette
asked how the Council will be informed of these bids. Her preference would be that if
the suggested process is put in place that the items come through on a Council’s
consent agenda. Bids that are under $100,000 do not go to Council now. Cyr said
that a monthly summary could be provided and placed on the consent agenda of the
Finance Committee. Nealley expressed support of the suggestion. Nealley talked about
the service contract limit being moved to $50,000. Nealley approved staff
recommendation. Durgin spoke about capital equipment/improvements with a value of
$50,000 or less and multiple bid purchases as well as sole source purchases. Cyr said
that sole source purchase contracts will come forward to the Finance Committee
through the waiver of the bid process. Durgin asked if Cyr would want the Committee
to review the total Purchasing Policy. Durgin said that at some point he would like to
see a summary of the total Purchasing Policy for review. Longo agreed. He talked
about a local bid within a certain percentage of a non-local bid coming to the Finance
Committee.
A motion was made and seconded to approve staff’s recommendation which will amend
the Purchasing Policy by adding Cyr’s suggestions. Cyr will bring the amendment back
to the Committee in a different format/structure. Bronson talked about the lack of local
vendors and finding out why they did not bid. Cyr didn’t feel it should be included in
the policy as such but could be included in the monthly reporting. Responding to Longo,
Cyr said if there were two bids for a specific item, one being $20,000 and $20,100, and
the lower bid was from Texas and the higher bid from a Bangor business, the bid would
return to the Finance Committee. Expanding upon local preference language that
currently exists in the Purchasing Policy, Cyr said it becomes part of the overall review
discussion of the Purchasing Policy. Bronson said that the Council needs to do some
management of these situations. In the last few years, this Council has pushed the idea
of favoring local businesses when it is reasonable to do so.