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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.