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HomeMy WebLinkAbout2006-01-04 Finance Committee Minutes ' � FINANCE COMMITTEE 7anuary 4, 2006 , Minutes Councilor Attendance:Stone, Palmer, Cashwell, Farrington, Gratwick, � Hawes, D'Errico Staff Attendance: Cyr, Barrett, Pellegrino, Cammack, Mitchell, � 1. Consent Agenda Stone introduced the Consent Agenda. Councilor Palmer, Director of Northeast Combat, excused himself due to a conflict of item with item (e). A motion was made and seconded � to excuse Palmer. A motion was then made and seconded to approve the Consent Agenda. a. Quitclaim Deed — Lockard — 39 Merrimac Street , b. Quitclaim Deed — Mountain — 134 Warren Street c. Emergency Purchase Update — Plow Parts —Airport d. Quitclaim Deed — D'Alessio — 29 Heritage Lane � e. Quitclaim Deed — Northeast Combat— 109 State Street 2. Bids/Purchasing � a. Ambulance — Fire Department— Custom Emergency Vehicles of New England - $90,610. Pellegrino said the Fire Department keeps its fleet up-to-date and purchases an ambulance on an annual basis. Cammack said there is one spare unit at each � station. A motion was made and seconded to approve staff's recommendation. b. Sole Source Purchase — Gas Detection Meters — Risk Management. Pellegrino said there � are about 10 meters that are used by various City Departments primarily in confined spaces to test for dangerous gases. The meters measure carbon monoxide, methane, oxygen, and hydrogen sulfide. The meters have to be calibreted on a regular basis, and there are currently different models and levels of training for � employees. The City's Safety Committee has recommended that the City enter into a contract with Industrial Scientific, a manufacturer of ineters. The proposed service � includes the manufacturer monitoring the calibration o€the meters through docking stations and the internet. If a problem exists, Industrial Scientific would notify the City and overnight express a replacement meter. The cost is $1,445/month � ($17,000/annually) and the cost will be prorated amongst the various departments. To purchase the meters outside would be in excess of$40,000. Staff recommended a four-year lease with Industrial Scientific and then would make a determination � after the four years as to whether to continue or to purchase the equipment outright. Except for the consideration of calibration, Farrington thought it more prudent for an outright purchase. Calibration service and monitoring is estimated at , $700/month; leasing of the equipment is estimated at $700/month. The life of the meter is approximately 10 years. Mitchell said the monitoring system also tests the sensors in the meters. The lease arrangement includes replacement of sensors , which range in $Z00-300 per sensor. Cyr indicated the calibration service is part of the $17,000/annually. farrington asked if a study had been done regarding the savings of an outright purchase versus the risk of faulty equipment. Over the four- � , , year period, Cyr responded that it would be $35,000 in equipment costs. ` Responding to Gratwick, Mitchell said the City would not own the equipment at the end of four years. Industrial Scientific is the only company ofFering this type of ' service. Gratwick asked about competitive bids. Cyr said there is a competitive environment for an outright purchase. Cyr said one of the concerns is that employees are not experts in troubleshooting gas monitors. Gratwick said the city � has highly intelligent skilled employees who are aware of these situations. Cammack said the staff recommendation is to standardize the equipment City wide and more importantly it will provide clear concise documentation for the Bureau of Labor � Standards and will eliminate issues with employees using faulty equipment. He said that is the main reason for recommending the lease agreement with calibration services. Gratwick asked how many times the City has found faulty sensors over the � past ten years. Cammack said when he has sent faulty monitors for repair the bills have ranged in the $800 area. Cammack feels the life of Yhe monitors is 4-5 years. Cyr said it is the staff's position that employees who are using the monitors , understand how to use them but they are the people who are doing the work, they are not the people sitting with their laptops and plugging them in. There are not the resources to have an employee be the�gas meter expert and that is why the staff � recommends leasing. The City does not want an employee who isn't trained trying to figure out the monitor or worse yet that they go without a meter, which is what happens now. That needs to be avoided. Palmer doesn't think the City should take � a risk with its employees. There are real risks involved. There is no substitute for the employees and their safety. The overall four-year costs are insignificant when compared to an injured employee. He thinks stafPs recommendation should be � approved with monitoring over the period of the contract and then make a decision based on experience. A motion was made and seconded to approve staff recommendation. Gratwick agreed with Palmer's comments regarding City employees but would like to see further information on other systems that could � provide the service equally well for a lesser cost. Gratwick doubted the motion. 3. Request to Review Insurance Carrier's Decision � This item was brought fonvard at the last Finance Committee meeting by request of a citizen. Since the last Finance Committee meeting, Stone and Heitmann met with the citizen privately. The citizen indicated she still wanted to meet with the Committee but did , not appear at this meeting. Heitmann had notified the citizen by letter of the meeting but did not receive a response. Farrington made a motion to approve staff's recommendation. It was seconded by Palmer. � 4. Workout Agreement—268 Odlin Road Little explained that staff proposed that the City enter into a three-month agreement with � Mr. Simpson with a balloon payment of all taxes at the end of the three months. Staff also recommended a provision in the agreement stipulating that at the end of three months, if litigation issues with Mr. Grey (the sole shareholder) is still in process, that the City will look ' at extending the workout agreement and will determine the terms. Also at that time the City will call for monthly payments to be given out of revenues from the property. Little said that originally the payment in full would be required in six months. The City Solicitor ' has spoken with Simpson's attorney and the City is willing to remove the six months out of the request and focus on the three month agreement with a possible extension for an � , � � undetermined amount of time. Cashwell said there should be a specific target for a pertormance level estimation of Simpson's business. Heitmann indicated that Simpson � anticipates he will have an analysis on revenues within sixty days. Heitmann has told Simpson's attorney that documentation is expected. Annual taxes on the property are $30- 40,000/year. Responding to Gratwick, Little said this is a workout agreement for taxes � already due. Payments are based on the revenue. This situation is unique in that the taxpayer is unable to commit to pay anything at this time. Staff put the proposal together to provide the taxpayer time to generate revenue. The City has a lien of$180,000 on the property. The property is assessed for $2.1M. Heitmann said if the taxpayer doesn't � comply, the City has the option to take possession of the property. Workout agreements are based on income/revenue of the taxpayer. Cashwell asked if staff had checked into mortgages against the property, income tax retums, and why is there a full year tax lien � that hasn't been taken care of to date. He also questioned staff's recommendation for the 90-period without a target date, expectations, etc. Cyr said with a tax lien the City taxes take precedence except for the IRS. Ultimately, the City will receive the $180,000. � Heitmann said Simpson does not currently have a mortgage on the building. Due to the bar�kruptty with Ques, Inc., Simpson does not have deed to the property. Until receipt of the deed, Simpson has been unable to secure bank loans. Courts have allowed Simpson to � take possession and control of the property. Farrington made a motion to approve staff recommendation. Motion was seconded and received unanimous approval. Stone asked why Simpson was not in attendance. Stone suggested the City obtain a certificate of 1 insurance. Heitmann said it would be part of the workout agreement for Simpson to have insurance in place listing the City as the main insured. Palmer supported the motion but expressed misgivings. As part of the agreement, the Finance Committee will have final � approval. Staff will be back in three months with an update before that time. 5. Executive Session — 1 MRSA Section 405 (6) (E) —Workers Comp Settlement ( A motion was made and seconded to go into Executive Session for the following three items. Palmer asked that the viewing public be made aware that the Committee is going � into executive session but will be coming back for discussion of Item 10. 6. Open Session— Decision—Workers Comp Settlement , A motion was made and seconded to recommend settlement to the full Council. � 7. Executive Session — 36 MRSA Section 841 (2) — Hardship Abatement (a) 8. Open Session— Decision Hardship Abatement (a) ` A motion was made and seconded to approve the abatement. � 9. Executive Session — 36 MRSA Section 841 (2rHardship Abatement (b) 30. Open Session — Decision Hardship Abatement (b) ! A motion was made and seconded to approve the abatement. � � � 11. Presentation of the Independent Auditors of the 2005 Pinancial Statements � Cyr presented the annual comprehensive and financial report that the City prepares and ' which is audited by Runyon Kersteen and Ouellette, the City's external auditor. Runyon condenses the 140-page document into a presentation. Roger Lebreux of Runyon indicated that Runyon has performed the audit for the past 8-9 years and he has been � involved in all of them. He indicated the financial statements include both the City and School Department. The City has received an unqualified opinion, which means it is a clean opinion. Lebreux indicated the general fund has major asset categories: cash, � investments, taxes receivable, and accounts receivable. He spoke of due to and due from accounts which records activities in other funds but have the cash all recorded in the general fund. Cash and investments decreased by approximately $4.6M over last year in � part due to timing. The due from other funds actually increased by $2.2M and accounts payable is down by about $700,000 as is the fund balance by approximately $1.2M, which is part of the budget process to use some of the fund balance. Outstanding taxes are old years as well as current and remain relatively stable as did the tax colledion rate. The tax � commitment increased by $600,000. Cyr addressed the cash and investment number of$4.6M due in part to an extremely high � accounts payable at the end of June 30, 2004. $700,000 went to liquidate prior year expenditures. Checks weren't issued until after year end. The increase in the due from other funds all relate to the work at the Waterfront. There was $SM due from the State, , another $1.2M due from the Federal. The work was done in the spring/summer and by the time the money is received several months have passed. About $900,000 from the designated fund balance was used for certain capital items that were approved in the � budget process. All of that contributes to a reduction in cash in the generel fund. Increases in accounts receivable are contributed to amounts due to the intergovernmental receivables. � Regarding liabilities, Lebreux indicated it is unpaid obligations with the more significant being accrued wages (payroll for City and School eamed in June but paid subsequent to � June 30) which decreased this past year by $184,000. The $3.4M is city payroll, almost $2.7 is the remaining teacher contracts. It is unusual to see accounts payable cut in half but Bangor always has significant construction projects ongoing. Workers Comp went , from $608,000 to zero due to a change in accounting standards. Liabilities are no longer allowed to be accrued unless they are to be paid shortly after year end. The definition of shortly is'all but having a check cut.' Gyr said it is recorded but not on the financial � statement as a liability. The funds are now in a designated fund balance. Lebreux spoke of the City's fund balance: reserve, designated City, designated school and � undesignated. The reserve fund balance decreased by approximately $145,000 which is made up of $1.4M in long term advances to other funds and $950,000 of outstanding encumbrances. The undesignated fund balance increased by $230,000 and the school's � fund balance by about $72,000. Lebreux explained that the net decrease of the fund balance from operations is only $652,000 because the workers comp is now a fund balance designation. As part of last years budget process, Lebreux indicated the Council � had planned to use $1.240M and operations deficit was $1.260M. Cyr gave a brief explanation regarding fund equity, reserve, designated, City designated, School � � ' idesignated, etc. Regarding the $230,000 increase in undesignated fund balance, Cyr said that on January 1 that amount was expended for the Penobscot River Cleanup. � Lebreux explained a budget to actual graph dealing with fund balance. This is for major revenue categories. It reflects a $78.6M budget with a collection in revenue of almost � $79.2M. Tax revenues exceeded budget due to higher than anticipated amounts in: excise tax collections, licenses and permits, general assistance and Medicaid receipts, charges for services including solid waste disposal fees, ambulance fees and outside , � assignments for the police department. Responding to Cashwell's question regarding the School's rollover, Cyr said it was $600,000 for the year ending June 30, 2005 and it was closer to a million for 2006. � Lebreux said in the $78.6M budget there was $78.8M in expenditures. Significant overages were public buildings and services due to unexpected sanitation tipping fees, which was offset by additional revenues, as was the same with health and welfare's � unexpected increase in need but offset by additional revenues. Due to lower than expected special ed costs, education numbers were under budget. Cyr indicated that the city is 0.3% within budget attributing it to a budget process that works. She said it is not , uncommon to be slightly over on the expenditure side. Farrington spoke of federal mandates for special ed needs. Kochis said the School Department has been briefed on this issue. The federal government passed legislation whereby the town in which a I private school resides is responsible for a portion of the special ed services. It is limited to the diagnostic pieces which could range from $1,000-$4,000 per child. Responding to Cashwell, Cyr said it was over-expected by $470,000 due to general assistance increased � needs. There were 90% offsetting revenues which came in over budget as well. Lebreux reviewed property tax collection retes. Since 2002, it has remained consistent. j He reviewed a property tax rate for the last ten years showing a dollar increase since 1996. Cyr spoke about the breakdown of the tax rete citing the County tax increase over ten years. Responding to Farrington, Lebreux said he could add a graph depiding the tax , commitment levels for 10 years. The commitment increased by $600,000 over last year. Cyr said the graph will become more meaningful with LD 1, which requires municipalities to identify new value. Personal property is decreasing largely because of depreciation on � General Electric, who did a major upgrade in 2001 with additional equipment which is gradually being depreciated. Cyr said the depreciation schedules have been adjusted on electronic equipment. Barrett spoke about the Governor's pending proposal regarding � personal property and how it will affect Bangor. The Governor requested the Maine Municipal Association to organize a working group to draft a compromise on this issue. Barrett has been asked to participate. Lebreux said the undesignated fund balance in ' 1996 was $4.4M and today it is just over $6M. In that year, the Bass Park deficit was changed to a reserve. Gratwick spoke about Moody's rating. ' Lebreux moved to the enterprise funds, which are not all self-supporting. Enterprise funds record assets and depreciate those assets. They also record debt. The component of net assets is invested in capital net of debt. Fixed assets minus depreciation minus the debt. ' Using this formula shows all enterprise funds are positive. Gratwick asked about the parking fund increase of $150,000. Cyr said some of it is related to the change of recording fixed assets. Depreciation is not funded. Cyr provided details on debt service. � � , Cashwell spoke about the Airport's expenditure versus budget and income and � depreciation. Cyr said there is increased income due fuel sales and landing fees primarily due to military flights. Responding to D'Errico, Cyr said the Airport has 2 investments. The � AirporYs portfolio is bid out separately. As of June 30, the Airport had almost $21M invested. Due to the cyclical nature of the business, the Airport needs to have the investments in place. Responding to Farrington, Barrett said the closing of the Brunswick � base should not have a significant impact on current or planned operations in Bangor. D'Errico said that approximately 33% traffic at BIA is military. Barrett said the second category of military is military charter. Cashwell wanted the percentage of those contract � carriers stopping in Bangor. D'Errico said the info is available through the FAA on a monthly basis. Of all military traffic, Cashwell asked the percentage coming through Bangor. � Lebreux talked about Bangors tax collections, debt service versus other municipalities as outlined in on several graphs. Cyr said debt service has grown due to some significant � project. He reviewed graphs regarding revenues. Responding to Cashwell, Cyr said that intergovernmental revenue sources will shift in 2006 because of the increased State school funding. ' Lebreux spoke of bonding agencies and the debt per capita information, again shown by graph. When non-supporting debt from the Enterprise Funds is factored in, Bangor's debt , per capita is $2,089. Bonding agencies look for $2,000. Lebreux and Cyr explained other components of the annual audit process. Due to Federal � grants, there is an additional layer of testing with separate reports as well another set for the State due to their different requirements. There is also an internal controls component. These are systems in place to prevent errors and irregularities. Bangor has two reportable conditions, material weaknesses—the sewer system which relies on the � wastewater through Bangor Water District, which is unrelated to the City. The bills are combined and go out together. Payments can be made at either location. Regarding Bass Park, Stone questioned fringe benefits and salaries in terms of budgeting. , Cyr said that part of it was an error in the 2006 budget process which showed a jump in Medicaid/Medicare due to incorrect classification of some employees. Also when � employees convert to family health care coverage it causes a $20,000 increase in the budget. Lebreux pointed out segregation of duties and issues within the departments. Correcting � it would cost more than the benefit. He recommended oversights in the internal audit department. Cashwell asked why the Airport was not included. Cyr and Lebreux annually ' chose which departments for the auditors to check on for operational issues relating to financial reporting. The Airport Accountant has access to the system but does not collect receipts, open mail, have access to checks, etc. Cyr said the Treasury personnel open ' checks but do not have access to the accounting records. Lebreux spoke of the fixed assets trecking system which is currently manually kept up to � date on an Excel spreadsheet. Ideally it should be more than an Excel spreadsheet. Arbitrage rebate calculations are required every five years by the IRS. He needs to see � � � � the actual calculations. Regarding the Bangor Area Transit cash disbursements, Lebreux noted expenditures incurred on behalf of the director, who also approves his own invoice. � This is not a good system. He reviewed fixed assets purchased with federal funds and suggested different levels of oversight. He noted two items from the school department that were under $10,000 but over$5,000 and should have been capitalized. He spoke of the school's fixed assets noting they were inconsistent in the way they capitalized items. � Lebreux reviewed inventory at the Motor Pool. He noted discrepancies in accounts and inconsistencies in valuing the unit cost. He also mentioned school lunch which was an accounting error. Lebreux reviewed school activity funds. Kochis had requested a � � separate school activity fund audit this year. Kochis has already aded on strengthening controls especially at the middie school level. Palmer asked for a specific dollar amount at the high school for the Washington DC trip. The trip has not yet been incurred. The year � ending June 30, 2005 showed $210,000 in receipts for income and $204,000 for expenditure. The middle schools receipts are approximately $20,000. The receipts are recorded by progrem, by activity and by class. Palmer asked for a comparison to other � cities and schools. Lebreux will e-mail the info to Cyr. Stone praised Cyr for a remarkable job. The Committee members also expressed their � thanks to Cyr and aiso to Lebreux. Cyr pointed out that Dave Little also works on the financial statements. � r � � �t� � � i � � � �