LEGISLATIVE, FINANCE AND ADMINISTRATION COMMITTEE
The Legislative, Finance, and Administration Committee meeting was held on February 12, 2007, at 6:03 p.m. with Chairman Salters presiding. Members present were Mr. Hogan, Mr. Slavin, Mr. Shevock, and Mrs. Jones. Members of Council present were Mr. Carey, Mrs. Russell, Mr. McGiffin, Mr. Ruane, and Council President Williams. Mayor Speed was also present.
AGENDA ADDITIONS/DELETIONS
Mr. Hogan moved for approval of the agenda, seconded by Mr. Slavin and unanimously carried.
Debt Management Policy
During their meeting of January 22, 2007, members reviewed a draft Debt Management Policy and tabled action to allow staff the opportunity to obtain the additional information requested.
Mr. Slavin moved to remove the matter from the table, seconded by Mr. Hogan and unanimously carried.
Mrs. Mitchell, Treasurer/Finance Director, submitted a memo in response to questions raised during the committee meeting of January 22, 2007. She advised members that the debt per capita is City debt and not overlapping debt. The term “direct” debt is used as an indicator; however, a definition for “Direct Debt” has been added to the glossary of the policy for further clarification. Regarding the General Obligation direct debt not to exceed $700 per capita, she explained that the amount was calculated based on the maximum allowable debt of 1% of assessed/market value in accordance with Section 50(c)(I) of the City Charter.
With regards to the concern of obligating future Council members, Mrs. Mitchell stated that she consulted with our Financial Advisor and the State of Delaware regarding the 20 year limitation on General Obligation Debt. She advised members that this is the common practice and that it attempts to keep the interest cost to the citizens down. It is also a preferred practice of the rating agencies. To extend it beyond current practice may send the rating agencies adverse signals.
Mrs. Mitchell reminded members that the source materials used to develop the policy include the Government Finance Officer Association - Benchmarking and Measuring Debt Capacity, Financial Policies: Design and Implementation, Local Government Finance, as well as policy comparisons of other communities from the Internet and provided by the Government Finance Officers Association. Staff recommended adoption of the Debt Management Policy as presented.
Responding to Mr. Slavin, Mrs. Mitchell stated that overlapping debt is not calculated for the State of Delaware because it is not a property tax. However, she stated that the calculation could be determined. At the request of Mr. Slavin, she indicated that she would pursue obtaining that information.
Mrs. Mitchell advised members that the other suggestions made during the previous committee meeting have been incorporated into the draft policy.
In response to Mr. Ruane, Mrs. Mitchell indicated that the policy would be reviewed periodically to assure the City is maintaining affordability measures, comparables, etc. Mr. Ruane felt that there is a need to further review this policy to assure that it is consistent with the City Charter. He stated that he would meet with Mrs. Mitchell to review these concerns before this matter is presented to City Council.
Mr. Slavin moved to recommend approval of the Debt Management Policy as presented (Attachment #1), seconded by Mr. Shevock and unanimously carried.
Report on Water/Wastewater Debt Service
Mrs. Mitchell advised members that the City is required to maintain two (2) bond reserve accounts and provided members with details regarding each, as follows:
Debt Service Reserve Account - Always equals maximum amount payable on debt service (MADS) in any given year.
Current Balance - $1,662,664
Required Balance - $ 797,748
Excess Balance - $ 864,916
Debt Service Payment Account - City transfers 1/12 of budgeted debt service each month. Principal payments due July 1 each year, and interest payments due January and July each year.
Current Balance - $ 537,387
Current Balance plus Excess $864,916 - $1,402,303
Required Balance (1/1/2007 & 7/1/2007) - $ 875,221
Mrs. Mitchell explained that since the City now has a reduction in debt service obligation, there will be a transfer in the amount of $858,280 to the Bond Payment Account from the Reserve Account. This will result in discontinuing the monthly payment for the remainder of this year and for several months in FY08. If the excess was transferred directly to the Water/Wastewater Fund, the City would be subject to arbitrage (taxes on the interest due to the IRS). If the excess was transferred to the payment account and used for debt service within one (1) year, the City would not be subject to arbitrage. Mrs. Mitchell stated that this information is being provided to members for informational purposes only and that no action is being requested. She assured members that the FY07 and FY08 budgets will be adjusted accordingly. Staff will also recommend that any savings be transferred to the Capital Asset Account or the I&E Fund when the budgets are adjusted to assist with Water Quality and I & I projects.
Mr. Hogan moved to recommend acceptance of the Report on Water/Wastewater Debt Service as presented by staff. The motion was seconded by Mr. Shevock and unanimously carried.
Review of Financial Policies
Members were reminded that in 2002, City Council adopted a broad set of Financial Policies for the management of financial and budgetary affairs. These policies are to be reviewed periodically to assure they are meeting the needs of the City of Dover. The last time these policies were reviewed and amended was May 10, 2004. Mrs. Mitchell stated that during the Budget Hearing in May 2006, Council directed that the financial policies be revisited and a new draft be presented to the Legislative, Finance, and Administration Committee.
Mrs. Mitchell presented the Financial Policies, inclusive of the May 2004 amendments (blue italic print), along with commentary (red italic print) to provide clarification. She noted; however, that the comments will not be included in the final revised Policy. Mrs. Mitchell stated that there was a misunderstanding regarding the May 2004 amendments which resulted in the policy not being amended accordingly; therefore, she felt that members may want to reconsider the proposed amendments from May 2004, which have been distinguished utilizing blue italic print. Since the May 2004 amendments were never incorporated into the Financial Policies, she explained that the City may not currently be in compliance with some of the requirements. Mrs. Mitchell also provided points that in her opinion need further discussion. In addition to the May 2004 amendments, she advised members that the blue italic print includes new recommendations of staff.
Responding to Mr. Salters, Mrs. Mitchell explained that although Council approved the May 2004 amendments, staff did not realize they were approved; therefore, they were never implemented in the budget. She suggested that members revisit the amendments of May 2004 to determine if there is a need to make additional changes. As an example, with reference to the Budget Balance/Reserve Policy - General Fund, item #3, she stated that the May 2004 amendment requires a minimum reserve in the contingency account of at least 4%. This percentage was originally set at 2%. Rather than considering percentages, Mrs. Mitchell suggested that members consider the actual dollar amounts and in doing so, she would now recommend that the percentage be reverted back to 2%. She expressed concern that in order to accommodate a 4% reserve, it may be necessary to increase rates. Her feeling is that the policy should not dictate the need to increase rates for our customers.
Mr. Hogan questioned if there were any other amendments being submitted by staff at this time. Responding, Mrs. Mitchell stated that staff was recommending the establishment of a Capital Project Fund for General Fund projects, similar to the Improvement and Extension Funds established for the utilities. She explained that this would separate operating cost from capital costs in the General Fund, which will show true operating increases in reviewing the General Fund budget. In addition, any savings realized from capital projects would rollover into the budget balance, which will help to fund future projects.
Mrs. Mitchell indicated that the Water, Wastewater, and Kent County Sewer Fee each have budget balances within the Water/Wastewater Fund, which are segregated within the Fund; however, the budget balances are calculated in aggregate. By doing this, the water enterprise could actually be covering the costs of services of the sewer enterprise. She recommended that they be separated into their individual components and discontinue the aggregating process. This change would assure that the revenues obtained from sewer service will pay for the costs associated for sewer and that the costs associated with water service will be paid from the water service revenues. She cautioned members that this change has not been tested to determine if such a change would create a rate increase for one of the services and a savings for the other; therefore, it may be necessary to have this change phased-in over the next couple of years.
Responding to Mr. Ruane regarding the Library Reserve Account, item #6 under Budget Balance/Reserve Policy - General Fund, Mrs. Mitchell stated that this is a new recommendation based on direction of Council given during the budget hearings for the creation of this account. Mr. Ruane stated that in addition to the pay in lieu of taxes and excess General Fund carry forward balance, funds derived from any excess city real estate was to also be included. Responding to Mr. Salters, Mrs. Mitchell reminded members that when Council adopted the Library Committee Report, there was a list of revenues that should fund the reserve.
Mayor Speed questioned the need for having the Library Reserve Account included in the Financial Policies, explaining that other capital projects are not included and that there should be consistency.
Although all contingency funds are listed in the policy, Mr. Hogan noted that they do not include details as to how they are funded. It was his feeling that providing the funding details in the policy is redundant and not necessary since Council has already given staff direction in this regard. Mr. Hogan suggested that the policy could indicate the creation of the Library Reserve Account; however, any mention of its funding should be eliminated.
Mr. Salters suggested that item #6 be excluded from the Financial Policies since it is a special project and Council has already provided staff directive regarding the creation and funding for a new library.
Noting that the blue italicized print includes recommendations from May 2004 as well as new recommendations from staff, Mr. Hogan requested that when the policy is presented to the Council for adoption, that the new recommendations of staff be distinguished using a different color (green).
Mr. Hogan moved to recommend approval of the Financial Policies with the noted changes submitted by staff, and the elimination of item #6 under the Budget Balance/Reserve Policy - General Fund (Attachment #2). The motion was seconded by Mr. Slavin and unanimously carried.
Mr. Slavin moved for adjournment, seconded by Mr. Shevock and unanimously carried.
Meeting Adjourned at 6:44 P.M.
Respectfully submitted,
Reuben Salters
Chairman
RS/jg
S:ClerksOfficeAgendas&MinutesCommittee-Minutes20072-12-2007 LF&A.wpd
Attachments
Attachment #1 - Debt Management Policy
Attachment #2 - Financial Policies