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HomeMy WebLinkAboutMay 1Finance and Investment Committee Regular Meeting Town of Los Altos Hills Town Hall, Monday, May 1, 2017 The meeting was called to order at 4:00 pm by Chairman Sloss. Members present: Allan Epstein, Kjell Karlsson, Betty Kayton, Susan Mason, Stan Mok, Bill Silver, and Roddy Sloss. Members absent: Chris Nam and Chris Welborn Associate members: Jim Lai, present; Frank Lloyd, absent Council: Gary Waldeck, present; John Radford absent Staff present: Pak Lin, Administrative Services Director, Karen Huang, Finance Manager, Frances Reed, Administrative Services Technician Public present: None Guests present: None Approval of minutes: April 3, 2017 meeting minutes were approved as presented by members who attended that meeting. Report on Finance Department activities of interest – Pak Lin The GFOA awarded the Town its Certificate of Achievement for Excellence in Financial Reporting for the third consecutive year for the June 30, 2016 CAFR. Preliminary audit field work is complete and controls over cash receipts are being improved as a result of a comment by the audit team. The ABAG annual actuarial report issued and Ms. Lin with a few other ABAG members attend a meeting where the results were presented. Insurance market conditions for agencies similar to the Town are tightening as a result of general experience with police related claims and as a result ABAG expects to make one or more excess carrier changes. Mr. Epstein requested further details on long outstanding sewer related claims. The Finance Staff project list was discussed and Ms. Lin stated due to other priorities she did not believe work would start on a new rate study for municipal services until FY 2019 or 2020. The quarterly financial controls report was included in handout material for the meeting but not discussed as there were no issues. A Bartel representative is tentatively scheduled to be present to answer questions on the proposed special report on pension changes and prepayments at the June 5, 2017 FIC meeting. Follow-up questions on PFM policy changes related to investments in Commercial Paper will be addressed at a future meeting. Report on Council activities of interest – Gary Waldeck The Mora Glen proposed annexation is not being pursued by the Town. Staff is working on proposed policy statements to present to Council on the subjects of converting private to public roads, and shorter term residential property rentals within the Town. The special organizational assessment project is progressing on schedule. Continued May 1, 2017 FIC minutes, continued page 2. Fiscal Year June 30, 2018 Base Budget – Pak Lin Ms. Lin present a 10 page slide summary of the distributed before the meeting on the subject noting revenue and spending line items along with comparative information on estimated current year performance and prior budgets, major assumptions underlying the budget items presented and explained that the Base Budget represents recurring items and does not include planned operational changes, capital spending or non recurring items. This presentation is made separately to the FIC in advance of the Joint Session with Council and the FIC in two weeks in attempt to make the Joint Session meeting agenda less crowded with more time for discussion of planned changes and non recurring items. For members wishing to look at additional base budget related detail, Ms. Lin published an excel spreadsheet which was sent in advance of the meeting. Matters discussed and issues raised were primarily related to matters scheduled to be presented and discussed at the Joint Session meeting in two weeks. Please refer to a list of those matters prepared by Member Epstein accompany these minutes. Review of future meeting calendar: The next FIC meeting will be a Special Meeting on Monday May 15 at 4 pm to discuss the Town’s fiscal 2018 budget, the next Regular Meeting is on Monday June 5, 2016 at 4 pm to discuss CalPERS planned pension changes and pension prepayments with Bartel and Associates. Election of Officers is scheduled for the following meeting. Presentations from the floor – none. Adjournment: At approximately 6:10 pm there were no further matters to be discussed and the meeting adjourned. Respectfully submitted by Roddy Sloss, Committee Secretary Attachment: Summary Notes of 2017-2018 Base Budget Summary Discussion --- Summary Notes of 2017-2018 Base Budget FIC Discussion May 1, 2017 Staff presented a ten page Base Budget presentation containing four tables and underlying assumptions. “Base Budget” is defined as everything included in the prior year’s budget except for capital expenditures and proposed “enhancement” items which are zero-base budgeted and will be discussed at the joint Council-FIC Budget Meeting on May 15, 2017. FIC appreciated the opportunity to review the Base Budget prior to the joint Council-FIC meeting and complimented the staff on their work. Continued Page 2. Summary Memo Governmental Fund Revenues Revenue is projected to increase from $11.67 million (2016-2017 estimated –actual) to $12.30 million, an increase of $530,000 or five percent. Property tax, which represents 46 percent of the total revenue, is expected to increase six percent due to continued price growth in the housing market. Licenses and permits and charges for services, the two categories that represent Building and Planning activity combined are projected to increase two percent as the rate of development plateaus and may decline slightly. FIC did not express objection to the Revenue forecast. Governmental Funds Personnel Expenditure Projection No changes in headcount are proposed. Personnel expense is projected to increase from $2.74 million (2016-2017 estimated- actual) to $2.96 million, an increase of $255,000 or 9%. Some of this increase is due to higher pension and benefit costs, but most is due to planned positions being open during some part or all of the current year. The projected total is only $16,000 higher than the 2016-2017 budget. Projection does not include merit increases which are part of the enhancement budget. FIC did not express objection to assumptions driving projections. Non-Personnel Expenditure Projection Non-Personnel expense is projected to decline from $5.95 million (2016-2017 estimated- actual) to $5.85 million a decrease of $93,000 or -1.6%. This high level compilation of Contractual Services, Professional Services, Operations and Allocations out is difficult to assess since it amalgamates these different activities across the entire organization. 2016-2017 estimated-actual non-personnel expense is expected to be $193,000 below budget due to a number of budgeted projects not being undertaken or delayed, including Cost Allocation Study, Pension Study, Subdivision Update, special legal studies and lower allocation cost partially offset by higher contract building inspector costs in lieu of salary. Largest contract service expenses are law enforcement, plan checks, planning and legal services. Largest professional service expenses s are legal, tech support/programming, planner services, engineering and auditors. Largest operational expenses are Insurance, special events, City Manager’s contingency, bank fees and grants. Projections were primarily based on five percent growth factor. FIC did not express objection to these projections. Sewer Fund Projection Revenue is projected to increase from $2.96 million (2016-2017 estimated –actual) to $3.04 million, an increase of $80,000 or 2.7 percent, due to the 3% increase in sewer fees. Operating expenses are projected to increase from $2.21 million (2016-2017 estimated –actual) to $2.37 million, an increase of $153,000 or 7 percent, due primarily to higher maintenance and treatment costs. Revenue exceeds operating expenses by $672,000. Capital expense and depreciation are not included as they are not part of the Base Budget. Substantial variances are shown in Personnel and Professional Services categories. These variances arise as a result of the Town budgeting for personnel but instead using consultants. FIC recommends, as it did in the prior year, that the budget should represent the intended plan. If work is intended to be performed by a consultant then the position should not be in the budget, since including the headcount distorts salaries, benefits, merit increase allotments and allocation costs. Consulting expense is what should appear in the budget if that is the plan. FIC is uncomfortable with Sewer Fund expense plan and believes further analysis and justification is required. Continued Page 3 – Summary Memo General Comments Presentation- Recommended adding a column for 2015-2016 actual results to each table for comparison. FIC members were not in favor of “rolling over” unused portion of capital appropriations to new budget year unless the program was in progress. Sewer Fund presentation should include comparison to rate study. Proposed Changes to Accounting Methods- No accounting changes are proposed for 2017-2018. Overhead Cost Allocation/ Cost Recovery- Concern has been expressed that methods for allocating overhead costs and setting fees results in excessive charges being passed to fee and sewer rate payers. This issue has been ongoing and was raised again in early 2016. Studies were budgeted to be done in 2016-2017 fiscal year but not completed due to more pressing administrative priorities. These studies are not proposed in the new budget and staff suggested the analysis be done in 2018-2019 or later as part of a comprehensive fee study. FIC members were uncomfortable with this proposal since excessive payments will unlikely be recovered by payers and may violate proposition 218. Additional Law Enforcement Expenditures- FIC members recommended that the $250,000 additional expense adopted in 2016-2017 be considered separately from the base budget. Analysis should be performed on results to assure incremental expenditure is cost effective in meeting desired objectives raised in the Godbe Satisfaction Survey that was the justification for the incremental expenditure. Discussion of items not included in Base Budget Cable Internet Installation Expense and Private/ Public Road Reserve- Plan to carry over unused portion of $100,000 appropriated in 2016-2017 for assisting residents with cable installation per adopted 25% support policy. $200,000 designated in 2016-2017 for assisting residents with converting private roads to public roads was unused and no policy was developed but designation will be carried over Pension, reserves and prefunding- A prefunding study was to be conducted in 2016-2017 but not completed. A proposal for a study will be discussed with Bartel and Associates in June. Staff proposes increasing pension designation by one million dollars to $1.57 million to provide for unfunded pension expense currently estimated to be in the $2-3 million range. Prefunding and/or setting up a Section 115 trust will be proposed to the Council in 2017-2018. Building Permit System- further expenditures will be proposed for additional modules to the new Trak-it permitting system currently being implemented. System will be used to improve POS/cash management handling. Annual Road Rehabilitation Program – preliminary rehabilitation road list was shown that included some of the formerly private now public roads. Question was raised as to plans for remaining formerly private roads and repair priorities. A. Epstein offered to review list. Balanced Budget- FIC members noted that utilizing General Fund performance as the measure of whether the Budget is in balance is appropriate only if other governmental fund balances are kept constant from year to year. A slide showing whether or not the Budget is in balance will be helpful in the Joint Session meeting. Budget Schedule- Complete budget to be provided to FIC and Council one week prior to May 15, 2017 Joint Session meeting. ---