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07/24/2018 - MinutesRole of the Finance Committee The finance committee provides oversight of city budgeting, financial planning, and financial reporting. The committee recommends long-range financial goals along with funding strategies for the operating and capital budgets. Human resource issues requiring policy direction are brought before the committee. The committee serves as the advisory forum for transportation and street maintenance funding, and funding relating to the transportation benefit district. City of Port Orchard Council Finance Committee A meeting of the Council Finance Committee was held in the Council Chamber Meeting Room at City Hall on July 24, 2018 at 5:15 p.m. PRESENT: Chairman John Clauson, members Beck Ashby and council member Cindy Lucarelli, Mayor Rob Putaansuu Director, Finance Noah Crocker, Community Development Director Nick Bond The meeting was audio recorded. Finance Report Finance Director Crocker presented the sales tax collection report in a new format to simplify and better reflect the sales tax revenue and REET information. The Finance Committee approved the new format. The sales tax revenue collected thru the end of June 2018 was reported at being 8.4% over projection. Real Estate Excise Tax started strong for 2018, with total year-to-date collections at $393,592. Although, when compared to the same time period for 2017, it is approximately $117,174 less. REET still remains higher than the 5 year average. The committee reviewed cash reports and identified the City as having healthy fund balances at this time. Tremont Widening Project Finance Director Crocker provided members the Tremont Widening Project Construction Finance Plan. The committee walked through the expenditure plan and compared year-to-date budget to year-to-date actuals. Thus far, the project has spent approximately $8.627 million. The Finance Department is working on developing a standardized project report for measuring budget against actuals as well as identifying anticipated changes in the project budget. The committee walked through this new format and found it useful. For Tremont it was identified that, at this time, the project budget is anticipated to grow to approximately $18.5 million; which is over its current authorized expenditure authority. The Finance Department is working with public works to identify the expenditures and potential funding sources for these overages. It was also communicated that all sources budgeted to include the contingencies for this project have been exhausted, and the project will need additional funding. Role of the Finance Committee The finance committee provides oversight of city budgeting, financial planning, and financial reporting. The committee recommends long-range financial goals along with funding strategies for the operating and capital budgets. Human resource issues requiring policy direction are brought before the committee. The committee serves as the advisory forum for transportation and street maintenance funding, and funding relating to the transportation benefit district. The Finance Department identified that public works have brought a significant amount of change orders for this project, which this new standardized template is attempting to capture and make more transparent. The plan will be updated monthly and as the project progresses expenditure trends will become more apparent. McCormick Widening Project Finance Director Crocker provided members the McCormick Woods Park Phase II Construction Finance Plan. The committee walked through the expenditure plan and compared year-to-date budget to year-to-date actuals. Thus far, the project has spent approximately $460 thousand dollars. The committee walked through the project history and identified the original budget provided by Public Works was $955,000. Once the bids were received the project budget increased to $1.346 million, as well as the expenditure authority. With potential upcoming change orders and anticipated expenses of the project, the new anticipated project budget is $1.486 million. The Finance Department has identified funding sources to cover the overages, if the council desires to approve the change orders. The funding sources identified were additional Park Impact Fees and use of Recreation Reserves, which are from admission tax revenue. The plan will be updated monthly and as the project progresses expenditure trends will become more apparent. AP Authority Ordinance Finance Director Crocker discussed the need to bring forward temporary authority to release payments prior to council approval. The Finance Director proposed bringing forward a permanent solution through an ordinance and code modification to allow the Finance Director to make payments on a business practice rather than tied to council dates. This would have the same internal controls and create efficiency for the accounts payable process while maintaining council authority. The Finance Committee was receptive to the concept and would welcome the policy and ordinance language for review. They would like to have the assurance that there are proper internal controls in place. Role of the Finance Committee The finance committee provides oversight of city budgeting, financial planning, and financial reporting. The committee recommends long-range financial goals along with funding strategies for the operating and capital budgets. Human resource issues requiring policy direction are brought before the committee. The committee serves as the advisory forum for transportation and street maintenance funding, and funding relating to the transportation benefit district. 2017-2018 Budget Status Update Finance Director Crocker provided a power point presentation on the Budget Status report with the following highlights: Operating Highlights • For the General Fund YTD the City collected 85% of its biennial budget • For the General Fund YTD the City spent 74% of its biennial budget • For the General Fund All Departments are below their expenditure capacity • For the Street Fund YTD the City collected 78% of its biennial budget • For the Street Fund YTD the City spent 67% of its biennial budget • For the Water-Sewer Fund YTD the City spent 87% of its biennial budget • For the Water-Sewer Fund YTD the City collected 73% of its biennial budget • For the Storm Drainage Fund YTD the City collected 82% of its biennial budget • For the Storm Drainage Fund YTD the City spent 67% of its biennial budget Capital Projects Highlights • Water Projects do not currently have much activity. • Sewer Projects do not currently have much activity except for Tremont. Which has spent more than its current authority. A Budget Amendment will be needed for this before the end of the year. • Storm Projects do not currently have much activity except for Tremont. Which is nearly exhausted its current authority. A Budget Amendment will be needed for this before the end of the year. • Park/Facility Projects will require a budget Amendment for Rockwell Park Design Water Sewer Fund Split: The Finance Director reminded the Finance Committee of a prior discussion to separate the operations and capital for water sewer into separate funds. The Finance Committee at that time requested the Finance Department go further and separate water and sewer all together. This would mean breaking fund 401 (Water-Sewer) into multiple different funds. Additionally, it was discussed to have a uniform structure for all the enterprise funds for consistency and transparency. The Finance Department took the direction and have now provided a breakout of the fund structure and some analysis of the impact. The proposal is as follows: Eliminate Fund 401 (Water Sewer) Eliminate Fund 403 (Water Sewer Cumulative Reserve) Convert Fund 422 from Storm Cumulative Reserve to Storm Stabilization Role of the Finance Committee The finance committee provides oversight of city budgeting, financial planning, and financial reporting. The committee recommends long-range financial goals along with funding strategies for the operating and capital budgets. Human resource issues requiring policy direction are brought before the committee. The committee serves as the advisory forum for transportation and street maintenance funding, and funding relating to the transportation benefit district. Create Water Funds: Fund 411- Water Operations Fund 412- Water Stabilization Fund 413- Water Capital Construction Fund 414- Water Debt Service Create Sewer Funds: Fund 431- Sewer Operations Fund 432- Sewer Stabilization Fund 433- Sewer Capital Construction Fund 434- Sewer Debt Service Create Storm Funds: Fund 421- Storm Operations Convert Fund 422- Storm Stabilization Fund 423- Storm Capital Construction Fund 424- Storm Debt Service The Finance Director walked through the different funds and a 10 year outlook for each: • With the current assumptions, the Sewer Operating fund is projected to maintain a positive operational fund balance. Capital Fund balance is projected to be positive at the assumed project costs and timelines. Any change in those factors will change the outlook for the Sewer Capital Funds. • With the current assumptions, the Water Operating fund is projected to maintain a positive operational fund balance. Capital Fund balance is projected to be positive until approximately 2021 or 2022. Any change in those factors will change the outlook for the Water Capital Funds. For both enterprises the Operating and Capital funds will need to be monitored and adjusted over time as new information is received, and costs realized. It was discussed that there would be minimum fund balance targets for all funds for cash flow reasons as well as fiscal soundness. It was identified that all revenues flat line at 2020 at this time. Some of the issues in the funding scenarios are a result of assuming all projects are funded on a cash basis. Furthermore, it was discussed that there would need to be another analysis of the Sewer and Water Capital Facility Charges as well as operating rates in the future. Overall, separating the funds shall create greater transparency and aid the City in its project and funding decisions. The Finance Committee continue to support separating the funds and request that the Finance Department bring this to the full council and build this change into the budget. Role of the Finance Committee The finance committee provides oversight of city budgeting, financial planning, and financial reporting. The committee recommends long-range financial goals along with funding strategies for the operating and capital budgets. Human resource issues requiring policy direction are brought before the committee. The committee serves as the advisory forum for transportation and street maintenance funding, and funding relating to the transportation benefit district. Building Permit Fee Adjustment: The Planning Director reminded the Finance Committee that he provides some analysis of the current commercial building fee permit cost at a prior work study session which identified the City of Port Orchard being substantially lower than its peers and the market. The Planning Director brought forth a proposal to modify the building Permit fee for commercial to be current. Furthermore, the Finance Department brought forward the operating revenue versus the operating expenses of the community development department which identified that the current operating expenses far exceed the revenue. Even with a fee adjustment it is likely the expenses will continue to be higher than the revenue. The Finance Committee confirmed it is not their intention for the department to be self-funded at this time. The Finance Committee and the Planning Director recommend that the proposal come forward in August for adoption and discussion. Good of the Order: *Rob Putaansuu discussed the solvency of the Kitsap Housing Commission and a request from the Kitsap County to commit to pay ~ $100k/yr to pay for Debt related to the housing authority. The meeting adjourned at 6:25 pm. Next meeting July 24, 2018 at 5:15 p.m.