Minutes of Finance Committee Regular Meeting held on January 27, 2014 Page 6

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1 Minutes of Finance Committee Regular Meeting held on January 27, 2014 Page 6 F5 MOTION ADOPTED VIA VOICE VOTE Ald. Weidner asked how the CMRP accounted for a water or sewer main that needed replacement before its projected lifespan. Finance Director Dahlstrand said that water and sewer mains were part of the Enterprise Fund, which was not included in the CMRP. Ald. Weidner asked about other items in the CMRP that needed replacement before their lifespan. He asked if there was reserve funding or an adjustment factor to account for that. Finance Director Dahlstrand said that he was unaware of an adjustment factor, but that the CMRP lifecycles were based on an average lifecycle for a group of assets, so if one item had to be replaced sooner, it did not have an impact on the CMRP. City Administrator Coakley said that such an issue did happen with the need to replace a large amount of curbing before its scheduled lifecycle. He said that the amounts in the CMRP were adjusted each year to account for these issues. The CMRP is based on average lifecycles for groups of assets because some items last longer and other do not. He said that by updating annually, those issues will be accounted for over the entire life of the CMRP. 6. General Fund Balance Reduction Alternatives Finance Director Dahlstrand said that the City s general fund balance was in excesses of the 25% minimum fund balance reserve amount approved by City Council. He said that it was financially prudent to use some of the excess fund balance to address other outstanding issues. He said that for a number of years the City s revenue did exceed its expenditures, which led to this excess fund balance. He noted that during the Recession, however, expenditures exceeded revenue and the City was fortunate to have a healthy fund balance to weather those years. He said recent years improved the fund balance once again due to an improving economy and City Council and staff s conservative financial management. He was recommending that $1 million of this excess fund balance be used for the Police Pension Fund in order to move the City near a 70% funding level. He also recommended suspending the $200,000 transfer from the Hotel/Motel Fund into the General Fund for FY Ald. Goodman said that if the City suspended the transfer from Hotel/Motel Fund into the General Fund, then it appeared to just have the excess fund balance in the Hotel/Motel Fund and did not really address the issue. Finance Director Dahlstrand said that the Hotel/Motel Fund was not used for day-to-day operations like the General Fund. He said that not doing the transfer would slow down the growth of General Fund balance. He said that while eliminating the transfer this year would add to fund balance in the Hotel/Motel Fund, that fund balance would not grow as fast as the one in the General Fund. He reminded the City Council that Hotel/Motel funds are expended annually to fund the CMRP and the Hotel/Motel Grant Program. Ald. Goodman asked if the City s 25% reserve was over $2 million and the unassigned was $5 million, then that was a much bigger gap than referred to in Finance Director Dahlstrand s memo. She said that was good in that the City was being cautious, but she asked if Finance Director Dahlstrand would be coming back next year to address this issue again. Finance Director Dahlstrand said yes, if the fund balance continued to grow. He said that it would be financially

2 Minutes of Finance Committee Regular Meeting held on January 27, 2014 Page 7 prudent to address the excess fund balance in a slow, deliberate, and cautious way because there may be things that change in the economy that would affect the City. He recommended a gradual approach. Ald. Goodman clarified that similar steps may be needed in the future. He said yes. She added that the City would still be projecting a $400,000 addition to fund balance. Finance Director Dahlstrand said that the projected $400,000 addition to fund balance did not take into consideration any of the staff recommended actions, including the suspended transfer from the Hotel/Motel Fund and the $1 million contribution to the Police Pension Fund. City Administrator Coakley said that staff discussed this issue at length and decided that an incremental approach was best because future actions of the state or federal government could impact the City s finances. He said that staff would continue to evaluate this issue annually and bring forth recommendations so the fund balance would be reduced to a closer level of the 25% minimum that the City Council has adopted. Ald. Aschauer agreed with contributing more to the Police Pension Fund. He said that it was a cost of employment but that was not how it was reflected in the budget. He said that the sooner this issue was addressed; the sooner it was no longer a problem. He suggested taking the Hotel/Motel Fund transfer of $200,000 and adding that to the $1 million to make a contribution of $1.2 million to the Police Pension Fund. Finance Director Dahlstrand said that there was a potential that the $200,000 might be used for other expenditures related to FY 2015 decision packages, but that there were existing reserves in the Hotel/Motel Fund and that the $200,000 could be used for the Police Pension Fund if the City Council would so desire. Ald. Weidner asked if an incremental approach to the Police Pension Fund would be better. He asked what a $1 million transfer would get the City in terms of closing the gap. Finance Director Dahlstrand said that the City had until 2040 to reach the 90% funded level. He said that if everything remained static, this contribution would get the City close to 70% funding. He added that anything funded with today s dollars would be less expensive than funding it in the future. Ald. Weidner clarified that this was a state mandated program. Finance Director Dahlstrand said that was correct. Ald. Weidner said that the City had paid close attention to this issue and funded the Police Pension at a higher percentage than other communities in DuPage County. Finance Director Dahlstrand said that was very likely true. Ald. Weidner said it was important that the community understand that the requirements for the Police Pension Fund were set by the state and dictated to the City. He added that the City had been extra diligent to address this issue over the years by making additional payments. Ald. Weidner asked if there were other priorities considered such as acquisition of properties. Finance Director Dahlstrand said that those things were options at the City Council s discretion. He said that was also why an incremental approach was better because it allowed for those opportunities. He said that those types of things were paid for out of the Special Projects Fund now, which did not have a funding source. Ald. Weidner asked what the top three or four priorities to address this excess fund balance issue were. Finance Director Dahlstrand said Police Pension was the biggest area of concern, but that staff also discussed the Special Projects Fund, which had no revenue source. Ald. Weidner said he

3 Minutes of Finance Committee Regular Meeting held on January 27, 2014 Page 8 would like to see a projection sheet going out to 2040 on how to close the gap for the Police Pension Fund and get it 100% funded. Finance Director Dahlstrand said that an actuarial report was done each year as part of the audit. He noted that this incorporated a lot of assumptions and variables to go out to 2040, such as mortality tables, wages, interest, etc. Mayor Brummel said that the 25% reserve was a minimum and it made good sense to not always go to the minimum. He reminded them that the state was always looking to take away municipal funding to address their problems. He said that the City Council was wise to be careful to not go too low on fund balance. He said that, at best, the state gets the City its funding late and sometimes not at all. He asked if there was a particular benefit to keeping the $200,000 in the Hotel/Motel Fund rather than transferring it into the General Fund. Finance Director Dahlstrand said that it would just stay in that fund and be available for the City Council to use for other items. City Administrator Coakley said that he and the Finance Director had discussed the priorities. He said that the Police Pension Fund priority was like pre-paying an adjustable mortgage; pre-paying will save money in the long run. He said that any other priorities should be set by City Council at their discretion. He added that there were pending decision packages that could be funded by this excess fund balance. Ald. Wilson noted that the City contributed $818,000 to the Police Pension Fund and asked if that was based on the minimum payment the City was required to make. Finance Director Dahlstrand said that a portion was the actuarial minimum and that the other portion was the extra funds the City contributed over the last two years, which was $250,000 each year. Ald. Wilson questioned taking $1 million before addressing interfund debts. Finance Director Dahlstrand said that there was only one, which was for the purchase of CCRS #1 for $2.2 million. Ald. Wilson suggested paying down that debt. Finance Director Dahlstrand said that was an option if the City Council wanted to do that. Ald. Wilson suggested stretching out the extra payment to the Police Pension Fund of $1.2 million by $125,000 each year. He said that would still give the City a safety cushion to weather any changes in the economy or any state initiatives that would take away City funding. He said he had a problem with the $1 million to the Police Pension Fund and would like to see other options. Ald. Davolos noted that when the auditor spoke a few months ago, he said that the state would be calculating the funding levels differently and that such an action may make the City look as if it had not funded the Police Pension by as much as it actually had. She asked if contributing an additional $1 million, which would bring the City closer to 70% funding, took into consideration what the auditor noted. Finance Director Dahlstrand said no; that the staff s recommendation was based on the formulas, assumptions, and calculations in place by the state now. Ald. Davolos said that prepaying has advantages, but that she was concerned that until the City s TIF dollars began to come in and economic development occurred, there would not be funding available to do extra projects the City may want to do.

4 Minutes of Finance Committee Regular Meeting held on January 27, 2014 Page 9 Ald. Goodman said that the idea of getting ahead on debt to outside agencies, such as the Police Pension Fund, and the benefit of paying earlier was a higher priority to her in terms of responsible use of tax dollars than paying off internal debt to another City fund. She said that the interest for that debt did not go to any outside entity; the City s revenue was net zero. She added that paying out $1 million when the City had a cushion of $3.5 to $4 million still left the City flexibility. She said that whether the $200,000 transfer happened or not, it seemed to be more of an accounting issue rather than a priorities issue. She said that at some point the City may want to fund something out of the Hotel/Motel Fund and if the City did not make the transfer, then it could fund a project out of the General Fund. The only real change in the net revenue for the City was if the City funded the Police Pension Fund. She said that she could see the $1.2 million or the $1 million to fund the Police Pension Fund. She supported the staff recommendation. Ald. Barry said that she agreed with Ald. Goodman. She said that she would like to see the $1 million paid to the Police Pension Fund. She said that the money the City owed for the CCRS #1 was to the City itself and it was more important to get the Police Pension to 70% funding. She said that the City could transfer the $200,000 out of the Hotel/Motel Fund at any time if there was something the City Council wanted to fund. She said that she was happy with the staff recommendation. ALD. WEIDNER MOVED, second by Ald. Barry, to accept Finance Director Dahlstrand s recommendations and direct the City Council to: 1) authorize the transfer of an additional $1,000,000 from the General Fund to the Warrenville Police Pension Fund for FY 2014, 2) direct staff to prepare the needed FY 2014 budget amendment, and 3) suspend the budgeted interfund transfer of $200,000 from the Hotel/Motel fund to the General Fund for FY MOTION ADOPTED VIA VOICE VOTE (Ald. Wilson voted Nay) 7. Financial Update for FY 2014 Finance Director Dahlstrand referenced the financial update for FY He noted that a number of taxes had increased in revenue. He said that Amusement Tax continued to decline and would fall significantly short of budget. He said that 12 of the 15 budget amount groups were projected to be under budget. He reminded the City Council that because of the budget process currently going on, figures were being regularly revised. He added that the new taxes for the CMRP were projected as conservatively as possible. He said that the local Motor Fuel Tax (MFT) was out-performing what was budgeted by approximately $100,000. He noted that the Motor Fuel Tax (MFT) Fund did not include the additional purchase of salt and that a budget amendment would be coming at the next City Council meeting. He also said that the Water and Sewer Fund revenue would fall short of budget as would expenditures due to capital projects not done in FY He said that staff would be recommending an increase to water and sewer rates by 3%. Ald. Weidner asked if the excess General Fund balance could go to the Water and Sewer Fund to forestall the rate increases. Finance Director Dahlstrand said that would be a City Council decision and reminded the City Council that the Water and Sewer Fund was an

5 Minutes of February 3, 2014 Regular Council Meeting Page 8 Final Plat of Subdivision, and Waiver of Subdivision Control Ordinance Curb and Gutter, Sidewalk and Underground Wiring Improvement Requirements for the Lauzen Accounting Building Remodeling and Parking Lot Expansion Project at 27W430 Old Warrenville Road M. Accept City Clerk Larson s Recommendation and Appoint Alma Morgan as Deputy City Clerk N. Receive and File Draft Minutes of the Plan Commission/ZBA Regular Meeting Held on January 23, 2014 O. Receive and File Draft Minutes of the Tourism and Arts Commission Regular Meeting Held on January 16, 2014 P. Receive and File Draft Minutes of the Environmental Advisory Commission Regular Meeting Health on December 17, 2013 Q. Receive and File Draft Minutes of the Fire and Police Commissioners Regular Meeting Held on December 17, 2013 R. Receive and File Report of Invoices Paid Up to January 29, 2014, in the Amount of $50, S. Authorize Expenditure for Invoices Due on or before February 18, 2014, in the Amount of $210, ALD. WEIDNER MOVED, second by Ald. Leonard, to approve the Consent Agenda as amended. ROLL CALL VOTE: Aye: Ald. Goodman, Weidner, Bevier, Wilson, Barry, Davolos, and Leonard Nay: None Absent: Ald. Aschauer MOTION ADOPTED K. Finance Committee Recommendations ALD. WILSON MOVED, second by Ald. Weidner, to accept Finance Committee recommendation and: 1) authorize the transfer of an additional $1,000,000 from the General Fund to the Warrenville Police Pension Fund for FY 2014, 2) direct staff to prepare the needed FY 2014 Budget Amendment, and 3) suspend the budgeted interfund transfer of $200,000 from the Hotel/Motel Tax Fund to the General Fund for FY Discussion: Ald. Wilson said he is in favor of making additional payments to the Police Pension Fund, but does not feel it is necessary to transfer $1,000,000 at this time. The City has 26 years before the fund must be at 90 percent under State law. He

6 Minutes of February 3, 2014 Regular Council Meeting Page 9 would like to have further discussions with the Finance Committee and possibly find alternative funding. He said the City should be considering what other obligations or opportunities might arise in the coming years for future development. ALD. WILSON MOVED, second by Ald. Barry, to table the transfer of an additional $1,000,000 from the General Fund to the Warrenville Police Pension Fund for FY 2014, to the March 24, 2014, Finance Committee meeting, for further review and discussion of alternative funding possibilities. ROLL CALL: Aye: Ald. Davolos, Leonard, Bevier, Wilson, Barry, and Weidner Nay: Ald. Goodman Absent: Ald. Aschauer MOTION ADOPTED Discussion: Administrator Coakley asked Ald. Wilson to clarify his request regarding what staff would need to prepare for that meeting. Ald. Wilson said he wants an opportunity to discuss the details and offer more options to the Finance Committee. Staff would not need to prepare anything in advance and would be directed to provide whatever is directed at the meeting for a future meeting. Director Dahlstrand said this could be accomplished on March 24. Ald. Davolos asked if the March 24 meeting would be a time to have further discussion on this issue with staff. Her questions are regarding the option for the $1,000,000, as opposed to the funding of the pension fund. Ald. Weidner would be interested in discussing an incremental payment plan to add $100,000 a year to the Police Pension Fund payment during the 26-year period rather than a lump sum payment. He would also like to discuss the option for the remaining $900,000. Mayor Brummel said the purpose of new discussion on March 24 would be to direct staff to investigate the alternatives. He said the Alderman should bring their suggestions at that meeting for discussion. ALD. WILSON MOVED, second by Ald. Barry, 2) to direct staff to prepare the needed FY 2014 Budget Amendment, and 3) suspend the budgeted interfund transfer of $200,000 from the Hotel/Motel Tax Fund to the General Fund for FY ROLL CALL VOTE ON PART TWO AND THREE OF THE MOTION: Aye: Ald. Leonard, Goodman, Barry, Wilson, Weidner, Bevier, and Davolos Nay: None Absent: Ald. Aschauer MOTION ADOPTED VII. REGULAR AGENDA 2014 Road Program