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09-07-2007 - Budget Workshop CITY COUNCIL OF EDGEWATER BUDGET WORKSHOP SEPTEMBER 7, 2007 9:00 A.M. COMMUNITY CENTER MINUTES CALL TO ORDER Mayor Thomas called the Budget Workshop to order at 9:00 a.m. in the Community Center. ROLL CALL Mayor Michael Thomas Present Councilwoman Debra Rogers Present Councilman Dennis Vincenzi Present Councilwoman Harriet Rhodes Present Councilwoman Judith Lichter Present City Manager Jon Williams Present City Clerk Susan Wadsworth Present City Attorney Carolyn Ansay Excused INVOCATION /PLEDGE OF ALLEGIANCE There was a silent invocation and pledge of allegiance to the Flag. DISCUSSION REGARDING FY 2007/2008 BUDGET City Manager Williams welcomed the Council to their final budget workshop before they get into the final two public hearings scheduled for September 10 and September 24 City Manager Williams pointed out he understood there was a vicious rumor circulating on the street that they were here today to discuss outsourcing of the Police and Fire departments. He assured everyone in the audience they weren't here to discuss the outsourcing of the Public Safety Services at all to any other entity at this point in time. They have some significant issues they would be covering here today, one being contract negotiations. City Manager Williams turned the workshop over to Finance Director Brett Tanner. He informed Council after the presentation he would address some significant issues that remained outstanding and provide a recommendation or suggestion on adopting the millage rate. Finance Director Tanner went through the attached Powerpoint Presentation. He also referred to the CAFR, the DR420 and the paper budget he handed out. 1 Council Workshop September 7, 2007 ' S Finance Director Tanner started his presentation by describing the Property Tax Reform. He commented on the Maximum Millage Levy Calculation Preliminary Disclosure DR -420 M -P. City Manager Williams commented on provisions in House Bill 1B. As long as they follow the 2/3 vote in the event they adopt a higher millage rate then they do not forfeit or jeopardize any future years revenue sharing. Mr. Tanner then commented on Revenue Decreases with regard to the Housing Market and Florida's General Economy. Mayor Thomas asked about the building permits and if that was just a house or if it was any type of permit. Mr. Tanner informed him it was for 21 new residential and 6 new commercial. Councilman Vincenzi asked what the decrease in building permits was a function of. City Manager Williams informed him it was the general condition of the economy and not a result of anything Edgewater had done specifically. Councilman Vincenzi commented on this being a general trend going throughout the whole country. Councilwoman Rogers stated they have a report they put out every quarter that indicates the potential for that to rise and it will as soon as the market conditions change. Councilwoman Lichter felt Florida was particularly hurt with the building situation and maybe even this area, anything along water, because it is so hard to get insurance especially on the manufactured homes that seniors are living in if they wish to sell. City Manager Williams pointed out with Florida's construction industry it is a major part of our economy here. He spoke of an article in the News Journal regarding the number of children in Volusia County schools declining. A majority of the folks are leaving due to higher taxes, insurance and no jobs for the folks in the construction industry which all has a major impact. Mr. Tanner then commented on the Personnel Cost Parameters. City Manager Williams informed Council the final budget would represent a 3% wage increase, which was a negotiating point. He felt this was consistent with the Consumer Price Index. Mr. Tanner then described the Discussion Points. He referred to Page 16 of the CAFR by describing the General Fund Balance Sheet. Mr. Tanner then commented on the City Wide Cash Condition with regard to the Operating Funds with regard to General Fund, Water & Sewer Fund, Refuse Fund, Stormwater Fund and Animal Shelter Fund. City Manager Williams referred to a presentation made by Kelly Leary from McDermit Davis describing they may be at fund balance at $2.2 2 Council Workshop September 7, 2007 million but since they have an accounts receivable on the books, in governmental accounting in General Fund, it specifically with regards to accounts receivables, they are measureable and available and usually due and payable within 60 days. Since they can't reimburse themselves the $1.3 million within 60 days they can't continue to carry it on the books as a receivable for an indefinite period of time. He commented on the emphasis that has been placed on trying to boost their cash. He made mention of there being a lot of transactions that would be taking place at the end of the fiscal year and having very little money coming in at this point in time in the budget and they were getting ready to send a lot of money out. He spoke of looking at the City from a cash perspective and what they can put their hands on in the event of a major disaster. Councilwoman Lichter asked generally what percentage of the taxes that are supposed to come in comes in. She asked him if he was having trouble collecting the taxes. City Manager Williams commented on doing very well with their tax collections. He further explained tax revenue and looking at just the money that is necessary to cover the debt service out of the General Fund representing close to 1/3 of the City's tax revenue which was used to fund the most essential services. When they start looking at fixed costs and they take the ad valorem taxes and subtract out the debt service from that they run short very quickly. He also mentioned the condition of the overall economy at this point in time. If the overall tax collections are $6 million and the fixed costs is $2 million that is 1/3 right there and they take the other 2/3 and try to fund the essential services out of it they find they start consuming that guaranteed money very quickly and then they move into relying on State Revenue Sharings, which were predicted to be down. Councilwoman Lichter felt it would be interesting to find out what percentage other cities collect in taxes of what they are supposed to. City Manager Williams pointed out someone may go two years without paying their tax bill but at some point it goes to a tax sale so they would get the money eventually. He also spoke about possibly seeing a fallout because of the high foreclosure rate. They have generally done fairly well in the past with projecting their ad valorem revenues verses actual. Mr. Tanner then pointed out that the Water & Sewer Fund and Stormwater Fund were in the red and with these being Enterprise Funds they should support themselves. He then went over the FY2008 Proposed Surplus /Deficit. Councilwoman Lichter was confused on the Animal Shelter. Mr. Tanner informed her it would be a deficit of $10,283. It will cost more than it brings in. Councilwoman Lichter stated they are trying very hard to become an Enterprise Fund and going up with all prices to do that. 3 Council Workshop September 7, 2007 City Manager Williams informed her between now and Monday they were going to go back and look at those projected revenues and expenditures to see if they can bring forward a projected cash balance. Mr. Tanner stated right now they were looking at the City as a whole because they have to. They have to get to a point where they are looking at funds individually. They are netting cash to supply payroll just to pay the bills. They are netting everything together to make it which was fine but they should be doing it on an individual fund level. Mr. Tanner then referred to Page 73 in the CAFR regarding the Stormwater Management Fund with regard to Assets and Liabilities and Page 74 with regard to the Income Statement. City Manager Williams commented on exchanging an asset for an asset but in this case cash is the most liquid form of an asset and that was what they seemed to be lacking the most in and where the emphasis was being placed. Mr. Tanner then commented on grants and having to wait for the reimbursement of the grants. Mr. Tanner then described the Summary of Funds with regard to revenues and expenses. Mr. Tanner then identified the General Fund Description the General Fund Revenue by Source and Expenditures by Department. He referred to Page 4 of the Preliminary Budget with regard to the General Fund Revenue and Expenditure Summary. Councilwoman Lichter asked if there was a lawsuit going on right now that was connected with ParkTowne. City Manager Williams commented on the lawsuit that was nearing its final stages as a result of the height amendment that was passed that was filed by Oscar Zeller and Julian Greene. They were working on closing that lawsuit out presently but there was one out there that remained opened. Councilwoman Lichter asked if the cost of that lawsuit was in this year's budget. City Manager Williams informed her they turned it over to our insurance carrier and would pay accordingly anything above and beyond. He didn't know if there would be any additional cost besides the deductible. That was yet to be determined. Councilwoman Lichter asked if that was the one lawsuit connected with ParkTowne. City Manager Williams informed her of one more that he thought would resolve itself with the installation of the con span across the drainage canal. They didn't know the status at this point in time. City Manager Williams identified the significant reduction in the proposed capital that he has been addressing and talking about 4 Council Workshop September 7, 2007 throughout the last year. He felt they needed to start addressing their emerging capital which they hadn't been doing. His goal has always been to strike a balance and put themselves in a position where they plan for those items. They are going to be bringing forward a proposal to set up reserve accounts in the Capital Projects Budget and ask that they place restrictions on those reserve accounts. Hopefully they can transition their operating policies and procedures into a scenario where they are generating excess cash, meet their unreserved Charter requirement and anything above that would be allocated to the reserve accounts. Councilwoman Lichter stated they were predicting before the fact that a vehicle at a certain mileage won't be good any more. She was wondering if they were prejudging what they needed and maybe something could be used longer. City Manager Williams commented on using the industry standard for emergency response vehicles and trying to establish a replacement schedule for those vehicles. Five years or 100,000 miles is typically what they look at. He commented on all but three of the vehicles in the Police Department being at or exceeding the 100,000 miles. He mentioned Leisure Services Director Jack Corder's crew using mowers that are over 12 years old. At some point the maintenance costs start to exceed the cost of a new mower. Councilwoman Lichter commented on upgrading their vehicles in the beginning and maybe them lasting longer and being more secure. Mayor Thomas commented on the strain the police officers put on their vehicles and the vehicles not being driven the same as a person would drive their personal vehicle. City Manager Williams pointed out when new vehicles are purchased, the new vehicles seem to get used the most. Councilwoman Rogers mentioned this not being done in the past and wanting to do it now. She spoke of this not being required but felt it should be just as the Charter Reserve requirement. City Manager Williams commented on the debt schedule and satisfying a lot of the needs in the past by going out and securing debt. They are trying to change their processes by getting into the replacement without adding fixed costs in the form of debt. Mayor Thomas felt it would be foolish not to do that. Mr. Tanner then referred to Page 7 of the Preliminary Budget with regard to the General Fund Budget Summary including taxes, licenses and permits, intergovernmental revenues and charges for services. Councilman Vincenzi asked about revenue the City receives because of our Fire Department responding to County calls. He questioned if that covered the cost of the actual cost. Mr. Tanner didn't know right now and hadn't done an analysis on that. Councilman Vincenzi was under the assumption that when they make a call to a County area it costs 5 Council Workshop September 7, 2007 Edgewater a certain amount and we get reimbursed a certain amount but it really doesn't cover that cost. He further commented on the increase of 14% and this really not covering the cost of Edgewater's response even though it has gone up. City Manager Williams commented on 25% of calls Edgewater responded to being in the County. If they allocated 25% of their total budget for last year, they would find that it fell short and that was something he planned on addressing with the County. Fire Chief Barlow commented on when they initially entered into the agreement and it being calculated on about 60% of the incidents that truck would cover going into the unincorporated area and this being how they came up with the figure. Councilwoman Rhodes asked if the amount the City is paid by the County actually covers the actual cost of what the City is spending. Fire Chief Barlow explained what they receive from the County actually exceeds. Councilwoman Rhodes asked if the County's funding the service it is getting from Edgewater. Fire Chief Barlow informed her in his opinion it exceeds. Councilman Vincenzi asked how much it costs to go on a call. Fire Chief Barlow informed him the countywide average and VCOG rate was $777. Councilman Vincenzi then asked how much it costs to go on a call in a County area. Fire Chief Barlow agreed to break it down and get back to him. Councilwoman Lichter asked about servicing the enclaves within the City that are actually in the County. She asked if the City services them if they count towards the County or are they saying they are within the City's boundaries. Fire Chief Barlow informed her the City does get compensated. Councilwoman Lichter asked if the County services anything further south, closer to Oak Hill. Fire Chief Barlow commented on the County station in Oak Hill and where they respond. City Manager Williams commented on trying to identify what drives cost and the services they provide. He spoke of calls driving those costs. He thinks when they go back to the table with the County this year they are going to look at cleaning that agreement up, the 60/40 split because 25% of our calls into unincorporated Volusia County at $777 in his opinion does not cover the cost of the City providing that service. Mayor Thomas called a ten - minute recess at this time and informed everyone they would reconvene at 10:10 a.m. Mr. Tanner then referred to Page 8 of the Preliminary Budget and described the General Fund Expenditures by Department. 6 Council Workshop September 7, 2007 . City Manager Williams commented on everything they were talking about being negated by the significant issues that remained outstanding as of September 7, 2007. City Manager Williams informed Council it was their pleasure if they wanted to go through individual funds or discuss the significant issues. Mayor Thomas asked about the Council expenditures being up by 4 %. Mr. Tanner referred to Page 9 of the Preliminary Budget and explained the increase. City Manager Williams felt the increase was as a result of the increase in medical insurance. He also commented on Council possibly falling into a year where they were due to get a pay raise. Councilman Vincenzi suggested compensating for the increase in medical insurance by decreasing promotional activities. City Manager Williams informed him they could do that. Councilwoman Rogers identified the $2,000 in travel and per diem. She didn't think any of the Council were doing anything there. She thought any of the Council that were doing dinners were paying for them themselves. Councilman Vincenzi asked if anyone was claiming mileage. Councilwoman Lichter informed him she was for the two of the four WAV meetings she attends. Councilwoman Rhodes commented on the life insurance. The Council asked staff to cut that out. Councilwoman Lichter stated she didn't even know she had life insurance. City Manager Williams informed Councilwoman Rhodes that not everyone asked for the life insurance to be cut out. He informed Council that was their medical insurance. Councilman Vincenzi, Mayor Thomas, Councilwoman Rogers and Councilwoman Rhodes informed City Manager Williams he could cut theirs out. City Manager Williams informed them they needed to verify it wouldn't negatively affect their rates. Mayor Thomas commented on going with Brown & Brown for the health insurance that had a reduction. City Manager Williams informed him it was still an overall increase of $5.4% over last year's rates. He agreed to get it down. Mayor Thomas felt they had to set the example. If they don't do it, then how can they expect the employees to do it? Councilwoman Rhodes stated and if that means no raise, then no raise. Councilwoman Rogers asked what percentage the raise was. City Manager Williams informed her it was based on the CPI. Councilwoman Rogers stated then don't do a raise. That would be it. No raise and no promotional activities. Mr. Tanner informed her that would get them under. Councilwoman Lichter commented on paying dues to certain organizations and then they no longer go to their meetings. They have to figure out some plan so they can see what is going on at these meetings. 7 Council Workshop September 7, 2007 City Manager Williams asked City Clerk Wadsworth how much the MPO was. City Clerk Wadsworth informed him it was based on population. Councilwoman Lichter felt some type of representation at the countywide meetings was very important. Mayor Thomas agreed. City Clerk Wadsworth informed her Mayor Thomas and Councilwoman Rogers attend those. Councilwoman Rogers pointed out she does the MPO and Councilwoman Lichter does WAV. Councilwoman Lichter commented on attending the meetings but felt they should attend the dinners where all the cities get together and they have a presentation. They are paying money to be part of it that way. City Manager Williams agreed to address it and go forward. City Manager Williams asked Council if they wanted to move to the Significant Issues or go line by line through the budget. He mentioned the proposed budget being affected by the significant issues that remained outstanding. It was the consensus of Council to address the Significant Issues. (Attached) City Manager Williams identified the significant issues that remained outstanding as of today by starting with the General Employee Pension Plan. Councilman Vincenzi stated right now the way the plan stands, it is going to result in a contribution of $48.25% or $1,222,000. He asked how they were going to direct Principal to come back with modifications and how it would affect the plan. They cannot afford to pay the current amount the way it is. They can't do any band aid treatments on it. It has to be modified to an acceptable level which will affect the benefits the employees get. If they are to keep the funding down to $600,000 on the City's part, how would that affect the employees' benefits? The way the plan states now, people can retire at 55 and continue working. City Manager Williams explained the bottom line is to control those costs they are going to have to adjust the benefits downward. They have provided Council, the employees and the citizens with the information as of the last workshop and those options would remain out there. He felt at the end of the day they would find that the modifications are probably what is proposed and the next step would be to make sure it was in accordance with Chapter 112. If they are successful in getting those modifications in place, they would free up approximately $600,000. Councilman Vincenzi stated there is no if they are successful. They can't keep going like this. City Manager Barlow stated in the interest of full disclosure they could have taken two different approaches and he decided to say that 8 Council Workshop September 7, 2007 the best course of action was to fund it with the intention they are going to be getting the modifications. He could have left the funding at 24% in t he budget and just put $600,000 in appropriation to fund balance and they could have used that as their fund to fulfill this obligation in the event that they were not successful in getting modifications in place. He chose to fund it at the $1.2 million in hopes that they are successful in getting the modifications in place midyear and they can free up that money for their fund balance. He spoke of the challenges they face in getting those modifications in place. It is the benefits that are provided that are guiding the cost. Mayor Thomas stated if he remembered correctly a motion was made to underfund and it passed and evidently it is in violation of Florida Statutes. He asked how they were going to correct that. City Manager Williams stated they were in a budget workshop and the consensus was to underfund. On the agenda Monday night he was bringing forward a motion for Council to approve so that item would be taken off the agenda. Councilman Vincenzi confirmed they weren't going to take any action except fund this for next year. City Manager Williams stated in hopes that they get modifications in place as Council has expressed. Councilwoman Lichter confirmed this was not for the Police Pension or the Fire Pension and specifically for the General Employees Pension. She then mentioned this affecting 57 employees, some of who are not eligible to retire and some who are working and still accruing benefits, which she felt was unusual. City Manager Williams informed Council last Friday they sent out a silent ballot for the employees to express whether or not they wanted to pursue these individual modifications or not. Rumor mill coming back to them is that a majority of the employees are not going to respond or of those that do respond they were going to put individual caveats on it, which he felt was an indication of the issues they have dealt with all along. Councilman Vincenzi felt City Manager Williams really needed to resolve this problem. They can't keep continuing to put this off. City Manager Williams felt staff brought forward the options to fix it. It was now up to Council. Councilman Vincenzi felt there was no meat behind that. It's okay here are your options. Please consider it otherwise we will just go back to what we were doing. Councilwoman Rhodes stated Council was the one that had to do it. Councilman Vincenzi commented on the Pension Board having to agree to it as well. The only thing Council can do is terminate it. City Manager Williams stated Council has the options and the Pension Board has had the options, which remained the same as they were six months ago. Councilman Vincenzi felt City Manager Williams needed to bring something forward at the meeting on Monday that would resolve it. 9 Council Workshop September 7, 2007 . , Mayor Thomas agreed and stated this problem has existed for several years. Councilwoman Rhodes has heard it over and over again from Council that for years and years this problem has existed. This problem has not existed for years and years. In 2002 they had a problem with the Pension and that was due to September 11 when the stock market fell. In 2005 they had a problem with the Pension due to inflated wages because of the hurricane so that sent their costs up higher. She believes the problem right now is the people that are collecting and accruing. That cannot continue or the number will continue to go up. That needs to be resolved. Councilman Vincenzi felt some kind of resolution one way or the other had to be done. The option to leave it the way it is is not feasible. Councilwoman Rhodes felt that was not an option. Councilman Vincenzi stated it either needed to be modified or terminated. He felt this was the resolution City manager Williams needed to come forward with on Monday or at the very next meeting. City Manager Williams asked Council what they wanted to do and told them if they wanted to terminate it, terminate it. Councilman Vincenzi stated they talked about this before that the options were to give the Board six months to either modify it or to discuss the modifications and come back with an acceptable modification to the plan that wouldn't bankrupt the city. Councilwoman Rogers stated they were going to do the six months if they underfunded but because of Florida Statutes Chapter 112 underfunding and six months is out the door so they are back to modify or terminate, no ifs, ands or buts. To say whether this has just come to light in 2002 or 2005 or it has been around for a while. Even though it hasn't been brought to light each of the past several years, only a few of the last several years, it has been a problem sitting there because it is an accrual. The accrual was under most of those years and in some years it didn't come to light as much as it has in these last few, 2002 and 2005 respectively, but because they didn't have those same budget problems in some years as they did in other years. They have been able to live off the fat and it's getting less and less so they have to get to the reality. It is an accrual. It is an estimate and isn't easy to do according to the actuary so they have to modify it or terminate it. She would be more for modification than terminating it but she was concerned that modifying was even going to fix it. City Manager Williams commented on paying for the advice given by Principal. He felt the issue at hand wasn't the City Manager coming forward with a solution. The City Manager has come forward with a solution. He has two bodies that now he has to get to mutually agree, the Council and the General Employees Pension Board. He further commented on it resulting in a reduction of benefits and that is what it is going to take to control these costs. He personally thought the modifications were the best of everything that was out 10 Council Workshop September 7, 2007 there proposed but other folks haven't quite seen that the same way as the City Manager has seen that. Councilwoman Lichter commented on a letter from their accountant or from Principal explaining that they never believed in the beginning that everybody would be retiring taking in this kind of option that when they were going to retire they would really retire. Three of the Council have been on the Council for a number of years. She didn't want to say that she feels she is responsible for something she didn't write but maybe they didn't bite the bullet until it became acute. They have so much respect for their employees and didn't want to do that. She thought maybe something so detrimental could go away. Now she is of the opinion that since they can't fund it, they aren't going to have six months to be able to wait for it to go back and forth more and they are going to have to make a very difficult decision. She stated within a lifetime of pensions things change that you have been promised and used herself as an example. She further spoke of economics changing as well as situations changing. She felt Principal was also somewhat responsible. All of the employees have to understand this could boomerang and affect all of the employees. City Manager Williams commented on the e -mail from Tim Hollinger and Cory Webber with Principal Financial Group dated in 2003 that was given to Council. As they sit there and talk about potential liability Principal was listening very tentatively and are posturing themselves for potential lawsuit. They have basically said they told the City way back when that this potentially could be a very expensive benefit before they even knew that there was potential that this could drive the necessity to modify this plan. When you start talking about liability, who is really liable? He wasn't defending Principal Financial Group, he just felt they were listening very closely and that was the reason that e -mail was given to Council. Councilwoman Rhodes asked why they didn't change the funding. City Manager Williams informed her that came from Council and the Board. They are going to tell Council they assumed up until 2005 that everybody left at normal retirement date. In 2005 there was a change to represent that only 40% of those people would leave. Now they are telling them no, that wasn't in fact what has happened. What has happened is 100% of those people want change. They will tell them that they did assume it and they have told them if a bunch of people took advantage of this it may drive the cost to the extent that modifications were necessary. They will tell them that the City directed them to change the 40 %. Councilwoman Rhodes felt they should have assumed it. She felt they were wrong. Councilwoman Lichter didn't feel they should at this point, unprepared, discuss a lawsuit that may well happen with citizens. She thinks they are going to have to do something. When you retire, you retire or if you want to keep working you don't accrue benefits. City 11 Council Workshop September 7, 2007 Manager Williams commented on digressing from the real subject at hand. Liability and who is and who is not at fault. The bottom line is the benefits have got to be changed to control costs. It is going to take Council and the Board coming together saying modifications are the direction that it is going to go in. Councilman Vincenzi stated that was fine but asked what the other options were. City Manager Williams informed him to terminate it or freeze it. Councilwoman Rogers stated what they have to also think is next year the Council will be more restricted on what they put out as a millage. They better be thinking of a worst case scenario. They don't want to have to revisit this decision again and change it. They needed to be thinking down the road, not just today. City Manager Williams continued his presentation by describing the Collective Bargaining Agreements with regard to Wages, Sick Cash In, Vacation Cash In, Sick Time, Vacation Time, Insurance, Pay Cycle and Holiday. Councilman Vincenzi questioned why everyone was so opposed to bi- weekly pay. City Manager Williams informed him they said it causes a financial strain. Staff believed with three months advanced notice that these changes are coming that this would be an ample amount of time for folks to prepare. There was a brief discussion regarding attempting to go bi- weekly in the past and this being an in -house savings. There was also a discussion regarding removing Presidents Day and adding a Floating Holiday. There was a discussion regarding negotiating the whole package verses individual items when they negotiate a contract. City Manager Williams commented on being disappointed that it has gotten to this point. They have spent the last year making their way through the city trying to educate the employees on their current situation, encouraging them to be a part of the solution to help control costs. He further commented on direction from Council to try and keep all of employees and not lay anybody off. They feel they have done that and have made all the compromises. He further spoke of having to shift their focus into identifying jobs and people. They feel there may be some opportunities to go back to the table, which would require action from Council. City Manager Williams continued his presentation by describing the Insurance Quotes (Property, Casualty, Workers' Compensation). Mayor Thomas asked if negotiations had been successfully completed with the Fire Department. City Manager Williams informed him they weren't recognized at this point and they were still moving through 12 Council Workshop September 7, 2007 the process. Their contract would probably come up mid -year which would start in 2009. Mayor Thomas then asked about the General Employees. City Manager Williams informed him they weren't here yet and planned to meet after the first budget hearing and try to renegotiate. City Manager Williams advised Council of a potential policy change that he thought would be highly controversial at best but it would attempt to address overtime within the Fire Department. He commented on things he and Fire Chief Barlow have talked about to reduce overtime. There was then a brief discussion regarding reducing the millage rate since fiscal year 2004/2005 little by little like they planned to do. City Manager Williams pointed out they had accomplished the goals the Council had set out with regard to the reduction of the millage rate, the sale of ParkTowne and reducing the debt. They would continue to set and work towards new goals. Mayor Thomas called a ten - minute recess at this time. The meeting recessed at 11:00 a.m. and reconvened at 11:10 a.m. Councilwoman Rhodes asked about the revenue and expense figures, which was based on taking the budget at 5.20/1,000 of taxable value. She expressed concern with having $434,776 net cash in the General Fund and needing $1.9 million for their Cash Reserves. City Manager Williams presented his suggestions on how to deal with the Charter requirement such as no pay raises and eliminating jobs. Councilwoman Rhodes asked if they set a millage rate of 5.37 how many dollars that would be. City Manager Williams estimated it would get them an additional $200,000. Councilwoman Rhodes mentioned this not bringing them close to their Charter requirement. She asked how they are okay with that. Why is it they don't necessarily have to meet that Charter requirement? How do they pick and choose the ones they are going to follow and the ones they are not? She has been through this every year since she has been on Council. City Manager Williams informed her he wasn't okay with that but felt it boiled down to Council saying it was unacceptable and that they do whatever is necessary to get them to those Charter limits. He spoke of these being unpleasant points they have to discuss. Councilwoman Rhodes asked what happened if pension modifications were made before September 24th and brings that pension number down. City Manager Williams informed her they would start generating excess cash. If those modifications go in that equates to about $220,000 in the General Fund. He figured out how much excess cash they would have with the pension plan modifications and increasing the millage from 13 Council Workshop September 7, 2007 5.20 to 5.37 which would get them pretty close to the Charter requirement. He further commented on ratifying the contracts. City Manager Williams informed Council they would have to have super majority in order to adopt the millage rate of 5.37. He incorporated into the table the discussions they had at the Executive Session regarding the Collective Bargaining Agreements. Councilwoman Rhodes pointed out they didn't have money to negotiate any more with the unions than what is already being offered. Any extra money they have has got to meet the Cash Reserve as the Charter requires. City Manager Williams asked if that was direction to declare the impasse and go through the process. There was then a discussion regarding the process if there was an impasse. Ultimately at the end of the day it would be back in front of Council. Councilwoman Lichter felt there might be elements that might be negotiable if City Manager Williams didn't negotiate as a whole. City Manager Williams informed her it wasn't the City's job to handle. That is the FOP and PEA reps and the union reps they have working for the City. He encourages the employees to get informed. Councilwoman Rogers wanted to clarify what was on the table under the City was what they talked about at the Executive Session. City Manager Williams informed her what was in the table was what they had approached the membership with. After they have talked in the Executive Session and they go in and incorporate all those items that they have talked about it is necessary to raise the millage rate. Councilwoman Rogers asked if they would have an answer Monday night pertaining to what they talked about at the Executive Session and the impact on their budget. City Manager Williams commented on why they needed to know that they had that millage rate before they go back to the table. Councilwoman Rogers commented on this telling them more or less what their decisions needed to be on the pension and collective bargaining. They have to act as if they don't have super majority when they are making this decision. City Manager Williams commented on needing direction from Council in order to have a smooth transition on Monday night. Councilwoman Lichter felt the Reserve Fund had to catch up but she didn't think that in one sitting they could plug the whole hole of the Reserve Fund after they got slammed with hurricanes and didn't get back from FEMA what they thought they would. She thinks they have to put more in there and pray for the best that nothing else hits them with force. 14 Council Workshop September 7, 2007 Councilwoman Rogers felt next year would be worse as far as the millage. City Manager Williams spoke of Council disapproving a line of credit. He spoke of trying to strike a balance. Councilwoman Rhodes stated the Charter doesn't give them the flexibility to strike a balance. They don't have that option. They all swore to uphold the Charter of the City and they aren't doing it. Mayor Thomas asked Councilwoman Rhodes if he was telling her 5.37. Councilwoman Rhodes informed him in her opinion it was irresponsible to not do it. Mayor Thomas asked City Manager Williams what his recommendation was. City Manager Williams informed him 5.37 since that was the highest they could go. He spoke of the TRIM notice going out at 5.37. He also spoke of the other variable that may come along and hurt them to some extent being the value adjustment boards. The final tax roll number may change fairly significantly. Councilman Vincenzi felt things needed to change in the City. He thought they were making progreess by reducing the millage rate every year since they had a change in Council. He thinks the employees needed to realize the City just didn't have money. Raising the millage from 5.2 to 5.37 to get an extra $200,000, he didn't think would make much difference. He felt 5.2 was something he didn't like but would be willing to vote on. He didn't like doing the 5.37 when they declared the millage rate. He felt there had to be a lot more compromise on the part of employees as far as benefits and things of that nature for the City to survive. This is just another band aid they are sticking on the budget. City Manager Williams stated having not personally gone through the experience of an impasse and only going on what he has heard, he is clearly there that is where they want to go. It was his understanding it was a very highly emotional process. They have to go in knowing that they have reached their limits when they adopt that budget or it would have consequences. Councilman Vincenzi commented on always charging more. He felt it was not the responsible thing to do to increase the millage for raises, benefits and retirement contributions. Councilwoman Rhodes wanted to raise the millage so that they meet their Charter requirement. Councilman Vincenzi felt for the Council to do that there had to be more of a compromise on the employees side than just raising this to 5.37, which would not get them there. Councilwoman Rhodes stated it would help. She wasn't saying to give the employees more than they are able to give them. Nobody wants to raise the tax rate to give more. They want to raise the tax rate to generate cash in the bank for this City. They are irresponsible to have a Reserve Fund of $400,000. If another hurricane came, they would be sunk. She mentioned having to pay to use a line of credit. Why would they not 15 Council Workshop September 7, 2007 raise the millage rate and borrow less that they have to pay interest on. Councilman Vincenzi felt if they declare they are willing to go to this higher millage than they are going to burn up that money no matter what. Councilwoman Rhodes stated only if Council allows it. Councilman Vincenzi stated Council has allowed it in the past since he has been up there. Councilwoman Lichter informed him he has been up there with them. Councilman Vincenzi stated he was trying. Councilwoman Rogers stated they have to look at today but they also have to look at next year. They are going to have to have a lower millage next year. Just because they could increase it to 5.37 to get $200,000, that is a drop. They do need to meet the minimum Charter requirement. Is it right for them to increase the tax to band aid this? Two hundred thousand isn't going to cut it. They need to deal with it now. They need to meet the Charter requirement. The cuts need to be made. It needed to be a non - emotional cut. They have to look at the numbers. She spoke of not having reserves for Capital Outlay, which she felt they needed to do as well. If they tighten their belts now and start setting the path, then next year will be easier. They need to straighten it out now. She felt things would be better for staff if they had a City reserve that met their Charter requirement if something happens. She commented on the infrastructure that is going on in the City that they aren't addressing. They need to do what they have to now. Councilwoman Rogers stated 5.37 wasn't going to make it. It's kind of like an all or nothing. She felt $200,000 was a drop and wasn't going to help them. City Manager Williams stated they may be there but they couldn't predict that at this point in time in terms of budget. His suggestion would be to adopt the millage rate at 5.37 and hope they can negotiate all the other areas to get them down. Councilwoman Rogers stated hope doesn't pay the bills. Mayor Thomas commented on needing super majority and hearing two Councilmembers against the 5.37 so he felt they needed to shoot for the 5.20. Councilwoman Lichter stated she would be saying yes to 5.37. Mayor Thomas stated that was three Councilmembers. Councilwoman Rogers commented on things they are dealing with that still had to be negotiated. Councilwoman Rhodes stated even if they increase the tax and modify the pension plan they still wouldn't be where they wanted to be but they would at least be at $1.2 million. She didn't know why they could not be thrown out of office for not meeting the Charter requirement. Councilwoman Rhodes wasn't saying because the rate was 5.37 to offer any more. She was saying make it 5.37 so they have cash. City Manager Williams confirmed she was talking about any more than what they discussed at the Executive Session. Councilwoman Rhodes informed him that was correct. Councilwoman Rogers stated they didn't know if 16 Council Workshop September 7, 2007 they weren't going to have extra cash due to this being hypothetical. She was pretty certain these were conservative meaning they probably had a little more bottom line than what they are even showing. City Manager Williams commented on not being able to predict what was going to happen at the State level. There was further discussion regarding the 15% to 25% minimum Charter requirement with regard to taking excess money over the $1.9 million and funding the Capital Reserve and keeping the unreserved at the 15 %. City Manager Williams commented on issues in the past when a prior City Manager was criticized for taxing and not spending the money and they had a very large cash reserve. He thought maybe the idea then was to take some of that large unreserved cash and start reserving it for City Hall, equipment, etc. Councilwoman Rhodes commented on wanting Council to put a City Hall Fund in the budget years ago. City Manager Williams thought they recognized they needed to do it. One hundred thousand dollars contributed to a reserve fund is a start but when they are talking $14 million for a City Hall that would take a significant amount of time to save. Councilwoman Lichter asked City Manager Williams if they could present the budget at 5.20 and 5.37 on Monday night. Mayor Thomas informed her he wanted to know today. Councilwoman Rogers stated they already told him how to reduce 3% in the Council's budget. She asked if any of the other departments that are not in the negative percentages could come down another 3 %. City Manager Williams informed her they approached that and he thought the answer was at the existing level of service, no. If they wanted to compromise on the services they provide, then they could. Councilwoman Rhodes asked if the departments not in the negative weren't seeing negatives because of positions unfilled. City Manager Williams commented on staff being very thin in terms of the folks providing the services. Councilwoman Rogers has clients in retail that are used to working a certain number of hours that are salary that are still having to work additional hours and they are getting the same pay just because they want to keep their job. City Manager Williams agreed and said the employees are doing it and have been doing it but at some point you reach that breaking point. That is what they don't want taking place. City Manager Williams commented on the Directors being given the directive going into this to cut their budgets by 100. The last year they have spent more time in the budget than they have in previous years in trying to whittle all those costs that might not be 17 Council Workshop September 7, 2007 necessary. At the end of the day this is what they feel is necessary to operate the City. City Manager Williams stated these folks have been operating with vacant positions and have been required to work longer and harder than just a few days or a few months. It's been that way for the last year and a half and they are tired. City Manager Williams commented on research he has done where he came across Edward Demming who helped Japan revolutionize their country. He has a theory that they can't constantly place an emphasis on cost reduction because in doing so you are going to start suffering in the quality of the services that are provided because they will have increased turnover in staff and will have to do additional rework and so forth to the extent it becomes counterproductive. He was starting wonder if their philosophy was wrong and that they need to take a different approach. It was the consensus of Council to go with a millage rate of 5.20. ADJOURNMENT There being no further business to discuss, the Budget Workshop adjourned at 11:43 a.m. Minutes submitted by: Lisa Bloomer 18 Council Workshop September 7, 2007 1O CITY OF EDGEWATER FY 2008 Budget Workshop 7 ,'""'� d O ia . 0 s AGENDA • MILLAGE RATE DISCUSSION • SUMMARY DISCUSSION ALL FUNDS • DISCUSSION POINTS 1 PROPERTY TAX REFORM • HB1B • DR -420 • DR -420 M -P MILLAGE AD VALOREM RATE REVENUE FY2007 millage - 5.70 is 6% mer rolled back rate $ 6,825,695 'Millage rate between 5.3740 and 5.70 5.7 x 95% Unanimous Note by City Council $ 6,484,410 FY2008 Rolled Back Rate - 5.3740 $ 6,435,313 Millage rate between 4.8903 and 5.3740 5.374 x 95% Two-thirds Note by City Council (4 to 1 Note) $ 6,113,547 FY2008 Proposed Millage Rate - 4.8903 $ 5,856,207 Majority Note by City Council (3 to 1 Note) 4.8903 x 95% $ 5,563,397 REVENUE DECREASES 1 Housing Market FY2007 FYD 2007 FY2008 New Building Permits 225 26 25 Effects General Fund reN.enue through the Building Department for permit sales. Effects all Impact Fee funds. Effects Enterprise Funds for Connection Fees. 2 Florida's general economy. Most of the General Funds rewnues are directly related to state reN,enue sharing. 2 PERSONNEL COST PARAMETERS 1 Wage increase 2 Health Insurance -8.60% Decrease 3 Fire Pension 16.80% of payroll 4 Police Pension 26.70% of payroll 5 General Pension 24.00% of payroll and underfunded by half. 6 Defined Contribution 12.00% of payroll 7 Vacationlsick Cash in none DISCUSSION POINTS • Fund Balance VS. Cash and Cash Equivalents. • Fund Balance = Assets — Liabilities • Fund Balance is not cash. • General Fund Balance Sheet. Page 16 in CAFR. 3 CITY WIDE CASH CONDITION I, ENDING CASH BALANCE I FY2006 FY2007 t FY2008 r FY2008 [ )FUND ,.. Actual Estimate _i__Proposed_ _ _ Surplus/(E101dt) General Fund 3,696,887 3,223,054 i 3,820,841 I 597,787 Water 8 Sewer Fund (1,013,069) (626,520) (495,855) i 130,665 'Refuse Fund 203,617 361,68 I 9 i 324,558 (37,031) I (1,633,366) (1,352,009)1 (1,346,171) i 5,838 Animal Shelter Fund 0 0 : (10.283) (10,283)1 1,254,069 1,606,114 ' 2,293,090 _ i 686,976, CITY WIDE CASH CONDITION ENDING CASH BALANCE t 1' 1 i i 1 • FY2008 FY2007 - - I — ,Y20013 1 i FY2008 Olga Mittel, Estimate I" Proposed T - Surplus:(0.1UB ) !General Fund 3,698,887 3,223,054 1 3,820,841 • i 597,787 • t :Water 8 Sewee Fund 0,013,069) _ y326,52041 . 1 495.8551 1 130,665 : Nefuse Fund 203,617 361,586 ; . 324„558 i . I 137.03U EStommater Fund (1633,366) (1, 352,006)T - (1,346,171)) I 5,838 :Animal Shelter Fund 0 0 (10,283)1 I (10,283) 1,254,089 1,606,114 2,293,0901 I 686,976 i 1— T I kLESG 66 289 o : GRANTS (166269) (18,014) (18,014)1 I ---- :SLEW - - 12,672 25,0001 29,000 I*" 3,000 likb FEE - 494,211 '546,325 584,980 1 I 35,654' IPOUCE IMPACT FEE 161,392 167,517 171.171 1- 1- I ! 3,854 FIRE IMPACT FEE 393,988 400,766 408,781 1 I 8,015 RECREATION IMPACT FEE 228,480 208,195 44,370 L i ... _063,825)1 DEBT SERVICE 259,967 348,738 348,738 i r - - . CAPITAL PROJECTS (8006) 1,714,258 1,724,288 I I 0 WATER DEVELOPMENT (807,303) 0 o ; I (597,566)1 SEWER DEVELOPMENT (864,099) .. 0 1 t (533,243)1 : RENEWAL 8 REPLACEMENT (152,768) 01 0 1 i 0 (481,700) 3,407,071 1 3,293,570 : (1,244,311): ,....... --- 792,389 --- 5,013, 186 5,586,660 ri ----- -' .„. 4 SUMMARY OF FUNDS SURPLUS/ REVENUES AND EXPENSES FY 2008 REVENUES EXPENSES (DEFICIT) GENERAL FUND 13,289,355 12,691,568 597,787 LOCAL LAW ENFORCEMENT BLOCK GRANT FUND 10,000 10,000 0 GRANTS FUND 573,070 573,070 0 SPECIAL LAW ENFORCEMENT TRUST FUND 29,000 29,000 0 ROAD IMPACT FEE 35,654 0 35,654 POLICE IMPACT FEE FUND 3,767 113 3,654 FIRE IMPACT FEE FUND 8,263 248 8,015 RECREATION IMPACT FEE 16,175 180,000 (163,825) DEBT SERVICE FUND 911,370 911,370 0 CAPITAL PROJECTS FUND 531,821 531,821 0 WATER AND SEWER FUND 9,833,639 9,702,974 130,665 WATER DEVELOPMENT FEES 110,000 707,566 (597,566) SEWER DEVELOPMENT FEES 115,000 648,243 (533,243) RENEWAL AND REPLACEMENT 360 ,000 360,000 0 REFUSE FUND 2,481,000 2,505,872 (24,872) STORM WATER FUND 1,235,935 1,222,703 13,232 ANIMAL SERVICES FUND 711,120 721,403 (10,283) TOTAL ALL FUNDS 30,256,169 30,796,951 GENERAL FUND DESCRIPTION • The General Fund accounts for all resources that are not required to be accounted for in other funds; in essence it accounts for all unrestricted resources. • Page 4 of proposed budget. 5 GENERAL FUND REVENUE BY SOURCE INTERGOVERN CHARGES FOR MENTAL SERVICES FINES REVENUE 3% FORFEITS 15% 1% MISC. LICENSES AND REVENUE PERMITS ' 10% 2% OTHER x�'rF SOURCES TAXES 65% Page 5 of budget GENERAL FUND EXPENDITURES BY DEPARTMENT CITY COUNCIL LEISURE SERVICES 1% CRY MANAGER OPERATIONS 3% 7% CRY CLERK LEISURE SERVICES 2 % ADMINISTRATION 3% FINANCE 5% STREETS PLANING 3% 3% BUILDING COMMUNITY SERVICES 2% (CODE ENFORCEMENT ) 2% ^.. y m� �, PERSONNEL FIRE OPERATIONS 4 (VAIN"' OTHER GOV. SERVICES 20% FIRE ADMINISTRATION 3% POLICE POLICE OPERATIONS ADMINISTRATION 22% 4% Page 6 of budget 6 SIGNIFICANT ISSUES AS OF SEPTEMBER 7, 2007 1. General Employee Pension Plan — Pursuant to State Statute Ch. 112.61 Legislative Intent " Accordingly, except as herein provided, it is the intent of this act to prohibit the use of any procedure, methodology, or assumptions the effect of which is to transfer to future tax payers any portion of the costs which may reasonably have been expected to be paid by the current taxpayers." September 5, 2007 — Charles Slavin, Actuary for the State of Florida Division of Retirement confirms that under funding is in direct conflict with 112.61. September 6, 2007 — Carolyn Ansay, City Attorney reviews Ch. 112 and looks at cases and Attorney General Opinions, and confirms that any actions that would shift costs from current to future taxpayers would be prohibited. September 6, 2007 — Lee Dehner, Attorney for General Employee Pension Plan confirms his conversation with Mr. Slavin and agrees that the decision to under fund is prohibited. FY 2008 Budget to reflect requirement to fund at 48.25% of payroll or $1,222,0000. Mr. Dehner and Staff suggest directing Principal Financial Group to come up with modifications to the plan that would ensure: • Long Term Sustainability of the Plan • Acceptable Level of Funding (i.e. 21% of payroll or 600,000) • Modifications are in accordance with State Statute Ch.112 and approved by Mr. Slavin. 2. Collective Bargaining Agreements — All contracts are currently being negotiated, the FOP agreement went for ratification on August 27, 2007, and failed by 28 (No) and 5 (yes). The table below identifies major articles of economic substance only: FY 2008 Budget reflects a 3% wage adjustment, City to absorb an overall increase in medical insurance of 5.4% and no appropriations for Vacation and Sick Cash in. SIGNIFICANT ISSUES CONTINUED Article City PEA FOP CPI as of April 2007 Wages '3% 5.80% 8% 2.5% Status Estimated Cost for Sick Cash In Not permitted Status Quo Quo FY2008 Vacation Status Cash In 1 Week Status Quo Quo $350,000 City Wide. Language addressing Excessive Status Sick Time Usage Status Quo Quo Vacation Language requiring advanced Status Time notice Status Quo Quo Pay Dependent Coverage for Employees Status Insurance Status Quo hired after 2004. Quo Pay Cycle Bi- Weekly Status Quo Remove Presidents Day add Status Holiday Floating Holiday Accepts Quo 3. Insurance (Property, Casualty, W /C) quotes were received September 6, 2007. Net Increase $70,354. FY 2008 Budget to reflect increased cost. Bottom Line In light of the uncertainty of successful modifications to the pension plan, negotiating collective bargaining agreements and increased costs associated with insurance, Staff recommends that Council adopt a millage rate of 5.20/1,000 of taxable value. This is necessary to maintain our existing service levels without a major reduction in workforce. This rate will generate enough excess revenue in the general fund that will be necessary to assist the enterprise funds in balancing (see below). Overall, the proposed budget falls short in its ability to generate enough excess cash for reserves and emerging capital needs, which equates to a recipe for failure. General Fund Water & Sewer Refuse Stormwater Total Revenue $ 13,641,595.00 $ 9,833,639.00 $ 2,481,000.00 $ 1,235,935.00 $ 27,192,169.00 Expense $(13,206,819.00) $(10,046,657.00) $(2,593,400.00) $(1,284,756.00) $(27,131,632.00) Net $ 434,776.00 $ (213,018.00) $ (112,400.00) $ (48,821.00) $ 60,537.00 0.22% If the City successfully modifies the pension plan, and ratifies the collective bargaining agreements (pursuant to Council direction) and entertains a rate increase within the enterprise funds, we will proactively begin to address our cash reserves and emerging capital needs.