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03-30-1988 - Special o 0 CITY COUNCIL OF EDGEWATER SPECIAL MEETING MARCH 30, 1988 MINUTES Mayor Baugh called the meeting to order at 7:00 P.M. in the Community Center. He stated the purpose was for the FY-1987 audit presentation by Brent Millikan & Co. ROLL CALL Mayor Earl Baugh Councilman Louis Rotundo Councilman Russell Prater Councilman Neil Asting Councilman David Mitchum Present Present Present Present Excused City Attorney Jose' Alvarez Interim City Manager Dennis Kelly Acting City Clerk Susan Wadsworth Chief Lawrence Schumaker Excused Absent Present Present Also present was Karen Rickelman, Finance Officer, and Brent Millikan and Alex Kish of the City's auditing firm of Brent Millikan & Co. Mr. Kish stated they'd completed their field work some time ago but were trying to get a number of issues resolved, and some were just resolved last week and the reports were sent to the printers, where there was a problem with ill employees and presses breaking down. Mr. Kish stated he'd hit some of the high points. He explained detailed breakdown was in the back. Mr. Kish pointed out the Certificate of Achievement for Excellence in Financial Reporting had been awarded the past several years and this report was prepared under the same guidelines and policies and will be submitted for a certificate for 1987. Mr. Kish reviewed briefly the various sections of the report. He stated there were some uncertainties regarding the self-insurance fund because they didn't know the types of liabilities they're referring to. He suggested steps be implemented to evaluate the amount and degree of risk by the City. Mr. Kish noted there was a change in the governmental accounting system for special assessment funds. He stated that on the combined balance sheet for all fund types there are total assets of $16,970,000, or 1.5 million over last year. He reviewed what makes up the general fund assets. He stated the total liabilities are $4,491,000 and residual equity of $12,479,000. He said they had enterprise fund equity of $5,777,000 with unreserved of $1,152,000, but that's invested in hard assets so is not money available to spend. He stated pension fund trust has a net worth of $847,373, and general fund assets were $4,800,000. He noted there was a 19% increase in equity over last year. Mr. Kish stated that pages 6 and 7 of the report cover the service provider funds and there were total revenues of $3,254,000 or approximately $660,000 over last year. He noted that expenditures incurred totalled $3,223,000, which was $630,000 increased over last year. He pointed out there was the transfer out of $95,000 for the self-insurance fund and insurance coverage. He reviewed the transfers in that account. Mr. Kish reviewed the enterprise fund with $1,267,000 as revenues for services and operating expenses of $1,385,000, which was an operating loss of $118,000. Mr. Kish reviewed the nonoperating revenues and expenses. He stated there was an operating transfer out of $110,000 for the insurance estimate. He noted they put $300,000 in the risk management pool, and equity in risk management is now $308,560. Mr. Kish briefly reviewed page 18 and the various funds and accounting treatments they used, and pages 25 and 26 as the summary of the policies. He referred to an incident in Fort Lauderdale that caused the requirement to disclose where the money is invested and how it's invested. He noted that page 27 is fixed assets and through page 32 is a summary of the City's long term debts. He said page 32 is deferred revenues and pension plan disclosures, due to new governmental accounting board standards. He pointed out there will be an audit of the pension plan for fiscal year 1988 since the City has their own indepen- dent plan. o o FY-1987 audit presentation by Brent Millikan & Co. (Continued) - Mr. Kish stated Note 12 shows the uncertainties of the self-insurance fund and Note 13 is pending litigation. He pointed out the reason for the many pages of the report is because they are a government unit and a private business would only require 2 or 3 pages. Mr. Millikan reviewed the circumstances when the City of New York went bank- rupt. He stated the governmental funds for police and fire services and financial services will break even for 1987 and the refuse fund made about $100,000 so there were no problems there. He suggested they be concerned about the water and sewer fund as on page 49 it shows $116,00 net income and operating transfers were $200,000 and they took the utility service tax of $407,000. He pointed out they're using those funds to subsidize the water fund and if they took the utility taxes out into other governmental funds, the water and sewer operation is losing $200,000. He noted that as the City grows, the more volume they'll do, and the more they'll lose. He said they're losing money based on the rates and they're talking about the expansion in that area. Mr. Kish reviewed the statistics on page 64 over the last 10 years in the City. He reviewed the figures on the graphs he'd presented at the meeting. He noted there's about a five times increase in the property values, and they went to $25,000 on the homestead exemption. Mayor Baugh asked if that was when the interest rates were so high and Mr. Kish replied yes, and there wasn't a lot of construction at that time. Mr. Kish pointed out the bank and savings and loan deposits which totalled about 80 million dollars in investments and cash. Mr. Kish stated that table 12 shows whether they're dependent on anyone business for water use, and table 13 shows the principal taxpayers and it shows the tax base is not dependent on anyone business and the largest is Florida Power and Light with 1.4% of the total. He added that table 14 is miscellaneous statistics. Mr. Kish stated that pages 81 and 82 are a report required by the Auditor General's office, and they didn't disclose any condition that was a material weakness in the accounting system or any problem with the integrity of the financial information provided to them. He noted their management letter is pages 84-89 and the major area they wanted to bring to the City's attention is the self-insurance fund. He stated money was set aside and individuals were charged with the responsibility for putting it together but there are certain covenants and restrictions placed on them with the existing bond covenants and they must maintain certain minimum risks of insurance and assumption of all that risk is construed as a violation of the bond covenant restriction. He added they haven't had an assessment of the risk and the effect of assuming that risk, which could be detrimental or beneficial to the City. He noted that with the $300,000 put in the fund and interest earnings of $16,000, and what was paid out, they came out ahead, but they should make an actuarial assumption of the risk assumed. He pointed out the bond covenant requires certain levels of coverage they don't have and he suggested they implement a risk management program. He added they'd discussed this and provided names of some actuarial consultants and they should assess and evaluate the risk assumed. He stated their major recommendation is to strongly suggest they obtain a liability umbrella policy and to build up funds to handle a large deductible to get a better insurance rate. He suggested it might be $100,000 or $300,000 deductible, but to consult with an actuarial or insurance consultant to evaluate the risk the City should retain and how much to insure. Councilman Rotundo asked if there's $600,000 in the account now and Mayor Baugh replied there was $300,000 the first year and $300,000 this year. Councilman Asting stated that Council is faced with establishing a committee to handle and administer the self-insurance fund. Mayor Baugh pointed out they never received Gary Schad's resignation. Councilman Asting stated they should do something to handle it and the City Manager should sit on the commission to see that the fund is administered; -2- Council Special Meeting Minutes March 30, 1988 o o FY-1987 audit presentation by Brent Millikan & Co. (Continued) - Mr. Kish pointed out a large claim or disaster could wipe out the fund if the legislature would award in excess of the State amount and they should build a buffer to handle certain deductibles. Councilman Rotundo pointed out their intent is to add another $300,000 in this budget to have a total of $900,000. Mr. Millikan stated they know they're retaining risk but there are people who specialize in that to determine the risks that are cheaper to retain and what risks are so bad they can't afford to retain them, and they should have some major umbrella to protect them. Councilman Asting stated they should have some type of document to guide the self-insurance committee that spells out what risk they can assume. Mr. Millikan cautioned that the person who comes in shouldn't be in the business of selling insurance, but will just be a consultant. Councilman Asting stated they paid for a self-insurance manual they don't have. Mayor Baugh noted they gave the names to Mrs. Wadsworth and Council will have to think about it to get a consultant to tell them what type of risk they want to take. Councilman Asting said they'll have to incur areas not covered by insurance. Mayor Baugh noted that the premiums were very high when they went to self-insurance and now they're coming down and it might pay to get a consultant to find out where they stand. He suggested they should get the manual. Councilman Asting moved they direct the City Manager to contact the people they suggested and come back with information to the Council. Councilman Prater seconded the motion. Motion CARRIED 4-0. Mr. Kish suggested they contact the Florida League of Cities to see if there are additional names to the list. Mayor Baugh agreed. Mr. Kish stated that the utility excise tax is being used to subsidize the water and sewer system and they are only capable of recovering 80% of the costs of providing the water and water and the rest is supplemented by the tax. He recommended they analyze the issue of making a change to the fees and with a long term construction program, it will have to be set up to show a profit from the water and sewer system. He added they should recover the costs it takes to produce a unit of water. Mayor Baugh asked if would be an increase in rates for water and sewer and Mr. Kish replied yes. Mayor Baugh noted that $500,000 would go back to the general fund to reduce taxes, but he'd understood they couldn't do that because of the bond covenants, and he thinks they should look at it. Mr. Millikan stated that water is a valuable asset and they're charging less than it costs, and charging more for taxes. Councilman Rotundo said he thought they were making money in the water depart- ment and Mr. Millikan noted that's because they take the $400,000 but are actually losing $200,000. Mr. Kish stated they investigated the bond financing during the year and the possibility of expanding the water and sewer and stormwater improvements is being considered. He noted it's anticipated a number of firms will be engaged to provide services. He suggested that estimates be obtained for the cost of the services before the services are provided. Mayor Baugh noted that's being done now. Councilman Asting stated he doesn't like the way it was set up with A. G. Edwards and doesn't like the idea of lawyer Sundstrom being involved with the City. He asked Mr. Kish what a typical finance committee would be for floating a bond issue, as he understood it would be a team of a financial advisor, engineer, and investment banker. Mr. Kish said it's better to try to keep the committee as a City Manager or Administrator and Finance people and try to develop the core from within because professionals will come in and leave and not be involved. He suggested if they're looking at a program, it should be essential to tie in with a professional financial advisor with an office on Wall Street or with the ability to give them prices from the floor to get the best deal they can get. He added they're buying cash dollars and they want to be sure they get the most cash they can get. -3- Council Special Meeting Minutes March 30, 1988 o (.) FY-1987 audit presentation by Brent Millikan & Co. (Continued) - Mr. Millikan stated that in Florida about 95% of the deals are done on a negotiated sale and the underwriters get the amount. He noted that if the City sold them or had someone sell them, they'd know the market, but there's risk and most municipalities don't take it and do negotiated sales. He stated the financial advisor and underwiter should be totally apart. He said the underwiters will have an underwiter counsel and the City should get to select the underwiter's counsel and the bond counsel should work for the City and the underwriter should not select the bond counsel. He pointed out they want to keep the number of individuals down to a minimum for the cost. Councilman Asting noted that another city paid for a special counsel. Mr. Millikan stated there's no role for a special counsel and he told the bond counsel and underwriters that he'd advise Council they don't need special counsel. Councilman Asting asked if that was at the meeting last week and Mr. Millikan replied yes, and he also told them he'd have problems if the underwriter would serve as bond counsel and they agreed. Mr. Kish stated that underwriters are underwriting the risks from the time they sign the papers until they can sell the bonds on the street and they want to cut the risk down when the deal takes place to have someone dispose of the bonds instantly. He noted they may want more than one underwriter to spread the risk. Mr. Millikan added they want to have proper controls and to get the costs for the underwriters. Councilman Asting asked what the costs should be and Mr. Millikan replied the cost was less than $10 per thousand for one client. Mr. Kish noted that most are about $18 per thousand. Councilman Asting stated the auditor should be on the financial team. Mr. Millikan said they want to be sure the selection process is someone who has been through that to make sure it's set up properly and they will have underwriter, financial advisor, underwriter counsel and bond counsel, and all answer to the City and not together. Mr. Kish stated the remainder of the items in the report are required disclosures and they discussed them with management and corrective actions have been imple- mented on most of these. He pointed out that as of September 30th they had a number of customers that are not hooked up to the utility systems and the bond covenants require that they hook up when it goes in front of their house. He added those amounts have been billed and not paid and the charges are accumu- lating and it's an uncollectible balance that's at about $8,000. He suggested they set up a system to force collections and force hookups. He said the sinking fund balance is an accumulation of interest earnings and they can take care of it administratively. He said with the force account labor, when they use the work force for construction type activities, they need to develop a form and format for that time for capitalization of plant. He added there's a work order system working now. Mayor Baugh asked how they stand financially. Mr. Kish replied the City is very strong with $12,840,000 in net worth and $454,000 unreserved equity but they incurred $300,000 plus items out of that. Mayor Baugh asked if the City is in good shape financially and Mr. Kish replied yes, and two-thirds of the assets are in equity. Mr. Millikan stated the governmental funds broke even and the water and sewer is a problem and the other concern is the insurance area. Councilman Asting stated they need to have the risk analyst here to determine the extent of the coverage for the self-insurance fund and those risks not covered that go to an insurance policy. Mr. Millikan agreed that's extremely important, and said they need to also be concerned about the bond program to be sure they have all the players lined up right and get the proper checks and balances. He suggested when they go with the bond program, they need to look at what they want and how they're going to pay for it. He added that if the water rates go up to break even to pay for what it costs, it would give them another $400,000 to use to pay for growth, and could look at assessments and impact type fees but try to spread it out so everyone can afford it. -4- Council Special Meeting Minutes March 30, 1988 {.) Q FY-1987 audit presentation by Brent Millikan & Co. (Continued) - Councilman Asting moved to retain the firm of Brent Millikan as the City's auditors for the fiscal year 1988-89. Councilman Rotundo seconded the motion. Motion CARRIED 4-0. Mayor Baugh stated that in the past the certificates were in Mrs.Martinez's name and he asked what is the one they're applying for. Ms. Rickelman replied that the Interim City Manager's name was his request. Mayor Baugh noted that he had nothing to do with it and Karen Rickelman and the Finance Department had more to do with it then anyone else. He suggested it be as Finance Department and the City. Councilman Asting agreed he feels the same way. Ms. Rickelman said she prepared it and the certificate will corne with the name on for the paper one and the City's name on the plaque. Mayor Baugh stated it should corne as Karen Rickelman and the Finance Department. Ms. Rickelman said she preferred it be Department of Finance. Mr. Kish noted they'll want a name. Councilman Asting suggested it be Karen Rickelman. Mayor Baugh noted she prepared the budget, and a lot of girls and people worked on it and they should be compli- mented on what they did. Councilman Rotundo moved that it be Finance Department and Karen Rickelman. Councilman Asting seconded the motion. Motion CARRIED 4-0. Mr. Millikan thanked Council and said it was hard to speak out and they spoke out against another entity and it's reassuring to corne to a City and stand tall and get the finance program squared away. Mayor Baugh stated they'll look to them for some help. Mr. Millikan stated they couldn't sit back and let it go on. Mayor Baugh stated they did a fantastic job. Mayor Baugh requested a motion to adjourn. Councilman Asting so moved. Councilman Rotundo seconded the motion. Meeting was adjourned at 8:38 P.M. Minutes submitted by: Lura Sue Koser ~ ATTEST: xI~~~ l ;f-~ ACTING CIT~CLERK -1-~ ~ ~ ~ APphiS l J" ~~ RI- MAYOR I day of ,198~ -5- Council Special Meeting Minutes March 30, 1988