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2012.04.13_FAB_Minutes_Regular�� '•m TOWN OF HIGHLAND BEACH M 3;• :s MINUTES OF THE +4+� ••' f..... != FINANCIAL ADVISORY BOARD 0B10 REGULAR MEETING Friday, April 13, 2012 9:00 AM Members Present: Chair Gerald Gitner, Board Member Ronald Brooks, Board Member David Buchsbaum, Board Member Bruce Giacoma, and Board Member William Gross. Also Attending: Mayor Bernard Featherman, Vice Mayor Ron Brown, Commissioner Dennis Sheridan, Commissioner Louis Stern, Acting Finance Director Cale Curtis, Deputy Town Clerk Valerie Oakes and members of the public. CALL TO ORDER: Chair Gitner called the Regular Meeting to order at 9:00 a.m. followed by a roll call taken by the Deputy Town Clerk. ADDITIONS, DELETIONS OR ACCEPTANCE OF AGENDA: Chair Gitner called for any additions, deletions to the agenda, hearing none, the agenda was accepted as presented. PUBLIC COMMENTS AND REOUESTS: None. PRESENTATIONS• None APPROVAL OF MINUTES: • March 2, 2012 — Regular Chair Gitner called for a motion to approve the minutes of March 2, 2012, Regular Meeting. MOTION: Member Giacoma moved to approve the minutes of March 2, 2012, Regular Meeting. Member Brooks seconded the motion, which passed unanimously. Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 2 of 9 OLD BUSINESS: A) General Discussion of Financial Topics Follow -Up: • Investment Options/Policv (Memo Topic # 1) Director Curtis announced that the Town Commission will hear and discuss, for approval, the FAB's recommended changes to the investment policy at their next Workshop meeting, scheduled for April 24, 2012. A final vote on the changes will take place at their Regular meeting on May 1, 2012. • Sale of Surplus Property (Memo Topic #3) Director Curtis informed the Board that on March 6th the Town Commission followed the FAB recommendation to retain the services of a professional commercial realtor to represent the Town with regard to our two surplus parcels of land in Boca Raton. As of the publishing of this memo, the advertisement for Request for Proposals for Commercial Realtor Services was going through a legal review. A yet -to -be determined evaluation committee will review all proposals and submit between 1 and 3 proposals to the Town Commission for review and authorization to negotiate a contract. It is my goal to have the advertisement in the papers by mid -April. The proposals will be evaluated as they come in and there will be a need to put together an Evaluation Committee composed of Director Curtis and members of the Staff. Director Curtis asked if a member from the Financial Advisory Board would volunteer to be on the committee. Member Gross volunteered. Regarding the use of the sale proceeds, Director Curtis indicated that this recommendation has not yet been forwarded to the Town Commission for consideration, as we are awaiting further legal information with regard to the bond referendum that authorized the RO Plant Expansion Project. Chair Gitner indicated that he had quickly perused the most recent audit and nowhere did it mention that the proceeds of the sale must be used to pay off that debt; he suggested that either the audit might deficient or perhaps no such obligation existed. Director Curtis did not feel the audit was deficient. The Town Attorney is reviewing how the bond was sold to the public and what restrictions, if any, may attach to the proceeds. • Capital Improvement Plan (Memo Topic #6) Director Curtis reported that in an effort to establish a formal capital improvement plan (CIP) he has started to review similar government agency policies for Capital Planning. Most of their CIP's go out five years and are formally adopted by their elected officials in conjunction with the annual budget each year. The draft document should be ready for review in a couple of months. He did request the Board's input on some of the details: 1. What is an appropriate cost threshold for an item to be considered a part of the 5-year CIP? (i.e. projects greater than $50,000; $75,000; $100,000) Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 3 of 9 Chair Gitner questioned at what point does something go on the books as a depreciable asset versus an expendable item. Director Curtis stated that the threshold is a useful life for a period of one year, $1,000. Chair Gitner asked if this is statutory. Director Curtis indicated that it is a Town Policy; the statutory requirement is a minimum of $5,000. Chair Gitner suggested: that the statutory minimum requirement be implemented as part of the Town's recordkeeping, there could be a system that either $5,000 to $49,000 gets approved by the Town Manager or $50,000 and over and lastly, uses $50,000 as a threshold with understanding that all projects relating to a particular goal would be counted. By consensus, the Board agreed with Chair Gitner's suggestions. 2. What is an appropriate useful life of an item to be considered a part of the 5- year CIP? (i.e. 3 years, 5 years, 7 years, etc) Chair Gitner indicated his view is if it goes on the books as an asset and it goes over the $50,000 threshold then it becomes part of the process. By consensus, the Board agreed with Chair Gitner's suggestions. 3. There will be some form of ranking these projects for priority in the budget. What do you consider relevant criteria for ranking? (i.e. cost savings, community impact, etc...) Chair Gitner asked why not go with what the state mandates, and asked about environmental matters and whether or not it is included in the community grouping. Director Curtis indicated that it could be a separate item. Member Brooks felt that at this level we could add a requirement rather than taking any away as far as evaluation is concerned. He asked if a criteria is established by the state, and the Board wishes to have an additional requirement, could that be added and would the state have any objection. Director Curtis asked the Board members that if they have any other criteria to suggest to please notify him. He would then include the suggestions in a draft plan. Chair Gitner asked Director Curtis to try to make this a one page, letter -size document. Update on the 2011 Audit (Memo Topic #5) Director Curtis indicated that the report was completed and was dated March 29th. The auditors will make a formal presentation at the Town Commission Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 4 of 9 Workshop Meeting this month. At the last meeting, the Board discussed having a sounding board type role in the audit process. Chair Gitner asked Director Curtis to find out from the auditors if this would be helpful or would it add to the bill. Member Buchsbaum asked if it was typical for governmental audits to take six months. Director Curtis answered that it is typical since it is a regulatory requirement and is more of a compliance issue with the state. Director Curtis advised that the state gives nine months to complete the audit. Director Curtis indicated that in order to qualify for the Annual Prestigious Financial Reporting Award from the Government Financial Officer's Association, it must be done in six months from the close of the fiscal year, which is the Finance Department's goal. Chair Gitner asked how long the Accounting Firm of Nowlen, Holt & Miner has been with the Town. Director Curtis indicated his belief that it has been since 2004. Chair Gitner asked if the Town Commission had a policy about bidding the auditing services every four or five years including the incumbent. Director Curtis said the Town does not have such a policy. Chair Gitner suggested that consideration be given to periodic rebids, furthermore, the town could get two or three bids including the incumbent. Director Curtis explained that the agreement ended this year, and there is an option to extend. Chair Gitner questioned how we lost 500 people in population. The numbers do not add up and obviously impacts the assessed value per capita. Director Curtis indicated that the number listed is from the 2010 Census. Member Giacoma commented on the long term financial planning, which talks about the remodeling of the Council Chambers, Police Department and Post Office. His concern is that there needs to be an offset as far as income since he believes there is a considerable drain being taken on our reserve, especially considering the state of the economy. Chair Gitner suggested that the first three pages of the report be incorporated in the Highlander, for edification of all the Town's residents. B) Fund Balance: Develop Strategies to Identify the Proper Amount and to Preserve it. Director Curtis reported that he was asked to present a recommended contingency for the Town's Unassigned Fund Balance. However, the discussion on Fund Balance has lost its original focus, which was to discuss preserving and/or using the Town's reserves during the sustained period of revenue shortfalls the Town has encountered the last few years. In addition, the Town already has a contingency ("Contingency") in the amount of Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 5 of 9 16.7% of the total General Fund operating expenditures for the, then in effect, budget. Creating another contingency and/or increasing the current Contingency will only serve to bring us closer to the inevitable scenario of being underfunded if we do not address closing the budget gap. He suggested that over the next few months and into the budget season, the Board continue to discuss the appropriate use of existing fund balances (over and above the Contingency) in conjunction with the annual operating budget. The Town used its unassigned fund balance (over and above the Contingency) to plug the annual budget gap to the amount of $710,000 for FY 2011-2012. The following chart shows the budget surplus/gap and the actual year-end change in fund balance for the last 5 years. As shown, FY 2011 was the first year that the fund balance decreased. Fiscal Year 2008 2009 2010 2011 2012 Ended Budget $891,993 $579,084 ($482,643) ($1,052,592) ($710,031) Su lus/ Ga Actual $871,156 $893,138 $329,527 ($274,010) Change in FB The Board should consider, as a recommendation to the Town Commission for the upcoming budget year (FY 2012-2013), how to fill the next budget gap (assuming we have one). The issue is whether the Town continues to use the fund balance as a means to fund its ongoing needs or whether it uses these funds to make prudent, needed capital expenditures today in an effort to lower ongoing expenses in outer years by spending money today. Past practice has been to keep tax rates flat and continue to use the unassigned fund balance to plug the gap. Not accessing the fund balance and not undertaking expense saving capital expenditures would imply that we raise taxes to fill the gap and preserve the unassigned fund balance for future projects or some other as yet undetermined use. A combination of both can also be contemplated. The Town will receive its preliminary tax value July Is" 2012. After this date, we will know a lot more about our potential revenue shortfall and be better informed as to how we should approach this subject. As the chart below shows below, the Town Commission previously set funding targets (Contingencies) for balances in the budget stabilization reserve (minimum 16.7% of the in effect GF Budget) and the disaster recovery reserve (up to $500,000). At the close of the fiscal year 2011, the Town had the following levels of fund balance as compared to the annual operating budget of the General Fund: Fund Balance Amount % Of Annual GF % Of Total Fund Designation Budget Balance Expenditures Assigned (Budget $1,786,281 16.7% 30% Stabilization) Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 6 of 9 minimum 17% of GF Budget Assigned (Disaster Recovery) up to $300,000 3% 5% $500k Unassigned (Unrestricted) no $3,962,573 37% 65% minimum Total $6,048,824 57% 100% Chair Gitner stated that it is a policy decision for the Commission to make as to whether they access the fund balance, in order to keep the tax rate flat, or whether they consider spending some of the money today in order to lower out year expenditures. Member Giacoma stated that he is not a great proponent of spending dollars today for tomorrow. We should create a plan to bring the ideas together. Having the money sit is appropriate. Chair Gitner indicated that the money is being spent in order to keep tax rates flat. We don't want to spend the money for the sake of spending it. Member Giacoma stated that we need to be fiscally responsible and although we may not be admired by some of the people in the town, the Town needs to consider raising taxes. Chair Gitner stated that in order to make any kind of a judgment you have to figure out what kind of a fund balance you want to have and then decide what you do with that money; use it for capital projects or use it to offset tax bills. Member Gross stated that since we are just starting to come out of a recession he would be more comfortable having money in the bank. Chair Gitner asked if the FAB members were suggesting that the preservation of the existing fund balance be a prime objective and that therefore the Town Commission should not tap into the Reserve in order to fund ongoing needs, which would imply a tax increase. Are we saying that we take this fiscal year in order to arrive at the formula so that the next fiscal year it doesn't happen? Therefore, we put the burden on the Finance Director and the Manager to say that you have a year because the next year's budget has to be in balance without dipping into the fund reserve. Member Giacoma believes that it has to be done in stages, two to three years tops. Chair Gitner asked Director Curtis if he has a three or five-year budget forecast. Director Curtis stated that he only does an annual budget. Chair Gitner suggested the Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 7 of 9 Board ask Director Curtis to try and do a three or five year budget and expense forecast. Member Giacoma volunteered to help Director Curtis. Member Buchsbaum felt that political decisions should be made on the basis of not what is politically popular but rather if there are true cost savings to be achieved, the financial decision is self-evident. NEW BUSINESS: A) Review of the Monthly Financial Report and Financial Reporting in General Including the Possible Advisory role of the FAB Regarding the Town's Annual Audit. Chair Gitner state that the monthly financial report is a major step forward, and asked Director Curtis if the water and sewer are in deficit or does that come out of the general revenue. Director Curtis would report back to the Board. Chair Gitner questioned if it would be appropriate to include an editorial remark in the monthly financial report, that explains the expenses are approximately as expected to further explain that this is due to cash flow not GAAP (Generally Accepted Accounting Principles) accounting. Director Curtis responded that he would provide an explanation when a department reaches or exceeds the threshold. Chair Gitner asked that each Board Member provide their comments to Director Curtis to see if it is worthwhile and to publish it on a regular basis. Member Giacoma offered to assist Director Curtis. Member Buchsbaum had reservations on providing this much material to the public. Chair Gitner stated the editorial should say that we are on track and to footnote areas where the cash flow is either in deficit or surplus. Chair Gitner wanted the Board to address the concept as to whether or not this will be helpful not only to the FAB and the Finance Director but to especially the Commissioners and the people in the town. It will be up to the Town Commission to determine if they want to distribute the monthly report. The FAB had a brief discussion on the amount of interest earned annually by the fund balance. The reason they are working on this is to get a different blend of investments, in order to get a higher level of earnings. An opinion was expressed that the Town may not be able at two or two and one half percent and still meet our liquidity needs. More discussion and study may be needed. B) Update on the Role of the FAB in the Budget Process. Director Curtis had distributed the latest version of the Town's 2012-2013 Budget Calendar. The FAB was not added onto the calendar because we will need direction Financial Advisory Board Regular Meeting Friday, April 13, 2012 Pate 8 of 9 from the Town Commission. While we do not have any clear direction from the Town Commission on what the FAB's role in the budget process will be, the FAB will be asked to discuss methods of funding the various capital items that come out of the strategic plan and the budget. Chair Gitner asked that a recommendation be made to the Town Commission letting the Financial Advisory Board know what its role, if any, is in the budget process. Valerie Oakes, Deputy Town Clerk stated that they could write a memo to the Town Commission requesting this information to be added to the agenda. Chair Gitner asked the Board if they would be in agreement to have the Financial Advisory Board meetings changed to Thursdays instead of Fridays due to staff scheduling. By consensus, the Board agreed to meet on Thursdays at 9:00 a.m. Chair Gitner asked Director Curtis to supply the Board with a timeframe for the Town Commission to give the Financial Advisory Board the go ahead to get involved. Chair Gitner asked Director Curtis if it would be possible to compile documents so the Board can meet sometime in early June. Director Curtis indicated that his preference would be the end of June, which would give him time to compile some documents for the Board's review. Chair Gitner stated that it would acceptable for Director Curtis to have some type of rough draft. By consensus the next Financial Advisory Board meeting will be changed to Thursday, June 7th at 9:00 a.m. and requested the Town Manager to be present. [THIS PORTION LEFT BLANK INTENTIONALLY.] Financial Advisory Board Regular Meeting Friday, April 13, 2012 Page 9 of 9 ADJOURNMENT: There being no further business, Chair Gitner called for a motion to adjourn the meeting at 10:05 a.m. MOTION: Member Gross moved to adjourn the meeting at 10:05 AM. Member Buchsbaum seconded the motion, which passed unanimously. APPROVED: Gerald Gitner, Chair ' onald Brooks, Board Member D /f k'�� C'- �,ucG✓�l,fiz.�ww David Buchsbaum, Board Member Board William Gross, Board TOWN SEAL ATTESTED: / )e z 6, e� , �' _- Valerie Oakes, CMC Deputy Town Clerk Date: June 7, 2012