2019.01.24_FAB_Minutes_RegularlmiS4.1-
TOWN OF HIGHLAND BEACH
FINANCIAL ADVISORY BOARD
REGULAR MEETING MINUTES
Town Hall / Commission Chambers Date: January 24, 2019
3614 South Ocean Boulevard Time: 1:00 PM
Highland Beach, Florida
1. CALL TO ORDER:
Chairperson Greg Babij called the Financial Advisory Board Regular Meeting to order at
approximately 1:00 PM. Roll call was taken followed by the Pledge of Allegiance.
PRESENT:
Member Alan Polin
Member Edward Kornfeld
Member Jeff Hollander
Member James Karabec
Member Neil Eisenband (Arrived at approximately 1:25 PM.)
Vice Chairperson David Stern
Chairperson Greg Babij
Finance Director Matthew Lalla
Town Attorney Pamala Ryan
2. ADDITIONS, DELETIONS OR ACCEPTANCE OF AGENDA:
Chairperson Babii asked if there were any additions, deletions or modifications to the
Agenda. Member Alan Polin requested addition of "Review of the Enterprise Water and
Sewer Fund." Chairperson Babij indicated this would be added as Item D under New
Business.
MOTION: Vice Chairperson Stern moved to accept the agenda as amended. Member
Hollander seconded the motion, which passed unanimously.
3. PUBLIC COMMENTS AND REQUESTS:
Chairperson Babij stated Public Comments would be limited to three minutes due to time
constraints.
Mayor Rhoda Zelniker thanked the Board. She stated she hoped the Board would act in an
objective manner, stating only the facts given by the experts. She reported the Financial
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Thursdav, January 24, 2019 Pafe 2 of 24
Advisor had provided the millage rate history over the past several years, and with the
Referendum the local town millage rate would go back to 2013 levels. She reported the
millage rate had been lowering for quite a number of years. She indicated her opponents
tried to manipulate and divert facts to falsely propose with increasing property values
residents would pay higher taxes. She stated property values were not an issue and
hopefully would increase yearly. She noted increased property values were good for the
town and revenue. She reported increased property values did not increase millage rates.
Mr. John Ross stated he was the Spokesperson for the Committee to Save Highland Beach.
He stated the Committee opposed the Referendums; the Committee believed the
Referendums would not work, would be destructive, and were too expensive. He indicated
the Town's credit was based on the debt to revenue ratio and Highland Beach's debt to
revenue ratio, as well as the millage rate, was higher than Boca Raton, Delray and Ocean
Ridge. He stated this would negatively impact property values. He stated the Committee
questioned 25 realtors who agreed property values would decrease approximately 25% to
40%, which would cause millage to increase, which would cause debt service to increase.
He stated the Committee felt the Referendum was a poorly thought out proposal for which
the economics would fail.
Ms. Sue Trombino stated her parents were long time residents of Highland Beach. She
stated it was important to remember Highland Beach Government Officials were employed
thanks to the residents; government did not exist without approval of the residents, nor
could it function without taxes paid by residents. She stated she did not approve of the
Referendum, but was open minded. She stated the money being referred to in the
Referendum was not the Mayor's money, nor the Board's money; it was the resident's
money, the Town's money. She stated it was important for the Mayor and the Board to be
good stewards of the Town's money.
Vice Mayor Alysen Nila indicated it was important 16r the Advisory Board to remain
objective and factual, maintaining credibility and purpose. She stated the Advisory Board
should focus on impartiality, numbers, facts and data, rather than politics. She stated the
Town had a team of Financial Advisors and a Bond Council with vast experience with
bonds and infrastructure financing. She stated the Bond Council reported after the bond
debt was applied the Town would have one of the highest AA ratings which was a testament
to the financial health of the Town. She stated there was only a 6.8% increase in local
Highland Beach millage rates, not a 30% increase. She mentioned FAB Members Babij
and Polin were in attendance at several Bond Council Meetings.
4. APPROVAL OF MINUTES:
July 23, 2018 — Regular Minutes
Chairperson Babil asked if there were any corrections to the July 23, 2018 Regular
Minutes. There were none.
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Thursday, January 24, 2019 Pale 3 of 24
MOTION: Member Hollander moved to approve the July 23, 2018 regular minutes as
presented. Member Polin seconded the motion, which passed unanimously.
6. OLD BUSINESS:
There was no Old Business.
7. NEW BUSINESS:
A. Ocean Walk and More — Impact on Town's Finances
Finance Director Matthew Lalla: I don't have any real fixed comments regarding this other
than to say that there was a package of information prepared that was distributed via email
last night. I believe — do we have copies? You have copies available to you. One of the
items included in there was a memo prepared by the Town's Financial Advisor, Public
Resources Advisory Group, concerning the anticipated rating of the Town's General
Obligation Debt, and their evaluation did a comparison before and after the issuance of the
$45 million being considered for the Ocean Walk Projects, and they are of the opinion that
even after the issuance of the debt the Town's credit rating would be in the AA category,
likely in the strong AA category. In that packet of information is also a credit impact
summary, prepared by myself, that makes a number of the same points that are outlined in
the memo from the Financial Advisor. Another item included in the information package
is the copy of an email which was sent to Town Commissioners regarding a calculation of
the increase associated with the debt cost for the Ocean Walk and More Projects. That was
done on two bases; one was the aggregate millage basis, which would be about 6.8%, and
also comparing it simply to the Town's millage rate which would be a 30.9% increase. In
that package of information was also a summary of the impacts on property owners of the
30 year financing option at various taxable value assessed amounts from $500,000 dollars
to $1 million dollars in property value, taxable value, and with impacts ranging from $574
dollars annually to $1,148 annually. There was also included in that package of
information an email sent to the Town Commission regarding millage rates over the past 6
years within the Town and breaking that down between the General Fund Operating
Millage and the Debt Service Millage, and adjusting the 2019 millage to reflect the addition
of the Debt Service Millage associated with the Ocean Walk and More projects. Also in
that package was a summary of the existing Town debt, all of which has been issued to
fund projects for the water and sewer systems of the Town and that outstanding debt as of
December 31, 2018 is approximately $13.3 million dollars. I would be happy to try and
address any questions you may have on any of those items that were included and
distributed to the Financial Advisory Board.
Member Alan Polin: Thank you Matt. I am just reading this now for the first time. I did
not receive this in my email last night, but I do have a question as it relates to whether the
Town has an existing bond debt credit rating, and if so what that is, and how long ago was
that established by the credit rating agencies on Wall Street.
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Thursday, January 24, 2019 Page 4 of 24
Finance Director Lalla: The Town does not have an existing credit rating from one of the
nationally recognized rating agencies. All of the existing debt of the Town that's outlined
in the summary consists of four State revolving loan fund loans and one bank loan with the
Bank of America which was done in 2007.
Member Polin: So, would it be fair to say that PRAG, when they come up with their so-
called likely AA, or double A credit rating, "high double A range," I am quoting from page
1 of their January 22 Memo, that that's pure speculation. They certainly haven't broached
this subject with a credit rating agency to this date.
Finance Director Lalla: I would not characterize it as speculation. I would call it their
professional opinion as opposed to speculation, and it's based on the factors which were
outlined in the Memorandum, and the process that Moody's Investor Service goes through
in applying a credit rating, in that Moody's has developed a score card system which
applying data associated with the Town to those various rating factors provides a good
indication of where the Town would expect to be at the end of a rating process.
Member Polin: Nevertheless, it's their best guess, their opinion, but it's not based on a
Moody's credit rating pre -evaluation or in fact paid evaluation.
Finance Director Lalla: That is correct. It is a pre -evaluation prior to the rating process
occurring, but their score card process has made the outcomes with Moody's much more
predictable.
Member Polin: How many times have you in your professional experience gone through a
rating process for a government entity?
Finance Director Lalla: A lot oitimes. Over the course of my career I have been involved
in the issuance of approximately $10 billion dollars worth of debt somewhere between 110
to 120 different bond issues. I would say probably at least a quarter of those have involved
— well, all of them involved a rating evaluation of some sort. Some were more thorough
than others, but every time Moody's or any rating agency in any municipality is involved
in the issuance of debt, they have to get a rating review done and upgrade or review of their
rating. Sometimes that's a little more thorough than others, depending on how the timing
of that bond issue falls into the annual surveillance that is done by Moody's. If they have
just done an annual update of jurisdiction the rating process is going to be quick and simple
when it comes to issuing the debt, but if they haven't reviewed a jurisdiction for maybe say
a year and a half, two year period, when you get to the point of issuing debt it is going to
be much more thorough, or if there have been unusual events within a jurisdiction the rating
review might be a little more thorough. A lot of construction doesn't really apply to the
Town here, but for other jurisdictions they might have lost a major employer or had a
significant economic impact of that nature.
Member Polin: Would you agree, because it has been my experience, I have gone through
the process with another jurisdiction, a fairly large jurisdiction, which achieved a triple A
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Thursday, January 24, 2019 Pale 5 of 24
rating from Wall Street from Moody's and Fitch at the time, that there are various what I
would call intangible areas of information, not necessarily quantifiable, that the rating
agencies do specifically look at, such as stability of the jurisdictions administration staff.,
Let's start with that. Would you agreeable that that is an intangible that rating agencies
look at?
Finance Director Lalla: Certainly. The memo that was prepared by PRAG states that this
is sort of an indication. There are other factors that will either add to the rating or take
away from the rating.
Member Polin: And the same thing would hold true with the stability of the group that
forms the commission or the council.
Finance Director Lalla: That probably isn't as important within the State of Florida
specifically.
Member Polin: I apologize for interjecting. Again, I am tying all of these questions back
to what the rating agencies look at in terms of intangibles.
Finance Director Lalla: Yes, but there are certain requirements that any elected body
within the State of Florida must follow, and Moody's, in looking and evaluating the
management of a jurisdiction, one of the things they look at is the institutional framework,
and whether it be a town, city, county, or special authority, all of them are required under
Florida Law to operate underneath a balanced budget. There is a certain administrative
framework that applies to all of those local government units and Moody's would view all
of them equally regardless of the degree of turnover within the elected body.
Member Polin: Nevertheless they still look at how cohesive, how stable, the longevity of
the working group, or the converse of that, how unstable, how much turnover, whether or
not there is a lack of cohesiveness, as an intangible.
Finance Director Lalla: Sure. It's an intangible, but I would not say it's a major driver of
a credit rating.
Member Polin: I didn't mean to indicate that I just want to get an opinion from you as to
what the so called, what I call intangibles, they may call it something else, I don't work in
that industry, but I have gone through the process, so that I am aware that these things do
exist, and it is not just purely numbers driven. That is really the point I'm driving at.
Finance Director Lalla: Yes, they do the data analysis and then they form what they call a
rating committee. There is usually a couple of analysts who will work in reviewing the
data associated with the jurisdiction, then they will meet together with the usually more
senior members of Moody's who have experience within the State or who have experience
with the type of debt that's being considered, and that group, that credit rating committee,
will sort of quiz the analysts on this data, how it applies to the rating criteria, and together
as group that committee will determine what the final outcome is in terms of a rating.
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Thursday, January 24, 2019 Page 6 of 24
Member Polin: That's all I have. Thank you Mr. Chair.
Chairperson Babij : Do you have any other questions from the Board?
Member James Karabec: I look at your consultant here and I am not an accountant, so bear
with me, but it says that the debt to revenue could go from AAA to BBA2, so that means
our credit rating would go down quite a bit.
Finance Director Lalla: If you continue to read on, they do recognize that is definitely a
credit negative. In fact it's highlighted in the chart on the second page where that is the
most dramatic impact, in fact sort of the before and after analysis. The biggest impact
would be to the criteria and the long term debt and pensions area which is a total of 20%
of the rating criteria. Those two factors would go down, but there are so many other
positives within the Town that they offset those credit negatives. The Town has a very
strong economic base, strong wealth levels, those are probably the primary factors that the
rating agency is going to look at. It doesn't make a difference if a town has no debt or very
little debt, if they have the best management in the country, if they don't have a strong
economy it is very unlikely that the jurisdiction would end up with a strong rating. The
Town has that to its advantage in that the tax base and the full value per capita numbers are
well into the AAA category, as is the wealth level in terms of the median family income in
comparison to national numbers. So, those three primary economic tax based criteria are
very strong for the Town.
Vice Chairperson David Stern: Could you talk a little bit to, on the $45 million dollar issue,
how has the maintenance been addressed, year to year, 10 years out, 20 years out, and the
extra cost to be involved with things related to this project?
Finance Director Lalla: I can't really speak to those at this point. I think it would require
input from the Engineers to really provide a better figure in terms of what the operating —
there certainly would be some with any capital project. With the existing water and sewer
plant that the Town operates there are operating and maintenance costs associated with
that, but in terms of percentage of these types of projects I really don't know. I would tend
to think it would be on the lower end as opposed to the higher end only because most of it
is subterranean in terms of the under -grounding of utilities and the storm water project that
is primarily subterranean construction which would possibly be a little lower cost than
something above ground.
Vice Chairperson Stern: The second part of my question, are you comfortable with the
numbers? Because just going back in history in the Town a little bit, I was part of an audit
of the water plant, which came in way, way over than the estimates, and it had to go back
to the folks for additional bucks. So, with each of these three projects, breaking down
separately, what's the comfort level of not exceeding these kinds of numbers?
Finance Director Lalla: I am not sure if you are talking about the ability to construct the
projects. Is that what you mean?
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Thursday, January 24, 2019 Page 7 of 24
Vice Chairperson Stern: To come into the numbers that are projected on each of these
projects.
Finance Director Lalla: Well, the numbers, or what the engineers pulled together, does
include about 10% contingency for each of the individual projects. The projects are also
priced to be done as stand alone projects. If one or more of them is approved there is some
synergy that does come into play where some project elements that have to be included
separately to complete each individual project, if there is one or more done, some of those
project elements can be spread out between projects and thus reduce the cost. I will give
you an example of lighting. If there is both the under -grounding of the utilities and the
Ocean Walk multipurpose walkway completed, there could be light fixtures which could
serve both the roadway and the sidewalk, but if only the sidewalk were to be considered as
a stand alone there would have to be some separate lighting for that which would not be
associated with the under -grounding of the utilities. That's just an example. You could
have a light pole that sort of went out into the street and also went to the sidewalk. If one
or the other of those projects is not approved you would have to do a lighting solution
which would only impact one part of that.
Member Edward Kornfeld: Overall, the presentation I received today, this morning. I
know it came in last night. I went through it as best I can and I made some notes. One
thing stands out, which is something you said, which Alan brought up, was in the second
paragraph of the PRAG memo, in Initial Analysis Framework Methodology, it talks about
economic tax base is 30% of the balance, how they calculate the — part of their Calculations
Taken Into Consideration list, go down to the last item. They talk about the debt to pension
20%. Then it says of these categories only the debt pension area will be impacted by the
issue of additional debt, and it just came to me just now when I was reading it again, we
had a situation a couple of years ago. The debt comes into play at year end when
calculating how the town nas to fund the pension, there is a tormula and there is some
research, in fact it was that thick, and I remember I personally went through it and that has
a fund, and saying its impact — it's not known until the year end and the auditors do that
calculation and how much more cash is required. Well, in some years it doesn't have to be
added to and there was a very deep discussion of this with the financial board at that time,
I believe talking about that. It was understood what the auditor went through and what's
the process of doing it, how the calculations were done, and we were satisfied with how
it's reached, but that to me, it doesn't concern me at all. It's just are we really looking at
what the costs are and the factors and just to see one line saying it will be impacted is — has
there been something other than that statement to support what if, based on this debt, and
what our balance sheet will look like in 5, 101 15 years? Is there a material number to
discuss before we make a decision to go forward on this? The other comment I have, and
I will let you respond, is I wasn't here in 2007/2008. Our value right now is $2.5 billion
dollars, and when I moved here 7 years ago I got an unpleasant surprise that because when
the department turns over they reassess and my taxes went up 50% of what it was before,
which was set 10 years before, and subject to whatever was small increase, so we have
been very fortunate that the economy got stronger, a lot of turnover which meant increased
taxes, a lot of building as we know has been very, very fruitful for us. Well, we know that
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Thursday, Januar, 24, 2019 Pal4e 8 of 24
cycle, as far as building new structures, is coming to an end. There is no more room. Going
forward we will have to rely on the economy staying strong. The value of my unit is up
about, in 7 years, about 15% to 20%. That's very nice, because of the economy. So, your
analysis shows the millage rate going to 2013 to 2009. Was there, or should there be, an
analysis going back to what if, worst case scenario, if the economy goes down, and the
appreciation of $2.5 billion dollars starts going down, and what the impact on the millage
rate would be. I think that's something that should be considered. Okay, you can comment
on my two points.
Finance Director Lalla: Well, the point was made about speculation earlier. That certainly
would require whoever is doing that analysis to speculate as to what future home values
are going to be and I do not profess to be a real estate expert. It would be very difficult to
make some baseline assumptions that I think would be agreeable to most parties. I think
there are probably some people who think that there will be sustained growth within the
Town and there are some who think that there is going to be some significant decrease in
Town values. I leave that to the property appraiser's office. It would be very difficult to
do that sort of calculation with any certainty of what you're suggesting.
Member Kornfeld: You're doing calculations based on certain assumptions.
Finance Director Lalla: This is the information as it stands today. Now, I will say this
though. I don't think that whatever rating we end up will be over stated. The rating
agencies like their ratings to have a fair amount of resiliency and be able to withstand some
economic downturns, and be able to stand up over time. That's why they don't just look
at information and data as it stands today. As you can see in their rating criteria one of the
things they do look at is five year trends and how the finances of the town have been
handled and what the operating history within the town has been.
Member Kornfeld: There was obviously, not just looking with blinders, their calculations
with the Moody's and the firm was taking into consideration those factors. That's what
you're saying?
Finance Director Lalla: Well, there are certain portions of the criteria which definitely look
at a trend analysis. They are not just looking at where things stand as of Fiscal 19. They
are looking at some prior history over the past five years and also the operating history.
Has the Town been able to keep a fairly stable budget or has it widely vacillated?
Chairperson Babij : Alan you had another question?
Member Polin: Yes, actually I have two now because I have one to piggyback on to what
Ed was asking, the train of thought which I thought was very good. I think that the Town
and I think that we as members of this Board have an absolute responsibility collectively
to ourselves, and to the citizens that we serve, to be conservative and to think about all the
different possibilities. One of the possibilities that you raised now, which is going to drive
my question, is the what if of the economy turning, values declining. I am not an appraiser,
and I don't know the backgrounds of all my colleagues here, but I think that it might
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Thursday, January 24, 2019 Pale 9 of 24
behoove the Town as part of this process right now to speak to the possibility of the
American Economy taking a dramatic turn. With the current shut down, with the so called
trade war, there could very well be a flat 0 GDP growth for the first quarter of this year.
There could be a recession that occurs over the course of the next 6 to 12 months, and the
long term impacts of that as it relates to this study and this discussion, I think, could be
major. So, my question is, has the administration thought of engaging a professional
appraiser to delve into this question of what if? What if the economy turns? What if our
revenue as it relates to taxation which is driven by property values falls below the current
expectations? How would that impact the Town's ability to sustain without experiencing
pressure and stress repayment of this type of debt, $45 million dollars?
Finance Director Lalla: Well, once it's issued the level of debt is going to be basically set.
So, the level of property taxes paid is a function of millage rate and taxable value. If taxable
values go down the millage rate would have to go up to offset that, but, the same level of
taxes would be generated to accommodate the debt which would be issued. It doesn't really
change the level of taxation. Those two numbers, those two variables, will change over
the course of time, but the amount of debt and the amount of taxes generated to service that
debt would remain the same. I'm not sure that there would be — I can tell you in my
experience, and a lot of it involves general obligation debt, none of the jurisdictions that I
worked for ever undertook such a study to evaluate the potential changes in property values
and that impact on the issuance of the debt. As I said, if property values decline, millage
rate will go up, but the same amount of taxes would still be needed to service the debt.
Member Polin: I understand your response, but I guess I'm driving a little bit harder,
thinking in terms of the earlier young lady who spoke about other people's money. I am
driven by the principle that we have to be very mindful, people who work in the public
sector, even us as volunteer members of an advisory board, that we are talking about other
peoples money, and if millage rate has to go up in order to raise the same amount of money,
and perhaps more money again, there could be catastrophic consequences as it relates to
how the Federal Government is going to impact the economy nation wide, and how it may
impact our Town's economy, and therefore, dollars that have to be taken out of our wallets
to pay for taxes. I hear what you're saying. It's a simple mathematic formula, if property
values go down, millage rate has to go up, but what if the net effect is the Town is asking
for property owners to pay a larger amount of property taxes? I'm not sure that people
would be happy that that wasn't thought up in advance of debt being taken on.
Finance Director Lalla: Well, one of the items in your package is this chart which shows
the 30 year financing option and based on the value of the probable cost of the three project
categories and the annual debt service, you can see the resulting millage rate based on
current property values. If property values go down — and the total taxable value of the
Town is shown at the bottom of that page, and that's $2.487 billion dollars. If that goes
down, millage rate goes up; it is still going to be set at a level which would generate $2.7
million dollars annually to service this debt. That number is not going to change after the
issuance of this debt. I'm not sure if I am addressing your question or not, but maybe you
could clarify that.
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Chairperson Babij : Alan I think some of your question is going to get addressed once we
put a motion on the table and go through a discussion. Let's try to keep it just specifically
questions.
Member Polin: Okay, I have one other question, but I would like to ask if you could pass
this down so that Matthew could be able to read that with me. I passed that out to all of
you as my colleagues. I didn't want to communicate this before getting together for
obviously Sunshine Law issues. But, I am going to take a moment to read this and then,
Matthew, I would like to ask you a couple questions
Chairperson Babij : Alan is this a question related specifically to the material he presented?
Member Polin: Yeah because this email, which I am handing out to all of you, and which
I am going to ask Matthew to speak on, comes from another financial advisor that I have
worked with in the past and he is in a very professional fashion trying to inform me; and
therefore, I am informing you and trying to pass this information on to the Commission
and the Public. The Program that is being sought after which is under this Florida
Municipal Loan Council. Let me back up. Let me just quickly read this and then I'm going
to ask Matt a couple questions on it. It says "Alan," and I quote, "I received your email
today about the Town of Highland Beach, FL, doing their proposed General Obligation
financing through the League of Cities, Florida Municipal Loan Council, FMLC Program.
I am very familiar with the FMLC Program and it is a good program for those smaller cities
who are infrequent issuers of debt, are unrated, or are able to achieve investment grade
ratings in the BBB or lower A categories. The particulars of the Program which the Town
should be aware of are: 1. Loans from applicants are aggregated together to achieve a larger
principle amount of bonds to be sold at fixed rate. They are sometimes insured by a bond
insurance policy." I want to emphasize that. "2. FMLC Bonds usually price to the weakest
link of the aggregated applicants. 3. The FMLC adds an annual administrative fee of
between 10 to 12.5 basis points to the yield on the bonds which increase the true interest
cost on the debt by the amount of the annual administrative fees. 4. In the past the
underwriter for these bonds has made them callable on an interest payment date, rather than
making them callable on any date. This could impact the timing on refunding bonds. 5. If
the Town is successful in getting the GO Referendum approved, I would think they could
achieve an investment grade rating of A 1 or A+ or better. If this is true the Town should
sell the debt themselves and the overall interest rate paid by the Town should be less than
that of the FMLC Program as they would achieve a market yield influenced only by the
Town's credit and avoid paying the administrative fees associated with the FMLC
Program." So, Matthew, are you aware of how many other municipalities or jurisdictions
this proposed $45 million dollar bond would be aggregate with:'
Finance Director Lalla: I don't know, and one of the factors that Mr. Dunlap is referring
to would apply to smaller jurisdictions which are maybe issuing $1 million to $5 million
and those various jurisdictions would be grouped together to create a bond issue of say $20
million which when aggregate would sell better on the market. This is a transaction of a
size that it would certainly be able to stand on its own and would not have to wait for other
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Thursdav, January 24, 2019 Pane 11 of 24
loan program participants to have their issuance ready to join together with the Towns
issuance. The Town could do separate issue with the Loan Council.
Member Polin: So, as a general proposition, would you agree that it's correct, Mr.
Dunlap's assessment, that this program FMLC is such that it generally does package loans
from other municipalities together? That's the general nature of their program?
Finance Director Lalla: Yes, but it is done, as I said, for smaller issues being grouped
together. The Town's issue, at $45 million, is of such a size that it would not need to be
grouped together with other participants. It could be done as a stand alone issue. I have
looked at probably the last 3 or 4 issues that were done through the Loan Council and every
one of them was done as a stand alone issue for an individual city.
Member Polin: Okay, so two followup questions: Number 1, do you know for certainty
whether or not our proposed $45 million dollars would be a stand alone?
Finance Director Lalla: I don't know that for certain, no. A lot of that would be dependent
on timing of the projects. It may make sense for construction management purposes to
break that $45 million dollars into different phases just so that you don't — for one thing,
for cash flow purposes, that you don't issue debt before you need it and have the money
sitting around earning small interest rates in comparison to the rate that it was borrowed at.
Member Polin: Okay, so if I understand you correctly, the debt may be broken down into
several different bond amounts?
Finance Director Lalla: Sure, it wouldn't be unusual for a construction project that spans
this length of time, as my understanding is that it would be maybe in the vicinity of
somewhere between 2.5 to who knows how many years, maybe 3 or 4, for it to be split into
maybe at least two pieces. One that would start the issue, the construction would start, and
then issue the second tranche of bonds after the first amount of the proceeds in the deposit
to the construction fund had been spent.
Member Polin: So, assume for argument's sake, or for discussion's sake, that our bonds
issuance might be in fact aggregate with others because is it going to be lower than $45
million, and if we take that as an assumption, do you know — have you spoken with the
folks over at FMLC to see what other municipal jurisdictions are kind of on deck, they are
about to issue, and what their credit ratings are? The reason I ask that is because if Podunk,
FL, if there is such a jurisdiction out there, has a credit rating of B, then I think you would
agree with me that we would suffer, this Town would suffer, because the "weakest link"
again, concept, in terms of aggregate package that would be issued out there in the market
place, would make us pay, or make the tax payer pay, a higher interest rate because we are
linked up with a B rated jurisdiction. Do you understand my question?
Finance Director Lalla: Yes, I understand your question. That is possible, but the more
likely scenario, given that if all three project categories are approved, all three referenda
are approved, it would be split into three $15 million dollar pieces, and at $15 million
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Thursday, January 24, 2019 Pale 12 of 24
dollars, that is probably of a sufficient size that the Town's individual issuance of $15
million dollar tranches would be enough for a stand alone issue.
Member Polin: Can you justify for me, and for everybody else, why the Town should pay
the administrative fee under this particular program of 10 to 12.5 basis points compared to
if we issued the debt on our own? We wouldn't have to pay the Florida Municipal Loan
Council's administrative fee.
Finance Director Lalla: The decision to go with the Florida Municipal Loan Council, I
believe, was made before I started with the Town. I'm just trying to explain the thinking
here. One of the reasons that the decision, I think, was made to go with the Florida
Municipal Loan Council was that it facilitated the time crunch that the Town was facing
here. In that going with the Florida Municipal Loan Council provided a financing team in
one fell swoop where they have a financial advisor associated with the program, they have
bond council associated with the program, and they have an underwriter associated the
program. If the Town had to go through the RFP process for each one of those types of
professionals it would have taken quite a bit of time.
Member Polin: So, in a perfect world, would you as a financial advisor, advise a client to
pay that extra administrative fee, or go out, assuming there was a decent credit rating
strength in terms of Highland Beach, to go out and issue the bond on its own?
Finance Director Lalla: Well, I think that decision has to be looked at with how frequently
the Town enters the debt market. The Town is not a frequent issuer. Most of the debt, as
you see in the debt summary, was done through State Revolving Loan Program. The last
time the Town has done anything that has been sort of, for lack of a better phrase, stand
alone, was in 2007 when a promissory note was entered into with Bank of America. The
Town is not a frequent issuer of debt by any measure and the thought was probably to take
advantage of that team of professionals already being there. Could this 'l`own do it on its
own? Yes, it could.
Member Polin:
did it on its own.
And it would save the 10 to 12.5 basis points, which is interest cost, if it
Chairperson Babij : Jeff, you have a question?
Member Jeff Hollander: Yes, it's a statement and a question. First of all, I thank and agree
with a lot of the good points that were brought up. One of the important things we heard
during our comments, and Alan reiterated, is that we need that conservative money
management. I agree. If our property values go down, our millage goes up, so if I was
paying $800 dollars in taxes, I'm still going to pay $800 dollars. The value is what will
marry out. My concern right now is we have got $13 million dollars worth of debt, which
is very manageable for us. We are looking at adding $45 million dollars worth of debt over
a 30 year period. I am not convinced that we have really looked at what all of our future
needs are to begin with because I see, where I live in South Beach, the amount of bicycle
traffic and bicycle commuting there is changing the traffic patterns tremendously. We all
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Thursday, January 24, 2019 Pal4e 13 of 24
know in the next 5, 10, 20, 30 years, my generation won't have to worry about driving at
night because we are going to have automated cars and its going to be running differently.
I'm concerned that, even if we think that this $45 million dollar expenditure is the right
thing today, does this now handcuff us from being able to borrow at an effective rate in the
future?
Finance Director Lalla: Well, as shown in the analysis by PRAG, adding that much debt
does sort of push the Town. Additional debt on top of the $45 million would definitely be
viewed as a credit negative, and it is possible that in the absence of any other changes
within the Town, if there isn't continued growth in the tax base and some significant change
in the demographics within the Town in terms of wealth levels, that could have a negative
impact as well. It's hard to predict what that would be, but additional debt would certainly
be a further negative. That is already pointed out in their analysis.
Member Hollander: So, perhaps, before we even consider a $45 million dollar number we
should get an idea of how much more room we have, if there are going to be greater
projects, and consider are we looking at a project that's 30 years worth of payments that
might only serve us for 10.
Finance Director Lalla: The addition of the $45 million, based on current level of full
value, would push the Town to about 2.15% of the full value. The ratio of debt to full value
would rise to 2.1 %. It would need to rise above 4% before it had a significant rating impact,
and that difference would be roughly about $40 million more in debt. Actually, no, it
would be a bit more than that because there is $13 million already, you are adding $45
million; it's in the vicinity of $58 million at 2%. It could go up, say another $50 million
and still be underneath that 4% rating criteria boundary.
Chairperson Babii : Okay, great. That concludes the questions. I would like to put a motion
on the table so we can actually formally have a discussion. I'm sure there are some more
opinions. So, I'll put a motion on the table.
MOTION: Chairperson Babij made a motion to have the Financial Advisory Board
formulate a list of comments and questions around the financial impacts of
Ocean Walk and More and then have it distributed to the Commission. Vice
Chairperson Stern seconded the motion, which passed unanimously.
Chairperson Bab* j : Okay, so let's have a discussion. I am going to change it up a little bit
this time, I'm going to go first as opposed to last because fellow Board Members brought
up a lot of good points, and I've done a little bit of extra work on this, so my comments
might actually tie some of this stuff together.
The bigger picture is, when you are talking about finance, a lot of it is about identifying
and managing risks. In order to fully understand the risks, we need to look at the bigger
picture, and that's what we have been talking about a little bit here, and that's total
spending. Obviously these projects are very exciting, and it's kind of like getting a new
house or a new car, a lot of excitement about it, but we also have to look at the unexciting
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kind of expenses that we have in the town. The residents need to know the financial impact
so they can make an educated decision on everything. If we look at our Town, we are in
an environment of increased financial risk. Let's go through some of them. They are
actually summarized in our budget. Employee compensation is at 68% of our revenues.
We just gave our employees 0% to 5% merit raises, average of 3%, and it is a multiyear
thing. So, we know our labor costs are going up. That's fine. They deserve raises, but it
is increased financial risk. Delray Beach Fire, our latest bill was $330,000 higher than it
was the previous year. We are in a multiyear contract where we have no say on what the
bill is. We don't get to say what the bill is. They give us the bill. So, we have increased
financial risk in Delray Beach Fire cost for the next few years. The Building Department,
it is increased risk, shorter term. We replaced Safe Build by an in-house group, an
additional $125,000 dollars. That's fine, but it turned the Building Department from a
variable expense, where the most we could lose on it was zero (0), no revenues and no
costs, to a fixed expense. Not a large fixed expense, but a fixed expense. However, the
Commission also recently enacted a series of resolutions that make it more difficult and
more expensive to build, and they are also estimating that the building permit revenues are
going to go from $400,000 per year to $550,000 per year. They might, but we just can't
have high confidence in the profitability of the Building Department near term. These are
big changes and we don't know how they are going to play out. They might play out great.
They might hurt property values and building revenues might be down. We don't know,
so it's a little too early to tell. You guys also brought up property values related to the
construction. Property values can fall because of lack of quiet enjoyment. We are going
to have a 3 or 4 year project based on the engineer's presentation on January 9th. It's kind
of foolish to think that there is going to be absolutely no negative impact at all on the
property values. Solid waste contract, we are at the last year of our five year contract for
solid waste. An increase is expected; we have no idea how much. This could be significant,
so don't underestimate it. There is another financial risk there. Water and sewer revenues,
which Alan touched upon, $13.5 million dollars of debt now. We are completely tapped
out. We cannot get any more bonding capacity out of water and sewer and our budget
actually says the revenues are falling short of covering the cost and a rate study may be
needed. Rate study means water rates are going up, so there is another cost to the residents.
And the last thing is the beaches. There has been some discussion of doing something on
the beaches. We need to be mindful of these other financial risks because if we borrow too
much money there may be no capacity available, as Jeff brought up, and the beaches might
suffer because of the spending on Ocean Walk.
So, what do we know? We know there is a decent likelihood of the cost of the Town going
up whether we do Ocean Walk or not. We know there is a decent likelihood of the millage
rate going up whether we do Ocean Walk or not. I ran some back of the envelope math,
and it's just pure back of the envelope, something to discuss. Where does the millage rate
have to go to once we start including all of these other risks and other costs that have
nothing to do with Ocean Walk:' The way I looked at it is I just compared us to the other
towns around us because that's what someone would do if they were going to buy a
property here. So, going from lowest to highest, looking at surrounding towns, Manalapan
— and again these are only the town millage rates, not the whole town and county combined
— Manalapan is 3.028, Hillsborough goes a little higher at 3.5, Boca Raton 3.6787, we are
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Thursdav, January 24, 2019 Page 15 of 24
right in the middle at 3.719 (that's where we are now), South Palm 3.7938, Gulf Stream
4.06, Ocean Ridge 5.35. Where would we be if we spend the full $45 million dollars? We
will be one below Ocean Ridge. We will be at 4.8674. Let's look at the numbers one other
way. I cut it this way, looking at each of these towns, and looking at their revenues versus
their debt. Let's see if we can figure which one seems to not look like the others. Boca
Raton $72 million dollars in revenues per year, $80 million in debt, roughly 1:1. Delray
Beach $170 million in revenues, $110 million in debt, so way less than 1:1. Ocean Ridge
$6 million revenue, $6 million debt, 1:1. Manalapan $8 million revenue, $6 million debt,
less than 1:1. South Palm $3 million revenue, no debt. Gulf Stream $6 million revenue,
no debt. Hillsborough Beach $8 million revenue, $7 million debt. Everyone is about 1:1,
including Highland Beach today, $12 million revenue, $13.5 million debt. If we spent the
full $45 million we are $12 million revenue and we are $58.5 million in debt which is a
multiple of 4.88. That's way outsized versus every other town around us. It's just
something for the residents to be mindful of. What does it probably mean? It probably
means we have very little maneuverability going forward.
Then the last question that the residents should be asking themselves is — again this is just
all information to help them make an educated decision of whether they vote for or against
projects — what are the behavioral finance impacts? How is a town viewed when we go
from 0.95 millage on debt to 1.74 and the debt versus revenues is 4.88 times? Are we
considered fiscally responsible? Could the higher taxes have a greater negative impact
than the benefits of the project? All very hard questions to ask, but the other thing that I
think is most important is, residents and potential buyers, they don't look at Moody's
ratings, and they don't look at debt as percent of real estate value when they buy a home.
They look at millage rates and then compare it to the surrounding towns and say do I want
to live here or do I want to live here? What's coming out of my pocket in each place? I
think a little more emphasis needs to be placed on the statistics that are easily
understandable and they are the primary inputs for resident's decision making whether they
are buying or selling a home or paying these costs. A municipality cannot tax itself into
prosperity, but what it can do is get into a downward spiral if revenues go down, property
values possibly decline. If spending gets out of control, we know our spending is going
up, or if taxes get too high. The residents have to think about all of these other components.
They can't think about the $45 million dollars just purely in isolation. Those are my
comments. Vice Chair do you want to go next for comments?
Vice Chairperson Stern: I think you've covered everything for me. Thanks.
Chairperson Babij: Okay, we will go right down the line then. Neil, you haven't had a
chance to speak. Would you like to make any comments?
Member Neil Eisenband: I would like to apologize for being late today. I think everything
all of you said was very apt and on point, and I want to make sort of a fine distinction about
one thing, and that is this: Everything has to be considered in doing this, both on the side
of what value does it add? There seems to be — and I'm not talking just at this meeting, but
in the Community — people concerned very much about the tax increase and how much we
would be spending, but what would we be gaining? No one really is focused on that, and
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Thursday, January 24, 2019 Pape 16 of 24
whether is it worthwhile. At the meeting on January 9th we did, but since then we have
been only talking about the cost. My other concern is this: Some of the analysis that" s done
— and I'm addressing myself to you, when you are talking about the PRAG analysis, a very
fine point — you have to do your analysis, any analysis, you have to start someplace. The
point is made in the analysis that the bond issue only affects two of the ten factors. That's
a true statement if you hold everything else; in other words, you don't know what's going
to happen to property values. That's a good point, but on its face it only effects two of the
factors and you have to make that analysis. You can't say, well everything is always in
play at all times, or you could never do an analysis. I think the analysis is more fair in what
it represents, but you have to have the caveat of what it represents. It might not represent
reality, but you can't say let's go get appraisals and build that into that analysis. You have
to start someplace. I thought that what we are talking about here — I think we have some
good data that can't be rejected as data, and all the other things you mentioned are
absolutely apt, but they should not affect the initial analysis. You have to start someplace,
and I thought that this was a pretty good place when you are talking about the bond rating,
that narrow question. That's probably a fair; you know, in other words you say, other
things being equal, that's probably a good analysis of what the bond rating would be. Other
things may not be equal and I think that maybe that's our job to tell people that. You need
to do some sensitivity analysis around that, but that was my main thought. Everyone you
know, you're talking about all the other factors, and it is very important to consider all that.
My final thought is, I do hope that we all, as residents, consider both the benefits and the
burdens. If you consider only the burdens you would never do anything. So, that's my
thought.
Chairperson Babij: Thank you. Jim do you have any comments?
Member Karabec: Yes. I would just like to say that my taxes, I figured out, would go up
about 30%, for the City and go up 6.6% for total taxes, which is quite an increase. I was a
mayor for 12 years, and talking to my fellow mayors, the things we would discuss, you do
a project to serve the residents such as libraries, city halls, and so forth. Property would
pay for itself, such as cost reduce; I could go into it, but I don't want to. Projects that would
pay for itself by future fees, such as a fitness center or something, this is not it. Projects to
fix problems, projects to control future maintenance and cost; the only project that fits in
this here is the storm sewer. None of the rest of them fit in that. I would just like to say
we just installed a new sidewalk which is good for 20 years, so why should we tear that
up? And then with future maintenance that you are going to have, I haven't heard about
future maintenance. They are talking about water here. If you have water you have to have
drainage, so there is maintenance there between repairs of that and the people taking care
of it. As far as underground sewers, he drew a beautiful picture up on a hill, but he forgets
we only have about 4 feet of fall here. I don't think you can do it. I was in construction
all my life. I don't think you could do it. Then, they show our fall which you have to clean
all the time. So, if we build it, we have to clean it. That's going to be there, and you have
to look down the line in 30 years, you are going to have to replace those pipes. There is a
maintenance problem there. As far as the electrical part of it, I see nothing in here to cause
their 7 day problem. The 7 day problem was caused off site. We didn't have any problems
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Thursdav, January 24, 2019 Pale 17 of 24
on site. My problem is I just don't think any of them have filled the category enough to go
ahead with them.
Chairperson Babij : Ed, any comments`?
Member Kornfeld: I really don't have any additional comments. Greg's summary
summarized very well where we are. The thing is we have limited ability, other than for
taxes, to take care of the increases in the operating expenses every year. Everything goes
up. I made a comment earlier and I will repeat myself. We have had a boom since I've
been here, over the last 5 to 6 years, of apartments turning over. It says valuation is going
up, tax is going up. If I heard correctly, if the values go down and we raise the tax millage
rate it balances off. So, what I'm hearing is my unit value will go down comparably to the
new tax rate. I might be either naive or don't know the answer, but I think I do. I cannot
see that happening. I cannot see getting a tax bill where the rates go up and my assessed
valuation, which is the multiplier, goes down at all or equivalent with the increase. So, we
will lose, I believe, tax revenue in a down environment. Alan said also, there are a lot of
things going on in this country and this world which impacts us, maybe not today, maybe
not tomorrow, but over a long period of time. We are talking about 30 years. I think there
is more to be done. I will read this complete now. I got it at 10 o'clock this morning. I
will go through it all. It is a nice presentation. It's meaningful. I hear Moody's — I was in
the private sector, not on this end. I did public offerings, public bond offerings, mostly
stock offerings. This is a little different character than, but still you are borrowing money
and you are paying interest. It's the same thing, but the mechanics are a little different. I
want to get more up to speed on that. I think everybody made the same comment. It's a
great plan. I have no problem with the initial plan, but there is much more to be done to
see if it is financially viable, and that's what our Board is. It is not a political board, it is
strictly a financial board and I think we are all saying basically the same thing.
Chairperson Babij: Thank you. Jett?
Member Hollander: Thank you. You know, I think that we can accept on face value that
all of the documents we got are as accurate as they could be on what the assessments will
be, what the interest rate will be, on how much money we will need, that our millage and
our property values will balance to get us the same $2.7 million dollars in debt because we
have to pay it. With that being said though, I think the best thing we heard was when Greg
reminded us that everybody around us is 1 times or less debt to revenue. We are looking
to go to 4.8 times debt to revenue and I don't believe we have projects that take care of all
of our needs. We have many other needs that we are going to have to deal with. There are
other contingencies, and we are seeing this world change so quickly in front of us. I think
that this is a 30 year plan, 30 year payment plan, and to think that it is going to serve us for
30 years I think is really naive at this point. We have got to look to make sure that what
we spend matches what our needs are for the entire period.
Chairperson Babij : Thank you. Alan?
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Member Polin: Thank you. I want to commend, Greg, both you and Jeff especially because
I really relate to all of the things that you brought to everybody's attention in your
comments. I echo those. I concur. I think one of the most troubling things for me, and I
do agree with Jeff — these documents, I appreciate Matt, all the effort that you made, and I
do also appreciate that you kind of came in late in the chronological timeline — but I have
a particular sensitivity and concern to the possibility, and if we can't say for certainty that
we wouldn't get harmed by the so-called "weakest line" phenomenon, where our debt gets
packaged with Podunk, FL, a hypothetical place out there, a magical mythical place out
there in Florida, that has a B rating, and therefore we would suffer in terms of the ultimate
interest rate that would get pegged to the debt. I think the City would suffer as it relates to
us throwing ourselves into this program, the Florida Municipal Loan Council Program. I
think that, without casting any kind of aspersions or getting into the negative area, it just,
from an observer's stand point, I think that this situation seems to me to be almost a pre-
ordained situation. It is a rush to judgment; it is a rush to destiny. We seem to be fitting
our decision making — not ours, I'm not talking about us as colleagues, I'm talking about
the Town right now — we seem to be on a path of fitting our decision making in such a way
as to make things, as to justify outcomes that we have preconceived. By that I mean, why
have we hooked our horse up to the FMLC Program? Just as one example. We are paying
administrative fees that I discussed earlier, that we don't necessarily have to pay. The
interest rate, I think we could most likely or possibly suffer because of the weakest link
phenomenon, and Matt told us there is no guarantee that that would not occur. So, we
don't have control over that, but we do have control over kind of slowing down the process,
and I think we do need to step back for a moment and think in a thoughtful way, as Jeff
articulated. There may very well be projects out there, capital improvement projects, that
are necessary and we haven't necessarily looked at those possibilities. We haven't defined
those yet, but we would hurt ourselves, we would be shooting ourselves in the foot, if we
don't think about that in terms of future total debt that we would be taking on and therefore
that ratio of debt to annual revenue. I think that's super problematic.
The other thing I wanted to touch on was, again, the intangibles that I brought up earlier.
I wish someone would correct me if I am expressing myself wrongly, but it is my
understanding that the Town has gone through two, if not three, Town Manager turnovers
within a very short period of time, within a year and a half or so. That does not bode well
for credit rating agencies looking at stability, and stability goes to risk, so when Moody's
or Fitch or Standard and Poor's looks at that, that intangible, we are going to get an F. We
are certainly not going to get an A. When it comes to cohesiveness of the governing body,
the Commission, we have had a lot of turnover recently as compared to a body that has
been working together for 8 years, or 6 years, 7 years, going on 8 years, and they are
working like a well oiled machine. I mean, I am not trying to make a commentary, I am
not grading anybody, I am not judging anybody. I'm just stating a fact. This is an intangible
I have experienced. I physically went up to Wall Street with a collection of my City
Manager, a Financial Advisor, a City Attorney, and our Mayor. I came along as being a
Chair of the Financial Advisory Committee back in the day, and I know what I am speaking
about. There are intangibles. I'm not sure, again, that we are thinking about those kinds of
things. We are just looking a pure numbers and pure pros on apiece of paper. I just wanted
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Thursday, January 2.1, 2019 Page 19 of 24
to emphasize that this is historical stuff. It's here. I didn't create it. Nobody necessarily
created it, but we have to deal with it if we go out to the bond market. Thank you.
Chairperson Babij: Thanks. I'm just going to make two follow-up comments to touch on a
few of the things that you brought up. With respect to the PRAG letter, Neil you brought
it up and Alan you brought it up, it's kind of interesting to look at the letter. It feels very
generic to me. It doesn't really seem like they are familiar with the unique aspects of this
Town. I will just list a few of them. We are a bar belled community. We have wealthy
individuals and we also have retired citizens who are on a fixed income. So, when they
reference a median, or a mean income, it's actually a very poor tool for a unique town like
this. We are not like a normal municipality where there is everything all the way from
young families with kids all the way to retirees. We are much more bar belled. That's one
of their primary factors, as you said Matt. The letter also seems to imply that revenues
versus expenses are going to conform to history. Well, we just went through a whole bunch
of increased financial risks that we have coming our way whether we do this project or not.
That's going to change the revenues versus expenses somehow, and again that's also
assuming property values stay at the current level. That's also one of their primary factors.
The other thing we do know is Florida is a boom/bust real estate market. It always has
been. It's never as stable as the Northeast or California or any of that. As Alan brought
up, there is definitely a risk of property values fluctuating. They don't have to just go up.
And one last thing, Highland Beach, 80% of our revenue is from one single source which
is real estate taxes. We don't have any commercial, we don't have a lot of other types of
fees that come in like Boca Raton, or Delray, or other towns do, and this letter is constantly
comparing us to other municipalities across the country. I'm not saying the letter is
incorrect and as Neil said it was a good first cut, but it really needs to be looked at much
closer for who we really are because we are not like most of the country. The letter felt to
me a little bit like those old mortgage approvals from 2005 to 2007. If you meet a few
criteria well, good enough, you are welcome to leverage yourself to your eyeballs and we
are happy with it. I just think further analysis has to be looked at for who we are and the
unique risks we have. Then, one other comment I'll make, Alan you had mentioned about
scenarios earlier. I just ran a quick scenario myself. If the expenses go up 10%, which is
not a lot, and if property values go down 10% — by the way, that's only to 2017, that's not
going back a lot of years — and the $45 million dollars spends, our millage rate goes to 5.7.
That's 53% higher than it is today. That's not fear mongering, it's just that's the sensitivity
now. It's how much these millage rates can move for small changes. We just all have to
be aware of that because some of this stuff, once we commit to doing the debt, it's going
to be out of our control.
B. Budget Process
Finance Director Lalla presented an overview of what the Town Manager was considering
for the budget process for Fiscal Year 2020. He explained the Town Manager intended to
shift to a strategic focus, increasing workshops, aiming towards a programmatic budget.
He stated he hoped this new process would result in a more understandable document and
promote better decision making.
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Thursday, January 24, 2019 Paae 20 of 24
Member Polin noted he was in favor of the new process. He asked if the Town tied the
budget making process to a five year strategic plan and a five year business plan. Finance
Director Lalla responded he was unaware of past budget planning processes; however, he
did not believe the current budget plan did not reflect a strategic focus. He explained it
was a line item budget as opposed to the programs and functions of Town Departments.
Member Polin indicated he felt budgets tied to five year strategic plans and a companion
five year business plans were most successful.
MOTION: Chairperson Babij moved to approve the revised budget process
recommended by Finance Director Matthew Lalla. Member Hollander
seconded the motion, which passed unanimously.
Member Karabec asked if the Town had an engineer or consultant on staff. Finance
Director Lalla responded in the affirmative; there were consultants engaged within the
Building Department. He explained there was no City Engineer, but there were several
firms under contract available for technical expertise. Member Karabec stated he felt an
engineer needed to review the City Walk project. He stated he felt the Town needed a City
Engineer as a consultant.
Member Kornfeld noted the Town did have a five year capital expenditure plan, but an
operation plan was difficult as the Town did not have the same types of income as other
towns. He indicated he approved of the new Budget Process, but he worried about taking
on an additional $45 million dollars in debt and how that would affect the Budget. He
explained any process which enabled a better understanding of the Town's Budget would
be of benefit.
Chairperson Babij stated he believed beginning the Budget Process earlier was an excellent
idea. He welcomed Finance Director Lalla's new ideas.
C. Financial Information System
Finance Director Lalla reported he was actively searching for a new Financial Information
System. He explained the current system was 15 years old, was labor intensive, and lacked
integration abilities; therefore, it required replacement to better manage the Town's
resources. He stated he was in the early stages of the search and had only spoken with one
vendor who indicated a cost of $125,000 dollars to $150,000 dollars. He reported the
implementation of a new Financial Information System would require extensive planning
and would take place at the start of a new fiscal year, possibly around October 1, 2020.
Member Kornfeld asked if Director Lalla was researching packaged programs or would
custom programing be required. Finance Director Lalla responded he was looking at
packaged programs; large amounts of customization were not necessary due to the Town's
size.
D. Review of the Enterprise Water and Sewer Fund
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Thursday, January 24, 2019 Pace 21 of 24
Member Polin noted he was asked to review the Ocean Walk project as a Member of the
Financial Advisory Board. He stated he believed the project would benefit the Town in a
number of different ways. He noted he asked his friend Mr. Craig Dunlap, a Financial
Advisor with the City of Coral Springs, to review the financial aspects of the project. He
reported Mr. Dunlap noted a red flag which he expressed in an Opinion Letter stating "The
Water and Sewer Enterprise System is not producing a positive "net revenue" amount, and
therefore has no bonding capacity." He explained the analysis of bonding capacity noted
the net revenues for water were a negative $313,000 dollars and the sewer account was
operating in the red at $158,882 dollars. He stated the operating income or loss for the
sewer department was a $298,882 dollar loss. He stated Public Resources Management
Inc indicated the funds should immediately be adjusted with a rate increase. He noted
water and sewer rates were lower in Highland Beach as compared with similar
jurisdictions. He reported on November 1, 2018 the Commission voted 4 to 0 in favor of
granting the City Manager authority to have an updated study done at an expenditure of
$15,000; this was postponed. He indicated the problems with Enterprise Water and Sewer
would be viewed as a negative during the bonding process.
Member Polin asked if the Enterprise Fund was required to be a balanced fund annually.
Finance Director Lalla responded in the affirmative; State Law required all funds to show
a balanced budget annually. He explained, however, the Fund was balanced by a transfer
of General Funds of tax revenues which serviced the debt, funded the project, and was
attributable to the Water and Sewer Fund. Member Polin asked if the Town was also
transferring an extraordinary amount of "administration" to help balance the fund due to
artificially low rates. Finance Director Lalla responded he was unsure. Member Polin
indicated the Town had historically transferred money and categorized the transfer as
-administrative expense" in order to balance the budget. Finance Director Lalla indicated
he was unaware of transfers for this purpose. He explained funds were extracted annually
from the Enterprise Fund to pay the General Fund for the administrative expense that the
General Fund incurred in terms of payroll, administrative operation, procurement, etc.
Member Polin asked if Director Lalla believed $140,000 dollars was a fair share in
administrative fees. Finance Director Lalla responded he was unable to answer this
question. He explained a Cost Allocation Study could be conducted which would allocate
the administrative costs associated with the Town to Operations for verification and would
cost approximately $15,000 dollars to $20,000 dollars. Member Polin asked, in Director
Lalla's experience, what was considered a reasonable and customary reimbursement from
a general fund to a water and sewer fund to pay for administrative fees. Finance Director
Lalla explained the transfer went from the water and sewer fund to the general fund for
support that the general fund operations provided to the water and sewer business enterprise
in terms of payroll function, procurement, legal, general management, etc. He indicated
reimbursement costs varied by jurisdiction, resources, expenditures, and by number of
employees.
Member Polin asked why the November 1, 2018 Rate Study was tabled. Finance Director
Lalla responded the Study was put on hold pending the outcome of the Referendum. He
explained if the Referendum were approved there would be changes to the water and sewer
Financial Advisory Board Regular Minutes
Thursday, Januar} 24, 2019 Pape 22 of 2.1
program which would negate the Rate Study if conducted without consideration of the
Referendum's Stormwater Project. He reported the Study would take 90 days or less, rate
changes and stormwater fees could be approved by ordinance, and therefore, could be put
into place before the end of the fiscal year.
Member Polin asked if Director Lalla knew what the operating income or loss was for
Enterprise Fund was Fiscal Year 2018. Finance Director Lalla responded in the negative,
the numbers were not fully reconciled. He briefly explained the reconciliation process. He
stated he recommended the Rate Study be conducted following the vote for the Referendum
Package (sometime in March 2019).
MOTION: Member Polin made a motion that the Town, as it had already authorized the
City Manager to reengage the Public Resources Management Group, Inc.,
immediately update its Rate Study as of March 15 of 2019. Member Kornfeld
seconded the motion.
Roll Call: Member Polin -
Yes
Member Kornfeld -
Yes
Member Hollander -
No
Member Karabec -
Yes
Member Eisenband -
No
Vice Chairperson Stern -
Yes
Chairperson Babij -
No
The motion carried 4 to 3 with Member Hollander, Member Eisenband and
Chairperson Babij dissenting.
8. REPOR'T'S — BOAkiy I'VIENiBERS
A) Member Eisenband stated he had no report.
B) Member Karabec stated he had nothing to report; however, he suggested the Town
engage a civil engineer on a consulting basis regarding the Ocean Walk Project.
Finance Director Lalla stated the Building Department engaged several firms to
perform reviews. He stated the Town did engage Treasure Coast Regional Planning
Council, who employed Captec, the engineering firm responsible for the Ocean
Walk Project preliminary drawings and cost information.
Member Karabec noted he felt it was important to have a Town Civil Engineer
review the project to determine if the drainage was viable.
C) Member Polin stated he had no report.
Financial Advisory Board Regular Minutes
Thursdav, January 24, 2019 Pane 23 of 24
D) Member Hollander stated he felt the Town should put together committees of
experts to review and determine what would happen over the next 30 years prior to
spending 30 years worth of monies.
E) Member Kornfeld stated he had no report.
F) Vice Chairperson Stern stated the Commission needed to consider the DOT
expenditures and how this related to the Referendum. He stated the positive
accumulation of infrastructure sales tax should also be considered in the equation.
G) Chairperson Babij stated the residents needed to consider all financial impacts and
risks, small and large alike, to avoid any compounding problems. He indicated this
was the biggest financial decision Highland Beach had ever faced. He stated in the
business world a capital expenditure project was analyzed, priced out, considered,
reconsidered, voted on, and then moved forward; however, the Commission did not
have the luxury of time due to the constraints of the FDOT. He stated he would
prefer a project with a more modest budget, perhaps $15 million dollars, which
would bring debt to revenue to 2:1, and find grants for the remaining necessary
funds. He stated $45 million dollars was too great a sum from a financial
perspective and could burden the Town in the future.
Member Polin asked when the Board was required to make a recommendation to
the Commission. Chairperson Babij responded the Board was to pull together a
series of questions and comments regarding the financial impacts of Ocean Walk
and More to distribute to the Commission. He explained the Board would submit
its findings to Finance Director Lalla who would submit the findings as a whole.
Member Polin asked if a compilation of the discussion held during the Meeting
could be distributed to the Board Members and Director Lalla. Finance Director
Lalla stated he would rely upon the Meeting Minutes and encouraged the Board
Members to do the same.
9. ANNOUNCEMENTS
Town Clerk Lanelda Gaskins made the following announcements:
• Town Commission Workshop Meeting — January 29, 2019 — 1:30 PM.
• Town Commission Regular Meeting — February 5, 2019 — 1:30 PM.
• Town Commission Workshop Meeting — February 26, 2019 — 1:30 PM.
• Town Hall would be closed: February 18, 2019 in observance of President's Day.
10. ADJOURNMENT
Financial Advisory Board Regular Minutes
Thursday, January 24, 2019 Pale 24 of 24
There being no further business to come before the Board, Chairperson Babii called for a
motion to adjourn.
MOTION: Member Hollander moved to adjourn the meeting at 3:10 PM. The motion
passed unanimously.
Alan Polin, Chairperson
Transcribed by: Rosalie DeMartino
B rly A. Wrig t r6ate
Deputy Town Clerk
AF
WES
Alan Polin, Chairperson
Transcribed by: Rosalie DeMartino
B rly A. Wrig t r6ate
Deputy Town Clerk