HomeMy WebLinkAboutAgenda Budget Oversight 090506CITY OF PALM BEACH GARDENS
10500 N Military Trail
Palm Beach Gardens, Fl 33410
BUDGET OVERSIGHT COMMITTEE
NOTICE OF MEETING AND AGENDA
Please take notice that the Budget Oversight Committee of the City of
Palm Beach Gardens will conduct a meeting of the committee on
September 05, 2006 at 8:30 am in the Council Chambers Lobby Meeting
Room.
Roll Call
II. Approval of minutes from the July 20, 2006 meeting
III. 2006/2007 Budget Update
IV. Discussion of Committee Report to Council
DISABILITY INFORMATION
In accordance with the Disabilities Act and F.S.S 286.26, persons with
disabilities needing special accommodation to participate in this proceeding
should contact the Human Resource Department no later then seven days
subsequent to the proceeding at (561) 799 -4223 for assistance, if hearing
impaired, telephone the Florida Relay Service Number at 800 - 955 -8770
(voice) for assistance.
APPEAL NOTICE
If a person decides to appeal any decision made by the board, with
respect to any matter considered at such meeting or hearing, he will need to
ensure that a verbatim record of the proceedings is made, which record
includes the testimony and evidence upon which the appeal is to be based.
Budget Advisory Committee
Report to the City Council
This committee is impressed with the skill and thoroughness of the staff responsible for
the preparation of the annual budget submissions to the Council. The methods used to
make the projections of revenues, expenses and capital expenditures are logical and
prudent. With regard to outstanding debt, the staff is alert for opportunities to lower
interest rates.
We do have some suggestions, dealing with financial strategyolicy and governance,
which are respectfully submitted, for the consideration of staff elected council.
Fund
While the staff recommendation for the forthcomin 044-8 t• with rest' to the size of the
Reserve Fund is within the range set out in thefrategic Plan, the c ittee suggests
increasing the fund, thus bringing it in the direct of the upper range. "currently
is enjoying a high stream of revenue from new of "ction'ad it is an ap priate time
to set funds aside for a "rainy day." Areas of pos , need `for a larger reserve range
from tropical storm damage to a period, of lowered real`te values.
krt�:
5 5�F
In the past the City policy has been to mauJntain an undesig4i" fund of 5 -15% of total
budgeted operated expenditures to acc°ate uinticipated expenditures,
�.,.:
expenditures of a non - recurring nature, or unanttcxp2lrnue declines. Once the 15%
level is reached, the Council should consider returning cess reserves to the taxpayers in
the form of a lower millagc rate.
Strateeic Financial Planning should have a Lengthened and Expanded Focus
Because of obvious and loomirtnges in future conditions, the financial planning
horizon of a single year is too 66it -term. The city is approaching the build -out of
remaining tj;or land parcels Following that, the current high rate of annual additions to
the tax base from new construction, will rapidly decrease. After the major spurt derived
from Scripps, the municipality will begin to move, from rapid growth to maturity, and
this mandates a shift :focus. The County Tax Assessor, Gary Nikolits, has publicly
stated that the double lgit increases in property assessments are over.
The City projects a five -year financial forecast. In this forecast, the City assumes a
projected future expenditure increase of 5 -6 %. This projected increase is significantly
less than actual expenditures for any of the past 10 years. To realize this level of
expenditures two major events have to occur.
The first is to control the number of employees. The major element of expense in the
annual budget is employee compensation including benefits. Control of growth of
employment is necessary to dampen future levels of expense. It also is the means to
avoid future layoffs if at some point the city managers believe there is over employment
or if employment needs to be reduced because of financial shocks.
We do not advocate layoffs unless a dire emergency occurs; layoffs create poor morale
and quite frequently do not have staying power. Instead we believe hiring, wherever
possible, should be minimized. Every new position and replacement for somebody who
resigns or retires should be examined for need. We encourage greater use of temporary,
including part-time, hires. This region has many qualified retirees who would bring skills
and who would welcome part -time or temporary full -time work.
The City has done a good job in this year's budget to control .,*01" (limber of employees.
The only significant departmental increase is for public safk.FFuture budgets will have
to be equally vigilant in controlling the number of employ1:10.
The second condition necessary to control expenses i
City moderated the increase of the Firefighter ;vto
contract. A similar moderation should occi .. ry:ah�
According to Bolton Partner's, an actuarial cons
9% Public Safety salary increases, cannot be sustafi
anticipates the Public Safety officers,,having a contr,
the salary trends have to be moderate general
to moderate' Nimost ases. The
a 6% increas recent
upbpming Pcontract.
g fir =Rlaired bthe recent
<1 the long run. The Committee
:::" �I,.
Nkilar to the Firefighters. Also
The planning process in addition to its p esent "ot a Y sis of tr ng to improve the quality
of both life and of the tax base also should pay mc;if gi h0htion to the control of future
expenses. These tend to get embedded ' and expAd as employment increases.
Compensation including benefits is the largest category of expenditure in the budgets.
Employee benefits are an important part of the compensation package. The Committee
would like tttnployee benefits negotiated as part of the total compensation package.
We reccmeri that, the City retain Bolton Partners as an advocate for future
comp�`ation negotiations.
.10 NIA
Because aflfction with regard to recommendations involving the police and fire fighter
pension plans, five submitted a comprehensive interim report dated March 1, 2006 to the
Council and explicitly noted the reasons for the under funding. Bad news never is
graciously received= A c Council did authorize the engagement of an actuarial firm not
�,,
previously involved 11 the plans.
The actuary submitted a report containing numerous recommendations to improve the
financial position of the respective plans .If the respective pension boards do not adopt
those recommendations, then we believe the City should make parallel calculations and
set aside reserves in its accounts. No benefit improvements should be made until a plan
has a sound financial position calculated using the assumptions provided by the City's
actuary.
You should know, this committee does not totally concur with the independent actuary's
recommendations; we believe the discount rate should be one percentage point lower for
the following reason [This is a direct quote from the appendix to the actuary's report.]
...............................
The two pension plans were established by ordinance many years ago, perhaps before any
member of the Council was elected to office. Many of the provisions are very theoretical
and are impractical for the present time and circumstances.
I . It is inefficient to have a set of experts for each plan. A single investment master
trust owned by the two plans, because of increased size wld be more attractive
to management firms and would lower the expense.
2. A single actuarial firm may result in a combined lowpQst.
3. A single auditor may lower the combined cost.``
4. Each plan has devolved into an oversight structutvonsisf r f two appointees
designated by the Council, two members of ,erriployee ent but the
elected fifth person also is a departmentanployee. We sugge fifth
appointee be a senior member of the
The City Council adopted the Florida Retirement S .;` ensign for General Employees.
9., s
This plan ameliorates many of the above concerns that „ 3: ;;committee has. The main
advantages are that the FRS Plan currently has a surplus, t an has a history of stable
contribution and benefit formulas, and the Plan has very low ;.i`` istrative expenses.
We urge the Council to direct the staff to investigate having the Firefighters and Public
Safety officers also join the FRS plan. A significant barrier is the current underfunded
status of the two plap{ According to Attorney Jim Linn, the City must pay off any
underfunded liabilrt;es�%nfore the employees can jon the FRS plans. However, the FRS
plans enjoy significantl".4 -ss core on rates A an the current City pension plans. This
difference e
rps d to float boortize the underfunded liabilities.
.._,
To acrd unintendetl`7psequen coordination of capital projects design with
opera C departments' `dews buld be required and publicized. We have been
advised taintenance pense is increasing by $400,000 a year due to the PGA
1..
Flyover. This %nual level maintenance may or may not have been taken into account
when certain as § of th,Flyover were introduced.
The City has a five^ *fir capital plan. Whenever, major additions are made to the plan
(i.e. a hurricane proof IT facility) offsetting cuts or postponements should be made. It is
very important to prioritize the capital projects.
Sunestions Relating to Current Operations
Revenue Enhancements
Real estate owned by not for profit organizations is not subject to real estate taxes. If this
becomes a burden then consider imposing fees for certain public services such as energy.
There then could be a trade -off for the general populace and taxable businesses by
equivalently reducing the mill rate. The positive net may be an increase in fees paid by
not- for profit organizations which utilize city services and which do not pay real estate
taxes. Another factor -- user fees are not subject to "homestead "rules.
Expense and liability Controls
Derivatives of payroll have a propensity to get out of control, particularly the costs of: (1)
Health insurance; (2 Final pay pension plans; and, (3) Worker compensation. This is a
major national problem facing many states, counties and municipalities. Business Week
magazine has an extensive and disturbing description of the probl'erri V its issue of
June 13, 2005. We are not expressing a view on the nature of the city's benefit plans, as
that is not within our province; but, we have a concern relating to the accuracy of
financial projections. We do recommend for purposes
that employment associated expenses be recognized {
example is the program permitting retired emp 'ee:
health program. Current municipal account' dar
as- one -goes basis instead of requiring recogni io t
o
arises during active employment. That will change s
of GASB 45. We feel the city should voluntarily elei
next fiscal year instead of waiting will bring
including recognition of its cost and theitrtdf;xequir
With respect to group health plans, consid`e
and also employee co- payinents to help c
may lead to better control of future costs of
nancia' orting and funding,
ie liabili a incurred. An
to participate 'i city's group
s are still on a erise ", pay -
is hidden cost as the true liability
;ayvith the mandatory introduction
is accounting principle for the
earlier attention to the program,
3.
d� ft.pf self- insurance to reduce fees
use. Introduction of "Cafeteria Plans"
benefits.
The city is responsible for the ability to pay pry mised pensions from the defined benefit
retirement pa,a� Xet, the investing ddc� and the funding assumptions are vested in
boards wy..hncli . art: not under control of management. Many jurisdictions, including
neighl§�ng ones, have had the uriplpasant surprise of discovering that benefits were
subsfarr�y higher thank and had anticipated. Staff should review investment policies
and actua,kSsumptions to- ensure that the city's accounts reflect appropriate liabilities.
When employe do re added to reduce overtime, do follow up analyses to ensure the
anticipated benefits realized.
The present emphasis to control permanent additions to the work force should be
continued. Temporary employees would not need to be covered for health or pensions
with appropriate structuring of hours. Consider hiring temporary or part-time employees
(There perhaps is a pool of retired people) to expedite the processing of construction
applications and inspections. This would accelerate the income from permits and even
more, would speed -up construction creating more rapid additions to the tax base. This
condition will be present for only a few years and then growth will slow.
Compensation levels tend to be compared to other governmental bodies and we suggest
that compensation paid by private enterprise also be included for purposes of comparison
where appropriate. The City engaged a consulting firm to study the City's payroll. The
only private firms included in the study were Fortune 500 firms. Since Palm Beach
County has few Fortune 500 firms, future studies should include comparisons of more
representative private firms.
Suggestions and Comments Relating to the Budget Process
Consider a rolling five -year operating and a 10 -year capital forepast to help anticipate
problems. This is particularly needed now, because within 10 yelrs' :t is highly probable
the city will have moved from a rapid growth to a mature mode;_,
Governance::
Consider establishing an independent audit comt#ee. This is not customary in cities but
with the enactment of the Federal, Sarbane�� ley Act pertaining to publicly traded
corporations there is more awareness of progr" i�!'t�!e go?i inance in the financial and
operating areas. Establishing an independent audifv -; rntttee would help improve the
comfort level of the citizenry and gected officials_.staff. An "independent' body
would be available to help ensur&:";" ence o itors and their ability to
communicate.
Evaluate establishing a small internal audit, department. It may be financially self
sufficient as it might both low.ex the cost of audits and increase the volume of transaction
review.
PENSION PLANS OVERSIGHT
The city maintains two collectively bargained defined contribution plans; both,
respectively operate under the direction of appointed boards. The process was established
by a city ordinance enacted many years ago and before the tenure of all or most of the
present members of the city council. The history and practices have resulted in weak or
nonexistent oversight by the council and staff. Administrative expenses because of size
and duplicated efforts are more than they need to be.
To protect the assets of the taxpayers and members of the plans we offer a series of
recommendations.
Put staff on each board.
At the present each board is comprised of two members of the representing union, two
individuals appointed by the council and a fifth person selected by the four. In each case
the fifth member is part of the bargaining group. We suggest the ordinance be amended to
substitute a professional from the staff as the fifth person.
Consolidate functions
The two plans each select investment advisors and actuaries and attorneys and auditors.
One set of advisors should reduce expenses and at the same time not require that benefit
formulas be identical.
Only one auditor should be selected
Auditing responsibility is not affixed. If one looks at the city's audited statements, the
auditor denies any responsibility for the pension plans and instead "relies "on the
respective auditors for each of the plans. While we are not questioning capabilities, the
taxpayers should have the comfort that "the" city auditor assume the responsibility over
the pension plans. The assets and liabilities of those plans are a material part of the city's
financial picture.
Annual review by another actuary
The city periodically should engage another actuarial consultant to review actuarial
assumptions. J .sed by defined benefit plans to which the city has an obligation.
Consider folding the plans into the state system
,fhe staff is investigating the possibility of substituting the Florida State System. We
believe this investigation should be encouraged
*PMCM•
Actuarial assumptions
We thank the council for heeding our comments relating to actuarial assumptions used by
each of the plans. You encouraged the engagement of another actuarial firm.. While the
suggested changes will require the city to increase its contributions by significant
amounts, it does improve the protection to beneficiaries and taxpayers.
The consultant put forward two possible discount rates. We strongly favor the lower
[6.5% ? vs. 7.5 %] as( at this point quote the paragraph in the actuary's report appendix.)
CITY OF PALM BEACH GARDENS
MEMORANDUM
TO: Mayor and Council
APPROVED: Ron Ferris, City Manager
DATE: August 21, 2006
FROM: Allan Owens, Finance Administrator
CC: Department Heads
SUBJECT: Fiscal year 2007 Proposed Budget
Introduction
The purpose of this memo is to provide Council updated information and changes made
subsequent to the July 20th council meeting regarding the proposed 2006/07 operating and
capital improvement budget. At the suggestion of Vice Mayor Barnett, Council directed
staff to present a millage rate that had a $0 dollar increase on taxes paid for homesteaded
properties. This can be accomplished by further reducing the proposed rate of 5.86 mills
to 5.755 mills.
Summary of Revisions to Budget
Distributed with this memo is a revised Proposed FY 2007 Operating and Capital Budget
book. In this new document, you will find updated General Fund revenue worksheets,
Departmental Recap worksheets, 2007 Proposed Budget Comparisons, 2007 Budget
Preparation Documents, as well as an updated General Fund Budget Variance schedule to
reflect these changes. The schedule of Personnel by Department was also updated to
include the proposed Community Development Division. To help highlight all of the
sections that have been affected by the requested changes, all pages that contain any
revisions have been printed on blue paper or tabbed for your convenience.
The following is a summary of all changes that have been made to the proposed budget,
per Council's directives, subsequent to the July 20`h Council meeting:
Revenues
✓ Reduced ad valorem revenue projections by $930,364 to reflect the proposed
decrease in the millage rate from 5.86 mills to 5.755 mills.
✓ Added $500,000 for the Funding Agreement with Gardens Pointe LLC.
Expenditures
✓ Added $1,332,247 to fund the enhanced Community Development Division,
which includes $1 million dollars to establish an Economic Incentive Program.
✓ Added $500,000 to establish a Transportation Division to address the City's
transportation initiatives.
✓ Added $25,000 to participate in the Housing Leadership Council of Palm Beach
County.
✓ Reallocated approximately $600,000 for the additional 6% pension contributions
from General Services to the individual departments.
✓ Added $100,000 in legal fees to address the challenge to the Callery Judge
comprehensive plan amendment.
✓ Added $139,295 for an additional police officer and one traffic sergeant. A
phasing -in approach for the additional personnel results in a reduced funding level
required for the 2007 budget.
Overview of Revised Budtet
As illustrated in the table on the following page, the proposed General Fund budget,
taking into account the above revisions, is $78,617,934, which is 11.39% greater than the
adopted fiscal year 2006 budget total of $70,581,228. However, a better measure of the
proposed increase is the change in operating expenditures. This amount excludes capital
and ending balances, and totals $66,102,509, and is $8,944,355 or 15.65% greater than
fiscal year 2006 operating expenditures. This represents a 3.78% increase over the budget
proposed by the City Manager on June 14, 2006.
GF BUDGET VARIANCES FROM 2006 -2007
Original Proposed
Budget Budget Variance -
FY06 FY07 FY06 -FY07 %Variance
Revenues/Sources
70,581,228
78,617,934
8,036,706
11.39%
Less: Loan Proceeds
(4,445,700)
-
4,445,700
- 100.00%
Beginning Balance
(6,985,798)
(7,722,478)
(736,680)
10.55%
Total Operating Revenues
59,149,730
70,895,456
11,745,726
19.86%
ExpenditureslUses
70,581,228
78,617,934
8,036,706
11.39%
Less: Capital Outlay
(6,429,596)
(1,664,511)
4,765,085
- 74.11%
Ending Balance
(6,993,478)
(10,850,914)
(3,857,436)
55.16%
Total Operating Expenditures
57,158,154
66,102,509
8,944,355
15.65%
Based on the final tax roll information, the proposed operating millage of 5.595 is
17.03% more than the roll back rate of 4.78. The proposed debt service millage is .16
mills, for a total proposed millage rate of 5.755. This represents a 3% reduction from
the total rate adopted in fiscal year 2006. This is a further reduction from the rate
proposed at the July 20th workshop, which reflected a decrease of 1.1 % from the 2006
millage.
The effect of this proposed tax rate on three typical homeowners is illustrated in the
following table:
Effect of Proposed Tax Rate on Three Typical Properties
(with Homestead Exemption)
EFFECT OF PROPOSED TAX RATE ON THREE
TYPICAL PROPERTIES (WITH HOMESTEAD EXEMPTION)
PROPERTY
PROPERTY
INITIAL
VALUE
FY 2006
TOTAL
VALUE
FY 2007
TOTAL
TOTAL
PROPOSED
FY 2006
MILLAGE
TAX
FY 2007
MILLAGE
TAX
INCREASE
RATE 5.88
$ 500,000
5.928
$ 2,964
$ 515,000
5.755
$ 2,964
$ (0)
64
1,000,000
5.928
5,928
1,030,000
5.755
5,928
(0)
128
1,500,000
5.928
8,892
1,545,000
5.755
8,892
(0)
193
Five -year Forecast
Per direction from the Council at the July 20 "' budget presentation, we have also prepared
the following revised five -year financial projection that incorporates the above revisions
to the proposed budget:
GENERALFUND
REVENUES
FIVE YEAR PROJECTION
9130/2007 9/30/2008 9!3012009 9/30/2010 9/30/2011
Locally Levied Taxes $
56,574,055 $
58,897,903 $
61,655,520 $
66,081,787 $
68,929,568
Licenses & Permits
4,156,266
4,280,954
4,409,383
4,541,664
4,677,914
Intergovernmental Revenue
5,672,595
5,842,773
6,018,056
6,198,598
6,384,556
Charges for Services
1,736,376
1,788,467
1,842,121
1,897,385
1,954,306
Fines & Forfeitures
302,860
311,946
321,304
330,943
340,872
Miscellaneous
2,329,543
2,399,429
2,471,412
2,545,555
2,621,921
Other Financing Sources
123,762
127,475
131,299
135,238
139,295
Total Revenue
70,895,457
73,648,947
76,849,095
81,731,170
85,048,432
EXPENDITURES
General Government
15,771,015
15,589,007
16,490,800
17,450,096
18,470,975
Public Safety
35,517,242
38,316,685
40,850,200
43,397,848
46,060,444
Physical Environment
8,361,422
8,828,752
9,324,796
9,851,493
10,410,930
Culture /Recreation
2,444,052
2,580,659
2,725,546
2,879,253
3,041,903
Capital Outlay
1,664,511
4,365,643
2,923,918
3,601,030
2,438,541
Debt Service
3,379,194
3,289,899
3,284,168
3,294,840
3,291,605
Operating Transfers
629,584
654,767
680,958
708,196
736,524
Total Expenditures
67,767,020
73,625,411
76,280,387
81,182,757
84,450,922
Excess Revenues (Expenditures)
3,128,436
23,536
568,708
548,413
597,510
Undesignated Fund Balance - Beginning
7,722,478
10,850,914
10,874,450
11,443,158
11,991,571
Undesignated Fund Balance - Ending $
10,850,914 $
10,874,450 $
11,443,158 $
11,991,571 $
12,589,081
Fund Balance % of Expenditures
16.01%
14.77%
15.00%
14.77%
14.91
Projected Operating Millage
5.595
5.595
5.450
5.445
5.300
Projected Debt Millage
0.16
0.15
0.14
0.13
0.12
Projected Total Millage
5.755
5.745
5.59
5.575
5.42
Original Projections From 2005 -06
6.1
5.905
5.97
6.11
N/A
As can be seen, the effect of lowering the proposed millage in FY 2007 results in no
projected change in the operating rate for FY 2008. In subsequent years, both the
operating and debt service millage rates are projected to decrease. The reserve balance is
projected at approximately 16% for FY 2007, and approximately 15% in subsequent
years, which is at the upper end of our policy range of 5 -15 %.
In response to questions that were raised regarding assumptions used in formulating the
projections, the following table illustrates changes that have been made in the
expenditure assumptions since last year's five -year forecast:
Expenditure Category
Prior Year Assumption
Current Year Assumption
Salaries
7.5% annual increase
6% annual increase
Insurance
15% annual increase
10% annual increase
Operating expenses
3% annual increase
4% annual increase
Salary increases have been reduced slightly to reflect our intent to establish equity across
all categories of employees. With the recent Firefighters' contract approved at 6%
annually, we have established that level as our benchmark.
Insurance increases for two consecutive years have averaged 9.5 %; accordingly, we have
adjusted our projected increases to be in line with our recent actual historical results.
The projected annual increase in operating expenditures has been raised to 4% to more
accurately reflect current inflation trends.
Summary
As noted earlier, the additional revenue at the proposed rate of 5.755 mills would increase
reserves by $3.1 million to $10.8 million, which is 16 %, and is in line with our target
goal of 15 %.
If you have any questions concerning the proposed budget, please contact Mr. Ferris so
that we may schedule a meeting at your convenience to discuss any issues you may have.