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HomeMy WebLinkAbout1992 06-09 FTFA• MEETING NOTICE FINANCIAL TASK FORCE TUESDAY, JUNE 9, 1992 7 P.M. C BARN - EARLE BROWN HERITAGE CENTER 1. Review of Report and Recommendations of the Financial Task Force 0 0 • DRAFT REPORT AND RECOMMENDATIONS OF THE BROOKLYN CENTER FINANCIAL TASK FORCE JUNE 5, 1992 TO THE HONORABLE MAYOR AND CITY COUNCIL: The Brooklyn Center City Council established the Brooklyn Center Financial Task Force in the spring of 1991 with a scope of "advising the City Council regarding matters relevant to the City's financial status" and with the following duties and responsibilities: 1. Make recommendations to improve cost effectiveness of City services, programs, and functions. 2. Make recommendations on priorities for reducing or eliminating services should it become necessary. 3. Make recommendations on modifications, additions and/or deletions to short and long term City revenue sources. The Brooklyn Center Financial Task Force held its first meeting on July 29, 1991. Since its first meeting it has met 23 times reviewing all aspects of City finances, department operations and met with the City's Auditor. In January of 1992 the Financial Task Force recommended, and the City Council adopted, a Financial and Service Prioritization Process whose purpose was to "provide options for the City Council to consider as a means to reduce and/or contain costs in 1992 and subsequent budgets." The Financial Task Force herewith respectfully submits, their report and recommendations regarding the Financial and Service Prioritization Process. We wish to personally thank the employees of Brooklyn Center for their enthusiastic cooperation in support of this effort. The City's financial managers seem most willing to make decisions which are needed to maintain our budget within the resources available. The City auditor, Cliff Hoffman of Deloitte Touche, stated the financial operations of the City of Brooklyn Center are well managed and the present financial condition is very good. As a part of our initial review we found a need to recommend to the City Council for their consideration a comprehensive financial management policy for Brooklyn Center. The City Council has received and adopted this policy and they are to be commended for their fiscal responsibility and foresight in this matter. The Financial and Service Prioritization Process Final Report as attached to this memorandum consists of the following tables: 1. Summary of Revenue Enhancements and Expenditure Reductions as Recommended by the Flinancial Task Force for the Prioritization Process. This table represents a summary presentation of the priorities by category and priority classification. At the bottom of this table are definitions of priorities one through four. • 2. Revenue Enhancements and Expenditure Reductions as Recommended by the Financial Task Force for the Prioritization Process. This table represents the same basic information contained in the previous summary table but in greater detail. It presents the information on the Prioritization Process by category, item by item and by priority. 3. Summary of Financial Service and PriorUization Items by Category. This table is the most detailed and is presented on yellow pages. It describes each individual priority item submitted to the Financial Task Force for consideration and indicates departmental, City Manager's and Financial Task Force recommendations and priorities. One of the major goals of the Financial and Service Prioritization Process was to "provide a plan which allows systematic and phased cost reductions and/or revenue enhancements which will result in permanent budget impact of approximately $1,000,000 in the general fund budget for 1993." The Task Force understands it may not be necessary for the City Council to implement all of the proposed priorities suggested in this report. However, should it become necessary because of fiscal pressure or good public policy making, the priorities itemized in this report should give you a blueprint and guideline to follow. We are recommending for your consideration and review, with the aforementioned discussion in mind, priorities totaling $1,723,011. If the City Council chooses to implement certain of the priorities recommended in this report it will reduce the number of City employees financed through the general fund. If the Council implements these or other staff reductions we strongly recommend the adoption and use of a thorough outplacement program for affected employees. At various times during the last ten months of our deliberations City Council members have made comments to the affect that the Task Force should be made a permanent committee of the City of Brooklyn Center. We have discussed the advisability of making this Task Force a permanent committee and believe there is merit in doing so. Should the Council create this Task Force as a permanent City committee, we believe the next phase of our consideration should involve the following: 1. Further evaluate the reorganization potential of City service delivery. 2. Examine further options for recommendation to the City Council in dealing with revenue enhancement contained in priority 4 recommendations in the Prioritization Process report. In addition to the attached prioritized recommendations, the Task Force was asked to make expanded comments and recommendations in a number of areas. First, City Council requested the Task Force to review a request for funding from the Brooklyn Center Hockey Booster program. It is our understanding the City Council wished to have us comment and make recommendations on how they should approach and consider this particular athletic group 0 -2- funding request and all others which may be proposed of a similar nature. We recommend for your consideration the following general rules. The potential for funding requests of this nature will intensify and continue into the future and should be reviewed as one priority among all other priorities considered in the annual general fund budget process. If the City Council chooses to allocate funding for this purpose we believe it should be directed to all athletic programs on an equal basis and should contain an element of participant need. We believe assistance to these programs should be directed to the individual participants, if possible, rather than to the organizing group. The City Council may want to consider working out a program or process in conjunction with school district community education programs and/or non-profit or local foundations such as the Brooklyn Center Foundation. At a regularly scheduled meeting the Financial Task Force allowed the Mayor to present a request for a new position for city staff, a Communications Coordinator. During a lengthy presentation the Mayor outlined the many tasks and responsibilities he envisioned for this position. He also stated the cost would be in the neighborhood of $50,000. Discussion centered around the cuts in present staff being recommended by this group, and that many of the tasks outlined by the Mayor are already being done by current staff. It was felt that any new functions can be added to duties performed by current staff or if the skills required are not readily available and if the priority warrants it, they could be performed by outside consultants. It is the unanimous decision of the Task Force that this position not be implemented. As a part of a suggestion by a Council member to reduce City Council and Mayor's salaries by 5 the Task Force reviewed not only current salaries, but the increased salaries already approved for 1993. The approved increases are from $7,000 to $11,500 for Mayor, a 64% increase, and from $5,000 to $7,500 for City Council members, a 50% increase. Our review consisted of comparisons to similar salaries in the metropolitan suburban area. The data used was compiled by the Association of Metropolitan Municipalities and consisted of 29 members whose populations exceeded 20,000 residents. The survey was dated April, 1992 and included data for 1990, 1991, and 1992. Population counts were Metro Council figures from the 1990 census. Based on the data, we found Brooklyn Center's elected officials are paid slightly below the average in absolute terms, but slightly higher than average when based on cost per resident. Overall, not out of line with similar municipalities. However, when the increases scheduled for January 1 are factored in, it would place them in the highest brackets in the Twin City Metropolitan area. When viewed from the perspective of the cuts being recommended in other City budgets, we find the salary increases to be totally out of line. We also understand that Per Diem payments were also added which could increase salaries by an additional $1,200 per year, further exacerbating the differences between salaries in Brooklyn Center and other suburban cities. 0 3- The Financial Task Force is unanimous in recommending a roll back on the increase of salaries and the elimination of Per Diem pay. This report is respectfully submitted for City Council consideration. The membership of your Task Force sincerely appreciates the opportunity to serve Brooklyn Center in this fashion and stand ready to discuss with the City Council any and all details of this report at your convenience. Denis Kelly, Chair Donn Escher Ulyssess Boyd Vi Kanatz Pat Boran Greg Peppin 0 Ron Christensen Jerry Pedlar, Council Liaison Ob -4- City of BROOKLYN CENTER, MINNESOTA FINANCIAL MANAGEMENT POLICIES ADOPTED JUNE 8 , 1992 1. PURPOSE The City of Brooklyn Center has a responsibility to its citizens to carefully account for public funds, to manage municipal finances wisely, and to plan the adequate funding of services desired by the public, including the provision and maintenance of public facilities. The City also has the responsibility to its citizens to provide both short-term and long-term future financial stability. The City must ensure that it is capable of adequately funding and providing local government services needed by the community. Further, the financial policies set forth herein, provide the basic framework for the overall fiscal management of the City. Operating independently of changing circumstances and conditions, these policies assist the decision making process of the City Council and Administration. Most of the policies represent long standing principles, traditions and practices which have guided the City in the past and have helped maintain financial stability over the past years. • These financial policies will be reviewed periodically to ascertain if modifications are necessary. H. OBJECTIVES In order to achieve this purpose, this plan has the following objectives for the City's fiscal performance: 1. To protect the City Council's policy-making ability by ensuring that important policy decisions are not controlled by financial problems or emergencies and to prevent financial difficulties. 2. To provide sound principles to guide the important decisions of the City Council and of management which have significant fiscal impact and to enhance the City Council's policy-making ability by providing accurate information on program costs. 3. To set forth operational principles which minimize the cost of local government, to the extent consistent with services desired by the public and which minimize financial risk. 4. To employ revenue policies which prevent undue or unbalanced reliance on certain revenues, especially property taxes; which distribute the costs of municipal services fairly; and which provide adequate funds to operate desired program and assist June 8, 1992 sound management of the city government by providing accurate and timely information on financial conditions. 0 5. To provide essential public facilities and prevent deterioration of the City's public facilities and its capital plant. 6. To protect and enhance the City's credit rating and prevent default on any municipal debts. 7. To ensure the legal use and protection of all City funds through a quality system of financial and internal controls. 8. The City Will maintain a Risk Management Program that will minimize the impact of legal liabilities, natural disasters or other emergencies. III. FINANCIAL MANAGEMENT POLICIES 1. The City will make all capital improvements in accordance with an adopted Capital Improvement Budget. 2. The City will develop a multi-year plan for capital improvements and update it at • least biennially. 3. The City will enact an annual Capital Budget based on the multi-year capital improvement plan. Future capital expenditures necessitated by changes in population, changes in real estate development, or changes in economic base will be calculated and included in Capital Budget projections. 4. The City will coordinate development of the Capital Improvement Budget with the • development of the operating budget. Future operating costs associated with new capital improvements will be projected and included in operating budget forecasts. 5. The City will use intergovernmental assistance to finance only those capital improvements which are consistent with the adopted capital improvement plan and City priorities, and for which operating and maintenance costs have been included in operating budget forecasts. 6. The City will project its equipment replacement and maintenance needs for the next several years and will update this projection each year. From this projection, a maintenance and replacement schedule will be developed and followed. 7. The City staff will identify the estimated costs and potential funding sources for each capital project proposal before it is submitted to the City Council for approval. June 8, 1992 -2- 8. The City will determine the least costly financing method over the length of all new projects. ReL'Qt11i'p~TCIS 1. The City will attempt to maintain a diversified and stable revenue system to shelter it from short-run fluctuations in any one revenue source and to minimize property taxes. 2. The City will estimate its annual revenue by an objective conservative analytical process. 3. The City will project revenues for the next three years and will update this projection annually. Each existing and potential revenue source will be reexamined annually. 4. The City will maintain sound appraisal procedures to keep property values correct. Property will be assessed at the legally mandated market value for each type of property. Reassessments will be made of all property at least every four years. 5. The City will follow an aggressive policy of collecting property tax revenues. The annual level of uncollected property taxes should generally not exceed two percent. 6. Each year the City will recalculate the full costs of activities supported by user fees to identify the impact of inflation and other cost increases. 7. The City staff will recommend revised user fees with review by the City Council on an annual basis, to adjust for the effects of inflation on the City's cost of providing services. 8. The City will set fees and user charges for each Enterprise Fund, such as Water and Sewer, at a level which fully supports the total direct and indirect costs of the activity. Indirect costs include the cost of annual depreciation of capital assets. 9. Whenever user charges and fees are determined to be appropriate for City services, those charges and fees will generally be established at a level which will recover the full cost of providing the service, including administrative costs. 1. The City will confine long-term borrowing to capital improvements or projects which cannot be financed from current revenues. 2. When the City finances capital projects by issuing bonds, it will pay back the bonds within a period not to exceed the expected useful life of the project. June 8, 1992 -3- 3. On all projects, at least 50% of the principal shall be retired within ten years. 4. The City will attempt to keep the average maturity of General Obligation Bonds at or below 20 years. 5. Total debt service for General Obligation debt will not exceed five percent of total annual locally generated operating revenue in the general, special revenue, and proprietary funds. 6. Total General Obligation debt will not exceed two percent of the market valuation of taxable property. 7. Where possible, the City will use special assessment, revenue or other self-supporting bonds instead of General Obligation Bonds. 8. The City will not incur debt to support current operations. 9. The City will maintain good communications with bond rating agencies regarding its financial condition. The City will follow a policy of full disclosure in every financial report and bond prospectus. 10. Direct net-debt (gross debt less debt fully supported by revenues) per capita shall not exceed $600 per capita. It. The City will require Minimum Assessment (Taxable Valuation) Agreements on all • projects in which the City is providing development assistance through tax increment financing or committing its bonding authority. This will ensure minimal cash flow (increment) to repay obligations, provide another level of review before commitment (by the City Assessor), and to the minimal value agreed upon, eliminate tax appeals during the agreement period. 1. The City will maintain an undesignated and unreserved General Fund balance in an amount determined by applying the Adequate General Fund Balance Policy Formula as established by the City Council. The formula shall be reviewed annually by the City Council. The formula shall be designed to establish a fund balance at a level which is sufficient to avoid issuing debt to meet current operating needs. 2. If the City Council deems it appropriate to reduce fund balances for the portion above the formula amount, such reductions shall not exceed 50% of the excess for one year. • June 8,1992 -4- E.' >tvest'mettl'. PO I.C. 1. The City will make cash flow analysis of all funds on a regular basis. Disbursement, collection and deposit of all funds will be scheduled to ensure maximum cash availability. 2. When permitted by law, the City will pool cash from several different funds for investment purposes. 3. The City will invest at least 98 percent of its idle cash on a continuous basis. 4. The City will analyze market conditions and investment securities to determine what yield can be obtained, and attempt to secure the best possible return on all cash investments. 5. The City's accounting system will provide regular information concerning cash position and investment performance. 6. The City will maintain a formal written investment policy which will contain legal and administrative guidelines necessary to ensure that the City's available funds will be invested to the maximum extent possible, at the highest rates obtainable at the time of the investment, consistent with minimizing credit and market risk and which provides proper safeguards for the keeping of the City's investments • F.: Ct it ::ttt ;':::tt<, . 1. The City will establish and maintain a high standard of accounting practices. 2. The accounting system will maintain records on a basis consistent with accepted standards for local government accounting using a modified accrual basis of accounting for all governmental funds and an accrual basis of accounting for Enterprise and Internal Service Funds. Accounting policies will reflect the principle of charging current taxpayers and/or users for the full cost of providing current services. 3. Regular monthly and annual financial reports will present a summary of financial activity by major types of funds. 4. Where possible, the reporting system will provide monthly information on the total cost of specified services by type of expenditure and, if necessary, by fund. 5. An independent public accounting firm will perform an annual audit and will publicly issue an opinion concerning the City's finances. • June 8,1992 -5- G Rzsk lt~lana,emert P0lcres 1. The City Will maintain a Risk Management Program that will minimize the impact of legal liabilities, natural disasters or other emergencies through the following activities: a. Loss Prevention. Prevent negative occurrences. b. Loss Control. Reduce or mitigate expenses of a negative occurrence. C. Loss Financing. Provide a means to finance losses. d. Loss Information Management. Collect and analyze relevant data to make prudent loss prevention, loss control and loss financing decisions. 2. The City's Risk Management Program will: a. Analyze all of the City's risks. b. Avoid risks whenever possible. C. Reduce risks whenever possible. d. Transfer risks to other entities when possible. e. Of those risks that must be retained, it shall be the City's policy to fund risks which the City can afford and transfer all other risks to insurers. 3. The City will maintain an active Safety Committee comprised of City employees. 4. The City will periodically conduct educational safety and risk avoidance programs, through its Safety Committee and with the participation of its insurers, within its various departments. 5. The Safety Committee will report to the City Manager, at least annually, on the results and costs of the City's Risk Management Program for the preceding year. The City Manager shall report annually to the City Council. 1. In accordance with Chapter 7, Section 7.06 of the City Charter, the total sum appropriated in the General Fund annual budget shall be equal to the total estimated General Fund revenue and the allocated General Fund balance. 2. The City will pay for all current expenditures with current revenues. The City will avoid budgetary procedures that balance current expenditures at the expense of meeting future year's revenues, or rolling over short-term debt, or that rely on accumulated fund balances to meet current obligations. 3. The City will annually appropriate a contingency appropriation in the General Fund budget, not to exceed five percent of the total budget, to provide for unanticipated expenditure of a non-recurring nature. • 4. The City Manager, when submitting the Proposed Budget to the City Council, shall submit a balanced budget in which appropriations shall not exceed the total of the June 8, 1992 -6- estimated General Fund revenue and the fund balance available after applying the Adequate General Fund Balance Formula. 5. Prior to adopting the General Fund Annual Budget, the City Council shall review the Adequate General Fund Balance Policy Formula. 6. In the event that there is a shortfall of revenues in a current year budget, the City Manager may recommend the use of a portion of the General Fund balance not to exceed the amount available after deducting amounts reserved for items not readily convertible to cash or reserved for working capital or already appropriated to the General Fund current budget as shown on the most recent Adequate General Fund Balance Policy Formula as established by the City Council. 7. The budget will provide for adequate maintenance of the capital plant and equipment, and for their orderly replacement. 8. The budget will provide for adequate funding of all retirement systems. 9. The City will maintain a budgetary control system to assist in adhering to the budget. 10. The City administration will prepare regular monthly reports comparing actual revenues and expenditures to the budgeted amount. 11. Each year the City will update expenditure projections for its Enterprise Funds for • the next three years. Projections will include estimated operating costs of future capital improvements included in the Capital Budget. 12. The Operating Budget will describe the major goals to be achieved, and the services and programs to be delivered for the level of funding provided. 13. Where possible, the City will integrate performance measurement and productivity indicators with the budget. 14. Enterprise funds shall be budgeted to have positive net income plus a sufficient margin to provide for replacement cost of property, plant, and equipment. The City will maintain, and periodically review, a formal written ethics policy for all City employees and elected officials. J Rt~Xe v Audrxas The City's independent auditors shall be required, in the course of their audit, in the form of their management letter, to report any conditions that appear to be violations of our financial management policy. June 8, 1992 -7- City of BROOKLYN CENTER, MINNESOTA FUND BALANCE POLICY 1. PURPOSE On December 22, 1980, the City Council adopted an "Adequate General Fund Balance Policy Formula" as set forth in M&C No. 80-31. Since State Statutes, the City Charter, or City Ordinances do not regulate the size of a City's General Fund Balance, the purpose of the policy formula is to determine what a reasonable amount should be held by the City's General Fund in reserve and provide a way of measuring that amount on an annual basis. The fund balance is a product of one of two sources: (1) the excess of (or deficiencies of) revenues over expenditures of the Fund, accumulated over the years since the inception of the fund; and (2) permanent transfer of monies from another Fund. Certain asset items contained within the fund balance are items which cannot be readily converted to cash and, therefore, must remain in the fund balance. Among these items are taxes receivable, accounts receivable, and inventories of supplies. In addition, monies within the fund balance are needed for, and should be reserved for, other purposes. Among these, is a need for • "working capital. " Working capital, simply stated, is funds needed for expenditures which must be made prior to receipt of revenues in forthcoming periods of time. The City has a fairly consistent level of expenditures, particularly payroll (which consists of about 60% of total expenditures), and a rather sporadic pattern of revenue receipts. This combination causes a cash flow problem. The working capital is the bridge over these gaps between expenditures and the receipt of revenue. The primary sources of revenue for the General Fund are local real estate taxes and intergovernmental revenue. Revenue from these sources are usually received on a semi-annual basis. Major tax settlements are made in July and December, while major expenditures occur in the early part of the budget year. The City must wait approximately six months into the budget year for a large amount of its revenues. If monies are not available during these periods, the City must resort to tax-anticipation borrowing. Tax-anticipation borrowing is both costly and would be reflected in the City's bond rating. The absence of such borrowing is a positive factor in bond rating. Therefore, a sufficient amount of working capital is needed to carry the City through these periods. The current formula sets the working capital at a maximum of 25 % of the total General Fund Budget. This provides funds for three months of expenditures. Money should also be reserved to provide a "cushion" for the replacement of possible revenue short falls in the budget. The cutback of local government aid due to a projected state surplus deficit is a good example of a need for some sort of cushion. An economic downturn can also cause a reduction in building and other permit fees, recreation revenue, other intergovernmental revenue, charges for services, and of course, cause property tax delinquencies. The formula currently reserves an amount equal to 5 % of the taxes levied for General Fund purposes to hedge against loss of revenue from tax delinquencies and an amount equal to 10% of all other estimated budget revenues to hedge against over-estimation and economic downturn. Funds should also be reserved for unanticipated needs which may develop 1 - June 8, 1992 during the budget year. However, the City Charter does provide for a contingency appropriation within the budget itself, and we do annually appropriate funds for that purpose. Any amount in the General Fund Balance in excess of the amount determined to be adequate by the formula may be used to fund the next year's budget or be transferred to another fund, such as the Capital Project Fund. Funds transferred to the Capital Projects Fund can be used for major capital outlay, including construction or acquisition of major permanent facilities having a relatively long life or to reduce the debt incurred for capital outlays. Since the adoption of the formula in 1980, the collection of both property taxes and local government aid have been pushed back even further, and nothing is received from those sources until after July 1st of each year. We have done an analysis of when actual revenues were received and actual expenditures during budget years 1988 and 1989. Both years show an accumulated cash shortage of approximately 37% prior to July 1. Because revenue collections will be delayed even further in 1990 and future years, we recommend that the formula be changed to increase the amount to be reserved for working capital from 25 % of the total General Fund current year budget to 40%. II. POLICY The Policy is the "Adequate General Fund Balance Policy Formula" attached as Exhibit I. • • - 2 - June 8, 1992 . (Q RP39G0A) Exhibit I CITY OF BROOKLYN CENTER ADEQUATE GENERAL FUND BALANCE POLICY FORMULA AS ESTABLISHED BY THE CITY COUNCIL ON DECEMBER 22, 1980 (AS SET FORTH IN M&C NO. 80-31 AND AMENDED FEBRUARY 26, 19901 1. Latest Audited Total Fund Balance At: December 31, 19_ $ 2. Less Items Not Readily Convertible to Cash: a. Uncollected Taxes $ b. Accounts Receivable c. Advances to Other Funds 3. Fund Balance Convertible to Cash $ 4. Less Amount Appropriated to the General Fund Current Year Budget Year: 19 5. Amount Available Before Deduction for Working Capital $ 6. Less Amounts to be Reserved for Working Capital: (40% of Total General Fund Current Year Budget) Year: 19 40% of: $ _ 7. Amount Available After Deduction for Working Capital $ 8. Less Amounts to be Reserved for Other Purposes: a. Reserve for Deliquent Taxes (5% of Taxes Levied for General Fund in Current Year Budget) Year: 19 5% of: $ b. Reserve for Overestimation of Other Revenues (10% of General Fund Other Revenues in Current Year Budget) Year: 19 10% of: $ 9. Amount Available for Other Use $ 0 June 8. 1992 -3-