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HomeMy WebLinkAboutMinutes 1987Minutes Budget Policy Committee Meeting of April 2, 1987 Members Present: Aldermen Korshak and Nelson Members Absent: Aldermen Davis and Collens Staff Present: Asprooth, Shonk, Zimmerman Others Present: Robert Heytow - Police Pension Board; Pete Hancher and Bob Brandt - Fire Pension Board; Bob Brettschneider, Bvanaton Review Summary of Action: The meeting was called to order at 7:35 P.M. The minutes of the July N, 1986 meeting were approved as submitted. Police and Fire Pension Fundin& Chairman Nelson suggested that since a quorums was not present, the Committee should use this meeting for exchanging information and ideas with representatives of the pension boards. Alderman Nelson then reviewed the City's Budget Policy. with particular attention given to the City's policy for funding pensions. Mr. Nelson stated that in light of the State's requirement for full funding of pensions by the year 2020. he believes the Committee should address the question of whether the City's current pension funding policy is prudent. He emphasized that while members of the pension boards are calling for increased funding, some citizens believe that accelerated funding is imprudent. Alderman Korshak then asked whether the City has to make all current pension payments due to pensioners in a given year. Mr. Nelson and Mr. Shank explained that both the State law and City policy require full funding of current year obligations. The Committee also reviewed historical data of the City's funding of the Police Pension Fund in relation to the State's requirement for full funding by 2020. The data were based on a straightline projection, and summarized the gradual increase in the percentage of projected pension benefits funded by the City over recent years. Mr. Nelson stated that he believes the data Indicate that the City is on schedule for meeting the State's funding requirement. Mr. Robert Heytow of the Police Pension Board then expressed his concern over the growth in the dollar amount of the unfunded liability. He questioned whether the increase In the percent of future benefits funded was meaningful, given the growth in the dollar amount of the unfunded liability. Mr. Heytow reviewed sections of the State's law regarding pensions, and stated his belief that the City's funding policy was contrary to the law. Minutes of the Budget Policy Committee Meeting April 2, 1987....... Paga Two Alderman Korshak then asked whether the State actuary's funding recommendations are a requirement or a guideline. Mr. Nelsons stated that he believes the actuary's recommendations are to serve as a guideline. Mr. Nelson emphasized that he believes that the law only requires full funding by the year 2020, and does not require a specific funding schedule be followed in achieving full funding. Mr. Shonk pointed out that the 1987-88 Approved Budget includes a 21.11 Increase in the property tax levy for the Police Pension Fund. and a total Increase of $321.662 in funding from the property tax and the personal property replacement tax. The Committee then asked that staff develop information on the following alternatives for funding the Police and Fire Pension Funds: 1) The property tax levy required to increase the amount of future benefits funded in both Funds to 50%. 2) The City's sale of a bond to fund an increase in the amount of future benefits funded in both Funds to 1001.. 3) The implications of funding both Funds according to Hanson's funding recommendations. 4) The implications of funding both Funds according to the City's present Budget Policy. Mr. Pete Hanchar of the Fire Pension Board then expressed his Board's concern over the City's pension funding policy. He asked how the Fire Pension Board might best communicate its concerns to the City. Alderman Korshak suggested that all correspondence be directed to Alderman Nelson. Mr. Hanchar also emphasized that the Fire Pension Board would appreciate a historical summary of the City's funding of thQ Fire Pension Fund, similar to the one reviewed for the Police Pension Fund. The Fire Pension Board also requested notification of future Budget Policy Committee meetings on the Fire Pension Fund. Chairman Nelson also asked staff to request that an actuary from Hansen be present at the next Committee meeting. Representatives of the Pension Boards indicated that they could wait until July to know the results of the Council's deliberations on its policy for funding pensions. Future Agenda Items The Committee agreed to consider the City's short-term borrowing policy in future meetings. Mr. Nelson requested that staff update a number of memoranda and summaries previously prepared on cash flow, short-term borrowing, and budget history. Minutes of the Budget Policy Committee Meeting April 2. 1987....... Page Three The Committee briefly discussed the reference from the Human Services Committee to make multi -year appropriations for community purchased services. The City Manager mentioned that the Human Services Committee is presently developing a plan for funding human services. Mr. Asprooth suggested that this plan be considered during the Budget Policy Committee's deliberations on this reference. The Committee agreed that representatives of the Human Services Committee should be invited to the Budget Policy Committee meeting on this issue. Alderman Nelson also stated that he believes the Committee should evaluate the City's current revenue sources and the need for making long-term revenue projections. Committee Composition The Committee asked that staff research the Committee on Committee's deliberations on the composition of the Budget Policy Committee and report back on those deliberations. The next meeting of the Budget Policy Committee will be held either before April 22nd or after May 22nd, depending on the time required by the actuary to prepare the Information requested by the Committee. There being no further business, the meeting was adjourned at 9:30 P.M. Bruce Zimmerman Minutes Budget Policy Committee Meeting of August 6, 1987 Members Present: Aldermen Collens, Morton, Nelson Members Absent: None Staff Present: Asprooth, Shank, Zimmerman Others Present: Alderman Korshak Police Pension Board: Bob Heytow, Tina Schoolmaster, Jerry Graf Fire Pension Board: Pete Hanchar, Pat Dillon, kris Davis Ron Moreno - R.V. Norene 6 Associates, Inc. Randall J. Tomassi - Mercer, Meidinger, Hansen Presiding Official: Chairman Nelson Summary of Action: The meeting was called to order at 7:40 P.M. The minutes of the April 2, 1987 meeting were approved as submitted. Budget Policy Committee Agenda Chairman Nelson requested that the following items be placed on the Committee's agenda for the fall quarter: (1) The City's cash flow position and policy on short-term borrowing: (2) Consideration of multi -year appropriations for community purchased services; and (3) A review of the City's revenue sources. Other ?tatters Mr. Nelson directed the Committee's attention to a memorandum from Alderman Korshak which requested that the quarterly financial reports include explanations of revenue and expenditure performance which diverge sharply from the budgeted amount. Mr. Nelson asked that staff incorporate footnotes into the quarterly financial report. The Committee also asked staff to distribute to City Council copies of the 1985 study comparing Evanston's property tax with other communities. Alderman Collens suggested that staff update the table on tax rates. Police and Fire Pension Fundinv, The Committee called on the City Manager to review the information presented by the staff and the actuary in response to questions raised at the previous meeting. Mr. Asprooth stated that, based on the last actuarial review of 2/28/86, the City had funded 63% of the actuary's required property tax levy for the Police Pension Fund in 1986-87 and 106% of the actuary's required levy for the Fire Pension Fund in 1986-87. The numbers reviewed by Mr. Asprooth were as follows: Minutes of the Budget Policy Committee Meeting August 6, 1987....... Page Two Police Fire Amount Required in 1986-87 = 1,799,399 = 1,153,900 Amount Provided by City in 1986-87 1,134,014 1,220,620 Percent Provided by City 63% 106% Mr. Asprooth explained that staff had also been asked to determine how much funding would have been required on February 28, 1986 to achieve 50% funding at that date. He stated that a $2,279,086 contribution would have been needed to reach 50% funding of the Police Pension Fund on 2/28/86. The Fire Pension would have needed a contribution of $299,862 to reach 50% funding on 2/28/86. The City Manager presented and reviewed the following information for the Committee. Police Fire Actuarial Liability at 2/28/86 ; 26,670,195 = 19,857,483 Asset Value at 2/28/86 11,056,012 9,628,880 Percent Funded 41.45% 48.4n Contribution needed for 50% ; 2.279,086 ; 299,862 During its previous meeting the Committee had also asked how much in taxable general obligation bonds would have to be sold at 2/28/86 and what would be the annual tax levy in order to achieve immediate 100% funding of both funds. Mr. Asprooth reviewed the following information with the Committee. Police Fire Actuarial Liability at 2/28/86 ; 26,670.195 = 19,857,483 Asset Value at 2/28/86 11.056,012 9,628,880 Amount not Funded 15.614,183 10.228,603 Add Estimated Debt Issuance Costs 110,817 101.397 Estimated Bond Issue (1) 15,725.000 10,330,000 Estimated First Year Debt Service 1.867,343 1,226.687 Estimated Subsequent Year Debt Service 11588,189 1,044,515 (1) Assumes 7 1/2% reinvestment rate Minutes of the Budget Policy Committee Meeting August 6, 1987....... Page Three Mr. Asprooth emphasized that the figures presented to the Committee were based on the 2/28/86 actuary report. He also explained that the Federal Tax Law would require that the City sell taxable bonds, and that these bonds would sell at about 2 percentage points higher than tax exempt bonds. Aldermen Collens, Morton and Nelson then raised a number of questions with Mr. Norene, Mr. Tomassi, and representatives of the Police and Fire Pension Boards. Among the issues discussed were the use of bond issues for pension funding by other communities, the definition of unfunded actuarial accrued liability, and the types of instruments available for the investment of pension funds. Mr. Graf asked that the record show that the Police Pension Board was not requesting immediate 100% funding. However, Mr. Heytow clarified that board representatives had discussed this option with the Committee at the prior meeting. Members of the Committee and the City Manager stated that they believed this was an option to be considered. Mr. Graf and Mr. Heytow encouraged the Committee to fund the actuary's recommended levy. In response to questions from the Committee, Mr. Moreno explained that accrued unfunded pension liability already shows as debt on the City's financial statement. He went on to explain that the issuance of bonds to fund pensions would not sharply alter the reporting of the City's debt position. Mr. Tomassi also explained that the actuary's study of the Police and Fire Pension Funds represents a "snapshot" of the Fund's condition on a specific date. He emphasized that this condition constantly changes as members are added or retire, and as costs and earnings fluctuate. Mr. Tomassi also stressed that an actuary must make numerous assumptions on the hiring dates and retirement dates of members, the length of time payments are made to retired members and surviving spouses, and projected long-term wage rates and investment earnings. Mr. Tomassi stated that the actual experience of a pension fund generally differs significantly from the actuary's assumptions because of the nature of assumptions made in an actuarial study. Alderman Korshak stated that because pension members are required to contribute a specified percent of their wages to the pension plan, the City's annual property tax levy for the pension funds should comply with the actuary's recommendation. The Committee emphasized that the annual payments to pension members were caade each year and that the City's annual obligations were being met. Following a brief recess, the Committee called on the City Manager to provide additional information on funding alternatives. Mr. Asprooth explained that were the City to issue bonds to fully fund the accrued liability of the Police Pension Fund, the annual tax levy would be $2,384,652. This amount included an annual levy of $1.867,343 to retire the debt service on the bonds, and a levy of $517,309 for the normal costs (current annual operating costs). Mr. Asprooth mentioned that these figures were based on the February 28, 1986 actuarial study. Minutes of the Budget Policy Committee Meeting August 6, 1987....... Page Four Mr. Asprooth also discussed the funding required were the City to fund 50% of the accrued unfunded liability in the Police Pension Fund. He mentioned that because the Police Pension Fund was 41.5% funded as of February 28, 1986. funding 50% of the accrued unfunded liability would raise the total amount funded to 70.7%. This level of funding would require an annual levy of $875,583 for debt service on the bonds, $517,309 for normal costs. and $6 41,0 45 for past service required. Following a discussion of this information by the Committee, staff was asked to evaluate the following four funding alternatives: (1) The annual levy to increase each Fund to the 50x funded level; (2) The annual levy to increaso each Fund to the 60% funded level; (3) The annual levy to increase each Fund to the 70% funded level; (4) Hansen's recommended annual levy. Staff was asked to provide information on the amount of bonds to be sold for each alternative, and the annual debt service levy required for each alternative. There being no further business, the Committee adjourned at 10:00 P.M. The next meeting is scheduled for 7:45 P.M. on August 20, 1987. Staff: Minutes Budget Policy Committee Meeting of August 20. 1987 !!embers Present: Alderman Collens, Norton and Nelson Members Absent: None Staff Present: Asprooth, Shonk, Zimmerman Others Present: Alderman xorshak, Police Pension Board: Robert Seytow, Jerry Graf Fire Pension Board. Pate ganchar, John fisher Ron Norens, R.Y. Morena and Associates, Inc. Presiding Official: Chairman Nelson Summary of Action: The meeting vas called to order at 7:30 P.M. Minutes Alderman Collens moved that the August 6, 1987 minutes be amended in paragraph four of page one as follows: 'Alderman Collens suggested that staff update the table on tax rates. and trsasmi� the re►ise¢ tomes to the Budget Policy Cosmiittee for its consideration RL%or to distriba,Iioa to the City Council. The minutes were approved as amended. Pension funding The Committee called on the City Manager to review the information included in the Comraittee's packet. Mr. Asprooth reviewed the August 13, 1967 memorandum to the Committee. The infor- nation presented in the memorandum. included: (1) A comparison of the percent of accrued liability funded for Evanston's Police and Fire Pension Funds and other Illinois communities; (2) Comparative data for average annual return on investment for Evanston's Police and Fire Pension funds and other municipalities' pension funds; {3} The debt service and annual property tax levy that would result from the sale of taxable bonds sufficient to bring both pension funds up to the 50%. 601 and 70% funded level, and the annual levy required to meet Hansen's recommended levy; and (4) The debt service costs that would result from raising the Police Pension fund- ing level to SO%. 60S and 70 L by issuing the required debt on an incremental basis each year, over a three -pear period. The Committee then discussed the feasibility of increasing funding for the Police Pension Fund through the issuance of a taxable bond and/or an increase in the annual property tax levy. The Committee and City Manager discussed a number of issues relating to these funding alternatives, including the impact on property taxes, issuing taxable bonds, and the City Council's Budget Policy. Minutes of the Budget Policy Committee Meeting August 20, 1986....... Page Two Alderman Nelson then called on Mr. Heytow of the Police Pension Board. Mr. Heytow stated that he favors any plan which will address the funding problem. He exprsi ed his desire to s6s the unfunded liability dollar amount decreased. Mr. geytow stated that it would still be necessary to evaluate the actuary's study each year to determine whether the proposed plan was reducing the funding problem. Mr. Seytor then stated that he had been informed that a law suit had been filed on behalf of the Police Pension Board against the City of Evanston this afternoon. Mr. Nelson stated that the Com nittee could no longer discuss this mutter because it nor was under litigation. Alderman Nelson moved that the Committee nova into executive session to discuss mutters of pending litigation. The Committee voted to nova into executive session at 9:15 P.M. Following completion of the executive session, the Budget Policy Commtittee reconvened into public session. The Comwiittee scheduled its next meeting for 7:45 P.M. on Tuesday, September 22nd. There being no further business, the meeting was adjourned at 9:25 P.M. Minutes are to be approved on September 22, 1987. staff Rq"04"o- 0. ... Members Present; Members Absent: Others Present: Staff Present: Presiding Official: Su■nary of Action: Minutes Budget Policy Committee Meeting of October 7, 1987 Aldermen Collens, Morton, Nelson None Aldermen Korshok Ira Golan, Chamber of Commerce George Cyrus, Chamber of Commerce Asprooth, Shonk, Aiello, Bennett, Zimmerman Chairman Nelson The meeting was called to order at 7:45 P.M. Minutes The minutes of the Comittee's August 20, 1987 meeting were approved as semi t ted. FY 1988..89 Budget Projections, Budget Policy, and Budget Process - The Committee called on the City Manager to review the staff's budget projections for 1988-89. Mr. Asprooth stated that the revenue projections assumed no reappropriation of surplus and no transfer of property tax levy capacity from the Debt Service Fund to the General Fund. The City Manager~ explained that the projections did include the $500,000 increase in the General Fund levy to offset the lose of revenue due to the termination of the Revenue Sharing Program. Alderman Nelson questioned why the $500,000 had been included. Mr. Asprooth explained that this increase in the levy was included because it had been approved in the Policy last year and remained available because the City Council had chosen not to use the $500,000 in balancing the FY 1987-88 Budget. The Committee also discussed the staff's assumptions pertaining to the Real Estate Transfer Tax. Staff explained that the projections assumed the return of SI25,000 in Steal Estate Transfer Tax revenue from the General Fund to the Economic Development Fund in accordance with Council policy. Staff presented further information on the projections, noting that total revenues were projected to increase 2.2%. This projection assumed no new revenues and no rate increase in current revenues. The property tax was projected on the basis of a 3.1: Consumer Price Index. Expenditures were projected to increase 5.514. This projection assumed a continuation level of service with no change in the current service level. Expenditures were projected on the basis of vendor cost estimates, the Consumer Price Index, provisions of current labor contracts, and current expenditure experience. The projected shortfall in 1988-89 General Fund revenues versus the projected expenditures is $1,244,500. Budget Policy Committee Meeting of 1017I87 -2- The Committee and City Manager then reviewed a memorandum summarizing the purpose of the various funds used by the City to account for its finances. The FY 1986-87 year-end balance in each fund was noted. The City Manager highlighted those funds providing budgeted transfers to the General Fund's revenues in the current year. Among those highlighted were the hater, Sewer, Parking, and Motor Fuel Tax Funds. In response to a question from Gerald Gordon, Mr. Asprooth stated that a gradual draw down of the Debt Service Fund's fund balance would probably occur over the coiling years, with some prudent contingency remaining in the fund for unanticipated needs or emergencies. Mr. Asprooth also explained the need to maintain a fund balance in the Fleet Services Fund for future vehicle replacements. Alderman Nelson stated that he believes the City needs a plan for tax relief. Mr. Nelson stated that the use of reappropriation of surplus and interfund transfers are not long-term solutions to balancing the City's Budget. Alderman Nelson stated that program reductions and the subsequent expenditure savings are the long-term solution to balancing the Budget. Alderman Morton asked whether the City Manager is recommending a change in the Council's Budget Policy for next year. The Manager explained that he is not recomawtiing a change in the Budget Policy limitation on the property tax growth. Mr. Asprooth stated that he had witnessed a strong need for the property tax limitation currently in the Policy. Alderman Morton emphasized the need to place limitation on the property tax in the future. Alderman Korshak encouraged the Committee to consider the need to change the current City Policy on borrowing to meet short-term cash requirements. Alderman Korshak also stated that he believed the Committee should attempt to separate City services into two categories; capital improvements and social services. The categories would then be used to identify funding priorities and to determine program reductions. Alderman Korshak stressed the need for the Committee to also consider the need to increase funding of Police pensions. Mr. Cordon stated that he believed the City's Aaa bond rating indicates the City's financial policies are too conservative. Mr. Asprooth stated that the City's policy is much leaner than other communities, and emphasized that the City's FY 1986-87 General Fund unrestricted cash balance was $28,000. He noted the handout in the Committee's packet which indicated that other communities have considerably larger fund balances. Alderman Nelson stated that he believes that the City's current financial policies were appropriate. Alderman Nelson stated that he supported the current City policy on borrowing. Alderman Coliens stated that prior Council attempts to consider program reductions had not been successful due to a lack of Council support for program reductions. Mr. Golan encouraged the Council to assume responsibility for making reductions in City programs and services. Budget Policy Committee Meeting of 10/7/87 -3- Alderman Collens also noted that the Human Services Committee was considering on increase in funding for social services. The Alderman emphasized that there would also be pressures to increase expenditures for some programs in the coming year. In response to questions from Mr. Cyrus concerning the Sewer Fund's cash position, the Committee noted that the City has a 5-year Capital Improvement Program for the sewer system. The Committee explained that the Sewer Fund balance was reserved for sewer systems capital improvements. The Committee then voted 3 - 0 to approve the following motion: (1) To direct staff to not develop program reduction options in the Fall, but be prepared to consider options in January; (2) To prepare a Committee report to the Council advising the Council of the projected shortfall of $1,244,500, and the need for the Council to consider program reductions in January; and (3) To recommend to the City Council that the current Budget Policy be approved, including the $500,000 offset to the loss of Rewwuw Sharing, and including the current policy for reappropriation of fund balance. The Committee approved a simplified statement of the City's current policy for reappropriation of fund balance and also made some additional language amerxIments in order to make the policy furore clear and concise. The Committee agreed to submit its report to the Council in time for the City Council's ficat meeting in November. The Committee's next meeting was scheduled for Tue Way, November 10, 1987 at 7:45 P.M. The Committee then voted 3 - 0 to move into an executive session to discuss matters of pending litigation. Upon completion of the executive session, the Committee voted to reconvene. The meeting was adjourned at 10:20 p.m. Staff: SUWJL. t� Assistant City Manager 8JZtct Minutes of the Budget Policy Committee Meeting of November 17, 1987 Members Present: Aldermen Collens, Korshak, Larson, Morton, and Nelson Members Absent: Alderman Juliar Others Present: Ira Golan, Chamber of Commerce Gerald Gordon Staff present: Joel Asprooth, City Manager Keith Bennett, Assistant to the City Manager Robert Shonk, Finance Director Bruce Zimmerman, Assistant City Manager Presiding Official: Alderman Nelson, Chairman Summary of Action: The meeting was called to order at 7:50 P.M. Minutes: The minutes of the October 7, 1987 meeting were approved as submitted. Response to Gerald Gordon's Letter of October 31, 1987: Chairman Nelson called on the City Manager to explain the staff response to Gerald Gordon, presented in the November 13, 1987 memorandum from the City Manager to the Budget Policy Committee. 1. General Fund Actual Revenues versus Budget Revenues Mr. Gordon had raised concerns that the City's budget process did not consider that actual revenues in the prior year exceeded the budget by a significant amount. The City Manager explained that both actual revenues and expenditures need to be considered in evaluating financial performance. Mr. Asprooth explained that fund balance is a function of all fund assets and liabilities. It was also emphasized that reappropriation of fund balance is not based on merely a comparison of actual revenue versus actual expenditures in the prior year. Mr. Asprooth also explained that only cash can be reappropriated, and then emphasized that the year-end audit includes non -cash items. Mr. Gordon stated that he believed the amount of actual revenues prior to transfers is very important. He stated that it should be considered in light of the 1988-89 projected revenue shortfall. Minutes of Budgget Policy Committee November 17, 1987 Meeting 2. Debt Service Fund Balance Page 2 The City Manager addressed Mr. Gordon's statement that the Debt Service Fund fund balance will increase during the current year by $81,195, despite a reappropriation of $418,288 in fund balance. Mr. Asprooth explained if actual results mirror the current year Debt Service Fund budget the fund balance would be decrease by $356,911. The City Manager explained that this decrease in fund balance would occur as a result of the reappropriation of fund balance. In response to a question from Mr. Gordon, Mr. Shonk explained that fund balance in the Debt Service Fund increased substantially during FY1986-87 due to interest earnings performing better than anticipated and due to sizable earnings from the refunding issue. 3. Average Monthly Cash Balance in the General Fund Mr. Gordon's letter stated that based on the average monthly cash balance in the General Fund, the property tax could be reduced substantially by reappropriating more cash. The City Manager emphasized that the average monthly cash balance is not a meaningful measure of cash position. Mr. Asprooth explained that year-end cash position and the City's cash flow are critical in evaluating cash position. He emphasized that any decision to reappropriate should be based on the year-end cash position, not the average monthly cash balance. It was emphasized that the City would need to borrow cash from the Sewer Fund during the current year in order to meet the City's cash flow requirements. 4. Reappropriation of General Fund Cash Surplus Mr. Gordon stated in his letter that based on the City's expenditure history in the past ten years the City's Budget Policy should be reconsidered. Mr. Asprooth explained that the City could only reappropriate cash available at the end of the preceding year, and stressed that this was the critical figure in analyzing whether fund balance should be reappropriated. The audit indicates that $24,000 in cash remained in the General Fund as of February 28, 1987. It is anticipated that the General Fund will be in a deficit cash position at February 27, 1988. Fire Pension Fundinq: Staff explained that the Fire Pension Board had been invited to attend this meeting. Because no members of the Pension Board were in attendance, Alderman Korshak asked staff to advise the Board that their attendance had been anticipated and that pension funding can be placed on a future Committee agenda if the Board desires. The Committee chose not to discuss this issue further since it had been discussed in prior meetings and because the Fire Pension Board was not in attendance. Minutes of Budget Policy Committee Page 3 November 17, 1987 Meeting There being no further business, the meeting was adjourned at 9:00 P.M. Minutes to be approved at the next meeting of the Budget Policy Committee. Staff representative:i--&UUL Assistant City Manager SZ:lr cc: Joel M. Asprooth