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FINANCE COMMITTEE
MINUTES
APRIL 14, 2008
Municipal Council of the City of Vermilion
Municipal Complex, 685 Decatur Street, Vermilion, Ohio 44089
In Attendance: S. Holovacs, F. Ostrander, B. Brady, M. Rossini, H. Strickler, D. Roth, J. Gabriel, G. Fisher, Mayor Anderson, D. Squires, C. Schmidt, W. Hamilton, B. Kish.
Call to Order: S. Holovacs, Chairperson, RESOLVED THAT this Finance Committee consisting of Vice B. Brady and the Committee of the Whole does now come to order.
TOPIC ONE: 2006 Audit Review – Rea & Associates, Inc.
Dan Watson of Rea & Associates, Inc. reviewed with the finance committee the 2006 Auditor’s report on internal control over financial reporting. He first addressed the opinion page which is an unqualified opinion which says that with the way financial statements are presented they are in compliance with general accounting principals. He said if there are any issues that come up it would be an opinion different than saying that it was qualified.
He addressed page 3 thru 13 of the financial statement because it’s really a good read on what happened in the city between 2005 and 2006. It talks about the fluctuations between the two years and it is very informative. The financial statement may be confusing to people who don’t have an accounting background. There are three different types of accounting which include full accrual basis of accounting, a modified basis of accounting, and a lot of budgetary information. He said he likes to look at the full accrual method of accounting which are the entity-wide statements that start on page 15. This is a summary snapshot at the end of December 31, 2006 of all the city’s assets and liabilities. This includes all the long term assets and long term liabilities which are not included in some of the other basis of accounting in the report. He said the city may want to look at the statement of net assets on page 15 which is divided up between the city’s government activities and business type activities which are the enterprise funds. One of the key places they should look at on the government activities down on net assets is the unrestricted amount because this is basically what the city has in reserve and the city is around $800,000, which for a city this size might be a little thin. The city’s business type activities has a $1.7 million but if they review page 26 the number is made up of a lot of different funds, and it’s noteworthy to take a look at the amount in the water fund especially. The total net assets are a deficit of $52,000 which really isn’t good. That fund probably needs a little work in adjusting charges for services to get it going in the right direction on the full accrual basis of accounting.
D. Watson addressed page 16 and page 17 which is the statement of activities. This is an accumulation of all of the city’s revenues and expenses for the year. This statement starts with expenses on page 16 in the left-hand column and the total city expenses for government activities was $7.8 million, and if you go from the left to the right it starts matching up to what is called program revenues, otherwise things that you have charged for and operating grants received to offset some of those expenses that specifically went out because the city had that revenue. On page 17 under government activities they will see $5.6 million in a deficit position. What has to cover those expenses are all the general type revenues at the bottom, which the city ends up with about $5.8 million. Basically, this is things like income tax, property taxes, grants, rentals, and other type things. The city ends up with basically a net change of $661,000 approximately.
Another issue he pointed out in the statement that is a little different than the year before is page 58. This talks about a restatement of fund balance. Basically, the previous finance director was using the permissive use tax fund for the Lagoon project and when the new finance director came along those monies needed to be separated out to keep track of that project. That entry basically breaks out those funds so the city has a better accounting of that project.
He noted on page 59 that this is a report they need to issue under government auditing standards. It talks about internal control over financial reporting and compliance, and things have changed a little bit starting December of 2006 from a standards standpoint. There is a piece of literature called “SAS-#112” and it basically moved around the way things are recorded, meaning that previously things that were in the management letter and were just in material items; now there is a different criteria that actually starts pushing some of these things that used to be in the old management letter up into the financial statements themselves. So, whenever they look through the internal control or financial reporting comments and the compliance they will see that Rea & Associates mentions some findings they had which start on page 61. Basically what has happened is that there is certain criteria that when they are met have to go into the letter. He said the city had some significant deficiencies and whenever they looked at the reconciliation of cash they noticed there were debt proceeds that would come in during certain months that would not immediately get posted to the financial statements. He said they usually got posted a month a later or the next month. Also, during the cash testing they noticed that disbursements were not particularly paid in a timely manner. He thought a lot of these issues came from the fact that the city had a lot of changes in personnel in a lot of the different departments. He thinks when the city keeps changing people it’s really hard to get consistency and get somebody that really knows where they’re at on some of these tasks.
He explained that finding 2006-002 basically talks about whenever they get their disbursement tests they noticed that some of the department heads weren’t really approving everything they should be approving. The system says that department heads are supposed to be signing off on invoices and approving them for payment, and whether they actually did or not is hard to say unless they have a signature on the invoice or the purchase order.
Finding 2006-003 talks about the fact that the city’s appropriations should not exceed the estimated revenue available and there was definitely some funds that were in excess. He said if they are minor amounts then they really aren’t going to say too much, but in these cases there were some pretty significant numbers.
Finding 2006-004 talks about the fact that if the city overspends one fund and takes the pool of cash in benefit of another, it puts some funds into a negative position. So, the city is actually using cash from one fund to pay funds to another until cash comes in. Theoretically, the city shouldn’t be advancing dollars over and paying them back.
He addressed finding number 2006-005 on page 63. He said they saw a great number of invoices in which the invoice date was previous to the purchase order date.
He said it is hard to compare this report to 2005 because some of these items were in fact most likely back in the management letter in 2005, and now they are up here in front.
He addressed page two of the management letter and noted that all the comments were repeat. They come from the Ohio Revised Code Supplement that was added by Betty Montgomery when she was in office. It talks about policies for vehicles because you want to make sure everybody understands how you’re allowed to use those vehicles and what the policy is. He said these policies need to be written down and put in some sort of policy manual. He same this is the same for personnel policies. He said the city has a lot of different variations whenever they looked at payroll on what benefits everybody was eligible for and what was in the latitude of different department heads as they retired or as they went on leave. He recommended that the city get a policy together so everybody is treated consistently. He said the city’s investment policy doesn’t comply with Ohio Revised Code 135. He said the city’s attorney can help with this. He said this also includes the electronic signature policy but the city doesn’t have one that is written down formally.
He addressed the fraud step that they perform during the audit. He said the city has to have certain controls on certain things to make sure somebody isn’t overriding the systems that may be inappropriate. He said this comment revolves around the adjustments in the utilities department; meaning that they don’t want somebody to have the ability to just override and adjust anybody’s bill. As an example he said that you could have Jane’s cousins and mom and dad getting credits that maybe they shouldn’t have. He said there is an opportunity for people to take cash in for utility bills and pocket it, then adjust somebody’s account to make it come out in a wash. This is why they look at the adjustments because people may be making them to get around the system, and if you don’t have a formal policy in place to prove those adjustments over a certain dollar amount then they are at a risk for letting somebody do things that maybe they shouldn’t be able to do.
He referred to interest allocations and in the license and fuel tax funds they are supposed to get a share in the interest. He said generally all timesheets are supposed to be approved by supervisors in the city and they found in all cases they were not being approved.
He said in the letter it also talks about improving the water system which obviously the city just put down some more line on Main Street. He said there are statistics that talk about what the normal loss of water is pumped versus billed. This usually ranges around 20 percent. He said they know that the city’s system is very old and needs some work and this is why they are seeing such a high percentage of loss water. He said there are folks out there that look at how cities can update their systems to secure less water loss. He thought it wouldn’t be a bad idea to talk to somebody about this.
In regards to the federal noncompliance citation it talks about the fact that if the city is over $10 million in total debt they are required to report the financial statements in a form that can be distributed to the appropriate federal entities. He said there are two different entities that the city can report to that will automatically distribute them for the city. He said this is just a housekeeping type of thing.
He said with the Ohio Revised Code citations they are basically saying that the dollars collected daily should go to the finance office and deposited within a day, and this is still not happening. On page 4, it addresses where the finance department is supposed to publish a notice that financial statements are available and this wasn’t done. The next one addresses a certain security value where you’re supposed to back up over night purchase orders and this wasn’t maintained in the finance office. The next one talks about pool collateral. He said whenever you make certain investments you’re supposed to make sure the investment has full collateral from the bank that is in excess of two percent, and the documentation wasn’t in the finance office. He said that all the banks know they have to do this and they do comply with it. He also referred to the fact that the treasurer or finance director is supposed to have certain training under the investment and cash management and the finance director did not complete the required education. On page 5 it talks about the fact that the Ohio Revised Code allows for certain funds to be automatically set up but then there are funds that require council’s approval, and there were six funds established without council’s approval. He referred to the certification of sources available for expenditures and basically this is supposed to be done by a certain time period and it didn’t get done until February 16. He said another repeat from last year talks about certifying revenue, budgetary expenditures plus encumbrances exceeded the prior year encumbrances, plus appropriations. Otherwise, the fund was basically overspent.
He referred to the last page where it talks about the fact that the city is supposed to spend a certain amount of tax monies for specific highway related purposes and the city is required to spend a percentage of city dollars in that fund. He said the city is not meeting that requirement so they need to look at this.
Last on the list is whenever the city signs contracts with the contractors they are supposed to go onto a web page and look up whether there is any findings against that contractor, and then the city is supposed to keep the proof by printing this standing.
He said there are a lot of repeat comments and there is a couple news one. He said in the management letter they are housekeeping items. He said they need to look at the cost benefit of not getting a citation. He said on some of them they are pretty hard to comply with.
F. Ostrander stated that this audit report wasn’t certified with the auditor until January of 2008 and according to the report it was prepared in September of 2007. He asked why it took so long to get the report. D. Watson said the process with the State of Ohio is that whenever they finish the report they have to email it down to quality assurance for a desk review in Columbus. He stated that they’ll look through it and if they have questions they will contact Rea & Associates for the answers. He said what held this audit up is the fact that the city was going through a review by the State of Ohio (Fiscal Emergency). F. Ostrander said this would have been before this. He said council requested this in September of 2007 so this audit should have been done before that. D. Watson said this audit was in process at the time. This is just the date they completed their field work and it can take anywhere from three to four weeks to finalize their report. He said somebody from the state made issue of the fact that the permissive tax fund was used for the Lagoons project before Wayne starting working for the city, and when Wayne arrived he separated those funds out into a specific fund. He said there were some funds that needed to be transferred or spent out of the permissive tax fund that were there from debt proceeds and those types of things. The definition of a permissive tax fund is that the city can spend money for a project like the Lagoons project out of the permissive tax fund. He said that Wayne knew how much money was in there and was going to spend that much money out of there or he was just going to transfer it in 2007. He said the state kept going back and forth asking questions and they said they could issue the report. He said they issued the report and then the state came back and said, “No, that’s not good enough. We want you to make a prior period adjustment and straighten this out.” He said this took a period of two to three months. He said the city is required to have the financial statements filed 150 days after year end which would be May 30, and then the audit is supposed to be filed by June 30. He said the city went without a finance director for a little bit and then Wayne Hamilton came in and there were a lot of changes in the finance department. He said it is tough to get timely financial reporting out the door whenever you’re making so many changes in key players. He thought this was the city’s issue for 2005 and 2006.
F. Ostrander said a lot of these citations are the same issues they had in prior years and he was glad that Rea & Associates came to the meeting because he didn’t know what was serious. D. Watson said they all should be of concern because they should always want to get better in financial reporting. F. Ostrander asked what the city should do about these things. D. Watson said the city has to look at who was present during the time period of the audit because a lot of these issues come from the calendar year 2006, so if somebody comes in during 2007 then obviously they can’t make any changes until they see the report. He said this report didn’t become public and shared with everybody until late in 2007. The city went about ten months with all the problems they had previously, so realistically they are probably looking at the 2008 report before the city really gets a lot of these things cleaned up and in line. F. Ostrander asked if the city should have a procedure to say they’re addressing these items so it doesn’t happen again. D. Watson said absolutely. F. Ostrander asked how the city should do this. He said the city is working on the water system. He asked what the city should do to make these repeat citations go away from year to year. He asked why the federal code and Ohio Revised Code points these things out if they’re not important especially if there is no enforceability because really they’re not accomplishing anything. D. Watson said if he is asking what the repercussions of the comments are on the management letter; there is none. It is just that the city is required to follow those laws and obviously the city wants to be good as they can be to follow them. He said some of the significant deficiencies are because of the numbers being so big and these are real important that the city needs to concentrate on doing a better job at. F. Ostrander asked how the city should do this. D. Watson said the city has to be proactive in doing this and has to pay attention to what is in the management letter this year. He said he would hope that somebody takes a look at these citations and say they need to file the annual report by this time. He said somebody has to specifically address these so they don’t slip through the cracks again. He said they have to be proactive and have somebody in charge of making sure these things get handled.
H. Strickler asked what the difference was between a significant deficiency and a non compliant citation. D. Watson said a deficiency refers to internal control and the citations revolve around the Ohio Revised Code. They are both considered significant and that is why they are in the letter. H. Strickler said the city is concerned with the sewer fund that is in the negative and if next year the city continues to run in the negative what happens if this becomes a year to year thing. She asked if the city will just get a citation. D. Watson said that council is responsible for adjusting rates from time to time to raise money to keep the fund afloat. He said an enterprise fund is designed to make money. There is certain infrastructure that goes along with this fund and at some point in time they know they will have to make improvements. He said the city needs a plan in place to do projects. He said that there are no repercussions that come from the audit. He said they will just tell the city that they have a deficit fund which is a violation of general accounting principals. H. Strickler asked if there are any fines. D. Watson said no but eventually what will happen is that the city will not have any money to run the system. He said, “Do you privatize it?” H. Strickler said that council is beginning to look at this too. She said they always hear about these audits but really don’t understand the process as to what happens because of it. D. Watson stated that the audit is a management tool for council and the finance department to comply with regulations and run the city more effectively. He said that council is responsible to make sure they adjust the rates in an appropriate manner, whether it would be to get a rate study.
B. Brady asked if it was inappropriate to transfer funds out of the general fund into these enterprise funds since they are supposed to be self sustaining. D. Watson said, “Yes, you shouldn’t.” He said there is a bulletin from the State of Ohio that talks about the fact that in cases where the general fund is supplementing funds like this and it really isn’t an enterprise fund then. It’s really part of the general fund or special revenue fund. B. Brady asked D. Watson if the city was heading into the right direction and if the city is getting better at what they’re doing or slipping backward. D. Watson said as far as 2007 he can’t answer this because they really haven’t looked at anything for 2007 to any extent. He said that Larry Rush left in 2005 and Wayne didn’t come to Vermilion until March of 2006, so it’s really hard to get consistency until you get somebody in that position for three years. He said in the finance department there has been a lot of people coming in and going in different positions which makes the consistency very hard as well. B. Brady said this really isn’t an excuse to not get the job done. D. Watson said it’s very hard to get your hands around that much detail. He said most cities have a right-hand person that helps in the whole process and until the city gets that person in staff there is a lot of detail that goes on. B. Brady asked if he thought a lot of this is based on procedures. If the procedures were set up then they should continue. D. Watson said his firm has a program that talks about processes. Basically, the purpose is to get a policy down in writing. He said when Larry Rush left, things weren’t in very good shape and they struggled even to get the audit done because of getting the gap conversion done from the other firm that was involved, and just getting responses from the finance department. He said the city should get their processes down on paper in a policy to get organized on how things are supposed to work.
W. Hamilton pointed out staffing which he talked about with council earlier on when he first started. He said they are short on staffing and is aware that it’s because of money. He said they reduce staffing as they save money. He said procedures are fine but they take people to make them work. He said they need to make a different commitment down the road if they want the details.
He said they talked about the fact that their citations are consistent with Larry’s. He asked D. Watson if these are unusual citations. D. Watson didn’t think they were unique. He said these citations are common in reports they issue for cities. He said there may be more here in the letter than some of them, but the ones in there are the general ones they see. He said this may be because of the fact that they changed finance directors a couple times. He said he isn’t sure Larry Rush left things in very good shape. W. Hamilton said the public represented by the press does not have the advantage of knowing that these are not so uncommon. He said he recognizes that his firm doesn’t audit every dollar that is spent but to the best of his knowledge the dollars spent in 2006 were spent for a public purpose, without the appearance of in proprietary. He said he would like to confirm this to the residents in knowing that they have a comfort level with their local government. D. Watson said in no case did they see any funds spent inappropriately and not for a public purpose. If they did find funds like that they would have a finding for recovery if they found any of that type of stuff. He said they look at things on a very limited basis. They don’t audit every check the city writes and every bill they pay, and every contract they enter into. This would be prohibited from a cost standpoint. He said they have tried to start supplementing some of their clients by offering different services. One of the services that they do is called a Fraud Checkup. They have computer people that come out and use software that helps match up different files. So if something wasn’t going right this would pop out and they would have the ability to look at it. He said they are doing a lot more of this type of thing which is a powerful tool. He said during their audit they didn’t find anything unusual or questioned as to the way the money was spent.
W. Hamilton said he read about the Fraud audit which is not a part of the standard audit. This is a function they would talk to council about separately. D. Watson said their responsibility as an auditor is to scrutinize potential fraud within the system, such as adjustments in the utilities system.
B. Brady asked if they have done any cost analysis as far as outsourcing payroll for a city entity. D. Watson said they aren’t allowed to do a management function. They have to keep their independence to be able to do the city’s audit work. He said they could look at different vendors. B. Brady asked him if he has seen other cities outsourcing this function. D. Watson said he hasn’t seen any of the cities they work with that outsource this function. He said they usually have a solid payroll person that has been in the position for 10 to 20 years and they usually have a good assistant for backup so whenever that person goes on vacation there is a backup. W. Hamilton said he outsourced payroll once but they brought it back in because it didn’t work. D. Watson said it’s unique because a lot of the retirement plans are unique and a lot of the payroll companies are not familiar with city payroll so it makes it tough.
F. Ostrander said that in the report it refers to 5735.29 Highway Purpose Taxes and asked D. Watson to expand on this. D. Watson said this is the permissive tax fund and when the city gets those taxes they are supposed to spend for that specific purpose, but it’s not supposed to be in place of doing other things through the city. The city is supposed to give a percentage of expenses for those items. He said he could get council some additional information on this.
Mayor Anderson thanked D. Watson for coming to the meeting to explain the audit process. She asked F. Ostrander if council has reviewed the audit in the past through public meetings. F. Ostrander thought council did this one other year through a general explanation. He said council was given this audit report with no comments and they didn’t know what it meant, so he asked D. Watson to come to council to explain it which answered a lot of questions. D. Watson thought the previous time they discussed this was in 2005 and basically the report wasn’t approved, and they can’t have a public meeting until the report is actually certified by the bureau in Columbus so Council would have to do that as a closed session until the report was approved. F. Ostrander said they have learned now what a citation is.
F. Ostrander asked the Mayor if she was going to make an effort to try to make some of these citations go away and actually do something to reduce the number of items on this list for next year. Mayor Anderson said they were and thought it would be one of the reasons for keeping the personnel committee in place so they could work on some of these policies and procedures that were recommended. She said she knows they have needed them for a long time. She said it would help with the inconsistencies in different departments. She said it would help with the pay ordinances for employees. She thinks there are some things they are working on. She reiterated that they can only do what they have the staffing to do and work with, and when they lost Kathy Fischer as a full time employee they never filled that spot and they loss some valuable service time and some details don’t get taken care of like they once did. She thought they needed some improvement in the staffing as well.
S. Holovacs thanked D. Watson for coming to the meeting to explain the audit. He thought that council should review this yearly so they can stay up on the issues. D. Watson said they could explain this every year to council. S. Holovacs said the clerk can put this on the tickler file to follow up on these issues.
TOPIC TWO: Sewer/Water Fund Salaries
S. Holovacs said that council never really got into the sewer and water fund salaries during budget talks and knew some members of council had concerns on this because they were splitting the salaries from the water fund and breaking it up to the sewer fund.
J. Gabriel said they addressed this issue but in the eleventh hour they really didn’t get back to it. He said they have heard about the sewer fund and its projected deficit. He felt there were a lot of reasons for it. He said this year they had an increase as far as the meter reader’s salary being partially put into the sewer department, including an office billing clerk and assistant billing clerk. He said they went from $9,000 in 2006 to $84 in 2007, to $83,000 in 2008. Another increase took place when they divided some of the maintenance crews and moved their salaries over too. He said with regards to maintenance they went from $229,000 in 2006 to $244,000 in 2007, to $359,000 in 2008. He said there has been a lot of expense shifted from the water to sewer department. He believed that $114,000 of additional expenses was added just strictly with the repair crews. He said it’s easy to see why the sewer fund is projected to be in the negative. He said he would like to see council amend the budget ordinance to move some of this money back. He said if they are going to account for all these expenses and do it all to the penny, then he thinks at the very minimum that the sewer fund should be reimbursed for all the heavy material that it takes from the water plant because none of this is accounted for, and it’s a major expense in the sewer fund. He would like to give the sewer fund a little bit of a break because it took a beating.
B. Brady asked J. Gabriel what he was talking about regarding heavy material. J. Gabriel said that when they filtered out the water plant they use to take that material and put it back into the river because it was basically mud and sentiment. However, the EPA told the city that they can no longer do this, so now they send all that material down the lines into the sewer plant and the sewer plant has to treat it. He said if they look at the sewer plants expenses the biggest amount that goes up in the sewer fund on top of these additional salaries being moved over is the treatment costs which are going up dramatically. He doesn’t doubt that these expenses are legitimate but his argument with the meter reader and billing clerk portion is that these people would do this function whether the city had a sewer plant or not, so he didn’t know if splitting this 50/50 is fair. He said they are going to read the water meters and put out the bills whether you have sewer in your town or not. He says they need to be totally fair and phase into this.
B. Brady agreed with the fairness and told council that they need to remember that these are enterprise funds and they are self-supporting. She asked for Gene Baker’s help in understanding the sewer plant issue.
Gene Baker of Decatur Street stated that they do send the sludge to the wastewater plant to be treated. They have discussed how to account for this and pay for it.
B. Brady said they need to bill it where ever they do the work. F. Ostrander asked Gene how long they have been pumping this down to the wastewater plant. G. Baker didn’t recall when this went into effect but it’s been over 10 years.
S. Holovacs reminded everyone that both funds were having trouble last year. He said this drastic change after two years actually helps out the water fund and puts the sewer fund into a tailspin. He said with taking out these salaries it helps out the water fund and there are projects, but there are also projects in the sewer fund. He said granted council didn’t go for a 9.9 percent increase but rather decided on a 4.5 percent increase. He said this was drastic because two years ago this administration did charge everything to the water fund.
W. Hamilton said there are inequities for both funds depending how far back they go in history. He said in 2005 they had an administrative cost transfer of $191,000 come out of the water fund when it should have been both water and sewer. He said they need to find out where the employees are working because that is where they will want to charge them to. He said they did an analysis and this is the way the budget was set up. He said this is an effort to get both funds on track and both funds paying for what is there. He said he wasn’t aware of the sludge and they will have to work something out on this. He said they need to get the funds paying for what is theirs to pay for so that council has a good reading in terms of management information and for what water and sewer is costing Vermilion.
J. Gabriel said he doesn’t disagree but to do in all in one year is a lot of salary to transfer over into the sewer fund. He said they now have a water fund that looks like it’s doing terrific and a sewer fund that is projected to a deficit. W. Hamilton said the water fund has a receipt from 2007 and 2008 and they have about six months of revenue from Erie County, and all of this year’s Erie County, so the water fund is not going to be floating high either for any length of time. He stated that both funds need some long term planning.
H. Strickler asked when Erie County is going to stop getting water from the city. D. Squires said it was anticipated in October of this year.
S. Holovacs said if the administration is doing studies on manpower then they should let council in on this too. He said they have taken a very little to a whole bunch.
B. Sasala said they do have Erie County that will continue to get sewer service and they get a good cost. He said with CMOM they will require a lot more work from the distribution crew than it has in the past, plus the televising that they will need to do on the Elberta Beach and Romp’s overflow. There will be a lot more work in that area that may be more on the side of sewer and less on water this coming year. He said they took a good look at what they were doing and split them up. He said the meter reader is reading both water and sewer so it should be split up.
J. Gabriel said he doesn’t have a contention on the maintenance crew because he talks to the guys when they are out and about, but to move the office costs over so much in one year is a lot. He said to have a fund go from $9,000 to $84 to $83,000 is a heck of a jump.
B. Sasala said the water side got burdened that year that should have been on the sewer side. J. Gabriel told him that this was their budgets. B. Sasala understood this but thought it may have got posted wrong on that case, but it should have been split up before that. J. Gabriel said he would have to hang his hat on his third point of contention is that they need to come up with a number for the sludge that the sewer plant has to deal with. B. Sasala said they are looking at the option of taking it out at the water plant so that they don’t burden the sewer plant. He said if the sludge is sent over too quickly or too much in one time it upsets the digesters, so they have to control this and the EPA would really like the city not to do this.
J. Gabriel asked in the meantime how they can financially compensate the sewer plant for that amount. B. Sasala said they can probably do some calculations as to how much is going over there and what the difference is and pass it on to the sewer fund. He said if they look at the transfers for the water and sewer funds for the last 8 to 10 years they will see that a much bigger portion of that came out of the water fund. He said $191,000 came out in 2005 and if they go back further the water fund was the one that was sending most of the money over. He said they looked at the personnel and how they should be divided up. He said that Terry Carter does testing for both the water and the sewer so they split him in half. He said they could keep track of hours on everybody but that’s a pretty difficult thing to do.
S. Holovacs asked the administration to get back to council on some of the issues involving the water plant.
Mayor Anderson stated that things have been done different ways at different times and they are trying to establish a true picture as far as what work is being performed by each of those funds and appropriating the charges to those funds from this point on. She said they are looking for information so they can put these funds into healthy financial positions. The only way to do this is really look at it and then make the changes so that they can get them to place from this moment on into a good healthy position. She said they have services that each of those funds provides and it’s just a paper game they play with themselves because they’re still incurring the costs and still paying the employees. She said the question becomes what is the appropriate place that they take this charge from. She said she isn’t sure why they have a difficulty between the water and sewer fund because they are still paying for everything that needs to be done no matter what fund it is. She said she is having a hard time understanding why they would be jockeying so critically between the two funds. H. Strickler said it’s because if they have to increase the sewer fund then need to be able to justify that. They need to be able to justify this to the constituents that this is exactly what the money is being spent for. This is why she didn’t go for 9 percent because she didn’t feel they could. She said this is why they are just trying to get this down to an exact science so when they need to say they need to do an increase they can justify the reason.
J. Gabriel said they have to explain why it is especially in this bad economy. He said they deal directly with the people and he gets a lot of phone calls especially when it rains. He said he may as well drive down Elberta. He said these people don’t have money and they need to do what they can and when he sees that this fund is being projected in a negative balance then he is the mind of doing things more gradual. He agrees with where they are going with this but it’s a lot of money. He said he’s a guy that likes to see changes come a little more gradual to digest them better.
Mayor Anderson said the same was true for the water fund because there was $191,000 sitting in the water fund and it looked healthy until the end of 2005, then it didn’t look healthy anymore. She said this was a jolt and they are trying to get a grasp of this and not have to do this in the future by keeping an eye on what their true costs are per fund and establishing a rate schedule. She understood that they do have to explain this to the residents on what the costs are.
B. Brady said they had two rate studies that said they should have raised rate 7.5 percent to 9 percent this year and they had justification for the higher rate increase in two studies, but council decided to only raise them 4.5 percent on the basis of what. She said this was a grab in the dark and they didn’t have any numbers that said 4.5 percent.
F. Ostrander said that only had one rate study through Benza. The other one only had numbers thrown in there and said they hoped they were right. B. Brady disagreed because of Don’s Flak study. F. Ostrander said D. Flak took Benza’s numbers and added things to it but they had no way to document where those numbers came from.
J. Gabriel said that the city has had these big increases and they haven’t produced the income and he wondered if they weren’t hurting them in the long run. He said they should look at development in town. He said before he signs off on a double digit increase he wants to make sure there is a reason for it and if they can get by on a 4.5 percent increase then the more power to them.
TOPIC THREE: State Spending Cap
S. Holovacs said that currently there is a $25,000 cap before the administration comes back to council. J. Gabriel said the reason he put this on the agenda is because he isn’t sure as to the way they understand this. His understanding of the law is that everything has to be appropriated. He didn’t know if there was any kind of cap. As long as there is money in the line item and it’s appropriated they can spend it. The $25,000 has to do with going out to bid. Anything above that has to go out to bid. He said if it turns out that he is wrong then he would be tempted to lower that amount to $10,000 or $15,000.
D. Zaleski said that state law says that any contract in excess of $25,000 has to be authorized by council and appropriated, and it has to be bid. S. Holovacs asked D. Zaleski to get a copy of this law to council. F. Ostrander asked if a $25,000 purchase has to go out to bid. D. Zaleski said it has to be authorized by council. F. Ostrander said if they had $60,000 in the budget for police cars per se could they just purchase the cars or do they have to bid it out. D. Zaleski said that council has to authorize the contract for the purchase of $60,000 worth of cars. F. Ostrander asked if that’s true even though it’s in the budget. D. Zaleski said yes even if it’s in the budget. He said there is case law and argument to the affect that if council appropriated the money that’s an authorization for the contract. He said his opinion is that council should authorize the contract. He said if the contract is in excess of $25,000 council should authorize it. F. Ostrander asked what happens if the money is spent and they don’t authorize it. He asked what the consequences would be. D. Zaleski said the state auditor might have an audit finding or tell them not to do it again.
J. Gabriel said with this explanation he feels this amount is too high and it wouldn’t matter who would be sitting over in the administration. He felt as a city council to give a $25,000 check is too high and it’s them not doing their job.
S. Holovacs said the previous administration had a rule that they came back to council if anything was over $15,000.
Skip Griffith said he recently read the section of code that deals with the $25,000. He said that either section 503 or 508 pertains to the bidding procedure of $25,000. He said there is nothing that grants the administration or anybody to spend $25,000 without an appropriation of council. He said this particular section is what the law director referred to and it strictly deals with bidding only.
W. Hamilton said there is a provision in the statute; most cities have a Board of Control, and you have a limit for the Board of Control and a limit that has to go to council. He said there is a statutory provision as to who can sit on this board. This is more of an expedient way of spending amounts because sometimes $10,000 is a repair on a truck. He said in this business that is a small number. This gives the city a control level that is below the $25,000 but still has profile.
B. Brady said that since the city has a line item budget and they can only spend within that line item then it makes this issue moot because the amounts are so small. She said there aren’t many line items that don’t have small amounts. J. Gabriel said there are plenty of line items with $50,000 in them. He thinks this is council’s job because they are the checkbook.
S. Holovacs referred this to next month’s finance meeting so that the law director can provide council with the statutes.
TOPIC FOUR: ODOT Bill – State Rte. 2
W. Hamilton said that the city has a contract with ODOT because ODOT takes care of Rte. 2 south of town. The 2007 bill jumped up quite a bit over the average. It had been running about $38,000 over the last few years because there was a big snow storm on Valentines Day of 2007 which spiked a lot of the charges for ODOT for their services along Rte. 2. He said they have annual collections of about $32,000 and the bill came at $38,000 and by the time you pay the bill in the following year you’re using 2007 revenues plus part of 2008 to pay the bill. He said they can pay the full $51,000 out of the State Highway fund but they’re dipping into the 2008 revenues which means next year when the bill arrives, the city will have $20,000 left over on a $38,000 bill and they’re not going to be able to cover this. At some point you have to realize that you will need to subsidize this bill because the State Highway fund is simply not bringing in enough money to cover the maintenance cost on Rte. 2 anymore.
F. Ostrander asked if there were any grants the city could apply for to relieve this. W. Hamilton said there wasn’t any. H. Strickler thought the permissive use fund could only be used for capital projects and didn’t think it could be used for anything like this.
Skip Griffith said in Chapter 882 per the license plate tax the money can only be used for capital improvements and go toward streets. It has to meet the five year criteria for capital projects. He said this ordinance is still on the books and as it stands today the city can’t use the money to apply it toward the State Highway Rte. 2 if you’re using it to cut grass and snow removal. G. Fisher looked up Chapter 884.05 and confirmed that it states that Council hereby directs and authorizes that any and all net revenues realized by the City of Vermilion, Ohio, as a result of motor vehicle license tax fees imposed under this chapter, directed for capital improvement projects only and specifically for the repair of roads and bridges within the corporate limits. So basically this money can only be used for capital improvements and it quotes and follows Ohio Revised Code. S. Holovacs asked the finance director if he has any other options. W. Hamilton said they can use general fund money so he will set this up for general fund.
F. Ostrander the administration if they could check with ODOT to make sure they’re charging the city for the right portion of highway because a good portion is in Vermilion Township. He didn’t think the city’s portion was a long distance and was wondering if they were charging the city for someone else’s area. W. Hamilton said he would check on this with the state.
TOPIC FIVE: East Liberty Avenue Sewer – Soft Costs
S. Holovacs asked the finance director where the city is with this project because he was aware that the city had until somewhere around August to finalize the assessments and get them into the county. He said he knows that the residents need to tap in. W. Hamilton said he spoke with Mike Sharb about schedules on the Liberty Street project and the Lagoons project. He said he wants to get final costs out so that the residents are given a 30-day opportunity to pay in cash which will roll right into the bond sale. He said one is in July and the other one is in August. He said that September 1 is the deadline to get it to the county for assessment purposes.
D. Squires stated that he spoke to Mike Sharb and got his legal opinion and the tap in fees and the final assessment need not happen at the same time. These are two independent operations, so notification will go out to the property owners within the next 7 to 10 days stating that they will be required to connect to the sanitary sewer system. He stated that he spoke with Chris Howard about this so he is aware of it. S. Holovacs asked the finance director to keep council posted on the process.
TOPIC SIX: Permissive Use Tax Schedule
D. Squires distributed to council a permissive use tax schedule dated February 9, 2007. W. Hamilton told council that he gave council a spreadsheet on July 31, 2006 and at that time they had the Lagoons A&B project on there for $174,000 (A) and $362,000 (B), and then Edson Street was on for $338,000 at that time. He said they updated this schedule and reported to council on February 9, 2007. He said in 2006 they took the total of $875,000 and looked to see how much of the annual revenues from the permissive tax would be taken up in order to pay off that debt on a presumed 15 year payout, which at that time was $70,000 a year. On February 9, 2007 they added the ODOT project at $595,000 which is the city’s share of the Rt. 6 and Rt. 60 paving, the Lagoons is still in there, and then they added the Lagoons Park Drive repaving at $290,000. They also have Edson Street for $350,000 and West River (2011) at $115,000 which brings the total commitments to $1,726,949. He said to amortize this debt it would be approximately $166,943 per year. The current permissive tax revenue is $225,000 per year. This leaves the city approximately $58,000 each year for the next 15 years for capital improvements on streets.
D. Squires said as a reminder depending on what the final construction costs are for streetscape, there may be some monies left over that he will go back to MPO and ask if the city can use toward Jerusalem. The city’s 20 percent match would come in approximately $60,000 to $70,000 which would be on top of this total.
H. Strickler said that W. River is not even slated to be done for another three years (2011) and they’re setting the money aside now. She said she really wants to see Edson Street done. She said they allowed for a 10 percent overrun of costs for the ODOT project which is around $60,000 and it could come under in the way things have been going with all the other projects. She said she is fuzzy on the Lagoons projects. She asked how much money is set aside currently for the city’s portion of the Lagoons. W. Hamilton said this schedule is on the premise of all that is going to be financed. He said when they paid down on the $600,000 note issue in 2005 they paid $200,000 on the last two rollovers so this is down to $200,000. He said this had been broken between the Lagoons project and other projects. He said he needs the detail because he needs to know what the commitments were when the city entered into this project and how did that commitment change when they awarded their obligation. H. Strickler said the city’s obligation did change and thought council voted to increase the city’s portion. She said she voted against it because she didn’t think the city could sacrifice the rest of the city for this. S. Holovacs said the minutes would have to be pulled on this.
F. Ostrander didn’t think the W. River Road project should be showing up on the schedule now because they’re not going to get into this project for three years, so he didn’t think the city should be committing ahead for this. W. Hamilton said they are trying to answer to council the vision of the future and what commitments there are for permissive tax. He said the city doesn’t want to commit to something else and then W. River Road comes along in two years and now they don’t have anything. F. Ostrander asked if the yearly permissive tax revenue will increase over the years. W. Hamilton said this is based on the $28.00 a plate and unless the population changes it’s pretty stagnant.
H. Strickler said as she looks at the permissive tax schedule she sees that Edson Street could be done because Edson Street was figured in at $350,000 and even if they knock that down to $300,000 and take out W. River Road. She said it seems possible to be done and they are just choosing not to do it and if the priority of the administration is not to do Edson Street. . . She said it is on the list and it has been on the list.
F. Ostrander said if council decided to do Edson Street this year what would happen. He said if they use the original schedule where the residents will be paying for the curbs and sidewalks, and the city will pay for the street, the city’s portion will be about $436,000 which includes the engineering.
B. Brady said that she has the list of proposed streets and Edson Street is on there but they could do all of those streets with $350,000. She asked how can she look at the people on Ohio Street or some of the streets in VOL and tell them the city can’t do their streets for 15 years. She said this is one street and she isn’t saying they shouldn’t do Edson Street. H. Strickler said they received a report from H.C. Nutting that said that Edson Street is in substandard condition and they would just be wasting people’s money. B. Brady said that Nutting didn’t say that the city should straighten the street. They said a full depth reclamation and that’s not $435,000. H. Strickler disagreed and said they can put this back on Streets, Buildings & Grounds. S. Holovacs referred this issue to that committee.
J. Gabriel said he would like to put a discussion of a road levy on the next Streets, Buildings & Grounds meeting. S. Holovacs said he had no problem with this and would stand behind it because he didn’t think there was a street in this city that’s in good shape. He said he gets tired of his residents looking at him when he explains to them the voting situation. He thought it was a great idea and when somebody calls and says their street is falling apart then they can tell them that council keeps throwing it at the residents but they keep on throwing it back at them. He said they will have to discuss a permissive use tax, or a quarter or half percent in the city tax.
No further discussion came before the committee and S. Holovacs adjourned the meeting.
Next Meeting: May 12, 2008 at 7:00 p.m.
Note: Unofficial meeting minutes. Changes may be pending. Minutes are verbatim.
4/17/08
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