Town of Oro Valley
Finance and Bond Committee
Regular Meeting
Oro Valley, Arizona
Monday, November 30, 2009
CALL TO ORDER:   6:03 p.m.


Chuck Kill - Chairman
Dan Toth, Member
Bob Harris, Member
Peter Lamm, Vice-Chair
Jared Parks, Member
Bill Garner, Councilmember Liaison (via teleconference)


Don Cox expressed his concern about protecting the Town’s sales tax revenues.  He pointed out that a number of issues are coming up on the next budget and with Town Council that could have a strong potential impact on sales tax revenue.   He is especially concerned that zoning and sign code issues that affect the business community may have a very negative influence on business and on the Town budget.     He asked the Finance and Bond Committee members to talk about those issues, and assist the Town Council, the Planning & Zoning Commission and other boards by weighing in on budgetary matters.   He said that the Finance and Bond Commission is a well-respected group of individuals who understand budgets, and suggested that the committee weigh in with written reports and by having a presence at Town Council and other committees’ meetings.  



MOTION:  A motion was made by Member Harris and seconded by Vice-Chair Lamm to approve minutes. 



Mr. Corey Arvizu, CPA, with Heinfeld, Meech & Co., presented the results of the Town’s annual financial audit, offered background information on the work that his firm specializes in, discussed the contents of the audit report, and answered questions.   The financial audit report, given to all committee members, consists of an introductory transmittal letter, an organizational chart, a certificate of excellence, and the independent auditor report.  Mr. Arvizu took the committee through the document and offered explanations on specific portions of the report. 

Mr. Arvizu responded to Member Harris’ question regarding audit standards by explaining that audit standards apply to all governmental entities, regardless of size, but the time spent on each audit depends on the size of the governmental entity and the extent of their operations. 

Member Harris asked for clarification on the percentage of unfunded liability on the police retirement plan.  Ms. Lemos explained that the loss of investment income and possibly the large number of retirees have created the need to raise the cost significantly, and may cause the costs to go even higher.  With the public safety system, the employee match is set by statute at a fixed percentage of the officers’ salaries.  Mr. Arvizu concurred with Mr. Lemos’ explanation of the increased liability, and added that retirement plans try to smooth their funding over a number of years, and their time horizons are very long.   

Mr. Arvizu referenced the statistical portion of the report and pointed out that it is a good tool to identify trends.   He then explained the audit process, which took 350 staff hours, began in May and ended in September.  The audit results did not identify any accounts that they could not develop sufficient audit procedures for, and there were no disagreements with management on presentation or reporting.  The audit did not identify any internal control deficiencies that warranted written communication, and there are standards and controls in place.

Chair Kill asked if the auditors look closely at the statistical section.   Mr. Arvizu said they looked at statistics for consistency, but do not opine on it. 

Mr. Arvizu asked Ms. Lemos if the Town was anticipating receipt of additional stimulus recovery funding.   Ms. Lemos said that the Town has one Department of Energy grant.   Mr. Arvizu said that dependent upon the size of that grant, the Federal government may require some additional audit procedures.    In 2011 there is a new fund balance reporting standard which will require the Town to develop some written and approved policies on fund balance reserves.  He added that auditors also meet with utilities, as well as town staff.  Mr. Arvizu thanked staff, and especially Mary Rallis and Linda Ragsdale, for their assistance and cooperation. 

MOTION:   A motion was made by Member Harris, and seconded by Member Parks, to accept the Town’s financial audit for Fiscal Year ended June 30, 2009, and present to Town Council.   MOTION carried 5-0.



Paul Wenbert, of PW Consulting Services, gave a brief synopsis of his professional background, distributed materials, and explained that 3 months ago Ms. Lemos had approached him with this performance measures project, and the project is now 80 % done.   A draft of the final report will be reviewed by Ms. Lemos, and the final report will be presented to Council on January 27.  
The project objective is to advance from the Town’s current work output measures to a more sophisticated type of measurement of efficiencies and effectiveness.    Three reasons to do this are to:  1) help track the progress of the Town’s strategic plan, 2) assist Town Council in policy making and budgeting decisions, and 3) help staff reap the benefits of benchmarking that may lead to best practices.    Another object was to determine if the Town has the correct number of programs.  Mr. Wenbert went through the packet materials and highlighted information from the ICMA Center for Performance Measurement.  He also defined the types of performance measures that are being created for the Town.

Mr. Wenbert distributed 10 templates (graphs) representative of various Town departments and discussed performance measurements from Legal, Library, Finance, Transit and Police.  

Member Harris asked if this project would include an estimation of the cost of the customer satisfaction surveys.   Mr. Wenbert said that would not be done, and added that customer satisfaction survey costs generally run about $20,000.  Typically it is recommended that these be done every two years.   The Town may be able get a survey done more economically, possibly through the University.  The National Citizen Survey is another tool to use; it is a very good survey.  In order to achieve valid comparisons, survey questions need to be in line with the questions being asked on the surveys of the benchmarked cities.  

Member Harris asked if for each service area, does the measurement come down to a total manpower and money requirement or is the requirement subdivided.   Mr. Wenbert said that almost every department has multiple programs, so the programs are subdivided.  The Town’s budget and programs are well poised with a good foundation. 

Member Harris he would like to see, using the police as an illustration, if the police manpower is related to response time on calls.  Mr. Wenbert said that the police have their patrol functions area broken up into different programs which are separately evaluated.   
Council Member Garner asked if, when benchmarking is done and in the interest of achieving best practices, do these performance measures take a "one size fits all" approach or are community’s specific requirements and constituency desires evaluated.   Each community operates independently and each town faces unique situations.  How are we deciding if the measures are good for our community?   How are we going to know something is truly a best practice for our community? Mr. Wenbert explained that the reliability of data is going to be better with the communities who are part of the Center for Performance Measurement because they have been developing these performance templates for about 15  years.   The templates take into account that while there are a lot of commonalities throughout the country, the communities don’t operate exactly the same.  The templates contain definitions, and the point behind that is to get reliable data.  With the cities that the Town benchmarks with that are not in the center, the Town will need to take additional time to see if their data is reliable.  Anything that has gone through the Center for Performance Measures is going to be more valid.  The data does not give you an answer on whether a particular measurement is a good practice, but points you in the right direction.     

Member Kill commented that most of the information he reviewed looks like operational, efficiency type items.   He asked if Mr. Wenbert would recommend evaluation of cost per resident, or  efficiency ratios.     Mr. Wenbert replied that per capita efficiency measures are done, and gave some examples.  

Member Lamm commented that in addition to measurement of efficiencies, this evaluation system would be a very powerful funding and council oversight decision-making tool.    These tools would help decide how many programs and which programs we are willing to keep or not keep.  Councilmember Garner agreed with Mr. Lamm’s comments.  Ms. Lemos said that we want to take the performance measures information, present it to the Council as part of the budget presentation for Fiscal Year 2010/11, and also roll it up into the Town’s strategic plan to demonstrate how these measures fulfill the strategic plan.  



Bill Adler gave a presentation and distributed materials.  He stated that during a bad economy, a business person focuses attention on generating efficiencies and generating revenue.   His comments will primarily be about generating revenues, but he will not be speaking about taxes.  Earlier in the year this board made a recommendation that a comprehensive review of all revenue sources be completed.   This recommendation was not acted on, and he is here to restart that discussion.    He believes there is revenue in our zoning code that we are ignoring or overlooking. 

Municipalities regulate, and in Oro Valley many of those regulations revolve around land use.    Our current process is inefficient, lengthy and expensive.  He believes the Town needs to facilitate the process in order to get vacant land developed.  Currently, the Town waits for a developer to bring in a plan, then we pick it apart and put so many restrictions on it that the developer gives up.  Examples of this are the lots by the Harvest restaurant that are sitting vacant because the residents opposed the fast-food zoning that would have developed here, as well as the languishing Steam Pump Village, which in the past the Town rejected some uses that if were now allowed would help our community.   Other examples involves the rejection of a proposed gas station and a dog kennel.  During a recession, a developer faces very few workable alternatives to develop a property.  The materials presented also lists the zoning uses and which uses is permitted, partially permitted, or prohibited.  Those well-intentioned prohibitions mean lost money.    We need to be flexible, while retaining our standards, to see what can be changed.  If we don’t change, we will continue to struggle.  Mr. Adler said that the council has a limited opportunity to sit back and evaluate, but there are knowledgeable citizens who can research and make recommendations to council.   The last portion of materials relates to Planned Area Development, and Mr. Adler wanted to convey the fact that even within these customized zonings, there are still restrictions. 

He believes the Town needs to facilitate the process in order to get vacant land developed.  His suggestion to the Finance and Bond Committee is to recommend to the council that the role of advisory board and the development review process be reviewed with the purpose of either suspending review boards or curtailing their functions, but not eliminating them.    We can encourage development by shortening the time that the process takes.    He suggested giving more approval responsibility to our professional staff, so they can make administrative development recommendations directly to council.  He recommended going to Town Council with the suggestion that we re-evaluate our restrictive code, go parcel by parcel and look at the restrictions currently on the properties. He recommended that a task force be formed to look at the various committees, and also identify available parcels which can be developed.   

Member Harris commented that Mr. Adler’s objective seems reasonable, if we are going to be a business friendly environment.   He also feels impact fees should be looked at to see if those fees could be changed or reduced.     Another possibility is a review of sales lease back types of arrangements.    

Chair Kill asked Mr. Adler if he had obtained a legal opinion about the possibility of liability to the Town if a zoning is changed and it affects existing businesses.  Adler said that according to Keri Silvyn, of Lewis and Rocca, this is not a liability. 

Chair Kill asked for clarification on the proposal to develop a task force to investigate modifying the current zoning requirements.   Mr. Adler recommended modifying the recommendation to include a review of the restricted uses, to see if there are any uses of the property that are restricted now could, with careful design, work and be compatible, to include mixed use.  Chair Kill further clarified the wording on the recommendation: modifying the current code requirements, reducing the restrictions to allow for more developed and increased revenues.   Mr. Adler also wants the council to authorize the task force to look at the role of the three advisory boards: BOA, P&Z, and DRB.  BOA looks at variances but the Council, by law, can assume that responsibility, and the BOA only has about one case per month.  We can facilitate and expedite the permitting process by concentrating responsibility in two areas instead of multiple areas.   One would be giving staff more administrative responsibility and reducing the advisory boards and concentrating on the ultimate authority, which is the council.   Chair Kill further clarified the recommendation to reducing restriction to allow for more revenue, in addition to reviewing the use of review the scope of work of advisory boards.      

Doug, McKee, Town resident, addressed the committee on this item and commended Mr. Adler for taking a proactive stance and trying to help improve our revenue stream.  The idea of looking at PAD restrictions and all other zoning restrictions are all good ideas.   He referred to Steam Pump Village (SPV) and additional issues that warrant consideration.   Any changes made at SPV would take a couple of years to implement.   Additionally, SPV is also subject to tax revenue rebates, which is awaiting the final court decision, and which could affect the Town’s future revenue.  He supports the idea of the Finance and Bond Committee making a recommendation to council to form a task force to identify and evaluate those parcels that could be developed, and reviewing the role of advisory boards.   He would, however, suggested maintaining these two recommendations separately, as he feels combining the two would confuse the issue.   

Don Cox, Town resident, spoke to this item and commented that he was unaware that Mr. Adler and Mr. McKee were going to speak about these issues at this meeting.    He commented that in these unique times, it is perhaps time that this group become involved in assisting in ways to regulate land use and encourage mixed use development to try to maximize our revenue. 

Asked by Chair Kill to comment on this discussion, Council Member Garner said that since a motion is underway that will go before town council, he would stay neutral on this matter.   

MOTION:  A motion was made by Member Harris to recommend to the Town Council that consideration be made to revisit, perhaps through one or more Town Council appointed task forces, existing zoning code restrictions and prohibited uses on vacant land, streamlining the planning and zoning process, reassessing development impact fees, and exploring sale lease back possibilities, in an effort to add economic vitality to the Town’s economy. 

Chair Kill asked if Mr. Harris wanted to include the language about the reviewing the use of the advisory boards.   Member Harris said he assumed that would be part of the streamlining of the planning and zoning process.  Member Lamm asked for clarification on how sales lease back of town facilities would fit into this recommendation, as he sees sale lease backs benefiting an entity that is asset rich but cash poor, but that doesn’t seem to be the case with the Town.      Member Harris replied that he was thinking of it based on the budget projections for the Town, and the fact that the State of Arizona has $735M in the budget they have approved related to sales and lease back of State facilities on exactly the philosophy of getting cash up front in return for the long-term payoff.    Member Harris said he would not object to removal of sales lease back from the motion.    Chair Kill asked Ms. Lemos how increase of sales lease back would affect the Town’s bond ratings.    Ms. Lemos said this change could potentially negatively affect the Town’s bond rating, but said would need to look in this.   She explained that the Town is relatively debt-free on existing general government assets, and the majority of the debt relates to our water utility.  Mr. Harris also referred to the vacant land at the Naranja Town Site. 

MOTION seconded by Member Toth, without the sale lease back section.  MOTION carried 5-0. 



Vice-Chair Lamm said he has been working on an idea on changes to the contingency reserve policy.   Mr. Lamm passed around copies of his prepared statement on this topic, which he read into the record.  

Discussion ensued relaive to how the bond rating agencies would perceive such changes to the policy and how clear and understandable the policy would need to be.   Vice-Chair Lamm stated that, as a citizen, he would be very happy to have constraint on the amount of the reservoir, that would be taken by Town Council if that restriction essentially requires almost unanimity to invade at a large rate, while at the same preserving flexibility so if they can do they will.  Mr. Lamm stated that he would welcome discussion and will not call for a motion for this proposal for tonight because he thinks it warrants further discussion, some thinking, and some additional information as to how it would be viewed by the raters, but he would like to have this issue addressed at a future meeting.    

Vice-Chair Lamm clarified that for each year, it’s 1/7th of the beginning of year balance, which is why it is never exhausted. 

Member Harris said this is a subject worthy of discussion, but would really have to see the five year projection of the town, as Ms. Lemos pointed out. 

Vice-Chair Lamm said this year the Council had a recommendation that they consider consuming up to about $2M of the reserve fund, and the reality is that they budgeted a 1/3 of that.   This translated into $1.6M, which was 10%, which was less than 1/7th, so they didn’t utilize the full amount available.  The fact that the ratios constantly relating to the beginning of year balance, means that even if you don’t take any other measures, the amount available is going to shrink, and assuming that these policy rules are followed, the contingency fund will never disappear.   It doesn’t obviate judgment by the Council, all it does is codify a way of looking at what is a prudent use of reserves in bad times. 

Council Member Garner expressed his concern is that we did have a majority of council members decide to, in his opinion, rob the contingency fund for a continuing recurring expense when our policy dictates differently, and our policy dictates that we do not take contingency reserve funds for recurring expenses.   In this case they decided to take the money for funding of personnel after we clearly had a plan to eliminate personnel.  Essentially, the Council, through a simple majority vote, elected to use between $500 to $700K for personnel costs.  The point was the council had violated our own principles.    Later on we were able to get the savings by using the voluntary severance package.    We were able to recoup back everything that we would have dipped into by doing what was out of the box creative thinking, but we have given the money back out again through some recent situations, and we have lost the edge that we had on the budget, which is why we are facing additional deficits going into the new fiscal year.  

Ms. Lemos asked Vice-Chair Lamm for clarification on his proposal, which does not include any distinction to using contingency reserves to pay for one-time non-recurring versus ongoing recurring expenditures.  Vice-Chair Lamm agreed there was no distinction.  Ms. Lemos said that was her concern, as that is a basic tenet that’s a best practice that forces local governments to look at their structural balance or imbalance of their budget that is causing a decline in the contingency reserves.  Vice-Chair Lamm said they didn’t seem to pay much attention to it anyway.   Ms. Lemos said that is why we want to provide more specificity in providing a contingency fund plan that we want to take to Council, providing more restriction and more definition in terms of use towards non-recurring versus recurring, because that’s what the bonding agencies look at.   If distinction is not made, there is a possibility that the town leaders could be blinded.  It’s a best practice recommended, to really match your recurring revenues with your recurring expenses and not use your one-time pot of dollars that might have build up from construction and use that to fund ongoing expenditures.   

Chair Kill asked what the reaction from the bond rating agencies was regarding the council’s attempt to use the contingency reserve.     Ms. Lemos replied that she hadn’t had a bond rating call since the budget was adopted, usually they come in the spring.  Council Member Garner said he concurs with Ms. Lemos in that he would want the bonding agencies notified about this proposal so that our bond rating would not be jeopardized.

Vice-Chair Lamm asked what the purpose of having a contingency fund is if we can never use it.   Ms. Lemos said she hoped the town could arrive at a compromise with Vice-Chair Lamm’s recommendation in setting a certain percentage to be a more economic stabilization cushion, and have the remaining portion be more restrictive for more natural disasters and emergency, sort of a two-tiered process, and we would provide more defined guidance for the policy makers to follow. 

Vice-Chair Lamm said Ms. Lemos’ idea is a viable one, but ideally he does not believe in having multiple pots of money or the inability to be flexible, and does not like the restrictions very much, but it would work.

Council Member Garner said that by putting a parameter on the money, stating that we could dip into a fund in a certain amount and no more, that would structure it more. 

Chair Kill suggested that the committee mull over this discussion and bring it up at the January meeting.



Council Member Garner stated that Council would be having a budget retreat process starting with budget retreat in January.  We have learned from last year’s missteps, and we are going to have a new council member on board. 

Chair Kill asked if any anyone had an issue with having the December meeting on the 28th.     

Ms. Lemos stated that she would like to present the 5-year Economic Resiliency Plan that was presented to Council on November 9, 2009, and also bring forth some of the options for Council consideration in terms of addressing next year’s deficit, including a pay off of some bonds we have which would entail contingency funds to pay bonds. 

Vice-Chair Lamm asked what the yields are on the bonds.  Ms. Lemos said that the yields were in the 3.5% to 4% range and we are earning .25% on those invested funds that we have on deposit.  Some of the bonds are maturing in 2014, but the others are longer term.   

MOTION:  A motion was made by Vice-Chair Lamm and seconded by Member Harris to schedule a Finance and Bond Committee meeting for December 28.  MOTION carried 5-0. 



There were no member liaison reports.



There were no future agenda items. 



MOTION:  A motion was made by Member Harris and seconded by Member Toth for adjournment at 8:50.   MOTION carried 5-0.