PRESENT:

Chuck Kill - Chairman Peter Lamm, Vice-Chair Jared Parks, Member Dan Toth, Member

EXCUSED:

Bob Harris, Member

Additional Attendees:
Bill Garner, Council Liaison
Lyra Done, Parks and Rec. Advisory Board

John Musolf of Oro Valley addressed the Committee regarding line item budgeting and presented a three minute Budget Analysis Presentation.

Mr. Musolf reminded the Committee that Peter Lamm, at the last meeting in October, presented the first two points: (1) budget control limits and (2) budget utilization of contingency funds.

Budget Analysis- Historically the Town had used a line budget approach. These historically never decrease but always increase. Usually there is a historically incremental increase and the next years budget is based on this increase. This creates limited cost justification. Several years ago Ms. Lemos introduced the Fiscal Impact Analysis Model Budget Approach. This is a formula approach; again this is a formula approach with no cost justification. This model contains a per capita multiplier and is population based. The increases are based on development, as the population increases so does the budget. The current service level usually continues on the same scale with a slight flaw that each new resident generates the same average cost with no economy of scale. 

The Town is currently using a labor multiplier times population. The current labor multiplier is 2.1 per 1,000 of population. If you take the current population and use this multiplier using the police department as an example in 2008 the town should have 90 Police Department employees in 2009 - 95 employees. The actual police staffing for 2008/2009 is 142. Chief Sharp has presented to the council that a multiplier of 2.5 is better. The point being, if we use his multiplier than we should be at 108 for 2008 and 113 for 2009. The town currently has 142 employees in the Police Department.   

Fiscal Impact Analysis Model Budget Approach has no justification. It ignores the economic conditions we are going through now and it ignores productivity. There is no detail on labor hours needed, there is not detail on purchases and it ignores priorities on needs versus wants. What Mr. Musolf is suggesting is zero based budgeting. Everything would have to be justified using this method. Someone would have to arbitrate if priorities are conflicting and this would be the decision of the Town Manager.

Member Lamm asked that the following be corrected in the October 20th minutes. On the item on the use of the reserves there are two things the usage rate should be 1/7th of 1% and related to that the minutes should include that it was 1/7th by a majority vote of the council and a suggested 1/5th by a 5 -2 super majority and 1/3rd by a vote of 6-1 and then 100% by unanimous vote or by emergency declaration by the Governor.  

MOTION: A motion was made by Member Toth and seconded by Member Parks to approve the minutes of the past meeting as amended.

MOTION carried, 4-0.

Finance Director Stacey Lemos introduced auditors Corey Arvizu and Jim Rebenar from Heinfeld, Meech & Company. Ms. Lemos advised the Committee that there was a short summary of the Audit findings in their packets. This is their second year as Town Auditors. Ms. Lemos turned over the presentation to Mr. Arvizu and Mr. Rebenar for the presentation on the audit on 2008.

Mr. Arvizu reported he was there to present and discuss the audit for fiscal year 2008. This year there were new audit standards required on the auditors part called risk assesment standards requiring more documentation and controls and using a risk based approach. No significant reporting standards were found. The Town does participate in GFOA financial standards and required elements. This is the 14th year the Town has received the GFOA Financial Standards Award. There are no big changes this year. Mr. Arvizu reviewed the CAFR with the Committee. Highlights of the report were the transmittal letter including highlights of the year and the management discussion analysis. This gives a management overview in a narrative form and why some of the changes occurred. This is a key part of the financial statement. This is a required element and presents the numbers in a narrative form. There were no red flags regarding the financial standing of the Town.

Jim Rebenar stated the finance staff was very helpful during the audit. Items looked at were payroll and payroll process, accounts payable process, procurement, and again look at payroll and accounts payable for a second time to review compliance with applicable state laws. Finally journal entries are looked at for proper approval. Two small insignificant discripancies were noted in accounts payable and journal enteries. Cash receipts have strong controls in their area. The move to MUNIS improved capturing depreciation for the year. This year there are no significant deficincies.

Mr. Rebenar opened the floor to questions. Member Lamm asked for a report on how you, the auditors go about the new risk assessment procedures. Mr. Arvizu stated risk assessment lets you look at processes in a different manner. Last year they developed a lot of narratives and processes for understanding and documenting the processes. In some cases they reduced test cases, i.e. cash receipts which currently have strong controls in place. The risk assessment procedures allow you to get to know the processes and procedures before you audit. This lets you know your client before you audit. Member  Lamm had one other question on page 110 in the statistical summaries there is a statement regarding total primary government regarding personal income and where does this personal income figure come from. The personal income level is shown on page 115. The auditor’s did not know if it came from Pima County, Tucson Metro Area or Oro Valley. Ms. Lemos stated this information came from the census bureau but will check on how this figure is derived from and will report back to the Committee at the next meeting.

Chairman Kill asked if the date for the finished audit is November 18, 2008 and if subsequent items are still reviewed until November 18th. Mr. Arvizu stated the audit is dated November 18th and that items are reviewed until this time. Chairman Kill also asked about financial losses through the investment losses and what date they were reported through. Mr. Arvizu told the Committee management provided a disclosure statement regarding financial losses in the audit through investment losses through November 18th and that these numbers were provided by the State Treasurer’s office. Mr. Arvizu stated the town is in the Government pool of the State Treasurer’s office. An investment loss of $682,000 has been reported as a known loss.

Ms. Lemos stated we are seeing interest rates drop. There have been losses this year due to Lehman Brothers bankruptcy and the State Treasurer’s office is pursuing these losses through the Bankruptcy Court. Chairman Kill asked if the State Treasurer’s office notifies the Town of any additional monies that the town would need to deposit to cover losses. Ms. Lemos replied no. Mr. Arvizu directed Chairman Kill to page 45 where the ratings of the cash investments disclosures are shown. A good portion of those investments are triple A rated securities. Chairman Kill asked why the figures from the State Retirement Plan are 18 months old. Mr. Arvizu replied that the ratings of the Town are evaluated as of 2008 and are usually reported at the end of the year. The ratings of the investments are as of 2008 according to Mr. Arvizu. Chairman Kill asked Ms. Lemos to update the report and provide the numbers for the State Retirement Plan for 2008 when she receives them.

MOTION: A motion was made by - Vice-Chair Lamm and seconded by Member Toth forward the 2008 Audit Report to the Town Council with a favorable recommendation.

MOTION carried, 4-0.

Finance Director Stacey Lemos presented the October Year to Date Financial Status report through October 31, 2008.  This report was presented  to the Town Council at Nov. 19th meeting.

Ms. Lemos provided a comparison for the first four months of the fiscal year.
In the General Fund the revenue collections were $1.2 million below the budgeted amount through October, 2008. Contributing factors were lower building permits; contruction fees; lower state sales tax collections; and state revenue shared portions and included  lower returns on investments.

Member Lamm asked what is the lag time between when the state collects sales tax and when the Town receives them. Ms. Lemos replied this is about a 6 to 8 week time period. Accruals were based on actual collections and cash received thru August. Ms. Lemos told the Committee she would be getting September’s numbers the end of this month. Chairman Kill asked if the projection process is realistic. Chariman Kill stated September collections are half the sum of July and August. Ms. Lemos stated she is very comfortable with our projections for tax collections and that they are being monitored very closely. Budgeting has been done very carefully recognizing the Town of Oro Valley was on the down side of the growth curve before other municipalities. Sales tax from Oro Valley Market Place should start showing up in the December sales tax collections. Chairman Kill asked if we adjust the numbers for these stores that have opened, and Ms. Lemos replied yes. Member Lamm asked if these numbers are adjusted annually. Ms. Lemos replied that July and August figures are used for the year and that these are traditionally the lowest months of the year for sales taxes. So using these lower months is a conservative approach to calculate these projections.

Projected year end totals for revenue is $28.6 million and is approximately 6.6% under budget. Expenditures were looked at including identified cost savings and adjusted budgetry expenditures by these adjustments including reducing sales tax rebates and construction tax rebates and not paying debt service on bonds for the Municipal Operations Center also added in was an unbudgeted loss resulting from the Lehman Brothers bankruptcy. This was a total  of $961,000 taken out of the budget. 

Other cost savings measures include recurring expenditures such as vacancy savings and hiring freeze, saving approximately $150,000 lower insurance premiums saving of approximately $100,000.  Incorporated into revenue estimates were lower than budgeted estimated sales tax collections resulting in savings estimated at $163,000 for Steam Pump Ranch and Oracle Crossings sales tax rebates. Revised year end expenditures are $30.9 million. Comparing that to the revenue of $28.6 million creates a deficit of $2.4 million. Of that amount this year there was a $1.7 million budgeted deficit of one time expenditures dipping into the fund balance this year for one time cost.  The general fund does have a significant cash reserve of $16.7 million in the general fund . The highway fund is having lower than expected income from gas tax and highway user funds and interest income on these funds.  We have a debt service payment scheduled for $487,000 that we won’t be incurring.

Chairman Kill asked Ms. Lemos when the budget was put together when were we expecting the debt service payments to occur. Ms. Lemos replied we assumed year end not knowing when the construction schedule would begin. There was also a feeling that if we weren’t going to start this year we could possibly put this money aside and hold in reserve in the Municipal Operations Fund. Chairman Kill asked when would the first payment have to be made. Ms. Lemos replied probably not until 2010.  The anticipated move in date is summer of 2011.

Chairman Kill asked Ms. Lemos if the bed tax money was spoken for. Ms. Lemos said  1/3 is for economic development and 2% is returned back to El Conquistador, otherwise the remainder was dedicated for use by Naranja Town Site project. The Council can reallocate these funds through resolution if they wish.

Chairman Kill asked if all municipalities budget by year rather than by month.  Ms. Lemos replied that has been her experience.

Chairman Kill asked for a report on how the Town will proceed on the vote of the Naranja Town Site. Ms. Lemos stated the Town owns the land and has a master plan for the park. The council has discussed finding out the reasons for the failed vote.

Council Member Garner told the Committee the Town Council will be conducting a post mortem on the vote.They will break it down by precinctt. The vote was evenly split for people that physically voted at the poles. The swing vote was in the mail in vote. Demographic pockets will be looked at. Council Member Latas held a Council Member On Your Corner session to ask what the citizens of Oro Valley would like to do.  By having the bond vote fail, the project scope can be adjusted to appeal to all parties. Phasing in of the park is one possibility. The Town may be changing in the future with the Arroyo Grande project.

Member Lamm stated he has seen some straw polls. Conspicuously absent from the choices is to put this in the deep freeze until the economic situation changes.

The next meeting is scheduled for Jan. 26, 2009.
The next Agenda will include a need to nominate a member to serve on the CIP Committee.  

Councilman Garner reported the Council did approve a hiring freeze at the last meeting effective immediately will run through April 30, 2009. The Economic Development Administrator position will remain unfilled, a part time transit driver, two part time library pages, a streets and drainage crew leader, and a senior building permit technician will also remain unfilled until April 30, 2009, at which time the hiring freeze will be re-evaluated. This will be evaluated periodically between the Town Manager and the Finance Director. The Town Manager still has the latitude to start the hiring process but will need to notify Council in writing. Positions of critical need would qualify for this condition. Chairman Kill asked if there was any ongoing review of expenditures. Council Member Garner replied that the Town Council is continuing to have Finance Director Lemos report monthly to the Council. Town Council members challenged employees attending the Employee Forum Meetings to look for cost saving methods, and to bring these methods to the attention of their supervisors for implementation. 

MOTION: A motion was made by - Vice-Chair Lamm and seconded by Member Toth to adjourn meeting.

MOTION carried, 4-0.

Prepared by:



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Senior Office  Specialist