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Minutes 01-24-11 MINUTES OF THE FINANCIAL ADVISORY COMMITTEE MEETING HELD ON MONDAY, JANUARY 24,2011 AT 6:00 P.M. AT THE LIBRARY ROOM "A," BOYNTON BEACH, FLORIDA PRESENT Don Scantlan, Chair Michael Madalena, Vice Chair (arrived 6:16 p.rn.) George Feldman David Madigan Merline Pamplona William Shulman Kurt Bressner, City Manager Barry Atwood, Finance Director ABSENT: Terry Lonergan, Alternate Chair Scantlan called the meeting to order at 6:00 p.m. The Recording Secretary called the roll. A quorum was present. Motion Mr. Shulman moved to approve the agenda as presented. Mr. Madigan seconded the motion that unanimously passed. 1. Approval of Minutes - December 13, 2010, January 10, 2011 There was one change to the January 20, 2011 meeting minutes on page 6, the first paragraph, noted as underlined: "The event appeared to be successful, as 44-a 150 18- hole rounds had been played that day, . . . ." Motion Mr. Shulman moved to approve the minutes as amended. Mr. Madigan seconded the motion that unanimously passed. 2. Review and discussion of initial responses to Citizen Survey The members noted 190 individuals took the survey and it was agreed the response was a good start. The results were briefly reviewed and there was consensus to continue the survey and market it. Chair Scantlan requested he receive the raw data in Excel format so he can see how the data would be analyzed. It was noted 1 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 the survey should be completed by the end of February or when the daily responses were less than 10. Mr. Atwood would also request Mr. Segal issue a mid-point press release about some of the results of the survey questions. Chair Scantlan requested Mr. Atwood contact Vice Chair Madalena and Ms. Lonergan to inform them they should contact their Homeowners Associations (HOAs). It was previously discussed Mr. Madigan and Mr. Feldman would publicize the survey to their associations as well. 3. Discussion of paperless utility billing webinar by Best Practice I Fi-Serv Check Free Mr. Atwood explained this service has to do with paying bills through the bank. He does not request an electronic copy from the bank, but he pointed out he pays all the bills electronically through the bank. He noted one difference was Chair Scantlan and others wanted an electronic copy of the bill and commented it can be sent via email the next day. This was not through Pay-Pal. Chair Scantlan wanted to be able to have residents pay with a credit card. Chair Scantlan thought once a good system was in place, residents should pay a dollar if they want a paper bill. He thought the website was good, but he was concerned about the price schedule. A Return on Investment analysis would need to be conducted. Chair Scantlan did not think there was much of a change in the process from the information gathered via magnetic or digital files the meter readers use which generate some of the data on the bills. This month, the information contained in the bill allowed residents to opt out of paper billing but it appeared not all the steps were listed on the letter. Vice Chair Madalena could not find the screen to opt out. 4. Report from Town Hall Meeting regarding :"Defined Benefit Public Pension Forum" - Mike Madalena Vice Chair Madalena attended the meeting in West Palm Beach regarding the Pension Forum. The Florida Public Pension Trustees Association hosted the meeting, and the president from Tallahassee and the local chapter, the actuary and a local pension attorney were present. Vice Chair Madalena's take on the panel discussion was it was from the perspective of the stakeholders and their representatives. They discussed why Defined Benefit plans were better and why the City should keep them and do everything they could to preserve them. The presentation was skewed to that audience and they were advocates for the Defined Benefit plans. They did not offer solutions, only that the Cities and County need to look everywhere else for money before the pension funds are impacted. Vice Chair Madalena indicated, a lot would change if the legislation in Tallahassee allowed for different uses of the 175 funds under the administrative interpretation. Those funds were the insurance premiums paid to a special fund for police and fire. If the cities could use those funds differently then they do now, and he noted police and 2 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 fire departments represent the largest pension obligation, there was a lot of opportunity to assist all stakeholders. If the State could rework how they use those funds, it would help manage the situation better. He noted the deadline for his report was due in March and he would report on what is known and available in March. Should changes occur in Tallahassee, he may need to amend his findings and recommendations in Mayor June. Chair Scantlan agreed the meeting was held by advocates. The actuary explained an unfunded mandate is the total liability of the plan today plus the unfunded obligation. The City's unfunded liability was $90 million. The annual budget is $67 million. The number used by the actuary to live out the pension obligations of the plan was a number intended to cause panic or to be used in a worst-case scenario. The actuary proposed a different number and Chair Scantlan thought the actuary's other proposal was a more legitimate way to look at it. Over 30 years, if you figure out how much would have to be taken out to cover the obligations, it was not that scary a number. The bottom line was, if asked individually about the health of any given plan, it depended on the health of the entity to cover its obligations. The idea was that the $90 million unfunded mandate was being used "improperly to cause people to look at this as an untenable solution." Vice Chair Madalena explained 5% of the budget will be used every year towards the unfunded liability against a general fund budget of $67 million. There was the COLA that would add to the cost although there would be investment gains. The expenditure for police and fire together was twice the expenditure of the general employees, plus the COLA because police and fire pensions are at a higher rate because they are at special risk. Vice Chair Madalena commented the City still has to make the regular pension payment each year. Discussion turned to it was more than 5% and it increased every year. There are many factors and only three ways to get in trouble with a Defined Benefit plan. One is not to fund it or over promise or create benefits, Le. a policy in place that whatever one made on their last day, you are paid 50%. What was occurring was on the last day of employment the employees were being promoted to six-figure salaries so they could receive a higher benefit. This occurrence was called spiking and it was gaming the system Mr. Atwood explained one item that diminished the plans was the administrative interpretation regarding the 175 and 185 monies was not backed by Statute. In the past, municipalities were told the money had to be used for increased benefits. If the City wanted to use excess money, it had to create excess benefits for fire and police. It created a base amount that the additional monies could not be applied towards. Vice Chair Madalena also commented that when talking of benefits and collective bargaining, it immediately opens and breaks the contract for renegotiations for everything. Most cities do not want to open negotiations during the middle of the contract. They cannot look at benefits by themselves as a way to adjust only that portion of a contract. 3 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 Vice Chair Madalena had one recommendation which was to have the different classes of employees increase their own personal level of contributions to the plan, but under this bargaining agreement, it could not occur with police and fire. The percent of the contribution by the employees varies with the three plans. General employees pay 7% of payroll, police pay 8% and fire pays 12%. The answer to whom pays the most for their pension plan was contingent on their salary. Each year the actuary provides the total cost of the plan. There were many variables: employee contributions, the State monies and the City makes up the balance. The plan has a lot of variables in it. The true measure of how much general employees pay is the contribution not the percentage of the salary. Police at 8% is far below the percentage of the total cost. Ideally, they should all pay the same percent of the total assumption. Mr. Atwood clarified the percentage of the total pension cost paid by fire is not as good as the general employees because it was not as rich a plan. The general employees pay the highest percentage of the total cost compared to the other two plans. The percentages paid were contained in the bargaining agreements. Police and fire have a richer plan because they retire earlier so the actuarial cost is different. However, the percentage of salary or the percentage the public pays should be equal. It was hoped that some strategy or direction would come from Tallahassee to assist municipalities. Once they made those changes, entities could make the appropriate adjustment. The other option was to raise revenue to support it, i.e. taxes. Vice Chair Madalena commented the actuary made an analogy. When he looks at the different cities and counties, he looks at the big picture and if the financial health of the entity was okay, then he was okay with having a large unfunded liability on the balance sheet. Vice Chair Madalena's issue was a $90 million obligation the City was responsible for must be controlled. The actuary's assumption was based on the City will always bring in revenue, but Vice Chair Madalena's concern was at what point do you let the benefits skyrocket or do they make additional payments. He proposed the options were to either float pension bonds or raise taxes. The pension calculation has to be reworked, but under collective bargaining, their hands are tied. It was noted there was an emergency clause in most of the collective bargaining agreements that would allow them to renegotiate it, if the municipality declared a financial emergency. In the worst-case scenario, they could use that option because the path they are taking is not good. Discussion followed about a unilateral amendment to the blue and white collar agreements last year that outlined what would occur. The Public Employee Transparency Act has to do with 401 plans and the fees they are paying. It was noted a study conducted by Northwestern University indicated the combined underfunding of pensions in all municipalities was estimated to be $574 billion. States have an estimated $3.3 trillion in unfunded pension liabilities. Unfunded liability can be used to indicate something it is not. The City deposits 100% of the required payment on a monthly basis. The amount was the contribution amount the actuary deemed the City had to deposit in order to fund the 4 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 plans and they were based on assumptions that do not equal the real world results of the performance of the plan. Vice Chair Madalena will bring forward suggestions. It was noted the Chair and Vice Chair Madalena both attended the meeting and they caught different takes. The problem is perception and impressions that do not have to do with the numbers. Vice Chair Madalena commented that if the assumptions are reduced from 8.5% to 3% or 4% and it was determined the liability was for funding, those numbers would completely change. Inflation will creep into the plan plus the COLA costs, and costs would only increase. With the expansion of police and fire, that base that would consume the most dollars and make the plan more expensive. Pension plans cannot be based on a platform of assumptions that never materialize. Many cities, after retirement, give $5 for every year of service plus $150. That was an add-on and it will probably be thrown out. The health insurance policy premium is not part of the plan. The City pays for the employees but not their dependents. Some entities pay for employees and part of their dependents' coverage, but not Boynton Beach. Another factor that is not an add-on to the pension in Boynton Beach is other post-employment benefits. All there is was the base pension. The State pension plan has many municipalities in it, but the multiplier and the benefit is not as good. Mr. Segal's report indicated moving from this point forward to a 401 K or a Defined Contribution plan would not necessarily be cost effective. It would have a small savings during the first year or two, and miniscule savings in years three or four. The problem is the cost would then increase because there would be fewer employees to fund the unfunded liability of the defined benefit plan. 5. Progress update on assigned projects by each member Chair Scantlan had already provided his update to the Citizens Survey earlier. Vice Chair Madalena provided his update under Item 4. Mr. Madigan reported on Community Redevelopment Agency activity and explained at the last City Commission meeting a vote was taken to appoint seven members to the Board on February 1. Either it will be a seven-member independent board or the City Commission will sit and add two independent members. Mr. Madigan explained he has not received any information with regard to any value assigned to City properties as it pertained to selling of City assets. The County Appraiser does not update their appraisals. Chair Scantlan suggested Mr. Madigan look at what the City assets are and determine if they could be sold. Many of the properties had water and utility systems. One example was the Meadows development gave a piece of land to the City that was 9 acres. It was an asset owned by the City. Another example was if the City warehouse were moved to another location, what would be the value of the land? Chair Scantlan suggested only reviewing parcels that 5 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 were five acres or more and taking the top 10 parcels and determine if they could have commercial value. In this way, 90% of the properties could be removed from the list. Mr. Atwood suggested Jeff Livergood, the Public Work's Director, might be of help. It was also noted Dan Hagar, Golf Course Manager has access to 40 acres that could be developed. It was anticipated some of the properties would be in the Community Redevelopment Agency District and it was further acknowledged any taxes received from the improvements to those properties would go to the Community Redevelopment Agency. Mr. Shulman explained the hiring freeze was in progress for the last two years. The Voluntary Separation or early out option would be presented to the City Commission on February 1, 2011. He spoke with Sharyn Goebelt, Human Resource Director and she was happy to know the Financial Advisory Committee was looking at it for the next fiscal year. Mr. Feldman met with management from the Golf Course he invited Mr. Hagar, Golf Course Manager, and Scott Wahlin, Manager, Golf Course Maintenance, to speak at the next meeting in order to ensure the information he provided was correct. He clarified much of what was presented was detailed and he wanted to make sure the information was correct. There was agreement Messers. Hagar and Wahlin could speak no longer than 15 to 30 minutes. Mr. Feldman felt there was opportunity to raise capital for the City, but Mr. Hagar had to explain it and perhaps the Committee could adopt some of Mr. Hagar's ideas. Mr. Shulman also spoke with Mr. Hagar about increasing fees. He commented that if golf fees were raised to benefit the golf course, it would be a benefit. As far as the City borrowing against the Golf Course funds, Mr. Atwood felt it would have to be a decision made by the City Commission. Chair Scantlan clarified the Financial Advisory Committee should be able to answer questions posed by the public about why fees are being used a certain way. If the City Commission requested a 15% cut across the Board, then as an independent third party advisory committee, they should be able to state whether it was a good idea or not and advocate. Item 9, Revenues/partnerships was not addressed Item 12, Revenue Streams Generated by other Municipalities was not completed yet. Item 13, Grant opportunities were previously discussed. Mr. Feldman would have Ms. Majors put something together. Chair Scantlan commented they would need to start forming the data. The format for this years' report and input would be discussed at the next meeting. 6 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 ~ April 11, 2011 ~ April 25,2011 Mr. Atwood would circulate the draft agenda to the members, so if the members had something to add, they could accommodate them. It was also noted some members received duplicate meeting materials. Motion Mr. Feldman moved to approve the meetings as scheduled going forward. Mr. Madigan seconded the motion that unanimously passed. 7. Other Business Chair Scantlan commented at the last City Commission meeting an item came up that had a significant financial impact to the City. The Financial Advisory Committee was in the evolution-learning phase, but he believed once the Committee gets to the report, they would have some role, going forward, when something comes before the City Commission, they have the chance to analyze it and present their recommendations as an agenda item on an ongoing basis. He anticipated when an agenda item worksheet is created it indicated whether the item would have an impact, and that the Committee would have the chance to do legwork before it goes to the City Commission. The City Commission receives staff input and Chair Scantlan thought it would provide the opportunity for the Committee to conduct its own analysis and serve as another set of eyes. Additionally, the City Commission requested a member of the committee sign off indicating there would be no budget impact when a code adjustment came before them. Mr. Atwood indicates staff currently does that, but they get it less than a week before the City Commission. This item would be discussed when Mr. Bressner was present. Discussion turned to the Boynton Beach Mall. Mr. Feldman inquired if there was a Business Development Authority and he noted the mall was deteriorating. Vendors pulled out and the failure of the mall would affect the community. The mall received a $10 million tax reduction from the County. It was thought the Committee should be involved in what they were doing, as it has a significant impact on the community. This item would be discussed at another meeting and possibly be an item for the next budget. It was noted the Ordinance that created the Financial Advisory Committee established its purpose to review the impact of legislative and administrative decisions on the City budget. 8 Meeting Minutes Financial Advisory Committee Boynton Beach, FL January 24, 2011 8. Adjournment Motion There being no further business to discuss, Mr. Shulman moved to adjourn. Mr. Madigan seconded the motion that unanimously passed. The meeting adjourned at 7:57 p.m. Cllt-Av0J~Ll (J 1 n J ^ I J Catherine Cherry ~J '-'t.A-/ ~ Recording Secretary 013111 9