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Minutes 05-13-13 MINUTES OF THE FINANCIAL ADVISORY COMMITTEE MEETING HELD ON MONDAY, MAY 13, 2013, AT 6:00 P.M., IN THE CITY LIBRARY, ROOM A 208 S. SEACREST BLVD., BOYNTON BEACH, FLORIDA PRESENT: Steven Grant, Vice Chair Tim Howard, Finance Director Gary Dunmyer Fakhry "Ed" Boulos Jeffrey Grady Dolores Schlesselman ABSENT: Don Scantlan, Chair 1. Call to Order In the absence of Chairman Don Scantlan, Steven Grant acted as Chair and called the meeting to order at 5:57 6:00 p.m. Motion Mr. Dunmyer moved to approve the agenda. The motion was duly seconded and unanimously passed. 2. Approval of April 8, 2013 Minutes Motion Mr. Grady moved to approve the minutes as published. Mr. Dunmyer seconded the motion that unanimously passed. 3. Approval of April 22, 2013 Minutes Mr. Dunmyer noted his last name was misspelled. Motion Mr. Boulos moved to approve the minutes as amended. Mr. Grady seconded the motion that unanimously passed. 4. Review, Discuss and Vote on Committee Member Study Topic Recommendations for FY 2013 -2014 1 Meeting Minutes Financial Advisory Committee Boynton Beach, FL M ay 1 2013 • Steven Grant Mr. Grant received information from the City of Boynton Beach about pension multipliers and employee contribution rates for the defined benefit pension plans. His recommendation was the City Commission enroll all future employees, consisting of General Employees, Fire and Police, in the Florida Retirement System (FRS). A defined benefit plan is a plan based on earnings, years of service and a multiplier. The last page of his presentation contained a chart from the 2012 actuarial report reflecting the Police have a 3.5% multiplier, and Fire and General Employees have a 3% multiplier. The City Commissioners are already on the FRS plan. If the City moved to the FRS plan, employees would be impacted as their multiplier would go from 3% to 1.6 %. The chart also showed that compared to the FRS plan, the City contributes two to three times as much as FRS employers. He noted the FRS plan includes all government workers including teachers. Under the City's defined benefit plans, General Employees and Police contribute 7 %, and Firefighters contribute 12 %. Defined benefit plans have both employee and employer contributions. The Boynton Beach plans are underfunded, which required a higher employer contribution. The employer contribution was over 30 %, in addition to what the City paid their employees. Mr. Grant reported the employee contribution is set by each plan's Ordinance and each plan has a pension administrator and a Board that hires financial advisors. The composition of the Boards is also set by Ordinance. The City Commission adopted the Ordinance, but could change the contribution rate, if the item is negotiated. A comparison of local cities in the area reflected Boynton Beach paid a higher contribution rate than most others due to the 3% multiplier. The higher the multiplier, the higher the contribution rate. He commented pensions are considered a liability and life expectancies are unknown. There would be little to no savings if new employees started in the FRS system in the 2013/2014 budget year. The issue is the City cannot force employees to change pensions once they are vested; hence, the recommendation is to enroll new hires or individuals wanting to transfer into the FRS plan. Employees transferring to the FRS system would receive a lesser benefit than the Boynton Beach defined benefit plan because of the lower multiplier. Subsequently, the contribution rate for the City plan may increase in the future because no new money will go into the fund. New employees would be paying into FRS. Mr. Grant noted the FRS plan is in the top 80% of state pension plans. General Employees were defined as Blue and White Collar employees and pensions are a negotiable item in Collective Bargaining Agreements. Any change made would 2 Meeting Minutes Financial Advisory Committee Boynton Beach, FL May 13, 2013 affect future union employees. Mr. Grant noted City workers have not had a raise since 2009 and wages were frozen since then. The City would still contribute to the current plan, but if transferring to the FRS plan, its contributions would be significantly lower. The contributions made by Firefighters would stay the same, but it was mostly the General Employees that would be impacted. There are also groups of individuals within each plan to whom the changes may not apply. Mr. Grant emphasized it is a big issue. Some articles favored defined benefit plans and some favored an investment plan similar to a 457K, which FRS offers. Mr. Grant reviewed the FRS plans. FRS was set up where employees were not required to make any contributions. Employers picked up the total cost, but the legislature passed a bill that employees had to pay 3 %. A lawsuit was filed as it was thought there was an unlawful taking; however, the State Supreme Court ruled in favor of the State and allowed it. The investment plan was similar to a defined contribution plan. The employee contributes 3% and the FRS employer matches it. The funds vest with the employee in one year and since it is the employee's own personal fund, he /she can choose how to invest. The money would accrue in the FRS system. With this plan, the employee would get everything back if they left service before vesting. The benefit at retirement; however, was subject to the investment earnings and losses. The FRS defined benefit plan has vesting at eight years. If an employee works five years and leaves without vesting, the employee will only receive the 3% contribution. The benefit at retirement is not subject to investment performance. Additionally, FRS pensioners are given a one -time opportunity to switch to the other plan. In researching his topic, Mr. Grant spoke with the Police Department, the FRS enrollment manager, other City employees and he researched the pros and cons of the FRS investment plans versus the City's pension plans. Mr. Grant recommended the City Commission enroll all future General, Fire and Police employees in the Florida Retirement System. He put on record the pros of doing so. It would decrease Boynton Beach's and employee contributions to the current pension plan. The decrease will result in more funds being available for the budget and employees. The plan gives new employees the option of a defined benefit plan and defined contribution plan with a one -time option to transfer to the other plan. Current employees can still maintain a defined benefit plan, and it may result in other FRS pensioners coming to Boynton Beach to work. He read the cons of the recommendation into the record. The FRS system contains a legislative risk where the decision of the contribution rate and other benefits are left up to legislators. Boynton Beach's current contribution may increase in future years before it starts to go down to cover current employees. General Employees will receive a 3 Meeting Minutes Financial Advisory Committee Boynton Beach, FL May 13, 2013 lower multiplier. It creates a distinction between employees (old pension system and FRS) and it may result in employees transferring to other FRS positions. Mr. Grant commented to fund the current plan, the City may have to contribute more because new employees will be contributing to a different plan. The City has to cover the liabilities. It will create a distinction between current and future employees. The impact on next year's budget would be little to none and of all the plans, the Firefighters' Pension Plan was the most underfunded and was a greater burden on the City. Mr. Grant requested the members vote on the recommendation to enroll all future employees in the FRS plan. Vote The members unanimously voted to approve the recommendation. • Jeff Grady Jeff Grady presented his item whether to make or buy solid waste collection services and explained he used an excellent report compiled by researchers from Stanford and Berkeley Universities. In the report, over 1,000 cities were studied. A chart in the meeting backup showed solid waste privatization was fairly easy to institute. Solid waste collection was defined to mean curbside garbage collection and commercial dumpsters. He reviewed the services the City provides and what data was available. He noted solid waste had a lot of data and their studies included recycling. He also pointed out Key West has become a role model providing competitive services with other cities in Florida as far as pricing. This was due to recycling and reducing the amount of trash. Over many years, the program paid for itself and they contract private haulers. Mr. Grady explained solid waste is an "Enterprise" operation that provides positive revenues to the City. Last year, it was anticipated solid waste would contribute $3.3 million to the General Fund and the adopted budget was about $4 million. This amount was expected to grow. Mr. Grady explained the City receives its revenue either through taxes or enterprise operations. Residents and commercial establishments pay a monthly fee for water, sewer and trash collection. The City receives a positive cash flow because the fees are higher than the expenses. However, it was pointed out the fees are regulated and they must be competitive with other cities. He noted approximately $11 million is collected and it costs $7 million to operate, leaving a surplus of $4 million. Mr. Grady reviewed no vehicle or equipment replacements were projected for solid waste and the department's current fleet staff of 32 employees would be impacted. He reviewed privatization would be fairly easy to accomplish as it has an easily defined scope and there were contractors available with measurable results. He noted the Cities of Delray Beach and Hollywood use outside contractors for some services and Fresno, California also made the transition. It was thought competition could yield good 4 Meeting Minutes Financial Advisory Committee Boynton Beach, FL May 13, 2013 results. There are contractors that have large operations that could concentrate their services on one task as opposed to all the services the City provides. He pointed out less than half of all U.S. cities operate collection fleets. Mr. Grady reviewed one of the documents he used reflected private collection services, on average, over the last 20 years, were 20% to 40% lower than the City's costs. Privatization would provide performance improvement through specialization of the service, reduce funding liabilities for pension and vehicle insurance, there would be lower fuel costs, and tipping costs and replacing equipment would not need to occur. Factors against privatization were the contractor would have an incentive to cut corners. Labor risks, such as strikes could occur, and City employee resistance could be encountered as the decision would be a one -way decision. Training and placement of displaced workers would have a cost and there would be a cost to study and develop an RFP which would be between $20,000 and $70,000. It was thought, if another city of like size already went through the bid process, the City could piggyback off their contract. Mr. Howard agreed, but noted the City would have to accept the exact scope of services. The City had options. It could contract residential collection and franchise commercial and multi - residential services. Regardless of whatever was decided on, the entire process must be reviewed and a plan implemented, which would take time. The recommendation was to develop a potential plan for residential and commercial solid waste collection including contracted or franchised services. The potential reduction in operating costs was slightly more than $2 million and the savings on future fleet replacements was also an advantage. Conversely, the City would lose control of daily operations of the solid waste collections and would have to rely on contract management to oversee the services. Lengthy discussion followed about hurricane cleanup, and which portions of solid waste would have the most savings and beneficial impact on net revenues to the City. Bulk pickup was also discussed and in response those discussions, it was noted most of the cities studied moved all the components of solid waste collection over to the private sector. They kept the same pickup days. Disposals would still occur at the County facility and the City or the contractor could pay the tonnage fees, depending on how it was written in the contract. Some contractors sorted recyclables and received extra revenues, which could help the contractor offer their services at a lower cost. The current impact on the 2013/14 budget year was anticipated to be $4,040,000. The Committee was aware there were two national haulers and four or five smaller companies that service the County. If contracted, it would be fairly easy to get the same service. Discussion followed about a non - performance provision and the bidding process. It was explained the City was not changing services at this time. It was just deciding whether to hire a consultant to study the issue to determine future needs. 5 Meeting Minutes Financial Advisory Committee Boynton Beach, FL May 13, 2013 The solid waste equipment lasts for about 3 to 10 years, depending on its use. A maintenance routine was needed. City trucks are used everyday in different sections of the City except for Sunday. Fuel costs were a substantial component of the expenses as was insurance. There are other risks and savings the City would realize without the trucks. Mr. Boulos noted there is a change in technology and new trucks are running on natural gas. He suggested delaying consideration of the matter. It was anticipated the City's current vehicles had five years left as there have not been any large equipment purchases. The research has shown, based on the experience of other Florida cities, that there is a potential for savings. The question was whether it was worth doing the study. It would require many man hours to come up with a viable report to make a decision. A consultant could do the work in a year. Mr. Grady's recommendation was to develop a plan as written using a contractor or franchised service and study what the impacts were going to be for the City. The review should be a prudent review, encompassing the City, data sources, and the data the department receives from residents and the community. The City only did an in -house review. He also noted there are components of services the City provides that would not fit well into an RFP, and that is what would surface during the study process. Mr. Grady explained the studies detailed how the shift saved money. As an example, the cost per ton for a company handling a million tons per day is less than the cost for a City to handle 1,000 tons a day. It was the dichotomy of scale. A question was posed if there would be a risk to defer considering the matter for a year or two. Mr. Grady explained there is a savings, and if deferred, the savings would also be deferred. Additionally, if deferred, the City must consider the cost of early attrition of the equipment if it broke or the cost of continuing the service during the time it takes for the bid process. It was conceivable the entire process could take two years. Mr. Grady explained the recommendation inherently included the bid process. Mr. Howard explained the RFQ and RFP process. Mr. Grant requested a vote on the recommendation which was to develop a potential plan for residential and commercial solid waste collection, including contracted or franchised services for all solid waste collections within the City. Vote The recommendation was approved by four votes in favor and one opposed, (Ms. Schlesselman dissented.) 5. Discussion of Budget Survey 6 Meeting Minutes Financial Advisory Committee Boynton Beach, FL May 13, 2013 • Review Budget Survey results — concluded on May 3, 2013, had 156 responses (see attached) There was consensus of the Committee to table discussion of the budget survey to the June 10th meeting. Mr. Grant announced he would not be available for the next meeting on June 10th. 6. Other Business None. 7. Adjournment Motion Mr. Grady moved to adjourn. Mr. Dunmyer seconded the motion that unanimously passed. The meeting was adjourned at 7:56 p.m. Catherine Cherry Minutes Specialist 052913 7