HomeMy WebLinkAbout05/23/2011
AGENDA SUMMARY REPORT Budget and Finance Committee Meeting Monday, May 23, 2011 Page 2 3. PUBLIC STATEMENTS None 4. DEFERRED BUSINESS A. Discussion and Committee Recommendation Regarding
Contract Ceiling Policy – Tandy /Smith City Attorney Ginny Gennaro provided a summary of changes to the language to all City contracts. In order to limit the City’s liability for compensation
on contracts for work and/or services performed that exceed the amount of compensation stated in the contract the following could be added to the compensation clause: CONTRACTOR shall
not engage in any services above or beyond this amount and CITY shall not be obligated to pay CONTRACTOR for excess work, services or products beyond this amount. The compensation set
forth in this section shall be the total compensation under this agreement including, but not limited to, all approved out-of-pocket costs and taxes. City Manager Alan Tandy stated the
additional language would make contract policy more effective; however it will cause projects to be halted for a prolonged amount of time due to the need to wait for Council approval
of any amendments. Committee chair Russell Johnson stated the purpose of the additional language was to make the process more efficient not cause any interruptions to projects. Finance
Director Nelson Smith clarified that the increasing amount specified on contracts for construction projects or work out in the field has two consequences: one, it gives the vendor a
false impression that they may receive that amount of work, and two it would affect the vendor’s cost for a bond, which would drive up City costs due to a rise in the cost of the vendor
bidding on a project. City Attorney Gennaro stated that this would cause a lower amount to be specified on a contract which could result in halted projects. Staff would also be spending
more administrative time to monitor all their contract spending limits. Committee chair Johnson stated if the current language in the contracts does not make the City liable to pay for
contractor costs which exceed the amount specified on a contract there is no need to change it now. Committee member Benham agreed.
AGENDA SUMMARY REPORT Budget and Finance Committee Meeting Monday, May 23, 2011 Page 3 B. Discussion and Committee Recommendation Regarding Long Term Financial Plan – Tandy /Smith City
Manager Alan Tandy stated Vice Mayor Couch’s concept is to explore options to place the City in a financial position where it’s interest earnings can offset as much of its operation
budget as possible. Vice Mayor Couch wants to establish a plan to try to increase the capital amount in the reserves. Finance Director Nelson Smith provided a brief summary of a list
of interest earnings by fund. Mr. Smith also provided the Committee with an overview of four additional scenarios where a portion of interest earnings is spent each year. Finance Director
Smith stated that the interest of the Cash Basis Reserve Fund account has remained and accrued within this fund for many years. There is no formal policy, but to some extent, the City
has been practicing Council member Couch’s concept. Currently, the City does not have the financial capability to add additional money to this account, but could do so in the future.
City Manager Alan Tandy stated staff has been accruing interest in this account for about 11 years. At the direction of Council, a policy can be created to include the current practice
and provide additional direction to build the accounts principle determined on an annualized basis depending on the fiscal year. A line item can be included on the budget to focus an
amount to be deposited to the account. Committee chair Russell Johnson asked if there has ever been a time in the last 11 years where the City has needed to take from the interest accrued.
Finance Director Nelson Smith stated there have been none. Committee chair Russell Johnson recommended staff to prepare a written policy to codify what is being practiced. Council member
Sue Benham made a motion to have staff prepare the policy for approval by the full Council. The motion was approve. 5. NEW BUSINESS A. Discussion and Committee Recommendation Regarding
Pension Set Set Aside Funding – Teglia /Smith Assistant to the City Manager Steven Teglia provided the Committee with documentation detailing the City’s payments to the California Public
Employees Retirement System (PERS) dating back to 1999 to initiate discussions on the issue of establishing a budget policy designed to set aside funds in years
AGENDA SUMMARY REPORT Budget and Finance Committee Meeting Monday, May 23, 2011 Page 4 where the City’s annual payments to PERS fell below historical averages. The data shows an average
of $16.6 million dollars in annual payments for the past ten years. Currently, for fiscal year 2010, the City made a total payment of almost $24 million dollars. The City has budgeted
approximately $26 million for fiscal year ending 2011($9.1 million above the ten year average) and approximately $29 million for fiscal year ending 2012 ($12.7 above the ten year average).
Due to the recent losses in the PERS investment portfolio and PERS’ plan to recover the losses over the next 30 years, the City is experiencing annual increases which will likely prevent
the City from falling below our average. Mr. Teglia stated several steps have been taken to reign in the City’s growing pension costs including: reducing the pension formula for all
new hire miscellaneous employees as of 2008, the passage of Measure D which lowered pension formulas for all newly hired sworn police and fire personnel and require all newly hired sworn
police and fire personnel to pay 100% of their PERS member contribution for the entirety of their careers. Council chair Russell Johnson stated unless PERS completely changes the way
they do their program the City is tied to the gains and losses of the stock market. If the City were to create a policy to oblige to a ten year average, in a year where the contribution
payment decreases, any difference can be set aside in a fund. The fund may not be used for a number of years, but is a prudent step to begin setting aside funds in when applicable. Committee
member Sue Benham made a motion to have a policy document created. The motion was approved. City Manager Alan Tandy asked for clarification on whether the policy is an alert or an overriding
policy that would make this motion automatic. If it is an alert, there are competing Council priorities which would then need to be brought to the full Council for a decision at that
point in time. Committee chair Johnson stated the policy would be both an alert and an overriding policy. Staff would need to alert Council of the transfer for the contribution payment
and Council, at that time, would make the determination to have the full amount transferred as a contribution payment or have a portion used for other Council priorities occurring at
that time. 6. COMMITTEE COMMENTS None 7. ADJOURNMENT The meeting adjourned at 12:42 PM cc: Honorable Mayor and City Council