OFFICE OF
THE CITY COUNCIL
CHERYL L. BROWN 117 WEST DUVAL STREET, SUITE
425
DIRECTOR 4TH
FLOOR, CITY HALL
OFFICE (904) 630-1452 JACKSONVILLE,
FLORIDA 32202
FAX (904) 630-2906
E-MAIL: CLBROWN@coj.net
FINANCE COMMITTEE BUDGET HEARING MINUTES
August 9, 2012
9:00 a.m.
Location: City Council Chamber, 1st floor, City Hall – St. James Building; 117 West Duval Street
In attendance:
John Crescimbeni, Greg Anderson, Lori Boyer, Johnny Gaffney, Bill Gulliford, Stephen Joost (arr. 9:30) and Clay Yarborough (dep. 4:29)
Also: Council Members Matt Schellenberg, Warren Jones (arr. 9:17, dep. 4:15), Robin Lumb (arr. 10:38) and Don Redman (arr. 9:23); Kirk Sherman and Kim Taylor – Council Auditor’s Office; Peggy Sidman – Office of General Counsel; Ronnie Belton, Glenn Hansen and Angela Moyer – Finance Department; Jessica Deal – Mayor’s Office; Jessica Stephens – Legislative Services Division; Jeff Clements – City Council Research Division, David Bauerlein – Florida Times-Union; David Chapman – Financial News and Daily Record; Kevin Meerschaert – WJCT; Maxine Person – Sheriff’s Office; Steve Cassada – Council Staff Services; Tony Bates – Concerned Taxpayers of Duval County; Diane Brown and Marcella Lowe – TRUE Commission; Randy Wyse – Jacksonville Association of Firefighters
Meeting Convened: 9:00 a.m.
Chairman Crescimbeni announced that all relevant City budget documents are available on the City Council’s web site for television or internet viewers to access and follow along.
CFO Ronnie Belton gave an overview of the Brown administration’s budget preparation process, which started in November/December of 2011 not long after the FY11-12 budget went into effect. The administration recognized not long thereafter that the FY12-13 budget would be extremely challenging and began strategizing how to develop a balanced budget that would meet the Mayor’s commitment of no tax or fee increases. The first phase of the administrative reorganization was step one of the process, and the second phase of reorganization is underway. Pension reform is the next top priority going forward. The budget was built on the assumption that property taxes will be down or stagnant for the foreseeable future and that pension obligations, if the current system is left unchanged, will continue to grow rapidly and swamp the budget within the next 5 years.
Budget Officer Glenn Hansen explained that his office had met with department heads beginning in January to explain the challenges being faced and to solicit ideas and suggestions for cost savings, with a goal of 10-15% reductions in controllable costs from all departments. Controllable costs exclude items such as internal services, debt service and pension obligations. Initial decisions were made on reductions in March and April, resulting in a projected $58 million deficit as of the tentative budget presentation at the first of May. In June the Property Appraiser’s ad valorem tax estimate showed a further reduction in revenue, although the state shared revenue projection was up somewhat. The decision was made at that point to concentrate on finding additional major cuts in the largest departmental budgets. In June the Police and Fire Pension Fund actuarial report as of October 1, 2011 was received which showed that the City’s pension contribution would be even greater than previously estimated, at $122 million. At that point it became clear that substantial employee layoffs were going to be necessary to balance the budget given the decreasing revenues and vastly increased pension costs. The administration left it to the Sheriff’s Office and Fire Department to determine where to make the operational cuts to compensate for their increased pension contribution requirements. Mr. Hansen indicated that he had been in communication with the Council Auditor over his list of concerns and had resolved some, but not all, of the questionable revenue projections.
Council Member Gulliford stated that internal service funds continue to be a source of concern, as does the failure to maintain a sinking fund to purchase vehicles on a pay-as-you-go basis. In response to a question from Council Member Anderson, Mr. Hansen said that his top three pressing issues are 1) the Sheriff’s Office budget and how to cover the additional $26.3 million pension contribution obligation; 2) the accuracy of the revenue projections, including whether the projected small increase in state shared revenues is actually realized; and 3) the very small capital budget. Council Member Yarborough added his concern about internal service charges and whether they contain additional overhead charges beyond the actual cost of service provided. Mr. Hansen indicated that his initial review indicates that the allocations seem to be fairly calculated and billed. What is important is getting the bottom line costs for those services reduced; the allocation method among user departments is a secondary issue. Council Member Boyer requested information from the Real Estate Division about how their charges are derived.
In response to a question from Chairman Crescimbeni, Mr. Hansen indicated that most, but not all, of the departments achieved the requested 10-15% budget reductions. The constitutional officers generally did not. He explained an unfortunate error in the calculation of one of the state shared revenues that will reduce the revenue by $5 million. In response to a question from Council Member Schellenberg, Mr. Hansen stated that economic trends are beginning to show positive signs and there is an increasing likelihood that revenues driven by economic activity are going to improve over the next year or two.
Council Auditor Kirk Sherman gave an overview of the seven budget-related resolution and ordinances and explained the key events on the budget timeline. He explained the ad valorem property tax levy requirements, including the TRIM notice and various millage rate calculations. He noted that the Save Our Homes property tax exemption and its value recapture provisions will mean that many homeowners who have been in their homes for 10 years or more will see an increased property tax bill despite the fact that their assessed value may have fallen this year. In response to a question from Council Member Gulliford, Mr. Sherman agreed that the previous administration had used the Banking Fund to supplant pay-as-you-go purchasing. Council Member Boyer requested that the Auditor’s Office provide information on the contractual or statutory relationship between the City and its independent authorities regarding financial arrangements, length of contracts, and re-opener provisions, if any.
The committee briefly discussed the budgets of the Office of Economic Development, Downtown Investment Authority and Downtown Vision, Inc., as well as the tax increment districts. Mr. Sherman indicated that there is not an automatic mechanism for “sweeping” unspent tax increment funds back into the General Fund at the end of each fiscal year. Committee members asked questions about the Sheriff’s Office position reductions and layoff plans, the increasing cost of group health insurance (despite the reduction in workforce), and the use of Code Compliance fine revenues. The committee engaged in considerable discussion of the use of a “lapse factor” as a budget balancing methodology that does not reflect the actual position vacancy rate. Council Member Boyer requested historical information on actual lapse savings based on position vacancies over time, cautioning that FY11-12 is not a typical year and should not be used for comparison purposes.
Mr. Sherman discussed the various revenue stream projections, including some which he thinks may be overly optimistic. He explained the evolving issue of the state’s demand for payment of accumulated Medicaid reimbursement shortfalls, which is being contested between the state and Florida’s counties. The City is required to pay $3.9 million this year, but is joining in a lawsuit filed by the Florida Association of Counties to contest that payment. The state has reversed a previous decision and is no longer going to automatically withhold the payment from the City’s state shared revenue allocation.
References from this point refer to Council Auditor’s Handout for Meeting #1, August 9, 2012 unless otherwise noted.
General Fund – Non-departmental
Motion: on p. 27, adopt Council Auditor’s recommendation #1 to reduce the JEA franchise fee revenue by $360,781 – approved.
Motion: on p. 27,
adopt Council Auditor’s recommendation #2 to increase Utility Service Tax
revenue by $23,309 – approved.
Motion: on p. 27, adopt Council Auditor’s recommendations #3(a), (b), (c), and (d) to reduce sales tax revenue by $700,000, reduce cigarette tax revenue by $100,000, reduce county sales tax revenue by $5,132,869, and reduce the state shared revenue population contribution by $108,340 – approved.
The committee engaged in considerable discussion of the tax increment districts and how those funds may be used. The Southbank district generally produces revenues in excess of programmed uses and returns the excess to the General Fund. The Northbank district generally produces insufficient revenue to cover pledged uses, so the General Fund subsidizes the shortfall in the TIF fund. Council Member Boyer pointed out that the Mayor’s budget proposes to appropriate excess Southbank TIF funds, assuming that they won’t be spent within the fiscal year, which appears to be in violation of the state regulations about the use of unspent TIF funds. Jessica Deal of the Mayor’s Office and CFO Ronnie Belton stated that the administration agrees not to utilize the TIF funds before the end of FY13 and will find other revenues to replace that anticipated revenue. General Counsel Cindy Laquidara reported that she is working on a legal opinion regarding the proper use of TIF funds which will be available very shortly.
The committee was in
recess from 12:49 to 1:50 p.m.
The committee discussed proposed new revenue streams in public safety departments. The Fire and Rescue Department recently changed its policy regarding transport of patients and will now require patients to be transported to a hospital if their medical condition warrants it; the patient will no longer be allowed to refuse transport. This is projected to produce $5 million in additional transport revenue for FY13. The Fire Department also anticipates increased revenue from fire marshal inspections of commercial establishments. The Sheriff’s Office projects $1.5 million in revenue from the operation of a red light camera enforcement system.
Motion: on p. 35, adopt Council Auditor’s recommendation #1 to reduce funding for QTI incentives by $174,687 and allocate the funds to the Special Council Contingency – approved.
Motion: on p. 35, adopt Council Auditor’s recommendation #2 to increase funding for economic incentive grants by $14,265 – approved.
The committee discussed the annual contribution to the Jacksonville Chamber of Commerce and whether any of that funding supported JaxBiz, the Chamber’s political arm. Jessica Deal indicated that her understanding was that all of the City’s funds are used by Cornerstone for economic development purposes. Council Membber Schellenberg urged that strict controls be placed on the City’s funding to ensure that none is used for JaxBiz political purposes. Mr. Schellenberg also urged the administration to hire a Treasurer and Comptroller as quickly as possible to oversee the City’s investments, bond portfolio and accounting. CFO Ronnie Belton said that interviews with candidates were underway.
Motion: on p. 35, adopt Council Auditor's recommendation #3 to correct an error in a bond principal payment calculation by appropriating $1,190,000 rather than $119,000 – approved.
The committee discussed the Interlocal agreements with the Beaches and the landfill tipping fee disagreement. The City did not bill Atlantic Beach and Neptune Beach for the $600,000 tipping fee the City contends they owe for FY12. Council Member Joost felt the billing should take place regardless of the disagreement so that the City’s claim is on record. Jessica Deal stated that the Beaches cities have retained a consultant to study whether the City of Jacksonville’s solid waste user fee is recovering the full cost of solid waste service or is being subsidized by the General Fund. The City intends to start billing the Beaches as of October 1.
Motion
(Anderson): on p. 31, increase the Beaches solid waste tipping fee expense line
by $600,000 to account for the failure of Atlantic and Neptune Beach to pay the
fee the City believes they owe – withdrawn.
The Council Auditor’s Office will invite representatives of Atlantic and Neptune Beach to the meeting at which solid waste issues are discussed to give their input.
On p. 31 the committee discussed the $30,000 lease with WJCT for the jazz festival and requested further information on what property is being leased and why the term of the agreement is for 75 years. The committee asked for clarification of the budget for the proposed Downtown Investment Authority. Jessica Deal stated that it is currently budgeted as a combined figure for salaries and personnel with the Office of Economic Development until 2012-364 passes and the DIA is created.
Banking Fund
In response to a question, Mr. Sherman indicated that the Banking Fund is backed by a covenant pledge of all General Fund revenues except ad valorem taxes, which would require a voter referendum to be pledged. Mr. Hansen will make a detailed presentation on the Banking Fund on August 30th.
Capital Outlay
Motion: on p. 38,
adopt Council Auditor's recommendation #1 to remove the $223,556 carryover for
Fleet Management vehicle replacements (the funds will be encumbered in the
current fiscal year) – approved.
Motion: on p. 38,
adopt Council Auditor's recommendation #2 to correct two ITD index code
references – approved.
Public Service Grants
In response to a question from Council Member Boyer, Mr. Belton indicated that the administration did not consider reducing Public Service or Cultural Service Grant funding for FY13.
Motion: on p. 43, adopt Council Auditor's recommendation #1 to revise Schedule A-2 to increase the appropriation to The ARC Jacksonville by $1 – approved.
Intra-governmental Services Department
Mr. Sherman explained that the department is working its way out of a cash deficit of several million dollars resulting from insufficient billings over the course of several years, and for which it is making annual allocations to retire the deficit. Director of Intra-governmental Services Cole Cartledge introduced Usha Mohan, the Chief of Information Technologies to discuss her division’s budget. Ms. Mohan noted that the division is having a problem with attrition as employees nervous about the City’s budget prospects and layoffs leave for private sector jobs. Council members asked questions about the possibilities for consolidating IT operations with the independent authorities and about changing the method of allocating internal service charges to the user departments. Council Member Gulliford suggested consideration of charging for use of the Jax GIS system.
The committee discussed the procurement of and price for Sheriff’s Office computer data air cards, some of which are procured by ITD and others by the JSO. The prices differ and it was unclear if ITD charges a mark-up fee on top of the actual cost of the cards.
Motion: on p. 48,
adopt Council Auditor's recommendation to move the JSO’s wireless data cards
contract from the JSO budget to ITD and increase the ITD budget by $899,096
accordingly – fails 2-4.
Motion: on p. 58, adopt Council Auditor's recommendation to remove the proposed lapse of $65,579 from the Intra-Governmental Services Department budget and correspondingly remove 1 vacant position from the employee cap and eliminate the salaries and benefits for that position – approved.
Motion: reconsider the previous action – approved.
Motion: leave the vacant position within the department’s employee cap, but leave salary and benefits unfunded – approved.
Copy Center
Motion: on p. 61,
adopt Council Auditor's recommendation #1 to decrease printing and binding
expenses by $100,000 and allocate $88,124 to Special Council Contingency – approved.
Fleet Operations
Motion: on p. 64, adopt Council Auditor's recommendation to eliminate the proposed lapse of $345,185 and achieve the same effect by decreasing the employee cap by 9 positions and decreasing salary and benefits account by the same amount – dies for lack of a second.
Motion (Joost): on p. 64, eliminate the proposed lapse of $345,185 and de-fund salaries and benefits for 9 positions, but leave the positions in the department’s employee cap – approved.
Vehicle Replacement Fund
Motion: on p. 66, eliminate $696,193 of Banking Fund borrowing for purchase of replacement vehicles.
Motion: amend the previous motion to allow Fleet Operations to apply $333,244 in Vehicle Replacement cash carryover to offset a portion of the shortfall caused by the elimination of Banking Fund and allow for the purchase of some new vehicles – approved.
Kirk Sherman reported that as a result of the committee’s actions today the Special Council Contingency fund has a deficit of $7.2 million thus far.
Meeting adjourned: 5:34 p.m.
Minutes: Jeff Clements, Council Research Division
8.13.12 Posted: 5:00 p.m.
Tape: Finance budget hearing 8.9.12
Legislative Services Division
Attachments: Council Auditor’s Handout for Meeting #1, August 9, 2012
8.9.12