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Financial Forecast Minutes March 28 2019Minutes of the Financial Forecast Committee March 28, 2019 7:OOp.m. City Hall — Conference Room B In Attendance Chairperson and City Councilor Estelle Rand, Mayoral Appointee Paul Manzo, City Council Appointee Karen Fogarty, Finance Director Bryant Ayles, School Committee Member Rachael Abell, School Committee Appointee Medley Long, City Councilor James Latter, Beverly School Finance Director Jean Sherburne, and City Council Budget Analyst Gerard Perry. Absent was School Committee Member Kelley Ferretti. Also present were City Councilor's Scott Houseman and David Lang. Discussion Chairperson Rand opened the meeting indicating that the committee would explore the revenue's of the City of Beverly during this meeting. Motion made by Mr. Latter, seconded by Mr. Manzo to approve the minutes of the March 12, 2019 meeting, as amended by Ms. Abell. Motion passed unanimously. Mr. Ayles discussed new growth as well as how borrowing costs impacts the budget process. Mr. Ayles continued to discuss revenues and expenditures and that being conservative was an appropriate approach, given the new City of Beverly Financial Policies. General discussion occurred regarding what data sources could be used to "back up" estimating, such as a list of projects "in the pipe," however, consensus was that it would always be more of a "swag" than a "quantitative analysis," since empty lots can as easily remain empty longer than planned or building can be completed sooner than expected. Mr. Perry continued this dialogue about the undesignated fund balance, and how it impacts the free cash position. In discussing last year's realized new growth of $1.7MM against the forecasted $950,000, Ms. Fogarty questioned if the committee should be more accurate to avoid what looks to be a $1MM "slight of hand" each year. Mr. Perry further indicated that taking a conservative approach to forecasting will protect the undesignated fund balance, which is good for the finances of the City. Ms. Fogarty asked that we include language into the report to explain this concept, since it brings questions and mistrust. Councilor Houseman added that the intent of the Financial Forecast document is to advance people's understanding of the budget process in advance and agreed to the concept of adding more "definitions" since, Mr. Perry committed to adding language for the layperson to better understand the example discussed. Ms. Abell questioned how free cash has been used in the past, specifically as it relates to the recent request regarding school security costs, specifically wondering if using unanticipated new growth alongside certified free cash for funding a project was a new practice in the City or common practice in other municipalities. Mr. Ayles responded that it is the second year in a row he can recall Beverly using this approach, and it is an option available to municipalities "up until they set the tax rate." Once it becomes certified new growth, it can be spent. Mr. Manzo asked how often certified new growth happens in advance of setting the tax rate and again brought up further discussions on new growth, and the historical trends of this revenue, wondering if it is consistently above. Mr. Ayles reported that in the last three (3) years, it was just below one (1) time and just above the other two (2) times, adding that some categories are tied to very specific projects, which cause fluctuations, and that we would prefer to see positive variances. Councilor Houseman and Ms. Abell had questions about the decrease in Free Cash, specifically, Ms. Abell asked how prepaying OPEB and putting funds in the "Rainy Day" fund affected the number. Mr. Latter added shifting money toward pension liabilities, too, affected Free Cash. Ms. Abell also reminded the committee of her earlier questions about unspent project fund balances that are not on the General Ledger, and whether they could be turned back to effect this. Mr. Ayles explained that he and the Mayor were working with the municipal departments in an effort to get turn -backs to the general fund so that the undesignated fund balance would be better protected, for example approximately $400K of funds were unspent between DPS roof and airport projects, which would come back come back to City Council. Chairperson Rand restated that "turn backs" would contribute to the undesignated fund balance, which Mr. Ayles confirmed, saying that it is important to the City to be able to have free cash to fund capital projects like athletic fields or firetrucks, since the municipal modernization rules have taken away incentives from bonding. Ms. Abell questioned if some items in the Certified Audited Financial Report (CAFR), such as a line items for Worker's Compensation expense might have been paid to have an effect on operational budgets. Mr. Ayles tried to explain the complexities of worker's compensation, and how accrual accounting impacts the financial reporting of this category. He stated that it involved General Accepted Accounting Principles (GAAP). There was a general discussion again regarding new growth, and the various projects in the pipeline with the City. Then there was a general discussion of the City financial data, and that the administration always made a "good faith" effort to be transparent relating to the financial position of Beverly. Councilor Latter suggested the committee include more narrative on why it will "low ball." It was discussed that municipal finance can be complicated for the lay person, and that some citizens do not trust what is being reported. Councilor Houseman suggested that the new Financial Policies be incorporated into the Financial Forecast in an effort to better educate the citizenry. Mr. Manzo suggested adding a note about larger projects that are not a "trend" or "intentional under projection." Ms. Fogarty agreed the document needed to be readable by people outside City Council and this committee. It was generally agreed, again, to include the policy documents within the forecast document. Ms. Fogarty then led a discussion on the concept of being conservative with the financial forecasting. She explained she lived through the last downturn years ago within the City, and that we need to be vigilant to avoid a repeat occurrence. She reminded the committee how the City had structural deficits for three (3) years before the five (5) very good years, and wanted others to be mindful that the City weathered the downturn in 2008 better than some other communities since it had already taken hits and made cuts. Mr. Manzo asked about any additional one -time revenues. Chairperson Rand specifically asked about the former Briscoe Middle School, to which Mr. Ayles, replied it would only be a "dart on the dart board." Ms. Abell asked Mr. Ayles what next year looked like for growth such as the buildings on Rantoul, Cherry Hill, and Whole Foods plaza, which went into another conversation about new growth. Mr. Latter said it can be tricky since the old Ford site moved from Commercial to Residential, which is less valuable from a tax perspective. Mr. Manzo discussed whether the report should include information about adopted versus actual information, and how the document could be more useful. Mr. Perry indicated that from his experience, Beverly's financial forecast was better than most other municipalities, and that anything beyond a couple of years is not an indication of what will actually happen. He suggested that financial forecasting was a tool to make sure a municipality does not go "off the rails." It was extremely difficult to predict with a certainty what the future will look like and that forecasts don't usually include actuals, which Ms. Fogarty agreed would be useful to see in the reference to prior forecasts against actuals. Ms. Abell offered how she sees value in providing a historical reference to prior forecasts don't actually include actuals, which Ms. Fogarty agreed a five (5) year look back at appendix to make it more transparent and available. The committee agreed a five (5) year look back at prior would serve the purpose. Mr. Latter said he could look to provide the source files for those to Mr. Perry. Mr. Manzo made a motion to approve the revenue forecast as presented by Mr. Ayles, seconded by Ms. Fogarty. Motion passed unanimously. Chairperson Rand suggested that the April 1s' meeting would be a discussion regarding certain expenditures, but may not include school expenditures. The April ls' meeting would commence at 6:00p.m., and that it would conclude at 6:45p.m., due to the City Council meeting. Motion made by Mr. Latter, seconded by Mr. Manzo, to adjourn the meeting at 8:20p.m. Motion passed unanimously. Respectfully Submitted, Gerard D. Perry City Council BudgetAnalyst Agenda March 28, Financial Forecast Meeting #3