HomeMy WebLinkAboutMinutes - 6/30/2008 - Finance and Personnel Committee FINANCE AND PERSONNEL COMMITTEE MEETING
`-- Monday, June 30,2008
Aldermen's Conference Room, 6:30 p.m.
In Attendance:Committee Members: Chairman Alderman Murgatroyd, Alderman Peterson. and
Alderman Schaefer. Abserrt: None.
Also in Attendance: Mayor Low, City Administra.tor Maxeiner, Director of Finance Black and City Clerk
Jones.
Chaimian Alderman Murgatroyd called the meeting to order at 6:45 p.m. He apologized to those in
attendance, citi�ig problems with traffic for the delay in his arrival.
City Attorney McArdle arrived at 7:17 p.m. Alderman Wimmer arrived at 7:25 p.m.
Discussion Re�ardin�Water/Sewer Fund
Finance Director Black reiterated to the Committee that during the May 19, 2008 Finance and Personnel
Committee meeting it was determined that water and sewer rates should be set based on a cash-needs
approach. He explained that the cash-needs approach refers to total revenues required by the utility to
meet its cash eYpenditures. However, it was noted at that time that more refined capital improvement
expenditure information was required to assist in setting rates.
Staff has reviewed the potential timing of future capital improvements to better estimate future expenses.
Additionally, Sta.ff assembled scenarios for potential rate increases necessary to adequately fund water
and sewer operations,as well as rates necessary to fund the water and sewer utility's share of the purchase
� and remodeling of the public works building over a multi-year period.
Director Black explained the financial condition of the Water/Sewer Fund in an effort to provide some
perspective to the rate setting analysis. He noted that for the Water/Sewer Fund the amount of fund
balance is not the best indicator of financial condition because the utilities possess physical assets (i.e.,
buildings, infrastructure and equipment) that increase the fund balance but do not provide the liquidity
needed to sustain operations. Finance Director Black opined the best indicator of the fmancial condition
of the Water/Sewer Fund is the amount of cash and cash equivalents.
Director Black informed the Committee that cunently the amount of cash and cash equivalents in the
Fund are at an adequate level,but the Fund level has steadily declined over the last three fiscal years.
Water Fund
Director Black provided estima.ted water division expenditures for the next three to five fiscal years. He
noted that capital improvements are limited to debt service for Lhe purchase of the public works facility,
water meter replacements and vehicle purchases through Fiscal Year 2012/2013.
The Water Division will provide a one time tra.nsfer of$285,000 for the remodeling of the public works
facility in 2008/2009, as well as approximately $73,000 annually for debt service related to the purchase
of the property. Director Black provided the Committee with a chart illustrating the rate increases
necessary to recover the remodeling cost over 3, 4 and 5-yeax periods. He noted that each scenario
� included an additiona.l increase for the final six months of the current fiscal year and an annual increase in
each year thereafter. The debt service for the purchase would be an annual cost over the 20-year life of
the bonds. The annual debt service is equal to the revenue generated by a 4.1%increase in the 2008/2009
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Finance and Petsonne l Committee Meeting
June 30,2008
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water rates. A: water rates increa.se over time the annual debt service will decrease as a percentage of
water sales reve nue.
Sewer Fund
Director Black provided the Committee with illustrations showing the estimated sewer division
expenditures (cz�sh basis) for the ne�five fiscal years. Capital improvements are limited to debt service
for the purchase of the public works facility, vehicle purchases and a one time contribution for the
Millstream project ($380,000 - 2009/2010 only), through 2012/2013. Director Black opined it is likely
that when the C'ity starts the South Wastewater Trea.trnent Plant (SWWTP) expansion construction and
the related conveyance line and decommissioning of the Central Wastewater Treatment Plant, projects
scheduled during the ne�five years, would require additional rate adjustments.
The Sewer Division will provide a one time transfer of$35,200 for the remodeling of the public works
facility in 2008/2009, as well as approximately $9,500 annually for debt service related to the purchase.
In contrast to the Water Division, the amount of the one-time transfer does not represent a significant
enough portion of annual revenues to necessitate a multi-year cost recovery.
Director Black opined the one-time outlay for the Millstrea.m project should be recovered over a multi-
year period because of the project's long term useful life and the size of the expense. Director Black
illustrated the rate increase necessary to recover the $385,000 for the Millstream project over a 5-year
period, including an additional increase for the final six months of the current fiscal year and annual
increases in each year thereafter.
�-' Director Black stated that funding major improvements over a multi-year period is sensible because it
reduces fluctuations in annual revenue requirements and more closely matches the useful life of the
facility or improvement. Staff believes it would be appropriate to recover funds for the Water Division's
share of the public works building and the Sewer Division's outlay of the Millstream project over a 3-year
period, at a minirnum.
Director Black stated it is important to note that the information presented should be viewed as a plan that
will change over time. Operating expenditures will be reviewed annually through the budget process and
could be lugher or lower than the current projections. Also, capital improvement projects may be added,
which would require additional expenses in the form of debt service payments or transfers to the Utility
Improvement Fund. Water and Sewer rates will need to be adjusted annually based on funding
requirements.
Responding to an inquiry from Chairman Alderman Murgatroyd regarding whether the numbers provided
take into account new users,Finance Director Black responded negatively,stating that the numbers reflect
the status quo.
Responding to an inquiry from Alderman Schaefer as to whether the entire Millstream Property Project
must be in the TIF District in order to qualify for funding, City Administrator Maxeiner stated only the
portion of Millstream Property located within the TIF District qualifies; the portion of the property
outside the TIF District does not.
Chairman Alderman Murgatroyd stated it is appazent that some type of rate increase is necessary. He
opined that a raxe increase over time would permit property owners an opportunity to adjust gradually to
L. the increase. Chairman Alderman Murgatroyd noted he could support a rate increase,as soon as feasible,
Finance and Personn��l Committee Meeting
June 30,2008
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to be implemented over a period of time beginning November 1, 2008 with increases annually over either
a 3,4 or 5-year period
Responding to an inquiry from Alderman Peterson regarding administrative and personnel expenditures,
City Administrator Maxeiner stated the figures for the most part remain close over time.
Alderman Peterson suggested a certain percentage increase, plus the CPI. Chairman Alderman
Murgatroyd opined a dollar amount increase sounds less oppressive than the sound of a percentage
amount, even though they amount to the same.
City Attorney McArdle arrived at 7:17 p.m.
Alderman Peterson suggested a 7% increase in water and a 7% increase in sewer. He expressed his
concern regarding energy costs and increasing expenses.
Motion by Peterson, seconded by Schaefer,to recommend to full Council an increase of 7%in water rates
and 7%in sewer rates, effectively immediately,and for the next three fiscal years.
Aye: Murgatroyd,Peterson, Schaefer.
Nay: None.
Absent: None.
Motion ca.rried.
Alderman Wimmer arrived at 7:25 p.m.
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Discussion Regarding Municival Banking Services
Director Black informed the Committee that in February 2008 the City opened proposals for banking
services. Amcore, Fifth Third Bank, First Midwest Bank, First National Bank, Harris Bank, JP Morgan
Chase, McHenry Bank and Trust,and McHenry Savings Bank submitted proposals.
An evaluation team consisting of three sta.ff members from the Finance Department reviewed the
proposals. The criteria to evaluate the proposals consisted of
• Financial strength of institution;
• Experience in providing banking services to similar accounts;
• Proven capabilities and references;
• Ability to meet current and projected service requirements;
• Interest rates offered and benchmarks used on the accounts;and
• Cost of providing seroice.
After reviewing the written proposals the evaluation team conducted interviews with four finalists,
Amcore Bank, First Midwest Bank, First National Bank and McHenry Bank and Trust. The committee
selected McHenry Bank and Trust to provide comprehensive banking services for the City of McHenry
based upon the evaluation. It was determined that McHenry Bank and Trust demonstrated a capability
and commitment to meeting the City's needs and the fees and interest rates are comparable to the best
offered in the proposals.
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June 30,2008
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Motion by Peterson, seconded by Schaefer, to recommend to full Council that McHenry Bank and Trust
be awarded a contract to provide banking services for a three-year period to the City of McHenry at an
appro�umate annual cost of$8,530.
Aye: Murgatroyd,Peterson, Schaefer.
Nay: None.
Absent None.
Motion carried.
Adiournment
Motion by Peterson, seconded by Schaefer,to adjourn the meeting at 7:27 p.m.
Aye: Murgatroyd, Peterson, Schaefer.
Nay: None.
Absent: None.
Motion carried.
Respectfully submitted,
C. ,
Steven C. Mur�atroyd, C irman
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