Finance Committee, August 2018

August 24th, 2018  |  Published in Observer Reports

Finance Committee
August 20, 2018

Members Present: Council members Sean Malone (chair), Nancy Moore, Earl Williams, and Robert Zimmerman; citizen members Thomas Cicarella, Martin Kolb, Linda Lalley, and Anthony Moore
Others present: Mayor David Weiss, Chief Administrative Officer Jeri Chaikin, Director of Public Works Patricia Speese, Director of Finance Robert Baker, Assistant Finance Director Cheryl Arslanian, Assistant Fire Chief James Heath, auditors Chad Gorfido and Alex Pizor

The meeting was called to order by Mr. Malone at 7:30 a.m.

 Agenda—Committee actions:

  1. The minutes of the July 16, 2018, meeting were approved.
  2. Speese recommended awarding a contract to GPD Group for consulting services for the Fernway sanitary sewer overflow (SSO) project in the amount of $79,112 so the city can proceed with this improvement. The Northeast Ohio Regional Sewer District (NEORSD) will reimburse the city $39,556 of this cost. Shaker Heights was awarded a grant through the sewer district’s Member Community Infrastructure Program (MCIP) to mitigate the number of activations at the SSO at Fernway and Ingleside roads. The estimated cost for the project, including construction, is estimated to be $800,000. NEORSD will reimburse the city for 50 percent of the project cost. Mr. Malone asked if consultant studies like this had been done for past projects. Ms. Speese answered that the city had recently begun to do so for complex projects. Ms. Lalley asked if GPD would consult on future SSO projects. Ms. Speese said GPD may or may not be used, because each SSO project is different. Nancy Moore commented that the recommendation was approved unanimously by the Safety & Public Works Committee. She further commented that Cleveland Heights is working on their SSO under a consent decree with the EPA, which we want to avoid. The city’s Public Works Dept. has now proactively addressed two of Shaker’s seven SSO locations. Ms. Lalley asked if the $800,000 was an estimate. Ms. Speese said it was, and that the contract with GPD was part of upfront due diligence for the project. Ms. Speese said the project would start this fall and be completed next year. Mr. Malone asked if there was a master list of vetted consultants, and Ms. Speese said there is and that the list would be supplied to the committee. The committee approved the recommendation
  3. Speese requested an appropriation of $100,000 for the Larchmere/Kendall parking lot Green Infrastructure Grant from the NEORSD. These funds will be reimbursed by NEORSD at the completion of the project. The estimated cost for this parking lot improvement was originally $135,000, which includes design and construction. The city’s application included an 80/20 split. Shortly after starting construction, contaminated soil was encountered where a 1920s-vintage gas station had been located. The soil is now considered hazardous waste. The removal will cost an extra $137,000, doubling the project cost. Mr. Williams asked whether an insurance claim had been pursued and Ms. Speese said “not yet.” The request was approved.
  4. Chief Heath asked the Finance Committee to accept a grant from the State Board of Emergency Medical, Fire, and Transportation Services and appropriate $3,360 to the Fire Department operating budget for the purpose of purchasing EMS supplies for the department’s rescue squads. This item was approved by the Safety & Public Works Committee on August 3, 2018. Mr. Cicarella remarked this seemed an easy approval but asked if more money was needed. Mr. Heath replied this was a small amount compared to EMS spending, but every little bit helps. Mr. Malone asked if this amount covered only consumable items and Mr. Heath replied it would be spent on non-consumable items as well, since Ohio has set limits on how the money may be spent. The request was approved.
  5. Baker presented a recommendation to adopt the property tax rates approved by the County Budget Commission. The County Budget Commission has set the city’s 2018 Property Tax Rate, to be collected in 2019, at 9.9 mills. Property taxes known as “inside millage” pass through a county to the municipalities inside each county. State law requires that the city adopt the tax rate determined by the Budget Commission before the taxes can be levied. The city’s property tax rate has remained unchanged since 1993. Mr. Malone noted from the memo that the 2018 reappraisal would result in approximately an 8% revenue increase for the city. Mr. Baker reminded the committee that Ohio’s House Bill 920 limits schools and libraries to a dollar value set when levies are passed, but said the city’s general fund would receive something near an 8.2% increase. Mr. Malone asked how 8% compared to past appraisals and Mr. Baker answered that the countywide increase was 9%. Nancy Moore commented that other suburbs appraised higher, and Mr. Baker said that East Cleveland appraisals decreased. Mr. Kolb volunteered he had heard that the increase in Shaker was larger, and Mr. Baker clarified that 8% was the average residential increase, while commercial appraisals increased 12.1%. Earl Williams commented that the residential market had improved. Mr. Baker asked if anyone in the room had an actual reappraisal visit, but no one had. Mr. Williams asked how often the reappraisal was done and Mr. Baker answered that it was a three-year cycle. Ms. Lalley asked, given East Cleveland’s falling values, if the county could reallocate the millage among cities. Mr. Baker replied that technically it could, but realistically it would not. He said that East Cleveland is a problem the county and state have not been able to deal with—that there seems to be no option except absorption by another city, but no city will volunteer. Ms. Lalley asked if discussions had been held with Cleveland and Mr. Baker said Cleveland was not interested in having any. Mayor Weiss changed the subject back to our own increase and asked if our valuations had recovered to pre-recession levels. Mr. Baker answered that they had. Mr. Kolb corrected this and explained that while individual values had recovered, many vacant properties had been demolished, so that the city’s total value had not fully recovered. Mr. Malone added that there were fewer vacant properties this year and Ms. Chaikin clarified that there were fewer empty houses but still many vacant lots. The recommendation was approved.
  6. Baker recommended a resolution requesting advances of the 2018 property taxes collected in 2019. Each year, the County Fiscal Office requires the city to formally request to participate in the County Fiscal Office tax-advance program for the following year. Under this program, the County Fiscal Officer will make periodic advances of up to 90% of the property taxes collected on the city’s behalf by that office as the revenue is identified. The recommendation was approved.
  7. Auditors Chad Gorfido and Alex Pizor of Rea & Associates then presented their Comprehensive Annual Financial Report (CAFR). They summarized they had “no concerns” with the city’s financial processes and reporting. Earl Williams asked if the rating for the city had been upgraded from 2017 and the auditors stated the city will be back to a “low risk” rating. Mr. Baker explained that highway project payments made by the city to contractors “pass through” ODOT. ODOT in 2015 had not properly reported expenses to the city and this negatively affected the city’s books and audit. Ms. Lalley, moving to another topic, asked how far “out the wire” does Shaker extend control of its data—does it extend as far as remote workers and consultants? The auditors answered that they had no concerns regarding the IT department’s ability to maintain network and data security. Mr. Baker remarked that Shaker’s accounting system and audits are helped by the city’s participation in Ohio’s statewide pension system, OPERS. Cities with independent pensions have difficult audits. Anthony Moore asked how long Rea & Associates had been performing city audits and Mr. Baker said two years.
  8. Baker then presented the 2018 Second Quarter Budget Update. He cautioned that although income tax receipts were far ahead of 2017’s second quarter, they were lower than 2017 for June and July. He would guess that income taxes are being paid early this year due to changes in the 2018 federal tax code. He does expect 2018 to exceed 2017, but not by the same percent as the first half year. Property taxes were $418,000 ahead of 2017 through June, but have since shrunk to a $78,000 positive variance with August receipts. Receipts of “other income” are down $153,000 from 2017, mostly due to the non-repeatable income from RMS and Van Aken District construction in 2017. Expenses, which are more controllable, are running below 2017 on a percentage basis through the second quarter; with 50% of the year complete, the city’s expenses required only 48% of 2017 first half actual. Ms. Lalley asked when new Van Aken District employee income taxes will impact the budget. Mr. Baker replied that some tenants are operating, and that receipts from withholding will begin within the next two months, but they will not be reliable numbers for forecasting. Mr. Kolb noted that although net revenue less expenditures for the first half of the year was $7.6 million, only $2.9 million had been transferred to the various funds. Mr. Baker said that revenue less expenditures for the first half of 2018 were just $11,000 less than the first half of 2017, so caution was in order. Mr. Kolb reminded everyone how operating surpluses were transferred to capital project funds during the year in order to make the city function. He also hoped that the city would end the year with a greater surplus to transfer. Mr. Malone asked Mr. Baker if he felt we would still receive more revenue in 2018 than in 2017. Mr. Baker answered that 2018 tax withholding revenue was greater than 2017, which would imply that Shaker taxpayers are earning more, so if withholding turns into collection, then the city will do fine. Mr. Williams asked when the increased Shaker Library levy would impact residents and Mr. Baker answered that the levy would affect 2019 taxes based on 2018 appraisals. Mr. Baker said that decentralized purchasing by the separate departments helped the city better control expenses.

The meeting was adjourned at 8:52 a.m.
Frank Goforth

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