Finance Committee, Dec. 10, 2018

December 24th, 2018  |  Published in Observer Reports

Finance Committee
Dec. 10, 2018

Present: Council members Sean Malone (chair), Earl Williams, Robert Zimmerman; citizen members Thomas Cicarella, Martin Kolb, Linda Lalley, Anthony Moore
Others present: Mayor David Weiss, Chief Administrative Officer Jeri Chaikin, Director of Public Works Patricia Speese, Human Resources Manager Sandra Middleton, Director of Finance Robert Baker, Assistant Finance Director Cheryl Arslanian

The meeting was called to order by Mr. Malone at 7:31 a.m.

 Agenda—Committee actions:

  1. Me. Malone presented the minutes of the Nov. 19, 2018, meeting. The minutes were approved without further discussion.
  2. Ms. Speese presented a recommendation to approve and authorize the execution of a Community Cost Share Agreement with the Northeast Ohio Regional Sewer District in the amount not-to-exceed $50,000 for the Fairhill combined sewer overflow (CSO). The NEORSD notified Public Works that this outlet pipe for combined sewer overflow, located north of the Fairhill Road and Kemper Road intersection, discharges into Doan Brook and is owned by the city. NEORSD proposed a cost share for replacement since district flow is conveyed through the CSO during wet weather events. They are agreeable to paying 50 percent of the cost with a not-to-exceed $50,000. Mr. Malone wished to know if the work would include new sidewalks. Ms. Speese replied that the work area is between the sidewalk and Doan Brook, so only trees would be impacted. The recommendation was approved.
  3. Ms. Speese next presented a recommendation to accept a proposal and authorize a contract with GPD Group for design services for the Avalon and Strathavon Waterline Project in the amount of $53,622. Public Works applied for and received funding from Cleveland Water’s Suburban Water Main Renewal program to replace the water mains on Avalon Road (Fernway Road to Van Aken Boulevard) and Strathavon Road (Lomond Boulevard to Scottsdale Road). Cleveland Water Department (CWD) has agreed to pay for this project on the condition that Shaker Heights design and manage the project. CWD will pay the city the total costs of the design and construction. Mr. Kolb expressed surprise in the variance between bids for this design work. Ms. Speese echoed his surprise, but offered no explanation. Mr. Baker said that more than a decade ago, the city owned the water lines but transferred ownership to CWD with the stipulation that the city’s maintenance needs would be prioritized over other schedules. Ms. Speese remarked that since that time perhaps $20 million of repairs had been made whereby the money is transferred from CWD to the city up front and the city manages the design and implementation. Mr. Zimmerman expressed curiosity as to why the CWD had agreed to this arrangement. Jeri Chaikin interjected that this allowed income tax to be shared with CWD. Mayor Weiss wished to know if there was any risk CWD might balk at accepting anything other than lowest bid. Ms. Chaikin replied that the city has procurement authority, which saves CWD money for project management. The recommendation was approved.
  4. Ms. Chaikin presented a recommendation to approve and authorize a contract with the Cuyahoga County Board of Health (CCBH) in the amount of $135,033 for 2019 and $155,041 for 2020, to handle health permitting, licensing, and enforcement under Ohio law, and to provide various health-related services to the city’s residents. The State of Ohio adopted a requirement that all city health departments become accredited by the federal Public Health Accreditation Board by July 1, 2020, or lose necessary funding from the Ohio Department of Health. The city’s Health Department could not achieve public health accreditation without substantial additional resources and reorganization. Council voted on Nov. 13, 2017, to close its own Health Department and join the CCBH, effective Jan. 1, 2018, at a savings of $245,000 each year. Mr. Zimmerman asked if our health services had improved. Ms. Speese volunteered that the CCBH had provided training for Public Works employees regarding health impacts of storm sewers. Ms. Chaikin added that CCBH had specialists for many types of disease that impact public health. Ms. Lalley asked if the city had any mechanism to control CCBH costs—any comment or oversight authority. Ms. Chaikin said she would check, but added that the CCBH Advisory Council includes area mayors; she will inquire further. Mr. Malone asked if this increase was a “bump” or should it be expected every few years. Ms. Chaikin said the cost had been stable many years and the rise was mostly due to the recent state-mandated accreditation requirements. Mr. Malone asked if there were alternatives to using the county services. Ms. Chaikin answered that a city could either fund their own department or use the county services. Mr. Kolb reminded everyone the decision to suspend the city’s health department and utilize the CCBH had been debated extensively by City Council in 2017. Tom Cicarella remarked it would be helpful to find who had the power to control CCBH costs. Mr. Moore asked if the community understood the change from Shaker’s Health Department to CCBH services and how residents could get these CCBH services. Ms. Chaikin replied the City’s Health Services web page provided instructions on how to receive CCBH services and added that people who had used the city’s health services in the past had been personally notified. Mr. Moore added we should promote these expanded health services in coordination with the increase. The recommendation was approved.
  5. Ms. Middleton presented a recommendation authorizing a contract with McGowan Insurance for property and casualty insurance in the amount of $341,384 for the year 2019. This coverage includes automobile, general liability, property, public officials, law enforcement, fire department liability, employment practices, boiler and machinery, money and securities, computer, and valuable papers, to name a few. A Request for Proposals was sent to four agencies that have specialized experience insuring public sector clients; only McGowan Governmental Underwriters, the incumbent agent, provided a proposal, with a 6 percent increase. The overriding reason given for the agent/markets withdrawal from the process was the state of the city’s dams on Doan Brook. Mr. Moore complimented Ms. Middleton for the clarity of her report regarding the city’s dams. Mr. Williams added that insurance for the city had also increased due to lack of Americans with Disabilities Act (ADA) compliance in some buildings and asked if claims had been filed. Ms. Middleton answered that no ADA claims had been filed, but the insurance increase would cover building upgrades should a claim be filed. Mr. Kolb wished to learn what claims were common. Ms. Middleton answered that personal injury and property claims due to auto and refuse scooter accidents were most common, and that there were some personal and property claims due to sewers and sidewalks. Mr. Williams said the city has “sovereign immunity” for some police and fire claims. Mr. Malone added the recent and ongoing Upper and Lower Lake dam repairs should affect insurance rates in the future. Mr. Williams asked if the insurance agents had received the Army Corps of Engineers reports on the new dam. Ms. Middleton replied they had. Mr. Cicarella recommended that the coverage increases, not just the overall 6 percent increase, be emphasized for City Council. The recommendation was approved.
  6. Discussion Item—Proposed 2019 General Fund Budget: Mr. Baker presented the latest update to the city’s 2019 Budget, which will be presented to City Council for approval at their final meeting of the year, Dec. 17, 2018. He offered some highlights:
    • The final RITA income tax distribution will occur the week of Dec. 10. Unfortunately, the trend since July has been down; in fact, the collection the first week of December was negative. He expects the month to be down $500,000-$600,000 compared to 2017. As has been discussed at previous Finance Committee meetings, his theory is that the 2018 federal tax code changes eliminating the state and local tax deduction are significantly impacting the collection of income taxes from those who estimate quarterly; withholding tax collections have not fallen. Conversely, RITA receipts in the first half of 2018 were higher than 2017, so a question is: will the 2018 shortfall be the new reality or will it be recovered in April 2019? In any event, the city will not know the answer until May 2019 and should budget accordingly. The Net General Fund end-of-year 2019 balance will shrink to $7,198 as a consequence of the 2018 revenue shortfall. This is “noise” level, leaving no room for surprises. The city’s reserve will decrease from 33.5 percent to 32.4 percent of expenses but the city will maintain an excellent credit rating.
    • The positive news is that Dec. 5 was the final date for 2018 payments to vendors/suppliers, so 2018 expenses are on the books and almost all departments spent under their 2018 budgets; only the Recreation Department exceeded its budget (by $200,000). The Police Department was significantly under budget in 2018 due to challenges filling open positions but is now at full strength for 2019.

Mayor Weiss said that some 2019 Budget Book items that had not historically been funded were now removed in order to maintain a positive 2019 General Fund balance, and transfers from the General Fund to Capital Funds during 2019 would be reduced by $1.7 million compared to 2018. Mr. Moore asked if the Cost of Living Adjustment (COLA) for city employees was budgeted. Ms. Chaikin replied that any COLA increase for Public Works employees, retroactive due to the 2018 contract extension, was not included and any COLA increase exceeding 2 percent was not budgeted. Ms. Lalley asked if the city was being too conservative, given the public perception that the economy was good and people were earning and spending more. Mr. Weiss said these budget changes were not permanent, only temporary. Mr. Baker added that Ohio statute allowed only 90 days for “temporary” budgets, meaning a permanent budget must be adopted by April; however, as the city would not know the full revenue impact of federal tax law changes until May 2019, a “temporary” budget was not an option. Mr. Kolb questioned why we would not see revenue until June. Mr. Baker replied that RITA would not know actual tax receipts until May and would not credit the city before June. Mr. Kolb asked if the budget would be revisited in April. Mr. Baker replied that it would. Mr. Zimmerman commented that it was the most responsible action to be conservative at this time. Mr. Moore agreed it would be most fiscally responsible, but it did not match the public perception of a good economy, so perhaps the city needed to choose a “softer” description of the situation. Mr. Williams commented that the city was still trying to maintain a governing style from the time when estate taxes could be collected by the city, but we now had to concentrate more on income tax revenue, which will take time. Mr. Cicarella supported Mr. Baker’s theory regarding the federal tax law change driving the revenue shortfall in 2018, but questioned if it was merely delayed until April 2019 or permanent. Ms. Chaikin questioned whether the shortfall should be taken out of 2019 expenses or Capital Fund transfers. Mr. Malone agreed it was important how this was presented at the City Council meeting on Dec. 17.

Mr. Malone adjourned the meeting at 8:43 a.m.
Frank Goforth

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