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HomeMy WebLinkAbout06-12-19 Personnel and Finance d U CH w aj PEACE ',,,,,,I0 86,4 OFFICE OF THE CITY CLERK KAREEMAH FOWLER, CITY CLERK PERSONNEL& FINANCE JUNE 12, 2019 5:00 P.M. Committee Members Present: Karen White, Regina Williams-Preston, John Voorde, Jo M. Broden (late) Committee Members Absent: None Other Council Present: Tim Scott, Sharon L. McBride Other Council Absent: Jake Teshka, Dr. Oliver Davis, Gavin Ferlic Others Present: Jennifer Coffman, David Moses Presenters: Daniel Parker, Amy Shirk Agenda: Overview of the City's Debt and Current Reserves—Daniel Parker, City Controller Committee Chair Karen White called to order the Personnel and Finance Committee meeting at 5:00 p.m. She introduced members of the Committee and stated, In way of a background in terms of the different educational series that we have had, as most of you are aware, in 2019 we had fourteen (14) budget hearings, and part of those budget hearings, a number of suggestions were made. One (1) is that we need to start the budget process earlier and look at certain information, so the educational budget series was in response to that particular request. The first (1st) budget series that we had was held in December where we focused on TIF and all that information is available on our website and the PowerPoints as well. The second (2nd) educational budget series was 2020,the Fiscal Curb, and we've been talking about up to that point,the fiscal cliff, so it's now the curb. The issue that we wanted to share was its impact. We know it's going to impact the City but also to look at how we have prepared for that, so preparing for 2020 is not something that has caught us off guard. We've had a number of discussions and that PowerPoint information is also on the website. Today we're going to be looking at the cash reserves and the debt position. There are a lot of discussions within the community as well as even among Council Members in regard to what do we have to deal with, and what are we looking at from a financial perspective as we prepare for the 2020 budget. And again, one (1) of the other suggestions was that we need to start with this first (1st), and then we'll move towards the 2020 budget hearings. She continued, I've made a number of changes in terms of the budget process, and I think it's going to be very helpful. Once I hear back from the Council Members, then we'll be able to share that process. But I think it's going to be one (1) that will really allow more in-depth discussion. We'll be focusing very quickly on the numbers, but also to give those department heads the opportunity INTEGRITY' SERVICE'ACCESSIBILITY JENNIFER M.COFFMAN BIANCA L.TIRADO JOSEPH R.MOLNAR CHIEF DEPUTY/DIRECTOR OF OPERATIONS DEPUTY/DIRECTOR OF POLICY ORDINANCE VIOLATION CLERK. EXCELLENCE I ACCOUNTABILITY I INNOVATION I INCLUSION I EMPOWERMENT 455 County-City Building 1227 W.Jefferson Blvd.I South Bend,Indiana 46601 1 p 574.235.92211f 574.235.9173 I www.southbendin,gov •CITYOF SOUTH BEND OFFICE OF THE CLERK to talk about the 2019 budget and to see where they're at, what's working, what they would have done differently, and then we'll actually kick off the 2020 budget hearings in July of this year. Committee Chair White proceeded to give the floor to the presenters. Overview of the City's Debt and Current Reserves—Daniel Parker, City Controller Daniel Parker, City Controller for the City of South Bend with offices located on the 12th floor of the County City Building, stated, Thank you guys. This is a great topic. I really appreciate the whole educational budget series,particularly today's topic because what we're going to talk about today is cash reserves and debt, and those are things that are a little bit different than what we normally talk about in the budget process. What I wanted to do first (1) (referencing a slide in a presentation which is available in the City Clerk's Office) is to throw up what we consider to be sort of our, when we do our financial analysis,the things that we look at. Really our four(4)main areas, and there are other things we look at especially under each of these four(4) areas,but within the four (4) major domains that we look at, these are kind of the things we look at on a daily, monthly, yearly basis to make sure the City's financial position continues to be strong. Within the budget process, or the traditional budget process without these educational budget sessions, most of the time we are talking about this area all the way in the lower right corner(referencing a slide in the presentation), the revenues and the expenditures. We spend most of our time talking about how much money we are going to bring in and how much money we have to pay out, which is great, it is very important, and it drives a lot of these other areas,but that's only one(1) component of the City's fiscal decisions. Particularly in my position and speaking for the entire Admin and Finance Department,we spend a lot of our time,we spend a lot of our time dealing with operations, but,we spend a lot of our time focusing on the balance-sheet side of our fiscal operations,meaning our assets and our liabilities. He continued, So, if you look at these other three (3) areas on here, liquidity means our cash reserves, so liquid assets. What can we actually liquidate in the liquidity reserves? Also meaning cash we have in the bank and investments we make. We'll talk a little bit about that today in terms of our cash reserves. Debt is our primary liability. So, what do we have out there outstanding in debt? What do we owe? What kinds of obligations do we have? We'll talk through that. Capital assets, we're not going to get into as much today, but the reason why it is such an important component of our overall fiscal analysis is when we look at our future obligations, they may not necessarily be things that we've already entered into, but things that are going to come down the line. We need to take a look at how our capital assets are maturing,how we are going to be able to repair,replace and maintain them over the next thirty(30), forty(40), and fifty(50)years. So that's an area that we are definitely looking more and more at. How do we develop asset replacement schedules? We want to make sure that we know as assets come to be repaired and replaced, we know that ahead of time and can prepare for that financially. So, we're not goingto talk as much p p Y about capital assets today but are definitely going to hit on the top two (2): liquidity and net. He went on, So, moving into liquidity, again, this (referencing a slide in the presentation) is representing our cash assets, primarily. Cash assets and our investments. When we look at cash- on-hand, I think a lot of you have seen this chart before, this is total cash-on-hand as of the end of the year for the past ten (10) years. It ends in 2018 and I didn't put year-to-date 2019 on here just because the way our cash flow works, it might be a little bit misleading. As of the end of April, so everyone's aware, as of the end of April, our cash position was about $260 million. The reason EXCELLENCE I ACCOUNTABILITY INNOVATION INCLUSION I EMPOWERMENT 455 County-City Building 227W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f574.235.9173 TTD 574.235.5567 www.southbendin.gov 2 .,CITY OF SOUTH BEND OFFICE OF THE CLERK why that's a little bit lower than the $288 million you see on there is that we get property tax income twice a year in June and December. So, we are going to get another influx of property taxes here in June which will sort of replenish some of the cash that we've seen go down since the beginning of the year. Committee Chair White asked, So that's normal? Mr. Parker replied, It is normal. Every year we see it goes down,it goes back up as we get property taxes, then it goes down and goes back up in December. Those are normal spikes as we get the property tax distribution from the County. He continued, What we see here at the $288 million at the end of the year 2018, that does not include restricted cash. So, there is cash that we have that is held in trustee accounts. Mainly, that is cash from bond issuances that we've done. So, we issue a bond, get the proceeds in, it is held in a trustee account, used for only a very specific capital project, generally. That is not included in that $288 million there. So, this is the total cash-on-hand as of the end of the year. As I said, this includes cash and our investments. The majority of that $288 million, about $185 million of it is in investments.The other$100 million or so is in cash in the bank.That investment policy decision is actually here before Council through the Board of Finance, which meets once a year. Are there any questions with our cash balance as it stands today? Committee Chair White opened the floor to questions from Committee and Council Members regarding the cash-on-hand. There were none. Mr. Parker continued, One(1) of the biggest questions that I get, so that$288 million sounds like a lot of money, what does it actually mean for us from an operational perspective? So, one (1) of the ways you can look at this is how does that $288 million compare to our annual expenditures? So, we have, right now for our 2019 budget, our annual expenditures total $368 million. That's what the 2019 original budget was, $368 million dollars. So, our cash-on-hand, cash and investments of$288 million is about seventy-eight percent (78%) of that. What I did is I went through Indiana's Gateway website and looked at where other cities stand relative to South Bend and the cash that they have on-hand and their annual expenditures. As you can see (referencing a slide in the presentation), we kind of are in the top half. And this, to me, is really the sweet spot of where I would want South Bend to be; not at the top, I don't want to be at the top, the reason you don't want to be at the top is because what that means to me is you're keeping too much cash on hand. You're not using it enough to invest in priorities and infrastructure and all the priorities that you have as a City. You certainly don't want to be at the bottom of this list either, though. Because what that means if you're at the bottom of this list is either you're currently going through fiscal challenges, which some of the cities towards the bottom of the list are currently going through fiscal challenges; property values declining, income declining, that kind of thing. Or, particularly when you look at a city like Carmel, they may not be going through fiscal challenges currently, but if they were to experience a downturn economically and property values were to stagnate, or incomes were to go down, they might be in trouble from a perspective of being able to meet their debt covenants, being able to continue to finance the services they provide historically. So, to me, South Bend is kind of right in the sweet spot of the list of cities in Indiana. We potentially could even afford to spend down just a little bit. EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 111)574.235 5567 www.southbendin.gov 3 •CITY OF SOUTH BEND I OFFICE OF THE CLERK Committee Chair White asked, Is there a certain percentage that cities are asked to look at in terms of the cash reserve? I know there is nothing set. Mr. Parker replied, There's nothing set legally. The State doesn't give any guidance. There is guidance that the Government Finance Officers Association provides, particularly with respect to the General Fund. So, the General Fund, what they say is you should have at least two (2)months reserve. So, 2 months of expenditures, that would be one sixth (1/6). We're pretty significantly above that. On an overall basis, and you'll see when we get there to the policy, after the General Fund, our minimum cash reserve, by policy, is above that. He continued, So that's the good news. We're doing very well, our cash position is kind of right where I would want us to be from a comparison to other cities. The sort of,potentially not as good news is the cash balance projection. So, if no action is taken, and we've put up slides like this before, this is if we don't do anything to try and manage our expenses, so we talked about in the second (2"1) budget educational series about how we are making changes and we are prioritizing spending to try to make sure this doesn't happen. But if we were not to do that and we were going to continue to spend at the level that we have been,this is sort of what our cash balance is projected to do (referencing a slide in the presentation) That orange line is a projected, so 2018. The blue line is what you've seen before. The orange line is the projected cash balance. We went from$288 million down to right around $200 million by 2024. That is not a position that we want to be in. So, this is something I think is important for all Council Members, and for members of the public as well,to realize this is not what we want. This is not what we're intending to do, and it's not what would be in the City's best interest. He went on, So,because of that,we are making changes and we went through a lot of those changes in the last budget educational series. You'll see and hear more of those as we get into the 2020 budget hearings about what we are doing to try to make sure this doesn't happen. We are trying to maintain the reserves at the levels that they have been. That gets into cash reserve requirements. So, cash reserve requirements, to the point we made earlier; there is no State Law that mandates how much cash we need to have on hand, and that's why you see such a wide variation in terms of the different cities in Indiana and how much cash they do have. But we have put the policy on ourselves to maintain a minimum level of cash, in these funds, to ensure that we have the ability to meet our expenses going forward. So, the first (1St) question is what's the purpose of reserves? Really the purpose, I'll give you a couple different purposes, but the most important one is to prepare for future fiscal challenges. So, again, as I said, the cities that were more towards the bottom of that list, as times get more difficult than they have been in the past few years, property values don't continue to rise, if they start to go down, incomes start to go down, tax revenues start to go down overall, those cities are going to have to make more dramatic decisions than the cities that have the reserves and are able to weather the storm a little bit better.That's the most important reason. He continued,Not just that,but future fiscal challenges include things that are unforeseen. Things that come up that we don't expect; we have a flood that destroys some property that we own, and we need to have money on hand to make sure that we can rebuild that property. Things like that. We need to have reserves on hand to make sure the future fiscal challenges are being able to be met, and not just challenges, but future fiscal obligations. So, going back to the capital assets that I was talking about earlier,we have capital assets that are needing to be repaired and replaced, we need to make sure we have reserves on hand to be able to do that. It may need to be used so that EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 1TD 574.235.5567 www.southbendin.gov 4 CITY OF SOUTH BEND i OFFICE OF THE CLERK we aren't deferring maintenance and ultimately finding out the costs of the repairs later on. That's the most important purpose of reserves. The second (2nd), and no less important, purpose of reserves is because in certain cases we are legally required to have cash-on-hand,particularly when it comes to debt covenants. So, when we issue debt, through bonds primarily, often the lender or the people who purchased those bonds will require us to maintain a certain level of cash-on-hand through the debt contract agreement. We are required to maintain that cash as basically a way that the bond holder ensures that we are going to be able to pay the debt service on that bond. So, there are certain things that we are legally required to have. He went on, So, in terms of debt service, it is hard to see on the screen here (referencing a slide in the presentation),our debt service comes out to about$8.4 million in cash reserves on hand. That's the reserve requirement. We have a little bit more than that in there, but that's the reserve requirement.The last, and extremely important reason to maintain reserves is to maintain our bond rating. We'll get into bond rating a little bit when we talk about debt, but bond rating, as everyone knows, is really important in terms of our ability to borrow money and issue debt at a very low interest rate. We do have a very good bond rating. Our bond rating is Double-A (AA), which is one of the best in Indiana, and we're proud of that. We mention it every chance we can. Cash reserves is one (1) of the reasons, if not the primary reason that we are able to maintain that high bond rating and that is because bond rating agencies recognize that we have this high level of cash, this strong balance sheet that allows us to meet our obligations in the future. So, in order to make sure we are satisfying and meeting all those requirements,we do have a City policy that establishes a reserve, a cash reserve requirement by fund and I want to take you through how we establish that reserve and why we set the reserve requirements where they are. I think it's helpful to understand, you know, here's how we decide, for each fund,how much money we want to maintain on hand. He continued, So, the default City policy regarding cash reserves is that most funds have to have at least twenty-five percent (25%) of annual expenditures on hand from that fund. So, the default is,most funds require a reserve of at least twenty-five percent(25%)of all the annual expenditures that come from that fund. I did want to point out that that's higher than the GFOA's recommendation of two (2) months because we feel that twenty-five percent (25%) is a better cushion being able to make sure that we're able to meet future fiscal challenges. Certain governmental funds, particularly the General Fund and the Liability Fund, have higher reserve requirements. So, the General Fund has a thirty-five percent (35%) of annual expenditures requirement, and the Liability Fund actually has a fifty percent (50%) of annual expenditures requirement. So, we have set those funds higher because those funds need to be a little bit more liquid than others. So, our General Fund is where our general governmental operations; Police, Fire, the Mayor's Office, Admin and Finance, the Legal Department, Council, the Clerk's Office, all of those are funded from the General Fund. So, we need to make sure that those core governmental operations are able to be funded, even if there is any kind of dip in tax revenue that comes in. So, that's why we set the General Fund requirement a little bit higher. He went on,Now the Liability Fund, that's where unforeseen events come in, so again; floods that destroy our property, we have a really bad year when it comes to worker's compensation, or health insurance and health care claims. So, we need to make sure that we have liquid assets on hand to cover those unforeseen events if they were to occur. Debt service funds, as I said, generally have a cash reserve requirement that is governed by the debt covenant. So,when we look at debt service funds, that's how we determine those cash reserves. Capital projects funds, so when we look at capital project funds, which are used for specific capital projects, as well as grants funds,generally EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 VV.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 1574.235.9173 TTD 574.235.5567 www.southbendin.gov 5 CITY OF SOUTH BEND OFFICE OF THE CLERK we don't set a cash reserve requirement for that because if you look at a capital fund,usually what you are expecting is that that capital fund will be spent down to zero (0) on the capital project it is intended for. So, usually we don't have a cash reserve requirement for capital projects funds, and you'll see that when we get to the actual numbers here in a second. Enterprise funds actually have a lower cash reserve requirement. They don't always have the twenty-five percent(25%)of annual expenditures requirement.The reason why is because there is a reciprocal relationship in enterprise funds. There is a reciprocal relationship between the revenues and expenditures. So, revenues increase when expenditures increase and when expenditures decrease, revenues decrease. They tend to move together in a way that is not always true in the governmental funds, where revenues and expenditures are sort of independent. Federal funds, and this is just a note, federal funds such as Bowman Cemetery,actually do have a specific dollar threshold that we do require. And the way we've determined that dollar threshold is a threshold that allows those funds to operate in perpetuity. So, for Bowman Cemetery, there's very little ongoing annual maintenance. So, what we said is if we keep a certain dollar threshold in that fund,the interest that we receive in that fund will actually fund all ongoing maintenance required for Bowman Cemetery. So, we don't have to put additional money into that fund. That's how we develop our cash reserve requirements and how we determine how it's going to go, the minimum amount of money we need to have on hand from a parliamentary perspective. He continued, This (referencing a slide in the presentation) is a summary, so I wanted to put this up here, this is a summary of a report that the Finance Department puts together monthly and it is sent out to the Council Members, as well as the Mayor's Office. It is online for the public, as well. So, our cash reserves, this shows cash available, compared to the reserve requirement and sort of the variance between the two (2). There are a couple things to note here. Cash available, this column here, is the total cash on hand minus outstanding encumbrances. So, we encumber funds for obligations that we have. That number represents outstanding obligations that we have. So, at the beginning of the year, for example, we encumber all of our debt service obligations for the entire year. Basically, we set that aside to say this cash is already spoken for, we can't use it on anything else because we have to pay our debt service with that cash. So, the cash available takes into account things we have already encumbered and set aside. The reserve requirement takes into account what I just talked about, referring to the different funds, and then the variance shows the difference between the two (2). You'll notice a couple of them on here, particularly from a trust fund perspective, are below the reserve requirement. That is due to, the trust funds especially, the Police Pension Fund and the Fire Pension Fund. The pension relief payments are received from the State in June and September, so we will be replenishing those funds as soon as we receive those pension agreements. He went on, Staying with the General Fund, again, the cash available verses the variance verses the reserve requirement is fairly close. We will be receiving a property tax payment in June that will replenish the General Fund to make sure we have a healthy difference between the cash available and the reserve requirement. A couple of other things to note on here, you'll note that we do meet the reserve requirements in most of the funds. The reserve requirements that we set are sort of the minimum. We want to be at a healthy level above that reserve requirement. We don't necessarily want to spend all the way down to that reserve requirement. We want to make sure that we have enough money in there to very comfortably meet that reserve requirement. Councilmember Sharon L. McBride asked, Could you talk a little bit more about the difference between the reserves for the capital and the internal services? EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TrD574.235.5567 vvww.southbendin.gov 6 411110 CITY OF SOUTH BEND OFFICE OF THE CLERK Mr. Parker replied, So, the capital projects funds, the reason why that difference is so large is, as I said, because usually we don't establish reserve requirements for capital project funds. So,most of the money that we have in capital projects funds is meant solely for a particular capital project, and so we expect to spend all of that down so there's no reserve requirement. Councilmember McBride followed up, And maybe this would be for the Mayor, but for instance and I don't want to forget that, but those are some of the questions. Like, for 2019, if it is in this or can you give it to us later?What outstanding projects do we have that are anticipated to be spent down in 2019? Mr. Parker replied, Yes, so the biggest one I can tell you right now is the My SB Parks & Trails Initiative. So, a lot of that were the parks bonds that we issued. The proceeds from those bonds were put into a capital projects fund that are being spent out on Howard Park, Pinhook Park and all the different parks projects around the community. And there's other ones as well. Councilmember McBride then asked, In your presentation somewhere, will it be laid out? Mr. Parker replied, It's not in the presentation. I can get with you afterwards as well,but it is in the monthly report we send out, it shows all of the funds. This is just a summary of them,but it shows all the funds in detail and how they relate to their cash reserve requirement. Councilmember Tim Scott asked, And that comes from Amy? Mr. Parker replied, It does. She sends it out. Councilmember McBride stated, Yes, I think I recall that, but I just wanted to know. I'm very pleased about the presentation but where we are, anticipating where we are, I know the actual, but are we going to hit that mark or is it going to carry over for next year? Mr. Parker clarified, In terms of are we going to spend down the capital projects this year? We won't spend all of it down, and we really won't, and probably shouldn't, get to a position where we do spend all of it down. The reason why is we continuously try to replenish those capital funds from operations so that we have capital dollars available as the projects go on. Councilmember Tim Scott left the meeting at 5:25 p.m. Councilmember McBride followed, But as it relates to some of the reserves that are a lot higher than the requirements? Is the money going to be put into other uses? Mr. Parker replied, Yes, and frankly, that's the analysis that we try to do every day, especially as different projects come up and as they become available. We look at if the money is available, and what can that money be used for? Again, it's important to remember that a lot of this money, even though it's over the reserve requirement,is restricted for use. So,if you look at,for example,capital projects funds, or enterprise funds, money in the enterprise funds that comes through the water utility or the waste water utility is pretty segregated for capital projects for water and waste water because they have a lot of capital needs and we want to make sure that money is restricted for EXCELLENCE ACCOUNTABILITY INNOVATION I INCLUSION I EMPOWERMENT 455 County-City Building 227W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 7 CITY OF SOUTH BEND OFFICE OF THE CLERK those needs. So, even though there is $14 million here, that money above the reserve requirement, that money is restricted as to where we can use it. He continued, The other thing to keep in mind, as I said earlier, is that we don't necessarily want to spend this down all the way to our reserve requirement because we want to make sure that we have a certain healthy margin above that reserve requirement. The reserve requirement is really set as a bare minimum that we need. Councilmember McBride asked, So, as it relates to that, when you're looking at, for instance, the redevelopment and TIF,is that where the determination of being in alignment based on the reserve and the cash available? Mr.Parker replied,Yep,so that the redevelopment and the TIF funds,all of that money is restricted in terms of its use. It has to be spent on very specific capital projects within the TIF area. So, that money is being spent on those projects, and really sort of the difference between cash available and reserve requirements. It's more of a timing difference than anything else.That money is largely spoken for in terms of as these projects progress, it will be spent down. Committeemember John Voorde asked, What is an example of special revenue? Mr. Parker replied, Most funds that are not the General Fund, EDIT or COIT are special revenue funds. Parks, for example, are special revenue funds. The DCI Operating Fund is an example of a special revenue fund. So, they include most funds that have a specific purpose but are not just the General Fund or the income tax funds. Actually, income tax funds are technically special revenue funds, but I broke them out because generally we look at those just a little bit differently. Committeemember Voorde followed up, Is that where Local Roads & Streets is located? Mr. Parker replied, Yep, Local Roads & Streets is in there. MVH, Motor Vehicle Highway is in special revenue. He continued, All right. In terms of other cash-related questions, I think I hit on most of the things that I wanted to hit on. Like I said, about $5 million where cash is invested, we do have an investment policy that drives what types of investments we do invest in, and that is largely driven by Indiana Law. Indiana pretty heavily dictates what types of investments we are able to invest in. Basically, what it amounts to is US treasuries, US government securities, and highly rated certificates of composite, which are all highly liquid. The Board of Finance every year talks to our investment advisor Paul over at Pt Source Bank, and he'll tell you every year that we can sell any of our investments immediately, they're all very liquid and actively traded. Committeemember Voorde asked, What would be an estimate of what it would cost to borrow these days, to issue a bond? Mr. Parker replied,To issue a bond? It's a good question. In terms of cost of borrowing,we've just issued a capital lease and just went through the Board of Public Works and the interest rate we got on that was two-point two eight percent (2.28%). EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227W Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 l I U574.235.5567 www.southbendin.gov 8 ;CITY OF SOUTH BEND I OFFICE OF THE CLERK Committeemember Voorde followed up, So a municipal bond would pay to the investor two-point two eight percent (2.28%)? Mr. Parker replied, That was the interest rate we got on the capital lease, whether we could issue a bond on that or not, it would depend on the bond market at that time. It's pretty low,two to three percent(2% - 3%). I'd say that's probably pretty standard. It's pretty low. Which bring us into, it's a great segway, thank you, to debt! So again, when we look at our financial analysis, debt is an extremely important component. It's worth the other side of the balance sheet,we'll put down how much assets we have on hand. Debt is extremely important because it is the obligation we have going forward as a City. So, it's important, I think, and what I want to spend a little bit of time looking at is what kinds of debt the City actually get involved in? Basically, there's five (5) types; three (3) types of bonds and then two (2)kinds of loans that we receive from banks. He continued,The types of bonds that we look at are general obligation bonds,revenue bonds, and mortgage bonds. The real difference between these three (3), and there's several differences, but the real difference between the three(3) is the type of revenue or asset these bonds are secured by. So, when you look at general obligation bonds, basically what that means is that those bonds are secured by the full faith and credit of the government. General obligation bonds are secured by the full faith and credit of the government. Generally, if a bond is secured by property taxes as the municipality, that's considered to be a general obligation bond because property taxes are such an important component to our overall operation. And when I say secured by, that means what the government is required to repay. And,when is the government required to repay?What the general obligation bond is secured by the full faith and credit in the government,the government is required to repay it, regardless of how much revenue it brings in. He went on, That's different than a revenue bond. Legally on a revenue bond, the revenue bonds are secured by a specific revenue stream. If that revenue stream is not sufficient to cover the cost of that bond,the government is not legally required to repay that bond. So, for instance, a revenue bond could be secured on our economic development income tax revenue. So, if we get sufficient economic development income tax revenue, you pay for that bond, then we are legally required to pay that bond, but if we don't, then we would not be legally required. Now, in most cases, and barring some extreme unforeseen emergency, we would still repay it, because we want to make sure that we retain our high bond rating, and if we didn't repay our bond, that would really jeopardize our bond rating. So, we still would repay it, but legally the revenue that is secured in that bond is only that particular revenue stream. Mortgage bonds are similar, but instead of a revenue stream, it is secured by an asset. Just like you get a mortgage on your house, secured by that particular asset, if you don't repay those bonds, the bond holders have the ability to seize that asset. So those are the three (3)types of bonds. In terms of which bonds, we generally issue,most of our bonds are revenue bonds. We have very few general obligation bonds and mortgage bonds. For different reasons, general obligation bonds are pretty strictly limited by the law, which we'll get into in a second, and we can't issue very many of those, and mortgage bonds are generally a difficult type to issue. From a project perspective, revenue bonds are a little bit easier to issue. Committeemember Voorde asked, So, where would an enterprise fund bond be? Mr. Parker replied, So enterprise bonds are generally revenue bonds. So, they're going to be secured by the revenue. So, if we're issuing a sewer bond, they're going to be secured by the EXCELLENCE ACCOUNTABILITY I INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 9 40 CITY OF SOUTH BEND OFFICE OF THE CLERK revenue that the waste-water treatment plant and sewer is bringing in. Same with water works, secured by water revenue. He continued, So, those are bonds. We generally, from a bond's perspective, these are fifteen to twenty(15-20) year obligations. So,they are longer term. We try not to issue too many bonds that are over twenty(20) years. I don't think we have any that are over twenty(20). Twenty(20) years is pretty much the longest bond that we get into. So, if you think about the bonds that were issued last year, the longest maturity date of our bonds is out to 2038. Committeemember Voorde asked, The State still says you can't borrow more than two percent (2%) of your issue? Mr. Parker replied, Yep, and we'll get into that in just a second. Absolutely. He continued, Other types of debt that the City issues are loans and capital leases. We don't go out and get a whole lot of loans. We don't go out and borrow from a bank that often, but we can, and we have in the past where we just go out and borrow some money for a particular project. More often, what we do is we do a capital lease and we just completed one (1) through the Board of Public Works a few weeks ago. A capital lease is a certain equipment or vehicles that we want to purchase on a capital program. We go to a bank and we get the bank to finance that equipment. We then pay the bank generally over a period of about five (5) years, and at the end of those five (5) years we own the equipment. Committeemember Voorde stated, Some years ago we used tax anticipation loans, I think. Mr. Parker replied, Yea, and we don't anymore. There's a variety of different vehicles: bond anticipation notes and tax anticipation notes. Basically, what that is, for a bond anticipation note, we know we are going to issue a bond in the future for a particular project, but we're waiting for interest rates to go down to where we want them to be, or we're waiting for something, but we need the money now. We'll go and get a loan called a Bond Anticipation Note, in this case, we'll go and get a loan from a bank and say "Hey, once we issue the bonds we will repay the loan with the bond proceeds." We generally don't do that too much anymore, partly because we don't need to because if we wanted to issue bonds, interest rates are pretty low, and we don't really need to wait, but partly because there is a certain degree of risk in terms of issuing that debt and that if the bond doesn't go through or the interest rates don't get to where you need them to be,then now you have this debt that you need to pay off, which is generally going to be a pretty high interest rate debt. Some municipalities in our State and elsewhere face the necessity of borrowing in a similar kind of context as a sort of bridge loan before they get their property tax proceeds. That of course, is something always to be avoided. We don't need to do that, given our reserves. Committeemember Voorde stated, I think there was a time that we did, though. Mr. Parker replied, There was a time that we did not have as healthy of reserves as we do now. I could see the gap between our expenditures being,you know,we spend money throughout the year on our operations and having the property tax proceeds only collected twice a year, I could see that being, if we didn't have the money to cover it, pretty tough. EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 1227 W.Jefferson BvId South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 10 CITY OF SOUTH BEND OFFICE OF THE CLERK Committeemember Voorde stated, I think it was about the first term of the current Administration they used to do tax anticipation notes all the time. Mr. Parker replied,Yeah, and again,with the reserves we have,we just don't need to. We can save the interest costs from there. It's a good point then, because the next question is why do we issue debt?What are we supposed to be doing with this debt?And really to that point,we are not funding operations with debt. We don't do that, really ever. Our City policy on debt, which is brought before the Board of Finance, actually says the City will not use full-term borrowing to finance operating needs, except in the case of extreme financial emergency. So,we do not fund operations with debt. We do not issue tax anticipation notes or bond anticipation notes trying to fund operations. Committeemember Jo M. Broden arrived at the meeting at 5:36 p.m. He continued, What we do issue debt for is capital projects. There are two (2)reasons why we use debt to finance capital projects. The first(1St)is if the project is just too big and it would be a really big reduction in our reserves and it's just not prudent, financially, to finance that project with our reserves. The best examples of this are sewer projects. Sewer projects are really expensive. Generally,the reserve, even the level of reserve that you saw,waste water,won't be able to finance a $15, $20, $30 million sewer project. Lots of times we have to issue debt to try and supplement the reserves that we have. So, that's the first (1St) reason that we would issue debt for a capital project. Committeemember Voorde asked, What would be the advantage of the lease purchase over this borrowing otherwise? Mr. Parker replied, That's a great question. So, the lease purchase is the short-term, the five (5) year lease purchases really get to the second (2nd)reason. There would be two (2) advantages, but they really get to the second (2nd) reason. One (1) advantage would be if we could get an interest rate that would be below what we could earn in interest on our cash. So, let's say we could get an interest rate of one-point five percent(1.5%), and if we put our cash and our investments, we earn an interest rate of two percent (2%). Now, instead of spending that money out, we're actually earning a point-five percent (0.5%) build up because we have our cash-on-hand, we're earning interest in and we're spending out one-point five percent(1.5%). That would be one(1) reason. He continued, The other reason would be the second(211d)bullet on here(referencing a slide in the presentation), which is called Interperiod Equity. This is kind of a foundation of government finance and government accounting, this concept of Interperiod Equity. What that means is that taxpayers should fund the benefits that they receive in the year that they receive them. So, we shouldn't expect current taxpayers to pay for future benefits, and we shouldn't expect future taxpayers to pay for current benefits. So, the way that we do that with capital projects that we're building something that will last a long time, and benefit people for years in the future, if we use debt to finance that capital project, then we ensure that every year taxpayers are paying for the benefits that they receive in that year. So, your matching the benefits that you're providing to taxpayers with the tax revenue that comes in. That's really one (1) of the primary reasons, if not the primary reason that it's great to use debt to finance capital projects because it matches the debt. And the same holds true for capital leases. So, if we purchase a vehicle that we expect to use over EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f574.235.9173 TTD 574.235.5567 www.southbendin.gov 11 411 CITY OF SOUTH BEND I OFFICE OF THE CLERK the next five(5) years, a capital lease will ensure that we are paying for that vehicle over the next 5 years, as opposed to paying for it all this year. He went on, But again,the big take-away here is that we do not, and we will not use debt to finance operations. In terms of what we spend debt on, this is a chart that I think some of you may have seen before (referencing a slide in the presentation). Most of our debt, over fifty percent (50%) goes to two (2) areas: economic development and waste water. Again, waste water is because sewer projects are very big and expensive and so a lot of those capital projects do require debt to actually finance those projects. Economic development, some of that is TIF bonds, some of that is the Smart Streets that we did recently which is a pretty significant component of that. Some smaller areas that we finance include highways, trees, and parks, and then the rest of everyone else. He continued, I did want to highlight the recent issues of debt over the last three (3) and a half years. This is what we've done from the debt perspective. In 2016 we did not have any new bond issuances. We had what was called a refunding. And refunding is just another way of saying refinancing. So, we were refinancing an old debt to get a better interest rate. In 2017 we had a few debt issuances. We actually had three (3) bonds. One (1) was the parks general obligation bond and then we had two (2)TIF bonds. 2018 we, again, we had three(3) bonds that we issued. There was a general obligation bond for Fire Station Number Nine (9). The Zoo had economic development revenue bonds. Again, that is a bond that was secured by economic development income tax for the purposes of capital projects that we do, and then another TIF bond for parks. In 2019, we have had capital leases. As I said, we just sent another one (1) through the Board of Public Works recently, but we have not, and we do not expect to issue anymore bonds this year. So,that's not in the plan unless something arises or comes up. At thatpoint we'll go before Council and see what your thoughts are, but that is not the plan at this point. Are there any questions about what we used debt for? Committee Chair White opened the floor to questions from Committee and Council Members. Committee Chair White asked, When looking at the debts, are there other revenue streams that are used to support these areas? Mr. Parker replied, Absolutely. So again, the debt that we see is really only being used to finance the capital projects in these areas. This is sort of completely outside of the operations of these particular areas. Parks has its own property taxes that are being used to finance their operations. Waste water, obviously, is financing their operations through the revenue they bring in. As well as paying the debt service on their debt that they have but financing their operations through that revenue. They're not issuing the debt to actually fund operations. Committeemember Voorde stated, This may require an opinion if you don't have any recollection. Back in the 80's, we established a fund for the Fire Department for capital projects, for other stations and stuff like that,based on ambulance fees. And then at some time after I was gone, they did away with that,and I think then that money would go to the General Fund.Why do you suppose that was done? Mr. Parker replied,Yeah, at that point, I don't know why it was done. I will say that in 2015, EMS operations was moved out of the General Fund and into its own dedicated fund, so the ambulance fee is,today in 2019,in its own dedicated fund. They actually do have a capital fund as well. They EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227W Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 12 CITY OF SOUTH BEND i OFFICE OF THE CLERK receive a portion of those revenues, as well. There are two (2) funds today that account for EMS capital operations. Now to me,there's a conflict, and this is probably more of the opinion side than the fact side, that's the fact. The opinion side is there's a benefit to having EMS operations in the General Fund in that that is the way the Fire Department operates. It's not as though we have a Fire Department and an EMS Department. We have a Fire Department that does both fire-fighting and EMS. So,from an operational perspective and trying to make the accounting match the operations, I think there's a benefit to having the operations in the General Fund. But today, EMS operations has its own fund, and EMS capital has its own fund. Committeemember Voorde stated, Yeah. I thought because so much money was going in there that they became creative about how they spent it. Mr. Parker replied, Well, it is an interesting discussion. I don't think that there is anybody in the City that would say that EMS is self-sustaining. I think that the revenue they bring in is not sufficient to cover the level of expenditure that we have, especially when you take into account the capital, the ambulances, all the trucks and all the things that they need. There does need to be some taxing to make their operations work. Committeemember Voorde followed up, The question of the Hazmat stuff came up the other day, and I asked if we still contract with other agencies like the Toll Road. Apparently, we have not since the Toll Road went private, and that's understandable. But because it's an expensive undertaking, I wonder if there's any other way we get revenue. The Fire Department, or fire services, has this funny thing where it's a mutual paid kind of a deal, but it seems like you've got to be careful about what you're offering in mutual aid because somebody will take advantage of you. You know? So, anyway, I don't know if this is a roundhouse question. Mr. Parker replied, I'm not familiar enough with the Hazmat financial law. Committeemember Voorde followed up, We got it and it's one (1) of those things you have to have, and we had such a good one(1)that we were able to offer services to other people. Now, we don't want to give services away, necessarily, is what I was getting at. I'm not saying they did. But could Mishawaka sit back and say, "Hey, we need your Hazmat."? Mr. Parker replied, It's an interesting parallel to what might be happening right now in the Police crime lab. So, the Police crime lab, historically, has done analysis for many local jurisdictions, essentially for free. I think there are conversations going on right now to see if we can change that and if we can actually charge. Bill Dunn, 1620 Southwood Avenue, interjected, I don't know if you know this, on the two(2)TIF bonds,those revenues are based on, I thought I read that they're based on the anticipation that there will be an increase of taxes at those projects when they're completed. Eddy Street, for example, would generate property taxes. Mr. Parker replied, Right, and it's kind of baked into the whole concept of TIF as a mindset or a concept. TIF is designed so that we invest in projects to raise property values to drive more property tax revenue. That's the purpose of all of it, including the projects that are financed with TIF funds. EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION I EMPOWERMENT 455 County-City Building 227W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 (574.235.9173 111)574.235.5567 www.southbendin.gov 13 CITY OF SOUTH BEND OFFICE OF THE CLERK Mr. Dunn then asked, who is ultimately responsible for repaying bills with a TIF that doesn't come through as planned? Mr. Parker replied, So the Redevelopment Commission is the entity that holds those bonds, and you'll see in a minute when we talk about different taxing districts and their debt limits, that the redevelopment district has its own debt limits that is separate from the Civil City's debt limit. Committeemember Voorde stated, I went and asked the Assessor recently about the net assessed value of the entire County and she said that as long as she has been there, the net assessed value has gone up every year since then. Mr. Parker replied, Yeah, I know for the past few years it has. There was back in 2008, 2009, I know it did go down a few years back then, but it's gone up every year for a few years now. He continued, Gettingto total debt outstanding, this (referencinga slide in the presentation) is g� from December 31St, 2018, as of December 31St, we had right around $255 million in debt outstanding. On a per capita basis, for every resident of South Bend, that is right around $2,500 per capita. I did want to point out on the left-hand side here the type of debt that is outstanding. So, you can see, as I mention earlier, the vast majority of our debt outstanding are revenue bonds. From a dollar's perspective, general obligation bonds or those full-faith credit bonds are a fairly small component, and you'll see why in a minute here. And then capital leases represent a small component from a dollar's perspective, but much more frequent in terms of us issuing capital leases. They happen more frequently than any other kind of bond issuance. We usually do anywhere between one(1) and three(3) capital lease issuances a year. On the right-hand side here, from a debt repayment source perspective, again,these are the funds that are dedicated to repaying the debt that we've issued. Again,the General Plus Funds,the General EDIT and COIT,represents a fairly small component of our total debt repayment. TIF funds is a fairly large component. The other large component on there is Public Works. Again, that is largely waste water revenue, also water revenue in there as well,but largely waste water. Committee Chair White opened the floor to questions. There were none. Mr. Parker went on,All right. So,this is how we stand,just like we looked at cash,relative to other cities in Indiana. Here's (referencing a slide in the presentation) where we stand on total debt outstanding. Again, just like with cash, I would say this puts us kind of right in the sweet spot, right where I'd kind of want to be. Towards the bottom of the list we have a relatively lower debt outstanding than others, on a debt-per-capita basis. This last column here is debt-per-capita for each resident of each City. Relatively lower, we are in the bottom half, but just like we wouldn't want to be at the top of the cash, we wouldn't want to be at the bottom of the debt, because what that means is you are actually taking advantage of the leverage that you have. You are not using your ability to issue debt to invest in enough projects in the community. So, you don't want to be at the bottom, you certainly don't want to be at the top of this list. Right in the middle is about right. Committeemember Voorde stated, Carmel must have taken on an awful lot! EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 14 •CITY OF SOUTH BEND I OFFICE OF THE CLERK Mr. Parker replied, It's interesting! Just Google "Carmel debt", it was a pretty big issue in this year's mayor's race. The Mayor of Cannel was up for re-election and it was a pretty big issue, the level of debt that they had taken on. Jason Banicki-Critchlow, 3822 West Ford Street,interjected,Well when you look at,their average household income is more than three (3) times ours. So, they're also able to, you know, just on income tax revenue, expect to be able to re-pay that. Mr. Dunn interjected, I was thinking the same thing. Most households just write a check for their share. Mr. Banicki-Critchlow continued, The average annual income for Cannel is $150,000 a year, let alone the price of their houses. Committeemember Voorde asked, Did the incumbent win? Mr. Parker replied, He did. He won the primary. Committee Chair White asked, So, in terms of this whole discussion about debt and when citizens say we are in debt and we can't pay our bills, blah, blah, blah, blah, blah, how would you respond to that? These are real figures. So, what is the response? The debate is ongoing. But, looking at this and looking at other information that you've shared,we are kind of right in the middle. So, for a City our size and with the amount of debt we have,how would you describe that? Mr. Parker replied,Again, I would describe it as right where I want us to be. We are definitely not in a position where we cannot pay our debt at any point in the future. To the point about if you are in Cannel and there are high property values, that's correct, but just like on the cash reserve side we're preparing for future fiscal challenges, we're doing the same thing on the debt side. We don't want to be in a situation where yeah, we can afford it this year, but if property values tank, we're going to be in a lot of trouble. We're not in that situation. We are in a situation where we are going to be able to be sustainable with this level of debt and where we're going to be able to manage this level of debt in perpetuity. And we'll be able to see that even more clearly when we get to the actual amount that we pay out in debt service each year, as a percentage of our total expenditures. Committee Chair White replied, Thank you. Mr. Parker continued, This (referencing a slide in the presentation) kind of shows an historical debt-per-capita for the City of South Bend. The only message here is that while if you were to put a trendline on this, it might show a slight increase, but it is essentially flat. The y-axis scaling here is probably a little bit misleading, but it is essentially flat, in terms of over the last ten (10) years our debt-per-capita. So, coming back to the question from Councilmember Voorde about the debt limit, this is defined by Indiana Law and this is the legal limit of debt that can be issued by a governmental entity. And what it is defined at, is two percent (2%) of one-third (1/3) of the net assessed value of all property. So, you take the assessed value of all property in the City, divide it by three (3), take two percent(2%) of that, and that's your debt limit. He went on, However, and this is a very important caveat, only certain types of debt are included in that debt limit. So, not all the debt that the City has outstanding is included in that list. EXCELLENCE ; ACCOUNTABILITY INNOVATION I INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 (574.235.9173 110574.235.5567 www.southbendin.gov 15 CITY OF SOUTH BEND I OFFICE OF THE CLERK Particularly,the only types of debt that are included in that are general obligation bonds,the bonds that are full-faith and credit, and economic development income tax revenue bonds. So, if I could flip back here to recent debt issuances, most of these debt issuances are not going to be included in that debt limit. The ones that would be included are the parks general obligation bonds, but for the Park District, which we will look at in just a second, which has a separate debt limit than the City. The Park District has a separate debt limit than the City.The general obligation bond for Fire Station Nine (9) and the Zoo economic development revenue bond are included in the debt limit, but the TIF bonds are not, generally. He continued, So that debt limit does drive one (1) component of our analysis when we decide whether we can and should issue new debt. However,because most types of debt that we issue are not included in that debt limit, we have a policy around what kinds of analysis we do when we are deciding whether we want to issue new debt. So, before a new debt is issued, we form a financial analysis, sort of an administrative baseline before we do anything else. We make sure the City can financially handle new debt, that we have sufficient cash reserves, that our revenues, especially the revenue that is going to be pledged to support the new debt, is sufficient to not only fund the new debt service that we're going to incur but continue to fund whatever operational requirements that it has. So that's the baseline analysis. We make sure the revenues that we are bringing in are sufficient to fund current services, and to take on the additional debt service that they're going to have to add in the future. He went on, The second(2nd)type of analysis we do is a governmental analysis,to make sure that whatever we're issuing debt for is within the priorities of the Council,of the Administration,of the residents. We are making sure that the types of projects that we're funding are representative of things that we think are going to drive or increase economic activity, increase safety, whatever type of priority we're looking at. And then the last analysis is an economic analysis, and this one's also extremely important. We're looking at five(5), ten(10),fifteen(15)years in the future, which we'll still have the debt at that point,to try and figure out if the economy is still going to be efficient, if property values will still be high enough, if incomes are still going to be high enough that we're going to be able to sustain the debt service on these new bonds. And what happens if incomes do go down? Are we still going to be able to sustain the debt service? We do a kind of a stress-test of the debt service that make sure if something bad happens, we will still be able to operate and to sustain the debt service that we're taking on. So,we do a pretty thorough debt analysis that we then bring to the Mayor and bring to Council to say "Hey, here's why we think the debt is warranted, why it's necessary, and why we're going to be able to manage it." Committee Chair White stated, I have a couple of questions. In terms of the different analysis, are they done internally or externally? And looking at that second(2nd) one, in terms of governmental and administrative analysis,and sometimes I think that there's not a comfort level with that because what we may see as Council and what the Administration may see, and then what the citizens are saying, I think there's a disconnect there, and that's one (1) area that I know that as we move forward, we want to have more discussion in. Also, we want to make sure that individuals at the table when those kinds of decisions are made will be where we bring our priorities. I think we're in a good place now, so we're starting the process. But I think there's some disconnect there. Mr. Parker replied, Yeah, no, I think it's a great point. So, to the first (1st) question of whether the analysis is done internally or externally, the answer is yes, to both. So, we do a lot of analysis internally,particularly financial analysis.We may ask consultants or others,like financial advisors, EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD574.235.5567 www.southbendin.gov 16 CITY OF SOUTH BEND I OFFICE OF THE CLERK to help us with economic analysis, to say "Hey, what's this going to mean in the future?" But, to your point about the second (2n1) one (1), the governmental and administrative analysis, that's something that has to be there. Communication between the Administration, the Council, and residents, needs to be there to make sure that the projects we're financing are the ones that are reflective in our priorities. And again, I'm going to turn into a broken record with the number of times I say this, but the resource allocation, the amount of money that we put towards projects, needs to follow the priorities. So, resource allocation follows priorities. If you don't have the priorities, if you don't have what we're trying to accomplish as an Administration,with input from everybody involved,then you're never going to be able to issue debt for projects because you won't know what to fund. Committee Chair White stated, That's one (1) that becomes very critical. Mr. Parker replied, Absolutely. Committeemember Jo M. Broden stated, External, internal, and I know we use consultants pretty routinely. I was also wondering about the pace of it. Is it a quarterly look? Certainly, it's annual, but is it project specific? How frequent is it, the economic analysis? Mr. Parker replied,Yeah, so the economic analysis is a full-blown look at how we're going to look over the next five(5)to fifteen(15) years. It happens, at least, during the budget process. So,right now that's kind of what we're doing is trying to forecast into the future how we're going to look in five(5) years. It also happens as projects come up that need,that require issuance of new debt. So, if we're planning on issuing new debt and it is project-driven, we're saying "Okay, we need $12 million for this new sewer project, let's do an analysis. What does the future of sewer revenues, of waste-water revenues, look like so that we can make sure that we are going to be able to fund this, and continue to fund operations, right? Continue to make sure that we can treat the waste-water, which is extremely important." Councilmember McBride stated, I guess that goes back to the lines of what I was asking earlier as far as where we stand now with what we, I know we get a monthly snapshot of where we are, but to date, especially with me being still newer on the Council, to know what we said we were obligated to do last year and where we are with that. How much, what do we still have left? What have we paid? So now that we're going into 2020, I could have that look back of where we are and what did we accomplish? And what we said what we were going to do. If so, fine. If not,why not? And then, when? Mr. Parker replied, I can tell you that we can definitely have further conversations about this for sure, but from a financial perspective, the way that we report that is through the encumbering process. So, we say, "Hey, we are going to set aside this amount of money for this particular project.Then we can say, "Here's how much money we've actually spent for that project,but here's the amount of money we have set aside." Councilmember McBride followed up,And I do understand the encumbrances,but I guess I'd like to get it up to speed with the different projects. I want them fresh in my head so when it comes up for whether a hypothetical zoning, or asking for TIF, or asking for something else, I want to know looking back what it was that we said we were going to do. EXCELLENCE ACCOUNTABILITY INNOVATION I INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana46601 p 574.235.9221 f574.235.9173 TTD574.235.5567 www.southbendin.gov 17 SCITY OF SOUTH BEND I OFFICE OF THE CLERK Mr. Parker replied,And that conversation is a combination of us,Admin and Finance,talking with department heads who know the projects much more in depth than we do. We know the finances p P side and theyknow, you know, here are the milestones, here's what we're doing, here's to making g, sure that we're getting it done. Talking to Council and making sure we're continuously updating you on that. Committee Chair White stated, I think too, that this question that Councilmember McBride has is one(1) that we have put in in terms of looking at the budget process and bringing the departments in before we actually do the official kick off to talk about those things. It's like a scorecard. So, we have an opportunity just to focus on that,so when they come in for their budget hearings,which is looking at the dollars at that particular time. I think that's going to be very helpful for all of us as we begin. You look at the amount of activities and monies that are allocated and they're coming from different funding streams,too. So, looking at all of that, I think that would hopefully give us, I can only speak for myself, a better forecast in terms of where we're at, and then when they're asking for new money, we can go back and look at it. I hope that will be assistance, too. Mr. Parker replied, Yes, I think, and to your point earlier, one(1) other thing it will help with is in the actual Council budget hearings, it will make sure that the focus is on what are we going to do next year. What is next year's budget? As opposed to what have we done? Because,we've already talked about it. He continued, This (referencing a slide in the presentation) is sort of a graphical representation of the City's debt limit. So, just to kind of walk you guys through this, this red line on here is the City's debt limit. So that represents two percent (2%) of one-third (1/3) of the net assessed value of the City. You can see, it is pretty low. It is right around,just over $16 million. These blue and green lines on here represent how much debt we actually have outstanding. That is applicable to the debt limit. So, you saw earlier we have about $255 million in debt outstanding. Our debt limit is $16 million and the answer to the question of how do those two (2) work together is because most of our debt isn't applied to that debt limit. Important to note on here, each of these three (3) lines on the bottom here have their own debt limit. So, the Civil City, the Park District, and Redevelopment District all have a separate debt limit set by Law. The area, property that incapsulates those districts is exactly the same,which is why the limit is the same for the three(3) because they are all of the same area and they are all of the same property. But, as long as all of those lines are underneath that red line,we are in compliance with Indiana law. We don't add them on top of each other, they all have their separate debt. You can see some of the issuances that we talked about earlier. So, this jump from 2016 to 2017 in parks was the issuance of that$14 million park general obligation bond. The jump from 2017 to 2018 in Civil City was the issuance of the general obligation bond for Fire Station Nine (9), and the economic development revenue bond. Committee Chair White opened the floor to questions from Committee and Council Members. Councilmember Broden asked, How much, and I don't know if I have the right words, but how much fluidity is there on the parks bond?The overall project let's say if there are overruns. So how much is that, I mean, you're basically working within that limit to get something done. So, you're either revising the scope, because you go over, like we do in our own lives, right? Mr. Parker replied, Yeah, and those are the conversations we have. So, we are revising the scope and we may look for other revenue areas. So, the conversations we have are, are there things that EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION I EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f574.235.9173 TTD574.235.5567 www.southbendin.gov 18 CITY OF SOUTH BEND OFFICE OF THE CLERK we can defer doing so that we can use the revenue that we were going to use for that other project and move it over to the project that has the overrun? That's one (1) option. The other option is to change the scope. Change what we're doing to kind of fit within the confines of the revenue that we have. That's kind of it. Do you find new revenue sources and change the prioritization of what you were going to spend money on, so you can move money over to the projects that are over? Or, do you change the project to fit within the amount of money that you have? I say hypothetical because those are extremely active conversations,always,on how we reprioritize and move money around to make sure that everything that needs to get done can get done. Mr. Banicki-Critchlow interjected, What was it between 2009 and 2011 that caused that debt limit to drop so much in that period? Mr. Parker replied, So the only thing that would cause the debt limit to drop like that would be a reduction in the net assessed value. And remember, from what we talked about with property values, it is a year after. So, 2017 pay 2018. So, it's a year and every year is essential. So, it took a little while for the property values to catch up with the economy. Mr. Dunn interjected, So,basically, you're saying that our debt limit, which is a percentage of our assessed value, is essentially flat? Mr. Parker replied, Correct. It is going to vary with the net assessed value. Net assessed value doesn't change a whole lot year to year. But yeah, it's essentially flat as net assessed value goes down. And again, this is net, so this takes into account credits, it takes into account new net reductions, all of those things. Mr. Dunn followed up, And the three(3) other debt lines, they're not added, are they? Mr. Parker replied, They are not, no. Each one (1) has a separate limit. He continued, The last thing I want to talk about here, and then definitely open it up for any other questions,is our debt service payments,our sort of ongoing debt service payments. So,if we issued no new debt over the next four(4) years,here is how much we would pay out in debt service each year. So, in 2019 we are budgeted for about $32.6 million. It's actually a little bit higher than that now because we had a debt issuance in 2019, but right around $33 million in 2019. And then as we pay debt off, over the next several years it goes down. And again, this is if no new debt is issued. It's not anticipated because we will issue new debt as new projects come up. What that essentially amounts to is,this(referencing a slide in the presentation)is,again,it should look fairly standard by now or should look fairly familiar, debt service payments as a percentage of total annual expenditures compared to other cities in Indiana. So, our current expenditures, our debt service expenditures of$32.5 million out of our annual budget of$368 million, we're spending about eight to nine percent(8%- 9%)of our total expenditures that are spent on debt service. That puts us, again, in a fairly good position relative to other cities. The larger percentage of your total expenditures spent on debt service, the less flexibility you have in what you can spend money on. So, if we were up at around twenty to twenty-five percent (20% - 25%) of our expenditures, we wouldn't be able to allocate as much money to new projects because a significant portion of our money was already spoken for in debt service. So, again,just sort of,just like with cash, in our overall debt position, this is roughly right where I want us to be, in the middle of the pack. Maybe slightly towards the bottom, so that we can continue to sustain that debt service going forward. EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 19 CITY OFSOUTH BEND OFFICE OF THE CLERK Committee Chair White stated, I want to open it up. I really appreciate your work as well as with your staff This is very informative, and again, this is part of our Educational Budget Series. Excellent information. I wish that, you know,that we could have more of our citizens. I'm looking at ways in which we can really try to foster greater engagement because this is important information. As well as that we as a Council, we're doing our best to be flexible, to be responsive to what we've heard through the budget processes, and to assure our citizens that we're not just sitting here blindly and not taking to heart the work that we have before us. Again, we're looking at these numbers,we're dealing with the numbers,but most importantly,we want to make sure that as we move forward, that the priorities are meeting the needs of our citizens, as well as ensuring that the City's moving forward as well. But most importantly,that we have the revenues to support what needs to be done. Committee Chair White then opened the floor to members of the public. Mr. Dunn stated, You mentioned a lot of these analytics. Each time you're presenting to Council with a request for a new debt obligation, are those documents included in the packet that's sent out in advance of the council meetings? Mr. Parker replied, So, I'm not sure what's been included in Council packets in the past. A lot of this analysis is internal analysis to make sure before we ever get to the point of bringing it either to the Mayor's Office or to the Council, that we are all comfortable in the City that we can handle the debt. To the extent that analysis goes to the Council I guess some of it needs to because they need to feel comfortable as well. I don't know what else is included. Mr. Dunn followed up, Well, I present this to the Council because it's good if you're getting those. You ought to be getting those and concurring with them or challenging them. But if those are not flowing out to the residents, the citizens, then don't we have a transparency issue here? Where we don't know, if we don't see those, then we don't know what you used to make your decisions on our behalf. Sue Kesim,4022 Kennedy Drive, interjected, That is a problem. We look at the packets,well,you know I look at the packets, and it wasn't in there. So, that makes it harder to make a decision or to ask questions. Of course, there's only forty-eight (48) hour notice, so there's no time to research. So,there's a real time limit on that as well in terms of coming up with it. I had some other questions. Aaron Perri brought up at one(1)of the Park Board meetings,that he will spend all the park money within two(2)years,yet we're going to be paying for it for the next twenty-five(25). Which brings up the question, how do we maintain? Because those park facilities for the next twenty-five (25) years are going to need more money. He will spend it all,he said, within the next two (2) years, so he said he wanted a development person, an assistant director right under him to go out and try and solicit private funds to fill that gap for the next twenty-three (23) years, which I'm not sure how we are going to do that. But I think that's something Council needs to look at. She continued, I didn't see where, and I know it's a short presentation, but cash reserves for the TIF,in past years before you,they had dipped below the limits in the River West and I think Eddy Street too, but I'm doing that from memory. I know they have dipped below in the River West District. So,I think cash reserves,when you give a presentation,needs to include TIF cash reserves as well because there have been some deficits in the past in those funds. EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana46601 p 574.235.9221 f574.235.9173 TTD574.235.5567 www.southbendin.gov 20 CITY OF SOUTH BEND I OFFICE OF THE CLERK Amy Shirk,Director of Accounting and Budget for the City of South Bend with offices located on the 12th floor of the County-City Building, replied, The deficits that you see in River West is typically attributable to encumbrances. Because, as a TIF fund, they hold a lot of encumbrances for ongoing projects. So,if you look at the cash in their fund, and if you don't take away all of the projects that they are encumbering, it's typically meeting their cash reserve requirement. It's once you take into account all those projects that they have committed themselves to,that's when it gets below the reserve requirement sometimes. Ms. Kesim followed up, So I think in that case you need to issue a more detailed report. The details of encumbrances. Do you see what I'm saying? Because you're just giving a summary, and there's a big red number there. You see how, that's how the gap in knowledge happens because you haven't, I'm not blaming you, I'm just suggesting an improvement, is to detail those encumbrances and to explain that because when you just give a summary, there's no explanation, there's just a red number. So, that's a suggestion on improving the process. I would like a link to the report, if you don't mind giving that. She went on, I'm concerned we've got $700 million on sewers and from your presentation, you're expecting the revenues from water and sewer to pay for it, and that's just not realistic. We're all going to be paying three hundred dollars($300)a month. I think the budget priorities need to move TIF funds from developers to sewers,because literally, I personally am not wealthy enough to pay $300 a month for water and sewers to make up the gap, and I know most of South Bend isn't. So, I'm really concerned when you say, "Well, water and sewer, here's the revenue stream to pay for it." There isn't enough revenue stream. So, I think the Council and the Administration need to rearrange their priorities and start paying for, I know I'm a broken record, infrastructure, roads, water, and sewer. We pay our taxes for that. The developers are not going to say, "Oh gee, I feel like paying for sewers today." They're not going to do that. They line their pockets with these buildings they get to keep, while we have not put enough money towards infrastructure, and that's a real concern for me and I know it's a concern for the average citizen. She continued, When I pay taxes, I want the City to pay for my curbs and sidewalks. I don't want to have to pay for it. I feel like I've already paid for it. I want the City to pay for my water improvements, so there's not 500 million gallons of untreated sewage going out into the river, and I want the City to upgrade the sewer lines. So, that's where I think there's been a real failing in priorities. So, I'm just saying,you're the one tracking it,you're not the one responsible for deciding the priorities, so this is not a reflection on you,just saying. I think it's good to put the net assessed value when you're showing debt, to also show that,just a suggestion. And for all my concerns, I want to say that Amy does a great job every year putting together that beautiful budget book, she really does. So, I notice your good work and so I appreciate it, and it gets better every year because you put more detail in it and I really appreciate it. Ms. Shirk replied, Well, some of the limitations of what we have right now are due to our current software system. We don't have that level of detail right now in the system, it's not easy to get, and as we move to our new software system for accounting, we're hoping to find new ways to do reporting and to show the detail of things in a meaningful way. So, we're working on that. Committeemember Voorde stated, First (1st) of all, on the big projects, you get the full report, which is through Umbaugh, and that is public. Anybody can see that the detailed analysis. But EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227W Jefferson BvId Saudi Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD574.235.5567 vwvw.southbendin.gov 21 CITY OF SOUTH BEND I OFFICE OF THE CLERK what I was thinking about was you were at the presentation of the Century Center Board of Managers and what they would like to do ranges from $17.8 million to $60 million, or something like that. What kind of analysis goes into saying "Okay, where are we going to end up on that?" Mr. Parker replied, Yeah, so the Century Center Project is kind of in a league of its own in terms of the level of analysis and the types of analysis that need to go into that. I mean, there's a really more baseline analysis that needs to be done before we even get to what we talked about on what the vision is of what the Century Center can and should be. That needs to be done before we get to questions like, should it be $17 million? Should it be $20 million? $30 million? Should it be $40 million? That vision needs to drive everything. I don't know if that vision has been defined or at least been agreed upon by all important parties. So, I think that's the work that needs to be done and is being done right now, to bring on board all the affected parties. Committeemember Voorde stated,That is a fundamental change, changing what was conceived of and built as more of a community event center, to a pure convention center where all you're looking for all the time is lease space. Mr. Parker replied, What's being done right now is trying to pull all the stakeholders together and say, "Let's develop a vision that we all agree on with what this can and should be. Committeemember Voorde followed up, How about South Shore? Mr. Parker relied CenturyCenter and the South Shore are kind of the same category. are p � They just kind of outside of everything else that we're doing because they're so big, and they take such a well-grounded vision and participation from so many different stakeholders. It can't be the City of South Bend saying "Hey, this is what we're going to do with the Century Center" or the City of South Bend saying, "Here's what we're going to do on the South Shore." It needs to be multiple entities, cities, counties, everybody coming together and saying we rally around a vision,we agree with that vision, and here's what we can do to try to support and finance that vision. And I think that both of those projects are in the stages of bringing stakeholders to the table and figuring out what they should be and what they want them to be, and that's the necessary discussion before you get to financing. Committeemember Voorde followed up, Sometimes it's hard to measure the benefits because of all the things that could possibly happen afterwards. Hard to measure might be a good thing. Mr. Dunn interjected, Well, it's like you say, you want the stakeholders to review this, but those visions really are a lot of faith. And I hesitate to say it, but maybe to some extent, blind faith. We know that we will spend $100 million on our new railroad station that's going to pump all these millions into the economy, but we can't tell you exactly where those dollars are coming from, where they're going, and how in the heck we measure them halfway. Mr. Parker replied, And all I can say to that is that,just like you would with any investment you make personally, we do the analysis to try to see if the investments that we make are going to pay off, and nobody can predict the future no more than I can say "Hey, you should buy this stock or that stock", but we can say "Hey, this is what is likely to happen if we make these investments." EXCELLENCE ACCOUNTABILITY INNOVATION I INCLUSION EMPOWERMENT 455 County-City Building'227W Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD 574.235.5567 www.southbendin.gov 22 CITY OF SOUTH BEND OFFICE OF THE CLERK Mr. Dunn then stated, I'm just saying that, to me, it is very important we get a look at those underlying presumptions that come along and say, "Hey, we think this is a good deal." Well, let's find out. Mr. Parker replied, Yes, absolutely. Committeemember Broden stated, Just a couple of remarks. The reports, you know, the analysis that's done, we've all sat here,but I think the process primarily has been,it's in our packet, then we have the experts come the same day as we're looking at it. And I'm just being honest on this. So, I think, if we really want inclusive decision-making, there's that expert outside analysis, and of course who pays for it, you know, you pay what you get, or you pay what you're asking for sometimes. I think the benefit of having that early, in front of stakeholders, including the public, and just to basically poke at its contents, it's assumptions, you know, things like that. I think that that serves us better as a community. The poking is important, but so is the educational process that can come from that, and I think at least in my short tenure, it's always been kind of late to the table and not shared broadly enough in a way that would beget a thorough and good discussion. So those are my feelings from the process, heretofore. I'll say that we have, as Council, at times put the brake on and have said come back with more information, but that's more overall the exception rather than the rule. So, it's mostly almost a "we'll trust you." And I think that we are only as good as the information that we get and can actually absorb. To me, sunshine and public input is important. I'm saying these remarks in that I think we are far more transparent than most government entities in Indiana. We're off the charts, I think. However, I think our community is just trying to not be comfortable with where we are all the time in that transparency.Transparency after-the-fact really is not transparency, I guess is what I want to say. Not that this should be the final takeaway, but I think it is better if it's out there. We do a good job for the most part, but I do think for educational purposes of the Council and of the general public,we would be better served by getting that stuff early and then kind of kicking at it and poking at it and just making sure it's solid and all the assumptions and the analysis really kind of holds up. She continued, And then, I think, somebody mentioned it with regards to the Century Center, I loved your quote, and it wasn't just relative to that. "Your research allocation follows priorities." Mr. Parker replied, I say it all the time. Committeemember Broden followed up, Oh my gosh, where have you been? Because on that one (1), it really feels like we are really out over our skis. That's how my dad would say it. It's almost like "Wow, great idea! Is it our priority?" Sort of after-the-fact. So, I don't know who the stakeholders are,but it doesn't feel like the public as a whole. I'll speak for myself, I don't feel like I am as a Council Member. I was blindsided by that presentation and it was jaw-dropping. It really was. You hit it on the head in terms, and I'm not trying to blow a cannon through this thing before it even hits more daylight, I just think that there's a ramp up to this stuff,that is necessary. Relative to these other huge deeds that we have in our community. To me, the pie is only so big, and it's not going to get much bigger, if anything, it's shrinking. So, we have to figure out a way to ramp these up,to introduce these things, and to have a little bit longer. That's my point is that I just think longer, earlier, begets better decision-making and better representation from us. Mr. Banicki-Critchlow asked,Two (2) quick things. On the revenue side do you know what we're losing due to the Dark Store rulings? EXCELLENCE ACCOUNTABILITY I INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227 W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 I 1 U 574.235.5567 www.southbendin.gov 23 •CITY OFSOUTH BEND OFFICE OF THE CLERK Mr. Parker replied, Yeah, Dark Store's an interesting issue, we can get together and talk about it more. We meet monthly with the County to talk about Dark Store issues. We're not as bad off as Mishawaka, but yes, we can talk about it. Ms. Kesim interjected, Just a comment, why doesn't Council pass an ordinance that you get the information seven(7)days in advance instead of two(2)days in advance so that public and Council are better prepared and have more time because a lot of council work full-time and have busy lives, as does the public? With no further business,Committee Chair White adjourned the Personnel and Finance Committee meeting at 6:32 p.m. Respectfully Submitted, Karen White, Committee Chair EXCELLENCE ACCOUNTABILITY INNOVATION INCLUSION EMPOWERMENT 455 County-City Building 227W.Jefferson Bvld South Bend,Indiana 46601 p 574.235.9221 f 574.235.9173 TTD574.235.5567 www.southbendin.gov 24