MANAGEMENT AND FINANCE COMMITTEE July 19, Council Member B. Broom Chair, Council Member B. FitzGerald, Council Member R.

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1 MANAGEMENT AND FINANCE COMMITTEE July 19, 2011 Members Present: Council Member B. Broom Chair, Council Member B. FitzGerald, Council Member R. Frazier Others Present: M. Wolfe, N. Freed, J. Batchelor, G. Hays, M. Pray, T. Barrett, M. Hyman, M. Shannon, J. Giddings, N. Wishmeyer, D. McNeil, L. MacKenzie, M. Byer, K. Feeney, G. Jetchick (Havana BID and CABC), D. Yockey, R. McCoy and J. Cates (BKD) C. Oakes and S. Castellanos (Aurora Sentinel), and other interested parties 2010 CITY OF AURORA FINANCIAL REVIEW (CITIZENS GUIDE TO THE FINANCIAL STATUS OF THE CITY) This was a consent item. The Committee received and accepted the report intended to provide information about the city s finances and financial condition to the citizens of Aurora. The Committee thanked Jo Ann Giddings, Controller, for this report. Staff will publish this report and make it available on-line to provide information to citizens and interested parties about the city s financial condition. INVESTMENT ADVISORY COMMITTEE NOMINATION Mike Shannon, Debt & Financing Administrator, stated that the city s investment policy provides that the Investment Advisory Committee shall be composed of certain staff members and several non-staff volunteers having investment expertise to advise on market conditions, investment strategy, and sound policy and practice. Volunteer nominees are solicited by the Treasury Administrator. The Finance Director recommends nominees to the M&F Committee, which makes the final selection. Volunteers are appointed for three-year terms and may be reappointed. Eric Uhlberg, the new nominee, is a First Vice President in the Denver office of UBS Financial Services, providing financial management to high net worth individuals and non-profits. His bio was included in back-up documentation. 1

2 Finance staff recommends the appointment of this volunteer to the Investment Advisory Committee for a term ending in March Mr. Uhlberg will bring the number of Investment Advisory Committee volunteers to four. The other three were re-appointed last March. The Committee recommended the appointment of Eric Uhlberg to the Investment Advisory Committee for a term ending in March Staff will advise Mr. Uhlberg of his appointment to the Investment Advisory Committee FINANCIAL AUDIT REVIEW AND DIRECTION RE: THE 2011 AUDIT Jo Ann Giddings, Controller, stated that the city s 2010 financial statements as audited by our external auditors, BKD, have been finalized. Items in back-up included the results of the audit, follow-up implementation of the 2009 audit recommendations and the pending 2011 audit. With regard to the Audit Results of the Comprehensive Annual Financial Report (CAFR) and Single Audit, Ms. Giddings stated that both reports received a clean audit opinion with the exception of one program in the Single Audit. The Single Audit had one finding in 2010 resulting in a qualified opinion on the High Intensity Drug Trafficking Areas. The auditors did not identify any material weaknesses or significant deficiencies in performing the 2010 audit. Two other control deficiencies were identified, as well as two other matters. The control deficiencies were the Comprehensive Review for Financial Statement Presentation and the Fuel Card Policy. The other matters were Administrative Policy and Procedures and Current Economic Environment. The Administration has responded to these matters in the Management letter. With regard to the Fuel Card Policy, Chair Bob Broom asked at how many locations the cards work. Ms. Giddings replied that we have about 2,000 cards and this includes 600 emergency cards. Some of these can be used at commercial places as well as local city fuel locations. No outside agencies have access at this time. With regard to the Administrative Policy and Procedures matter, Chair Broom asked if the high turnover is a result of a lot of people retiring. Ms. Giddings replied that there is not necessarily a lot of turnover now, but the concern is that there are a number of employees who are now or will soon be eligible for retirement. BKD recommends that management should consider establishing a plan for cross-training employees for backup and succession in all key areas of responsibility. With regard to internal controls, Council Member Ryan Frazier referred to a study that was done several years ago and presented to this Committee. Ms. Giddings stated that staff works with departments and continually monitors internal controls. 2

3 Chair Broom asked if BKD looks at our Internal Audit Program and if they feel they are effective in what they do. Jodie Cates, BKD Senior Manager, responded that they look at what is done as far as any risks identified that will impact the audit; however, without specific direction to do so, they do not do evaluations. Chair Broom stated that annual audited financials are provided to the bond rating agencies. Does staff meet with the agencies on an annual basis? Jason Batchelor, Interim Finance Director, replied that staff usually waits until we are going to do some kind of activity. The last formal review by the rating agencies had been in 2009 and 2010 as part of refinancing activities. Dennis Yockey of BKD stated that he has been the engagement partner for five years. At this Committee s request, BKD will rotate the engagement partner beginning next year. He introduced Rob McCoy who will become the engagement partner. Mr. Yockey thanked city management for their receptiveness and cooperation during the audits for the last five years. Ms. Cates added that BKD enjoys a very good working relationship with staff. When issues do arise, staff is very quick to bring them to BKD s attention. The Committee did not wish any of the 2009 or 2010 management comments to go forward to Study Session as council members individually receive copies of this information via a memo transmittal. The Committee asked that BKD look at Internal Audit to determine whether they have been effective and are addressing things that are really important. As requested by the Committee, staff will ensure that BKD looks at Internal Audit during the 2011 audit. CHANGE CITY CODE REQUIRING FIRE EMPLOYEE MISCONDUCT FINES BE TRANSFERRED TO THE CURRENT FIRE MONEY PURCHASE PLAN Staff requested that this item be tabled until the August 16, 2011 M&F Committee Meeting. This matter was tabled by the Committee until the August 16 th meeting. Staff will bring this matter to the August 16 th meeting. GOLF RFP/RFQ 3

4 Karen Feeney, Contract Project Manager, stated that the memo included in back-up documentation provided information on the background of the golf enterprise, privatization options, legal considerations associated with the different courses and a proposed timeline and process to prepare a Golf Service Request for Qualifications (RFQ) with a Request for Proposal (RFP) to follow. According to bond covenants associated with debts issued by the city through its Golf Enterprise, a rate study is required when the senior debt coverage ratio falls below 1.35 times coverage, or when the subordinate debt coverage ratio falls below 1.00 times. The Golf Enterprise fell short of meeting the subordinate debt coverage ratio in Given the current state of the golf market across the state and the nation, staff recommended and Council directed a comprehensive study of the entire golf system by a nationally recognized golf industry consultant. National Golf Foundation Consulting (NGF) presented Council with a City of Aurora Golf System, Financial and Operational Analysis and recommendations at the June 20, 2011 Council meeting. Ms. Feeney s PowerPoint presentation (a copy of which was distributed at the meeting) covered: Background NGF Recommendations Privatization Options Legal Hurdles (Mike Hyman, Assistant City Attorney, covered this item) Privatization option directly available by golf course (Mr. Hyman reviewed this item, as well.) RFP Details Michelle Wolfe, Deputy City Manager, reviewed questions for this Committee with regard to the big picture. It is important to lay out the goals for the RFP and these goals could include: more efficient system, meet coverage requirements and/or build capital improvements. These will all impact how an RFP would be designed and how any potential contract would ultimately be negotiated. Before we can move forward, the following questions have to be answered in order to give staff direction: What type of agreement is preferred? What is the preferred term of the agreement? What courses will be included in the agreement? Moving ahead, Ms. Feeney stated that a long time frame is needed to decide on details to go through an RFQ/RFP process. A schedule of the August timeline was included in the hand-out material. Council Member Bob FitzGerald questioned the need to do an RFP at all and he is not sure about spending a lot of time on an RFP. The issues to him are water costs and water use. Essentially, we have one city enterprise jeopardizing another city enterprise. He believes there is legal authority where cities have been allowed to reduce their water rates internally to parts of the city. He would like to see that done before we engage in an RFP process. For clarification purposes, Council Member Ryan Frazier asked what direction the full Council had given with regard to an RFP. Ms. Wolfe responded that she believed Council had asked staff 4

5 to look into the possibility of doing an RFP and how it would be put together. Nancy Freed, Deputy City Manager, agreed. Chair Broom stated that it is his view to move on all the recommendations made by NGF in their report. There is no reason not to do that. However, we need to take a closer look at picking out one or two courses and figuring out how to go about this and get a little farther down the road. Council clearly had an interest in doing an RFQ/RFP. On the water issue, Chair Broom said that Heather Ridge had submitted a grant request to go after funds to re-do their irrigation system. He opposed this request; Council agreed to it. If that is that is the case, why don t we submit a request for funding to fix the lakes and other things? Council Member Frazier also is in favor of implementing the recommendations made by NGF prior to moving forward with an RFQ/RFP. He asked how long it would take to implement those recommendations, when we would start to see improvements and whether those improvements are making a difference. Jason Batchelor, Interim Finance Director, stated that the intent of the August timeline is that there are some key areas that we would look at and have a plan and begin to talk about it at the August M&F Committee meeting. If Council approved the direction, we could begin implementing the recommendations. Council Member Frazier asked if we would have to pay for a further study by NGF. Mr. Batchelor replied that we will not have to have another study. We have the information we need to move forward. Ms. Freed added that NGF did a very good job on this study, looking at each course and coming up with recommendations. They took a very objective approach. With regard to the Fitzsimons Redevelopment Authority (FRA), Council Member FitzGerald stated that we gave up our control a month ago. It seems to him that paying $150,000 is too much. He would like to investigate that. Chair Broom stated that Fitzsimons is fairly strapped, so it is going to be a tough negotiation. Mr. Batchelor stated that staff could approach the FRA and see what, if anything, they were willing to discuss with that direction from Council. Tom Barrett, Director of Parks, Recreation and Open Space, addressed the Committee with his thoughts on the study done by NGF. The Committee thanked Mr. Barrett for his comments. The Committee recommended that staff come to the August M&F Committee meeting with a timeline as to when and how they propose to accomplish the recommendations outlined in the NGF report. The timeline should also include financial analysis on the cost and benefits of those actions. Staff will come to the August M&F with a timeline on implementing recommendations and provide more details on developing an RFQ for one or two courses as directed by M&F. 5

6 POTENTIAL TIMELINE FOR DEVELOPMENT OF BOND PROGRAM Chair Bob Broom stated that he had requested a draft timeline for the development of bond program. The timeline provided by Jason Batchelor, Interim Finance Director, identified key components and a basic outline for development of a potential bond program that could be taken to voters. The key components and included in the timeline are strategic direction from Council to identify core areas of focus for the bond program, direction to staff to provide project information for those core areas, the establishment of a citizens committee to review the projects, conduct public meetings, receive public input and develop a citizen recommendation around a potential bond program, Council review of the citizen recommendation and Council consensus on the final bond program. The timeline is geared toward ballot questions in November 2012, but could be shifted or lengthened to accommodate ballot questions in November With regard to who would serve on the citizens committee, Chair Broom suggested the Chair of the Planning Commission, chair of CABC, chair of the Parks and Open Space Committee, Chair of the Chamber Transportation Committee, plus each council member appoints one person and the mayor would appoint the chair. The more people you get involved, the better the output. Mr. Batchelor stated that from a staff perspective, they will continue to look at this and make sure they are thinking ahead and how to resource this. He will work with Skip Noe, City Manager, to provide more details when Council is ready to move forward. Chair Broom asked staff to bring this forward again this fall. Staff will work with Council to bring the draft timeline forward in the fall. MISCELLANEOUS MATTERS FOR CONSIDERATION TABOR Reserve Requirements - Council Member Bob FitzGerald asked about pledging assets to make up the TABOR reserve. Is that legal? Maybe half of the TABOR reserves could be liquid and half could be pledged assets. He would like somebody to look into that in terms of liquidity. Jason Batchelor, Interim Finance Director, stated that staff can do an analysis and he will bring it to the August M&F Committee Meeting. The next meeting will be held on Tuesday, August 16, 2011, at 1:15 p.m. 6