|View Agenda for this Meeting
Special Meeting of Council of the City of Novi
Thursday, April 19, 2007
Mayor Landry called the meeting to order at 7:00 P.m.
PLEDGE OF ALLEGIANCE
ROLL CALL: Mayor Landry, Mayor Pro Tem Capello, Council Members Gatt, Margolis, Mutch, Nagy, Paul
ALSO PRESENT: Clay Pearson, City Manager
Kathy Smith-Roy, Director of Finance
AUDIENCE PARTICIPATION - None
PURPOSE OF SPECIAL MEETING Ė 2007-2008 CITY OF NOVI BUDGET
Overview and Introduction
Mr. Pearson stated he would like to provide Council and the community with an overview of some of the topics in the budget. He suggested as a format to 1) provide the philosophical framework they used for the budget document, 2) to present the multi year issues that had been identified and review the financial numbers, and 3) move into an overview of the budget program categories and some of the highlights found in there.
Mr. Pearson thanked everyone for their dedication and hard work to get to this point. He said the staff had listened very closely to a lot of the deliberations of the Council, and they would see that the budget document format itself had evolved quite a bit. This evolution of the budget document was a reflection that the Council generally, and Mayor Landry particularly, had talked about during the last budget process. Mayor Landry and Council said they needed the budget itself to be more strategic and goal setting, and then let the numbers in the budget flow from that. He said they had done that, and the way they improved upon that was the Council, in their goal setting sessions beginning in October and going through January, was the backbone to the present budget document. He hoped Council would see the budget as new and improved. He said everything was based on Councilís strategic goals and a lot of plans they had been working on for a number of years. Mr. Pearson said those plans were the preparation execution, the color tabs were modified to reflect Councils strategic goals, and they had also taken that specific way and generalized it in sort of a Novi way of how they come to do things. He thought that was how they analyzed, planned, prepared, execute, adjust and repeat. Mr. Pearson said the analyzed section talked about the citizen perception survey and other bench marks. The planned section talked about strategic goal setting as the opportunity for Council, as policy makers, to have their impact and direct a lot of the work that they did. The prepared section talked about economic development in this budget process and how it reflected Councilís plans. In the execute section they recognize that the proof was in the pudding and that work was upon Administration and staff to deliver on what Council requested they do. The adjust section talked about being flexible during the year, to seize opportunities and be nimble to change. Finally, the repeat section talked about cities always being in a circle whether it was virtuous or vicious. He commented that was how they were always in this sort of planning and this whole process.
Mr. Pearson said things fell together in this budget process because of all that work and the adjustments Council asked for, and he hoped Council would find that this was a very smooth process.
2007/2008 Budget Overview/Highlights
Mr. Pearson noted that in the transmittal letter number IV, talked about some multi year impact issues. He said State Shared Revenues had been recognized as a question mark but they had addressed and taken that question mark off the table as far as it being a problem. Mr. Pearson said they were recommending the monies from the more at risk statutory portion of State Shared Revenues, be dedicated towards unfunded retiree health care costs as another contribution towards that. He said they also made note that the State Shared Revenue, the special census had been completed and over the upcoming budget years there was an opportunity for additional funds that the City of Novi was entitled to. He said they had not dedicated any of those monies and would continue to lobby and advocate for Noviís fair share of those. Mr. Pearson said another multi year impact was the post retirement benefits issue but that was an issue that Council was well aware of and had adopted policies and had managed. He said it would not be something that they couldnít handle and be behind on but it was something that they would need to continue monitoring and containing. Mr. Pearson said they also talked about cable franchise fees, which continued to evolve and did so this week with the AT&T Franchise Agreement. However, in this budget document, it was not something they anticipated would harm the City but they would have to keep an eye on.
Mr. Pearson said they talked about the Drain Revenue and Perpetual Maintenance Funds and as they continue to mature they would present opportunities in future budgets. Once the planned capital work was completed and executed, there was an opportunity to wrap this nicely with accommodating the Library millage perhaps, within our existing means, and also provide additional capital improvement flexibility. Mr. Pearson said they continued to hear that roads, particularly neighborhood roads, were an issue, which was reflected in the citizen perception survey. He said he had recommended in this budget $2.5 million in neighborhood road construction plus another $200,000 in engineering for the 2008 program. He said Council had seen the concrete streets list, and what they had been able to set aside for that would make a very significant dent in the list and a difference in neighborhoods in a very popular and much sought after program that the City offered.
He commented that there were also monies dedicated to primarily working with partners like the Road Commission for Oakland County and arterial roads, Novi Road link, Grand River preplanning and Haggerty. He said, while working on neighborhood roads, they would also keep an eye towards those arterials.
Mr. Pearson said they also talked about the Water and Sewer Funds as Enterprise Funds that had contracted capacity, boundaries that were being worked on, and contracts with the DWSD providers. He said that was another area that was multi year, and that he thought they had a good handle on but it was something that would evolve over time.
Mr. Pearson said the Library had been approved by Council, and they would continue moving forward with their necessary expansion. He said they were analyzing intergovernmental and shared services with an eye towards taking more opportunities for cost savings and service delivery.
Mr. Pearson said the Federal Drug Forfeiture Funds were a unique opportunity and because of the timeframes for these specialized dollars and because of the goals Council had adopted, the package of three items had been included for the police headquarter critical needs, completing the funding of the firearms range, and paying off the debt for the existing facility.
Mr. Pearson said finally, our evolving, growing, diverse community was highlighted as another multi year issue that they wanted to recognize as a priority.
Mr. Pearson commented that in the last fiscal year this City government lived within its means. The General Fund Revenues for last year were $29.5 million and the expenditures were $26 million. He said the recommended budget before Council was balanced and fiscally conservative. For instance, State Shared Revenues were now estimated at 5% below what arguably could have been budgeted. He said they used the 2 1/2 % back to last years and they increased that conservation and being on the safe side of that it had come in generally where the State had been expecting it. He said the revenues maintained the Fund Balance above the targeted 14%. He said the 10.5416 mills were below the maximum allowed by the City Charter, and once again the Headlee Amendment rollbacks were not necessary to be applied to our rates. Mr. Pearson said the City was left just under a half a mil of capacity that would transfer that $1.5 million in property taxes that the Council could, without a vote of the people, impose if there were identified priorities. He said they were recommending they stay below the million and a half that were left on.
Rainy Day Funds
Mr. Pearson said an overview of the Rainy Day Funds was on page 26, and they would recap that traditionally at the table. He said the estimated Fund Balance was $5.7 million and was 16.7% of last yearís expenditures. He said they also used an additional 14%, a target of two months expenditures, which would be $5.1 million, so again they stayed very conservative and within their means. He said that was another area that Council had always been very proud of, it had reflected well in operations to allow us to take advantage of opportunities that come up during the year. It also reflected well when rating agencies were looking at Novi because of that kind of conservative look and management of our practices.
Budget Program Categories
Mr. Pearson said to keep with the themes the color tabs were what Council had identified as their strategic goals. He said they had taken the format of recapping a number of planning studies and analysis that Council had endorsed over the last several years, and introduced the citizen perception survey for each of those to give Council a sense of how residents were rating those services. Mr. Pearson said with the Public Safety item they talked about plans for the police build out and the indoor gun range. Also, there was another study forthcoming for the fire facilities, and so all of that had led, in the red box objectives under Public Safety, to the
series of items, which were illustrative of some of the things included in their recommended budget. He said everything from the police headquarters critical needs. Mr. Pearson said they had also included $638,000 for fire station physical improvements, and they had undertaken a study to see how that should be done. Mr. Pearson said for clarification, they had one communication where they said they put in $400,000 in the budget to take care of fire facilities 2 and 3, but it was actually $638,000. He said they were able to fully fund what was their best guess of what would be needed to make physical improvements to stations 2 and 3. Mr.
Pearson said also illustrated would be the replacement of equipment that was the bedrock of what the fire service needed to provide fire protection. He said there were two big ticket items they were able to fund and needed to replace, which were Rescue 1 and Engine 5 and was $660,000 worth of equipment for fire in addition to the physical plans they had recommended.
Capital Improvement Program
Mr. Pearson said regarding infrastructure on page 44, the studies that led to their recommendations were many. The Storm Water Master Plan, the Water Distribution Study, the Sanitary Sewage Capacity Needs Study, the CMOM, Beck Road Scoping Study and the PASER Analysis. He said those were another good example of planning and analysis that had gone in, which led to a series of recommendations of projects, and a number of those were reflected in Appendix C. He said first and foremost they would be the neighborhood road improvements mentioned earlier, but would also include items like the bike paths, completion of traffic signal upgrades, work with the Road Commission on intersections, and other things Council would see in terms of road work over the coming year.
Mr. Pearson said for Economic Development there were two studies highlighted, which were the Economic Development Goals of the Council, and the Sikich Pride Study that Council had endorsed and had supported recommendations to implement that plan. He said they would continue to implement the Cityís Master Plan for Land Use and acquire the vehicles and fleet upgrades that would be necessary to maintain the service upgrades. He said those specific vehicles were found in the blue book, but they were really just staying on the rotation of replacing the physical fleet so they didnít get too behind and to have the equipment to do the job.
Mr. Pearson said Council also introduced a new strategic goal of Citizen Focused Government, and they talked about the Citizen Perception Survey as the flagship study that was completed last November. Also, the Master Plan for Land Use was another fundamental bedrock study of the City that they lived by everyday when they received any kind of development proposal. He said the blue book also talked about technology upgrades made up of substantial equipment for technology and PC replacement and software to get the job done. He said there were a lot of employees whose day to day functions were at a monitor, and it only made sense that the employees they were paying a solid wage to have the equipment to do their work. He said that would be the computer upgrades for a relatively small amount of a few thousand dollars to keep on top, and have a computer that was able to handle the applications that they were putting out to them. He said Council had been very supportive of those kinds of technology upgrades.
Mr. Pearson said they also wanted to continue the Staff Education Training Program, which was detailed in the blue book. He said it was a theme that Council endorsed and they put forward, and he said they continually wanted to show Council the pay off from that. Mr.
Pearson said they had also made a commitment for laptops in this budget for Council to implement the E-packet Project. He said they had good success in digitizing those and looked forward to the day when it could be implemented.
Mr. Pearson said the Natural Areas and Features talked about the Tree Fund, and the Green Initiatives they had brought forward and would bring back to Council in May. He didnít see that these would necessarily be City cost items but it was something Council had expressed interest in. He said they had made significant investment and would do it again for street tree planting. They also wanted to look at City Ordinances to be sure that they had environmentally friendly practices in development of storm water ordinances and the green building. Also, to make sure the ordinances were modern and ready for what more and more developers wanted to do.
Mr. Pearson said the fiscally responsible government talked about health care, pension projections and land use analysis. He also wanted to highlight Appendix D in the document because he thought it was a very helpful resource in terms of different kinds of land uses and what it meant fiscally to the City of Novi. He noted that Staff Planner Tim Schmitt was the primary author of that section and did an excellent job. It gave Council and any policy maker an idea of what a single family house or office building meant to the City in terms of property tax base. He said the fiscal analysis was something they wanted to grow and expand over the coming year in the auspices of multi year planning and some of the issues talked about earlier. The Fiscal Analysis update was something they wanted to update and grow, and reducing health care costs that they were committed to maintaining, Fund Balance was an issue that they wanted to maintain and keep on top of, and also sharing with the labor groups the impact of health care costs generally, and the necessity of implementing cost sharing programs.
Mr. Pearson said the last color tab would be Parks, Recreation and Cultural Services and the same format would be with the community perceptions. He noted that the perceptions of our City services were all above the norm in terms of this same survey being applied to other places around the country. He pointed out that the studies completed in this were the Pathway and Sidewalk Plan, the Parks, Recreation and Forestry Strategic Plan, the Oakland County Housing Needs Study, and they were now working on an older adult survey. They were working with the National Citizens Survey and had a great grant opportunity to work on that, and then the Library expansion. All of that had led to the red box objectives for Parks, and Recreation, Power Park Phase 2, completing field improvements, the Senior Bus was a growing demand and they recommended another vehicle for that operation and extended hours. They also recommended the technology and equipment for Parks, Recreation and Forestry to carry out what they wanted to do.
Mr. Pearson commented that he believed that this was not the time to unveil big surprises. This should be a step in a process and it had worked very well in the development of the document. They tried to reflect what they were doing, what they had done in planning, studies and surveys, and it had led to this document that recapped that. He said they were proud of this budget document and they were looking forward to Council input.
CITY COUNCIL DISCUSSION AND DECISIONS REGARDING THE PLAN PRIORITIES
Mayor Pro Tem Capello thought overall it was an incredibly good budget and was pleased with the way City Management and staff tried to stay within the goals Council had set. He expressed some concern about the cost of replacement computers and thought the cost the City was paying was three times what he had paid shopping several different stores. He agreed about the branding and marketing of the City and thought the money should be allocated, and would be looking for the $19,000 to fund that. He thought since it would benefit the business community they could ask them to match or contribute to this. He wished they had funded money for the Civic Center landscaping and restoration, which was recommended by the department but not by the City Manager. He felt if they were going to hold others to a high standard of landscaping then the City should lead the way. He thought entryways to the City and City Hall were less than what was expected of the development community. It would have been nice to revise the Design and Construction Standards because it was constantly an issue.
Mayor Pro Tem Capello said two areas he had a problem with allocating money this year and one of them was the $120,000 for land use studies, which were to be allocated $60,000 this year and $60,000 next year. Mr. Pearson said with the staff hired since the initial request came in, Steve Rumple had significant experience in addition to the talent already in house, and he would challenge the staff to do all four of the studies with some outside assistance for the dollar amounts. Mayor Pro Tem Capello thought it could be done with the talent the City had, and agreed with Mr. Pearson. He said a new fire truck was purchased last year and this proposed budget allocated $420,000 for a backup truck for the Fire Department. He said it appeared the present backup unit was in poor shape and was not worth putting money into, however, if they were just purchasing a back up unit he would rather allocated that money over a couple years. Then there would be additional money to allocate towards some of the other issues including additional money to develop some of the parks. He was satisfied with the budget other than those concerns.
Member Mutch said the proposal was balanced and there was a balanced budget before them. However, he felt the budget didnít take into account the current climate and economic conditions of the State. He said he assumed that due to the State budget issues and elimination of the single business tax, the City would only get the minimum due from the State. He said there had been discussion about eliminating the Personal Property Tax with no guarantee that local governments would see the funds that come from Personal Property Tax revenue replaced. He had great concerns about how they were spending. The revenue taken was about $30 million and expenditures were about $34 million. A significant portion of that was coming from Fund Balance. So they were spending those excess funds and his concern was how much of that money would be available in the future. He was concerned they were getting into a budgeting process where they spent with the belief money would always come in from the growth, new development, and always have a Fund Balance they could tap into. Last year $1.5 million was spent out of Fund Balance and this year weíre proposing to spend $3 million. He said this was the third year of no Headlee rollback but that would not last forever, and when it did kick in, it would hit on the revenue side as well. When talking about capacity in terms of levying our millage, if looking at where that capacity fell, most of it was in the Drain Revenue Fund. He noted there was less than 2/10 of a mill in the General Fund, which meant when the Headlee rollback kicked in, the revenue sharing fell off, or the personal property tax revenue dried up there wouldnít be a lot of cushion to make that up, if spending in a way that didnít recognize that could happen. He wanted to look at the truly one time capital expenditures such as the fire department upgrades and Parks and Recreation improvements. He said there were other expenditures in the budget that while technically meeting the description of a capital expenditure, like vehicles to be purchased each year for the next 5 or 6 years, each item by themselves might be a stand alone purchase. However, itís clear that funds needed to be in place to be able to continue that program. If it was assumed that the money would always be in Fund Balance, and 2 or 3 years out there no longer was a Fund Balance to tap into that program would not continue. Member Mutch said he wanted budgeting in a way that accounted not only for the day to day operational costs but those kinds of costs as well. He suggested, in terms of the Fund Balance, to defer the $1 million allocation to the road funds, defer the $388,000 retire health care contribution, and defer the $200,000 of the transfer to the Judgment Trust Fund of $375,000. He recommended that money be set aside, which represented about half of the allocations from the Fund Balance, and wait until the audit was complete in the winter, then follow the budget policy on how to spend the monies after the audit was complete. He said it specifically talked about Judgment Trust obligations, unfunded retiree health care and related items. Those funds donít need to be spent now, the road funds wouldnít be needed until the next construction season, the contribution to retiree health care didnít need to be made now, and the Judgment Trust Fund was being bolstered in anticipation of some need, and if it arises sooner rather than later the money could be transferred over. He said this Council would then have a better picture of the fiscal environment for the City and State. He thought that allowed those needs to be met at the time they needed to be met if Council could do so smartly. He thought it was the most prudent way to approach this, and he didnít want to over-commit in terms of the Fund Balance. He wanted the Administration to go back and identify vehicles and similar expenditures and find a way to pay for those out of the existing budget.
He was concerned about a budget that spent Fund Balance at the rate they were spending it and also increases the millage levy. Member Mutch said every time they roll up the General Fund Millage, even if the bottom line millage looked the same, they were eroding that levy. In 2003 the General Fund Levy was 4.49 mills and now its 4.8 mills and the tax base grew by a billion dollars, and we have been raising the levy year after year, taking in more and more money and spending it fairly wisely. However, he said they couldnít continue to operate on that kind of path and it would catch up to them sooner or later. Member Mutch said he could not support a millage increase this year with the economic conditions the way they were. He said everyone would get an increase on their tax bill and Council should be mindful of the financial needs in the community and do as much as possible to alleviate the prospect of that happening.
Member Mutch wanted more information on the Police and Fire Fund and how those monies factor into the budget long term. He would like to see a schedule of the Cityís plan for a time period and how to determine how much money came out of that fund and how much stayed in the Fund Balance.
Member Mutch said the Drain Revenue Fund was the opposite picture of what was going on in the General Fund. He said they have a dedicated millage where they know where the money was coming from and there have been several studies that show what the capital costs were over the next 5 years. He said a significant portion of expenditure in that fund was a single piece of equipment. He said Council knew what needed to be spent out of the Drain Revenue Fund over the next 5 years for maintenance and capital costs. Also, the fund had a huge fund balance and he wanted to take advantage of the fact that there was a known revenue stream and known revenue costs to look at reducing that millage to make use of some of that Fund Balance. He said in that situation, it was not being saved for a rainy day and there were areas the money could be spent and part of that would be through the millage reduction, without harming that financial health of that fund. He thought that should be looked at as an opportunity to increase capacity in the overall millage rate. Residents would like to see money invested in water quality, environmental protection, stream bank stabilization, and protection of the wetland and woodland.
Regarding the Tree Fund, Member Mutch wanted a long term plan so that 5 years down the road as the City builds out, and they were no longer losing trees and being compensated for that in the Tree Fund, there was a way to insure that the fund continued to benefit the City long term.
Member Nagy commented she could not approve a budget when Council was spending $3 million more than they were taking in. She felt that the State of the economy in Novi with people out of jobs, so many homes for sale, etc. was not good. She said the Fiscal Analysis was good but those projections had not all come true because the economic future couldnít be predicted. She said they needed to fund basic services which were police, fire, DPW, drains and storm water, and there were amenities in the budget that could be removed. She asked if the $425,000 for Fire Engine #5 could come out of the Police and Fire Fund, as well as the $240,000 to replace Rescue 1. She would put a minimum of $100,000 in the retiree health care fund. She thought there were patrol cars and other designations for the police department that could come out of Forfeiture Funds. She debated about the Local Street Fund except for the fact that there was such a great need and that $2.5 million would be needed. She didnít consider soccer fields and Power Park Phase 2 a basic service and would not support it now, nor the $300,000 for sidewalks. Member Nagy felt the Assessing Department didnít need a Jeep Liberty at $19,000. She said Council needed to remember the Fund Balance was not a slush fund, it was for emergencies, and they needed to live within their means. Member Nagy also needed additional information on other line items. She didnít want to take anything out of the Drain Fund because it paid for the services for DPW staff. She didnít believe the City Council would save on paper if they got laptops and there was no cost analysis on that. There was a lot of money proposed for overtime in some of the departments and she didnít know the reason for that. She didnít want to fund a Land Use Study, and didnít want a part-time cultural liaison. She thought the Atrium seating looked good and the vinyl chairs were ok. She didnít know why they had to pay for someone to tell them how to use space. Member Nagy was concerned about the use of Blackberryís and the service software. She wanted to hold off on the Master Plan update because she didnít think they would do all the building that was projected in the last fiscal analysis. She wanted to see the Clemis Records and Data Migration, in-car laptop and PC laptop and printer replacement all come out of the Forfeiture Funds. She believed a fund should be created for all vehicles. She thought everything the Fire Department had shown was a demonstrated need, and not a luxury. A lot of residents she talked with would like to see more Police Officers and more police presence in their neighborhoods.
Member Paul said much of the revenue was based on what was brought in from residence and businesses, and with the housing market declining the taxes and revenue would be declining as well. She said last year $1.5 million was spent over expenditure and now they were more than doubling that. She felt that was not good fiscal responsibility. She said they needed to balance all of the needs of the residents as well as staff because they work very hard. She said the cultural liaison was part time, and she didnít want to put any new personnel in this payroll. She said two people were added to economic development and one more to the Building Department so better service could be provided. The Building fees pay for that person. But with three new people come some cost and she didnít want to strap citizens with more cost for new employees. So, she was not willing to move forward on that. Also, she would like to see all the items listed for the Building Department funded through their fees, and asked for more information regarding that. Member Paul asked for an explanation for why there was so much overtime needed for the DPW. She asked if someone else could deliver Council packets, and was there a way they could look at a scheduled plan for all the maintenance for the City, and have a quarterly report of that schedule and what the employees were doing to require all the work that was being done. She wanted a schedule for bikes and trails and what the maintenance was they did on them, what was the sewer and road maintenance, sidewalk maintenance, etc. She asked why the Police overtime budget was so high, and asked for a better understanding of how to get that down, and who was receiving the overtime. She noted the appreciation dinner went from $26,000 to $32,000, and that was a one night expenditure. She wanted to look at streamlining City wide training in each department. She asked about smaller fruit trays for Council meetings and eliminating them when they didnít have Executive Session. She was stunned that the Police Department was a 1/3 of the budget and their overtime, conferences and training costs all rose. She also wanted a clear understanding of the raises planned for Administrative employees and how it would be disbursed. She asked for an explanation on the Top Dresser under Capital outlay page 10, where it would be stored, what would it be utilized for, would it save manpower and labor time, and was there any other Top Dressers. She requested a list of all the equipment Parks and Recreation had so they could understand how old they were and where they needed to improve so they could have a long term budget analysis of that for future years. She said under Service requests she had over $600,000 savings by eliminating $6,000, $8,000, etc. items. She looked at large and small equipment and what was necessary and was willing to make cuts throughout the entire budget but did not want to spend $3 million over the revenue.
Member Margolis said she was very pleased at the process this year. She said they went through a whole process as a Council looking at what their goals and priorities were. Council had done multiple studies and had inside and outside experts give them a variety of studies from the sewer, water, sidewalk, police, fire, citizens committees etc. She said that process produced the kind of information the City Staff needed to look at the budget and set the priorities. Council had two goal setting sessions and told Administration what their priorities were. Now, she found it interesting listening to some of the Council because she sat at those goal setting sessions, and if she were the staff she would be confused right now. She said priorities that they all talked about are now ones that some Council members are saying they donít want to do. Member Margolis felt that was a real mistake in terms of dealing with staff because they went in a direction that Council set, and had done a great job. She said Councilís job was to be in charge of governance, policy and setting priorities and they had done a good job and staff had listened to them. Then Council was in charge of oversight, which meant that when they got the budget they had to look at it, make sure it fit with the priorities they had set, and that it was fiscally responsible. They had to make sure the increases were in bounds and if they were a little larger, that they fit the kinds of priorities that Council thought they needed to invest in the City. She said going through as a Council they had to put their money where their mouth was. It was not enough to say they thought they needed to make staff more efficient through technology and in a variety of ways, if they werenít going to provide the staff the tools to do that.
Member Margolis said she asked for this budget document with percentage increases from year to year for the past three years. She didnít think their job was to line item pick through and save $3.00 here and there, but to really look at the broad document and see where things were going. She said the reality was that the General Fund increase in expenditures this year over last year was 4.6% overall. She said given the increase in health care cost and contractual obligations in terms of salary, she felt the public needed to understand that the majority of the budget was personnel. We canít have that much effect as Council on the overall budget unless they were going to cut into bone. Another thing she looked for was line by line what were the percentage changes in each line item, and did it fit with the kind of priorities they needed to do. Member Margolis asked them to remember that that increase was 4.6% overall, which meant if things went up in certain areas, they had to drop in other areas. She believed that the City staff had done that and brought to Council a budget document that really fit the kind of goals Council told them were important them. She would be willing to listen to Council members as they went through and talked about adding or deleting items from the budget. However, she would be up front that what she wanted to see for any of those things was the same kind of analytic rigor that the staff and experts went through to produce this budget in the first place. She said if she was to consider an amendment to add a pet project or take out something, she wanted to see the same kind of analytics about it that really proved to her it was important.
Member Margolis said the reality was that the Police were a large part of the budget, and if talking about core services, that was one of the core services of the City. She said frankly, given the tragedy seen this week, she was willing to invest in the Police Department in this City. Member Margolis wanted to talk about the idea of the Fund Balance and that they were spending more than was coming in. She said everyone needed to understand that Council had maintained 14% or higher in Fund Balance year to year. The reason that Council was appropriating Fund Balance often in the budget was our staff spent less than was appropriated every year. She said she had been a public employee and that was very unusual; most public entities end up at the end of the year with employees who thought they should spend whatever was left in their budgets because they didnít know if they would get it next year. She said their employees didnít do that; they were fiscally responsible and because staff saved money they were one of the reasons there was Fund Balance to allocate this year. She said the other things were from items that had rolled over from year to year so that they could allocate things from Fund Balance. She thought it was important, as they went through this process, that Council and the citizens understood that the Fund Balance had been maintained at 14% or over, which was way above the recommended 8% to 12% Fund Balance. Member Margolis said she was shocked by some of the things people talked about getting rid of to be fiscally responsible. She commented that she had said over and over again that it was one of her goals and if there was one thing she asked for in this budget, it was to keep putting money into unfunded retiree health care liability. She said they had to understand that this was a liability that the City had from way back and most cities had much larger liabilities than Novi did because Novi recognized it. Member Margolis explained that for years, cities and companies expected to pay for retiree health care costs out of the current year budget; so if they had ten retirees, they would pay that health care costs then. However, they realized that as time went on and that amount rose, they needed to start putting away money now so if John Smith was working now, they needed accrue it to pay for his health care liability in the future. She said that was what Council did now; they fully fund for all current employees to make sure those liabilities were covered. She said they needed to put away money every year for the liability they had that grew up over many years. She commented that to say that they would defer putting that money away was amazing. The reality was the money put into health care liability allowed them to get a higher rate of interest because it could be put into some different kinds of securities than they could as a municipality. So to defer that was a huge mistake.
Member Margolis said the other items they talked about deferring was the Road Fund, and that was another huge mistake. She said they were right that they were fortunate to be in an unusual situation from most cities; Novi was growing, doing well and in great fiscal shape. Member Margolis said there was a term of donít be penny wise and pound foolish. Council needed to invest now when they had the money for roads and put money away in health care liability. She said for our personal budgets they would be told to save first, and that was what they would be doing in this case; those important savings should not be deferred, and should be put away now. To defer those things and pass the budget now was like smoke and mirrors. It meant Council couldnít get the job done and they needed to do their job now, and pass a budget that made sense. It was also suggested to defer the Judgment Trust Fund. It was money that Council put away to make sure that if there were any large legal settlements, there would be money put away to pay for them. So by not putting money away it really didnít save any money; it sat there to wait in case there was a judgment. She said if there was a judgment against Novi they would have to pay it anyway. In some ways the Judgment Trust Fund was Fund Balance; itís there to wait.
Member Margolis said there was talk about not funding park improvements. The reason Novi was doing well was because companies and people wanted to be in a place where there were good parks. If there was something learned from the citizen survey, it was that was one item people were less satisfied with in the City than any other. We had to continue to invest in things year to year, and couldnít wait and put that off. She said the same thing with roads; she thought they saw that with the highway because for years there was no money put into the highways, and they were paying the price now. She said they needed to do those kinds of things. Member Margolis commended the staff for what they had done here, and thought the analytics behind this were terrific. She thought they put money into the things that Council asked them to put it in. Member Margolis said if there were any changes in this budget she would need to see some real analysis of why those changes needed to be made before she could vote for it.
Member Gatt thanked Mr. Pearson and his staff for delivering the best budget he had seen in the four years that he had been on Council. He also knew the effort and work the department heads put into this budget and wanted to thank them for their countless hours of work and effort in getting this to the Administration. He commented he was surprised at the negativity of Council tonight. He heard the State of Michigan mentioned at least a half a dozen times and thought that everyone knew that the State of Michigan was in deep financial trouble. However, this was not the State of Michigan this was the City of Novi, and the Cityís financial picture was rosy and vibrant. He said he worked for Oakland County and was at a meeting a couple days ago with Brooks Patterson the Chief Executive of the biggest and most lucrative county in the State, and their budget was rosy also. He said that was because they planned properly, did a two year budget, and forecasted properly. Member Gatt commented that their budget analyst talked about Michigan and all their woes and said thank goodness they were not the State of Michigan. Weíre doing ourselves a disservice by comparing ourselves to the State of Michigan. Member Gatt thought the City of Novi was in even better shape. He thought they were doing themselves and the citizens a disservice comparing Novi to the State of Michigan. He said Ms. Smith-Roy had been brilliant in her projections, she put away money for unfunded health care for retirees years ago, and that was in good shape. This year if they didnít get State Shared Revenue, and chances are they wouldnít except for what was constitutionally dictated, provisions had already been made for that. He said they didnít put it in the budget as something to spend; they put it into a Fund Balance. He didnít think Council should be comparing themselves to a government that seemed to be failing, because it wasnít, and everything they were doing was being done well, and had been doing well for years. He said it was misleading to say they were spending more than they were bringing in because what they were doing was spending money that had been saved by the employees.
Member Gatt noted the forfeiture dollars seemed to have an excess of $800,000, and he wanted to know what the Police Chief had in mind for that money. One Council member said they didnít want to add any new staff and this was a budget that didnít add any new staff. However, he would propose adding a police office to backfill a position that vacated through promotion that was in the budget. Member Gatt agreed that the citizens wanted to see more police officers on the street. He said the survey talked about the safety issues and how everyone in Novi felt safe, and they were exceedingly happy with the Police Department. He said that didnít come by accident it came from hard work and planning by the Police Chief and the men and women who work there. He wanted to see that that level was maintained. Member Gatt said Member Nagy said one sergeant for every 6 patrol officers, and she thought that was too much. He said a basic management principle in any management book in America said that the optimum span of control was 5 to 1. He thought this was the best budget he had seen in his four years on Council, it was fiscally responsible, and addressed all the needs of a growing community, and a community deemed very satisfactory by the citizens in the latest poll.
Mayor Landry stated he wanted to talk about Fund Balance, the role of Fund Balance, how it had been used in the past and how it had been incorporated. He asked the City Manager or the Finance Director to talk about that a little bit.
Mr. Pearson stated that each year the City had estimated revenues and expenditures conservatively, and that had generated a balance that had carried over year to year. He said they could do what other agencies did and not go into this budget and predict State Shared Revenue being 5% below, like they had done in this budget, and thus not generate the monies they had accumulated that were able to give them flexibility. He said that balance was being drawn on knowingly and planned, and because it was available it went to specific one time items. He said there was a memo with answers to questions talking about non-recurring items and that was where they were able to do capital items like the additional neighborhood roads, make contributions to retiree health care this year and every year, fire station and park improvements, and continue the technology upgrades. He said that was how it was drawn out and how they do it, how Council had accumulated it, and it was how they were able to reinvest in Novi.
Ms. Smith-Roy said the items that Mr. Pearson mentioned equate to about $2.96 million. If they added to that the Construction Code cost of $601,000, which was one of the areas that was increased in the budget for the Building Department to cover the cost. They earned the revenue from the fees collected, and those together were about $3.5 million. She said those were the one time costs they were talking about that were above the revenue they were collecting in the 2007-2008 projected. Mayor Landry said the $2.96 million was what. She said those were one time recurring expenditures for $1 million for the road fund, $388,000 for retiree health care, $638,000 for the fire station upgrades, $715,000 for park development, $225,000 for the second phase of the integrated financial management technology, and $601,000 to Construction Code. Mayor Landry asked if she could give that to Council in writing, and she said she could. Mayor Landry said that was reported to be excess of expenditures over revenue, she said it was. Mayor Landry said that was excess only because they had been conservative in their estimate of revenue, and Ms. Smith-Roy agreed. He said that was where the Fund Balance came from. Ms. Smith-Roy said it was actually a combination of savings on expenditures and conservatism on the revenues. Mayor Landry said so this budget could have been spun to show no Fund Balance or a great Fund Balance. He said it was a matter of their being conservative in showing that balance, and she agreed.
Mayor Landry commended the staff and said he thought it was a balanced budget, and a budget in a form they had not seen in the past, which was following the goals that Council set last year. He said Council would get together before the staff worked on the budget, and set forth what they expected before staff did their work. Mayor Landry said Council did that and he was amazed to see how many staff showed up on a Saturday to listen to what Council goals were, and how they reached those goals. He said they had obviously heard Council because this City budget stated the Council goals and how they intended to implement them, which was how local government was supposed to be run. He said Council was to be the general policy goal setting body and staff was to be the tickers and footers, and staff got into the minute detail of how to. Mayor Landry thought they had done a wonderful job of that in just looking at the way the budget was laid out, going goal by goal and how they attempted to accomplish that spoke volumes that they were listening to Council regarding what they expected. He agreed with the previous speaker who said it would be a little inconsistent for Council to have told the Administration hereís the direction they wanted to go in and now do an about face after staff had spent all this time on it. Mayor Landry said an example was City Council goals improved infrastructure, roads, water and sewer. He stated he could not support a decrease in the road fund as it was one of the biggest concerns they had, and they had to constantly deal with roads every single year in a comprehensive manner, major roads then local streets. He thought Member Margolis adequately explained retiree health care. He said one of their goals was to maintain a fiscally responsible government, and one of the short term goals, which Council agreed on, was to reduce outstanding health care liability, both active and retiree. If they want to talk about being fiscally sound it was one thing to create a Fund Balance in case something happened in the future, it was another thing when they knew something was going to happen in the future and they didnít prepare for it. He said they knew, and under GASB 45 they would have to publish it because the powers that be wanted everyone to know that was a liability the City owed. He said given it was a liability it was a mortgage they had to pay, and to not put money away for that was not fiscally responsible.
Mayor Landry said the Judgment Trust Fund was a Fund Balance and if it wasnít used they could reallocate it to something else, it wasnít going anywhere, it accumulated interest and was in a separate fund. He said they learned from Sandstone because there was no way they could have settled Sandstone had they not had $1 million in cash.
Mayor Landry said one half of any municipal budget went to Police and Fire. He thought the City was growing and Council had an obligation to address that and enhance public safety. He said City Councilís goals were to develop and implement a plan to increase and fund staff levels at Police and Fire. He said that was what they told the Administration and they did that. One of their goals was to development government structure and staff skills for effective delivery of customer services, and communication with the community. Mayor Landry said so the staff came back and recommended a part time cultural liaison. He said Novi had a lot of diversity and Council directed the staff to increase communication with the community, and he didnít see why they would want to cut the part time cultural liaison. He said developing staff skills required continual training, and he would not want to see cuts in those budgets either. Mayor Landry said for a General Fund expenditure to only increase 4.6% in todayís world was not bad with just health care alone increasing 15%. He said they were holding the line at only 4.6%.
Mayor Landry thought this was an excellent budget and he would be prepared to pass it tonight. He said it was a fiscally sound budget, the staff had listened to the goal setting, and that was the process that all of Council indicated they would abide by.
Member Nagy thought the process of the goal sessions and then the budget was great. However, when she sat in the goal session she obviously didnít agree with every goal, but voted for the whole thing because she wanted to get some of the goals she had in mind onto the sheet. She didnít think that anyone on Council that had different ideas had anything negative to say about the staff, as it didnít have anything to do with the staff. She said her personal feeling was that she believed they were spending more money, and couldnít criticize a member of Council for speaking about the State economy because they were not an island unto themselves. She thought the idea that somehow everything was rosy in Novi was not what she saw from people in all over the City. She said it was not the feedback she received and it was not going down a street in an expensive neighborhood and seeing in one short block five for sale signs of people who had left the City, gotten jobs, and were still trying to sell their houses. She thought that was the reality of Novi as well. She didnít think the goals they had talked about were written in stone, things changed and they had the ability to reassess things when seeing figures in front of them. She commented some of the feedback she got from residents was that they were concerned, not only about the present spending Council did, but about the future spending and where that money would come from and what would happen to their tax rate. Member Nagy said a bond was coming to them, and there had already been talk about a bond for Beck Road, and people did have financial concerns. She thought it was Councilís fiduciary responsibility to be fiscally conservative, and they might not see these numbers in the same way. Member Nagy said they didnít need to lecture each other on the process. She said they saw things differently but that didnít mean they couldnít come up with a sound budget, and no one was criticizing staff or being negative about it.
Member Mutch noted he worked at a municipality where the leaders of that community and the people adopting the budgets had the view that even if times were starting to look rough, they would turn the corner the next day. He said in that community they went through a year without a pay raise, health care benefits were cut, whole departments were decimated, and staff was cut. He said having lived through that experience and seeing what happened when communities were overly optimistic about their finances and overall economy, he didnít ever want to put the employees or tax payers of Novi through that. Member Mutch admitted this budget was a very conservative approach, but when he approached it, it was coming from a real world experience. He knew the impact of budgets that were not realistic to the long term costs and economic picture.
Member Mutch said he identified three areas where he asked Council to consider deferring spending dollars. Some people said he didnít want to spend the dollars or that he wanted to cut them out of the budget. However, what he wanted to do was give Council the flexibility that if in six months revenue sharing was cut or the Stateís new business no longer generated revenue from personal property taxes, or if the impact of the cable franchising laws decreased revenue in that area, they would have the flexibility to allocate those funds where they were needed. If those funds were dedicated, it would make it much more difficult for them to address potential fiscal problems. It was possible things would be fine in six months and he was hopeful that would be the case, but he thought those three funds could be set aside if needed. After the audit and they knew how much they really took in and spent in this current budget year they could make a more informed choice about how those funds were spent. He said none of those funds needed to be encumbered tomorrow. If six months from now they decided they wanted to put $1 million into roads it would not have held up anything, they had already allocated money for engineering and the whole process could move forward. He wanted to defer it 6 months to address potential fiscal problems. He thought it was interesting that there was quite a bit of discussion about retire health care costs in light of the fact that in this budget the Administration recognized that if they didnít get State Revenue Sharing to the degree needed, that was where they would trim. He said they had done nothing different than he had proposed in terms of waiting to see what was going to happen and then allocating that money. Member Mutch thought it was important for residents to understand, regarding retiree health care cost, that Council was already budgeting through each of the departmentís share of retiree health care 100% of what was actuarially recommended to cover that long term liability. He said they were not only paying current costs but also a portion of the long term costs so that 20 years out they would have a fully funded or to the degree they considered they needed to fund that retiree health care cost. Member Mutch said they were already putting $1.3 million in and this was on top of that just as they did last year when they fully funded it, and then added another $1 million on top of that. He said the same was true of neighborhood roads. He said they were talking about budgeting $1.5 million as they had done for several years and then adding $1 million on top of that. He thought residents needed to know all those facts so when they heard about money being cut from roads or retiree health care benefits those items were fully funded and these would be dollars on top of that. He said he was not advocating cutting them but was saying they should wait to see what the financial picture of the City was when there were more accurate numbers available after the audit. Member Mutch thought residents should understand how much the budget had grown over the last five or ten years, and he knew that was in the audits, and it had been significant growth. He said the City had also grown so that was normal and to be expected but when talking about these percentages they were talking about millions of dollars in growth and expenditures. He found it interesting that in all the comments he heard no one addressed his comment regarding they were not budgeting for all of their costs of day to day operations of the City. There was a significant amount of Fund Balance being allocated for capital items. He went through every department and pulled out those items that were represented from the Fund Balance, like park improvements and transfers to different funds, vehicles and not all of them were one time allocations. He said they were things like $74,000 in new vehicles in Community Development, $233,000 in new vehicles in the Police Department, and his understanding was they had to buy those vehicles every year, and they needed to learn to budget for those costs. He said there were others and it was a significant amount that added to that $3.1 million. He said he was looking for a budget that understood that whether it was next year or three years down the road they wouldnít have the millions of dollars in Fund Balance. He said it was absolutely true that the staff did a great job at not spending as much as they took in, and that had been a blessing for us over the past several years, and it had also been a blessing they had not had Headlee rollbacks, and that the community continued to grow as well as the tax base that had grown by a billion dollars in five years. However, they wouldnít have a billion dollars in growth at some point, they wouldnít be fortunate enough to avoid the Headlee rollbacks, and have that Fund Balance and if they continued to spend in this manner, when that happened they would start to cut. He said they would not be able to afford the kind of community that they said they wanted, but they were not willing to make difficult choices about where to cut so they could continue to afford that long term.
Mayor Landry asked Mr. Pearson if at the end of the day, there was a Fund Balance in this budget. Mr. Pearson said yes, they had made the recommended expenditures and left that 16.7% of last yearís expenditures. Mayor Landry said so there was an extra 16.7% at the end of the day, and Mr. Pearson replied not 16.7% over and above but 16.7% total, yes. Mayor Landry said he respected everyoneís opinion but when they talked about "continuing to spend in this way" it sounded like they were spending furiously. He said he was hearing that they were estimating revenues and expenses conservatively, and had a Fund Balance in excess of what the City Charter required. He asked Ms. Smith-Roy what the Charter required and she said there was not a required percentage but it was an Administrative and Council policy decision, which was 8% to 12%. Mayor Landry asked what the Fund Balance was, and she replied it was 16.7%. He asked Ms. Smith-Roy what if they went down to the Council policy of 12%, how much extra money would there be. Ms. Smith-Roy said approximately another $1 million. Mayor Landry said it would be another million if they just held Fund Balance at 12%. She agreed.
Member Mutch said the memo provided to Council from Ms. Antil said Ms. Smith-Roy recommended, from a cash flow standpoint, that they should have $5.1 million in Fund Balance. Ms. Smith-Roy said she did make that recommendation because she thought sometimes when talking about Fund Balance and they stick to percentages it could be somewhat misleading and so the suggestion was they would like to keep $5.1 million. She said the recommendation from the budget was $5.7 million so they had done better than what the minimum was. He asked if that $5.1 million included the State Construction Code as well, and she said it did and the expenditures did as well.
Member Paul asked for clarification, and said if they had a cut from State Shared Revenues, and were looking at passing this budget what would that number be that would have a possibility of being cut. Ms. Smith-Roy said they outlined for Council $388,000 for the retiree health care funds represented the statutory portion of the State Shared Revenue and that was a potential loss to the City. She said they probably wouldnít know that until February of next year. She commented their intention would not be to do any transfer to the Retiree Health Care Fund until they had confirmation from the State that the statutory portion would be secure, and they would know that when they passed their budget. She said also, they frequently put the estimates and projections out for State Shared Revenue for both statutory and constitutional on their web site. She said that was where they got the information for preparation of the budget. She said the intent was not to do that transfer until the statutory revenue came forward. Member Paul asked for the date that all those numbers would be solidified. Ms. Smith-Roy said she couldnít predict that because even if the State Legislature passed the budget now, she would hate to predict what might happen and what circumstance they might be in six months from now. Member Paul asked if there was a way to look at the bottom line number of the whole revenue, what the State Shared Revenue portion was if they didnít get it, and the statutory that was mandated to stay in there.
Mr. Pearson said it was in the document in the transmittal letter number IV with the color graph in the corner, and that divided up which reference in terms of the constitutional portion, which the States were obligated to take as they took in the sales tax revenue, return it to the cities that generated it, and for the last seven or eight years it had remained constant. The pink portion was the one that had declined and was the statutory portion. He said in the worst case if it was zero, they would be able to absorb it without making the retiree health care, which they would prefer to do. He said in terms of what that would mean to other communities around the State if it was zero, there would be a lot of places that would really be hurting. However, for Novi it would mean they couldnít make that extra contribution above and beyond what they were doing as part of payroll to catch up on the other obligation.
AUDIENCE PARTICIPATION - None
There being no further business to come before Council, the meeting was adjourned at 8:57 P.M.
David Landry, Mayor Maryanne Cornelius, City Clerk
___________________________________ Date approved: May 1, 2007
Transcribed by Charlene Mc Lean