ROLL CALL: Mayor Gatt, Mayor Pro Tem Staudt, Council Members Casey, Fischer, Margolis, Mutch, Wrobel

ALSO PRESENT: Clay Pearson, City Manager

Victor Cardenas, Assistant City Manager

Tom Schultz, City Attorney

Kathy Smith-Roy, Finance Director

Rob Hayes, Director of Public Services

1. City of Novi identified as one of seven Top Performing Communities in the State for fostering entrepreneurial growth and economic development; and City of Novi recognized as a Four Star Community – Ara Topouzian, Economic Development Director for Novi, said the City of Novi has been identified as one of seven Top Performing Communities in the State for fostering entrepreneurial growth and economic development. A study had been done by researchers at I Labs, which is part of the University of Michigan Dearborn Center for Innovation Research. More than 100 cities, townships and villages participated in this annual project which helps local governments understand how to encourage small business growth and benchmark their economic development efforts. In addition to performing all the numerical portions for 2010, the seven top performing communities are recognized for programs that foster entrepreneurial growth. These communities demonstrate that they understand what small businesses need to be successful by communicating with them and providing connections to broader resources and insight on trends. Novi along with other communities was honored a few weeks ago at a ceremony at the U of M Dearborn campus and presented the award for our accomplishments.

2. Comprehensive Annual Financial Report　Audit Presentation for Fiscal Year Ended June 30, 2011 - Andrews Hooper & Pavlik – Randy Morse congratulated Novi on an overall good year. He thanked Kathy Smith-Roy, Marina Neumaier, and all their staff. What Council sees is their financial report. What belongs to Andrews, Hooper and Pavlik (AHP) is their opinion. Everything else is prepared by the Finance Department and pulled together. It is presented to AHP for them to audit. A lot of the work goes into it by the Finance Department. The big booklet is prepared by the Finance Department. They have done a lot of great work. They had great cooperation with management, but recognize they report to City Council and their responsibility is with Council. They prepared required communication and they are all to the affirmative. There were no significant matters noted during their audit. They did have an unqualified opinion which is the top opinion they can provide. The City continues to be a low risk which means for the past two years there have no findings or questionable costs to the expenditures. There were no internal control deficiencies. Also, there was no letter of recommendations. On an overall basis, there were just excellent results. In addition, Novi is one of the first large cities to have their consolidated annual financial report uploaded to the State’s website. That means that the systems in place to close the books and get the audit completed and uploaded are very efficient in their function. That is a great accomplishment, also. One thing when going through the financial report, when reading the discussion analysis, it does provide a good set of results. As you go through you can look at the fluctuations from one year to the next. A lot of the explanations are in there. The City has a Standard and Poor’s bond rating of AA+. Population increase is 16.5% based on the 2010 census. Family Circle Magazine rated Novi one of the top ten best cities for families. Opening of Novi Public Library this year. For the city as a whole, an increase in government wide net assets of 5.5 million to 331 million. There was a decrease in bond payable of 8.7 million to 56 million. Government-wide revenue increased approximately 1.7 million. Government expenses increased about 1 million to get to government wide net assets at June 30, 2011 of approximately 331 million. Related specifically to the general fund, there was an increase of fund balance of 1.7 million. General fund revenue transfers increased approximately 2.1 million and general fund expenditures decreased slightly about 200,000 dollars. The increases are where they need to be and expenses are controlled. Good job by the City. Property taxes show a decrease from 37 million to 32.5 million. State shared revenue is up to 3.7 million and that is based on the population increase. Investment earnings and all other stay pretty consistent from one year to the next. The trends are favorable. Governmental funds, general fund, and the total governmental funds from 2010 to 2011are 66 million compared to 59 million. The fluctuations include decreases in personnel costs. We had a 14% staff reduction. We also had wage and benefit concessions go throughout the year to continue to keep those expenses down from one year to the next. Government expense trends are pretty consistent from one year to the next. The revenue trends have property taxes with a slight decrease and building & planning reviews with a slight increase. No big significant changes but consistent from one year to the next. The constitutional part of the State shared revenues was where the increase was. The expenditure trends in the general fund are consistent from one year to the next. There’s a good show of monitoring expenses. General fund balances was in total, 11.4 million for 2011 compared to 9.7 million. There’s an increase in the general fund balance. The unassigned fund balance last year was 8.5 million to approx. 7.1 million this year. The unassigned fund balance as a percentage of budgeted of annual expenditures, 2011 is 24.6% compared to 28.6% for previous year. It is consistent going through each of those years. Unrestricted net assets from the governmental activity side of the equation is 12.2 Financial net assets, which takes the total net assets on your government wide set of statements, subtract what is invested in capital assets and then pull out your unfunded pension to get to 23.1 million. For water and sewer operations, revenues were 18.4, operating expenses 16.9 to get you to the working capital of 43.3. It excludes depreciation. Then on working capital for the 2011 year includes 31.3 in capital replacement at June 30, 2011. To summarize the results of the audit, there were no issues. The good news was there were no surprises. They want to make sure they do their professional skepticism and make sure that they ask those questions so that they can provide the opinion and give Novi the results they need to see. On an overall basis, a clean opinion, no findings questioned costs, great cooperation with management and the results were very good.

Mayor Gatt said the document was a testimony to our City manager and his staff and City Council for being economically conscious. Member Mutch’ question was in reference to page 34, not having a policy for custodial credit risks of investments. He was curious if that was typical for a community this size in the nature of the deposits investments and where those funds are invested or is that is something the City should put in place. Mr. Morse said it is typical. The footnote is a general requirement. Member Mutch asked if there was any harm in having a policy or is it not applicable in this situation. Mr. Morse it comes down to whether it is needed. No sense in having the policy just to have the policy. Member Mutch asked about the processes in the audit where they might want to do something different or was flagged to be evaluated further. Mr. Morse did not have any of those recommendations. He was glad he mentioned what an audit entails. It is not 100% sampling. It is a risk based approach. They look at the significant systems in place. He talked about Novi being one of the first large cities to upload the financial reports to the State web site. A good system is in place. In order for that to work, they look at financial reporting as significant system with many transactions and a lot of dollars flow through. They look at that as a significant system so then they are going to document that system and look for the controls in place. There are two aspects they look at. One, is the system properly designed and is it functioning the way it is supposed to be designed. Novi has a good system in place and then they implement that system to make it very efficient. Every time they come in, they are still looking through the systems taking their experience dealing with other governmental entities and also dealing with business enterprises and seeing if it is more efficient or more effective to do it a certain way. Each year we have come through with those systems and felt Novi had a good system in place and operating effectively. They also do a little bit extra work that may not be a normal part of an audit. It shows that the staff is always looking for ways to improve also. Member Mutch wanted to note that the City paid off 8.6 million in debt obligation and that was a real testament to the focus Council has in paying off long term costs. Some of it is mandated. It is showing that we are making a real effort as a city to take care of the long term costs especially if you look at other communities across the State and see they haven’t been as diligent or they simply don’t have the financial resources to pay off those debts. We continue to move in the right direction. Mayor Pro Tem Staudt noted Council was looking at going to a two year budget cycle. He asked what their experience was with that and what are the pros and cons? Mr. Morse stated you always have to operate on a going forward basis thinking five to ten years out. The expenditure side is generally easy to budget. As long as your first year budget is good, that you are making sure to understand the assumptions being used in the second year, using it for your higher level of decisions not the lower level type decisions because things may change from one year to the next. When looking back on the crash we had nobody expected the result to be what it was. The expenditure side will be easier to do than the revenue side of the equation. Two years out isn’t as bad. He said when management is doing the budget they are always thinking through the future. It is evident in the expenditure control. It wasn’t that you had to cut 30% because you had no controls. Again next year’s budget, if you do two or three years, just remember when you start making decisions on those, understand the assumptions, especially on the revenue side of the equation because they are going to be less easy to control. Mayor Pro Tem Staudt noted some people at the County feel we are anywhere from 2-6 years away from recovering. Mr. Morse stated everything he has heard with emphasis on the residential mortgage side of the equation and they have a very large financial institutional practice; they continue to say that we haven’t seen rock bottom. The property taxes will continue to decrease and many banks have a lot of real estate on their books or reposed property. They can’t sell it at depressed prices. It costs banks to hold on to that. They are going to start to get rid of that and if they start to do wholesale sales, that would have a significant impact on the overall market from that stand point. We are seeing improvement in Michigan economy. He would say you should look outward to a three year time frame. Mayor Pro Tem Staudt said that some of these large bond holding organizations are selling a significant property at extremely low prices. They mentioned some properties in and around Novi. One was his old office building. What kind of effect do those kinds of commercial sales where an entity that has tens of billions of dollars of bonds and are dumping property? They are getting rid of the properties partly because of maintenance costs and nothing to do with the actual value of the property but with the long term upkeep of the property. Mr. Morse explained that there are banks that have a significant amount of commercial properties. We have to ask how many new businesses are coming into the State. That commercial property is not moving. As mentioned, if you hold a building there is a cost to it. So at some point it is better to move than to hold on to it and that has to have a negative impact from an economic standpoint. Mayor Pro Tem Staudt asked how he would characterize where we are currently in our policy maintaining an 18 – 22% minimum fund balance. Mr. Morse explained that it is not an easy answer when you look at that. The reason is there are a number of municipalities within the State that would love to have Novi’s balance sheet. Maintenance costs going forward are going to be less on new buildings like the library. If you have older buildings and have a deferred maintenance, it will require you to have a larger fund balance than somebody else that has 10% fund balance but everything they have is relatively new. It is not easy. When he looked at the fund balance, he thought the fund balance policy is a good policy to have and Novi has been staying within that. On a personal level you don’t always spend your entire paycheck. You are always putting something away on an annual basis because you never know when you are going to have something that you will need to take care of. Member Fischer asked about a GASB classification change? Mr. Morse said it happened this year but didn’t have a significant impact. It is just differences in wording. Member Fischer mentioned revenue was greater and expenditures were lower and less than 1% difference or variation. He commended the staff on getting that variance down year after year. Member Margolis asked about the financial highlight section, page 2 from the Leadership group memo and asked if he could explain it to her. It said that we made excess contributions of 375,000 into post-retirement health care and it talks about the standard that was used when we made those excess contributions was a percentage of payroll. In other words, for those who have retired prior to June 30, 1994. So we were paying for those employees a percentage of current payrolls? Kathy Smith-Roy, Finance Director, stated how the retiree health care works and how that additional contribution is being figured is a percentage of payroll and actuarial amount that we are given to contribute is a fixed amount, so there is a slight variance there. There is a slight additional contribution from that. The larger portion from the contribution comes from the retirees that were on the pension plan for 1994. So we made a conscious decision when we started the retiree health care program to start funding it forward, however the general fund funds those retirees before 1994. So we weren’t draining the fund that we were trying to build. So that counts towards our additional contributions because they are part of the retiree health care plan in total. Member Margolis mentioned our funded ratio for the post-retirement health care based on the valuation of 2009 and asked if she was correct that since this was published, that we got another valuation? Kathy Smith-Roy said that is correct we are now at 60% funded in the retiree health care. Member Margolis said we see a lot of indications of our financial health. There are always the pieces the public doesn’t see. We are still collecting 99.5% on our tax levies. It is higher than in previous years. Our assessments are still holding on and we are collecting on our assessments. The City has been paying down debt without issuing a lot of new debt. We have been paying a lot of capital projects through current dollars that we used to issue bonds four years ago. Debt to value is the lowest it has been when you go back to 2002, it was 2.3 and now it is 1.0. So many things in the audit including the number of employees is lower than the employees we had in 2002 even with a huge population boom. She thanked the staff, City Manager, Administration and to have this kind of financial statement with a drop in staff and a huge raise in population is impressive. Thanks for making our job easier by what you do every day. Mr. Pearson, City Manager, thanked the Mayor for the comments and for all the work of the staff and the auditing firm. He noted this is their second year with us. They have given us a fresh perspective and he challenged them to find new ways for the city to work on things. He wanted to say something about the City transparency efforts as we have the web dashboard and it has a link to the Munetrix website that compares the City of Novi audit numbers to others. It gives people a taste for not only how we are doing but compared to other jurisdictions that we try to bench mark against. It is available on line now with the help of the staff. Mayor Gatt thanked them for coming out and for their service to the city.

1. MANAGER/STAFF – Novi Road Link Opening - Mr. Pearson reported on the Novi Road Link Opening last Wednesday. The Road Commission for Oakland County opened all 5 lanes of Novi Road, Wednesday, He thanked both the Road Commission and staff Engineers for their work on this project.

2. ATTORNEY - None

AUDIENCE COMMENT – Kathy Crawford, County Commissioner, was present to congratulate everyone on the election. She also noted how fortunate the community was with all those who volunteered for the City of Novi. She brought brochures that explained what Oakland County Commissioners did and she also brought the Oakland County Directory for all Council members. She will be presenting a proclamation to the Library for receiving the award as a Library leader, as the Library received the only award in the State. She was pleased to hear Council talk about the history of the community. She reported that $4,000 would go toward having a Novi history display cabinet on the first floor of the Library. She also noted she hosts a Commissioner’s Corner cable TV show. She will interview George Miller, Oakland County Medical Director. She will also interview Jean Meyer about Providence Hospital’s services. The City staff and administration have been doing this work for a very long time and contributed to this for many years. She noted the familiarity with the two word story. Novi’s would be Open? Open. This includes transparency, creative solutions, open and welcome to diversity, partnerships, etc. Novi was excelling because of forward thinking.

A. Approve Minutes of:

1. November 14, 2011 – Regular meeting

B. Approval of the final pay estimate to Matzak, Inc. for the 2010 Sanitary Pump Station Upgrades project in the amount of $8,840.95.

C. Approval of the final balancing change order and final pay estimate to Metropolitan Power & Lighting, Inc. for the Beck Road and Cider Mill Traffic Signal Installation project in the amount of $10,394.54.

D. Approval to award an amendment to the engineering services agreement to URS Corporation for additional construction inspection services related to the Beck Road and Cider Mill Traffic Signal Installation project in the amount of $1,998.75 (which is offset by the charges to the construction contractor for exceeding the number of crew days that were in the construction contract).

E. Approval to award a unit price Pathway Snow Clearing Contract to Brien’s Services, Inc., the low bidder, in an annual estimated amount of $29,000.

F. Approval to Award the Purchase of Natural Gas Supply for the April 2012 through the March 2013 billing cycle to Interstate Gas Supply, Inc. (IGS).

G. Approval to award an engineering services agreement for design engineering services for SAD 176 Woodham Road Water Main extension to Spalding DeDecker Associates, Inc., in the amount of $9,023.

H. Approval of Change Order No. 1 to V.I.L. Construction, Inc. for the Meadowbrook Lake Dam Renovations project in the amount of $77,284.

I. Approval to execute an affidavit terminating escrow and returning a sanitary sewer easement to Tasmin Devco, LLC, associated with site plan approval requirements for the Neher Sales office development proposed to be constructed at 41700 Eleven Mile Road.

J. Approval of Claims and Accounts – Warrant No. 856

There being no further business to come before Council, the meeting was adjourned at 9:07 P.M.

________________________________ ________________________________

Robert J. Gatt, Mayor                        Maryanne Cornelius, City Clerk

________________________________ Date approved: December 5, 2011

Transcribed by Jane Keller