Finance Committee - September 23, 2024
The Regular Meeting of the Finance Committee of the City of Fargo, North Dakota, was held in the Commission Chambers at City Hall at 10 a.m., Monday, September 23, 2024.
Call to Order:
Commissioners present or absent were as follows:
Present: Piepkorn, Strand, Turnberg, Mahoney.
Absent: Kolpack.
Staff attending: Michael Redlinger, Brenda Derrig, Susan Thompson, Jill Minette, Beth Wiegman, Jamie Bullock.
Mayor Mahoney presiding
Standing Items:
YTD Financial Review and 2Q YE Financial Projection and Economic Indicators: Sales Tax Receipts:
Ms. Thompson said there are no updates on these items; they were discussed at the August 19th meeting.
Finance Updates: ERP Implementation:
Ms. Thompson said the team is now working on human resources and payroll and have also been testing transactions and some history has been brought over. This is going to be life changing from a financial standpoint, she said, and a long-needed update to the City’s 30-year-old accounting software.
Discussion Topics:
FLOCK Technology: Presentation by Fargo Police Department:
Captain Bill Ahfeldt said a pilot program with FLOCK was started in June, which included the installation of several Falcon license plate readers and Condor cameras in the Downtown area. Since then, he said, the technology has been tested by analysts, detectives, investigators, sergeants and officers. He said the products protect first responders, collect and distribute objective evidence, engages the community and makes the department’s response to crime more efficient. He gave several examples of reported crimes that were solved within hours using the technology versus many hours and sometimes days if that technology were not available. The technology can also be used to create a Real-Time Crime Center (RTCC), he said, which would provide instant information to field officers and detectives, identify crime patterns, combine data sources and increase investigation success. In the future, he said, Phase 2 of the program would include seeking grant funding in order to purchase the company’s OS Elite program and Wing Gateway traffic cameras. He said Phase 2 would also include RTCC staff and a dedicated space, which would be staffed 24/7.
Commissioner Strand said he would like this information presented at an upcoming City Commission meeting so the public knows about this technology and how it will benefit the Police and serve as a deterrent to criminals.
Ms. Thompson said this is a long-term relationship and additional funding will be needed for maintenance.
Mayor Mahoney said the City will have to look at this for the long term and how it will improve efficiency in the Police Department.
Moody’s Rating:
Ms. Thompson said anytime the City issues a bond that is not a private placement, it is rated by Moody’s. This particular rating is related to appropriation bonds, she said, and that rating is Aa2, which is typical of appropriation bonds, which are rated lower than general obligation bonds. An appropriation bond is not backed by anything other than the Commission's promise to appropriate money for those bonds every year, she said; therefore, they are rated lower than general obligation bonds. She said Moody’s also looks at the City’s 2-year outlook. The City’s previous outlook was stable, she said, and due to the building of the City’s reserves, Moody’s changed the outlook to negative, which was not a surprise. For 2023, revenues exceeded expenses and a lot of the ratios that Moody’s looks at are on the move and are improving, she said; however, this was Moody's opportunity to say they are watching and the City needs to make progress. Moody’s compares Fargo’s ratios with others rated as aa2, she said, and the two factors listed for the outlook are reserves and debt. She said there cannot be much of an adjustment with the debt due to how special assessments are funded. The available fund balance is the one Finance is going to work to make some progress, she said; however, it is complicated. She said Finance is going to start looking at how to do better estimates, at least on a quarterly basis. Having an updated ERP system will be beneficial, she stated, it will allow integration, there is a lot less manual entry and it will have more analytical abilities and better reporting dashboards. Finance is also working on other internal processes, she stated, including a new purchasing policy, centralization of purchasing at significant cost savings, standardization of RFPs, a bi-weekly Finance, Administration and Human Resources (FAHR) meeting, new policies and procedures and providing quarterly projections of the General Fund. She said she is going to work on how to include a reserve estimate in those quarterly projection reports. Another internal process is the importance of assessing enough fees to cover costs, she stated, and working on financial policy development. Department reviews are going to include financial analysis and some strategic discussions in conjunction with ongoing budget planning and forecasting for future years, she said.
Commissioner Piepkorn said this is disastrous and a reflection of fiscal irresponsibility. He said this is an emergency, things need to change and the City needs to cut spending today including closing the Downtown Engagement Center, cuts to the Communications Department and MATBUS and a freeze on Fire Department wages. He stated he wants to see a 3% cap to cost-of-living raises and if the Commissioners do not make changes now, the City’s rating is going to get worse.
Mayor Mahoney said the City has a plan to increase reserve funding and this downgrade reflects where the world is at right now. He said Moody’s would like the reserves up higher and Finance has committed to that.
Ms. Thompson said the last time Fargo’s rating dropped was in 2020 when Moody’s downgraded Fargo from Aa1 to Aa2. She said the City is making progress with its financial health and is taking steps to improve it. In order to rebuild the reserves, she said, revenues need to stay the same and expenses need to be cut. She said one thing she is looking at is how the City funds construction projects. Historically, she said, the City spends then does a bond to replace and that strategy is affecting year-end cash balances. She said she is looking at every department to see what else can be done to manage cash funding and expenses.
In response to a question from Commissioner Strand asking what changes are needed to turn the boat around, Ms. Thompson said it is a big boat and it does not change on a dime. The City cannot do much about addressing debt, she said; however, it can make progress on refilling the reserves. To do radical cuts as have been proposed, she stated, does not allow staff to make any strategic decisions on how it would affect services. She said she intends to do department reviews, talk through concepts, what is the core mission, what are priorities, how are resources being allocated, what are the compromises if costs are cut and what are the corresponding implications.
In response to a question from Commissioner Strand asking if the economy has put a slowdown on growth as far as expansion and is there anything around the corner that is going to be requiring debt bonding, City Administrator Michael Redlinger said there continues to be growth pressure and what the City would like to think strategically about over the next year is infrastructure costs. He said the way Fargo does infrastructure is unique relative to other metro areas. He said there is a lot overhead and cost considerations that are different here and one of the challenges is debt is still going to be a key portion of the overall budget and it is going to need to be in the future. He said this is the first year that no general fund positions were approved. In every department he will be looking for additional efficiencies and this is a long duration exercise, specifically regarding debt, he said. The City will be issuing annual funding improvement bonds, he stated, which replenishes the capital coffers and will be somewhere between $50 million and $80 million due to some of the sizable projects.
Commissioner Turnberg said taxpayers are fed up, they do not want to keep seeing the City spend money and the City is not a nonprofit organization. The Commissioners need to remember they represent the residents, the focus needs to be on core services such as streets, safety, water and the Library and nonprofit-type spending needs to be turned over to nonprofits. She said if the City can give taxpayers more money in their pockets, they can give charitably.
Commissioner Strand said there is a debate on how effective are some of the incentives. He said there is a lag effect of the revenues coming when there is expansive growth and then sometimes there is up to a 25-year tax break and he would like to know do those really work, what are the costs and what is the return on investment. He said he thinks the City should pull in how long the tax breaks go.
Commissioner Piepkorn said the Assessor’s office did an excellent presentation recently on return on investment in the Renaissance Zone and EDIC. He said some ROIs were in the thousands of percent and no one can argue that the Renaissance Zone has not been a phenomenal success.
2025 Budget:
Ms. Thompson went through the chronology of the budget to date and said that the deadline to report to the County is October 7th. She said the budget started with a net of $3.4 million of unfunded requests, including 35 full-time personnel requests and zero were granted. She said from the general fund operating requests, a half a million was denied, in rollover budgets from prior years, a half million was cut that had previously been asked for but was not spent and some smaller capital items were denied. She said the COLA is at 4.5%, there were a few changes to charges for services, most of them are nominal and the ones that had somewhat significant impact were the specialized HVAC inspections and Environmental Health. She said health insurance was updated for the actual costs and the pension contribution was increased to closer to the actuarial determined contribution. She said the plan is to continue to look for expenditure reductions and she will be working with all Departments for a very thorough review in the coming months.
Mr. Redlinger said he will be looking at some positions that have been vacant for some time and some additional opportunities on the personnel side as well as the operating budget and expenditure reduction options. He said there was a good renewal with health insurance and additional expenditure reductions need to continue. He said he will come back with recommendations in the 4th quarter of 2024 and the first quarter of 2025 with additional reductions in expenses, he said, and every department will be looked at to determine its core mission. With the Downtown Engagement Center, a nonprofit would be excellent and Bloomberg is going to soon be giving the City a report, he said, and he anticipates that will be the path forward.
Mayor Mahoney said many Commissioners have requested the DEC be moved from its present location and that is being looked at very seriously. The COLA is still at 4.5% and the budget is balanced, he said. Transit is $3.5 million, he said, and Commissioner Strand is committed to try to find Federal and State funding to help with that, and the City is buying the Police station building and those are two expenses the City cannot get rid of and the rest is personnel. The Finance team has a balanced budget, he said, and now Commissioner Piepkorn wants something different. He said he is trying to listen to what the department heads have requested and talked about and retaining a strong employee base and move forward.
Commissioner Piepkorn said he will not support a 4.5% COLA and he wants to see 3.5% up to a cap of $3,000.00. At 4.5%, all of the high-wage employees are getting $6,750.00 in a year or more and that is obscene. He said he has a list of things to reduce this year, not next year.
Mayor Mahoney said there is a budget and if someone wants changes, talk to the team and see what can be done to fix it before September 30th. He said there have to be rational discussions.
Adjourn:
The meeting adjourned at 11:16 a.m.