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HomeMy WebLinkAboutMinutes - Finance Committee - 11/17/2014 -r .Finance AdministrationCityo215N.Mason t 2 Floor P0 Box 580 Fort Collins CO 80522 970.221.6788 970.221.6782 -fax fcgov corn Council Audit &Finance Committee Minutes 11/17/14 10:00 a.m.to 11:30 p.m. CIC Room Council Attendees:Ross Cunniff,Bob Overbeck,Mayor Karen Weitkunat Staff:Darin Atteberry,Mike Beckstead,Josh Birks,Carrie Daggett, John Duval,Kevin Gertig,Jeff Mihelich,John Phelan,Lance Smith,Ellen Switzer,Tom Leeson,John Voss,Katie Wiggett Others:Kevin Jones,Chamber Mike Beckstead suggested that the final item on the Council Finance Committee be postponed if time ran short in order to ensure that the URA meeting could be held.The committee agreed to close the Council Finance meeting before hearing the last item and reopen the Council Finance meeting if time allowed. Approval of the Minutes Ross Cunniff moved to approve the minutes from the October20 meeting.Bob Overbeck seconded the motion.Minutes approved unanimously. On Bill Financing (OBF)Interest Rates John Phelan explained that the purpose of this presentation is to follow up on the October28 Work Session discussion.Staff is presenting a set of recommendations for revisions to Utilities On-Bill Financing (aka Home Efficiency Loan Program)and is seeking agreement and director for the following: 1.The allowable range of interest rates which will be included in the rate ordinances updates for the affected customer classes and service types 2.Guidelinesforthe selection of an annual interest rate 3.Direction for the setting of 2015 interest rates Currently,the allowable range of interest rates is set within each utility service type rate ordinance. The program rules call for an interest rate to be set for the following calendar year by the financial officer;this rate is intended to be fixed for the calendar year.Individual loan rates are fixed for the term of the loan.In 2013,the rate ordinance range was “prime plus 2%to 5%”;in 2014,the rate ordinance range was simplified to 5-10%. John showed a program comparison chart featuring leading OBF programs.He concluded that the data primarily demonstrated that the interest rate does not necessarily drive the success of a OBF program, because successful programs had both low and moderate interest rates.Ross Cunniff asked which of the programs compared were most similar to the City’s.John answered that the Clean Energy Works Oregon was the most similar;however,all the programs were very distinct and not directly comparable. Bob Overbeck suggested adding a column for loan sizes. 0 City ofFortCoLLins John went on to explain the key considerations for setting interest rates: 1.The Utilities anticipated “cost of capital” 2.Market rates for alternative investments of reserves 3.Possible use of third party capital in the future 4.Other City programs which offer loans (e.g.historic preservation,radon) 5.Participation targets related to Climate Action Plan and Energy Policy 6.simple and predictable for clarity of outreach and administration Concerning the “cost of capital”consideration,Mike Beckstead explained that these would likely be taxable bonds due to the use of the funds;therefore,the current estimate for borrowing is between 5- 5.25%.Loaning at less than the cost of capital would mean the City would bear a portion of the cost of financing if borrowed funds were used.As an example,for each SlUM borrowed and each 100 basis point spread between borrowing and lending,the cost to the City is approximately 5900K.As a further example,if $1OM were borrowed at 5.5%to support home energy improvements as part of Climate Action Planning and loaned at 1.5%the cost of financing born by the City would be approximately $3.GM.Bob noted that the City budgets for outcomes and the City may choose to budget money to cover the cost of a lower interest rate in order to achieve the desired outcome.What Council needs to determine is how much difference from cost of capital the City would be willing to fund.Bob suggested encouraging residents to participate by making the rate the market rate minus 100 to 200 basis points. Ross agreed that this was a possibility,but noted that such a discounted rate would need to be budgeted for. staff recommends establishing the allowable range of interest rates in the rate ordinance at 2.5-10%. Staff also recommends that the OBF Rules and Regulations reference the key considerations noted above. Staff also recommends the City Financial Director set the annual interest for loans over the next year at the City’s cost of capital less 100 to 200 basis point. Council Finance agrees with staffs recommendations. Options for Street Lighting Lance Smith noted that Staff has brought forward an ordinance to revise City Code to specify that the operation and maintenance of the street lighting system is an in kind payment by the Light and Power Fund in lieu of franchise fees.The ordinance does not change the existing practice or policy.The ordinance was originally voted down (3 3)on October 28,2014 but then passed 4-2 on reconsideration that same night. Council asked that the item be discussed at Council Finance before second reading which is scheduled for November 18,2014,but will likely be postponed until December 16. Lance explained that there are two options for paying for Street Lighting Costs.In Option 1,Utilities would increase L&P’s PILOT to 7.2%and adjust rates down to be cost neutral to rate payers.In Option 2,Council passes Ordinance 146,2014 to codify the intent of the 1986 ordinance and the practice of the past 28 years. Both Options are common utility practices.Lance pointed out that Option 1 is cost neutral to the General Fund and the 7.2%PILOT is reasonable compared with other municipalities though high compared with an investor owned utility. City ofFortCoLLins Option 2 would require a Code clarification only because the practice and policy would remain the same as it has been since 1986.It would require no changes to the 2015 rates or budget.The only con to option 2 is that the transaction is not recorded in financial statements and therefore is not as immediately transparent as Option 1. Ross noted that this lack of transparency in Option 2 is his biggest concern.The Mayor asked if there is a way to make Option 2 more transparent.After some discussion,the committee came to the conclusion that by being in the Code,being in the budget document and by adding the information to the back of utility bills,Staff could make the cost of street lighting more transparent while sticking to Option 2.With the above clarifications,Council Finance agreed with moving forward with Option 2. 2014 Low Income Rebate Update Katie Wiggett explained that the Finance Department currently administers three rebate programs for low-income,senior and disabled residents:the Property Tax/Rent Rebate,the Utilities Rebate and the Sales Tax on Food Rebate. The program was revamped at Council’s request in 2012,and participation in the program increased 13%in 2012 over 2011,an increase attributed to outreach efforts and program improvements.In 2013, a continued expansion in outreach efforts grew the program by an additional 2%.In 2014,Staff partnered with the Fort Collins Low Income Assistance Project Team to find new ways to better reach low income residents.Staff also worked with CPIO to create dynamic outreach materials including posters,e-mailable flyers,and an improved application.As a result of these efforts,the number of rebates issued in 2014 increased 13%over 2013’s totals. Katie highlighted key outreach efforts in 2014,noting that the addition of electronic advertising materials played a significant role in reaching more partnering organizations and more applicants. Council Finance is pleased with the outreach efforts made in 2014 and the continued improvements to the program. General Financial Policy John Voss showed Council Finance the City’s internal Financial Policy webpage.Mike Beckstead explained that this information will be available on the fcgov.com once all policies have been approved by Council. John Voss explained that,in August,Council Finance approved combining and reducing Policies 3,4 and 6 into one general financial policy.These three miscellaneous policies contained a lot of information redundant with other policies,City Code and Intergovernmental Agreements (IGA5);they also contained many sections that contained no policy elements or were not financial in nature.John walked the Committee through the various sections of the old policies,explaining what had been cut and what was kept in the new general policy. Ross noted that section 3.11 which was cut due to its being informational in nature would still be valuable as a paragraph on the future external policy webpage as citizens would find the information on how they can be involved in the dedicated quarter taxes helpful. The Mayor asked why 3.4 C gives the specific minimum of 55%when this is supposed to be a general policy.She asked that staff look in to where this minimum comes from and whether it is found in any other policy or ordinance.Mike Beckstead said that Staff will look into it and include the answer in the 0 City ofFortCoLLins AIS when the policy goes to Council.Ross also suggested adding an index of applicable City Code sections to the policy website. Council Finance supports bringing the General Finance Policy forward for Council approval. Other Business Mike Beckstead announced that the first Quarterly Financial Report has been compiled and will be sent out to Council on November 20.Staff will bring the report to Council Finance for review. Mike also explained that a Natural Gas Franchise memo has been drafted and he expects to bring the topic to Council Finance for review within the next few months.