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Home My WebLink AboutAgenda - Mail Packet - 8/2/2022 - City Council Finance Committee Agenda - August 1, 2022 (7) Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee August 1, 2022 4:00 - 6:00 pm Zoom Meeting https://zoom.us/j/8140111859 Approval of Minutes from the July 7, 2022, Council Finance Committee meeting. 1. Aquatics 45 mins. S. Ghose L. Williams V. Shaw 2. Annual Financial Audit Results 25 mins. B. Dunn 3. East Mulberry: Potential Annexation Lenses & Phasing 50 mins. D. Lenz Page 1 of 149 Council Finance Committee Agenda Planning Calendar 2022 RVSD 07/28/22 - ck August 1st 2022 Aquatics 45 min S. Ghose L. Williams V. Shaw Annual Financial Audit Results 25 min B. Dunn East Mulberry: Potential Annexation Lenses & Phasing 50 min D. Lenz Sept. 1st 2022 Sustainable Revenue Update 70 min G. Sawyer J. Poznanovic Annual Adjustment Ordinance 20 min L. Pollack 2021 Fund Balance Review 30 min B. Dunn Oct. 6th 2022 Hold: E. Mulberry Follow-ups 30 min D. Lenz S. Tatman- Burruss 2023 Utility Rate Increases 45 min L. Smith Utilities Income-Qualified Assistance Program Structure 30 min H. Young Nov. 3rd 2022 General Employee Retirement Plan (GERP) Annual Report 30 min B. Dunn Financial Policy Updates 30 min B. Dunn Page 2 of 149 Page 3 of 149 Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Finance Committee Meeting Minutes July 7, 2022, 4-6 pm Zoom Council Attendees: Kelly Ohlson, Emily Francis (Acting Chair), Susan Gutowsky Absent: Julie Pignataro Staff: Kelly DiMartino, Travis Storin, Tyler Marr, Carrie Daggett, John Duval, Teresa Roche, Clay Frickey, Rachel Rogers, Jennifer Poznanovic, Nina Bodenhamer, Terri Runyan, Ginny Sawyer, Victoria Shaw, Gerry Paul, Sheena Freve, Blaine Dunn, Amanda Newton, Jo Cech, Lance Smith, Dave Lenz, Zack Mozer, Erik Martin, Carolyn Koontz Others: Jacy Marmaduke, Coloradoan Kevin Jones, Chamber Rachel Selby Jeff Byler, Manager, Pacific North Enterprises Tamara Seaver and Karlie Ogden, from Icenogle Seaver Pogue ______________________________________________________________________________ Meeting called to order at 4:00 pm Approval of minutes from the June 2, 2022, Council Finance Committee Meeting. Kelly Ohlson moved for approval of the minutes as presented. Emily Francis seconded the motion. Minutes were approved unanimously via roll call by; Kelly Ohlson and Emily Francis. A. Rudolph Farms - Metro District Clay Frickey, Redevelopment Program Manager John Duval, Deputy City Attorney SUBJECT FOR DISCUSSION Inclusion of Paradigm property into Rudolph Farm Metro District EXECUTIVE SUMMARY The purpose of this item is to consider the inclusion of the Paradigm property into the Rudolph Farm Metropolitan District (Metro District) located at Prospect and I-25. The developer of the Paradigm property is also seeking through the City’s land use process to change the land use mix for the Paradigm property. This inclusion would allow the District to levy on the Paradigm property a Debt Service Mill Levy of 50 mills and an Operations and Maintenance Mill Levy of 20 mills, or a total of 70 mills, which property taxes would be used by the Metro District to fund the construction, operation and maintenance of public improvements. There is already levied on the Paradigm property by the I-25/Prospect Interchange Metro District a 10 mill levy to be Page 4 of 149 used to reimburse the City for a share of the City’s funding of the recent CDOT improvements to the I- 25/Prospect interchange. It is unclear what public improvements the Metro District would fund related to the Paradigm property. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does the Council Finance Committee support the inclusion of the Paradigm property in the Metro District? What additional information would be helpful when staff presents this item to City Council? BACKGROUND/DISCUSSION On March 6, 2018, City Council approved a series of resolutions related to the funding of interchange improvements at Prospect and I-25. These resolutions resulted in the following: • Approval and authorization of a Binding Agreement pertaining to the development of Interstate Highway 25 and Prospect Road Interchange and a related Capital Pledge Agreement • Approval of the I-25/Prospect Interchange Metro District covering all properties adjacent to the I- 25/Prospect interchange • Approval of the Rudolph Farms Metro District at the northeast corner of Prospect and I-25 • Approval of the Gateway at Prospect Metro District at the northwest corner of Prospect and I-25 • Approval of the SW Prospect I-25 Metro District at the southwest corner of Prospect and I-25 Approval of these agreements and Metro Districts resulted in the City, the Colorado Department of Transportation (CDOT), the owners of the parcels of private property at the four corners of the interchange (Property Owners) and the Town of Timnath sharing in the costs to fund improvements to the I-25/Prospect interchange to be built concurrently with the expansion of I-25. By rebuilding the I-25/Prospect interchange at the same time as the I-25 expansion, the project was able to realize efficiencies that resulted in $7 million in reduced project costs. This also accelerated the timeline for improvements to the interchange. These actions also created the Metro Districts at each corner of the I-25/Prospect interchange with the exception of the southeast corner. The southeast corner of I-25/Prospect is known as the Paradigm property. The approved Metro Districts allow for funding of necessary infrastructure and public improvements to serve future development within the Districts. These Metro Districts pre-date the City’s Metro District policy requiring public benefits from Metro Districts where more than 10% of the assessed value is residential. These actions also created the I-25/Prospect Interchange Metro District (Interchange Metro District). All of the Property Owners’ properties are included within the boundaries of the Interchange Metro District. The purpose of the Interchange Metro District is to generate tax and fee revenues from the Property Owners’ properties to reimburse the City for the Property Owners’ share of the costs to fund the CDOT improvements to the I- 25/Prospect Interchange. The estimated total project cost of the I-25/Prospect interchange improvements was $31 million. Of this, $24 million was for base design while the remaining $7 million represents the City’s required urban design elements. CDOT shared in 50 percent of the base design portion, or $12 million. The remaining $19 million was split between the City, Property Owners, and Timnath at 43%, 43%, and 14%, respectively. Timnath’s share is based on traffic studies with the City and Property Owners splitting the remaining costs. Table 1 Page 5 of 149 Partners Allocation of Costs (Millions) On March 5, 2019, City Council adopted Ordinance No. 30, 2019, appropriating $19,099,945 to fund all non- CDOT costs associated with the I-25/Prospect interchange improvements. The City would seek repayment from the Property Owners within the District and from the Town of Timnath. The Binding Agreement requires each party highlighted in the table above to pay its share of the costs associated with the interchange improvements. The Capital Pledge Agreement outlines the terms of repayment for the Owners’ Share of the project costs to be paid, in effect, through the Interchange Metro District. The Capital Pledge Agreement identifies the sources of revenue from the Interchange Metro District that will be used to reimburse the City for the Property Owners’ share of the costs. These revenue sources include: • Imposition of a property tax mill levy of 10 mills on all taxable property within the Interchange Metro District • 0.75% public improvement fee (PIF) on all retail purchases made within the Interchange Metro District, net of any reasonable administrative fees for collection by the City • Impact fee collected at the time of issuance of a vertical building permit based on land use within the Interchange Metro District Per the Capital Pledge Agreement, the Property Owners’ share is payable on or before December 1 of each year in twenty equal installments of $479,000 beginning December 1, 2019. At the end each month, the property owners must remit any PIF or impact fees collected during the preceding month. In the event that the Property Owners are unable to pay $479,000 by December 1, the deficit accrues interest at a rate of 4.25%. The current deficit of the Property Owners’ share is $958,622. Rudolph Farms Background: The Rudolph Farms property lies in three zone districts: General Commercial (CG), Industrial (I), and Urban Estate (UE). The Rudolph Farms Metro District Service Plan contemplates development that would conform to the permitted uses of those zone districts. Table 2 below shows the approved land use mix in the Rudolph Farms Total Fort Collins Property Owners Timnath Overpass Cost $19.00 $8.25 $8.25 $2.50 % Share Cost 100% 43% 43% 13% Less ROW Credit $0.50 $0.00 $0.50 $0.00 Less TCEF Credit $1.40 $0.70 $0.70 $0.00 Debt Obligation $17.10 $7.55 $7.05 $2.50 % Share Payments 100% 44% 41% 15% Partners Share Allocation Page 6 of 149 Metro District Service Plan. The land use mix for Rudolph Farms in the I-25/Prospect Interchange Service Plan mirrors the land use mix shown in the Rudolph Farms Service Plan. PNE Prospect Holdings LLC (PNE) acquired Rudolph Farms in 2021. PNE is looking to potentially acquire the Paradigm property for inclusion in the Rudolph Farms Metro District. In addition to including the Paradigm property, PNE contemplates changes to the land use mix and has two potential concepts in mind as per Table 2. Table 2 – Rudolph Farms Land Use Mix Comparison Service Plan Concept 1 Concept 2 % Change - Concept 1 % Change - Concept 2 Retail 107,850 121,904 127,900 13.03% 18.59% Hotel (Rooms) 240 0 0 -100.00% -100.00% Convenience 5,350 0 0 -100.00% -100.00% Office 0 80,320 153,400 100.00% 100.00% Industrial 831,150 440,500 300,500 -47.00% -63.85% Residential (Units) 60 563 685 838.33% 1041.67% Self Storage - 96,951 96,951 100.00% 100.00% Paradigm Background: On January 15, 2004, the Planning and Zoning Board approved the Paradigm Overall Development Plan (ODP). The purpose of an ODP is to establish general planning and development control parameters for projects that will be developed in phases with multiple submittals while allowing sufficient flexibility to permit detailed planning in subsequent submittals. The approved Paradigm ODP permits retail, drive-thru restaurant, hotel, convenience store with gas station, restaurant, office, and warehouse uses. The I-25/Prospect Interchange Metro District Service Plan contemplates Paradigm developing 114,000 square feet of retail and a 100-room hotel, mirroring the approved ODP. In acquiring Paradigm, PNE looks to change the land use mix of Paradigm. On June 22, PNE met with City staff for a Preliminary Design Review about changing the land use mix for Paradigm. Preliminary Design Review is a pre-application meeting where City staff highlights potential issues with the proposed development prior to the applicant submitting a formal development application with the City. PNE proposes two hotels, two pad sites for fast casual restaurants, a convenience store, and a parcel for multi-family. There is not enough detail in the Preliminary Design Review application to compare the proposed land use mix with that approved in the Overall Development Plan and I-25/Prospect Interchange Service Plan. Inclusion of Paradigm property into Rudolph Farms Metro District: On June 7, 2022, legal counsel for PNE submitted a formal letter requesting inclusion of the Paradigm property into the Rudolph Farms Metro District. Per Section V(A)(4) of the Rudolph Farms Service Plan, inclusion of new property to the Metro District requires approval by City Council. Including Paradigm into the Rudolph Farms Metro District would allow the Metro District to issue bonds to fund public improvements required to serve the Paradigm property. The bonds would be repaid by placing a mill levy on the Paradigm property. The Rudolph Farms Service Plan projects the need for a Debt Service Mill Levy of 50 mills and an Operations and Maintenance Mill Levy of 20 mills, or a total of 70 mills. The inclusion of the Paradigm property into the Metro District would yield the following necessary updates to the Rudolph Farms Metro District: Page 7 of 149 • List of public improvements required to serve the Metro District inclusive of Paradigm • Development summary • Exhibits of public infrastructure required to serve Paradigm • Financial plan None of the amendments listed above require Council approval. As mentioned above, Paradigm also contributes to the I-25/Prospect Interchange improvements. While the change in land use has little impact on the Rudolph Farms Metro District, these land use changes have more implications for the Interchange Metro District. The I-25/Prospect Interchange Service Plan contemplated the Paradigm property developing 114,000 square feet of retail and a 100-room hotel. The amended plans show two hotels, two pad sites for fast casual restaurants, a convenience store, and a parcel for multi-family. This presents some opportunities and potential risks for the City to collect the Property Owners’ share of costs associated with the I-25/Prospect interchange improvements. Opportunities: • More feasible development plan – the updated development plans reflect updated development ideas to meet current market demand. Paradigm has sat vacant since approval of the ODP in 2004. This is an indication that the approved ODP is not well positioned to meet current market demands and may never come to fruition. • Faster revenue generation – a more feasible development plan could yield faster revenue generation for the interchange improvements. There is already a sizable deficit for the Property Owners’ share and this change to the land use mix could help the City recover some of its costs quicker. Risks: • Lower assessment rates – In Colorado, properties are taxed based on a percent of its assessed value. Commercial properties are taxed at 29% while residential properties are taxed at 7.15%. The updated plans for Paradigm would have 6.2 acres of residential uses. This means the residential component of Paradigm would need to have an assessed value four times that of a commercial property to yield the same revenue from the mill levy imposed by the Interchange Metro District. • Lower PIF revenues – Another source of revenue in the Capital Pledge Agreement is the imposition of a 0.75% PIF on retail sales within the Interchange Metro District. Residential properties do not generate retail sales. By converting a portion of Paradigm property to residential from retail, the result will be less PIF revenue. Without additional detail on how and when the Paradigm property might develop, it is uncertain how much the changes in Paradigm’s land use mix will affect the City’s ability to recover from the Property Owners their share of costs for the interchange improvements. DISCUSSION / NEXT STEPS: GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED • Does the Council Finance Committee support the inclusion of the Paradigm property in the Metro District? • What additional information would be helpful when staff presents this item to City Council? Page 8 of 149 Kelly Ohlson; the $8.5M for the private sector share – if they don’t pay that off in 10 -15 years, the value of the $8.5M will be closer to $3-4M. Do we have any kind of interest payment or escalating written in? Why would we not build that in? Clay Frickey, Yes, that is built in, there is a 4.25% interest rate - payments were scheduled to started in 2019 – property owners share – accrues interest – no payments received to date Travis Storin; payment don’t start until PIF (Public Investment Fund) revenue starts Kelly Ohlson; maybe it makes sense to start the payments when their share of improvements is 90% finished John Duval; as soon as they start having development and the Mill levy starts getting generated – the development will start receiving that money – whatever the Metro District gets off of the Mill levy on any development, on any included properties and as PIF starts getting generated and there are some impact fees they are to collect Kelly Ohlson; What I am concerned about in the future is that the private sector writes better agreements for their benefit than we do for ours. In some cases, it could be 10 years after the improvements are built and that money is not worth nearly as much. John Duval; they do start paying property tax right away from the metro district to the city under the agreement - when development starts interest accrues at 4.64% rate unless or until payments are made. Kelly Ohlson; I am not going to support this, but I think staff is playing under the rules established so it is fair that you are bringing this to us. Is there a recommendation included? Clay Frickey; no, we wanted to get Council Finance Committee’s perspective before making a recommendation. Kelly Ohlson; I am not supportive of metro districts in general. I view them as fatally flawed, generally scams and in many cases corrupt. Emily Francis; in layman’s terms – Paradigm Property has a current plan of what should go there (the original). Rudolph Farms wants to incorporate Paradigm into their metro district and at the same time change what is going into Paradigm. Clay Frickey; that is correct – there is a lot of information and moving pieces – so please feel free to ask for clarity. Emily Francis; since this was originally adopted by Council, we have updated our metro district policies, so I am not in favor of absorbing another property (Paradigm) into this without it having to come up to our current, updated standards. Based on that, I am not in favor as we have gone through a process of updating our standards to align with the outcomes we are trying to achieve. I would say that Paradigm could go through the process and apply for their own metro district, but I don’t think it is appropriate to just absorb a property because Rudolph Farms is purchasing it and then also changing the land use quite dramatically (getting rid of open space). Is it typical for the city to zone multifamily dwelling units so close to a gas station? Page 9 of 149 Clay Frickey; I would have to take a look and see where gas stations are located – I can think of a couple examples where this is the case - this is not common but also not unheard of. ACTION ITEM: Emily Francis; I can see that being appropriate in the 80’s when we didn’t have as much information about the negative health consequences of living so close to a gas station. As a side note, could we see if that is still allowed in our land use code? If Rudolph Farms wants to buy this they would need to go through the whole process. Kelly Ohlson; referencing an editorial in Denver Post -Sunday, May 1, 2022 (see link below) https://www.denverpost.com/2022/04/28/metro-district-abuse-junior-bond-debt-house-bill-1363/ HB 1363 would have shut down one of the most egregious abuses of taxpayer dollars when developers issue a small tranche of debt on the bond market with unfavorable terms with above market interest and then buy the debt themselves so future homeowners will end up paying the developer for decades through their property taxes for a completely unnecessary load of bad debt. HB1363 is simple and only a small part of the reforms needed for a deeply flawed state law that allows private, for-profit developers to spend millions in taxpayer dollars with no oversight of the spending from publicly elected officials, the only people who determine how the money is spent and how it will be paid by taxpayers are the developers and their employees who have a financial stake in the venture. Millions of Coloradoans are paying off the debt incurred by these developers with no ability to see what the money was spent on or whether the project was priced in a reasonable fashion, let alone bid in a competitive way to assure a good use of taxpayer dollars……. for so many homeowners, it is too late to protect themselves from a predatory developer with free rein over their tax money, but HB1363 offers hope that future homeowners won’t have to suffer. There is so much more reform that needs to happen. Metro district mill levies should be disclosed on all MLS listings and in sales offices for new developments. Those serving as quasi- judicial officials for metro districts should not be able to vote if they have a conflict of interest and the state should require metro districts competitively bid and publicly post all expenditures. I am not going to be complicate in the metro district game until state level reforms are made. Emily Francis; the process we have in place is not perfect and doesn’t address all issues with metro districts but that is why it is important to have any new metro district go through the process. For presenting to Council, with these more confusing and nuanced items, I think we really need to watch our reading level of information we present so that our residents can follow along. Not everyone knows about bonds and metro districts – thinking about the public and their understanding of what we are talking about. Page 10 of 149 B. Grocery Tax Rebate Program Nina Bodenhamer, Director, City Give Jennifer Poznanovic, Sr. Manager, Sales Tax & Revenue EXECUTIVE SUMMARY Established in 1972, the Grocery Tax Rebate is intended to provide financially insecure residents relief from City sales tax charged on purchased food. The program was expanded to include residents within the City’s Growth Management Area in 2017. Per a 2020 Performance & Program Evaluation, participation in Grocery Tax Rebate would benefit from: • City-wide Centralization of Administration • City-wide Coordination of Program Outreach • Simplified Document and Income Verification • Increased Alignment with Other City Benefit Programs CURRENT STATE In 2021, 1,800 Residents applied and received the Grocery Rebate Tax. 89% of applicants are repeat participants from the prior year. • 2022 Annual Benefit: $69 Per Resident • Eligibility: 50% Area Media Income In spite of robust community outreach and investments in marketing, the Grocery Tax Rebate has historically lackluster enrollment. Outreach and marketing efforts include but are not limited to: • Spanish-language Translation of Outreach Materials and Application • Direct mail, Community Promotion and Marketing o Community-wide Poster Distribution o Two (2) Ads Per Year, Coloradoan, Op-Ed • 50+ Community Partners: Distribution of Applications & Promotion GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Council input and the findings of the 2020 Performance & Program Evaluation affirm a commitment to: • Increase Participation in Income-qualified Programs • Reduce Barriers to Enrollment • Realize the Potential of the City’s Investment in Get FoCo • Embed Best Practices & Resident Input Adjusting the income eligibility from 50% AMI to 30% AMI would reduce the overall pool of applicants. However, would the increased ease in income verification result in a higher response rate? BACKGROUND/DISCUSSION Over the past years, revisions to the Code language which govern the Grocery Tax Rebate have been made to demonstrate responsiveness to resident input and program design: • Revision to the Payment Definition to Allow Future Alternatives • A Shift in Window of Service from Seasonal to Annual • Adjusted Definition of “Households” • Removed Federal Income Tax as the Sole Income Verification Source Page 11 of 149 Yet, the program continues to represent low participation rates. Four (4) options are presented with the rationale, risks and benefits of each: • Option #1: Maintain Grocery Tax Rebate Income Eligibility at 50% AMI o Outstanding Benefit: An estimated resident pool of 18,000 o Potential Risk: Income Tax Returns serve as the Sole Option for Income Verification: 30% - 50% AMI • Option #2: Adjust Grocery Tax Rebate Income Eligibility to 30% AMI o Outstanding Benefit: Applicants Immediately Eligible for other City Benefits: Recreation, Spin Access, Reduced Cost Internet via Get FoCo o Potential Risk: A Reduced Participant Pool: 12,000 Eligible Residents • Option #3: Adjust Grocery Tax Rebate Income Eligibility at 60% AMI o Outstanding Benefit: Income Verification Piggybacks on State Program o Potential Risk: Resident Familiarity with Low Energy Assistance Program (LEAP) • Option #4: Adjust Grocery Tax Rebate Income Eligibility to 80% AMI o Via Household Addresses Linked to Affordable Housing Properties o Additional Financial, Technological and Operational Exploration Required DISCUSSION / NEXT STEPS: GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Council input and the findings of the 2020 Performance & Program Evaluation affirm a commitment to: • Increase Participation in Income-qualified Programs • Reduce Barriers to Enrollment • Realize the Potential of the City’s Investment in Get FoCo • Embed Best Practices & Resident Input Kelly Ohlson; I do prefer a higher number like 60% AMI. I have lived most of my life in that demographic so that is kind of a minimal number for me. I don’t think we have put new taxes on food since the 80’s. Can you confirm? Travis Storin; yes, that is correct - Restaurant consumption is on the whole amount 3.85% Kelly Ohlson; we are trying to balance that out - we get quite a bit of revenue from the base – I am interested in 60%. I don’t follow at all how we are going to verify that Nina Bodenhamer; the success of the Get FoCo app depends on piggybacking – so we are using federal, state, or regional benefit programs. A resident who is participating in SNAP has an EBT card. They log into their account while they are at Get FoCo – take a snapshot of that screen and the verification of that account tied to the resident verification qualifies them at 30% AMI. With the 60% AMI option, that is also the standard for LEAP – so someone who qualifies for LEAP would receive a notice from the Colorado Low-income Energy Assistance Program - they upload the LEAP confirmation letter they received via email and when the text reader sees it and they are established at 60%. Page 12 of 149 The other option is Income Qualified Assistance Program (IQAP) for Fort Collins Utilities which also uses LEAP as a 3rd party verification/ qualifier. The LEAP letter opens the door to city benefits. If they are enrolled in the reduced utility rate program, it is natural for them to enroll for the Grocery Store Rebate at the same time. Kelly Ohlson; I am focused at the moment on Option 3. I am curious what staff would recommend. Nina Bodenhamer; I am excited about the 60% AMI and my reason is for one it was illuminated by your and Emily’s hard questions at Council. I love the challenge to come back with another pathway. My operational goal is to make the application process easy for residents and 60% accomplishes that Increasing the ceiling and making it easy, means we may have many more applicants that the current budget plans for. Jen Poznanovic; I would say it really depends on what the Council is looking for - the income tax returns are a big barrier, and we aren’t seeing as many families participate. Historically, over 80-90% are repeat applicants, over 50% are 65 and older so typically folks who have more time on their hands and are used to the process of giving us their tax return as part of the application process. Kelly Ohlson; if this is the direction a majority of Council approves then it is up to us to prioritize the budget because we do bring in a lot of money from sales tax on food maybe some of the revenue from food goes back to those who need it the most. Travis Storin; when I think about the 18,000 residents who are eligible for today’s program relative to the 1,800 who participate - we can do a lot better than that (10%). We have really reached our limit on outreach – we have done everything we can in terms of promotion and awareness of this program, yet we still see low participation rates. I support the conclusion that the application verification process itself is creating barriers to participation. The more we can peg our programs to state and regional programs like LEAP then we are making it easier for our resident and expedites the process 30% AMI is easy street - 31-60% AMI tranches can be tricky but I think Option 3 is viable right out of the shoot and you can keep Option 4 in mind. Once we see the efficacy at 60% AMI the dollars do start to grow. It is a humble $100K program today and we want to daylight for Council’s consideration that it would come at a cost to drive to substantially higher participation. I think we can manage that at 60% and that would be a good place to monitor to see if we could do 80%. Emily Francis; when we send a rebate it is city funds, correct. Nina Bodenhamer, yes Emily Francis; I don’t understand why we make people prove to us they are low income. How much does it cost for us to administer this program? Travis Storin; we have one staff member with a 25-hour part time schedule for 12 months. $50K range – so relative to the $100K of benefits going out it is costly. Page 13 of 149 Nina Bodenhamer; the current benefit is $69 per resident. So, a single parent with 4 children would receive 5x $69 ($345) Emily Francis; there are not a lot of people who would game the system for $60. As a city, we say we want to reduce barriers, yet we are still going to make you prove that you are low income. It is just counter intuitive to me. If we don’t have state and federal limitations on how we administer the program, and the funds then why are we putting that on ourselves? Travis Storin; I assess a different risk around the potential for abuse – they are people who qualify technically because a business can run on a different tax return, etc. A person can qualify on the face of the form but can actually be a person who has means. I would worry that by having no qualification, we would open ourselves up to larger levels of abuse. Emily Francis; I just doubt that there would be enough abuse that we would need to warrant the staff time to do this. Which will cost us more, the 20 people who abuse it or having full time staff work on it. I don’t understand how we say we want to remove barriers and we have complete control of these programs, yet we are still going to make people prove they are low income. I just think it is something for us to think about and consider. My other question is related to the grocery bag waiver – why can’t we just follow the same guidelines at the register and not charge them sales tax on food. Nina Bodenhamer; this has come up with our Get FoCo partners as well - we aren’t there yet with the technology. To address your other question regarding income verification – your philosophical position is that we may not be there yet as a city, yet it is the same direction we were heading with the development of Get FoCo. How do we make it easiest for our residents, non-threatening, warm, responsive, and not a burden in terms of time? So, right now the benefit of the Get FoCo app in its entirety is that when a resident establishes a need – that is a gateway to a host of other programs not just the grocery tax rebate. We have the recreation discount which is a gateway to reduced cost childcare so there is a lot that happens once someone does establish need. The reason we designed this app was to reduce repetitive proving of income, to reduce the uncomfortable cultural barriers that we place on residents. We are moving in a positive direction – we have made this easy – if you were applying for the recreation discount, to apply for the grocery tax rebate program would simply be a click on a box because your income is already verified. We have this whole section to quick apply for a list of programs. If I quality for one then I qualify for all - so we are moving in this progression. In a future world, how else can that designation be used – for example the grocery tax - how do we create that space where we could eliminate the tax instead of rebating it? Emily Francis; we spend so much time talking about how we operate to get to our goals – those processes aren’t necessarily serving us – how do we get to the same end goal but in a different way. The 4 options are great, but they don’t address the larger issue, the larger policy direction. So, with the 60% AMI – SNAP is one way but can be a pain to qualify for in the first place. I think it would be helpful to list all of the ways a person can qualify. During Covid with all the rent assistance, If you were a case manager for someone you could provide a letter saying someone was being paid in cash. Page 14 of 149 Nina Bodenhamer; right now, in the app, we accept the SNAP EBT card, Women, Infants and Children (WIC) card, American Connectivity Program formerly Emergency Broadband Benefit (EBB), a PSD free or reduced lunch program letter, LINK the income qualified assistance program in our own utilities Medicaid – we are warming up to – cards have no expiration date so that represents a separate issue but is a simple approach, a letter from a provider from county, state, or other benefit programs. And SPIN (bike and scooter share) community access pass and their verification is at 30% AMI. Their verification is through their own platform which was created by Code for America. Emily Francis; we need to think about other verifications that aren’t tied to government. Nina Bodenhamer; I accept that challenge Emily Francis; we could do a pilot with the grocery food tax rebate and see how it goes Kelly Ohlson; that is where I am at -I would be open to what you are suggesting - a pilot using the grocery store tax rebate- I like to have some recourse to go after the cheaters and eliminate them from the system. Nina Bodenhamer; I do think they are some important gates I would like to leave today with a recommendation for verification. We have a team in place with rebate. The 60% option still leverages the Get FoCo app. What does the success rate look like when we just make it easy on applicants? What if we relieved the income verification? How does that operationalize? I am looking for direction today on a percentage with our idea of 60% AMI Kelly Ohlson; let’s put this in some type of resolution because players on Council change. Then we have it in writing with our idea at 60% AMI for a certain time period if we need to go through one full cycle to evaluate how the system recommended by staff works. Staff could at the same time work on alternatives for us to consider – that way we don’t waste a year of the new system and then take 9 months – that they happen concurrently – so we consider after we see how this works. Emily Francis; I think that would be fine – so, 60% AMI and the language that Kelly said. I appreciate your teams work so much and our language around this is going to be easy – making it easier for some people- we are forgetting a lot of people who it is not easier for Nina Bodenhamer; it will be easy for households who know how to navigate public systems, have internet access. I would like to see us Increase participation in that space. Susan Gutowsky; reference to the open system - I think with any system there are always folks who will game it – looking at all of the recovery money that was distributed - lots of money with very little oversight and lack of accountability. I don’t know how you would spot the people who not playing fairly unless you have some sort of check, some way of verification. It would make me very uncomfortable to have an open system and trust everyone to be honest. Once you verify your income, Page 15 of 149 it does open doors to other resources – it would benefit the city to have that done and don’t think it would be a huge burden for those who want to apply. It is human nature across the board. Travis Storin; summary • Support for Option 3 • Fashioning this as a pilot and in parallel develop options that expand beyond the federal and state qualifications up to and including dropping the qualification entirely. We can capture that in the ordinance language that staff is continuing to study this and is not waiting for a year to start developing new programs • Some reference to a timetable -appropriate amount of time to evaluate Emily Francis; when this comes to Council, can you provide more information about the Medicaid part and other alternatives? Kelly Ohlson; are these programs (Medicaid / SNAP for example) permanent? Do federal and state governments ever take people off these programs? Nina Bodenhamer; the Medicaid card can be inactive - there is no date on the card, so you don’t know if the card is active or not. SNAP / EBT – residents can log into their account, and it is an active account. Medicaid doesn’t have that option. Emily Francis; income verification for SNAP is done annually Nina Bodenhamer; we haven’t established what that cadence is yet for Get FoCo Qualified last year - We can adjust when they were last verified and track when they have been active and what they have qualified for. LEAP / IQAP – what does that do to our overall cross pollination of these programs? Get FoCo a gateway to multiple city benefits C. Capital Projects – Inflationary Impact (All Projects) Sheena Frève, Senior Analyst, Financial Planning & Analysis Gerry Paul, Director of Purchasing EXECUTIVE SUMMARY Inflation is currently at historically high levels, with the consumer price index (CPI) increasing by 8.6% from May 2021 to May 2022. Inflation in the construction industry is increasing at even faster pace, rising by 10% to 17% over the past year. Adding to the problem, the supply chain is experiencing pressure caused by higher costs and much longer lead times. The impact on the City can be seen in recent requests for supplemental appropriations for capital projects by Community Services, Planning, Development & Transportation, and Utilities. The City anticipates continued pressure and has identified projects at risk due to inflation. The expectation is that most funding shortfalls will be addressed through the 2023/2024 budget process or through changes in scope, decreased levels of service, or delays impacting implementation and future projects. At the same time, inflation is offset by higher City revenues through increased sales tax receipts and investment income. Over the next five years, the Bipartisan Infrastructure Law will allocate billions of dollars to the state and local governments in Colorado. This may cause increased pressure on construction costs. Page 16 of 149 Some mitigating strategies are available through the competitive procurement process and by selecting the project delivery method that will result in the best outcomes. However, inflationary headwinds will continue to limit the City’s ability to control rising construction costs. Staff are planning to establish an inflationary reserve as part of the 2023/2024 budget submittal. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED • What questions does Council Finance Committee have regarding the impact of inflation on capital projects? • What questions does Council Finance Committee have regarding methods of procurement and project delivery? BACKGROUND/DISCUSSION Inflation has risen by 8.6% from May 2021 to May 2022 according to the Consumer Price Index (CPI), the highest inflation rate since 1981 (Appendix I). Even so, inflation in the construction industry is rising at an even faster pace. The Engineering News-Record (ENR) construction cost index indicates that road and bridge construction has risen by 10% since May 2021 while construction on buildings has risen by 17% in the same period (Appendix II). This is confirmed by the 16% increase shown in the Colorado Construction Cost Index which tracks the costs of certain elements, such as asphalt and concrete, in projects bid and awarded by the Colorado Department of Transportation (Appendix III). Several cost drivers are contributing to the rapid rise of inflation in the construction industry. Fuel is a major component of construction projects and gas prices have risen by 62% since June 2021 (Appendix IV). Labor costs as captured in the Employer Cost for Employee Compensation show a 4.8% increase for all civilian workers from March 2021 to March 2022 and a 6.2% increase for those in construction occupations (Appendix V). Right-of- Way (ROW) costs can be a major cost driver for projects requiring land or easements. ROW is driven by fair market value of real estate. Housing costs in Fort Collins have increased by 21% from the first quarter of 2021 to the first quarter of 2022, driving up the cost of ROW acquisitions (Appendix VI). Adding to the inflationary pressure and contributing challenges of its own, the supply chain is under increasing strain. The Global Supply Chain Pressure Index (GSPCI), produced by the Federal Reserve Bank of New York, tracks the state of the global supply chain using surveys and data from the transportation and manufacturing sectors, including pricing, delivery times, and backlogs. The GSPCI indicates an historically high level of pressure on the supply chain and its authors submit that recent trends suggest a stabilization of pressures at these historically high levels (Appendix VII). These developments have created challenges for the City’s capital projects, particularly those that were budgeted during a period of low inflation. Budget offers for the 2022 fiscal year were researched and prepared beginning in the fall of 2020 until the submission deadline in April 2021. During this period, the ENR construction cost index indicated inflation was at or below 2%. Construction inflation climbed over 2% beginning in May 2021 as the budget review and approval process began. Projects cannot go out to bid until the budget has been approved in November. By that time, construction inflation had climbed to near 9%. Page 17 of 149 As part of the competitive purchasing process, the City can use a number of cost mitigation techniques, which are addressed in Attachment 2, to manage costs. However, throughout the procurement process, projects are subject to market conditions. Several appropriated projects have come before Council Finance Committee in recent months requiring a supplemental appropriation due, in part, to inflation and supply chain issues. Those projects are listed below. Page 18 of 149 Additional impacts on appropriated projects are expected (Appendix VIII). However, at this time it is anticipated that most affected projects will be addressed through the 2023/2024 budget process or by reducing the project scope or delaying other projects. In the 2023/2024 budget cycle, inflation has created a high level of uncertainty for staff preparing budget offers. Capital project budget offers significantly impacted by inflation are listed below. Inflation escalators of 6 to 31% were built into many of these projects along with higher-than-average contingency, ranging from 15 to 25%. Some budget offers anticipate incorporating scope changes and value engineering to counter funding shortfalls. Inflation, sometimes compounded by deferred maintenance, has also had an impact on budget offers for asset management projects (Appendix IX). Many ongoing asset management budget offers are insufficient to meet City needs. As a result, enhancement offers were submitted to achieve the desired replacement cycles and levels of service. In some cases, offers anticipate lowering the level of service if additional funds are not available. For example, the Street Maintenance program is only able to maintain roads every 21 years instead of every 16 years. Many offers have a 10 to 15% inflation cost escalator built into the project cost. Some offers have a 10 to 15% contingency on top of current pricing. Page 19 of 149 Long lead times for certain equipment have added another layer of volatility to the mix. Some equipment that previously was available off the shelf with travel time, arriving in a few weeks or a month, may now take thirty- five to sixty weeks. This is particularly challenging as buildings and equipment approach their end-of-life. On top of that, specific items, such as HVAC equipment are experiencing price increases of 25% to 300% and traffic signal pole pricing has increased by 90% this year. While inflation has created many challenges for the City, it has also provided some offsets in the form of increased revenues. During times of positive inflation, inflation is always adding to the City’s sales tax receipts. In other words, as the price of goods rise, total taxable sales rise. Within the past year, as inflation grew by 8.6%, about $5.5 million was added to the City’s sales tax receipts that can be attributed to inflation, as detailed in the table below. That $5.5 million is about 4% of the $145.6 million collect from June 2021 through May 2022. Another way in which inflation increases City revenues is through investment income. While not as immediate an impact as sales tax receipts, as the Federal Reserve raises interest rates to combat inflation, the rate of return for the City’s investment portfolio gradually increases as well, as shown in the chart below. The Federal Reserve has increased the interest rate three times in 2022 as a response to inflation: by 25 basis points on March 17th, 50 basis points on May 5th, and 75 basis points on June 16th. An increase of 50 basis points applied to the City’s entire portfolio could ultimately result in an additional $3 million annualized. However, rising interest rates do not impact the City’s entire portfolio immediately, but rather gradually over time. Page 20 of 149 The City’s Local Government Investment Pool (LGIP) rate of return responds to rising interest rates relatively quickly, closely following the market rate for money market deposits. The fixed-income rate of return is slower to respond and tracks slightly behind the five-year treasury bill, as shown below. About 20% of the City’s portfolio is in LGIP; 75% is fixed income, divided between agency bonds and corporate bonds; and the balance of 5% is held in cash reserves to address the City’s day-to-day financial needs. Interest rate hikes this year have contributed to interest income that is 23% higher than budgeted year-to-date. In the coming year, staff anticipate continued effects from inflation. On the positive side, rising interest rates may cool the housing market. This could mean that fair market value for right-of-way acquisition may stabilize. At the same time, as the Bipartisan Infrastructure Law (BIL) rolls out over the next five years, the construction industry may experience continued pressure due to the influx of federal funds. The BIL provides billions in funding for road and bridge projects, public transportation, water infrastructure, the electric vehicle network, environmental remediation, and more. Formula funding available to Colorado and new and expanded Page 21 of 149 competitive grant programs are shown in the tables below. With billions more in funding being awarded and distributed, projects may be bid up as federal funds are awarded to local governments throughout Colorado on the same timeline. Page 22 of 149 DISCUSSION / NEXT STEPS GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED • What questions does Council Finance Committee have regarding the impact of inflation on capital projects? • What questions does Council Finance Committee have regarding methods of procurement and project delivery? Travis Storin; we are suggesting setting aside a General Fund reserve amount to serve as a cushion against inflation should any of our budget assumption prove to be incorrect - $4M (2%) withhold it from use in the 2023-2024 Budget Kelly Ohlson; Slide #5 (see below) I don’t’ Page 23 of 149 I like the specificity of the construction cost index both vertical and horizontal. When we bring fees for capital adjustment fees and those relating to roads and building costs. It doesn’t fee Council has to approve those fees, but we should see fee increases brought forward that closely correspond to what the market is doing. I don’t believe that has been refined enough in the past to the detriment of the city organization. It doesn’t mean we pass the full amount of the fees, but we know the fee increases are based on the best data. We can make other decisions and staff can make other recommendations, but we need to be comparing apples to apples. Very clear and very concise Kelly Ohlson; Slide 13 (see above) What does it mean by ‘current budget? What is the date of current budget? Travis Storin; theses appropriations are on a non -lapsing basis. Basically, they don’t expire until the project is completed. I could see us adding a column to this table for ‘year of origination’ because it will vary Kelly Ohlson; Would the current budget be from that date (date of origination)? Travis Storin; these are the original amounts plus, any supplemental appropriations that have been done since then. Kelly Ohlson; I might need some 1:1 time. In numerous places, it says the Impact of Inflation will be addressed in 2023-2024 Budget - not if Council has other priorities – it kind of assumes we will do what you recommend. Page 24 of 149 Travis Storin; meaning that staff is going to surface a request through the Budget. We are working through those executive dialogs right now in advance of delivery to Council. That is not a guarantee that staff would recommend it, let alone Council. For the Southeast Recreation /Community Center – it says a $15M cost overrun for a $17.4M project Beyond the 2023-2024 Budget request due in large part to scope changes. We haven’t approved a pool yet, right? Travis Storin; no, the pool has not been approved. There is both a Finance Committee discussion and a Work Session scheduled. The Aquatics program as a dedicated topic is coming to the August 1st CFC and to an August 23rd Work Session. You are seeing very substantial expansion of the design and scope of that facility to the ballot measure that was approved in 2015. Kelly Ohlson; the $15M doesn’t mean we are going to go for it. I am assuming that amount does include a pool. Travis Storin; it does include a pool and it is also predicated upon participation from community partners and the discussions staff is exploring with the school district and the university. Kelly Ohlson; Operations Services; Facilities Major/Minor Repair and Replacement - we have always underfunded this in every budget I have participated in. Some repairs / replacements may be delayed until next year. At some point, come Council has to get serious about that. We continue to get further behind every year. Travis Storin; that is a very close reflection of the very conversations we are having as a staff around asset management this year. Some of the conditions out there are bending and others are breaking. As an overall general theme, asset management is going to play a huge part in the 2023-24 Budget. Kelly Ohlson; on the Utilities - they are Enterprise Funds – are we getting major reductions in revenue? Why are those being affected? Generally, utilities don’t have to take a hit as their revenues are consistent and going up at 2-4% per year but there seems to be some things listed that are going to be delayed or cut. Travis Storin; this slide is cost side display around what is currently appropriated by current or previous Councils. It is expense driven. To your point, utilities has a wider array of options. Kelly Ohlson; is it inflation? Lance Smith; so, revenues are strong in Utilities, but this is the cost side on the capital investments. We are seeing inflation just like the rest of the city. We will spend $1M in water distribution system replacement but because of inflation, we will get a little less done for that amount of money. Page 25 of 149 Kelly Ohlson; Slide 14 (see above) Are these in the budget that you will be bringing to us in a few months? Travis Storin; these are offers under consideration for the 2023-224 Budget. The expectation is that for capital projects, it reflects their best estimate of cost inclusive of the inflationary environment. We are alerting Council to some of the pressures we are facing. The inflation and the upward pressure that each of these projects are experiencing and that is baked into the offers essentially drives a higher sticker price than the offer would otherwise and necessitates other trade-offs. Essentially fewer projects or examining other ongoing programs because we have a fairly fixed amount of revenue that is assumed in the budget at this point in time. This is just a flag for your general awareness of a pressure that we are experiencing. Page 26 of 149 Kelly Ohlson; Slide 17 (see above) interest income is 23% higher than budgeted year to date. What does that mean in real dollars? Sheena Freve; we budgeted $1.4M YTD and we have received $1.7M YTD so it is $300K over budget Page 27 of 149 Kelly Ohlson; examples on slide 20 (see above) How often do we go back and evaluate so we know which process is the best? Do we use a rating system? What did we learn from this? So that we learn which process is the best. Do we do anything in hindsight? Gerry Paul; Our engineering group does a really good job of that. Lessons learned after major projects. I don’t know that we have institutionalized that around the city. A good point to follow- up on. We don’t have a formal rating system. It is more of a lesson learned approach. Kelly Ohlson; Slide 21 (see above) Examples listed – those would be good ones to cut off – to develop some kind of process for the future. I didn’t say that every project we do for the rest of eternity just the projects that make sense to do. What lessons did we learn in general? Page 28 of 149 Kelly Ohlson; Slide 23 (see above) We have a column titled Design / Build but no slide. Gerry Paul; I apologize as I did not include it in the presentation. It is in the AIS – we rarely use that method, so we didn’t include it in the presentation. Under that principal, you have a lot less control of the design. Emily Francis; for the Aquatic topic, is that just the Southeast Recreation center or aquatics as a whole? Travis Storin; the item is intended to address only the Southeast Recreation center. Emily Francis; I am concerned about specifically focusing on one pool instead of looking at the broader picture when we have a lot of pools to fund. That is a lot of dollars over budget. We need to stop considering it in a vacuum and look at all – overall aquatics. We keep delaying maintenance and now we are at an issue with parks. I think we need to stop kicking the can down the road. We need to start addressing a lot of these issues and stop delaying the projects especially because they are only getting more expensive. While the city has had increased revenue, our costs are going up. We need to look at what do we can trim. Operations and maintenance of these things is an essential service to the city. I think we cannot continue doing this and look at what things do we need to stop doing in order to provide essential services. I am not sure how we measure success in our programs. I know we have our Strategic Plan and some metrics. I am not sure how accurate and helpful those metrics are and whether they actually tell a story of what success for the city is. How we cut things that don’t serve us anymore. Travis Storin; we do rely heavily on our measurements both the ones in the Strategic Plan as well as our Strategic Maps underneath the Strategic Plan with some 400 different measurements. If a given program is not meeting the desired outcome – we ought to consider that program and whether it continues to exist. Historically we have not done a great job with a ‘stop doing ‘list. We need to have an earnest stop doing list In the face of cost pressures. Page 29 of 149 Emily Francis; with over 400 indicators you can link any project to anything – when you look at the picture of what is success – What are the core goals the city is trying to advance and how is our programming achieving that? I think we have a lot of data, but I am not sure how we are using that to advance – we need a stop doing list – things are changing – probably a bigger discussion Kelly Ohlson; we create an evaluation process not only for individual projects (some number per year). We don’t have that many Lemay Vine overpasses type projects. Then micro to that, I would like senior management to evaluate - maybe one design build is working much better than the other, so it is not just what one department likes or is comfortable with. There is so much interesting, good, and well-presented information in this. Could at least the slides be sent to out to the whole Council? Travis Storin; this entire packet goes out in the Thursday Council packet. It may a decent idea, if Kelly DiMartino agrees to call it out in Monday’s Leadership Planning Team minutes and just point people to the slide numbers you are referring to – we could also include them in some of the presentation materials when the budget is delivered to Council. OTHER BUSIESS; Travis Storin; One other business item for your consideration. Last week when we shared the budget preview, one of the slides was Revisions to our Utilities Rate Increases. Those are due to come forward for adoption in November. I wanted to extend the opportunity to the committee if you would like to spend any agenda time on that this fall (October or November timeframe). Emily Francis; they are rather high Travis Storin; yes, all four utilities did go up and most predominately in L&P on the wholesale purchase power Agreement with PRPA. The wet utilities are also going up versus what we previously communicated to you. Kelly Ohlson; yes, Council Finance can ask all of the tough questions. Emily Francis; have the rates changed since our last presentation? Lance Smith; it has changed because of this inflation - much of what is being supported by those rate increases is not ongoing operational costs but it is anticipated capital projects, so this inflation is driving the higher rate increases. Travis Storin; I believe we talked about this in December for what we were projecting in the Long-Term Utility Capital Plan and so we have done a June update to projected increases for 2023-24. That is what I wanted to alert you to Emily Francis; I think it would be helpful to add it over time Meeting Adjourned at 6:15 pm Page 30 of 149 Page 31 of 149 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Seve Ghose, Director, Community Services Area LeAnn Williams, Director, Recreation Department Date: July 25, 2022 SUBJECT FOR DISCUSSION: Aquatics System and Southeast Community Center EXECUTIVE SUMMARY The purpose of this work session is to provide updates since the March 22, 2022 council work session item on the aquatics system, initiated from discussion on potential spending at Mulberry Pool and direction for the Southeast Community and Innovation Center. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff is seeking feedback from Councilmembers on the following options related to the proposed Southeast Community Center and overall aquatics: • OPTION #1: Build the Southeast Community Center with only the core amenities required to meet the ballot language. This configuration would require an outdoor leisure pool and innovation piece and be located at Fossil Creek Park. This option does not require any partnerships. • OPTION #2: Meet the ballot language for the Southeast Community Center and address most significant overall aquatics systems needs with the addition of indoor leisure aquatics and 10 indoor lap lanes. This option requires partnerships with Poudre School District and Poudre River Public Library District to be feasible. • OPTION #3: Meet the ballot language for the Southeast Community Center, address the most significant overall aquatics and recreation systems needs with the addition of indoor leisure aquatics,10 indoor lap lanes, and a full-service community recreation center. This option requires partnerships with Poudre School District and Poudre River Public Library District to be feasible. Staff is also seeking feedback on the direction to continue to pursue a partnership with PSD for the potential use of land adjacent to Fossil Ridge High School. BACKGROUND/DISCUSSION In 2015, voters approved a Community Capital Improvement Program (CCIP) which included adding a Southeast Community Center with outdoor pool. The item outlined the Community Center would be focused on innovation, technology, art, recreation, and the creative process. The center was projected to require $14M of CCIP funding for construction and include a large outdoor leisure pool with water slides, sprays and jets, decks, a lazy river, and open swimming area. Operations and maintenance costs of $230K per year for 5 years was also estimated in the ballot item. This facility will be run and programmed by recreation staff and add to the existing recreation aquatics offerings across the City. The current aquatics system in Fort Collins features four facilities and is geographically concentrated in the Northern region of Fort Collins, with no facilities south of Drake, as illustrated in the following map: Page 32 of 149 Regarding amenities, the existing system includes: Mulberry Pool Senior Center Pool City Park Pool Edora Pool Lap Lanes    Family Aquatics   Therapy pool or programs   Competitive Aquatics Center  50M Lanes Instructional Programs    Indoor Pool    Outdoor Pool  In early 2022, staff worked with a consultant, Counsilman-Hunsaker, to study the existing aquatics system and presented findings at the March 22, 2022 council work session meeting. Key findings included: 1. Need for aquatic amenities in the southeast quadrant of the city 2. Need for additional training (lap) lanes, 6 at current population and 8 based on 2025 projected population 3. Need for additional recreation water 4. Leverage the existing user group relationships to support the additional facilities and amenities 5. Additional investment in Mulberry pool not recommended Based on feedback received during the work session item staff has continued to explore a “fair share” approach to the aquatics system, and options to leverage existing user group relationships to support additional facilities and amenities. Staff has identified potential opportunities to partner with Poudre School District and Poudre River Public Library District, which would enhance the level of amenities that Page 33 of 149 could be provided at the community center and address community needs beyond the base ballot language. Potential pathways to move forward could include: 1. Build the Southeast Community Center with only the core amenities required to meet the ballot language. • This configuration would require an outdoor leisure pool and innovation piece and be located at Fossil Creek Park. • This option does not require any partnerships. • Estimated project budget cost is $13.35M+ • Estimated operation costs are $1M/year with cost recovery from programming of 40% 2. Meet the ballot language for the Southeast Community Center and address most significant overall aquatics systems gaps • This option would add indoor leisure aquatics and 10 indoor lap lanes in addition to meeting the ballot language. • This option requires partnerships with Poudre School District and Poudre River Public Library District to be feasible. • Estimated construction costs are $42.95M+ • Estimated operation costs are $1.7M/year with cost recovery from programming of 47% 3. Meet the ballot language for the Southeast Community Center, address the most significant overall aquatics system gaps, and build a full service recreation facility • This configuration would add indoor leisure aquatics, 8-10 indoor lap lanes, and a full- service community recreation center in addition to the ballot language. • This option requires partnerships with Poudre School District and Poudre River Public Library District to be feasible. • Estimated construction costs are $56.6M+ • Estimated operation costs are $1.7M/year with cost recovery from programming of 77% Exact configurations of amenities could be further refined and configured to target specific needs; however, these options represent the tiers of facility which are under consideration. Additional components for consideration include adjusting the number of gymnasiums, weight and fitness rooms, wet classrooms, preschool rooms, and adding outdoor lap lanes or indoor turf. The City currently owns land at Fossil Creek Park that could be used as a site for the location. A potential partnership with Poudre School District for land and aquatics could expand opportunities for the location of the facility. Partnership with the Poudre River Public Library District would expand ability for the facility to achieve the ballot language focus of innovation, technology, art, recreation, and the creative process. NEXT STEPS Staff will bring an aquatics item to the August 23, 2022 council work session meeting. ATTACHMENTS: 1. PowerPoint Presentation (PDF) Page 34 of 149 Aquatics Update –Southeast Community Recreation and Innovation Center and Aquatics Build-out 08/01/2022 Seve Ghose, Community Services Director LeAnn Williams, Director, Recreation Victoria Shaw, Manager, FP&A Community ServicesPage 35 of 149 Strategic Alignment Culture and Recreation: •2.4. Maintain and enhance the current culture, recreation and parks systems •2.5. Plan, design and implement citywide park, recreation and trail improvements. Actions Identified in Plan: •Provide recreational amenities according to level of service standards •Ensure facilities and programs continue to respond to changing user needs Enhancement Offer: •34.2 Mulberry Pool Enhancement Offer: •43.18 CCIP Fund •43.21 CCIP O&M Strategic Plan Parks & Recreation Master Plan Budget Page 36 of 149 3Direction Sought •What feedback do council finance committee members have on the potential options for amenities at the SE community center? Page 37 of 149 Agenda 4 •Current Aquatic and Recreation Facility Operations •Aquatic Study and Council Work Session Recap •Aquatic Build-out Recommendation •Mulberry Pool •Southeast Facility •Southeast Community Recreation & Innovation Center Page 38 of 149 Overview of Existing Aquatic Facilities 5 Our 10 existing facilities offer a mix of amenities and programming but are concentrated in the northern half of the City. *The senior center is open to only adults 18 and over. potential sites of SE facility Page 39 of 149 Map of Existing Aquatic Facilities 6 Our existing aquatic facilities are concentrated in the northern half of the City and don’t meet the demand of residents for both indoor/outdoor leisure and indoor/outdoor lap lanes. *The senior center pool is open only to adults 18 and over. potential sites of SE facility Page 40 of 149 7Aquatic Study Findings Recap Need for aquatic amenities in the southeast quadrant of the city Need for 6-8 additional training (lap) lanes Need for additional recreation water Opportunity for partnership to meet community need Page 41 of 149 8Feedback from Council work session 3/22/22 Fair Share Approach Leverage the existing user group relationships to support additional facilities and amenities Additional investment in Mulberry pool not suggested Page 42 of 149 9Staff Recommendation Fair Share Approach Leverage the existing user group relationships to support additional facilities and amenities Additional investment in Mulberry pool not suggested Partner with Poudre School District and Poudre River Library District to build Southeast Community Recreation & Innovation Center Pursue partnership with CSU for potential Mulberry replacement Replace Mulberry Pool with indoor training and leisure aquatics Consider future capital tax or when partnership opportunity with CSU presents itself in alignment with City need. Staff Recommendation Feedback from Council Work Session Page 43 of 149 10Aquatic Build-out Staff Recommendation Need for aquatic amenities in the southeast quadrant of the city Need for 6-8 additional training (lap) lanes Need for additional recreation water Opportunity for partnership to meet community need Southeast Community Recreation & Innovation Center (SCRIC) –ensure it has ballot-required outdoor leisure. Add both indoor training lanes and indoor leisure aquatics. Build 10 training lanes at SCRIC Replace Mulberry Pool with new indoor training lanes Build indoor & outdoor leisure/recreation water at SCRIC Replace Mulberry Pool with indoor recreation/leisure aquatics Partner with Poudre School District and Poudre River Library District to build SCRIC. Pursue partnership with CSU for potential Mulberry replacement Aquatic Study Findings Recap Staff Recommendation Page 44 of 149 11Mulberry Pool Current Operations •Operating at limited hours due to staffing shortages with Customer Service Reps/Clerical Aides •BFO Offer to replace current HVAC to keep Mulberry operational for next 5+ years -$500K Staff Recommendations •Move forward with BFO offer to keep Mulberry operational •Consider future capital tax or when partnership opportunity with CSU presents itself in alignment with City need. •~$30-40 Million total cost; carve-out w/in CCIP •Indoor leisure •Indoor lap lanes •Possibly add outdoor lap lanes and leisure – community input needed Page 45 of 149 12Southeast Facility Capital and Operations Capital Funding Options 43.18 CCIP Fund •2023-2024 BFO offer:15 Million Other potential funding •11 Million CCIP Interest + Sales Tax Surplus •Bond/COP Facility Capital Cost $15M -$54M Depends upon scope of facility Operations and Maintenance Funding 2023-2024 BFO offers and beyond Ops Services 2024: 1 FTE Aquatic Tech 2025: ~$550,000 Recreation -43.21 CCIP O&M 2024: $758,170 2025: $1,029,932 Page 46 of 149 General Fund Subsidy/O&M 13 •General Fund Subsidy is very conservative •Revenue projections conservative –based upon fees and rental prices today •Fees and partner cost share will offset O&M to City •Will increase cost recovery •Will reduce general fund subsidy •2024-2028 –CCIP O&M funding will reduce general fund O&M ask by $230,000 each year •Full O&M 2029 and beyond •Current O&M Recreation BFO offer is based upon largest facility (option 6) Page 47 of 149 Land Considerations for Southeast Facility 14 Fossil Creek Park •Identified in 2013 feasibility study •Small footprint for a one-story facility •Parking lot expansion •Could support base project and possibly a larger facility •No opportunity for partners at this site •Land has been identified as ideal for a pickleball complex Land adjacent to Fossil Ridge High School •Identified in 2013 feasibility study as best option •Large acreage •Could support large and/or co-located facilities •Requires partnership with Poudre School District •City staff preferred site •Opportunity to co-locate with Poudre River Library District Page 48 of 149 Option 1: Base Project Base Ballot Defined Project Program and Cost Summary Community Activity/Innovation Center $4,750,000 Base Support Creation Space Multi-activity Gymnasium (half of a MS gym) Outdoor Pool Complex $7,500,000 Outdoor Leisure Pool Poolhouse Site Costs $1,100,000 Total Project Budget $13,350,000 Outdoor Leisure Pool 4,500 sf of water area Poolhouse 2,850 sf Annual Operating Expenses $988,394 Annual Projected Revenue $394,689 Difference (GF Subsidy) ($593,389) Cost Recovery 40% (Direct & Indirect) Base Support 2,230 sf Creation Space 2,660 sf Recreation Space 3,590 sf This option does not address the gaps identified in the aquatics study.Page 49 of 149 Option 2: Base Project + Recreational Gymnasium + Outdoor Pool Complex Program and Cost Summary Recreational Gymnasium Base Support Multi-Activity Gym Activity Center Building $12,530,000 Outdoor Pool Complex $7,500,000 Site Costs $1,370,000 Total Project Budget $21,400,000 Annual Operating Expenses $1,011,643 Annual Projected Revenue $545,829 Difference (GF Subsidy) ($465,814) Cost Recovery 54% (Direct & Indirect) Base Support 2,230 sf 2-court Multi-Activity Gym 16,620 sf Poolhouse 2,850 sf Outdoor Leisure Pool 4,500 sf of water area This option does not address the gaps identified in the aquatics study.Page 50 of 149 Option 3: Indoor Aquatic Center Indoor & Outdoor Aquatic Center Program and Cost Summary Base Building Support $4,500,000 Indoor Aquatic Center Indoor Leisure Pool $13,850,000 Indoor 10-lane 25 yd Lap Pool $15,700,000 Outdoor Aquatic Center $6,100,000 Outdoor Leisure Pool Site Costs $2,800,000 Total Project Budget $42,950,000 Outdoor Leisure Pool 4,500 sf of water area Indoor Leisure Pool 13,500 sf 3,500 sf of water area Indoor Lap Pool 10-lane 25 yard 12,620 sf 4,500 sf of water area Aquatic Support 6,350 sf Aquatic Mech Annual Operating Expenses $1,709,898 Annual Projected Revenue $809,619 Difference (GF Subsidy)($900,279) Cost Recovery 47% (Direct & Indirect)Page 51 of 149 Option 4: Indoor Rec & Aquatic Center Community Activity Center + Aquatics Center Community Recreation Center Outdoor Leisure Pool Indoor Leisure Pool Indoor Lap Pool 10-lane 25 yard Aquatic Support Aquatic Mech Annual Operating Expenses $1,890,011 Annual Projected Revenue $1,453,172 Difference GF Subsidy ($436,839) Cost Recovery 77% (Direct & Indirect) Program and Cost Summary Community Recreation Center $17,550,000 Indoor Aquatic Center Indoor Leisure Pool $13,850,000 Indoor 10-lane 25 yd Lap Pool $15,700,000 Outdoor Aquatic Center $6,500,000 (without poolhouse) Site Costs $3,000,000 Total Project Budget $56,600,000 Indoor Leisure Pool 13,500 sf 3,500 sf of water area Indoor Lap Pool 10-lane 25 yard 12,620 sf 4,500 sf of water area Aquatic Support 4,500 sf Aquatic Mech Page 52 of 149 Option 5: Indoor Rec & Aquatic Center Community Activity Center + Aquatics Center Community Recreation Center Outdoor Leisure Pool Indoor Leisure Pool Indoor Lap Pool 10-lane 25 yard Aquatic Support Aquatic Mech Annual Operating Expenses $1,890,011 Annual Projected Revenue $1,453,172 Difference GF Subsidy ($436,839) Cost Recovery 77% (Direct & Indirect) Program and Cost Summary Community Recreation Center $17,550,000 Indoor Aquatic Center Indoor Leisure Pool $13,850,000 Indoor 10-lane 25 yd Lap Pool $15,700,000 Outdoor Aquatic Center $6,500,000 (without poolhouse) Site Costs (shared with PRLD)$3,000,000 Branch Library (PRLD pays)18,750,000 *Total Project Budget $75,350,000 Indoor Leisure Pool 13,500 sf 3,500 sf of water area Indoor Lap Pool 10-lane 25 yard 12,620 sf 4,500 sf of water area Aquatic Support 4,500 sf Aquatic Mech Branch Library 30,000 sf **Will see some operational savings with Library share*City Cost approximately $55,000,000Page 53 of 149 Options for Council Finance Committee 20 •Ballot Language only • Includes: •Outdoor leisure aquatics • Innovation piece No partnership with PSD or PRLD Would have to be built at Fossil Creek Park •Ballot Language + •Indoor leisure aquatics and 10 lap lanes (PSD partnership) •Library (partner with PRLD) •PSD partnership for land and aquatics •Phase in community recreation center •Ballot Language + •Indoor leisure aquatics and 8-10 lap lanes (PSD partnership) •Library (partner with PRLD) •Community Recreation Center Ballot Language Ballot Language + Partners + Address Aquatic Gaps Ballot Language + Partners + Community Recreation Center Options to consider Page 54 of 149 21Direction Sought •What feedback do council finance committee members have on the potential options for amenities at the SE community center? •What feedback do council finance committee members have on continuing to pursue a potential partnership with PSD and PRLD? Page 55 of 149 Page 56 of 149 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Blaine Dunn, Accounting Director Randy Bailey, Controller Chris Telli, CPA, FORVIS LLP Haley King, CPA, FORVIS LLP Date: August 1, 2021 SUBJECT FOR DISCUSSION Independent Auditors’ Report on 2021 Financial Statements Independent Auditors’ Report on Compliance for Major Federal Programs EXECUTIVE SUMMARY FORVIS will be presenting an overview of the Report to Council. This report covers the audit of the basic financial statements and compliance of the City of Fort Collins for year-end December 31, 2021. NOTE: The Annual Comprehensive Financial Report has been sent to the printer, but the printing has not yet been completed. We will get hard copies distributed as soon as they are available, for those requesting one. A copy of the report can be found online here: https://www.fcgov.com/finance/files/2021_City_of_Fort_Collins_ACFR_GAGAS.pdf GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff seeks input on areas of priority or concern, other than those established in this Report to the City Council, for matters of recordkeeping and/or the City’s internal control environment. Otherwise, there are no specific questions to be answered as this is a 2021 year-end report. BACKGROUND/DISCUSSION In compliance with Government Auditing Standards, the City undergoes an independent external audit on an annual basis. FORVIS finalized its financial statement audit and compliance report on June 29, 2022, and the firm is required to report the results of the audit to those charged with governance. Attachment 2 to this agenda item contains the full report, findings of note are summarized below: Other Findings (Attachment 2, pages 5-6): Other findings/deficiencies identified by the auditors but not rising to the level of a significant deficiency can be found in the Report to the City Council. Staff will provide a written response to the audit findings at a fourth quarter Council Finance Committee meeting. ATTACHMENTS 1. PowerPoint Presentation 2. Report to the City Council 3. Single Audit Compliance Report Page 57 of 149 CITY OF FORT COLLINSPresentation to the Council Finance CommitteeChristopher J. Telli, CPA Anna Thigpen, CPAHaley King, CPAPage 58 of 149 FORVIS TeamChristopher J. Telli, CPA PartnerAnna Thigpen, CPA DirectorHaley King, CPA Senior Associate2Page 59 of 149 •Financial Statement Audit Under GAGAS•Single Audit under Uniform Guidance• Federal Transit Cluster• Coronavirus Relief Fund3ScopePage 60 of 149 Change in format of Opinions• Opinion(s) are now listed first• Expanded description of• Responsibilities of management• Auditor responsibilities with clear statement of auditor’s communication requirements• States requirements for both management and auditor in considering going concernFinancial Statement OpinionIn our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City as of December 31, 2021, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparisons for the General Fund (Consolidated), the Transportation Services Fund, and the Urban Renewal Authority Fund (Consolidated) for the year then ended in accordance with accounting principles generally accepted in the United States of America.4Page 61 of 149 Responsibilities under US Generally Accepted Auditing Standards (GAAS)(Includes Generally Accepted Government Auditing Standards)Auditors are Responsible for (in accordance with GAAS):• Exercise professional judgment and maintain professional skepticism• Identifyand assess risks of material misstatement ofthe financial statements and design and perform furtheraudit procedures responsive to those risks• Obtain an understanding of internal controls in order to design appropriate audit procedures, but not for the purpose of providing an opinion of internal controls• Evaluate appropriateness of accounting policiesused and reasonableness of significant accountingestimates made by management as well as overall presentation in the financial statements• Conclude whether in our judgment, there areconditions or events, considered in theaggregatethat raise substantial doubt about the City’s ability tocontinue as a going concern for 12 months beyond the financial statement date• Communication to those charged with governanceregarding planned scope and timing of theaudit,significant audit findings, and certain internalcontrol-related matters identified during the auditManagement is Responsible for:• Preparation and fair presentation of the financial statements• Design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements• Evaluate whether there are conditions or events, considered in the aggregate that raise substantial doubt about the City’s ability to continue as a going concern for 12 months beyondthe financial statement date5Page 62 of 149 Auditor Responsibilities (in accordance with Uniform Guidance)Responsibilities under Uniform GuidanceExercise professional judgment and maintain professional skepticism throughout the auditExercise professional judgment and maintain professional skepticism throughout the auditIdentify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstancesObtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Uniform GuidanceCommunication with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit6Page 63 of 149 •Adeficiencyin internal control exists when the design or operation of a controldoes not allow management or employees, in the normal course of performingtheir assigned functions, to prevent or detect and correct misstatements on atimely basis.•Asignificant deficiencyis a deficiency, or combination of deficiencies, in internalcontrol that is less severe than a material weakness, yet important enough tomerit attention by those charged with governance.•Amaterial weakness isa deficiency, or a combination of deficiencies, in internalcontrol, such that there is a reasonable possibility that a material misstatementof the City’s financial statements willnot be prevented or detected and correctedon a timely basis.• We observed the following matters that we consider to bedeficiencies.Internal Control Over Financial Reporting7Page 64 of 149 Deficiencies reported in 2021-Proposed Audit Adjustments• Deficiency: Additional year-end accruals and the reversal of an accrual that was inadvertently recorded twice. Net adjustment of $2 million. Management elected to record this entry.• Reclassification of revenue to deferred inflows as receipt was not received within 60 days ofyear-end: $251,000 proposed audit adjustment in the General Fund for which management elected not to record and a $567,000 proposed audit adjustment in the Capital Projects Fund which management elected to record.• Recommendation: We recommend the City create an account structure to facilitate the separateidentification of grants-related accounts. The creation of these accounts should facilitate theidentification of certain items not received within the availability period.• Retainage payable• Deficiency: The retainage payable amount included in the Net Investment in Capital Assets (NICA) calculation was decreasing total NICA when it should have been increasing NICA. Management elected to post an adjustment in the amount for approximately $7.5M.• Recommendation: The City should ensure that all required components are appropriately included in the NICA calculation.Internal Control Over Financial Reporting8• Proposed entries to grants receivable includedPage 65 of 149 Deficiencies reported in 2021-Proposed Audit Adjustments• Capital Assets• Deficiency: During testing of capital asset additions, we identified instances in which items wereerroneously recorded capital asset additions, including:• Water rights erroneouslyrecorded twice for $675,000• Operating expenses under theShuttered VenueOperators Grant(SVOG) were erroneously recorded as construction in process$504,000• Recommendation: Capital asset policies and procedures should be followed toensure that additions are appropriate and represent a capitalizable costInternal Control Over Financial Reporting9Page 66 of 149 Deficiencies reported in 2021• Escrow Account Reconciliations• Deficiency: The City continues to review and reconcile various escrow accounts andwhile some progress was made towards reconciling long-outstanding items, due tostaffing restraints the City was unable to fully reconcile these accounts.• Recommendation: The City should ensure escrow accounts are properly reconciled andadjusted, as necessary, and maintain appropriate documentation of the reconciliationprocess and determinationto adjust escrow accounts.• Purchasing Card Policies• Deficiency: During the 2020 audit we identified certain processes within the purchasingcard policies and procedures were not being completed such as randomaudits.• Recommendation: An evaluation as to theimportance of the random audits and possiblerevision to the purchasing card policies and procedures has not been performed, andtherefore we again recommend a review of purchasing card policies and procedures.Purchasing cards are an area of higher fraud risk and controls should be strengthened tomitigate inherent risks with purchasing cards. Adequate policies and procedures are animportant part of these controls.Internal Control Over Financial Reporting10Page 67 of 149 Deficiencies reported in 2021• Grants Account Structure11Internal Control Over Financial Reporting• Deficiency: The City does not currently utilize an account structure thatallows for separate identification of different classifications of accountsreceivable such as trade accounts receivable and grants receivable, andrelated deferred inflows. This also creates a risk of not being able toproperly identify federal expenditures on the Schedule of Expenditures ofFederal Awards (SEFA)• Recommendation: The City should create an account structure to facilitatethe separate identification of grants-related accounts. The creation of theseaccounts should facilitate the identification of certain items not receivedwithin the availability periodPage 68 of 149 Deficiencies reported in 2021• Information Technology• Deficiency: A periodic review of users with remote access should be completedperiodically and documented to provide management with the opportunity toverify ongoing need, and to remove access for terminated users that were nototherwise caught in the normal terminationprocess. A periodic review has not beenperformed for a number of years.• Recommendation: The City should ensure periodic user access reviews are performed.• Deficiency: There is no formal change management policy for in-house applicationdevelopment.• Recommendation: The City should adopt and document a change managementpolicy to provide a uniform process that aides in preventing unauthorized oruntested changes, updates, or patchesbeing applied to production systems.Internal Control Over Financial Reporting12Page 69 of 149 Internal Control Over Financial ReportingDeficiencies reported in 2021• Single Audit13• Deficiency: During testing of the Coronavirus Relief Fund (CRF), we identified theCity passed funds through to a subrecipient with a different year-end than the City.The subrecipient’s single audit report was not available until after the City’s year-end and had not been reviewed by the City. While no findings were issued to thesubrecipient in their single audit report, the City is responsible for ensuring that entities subject to a single audit have complied with the single audit requirements. In addition, we noted the subrecipient improperly excluded the City’s pass-throughfunds on their SEFA.• Recommendation: The City should ensure their subrecipient monitoringpolicies are sufficient to ensure subrecipient audits with a different FYE than theCity are appropriately and timely reviewed.Page 70 of 149 Questions?Page 71 of 149 Thank you!Christopher J. Telli, CPA//Partner // chris.telli@FORVIS.com//303.861.4545 Anna Thigpen, CPA//Director // anna.thigpen@FORVIS.com//303.861.4545 Haley King, CPA//Senior Associate // haley.king@FORIVS.com // 303.861.4545Page 72 of 149 Honorable Mayor and Members of City Council and City Manager City of Fort Collins, Colorado Fort Collins, Colorado As part of our audits of the financial statements and compliance of the City of Fort Collins, Colorado (the City) as of and for the year ended December 31, 2021, we wish to communicate the following to you. AUDIT SCOPE AND RESULTS Auditor’s Responsibility Under Auditing Standards Generally Accepted in the United States of America and the Standards Applicable to Financial Audits Contained in Government Auditing Standards Issued by the Comptroller General of the United States and U.S. Office of Management and Budget (OMB) Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) An audit performed in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States and U.S. Office of Management and Budget (OMB) Uniform Guidance is designed to obtain reasonable, rather than absolute, assurance about the financial statements and about whether noncompliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on a major federal program occurred. In performing auditing procedures, we establish scopes of audit tests in relation to the financial statements taken as a whole. Our engagement does not include a detailed audit of every transaction. Our contract more specifically describes our responsibilities. These standards require communication of significant matters related to the financial statement and compliance audits that are relevant to the responsibilities of those charged with governance in overseeing the financial reporting process. Such matters are communicated in the remainder of this letter or have previously been communicated during other phases of the audit. The standards do not require the auditor to design procedures for the purpose of identifying other matters to be communicated with those charged with governance. Audits of the financial statements and compliance do not relieve management or those charged with governance of their responsibilities. Our contract more specifically describes your responsibilities. Qualitative Aspects of Significant Accounting Policies and Practices Significant Accounting Policies The City’s significant accounting policies are described in Note 1 of the audited financial statements. Page 73 of 149 City of Fort Collins, Colorado July 25, 2022 Page 2 Alternative Accounting Treatments We had discussions with management regarding alternative accounting treatments within accounting principles generally accepted in the United States of America for policies and practices for material items, including recognition, measurement, and disclosure considerations related to the accounting for specific transactions as well as general accounting policies, as follows:  Modified approach for infrastructure – City streets Management Judgments and Accounting Estimates Accounting estimates are an integral part of financial statement preparation by management, based on its judgments. The following areas involve significant estimates for which we are prepared to discuss management’s estimation process and our procedures for testing the reasonableness of those estimates:  Self-insurance reserves (IBNR)  Net pension liability  Fair value of investments  Allowances for accounts, grants and notes receivable  Depreciable lives of capital assets Significant Unusual Transactions  No matters are reportable Financial Statement Disclosures The following areas involve particularly sensitive financial statement disclosures for which we are prepared to discuss the issues involved and related judgments made in formulating those disclosures:  Revenue recognition  Investments  Long-term debt Audit Adjustments During the course of any audit, an auditor may propose adjustments to financial statement amounts. Management evaluates our proposals and records those adjustments which, in its judgment, are required to prevent the financial statements from being materially misstated. A misstatement is a difference between the amount, classification, presentation, or disclosure of a reported financial statement item and that which is required for the item to be presented fairly in accordance with the applicable financial reporting framework. Some adjustments proposed were not recorded because their aggregate effect is not currently material; however, they involve areas in which adjustments in the future could be material, individually or in the aggregate. Areas in which adjustments were proposed include:  Grants receivable entries totaling approximately $3.5 million to adjust for the following:  Additional year-end accruals  Reversal of an accrual recorded in error twice  Reclassification of revenue to deferred inflows as receipt was not received within 60 days of year-end Page 74 of 149 City of Fort Collins, Colorado July 25, 2022 Page 3  Adjustment to retainage payable amounts within the Net Investment in Capital Assets calculation to properly reflect the retainage payable liability Proposed Audit Adjustments Not Recorded  Attached is a summary of uncorrected misstatements we aggregated during the current engagement and pertaining to the latest period presented that were determined by management to be immaterial, both individually and in the aggregate, but more than trivial to the financial statements as a whole  We would like to call your attention to the fact that although these uncorrected misstatements, individually and in the aggregate, were deemed to be immaterial to the current year financial statements, it is possible that the impact these uncorrected misstatements, or matters underlying these uncorrected misstatements, could potentially cause future-period financial statements to be materially misstated Auditor’s Judgments About the Quality of the City’s Accounting Principles During the course of the audit, we made the following observations regarding the City’s application of accounting principles:  No matters are reportable Disagreements with Management The following matters involved disagreements which if not satisfactorily resolved would have caused a modified auditor’s opinion on the financial statements:  No matters are reportable Consultation with Other Accountants During our audit, we became aware that management had consulted with other accountants about the following auditing or accounting matters:  No matters are reportable Significant Issues Discussed with Management Prior to Retention During our discussion with management prior to our engagement, the following issues regarding application of accounting principles or auditing standards were discussed:  No matters are reportable During the Audit Process During the audit process, the following issues were discussed or were the subject of correspondence with management:  No matters are reportable Page 75 of 149 City of Fort Collins, Colorado July 25, 2022 Page 4 Difficulties Encountered in Performing the Audit Our audit requires cooperative effort between management and the audit team. During our audit, we found significant difficulties in working effectively on the following matters:  No matters are reportable Other Material Communications Listed below are other material communications between management and us related to the audit:  Management representation letter (attached)  We orally communicated to management other deficiencies in internal control identified during our audit that are not considered material weaknesses or significant deficiencies INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit of the financial statements of the City of Fort Collins, Colorado (the City) as of and for the year ended December 31, 2021 in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, we considered the City’s internal control over financial reporting (internal control) as a basis for designing our audit procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. A deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that material misstatements of the City’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We observed the following matters that we consider to be deficiencies. Deficiencies We observed other matters that we consider to be deficiencies that we communicated to management orally. Page 76 of 149 City of Fort Collins, Colorado July 25, 2022 Page 5 Grants Receivable and Grants Account Structure During grants receivable testing, we identified instances in which receipts were received later than the availability period of 60 days and were not reclassified from revenue to deferred inflows. In addition, the City does not currently utilize an account structure that allows for separate identification of different classifications of accounts receivable such as trade accounts receivable and grants receivable, and related deferred inflows. This also creates a risk of not being able to properly identify federal expenditures on the Schedule of Expenditures of Federal Awards (SEFA). An audit adjustment of approximately $2 million was identified during our testing of the SEFA. We recommend the City create an account structure to facilitate the separate identification of grants-related accounts. The creation of these accounts should facilitate the identification of certain items not received within the availability period. Capital Assets During testing of capital asset additions, we identified numerous errors of items erroneously recorded as capital asset additions, including:  Water rights were erroneously recorded twice  Operating expenses under the Shuttered Venue Operators Grant were erroneously recorded as construction in process We recommend capital asset policies and procedures be followed to ensure that additions are appropriate and represent a capitalizable cost. Escrow Account Reconciliations The City continues to review and reconcile various escrow accounts and while some progress was made towards reconciling long-outstanding items, due to staffing restraints the City was unable to fully reconcile these accounts. The City should ensure escrow accounts are properly reconciled and adjusted, as necessary, and maintain appropriate documentation of the reconciliation process and determination to adjust escrow accounts. Purchasing Card Policies During the 2020 audit we identified certain processes within the purchasing card policies and procedures were not being completed such as random audits. An evaluation as to the importance of the random audits and possible revision to the purchasing card policies and procedures has not been performed, and therefore we again recommend a review of purchasing card policies and procedures. Purchasing cards are an area of higher fraud risk and controls should be strengthened to mitigate inherent risks with purchasing cards. Adequate policies and procedures are an important part of these controls. Information Technology A periodic review of users with remote access should be completed periodically and documented to provide management with the opportunity to verify ongoing need, and to remove access for terminated users that were not otherwise caught in the normal termination process. A periodic review has not been performed for a number of years. There is no formal change management policy for in-house application development. The City should adopt and document a change management policy to provide a uniform process that aides in preventing unauthorized or untested changes, updates, or patches being applied to production systems. Page 77 of 149 City of Fort Collins, Colorado July 25, 2022 Page 6 INTERNAL CONTROL OVER COMPLIANCE In planning and performing our audit, we considered the City’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected and corrected on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We observed the following matter that we consider to be a deficiency. Deficiency During testing of the Coronavirus Relief Fund, we identified the City passed funds through to a subrecipient with a different year-end than the City. The subrecipient’s single audit report was not available until after the City’s year-end and had not been reviewed by the City. While no findings were issued to the subrecipient in their single audit report, the City is responsible for ensuring that entities subject to a single audit have complied with the single audit requirements. In addition, we noted the subrecipient improperly excluded the City’s pass-through funds on their Schedule of Expenditures of Federal Awards (SEFA). The City should ensure their subrecipient monitoring policies are sufficient to ensure subrecipient audits with a different fiscal year-end than the City are appropriately and timely reviewed. We observed matters that we consider to be deficiencies that we communicated to management orally. OTHER MATTERS Although not considered material weaknesses, significant deficiencies, or deficiencies in internal control over financial reporting, we observed the following matters and offer these comments and suggestions with respect to matters which came to our attention during the course of the audit of the financial statements. Our audit procedures are designed primarily to enable us to form an opinion on the financial statements and, therefore, may not bring to light all weaknesses in policies and procedures that may exist. However, these matters are offered as constructive suggestions for the consideration of management as part of the ongoing process of modifying and improving financial and administrative practices and procedures. We Page 78 of 149 City of Fort Collins, Colorado July 25, 2022 Page 7 can discuss these matters further at your convenience and may provide implementation assistance for changes or improvements. Future Accounting Pronouncements GASB Statement No. 87, Leases (GASB 87) In response to the challenges arising from COVID-19, on May 7, 2020 GASB approved Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance. All statements and implementation guides with a current effective date of reporting periods beginning after June 15, 2018, and later have a one-year postponement. This change was effective immediately. Early application was still encouraged. GASB Statement 87, Leases is effective for the City for the year ending December 31, 2022. GASB Statement No. 96, Subscription-Based Information Technology Arrangements This Statement addresses the accounting for the costs related to cloud computing agreements. The standard defines a subscription-based information technology arrangements (SBITA), establishes that a SBITA would result in a right-to-use (RTU) asset and a corresponding liability, provides capitalization criteria, and requires new note disclosures. The statement’s language and concepts closely mirror the lease guidance provided in Statement 87, Leases. GASB Statement 96, Subscription-Based Information Technology Arrangements is effective for the Authority for the year ending December 31, 2023. Early application is encouraged. * * * * * This communication is intended solely for the information and use of management, City Council, others within the City, and is not intended to be and should not be used by anyone other than these specified parties. July 25, 2022 Page 79 of 149 Before Subsequent to Misstatements Misstatements Misstatements % Change Total Assets & Deferred Outflows 1,338,164,536 (503,915) 1,337,660,621 -0.04% Total Liabilities & Deferred Inflows (146,972,186)(146,972,186) Total Net Position (1,191,756,798)503,915 (1,191,252,883)-0.04% General Revenues & Transfers (239,196,275)(239,196,275) Net Program Revenues/ Expenses 189,293,481 70,265 189,363,746 0.04% Change in Net Position (49,902,794)70,265 (49,832,529)-0.14% City of Fort Collins ATTACHMENT This analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflect the effects on the financial statements if the uncorrected misstatements identified were corrected. Governmental Activities (Government-Wide Statements) QUANTITATIVE ANALYSIS DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 80 of 149 Governmental Activities (Government-Wide Statements)SCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED)Assets LiabilitiesGeneral Revenues & TransfersNet Program Revenues/ Expenses Net PositionChange in Net PositionNet PositionDescription Financial Statement Line ItemDR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)To post turnaround effect adjusting depreciation expense being understated in FY20 to reflect 2015 busses added to capital assets in FY21 that were in CIP prior.F0 0 0 (433,650) 433,650 0 0 Change in Net Position(433,650)Net Position433,650To remove governmental capital assets additions incorrectly added in 2021 related to SVOG.F(503,915) 0 0 503,915 0 (503,915) 503,915 Expense0 503,915 503,915 Capital assets(503,915)(503,915)Total passed adjustments(503,915)0070,265433,650(503,915)503,915Impact on Change in Net Position70,265Impact on Net Position503,915Client: City of Fort CollinsPeriod Ending: December 31, 2021Net Effect on Following YearFactual (F), Judgmental (J) or Projected (P)DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0FPage 81 of 149 Before Subsequent to Misstatements Misstatements Misstatements % Change Total Assets 1,103,904,686 1,103,904,686 Non-Current Assets & Deferred Outflows 852,239,223 (675,000) 851,564,223 -0.08% Current Liabilities (36,111,908)(36,111,908) Non-Current Liabilities & Deferred Inflows (166,974,290)(166,974,290) Current Ratio 30.57 30.57 Total Assets & Deferred Outflows 1,104,751,834 (675,000) 1,104,076,834 -0.06% Total Liabilities & Deferred Inflows (203,086,198)(203,086,198) Total Net Position (901,665,636)675,000 (900,990,636)-0.07% General Revenues & Transfers 2,134,330 2,134,330 Net Program Revenues/ Expenses (16,357,815)675,000 (15,682,815)-4.13% Change in Net Position (14,223,485)675,000 (13,548,485)-4.75% City of Fort Collins ATTACHMENT This analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflect the effects on the financial statements if the uncorrected misstatements identified were corrected. Business Type Activities (Government-Wide Statements) QUANTITATIVE ANALYSIS DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 82 of 149 Governmental Activities (Government-Wide Statements)SCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED)Current Noncurrent Current NoncurrentGeneral Revenues & TransfersNet Program Revenues/ Expenses Net PositionChange in Net PositionNet PositionDescription Financial Statement Line ItemDR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)To adjust for water rights which were recorded twice.F0 (675,000) 0 0 0 675,000 0 (675,000) 675,000 Expenses0 675,000 0 675,000 Capital assets (nondepreciable)(675,000)(675,000)Total passed adjustments0(675,000)000675,0000(675,000)675,000Impact on Change in Net Position675,000Impact on Net Position675,000Factual (F), Judgmental (J) or Projected (P)Client: City of Fort CollinsPeriod Ending: December 31, 2021Assets & Deferred OutflowsLiabilities & Deferred InflowsNet Effect on Following YearDocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0FPage 83 of 149 Before Subsequent to Misstatements Misstatements Misstatements % Change Total Assets & Deferred Outflows 134,521,812 134,521,812 Total Liabilities & Deferred Inflows (47,254,299) (251,023) (47,505,322)0.53% Total Fund Balance (87,267,513)251,023 (87,016,490)-0.29% Revenues (203,095,335)251,023 (202,844,312)-0.12% Expenditures 148,470,182 148,470,182 Change in Fund Balance (23,834,536)251,023 (23,583,513)-1.05% City of Fort Collins ATTACHMENT This analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflect the effects on the financial statements if the uncorrected misstatements identified were corrected. General Fund QUANTITATIVE ANALYSIS DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 84 of 149 General FundSCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED)Assets & Deferred OutflowsLiabilities & Deferred InflowsChange in Fund BalanceFundBalanceDescriptionFinancial Statement Line ItemDR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)Passed adjustment to reflect revenue accrual which was not received within the 60 day available policy.F0 (251,023) 251,023 0 0 (251,023) 251,023 Intergovernmental revenue251,023 (251,023) 251,023 Deferred inflow(251,023)Total passed adjustments0 (251,023) 251,023 0 0 (251,023) 251,023Impact on Change in Fund Balance251,023Impact on Fund Balance 251,023Client: City of Fort CollinsPeriod Ending: December 31, 2021RevenuesExpendituresFund BalanceNet Effect on Following YearFactual (F), Judgmental (J) or Projected (P)DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0FPage 85 of 149 BeforeSubsequent toMisstatements Misstatements Misstatements % ChangeCurrent Assets96,231,60996,231,609Non-Current Assets & Deferred Outflows 261,546,395(845,169) 260,701,226-0.32%Current Liabilities (11,916,270)(11,916,270)Non-Current Liabilities & Deferred Inflows(1,992,176)(1,992,176)Current Ratio8.0768.076Total Assets & Deferred Outflows 357,778,004(845,169) 356,932,835-0.24%Total Liabilities & Deferred Inflows (13,908,446)(13,908,446)Total Net Position (343,869,558)845,169 (343,024,389)-0.25%Operating Revenues (33,960,674)845,169 (33,115,505)-2.49%Operating Expenses33,831,67233,831,672Nonoperating (Revenues) Exp214,921214,921Change in Net Position(4,935,199)845,169 (4,090,030)-17.13%City of Fort CollinsATTACHMENTThis analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflect the effects on the financial statements if the uncorrected misstatements identified were corrected.WaterQUANTITATIVE ANALYSISDocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0FPage 86 of 149 WaterSCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED)CurrentNoncurrentCurrentNoncurrentOperating RevenuesOperating ExpensesNonoperating (Revenues) ExpNet PositionChange in Net PositionNet PositionDescriptionFinancial Statement Line ItemDR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)DR (CR)To adjust for water rights which were recorded twice.F` (675,000) 0 0 675,000000(675,000)675,000 Operating expense675,000 (675,000) 675,000 Land, water rights, other(675,000)Extrapolated error related to water rights recorded twiceP0 (170,169) 0 0 170,169000 0 0 Operating expense170,169Land, water rights, other(170,169)Total passed adjustments0 (845,169) 0 0 845,169000(675,000) 675,000Impact on Change in Net Position845,169Impact on Net Position845,169Client: City of Fort CollinsPeriod Ending: December 31, 2021Assets & Deferred OutflowsLiabilities & Deferred InflowsNet Effect on Following YearFactual (F), Judgmental (J) or Projected (P)DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0FPage 87 of 149 Representation of: City of Fort Collins 215 North Mason Street, 2nd Floor P.O. Box 580 Fort Collins, Colorado 80522 Provided to: FORVIS, LLP Certified Public Accountants 1801 California Street, Suite 2900 Denver, Colorado 80202 The undersigned (“We”) are providing this letter in connection with FORVIS’ audit(s) of our financial statements as of and for the year ended December 31, 2021 and your audit of our compliance with requirements applicable to each of our major federal awards programs as of and for the year ended December 31, 2021. Our representations are current and effective as of the date of FORVIS’ report June 29, 2022 except for items 26 b through u as to which the date is July 25, 2022. Our engagement with FORVIS is based on our contract for services dated: November 30, 2021. Our Responsibility and Consideration of Material Matters We confirm that we are responsible for the fair presentation of the financial statements subject to FORVIS’ report in conformity with accounting principles generally accepted in the United States of America. We are also responsible for adopting sound accounting policies; establishing and maintaining effective internal control over financial reporting, operations, and compliance; and preventing and detecting fraud. Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. An omission or misstatement that is monetarily small in amount could be considered material as a result of qualitative factors. Confirmation of Matters Specific to the Subject Matter of FORVIS’ Report We confirm, to the best of our knowledge and belief, the following: 1. We have fulfilled our responsibilities, as set out in the terms of our contract, for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America. 2. We acknowledge our responsibility for the design, implementation, and maintenance of: a. Internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. b. Internal control to prevent and detect fraud. DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 88 of 149 City of Fort Collins Page 2 3. We have everything we need to keep our books and records. 4. We have provided you with: a. Access to all information of which we are aware that is relevant to the preparation and fair presentation of the financial statements, such as records, documentation, and other matters. b. Additional information that you have requested from us for the purpose of the audit. c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence. d. All minutes of meetings of the governing body held through the date of this letter or summaries of actions of recent meetings for which minutes have not yet been prepared. All unsigned copies of minutes provided to you are copies of our original minutes approved by the governing body, if applicable, and maintained as part of our records. e. All significant contracts and grants. 5. All transactions have been recorded in the accounting records and are reflected in the financial statements. 6. We have informed you of all current risks of a material amount that are not adequately prevented or detected by our procedures with respect to: a. Misappropriation of assets. b. Misrepresented or misstated assets, deferred outflows of resources, liabilities, deferred inflows of resources, or net position. 7. We believe the effects of the uncorrected financial statement misstatements summarized in the attached schedule are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 8. We have no knowledge of any known or suspected fraudulent financial reporting or misappropriation of assets involving: a. Management or employees who have significant roles in internal control, or b. Others, where activities of others could have a material effect on the financial statements. 9. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in communications from employees, customers, regulators, suppliers, or others. 10. We have assessed the risk that the financial statements may be materially misstated as a result of fraud and disclosed to you any such risk identified. 11. We have disclosed to you the identity of all of the entity’s related parties and all the related-party relationships of which we are aware. The entity has not entered into any new agreements with a related party or modified terms related to an existing related-party transaction during the year under audit, or as of the date of this letter. Further, we do not have any existing or ongoing agreements with related parties that are still in effect as of the date of this letter. We understand that the term related party refers to an affiliate, management and members of their immediate families, component units, and any other party with which the entity may deal if the entity DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 89 of 149 City of Fort Collins Page 3 can significantly influence, or be influenced by, the management or operating policies of the other. The term affiliate refers to a party that directly or indirectly controls, or is controlled by, or is under common control with, the entity. 12. We are not aware of any side agreements or other arrangements (either written or oral) that are in place. 13. Except as reflected in the financial statements, there are no: a. Plans or intentions that may materially affect carrying values or classifications of assets and liabilities. b. Material transactions omitted or improperly recorded in the financial records. c. Material gain/loss contingencies requiring accrual or disclosure, including those arising from environmental remediation obligations. d. Events occurring subsequent to the statement of net position date through the date of this letter requiring adjustment or disclosure in the financial statements. e. Agreements to purchase assets previously sold. f. Restrictions on cash balances or compensating balance agreements. g. Guarantees, whether written or oral, under which the entity is contingently liable. 14. We have disclosed to you all known instances of noncompliance or suspected noncompliance with laws and regulations whose effects should be considered when preparing financial statements. 15. We have no reason to believe the entity owes any penalties or payments under the Employer Shared Responsibility Provisions of the Patient Protection and Affordable Care Act nor have we received any correspondence from the IRS or other agencies indicating such payments may be due. 16. We have disclosed to you all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements. The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with accounting principles generally accepted in the United States of America. 17. Adequate provisions and allowances have been accrued for any material losses from: a. Uncollectible receivables. b. Reducing obsolete or excess inventories to estimated net realizable value. c. Sales commitments, including those unable to be fulfilled. d. Purchase commitments in excess of normal requirements or above prevailing market prices. 18. Except as disclosed in the financial statements, the entity has: a. Satisfactory title to all recorded assets, and they are not subject to any liens, pledges, or other encumbrances. DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 90 of 149 City of Fort Collins Page 4 b. Complied with all aspects of contractual and grant agreements, for which noncompliance would materially affect the financial statements. 19. The financial statements disclose all significant estimates and material concentrations known to us. Significant estimates are estimates at the statement of net position date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets for which events could occur that would significantly disrupt normal finances within the next year. Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable. 20. The fair values of financial and nonfinancial assets and liabilities, if any, recognized in the financial statements or disclosed in the notes thereto are reasonable estimates based on the methods and assumptions used. The methods and significant assumptions used result in measurements of fair value appropriate for financial statement recognition and disclosure purposes and have been applied consistently from period to period, taking into account any changes in circumstances. The significant assumptions appropriately reflect market participant assumptions. 21. Except as has been previously disclosed to FORVIS, we have not been designated as a potentially responsible party (PRP or equivalent status) by the Environmental Protection Agency (EPA) or other cognizant regulatory agency with authority to enforce environmental laws and regulations. 22. With respect to any nonattest services you have provided us during the year, including the drafting of the schedule of expenditures of federal awards and the auditee portion of the Form SF-SAC (Data Collection Form) through the Federal Audit Clearinghouse: a. We have designated a qualified management-level individual to be responsible and accountable for overseeing the nonattest services. b. We have established and monitored the performance of the nonattest services to ensure they meet our objectives. c. We have made any and all decisions involving management functions with respect to the nonattest services and accept full responsibility for such decisions. d. We have evaluated the adequacy of the services performed and any findings that resulted. e. We have received the deliverables from you and have stored these deliverables in information systems controlled by us. We have taken responsibility for maintaining internal control over these deliverables. 23. We have notified you of any instances of noncompliance with applicable disclosure requirements of the SEC Rule 15c2-12 and applicable state laws. 24. With regard to deposit and investment activities: a. All deposit, repurchase and reverse repurchase agreements, and investment transactions have been made in accordance with legal and contractual requirements. b. Disclosures of deposit and investment balances and risks in the financial statements are consistent with our understanding of the applicable laws regarding enforceability of any pledges of collateral. c. We understand that your audit does not represent an opinion regarding the enforceability of any collateral pledges. DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 91 of 149 City of Fort Collins Page 5 25. As an entity subject to Government Auditing Standards: a. We acknowledge that we are responsible for compliance with applicable laws, regulations, and provisions of contracts and grant agreements. b. We have identified and disclosed to you all laws, regulations, and provisions of contracts and grant agreements that have a direct and material effect on the determination of amounts in our financial statements or other financial data significant to the audit objectives. c. We have identified and disclosed to you any violations or possible violations of laws, regulations, and provisions of contracts and grant agreements whose effects should be considered for recognition and/or disclosure in the financial statements or for your reporting on noncompliance. d. We have taken or will take timely and appropriate steps to remedy any fraud, abuse, illegal acts, or violations of provisions of contracts or grant agreements that you or other auditors report. e. We have a process to track the status of audit findings and recommendations. f. We have identified to you any previous financial audits, attestation engagements, performance audits, or other studies related to the objectives of your audit and the corrective actions taken to address any significant findings and recommendations made in such audits, attestation engagements, or other studies. g. We have provided our views on any findings, conclusions, and recommendations, as well as our planned corrective actions with respect thereto, to you for inclusion in the findings and recommendations referred to in your report on internal control over financial reporting and on compliance and other matters based on your audit of the financial statements performed in accordance with Government Auditing Standards. 26. With regard to federal awards programs: a. We have identified in the schedule of expenditures of federal awards all assistance provided (either directly or passed through other entities) by federal agencies in the form of grants, contracts, loans, loan guarantees, property, cooperative agreements, interest subsidies, commodities, insurance, direct appropriations, or in any other form. b. We have disclosed to you all contracts or other agreements with service organizations, and we have disclosed to you all communications from the service organizations relating to noncompliance at the service organizations. c. We have identified the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Compliance Supplement regarding activities allowed or unallowed; allowable costs/cost principles; cash management; eligibility; equipment and real property management; matching, level of effort, earmarking; period of performance of federal funds; procurement and suspension and debarment; program income; reporting; subrecipient monitoring; and special tests and provisions that are applicable to each of our federal awards programs. We have identified to you our interpretation of any applicable compliance requirements subject to varying interpretations. d. We are responsible for complying, and have complied, with the requirements of Uniform Guidance. DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 92 of 149 City of Fort Collins Page 6 e. We are responsible to understand and comply with the requirements of federal statutes, regulations, and the terms and conditions of federal awards related to each of our federal awards programs and have disclosed to you any and all instances of noncompliance with those requirements occurring during the period of your audit or subsequent thereto to the date of this letter of which we are aware. Except for any instances of noncompliance we have disclosed to you, we believe the entity has complied with all applicable compliance requirements. f. We are responsible for the design, implementation, and maintenance of internal controls over compliance that provide reasonable assurance we have administered each of our federal awards programs in compliance with federal statutes, regulations, and the terms and conditions of the federal awards. g. We have made available to you all federal awards (including amendments, if any) and any other correspondence or documentation relevant to each of our federal awards programs and to our compliance with applicable requirements of those programs. h. The information presented in federal awards program financial reports and claims for advances and reimbursements is supported by the books and records from which our financial statements have been prepared. i. The costs charged to federal awards are in accordance with applicable cost principles. j. The reports provided to you related to federal awards programs are true copies of reports submitted or electronically transmitted to the federal awarding agency, the applicable payment system or pass-through entity in the case of a subrecipient. k. Amounts claimed or used for matching were determined in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) regarding cost principles. l. We have monitored any subrecipients to determine that they have expended federal awards in accordance with federal statutes, regulations, and the terms and conditions of the subaward and have met the audit and other requirements of the Uniform Guidance. m. We have taken appropriate corrective action on a timely basis after receipt of any subrecipient’s auditor’s report that identified findings and questioned costs pertaining to federal awards programs passed through to the subrecipient by us. n. We have considered the results of any subrecipient’s audits received and made any necessary adjustments to our books and records. o. We have disclosed to you any communications from federal awarding agencies and pass- through entities concerning possible noncompliance with the applicable compliance requirements for each of our federal awards programs, including any communications received from the end of the period of your audit through the date of this letter. p. We have identified to you any previous compliance audits, attestation engagements, and internal or external monitoring related to the objectives of your compliance audit, including findings received and corrective actions taken to address any significant findings and recommendations made in such audits, attestation engagements, or other monitoring. q. Except as described in the schedule of findings and questioned costs, we are in agreement with the findings contained therein and our views regarding any disagreements with such DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 93 of 149 City of Fort Collins Page 7 findings are consistent, as of the date of this letter, with the description thereof in that schedule. r. We are responsible for taking corrective action on any audit findings and have developed a corrective action plan that meets the requirements of Uniform Guidance. s. The summary schedule of prior audit findings correctly states the status of all audit findings of the prior audit’s schedule of findings and questioned costs and any uncorrected open findings included in the prior audit’s summary schedule of prior audit findings as of the date of this letter. t. The reporting package does not contain any protected personally identifiable information. u. No changes have been made in internal control over compliance or other factors that might significantly affect internal control, including any corrective action we have taken regarding significant deficiencies or material weaknesses in internal control over compliance subsequent to the period covered by the auditor’s report. 27. The supplementary information required by the Governmental Accounting Standards Board, consisting of management’s discussion and analysis, modified approach to infrastructure, and pension and other postemployment benefits information, has been prepared and is measured and presented in conformity with the applicable GASB pronouncements, and we acknowledge our responsibility for the information. The information contained therein is based on all facts, decisions, and conditions currently known to us and is measured using the same methods and assumptions as were used in the preparation of the financial statements. We believe the significant assumptions underlying the measurement and/or presentation of the information are reasonable and appropriate. There has been no change from the preceding period in the methods of measurement and presentation. 28. With regard to supplementary information: a. We acknowledge our responsibility for the presentation of the supplementary information in accordance with the applicable criteria. b. We believe the supplementary information is fairly presented, both in form and content, in accordance with the applicable criteria. c. The methods of measurement and presentation of the supplementary information are unchanged from those used in the prior period. d. We believe the significant assumptions or interpretations underlying the measurement and/or presentation of the supplementary information are reasonable and appropriate. e. If the supplementary information is not presented with the audited financial statements, we acknowledge we will make the audited financial statements readily available to intended users of the supplementary information no later than the date such information and the related auditor’s report are issued. 29. With regard to other information that is presented in the form of our annual comprehensive financial report: a. We confirm that the Annual Comprehensive Financial Report comprises the annual report for the entity. b. We have provided you with the final draft of the annual report. DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 94 of 149 City of Fort Collins Page 8 c. Due care has been exercised in the preparation of the introduction and statistical sections of the City’s Annual Comprehensive Financial Report and we are not aware of any information contained in those sections of the Annual Comprehensive Financial Report that is inconsistent with information contained in the financial statements and notes thereto. 30. We assert that remediation related to the Bobcat Ridge Natural Area Disposal Site was completed prior to December 31, 2021. Furthermore, the Colorado Department of Public Health and Environment has accepted the City’s request for No Further Action, dated March 22, 2022. 31. The City has complied with all debt covenants. 32. We believe we are in compliance with the requirements of the Taxpayers Bill of Rights (TABOR). 33. We agree with the findings of specialists in evaluating the accuracy of actuarial valuations and have adequately considered the qualification of the specialists in determining the amounts and disclosures used in the financial statements and underlying accounting records. We did not give or cause any instructions to be given to the specialists with respect to the values or amounts derived in an attempt to bias their work, and we are not otherwise aware of any matters that have had impact on the independence or objectivity of the specialists. 34. We acknowledge the current economic volatility presents difficult circumstances and challenges for our industry. Entities are potentially facing declines in the fair values of investments and other assets, declines in the volume of business, constraints on liquidity, difficulty obtaining financing, etc. We understand the values of the assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments to asset values, allowances for accounts and notes receivable, net realizable value of inventory, etc., that could negatively impact the entity’s ability to meet debt covenants or maintain sufficient liquidity. We acknowledge that you have no responsibility for future changes caused by the current economic environment and the resulting impact on the entity’s financial statements. Further, management and governance are solely responsible for all aspects of managing the entity, including questioning the quality and valuation of investments, inventory, and other assets; reviewing allowances for uncollectible amounts; evaluating capital needs and liquidity plans; etc. Kelly DiMartino, City Manager kdimartino@fcgov.com Travis Storin, Chief Financial Officer tstorin@fcgov.com Blaine Dunn, Accounting Director bdunn@fcgov.com DocuSign Envelope ID: 861B570B-9D98-4D3F-8D28-96479A57FA0F Page 95 of 149 City of Fort Collins Single Audit Report Year Ended December 31, 2021 Page 96 of 149 City of Fort Collins December 31, 2021 Contents Schedule of Expenditures of Federal Awards ..................................................................... 1 Notes to Schedule of Expenditures of Federal Awards ...................................................... 4 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards – Independent Auditor’s Report ................................ 5 Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance – Independent Auditor’s Report ........................................................................................... 7 Schedule of Findings and Questioned Costs .................................................................... 11 Status of Prior Audit Findings ............................................................................................ 15 Page 97 of 149 City of Fort Collins Schedule of Expenditures of Federal Awards Year Ended December 31, 2021 1 Department of Housing and Urban DevelopmentCDBG Entitlements Grants ClusterCommunity Development Block Grants/Entitlement GrantsGrant Year 2017 / 2018Direct N/AB-17-MC-08-0008 14.2185,000$ 5,000$ Grant Year 2019 / 2020Direct N/A B-19-MC-08-0008 14.218 816,282 816,282 Grant Year 2020 / 2021Direct N/A B-20-MC-08-0008 14.218 455,324 619,677 Grant Year 2021 / 2022Direct N/A B-21-MC-08-0008 14.218 60,718 98,856 COVID-19 Community Development Block Grant Direct N/A B-20-MW-08-0008 14.218 599,223 599,223 Total CDBG Entitlement Grants Cluster1,936,547 2,139,038 Home Investment Partnerships ProgramGrant Year 2017 / 2018Direct N/A M-17-MC 08-0209 14.239 10,000 10,000 Grant Year 2018 / 2019Direct N/A M-18-MC 08-0209 14.239 114,819 114,819 Grant Year 2019 / 2020 Direct N/A M-19-MC 08-0209 14.239 642,205 642,205 Grant year 2020 / 2021Direct N/A M-20-MC 08-0209 14.239 96,711 144,422 Grant year 2021 / 2022M-21-MC-08-0209 14.239 - 28,745 Subtotal863,735 940,191 Total Department of Housing and Urban Development2,800,282 3,079,229 Department of the InteriorBureau of ReclamationWaterSMART (Sustaining and Manage America's Resources for Tomorrow) Direct N/AR19AP00169 15.507- 54,656 Total Department of the Interior- 54,656 Department of JusticeMissing Children's AssistancePass-ThroughCity of Colorado Springs2018-MC-FX-K027 16.543 - 5,929 Crime Victim Assistance Program Pass-ThroughColorado Department of Public Safety2020-VA-21-440-8 16.575 - 23,143 Edward Byrne Memorial Justice Assistance Grant Program Pass-ThroughLarimer County2018-DJ-BX-0704 16.738 - 32,092 Total Department of Justice- 61,164 Federal Assistance ListingFederal ExpendituresPass-Through to SubrecipientsDirect/Pass-Through Pass-Through EntityProject/Grant (FAIN) No. Pass-Through Entity Identifying NumberFederal Grantor/Pass-Through Grantor/Program TitlePage 98 of 149 City of Fort Collins Schedule of Expenditures of Federal Awards (continued) Year Ended December 31, 2021 2 Department of TransportationHighway Planning and Construction ClusterHighway Planning and Construction Pass-ThroughColorado Department of TransportationSAR M455-127 (23025) 20.205 - 311,695 Highway Planning and Construction Pass-ThroughColorado Department of TransportationSTU M455-129 (23047) 20.205 - 15,486 Highway Planning and Construction Pass-ThroughColorado Department of TransportationACQ M455-088 (16525) 20.205 - 2,730 Highway Planning and Construction Pass-ThroughColorado Department of TransportationSTU M455-118 (20615) 20.205 - 90,000 Highway Planning and Construction Pass-ThroughColorado Department of TransportationSHO M455-124 (21966) 20.205 - 191,711 Highway Planning and Construction Pass-ThroughColorado Department of TransportationBRO M455-121 (20825) 20.205 - 45,449 Highway Planning and Construction Pass-ThroughColorado Department of TransportationSHO C060-086 (21964) 20.205 - 348,156 Total Highway Planning and Construction Cluster- 1,005,227 Federal Transit ClusterCOVID-19 Federal Transit Formula Grants Direct N/ACO-2020-019-0120.507 - 588,099 Federal Transit Formula GrantsDirect N/ACO-2020-020-0020.507 - 1,558,978 Federal Transit Formula GrantsDirect N/ACO-2020-026-00 20.507- 950,000 COVID-19 Federal Transit Formula Grants Direct N/ACO-2021-031 20.507- 1,462,874 Federal Transit Formula GrantsDirectN/A1138-2021-320.507- 2,214,027 Federal Transit Formula GrantsDirectN/ACO-2021-006-0020.507- 165,807 Buses and Bus Facilities Formula, Competitive, and Low or No Emissions ProgramsDirectN/ACO-2019-020-0020.526- 527,319 Buses and Bus Facilities Formula, Competitive, and Low or No Emissions ProgramsDirectN/ACO-2020-013-0020.526- 440,906 Buses and Bus Facilities Formula, Competitive, and Low or No Emissions ProgramsDirectN/ACO-2019-020-0220.526- 709,026 Buses and Bus Facilities Formula, Competitive, and Low or No Emissions ProgramsDirectN/ACO-2020-002-0220.526- 542,986 Buses and Bus Facilities Formula, Competitive, and Low or No Emissions ProgramsDirectN/A1138-2020-520.526- 117,558 Total Federal Transit Cluster- 9,277,580 Highway Safety ClusterNational Priority Safety ProgramsPass-ThroughColorado Department of Transportation21NHTSA405B.0602PO 41102601120.616- 5,415 Total Highway Safety Cluster- 5,415 Total Department of Transportation- 10,288,222 Direct/Pass-Through Pass-Through EntityFederal Grantor/Pass-Through Grantor/Program TitleProject/Grant (FAIN) No. Pass-Through Entity Identifying NumberFederal Assistance ListingPass-Through to SubrecipientsFederal ExpendituresPage 99 of 149 City of Fort Collins Schedule of Expenditures of Federal Awards (continued) Year Ended December 31, 2021 3 Department of the TreasuryCOVID-19 Coronavirus Relief Fund Pass-ThroughDepartment of Local AffairsCVRF CM-03021.019 176,484 669,954 COVID-19 Coronavirus State and Local Fiscal Recovery Funds DirectN/AN/A21.027 - 263,199 Total Department of Treasury176,484 933,153 Small Business AdministrationCOVID-19 Shuttered Venue Operators Grant Program DirectN/ASBAHQ21SV00806159.075 - 503,915 Total Small Business Administration- 503,915 Environmental Protection AgencyState Environmental Justice Cooperative Agreement Program Direct N/A95820412 66.312- 1,325 Total Environmental Protection Agency- 1,325 Department of EnergyState Energy ProgramPass-ThroughColorado Department of EnergyDE-EE000747081.041 - 718,359 - 718,359 Federal Emergency Management Agency (FEMA)Emergency Management Performance Grants Pass-ThroughCO Dept. of Public Safety Division of Homeland Security and Emergency Management 21EM-22-6297.042 - 65,000 Total FEMA- 65,000 Total Expenditures of Federal Awards2,976,766$ 15,705,023$ Federal Grantor/Pass-Through Grantor/Program Title Direct/Pass-Through Pass-Through EntityProject/Grant (FAIN) No. Pass-Through Entity Identifying NumberFederal Assistance ListingFederal ExpendituresPass-Through to SubrecipientsPage 100 of 149 City of Fort Collins Notes to Schedule of Expenditures of Federal Awards Year Ended December 31, 2021 4 Notes to Schedule 1. The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the City of Fort Collins (the City) under programs of the federal government for the year ended December 31, 2021. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because this Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position or cash flows of the City. 2. Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in Uniform Guidance or other applicable regulatory guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through identifying numbers are presented where available. The City has elected not to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. 3. The federal loan program listed subsequently is administered directly by the City, and balances and transactions relating to these programs are included in City’s basic financial statements. Loans outstanding at the beginning of the year and loans made during the year are included in the federal expenditures presented in the Schedule. The balance of loans outstanding at December 31, 2021, consists of: Outstanding Assistance Balance at Listing December 31, Number Program Name 2021 81.041 State Energy Program 550,157$ Page 101 of 149 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor’s Report Honorable Mayor and Members of City Council City of Fort Collins Fort Collins, Colorado We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund and the aggregate remaining fund information of City of Fort Collins (the City), as of and for the year ended December 31, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated July 25, 2022. Report on Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified. Page 102 of 149 Honorable Mayor and Members of City Council City of Fort Collins 6 Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Denver, Colorado July 25, 2022 Page 103 of 149 Report on Compliance for Each Major Federal Program, Report on Internal Control Over Compliance, and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Independent Auditor’s Report Honorable Mayor and Members of City Council City of Fort Collins Fort Collins, Colorado Report on Compliance for Each Major Federal Program Opinion on Each Major Federal Program We have audited the City of Fort Collins (the City) compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended December 31, 2021. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2021. Basis for Opinion on Each Major Federal Program We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (Government Auditing Standards); and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Guidance are further described in the “Auditor’s Responsibilities for the Audit of Compliance” section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on compliance for each major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above. Page 104 of 149 Honorable Mayor and Members of City Council City of Fort Collins 8 Responsibilities of Management for Compliance Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the City’s federal programs. Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material, if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements of each major federal program as a whole. In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance, we:  Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material noncompliance, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances.  Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit. Page 105 of 149 Honorable Mayor and Members of City Council City of Fort Collins 9 Report on Internal Control Over Compliance A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the “Auditor’s Responsibilities for the Audit of Compliance” section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified. Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund and the aggregate remaining fund information of the City, as of and for the year ended December 31, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated July 25, 2022, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit Page 106 of 149 Honorable Mayor and Members of City Council City of Fort Collins 10 of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Denver, Colorado July 25, 2022 Page 107 of 149 City of Fort Collins Schedule of Findings and Questioned Costs Year Ended December 31, 2021 11 Summary of Auditor’s Results Financial Statements 1. The type of report the auditor issued on whether the financial statements audited were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) was (were): Unmodified Qualified Adverse Disclaimer 2. Internal control over financial reporting: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported Noncompliance material to the financial statements noted? Yes No Federal Awards 3. Internal Control over major federal awards programs: Material weakness(es) identified? Yes No Significant deficiency(ies) identified? Yes None reported 4. Type of auditor’s report issued on compliance for major federal award program(s): Unmodified Qualified Adverse Disclaimed 5. Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? Yes No 6. Identification of major programs: Assistance Listing Number Name of Federal Program or Cluster 21.019 Coronavirus Relief Fund 20.500, 20.526, 20.507 Federal Transit Cluster Page 108 of 149 City of Fort Collins Schedule of Findings and Questioned Costs (continued) Year Ended December 31, 2021 12 7. The threshold to distinguish between Type A and Type B programs was $750,000. 9. Auditee qualified as low-risk auditee? Yes No Page 109 of 149 City of Fort Collins Schedule of Findings and Questioned Costs (continued) Year Ended December 31, 2021 13 Financial Statement Findings Reference Number Finding No matters are reportable. Page 110 of 149 City of Fort Collins Schedule of Findings and Questioned Costs (continued) Year Ended December 31, 2021 14 Federal Award Findings and Questioned Costs Reference Number Finding No matters are reportable. Page 111 of 149 City of Fort Collins Status of Prior Audit Findings Year Ended December 31, 2021 15 Reference Number Summary of Finding Status No matters are reportable. Page 112 of 149 Page 113 of 149 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Dave Lenz Date: August 1, 2022 SUBJECT FOR DISCUSSION East Mulberry: Potential Annexation Lenses and Phasing EXECUTIVE SUMMARY The purpose of this item is to provide Council with an overview of the potential annexation phasing lenses, assumptions, and corresponding financial modeling of the East Mulberry enclave. Staff have been evaluating a variety of possible approaches to a potential annexation and have developed five phasing lenses that encompass an underlying set of priorities and can help determine the order of approach to a potential annexation. These phasing lenses have been utilized to create alternative five potential annexation scenarios. The financial implications of these scenarios have been modeled utilizing a fiscal impact modeling tool. Separate analysis has been performed for both the Governmental and Utility sectors of the City organization. A 20-year timeframe has been included as the base level of comparison across the scenarios. An additional 35-year analysis is also provided to highlight the impacts of accelerating or de-accelerating the potential annexation process. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED • What aspects of each scenario would Council like to prioritize to further refine toward a potential future annexation scenario? • What questions remain for Council regarding potential annexation phasing and timing? BACKGROUND/DISCUSSION Phasing and Lenses In order to facilitate a potential annexation evaluation, staff and outside consultants have divided up the East Mulberry enclave area into five subareas. These “boundaries” have been formed based on existing conditions and general land use designations. They are not specific recommendations but a necessary part of the exercise to establish a set of different potential annexation options. The mapping of the subareas is highlighted below. Page 114 of 149 Five phasing lenses have been created to articulate and depict the priorities, assumptions, and potential “benefits” or “drawbacks” to each scenario based on previously stated priorities by Council, community members, and City staff. Each of the scenarios includes a different sequencing and timing of all five subareas. 1. Economic Opportunity - Emphasizes economic development and vitality in the area 2. Residential Enhancement - Emphasizes connectivity, utilities, and other social priorities 3. Environment & Hazard Protection - Emphasizes environmental buffers, flood mitigation 4. Fiscal Health for City - Emphasizes fiscal impact to City of annexation, including existing priorities, risks, and timing 5. Community Gateway - Emphasizes improvements and reinvestment potential for the Mulberry Corridor, including the highway and frontage roads These scenarios are theoretical and assume annexation within given periods of time. They can be adjusted by changing the underlying assumptions to produce different results. None of these scenarios are meant to be “staff recommendations” and are instead a starting point for conversation and analysis. More detail of on the character of each scenario are detailed in the accompanying presentation materials. Financial Impacts For each of the five developed scenarios, the analysis presents a twenty-year timeframe and assumes annexation of all areas within the enclave. Depending on the timing of when a particular sub-area is annexed into the City, additional operating costs, capital and asset management requirements will fall outside the twenty-year timeframe. Page 115 of 149 Summary high level financial projections are highlighted below. This breakout shows the total 20-year revenue, expense and margin for both the governmental and utility sectors, in addition to average annual amounts over the 20-year period. Additionally, the following detail and analysis is included in the presentation materials: • Each scenario also has more granular detailed provided (Governmental Operating and Capital; Utilities Operating and Capital). The twenty-year timeframe is divided into four 5-year periods (Immediate, Short Term, Medium Term and Long Term). • A more detailed twenty-year summary roll-up of the governmental and utility sectors is included as well. • A 35- year alternative analysis highlighting the impacts of accelerating or de-accelerating the potential annexation process. Funding Considerations Both the governmental and utility sectors will require additional funding to pursue a potential annexation. On the governmental side, no specific identified source of funding is currently available. Consideration to existing needs and council priorities will help inform the extent to which funding may be available in the future. On the utility side, mechanisms are in place to pay for additional requirements brought on by potential annexations, subject to impacts to existing projects and funding requirements, and the resulting impact to ratepayers. Next steps October: Tentative - Council Finance Committee – Touchpoint / Follow-up November: Council Work Session – East Mulberry Plan Discussion / Financial Update Jan/Feb ’23: Council Work Session – Draft East Mulberry Plan / Refined Assumptions ATTACHMENTS Attachment 1 – presentation slides Page 116 of 149 East Mulberry: Potential Annexation Lenses & Phasing August 1, 2022 Council Finance Committee Dave Lenz Page 117 of 149 2Agenda 1.Analysis Approach 2.Phasing Lenses 3.Scenarios / Comparisons 4.Considerations and Takeaways 5. Questions Page 118 of 149 Potential Annexation Approaches 3 1 -Limit all annexation within enclave •Would require an IGA update 2 -Annex individual properties as they develop •Status quo, reactive approach 3 -Annex portions of enclave in phases •Manage timing and sequencing of smaller annexations 4 -Annex entire enclave Page 119 of 149 Phased Approach Based on precedent from previous annexations, a phased approach is recommended to evaluate potential annexation options and approaches. •Allows for allocation of resources over time •Allows time for potential revenue generation ahead of other phases •Allows for better community engagement ahead of each phase 4 Page 120 of 149 Fiscal Impact Model 5 Annexation Area Jobs Households =Persons Served + Revenues Expenses Net Fiscal Impacts (Margin) Operating: Governmental Property Tax Sales/Use Tax Fees/Permits/Charges for Services Utilities Rate/fee revenue Capital: Governmental CEF TCEF Utilities: PIFs Operating: Governmental Full suite of governmental services Utilities L&P, Stormwater and Broadband Capital: Governmental Specific identified projects (Parks) Utilities: L&P –connectivity including acquisition costs from existing providers (PVREA/Xcel) Broadband -Buildout Stormwater –specific identified projects Operating: Governmental Annual Net Fiscal Impacts Total Net Fiscal Impacts Utilities Annual Net Fiscal Impacts Total Net Fiscal Impacts Capital: Governmental Total Net Fiscal Impacts Utilities Total Net Fiscal Impacts Page 121 of 149 6Financial Analysis Framework •Separate analysis is provided for Governmental and Utilities. •A Combined summary for total City-wide impact is provided. •Expenses and revenues are calculated within the subarea designations •Constant $ assumed (no rate, revenue or cost inflation is included in presented figures) •20-year timeframe for the five Scenario comparisons: •Summarized into 5-yr increments: •Immediate, Short Term, Medium Term and Long Term •A Longer-Term Alternative timeframe (35 yrs.) analysis is also included •Additional operating costs, capital and asset management requirements will fall outside the twenty-year timeframe. Page 122 of 149 Safety •I-25 and East Mulberry consistently noted as an area where business success is partially impeded by safety issues not adequately addressed by current law enforcement efforts •actively requested to be annexed early to mitigate law enforcement deficiencies Aesthetics/Transportation •Aesthetic improvements along the East Mulberry frontage •Hwy is dangerous to access by all transportation modes Stormwater Improvements •The service-area/Industrial park southwest of the old airport and directly east of Home Depot and Walmart is severely affected by stormwater infrastructure deficiencies and flooding related to Dry Creek Housing and Transit •Mechanisms for affordable housing preservation can be utilized in these neighborhoods •Investments in transportation mobility on key corridors (e.g., Summit View) Priorities by Subareas Page 123 of 149 8Phasing Lenses Phasing Lenses Each lens focuses on one priority area. Other priority areas are still present but might be delayed or resourced differently. Emphasizes fiscal impact to City of annexation, including existing priorities, risks, and timing Fiscal Health for City Emphasizes environmental buffers, flood mitigation Environmental & Hazard Protection Emphasizes economic development and vitality in the area Economic Opportunity Emphasizes connectivity, utilities, and other social priorities Residential Enhancement Community Gateway Emphasizes improvements and reinvestment potential for the Mulberry Corridor, including the highway and frontage roads Page 124 of 149 Economically-Focused Phasing Option •Prioritize the annexation of properties with potential for new industrial and service commercial uses Phasing Assumptions •Prioritizes the annexation of undeveloped industrial land •Prioritizes stormwater improvements to benefit subareas 1, 4, and 5 to create potential for new or renewed development. Considerations •Maximizes potential for new business attraction through undeveloped land at the I- 25/Mulberry interchange and at the airpark •Prioritizes support opportunities for existing businesses from city programs and through improvements to support existing areas Economic Opportunity Page 125 of 149 Socially/Residential-Focused Scenario •Prioritizes the annexation of existing residential neighborhoods and improving their quality of services and infrastructure. Phasing Assumptions •Prioritizes annexation from the south (Subarea 2) and north (Subarea 5) with Subarea 3 annexation to improve access. •Prioritizes utilities’ investments to existing and new residential areas Considerations •Addresses the interests and concerns of the largest number of potential residents •Could trigger the need for additional investments in stormwater and road improvements. •May choose to address inequities in service levels and quality of infrastructure Residential Enhancement Page 126 of 149 •Prioritize the annexation of areas that need improvements to address environmental and hazard concerns. Phasing Assumptions •Prioritize annexation of Subareas 1, 2, and 4 to address stormwater issues •Assumes faster business development activity in Subareas 1 and 4. Considerations •Addresses hazard concerns and liabilities •Greater upfront investment and doesn’t maximize potential for new residential development to support improvement costs Environment & Hazard Protection Page 127 of 149 •Prioritize the annexation of property/subareas that will generate revenues for capital and/or on-going improvements in near term Phasing Assumptions •Prioritize annexation of Subarea 3 and 1 to maximize utility service and tax revenue •Light and Power (along with Broadband) built on schedule that maximizes leverage with other potential service extensions Considerations •increases property tax and sales tax growth (indirect from new residents) •Increases opportunity to recoup capital expenditures •City fiscal constraints may contribute to longer timeframes in addressing interests and concerns of area residents Fiscal Health for City Page 128 of 149 Phasing Assumptions •Prioritizes annexation of Subarea 3 and focus on central portion of Subarea 1 Considerations •Could lead to improvements along major city gateway due to L&P & Broadband investments upfront •Provides more control over the Mulberry Street in the short term, including sign code and other Land Use Code standards •Is likely to stimulate commercial infill and redevelopment of underutilized sites •Addresses health and safety concerns in the Subareas 1 and 3. •Could require some upfront stormwater investment •May address some of area resident concerns over time, especially related to multi-modal access along E Mulberry •Improved residential neighborhood access to the E Mulberry travel corridor is delayed Community Gateway Page 129 of 149 14Scenario 5 (Community Gateway): Governmental Fiscal Impacts Revenue $44 Expense $16 Margin $28 Totals - 20 yrs. ($M) Revenue $64 Expense $126 Margin ($63) Totals - 20 yrs. ($M) Operating: •Average operating revenue, expense and margin compared to the other scenarios •Residential areas delayed with the focus on E. Mulberry business corridor Capital: •Average level of capital revenue from extended residential development timeframes Page 130 of 149 15Scenario 5 (Community Gateway): Utilities Fiscal Impacts Utilities Operating Assumptions •Includes operating costs of infrastructure after takeover from PVREA to Light & Power •Cost recovery through rate adjustments within the area Utilities Capital Assumptions •Assumes moderate upfront investment in electrical infrastructure and moves that to the second phase of annexation •Assumes new development attraction due to upfront electrical infrastructure investments Revenue $10 Expense $138 Margin ($129) Totals - 20 yrs. ($M) Revenue $92 Expense $79 Margin $13 Totals - 20 yrs. ($M) Page 131 of 149 16Scenario Comparison: 20-year Combined Impact Scenario 1 –Economic Opportunity –20 yrs. ($M)Gov’t.Utility Total Avg. / Yr. Revenue $215 $242 $458 $23 Expense ($263)($325)($589)($29) Margin ($48)($83)($131)($7) Scenario 3 – Env. & Hazard Protection – 20 yrs. ($M)Gov’t.Utility Total Avg. / Yr. Revenue $118 $131 $249 $12 Expense ($180)($240)($420)($21) Margin ($62)($109)($171)($9) Scenario 4 –Fiscal Health for City – 20 yrs. ($M)Gov’t.Utility Total Avg. / Yr. Revenue $82 $77 $160 $8 Expense ($116)($199)($315)($16) Margin ($34)($122)($155)($8) Scenario 5 –Community Gateway – 20 yrs. ($M)Gov’t.Utility Total Avg. / Yr. Revenue $108 $102 $209 $10 Expense ($142)($217)($360)($18) Margin ($34)($115)($151)($8) Scenario 2 –Residential Enhancement – 20 yrs. ($M)Gov’t.Utility Total Avg. / Yr. Revenue $122 $121 $243 $12 Expense ($127)($231)($358)($18) Margin ($5)($110)($115)($6) Page 132 of 149 Baseline: Extend Baseline analysis timeframe to 35 years Maintain annexation phasing sequencing, timing and development horizon Accelerated Absorption: Maintain annexation sequencing Accelerate timing and development horizon Slower Absorption: Maintain Annexation sequencing Delay timing Extend development horizon 17Alternative Analysis: Longer Term Evaluation Framework Scenario 5 –Gateway Community Page 133 of 149 18Alternative Analysis: Longer Term Evaluation Framework Scenario 5 –Community Gateway –35 years Baseline ($M)Gov’t.Utility Total – 35 yrs.Avg. / Yr. Revenue $267 $322 $589 $17 Expense ($377)($466)($843)($24) Margin ($110)($144)($254)($7) Slower Absorption ($M)Gov’t.Utility Total – 35 yrs.Avg. / Yr. Revenue $215 $240 $455 $13 Expense ($305)($380)($685)($20) Margin ($90)($140)($230)($7) Accelerated Absorption ($M)Gov’t.Utility Total – 35 yrs.Avg. / Yr. Revenue $306 $404 $710 $20 Expense ($449)($554)($1,003)($29) Margin ($143)($150)($293)($8) Page 134 of 149 Governmental: •No specific identified source available to fund requirements •Council priorities / existing needs •Ongoing revenue diversification discussions and BFO constraints •Alternative funding mechanisms will continue to be investigated Utilities: •Capital and operating costs to be recovered through rate adjustments •Requirements to pay existing providers for stranded assets or lost margins •Question of how to share the burden between new and existing customers 19Funding Considerations Governmental and Utility sectors will each require additional funding to pursue potential annexation Page 135 of 149 March/April:Council Work Sessions Review East Mulberry Goals/Ideas & Scenario Framework Annexation background and Growth Management Area August:Council Finance Committee Potential Annexation Lenses and Phasing October:Council Finance Committee -Tentative Touchpoint / Follow-up November:Council Work Session East Mulberry Plan Discussion / Financial Update Jan / Feb ‘23:Council Work Session Draft East Mulberry Plan / Refined Potential Annexation Assumptions 20Timeline / Next Steps Page 136 of 149 Phased approach to potential annexation is recommended Identification of source(s) of funding to cover funding gap is imperative and must be balanced against existing needs and priorities Timing of growth in development related revenues and expenses will remain a key uncertainty 21Summary Key Take-Aways Page 137 of 149 22Questions for Council 1.What aspects of each scenario would Council like to prioritize to further refine toward a potential future annexation scenario? 2. What questions remain for Council regarding potential annexation phasing and timing? Page 138 of 149 23 APPENDIX Page 139 of 149 24Scenario 1 (Economic Opportunity): Governmental Fiscal Impacts Operating: •Quicker ramp up of services in established areas leads to quicker expense build-up (police, streets/traffic, other) •Revenues build up from existing residents & businesses •Large negative margin Capital: •Includes investments in new parks keyed to resident increases over time •Revenue increases delayed with later residential development timeframe Revenue $73 Expense $162 Margin ($89) Totals - 20 yrs. ($M) Revenue $38 Expense $16 Margin $22 Totals - 20 yrs. ($M) Page 140 of 149 25Scenario 1 (Economic Opportunity): Utilities Fiscal Impacts Operating: •Assumes current rate structure applied to all customers •Assumes similar operating cost structure to current averages Capital: •Front loads capital investment by bringing L&P & broadband infrastructure through the E Mulberry corridor •Allows City to collect PIFs for new development •Acquisition costs (loss of revenues or stranded investments) to be recouped through rate adjustments Revenue $110 Expense $94 Margin $16 Totals - 20 yrs. ($M) Revenue $9 Expense $138 Margin ($129) Totals - 20 yrs. ($M) Page 141 of 149 26Scenario 2 (Residential Enhancement): Governmental Fiscal Impacts Revenue $62 Expense $111 Margin ($49) Totals - 20 yrs. ($M) Revenue $60 Expense $16 Margin $44 Totals - 20 yrs. ($M) Operating: •Slower ramp up of services in established areas leads to slower expense build-up (police, streets/traffic, other) •Revenues build up slower from existing residents & businesses •Relatively smaller negative margin Capital: •Accelerated new residential development provides highest level of capital revenue from subarea 5 Page 142 of 149 27Scenario 2 (Residential Enhancement): Utilities Fiscal Impacts Operating •Similar annual operating margins as in Scenario 1 Capital •Assumes moderate upfront investment for acquisition of existing electrical infrastructure •Assumes little new development in existing residential areas •Assumes large investment in L&P and broadband internet in last phase (subareas 1 and 4) •Development PIFs increase with earlier residential buildout Revenue $111 Expense $92 Margin $18 Totals - 20 yrs. ($M) Revenue $10 Expense $138 Margin ($128) Totals - 20 yrs. ($M) Page 143 of 149 28Scenario 3 (Environment & Hazard Protection): Governmental Fiscal Impacts Capital •Similar to Scenario 1, quicker ramp up of services in established areas leads to quicker expense build-up (police, streets/traffic, other) •Revenues build up from existing residents & businesses •Large negative margin Capital •Accelerated park development •Similar development profile to Scenario 1 provides delayed revenue increase Revenue $76 Expense $164 Margin ($89) Totals - 20 yrs. ($M) Revenue $42 Expense $16 Margin $26 Totals - 20 yrs. ($M) Page 144 of 149 29Scenario 3 (Environmental & Hazard Protection): Utilities Fiscal Impacts Operating •Highest total operating margins from bringing on existing business customers early Capital •Assumes significant upfront investment in infrastructure to get new L&P and broadband service out to businesses within the I-25 gateway area •New development revenues spurred by these upfront investments Revenue $120 Expense $102 Margin $19 Totals - 20 yrs. ($M) Revenue $11 Expense $138 Margin ($128) Totals - 20 yrs. ($M) Page 145 of 149 30Scenario 4 (Fiscal Health for City): Governmental Fiscal Impacts Revenue $52 Expense $100 Margin ($48) Totals - 20 yrs. ($M) Revenue $30 Expense $16 Margin $14 Totals - 20 yrs. ($M) Operating: •Lowest level expense levels, with slower ramp up of services in established areas, leads to slower expense build-up (police, streets/traffic, other). Revenues build up slower from existing residents & businesses •Relatively smaller negative margin (similar to Scenario 2) Capital: •Lowest level of capital revenue from extended development timeframes Page 146 of 149 31Scenario 4 (Fiscal Health for City): Utilities Fiscal Impacts Revenue $70 Expense $61 Margin $9 Totals - 20 yrs. ($M) Revenue $7 Expense $138 Margin ($131) Totals - 20 yrs. ($M) Operating •Lowest total operating margin from bringing on customers slowly Capital •Initial Infrastructure focused along the E Mulberry corridor •Similar capital profile to Scenario 2 Page 147 of 149 32Scenario Comparison: Governmental Fiscal Impacts Operating Margin ($M) Immediate Short Term Medium Term Long Term Total –20 Yrs. Scenario 1 –Economic Opportunity ($13)($20)($23)($32)($89) Scenario 2 –Residential Enhancement ($4)($10)($11)($24)($49) Scenario 3 – Env. & Hazard Protection ($12)($20)($24)($32)($89) Scenario 4 –Fiscal Health for City ($4)($7)($10)($27)($48) Scenario 5 –Gateway Community ($4)($7)($21)($31)($63) Capital Margin ($M) Immediate Short Term Medium Term Long Term Total –20 Yrs. Scenario 1 –Economic Opportunity $3 ($0)$8 $11 $22 Scenario 2 –Residential Enhancement $3 $15 $15 $12 $44 Scenario 3 – Env. & Hazard Protection ($3)$1 $9 $19 $26 Scenario 4 –Fiscal Health for City $1 ($3)$6 $10 $14 Scenario 5 –Gateway Community $1 ($3)$17 $13 $28 Page 148 of 149 33Scenario Comparison: Utilities Fiscal Impacts Operating Margin ($M) Immediate Short Term Medium Term Long Term Total –20 Yrs. Scenario 1 –Economic Opportunity $1 $3 $5 $7 $16 Scenario 2 –Residential Enhancement $1 $3 $5 $8 $18 Scenario 3 – Env. & Hazard Protection $1 $4 $6 $8 $19 Scenario 4 –Fiscal Health for City $0 $1 $3 $6 $9 Scenario 5 –Gateway Community $0 $1 $4 $8 $13 Capital Margin ($M) Immediate Short Term Medium Term Long Term Total –20 Yrs. Scenario 1 –Economic Opportunity ($68)($42)$2 ($22)($129) Scenario 2 –Residential Enhancement ($36)($15)$2 ($80)($128) Scenario 3 – Env. & Hazard Protection ($94)($18)$3 ($19)($128) Scenario 4 –Fiscal Health for City ($29)($43)$2 ($61)($131) Scenario 5 –Gateway Community ($29)($43)($42)($16)($129) Page 149 of 149