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2010-04-05 Audit/Finance Committee Minutes� i •, , I I After determining that a quorum was present, the Audit/Finance Committee of the City of Denton, Texas convened in a regular meeting, Manday, April 5, 2010, at 10:15 a.m. in the City Hall Canference Roam at City Hall, 215 E. McKinney Street, Denton, Texas. P SENT: Council Member Joe Mulroy; Mayor Mark Burraughs; Council Member Chris Watts, Chair STAFF P SENT: George Campbell, City Manager; Jon Fortune, Assistant City Manager; Howard Martin, Assistant City Manager; Fred Greene, Assistant City Manager, Bryan Langley, Director of Finance; Harvey Jarvis, Controller; Kevin Mullen, Assistant Cantroller; Cody Wood, Assistant Controller; Michelle McCallum, Budget and Municipal Court Manager; Antonio Puente; Treasury Manager, Caroline Finley, Treasury Administratar OTHERS P SENT: Greg Schaecher with McCall, Parkhurst and Horton and Laura Alexander with First Southwest Carnpany The meeting was called to order at 10:16 a.m. 1. Consider approval of Audit/Finance Commrttee Minutes of February 15, 2010. Council Member Mulroy moved to approve the minutes of February 15, 2010, with a second by Mayor Burroughs. The minutes were approved (3-0). � ' �� . ; � � '' � Council Member Watts asked if the only outstanding items were the DME purchasing procedures report and EMS Audit. Bryan Langley, Director of Finance verified the two items adding that he would like to corne back to the committee on the DME Purchasing item at the next meeting. � 1� �,• II' � '•�� Langley explained staff's intent to bring the quarterly report to every meeting. The next quarterly report will inciude a dashboard for the A Funds to adequat�ly track the receipt of this incame in the report. Following a discussion on the Water Fund Executive Dashboard, Council Member Mulroy and Council Member Watts requested clarification on how capital expenditures are presented on the Quarterly Finance Report. Action Item • Provide additional clarification on how capital expenditures are ref7ected on the Water Fund Executive Dashboard. 3. Receive a report, hold a discussion, and give staff direction regarding the upcoming General Obligation, Certifcate of Obligation, and Utility System Revenue Bond debt issuances. Langley shared information on the upcoming June bond sale for approximately $69 million. Of that amount, about $5.3 million is related to the General Obligation (GO) Bond Program that was voter approved in 2005. There is also about $2.9 million in Certificates of Obligation (CO) that will be issued for general government related issues including vehicles, HVAC improvements, facility improvements and similar projects. Approximately $8.8 million in COs will be sold for Solid Waste activities and approximately $51 million in bonds related to the Utility System including the Electric Fund, Water Fund, and Waste Water Fund. Typically, debt for Utility System is sold as Utility System Revenue Bonds. We propose to sell these as Certificates of Obligation. There are two advantages to this method. First, there is not a bond reserve requirement. Second, utilization of the City's higher (Aa3/AA) overall credit rating, results in interest cost savings . Issuing the debt in that fashion, results in an estimated $1.6 million savings over the life of the debt for the utility system. Langley introduced Laura Alexander with First Southwest, the City's investment advisor and Greg Schaecher with McCall, Parkhurst, and Horton, the City's bond counsel in case the committee had questions for these individuals on these items. The Committee also needs to be aware that there is a similar opportunity to refund some existing utility system bonds that are outstanding. If they are sold as utility system refunding bonds, there would be an opportunity to refund approximately $14 million. If they are sold in a combination of tax and revenue bonds, there would be an opportunity to refund approximately $41 rnillion in bonds. The savings on refunding those bonds with combination tax and refunding bonds is approximately $4.7 million over the term of the debt. This does not extend the debt. It would use the same maturity dates that are in place but uses a lower interest cost as a result of the higher overall credit rating for the City. Staff proposed to sell both the new debt for the utility systern as a CO and do the refunding as a combination tax refunding bond for a savings of approximately $6.7 million. The Internal Debt Committee discussed procedures for selling revenue bonds versus using the City's overall credit rating and any potential impact to the City. As staff considered this option, the procedure was vetted and discussed with First Southwest. It was determined that this procedure happens quite The City's legal counse adverse impact. often and no negative impact on the City's credit rating is expected. also advised that bonds could be issued in this manner without any The Committee also discussed the financial benefits for ratepayers and how any cost savings due to the taxpayers would be handled. The Committee requested that staff provide information on the techniques used by other cities to repay or return the value to the taxpayers in similar situations. Langley stated that this particular procedure with new money and the refunding makes good financial sense at this time. Each scenario in the future would need to be evaluated to see whether this makes the most sense at that time. Action Item Provide information on techniques used by other cities to repay or return any potential cost savings from rate payers to taxpayers. Council Member Mulroy requested additional detail on projects listed for Solid Waste under the sale of $8,770,000 and Utility System projects listed under the sale of $S l,540,000 for Electric, Water and Wastewater projects. Action Item Provide additional details on the following bond projects: The Integrated Waste Management System for $1,800,000, the Mechanical Processing Equipment for $450,000 and the Transporter 1 for $80,000 listed as projects to be funded by the sale of $8,770,000 in COs for Solid Waste. Lewisville Water Treatment Plant Rehabilitation for $13,000,000, and the Hwy 380 West (Wastewater) for $1,500,000 listed as projects to be funded by the sale of $51,540,000 in Utility System debt for Electric, Water and Wastewater. Langley advised the Committee that staff will plan to bring to City Council a Notice of Intent to Issue the COs for the purposes explained and in accordance with State Law on April 20t". On June 15, staff would like the Council to authorize the bond sale and the refunding. On April 20, we would also like a Work Session item for the entire Council to let them know what we are doing with the bonds, if the Committee is in agreement. We will also plan to take this to PUB next week. Council Member Watts stated that he would like to get further direction from the City Council regarding how any potential costs savings to the utility funds should be used. 4. Receive a report, hold a discussion, and give staff direction regarding revisions to the City of Denton's Debt Management Policy. Langley explained the proposed revisions being made to the Debt Management Policy. Discussion of the revisions followed with Council Mernber Mulroy and Mayor Burroughs suggesting the following changes in the Debt Management Policy: Page 1. Under Policy Statement, paragraph 2, last sentence should be simplified to read, "be documented by ordinance or resolution which shall be include any changes made". Page 2. Paragraph C., Reporting, first sentence, should be revised to indicate how this information will be disseminated to the public and City Council. Page 3. Paragraph E., Financial Advisor, last sentence reads, "The Director of Finance shall be the responsible person to receive such a request and the final written determination of consent." Consider changing the wording to include Audit/Finance Committee or City Council approval before the final written determination of consent so that the burden of this action does not rest on the Director of Finance. Page 8. Item IX., Bond Structure. Strike the last feature, "use of derivative products". Page 9. Paragraph B., Commercial Paper. Clarify paragraph stipulating who has the authority to evaluate advantages and disadvantages of participating in a commercial paper issuance pool and that any changes or recommendations in the commercial paper program will require the approval of the City Council. Page 1 l. Paragraph C., Certificates of Obligation, first item. The language is too restrictive and has been previously changed. Strike "the need for which arose between bond elections". Council Member Mulroy requested an explanation for reducing the pledge limit for Electric, Water and Wastewater Certificates of Obligation bonds from $10,000 to "$1,000 for any one series of bonds used for non-utility purposes". Greg Schaecher, Bond Counsel with McCall, Parkhurst and Horton, explained that several years ago the amount was limited to $10,000, state wide for all the COs. That has since changed. Now you can pledge surplus revenue without a limit but many cities will pledge surplus revenue up to $1,000 because that is all that is required to sell the bonds. There is no need to pledge more than $1,000. You can chose to use more than $1,000 of surplus revenues to pay the debt service on COs but as far as the actual pledge or security for the bonds, it is only $1,000 and the reason for this change. If the City wanted to choose to limit their pledge on surplus revenue to $1,000 for a series of COs or choose to pledge surplus revenue without limitations. Laura Alexander, Financial Advisor from First Southwest, added that the City needs to have some kind of revenue pledge. That's the broadest use of the CO statute under state law. You must have a revenue pledge. That is what this is saying let's reduce the pledge as much as possible under state law. 4 Schaecher went on to explain that this satisfies the state law requirement to issue those COs. Up to this point, the City used the $10,000 but since only $1,000 is now required by law, there is no need to continue the pledge of $10,000. Alexander added the tax pledge is what really matters with the rating agencies. As long as you have a tax pledge from the rating perception, you will get that "AA" category rating. This doesn't have anything to do with how you actually pay for the bonds, this limit of $1,000 doesn't have anything to do with the actual source of repayment. The tax pledge is the meat of it. Council Member Mulroy called attention to Paragraph F. Combination Tax and Revenue Bonds and asked if you could also use it for new bond issues. Schaecher stated that with Combination Tax and Revenues you can issue refunding bonds backed by the AV taxes but only for refunding purposes. If you are going to new money bonds, you have to go to GOs or issue COs. After additional discussion on this topic, the Committee reyuested that staff confer with the Bond Counsel and Financial Advisor to structure the next debt sale similar to how Solid Waste COs had been issued in the past. Langley stated that he will provide a Notice of Intent amount by the 20t" of April. Council Member Mulroy referenced Page 16 of the policy, Paragraph D and asked if the Council could be informed on how the arbitrage is being managed. Langley suggested that when Council reviews the CAFR, that information could be included. 5. Under Section 551.042 of the Texas Open Meetings Act, respond to inquiries from the Audit/Finance Committee or the public with speci�c factual information or recitation of policy, or accept a proposal to place the matter on the agenda for an upcoming meeting AND Under Section 551.0415 of the Texas Open Meetings Act, provide reports about items of community interest regarding which no action will be taken, to include: expressions of thanks congratulations or condolence; information regarding holiday schedules; an honorary or salutary recognition of a public of�cial, public employee, or other citizen; a reminder about an upcoming event organized or sponsored by the governing body; information regarding a social, ceremonial, or community event organized or sponsored by an entity other than the governing body that was attended or is scheduled to be attended by a member of the governing body or an official or employee of the municipality; or an announcement involving an imminent threat to the public health and safety of people in the municipality that has arisen after the posting of the agenda. There were no items suggested. � � � . � #' - � . �' � yy �� � � ��� _ `� �. �� �,�, � . C�,,...y � �.M.�� ��� �- CHRIS WATTS - COMMITTEE CHAIR CITY OF DENTON, TEXAS �r � � -� � , ����� �. 'r' °`��'.� �� t",�'�` ,�{ r��-- ,��._,... �['� i�,Rl�:�� JAW����I�� CO ING SEC TARY Cl 1 1 oP LE1V 1 O1V 9 1 EXL'iS u