2019-11-05 Audit/Finance Committee Minutes AUDIT/FINANCE COMMITTEE
November 5, 2019
MEETING MINUTES
After determining that a quorum was present, the Audit/Finance Committee of the City of
Denton, Texas, met for a regular meeting on November 5, 2019, at 10:30 a.m., in the City Hall
Conference Room, at City Hall, 215 E. McKinney Street, Denton, Texas.
PRESENT:
Mayor Chris Watts, Council Member John Ryan, and Council Member Paul Meltzer.
STAFF PRESENT:
Antonio Puente, Chief Financial Officer Nick Vincent, Assistant Director of
Finance
Umesh Dalal, City Auditor Nancy Towle, Treasury Manager
Mack Reinwand, Deputy City Attorney Madison Rorschach, Staff Auditor
David Gaines, Director of Finance Neeraj Sama, Staff Auditor
Jessica Rogers, Director of Economic Development Theresa Jaworski, Recording Secretary
OTHERS PRESENT:
Erica Pangburn, President of Denton Chamber of Commerce
Marty Rivers, Chairman of the Economic Development Board
OPEN MEETING:
Council Member and Committee Chair, John Ryan,brought the meeting to order at 10:30 a.m.
1. ITEMS FOR CONSIDERATION:
A. Consider approval of the Audit/Finance Committee minutes of September 17, 2019.
Council Member Paul Meltzer made a motion to approve the September 17, 2019,
Audit/Finance Meeting Minutes. Mayor Chris Watts seconded the motion. Motion
carried unanimously.
B. Receive a report, hold a discussion, and give staff direction regarding an internal
audit of Economic Development-Recruitment and Expansion.
Umesh Dalal, Internal Auditor, presented the audit of the Economic Development
Department to the Committee, as scheduled in the 2018-19 Audit Plan. Dalal shared the
definition of economic development from the International Economic Development
Council as, "a process that influences growth in researching the economy to enhance the
economic development of the community". The Economic Development Department
offers support and services to businesses in all sectors and of all sizes and has invested
$16.5 million in tax-related incentives since 1999. With a net increase in property and
sales tax revenues in the amount of$62.5 million and 7,536 created jobs, this plays a very
significant role in a city like Denton.
This audit was intended to provide assurance about the adequacy within the City's
framework to perform economic development business recruitment and expansion
activities, including the recruitment of individual businesses through economic
development incentives; and the retention and expansion of individual businesses through
economic development incentives and a business visitation program. The most
significant audit finding is the lack of clear focus in the current process, limiting the
effectiveness of the business expansion and efforts.
Dalal pointed out the seven target industries depicted by the City's tax abatement and
incentive policy. Recruitment target industry sectors are not well defined, selected target
industry sectors are not supported by analytics-based documentation and generally not
aligned with an industry cluster. The current reporting hinders the appraisal of marketing
performance. This hinders the appraisal of marketing performance. The suggestion was
made to use the Industry Cluster Analysis based on the U.S. Mapping Project's
methodology.
Dalal also added that the State of Texas invested substantial resources in developing an
automotive corridor from San Angelo to North Texas that the City should take advantage
of, as well as the aviation cluster with the University of Texas that is offering an aviation
curriculum. These resources are available for economic development efforts. The
evaluation is not enough to craft an economic development strategy for the City.
Therefore, the recommendation was to get professional help, at the request of Economic
Development. City Council has approved that study in this budget.
Dalal explained that the business recruitment activities, primarily performed by the
Chamber of Commerce, are without a clear guideline depicted in the City's abatement
and incentive policy. Chamber staff reports monthly economic development activities as
required but it is difficult to determine if a lead received at the front end results in a site
visit and actual recruitment. No connection is made using the available documentation.
Because adequate information is not available, evaluation of the effectiveness of the
Chamber's contract is not possible. In addition, there does not appear to be a clear
marketing and recruitment focus on target industry sectors identified by the City.
The evaluation did not find a clear connection to the Chamber's effort and the target
industry. These results may be in part, due to a lack of clear understanding of the target
industry sectors. The evaluation found that the City has little to no competitive advantage
for some of the targeted industry sectors. Analysis shows that of the current industries,
there are no renewable industries in this area, so spending efforts on those industries
would not be fruitful. Economic effort depends on the synergies that the market requires
to attract business. Denton needs an environment for that business to flourish.
A Committee discussion followed on the Internal Audit Office staff and their experience
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in auditing economic development, the standard procedures or best practices that were
used in the evaluation findings and conclusions that resulted, the application of the US
Cluster mapping program, methodology, with information from DFW Metroplex, Denton
County and specifically the City of Denton.
The Committee also discussed the need for a professional study on Economic
Development and the audit Endings that revealed the need for that initiative, not having a
solid economic development strategy prior to the audit, the recommendation to hire an
expert, based on the analysis using Best Practices, the advantages in using the cluster
mapping, evaluating strengths, critical success factors, leveraging existing resources and
recruiting a component industry, starting new cluster and the substantial investment
involved, and the need for diversity in economic development, what other cities are doing
to succeed in recruiting businesses, the strength of Denton and the strengths of
surrounding areas and the possible collaboration for incentivizing with those areas, IEDC
and other organizations used for defining and GFOA for accounting incentives, and
access to the Chamber staff in the evaluation.
Dalal went over the Incentive Approval Process. This is primarily guided by the City's
Tax Abatement and Incentive Policy that identifies economic incentive goals, but does
not identify the performance measures for these goals nor does it adequately define what
the goals mean. Economic Development has tried to report on the effectiveness of the
incentive program in their Annual Incentivized Project Net Revenue Report but not all of
the goals outlined in the policy are measured.
The Committee discussed how the conclusions presented were determined in the
incentive approval process and advised that the evaluation include a list of specific
recommendations to clarify the involvement with City Council, how the Economic
Development Partnership Board process should be involved, and the recommendations
that are based upon the vantage point from staff with deference to the study Council has
approved.
Dalal presented the Business Visitation Program as one where the City staff goes to
businesses to retain them or provide services. Findings were the lack of a policy
document that defines the goals, performance measures, and evaluation of process or
program. There are some performance measures in place but no measure of outputs that
would give meaning to the efforts being made by staff. So, business visitation targets and
objectives are not well defined and the reporting on business visitation reporting only
monitors the program outputs not the outcomes. Internal Audit made 13
recommendations with one to the City Council. Management fully concurred with six
recommendations, partially concurred with five, and disagreed with one. They are also
waiting for the upcoming study that may change the report. The audit objective was to
take the existing procedure and policy to that study.
The Committee discussed the possibility of a more structured, trackable, quantifiable
sales process, the Chambers efforts to determine a process to put as many definitions and
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measurable deliverables in place with narrative reporting on their efforts, the good
working relationship between Economic Development and the Denton Chamber,
renewable energy options, and a better job of tracking with follow-up with an updated
strategy in recruiting businesses to Denton.
C. Receive a report, hold a discussion, and give staff direction regarding revisions to
the City of Denton's Investment Policy.
David Gaines, Director of Finance, stated the City's Investment Policy is a guide in the
decision making for investing and managing public funds. Staff brings this policy to the
Committee and the City Council annually to be reviewed, as required by the Public Fund
Investment Act of Texas. He explained the recent investment activities and the revisions
that were the changes which were mostly procedural.
Watts made a motion to recommend the changes to the City's Investment Policy to the
City Council with a second by Paul Meltzer. Motion passed unanimously.
D. Receive a report, hold a discussion, and give staff direction regarding revisions to
the City of Denton's Debt Service Management Policy.
Gaines explained the Debt Policy as providing guidelines for issuance of debt, the
different types of debt the City has with limitations, the reimbursement ordinance process
and the relationships with financial advisors and bond counsels, rating agencies
relationships, and the revisions in the policy for the Committee's and Council's approval.
Gaines updated the Committee on the affordability measures that are laid out each year in
the policy.
A discussion followed on the target set for the debt service compared to the net revenues,
hybrid liquidity facility, callable commercial paper, and the use of long-term debt.
Watts made a motion to recommend the changes to the Debt Service Management Policy
to the City Council with a second by Paul Meltzer. Motion passed unanimously
2. CONCLUDING ITEMS
There were no concluding items to address.
The meeting adjourned at 11:54 a.m.
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