# Budget & Finance Committee Meeting - December 5, 2009 > Auto-transcribed civic record · December 5, 2009 - **Permalink**: https://meetings.lexingtonky.news/meeting/1144 - **Source video**: https://lfucg.granicus.com/player/clip/1144?view_id=14&redirect=true - **Date**: 2009-12-05 - **Last revised**: July 17, 2026 - **Length**: 15,985 words > ⚠️ **Auto-generated content.** Audio from the official Granicus video was auto-transcribed with OpenAI's open-source Whisper large-v3-turbo model, run locally by The Lexington Times. Structured facts were extracted with GPT-4o; the narrative summary was written by Anthropic Claude. Verbatim wording may contain errors. See [methodology](https://meetings.lexingtonky.news/about/methodology) or [report a correction](mailto:editor@lexingtonky.news). --- ## Meeting Overview The Budget and Finance Committee met on December 8, 2009, at 4:00 p.m., with Kevin Stinnett presiding. The committee addressed four agenda items during the session, which included informational presentations and discussions on financial matters and budget considerations. One motion was voted on during the meeting, and the committee heard five public comments. The agenda focused on fiscal oversight, including a review of FY 2010 financials for October 2009 presented by Rumpke, an internal audit quarterly update from Sahli, a general list of recommendations from Council Links, and a discussion on a proposed reduction to the Council Office Budget. ## Attendance The following individuals were present at the meeting on December 5, 2009: * Kevin Stinnett * Ed Lane * Jim Gray * Linda Gorton * Chuck Ellinger * Andrea James * Tom Blues * Julian Beard * George Myers * Peggy Henson No members were recorded as absent or late. ## Votes and Decisions The meeting concluded with a motion to adjourn. Council Member Myers moved to adjourn the meeting, and Council Member Gordon seconded the motion [timestamp: 01:50:26]. The motion passed by voice vote. ## Budget and Financial Actions The meeting included approval for a software purchase to support facilities and fleet management operations. The city approved an expenditure of $195,000 to PeopleSoft for implementation of real estate software. This software system is intended to enhance the management of facilities and fleet assets. ## Public Comment Council members raised several questions and concerns regarding the proposed budget measures during the meeting. Council Member Gordon [timestamp: 00:53:45] sought clarification on the methodology behind the projected $13 million revenue shortfall. He requested a detailed breakdown of how this figure was calculated before the mayor's reduction plan is presented. Council Member Hinson [timestamp: 01:09:48] questioned the audit findings on the tax gap, specifically asking for clarification on the sample size used in the analysis of uncollected interest and penalties. He asked whether the top 55 and 115 transactions examined were representative of the full population. Council Member Myers [timestamp: 01:23:45] expressed concern about the timing of implementing new rent and utility charges for non-LFUCG tenants. He urged earlier notification to affected agencies to allow them adequate time to adjust their budgets accordingly. Council Member Blues [timestamp: 01:40:26] suggested an alternative approach to council office budget reductions, proposing that each council member be allowed to determine their own cost center reductions based on individual usage patterns. He argued this approach would be fairer and provide greater flexibility. Council Member Lane [timestamp: 01:44:51] advocated for a uniform furlough across all government employees, including council members. He argued this would set a consistent example and prevent special treatment for any particular group. ## Contested Items The December 5, 2009 meeting included two significant areas of disagreement among council members. **Council Office Budget Reduction Approach** Council members were divided on the method for implementing budget reductions to council offices. The disagreement centered on whether reductions should be centrally mandated across all offices or left to individual discretion. Some council members advocated for allowing individual offices flexibility in how they achieved required cuts, emphasizing fairness and the ability of each office to determine priorities based on their specific circumstances. Other members argued for a centrally mandated approach, citing the need for consistency and accountability across all council operations. This split vote reflected differing philosophies about budget management and oversight. **Timing of Tenant Cost-Sharing Implementation** A heated discussion emerged regarding when to implement new rent and utility cost-sharing charges for tenants. Concerns were raised that outside agencies would face insufficient time to adjust their budgets if these new charges were introduced mid-year. Council members advocating for early implementation were countered by those warning that the compressed timeline would create financial hardship for affected organizations. Proponents of delaying implementation called for early notification to outside agencies, allowing them adequate time to plan for and absorb the additional costs in their budget cycles. This disagreement reflected tension between the council's fiscal objectives and the practical constraints facing partner organizations. ## Review and Discussion of FY 2010 Financials for October 2009 — Rumpke [timestamp: 00:00:01] Commissioner Rumpke presented the October 2009 financial results for fiscal year 2010. The presentation highlighted significant financial challenges, including a $4.1 million unfavorable revenue variance and a $1.7 million net deficit for the period. **Key Financial Issues** The discussion addressed several factors affecting the financial position: - Timing differences in payroll withholding collections that impacted reported results - Year-over-year revenue trends showing declining collections - The impact of refunds on net financial position - A projected shortfall of $12–13 million for the full fiscal year 2010 **Areas of Focus** Commissioner Rumpke and Director O'Mara discussed the need for expense reductions to address the projected deficit. The presentation examined both the immediate October results and the longer-term implications for the fiscal year budget. **Outcome** This agenda item was presented as informational, providing the committee with an overview of current financial performance and the challenges ahead for FY 2010. The discussion established the baseline for understanding the organization's financial position and the need for corrective action through expense management. ## Internal Audit Quarterly Update — Sahli [timestamp: 00:53:45] Mr. Salley presented findings from an internal audit of the Division of Revenue's tax gap processes. The audit identified several critical deficiencies requiring management attention. **Key Findings** The audit revealed the following issues: - Data accuracy problems within tax gap processes - Antiquated software systems - Inconsistent application of penalties - Outdated public information **Recommendations** Mr. Salley recommended that the Division of Revenue take the following corrective actions: - Modernize tax software systems - Improve internal controls **Outcome** Management agreed to take corrective action in response to the audit findings. The presentation was informational in nature, with no formal debate or dissenting positions noted. ## General List of Recommendations From Council Links - Stinnett [timestamp: 01:13:12] Commissioner Cole provided an update on recommendations from the General Services Link, focusing on several key initiatives aimed at improving operational efficiency and cost management. **Key Recommendations Presented:** - Lease standardization efforts - Cost allocation methodology by property - Tenant cost-sharing arrangements **Financial Impact:** The committee discussed the potential for significant annual savings through revised tenant responsibility structures. By having tenants cover utilities and maintenance costs, the council identified potential savings of $5–6 million annually. This represents a substantial opportunity for cost reduction across the organization's portfolio. **Implementation Timeline:** The recommendations are planned for implementation in the next budget cycle, allowing time for proper planning and coordination with affected tenants. **Outcome:** This agenda item was presented as informational, with Commissioner Cole delivering the update on the General Services Link's work. The discussion reflected the committee's focus on operational efficiency and financial sustainability through improved cost allocation and shared responsibility arrangements. ## Discussion on the Proposed Reduction to Council Office Budget [timestamp: 01:32:45] The committee discussed multiple approaches to reducing the council office budget during this agenda item. Council members examined several scenarios for achieving cost reductions, including across-the-board cuts, individual cost center decisions, and furloughs. **Key Participants** Council Member Gordon, Council Member Blues, Council Member Lane, and Council Member Myers participated in the discussion. **Topics Debated** The committee considered a target reduction of $118,300 and discussed the feasibility of using unspent aide salary funds to offset cuts. Members debated the fairness of different reduction approaches and the timing of implementation. The administration budget was identified as a potential fallback option if other reduction strategies proved insufficient. **Concerns Raised** Council members raised concerns about the equity of various reduction methods and questioned the practicality of reallocating unspent salary funds. The timing of when reductions would take effect was also a point of discussion among members. **Outcome** The discussion was informational in nature, with no formal decision reached during this agenda item. --- ## Decisions - **Motion** — passed: Motion to adjourn the meeting --- ## Full transcript We'll begin the budget and finance meeting, call to order, first on our agenda today, and welcome everyone who has joined us today. We've got a pretty quick agenda, hopefully, depending on how the revenue discussion goes, but we'll go ahead and begin with that revenue discussion. And Commissioner Rumpke, you're already poised and ready at the microphone, so welcome. I am. Happy holidays to everyone. We're going to do a brief overview to make sure that you have plenty of time for questions today, and Director O'Meara is going to help me with the presentation, so I'm going to jump right in. Does everyone have their handouts available as well? Good. Ready? There we go. So let's start with unemployment rates. The good news is Fayette County has been holding steady. August was about 8.2 percent. September trending a little bit downward at 7.7. October at 7.8. So for the most part, we've been trending fairly steady over the last couple months. And the same holds true for the Lexington MSA, 8.9 percent in August. September 8.3. October 8.4. so really not a lot of movement there. Kentucky, however, is higher than the national average. Kentucky in August was at 11.2 percent, 10.9 percent in September, and then bumped back up to 11.2 percent in October. As compared to the national average at 9.8 in August, 10.2 in September, and then 10 percent in October. So I guess overall my comment would be that it appears that we are starting to stabilize, but I know some of the regional and national concerns that I've heard expressed over the last couple weeks is that while it appears, if you look at the statistics, that things are stabilizing, there is concern out there that there are workers that have just basically fallen off the radar. They're just not, you know, showing up at the unemployment office. unemployment's run out, and so they've virtually fallen off the radar. So I like to look at the glass half full, and I'd like to think that that's a small percentage of what the overall numbers are telling us. So hopefully we'll continue to have some stabilization and then some downward trends with respect to unemployment. We've put together some, to make it just a little bit easier for everybody, We put the economic indicators all on one sheet versus going through every single graph. Fayette County unemployment, again, I think you can see that it has stabilized. However, if you look at the year-over-year comparisons, the September year-over-year in 2008, we were at $142,900, and in October of 2008 we were at $143,500. So you can see that we are substantially down year over year. With respect to permits issued, again, we're holding steady month over month. However, if you do the year-over-year comparison for September of 2008, we had 1,211 permits issued, and October of 2008 we had 1,461. So you can see that there was a big difference there. Now, we are starting, again, to see things stabilize, and we're hopeful that we'll see this number pick up. New business license, as you can see, there was a pop-up there in October. Bill and I have talked about this number, and some of the things that we suspect may be that the individuals that have lost their positions are actually starting their own companies. And even though we have a $100 license permit, it doesn't seem to be deterring them from looking at that. So I think that those are numbers that we'll want to dig into. And I know Council Member James and others, we've talked about the small business initiatives and some of our economic stimulus for this county, and I think this is a number that we'll want to watch very closely. With respect to home sales, home sales picked up. Yay, good news. And they're up year over year as well. September of 2008 was at 664. and October of 2008 was at 662. So I think we're trending upwards and we're actually higher than the 2007 number. So I think that that's really good news for us. Hate to end on a sour note there, but foreclosures are actually up and we know we were expecting foreclosures to go up primarily because, as we know, the financial institutions had really been working hard to try to put six-month plans in place and really help people refinance their mortgages, work out plans, et cetera. And what we're seeing is a lot of that effort really has not paid off in the long run. So we're hopeful that this is a number that will start to stabilize here over the coming months, because if we see that continuing to go up, that is going to be cause for concern for all of us, particularly from a revenue perspective. Are there any questions before I move to the next? That's just the, I should have put that up there. I apologize. That's the foreclosure graph. And I'm going to ask Director O'Mara to step to the podium and talk about our next subject, which is payroll withholding tax. Thank you, Commissioner. I want to introduce this slide. As you'll see in slides subsequent, we have timing differences that are always trying to be explained and us trying to put into perspective in order to predict what the economy and what the revenues are doing. and October and November actual receipts is not an exception to that. So what we tried to do to look is when did the payroll actually occur instead of when did we get the payroll payments received into LFUCG. So we did an analysis looking at it didn't matter what month an employer paid us, but when did they pay us for July payroll? When did they pay us for August? When did they pay us for September? And when did they pay us for October? And this is what we came up with, so I'd like to show that to you. So this is not when LFUCG received the funds, but this is what the funds represented for the payroll incurred by the employer, just trying to get us a feel for how the economy is doing. And so if you look at July, you'll see that in 2008, it was at this level, and in 2009, 2008 was $11.9 million, 2009 was $12.3 million, and that's a 3.74 percent increase. Looking at that, we did find that there were some overpayments made that were for that period, but we have pending refunds so that we don't get to keep all that money. But in August, September, and October, the same trend has shown up, and that is showing that in 2008 the receipts paid for the month of August were 9.5% more than the receipts that we have received for the period of August payroll. In September, that margin diminishes to 3.5%, and the October receipts that we have received so far compared to what we received last year is 2.87% less than last year. So our takeaway from this is that payroll is down, unemployment is up, total employment is down. It is reflected in our withholding receipts, which is a function of employment within Fayette County. The glass half full is it seems that the margin is decreasing. We were 9.5 percent less than the same period last year in August. It appears that that's at 2.87 or a little under 3 percent in October. So we are not at the same level as last year, but the deficit seems to be hopefully diminishing. So we'll have to see in future months if that holds true. You have questions on what I'm trying to present here? Okay. Well, then to go to the more traditional presentation. Hold on, Bill. I guess my only question is, it's diminishing, but what was our projections? Well, our. Because, yeah, it's diminishing, but still a negative diminish. That's correct. And we had positive. That's correct. And what's the difference then? What was our positive? Well, I'm going to go to budget in the next slide. Thank you for that segue. This month we're trying to report not only October results but November. So here are the October results for the four major revenue categories compared to budget, which has that increase in there. And October withholdings were 5.8 versus a budget of 7.7. We were 1.9 million below budget. That's a 24 percent month to month. I'll show you where that timing difference starts to wash out in November. Net profits were down 575,000. Insurance was flat, and franchise fees were virtually flat. The November results compared to budget show that we brought in $9.8 million versus a budget of $17.8. And that's where last year people paid us quicker than they did this year. So we had received more money in October last year. This year, some of it came in in October, some of it came in in November. So there's that timing difference that I was trying to wash out on that first slide. We were down 1.9 in October. We're up 1.9 in November month over month. The net profits came in a little ahead, and the insurance is down and franchise fees are down. So if you look at year-to-date compared to budget, which is what we need to focus on, we've got October spikes one way, we have November spikes others. We're sitting year-to-date compared to budget, $1.8 million down in withholdings, $162,000 down in net profits, $384,000 down in insurance, and $163,000 down in franchise fees. So our four largest revenue streams year to date are below budget $2.5 million. And unfortunately, I have a caveat to that. And we also have identified occupational license refunds that appear to be legitimate that will need to be paid out of close to $800,000. So if you factor that in, that will be reflected in future periods. We will pay that out of future periods. But if you wanted to look at a snapshot of where we are at November, it would be about $3.2 million below. Repeat that last thing. There are net profit refunds? No, I said occupational license. Castor James. Mr. Mayor, what was the budgeted refund amount? Because I know we predicted that we were going to have refunds. Well, actually, we didn't budget a separate number for refunds. that is reflected in our total revenue for the year in both occupational withholdings and net profit. Okay. Thanks. Council Member Gordon. Thank you, Mr. Chair. So, Bill, okay, two questions. The $800,000 then reflects people who've paid in too much that we're going to have to give a refund to, right? and that will be paid out January through when will we be? You said you're going to phase it out. It may hit our December activity. All at once? It may. Is it going to be paid all at once? It could be January and December. Okay. So if you take your November year-to-date actual versus budget, and this is five months into the fiscal year, and the difference is 1.823 in occupational license. You go down, add them all up, and we're down 2.88 percent based on the budget. How does that, and that's a 2.5 million difference, how does that extrapolate out to a $13 million deficit? Well, these are the four major revenue streams. We have other revenue besides these. But these are the big ones. These are the big ones. And if you multiply that times three, that's $7.5 million. If you put the $800,000 in there, 3.2 times three is $9.7. And then you have, if we're down on detention or if we're down in golf or if we're down in something else, those go on top of that in order to come up with the forecast that we looked at. There's also seasonality. The net profit numbers that we have experienced in the first five months are ticklers to what the total impact of net profit will be. So we are forecasting. We are predicting. We're crystal balling what the net profit number will be because April is the largest month, which doesn't happen until fourth quarter. Our revenues are not even, where it's all 112 each month. So we have seasonality and timing that is in our revenue streams that we're also trying to use to take into consideration when we came up with estimates. Do you have anything that you can show us to show us how you predicted that out to the 13 million? Yes, we can show you. I mean, not today, obviously. But I'm just curious to see, since these are the big ones, how that – and I realize it's not a hard number. I do realize that. It's a prediction. But I was just curious and would like to see how you got there in numbers. If I could go forward to two more slides, that also puts some of the prognosticating into perspective, if you would. Thank you. If there aren't any other. Actually, there are a couple. Okay. Councilman Myers. Thank you, Mr. Chair. Just a quick question. You said that we multiply that by three, but we're already five months in. So there's only one month left, so why would we multiply by two instead of three? You got me. I was trying to do it too fast off the cuff. It should be 512ths, and then you go up from there. Okay. So was the number still 13, or you just made a mistake when you said three? No, when I said seven and five and nine seven, you got me on that. I did that off the cuff. I was incorrect. 13 million is what our prediction is shortfall for the 12 months ending June 30, 2010. Okay, if you go back to Council Member Gorton's number or question about how do you go from the 2.5 to the 13? You don't. This is only part of it, and it is not a standard 5-12th of the year. The month of April, for instance, in net profits is huge income in that one line item. We don't know how that's going to happen, so we have predicted how that's going to happen. Okay. What happens during Christmas hiring is a prediction at this point. We won't know that until February. So revenues, all of this is a prediction based on economics and our opinion of what we think is going to happen in the future. Okay. Thank you. Captain Relain. Good afternoon. Good afternoon to you. I wanted to talk about the timing differences. And if you look at October and November, you know, there's a big differential. Could you explain what factors relate to the timing, in other words, when we actually recognize the income? And maybe start out with the employee withholding. The employee withholding is the best example. Well, we – I have the answer. I'm trying to convey it succinctly. The first two months of every quarter, employers are supposed to pay us by the 15th of the next month. So July is due August 15th. August is due September 15th. The last month of every quarter, the employer is supposed to pay us the last day of the following month. So September's payroll withholdings are due October 31st. How much did we receive to deposit in the bank on the 30th or 31st of October versus November 1st, 2nd, and 3rd? Last year we received many more payments and deposited in the bank on October 31st, and over a million dollars, I think it was $7 million in October and $5 million in November for the month of September. This year it was reversed. We received about $5 million worth of September payments by October 31st and about $7 million in November. So when they put it in the mail, when the post office delivered it, is the determining factor because it goes through a lockbox. We don't wait five days to process it. The lockbox takes 10 returns or 1,000 returns and deposits it that day. So we're not looking at administrative delay. We're looking at when it was delivered and processed payment to us. Does that help? That helps some. Could there also be a factor that some people get paid every two weeks, like on Friday or whatever, so they might have three paydays one month, depending on when their paydays are, and then if there are people that get paid weekly, they could either have four or five paydays a month, depending on, you know, how many, if there's five Fridays in a month, for example. Does that have a bearing also on the collections? It does and had a bearing on last year's results compared to the year before. As best as we know, we don't know the pay date of all of our employers. That's not part of the reporting to us. They just say this is how much is owed to you for this period, whether it's two periods or three periods. We know what our pay period is. We know what UK's is. We know what some of the major employers are. And those three pay periods happen twice a year, and they're happening the same time this year that they did last year. That was not true when you compared 08 to 07. It is true this year, 08 to 09, or FY9 to FY10. When you're preparing your annual budgets, do you try to look at how many paydays in each month and when the reporting dates are and try to estimate the deviation in revenues on a month by month, or do you just straight line your revenue estimate? We were not doing that, and we have tried to incorporate that this year. And so not only did we try to look at it for the total annual, but when we developed the monthly budgets, which this is the first year we've done that, we tried to compensate. We did a three-year average and smoothed out the year that had the extra pay period in it and looked at what periods they were going to occur. So we did attempt to do that this year. Okay. And the last question I have is as far as timing. Are there some employers that have to repay in weekly, some that pay in monthly, some that pay in quarterly based on the total payroll that they have to report on? Is there something like that that would be a factor? There is. Small business only have to pay us once a quarter. Larger businesses must pay us monthly. There's no one that is due weekly. But it's been a long time since I read those regulations. I think if your liability is over $300, you pay us monthly. If it's less than $300, you pay us once a quarter. All right. So that would be, for example, the revenue collected in October for withholding was only $5.8 million, and in November it was $19.8 million. So all those timing factors came together and tripled the revenue in one month for us. Well, no, the third collection month is always the highest because you have all those quarterly payers paying in that haven't paid anything the first two months. So that anomaly, we always have the third period being high. And if you look at this slide, you'll see that both years this is the highest, and that's because it was taking in those quarterly payments that come in each year, each quarter. Okay. Thank you, Mr. O'Mara. That was very well done. Councilman Ellinger. Thank you, Chair. Bill, we're talking about $13 million in cuts in our reductions in our revenue. But I guess my question is when we start talking about it, we also have our expenditures are being reduced, and they have been. So even though our revenues are down, do we still have to cut $13 more million, or is that included in what we've done up to now? Because we're not spending what we had, and I think that's probably going to come up in a later slide, too. so I might be ahead of myself again on this one. Would it be okay if we delayed that? If that was the segue you went to the next one, that would be fine. It's actually a few slides down, but I am getting there. Okay. All right. Council Member James. Thanks, Chair. Mr. Romero, the slide you were just on that showed the payroll withholding tax comparative schedule, you mentioned that it looks like that margin is decreasing towards the end, and maybe based on those quarterly payments in the October, that margin is decreasing, so we have the percentage difference is less than it was. I don't believe that has anything to do with quarterly payments, because you're comparing quarterly payments last year to quarterly payments this year. I was talking about what we hope is an economic trend, that, yes, there is less payroll being paid this year versus last year, but that difference is becoming smaller. Okay. What I would like to see, if you would have any ability to show this, would be in previous years. So what is that difference every October from, like, 2005, maybe going back five years or something? I'd like to see what that percentage difference is. over a five-year span. Okay. I have distributed that in spreadsheet form in the past. It wasn't percentage. It was dollars. It went back all the way to 1990-something. Yeah, I just meant in comparison to this chart that we have presented to us today. This chart, I will have to get with staff on how difficult it would be because we will work on that. Thank you. You're twice. Thanks. Oh, and what causes the refunds? What instigates the refund? Well, I'm trying to answer without talking about confidential business issues. Okay. But if they paid us more than they were legally required to and then notify us and support that claim, then we would be required to pay the money back. Okay. Do we do refunds once a year, or how often do we refund just as we receive notice? We refund as the issues come up. Okay. And we audit and bill people for additional amounts as well. It goes both ways. Okay. All right. Thank you. Thanks, Chair. Council Member Martin. Thank you, Mr. Chair. I understand that we're going to talk about expenses down the road just a bit here in our discussions today, but one of the things that I want to sort of clear up in my own mind is whether we have any options for replacing this revenue. I understand, for example, that you can't particularly bond ordinary expenses out of the Jevenel Fund. Is that accurate? I think it is. What would that do to us if we tried to bond ordinary costs? I don't think we'd be able to issue the bond. So we couldn't actually borrow this money to make this up? Not through the bond market. I mean, if a bank was willing to give us a short-term borrowing for cash flow purposes, that would be the same as a business going for a – But unless our revenues were covered next year, we would be in the same problem, the same pickle. So other than going out on the commercial lending market to obtain a short to midterm loan or whatever to make up this up, are there any other alternatives? I guess we could raise the rate of the withholding taxes or something like that. There are a limited number of revenue options open to the urban county government. They are currently what we have in place, property taxes, occupational taxes, franchise fees, insurance premium. Some of those have caps. Property tax has the House Bill 44 limitations. But we've passed our ability to do that this year on property tax. Isn't that right? Pardon? We could still do that? No, no. No, property taxes are out the door. They're done. Well, that's what I said. We have passed our window to do that for this year. We have gone past, yes. Yes. I'm sorry, yeah. I heard past PAS. Yeah, that's right. We have passed an opportunity. We no longer have an opportunity to do that. I'm not advocating these things by any stretch because these are hard times and folks don't need to be paying more taxes. But I do want to sort of understand the landscape that we're in and the choices that we have in front of us. I think it's important to see the complete range of things available to us. So what about, I guess, the occupational? Is that something that what ability does the council have to adjust that? The council has the ability to set tax rates. Am I misspeaking? Okay. Some have caps. You can't go above X. Occupational tax, we would have to do the research to tell you what that cap is. I'm certainly not looking to do that, but I just want folks to understand that we have very limited options available to us. Essentially, we have to deal with this by cutting expenses. Is that a fair statement? That's a statement of how the administration is approaching it. Okay. What other options other than cutting expenses do we have besides borrowing money on the commercial loan market? Additional revenue streams. So we'd have to look at the, you know, I guess an option would be to mess with the occupational tax. Is that right? That's one option. That's one option. What other options would we have? The insurance premium tax, although that timing is 120 days before, that won't go into effect until next July 1. That's not going to help us with this fiscal year's budget. That would be a 2-11 revenue stream. So there are timing issues and there are limitations on how high a rate can be on some of our current taxes that we have in place. So, I mean, it seems to me that those are not, I don't think, viable options, and perhaps my colleagues might disagree in this economy. So, I mean, we're just going to have to belt tighten. So I'm looking forward to hearing the part of the presentation about the reduction of expenses. Thank you, Mr. Chair. Thank you. Council Member James, do you have a question on the revenue slide? I do. It's actually for Commissioner Rumpke, and it deals with the economic indicator slide, which I think kind of comes – I see a connection between what Council Member Martin is asking in this slide because what I'm thinking, and you can tell me, I'm really just saying this for you to give your opinion, your expert opinion, but to me these are the things that could affect our revenues. And so if we're kind of holding our breath, waiting on these things to come in, and then basing what we have to reduce on these, how can we get ahead of this? How can we get to where we are? What do we need to do? And this is from your private experience as well as, you know, what you've learned here in government. We've got employment numbers, permits issues, new business licenses, home sales, and foreclosures. What can we do that we can impact those numbers to where it gets us where we need to be so that we're not having to have a belt-tightening conversation? I think if I have the answer to that, we're all going to be very wealthy. And I don't mean that as a – Well, let's take them one by one. Yeah. So let's talk about employment for a second. Obviously, the various economic development conversations and stimulus conversations we've been having in this chamber over the last few weeks that I've been a member of the team have tremendous impact. The unfortunate part about that, Council Member James, goes to what Council Member Martin was talking about. It's a timing issue. And so this interim time that we're trying to get a lift, we're not going to be able to see that in employment and have it hit our books immediately. So it's important to be always planning for the future because we get those lifts in future years. But that's not going to address kind of this compression that not just us, everyone in the country is feeling right now. And these are the results of what's happened over the last 18 months. And so there was a delayed effect. The good news is, obviously, we have a much more stable economy than most places in the country. So thank God, because many other places are having just horrendous issues. All you have to do is look at our state and the things that they're dealing with right now. So let's look at permits issued. Again, many people going into business for themselves. And so some of the things, again, we've talked about in this chamber of, you know, how do we help them get a jump start? How do we help businesses through the various counseling that we provide through partner agencies across the city? I think that's extremely important. And that's how I think we continue to get ahead, whether it's through community ventures or through the Commerce Lexington or UK or all the various incubator kinds of things that are going on, and, you know, private equity, the various angel networks that are out there. So that, as I look at new business license and permits issued, I think about how are we stimulating, stimulating what are those programs, you know, whether it's through the Urban League and some of the entrepreneur kinds of programs we have out there. That's how we get ahead. I look at new home sales, or excuse me, home sales, I shouldn't say new home sales, home sales, and that's actually a positive story. And I think if you just drive around town, if you're for sale signs or if you're seeing them, they're turning a lot quicker. And so thank God. I mean, and we're starting to see new home sales pick up a little bit. Now, part of the challenge, and I'm looking at a couple people that have a very strong background in commercial real estate, now the other shoe's dropping. And what we're going to need to be concerned as a community is how we deal with the increasing vacancy rates in commercial space. And we've seen that around our community, and those are big taxpayers. And that's, as we talk about projections, understand, you know, we're trying to factor all of those things in. And so even though it might not be apparent today, there are many people, better experts than I am, sitting on the council that see it firsthand that, gee, you know, have we really gotten through all of the tough times. And we have a few more months ahead of us, and you've seen that nationally, internationally, and here locally. And then foreclosures to my comments earlier. I think, you know, we need to continue to encourage our financial institutions and homebuyers, counseling agencies, et cetera, to continue to work with these folks where appropriate so that they're making good decisions when they do buy a home, but then once they're in a home, how can we help them keep their home if, in fact, they have the ability and maybe they've just had some belt-tightening issues. So how do we help them with that? But at the end of the day, I wish that I could tell you how we can get way out in front. I think it's just really staying close to the numbers and understanding our community in a much more definitive way than maybe we have in the past. That's a long answer, but I think it's a complicated question. No, I think it is complicated, but I appreciate your perspective, because as we look forward to the new budget, we're going to have to deal with the shortfall that we may have today, but I'm hoping that your knowledge of community and economic development will be able, as we're approving the next budget to look at the effect of what we do on the economic indicators and make sure that we're supporting those things that won't get us to the situation where we are today or make us a little bit more secure than we are right now. So that's really all that I have. Thank you. Thank you. Thanks, Chair. Okay. Are you ready for us to finish? Continue. Let's get it going. Thank you. Thank you. To go back to Council Member Gordon's comment, I was here and I was saying the next slides might give another context. If you look at what has been going on in the calendar year 2009, it shows both what I referred to earlier about the ups and downs, 30% down in January, 20% up in February, 18% down in March, 12% down. But if you look at the first six months of the year, year over year we were down 1.3. So far after 11 months in occupational tax, we're still down 1.3% year over year on receipts versus receipts. And then we did the same thing with the net profit. Again, you have spikes up and down, but we were down 14% after the first six months. After 11 months, we're sitting at down 13.2%. So those things are taken into consideration when we are trying to forecast how the year end is going to play out. This may not meet your expectations, but this is the slide that we have for October financials. We've been talking about revenue through November. because of the timing of this date of this meeting, we tried to make sure that we had the November revenues at least preliminarily put in there. We have October financials, and this shows you the interplay between a revenue variance as well as expenses. Through October, financially, we were at $69 million versus a budget of $73.1. That's an unfavorable variance of $4.1 million. We were under expenses in personnel of 1.5, vacancy management attrition, that type of thing. Holding the line on operating expenses, we are saving 3.4 there. So things are trending in the right way. Now, unfortunately, we have a budget timing difference. We have transfers into the general fund of $100,000 so far. We were budgeted at 2.6. So that causes a 2.5 unfavorable variance to leave us a net change after four months of 1.7 unfavorable. But we started at total revenue below 4.1. So because of savings within expenses, that has been mitigated to the 1.7 million unfavorable. Does that help address your question, Council Member Ellinger? It does. in that the expenditures, we're doing a good job with that. Now, I guess are we looking at what we've saved so far for that total of $13 million, or do we have to cut an additional $13 million then? Let me talk a little bit about the $13 million. We provided a range, again, because we don't have that ultimate crystal ball. I wish I did. So we provided a range of 12 to 13 million. So I'm a glass half full, so I kind of like to think about 12. But assuming it was 13, what we have looked at is, and I want to make sure I get my month straight here, We stepped back and looked at, okay, at the end of October, and Bill, make sure that I've got my month straight, what would we need to do to balance the budget June 30th? And so to answer your question, we then set out to try to figure out what would we need to reduce expenses-wise, really knowing that it would take four to six weeks to get a comprehensive plan in place. So you'd have to look January through June. What would we have to do in that six-month period? To answer your question, what we have been doing is we took what we knew were already savings in our budget And we have projected out, for example, vacancy management. I think that the team has been doing a great job around, if you look at the personnel expense line, where we've only been hiring essential positions. And it's a very stringent process for that to happen so that there's tremendous oversight around that. around that. But to answer your specific question, the vacancy management piece was included, the savings was included in what we budgeted, which was two, Mary, what was that number? Two point, the vacancy management. It is about $2.8 million that we already knew we were going to have. So what we did was we tried to then step back and say, okay. Would that be an additional $1.3 from the $1.5 then? Yes. Would that be a true statement, Mary? I want to make sure I've got it on the right line item there. because we tried to shrink these down so that it would be easy to follow. So what we're looking at is starting January 1, what additional vacancy management lift could we get by not filling other positions that we had not anticipated holding firm on? So in other words, I had XYZ position open in finance, and we had projected that that was an essential position, and we were going to go ahead and fill it, and now I'm not going to. And that was not anticipated in the $2.8 million. That would be above the $2.8 million. So that would be above, and that would be a way for us to have additional savings. And so if I can go ahead and comment on how we've been trying to put plans together, Chair, I'm assuming that you wanted me to – Hold off on that. Okay. I think we need to get these numbers clarified because I think this is misleading to some people. The budget column, that's just your – are you dividing by 12? Dividing – how are you getting those numbers? Because you're saying we're only $1.7 million behind budget, but yet if you look at our balance sheet, we're $7.7 million behind between expenses and revenues. So I'm trying to figure out, I think for the confusion's sake and who's watching. Do you want to come up and talk about that? Council members, this is a little, we're not just 1.7 behind budget. Well, that list that she has right there I think is just through October, isn't it? Right. Yeah, these are through October. As you all know, this was the first year. But the sheets you included in here shows a 7.7 million behind. So. As you all know, this was the first year that we had attempted to have a formal monthly budget process. And in order to come up with the monthly budget, we actually looked at three years' worth of information and the timing. So, for instance, parks and recreations personnel expenses are heavier during the summer months than it is in the winter months, things like that. So that's all been factored in to the best of our ability with these year-to-date numbers. We also, to get at Councilman Lane's point earlier, we looked at when are there going to be three pay period months. And if you notice in the slides earlier, October's budget was like $7 million, whereas November's was $17 million or whatever the number was. Well, that is purely a function of we collect three pay periods from a revenue perspective in the month of November. In October, we only collect two pay periods. Likewise, on the expense side, you know, personnel expense for the month of October, if you look at the monthly expense amounts, it's higher than in previous months. That's because we actually paid three pay periods in the month of October this year. So we've tried to take all those things into account. As Bill alluded to in the transfer column, obviously there was a little blip there that we need to look at for next year when we fine-tune our monthly budget, because we had budgeted a transfer that's not going to occur until June that slipped into an earlier month in the year. So, you know, there are fine-tuning, but we have. I feel really comfortable with the expense allocations for personnel. I think the operating and transfer we need to continue to look at, but it is our best estimate, if you will. So, again, to clarify, this chart just shows us compared to our estimated budget numbers. Yes, estimated budget. It's not our real fund balance, ending fund balance. revenues minus expenses. Give us that number just cleanly if we can, Commissioner, what our total revenues year-to-date are, what our total expenses year-to-date are, and our net. That can be said clearly. I think that's... The net impact, change in fund balance right now today, is a deficit, a reduction of fund balance of $7.7 million. So there should actually There would probably be a bracket around the last column of numbers. We had budgeted, though, because we know how our revenue comes in. And we had budgeted a $6.1 million deficit as of today. So we were expecting to have a deficit because we know how revenue comes in. But we have $1.7 million more of a deficit today than we had anticipated. Okay. We have questions. It's customer James, your first up. Yeah, thanks. Question I have, I'm not sure who would answer this, but not filling positions, the vacancy credits and such, is there some unintended cost to that? So if you don't hire someone for a position, yet there is a responsibility that goes with that, and there are other people in that division that end up either having to work overtime, thus accruing additional, I don't know if you accrue additional vacation when you, depending on the overtime hours, but I don't know if that is, like, if you say we don't hire for that position, can you count that as a full credit? The answer would be no, you can't, and we have been giving our directors tools as we're working through this to help get our arms around, okay, if Linda Rumpke isn't here, who's going to do her job? Can we do it with a different level of person that may not be as expensive? Those are the kinds of analysis that we're doing. But to your point, if we're causing additional overtime, we're not saving the government any money. we may be causing us to spend more. And so that is part of the analysis. It's not just a straight, well, I'm just not going to fill my position. Each of the directors have been working on individual plans for their area. They are bringing those to their commissioner. We're having those really difficult conversations on how do we continue to provide service and do our job and balancing that with how do we do more with less. And I think every company in the private sector in the country has obviously had to deal with that, and we're looking at it the same way. So you do pick up on an excellent point. It's not just a save. There's a lot more that goes into it, and that's exactly what we're doing, which is why we're being extremely methodical in how these numbers roll up, because it's not just an automatic save, and that's a really good point. Okay. So we'll see that, like, in January or something? That's what we're working on. Thank you. Thanks, Chair. Any other questions on our revenue and expense numbers for October, November? Okay. Thank you, Commissioner. Thank you so much. I just had one final question for myself. Have we done the rainy day fund calculation yet? As far as what's out there? No. By ordinance, there's a calculation we do if we are in a budget shortfall. are we anticipating doing that for January? Yes, we'll have that ready for you. And when will the administration be presenting to council a budget reduction plan if indeed we feel like we have to go through with one? What is the time frame generally? I don't have a definitive date. I will tell you that that's literally a big portion of what we're working on, and I'm sure the mayor will comment more. but everyone from, you know, directors on up have been working on it because the reality is if we don't get something in place, the longer we wait to do something, the more drastic some of the decisions we're going to make. So do you anticipate in January? Yeah. Okay. Commissioner James? All right. Council Member Jane. All right. Thanks. My question is for you. In a process thing, I've never been a part of where there was such a reduction being proposed. What will happen? The administration will present a plan to us. Is that something we have to approve as a council, or does that happen on the administrative side without really any input from us? That's the million-dollar question. Anything to change it in budget, we would have to approve a budget amendment or things like that. Just reducing expenses, they can do so arbitrarily without council action is the way I understand it. Okay. Thanks. Thank you. Councilman Gordon. So then can you, I asked for the, to look at the forecast and how you came to $13 million. So can you get us that before we get the mayor's request for reductions, please? Yes. Thank you very much. Okay. Next on our agenda today, we have the internal audit quarterly update. And I appreciate, Mr. Salley, you coming back once again. Well, I apologize for our last meeting running long, and we weren't able to get to you. But if you could, take over now. Thank you, sir. All right. Thank you, sir. And I appreciate the opportunity to come before the Budget and Finance Committee and to report out on an internal audit that was performed recently, this being on the Division of Revenue tax gap processes. The Office of Internal Audit completed an audit of Division of Revenue tax gap processes on September 24, 2009. Our audit focused on the tax gap of the occupational license fee. Tax gap is defined as the difference between what taxpayers should have paid and what they actually did pay on a timely basis. Understanding and monitoring the tax gap allows management to make better decisions about tax policy, allocation of resources for tax administration, and to manage fiscal challenges and responsibilities. The general control objectives for that audit were to determine that written procedures exist to monitor the tax gap. The collection process was sufficient to identify businesses who had not filed taxes. Under-reported taxes were identified and collected in a timely manner, and interest and penalties were appropriately applied and collected. The following findings were reported to senior management. Significant technological improvements are needed to address the tax gap issues. The Division of Revenue should seek funding to obtain a tax software program with the capability to manage large amounts of data. This software package needs, at a minimum, the ability to employ system logic to identify delinquent taxpayers, maintain an accurate accounts receivable database that generates reports enabling Division of Revenue personnel to track the aging of tax accounts receivable and to effectively manage delinquent accounts, have the capability to automatically generate notices to taxpayers who have missed filing deadlines, track the filing status of businesses that have been granted filing extensions, and automatically calculate penalties and interest. The Computer Services Mainframe System report of all entities or individuals who have not paid taxes contains significant inaccuracies and omissions. This is the same report that Computer Services provides the Division of Revenue to assist them in collecting unpaid taxes. More than 10,000 blank period end dates were found in the license year-to-date table that contains all returns filed and or paid, and we also noted 249 data validity errors in the related mainframe master file. What that really means is edit checks were either nonexistent or ineffective in a license here-to-date table in the mainframe master file, which is a file that is critical to being able to obtain accurate tax filing information. Penalties and or interest charge were not consistently applied against late payments of net profit returns and employee withholding returns. The purpose of this finding was to raise management's awareness of the potential effect of the unapplied interest and penalties of late returns. It was outside the scope of the audit to evaluate the circumstances surrounding specific instances of unapplied penalty and or interest, or to provide a list of specific accounts to be re-billed or specific collectible amounts. That would have required a massive amount of work by our small audit staff. The Division of Revenue, working with the information we provided them, performed their own detailed examination of circumstances surrounding the top 55 net profit transactions and top 115 withholding transactions are test identified, and they extrapolate that approximately $1 million in uncollected interest and penalties existed over the three-year period. The Revenue Compliance Section receives checks for the late payment of taxes and for the amounts other than the actual tax due or for other reasons such as address changes. Once the related account is researched, they forward these checks to Revenue Processing Section for processing and deposit. These checks should be logged, endorsed, and deposited by the compliance section to increase security of the funds, and then copies or scanned images of these checks could be provided to the processing section for their data processing purposes. The Division of Revenue external website contains license fee regulations that had not been updated since November 1, 2000. Websites should be updated to inform the public of all fees, penalties, and interests related to Ordinance 13-7, which became effective December 7, 2007. And occupational license fee tax forms still must be manually filed by taxpayers and manually reviewed by Division of Revenue Auditors. Division of Revenue should consider a timetable to automate occupational license fee tax filing and review. Management's responses to the findings indicate appropriate action to be taken to correct the deficiency identified. And management and staff are very courteous and cooperative throughout the course of the audit. And just one more thing I want to add, and this is in the body of the report that you'd received back in September. The current process for collecting occupational taxes in the Division of Revenue is very labor-intensive. The Division of Revenue processed 381,413 employee withholding license fee returns and almost 134,000 net profit returns during calendars 2005 through 2008 using dated mainframe software. The Director of Revenue stated during our audit that the software that they are still using was in place when he was hired back in 1995. And this is the software they use to maintain and manage the occupational license fee process, which includes all the tax payment information. And with that, I would open for any questions, if Arnie. Thank you, sir. We have a couple of council members signed up. Council Member Gordon. Thank you, Mr. Chair. Bruce, thank you very much. Did you say, and maybe I missed it in this bullet, fourth bullet on the second page, which three-year period did you do this? And you were talking about withholding transactions and uncollective interest and penalties. What three-year period? Okay. And was it fiscal years or calendar years? Just give me just a second, please. I want to make sure I answer your question accurately. We, the period of our audit was all active businesses registered with LFUCG prior to 2007 that were subject to occupational license fees. So I believe that would have been on 506-07. I think that is correct. Fiscal years. Probably calendar years because of withholding. Well, no, it probably would be fiscal years, yes. This is not a question. It's just a comment on that particular statement. I thought, Bill, you remember when we did the tax amnesty. I've forgotten what year that was. Do you remember? Was it like 2005 or 2006? And I guess I had thought we had a better handle on who owed us, and that's a little disturbing to read the million-dollar figure that you extrapolated out in uncollected interest and penalties. I just, I'm just surprised about that. And I suppose it relates back to your software comment. I think it really does. I think that as you look at the findings that were in the report, what you keep coming back to, and I know that Director O'Mara would certainly agree with me on this, agree with me on this, is you're working with software that is at least 15 years old, probably more like 20. I don't know the exact date, but as Bill had told me, it was in place when he came on board 14 years ago. Through the years, a lot of data that has been input into that system, there have been errors, there have been some Some of the data that has been put in, field sizes were not sufficient for all the information that came in. So as all of this has built through the years, what I think you have is a database system that the software is antiquated. The information in the databases has errors, omissions, there were no edit checks to make sure that the information was entered correctly. And all of that collectively, I think, has had a significant impact on revenue's ability to perform the collection function, as they would certainly want to be able to do. The software, and I don't have a particular software in mind that I'm advocating. Not at all. I know that the Division of Revenue has, I think, to a limited extent, looked at some of the third-party software opportunities that may exist out there. And according to their response, they're hoping for some funding to pursue that. But having an accounts receivable program within that software that would allow you to be able to say, you know, a brief solid company, you know, they paid X last year and X the year before, and we're not aware of any reason why they should not have paid this year. They've not notified us that they've closed their doors, but they haven't paid. And so this system would automatically generate delinquent payment notices. It would automatically calculate interest and penalties. it would greatly assist his division in being able to track and collect upon those uncollected accounts. And also, I mean, in the management response to one of the findings, I think it may have been the one that you're speaking of. Actually, it was defining number two. In the management response, it says, identifying and purging inactive accounts is further a challenge by the nature of the self-reporting tax system. The taxpayer is to file a return when due, and the amnesty program certainly encouraged people to come forward and go ahead and file and clean that up. But what we still need, in our professional opinion, is something that aids revenue, being able to identify the people who still have not filed or have missed a filing deadline. Do you know, and maybe it's more a question for Bill, I don't know, but what is the standard for upgrading this type of software? Is there a best business practice of how often this should be upgraded? I don't have a specific answer to that. I don't know, Bill, if you have any information on that. No. There is no standard, or you're not sure what? I mean, it seems like I know every time we buy a big, this would be a big software package, it would be expensive. I understand that. Well, expensive is a relative term. It's not in the PeopleSoft discussion. Here's our challenge partly on software. The Kentucky local tax system is unique. It is not the standard for local governments. And so there aren't a lot of major players that have invested good software to support occupational license tax in Kentucky. There are some very small applications that are on a PC, and then there are just a few that are designed to support someone of our size and level. Louisville, for example, didn't find any and hired someone to develop it themselves, and it was seven digits to develop it. We met with PeopleSoft as to whether a custom could be done within PeopleSoft, and that's yet to be determined on even if it's feasible or not. So you look at small players, and then you have very few large players, And then the large players already have incorporated the small players, too, have incorporated the type of functionality that this report is advocating for us. Our software, saying it's software, is kind of a misnomer. It's a payment record system. When someone pays, you record it. It is nowhere an actual integrated software that says this was due, it's now delinquent, calculations are done, notices are generated. This is just, if you get a payment, record it for history. And so we have tried to supplement that with a lot of manual processes. Are there, so your comment about Kentucky's tax structure, are there other states that have occupational license fee where you've investigated their software that might work or their program that might work? Right. We're modeled off of the Commonwealth of Pennsylvania. I think that's because we're a Commonwealth too. I'm not sure, though. But actually the Commonwealth of Pennsylvania, if I have that right, has this taxing scheme before Kentucky did, and even the wording and the enabling statutes are almost word for word out of Pennsylvania. So there is a player that is on the East Coast that has Pennsylvania applications. They have some in Kentucky. There is another player who has decided to enter into this, and we have watched as their software has been developed and have a beta implementation in northern Kentucky, and we're very interested to see how that beta installation goes through. I told them during PeopleSoft we were not interested in being a test site for a brand new piece of software. So we have been keeping our eye on the market, and we have desires in order to make a proposal and make a purchase. Thank you very much. Council Member Hinson. Thank you, Chair. I had a question about, it's on the second page of the audit, the fourth bullet. You talk about the top 55 net profit transactions and the top 115 withholding transactions. Was that a sample, or what does top mean? We provided to the Division of Revenue all of the, let me back up here a second so that I can give you exact information here. We identified 1,939 net profit returns that were paid at least one month after an extension deadline of October 15th, but had no penalty and interest amounts assessed. We also identified 6,864 employee withholding returns that were paid at least one month after the quarter-end deadline, with no penalty or interest assessed to those businesses. We provided that list to the Division of Revenue so that they would be able to, again, trying to assess those penalties and interests as needed. Now, in order to actually assess that, you have to go back to each individual account, the 1,939 net profits, the 1,664 employer holdings, and start trying to figure out, well, why were these not withheld? Because we may be talking a couple or three years ago, depending on looking at the timeframe of the data we examined. What Revenue did in their own investigation of it, they stratified by the dollar amounts of calculated unpaid penalty and interest that we provided to them. These were just estimates. And it was looking at, we're saying, the whole population. If everybody that did not get applied penalty and interest could have been applied, And everybody who did not have billing interest against a late employee withholding returns, if all of that had been applied, you know, here's the dollar amounts. So they stratified it, meaning they said give us the top dollar down on each of those two lists. Okay. And then they took the top 55 of the net profit transaction, the top 115 of the withholdings, and researched each one of those individually, which my understanding is took a great deal of time for their staff. And then based on what they found in those 170 transactions, some they felt they probably would never have applied interest or penalty anyway because of circumstances. But the ones that they think they would have applied, had they been aware of them, Over a three-year period, they estimated about $1 million in uncollected interest and penalties. Does that help you understand that? Yes, sir. Would there be a possibility of more, I guess, besides the ones that they just – they didn't take a look at all of them is what you're saying? That's correct. They did not look at all of them. They tried to stratify based on where the big dollar amount was. And a software system would certainly help. It would definitely help. Thank you. Anyone else? Any other questions for Mr. Selle? Very good. Thank you, sir. Thank you. Next on our agenda are the list of recommendations from the council link and updates. Are there any chairs of the links that have any updates for the committee from your council link? Councilman Lane. Yeah, Commissioner Calls there to give us an update today. On the general services link? That's correct. Good afternoon. Good afternoon. I've passed out an update going by each of the recommendations from the General Services link. And, you know, not necessary to read it to each of you, but basically we are on track. Each of the recommendations we are moving forward with implementation. They're on different timelines based upon the recommendation and the collaboration or coordination that will require with other departments. But in general, the parks and recreation, most of them had to do with the restructuring of parks and rec, which we are implementing. Part of that may be slowed down due to the budget constraints that we're facing, but we are moving forward with implementation. On the area of facilities and fleet management, most of those recommendations have to do with better managing our assets, be it real estate, our facilities, and the fleets. And each of those recommendations, we are moving forward. We're at different steps, different points in time in the implementation. Some of them will be finished this fiscal year. Some will carry on over into the next fiscal year. And it is possible that the timing of these will be affected by the budget constraints that we're under. I guess are there any specific recommendations that you all would like to discuss? I'll be glad to answer any questions. Kelfan Rolaine. I'm going to sort of single out a few of the items that were in a recommendation that might have the greatest financial impact. Maybe we could discuss those a tad. I'm going back to the original recommendation list that we had. One of them was to enter into a written lease agreement with all tenants that are occupying city-owned buildings. And I know you've been working on that. How is that coming along? We're progressing very well with that. We have identified all the leases that we currently have. And as they expire and we have an opportunity for renegotiation, we're taking a hard look at those leases to see if everybody's being treated consistently, if it's an issue that needs to be brought to the outside agency oversight committee, or whether we should renew the lease with the current parameters on the lease. Okay. The other area was to try to determine the operating expenses applicable to each real estate property. utilities, repairs, and maintenance. And I know that's been somewhat cumbersome because in the past, many of the utilities were lumped together and some of the expenses were lumped together. How effectively have you been able to ascertain your actual operating costs per building? We're getting good data on some of our larger buildings. Some of the other buildings, we're looking at some of the incentive dollars that were available through the American Recovery Act. to provide some sub-metering, which will help better localize and identify the actual utility cost. So then we're in a better position to make changes to improve the overall operating cost. But it's very hard to justify the energy efficiency improvements when you can't measure the outcome. So we're working on some sub-metering projects right now. Okay. One of the other items was to have each user of our property, in some cases we're giving people no rent, but to have them pay their occupancy costs to occupy the space. There are two benefits there. One is that the person in the space can control the expenses. If we're paying all the bills, we have no control. That could be in excess of charges. And then secondly, if we are providing free rent, perhaps it would be equitable for them to pay at least the utilities and janitorial costs. Is this going to require some type of a directive from the council to move something like that forward? We are working with each of those tenants as the lease expires. expires. It would be helpful, and we plan on working with the outside agency oversight committee, I believe where the council has directed us, to help develop criteria for who should pay market rate, who should we be subsidizing, and it be part of the overall budget review process that happens on an annual basis. And I agree that where we are paying for utilities. We need to be measuring that, and they need to be paying for utilities. But these will each be done on a case-by-case basis. Every lease that we negotiate will be brought to the council for approval, as always. All right. Can you state approximately how many square feet of buildings that the city owns? I just lost that number. Well, it was 88 acres. We transferred it to acreage because it was such a large number, but it was 88 acres of conditioned space under roof that we own. Say that one more time. 88 acres. And this is air-conditioned and heated space? Yes. Well, there's 40,000 square feet per acre. And then you said there's 88 of those? 88 of those. So that's over about 3.5 million square feet, if I did a poll quick and dirty on that. The operating cost for a heated building is somewhere in the range of $5 or $6 per square foot. So if we have 3.5 million square feet times six, that's about $20 million a year that we're spending for operating these buildings. That could be a low estimate because some of the buildings may be very inefficient because of insulation or the maintenance or whatever. Considering that we have a shortfall of about $12 million in the budget, It seems to me that this could be a very good approach to, you know, and I'm only talking about operating expenses. I'm not talking about rent. To address this issue immediately is maybe another way that, you know, we can get some additional revenue. It's really reducing our expenses. It's not really additional revenue. Just asking the tenants to pay their fair share of the utilities and operating costs for the property. Do you have a recommendation of how we could ramp this up? Could you maybe perhaps bring a report to the council of who the tenants are and what buildings they're in, how many square feet they have, and we could look at what our opportunities might be there? Now, obviously, if we occupy the city hall and a couple of these buildings, we won't be – we're already paying the rent there. So these would be for buildings that we own but we're not occupying, I guess, is where we'd have to go with that. But still, if there were a million square feet of that kind of building, that's $5 or $6 million that would come back to the city. Yes, and I believe that we, the mayor, and we have promised to bring that to the council as part of the upcoming budget discussions in the quarter. So we have most all of that information now. It has been made available to you in a couple different forums, but we'll formally come with some recommendations on the space for the next budget cycle. Your time has expired. I have one more question, then may I quit? Quickly, and we can come back to you now. All right, thank you. My last question is, could you just describe the condition of the records, the leases, and the information you had on these properties when you came in to your position? That's all I have. Thank you. Yes. Prior to forming the Division of Facilities and Fleet Management, each division of government was responsible for their own buildings that they occupy and their own leases associated with those buildings. So it was a very decentralized process with some of them being followed very well, depending on who was managing that, and some very lackadaisical. So what we've done is we've centralized those processes and centralized the management of all of our buildings that we own and occupy and all the leases for other space that we are occupying. And so it is so much better than what it was. Now, we have asked for funding for the real estate software of PeopleSoft, which is not currently happening for this budget cycle. But that would give us a database to collect all this information, integrate with our other financial systems, so that this will be a management tool for the foreseeable future to help us manage our properties. Councilman Myers. Thank you, Mr. Chair. I'm glad Councilmember Lane brought up this topic. I know, I believe it was the last work session we had a discussion about those leases that we put on the docket. And the mayor said then that he would be bringing forth a recommendation. The reason I asked him to clarify that was because it would seem that the sooner we get the information to these agencies that they're going to be being charged rent, the better off they'll be able to manage that in their budgets. So I've heard kind of two different things here. One, you talked about outside agencies making a recommendation, but it seems to me that the administration has already done that needs assessment. And that needs assessment, one of the things that we were told that would do is give us what the community as a whole believes are essential services. And that from that, we could determine then, and it would be an administrative decision, really, a recommendation from the administration as to what services or programs need to be provided to our community. And if the administration is – if the government's not going to provide the service or program, then we would look to outsource that to someone in the community. So can you speak a little bit to, as you guys put together that recommendation as to what agencies should start to pay rent or pay maintenance and those different kinds of things, do you anticipate that happening at the beginning of the next fiscal year, or are we going to be able to take advantage of it, like Council Member Lane said, and see immediate savings for the second half of this current fiscal year? I think it would be difficult to change it in the middle of this fiscal year. I think that the appropriate thing would be is to match up what we're providing these agencies in rent and utilities and custodial or any of the other items to be part of the outside agency funding recommendations that the mayor brings forward within the next budget cycle. So we will capture what is the estimated value of the space and the other services we're providing and make it all part of the budget so that it's reviewed on an annual basis. Okay. So is it you're thinking then that these agencies should be ready to take this on in their next year's budget? Depending on how the lease agreements, when they expire, we may or may not have that option, but many of them are annual leases, and it could be part of the budget cycle. So how soon will they get that information? It seems problematic that we wait until the budget cycle to give them that information if we're going to expect some of them to come up with that. I mean, they need to be planning and raising money and shifting budgets and things if they're going to be required to take on some additional responsibility. I'm all for it. They need to. There's no doubt about that. But I'm just trying to figure out how even outside agencies, when we made a recommendation to remove people from our health care plan that are not employees or retirees from government, we gave them all. There were three that could go straight into the state's plan. We gave them, I believe it was at least, I think we gave them a year, actually. And the others we gave them, it's going to turn out to be almost two years, a year and a half, before they have to make that switch. So I'm just concerned that if we wait too long, we're going to ask those agencies that we can make, we can affect their lease in July to do that when they're not going to be prepared to do it. I agree. I don't think we're going to, we wouldn't make recommendations that were problematic in implementing. But in the case of an agency that is very well aligned with the needs assessment, then it's just a matter of documenting that we're actually providing much more assistance to that agency than what we've been recognized as so in the past. Okay. And then one other question. I know that you requested the funding for that software package that you just talked about. What is your plan for still moving forward with the collecting of that data and making some type of useful tool to utilize that information once you collect it? In the meantime, since we don't have the money to get that software right now? A lot of the just capturing the data is being done on a very large spreadsheet that's very problematic to navigate through. But what it doesn't give us is the tools to actually see that a payment has arrived for that lease or it has not arrived and give us a notice and to notify us when leases expire and all of the different parameters that are in the lease. So that is being done manually right now, which is very tedious and cumbersome and leaves a lot room for error. Is there something that you could recommend to the council that isn't the – I think that one software package is like $600,000, wasn't it? No. We actually already own the software package that we're wanting to implement. It's the implementation cost and resources that we don't have currently. How much is that? Do you remember? No, but Rama will. Is there something that the council can help the administration do in the meantime? I know you're collecting that data in a spreadsheet. Is there – I know that sometimes we contract out to programmers. Is there a way that we could write something that would assist you to get you through until we can implement the other piece in PeopleSoft? I don't know the answer to that. Rama might. But what we are doing is we've worked with the Metaformer folks in making sure that what we set up in our spreadsheet database corresponds with the field so it can be an electronic transfer. So we are taking all the steps that we can there. And in addition, we're also getting all the work orders for building maintenance all on one platform. We're in the process of centralizing that. We have three different software packages doing work orders for the government right now, and we're migrating all of them together into one. So we're doing everything with the tools that we have right now. Okay. Yeah, that's awesome. The implementation cost was about $195,000. How much did you say that would save us in the first three years once we implement that? Well, the return on investment, if you look at it, I mean, if you look at the properties, you can get it less than a year easily. We already own the module in terms of the software. It's a matter of getting that. We need some resources from accounting and general services and computer services at that point to implement it. But, you know, you do have some internal resources we will need. So that's – you will have a pretty fast return on investment. Okay. One more time. I know my time's up. One more. What was the dollar amount again? $195,000. Okay. Thank you. These are planning figures, by the way. We will build a scope and finalize the amount. Okay. Thank you. Thank you. Councilor Blues. Thank you, Mr. Chairman. Kimber, can we send out a letter to the non-LF UCG tenants simply informing them that a review of the way we allocate use of our facilities is and will be underway, and that since we want to be sure that we're making the best use of the facilities and that we're being fair across the board, we would ask the various agencies to begin to make, you know, to gather some data and to be ready to provide some information on the services they perform, to whom, their effectiveness, and so forth. As Council Member Meyers said, we don't want to take people by surprise or give them a small window of opportunity to respond. And so I'm thinking that maybe that kind of heads up might be helpful. That's just a suggestion. An excellent suggestion. We'll plan on doing that right after the first of the year. Thank you. Any other questions for Commissioner Cole? All right. Any other updates from any other chairs at this time? Okay. Moving right along, our last item on our agenda, and part of this is for information only, but we can open it up for discussion as well, are in talks of a reduction plan. The council obviously is not immune from that being part of that reduction plan as it relates to our budget. So we thought it would be appropriate to list the different categories within our own budgets for discussion and also understand the numbers we're trying to shoot for. And Commissioner Rumpke, I assume the mayor is doing this government-wide and all directors are submitting. When is that deadline for the directors that they're submitting to the mayor? The directors have already submitted to the commissioners, and we have been working on that. They submitted. I'm sorry, the days are running together. I think it was last week, and in fact that's all we've been doing is working hard on those plans. Thank you. You're welcome. Committee members, are there any thoughts as to how we want to proceed down the process, not necessarily get into debate on what we need to do and what we should do? We can obviously take that up over the next month or so, but is there any discussion as to what items we want to or what path we want to take? Councilman Gordon, you're up first. Thank you, Mr. Chair. Well, I know that Jerry brought us some scenarios, and I really appreciate your work on this so that it gives us something to think about. I had two thoughts, and I'm presuming that we will submit our council plan just as everyone else has. And so I wanted to add a fourth scenario just to throw it out, not necessarily for discussion today, but to be on the list. different council members use their cost center differently. And my thinking is that rather than mandate an across-the-board reduction from every cost center that's the same, that we have a number, a working number that each cost center needs to find and let each individual council member find that, Because I know, for instance, some of us don't ever use a penny in travel, so that's a big, you know, that could go, whereas others do use that. So as a fourth scenario, let council members individually decide within their cost center where they will cut. And then the other thing that I wanted just to bring up is that amount of money, Jerry, I'm looking at you, all council aides do not make the same amount of money. Some are at the max, some are not. And presuming that there, this is a presumption that there wouldn't be increases, pay increases between now and July the 1st, what is the amount of money still in the pot for employee raises, and could that be used? Do you see what I'm asking? because I think there is a chunk of money left in there. Historically, I think budgeting has budgeted for the full amount for each aide. I would have to verify before I would commit whether they did the same thing for 2010 or whether they used the base salary and then increased it by any anticipated increase, like 1%. But if they did that, then the answer would, there wouldn't be that margin to use between what the aid was making and what the top end would be. But if budgeting used the top end, then there would be some lapsed money or some unspent money there. I know Mary can answer that, but of course, at any moment, any council member can put in their aid for a raise. So I'm presuming that the whole amount is in there. Did you speak to that? I believe that for the council, we budgeted the positions as we do all the other positions throughout government, which is using a midpoint of the salary range. So if a – For vacant positions we're talking? No, no. These are filled positions. For filled positions, we use the actual rate of pay for that employee plus whatever the approved raise was. And for vacant positions, we would use the midpoint of the position. So just for clarification, if today an aid position was proposed for a raise to the max, you're saying the money's in there for every one? No, I'm saying that when we developed the budget process, we looked at all positions that were filled in, say, February, whatever day we pulled the data, and whatever that person's making at that time, at that point in time, is what we budget them at, plus any rate increase. Then we go through a review of all blue sheets to gather everything. And if you recall, during your council proposed budget process, there's administrative changes, and a lot of those are where we're factoring in where we've seen that there's been a blue sheet to increase somebody's pay or what have you. So is this the first year you did that? No, we've always done that. So when a council aide is proposed for a raise, where does that money come from? It either comes from fund balance or you offer up a place to fund it when you go for the proposal, I believe. So you are not budgeting the fully approved amount of money that a council aide can make? Not to my knowledge. I can confirm that. But to my knowledge, we do not treat council aides differently than we do any other position in the budget process. I think they did it the first year, but after that, I think they used the base salary plus any anticipated increase. Right. I'm corrected, but I remember a schedule that I got from budgeting that that was one of the issues that I was looking at for myself was where they continued to budget at the full, the top end, and they did. So when a new aide comes in, there's a vacancy, then what do you budget? The budget is at the midpoint of the position, and then if the person's hired, if there's a salary variance, then that comes from fund balance. Is this the only area, and my time's up, isn't it, the only area in government where there is a max and some employees make it and some don't, and so you budget the mid? Well, I think all positions have a range. You know, all positions do. And some people may be earning the top end and some people may be earning the lower end. We budget, if the position's filled, we budget based on what the person's actually making. Okay. Plus whatever approved rate increase that you approve in the budget process. Thank you. Okay. Council Member Blues. Thank you, Mr. Chairman. I just wanted to underline Council Member Gorton's fourth alternative here, because each council member operates on his or her own account, and our cost center allocations and uses can be quite different. It does seem to me that the fairest way to do this would be ultimately to come forward with a target number for each office. I gather that would be somewhere around $7,900, and then leave it to that office to meet that number. Thank you, Mr. Chairman. Thank you, Council Member Blues. Council Member Ellinger. Thank you, Chair. When are we planning on addressing this issue? In January? I think as a council we can do it our next CAL meeting, make a final decision. I assume we would all, with the email traffic and other avenues, if our council administrator could collect everyone's desired scenario for their office, and then at our next Cal meeting in January we make a final decision. And I guess the number that we're shooting for is 118,500? 300. I'm sorry? 300. 118,300. 118,300. Oh, 300, sorry. 118,300. And if we're looking at, I guess, NDF, we couldn't really spend between now and then because that has to go through the blue sheet. But you could spend your cost center money between now and when we meet, I guess. So we might have to look at. I would hope the council members would be responsible enough because any money spent or any lack there of money would come from personnel at that point. Right. Because if you look at cutting, what's the numbers? I guess the rough numbers were about $16,000 between NDF and cost center, $10,000 for NDF, $6,600 for cost center. So if you take half of each of that, that would be $75,000, $43,000, or $49,000. So that would cover the $118,000 loss if you took half of each. So that's one way to address it or look at it at least. And I think outside of that, you're going to be looking at personnel probably. And then the one scenario was in here on furlongs, or furloughs, I mean. Furlongs, furloughs. Could you explain how that would work, please? I'm not used to sitting over here, so there are several different ways to go about it. And Jeanette just reminded me that because next year is an election year, that you all will have cutoffs on your NDF expenditures. So that's something that we will need to look at, the six-month rule, I believe. But let me remind you that the salaries, if we do go into furloughs, that Jerry and I will look at individual hourly plus benefits to arrive at an amount. We won't take just a blanket amount. And I think if you, not including the core administration, the main council office budget, but the districts, we can break down an equal amount. It would be no problem and let everybody come to their own, if that's acceptable. And I'll be more than happy to be the point, the pivot point. Jerry and I can work together and you can get your suggestions to us. Thank you. I think the election year will be for the fiscal year 11 probably, won't it? because that will be for next fiscal year because you can only spend up until December, half up to December. Well, there's a primary in May, which is this fiscal year. But I think was there a 30-day rule for that that you can't spend prior to the 30 days, I believe. Yeah, that's correct. Thank you. Councilmember Lane. Thank you, Mr. Chairman. I just wanted to make some of a philosophical statement about what we should do in the council. I think we have to recall or remember that the duty of council is to set policy in the budgets for the urban county government. I feel that we should do something that would be reflective of what we would ask all other employees of the government to do and not to do some kind of special plan for the council. One of the thoughts that I had was perhaps all employees should be asked to take a furlough. If it's a 2% furlough, that's if you have 50 weeks and a year, that would be about one week's furlough. And that means everybody would take time off to save the government money. money, that would be in addition to cutting our costs for operating our department as well as all the other departments of government. I feel that we need to set a good example and that everybody in the government is going to have to help us because the only other option would be to either lay off people or to raise taxes, and I don't think either one of those are good approaches for the government. Thank you, Mr. Chairman. Councilmember Gordon. I had one other question, and that is, Jerry, I know that your scenarios included cuts to the administration budget, the council administration budget. So did you have, in thinking about if we allow council members to decide within their cost center how much to cut, then how much, do you know, how would you figure then how much needed to come from the administrative budget? It would just be the difference. I mean, if our bogey is $118,300, whatever the council agreed to as reductions from their cost center, the balance, the only other source would be from the administration. Well, I guess what I'm thinking is I think that there are cuts. So you're saying as a fallback, everything should, if I understand what you said, everything that we could get from the cost center would come first. Because I think administrative budget has some places food. Yes. That's not a very big category, but where we could just, you know, that would be something that could figure in. Well, you could go above the $118,000, too. Is that the 5%? Yeah. Or, you know, if you wanted, if you thought, well, we're going to eliminate all of food, maybe there's a portion in there, but you may as a council decide let's eliminate all the food and household costs that's in the administration's budget. I guess what would be helpful, at least for me personally, is to know in the administration budget, and maybe, Rebecca, you can help with this too, is what is in each of the categories in the administration budget? and what are the needs, for instance, you know, dues and subscriptions. I mean, I don't want to get into the detail of it right now, but it would be helpful for me to know what each of these covers, so if we were to cut, what we would be cutting. Because we pretty much know in our own cost center what we're cutting when we cut. But it would be helpful if you could work up something to show each category. I want a description of the cost under it. Yes, and what it covers. Okay. Okay, thank you. Thank you. Any other council members on this issue? Council Member Myers, we have about 10 minutes left, Council Member Myers. Does that mean I get it all? Is that what that's for? You can have five of it. Okay. Mary? Can you come back up to the mic for a second? Going back to what Ms. Gordon was asking you about, how you budgeted for our council aides, can you go back to our budget for the council office and look at year-to-date spent on non-elected official salaries and extrapolate that out over 12 months? Joe Shuler, my aide, and I were talking, and he did that, and he thinks there's an extra $60,000 in there. So it would seem that you guys – Is he doing just salary or salary and benefits? He just left, so I'm not sure. Okay. I can do that for you. If he was doing salary and benefits, there are some benefits that don't hit until June. And so if you were taking the first five months and extrapolating it out, you would see a savings that's really not there. And what I'm referring to is the additional amount that we fund, the self-insurance health plan. It doesn't, that transaction doesn't occur until June when we actually have what the true claims were for the health insurance plan for the year. And then we true it up. So, but yeah, I can do that for you. Okay. Thank you. Anyone else on this topic? All right. It brings us to the end of the meeting. Our next meeting will be in January. One of the main items we'll have at that meeting is our debt and capital plan analysis that the fiscal policy task force presented to us about eight months ago. and in lieu of our bonding workshop and the exercise we just went through there, I thought it would be appropriate to have Mr. Hackbart back and start down the path of creating a debt management policy as well as a capital management plan policy as we move forward, given the fact that the workshop, I think, was very valuable in looking at our true needs and where we want to set our priorities on bonding. So we'll have him back at the January meeting to start that discussion. If there's anything else any community members want to see at that meeting, please let us know soon. and do I have a motion to adjourn? Move adjourned. Move in a second. All in favor say aye. We're adjourned. Thank you.