Music With the Budget and Finance Committee, we have a quorum. The first item on the junior is the monthly budget report. Commissioner, welcome. Thank you, Council Member. I just wanted to, as I have done, give you just a couple of points of overview for some things that are going on within finance divisions. then Bill O'Meara is going to do revenue, and Ryan Barrow will do the expenditure side, and then I'll wrap up the presentation. There were just a couple of items, one of which you all asked some questions about last time. I just wanted to report the audit is progressing in a timely manner. We anticipate that the auditors will be done with their testing at the end of this month, October 31st, which was the original schedule for their testing. That means then they go off-site and put together their points and their reports. We still will finish by year end, as we anticipate. The actuarial study and experience study for the pension board is delayed slightly, but it will still be accomplished before the end of the year. It's because we asked for an experience study first, and then the actuarial will follow that. But again, we still feel like that we will be able to present to you the annual financial report in a timely manner as we had promised. The second is just I wanted to give you an update. We'd like to give you information in response to some of your questions last time more quickly if we are knowing something may impact us as a government. We have been given notice by American Water that they no longer want to collect our user fee. They no longer want to bill for us. So they did give us official notice. We had been in conversations with them for some time. So we're currently evaluating options on how we will be able to continue to collect those dollars. That's about $65 million. Is that correct? $65 million worth of revenue to us, so it is a significant issue and one that we are dealing with. We have been visiting with other, just for your information, other water utilities that are willing to help us and assist us through this process of coming on board with a new system to collect those bills. So again, yes, sir. I think we have a question on that issue, Vice Mayor. Did you want to? I have several questions. Okay, we'll wait until you finish then. We'll wait until you get done to ask all of us. Those were my two items of introduction. I think, Council? Vice Mayor. Thank you, Mr. Chair. Thank you very much, Commissioner Driscoll. Okay, did you tell me again what you said about when you think the audit will be to us? Well, again, we will complete the annual financial report prior to December 31st. So we were hoping to get it to you earlier than that. We are waiting on our response from the actuarial for the police and fire pension fund. So we'll have everything else complete with the exception of that. That may delay that footnote in the actual report. Okay. Are all the partners finished, Lexington Center, Airport? Who's still lingering with their audits? I will have to get back with you on that information. I think Phyllis had indicated last time, hopefully she's watching this and will come down again, but she had indicated there were just a couple of outstanding ones from the previous meeting. Okay, can we, for next year, can we set a date when those partners will be finished with their audits? Because I know the Lexington Center was finished in September. We do set a date for those. A couple of entities ask for extensions. Okay. And then on the American water, I don't think I heard you say a date. Did you say a date when they're going to stop? collecting? According to the contract, it's March 31st. Had extensive conversations with Cheryl Norton. We did not anticipate that being the date. We did not anticipate it being that early from previous conversations that they had indicated it would be longer than that. But that's the official date they gave us in a letter. And do you recall, do we pay them a million or two million to collect? How much is the payment to American Water? You remind me how much we pay them to collect? 1.6. 1.6. Okay. And there's Phyllis. And we are waiting for the health department still. We are? Yes. Should be this week? Should be this week. Okay. And the $1.6 million on collecting the fees is for two years, did you say, or one year? One year, an annual fee. Thank you very much. Phyllis, did you want to come to the podium and give us the information of who we're waiting on? Just the health department, and they're supposed to have that to us this week. I'm sorry. Thank you very much. Mr. Beard. Actually, I don't need to speak right now, Chair. Mr. Lane. Yes, my question had to do with the collection of the fees. And the first question is, has Kentucky American, have they lived up to all of the terms of their agreement with us as far as collecting the funding? Yes. Okay. And then you're saying that the termination date would be March 31, 2012, which is about, I guess that's five months out. So we need to implement a program to bill for that. Do you envision that we would do that internally or externally? Do you have a plan yet? We are looking at evaluating options, but we are looking most heavily at external. We don't have the capacity within the current staff. to do those collections. So we are looking at an external option just for your information. We had thought we were going to have 12 months in all of our discussions, prior discussions with American Water, 12 months to complete this process. Do you feel that there's any possibility they would agree to give you more notice time, or are they pretty rigid in that issue? We have asked for that consideration. All right, and the scope of the services provided by Kentucky American, obviously they had to figure out what the cost of the sanitary sewer and some of the other fees that are on there. Did we provide that data to them monthly and then they put it under the bill? Well, it's based on, and Bill O'Meara can probably give you a better explanation, but it's based actually on data from American Water, so we'll still have to have the data from American Water. in terms of... Because we also have the landfill fees there and this flat fee for the storm drainage. That's also on there? Yes, the wastewater fee. Sanitary sewer fee. Sanitary sewer, wastewater fee, and the landfill fee. Could you just elaborate on that just a little bit? Because I think this will be interesting to figure out what we have to do, and if there's some independent party who wants to bid on it, An explanation of what they'll be bidding on would be good, too. Well, we're also currently documenting the needs for an RFP for a full-service provider and hope to have that finished in very short order. But they currently use their water usage, which is by ordinance the basis for the calculation of the sewer user fee. So they take their water consumption by customer and then multiply it times our two-tiered rate for the sewer. Then once a week we update data to them for both the landfill fee and the water quality fee as far as number of units. The Herbies is the number of units for landfill. The ERUs is the number of units for water quality. And even though all residential are based on one ERU, the commercial accounts have a variable rate or variable number of ERUs, so that may or may not change over from year to year. Then they put that on a unified bill with the water bill. They collect on our behalf. They also do delinquent notices, turn off notices, and maintain the customer history for all of that activity on our behalf. The fees that are collected, they all come back as a lump sum to the water company now, and then they pay out the shares appropriately based on the collection? That's correct. They collect the unified bill payment, pay themselves for the water first, Then the next dollar goes to sewer. After that, it goes to water quality, and last dollar paid goes to landfill. They remit those collections to us daily, and so then we have access to our funds. All right, my last question. What type of firms would be potential providers of this service? Well, there are national utility billing companies and then just billing companies that would be glad to take the data furnished to them, print a bill, send it out. But then you've got the calculation, the collection, the customer service, the phone calls, that kind of thing still to do. So that niche is covered very well. If you just want to print a bill and send it out, we're trying to find a full service provider that maintains the total customer record, makes the calculation, produces the bill, takes in the collections, does the delinquents, and does the customers. service. Thank you very much. That's all I had. If you wanted to say something, Commissioner. I just wanted to add that there are utility companies, too, that are potential, have some interest potentially in providing this service to us. And the other point I might add is Bill's been leading this effort, but we have a committee of all the stakeholders. So obviously folks in Commissioner Taylor's group as well as the IT folks. So it is a stakeholder group that are working collaboratively on moving this forward. Okay. Thank you very much. Mr. Beard. Thank you. Maybe it might be more appropriate for Bill to answer. How long did it take for them? I seem to remember they were somewhat lengthy in getting the stormwater fee installed into their system, which is a fixed fee. I don't really understand why it couldn't have been done in 30 days, to tell you the truth, but it wasn't. And we waited and waited and waited. Second question, sanitary sewer is tied to water usage. So how are we going to get information on the water usage so that we can calculate what the sanitary sewer fee is going to be? Has that been brought up? Do you like multiple questions? I have to remember them, so I'm glad you didn't go to a third. The first question is the development of the water quality fee measuring and billing system was more on our side, and we engaged a project manager and a development company to bring that together. The development on the water quality side, I mean, excuse me, the Kentucky American Water, was they had buckets for sewer, they had buckets for landfill. they needed to have an extension in their system for a third type of billing for someone else. But I don't remember my recollection of the project was we were not delayed waiting on them. It was being developed concurrently. Second question, per ordinance, the sewer user fee is based on water consumption. And so prior to Kentucky American Water billing on our behalf, we purchased water consumption from Kentucky American Water in order to make that calculation. And so starting in April, we would go back to that model, purchasing the water consumption from Kentucky American Water Company, and then using that to calculate the sewer user fee. Is all this triggered by the fact that they're moving out of Lexington? How have you heard that? I have not heard that, but it is not triggered on where their location is. Probably Pennsylvania, but I would guess, but maybe not. And then it's my understanding they've approached or in some conversation with South Shore Kentucky and Northern Kentucky to provide water for them also. And you might not know anything about that, but people whisper in my ear, so I find those things sometimes. I'm focused on the billing side. I understand. I understand. that we all have to live with what we've got, I guess, until such time as we get rid of it. Mr. Stinnett. Thank you, Chair. Thank you, Chair. I just want to be clear on our process. Are we going to go out with an RFP in the next month or two to get these services, or are we still negotiating with Kentucky American on the drop-dead date? Or both? Yes. We are working very diligently on producing a request for proposal. We want to get that out as early as possible. And if we can, have responses back by the end of November. It's pretty aggressive, but we're still hopeful. If not the end of November or the 1st of December, try to make a selection as to what path we might take. Our first option is a full-service provider. If we do not have full-service providers, then we have to look at alternatives to that of what is needed to be done within our confines versus what we can purchase with a best-of-class service provider. So it will not be until the RFPs come back that we have a true project management defined for us. And cost, of course. And cost. And the reason I bring that up is we go on recess after the first week of December, and then we're into January, and we're here. We'll have lots of information for you. When's your next meeting with Kentucky American to discuss a drop-dead date on the billing? Have you all still in correspondence with them? No, that is their drop-dead date. The only other thing, I must say we've been disappointed in the shortening of time because it wasn't what we were told nor what the mayor's office was told either. But what they have said to us in correspondence is this is the dates, the decision they've made, but they will help us through the transition. Again, not verbiage towards the extension of the date, but we've had those conversations with them. So we want to see how the committee progresses. and we have enlisted the help of some other utilities that, again, have indicated they would help us do whatever they can do to help get us through this process. And should I even ask what the original date was? What was it, end of June? It was six months longer. Okay. And that was from the very... It would be nice to coincide with our fiscal year. Yes, it would. Okay, very good. Thank you. Thank you, Chair. Thank you. Mr. Farmer. Thank you, Chair. This is a really good discussion, and it's one of those things that is kind of an unfortunate situation, but I think some good outcomes can come from it. What opportunity do we have to package fees together on our – what will we package together? What all will come off? There's a lot going on. Sewer fees, landfill fees, water quality fees. Those have all been a unified bill with the water company. Gotcha. The water company is going to bill for their services alone, so those three fees have to come off the water company's bill. We will come out with a Lexington-Fayette Urban County government unified bill with those three fees all on one bill. Well, then that's what we'll do. I mean, it will provide a point of clarity as to what people are paying for and what they're getting. There's no doubt about that. I just think that in the final analysis, one of the reasons we were using them was accessibility. They're able to collect 99% or whatever. I think we're in the process of putting ourselves in a position to do that for ourselves. And I think that will be part of the effective part of this. Well, there is a state statute that says a water utility can and will terminate service for failure to pay sewer fees. That is my understanding, and I'm practicing without a license, that that is unchanged regardless of who issues the bill. I think we're doing our sanitary sewer private property working group, which I think will bring even more to bear on this newly and shortly cast opportunity. But I appreciate the information and look forward to working with you all on it because I think it could turn out better for us, I hope. I'd like to have some more elasticity in the drop-dead date, though, but we'll work on that, too. Thank you. Thank you, Chair. Thank you. Dr. Bluse. Thank you, Mr. Chairman. Bill, just a follow-up on Council Member Farmer's questions. What would be the mechanism for enforcing the billing? Do we know that at this point? Yes, sir. If we produce a unified bill that is issued by the Lexington State Urban County Government, we can dictate the application of payment. So we will apply the first dollar to water quality, the second dollar paid to landfill, and then the last dollars to sewer. And so any unpaid balances would result in a delinquent or unpaid sewer fee, and the state statute says that we can go to the water company and ask for termination. So that's not a first option, but it is a last option for collecting of delinquent fees. Let's see. Thank you. Very helpful. Thank you, Mr. Chairman. Any further questions from committee members? I think we'll go ahead to the first item then, the monthly budget report. We have our monthly update, and the first part is some of the standard presentations that you've seen. That's a little dark, so hopefully you all have copies. But this is the comparative unemployment rates comparing the United States, the state of Kentucky, the Lexington metropolitan area, as well as Fayette County, Lexington. And you might see from the detail that the unemployment rate went up for Kentucky between August and September. It was 9.5%. It's currently at 9.7%. The U.S. stayed flat. It was unchanged between August and September at 9.1%. We do not have September results for the metropolitan area or Lexington yet, so the most recent information we have is August, and the Lexington MSA is at 74%, and Lexington is at 7.2%. If you do look at the seasonality of the graph, you will see that over time our lowest unemployment rate is usually in the last calendar quarter, the October through December. So the question is whether this decrease in unemployment that we're seeing will continue for this quarter or not, or if it would follow the national trend of spiking up. So we're very interested to see what the September results are as well as the last quarter. The next slide is smoothing of those averages so there aren't as many spikes. That's your three-month average, and you can see that downtrend for Lexington and MSA versus the flat or rising for the state and the national. The next slide we've tried to reconfigure per your request to give you year-over-year comparisons for some of these selected economic indicators. So we have 2010, April through September, on the first line for each category, and then the current year below. So as you can see, we went 7.4 to 7.2 percent unemployment rate for Fayette County, and that compares to the same time last year of 7.8 and 8.3. The employment numbers are equally illustrated there, and it does show that we've picked up 4,000 to 6,000 more employed this time this year versus last year. And you will see that in our withholdings budget and results. And then the others give me a little pause. If you compare the construction permits issued to same period last year, we're either flat or down in month-over-month comparisons. And new businesses, we've been running below same time last year until this month. So we'll see if this is a trend month. Home sales are up. Foreclosures are down. So those are two good signs month-over-month in the housing sector. For the month of September, tracking our four largest revenue sources, we brought in almost $12 million for withholdings against a $12.7 million budget. So we are under budget for the month, about $750,000. If you recall, in August, we were up about $1.2 million, and we felt that that seasonality would show up, or the timing difference, which show up with September, and sure enough, it did. Net profits are slightly ahead with $69,000 over budget. Insurance is negligible this month. That's a quarterly payment, and usually we don't receive many dollars in the month of September. And franchise fees are actually down month over month. So the more telling presentation would be the next slide, which is September year-to-date. That's July, August, and September. our first fiscal year quarter, here are results. And we increased the budget for withholdings, and the actual is within a half a percent. So we're on budget for withholdings. We are slightly ahead in net profits, 3.8%. Insurance is up, and franchise fees, which was also increased, is up 1%. The total variance on 51.7 million actual is we're about ahead of budget about 637,000, or about 1.2%. So my takeaway is we've met budget in the first quarter. If you want to look at just from an economic point of view, here is year-over-year actuals. This is September 10 rather than the projected budget for 11. And we distilled out of that the large amnesty activity, that is one-time activity that occurred in the first quarter of last year. So if you look at what we're trying to do is look at recurring revenues September 11 to recurring revenues September 10, and you'll see that we are trending about 3% up in withholdings, which was about what we had in our budget increase. We're trending up in net profits, which we predicted, and franchise fees up 6.3. I believe we used 3% or 4% increase in our budget assumptions for that. So I think it validates what our first quarter meeting budget was compared to the assumptions we used to build the FY12 budget. Do you have questions on the revenue? I'll turn this over to Ryan for the total results. Dr. Blues, did you have any questions? Mr. Stenet. I was just going to ask, looking back at, obviously this is our first quarter, do we have data on our previous first quarters in the last several years? Because obviously we can multiply by four and say, hey, this is what we'll have the rest of the year. Or how has September always looked the first quarter played out in the rest of the year in the last couple budget cycles? Do you recall? In other words, has September been a good predictor or the first quarter been a good predictor of what happens the rest of the year? I can answer that question. No, sir, it is not. Right. Usually we need six months of data. Where we stand at the end of December, on a nominal basis, if you look at most years, is a fair predictor of where we will end. But volatility of the most recent years, that has not been the case. But if you looked at the 10 years prior to 2008, we did use December results as a predictor of how the year was going to go. And our two biggest months for property tax revenues are? It is November and January. So we get everything in those two months. And my caveat to my predictor is you have to remember that I think it's over 60% of net profit revenue occurs in the last quarter. and so we wait until the final fourth quarter of the year to know how business returns will play out. And do we have, can you, I assume you have 08, 09, 010 fourth quarter? Yes, I can give you those. We can bring back that. You can relatively average that maybe even given what's happened the last three years and see what we can anticipate in the fourth quarter. We can do that. Maybe smooth that out a little bit. Thank you. Thank you, Chair. Mr. Lane? Just thinking back, this time last year was when the World Games were in Lexington, and that might have had an impact somewhat on employment levels. Do you recall offhand from the data you reviewed last year whether September or October had any kind of an extra bump in it because of the games, or you didn't really notice much of a change? My memory is cloudy that far back. But what I remember is we didn't start showing pluses until winter, spring. The state was showing pluses. The nation was showing pluses last fall, and we were not. And it seems to be, the question is, are we an echo of the national economy? So we follow it. So if the national economy is going up several months later, we start to see it up. The national economy goes down. Several months later, we start to go down. So that's my recollection. The reason I was asking, there's a lot of construction going on, airport, pipeline, the downtown of the Vines Street Corridor, Limestone Corridor, rather, and then additional employees for the games. So I think maybe we should think we're doing better than we think we might be doing, if you adjusted that for all the activity we had going on back then. Well, I can answer yes and no. It depends on the perspective of how you're looking at it. We are doing better than the economy was chugging along last year, absolutely. But we reflect that in the budget that we used to build this year's financial plan. So we're meeting our budgeted expectations in that growth of revenue would be the way I would present it. Okay, so what you're saying is that we adjusted our revenue forecast down slightly to accommodate the change from maybe the bump we had last year. Am I following you on that? Well, I'm saying that we embedded into the projected revenues for FY12 an increase over last year's base. That last year's base was whatever it was, and we're obtaining that. Okay. There's hospital construction. There's sewer construction. We had a lot of construction projects going on in last fiscal year. Thank you very much. Thank you. I wanted to incorporate, I believe this was an ask of this committee last time to bring forth the balance bill. Traditionally, we focus heavily on the major revenue sources, which Bill just walked through the withholdings, the net profits, insurance, and franchise fee, which are the four at the top. With the soft flows that accounting has done through the end of September, this is the first time we have this data available to bring forward. Bill heavily talked about the first four. When we incorporate the balance of the revenue sources due to the general fund, We have about a million dollars ahead of budget. I would caution or expound upon Bill's statement. Essentially, we're hitting budget. The growth projections that are reflected in the budget have materialized. We are clearly within the margin of error. We're less than a half percent, so we're dead on budget from a revenue standpoint. The two things that I'm sure have caught your eye is the services category as well as the intergovernmental categories. That seemed to have some variance in there. Based on preliminary analysis, the answer is timing. We have a heavy caveat due to timing. Just think through your mortgage payment. If you pay it prior to the first of the month or on the first of the month, how that hits your cash flow or your checking account. Some of the same nuances with larger numbers happen here in the general fund, but essentially through the first quarter, incorporating the ones that Bill talked about and the other types of revenue streams, we're dead on budget from a revenue standpoint. Transferring over to the expense side, which we have not talked about yet, one of the things that I spend a lot of time in tracking is the personnel category. I think it's unique this year that we're actually over budget in the personnel category. When we think through some of the assumptions the commissioner is going to talk about shortly, it makes some sense. Clearly, there were some collective bargaining savings that were budgeted on an annual basis. Those that are putting in place, fire has been put in place. There are some other negotiations going on, as well as some variabilities associated with attrition that we have had about a half a million dollars over budget through the first quarter in the personnel category. The operating category, again, the balance of these I would also caveat heavily with the concept of timing. The operating, we're trending slightly below historical spending patterns in the operating category. However, those budgets are available. And we have millions upon millions of dollars swings monthly. Big contract, professional services contracts hit in the winter months. We have a lot of spend on gas for heating purposes and stuff like that. So, again, I believe to be dead on budget in the operating category, even though we are slightly trending below in that particular one. Debt service, obviously, we're dead on. Partner agencies, that is timing, the variance in there. So I would take that million and a half dollars out because the partner agencies, we're going to hit budget. what council put in the budget we're going to hit in terms of the spend at the end of the year so essentially when you look at the bottom line and you remove those nuances for uh timing uh we essentially have the the revenue one million dollars uh slightly above budget but again that's within the margin of error that's less than a half a percent when you're talking roughly 70 million of revenue budget through the first three quarters. So I think the good news is, at least to the first quarter, we're dead on budget on both an expense and a revenue standpoint. Thank you. We have some questions. Mr. Stinnett? Yeah, I want to ask, first of all, what was our budgeted fund balance to begin this year? Do we have the exact number? I would steer a little away from what was budgeted. But the budgeted fund balance was essentially about a half a million dollars. No. It was a little over $2 million, $2.3 million. I mean, it was $1.6 million before you smoothed the numbers, Commissioner, and told us we actually had extra money that we didn't calculate. I mean, I can go back and pull the July budget and finance packet. I just was trying to get my thoughts around. I think Ryan was maybe referencing the amount that we put in the budget calculation. He was, but what is this current budget? It was $800. You're speaking about the two combined. The current fiscal year, what do we project within the year with as a year-end fund balance? In the budget, we did project half a million dollars. From FY11 carried forward? Yes. I'm talking about end of this year, what was our projected fund balance? Because we didn't spend all the revenue that we calculated we said we'd spend when we bounced the budget back in June. Maybe we're not obviously understanding your question. In the budget we presented, the mayor presented there was a $500,000. The one we adopted, what was the budgeted fund balance? It was $800,000 and some odd thousand. I don't have the very specific with me. But it was adjusted to $800,000. When we went back and did the changes that you all enacted, the $500 increased to $800. Well, it was $1.6 million before the vetoes, and that's in our budget book. So I think we need to, because back in July you gave this committee a $2 million number. Well, again, I think maybe we're talking, our nomenclature is different. Are you talking about adding what was in the CAFR plus the? No, I'm just saying. I don't. Let's start over. At the beginning of this year, our fiscal year 2012 budget, we had projected an ending fund balance where we wouldn't spend all the revenue. Do we not know what that number was? Because when Council finished their deliberations, it was around $1.6 million. And then if you throw in the veto items, obviously that's extra savings on top of that that we wouldn't have spent. I know it's right here. He's speaking at least. Okay, we are looking at two different numbers. I was looking at the fund balance that we projected July 1st. You're looking at 1690712. Right. Is that the final number? Because they're in the committee, and I'll pull that packet to make sure. This is from the budget document. We were just looking at a higher number, speaking about where we started. We don't have the actual fund balance, yet we're actually doing some adjustments with our auditors. That's from previous year, the previous fiscal year. Well, that's going to impact. No, I understand that because we projected $500,000 to come over from the previous fiscal year. Correct. I understand that. So my point is this net income number, the $2.5 million for the first quarter that we've saved in expenses versus the revenue we've taken in, how real is that number going forward? Well, again, I think as Ryan mentioned on the expenditure side, anyway, of the variance on the expense side, the 1.7, we know the majority of those, it's basically even because the personnel and the operating net out and the others are going to be spent. It's just a timing issue of when those partner agencies will be paid and when the capital expenditures will be paid out. So what strategies going forward are we implementing to keep the costs below budget? Because obviously if they go above budget, we're going to eat into that $1.6 million. So what strategies out there are we implementing right now? Well, currently we have, as a planning exercise, put together our reduction expenditure request to the agency so that in the event that we need to take those measures, that we have a starting place of discussion with the agencies. Obviously, we bring a plan to council in terms of if we need to do that and what the proposal would be. So with the reduction plan in place in case we need it, are you all feeling that we're going to have to implement it based on the numbers and data you're seeing, or are we going to be able to save enough expenses based on what we budgeted? Well, again, I think maybe if I go through these major budget assumptions, that may give you some insight to there are clearly some places in the budget that if we do not meet our targets that we will have to make reductions. Okay. Thank you. Thank you. Mr. Lane. Commissioner, just a quick question on economic contingency funds. Our policy is we're still depositing $50,000 a month. into the economic contingency account? That's correct. And have we transferred any of the surplus funds from last fiscal year? You don't know the exact number yet, so we can't do that yet? That's correct. Okay. And do you know approximately what our balance is? I ask Phyllis every day for where we are with the adjustments with the auditors, and I don't feel comfortable with the number yet myself. So as soon as I have good information. And this is an instance where I know Council Member Kay talked about fuzzy information. This is one that can swing millions by these adjustments. So we really wouldn't want to. I'm sorry, my question might have been unclear. I just was curious about the balance in the economic contingency account at this time, Approximately how much we have available? It's the same. Approximately, I believe, $14 million. Okay. Oh, you have that coming up? No. That's all I have. Yeah, that hasn't changed at this point. Yeah, that leads us into the next issue we're going to address here in the committee. Do we have any further questions on number one? Yes, Commissioner. Did you want me to proceed with the last slide of the presentations? We were asked last time to talk about the major budget assumptions and where we were with those budget assumptions, so I want to take a minute to go through those. We listed four because we felt like these were the large budget assumptions, revenue, health care, collective bargaining, and efficiency savings. Revenue, we've had a lot of discussion about this afternoon. Obviously, a major budget assumption is predicated that we will reach our revenue collection. To Councilmember Stenet's point, it is just the first quarter, and it may not necessarily be the best indicator for the remainder of the year. As Bill indicated, we are spot on, but we do still have $220 million to collect. in assumed revenues to go. So again, we're on target for the timing of the first quarter, but we do have a significant amount of revenue to collect. And obviously we're 25% through the year, but we're not 25% through our revenue collections. And we do have some timing, as has been discussed with private taxes, et cetera. So that's the first budget assumption. I think we've gone over that in sufficient detail. with Bill and Ryan's presentation. Health care, obviously we have heard a lot about health care throughout several months and particularly most recently as the rates have come out. We did budget for moving towards cost of service rates effective January 1st. We have talked about moving towards cost of service rates for some time through this whole process. In fact, I wasn't here, but I was just trying to get some history for myself, but I wasn't here in November of last year. But I did review a presentation, a handout that the council did receive where we did talk about, as a government, the significant, if we move to cost of service, the significant, in fact, double-digit increases that were on a chart of a handout that the council received that would be required in order to cover the true health insurance cost. All that said, we did make a major budget assumption that we would move to cost of service rates. You did receive last time a chart that looked at what it would mean in terms of cost savings. for not cost savings, but really it's breaking trend. Had we not made changes, there are two things going on. Had we not made changes in some of our health care savings, our health care cost in total would have gone up. But the second major obvious change is moving from the government subsidy of the true cost of health insurance, moving that to a true cost of service model. So if we make changes to the process thus far, it means we will have to find dollars somewhere in the budget to afford that change as we move forward. So again, I know we're going to talk about that as a council in great detail at the CAL meeting. so I know there are probably lots of questions, and I know the consultants will be here as well. So that's the second. I think your meeting is in the work session. Work session, I'm sorry. We want to stop here because I think your explanation has lit up the board here, so we do have some questions on this. Mr. Lane. Mr. Chairman, I've already spoken. Okay. Mr. Martin. Thank you, Chair. Thank you, Commissioner. and I appreciate Commissioner Driscoll is always available to talk to us, and I really appreciate this. She and I talked late last night on some of this. On page 504, and I'm trying to catch up, on page 504 of the budget, it lists under revenue premiums of $35,205,000. That's page 504. I'd put it up there, but I wouldn't be able to see it. Okay. And then it lists under appropriations, it says personnel 35, 797. So what were the premiums that were going to be, the 35, 205? Those are both the benefit pool and the employee contributions. And that's the total, by the way. That's health, dental, and vision, I believe, on that page. So I'm trying to understand where, is there another page in there in the budget where it says that the employee, that we're going to shift the $14 million to the employees? Is that in the budget? Well, again, the revenue is both the benefit pool and the employee contributions. So this is the only place it shows up? I mean, that is the fund. Let me put this on the overhead first. Thank you. like $3.5 million in health care. And so based on that, I guess I had a different expectation of the numbers that came out. So this is from this page, whatever it was, you've got it now, in the budget. And it has under the premiums $35,205, but it really didn't say where they came from. Is that right? Well, it's, again, the revenue piece is the benefit pool and employee contributions. Together, the premiums are broken out into health insurance, dental insurance, and vision insurance. Is there another place where it talks about where those premiums are broken out, or is that just left to the discretion of the administration? Well, it's not the discretion. Those are what the costs are. Right, but obviously the premiums that the administration puts in is the cost of the general fund and the premiums that the employees put in is not. No, the premiums are the total cost of general fund and other sources. There are personnel that are paid by other sources other than general fund. Right. I might just say two things. When we talked about there were some assumptions made at budget time in the three and a half, had we not done anything, our costs would have grown. So when we talked about that gap initially, the total gap, we talked about had we not made changes, there were certain costs that would have been required. But we had to make changes because we didn't have the revenue to support all those increases that were happening throughout the budget. So, again, there are two pieces here. They're breaking the trend of health insurance costs escalation. And the second is going to a cost of service model, which we talked about clearly stated in the budget process, which means that you're paying the true cost of health insurance. We clearly looked at the subsidies that the government had over the past three years and that there hadn't been adjustments to the rates, but we also, the subsidy continued to grow. So that was going to continue to grow as well as the natural increase in health care costs. So you had a lot of variables happening. I guess I'm still trying to figure out where in the budget it talks about the $14 million coming from employees, because even this page doesn't show substantially different numbers, $14 million different numbers in 2011. I'm looking at the various categories, and I can't see it very well from where I am, but I'm not seeing numbers that are. And I guess that's why we followed up when some questions came up about this more detail sheet and provided the breakout of health, dental, vision, the benefit pools, and employer contributions that you received at the last meeting. I think my time's up. Thank you, Chair. Thank you. Vice Mayor Gordon. Thank you, Mr. Chair. Thank you, Commissioner. When you talked about putting the budget together last, well, this year, and you talked about the cost of service rates for health care, I'm interested in kind of the discussions that went on. was there ever any discussion about spreading this over more than one year? In other words, doing some this year and some next year. Or was it automatically the thinking that the cost of service rates would go for the whole thing? Well, I might say that there's tremendous amounts of discussion, but it centered on, in total, looking at the budget and the cost of service model, not only in health care costs but in other costs as well, and some of the items that we presented in the budget. So there was a lot of discussion, but there was also a lot of discussion on if we didn't make some of these strategic major changes, that there would have been significantly greater impact on our employee population in terms of being able to afford the persons that we had on board. There would have been more layoffs. There would have been some other changes that we would have had to make because we had to make a certain pool of revenue, and our expenditures had to fit within that pool. So there was, yes, significant discussion on timing. but we didn't see these rates until very recently. In other words, as we worked through all the assumptions, we put the consultants in place, we got the subject matter experts, we went through a process of how we could make adjustments and provide other opportunities for the employees like the Rx that will come on board later and like the wellness center, et cetera. So all that was a part of the discussion, the incentives. All those things were critical pieces that you have to look at the picture as a whole. Well, I understand that. And I guess I'm wondering then when you did first see the rates, did anyone say, wait a minute, let's go back and see if we can, you know, the budget is a guideline, It's a guide for the year, but we change it all the time to look at the impact on the employees and say we can't do this. To go back and look at spreading it out. I would say that certainly we've gone through the process that we laid out, and now we are at that place in presenting the rates. The cost of service model is what it is. whether decisions are made on how that could be adjusted is where we are today. Again, if we make those adjustments, we have to reduce somewhere in the budget. I mean, I think we all get that. Okay. I appreciate your answers. Thank you. Thank you, Dr. Kay. I'm sorry. Thank you, Chair. Commissioner, I'm afraid I'm going to be stuck on the same stuff that other people have been stuck on, but try and bear with me. In the budget for fiscal year 12, there's a projected revenue of whatever it is, $35 million in the health to cover the cost of health for employees. Is that correct? Yes, approximately yes. Okay, and that was, as you said, built on this assumption of cost of service rates. That is correct. So if the benefit pool does not change, then the cost to government will go down if the employees are paying the cost of service now. How is that built into that $35 million? Okay, don't forget we made up those costs, that subsidy, the last several years with personnel laps. This year in the budget, we cut out those vacancies. We made that reduction. So we don't have that cushion. I hate to use that word, but we made adjustments. Again, because of the budget situation we faced, We cut out many of those personnel vacancies that we had personnel laps historically to cover those costs. We won't have that as the budget was passed. So what I'm stuck on is how this $35 million, roughly $35 million figure, how it now functions in the budget. There's going to be a reduction in the cost to government. but is that included in that $35 million? The $35 million is the cost of medical, dental, and vision altogether, but that is the cost of health care, both the government's piece and the employee's piece. Okay, and that's based on roughly $16 million that is in the benefits pool and the balance, which in previous years came from premiums and a deficit or a loss, and in this year is coming entirely from premiums. Is that correct? It's coming from the pool. The pool and the premiums. And the premiums. Correct. Okay. So the numbers that we saw from, and I think we need to have our benefits people here as well, but the numbers that we saw were much lower. The total premiums from the projected premiums, if there was a significant shift, were $22 million, give or take, added to the benefits pool. That's what premiums would generate. Yes, I mean, again, I think BIM is going to go through that with you this afternoon. that. But the total cost, they're also talking about being able to reduce that total cost over time, too. So part of that discussion was the ability to reduce those costs over time. Right. But I think it's, well, again, this is about the benefits and not the finances, but I think it's reasonable to assume that in the half year left, starting January 1, there will not be a significant change in the way in which people's health and insurance and their claims are realized? Well, again, that will come over time as the program is put in place. Okay. Thank you. Thank you, Chair. Thank you. Mr. Tennant. I just wanted to follow up. I know we're not going to get down in the details right now, but as far as health insurance is concerned, in the budget, we project a savings of $3 million-ish? Again, when we used that number, that would have been half a year of general fund had we not. That was breaking the trend. Right. And is that $3 million of what? Of what we spend, so it would be $3 off the $35 million? I mean, where do we get $3 million or $6 million for a whole year? Again, it would have been what we would have spent in addition to this amount. So it would have been the anticipated increase in claims. Correct. And I think that's where we kind of get off track. And rightly so, we take responsibility for not being that clear on that. So we're back on track in saying that $35 million is what we anticipate revenue, whether it be from employee premiums or our benefit pool. That's correct. And our benefit pool, as Briggs said last Tuesday, is fixed at $16.9 million for LFUCG's contribution. The rest would be made up from employees' premiums or participants' premiums. And I think that's what he said last Tuesday. I see $16.9 million up here under expenses. So, you know, when you do the math and designing the plans, which I'm not sure what math was used or how they backed into it. I don't want to get into it right now. But the question is, which plan did you anticipate most people utilizing? And if you just take the breakdown, and hopefully what you all can provide is the breakdown at 3 o'clock is to employee single coverage, et cetera. Because I have the numbers from last November, and I know they're lower now. If you can provide that breakdown. They have all of that to go through. But it looks like the platinum plan, if you kept it and everyone went into it, it would generate a lot more than the $17 million up there needed. So that's what we're trying to get to is where did the math work out to increase those premiums, and is a cushion built in to some of those rates? Because from the math I've been able to perform without the data you all had, it doesn't add up that way. I think that's what Council Member K was getting to. We're just trying to understand how we're getting to those rates because no one says we shouldn't have to raise them to keep competitive with our budget and the economy. But at the same time, they just seem a little high in some spots. And just so you know, obviously we don't do those rate designs. We rely on the health care experts so they know what our parameters are. But Humana has worked through those issues with them, and they can much better explain that process. to you. So it's not like we're, I mean, there's a lot of things that go into those, as you know, in your business, into those setting of those rates. But we are faced with a pool amount that's set by contract in some instances and by budget. So those are set amounts that we had to work with. And again, that went into the design of the rates. And without jumping ahead to three, can you get those pool amounts at the benefit pool, how it breaks down based on family coverage, single coverage, et cetera? Do you have that data? We'll have the data of who selects which plans and the tiers, single family, single employee plus child spouse. But you don't have it broke down to how much of the family plan is covered under a fire person or a police person? Well, you have the amount. It would be up to the individual's choice. You have the pool amount. There's a set amount for nonunion, a set amount for fire and for police. But it would be their choice how they spend those dollars. But we'll give you the different amounts, if that's what you're asking. That's fine. Thank you, Chair. Mr. Beard. Thank you, Chair. Commissioner, who actually negotiates with the insurance provider? Is that Briggs? Yes, they're negotiating on our behalf. Do we have anybody in the room at the same time? I can't answer if there was ever our representatives. It's not a joint effort, in other words. We've abdicated that over to him. No, I think we set, again, parameters, cost of service, policy decisions, or obviously consultation with the government. But in terms of the actual sitting in the room with Humana, I can't answer that question. pardon me but you would know if if bill or ryan were i can tell you that bill or ryan or i were not in the room with with humana but i i'm sorry i just can't answer for i don't know all the meetings that took place okay all right thank you thank you chair i see no more questions on this topic, but I assume there will be later. Yes, sir. Let's move on to number three, please. Sure. Collective bargaining, we did assume a savings in the budget, approximately $5.6 million. There were three divisions that were impacted in this assumption. As you know, FIRE has settled their contract with a first-year savings of approximately $2.3 million. Again, police negotiations, as I understand it, are down to economic detail discussion. The administration is comfortable with proceeding, but we're at a critical juncture with police. There's not a lot, obviously, I can say in the spirit of collective bargaining, but that's where we are with police, with corrections. Both the administration and union sides are progressing on settling that contract. So again, the annual savings is about $5.6 million. The last one, which is much smaller in light of the first three, we did plan for efficiency savings target in the budget. We wanted to start small, but $250,000 was included in the budget. We are working on some initiatives. I can give you the example from my area with working through with the banking, getting ready to release a RFP for a banking consultant to renegotiate our banking fees. And we feel like there are definitely some efficiency savings there. That's, again, just my example. So those were the four major budget assumptions as we saw them and wanted to provide you those updates. Still have a long way to go on a lot of financial issues in this government. and don't want to lose sight of that. Mr. Martin. Thank you. This is an annual event here at LFUCG, but I think that the financial and revenue folks need to bring us essentially a budget cut plan because if some of these contingent fees, contingent expense cuts don't happen, then we're going to have to make cuts. And we started this bill our first time. I guess we started in August. I was pounding the desk wanting to know how we're going to make the cuts. And so I think it's time to maybe next time you guys come to bring us some proposals and basically what the administration plans to do to try to make some of these changes. And obviously that may be affected by this health care discussion as well. So I like planning early, plan for the worst, hope for the best. Thank you. Thank you, Chair. I think in response to that, would that not be considered what you all do with your 5% and 10% cuts already, or would that be something different? Well, again, those are proposals that we would work through with the agencies. So, again, we would plan as some of these variables change. That is our basis, our starting place. That isn't necessarily where we'd go. Thank you. Now let's move on to number two. Mr. Farmer put in the economic contingency ordinance. Mr. Farmer, would you want to start with a couple comments? Yes, sir. That would be nice. Since we had not been making contributions to the economic contingency fund, and that was something that started again in this budget, at the time we were setting up and going through, I just wanted to kind of look and see what the triggers were for taking cash out of that. and I guess it's page 15 of the packet that pretty much says interest, income, and deposits have brought the balance of this up to, according to this, $14,700,000 as of June 30th of 2010. Is there a more current number, or did you say it earlier and I didn't hear? That is the current number. Let me just ask you something about what you did say. But pursuant to, I guess you said, that the amount could vary by millions of dollars. Was the term you used in terms of what we would peg to put in there? And I just didn't follow that part of it. No, I'm sorry. Audit adjustments in the financial report. All right. I'm hoping that the Economic Contingency Fund doesn't. I mean, if anything, we would hope to add to it. Well, I agree. And just for my own personal, for how long had we not been contributing? We are contributing in the current budget. I know. But, I mean, we had not been. Two years prior to that. Two solid years we had not been putting money in. My understanding. Yeah, I agree, and I appreciate that. So we started doing that in this current budget. And at the time that I asked to put this in committee, I just wanted to make sure that the trigger mechanism was stiff enough to make sure it wasn't too easy to dip into it, if you will. And after reviewing it and spending time with it and looking at the calculation, which is very detailed, and really it's on the next page, on page 16, you really got to work into a couple of bad situations before we really get to the point where it's legal under the way we set it up to pull funds out and to put them back into the general fund for use. So I'm pleased about that because that was really the reason I was trying to get through. at the time just to make sure that since we hadn't been making contributions and we were going to start doing it again and we were going to start building again, that we had proper safeguards. Today, though, I've got kind of a different angle because once we put the money in there, it is in and it's there until there's a true economic problem. In relation to our conversations that are going on today, right now, and at 3 o'clock, I guess there's no trigger in us deciding potentially to not make contributions this year if we were going to use those dollars to do something else with them. That's mine for today, is if we decided as a council or as a government to not make those contributions, which I understand the policy reason that the mayor has done this, and I think it's a valid policy reason, but faced with some difficult situations, the opportunity exists for us to not make those contributions and to reallocate those funds somewhere else is my thought and process. And I would just ask for your comment on it, and then I'm done with this. Well, if you're going to assume something here, that you're going to say that you would put them in an operating recurring expense, then it would be an issue that you would be dealing with in the future. In other words, it wouldn't be sustainable if you're going to take, and I have no idea. No, I'm not there yet. Where are we going? I'm trying to get through this day first, and I'm not sure how it's all going to play out, but in this conversational process, if we decide we are looking for something out there to patch something else with, and this is not the reason I added this to the committee docket at the time, It's just something that happens to coincide with today's opportunity. Again, I think when the mayor put forth his budget, there were some principles by which he based decisions, and one of those was changing, breaking the trend, if you will, of funding recurring expenses with non-recurring revenues and not dipping in, adding to the reserves to get to a level that is more appropriate for an organization our size. So all those things, when I think about it, those are the items that come to mind. For bond rating purposes, I think it is a better policy for us to make contributions to it. But circumstances do alter cases. And that's really where I've gotten to today on this part of it. I'm satisfied the trigger is stiff enough. We have money put aside. We haven't reached our goal. We're on the road to making contributions so far through this budget year. It's been the right thing to do. I just got to a different spot with it when I was reading the packet, looking at our current situation. But you filled me in perfectly. Thank you. Thank you, Chair. Thank you. We have some questions, Commissioner. Mr. Stennett? Yes, Commissioner. Are we putting in, I guess, monthly the $50,000, so we put in $150,000 a year to date? I will have to check. That is how it is set up to be, but I will check that. I don't look at that account every day. Right, but I'm sure someone out there is responsible for making sure we do the transfer. That is correct. Okay, and then we mentioned, going back to our conversation, we had a beginning fund balance from FY 2011 about $500,000 coming from last fiscal year. in the economic contingency ordinance is 25% of year-end fund balance is to go into the economic contingency. Did we not do that from that 500,000? Well, again, we've not closed... We don't have that number for June 30 yet, but that was an estimate. But when we get that number, then will we put 25% of that into the... That is what to follow the ordinance unless we suspend that ordinance for some reason. It was suspended last year. Last year it was suspended. Right, but this year it's not, so it's active. So whatever we ended last year with, 25% of that will have to go. And if we used $500,000 to start this year's budget, we've got to have actually more than that to put in there. So I hope we're better off than we anticipate in our audit. As do I. Thank you. Mr. Lane. Coincidentally, I served on the Economic Contingency Committee with Dr. David Stevens to work this out. and I was not totally in favor with this particular ordinance because I believe it reads that only 25% of the balance in excess of the budgeted balance for the end of the year would be put in there, and I felt like it should be 25% of the total surplus. The other part of this that I was not excited about was some type of a formula to decide whether or not you can take money in or out of the account, because ultimately that decision is the council's decision, and to have some type of a trigger thing is just, to me, a waste of time, because if we need to take the money out, I'm sure every council member would support taking the money out, whether we met the trigger or not. And also the trigger was the required that we don't put $50,000 into the contingency account, And I think we should be doing that whether we're in good times or bad, because if we're consistently depositing funds, we're going to build a contingency up over a time period. So I would be in favor of going back and revising this ordinance. And maybe I would make that. Could I make a motion to put that on our agenda to look at revision of the ordinance? So move. We have a motion and a second, and I think you need to restate your motion because we have some questions from council members on what you're requesting. Okay. All right. I'll make the motion later, Mr. Chairman, if that's what you're saying. Yes. Okay. We'll withdraw that motion and withdraw the second. Yes, I will. Thank you. I think you might bring that up in work session. Okay. Okay. Thank you. Thank you, Mr. Chairman. Thank you. Dr. Blues. I just have a quick question. I understand the reason one for withdrawal from the account, but I don't understand what revenue stabilization concept means. Page 15. Mr. O'Meara, you're smiling. Would you like to tackle this? Do you have background from when before? I can take my history with that. I was not actively involved in drafting this, so there's my kudos for any comment I make forward. But the stabilization, from my understanding, when it was created is to smooth out dips, stabilizing revenue. So that was the concept. So if you had a significant event, tornado, hailstorm, whatever, you lost all your revenue base, you could dip in and bridge that short-term gap where your revenues continue on. That's the concept as I understood it. So really it's a revenue stabilization need. Building it up so that you can use it later. That's the concept. Hence, rainy day fund. Yes. And I would just concur when we, in my history of drafting these other jurisdictions, that concept is very much a part of best practice. But I would say as well a part of best practice is very sometimes more specific areas in which criteria in which to withdraw and revenue stabilization would probably have a little more detail to it. Thank you. Thank you, Mr. Chairman. You're welcome. Mr. Stinnett. I was just going to add, back in 1996, when we worked on this and adopted it, we left it to be as flexible as possible so that we didn't say, you know, if two months in a row we were declining revenues we had to take out, or if it was six months we saw we weren't going to make year-end, or you could wait until the last month and try to balance the budget if you had to. So there's a lot of flexibility built into that. That's why it's more vague than specific at this point. So that was some of the thoughts back then. and obviously we're five years later in a much different economy. So thank you, Chair. Thank you. The items in the agenda was left out of the pack, and we'll distribute those, Mr. Schoeniger said, to all the committee members. And Mr. O'Meara stood up, so I think you have something to add. Mr. Chairman, I would like to take this opportunity, if I could, to introduce some guests that we have to our meeting today. Certainly. The University of Kentucky Martin School has an international program where government officials come for a one-year internship in Lexington, and they study both in the classroom as well as on reality-based. They've already been through classes. They've been through an internship with the state, and they're currently with the different departments of interest here at LFUCG. And we have four people this year in this year's class that have finances and interest, and we're meeting weekly and going over certain things like revenue enhancements, how to cut budgets in lean times, how to project revenues, things that are common no matter where the city is. Our people this year are from the city of Seoul, South Korea. So I just wanted to welcome them. Would you like to come to the podium and introduce yourself? They declined. They declined. Well, thank you. Well, on behalf of the committee, welcome. And I see Vice Mayor Gorton. I just had a question about back to the issues. And since you chair the task force, do you know when the procurement recommendations will come forward? Since it was brought forward by the mayor on putting the task force together, we decided it would probably be best to do it to the full council, and we're going to present on the 15th of November at the work session there and bring the recommendations there so we don't have to just do it to the committee and then have to come back again to the full council. So we'll be presenting on the 15th of November. Thank you. Thank you. Any further questions before the committee? Do I have a motion to adjourn? Second. We have a motion to second. All those in favor say aye. Aye. All those opposed. We are adjourned. Thank you all.