I call the meeting of the Budget and Finance Committee to order. Our docket is short today and I will call upon Commissioner Tina Cole to start with reports regarding what's coming in and what's going out. Thank you. It wants to stay there, doesn't it? Actually the three things on the agenda, I hope it's okay, I took the liberty of kind of combining everything into one presentation rather than dealing with each of the topics separately. So you have copies of the slides in front of you. And let me just first note that I apologize for not getting this information to you ahead of time. Things are still moving very rapidly in my office toward the 07 close. We are completely finished with the cash end of the general fund. So what I'm going to be talking to you today is a done deal on the general fund with the exception of having it audited and occasionally there are minor adjustments. From this point forward I will do my best to get these to you ahead of time. It may take me a minute to get used to this. You've heard me report through the last few months and you know as well that we budgeted a carry forward from 07 into 08, $13,500,000. I'm glad to say we actually came very close to making it. We have a carry forward of $13,484,000. It still leaves us a little bit of a shortfall but in the big scheme of things it certainly could have been a whole lot worse. So we're pleased to have at least that set of numbers behind us. We do have a number of challenges though in 2007-08. We're now finished with that carry forward number. Now we move into revenue and spending in the current year. You'll notice that on the revenue side what I've noted here are the top three sources of income for LFUCG. The withholding occupational license fee was budgeted to increase 6.1% over last year and right now we're tracking at about 4.23. Net profit was budgeted at 5.4 and we're actually behind last year. And in insurance we were budgeted to increase about 8.3% and right now we're at 1.34. All that comes to a revenue shortfall projection in the current year of somewhere between five and seven million dollars. Let me assure you that we are doing everything we possibly can to scrub the numbers. We have talked to a number of people in Frankfurt and other places about what their projections are for this area and, you know, you kind of talk about a recession and you can actually talk yourself right into one and I think we're seeing some of that. Right now we're kind of mirroring what happened at the state level. We're a little, but we're a little slower to go into the, if you want to use the word recession, economists still differ on whether we're in one or not. There's a recession for LFUCG, whether there is a recession elsewhere or not. So we think right now that we will end the year with about five to seven million dollars less in revenue than we were expecting to collect. We also have some expenditure challenges that we're going to need to address. What I've tried to do over the past few months, as you've talked with folks about additional needs that weren't budgeted, I've tried to keep track of what those were. Here are some of the issues that have come to you that you expressed some interest in at the time of maybe trying to be able to do some things. Given what we're going to talk about today, I'm not sure we're going to be able to do any of this, but we do have about three million dollars in re-appropriations that have come from the departments that have been sitting there all this time waiting to be re-appropriated. Clearly, if we re-appropriate that three million dollars and everybody spends it, then we just made ourselves, dug ourselves a deeper hole for 07-08. So, because I didn't get the carry forward number technically until this morning, I haven't had time to work with the commissioners and the division directors yet on the request for re-appropriations. Over the next week or so, we'll be going through those requests and trying to pare back as many as we can, and then I'll be bringing those to you as a council to approve sometime in the near future. With the understanding that anything we do here makes our situation worse. And on top of that, I think many of you know that we have a retirement issue with CERS and that what we are now calling a window for folks who are now in the system, if they're eligible and they stay in the system beyond January 1-09, their calculation moves from a high three to a high five. For some folks, that's a very, very significant difference and would mean that you might be kind of crazy not to retire. It's particular situations and how they hit, so what we've tried to look at is how much that would cost us if everyone who's eligible chose to retire before January 1-09. The way the bill is written that came from the governor's office and came out of committee in the legislature, the way it's written right now, there's an advantage to retiring before July 1-08. And I think that speaks to the fact that the governor's facing some of the same kinds of situations we are. He needs for there to be fewer employees in state government, therefore there's kind of an incentive to go before July 1. Again, part of it depends on what the COLA is going to be, which is in that bill, and that's where the incentive is. But folks are going to have to compare that to what kind of raise they might get if they stayed in their job. There are lots of circumstances that are going to affect people's decision, and it really is going to be an individual-by-individual situation that they're going to have to work with the retirement system and see what works best for them. If everybody goes, we calculate the payouts for sick, vacation, and holiday time to be $6.6 million. Now, you're going to see this number here. I've also included it in a number that we're going to be dealing with in 2009 because we don't know when these are going to happen. By law, you really can't approach people about when they intend to retire. So we expect, though, that we probably will see a combination of the two, that some will be in 2008, some will be in 2009, and what's going to be kind of tricky for us is measuring that against ordinary attrition. So we're going to try to not double-count savings or double-count expenditures, but we're going to try to keep a very close tab on where we are in terms of the retirement window and also where we are in terms of ordinary attrition. We have identified some expenditure savings, some things that were appropriated that we know we don't have to spend, and so we think we can come up with about $3 million on the – at least $3 million on the expenditure side – no, actually, we think we can come up with – I'm sorry. I think we can come up with about $5 million on the expenditure side, meaning unless we get hit with this $6.6 million in retirements all in June, we believe we can manage our way through 2008. The last time we talked about revenue shortfalls and those kinds of things, the newspaper used the word deficit, and that wasn't a word I ever used in my presentation, nor would I, because we will not end the year in a deficit situation. We will do whatever we have to do. We will suspend spending. We will do whatever it takes, but we will not end the year in a negative situation. So the use of the term deficit is a little misnomer. Moving on to 2008-09, the news gets worse. Again, we've been working with some of the economists in Frankfurt. We've asked some of the folks at UK to look at the numbers, but we're projecting revenue growth that will be either flat or at most a 1 percent growth. That 1 percent growth is about $3 to $5 million, which is pretty nominal in our budget. We have the structural deficit of $13.5 million that we'll have to deal with in 2009 because we expect to come out of 2008 pretty close to even. We have identified a number of areas around personnel that you have to start doing scenarios somewhere. You have to start making some assumptions to try to figure out where we are here. John Cubine's staff has been working diligently on a number of models. The one that I'm giving here to you today assumes that every position that was filled at LFUCG in the first payroll in January will continue to be filled throughout the 2008-09 year. Now, that also means that any vacancies that were there remain vacant. If we straight line that staff assumption, we have to add $3.8 million because that's about what it cost us to pay out the sick checks that we pay out in January of each year. In this model, we increased the police and fire retirement fund by 2 percent, which was something that the mayor had committed to addressing in his last budget. We've included the $1.1 million for additional police officers who are scheduled to come on board as trainees in June. Again, we've included that $6.6 million in retirement. So to some degree, you could say that the $16.9 million is overstated by whatever retirements we get in 2008. We've included steps for police and fire because they're in the process of negotiating their contract, and we've included everything that would be needed to be in compliance with the corrections contract. If we do all that, we expect to be somewhere between $25 and $30 million short in FY08-09. Now clearly, we're not going to be short. I mean, we're going to have to do something to take care of that. You always have the option of raising revenue, which I know is not a popular thing to do. The other option is to control spending. And when you have almost 70 percent of your budget tied up in personnel, we're going to have to look at personnel expenditures. One of the models that we'll be working with as we try to put a budget together is a 10 percent reduction in operating costs back from 07. You know, at some point, you just can't do those kinds of things anymore because you render people who are here totally ineffective. We're going to have to seriously weigh the decisions around the cuts across the board and perhaps being ineffective in some areas, or do we target particular areas and just say as a government, we're not going to do these things anymore. So the commissioners, the mayor and senior advisors have some tough decisions, as does the council. We'll be bringing a balanced budget to you in the mayor's budget address on April 8th, and we'll be keeping you posted between now and then on what we see towards revenue and if we have any reason to change our assumptions around spending. One more thing that we'll get through, and then I'll take whatever questions you might have. Council Member Lane asked me some questions around the Economic Contingency Fund, and I thought this, since everything's kind of on the table today here, I thought I'd just throw this one out too. The balance in the Economic Contingency Fund on June 30th was $11,894,100. We are adding $50,000 monthly per the ordinance, but there's nothing in addition to the $50,000 to contribute for 07-08 since we didn't make the 13-05. There would have been a calculation if there was a carry forward in excess of 13-05, but since there isn't, there's no flat contribution. So with that, I'll take whatever questions you might have. Okay, I think Council Member Ellinger had a question. I'm sure there'll be others. Thank you, Dr. Stephens. Back on our challenges, you had said that we have expenditure savings up to $5 million. What are those? Well, there's... Are those the things that we found that were on the books that... Well, no. Those are our... That... What we needed... What we need... I'm sorry. Let me get this. It's on down. Keep going. Keep going. Next one. Right there. Well, I... Yeah, that one right there. The expenditure savings, you said up to $5 million. Well, there's debt service that was budgeted that we're not going to need this year because we haven't sold bonds yet. Now, that came as a cost to us because... A little bit of a cost, but given where the bond market is right now, we think it's pretty much going to be a wash. But we do have debt service sitting there for the 07 bonds that have not yet been sold. We're trying to get those packaged into bond market right now. There were some pots of money that were set aside in the budget for reclassifications, one for small divisions, one for large divisions. We have asked the commissioners already to only approve expenditures that are absolutely necessary to get us through to the end of the year. So we'll be doing some, as Bill O'Mara likes to say, some rather draconian things. But we do think that we can come up with $5 million on the expenditure side. Right now, we're behind. If you look at operating expenses and outside of professional services and outside agencies, we're running behind last year fairly significantly. So we're actually $4 million behind last year at this point in time. So we just believe if we very aggressively manage that, that we'll be able to finish the year with about a $5 million savings. And hopefully more, but we're just taking this a day at a time. Okay, thank you. And some of that is explained on your second sheet, is that correct? Yes. The second sheet you have is a draft of revenue and expenditures through January 31st, 2008. This isn't a great report, I understand, because it's so summary. If you want to get into the nitty-gritty of this, we can start running some other kinds of reports for you, and given the situation that we're in, we probably need to do that. But I went into pretty great detail around the revenues that are all in the licenses and permits, and in personnel, I neglected to say that we feel like we can pick up about $2 million there, because we haven't been filling positions for a number of months now, unless they were absolutely necessary. So it's a picture of where we are right now. We're 58% of the way through the year, and you can see the percentages for yourselves on where we are in each of the categories. Okay, thank you. Councilmember Gordon has a question. Thank you. If anybody else has one, please hit your machine. Thank you, Dr. Chair. Keena, I had a couple of questions back on your first report, and this kind of reminds me of 2000-2001. Bill O'Mara would remember those years. And back, I'm sorry, may I point out, I think you were out of the room. I did apologize for not getting this to you all ahead of time. I know you wanted the materials, but I finished these about ten minutes before I was to be here. I'm sorry, and I will make an effort to do better with that. Thank you. Okay. On page 2 of the PowerPoint, back to the expenditure savings, now, how does that, the issue of the purchase orders, fit into this? The purchase orders allowed us to get to the $13,484,000 number. Had we not cleared out the purchase orders, we would have been $3 million short in our carry forward. Okay. So all of that's already in here. Okay. That's all figured out. Yes, ma'am. Okay. Then, on page 3, under your fiscal year 08-09 projections, you said we will look at a ten percent operating cost reduction. And then you said that the April budget address would then address next year's budget. Can we presume that the 08-09 budget will not have any brand new programs in it that require funding? I can't make that, I think it's, I don't think we'll be funding new programs, but certainly we have not begun to construct the budget yet. I really can't answer that. That would be a question for the mayor. I know there was one particular program in the state of the merged government address which has not been discussed among council, which would require new money. So I'm just curious about new programs and so. Okay. And let me revise what I said before. Clearly, it is the mayor's decision. What you will be hearing this afternoon is a presentation around the management audit. And the management audit, there's a number, I mean, hundreds of recommendations there, if you've had a chance to even just kind of flip through it yet. But if we actually did everything that was in the management audit, there would be some new things that we would have to do because if we want to do things better, faster, cheaper, which was one of the goals of having the audit, there are some things that we're not doing that we need to do to be a more effective government. So we will be weighing all of the recommendations in the management audit as well as any other items that we might want to look at and packaging that to bring forward to you in April. I really wasn't meaning specifically efficiency measures. I was meaning purely new programs, which just on the surface wouldn't seem to me to be something we'd be funding right now when we're in such dire straits, but I guess we'll wait and see. I'm sorry, we haven't even begun the discussions around programs yet. Okay. All right. Thank you. Thank you. Mr. Blevins. Then I have Mr. Beard and then Mr. Gray. Thank you, Dr. Stevens. I just want to clarify a couple of things. Is it, by the way, thank you for these charts. This is great. Please do this. That's thanks to Bill O'Mara. Good stuff. Thank you. I want to clarify, make sure I heard you correctly. We are now complete with the cleanup of the data for fiscal year 07 and STARS should be as good as it's going to get for fiscal year 07. For fiscal year 07, we are finished with the general fund cash reconciliations and any entries that would affect the general fund. We're still sorting through some of the other funds, the inter-fund transfers and some of those things, so we have not technically closed yet and we're still working on fixed assets. The auditors are working, though. As we've finished pieces, we've been sending them to the auditors, so we haven't just been sitting back waiting to dump everything on them at a later date, but I don't think we could say we're not completely finished, but we have finished with anything that will affect general fund cash. That's good. I was just looking to see whether we were ready to jump up and down and celebrate yet. We're going to have a celebration in a day or two. It's also true to say, though, that our entries for this fiscal year are all up to date and we're operating off of good data right now. If you'll notice, the January report still says draft because we have not closed January. I ask my folks to please concentrate on 07 and let's get that one put to bed before we close January, but in the closing process, generally, the numbers don't change very much. Minor changes. Is this the closing report you're talking about? Yes. Is this directly off of STARS? Yes. Excellent. Thank you, Mr. Beard. I would like to request in the future that we have year-to-date actuals from the prior year in an appropriate column so that we can see due comparisons, but otherwise, this is great. This is exactly what we built STARS for. This is what we hope to have, and I'm looking forward to the day when we can really make use of the good data. That's all I had. Thank you. Thank you. Mr. Beard. Thank you, Dr. Stevens. I like the bar graphs, too. They're somewhat, when you three-dimensionalize them, somewhat difficult to compare month-to-month over the years, although there is a significant pattern about when we receive revenues that are fairly consistent for a 10-year period of time, it looks like. The presentation here, for instance, says that we're 53.6 percent collected on our revenue. I assume that is a gross aggregate amount as related to what was budgeted. Yes. Has there been any attempt made to go month-by-month to see if they're trending differently somewhat than, it's just hard to tell from the presentation. Right. Right. We do the month-by-month analysis on the big three, and pretty much the way they go so goes the rest of the revenue. So yes, we do month-to-month over the last 10 years. We do have a big chunk of, like in May, we get a big chunk of money. We always have gotten something late that was more than we anticipated, and a pleasant surprise, and hopefully we'll see that again. I'm hoping for a surprise, a pleasant surprise. Thank you. Okay. Thank you, Mr. Gray. Commissioner Coe, could you help us, or help me maybe understand better the projections for 08-09, the 25-30 million dollar, is that representing 25-30 million down from 280 million or 267 million from this year? What's that index? It's down from the current year. So from the expected expenditures or revenue? Pardon me? Expected revenue of 267 or expenditures of 280? Is that down from, expected, the total revenue projected is 267 million and the anticipated expenditures? Yes, that's right. And we're expecting no growth, or up to 1%. So we're expecting revenue of 267 million and then expenditures that would be anywhere from 25-30 million dollars more than that. Okay. All right. Based on the current model? Based on where we are right now. Yes, and again, I want everybody to understand, we had to make a lot of assumptions, but I just felt like you needed to see the gravity of the situation. Okay, so bottom line is that you're expecting revenues to be flat, right? Yes, sir. Any growth at all, based on this model, is a deficit funding model. I'm sorry. It would create a deficit. All right. I know you don't want to use the word deficit, so, okay. An imbalance. An imbalance. Yes, sir. Okay. Thank you. Mr. Ellinger has another question. If we came in short on that one that said we had 13.5 carried forward and we're short 16,000, what is our fund balance? We had some that we had brought forward, what, 100,000 or thereabouts, 150? 277,900 is what's budgeted right now. So have we closed out then to 07 then, and what would our fund balance be then for 07? For 07, that 13,484 is the unrestricted fund balance for 07 that's carried into 08. So that was the 07 unrestricted fund balance, 13,484 million. That's for the carry. No, I'm just saying, what is our fund balance? When we close our books, what do we end up having at the end? Well, the way it's budgeted right now, we have budgeted for a fund balance of $277,000. 277? Uh-huh. And then take less 16,000, you're saying, probably? Well, it, I mean, you have to look at what expenditure, I mean, revenue reductions are going to be and expenditure reductions, because that unrestricted fund balance, even though we're budgeted at $277,000, it's going to be actually a reflection of actual revenue and actual expenditures. So- It's sent to our auditors, though, when they do a reconciliation, and that's been sent to them, and we have to have a, we can't have a deficit, we have to have a balanced budget. Right. So what are we looking at, then? Well, I think that that's just what I went through, in that we think we're going to end FY08, just basically barely get out of it, so I mean, I'm going to say that, you know, we hope- I'm looking at 07, before we get to 08, so you're saying 07, because we just got the numbers. Right. I'm sorry, I'm really not following your question. I apologize. Well, we're going through 08- Right now. Thinking that we're going to end up being flat, but I guess we just kind of got the numbers from STAR, what ended up reconciling 07, and what we sent to the auditors, and from 07, we ended up being- $16,000 short. $16,000 short for the whole thing, so that's, and that, but we also had, what, $277,000 that we had? No, we had, $277,000 was what we budgeted to end FY08 with, I thought you were asking that question. I'm sorry. No, we will end FY07 very close to that $13,484,000, and we've carried every penny of that forward to be able to use in 08. Now, there could be some minor auditor adjustments to that number, but they're usually pretty insignificant. Because, and that stays within the ordinance that we have to have, we can't end a year in a deficit, right? Right. So that takes care of that issue? Right, yes. Okay. I did have a question on your white paper. Yes, sir. Have you got net profits under licenses and permits? Yes. Of course, that doesn't, the occupational license fee is a pretty steady source of income month to month, but the net profit looks to me like it usually varies quite a bit from month to month. Right. Well, actually- Do you factor that into your $5 million in the whole? What we have looked at, the payroll end of the occupational license fee, we're pretty dependent on some big government entities in Lexington, like Fayette County Public Schools and University of Kentucky. So with the state budget looking the way it's looking, I think for FY09, if teachers don't get raises, and if UK actually has to lay off 700 people, that is all going to be directly related. We're going to see that directly in our payroll occupational license. Yeah, my question wasn't about the occupational license fee. It was about net profits. My question was, have you included under license and permits the net profit? Yes, sir. But it varies from month to month, and it's not a constant, a relatively constant source of income. That's exactly right. And it looks like in April is the biggest month, according to these colored bar graphs. Right. But we factored in the fact that April is usually a really strong month. We're looking at this on a month to month basis over 10 years. So we're not just saying we're behind where we need to be today. We're projecting out where we think we're going to be at the end of the year based on the fact that we know we still have some strong months, but those strong months are not going to be as strong. We were projecting that they're not going to be as strong as they need to be to not be short. So are you still think that this minus number will hold for net profits through the year? Well, actually, it's not or is that to date? What I gave you, just a second, is what we think it's going to actually do to date, which is, I mean, what we think it's actually going to do to the end of the year, which is going to be slightly under where we were last year. Okay. So that's an end of the year projection. That's an end of the year projection. That's not a current. No, sir. Okay. And I agree with Council Member Blevins. If you can give us, in past, we've had this report come every month from the budget. Right. And it would include what the past months, I mean, the past year would have, so we can get an idea looking at it. Right. Also, that would help us understand which sources of revenue fluctuate throughout the year and not just go on a steady state somewhat like the OLF, which maybe is a steady state going down, which is not so good. Let me apologize for not having those reports. The Division of Budgeting usually doesn't run those until after we have closed the month. And because we haven't closed January, they haven't run that report yet. So I kind of wanted to get something to you that was in draft form so you would have something. But clearly, once we get all the data cleanup done with STARS, we intend to start closing by the 10th of the month. So those reports would be available to you by the time budget finance meets each month. Okay. And when you get this one done for this month, you don't need to wait until the next budget finance? Okay. We'll forward that to you. Okay. Are there any other questions regarding these reports? Mr. Beard has a question. Thank you, Dr. Stephens. I guess one of my hopes and desires, dreams maybe for STARS was that we would be able to get data out by, if I might use outdated terms, SIC codes or economic segments and be able to tell if we're having expansion or contraction in whatever segments we might have and how we might address those from an economic development point of view. And that might be a question maybe that Bill has probably chewed on more than you may have, because I think I've mentioned this to him a couple or three years ago. I think that's one of the things that we hope that the task force, the finance task force that's been put together. Okay. Just a second. Did you? All right. Excuse me. I was just going to say these are year-to-date actuals, and Dr. Stephens asked you if those were previous. Excuse me. I can address the SIC or currently it's NAICS. I believe North American Industry Standard, whatever. And we try to track those within the license fee system, which has not gravitated over to STARS yet. However, we're limited as to what we can classify, such as Walmart is the leading grocer, leading tire, leading retailer. And so we can only assign one number to someone like Walmart. And so we have challenges as far as classifying different entities by NAICS code. And we're trying to look at expanding that. And if we have a replacement system, they all seem to have that already embedded into off-the-shelf programs. But we have been working toward being able to slice and dice by industry code. Something Commissioner Cove mentioned concerning the University of Kentucky and losing 700 employees, but at the same time, Dr. Karp's over there hiring doctors right and left at 3 and 4x the salaries. So maybe the net result from the university is going to be a plus rather than a minus, just because the headcount might change. The salaries may still go up. Is that a fair assumption? And would we know that, I guess, is the question. I'm not sure we would know that type of detail. And actually, I'm hesitating here because of confidentiality. I'm not sure that I could share that with counsel. University of Kentucky could share that because it's their business. But as far as that level of detail within the occupational tax, I'm not sure that I could discuss it. But to answer your question, I don't think we would know the answer. They're subject to open records just like we are. Well, I'm talking about withholdings and individual withholdings. Well, not individuals yet. I'm still thinking about groups, like the hospital as a group. Hospitals as groups we can report on. Specifics for a taxing entity, I have to have reasonable confidentiality of tax returns. Okay. Bill, thank you. Okay. If there are further questions, I'm informed that the electronic machine is now working. So if anybody has a question, when I see a blank. Is there any further business to come before the committee? Yes. Ms. James. There. Do you see my name on there? I just want to, I do have a question, but I just want to make sure it was working. Oh, okay. I got the name James right here. Okay. Perfect. That's me. I have a question for Commissioner Coe. The personnel, the FY08-09 projections, where you have 16.9, you ran down the list of what that included, and I think I missed a couple. Can you go down that list again? Sure. It was 3.8 million in sick checks, 2% increase in police and fire retirement fund, 1.1 million for the new police class in June, 4.9 million in health insurance, 6.6 million in retirement payouts. And I don't have the number, but it's the steps for the police and fire and the corrections contract. Okay. And that 6.6 for retirement, is that, regardless of anything, is that automatically something that has to go in annually? No, it's not. This is a one-time thing. Well, every time someone retires, we have a payout. But this is a one-time deal because of the window of opportunity, closing for some people. So across government, both our government and in state government, we expect a large number of employees who can retire to retire within the next 10 months. Okay. Thank you. Thank you. Commissioner, several of the members of the committee asked if you would be kind enough to email the list of expenditures that you... Sure. ...to answer Mrs. James' question. Sure. Is there any further business to come before the committee? Hearing none, we are adjourned. Thank you very much.