And finance committee meeting to order.

First order of business is approval of the February 3rd, 2026 meeting minutes.

All in favor, say aye.

Aye.

Motion passes unanimously.

Okay, we have several briefings today.

Our first is our annual comprehensive financial report and external audit results.

We have Dan Barone with four this Mesars here to speak.

Dan welcome.

Appreciate it.

Appreciate the opportunity to come and have a talk about another successful audit.

So if you're wanting a exciting presentation, this is probably not going to bore you a little bit.

It is a good result.

So first of all, I do want to acknowledge and thank the your team, your Reggie and Kate and Christian and your whole management team.

They do such a great job.

Very cooperative and working with us, always timely, very professional.

And so I do want to thank them and acknowledge them.

It's a lot of work putting together your annual comprehensive financial report and not just putting it together, but with the results that you have, it's it's amazing.

Really great results on the financial side, on uh internal controls, and and you know, even with your grants.

So we'll kind of walk through that our results, and please don't hesitate to stop me at any point in time if you um have any questions or you know want any clarification on anything.

Josh wanted to be here this morning, but I told him he couldn't.

I really wanted to bring the person who leads us and guides uh our engagement team, Kelsey Blackshire is with me, and I just wanted to acknowledge her as well too.

Kelsey is our in-charge.

She's really I say she's my boss.

She's really the one that works with the engagement team and and uh doing the audit and working with your management team.

So Kelsey's with me here today.

Um and as I said, we'll talk through the audit scope and the results, and then we'll kind of walk through some of our um future pronouncements and some of our other matters as well, too.

I'll leave um time at the end for any questions you may have, but as I said, don't hesitate to stop me at any point in time.

So just to remind you, you know, it's it's what we do is very different than what Patrice and the city auditors do.

Um we do work hand in hand.

We work um with them to make sure there's no overlap in in what they're doing versus what we're doing.

But really, what we do is is uh twofold.

We do the audit of the financial statements, your annual comprehensive financial report, and issue opinions on those.

And so we have issued uh clean or unmodified opinions on those.

So those are the type of of opinions you want.

Um those opinions also reference the the reports of other auditors, so you do have different components that are audited by other auditors, so we do reference that those are and we do rely on the work of those other auditors.

We also do your your federal and your state single audits as well, and those um there's two different reports that are issued with those.

There's a report on internal control over financial reporting and other matters.

Uh and then there's a report on uh in your internal controls and compliance with your major federal and state award programs.

So both of those were issued clean, no reportable findings for either of those, either on financial reporting or on your uh major federal programs.

The major federal programs that we um looked at this year that we audited, and we go through the uniform guidance.

There's a risk-based approach in identifying which programs to audit.

Um, all your programs are subject to audit, but we do look at that risk-based approach to identify which programs will be selected, and we look at your direct and material requirements.

What's what are the requirements of those audits of those programs, and then we look at internal controls as well over those the compliance for those.

So this year we had the highway planning and construction um program.

We had the coronavirus state and local fiscal recovery funds program, and then the low-income home energy assistance program.

And so um, and then those are the expenditures that were um audited um that are included in your schedule of expenditures of federal wards.

And I think this is the third year in a row where there's no um findings at your major programs at your at the federal level, so um all clean um uh reports on on those.

Your state major programs.

We did two programs.

We did the routine airport maintenance program and your homeless housing and services program.

So those are the two programs that that we um identified as major and um and also no no findings on on either of those programs.

One of the things we look at as well, too, is we look at the financial statements and and make sure that they're in accordance with generally accepted accounting principles.

We look at your policies and and your procedures, your practices to make sure that they're in line with generally accepted accounting principles.

Your significant accounting policies are in your note A of your financial statements of your annual comprehensive financial report, and that lists um you know your revenue recognition, lists um different types of policies that the city follows, and they're all in line with generally accepted accounting principles.

Um nothing out of the ordinary there.

There was one new um statement that was adopted in the current fiscal year.

There's actually two, but the only one that had uh any kind of an impact.

Uh compensated absences statement number 101 did not have a significant um impact.

You were already um accounting for compensated absences.

It did um change the disclosures a little bit on that, um, so there was a little bit that would change in the footnotes.

Um there was a requirement to go back and look at your previous um fiscal year to see if there were any material changes, and there were not any material changes.

So but that was adopted by the city in the current year.

There was no um unusual policies or methods, as I mentioned, everything is in line with uh generally accepted accounting principles and no alternative accounting treatments.

Some of the areas were where um there's management um judgment where there's estimates involved.

Um we do make sure we spend a uh a significant amount of time in these areas to make sure that the assumptions that that management are is using are are uh reasonable, uh, make sure there's no management bias in these estimates.

So we do look at these.

Um the the most significant ones deal with your pension liability and your other post employment benefit uh obligations.

Um we do look at as well your self-insured liabilities, um your compensated abs I mentioned uh previously, and then um there's a few other ones uh of those estimates.

And um, we did not identify any any issues, no management bias or problems with any of those estimates.

The financial statements um after your statements, you do have different disclosures that this that's required by general accepted accounting principles.

The most significant ones deal with your pensions and your OPEB, they give the actual accrued information based on your actual reports, um, and there's some other um information that's included in disclosures as well, too.

As I mentioned, the the quality of the city's accounting principles, there's no matters that are reportable there.

Everything is is in line and uh with with governmental uh accepted accounting principles.

Um other communications, we did not have any significant issues discussed with management outside of the normal um course of of the audit.

You know, as we mentioned, we did have communications with them on GASB 101, but that was really the only only significant thing.

And then this year we also had the um the Med Star transaction that occurred, which it's actually we've been discussing this with management for a year and a half now or more with that transaction to make sure it was smoothly um transitioned and reported in the financial statement.

So that was kind of one of the other areas that was that we've been discussing with management.

No disagreements with management uh to report.

These are audit adjustments, so this would tell you if if uh we did have to um propose any adjustments um to the uh city's financial statements in order to get them in a materially correct.

And there were no proposed audit adjustments, so that's very telling of the the quality of the information that's provided to us.

Um there was one minor, we call it a past adjustment, and it's really just an immaterial um, it was over our scope where we have to disclose it to you, but it's very immaterial.

It's really just uh the difference of the GASB 101.

Um technically, you're supposed to restate the prior year fund balance and and net position for any change, but the as I mentioned, it's it's an immaterial change, and it didn't make any sense to go back and restate prior years.

So the current year balance is correct.

Your your 930 25 compensated absences is is correct in accordance with 101.

And so that's really the only the only thing that we identified.

And another very telling slide, uh, any audit findings, no matters are reportable.

So I think uh all in all very good clean audit.

Um I think you know cooperation was great.

And and I think uh I was talking to Councilmember Blalock earlier, and I said he said this is his third year as chair and uh three great audits.

So thank you for your your leadership in guiding in.

I will say there was so much effort done by Reggie and everyone else in the city to make that possible.

I just uh like to sit here and and thank them for their hard work because they made this happen.

I'm gonna quickly go through some of the future pronouncements.

I'm not gonna go in too much detail on them, but just so you have an idea.

Um, I think it's important for you to know what's what's out there in the horizon, and then I'll just have any any questions you may have.

Um there's Gazby's statement number 103.

It's just uh some tweaks, uh minor um uh what we call just kind of looking at some of the reporting and and trying to make it consistent uh practice, and then also just to kind of improve um some of the reporting.

So that'll be implemented next year.

I don't think it's gonna have any significant effect on the city.

The your financial statements are you all already do a really great, great job in uh what you do and in them.

So I don't think it'll have much of an impact.

Um statement number 104 just deals with um disclosures of certain capital assets uh the last couple of years.

You've had leases and and subidas, your uh subscription-based IT um agreements that have come on, and this is just kind of clarifying how to incorporate all that and put them and disclose all that.

All that's already being done by the city, so I don't think this is gonna have a significant impact.

And then um GASB statement number 105 is just uh disclosure of subsequent events, things that large transactions or unusual items that happen after year end.

The city already looks at that and already discloses anything that that uh that that's happening.

So, really all three of these that are best practices are already being done by your management team.

And just um, like you like to brag about the city, we like to brag about Forvest Mazars just to kind of give you an idea of who we are.

Um I think it's important that you know that you know we do serve 850 plus public sector clients.

Um we're the number three provider of single audits.

Um and we do have a uh a national and now global uh presence in the in public sector.

And so you know, we've changed a lot in the last three years.

I think I've been with the firm for five and a half years now and gone through three name changes.

So I think you know, we started off as BKD and and uh went to Forvus, and now we're Forvus Mazar's an international firm.

So proud of that.

So with that, I will open it up to any other any questions you may have.

Dan, thank you very much for the presentation.

You know, uh we enjoy some presentations because they're exciting and and gets us all engaged and fun.

And we also enjoy some presentations because they're very boring.

This is one we like to be boring.

So thank you very much to everybody for making that happen.

Thank you.

Yeah, drama free, right?

Okay, next we have our internal audit work plan and activities up to update.

We have Patrice Randall, the city auditor, and we will now have a brief presentation by Patrice, who will then hand it off to IT.

Good morning, Patrice Randall, City Auditor.

Our office conducted an artificial intelligence audit, and the purpose was to determine whether the city had a documented AI policy and to look at governance overall.

So the city of Fort Worth does have an AI policy that is made available to employees on the intranet.

Uh, based on our test results, most departments use AI in some form or fashion.

Uh some use it for general purposes like drafting memorandum or correspondence.

Other departments use it for more specific tasks.

Uh, two examples would be TPW.

They use AI to help um identify the uh condition of streets, and then you have PD, police department that uses the software that helps to translate 911 calls.

So, in addition to the the written policy, we also found that the city has created committees to help govern our AI use within the city by all city employees.

And with that being said, the IT department is gonna come forth and give you information about those committees and what their efforts are, the efforts they have in place now and what they plan to do going forward for AI use in the city of Fort Worth.

And Kevin Gunn is gonna come at this moment.

Thank you, Patrice.

Good morning, Chairman Blalock and Council members.

Uh I'm Kevin Gunn, IT Solutions Director, and I appreciate Patrice's uh performance audit, found a favorable results from our governing and AI management activities.

So I wanted to expound on that a little bit with my presentation.

Um there's a lot of hype out there about AI technology and the benefits that could be brought to bear on our business operations by leveraging AI technologies, and a lot of that is true.

It does uh improve uh our efficiencies and velocity of business operations, it enhances uh data analysis and management decision making and improves overall user experiences in many cases.

But with those uh benefits comes uh some risk.

And that's really where governance comes into play to make sure we adopt AI technology that enables those benefits but also mitigates the risk of the technology poses to some of our data concerns, particularly the uncontrolled release of our sensitive or customer information.

The I guess bringing bias or fairness issues into our management decision making processes due to the way the AI models have been trained.

And also what's been termed hallucinations or basically inaccurate responses coming out of AI technologies.

Those are primary risks that we're trying to manage as well as getting a return on the investments that we make in AI technology.

So MIT released a study this past summer saying despite uh 30 to 40 billion uh dollars in investment by enterprises, uh fully 95% of those organizations have seen no return on that investment.

So uh that is a huge risk, and as uh stewards of taxpayers' monies and ratepayers' monies, we want to be responsible and ensuring that we're leveraging those funds uh and receiving the greatest return on value for those.

So that's why we've taken uh steps to implement additional governance around AI technology.

We want to uh balance uh the pace of innovation and bring new functionality to the organization with the risk that it poses to us.

We also want to make sure that we're being uh responsive to the Texas legislature's new bill that they passed, HB 149 requiring responsible use of AI and and local government.

And so we want to make sure we're ethical uh and uh being secure and maintaining accountability in our use of that technology.

Also uh there are tremendous possibilities with this technology uh uh spanning all of our operations.

We want to make sure we had some guardrails in place uh to give guidance to our employees for responsible use of this technology and ensuring that we can comply with uh regulatory mandates upon our city, and then also we wanted to uh make sure that we are aligning all AI projects with uh the priorities of our organization and making sure we are advancing those priorities for the organization.

So that's the reason we've implemented more governance around AI projects.

Um those projects are weighed on these four dimensions, how well it handles uh sensitive and proprietary information, how well it enables the city to comply with those regulatory mandates that have been placed upon us, making sure we have a strong cost benefit analysis of those and making sure we are enabling that value to be delivered in our business operations.

So we've created uh a committee, actually, two committees uh that evaluate these projects before they enter into our standard uh project IT project portfolio process.

Uh the first committee, the AI request review committee will uh monitor those projects and requests from a technical perspective, so making sure the proposed project aligns with our city's technology uh implementations and will integrate into those implementations.

And then uh the second committee, the AI governance committee will examine those projects from a policy and management perspective.

Uh and once uh the they have been reviewed and received approval, then they will flow into our standard IT project portfolio management process.

Before we leave this, how do you all how did you pick the members for the committee and which departments?

Yeah, absolutely.

Um we we um actually have a lot of interest uh in AI technology, and uh a lot of projects are underway for AI technology, so that's really the source of our membership.

We went out to the departments and asked for one, those who are interested in participating or those who are already pursuing AI pilot projects, and that's how we made up the membership.

Uh the departments represented our broad swath across the city, public safety, police and fire, uh operating departments like uh transportation public works, uh parks and recreation libraries and as well as IT department.

So we have broad representation across across many of our operations for the membership.

Kevin, uh which ACM is uh seated on the governance committee.

Uh it's ACM Djardana.

I'm sorry.

Giordano.

That's right.

Giordano, you on our name.

I had uh de Giorno Pizza last night.

Not enough coffee this morning.

I'm sorry.

ACMG or Dano is the ACM.

All right.

So one of the first uh decisions the committees undertook is what's going to be the city's AI platform for building uh these types of solutions.

Uh they we have examined a lot of those, and and the committee has determined that Microsoft Copilot is going to be the best platform for the city for a variety of reasons.

Um it does uh live in our own uh government cloud, so it is isolated and separate from uh the public cloud, which is great for data privacy and security and ensuring that uh all those things that uh we are concerned about uh from a perspective cities government's perspective are protected within our AI platform, so Microsoft Copilot enables those.

Also, we can limit the ability of people to access that information to just those who have a city of Fort Worth uh computing accounts.

Also, it enables uh regulatory compliance uh in much of the same way that we have for all of our other office productivity suite and uh SharePoint and uh OneDrive and those sorts of things we can enable us to do e-discovery across those things, respond to public information act requests and establish uh uh digital uh rights on those things to control who can access when they can access and how they access that information.

So it's great from that perspective, and it's already integrated with all those things that we're use on a daily basis to get our work done.

Uh from a licensing perspective, Copilot's already built into that office productivity suite as well, so there's no additional charge for leveraging that technology.

Uh whereas some of the other offerings that are out there and and some that are currently used in the city uh do require additional licensing.

So they get the same value that we get from Copilot.

We would have to uh spend hundreds of thousands of dollars with these other providers.

Uh and so co-pilot seem to be the logical choice from that perspective.

And then it has all the same capabilities that the other AI tools have.

Uh we have the AI assistance and agents that we can build uh to improve and automate a lot of workflows.

We have the conversational AIs, uh the chats that you're very familiar with and using those uh publicly available tools, and also multiple multimodal capabilities, which means we can uh uh use AI technology against uh text, against documents, against uh audio recordings, against video, uh so all of those things can be processed by co-pilot AI.

So it enables all of those business capabilities that we are interested in using and comes that way out of the box.

It also doesn't limit us uh by using Copilot.

Uh their AI foundry has all of the models uh that are out there commercially available built in.

So if we need to use one of those other models, we have access to it, uh, but also still within that framework that Copilot brings uh to the table.

So uh this decision was made uh very recently uh and uh we've been uh co-piloting uh piloting copilot uh with employees since uh late last year.

Uh this government's process has made the uh recommendation to management and management agrees that co-pilot should be our platform going forward.

So uh beginning this month, we're gonna start messaging that out to the organization, uh letting them know that they have other tools that they've been using, that they'll need to migrate those into the copilot ecosystem.

We'll be aiding and assisting them with that if they need that help.

Uh and then uh phased approach over time will uh restrict access to those other tools from within the city's corporate network.

Um with all that said though, I I do uh want to echo what Patrice found in her performance audit that we are uh leveraging this technology to a great extent, piloting lots of efforts.

We see the value in this technology and want to incorporate it into the things we're doing as a business to deliver city services, and uh we're excited about the possibilities.

So uh with that, I will be happy to answer any other questions you may have.

Councilwoman to that part you guys.

I just wanted to confirm we're not already spending money on licenses for these other um AI app software.

Um many of those are using the free versions that are available on personal, yeah.

So uh, you know, like ChatGPT have if you go there you can use it for free.

Uh so most of that use is it's using the free versions.

There are some licenses for like Grammarly that are being uh purchased by city employees, uh and those are the ones that we're gonna be phasing out over the next few months.

So that's their personal accounts, though.

We're not paying any of these licenses through Fort Worth.

Uh some of those grammar leaves are licensed currently.

Uh how much money are we saving there?

Um you know, it's a thirty dollars a month, I believe.

I don't remember exactly.

But uh, and it's just a handful of licenses, so it's not a lot of money, but um uh we we are going to be migrating away from those.

Thank you.

Yeah.

That's uh what my question was related to.

Is there gonna be um any prohibition of using the other services now that it's established that co-pilot is the preferred use?

Yes, uh, that's what I was indicating.

We are going to be restricting access to those other uh providers uh uh in a phased approach over time.

Yeah, sure.

Yeah, right here.

So over the next few months uh and into the summer, we're gonna be starting restricting access to those.

But to be clear, you've also indicated that those tools can be accessible through co-pilot if needed.

Yeah, the models that we have for uh Jim and I, uh OpenAI, those are accessible uh through the Microsoft co-pilot platform.

Uh so we can still create agents and develop workflows around those models, just not going through their uh web interfaces, yes.

I guess a question I would have as as we're entering this brave new world of AI.

Uh I I love that we're putting governance model in place so we understand what's actually happening and what we're doing.

I think that's very important and commend uh you and the the rest of the city for for moving forward in that direction.

Uh what I would ask uh, and there may be there may not be.

Have have we started putting together any uh ethical training or use of AI to teach uh to teach our employees uh how it can help them in their jobs?

Yeah, absolutely good question.

And and we have uh partnered with the Fort Worth Lab for uh skills development for our workforce.

I think that is an extremely important uh part of the program uh because it is different than how we have worked in the past.

And and there is a skill to uh interacting with uh AI models and getting uh good responses out of it.

So uh the Fort Worth Lab is developing uh training for how to prompt uh AI and get good valuable accurate responses out of it.

Uh as we mature our program, we're gonna start giving training about how to create agents and what agents are and how they enhance your work and can take a lot of that uh repetitive task-oriented work off your plate so that you can focus on higher value uh strategic thinking and uh that will be both kind of in-person uh training and online recorded training that you could take at your own pace.

So we we have incorporated that into the program, and we're excited about the possibilities from that.

Fantastic.

Any other questions?

Kevin, thank you very much for the presentation.

Appreciate it.

Thank you.

So that gets us to I guess item D, review of monthly financial report for fiscal month four.

We have Kate Perry, the controller and assistant finance director, and Christy Lemon, our assistant finance director presenting.

Good morning, Christy Lemon, assistant director in the Fort Worth Lab.

Just have a couple of highlights for you this morning on the monthly financial report.

So this is the first projection of FY26.

So we're gonna do monthly projections going forward.

Just highlight a couple of things for you.

So I'll give you page numbers as we go.

On page five, we'll look at revenues.

So a couple of highlights here.

Um when we received the certified values for property tax as we were developing the budget last year.

We had a business that misreported their business property um by nearly five hundred million dollars.

So they put a couple of extra zeros in there.

And so when they receive their tax bill, of course, they corrected that.

Um, and so that was equivalent to about two and a half million dollars in city property tax revenue.

So you see a reduction in property tax revenue there.

Um for sales tax, we're projecting that to be even with our budget.

So a couple of things happening there.

We did have an audit adjustment that was pretty sizable, but we are seeing good growth in property tax.

So as we go throughout the year, we'll be monitoring that and perhaps making an adjustment.

We're also hopeful we'll see a property tax, I mean a sales tax bump from the World Cup.

So waiting to see what that brings us.

And other tax, we're seeing lower growth in electrical franchise fee payments.

And so that's largely due to weather, so we see fluctuation in that across the years.

So revenue overall is expected to be down a little less than four million dollars from what we budgeted.

And then for expenditures, I'll go through the general fund departments in just a moment.

But we are expecting or projecting to be over budget in salary and benefits by quite a bit.

Um if you will turn to page eight, um, we can look at the general fund departments.

So the the key drivers for that are really police and fire overtime.

In the fire department, they're projecting to be over budget due to a few different types of overtime.

So some of it's due to vacancies and backfilling those vacancies.

Some of it is due to deployments, and we will receive reimbursement for those deployments, and so some of that will be offset.

Um, and then they're also projecting higher than budgeted costs for fleet, so for repairs to apparatus.

Um the Fort Worth Lab will be working with fire department over the next few months to bring their projections in line with budget, and they have been directed to do that by the city manager's office.

So we'll be working through that together.

We also are seeing an overage uh in the police department, so a lot of that is also due to overtime, has to do again with vacancies and then filling some of those spots on on overtime basis.

They're also seeing some contractual, some larger than budgeted contractual increases just for various items across the board.

So again, we're gonna be working with them to bring the projections in line with budget over the next few months.

Um, and then there are a couple of other variances.

The parks department is expecting to be a little bit over budget.

Um, that's primarily due to summer employment of part-time employees.

So when we raise the minimum wage, um, we didn't budget for the part-timers as we should have, so we'll correct that throughout the year.

So these are early estimates and they're projected through the end of the fiscal year.

Um, in terms of all of the other funds, I'll just highlight a couple of things, and then Kate's gonna come up and talk about the health fund.

Um, so almost all funds are projecting to either contribute to fund balance or net position.

Um, the municipal parking fund is projecting to use a little bit of net position, $33,000, and then we do have the overage in the health fund that we've been talking about over the past several months.

Um, retiree health fund is also projecting a short, uh, a small shortfall.

So if you'll move to page 21, I think Kate's gonna come and talk about the health fund for a moment.

Yes.

Sure.

Yes.

Yeah, so for example, the city secretary, we had a long-term employee who retired.

Their budget is so small that when you have a payout like that, it does impact their budget.

And so we're gonna transfer some dollars to them from non-departmental.

We do hold a contingency there for situations like that.

So, especially in small departments, you could see one personnel action really impact their budget, and we'll make sure we work with them to resolve those issues over the year.

Um, economic development is a is projected to be a little bit over.

They have three overage positions that have been approved by the city manager's office.

So kind of, you know, in those small budgets, you'll see that impact.

So, any other questions before I turn it over to Kate.

Okay.

Thank you.

Oh, okay.

Good morning, Kate Perry, uh Financial Management Services Assistant Director.

And I'm actually going to take us back to if I can go the correct direction.

I'm gonna take us back to page five because we made a change here.

And I just kind of wanted to walk through it and explain what we did and why we did it.

So if you'll notice toward the middle of the page, you have a line item called budgeted use of fund balance.

And we added this because if you remember at the end of the fiscal year 25, we always set aside some committed fund balance and assigned fund balance for different areas, capital projects, um, set aside some interest for potential projects that we we don't know are gonna come to fruition yet, that kind of thing.

And so when we looked at this first um presentation for the fiscal year, there was a very large additional use of fund balance.

And what we wanted to do was break out what part of that was actually planned.

So that's what you're seeing in that budgeted use of fund balance line item.

And because it sort of operates like revenue, but it's really just a budgeted item.

That's why it's not sitting with the revenues.

And if you'll go to page seven, you then see a breakdown of what exactly that planned use is.

And you'll see there's a couple different MNCs, one of which was the closing MNC for fiscal year 25, and you'll see the anticipated usage of those particular funds.

And so we we plan on continuing that throughout the fiscal year so that we have a good visualization of what we have planned to use of the fund balance and what additional use or contribution we are going to expect per the projections that we see from the departments every month.

Okay.

And next I will move to the fund balance.

Sure.

This two million dollars of the assigned fund balance for the AT for city show.

Is that I'm sorry, would you print that?

It was approved by council.

Not yet.

Is that the city manager's office that's equal to review?

Yes, ma'am.

Okay.

Oh, it's not the environmental services.

Okay.

Okay.

Okay.

Okay.

So when we also added this little piece, which is is just um a kind of a roll forward of the general fund fund balance, and you'll see that those two projected um line items are broken out.

So based on the projections that we're seeing from all the departments, we are looking at what the fund balance is, what it's expected to be, and what the differences are, which again are replicated from that first schedule.

And now we will go to the health fund.

Um, I know Kristen is gonna come up and do a presentation because they are working with consultants on a long-term plan for the health fund.

Our concern is really uh fiscal year 26.

We have already made a contribution from the general fund and other funds about six point seven million dollars into this fund.

Our concern is that at the end of the year, with the projections that we see, we may be looking at a negative net position, and we cannot have a negative net position.

So just um putting it out there that there may be another adjustment to this fund of six to seven million dollars just to keep it from going negative.

So that that's gonna be a potential transfer of interest income.

Um, we're looking at other sources potentially, and so just that's just what we're looking at at this point on that fund.

So any questions.

Thank you.

Thank you very much, appreciate it.

Next on our agenda, we have the city health fund performance update.

Kristen Smith, Human Resources Director, Joanne Hilton, Assistant Human Resources Director, and HUB International.

Yeah, uh you wouldn't necessarily see that yet.

We haven't actually proposed it.

Okay.

Um, but yeah, the anticipation is that we would need to potentially use some interest income, potentially.

Okay, and then we're looking at some other resolutions, if you will.

But as Kate indicated, FY26 is really the concern as it relates to the health plan.

Okay.

So thank you, please.

Morning, Kristen Smith, Human Resources Director.

Uh, as mentioned, we have been working actually for several several months starting uh in December with a one-time engagement to do a comprehensive review of both the health fund financing mechanisms as well as our plan and program designs.

You have the full comprehensive report in the binder in front of you, but our consultants are here and they are going to give a high-level overview, focused just on the financials, uh, and then I'll come back up and talk through some cost-saving measures that we are focusing on for the short term and then for the longer term.

One of the key elements of this consulting engagement is a multi-year strategic plan given our position with the health fund.

Uh, we do anticipate that it will take us, you know, at least two to three years to have a healthy fund as well as uh meet our fund balance uh reserve requirements.

So with that, I'll ask Hub to come up and give a quick overview.

Good morning, honorable committee and council.

I appreciate uh the opportunity to come out and present.

I have Andrew Wieger here.

My name is Brent Wieger, and also Heath Hagood in the back that has helped us through this project over the last three months.

Today we're gonna give a little bit of information about Hub, just an introduction to who we are and what we specialize in, and then Andrew's gonna walk you through the overview of the project, the review of the budget in detail, a contribution analysis, and finally some strategic recommendations, some preliminary recommendations as we move forward.

So a quick commercial about Hub.

Um I'm a senior vice president with Hub International.

I started our public sector practice just about 20 years ago.

Um Hub is a national uh broker and consultant.

We're the fifth largest in the country.

What makes us unique is that we have a significant amount of public sector experience.

We have over 500 public sector clients, many who are large and self-funded like you are, and we walk them through three to five year strategic plans to ensure that their budgets are sound and have appropriate reserves to prepare for the future.

Um we have just about over two million clients and 20,000 employees across the country, but we're located located here in um Dallas and Fort Worth.

It's important to note the public sector clients that we do have are large and self-insured as well, and many around the area.

So we're able to provide best practices and benchmarking against those uh clients, and these are just a few of those uh on this on this page.

And um, when we're looking at the plan, we're ensuring that not only are you competitive in this nature but competitive fiscally moving forward and adopting best practices others do um across the state.

So, with that said, I'm gonna pass it over to Andrew, and he's gonna walk you through um the presentation from here.

Thank you.

Good morning.

My name is Andrew Weager.

I'm one of our assistant vice presidents at Hub International.

Appreciate the time this morning.

Um, what I'll be going through today is an overview of our key findings, really focusing on the budget, uh, plan designs, looking at some budget uh, I'm sorry, benchmarking as well as best practices.

And then finally providing recommendations to develop long and short-term goals with your employee benefits program.

So looking at this slide, I'm gonna really focus on the financial piece first.

Um, in 2025, uh the per capita health care spent through November was up, uh, ended about 18,808 dollars, about a 20% increase compared to the previous year.

Um, looking at the medical claims per capita, that increased by about 12%.

Um, that's above medical trend last year of about 8%.

Pharmacy utilization that was a big cost driver to the city of Fort Worth last year was about a 34.6% increase.

A lot of that was driven due to GLP one weight loss medications.

On top of that, being a self-funded employer, you do purchase reinsurance or stop loss protection.

Those premiums increase by 95.7% compared to the previous year.

That was due to ongoing uh large claim at risk liability and also your loss ratio exceeding 100%.

We'll get into some more of those uh details as we work through the presentation.

But something to highlight is looking at the City of Fort Worth's active funding rates, uh which sits about $15,382 per capita.

That is sitting slightly above the our benchmarks, about 2.8% above.

And then finally, looking at the opportunity when we're evaluating short and long-term strategic planning initiatives.

Our key recommendations are gonna focus on renegotiation of a contracts, looking at uh a possible RFP, gradual normalization of your plan designs, as well as looking at cost sharing.

Um, we would need to look at the budget as well, very close, maybe a budget recalibration as well as new vendor programs to combat the rising health care spend.

So, what we're gonna look at next is looking at a budget review.

Understand there's a lot of numbers on this page.

This information was provided to Hub International from the City of Fort Worth.

Um, anything from fiscal year 2021 actual all the way to fiscal year 26 budget in white, that was provided to Hub.

Anything in blue are projections that Hub International put together for the city of Fort Worth.

So working back to the left-hand side of the page, you will see uh fiscal year 2021 actual, you'll see the beginning fund balance, the total revenues, about 69 million dollars in that particular column.

The total revenues available for that particular was uh for that year was 109 million dollars, and then we look at expenses, your salary and benefits, operations and management, and then your total expenditures sitting at 64.4 million dollars.

The one of the most important numbers here to look at is your ending fund balance for fiscal year 2021.

It was sitting at 45 million dollars.

That was a very healthy reserve for that particular year.

If you work across the page going all the all the way to fiscal year 26 budget, you will see that the reserve has decreased significantly during that time.

The budget that the city provided us for fiscal year 26 is sitting about $9 million, $8.9 million for that year.

So about an 80% decrease during that time period.

And a lot of that is due to increased expenses on the health plan.

What Hub did we provided the city our own internal projections for fiscal year 26.

That's highlighted in the Hub projected row or column.

You could see that in that red uh row going at the top of the page, we left your revenues sitting at that 95 million dollars.

But we ran our own actuarial claims projection, where the city was budgeting expenses of 106 million dollars for this fiscal year.

Our internal projections, which is looking about 24 months with the claims data, medical trend, pharmacy trend, we're actually budgeting close to 115 million dollars worth of expenses.

Um if those numbers do uh land where we anticipate they will, you will see that fund balance is from $8.9 million down to $123,000.

Another key finding on this page is if you look at the fiscal year 26 budget provided by the city of Fort Worth, you'll see your total revenues again at that $95 million.

Your total expenditures were $106 million.

So the city was actually budgeting at a deficit for this current fiscal year.

Something that we did in our projections is we did a long-term projection, a three-year projection, just to just factor in where the reserve would be if there were no sort of premium adjustments or new revenue coming to the city of Fort Worth.

And as you can see, that number drops dramatically by fiscal year 2029.

So what this is telling us is that there does need to be a recalibre a recalibration of the budget, looking at the funding rates.

On top of that, looking at new plan design options to cut into expenses for future plan years.

We do show this in a chart as well, looking at fiscal year 21 all the way to our projections.

So we show it by expenditures, revenues, your ending fund balance, the required reserve.

You do have a reserve policy in place.

It's sitting at 25% of expenses.

And then lastly is showing your loss ratio.

To find that loss ratio, all you're doing is taking your total expenditures divided by your revenues, gives you that percentage.

Anything that's in red over 100%, that means that we're over budget for that particular year.

So we just wanted to show you a graph here, what that looks like over the next next three or four years.

Um, our active budget observations, um, many things I've already highlighted before, but again, the fund balance during this period has decreased from 45 million dollars to nine million.

That's about an 80% decline.

We didn't note as well that the city does have a proprietary fund reserve policy in place based on our findings for fiscal year 26.

The target minimum reserve level is set at 25.1 million dollars, which is 120 days cash on hand or 25 percent of expenses, which is best practice.

Um, on top of that, um, you know, for fiscal year 26, the budgeted fund balance is at $9 million, which is sitting below the target reserve levels that we mentioned before.

If revenues are not adjusted, the fund balance will approach a negative fund balance in fiscal year 27.

And then it is recommended to that the city does establish a three-year benefit strategy by one increasing funding rates, modifying plan design, and implementing cost containment solutions.

And there are some recommendations in this presentation we'll talk through here momentarily.

Um, there is a separate budget for retirees.

Um we will say that um looking at the data, the operations and management did perform well in fiscal year 25, resulting in a 12.5% decrease compared to fiscal year 2024.

Um, but over that period, the the uh the fund balance has fluctuated.

It has decreased from 7.3 million to 6.9 million, it's about a 5% decline over a six-year period.

And same recommendations will also be looking at uh funding rates, modifying plan designs, and cost containment solutions.

We did also uh look closely at the medical contributions.

We did benchmark this compared to like entities.

The city currently contributes 79% of total health care premium for active employees, while the public sector is sitting around 84%.

This means that the Fort Worth is paying approximately $300 to $600 more annually per coverage per tier compared to peers and other organizations.

The key finding on this page though is based off our actual calculations and looking at the funding rates, they are not set appropriately to adequately fund the employee health expenses.

So that's looking at a rate study this upcoming year and making sure that revenues are funding those expenses appropriately.

And then also we just put here at the bottom that the city is funding 93% of the employee only premium and 74% for dependents, which is in line with benchmarks today.

We also looked at your retiree population as well.

There's two buckets.

You have your pre-65 retirees as well as your post 65 retirees.

The city currently employs a risk adjusted premium rates for retirees, which offsets or eliminates OPEB liability, but this is sitting about 50 to 55% higher than the active rates.

And the city has implemented four distinct rate structures that are differentiated based on retirees' years of service.

And then the post 65 retirees, they are offered a Medicare Advantage program under a fully insured arrangement.

We did look at utilization observations to see what were those key trends and why the expenses have been increasing year over year.

And what it comes down to is the average cost of inpatient or admission patient costs has increased.

Medical emissions per 1,000 are about 25% above the benchmark.

Something else that we analyzed was emergency room utilization has increased dramatically as well.

ER visits per 1,000 are 9% above the benchmark, more notably ER costs per ER visit is 68% higher.

The city does have access to other lower cost facilities like the centers through Texas Health Resources, also urgent care and primary care, so try to steer employees through communication.

And then also imaging utilization has been significantly elevated during this time, really around CT scans.

Looking at per 1,000 average 34% above the benchmark, which is about 47% higher on average cost.

So that's really looking at heavily concentrated hospital and ER setting utilization.

And then when we look at the key findings on your pharmacy, traditional non-specialty drugs has been the primary cost driver.

This is set around GLP one medications.

This is Wingobi, ZEPAL, Manjaro, OZEPIC.

This is treating prediabetes, diabetes as well as weight loss management.

When we look at Wengovi and Zetbound alone, those are GLP one medications for weight loss.

For a six month period, it was over $5 million in spend.

If we looked at a full 12 months worth of utilization, it was close to 12 million dollars in spend for weight loss medication on the plan.

So looking at strategic recommendations as we move forward.

What Hub has done is put together a three-year strategic plan with primary objectives for fiscal year 27 all the way to fiscal year 2029.

Primary objectives for fiscal year 27 is stopping the reserve depletion and controlling the risk.

Next year would be bending the cost curve and rebuilding the reserves and then achieving long-term financial and plan sustainability by year three.

We do break this up into different buckets by government and oversight.

So having oversight from management to HR finance, ensuring that the plan is funding or is funded appropriately, and really looking at utilization month over month.

We then look at health plan risk management.

So this is looking at an RFP strategy for TPA services or your pharmacy benefit manager, also high claimant monitoring as well, and then looking at audits in the future.

And then finally looking at plan design and contributions.

We did, I said, like I said before, benchmark your benefits against like entities, very competitive.

However, there are some gaps within the plan that we could address to save on those expenses.

A lot of those are modest changes around deductibles, co-pay changes, weight loss modifications, and then looking at certain bolt-on programs to address high cost conditions for things like muscle skeletal and cancer.

We do focus then on reserve building strategy, and again, this is just working towards making sure that revenues are funding expenses, and then building that reserve level up to that minimum 25% over a three-year period.

And then finally is looking at your compliance communications.

Something that we did during this audit was a full compliance audit.

Just make sure that you're meeting all rules and regulations, part of the Affordable Health Care Act.

Something that we show here is a similar page to what we showed earlier in the presentation.

But what you'll see in the hub projected side of things is when you get to fiscal year 2027, all we did in that red row is we matched the revenue to expenses.

So what you'll see in fiscal year 27, there's 126 million dollars worth of revenues needed to fund those expenses.

That's outlined below.

That's about a 33% increase in additional additional funds needed.

We again budgeted out for three years, so you can see that year over year what that projection will look like.

On top of that, at the bottom of the page in the orange, we looked at the fund balance requirements.

So by year three, that 30 that 25% mark that we mentioned before is about 38 million dollars that you're needing in that reserve to meet your your requirements.

So what that means is some of our groups to uh to replenish the reserve, you do that maybe in one to two years, it could be a three to five year strategy.

We would work with staff on how to replenish that reserve over the next three to five years.

Some things that the city could look at to cut into increased spend year one opportunities is some slight deductible changes for the in-network.

We have plan features proposed, conservative projected savings, and then the impact level.

Um so again, deductible changes.

We could also look at a weight loss change.

As I mentioned before, the city is covering weight loss.

That was over 12 million dollars worth of expenses.

Um if we were to make changes to weight loss medications, for example, would save the plan about $8.4 million.

We also looked at some targeted programs around lantern surgical care, that's around mandatory joint and spine uh coverage and then MSK muscle skeletal around uh physical therapy as well as um doing a dependent audit at plan year end.

It does show a projected savings of about 15.5 million dollars.

However, the city did make some plan design changes around the weight loss medications one of 2026.

So really the projected savings with these plan designs being made is about 13.8 million dollars.

Can I ask a question?

Lastly, what we have put together for the city.

Can I ask you one moment?

Yes, I'm sorry, Councilman Hill has a question.

Thank you.

Thank you, uh Chair.

Just for though that I can understand, um, I see the proposed changes.

Can you like what is the difference in that change?

I know that you have here on the impact level on the side, but like what is the current deductible now?

Um when you say covered at 100% member share costs, what is what does that mean in layman's terms?

So 100% member kosher, that that would fall all onto the member, they would pick up 100% of that premium cost today.

Today there is um some support by the city to cover that drug under this arrangement.

The member is gonna pay 100% of the cost of that medication.

What is what is that percentage now?

Do you know?

Um, I would need to evaluate it's different by different drugs, different tiers, but um usually there's a set copay for those medications.

Um but this to give you an example for a weight loss medication such as ZEP bound, it could be upwards of twelve hundred dollars for a 30-day supply.

So the member would be paying that $1,200 instead for that medication instead of that set copay.

And then for the mandatory for joint and spine, like what is what does that mean exactly?

So under lantern surgical care, uh, it is a voluntary benefit today.

Um it's a high proficient network of specialists um and surgeons here locally in the area.

Um they have a highly discounted rate, low surgical avoidance rate in the future.

Um today, members can go there voluntarily.

Today uh in the future, we can could make that benefit mandatory that members have to go to the specialized network.

However, it could be somewhat disruptive for members because it is not in the broad blue cross blue shield network, it'd be a much smaller restrictive network.

However, it could provide the the city additional savings.

Yes, ma'am.

I had a quick question about the weight loss medicines.

I thought I heard you say that some of those were prescribed for like diabetes.

Okay, in a case like that, if if it's uh prescribed medication for another disease, would we cover it or would we go back to the making the employee pay for that?

Great question.

I do want to, in very specific layman's terms, um, very careful about how these things are communicated because they obviously impact members.

And so when we're looking at cost-saving measures specifically around weight loss, we are targeting those weight loss medications that don't have other comorbidities, right?

And so if you are, you know, if the benefit of NOZMPI is that you're managing your diabetes, but you also may lose weight, like that's how those medications were originally intended.

But City of Fort Worth is one of the few employers in this metroplex that actually cover at a very high level these medications purely for weight loss.

Uh, and so that's considered more cosmetic instead of um needing uh needing that for uh medicinal purposes.

And then as far as the um the other uh areas that Andrew mentioned, so lantern, uh ATI for physical therapy, um, similar to the emergency room use.

Um, you know, we have you know you have access to primary care doctors, you have access to our clinics, you have access to urgent care, all of those are at reduced and negotiated rates.

And so being able to educate employees and redirect them uh to the same services, but at a reduced cost where the city is not incurring, you know, 60 or 70 percent more for those treatments, that would be the approach redirection.

Thank you for that explanation.

Uh I want to point out that these are strictly proposals, these are not adopted.

Absolutely.

And uh maybe after the presentation is finished, you can come back for a moment and explain what the ongoing process to evaluate those things would look like.

And actually, I'll I'll jump to that.

Um we're we're um pretty close to the end.

Um and again, you have the full comprehensive report.

So um just efforts to date, even though you know the numbers we have work to do on both right sizing the the um the approach to funding the expenses uh and rebuilding our reserve.

We are in a slightly better position as Kate shared because of the allocations that have already come in this fiscal year.

Um we have had ongoing communications with city management as well as the departments because you know many of these changes they will take time to materialize.

It's not a you know easy on off with some of these uh plan and program designs.

Um but we do have to be you know very aggressive and have a very strict approach in how we um address this strategically, um, but keeping in mind um what the member uh impacts will be and making sure that there's ramp up time um to be able to address that so people you know do not lose access to care and have a chance to to recalibrate where they get those services.

Um some of the short range goals that we are already starting to have conversations about, these are more best practices and making sure that you know some of the expenses around administration uh of our plans and programs uh are in place.

Uh so for example the dependent audit, making sure that the members that we have on our plan are actually eligible, even though we do uh confirm eligibility at enrollment, making a dependent audit and ongoing process, um dependents uh especially spouses tend to drive plan cost, and so having a very aggressive dependent audit process and having that be consistent is is a best practice.

And so an example of what that could save us in anticipated cost could be as much as 850,000.

We won't know until we start that process, but it is a shorter term opportunity to start to manage expenses.

Uh also looking at utilization for our health centers, uh our wellness programs, and some of our uh condition management partners.

We have a lot of options for people.

Um so you know, making sure that we are redirecting uh and um providing um condition management and and cost reduction programs that are actually tied to what's driving cost on our on our plans.

And then more mid-range goals, you know, over the next fiscal year, again, coming up with a strategy around weight loss.

Uh and again, this is specifically targeting the weight loss category that is considered cosmetic and not tied to other medical conditions, uh, and then looking at some of the redirection services if you have you know neck or back or uh hip issues, having kind of preferred vendors uh that have pre-negotiated rates that help to reduce the impact of some of those more chronic or longer term conditions uh on the plan.

So it will take a lot of education for our members, a lot of outreach, um, but we are looking uh at what those strategies look like.

But none of these are implemented to date, but we are you know aggressively working to develop the plans both on the program and plan design area as well as the funding uh right sizing that needs to happen so that we are uh are not under underfunding based on the expenses that are hitting the plan.

I I know that we're over time and I don't want to um belabor the point, but I just want to make sure moving forward um that I personally maybe just speak for myself, have a better understanding.

Like I saw some recommendations in here with regards to how um our premiums compare to industry to the standards to other like um organizations, and so maybe just having a better understanding of how that's all being considered with regards to the recommendations, just that that that link.

Um there's some presumptions there that we are charging higher premiums in some areas as compared to our counterparts, but yet we're recommending a lot of cuts that will be impacting our members.

So somehow just seeing that that bridging that so that that understanding for the just layman terms and how people can see how that's being considered and measured.

Absolutely.

Thank you.

Any other questions?

Thank you very much.

Uh this is an important topic.

We care about our uh city employees.

We want to make sure the health plan is solvent and and that everyone is taken care of.

So I'm I'm very thankful that this effort has been done to start the path to get us back on target.

Um I look forward to that conversation continuing, and and I think I can safely speak for everybody here that uh we would like a future update on the progress of this.

Absolutely, and just want to thank our hub team as well, they've been great partner uh and looking forward to coming back with some additional strategic recommendations.

Thank you very much.

Is there anything else?

Okay.

Uh with that, I will call the meeting adjourned.