Call to order the government operations committee meeting for September fourth, two thousand twenty-five.

Let us stand for the Pledge of Allegiance.

Approval of minutes for August twenty-first, two thousand twenty-five.

Second.

Motion carries three zero.

Two items on our agenda for this afternoon.

The first item is discussion of the city of Frederick's taxing taxing authority.

Yes.

Thank you.

Um, my name is Katie Barclay, I'm the chief financial officer for the City of Frederick.

Um, I was asked by council leadership to present information today regarding the city's taxing authority, both to levy taxes and to provide tax credits.

Um, this is a very broad topic.

Um, and we could probably spend a committee session on one of these.

So today I'm prepared to go kind of a mile wide and an inch deep, um, knowing full well that we should probably come back and do a deep dive into any one of these areas.

Yeah, per committee direction.

So, we'll just get started.

So just generally um the authority to levy taxes and to provide tax credits.

Um, or authorized under state law.

Right.

So the city can't levy taxes on anything that it chooses.

Right.

It has to be provided for in state law, and the same with tax credits.

Um, the city is able to pass local ordinances, as you are familiar, to provide structure for implementation, and that's mostly around tax credits, right?

Most of the tax credits provided for under state law, not all, but most are very general.

She says, you know, you can provide a tax credit under this circumstance.

And the a county or municipality can create whatever rules they want around that, as far as you know, income levels or assessment of values and things like that.

But again, that authority is provided for under state law.

So I was just gonna step through what we can and can't do, or I guess mostly what we can do today.

And again, if we wanted to come back with with more information, we certainly can do that.

So tax on real property is the city's most significant levy.

Um again, that you're all familiar with.

Um we set the tax rate annually uh via special ordinance.

Um setting this tax rate is required under state law.

However, the deadline to which to do that is very, very strange.

Um state law were just changed and is now required to be done by June 20th.

Our code says July 1st.

Um we need to update that to be, I guess, more in line with the state.

Um, but Frederick County provides our treasury services for us um regarding real property tax.

Oh, okay.

And this far?

Yeah, it's too close, which is we're so used to having to have it.

So close that you can barely that's how it used to be.

Okay.

So is this better, everyone?

It's it's much more comfortable for me, so I like it.

Um, as I was saying, Frederick County provides the treasury services for us and all the municipalities in Frederick, which they are not obligated to do.

We are very appreciative of their efforts.

They include our tax, our real estate tax, or a real property tax on the tax bills that they send, they collect the money and transfer to us.

Um they are required per STAT to have that tax information to STAT by the end of May, um, maybe the first day in June.

So that's the date that we go by as far as when the tax rate needs to be adopted.

Um stat calculates homestead tax credits and some other credits, and then they send that information back to Frederick County, who prepares the bills, prints them, and puts them in the mail, so they are in people's mailboxes by July 1st.

So that's why that date is there, even though it's not statutory, which I think is really interesting and strange, but that's just the way that it is.

Um the state does allow us to set different rates based on what we what we would call classes of property, and that's not defined necessarily.

Um, our code states that a single tax rate will apply to all property except for habitually vacant property.

And I'm only bringing that up just in case there's a time when we would want to set a different rate for classes of property.

Some areas do it based on um residential or commercial.

They know have different rates for for each.

Um that would probably not be something we'd want to do on the fly.

So, you know, we're adopting the tax rate that night.

We want we'd want to have some a little bit more runway and a little more thought into that so we could change our code before we would adopt the tax rates, if that makes sense.

So tax set off, um, something that um I think we're mostly familiar with.

That is uh provided for under the uh tax property article of the state code 6-305.1.

That is specific to Frederick County.

Um there is a lot of laws around tax set-off, but this one is specific to Frederick County, um, which basically requires the county to either reduce the tax rate for municipal residents or provide a direct rebate to the municipality for what's considered to be duplicate services.

So a duplicate service is a service that is provided by both entities.

Um I think sometimes we confuse in the tax set-off conversation with services that are provided by one entity for the other.

So, as an example, um, when we when we start to talk about this, someone will always or inevitably bring up transit or services provided by HHS.

Those are really important conversations to have around who funds what, but those aren't duplicate services under this law, right?

A duplicate service is we both have police forces, we both have planning, we both have parks.

That's duplicate, not you know, the Frederick County does transit, we don't do transit.

That's not a duplicate service under this statute.

Does that make sense?

Um again, important conversations, but we're just talking about what's provided for under state law.

So prior to 2013, the city received a rebate from Frederick County for what were the agreed upon duplicate services, which are planning, road maintenance, police, and parks.

Those were the duplicate services agreed upon back in 1981.

They have not changed, um, nor has the formula changed since 1981.

Um after 2013, we moved to tax um set off, right?

So the county reduced taxes to city residents.

We raised them not quite to the same amount.

I think we left like a full four cent or difference, or actually it was 10 cents difference.

Um it was four, sorry.

Um currently there's about a 10 cents difference between what a city of Frederick resident pays in county taxes to what an unincorporated county resident pays in county taxes.

That makes so income taxes that's fairly passive for the city.

Um income taxes, the the tax rates are set by the state and by Frederick County.

Um, and we receive a piece of that tax of those taxes that are received by city residents.

So we either receive the greater of 17% of the county income tax liability of city residents, or 0.37% of the Maryland taxable income of those residents.

That's written in state law.

We don't set those um tax rates, we just receive um the income from those corporate income tax is imposed by the state and is not shared by the county or shared with county or municipal governments.

So we only receive income tax from individuals.

Katie, does that come like at the beginning of the year, the end of the year, like in one lump sum?

It pro it we receive um income tax revenue monthly based on receipts by the state.

The majority of income tax revenue is received at the end of the fiscal year after the tax returns are filed.

Um income tax revenue is extremely difficult to budget because of that fact.

Um we get certain information from the state regarding Frederick County.

Um we get certain projections based on county, but they're not brought down to the municipal level.

Um we try to look at historical collections, but because of the majority of the revenue from income taxes, generally we receive in May and June and July.

You know, we we do our best, we make our best efforts, but it is very difficult because you we just we just don't have the historical information from the from the most recent year.

So admissions and amusement tax is probably our most complicated tax with the least amount of revenue.

We get about $650,000 um ish a year from this.

Um basically the state provides that we can tax um certain gross receipts um up to 10%.

Um if the Maryland Stating Authority has come in and imposed a tax on certain things, we can go up to their tax, which is uh capped at 8%.

Um we can tax, we have the authority to tax the admission to a place, um, the use of a game or entertainment, the use of recreation or sports facilities, rentals of sports equipment, um, or merchandise, refreshments, or a service sold or served in a connection with entertainment where music, dancing, or other entertainment is provided.

Okay.

Um what we do tax is our code.

We have a 10% on gross receipts from admissions and amusement, um, five percent on um horse-drawn carriage operations, which we don't have in the city anymore, um, and concerts, and then we do one half of one percent on the sales of merchandise, refreshments, or service sold in connection where entertainment, music, dancing, and other entertainment is provided.

That last bullet, we get about six thousand dollars a year from um the primary um source of revenue from here is admission and amusement tax on movie theaters and golf course, which is owned by the city.

Essentially.

So again, this this is a tax that is handled by the state of Maryland.

People submit their returns.

We get um a distribution quarterly, and um we don't see who's paying the tax and the amount that they're paying because that's proprietary information.

We can request certain things from the state and they will provide it to us, like big gross um categories, but um it is not public information as to who is paying what specific tax.

We do exempt some things in city code.

We exempt recreational sports teams or leagues, health and fitness classes, membership fees for fitness classes or rec facilities, um, daily usage fees, um certain arts and entertainment enterprises that are in our um arts and entertainment district, and um tickets for live theater are all exempted in our code.

So moving on to tax credits.

Um I've provided a table in your backup, and I just wanted to explain that just a little bit.

Um the intent was to illustrate the tax credits that are available under state law, and then kind of as a just to illustrate what we already provide next to the authority in the table.

Um we do have some credits that are under the same authority, right?

So I've so I lumped those together.

Um rehabilitation of property as an example.

So we have I think at least two in our code that are for property rehabilitation.

Downtown, um, on the golden mile are two that come to mind.

Um those are provided under one taxing authority, so I just included those together as far as as the tax.

Um if you want more information on that, we can provide that to you, but that's just what the table's illustrating.

Um again, we we can only offer tax credits that are authorized under state law.

Um we also have and I and I think that you are all very familiar because you pa you do these almost as a routine, um, matter of business is pilot agreements, which are available to us primarily for affordable housing and senior housing projects.

Um, those are authorized under state law.

Um the the county currently offers two tax credits that we don't.

Um again, the county's been very, very generous to us in that if we provide a tax credit that mirrors theirs, they will administer it for us, um, which is great because we don't currently have a tax credit office, although I would love to have one.

Um we don't, so if there's tax credits that will generate a significant amount of applications, which we hope that they do, um the county is much better equipped to handle that than we are.

Um I also think it's easier for residents if there's one application and one set of criteria.

Um, you know, these they tend to understand that better.

But um the mayor is requesting that the council consider the addition of a credit for daycare providers who have made an improvement on their property that is dedicated to a daycare center.

The county currently provides that.

Um they offer a credit that is the lesser of three thousand dollars or the ta or their total tax bill on that piece of their property um that is eligible for the credit.

That's something that we'd like to bring forward to council if if council is is willing to consider that.

Um also for consideration, um, the county offers a credit for the surviving spouse of an individual who dies as a result of or in the course of employment as a law enforcement officer, um, or is it in the active service of fire rescue or emergency medical services?

That is a credit that the county offers that is 100% of the county tax for five years.

Um we'd also like a council to consider that if there is interest there.

Do you do you know when that tax credit was implemented?

The fallen officer.

If you don't, that's fine.

Um, I don't from the county.

I believe it was 2004, but I am not a hundred percent sure, but I will find that out for you.

I had another question, sorry, it just flew out of my head.

I have their application, but I don't, it does not say when that tax credit went into effect.

Oh, okay.

So my other question was uh as we've done with some benefits in these circumstances, we have tied it to a workers' compensation finding.

So I'm just wondering what the county's criteria is for you know tying it to their duties.

Sure.

I I can um do research on that.

I'm I'm very interested in pursuing both of those.

So that that's the end of my prepared remarks.

Um again, our our taxing authority and our ability to provide tax credits is very limited in state law.

So um, you know, we're very interested in talking about um ways we can advocate for broader authority in certain areas um that the council is interested in.

I know that affordable housing, um providing tax credits for affordable housing projects um would likely be of interest.

Um you currently again we have the the pilot agreements, however, those are primarily or only for um multifamily rental units.

There isn't a tax credit program that I'm aware of that isn't tied to something else necessarily, um, just for affordable housing ownership, right?

If we wanted to provide something for an affordable unit that would be owner occupied.

Um I don't believe that there's an opportunity currently available.

I could be wrong.

I'm that it could be buried somewhere in in the code that I'm not familiar with.

Um so yeah, we would there would need to be some advocacy efforts in that area.

Of course, this would director bookdown.

So just to be clear, the the two that you I'm sorry, the two that you've mentioned are the only two that the county does that we don't do yet that we could piggyback on.

Yes, the county does provide um certain tax credits for agricultural land, but that is not something that we have in the city.

So I believe that that would be the only exception to to that statement.

Uh so um I'm certainly willing to have the conversation on the um tax credit opportunities.

Um I think that we need to be very careful about uh picking and choosing as though certain groups are more important than other groups.

So but I'm absolutely more than willing to have that conversation on on both of those issues.

Um when you talked about the calculation, I'd like to go back to that.

The calculation between um the tax set-off calculation.

That's what you were talking about about, right?

Was um that's based on state law.

I thought that was I thought that was decided between the city and the county.

It was, yes.

Okay, so there's an agreement back to 1981, I believe, that between the county and the city that spelled out an agreed upon calculation for tax set-off.

What state law says is that we need to the county needs to have a conversation with the municipalities in Frederick County annually to determine if the program is operating as it as intended as if there's any recommended changes.

Um the City of Frederick and I believe Myersville annually ask to have this revisited.

They're the only municipalities in the county that want to have this revisited.

Um it has not been revisited in a real way in a very, very long time.

Um state law also says that if there is a disagreement, then we just continue on as we have been.

So there isn't really teeth in that statute, if you will.

So but is there a way for us to um you know this is a question for my colleagues and and um staff and the mayor, everybody.

Um I'd like to have a conversation uh about this about the state law because it makes sense to me that very small municipalities would have no need to change this, right?

Because they get plenty out of it.

But the fact is the city of Frederick doesn't get plenty out of it.

Um the the list that we have here, police planning, parks, and road maintenance you know I realize that city residents get schools from their county taxes.

I'm really not sure what else we get.

I'm sorry, and fire rescue and emergency.

Fire and rescue emergency services, yes.

Um services.

But um is is there any I I I still think that there needs to be a conversation about how this is done at the state level and maybe to a municipality over a certain size would be the way to go about this.

But it seems to me that we need to do something to fix this because I I get it, it's a broken record, but it's gonna continue to be a broken record because city residents pay for county residents, city residents overpay, double pay, I think sometimes quadruple pay.

It's it is absolutely crazy that we think that the amount of um police services that are provided countywide would actually work in um a dense area such as the city of Frederick, but that's how they're calculated.

It's calculated as though the city were as dense as the rest of the county, and that that's how that number came about.

So I I just um if state law is the law that we need to look at changing, then I would like to see us move forward to make those requests.

Well, I think there was a couple things in regards to that for broader authority for you.

You talk about advocacy for state um advocating for a state, not agree, because anything that hasn't been looked at for 45 years.

So you said the code was established in 1981, the form was established in 1981.

This might be fairly old, yes.

Yes, 45 years.

I think any structure that's looked at for 45 years needs to be revisited and have a serious conversation around.

Times have definitely changed.

And in an in it and it deserves a serious conversation.

So the agreement that was reached in 1981.

Was that reached between the executives?

Or was that a any was the legislature legislative bodies were they involved at all?

Or is this a discussion that these executive branch has?

So we've kind of had this debate before.

I don't know.

I can tell you sign them.

I don't know if there was a legislative act around it.

I just have a copy of the agreement.

So I think if that's so once we get by clarified, I think it's if if that's the case, that's one conversation, and then the other conversation is advocating at our state level to maybe distinguish a city of a certain size or whatever that maybe or want to be exempted out of that other conversation as a whole.

Well, I was just also saying that for a broader tax authority, if we can, I mean, if we there's some ideas we have around that, because you mentioned that there's some authority we don't have, and there's something that we need to advocate for to our state representatives about.

That was one of the MML's priority pieces of legislation was to enable.

There you go.

It didn't it did not pass.

Speaking of speaking.

But there's no reason that we cannot push this again.

We're here for it.

Yeah, exactly.

That is what we're here for.

Um the idea that uh 1981 amount would be true in 2025 is ludicrous.

Um but but for me, the state law is the more urgent uh urgents, maybe not the right word, but advocacy-wise we can push against the county with the county, you know, have conversations with the county about that 1981 agreement again and again and again, we can do it any point in time.

The state law is what literally says, hey, if you disagree, the county wins.

I that's certainly something that I think that there needs to be some conversation about.

I guess I would say if if there's no agreement, the status quo remains.

I don't know if they're winners or losers.

I think also if I'm if I'm understanding the 1981 agreement, was agreement about the types of services that we would calculate, not the amount, right?

So we decided it was police planning parks and roads.

This the state decided it was police planning parks and roads, and we did.

So the agreement does spell out the the what were considered duplicate services and the formula wasn't an amount, it was the formula to which they would be calculated, and that has stayed true all this time.

Um there was an additional of bulk waste collection or trash collection was was an additional service, but the county doesn't provide that anymore, so that's kind of fallen off because this is about what the county taxes and what services the county taxes for, and is it duplicate, is it duplicate for its residents essentially.

So I do recall in 2010, maybe there was a committee, a joint committee, the city and county that sat down and went through the whole tax equity question.

Um I don't know where all that is.

I know Karen Lewis Young was on that committee on behalf of the city, but it was examined very thoroughly at that time.

I don't think there were any changes that were there weren't there were that no.

The change was when we decided to go to the set off as opposed to the rebate, which did result in a little bit of a tax reduction for city residents.

I think you said it was four cents.

I would have I think I'm pretty sure that you're right on that.

Yeah, I think so.

Okay.

If memory serves, that is correct.

And I think you know, what what happened in 2010?

It was 15 years ago, so bear with me.

But um was at the time, you know, again, we were in the the housing crisis, you know, assessments had fallen dramatically, um both in the city and in the county, and the county at the time is county, it was a county commissioner form of government, um proposed to completely eliminate the rebate to municipalities um out of their budget, and there was no protection anywhere to prevent that.

So that started this chain of events where you know the the calculation was looked at.

Um I don't I don't want to mischaracterize what occurred, um, but there wasn't really a a appetite at the county level to make a change.

So there wasn't a change.

Um what this statute and state law did was it protected in a way while it well now it's kind of we're we're we're kind of um stuck, but it it prevented the county from eliminating that rebate.

Um so you know that that that that protection was put in, and there is you know there was there was a law that actually sunset that I think um at the time delegate Claggett put in to protect the city from losing that, and this replaced that because there is kind of references from 2016 or things that happened after 2015 that basically said that you know there would be a phase-in period and you know things would not ever be reduced that you know we could only increase.

Um moving to the actual tax set-off where our residents receive um or pay less tax um then again unincorporated county residents has kind of protected us as well because there is no rebate to withhold, right?

They if the county wanted to make a change, the only change they could make would be to raise taxes for our residents, which we do not want to see happen.

Um, you know, that's kind of really their only option as far as eliminating or or making a change without our participation.

So once a year, supposedly once a year, the um county and the municipalities are supposed to sit down and have this conversation.

Yes.

And what you're saying is I'm not sure that I'm hearing that that's actually happening.

What's happening seems to me is that the municipalities in general are saying, eh, no big deal, we're not we don't need to have the conversation.

It generally occurs at um MML Farter County chapter meeting.

Um I have not been privy to those meetings for a very, very long time, but it does occur um generally in the fall, um, where the county executive or a representative of her office will come and have the discussion with the leadership of the Frederick County municipalities.

Okay.

So what services is exactly again.

So we're talking schools and emergency services.

That's what the that's what the county provides to city residents that the city recycling, transit.

Recycling.

I don't know, off the top of my head.

So right, so libraries, schools, recycling, um, while the sheriff's office obviously is not a duplicate or is a duplicate service because we have our own police department, we don't provide the jail system, court system, um wrap around things that occur in conjunction with the police department.

Is is there a a place where I can find exactly what the I think about this, and I think well, we don't have this in the city, right?

I don't have a place in the city where I can go and say, Oh, these are all the services we provide our taxpayers, because we have different departments, and those departments provide different services, etc.

But no place can I go and say, okay, these are all of the different services, ones that people don't even know about that are provided.

Um we even have a county person who comes to our meetings anymore.

I yeah.

Okay, I would like to see us go to the state.

That's what I would like to see us to I think the conversation could happen on delegation first in October.

Yes.

Yes.

When is that?

I I think I will be um gone.

I I don't remember what the day is.

It's the first Tuesday, I think.

Tuesday.

Yeah.

First Tuesday that week.

But I think we're gonna have some conversation around the other um, I'll be happy to write a discussion.

Yeah, those with those discussions, so we'll make sure that's not thank you, Councilmember.

Uh any other comments on this item.

Item already next on our agenda is discussion of the city of Frederick's budget process and requirements this item would presented by Chief Financial Officer Katie Barfall.

Thank you.

Chassity, would you mind changing the presentation?

Thank you.

So this is a presentation on the city's budget process.

This is also by request of council leadership.

Um, just kind of step through um what is provided for in the city charter.

Um also there are certain pieces of the debt and in finance financial administration policies that are related to the budget.

That's more guiding principles, but we're gonna touch on that.

Um I believe the kind of the purpose of this is to start the conversation about changes should council want changes to be made to the process itself.

Um before we start getting into the charter, I think that just kind of pointing out that this section of the charter was not changed or I don't believe discussed when um all the charter changes were done last year.

And this was written kind of with the idea that the mayor was very involved in the budget process and it worked very well, right?

Uh while he was the chair of or the president of the board of Alderman and attended all the meetings.

But now that you know we've we've really separated the legislative and executive branches, perhaps it's time to to look at this and see if we want this process to change in any way um moving forward.

So, you know, I I I don't know what the right time is to talk about this, but you know, if we did want to make charter changes, of course, that does take um significant time, right?

Three weeks prior, and then you know, is it 50 some 50 days?

50 days um after um the amendment is passed before it goes into effect.

So, you know, if we if we waited until January till the new council took effect, we would not be in time for the next budget process.

So trying to get the conversation started, I think, and that's what we're gonna do.

So the charter has um certain criteria or stipulations um as it relates to the budget.

Um again, most of the budget process in and of itself is outlined in the city charter.

Um there's a section related to the presentation to council, which basically says that on or before April 1st, the mayor shall submit to city council his proposed budget.

Um after that, um, the charter says that the mayor can make revisions to his proposed budget up until May 14th.

Um, and then beginning on May 15th, the council has the sole power to revise the budget.

And again, I think that is part of you know, assuming that the mayor is is in the room and and a part of all the budget conversations.

Um the presentation, what is included in the presentation to council is um or what's required is outlined in the charter that basically says that the mayor shall submit a summary overview that describes the budget, which he does in his um his letter, and a five-year plan for um capital improvement projects.

The contents of the budget um as outlined in the charter, there's a general summary of revenue and expenditures.

Um there's estimates of revenue and expenditures, then expenditures have to equal revenues.

Um the budget can include a contingency fund as approved by council.

Um, and the council by ordinance may provide um for more specifics that they would like to see included in the budget.

So should council want to mandate certain other things that you don't have to change the charter, you can do that by ordinance.

I've actually never seen that happen.

Um I don't know if that's ever happened, but that is provided for in the charter.

As far as hearing and adoption, I'm sorry, can you go over that again?

So the church the charter outlines certain things that have to be included in the budget presentation, right?

Right.

So if council wanted additional things that they wouldn't have to go in and amend the charter, they could pass by ordinance other things they want included in the budget package.

Maybe maybe uh an example would help.

So we don't we provide um a list of is this a good example?

I don't know.

Um, even though we already do it.

So we we provide all the backup worksheets as to how the salary budgets are created.

Sure.

Right.

That's not required.

So should a mayor come in and say, you know what, we're not gonna do that anymore.

Council then could come back and say, you know what, by ordinance, this is we we want this information.

Thanks.

Or if there's um I don't know other, you know, narrative information, um, drilling down on certain expense categories or things like that that are not necessarily required.

Since I've been with the city, we have provided that information as requested without any sort of action needed by council.

Um if there's an a time when something's requested or something's asked for, and well, someone would say, hey, we don't have to do that.

Okay, so I I know that it has been requested during the budget process for the last couple of years that we have presentations by departments that actually you know tell us where they are part of the way through the the year, how they're doing.

We don't generally get those.

So if we really wanted to get something like that from every department, we actually could provide that by resolution or by ordinance.

Um, because that's not the content of the budget itself.

Right.

Okay, gotcha.

So but we've let's touch on that when we talk about the debt and financial administrative policies.

Um but yes, you're correct.

So whatever you would want in, you know, hopefully one day we'll move away from the the big binder.

But if there was something that we were providing to you or didn't provide to you as as additional um information, you know, for whatever reason we the executive branch drew a line in the sand and said, you know, we're not giving that to you, we're not required to.

The council does have um a remedy to that situation.

Thank you.

I've not experienced that, but that doesn't mean it could never happen.

So for hearing and adoption, um kind of backing up.

So there the charter does require that honor before April 1st.

Um we do this well in advance of that, that the council shall approve the place and time of at least two meetings where the budget will be considered.

We have many more meetings than two, but that that is the requirement in the charter.

Um the charter requires that the mayor ensure that a department head is present at a meeting or at a budget hearing if requested by council.

Um the council may insert new items, they may increase or decrease line items in the budget as long as the budget stays in balance.

Um, and that the budget must be adopted by June 20th.

If council fails to adopt the budget by June 20th, or if the mayor vetoes and a veto is not overridden by June 20th, the mayor's proposed budget becomes the adopted budget for the city.

So I have a question for you again.

It's a budget slash legal question, I'm not sure which way it goes.

Um this this last year we did um we passed uh tax rate that was ended up being lower than what staff had told us would be the amount that we would be getting um from taxes, etc.

When um you know that was not vetoed, but the budget that came forward with that was vetoed.

If the um council had come forward with a budget that just said instead of um making cuts, I just said yeah, we expect to have 3.2 more million dollars than we thought we might.

We could have passed that, correct.

We could have passed a budget that literally said that we expected money to come in that staff did not necessarily say they expected to come in.

Yes.

Yes, you could pass a budget as long as your revenue equals your expenses, you have a legal budget to adopt.

Thank you.

So that sums up essentially what is in the charter regarding the budget process.

Um there are we said we have debt and financial administration policies.

Um these policies um have not been updated since 2013.

I do believe that it is time to take a look at those.

Um kind of holistically, I was thinking from my opinion or per kind of perspective, this would be something that could be done when the new council takes office.

Um, do an orientation on these policies, why they exist, what they mean, um, and then talk about any changes.

But as related to the budget process, it's in and of itself, the things the guiding principles, if you will, that the policies provide are um that operating costs may not be funded with debt.

One-time revenues are reserved for one-time expenditures.

We talk about that a lot.

Um enterprise funds are expected to be self-supporting.

That doesn't always happen.

It's happened in you know, we we've moved past the time when they're not, so you know, I fully expect that to continue.

Um department managers are accountable for monitoring their budgets throughout the year.

Um, and we must maintain a ready day fund reserve of 12 per 12 percent of general fund revenues.

Um, and just kind of as a point, 12 percent of of general fund revenues is about 45 days of operating cash in the general fund.

Okay, okay.

This is a good place.

Walk us through this rainy day, walk us through the rainy day fund and where we currently stand, where we currently are, please.

So the rainy day fund is currently at 12 percent.

Um we budget for it and then true up at the end of the year.

Um what 12 percent of actual revenues are um we do carry a fund balance that's greater than the 12 percent.

Um I think that at the I don't know what that fund balance will be at the end of 2025, but how how we kind of fold that into the budget process is you know, we take a look at where's where's fund balance.

So for FY26, we would look at FY24.

Um I believe is the 34 million, if that's right.

Um we use that, we try to do an estimate of where we think we'll be at the end of 25, but again, that's six months prior to the end, so that's really a very conservative estimate, and then we use the excess of the fund balance over the rainy day fund um and use that in the following year budget.

So in FY26, for example, including 16.3 million, I believe off the top of my head, in the rainy day fund, and then we've budgeted another 16 million to use um in the CIP in one-time purchases, um, and in a couple other areas, which is about I think 32 million.

So of the 34 million that was available in FY24, we've budgeted 32 million to use an FY26.

But that third that that money was budgeted in 24 and not used, and then in 24 and not used.

And now in 25 or 25 and 20.

We do use it.

So the issue is we're we're constantly a year behind, and we're looking at estimates, right?

So there are several like kind of one-off reasons why our actual financial results are better than what we would have projected, right?

Again, we're doing this in a very conservative way.

So, you know, we're looking at whether you know FY25 is a great example of, and again, our numbers aren't final yet, but you know, we may have budgeted a million dollars as an example for interest income and come in at five million dollars.

So now we've got a four million dollar surplus so that we weren't expecting that's not necessarily a four million dollar.

We wouldn't want to use it's not one-time revenue, but it's not it's a very volatile revenue source, right?

So that would be a very difficult thing to balance our budget, kind of our our regular operating budget on.

So you've got these like anomalies that happen over the years that create surpluses, and that's what that is, right?

So sure, there are anomalies that create surpluses, but then those surpluses become anomalies, and then it goes back down when those surpluses are no longer anomalies.

What do you do?

So again, we we try based on the information that we have and we're preparing the budget to spend the fund balance that we have.

And I agree that you know there have been some challenges over the years as far challenges isn't the right word because certainly when you have a surplus bigger than what you expected, that's not a challenge.

Um that's a great opportunity.

Um so you know, we've looked at that, and you know, through through COVID, right?

That's when this that's when this really took off.

You know, we were very conservative in certain estimates that um didn't come to fruition, which is great, which means our community was still thriving in that environment.

Um even though you know we budgeted that maybe they weren't gonna necessarily be thriving.

Um and it's kind of taken off from there.

So you're right in the sense that we are budgeting, we are using money for capital projects and and for other things, but our results have been much better than we had anticipated.

So we do have an opportunity to look at that, and I think through our financial policies, I think there's opportunities to look at certain pieces of surpluses and maybe designate them for things that don't necessarily are are are kind of outside that normal operating churn of city government, um whether it be a sidewalk program or or something else that you know it's like hey interest income over X dollars, you know, is gonna go into this program or something like that.

But the city council actually has to budget it for any money to be spent.

Absolutely, yes.

Thank you.

You mentioned COVID, so catastrophic.

Is 45 days enough?

I can I add to that.

I'm I'm sorry, can I can I add to that?

Because what we have here is 45 days of general fund revenues, and should that not be general fund expenses.

We care about the money that we're gonna need to spend, not about the money that's coming in.

Okay.

Yes.

That's that that would be another way to put it, sure.

It's the same either way.

Sure, it's for it 12% is 45 days.

So um that's a great question.

Is is that sufficient?

Not the same.

Well, it it's uh the rainy day fund is revenue.

Right.

So however you want to slice up 12%, it would be we we would have 45 days of cash on hand, essentially with the rainy day fund.

So is that enough?

Like catastrophic COVID was cut us halfway cut.

Speaking of catastrophic.

You have to say that word, right?

How did you do that?

That was good.

I wish I had that power to do that.

Wow, wow.

What's up?

Okay.

I don't know if I want to ask that question again.

Alan's checking the broadcast.

Never are we recording?

Can we get a minute or two to reset up?

Absolutely.

From now on, that's Mr.

Shockworth.

No, I'm telling you, we're gonna start calling him Bruce Almighty.

We all said it.

So I believe the question was do I think 45 days is enough?

That's a great question.

Um that I think we should revisit either now or at some point when we talk about these policies.

Um I think when you when you look at a number like 16 and a half million or 16.2 million, or you know thereabouts, that's a lot of money.

Right?

You look at that and you're like 16 million dollars, like what is a rainy day.

Um, when you think about it in kind of the perspective of you know, how long would that sustain city government?

Yeah, 45 days doesn't seem that long.

I mean, especially that's just general fund, right?

So you know you've got you know all the other needs of the city, whether you know, water and sewer, um, I think water and sewer has adequate reserves, but you know, we've we have certainly other funds and other services that we provide.

Um thing that I think we do have an opportunity to do is take a look at what is best practice right now.

This was best practice in 2009.

Um it again, these these policies have served us very well.

They've gotten us through the housing crisis, they've gotten us through COVID, they've gotten us through a volatile um federal government, if you will, so or are getting us through that.

Um we've we've stayed true to again, you know, not funding our operations with debt, using one-time revenue for one-time expenses, doing those things have really solidified and helped our financial position.

I understand that the financial position of the city is one piece of a bigger puzzle um or you know, bigger priorities, and it's not necessarily always the most important priority of the city.

Um, but it is a very foundational thing that we do.

Um so I think that doing some research as to what is the best practice right now, I think would would serve us very well.

I don't have that answer today, unfortunately.

I do apologize for that.

Well, you know what's gonna answer the question, so with that being said, and would it make sense, I guess, when we examine this best practice and have this conversation, maybe make changes that we build into it some regular review period of time, you know, every every year, every two years, every five years, we'll review best practices to make sure that we're up with standard.

Yes.

Um, there is in the financial policies, and see if I can find the actual line.

Um, but there is a uh a requirement in the policies to provide quarterly financial reports as far as spending goes, which we do provide.

Um, but again, I think that there is an opportunity for us to examine what we're providing to you and and have the conversation.

Is this serving the purpose that that you that isn't intended to serve?

And if it's not, then you know we will make a change and provide that information in a different way, or you know, what however council um deems appropriate and and that 12 percent is actually 12 percent of of everything where as if if you were in an emergency, you may not need all you'd still want to keep them on staff, though.

I'm just thinking about when if you are like literally in emergency funding, you're using that for emergency purposes, you're not using that for sure.

And it is um just to note just you know the people that are that are tuning in or are interested, that that again just like any other expenditure that we have that does need council approval.

Um council does have complete discretion about what they consider to be a rainy day.

Um but we cannot spend funding that has not been appropriated.

Um the rainy day fund does come with the caveat that if council does use that funding that there needs to be a plan to replenish that in two years.

Yes.

Thank you.

So there was an additional request this year um from the council president.

This is kind of a good example of what we talked about earlier as far as um what could be required by ordinance.

Um we did receive from her a request I did include it in your backup um regarding how department presentations should be structured, um, and then requesting a supplemental memo from departments which were provided to you as part of the budget, um, which talked about goals and performance indicators, justification for additional resources again in writing, um talking about it sections talking about improvements on service delivery, training plans, equity initiatives, things like that.

Um that request was received, we um took that request, distributed it to the department, um, gather the memos and and you know gave them to to council as as requested.

That could be something that uh the current administration would never decline a request like that.

I mean, and we think that it was actually a very beneficial exercise um to go through.

It was it took a little bit of time the first year, but you know, if if this is something we want to keep going, if you found this beneficial, we are certainly willing to and and happy to prov keep providing that information.

It was a like I said, it was a beneficial exercise for department heads to to go through.

Um but there could be a situation where at a different administration, because these this is not information required in the charter, could just decline that, and this and this administration would never do that, but that could happen, and that's when you know council has the opportunity to pass an ordinance to to require it.

Any other questions for Director Barkall?

Um so it's uh a simple um so this really information, and and Katie, you and I had this conversation earlier, um is so important for the people who will be taking office.

Um are there plans to get them up to speed with some of this?

Yes, um, absolutely.

I would like to in whatever format is appropriate, um, work with council leadership to either whether it's a series of workshops, I think there's an orientation that is that is planned, whatever that looks like, um to to have these discussions.

I would like to talk about process and policies, and then also kind of walk through the FY25 budget, how the budget works, you know, the with funds and you know what what is an enterprise fund, what is a proprietary fund, like all of the kind of background information um as well.

And that would probably happen over a course of several meetings, not just one.

But to try to provide as much information and education as we can before the FY27 budget is presented on April 1st.

Right.

Um even the fact, I mean, anybody who has um put their name in to run for office, even I think should have this information.

One would hope that they would seek it out, but you don't know that.

Yeah, many of them don't, sadly.

And I'm sure so many have already had conversation with you in some regard around around some budgetary aspect, but that doesn't exclude in terms of being in this respective seat to receive that formalized information to your question, Councilman.

We Council you should have talked about in discussion of and formalizing a orientation plan that incorporates workshops from our respective departments.

So information can be filtered and questions can be asked and there can be Rob to speed, particularly, you know, um from the manner of of efficiency as well as knowledge and information being shared.

So thank you for that.

Any other questions?

Is there a public comment on this item?

All right.

I I don't have the authority to turn the lights out, but I do have the authority to adjourn the meeting.

We are adjourned.