Dukes County Commission Meeting Minutes
Wednesday, November 12, 2008
County Administration Building
Call to Order
Chairman Leslie Leland called the County Commissioner’s meeting to order at 5:05 p.m. Commissioners Tristan Israel, John Alley, Leonard Jason, Jr., Melinda Loberg and Carlene Gatting were present.
Also in attendance were County Manager Russell Smith, Executive Assistant Martina Thornton, County Treasurer Noreen Mavro-Flanders, Jim Powers and Frank Serreti from Powers & Sullivan, CPA and Joanie Ames of MVTV.
Tristan / Melinda moved to approve the Minutes of October 8, 2008. Carlene abstained. All others in favor.
Les Leland informed everybody that Roger Wey would be not attending as he is attending the Selectmen’s meeting in Oak Bluffs.
Jim Powers and Frank Serreti of Powers & Sullivan, CPA presented to the Commissioners the Reports for FY2007 and drafts of the reports for FY2008.
First they presented The Report on examination of Basic Financial Statements, which is the financial accounting of operations for each of the fiscal years. The financial records for the whole County (including Sheriff’s office, Airport etc.) are maintained officially in the Treasurer’s office. These reports are done on the budgetary bases, which is what the County operates on, and then there are tow other reports - one is called “modified accrual bases of the county” and one called “full accrual bases of the county”. These reports are meant for outside parties who have knowledge in finances and want the review the County’s financial standing based on standard set of accounting rules, which are different from the budgetary set of rules for the counties in
Massachusetts. For an independent body there are standard set of rules how to evaluate the county’s financials – credit worthiness etc. that can be compared to other counties throughout the United States. The Airport is considered an enterprise fund, it is still part of the County, but enterprise funds need to be reported on the full accrual accounting bases, not the budgetary bases. Several years ago Sean requested that we also put a combining schedule at the end of the report that breaks down each activity at the Airport to see what the real financial situation is on the budgetary bases. This is a better way to understand the budgetary situation because there is some $20 million in fixed assets that cannot be spend.
Another report presented is the Report on Federal Award Programs for the FY2007. The rules on the federal award reporting are that if you spend over $500,000 of federal funds you have to do a special compliance audit. In FY2007 there were some construction projects through federal funds at the Airport, which were over the $500,000 and so we did the report and there were no findings. For FY 2008 it was not needed.
The last report is the Management Letter, where we take a look at the system of internal controls and determine if there are any significant deficiencies or material weaknesses in the internal controls. For example if the accounts were not reconciled on timely bases. We did not find any significant material weaknesses. We are stating in the letter other matters or deficiency points that we commented on.
Report on Federal Award Programs – FY 2007only – no findings. Expenditures: 2 grants - $709,000 airport improvement program grant, $126,000 transportation security administration grant.
Financial Statements FY2007 & draft FY2008
Bringing a draft to the Commissioners’ meeting is something new. Usually Noreen would receive the draft, answer remaining questions and approve it and the Auditors would present the final reports to the Board. Tristan suggested that we should start a protocol that the Board sees the draft, Noreen can give the Board recommendations and they can vote to approve the draft. Noreen suggested that if there are no significant changes after going through the draft, Powers & Sullivan will do the final report and will not have to come back.
Draft FY2008 on Page 1 is the Independent Auditors’ Report, which is the only thing that is owned by the Auditors, the rest is data belonging to the County. There are also couple of other statements done by the Auditor: The Management Discussion and Analysis is on page 3, this is an overview of where we currently are and if the financial conditions deteriorated in comparison to prior years. This is supplementary information and they only do limited testing analysis. On page 45 there is a statement regarding the combining schedules.
These statements are budgetary, but they are not generally accepted accounting principles, so we cannot audit them and give you an opinion on them, but technically we audited all as this as part of the other reports. For the Management’s Discussion and Analysis – Overview of the Financial Statements - there are no significant differences between the two years. In FY07 – the county broke even. The Sheriff’s office was heavily dependent on state’s aid. Deed excise tax income dropped couple hundred thousand between the two years due to the economic situation and it has affected the budget as 75% goes to the Sheriff’s Department, 15% to the County and 10% to the Registry. To maintain the same expenditures the drop in the revenue would have to be made up in other ways, which
is difficult in this type of environment. Airport has been steadily increasing their financial position (page 6 & 7). This is extracted from the full financial statements. Tristan asked what was the big difference in the Change in net assets between FY2007 and 2008. Jim answered that using the budgetary reserves and part of is a depreciation expense (see page 17 - depreciation expense of $181,000) and so in reality there was a surplus. The regular budget does not account for depreciation but the governmental rules do. Airport had over $1,353,000 depreciation, which is not part of the budget. Airport had total net assets of $25,463,561,of that the capital assets are $22,877,246 which the Airport can not spend. That’s why there are three different basis of accounting, to be able to look at the financial statements with different perspectives. Page 39 is the Budget and Actual statement. This is only for the general fund operations. The actual Net Change in Fund Balance
from FY2008 is $66,100, which is how much the County was actually down with cash in, cash out. On page 16 is a Statement of Revenues, expenditures and changes in fund balances for Governmental Funds only. The New Change in fund balances is $47,282 under the modified accrual bases of accounting (see page 42). So the difference from the prior number is only in the method of accounting. The first column is the general funds; the second column is the extra deed excise tax revenue, which is always transferred to the general fund account; the third column is the Sheriff’s office, which had a minus $10,632 net change; the fourth column is the other special revenue funds like parking fees, health grants and other grants that come through. They have specific use and cannot be used for general government activities, there was a surplus of $31,675. The last column is the governmental funds in total. (See page 17). Capital outlay $69,008 is what was paid for from budgetary funds cash in
the fiscal year for assets with a useful life of over 1 year and it will be depreciated over its useful life later. Compensated absences accrual $19,000 is a liability because people have not take their vacations they are entitled to. This does not include the Airport, which is shown on pages 18 and 20. In summary, on page 14 you have $197,000 in general funds, $90,000 of that was voted free cash from the reserves to be used in the following year to balance out the budget. Basically you budgeted a loss of $90,000. You have only $107,000 left at the end of FY09 if everything goes according to the budget as far as projected revenue and have zero surplus. If you use again $90,000 in FY10 to cover the expenses that year, there will be nothing left in your general fund. So you need to find additional revenue sources or make cuts. On pages 18,19 & 20 are the GAP financial statements for the Airport. The combining schedules for the Airport are on pages 45,46,47. The Airport is
in a lot stronger financial situation then the County - it governs itself as a business. Page 46 is a schedule of airport net assets. The 1st column is the operations general fund, which shows free cash of $1,600,000. On page 47, the change in Net assets increased by $606,987 (of which $195,030 is a profit from the fuel revolving fund – col.3, also included is the inventory on hand of $337,127 that must be sold. On page 47 over $1,154,000 was transferred from sale of fuel into the general fund to be used for other operations expenses. This shows that the sale of fuel is very important to maintain as it funds other airport operations. The 4th column, Transportation Security Administration shows a federal grant of $125,000 which was spend along with some money left from the previous year. The 5th column is the debt service fund. There was $200,000 transferred to this fund in prior years and now it only adds investment income to be set aside as
stabilization fund. It adds up to a value of $247,887. You have only $400,000 in outstanding debt, which is paid out of the operation fund. It was an internal decision to create this stabilization account and they can take it out anytime if the airport commission decides. The 7th column is the Capital projects fund. The Airport spent $378,000, which did not exceed the $500,000 threshold, so there is no need for the special report on the federal funds. There is $460,500 left in this fund at the end of the FY08. The 8th column, which is the stabilization fund has a total of $380,684, of which $86,133 was put in FY2007and $294,551 in FY2008. All these columns are on a budgetary basis. The last two columns are the conversion from the budgetary basis to the full accrual basis. The 9th column are the long-term obligations totaling $454,156 of long-term debt, of which $400,000 is principal debt, $45,000 is compensated absences that the employees have not yet taken,
$9000 is interest accrued on debt and paid after the end of FY. The last column are Fixed assets totaling $23,277,246, of which $1,353,563 is depreciation.
Les asked Jim if they can take a 5 min break and introduced our new State Representative Tim Madden. Tim thanked Les for inviting him and introducing him. He reported that the cuts the Governor made to the State budget seem to be sufficient. Projections and expectations were lowered and we will proceed cautiously trying not to tap local aid.
Back to the Audit: Page 40 – Dukes County Retirement System – Schedule of Funding Progress. Valuation report as of 1/1/07 – 53.5 million assets, but the accrued liability is 83 million (the County was 65% funded by end of 2006 – little better then average) – the system is underfunded by 29 million. The law requires that the system be fully funded by the year 2028. The only sources of funding are the interest income and the employee contributions. The contributions by the employees do not change, as it is set by State statute, and so the higher the interest income the better for the system. The employer has to make up the difference. The Dukes County part of the under funded liability is about 4 million dollars. The Noreen said that the Retirement Board set a schedule to
be fully funded by 2023, so they have a 5-year cushion. They try very hard not to give the town big increases and we have 5 years (law requires it by 2028) to extend the funding schedule. Lenny asked if there is talk about the State taking over the retirement assets. Noreen said that nothing has changed and she did not hear anything new recently. The Retirement Board voted to go with an independent manager. The State fund is losing money also, but they lost about 20%, while we only lost 13%. Russell added that that because we are more then 65% vested, we were not taken over by the State and would have lost even more. Noreen commented that on page 41 a 100% of the contributions from the towns was given. When the Governor is talking about reducing retirement, he is not talking about what the retirees are getting because MGL Chapter 32 sets that amount. They might recommend reducing what the towns need to contribute, which will affect the funding schedule.
Management Letter June 30, 2008
Jail/House of Corrections – Reconciliation to General Ledger. A couple of old accounts need final reconciliation within the ledger. Sheriff’s office is reviewing the reports, the changes will not affect any final numbers for the department and they are expecting this to be resolved in FY2009. Withholding accounts – several payroll-withholding accounts were not reconciled and contain deficit balances. All the withholdings were paid but some discrepancies are due to how it was posted. After identifying the discrepancies adjustments should be made to reconcile differences. Develop Written Disaster Recovery Procedures - it is not an issue about how the Treasurer backs up the data, it is about a procedure how to recover and get the payroll up and running in case of system
crash or disaster emergency when the existing IT facility cannot be used. They would like to see the process documented. Noreen commented that they stared to work on it with Chuck Cotnoir, the Emergency Management Director and he was getting a group together to document the recovery procedures if for example the building caught on fire and there was no paper left to print checks on etc.
Fuel excise tax (Airport) - we expect this to be resolved in the FY09 financial statement – to make sure there is a proper recording of expenses. There was inconsistency in documenting and reporting when the vendors were changed. There needs to be a flow between the accounts. Noreen commented that the financial adjustments were made in FY2008 and will probably not be part of the next years report. Jim said that if it were resolved they would acknowledge it in the final report, as this is still a draft. Sean explained that before they had to pay the federal excise tax directly to the government on quarterly bases. Now we pay it when we buy it wholesale not when we sell it. There was this number accumulating because it was booked twice, it was transferred and resolved.
Statement No.45 of the Governmental Accounting Standards Board (GASPY) This refers to the post–employment retirement benefits other then pension, mainly the health insurance. The Retirement Board had an actual evaluation done and we do have to account for this liability. There is no money set aside for this liability and there is no investment earnings set aside for this. The County is responsible for 100% of its share. It is not a law to put money aside, but it is part of the liabilities on the financial statement on full accrual bases. You should have a funding schedule in place or pass some legislation to address this issue even thought there is no target date by law that you have to put the money aside. For example Wellesley is fully funded for the pension system and they passed
special legislation to have an override to put funds aside for these types of liabilities. Lots of communities decided to first fully fund the retirement liability and then use the money that the used to put aside for that to fund the retirement benefits. Noreen said she would like to make it Tim Madden’s first job to pass a general law for all the towns to be able to set up a trust fund that they need as a vehicle to do this, instead passing legislation for each town separately. Melinda asked where would we get the money to do this. Noreen said that the legislation allows the towns to set up an irrevocable trust if they choose to do it. There is an ad hoc group to pass the legislation so that if the towns choose to put money aside the funds from different towns could be managed and invested together for better investment earnings. It usually requires about 5 million dollars investment. Tristan asked if the percentage taken out of employees’ paychecks is the same no
matter what town you work in. Noreen said yes, it only depends on when you joined the system. This is true for the retirement, but not the retirement benefits. A study would have to be done town by town because each town adopted a different policy as far as post-retirement benefits. Jim said that in the special legislation for Wellesley the custodian of the trust was also the Retirement Board but they are separate funds. Adopt a cash and investment Policy (page 6.) – All County’s funds are either FDIC insured, DIF insured or collateralized. You balance the preservation of capital against the investment return. It is even a bigger concern at this time when banks are unstable and it is a good idea to have an investment policy in place. If you have the policy in place we audit it against the Mass. General Law. Carlene asked if they have some sample draft policies that we could use. Jim said yes. Noreen said that she would run it by Frank first to make sure that we
cover all the bases before we go for a full adoption. Jim noted that County itself has about $170,000 in cash, but the Airport has more funds and the policy would go across the board. Tristan asked if from the general accounting point the biggest concern is the free cash on the county level. Jim said yes, since you don’t have any surplus and the revenue is going down and you already used $90,000 from reserve fund to balance budget for FY2009. If you do the same for FY2010 you will have no reserve left for any of the following years and you should not wait until June to tighten the budget. Russell commented that Noreen did put together the quarterly revenue reports and we can project how the revenue is falling in each of the revenue sources. Les added that we know we need to look for new sources of revenue. Jim said that if the revenues are lower then projected the $90,000 will not be enough and the County will have even less reserves at the end of this fiscal year.
Liaison responsibilities list distributed at the last meeting and Russell is looking to fill in the remaining regional agencies that should be covered and invited the Commissioners to talk to him about which once they are interested in.
Russell noted that in the packets are letters from four towns asking all regional agencies for level funding for upcoming budget year.
Courthouse roof – Originally we put in for legislation to be able to borrow $150,000 to fix the roof but it did not pass. We found other legislation from 1995 that allowed the County to borrow $100,000 to fix the courthouse roof. Russell asked for estimates to fix the two flat roofs only to stay under the $100,000. After discussions with DECAM, who oversees the bidding process for municipal projects – we ear marked $150,000 from the State court system budget and it passed. DECAM will wire the money to us and we will not have to borrow anything. In that case we will fix the whole roof.
Big and little bridge on state beach will be fixed and there was discussion about closing the road. After several meetings with the Mass Highway Department it was determined that the contract was to keep one lane open. It will still have to be closed for couple of hours or days here and there and we will need figure out whom to notify when that happens. There will be an automatic red, yellow and green traffic light on site.
Eastville Beach Committee report – Tristan informed that they are applying for CPC funds form Oak Bluffs and Tisbury to do some improvement work worth about $30,000 total.
Les asked the Commissioners if they want to meet on the Wednesday before Thanksgiving. We did meet the requirement to meet in November by this meeting. At the next meeting we will have to address the Manager’s 6 months’ evaluation. Tristan suggested that Melinda could work with Les to develop a protocol for the evaluation process and present it to the Board. Carlene asked if there are requirements in the Administrative Code as to how the evaluation is done. Russell said that it only is in his contract to get a review after 6 months on the job and if the County decides to make him a County employee it would be starting January 1st. There is nothing about the process in the contract. John Alley said that the process currently is that a form was distributed to each of the Commissioners to fill out and then meet with
the Manager to discuss the evaluation. Les commented that we have an evaluation form regarding the evaluation of an employee but the questions are not specific to the Manager. John said that there was a form specific to the Manager. Russell said he had collected several forms from different towns for evaluation of the town administrators.
Tristan suggested the Board meets on December 3rd and then on December 17h.
John/Tristan moved to adjourn the meeting. So voted. All in favor. 6:55pm
Respectfully Submitted by:
JOSEPH E. SOLLITTO JR., Clerk of the Courts