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HomeMy WebLinkAbout10/12/1981M I N U T E S ADJOURNED MEETING OF THE CITY COUNCIL CITY OF SAN LUIS OBISPO MONDAY, OCTOBER 12, 1981 - 12:10 P.M. COUNCIL HEARING ROOM, CITY HALL, 990 PALM STREET SAN LUIS OBISPO, CALIFORNIA STUDY SESSION ROLL CALL Councilmembers Present: GlennaDeane Dovey, Ron Dunin, Robert Griffin, Allen Settle, and Mayor Melanie C. Billig Absent: None City Staff Present: Bill Hanley, Interim Administrative Officer; Pamela Voges, City Clerk; Rudy Muravez, Finance Director; Roberta Goddard, Accountant E -1. APPOINTMENT TO CITIZENS ADVISORY COMMITTEE After brief discussion it was moved by Councilman Settle, seconded by Councilwoman Dovev, to appoint Robert Goldman to the Citizens Advisory Committee to fill the vacancy created by resignation of James Tseng; term to expire 6/30/83. Motion carried, all ayes. 1. REPORT ON 1980 -1981 FINANCIAL STATEMENT 1 Rudy Muravez, Finance Director, briefly explained the selection process whereby the City hired the firm of Peat, Marwick, Mitchell & Co., to do the annual financial audit. He stated that in comparing the format of this year's financial report with the previous year, there were substan- tial changes. Those changes were designed to bring the financial state- ment into compliance with revised standards recently adopted by the National Committee on Governmental Accounting. He stated that this was the City's first year with this firm, and he would compliment them on the extremely professional job they performed. Tom Snow, with Peat, Marwick, Mitchell, &,Co., briefly explained the "Financial Reporting Pyramid" and explained the MFOA "Certificate of Conformance ". It was an extremely coveted award received by relatively few cities in the State of California and that this was the goal set for the City of San Luis Obispo to achieve. He then presented the Annual Financial Report explaining the financial statement highlighting the more important aspects. Basically, the City was in solid financial condition. He felt that the only areas needing additional work to qualify for a Certificate of Conformance were: 1) Transmittal letter written by the Finance Director, 2) supplemental data (10 -year histor- ical analysis), and 3) development of a system for recording fixed assets. The lack of a fixed asset system in general and lack of adequate records relating to fixed assets and its investment in the Whale Rock Reservoir still needed to be addressed. Steven.Kay, also with the Firm of Peat, Marwick, Mitchell & Co., dis- cussed six weaknesses in internal control that he felt the City had to address: City Council Minutes October 12, 1981 - 12:10 p.m. Page 2 1. Centralized Purchasin They would propose that with a centralized purchasing system, the number of persons authorized to make purchases for the City would be reduced, thereby decreasing opportunity to make unauthorized pur- chases. Purchasing expertise would be placed with one responsible employee. The City might be able to take advantage of quality dis- counts, thereby reducing overall cost. Duplicate processing and purchasing work.could be avoided. A receiving procedure could be established so that the actual receipt of the purchased merchandise was acknowledged with the receipt forwarded to the Central Purchas- ing Agent, and budget overruns could be reduced or eliminated as the Purchasing Agent could disallow further purchases once expen- ditures reached budgeted amounts. 2. Cash Receipts in the Park and Recreation Department In order to improve cash safeguards, they recommended the following: A. The plan already developed by the Parks and Recreation and Finance Departments be implemented as soon as possible. This plan provided for installation of cash register in the Parks and Recreation Department's office and stipulated daily deposits of .__receipts. B. A single receipt book and cash drawer should be maintained at each field location to consolidate and control collections in the field. Cash on hand at those locations should be deposited at least once a week, or more often if necessary. C. In connection with above, all new procedures which affected cash handling or other accounting matters would be approved in advance by the Finance Department due to the potential impact on the City's system of internal accounting control. 3. Personnel They would recommend that all employees present their initial application and W -4 form in person to the Personnel Department and an independent distribution of pay checks be made once a year re- quiring each employee to sign for his or her pay check. 4. Fixed Assets They would recommend: A. Control over input into the system for all fixed assets additions, sales, abandonments, and transfers. B. Periodic reconciliation of detail ledgers to the general ledger. C. Periodic inventory of fixed assets by location. D. Verification that any asset traded in, sold, or otherwise disposed of, was properly removed from the records. 5. Inventory They noted that annual physical counts of the water and sewer utility funds spare parts inventory were not performed. They recommend that annual physical counts be conducted for such inventories, and that the City establish perpetual inventory records to account for the amounts. Such an inventory would ensure a more accurate determin- ation of financial position by reconciling the physical inventory to perpetual records.. 6. Utility Receivable Write -Offs The responsibility for "writing -off" past due utility receivables was vested with the senior utility billing clerk. Once the clerk deemed the account uncollectible, she made the appropriate changes to the accounting records and assigned the account to the credit City Council Minutes October 12, 1981 - .12:10.p.m. Page 3 bureau for final collection efforts. Such write -offs were not subject to review, thereby increasing the potential for unneccesary write -offs to occur. In the future, they would recommend that the Finance Director review and approve utility receivable write -offs on a periodic basis. In reponse, Tom Snow stated that possibly this year would want to submit a management letter at an earlier date for the City Council, so that staff could prepare the response and submit it with the audit report/ management letter. Councilman Griffin suggested that a progress report be submitted to the Council so that the Council could assess the progress throughout the year on items of concern contained in the management letter and how they are being dealt with. There was slight discussion regarding the two certificates, the MFOA and CMFO. Councilman Dunin stated that he was happy to see that a higher priority was being put on the centralized purchasing system. He did not feel that the award should rate such a high priority. He would support Councilman Griffin's request for responses to the management letter through the CAO's office along with recommendations and a projection to include costs. He strongly agreed with recommendations made to remedy the personnel problem. He stated that as far as additional staffing to coordinate the centralized purchasing system, he would reserve judgment. He mentioned, however, if an added person would be needed, he would expect a personnel cut in some other area. Upon question by Councilman Settle, Mr. Snow answered the following questions: Is the City basically in good shape? Yes. Would future yearly auditing be complicated by a two -year budget? No. Were the two main weaknesses in the system focused on the purchasing and fixed assets? Yes. Bill Hanley stated that he was very supportive of the audit recommendations and echoed several of the same sentiments. He was primarily concerned with getting a centralized purchasing system even if it meant getting an intermediate system online temporarily to help remedy the situation. The new purchasing ordinance would be coming to the Council within three to four weeks. He noted that this might require adding an additional half -time person. He stated that the Parks and Recreation problem should be remedied within 60 days. He stated the personnel records were being brought together and that there was no real problem on files of full -time employees, rather it had been primarily in regard to part -time employees with incomplete files. Rudy Muravez, Finance Director, stated that the centralized purchasing system would be bringing to the City another layer of overhead but felt that this was an absolutely necessary one. He stated that it was origin- ally envisioned that the Purchasing Agent would also update the fixed assets inventory. At this time, the City had contacted with Marshall and Stevens, and they would be bringing the 1976 fixed assets up to date, probably within the year. Parks and Recreation procedures, he said, would be in operation within 60 days. Personnel was working on their files, and he agreed that it was the part -time people that we needed to 1 get a handle on. Also, he was working with the auditors for an agreeable joint recommendation for the utility write -offs. Councilman Griffin stated he had reviewed the report very closely and was extremely happy with it. He did feel it would have been helpful if the response to the management letter had accompanied the report -and if staff had written a review and response to those recommendations made by Peat, Marwick, Mitchell, & Co. In reponse, Tom Snow stated that possibly this year would want to submit a management letter at an earlier date for the City Council, so that staff could prepare the response and submit it with the audit report/ management letter. Councilman Griffin suggested that a progress report be submitted to the Council so that the Council could assess the progress throughout the year on items of concern contained in the management letter and how they are being dealt with. There was slight discussion regarding the two certificates, the MFOA and CMFO. Councilman Dunin stated that he was happy to see that a higher priority was being put on the centralized purchasing system. He did not feel that the award should rate such a high priority. He would support Councilman Griffin's request for responses to the management letter through the CAO's office along with recommendations and a projection to include costs. He strongly agreed with recommendations made to remedy the personnel problem. He stated that as far as additional staffing to coordinate the centralized purchasing system, he would reserve judgment. He mentioned, however, if an added person would be needed, he would expect a personnel cut in some other area. City Council Minutes October 12, 1981 - 12:10 p.m. Page 4 Councilman Settle stated that he agreed that the report was extremely well done. Councilman Griffin added that he would like the-Council to receive a status report on the revenue sharing complaint issue. Upon question by Councilman Dunin, Tom Snow felt that the government accounting process was the most difficult type, but insofar as comparing the City of San Luis Obispo to similar cities, the accounting procedures , were fairly routing and comparatively similar. Upon general consensus the report of the Financial Statement for 1980- 1981 was received and filed. Council requested staff to resond to the accountant's management letter with recommendations and projections including costs and status report on the revenue sharing complaint issue. 2. SEWER RATE REPORT Rudy Muravez stated that the City had recently contracted with Gerald Peasley to conduct a study of the Revenue Requirements for the City sewer system and to recommend modifications to the sewer rates currently charged by the City. This study was now complete and before them for discussion today. He stated the study was built on basic assumptions which were outlined on page two and three of the report. The primary assumptions being that the City would conform to the State Water Resources Control Board guidelines. He felt that, since the City had accepted the EPA grant for the sewer treatment plant construction, acceptance of their rate guidelines was the most prudent course. The second major assump- tion was that the rates would be constructed to recover a capital re- placement reserve. By reserving for capital replacement, it would level out the peaks and valleys of cash flow encountered during the course of actual construction. Gerald W. Peasley, Peasley Accountants Corporation, presented the Waste Water Revenue Requirement Study for October 1981, going through it page by page. He stated that wastewater sewage rates in..past years had typically been on a flat rate basis, using two techniques. 1. Flat rates were estimated assuming all users within a customer class group were identical, for billing -purposes, regardless of flow volumes or strength of discharge.' That was simple method and = avoided differences in amounts billed to like users, but ignored the.flow and strength characteristics-that so.importantly- affect the use of the wastewater facilities. 2. Flat rates had been based upon water meter size without consideration of customer classes. This method assumed that flow of both water and wastewater were related to water meter size. The assumption relating meter size to water and wastewater flows was generally correct, but in instances of users requiring large water flows for landscaping purposes, such as schools, the flat rate by meter size method could be inequitable. 3. Currently, some wastewater utilities were formulating service rates based solely on water consumption under the theory that the water consumed would_ be relatively proportional to the wastewater dis- charged and thereby each user would pay an amount for service more .closely related to use of wastwater facilities. To use this method the utility needed access to the water meter readings and the use of a satisfactory billing system, both of which are available to the City of San Luis Obispo. This rate design method would be inequit- able to those users who required water for extensive landscaping or other-uses not requiring wastewater disposal. City Council Minutes October 12, 1981 - 12:10 p.m. Page 5 4. The State Water Resources Control Board had adopted "Revenue Program Guidelines for Wastewater Agencies." Those guidelines were prepared to assist wastewater utilities in developing service rates that satisfy regulations involved in the federal grant program. Since the City was in the process of obtaining such a grant for expansion of the wastewater treatment plant, service rates must comply with the guidelines if the grant was to be obtained. The State Water Re- sources Control Board Guidelines involved cost allocation based on both flow and strength, providing thereby a broader base for establish- ing revenue requirements by user class group. He continued that the design of revised wastewater rates for the City would require policy decisions regarding a number of issues that impact on the revenue requirement as follows: 1. Should the City levy charges on a flat rate basis, volume of water flow basis, volume of flow and strength characteristics or a combin- ation of these methods. 2. Should the wastewater division charge other city departments for service, or should they provide the service without charge. 3. Should the wastewater division finance all operations, capital replace- ments and improvements from service rates or should they use debt financing for capital requirements. 4. Should special rates be provided to certain users and, if provided, will the special rates violate grant funding regulations. a. lifeline rates (low income users) b. Governmental users c. volume users There was considerable discussion about whether to allow special rates as it might jeopardize the City's grant. 5. Should revenue requirements include operating and plant replacement reserves. 6. Should the City charge the wastewater division for in -lieu taxes and franchise fees. They continued that in order to complete the report prior to the reso- lution of the policy decisions outlined above, it was necessary to pro - ceed under certain assumptions. Each assumption used had been reduced to dollars so that the impact on revenue requirements and rates could easily be assessed for exclusion if the City so desired. Assumptions: 1. Rates based on the State Water Resources Control Board Guidelines will be adopted. 2. Wastewater service will be provided to other City departments with- out charge. State Water Resources Control Board normally required that City departments receiving service be charged for those services thereby reducing revenue requirements to all other users. Since the City served very few outside the City customers, the loss benefits to those users from higher revenue requirements would offset the benefits the outside the City users get by exclusion from other City charges. 3. All operation, maintenance and capital costs would be financed from service rates and capital reserves presently held by the wastewater division. City Council Minutes October 12, 1981 - 12:10 p.m. Page 6 4. The wastewater division would provide no special (reduced rates). to users other than those charged to California Polytechnic State University who had a proprietory interest in the physical plant used to serve the University. 5. An operating reserve of 15 percent of annual operation and mainten- ance costs would be provided for over the three year test period, by inclusion of an annual expense charge of five percent of annual operation and maintenance expenses. Although operating reserves of 20 to 40 percent of annual expenses is recommended by the State Water Resources Control Board, it is felt that 15 percent is adequate in San Luis Obispo. 6. A capital replacement reserve will be established to recover through service rates the replacement cost of the fixed assets of the waste- water division over the expected useful lives of those assets. 7. Following past philosophical that are usually incurred by to the City of in -lieu taxes operation had not been inclu systems, since they are cost water system. practices of the City to include costs utilities in rendering service, payment or franchise fees from the wastewater led, even though commonly found in water items not normal to a municipal waste- 8. The City would establish an acreage charge for service to property not previously receiving service. Rudy Muravez, Finance Director, stated that the reserves on item 5 would in no way replace the plant but would help in contributing to such costs from this time forward. The suggested acreage charge would entail approx- imately $3,800 per acre, at this time, on all new developments. This would, of course, come before the Council for a decision and public testimony would be taken at that time. Gerald Peasley continued that California Polytechnic State University was being charged per the agreement between the University and the City. This included operation and maintenance costs only, since the University had previously paid for its capacity in the fixed assets facilities. At this time, that amount works out to about $56,000 a year. Using the new assumptions, this figure would be increased to over $76,000 which the University was not in agreement with at this time. Mayor Billig then read into.the.record a letter from Doug Gerard, Execu- tive Dean from California Polytechnic State University, which in essence stated that before the Council would make its final determination on the sewer rate increase, they would like to have a joint session with the Council and the staff members to resolve questions about the proposed fee structure. After brief discussion it was determined that discussions with Cal Poly should be taken up as a separate issue as it would not affect sewer rates adopted by the Council. This meeting was tentatively scheduled for November 3. Dave Romero, Public Services Director, gave a brief status report on the grant and stated that we had accepted the monies for the grant for Phase 1 but no monies had been expended for construction at this time as the State had rejected the City's construction plans as presented. At this time, Henry Engen, Community Development Director, appeared before the City Council stating that he had just received the copy of the denial from the State Water Resources Control Board, which in essence was denying the City's earlier appeal relative to the sewer grant cond- tions. 1 1 1 [i City Council Minutes October 12, 1981 - 12:10.p.m. Page 7 Mayor Billig then read the letter into the record.as follows: "Dear Mr. Engen: CITY OF SAN LUIS OBISPO, CLEAN WATER GRANT, PROJECT NO. C -06 -1215; REQUEST FOR FINAL DIVISION DECISION Thank you for the patience displayed in awaiting receipt of this determination. The City's request for a final decision regarding use of suggested wording for special condition 11- G-5 of the Step 3 grant no. C -06- 1215 -110 has been reviewed. It is the decision of the Division that there is no need to revise the existing grant condition as suggested. Information upon which we based this decision follows: 1. The Division of Water Quality approved 5.1 mgd of treat- ment plant capacity for the Grantee's grant project no. C- 06- 1215. This capacity was identified as follows: 4.5 mgd for the incorporated area of the City; 0.6 mgd for the outlying area, including Cal Poly. 2. Assuming that the City has provided the capacity for the outlying area, they have complied with the grant condition on this aspect. 3. The remainder of the capacity was allocated to the City itself and must be used for the area specified. It cannot be utilized outside of City Boundaries without amendment of the grant contracts. 4. We do not intend to direct the timing or place of use of the City's capacity within City limits. Under these circumstances, there appears to be no reason to modify the existing grant condition at this time, since there is no additional capacity available for the outlying area and the City has the ability to utilize capacity for the City it- self as a matter of its own discretion. This decision is final and conclusive unless within 30 days from the date of receipt of the decision the City appeals under the provisions of Clean Water Grant Regulation 2155, Petition for Review by the State Board. If you have any questions regarding this matter, please contact Mr. Donald Hodge of my staff at (916) 322 -6468. Sincerely, Michael S. Sloss, Chief." After brief discussion it was moved by Councilman Griffin, seconded by Mayor Billig, that staff be directed to: 1) appeal the Water Quality Control Division's denial of the City's earlier appeal relative to the sewer plant grant conditions, and 2) request formal clarification of the Division of Water Quality Control Letter stated 9/30/81 which in- timated that the City was already meeting the grant conditions being appealed relative to service area. Motion carried, all ayes. The Council then continued their discussion of the sewer rate report. There was general discussion on whether the City wished to break down the different water user groups; for instance, laundries, hospitals, restaurants, etc., as long as the administrative costs did not become too much of a nightmare. Upon general consensus, sewer rate study was continued for public hear- ing for November 3, There being no further business Billig adjourned the meeting at at 11:45 a.m. at Maya Restaurant APPROVED BY COUNCIL: 11/3/81 to come before the City Council, Mayor 2:42 p.m. to Tuesday, October 13, 1981, in San Luis Obispo. P mela Voges, y torierk