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
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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
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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.
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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