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LEGISLATIVE, FINANCE AND ADMINISTRATION COMMITTEE The Legislative, Finance, and Administration Committee meeting was held on December 9, 2013, at 6:00 p.m. with Mr. Hare presiding in the absence of Chairman Lynn. Members present were Mr. Slavin, Mr. Rushe, and Mr. Shevock. Members of Council present were Mr. Dixon, and Mr. Hutchison. Mayor Carey was also present. AGENDA ADDITIONS/DELETIONS Mr. Slavin moved for approval of the agenda, seconded by Mr. Shevock and unanimously carried. Request of Elizabeth W. Murphey School - Grant for Judo Mats During their meeting of November 25, 2013, members considered a request of the Elizabeth W. Murphey School for the City to provide assistance in purchasing Judo mats (10-12 mats at a total cost of approximately $2,500). The committee tabled the matter so that more information could be obtained regarding where the money may come from. Mr. Rushe moved to remove the matter from the table, seconded by Mr. Shevock and unanimously carried. Mr. Slavin stated that he would recuse himself from discussion or voting on this issue due to his relationship with the Murphey School through his job with the State of Delaware. Mr. Scott Koenig, City Manager, stated that his preference would be for the City not to become involved due to concerns of receiving additional, similar, requests. Therefore, he suggested that the school seek private funding. Should Council wish to grant the request, since there are no available funds in City Council’s budget, he stated that a portion of the community relations and travel expense funds in the City Manager’s budget for the current fiscal year could be appropriated to cover the costs for purchasing the mats. In accordance with City policy a cash donation could not be made, therefore, he stated that staff would need to review the policy and determine whether the City could purchase the mats directly and extend them to the Murphey School for either temporary or permanent use. Should members wish to move forward and approve the request to purchase mats through City funds, staff recommended that it be charged against the City Manager’s budget for fiscal year 2014. Responding to Mr. Shevock, Mr. Koenig explained that the City’s current policy prohibits the City from making cash donations. Mr. Rushe suggested the possibility of the City providing “matching funds.” In response to Mr. Hare, Mr. Koenig advised members that, in the past, the City has made contributions to the Fourth of July Committee, Kent County Tourism for Old Dover Days, and the African American Festival. Regarding the contribution to Kent County Tourism, he explained that it is considered a “management” fee since they handle advertising, scheduling events, etc. for Old Dover Days. In regard to the African American Festival, he stated that the City’s contribution had previously been as high as $15,000, that an amount of $7,500 was budgeted for the current year, and that the funds were provided as a reimbursement for actual expenses. For several years, he stated that the City did not provide any funds for the Fourth of July Festival; however, to his recollection,

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF DECEMBER 9, 2013 PAGE 2 there were times when the Festival was underfunded and the City provided a donation. For the current budget year, the Fourth of July Committee had indicated that there was no need for any donations. He reminded members that the Fourth of July Committee is a City appointed committee. He noted that the only event that does not have direct City involvement is the African American Festival, which is a reimbursement. He advised members that for the fiscal year 2012 Budget, staff had recommended that the funding for the African American Festival be removed; however, these funds were added back into the Budget by City Council. Mr. Rushe moved to recommend denying the request to fund the Judo mats, seconded by Mr. Shevock and carried with three (3) yes (Hare, Rushe, and Shevock), one (1) abstention (Slavin), and one (1) absent (Lynn). Proposed Ordinance #2013-18 - Budget Amendments for Fiscal Year 2013/14 Members were provided proposed Ordinance #2013-18 - Budget Amendments for Fiscal Year 2013/14. Mrs. Donna Mitchell, Controller/Treasurer, advised members that the proposed budget ordinance represents the first amendments proposed and incorporates changes into the FY2013/14 Budget. She noted that the Committee Action Form indicated that the proposed amendments were reflected in red font; however, the copy of the proposed ordinance included in the packet was incorrect. As a result, staff provided members with a copy of the proposed ordinance reflecting the proposed amendments in red font (City Clerk’s Office Note: Subsequent to the meeting, the packet was revised to include the ordinance as presented). Mrs. Mitchell briefly explained the proposed amendments, as follows: 1) amends the Beginning Budget Balances for all Funds; 2) transfers the favorability in the General Fund Beginning Budget Balance to the Civilian Pension Fund in accordance with policy; 3) amends the Electric Budget for an unfavorable Beginning Budget Balance by reducing the transfer to the Electric capital project fund (the capital project fund had a favorable budget balance and was able to accommodate the reduction in the transfer); 4) amends the Water/Wastewater transfer to the capital project fund for savings in Engineering wages in accordance with recent Council actions for project design work; 5) amends the Capital project funds to reflect the audited Beginning Balances and corresponding adjustments for those uncompleted projects with multi-year construction periods (a separate revised Capital Investment Plan was provided for review); and 6) amends Grant Funds to reflect programming changes in the Grants based on information received after the budget was approved. Referring to the beginning balance amendment in the Governmental Capital Projects Fund (line 143), Mrs. Mitchell explained that this was the result of several incomplete projects, such as the Calpine Infrastructure Project and the Street Program from last fiscal year. She stated that line 147, Contractor’s Contributions, was amended to reflect the $264,800 in escrow for the City to complete the Westover Subdivision Project. Mrs. Mitchell noted that specifics for the Capital Investment Plan Amendments have been provided to members. She advised members that the proceeds indicated in the Water/Wastewater Improvement and Extension Fund Cash Receipts/Revenue Budget (lines 345- 351) were revised mainly due to project carry forwards and the new bond issue since the Calpine Project was just completed this year. Mrs. Mitchell stated that the revised beginning balance for the Electric Revenue Fund (line 421) was reduced; therefore, the transfer to the Improvement and Extension Budget (line 473) was reduced from $5.4M to $4.9 to make up the shortfall in order to keep the fund within the budget balance requirement of 8%.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF DECEMBER 9, 2013 PAGE 3 Mrs. Mitchell reminded members that the City had put a substantial amount of money in the Electric Utility Rate Stabilization Reserve in fiscal year 2012 to assist the City during the next three (3) years. She explained that the revised amounts included in the Community Transportation Improvement Fund were due to projects that were not known earlier in the year. Similarly, she stated that the Library Grants and Police Grants Funds were revised to reflect grant monies that have been received that were not known of earlier in the year. Mrs. Mitchell indicated that the CDBG Fund was adjusted to reflect the Plan adopted by Council for CDBG which was accomplished after the City’s Budget was approved. She stated that the After School Program - CJC Grants was also revised since the grant monies were received after the City’s Budget was approved. Mrs. Mitchell also reviewed the Capital Investment Plan Amendments and explained that these amendments were included in the budget amendments for fiscal year 2013/14. Staff recommended adoption of Proposed Ordinance #2013-18 - Budget Amendments for Fiscal Year 2013/14, with the First Reading to be held on January 13, 2014. Responding to Mr. Slavin’s question regarding the source for the revised budget amount related to the carry forward balance for the General Fund, Mrs. Mitchell stated that the revenues came in at approximately $170,000 over budget, with the largest being $109,000 for permits and licenses. In addition, she stated that the expenses came in $500,000 under budget. She stated that most of the savings in expenses were the result of attrition. Mrs. Mitchell confirmed that this was a one time “blip” that occurred and will be filled back in once the vacant positions are filled. Mr. Slavin moved to recommend adoption of Proposed Ordinance #2013-18, as presented by staff. The motion was seconded by Mr. Shevock and unanimously carried. Draft Comprehensive Annual Financial Report (CAFR) Mrs. Donna Mitchell, Controller/Treasurer, reviewed a Presentation - Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 (Attachment #1). Responding to Mr. Slavin, Mrs. Mitchell explained that the Governmental Accounting Standards Board (GASB) Statements No. 67 and No. 68 will require the City to report the unfunded liability on the financial statements. For the funded portion, the City can use the actuarial assumption of 7.0% for the return on investment. However, the GASB requires the City to bifurcate the unfunded liability and GASB 67 and 68 will require the use of the municipal bond rate, which is approximately 4%. She explained that when a lesser return rate is used, the liability will be raised, as is required since the City is not fully funded. (City Clerk’s Office Note: Subsequent to the meeting, Mrs. Mitchell, Controller/Treasurer, advised that the actuarial assumption is 7.0%, not 7.5% as stated.) Mr. Slavin noted that the interpretation of the original GASB requirements regarding the unfunded liability was the result of some negligence on the part of City Council. He explained that the GASB 67 and 68 are more stringent standards being instituted and that the City will not know the content of those standards until they are issued. Mr. Slavin stated the difficulty for the City to maintain very

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF DECEMBER 9, 2013 PAGE 4 high quality finances when every few years the standards change and new guidelines are instituted, with the possibility of additional liabilities for the City. He urged staff to provide a briefing to members of the Committee and City Council on the new requirements of the GASB 67 and 68 prior to the implementation. Mrs. Mitchell advised members that the GASB requires the City to recognize the expense and if the expense is not funded, a liability is created. She explained that the GASB does not force the City to fund the expense, but if the expense is not funded, the liability must be recognized. Mr. Slavin noted that if the City were to choose not to fund the liability, it would likely affect the City’s bond rating. In addition, Mrs. Mitchell stated that in the long-term, it would affect the City’s ability to pay those benefits. Mrs. Mitchell provided members with Supplemental Information - Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 (Attachment #2) and explained that the information contained budget to actual reports, which shows the individual budget variances. Noting that the budget balance for the General Fund is $4.2M (page 3 of attachment #2) and that the unassigned amount for the General Fund is $3.3M (page 7 of attachment #1), she explained that the difference is those non-expendable accounts which are the inventory, pre-paids, and the fair value of investments. She stated that the amount is adjusted for those non-cash items and explained that the City actually shows the higher number as the budget balance ($4.2M rather than the $3.3M) and she wanted members to be aware of the reconciliation listed that provides those details. Mr. Rushe moved for adjournment, seconded by Mr. Shevock and unanimously carried. Meeting adjourned by 6:55 p.m. William F. Hare Acting Chairman WFH/TM/dd S:\AGENDAS-MINUTES-PACKETS\Committee-Minutes\2013\12-09-2013 LF&A.wpd Attachments Attachment #1- Presentation - Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 Attachment #2 - Supplemental Information - Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013

ATTACHMENT #1 LF&A Committee Meeting of 12/09/2013 City of Dover Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 LF&A Committee Meeting of 12/09/2013 ATTACHMENT #1

Implementation of GASB 63  Government Accounting Standards Board issued Statement 63 – Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position  Definitions –  Net Position – The residual of all other financial statement elements presented in a statement of financial position. (Previously, Net Assets)  Deferred Outflows of Resources – the item meets the definition of an outflow of resources, but relates to a future period. An example would be a grant provided to a grantee before the grantee has met the related time requirements. The City had no deferred outflows of resources as of 6/30/13.  Deferred Inflows of Resources – Governmental funds defer recognition of revenue until amounts are considered to be available to liquidate the liabilities for the current period. Therefore, any unavailable revenues from prior periods must be eliminated and reported as unavailable revenue. The City had unavailable revenue (past due receivables over 60 days) of $577,437 as of June 30, 2013. The receivables are property taxes, demolitions, grass cutting, police extra duty, and state grants.  Unearned Revenue – Resources that are received for a future period prior to meeting eligibility requirements. Examples are property taxes and business licenses received in June for the following fiscal year. The City had unearned revenue as of 6/30/13 2

Financial Statements  Government-wide Statement of Net Position and Statement of Activities – All activities (financial transactions) are reported on a GAAP (Generally Accepted Accounting Principles) basis. Includes all capital assets and liabilities. Does not include full-reporting of pension and OPEB liabilities as currently not required by GAAP. Two columns are shown.  First column for governmental activities which includes General Fund, Governmental Capital Project Fund, All Special Revenue (Grant) Funds. Worker’s Compensation Fund assets & liabilities are included.  Second column for business-type activities (Proprietary Funds). This column includes the Water/Wastewater Fund and Electric Fund. Worker’s Compensation Fund assets & liabilities are included.  Governmental Fund Statements – All General Fund and Grant Fund activities reported on a modified basis of accounting. No capital assets and no long-term liabilities. Considered, spendable resources within a year. Unassigned Fund Balance is adjusted for Unavailable revenue, prepaid items, and inventory.  Statement of Net Position and Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Funds – All activities of the Water/Wastewater and Electric Funds.  Statement of Net Position – Fiduciary Funds – All activities of the Pension and OPEB Trust Funds as required by GAAP. Not included in the previous statements mentioned as they have been established as separate Trust for retirement benefits.  The audit opinion is based on these Financial Statements. 3

Schedules  Schedules are budgetary reports prepared on a non-GAAP basis. For example, the City does not budget depreciation expense or compensated absence expense.  The General Fund Budget to Actual report for June 30, 2013 is located in Required Supplementary Information section of the CAFR, which follows the Notes to the Financial Statements. All other individual fund Budget to Actual Reports are located in the Supplementary Information section of the CAFR. These schedules are not required and therefore not required to be audited. We include these schedules and the auditor’s do review them as they include budgets adopted by City Council.  The Supplementary Information section also includes combining statements. These are financial statements that combines the individual fund statements. For example, the Special Revenue Combining Statement of Net Position. This statement combines all the grant funds and the total is reported in the Financial Statement of the CAFR that the audit opinion is based on. 4

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Fund Balances (Note 7) – June 30, 2013 8

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Changes in Net Assets Governmental Activities June 30, 2013 Governmental Activities Governmental net position increased by $2.1 million. Net revenues of $27.2 million were less than the prior year by $5.6 million. The General Governmental Charges for services line item decreased by $1.3 million from the prior year mainly due to a decrease in donations for the library which accounts for a decrease of $1.8 million. This decrease was offset by increases in police extra duty fees, court of chancery fees and sanitation fees totaling $.9 million. Other sources of decreased revenues from the previous fiscal year are attributed to police fines, recreation income and licenses and permits received totaling $.3 million. Expenses of $35.6 million reflect an overall decrease of $2.7 million from the prior year. Post-employment benefits and pension benefit costs decreased by $1.4 million. Other decreases were to library and recreation, and central services. The increases to expense were in general government, public safety, community and economic development. Transfers to the Governmental Funds from the Proprietary Funds increased $2.2 million of which $2.0 million was contributed towards infrastructure improvements at the Garrison Oak Technical Park. These improvements are necessary for the construction of the Calpine 305 megawatt electric generating facility. 11

Changes in Net Assets Business Type Activities June 30, 2013 Business-Type Activities The business-type activities saw a positive change in net position of $8.2 million. Both utilities experienced a decrease in revenues which resulted in a combined net decrease of $4.2 million. The utilities expenses when combined also decreased in total by $3.2 million. The water/wastewater utility had a positive change in net position of $2.0 million. The utility experienced a decrease in operating income of $0.4 million from the previous year. The decrease in operating income was primarily due to a decrease in water, sewer and impact fees, offset by increases in ground water adjustment fees and water tank space rent. The utility experienced a decrease in personnel and operating expenses of $0.3 million. Non-operating expenses netted an increase as a result of a decrease in the fair value of the investments and decreased capital contributions. The electric utility realized a positive change in net position of $6.2 million. The utility experienced a decrease in operating revenues of $2.8 million from the previous year as a result of a reduction in electric rates resulting from reduced power supply cost. Operating expenses decreased as well in total by $3.2 million due to lower power supply cost and a $.5 million decrease in operating expenses. The decreases were offset by an increase in post-retirement benefits expense totaling $.6 million. Non-operating revenues and expenses reflect a negative result of $1.3 million. Interest earned on both operating and reserve funds $ .7 million were offset by the interest and fiscal charges of $1.4 million and decrease in fair value of investments of $.6 million. Transfers to the General Fund increased to $10.0 million from $7.9 million in the preceding year including a $2.0 million contribution towards infrastructure improvements at the Garrison Oak Technical Park. 12

General Fund Budget Highlights – Fiscal Year 2013  The Final General Fund Budget incorporated the following changes to the Original Budget. The Budget Balance carried forward from the prior fiscal year was higher by $1.1 million than was projected. Receipts had a net decrease of approximately $.1 million. The most significant increases were attributed to police extra duty fees, property taxes, Garrison Farm rent and Court of Chancery fees. The most significant reductions of revenue were in intrafund service fees, and civil traffic penalties.  Expenditures were revised to reflect an aggregate increase of $0.3 million. Increases In transfers to the Police and Employee Pension funds accounted for most of the increased budget expense with slight increases in code enforcement, police and streets operations budgets. The increases were offset by decreases in fire, library, recreation, sanitation, customer services, vehicle maintenance and facilities management. The net result of these changes was a $0.6 million increase in the revised budget balance over the Original Budget Balance (on a non-GAAP basis).  Actual revenues and other financing sources exceeded the final budgeted amounts in the General Fund for the current fiscal year. The more significant positive variances were in permits and other licenses, police extra duty fees and court of chancery fees and were offset by fines and police revenue, transfer tax, trash fees, miscellaneous grants and civil traffic penalties netting $0.2 million over budgeted revenues. Expenditures were approximately $0.5 million under budget as a result of several operating departments experiencing personnel savings. The General Fund budget balance carry forward was $0.8 million higher than budgeted as a result of the above variances. 13

Other Post Employment Benefits (OPEB) 14

Pension Plans – Defined Benefit GASB 67 & 68 Pension standards will cause significant changes in the unfunded liabilities and how we report the pension fund activity. See Presentation to City Council on January 7, 2013. GASB 67 effective FYE 2014 GASB 68 effective FYE 2015 GASB will most likely follow with OPEB 15

Material Commitments & Subsequent Events Material Commitments – Note 11 1. Commitments for payments on fire apparatus currently for Ladder 1 - $145,614 and Ladder 2 - $92,901 2. Five year contract with The Energy Authority (TEA) 3. Extended contract with North American Energy Services (NAES) 4. Guarantee on $1.3 million loan held by Downtown Dover Partnership extended to July 2014. Subsequent Events – Note 13 1. Series 2013 Water & Sewer Revenue Bonds - $6,125,000 16

ATTACHMENT #2 LF&A Committee Meeting of 12/09/2013 City of Dover Comprehensive Annual Financial Report Fiscal Year Ended June 30, 2013 Supplemental Information December 9, 2013

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