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LEGISLATIVE, FINANCE AND ADMINISTRATION COMMITTEE The Legislative, Finance, and Administration Committee meeting was held on September 28, 2015, at 6:00 p.m. with Chairman Hare presiding. Members present were Mr. Cole, Mr. Sudler, Ms. Maucher, and Mr. Shevock. Members of Council present were Mr. Anderson (arrived at 6:23 p.m.), Mr. Hosfelt (arrived at 6:10 p.m.), Mr. Hutchison, and Mr. Slavin. AGENDA ADDITIONS/DELETIONS Mr. Sudler moved for approval of the agenda, seconded by Mr. Cole and unanimously carried. Project Carry-Forward Budget Balances/Proposed Budget Amendments Mrs. Donna Mitchell, Controller/Treasurer, advised members that the proposed budget amendment would incorporate into the FY2016 Capital Investment Plan the adjustments to the Beginning Budget Balances for all Capital Project Funds and project balances for uncompleted or multi-year projects. It also included any adjustments related to Council actions to date on changes in project budgets that were not included in the original budget. Members were provided a handout entitled “Late FY15 Accruals” (Attachment #1). Mrs. Mitchell advised members that the auditors brought it to staff’s attention that some invoices that were received last week for FY15 projects, listed in Exhibit A to the Fiscal Year 2015/2016 Budget - First Amendment - Capital Investment Plan Amendments, had not been accrued. She indicated that this changed the results of the audit and staff had to change the financial statements. Mrs. Mitchell explained that the carry forwards that staff had provided would be changed to show the projects listed on the handout and these changes would be reflected in the proposed budget ordinance. Staff recommended approval of the proposed budget amendments for Fiscal Year 2016. Mr. Sudler moved to recommend approval of the proposed budget amendments for Fiscal Year 2016 (Attachment #2), seconded by Mr. Cole and unanimously carried. Status of OPEB (Other Post Employment Benefits) and Pension Funds Mrs. Donna Mitchell, Controller/Treasurer, reviewed a presentation entitled, “City of Dover Actuarial Valuations as of July 1, 2014 for Fiscal Year Ending June 30, 2015.” In reference to Page 2, City Police Pension Plan, Mrs. Mitchell explained that the Funded Ratio of the plan increased from 56.0% in FY 2014 to 59.2% in FY 2015. In regard to Page 3, Civilian Pension Plan, she noted that the amortization period of the Unfunded Accrued Liability was decreased from 21 years to 15 years, resulting in an increase to the amortization payment of $409,000. Mrs. Mitchell advised members that she had asked the actuary about this change and was told that they were matching the life of the assets to the life of the beneficiaries, and this period was reduced to 15 years. She noted that the Funded Ratio of the Civilian Plan had improved from 53.7% in FY 2014 to 56.3% in FY 2015. Referring to Page 5 - Other Post Employment Benefits (OPEB) 10 Year Phase In Funding Plan (2009), Mrs. Mitchell advised members that this fund was started in 2009, as required by the Government Accounting Standards Board (GASB), with a 10-year phase-in. Prior to implementing the phase-in plan, Council had set aside approximately $6M in reserve since they were aware this requirement was coming, which helped with funding the liability. Mrs. Mitchell explained that,

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 2 according to the phase-in plan, the City was funding a minimum of 50% of the Annual Required Contribution (ARC) in 2013; however, the City funded over 100% of the ARC in 2014 and 2015. Mrs. Mitchell advised members that, since the ARC was fully funded, this would allow the City to use a 6.5% interest rate assumption in calculating future liability. If the plan were not fully funded, in accordance with GASB, this interest rate would have been bifurcated, with 4.5% being used on the unfunded portion and 6.5% on the funded portion. This would have driven up the liability higher and increased the annual cost. Mrs. Mitchell noted that GASB 68 required that these liabilities be shown on the City’s balance sheet starting this fiscal year. She explained that the Electric Fund was fully funding its piece of the liability. Although, the General and Wastewater Funds were not fully funding their pieces, this information is looked at in total when interest rates are determined. In response to Mr. Hare, Mrs. Mitchell confirmed that there were 48 police retirees/spouses under the Police Pension Plan who were on the employee health plan and a monthly benefit total of $130,815 was being paid to these individuals. Mr. Hare noted that this was an average of $2,700 per individual and questioned if this was the amount being paid for health care. Responding, Mrs. Mitchell stated that this was the amount being paid for pension benefits. In reference to Page 6 - OPEB, Mrs. Mitchell advised members that OPEB funding improved from a Funded Ratio of 19.4% in FY2014 to 36.6% in FY2015. Mrs. Mitchell reviewed a presentation entitled, “Unfunded Liabilities Graphical Representation by Fund.” She explained that the most significant changes in the unfunded liabilities related to OPEB. Mrs. Mitchell reviewed a presentation entitled, “Actuarial Valuations Impact on FY16 and FY17 Budget - Recommendations of Controller/Treasurer - September 24, 2015.” She stated that, given the results of the studies, too much money was going into OPEB and not enough into pension in the budget. As a result, Mrs. Mitchell recommended a budget adjustment, noting that she would be bringing this to Council later in the year, along with year-end balances for the audit. Mrs. Mitchell reviewed the FY16 Budget - Pension and OPEB Analysis - Page 14, indicating that the top portion reflected overfunding in the OPEB fund. She recommended that these funds be reappropriated to the underfunded Civilian Pension Fund. Mrs. Mitchell recommended that the $327,900 included in the General Fund for OPEB go toward General Fund pension and $20,300 from allocated for OPEB go toward Water/Wastewater pension. She recommended reducing the budgeted pension contribution of $1,750,000 in the Electric Fund to the actuary determined contribution of $627,900, which would free up money in this fund which could be considered in discussions regarding rates. Mrs. Mitchell explained that these revisions would be brought back to Council. In reviewing Page 15 - FY17 Estimated Budget Impact Using FY16 Budgeted Payroll, Mrs. Mitchell advised members that the percent of payroll for the OPEB decreased by 2.2% for the General Fund, by 4.6% for the Water/Wastewater Fund, and by 5.4% for the Electric Fund, resulting in a savings across the board.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 3 Review of Financial Policies Mrs. Donna Mitchell, Controller/Treasurer, explained that, after going through the budget process, she thought it would be prudent to review the City of Dover financial policies and to look at what actually prompted those policies. She explained that one (1) of the reasons that prompted this change was that some of financial policies were based on a percentage of revenue. For example, the 2% tax increase for the General Fund resulted in an automatic 2% increase in the Contingency Reserve Fund. Mrs. Mitchell stated, rather than having some of the reserves tied to a percentage of revenue which would arbitrarily increase as the budget increases, she changed them to flat dollar amounts that she thought were reasonable and benchmarked funds against each other to see how this would come out. Mrs. Mitchell noted that the Analysis of Reserve Balances as of June 30, 2015 reflected the current budget for the reserve funds and the minimum policy requirements. Mrs. Mitchell quoted from Revenue Policy #5 - Page 2, which states that “The City will review its incentive programs every three years and provide City Council with the amount of foregone revenues and any recommended changes.” She indicated that she did not believe this was currently being completed and was unsure if it was desired to have this type of report. She noted that GASB Statement No. 77, Tax Abatement Disclosures would require this information to be included in the City’s Comprehensive Annual Financial Report (CAFR) at the end of each fiscal year, and this would take effect in FY 17. Mrs. Mitchell quoted from the requirements of GASB Statement No. 77, as follows: “A transaction’s substance, not it’s form or title, is a key factor in determining whether the transaction meets the definition of a tax abatement for the purposes of this Statement.” She stated that staff would have to get some determination on what should be included and start gathering that information for that fiscal year and expressed her desire to get the Committee’s thoughts on whether to include this to Council separately or as part of the CAFR. In response to Mr. Hare regarding her recommendation, Mrs. Mitchell stated her feeling that it was not necessary to include this in the financial policies since it had to be gathered and included in the CAFR. In reference to Expenditure Policy #1 - Page 3, which states that “The City will establish performance measurements for all program areas, when feasible. These measures will reflect the demand, workload capability, and projected outcomes for the program to accomplish its objectives,” Mrs. Mitchell indicated that she did not know that there were currently valid performance measures by program and if they were being reported. Mrs. Mitchell stated that including these goals and objectives in the budget was required when the City was participating in the Government Finance Officers Association Excellence Award Program and there were performance measures based on how those goals were met. Due to staffing changes that were made, the lack of a full-time employee to work on the budget, and the overwhelming size of the budget document, staff had stopped doing these things and this was no longer included in the budget. Mrs. Mitchell’s recommendation was to removed this from the Financial Policies, unless Council felt strongly that they would like to see this information, possibly in some other format. In response to Mr. Cole as to whether this information was provided in another format, Mrs. Mitchell stated that some performance measures are reported in the City Manager’s report or in departmental reports, but they do not necessarily tie back to the budget document anymore. She noted that at one

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 4 point there was a push for performance measurement across the organization and some of it fed back into the pay-for-performance system. Mrs. Mitchell stated that this is now minimized in most documents. In regard to the Budget Balance/Reserve Policy - General Fund Policy #3 - Page 5, Mrs. Mitchell explained that, as mentioned previously, the contingency reserve minimum was changed from 2% of the current year operating revenues for the General Fund to at least $700,000. She stated that the current reserve was a little over $700,000, based on 2% of the prior year’s budget. She noted that this figure would have been higher based on the current year’s budget. Budget Balance/Reserve Policy - General Fund Policy #5, relating to the Capital Asset Replacement account for Governmental Fund asset procurements, Mrs. Mitchell advised members that annual depreciation is approximately $2.5M. She stated this is the amount that would optimally be set aside each year for the replacement of current assets. Referring to the Budget Balance/Reserve Policy - Water/Wastewater Fund Policy #3 - Page 5, Mrs. Mitchell explained that the minimum reserve of 2% of the current year operating revenues had been changed to at least $250,000. She noted that the Analysis of Reserve Balances as of June 30, 2015 showed that neither fund had $250,000, so those reserves would need to be brought up to that level, but this would be done through excess revenues and not rate increases, etc. This would be done as the City could afford it and would be built into the forecast. In regard to Budget Balance/Reserve Policy - Water/Wastewater Fund Policy #7 - Page 6, Mrs. Mitchell stated that the Water Impact Fee Reserve had been changed from 20% of the water revenues in the Impact Fee Reserve account to $1.5M and would be replenished over seven (7) succeeding years if used. She explained that this $1.5M was matched against what is done for the Wastewater Impact Fee Reserve. Mrs. Mitchell indicated that staff tries to keep approximately this amount in the fund, which is used when Mrs. Sharon Duca, Public Works Manager/City Engineer, submits portions of projects that involve growth. Mrs. Mitchell noted that an effort is made to maintain funds at a certain level so that emergencies can be covered. She noted that this fund was also not currently funded at the $1.5M level but would go through revenues. In reference to the Budget Balance Reserve Policy - Electric Revenue Fund Policy #3 - Page 7, Mrs. Mitchell recommended that this contingency reserve be changed from 1% of current operating revenues to a flat amount of $750,000. Noting that the General Fund contingency reserve was $700,000, she advised members that there is also an insurance reserve for the Electric Fund at $750,000, plus depreciation future capacity reserves of $10M each, plus the rate stabilization reserve. Mrs. Mitchell felt that since there was other cushion available to hedge the City’s risk in the Electric Fund, a big contingency reserve was not needed. She noted that the Electric Revenue Fund had never been kept at the same level. In regard to Budget Balance/Reserve Policy - Electric Revenue Fund Policy #5 - Page 7, Mrs. Mitchell stated that she had changed the minimum balance from $350,000 to $750,000 to cover insurance deductibles to $750,000. This was a change made a couple of years ago which was never incorporated in the policy.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 5 In reference to Budget Balance/Reserve Policy - Electric Revenue Fund Policy #6 - Page 7, Mrs. Mitchell stated, in light of information included in a presentation, entitled, “The Energy Authority Review of PJM Capacity Performance Auction” which was considered by the Utility Committee during their meeting of September 28, 2015, the City’s penalties have the potential to increase significantly if its electric assets do not run when needed. For this reason, Mrs. Mitchell indicated that she would like to change the minimum balance in the Rate Stabilization Reserve from 3% to 10% and the not to exceed amount from 10% to 20%. If the reserve balance exceeds 20%, a credit would be applied to the power across adjustment. Mrs. Mitchell directed members to the presentation, entitled “The Energy Authority, Review of PJM Capacity Performance Auction,” Page 10 - Capacity Revenue at Risk for Dover’s 145 MW of Generation (DY2018/19). Mrs. Mitchell explained that if the City’s plant is unable to perform for eight (8) hours, penalties would be incurred, and penalties for the inability to perform for 16 hours would be $7.5M to $8M. She explained that during the past year, there was an incident during very cold weather when the City could not bring on the assets and was unable to provide 11 MW, resulting in a penalty of $562,000. Mrs. Mitchell indicated that on this chart, the 11 MW level would be reflected between $4M and $8M, noting that “it’s a different world we life in now.” She advised members know that this reserve would be a hedge against the potential for that penalty. In response to Mr. Slavin, Mrs. Mitchell stated that the reason the City could not provide power was that the plant was not heated and, when the units were turned on, one (1) of the pipes burst due to the very cold weather. In addition, the City of Dover and many others had a problem obtaining gas due to Calpine. Mr. Slavin advised members that Calpine is now first in line for gas and displaced the City of Dover. Mrs. Mitchell stated that the burst pipe was the main reason for the problem, and gas was another issue. She advised members that mitigation measures were being taken, as reflected on Page 11 of the presentation, Pro-Active Mitigation Measures. In response to Mr. Slavin, Mrs. Mitchell confirmed that there was currently a project to increase the capacity to deliver gas. Responding to Ms. Stewart, Mrs. Mitchell stated that Dover is currently an interruptible customer; however, the City was negotiating two (2) gas contracts. Mr. Scott Koenig, City Manager, advised members that the penalty Mrs. Mitchell referred to was a due to a polar vortex, noting that the Garrison Energy Center did not come online until June 1, 2015 for commercial operation. He was unsure if Calpine is a 100% firm gas customer, expressing his belief that Calpine had told staff at one (1) point that they could be cut off. Mr. Koenig stated that they were working on several gas transmission defects north of the City and would continue to do so. He advised members of the need for the City and a number of its customers to put pressure on Eastern Shore Natural Gas regarding gas availability in this area, for their benefit as well as that of private customers and everyone else, because gas is now a restriction on the Peninsula.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 6 In response to Mr. Slavin as to whether Eastern Shore Natural Gas’s project would increase the capacity needed through the west side, Mr. Koenig stated his belief that some looping was being done would increase availability and that transmission upgrades were currently happening. Mrs. Mitchell advised members that the polar vortex occurred two (2) years ago; however, the $562,000 penalty was incurred in February 2015 when the pipe burst and before Calpine came online. She reiterated that proactive measures had been taken and the gas supply was being worked on as well. She noted that $423,000 of the $562,000 penalty was taken out of NAES’s incentive. Responding to Mr. Sudler regarding whether the pipes were wrapped with a heating mechanism, Mrs. Mitchell stated her belief that they could not be wrapped due to size. However, she stated that the building can be heated if the weather calls for it. In this case, the building was not heated because it was not believed that the City would be called on to run, but it was. In response to Mr. Sudler regarding the pipe size, Mr. Harry Maloney, Electric Director, explained that there were various problems in February 2015. The first pipe was an eight (8) inch water line from the outside storage water tank that was a 68-inch line. The valve was shut because there was a leak, and they could not get the valve open. Mr. Maloney indicated that when they got the valve working, the line was frozen. When staff got water in the boiler, they started firing the boiler, and the boiler blew a tube. When they went to put Unit 3 online, which has an outside boiler, some of the lube oil systems froze because there were 20 m.p.h. winds. Mr. Maloney reiterated the need for the unit to run, noting that staff should have anticipated, gotten the boilers warm, and gotten things running, even at minimum load. He noted that it was very cold and windy that weekend and everything was ice cold. Mr. Sudler questioned if future methods and strategies were being put in place to prevent this from occurring again. Responding, Mr. Maloney confirmed that staff was going to at least get the boiler warm. In response to Mr. Hosfelt, Mrs. Mitchell confirmed that NAES Corporation was managing the plant for the City at the time this occurred and continues to manage it. Mrs. Mitchell stated that this decision was made at the Risk Management Committee meeting, and NAES was not a party in that meeting; however, staff was making sure to bring them in. She noted that Mr. Vince Scire, Plant Manager, did speak up and say that he was confident that they could run the plant; however, it was not warm because the decision was made that it was not believed the City would be called upon. It was a joint decision and not that of any one (1) person. Responding to Mr. Hare, Mrs. Mitchell stated that this was a group decision made by Mrs. Mitchell, Mr. Koenig, The Energy Authority (TEA) staff, and Mr. Scire, and the decision is ultimately the City’s. Mr. Hare questioned if NAES should be the ones to make the decision since the City pays them to keep the plant running. Responding, Mrs. Mitchell stated that a change was made to bring NAES on board, make sure they are involved in all these decisions, and ask them to raise a red flag if they think something is amiss or being misjudged.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 7 In response to Mr. Hare as to why the building was not warmed, Mrs. Mitchell stated that they did not think the City would be called upon by PJM. She explained that the unit is not scheduled to run unless it is believed that it will be called upon because of the cost. If the unit is turned on and does not run, the City would be out that money. In this case, the situation worked in the City’s disfavor rather than in its favor. Responding to Ms. Stewart, Mrs. Mitchell stated the unit was called during the polar vortex the year before but was unable to perform. She noted that the whole State was having problems at that time because trucks with fuel could not get in due to ice on the roads. Mr. Hare stated, from NAES’s perspective, the City would be telling them when they could warm up the plant, but if a pipe bursts, NAES would have to pay, noting that NAES paid $423,000 but was not allowed to make the decision. Responding, Mrs. Mitchell stated that this penalty was paid for non-performance as this was part of the contract. Mrs. Hare stated that the City was paying NAES $7M per year to make those decisions and they should be held accountable. In regard to Financial Reporting Policy #6 - Page 9, Mrs. Mitchell stated that this item was revised to delete the Distinguished Budget Presentation Award since the City was no longer participating in that program. Mr. Koenig stated that during both cold spells, including the polar vortex and the February 2015 severe weather, what was learned is that the City cannot wait on passive management of the system and was moving into a phase of more active management of the asset. He noted that the City wants this asset to run and take advantage of economic opportunities, and that an Assistant Generation Manager position was requested in the budget so that the City can have a more active role in the plant and be more in tune with all the decisions being made. Mr. Koenig advised members that issues came up during the cold weather spells related to fuel delivery, etc., that had the City had not experienced in the past, the City was taking a more active approach to management of the system. Mr. Koenig stated that capacity performance had been considered by the Utility Committee; however, the issue was that the maximum penalty exceeds the maximum revenue significantly. He expressed the desire to get into more active management to figure out how these assets that have aged fit into the picture. Mr. Koenig advised members that some did not believe that the City would be called at all once Calpine came online, and that was not the case, since the City was being called to run and must prepare to run if participating in these markets. Mr. Koenig stated that the learning curve coming out of this experience was that the City has to increase its available fuel supply for oil, because it is not guaranteed gas. In reference to the firm 500 dekatherm gas contract mentioned by Mr. Maloney and Mrs. Mitchell, Mr. Koenig stated that this would just get the igniter started so that the burners could be lit on oil and was not to run the units. Once the unit was on, it would be run on a special oil that is being delivered. Mr. Koenig explained that each of these decisions are sequential, and a misstep at the lower level means, the higher up sequences are not attained. He noted that Mr. Maloney had been

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 8 active in older plant management, and Mr. Maloney raised the question very early on of why there was not a minimum level of heat running through the pipes so the City would be prepared to run. Mr. Koenig stated he was unsure what the fuel status was earlier in the year, but that pipe break prevented the unit from running and was the lynch pin at the point of the potential penalty. He stated all these things would play into to determining how to prepare for the winter coming up and how the plant would be managed. Mr. Anderson questioned how much it cost for minimum heating in the plant during the winter. Responding, Mr. Koenig estimated the cost roughly at $2,000 to $10,000 per day. He explained that this would involve the plant and all of its piping, so some systems would be run to get it up to minimum temperature. Noting that Mr. Maloney had indicated that the steel had been at 22 degrees, Mr. Koenig explained the need to get this temperature up above the freezing mark 24/7. In response to Mr. Anderson regarding the performance benchmarks being removed from the financial policies, Mr. Koenig stated that some of these bench marks that had been various parts of the budget were those of a standard municipal city. Some of them were very applicable, others were less applicable. He stated that staff had not come up with additional performance measures to put in the budget. Mr. Koenig stated that the City was embarking on a process to improve efficiencies, and the question was what kind of reporting Council wanted to see. He noted that he did not want to put out 100 page report on all these bench marks if no one would look at it or find the information valuable. Mr. Koenig stated that, on a daily basis, staff is not judged by the 875 trash cans that they pick up, but by the one (1) or two (2) that might have been missed. He indicated that feedback was needed from Council as to what measures they want to see in the budget, or information that they would like to see reported. Mr. Anderson noted that this information did not all have to be in the budget. Concurring, Mr. Koenig stated that it could be in the City Manager’s or department head’s report. If there were things in those reports that Council believed were missing, they would be easy to change and Council could be updated on information that is relevant to them. Noting that the unit had not been heated because it was not believed that the City would be called, Mr. Hare questioned when the building would have been heated. Responding, Mr. Koenig stated that this would depend on the weather, because if the ambient air temperature had been over 40 degrees, it would not have needed to be heated. Mr. Hare reiterated the need for preventive measures. Responding, Mr. Koenig stated that, looking back, staff would not make the same decisions for this year. Measures would be put in place to spend the money to heat the plant if cold weather was expected. Mr. Hare stated that consideration should be given to the fact that, due to the plant’s age, the next time the problem may be different and not an easy fix, and Mr. Koenig concurred. Responding to Mr. Sudler regarding the leak that had occurred in the shed, Mr. Maloney explained that the boiler has two (2) inch tubes that go all the way around. The boiler is 30 feet by 30 feet. The

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 9 water used by the boiler has a ph value of 10, compared to a ph of seven (7) for drinking water, and it is demineralized. He noted that the outside water tank line that feeds the boiler froze. Mr. Sudler questioned if some type of low-cost heating system could be put in the shed similar to those used by hotels. Responding, Mr. Maloney stated that the whole length of the turbine floor in plant is wide open. He noted that it is possible to get a radiant heat gas burner to raise the temperature into the 40's or 50's to keep the ambient air decent. Mr. Maloney stated that other things could be done, like running the fan motors, which would generate heat, or running oil and water circulating pumps. He recommended starting to use electricity and turning on auxiliary equipment. Mr. Maloney advised members that the City bills itself, which he had never heard of before, noting that the City bills the power plant retail electric rates for consumption when it is not generating power, so budgets were being examined. He stated that things would be turned on and cautioned members that the budget would reflect a climb in electric consumption in the plant when the units are offline. He emphasized that this equipment must be run. Mr. Cole moved to recommend approval of the City of Dover Financial Policies (Attachment #3), as recommended by staff, seconded by Mr. Shevock and unanimously carried. Annual Review of Investment Policy Mrs. Donna Mitchell, Controller/Treasurer, advised members that the provisions of the City of Dover Investment Policy require an annual review by the Legislative, Finance and Administration Committee and adoption of any recommended changes by City Council. Prior to this review, the City Controller/Treasurer, along with the Assistant Controller/Treasurer, met with the City's Investment Advisor to review the policy as well. Upon completion of this review staff recommended the changes below, all of which had been updated in the Draft Investment Policy: • Changing maximum maturity to measure from settlement date instead of trade date. • Rationale: At times, issuers may issue debt today but the security may not settle for a few days. Allowing the maximum maturity to be measured from settlement date (rather than trade date) should help Dover in opening up to new issue corporates and Munis at attractive pricing (some new issues have price concessions, where the yield is above market). • Change credit requirements on short-term holdings to A-1 "or" P1 by S&P and Moody's rather than A-1 "and" P1. • Rationale: Some issuers do not pay for both short-term ratings when one will do. This will allow Dover to further diversify the portfolio among high quality issuers. And it keeps the short-term ratings language consistent with long-term rating language (which is written as "or" versus "and" in the policy). Staff recommended approval of the Investment Policy, as amended.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF SEPTEMBER 28, 2015 PAGE 10 Mr. Cole moved to recommend approval of the Investment Policy Statement, as amended (Attachment #4), seconded by Ms. Maucher and unanimously carried. Delaware Land and Water Conservation Trust Fund (DTF) Trail Grant Application - Mallard Pond Trail Mrs. Ann Marie Townshend, Director of Planning and Community Development, advised members that on January 2015, the Parks, Recreation and Community Enhancement Committee and City Council approved the concept plan developed by staff for improvements to Mallard Pond Park. These improvements include a pathway connection from Mallard Pond and Fox Hall West Addition to Marsh Creek and Forrest Avenue, along with the construction of a playground in the park. This pathway is identified in the Dover/Kent County MPO's Bicycle and Pedestrian plans for Dover, both of which were approved by City Council in Spring 2015. The pathway will provide connection from the Mallard Pond neighborhood to the sidewalks along Route 8 that connect with Dover High School. The grant funds would allow for completion of the first phase of this trail, with the construction of a path connecting with Fox Hall West Addition in a future phase. If we are successful in the grant application, we would work with local legislators to secure the matching funds through the Community Transportation Fund. No work will be completed, nor will a contract be awarded for any improvements until such time that matching funds are secured. Staff recommended acceptance of the grant if the award is made to the City of Dover. Mr. Sudler moved to recommend acceptance of the grant, if the award is made to the City of Dover. The motion was seconded by Mr. Cole and unanimously carried. By unanimous consent, the meeting adjourned at 6:59 p.m. William F. Hare Chairman WFH/TM/js S:\AGENDAS-MINUTES-PACKETS-PRESENTATIONS-ATT&EXH\Committee-Minutes\2015\09-28-2015 LF&A.wpd Attachments Attachment #1 - Handout - Late FY 15 Accruals Attachment #2 - Proposed Ordinance #2015-18 - Budget Amendments for Fiscal Year 2016 Attachment #3 - City of Dover Financial Policies Attachment #4 - City of Dover, DE Investment Policy Statement

ATTACHMENT #1 LF&A Committee Meeting of 09/28/2015

ATTACHMENT #2 LF&A Committee Meeting of 09/28/2015 FIRST READING CITY OF DOVER ORDINANCE # 2015-18 2015-2016 BUDGET ORDINANCES - FIRST AMENDMENT 1 BE IT ORDAINED BY THE MAYOR AND COUNCIL OF THE CITY OF DOVER, IN COUNCIL MET: 2 The amount hereinafter named aggregating Five Million Six Hundred Thirty Five Thousand Two Hundred dollars 3 ($5,635,200) or so much thereof as may be necessary are hereby appropriated from current revenues and other 4 funds for the use by several departments of the Municipal Government for the fiscal year beginning July 1, 2015 5 and ending June 30, 2016: 6 GOVERNMENTAL CAPITAL PROJECTS FUND 7 REVENUES AND BUDGET FOR 2015-2016 8 REVENUES 9 2015/16 2015/16 10 BUDGET REVISED 11 BEGINNING BALANCE - PROJECTS $ 154,800 $ 2,732,300 12 REVENUES 13 INCOME FROM SALE OF ASSETS 20,300 20,300 14 INTEREST EARNINGS 5,000 5,000 15 TRANSFER FROM GENERAL FUND 2,625,400 2,625,400 16 SUBTOTAL PROJECT RECEIPTS 2,650,700 2,650,700 17 TOTAL FUNDING SOURCES 2,650,700 2,650,700 18 TOTAL BEGINNING BALANCE AND REVENUES $ 2,805,500 $ 5,383,000 19 EXPENSE SUMMARY 20 2015/16 2015/16 21 EXPENDITURES BUDGET REVISED 22 FIRE $ 145,600 $ 445,800 23 GROUNDS MAINTENANCE 201,100 201,100 24 LIBRARY - - 25 LIFE SAFETY 55,700 55,700 26 CODE ENFORCEMENT - - 27 POLICE 262,100 284,100 28 RECREATION - 66,000 29 STREETS 1,428,500 3,617,800 30 SANITATION 449,000 449,000 31 CITY MANAGER 24,700 24,700 32 FACILITIES MANAGEMENT - - 33 FLEET MAINTENANCE 84,000 84,000 34 DEPARTMENT SUBTOTAL 2,650,700 5,228,200 35 TOTAL EXPENDITURES 2,650,700 5,228,200 36 BUDGET BALANCE 154,800 154,800 37 TOTAL BUDGET BALANCE & EXPENDITURES $ 2,805,500 $ 5,383,000 38 The City Manager is hereby authorized, without further approval of the City Council, to make 39 interdepartmental transfers of up to five percent of the amount hereinafter appropriated to any 40 department with the exception of any transfers prohibited by City Procedure #F306. 41 ADOPTED: 1

FIRST READING 42 2015-2016 BUDGET ORDINANCES - FIRST AMENDMENT (CONTINUED) 43 WATER/WASTEWATER IMPROVEMENT & EXTENSION FUND 44 CASH RECEIPTS/REVENUES AND BUDGET FOR 2015-2016 45 BE IT ORDAINED BY THE MAYOR AND COUNCIL OF THE CITY OF DOVER, IN COUNCIL MET: 46 The amount hereinafter named aggregating Fourteen Million One Hundred Eighty EightThousand Five Hundred 47 dollars ($14,188,500) or so much thereof as may be necessary are hereby appropriated from current revenues 48 and other funds for the use by several departments of the Municipal Government for the fiscal year beginning 49 July 1, 2015 and ending June 30, 2016: 50 CASH RECEIPTS 51 2015/16 2015/16 52 BUDGET REVISED 53 BEGINNING BALANCE - WATER $ 833,500 $ 4,747,500 54 BEGINNING BALANCE - WASTEWATER 1,027,600 4,504,600 55 TOTAL BEGINNING BALANCES 1,861,100 9,252,100 56 REVENUES 57 BOND PROCEEDS - WATER - - 58 BOND PROCEEDS - WASTEWATER - - 59 STATE LOAN FUND - WATER - - 60 TRANS FR OPERATING FUND - WATER 1,800,000 1,800,000 61 TRANS FR OPERATING FUND - WASTEWATER 1,500,000 1,500,000 62 TRANSFER FR WASTEWATER IMPACT FEE 165,000 165,000 63 PROCEEDS FROM SALE OF ASSETS - - 64 INTEREST INCOME 25,000 25,000 65 MISCELLANEOUS RECEIPTS - 20,200 66 TOTAL REVENUES 3,490,000 3,510,200 67 TOTAL BEGINNING BALANCES & REVENUES $ 5,351,100 $ 12,762,300 68 EXPENSE SUMMARY 69 2015/16 2015/16 70 EXPENSES BUDGET REVISED 71 WATER $ 2,028,600 $ 5,442,600 72 WASTEWATER 1,822,100 5,299,100 73 WATER TREATMENT PLANT - 284,400 74 TOTAL EXPENSES 3,850,700 11,026,100 75 BUDGET BALANCE - WATER 617,400 773,400 76 BUDGET BALANCE - WASTEWATER 883,000 962,800 77 CURRENT YEAR BALANCE SUBTOTALS 1,500,400 1,736,200 78 TOTAL BUDGET BALANCES & EXPENSES $ 5,351,100 $ 12,762,300 79 The City Manager is hereby authorized, without further approval of the City Council, to make 80 interdepartmental transfers of up to five percent of the amount hereinafter appropriated to any 81 department with the exception of any transfers prohibited by City Procedure #F306. 82 ADOPTED: 2

FIRST READING 83 2015-2016 BUDGET ORDINANCES - FIRST AMENDMENT (CONTINUED) 84 ELECTRIC UTILITY IMPROVEMENT AND EXTENSION FUND 85 CASH RECEIPTS/REVENUES AND BUDGET FOR 2015-2016 86 BE IT ORDAINED BY THE MAYOR AND COUNCIL OF THE CITY OF DOVER, IN COUNCIL MET: 87 The amount hereinafter named aggregating Twelve Million One Hundred Ten Thousand Eight Hundred 88 dollars ($12,110,800) or so much thereof as may be necessary are hereby appropriated from current 89 revenues and other funds for the use by several departments of the Municipal Government for the 90 fiscal year beginning July 1, 2015 and ending June 30, 2016: 91 REVENUES 92 2015/16 2015/16 93 BUDGET REVISED 94 BEGINNING BALANCE $ 3,623,600 $ 6,684,100 95 REVENUES 96 TRANSFER FROM ELECTRIC 3,500,000 3,500,000 97 GENERAL SERVICE BILLING 1,900,000 1,900,000 98 INTEREST EARNINGS 26,700 26,700 99 TOTAL REVENUES 5,426,700 5,426,700 100 TOTALS $ 9,050,300 $ 12,110,800 101 EXPENSE SUMMARY 102 2015/16 2015/16 103 EXPENSES BUDGET REVISED 104 ELECTRIC GENERATION $ 1,655,000 $ 2,299,800 105 TRANSMISSION AND DISTRIBUTION 2,887,600 3,625,900 106 ELECTRICAL ENGINEERING 1,724,300 3,401,700 107 TOTAL EXPENSES 6,266,900 9,327,400 108 BUDGET BALANCE 2,783,400 2,783,400 109 TOTAL BUDGET BALANCE & EXPENSES $ 9,050,300 $ 12,110,800 110 The City Manager is hereby authorized, without further approval of the City Council, to make 111 interdepartmental transfers of up to five percent of the amount hereinafter appropriated to any 112 department with the exception of any transfers prohibited by City Procedure #F306. 113 ADOPTED: 3

FIRST READING 114 2015-2016 BUDGET ORDINANCES - FIRST AMENDMENT (CONTINUED) 115 COMMUNITY TRANSPORTATION IMPROVEMENT FUND 116 CASH RECEIPTS/REVENUES AND BUDGET FOR 2015-2016 117 BE IT ORDAINED BY THE MAYOR AND COUNCIL OF THE CITY OF DOVER, IN COUNCIL MET: 118 The amount hereinafter named aggregating Six Hundred Eighty Eight Thousand Five Hundred 119 dollars ($688,500) or so much thereof as may be necessary are hereby appropriated from current revenues 120 and other funds for the use by several departments of the Municipal Government for the fiscal year 121 beginning July 1, 2015 and ending June 30, 2016: 122 OPERATING REVENUES 123 2015/16 2015/16 124 BUDGET REVISED 125 PRIOR YEAR BALANCE $ 144,000 $ 512,900 126 GRANTS REVENUE 500,000 500,000 127 INTEREST INCOME 500 500 128 TOTALS $ 644,500 $ 1,013,400 129 OPERATING EXPENSES 130 2015/16 2015/16 131 BUDGET REVISED 132 PROGRAM EXP. GRANT RELATED $ 644,000 $ 1,012,900 133 CURRENT YEAR BALANCE 500 500 134 TOTALS $ 644,500 $ 1,013,400 135 The City Manager is hereby authorized, without further approval of the City Council, to make 136 interdepartmental transfers of up to five percent of the amount hereinafter appropriated to any 137 department with the exception of any transfers prohibited by City Procedure #F306. 138 ADOPTED: 4

Exhibit A City of Dover Fiscal Year 2015/2016 Budget First Amendment Capital Investment Plan Amendments Fiscal Year 2015 Original Revised Prior Carry FY 2016 Revised CIP CIP Fiscal Year(s) Forward Year FY 16 CIP Project # Title Budget Budget Expenses Balance Budget Budget FR1501 Fire - SCBA Equipment $ 300,200 $ 300,200 $ - $ 300,200 $ - $ 300,200 PR1501 Park & Playground Improvement Equipment $ 66,000 $ 66,000 $ - $ 66,000 $ - $ 66,000 N/A Police Department Vehicle $ 169,600 $ 171,100 $ 148,978 $ 22,000 $ 242,200 $ 264,200 ST1304 Garrison Farm Streets & Stormwater $ 2,600,000 $ 4,226,700 $ 2,480,657 $ 1,496,500 $ - $ 1,496,500 ST1501 Salt Storage Barn 50,000 75,000 - 75,000 - 75,000 ST1502 Streets, Alleys & Concrete Program 900,000 624,400 182,988 441,500 1,000,000 1,441,500 ST1503 Misc Emerg. Street/Storm Repairs 75,000 75,000 40,090 35,000 - 35,000 ST1504 Old PW2 Site Improvements 150,000 150,000 106,195 43,900 385,000 428,900 ST1506 Stormwater Ditch Maintenance 15,000 15,000 - 15,000 - 15,000 ST1508 Stormwater Utility Planning 90,000 90,000 7,650 82,400 - 82,400 Street Division $ 3,880,000 $ 5,256,100 $ 2,817,580 $ 2,189,300 $ 1,385,000 $ 3,574,300 Total General Capital Project Fund $ 4,415,800 $ 5,793,400 $ 2,966,558 $ 2,577,500 $ 1,627,200 $ 4,204,700 Total Increase in General Cap Proj Fund $ 2,577,500 CT1405 Lakeview Drainage Study $ - $ 24,400 $ 18,187 $ 6,300 $ - $ 6,300 CT1562 Village of Cannon Mill Repavement 315,000 386,900 25,997 361,000 - 361,000 CT1599 Signage for the Hamlet & Bicentennial Village 2,700 2,700 1,170 1,600 - 1,600 Total Community Transportation Fund $ 317,700 $ 414,000 $ 45,354 $ 368,900 $ - $ 368,900 Total Increase in Comm Transportation Fund $ 368,900 N/A Sterling Dump Truck $ 66,900 $ 66,900 $ - $ 59,900 $ - $ 59,900 WD0804 1.0 MG Storage Tank - Denney's Road - 2,470,700 2,500 2,468,200 - 2,468,200 WD1302 Garrison Farm Storage Tank 400,000 4,221,600 2,100,291 1,297,300 - 1,297,300 WD1506 Shallow Well #7 Abandonment 15,000 15,000 - 15,000 - 15,000 WQ1503 West Dover Connector Project - 336,000 184,561 73,600 - 73,600 Water Division $ 481,900 $ 7,110,200 $ 2,287,352 $ 3,914,000 $ - $ 3,914,000 Total Increase in Water Division $ 3,914,000 N/A Sterling Dump Truck $ 66,900 $ 66,900 $ - $ 59,900 $ - $ 59,900 N/A Sterling Jet Truck 210,400 173,900 - 186,000 - 186,000 WW1206 Brandywine Pump Station Replcmnt - 339,100 237,906 101,200 - 101,200 WW1303 Westover Pump Station 718,000 1,299,600 7,254 1,292,400 - 1,292,400 WW1304 Garrison Farm Wastewater Projects - 3,199,700 2,571,260 628,500 - 628,500 WW1503 Hazzlettville Rd Interceptor 755,000 201,700 - 462,100 - 462,100 WW1504 Lakeview Drive Pump Station Replacement 450,000 408,400 48,817 359,600 - 359,600 WW1509 West Dover Connector Road Utility Relocation - 922,300 10,859 387,300 - 387,300 Wastewater Division $ 2,200,300 $ 6,611,600 $ 2,876,096 $ 3,477,000 $ - $ 3,477,000 Total Increase in Wastewater Division $ 3,477,000 Total Water/Wastewater I & E Fund $ 2,682,200 $ 13,721,800 $ 5,163,448 $ 7,391,000 $ - $ 7,391,000 Total Increase in Water/Wastewater I & E Fund $ 7,391,000 5 OF 2

Exhibit A City of Dover Fiscal Year 2015/2016 Budget First Amendment Capital Investment Plan Amendments Fiscal Year 2015 Original Revised Prior Carry FY 2016 Revised CIP CIP Fiscal Year(s) Forward Year FY 16 CIP Project # Title Budget Budget Expenses Balance Budget Budget EG1212 MR Unit 3 Turbine Inspection $ - $ 151,800 $ 98,392 $ 53,500 $ - $ 53,500 EG1416 VanSant Capacity Increase 750,000 901,900 409,784 492,200 - 492,200 EG1504 McKee Unit 3 Boiler System 295,000 138,000 57,287 80,800 42,000 122,800 EG1506 McKee & VanSant Safety Improvement 52,000 52,000 33,776 18,300 - 18,300 Electric Generation $ 1,097,000 $ 1,243,700 $ 599,239 $ 644,800 $ 42,000 $ 686,800 Total Increase in Electric Generation $ 644,800 N/A Metering Infrastructure $ - $ 150,000 $ - $ 150,000 $ - $ 150,000 N/A Vehicle/Truck - 33,000 - 33,000 387,600 420,600 EE1509 West Dover Connector 250,000 250,000 94,209 155,800 - 155,800 EE1516 Chestnut Grove (new developments) 299,000 255,000 118,999 136,000 - 136,000 EE1522 Garrison Oak Park (new developments) 184,000 184,000 166,523 17,500 - 17,500 EE1525 Leander Lakes Apt Phase I (new developments) 73,000 73,000 3,608 69,400 - 69,400 EE1526 Playtex Addition (new developments) 200,000 354,100 204,136 150,000 - 150,000 EE1544 Nottingham Meadows (new developments) 28,600 28,600 2,011 26,600 - 26,600 Transmission & Distribution $ 1,034,600 $ 1,327,700 $ 589,486 $ 738,300 $ 387,600 $ 1,125,900 Total Increase in Transmission & Distribution $ 738,300 N/A Battery Bank Replacement $ 24,500 $ 24,500 $ 10,875 $ 13,700 $ - $ 13,700 EE1312 General Scott Switchgear 1,100,000 1,137,600 30,421 1,107,200 - 1,107,200 EE1443 GOTP Transmission Line Relocation - 550,000 141,526 408,500 - 408,500 EE1500 69 KV Rebuild 75,000 75,000 12,029 63,000 - 63,000 EE1520 69 kV Cable Replacement North Street 85,000 85,000 - 85,000 50,000 135,000 Engineering Division $ 1,284,500 $ 1,872,100 $ 194,851 $ 1,677,400 $ 50,000 $ 1,727,400 Total Increase in Engineering $ 1,677,400 Total Electric I & E Fund $ 3,416,100 $ 4,443,500 $ 1,383,576 $ 3,060,500 $ 479,600 $ 3,540,100 Total Increase in Electric I & E Fund $ 3,060,500 Total Carryforward balances from FY 2015 $ 13,397,900 6 OF 2

ATTACHMENT #3 LF&A Meeting of 09/28/2015 CITY OF DOVER FINANCIAL POLICIES 09/8/14

CITY OF DOVER, DELAWARE FINANCIAL POLICIES The purpose of these policies is to present a standardized set of principles that the City follows in managing its financial and budgetary affairs. These are general statements of policies, which represent long-standing principles, traditions, and practices that will be used to guide the City in maintaining financial stability. It will be the responsibility of the Finance Department to ensure the financial objectives of these policies are maintained. Revenue Policy 1. The City will strive to maintain a broad and diversified revenue base that will equitably distribute the burden of supporting City services and will protect the City from short-term fluctuations in any one revenue source. 2. The City will actively support economic and industrial development recruitment and retention efforts to provide for a solid revenue base. 3. The City will maintain timely collection systems and implement necessary enforcement strategies to collect revenues from available sources. 4. The City will establish user fees and charges for services, when feasible, at levels related to the cost of providing the services. The City will review the fees and charges every three to five years to determine modifications needed to keep pace with the cost of providing the services. Property Tax Rates are set annually 5. The City will review its incentive programs every three years and provide City Council with the amount of foregone revenues and any recommended changes. I don’t believe this is being completed now. Do we want to do so? The GASB has issued GASB Statement No. 77 Tax Abatement Disclosures that will require to have this information reported in the Annual Financial Report each year. 6. The City will establish, when feasible, self-supporting enterprise funds and intergovernmental service funds in which a relationship between revenues and expenditures clearly exists. 7. The City will project current revenues on a conservative basis so the actual revenues will consistently meet or exceed budgeted revenues. Revenues greater or less than the original budget will flow through to the audited Ending Budget Balance. 8. The City will maintain a budgetary control system and will prepare reports, which compare actual revenues to budgeted amounts. 9. The City will limit the designation of General Fund revenues for specified purposes to maximize flexibility in budgeting and revenue utilization. 10. The City will review annually and revise, where necessary, its cost allocation formulas, i.e. internal service departments. 2

11. Upon satisfying all rate covenants the City will provide operating transfers to the General Fund. From the Water/Wastewater Utility no greater than $1,000,000 and from the Electric Utility no greater than $10,000,000. Expenditure Policy 1. Basic and essential services provided by the City will receive first priority for funding, i.e. Public Safety & Health, Utilities, Streets, & Sanitation. The City will establish performance measurements for all program areas, when feasible. These measures will reflect the demand, workload capability, and projected outcomes for the program to accomplish its objectives. Do we have valid performance measurements by program and are they being reported? 2. A report of the expenses of the Public Safety categories that have been identified will be presented to City Council two (2) times; once upon delivery of the proposed budget in May and the other upon the adoption of the budget in July. The report will map the revenues that have been identified to support the expenses, how much of a gap there is, and what the trend is for closing the gap over a 20 year period. The revenues will be the direct revenues of those programs and the Property Tax Revenue, excluding BID taxes. 3. The City will adopt a balanced budget, by fund, for all funds maintained by the City, in which total anticipated revenues must equal or exceed the budgeted expenditures for each fund. The Beginning Budget Balance will not be considered a revenue source. 4. The City will maintain a budgetary control system to ensure adherence to the original adopted budget and will prepare reports, which compare actual expenditures to budgeted amounts. Expenditures greater or less than the original adopted budget will flow through the audited Ending Budget Balance. 5. The City will restrict the use of appropriations as follows: • Funds appropriated for personnel expenses shall be restricted to use as personnel expenses; Any personnel savings at the end of each fiscal year will be re-appropriated in the next fiscal year to be transferred to the City’s unfunded retirement liabilities; • Funds appropriated as capital expenses shall be restricted to use as capital expenses; • Funds appropriated as operating expenses shall be restricted to use as operating expenses; • All requests for additional personnel shall be accompanied with a five-year estimate on the costs of such position(s), including salaries and other employment costs (OEC’s); 6. The City will refrain from budgeting revenues derived from infrequent and unanticipated transactions for ongoing expenses. These revenues will be set aside for asset replacement or as otherwise directed by Mayor and Council. 7. The City will provide access to medical, dental, vision, life, AD & D, and short-term disability insurance for its employees. The cost for these benefits will be a shared responsibility between the City and its employees as outlined in the City Personnel Handbook or collective bargaining agreements 3

8. The City will provide access to medical and dental insurance for its retirees and their families. The cost for these benefits will be a shared responsibility between the City and its retirees as outlined in the City Personnel Handbook or collective bargaining agreements. 9. The City will provide access to appropriate retirement plans for its employees. The City will make contributions for eligible employees at the actuarial determined percentage defined for each of the respective retirement plans. 10. The City will establish an Other Post-Employment Benefit Fund (OPEB) and provide available funding for early implementation of a new accounting standard promulgated by the Government Accounting Standards Board. The City will make contributions for eligible employees and retirees at the actuarial determined rates or percentages to fund future retiree medical benefits. Debt Policy 1. The City will maintain a debt management policy and full disclosure on financial reports. 2. The City will maintain communications with bond rating agencies and continue to strive for improvements in the City’s bond rating. 3. The City will adhere to its debt covenants. 4. The City will review its debt capacity every three (3) years. 5. The City will pay for all capital projects and capital improvements on a pay-as-you-go basis using current revenues whenever if possible. If a project or improvement cannot be financed with current revenues, long-term debt or use of reserves will be recommended. 6. The City will refrain from issuing long-term debt for a period in excess of the expected useful life of the capital project. 7. The City will use special assessment revenue or other self-supporting bonds instead of general obligation bonds, when practical. 8. The City will seek refinancing of outstanding debt if it is determined that the City will benefit by reduced interest expense over the remaining life of the bonds. Budget Balance/Reserve Policy – General Fund 1. The City will strive to maintain a minimum Budget Balance, of at least 8% and no greater than 12% of the current year operating revenues for the General Fund, excluding the carry forward balance. The purpose of the budget balance is to meet temporary fluctuations in cash flows and to provide a cushion for loss of revenues until operating changes can be implemented. If the final Budget Balance exceeds the amount as approved in the budget ordinance, such funds shall be used to provide for unfunded retirement liabilities or as otherwise designated by City Council. The City may use monies in the Budget Balance only in times of fiscal and economic hardship. 4

2. Once achieved, at no time should the City’s budget balances fall below their specified percentages. If a shortfall occurs in the budget balance and immediately restoring the balances to the specified percentage would cause an extreme burden on the taxpayers, the budget balance may, with the Mayor’s and City Council’s approval, be restored to the specified percentage within one (1) year, but in any case, no longer than three (3) years. 3. The City will maintain a minimum reserve, in a contingency account, of at least $700,000 2% of the current year operating revenues for the General Fund. The City may only use monies in the contingency accounts to cover emergencies of a non-recurring nature that are over and above the normal course of operations. Examples are uninsured losses, storms or hurricane damages. The Contingency Reserve will not be used to balance the operating budget. 4. The total of the General Fund budget and contingency balances shall not exceed 17% (~ 2 months) of Budgeted Operating Revenues. 5. The City will create a Capital Asset Replacement account for Governmental Fund asset procurements. Optimally, the amount set aside for future asset replacements should equal the annual depreciation of the current assets. (Annual Depreciation is approximately $2.5 million per year) The City will appropriate excess (amounts greater than budgeted) revenues to fund this account, or if the balance is less than the $500,000 minimum, $200,000 per annum until such time the minimum balance is replenished. 6. The City will create a General Capital Project Fund to account for all General Government asset procurements and projects. The City will provide operating fund transfers and/or debt proceeds for each fiscal year’s Capital Investment Plan. All vehicle and equipment purchases under $25,000 will be budgeted on a pay as you go basis. Budget Balance/Reserve Policy – Water/Wastewater Fund 1. The City will strive to maintain a minimum Budget Balance, of at least 8% and no greater than 17% (two months) of the current year operating revenues for each of the Water & Wastewater Utility Funds, excluding the carry forward balance. The purpose of the budget balance is to meet temporary fluctuations in cash flows and to provide a cushion for loss of revenues until operating changes can be implemented. If the final Budget Balance exceeds the amount as approved in the budget ordinance, such funds shall be used to provide for unfunded retirement liabilities or as otherwise designated by City Council. The City may use monies in the Budget Balance only in times of fiscal and economic hardship. 2. Once achieved, at no time should the City’s budget balances fall below their specified percentages. If a shortfall occurs in the budget balance and immediately restoring the balances to the specified percentage would cause an extreme burden on the ratepayers, the budget balance may, with the Mayor’s and City Council’s approval, be restored to the specified percentage within one (1) year, but in any case, no longer than three (3) years. 3. The City will maintain a minimum reserve, in a contingency account, of at least $250,000 2% of the current year operating revenues for each the Water & Wastewater Fund. The City may only use monies in the contingency accounts to cover emergencies of a non-recurring nature that are over and above the normal course of operations. Examples are uninsured losses, storms or hurricane damages. The Contingency Reserve will not be used to balance the operating budget. 5

4. The total of the combined Water & Wastewater Fund budget and contingency balances shall not exceed 25% (3 months) of Budgeted Operating Revenues. 5. The City will maintain a Capital Asset Replacement account to cover replacement or procurement of assets of the utility. Optimally, the amount set aside for future asset replacements should equal the annual depreciation of the current assets. The City will maintain a minimum balance of $500,000 for each utility for Capital Asset Replacements. The City will appropriate excess revenues to fund this account, or if the balance is less than the minimum $100,000 per annum for each utility until such time the minimum balance is achieved. 6. The City established by ordinance on December 17, 1996 the Wastewater Impact Fee Reserve to provide for future expansion of the City’s wastewater system due to increased demand. The ordinance further provides for debt service payments attributed to wastewater expansion projects to be funded by the current year’s collection of Impact Fees and the remainder to be deposited into the reserve account. The City shall maintain a minimum of 20% of wastewater revenues in the Impact Fee Reserve account. Amounts used to finance projects shall be replenished by the operating revenues of the Wastewater Fund over the succeeding seven years of any project completion. 7. The City established by ordinance on February 1, 2008 the Water Impact Fee Reserve to provide for future expansion of the City’s water system due to increased demand. The ordinance further provides for debt service payments attributed to water system expansion projects to be funded by the current year’s collection of Impact Fees and the remainder to be deposited into the reserve account. The City shall maintain a minimum of $1.5 million 20% of water revenues in the Impact Fee Reserve account. Amounts used to finance projects shall be replenished by the operating revenues of the Water Fund over the succeeding seven (7) years of any project completion. 8. The Water & Wastewater Improvement & Extension Fund budget balance shall be no less than $200,000 of the current fiscal year’s appropriation for water and wastewater projects to allow for project variances and change orders; a 10% contingency shall be included in project budgets greater than $250,000 if the Department Head determines it to be appropriate. All vehicle and equipment purchases under $25,000 will be budgeted on a pay as you go basis. The City Manager shall make the necessary budget amendments in accordance with the City of Dover Purchasing & Budget Amendment Policies. Budget Balance/Reserve Policy – Electric Revenue Fund 1. The City will strive to maintain a minimum Budget Balance, of at least 8% and no greater than 12% (45 days) of the current year operating revenues for the Electric Revenue Fund, excluding the carry forward balance and power cost adjustments. The purpose of the budget balance is to meet temporary fluctuations in cash flows and to provide a cushion for loss of revenues until operating changes can be implemented. If the final Budget Balance exceeds the amount as approved in the budget ordinance, such funds shall be used to provide for unfunded retirement liabilities or as otherwise designated by City Council. The City may use monies in the Budget Balance only in times of fiscal and economic hardship. 6

2. Once achieved, at no time should the City’s budget balances fall below their specified percentages. If a shortfall occurs in the budget balance and immediately restoring the balances to the specified percentage would cause an extreme burden on the ratepayers taxpayers, the budget balance may, with the Mayor’s and City Council’s approval, be restored to the specified percentage within one year, but in any case, no longer than three years. 3. The City will maintain a minimum reserve, in a contingency account, of at least $750,000 1% of the current year operating revenues for the Electric Revenue Fund. The City may only use monies in the contingency accounts to cover emergencies of a non-recurring nature that are over and above the normal course of operations. Examples are uninsured losses, storms or hurricane damages. The Contingency Reserve will not be used to balance the operating budget. 4. The total of the combined Electric Revenue Fund budget and contingency balances shall not exceed 25% (3 months) of Budgeted Operating Revenues. 5. The City has established by bond covenant an account to cover insurance deductibles on the electric transmission and distribution system or the generating plants. The City shall maintain a minimum balance of $350,000 $750,000 to cover various deductibles. 6. Recognizing price fluctuations in the wholesale power markets the City has established a rate stabilization reserve. The purpose of using such a reserve is to level off the fluctuations in the wholesale power supply market and in turn provide stable rates to our customers. In those instances where the actual cost of power supply and generation are less/more than the budgeted cost of power supply and generation, the City will transfer the difference to/from the Rate Stabilization Reserve. The balance shall be maintained at a minimum of 3% 10% not to exceed 20% 10% of the purchase power cost in any given year. If the reserve balance exceeds the 10% 20% maximum, a credit will be applied to the power cost adjustment. 7. The Electric Improvement & Extension Fund budget balance shall be no less than $200,000 of the current fiscal year’s appropriation for electric system projects to allow for project variances and change orders; a 10% contingency shall be included in project budgets greater than $250,000 if the Department Head determines it to be appropriate. All vehicle and equipment purchases under $25,000 will be budgeted on a pay as you go basis. The City Manager shall make the necessary budget amendments in accordance with the City of Dover Purchasing & Budget Amendment Policies. 8. The City has established an account to provide for capital financing of Future Capacity or system expansion. The City shall maintain a balance equivalent to the value of 10% growth in capacity at any given time, or no less than $10,000,000. Amounts used to finance projects shall be replenished by the operating revenues of the Electric Revenue Fund over the succeeding seven years of any project completion. 9. The City has established an account to provide for replacement or procurement of utility system assets, otherwise known as Depreciation Reserve. Optimally, the amount set aside for future asset replacements should equal the annual depreciation of the current assets. The City will maintain a minimum balance of $10,000,000. The primary purpose of this account is to provide partial or all financing of major capital projects and minimize debt service payments. The account is also intended to cover unforeseen capital replacements due to equipment breakdowns, storms or hurricane damages. Amounts used to finance projects shall be replenished by the 7

operating revenues of the Electric Revenue Fund over the succeeding seven (7) years of any project completion 10. The total of the combined Electric Revenue and Electric Improvement & Extension Fund budget and reserve balances shall be benchmarked at 50% Budgeted Operating Revenues. Operating Fund Budget Balance and Reserves shall be adjusted to appropriate levels through adjustments in the operating budget. Improvement & Extension Fund Budget Balance and Reserves shall be adjusted in accordance with the Capital Improvement Plan. Investment and Cash Management Policy 1. The City will deposit all receipts on a timely basis in interest bearing accounts. 2. The City will strive to maximize the return on its investment portfolio without jeopardizing principal amounts. 3. The City will limit its investments to the types of securities provided for by Delaware statutes. 4. The City will diversify its investments by maturity date to protect against market fluctuations. 5. The City will purchase securities from qualified institutions based on competitive bids in an effort to obtain the highest available rates. 6. The City will maintain an Investment Policy based on prudent investment practices and will monitor all investment managers’ compliance with policy objectives. Capital Improvement Policy 1. The City will prepare and update, as needed a five-year Capital Improvements Program (CIP) which will provide for the orderly maintenance, replacement, and expansion of capital assets. 2. The CIP will identify long-range capital projects and capital improvements of all types, which will be coordinated with the annual operating budget to maintain full utilization of available revenue sources. 3. When preparing the CIP, the City will seek to identify all viable capital projects and capital improvements required during the subsequent five-year period. These projects and improvements will be prioritized by year and by funding source. 4. Every attempt will be made to match projects and improvements with available funding sources. Future operating costs and savings associated with a project or an improvement will also be given consideration in the establishment of priorities. 5. When appropriate, the City will seek Federal, State, and other funding to assist in financing capital projects and capital improvements. 6. The City will incorporate the reasonable findings and recommendations of other cities’ Boards, Commissions, Committees, and Citizen Task Forces, as they relate to capital projects and improvements. 8

7. The City will seek input from the public by holding public hearings in relation to the establishment of projects and project priorities. Financial Reporting Policy 1. The City’s accounting system will maintain records in accordance with accounting standards and principles outlined by the Governmental Accounting Standards Board (GASB), Financial Accounting Standards Board (FASB), and the State of Delaware. 2. The City will employ an independent accounting firm to perform an annual audit of the City’s finances and make the annual audit available to all required and interested parties. 3. The City will produce monthly and quarterly financial statements reporting the current periods’ activity for all funds maintained by the City. 4. The City will prepare an annual budget document that provides a basic understanding of the City’s planned financial operations for the coming fiscal year. Copies of the proposed and final budget will be made available to all interested parties and opportunities will be provided for citizen input prior to final decisions on the budget. 5. The City will place continued emphasis on review and maintenance of an accounting system which provides strong internal budgetary and accounting controls designed to provide reasonable assurance, but not absolute, assurance regarding: (a) the safeguarding of assets against loss from unauthorized use or disposition and, (b) the reliability of financial records for preparing financial statements and reports, and the maintaining accountability for assets. 6. The City will seek annual renewal of the Government Finance Officers Association’s (GFOA) Certificate of Achievement for Excellence in Financial Reporting and the Distinguished Budget Presentation Award. Adoption: Approval by City Council: January 28, 2002 Most recent amendments: 1. Amended by City Council: June 11, 2014 2. Amended by City Council on September 8, 2014 9

ATTACHMENT #4 LF&A Meeting of 09/28/2015