Attachment

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE AGENDA AUGUST 27, 2012 - 6:00 P.M. CITY HALL COUNCIL CHAMBERS 15 LOOCKERMAN PLAZA DOVER , DELAWARE Public comments are welcomed on any item and will be permitted at appropriate times. When possible, please notify the City Clerk (736-7008 or e-mail at CityClerk@dover.de.us) should you wish to be recognized. AGENDA ADDITIONS/DELETIONS 1. Auditor’s Responsibility for Communicating with Audit Committee - Fiscal Year 2012 Audit Program 2. Civilian Pension Board Recommendation - Adjustment to the Minimum Payment for Pension 3. Salary and Benefits Compensation Comparison Committee Report 4. Adjournment by 7:00 P.M. /tm S:\AGENDAS-MINUTES-PACKETS\Committee-Agendas\2012\08-27-2012 LF&A.wpd THE AGENDA ITEMS AS LISTED MAY NOT BE CONSIDERED IN SEQUENCE. THIS AGENDA IS SUBJECT TO CHANGE TO INCLUDE THE ADDITION OR THE DELETION OF ITEMS, INCLUDING EXECUTIVE SESSIONS.

Auditor’s Responsibility for Communicating with Audit Committee Presented by: Peggy Teal, CPA Assistant Finance Director

What we will cover • Three primary purposes • Matters to be communicated o Auditor’s responsibility o Planned scope and timing of audit o Significant findings from the audit 2

Three Primary Purposes • To clearly communicate an overview of the audit scope, the timing of the audit, and the auditor’s responsibilities. • To provide timely observations arising from the audit that are relevant to oversight of the financial reporting process. • To obtain relevant audit-related information from those charged with governance. 3

Auditor’s Responsibility • The auditor’s responsibilities under generally accepted auditing standards. • This will be detailed in the auditor’s engagement letter, a copy of which will be provided to each audit committee member. 4

Planned Scope & Timing of Audit • An overview of the planned scope and timing of the audit that is not so detailed as to compromise audit effectiveness. • This will be summarized in a memo to the committee. 5

Significant Findings from the Audit • The auditor’s views about findings or issues that the auditor considers to be significant and relevant to those charged with governance regarding their oversight of the financial reporting process. • These will be communicated near or at the end of the audit. 6

Audit Calendar 7

An Excerpt from the Minutes of the Civilian Pension Board Meeting of August 15, 2012: DISCUSSION - ADJUSTMENT TO THE MINIMUM PAYMENT FOR PENSION On behalf of the elected members of the Pension Board, Mr. Blakeman reviewed information relating to the discussion regarding an adjustment to the minimum payment for pension including three (3) proposals, along with historical information. Considering the current financial condition of the City, Mr. Blakeman suggested that members consider approving Proposal #2, which would increase the minimum pension payment to $400 per month. Responding to Mrs. Mitchell regarding spouse coverage (periodic death benefits), Mr. Blakeman stated that the intent was that the minimum monthly payment would apply regardless of the type of benefit received (retiree or spouse). Mr. Koenig noted that the material provided did not reflect a distinction between those who retired at age 50 with 20 years of service, those with 25 years of service, or those at age 65 with 10 years of service. Responding, Mrs. Mitchell stated that these distinctions could be provided and that she could also look into the date provided for periodic death benefits to determine whether this was the date of the employee’s retirement or when the spouse benefit began. In response to Mr. Koenig’s concerns, Mrs. Mitchell explained that the actuary would consider the life expectancy table and age to determine the actuarial costs involved. She also confirmed that the actuary would determine not only the true budgetary costs each year, but also how this change would affect the actuarial liability. Mr. Bonar suggested that staff forward the information, including the three (3) proposals, to the actuary for a report by the next quarterly Board meeting, which would provide staff enough time to include it in the City’s budget. Mrs. Mitchell felt that Proposals #2 and #3, when broken down by fund, would not have such a financial impact on the budget that action should be delayed. Mrs. Hettinger questioned why an actuarial review would be required, noting that a fee would be incurred for conducting such a review and considering that there would only be a minor impact on the budget. Mrs. Mitchell suggested that just one (1) of the options be chosen and sent to the actuary. Mrs. Hettinger stated that she preferred Proposal #1. Mr. Koenig explained his reluctance to support the recommendation, noting that due to the City’s current financial situation, he had requested active employees to contribute to their healthcare premiums. Mr. Lynn moved to recommend adoption of Option #1 (as outlined in the information provided by Mr. Blakeman in reference to the Discussion - Adjustments to the Minimum Payment for Pension) (Attachment #1), increasing the minimum payment for pension to $500 -1-

per month, at the next scheduled City Council meeting, and to order an actuarial study based on this amount for Council’s consideration, seconded by Mr. Blakeman. In response to Mr. Koenig, although Mrs. Hettinger felt that the Board’s recommendation should be forwarded to the Legislative, Finance, and Administration Committee for their review and recommendation to City Council, Mr. Bonar and Mr. Blakeman indicated that the Board’s recommendation would be forwarded directly to City Council. Responding to Mr. Koenig, Mr. Lynn stated that if the actuarial study were not completed by the time the Board’s recommendation was presented to City Council, which would occur during their Regular Meeting of August 27, 2012, City Council could table action until the actuarial study was completed. The motion to adopt Option #1 (as outlined in the information provided by Mr. Les Blakeman in reference to the Discussion - Adjustments to the Minimum Payment for Pension), increasing the minimum payment for pension to $500 per month, at the next scheduled City Council meeting, and to order an actuarial study based on $500 per month, was carried, with Mr. Koenig, Mrs. Mitchell, and Mr. Bonar voting no. -2-

ATTACHMENT #1 Civilian Pension Board Meeting of August 15, 2012 NOTICE The following information relates to Agenda Item #6, Discussion - Adjustment to the Minimum Payment for Pension, and was provided to the Clerk’s Office by Mr. Les Blakeman on August 7, 2012. - City Clerk’s Office

Salary and Benefits Compensation Comparison Committee Summary report June 2012 In 2011 Dover City Council directed the Legislative Finance and Administration Committee to establish a committee consisting of citizens to compare City of Dover municipal employee salary and benefit packages to the salary and employee benefits provided by other state and local governments. No direct guidance was provided to the committee. Substantially all of the materials and information used by the committee in the course of its deliberations was provided to the committee by the Office of the City Clerk. The committee determined to study state, county, and select municipalities situated in Delaware. The committee quickly faced a challenge when making direct comparisons of job classifications between municipalities. The scope of responsibility and duties assigned to a position classification were not identical from municipality to municipality. This makes comparisons of positions with the same job classification from town to town more difficult. The term “committee” used in this report refers only to the “Salary and Benefits Compensation Comparison Committee.” Section I. International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers/Communication Workers of America, Local 88315 There are approximately 140 positions within the City of Dover represented by the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers/Communication Workers of America, Local 88315 (hereinafter the “IUE/CWA”). An illustration of the types of job classifications within this section of the comparison include: Customer Service Clerks, Library Clerks, Office Assistants, Police Clerks, Account Clerks, Library Assistants and Central Maintenance Clerks. An observation made by the committee was that many position titles in different departments have a similar scope and responsibilities. The pay for IUE/CWA positions was determined to be consistent with requirements of the Collective Bargaining Agreement (CBA) 1. Salary ranges within the IUE/CWA appear to be consistent with similarly classified employees in the other municipalities reviewed by the committee. 2 Within the City of Dover, it was determined that approximately half of IUE/CWA employees were paid at the top of the range for their respective pay grades. If accurate, the high number of workers at the top of their applicable pay ranges could limit career mobility, advancement, and promotional opportunities within the City. The high percentage of employees already at or nearing the highest pay grade also may create pressure to increase salary rates or create new classification grades to provide opportunity for additional advancement within the City. 1 Exhibit A. Collective Bargaining Agreement between the IUE-CWA-AFL-CIO and its affiliate Local 88315- Dover Organization of Employees and the City of Dover (2010-12) 2 Municipalities of Dover, Harrington, Lewes, Middletown, Milford, New Castle, Newark, Seaford, Smyrna, Wilmington; State of Delaware; Counties of Kent, New Castle, and Sussex 1

Section II. Non-Bargaining Unit Employees The term “non-bargaining unit employee” refers to those Dover city positions that are not represented by a union. Included within this classification are office directors, managers, and supervisors. Employees represented by Dover’s unions were not reviewed by this section of the committee. The CBAs do not cover non-bargaining unit employees. Members of the committee interviewed Kim Hawkins, the City of Dover Human Resources Director, for this review. It was determined that the City has not experienced substantial job turnover in years. 3 When vacancies have occurred, there has been no shortage of candidates making application for the vacancy. The City of Dover “Pay for Performance” policy requires that non-bargaining unit employees be granted salary increases at the same rate as those salary increases given to the Dover union employees from the collective bargaining process 4 5. As a result, employees in the non-bargaining unit have continued to experience pay increases during the recent recession whereas salaries in the private sector have typically remained stagnant during the recession. 6 Of the eighty five classifications reviewed, it is the assessment of the committee that eighty of the eighty five are within the ranges for the assigned grade levels. Four positions were observed to have compensation above the maximum for the grade level 7. Information and data provided to the committee by the City Clerk from ten Delaware municipalities was reviewed for position matches, and salaries were compared against Dover non-bargaining unit positions 8. Job titles were used for comparison matches; 119 title matches were found. The overall observation of the committee is that Dover city non-bargaining unit employees are compensated within the range of the pay grade classifications compared against similar positions in other municipalities. This observation was clearer when comparing senior grade positions, but not as prevalent for positions in lower grade tiers. A reason suspected to explain this trend is that employees remaining with the City for long terms accumulate experience and tends to remain with the City rather than leave for positions with the State or the private sector. No evidence was provided indicating that the City was facing of shortage of applications for vacant positions. 3 Exhibit B. City Clerk: City of Dover: Turnover, 2010-11. 4 Exhibit C. City of Dover Pay for Performance policy 5 In its internal deliberation, the committee observed that the Pay for Performance policy which links non- benefit unit employee salary increases to the rates of union salaries would appear to be a direct conflict of interest for any city management official responsible for negotiating a collective bargaining agreement with Dover’s labor unions standing to benefit from agreeing to an increase. It was also observed that Dover’s non-bargaining unit employees also benefit from a pay for performance program allowing management to conflate one-time annual bonuses (as reward for current performance) with permanent pay increases. That, and the pay parity clause with the three Dover city unions resulted in pay for non- bargaining unit employees to be highly competitive. City personnel policies also allow an “obligation for parity” for non-bargaining unit employees regarding benefits granted to Dover’s unions. 6 FOP Lodge # 15 and the City of Dover, BIA 11-07-820, see p. 17 7 Positions 109, 118, 122, and 130 8 Municipalities of Dover, Harrington, Lewes, Middletown, Milford, New Castle, Newark, Seaford, Smyrna, Wilmington; State of Delaware; Counties of Kent, New Castle, and Sussex 2

Section III. International Brotherhood of Electrical Workers, Local 1238 The committee reviewed thirty five positions represented by the International Brotherhood of Electric Workers, Local 1238. 9 Assessments with comparable data were made where possible with information provided by the Clerks of Dover, Middletown, Milford, Newark and Seaford. It appears that of the nine municipalities in the state that have an electric function, Dover’s would be among the most complex given its size, number of substations and its power generating capacity. This made comparisons for certain positions inherently difficult. The committee met with Dover Electric Director Ron Lunt to obtain an overview of the duties and responsibility assigned to City electric workers. 10 Inquiries were also made of Newark Electric Director Rick Vitelli and the Delaware Electric Cooperative (DECO) 11. The scope of responsibilities assigned to similarly titled positions vary from municipality to municipality. The smaller the municipality the more responsibility an employee may have, but the expertise required of a smaller municipality may not necessarily correspond to the expertise needed to service the more complicated Dover electrical department. Former Dover Electric Director Ron Lunt explained that he did not believe the Dover system to be comparable to other municipalities in the State. Retaining well trained employees is crucial to maintaining a well serviced system. Due to the specialized knowledge required to service Dover’s system as compared to other municipalities, lateral movement from town to town does not occur often for employees moving to Dover, or for employees leaving Dover. The overall assessment for electrical worker compensation was that salary/wage compensation reflected neither a pattern of significant over-compensation nor under-compensation. For example, Groundworker pay was below Newark and DECO, but consistent with Seaford and Milford. Lineman seemed to receive pay that fell within the range of the other municipalities. The engineering and systems related positions had no direct comparisons in the other municipalities, but did have similar positions at DECO. As compared to DECO, the pay for those positions was typically slightly lower than at DECO. In general, the salary/wage comparison made with the DECO showed hourly rates paid to DECO employees were typically higher than those paid to City employees in similar positions. 12 However, the value of the benefit packages offered to DECO employees were not available to determine whether there was an overall disparity between the total private and public compensation packages. 9 Exhibit D. Collective Bargaining Agreement between the International Brotherhood of Electric Workers Local 1238 and the City of Dover, Delaware, dated July 1, 2010 - June 30, 2013. 10 Exhibit E. City of Dover position descriptions for T&D Engineering Coordinator, T&D Engineering Coordinator III, Electric Meter Tech I, Electric Meter Tech II, Lineworker Crew Leader, Lineworker 1st Class, Linework 2nd Class, Lineworker 3rd Class, Electrician. 11 Exhibit F. City of Newark position descriptions for Electric Meter Technician, Electrician, Senior Lineman, Lineman 1st Class, Lineman 2nd Class, Junior Lineman, Electric Groundhand. 12 Exhibit G. City Clerk, Dover IBEW Employee Chart 3

Section IV. Fraternal Order of Police, Lodge #15 As per the information provided from the binders, nine municipalities were reviewed from the FOP and compared to the Dover’s Police Department positions 13 14. The findings were that out of the approximate eight police positions from Police Chief to Patrolman, it was revealed that Dover Police Department pay exceeded the Wilmington Police Department in four positions, which are as follows: Position Title: Pay Range: Position Title: Pay Range: Dover Police Captain - $97,760.00 Wilmington Police Captain - $96,829.92 Dover Police Master Corporal - $75,150.00 Wilmington Police Master Corporal - $73,679.30 Dover Patrolman First Class - $53,830.40 Wilmington Patrolman First Class - $51,403.77 Dover Patrolman - $45,094.40 Wilmington Patrolman - $44,573.83 Newark Patrolman $46,946.00 *The salary figures above are taken from the Salary and Benefit Compensation Committee’s binder. As the City of Wilmington’s population is 70,851 and is 1,243 short from doubling Dover’s population which is 36,047 their Police Department is three times larger than Dover Police Department. The Wilmington Police Department force has approximately 334 police officers (4.56 officers per 1000 people) compared to Dover’s Police Department’s 92 police officers (2.43 officers per 1000 people). The population of the City of Newark is 31,454. Newark employs approximately 64 police officers (2.36 officers per 1000 people). Even though the City of Newark has a smaller population and police force than Dover and Wilmington, their patrolman’s starting salary exceeded both Dover and Wilmington. The traffic and criminal arrests were reviewed and compared to Dover Police Department and the results are as follows: *Municipality Total Traffic and Criminal Arrests for the year 2011 Wilmington, PD 39,719 Dover, PD 24,153 Newark, PD 15,532 Middletown, PD 6,443 *This above information is from the four Police Departments. The other Police Departments were too small to compare to Dover and did not exceed the larger municipalities’ pay rate. Section V. Benefits The committee was provided with employee benefit plan data by the City Clerk for the following governments: the municipalities of Dover, Harrington, Middletown, Milford, City of New Castle, Newark, Seaford, Smyrna, and Wilmington; the counties of Kent, New Castle, and Sussex; and the State 13 Exhibit H. Collective Bargaining Agreement between the Dover Police Department Members Fraternal Order of Police Lodge #15 and the City of Dover, Delaware, dated July 1, 2009 - June 30, 2012. 14 Exhibit I. City of Dover position descriptions for Police Captain, Police Lieutenant, Police Sergeant, Police Corporal, Police Officer 1st Class, Police Officer. 4

of Delaware 15. Among the factor data provided to the committee was annual leave grants, maximum leave carry over limits and “use or lose” policies, sick leave policies, bereavement leave policies, recognized holiday leave, employee healthcare contributions, Medicare options, dental insurance, retirement plans, and residency qualifications for employment 16. In comparison to other Delaware municipalities Dover offers a package of personal, healthcare and retiree benefits that is within the range of benefits offered to employees in other municipalities. The number of personal and sick days provided to Dover employees (ranging from 6-days to 27-days dependent upon experience) falls within the allotment of days available to employees in the municipalities of Harrington, Middletown, Seaford, Smyrna, Wilmington, and all three counties 17. Holiday leave made available to Dover employees (11-days) also is consistent with the number of holidays made available to other Delaware governments 18. Dover employees are provided a 100% healthcare benefit and 75% city paid coverage for dependent family members 19. Of the municipalities reviewed, only Dover, Harrington, Middletown, New Castle, and Kent County offered 100% city paid coverage for employee healthcare. The municipalities of Milford, Wilmington, Seaford, and Smyrna paid for between 85% and 98% of employee healthcare coverage 20. Harrington requires city employees to pay 60% of dependent coverage, and Kent County 40% of dependent coverage, this was the highest employee contribution required for dependent coverage, the City of Dover rate is 25%. The City of Dover offers vision and dental coverage to city employees, consistent with similar coverage offered by the other municipalities reviewed by the committee. However Dover employees are responsible for 100% of the insurance premiums for such plans. 21 The City of Dover does not offer a defined benefit pension plan to non-union employees. 22 A defined benefit plan was formerly offered to city employees but is no longer available to employees hired after September 2009. All of the municipalities studied continue to provide a defined benefit pension plan, and/or participate in the State of Delaware Pension Plan. 23 Dover’s vesting threshold is ten years, the highest threshold identified in the review 24. Dover employees contribute 3.5% to retirement, also the highest contribution rate included in the study. The contribution rate applies to an employee’s entire salary and no base salary is excluded from the computation 25. The City of Dover was the only municipality that confirmed it offered a 401k or other form of deferred compensation plan to employees. 15 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 16 Exhibit K. City of Dover Finance Department. Pay Plan & Benefit Comparisons. 17 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 18 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 19 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 20 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 21 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 22 City of Dover Defined Benefit Pension Plan was closed to new members in September 2009. Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 23 Dover, Harrington, Middletown, Milford, City of New Castle, Newark, Seaford, Smyrna, and Wilmington; the counties of Kent, New Castle, and Sussex County; and the State of Delaware 24 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 25 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 5

Life insurance and disability benefits are offered consistent with the form of insurance benefits offered in the compared municipalities, up to two times the annual salary of an employee without a cap on the benefit 26. However unlike all of the other municipalities compared, Dover was the only city requiring an employee contribution (50%) 27. Retiree health care coverage was mixed across the board. Dover, Middletown, Newark, Wilmington, and Kent County provide retiree health benefits. Dover and Kent County provided 100% coverage at no cost for the retired employee. Dover retirees contribute 25% of the health care cost for dependents, Kent County 40% 28. Middletown covers 80% of the retiree care cost and Newark an amount equal to the non- Medicare premium rate at the time of retirement 29. For non-unionized employees reaching age 65, employees are transferred to the retiree medical plan. Retirees are reimbursed 100% of the Medicare Part B premium. Dover is the only municipality reviewed that provides for the Medicare Part B reimbursement 30. Seaford pays 50% of the cost of the Medicare Supplement Program, splitting the cost with employees. No other government in the State is reported to provide the Medicare Part B reimbursement. It should be noted that City of Dover unionized employees no longer receive the Medicare Part B benefit as a result of collective bargaining. Summary. The scope of review of the committee was to compare salaries and benefits of City of Dover employees against similar salaries and benefits of other municipalities. The municipalities under review were limited to Delaware and subgroups within the committee were provided flexibility to seek out those municipalities most comparable to their assigned employee classifications. The mission of the committee is not to make specific recommendations on political issues such as pay increases or decreases, benefit adjustments or limitations, or the manpower levels with the city. The committee was asked to compare the compensation and benefits paid to City employees and determine whether city employees are compensated within the range of the respective pay grade in comparison to other municipalities in Delaware. It is the general observation of this committee that the combined salary and benefit compensation packages paid to City of Dover employees compare favorably to other municipalities in Delaware. Scores of employee position classifications were provided by the City and reviewed. The position descriptions of each position did not always correspond with the same description from another government. Therefore it should be cautioned that direct position to position comparisons are not wise in all cases. The pay grade data provided by the City Clerk revealed that city employees, in most cases, are compensated within the range of employees with the same job descriptions in other municipalities. There are exceptions to this observation from position to position and from city to city. No conclusory statements will be made by the committee as to whether City of Dover employees are underpaid, overpaid, or are overdue for salary adjustments etc. The wage matrixes provided by the City Clerk indicate to the committee that salaries paid to City of Dover employees are competitive. 26 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 27 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 28 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 29 Exhibit J. Benefit Comparison Among Government Entities for Management Employees. December 2011. 30 Dover City Manager, March, 2012 6

There will always be circumstances unique to individual employees based on their education and training that will make their services values to other employers. In such cases the City may be unable to retain such employees when limited to the resources available to the City to pay its employees. Turnover within city departments was not articulated as a substantial problem in any of the four categories reviewed. It is noted that there are over 20-positions in the City presently vacant but not being filled, this vacancy figure is more than 30-positions including part time positions. The vacancies exist in multiple city departments. The decision whether or not to fill these vacant positions is a political question left to City Council, not this committee. If the City elects to fill the positions in the future, the salary and benefits of the positions will compare favorably to other government positions within municipalities, county, and state government. A specific area of concern raised by employees during this review process is the status of the Medicare Part B health care benefit. This committee will not make a finding whether the Medicare Part B benefit should remain unchanged, be expanded, or be eliminated. The only comparative finding is that Dover is the only municipality in Delaware that still offers the Medicare Part B benefit. It should also be noted that the benefit has been eliminated through the collective bargaining process from the benefit packages provided to the City’s unionized employees. Healthcare coverage, employee and dependent, is a benefit provided to all employees within 45-days of the start date. The City’s providing the health care benefit is consistent with other such benefits offered by municipalities across the State. Excluding dental and vision benefits, which are paid exclusively by the employee, the City is responsible for 100% of the cost of employee health care premiums, and 75% of dependent care expenses. This practice is consistent with government benefit practices across the State. The committee will make no comment about the prospect of increasing the employee contribution to health care costs consistent with perceived trends in state and local government, and private industry, where the percentage of an employee’s contribution to their health care premiums has increased from an entirely funded employer paid benefit to a shared contribution. The report of this committee will be delivered to the Legislative Finance, and Administration Committee which will then hold further public hearings regarding many of the areas addressed by this committee and report directly to City Council. Members: Richard Cook Tim Horne Manubhai “Mike” Karia Prameela Kaza Alan Machtinger Adam Perza, Chair Kim Warfield, Ph.D. 7