Minutes

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE The Legislative, Finance, and Administration Committee meeting was held on August 27, 2012 at 6:00 p.m. with Chairman Lynn presiding. Members present were Mr. Anderson (arrived at 6:15 p.m.), Mr. Rushe, and Mr. Shevock. Mr. Hare was absent. Members of Council present were Council President Leary, Mr. Bonar, Mr. Hutchison, and Mr. Perza. Mayor Carey was also present. AGENDA ADDITIONS/DELETIONS Mr. Shevock moved for approval of the agenda as presented, seconded by Mr. Rushe and unanimously carried. Auditor’s Responsibility for Communicating with Audit Committee - Fiscal Year 2012 Audit Program Mrs. Peggy Teal, Assistant Finance Director, reviewed a presentation entitled Auditor’s Responsibility for Communicating with Audit Committee. She reminded members that City Council decided that the Legislative, Finance, and Administration Committee would also serve as the City’s Audit Committee. Mr. Shevock moved to recommend acceptance of the presentation, as reviewed by staff, seconded by Mr. Rushe and unanimously carried. Civilian Pension Board Recommendation - Adjustment to the Minimum Payment for Pension During the Civilian Pension Board Meeting of August 15, 2012, members considered an adjustment to the minimum payment for pension and recommended approval of Option #1 (Attachment #1), as outlined in the information provided by Mr. Les Blakeman in reference to the Discussion - Adjustment to the Minimum Payment for Pension (Attachment #2), 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. (City Clerk’s Office Note: Recommendations of the Civilian Pension Board are forwarded to the Legislative, Finance, and Administration Committee for their review and recommendation to be forwarded to City Council for final action.) Mr. Les Blakeman, 209 Falmouth Way, addressed members as an elected member of the Civilian Pension Board and reviewed information related to the discussion regarding an adjustment to the minimum payment for pension including three (3) proposals, along with historical information. Responding to Mr. Shevock regarding the effect the recommendation would have on the total pension fund, Mr. Scott Koenig, City Manager, stated that a request was submitted to the actuary and read a portion of an email received, as follows: “On the funding aspect, we would recommend that the entire increase be paid immediately. The funded percentage of the plan is about 40% as of the last study in total, and was only 60% for retirees alone.” He explained that the actuary indicated that there were enough assets at present to cover only 60% of the benefits promised to current retirees and no remaining assets for other members. As a result, he stated that the actuary recommended that if the City wished to approve the proposal, it should be paid all at once, since the plan was underfunded at this time. While the calculated cost was $64,000, Mr. Koenig was unsure of the amount that this would translate to for the actuary.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF AUGUST 27, 2012 PAGE 2 In response to Mr. Shevock regarding the amount of Social Security benefits paid to pensioners, Mr. Blakeman indicated that it was not possible to obtain specific information; however, he suggested that it could be assumed that these individuals were not receiving very much in the way of Social Security based on the fact that they were not receiving much of a pension. Responding to Mr. Shevock, Mr. Koenig stated that the source of funds required to pay for the proposed increase would have to be determined by City Council and debated by the Committee. He stated that the Treasurer/Controller had suggested that the increase should be paid by adjusting the pension contributions of current employees. At the request of Mr. Lynn, Mr. Koenig stated that a copy of the email received from Mr. Scott Porter, the actuary, would be provided for inclusion in the record (Attachment #3). It was his understanding that the actuary would provide the cost to conduct a study to accommodate the recommendation and that no costs had been incurred to date as a result of the Civilian Pension Board’s recommendation. Mr. Anderson suggested that some pensioners have income from sources other than Social Security and questioned the demographics of the pensioners. Responding, Mr. Blakeman stated his feeling that such information would be impossible to determine. In response to Mr. Bonar, Mr. Koenig stated that current employees of the General Pension Plan pay 3.5% of their salary into the Plan and employees of the Police Pension Plan pay 7% of their salary into the Police Pension Plan. Noting that the City’s Pension Plans are one of its biggest liabilities, Mr. Bonar felt that the time had come for the City to request employees to contribute a larger share to their pension. He suggested that the civilian employees also be required to contribute 7% of their salary to the General Pension Plan. He indicated the importance of the City developing a means of getting the Pension Plans under control, and expressed his feeling that the City could only ask so much of their citizens and that employees should have a role in this regard. Responding to Mr. Perza, Mr. Koenig stated that staff had no objections to requesting an actuarial study to determine costs and that his personal preference would be to request the members of the General Pension Plan to vote in favor of paying for any increase. He explained the delicacy of this matter as an employer. Staff recommended that the actuarial study be performed to be presented to the Committee for their review and consideration of how an increase would be funded. Council President Leary noted that the Pension Plan and its benefits were codified many years ago and that the life expectancy of its members had increased since that time, which created a problem with the unfunded pension liability. He felt that any action taken by the City affecting taxpayers would only increase this liability. In response to Mr. Anderson, Mrs. Peggy Teal, Assistant Finance Director, indicated that the City Manager had already requested details regarding all pensioners, such as years of service (10, 20, 25, etc.). She indicated that although staff had begun to work on this information, it was not yet

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF AUGUST 27, 2012 PAGE 3 complete. She stated that the cost of an actuarial study should be minimal since the actuary already had specific records. Since he was scheduled to conduct an update on the unfunded and funded liabilities this year, he would be “piggy backing” the requested actuarial study. Referring to the 60% unfunded liability, Mr. Hutchison questioned if the City would be required to increase its funding each year to reduce this liability under new regulations. Responding, Mrs. Teal stated that the American Institute of Certified Public Accountants (AICPA) recently released new information that was currently being reviewed by staff to determine what, if any, impact it would have on the City. Council President Leary indicated that staff had suggested the possibility of a workshop being held with members of City Council to review the extensive new regulations. In response to Mr. Bonar, Mrs. Teal stated that the 60% unfunded pension liability equated to approximately $40M. Mr. Koenig reiterated the awkwardness of staff’s position in this matter with former employees, noting that they served the City well and that the City would like to take care of them during their retirement years. However, he felt it important that members understood that the information provided did not distinguish between those employees who served 10, 20, or 25 years. He also noted that some employees who worked 10 years, became vested, and then left the City’s employment were not on the list, since they had not reached 65 years of age; therefore, the list of retirees was not comprehensive. He explained the importance of obtaining all information prior to making any final decision in this matter. Referring to the Pension Board’s recommendation, he requested that the Committee authorize an actuarial study of all three (3) options originally presented to the Board by Mr. Blakeman, or at least obtain the cost to conduct all three (3) options rather than just one (1). Mr. Koenig stated that if it was Council’s desire to consider providing an increase in the minimum payment for pensioners, that members should consider the possibility of requesting pension members to pay for the costs involved so that there would be no effect on the City’s budget. He reminded members that the General Pension Plan is a closed plan and that there were employees in the Defined Contribution Pension Plan (401(a) Plan) who were not receiving such consideration. Mr. Koenig stated the need to conduct an actuarial study to determine if the City could afford to fund the proposed increase and what would be the best method with the least impact on the public. Mr. Shevock moved to recommend that the matter be tabled to allow staff to determine how an adjustment would be funded, seconded by Mr. Rushe. Mr. Lynn reminded members that Council’s authorization would be required for an actuarial study; therefore, if the study were not authorized, staff would not be able to obtain the necessary information to determine the costs of such an adjustment or how the adjustment would be funded. Mr. Shevock moved to amend the motion to recommend retaining the actuary to determine the cost of providing a minimum payment of $300, $400, and $500 to all retirees or their surviving spouses, and that staff determine how an adjustment would be funded, seconded by Mr. Rushe and unanimously carried.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF AUGUST 27, 2012 PAGE 4 Salary and Benefits Compensation Comparison Committee Report Members were provided a Salary and Benefits Compensation Comparison Committee Summary Report - June 2012. As Chairman of the Salary and Benefits Compensation Comparison Committee, Mr. Perza reminded members that City Council established the Committee, consisting of citizens, to compare City of Dover municipal employee salary and benefit packages to the salaries and employee benefits provided by the State of Delaware and other local governments. He explained that 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. He stated that it was the Committee’s general observation that the combined salary and benefit compensation packages paid to City of Dover employees compared favorably to other municipalities in Delaware. Mr. Lynn reminded members that he had argued against the formation of the Salary and Benefits Compensation Comparison Committee from its inception. With no disrespect, he stated his belief that it was flawed not only in its application, but in its poor mandate. Mr. Lynn noted that, as stated by Mr. Perza, the Committee determined that there was no municipality comparable to the City of Dover in the State of Delaware, with the possible exception of the City of Newark; therefore, the mandate given to the Committee by City Council was flawed from its inception. Rather than looking at municipalities which fall within the City’s Consumer Price Index (CPI) region, the Committee focused on comparing municipalities within the State of Delaware, none of which are comparable to Dover. In addition, he stated that it was flawed in its application because the Committee solely considered job titles rather than job responsibilities or qualifications. In addition, Mr. Lynn noted that old and/or outdated data (older than two (2) years) was utilized by the Committee to reach its conclusions; therefore, any information provided to members by the Committee (through no fault of their own) was not reliable and should not be given any weight. As a result, Mr. Lynn suggested the rejection of the report. Mr. Anderson moved to recommend acceptance of the report and thanked the Committee for their work, recognizing there were limitations and, if taken into account, he felt that the information provided was extraordinarily useful. The motion failed due to the lack of a second. Responding to comments of Mr. Lynn, Mr. Perza stated that the concerns regarding the comparability of Dover to other municipalities in Delaware was addressed by members of the Committee to the best of their ability by removing cities that did not apply, such as those that did not have an electric department. Members discussed the CPI early in the process and this was rejected since members were not concerned with employees leaving the City of Dover to go to municipalities outside of the State of Delaware (such as Annapolis or New Jersey). The Committee’s concern was with employees leaving for employment with another municipality within the State of Delaware. Mr. Perza stated that several members actually spoke directly with employees of other municipalities about job titles and felt that it was an overly broad statement to indicate that the research consisted only of a job title comparison. Responding to Mr. Lynn, Mr. Perza confirmed that there was difficulty in assessing non-bargaining employees, since there was a wide array of duties and responsibilities of the positions.

LEGISLATIVE, FINANCE, AND ADMINISTRATION COMMITTEE MEETING OF AUGUST 27, 2012 PAGE 5 Mr. Bonar suggested that members accept the report and if desired, members of Council could request the Committee to consider some of the suggestions made by Mr. Lynn and request the Committee to conduct another salary and benefits comparison of other cities of similar size in the region. Mr. Anderson moved to recommend acceptance of the Salary and Benefits Compensation Comparison Committee Report as presented, seconded by Mr. Rushe and carried, with Mr. Lynn voting no. Mr. Shevock moved for adjournment, seconded by Mr. Anderson and unanimously carried. Meeting adjourned at 7:05 P.M. Sean M. Lynn Chairman SML/TM/jg/js/dd S:\AGENDAS-MINUTES-PACKETS\Committee-Minutes\2012\08-27-2012 LF&A.wpd Attachments Attachment #1 - An Excerpt from the Minutes of the Civilian Pension Board Meeting of August 15, 2012 Attachment #2 - Information Provided by Mr. Blakeman in Reference to the Discussion - Adjustment to the Minimum Payment for Pension (Attachment #1 to the Civilian Pension Board Minutes of August 15, 2012) Attachment #3 - Email Dated August 18, 2012 From Mr. Scott Porter

ATTACHMENT #1 LF&A Committee Meeting of August 27, 2012 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 #2 LF&A Committee Meeting of August 27, 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

ATTACHMENT #3 LF&A Committee Meeting of August 27, 2012