FINANCE CONTROL BOARD MEETING, March 7, 2005
Present: Chairman Alan LeBovidge, Mayor Charles V. Ryan, City Council President Tim Rooke, Jake Jacobson, Executive Director Phil Puccia, Deputy Executive Director David Panagore, City Clerk Bill Metzger (Mr. Trimarco arrives later.)
Alan LeBovidge: OK. I’m going to call the finance control board public meeting to order. We’re missing one member, but this is very short meeting that we’re having today, just to take care of a few house cleaning matters, and then we’re going to go into executive session for labor related matters. So, I’ve asked Phil Puccia to give us a quick up-date as to what’s happened since our last meeting. And then there’s a couple of orders you want us to approve?
Phil Puccia: Yes, sir. Thank you. Uh...
AL: [To PP:] Excuse me one second. [To Bill Metzger] Do we have to approve, Bill, the minutes for the last meeting?
Bill Metzger: I sent out some revised ones.
PP: I did not send them to the board.
AL: OK, fine. I’m sorry. OK.
PP: What I’d like to do is give the board a quick up-date on our activities related to the study of various departments and the like. Since we last met, the study of the Springfield Police Department is sufficiently underway, about four or five weeks now, and we expect to have a report to give to the control board in about another eight to nine weeks, depending if we can keep our schedule. We have recently awarded a contract for the servicing of the city’s payroll which is approximately $225million. That contract will begin in July 1, 2005, and it is with ADP. There’s a both current working group and executive steering committee of department heads and myself to oversee the implementation.
CVR: What was the dollar amount of that?
PP: The contract itself is about $500,000, but I’m saying it’s the management of the aggregate payroll amount of $225million plus the benefit is about $300million, sir.
We have just completed the process of contractually with a company called JER for the collection of the city’s back taxes. I think we awarded that contract late last week, and it will commence soon, over the next two weeks, I believe.
In addition, Matrix Consulting, out of Shrewsbury, Massachusetts, has begun a review of the Department of Public Works. That study should take approximately three months as well. It just began last week. On Friday, just a couple of days ago, we awarded a contract to IMG Consulting, out of Maryland, which will oversee a operational review of all of the parking activities in the city as well as the potential sale of certain parking assets if there is a appropriate financial return.
And I believe that it....oh, and our review of the fire department, the Springfield Fire Department: all the four proposals have been received. There will be a selection committee, consisting of a Western Mass chief plus the fire marshal, the state fire marshal, Steve Coan, and either myself of David Panagore, will review those proposals. We should have something certainly to report before we next again visit, within the next week or two.
That is a quick up-date on at least our contracting activities, and, as I think all of you know, the Mayor and I announced a significant reorganization of the departments about two weeks ago, where we’ve consolidated a lot of the decision-making and budget authority into 10 direct, 11 direct reports to the Mayor as opposed to 28.
If there are no questions from the board on those specific items, I have just two kind of routine matters for the board’s consideration. Uh, yes, Councilor?
Tim Rooke: Through the chair, Mr. Chairman? Phil, I just had a question on the back taxes: I am in receipt of a letter from Governor Florio from New Jersey, expressing some concern over--I think it’s Expand is the name of the company that also bid on it?--whether there was a question as to who was the lower bid. And I just, I guess I don’t know if we can hold off from awarding the bid until we can determine or I can be assured that the low bid was awarded to the vendor?
PP: I would actually ask David Panagore to speak to it, because it is not the lowest cost bid. OK? David Panagore.
TR: David, I just received a letter--I actually received it this morning, I think. I, I don’t know if the Mayor had received it as well, or if the entire board. It indicated that a letter, that we were all cc-ed, and I just want to make sure that the appropriate decision is being made.
David Panagore: Umm, yes. It is our decision-making process for all of the RFPs coming out of the tax collectors office, out of the Treasurer Collector’s Office, has been an interdepartmental committee consistng of law, the economic development departments, the tax collector’s office, and the purchasing office. And we sat as a team, since many of these properties are going to be going, being taxes collected on them, all the way through foreclosure, bring them eventually back onto the market as usable properties.
We sat as a committee; we reviewed, I believe, more than five proposals. The top two were JER Services and Expand. Both of them had extensive experience. JER Services had for their experience, greater experience in Massachusetts, with a number of specific Massachusetts work-outs in both Marlborough and on the South Shore, I believe Weymouth. And we checked on references for all firms. Expand relied upon a firm in-house, right now in Springfield Kelly and Ryan, to be their local expertise as well as a law firm in Boston.
Although both firms had experience, JER Services had greater experience in Massachusetts. And, although JER Services has a slightly higher aggregate cost, because what they’re being paid for is on a percentage of the collections made, JER Services did not “flat-rate” it; they had an incentive towards older, more difficult collections. Whereas Expand had a flat, across-the-board, meaning that if they collected a recent dollar or an old dollar, it meant the same to them. Our opinion of the committee was that an incentive program made a great deal of sense. In the aggregate, over a $40million collection process, which, frankly, none of us expect to collect all that $40million, there’d only be about a $500,000 difference between the two firms over the entire portfolio.
Given that what we wanted to achieve was the greatest collection fastest, we felt as a committee that JER Services would be able to do that better for the city based on their experience, based on their approach to the work, based on the plan of services they provided. Both firms are quality; these choices are not easy. But in the RFP process, you first review the proposals and then subsequently look at the costs. We have ranked JER Services #1 and Expand #2. We then looked at the cost proposals, and the decision of the committee was to keep with JER Services.
AL: And legally we can do that?
DP: Under 30B, absolutely. Cost needs to be a factor, but it’s not a determining factor in a proposal where the consulting services are more important. And again, we did feel that the incentives that they laid out meant that they would work a little harder for harder money, rather than just all things being equal.
AL: So you’re saying they’re going to make more money if they collect the old dollars, not the low-hanging fruit (the new properties), but the more difficult, old properties.
DP: That is what I’m saying.
TR: I guess the way I understand it so they’re charging us more, $500,000 more, to work harder to try and retain some of the older...
DP: They may collect more. The differences we’re talking about is the difference between 7.9% flat across-the-board for Expand and numbers ranging from—I did not bring the numbers with me--8.9% to 9.1%. We’re talking about a difference of 1% at most over a $40million portfolio, reaching back forty years. And, as a percent basis, we’re talking about maybe a 1% increase in the fees potentially for JER. And, again, we can’t count on every dollar being collected; it’s not that every dollar will be collected, and we’d rather a firm that incentivized going after the more difficult money than a firm that thought that all the dollars were equal and may only grab the low-hanging fruit. In processes like this where you’re trying to collect bad debt, you’re concerned that a firm may just come in, grab the low-hanging fruit and say “Thank you very much” and leave you with all the difficult ones.
Jake Jacobson: Does JER charge more for the low-hanging fruit?
DP: JER charges less for the low-hanging fruit and more for the tough stuff.
JJ: So if they both only collect the...if they both only collect the debts that one would reasonably expect to be collectable...
DP: Their numbers are fairly equal.
JJ: Equal or the nod goes to JER, but if the JER does a good job of collecting the old debts--that who knows whether they’re collectable—then by virtue of superior performance, they can earn more money, but, if they just do the easy stuff, they won’t earn more money.
DP: Correct.
JJ: OK.
AL: Tim, does that answer your question?
TR: Yes, that’s fine.
AL: We don’t have to vote on this, I don’t think, right?
PP: No, sir.
JJ: That answers your question, Tim?
TR: Yes, no, well, I just, as I said I just received a letter today, so I wasn’t aware of the concern, but I guess, I don’t know, if that’s the decision that was made, it was made in the best interests of the city, I would think, I would hope.
AL: Hope so.
PP: My other two items, sir, is in the course of approving the Fiscal ’05 budget, there was a projected deficit number of $37million, of which the control board was allowed to borrow on behalf of the city, on a short-term basis, a revolving amount of money up to $37million. In the course of this fiscal year, there will be a moment in time, most likely in the last part of the fourth quarter, where we will actually have to exceeded that short-term borrowing of $37million. We project a maximum amount borrowed would be approximately $42million to $43million. Of course, this money would be paid back throughout once.... Yes, sir?
AL: By the end of the year.
PP: By the end of the year, yes.
AL: What would the total, do you think, at the end of the year?
PP: We’re projecting right now that that total is approximately $21million,...
AL: For June 30.
PP: ...the net amount of the deficit at the end of the fiscal year. But there’ll be short-term borrowing needs that in some weeks are in the thirties, and there’s a week or two within June that we need approximately $42million to $43million. So, what I’m asking the board today, there’s a piece of paper in front of you laying that out, is to change the amount for short-term borrowing by the control board from $37million to $46million. And that’s a little more than I just said at $42 million to $43million, but based on our ability to make accurate budgetary projections, I’ve given us a little bit of a cushion. So that’s what that order is.
AL: So, the intent is not to end up with $46million on June 30.
PP: No, it’s simply a short-term borrowing mechanism, and again at the end of the year, what we have been doing throughout this fiscal year is to ratchet that number down. It was $41million, then $37million, and now we’re projecting it at approximately $21million, and our mission each day is to try to reduce that number further.
AL: OK. Any questions about this executive order?
**MOTION PASSES unanimously.
PP: The last item, gentlemen, is pursuant to the control board legislation, there is a reserve fund set aside, and I think 1.5% is the percentage of the tax levy to be used, to be held in reserve for capitol expenses. Obviously, the needs of the city of Springfield are significantly above the 1.5% in reserve, which in this case is the total is about $1.9million required by the legislation as a percent of the tax levy.
What we have before you is a recommendation to spend $1,706,000 in this fiscal year for certain capitol items that we would pay for with cash. It would not be bonded, it’s paid out of the tax receipts, and I’ve attached that list for you. In broad strokes, it’s $300,000 for police cruisers, $156,000 to make changes to the, improvements to the fire department stations throughout the city, various street and sidewalk improvements from the DPW of $650,000, replacment of the windows in the Lincoln School for $600,000, for a total of $1,706,000. And this gives us approximately $200,000 or so in reserve should there be items that either we need to add or there’s some additional costs we have not forecasted as of this date.
JJ: What are we up to in identified capitol projects for the schools, approximately?
PP: There’s two components to that. One is kind of a short-term: get the buildings back in shape and kind of “up to code” (for lack of a better term) which is approximately $4million. We have a detailed list of those items; it’s broken out by school and by zone.
JJ: That’s immediate short term health and safety issues basically.
PP: That’s exactly right. Then there’s an additional list of capitol elements in the schools which I believe is approximately $14million.
JJ: And that’s all to existing schools, that’s not new school construction
PP: No, that’s not new schools. And there’s one item, gentlemen, that I left out of my brief report: that we awarded a contract on Friday to Public Financial Management (PFM) to look at two items within the school department. One is the purchase and management of basic business services from commissary to IT and the like, but, in addition to that, a review of the capitol assessment needs of all the 46 schools.
CVR: Mr. Puccia, my memory is that Pat Sullivan, within the last two or three weeks, gave us two different documents, one was a $4million laundry list, and the other was, I guess, in the realm of $12million to $14million. I thought that the $4million list was that it was something that you do immediately, but that it was a compilation of projects that each of which would cost less than $100,000. Is that right?
PP: That’s correct, and the way that the spending is planned is it’s a total of $4million of which we hope to accomplish the lion’s share by the start of School in September of ’05.
AL: So give me an example. So, in other words, if you have a fence that’s broken and a child could run onto the street, you want to fix the fence. This is not a major wing of a building or a putting on a new building...
JJ: No, it’s things like when it rains, there’s inch-deep puddles in some of the corridors, and you see the kids slipping down in them and sloshing around, and things like that.
AL: So this is a real maintenance emergency, maintenance and safety features.
PP: That’s the $4million component.
CVR: And then the $12million or the $14million is a list of projects, pretty much all of which exceed $100,000 per project.
PP: That’s correct, sir.
CVR: OK. Fine.
AL: That’s true capitol kinds of ....
PP: And that, as Mr. Jacobson said, does not include any new buildings. That’s just the maintaining and improving the existing infrastructure base in the school department itself.
TR: Through the chair, if I could just ask one more question, Phil, and Jake might have addressed it earlier, and I wasn’t listening. The $600,000 that we’re going to spend on the windows at Lincoln School, I know is very much needed, but could we use the unused school bond money, I think it’s about $13million, that we’re already paying interest on and take $600,000 out of that, pay for rather than...
PP: I don’t know the answer to that as we’re sitting here now. We’ll get it for you, but I would suggest that we are in the process of trying to figure out exactly what was spent, what was not spent and what our ability is to spend additional as part of those bond purchases.
AL: Is this what you’re working on with the new state building authority? They’re kind of pushing us to the top of their lists to try to review the costs?
PP: Yes. We’ve requested in writing to the new school building authority administration to put Springfield at the top of the list to conduct a school, an audit of all the school buildings. And we’ve actually requested, though I haven’t received assurances yet, that not only will they do the standard audit for the formulaic approach, but also there will be places where we would like to conduct a more construction-oriented audit as well.
JJ: Tim, the answer that we got preliminarily, which all this will give us a final, definitive answer. But what we were told preliminarily by Mr. Johnson in the Department of Community Services in the Department of Revenue was that bonding for a school in excess of the planned expenditures on that school is not provided for in the law. That’s just something that you can’t do. So each of the bond issues that had a surplus, actually, if the appropriate procedures had been followed, would have been closed out and any surplus funds would have been used at the time to retire a portion of that bond issue, because, after all, the school that was bonded for didn’t cost that much money. Given that those procedures were not followed, the preliminary information that we have is that we absolutely may not use that $13.6million for spending that the—and help me with this, is it “revenue anticipation notes” or whatever?
CVR: The “ban, the bond anticipation notes.”
JJ: ...the bond anticipation notes, when the next crunch comes up in July or whenever, that the $13.5[sic]million or whatever will have to be applied to reduce that, but the notion thus far, I think it would be fair to say, that thus far, we have found no one with knowledge on this topic that has given us any hint that we can spend a penny of that $13.5million. That the $$13.5million shouldn’t actually be here, and it needs to be used to.... Legally, we don’t have any option but reducing the “bans” [bond anticipation notes] with it. That money is just not out there to be spent.
TR: Thank you, Jake.
CVR: I may be mistaken, but I think it was you, Councilor Rooke, who sponsored a resolution to that effect in the city council. You were ahead of your time.
TR: Again. There’ll be an editorial about that. [Laughter]
JJ: And he’s humble at that.
PP: It requires approval from the board.
**MOTION PASSES unanimously.
Board votes to go into executive session to discuss collective bargaining matters.