2015-07-21 Work Session Minutes

TUESDAY, JULY 21, 2015

Council met for a work session on Tuesday, July 21, 2015 in Council Chambers. The work session began at 6:00 p.m.

In attendance were Council President Jack Mundie, and Council Members Jeff Cusat, Jean Mope, and David Sosar. Council Member Keith Bast was absent.

Chris Lehman, Engagement Partner at SB & Company, made a presentation regarding the findings of the 2014 Audit. Lehman stated their scope of services include an audit of the City’s December 31, 2014 financial statements, the OMB Circular A-133 single audit, assistance with various required Pennsylvania filings, observations made during the audit process, and year-round advice and consultation. They will be issuing an unmodified opinion on the financial statements. They discovered no instances of fraud, but noted various material weaknesses in internal controls over financial reporting. They received full cooperation from the administration/management. Journal entries were posted for various audit adjustments. Lehman said SB & Company performed a “risk-based audit approach,” which focuses on risks, controls and misstatements. This approach includes planning and understanding the client and the audit risk, understanding design and operations of controls, financial closing and reporting (determining and verifying ending balances, and proper accounting applications), a financial misstatement analysis, substantive testing (negative operating controls, financial close, and FMA results), GAAS compliance, and reporting (draft financial statements, board presentation, and management recommendation letter). Lehman discussed the internal controls regarding the City’s financial reporting. He stated Community Development cash accounts were not accurately reconciled during the year, and this is a material weakness. He recommended that monthly bank reconciliations be completed for each bank account, and they should be reviewed by someone in a separate management position. Lehman stated improvements need to be made to how the control processes and procedures are documented. He said a plan should be developed for funding OPEB regarding its annual required contributions. He discussed the prior year’s observations and the status of those issues. The two outstanding issues are creating a formal risk assessment process to identify material misstatements to the financial statements, and performing an internal audit to review any potential additional risks. Lehman discussed the financial statement highlights. The total assets were $37,180,238 and the total liabilities were $32,182,317. Total revenue was $18,616,517 and total expenses were $18,510,013. This results in a net increase of $106,504. He went over the new accounting pronouncements, and stated that at the end of fiscal year 2015, GASB 68 (Accounting and Financial Reporting for Pensions) will be implemented. This means liability will need to be recognized in entity wide statements of approximately $9 million. GASB will issue a similar standard for OPEB, which will require a liability of approximately $37 million to be recognized in the entity wide financial statements. Lehman stated the audit was designed in accordance with generally accepted auditing standards (GAAS), and provide for reasonable assurance that the financial statements are free of material misstatements. The significant accounting policies used by management are described in the notes to the financial statements. They determined that the City’s adopted accounting policies are acceptable. The following adjustments were made: (1) reconciliation of cash accounts for the Community Development Fund; and (2) various cash to accrual adjustments for financial requirement purposes. Lehman said that SB & Company’s procedures identified no instances of fraud or illegal acts. Written representations from management will be required as part of the completion of the audit. There were no consultations with other accountants since their appointment. SB & Company is independent from the City. Lehman went over their responsibilities related to detection of fraud, and gave examples of the work performed. Mope stated there was an error on page 30 of the Audit, and Lehman said that would be corrected. Sosar questioned the $2 million decrease under Expenses in Public Works on Page 6 of the Audit, and the $70,000 increase Recreation on the same page. Lehman said he would look into those items. Sosar asked Lehman which budget was used in conjunction with this audit. Lehman said they only look at transactions to see if they are correct, and the City’s methods and processes. Mope asked if they review monies that were earmarked for one thing, but were instead utilized for something else. Lehman responded that they only look at federal funds and pensions funds to see if the money was spent on those funds, and that this was done by the appropriate person. Sosar questioned the over $1 million increase in long term debt for each of the years 2012, 2013 and 2014. Lehman responded the OPEB liability increased over $2 million, which results in a change in long term liability. Sosar questioned the Transfers In amount of $626,850 on page 15 of the Audit. He stated that transfers were never brought to or approved by Council for the year 2014, and asked if this could pose a problem. Lehman they only check the figures to make sure they balance with regard to transfers from other accounts. Sosar commented on the General Fund Balance on page 15 of the Audit, and stated at the beginning of the year, this fund was $124,357 and at the end of the year, it was $447,551. He was concerned with the effect this Audit would have on the City obtaining a tax and revenue anticipation note for next year. Mope said now that all of the sewer lines were turned over to the Sewer Authority, the City will have a better debt ratio and the City’s credit will be better. Lehman said his office will make all of the necessary corrections to the figures in the 2014 Audit. Sosar was concerned that there will be enough money in the General Fund for the beginning of next year.

Jerry Cantina of Friedman Electric gave a demonstration on new LED lighting fixtures. Representatives from Phillips Lighting and PPL were also in attendance. He stated they sell a more economical streetlight fixture, which comes with a wattage adjuster. These fixtures used to be $600 each and 90 watts. They are now $250 each and 77 watts. Catina stated that the City may be able to get an even better price if they go through Costars. Catina said he felt a company that has been in Hazleton for many years should be considered for the street lighting project. If the Streets Department workers replace the lights, there will be even more savings. If going through Costars, the project would not need to be bid out. Catina said that these fixtures could only be purchased six at a time. Catina stated the City can use liquid fuels funds to purchase the fixtures. He said if the City decides to go through Costars, it would not be a turn-key project. The City would have to use its own workers for the labor. The representative from PPL said they implemented a 7-year rebate program, but the budget was exhausted at the end of year six (5/31/15). The next phase of the rebate program does not start up again until June 1, 2016. There are currently 500 names on the waitlist. These rebates are given on a first in, first out basis. Catina stated Friedman Electric will do all the paperwork with regard to the rebates. Cusat asked if these are the same rebates that are in SmartWatt’s plan, and the response was yes. Cusat asked if Friedman Electric responded to the RFP back in 2013, and Catina responded yes. At that time, Friedman Electric proposed a turn-key project, but the City did not have the money to invest in it. Sosar asked Catina about the various programs and loan options. Catina said he did not know anything about those programs and loans. He said he is trying to avoid having the City take out a loan to perform this project. Sosar stated he does not want to see the City’s funds get drained, so that we cannot get a tax and revenue anticipation loan, if needed. Cusat asked if SmartWatt ever contacted Friedman Electric about this project. Catina said they did not contact him directly, but they may have contacted their Energy Solutions Department directly. Cusat asked if Cantina’s proposal would have to be performed by City workers, and Catina responded yes. David Valano, the electrician at the Highway Department, said it takes about 20 minutes to replace each fixture. Catina suggested just fixing what needs to be fixed this year, and do the rest next year. He added that they replaced all of the Fire Department’s exterior light fixtures. Donald Leshko, Fire Chief, said Friedman Electric provided all of the exterior LED lights at a cost of $13,000. But, because of all the rebates offered at that time, it only cost the City $300. He added that the firefighters installed all of the lighting. Leshko stated that Costars wants municipalities to bargain shop. You have more bargaining leverage buying in bulk, such as 60 units, at one time. The Fire Department uses Costars for purchasing vehicles, as well as many other items. Mundie asked how many men it takes to work on one streetlight, and Valano said it takes two men. Cusat asked if the Highway Department has time to do this project. Frank Vito, Highway Department Foreman, said every man is utilized, so it will take a long time for the Highway Department to do this project. Catina stated the LED fixture is easy to install. If the Highway Department can install 10 fixtures per day, this project could be completed by the end of the year. Vito was concerned that there is enough money to pay for 1,750 light fixtures. He suggested just changing each one as they go out. Vito stated that SmartWatt is guaranteeing their savings. Mope said that Tom Pribula is questioning SmartWatt’s savings. Cusat believed the cost would be the same as paying a monthly payment versus installing 100 lights per month. Vito said he would prefer that the fixtures be bought from Friedman Electric. Catina suggested using liquid fuels money to purchase the fixtures, and then install half this year and half next year. Sosar stated that if we get a PIP loan, PennDOT allows us to pay the loan back with funds from liquid fuels. Sosar said he would like Pribula to do a cost analysis for each scenario. He was concerned with the cost effectiveness and with the City’s financial well-being for the beginning of next year. He suggested putting any extra money due in the Recreation Fund into the General Fund instead. Vito said some of the money in the Recreation Funds is used to maintain the City’s playgrounds and to pay the part-time employees. Dominic Yannuzzi, City Engineer, asked what the PPL rebate was, and the gentleman from PPL responded 10%. Catina stated he did not prepare a return on investment (ROI) analysis, but that could be done by Phillip Lighting. Cusat said the original Request for Proposals (RFP) was put out in 2013. All the proposals were reviewed and it was narrowed down to two. One was picked from those two. He asked if Friedman Electric responded to that RFP. Catina said at that time, they only spoke with the City Administration and not City Council. Cusat questioned if the City should put out another RFP if people are going to be giving more presentations regarding the street lighting project. He asked if Council can have these presentations if the City is already in negotiations with SmartWatt. Cusat added that he would prefer to buy the fixtures from Friedman Electric. Mundie asked what other cities are doing. The representative from Phillips Lighting said it depends on the size of the city. She said Steve Hahn, the former Acting City Administrator, was working on having someone research grant programs for this project. He was trying to keep everything local. Mope commented that she appreciated all the information received and it will help Council make a better decision.

Mundie adjourned the work session at 7:30 p.m.


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