LEGISLATIVE, FINANCE AND ADMINISTRATION COMMITTEE

The Special Legislative, Finance, and Administration Committee meeting was held on November 27, 2006, at 4:00 p.m. with Chairman Salters presiding. Members present were Mrs. Jones, Mr. Hogan, Mr. Slavin, and Mr. Shevock. Members of Council present were Mr. Carey, Mrs. Russell, Mr. McGlumphy, Mr. McGiffin and Mr. Ruane. Mayor Speed was also present

Mr. Slavin moved to reconvene, seconded by Mr. Hogan and unanimously carried.

AGENDA ADDITIONS/DELETIONS

Mr. Slavin moved for approval of the agenda, seconded by Mr. Shevock and unanimously carried.

Financial Reporting and Information Flow

Mrs. Donna Mitchell, Finance Director, continued the presentation from the November 13, 2006 meeting (Attachment #1). Mr. Hogan expressed concerns regarding the proposed rate increases and the $1.2M being placed in the Rate Stabilization Fund. Mrs. Mitchell stated that approximately $5M has already been used to off-set rate increases and the additional $1.2M will replenish the fund. Prior Council action placed the rebates received from Duke Energy into the Rate Stabilization Fund. Mrs. Mitchell informed members that the Rate Stabilization Fund should be used every year as a component when calculating electric rates during the budget preparation process. Responding to

Mr. Shevock, Mrs. Mitchell stated the Rate Stabilization Fund was started in 2002 when the City began receiving rebates from Duke Energy.

Responding to Mr. Salters, Mrs. Mitchell stated the City’s carry forward balance is currently 8.9% or $7.6M.

Mr. Slavin requested Mrs. Mitchell offer a recommendation regarding a possible reduction in the transfer to General Fund to correct the current shortfall. Mrs. Mitchell stated that reviewing the transfer to the General Fund and the proposed rate increases, in addition to a reduction in expenses, would be the appropriate course of action. Mr. Slavin stated that if the transfer to the general fund is discontinued in the coming fiscal year, rates would not be increased and expenditures would have to be reduced.

Mr. Ruane stated that the shortfall in revenue and the lower than expected rate of growth are significant components in establishing any proposed rate increases. Mrs. Mitchell informed members that if growth is less than projected, fixed costs will be not covered. Responding to Mr. Ruane, Mrs. Mitchell stated that the growth rate has been reduced to 1% based on historical data from the last five previous fiscal years. Mr. McGlumphy, noting that the total shortfall of $7.6M is for fiscal year 2007, questioned the setting of the growth rate at 3% based on the historical information available. He also expressed concern regarding the $20 million bond issue scheduled for 2008.

Responding to Mr. Ruane, Mrs. Mitchell stated that if the substation short fall is not factored into the proposed electric rate increases, the budget balance going forward into next year will be zero. This is based on the assumption that the power plant will be revenue neutral or break even.

Mrs. Mitchell also stated that the current cash flow issues are due to large energy bills that are in excess of the available budget balance.

Mr. Slavin noted that if protecting the bond rating were the main priority, eliminating all of the transfers to the general fund would reduce the stress on the Electric Fund. Mrs. Mitchell agreed that the suggested action would be looked upon favorably by the bond rating agencies. Mr. Slavin also stated that, to reduce the gap in the current year and in future years, expenditures and transfers to other reserve accounts must be reviewed in addition to the proposed electric rate increase. Mr. Hogan stated that efforts should be made to cut expenses and eliminate the transfer of funds to the Rate Stabilization Fund this year. He also suggested evaluating next year’s budget in effort to reduce expenses.

Mr. Slavin requested Mrs. Mitchell to provide the committee with the additional information, to be presented at the next meeting, that includes efforts to preserve the bond rating, a reduction in the transfer to the General Fund from the Electric Fund, and the details on the impact to the General Fund. He also requested Mrs. Mitchell to provide the following three (3) possible scenarios:

                        1.   A rate increase only;

                        2.   A reduction in expenses only;

                        3.   If rates were adjusted to cover the true cost of providing the service, then what adjustments would need to be made to expenses and the transfer to the General Fund.

Mr. Slavin moved to recess, seconded by Mr. Hogan and unanimously carried.

Meeting Recessed at 4:56 P.M.

                                                                                    Respectfully submitted,

                                                                                    Reuben Salters

                                                                                    Chairman

RS/hf

S:ClerksOfficeAgendas&MinutesCommittee-Minutes200611-27-2006 LF&A.wpd

Attachments to Original Minutes and File Copy:

Attachment #1 - Financial Reporting and Information Flow Presentation