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HomeMy WebLinkAboutCC 2003-07-14 Finance Workshop MinutesMINUTES OF SPECIAL MEETING OF THE CITY COMMISSION OF MIAMI, FLORIDA On the 14th day of July 2003, the City Commission of Miami, Florida, met at its regular meeting place in the City Hall, 3500 Pan American Drive, Miami, Florida in special session. The meeting was called to order at 2:45 p.m. by Commissioner Tomas Regalado with the following members of the Commission found to be present: Commissioner Angel Gonzalez (District 1) Commissioner Joe Sanchez (District 3) Commissioner Tomas Regalado (District 4) ABSENT: Chairman Johnny L. Winton (District 2) Vice Chairman Arthur E. Teele, Jr. (District 5) ALSO PRESENT: Joe Arriola, City Manager Scott Simpson, Finance Department, City of Miami Linda Haskins, Chief Financial Officer, City of Miami Anna Medina, Chief Deputy Clerk, City of Miami July 14, 2003 Commissioner Regalado: We have a quorum. This workshop is called to order. Commissioners Sanchez, Gonzalez, myself. I was told that Commissioner Teele may not be coming. I don't know about Chairman Winton. So, go ahead, make our day. Scott Simpson: Good afternoon. My name is Scott Simpson, the City of Miami Finance Department. We're here today to report on the results of operations for fiscal year 2002, as well as review the management letter for the same fiscal year. This workshop session is required by ordinance, and it's stated in the Financial Integrity Ordinance. And what we're going to do is break it into two sections today. We're going to have Ken Deon from KPMG (Klyneld, Peat, Marwick, Goerdeler) to talk about the (UNINTELLIGIBLE) and the financial results, and then Donovan Maginley, the Senior Manager for KMPG, is going to talk about the management letter for the City. So, Ken, start. Ken Deon: Thanks, Scott. My name is Ken Deon. I'm the -- I serve as the engagement partner on the audit of the City of Miami. What I'm going to do, probably spend the next 15 minutes or so talking about the financial statements. In fact, this year, as you know -- as y'all are aware that the City had to adopt four new accounting pronouncements -- accounting -end reporting pronouncements. And this is probably an understatement, but it was clearly the most significant change the City and other governmental entities like the City had to undergo over the last 20 years. These financial accounting and reporting pronouncements that they had to adopt are very complex. They're very, very complicated. And I -- you know, they -- the City -- the Finance Department and the finance staff did meet their responsibilities; did issue GASB (Government Accounting Standard Board) -34 Compliant Financial Statements and made all deadlines, and I have to commend the Finance Department with that task. With that, I'm going to spend the next couple minutes talking about some of the key features of the new reporting model, and it's not -- nothing like you've ever been used to reviewing. Essentially, under the new financial statements, you're going to have two sets of financial statements. You're going to have the old Fund Level Financial Statements and now, under the new reporting model, they've actually added what they refer to as a Governmentwide Statement of Net Assets. So, you now have two balance sheets to look at. You think things were confusing before? Now it's even going to be more confusing. Also, you're going to have a Governmentwide Statement of Activities. So, you -- in essence, you have two statements of operations to look at. One -- and I'll explain the differences very, very briefly with you as time goes on. In the Governmentwide Financial Reporting -- prior to the issuance of GASB -34, the primary focus was on individual funds of the City, the General Fund, the Special Revenue Funds, the Capital Projects Funds. It was -- you know, it's fund level reporting. Under the new reporting model, it's focused on the government as a whole, in total. And essentially what that means is, it's really -- what it presents is the big picture of the City. Government activities have traditionally focused, as you know, on cash. You're essentially cash basis. You budget on a cash basis. You focus on short-term inflows, out flows, and what is referred to as Spendable Financial Resources. With the Governmentwide Statements, they now focus on long-term perspective. And what that means is that you'll now record all your capital assets and all your long-term obligations in the financial statements. You didn't do that previously. The Governmentwide Statement of Activities -- and this is -- I'll walk through this a little bit with you -- essentially presents the cost and the direct revenues associated with each one of your functions, or activities or programs. You've never seen that before. That's not how it was presented in the past. And it will be pretty interesting when you look at the results. 2 July 14, 2003 Program costs are offset by direct program revenues, which are provided obviously -- the revenues are provided to -- or the costs are actually provided to customers, grantors and contributors. And one thing you'll see when we look -- walk through the financial statements, the program revenues do not cover all the costs of government activities. And, clearly, you're not in business to make a profit and you -- that difference is covered through your taxes. Other features. You do now -- you now have an MD&A or Management Discussion and Analysis, which produces introduces and provides an overview of the financial statements. I know, if you look -- you're used to looking at prospectuses of public companies and year-end financial reports. They have MD -- what is referred to as MD&A's. You now have that in government. I think that's an excellent, excellent presentation when you're reviewing the financials. And what it does, it provides key data and explanations of significant fluctuations. As I mentioned, infrastructure reporting. You do have to record all your bridges, your roads, traffic lights, streetlights, canals, etcetera. All infrastructure has to be recorded. You didn't do that previously. In effect, when I was looking at the financial statements a little while ago, you have approximately -- this is what's called the Net Book Value of Infrastructure Assets. There's about five hundred and seventy-five million dollars ($575,000,000) in the City of Miami. Commissioner Sanchez: That's under GASB? Mr. Deon: That's under GASB. The new model presents the old funds in a new format, and we'll walk through that a little bit with you, too. You now have a new term, which is referred to as Major Funds. In a general fund, there's always a major fund. And I believe you had two or three other major funds, and we'll walk through that. You also have a different -- I refer to -- actually, this is Expanded Budgetary Reporting, and this is a new presentation also. Previously, you would present your final budget, the actual results, and any variances between final budget and actual. Now, you actually -- they've added a third column. Originally adopted budget. You have final budget. And then you have your actual column. And you have to actually, in MD&A, explain any significant variances that you had between the original adopted budget and the final adopted budget. So, you're going to have clean up. And you have to explain why -- you know, why you had those -- your significant variances. Now, what I'd like to do is focus on some of the key highlights of the City for the year. And I'm actually going to turn you to page -- of the financial statements, I'd like you to turn to page 15. And this is the Statement of Net Assets. And as I mentioned earlier that you have to -- you are now going to report all your assets and all your liabilities. In that September 30, 2002, you had approximately one point four billion dollars ($1,400,000,000) in total assets, and that's in the middle of the page. And your total liabilities are approximately six hundred ninety-four million dollars ($694,000,000), which left you with net assets of about six hundred ninety-six thousand -- and I'll explain a little bit more what net assets mean in a minute. If you turn to the -- actually, I'll go on to this next one. Here we go. Net Assets. Commissioner Sanchez: Walk me through. What page is that? Mr. Deon: I'm still on page 15. Commissioner Sanchez: Fifteen. 3 July 14, 2003 Mr. Deon: At the bottom of the page, you see we have this column called Net Assets. And net assets are divided -- this is how -- in the commercial world, this would be your retained earnings and capital stock and (UNINTELLIGIBLE) and previously would be your fund balance. You have net assets of six hundred and ninety-six million dollars ($696,000,000). It's divided into three components, one being your investment in capital assets, net of any debt that you had to finance those capital assets. You have restricted assets or net assets, which are basically assets that are restricted by a third party. Then you have your unrestricted net assets of the City. And in total, it's six hundred and ninety-six million dollars ($696,000,000). Now, on this next slide I actually presented a summary of net assets in thousands. As I mentioned, your total assets are about one point four billion dollars ($1,400,000,000); liabilities, six point nine billion, and then you have net assets at six hundred and ninety-seven million dollars ($697,000,000). This next graph -- this is a pretty interesting graph, I thought. This was a comparison from year to year on where you stand. And this is on -- again, on -- this is in the slide presentation. And in 2002, your total assets were one point four million dollars ($1,400,000). Under GASB -34, if you look at the 2001 column, your total assets were one point two billion dollars ($1,200,000,000). You grew. You grew. You grew this year. Commissioner Sanchez: Yeah. Mr. Deon: You know, I'll get into the specifics with you in a second. Liabilities were about seven hundred million dollars ($700,000,000) this year, as compared to your liabilities of just under six hundred million. You also grew there. Net assets increased this year. There's a net difference between both assets and liabilities. One thing I want -- I put this slide together. I just wanted to make sure you understood that, you know, net assets, you do have six hundred ninety- six million dollars ($696,000,000) in net assets. That's not all cash. You can't spend that money. In fact, most of it's your fixed assets. It's been -- obviously, you're a government -- you're a City government -- a large City government. Most of the monies that you have received have been used toward fixed assets, and that's very, very important. Commissioner Regalado: Let me ask -- going back to the beginning of the page. It says, "Due from other governments, twenty-five million." Mr. Deon: Right. Commissioner Regalado: What is that figure? Mr. Deon: Yeah, I'll tell you. Unidentified Speaker: What page are you on? Mr. Deon: "Due from other governments." Unidentified Speaker: Page 15? Mr. Deon: Yeah. I'll tell you in a second. 4 July 14, 2003 Commissioner Regalado: At the top of the page, 15. Mr. Deon: Yep, yep. Unidentified Speaker: Twenty-five million. Twenty-five million. Mr. Deon: It's -- actually, we had -- I believe it's disclosed in the financials. If you bear with me a second, I'll go right to it. But I believe it's taxes due from the County. This -- grants from HUD (Department of Housing and Urban Development). (INAUDIBLE COMMENTS) Mr. Deon: What's that? Mr. Simpson: Police grants. Mr. Deon: Police grants. Federal monies and State monies. Commissioner Regalado: Yeah, but that's only one year? Or it's -- Mr. Deon: That's one year. That's cumulative. Commissioner Regalado: It goes back to other -- Mr. Deon: It's probably -- most of this is going to be current. So, it probably just represent one year, as of the end of the year. Commissioner Regalado: But the question is -- Mr. Deon: Actually, it --Scott just told me --seven million of it is the parking surcharge. Commissioner Regalado: The what? Mr. Deon: Parking surcharge. Mr. Simpson: During the initial period, when the parking surcharge -- when the Third DCA (District Court of Appeals) in July deemed it unconstitutional through November, that money was reserved, as well as the County. The County has not remitted any money to the City from day one of the parking surcharge. Commissioner Regalado: Well, I know that. Mr. Simpson: OK. Commissioner Regalado: But seven million. 5 July 14, 2003 Mr. Simpson: Seven million -- six point nine million of that, the County has said that they've collected. And under full accrual accounting, we would bring that in and recognize it as revenue, where in the past, we would not because of collect -- didn't meet the measurability and collectability rules. Commissioner Regalado: So, suppose that if we are not -- if we -- we have to forget, as of now, of the seven million, but eighteen million dollars ($18,000,000). And my question, if the City were to have that paid on time -- I don't know if this is paid on time or not -- would it make interest? Mr. Simpson: To the extent -- yes. It would come into the general fund and it would be interest income to the general fund. But, typically, with grants, there are certain grants that -- there's always a time line. You have something called an Expense Driven Grant. Basically, at the point in time when the City spends the first dollar that's related to a grant, that's -- we book that as a receivable to the City, whether we've applied or not to the federal agencies. So, it's a timing issue. Commissioner Regalado: OK. Mr. Deon: And, again, I just want to let you know that, again, from the net asset side, you do have six hundred and ninety-six million dollars ($696,000,000). You can't spend the six ninety- six. It's not all cash. You do have a deficit in your unrestricted net assets. And, in fact, that's approximately sixteen million dollars ($16,000,000) and that's on page 15. And basically, what the governments typically do is, they raise resources based upon when liabilities are going to be paid, rather than when incurred. But under GASB -34, you're going to have to recognize those liabilities -- all liabilities when they're incurred. And, therefore, essentially, your deficit reflects the extent to which you've deferred those liabilities and haven't budgeted for them. And that's the unrestricted deficit. Now, the Governmentwide Statement of Activities -- and that's -- that is used to report the changes in your net assets. That's the operating statement and what -- if you refer to a commercial company. You have program expenses, program revenues. You have a net program cost. In fact, if you turn to page 18 of the financial statements -- and I would like you to focus, if you can, on the second column from the end, where the title is Primary Government, Governmental Activities. What is -- what that is, is that's the net difference between the expenses the City has incurred by function, and the program revenues charged to that function. And actually, as you see, like for example, public safety, there's a hundred and thirty-eight million dollar ($138,000,000) net cost of doing business. And how do you fund that net cost is through general revenues, such as tax -- property taxes, state revenue sharing, public service taxes, and so on and so forth. Commissioner Gonzalez: Excuse me. You said you're on page, what, 18? Mr. Deon: I'm on page -- Commissioner Gonzalez: Eighteen or nineteen? (INAUDIBLE COMMENTS) 6 July 14, 2003 Commissioner Gonzalez: Huh? Mr. Deon: It's on page 16. Commissioner Gonzalez: Sixteen. Mr. Deon: Yeah. I said that, right? Commissioner Gonzalez: OK. Mr. Deon: Do you have it, Commissioner? OK. I mean, that's very typical for government. You will not -- very rarely you would see a positive balance in a function. Now, at the fund level -- I just want to point this out also -- if you take your total government funds under the old method and you take your -- you compare your fund balance to what the statement of net assets are, your fund balance or your total governmental funds is approximately four hundred and eighty -million dollars ($480,000,000), which is less than what I told you before was the net assets. Essentially, that difference is your net fixed assets that you had to record to adopt GASB - 34 and some revenue accruals that you also had to recognize, full accrual basis accounting. That essentially makes up the difference between the four hundred and seventy-seven million dollars ($477,000,000) you have at a fund level and what's reported at the governmentwide level. In most of that four hundred and seventy-seven million, you've got -- the general fund has a hundred and forty-one million dollars ($141,000,000) in fund balance. Community Development, seven point six million. Your public services tax, which is a major fund, has nine point six million in fund balance. General government has eighty-seven million dollars ($87,000,000) in fund balance. And then your other governmental funds combined would be two hundred and thirty-one million. Now, the next slide I just want to walk through with you briefly is on the budget comparison. I told you there's a new budget format, reporting format that you had to follow this year. And this is the revenue side of the budget. Your original budget, I believe you budgeted approximately three hundred and twenty million dollars ($320,000,000). You had some budget clean-ups during the year. And your final budget was just under three hundred fifty million dollars ($350,000,000). So, you had some changes. Your actual results were over -- was over three hundred -- about three hundred and seventy, three hundred and eighty million dollars ($380,000,000) was your actual revenues that you -- came in this year. On the expenditure side, your original budget again would have balanced and it was about three hundred and twenty million dollars ($320,000,000). The final budget, you had budget clean-ups and so on and so forth. During the end of the year, it was just shy of three hundred and fifty million dollars ($350,000,000). Actual expenditures, you were just a little over what your final budget was by about a million dollars ($1,000,000). That has to be presented -- previously, under the old statements, you would not have presented that before. In a nutshell, that is the new governmental reporting model. As I mentioned earlier, it's an extremely complicated model. To be honest with you, I could probably spend hours with you walking through the intricacies of all the different statements that the City had to go through. It's very, very complicated. These are the results of operations. This is the financial position of the City. And I'd like to open it up for any questions that you may have. 7 July 14, 2003 Commissioner Regalado: So, who decided to change the format? Mr. Deon: A good question. The Governmental Accounting Standards Board is the oversight board that sets all the accounting and reporting rules for state and local governments. And this actually -- to be honest with you, this whole process started about -- I think it was 1984, the -- whoever it was, you know, in charge of GASB, they sat down at one of their board meetings and said, we need to become more accountable. We need to change the focus on financial reporting for governments. Because all it is is -- you know, I look at government accounting and reporting, it's almost cash basis. You're focusing on cash inflows and cash outflows, not really focusing on the big picture, like you would in the private sector with a commercial company. You want to really reflect all those assets and all your liabilities. You want to get a true picture of how the financial position of a government is and the results of operations. Therefore, that whole process started in '84. In 1999, these statements were finally -- or pronouncements were finally issued. Commissioner Regalado: So, every government has to follow it? Mr. Deon: Every government has to follow it. Every state and local government has to adopt GASB -34. And there's a phase-in period. It obviously depends on the size of the government in terms of revenues. You were what is referred to as a Phase I government. You had to adopt it in year one of implementation. Commissioner Regalado: Yeah. But I remember that the Audit Committee, in the last two years, have been pushing the City to adopt that, but the City didn't. Mr. Deon: Right. Your audit -- that's a good -- Commissioner Regalado: So, we did it at the last minute. Mr. Deon: No, you didn't do it at the last minute. No. You did it when you were supposed to. Commissioner Sanchez: We're required. Mr. Simpson: What the City has been doing is over the three years, preparing for the implementation. Fiscal year 2002 was the first year that we were required to present our financials in a GASB -34 format, and we've done that. Commissioner Regalado: You know, but I remember -- I remember that the people from the Audit Committee pleaded with the past administration, not with City Manager Arriola -- the past administration, and even the Warshaw administration, to adopt that, and they were -- Linda, you were here. They were saying to us that appointed them, that the City was running out of time. And that the mechanism -- Mr. Simpson: Well, all I can say is that I came in the City in 1998 and the City had not made any preparations for GASB -34. That is an absolute fact. A year later, I went to the Finance Committee, asked for funding for consultants to come in and help us. We didn't get it. A year 8 July 14, 2003 later, we started doing inventory verifications, which was a first step, going in and doing all of this. Came back a year later and asked for more money. We never got it. But at end of the day, the City complied. We were not late. Your CAFR (Comprehensive Annual Financial Report) is here. We actually early implemented some things that are above and beyond 34. GASB -34 says you have an additional three years to report infrastructure, bridges, roads, et cetera. The City went ahead and early implemented that. Commissioner Regalado: Yeah, but that was not my issue. My issue was that if we have heard the Audit Committee members, we would have known things now that we didn't knew two years ago or three years ago. Mr. Simpson: Well, I -- even two years ago, this issue was brought up to the Oversight Board. I talked to the Oversight Board. I talked to the Oversight Board. Ernest and Young came in and did a needs assessment part of that. And they made a presentation to the Oversight Board. So, this is not something -- that has not been pushed behind a door and not addressed. There was an article in one of the local papers right after Oversight Board about the preparation of GASB -34 and it said that the City had actually done some things ahead of schedule, as far as verification of the inventory, ingoing and out (UNINTELLIGIBLE) infrastructure. Mr. Deon: Yes, Commissioner. Actually, there's not many governments that I know of that implemented GASB -34 early. The rules -- you know, this statement was issued in June of 1999, GASB Statement Number 34. Since the issuance of GASB Statement Number 34, four new accounting pronouncements, on top of GASB -34, were issued in connection with GASB -34 just to adopt it. And most governments, about -- I'd say, honestly, about 99 percent of the state and local governments in the United States would not gone ahead and done that exercise until the year that they had to do it. We had -- you're right, Commissioner, we did include it in the management letter for the past two years. And the reason why we did that: We just wanted to make sure that you were aware that this -- you know, an important -- that reporting pronouncement was coming down the road. Commissioner Sanchez: Did that answer your question, Commissioner Regalado? Commissioner Regalado: Yeah, sure. I have another question. On the general revenues, the Convention Development Taxes, page 18, six hundred and sixty-eight thousand, nine hundred and thirty-two dollars ($668,932), this is all of the income of the City in CD (Community Development) money on this current year? (INAUDIBLE COMMENTS) Commissioner Regalado: Page 18. Page 18. I'm sorry. The general revenues -- at the bottom of the page -- Convention Development Taxes, six hundred thousand -- six hundred and sixty-eight thousand, nine hundred and thirty-two. Mr. Deon: Yes, I see it, Commissioner. That is the total revenue you will receive from MSEA (Miami Sports & Exhibition Authority) this year. Six hundred and eighty-two -- six point eight two million dollars ($6,820,000). Oh, is it six sixty-eight? 9 July 14, 2003 Commissioner Regalado: Six sixty-eight. Mr. Deon: Yeah. That's the revenue from Miami Exhibition & Sports Authority. Commissioner Regalado: So, the money -- actually, the CD taxes is six million that goes directly to the City, and six hundred and sixty-eight thousand for Miami Sports & Exhibition Authority? Mr. Simpson: That whole column is related to the component units. Bayfront Park, MSEA -- and there's a detailed schedule in the back that breaks out the numbers by component unit. Commissioner Regalado: So, it's six million -- Mr. Simpson: Six million for CDT (Convention Development Taxes) and then occupational license and franchise fees for all the component units is six hundred and sixty-eight thousand dollars ($668,000). Commissioner Regalado: What we don't know is, Mr. Manager, how much money we generate in the hotels and restaurants. I think it's more than six million dollars ($6,000,000) Mr. Simpson: That's only the portion that went to MSEA. If you go to page 24 and 25, it's the statement of activities for the component units. These pages roll up to the totals that are on that page 16. Commissioner Regalado: Twenty-four? Unidentified Speaker: Twenty-four and 25. Commissioner Regalado: Still -- expenses. (INAUDIBLE COMMENTS) Mr. Simpson: This is -- Commissioner Regalado: Expenses. Mr. Simpson: Right. These are numbers from MSEA, the numbers for Off -Street Parking, DDA, Bayfront Park -- Commissioner Regalado: No, no, no. Mr. Simpson: (INAUDIBLE) Facility. Commissioner Regalado: Off -Street Parking don't get CD dollars. 10 July 14, 2003 Mr. Simpson: No, no. But that's the results of their operation. This is all their revenues, revenues, expenditures -- Commissioner Regalado: I know. But my question, Scott, is -- Mr. Simpson: Sure. Commissioner Regalado: Look, we get all in all CD taxes, almost seven million dollars ($7,000,000). Mr. Simpson: Correct. Commissioner Regalado: Right? Mr. Simpson: Correct. Commissioner Regalado: That's what we get. But we generate more than seven million dollars ($7,000,000). Linda Haskins (Chief Financial Officer): Linda Haskins, CFO (Chief Financial Officer). The CDT revenues for the County are a little bit over thirty million dollars ($30,000,000). It had dropped somewhat from what had been collected pre -9/11. The City consistently has stayed anywhere between 18 and 22, 23 percent of the collections of the CDT. That's just the room tax. That's the tax that Miami Beach participates in. If you look at other tourist related taxes, the City is generating the preponderance of those -- the other tourist related taxes. And those other ones like the Tourist Development Tax, and the Homeless Tax and Sports Franchise Facility Tax are not charged on Miami Beach. They're only charged in -- they're charged in all -- almost all municipalities in the County, except Miami Beach, and there's another one on -- another municipality along the Beach that it's not charged on. But on the CDT itself, what we're receiving in MSEA net is close to what the City -- what is being collected in the City per the County reports. That's per the County reports. Commissioner Regalado: But still -- excuse me. Still, we generate more than we get in CD and CDT taxes. If you look at the restaurants and the hotels -- Ms. Haskins: I think what we're seeing now is the City's percentages picking up of what we're collecting. So, we're getting to the point where definitely we're going ahead of where -- but we're getting net in MSEA. Remember, this number is -- the six point eight million dollars ($6,800,000) is the net number to MSEA. The requirement of the statute, one third has to be spent in the larger City and this six point eight million dollars ($6,800,000), is -- they take -- they send about nine million or so -- 10 -- 9 to 10 million to MSEA. They pay all the MSEA expenses that are required and then the balance is sent back. Commissioner Regalado: But this figure is not valid, because we sent back a lot of money to the County from MSEA. 11 July 14, 2003 Ms. Haskins: Yeah. About -- Commissioner Regalado: That's what I'm saying. Ms. Haskins: About three million dollars ($3,000,000). Commissioner Regalado: Well, that's what I'm saying. That's exactly what I'm saying. That we get -- if we send back most of the money -- we don't get 12 percent -- I mean, we generate almost 15 to 20 percent. Ms. Haskins: Right. And the enabling legislation from the state for CDT requires that one third of the CDT be spent in the largest municipality in the County. (INAUDIBLE COMMENTS) Commissioner Regalado: I'm just saying the numbers do not reflect the reality because -- Joe Arriola (City Manager): I don't have the exact number, but I think we sent back close to three million dollars ($3,000,000) this year, if that's what your question is. Mr. Simpson: Well, under accounting rules, since they technically have to send it back, it's not a revenue. But if you go to the MSEA financial statements, the gross, the net, all that is disclosed in the notes of their financial statements. So, the answer to your question is yes, you have to go to more than one place to get the clear, whole, total concise picture, for, you know, someone that is not familiar with governmental accounting rules. Mr. Arriola: Commissioner, you had also -- I think you were the one that asked the question as far as the unrestricted deficit, how did we get there? And I just want to point two lines to you so you know what kind of -- not trouble, but what kind of scenario we could be facing. And if you look at the -- let me see -- compensated absences of four million, nine hundred and eighty thousand dollars ($4,000,980) and change, and there's another line in here of compensated absences of sixty million dollars, one hundred and eighty-eight ( $60,000,188). So, you have an understanding, you're looking at about sixty-five million dollars ($65,000,000) of compensated absences that could be a huge liability to us down the line. So you understand what those are. Commissioner Regalado: Sixty -- where is that? Mr. Arriola: Sixty-five million dollars ($65,000,000). Commissioner Regalado: What page is that? Mr. Arriola: Page 15, sir. Commissioner Regalado: So, we have the Governor and all his people down here for sixty-eight millions and now we're close to sixty-five millions. The Governor may be coming. 12 July 14, 2003 Mr. Arriola: I just want to make you aware it, that that's there. Commissioner Regalado: My God. Commissioner Sanchez: Big difference when you have reserves and you don't have reserves. If I may. Commissioner Regalado: Go ahead. Go ahead, Commissioner. Commissioner Sanchez: The GASB, although it's very complicated, I think, truly holds the government more accountable. Not only are you focusing on the general budget as to expenditures and revenues, you're basically counting on all the assets that government has. So, therefore, you know exactly how much you're worth. So, the accounting process of it, which, although it's very complicated -- I think that the process itself holds more governments crystal clear accounting as to what we -- where we're at and what we owe. I have a couple of questions. And one's pertaining to the management letter. And that is, are there any reported conditions that we should know about? I mean, listen, we're required by law to have a balanced budget. The government, the state, any government is required to have a budget. That's our purpose here, to have a balanced budget. But, you know, there's some -- certain questions. One is the management letter, which is given on every audit. I just want to basically get from you, making the statement as to one, is there any reported conditions that this Commission, this City Manager, and this administration should know of? Mr. Deon: There are no reportable conditions. There are two, I believe, observations and recommendations in this year's audit of the City. But there are no reportable conditions. Commissioner Sanchez: OK. Now, we spoke about assets and liability. Every time your assets increase, so does your liabilities. That's just -- that's the beast of the nature here. And one of the most important questions that needs to be asked here is, would this City be able to cover long- term liability? Mr. Deon: Well, that's a good question. On the -- if you go back to page 15, most of your net assets are tied up or associated with fixed assets. And then you have other -- five hundred and ninety-eight million of the six hundred and ninety-six million in that assets are fixed assets. So that's non liquid. Commissioner Sanchez: Could I just stop you for a minute -- Mr. Deon: Sure. Commissioner Sanchez: -- and make -- let you think a little bit how you're going to answer that? Our liability continues to increase in the City. Mr. Deon: Uh-huh. 13 July 14, 2003 Commissioner Sanchez: Every year. Where are we at today on liability? What is the exact amount of liability? (INAUDIBLE COMMENTS) Commissioner Sanchez: How much? Put it on the record. Mr. Deon: Six hundred and ninety-three million dollars ( $693,000,000) in liabilities. Commissioner Sanchez: And continues to grow. And will continue to grow -- Mr. Deon: Right. Commissioner Sanchez: -- because of the assets? Mr. Deon: Right. Commissioner Sanchez: Now, my concern is, does this City have the capacity to cover those long-term liabilities? That's always been a problem. I've always brought it out in every budget discussion that we've had, because -- I mean, shouldn't that be a reported condition? Mr. Deon: Well, you're right -- right now -- and I'm going to answer it to the best of my abilities because, you know, governments are very fluid, in terms of receipts and disbursements. Right now, the way things look, you're very healthy right now. Today. As of September 30, 2002. I call Fund Level Assets, less like cash, but -- you know, it's assets less liabilities. You have the cash to pay current liabilities. However -- and there's a couple new pronouncements coming down the road, which is actually going to have to -- you are essentially going to have to record more liabilities than you do right now. Brand new GASB pronouncements that the City is going to have to adopt down -- I'd say within the next year to two years. You know, right now you're OK. But, again -- and that's right, the slide I had before, you don't -- most of your net assets are non cash. You have to be very prudent on how you look at that six hundred and ninety-six million dollars ($696,000,000). You can't spend it. You have to basically continue to budget conservatively -- and this is my opinion. Actually, I've been here since 1996, so I know what you went through back then to where you are today. You've obviously made significant strides in turning the financial picture around, you know, obviously, with all the problems you had before. And now is no time to look back and say, "We did it. We're out of it. We're out of the woods and we can go forward." You need to focus on budgeting and continuing to focus on being more efficient, more effective. If you're not, my answer is, you'll not be able to -- you won't -- you will not be able to fund those liabilities in the future. Commissioner Sanchez: OK. Mr. Deon: I hope I answered your question. Commissioner Sanchez: It's very simple. 14 July 14, 2003 Mr. Deon: What's that? Commissioner Sanchez: Mismanagement of any time could land us in another crisis within six months to a year. Mr. Deon: Easily. Absolutely. Commissioner Sanchez: Because of that liability. Mr. Deon: You're very -- we're very fortunate in South Florida. I work a lot with the governments around the country in the northeast and in the southeast. And as you're all aware, 38 of the 50 states are in fiscal deficits, fund deficits. One of them that I work with exclude -- you know, quite a lot is in a real deficit right now. They're taking 15 percent budget cuts by department. There're hiring freezes. They're scrambling. Because what they did and what a lot of governments have done is they borrowed long-term to pay short-term on short-term obligations. In the years where the economy was growing and the sales tax was coming in and there was a lot of growth and so on and so forth, things were fine. But all of a sudden, when the economy went down the tubes, everything stopped and it was a catch up. And now they're all -- all of them -- all the states -- you know, 38 or 39 states, the last I counted, are really hurting right now. And a lot of local governments also are in that position. Down in South Florida we've been fortunate. The economy hasn't really, you know, gone down the way the rest of the country has. But, again, you have to continue to be budgeting, you know, on an efficient and effective manner going forward. I hope I answered your question. Commissioner Sanchez: The keyword there is "prudent." Mr. Deon: Prudent. Very good. Mr. Arriola: Conservative is a little better word, if it's OK with you. Commissioner Sanchez: Well, that's your word there, Mr. City Manager. Commissioner Regalado: Any more questions? Mr. Deon: We can go over the management letter comments, if you'd like, or -- there's two observations this year. Commissioner Sanchez: I'd like to -- I'd like for you to make -- put those on the record, what the two observations are. I think I would feel much comfortable if you put them on the record. Mr. Deon: OK. Well, I'm going to have Donovan Maginley, Senior Manager. Donnovan Maginley: Thank you, Ken. Actually -- Donovan Maginley with KPMG. If you look at your -- in the tab, it says, "other reports." Commissioner Sanchez: Other what? Other required supplement information. 15 July 14, 2003 Mr. Maginley: No. It says, "other reports" in the back. The last -- actually, the last tab. That's where the management letter starts. The management letter is organized in three segments. First, we answer certain specific questions that are required through the rules of the Auditor General. We have our current year comments and responses and the status of prior comments and responses. To ok on Commissioner Sanchez' question before, one key point that we -- I want to bring out in this -- on -- starting on page 128 to 129. This is the first year since 1996 that we have not considered the City to be -- what's considered to be in a financial emergency, as defined by the Auditor General in the State Statute. So, I think that speaks well as to where the City has come from from the past. Going forward -- I guess I'll work backwards, actually. If you go to Appendix B, there's a snapshot as to where we were in terms of the previous year's comments. Appendix B-1. And, basically, we have given a summary as to the comments that were reported on in the previous years that we still consider to be applicable going forward. There are a few comments that have been addressed and are no longer in this document. Moving forward. As Ken indicated on Appendix A-1, which is about the third page from the front, summarizes the two comments that we noted in the current year. The first comment is entitled 2002-1, which is Risk Management, workmen's compensation claims. The essence of the comments were that there were some deficiencies basically in the process in terms of the approval— Commissioner Sanchez: Workmen's comp. Mr. Maginley: -- of approving and -- that the approval -- actually, payments of workmen's comp. In the document here, on that same page, you'll see what management's response is in terms of how they're going to address this and what they have done so far to implement changes. Commissioner Sanchez: That happens to be the great cloud we can't get away from. Follows us everywhere we go. Mr. Maginley: Second comment, 2002-2, it's basically information technology issue. I think one -- basically, what the comment is alluding to, is the fact that the City has diverse systems throughout, citywide, and there needs to be a strong network infrastructure to support any critical network systems that connect to the City. Again, the comments that we have raised this year are not considered what we reached -- elevated to the level that we consider to be reportable conditions or material weaknesses, as we have pointed out in the past. In a nutshell, I think -- I mean, the comments are atypical for a government this size and I don't think these are critical comments. Then, again, the management's response to these comments are here and they do address and we're fairly satisfied with the responses to address these comments. Mr. Deon: Do you have any questions on the management letter? Commissioner Sanchez: Well, yes, on the workmen's comp. Although, you've classified it as an observation, I happen to think that it's a crisis and continues to be a crisis. And, you know, I have been here now five years, and five years ago I picked up the flag on workmen's comp when we had 3,100 employees and we had 2,793 open claims. And it was still not considered in the management letter as a crisis, you know. And although that -- I feel very comfortable with this 16 July 14, 2003 new administration that have moved forward to try to bring some controls to the abuse -- and the word here is "abuse" -- in workmen's comp, you know, I'm still very worried because the numbers continue to grow. And I realize that to close cases, we're going to have to spend money. And, you know, it's like a storm you can't get away from. Every year, on the workmen's comp issue, it continues to be a sore in the side of the City. And, you know, where are we at today? We're looking at spending -- what are we spending, Linda? Give me a ballpark figure. Unidentified Speaker: Fourteen million. Commissioner Sanchez: Fourteen million. When I -- you know, I started -- we started about 10. Now we're up to 14 million. So, you know -- to me, you know, that's a reportable condition. I mean, an observation -- you know, how are we going to turn around -- and I know that's not a question for you. That's a question for the administration. But, you know, technology, I understand, we have to spend money. It's just like everything. We have to keep up with technology. You grab a hold of technology or they grab a hold of you. But on that side of the coin, dealing with the workmen's comp issue, you know, it's -- it continues to scare me. Ms. Haskins: And I can understand that. I mean, every layer of the onion peeled back is little uglier and a little uglier. I've had the opportunity of meeting with Commissioners Regalado and Gonzalez this morning. I'm scheduled to talk with you later in this week. On the 24th we are bringing forward to the Commission a request to authorize us to enter into an agreement to outsource the processing of worker's comp claims to Gallagher and Basset. And this is a company that is state-of-the-art. They will -- a lot of the things that were mentioned in this report, which are systematic of the way the claims have been processed, we will have a much more professional way of processing these claims. What I've discussed in these meetings is that I really can't promise that we're going to have immediate first-year savings, because things that we need to start concentrating on, and that is surveillance, looking toward social security offsets. That's something that's never been done in our workers' comp area. In the state of Florida, we can take social security offsets for those people that are out on workers' comp, that are permanently disabled. We've never tried to do that. Surveillance for abusers of workers' comp. Having the ability to sit on top of our managed care providers and make sure that our employees are able to see doctors and specialists within a reasonable period of time. So, the contract that's coming to you in two weeks is to get claims professionally managed within each of the contracts, both of the managed care and the outsource of the claims processing, their performance standards. What we've tried to do in this contract is put in real penalties to the provider should they not live up to performance standards. It's a different way of doing the contracts that we've done historically with the City. Typically, we say, OK, you have to do "X, Y and Z." And then if they don't do "X" and "Y," then our only alternative is to go out and rebid the contract. What we're trying to do in this is to say, OK, if you don't return employees phone calls within the same business day, we don't pay you for that file. That files -- the penalty is, we don't pay you for that file. So, we have current monetary penalties to make sure the provider is doing it. Meanwhile, we get our house in order on the City side and start looking at the things we need to do. Fraud, abuse, surveillance and managed care. 17 July 14, 2003 Commissioner Sanchez: And the message is very clear. The message the crystal clear. We're not going to be going out there and punishing the good employees of the City of Miami. We're going to be going out there and punishing the bad employees who abuse the system and are basically flat out stealing from the taxpayers of Miami, period. Ms. Haskins: That's what the message is. And I think that when I say the first year, I'm not going to promise you substantial savings because I think it's going to take some money right now -- some of the savings that we have from the reduction in number of people to get our house in order, but over time, that pays us dividends and is not recurring expenses all the time -- you know, forever going forward. It's a different sort of expense. Commissioner Sanchez: Well, I've said since day one that the City never had any business in managing claims. I said it in 1998 and I continue to say that. Although it hasn't fallen well with some people, so be it. But that's always been my position. Ms. Haskins: Right. Commissioner Sanchez: All right. One last question, and just for the record, have all the rules of Auditor General been followed on this audit? Mr. Maginley: Yes. Actually -- let's go back. Again, going back to pages -- if you go back to 128 through 129, all the reporting requirements under the rules of the Auditor General have been complied with by the City. Yes. The answer is yes. Commissioner Sanchez: Thank you very much. Mr. Maginley: Thank you. Commissioner Regalado: Any other questions? So, in wrapping up the meeting, you just said that this is the first year that you can declare that the City is not in a fiscal emergency, right? Mr. Deon: That's correct. Commissioner Regalado: That this will be the year -- the budget year, 2002/2003 or -- Mr. Deon: No. It was fiscal year -- budget year 2001/2002 that the City was no longer in a state of financial emergency, as defined by the rules of the Auditor General. Commissioner Regalado: OK. Like Commissioner Sanchez asked something, is it any yellow light that you see? Mr. Deon: No. Commissioner Regalado: Not at all? Mr. Deon: I don't see a yellow light. I think it's pretty straightforward. 18 July 14, 2003 Commissioner Regalado: OK. Thank you very much. Mr. Deon: You've got to control it. Thank you. Commissioner Regalado: Thank you. Mr. Deon: Thank you very much. Mr. Maginley: Thank you. There being no further business to come before the City Commission, the meeting adjourned at 3: 34 p. m. 19 July 14, 2003