HomeMy WebLinkAboutItem #56A - Discussion ItemPUBLIC FDIANC,L-XL. MAI AGEMENT. INC:.
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Mr. Adolfo Hennqucs
Chairman
Oversight Board
150 West Flagler Street. Suite IS 15
Miami, Florida 33130
Dear Mr. Henriques:
March 16, 1998
Pursuant to direction fwltr the Chief of rtatT of the Financial Oversight Board (tire "FOB"),
Public Financial Management. Inc. ("PI:M") leas examined the proposed budget revisions for
Fiscal Year 19911 ( the -Budget Plan") approved by the Estimating Conference on March Q
I998 and submitted b} the City of Miami (the "City") to the FOB on March 13, 1998. The scope
of our examination included reviewing supporting documentation for proposed revisions to
revenue and expenditure forecasts, interviewing key City staff as well as staff at various state
agencies as well as preparing independent estimates of recurring and nonrecurring revenues and
expenditures. The R-,Ilov:ing report presents our findings, conclusions and recommendations
with regard to the City's Budget Plan.
Findings.
During the course of our examination a number of conditions were noted which, in our opinion
warrant discussion. In general, we observed that there is not sufficient linkage between the
budget and finance functions within the City to insure that financial information is recorded in
the appropriate budget line items or that encumbrances are properly relieved when expenditures
are recorded. in soine instances budget codes are not revised to reflect organizational changes
and unnecessary codes were not deleted. We also noted that. in some instances. revenues and
expenditures were not posted in a timely fashion thereby misstating the year to date information
in various budget line items. Additionally, we were advised of instances where invoieCs were
not paid timely or capital equipment purchases were recorded in operating line items. The
current situation must improve in order for the executive management of the City to properly
monitor revenue collection and control expenditures to the degree necessary to insure that
revenues and expenditures projected in the proposed Budget Plan will he nett,
In point of fact. the plausibility of this Budget Plan relies predominately on the ability of the City
to control expenditures. They Budget Plan estimates a $15 million reduction in expenditures from
the hudget approved in September, 1997. Of this amount, approximately $6 million results frown
reductions in salary and wave line items while $3.5 million stems from the reduction of fixed
operating expen,es such as group health benefits, police ton liability and workers compensation
medical payments. In large part these reductions were justified by the City ota the basis that the
initial budget estimates over projected the annual costs. The salary and wage reductions are
predicated on the City's most recent salary and wage projections which ara based only on filled
positions. Consequently, to meet these projections the C'itY'3 executive management will need to
control very closely the addition of any new personnel.
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Mr. Adolfo Hrnriyur5
Chairmin
Oversight hoard
March 16, 199A
Page
The foregoing c.►atnicnts, howe.cr, are not intended to ,ninimile the intportance of revenue
collection to achieving the Budget Plan. Much as with the 1997 Recovery Plan. the City has
cobbled togethor a combination of resuming revenues such as the solid waste fees, interest
Income and fire safety fees with non -recurring revenues such as land sales and the sale of fill to
project a net increase aver the adopted budget of SI2.2 million in revenues. This net difference
takes into account the elimination of $23.9 million in fire fees chit resulted from the City
Commission's failure to passed the fire fee ordinance on second reading. The solid waste fee by
far represents the largest ct)urce of recurring revenue, accounting for almost $10 million. The
protxeds from the sale of the FT C tract at S32 million and the sale of the Municipal Justice site
at $5.7 million represent the two largest sources of non -recurring revenue. Ir short the one time
land sales have, as in Fiscal Year 1997.. have served 1s the City's primary source of funds to
meet its obligations.
Finally, as we have noted on several occasions. the City's financial reports include only a ponlon '
of the total financial picture. Capital projects funded from hand pr(mveds or grants are not
included in any of the analyses or projections which we have reviewed. in fact, all grant
revenues and expenditures are excluded from the City's analyses and projections.
Conclusions.
The Budget Plan m submitted complies from a technical standpoint with the requirements of the
Intergovernmental Cooperation Agreement. That is to say, the budget is balanced and budgeted
recurring revenues exceed budgeted recurring expenditures. The surplus. however, is razor thin:
slightly more than one-half of one percent or about $1.6 million. to large part, the City made
adjustment.;i to projections of recurring revenues and expenditures based on historical patterns
rather than tin the implementation of new initiatives. In our opinion this approach will not
address.. satisfactorily the long term structural deficiency in recurring revenues that faces the City
of Miami. In point of fact there has been no substantive improvement in the City's financial
condition since last year. The process in which we have engaged in over the last several weeks
is hauntingly reuniniscent of the endeavors which lead to the development of the 1997 Recovery
Plan. Specifically, the City has targeted sales of surplus property, recast projections for selected
operating and personnel case and substituted grants and other non -general fund revenues to fund
general Bend recurring expenditures. In fact, the document submitted by the City might well be
called the 1998 Recovery Plan.
Recommendations.
As the City's executive management prepares the mandated revisions to the Five Year Plan.
PFM believes that it is vital for the City to include all City funds in development of the Five
Year Plan. As wv have noted on numerous accacinnc, nun -general fund capital project funds and
grant funds ar-e not included in any of the financial reports provided by the City. The potential
for these Ponds to affect general fund resources in significant as evidenced by the recent
disclosure pertaining to questioned costs by the U.S. Department of Housing anti Urban
pevelopinent ("WD"). Consequenrty, PFM recarnmends that the City conduct a
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.Mr. Adolto Henr'yues .
Oversight Beard
March 16, 1998
Page 3
couiprvhensive acsessutent and evaluation of the grant and capital improvement funds so that
tbey may by included in the impending revisions to the Five Ytar Plan. To do otherwise presents
only a partial view of the City's tuzancial condition. 111is matter has been discussed for saver&[
tnonths, however, we believe that it is imperative Car zteps to be taken now to address this
planning deficiency.
Furthermore. the City's Budget Plan requires the exercise of extensive discipline, particularly in
the area of expenditure control. PFM recommends that the Ovarsight Board require the City to
provide, as a part of its monthly Budget Report, a section which details any changes in the
number of personnel and associated costs. We believe that this in(hrmatio n will be essential in
evaluating the City's ability to Meet its projections on annual salary costs.
Our earlier. Comments regarding the lack of sufficient linkage between the finance and budget
functions suggest that City Manager should direct KPMG Peat Marwick to focus on the Fitnarm
Department as the subject for the next departmental strategic plan. The efficient and effective z
operation of this department is critical to the City's suc:eevtt in achieving its Budget Plan for
Fiscal 1998.
Finally, PFM recommends that the Oversight Board approve the Budget Plan submitted by the
City with the following provisos.
• The City stipulate to a time certain for the adoption of an appropriation
ordinance incorporating the 1999 Budget Plan as the City's Revised Budget,
• the surplus shown :in the Budget Plan is to he established as a reserve in the
appropriation ordinance to be adopted by the City Commission, and
• any shortfall in the receipt of Department of Justice grunts including the Law
Enforcement Block grants will be offset by a reduction in Police Department
recurring expenditures.
In summary, although the City has submitted a plausible Budget Plan. the prospects for its
success depend on it Itlgh degree of fiscal discipline which heretofore has not been demonstrate&
by the City. The Budget Plan makes no substantive improvement in the City's long term ahilky
to address the structural imbalance between recurring revenues and recurring expenditures. As a
consequenc4 the development and preparation of revisions to the Five Year Plan is increasingly
more critical to long terns fiscal health of the City.
. Please advise, if you have questions on this matter.
Sincerely,
PUBLIC FINANCIAL MANAGEMENT, INC.
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Phillip N. Brown
Senior Managing Consultant
/16/96 4:001