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HomeMy WebLinkAbout3. Joint Meeting with Telecomm Advisory Commission 3 . CITY OF SHAKOPEE Memorandum TO: Mayor and Council Telecommunications Advisory Commission Mark McNeill, City Administrator FROM: Gregg.Voxland, Finance Director SUBJ: Fund Merger DATE: March 17,. 2009 Introduction Council is requested to consider merging the Telecommunication and Recreation funds into the General Fund. Background The Governmental Accounting Standards Board (GASB) sets the rules for governmental accounting. GASB has been working on a project since 2003 that would require the consolidation of the Telecommunication and Recreation funds into the General Fund. The City needs to follow these rules or risk getting a qualified opinion on its audit and the negative impacts that' follow from that opinion. Negative impacts include; . The City's financial statements not meeting generally accepted accounting practices/standards . Response from the State Auditor . Influence on the City's bond rating . Purchasers of the City's bonds requiring a higher interest rate . Public perception that the City does not have its finances in order. The basis for the change is that there is no requirement (external) for these revenue sources to be separate. The PEG fee portion of the Telecomm fund could be kept separate. As it stands now, the change would be required for 2011. The rule has not been formally adopted yet but is expected within the next few months. Early implementation of rules is encouraged by GASB and there does not appear to be any advantage to delay until 2011. Within the General Fund, Telecomm would be set up as a separate business unit or cost center within the Administration Division. Recreation would be set up as a separate division. Applicable revenues and expenditures would still be recorded for those activities. They would compete more directly with traditional General Fund divisions for budget dollars. The existing fund balances would be transferred in to the General Fund at the end of 2009 if implemented for 2010. One issue for Council to address is whether any or all of the Telecomm Fund balance that is transferred in to the General Fund should be designated for future "Telecomm use" or just be part of the General Fund balance. This could be addressed during the 2010 budget process. Alternatives l. Implement change for 2010. 2. Wait for final ruling with anticipated implementation in 2011. Recommendation Implement change for both funds for 2010. Action Requested The City Council is requested to move to consolidate the Recreation Fund and the Telecommunication Fund except for the PEG fee into the General Fund for 2010. Gregg Voxland Finance Director 1I: \Finance\budget\ City of Shakopee Memorandum TO: Mayor and City Council Telecommunications Advisory Commission Mark McNeill, City Administrator FROM: Kris Wilson, Assistant City Administrator SUBJECT: Implications of Telecom Fund Changes DATE: March 18, 2009 Introduction The City Council and members of the Telecommunications Advisory Commission (TAC) are asked to discuss and provide direction regarding some of the questions and issues raised by the anticipated changes to the Telecommunications Fund. Background As the City's Finance Director describes more fully in a separate memo, the Government Accounting Standards Board has published a proposed new standard that cities should only maintain separate funds in cases where there is a legal or contractual restriction on the city's use . of those funds. The proposed standard is on track to be formally in place for the 2011 budget year, however, ML V oxland is proposing that Shakopee go ahead and implement the necessary changes as part ofthe City's 2010 budget process. Currently the Citymaintains a Telecommunications Fund, which has two sources of revenue - franchise fees paid by Comcast Cable and the Public, Educational and Government Access (PEG) fees collected from residents by Comcast and passed along to the City. In 2008, franchise fee revenue totaled $303,883 and PEG free revenue totaled $33,035. Our franchise agreement with Comcast creates a contractual obligation for the City to spend PEG fees solely on capital purchases associated with operation ofthe Public, Educational and/or Governmental Access channels. However, there is no obligation to spend franchise fees on these activities. The City has the authority to spend franchise fee revenue however it sees fit. Therefore, with the implementation of the new accounting standards, the Telecommunications Fund will becomethe PEG Fund and will receive only the PEG fee revenue. Any unspent PEG funds will roll-over from year to year in this account. On the other hand, franchise fee revenue will be deposited entirely in the General Fund. Many of the staff costs and expenditures currently supporte~ from the Telecommunications Fund budget will now become General Fund responsibilities. Current activities supported by the Telecommunications Fund, that cannot be paid for with PEG revenues, and therefore would become General Fund responsibilities, include: wages and benefits for the fuIr-time Telecommunications Coordinator, wages for two part-time cable technicians, annuaFmaintenance on the City's I-Net, webstreaming of City government meetings, the R& D fund which supports innovative technology investments in other City departments, equipment repair and maintenance and general office and studio supplies. One option is for the City to simply continue spending revenue derived from franchise fees on telecommunications activities, but to do so through the General Fund. During the annual budgeting process we would estimate the amount of revenue expected from franchise fees and prepare a telecommunications division budget that spends that amount of General Fund dollars. However, given the current budget picture, the telecommunications activities traditionally funded with franchise fee revenues mayor may not be the highest priority use of these funds. For 2009, the City ,Council allocated $100,000 in franchise fee revenue to the General Fund to support activities unrelated to telecommunications. At the time, several Council members expressed the desire that this would be a one-time only occurrence. However, as we all know, economic conditiqns have only worsened and the City's budget situation has only tightened since that time. Therefore, the City Council will ultimately need to decide how much to allocate to telecommunications activities moving forward. Stability of Franchise Fee Revenue In 2006 and 2007 ,~here was a significant amount of discussion at the state and federal level about restricting munici~alities' ability to extract franchise fees from cable providers as part of the negotiation of cable franchises. At that time, Shakopee appeared fortunate not to have its franchise fee revetiue intermingled with other General Fund activities, such as police, fire and public works. Cities that were using their franchise fee revenues to support these activities were significantly more worried about the potential loss of these funds than we were. However, in recenr years, the discussion of cable franchise fees and PEG fees has diminished to virtually nothing and these revenues no longer appear to be in danger. The FCC issued rulings that imposed some limits, but Shakopee was already receiving only modest franchise fees and PEG fees from out cable provider, and therefore felt no direct impact from the new rulings. While it is always'possible that the political attention paid to local cable franchises could pick back up in the fu~re, at this time the revenue received from our 5% franchise fee appears to be fairly stable and reliable. This again leads to the question of whether the City wishes to allocate the amount it receives in franchise fee revenues primarily to telecommunications activities or if there is a higher priority use for these funds. Fund Balance As a separate fun<J., the Telecommunications Fund has retained any unspent funds at the end of each budget year.' As a result of conservatively estimating revenues, under spending the approved Telecom budget numerous years in a row, and earning interest on the fund balance-- an $812,000 fund balance has been built up in the Telecommunications Fund. Members of the TAC have often l()oked at this fund balance as a savings account that could be used to equip a new control room in a future City Hall. However, at this time, construction of a new City Hall has been dropped from the City's 5-year CIP and is something no other City department is currently planning for. Does the City want to somehow continue holding this sum of money for a control room in a new City Hall? Ifnot, are there other telecommunications-related priorities that it should be spent on or should the fund balance be transferred to the City's general fund balance, which is currently at the low end of the desired range? Ifthe fund balance were to be used for alternative telecommunications-related projects, two possibilities might be: 1. Improvements to the Council Chambers, which essentially serve as our "studio" for Government Access programming. With it appearing increasingly likely that we will be in our curre,nt City Hall for many years to come, is it time to upgrade the Council Chambers - both for its general use as a meeting room and to improve the final product in terms of a television production? This might include improvements to the wall color, lighting, cameras and camera angles, podium location, etc. On one hand, spending the accumulated fund balance on such a project seems to somewhat honor the TAC's original intent - investing in the Council Chambers. In this case it would just be our current Council Chambers, rather than one in a new City Hall. On the other hand, at a time when the City is facing significant and painful budget cuts, is spending on the Council Chambers really a priority? , 2. Transitioning to a "Paperless" Council Packet. There are cities and counties in Minnesota that have invested in a variety of technologies that have allowed them to eliminate tne voluminous packet of paper delivered to City Council members, Commissioners and staff on a regular basis. Such a project would require substantial research to,'determine the best approach, but has the potential to provide environmental benefits ang staff efficiencies if done correctly. These are just two possible uses of the existing Telecommunications Fund balance, and neither would likely come' close to spending the full amount of the fund balance. Role of the TAC Finally, with the proposed changes to the Telecommunications Fund, what is the appropriate role or mission for the Telecommunications Advisory Committee moving forward? Ifwe are entering a time when fewer resources will be allocated to telecommunications and therefore fewer telecommunications projects are likely to be pursued, will the T AC need to continue to meet monthly? Does a Telecommunications Division that is within the City's General Fund warrant Commission oversight of its expenditures while every other General Fund division operates with only'direct COUl1cil oversight? Should the T AC focus its budgetary oversight on the PEG fund and possibly the R&D fund (assuming that continues)? Requested Action Following discussion of the accounting change presented by the Finance Director, the Council and T AC are asked to discuss and provide direction on the issues outlined above.