City Council - Regular Meeting

property and we are calling this uh workshop um for the city council for April 7th and to order. And one of the things we wanted to do was to move we had number four is the vacant building registration ordinance and we're going to move that up um to number two. And what we'll want to do on this one is during our session, we had some questions about different areas. This is up to the council. This is your workshop, our workshop, and for us to be able to go through it and see if we have any other issues that we wanted to discuss. If there's anybody in the audience that would like to address anything, what I'm going to do is I'm going to go by section by section. And if you have an issue with that section, then you need to speak up. I'm going to keep it to two minutes. And if somebody else wants to say the exact same thing, please just raise your hand and say, "I agree." But we're not going to go over it and over and over again. Okay? All right. So, the ordinance is number 20 26-301, and it's the ordinance on the vacant buildings. The section one is the incorporation of the findings which is just stating uh and section two is the amendment just stating that we're changing or adding to the ordinance that's already in place. All right. So we're going to start with article 9 vacant buildings and section 22-266 the purpose. Does anybody have any questions or comments? All right, council feel comfortable with that section. All right. Uh section 22-267

which is definitions. Does anybody have any questions on that? Okay. So we will move on to the next section which is section 22-268. It's applicability in administration. Does anybody have any issues with that section?

Mayor, I would like to speak a little bit. Um there is a an internal question and I think we're going to have to give some clarifying language as you move from the definitions section to the applicability section then to the registration section. And so within definitions a vacant structure means all lawful activity has ceased or reasonably appears to have ceased for 30 days. So, as we look at the timeline for how this ordinance comes into play, uh when city staff uh observe a structure over a 30-day period and it reasonably appears that there's no activity there, uh then we have the option to issue the uh notice of determination, which is also something that is identified in the definitions. It's basically something in writing from the city to the property owner that it appears that this property is in a vacant status. That notice of determination then starts the clock for section 22-268. If it's a commercial property, they've got 90 days to respond to that notice of determination. If it's a residential property, they've got 180 days to respond to that notice of determination. And so in that time period, if you will, the grace period, they've got the opportunity to to coordinate with staff and demonstrate that it is not vacant, that it is being used for a lawful purpose. And then if we determine that it's not vacant, then we close that time period and they go on operating just like they did. However, if they get to the end of the 90 or 180day period, whichever the case may be, if we've not

determined that it is occupied, that it is in fact vacant at the expiration of that time period, 22.269 kicks in, and they've got to register. Where it gets confusing is 22-269 section A says the owner shall have 90 days in which to register. If it's a commercial property, they've got 90 days from the date of the notice of determination through that grace period for us to work out whether it's vacant or occupied. At the end of that time period for commercial, it's a 90-day period. Then they've got to actually register. Commercial, it's 180 days. And this section's not real clear because it just says they've got 90 days. And so we're going to add language that mirrors the uh 22-268A that's 90 for commercial and 180 for residential so that there's some more clarity

uh in the language in those two sections. The point being is that if staff feels like there's a reasonable assumption that it's vacant, they've got 30 days to observe the property. We provide the notice of determination. The property owner then has the right to present their case to city staff that it is in fact occupied or has a lawful use. And if they're successful, then the process is stopped and they go on enjoying their property. At the end of that 90 or 180 days, that's when registration happens if it is determined to be vacant. So, we just want to make sure we'll be adding some clarifying language through that area.

Okay. All right. So, does anybody have any other questions or comments about section 268? Then in 269, how's what you just brought up would be included in section A. Yes. And does anybody else have any other questions in that area in that um section?

Mayor, paragraph 4 will be removed uh because it calls for a proof of liability insurance and we're removing the the insurance section. Uh so paragraph 4 uh and section 269 will be removed. Okay. Does anybody else have any questions on that or comments? All right. So, registration, we will be making two changes then. Okay. All right. Now to section 270, which is just saying it's a registration fee. Uh 271 is the required insurance that would be entire section. It'll be reserved. You'll you'll see because to keep the numbering consistent, we'll just have that section 271 will say reserved and that'll be it.

You have questions. I know on the agenda later

that's in the fee uh ordinance that we'll be going over. That's still the proposal. It's still Thank you. Can I just ask a question? If it cost a rental homeowner $25 for an inspection, why is it 250?

John, I'll take first shot. Um, an RSI inspection for a rental property that's occupied. uh is done by a single code enforcement officer. Uh and they walk through the property looking just for basic life safety uh protections for the tenant. Uh because in a a tenant landlord relationship, uh the tenant doesn't own the property and if there's life safety concerns, uh the tenant usually doesn't have the authority or the resources to make those improvements. So, a code enforcement officer will come do an RSI, which is a life safety inspection. for a vacant building, we add fire inspection. And so, we're bringing a fire marshal. Uh they're they're checking that property for fire code violations. So, we add staff and we add time to that inspection process. And so, we want to make sure that we've adequately covered the cost for adding those fire inspections. Some of our other fees we're finding don't necessarily cover our cost of those inspections. So, we're evaluating fees in other places and you'll see the fee ordinance come back. Uh, and so when we find that the current fees don't cover cost, we'll be making recommendations through the budget process for adjusting those fees. This is a brand new ordinance and so we want to make sure that we're covering our cost for the staff and the time uh perform those. It's a different level of inspection.

At any point, will there be architectural uh inspections? No, I don't envision. In this case, that would be a substandard dangerous building and that's a different process. The uh cost of current fire inspection is that $68 and we've found that those fees aren't adequate to cover our cost and so we're going to be bringing recommendations for those fees. Okay. So, um,

mayor, the the philosophy there that we're trying to move to is that when our staff in the general fund are performing services that you can reasonably attach the cost of that service to the user of that service, uh, we want to make sure that the fees recover those costs. Otherwise, the taxpayer at large is subsidizing that work. and and so if my neighbor has an inspection, I don't want to pay for my neighbor's inspection, the the fees should cover those costs. And we're finding that those fees haven't changed substantially in years, and they don't cover cost anymore.

Okay. All right. Any more anything else on that area? Right. So, we'll go to what is currently 272, which is property manager and supervisor. Any questions or comments there? Okay. Section uh 373, property maintenance. Any questions or comments?

Mayor, I do want to point out paragraph B within section 273, any fire safety system installed in the vacant building shall remain fully operational during the period of vacancy. It's usually only large commercial properties that are required to have uh those fire systems. So we are not adding requirements for fire systems and buildings that do not currently have that requirement under fire code uh in our international building codes.

If it If it's we're under our 20 we're under the 2018 codes. Uh but a vacant building uh typically has to comply with the codes that were in place at the time it was constructed. Uh and if someone comes in and does a remodel I believe of at least 51% of the property, then it triggers uh update to the current code. So, if a vacant building was constructed during a prior code, we're not forcing it to be brought up to current code unless there is a significant remodel or rehab project that would trigger that provision. So,

any more comments? So, this section paragraph A includes keeping the yard in a decent shape while the building is vacant.

Yes. Which again, we've already got code enforcement for rubbish and debris and high grass and weeds. So, the property already has to comply with that. Um this is again just kind of restating that u understanding that all property has to be maintained to those standards whether it's vacant or occupied. Anything else? Okay. Section 274 standard of care for vacant property. Any questions or comments? So section F right there is what we were just talking about basically. Anything else to that section? All right. Moving on to 275 enforcement and penalty question for I mean somebody could have significant

building a downtown the roof is falling again and the person is doing anything about it and I don't want to get into properties on street back in 2004 and of course you guys know there's plenty of buildings that have been for sale for a while and a commercial I sold mine in 2004. that appraiser said in commerce on average commercial propert. So, you know, is there going to be if somebody's legitimately trying to sell because, you know, it's it's a tough there's a number of buildings downtown for sale that might be considered vac for sale for an extended period of time is the city if there's effort I guess

there has to be active active

sir mayor if I may section uh 268 on the applicability and administration paragraph C city manager or his her design shall have the authority to render interpretations of this title and to adopt policies and procedures in order to clarify the application of its provisions. So, as we discussed, um, if a property has an active building permit where they're doing renovations, that building permit usually has a 180day life cycle. And if they're continuing to do work, we continue to extend that building permit. So, a property that's had a building permit and then they complete the work, the permit's closed, they've got a certificate of occupancy, and then it goes on the market for sale. We have the opportunity to continue to extend 180 days at a time that this is still actively on the market and they're making a a good faith, reasonable effort. That's not going to be considered vacant for the purposes of of this program. Um but then there are also going to be for example uh buildings that are somewhat substandard. Um we'll use a completely different tool from our toolbox for substandard structures. It is not the intent of the vacant building registration program for us ever to take over or assume ownership of properties. Uh and so there would not be a case in which we use this tool in our toolbox to foreclose uh or to take properties. Uh the only toolbox that we use, only tool in our toolbox that we currently use for that are back taxes. Uh and so we continue to work with property owners that have back taxes. Um we've very rarely claim uh we just recently claimed the old Ponderosa. Uh but I personally worked for three years with that owner. Uh giving them opportunities to to get something done. And and so our intent is always to to give our good faith effort along with the property owner. uh if it's a rental

property that just doesn't have a tenant, but it's listed. Uh again, my staff and I have the ability to to reasonably work with the property owners. Uh to the gentleman's question, uh if you've got a vacant property that's a single family residential, it's in state of disrepair, and it's on the market for $5,000 a month, they can claim it's on the market, but that may not be an adequate defense to keep it from being considered vacant. Uh and so once a notice of determination is given, we've got 90 to 180 days to work with the property owner to come up with a reasonable determination. Uh and so if it's currently on the market for sale, that is what we consider a reasonable determination that it's considered occupied. Uh but if it's not been worked on, there hasn't been a building permit in 10 years and it's for sale, um it may be vacant while it's for sale because we need to make sure we've got inspections on there. So we'll case by case basis, but it is our intent to be accommodated.

Is there a level of reasonable determination that it's for sale? I mean, for instance, I'm thinking about some buildings downtown that have had a just a for sale sign in the window for years and the prices, you know, no one's touching them. At what point where where do we go with that? I mean, just a sign in is that reasonable termination or do you have to list it or

I would assume it needs to be listed, but um again, we'll case by case basis. Um if the tax appraisal district says it's worth $150,000 and they're asking half a million dollars for it. I don't know that I would consider that reasonable and it may be determined to be vacant so that we can get safety inspections in there. Um but if it's within a reasonable range of a fair appraisal and it's it's for sale, um we'll work with the property owners. Okay. It's not intended to be punitive, right? Uh this program is intended to allow us to verify that the public safety is being considered uh and how the property is maintained.

Okay. Thank you. What section was I on? I did. Yeah, we went back. So we're at 275 now. 275. Okay, good deal. Thank you. Keeping me. All right. Because I've lost lost track here. So it's enforcement and penalty. Any questions on that one?

Mayor, I will say that this section is very consistent with almost all of the other ordinances and regulations that we have in place. Uh, as a home rule city, we do have the ability uh to put enforcement and penalty clauses in these regulations. Uh and uh paragraph C uh of section 275 does state that it is a class C misdemeanor and that each day can be considered a new violation. That does not mean that we're going to write a citation every single day. Uh that's that's not automatically the trigger, but it allows law enforcement and allows staff to to make a determination if if they're being reasonable in working with us. uh but you also unfortunately have people that choose not to be reasonable and we've made every good faith effort that we can then there are tools to gain compliance through writing multiple citations. That is a measure of last resort. Um but we have to have some way to ensure enforcement of regulations and this is consistent with almost every uh ordinance and regulation that commerce has on the books. Okay. Does anybody else have any questions or comments? And then section uh 340 is reserved. And then we have section three is any in four and five. Does anybody have any questions on those three? Okay. So, we'll take action at the council meeting

on the second reading and we'll have um make sure notes here that we're adding in section A and section 22-269 the clarification on the 90 and 180 days and then we'll be taking out or reserving section 271 and taking out requiring insurance. We'll also remove paragraph 4 from section 269. 269. That's right.

And and so it has passed first reading. Uh, no action was taken at the second reading. So, if you instruct us to, we'll put it on the agenda for the regular April meeting. You'll need to remove it from the table, then consider the second reading, and then you can uh pass or fail. Uh, I believe the way our charter is written that an ordinance has to successfully pass two readings. It's only passed one reading. So, when we get to the next meeting, you remove it from the table. Um if it doesn't pass on that second reading then the ordinance is not valid and not effective.

So I'll change the date when I make up so excuse so she can good luck. Yeah. It's an important milestone. Yeah. Okay. So, we'll close that and then um we want to go into the fee. Uh I don't I mean the reason we tabled the fee was because we had this ordinance that we wanted to look at before we passed that one.

Correct. So since we have any since we have the changes that we have, is there any issues that anybody had with the fees in that fee ordinance that pertained to this actual ordinance? Because the other part other one was the uh tires.

Does anybody have any questions or anything on that? I don't see anybody at the last meeting. Not on the fees portion. So then that will go back onto the council agenda for the next meeting. All right. So now we'll go into number two which is our audit. We had tabled that as well because we had just been handed that. And so now Howdy has uh put some information together for us to understand the comparing what our audit is which is great.

Most of you should have a physical copy of the audit report. And so I want to take a few moments uh to kind of walk through what the report says and then maybe some attempt to interpret what it means. Uh sometimes we can say something and not actually know what we said means. Uh and so I'm put together a small slide deck. I'm going to try not to nerd out and and get way way deep into the accounting minutia. Uh, but I think it is important for elected officials and the public at large to have some fundamental understanding of what an audit report means and how to try to read and interpret what it says. And so, um, as we walk through this, uh, bottom line up front, uh, the city was given a clean audit opinion. And so, uh, when the auditors come in and and she gave a recap of what their process is intended to do, uh, they review how we record financial transactions and how we report those transactions and then they review the management controls in place for how we control the use of public funds. Uh, and so the ideal result is to get a clean uh, opinion. uh or you can get a qualified opinion which is a step down. Uh it is a a a lower uh result and and a qualified opinion usually means they did okay, but we've got an asterk on here and here's some problems that we found with the way they're recording transactions and the way they're reporting the results of those transactions. Or you can just get a a failed opinion. Uh, and so the city was given a clean opinion and we've consistently been given uh clean opinions uh as long as Jaime's been here. I don't know about prior to that.

Uh, and that's intended to give the public some sense of confidence uh that staff uh is assuming a great sense of sobriety and responsibility in how we manage the trust that is given to us in the public resources. And it's not our opinion saying, "Yeah, we do." Okay. It's an independent agency that you hired that presided presented you as the elected officials an independent report evaluating how fairly we record and report transactions. So, we're very pleased that we got a clean audit. Uh within this report, we're going to see uh evidence that we continue to maintain a strong financial position. That has not always been the case. Uh but this report validates uh that financially uh the city is in a strong position could be stronger and we'll get to some of those numbers. Uh but there are really two independent report cards uh that local governments are given about how well they manage the public resources and the public trust. One is the audit that ensures that from an accounting point of view we're fairly recording and reporting transactions. The other is your bond rating. Your bond rating is like a credit score for an individual and it is to apply some level of risk to investors. So that if an investor is going to buy a a financial instrument from this municipality, how much risk are they assuming that the institution will be able to honor its debt requirements? We've been able to upgrade our bond rating uh which for a community our size and in our social economic conditions, the bond rating agency said that's fairly rare. Uh and so the fact that we've been able to improve our bond rating shows that that we are a safe investment for investors from a financial point of view. So those are

two very important independent report cards uh that speak to how a city or municipality is performing. Finally, uh last point that we do need to pay attention uh to the continued growth and how we leverage and use debt uh to and to to reach for capital infrastructure needs. We're going to get into what some of those numbers look like and what they mean. Uh but there's some warning flags included in this report. Uh and it was mentioned in our last bond rating that if we're not careful, we'll get too much leverage or too much utilization of debt to accomplish things. So, we need to make sure that we're paying attention to those numbers uh as we proceed. Um, if you get to the section at the front, it's called management discussion and analysis. This is somewhat like a executive summary when you get a large technical report. Uh, the executive summary is intended for you to be able to read, get a snapshot without going through all the pages and all the uh minutia of detail. Uh and so some of the things that it talks about in the management discussion analysis is there's some distinct differences in how financial reports are presented for local government entities as compared to private sector businesses. Uh if you're an investor that you have stock in publicly traded companies, there are standard financial reports that they're required to provide from the SEC and those financial reports have a format and you have to follow that format. And if you're used to looking at a balance sheet or an income statement from an SEC regulated entity and you open up our financial reports, they look different because governmental accounting rules are different than generally accepted accounting rules that are used in the private sector. Uh and so you're going to see statement of net position. That is our version of the balance sheet. It

still has assets, liabilities, and we don't really have owner's equity. We've got net position which is the same concept of equity. And if you will think of it, assets are the things we have. Liabilities are the things we owe. And the net position is the things that we own. And so if we've got a $100 in resources and $50 in liabilities, then half of what we have we owe debt on. Uh and half of what we have we own free and clear. And so as we look at net position, what do we have? What do we owe? And what do we own is what we're looking for. Statement of activities is the traditional income sheet income statement. It's going to be formatted. It's going to look different. But ultimately the question is how much money came in, how much money went out, and at the end of that period, how much money is left over. And so when you look at a statement of net position, it is a snapshot in time on this day at this time of day. This is a photograph of your financial position. Statement of activities is over a period of time for us a fiscal period of 12 months from October through September of the following calendar year. And so that statement of activities is activity over time whereas your net position is a photograph, a snapshot. So statement of activities is a video or a Facebook reel. Uh and net position is just a snapshot. And so as we look at uh some of the numbers that are included, these first two slides are going to be what are called combined financial statements. Um governmental accounting and the rules in which we live and follow. Our dollars are collected in funds. FU ND. We think it's fun, but it's called a fund. That's my dad joke

for the day, mayor. You're welcome. Um, and so each fund has a unique set of accounting rules that it follows. And so for our purposes, the governmental funds are in one category. And this statement clumps them all together. And then the enterprise or business type funds follow a different set of accounting rules. And so those numbers are presented separately. Then you put them together to see what's the city organization as a whole, what's going on. And so if I may uh in this uh report, um fiscal 25 is the period that we just closed and that this audit report is talking about. And so for our governmental funds, uh they had assets of $42.6 million deferred outflows. This is one of the things that's weird about governmental accounting. I still don't know that I've completely wrapped my head around what deferred outflows and inflows are going to be. Uh but generally we operate governmental funds like a checkbook. Uh and so what that means is that there are transactions either cash or transfers of assets that happened in this calendar period but they're intended for the next fiscal period. And so a transaction happened now, but it really doesn't hit the accounting books until next fiscal year. And so it shows up here uh and it confuses me and everybody else. Um but in fiscal 25 for the governmental funds, there's $283,000 in outflows that happened that are going to be assigned to a future fiscal period. uh liabilities, the things that we

may I you may correct whatever I just messed up. So, a deferred outflow, a lot of this has to do with very specific accounting laws,

things that are considered a deferred outflow are going to be um uh benefits to people who have retired, benefits to people who have passed on but were a part of our retirement. So, we call those opeds. And then at the same time we have what's considered compensated absences. Compensated absences are where we we are acrewing if somebody was to retire. If everybody was to retire today, what we would have to pay out these are set by law that we have to do that. So our deferred outflows are exactly what how's saying except for they are they are

commitments commitments in the future but typically they are very far far future and and they are required by state law. Um and so the acrruals our annual acrals are would still be in our liabilities. Um, but for your deferred outflows, they are typically related to state law requirements that we have. And every every time there's a new session, they come out with a new one that that that they feel like we should be doing that we're not doing.

So this year, that's that's why you see the shift from year to year. A lot of it is because the laws have changed on how much we have to acrue, how far back we have to acrew, that sort of thing.

So you'll see in fiscal 24 under the governmental column, total assets were $35.1 million. For fiscal 25, $42.6 million. So there was some growth in total assets. Deferred outflows in the previous period was 663,000 and this period 283,000. the rules in how you account for all of that is a moving target. Uh that doesn't mean that we saved $400,000 somewhere. It's just a unique accounting thing that we've got to recognize. Liabilities, how much we owe. Uh governmental funds 32.4 million. Deferred inflows are similar in nature. So total assets for governmental fund are $42.9 million. Liabilities 32.6. So things we have 42.9 million things we owe 32.6 million for governmental funds and the difference is 10.2 million. Now that $10.2 million of net position is not all cash. 6.6 of that is capital assets that aren't liquid and you can't use to pay the bills. You can use them to generate income but you can't use them to pay the bills. Uh and so within our net position, we have restricted equity, which generally is cash that's got a specific name on it, and then unrestricted equity that for the most part is cash or liquid uh assets that can be converted to cash. Uh and so for the governmental fund, 42.9 million in assets, 32.6 in liabilities with a net position of 10.2. taking that snapshot and comparing it to the prior year. Uh last year we ended with $10.79 million in net position. Uh and we ended

this year with $10.23 million in net position. So there is a draw down or reduction in net position. Uh some of that was intentional as we'll see in future slides. you're looking at over time how is our net position changing fiscal period after fiscal period after fiscal period and so we're going to see uh some of those numbers in a future slide the business activities uh water sewer trash um there's some other funds in there also have seen some growth total assets in fiscal 24.4 million uh we closed this fiscal period at 27.4 4 million. So there was some growth in assets. You also see some growth in liabilities because we had to borrow money for some of the capital projects. We went from 14.5 uh to 16.6. Uh net position went from 10.8 uh to 10 799. So it was basically uh level in the statement of net position. Statement of activities again this is the the Facebook re activity over a period of time. Uh in fiscal 25, the governmental funds had 11.865 million of revenue and they had 11.919 of expenditures. So you had an operating loss of basically $54,000. Uh then there was a transfer in of $99,826. So your net income for that period uh was $45,93 effectively a break even operation. Uh you can see that we had an operating loss uh that generally is not desirable. U but as we'll see there was some planned expenditures. Uh we knew this

was a condition and we budgeted because we drew down some of our savings account if you will to purchase items with cash. Um, and so when that happens, you're going to see things like this in a governmental statement. Business, which is our uh utility fund and others, had revenue of 8 million, expenses of 7.8. Uh, so there was a $245,000 net income from our business operat. Uh, but then they had a transfer over to the general fund. So ultimately, their total net income was $145,000. So total city all in. uh we finished that year $191,000 in the black. The prior period, for comparison, we finished fiscal 24 with roughly $300,000 uh in the black across our all of our operations. All right, this is a very confusing sheet. You should have a hard copy of it, but I'm going to uh attempt to make it a little bit more legible. U for those of us uh in the audience

be on page 22 of your aud.

So there's a couple of things that the the format is weird and it's not formatted like any financial statement you've ever seen in an SEC report. Uh welcome to government. Um but what you'll see for governmental activities, those are those operations that are considered governmental and not business type. uh you've got lines for the various departments and the expenses. And so you'll see uh general government had $2.9 million of expenses for that period, revenues that are non-t tax revenues. And so you you've heard us talk about sometimes there are services that we provide that you can track the cost of this service directly to the user of that service. So you have a fee, you have some kind of charge. And so in this box of revenues, these are non- tax revenues where we were able to bill someone for a service that we provided. This column is operating grants and this column is capital grants and contributions. Uh and so for the general government, we had $2.9 million expenditures, 1.7 million in direct revenue, 270,000 in operating grants. So that operating group had a loss of $989,000. And as you go through each one of these governmental uses, you'll find if they had some kind of corresponding income to offset their expenses. And I want to point out that this judicial line is basically our municipal court. We don't record tickets and fines as police revenue. That's a very important distinction because we don't see cops as cash

registers. Uh, and you'll hear a lot of talk, you'll hear a lot of speculation out in the world that well just write more tickets and you'll make more money. Well, that's something of of a perversion of the intent and the purpose of law enforcement. And so, we don't consider cops as cash registers. So, we're not out writing tickets as a form of revenue. We write tickets as a form of compliance for public safety. And so if people are driving safely, you're not going to see us running around giving a rash of of driving tickets. But if we start seeing that there's an increased level of risk on our streets, then we'll increase enforcement to get voluntary compliance in how we behave in public for the public good and and public safety. But we don't recognize fine and ticket revenue as a police revenue. That's not what its purpose and intent is. Um, so at the end of the day, you'll see governmental activities had 11.9 million of expenditures and they had $2.1 million in direct revenue, 280,000 in operating grants and 910,000 in capital grants and contributions. So after that non- tax revenue, the general government had a loss, if you will, of 8,561,000. So this report then moves to general revenues, specifically taxes. So we've talked about this before. A tax is a revenue that is intended to create some volume of money and that money is used to pay for the general services that benefit the community. And you're not taking a direct link between the property tax bill you got and how much of the service you utilized during the

year. there's not a direct connection and that's why it's listed as a tax. So we had if you will an operating loss of $8.5 million after operating revenues, general revenues of property tax, sales tax, franchise tax, hotel tax, payment in le of taxes and then other revenues that are general in nature. We had 8.6 million in general revenues. So you take the operating loss, if you will, apply the general revenues, then the net income for general government was $45,93. And so these revenues aren't listed up in this section because they're not direct revenues and charges for services. They're indirect or general revenues. And that's why this report separates them out.

They're not a program.

Yeah. business activities, you had $7.8 million in expenditures and 7.9 in revenue. So, you'll see that they had uh an operating income of $85,987. They then have a little bit of general revenue that isn't tied to operations and transfers. And so that's where you net to $145,000 in change in net position total organization. There's your $191,000 uh that we had an improved net position across the entire organization. The one difference uh here is uh the component unit which is our economic development corporation uh they're funded by sales tax and so uh EDC had $50,862 in expenditures over that fiscal period but then they had $82,000 in sales tax and $223,000 of investment income. So they had a million dollars of income with $55,000 of expenditure. So our EDC gained a net $520,000 of of positive uh income uh over that period. And so for their net position, they started the period with 500 5,880,000. Uh they ended with 6,386,000 uh in that position. So EDC is performing strong uh and we've had some very positive uh results from that. So when you look at the activity and how it shakes out, this is an important sheet, but it's also kind of hard to look at. Um and so we wanted to make sure we walked through that u briefly.

Moving on. Any questions at this point? Stop me if I'm boring you to tears. All right. So, one of the things that we track is called fund balance. Um, and that is basically your your net position. If you take the things we have minus the things we owe, what's left is the things that we own. And that is your net position or your fund balance. And so over time, you want to track and see what's happening. And so for the first column, fiscal year 20, five years ago, we closed that fiscal period. Blue is the utility fund. They had a fund balance or a net position of $10.3 million. And you can see over time that 10.3 in this final fiscal 25 is $10.8 million. So we've grown net position over that period of time, which is a positive trend. uh general government or the general general fund specifically here uh their fund balance is a much smaller number again because in governmental accounting in your general fund that is just a checkbook. You're just talking about cash in the general fund. The city owns assets but it's in a different fund and the city has debt and that's in even a different fund. And so for this chart, you're just looking at the water and sewer utility in blue and the general fund in green. And so at fiscal 20, uh we closed that period with $2 million. Uh and that's pretty much cash. And at the end of fiscal 25, we finished with $3.1 million in cash. You'll see that it grows every year, but we closed fiscal 24 with 3.35. We closed fiscal 25 with 3.13. We drew down that fund, if you will, intentionally. There was some

expenditures that we made where we acquired uh some assets uh that we spent fund balance on and it was intentional uh to draw that down uh and acquire some assets that that way. So when you look at unrestricted cash, uh this is one of the things that we look at. Our policy me states that we need to have at least three months of money in the savings account, if you will. And so for this chart, I take a little bit of a a different calculation, what I call unrestricted cash. And so for the general fund, you'll see numbers at the top following the blue line. If you take the current cash that we have, cash and investments that doesn't have anyone's name on it, we've got cash that's set aside that has to be spent on the animal shelter or it's dedicated and has to be spent at the airport. That cash is not included in this number. Unrestricted cash is cash you've got in the bank that doesn't have somebody's name on it. What's that total? Then what I do is from the balance sheet, I take the current liabilities. What are the bills we have to pay this month? And if we pay every bill we have, what's left? That's what I consider to be unrestricted cash. And so we finished fiscal 20 with $1.76 million in unrestricted cash that was available to be used to cover our expenses. And that exceeded that red line, which is our target uh cash basis. And we've continued to grow uh every year until just this past period. We finished fiscal 24 with 2.8 million in unrestricted cash. We closed fiscal 25 with 2.6 million in unrestricted cash. Again, because we were intentionally

drawing down uh some of those funds, but the general fund is in a very healthy, very strong cash position and has been growing and improving over time. utility fund is a different story. We've had this conversation before. That red block is the targeted 25% of your operating budget, three months worth of expenditures. And so in fiscal 20, uh we had a target of um that red line, but we only had unrestricted cash of $733,000. So, we didn't have enough cash at the end of the period to meet our own financial policy at the end of fiscal 20. We'll see some numbers in a little bit, but you'll recall in fiscal 20, we were operating on utility rates that had not been adjusted in eight years. And so, the charges we were giving to the public were not covering costs um and hadn't been adjusted in eight years. Since that time, we've made a series of incremental changes in how we operate this utility fund. Uh, and so 20 to 21, we dropped a little bit further away from our target. And then we've been climbing out of that every fiscal period since. And so we finished this fiscal 25 with $2.6 million of unrestricted cash above our target, which is above what our target rate should be. So we are now in a much stronger cash position uh in the utility fund uh than we've been operating in the past. That is a positive trend that you you want to see. However, you don't want that number to get too large. If if if your blue line is way over your red line, then you're not operating responsibly either.

That's why it could be used somewhere else. Yes. So should be used.

This is This is my attempt to graphically show net income over time. It's the best I could do and I still don't love it. Uh but the purple line for the general fund, this is our net income, if you will. So fiscal 20, uh we ended with a positive net income of $348,000. Fiscal 21, a positive net income of 333,000. Fiscal 22, $600,000 of net income, 230, 110, and in this most recent a net loss, if you will, on paper of $215,000. Again, that was intentional, a draw down uh for certain expenditures. But what you're looking for is in blue. This line is the zero, and you want that blue to be above the zero line. And so general fund operated, net income was positive. And each of these years in fiscal 24, we broke even. That was intentional. If you'll recall, when we adopted that budget, we had a growing savings account in the general fund. And so we began to operate right on the line so that we didn't keep parking money over into savings. Um and then in this year we intentionally drew down some. Uh this is not going to be enough to alarm the bond agencies. However, if over the next two or three years we keep doing this, then that's going to be a problem. Uh the bond agencies will notice that. Uh the auditors will notice that. And so we've got to pay attention to how we're operating so that we're operating in a strong manner. But this demonstrates where we're at on the general fund. Um,

those are the numbers behind that chart. This is the utility fund. Uh, and again, I don't love the chart, but it's the best I could do. This is your zero line. And ultimately, you want the blue, your operating income. You want the blue to be above the line. Well, in fiscal 20, our blue was below the line by about $500,000. And then we had a $560,000 transfer out of the utility fund. So that fiscal period you had a net loss of a million dollars. Half of that was from operations and half of that was an intentional transfer uh of funds. The following year um you had a net operating loss and even further loss from nonoperating income. Most of that red block is going to be debt service. uh interest expense. Um and so you'll see that red block has grown over time because we've had to borrow money to fix the capital assets that have been in very very bad shape. But in fiscal 22, we operated net income above the zero line. We made about $500,000 of operating income that year. Fiscal 23, we had another net operating loss. That blue is below the line. If you'll remember, fiscal 23 is when we had the big water leak at the river. And so for most of that year, we were paying for the power and we were paying for the chemical to move about a million gallons of water a day and just dump it in the river and let it go. Um, so there was significant operating expenses in that fiscal period that frankly was out of our control because it just took 9 to 12 months to get that leak fixed. Um subsequently then uh we've operated um in the blue in the black uh but these

red boxes again are going to be those interest income nonoperating income and loss interest expenses usually going to be down depreciation and so these are the numbers behind that chart. Um but the point being the utility fund was not operating in a healthy manner for a number of years and we can show with the trend that we've corrected that. So total cash position is growing in a positive trend. Our net income is growing in a positive trend. We're performing better uh than we have previously. We just have to keep paying attention. Finally, Mayor, I'm almost done. I promise uh you you need to pay attention to your leverage. Uh that's how much debt you're using in the course of your business. The things we have, the things we owe, and the things we own. And so leverage is looking at how much you owe compared to some of the other uh things you've got going. So the debt ratio for our city as an organization is a 0.7. What does that number mean? For every dollar of assets, things we have, we owe.7 cents. So 70% of the things we have as a city are funded using some kind of a debt instrument. First blush, that's shocking. Um, and you then take a ratio like this and compare it to the industry in which you are operating. If this was the debt ratio for my home, that would be alarming. But if your industry is very capital intensive, which our utilities is water treatment plants, wastewater treatment plants, hundreds of miles of pipe underneath the ground, there's a lot of

capital assets that have to be maintained. Those industries will see a higher debt ratio than industries that aren't capital intensive. And so cities have lots of capital assets that have to be maintained. So a debt ratio of seven is not alarming, but when you start getting close to a 1.0 for your debt ratio, you've really got to start paying attention. And so on our last bond rating call, one of the comments that the bond rating agency made is you you've got to start watching this because if it goes from a seven to an eight to a nine, the bond agencies are not going to respond favorably to that. And that's a report card we need to protect. Generally speaking, in the general fund, there's $26.5 million of capital assets and there's $29.3 million in debt. You generally don't want more debt than you have assets. But specifically, what's happening here is that we've got debt that we've deployed for projects that are under design and under construction. So, they don't show up as assets yet. So when those projects finish, you'll see the capital assets swap and and the values will go up. On the utility fund, we've got $18 million in capital assets and 14.5 million uh in debt. Uh continuing to talk about uh leverage ratios, one of the things I look at specifically in municipal governments is your debt to valuation. How much total debt do you have as an organization as a percentage of the net taxable value of your community? And so for our community, net taxable value is 663 million. Total debt for our organization is 49 million. So that's a 7.4% debt to valuation ratio. Industry target is less than 10. So we're within industry target

and recommendations for municipal government. But if that's 7.4 four becomes an eight becomes an 8.3. We we've got to watch that because it speaks to the health of our organization. We're we're a university town. So is a a town with 9,000 people. So our total university town have usually more than 662 million.

Well, think about it like this. Our total property value is about $1.9 billion dollar. When you take the state of Texas out of that, resulting net taxable value is $663 million. So if we had the full $1.9 billion of value with $49 million of debt, that ratio goes way down. Um, and so yes, that does impact. Uh, but it's a matter that doesn't matter because we still have to fix the capital assets. uh we can't choose not to fix those or we cease being a community. Um and so the fact that we're still within industry targets speaks highly of the condition that we're in right now. Debt per capita is is another measure that gets tracked. So using our 2020 census population of 9,090 $49 million over that it's $5,395 per capita. That number by itself doesn't really tell you much. You generally want to then compare yourself to other cities of your size uh to see if we're reasonably within range of other cities our size. I don't have that data available yet. It's something that we'll be working on. Um finally uh general fund uh how much of our debt service as a percentage of our total operating budget and so for us that's 11.9% uh the amount of annual debt service compared to our annual operating budget. The target in our industry is less than 25%. Um so that ratio is is a good number for us. We're well within industry standards. utility fund operates more like a for-profit private sector business. And so they'll look at

times interest earned. So if you take our net operating income and look compare that to our total interest expense, we've got a ratio of 1.47. So that means our annual operating income can cover our interest expense one and a half times over. Challenge is the industry target is greater than 2.5. So our times interest earned on the utility fund is not where the industry target would be. We would want to improve that number over time to show that we're continuing to to to to grow in a positive direction. The challenge though, and this is the context that we've got to remind ourselves, we've got a 70 year old water plant that had to be almost completely rehabbed. We've got a 70-y old wastewater treatment plant that's currently under rehab. So, we've got some major capital expenditures that you have to use leverage or debt to accomplish. Um, so that the future generations are contributing to the cost of this asset. So, you're going to go through a period of time where that times interest earned looks bad compared to industry standards because we're having to invest significantly in our capital infrastructure. We just have to be paying attention to how we do that moving forward. Um, and so we've got to keep monitoring our operating income on the government and on the business side to make sure we're operating responsibly and staying in the black, if you will. Uh, and we've got to consider how we use leverage for capital improvements moving forward. Uh, we've got more capital needs in this community. We've got to start paying attention to how we fund them. Specifically on the utility side, we have not been going through the

process to get state funding. Um, and so in theory, we've left some money on the table from the state of Texas that we might could have uh benefited from. However, the problems that we've been fixing, we didn't have the time or the luxury of waiting on the state of Texas. Um, when the river leak happened and we were dumping water in the river for about nine months, if we went for state funding, it's 12 months just to get access to the funding. Then you've got to fix the problem. We didn't have 12 months to sit around and watch that water go trying to figure out how we're going to fix the problem. We couldn't go after state funding uh with the water treatment plant problems that we were resolving. We couldn't add 12 months to the solution waiting on the state of Texas and the project we've got right now with the wastewater treatment plant. We chose not to go after state funding because it would have added at least 12 months and it would add probably 20% to the total cost of the project. And so we moved quick using our own funding sources because we didn't have the time or the luxury. We're now at the point that the work we've got to do from here forward, we're planning forward, not reacting from the past. We're going to be going after every state dollar we can find. And so there's going to be a shift in how we fund the capital projects moving forward because now we're planning forward and we've got the time to go through the state funding process if that makes sense. Knowing it's going to take longer and it actually going to add a little bit of cost, but if we can get the state to fund that extra cost, we've got the time uh to work on that if that makes sense. And so that's the presentation, mayor, and we'll be happy to try to answer any questions that you may have.

Thank you very much. There's a few of us that are geeks and really like to get into these numbers and everything, but I think this was a great presentation for our citizens as a whole to be able to understand governmental accounting and really comparing it for the last five years, showing how we have moved into the most positive way. But we now need to really watch what we're doing and um the money that we spend has to be very strategically placed. So, does anybody have any questions? You non-geeeks, did y'all get everything? All right, question. Yes.

Is the utility fund revenue include the $5 monthly fee for street improvements? or does that go into a separate separate

goes to a separate fund? It's a great question. Um when we did a community survey two, three years ago, um it was a community satisfaction survey. Shockingly, the number one source of most discontent within the community was the condition of our streets. Uh and so the community spoke very loudly that they wanted us to be intentional in putting some effort into improving uh our street services. We did not have a revenue source that could fund additional street work. So we created the street maintenance fee uh and we did that and then sent those dollars to its own separate street maintenance fund uh so that it's not mixed in with the general fund. Um the discussion we had is if you raise taxes then that increases the general revenue. Um, if if you go back, that would add some dollars to this property tax, which is a general revenue, but that funding can be distributed to any operation out there, not necessarily streets, by creating a street maintenance fee. That's a dedicated funding source that has to be spent on streets. Um, and so that revenue is not going into the water utility fund, it's going into the street maintenance fund. And so for the first two years, to some degree, we've been stockpiling cash because there's some critical equipment that we needed to be able to do this work in meaningful ways. Uh, we've purchased the first major piece of that equipment. We're looking at the second piece of equipment, but starting this spring, you're going to start seeing us do real street maintenance projects with our own equipment with our own staff. Um, and so we've built up some cash so that we could buy that equipment and now

we'll be using that funding to buy the materials and supplies to do some of these street projects. But it's a great question. Uh, that fee does not go into the bucket money for the public utilities. Okay, any other questions or comments? And the number for the number in that fund is represented in like the restricted assets or restricted funds included.

Yes. So it is restricted funds. Um and so you would see it in his restricted number not in the unrestricted. Uh it would also be a part of governmental funds because and and the main different difference between a governmental fund and a business is the type of accounting laws you have to follow. So you it's um the governmental funds includes almost all of our funds except for commerce water district EDC and um the public utility fund. But all of the other ones because they have to follow specific accounting guidelines they are in the governmental section but it is still restricted.

Thank you.

This is the balance sheet for governmental funds. Non major other funds. You'll see committed for streets. We got $546,000. I was looking for that. I didn't see streets until I asked the question and I found it. Any other questions or comments? Okay, this is another one that we will put back on to the agenda for our

So, the the regular agenda will have an item for you to approve or accept the report. So, we didn't want to ask you to approve it the very first day you were given the document. So, this has been very helpful for us. All right, then we'll move on to number three. This is discussion on the former Commerce Middle School gym, which is the Culver Street gym.

Street gym. All right. So, as we've discussed, um when the uh ISD moved the middle school to their new location, uh they vacated uh the old facility which included the gym and they allowed the city in using that gym for our youth sports leagues, specifically basketball. Uh we've since added volleyball. Um and so we lease the gym from the school system currently for for those recreational uses. About $4,000 a month, uh $48,000 a year, uh is what our cost is to lease that property. Uh number of months ago, we were approached by ISD staff asking if the city wanted to buy that gym uh instead of just leasing it. Uh so it may be helpful. So, the conversation that we've had with ISD staff is the question on the table is does the city want to consider purchasing that gym? So, what we looked at is potentially surveying and cutting out uh the parking lot, this old tennis court, the gym, and the portables behind it. So you would in essence grab a property that comes up, cuts back over, comes to the backside, then over up to grab that old tennis court and then follow the tree line back down where we would have a parking lot, outdoor tennis courts

that could be converted to a pickle ball application and then an indoor uh rec center and then the portables in the back. So that's the conversation we've had and the school is willing to look at that property configuration uh within the the sale consideration. So then we u use the services. We've got an architect uh that we've been using. He's the architect that helped us do the remodel uh of the old the old library. Um he's a architect I've worked with for almost 20 years. Have a high degree of trust. Uh so he came out and we walked through this gym facility specifically so that he as an architect could walk through it. He didn't do a full facility condition assessment, but he walked through, looked at the bones, and then just issued us a recommendation report based on what he sees as the condition of that building. Ultimately, I asked him, in your professional opinion, if we acquire this facility, can we get another 10 to 15 years of use out of it? And his report ultimately came back and said, yes, the bones of this facility appear to be strong. And in his opinion, you could get easily 10, potentially 15 years of beneficial use out of this facility if the city were to acquire it.

Is it 50 years old or so? It's built in 1970, I believe, is is when it was built. Um 68.

68. So, it's it's got some bones on it. Public facilities, when you build them, you typically want 40 to 50 years of useful life out of it. Uh if you're going to use the public funds to invest in an asset, you want it to serve an extended period of time. Um so, the school has clearly gotten their value useful life out of that. The question was, if we purchase it, do we have to move out of it in five years because it's failing? His report indicates no, that does not appear to be the case. He did say uh that if you acquire this asset, you're going to want to consider some ADA improvements. Uh there is a ramp you can get into uh the building. I don't think Street View will let me pull up the front, but if if you've been in that gym recently, there's a ramp. I don't believe that ramp complies with ADA standards. It's too steep. Um, and so he recommended if it's a public facility that's going to be used in a meaningful way. You want to make sure the public get into it safely. Um, and then the restrooms once you get inside don't have reasonable ADA accommodations. Uh, and so he figured just basic ADA improvements and then some general maintenance improvements, you're probably looking to spend about $100,000 um on the facility uh to get ADA improvements, get some access into at least uh two of the bathrooms um and then general improvements to the condition. Um, and then he said he didn't evaluate the the current HVAC system. Uh, we've used the heating and cooling in there. We know it works, but we don't know how much life. So, at some point, you're probably going to

have to put some money in the next 10 to 15 years on on a HVAC system. So he said you're probably looking at moving in a hundred to $150,000 of investment just to make it convenient and and more usable for the general public. Uh his recommendation, he's not an appraiser, uh but he said he would not recommend spending more than $250,000 to acquire it because he knows you've got to then put some effort uh into that. So the purpose tonight is to not talk dollars and cents of of what we want to spend on it. The question is, now that we've had a professional look at it and it's in good shape and got good bones, do we want to consider acquiring this as a rec center for our community? That's ultimately the conversation on the table. Uh I know we just recently did a comprehensive plan. Included within that comprehensive plan was the future need for a rec center for our community. If you look at the timing in the parks master plan, the addition of a rec center for our community is punted out into the future. It's not a near-term goal in our parks master plan because the assumption was we would be building a new rec center. A brand new rec center today is going to cost 8 to10 million on the low end. You're probably looking closer to $15 million to build a full rec center. and that's not within our resource base right now. So, it was punted out into the future for another time. This opportunity is a chance to bring a rec center function forward in time for our community at a greatly reduced cost. Um, and if we can still get 10 to 15 years of useful life

out of it, that could benefit our community. question of do we want to own it or do we want to lease it. Um the other conversation that we've had is that if you buy a rec center, you need staff. So we're not just looking at the capital cost to acquire and put some tender love and care in it. You then have to staff it moving forward. So there's some budget impact to adding an operation like that. So in a workshop setting, we gave you a copy of the architect report. Do you have any questions? and is this something that you want to consider? And if so, we'll put it on a future agenda so we can actually um have some conversations and negotiations about it.

This is the same story as buying the bank building. It would have been way too expensive to build a brand new annex, but that building became available with some work, good bones, so it made all the sense in the world to purchase it. This to me seems to be the same scenario.

It is, but understand that not only do we have staff, but the cost that we were talking about adding to is just for the building itself. We still have the parking lot plus the tennis courts or pickle ball, whatever you want to do or combination of the two. So, I mean there's additional cost and but whatever we do as you were saying as we talked earlier is if we're thinking about this and it's in the comprehensive plan, if we move it in, something's got to go out. So, we got to figure out what we're going to, you know, move out. Um, and how do we fund it because, um, we just saw where we are. We're very close to that where we got to watch every penny and we still got streets that we've got to do.

So that will be part of the conversation. The buildings just to the north, I think it's currently Carevide and those annexes there. What would happen to those? They would be retained by the ISD. They they own that. And then what's the other building? Is that just a barn?

This is their maintenance facility. They would continue to they they still operate their maintenance crew out of that barn. And this is caravan and what I think they call the face uh building that will continue to operate there. So we would provide an access easement so that they could continue to get in and and access those properties. Um but at this point uh we would ask for those two portables as part of this package because there's still some beneficial use. Um our community needs meeting spaces. there's just not very many meeting spaces there. Part of what we're doing with the old Inwood Bank or what we call the annex building is it will become a community center that the community can use to do uh a number of different types of events. Um and so there's resources the community needs that it doesn't have.

So then in the future if the city or ISD decides to do something with that where the middle school is presently sitting, will that affect the community center in any way? Well, I wouldn't think so. I heard I guess that they're not necessarily going to build another school there. Not every time. So, that'll just be made pretty and level. And

they've they've still I don't know if school owns all the way to the corner, but I know all of this open space the school owns. So they've still got a significant amount of property that they could use for ISTD purposes. That little building, I'm sorry, but immediately to the east of the old school, is that going to stay? It's this Tri County, isn't it? Tri County is down here on the corner. I'm not sure. He had been building. So we don't know if that's I'm I'm not aware of their plans for that. You said annually we're releasing for around 48,000

48 $48,000 a year, but they pay all the utilities and they do any major repairs to systems. We do minor maintenance uh while we're tenants in there, but they pay the utility bills. They pay all of that. We've been using that for a couple years. No, just in October. This is our first year. six months, seven months into the first year of it. With the with the demolition happening at the school, has that affected the utilities at the gym?

Yeah. So, when they disconnected utilities to the middle school building, it disconnected all the utilities to the gym. So, we with our own staff connected water and sewer uh so the gym has its own independent uh water and sewer. It doesn't currently have gas connected because that comes through uh the the school building and it doesn't currently have electricity connected to it uh because all of that comes through the building. Uh but uh in the back this is I believe the transformers uh they're still available for use and so Encore has indicated you can kind of see uh there's a cable that comes from the GM over that's power. So the transformer feeds power into the old middle school that then feeds power over to the gym. We can and we're working with electricians to get quotes to go from the gym directly to the transformers and cut the middle school property out completely so that we'll have power uh to that facility. After the demolition's over, then we'll get with Atmas to figure out how to get gas. those two out buildings, but portables could just be classrooms for activities, whatever. I guess

storage. We've got a couple of community groups that use them now. And so it could be a meeting space or storage. You're always looking for storage, please. So, it better not be a vacant. Yeah.

It'll be a lawful use. Give yourself a year. Whatever you're at Bonnie and see if there's some creative way involved. I have lots of options getting $250,000 would be a great deal.

So what I think we are hearing from the council is that it's something that we'd like to look at. Okay. So agreed. Yeah. We will continue to move forward with this discussion. Mayor, that's all we have for tonight's workshop. Okay. Anybody else have anything? Then we will close this um work session at 658.