City Council - workshop

Good afternoon. Thank you for joining us here today at this Pflugerville City Council workshop, calling us to order at 5 p.m. on Tuesday, August 25th. The first item on our agenda is public comment. I do have a request. This looks like it's for... the 7 o'clock meeting, and I have Les who is waiting for the item to come forward. Is there anyone wishing to speak during public comment at this time not related to an I'm on the agenda? With that, I'll move forward to item 3A, that is to conduct a presentation on the Pflugerville Community Development Corporation fiscal year 26 third quarter financial report.

How come that guy gets to sit in the back while she's giving the presentation?

So, good evening. This report went to the PCDC board on August 19th. Just a review of where we are as of June 30th. Total revenue is at 63%. Sales tax is their largest revenue, and it's at 73%, a little bit behind where we would have budgeted. We're trending fiscal year to date 1.2% year over year. Interest income is also behind budget as we've seen interest slowly tick down over the last several months. And other revenue, just like to point that out, it's the water park payment and we get that in September. So we wait all year to get that one bit of revenue in September. This is just a peek at the sales tax trend. I will say that you can tell from June and July we're looking better. So we'll see how that looks over the next couple of months to finish out our fiscal year. But I think July was 13% year over year above. On the expense side, 56% spent of the budget of personnel, 61% operating, 69%. Development incentives are at 62%. The majority of these are paid out at the end of the of the year, so it'll be in quarter four that you'll see the rest of those incentive payments. Capital projects is at 51%. We did get or hear a report that the two main projects, Impact Way and Helios Ride In and Ride Out, should be final in September, so we should be able to final out those projects by the end of the fiscal year. Debt payments are at 57%. This was before the August payments hit, and so you will see that jump up in the fourth quarter as well. Any questions?

So based on where we are here at this point, do you think we're going to get pretty close to 100% on everything, or do you think we're going to end up below on anything? If we're below on revenues or expenditures, which ones and how much?

I think sales tax will come in a little short, just like we're projecting in general fund. I mean, we're at 56% of budget on expenses. I think there are some expenses that will come in in the fourth quarter, but I think we'll be below on expenses.

And personnel in particular should be close. I mean, we had vacancies for a good bit of the year. April of this year? Yeah.

There's timing around that area.

So we should expect personnel to come in low, sales tax to come in low. Other than that, everything looks like it's about on target? Am I understanding that correctly?

I think most categories on the expense side are behind budget. I mean, we would be at 75%. At this point in time, if you just do math.

But as you pointed out, many of the large expenditures come in.

The incentives and the debt.

I would expect us to be below 75% at this point. So assuming that everything goes according to plan, are we going to end up at 105 or 95?

You would expect for us to be below 75% at this point?

What? For expenditures?

Yeah, because most of the large portion of expenditures happen in the fourth quarter of every year.

The only one that's perfect is debt service because we know those numbers ahead of time. Otherwise, everything else is turning below.

Debt service is semi-annual?

It is... Usually semi-annual, but there's like another one-off that's in a different month. I think they have one bond that gets paid in October. So they're not perfect February and August anymore. Some of the new ones are actually off-cycle bonds. And the water park is off cycle.

The water park revenue is off cycle. The water park expenses, I assume, are those monthly?

No.

They're twice a year.

It's semi-annual. But they're not on the regular bond schedule, so we have to keep up with all the different dates.

So it sounds like quarterly, we're roughly in line, but it's not going to be linear.

On the debt?

Well, on the expenses.

I think we'll be below budget.

Any other questions for this council? All right, Tracy, don't go too far. Item 3B is discussions regarding water and wastewater rate study recommendations. I believe we also have Jessica Lynch with Baker Tilly.

She found a friend.

Thank you for joining us. Hello. Good to see everyone again. Found a friend. Yeah, so hopefully this will be our last presentation on our water and wastewater study. But we wanted to kind of touch some different things now we've provided you with the full final reports on the water and the wastewater. And so we're prepared to field some questions that may have come up with that review of those reports. But we're going to start out with just going over some assumptions that were built into the report.

So first, just on the revenue requirements schedule, most of these amounts were given to us by Tracy and her team. But specifically, those assumptions that were built into there for the revenue side for water, annual customer growth of 2% for all the classes except for lakeside mud number five, which had 7.45% annual growth. Wastewater is 3% growth in fiscal year 2027, but then 2% for the phases after that through 2031.

Another... Just a question on that.

We both looked at each other, to be fair. I assume that's because... Go ahead.

Well, obviously, when you're projecting revenue, you generally tend to be more conservative, but our wastewater master plan that we did approve had closer to an 8% annual growth over the next 10 years. So we're using 3% growth in the next year and 2% growth in the next four fiscal years after that. So just wanted to highlight that, that that is a major reduction in growth projections that we had in our master plan that we just approved.

So I don't know what the master plan growth percentage drives, but I know with this and with the model that I worked here last year, the percentage just drives how much more units are going to be considered when we're doing the billing. And 8% would not, it would have calculated way more new units than we see year over year.

So, yeah. And as you've conveyed numerous times, we go back and we check. what that actually looks like to make sure that's actually in line. And which goes to a conversation that Melody had, or Council Member Ryan had a while ago too as well. So, cool.

Okay. And then also based on input from Tracy's team, including contributions from impact fees to help with lowering some of those revenue requirements. For water, $4 million annually. And then for wastewater, it's $4 million in the first two years, fiscal year 27 and 28, and then $5 million in 29, and then $6 million in 2030 and 31 to help reduce those rate increases needed. For debt service, also some contributions from cash reserves based on where we were seeing just the straight revenue requirements across the board percentage increases coming in. We have 25% being contributed in the first two phases for water and 75% for the first two phases for wastewater. And then replacements and approval.

Can you explain that a little bit more on the debt service?

It's just available fund balance that we're using that was put into the debt service fund, and so we're basically buying down the rate by using some of those funds toward debt.

Okay, so we can do that and not affect the WIFIA rate covenant or the revenue requirement.

We can use reserves to help stabilize the rate. You can use it to pay your debt service, but you'll still have to show the full payment. for like your coverage requirements.

Yes, it's working it into the rate calculation so that you're not being hit with the full debt coming out of rates. That's why we're putting the impact fees toward it. That's why we're putting some of the available fund balance toward it.

Okay, and then I had a question that came up with the budget when I was looking at this as well, so I guess I'm going to ask it here. In the budget, we had $10 million in impact fees, I thought, or somewhere mentioned, but here it's $8 million. So I was just wondering what was the determination of how much we put towards?

I think you're getting some readily impact fees in your total. Okay. Because I believe that these are the numbers that were put into the budget for water.

Okay, so $10 million might be for the entire...

If you were looking at, like, impact fees and the all-fund summary, it's going to include roadway impact fees. Okay, thank you.

Now, obviously, our wastewater area is much greater than our water area and is much less developed. What is the basis for assuming the increase in the wastewater impact fees year over year?

It's based on the debt of those big projects. So I basically looked at the debt for like the wastewater treatment plant and how much we would be able to take from impact fees to go towards that debt. And so as that debt grew, that's why their contribution from the impact fees grew. The water was a little flatter.

So my question is, where are the impact fees coming from?

They're being collected in that service area.

And they're collecting that much more in the impact fees in the out years? That's what I'm trying to understand.

I mean, that's a projection. I don't have a crystal ball as to how much we're going to get in those years, but we are trending. This year we've collected over our budget.

Okay, so that looks like FY28, we're looking at a 25% increase over FY27. Does that seem like a realistic growth projection?

I believe so, based on the subdivisions. I mean, I have all the information of the memos that we have for the subdivision. There's quite a few.

Okay, so we're going to grow 25% in that area.

It's a projection.

And to me, based on, I know, but I want to give him credit to his point. So he's wondering, okay, what that looks like regarding our wastewater area. And obviously there's CCN, there's much greater than there's our water. If you go out there, even just going on Cameron Road, which pretty much three-fourths of the city doesn't even know exists. I mean, it's insane. Over here as well, you see a significant amount of increase regarding these actual subdivisions coming in. and when they're coming online. What I anticipate and what I understand the staff is working with the developers, seeing when these units are actually coming online, what's the development schedule, and then making the actual summation on that. And I know that given the fact that some of the other things that are happening in that area, including UT, University of Texas at Taylor, as well as what's happening growing at 290 and 973, you're pressuring more units and more areas to come into in the growth area for that pattern. That's why we always have the conversation, to your point, about 973, because we know that that is going to be the next major zone that, again, pretty for sure citizens have no idea about, but that's where the growth is coming from.

Let me ask you a question and make sure I understand the impact fee line on this table. The impact fees here, is that what we anticipate collecting from new development, or is that how much we have in, call it reserves in our fund, that we are applying towards the rates?

So it's not reserves. It's basically what we, when we get impact fees in, we can do two things. We can spend it on debt, or we can spend it on projects. We've identified this amount from what we collected would bring in to put it towards debt so that we can factor it into these calculations. The rest of the money that we would receive over these amounts would be put towards projects.

Okay. When I see $5 million in fiscal year 2029, I mean, that's a projection. That's more than two years out right now. Is that a projection of what we anticipate we will collect or how much we will have that we will apply?

It's how much we are setting aside for... Gotcha. Thank you.

I think that's an important distinction, and I don't think I was hearing that earlier. I appreciate that.

So I found where I saw the $10 million for the impact fees. It's in the utility capital fund. And so based on the explanation you just gave, it looks like we're projecting or proposing that we're going to receive $10 million. So that's revenue? Yes. Yes.

But this is what we just what we just discussed here. That is how much of our impact fees that we have collected that we are going to apply. Yes. Not our revenue projection for how much we would collect.

Right. Correct. So then my question is, how do we determine that of the 10 million we were going to use eight towards the debt? and two for, I guess, projects. Why not use all of them?

We were trying to use as much as we could to debt based on the debt on the schedule. I mean, I have to be careful because I have to be able to identify this impact fee is paying for this bond payment. And so I was trying to identify those bond payments that were 100% related to these big plant projects. So That was kind of my justification for, like, I can pinpoint, here's the amount I'm bringing in and here's the bond payment that's related to that new asset.

And why is it important that you have to identify that?

Because it's restricted. I can only use those funds for those items.

Okay, so what I'm hearing is you've identified $8 million of debt payments that can be applied towards impact fees for new growth. and the other $2 million that we are expecting, there's not enough debt to use it all towards. There's not enough debt.

I mean, there is, but you would start piecemealing it across bonds, and I was trying to just be very clean with my projections. And we've already committed some projects to impact fees, so I need to be able to have a little bit of flexibility to finish out those projects that we've said we're going to use impact fees on.

But we could borrow debt for those projects and then use – I mean, there's a couple different ways to do that. You said it. I'm just – well, okay. All right. So there's possibly $10 million in debt payments that are related to growth projects that are on our impact fee list, but they're not cleanly in a specific –

And the $10 million is an estimate as well, so I would like to box myself in.

Can you clarify if those are congruent? Is this $8 million coming out of that $10 million, or is this $8 million some that has already been collected?

No, it would be out of the new estimate of what we're going to bring in.

Thank you.

Do we have balances in our impact fees for water and wastewater that We're collecting the past that could also be used.

We've already transferred what's available. We've already allocated all that? Yes.

Okay, so we've used all of our impact fees that have been collected.

That's not already assigned to projects.

All right, thank you. Sorry about that. Where were we?

Okay. No problem. And I think the only other item on this slide is just the replacements and improvements. I do believe there were some questions as far as where those amounts on the revenue requirement schedule came from. So those aren't specifically tied to any budget number. That is the line item that we use because when we saw the straight budget items for each phase, the amount of the rate increase varied dramatically from year to year, from phase to phase. So we used that line item to be able to smooth out that rate increase so that you saw, for the water side, an even 5% per phase, and for the wastewater, an even 16.5% per phase. So if we would make it to be actual capital projects, then the first phase would be a lot lower. But then you're going to have, you know, for water, for example, you'll have like an 8% in phase two and then maybe, you know, 10% in phase three. And we tried to make it equal amongst the phases.

It's also building into the rate some funds for capital improvement. So it serves both purposes. Yeah. Yeah.

We start with the minimum that you need and then work our way to smooth over the increases.

And when you say minimum what we need, what do you mean by minimum what we need?

So for capital projects, just per whatever is in the budget, historically what you've spent, we look at a number of different factors, what you've spent historically and what's budgeted for the future.

This is a very interesting conversation for a lot of people or the two people online and everybody else will look later on on this. So that's why I was saying that I want to make sure they understood what you meant by that, if that makes any sense. And how often do you actually get a council really interested in talking about this?

I love talking about numbers. Me too.

We're all shocked.

And then, so this is just in general, there are some for the water side of a cost of service study. This gets a little into the weeds, but the cost allocations for a water system is you apply, if you look in the AWWA manual, what's called capacity factors. So it helps you determine what customers are putting more of a stress on your system than other customers, and these factors help to allocate those costs so that the customers that are putting more stress on your system are the ones paying for that. And so these are the assumptions, mainly based on all the billing data that we received from Tracy's team. So we analyzed all that for the test year and looking at those highest months, what the usage was for each customer class. So in each Each of these customer classes, the ones we were able to adjust, we threw out the highest highest month because it was a significant outlier compared to the second highest and third highest month for residential and commercial. And then we compare that to the average so that you can see what goes into your flow and then who you need excess capacity for because they're causing strain on the system from those peak demands. And then the number other things that go into that Calculation for those factors are the days of water that is used per week and then the hours of water per day And then just noting on here that because of the agreement the city has with Manville We show what the costs to serve Manville are based on the cost of service allocation however that agreement specifies that their rate cannot change and I think it's for 40 years and So there are customers that are subsidizing the costs for them, and so then we show in the report how that got allocated to the other classes. And then just for residential, from that allocation of Manville's revenue being below the costs it is to serve them, how that was allocated to the other customer classes based on input from management was to help reduced the impact to the residential customers, so more of that was allocated to the other customer classes and a smaller percentage was allocated to residential.

So on that, because I was surprised when I saw that, has that subsidy been consistent in previous years, the way that it's being allocated, mostly to commercial and not to residential, or was the allocation in this year changed from how we did it before?

to that i wouldn't yeah we did not do the prior rates right manville was built into the rate model i don't know that there was a specific i mean it um we were running the model with all the information in it and then setting the rates to get us to a revenue requirement that we needed i don't know that it was specifically allocated the way that baker and tilly did it but

And without doing a cost of service study, you wouldn't necessarily see that that's how much they had been subsidizing. So you'd have to go back and see the last time the city actually did a full cost of service study for allocating those costs to see what that subsidization was.

So do you see this in other cost of service studies you do?

We do a lot, especially in growing communities where the customer base is changing quite a bit and haven't had one in years from when maybe their initial rate structure was outlined. So if it's been a long time since a cost of service study is done, we see a lot of that subsidization and trying to true up those rates so that the costs are being paid by the customers that are putting the biggest impact on the system.

How recent of a trend is that?

It varies from community to community, but. We do see it very often.

So how often would you recommend that a city updates their cost of service study?

Every month.

Is it like five years, ten years?

Yeah, I would say probably at least five years. If you're a growing community especially and you know that those customer class spaces are, the amount of customers in one class or another has changed significantly, then I would recommend doing it.

Okay, so like if you see a large increase in multifamily, that might be a trigger to to look at it again because and here multifamily rate design is being classified as commercial yes thank you

And then just on the wastewater side, the way costs are allocated, this is based specifically on the monthly reports of operations from your wastewater treatment plant. So those flow, the flow and what it's costing more to treat that flow based on your excessive strength surcharges. And so that's the allocation between just your your flow, your phosphorus, your biosolids, your suspended solids, those different items. It's just how that gets allocated. And then for wastewater specifically, the wholesale customers, based on their agreement, their rates cannot be increased. So we did not show an increase to any of their rates. And then again, also there's a slight subsidization between residential and commercial just to help offset an increase for an average residential user, but it's minimal and that was based on the input from utility management to minimize the impact to residential customers.

So but previously with the wastewater and how the rates were scheduled, was there a subsidy of commercial from residential? Yes, yeah, and it was quite significant. Yeah, so I wasn't sure because the number in the report was almost 5 million, and I wasn't, you know, but that was based on this year's usage and, you know, and the current rates, but not, I didn't know if it changed a lot from the previous year and if that was similar to what it would have been in the last few years.

Yeah, so specifically based on the question that you had sent earlier today, that last schedule, it's kind of an apples to oranges because it's comparing the proposed rate structure to the existing rates. But when I apply the across the board percentage increase to the existing rates, it's still, that gives you like a true cost of like in our projections, what the subsidy, what commercial would be, residential would be subsidizing commercial if the rate structure didn't change. And it was, I think it was about 4.5 million. So it was 4.9 with the existing rate structure, but if you increase the rates by the,

increase needed the across the board then it's 4.5 so that's that's pretty large so this change in the rate structure that we're that's being proposed is going to i mean we you know felt it right but now we have some numbers of how much was actually being subsidized by residential and now it's more equitable based on usage based on on the pressures that each class is putting on your system

Or we at least believe that, because remember we had that conversation about what's going to happen with apartment complex.

Yeah, so then this might have been, it might have changed as the housing, or as the mix of customer classes changed with more.

And I think truing up the, so that not every customer meter size has the same base charge is what's helping to even more align the costs with the customer.

Thank you. You're welcome.

And then I think you've seen all these before, but again, we just have the present and proposed rates. Here, so that's the, if you want us to go through all of them, we can.

Did anything change from the last, because when I looked at the last one and the cost, there were, it seemed like there might have been some minor changes, or is this the same as what was last? On the what, from when you were here in August?

Yeah, I think the rates did not change.

Yeah, the only rate that changed was Lakeside Mud, but it did not change to that. We netted out what was paid to Manville for that community and the revenues since Pflugerville just serves as kind of a pass-through in collecting the revenues for that community. So it changed their rate slightly, but it did not impact any of the other rates.

That's really all we have for presentation.

Let me ask you about that. You mentioned Manville and the pass-through rates. Is there a risk factor built into that? Is there a collection factor built into that?

I guess I don't know how the collection site, like when you pay it out, if you just look at the collections...

Are we paying out what we build, or are we paying out what we were supposed to collect, or are we paying out what we actually collected?

So that would be my question. If you just pay out what you actually collected, or if you pay out what was supposed to be collected.

Who's in charge of going after the folks who didn't pay their bill?

I'm not familiar with that. I don't personally do that billing. I know there's a fee that we collect as part of just doing the service, and my understanding is the rest of it is a pass-through. So we're able to keep the portion that's in the agreement for us.

Okay. That's encouraging. So these have been communicated out per the informal direction I received at our last meeting. So residents are aware or on notice of these changes.

I did have a couple other questions that I sent in the email that I don't think we've covered in the water cost of service. The net revenue requirements were different than what is in our budget. So it was like $37.5 million, but our budget is $35. So just that the wastewater matched exactly. So I wasn't sure. Obviously, it's better.

So the number that you're saying matched was the net revenue requirements, not necessarily the total annual revenues that we would project. So when you look at the water, the 35.7 is the total revenue that this is generating, that this rate study is generating. So we're already projecting that we're going to be under-collected. So the 35.7 is what we put in the budget or close to it because there's a difference between what the rates will collect and what wholesale will collect. On the wastewater side, I mean, I did use a judgment. If I would have put the 22.4 that's in this study, we would have been going backwards a couple of million. So I kind of made the assumption that we might be able to make up some of this gain between the total revenue requirement and the total annual revenues. It's still a budget. We may not make it to the 26-1, but that was kind of my justification for not going all the way back down to the 22-4. I mean, we're even projecting, I think, 26 this year.

I thought the net revenue requirements was what was being used.

It's the bottom one, not the top one. It's the bottom number, the total revenues available.

Okay. I thought that was the one we had to use or that was being used as saying this is what we need to... Well, I guess from the net revenue requirement. So I thought that's what we were...

But they're phasing it in, so they're not assuming that in year one we're going to collect everything we need. They're phasing that in over five years.

I think on the water side, because of the way we use the replacements and improvements to help smooth out those rate increases, we increased the replacements and improvements line item, so that's why it's... at the 37 million rather than 35 million so that we could do the annual 5% per year instead of only having 2% in phase one and 8% in phase two.

Okay, that makes sense. Well, because that was one of my questions was, what is this?

Yeah, that's why it was the goal of phasing those increases or making those increases.

So we're phasing it in the study, but we're not actually collecting higher revenue for that in our budget.

You'll collect higher revenue, but you'll set it aside to be used for future years. It'll offset those increases needed.

I was unsure of the terminology of what was used in this study and how it related to our budget with franchise fee expense and transfer to general fund. And so I was trying to add them up and compare them to the budget to see if I could understand how this is flowing to our budget.

The transfer to general fund is the same. The franchise fee was a little more in the study than what we actually put in the fiscal 27 budget because the revenue requirement that they were fed to do the study off of was the fiscal 26 budget. And the fiscal 26 budget franchise fee was higher. It was at like 2.7. That's what these numbers are based on. But as we were trying to balance the budget, we were trying to reduce that franchise fee a little bit.

Okay. And then we have cost allocation in the budget. That's the transfer to general fund.

Okay.

So I was aligning them accurately. Yes. Okay.

All right. Council, what other questions do you have?

I was going to ask the exact same ones, but nobody's been talking about them. Yeah, I know.

She took mine, too. So, James, I do have one question for you. So the way we adopt these rates is through the budget process, and we go into effect October 1st with our annual budget. Is that accurate? Yep. Your master fee schedule is a part of your budget. All right.

And it will come back as a separate ordinance, and it will have two readings.

All right. And that ordinance will be the master fee ordinance? Yes. Perfect.

So I did have another question on the rate coverage with the WIFIA requirements and the 125% and what we need to collect. Because some of the calculations in there were different than what I was understanding how the calculation worked with talking with staff previously, which is always why I like to see it in the numbers and not just describe it. So in there, it looks like the revenue requirements in this plan are higher than what we need for the rate coverage for WIFIA, because we're at 137% or 148%, which is higher than what we need for 125%. So I'm just wondering, is that an opportunity to have rate relief if this is higher than what we need for the deck?

Please go ahead.

So I was going to say, well, just because for the 2026 WIFIA T3, since that service isn't actually known yet, we did build in some cushion to allow some flexibility with that for those coverages, but then also The function of again fluctuating that replacements and improvements number to smooth out the rate increases is what's going to make those coverage percentages be higher than what's actually required because you're smoothing it out over the different years instead of having just what exactly you needed phase one, phase two, and phase three. So it'll vary from year to year.

They're also not apples and apples because when you're trying to calculate your revenue requirement you're looking at different factors. And then when you're trying to take those numbers and just do the calculation to make sure you're covered on your debt coverage, those are two separate calculations. So if we were to reduce the rates and reduce the revenue, then we're not meeting our revenue requirements on the other page. I mean, they're just not comparable sometimes. They both have to be calculated, but they do run separately as far as what you're doing on the revenue requirement is different than what you're doing for the debt coverage.

Yeah.

At least we're meeting our, we are exceeding our debt coverage, which is good news.

So yeah, you run the risk if you take just looking at that coverage calculation and think that you can reduce your, the million dollars, you may not be meeting all your revenue requirements.

Okay. Even though you're meeting that coverage percentage. So using funds from, or using funds from fund balance, like we're going to be using 2.8, 7 or 2.3, somewhere from fund balance towards that. Does that get calculated in the rate coverage or does that get calculated in the revenue?

So your coverage calculation is specifically what you've earned in that year. So you can't use cash reserves towards calculating that rate coverage or that debt service coverage.

The debt service for the 125%. Correct, yeah. Correct. But you can use it for your revenue requirement. Correct. Okay. And we have. Clear as mud. Right. Thank you. There are a lot of moving pieces. Yeah. They're all intermixed. Okay. I have a better understanding now. Thank you. You're welcome.

All right. Thank you, counsel. Any other questions? Appreciate it, Ms. Lynch. Thank you for being here and for that detailed explanation. And, of course, Tracy, always glad to hear finances from you. It seems like we're always doing better when you're up here. that will take us to item 3c this is discussion regarding the resolution of the city of pflugerville texas adopting standards for secure accountable fair and explainable technology use directing the implementation and providing an effective date i think we've got some language from our regular agenda item on there this is discussion during the work session James, you want to kick it off? No.

Yeah, I just want to explain the documents in front of you. You have two versions. The one with the draft watermark is the one that was attached to the agenda as drafted by Councilmember Kaufman. The other version is a revised version prepared by Councilmember Mateer.

Yeah, and let me explain. I want to thank Jonathan early on specifically came to me talking about this idea and this policy and what we're working on. We talked about how staff was looking at these things as a whole in their totality. What should we do? How should we look at this game like a good opportunity to go and do so. Jonathan then went to start talking to David, Councilman Rogers, about it. And as we've heard from Mayor Pro Tem, Kimberly, numerous times, I get a little nervous about when all of us are all discussing, everything else happened from that as well. So I stepped back. They worked on their version. The version has the draft on it. It also has a good... summary as well with that as well and then I asked specifically asked our attorney Mike to send me what their draft was and then based on what their draft was I created a draft where I saw okay listen there's there's some things where okay we need some clarity or some other aspects in my opinion some of the things that we add on some things that you know help buttress what they're getting at right there and so the policy that you see from me is about 18 pages and You don't have to read it now. Yeah, I know, right? Which I expect each and every one of you to sit right here. And vote on immediately afterwards. Yeah. You know, I have a judge who, don't get me started, that's exactly how he does on these documents, that I would like for you all to take back and look at. We don't have a subcommittee, so I would say have Jonathan, David, and I go back and talk. We don't have that, but just what your thoughts are. For example, one of the things that, you know, there's some cleanup items. For example...

Rudy, before you dig real deep into that, I do have one person signed up for public comment on this item.

Oh, okay.

So I wanted to go ahead and call forward Mr. Les Wall. Les, I know you signed up to comment on this item 3C. I'll give you three minutes to address us.

Hey, thank you. Yeah, safe technology use. Those will argue there is no such thing as safe technology, but that's a discussion for another day. Whether we're looking at biometrics, whether you're looking at surveillance, whether you're looking at AI, the bottom line is AI doesn't understand human reasoning. It's only as good as what the programmers can put into it and what comes out of it. So where does the public trust fit into this? Many are skeptical. And one of the things that I looked at was low, moderate, and high risk. There are those in the tech world that would say they're all high risk. The only system that is closed can't be hacked in. That's the one that can't be compromised. If you allow an email, if you allow data to go out of that place or come into that place, it's open. And so from that standpoint, I'm glad you guys are addressing this from the standpoint of if we don't, the legislature probably will. And we know they addressed it last session. I bet they're going to do something this session as well. One of the things would be the National League of Cities reported 68% of employees for a city use AI on personal platforms and 57% input sensitive data from the city. I'm guilty of that as well, taking things home and working on it and coming back. But from that standpoint, the National League of Cities says Chet, BT, they are not safe. So if we're allowing access to all of that, they're definitely recommended don't do it. Staff limits cannot be replaced by AI. If we're cutting staff and thinking AI is going to replace human intervention, that's not going to happen. In fact, you may end up having more IT people to try and manage what we're working on. And the Roosevelt Institute states that AI can be a burden for public workers. It can comprehend or make their work harder, because it'll come out with information that's not accurate, and they gotta go in and fix it. And I know Harris County, Houston's already had that problem on engineering projects. They'll put the information in. It'll spit out a project number that is not the number they're working on. They'll correct it. It spits out the wrong number again and the wrong data. So they've already experienced that. So the only thing I would say is I'm glad you guys are addressing this because it's going to continue to be a burdening issue. And there's those that are going to fight it and there's those that are going to try and work with it. And we really can't fight it very well because it's out there for all of us to use. So I do appreciate you guys addressing this, hopefully before the legislature drops a hammer on cities. But from that standpoint, let's just try and be as safe as we can with it because public trust sometimes is compromised, especially from third parties. And if we give data to a third party and it leaks out, what are their punishments? What are their penalties? If we have a contractor, if we have a consultant come in and take our data and it all of a sudden goes to another party and they start using it, what ramifications do we have? So I appreciate your time. Thank you.

Thank you, Mr. Walts. All right. Yeah, now I was about to say, I think one of the things that he said, which I think is critical in this conversation, but I. I have a slightly different perspective on this is that we're having to do this because nobody else is flat out. Let's just be honest. That's what's happening here is that pretty much this is the wild, wild West and folks don't want to step in. Um, they don't want to have to make decisions. And so consequently citizens, you know, suffer, um, privacy suffers. I, I, I understand. And I hear what you said about, um, chat GBT and, um, anything generated by AI. And it's a reality that folks are using them right there as well. But the reality of the fact is that this council is stepping up in a way to actually go ahead and help address it and deal with these issues.

Yeah, I think Rudy, just to talk a little bit about that, I think one of my overarching goals with this was to create a framework so that we don't end up like what a lot of other cities are doing where they've got an ALPR policy, they've got a generative AI policy They've got a drone policy, right, and all of these things. And so I think that the hope of having a framework versus a very specific piece-by-piece definition of these things is that's really the intent, right, is to get something that can be durable and last. We may not know what the technology is that's going to need to be governed three years from now, but we should be able to speak to and staff should be able to understand the expectations and the guardrails of council from a policy perspective in terms of, not what a company is marketing a product or a functionality as, but its actual usage and how it gets applied in the real world. So I just wanted to add that in because I think we're absolutely in alignment on that.

And to that point, that's one of the reasons why, if you look at my document, for example, if you look at Section 2, the definition, you see me specifically denote the difference between AI systems and gender-invasive. because those two things aren't necessarily the same. And you see what I articulated regarding what covered systems are, that means that works for that as well. Some of the things, for example, consequential decision making, Changed some verbiage over there as well. I added meaningful human reviews. These are things that I've looked at regarding what I'm advising our clients are. So in the private, I mean, David, I'm sure you're doing the same thing. You know, your clients don't know, okay, listen, these are things that you want in your policies to work for that. The question becomes ultimately is that what's adaptable, and this is why we have a great attorney like Mike who can tell us, okay, and James is our city manager, what makes sense, what's adaptable for a public entity as opposed to our private entity right there as well. But I think that having that flexibility, as you're talking about, that malleability to work, to make sure that we have a system in place that works out, that's great. My biggest concern has been and continues to be that not only what Jonathan said about what folks, the nice shiny new car or whatever the heck folks are advertising for, folks to grab in from that, but the reality of the situation is that how do we go ahead and address this in an area where no one's really addressing it? So ultimately we come up with a policy and some ideas right there. Someone thinks they have a great idea on it. And then how many times have we sat on this dice over the years where you have something from the legislature or from the federal government that has serious unintended consequences in what they're doing from there as well? So we know enough for what we deal with our cities and how they adapt that and move that forward. I do want to say that one of the things I want to appreciate Mike for is that I did look at the city of Arlington. And I thought that was a very interesting policy and how they did with some things. So I try to adapt some of those aspects too in there.

Do you have a redline version?

I do. And what I can do is send the redline version.

Yeah, I think that just skimming over it, what's actually kind of funny is that probably about a month ago when our city attorney and city manager and I started working on the draft that I sent over, I think mine was 19 or 20 pages long. Over the course of the last 30 days or so, as we've been talking about enforceability and how to actually operationalize a policy like this, I was able to sort of simplify it and trim it down, mostly by things that you are adding to yours. So I don't disagree, but there's a balance there that I think we're going to have to strike of having everything truly defined out to the letter, which I love and appreciate, but I've also had the conversations around how do we get this entire organization or organism to understand and fully grasp what is expected?

One of the things you'll notice in here is that it's less prescriptive regarding the flexibility for city manager and city staff. Because one of the things is that I don't want to be too prescriptive on what you're actually going to be working for. But anything that's actually citizen-facing, citizen data, I mean, that's... And that's a line. And that's a wall. And so what do we do? What procedures? What other aspects do we put on that?

So, Rudy, is there anything – I mean, I really agree with Councilman Kaufman's assertion that, you know, he's consolidated it quite a bit. And I know, you know, I appreciate all the work you did. Is there anything in your version that you really feel it needs to be in Jonathan's version?

So – A lot. Attorney wording.

Hyphens and everything else.

Yeah, so for example, vendor data use, right? Like, what do we have specifically on there for any vendors that we got? Agenic AI, what can it be used to send or go in and contact information? What can generative AI be utilized for employees?

But are those things that we really need now, or are they things that we could add as we're moving forward and it's a work in progress?

I would say that these are things that... Well, I mean, I think you know me well enough, and I've been doing this long enough for it. It's everything that I've been advising... This is probably going about three... This has been an issue for about three and a half years. And actually, I want to give credit. She's not here right now. Mimi Stiles, years ago... We had a conversation and we started talking about it. And let me tell you what the impetus for me was, was that I know all too well in the legal profession that cross-racial identification is a real issue. That is a significant issue that happens across the board in a variety of different aspects. When I started to realize kind of what Les said is regarding the fact that we're training AI models and AI systems on flawed data. And if we're having the flaws in the specific data itself, then what we're implementing, garbage in, garbage out. So over the last, I mean, what you're going to see, Cesar, is that this has developed over... Three, what is it, 2026? Three and a half years? This is me working through with clients, going through information, CLEs, everything else. These are things I'm saying, okay, this is what I think needs to be the rock bed in here with that. I mean, what I'd like to do is that, if possible, is to go back with Jonathan and go back with David and have a conversation about that. But we've got to decide that as a council because we don't have a subcommittee on this. Right.

Let me say, first of all, I want to thank Jonathan for doing the heavy lifting on this. And the first draft is always the hardest draft. and he put a lot out there. One of the things that I looked for specifically in your version, Rudy, because Jonathan and I had talked about it as something that is actually missing and that we think needed to be added was an audit feature. I know you have one paragraph where you speak to audits, but I think we might want to strengthen that. I think you're right. There are a few areas where Jonathan and I want to make, I think we've agreed on some additional edits, some that we're not 100% on board with, and we want to talk about those, I think, in some detail. But I hear where Councilman Ruiz is coming from. Let's get something in place, and then we can tweak it later. And one of the questions I have, and this is a question for the whole council, is do we want to wait to pass something until we have a strong audit provision? Or do we want to pass something and come back and do an audit provision as an add-on later? I'm agnostic about that. I think we can do it either way. But I think that the auditing of the system, one of the things that has come out recently is that a very... I'm searching for an adjective, and I'm coming up short. Let's just say an audit can reveal substantial problems with these technologies, and I think we need to make sure that we have a system in place, regular... perhaps outside as well as inside, to make sure that we don't miss these things. Because it's new to all of us. Even the people who are doing it don't really understand what it does, at least on the bleeding edge of it. And we need to make sure that... We have a performance audit of what it does, and we need to use the technology, but we need to make sure the technology doesn't trip us up.

Yeah, to your point, and you just said it yourself, if you look at page 9, there's a reason why I put so much regarding... vendor data use. Because I think one of the concerns, one of the issues is that the totality of what's being utilized, no outside party receives an independent right to train or improve. The model developed on unrelated product types, et cetera, right there as well. You see that list and talks about the specific contracts, the vendor disclosures, the non-compliance, which I think is a key portion to that and working for that. You also feed right into required vendor contractual obligations. Pre-existing IP, AI output ownership, third-party infringement, city funding deliverables, liability and insurance. Those are things that literally, they weren't in the previous copy. And like I said, Jonathan's saying that there were some iteration and that's why I'm willing to go back for but I mean you're a lawyer you don't you don't just you know you bet you don't do we don't tell clients you just pass something to go ahead and in the subset it's like do the best you can right now from the onset and then go from there as well well I I guess it would be how much time are we saying would be between versions if we're saying okay let's wait two weeks until we can get something that is

is more substantial and covers everything versus, okay, well, we need to do something that's going to take a year to do that. I'd rather wait the two weeks and get it done first and, you know, and then reevaluate it in a year rather.

So I have college football this weekend on Saturday. Otherwise, I don't see why it can't be done. Otherwise, I mean, I don't see why this can't get done seriously over the weekend.

So the other thing that needs to be done is the ordinance for a resident advisory committee as well, which is not included, I think, in either one of these, but we've talked about it.

And we've talked about it and we've agreed to it, so everyone on the council, we're all on the same page.

And I bring that up partially because this topic isn't going away, and we know we have to do the work on that piece of it as well. And so, you know, while I think it's important that we get something in place rather quickly because we're already tripping over ourselves in some of this stuff, you know, I'm open to waiting, but to Melody's point, I think we'd need to figure it out pretty quick, especially because our city attorney and city manager are going to have to get comfortable with a whole new version again real quick, which is going to take time for them beyond just our council input. So I want to be mindful of that as well.

So I would I wouldn't say I disagree with us ripping over ourselves over this. I do agree that we do need to, I think, honestly, I think two weeks is way too long. Like I said, I think this is something that we can go ahead and, I mean, you've done this. We should be able to go ahead and get this done and knocked out. We can't get it approved until the next meeting.

I want to be clear with that. We want to get it drafted, but we need the professional review of our attorney and our city manager to ensure that what Any changes are, in fact, implementable. Because I don't want us to go say, hey, these are all the things we want to do, and then we look at it and we're like, well, that doesn't make any sense in our use case, right? That's something that would require three new headcounts that aren't in the budget, right? So I want to make sure that not only are we getting, if we are getting it updated, that we're getting it reviewed and solid, and that feels like it's going to take more than two weeks to me.

So if we do it this weekend, Mike, how long would it take for us to build a guy? I mean, since you're my dad.

Can I jump in? How much free time do you have in your schedule to review another version? Sorry. Let's James jump in real quick.

This is, I've spent so much time on this document. Like over the last six weeks, there's been, I don't know how many emails we've gotten back and forth. I feel like we've gotten it to a place where I know that I can deliver on it, and that took a lot of time, a lot of time. I think it's good. I think it would be easy to adopt this and then also provide direction that I add a provision about an audit section. I can continue to work with whomever to add that in there, but I know I can deliver on the policy as the way that it stands, and it took a lot of time to get there. What do you all think?

Well, I do want an audit provision, and I would like time to... I don't know if this was delivered electronically and I missed it, or... Oh, yeah.

Oh, this was sent to them. I don't want to send anything to you all in general.

Okay. I mean, some of the things you pointed out I think are important. I guess if they were in a draft before and taken out, then that's one thing. If they were never in the draft originally, you know, like you know, like I think anyone who wants to look at it and have input or whatever, you know, can have time to do so.

I mean, we'll have to use some AI to look at the different versions, right? He says he's got a red line.

He's got a red line. It already did that. I mean, I don't know, but some of the things I think are critical, you know, and if James thinks I just don't know what else besides the audit. I mean, obviously, Rudy, you felt like a number of these things were critical to go ahead and add.

Data privacy and governance. I mean, for example.

I think that's addressed in here. So part of this, one of the deliverables is that I'll work with Mike and we'll put together some sort of a. A rider that goes on top of. So when these contracts come up for renewal, whether they're low, moderate, or high risk, we will apply that to that. And I think if it's moderate or high risk and they don't accept it, then I would bring it for discussion. Or high risk. High risk for sure.

High risk only comes to counts. Moderate, though, what we decided on was basically at the city attorney's discretion that what the vendor has proposed is materially the same or covers the same risks. Yeah, fine.

I think the other thing you'd see is like we could go back and add an audit thing. Personally, I don't need a policy to have direction to do an audit. If I'm looking around and if I see four that say I want to do an audit, honestly, I'm going to do it anyways after recent events, particularly with our high-use one. I'm going to do that anyways. You don't need to direct me to do that. I'm just going to do it. So I think I'm very comfortable with the way the policy reads right now. I know I can deliver on it, and I will most certainly make sure to do audits on our high-risk stuff.

I think it does make sense to memorialize some of those things. I do have one question. I'm not sure if this is attorneys being attorneys. But top of page 5 on the draft watermarked version, existing contract shall be brought into conformity at renewal, extension, material change, or the earliest lawful opportunity. I don't know if earliest lawful opportunity is there intended to mean... Before those things or after those things because it seems like those things, renewal, extension, material change, should all be appropriate times to make changes. I can't imagine any other scenario. So I'm trying to understand if that's an earlier or a later scenario. Because I don't want to say, oh, well, the renewal's not for five years, but there's a lawful opportunity tomorrow, so let's get right after it.

And then what's a lawful attorney? I mean, there's a couple of those things.

That's the only one that really stuck out to me, and I don't know if... Yeah, I thought that, too. It's okay.

But I do want to... Are we waiting five years?

Yeah. I mean, and what lawful, you know, it's... Those are the things that, they have the little things I didn't mention. There's things that can be cleaned up. I'm really concerned about some of the privacy and some of the vendor use and not being prescriptive with that because of what I've seen in my own clients' lawsuits. There's nothing in here, let's put it this way. Like I said, I've had three and a half years to develop this. Nothing is in here that I haven't had experience somewhere down the line.

So you think you can do it in two weeks? I think I can do it.

I'm going to ask, well, first of all, Jonathan, I know you put a lot of time and effort in with city staff. I would ask that we expend no more than and four additional staff hours on it. So if we can get a... I think that... That'd be my limiting factor for you all coming together and meeting and knocking it out and whatever you got at the end is done. Because you know I'm a big fan. A 95% solution that we can actually implement and has buy-in is a whole lot better than a 100% solution that no one wants to do.

I think that I could mitigate... a pretty substantial amount of time because I know how these guys are thinking about it.

Okay.

But that's not going to reduce their time. It's probably still aggressive for them to like really dig into it and understand it. I don't know what a reasonable amount of time is in their opinion, but I do think some of it.

If you had to estimate how many hours would you spend on this already?

Sorry, I've been in consulting, so I... I'd say that it's probably been... I've probably sat down no less than 10 times and spent a couple hours on it.

Yeah, we're... We're at a substantial amount of staff investment already. Mike, I assume you're probably in that range as well. So I... That was a yes?

Yes. I'm sorry. Just for the city secretary.

For the court reporter.

I really don't want us to take a huge step back and then our staff has a lot of work to get done. We've got a lot of demands on their time.

I don't think anything in here undercuts what it is. I think what it is is buttresses or adds more concrete enforcement on some of these things. And I think that's what keys that. And then, like, some parts that, like I said, that... I'm telling y'all this. Like, I... It causes me heartache. Like, the suspension and termination clause put in there. Like, I mean, these are things where... I've seen bad stuff. If your contract isn't written well to cover you, then... Well, yeah.

Is this a discussion, Rudy, on our standard template for contracts? Because I know we've got a standard template for PSAs and a standard template for construction, right? I don't know, Mike, what other templates we have, but it sounds like A lot of what I see in there is something that we may just need to adopt as a standard contract template.

I mean, I would hope some of it's just easy to up and lift because, you know, just like when we did... we changed the definition regarding, um, act of God after the pandemic. And that was a huge deal because we just, I mean, no one had defined it the way it should. And after that we had to go.

So Rudy, uh, following up on that same thread, is there anything that you would say is like, material to the policy that council would adopt or that changes the direction of something that is in the current agreement and I asked partially to what the mayor was saying is if we're if there's a Decent number of changes or updates that we need to make to various templates documents policies We probably could come back and either do a separate resolution or just a council directive to implement X Y & Z changes to the contracts outside of passing the governance framework today, potentially.

You make a great point. Yeah, Rudy, are your changes, do you see them as changing the vector or just changing the extent? Is it something that you want to say, well, it's not going the right direction or just needs to go further?

I think it's both because you're looking at things, for example, for what I said about generative AI, what that policy is opposed to genic AI regarding specific employees and the utilization of it. I think the vendor data use, like Y'all, trust me. I mean, yeah, right there as well. Required vendor, some of these things that you talked about, you asked about whether or not some of these things can be uplifted. But I, like I said, I would not be doing my job if I didn't tell you, like, there's nothing in here that I did not think was important, nothing in here that I thought, wasn't something from the onset we have on to set as a standard to go ahead and platform it forward. I truly believe, like I said, I think we can sit down, knock this out, we can have something out on Monday. I don't think it should be, like how Jonathan put it, I don't know if it's a Vulcan mind, but understanding how staff and what their thoughts are as well. But I think that we can, this is not something that's going to be too significant for that, particularly during a budget season right now, which I get.

Was it everyone's expectations that we were going to see this for the first time and approve it?

I'm seeing it for the first time, so I can say I didn't have that expectation.

I mean, like this draft, because it wasn't... Oh, the draft I proposed. Yeah, because it wasn't included in the agenda last time, and then when I asked about it, there was the desire to... Oh, the mayor did put it on the regular agenda as well, if we...

Yes, and this was included in the packet, right?

That was in the packet.

Yeah, but I'm just saying... Rudy's draft is brand new.

Yeah, Rudy's draft is brand new, but I'm just saying this. Two weeks ago, I didn't see Jonathan's draft, so this is new in the last few days.

We were still working on it two weeks ago. That's my point. But it was in the packet.

It was in the council packet. It is on the regular agenda this evening. It sounds like we'll have some time to marinate on that over the next little bit. I'm not sure I have clear consensus yet, but we'll see what we get in the regular agenda if we're passing it tonight or if we're postponing it to have some more folks take a pass at it.

What were you trying to say? Well, some of the discussion sounds like it was an expectation that we were going to read this for this meeting and approve it tonight and not have any changes. And I'm just wondering if that's a realistic expectation. Like, I would have expected that we would have conversations and that we would have something to change it and that it would possibly make sense to bring back in two weeks. So coming back in two weeks is not outside of my expectations of what we were going to have. and discussing a policy, especially of this magnitude, which we have been discussing for months, right? And so I understand the time that's been spent, and I appreciate everyone's time, and obviously we want to finish it put a bow on it and be done but I think if Rudy has real concerns and I you know the number of things he's pointed out like I agree you know these are things that I've seen in the business you know like my clients too that these are critical um and if they can get together and understand you know what the changes are what's been talked about before and come back in two weeks then I think that's the best thing to do now did you have any specific recommendations Me? No, because I didn't, you know, I'm like, I'm reading this, I'm like, everything sounds great, but this is not my area of expertise, which is why I'm glad other people on council have this area of expertise.

Absolutely, absolutely. I'm fine with doing it either way. We could pass it and then come back and add the items that Rudy thinks are essential. later, or we can try to tie it all up at once. If we're going to tie it all up at once, there's no way we can get that done tonight. So it's two, possibly four weeks, because it's however long it's going to, once the council people agree on it, then it's however long it takes for the city manager and the city attorney to review it, and As you pointed out, Mr. Mayor, they have a full schedule.

It is budget season. And I apologize. I had the same perspective as Melody. I thought we were going to discuss what was presented tonight from Jonathan right there as well. Sorry, y'all. No, we're discussing it.

You're like, what is the deadline that I have to have a draft of something and that's when I'll get it?

I guess I haven't heard much more, Cesar.

I really agree a lot with what Melody said. I'm okay with holding off. That way it gives us an opportunity to be able to really fully read Rudy's draft that we just got today and digest it and see what changes and how and what we want to do. I agree with that. Kimberly? Kimberly?

Thank you for asking. Of course, I am concerned about the number of hours that have already been spent on this. And then I keep thinking about the priorities that we set and how sometimes us going back and forth, and it's very important, how going back and forth is going to take additional time away from some of those priorities we did set. And it is budget season. I am wondering if what has already been worked on could be approved and then we build, right? I'm just wondering if we'll be able to resolve this. I don't think four hours is actually reasonable. City Manager said he's already spent 60 hours. The city manager has said his city attorney is about the same. So I just want to be very realistic about the time that it's going to take for us to create the document that satisfies both. And I know you were working on it, and I was just sitting here wondering why another one was created.

Oh, because I didn't want to review. Oh, maybe I didn't say that at the beginning. Once you started working with David, I did not want to have to worry about any quorum issues or anything like that. So I was like, let me just wait, get whatever the final version is, and then I'll go ahead and give my thoughts on the final version. I mean, and for the public, that's one of our big issues. And I know Kim brought it up a couple weeks ago. If you don't hear from us on things, it's because we worry about getting sued. It's just to be flat out to tell you right there accordingly. And so we've got to be careful about how we, if we're discussing, we're discussing in the public, and we're having these conversations because we don't want people to come back and say, Explain to them why we would be sued. Did they remove the prison penalty? That is true. That is true. We can actually go to jail, too, as well.

Open meetings act.

Open meetings act is a real thing. And so we are very cognizant of, very aware of it. So that's why you don't, we're very particular about how we operate and work. All right. Great point.

Any other comments on this item at this point? It is on a regular agenda. All right. At this time, I'm going to take us to item 3D. We're going to retire to executive session on this one. This is deliberation regarding real property and economic development negotiations pursuant to section 551.087 of the Texas government code related to Project Opera. The time is 6.15.

We're in executive session.

evening it is 632 we've returned from executive session and no action was taken that concludes the items on our work session agenda for those of you here in anticipation of a regular agenda if you are wishing to speak make sure you fill out a form at the back of the room It does have a checkbox that says whether or not you wish to speak or just register your position. And there is a box for support and oppose as well. Make sure you fill that out. And we will see you at 7 o'clock. At this point, we're adjourned from work session.