SPECIAL MEETING OF THE COUNCIL OF THE CITY OF NOVI

THURSDAY, JANUARY 19, 1995 AT 7:30 PM EST

ACTIVITIES ROOM - NOVI CIVIC CENTER

45175 WEST TEN MILE ROAD

Meeting was called to order at 7:30 PM with Mayor McLallen presiding.

ROLL CALL: Council Members Crawford (absent), Mason (present), Mitzel (present), Pope (present), Schmid (present) Toth (present), Mayor McLallen (present)

Present (6) Absent (1-Crawford)

Mayor McLallen informed Council that she had been notified that Councilman Crawford would be arriving late.

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PURPOSE OF SPECIAL MEETING

Mayor McLallen said the purpose of the meeting was to give Council an update and a preview of the financial challenges that are facing the City and to give them better tools to go through the budgeting process this year.

Mayor McLallen introduced auditors representing Plante and Moran, Mike Walsh and Joe Heffernan.

INTRODUCTORY BUDGET MEETING

Mr. Heffernan presented a chart that would basically show Council the bottom line of the numbers he had put together.

He put together a 4 page packet also.

Mr. Heffernan said the chart showed the revenue and expenses for 1992-93. He said in 1992 and 1993 the revenue line was a little above the expenditure line. He said for June, 1994 the expenditures rose above the revenue line and there was a decrease in Fund Balance in 1994. Mr. Heffernan said for the 1995 Budget they anticipate that expenditures will again be more than revenues. He said they will even out in 1996 and then in 1997 they will be very close but expenditures will be a little higher.

Mr. Heffernan said the chart also showed that in 1995 we will have a blip in expenditures and revenues. He said the reason is there are a couple of one time expenditures in 1995; $400,000.00 for Fire Trucks and $250,000.00 for Computer Equipment. He said there will be an increase in 1995 for Pension expense and Post Retirement Funding. He said for years we have been paying no pension contribution because we have had such favorable investment experiences. He said in the MERS Pension System we were well funded enough that they told the City of Novi not to make pension contributions. Mr. Heffernan said in June of 1994 there was a very small contribution as we had just started making them again and in 1995 we are back to the full level. He said those were the reasons why there is a blip in the expenditures in 1995.

Mr. Heffernan said the increase in the revenues are for two reasons. He said one is that we did have, in terms of real growth of SEV, a better year in 1995. He said the second reason is the $400,000.00 expenditure for fire trucks is basically being funded by the Special Revenue Funds, Police and Fire Fund and that represents the Special Voting Mileage.

Councilman Toth asked if dollar figures are budgeted approved dollar figures, no assumptions. He asked in other words when Mr. Heffernan says that the Fire Department is buying a fire truck that is an approved expenditure.

Mr. Heffernan said it was and a summary of those exceptions will be found on page 3 of the detailed 4 page report.

Councilman Toth said the bottom line is we are dealing with real figures right now not projections.

Mr. Heffernan said he did not want to overstate the case when we say we are dealing with real figures because, in fact, 1995 are estimates. He said these are the projected revenues and expenses and it is not the budget.

Councilman Toth said he understood what he was saying was if we come in higher or lower than that figure but that is a budgeted line item.

Mayor McLallen said on Page 23 under Fire Department appropriations in the 1994-95 Budget, line 6 is $400,000.00.

Mr. Heffernan said the bottom line if you look at this chart is that the Fund Balance which was a little over Two Million Dollars in 1992 rose to 2.7 Million at the end of 1993, dropped to 2.6 Million at the end of 1994. He said they anticipated that it would continue to drop just slightly down to 2.4 Million at end of 1995 and stay basically the same in 1996 and then drop at little more to 2.3 Million in 1997.

Mr. Heffernan said as a percent of the expenditures, that means we finish 1993 at 30%, 27% in 1994 and this projection is it will continue to drop to 23% for the next few years and then down to 21%.

He said these are the basic facts that this chart shows. He said that the two things he gets out of it in an overview is that the Fund Balance is continuing to drop but it is staying above the 10% target this Council has always had. He said we are in fine shape. The second thing was the more he looked at the numbers and thought about what was happening and what's driving the numbers the more he is unsure that 10% is the correct Fund Balance. He said for the long run, for any city, 10% is the right level of Fund Balancing Avenue target and he is not so sure that 15% would be the better number for Novi.

Mr. Heffernan said the reason he says this is because of what he sees happening in Novi; the population is increasing and therefore the demand for services is increasing. He said there is typically about a 1 year lag between when the population moves in and when the property taxes come in as a result of the increased growth. He saw more of a two or three year delay between the population coming in and the expenditures increasing because it takes some time for the new residents to come in and start demanding the services, for the City to recognize the services are being demanded and react to that, increase the level of programs, etc. He said there is a 2 to 3 year lag from when the population moves in and the actual cost to us as a result of the increased services. He said what happens is when you are on an up take like this the revenues are coming in from the new population a year maybe two ahead of when the actual costs are increasing. He said when the City levels off the expenditures will continue to increase for a year or two beyond when the revenues are increasing. He said that is why it may make sense instead of the 10% as the target to make it more like 15%. He said you may or may not agree with the number 15% but he wondered if the concept of 10% is really the right number. He said when the City is growing like this he felt it was definitely worth looking at.

Mr. Heffernan said those are the two overviews that he took out of the analysis that he did. He said number one would be the City with a 10% Fund Balance appears to be in very good shape relative to its target growth and where it wants to be. He said number two was he is not sure that 10% really is the right target perhaps something higher.

Councilman Toth asked how soft or how conservative were the figures for 1996-97.

Mr. Heffernan said Page 1 is a listing of all the governmental activity regardless of what fund it was in for year ended June, 1994. He said with all the governmental funds we would have had $23 Million dollars of revenue coming in and $32 Million dollars of expenditures. He said the different columns are grouping it by the types of funds. He said there are several funds that relate to streets both the operations and capital. He said he was grouping them by activity rather than by type of fund. He said if you look at all of the funds that go beyond the General Fund all those other funds, other than the General Fund, really are self financing. He said all of them have either a bond issue or there is a special voted millage to pay for the given activity. He said these are all self funding. He said the General Fund is not self funding and the Council has more control over it.

Mr. Heffernan said Page 2 is the General Fund and a three year summary of the General Fund looking at both the budget and the actual for the last three years.

Mr. Heffernan said on Page 3 they tried to keep it relatively simple because they wanted it to be a thumbnail sketch of where the City finances were going. He said they used the 1992 to 1994 data as the basis and they assumed there would be 3% inflation and a 2% increase on property tax revenue. He said the reason they came up with 2% was that they assumed that the Council would continue to be rolling back the Truth in Taxation so that there would not be an inflationary degree but that there would be a 2% new growth each year. He said that is a very high level of growth even though it may not seem like a high number but in terms of real growth that is a very high number. He said that was supported by what we have seen in the last 3 to 5 years in Novi. He expected that would continue in the next 3 years but also expected that 10 years from now there wouldn't be 2% levels of real growth in Novi.

Mr. Heffernan said Item #4 costs are expected to go up by that 3% inflation plus another 1% because of the demands of growth. He said with real growth coming in, more residents moving in you would expect the cost to go up faster than the inflation. He said that as the population is increasing to give the same level of service per capita the costs are going to go up. He said they assumed a 4% increase in each of the expenditure categories. He said in State Shared Revenue they assumed it was going to increase 5% in 1995 and 4% the next two years and thereafter. He said all the other revenue accounts they assumed 4%. They assumed there would be inflationary increases for the types of fees that the City is charging plus an additional 1% because if there is a population growth there would be more people paying those fees, etc.

Mr. Heffernan said those are the general assumptions that all the numbers are going by. He said there are specific assumptions on 5 or 6 very specific things. Mr. Heffernan said in 1995 they are assuming there will be an additional $234,000 related to the pension and post retirement funding. He said the Fire Department, the $400,000 that was approved by City Council is included in the report. He said again the 1995 numbers that we have here are not just for recapitalization of the 1995 budget. He explained they drove it by the assumptions above and then the special items that were in the 1995 budget that were of any major consequences were worked in such as the pension and fire department trucks. He said the next item would be Police and Fire; recently an additional $400,000 was transfered to pay for the fire trucks and it is not affecting the General Funds bottom line.

Mr. Heffernan said the Municipal Garage will spend an additional $145,000 for equipment and that is in the 1995 budget.

Mr. Heffernan said, lastly, General Administration would purchase computers for $250,000 in 1995. He said they did assume that that would happen in 1995 and not in 1996 and 1997 and is something that may still be up for discussion because there is a lot of movement in the area of computers.

Mr. Heffernan said given these assumptions, what is on Page 4 would be the actual revenues and expenditures for the last three years, 1992, 1993 and 1994. He said the fourth column would be the estimated 1995 numbers. He said they are assuming revenues would increase from 11.6 Million to 12.6 Million.

Councilman Toth asked why they showed a drop in 1996.

Mr. Heffernan said the reason is 1995 assumes an additional increase in the transfer of police and fire fund over to the $400,000 for fire trucks. He said the way it had been set up with the special levy for police and fire is it only transfers over to the General Fund the specific cost that the General Fund incurred for the specific police and fire personnel hired and the specific capital outlay.

Councilman Toth said so you took that out of another source that is not a revenue source and put it into the revenue source account. He said the $400,000.00 under the Police and Firemen Fund was not considered a revenue source.

Mr. Heffernan said not of the General Fund.

Councilman Toth said then it was transferred from one account to another account and classified as a one time revenue.

Mr. Heffernan said that was correct; it was a one time revenue and a one time expenditure.

Mr. Heffernan said for the 1995 column this assumes that revenues will increase by $12.6 Million and that expenditures will increase to $12.9 Million. He said there would be a $230,000.00 short fall in 1995. He said Fund Balance would decrease from $2.6 Million to $2.4 Million.

Mr. Heffernan said in 1996 it comes into more of an equilibrium as we increase the revenues. He said revenues would actually decrease from $12.68 Million to $12.62 Million because of the transfer from the Police and Fire Fund would decrease by the $400,000.00.

Mr. Walsh said it was important to recognize 1996 estimates, which is what they are going to be working on very shortly. He said virtually all capital has been backed out; $145,000 is under the base number now for additional equipment and the $250,000 for computers. He said basically it is coming down to a bare bones budget without capital.

Mr. Heffernan thought that was an appropriate overview item as we look at all the expenditures for the last three years; because of what's been happening with State Shared Revenues and because of the Council's desire to roll back property taxes to as low as possible. He said it appeared that the department heads have been budgeting what you may call bare bones at least in terms of the capital type projects. He said whether the City will have the ability to continue to do that forever or whether the City will at some point need to increase the spending for capital outlay that is a difficult question that this report doesn't answer. He said that would be one of the contingencies; it may not be fair to assume that the City can continue to spend at the level it has been spending if in fact you have been under spending on the capital infrastructure type needs.

Mr. Heffernan said for 1996 this assumed the revenues basically equal to the expenditures, $12.6 Million and would be a break even for 1996. He said in 1997 as the costs continue to increase as predicted this would assume a $130,000 excess of expenditures over revenues; so Fund Balance would decrease an additional $100,000 down to $2.2 Million. He said this was still well over the 10% target that Council had set; in fact it would be roughly 21%. He suggested 10% because of the type of growth Novi is having and 10% may not be the right number. Mr. Heffernan said it is unscientific to say 15%, that is more of a gut feeling then something with comparable evidence; but 15% is an appropriate number it is still over that 21% and would be a healthy Fund Balance.

Mayor McLallen asked him to repeat the percent in the 90's.

Mr. Heffernan said at the end of 1997 $2.2 Million would be the estimated ending Fund Balance and would be 21% of expenditures. The formula used defined expenditures as being total expenditures, $13.1 Million for 1997, minus what is being transferred from the Police and Fire Fund, $2.2 Million.

Mayor McLallen asked what was the percent for 1996. He said 1996 would be 23.3%. She said that is 6% higher than what the recommendation is and asked if Council should find something else to do with that 6%.

Councilman Pope said to lower taxes.

Mayor McLallen asked if that was sound money that could be used to address other issues and maintain a stable tax rate or as Councilman Pope suggested just give it back and don't appropriate it.

Mr. Heffernan said either could be done but an open question would be which is more appropriate. He said the answer to that depends on the answer to the question of the spending that we have had the last 3 years. He said we need to know what it represents and how bare bones it is and how much has the City cut back on infrastructure needs that have to now be met in the next few years. He said it is a difficult question to answer but it did mean if we kept spending as we have been spending it would mean we are 6% above where we need to be.

Councilman Pope asked what the 6% is in terms of cold hard cash.

Mr. Heffernan said it was in the neighborhood of $600,000 to $700,000.

Mr. Heffernan said the 10% number we are using would be $1,131,000.00.

Mayor McLallen said what is indicated on the report is that there is as much as $1 Million unanticipated dollars if we just keep doing what we have been doing all along.

Mr. Heffernan said that was correct if the City continues to go along as we have the last years; and if these assumptions are true, and costs only go up by 4% plus these extra 5 Items we have identified.

Mayor McLallen said the bottom line to the political body is keeping the 1994-95 mileage rate as it is will generate more than this if Council doesn't roll it back. She said they were predicting this on the fact that over the last four or five years Council has always taken it back. She said this $1 Million if we go to the historic 10%; $700,000 if we go to the more comfortable for the future possibility of 15%. She said that would still give a minimum of $600,000.00 new dollars over and above dealing with inflationary costs in the City.

Mr. Walsh said there are two reasons for having a minimum level of Fund Balance. He said one is often called "rainy day" which is for emergency purposes; the second would be for cash flow purposes. He said the City revenues come in chunks, taxes, etc. during the year; and expenditures go out evenly. He said if the cash flow were tracked it would go up and down. He said you have to have enough cash to carry through those down points.

Mayor McLallen said as this 1996 projection was presented not only do we have our 10% but we have 23%. She said this was done by following the historic pattern that this City and its policy makers had made; we do not go above Truth and Taxation. She said if we roll the millages all back this year and continue our roll back we will still end up with 23% of a Fund Balance. She said we could take the 10% maybe up it to 12% and we are going to capture that extra $600,000 to $1 Million and use it for needs about the City or to roll the taxation back even further.

Councilman Toth asked him to explain the two sides of Fund Balance. He said one is the working capital, cushion or rainy day fund that allows day to day operation. He said the other side are historically unforeseen costs that occur during the year and those come out of Fund Balance.

Mayor McLallen said that certain of our currently taxable structures are constantly being challenged in the Tribunal because they are aging or changing revenue patterns in whatever their particular industry is. She said some buildings that we had previously assessed and anticipated a revenue of X off of because of market trends in that particular area; though the buildings are still there and look good other factors are depreciating that building until our tax dollars are changing.

Councilman Toth said in the last year or two hotels were in that situation and the assessor can value them on a cost basis or they can come in on the income approach and if they are not realizing the income they should. He said he had seen that in hotels, office and apartments.

Mr. Heffernan said unfortunately it would not help us as much as it normally would of before Proposal A. He said one of the things Proposal A did was it took the December 31, 1993 Assessed value, when they were still depressed, and now they can't increase by more than inflation.

Councilman Pope said one of the reasons was that in past years when 12 Oaks or others had large increases other taxpayers who didn't see increases still got a larger roll back because of those that went up.

Mr. Heffernan said the dollars they paid would have gone up less than inflation or even decreased.

Councilman Pope said they decreased. He said in his complex they decreased because it's going up in value and we have that large lid a couple of years so we actually net at a reduction.

Councilwoman Mason asked how it worked on Proposal A on a house that is finished but 80% taxed.

Mr. Heffernan said that the Michigan Tax Commission is still trying to figure what to do with that.

Councilman Pope said they are coming on new now rather than at 80% because they are still having improvements.

Mr. Heffernan said that 80% was never written into law and in doing that it now puts us at a distinct disadvantage because of Proposal A.

Councilwoman Mason said as a rule, Novi, Farmington Hills and Northville Twp., when a house is finished and a person closes normally they will look at that SEV and it would be about 80% of what is should be once the lawns in, decks are on, etc. She said then the next December 1 it went to 100%.

Mayor McLallen asked for clarification. She said if a homeowner owns his house right now and he paid $174,000 and they will be taxed on that 50%; she said their tax on that house can only go up 5% or the Consumer Price Index which ever is lower.

Mr. Heffernan said it was actually the SEV that goes up so that $80,000 value in year 1 at 3% inflation the next year would be $82,400. He said the millage rates separately might go up and so the taxes may go up; but if the millage rate stays the same that means their tax will only go up by the 3% inflation.

Mayor McLallen said until that house changes ownership that $80,000 base will never change except for the inflation factor.

Mr. Heffernan said what would happen is the $80,000 would become $82,400. He said the taxable value keeps going up by inflation and the market value might be more than inflation.

Councilman Toth said in layman terms he was always taught of an active or inactive account. He said the inactive account would be something where there was money sitting in there and nothing happens except it might be drawing interest. He said an active account is where revenues are coming in and you're spending money and you really have a swap going on. He said he has a problem with the budget in identifying this as a particular account.

Councilman Toth shared two examples:

EXAMPLE NUMBER 1: CITY WATER & SEWER ACCOUNTS

1. Infrastructure dedicated to the City. The developer puts in a $10 Million system and turns that over to the City. He said that's a $10 Million asset that belongs in that account.

2. The development tap in fees for water and sewer.

3. City Water & Sewer Billings - He said then there is the City water and the Sewer billings that go out once that property is on line. These are sources of revenue that come in on a quarterly or monthly basis.

4. Investment interest - He said this means that the infrastructure account, whatever money is in there has some accrued interest, SAD bonds with accrued interest.

Tap in fees and also your water and sewer sales you have accrued interest because you don't necessarily pay that at one particular time.

5. Sale of water - Administrative fee

6. Sale of Sewer capacity - Administrative fee

He said on the disbursement side:

1. The infrastructure maintenance and repairs. He said there should be an amount allocated and kept in a fund to do the maintenance and repairs. He said we also have to pay for tap in inspections that are either a man hour cost or a physical charge to a power company to do that for us.

2. Tap-in Inspections

3. Administrative cost for collection of water and sewer fees

and other administrative costs that may be associated with vehicles and so forth.

4. Other Administration Costs

5. System hardware purchases for meters, pipe and etc.

6. Payments to the Detroit Water Department

7. Payments for sewer capacity

He said his problem was when he looked at Plante & Moran figures he had to go in and pull all these out and assemble them and he was not sure all the figures were there. He said they might be buried in there.

Mr. Heffernan said he had the same problem as Councilman Toth and he was not going to defend the accounting rules because he had written several letters to the Governmental Standards Board telling them they should be changed and they are considering it.

He said for a couple of his communities when he gives them their financial statement he also gives them a sheet of paper explaining how the water and sewer fund really looks in terms of increases in working capital and decreases in working capital. He said it was not following the accounting rules but it was a summary of the sources and uses of working capital and he would be happy to put that together for Council.

Councilman Toth said when he looked at an account on a business side he had to see if he had enough money coming in to pay for the money that was going out. He said he didn't know that on these particular accounts. He didn't know if one account was covering another account because it's a deficit or lack of funds in covering it. He said Council raised the tap-in fee a couple of years ago because they weren't covering our actual costs. He said he needs some kind of proof that they are and we are making some money.

Councilman Toth said he realized this was not an easy task and suggested that every audit we did one, two or three of these examples and take a different area. He said what Plante & Moran has to do is show us that that account is operating properly and it is in the black.

Mr. Heffernan said the problem with the water and sewer is that the rules were written for businesses and the Governmental Standards Board has set up different requirements.

Councilman Toth asked him to throw out what the government or state told him. He said he was looking at it from the practical side of the house. He said if someone gave me a $200,000 house to live in free he would want to do maintenance on that house. He said when a developer gives him an entire sewer system or water system he will do maintenance on it and make sure it will last for X number of years and will also have to do replacements.

Councilman Toth said he was looking at it from the standpoint of the water and sewer funds, storm water program, road programs and should look at it from the stand point of the parks. He said the money that is coming in from the parks and the outlay of money; we need to have some type of financial handle so we can say there is a problem there and we have to raise the fee or rates or we have to do something less of a cost item.

Mr. Heffernan said putting aside water and sewer, you have the same problem getting that, for instance, for Parks and Recreation, Streets or Senior Citizens.

Councilman Toth said he looked at these different accounts and went through the budget many times and it was still not clear.

Mayor McLallen asked if he was concerned that some funds within departments are covering others.

Councilman Toth said that was a strong possibility and there was a strong possibility that we are undercharging. He said the only way he can look at them is through someone like Plante & Moran who says based on our experience with other communities here are some of your weak spots.

Mayor McLallen asked if he was looking at this prior to going into budget or are you looking at them doing this in conjunction with next years audit.

Councilman Toth thought it had to be an on going process because when they do the audit and come back with the figures he didn't want to see a set of figures like we have in the past few years. He said basically they are telling us that as a whole we are healthy but individually are these accounts healthy. He was asking where the soft spots were and felt that we shouldn't use Fund Balance to pick up any sudden repairs that are needed.

Mr. Kriewall said Councilman Toth had some good points. He sensed that the Finance Department was really having difficulty keeping up with what they are supposed to be doing in terms of getting the checks and bills paid and handling everything else. He said we are probably not getting as many financial reports as we'd like to see. He asked if at some point in time there would be a Budget Analyst position and we could get someone that could chase the water and sewer rates continually to make sure that we are charging enough for water meters, senior citizen operations, etc.

Mr. Heffernan said most larger communities would have a Budget Analyst position in addition to a Financial Department.

Councilman Toth said a lot of what he is asking for are figures Mr. Heffernan is dealing with in a normal audit.

Mr. Kriewall said that takes a lot of research.

Councilman Toth said if he has a computer program he could roll a lot of that stuff.

Mr. Kriewall said that was not part of the audit.

Mr. Heffernan said they would be glad to help but he was not sure what they are asking for. He asked if it would be a monthly, weekly analysis or something in house as it should be, or a once a year review of the budget.

Councilman Toth said annually to start with and if it gets to be a problem then bring it in house and get someone to look at it. He wanted someone from the outside to step in who was familiar with the operation going through annually and doing 2 or 3 groupings this year; and two or three different groupings next year.

Mr. Kriewall said if we are doing the job right it is almost a continuing function. He said we have not raised our building permits fees in 8 or 9 years.

Councilwoman Mason thought we had raised the building fees. She said we have raised our water tap fees and we have raised our fees for ball teams to play in Novi from $281 to $581.

Councilman Schmid said this doesn't have anything to do with whether or not it is financially sound. He said isn't it compared often with other communities.

Mr. Kriewall said they do but they never seem to have time to really do the job as they ought to be doing. They get so busy they have trouble paying the bills.

Councilwoman Mason said we buy 1,500 water meters, we are going to put them in and then we are going to get reimbursed; is that all done on paper or is it in a computer some place.

Mr. Kriewall said it is in a computer.

Councilwoman Mason asked why it is so hard to pull off that to show for a three month period that this is what we got reimbursed back from those developers and this is what is due.

Mr. Kriewall said that when we look at all the fees we deal with, water and sewer rates, tap charges, etc. he said he didn't think enough time was spent looking at these things.

Councilwoman Mason felt that if the information was in the computers it ought to come out on a report.

Mayor McLallen said time and motion means either contractually or staff wise we need a body.

Councilman Crawford arrived.

Councilman Toth said this has gotten turned around. He asked to do this from an audit standpoint and suddenly it is in house and we have a new body.

Councilman Schmid said he agreed with what Councilman Toth said and Mr. Heffernan has agreed to look at a couple areas on this budget year and see how we are doing.

Councilman Toth said if we do 1, 2 or 3 that might drive us to say perhaps we should do them all. He said this provides some level of assurance to Council that everything is in the right order; the fees are at the proper level and the income and the outgo are similar.

Mr. Kriewall said Councilman Toth didn't think they gave him enough financial reports.

Councilman Toth said that was another issue.

Mr. Kriewall said that all year long they get beat on because financial reporting is not as good as it should be. He said Councilman Toth will not vote on Claims and Accounts because he doesn't have enough information. Councilman Toth said he is willing to listen to that during the budget time. Mr. Kriewall said he didn't think it could continue like this and felt that these concerns had to be addressed.

Mayor McLallen asked if there were any other major topics or issues that weren't addressed or any other advise on staff.

Councilman Toth asked about what the cost of the mandates are and no where in the budget does it say what the mandates have cost Novi. He asked Mr. Heffernan if he had a figure for that.

Mr. Heffernan said he had discussions with some Finance Directors regarding giving City Council an idea of what those Federal Unfunded Mandates are costing them. He said it is really hard to do; it depends on your perspective as to whether you should be looking at the marginal cost, the full cost and is it something we should have been doing anyway. He said no one is able to tell you the cost and find three financial experts that would agree with that. He said it is a real soft science to try to price out unfunded mandates.

Councilman Schmid asked for an example that Novi has of Federal unfunded mandates.

Mr. Heffernan said the American Disabilities Act which is probably the biggest one everyone points to today. He said they changed the Federal law to say you have to do all these things to assist people with disabilities but they are not providing the money to do that.

Mayor McLallen said Novi's construction is so new that most of our buildings comply with that and any new publicly owned buildings that cost is factored into it.

Mr. Heffernan said he thought the biggest cost would be the Federal Clean Water Act. He said what that is forcing is the lawsuits in Detroit to bring the Detroit Water Plan up to speed and it is going to cost billions of dollars.

Councilman Toth said we have that problem with the DNR right now they are asking us to do water quality monitoring of the storm water. He said that was being driven by the Federal Government Mandate.

Mayor McLallen said basically we are going to pay for Detroit's sewer tap fee. She said we would pay them directly but it is a municipality and it probably won't be really involved.

Mayor McLallen asked if they were telling Council to go ahead and put the millage rate at the roll back issue tonight and be over this.

Mr. Heffernan said that he has been in some discussions with Mr. Gibson in terms of what this means. He said the question that comes up is the budget for the last three years, the level of spending of the City, clearly we have been on a program of keeping the belt tight. He questioned if it had been so tight that we can't keep it in for the next three years. He asked have we cut back so much on our capital needs that it is not fair to assume that for the next three years we will only have those mentioned capital projects, $250,000 for computers, etc. He asked if that was an unfair assumption and he didn't have the answer to that right now. He said it was an open question and he wasn't sure if as we go through the budget this year we want try to address that a little bit and look out two to three years on capital item needs.

Councilman Toth asked Mr. Heffernan from his stand point from looking at the budget he asked if we should lease rather than out right purchase on some items. He asked if we should privatize some of the areas and asked what some of his other clients were doing.

Mr. Heffernan said generally when something is going to be purchased Mr. Gibson does an analysis on an individual by individual basis and it is normally a matter of what is cheaper. He said in terms of privatizing; he saw privatizing helping out normally in those cities that have become fat, dumb and happy. He said Novi is a skinny city from that perspective; it is lean and mean. He said there is not a big infrastructure of people here that are looking for things to do. He said it does happen sometimes in older cities that over time they add people on, then they discontinue a service but the people are still there. He said in those types of cities he has seen privatization reduce the cost and work quite well. He said in cities like Novi where you have the opposite extreme he had not seen privatization bring real benefits.

Councilman Toth said let's look at employees and benefits. He said one of the things that most of us on this Council have looked at is cafeteria type benefits to offer city employees. He said also they thought insurance costs are relatively high for what we put out and perhaps that is a case where we should go to self funding or look at some other types of funding instead of going to individuals.

Mr. Heffernan said the cafeteria plans he is well in favor of are not necessarily a cost reducing measure because they typically are not; but as a cost free way to get more benefits for your employees.

Councilman Toth asked about the idea of self insuring.

Mr. Heffernan said you don't necessarily need money to be self insuring and Novi should probably be looking into that. He said normally it is much larger areas, City of Dearborn, Kalamazoo, etc. being self insured for those types of things.

Mr. Toth said if you look at the monthly warrants there are insurance bills for 20 different insurance companies. He said when you look at it from the stand point of self insuring can you set that money aside and do it for a smaller cost. He said that is where we need to do a study as to what's coming in and what's going out.

Mr. Heffernan said we recently changed from the M.M.R.A. program to the League program and that did save a few dollars. He said those two have always been the two best programs at least for the last 5 to 10 years for municipalities. He said some communities for certain types of those insured have gone off and insured by themselves and saved money and they tend to be the larger communities.

Councilman Schmid said although he agreed with the concept of out-sourcing or using outside vendors which we have done very actively, engineering, planning, etc., he thought that was the way to go. He asked if we ever looked conversely if there was a time when we should bring something back in. Councilman Schmid asked Mr. Heffernan, with his experience working with other communities, if he would look and see if there is anything we should bring back in.

Mr. Heffernan said he had not looked at it enough to have an opinion on that. He said typically that is the type of situation you could get into where it does make sense to go in the other direction and unprivatize. He said one of the reason you want to use the outside vendors or consultants that you have is that you want that level of expertise but you only need a certain amount of it and you don't want to build it into your infrastructure.

Mayor McLallen asked Mr. Heffernan if he was familiar with a program called Asset Management that Royal Oak used and if it would have any merit for Novi.

Mr. Heffernan said they had very different needs than Novi did because they are a much older city where they have in their infrastructure real replacement needs. He said Novi is still putting in the original infrastructure. He said that was kind of a Cadillac type system as he understood it but he did not handle Royal Oak. He said he thought it was a fine system.

Mayor McLallen asked if he would get some information and break downs.

Mayor McLallen stated that what seemed to come out was positive numbers, obviously quite a bit of support for budget analysis rather than audit information.

She said there are a lot of ways to discuss it but the issue was that the audit did not quite give us the level of information that we wanted and analysis does. She said the consensus was that more indepth and particular fund analysis would give everyone a better issue. She said the audit while it was positive was not everything. She said we may want the Administration to look into budget analysis and what the cost would be of doing several of the particular funds that Councilman Toth did versus the cost of a staff person, what services you could contractually offer Novi and some background on how to explore this so that this whole process will be more positive for all of us.

AUDIENCE PARTICIPATION - None

ADJOURNMENT

The meeting adjourned at 9:30 PM.

CITY MAYOR

CITY CLERK

Date approved: