MINUTES OF THE METRO COUNCIL

SYSTEMS PERFORMANCE TASK FORCE

Tuesday, September 27, 2001

Council Chamber

Members Present:  Bill Atherton (Chair), Susan McLain, David Bragdon

Also present:    

Absent:    

Chair Atherton called the meeting to order at 12:39 p.m.

1.  REVIEW OF POTENTIAL CAPITAL ASSET MANAGEMENT POLICIES AND RELATED TASK FORCE STAFF RECOMMENDATIONS

John Houser, Senior Council Analyst, gave a brief overview of the task force’s original work plan. He said staff’s intent was to produce a resolution which would have the policies, as edited by the task force today, as an exhibit. They would bring the resolution back to the task force’s next meeting for approval and then forward it on to the council.

Chair Atherton appreciated staff’s work. He liked the preamble of the Draft Capital Asset Management Policies (see copy included with the permanent record of this meeting) and asked for addition of a key issue regarding a disciplined or understandable budgeting process in order to be able to plan for future needs.

Tony Mounts, Financial Planning Manager, said his intent was to keep a fairly high level policy perspective. He noted the italicized parts of the draft were an attempt to capture the gist of the committee’s concerns. He read through the 10 draft policies and responded to questions and suggestions from the committee.

Councilor McLain asked if there was a timeline.

Mr. Mounts said rather than putting timelines in the policies themselves, his intent was to bring a report to the full budget and finance committee with a letter from the Executive Officer saying it was their intent to implement the policies by such and such a time.

Mr. Houser suggested, because a number of the policies are tied to existing CIP processes, that a report on the status of compliance with the policies be part of the CIP annual review process. The committee liked the idea.

Chair Atherton commented, regarding #1, that it was the practice of industry is to have a maintenance schedule for all the components and report to the owners on a regular basis on the status of their financial outlook. That financial outlook is always predicated on the condition of major replacement items.

Mr. Mounts said in essence the CIP becomes that report. He said it may be that the CIP as a vehicle is enhanced with additional information.

Chair Atherton said #2 needed to state the need to “set aside this amount of money for renewal and replacement”.

Councilor McLain said that would take away the council’s choice if there was limited resources. She said in order to give a report that was a survey of all the facilities, there needed to be an inventory of resources. She wanted to be sure the wording of the policy did not predispose that they had to do it all in one year. She added that people had to understand they had do with what resources they had. She said language stating they had to make choices on what project to do first had to be included.

Mr. Houser said that point would be addressed in policy #6 in which one of the intents was to determine the capacity to meet ongoing and major maintenance requirements of existing facilities. He said it did not necessarily tie the council to having to set aside the money to do it, but would give the scope of upcoming projects and resources available.

There was committee discussion regarding the two basic methods of planning for capital assets: balance sheets, which the private sector tended to use, and the CIP planning process which was most commonly used by the public sector.

Mr. Mounts said departments had differing policies regarding operating and renewal and replacement fund balances. He recommended establishing policies specifically for renewal and replacement within a certain time, based on the renewal and replacement needs of the fund.

Councilor Bragdon reiterated that these overarching policies would lead to a calculation of a number, but it would be up to the council each year to allocate the money in the budgeting process.

Councilor Bragdon, in reference to #3 regarding equipment purchases, wondered about computer systems which were very expensive and had a relatively short life span.

Mr. Mounts said his advice was to put them into the CIP. He said he had just done a reserve analysis for PCs. The useful life is 3 years and at current interest rates, you wind up earning maybe less than $100 in interest in the period before replacement is necessary. all the asset tracking that goes into that may not be of aggregate value in doing that.

Chair Atherton said that was consistent with policy. He said the $50,000 number was in question.

Mr. Houser said he and Ms. Feher had been discussing some kind of budgetary mechanism to give a snapshot of the costs that fall under that amount. He commented it could be as simple as a line item called “non-CIP capital projects” that would not list of every small project, but would give a total of a given department’s lesser cost projects.

Chair Atherton said those aggregated smaller sum items, the non-CIP renewal and replacement things, were not capital projects, they were renewal and replacement things that had to be done. He was concerned about the aggregated number of smaller projects.

Mr. Mounts agreed that the small projects added up over time and that it was hard to tell what would be coming up. He mentioned that the City of Eugene had finally budgeted the smaller projects as one project, then split them out as they surfaced. He felt that worked and the aggregation of the smaller renewal and replacement projects could be reported retrospectively. He said you could also lower the threshold to pick up smaller projects.

Chair Atherton asked how they would know if the money for the CIP projects plus the money to cover the aggregated costs of smaller projects would be there when it was needed.

Mr. Mounts gave a recent example of a REM department consulting engineering report regarding their facilities. The report said the reserves needed to be bumped substantially, because based on their view, there were upcoming needs coming for the next 5 years. He said you would just have to keep track to know what was coming up.

Councilor McLain clarified that it had to be an ongoing piece.

Mr. Mounts said it did to a certain degree. If spending needs were underestimated in one year and the budgeted capital amount was spent and they had to come to council with a supplemental budget request for $150,000 out of the reserve, the next year they would have to repay the reserve to keep it at the right level. He said he would address that more in the preamble. He noted two different kinds of building condition assessment, a formal consultant assessment or a peer review of facility conditions.

Chair Atherton asked if it was possible to train ourselves to be more rigorous in peer review or go out for a partial outside assessment.

Mr. Houser offered another option, to supplement a formal assessment every 5 years with one or more peer assessments in the intervening period. The committee liked the idea.

Mr. Mounts suggested asking a group of people involved in building management what they might propose for doing peer reviews. He said there was a lot of expertise in-house it would be nice to leverage initially.

Councilor McLain commented that peer reviews did not have necessary responsibility and they might not feel obligated to search out every corner. She said if there was some kind of format saying to check the big things, or spot check this list. She did not think peer review could be unguided.

Mr., Houser said the MERC peer review operated off of a list of items that needed to be examined as part of the review.

Mr. Mounts said the problem was how to set the initial renewal and replacement reserve target. He felt the ideal way was REM’s approach. He was not sure a peer review would give quite the same level of scrutiny. He thought they could come up with an estimate based on the size of the asset and use the CIP planning process to make sure we are getting the right level.

Chair Atherton said they did not have to be so detailed as to specify in the peer review you have at least one outside consultant from the business going along with you. We are dealing with the accountability issue. That is a very good point.

Mr. Mounts recommended adding another policy that said the council will establish renewal and replacement reserve policies for all funds that are responsible for major capital assets. Those would be specified over time within the context of the operating budget.

In response to a concern from the Chair, Mr. Mounts said he would adjust the language in #7 to somehow reflect that they did not want to have to debt finance things. He noted on the operating side, if there was a one time resource available, they should not put it into new programs, they should use it to set aside for capital improvements.

Councilor McLain thought #8 and #9 could be combined. She asked of flexibility was affected by these. Mr. Mounts said it was not. Councilor McLain said they were putting limitations on the use. She agreed they did not want to use debt to finance operations but thought it would be cleaner just to say that.

Chair Atherton and Councilor McLain wanted clarification of “clear public purpose” in #9.

Mr. Mounts said that would be as opposed to a project that had some private benefit. He added you couldn’t use tax supported debt for that anyway because it would lose its exemption.

Councilor Bragdon said there are still things that have a public purpose that aren’t appropriate for general obligation, like solid waste transfer stations. He suggested saying “generalized” or “broader” public purpose rather than “clear” public purpose.

Councilor McLain did not feel that needed to be there because Metro did not do anything that did not have a clear public purpose.

Councilor Bragdon agreed that not everything was appropriate for general obligation debt, some were more appropriately used with revenue based debt instruments. He said the original convention center was general obligation bond, but the expansion was not. They both have a clear public purpose.

Mr. Mounts said that was the point he was trying to get to. He said he would strike the second sentence from #9. He said the conversation about the draft policies had been very useful to him.

Mr. Houser said they would come back to the next meeting, next Thursday, with a resolution for committee consideration.

ADJOURN

There being no further business to come before the task force, Chair Atherton adjourned the meeting at 1:38 p.m.

Respectfully submitted,

Cheryl Grant

Council Assistant

Attachments to the Public Record for the

Systems Development Task Force of September 27, 2001:

Testimony Cards:

None.