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2016-10-28 MinutesA A BOARD OF SUPERVISORS JOINT MEETING WITH SCHOOL BOARD MINUTES October 28, 2016 Supervisors in Attendance: Mr. Stephen A. Elswick, Chairman Ms. Dorothy A. Jaeckle, Vice Chrm. Mr. Christopher M. Winslow Mr. James M. Holland Ms. Leslie A. T. Haley Dr. Joseph P. Casey County Administrator School Board Members in Attendance: Ms. Dianne Smith, Chairman Ms. Carrie Coyner, Vice Chrm. Mr. John M. Erbach Mr. Robert W. Thompson Dr. Javaid E. Siddiqi Dr. James Lane, School Superintendent CALL TO ORDER Staff in Attendance: Mr. Greg Akers, Dir., Internal Audit Ms. Janice Blakley, Clerk to the Board Mr. Allan Carmody, Finance Director Mr. William Dupler, Deputy County Administrator Mr. Matt Harris, Budget Director Mr. Louis Lassiter, Deputy County Administrator Mr. Jeffrey Mincks, County Attorney Ms. Susan Pollard, Dir., Communications and Media Ms. Sarah Snead, Deputy County Administrator Mr. Scott Zaremba, Deputy County Administrator Mr. Elswick called the meeting to order at 1:30 p.m., on behalf of the Board of Supervisors. Ms. Smith called the meeting to order on behalf of the School Board. OPENING REMARKS Mr. Elswick welcomed everyone to the joint work session. He noted the significant changes in leadership on the Board, School Board and in both organizations and stated it will be exciting to see how Dr. Casey and Dr. Lane craft their first county budget. He stated the two boards wanted to start the budget process much earlier, with a goal of knowing the spending priorities by January. He thanked staff for their efforts in the Blueprint Chesterfield process, which allowed citizens to provide feedback regarding their priorities. He stated the work session is one step in many that will be taken to craft the FY2018 budget. Ms. Smith stated Dr. Lane and Dr. Casey have brought a collaborative management style to the School Board and county government. She further stated she appreciates the earliness of the process and the involvement and engagement of everyone in the process. 16-637 10/28/16 FY2018 COUNTY AND SCHOOLS BUDGET AND CAPITAL IMPROVEMENT PRIORITY SETTING Mr. Matt Harris, Budget Director, and Mr. Chris Sorensen, Assistant Superintendent of Schools for Business and Finance, provided a presentation regarding the FY2018 budget outlook and priority setting. Mr. Harris stated the four main topics of discussion will be: 1) economic backdrop and forecast outlook; 2) capital plan priorities; 3) operating budget priorities/key issues; and 4) budget calendar/process discussion. He further stated the national economy is on a very uncertain path; therefore, extra caution must be taken in forecasting the revenue for the FY2018 budget. He provided details of the Federal Reserve Labor Market Conditions Index, noting there have been seven prior instances where the index dipped into negative territory since the 19701s, and five of those seven had a recession follow that track. He stated we are currently in one of those negative territories. He reviewed the state revenue outlook, which has been hampered by job growth in low wage sectors. He noted the state is dealing with depressed revenue and competing priorities; therefore, the county has taken a very conservative track when it comes to state revenues. Mr. Sorensen provided details of what the state outlook means for the school system, noting that the state K-12 funding is a very complicated formula. He stated it does not appear the state will support its share of the 2 percent teacher pay increases, which is approximately $2.5 million for FY2017 and $4.3 million for FY2018. He noted that state revenue for schools is largely based on enrollment; COPS enrollment is up by 452 students for FY2017; and it is projected to increase by 494 students in FY2018. He stated the increased enrollment will offset the state's decreased compensation. He further stated staff has looked at each school and each grade level and made adjustments, indicating that a 500 -student increase will have a huge impact on the school system's budget. He noted that staff is also tracking sales tax revenue on a monthly basis. Mr. Harris stated the county's projected local revenues are in good shape for the current year, as are the core assumptions for FY18. He provided details of economic indicators that the county tracks on a monthly basis. Mr. Winslow inquired about the county's regional or local labor force participation rate and how it compares with other localities in the state. Mr. Harris stated the national labor force participation rate has been hovering around a 30 -year low, but that the local mark has not been looked at in a while. He noted this trend is primarily driven by demographics. He stated staff will update the calculation and provide it to the Board of Supervisors and School Board. Mr. Holland stated when he entered office in 2008 with Ms. Jaeckle, the Board took the position of reforming government spending. He further stated they looked at every department during the recession and cut $50 million from the budget, unlike the federal government that went on a spending spree. 16-638 10/28/16 P] P] Ic Discussion ensued relative to various indicators staff looks at when projecting revenue and to the possibility of a recession following the current downward trend in the Federal Reserve Labor Market Conditions Index. Dr. Casey stated the county's conservative forecasts recognize the stabilization at this point in time. He expressed concerns that based on the data, we are due for a recession, and the question is when it will occur. He cautioned that it is encumbent upon everyone to remain aware of the imminent recession. Ms. Jaeckle stated unlike previous recessions, everyone knew it was coming in 2008 with the dramatic decrease in the housing prices. Mr. Winslow expressed concerns relative to the current artificially low interest rates. Mr. Harris provided details of the county's CIP priorities. He noted there are not a lot of major changes on the county side. He stated the strategic direction includes a heavy focus on taking care of what we have in place today, as opposed to new facilities. He further stated the emphasis includes major maintenance; enhanced focus on revitalization/ preservation; and continued investment in sports tourism. He stated TMDL, revenue sharing and the emergency communications system remain on track, and there is no proffer revenue risk to named projects on either the school or county side. He noted that staff will be taking a look at future revenue replacement funding streams for cash proffers on the school side. He stated a summary of the county's CIP projects will be provided at the November 16th Audit and Finance Committee meeting. He provided details of the staggered plan to increase major maintenance funding. He noted the $4.8 million general government contribution to the school referendum projects that was put in place in 2013 when the meals tax was defeated. He stated there has been an effort on the county's side to identify resources every year for complementary county improvements at the school referendum project sites or in the general vicinities, noting that Beulah and Enon elementary schools will benefit from the funding in this plan. Mr. Sorensen provided details of the school system's CIP priorities. He noted there have been some scope changes for the new elementary schools, as a result of the prototype school which would deliver the projects quicker and less expensively. He provided details of the known and unknown factors built into the costs associated with the prototype schools. In response to Mr. Elswick's question, Mr. Harris stated Mr. Smedley and his staff are following the TMDL costs, and updates will be provided as they become available. He further stated TMDL should have no impact on the 5 -year CIP. Mr. Elswick referenced major maintenance and new facilities and inquired when the next bond referendum and its details would be known. 16-639 10/28/16 Mr. Harris stated as part of the CIP process, staff will provide a skeleton of what the county's side of the next bond referendum will look like at the Board of Supervisors CIP work session on January 25th Mr. Holland stated the current referendum projects need to be well on their way to completion before going to the community with another bond referendum. Mr. Harris noted that 2004 was the last time a county facility was included in a bond referendum, so it is time to begin discussions. Mr. Sorensen stated the school division is aware of the need to begin planning for the next referendum. Mr. Harris provided details of county operating budget priorities, highlighting various potential enhancements, including public safety staffing; body worn cameras; balance of restored library hours; library materials; parks (day-to- day) maintenance; workload staffing; and CIP impacts. He stated there are no changes in personnel from the past two years, with the assumption of a 2 percent merit increase and a 7 percent increase in healthcare over the duration of five years. He further stated staff will continue to look for savings in every possible area. Mr. Holland stated a 7 percent increase in healthcare is a good number because years ago we were looking at the 11 percent range. He noted that positive things have occurred since the 2008 recession. Mr. Sorensen stated the school budget process is very similar to the county process; however, staffing is adjusted based on student enrollment. He further stated staff is approaching the FY2018 budget with the goal of funding a change in school start times, noting that this initiative has been discussed for a long time. He stated staff has been looking at the Supplemental Retirement Plan (SRP) for the past six weeks and has issued an RFP for an independent experience study to understand what has actually occurred. He further stated staff is confident SRP funding will not impact the FY2017 budget. He stated moving forward to FY2018, one significant change is that the actuary will calculate the required annual payment and that payment may be higher or lower than payments that are being paid out to participants. He further stated, despite the required payment calculation, the assets in the program are approximately $20 million, and the school division is at a point where they cannot dip into those assets because they must maintain the amount necessary to pay the participants. He stated this will be a significant change going forward. He further stated when the actuary prepares the report, there is a funded liability, as well as the GASB unfunded liability. He noted the funded liability is $83.3 million, but from the county's perspective in the CAFR, the GASB unfunded liability of $99.2 million will be reported. He noted the plan is approximately 17 percent funded, and the payment for FY2018 could be in the range of approximately $16.5 million. He noted that the school division may come back with a different number based on the experience study. 16-640 10/28/16 1 1 DE PI 9 Mr. Holland requested additional information about the experience study and the history behind the SRP funding issue. Dr. Casey stated a full report will be shared publicly once it has been produced. Mr. Holland inquired about the assumptions that were used in relation to the actuals. Dr. Casey stated the assumptions were based upon current methodologies, and if the methodologies were to change then the liabilities might also change. Mr. Holland stated he watched this number when the CAFR was presented in previous years to the Budget and Audit Committee. He reiterated his request for information relative to methodology, assumptions, etc. Dr. Casey stated the county has unfunded liabilities with the Virginia Retirement under GASB. He noted the county is funded in the 60 to 70 percent range, and the actuarial assumptions and program changes VRS has made over the years is positioning the county to be at least at an 80 percent funded plan. He stated it is not necessary to have a 100 percent funded plan to have a good actuarial sound plan. Ms. Jaeckle inquired whether the $16.5 million payment has not been accounted for in the 5 -year plan. Mr. Sorensen stated in the school division's budget, there is $2.5 million for the SRP. He further stated when employees enter into the program, they are budgeted at 100 percent. He stated the first year, they are paid 35 percent of their salary, and the other 65 percent goes in to fund the SRP program. He further stated the school division made a payment of $10.3 million last year and is looking at a shortfall of approximately $5 to $6 million based on what is known right now. He stated it is anticipated the experience report will be available around November 30th and staff will move forward with that report. He stated CCPS has formed a committee to look at the program design moving forward. In response to Mr. Holland's question, Mr. Sorensen stated the SRP issue will be discussed in the Audit and Finance Committee. In response to Mr. Elswick's question, Dr. Lane stated if you look at the way the plan is funded with the $2.5 million that was being put in, it is clear that with the number of employees who recently retired, that number is now higher. He further stated the plan was never structured to pay for itself, and there has always been funding in the budget to cover the gap. He stated that gap has increased due to the increasing number of employees retiring. He further stated when the actuary provided a report last year, they were operating on the assumption of less employees going into the retirement pool, with a rate of return that he would challenge, and that less employees would be eligible than are. He stated the school division hopes to provide better data to the actuary and a better application of the policy, as a result of the experience study. He further stated he thinks we should prepare for a higher payment in FY2018 than 16-641 10/28/16 $16.5 million. He stated we cannot change what happened in the past, and plan changes need to be looked at moving forward. He further stated some initial work has been done with the school division's benefits consultant to make sure changes can be made, and the committee will help decide what the changes will look like. Dr. Siddiqi stated the School Board wants the same information that Mr. Elswick has inquired about, noting that finding out why this happened and coming up with a remedy are top priorities. He further stated there are employees who dedicated themselves to this organization, and it is not their fault that we are in this predicament. He stated defining eligibility is on the forefront for him, and he thinks it is important to align it with the county's SRP. He further stated this is an opportunity for our two new leaders to provide some cohesion between the two groups of employees. He stated the School Board is in a bit of a vice, and they may need to come to the county to look for some support once the answers are available. Dr. Lane stated we do know that more people are retiring; we were using incorrect assumption rates; and the actuary potentially had the experience wrong in terms of employees, noting that whether the school division provided it that way or whether the actuary applied the policy incorrectly is still being determined. He further stated those are the factors that led us to this point, and he is confident that plan changes can be made so the program can remain in existence; however, it may require, as Dr. Siddiqi suggested, the county to be a part of it and potentially a shift in the pay -out to make the program solvent. Mr. Harris then provided details of the proposed calendar for the budget process. He highlighted that staff will provide a draft five-year plan to the Board of Supervisors in early February to aid them in determining what tax rate to advertise at their meeting on February 22nd. He noted that community meetings would be held in each district between the March 15th and March 29th Board of Supervisors meetings. Ms. Coyner noted that the entire School Board and Dr. Lane will not be available to attend the November 16th Finance and Audit Committee meeting. CLOSING COMMENTS Mr. Elswick thanked staff for their efforts in putting together the work session. He stated Chesterfield is a complex organization with a very large budget; however, he is hopeful that Dr. Casey and Dr. Lane will look at every program on both the schools and county side, make sure the dollars are being spent appropriately, and not come forward and ask the Board of Supervisors for a penny until they have verified that the money is being spent where it should be spent. He further stated $1.2 billion is a lot of money, and the citizens need to constantly be assured that it is being spent wisely and in the right areas. Ms. Jaeckle expressed concerns that the school division has indicated they may have to come to the Board of Supervisors and request additional funding because it would involve taking funds away from county priorities or increasing taxes. 16-642 10/28/16 PI Ik A She stated the Board of Supervisors and the School Board have done a good job of working together and reducing pupil - teacher ratio, as well as getting salaries back on track, and she does not want to see that go backwards. Mr. Elswick stated having both Dr. Casey and Dr. Lane reviewing all programs and determining their value is a good start. Ms. Smith stated, although early in his tenure, Dr. Lane has done a good job in asking questions about school programs to make sure the "why" is being answered and understood. Mr. Holland stated when competing for dollars, the issue is prioritization and then scheduling or phasing of the priorities. He further stated he has always been a visionary and he supported the meals tax, which would have been great with respect to sports tourism. He stated Henrico has benefited greatly from a meals tax, and he thinks Chesterfield should look at it again in the near future. Dr. Casey stated he and Dr. Lane met in June right after his announcement as County Administrator, and part of their discussion was dealing with budgets. He further stated they agreed to many principles that worked from their respective experiences, and they plan to present a School Superintendent's budget that fits hand -in -glove with the County Administrator's proposed budget. He commended the county's budget staff for preparing a 5 -year financial plan with conservative revenues and good national, state and local indicators. He stated he believes every dollar that is spent needs to be purposeful. He further stated the future of the county's economy depends upon the school system producing good students to create a job force. Dr. Lane concurred that his meeting with Dr. Casey in June really set the tone for how they were going to work together. He stated the School Board gave him the same challenge as Mr. Elswick regarding accountability for expenditures, and he will be sitting down with every department this year and having discussions about the reasons for expenditures and how we can be more efficient. He stated it has become clear that there is a need for modernization, which will lead to efficiency, and he thinks it will take multiple years to determine how efficient we will be by eliminating paper processes. He further stated he will do everything in his power to go through the budget line by line with departments and get a better sense. He stated he has never submitted a budget that was not balanced based on the suggested revenues, and he has committed to Dr. Casey that he plans to continue this practice. He stated although his recommended budget will be balanced, it will also include a list of priorities to look for possible funding. He stated he is looking forward to the budget process with Dr. Casey and will look for the county's support, knowing that the school system's goal is to be put in the best situation financially for the future and for the employees to feel valued in their roles every day. 16-643 10/28/16 ADJOURNMENT On motion of Mr. Holland, seconded by Ms. Jaeckle, the Board adjourned to its regularly scheduled meeting on November 16, 2016. Ayes: Elswick, Jaeckle, Winslow, Holland and Haley. Nays: None. On motion of Ms. Coyner, seconded by Mr. Thompson, the School Board adjourned. Ayes: Smith, Coyner, Erbach, Thompson and Siddiqi. Nays: None. ,T;5—se—ph P. Casey County Administrator Stephe A. Elswick Chairman 16-644 10/28/16 9 PI