Minutes - 10/12/2010 - Citizen’s Finance Advisory Committee ITEM 10.11.
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AGENDA ITEM
Regular Board Meeting
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October 12, 2010
SUBJECT: Citizen's Finance Advisory Committee Report
FROM: David Niemeyer,Village Manager7" ,
BUDGET SOURCE/BUDGET IMPACT: N/A
RECOMMENDED MOTION: N/A
Background/History:
The Citizen's Finance Advisory Committee has put together a summary report of 2010 year-to-
date activities and recommendations. Rather than give a presentation on this report, the
Committee will be available at the Board meeting to answer any questions you may have.
Please see the attached report from the Committee.
Recommendation:
N/A
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Last saved by DEFAULT J:Wgenda Items\AG-CFAC Rpt 10-12-10.doc
Last printed 10/8/2010 12:04 PM
6� 0 F 04 B90 Date: October 5, 2010
A To: Village Board
\9 ,2 From: Citizens Finance Advisory Committee ("CFAC")
COUNTy '
Subject: Summary Report of CFAC 2010 Year-To-Date Activities and
Village of Recommendations
E®®k OVERVIEW
1200 Oak Brook Road
Oak Brook,IL 60523-2255
Website The CFAC has held seven meetings in 2010. This report summarizes the issues
www.oak-brook.org reviewed at those meetings, along with the Committee's recommendations for the
Administration Village Board of Trustee's ("Board's") consideration. In addition,the report
630.368.5000 summarizes, for the Board's further consideration,the Committee's prior
FAX 630.368.5045 recommendations that have not yet been implemented.
Community ISSUES REVIEWED IN 2010
Development
630.368.5101
FAX 630.368.5128 Sports Core
Recommendation: Review in detail on a regular basis the financial results of the
Engineering overall Sports Core operations; address the need for the refurbishment or
Department replacement of the Bath and Tennis pool; and fully explore the modification of
630.368.5130
FAX 630.368.5128 the golf course's drainage system as a first option for resolving the flooding
issues.
Fire Department
630.368.5200 The overall operations of the Sports Core have reported operating deficits in recent
FAX 630.368.5251
years, i.e., losses of$260,244 and $208,480 in 2009 and 2008, respectively. The golf
Police Department course operations have historically had a positive profit contribution, while the bath
630.368.8700 and tennis, and food and beverage operations have had negative operating results.
FAX 630.368.8739 Steps have been taken in recent years to reduce losses in the food and beverage
operations by replacing Village-run operations with an arrangement with an outside
Public Works
Department catering service under which the Village receives a percentage of revenues with a
630368.5270 guaranteed minimum. Overall management of the Sports Core has been vested in a
FAX 630.368.5295 Director position which was filled with the former head of golf operations. The
Committee believes these have all been positive steps.
Oak Brook
Public Library The Sports Core is a valuable asset and cultural resource for the Oak Brook
community at large.Numerous residents have given us positive comments regarding
600 oak Brook Road
Oak Brook,IL 60523-2200 the Sports Core, and the golf course in particular. The topic of potentially
630.368.7700 "outsourcing"the operation of the golf course was presented to the Committee as a
FAX 630.368.7 704 general proposition,but was not reviewed in any detail. At this point,based upon
feedback from residents during Committee meetings and the Committee's initial
Oak Brook Sports Core review,we do not suggest pursuing outsourcing. The golf course operations are the
Bath&Tennis Club "profit engine" of the Sports Core. Its profits can be used to support other non
700 Oak Brook Road profitable operations, as well as repay debt(presently approaching $2 million)which
Oak Brook,IL 60523-4600 has been incurred by the Sports Core as a result of operating deficits in the non-golf
630.368.6420 operations.
FAX 630.368.6439
Golf club The Sports Core Director has performed a benchmarking survey of greens fees
1,606 York Road charged by other public access golf courses in the local area, and this information has
Oak Brook,IL 60523-4602 been used to establish the course's greens fees. Efforts have been made at increased
630.368.6400
FAX 630.368.6419 Page I of 6
marketing of the golf course, including targeting of groups for potential outings, use of
coupons, etc. We believe that these efforts are positive steps and should be continued
and expanded. The Oak Brook Golf Club is among the top tier of public access golf
courses in the Chicagoland area. All opportunities to increase revenues should be
considered, including securing golf leagues, reviewing when Club season members are
given exclusive or preferential (standing)tees times, etc.
We recommend that the overall operations of the Sports Core should be given a
detailed, ongoing financial review by the Board, utilizing financial reporting and
analyses (operating plans, operating statistics and budgets, etc.)that readily support
evaluating the operations of the Sports Core as a commercial, profit-seeking entity.
In addition,we recommend that the Board address the need for a
refurbishment/replacement fund for the Bath and Tennis Club pool.
In recent years, including this year,the Golf course has experienced flooding events
which have caused significant financial losses. We believe that the potential for
flooding events is a risk to a key Village asset which should be addressed by the
Board. The Sports Core Director reviewed a variety of alternatives which could be
implemented to minimize the negative financial impact of the flooding. While the
Committee does not have the expertise to evaluate these alternatives, it does urge the
Board to carefully consider all courses of action to address the flooding matter, as the
potential capital expenditures are sizable and the market for golf course play has been
in decline in recent years. The Committee believes that the first option that should be
explored fully is the potential to maintain the existing golf course configuration by
modifying its drainage system.
Fire and Police Dispatch Operations
Recommendation: Continue to explore options for dispatching operations with a
goal of making a decision sooner rather than later.
This is an area where the Committee spent a good deal of time reviewing the financial
impacts of various alternatives to the current"in house" operation which resides in the
Police Department. This review was driven by a time-limited opportunity to
potentially combine dispatch operations with a neighboring municipality, which did
not ultimately come to fruition.
Generally, it appears inevitable that the Village will move its dispatching operations to
a larger, area-based organization similar to what several neighboring municipalities
have done within the past year (e.g., Hinsdale and Clarendon Hills), and that potential
economies can and will result. There will be trade-offs in this decision, i.e., current
dispatching is locally based and dedicated to Oak Brook vs. the services that are
available from larger organizations which serve broader geographic areas. However,
given the inevitability of change,which is the view expressed to the Committee by
both the Village Fire and Police Chiefs, the Committee believes that it is in the
Village's best interest to make the decision sooner rather than later.
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Fire and Police Pension Plan Contributions
Recommendation: Attempt to align the investment portfolio mix for the pension
funds with the assumptions used to determine the Village's pension
contributions.
The Committee reviewed pension contributions proposed by the Village staff. Unlike
the rest of the Village's employees who participate in a State of Illinois pension plan,
Fire and Police employees participate in pension plans which are administered locally
subject to State of Illinois requirements. The pension funds for these plans are
administered by local Boards which make investment decisions and are responsible for
the payment of benefits.
In recent years, the cost of Fire and Police pension contributions has risen dramatically
for a number of reasons, but principally due to a significant downturn in the financial
markets. A recent article in the Village's newsletter(copy attached) addressed this
issue in detail. While the fire and police employees make contributions to the pension
plans,the Village is responsible for assuring sufficient overall funding of the plans in
accordance with state guidelines,which require full funding of the plans by the year
2033. Consequently,the Village bears the risk and cost of inadequate investment
returns.
Recently the issue of assumed rates of return in public and private pension plans has
drawn attention in view of significant decreases in market returns for stocks and bonds
(see attached September 18, 2010 Wall Street Journal article). The 2010 pension
contributions,recommended by the staff and actuary and reviewed by the Committee,
were based upon an assumed rate of return of 7%. Based upon information provided
by the actuary retained by the Village to determine the pension contributions to the
File and Police pension plans,the mean average annual return for the Fire and Police
pension funds were 3.88% and 5.04%, respectively, for the ten year period 2000-2009.
This is one of the causal factors for the dramatic increase in the pension contributions,
as indicated in the Village Newsletter article noted above.
The Committee previously made observations in its September 4, 2009 report to the
Board about the high cost of these pension plans and the fact that the Village has little
discretion in this area due to State of Illinois mandates. One area that the Village does
have input into and some control over is the investment management of the respective
Fire and Police pension funds with respect to the matching of the investment portfolio
mix to achieve the assumed investment rate of return, and assuring that pension fund
contributions are consistent with achieved investment returns. Simply stated,there
needs to be a connection between the investment portfolio mix for the pension funds
and the assumptions used to determine the Village's contributions to these pension
plans. We recommend that the Board and Staff further review and address this, and the
Committee is willing to assist in this matter.
Rolling Stock
Recommendation: Develop and implement a policy and corresponding
procedures for managing the Village's rolling stock.
The Committee reviewed a proposal for the requested acquisition of three new patrol
cars for the Police Department. As a result of the review, adjustments were made
relative to the acquired vehicles. Based on the Committee's more general
Page 3 of 6
observations, it recommends that the Village develop and implement policies and
procedures that ensure that both the service needs are met and that the desired
financial controls are consistently adhered to.
Review of 2011 Staff Budget Summary
The Village Manager made a presentation to the Committee of the 2011 Budget
Summary at the August 25, 2010 meeting. The summary was prepared by the staff
and had also been presented to the Board.
We noted three areas of concern:
1.) No implementation of a business registration/license program;
2.) A"Goal/Objective" of a 2% across-the-board pay increase for non-union
employees and 2%merit adjustments for eligible employees; and
3.) Continuation of the current practice of 17.5% employee contributions to the
cost of group health insurance.
The Committee previously made recommendations regarding each of these matters in
its earlier reports to the Board and these are discussed in greater detail below.
UPDATE ON PRIOR COMMITTEE RECOMMENDATIONS
The Committee issued three reports to the Board last year. Two of these reports, dated
September 4th and November 13th, respectively, are attached for your reference.
The Committee is disappointed that key prior recommendations have not been
implemented or acted upon, notwithstanding positive initial reactions from the Board
and/or Staff, as explained below.
Business Reistration Program
Recommendation: Implement a business registration program with a target start
date of June 30,2011 (See November 13,2009 Committee report).
It is well established that Oak Brook's daytime business population(50,000+) is a
significant multiple of its resident population of 8,700, and the Village's service
capabilities in the area of Fire, Police and Public Works are designed to service the
needs of the larger daytime population. A business registration program would be
valuable as it is a logical means of obtaining,with certainty, information about the
business community. In addition, it would provide a means of cross-referencing sales
tax reporting information as a check on the sales tax collections that come from the
State.
Based on our review, Oak Brook is an outlier regarding this matter as most other
neighboring communities have business permit or licensing programs,
notwithstanding the fact that none has the dominant business and commercial portion
of their population that Oak Brook has. Based upon input from those on the
Committee who have direct experience with such programs,business registration does
not pose a significant burden on the local business community, and they are the norm.
This is an example of a"connect the dots" issue for the Village, i.e., information about
the dominant commercial portion of the local population needs to be obtained in order
to determine what the appropriate level of the Village's services and staffing should
Page 4 of 6
be. It is analogous to a service business needing to have information about its
customer base so that it can make appropriate decisions about the resources it needs to
service its customers. Without such information,the Village is "flying blind."
Job Descriptions/Compensation Study
Recommendation: Undertake a compensation study using updated job
descriptions (See September 4,2009 Committee report); and eliminate the 2%
"cost of living" (COLA) adjustments and merit increases.
In our September 4, 2009 report, we dealt extensively with human resource and
personnel issues, recommending that all job descriptions be updated and a
compensation study be undertaken which would include comparable private industry
positions. Job descriptions have been updated, but the Board has twice tabled moving
forward on a compensation study.
The Committee does not believe that the Village can have an appropriately
functioning compensation system without completion of a compensation study.
The Committee is disappointed that the preliminary budget calls for a 2% across the
board "cost of living" (COLA) adjustment, as well as, a 2% merit increase. The
Committee does not believe that a COLA adjustment is warranted in the current
economic environment, and simply is a practice that is not used in the private sector.
Given the recent significant restructurings that have occurred in the Village, along
with the resulting changes in job responsibilities,the Committee does not believe it is
possible to determine the appropriate compensation levels for the Village's positions
without a compensation study.
Healthcare Insurance Contributions
Recommendation: Continue to increase employee health insurance contributions
on an annual basis (see Chicago Tribune article attached); and re-evaluate the
overall level of health insurance benefits and relative costs.
As noted above,the 2011 budget summary continues the current practice of having
non-represented employees contribute 17.5% of the cost of health insurance,with the
Village funding the remaining 82.5%. In our September 4, 2009 report,we
recommended that the employee contribution share be increased to levels more
representative of those in the broader employer population. In addition,we
recommended that the overall level of health insurance benefits and the related costs
be re-evaluated.
Based on our review, the Village's cost for an employee on a family plan was around
$17,000 at the beginning of 2009, which would suggest that the Village is providing a
"Cadillac" program. A September 3, 2010 article in the Chicago Tribune (attached)
addressed this issue. It stated that, on average, employee contributions were around
30% and that the average cost of a family plan was around $13,800. The article also
pointed out that a third of those employers surveyed were either reducing the scope of
the benefits they offered in 2010 or increasing employee contributions.
Page 5 of 6
CONCLUSION
The Committee has reviewed a number of the financial issues currently facing the
Village, many of which will be painful to resolve. It urges the Board to consider its
recommendations and is ready to assist in their implementation, as appropriate.
One or more of the Committee's member will be present at the Board's October 12th
meeting to answer any questions you may have.
Respectfully submitted,
Citizens Finance Advisory Committee
Donald N. Adler, Chairman Norma Lauder Randall Teteak
George Paul Klein Todd Rusteberg
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