Memorandum

City of Lawrence

City Manager’s Office

 

TO:

Tom Markus, City Manager

FROM:

Casey Toomay, Assistant City Manager

CC:

Diane Stoddard, Assistant City Manager; Brandon McGuire, Assistant to the City Manager

DATE:

1/11/18

RE:

Funds Collected Through Miscellaneous Accounts Receivable Review

 

Summary

The City received a significant amount of unbudgeted revenue in 2017 through a miscellaneous accounts receivable review.  Staff recommends using the revenues to offset the cost of the accounts receivable review, offset future property tax increases in the Bond and Interest Fund by funding affordable housing projects with cash instead of debt, and putting funds toward the purchase of an accounts receivable module as part of a new comprehensive accounting software package.  There are a number of options for what to do with the revenue and staff seeks direction from the City Commission.

 

Revenue Received Through Miscellaneous Accounts Receivable Review in 2017

As part of the review of the City’s miscellaneous accounts receivable, $629,941 was received in the General Operating Fund in 2017 that was not included in the budget for 2017.     

 

The review identified $690,045 of revenue that had not been billed or collected.  As shown on the table below, $689,108, or 98.86% was recovered as of December 31, 2017 from 22 of 23 accounts.  Staff is attempting to resolve a dispute with the remaining lease holder in order to recover the $937 of outstanding hangar rent.  Revenue from airport hangar rent was deposited in the Airport Reserve Fund while the other revenues were deposited in the General Operating Fund.    

 

Type of Receivable

Number

Variance Amount

Collected or Under Installment Plan

Amount

Outstanding

Douglas County

1

$427,935

$427,935

-

Land lease*

1

256,096

256,096

-

Building leases

2

2,006

2,006

-

Hangar rents**

19

4,008

3,071

$937

Total

23

$690,045

$689,108

$937

*only $200,000 was recorded in 2017.  The remainder will be paid in 24 monthly installment payments of $2,337.

**Revenue from airport hangar leases was deposited in the Airport Reserve Fund. 

 

Options for the Unbudgeted Revenue

As outlined below, there are options for what to do with the unbudgeted revenue collected in 2017.

 

Offset unbudgeted expenses.  Staff recommends using $49,000 to offset the cost of the review, which was unbudgeted for 2017.

 

Reserve for offset for future tax rate increases.  An argument can be made that had the accounts receivable issues not existed, additional revenue would have been collected in prior years, thus reducing the need to increase the property tax rate in the General Operating Fund.  One option to address this would be to leave the funds in the General Operating Fund and use them for one-time expenditures to offset future increases to the tax rate that may be needed for the 2019 Budget.  Staff would not recommend using one-time revenues to fund on-going expenses.  However, using these one-time funds for one-time expenses would be appropriate. 

 

The mill levy rate in the Bond and Interest Fund was increased for the 2018 budget to provide debt capacity for one-time capital projects including the first phase of a new Police facility.  The unbudgeted revenue collected in 2017 could be used to cash finance some projects identified in the City’s Capital Improvement Plan that were to be funded through debt.  Reducing the amount of future debt issued would reduce the mill rate needed in future years to fund the Capital Improvement Plan (assuming projections for assessed valuation are met.) 

 

Use for one-time expenses.  A 2018 budget amendment could be adopted to spend the unanticipated fund balance in the City’s General Operating Fund on one-time expenses.  For instance, some of the funding could be used toward the purchase of an accounts receivable module as part of a new comprehensive accounting software package.  This new software package, the total cost of which is likely to be more than $500,000, would address some of the weaknesses of the City’s existing software identified in the miscellaneous accounts receivable review.  Other suggestions include using the revenues to fund additional affordable housing efforts or additional capital improvement projects identified in the CIP that were not able to be funded.  The City Commission would need to direct staff on what programs or projects to fund with the revenue.  A public hearing on a proposed budget amendment would also be required. 

 

Similarly, the funds could remain in the fund balance and be part of the 2019 budget and capital improvement plan discussion.  Again, staff would recommend using the funds for one-time expenses.  By delaying consideration of how to use the funds until the 2019 budget and/or CIP process, the Commission would be able to consider these funds in the context of all the City’s needs before making funding decisions. 

 

Use for housing projects that can’t be debt financed.  The current CIP includes funding for affordable housing projects to be funded through the issuance of general obligation debt.  The plan included $300,000 for 2017 and 2018 and then $350,000 annually through 2022.

 

The Affordable Housing Advisory Board accepted applications for $300,000 of housing trust funds in 2017 and received applications for just $105,000.  The Board decided to open a second round of applications for the remaining $195,000 of 2017 funds and $300,00 of funding budgeted for 2018. 

 

Despite preliminary conversations with the City’s Bond Counsel prior to soliciting applications, the city has been advised that cities are prohibited from issuing debt for affordable housing.  An exception can be made if it can be found that a project is related to economic development.  After reviewing two of the proposed projects, Bond Counsel advised that while possible, it would be difficult to make the necessary findings to issue debt.  In addition, one project was already underway, which precludes the City’s ability to issue tax-exempt debt as an authorizing resolution of intent must be in place prior to construction for a project to be eligible for tax-exempt debt financing.   

 

Bond Counsel suggested switching the funding sources for the affordable housing projects and other CIP projects that were to be funded with cash.  Staff reviewed the CIP and has identified the following projects that could be funded partially or in whole through debt, freeing up the cash to fund the housing projects identified in the CIP for 2017 and 2018.

 

CIP Project (Portion to be debt financed)

2018

2019

Total

Indoor Aquatic Center Pool Painting / Play Feature

 $100,000

Community Building Renovations

 100,000

South Park Playground (ADA Compliance)

 100,000

East Lawrence Rec Center Renovations

 $50,000

Holcom Rec Center Renovations

 125,000

UP Depot Renovations

 125,000

Total

 $300,000

 $300,000

 $600,000

 

 

However, simply exchanging the funding sources for these projects does not address the concerns about increasing the property tax mill rate unnecessarily.  Instead, staff recommends using the unbudgeted revenues collected in 2017 as the funding source for the housing projects identified in the CIP for 2017 and 2018.  The City would issue $600,000 less in debt, avoiding estimated annual debt service payments of $133,000 for five years.  Taxpayers would avoid interest expenses of approximately $65,000 over the five years.  The mill levy in the Bond and Interest Fund could be reduced by 0.13 mills for those five years.      

 

Staff Recommendation

As discussed above, staff recommends using the unbudgeted revenues as follows:

·         to offset the cost of the miscellaneous accounts receivable review;

·         to cash finance the $600,000 of affordable housing projects previously identified in the CIP to be funded through debt financing.  The City will issue less debt thus reducing the property tax mill rate needed in the Bond and Interest Fund for the next five years; and

·         toward the purchase of new accounting software that would include an accounts receivable module to address issues with the existing software.

 

 

Action

Consider approving staff recommendation to use revenues collected in 2017 as a result of the miscellaneous accounts receivable review to

·         offset the cost of the miscellaneous accounts receivable review;

·         put funds toward the purchase of new accounting software that would include an accounts receivable module; and

·         amend the CIP modifying the funding source for the $600,000 of affordable housing projects to cash from either the revenue collected through the Miscellaneous Accounts Receivable review or by moving Parks and Recreation projects totaling $600,000 from cash to General Obligation debt.