HomeMy WebLinkAbout12/15/2011 Special Council MeetingSPECIAL COUNCIL MEETING
December 15, 2011
A Special Meeting of the Council of the County of Kauai was called to order
by Council Chair Furfaro at the Council Chambers, 4396 Rice Street, Suite 201,
Lihu`e, Kauai, on Thursday, December 15, 2011 at 9:07 a.m., and the following
members answered the call of the roll:
Honorable Tim Bynum
Honorable Dickie Chang
Honorable KipuKai Kuali`i
Honorable Nadine K. Nakamura
Honorable Mel Rapozo (excused at 11:00a.m.)
Honorable JoAnn A. Yukimura
Honorable Jay Furfaro, Council Chair
APPROVAL OF AGENDA.
Ms. Yukimura moved for approval of the agenda as circulated, seconded by
Ms. Nakamura, and unanimously carried.
COMMUNICATIONS
C 2011 -338 Communication (11/4/2011) from the Council Chair, requesting agenda
time to discuss the 2011 Final Comprehensive Annual Financial
Report (CAFR), to include, but not be limited to, an actuarial analysis
as it relates to the Employee Retirement System (ERS) and pension
liabilities of the County and the Kekaha Landfill closure and post -
closure costs.
Mr. Furfaro: Okay first of all I would like to thank
everyone, this week has been rather full for us because we go on Christmas break
and we've had 3 Council meetings and 2 of the special meetings. I want to thank all
of the members and the staff for their participation. I also want to thank both Blake
and Ron for being here from N &K CPA's Inc. who are the gentlemen who have
prepared our annual audit (CAFR) and I may call both gentlemen up now if I can
but before I do I would like to have a vote to suspend the rules for this period of
time for today. May I have a motion to suspend the rules?
Ms. Yukimura: Moved to suspend the rules, Seconded by
Mr. Kualii, and unanimously carried.
There being no objections, the rules were suspended.
Mr. Furfaro: Thank you very much. Gentlemen why don't
you come right up?
Ron Shiige: Chair Furfaro and members of the council,
thank you for inviting us and we are here to answer any questions that you have on
the reports. What I want to show you on the reports that we will be discussing
today... I'm sorry, I'm Ron Shiige, the audit partner in charge, and that's
SPECIAL COUNCIL MEETING - 2 -
December 15, 2011
Blake Isobe, my Senior Audit Manager who was out in the field. You have the draft
reports of the three books that we issued?
Mr. Furfaro: Yes.
Mr. Shiige: We have now finalized the report. The first
report is the CAFR. again as Chair Furfaro has said the pages have changed a little
bit because maybe we tweaked the wording on some of the words. The second report
you have is the single audit report. The only change here is that we incorporated
the county's response to the findings in the report, that's in the back, and I will go
over that as well. The third report is the Management Advisory Report and again
the only change here that you have the final now is that we incorporated the
county's response to findings in this report. I will start with the single report.
Mr. Furfaro: Very good and I just want to check with you,
you okay with the sequence that I put in this agenda piece when we get into the
need of it?
Mr. Shiige:
Yes.
Mr. Furfaro:
You're okay?
Mr. Shiige:
Yes,
Mr. Furfaro:
Thank you.
Mr. Shiige:
I will start with the single audit report.
Mr. Furfaro:
Very good.
Mr. Shiige: Again as you know the county is subject to
the single audit because you have expended more than five hundred thousand
dollars in Federal moneys and any entity that spends more than that has to have a
single audit. Can I just go over how the report is organized and that's on page 4 of
the table of contents. It's divided into five parts as you can see. The first part is our
report on the internal control and financial reporting and on compliance and other
matters. Part two is our report on compliance with requirements that could have a
direct and material effect on each major program that we audited, as well as on the
internal control over compliance on those programs and also the schedule of
expenditures of Federal reports. Part 3 is a schedule of findings in questioned costs.
Part 4 is a summary schedule of the prior audit findings, and part 5 is the county's
corrective action plan on any findings that we have in this report. So let me go over
quickly on the first report and that is on page 6 and 7. That's our report on internal
control over financial reporting and compliance. If you look at page 7, the first
paragraph, we say that somewhere in maybe the second sentence that we did not
identify any deficiencies in internal control over financial reporting that we consider
to be material weaknesses. We do say however that we did find a significant
deficiency and that's going to be reported as item 2011 -01, that's going to be the
first finding and I'm going to go over that finding a little later. As far as the
compliance and other matters, if you look at the first paragraph the last sentence, it
says that the results of our test disclose no instances of non - compliance on the
SPECIAL COUNCIL MEETING - 3 - December 15, 2011
matters that are required to be reported under government auditing standards. So
we have no findings in that part of it.
The next paragraph it says we noticed certain matters that we reported to
management of the county in a separate report and that's the smaller management
advisory report. Okay the next report we talked about that's on page 9, 10 and 11,
that's on compliance with the County's major Federal programs that we audited. I
would like to say that the programs that we audited we were able to give a
unqualified opinion, just a clean opinion; the County administered those major
programs in compliance with the federal requirements. However we did have one
finding and that was shown as item 2011 -02 and we'll go over that finding a little
bit later. On page 11 is our final report on... this is related to the schedule of
expenditures of Federal awards and here again we say it's a clean opinion again in
our opinion that information is fairly stated in all material respects in relation to
the basic financial statements taken as a whole. Then follows page 12 through 26,
12 through 26 is the schedule of Federal expenditures for the fiscal Year ended June
30, 2011. It shows you by which funding agency whether it is the Federal
Government or pass through a State Agency of the amount of moneys expended by
the County. On page 26, the totals on the bottom, the total of all Federal programs,
the current year expenditures was about 26.8 million dollars. It has other
information like the total program award amount which is 104.8 million, 26.8
million was expended in the current year and the cumulative expenditures were
almost 72 million dollars and there's a balance of about 32.8. The details are again
you can look at that as far as which agency has provided the moneys.
I would like to go over page 30, 30 is the schedule of findings and questioned
cost. It's a summary of our auditor's results, on the last two reports if you noticed
the first part it says financial statements and again the type of auditor report that
we issued was an unqualified opinion. Internal control over financial reporting, we
did not find any material witnesses as far as significant deficiencies we noted one
and that's the one we talked about as 2011 -01 and I will go over that. Any
noncompliance that would be material to the financial statements we did not note
any. As far as federal awards we have internal control over major programs, any
material weakness identified, we had none. Any significant deficiencies identified
we had none reported. Again we were able to give an unqualified opinion that the
county administered their major Federal programs. The next item was any audit
findings that are required to be reported, we had one finding and that's the one we
talked about which was 2011 -02 and I will go over that. The major programs that
we actually audited and tested were listed here, the CFDA number and the name of
the programs so we have seven major programs that we audited starting from the
emergency watershed protection program and ending on the era capitalization
grants for clean water state revolving fund. I can go straight into the first finding.
Mr. Furfaro: Let's do that.
Mr. Shiige: The first finding is on page 31.
Mr. Furfaro: Did you say 31?
Mr. Shiige: Page 31. That's the finding 2011 -01 that we talked
about which we considered to be a significant deficiency, but not a material
weakness. This is compiling the vacation and sick leave records properly. Basically
SPECIAL COUNCIL MEETING - 4 -
December 15, 2011
in our test we noted there were several errors in compiling the information. A lot of
it had to deal with, we said, because each department uses a different manual type
of processing, it is a lot of, you know, work to do, it can be a lot of clerical errors as
well. So, in our findings we did find several errors. We have a recommendation. We
also have the county's response in the back.
Mr. Furfaro:
to the agenda by dep;
Mr. Rapozo:
Mr. Furfaro:
Mr. Rapozo:
sampling.
As we go, yes, but -- eventually I would like to stick
irtment, but do you have a question here.
I had a question on this finding.
Go right ahead.
On the 2011 -01, you did, apparently, random
Mr. Shiige: We did sampling yes.
Mr.Rapozo: The instances that
the 16, 5, 2, are from one department? Various departments?
Mr. Shiige:
Various departments.
you found
Mr. Rapozo: Did you do random sampling on each department
or just a few? Could you tell us which... Yeah you might as well come up. I mean did
you do random sampling in each department?
Blake Isobe: No we selected...
Mr. Chang: You want to state your name?
Mr. Isobe: My name is Blake Isobe. We selected a sample of
departments and from the departments we selected employees.
Mr. Rapozo: So how many departments did you sample?
Mr. Isobe: Off hand I just can't tell you exactly how many.
Mr. Rapozo: Okay.
Mr. Isobe: The findings that relate to the departments that
did have the findings, they have their separate responses in their corrective action
plan. So in the back there is the county's response and it's on the different
departments that did have....
Mr. Shiige: Yeah page 40 -42 I guess. Yeah each department
has their response as far as their corrective action plan and the person responding
or the person responsible to correct that.
Mr. Rapozo: Is there and I don't know how many samples you
did but it looks like you had 23 instances that you found. Do you have like a
percentage of the total that you check? Was it 16 out of 16? Was it 16 out of 20? I
guess because this concerns me quite a bit because that's kind of hard your
beginning balance doesn't match you're ending balance, to me that's kind of
SPECIAL COUNCIL MEETING - 5 - December 15, 2011
elementary whether it's manual or computerized. I'm wondering how far reaching is
this problem.
Mr. Isobe:
We did 40.
Mr. Shiige:
We did 40.
Mr. Rapozo:
So 16 out of 40 had errors?
Mr. Shiige:
Yes.
Mr. Rapozo:
That's not a really good...
Mr. Shiige: So I will be calling it a significant deficiency but as
far as the financial statement it's not that material to the financial statement but it
is a significant deficiency.
Mr. Rapozo: Yeah but I wonder if you had tested a hundred or
two hundred, you know what I'm saying. That's my concern because this is just a
small sample and it's already 16 out of 40 and that's almost 50 percent. Not really
good, thank you.
Mr. Furfaro: Vice Chair Yukimura.
Ms. Yukimura: Yes, good morning. I'm concerned too because the
single audit applies only to those agencies or departments getting Federal moneys.
Isn't that right?
Mr. Shiige: This particular finding?
Ms. Yukimura: Yes.
Mr. Shiige: No it's county wide.
Ms. Yukimura: Okay well thank you that's really useful to because
was thinking if it was a limited sample, what it would look like county wide.
Mr. Shiige: No this was a county wide.
Ms. Yukimura: So your recommendation is to implement a
standardized process and schedule to track employee leave hours, which I think is
an excellent and I guess there's a response from the Administration.
Mr. Shiige: Yes.
Ms. Yukimura: I was going to ask you whether you are aware of a
good system to recommend. I mean in your audits of other agencies and private
corporations, have you seen a system that works really well?
Mr. Shiige: In our audits of other Government agencies or
departments they have similar problems and because a lot of it is manual
processing and it's decentralized out there so it tends to lead to clerical type errors.
Mr. Yukimura: Right and we funded 3 or 4 years ago a program to
computerize all our personnel functions because we're not, this is not the only area.
I think we're far behind on tracking of personnel files, when people retire they have
SPECIAL COUNCIL MEETING - 6 - December 15, 2011
to wait a long time to get their records and it actually was 3 years ago a mess and so
I guess I will be asking questions about where we are on that process. It was
already overdue 3 years ago but what you're saying is a manual system is
vulnerable to a lot of errors and a computerized system would be one way to
improve. Thank you very much.
Mr. Rapozo: I just want to make sure I'm reading this right. On
page 40 I'm looking at the last paragraph and 20 of the 23, on page 40 on the bottom
last paragraph and let me know if I'm reading this right. Twenty of the 23 instances
were in the Personnel Department. Is that what I'm reading?
Mr. Isobe: I believe so.
Mr. Rapozo: That's even more disturbing because personnel is
usually the leader.
Mr. Furfaro: I don't think that was the finding 3 years ago Mel.
We had the same problem as Vice Chair Yukimura pointed out and it's quite
concerning and I have to assume your exit strategy for compliance or
recommendation; you did have this discussion with Malcolm.
Mr. Shiige: No we did not.
Mr. Furfaro: You did not; okay very good we'll do a follow up
from here.
Mr. Rapozo: Thank you Mr. Chair.
Mr. Furfaro: Okay if we have no more questions here we will
move on to the next one.
Mr. Shiige: Okay the next one is on page 32 and this is a
finding that's related to our testing of the major federal programs. The program
that was passed through the State of Hawaii, Department of Defense and the
program was the Public Safety Inter - Operable Communications Grant Program. We
tested some of the acquisitions in that program and what we found was the
acquisition of equipment was not recorded on the County's records in the fixed
assets records and that's a compliance thing and the counties policy is anything
over five thousand dollars has to be recorded on the fixed assets record and I think
this was the telecommunication system I think. The telecommunications system
was about 280 thousand dollars that was missed that wasn't recorded. So it's more
of an accounting and recording thing. The County does have procedures to record...
policy and procedures to account for these but I guess someone missed the boat
there as far as... the recommendation was just to ensure that all agencies comply
with the established procedures to properly record the fixed asset record.
Mr. Furfaro: May I ask was this Federal money that we got for
the communication system?
Mr. Shiige: Yes.
Mr. Furfaro: This was a recent approved grant and do you know
what the timing was on the allowing of the recording?
Mr. Shiige: It was during the fiscal year.
SPECIAL COUNCIL MEETING - 7 - December 15, 2011
Mr. Furfaro: It was during the fiscal year so it definitely wasn't
something carried over from the previous year.
Mr. Shiige: No.
Mr. Furfaro: Okay. Vice Chair Yukimura has a question.
Ms. Yukimura: I'm kind of surprised if there's equipment that may
be ten thousand dollars or something to be missed. But two hundred eighty
thousand was the value of the equipment?
Mr. Shiige: Yes.
Ms. Yukimura: That's a huge oversight.
Mr. Shiige: If you look at the corrective action plan that's on
page 42, the last page, and the county has responded.
Ms. Yukimura: I have a question.
Mr. Furfaro: You still have the floor, go ahead.
Ms. Yukimura: Okay thank you. So it says that civil defense
acknowledges this oversight and is working with accounting and grants
management to correct this matter. Accounting division and grants program
manager shall continue to provide guidance and training to fiscal personnel in
county departments. So I guess the oversight would seem to be due to lack of
training?
Mr. Shiige: It appears that way.
Ms. Yukimura: And I do want to acknowledge that I think there's
been significant transition and turnover in civil defense recently so that may be
part of it although I guess that raises another issue of how we deal with transitions
and hand - overs. You know how when people are leaving and other people are
coming in, how do you adequately make sure there's a transfer of information and
knowledge to the person coming in from maybe the people going out? I will ask
further questions of the Administration when they come forward unless you have
any other thoughts about it? Okay thank you.
Mr. Furfaro:
Ms. Nakamura:
computerized or manual?
Mr. Shiige:
Mr. Isobe:
Ms. Nakamura:
MV
Councilmember Nakamura and then Mr. Bynum.
Do we know whether the fixed assets are... is it
It's computerized.
The process of getting it into the system?
Yes.
Mr. Isobe: It's manual and they need to submit forms to get it
Ms. Nakamura: And once it's in the system it's....
SPECIAL COUNCIL MEETING - S - December 15, 2011
Mr. Isobe:
Yes it's computerized.
Mr. Shiige:
So anytime they purchase something they have to
fill out a form and then
that gets sent to accounting.
Ms. Nakamura:
Okay.
Mr. Shiige:
To get into the system.
Ms. Nakamura:
That's just for any assets over $5,000.00?
Mr. Shiige:
That is the policy yes.
Ms. Nakmaura:
Is that a pretty typical cutoff policy?
Mr. Shiige:
Yes.
Ms. Nakamura:
Okay, thank you.
Mr. Furfaro:
Mr. Bynum.
Mr. Bynum:
I'm going back to the schedule of expenditures for
federal awards.
Mr. Shiige:
Okay, any particular page?
Mr. Bynum:
Well we could start on page 15, just as an example
is there a way to determine which of these funds are ARRA funds?
Mr. Shiige:
Yes if you look on page 13, you look under the US
Department of Energy.
If you look under direct award it says ARRA in the front.
Mr. Bynum:
I'm sorry I don't see where you're referring too.
Mr. Shiige:
I'm sorry.
Ms. Yukimura:
Here.
Mr. Shiige:
So all the ARRA funds will start out with ARRA.
Mr. Bynum:
There going to say ARRA?
Mr. Shiige:
Yes.
Mr. Bynum:
So it's not in the grant number?
Mr. Shiige:
No.
Mr. Bynum:
So how do we know which of these were intended
for funding for one year
and what were intended for multiple years or... and if I'm
reading this report and I see a grant balance for a grant that came several years
earlier...
Mr. Shiige:
You can't tell from this report.
SPECIAL COUNCIL MEETING - 9 - December 15, 2011
Mr. Bynum: So there's no way to tell what the intention was of
these in terms of the time frame?
Mr. Shiige: No, the County has that information as far as the
length of the grant.
Mr. Bynum: The length of the grant?
Mr. Shiige: You know the period of the grant. That's what
you're asking right? How long do these grants go out?
Mr. Bynum: So on page 15 there's an enhanced fitness.
Mr. Shiige: Which program is that?
Mr. Bynum: This is special program for the aging title 3 part D,
about half way down the page.
Mr. Shiige: Okay.
Mr. Bynum: And there are these dates about 7, 10, 11, and then
there are some negative figures and I assume that means we used county funds
while waiting for the next grant, or why would there be negative figures?
Mr. Shiige: There might have been an adjustment, some type of
adjustment. Maybe it was an over expenditure.
Mr. Bynum: I just picked that out because it was over so like the
2007 funds have all been expended right if I'm reading this correctly.
Mr. Shiige: Yes looks like it.
Mr. Bynum: There's a considerable amount of funds from 10 and
11 and whatever the (inaudible) and I'm just using it as an example, I'm not picking
it out for any reason other than it had multiple years so. I mean if I read that these
enhanced fitness in 10 and 11 for instance have about 80 thousand left, so they may
be from multiple years and I can get that from the department so I'm just going to
apply these balances for what they are. You're just reporting what they are.
Mr. Shiige: Yes right I don't have enough information here.
Mr. Bynum: I want to make sure elderly knows I'm not singling
them out for any particular reason. I just wanted to ask these more structural
questions. Thank you.
Mr. Furfaro: In my second follow up note well be going to the
Administration regarding turnover notes by division, by department heads. It's
something I have done all my hotel life with turning over operating notes from one
General Manager to the next and somewhere I have a format for that. Do you have
any recommendations in the way of a format for requesting turnover notes when we
change from one department head to the next, one grant writer, and one financial
person to the next? Do you have any outline that government practices with?
Mr. Shiige: Usually they have procedures made that should
address all of that.
SPECIAL COUNCIL MEETING -10- December 15, 2011
Mr. Furfaro: Okay thank you. And that will be our second follow
up note to Administration. You may go ahead and proceed.
Mr. Shiige: Okay the next part is called part 4 summary
schedule of prior audit findings that start form page 34. Again this section of
reports are all of the findings that were presented in the 2010 report, audit report
and there were several findings I think 17 of them but a lot had to do with that
reporting, I guess the delinquent reporting of reports. As far as based on our review
this year all of the things were addressed and accomplished, all 17 findings.
Mr. Furfaro: So if you'd like I could share with you from the
previous audit I prepared the punch list.
Mr. Shiige: Okay.
Mr. Furfaro: Okay and then we brought it to the council table
agenda item by agenda item and it looks like that method paid off as we see these
accomplishments. I'm very pleased to see that and I'm sure Mr. Bynum when we
put this list together we will periodically set a tone for expected accomplishments
from this audit.
Mr. Shiige: So when we do next year's audit we will be
following up on our findings and will be reporting whether or not it was
accomplished or not accomplished.
Mr. Furfaro:
Sounds great, Mr. Bynum.
Mr. Bynum: Just a quick question. You said when we do next
year's audit so your firm has a multi- year contact with the County?
Mr. Shiige:
Yes.
Mr. Bynum:
For 3 years?
Mr. Shiige:
Four years.
Mr. Bynum:
Thank you for that good news, next item.
Mr. Shiige: The last part is the corrective action plan we just
talked about.
Mr. Furfaro: Okay so are there any other discussion items for
the single item report? Okay and we will be sending to Mr. Rezentes those two
items.
Mr. Shiige: Okay, shall I proceed?
Mr. Furfaro: You can take us to the next page.
Mr. Shiige: Okay we go with the smaller report which is the
management advisory report. In this report we have some findings but we didn't
consider it to be significant enough to get into this single audit report. These are
other findings more for your information or the county's information.
Mr. Furfaro: So internal housekeeping?
Mr. Shiige: Yes to try to improve operating efficiency.
SPECIAL COUNCIL MEETING - 11 - December 15, 2011
Mr. Furfaro: Got it.
Mr. Shiige: Let's go to page 4, that's the first finding on the 11-
01, reviewing the treasury trust account.
Mr. Furfaro: Yes these two items that I have highlighted right
here.
Mr. Shiige: Right, so it's and I guess when we viewed the trust
accounts we noticed that there were a lot of balances that were sitting in the trust
accounts from quite a while ago and all we're asking is that the county review these
accounts and resolve these old balances and keep it more current.
Mr. Chang: Keep it what?
Mr. Shiige: Keep it more current.
Mr. Rapozo: Mr. Chair?
Mr. Furfaro: Go ahead you have the floor Mr. Rapozo.
Mr. Rapozo: I guess not being an accountant can you like
explain that for the laymen that...
Mr. Shiige: Well I guess these are agency funds that they take
in moneys and hold it for a purpose and then it goes out. It's not for them to keep,
it's someone else's, whoever, they're holding the money for someone. Let's go to the
first bullet here is the public auction treasury trust and we see that the account
holds a balance of $28.621 for auctions that were held back in May 15, 1986.
Mr. Furfaro: 1996.
Mr. Shiige: 96 I'm sorry.
Mr. Furfaro: That's alright, I would worry if the date...
Mr. Shiige: The remaining balance of $431,387 were from
auctions 2008 and 2010 and actually these accounts should have been cleared out
because these are old.
Mr. Rapozo:
So you're saying the money is still in the account?
Mr. Shiige:
It's still in the treasury.
Mr. Rapozo:
Who owns that money?
Mr. Shiige:
I'm sorry.
Mr. Rapozo: Who owns that money?
Mr.Isobe: For the treasury trust for public auction that's
when the county sells properties. When I spoke to real property division they
mentioned that the money can sit in there for a few years. The owners of those
properties still have rights to claim some of that money but when it goes back that
far she kind of mentioned that maybe it shouldn't be.
SPECIAL COUNCIL MEETING -12- December 15, 2011
Mr. Rapozo: And I guess that's my question is how long are we
required to hold those funds?
Mr. Isobe: And I think the response is that they need to check
with the County Attorneys as to rights to that money. I think they have to file
something.
Mr. Rapozo: So at some point the money become available to the
general...
Mr. Furfaro: To us and I think it's 7 years but I will make that
the third question to the county attorney's office.
Mr. Shiige: And going through the line if you just want to go to
the second bullet. The second bullet is the public works fiscal treasury trust, this
account holds 30 different deposits for a total of $78,300 and that went back from
May 9, 1986 through July 7, 2006. The remaining balance of $272,000 was from
current deposits from 2009 through 2011, so there are some moneys that are really,
really, old.
Mr. Furfaro: Excuse me.
Mr. Bynum: The source of these funds is from permits fees and
that kind of things?
Mr. Isobe: Yes you are correct. Some are just deposits made
when people are putting up money for permits or cash bonds for projects.
Mr. Furfaro: Establishing credit.
Mr. Isobe: Establishing credit and it's just a lot of them is not
that big but some of the stuff is really old.
Mr. Bynum: Got it.
Mr. Furfaro: So that will be our fourth question.
Mr. Shiige: And then the final bullet is the planning treasury
trust account. The department uses this account to deposit application fees, collect
it, and pay for public notice cost. The difference between the amount collected and
the amount paid remains in a treasury trust account. The agency fund should not
be used to measure results of operation and should be custodian in nature. In other
words the balance in this planning treasury trust in as of June 30 was about
$165,0000. So I guess that's the excess of the amounts collected and the amounts of
the actual cost.
Mr. Furfaro: So we collect fees, permit fees, application fees, it
goes into this trust account and we use it to pay expenses and apparently for public
notices and whatever is not used and can be rolled into the general fund, is that
what you're saying?
Mr. Isobe: There are other amounts that go in there but the
information that I got from planning and mainly that I saw last year was these fees
and then payments from public notices.
SPECIAL COUNCIL MEETING -13- December 15, 2011
Mr. Rapozo: And nothing else.
Mr. Isobe: They said that they do also do something similar to
public works where they do take deposits, but on the schedule I saw there wasn't
that and all of it were transactions for fee permits.
Mr. Rapozo: Thank you. Then I guess Mr. Chair I guess we
should probably get a briefing and maybe as one of your questions you know what
exactly these trust funds, what can we or can't we use it for? Because if these funds
are available for planning expenditures such as staffing, you know we can utilize
these funds instead of sitting in a trust fund and if you add up just what's here, it's
pretty substantial.
Mr. Shiige: If you look on page 8 and 9 that's the county's
response to these findings. Each department responded as to what corrective action
they were going to take.
Mr. Furfaro: Okay that is question number 6 then and that will
be directed over to the county attorney's office but let's not get too critical here
because the good news is that they are actually collecting fees. The bad news is they
are not reconciling it. Mr. Bynum.
Mr. Bynum: Well yeah and I think we'll do follow up on this
because I know we passed legislation in the last couple of years for planning for
instance that has application fees that are fairly substantial, a thousand dollars, or
you know and if you don't meet this deadline the fee is higher that kind of thing and
what's the appropriate accounting of those and then you know what are appropriate
expenditures. So we will do follow up on that but what Councilman Rapozo is saying
is that eventually it will go back to the general fund, and is that allowable? Do you
know the answer to that?
Mr. Shiige: No.
Mr. Bynum: Okay.
Mr. Furfaro: That question should go to the County Attorney.
Mr. Shiige: That goes to legal, right.
Mr. Furfaro: Mr. Rapozo do you have another question.
Mr. Rapozo: Well it's just whether it goes back to the general
fund or not is really not the issue. It's what can those funds be expended on?
Whether it's out of this trust fund, we write a check out of that fund, or whether it
gets rolled into the general fund, I mean I would assume because it's a trust fund it
would be limited to the use that's defined by law. Whether the check comes from the
trust fund or the general fund is neither here nor there but the issue is we are using
taxpayer money out of the general fund to pay for expenditures that we could be
spending from the trust fund and saving the taxpayer money.
Mr. Furfaro: I want to make sure that I am clear. This is not
commingling the moneys that we charge for building, permitting and planning
reviews. They have a revolving fund of a hundred thousand dollars that is intended
when building or planning needs additional staffing those fees are used for that. I
just want to make sure I'm clear and that doesn't include that?
SPECIAL COUNCIL MEETING -14- December 15, 2011
Mr. Isobe: This account is all the ins that were going in were
these permit or these application fees and all the outs were public notices.
Mr. Furfaro: You've answered my question, thank you.
Mr. Bynum: All of the outs in all 3 of these?
Mr. Isobe: No only in that planning treasury trust that was
for applications and the outs were for the payments for public notice.
Mr. Bynum: Got it.
Mr. Furfaro: Council Vice Chair Yukimura.
Ms. Yukimura: The planning response says here that decoupling
the mandatory processing fee from the actual cost of publication that's page 9, could
assist in better accounting of trust funds and that actual publication cost could be
invoiced to the applicant; however a change in ordinance authorizing the collection
Of fees and public hearing notices may be required. So it's not clear to me and I
think it would be important to sit down and speak with planning about how this all
works. Apparently right now they're using it mainly for publication notices and
maybe the original intention of the fee was to cover costs of processing which is
much more than just publication of notices but somehow the law and ordinance is
not clear about that. I appreciate that you have identified this as an issue because a
hundred twenty seven thousand is that what it is? Is not a small amount.
Mr. Shiige: No it's not.
Ms. Yukimura: And if we're holding more money than we should in
terms of the applicants, we should be returning the money or if it was meant for
other parts of the processing then we should develop our laws and procedures to
make sure it goes to cover that.
Mr. Furfaro: For purposes of today's meeting again you're telling
us findings, we need to go and do some research. We're going to send a list of
questions and get those answers back and then they can be segmented to Finance,
they can be segmented to Planning, if we want to re -visit what our ordinances or
law says. I just want to make sure we're not getting that revolving fund confused
because that is something they can tap. Okay go right ahead Councilwoman
Nakamura.
Ms. Nakamura: Just to follow up with Councilmember Yukimura's
point, it says in the department's response that publication cost for a single notice
can now actually exceed the fees collected so if there's a disparity we should look
into that and develop or change the ordinance if necessary. Also as a follow up to
Councilmember Rapozo and Furfaro's point is when we ask the county attorneys for
their guidance on this we should also look to see what the timelines are and what
the deadlines and how long we need to keep the funds in that trust account and if
there are no guidelines then we need to come up with some clear policies. I just
wanted to tack that on to your request, thank you.
Mr. Furfaro: Again for today's purposes we're going to send over
one set of questions directed by divisions and then I'm going to let the individual
chairmans of the various committees pursue if they have to get into an ordinance
change or a legal question. Go right ahead gentlemen.
SPECIAL COUNCIL MEETING -15- December 15, 2011
Mr. Shiige: Okay so we're going to move to the next finding
then?
Mr. Furfaro:
Yes.
Mr. Shiige: 11 -02, and this is improving the commercial sewer
billing process. What we found as of June 30, 2011 the County's sewer billings are
approximately 4 to 5 months behind because of the manual process of obtaining that
consumption information from the Department of Water. I guess what we're trying
to point out here is maybe more timely billing would be better and again the effect
was that in the second paragraph there shows that the total annual commercial
sewer revenue is estimated to be approximately 3.9 million dollars of which
approximately 1.3 million was billed after the year end. Of this amount
approximately seven hundred and forty thousand dollars was estimated as the
actual amount of consumption information. Again this information was not
available at the time the county prepared its financial statements. The
recommendation was the county should review the current process billing for the
commercial sewer charges and determine whether it be feasible for the department
of water to include the sewer charges in their billing process. This would help
improve the timeliness of the billing and reduce the potential for billing errors. That
was our recommendation.
Mr. Furfaro: I agree with your recommendation and believe it or
not that's actually an improvement over the last ten years. It's not a problem that's
solved, we've had many discussions about working with water to tap sewer fees, to
merge them together, then we got into some legalities but it's an ongoing problem
and I think we're constantly making small improvements but your criticism and
recommendations are well taken.
Mr. Shiige: The management response to regard is on page 10.
Mr. Furfaro: Any questions of the auditors? Vice Chair
Yukimura.
Ms. Yukimura: Well I'm just thinking there must be a way in this
age of computers that a simple agreement and link between water department and
the sewers division could certainly make that information available or I mean I
really like the idea that the water department would do all the billing. They have
that capability that's very longstanding and the numbers of sewer users are so
much smaller than the number of water users. It seems like some kind of addendum
could just be worked out and it sounds like that is the approach they're pursuing
so...
Mr. Furfaro: It's the same recommendation as in the past.
Ms. Yukimura: Right it is an idea that's been around for a while. It
would be really nice to have a breakthrough and actually have it happen. Thank
you.
Mr. Furfaro: I would like to concur, that's an idea that has been
kicked around for a while. Councilmember Nakamura.
Ms. Nakamura: I just want to say that this management advisory
board is very useful and I just want to thank the Auditor's office for following up on
that too. I didn't see it last year when I reviewed the CAFR and maybe it wasn't just
part of my packet or whatever but I'm glad that we have this kind of information
SPECIAL COUNCIL MEETING -16- December 15, 2011
that helps us to see where we can improve as a county. I just wanted to find out
that the scope of the management advisory report you know you look at trust funds
and you look at the sewer fund, what does that represent in terms of the overall
fiscal management of this county?
Mr. Shiige: The way it was it was just a bi- product of the
overall financial audit.
Ms. Nakamura: Okay.
Mr. Shiige: As we do our testing and evaluations we do have
findings and we identify the findings whether it is a significant deficiency or a
material weakness type of findings and again these lesser findings is useful for the
county as for improving operating efficiency. That's how we do it we kind of
segregate the findings into different categories and then if it's significant enough it
will go into the major report and if not it goes into a separate report.
Ms. Nakamura: Thank you very much.
Mr. Furfaro: Mr. Bynum.
Mr. Bynum: My questions are on the same line because I don't
recall seeing this.
Mr. Furfaro: You didn't get one.
Mr. Shiige: You didn't get one. There wasn't a management
advisory board in the prior year.
Mr. Furfaro: That's why you didn't see it.
Mr. Bynum: And why did that change.
Mr. Shiige: It's not a change it just depends on the auditor and
how he wants to deal with that type of findings.
Mr. Bynum: Okay so I just want to understand process because
you kind of randomly select major funds to audit right?
Mr. Shiige: Are you talking about the federal programs?
Mr. Bynum: Yes I mean that's a requirement.
Mr. Shiige: There's a requirement and there's a process you go
through to determine which major programs that needs to be audited.
Mr. Bynum:
And that process...
Mr. Shiige:
Based on and it's not random.
Mr. Bynum:
It's a criteria base?
Mr. Shiige:
There are criteria.
Mr. Bynum:
And what real briefly are those criteria's?
SPECIAL COUNCIL MEETING -17-
December 15, 2011
Mr. Shiige: What they do is they break it down to what they
call major programs, Type A programs, then you get the non -major programs which
are type B programs, and what we do is a risk assessment as part of the process
whether it is a high risk type of program, whether it is an A or type B. and part of
the determination is whether or not it's been audited before or whether or not there
were findings in that particular program and all of that factor into what programs
they belong too.
Mr. Bynum: Post management advisory report, could you
characterize if these are things that just kind of leaped out at you as you did your
audit?
Mr. Shiige: I'm sorry again the question.
Mr. Bynum: Well this is a concern I've had in the past. The
auditor audit what we ask them to audit and some things are required, like federal
funds but these are kinds of things that leaped out at you and you kind of went
"wow" there's an issue here. It wasn't something you were asked to look at, it was
just something you came to a conclusion?
Mr. Shiige: Yes and this report wasn't part of the audit of the
federal programs, it was more of the general financial audit of the county.
Mr. Bynum: Right so when you're doing that general financial
audit and some issues kind of emerge, you say wow look at this, and that what this
report is?
Mr. Shiige: Yes.
Mr. Bynum: That's great thank you.
Mr. Furfaro: We're fortunate these are the red flag items and yet
the book is a little thin. But that's what Mr. Bynum's question is, that's this is the
red flag items. Mr. Kualii.
Mr. Kualii: Aloha and mahalo. I just had a quick question in
comparing both of the reports. So you said the single audit reports had a significant
deficiency but not a material weakness?
Mr. Shiige: Yes.
Mr. Kualii: And then in this other one the management
advisory report, it doesn't have a significant deficiency?
Mr. Shiige: No.
Mr. Kualii: So it's just for improving operations?
Mr. Shiige: It's other findings that we felt we should convey to
the council.
Mr. Kualii: Now in the earlier one there were the 17 findings
from the prior year and it was all accomplished?
Mr. Shiige: Yes.
SPECIAL COUNCIL MEETING -18- December 15, 2011
Mr. Kualii: So those were, if we looked in this similar report
from last year those 17 would show?
Mr. Shiige: Well actually those were addressed as the result of
the auditing of the major programs in general so it would be compliance findings
and those whether or not that had to be reported.
Mr. Kualii: So when we work on this we are still going to have
a bunch more findings potentially? Or are we at 2 findings this year compared to 17
findings last year?
Mr. Shiige: The 17 findings last year was actually maybe 1 or 2
findings and it was all related to the late filing of the federal reports and that was
generally due to the late instructions by the federal government regarding the
ARRA funds. So the county didn't have time to respond to those things.
Mr. Kualii: So we're kind of on the same track?
Mr. Shiige: Yes but now it's all been accomplished and I think
the federal government came up with a guideline very late so you were caught in it.
Mr. Kualii: Thank you and thank you Mr. Chair.
Mr. Furfaro: I will share that list with you Mr. Kualii on how we
laid it out and from that list then it went to the different committees for action. Are
we complete with your management advisory report?
Mr. Shiige: Yes. We are now complete with the single audit
report and the management advisory report.
Mr. Furfaro: Okay so we now have about 9 items listed for
continued dialog with the department heads. Now as we went through the
management discussion and so forth I want to get to these different items with the
employee retirement system and so forth on my agenda. Is it Mr. Rezentes time to
be here? Gentlemen you'll be here the whole time with us today right?
Mr. Isobe: Yes.
Mr. Furfaro: Mr. Rezentes I'm not sure if you got an agenda for
our discussions today?
WALLY REZENTES JR., FINANCE DIRECTOR: Yes I did get it this
morning.
Mr. Furfaro: Okay, Wally I want to point out as a reminder you
may not have been in the room yet but as we go through these particular things I
reference page numbers that are in the draft because I certainly was not going to be
here at 4:00 in the morning to set an agenda with page numbers from the book that
I just received last night.
Mr. Rezentes: You and I may be a little off because I have the
actual bound one but we can work through it.
Mr. Furfaro: So I want to start with the discussion on the
employee retirement system reference page 18 in particular but more references are
SPECIAL COUNCIL MEETING -19- December 15, 2011
on page 83 through 89 of the draft. At first blush here Wally I'm reading that we
had about a four and a half million dollar increase in the employee retirement fund?
Mr. Rezentes: Yes.
Mr. Furfaro: That is taking to us about 16 million over what was
previously eleven eight and the year before that eleven four in round numbers. Can
you give us some narrative to that?
Mr. Rezentes: Are you, I apologize are you referring to the OPEB
liability?
Mr. Furfaro: Yes.
Mr. Rezentes: Okay.
Mr. Furfaro: Actually the financial detail of that is on page 87 of
the draft, if people go there you can summarize the increase over the last 3 years. In
particular 2010 over 2011 was 4.5 million dollars.
Mr. Rezentes: Correct. What of course obviously I'm concerned
with next fiscal year.
Ms. Yukimura: Excuse me, Wally can you because I'm also keen off
of the final report, can you just...
Mr. Chang: It's on 87.
Mr. Furfaro: Well then (inaudible) my agenda on their so...
Ms. Yukimura: No, no, no.
Mr. Rezentes: I believe the chair is referring to page 87.
Ms. Yukimura: All I want is a...
Mr. Rezentes:
Note 12, note 12.
Ms. Yukimura:
Okay thank you.
Mr. Rezentes:
And I believe...
Mr. Furfaro: And note 12 gets you there, either one.
Ms. Yukimura: Yes thank you.
Mr. Rezentes: Okay, yes that is how the OPEB cost within the
health fund has tracked on a going forward looking forward basis for the upcoming
fiscal year. I've had conversations with the actuarial firm who is in the process of
being hired by the State health (ETF) and they have not yet negotiated the final
terms of their contract. In my discussions with the actuary from AON in Los
Angeles he intends to complete his analysis in the March/April timeframe so
whatever the outcome of that analysis we will likely have, maybe we won't have it
for a March submittal but we will have it for a May budget submittal to the county
council. In discussions with him because he's done some preliminary work, we are
looking at a possible roughly three and a half percent increase in the health fund
SPECIAL COUNCIL MEETING -20-
December 15, 2011
cost for next fiscal year that equates to about six hundred thousand so we're going
to be well that will bump up to nearly 17.1 million. Again that's his estimate based
on preliminary information far from it could vary by the time he's completed with
his work. I'm confident that we will at least have the updated version, updated
analysis by our May 8 budget submittal. I know that the State has had a number of
delays that in contracting the services but they are close to finalizing the contract.
Mr. Furfaro: So Wally the 41% increase we saw, you're telling
me that it may be closer to 3 %?
Mr. Rezentes: For next fiscal year?
Mr. Furfaro: Yes for the next year and the forty because we fund
this and this is an ongoing question what we have to do. We fund this a hundred
percent.
Mr. Rezentes: Correct.
Mr. Furfaro: I guess we want to make sure what is our next step
to make sure that, not that it's in an escrow account for Kauai but how do we make
sure that our percentage of pay over the other counties is acknowledged and
recognized for our employees that we have fulfilled our obligation 100% for the last
3 years. I assume a large portion of this increase of reference we had a number of
retirements but we also have a different benefit package going forward for new
employees in July?
Mr. Rezentes: Correct.
Mr. Furfaro: Is that correct?
Mr. Rezentes: Yes there were changes on the ERS side of the
house as well as the health fund.
Mr. Furfaro: Okay.
Mr. Rezentes: But I mean as far as what I can do is work with you
and maybe request something in writing from the health fund.
Mr. Furfaro: Yes or even if some of us have to go testify
somewhere, I think that's important for us to protect. Our contributed liability and I
would like to hear from you on that, on that note Councilmember Yukimura and
then Mr. Bynum.
Ms. Yukimura: Yes two things, one this is on the assumption of a
fifty fifty?
Mr. Rezentes: It's based on the assumptions that whatever the
applicable law and requirements, yes. So they need to look at whatever the present
contribution rates. They look at anticipated life of retirees and current employees in
that analysis.
Ms. Yukimura: Okay.
Mr. Rezentes: And we can also share once we get the report from
the actuary we should be able to provide a copy as well to the county council. -
SPECIAL COUNCIL MEETING -21- December 15, 2011
Ms. Yukimura: Okay and I'm glad the chair raised that issue of
how we can solidify or make sure that we have legal recourse to claim our fair share
that we've been paying so conscientiously on. I think... how long have we been
paying 100 %?
Mr. Furfaro: 3 more years.
Ms. Yukimura: I think we've raised this question ever since then
and I've never seen any confirmation or affirmation of or any security that shows
that we will be able to collect on what we're doing. I think we really need to get from
our County Attorneys something that is legally binding or to have some assessment
that whatever response we get from the fund managers or whatever, that it's legally
binding.
Mr. Furfaro: That is an ongoing question especially for myself
and I do want to simply say it this way... have plane ticket will travel, tell me
where to go we got to get this closed. Councilwoman Nakamura and Mr. Kipukai
next.
Ms. Nakamura: Yes when we traveled to Portland for the NACO
conference with colleagues from the other islands this was one of the issues we
talked about where one county hasn't been putting in the full 100 %. We know the
State hasn't been doing that and yet our pot of funds are going into that trust fund.
The question is from there is it delineated for Kauai county employees and retirees,
because we also heard from another county that they were putting their funds into
an escrow and not into that account because of the concerns. So Wally about how
long do you think it would take you to try to get some resolution of where we're at
on this?
Mr. Rezentes: Let me respond back I'm sure I can make some
calls today and find out and even one possibility is to have the appropriate
administrator come here and make a presentation and have that discussion on this
floor. Kind of rolling into if we're done with health fund and they kind of can roll
into the retirement system. I did have discussions with Wes Machida who heads the
Employee Retirement System and he did offer to come at anytime that's convenient
for the council to update the county council on the employee retirement system
performance, etc.., and some of the items that they're looking at pursuing in this
legislative cycle. As you know there was a significant legislation that was passed
this past legislative cycle that changed the county and state's contribution rates
over that will affect next fiscal year. For example the contribution rate percentage
for general employees currently is 15 %; for police and fire is 19.7 %. that rates will
change for next fiscal from 15 -15 % for the general employees and from 19.7 -22% for
police and fire. That increase will be reflective in the upcoming cycle and it will be a
significant increase because it's based strictly on salaries and that would have to be
accommodated within our fiscal year 13 budget. Unfortunately the employee
retirement system actuarial analysis will not be completed until another 3 -4 weeks
and Wes believes that he doesn't believe that the results of the actuarial report will
require further changes to the rates that I just explained.
Mr. Furfaro: Just so you know Wally that's not going to satisfy
this council, we want to get to a conclusion by the end of this year.
Mr. Rezentes: Sure.
Mr. Furfaro: We're going to wait and see numbers in March but
we're at a point we have to see it.
SPECIAL COUNCIL MEETING -22- December 15, 2011
Mr. Rezentes: Luckily we'll get numbers in the January
time frame if what Wes said is accurate and again he will be available and we can
just let him know. I told him I'm positive the county council will likely want him to
come and explain the findings of the most recent actuarial report. The actuarial
report should also show that the employer's unfunded liability will be within the 30
year payoff period and statutorily the employer rates would have to increase if that
30 year threshold was not met. So if based on the actual report it exceeded the
thirty years we would have to go back and re -visit the rates and that's by a
statutorial requirement, they don't anticipate that happening. On a good note I
should say on a positive note for fiscal year 2011, the ERS investments achieved a
rate of return of about 20.7 percent or about 1.3 billion dollars and even with that
rate of return it didn't offset the unfunded liability of about 1.5 billion. That is still a
concern but the performance has been much improved in the last cycle versus prior
years. They are still making up much of the gap but which is obviously a good thing.
Mr. Furfaro: Well thanks for sharing that but I have other
council members that have their hands up, starting with Councilmember Kualii.
Mr. Rezentes: If I could just finish on one more point and then I
can take questions. I asked them going forward in this cycle this legislative cycle
what would be a significant measures that the ERS is looking to propose to the
legislature and one of the proposals is what they called an anti spiking measure.
Apparently about 14 states have already approved anti spiking measures and what
it is for employers that have employees that say in the last 3 -5 years of their
employment have huge spikes in pay whether it be for whatever reason overtime or
whatever, because that skews the amount of retirement over the person's life quite
significantly or could change it quite significantly, they're thinking about proposing
a measure that each of the respective employers fund that prorata share for that
particular employee for fairness reasons. One example they gave was an employee
at the City and County of Honolulu, where there was an estimated payout over of
about $450.000.00, they had basically for that employee the estimated payout over
life was 450 but in the last few years of that person's employment it drastically
went up and it increased the projections to 1.6 million.
So just for that one employee that was a huge increase and it's out of the
ordinary but this kinds of things happen based on within the system and that's
what they're targeting with this anti spiking legislation. Again 14 States have
approved that and I'm not sure what the likelihood of passage is at the legislature
but that's something that Wes can update you folks on when he comes.
Mr. Furfaro: Thank you for that and that has been a subject of
this council for a number of years; especially in certain areas where we accrue huge
overtime which we're understanding is going to be managed. In a series of questions
here we have Mr. Kipukai and JoAnn I did recognize Mr. Bynum after Mr. KipuKai
and he had concurred to it so he has the floor next and if you would please let me
run the agenda I will try and do it in the most courteous and effective manner I can.
Mr. Bynum if I owe you an apology I'm sorry. KipuKai and then Mr. Bynum.
Mr. Kualii: Thank you Mr. Chair. Aloha and mahalo Wally. so
on the table on the charts on the bottom of page 87, when you had said that we are
looking at possibly 3.5 percent increase and that was about six hundred thousand
dollars and you said it would bump something up to. Were you talking about the
16.4 million?
Mr. Rezentes: Yes correct.
SPECIAL COUNCIL MEETING -23- December 15, 2011
Mr. Kualii: So you're saying the 16.4 million is just going to go
up six hundred thousand?
Mr. Rezentes: Approximately.
Mr. Kualii: So when you look at the prior years, in 2009 it was
11.5 million and 2010 it was 11.9 million, so from 2010 -2011 it jumped up like 4
million so like a 40% increase. Does this happen every year where we don't get the
analysis from the State so we have to make our estimate? What was the estimate
last year and how did that work out?
Mr. Rezentes: Well the EUTF commissions an actuarial study and
I think we've received that in the past more timely, it's just this year I believe they
went out to bid again and just the bidding period or the period in which they need
the contract was longer than anticipated. That's what I understand but again the
best information I have is they're close to finalizing the contract and giving the
notice to proceed and to their selected contract.
Mr. Kualii: Well what happened last year was that like... was
that a big surprise?
Mr. Rezentes: I think it was somewhat anticipated, it was
discussed at the State level. We the County Administration and we don't have seats
on the board so sometimes the information we get is a little later or but that's
something that we would prefer we had representation on both retirement systems
and health fund boards at least from our employer's perspective.
Mr. Kualii: So now you had said that there would be actuarial
analysis in 3 -4 weeks?
Mr. Rezentes: Yes.
Mr. Kualii: That's different from the other analysis that
wouldn't come until May you said?
Mr. Rezentes: Yes the 3 -4 weeks was employee retirement
system. The health fund EUTF opens a different analysis.
Mr. Kualii: That's it for now.
Mr. Furfaro: Mr. Bynum.
Mr. Bynum: Good morning Wally, regarding the first question
and this has come up repeatedly about and real simply put we're worried that we're
being fiscally prudent and funding our future cost that's going into a fund. We want
to make sure we're not going to have that fund used by other counties or the State
and in essence negate, right. I thought the last time this came up I heard definitive
answer no, no it's separately accounted don't worry and now we're raising the
question again so I agree with everybody it's very important we have a definitive
answer but I thought I had heard that from you already.
Mr. Rezentes: And we can again we can request that in writing in
specifics or even have the appropriate Administrator come here or again we go down
there, I mean we'll do that.
SPECIAL COUNCIL MEETING -24- December 15, 2011
Mr. Bynum: And we've changed public employee benefits for
new hires correct?
Mr. Rezentes: Yes.
Mr. Bynum:
Mr. Rezentes:
this current year.
Mr. Bynum:
benefits for new emp
Mr. Rezentes:
Does that go in effect July 1 of this coming year?
I believe it has gone into effect already for July 1 of
So in essence in real broadlay terms the retirement
loyees aren't as generous as the previous employees?
Correct.
Mr. Bynum: So that impacts our long term costs right?
Mr. Rezentes: Long term liability yes.
Mr. Bynum: So that should help reduce the increase of this
amount?
Mr. Rezentes: It will temper it yes.
Mr. Bynum: It will temper it and these figures so basically 16.4
aren't what are in the current fiscal year's budget to cover these costs correct?
Mr. Rezentes: Correct.
Mr. Bynum: And next year you're anticipating it around 17.1?
Mr. Rezentes: Correct.
Mr. Bynum: And that's to cover a hundred percent, but other
counties are not covering a hundred percent, but they have to cover actual costs
right?
Mr. Rezentes: Right.
Mr. Bynum: Do you know what that percentage is?
Mr. Rezentes: I don't have it no. And again we'll have that with
the study. I believe in the past they've provided those variables by employer.
Mr. Bynum: Just in case anybody in the general public would
want to view this section, it's basically our county fully funding with current dollars
future cost which in the future will avoid a fiscal crisis for some future
administration and council correct?
Mr. Rezentes: Yes, if you look at it that way.
Mr. Bynum: So we're not kicking the can down the road, we're
meeting those cost now and we're the only political subdivision still that's doing
that?
Mr. Rezentes: That is what I understand.
SPECIAL COUNCIL MEETING -25-
December 15, 2011
Mr. Bynum: Well that's something I'm really proud of and I
appreciate the initiative that came I believe initially from you under the previous
administration. Thank you.
Mr. Furfaro: Mr. Rapozo.
Mr. Rapozo: Thank you Mr. Chair. Wally I'm going to ask a
really stupid question because I thought I knew the answer 3 years ago and I guess
I just forgot. So what's the advantage of doing it this way? Paying it up front a
hundred percent? Because I remember the presentation I guess it was 3 or maybe
even 4 years ago with the companies that we work with and it was very, very
attractive that in fact we would pay up front and that I for some reason I'm
thinking it would have generated some potential interest revenue that was going to
be in some bank account and maybe that is not what we're doing I don't know.
What's the difference of us paying and I'm hearing concerns that I've never heard
before and I wasn't here last year but we're putting all this money in the pot up
front and others may partake in that and they haven't paid. Help me understand
what's the advantage of paying everything a hundred percent upfront?
Mr. Rezentes: You're addressing a known future liability more
appropriately than the other counties by setting aside the sums earlier. When you
know you have a liability out there you are setting aside the moneys necessary to
pay off that liability by some certain date and what we are saying in general terms
is we are setting aside moneys in a more fiscally conservative matter so that we
have the moneys to pay for this future liability when it occurs. It's almost like and
one analogy is having an interest only mortgage versus a mortgage that you pay
principal and interest on. The mortgage that you pay principal and interests on at
the end of the 30 years if you pay on time you're not going to have a mortgage. If
you pay interest only on it at the end of the 30 years you'll have a principal
balance...
Mr. Rapozo: Right I understand that concept but this money
that we talk about the 11 million or 16 million that goes where?
Mr. Rezentes: It goes into the EUTF and it's funded and it's
invested.
Mr. Rapozo: Right and who realizes the return on that?
Mr. Rezentes: Well the system realizes the return.
Mr. Rapozo: Right and what does the county gain? Versus if we
were to put that money in an interest bearing account if that's even legal I'm not
sure but even if we set aside the money on our own and write the checks when we
pay, I mean we would enjoy the interest. Right now we're putting all the money up
front.
Mr. Rezentes: Well the same fund would enjoy the interest and as
long as they hire professional managers obviously to do the investments. If we do it
on our side we would likely have to do the same thing and I'm not sure if we legally
can, we would need it statutorily changed to make it.
Mr. Rapozo: For some reason and I don't know why I'm
remembering this because I remember meeting with that lady and I believe it was
Washington D.C., or someplace and they had put out the chart about how if we put
SPECIAL COUNCIL MEETING -26-
December 15, 2011
up the 100% they manage the money, they pay the post retirement benefits and we
enjoy the return but that's not what we're doing right?
Mr. Rezentes: I'm not sure.
Mr. Rapozo: Right now we're funding, it's like you're putting
your money in the bank and the bank uses your money to make more money and
they pay you a very small return, point seven percent or whatever versus...
Mr. Rezentes: I think it's more sophisticated than that but...
Mr. Rapozo: I'm trying to figure out what's the advantage, I
mean if we put the money and like I said I'm asking because I really don't know I'm
hearing the concerns from everybody right now and I'm getting worried like wait a
minute. We are paying up front 100% and that money may not in fact...
Mr. Rezentes: The question is do we at the county or the
employees or does the employer realize the benefits of our contribution strategy.
Mr. Rapozo: Right.
Mr. Rezentes: I understand that and let's get the appropriate
people from the EUTF to respond to that in writing.
Mr. Rapozo: I just see it as you pay now or you pay later right? I
mean correct me if I'm wrong? We pay now or we can pay as we go?
Mr. Rezentes: You pay more right. I mean it's like interest if you
forgo paying principal then the amount that you pay will be more right?
Mr. Rapozo: So we do realize the savings.
Mr. Rezentes: Times value of money concept.
Mr. Rapozo: Okay.
Mr. Furfaro: Wally I want to make sure that you concur with
page 88 of the same subject matter that the assumptions made here include 7%
investment rate return and 3.5% on what we're projecting as salaries. As you know
we're in a salary kind of cap right now and that might be a little high and then the
actual assumptions are made by the actuarian indicated a 7% return and are you
feeling those are the right numbers?
Mr. Rezentes: Again those numbers will change based on the
actuarial study. So I'm not questioning the study.
Mr. Furfaro: My next question is when you have dialog with
them we would like to have that confirmed.
Mr. Rezentes: Okay,
Mr. Furfaro: Okay. Mr. Bynum.
Mr. Rezentes: I'm sorry Chair and when they do that analysis
those investment rates of return and the projections on the increases are all part of
that analysis.
SPECIAL COUNCIL MEETING -27-
December 15, 2011
Mr. Furfaro: Yes understood and I'm going to go to 2 more
questions on this section because I want to go to the landfill issues before
Mr. Rapozo leaves since that was a separate discussion. Mr. Bynum then Council
Vice Chair Yukimura.
Mr. Bynum: Yes and I think this is an important thing for us
because it's something I'm very proud of that the county has taken this position and
we need that definitive answer in writing for sure. I'm working under the
assumption that those funds are segregated and they're there for us?
Mr. Rezentes: Sure.
Mr. Bynum: And that the investment returns on those funds are
also for our county. The way I characterize this in my mind and this is a question
because I want to say this is the way I see it and see if you agree that 15 or 20 years
down the line there's going to be a whole different group of people sitting here and
they're going to be saying thank goodness those councils 15 years ago made this
decision. Our colleagues on the other Islands who didn't make that decision, their
council is going to be sitting there with a fiscal crisis on how are we going to be pay
these retirement cost that's escalating year over year its killing us. A future county
council on Kauai is going to be saying thanks for the vision of those finance and
council people and administrations 15/20 years ago. Is that a fair characterization of
what might occur?
Mr. Rezentes: It could, sure.
Mr. Bynum: Right because if we just paid what we needed you
know if we just paid the minimum required there would be a short term benefit to
the county at the expense of the long term rate.
Mr. Rezentes: Sure.
Mr. Bynum: Okay, thank you.
Mr. Furfaro: Councilwoman Yukimura and then I would like to
move onto the landfill.
Ms. Yukimura: Thank you Chair. Wally when you started your
discussion on employment retirement system you talked about a 15% for general
employees and a 19% for police and fire. Is that the current situation?
Mr. Rezentes: Fifteen and 19.7 yes.
Ms. Yukimura: Nineteen point seven so yeah almost twenty. Can
you explain that to me and then tell me what this year's percentages are going to
be?
Mr. Rezentes: This year is 15 and 19.7 for fiscal 11.
Ms. Yukimura: The 15% of what is...
Mr. Rezentes: Salary.
Ms. Yukimura: That what we're putting in that we have to pay?
SPECIAL COUNCIL MEETING -28- December 15, 2011
Mr. Rezentes: Yes.
Ms. Yukimura: Okay so our contributions?
Mr. Rezentes: Correct.
Ms, Yukimura: Okay and then that's for this present fiscal year?
Mr. Rezentes: Yes.
Ms. Yukimura: So the upcoming fiscal year we're looking at
different percentages?
Mr. Rezentes: Yes.
Ms. Yukimura: Okay and what are those?
Mr. Rezentes: For the general group it would go from 15 -15.5
percent and the police /fire group will go from 19.7 -22.
Ms. Yukimura: Okay and why is that?
Mr. Rezentes: Again it's based on the most recent actuarial study
that was performed by the employee retirement system and again it's based on the
study, the rate of return on investment, the projected rate of return on investments,
and a number of variables.
Ms. Yukimura: Right and these are susceptible or are they also
dependent on I mean I know we haven't any pay increases or had significant
changes in collective bargaining agreements but that would also affect these
percentages.
Mr. Rezentes: Absolutely.
Ms. Yukimura: Okay.
Mr. Rezentes: And the qualifier years if they change for example
the minimum years of service to earn a pension from 10 -15 it changes the dynamics
of how much we would need to set aside.
Ms. Yukimura: And safe to say that if the State hadn't changed the
terms for new employees these percentages could be greater?
Mr. Rezentes: Oh it would be greater yes.
Ms. Yukimura: That's why you said it was a tempering because it
had kept the rate of increase lower?
Mr. Rezentes: Lower yes.
Ms. Yukimura: Okay thank you very much.
Mr. Furfaro: Okay and Wally thank you we got a couple more
questions out of that which will be coming over. I would like to now do the item on
the...
SPECIAL COUNCIL MEETING -29- December 15, 2011
Mr. Rezentes: And chair can I assume that the county council
would want to have Wes Machida come here once...
Mr. Furfaro: That's a very safe assumption and directive.
Mr. Rezentes: Okay, again I hope he can come once or after the 3
or 4 week time frame when he has his final study completed.
Mr. Furfaro: You've made the right assumption. I would like to
go on to the Kekaha Landfill closure, post closure cost. For those of you that have
the draft and when I got this is page 92, the spreadsheet is on 92 and for those of
you that is going by the note I believe its note 14. Wally when I look at this
particular piece and I'm looking off this spreadsheet we've got 7.2 million which has
been solid waste disposal fund which I perceive as the anticipated closing cost
account and then I see we put four hundred and ninety thousand in the landfill
closing cost and it looks like this year from the general fund?
Mr. Rezentes: Yes every year.
Mr. Furfaro: Is that correct?
Mr. Rezentes: Yes.
Mr. Furfaro: Now in the discussion we had in the special
meeting chaired by Mr. Rapozo, I think I made the assumption at the time not going
through the book that we had about 6.6 million on what is estimated to be a 21
million dollar 30 year management closure. One of the things I noticed in the
discussion with Mr. Rapozo and we have not taken and I don't know maybe this is
an accounting practice that until we actually have a signed contract with Barking
Sands for the purchase of the fuel gases we cannot book that assumption. I would
think that's good management practice but is that the assumption we're making
here that's why that fund is only at 7 million?
Mr. Rezentes: A contract for the methane gas is not a
consideration of what we have here.
Mr. Furfaro: That's why I asked the question, it's not a good
accounting practice. But do we have that contract filled?
Mr. Rezentes: Oh no, we don't have an agreement or a (inaudible)
yet.
Mr. Furfaro: Okay so what is our approach if we end up with the
7 year lifecycle of the landfill and we're estimating the long term management of
that landfill is thirty plus years, what is our alternative to I mean hopefully nobody
test the gas and it's contaminated or something but what is our options here?
Mr. Rezentes: Okay maybe 2 things, one that we have financial
assurance requirements for closure and financial assurance requirements for post
closure monitoring. Right now the four hundred ninety thousand that you
mentioned that's appropriated annually, that goes to our monitoring contract at
Kekaha Phase 1 as well as Halehaka Landfills. So that's an ongoing operation and
as far as the amounts that we are setting aside now or the information that's
actually in this document I believe a couple of days ago I think the Department of
Public Works provided the Council with some updates on where we're at today and
what are our options for expansion horizontally, vertically, etc... So those pursuits
will affect these numbers and actually these numbers are dated already because the
SPECIAL COUNCIL MEETING -30-
December 15, 2011
reality is the pursuit of a horizontal and vertical expansion will change the useful
life of the landfill significantly. It would also affect the potential amounts that are
set aside on a per ton basis. I know the Department of Health has a requirement of
department of public works to provide annual reports per Title 25 of some federal
regulations. What I understand will happen in the first quarter of 2012 is we will
have engineering consultants re- evaluate and re- estimate the cost of expansion,
closure and estimated life that will impact the amount that we'll have to have set
aside now and into the future so I'm looking forward to that study and I hoping we
will be timely in getting that information from that study. I understand we hope to
receive that in the first quarter of 2012 and we should be able to update the county
council with that information but I think it's definite an important analysis and an
important study that we need from an engineering consulting firm.
Mr. Furfaro: Well you got the gist of my piece and I know this is
and I know you know this is a touchy subject with me because we're looking at old
numbers here and I'm guessing and I certainly would like to see what arrangements
we have for this half a million that goes from the general fund here. The reality
Wally is that we're behind on the quarterly financial reports and I have done every
month my own spreadsheets to share with the members and I'm actually looking at
a number that was of 2011 of June and you know we're coming up on 6 months now
and I know a lot of these other moneys are coming from our tipping fee collection
but I can't see the trend so you know what my request is there Wally.
Mr. Rezentes: Okay.
Mr. Furfaro: Council Vice Chair Yukimura.
Ms. Yukimura: You know as just stated we can't see what the
figures are currently because there's so much in flux but I think one of the things
we're seeing is the huge cost of not diverting. When we think diversion cost a lot, it's
nothing compared to the cost of not diverting. I mean when you look at this and you
include the... I mean it's just the increments more that we have to build because
we're not diverting, anyway so you're showing well actually we can't really talk
until we get more...
Mr. Rezentes: Well I'm just saying that these numbers was as of a
cut off in time and because as you know there's a lot of work being done presently
by the department of public works to look at horizontal and vertical options at the
landfill. The results of that work will need to be analyzed and recomputed so that
we know what our required obligations are so that we meet again federal and state
guidelines and now I understand because of the quantities of landfill debris we now
fall under Title 25 again because of the quantities of NSW that is at Kekaha.
Ms. Yukimura: Okay so this study you're talking about that's the
study for going up is that what's going to be ready in the first quarter of 2012?
Mr. Rezentes: Well they're doing an engineering study to work on
the appropriate model for vertical and horizontal as well as an analysis of what the
useful life would be.
Ms. Yukimura: Okay.
Mr. Rezentes: I'm sorry I don't have the specific details and I
would prefer that solid waste maybe or public works be able to articulate that and I
thought that...
SPECIAL COUNCIL MEETING -31-
December 15, 2011
Mr. Furfaro: They should articulate it and I agree with you and
today we have auditors here about the point in time that we are for this report. My
point was I'm worried about the potential and I think I'm hearing the same from
Council Vice Chair Yukimura that this timing of the length of use we have, followed
by a critical path of fee income fees that we get income from, and the allocations
that we have to make to the general fund to meet the EPA requirement of the long
term management piece. That was my point and I'm just concerned that the 7.7
million we have right now that we might have a timing problem and I think
anything else that Mr. Rapozo wants to put back that addresses these other
concerns that council vice chair has, they're legitimate concerns but they don't
necessarily involve our auditors right now.
Mr. Rezentes: Let me explain. Right now as of June 30, 2011, the
estimated again without the changes that's being discussed and by the department
of public works as of June 30, 2011 the estimated closure and post closure cost of
Kekaha Phases 1 and 2 and Halehaka Landfill were estimated at 18.6 million. Of
the 18.6 million 7.6 million is attributable to Kekaha Landfill Phase 2 and 11
million of the 18.6 million is estimated to be the post closure cost that we again
talked about budgeting on an annualized basis. As of June 30, 2011 the county had
approximately 9.5 million held in a restricted fund to offset the closure cost to
Phase 2 of Kekaha Landfill.
Mr. Furfaro: Could you repeat that too for Mr. Bynum.
Mr. Rezentes: Okay as of June 30, 2011, the county has about 9.5
million held in a restricted fund, fund balance to offset...
Mr. Bynum: For the cost that we estimated at 7 point something
right?
Mr. Rezentes: Yeah but you know as well as I do cost estimates
are cost estimates and reality is if we're going to close 7 years from now or 8 years
from now it's based on whatever the going rate of the construction business and the
economy etc... So it's a best estimate. If we are short we would have to fund it
somehow someone and my preference in funding that kind of activity is through
CIP, whether it be bond or otherwise. The hope is obvious that the estimate is
accurate and we will have the sufficient funds to meet that obligation but again
these are estimates today for something that is projected years from now.
Mr. Bynum:
that's a budgetary decision.
Mr. Rezentes:
Mr. Furfaro:
Ms. Yukimura:
for Phase 2?
Mr. Rezentes:
Ms. Yukimura:
million is or equals eighteen.
Mr. Rezentes:
Yeah but we're setting aside money each year and
Yes.
Okay Vice Chair Yukimura.
So wait 18.6 million post closure and of that 17.6 is
Seven point six is for post closure.
Seven point six and eleven, I'm sorry and then 11
Those two add up to the 18.6.
SPECIAL COUNCIL MEETING -32- December 15, 2011
Ms. Yukimura: Alright and then we have 9.5 million which has
been accumulating since we built the landfill because...
Mr. Rezentes: I believe that started with Phase 2.
Ms. Yukimura: Right which was built right after the hurricane?
Mr. Rezentes: Correct.
Ms. Yukimura: Okay so we're just not sure what the total figure
will be and how to provide for that. That's our budgetary dilemma right now.
Mr. Rezentes: Well the way we provide for it is by setting aside
that estimate, we just need to go through and revise that estimate.
time.
Ms. Yukimura: But we can also provide for it by allocations over
Mr. Rezentes: Yes and that's what we're doing.
Ms. Yukimura: We don't have to provide for it in one year.
Mr. Rezentes: No we don't intend to do it that way; we intend to
set aside as we go.
Ms. Yukimura: But on top of that we have all the cost of actually
adding to the Kekaha Landfill so that we can keep it open?
Mr. Rezentes: Correct.
Ms. Yukimura: Because...
Mr. Rezentes: You're talking the operational side?
Ms. Yukimura: Yeah because if we had closed in on a timely basis
we would be paying the closure cost right now.
Mr. Rezentes: True.
Ms. Yukimura: I mean we're having to deal with building a new
landfill, expanding the existing landfill, and then closing it. I mean the cost of
closing all of it.
Mr. Rezentes: And finding a new one.
Ms. Yukimura: Yeah that's what I mean and that's the dilemma
we're in because we haven't done good solid waste planning over the last 20 years.
So isn't it true that our cost of closure is going to be so much more because we have
to retrofit the existing landfill by expanding it.
Mr. Rezentes: I wouldn't know.
Ms. Yukimura: Okay.
SPECIAL COUNCIL MEETING -33- December 15, 2011
Mr. Furfaro: Councilwoman, we have auditors here that are
dealing with a point in time, dealing with our financial picture. All of your
comments are good but this is not the time for that discussion.
Ms. Yukimura: I'm done thank you.
Mr. Furfaro: We just had a whole day with Mr. Rapozo and I
think Mr. Rapozo wanted the floor next and then Councilwoman Nakamura.
Mr. Rapozo: No actually my questions have all been answered.
Mr. Furfaro: Very good, Councilwoman Nakamura.
Ms. Nakamura: I'm just going to add that the big take away from
the landfill discussion was that rather than 7 years, it's 10 years to close, so it
actually gives us more time to contribute and set aside.
Mr. Rezentes: Correct.
Mr. Furfaro: And Wally I'm going to close on this subject so I
think it is good practice that we don't anticipate revenues for the offset of the
landfill based on what we can enter into an agreement with the federal government
for the base. At the same time I wanted to find out whether we actually have a
contract with them and the reality is we do not. So we do not in any way, shape, or
form anticipate any credit from our landfill (inaudible) under any circumstances by
signed contract right now?
Mr. Rezentes: You are correct.
Mr. Furfaro: Okay very good and we've answered Mr. Rapozo's
question and we're actually going to the details on the general fund at this
particular time if we can. What I would like to do is take a caption break if we can
now and go from there. So B.C., we're on a 10 minute caption break.
There being no objections, the Committee recessed at 10:51 a.m.
The Committee reconvened at 11:07 a.m., and proceeded as follows:
Councilmember Rapozo was noted excused at 11:00 a.m.
Mr. Furfaro: Welcome back. Mr. Rapozo has an excused absence
for 11:00 and will not be with us for the rest of the session. I want to take advantage
of the auditor's time here because we're scheduled until 12:30. I also want to point
out that financial information is sometimes difficult to grasp and obviously
interpret so in this next particular part I'm going to share some details on the
general fund, on solid waste, on the CIP and the bonds as well as the preparatory
funds and try to consolidate them so that we have a picture of where we are with
the cash. My estimates is that this county takes about 19 -21 million a month to
operate on a cash basis and recently we did identify a reserve in a policy that is
really a policy by resolution. Mr. Bynum's department will eventually massage that
into an ordinance so that we know that those moneys we talked about in reserves
are ear marked specifically by ordinance as a reserve because as we go through the
rest of the year if it's only by resolution that in fact at the end of the year it can be
reassigned by the administration, so we need to have this eventually in a policy that
is an ordinance if we are going to take serious having a reserve policy. Gentlemen
SPECIAL COUNCIL MEETING -34- December 15, 2011
on that note Blake and Ron can I ask you to come back up and make sure that the
mic is on.
I had produced two other sheets for this discussion and one was my
interpretation of the CAFR in the draft. Did you get a copy of the CAFR in the draft
form? I'm about ready to put it up... if not Scott can I ask you to give the gentlemen
a copy please? And another form later will talk about is specifically the Housing
Department as we get to those preparatory funds they show a 28 thousand dollar
positive number but there are certain debt services and insurances that are not
allocated to the housing department that I would like to discuss. For this discussion
right now may I ask Scott, could you put my summary sheet up on the board and I
will go through it quickly and then we'll go through it by the agenda, I think
everyone has a copy of that. I will reference page numbers in the draft and or notes
for those that have the particular piece but we've covered the (inaudible) earlier and
the single audit report. I want to thank you again for the Management Advisory
piece but as I read through this and you'll find on page 34 of the CAFR, of 68 million
8 hundred thousand 103 on page 34 being the beginning fund balance for the
County of Kauai. There is on page 34 also a note that in the year for the year the
county has in fact found excess revenues in the amount of 16 million, 129 and that
also is covered on the summary of the general fund number for the County of
Kauai. We had totaled other financial uses in the year for the year of 27 million
leaving us a fund balance of 57,264,394. As we visited on the landfill issue earlier on
page 92 and the potential closure cost we booked another four hundred ninety
thousand from the general fund and we had committed encumbrances either
purchase orders or contracts on page 124 totaling 5.4 million, five million four
hundred eleven thousand 603, so the balance before any self insurance cost left us
fifty one, three sixty two.
There is a self insurance entry or an identified amount on page 92 of the
draft equaling three million seven forty three, four eight zero, leaving a fund
balance as of July 1, 2011 from page 92 leaving us 47,619,311, for operating
projections, revenues and expense variances by a budget ordinance came to 9
million, 993,424, leaving us 37 million 625,882. Now contributions from the budget
ordinance, the beginning budget ordinance and I'm using the term budget ordinance
versus the resolution right now that we identified the need to have 23 million,
387,077, identified in 2011 -2012 as our reserve. On the summary sheet of our face
cover of our budget, three hundred ninety six thousand, four thirty six was for the
open space fund. We have 4 Million, 047,453 being a debt service and I will have a
letter later questionnaire for you folks dealing with where to identify all of our
public housing debt service and insurance below the operating line because its
buried somewhere in the summary sheet. We have general funds going to other
funds totaling 12 million, 318,855 and we have a CIP reserve here identified as one
hundred and twenty six thousand leaving us a shortfall of 2 million, 649,939, or
that is an amount we would have to adjust to our reserve policy. Are you gentlemen
following me? I have page numbers for us to follow and so forth but this is my sheet,
this is not the Administration's sheet, but I would like to hear from you on some of
the comments of how I try to reconcile this. Gentlemen... let's make sure my
assumptions are correct here.
Ms. Yukimura: Chair, may I speak?
Mr. Furfaro: Yes go ahead.
Ms. Yukimura: I think there's some confusion because this is kind
of like, it's not this point in time, it sort of seems to be budgeting into the future
SPECIAL COUNCIL MEETING -35-
December 15, 2011
based on the CAFR and what we want to do. I don't know that the accountants have
anything to do with it.
Mr. Shiige: Yeah I think up to that fund available as of
July 1, 2011, 47.6 million were up there, but the items after that I think is for the
future budget 2012. I'm not sure if we can...
Mr. Furfaro: No we just passed a resolution.
Mr. Shiige: So what I'm saying is if you could agree with the
47.619 and the operating differences which we started this budget year with, we left
ourselves 37 million 625. If you can just concur that we started with 47 million
that's all I need from you.
Mr. Shiige: Yes, yes.
Mr. Furfaro: Is that a correct number? Did I make the correct
assumptions?
Mr. Shiige: Yes, yes.
Mr. Furfaro: Okay, Mr. Bynum.
Mr. Bynum: I have a big line drawn under that because
everything above that is from the CAFR.
Mr. Shiige: Yes.
Mr. Bynum: And everything below that has nothing to do with
the CAFR.
Mr. Furfaro: I want to explain myself again. I want to hear from
you if you agree on the (inaudible) piece here. We started with a 47 million dollar
surplus, can you agree to that?
Mr. Shiige: Yes.
Mr. Furfaro: Before we did anything else?
Mr. Shiige: Yes, yes.
Mr. Furfaro: And where we're at right now below the line if we
never get to an ordinance about a reserve right? That has nothing to do with you,
it's about direction because if we don't as I expressed and I see you agreeing to me,
if we don't pass an ordinance then that money can be reassigned if we never passed
an ordinance for a reserve fund.
Mr. Shiige: I believe you're right.
Mr. Furfaro: You believe I'm right?
Mr. Shiige: Yes.
Mr. Furfaro: Okay so all I want to get from you is that you've
concurred that the reserve is 47 million?
SPECIAL COUNCIL MEETING -36- December 15, 2011
Mr. Shiige: Yes.
Mr. Furfaro: Mr. Bynum you have the floor.
Mr. Bynum: I want to be careful with these terms.
Mr. Shiige: I know.
Mr. Bynum: Okay the 47 million is the CAFR figure and I don't
have any objections to the spreadsheet but I have a difficulty characterizing this 47
as reserve. The language is important here and the terms are important because in
my mind... I mean it depends on how you define reserves and my reading of GFOA
is that the 57,264, that's the unrestricted fund balance right? Fifty seven two sixty
four is the unrestricted fund balance.
Mr. Isobe: I believe the 5.4 is your outstanding encumbrances
so that is shown as committed; the 490 also has been set aside so the remaining
51...
Mr. Bynum: Is the unrestricted fund balance?
Mr. Isobe: It's presented as assigned based on the fact that the
budget ordinance passed can assign unrestricted fund balance to the future budget
shortfalls and the budget ordinance with these amounts below the 47 is what is
being shown as assigned. That's why I think if you look at table 2 in the statistical
section, you can see the progression of the fund balance.
Mr. Bynum: So last year we assigned an amount for future
budget shortfalls right? We assign them out to balance the budget?
Mr. Isobe: You're correct.
Mr. Bynum: Okay what did we assign and how much of it did
we use?
Mr. Shiige: You're talking last year meaning for...
Mr. Bynum: For this CAFR.
Mr. Shiige: For this CAFR.
Mr. Bynum: Right. For this CAFR, there was an amount
assigned from the previous year, right, to balance the budget.
Mr. Shiige: Okay.
Mr. Isobe: We're not totally sure, but there is a trend analysis
for the last 10 years on page 124, the statistical section, Table 2.
Council Chair Furfaro: And that's where that number comes from, the
$51 million.
Mr. Chang: Ron and Blake, excuse me, can you pull the mike
closer to yourselves, please. Thank you.
SPECIAL COUNCIL MEETING -37- December 15, 2011
Mr. Bynum: Okay, in 2010 we assigned... like in 2009 this line
"assigned," those are budget assignments, correct?
Mr. Isobe: You're looking at page 124?
Mr. Bynum: I'm looking at page 124. Under General Fund,
there are these categories: Committed, Assigned, Unassigned, right?
Mr. Isobe: Correct.
Mr. Bynum: Okay, so last year we assigned $19 million, but
when the CAFR was done, did we expend those funds?
Mr. Isobe: You mean this year's CAFR or last year's?
Mr. Bynum: In 2010, this $19,066,000 was assigned.
Mr. Isobe: Yeah.
Mr. Bynum: Now we have the CAFR for that year, right?
Mr. Isobe: Which would be 2010, yeah.
Mr. Bynum: Did we use those funds, that $19 million?
Mr. Isobe: I would think so, yeah. I'm not sure.
Council Chair Furfaro: Would you like our auditor to come up, Mr. Bynum?
Mr. Bynum: Well, I mean I'd have the same question about 2009
and 2008. We assigned these funds, but when we did the audit, were those funds
depleted? So you can assign funds in a budget, but it doesn't mean you actually
expend them, right?
Mr. Shiige: Correct.
Mr. Bynum: Okay, so that's my question. In 2010 we assigned
$19,066,000. How much of that did we expend?
Mr. Isobe: We're not sure exactly how much.
Mr. Bynum: I'm sorry.
Mr. Isobe: We're not sure of that. We don't have that answer
at the moment.
Mr. Bynum: Okay. You don't have the answer. I mean I would
have the same question going back all 10 years. We assign these amounts, but did
we expend them?
Mr. Isobe: If you read Note (1) on that particular page, 2001
would not have been ... the assignment is an accounting reporting type of issue here.
It wasn't shown that way back, all the way back to 2001.
Mr. Bynum: Right, right, yeah. But that assigned number is not
a CAFR number.
SPECIAL COUNCIL MEETING -38- December 15, 2011
Mr. Isobe: Yes. If it was reflected as it is now back then, I
think this is the numbers that would have come up.
Mr. Bynum: I'm surprised that that question can't be answered.
Who can answer that question?
Council Chair Furfaro: May I just help you to get to that point? If you can
turn to in the draft page 92. On that particular sheet you'll see balancing future
budget shortfalls. We have $47 million there.
Mr. Isobe: Yeah.
Council Chair Furfaro: That's where that number came from, the one in
my summary.
Mr. Isobe: Yeah, right.
Council Chair Furfaro: It says balancing future budgets.
Mr. Bynum: I believe last year the administration called that
the unassigned fund balance. So if we want to stick with the terms the
administration used last year, the unassigned fund balance is that $47,619,000.
Ms. Yukimura: And what they had last year was $15 million for
the ... it was called assigned, but I think its purpose was to balance future budget
shortfalls, right?
Mr. Bynum: I just don't want to leave the impression that our
fund balance is a negative number. I don't think that would be...
Council Chair Furfaro: May I just clarify something?
Mr. Bynum: Sure.
Council Chair Furfaro: So what I'm seeing here and if we're only dealing
with that line above, the fund balance, okay, that's the terminology I use from
page 92 is $47,619,311. That's the fund balance, okay. If you look at everything
that I put there, operating projection shortfalls, you can subtract the $101 million
from the income projection, from the $110 million expense, and you come up with a
$9,900,000 shortfall. Then you go to the next line which says self - insurance which
reflects on your page 92 again, it shows self - insurance $3,743,000 and that's my
number there. So what I'm saying is after all of that that's in the audit report, the
number here is $37,625,000. Now we only passed and the rest of them are not
reflecting any page numbers, they're reflecting what we've done for the new year.
We've done it. You're only concerned with the $37,625,000 and it's in your report.
So, Mr. Kuah'i?
Mr. Kuali`i: I'm just curious. Is there a definition for balancing
future budget shortfalls and then subcategories of what's included there?
Council Chair Furfaro: Let's ask them. That's their terminology.
Mr. Isobe: The County here has on page 54, there are the
definitions of the different fund balances. I think it's 54. It is 54 in the final. They
SPECIAL COUNCIL MEETING -39-
December 15, 2011
have nonspendable, restricted, restrictions, committed, and then ... I guess the focus
here is on assigned fund balance.
Mr. Kuali`i: I saw the definition for assigned, but is there
something specific for that line item named "balancing future budget shortfalls ?"
And anyway assigned does say "amounts that are constrained by the County's
intent to be used for specific purposes but are neither restricted nor committed."
But it is assigned and not unassigned because unassigned is a "fund balance that is
the residual classification for the General Fund... General Fund balance that has
not been assigned to other funds and that has not been restricted, committed, or
assigned to specific purposes within the General Fund." So clearly going forward,
that is the only funds that could be available for the reserve. And I think that is
what the Chair is showing...
Council Chair Furfaro: That's exactly what I'm showing.
Mr. Kuali`i: ... that July 1 and forward, we cannot say that it's
really even there if we've already said there is a reserve and that there is debt
service and that there are transfers to other funds because that $12 million figure,
didn't that show up in the CAFR somewhere? Oh no, this says future transfers.
Council Chair Furfaro: So all I'm asking from you right now is only the
things that I'm referencing with page numbers gets us to a fund of $47,619,000 and
you can concur with that.
Mr. Isobe: Yes.
Council Chair Furfaro: And the operating projected revenues and
expenses, the budget ordinance, if you go back to the starting of this budget
ordinance, we had revenues projected of $101 million. We had expenses projected of
$110 million. The difference is $9,993,000. That has to be accounted for
somewhere.
Mr. Shiige: Okay, so the total revenues you're looking at is
$101 million... included` in the calculation is the use of that surplus equity of
$50 million.
Council Chair Furfaro: Yeah, it's there too.
Mr. Shiige: Included in that calculation is the use of that
$50 million to do the contributions to the reserve, contributions to the public access,
which will take you down to this calculation if you had the -$2.6 million. So that
assignment of these amounts to the next future budget is what we're showing as
assigned.
Council Chair Furfaro: Yeah, that's why if you look at page 124, was it,
where the $51 million shows up. That's how you reconciled it.
Mr. Shiige: Correct.
Mr. Isobe: Correct.
Council Chair Furfaro: Am I correct?
Mr. Isobe: Yeah.
SPECIAL COUNCIL MEETING -40- December 15, 2011
Council Chair Furfaro: Mr. Bynum, then Councilwoman Yukimura.
Mr. Bynum: You've directed us to page 54, where these terms
are defined, right?
Mr. Isobe: Yes.
Mr. Bynum: The issue I have is with the assigned fund balance
because that expresses an intent, not something that actually happened but an
intent, right? And this County, it's in our general fund revenue versus
expenditures, we always budget much higher in the general fund expenditures
than we actually spend, right? So we state this intent, but when we do the CAFR,
we didn't follow that intent, right? Doesn't our CAFR going back 10 years show
that?
Mr. Shiige: You're correct.
Mr. Bynum: You're correct. I want that on the record. And so
since I've been involved in the county, I always thought we should make our
decisions based on what we actually do, which is the CAFR. That's what we
actually did. These other things are an intent, which we may or may not follow and
we'll know when we get next year's CAFR if we followed the intent. So those
assigned numbers are subjective. They're a decision that's made by a combination
of the administration and this body about a statement of intent, correct?
Mr. Shiige: Correct.
Mr. Isobe: Yeah.
Mr. Bynum: So, you know, I've seen our employees get confused
by saying here's our fund balance and we intend to use this much to balance the
budget next year. We intend to spend this and they think that we've ... you know, all
the money's gone. But then the CAFR comes out and it's like oh no, you didn't
follow that intent. What you actually did was different than what you said you
were going to do, right? And that's the only point I'm trying to make that up
to...like the self - insurance fund even, we haven't spent those funds over the last few
years, I don't think. So it's really important to me to distinguish between what we
actually did and what our intentions are.
Mr. Rezentes Jr.: I apologize, Wally Rezentes, Jr., again, Director of
Finance. I stepped out. I had something to attend to real quick. I just wanted to
clarify and I apologize, I may have missed something. But the difference between
the $51 million and the $47 million that's on page page 92 is the $2.649 million that
the Chair has there. That's the difference.
Council Chair Furfaro: That's the variance.
Mr. Rezentes Jr.: And then to clarify on the intent... the intent with
that balancing future budget shortfalls, what that number is literally is what we
needed to balance this current year's budget. So it was an intent as of June 30. It
was an ordinance as of July 1 because Council approved...
Mr. Bynum: We won't know what our actual behavior is...
Mr. Rezentes: - - You don't know, of course, you don't...
SPECIAL COUNCIL MEETING -41-
Mr. Bynum: ...until next year's CAFR.
December 15, 2011
Mr. Rezentes: Sure, but what I'm saying is it's a commitment and
it's a requirement to have that funds available because we have to have a balanced
budget. If the Council elects in its wisdom to say I'm going to pull $10 million out of
that, well now you have to rebalance and find reductions in expenditures or
increases in other revenue sources to make up that gap. The bottom line is that it's
approved in a budget ordinance come July 1 and that's why it's labeled balancing
future budget shortfalls because their cutoff... their audit is as of June 30, you know.
And because we have already approved the ensuing fiscal year's budget and they
have knowledge of that, the GASB requires us to identify that in that particular
line. And tell me if I'm wrong, I think I'm right.
Council Chair Furfaro: No, that's why I gave him that sheet because it is
their responsibility too on what we did July 1. Mr. Bynum, you still have the floor.
Mr. Bynum: The general public, from this analysis, has gotten
the impression that we're broke. That's my concern. You know the $23 million for
the reserve and the moneys that we assigned to balance the next year, right, we do
for budget purposes, right? It doesn't mean we're going to expend those funds. It
doesn't mean we're going to end next year's CAFR with no fund balance, right? And
people have misunderstood that. They've said oh, you set this aside, you did this,
man, we're broke. So that's why it's important to me to distinguish and you've said
that. The $47,619,000 and above is in the CAFR (inaudible) analysis you can do
based on our actual behavior last fiscal year. The rest of this is projecting forward,
correct?
( ?): Correct.
Mr. Bynum: And we may or may not do these things.
Historically, we haven't. Historically we've assigned a lot more to the budget to
balance than we actually expended. That's the only point I'm trying to make.
Council Chair Furfaro: I think Mr. Bynum's point is well taken and I want
to clarify. My presentation didn't say we're broke. My presentation said we have
$23 million we set aside in a resolution for a reserve. I've made it very clear when
we did that I was going to leave it up to us to determine if we made it an ordinance
because if we made it an ordinance, then it is so restricted. As a policy statement, it
is still a reserve in the sense that it is not earmarked. Go right ahead, Nadine.
Ms. Yukimura: So...
Council Chair Furfaro: Oh, I'm sorry, my apology. No, I made a... she had
the floor next and then you will have it.
Ms. Yukimura: I don't know if you can answer the question or
maybe the Chair is better able to answer it. So, it looks like... or maybe
Mr. Rezentes, I don't know. Everything below the $47,619,000, are these
encumbrances that we're obligated to pay or are these projections?
Mr. Shiige: Those are not obligations. Those are those budget
items that ... from this budget ordinance for Fiscal Year 2012.
Ms. Yukimura: But that's... they came after we did the budget or
before we did the budget for this year?
SPECIAL COUNCIL MEETING -42- December 15, 2011
Council Chair Furfaro: It came on July 1.
Mr. Shiige: July 1, yeah.
Ms. Yukimura: So they're already covered in our budget, right?
Mr. Shiige: Those items you needed were identified in the
2011 -2012 budget and they are assigned for that purpose. So...
Ms. Yukimura: But we have revenues that are not reflected here
that covered our budget.
Mr. Bynum: And we'll know that next CAFR.
Ms. Yukimura: I mean the revenues that we've projected when we
did our budget. So if these below the line are part of our budget, what are they
doing to... why are they taking from the surplus that came out at the end of the
year?
Mr. Isobe: It's a reporting thing.
Mr. Shiige: Yes, it's a reporting thing.
Mr. Isobe: It's an accounting reporting thing that if you have a
budget shortfall for the next, the 2012 year, it's like it is being ... you have to balance
the budget, so you have to take that shortfall and put it as assigned.
Ms. Yukimura: Then what are the assigned ones then?
Mr. Shiige: The $9.993429 million to cover the revenue minus
expenses, the $23.3 million to fund the budget reserve provision, and those last
amounts, those contributions to those other funds, the $396,000, the $4 million, the
$12.3 million and the $126,000.
Ms. Yukimura: Those are all assigned?
Mr. Shiige: Assigned from your moneys that ended the year,
you have a purpose for them going forward. That purpose is to fund those items.
And so that's why it's being called assigned. There's a purpose for them.
Ms. Yukimura: And so our debt service is not covered in our
original budget for the year?
Mr. Shiige: It's assigned for the 2012 amount to fund the
contribution to the debt service fund for 2011 -2012.
Ms. Yukimura: But I thought it was ... I mean we passed a balanced
budget, did we not at the end that started July 1, 2011? We passed a balanced
budget.
Mr. Shiige: Yes, which included these...
Ms. Yukimura: These figures, okay. So we should have all of those
moneys already unless we projected this surplus into our budget that we passed.
SPECIAL COUNCIL MEETING -43-
December 15, 2011
Mr. Shiige: Yes, you used the shortfall... you used that surplus
to allocate all of this and in essence it's coming out to that deficit of $2.6 million.
Ms. Yukimura: So we projected ... so I'd like to see our budget then.
Projected what? $47 million or $68 million?
Mr. Shiige: You projected, I think it was $50 million, of which
for reporting purposes GASB does not allow you to report a deficit in fund balance
in the unrestricted portion; therefore, you cannot assign amounts that you don't
have. So, that offset from your assigned amount is offsetting that $50 million in
this budget ordinance.
Ms. Yukimura: All right, thank you.
Council Chair Furfaro: Councilwoman Nakamura, I'll recognize you.
Ms. Nakamura: Just one question. So as of June 30, 2011, how
much does the County have to appropriate for the upcoming budget?
Mr. Shiige: The 47.
Ms. Nakamura: We have the $47,000...$47 million.
Ms. Yukimura: What was your question?
Ms. Nakamura: Thank you.
Council Chair Furfaro: So let me clarify that for the members. So we have
the $47 million, of which we have entered into dialogue that we're going to take
$23 million for a reserve as per the budget ordinance as a proviso. To actually
secure it is this next discussion that we have to have if we want to convert it to a
budget ordinance or an ordinance. But the $47 million that I have on my sheet up
until that line, to me, is correct. Then there are the other things that we have done
in preparation of the in- the -year for - the -year that we have to anticipate. Go ahead,
Wally.
Mr. Rezentes Jr.: Again, Wally Rezentes, Jr. The way I, from the
back, understood your question is in light of the June 30 fiscal year -end audit,
which includes the assignment of funds per the budget ordinance of the $50 million,
how much, now, do we have available for appropriation? That's the question.
Ms. Nakamura: What's leftover? What do we have available to
appropriate given what the Council has already committed to?
Mr. Rezentes Jr.: As of June 30 as well as what was committed to for
this current fiscal year, right? That is your question.
Ms. Nakamura: I think both, yes.
Mr. Rezentes Jr.: Right, so how much more in the general fund does
the Council have available for appropriation as of July 1 in light of the CAFR and...
Mr. Shiige: The budget ordinance.
Mr. Rezentes Jr.: Right, the budget...
SPECIAL COUNCIL MEETING -44-
December 15, 2011
Mr. Shiige: So after this budget ordinance there is zero. It's
assigned. Say everything happens, everything you budgeted for happens. In a
perfect world it happens, you end up with zero or a deficit of $2.6 million.
Mr. Bynum: Which page is that 10 -year fund balance?
Council Chair Furfaro: I think it's 124 or 134.
Mr. Shiige: 124.
Mr. Bynum: Right.
Council Chair Furfaro: And gentlemen, again, I just want to state, these
are my assumptions that I put there, okay? Mr. Kuali`i?
Mr. Kuali`i: The only thing I want to say and maybe you can
just agree or disagree is that some of the points that my colleagues here were
making about these moneys being available, it's because... and we won't know until
it is passed, but we have to act now and maybe halfway through the year in
January we'll look at, before we decide the next budget, you know where we're at,
what was actually being spent. But the projections, I mean we ended on June 30,
2011 and now we're going through July 1 and forward. We can only take what was
the balance, you know the fund balance there, and then act on the projections, you
know what's forecasted. And if the forecast is that revenue is at $101 million and
expense is $110 million, we're already telling ourselves we're going to be $9 million
short. So we have to account or make $9 million of that $47 million available,
otherwise, we're going to be in trouble. I mean we just have to realize that this
money is spoken for, it's assigned, and I think our administration /finance is doing
their job and the Chair by making note of that. I mean that's where we are. Yes,
we're going to figure out what the actual is later, but that's what happened last year
too when our revenue forecast was what it was and then it was better. I mean it is
great if we end up in a better situation, but for now we can only go on what we have
forecasted and make those assignments based on that. And whatever happens, we
hope we're better off. But if we're worse off, we could need even more money. We
could be even in more ... with more of a shortfall, you know. I understand this the
way the Chair has presented it and thank you. I see you nodding a lot, so good.
Council Chair Furfaro: Mr. Bynum
Mr. Bynum: Just go back to that page 124 and if you look at our
10 -year history, we assigned funds every year, but we had a positive net change in
fund balance. So we didn't expend those assigned funds and in fact, we had
additional funds and our fund balance grew. This year our fund balance went
down, which I think is very appropriate because it was too high, in my opinion. And
that is because we had decreased tax revenue; we've spent some additional funds,
right? This year we spent more than we brought in for the first time in eight years,
but this is the first time in eight years. In all the other years, we assigned funds,
but we didn't expend them. In fact, we had funds in addition to that and our fund
balance grew. It's pretty dramatic to go from $19 million assigned to $51 million
assigned. What constitutes that $51 million, I believe, is the reserve fund of
$23 million whatever and moneys we've assigned to balance next year's budget,
right?
( ?): That's correct.
SPECIAL COUNCIL MEETING -45-
Mr. Bynum: I just don't
this room to have the assumption that tha t
used or expended. In fact the reserve fund,
that's there for emergencies.
Correct.
December 15, 2011
want the general public or anybody in
means that all of those funds will be
we hope we won't touch, right, because
Mr. Bynum: And so we'll talk about this in the next budget, but
I question the wisdom of assigning all of that. And if we're going to assign that,
then I think we need to budget much tighter because we have large variances every
year. I've been okay with that as long as we didn't misunderstand that what we
budget isn't what we, in most years, actually expend. I'm seeing a lot of nods again,
so I just ... I know that this analysis for our employees and for the general public has
caused some confusion and so I'm glad we're having this dialogue to make sure that
confusion doesn't continue.
Council Chair Furfaro: Thank you, Mr. Bynum, and Mr. Kuali`i, if I can
have just a moment. So again, I want to make sure, we didn't introduce an
ordinance for the reserve. I only introduced a proviso, resolution that we put in the
budget and so forth. I just want it to be recognized and I have left it at the Council
table that if we go to the next step and it becomes an ordinance, then there is no
way to tap that $23 million because now it's an ordinance without rejecting that
ordinance. So I just want to make sure we're copasetic here. We have a lot of
issues. We have a $23 million earmark for a proviso for a reserve, but we have
questions with the state and the issues we talked about in the Employees'
Retirement System. We have another $4.5 million that we went up from one year
to the next. The state just floated a $1.3 billion CIP bond. We have no idea if they
are going to look at tapping TAT to pay for it because it's general obligation funds.
We don't know those final details, we just don't know. So it is as Mr. Bynum said,
more discussion on our part. But I want to make sure we understand, I took these
numbers out of your draft to get to where we're at. Mr. Kuali`i, you have the floor.
Mr. Kuali`i: Yeah, I just wanted to agree with Councilmember
Bynum in that in our next budget session we should do what we have to to budget
tighter. But his other point with regards to wanting the public to understand that
not all of the funds will be used, we don't know. If the projections are good or it
turns out better than our projections, then there'll be some funds available. But if
the projections turn out worse than we projected, then we will have to use up all the
funds and we'll still be short. So we don't know just based on the projections, it
could go one way or the other.
Council Chair Furfaro: Vice Chair Yukimura.
Ms. Yukimura: Just adding to that, if we don't budget fairly tightly
and that requires good management in all departments, we may be foregoing
opportunities for our taxpayers with great returns on investment, whether it's in
services or future food self - sufficiency or energy self - sufficiency or preparing for the
future. If we allocate too much money for uses that aren't used during the year,
then the money is not being used and we are foregoing opportunities that maybe we
need to be addressing to prepare for the future. So this more careful budgeting is
quite important.
Council Chair Furfaro: Nakamura and then Bynum (inaudible).
Ms. Nakamura: Chair, I was just wondering if we could just add to
your list of follow -ups that we have a breakdown of the $51 million assigned line
SPECIAL COUNCIL MEETING -46-
December 15, 2011
item. When I added your numbers up, I didn't quite get there. So I just wanted
to...
Council Chair Furfaro: Okay, I want to make sure. The numbers that are
on the screen, I took from the draft.
Ms. Nakamura: Yeah, okay, all right.
Council Chair Furfaro: The numbers you're adding up, there's a variance, a
small variance; it's from the final.
Ms. Nakamura: That's fine, thank you. So if we could just request
that so we can understand what our future obligations are.
Council Chair Furfaro: So noted. You got that, Jade?
Ms. Nakamura: Thank you.
Council Chair Furfaro: Okay. Mr. Bynum.
Mr. Bynum: If somebody can help me find it, I know it's in here.
If somebody can help me find it, in previous CAFRs there is a page that has
department by department budget and variance. Where is that? For the general
fund.
Council Chair Furfaro: It starts with the police department being $124,000
under budget, the fire department by $24, but I forget what page number that is.
Mr. Bynum:
If we just can find what page it's on.
Mr. Shiige:
Thirty -two.
Mr. Bynum:
I'm sorry?
Mr. Shiige:
Thirty -two.
Council Chair Furfaro:
Thirty -two?
Mr. Bynum: I was close.
( ?): Thirty -one.
Mr. Shiige: Oh, 31.
Council Chair Furfaro: Thirty -one.
Ms. Nakamura: Thirty -two.
Council Chair Furfaro: Depending on what book you have, the draft it's
31, the book is 32.
Mr. Bynum: There it is.
Council Chair Furfaro: Was I right about the police department?
Ms. Nakamura: No, it's one point...
SPECIAL COUNCIL MEETING -47- December 15, 2011
Mr. Bynum: Well, the top of the list actually is Council Services
and County Clerk. We had a $773,000 variance. That means we had $773,000
budgeted that we did not spend, correct?
Council Chair Furfaro: I want to be cautious there. Our FF &E for this
building didn't hit that budget, the furniture, fixture and equipment, okay.
Mr. Bynum: You know, Office of the County Attorney
$1.4 million, some of the big ones. Self- insurance, we spent of that $36 million that
we set aside ... I mean whatever we set aside, we only spent $259,000. Total General
Government, so our variance was $9.2 million. You know we assigned that, but we
didn't spend it. We budgeted it, but we didn't spend it. And so when you do this
kind of analysis, in next year's CAFR, there's going to be things that go back in, like
this variance. Like if our revenues, like they were this year, are greater than our
projections, on real property for instance, because we ... like wisely budget
fairly ... very conservatively actually. Would you agree with that statement,
auditors, that the county budgets very conservatively? And if we budget tighter,
we'd show less variance here, correct?
( ?): Correct.
Mr. Bynum: It took me the first year I worked for the county
10 years ago to figure this out that okay, you look at the budget, you budget for
purposes of running the government. I think having a big variance gives
department heads more flexibility, yes, in terms of how ... they don't have to come
back to the Council as often and say hey, I'm really tight on this budget, I need your
permission to make changes. And so I'm not objecting to that. My only concern is
that we don't make assumptions going forward without factoring in those historic
practices of having variances come back in. And that's why to me it's like the CAFR
is so important. It tells us what we actually did, which is usually very different
than what we project we're going to do.
Mr. Rezentes Jr.: And Council, I just wanted to, since we are on...
Council Chair Furfaro: Wally, introduce yourself again.
Mr. Rezentes Jr.: I'm sorry, Wally Rezentes, Jr., again, Director of
Finance. Since we're on that section that began actually on 31, 32, 33, and 34, if
you look on page 34, if you look at the bottom line, that is the more relevant telling
story there. The fact that $11.5 million was expended more than we earned and the
commensurate decrease in the fund balance from $68.8 million to $57.26 million.
So yeah, I hear what Councilmember Bynum is saying that there has been a long
track record of it being the other way. But the more telling story, the more relevant
story today is the fact that $11.5 million is the most recent CAFR number and
obviously if you're looking at it from a go- forward perspective, as you know we're
not in the mode. The economy is not... we're not in a position now where we're
seeing positive revenue over budget types of situations as we have in the past. It is
quite the opposite way. So we're in a very different time than we were two, three,
four, five, six years ago.
Council Chair Furfaro: Okay, Wally, just for your information, I accounted
for that moneys that was identified. Gentlemen, if you look at my sheet, you'll see
it's the reverse of general accounting practices. It's more like a gross operating
profit, then less insurance, other fixed costs, etc., and then a net. But that
$16 million variance comes up in that sheet and you can find it on page 34 where
SPECIAL COUNCIL MEETING -48-
December 15, 2011
there is the net. You know some people give incentives by people producing a net
profit. In our particular case, this year there would be no bonuses.
Mr. Bynum: Yeah and there wasn't.
Council Chair Furfaro: Oh, let me go to Nadine, and then you.
Ms. Nakamura: Yeah and you know the example that
Councilmember Bynum brought up about the county attorney's office having an
excess /surplus, but that is attributed to not spending $1.2 million in litigation fees,
which they should be commended for that work and for saving the county funds by
being able to do that work in- house. So we need to kind of balance that out, I think,
going forward. But I also wanted to ask the auditors since they're here, that has
been a practice in the county of over budgeting and I wanted to find out are there
best practices that we should be aware of in terms of what percentage over the
amount is considered reasonable?
Mr. Isobe: That's a tough... good question, but it's a very tough
question, though. I mean, as you said, the county has budgeted very conservatively
over the years. I guess it just depends on, I think, the economic times and your
needs and the services that you need to (inaudible).
Council Chair Furfaro: Most documents you read on that you'll find
conservatively...
Mr. Isobe: Yes.
Council Chair Furfaro: People go as much as 15 %. Being very tight, some
municipalities go as low as 5% because the trick is that you're not selling assets like
real estate, houses and so forth.
Mr. Isobe: That's right.
Council Chair Furfaro: You budget your tax base in the beginning and it
has to last you. So it's typically, I believe, between 5% and 15 %.
Mr. Isobe: That's right.
Ms. Nakamura: Okay, thank you.
Council Chair Furfaro: Now, Members, I have committed myself at
12:30 p.m. and we are posted to 12:30 p.m., but before we go any further, I'd like to
talk a little bit about housing. I'm struggling with the fact that when we look at
this particular classification here of our proprietary incomes, first of all the golf
course lost $750,000 roughly and I'm talking out of memory from reading. It was a
25% improvement over the previous year. Solid waste, we know we transferred a
lot of money from the general fund. But typically we're seeing a 28 %, for the lack of
any other term, we're seeing a profit in housing. But yet, if I laid out and I gave a
sample here to the other members that I sent over in a memorandum to the
Housing Department, it doesn't look like that after that net line that they account
for anything as it realizes insurance and even the debt service because I've sent this
over to get a better idea from them. We should be very concerned and putting
another assumption on the radar screen. Everything we hear about the federal
government, they may cut housing vouchers and credits to us by as much as 15 %,
and yet when you look specifically into the proprietary accounts, there is no wiggle
SPECIAL COUNCIL MEETING -49- December 15, 2011
room in housing for the future. Do you know with other counties how we might be
compared to as...
Mr. Shiige:
Not right offhand.
Council Chair Furfaro: Okay and in the documents that we have here, I
don't see any debt service paying for the asset being accounted for. Is it accounted
for somewhere else?
Mr. Shiige: The housing bond is accounted for within public
housing. That's why there is interest cost. I guess if you look below operating
income loss of the $28,000, there's $25,000 of debt service interest.
Council Chair Furfaro: But that's only interest.
Mr. Shiige: Well, the principal is in an expense in the operating
statement, but it is on the balance sheet as the balance remaining on public housing
of $205,000.
Council Chair Furfaro: Okay.
Mr. Shiige: So it is also paying its principal and debt.
Council Chair Furfaro: But you understand with the federal potential cuts
coming up...
Mr. Shiige: I understand.
Mr. Isobe: Yes.
Council Chair Furfaro: We only have ... I think it's $28,000 wiggle room.
Mr. Shiige: I understand.
Mr. Isobe: Yes.
Council Chair Furfaro: I mean what we're hearing is some of these
programs might be cut as much as 15 %. So I think for us going forward in the
budget, that's certainly a red flag item. That's all I wanted to point out and would
you concur with that?
Mr. Isobe:
Yes.
Council Chair Furfaro: Gentlemen, do you have any kind of summary
comments for us at this point because we only scheduled to 12:30 p.m.? And we're
going to put together what looks like about 15 pretty serious questions that will be
divided up to the different committees for follow -up. But do you have any...
Mr. Isobe: I guess we just want to, in closing, on our part that
we appreciate all of the help held by the Finance Department and also the County
Auditor's Office. The initial year of this audit is usually the most difficult year for
new auditors coming in, to document, understanding the accounting procedures and
all of the systems. But without all of their help, maybe we couldn't have made the
deadline that we did right now. So I guess I just want to thank them for all of their
assistance provided to my auditors.
SPECIAL COUNCIL MEETING -50- December 15, 2011
Council Chair Furfaro: Well thank you for those kind comments and I'll go
around the table here starting with Mr. Bynum.
Mr. Bynum: Thank you very much for being here today and
doing the audit. Are you available to councilmembers to talk and ask questions
should we have questions going forward?
Mr. Isobe: Sure, yes.
Mr. Bynum: And then are you, your firm, involved with other
governmental entities in the State of Hawaii?
Mr. Isobe: Yes. We actually audited the City & County of
Honolulu for five years. We had a five -year contract with them that expired, so now
we're auditing the County of Kauai. We also audit the Board of Water Supply in
Honolulu currently and some of the large state departments.
Mr. Bynum: So I would assume and I want to know if you agree
that when you looked at the county's overall fiscal situation that we're in pretty
good shape.
Mr. Isobe: Yes.
Mr. Bynum: Would you agree with that, that we're in better
shape, say than City & County of Honolulu? Would you agree with that?
Mr. Isobe: I don't know what their CAFR looks like.
Mr. Bynum: I'm sorry. Okay, I'll stick to the County of Kauai.
Were you surprised that we were fully funding our OPEB benefits?
Mr. Isobe: No, we kind of read it. We were kind of prepared
that you were doing this from the previous audit reports.
Mr. Bynum: Would you agree with my earlier statements that
that's going to save some future council a lot of grief in the future?
Mr. Isobe: Yes.
Mr. Bynum: Because I don't know if you know the national
figure, but I think it's less than 20 %. Do you know that? I haven't heard it
recently, municipalities that do that. So do you think our fund balance is more than
sufficient? Were you surprised that our fund balance was as large as it is?
Mr. Isobe: Actually, we were surprised looking back on it
historically when we first got into this audit that we were showing an excess of
revenues over the expenses and a positive fund balance.
Mr. Bynum: Especially in the last couple of years.
Mr. Isobe: Yes.
Mr. Bynum: This year finally it came down some, which I think
is appropriate. I mean if it were another increase, I would be really upset because
- we've had a reduction in real prop.. - even the last couple years we had big increases
SPECIAL COUNCIL MEETING -51-
December 15, 2011
in the fund balance. That's pretty unusual around the country. Would you agree
with that?
Mr. Isobe: That's correct.
Mr. Bynum: I mean most people have dipped into their reserves
during this period.
Mr. Isobe: That's right.
Mr. Bynum: And we've actually increased ours until this CAFR,
correct? So ... because I'm still, just speaking for myself, in a position saying that we
have ... I won't go there. Thank you for doing this and you'll probably have calls
from me and ask... and you're based in Honolulu, right?
Mr. Isobe: Yes.
Mr. Bynum: Cool.
Council Chair Furfaro: Thank you. Before I recognize another
councilmember, I have to leave. Ron, I want to say to you how very pleased I am
with our first year. Thank you very much for those comments towards our staff.
I'm going to probably be in touch with you by phone and just as Mr. Bynum said, it
is a pleasure for you to extend that courtesy to us. But I'm going to have to turn
over the meeting to Vice Chair Yukimura. This is the Committee of the Whole. The
Vice Chair of the Committee of the Whole is absent, so I'll turn it over to the Vice
Chairman of the Council and I just have to remind them we need a motion and a
second to approve the receipt of the document, which we haven't met. But a very
happy holidays to you, thank you very much for all your fine effort and I wish you
and your firm the very best. And Members, I have to excuse myself and I'll turn the
meeting over to you. I'm committed at 12:30 p.m. to another location. Thank you.
Ms. Yukimura: Thank you, Chair. We'll continue with comments
from councilmembers and hopefully end by 12:30 p.m. So Councilmember Kuali`i,
and then Councilmember Nakamura.
Mr. Kuali`i: I just wanted to say thank you. I'm learning a lot
and I'm looking forward to following up with this more and I may have some further
questions for you, so I'll be in touch with you. But thank you so much.
Ms. Yukimura: Councilmember Nakamura, oh, Councilmember
Chang.
Mr. Chang: Ron and Blake, thank you very much. I was trying
to figure out one good intelligent question, but I couldn't. So I think the colleagues
spoke for us all, but thank you very much, welcome to Kauai and we really, really
appreciate everything you can do for our county because it's a very special place and
we appreciate your mana`o and want to ask you to continue to help us out and
thank you for making yourselves available. We really appreciate it and happy
holidays. Thank you.
Ms. Yukimura: Thank you, Councilmember Chang.
Councilmember Nakamura.
Ms. Nakamura: I just wanted to note that the Government Finance
Officers Association of the United States and Canada awarded a Certificate of
SPECIAL COUNCIL MEETING -52-
December 15, 2011
Achievement for excellence in financial reporting to the county for its CAFR for
fiscal year ended June 30, 2010. That's the previous CAFR.
Mr. Isobe:
Yes.
Ms. Nakamura: And this one is submitted for that too, so we have
not yet heard.
Mr. Isobe: Yes, correct.
Ms. Nakamura: So anyway, it's just good to note and the public
should know that the county is meeting a high standard in excellence in reporting.
I have a lot more detailed questions but will follow up with you and staff and the
auditor's office. Thank you.
Ms. Yukimura: Thank you. The County has actually been
receiving this Certificate of Excellence since 1994 and it is due to the staff that has
done... and our auditors. So I just want to say thank you to both of you. This has
been a very good session on our CAFR and I particularly appreciate that
management advisory report. I think you heard from other councilmembers that
the raising of red flags, even though they might just be small flags, really will help
us better our system and prevent... it's very proactive because it'll prevent us from
getting to material problems or deficiencies. So thank you for having this portion
and I hope you'll continue to alert us. And I also want to acknowledge the Auditor's
Office for their help. They have come up to speed very quickly and their oversight
as well as their education of us councilmembers has been very useful before we
actually got the report. So that really helped educate us. And I also, although he's
not here, I want to acknowledge the finance director and his accounting division
because putting all of this together is a major task and then working with our
auditors. So they've really been through a very big period and we want to thank
them as well for this fine work. And this is not the end of this report, we're only
beginning. So as others have said, we'll be in contact with you. The County Auditor
wants to say a few words and then we need a motion to receive.
ERNESTO PASION, County Auditor: County Auditor, Ernesto Pasion. I just
wanted to remind the councilmembers that the engagement, the contract that we
have is limited to doing the audits and then if there is any additional time spent
with the councilmembers, that will be an additional expense on our part. So I
would just like to have a word of caution.
Ms. Yukimura: Okay, so if we have questions, we first ask the
Auditor's Office.
Mr. Pasion: Yes, I would say that would be...
Ms. Yukimura: And then if we cannot get answers, we talk to
you ... I mean we incur additional expenses talking to our CPAs.
Mr. Pasion: That's correct.
Ms. Yukimura: All right.
Mr. Pasion: Thank you.
Ms. Yukimura: Thank you for -that reminder and thank you, Ernie,
for your work on this.
SPECIAL COUNCIL MEETING -53-
December 15, 2011
There being no objections, the meeting was called back to order, and proceeded as
follows:
Ms. Nakamura moved to receive C 2011 -338 for the record, seconded by
Mr. Kuali`i, and unanimously carried.
Ms. Yukimura: There being no further business...
Mr. Chang: Madame Vice Chair? Can we have a personal
privilege because this is our last meeting for the year just to say happy holidays to
everybody out there and to our family and friends and our staff and fellow
councilmembers?
Ms. Yukimura: That's a wonderful idea.
Mr. Chang: I think it's on behalf of the Chair and
Councilmember Rapozo to just let the community know that they thank you for a
great year and we're looking forward to a great, great, great 2012.
Ms. Yukimura: So if everyone will turn on their mikes and at the
count of three, we're going to all say Merry Christmas and Happy New Year. One,
two, three.
Councilmembers:
Ms. Yukimura
Merry Christmas and a Happy New Year to all.
Thank you very much. The meeting is adjourned.
SPECIAL COUNCIL MEETING -54- December 15, 2011
ADJOURNMENT.
There being no further business, the meeting was adjourned at 12:19 p.m.
/lc
Respectfully submitted,
RICKY WATANABE
Interim County Clerk