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MONSON BOARD OF SELECTMEN
TUESDAY, FEBRUARY 11, 2003
The regular meeting of the Monson Board of Selectmen convened at 7:00 p.m. in the conference room at 110 Main Street. In attendance were Edward S. Harrison and Richard E. Guertin. James R. Manning was absent due to military service. Also present were the Town Administrator and the media. Town Counsel did not attend this meeting.
Mr. Guertin made one change to the minutes of the Open Session of the January 28, 2003 meeting. On the fifth page next to the last paragraph it should have read Mr. Harrison stated he would contact the Parks and Recreation Commissioners, not Mr. Guertin. Mr. Guertin made a motion to approve the meeting minutes as amended. Mr. Harrison seconded and it was so VOTED.
A hearing commenced at 7:05 p.m. for pole petition #7728 – Old Reed Road – for the installation of two new poles. Mr. Guertin read the petition into the record. There was no public comment or input. The Water/Sewer Department had expressed no objection to the pole locations. Ms. Neggers stated the Highway Department hadn’t responded as yet with either their approval or objection. Mr. Guertin made a motion to approve the petition as presented contingent upon the approval of the Highway Department. Mr. Harrison seconded and it was so VOTED.
Deborah Mahar, the Town Accountant and Richard Sullivan of Powers and Sullivan approached the Board of Selectmen regarding the FY ’02 audit exit interview. Mr. Sullivan stated he has been doing this now for six years. Mr. Sullivan walked the Selectmen through the highlights of the general-purpose financial statements. He stated, generally speaking, Fiscal Year 2002 turned out to be a better year than expected. Mr. Sullivan explained this is due to the fact that when the budget was originally put together, the town anticipated using the fund balance to balance the budget, essentially free cash. This did occur, but not to the level anticipated. Reserves were intended to be used at about $1.2 million with a portion of free cash being about $600,000.00 of that. The town ended up going into the reserves for just about
$109,000.00. The contributors to that were revenues were essentially met, the expectations and the fact that the town did not spend as much as it thought it was going to during the fiscal year. In the past, the presentations have only shown the budget, expenditures against that budget and a variance (those expenditures related to only the 2002 activity). This particular presentation includes carry forwards and prior year encumbrances. It is a modified GASB 34 presentation. What it is essentially saying is that GASB 34 wants to say this is what the town was able to spend in the currant year which includes the 2002 budget that was voted at the Annual Town Meeting with the supplements, plus the carry over of prior year encumbrances. That original budget is the Annual Town Meeting plus prior year encumbrances. The final budget is what has been adjusted after any of the supplemental. The expenditures in there are only what have been expended. It does not include the current year
encumbrances. When you look at the positive variance where there is a positive negative of $1.89 million, essentially you have to reduce that by $311,000.00 of the currant years 2002 carry forwards which appear on page 5 in column one of the presentation. This is a change in presentation from prior years where essentially whatever that number was, was truly what would be considered a surplus for the year. A surplus, Mr. Sullivan explained, is a little exaggerated because it does include encumbrances from the prior year. That is why Mr. Sullivan said things went better than expected. Some of the percentages that are tracked when they look at receivables from a collection standpoint averaged around 97% - 98% for the last 5 years. This is good. Mr. Sullivan stated what is notable in that is, obviously the real estate and personal property commitment hasn’t increased over those years. The percentage of collections in terms of a ratio is actually better. This means the town is
increasing what it is supposed to be collecting and more money is coming in. Mr. Sullivan said in the operations for this year, the fund balance did decrease and we have to recognize that. On the GAP basis there was a small deficiency. It went down from 12.3% in Fiscal Year 2001 to 11.06% in Fiscal Year 2002. Debt service was the primary contributor to the increase in appropriations. The town went up from approximately $2 million last year to $2.6 to $2.7 million this year with most of it being in interest. This is planned and it is expected. Mr. Guertin asked if this was the school and Mr. Sullivan replied yes. Ms. Mahar asked if this is both temporary and permanent and Mr. Sullivan said it is. There were $30 million in bands outstanding at the end of the year and the principal payments, really there were none because the interest shot up by about a $600,000.00 increase. This is the primary difference between the 2001 and the 2002 budgets in terms of over all increase. In debt
service, which includes interest as a percentage of the budget, increased to about 13%. This is all planned and the town knew this was happening. The town has it’s debt service fund out there which was a little over $1 million at the end of 2002. This has been supporting some of this and the SBAB will eventually kick in at about 79%, which is good. Again, this is all planned. From a future standpoint, even though everybody is receiving cuts in local aid, the town didn’t do too bad overall. Lottery is the primary state funding that is being focused on, and Monson lost about $118,000.00 there. What Mr. Sullivan sees in Monson’s balance sheet, and overall in the financial situation, is the town has the ability to absorb that. No one knows what the future cuts are going to entail. The good thing they are hearing is that it is not going to come out of the school’s portion of it and the lottery only has so much there. Additional assistance, if probable is where
the state is going to do a lot of its work, has not been a real revenue source for the town. So, Mr. Sullivan doesn’t know how it is going to work out, but he feels it will probably be better for our community than other communities in the state. The good thing particularly, with the debt service going long term, is interest rates are still maintaining very low percentages. The recent issues they are seeing are in the high 3’s, low 4’s percent, which is a good thing. With the SBAB kicking in, there is a stabilization fund, which has the approximate low rate of $1,000.00 at the end of 2002. These are positive things. Mr. Sullivan stated the town is not in a bad position to at least weather the storm.
Mr. Harrison asked, knowing what kind of impact GASB 34 has on the auditing budget, what happens if the town decides not to comply with GASB 34? Mr. Sullivan said his firm is actually having a discussion with the AICPA related to that. They have a community right now that doesn’t have the fixed assets. They could probably bring the financial statements to the level of that, except for the fixed asset piece. Mr. Sullivan said the AICPA could issue a two-fold opinion. First the way it works, is the financial statements are going to be in two components. One is called the Basic Financial Statements, which are fund-based statements. Mr. Sullivan said the AICPA are saying they can give a clean opinion, if you will, on the fund-based statements, but a qualified opinion on the entity wide. GASB 34 is saying they have
to do a statement of net assets which includes fixed assets and a statement of activities which includes, among other things, depreciation. There are then the fund-based statements, which show a presentation similar to this presentation, but different. These are for the balance sheet combining plus the revenue and expenditures statements. It would scale down a little bit the reported requirements, but the AICPA is not backing off on the fact that you have to at least have all of the footnote disclosure related to it. Mr. Sullivan said if they say they want to see a set of financial statements like they have right now, they would probably have an adverse opinion as it is too contrary to what is happening as they see it from a financial statement presentation.
Mr. Guertin asked if they had a qualified opinion, how would the rating agencies view that? Mr. Sullivan said he has talked a little bit with Moody’s and SMP at the MMA Trade Show. Short term, his best guess would be that it may not hurt you, long term it has to, as their role in terms of doing analogicals is not necessarily just looking at the Town of Monson and how it is doing. What they want to do is to be able to look at community A, B, C and D in regards to the state it resides in or regardless of the state it resides in, and say how does this community fare against a community of similar demographics, of similar geographics or similar appropriation size, and they are not going to be able to do that. Mr. Sullivan said you wouldn’t be able to do that with any financial statement from any entity be it
private or public, unless the accounting concepts are the same for each report. This is the clear message coming forward from GASB. Mr. Sullivan added the state and local government has to have the same criteria just as a private sector company has to have statements in accordance with generally accepted auditing standards and be recorded with GAP as it relates to that industry. To deviate from that, Mr. Sullivan said, he would predict it to be detrimental in the long term and he would have difficulty predicting it in the short term.
Mr. Harrison asked if the requirement for doing GASB 34 came from the state or auditing. Mr. Sullivan said it comes from the auditing profession with influences by many of the members of all of the states and local governments. Essentially, what you will be seeing is a very high percentage of compliance as it relates to the GASB 34 reporting. Mr. Harrison asked if there was any possibility they may postpone timetables. Ms. Mahar stated Tier I is already implemented.
Mr. Guertin asked if there was a layman’s explanation of what GASB 34 provides that not having it doesn’t? Mr. Sullivan said the first thing is one of the questions asked in the development of this reporting model is how much of my tax dollars really go to supporting the various functions in the community. Mr. Sullivan explained page 8 of his presentation under the expenditure category, where it lists functions. All the tax dollars are shown at the top that goes to support each of those functions. The GASB 34 reporting model says if I’m going to spend $10 million in education, how much of that is coming from state government? How much is coming from other charges like maybe school lunch or other things where revenue is being generated by fees? How much is coming from grants? Mr. Sullivan explained GASB
34 would keep the $10 million where it is, but would break out the top part to say I can tell you specifically how much of that $10 million spent is being supported by revenue sources. By doing this a person can say I know how much of my tax dollars are going to support education, public safety, etc. Embedded in this report model is a total cost concept that says what is the true cost of providing services. Part of this cost is the continuing rehabilitation and subsequent deterioration of our fixed assets, i.e. school buildings, i.e. this building, i.e. front end loaders, etc. Embedded in the expense numbers where these are pure expenditures for personnel, contracts and materials are also going to be depreciation numbers, which says in layman’s term or pretty much anybody who owns a business understands there is infrastructure as well as vehicle structures that have to be replaced in order for us to maintain the level of service that we provide from a community basis. GASB
34, as it relates to fixed assets, which includes infrastructure, allows you to not deal with the infrastructure issue for another four years. What we are talking about in terms of the Tier II implementation that the town will be reporting under for 2003, you are talking about the things that you see. These would be vertical structures such as the new schools, the motor vehicles, equipment and things like that. It is a very high level of capitalization. For instance, anything under $5,000.00 is not going to be capitalized from the equipment standpoint. Basically this eliminates every desk, every computer, etc. As far as capitalizing for the school building, it’s easy. You just look at the $30 million just spent. The streets have two ways to do it. One is the modified approach, where you assess how the community wants to keep its roads and you make a policy statement. Then you have to have a plan to achieve that policy statement. They are recommending an alternative because
there is a lot of political pressure as well as additional costs associated with maintaining that type of reporting model where they just do it at original cost. In other words, the state knows how many linear miles of road are in the Town of Monson as do the towns internal records. Mr. Sullivan said he feels the figures are very close together. They would then ask the DPW or somebody who knows, what is the average age of these roads? What is the average thickness, etc? Then you could essentially say well, the average age is say 15 to 25 years, you could say what will it cost to replace all these roads now? Then you would look back using the tables and say that’s the capital cost of that infrastructure now.
Mr. Guertin asked, would the accounting costs as a town double? Mr. Sullivan said he didn’t think it would quite double. He estimated it a year and a half ago at 30%. For this town it might be higher. Ms. Neggers said it would be 50%. Mr. Sullivan said Monson would have some up front accounting costs. This will be internal and not related to the audit firm. The costs would be in data gathering. For the maintenance of it, they should be able to quell it down from terms of an internal standpoint, because they will have a process in place. Speaking as an auditor, Mr. Sullivan said it is not going to get much easier for them because they are still going to have to do the same type of work plus more now with the reporting process alone. An average report just recently under Tier I was 28 pages last year, it is now 57
pages.
Mr. Guertin asked about automated systems to effectively operate GASB 34. Mr. Sullivan stated it is not a requirement. Mr. Harrison asked if VADAR is taking the necessary steps to incorporate the GASB 34 requirements into their software? Ms. Mahar said she had a meeting six or eight months ago with a software company that could do the fixed assets at $12,000.00 for a software package. Mr. Sullivan suggested, with an Excel program that the town makes itself, and he spoke with Ms. Mahar to make sure there were certain sorting options, maybe a high school student who knows a little bit about Access, could put together templates. This is very doable in terms of managing it your self. The up front part of it in terms of getting the town to that starting point is where the work is involved. The maintenance part of it is
not that bad because we are going to set our capitalization thresholds so we are not capitalizing chairs, desks or audio equipment, because that’s going to fall below that. What we’re going to do is the big stuff such as the rotation of the police cruisers, the dump trucks and things like that. Ms. Neggers said we have actually begun work on the inventory. Ms. Mahar has sent forms around on building inventory and those are all completed. The fleet schedule that the town uses for the insurance has all the vehicles right on there. Ms. Mahar said an up-date on the fleet schedule has just been received and all the information verified. Ms. Neggers said we are reasonably comfortable we have gathered all the raw material and now it’s a question of compiling it. Ms. Mahar added after she went to the workshop she had mentioned earlier, she spoke at an Auditors and Accountants Association meeting and asked a number of other communities what the were doing. Ms. Mahar also
went to Greenfield to see what they were doing. In Greenfield she was shown the forms they are using in Excel and she said it seems doable for Monson. Mr. Sullivan said in software versions, there is software called FAS put out by Best Software. Ms. Mahar said this is what VADAR is and it’s the best. Mr. Sullivan added this is about a $4,000.00 product on a PC. Mr. Sullivan also said what the key is here; Monson will be doing straight-line appreciation here. A lot of the fixed software is geared towards obvious various levels of book type of depreciation, but also tax depreciation. There are four different levels of tax depreciation that Mr. Sullivan said he must be aware of when he does a corporate return, but this is something the town doesn’t have to worry about. If the town had Excel, this would be straight line and it could be managed.
Ms. Neggers asked Mr. Sullivan in regards to the Tier I communities, Mr. Sullivan had mentioned there is one that he had that he wasn’t going to be able to give a clean opinion on. What are the types of things Monson needs to create? Mr. Sullivan stated the fixed assets part of it. He is going to take the balance sheet and do things they never did before. They are going to accrue interest on long term debt. This is something they don’t have to do. On the affirmative receivables, they are going to estimate the availability on personal property and motor vehicle excise taxes on receivables for all the departments. They might do an investment income accrue, which is something they have never done before. As far as fixed assets go, they have to bring them on the books, net of accumulative depreciation and then
there is another part, the net of debt issue. In the footnotes they would have to disclose the depreciation by type of asset and then present the depreciation by function. This is where the fixed asset piece has to come in. They can essentially take care of all the other things with assistance from Ms. Mahar in terms of making correct estimations and assumptions and maybe digging up some data. The data here, they can basically convert except for the fixed asset piece. Complying is the biggest part of the fixed asset piece because it has to be made auditable. Mr. Sullivan also said the town must pay attention to the criteria for capitalization, because you don’t want to get too detailed, you just want to meet the minimum requirements and they have recommendations by Tiers.
Ms. Neggers asked in regards to the general purpose financial statements, in Mr. Sullivan's conclusion, he stated the town wasn’t in a bad position to weather the storm. We have been trying to, with the current existing local aid cut, absorb this with cuts in departments and appropriation, basically for the current year without going into our reserves. Mr. Sullivan stated he agrees with this policy 100%. Ms. Neggers added the town has gotten very good cooperation from the town departments. Mr. Sullivan also stated the town has a history of being able to not spend up to its full appropriation. He thinks the process we are going through now is taking advantage of the cultural, practical process, which has been imbedded in the town’s budget process for many years. Ms. Neggers said realistically the town is
looking forward, if in fact the State is talking about 10% to 20% reductions in local aid next year. It will be very difficult not to reach into the reserves. She asked Mr. Sullivan’s opinion as the town moves forward for the next two, maybe three years, is it expected to be eating into those reserves? Mr. Sullivan responded he would expect it as long as, and for lack of better word, said we have a loaf of bread and we are taking it from both ends. You reduce services while retaining reserves at a higher level. Mr. Sullivan said 70% of what makes up the budget of the town is the high level of the personnel costs, with the salaries being paid health insurance, retirement, etc. Mr. Harrison said the salaries make up 85% of the school budget. Mr. Sullivan said the cuts that come out of this remaining 30% of the budget are very few. The reality of it is the money goes after the capital and debt services associated with it are personnel and personnel related expenditures, which
make up the bulk of the budget. It seems that, not the easiest way to go but the most obvious way to go, when you really have to get down to the cuts. Mr. Sullivan said what gets hit first is public safety, the fire and the police. The next level to get cut is the education. Also cut are the repair to the streets as not only are the internal funds drying up, but the Chapter 90 money is drying up also. This is where you also see some of the other impacts. Ms. Neggers stated you defer you capital projects, you can even defer some of the maintenance, but it doesn’t take long before you are into your personnel. Mr. Sullivan said what you will probably be seeing during this budget process is some of the contracts under negation being re-evaluated as a result of what is happening too.
Mr. Harrison thanked Mr. Sullivan for his hard work, Ms. Mahar, who makes sure we pass this annually and Dorothy Jenkins for making sure we have the funds to work with. Ms. Neggers thanked Mike Pasterczyk, the Treasurer and David Royce; the Assessor as this financial team works very closely and very well together as reflected in these statements.
Dorothy Jenkins, Sara Scrivner and Jean Bailey approached the Board of Selectmen regarding a request of the Monson Rotary Club for a one-day special liquor license at Memorial Hall. Ms. Neggers said the Board of Selectmen have an application before them for a one-day special liquor license for an event at Memorial Hall sponsored by the Monson Rotary Club. They have already provided a certificate of insurance to the town with a liquor liability attached, which is something the Board of Selectmen have traditionally requested from anyone receiving a license such as this. This request requires this hearing.
Mr. Harrison asked them to describe briefly the proposed event. Ms. Bailey stated approximately fifteen men are going to be there cooking. They are also going to have a bar to raise money. It will just basically be beer, wine, wine coolers and Mexican coffee (Kahlua). This event will be held from 6 p.m. to 10 p.m. on March 29, 2003. There will be a three-drink limit per person. Ms. Jenkins said this is open to the public, which will be voting on the most favorable dish. The first place award is $100.00 and goes to the most specialized cook. There will also be entertainment. Ms. Neggers said since Memorial Hall doesn’t have a kitchen, crock pots will be brought in. Ms. Jenkins said Mr. Beaudoin will make sure the electrical supply is adequate for their need. Ms. Neggers said she didn’t think it would be
significantly different from the electrical standpoint from something like the Big Mac.
Ms. Neggers asked what experiences or measures will be taken to make sure alcohol isn’t obtained by minors. Ms. Bailey sated I.D.’s will be checked if there is any question regarding age, but didn’t think anyone under the age of 18 would be attending this function as it should only draw adults. Ms. Jenkins added, as a rule they don’t usually get anyone under the age of 30 years at this event.
Mr. Guertin made a motion to grant the Monson Rotary Club a one-day liquor license effective on March 29, 2003 for the sales hours of 6 p.m. to 10 p.m. Mr. Harrison seconded and it was so VOTED.
The discussion of the MIIA Loss Control Initiative Program was tabled until the next meeting or whenever the materials could be put together.
In other business, Ms. Neggers said the Board of Selectmen received a letter from Representative Rogeness basically announcing the budget cuts for the current fiscal year in local aid and where those reductions were being made by the Governor and also just sharing how things are developing. This letter was sent February 5th acknowledging the significant reductions in local aid with cuts from 10% to as much as 20% and to consider that school aid may be lower as well. Ms. Neggers said she appreciates Representative Rogeness keeping Monson informed as much as she can on the latest developments. As far as the school being effected, she feels Representative Rogeness is referring to the Chapter 70 local aid figures.
Correspondence was read and completed.
At 8:10 p.m., Mr. Guertin made a motion to adjourn the meeting from open session to go into executive session for the purpose of discussing litigation and collective bargaining, not to return to open session. Mr. Harrison seconded and it was so VOTED.
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James R. Manning, Clerk
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