Portland Finance Committee Approves Procurement Threshold Increase and Reviews Debt Policy

[0:06] Benjamin Grant: you should be good to go okay thanks stephanie well welcome everybody it is october 8th it is meeting of the city council finance committee i am ben grant newly shifted over to be chair of the committee joined here tonight by my colleagues councillor fournier at large member councillor pelletier representative district two and i and mayor mark dion i also see counselor Michniewicz from district one is here we're also joined by finance director brandon o'connell city manager daniel west and deputy finance director and bill adoe we'll get right into it tonight i just want to preface things by saying we're hoping to finish by six if we don't happen to do so i will turn it back over to counselor fournier as i have to get over to during high school for eighth grade touring night and i am in that category of parents with an eighth grader so i'm going to see darian from the inside but brendan assures me that we can be efficient with our agenda so are there any preliminaries we need to do are there looking at the agenda do we need to approve any minutes or any such formalities like that no we typically [1:19] Danielle West: only approve minutes if we've had a vote in one of the prior meetings so we skip right past that [1:25] Benjamin Grant: with none. So then do you want to, Brendan, go ahead and introduce the procurement policy issue? [1:34] Danielle West: So we've talked about procurement in a couple of contexts over the last several years. Number one was just simply as part of the budget process two years ago when we were looking at staffing within purchasing. Because over the last several years in particular, the volume of projects being done by the city has really exploded. It started probably with a little bit of influx of the American Rescue Plan Act money, but our capital improvements have really doubled in size. Our capital improvement plans have doubled in size over the last eight years, culminating in a high of almost $50 million last year approved by the city council. And it's not just the dollar amount of the projects, but it's also the number of projects themselves has increased. And so we have found ourselves struggling to keep up with the volume of projects coming through purchasing, legal, and IT. So we're trying to tackle this from a number of different approaches. And tonight we're talking about increasing the threshold for various purchasing requirements in the city ordinance and also in our own staff code. So right now, anything between zero and $5,000, departments are allowed to purchase at their own discretion. They're encouraged to get three quotes, but they're not required to do so. And typically, to me, that sounds like a lot of responsibility, but departments really want to make the most of their dollars. They only get a finite amount of dollars in the budget each year. So I'm generally confident that due diligence is being performed for those purchases between $0 and $5,000. Currently, purchases between $5,000 and $25,000 departments are simply required to get three quotes for those purchases. And procurements of over $25,000, those are the ones that would be required to go out to a full bid or RFP process. And what we have noticed, as I mentioned, over the last you know eight to ten years is that threshold has stayed the same but our key metrics all over the place have doubled or even tripled. We talked about the capital improvement plan volume. The operating budget for the city and schools has gone up by over 200 million dollars. Our assessed value locally has tripled. Our purchasing volume, the actual number of purchase orders we issued over that period has tripled, and the number of RFPs we've actually gone out and done has more than doubled over that time period. You can also look around the state and find many other smaller communities that have the same exact threshold as we do, the $25,000 for things to go out to bid. And organizations that are more comparable to us, you know, our budget overall this year I think is close to 530 million dollars. The University of Maine system, all seven universities combined, is about 700 million dollars and their procurement threshold is $125,000. So we're proposing some minor clarifying changes within our procurement policy, but the biggest change is really proposing to double those bid limits from $25,000 to $50,000. We talked a little bit about this and doing it as part of the budget passage this year, but Corp Council recommended that because of this and because this ordinance was actually changed by the Green New Deal referendum a few years ago that we specifically bring it as a standalone item with the red lines for the committee. So we talked about it again a couple months ago, had a public hearing that night with unfortunately no public comment. It's looking like no one is here today, but I will highlight that we did receive some public comment via email today and the main point of that, or one of the main points, was really did you look at higher thresholds? And we actually did. We considered going to potentially a hundred thousand, but I don't think we're quite ready to take that step. This will likely eliminate 10 to 15 bids just by itself. And when you're looking at the 50 to 100,000 range, that number is not quite as big. The public works projects that MainDot has a higher threshold on, for the city, those are well above the bid threshold. So going to 100 wouldn't necessarily be all that helpful for any of our sidewalks, streets, traffic projects. Projects. So this is mostly for smaller facility projects and kind of some of the engineering work that's done in advance of some of these projects. So we hope that this will be just a part of the help. And I know Danielle and I have spent a lot of time talking about other phases of the RFP purchasing legal review process. And so we're trying to make streamlining changes there as well. And so this is not just the only way we're tackling this. This is just one of many ways we're hoping to tackle this. So I have all the red lines, both to the internal procurement or procurement policy and also to the ordinance in the backup materials, if anyone has any questions. [6:32] Benjamin Grant: Questions? I think, well, you tell me, Brendan, when, I know there's no public comment, but I should at least say on the video that we've sought it. Would this be the time we normally do it or [6:47] Danielle West: after the motion's made? I think we have, we typically have public comment first. So we open up for public comment and then there's council debate. Okay. So I'll open it up for a public [6:56] Benjamin Grant: comment for a beat here. Obviously we know that. Councilor Grant, Chair Grant, Councilor Pelletier's hand is up yep i'm going to take his hand after we do the quick open close here tiffany you can you confirm for me there's no public that have joined i see zero okay so i'll close public comment and move on to questions from counselor so yes counselor pelletier go ahead hey sure [7:24] Wesley Pelletier: Sure. I think I've asked this before, but I guess, can you just go into the risks of not raising it anymore? I trust that, I don't plan on amending this to make it higher, but just for my own edification, just the risks of increasing that threshold to meet something like the humane systems threshold and or like tying it to like automatically raising it so that we don't have to deal with it later. Any thoughts around that would be appreciated. [8:02] Danielle West: So that was actually a good point that we have contemplated. One of the things that was suggested in the public comment was, you know, you should tie it to inflation and have it go up year over year. Year. But one of the issues that we run into at the city is we run into issues with compliance. Someone might claim that they didn't know what the threshold was. And so I am concerned that if we tied it to inflation, they might say, oh, geez, well, I thought it was $54,000 and I didn't realize it's $58,000 and we're stuck where someone already agreed to make a procurement. So I think that my recommendation would be that we just continue to review it on a more frequent basis as opposed to tying it to inflation. In terms of the 50 to 100,000, I wouldn't necessarily have a problem if we went to the full 100,000 for bids. We would be the only municipality at that high of a level in Northern New England at all. Even Boston is not that high. Many state organizations, some of the biggest ones are at 100K or 125K, but I don't think it provides that much benefit to us in terms of RFPs that wouldn't have to happen anyway. So like, I just think, you know, the number of RFPs, if you look at the distribution of the dollar amount that we did, the 25 to 50 makes a much bigger difference than if we went from 50 to 100. Council Fornia. [9:25] April Fournier: Thank you. Really, I'm more in the, I like when we can streamline things. And of course, auto-update when we can. For me, just having done budgeting in lots of different ways, I'm always just a little cautious around like that auto-indexing or auto-increases tied to something like inflation. I think it's just really a good practice for us to make sure that we're just getting eyes on those and checking in regularly. So, you know, to your point, so that there's not kind of like, oops, I didn't know. But it also, I think, puts some accountability on the council as well to make sure that we're staying in touch with the policies thanks. [10:07] Benjamin Grant: Anybody else have any comments? I'll ask a question then, just quickly, for my notification. Use this sort of relaxing. Will cover 10 to 15 bids or so. You said are they located in any one particular department? Like, is there one part of city of them that particularly is hamstrung by the current level that will be? Or is it kind of spread? Now it's spread across multiple departments. It might. [10:29] Danielle West: Might change from year to year. Okay, I can provide examples of the ones that wouldn't. I don't need. [10:34] Benjamin Grant: Examples. I was just curious if it was one like parks in particular. But go ahead, Mayor. I was. [10:39] Mark Dion: Just going to say I don't disagree with Council Fournier. You know, my principle is I want to give the managers some flexibility in making expenditure decisions, but I think the index thing should be reviewed annually by this committee. That way it gets in essence published to managers so they don't have to guess or do bad math. We would just set it out with Brendan. So I think that's a prudent way to move forward. [11:06] Benjamin Grant: Yeah, I mean, I'll add my comment. I personally think indexing works when it's some sort of automatic benefit that someone's getting. But it seems a little inapplicable for this type of thing where governments have gotten in trouble in the past over procurement issues. I think it's something we want. We don't want an autopilot and we'll just want to be reviewing and need that review if the staff wants to change it. So that is my thinking. Anyone else want to chime in? I'm also happy to hear from staff since we're a small group here. If anyone wants to weigh in, don't feel they need to though. All right, so I'll entertain a motion to pass this as presented. Second moved by Councillor Pilots here, second by Councillor Fournier. Any further discussion? All right, just don't. To do a roll call or do? Can we do? We do on the okay. So I'll just do it by my screen here. So Councillor Fournier, yes. Councillor So, Pelletier? Yes. Mayor Dion? Oh, you don't vote in this one. [12:18] Mark Dion: I'm ex-officio. You're ex-officio. [12:20] Benjamin Grant: I forgot when you are, when you aren't. [12:22] Mark Dion: But if you want to vote, I'd be happy to throw one in. [12:25] Benjamin Grant: Hey, rookie mistake. And I vote yes, so pass is 3-0. And we can move on if I can get my agenda back up. Sorry, it's happening on a separate screen. Green. Okay, then we're going to move on to discussion of debt management policy. I'm not taking public comment on this issue. It's just a discussion. So I assume we'll turn it back over. [12:51] Danielle West: to Brendan to lead that discussion. Sure. So we had reviewed this; committee had reviewed this policy back in late 2019, 2020, with the goal of making sure that we had aligned the policy with best practices from the rating agencies in an effort to hopefully increase the city's credit rating. And it's been effective. We have been upgraded three times on our general obligation bonds, twice by Moody's and once by S&P during the time I've been here. And the JetPort's rating has also been increased once. And that's really important because the city's credit rating impacts the budgets of both the city and schools. According to our financial advisor, we save between $3,000 and $5,000 per million of debt issued per year when we have a credit rating upgrade. So if we issued general obligation bonds at AAA, we're saving $3,000 to $5,000 per million that we issue every year versus a AA rating. So that savings has added up fairly quickly. I mean, we have over $300 million of debt outstanding, so it adds up quickly for not only us and the school department. So our review of this policy is supposed to occur every five to ten years, so we're right on that cycle, and one of the things that we knew we wanted to change was removing any language related to the pension obligation bonds. We have thankfully repaid our pension obligation bonds, and our plan is very well funded, so we don't anticipate having to issue pension obligation bonds anytime in the short to medium term certainly we were up at around 90 funded the last time i checked which is one of the healthier state pension plans in the nation we also want to just review the factors and as part of the next meeting i'll we're getting a little closer to having our 630 26 audit done and closing the books on that so i'll have an update on all of the debt ratios that are in here but we wanted to make sure that we looked at the debt metrics in the policy making sure that we were still up to date with the latest best practices from the rating agencies and those metrics are that annual tax back to debt service should not exceed a 12 percent of general fund expenditures and we're only at around 8.3 percent the last time I ran an analysis for this committee. Annual tax-backed debt service payments should not equal 1.5% of per capita income, and we were significantly below that last time as well. We were at about 0.96%. Net debt per capita should not exceed the industry recognized moderate range, currently at $5,000, and we were below $3,000. And the last one was total outstanding debt should not exceed five percent of the state equalized valuation of the city and we were well below that one last time we were at 1.9 we're going to be even lower this time around due to the payoff of those pension obligation bonds so we're still well within the healthy range of those the other thing that we wanted to talk about or with this committee is that the debt management policy actually references, it did not previously reference the referendum requirements that we have. And so we want to add language around the referendum requirements into the policy. So the two referendum thresholds, just to refresh everyone's memory, is that the city charter requires voter approval for general obligation bond securities issued on a single project greater than one-half of one percent of the latest state equalized valuation and the latest state equalized valuation of the city was about twenty point three million for us so a referendum we required if we had any capital single capital project that was greater than ten point one five million and then the city charter also requires that if there's any tax spending any combination of tax spending or bond spending that's greater than 0.75 of 1%, so basically double that last threshold, then that also requires a referendum. So that would be about $15.45 million right now for any single item of spending that's using taxpayer funds. And that one came into play for us even though we didn't repurchase it with bonds when we were looking at the Midtown project. We had to make sure that we weren't using tax funds with that one. So we're adding those thresholds into the policy. And then the last change that is on my mind is around funding for public art and funding for the land bank. We have traditionally made contributions to those items from bonds. That's how we've met the requirements in the policy and in city ordinance funding those half of one percents with bonds. However, there are some rules for bonds about when that money has to be spent and what it can be used on. So we wanted to make sure that there's no disconnect between the debt management policy and any other sections of city code. So right now in chapter 14, there's a section around public art and it says that one half of 1% of the CIP will be spent on public art and there's a number of other requirements listed there. This existing policy caps that payment at $50,000 per year. So as part of this, we're recommending removing that cap and making sure that both sides of the policy in the code reference the spending timeline, and also ensure that we're measuring that one half of 1% on just the general fund portion of the CIP, because we don't want to increase the school department's portion, the enterprise fund's portion of debt service because of that requirement. And we also don't want to tie it to private donations or anything like that. It should be just one half of the general fund capital improvement plan only getting rid of the cap. Now, it will still result in significant increases in contributions to public art and the land bank on an annual basis. Just based on last year's CIP, it would have been about $20 million, sorry, a contribution of $100,000 based on a $20 million general fund-only capital improvement plan. So that's a lot bigger than the current $50,000 a year cap. [19:46] Benjamin Grant: Can you remind me, where does the public art money go? go? [19:50] Danielle West: So it goes into a public art fund and then the public art committee can choose to vote on how to spend it. One of the issues that we were running into that I think led to the cap in the debt management policy is because it was going into a fund and just sitting there. And so over the last eight to 10 years, I don't think we've been asked for more money, but Councilor Sykes pointed out the disconnect and said we should fund at what the code says. No, I remember the history of her raising that. I just wanted to make sure. The same issue actually exists at the land bank as well. I think the land bank has done a little bit of a more aggressive job in terms of spending the money, but that still does sit there sometimes when there's no properties to acquire. So I want to make sure that we address both sides of these concerns and find a fair compromise. At least that's the initial recommendation. [20:46] Benjamin Grant: Great. Thank you, Brendan. and none of my colleagues have questions or comments just for my own to remind myself or maybe the others the public art commission is that the same entity that we were just dealing with respect to the jewel box there that was that their money it was continually repairing that i [21:19] April Fournier: believe that's the case counselor yes okay good we'll get them some [21:23] Benjamin Grant: more money and we've stopped them from continuing to spend on that item yeah and i would plan on [21:30] Danielle West: you know once this committee has a recommendation and draft language then appearing before those committees to get you know their thoughts and concerns i talked to a director craft and director hippel about this approach just to give them a heads up yeah media any resistance or are they on board well i would just say that you know they think that's a good idea of making sure that we incorporate those committees into the discussion process and making sure that they also understand the requirements around what you can and cannot spend bond money on and when it needs to be spent. [22:08] Benjamin Grant: Okay. Anything else from committee members or counselors? So from what I understand, you're going to be bringing that draft for a vote at some point in the near [22:21] Danielle West: future. So we'll probably draft red lines to this ordinance. As long as you're okay with the approach, we'll draft the red lines to chapter 14. I think it is. and then share those both for this committee and then also at the same time talk to public art and land bank and get their input on this great say go forth all right next all [22:54] Benjamin Grant: we have left is other business and future meeting dates the other business [23:00] Danielle West: that I wanted to mention is around the city and schools FY26 and FY27 budgets. So I think many of the counselors have already heard this, but because of some unanticipated increases in special education expenses at the school department, they went over their allocated spending amount. They went over their appropriation from voters and from the council in last year's budget. They not only went over on expenditures, but they received some surplus revenue as well, which can cover a portion of the costs. So they consulted with their legal counsel and their legal counsel has told them that they need to come back to the council, but not the voters, to have additional funds appropriated by the council. And so they passed a resolution at the school board late last month, I believe, that basically said that they were going to need to use about $95,000 of their fund balance to cover the overage. It was kind of silent on the remaining portion of the overage. I think their total overage was close to a million dollars. But I've been working with the school department on an appropriation order to go in front of the council. And so that will appropriate their surplus revenue from last year, an additional $95,000 from their fund balance, and there'll be no additional required property tax collection as a result of this. So still not great news that they went over, but that's the planned resolution right now, and this will be coming at the next council meeting for a two-read vote. This will make their auditors happy in terms of getting the council's approval. And Danielle and I also talked about when the school does receive surplus revenues, they do have to come back to the council to get your approval to spend that. So this will comply with that as well. On the city side, we're really close to closing the books on FY27. We are also very, close to the edge. One of the biggest budget pressures that we had last year was our health insurance budget. And as you've probably heard, many agencies around the state, you know, getting really close to their total expenditures and seeing double digit increases in their health insurance rates. It was an issue that we spent a long time talking about. And then FY27 is now well underway, and I just wanted to re-highlight for the committee, and I'll quickly share my screen. Let's see, hopefully everyone can see this, that when you go to portlandmaine.gov slash finance, you can go to the budget financial documents and policies page, and you can see budget status reports. Reports. So on a monthly basis, typically about three weeks after every month and close every the end of every month, it takes us about three weeks to get all the bills in, we'll post this five page status report. And it shows spending in every department and where they're at. And so two months into the year, you'd expect to see departments spending close to 16.6% of their budget. But some budgets, for example, memberships and others, a good one, you know, that's the reason that one's so much expended at this point in the year is because we pay our metro assessment right at the beginning of the year. They need that money right away. Other budgets like dispatch and IT, they have large contractual services payments that are paid at the beginning of each fiscal year as well. So typically what I think the average counselor or citizen might want to look at this report and see which departments are close or above just straight line average spending for the month. Also on this report, we have expenditure comparisons by year. So you can see in previous years, where were we, for example, in the finance department in FY26 at this point in the year? We were actually a little, we had spent a little bit more in terms of percent of our budget last year at this time, likely because we had a couple people retire. We have retirement payouts of recruit vacation and sick time, but we're pretty close to where we were in FY25. Now, the third page is expenditure by category. I don't necessarily find this one as meaningful, but sometimes you'll see trends emerging. And you can see insurance is one that we're spending a little more on this year because of our stop loss insurance, I believe. So and then we have revenues here as well, but they're broken out into categories that are a little bit difficult, I think, for people to understand. Obviously, we have the property taxes; the first bill hasn't hit yet, that's due in just a few weeks here, but you know, you can see the other categories here and where those are. And then, yeah, the last one, a little further breakdown of year to date and where we were in prior years, so I find these to be very useful at a high level. And then, you know, we... obviously do much more detailed digging in on a monthly basis, provide reports to the city manager. We also communicate this to the council via email. But for the for the general public, I think this is a useful tool for anyone who's just wanting to look at budget status. I will note that the school department numbers, we don't keep those in our system. So they report to us on a periodic basis. So I can't always vouch. Ouch. You know, when we heard about this overage last year, I looked back at the last the May year date report to see were they trending over. And at that point in time, they weren't, at least based on the info that they had reported to me. So I just wanted to mention that as well. [28:37] Benjamin Grant: Seeing you pause there, I'll just see if there's any questions from my colleagues and other counselors. I did check in with the schools about their issues as well. And I know they've taken some steps behind the scenes, administratively, personnel wise, to ensure that this special ed that issue doesn't doesn't crop up again, so I felt comfortable that they were addressing the situation moving forward. All right, see no comments or questions. We can move along. All right. [29:12] Danielle West: The next thing I want to see if I could pin everybody down for a future meeting date. Do you have an opening offer? Let's see. I mean, the I could be ready with just a proposed red lines for this one debt management policy item on the 22nd of this month, but we could also look at the first or second Thursday in November if that date didn't work. I know we're kind of hitting the district meetings calendar and we're also approaching committee turnover. [29:55] Benjamin Grant: I'm fine to do the 22nd. We're not going to take up a lot of time with the short agenda. So I'll start with that and turn to the others if any of you want to chime in. Yay or nay? [30:09] April Fournier: I just have to check my... I'll be flying back that day. I'm just not sure. Let me see what time I land. Sure. [30:23] Wesley Pelletier: Councilor Pelletier? I should be good trying to confirm when my district meeting is, though. [30:35] Mark Dion: What date are we discussing, Ben? [30:39] Benjamin Grant: October 22nd, two weeks from now. Okay, hold on. [30:49] April Fournier: Works for me. Me works for me. Okay, I will be in the air, but you don't necessarily need me. When do you land? Not until 11 o'clock at night in Boston. It's Salt Lake City to Boston. [31:08] Benjamin Grant: So, and when do you take off? I assume the whole evening's cashiered by that flight. Yeah, so I... [31:16] April Fournier: I leave Palm Springs at 1230 Pacific Time, quickly over in Salt Lake City, and then lose three hours flying to Boston. [31:28] Benjamin Grant: Okay. Are you okay if we still have it anyway? Yeah, that's fine. Okay. Let's just move ahead and have that, put that on the calendar. [31:41] April Fournier: And then I can just review anything ahead of time. I have questions and I'll just get in touch with you then. Okay, great. [31:54] Benjamin Grant: Is that the only item under upcoming council agenda items you want to put in front of us? [31:58] Danielle West: Yeah, and then I just talked to the committee about if anyone, any of the committee members had any other things that they wanted to have on our remaining months agendas. I know the city manager wanted to talk through the memorandum of understanding with the school department. So that's back in front of legal and we're going back to the superintendent with the latest draft. I don't think it'll be ready for the 22nd, but it is on our radar for review by this committee once it's ironed out with them. [32:29] Benjamin Grant: Without getting into the details, can you tell me if there's been changes over the summer or has it kind of been shelved and now it's back off the shelf as it kind of as it was? [32:40] April Fournier: Yeah, I had left it in legal's hands and so I'm trying to wrap my arms around where we are right now. Okay. [32:48] Benjamin Grant: Yeah, I think it would be great to get that moving and off our decks. It's been quite a while, so I take that as a gentle nudge. All right, anyone else have anything they want to put on Brennan's radar for agenda items? I didn't see anyone jump in. Okay. Brennan, you got anything else you want to do here tonight, or we're ready to wrap up? No, that's it. Okay. Well, thanks. I'll entertain a motion to adjourn. So moved. Second. Moved by Councillor Pelletier. Seconded by Councillor Fournier. Councillor Pelletier, how do you vote? Yes. Councillor Fournier? Yes. I vote yes. Thanks for a successful first meeting for me, and I'll see you all soon. All right. Thanks, Ben. Have a good night, guys.