A.G. Gancarski
In the immortal words of Wyclef Jean, the Jacksonville City Council Special Committee on Capital Improvement Projects is “gone ’til November.” However, it did have one final meeting (aside from an expected cameo during August’s Finance Committee budget hearings) on Wednesday afternoon.
Many fascinating topics were covered at the meeting, which included, at least for part of the time, Jacksonville CAO Sam Mousa and CFO Mike Weinstein.
One such topic: in Information Technology, the semantic difference between capital costs and maintenance costs, which occasioned a spirited discussion.
Councilman Bill Gulliford observed that IT maintenance and software licensing costs represented a “reoccurring obligation” that was “capital related.”
Meanwhile, others diverged from that premise. Councilman John Crescimbeni contended that those IT costs were, like road repair, not “true capital expenditures,” and were thus part of a “gray area.” And Council President Greg Anderson, in his Southern gentlemanly way, contended that it might be a good practice to separate IT from “regular capital items” because fast changes in technology render costs unpredictable.
After more discussion of the semantics, Gulliford laid the issue bare. Trying to get a handle on these costs, and establishing “some level of discipline” is necessary.
Committee Chairwoman Lori Boyer expanded on why. In the previous administration, maintenance costs were deferred, thus creating a “deferred maintenance” problem.
Meanwhile, Mousa contended, “We need to be careful what we call capital … resurfacing isn’t really capital.” And licenses are not capital, he continued.
As well, regarding capital for infrastructure projects, Mousa added that caution was necessary. A project “may have all the money in the world,” yet without contractors willing to work, it isn’t happening.
Another point of spirited discussion revolved around cash transfers between projects.
Weinstein: “the transfer of cash has no effect on projects.” Moving cash around in city funds, he added, is more a “cash flow arbitrage” than anything else.
An example of that: the Southside Incinerator project. Money was borrowed for that in 2009, and it sat in an account until 2014.
Council members countered that this “cash flow arbitrage” results in other consequences.
Boyer contended that if money is moved out of a project for another purpose, it indicates that project is not “getting there in the next year or two.” Crescimbeni, meanwhile, pointed out the cumulative difficulty of tracking transferred funds, especially when those funds are subject to multiple transfers.
Mousa, before taking leave of the group, mentioned that the Curry administration supports the “concept and need for discipline.”
Another occasion for lively banter emerged during discussions of current year revenue and the city’s reserve policy.
Anderson voiced a generalized caution about “not using reserves” to finance operations. Weinstein, in response, waxed philosophical.
“We have the same goals,” the chief financial officer said. “We just don’t know what reality will be like.”
A discussion of reserve policy followed, and the appropriate funding levels of emergency and operating reserves.
Spoiler alert: there was a divergence of viewpoint. Boyer asserted that a cumulative 12 to 14 percent reserve level is necessary to maintain the credit rating. She also argued for limits on how much goes into the emergency reserve fund.
“Once something is in emergency reserve, it’s pretty untouchable” Chairwoman Boyer said. “If it’s untouchable, you don’t want to overfund it.”
Meanwhile, Joey Grieve, the COJ treasurer, said that there is “no perfect answer” regarding reserves. The most common cumulative reserve level is about 15 percent, though there is variance. “The less restrictive [the policy is], the better for the ratings agencies,” he said.
Using reserves to replace vehicles and other necessary costs instead of borrowing for that purpose, he said, is sound policy, rather than just leaving money sitting around.
The discussion oscillated around the question of how much money should actually be in the emergency account to guard against a hurricane or another natural disaster with similar effect. Weinstein noted that in case that were to happen there is “pretty substantial reimbursement” on the federal level.
This discussion, he said, is “really designed for rating [agencies].” He drew a distinction between the needs of credit rating agencies and those for “real emergencies.”
Meanwhile, Peggy Sidman observed that Florida statutes establishe an upper limit for reserves, by way of cautioning against “pooling all this money and raising the property tax.”
From there, the discussion moved to trust funds, a matter in which, as Boyer observed, there has been a “disconnect between practice and accounting rules” and “bill language.”
Weinstein wondered why the audit didn’t drill down into trust funds. Acting Comptroller Kevin Stork observed, in response, that “the costs would be enormous to go down to that level.” Thus, “spot checks” are the practice.
Despite all of the attacks on the previous administration for its budgetary process, Jacksonville is on sound financial footing. The positive balances and cash on hand, as Grieve put it, “dramatically outweigh the negatives.”
The real issue that seems to be emerging, as much as capital policy, is a philosophical re-orientation to the strong mayor model again.
