Rochester Hills Legistar System

Ms. Jenuwine reviewed the new water and sewer rates as follows:

New Water Rate:

Customer charge $6.45

Capacity charge $3.26

Commodity charge $2.45

New Sewer Rate:

Customer charge $6.45

Capacity charge $2.06

Commodity charge $2.26

Ms. Jenuwine suggested amending the Ordinance to remove the Receiving and Surplus

Funds and to place the Capital and Lateral monies into the following funds:

- Water/Sewer Operating/Maintenance Fund

- Debt Retirement Fund

- Capital Improvement and Capital Replacement Fund

She noted that this has always been reflected in the Ordinance and is necessary to

prevent spending of non-operating revenue monies. She further noted that the

depreciation expense will be moved into the Replacement Fund for future improvements

Joe Hefferman, City Auditor, representative of Plante Moran provided an overview of the

Fiscal Year 2004 CAFR (Comprehensive Annual Financial Report) by the auditing firm

of Plante & Moran, PLLC.

Page One (1)

* Plante Moran performs two (2) functions:

* Test the internal controls the City has over its financial reporting, financial

receiving and disbursing.

* Test those detailed accounting records, review and give an opinion on whether

information is thoroughly stated.

* Plante Moran has given the City an unqualified opinion which means a "good opinion"

meaning the accounting records are in "good shape" and the financials reflect that the

City is in a sound financial position.

* The City's financial position as of December 31, 2004 breaks down as follows:

* Unrestricted Net Assets - spendable.

* Restricted Net Assets - resources that the City has that are legally restricted.

* Invested and Capital Assets - total resources.

* There is a positive trend in unrestricted net assets increasing from $13 million to $13.7

million and same assets to $17.9 million dollars.

* Restricted Net Assets have decreased due to money being spent to build the New

City Hall addition as well as resources used for the Older Persons Center building

between 2002-2003.

* Invested and Capital Assets have increased significantly also because of the New City

Hall addition.

Page two (2) - Operations of the City

* General Revenue can be used to fund any governmental operation.

* Property Taxes - trend is upward due to a strong tax base.

* Program Revenue is specifically tied to programs that are coming in as a result of

programs.

* State Shared Revenue - downward trend

* State Revenue Sharing - decreased .

* Investment earnings - decreased to market trends

* Cable Franchise Fees - five percent (5%) received from cable companies remain

flat.

*Other income - some increase but relatively insignificant.

Page three (3)

* 2004 expenditures breakdown by major functions of general government.

* Public Works (primarily streets)

* Public Safety (police/fire)

* Economic Development

* Recreation and Culture

* All Departments are staying below budget.

Page four (4)

Water and Sewer Fund activities:

* Operating Revenues have been slightly lower than expenses every year but otherwise

the fund is in fine shape.

Fund Balances - from the perspective of accountability of the different funds:

* Five (5) major funds.

* General Fund at fifty percent (50%) looks healthy, but you need to look at Police and

Fire expenditures and combine all three (3) funds. This results in a thirty three percent (

33%) fund balance.

* Major Local Street Funds have significant fund balances but most of it is planned for in

terms of major projects that are slotted to occur in the next few years.

In conclusion, Mr. Hefferman stated that the City of Rochester Hills has a good strong

tax base that continues to be reliable in terms of the property tax source. The City has

made numerous adjustments in its budget, however, it is not anticipated that state

shared earnings will come back this year or next year. In comparison to 2005 and what

is seen in other communities, Plante Moran feels quite good about Rochester Hills 2006

budget.

There is a need to recognize that its not as healthy a financial position due to five (5)

years of poor economy, a decline in interest rates, the reductions in State Shared

Revenue, a decrease in building permit activity, and significant increases to the cost of

employee health care benefits. However the auditors see a positive perspective for

Rochester Hills based on looking at other Cities.

Mr. Hefferman reviewed the auditor's comments and recommendations which they

believe need to be changed because of weaknesses in the system. They are as follows

* State Shared Revenue - The City has dealt with the reductions for the last four (4)

years; because of the State's current issues with decreased taxes and escalating health

care costs, they feel they cannot afford to continue the Statutory portion of State shared

revenue.

* Employee Health Care - Other Post Employee Benefits (OPEB) is a new accounting

rule written in the middle of 2004 which will be effective in two (2) to three (3) years

depending on the size of your municipality. Not significant for Rochester Hills because

Rochester Hills has a defined contribution plan and the funds are being set aside and

expensed each year. In defined benefit plans, it is difficult to know the actual cost to pay

as you go along. From Rochester Hills perspective, the City is in a favorable position

because of the defined contribution plan. However, from time to time as union

negotiations go on and the union asks for new things, changing to a defined benefit plan

would mean the City would be adding a significant liability; which is greater than the

current defined contribution the City currently has.

* Tree Fund Policy - Several years ago the City established the Tree Fund with certain

amounts coming in from each development. The Fund has grown to $1.3 million as of

this year and there is a lack of clarity on how that money can be spent. The

recommendation is that it may be appropriate to give some attention to that fund and set

perimeters on how that money can be spent.