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HomeMy WebLinkAboutMIN AUG 09 1988 REGULAR SESSION CITY COUNCIL - CITY OF BEAUMONT HELD AUGUST 9, 1988 - 1: 15 P.M. BE IT REMEMBERED that the City Council of the City of Beaumont, Texas, met in regular session this the 9th day of August, 1988, with the following present: HONORABLE: Maurice Meyers Mayor Bob Lee, Jr. Councilman-At-Large Andrew P. Cokinos Councilman-At-Large Lulu L. Smith Councilman, Ward I Mike Brumley Councilman, Ward II Audwin Samuel Mayor Pro-Tem Councilman, Ward III David W. Moore Councilman, Ward IV Albert E. Haines City Manager Tyrone Cooper Assistant City Attorney Rosemarie Chiappetta City Clerk -000- The Invocation was given by the Reverend Joe S. Barnes, Church of the Living God. The Pledge of Allegiance was led by Councilman Cokinos. -000- Two Proclamation's were issued: "Women, Infants, and Children' s Month, " August, 1988; and "National Night Out, " August 9, 1988. -000- Mr. Haines announced that Agenda items E-4 and E-5 have been pulled for consideration at today' s Council meeting. -000- Citizen comment was invited for Agenda Items A through D. Mr. Buddy Lonon, 4325 Park Street, addressed Council relative to the high crime rate in his neighborhood. -000- The following Consent Agenda items were considered: Approval of the Minutes of the regular City Council session held August 2, 1988, and -207- August 9, 1988 Resolution No. 88-164 authorizing Texas Commerce Bank to pledge $2,000,000 in securities with the Federal Reserve Bank - Dallas - Houston Branch, effective August 1, 1988. The Consent Agenda was approved on a motion made by Councilman Cokinos and seconded by Councilman Smith. Question: Ayes: All Nayes: None -000- Resolution No. 88-165 authorizing purchase of eleven (11) 35-foot advanced design buses and one (1) power plant assembly in the amount of $1,753,455.00 from Transportation Manufacturing Corporation, a division of the Greyhound Company, for use by the Beaumont Municipal Transit System was approved on a motion made by Councilman Cokinos and seconded by Councilman Moore. Question: Ayes: All Nayes: None • -000- Ordinance No. 88-72 establishing new water and sanitary sewer rates inside and outside the city based on meter size and usage, service charges and Sr. Citizen Income Discount effective October 1, 1988 was considered:,' ORDINANCE NO. 88-72 ENTITLED AN ORDINANCE AMENDING CHAPTER 28 OF THE CODE OF ORDINANCES OF THE CITY OF BEAUMONT TO AMEND WATER AND SEWER DEFINITIONS, REGULATIONS AND FEES; PROVIDING FOR SEVERABILITY; PROVIDING FOR REPEAL AND PROVIDING A PENALTY. Ordinance No. 88-72 was approved on a motion made by Councilman Brumley and seconded by Councilman Smith. Question: Ayes: All Nayes: None -000- The Regular Session of City Council was recessed to conduct a meeting of the Board of Directors of the Housing Finance Corporation and the City Council Work Session. -000- The Regular Session of City Council reconvened with City Manager Albert E. Haines presenting the proposed Budget for the 1988-89 Fiscal Year to Council. Mr. Haines read his Budget Letter (attached as Exhibit "A" ) to Council noting that the operating budget of $92,864,940, excluding Capital Projects, will be supported by a property tax rate of $.54, a proposed 2. 5% across-the-board cost of living increase for all City employees, and departmental restructuring to improve service efficiency and provide greater public convenience. -208- August 9, 1988 After a discussion of various facets of the proposed budget including restructuring of the Police Department to include creation of a third division, a new Deputy Chief position, abolish the position of Major, enhance the Captain' s position by three, and creating five new Lieutenant positions, maintaining the departmental total of sixty-three ( 63 ) , Councilman Moore questioned the viability and proper procedure for enacting creation of the Lieutenant positions while there is a current eligibility list draw from. Increasing positions require a budget amendment approved by Council with a 72 hour posting notice. Councilman Moore made a motion, seconded by Councilman Lee, to call a Special City Council Meeting on Friday, August 12, 1988, to consider enacting five new Lieutenant positions in the Police Department and amend the current budget upon approval for immediate inclusion. Question: Ayes: All Nayes: None Mayor Meyers commented on the need for pursuing a better bond rating, announced a letter to be sent to citizens regarding an August 31st meeting when he will propose coming back to the bricks and mortar and proceed to look at development stages for the Central Business District, and expressed his desire that the Economic Development Council keep a strong presence and image of Beaumont with the use of the City of Beaumont funds. Councilman Brumley requested a detailed overview of any new or combination of positions in the restructuring of departments, particularly the Assistant City Manager positions and responsibilities. Resolution No. 88-166 scheduling a public hearing to consider the 1988-89 budget of the City to be held at 1: 15 p.m. on September 6, 1988, in the City Council Chambers, and a public hearing to consider the five-year Capital Program for fiscal years 1989 through 1993 to be held at 1: 15 p.m. on September 6, 1988, in the City Council Chambers was considered: A motion made by Councilman Brumley, seconded by Councilman Moore, scheduling a public hearing September 6, 1988 at 1:15 p.m. in the City Council Chambers to consider the 1988-89 budget was approved. Question: Ayes: All Nayes: None A motion made by Councilman Brumley, seconded by Councilman Moore, to schedule a public hearing September 6, 1988 at 1:15 p.m. in the City Council Chambers to consider the five-year Capital Program for fiscal years 1989 through 1993 was approved. Question: Ayes: All Nayes: None -000- Councilman Brumley invited everyone to attend "Sunday in the Park" on August 14th when he will be reading stories to the children and Southwestern Bell Telephone Co. will be hosting the activities. Councilman Lee reported that last week' s activities at "Sunday in the Park" hosted by the Girl Scouts was enjoyed by everyone and well attended. -209- August 9, 1988 Councilman Moore notified the Public Works Department that Walden Road is in need of immediate repair, questioned the traffic of the 18-wheelers using the feeder road instead of Major Drive, reiterated that in line with the "Citizen Friendly Policy, " attention needs to be focused on courteous service in answering questions and dealing with problems in implementing the automated garbage collection system, contractors working on City projects should also be notified they are expected to respond courteously to citizens, and reported the Mrs. Smith, a handicapped lady residing at 995 Legion, called regarding concern about trash pickup and in the course of conversation related an experience of taking her grandchildren to "Sunday in the Park" by commenting on the cross-section of attendees and expressed that she felt "Sunday in the Park" is one of the best things that ever happened to Beaumont. Councilman Samuel reported to Public Works staff that Mrs. Pierre Comeaux, 1840 Rena, 842-1610, has concerns regarding the blacktop and cement repairs at the corner of Rena and Bob, and Mr. John McKinney, 2131 Albany, 832- 4560, reported serious drainage problems, and announced the next "Concert on the Move" will be in Magnolia Park on August 25th featuring a rhythm and blues concert. Councilman Smith relayed to Public Works Director Tom Warner there is still a need for additional public education regarding leaves and small trimmings to be placed in garbage containers and not to be treated as an extra brush pickup. Mayor Meyers suggested use of the Newsletter as an additional tool for education. -000- Mr. C. L. Sherman, 585 Belvedere Drive, addressed Council to state he feels the large garbage collection containers will reduce the need for brush pickup and aid in balancing that portion of the budget, commended City Council and City employees on the "Citizen Friendly Policy" and complimented City Council for reducing the tax rate and appraisal values. -000- There being no further business, the meeting was adjourned. -000- I, Rosemarie Chiappetta, City Clerk of the City of Beaumont, Texas, certify that the above is a true copy of the Minutes of the regular City Council session held August 9, 1988. Rosemarie Chiappetta City Clerk -210- August 9, 1988 'U C.Ay Of BE'c�1�munt P.O. Box 3827 Beaumont, Texas 77704 (409) 838-0600 Office of the City Manager August 9, 1988 Honorable Mayor and Members of City Council Subject: Fiscal Year 1988 - 1989 Budget In accordance with the terms and conditions of the Charter for the City of Beaumont, I am submitting the budget for the period October 1, 1988 to September 30, 1989. INTRODUCTION The past fiscal year we were directed to meet certain challenges a lower property tax, institution of a limited street improvement program, implementation of an automated refuse program and control on expenditures. I feel we responded successfully to these mandates. But this year's challenge will be harder. And the creative avenues we choose now will determine our ability to function effectively over the next few years. We have seen a continual decline in property taxes over the past three year period, even though the tax rate of $ .69 has remained constant. The 5 percent decrease in assessed property valuations last year resulted in approximately $1 million less in revenues. Unless assessed valuations were to increase dramatically, i.e., 10 percent, or the tax rate for operations were increased $ .04, this $1 million represents a permanent decline in the City's revenue base. Because of the one time revenue from the 112 cent sales tax passed last year, the impact of this loss was delayed for one year. Thus, even with slight increases in some of the other revenue categories, the total General Fund revenues available for fiscal year 1989 are $868,660 below 1988 levels. Given the present property valuation and tax rate, we will not catch up to fiscal year 1988 actual dollar levels until fiscal year 1990 and possibly fiscal year 1991. Assuming our revenues had kept up with the average national rate of inflation over the past five years, we would see a graph as shown on the following page with 1985 as the base year. Beginning with 1986, each year's actual revenues are on the left side while the right side depicts the amount needed to keep pace with a moderate average annual inflation rate of 3.4 percent. if we assume that our revenue should keep pace with the national inflation rate, we are over $4.4 million short of revenue. In fact this year's operating revenue is only 3.1 percent above comparable fiscal year 1 985 levels. FXHIBIT "All Mayor and City Council Page 2 August 9, 1988 GENERAL FUND S Minions 40 30 cnb cco U*) c v co co c� to � Ld N° , ` r N 40 co vi A-*W AS" AWY *deb n Es&,*% 6�6etfo� Efin+r� UMip„ 1985 1986 . 1987 1988 1989 To adjust for this flat revenue stream, we have held expenditures at a level to ensure a fund balance between 7 and 10 percent of revenues. However, this has not been achieved easily. Since fiscal year 1985, the number of employees in the General Fund has decreased from 1,068 to 924, a 13.5 percent reduction in staff. There have been no civilian cost of living adjustments since January 1985. There has been virtually no general improvement program. Last year's capital budget for street maintenance and rehabilitation was financed from one time funding sources. Unfortunately, there is no immediate relief to our revenue problem in sight. In fact, over the next four fiscal years, without any change in the current tax rate and valuation, revenues are projected to increase by only a modest 1.85 percent annually, an increase which will not keep up with inflation. The permanent $1 million reduction reflected in our revenue base this year must be offset by a corresponding $1 million reduction in expenditures by the beginning of next fiscal year in order to preserve our fund balance. However, to close this revenue gap by continually cutting back expenditures, which translates into cutting positions and money to buy needed services, leaves the citizens with more unpatched potholes, more deteriorated sidewalks, inadequate drainage systems and dangerous structures that cannot be demolished. While the argument against any tax increase is clearly raised, most citizens do not want a reduction in the number of police and firefighters; they don't want the Emergency Medical System curtailed; they don't want limited library hours; and, they do want their streets repaired. Our revenue situation Is not unique. Cities throughout the oil belt are facing the same problem. Cost control measures have been taken, and more will be Implemented. But constant retrenchment, although expedient in the short term. has Mayor and City Council Page 3 August 9, 1988 long term implications and cannot help but limit a community's ability for economic recovery. Based on our commitment to the Council's intent, I am funding a minimal amount for drainage projects and, additionally, I am recommending partial funding for the Tyrrell Library restoration as part of the City's support of this project. It would be easy to skirt the issue of ongoing capital project funding, but I would be remiss in my responsibility to you and to our citizens if I did not propose a capital outlay program. I, therefore, am submitting a capital budget for your consideration. This budget is presented with the proposed project details in the Supplemental section of this document. It would be funded by a $ .055 property tax rate and, if adopted, would provide approximately $1.4 million for capital projects and infrastructure improvement. There can be no question that this is a critical transition year. Current General Fund operating revenues cannot support current operating expenditures. We were able to avoid this issue in fiscal year 1988 because of the 1P2 0cent sales tax wind fall. However, in order to balance the operating budget this year, we will have to draw down our fund balance by approximately $500,000. We were able to save approximately $500,000 in operating expenditures and ended fiscal year 1988 with approximately $400,000 more in operating revenues than was anticipated. This represents what I feel to be concerted fiscal constraint and 1 am pleased that we can balance our current operations without a greater reduction in fund balance. I am recommending the use of fund balance to a level of $2.9 million, of current revenues. It represents the only reasonable alternative given the present fiscal environment. I would not recommend a further reduction next year because in my estimation, anything below that amount would place the General Fund in a vulnerable position. During this fiscal year, Council Policies must be developed to close this funding gap. We have made productivity gains and will continue to make more. to addition to the 144 positions eliminated since fiscal year 1985, we plan a reduction of up to 40 more positions by year end. But beyond that, Council will need to identify services they feel are appropriate and then determine the funding method to cover the costs of these services. As we worked on our spending plans for this coming fiscal year, it became apparent that the economic constraints facing this organization demanded a rethinking of the entire operations within every department. I feel that in order to meet the challenge before us, it is imperative that we achieve greater efficiencies, more flexibility, more clearly defined areas of responsibility and consolidation of like functions. However, to respond organizationally from only the perspective of revenue constraints, ignoring the needs of the citizens and employees alike, would be unacceptable. Consequently, I have attempted to present a budget that is cognizant of the limited financial resources and yet, can accommodate continuation of strong basic services and responsiveness to the citizens of Beaumont. Mayor and City Council Page 4 August 9, 1988 THE 1988 - 1989 BUDGET The budget process was established, along with attendant policy considerations, to ensure that the direction of the organization is consistent with the City's commitment to a "Citizen Friendly" policy, cost reduction and improved productivity. BUDGE[ POLICY 1. General Policies - The City will attempt to maintain its present service level for all priority and essential services with a tax rate not to exceed -$ .54. No new services will be added without appropriate trade-offs. The City will attempt to address the long-term revenuelexpenditure gap through revenue .increases, productivity gains and cost containment efforts, taking into consideration policy direction from City Council. Through increased productivity, the City will strive to eliminate up to 40 General Fund permanent positions by the beginning of fiscal year 1990. Any position reductions will be handled through normal attrition and one time early retirement incentives. - The City shalt maintain equity relative to salary and benefit increases throughout all employee categories and classifications. - The City will strive to maintain a fund balance at least equal to 7 percent of revenues. User fees for the Enterprise Funds (Water, Sanitation, etc.) shall be established at a level related to the full cost of providing service including a payment to the General Fund for central services costs, in lieu of tax payments and franchise fees for the use of City streets if applicable. 2. Revenues The City will try to maintain a diversified and stable revenue system to shelter it from short-run fluctuations. - The City will follow an aggressive policy of collecting revenues. The City will review fees/charges annually and recommend fees that.keep pace with the cost of providing the service or the percentage of cost recovery stipulated by the City Council. Mayor and City Council Page 5 August 9, 1988 3. Capital Budget Policies - The City will endeavor to identify an on-going source of revenue for a pay as you go capital improvements program. - The City will strive to maintain its physical assets at a level adequate to protect the City's Capital investments and to minimize maintenance and replacement costs. - Efforts will be made to increase the percentage of the City's Community Development Block Grant allocations committed for Capital Improvements. 4. Budget Format This budget is organized by department. All activf ies encompassed in each department are presented in summary expenditure categories and divisional totals by department, regardless of the funding source. The intent is to present the scope of activity of each department and the funding sources allocated to support those activities. 5. Employee Compensation and Benefits An across-the-board cost of living increase of 2.5 percent is included in the budget for all City employees. The restoration of civilian employee benefits, which were eliminated following E.S.M., has been completed. 6. Supplemental Budget Suggested capital improvement activities and funding sources, not included in the formal budget, are presented for consideration in a separate supplemental budget. The fund summaries are restated in the supplemental section to show the impact of these proposed changes. 7. Debt Service With the reduction of the property tax rate to compensate for the 1/2 cent increase of sates tax, the percentage of the property tax rate required to service the City Debt has increased from 33.5 percent to 40 percent. This increase is not due to additional debt. Mayor and City Council Page 6 August 9, 1988 THE ORGANIZATION A major concern of Council's and one that I too support, is the development of high standards of customer service throughout the organization. In Council's recently adopted "Citizen Friendly" policy statement, it is clearly stated that the City Government should be perceived by citizens as good data processing programs are perceived by users, i.e., they are either friendly or not friendly. Like a good software program also, City Government should be efficient, helpful, convenient and prompt. But perhaps the most important ingredient for government is courteousness. believe that this policy directive can be fulfilled. In order to achieve this, I am recommending some changes in the current management structure to improve service efficiency and provide greater convenience to the public. This will be accomplished by consolidating similar functions and centrally locating them where feasible. It also will provide clear lines of staff responsibility and accountability. All health, environmental and safety-related inspection activities, emergency medical services and Fire Department functions, will be incorporated into a new Department of Public Safety. A Community Services Department will incorporate the activities of parks, recreation, convention and tourism, community facilities, public information and libraries. f am consolidating some of the central and internal services into the Finance Department and moving personnel, fleet, productivity and employee relations under the Executive Department. The management restructuring and consolidation is intended to focus on improved quality of customer service and provide greater efficiencies by eliminating overlapping areas of responsibility, thus, allowing for the phasing out of up to 40 positions through attrition by year end. BUDGET OVERVIEW REVENUES I am recommending an operating budget supported by a property tax rate of $ .54. The assessed value of taxable property within the City of Beaumont is $2,736,778,860. This represents an increase of .007 percent over last year. For fiscal year 1989, we are assuming a collection rate of 95 percent of current taxes which will result in projected General Fund revenues of $8,169,480. The decrease in property taxes reflects the adjustment for the 112 cent sales tax. Total sales and use tax revenues for fiscal year 1989 are projected to be $14,793,910. This increase of $2,081,500 is attributable to a full twelve (12) months of the 1/2 cent sales tax and an assumption of 2-1/2 percent in consumer growth. Franchise fees and industrial payments reflect a combined increase of $366,410, or 2-1/2 percent, over. current year estimates. This increase is due primarily to the higher electric rates for Guff States Utilities and a slight increase in industrial Mayor and City Council Page 7 August 9, 1988 payments. With the implementation of a specialized traffic enforcement unit, fines and forfeitures are projected to increase 27 percent over fiscal year 1988 estimates. However, user fees and service charges are anticipated to be below fiscal year 1988 estimates. Total General Fund operating revenues are projected to be $41,206,990 or 2 percent below estimates for fiscal year 1988. Including transfers in of $122,860 and other sources of $72,130, total current resources in the General Fund are projected to be $41,401,980 compared to $42,965,420 estimated for fiscal year 1988. Revenues from all funds sources, excluding capital projects, are projected to be at $89,993,080 or 2.8 percent above fiscal year 1988 estimates. EXPENDITURES GENERAL FUND This budget proposes total operating General Fund expenditures of $41,873,410 compared to an estimated $40,126,240 in fiscal year 1988, an increase of 4.3 percent. All currently funded service levels are included in this budget except dental services at the Health Clinic. The dental program was funded in fiscal year 1988 from the supplemental budget and expenditures were approximately $20,000. Increased expenditures are reflected in personnel costs and include $640,000 for a 2-1/2 percent cost of living adjustment, increases in employee health insurance, F.I.C.A., workers compensation and normal merit increases. With the proposed reduction of 40 positions in the General Fund, there will be an approximate $1 million decrease in personnel costs by the beginning of next fiscal year. Supplies are budgeted 1.8 percent below fiscal year 1988 estimates; services are 1.8 percent above current estimates and capital outlay has increased by 4.2 percent. Total General Fund appropriations are $43,464,480 compared to $42,792,120, a 1.6 percent overall increase. I am recommending that $2,062,500 be appropriated from fund balance as follows: Current Operations - $471,430 Transit Fund - 566,350 Tyrrell Library Restoration - 669,260 Insurance Fund - 232,500 Convention Facilities Fund - MIN uS--Q This leaves $2,900,004, or 7 percent of current revenues in fund balance. WATER FUND Due to the efforts of a citizen advisory committee, the revenue problems which existed in the Water Fund last year have been resolved. A new rate structure for Mayor and City Council Page 8 August 9, 1988 water and sewer usage was developed based on meter size and gallons used. The rate was set to accommodate five year capital construction needs for both systems as well as provide sufficient operating funds. The new rates will go into effect October 1, 1988. Total expenditures for fiscal year 1989 are estimated at $14,454,980, $3,910 over revenues. By comparison, in the fiscal year 1988 estimates, expenditures exceed revenues by $472,970 so this fund is in a much stronger position. LANDFILL FUND Landfill expenditures were $469,060 over estimated revenues for fiscal year 1988 reducing the fund balance to $71,990. However, revenues for fiscal year 1989 are estimated to exceed expenditures by $233,220 leaving a fund balance of $305,210 by year end. SANITATION FUND Significant operational changes have been implemented in the Sanitation Division. The automated refuse system proposed last year was modified to accommodate twice a week pick-up. This voter mandate necessitated the purchase of ten (10) additional automated refuse trucks and will require commensurate manning levels. It also delayed implementation of the new system requiring the retention of the two person per vehicle routes. New collection rates will be implemented on October 1, 1988. The combined rate for refuse and brush collection is $10.08 plus a $ .50 litter removal fee and $ .31 for landfill closure. The total fee will be $10.89 with a $1.00 discount for senior citizens. Expenditures exceeded fiscal year 1988 revenue estimates by $752,120 which were offset somewhat by a beginning balance of $449,347. A rate increase was anticipated and budgeted for May 1988; however the rate is now scheduled to go into effect on October 1, 1988, leaving revenues below budget by $138,000. The combination of lower than anticipated revenues and higher expenses relating to twice a week pick-up service has resulted in a negative working capital balance of $302,773. Fiscal year 1989 estimated expenditures are $52,590 below projected revenues which will reduce the working capital deficit to $250,183 by year end. SUMMARY Total expenditures for all activities, excluding Capital Projects, is $92,864,940 an increase of 5.5 percent over fiscal year 1988 estimates. CONCLUSION Although not the most upbeat budget I have presented, I feel it is basically Mayor and City Council Page 9 August 9, 1988 sound and addresses fully the fiscal constraints before us. There are some serious Policy considerations which we will present to you throughout this corning fiscal year and I am confident that we can work together and address these issues successfully. The first Work Session will be held on August 16, 1988. Additional sessions will be scheduled each Tuesday through September 20, 1988 with final adoption on September 27, 1988. I would like to commend the outstanding efforts of the Finance Department in the preparation of this budget, especially the efforts of Amy Barton, Kandy Daniel, Sue Brubaker, Carol Toups and Eva Jo Scott. This was truly team work and exemplifies the efficiency and productivity that can result when team work is put into practice. Finally, I express my appreciation to you for the effort and support that will be necessary as you consider the issues presented in this budget. Albert E. Haines City Manager AEH:ejs HOUSING FINANCE CORP. ]XCERPT, AUGUST 9, 1988 REQUESTED BY BETTY DUNKERLEY COUNCILMAN DAVID W. MOORE: At this time, I 'd call to order the Beaumont Housing Finance Corporation' s meeting, and at this time we' ll ask Staff to bring forward the presentation. CITY MANAGER ALBERT E. HAINES: Thank you. You have, the purpose for the meeting of the Housing Finance Corporation is to present to you the draft of the audit as performed by Peat, Marwick, Main and Co. I would call on Ms. Betty Dunkerley, our Finance Officer, to review that with the Board. I believe each one of you has received a copy of that audit along with Betty' s report. MAYOR MAURICE MEYERS: For the benefit of everybody present, could you capsule in about three sentences what the Housing Finance Corporation is and what brought it into existence? BETTY DUNKERLEY: The Housing Finance Corporation is a corporation, I guess formed by the City Council of the City of Beaumont, to issue bonds to help finance low- rate mortgages for first-time home buyers. There were $20,000,000 worth of bonds authorized, and at the present time, there are approximately $17. 5 million bonds still outstanding. This corporation has as its trustee, Texas Commerce Bank in Houston, to take care of the payments to the bond holders, the interest and principle payments. Then they have several organizations that help serve the mortgagees. And, the master servicer is Lomas Nettleton of Dallas. So, we have several entities involved here in handling the bonds that have allowed our citizens to get mortgages at a very attractive interest rate. The interest rates on the mortgage average approximately 9. 875% which is one of the things that is making the status of the mortgage in this corporation much more attractive than some other housing finance corporations in the region. The particular draft audit that you have before you covers the period ending May, 1987. This would have been a rather routine audit except that just prior to the issuance of this report one of the insurers, or the insurers of the mortgage pool, Tycor Corporation was order liquidated by the California Insurance Commission. The trustee has tried to secure additional insurance for that loan pool, and as of this time has been unable to do so. So, the auditors have issued an opinion that has a paragraph in it saying that they are uncertain as to the effect the loss of this mortgage insurance will have on the bonds. Your draft report has an opinion that will not be in the final report. Since this report was issued, the AICPA has come out with other standard audit report language, and your final attachment to the documents that we gave you, Attachment C, is a draft of what the new audit opinion will look like. The actual opinion statement looks like what we call a clean opinion. There' s no qualifying adjectives in it anymore, but they do still have that final paragraph that discusses the uncertainty surrounding that loss of insurance coverage. I spoke to the trustee and I spoke to the loan -1- servicer and they, on a positive note, did relate that our corporation is doing much better than any of the other corporations that they handle in this region. They said that because the City of Beaumont' s rate is so attractive on the mortgages, the mortgage holders are not apt to refinance that loan or let it go back. They' re staying in their homes, and they' re paying off those mortgages. Let' s see. The only other thing of note that I saw in the draft report was a receivable that the auditors noted of $55,108 due from the corporation. That represents an amount that was sent to us in error by Lomas & Nettleton, and that amount has since been returned to TCB in Houston. If you have any particular questions, I 'd be glad to try to answer those. I do think this is a pretty standard opinion. The auditors related they were qualifying, or putting in that uncertainty paragraph in all of the other finance corporations that they had audited in this Houston, in fact, the Texas area that were insured by Tycor. The trustee said that there was one other possibility for securing insurance, or securing some protection, in case of foreclosure on the mortgages, and that is to try to self-insure with using the amount of money that we currently use to buy the insurance. That' s about $19,000 a year. There' s some question as to whether or not the corporation can do that legally and keep the bonds in a tax-exempt status, but there is a decision pending in Chicago at this time and the trustee is following up on this, and if the ruling is favorable, at least we can start reserving that portion of the corporate funds that we could use to offset any delinquencies or losses that we would suffer in the corporation. At this time, there are a number of loans that are insured. We have approximately 381 loans, mortgages, in our pool at this time. Approximately 43 are covered by VA insurance and so would never need to call on that pool for coverage in case of default; 47 of them have FHA insurance; 268 have conventional insurance, of that amount some of those may have private insurance as well. So the loan, the mortgage pool would only be tapped, that insurance would only be tapped in those cases where you have a default on an uninsured mortgage, and when they sell the property, whatever the difference is between the mortgage amount and the sales, normally that amount would be covered by that mortgage pool insurance. So, it' s ah, you know we' re not exposed on all of the mortgages that we have. The amount of insurance that we' re trying to secure is about $1. 4 million for that loan pool. MAYOR MEYERS: I have a few questions. There was another issue if I 'm not mistaken, other than the $20,000,000 issue for the Housing Finance Corporation. I can' t recall if it came before this or after. MRS. DUNKERLEY• I ' ll have to check on that. I was just review those bonds that they audited. MAYOR MEYERS• This was a $20,000,000 issue, and then I seem to recall there was another issue. -2- SHERRELL COCKRELL: There was another issue for the Beaumont Multi-Family Housing Finance Corporation. MAYOR MEYERS• Was Tycor the insurance company? SHERRELL COCKRELL: I believe so. MAYOR MEYERS• Okay, then that would suggest that we ought to be the aggressor here and pursue that one now, rather than wait till they come to us. And, the $55,108 when did that come to us? BETTY DUNKERLEY: I don' t have that file with me, but there was more than $55,108 . They actually ended up sending us over a period of that year and the next year $170,000 in error which we returned to TCB. MAYOR MEYERS• Did they charge interest? To us. BETTY DUNKERLEY: No, this was a prepayment. MAYOR MEYERS: I know, but for the time period we had it. BETTY DUNKERLEY: No. MAYOR MEYERS• No. Who is now the contact person on issues like this? You? MR. HAINES• With the corporation? MAYOR MEYERS• Yeah. -3- MR. HAINES: That would be Betty. MAYOR MEYERS: I have no other questions. COUNCILMAN MOORE: Does any other member of Council have any question in regard to this issue? COUNCILMAN COKINOS: Ah, Miss Dunkerley, you and I have talked about this last week, is there any particular reason why the bond holders cannot get information on this particular program? BETTY DUNKERLEY: Well, the trustee handles the payment to the bond holders and the amount of the bonds that are outstanding. They' re very willing to give that information to the bond holders or investors that call. On the mortgage side, and this I think is where most of the people are interested. The master file is held by Lomas & Nettleton. So, although the trustee gets some information from them, they don' t like to release that information because it' s not coming from their reports. So, what I 'm suggesting perhaps is to work with Lomas & Nettleton and have them develop the report from their data base that would supply us with the information, and/or anyone else that had a need to know the status of those mortgages. They did fax me some information yesterday, and they will be sending a complete master file listing by mail within the next few days they said. But, that' s something we would need to work out with the loan servicer possibly, and coordinate that with the trustee. MR. HAINES• As a practical matter, the City or the Corporation, is really not in the information loop. Ah, that information loop is confined principally between the trustee and the administrator of the mortgage itself, Lomas & Nettleton. And, ah, we have had discussion with the trustee relative to disclosure of information, and although we may receive that information, it' s not timely. And, it' s important, particularly with the liquidation of Tycor which has precipitated a lot of questions or calls from bondholders. We do not, nor should we be expected to be in a position to have to disclose that information. And, it' s our position that it is principally because the trustee is the issuer of that payment between the trustee and Lomas & Nettleton that that ought to be done, and we think we 've gotten that communication question resolved. -4- COUNCILMAN MOORE: When do we expect to hear anymore about the insurance as far as the bonds are concerned? I understood you to state that three other levels of insurance coverage that the mortgages have, but are we looking for a carrier for the balance of the bonds? BETTY DUNKERLEY: My understanding that the trustee, TCB, and Lomas & Nettleton have contacted most of the major insurance carriers and have just been unable to get insurance at a reasonable price. I think they've gotten, they have one or two quotes at five to ten times the premium that you would normally pay. So they, they in essence are just saying that it' s really not available at this time for this type of issue in the region that, in Texas. They' re waiting that ruling on if we can use the other funds in there to build up a pool, a self-insurance pool of our own. So, at this time, those are the options. COUNCILMAN MOORE: Would you make us aware of that ruling as soon as it becomes available? BETTY DUNKERLEY: Okay. COUNCILMAN MOORE: Any other questions? MAYOR MEYERS• What is Tycor' s financial position? Is there anything recoverable from them? BETTY DUNKERLEY: Well, I spoke with one of the trustees yesterday. Rather, with one of the auditors, I believe. Of course, it' s been ordered liquidated by the California Commission. There' s some rumors going around that perhaps the insurance Commission in the State of California may try to do something to extend the coverage that Tycor had in order to keep up their reputation in the area. That' s simply a rumor at this time, and as far as I know, we really can' t expect anything concrete from them at this time. COUNCILMAN MOORE: If there are not any other questions of Council, then we will. This is basically informational purposes for Council today, right? -5- BETTY DUNKERLEY: One thing the auditor did ask me to do, as liaison to your committee, is to relate to them by memo any comments that you might have relating to the draft audit. And, in addition, you may want to know that they are in the process of auditing the 1988 fiscal year. They' re, you know, several weeks away from completing that, but it won' t be too long before we' ll be bringing you another draft back for the year ended, ending May of ' 88. So, if you have anything you want me to enclose in there, or state in there, I ' ll be glad to do so. COUNCILMAN MOORE: Council? I guess all the comments have already been made, so at this time we will close the Beaumont Housing Finance Corporation Board of Directors meeting, and go back to our regular session. -6-