CITY OF SHAWNEE
COUNCIL COMMITTEE MEETING
April 4, 2017
|Councilmembers Present ||Staff Present|
|Councilmember Pflumm||City Manager Gonzales|
|Councilmember Neighbor||Deputy City Manager Charlesworth|
|Councilmember Jenkins||Assistant City Manager Sunderman|
|Councilmember Kemmling||City Clerk Powell|
|Councilmember Vaught||Assistant City Attorney Dehon|
|Councilmember Meyer||Finance Director Rogers|
|Councilmember Sandifer||Public Works Director Whitacre|
|Councilmember Kenig||IT Director Bunting|
|Development Services Dir. Wesselschmidt|
|Planning Director Chaffee|
|Police Chief Moser|
|Fire Chief Mattox|
|Parks and Recreation Director Holman|
|Deputy Planning Director Allmon|
|Human Resources Director Barnard|
|Human Resources Manager Dawald|
|Codes Enforcement Officer Powell|
|Communications Manager Breithaupt|
|Business Liaison Holtwick|
|Neighborhood Planner Grashoff|
(Shawnee Council Committee Meeting Called to Order at 6:58 p.m.)
A. ROLL CALL
COUNCILMEMBER KENIG: Good evening. Welcome to tonight’s Council Committee meeting. My name is Brandon Kenig. I am a Councilman from Ward IV and I am the Chair of this committee. Besides myself, the committee members here tonight are Jim Neighbor, Ward I; Dan Pflumm, Ward I; Eric Jenkins, Ward II; Mike Kemmling, Ward II; Jeff Vaught, Ward III; Stephanie Meyer, Ward III; Mickey Sandifer, Ward IV.
Before we begin our agenda I’d like to explain the procedures for public input. During the meeting I’ll offer the opportunity for public input. If you would like to speak to the Committee at any of those times, please go to the podium. I will ask you to state your name and address for the record, and then you may offer comments. So that members of the audience can hear your comments, I ask that you speak directly into the microphone. By policy, comments are limited to five minutes. After you are finished, please sign the form on the podium to ensure that we have an accurate record of your name and address.
1. EDUCATIONAL PRESENTATION ON TAX INCREMENT REVENUE BONDS
COUNCILMEMBER KENIG: There are three items on tonight's agenda. The first item is an Educational Presentation on Tax Increment Revenue Bonds.
Tom Kaleko from Springsted, and Joe Serrano of Kutak Rock will make an educational presentation on Tax Increment Revenue Bonds. Although Shawnee has not used TIF bonds as a public financing vehicle, they have been used for commercial projects in other communities around the metro. And this presentation will provide an overview of uses cases, advantages, and disadvantages.
Welcome, Tom and Joe.
MR. SERRANO: Thank you, Chairman. Good evening, members of the Committee. I’m Joe Serrano with Kutak Rock, the City’s bond counsel. With me is Tom Kaleko of Springsted, the City’s municipal advisor.
Our presentation tonight is entitled Development Financing and Special Obligation Bonds. It’s not intended to be a comprehensive review of all the economic development incentive tools that are available. It’s really to focus primarily on TIF with a blend of CID or community improvement district financing.
The purpose behind our presentation is, of course, it’s informational. We’ll provide an overview of TIF and CID. We’ll talk about special obligations bonds. We’ll touch on development agreements and conclude with considerations that the City may entertain and determine whether to grant a certain incentive.
We welcome any questions that you may have throughout our presentation. Of course we’ll stand for questions upon conclusion also.
Development Financing and
Special Obligation Bonds
[TIF (Tax Increment Financing) Overvierslide]
The first slide is a very simple illustration as to tax increment financing or TIF. The column on the left Without Project Cost, this is to set forth that this is the base property tax in a potential area that may be redeveloped. The base property tax, let’s say for instance it’s raw land. It’s generating $5,000 of real property taxes. That’s our base property tax. What we’re dealing with in tax increment financing is that incremental increase. In the second column you’ll still have -- I’m sorry the base property tax is that property tax that will be distributed to the various taxing jurisdictions. The base property tax in the next column stays with the same. We’re dealing with an incremental tax. The little gray area is that portion that’s peeled off for the state and the school district. But the bigger, the block that shows property tax increment, that’s the focus of our attention this evening. That’s that revenue that may be generated from a redevelopment project area that could be used to either refinance, I’m sorry to reimburse a developer or to debt service bonds if they have been issued.
The final two blocks on the right, those are also additional revenues in a TIF district that could be pledged for, again reimbursement or repayment debt service on bonds.
[TIF Details and Requirementsslide]
Very generally a tax increment financing or TIF is generally used for land acquisition, public infrastructure, site improvements, but it’s not used for vertical construction.
Very briefly I want to talk about the process. The process is really two distinct proceedings. One is the creation of a TIF district and the second is the approval of the project plan. In the creation of the district you have to determine that the area is eligible. It has to be an eligible area. Eligibility is determined either by blight or it’s a conservation area, or it’s a major commercial entertainment and tourism area. So, that’s a determination to create the district itself. We’ll talk a little bit about the project plan.
The financing that a TIF can again be made either through reimbursement or by the issuance of certain bonds that we’ll talk about this evening, we’ll talk a little bit further about reimbursement in just a bit.
The revenue sources again, that’s that incremental revenue that we touched on in the first slide as well as maybe the City’s incremental sales tax. And the reason why I bring up the project plan area, the approval of the project plan, it’s 20 years. A revenue stream can be diverted for a 20-year period from the approval of that project plan. So, two distinct areas. The district can be created. You can have multiple project areas within the district. But the revenue on that project, that particular project area is diverted for the 20-year period.
[CID (Community Improvement District)slide]
Briefly, Community Improvement District. I think the City has some TDD’s. A CID is very similar to a TDD. It’s a similar process. It’s a special taxing jurisdiction. It’s a process by which you go. The City may proceed to create a district. The revenue source is importantly and the difference between a TDD and a CID. A CID allows for a broader range of costs that can be reimbursed. A TDD is really limited to transportation, parking, road improvements. Whereas, a CID can be broader than that and can include vertical construction. Again, similar to TIF, CIDs can be financed with bonds or with reimbursement. And the revenue sources are -- you can have an add-on, up to two percent add-on sales tax within the retail sales within the district or a special assessment within the property within the district.
Payment options. Three specific payment options. We talk about reimbursement. We term it as pay-as-you-go. I know you guys -- you have pay-as-you-go in the City of Shawnee. That is over the life of that district. Those revenue streams that are generated within the district will be diverted or reimbursed or paid back or paid -- reimbursed to the developer to pay for those eligible costs. Eligible costs are those costs that are statutorily allowed and those that are approved by the Governing Body.
Two different types of special obligation bonds. It’s really one special obligation bond, but there’s a subset of that. Special obligation bond is that it’s a bond that’s issued, and Tom will talk a little bit more about the bonds. But it’s a bond that’s issued. The revenue of that blue bullet in our first slide, that revenue, that additional revenue, incremental revenue will be pledged to pay back those bonds.
The subset is a special obligation bond with GO backing. We don’t see this very frequently in our practice. But the statute allows, and the City’s policy allows for special
obligation bonds that also include the full faith and credit of the City to effectively levy ad valoremtaxes to debt service the bonds.
I’m going to turn it over to Tom to talk about special obligation bond structuring, safety nets, and other considerations.
MR. KALEKO: Thanks, Joe. All right. So, for purposes of my remarks I’m going to talk about special obligation bonds and I’m going to refer to them as TIF bonds because I think that’s kind of how they’re colloquially known. And it’s just a whole lot easier to say than special obligation bonds. And also as relates to TIF bonds, we’re going to be focusing on the without the City’s general obligation backing. So, just pure TIF bonds. And also assuming the scenario is such that we’re issuing the bonds prior to construction of the project. So, that’ll be kind of constant through all my remarks.
[Special Obligation Bonds (“TIF” Bonds)slide]
So, what are some advantages? Why would a developer wish to pursue TIF bonds? There’s a couple of advantages. One is that there’s just a lower borrowing rate. Generally TIF bonds are tax exempt, which means that the interest that the bondholder earns is exempt from typically federal and state income taxation. So because of that, they receive a lower rate than say a commercial one. So, it has advantages in that respect.
The other is just diversification of risk. When you’re talking about a land development deal oftentimes these tend to be riskier business enterprises. And it’s hard to find a single lender sometimes who wants to take on all the risk of the development. And developers will seek sometimes multiple lenders to diversify that risk. And essentially the bondholders become one of the lenders and help diversify that risk.
Some considerations for the City. If, and I’m going to talk about credit rating here in just a minute. But if a TIF revenue bond goes into default, the City would not be on the hook so to speak to make the bond payments. But some may perceive it as damaging to the reputation of the City to have a failed bond project. So, there is some perception of what I call reputation risk.
I will also tell you that issuing these kinds of bonds do put some pretty severe demands on your staff, particularly your finance staff. Generally the projects require some fairly voluminous documents. It takes a bit of time to review multiple drafts. There tends to be working group meetings on a regular basis, so it can be somewhat demanding on your staff, both during the issuance process as well as post because you’ve got, you know, to administer, you know, the revenues coming in and make the certification of costs and all that kind of thing.
So, I alluded it. The security for a TIF revenue bond is specifically the project revenues. And those are usually that incremental increase in property taxes that Joe alluded. So, you’ve got those base taxes. And then as a result of the project the assessed value goes up, so now the property taxes go up. Certain of those are allowed to be redirected then to reimburse the developer for eligible costs. So, that’s an incremental increase in taxes.
You can also have incremental increase in sales taxes. So, the City or some portion, all or some of it, or some portion of the City’s increase in sales taxes can also be redirected to pay the bond debt service.
There are various other revenue streams that are sometimes hit. If you have a GO backing, then obviously the City’s GO pledge is also one of the potential revenue sources. And these days we typically see with just about every TIF project it being paired with some form of special purpose district, whether that’s a community improvement district (CID) or a transportation development district (TDD), typically you see those paired. Sometimes you see all three. So, it’s kind of that alphabet soup of economic development.
When you pair them sometimes you end up with the need to issue both a tax-exempt and a taxable issue. It has everything to do with kind of the sources and uses of the money. But if you end up with both a private source and a private use, then that sometimes can trigger the need to have both a taxable and a tax-exempt issue.
So, I want to stress again because this is an important point that unless the bonds are GO backed, so unless you do the GO backing, then the City is under no obligation to make the debt service payments should those pledged project revenues that we just talked about be insufficient. That is the bondholder’s risk. And that is why these bonds, why TIF bonds, development revenue bonds in general will be issued at a higher interest rate than say your general obligations bonds. That’s the bondholder’s compensation for taking on that high, you know, the higher risk that’s associated with a development project.
So, the question I’m often asked when I’m talking about TIF bonds is, well, if there’s a default, what’s the impact on the City’s credit rating. And I would tell you that first of all oftentimes bonds of this type are not rated. They just -- they’re not secure enough that they can achieve an investment grade rating and so they’re oftentimes sold without a rating. And again, that’s why the interest rate tends to be higher.
But a default of a pure TIF revenue bond with no GO backing does not impact the City’s general obligation rating. They are two, seen as two totally independent things by the rating agency. We’ve talked a little bit previously about the reputation risk and that’s out there, but it would not have an impact on the rating.
Now, I will tell you that if a city gets a pattern of defaults on development revenue bonds like TIF bonds, then the market starts to become somewhat wary of purchasing similar debt from that municipality. It may make it hard to issue development revenue bonds by that entity. The interest rate may rise and ultimately it may be impossible. So, a pattern can have an impact. But again, it would not impact the general obligation rating.
[Bond Structuring & Marketingslide]
I want to talk a little bit about the structure and marketing. It’s important to recognize that TIF bonds aren’t always marketable. There is not always a ready group of investors out there eager to purchase them. There are a number of risks that get transferred from the developer to the bondholders over the course of issuing TIF bonds. If the bonds are sold prior to the construction of the project you have construction risks. The risks that perhaps the project won’t be able to be built at the anticipated cost, that the cost may rise. There may be delays in construction, bad weather, material becoming unavailable. All those kinds of things that can increase the cost, delay the timeline, delay the opening, which of course has an impact on the project cash flow.
You have a whole variety of market risks and we can talk about that all night. But we’ve all seen projects where they open up and one or more tenants close within a relatively short period of time because of changes in the marketplace. We all know that particularly retail is a very, quickly, evolving market right now. And we see, you know, we see concepts come and we see them go. You can have a recession like we all just lived through. There are a whole bunch of things that can influence the market and influence the success of a project.
You have legislative risk. We know -- Joe just talked about the TIF laws. This is the way we know them today. This legislative session, next legislative session the legislature could change the rules. And those changes could have an impact on the success of the project. The manner and the limits on property taxes, sales taxes could be changed legislatively. That would have an impact. The federal government could make new rules on the taxability of interest on municipal debt. That’s actually being talked about. So, there are a variety of things that could influence a project legislatively.
And then you have event risk, which is just a whole cornucopia of different things from, you know, having a loss due to a fire, earthquake, flood, something that obstructs the ability of the businesses to do business for some period of time, just a whole host of events. So, all those risks get shifted from the developer to the bondholder in the course of doing it.
So, how do you address those? And I will tell you that obviously when you’re issuing TIF revenue bonds no city wants to see a default. But even more than that the bondholders don’t want to see a default, right? So, there are a wide number of things that have been developed over the years to address this shift of risk. There’s a great deal of due diligence that gets performed on any of these projects before the bonds ever get offered. And that due diligence is performed by a whole team of people that are working for the city, an underwriter, bond counsel, a market feasibility consultant, financial advisor.
[Bond Structuring & Marketing (cont.)slide]
So, let’s talk about what some of those, what I’m calling safety nets, would be. And you can see it’s a pretty long list. So, you can tell that over the years there’s been a great deal of work done by some very creative people to figure out ways to mitigate some of these risks that we just talked about. First of all, the most basic one, you’ve got to have all your legal ducks in order, right? Your TIF has got to be properly set up if you’re using a CID or a TDD. All that has got to be set up. You’ve got to get through the planning and zoning process, have all your authorities, all that stuff, that’s kind of basic. You’ve got to have that done.
To address the construction risk, typically what we see is in order -- before you can issue bonds you’ve got to go out and get a real construction company to give you a guaranteed maximum price contract. We promise you that this project will cost no more than X. That’s a basic requirement most times.
You’ve got to have proof of site control. You’ve got to know that you have, you know, either have the land or have a direct path to the land. Again, if you’re going to construct, prior to opening, you’ve got to have tenant leases and land sale contracts. You know, I’m not talking about letters of intent. Those don’t count. You’ve got to have actual signed leases, binding leases and land sale contracts.
Something that’s often -- a tool that’s often used because as you can imagine there’s a ramp-up period. You’ve got to construct the project. You’ve got to get the tenants in there, get stocked, get open for business.
And even then there’s a lag, right, between when the sales taxes start getting collected, they get reported over to the state and then they find their way back to the localities. The same thing with the property taxes, so there’s that lag. And the way that lag is generally addressed is through some capitalized interest and deferral of principal. So, typically for a TIF revenue bond they won’t start paying principal and interest for some period of time. Typically through that construction and start-up.
One of the most critical tools to address risk and to address the market risk is TIF revenue bonds is what’s called a debt service coverage ratio. And that is simply, okay, for every dollar of debt service, how much revenue are we going to forecast. And so commonly what you’ll see in a TIF revenue bond is we’ve got -- for every dollar of debt service you’ve got to have forecasted $1.35 of revenue. But it ranges. And it depends on, you know, the unique aspects of the project, what the revenue sources are, how much diversification there is. There are a whole host of things. And it can range from, say $1.10 for every dollar of debt service to, say $1.50. But $1.35 in today’s market seems to be about the norm.
Another tool to address market risk is a debt service reserve. Typically they’ll structure these bonds with a reserve, some money set aside. That’s more or less about a year’s worth of debt service. And again, that’s here to help address that market risk. You’ve got a dip in the economy. One of your tenants leaves or multiple tenants leave, it gives you time to get things back on track. It’s not a complete solution, but it often gives projects time to correct themselves.
When issuing these bonds the underwriter isn’t really interested in what the developer thinks the revenues will be. Typically there’s a third-party market feasibility consultant engaged, and it’s typically engaged by the city, who specializes in whatever type of project it is and forecasting out what those project revenues, what the tax increment revenues will be, and what’s the likelihood. So, they look at the trade area and competition and like projects and like businesses and then come up with a revenue forecast.
One other tool that’s -- I lump in with safety nets is a lot of cities have concerns that since the bonds will bear their name that potential investors could possibly mistake and think that this is akin to a general obligation bond and it has that safety of investment. And so to protect against that they often will restrict who can purchase the bonds. And that restriction is done through a couple of ways. There are specific definitions in the tax code of what are called sophisticated investors. Generally these are institutions and wealthy individuals. And so they’ll restrict the purchase of the bonds to that.
And then another kind of extra tool along those lines is to say, okay, the bonds have to have denominations of $100,000. Typically bonds as you may know are sold in $5,000 increments. Much more reachable to the average household. At $100,000, clearly you’re going to push it towards more sophisticated investors. And then again, remember I said that, you know, nobody wants a default. Nobody wants to avoid a default more than the bondholder.
So, one of the things that bondholders like is they like to see these bonds paid off as quickly as possible. Because they know that, you know, there’s all that market risk out there, things change. And so a common provision is what’s called mandatory early redemption. What this does is to the degree that revenues exceed what was anticipated, so you’ve got some quote, unquote, “extra money.” There’s a requirement that that extra money be used to pay off bonds early. So, oftentimes you’ll see TIF bonds structured with this mandatory early redemption. So, they may have a term of 20 years, but you’ll see language of, well, it’s a term of 20 years, but anticipated to pay off in 15, for example. Because remember you’ve got that coverage, right. You’ve got that $1.35 of revenue for every dollar of debt service. So, even if you’re just hitting your coverage, you’ve got some extra money each year. So, that helps with that mandatory early redemption.
One other safety net that’s out there that we see cities utilize a lot of times is they say, okay, we really are only interested in issuing TIF revenue bonds once the project is constructed and has operated for some period of time. So, you’ve passed the construction risk and you now have more easily to forecast out revenues because you have at least some experience.
[Bond Structuring & Marketing (continued)slide]
All of the “safety nets” impact to some degree a developer. And many of them impact the amount of bond proceeds that the developer can receive. The higher the coverage factor the less in bond proceeds is available at the outset to the developer. The same thing with debt service reserve. So, all these things get into that.
So, there tends to be a little bit of negotiation oftentimes through the TIF bond issuance process about these various safety nets. And oftentimes, it’ll end up pushing the developer and the city back into a renegotiation of some of the basic deal terms.
[Bond Issuance Process Provides Due Diligence and Disclosureslide]
So, let me try and put that in context. And I’m going to walk you through, admittedly, a very abbreviated description of the process that would be taken to issue TIF revenue bonds.
So, the first step is the city selects its financing team. Most cities have like you do, they have a bond counsel. They have a municipal advisor on board. But they add to that team and underwriter and a market feasibility consultant.
Once that working group is in place there is a fairly lengthy due diligence request that is sent out to the developer. And it addresses a lot of things that I just talked about, legal authorities, guaranteed maximum price contracts, proof of site control, tenant leases, land sale contracts, information about the developer itself, its managerial and financial capacity, all kinds of things.
The market feasibility consultant then does its work, projects out the revenues. One that’s in hand, the underwriter takes that market feasibility revenue forecast and then starts applying things like interest, coverage, debt service reserve, any escrow for vacant space to arrive at what are the estimated bond proceeds that would be available to reimburse the developer for construction costs. At that point bond and offering documents are prepared. As you I think probably know there will be an official statement which is, you know, the public version of a prospectus that will be prepared. It will be thick. It’ll be heavy and it will go into great detail on the risks that are involved in the deal and disclose any risks that are out there.
Finally, we have marketing, sale and closing. And if we have buyer limitations like I alluded to earlier, those buyer limitations will be applied during that marketing and the sale process.
With that, I’m going to turn it back over to --
MR. SERRANO: Do you want to highlight some of those [inaudible]?
MR. KALEKO: Oh, what did I miss? Oh, I’m sorry. Sorry. I have one more slide.
[Due Diligence and “Safety Nets” are not a Guarantee of Successslide]
One thing I do want to point out is that, you know, that due diligence process and the safety nets, while they are exhaustive, they are not perfect. And you do see some projects, some TIF revenue projects go into default. Not all of them. There are successes. And like anything there are successes and there are failures. We’ve highlighted a few projects here on both sides of the ledger. It’s not meant to be an exhaustive list and we didn’t pick these to pick on anybody, but some that you may be familiar with that are struggling. There’s the Olathe Gateway project and the Falls at Crackerneck Creek in Independence. Some projects that have been success are Summit Woods in Lee’s Summit and Adams Dairy Landing in Blue Springs.
You know, and as you might expect the typical cause when we see TIF revenue bond projects struggle typically is the market. Right. There has been a downturn in the market, a change in the market that impacts particularly the tenants and creates vacancy or, you know, sales decline.
Okay. That’s it. Thank you.
MR. SERRANO: We’re going to wrap up with a few additional slides. One of the considerations is continuing disclosure that the City may have. If the City issues bonds, what’s their continuing disclosure obligation. They will have a continuing disclosure obligation even if it’s not GO backed.
The City has an obligation to report revenues and material events. For instance if there’s a draw on the reserve, a debt reserve. The developer will have obligations to report how the construction is going, any kind of material event associated with the construction, the tenants that are under lease, if a tenant leaves, so there is an ongoing disclosure obligation. I mention this because it has an impact on City staff. It could have an impact on City staff and their involvement.
And also the importance that may flow through to your actual general obligation offerings, your straight up municipal debt if there is a material event that is not timely reported. For instance, there’s a draw on the reserve and it’s just failed to be reported. That’s a violation of your ongoing disclosure and you will have to report that ongoing -- that failure in your official statement for your general obligation debt. So, that was the purpose behind just the continuing disclosure. It’s not tied to anything particular.
[City’s Policies and Alternativesslide]
Policies and Alternatives. We’ve already touched on the policies of the City for CID and TIF includes the types of financing that we’ve discussed today.
Other alternatives. Tom had talked about some of these. These are the two examples. We were, in the context of this presentation it really was issuing bonds prior to construction. As Tom alluded to you can delay that timing of when you want to issue bonds, make sure that the project is operational. Take out a construction loan. If a construction loan is financing that at a later time. The other thing that Tom alluded to is privately place the bonds with sophisticated investors, or maybe even placing those bonds with the construction lender.
Development Agreement. Just a few quick highlights on the development agreement. The development agreement is your agreement that controls the parties’ rights and obligations throughout the duration of the incentive. There are common provisions that we include in there. I’m not going to go through the list. This is where we would embed a TIF cap. The maximum amount that the City is willing to reimburse the developer. We would have performance milestones. When is the project to start? When is it projected to be completed. We would have clawbacks. If for instance a typical clawback is -- we want it completed three years out. And if you don’t complete it we’re granting you a 100 percent TIF. But if you don’t complete it within the period of time without cause, then we’re going to reduce that TIF amount, maybe bring it down to 80 percent TIF, or reduce or shorten the life of the district. That development agreement is beyond the scope of our presentation tonight. But that’s the crux, that’s the contract that will last for the duration. It’s important.
One of the bullet points I did want to highlight is the second bullet point under the Common Provisions. “An agreement on the type of items that the City will reimburse with incentive revenues.” Some cities may limit what actually the type of revenues they want to -- what type of expenditures they will reimburse. For instance, a city may say we will only reimburse for public infrastructure or extraordinary site improvements or something along those lines. So, that will include whatever the City determines is important for the incentive.
[Additional Considerations Regarding Use of Incentivesslide]
Additional Considerations, again, not an exhaustive list. This is where we conclude is things to consider if you are determining whether or not to grant an incentive. Again, not an exhaustive list. But things just to kind of highlight what will the City gain in both the short term and long term. Will there be some services that will be required. Will we have police and fire, additional services that may be necessary to account for. What are the types of uses that the City may want to incentivize. Do we want to limit the dollar amount.
[Additional Considerations Regarding Use of Incentives (continued)slide]
Again, the next page, and we’ll conclude with this page. Does the City want to set performance milestones. Importantly, if you can reimburse it on a pay-as-you-go basis as opposed to issuing bonds, do you want to do that? For instance in STAR bonds, which is not this presentation. But STAR bonds you actually have to issue bonds, whereas, in TIF and CID you could do as pay-as-you-go financing. The final bullet point is important for us I think to impress that once bonds are issued, Tom had mentioned it, it’s just the risk. Also once you issue bonds, once bonds are issued the leverage that we’ve placed in a development agreement, those clawbacks are kind of by the wayside because now we owe an obligation to the bond owners. So, it’s very important if we do proceed to -- if a city does proceed to issue bonds, to understand -- again, this is informational, but there’s a lot of details. But importantly, if bonds are there the ability to clawback or leverage that incentive is pretty much gone by the wayside because you put a hold into bond owners.
With that, that’s the conclusion of our presentation. Again, we stand for any questions and we appreciate your time this evening.
COUNCILMEMBER KENIG: Thank you. Any questions from the Council? Councilman Jenkins?
COUNCILMEMBER JENKINS: Yes, I have a couple questions just to help me clarify in my mind what’s going on here. Who actually pays for the bonds? Who pays the bondholder -- the share -- the bondholders? Is that the developer does that? Or is that because the -- you have to tax abatements that the City is paying, actually paying the bondholder? I mean, who does, you know, how does this work?
MR. SERRANO: So, if bonds are issued, bonds would be issued and there would be a buyer for that bond.
COUNCILMEMBER JENKINS: Right.
MR. SERRANO: That revenue that comes in is then used to -- is effectively allocated to the developer to pay for project costs in a pre-construction situation. Who pays for the bond owners who had actually purchased those bonds?
COUNCILMEMBER JENKINS: Uh-huh.
MR. SERRANO: It’s the revenue stream that is generated over the life of the district will be used. So, for instance let’s just take a quick example. If in my example there was $5,000 of a base value and there’s an improvement on that property and the property tax increases to $20,000 a year. That incremental revenue of $15,000, a portion is peeled off for the state and the school district. But the balance is used to repay those bonds over the life of the district.
COUNCILMEMBER JENKINS: I’m trying to get it in my head because --
MR. KALEKO: Yeah. Let me just add to it because I think --
COUNCILMEMBER JENKINS: So, we’re paying -- you’re paying the taxes, but the taxes are basically coming back to settle the bond.
MR. KALEKO: Right. You used the word --
COUNCILMEMBER JENKINS: Is that’s what’s going on? I’m trying to get this --
MR. KALEKO: Yeah.
COUNCILMEMBER JENKINS: So, it’s kind of -- the money is just looping around from -- and back to the bond.
MR. KALEKO: I noticed in your question you used the word abatement. And it’s a common -- I noticed in your question you used the word abatement. And it’s a common misconception because I know typically you work more with tax abatement. This is actually what I would term tax redirection. So, the taxes are still paid. But rather than flowing to the taxing entities, they are redirected to be then used to either on a pay-as-you-go basis pay the developer for their eligible cost, or in a TIF bond case to pay the bondholders.
COUNCILMEMBER JENKINS: Okay. That’s what I thought you were saying.
MR. KALEKO: Yeah.
COUNCILMEMBER JENKINS: But I wanted to make sure I was on the same track and I had that right in my head. The other question I had was we talked about – well, you talked about it on a couple slides previous to this, the failure to disclose. The City had some obligations to make some disclosures if there’s some issues there. That’s nice. What if we are in violation, what happens to the City? Is there some sort of authority out there that fines the City? Or, you know, what’s the result of this violation?
MR. SERRANO: It’s not a penalty, a necessary penalty. There’s an obligation in SEC rules that says that you have an ongoing obligation to report. And if you fail to report, then you have to report that. You subsequently will have to report it on a national server. But importantly, you would have to report that in your offering or official statement for general obligation bonds. The city has failed to timely file a material event. Even on a special obligation without GO backing that will have to be reported in the offering statement or official statement for general obligation bonds, which effectively could have some impact on the credit over a period of time, the City’s credit.
COUNCILMEMBER JENKINS: So, it’s not much -- there’s no financial penalties or anything.
MR. SERRANO: No.
COUNCILMEMBER JENKINS: It’s more you get a black eye.
MR. SERRANO: Right.
COUNCILMEMBER JENKINS: Or bad P.R. and stuff. You go through this process again, oh, yeah, I remember those Shawnee guys. They didn’t do a very good job of this and so on and it’s going to affect you in future considerations. Is that what you’re saying?
MR. SERRANO: That’s generally a nice summary.
COUNCILMEMBER JENKINS: Okay. Thank you.
COUNCILMEMBER KENIG: Councilmember Meyer.
COUNCILMEMBER MEYER: Yeah. Thank you for this presentation first of all. I think it was really helpful. I’m trying to wrap my mind around kind of a new concept here. So, it seems to me, and from everything I’ve heard and from you all that it’s somewhat common on the Missouri side. How common are TIF funds being issued on the Kansas side? It was kind of the first I had heard of it, so.
MR. KALEKO: You’re right. It is more common on the Missouri side of the metro. On the Kansas side of the metro it -- there are a number of them. Particularly over the last decade or so there have been a number. But you’re right, now as frequently as the Missouri side of the metro.
MR. SERRANO: There is a -- the Meadowbrook development has TIF bonds that are outstanding. So, those are recent bonds that were issued for a portion. I think it was mainly for acquisition land, but I haven’t studied that.
MR. KALEKO: Olathe and I think there are others. But I’m sorry none come to mind.
COUNCILMEMBER MEYER: Yeah. I think Overland Park had as well, so I heard, so. Yeah. Maybe I just didn’t realize they were as common as they are. So, thank you.
COUNCILMEMBER KENIG: Councilmember Vaught.
COUNCILMEMBER VAUGHT: So, you talked about bond sales and the ability to sell the bonds. So, obviously the reputation of the developer would have to come into play there, correct? So, you would have to have -- for a developer to be able to sell bonds you must have a proven track record I would think or the bond market would look rather unfavorable on you or have the backing of someone with a reputation, correct?
MR. KALEKO: One of the sections in the official statement, the offering document, will address the developer. Who are the principals of the organization? How long have they been around. What other projects have they done, all that kind of thing. So, you’re right. If that section is particular weak that definitely will impede sales and it may -- it could, you know, if it was weak enough, you may have an underwriter who just says I’m sorry, you know, I can’t get these bonds sold because this is too weak.
COUNCILMEMBER VAUGHT: So, where my head is going with that I would think is when we do pay-as-you-go ones we’re kind of at, I mean, we look on the surface, and obviously staff does due diligence who is the developer. But it would seem like the scrutinizing of the developer has got to be much greater in a bond sale than a pay-as-you-go. I mean you have to, I would think there is -- because now there’s so much money and now it’s an investment offering that there’s got to be some pretty heavy scrutinizing who this developer is versus -- because a pay-as-you-go there is no, I mean, we’re fed the information and we know who it is. And you look at -- but there is not this massive undertaking of do they -- are they -- do they have the ability to do this and what’s the risk.
MR. KALEKO: Yeah. It’s important to keep in mind that in a pay-as-you-go the entity that is at risk if the project doesn’t meet expectations is the developer itself. So, typically we see less due diligence on a pay-as-you-go project than we would on a bond project.
COUNCILMEMBER VAUGHT: Okay.
MR. KALEKO: Where that risk is getting shifted to entities other than the developer.
COUNCILMEMBER VAUGHT: So, that kind of segues into then when we talk about -- so as a pay-as-you-go obviously the developer has to walk out and he’s got to find one, two, three, five banks that will spread this risk. But is it safe to say, and I’m in the business, so I think I know the answer. Banks seem to becoming a lot more adverse to risk. So, is this tool becoming more popular just simply because banks -- when you look at a project like this and market conditions, you know, Dodd-Frank didn’t really help them any on a lot of what they’re doing. Is this becoming a more popular tool just simply because it’s getting to be a struggle with banks and the amount of what they have to go through in their risk reporting and everything else is -- are we seeing a shift to this? Or is that kind of market conditions is, I mean I don’t know. I mean, it just -- it wouldn’t make sense because I would think kind of -- are banks wanting to really step up and put that much risk when you talk about changing markets. A developer puts his money into it and it goes bad he loses his money. And a situation or investment like that if I understand it correctly, he just loses money. That’s it. You’re out unless this thing gets revived and some of this bond gets paid you’re out versus a bank it’s not as easy for them. They don’t invest money that way, so then they have this massive loss that they’ve got to account for and they’ve got to talk to their shareholders and how did this happen. So, it kind of -- am I wading off in the weeds here or does that make sense?
MR. KALEKO: No, you’re right. And as we mentioned in the presentation, part of the reason why we see developers interested in bonds is that diversification of using the public as one of their lenders. My observation is there are still lenders out there who have an interest in development revenue transactions, development transactions. There’s still a market out there particularly with -- when rates were, you know, as rates have been lower, you’ve got investors who are reaching for yield. And there’s an interest both on the private side and for those who invest in public bonds as well to get, you know, to the yields that they would like to see in their portfolio. And then there is an element also where we’re seeing the public -- that public revenue stream, that reimbursement stream essentially gets used as either all or some of the developer’s equity in the project.
COUNCILMEMBER VAUGHT: Okay. And then one last thing real quick.
MR. SERRANO: I wanted to respond. The question are you seeing this more frequently, and I can state with certainty that we are seeing the request more frequently. We’re not seeing necessarily bonds issued more frequently. Our Colorado office has a significant public finance practice and they see the request and they actually do. And it’s a very similar process in Colorado. And they are issuing more dirt bond TIF bonds on pre-construction. But the requests that we’ve seen on the Kansas side, and we represent a number of municipalities, we’ve noticed that the number of requests have gone up.
COUNCILMEMBER VAUGHT: And from a developer’s perspective I mean it’s -- I can see the desire for the tool from the standpoint of 20-year money. And if I can get 20-year money at 4½ percent knowing that I don’t have to refinance in 20 years when I got to a bank and every five years I’m refinancing. And today the interest rate is at 5½ and in five years it might be 7½ or 6. We know interests rates are going up. So, for a developer in today’s market this has got to be a great tool because the money -- the cost of money today and 10 to 15 years from now we know it’s going to be different. It’s going to have to be. So, pay-as-you-go versus a bond and early payoff explain that again. So, you know, if additional revenue comes in this pays off early. What happens in pay-as-you-go as additional revenue comes in? How do we -- what do we do with that?
MR. KALEKO: Well, it’s actually similar. If revenue exceeds expectations, then in a pay-go, you pay off earlier.
COUNCILMEMBER VAUGHT: So, we just keep paying it down. Okay. Fantastic. Thank you.
COUNCILMEMBER KENIG: Councilmember Jenkins.
COUNCILMEMBER JENKINS: Yeah. A couple more questions. On that one chart you showed the taxes that were being generated. You get the property taxes and there’s some sales taxes and so on. Are all the -- yeah. Thank you. I didn’t even know TGT was. You lost me on that one.
MR. SERRANO: My apologies. It’s transient guest tax.
COUNCILMEMBER JENKINS: Oh, okay.
MR. SERRANO: It’s a tax that’s allowed. It’s a transient guest tax.
COUNCILMEMBER JENKINS: Okay. Well, you threw me with that one. But in any event are all these taxes being basically put back into the paying off the bond? Or are some of these taxes at least still coming -- going through to the City and being -- and the City is receiving some funds from this?
MR. SERRANO: It’s generally we look at the incremental sales tax that is generated in that district that could be pledged. It doesn’t have to be. It doesn’t have to be that additional incremental sales tax. So, for instance if there is -- if it’s raw land and there is no sales tax generated right now, and then whenever it’s developed it’s the City’s, the local, the City’s portion of that sales tax that could be pledged. It doesn’t have to be pledged. It’s the incremental amount that could be pledged.
CITY MANAGER GONZALES: And it doesn’t have to be a hundred percent of the increment.
MR. SERRANO: It doesn’t. That’s correct.
COUNCILMEMBER JENKINS: All right. So there’s some sort of negotiation over the sales tax portion of this. And also the property tax is also -- which taxes -- which portions of the taxes are being used to retire these bonds? Is it because – I notice that the schools, for example, are getting really bent out of shape about TIFs because they’re losing a lot of money on that. Which portion of the property taxes, I mean, the state’s portion and the school’s portion? Or is it just going to be the City’s portion of the property taxes and then whatever negotiated level of the City’s portion is sales taxes?
MR. SERRANO: Right.
COUNCILMEMBER JENKINS: Is that the numbers we’re talking about?
MR. SERRANO: It’s a negotiation. That blue box that says Property Tax Increment, that’s the portion that can be dedicated for repayment or reimbursement, along with the two highlighted ones, sales taxes and TGT. The property tax increment that’s the box -- it doesn’t have to be a hundred percent. In this example we have a peel off -- well, it’s required statutorily of the state’s portion and the school -- the 20 mills for the school. That goes immediately.
COUNCILMEMBER JENKINS: Right.
MR. SERRANO: But then the remaining amount.
COUNCILMEMBER JENKINS: Well, some of my concerns here are the fact that I’d like it to be at least revenue neutral at best. I mean it is going to cost the City some money for this. You talked about how there is some fairly extensive staffing requirements to get this done. We still have to provide services to this project as far as fire, police, et cetera. So, we are absorbing costs on this project. So, I’d like to at least see that be, you know, a wash. So, the City maybe doesn’t make any money, we’re not actually losing money and the people that are homeowners in Shawnee aren’t actually paying for the shopping center in kind of an inverse way. So, I’d like to see that kind of work out in a way we’re -- at least it’s a, you know, if we come out with a net zero that might be good, you know, if we’re talking these terms.
COUNCILMEMBER KENIG: I have a question. So, I was -- when you were explaining about the security requirements, the safety nets, so who -- how is that determined and who is at the negotiating table for that? I understand that the bond buyers have a firm that represents them and they will do their own feasibility study and so there is an additional layer there. But as far as the safety net itself, how does that process take place?
MR. SERRANO: It is generally driven by what the underwriter sees as necessary to market the debt. The City can and should influence it. If there are things that the City -- safety nets that the City would like to see in place even above and beyond what the underwriter sees as necessary to market the bonds, then the City certainly should advocate for that. And then, you’re right, but to some degree it becomes a negotiation. But in the end, you know, if the banker says, look, we’ve got to do this if you want to get these bond issued that’s usually the way it goes.
COUNCILMEMBER KENIG: Okay. Thank you. Eric.
COUNCILMEMBER JENKINS: Yeah. But just another question, too, on the CID issue because we didn’t -- we kind of went past that one fairly quickly. But from what I understand this project is kind of a combination TIF and CID in order to make it a feasible project. Am I correct in that understanding?
MR. SERRANO: Yeah. Many projects are as I alluded to. You see most all TIF projects these days are paired with a CID or a TDD or both.
COUNCILMEMBER JENKINS: Right. And I just heard some numbers thrown out about 1.3 percent tax there or sales tax, additional sales tax on the CID. Is that in the ballpark?
COUNCILMEMBER KENIG: And I would just remind the Council we can’t get into specifics related to a project. So, this is just informational concerning the use of this financing vehicle.
COUNCILMEMBER JENKINS: Okay. But this is a combination. Both of those are used to retire the bonds.
MR. KALEKO: If they’re bond, then yes.
COUNCILMEMBER JENKINS: Yeah.
MR. KALEKO: What happens is, there’s a marriage of sorts between the TIF and the CID for example. And the CID revenues get shared and one of the pledged sources to repay the bonds.
COUNCILMEMBER JENKINS: But it seemed like in a way that you’ve got a development taking place where there’s no financial obligation on the part of the developer. There’s these bonds and then the bonds are going to be paid with the taxes being generated from the development. And at no point is there any skin in the game by the developer. It just seems kind of odd. You know, I’m trying to figure that one out and get that squared out in my head.
MR. KALEKO: The developer bears all of the risk up and to the point that the bonds are issued. And then at least a portion because the bonds aren’t funding the entire project, they’re funding a portion of the project. So, that portion, you’re right, the risks then at that point are shifted. But the developer still bears the risk for the private, you know, the privately funded portion of the project.
COUNCILMEMBER KENIG: Councilmember Vaught.
COUNCILMEMBER VAUGHT: Well, just to clarify it can be significant. So, if you take a $40 million project or 30, you know, $50 million project and you’ve got, you know, $20 million in incentives you’ve still got $30 million there. And he’s gone out on the hook to a bank. So, he’s got his money in it also. He’s got private financing as well. So, when you talk about private -- what this does is it takes away the private financing of the total project whereas a pay-as-you-go pays that back. This is a bond that’s issued that takes away part of the private financing. He’s still going out to the market and he’s borrowing money for that other 50-60 percent or whatever it is, plus his own skin in the game that the bank is going to require him to have. So, yeah. He’s got a substantial risk because then he’s also on the hook. And the big thing with this I would think, too, is for a developer that is established is, you know, and I could be wrong. But I would think that having -- if you blow it, your ability to go and do this again is going to be very difficult at bond market just like we said with a sale. I mean, they’re going to look -- if you get a reputation as a city, well, that would be no different than a reputation as a developer. I would think that if you had a reputation as a developer as failing his projects it’s not going to very many where the bond markets want to know where, you know, got to bank and -- so, yeah. But he definitely -- they’ve definitely got some skin in the game.
COUNCILMEMBER JENKINS: That’s good to hear. But also just one last thing is that --
COUNCILMEMBER KENIG: Councilmember Jenkins just for the record.
COUNCILMEMBER JENKINS: It doesn’t affect our -- because see we have bonds out. We have bonds for the City, too. So, it doesn’t impact on our bond standing as far as our level debt or anything like that does it? I mean from what I heard it doesn’t. But I just wanted to hear somebody say that.
MR. KALEKO: Well, as I would do it from a credit rating standpoint, you know, they are two separate things. From a statutory limit, is that your questions?
COUNCILMEMBER JENKINS: Not even statutorily necessarily. But just does it counter overall level bonds that the City is obligated for basically?
MR. KALEKO: It will show up in your financials as debt. Now, it’s as we alluded to, it’s debt that is paid from sources outside of the City itself, you know, from the revenues.
COUNCILMEMBER JENKINS: Right. But we wanted to issue --
MR. KALEKO: But it will show up on your books.
COUNCILMEMBER JENKINS: Yeah. We want to issue all the bonds because we’ve got some big project that we really want to do, improve some streets or we got some big thing going on. It may impact on us in that regard then if we -- if it you look at a certain level of debt.
COUNCILMEMBER PFLUMM: Is it going to go against the amount that we can borrow?
MR. KALEKO: No. No.
COUNCILMEMBER PFLUMM: Okay. That’s what his question is.
COUNCILMEMBER JENKINS: That’s kind of what the question is.
MR. KALEKO: Because it’s, as I said, it’s from another -- it’s from a revenue source other than what you would typically tap to fund your city projects.
COUNCILMEMBER JENKINS: Okay. So, it will not affect our bond rating in that case.
COUNCILMEMBER KENIG: Councilman Vaught.
COUNCILMEMBER VAUGHT: And that would be because obviously when we do City bonds, it’s backed by the, what do you call it?
CITY MANAGER GONZALES: Full faith.
COUNCILMEMBER VAUGHT: Full faith and credit of the City, whereas, this one isn’t. So, anything that’s backed by a full faith and credit is all [inaudible] how much debt do you have against your revenue, your taxes. This is totally outside of that.
MR. KALEKO: So, if I’m a rating analyst and I’m looking at a City that has TIF revenue debt, what I’m going to realize is, okay, this is coming from -- this debt is being repaid from sources other than, you know, their typical sources that they would use to pay their debt, property taxes, sales taxes, that kind of thing. And so they would take that into account when they were evaluating a city to determine a credit rating. Now, the one thing that you have to keep in mind is when you do a TIF, right, you’re saying, okay, this incremental assessed valuation, the incremental increase and assessed valuation that is attributable to this project, it essentially will write those property taxes off that increase and assessed valuation is redirected for up to 20 years. So, a credit rating analyst will take that into account. Because if you hadn’t redirected that, then that increase and assessed valuation would be available to the City and all the other taxing entities, right, for -- to pay for roads, parks, what have you. So, it does have sort of that indirect impact. Does that answer your question?
COUNCILMEMBER JENKINS: I think it does because I think that’s important to keep into consideration at all times here that it’s not necessarily a direct impact, but maybe a -- it has some influence I guess you could say. It influences things.
COUNCILMEMBER KENIG: Councilmember Vaught.
COUNCILMEMBER VAUGHT: So, a real quick question based on that then. Would that be why l would assume that a TIF has to pass the but-for test? So, what you’re saying is that, yes, there are those taxes and they’re being redirected. But the reality is if it passes the but-for test, those taxes would never be realized because the project would happen. No different than when we say -- the classic statement is, you know, the schools are going to lose money. Well, not really. Because if we don’t incentivize this, then there will be no incremental gain. Therefore, we’ll continue to collect $5,000 on the piece of property for the next 20 years because this may never develop but-for the use of incentives. Is that --
MR. KALEKO: Yeah. I would agree with what you’re saying. Unlike Missouri which actually has a statutory requirement to perform a but-for analysis for TIF projects. Kansas doesn’t have any such requirement. But a lot of cities like Shawnee have adopted it as good public policy. Basically just testing, okay, but for the public participation, would this project happen. Because, you know, nobody wants to overpay, right? None of us like to overpay for anything. And certainly we don’t want to overpay for development in our cities either.
COUNCILMEMBER KENIG: Councilman Jenkins.
COUNCILMEMBER JENKINS: Yes. I just wanted to tell you guys I appreciate you being here tonight because I wanted to learn more about this and I think it has been helpful. And I’m glad you could answer my questions because that helps me get a better grasp of where we’re trying to go with this. And I just want to be sure we have our eyes wide open when we make any decisions like this. We understand not only the positive, but the negatives and we can kind of weigh that out and say okay. You know, is there better positives than there are negatives? And if there are, then that’s something we might want to do, you know, and that kind of thing. So, appreciate the information.
MR. KALEKO: Well, we know we’ve covered a lot of material tonight. And you may well go home and think of other questions. And I’m sure Carol and Maureen would be happy to get those questions to us if you do think of anything.
COUNCILMEMBER KENIG: Councilman Neighbor.
COUNCILMEMBER NEIGHBOR: Yeah. I’d just like to echo Eric’s comments. So, thank you very much. With all the information that’s been going on with all the stuff in Overland Park and Meadowbrook and everything in Missouri and this Kansas and Missouri, this has been very helpful for me. Thank you.
MR. KALEKO: Our pleasure.
COUNCILMEMBER KENIG: Okay. Are there any members of the public that wish to comment on this item? Seeing none, we will move on. Thank you, Tom and Joe. It was a great presentation. Oh, sorry. Yeah. If you could please step forward and give your name and address for the record.
MR. LYSAUGHT: Certainly. My name is Don Lysaught. I live at (Address Omitted) here in Shawnee. I appreciate the presentation that was made. It was helpful. It was insightful and I think it sort of raises some questions here. I think everyone is going to be trying to find their way through this as this will be the first project. Although I feel compelled to point out we thought two years ago we thought we had the first project under the TIF for this very site. I know this isn’t supposedly site specific. But I think being candid and truthful we know where this is headed. That being said, two things that I took away that I think are important that should be emphasized is you have the right to require the developer to pay all the costs associated with bringing this to market if you will. And I don’t know why you would not use that as one of your tools to protect the City. The second part of that is, if I’m understanding correctly and I believe this is accurate, we would not have to fund were you to decide to fund this until the project is operational. And again, as public stewards I think that makes perfect sense as to why would we put ourselves in a position for potential exposure unless and until the project is built, leases are signed, et cetera, which takes me to my couple points real quick. Maybe we’re getting the cart before the horse here. Has anyone done any studies as to how many square feet of retail property are presently unoccupied in the City of Shawnee? We read every day about Sears’s closing stores, Walmart. Internet sales are up. Do we really need this project and do we really want to put the City’s money into it. And it may be very importantly, what distinguishes the project? Is there something really, really special about this, or is it going to be another bricks and mortar shopping center? Those are things that you all need to think about. I think we all need to think about if you’re even going to go down this path. Thank you.
COUNCILMEMBER KENIG: Thank you. Are there any other members of the public that wish to comment on this item? Seeing none, we will move on. Thank you again. And just a reminder, this item is for informational purposes only, so no action will be necessary.
2. DISCUSS HEALTH/DENTAL/VISION/LIFE INSURANCE FOR PLAN YEAR 2017-2018.
COUNCILMEMBER KENIG: Our next item is Discussion of Health/Dental/Vision/Life Insurance Plan for 2017-2018. The City's plan year for Health, Dental, Vision and Life Insurance runs from July 1st to June 30th. Staff has worked with the Hays Companies of Kansas City, the City's benefits consultant for the 2017-2018 plan year. Reggie Brown from the Hays Company will make a brief presentation.
2017-2018 Benefits Renewal
Council Committee Meeting
MR. BROWN: Thank you.
[Medical and Prescription Drug Plan Renewalslide]
So, I’ll begin tonight starting to talk about the Medical and Prescription Drug Plan. Each year when we look at the renewal the first bit, well, first of all, I just want to note that you are a fully insured plan. So, you pay, in your case Cigna, the health insurance provider, a fixed premium over the course of 12 months. And so when we look at the plan and how it’s running or performing, we simply take the total claims divided by the total premiums. And in this case when we looked at total claims starting in July of 2016 through February of 2017, the plan was running at about an 84 percent loss ratio. That’s of note as particularly the desired loss ratio or target loss ratio that Cigna has set for you is around 76 percent. And there’s a couple of items that go into that. So, when I say 76 percent that essentially means that 76 percent of the total premium is allotted to go toward specific claims. The other 24 percent or so makes up administration costs, which average around 12-13 percent. And then large claims pooling charges which is another 12 percent or so. And so when we look at your loss ratio, again at 84 percent, it’s obviously running about eight percent higher than the desired ratio according to Cigna.
When we went out and gathered the renewal from Cigna, the initial proposal back from them was a 24.5 percent increase to the overall premiums. So, if you really think about it you go back, we are sitting at about an 84 percent loss ratio, that’s about eight percent higher than what was desired. So, you take that eight percent, add in trend or what’s known as inflation in the marketplace, essentially a health claim that is [inaudible] cost this year is going to be -- if it’s medical, roughly ten percent more expensive next year. And if it’s pharmacy related it’s going to be roughly 14 percent next year. At least those are the market averages at this point.
So, an effective trend rate of about 11 percent on top of the 8 percent overage from the loss ratio standpoint. And then Cigna was also increasing or adding in an additional five percent or so of what they call claims margin. And that was really because of some of the claims here that we saw really particularly in February. You saw that the loss ratio in February was at about 97 percent.
So, we worked with Cigna at that point and began really negotiating on a couple of fronts. The first being that Shawnee’s trend really has not been the market average. It’s not been 10-14 percent, again, between that medical and pharmacy threshold year after year. Pharmacy claims have increased over the last couple of years about 14-15 percent for Shawnee. However, medical claims have only increased two to three percent on average. So, when we blended that, we went back and negotiated with Cigna on the basis of, hey, look, Shawnee is unique. There’s wellness programs in place. There’s consumer directed healthcare. We’ve made some changes to the plan design over the last couple of years, specifically introduced a deductible and then the co-insurance after the deductible is satisfied. And for those reasons we feel that the claims cost again has not met the norm of again 10 to 14 percent year after year.
So, we worked with them to negotiate to say, okay, hey, what if we apply specific trends that Shawnee has seen. Granted, you’re running at roughly eight percent over the target loss ratio. But if we apply a four to five percent year in and year out inflationary factor, you know, where would we end up. From a mathematical standpoint we felt like if we could get to 12-13 percent it would make sense. Again, just from a peer premium versus claims standpoint. We were able to, however, achieve a 9.4 percent increase at the end of the day. So, what was originally about a $975,000 projected premium increase, we were able to get down to about some odd $370,000. We felt comfortable with that from again from the standpoint of where your loss ratio sits today. Cigna was willing to work with this from the standpoint of accepting the trend ratios that Shawnee has seen rather than using their market-based trend scenarios or ratios.
Lastly, we did consider looking at the market. We moved to Cigna back in 2015. When we made that move to Cigna in 2015 from United Healthcare, we actually took on about -- it was about a zero percent increase. So again, in a market where we were seeing nine to ten percent on average. So, that was two years ago. With last year’s renewal we negotiated down to about an eight percent increase, and then this year with a 9.4 percent increase. Effectively over the three-year period, if we factor in this 9.4 percent increase, we’re looking at an average of about a six percent or so increase year after year.
Generally speaking, if we were to go to market say last year or even this year, the average is to go to market maybe every three years or so. And so if you start to market, you know, consistently year after year, the Marketplace, the United Healthcares the Blue Crosses of the world don’t look at you so favorably. So, I would suggest maybe taking a look at that next year because that will be the third renewal with Cigna. But again, based upon the underwriting analysis and where Cigna has ended up at the 9.4 this year, we felt comfortable with that.
[Medical & Prescription Drug Plan Renewal Finalslide]
I should note that this plan design, this 9.4 percent increase does not include any plan design changes. So, the staff would continue to see the same level of deductibles, the same level of out-of-pocket maximums. Co-pays would all remain the same for 2017-2018 as they are today.
[Onsite Clinic Analysisslides]
There were some comments made last year around cost savings options that we could potential explore, one of which being a possibility for an on-site clinic. And really the idea here is from an advantage standpoint I guess I’ll just say, you know, we’re looking at really creating a way to provide easy access for the employees and their families. The real focus on preventive medicine, obviously increase productivity. Because if there is an on-site clinic it’s easy to go. You don’t have to take time away from work.
Shifting services, generally speaking, could potentially provide for lower cost services as opposed to out in the more general provider community. Essentially what you’re doing here by going to an on-site clinic is you’re capitating or you’re fixing your cost for those, what we would consider preventive or primary care type services. You could, dependent upon the roll-out, encompass more broader services such as prescription drug dispensing and that sort of thing. And then lastly it really, again from a -- having that on-site clinic there, providing convenience. It also -- the idea would be to help manage high chronic disease claimants in terms of putting in the disease management programs. And really from a wellness standpoint trying to keep them healthy.
Lastly, there is a possibility with an on-site clinic to roll in work comp occupational health services as well.
From a consideration standpoint, again given your size -- let me go back, I’m sorry. Kind of jumping around here. We went out and obtained some costs to try to understand what it would cost at your size, meaning the number of employees that Shawnee has. We went to four different providers here. And under that estimated total first year clinic costs, you can see the variance of what the total cost might be, really ranging there from 195,000 annually all the way up to 420,000.
When we look at your claims we have the ability to go in and look at your claims and pull out those specific claims that could be treated at an on-site clinic. So, claims today that are maybe going through the preventive for preventive services or through a primary care, if we said 50 percent of those claims are redirected to an on-site clinic using the example of care here where the total cost was $195,000, the net first year savings essentially or cost I should say, the dollars that you would pull out of the health plan today is about $100,000. So, there’s $94,000 there that you would still have as a cost for that onsite clinic if that makes sense.
If we were to have a hundred percent adoption meaning every single preventive care claim, every primary care claim that we’re seeing today going through the Cigna system was redirected and going through the care here in this example onsite clinic, essentially a hundred percent adoption, at that point you would pull out about $200,000 in claims out of the Cigna program, offset by the $194,000 in startup costs. You would see a savings in that instance projected of about $7,000.
The issue here is really again from a consideration standpoint the cost of this type of a clinic for the number of lives that you have, the economies of scale we don’t believe really make sense for it to be a win-win for the City of Shawnee. Again, the larger you are as an employer the more lives you can funnel through an onsite clinic and again, therefore, create more economies of scale.
The other piece from an onsite clinic standpoint, I talked about the savings, the claims that we could pull out of Cigna. That’s not really realistic in the fact that you are a fully-insured plan today. So, as we said earlier you pay a premium fixed for 12 months based upon your recent claims activity. If you were a self-funded plan for example and you pay claims as you go, any claims that’s redirected out of the claim system, out of the primary care physician, for example, and sent back to the onsite clinic, that’s direct savings in a self-funded plan. In a fully insured plan that direct savings, that one for one savings is not there because again of that fixed premium. Over time it could eventually evolve whereas we see more and more claims come out of the Cigna system and into the onsite clinic. We could potentially see your claims experience get better and, therefore, achieve savings through Cigna on a fully-insured basis. But it takes time. That savings is not immediate.
Location could potentially become an issue. You have several locations throughout the City. We would obviously want to pick the centralized location. But you lose maybe some of that convenience factor with a traditional onsite clinic aspect. Whereas, maybe a manufacturing firm where, you know, 90 percent of the employees let’s say are in one location. In that instance an onsite clinic becomes really convenient. That convenience aspect of it does truly take hold. In this instance where there are other urgent clinics around, other places of care where, you know, is it the fact that you don’t truly have that one centralized location, you lose some of the luster from a convenience standpoint.
I should mention the hours. The cost that we had illustrated here was really based upon 20 hours per work. I think the question begs is that enough to truly see 50 even, you know, 60-70 percent of the services. That’s again one consideration from that standpoint. Again back to the convenience.
There are some new service models being ruled out. One in particular is telemedicine. And I mention this again, when we talk about an onsite clinic and, you know, you don’t have to miss work essentially, you can go and seek that service, telemedicine isn’t really meant to take the place of that. It’s convenient. You go right through your smartphone. You can reach a provider 24 hours a day essentially and get service right there for an ear infection, for a sinus infection, a rash, what have you. It’s really there meant to take care of some of those that, you know, remedial sort of lower costing primary care services. That co-pay for your members is going to be $20 effective January 1 of 2017.
And then lastly, I talked about some of the advantages of an onsite clinic really from a disease management or care management standpoint. Today Shawnee is already providing many of these services through their relationship with both Cigna as well as St. Luke’s through the Health Enhancement Coordinator platform that is provided. Things like health risk assessments, biometric screenings, onsite health coaching, really raise awareness through additional programming that is provided by both Cigna and St. Luke’s, and then onsite flu shots and vaccines are already offered as well.
Like I said just from a peer math standpoint, it’s not something we would recommend based upon your size. Again, just the economies of scale we don’t believe are there to justify the overall implementation.
[Onsite Clinic Analysis - Compliance Considerationsslide]
Jumping ahead again from the standpoint from compliance, there are additional compliance considerations to keep in mind such as COBRA. If it’s offered as a benefit to your employees it would be something that you would have to continue to offer. Say if they leave the organization there would need to be some COBRA offering there. There are certain things to keep in mind from a HIPAA perspective. HSAs, you do offer an HSA plan today and so there’s some things we would have to coordinate from that standpoint as well. So, the point really is more administratively burdensome potentially from a compliance standpoint as well.
[Onsite Clinic Analysis - In-Network Minute Clinics and Urgent Care Centersslide]
I wanted to show you this map because I think it’s important as this market continues to evolve where there’s really more, again, easier access to care. Not just through with employers creating onsite clinics. I mentioned the telemedicine. But there’s urgent care clinics popping up literally every day. And I bring up this map. I believe pretty close this one down here right on I-35 and Switzer or 75th Street, that’s bordering I think the Shawnee city limits. But essentially there’s four right here in the Shawnee city limits that staff could access. These are urgent care or minute clinic type providers. And then there is a recent one that is not on this map that just opened up on Shawnee Mission Parkway as well.
[Fully-Insured vs. Self-Funded Analysisslide]
I mentioned the self-funding as really a need I think to see that immediate savings through the implementation of an onsite clinic. It’s something we did evaluate this year. And quite simply the fact that you received a 9.4 percent increase through the fully-insured plan, we don’t feel like that self-funding is an avenue you’d want to go down this year. Your maximum liability through the analysis that we conducted based upon a mature claims basis would increase your overall exposure about 25.7 percent. So, when we do that analysis and we look at where your fixed premium would come in, again we don’t feel like the liability is worth the risk in a self-funded environment.
[2017-2018 Dental Renewal Analysisslide]
Moving on to the dental plan. This plan renewed with Delta Dental of Kansas. The original offer was a 4½ percent increase.
COUNCILMEMBER KENIG: Excuse me, sir.
MR. BROWN: I’m sorry.
COUNCILMEMBER KENIG: Councilman Jenkins I think has a question.
MR. BROWN: Oh, I’m sorry.
COUNCILMEMBER JENKINS: Can we ask questions while we’re going along here? Because I’d like to tell you by the time you got 18 flies down the road you kind of forgot what the question.
MR. BROWN: Sure.
COUNCILMEMBER JENKINS: And we were talking about -- this is one of the things I brought up this last year was this idea having -- working with a clinic or something along those lines because a number of communities are doing that and saving some money. And the numbers are pretty much irrefutable. But perhaps because there were economies of scale [inaudible] people. But then it brings up the idea of like, okay, well, why don’t we contract with one of these urgent care places who would say, hey, yeah, if you can guarantee all your guys would come to me, you know, we’ll see people for X amount of dollars as opposed to, you know, the standard amount and that kind of thing. And I don’t know why we can’t do something like that. That seems like that’s a no-brainer. That would be easy and wouldn’t take a whole lot of effort. And then we’d bring those costs down. And then Cigna or whoever we’re doing business says yeah, I mean we don’t need to raise you 9.4 percent because, yeah, your ratios are looking pretty good here, we can keep you at the same rate. I don’t know, I think we ought to be taking advantage of some of that kind of stuff as well. Your comments on that.
MR. BROWN: Yep. I’m going to introduce Melissa Henrich. She’s in my office as well.
MS. HENRICH: So, I’m Melissa Henrich. I actually work with quite a few municipalities in the Colorado area that actually have an onsite clinic. So, that was actually one of the first questions I asked knowing that we only have 300 employees. And knowing that most of my other clients have well over a thousand. And knowing that most of my clinic providers do not really go under that 750. So, I did reach out to quite a few and that’s why Concentra, knowing that they were opening that clinic on Shawnee Mission Parkway, do they do that option. Because that right there was the natural piece for me to think, hello, this is a great opportunity for the City. They won’t do that. And I asked RHS, which is a clinic provider that they’ve been really contacting the City a lot, and they would do that, but they didn’t really know how they would do that. Marathon Care here they also said no. That’s not going to be something that they could do. It’s just not an option. Then my next thought process was can we partner with the next city --
COUNCILMEMBER JENKINS: Uh-huh.
MS. HENRICH: -- and figure out how to do that and that really wasn’t an option either because of the central location. There was too many minute clinics in the City of Shawnee to be able to do that piece.
COUNCILMEMBER JENKINS: Yeah. My question there would be some of the other communities are doing these centers, these clinics.
MS. HENRICH: Uh-huh.
COUNCILMEMBER JENKINS: And we do a lot of stuff with other cities. You know, we go for grants together with them and we do other things with other communities.
MS. HENRICH: Right.
COUNCILMEMBER JENKINS: Is there any way we could satellite on somebody’s else’s clinic that they’ve already done the up-front cost of building that clinic and so on and could we maybe utilize theirs?
MS. HENRICH: Right. And that was my first question that I asked. I said can we reach out to the city of Lenexa because that’s right next door.
COUNCILMEMBER JENKINS: Uh-huh.
MS. HENRICH: We go over there all the time. I live in Shawnee. I live in western Shawnee. Why not? And that was a question. Can we partner and the analysis was really that wasn’t going to work because most of our employees live in Shawnee and they’re actually going -- I say are because I live in the city, this is my people, right. So, I asked and most of our people would probably just go to that minute clinic because it’s closer. It’s more convenient on the workday, how are we going to get that. But I can dig into that analysis a little bit more if we really want to do that. It was one of the questions I asked.
COUNCILMEMBER JENKINS: Well, if that weren’t an option you could just go to any one you want and this is the one you’re going to go to then, you know. We’ve got to do something about these costs. They’re kind of exorbitant.
MS. HENRICH: Oh, I understand.
COUNCILMEMBER JENKINS: I mean and everybody is dealing with the same problem.
MS. HENRICH: Right.
COUNCILMEMBER JENKINS: This isn’t like just it’s a Shawnee issue. Every community is dealing with it. Every business is dealing with the increased cost of medical care. But I mean that means we need to think outside the box all we can and try to figure out is there any way we kind of -- by being innovative or smart or whatever can we bring these costs down a little bit. And I don’t say not everybody has got to go to Independence to get taken care of. That would be kind of, okay, now you’re getting well outside the range of reasonableness. But if it’s something that could be reasonable within, you know, a 15-minute drive, I mean that would -- I don’t think that’s too onerous --
MS. HENRICH: Oh, I know.
COUNCILMEMBER JENKINS: -- if we could save the taxpayers of this community a little bit of money.
MS. HENRICH: Right.
MR. BROWN: I think there are a couple additional considerations to that as well. You know, one, I think it is truly a market that is continuing to evolve. And so I think there is that. Obviously we’ve mentioned there is the new urgent care clinic that just opened up on Shawnee Mission Parkway. I think though it needs to be stated that, you know, the rising healthcare cost that we’ve seen really over the last ten years, but more specifically over the last three or four years isn’t so much due to preventive care type services or primary care type services that we’re really talking about treating or redirecting here. It’s really more so driven by catastrophic claims. So, new high-costing medications, treatments for cancer, treating diseases that really there weren’t treatments for five, ten years ago. Those are the things that we’re really seeing that are impacting your claims, the City of Shawnee’s claims cost and everybody else’s around. So, I say that because, and I hear what you’re saying, you know, any dollar saved is a dollar saved, truly. But I think the opportunity kind of goes back to -- from truly a disease management from a wellness standpoint. And I think Shawnee has done a really great job of that through some of the programming, particularly through the St. Luke’s health and enhancement coordinator to really raise that awareness. And one of the initiatives through that and where maybe more education could even be provided is, you know, one thought is to drive employees to low costing onsite or near site type clinics. There’s certainly another argument though around that value that can be placed on establishing a relationship with your primary care physician. If we go back to the standpoint of, you know, this primary care physician is truly the one that is dictating care throughout the entire system that is shown as a way to help save on larger claims down the road. Different models, a couple of different ways to look at that. But those are options that we can certainly evaluate.
COUNCILMEMBER KENIG: Councilmember Pflumm.
COUNCILMEMBER PFLUMM: This is not exactly what -- but it has to do with, you know, your 2017-2018, and actually 2016-2017. It’s my understanding is normally when you’re enrolled in a wellness program, let’s say you get some ten percent discount, right?
MR. BROWN: Right.
COUNCILMEMBER PFLUMM: The actual total premium amount does not change. Why is that?
MR. BROWN: So, when you’re saying from the City?
COUNCILMEMBER PFLUMM: Yes.
MR. BROWN: The City’s --
COUNCILMEMBER PFLUMM: The total premium. So, the individual saves some number, you know.
MR. BROWN: So, the premium is what it is. Whatever Cigna says the premium is, you know, in this case it’s some number like you said. You know, it’s up here, $4.4 million or so. Where you see the savings, that direct discount generally applies to the employee. So, in the situation of Shawnee today, if I as an employee do not participate in wellness programming, I pay $46 a month. If I do participate in wellness programming I pay $16 a month. So, it’s that discount, that incentive that Shawnee is offering its participants in an attempt to have them be more engaged. And the thought is over time that again helps manage the cost increases that we might see from the medical provider.
COUNCILMEMBER PFLUMM: But I’m just saying out there in the world, in the business world normally, the insurance company provides that discount, you know, for that wellness program.
MR. BROWN: Not specifically to -- they take that into account. Again, and it’s built into the experience over time as that wellness culture builds, but not specifically related to, you know, there’s not a line item that says, hey, Shawnee gets a five, ten percent discount because they participate in wellness plan.
COUNCILMEMBER PFLUMM: I understand. And on your deal it’s not. But in the real world there is that. I mean across the street, you know what I mean.
MR. BROWN: Not on a group plan basis.
COUNCILMEMBER PFLUMM: Okay. Whatever.
MR. BROWN: A large group plan basis.
COUNCILMEMBER PFLUMM: Maybe in a small group then?
MR. BROWN: Potentially through individual type programming, yes.
COUNCILMEMBER PFLUMM: Group, not individual.
MR. BROWN: Say in the small group market, so under 20 lives or even under a hundred, they generally do work a little bit differently than a large group over a hundred market.
COUNCILMEMBER PFLUMM: Okay. I’m just curious.
MR. BROWN: Sure.
COUNCILMEMBER PFLUMM: I mean I’m just saying what’s out there in the real world and you’re telling me it’s not. But I understand. It’s just a different market I guess.
COUNCILMEMBER KENIG: Councilmember Kemmling.
COUNCILMEMBER KEMMLING: Some questions real quick on the wellness plan since Dan brought it up. How many of the employees are on the wellness plan and how many are not on it?
MR. BROWN: So, I don’t have that exact percentage.
MS. BARNARD: Liz Barnard, Human Resources Director. We have 238 employees who participate in our wellness plan. And just to kind of give a little bit more information about the wellness concept of our plan, the reason that our employees receive a discount on their premium is because the plan is designed to in essence create a healthier workforce. Doing the biometric screenings, doing a health risk assessment, helping employees become a little bit more educated on potential risks that they may have to take proactive approach at, you know, addressing them early on and that in turn would hopefully reduce a high dollar claim down the road.
COUNCILMEMBER KEMMLING: Right. Yeah. And the idea makes sense. You want them to consume less medicine so that the expense is less. So, we have 238 on it. My question is do the individuals on the wellness plan have less claims than those not on the plan?
MR. BROWN: Yeah. With HIPAA we don’t have a way to truly see that. There’s some high level analysis that we could potentially look at. And one of the things we’ve been working with Cigna on is capturing biometric screening data that is de-identified and comparing that with the actual claims data. It’s something -- it’s a work in progress at this point.
COUNCILMEMBER KEMMLING: Okay.
MR. BROWN: But on an individual I don’t -- I can’t.
COUNCILMEMBER KEMMLING: Because you’re able to pull out which procedures could be done at an onsite clinic and not done at an onsite clinic. But you’re not able to --
MR. BROWN: It’s just mirroring the data between the biometric screening --
COUNCILMEMBER KEMMLING: Okay.
MR. BROWN: -- those that participate --
COUNCILMEMBER KEMMLING: The individual with the --
MR. BROWN: -- using a unique ID number that says, hey, these participated --
COUNCILMEMBER KEMMLING: Okay.
MR. BROWN: -- and these are the claims they are having. It’s just a -- it’s a technology platform that we’re developing.
COUNCILMEMBER KEMMLING: Okay. Right. And so, yeah. You just get the procedure code, you don’t have the identifier. So, I guess my thought is it makes sense to have them pay less if we think they’re going to be healthy and consume less medicine. But we don’t have any actual numbers to make sure that’s really happening.
MR. BROWN: Not at this point, but --
MS. HENRICH: So, this year, actually for the claim year that we’re looking at right now, well, my co-worker Natalie and I were working with Cigna to try to get that biometric information into our data analytic system. Because we had an under the limit number that Cigna had identified, Natalie, do you remember what that number was? Okay. Anyways. Well, under that number Cigna would not give us a unique identifier for each person who participated in that biometric screening. So, that made us not be able to identify and link within our data analytics to the claims information. So, I can’t dig as deep as I would like to dig into -- with the biometrics information into the claims information because I couldn’t have that identifier saying, okay, these 50 people who had high blood pressure identified in our biometrics, I couldn’t go in and say they also had diabetes, high blood pressure, they had a cancer claim. I couldn’t go in and do that on an aggregate basis.
COUNCILMEMBER KEMMLING: Right.
MS. HENRICH: So, we are not going to be pulling that into our data analytics because Cigna couldn’t give us that linking data.
COUNCILMEMBER KEMMLING: I had some comments or statements also on the high deductible plan there. And I might ask the Chair, do you want me to hold those till the end of this presentation? Or do you want me to ask those now?
COUNCILMEMBER KENIG: I mean you’re fine to ask them now if you’d like to.
COUNCILMEMBER KEMMLING: So, we seem like we talk about this every time you come up here. But first of all, thanks for the negotiation on Cigna and making sure that that rate was lower. I appreciate that. In advance I’ll give you credit for holding the premiums on the dental and the vision. So, thank you there as well.
I have a, and we talked about this last year. I have a bit of a philosophy difference on these high deductible plans. I’ve been in one myself for about eight years now. And when I look at the proposed high deductible plan for our family, the one that you’re proposing is $1,430. And the deductible is there on the screen is $2,600 is the individual deductible.
MR. BROWN: Sure.
COUNCILMEMBER KEMMLING: My own experience is that I went to Blue Cross as an individual. And for a family of seven my premium is $551. So, my deductible is $5,000. So, for $880 less a month, I feel like that’s a lot of savings. And so I feel like one of the -- the philosophy behind a discount or a high deductible plan, what makes it work is if you have a high deductible and you save the money in premiums and then deposit that into your health savings account which is what I do. Just doing the math, if you had a similar family plan to mine, it would take you three months of saving that additional premium to make up the difference in the deductible, which is $2,400. You save $880 a month. That’s three months. And so it doesn’t take long to cover that ground in the deductible price. And then it doesn’t take long with those kinds of savings either to get to your $675 family deductible. So, my preference would be if we were going to offer a health savings account or a high deductible plan that we offer one with a higher deductible and lower premiums and the City contribute more money to the actual savings account itself. I know as a consumer of it myself I like having those dollars in my savings account that they can’t touch that I can invest that are pre-tax dollars. There’s a built-in discount there. I don’t have to pay income on what I earn. So, I’m not a fan of the plan proposed here. I wasn’t a fan of it last year. I feel like the premiums are too high and we’re not fully taking advantage of what the high deductible plan is going to offer. So, I guess that’s a comment. It’s not really a question. That’s just my personal opinion on the plan we should be offering.
MR. BROWN: Sure.
COUNCILMEMBER KENIG: Reggie, you can continue.
MR. BROWN: So, I will jump ahead here to the dental/vision and just talk briefly. Again, no change on the dental. Initial renewal was 4½ percent. We were able to achieve a no change in rate or plan design there.
[2017-2018 Vision Renewal Analysisslide]
Same thing with the vision. We were initially receiving a three percent increase from Surency and we were able to negotiate that to a rate pass as well.
[Staff Recommendation to Governing Bodyslide]
Staff Recommendations. Ultimately again, we’re recommending the 9.4 percent increase on the medical plan and accepting the Cigna renewal. The sharing of that increase, passing along from a percentage standpoint the same as what is today. So, if we look on a PPO plan basis for wellness participation, again the current employee rate is $16 per month today. It would go to $18 per month. Again, that’s after they had participated in that wellness program. Similar percentage shares to what it is today on down the line from employee plus one and family.
Same thing on the high deductible plan. So, some of that, again, talk about consumerism and providing choice. There is a contribution from the City toward, essentially think of it as seed money toward that HSA account. So, for single coverage it’s $800 annually. For employee plus one it’s $1,800. And for family coverage it’s $2,600.
So, to choose -- if you were to choose that HSA offering, the premiums that the employees that are being charged is going to be exactly same as the PPO plan. But there’s premium savings on the back end to the City. But then some of that savings is then given back in the form of that high deductible contribution that Shawnee is offering.
COUNCILMEMBER PFLUMM: Excuse me.
COUNCILMEMBER KENIG: Councilmember Pflumm.
COUNCILMEMBER PFLUMM: Yeah. Just curious on your premiums there. How many individual people do we have in the plan? Just individuals out of the 300 people. How many of those --
MS. BARNARD: That have single coverage?
COUNCILMEMBER PFLUMM: Yes.
MR. BROWN: I have it back here. Sorry.
MR. BROWN: So, you have -- sorry. Do you have better numbers to do the math on that.
MS. BARNARD: We have 16 employee only in the high deductible plan and 74 individuals only in the PPO plan, roughly.
COUNCILMEMBER PFLUMM: So, I’ve got a question on that. On the individual most of them went up like eight, nine percent, okay, roughly. But the individual only went up like four percent. And I think that’s right there and the individual pays 4.3 percent. But his increase was only like four percent. Do you get what I’m saying?
MR. BROWN: Yeah. And it’s rounding. We’re talking such small numbers.
COUNCILMEMBER PFLUMM: That’s not rounding. I mean if you -- I understand it’s not a big number. That’s why I asked how many individuals we have in there.
MR. BROWN: Yeah.
COUNCILMEMBER PFLUMM: But if overall, if it went up ten percent, and I’m -- that’s rounding. Okay. Then everybody’s thing should go up ten percent, not four percent. So, that’s the only thing I’m saying. And I brought this up last year because we weren’t using across the board. You know, if it went up by ten percent everybody should share in that. But it went up more than the individual is paying, okay. And it went up roughly 8.78 and 9 percent for those other categories. But on the individual four. Okay. That’s not rounding. Okay. Do you agree? Take $2 divided by 46 and that gets you their increase, right?
MR. BROWN: If it were, let’s see, I’m sorry.
COUNCILMEMBER PFLUMM: Their premium last year was $46.
MR. BROWN: So, the way we’re coming up with that. So, the 4.3 percent is where we’re applying the premium share is really to the wellness program. So, that’s where we start with the -- the wellness rate. So, after someone participates in the wellness program, if you see there it’s $16 going to $18. That’s a $2 variance. It’s 12.5 percent. So, it’s actually a little bit higher on that plan.
COUNCILMEMBER PFLUMM: Okay.
MR. BROWN: And that truly is rounding. Because we’re talking about such small numbers. We then just apply a $30 wellness incentive. So, that’s where -- so it’s basically just adding $30 to the $18 rate.
COUNCILMEMBER PFLUMM: I’m okay with that one.
MR. BROWN: Disregarding the percentage.
COUNCILMEMBER PFLUMM: So, how many individuals are not in the wellness program that are individuals? Is it minimal?
MS. BARNARD: Individuals, I don’t know [inaudible; talking off mic].
COUNCILMEMBER PFLUMM: Okay. But I mean roughly most of the guys are in the wellness program.
MS. BARNARD: The majority of our employees are in the wellness program.
COUNCILMEMBER PFLUMM: Okay. And that’s a good thing. Okay. And I agree with all that. So, I was using your non-wellness, you know, numbers. And that’s only at four percent. Why did that one only go up four percent if we want those guys to be in the wellness program? That one should have went up 15 percent to give them a better deal to get into the wellness program. I’m just throwing that out there. So, anyway. It’s not a huge deal. It’s small numbers. I wasn’t even going to bring it up, but you started bringing up the premium.
MR. BROWN: Right. Right.
COUNCILMEMBER KENIG: Councilmember Jenkins.
COUNCILMEMBER JENKINS: Yeah. I just -- I have trouble with the single parts [inaudible] just for themselves paying $48. Then you get an employee plus one who is paying $204. I mean that’s more than four times as much. You only added on person. Okay. The single enrollee is getting one heck of a deal. They’re paying like three percent of their premiums. And I think that’s unfair. I think it’s unreasonable and I think those costs are being passed on to the taxpayer and they’re absorbed in this hit. And I don’t think -- I really just think it’s totally unfair you look at a family, they’re paying $274 a month and their premiums -- the total premium is $1,700, so. I mean it’s -- I don’t know how you justify one guy only pays three percent and everybody else pays 14 or more percent. How do you justify that?
MR. BROWN: So, there’s a couple schools of thought thee. First of all, just from a competitiveness standpoint, this plan is really designed to be a recruitment and retention tool as a whole for the staff.
COUNCILMEMBER JENKINS: Then we’re trying to just retain guys for some reason.
MR. BROWN: Well, generally speaking, again family and dependents that is adding cost. So, the idea is truly, yes, to more heavily subsidize the single participant and bring them into the plan overall just from an anti-selection standpoint. The higher that single premium the larger chance there is that you lose that employee maybe to a spouse’s plan or maybe that’s an employee that we want contributing to the overall cost of the program.
COUNCILMEMBER JENKINS: Really. Okay.
CITY MANAGER GONZALES: The other flip-side of that because I go back and forth on this in my head all the time. But the rationalization I always make is that the City is contributing far more on behalf of someone who has a family than they are for the employee. So, in a way the family I think is getting a great deal. I mean everybody is getting a great deal.
COUNCILMEMBER JENKINS: Right. Everybody is getting a great deal. I won’t argue that.
CITY MANAGER GONZALES: But that’s kind of the trade-off I always go back and forth in my mind is that if I choose to get married and have children, the City is paying far more for my health insurance than the single person. So, like Reggie said there’s schools thought both ways. But that’s kind of the argument I always land on.
COUNCILMEMBER JENKINS: I don’t know. It seems like if everybody is paying 14 percent that would be reasonable because you’re paying -- the married people are paying 14 percent of a lot higher percent policy, annual premium. And it’s supposed to come out in the wash. You know, I mean it seems like there should be equity across the board on that. I really, really do think so. We’ve got -- how many did we say we had? Like 90? We’ve got 90 people that are single enrolled. And if they’re all paying 14 percent instead of three percent, I mean that would be of significant savings to the taxpayers that are paying the bill. So, you know, just -- we just raised taxes on everybody again. You know, and going to new property taxes and it’ll tell you how much the percentages are and they went up significantly for 2017.
COUNCILMEMBER KENIG: Councilmember Vaught and then Councilmember Neighbor.
COUNCILMEMBER VAUGHT: And I don’t necessarily disagree with what Eric said. And, you know, I remember when I first got elected, I think I started with that. My only thought goes to is kind of look at the big picture of Shawnee employees. I would guess that most of our single enrollees are more or less entry level positions. You know, some of the younger parks people, public works. Even when you look at police officers, well, they’re -- well, yeah. I mean they’re, you know, what was our starting wages. What’s entry -- what’s our starting wage on police now, 30? Is it 40? So, if you look at that. So, you take a guy that, you know, trying to get rolling. But then, you know, I’m sure we have positions out there that are, you know, in the 20s. And so it’s a tough one. I mean you want to insure them. You want them to be healthy. But it’s, you know, I remember when I was in my early 20s and trying to pay the bills. And even then health insurance was affordable, it seemed like it was a challenge. I think the big thing we always want to go back to in this conversation is at the end of the day we’ve got to recruit. And we’ve got to be competitive with other cities and what they’re doing and whether it’s competitive on our pay scale or competitive on our benefits. So, if, you know, we’re not -- if we’re not going to be at the high end of the pay scale, then we need to provide a benefit incentive that motivates them to take a job here versus in another city, all things being equal, or we’re not going to get the employees or we’re not going to be able to hire. But it’s a tough one. I mean I look at it. Honestly this isn’t my forte and I’ve never really, I mean, I’m not a big benefits person. But I, you know, I do understand that single person I guess, you know, if we’re dealing with younger entry level positions, I think making, you know, our goal I think always is to retain those employees. We want them to start here. We don’t want to keep -- have turnover. So, if they’re a good employee we want to incentivize them to stay here and grow with the organization. And I think that’s an incentive for them to stay and continue on with the organization rather than constantly retraining people
COUNCILMEMBER KENIG: Councilman Neighbor and then Councilman Jenkins.
COUNCILMEMBER NEIGHBOR: Yeah. I just -- being a legitimate senior citizen for a number of years and having been on Medicare, but there’s a 20 percent on top of that that you have to go out and buy in the -- and I get it back through United Airlines. And, you know, I know there’s a difference between what my wife has to pay and what I have to pay for her as far as this extra 20 percent from what I do. And assuming I might be incorrect, but the fact I was an employee and worked there and did it over a period of time, but it’s an add-on and there might be a slight little benefit there. I sometimes wonder. But I think the difference -- I understand the difference of the fact that, no, she didn’t work there. She’s my dependent. But there is a difference in price as far as what we do have to pay.
COUNCILMEMBER JENKINS: You know, that’s true. And what is interestingly on my Medicare, which I have also enrolled in. I’m almost 69. So, I guess I’m one of those old guys too. But the bottom line is my wife pays 170 and I pay 170. So, between the two of us we’re paying $340 a month out of our Social Security just to cover our required Medicare, which I don’t even want because I’ve already got my insurance that carried over from my federal employment and I’ve also got my tri-care. But I’m forced to take this Medicare and it costs me 170 bucks a pop. I’m paying much more than a single guy here and I’m retired.
COUNCILMEMBER PFLUMM: He’s younger.
COUNCILMEMBER JENKINS: Yeah. Well, he’s younger, but the bottom line -- yeah, but I’ve got. I don’t even want the damn thing. I wish they would take it away from me, you know, it would be great. But I have to take it. But the bottom line is 14 percent is a wonderful deal. And that’s why, you know, I appreciate the comments because they’re appropriate that, yeah, we do want to incentivize our young guys. They may not make as much and stuff. But 14 percent is a heck of a deal. You know, three percent is almost laughable really when you stack them up against other people in the workforce around the country. Three percent, my goodness, that’s almost paying nothing. It’s like getting free health insurance essentially. For all practical purposes they’re getting free health insurance. $18 a month for -- this is a pretty nice plan. This is like one of those plans where you’ve got to put a lot of money out of your own pocket and stuff. It’s a pretty darn good plan and it’s good coverage. And for that kind of money I really think a little extra contribution from those folks would be appropriate. I really do.
COUNCILMEMBER KENIG: Councilmember Kemmling.
COUNCILMEMBER KEMMLING: I agree with what Eric said in theory on the extra contribution. I will say looking at the numbers here, the way I was looking at just the individual and the non-wellness because it’s the first column there, currently we have them paying about 8½ percent of their total premium. And after the increase that’ll decrease to about 8.1 percent of their total premium. So, the dollar amount is going to be more coming out, but they’re actually paying a smaller percent of their actual premiums. So, I wanted to point that. I have it being about the same on the wellness plan at around three percent of an individual.
With that being said I wanted to clarify because I thought I heard you say something. I want to make sure I heard it correctly. Did you say the premiums were the same for the PPO and the high deductible plan?
MR. BROWN: So, the premiums are not.
COUNCILMEMBER KEMMLING: Yeah.
MR. BROWN: The premiums are lower for the high deductible plan.
COUNCILMEMBER KEMMLING: Right.
MR. BROWN: The premiums paid toward Cigna. However, the premiums that the employees are paying --
COUNCILMEMBER KEMMLING: Okay.
MR. BROWN: -- net in their paycheck are the same --
COUNCILMEMBER KEMMLING: Okay.
MR. BROWN: -- between the two plans. But the employer is offering that contribution on top of that if that makes sense.
COUNCILMEMBER KEMMLING: Right. Okay.
MR. BROWN: Yeah.
COUNCILMEMBER KEMMLING: So, the employee’s portion of the premium is the same. Okay. I just wanted to clarify.
MR. BROWN: Correct.
COUNCILMEMBER KENIG: Councilmember Jenkins.
COUNCILMEMBER JENKINS: Yeah. Just in follow-up to one of my last comments about the single person. I understand it can be a hardship to just go from 3 to 14 overnight. But I could see as we are -- our premiums are continuing to increase year after year. If some of the single folks could absorb a little bit more of that increase until, you know, over a period of years they would be up around the same 14 percent level as everybody else. You know, I would be willing to deal with something like that. But I think it has to be addressed somewhere along the line because we just -- it’s unsustainable. We just can’t just pay unlimited amounts for insurance. At some point it gets -- it breaks the bank. And so, gee, I’d like to just be happy-go-lucky and say sure no big deal or whatever. But actually we do have to address the issues of how much it cost and we do have to get serious about it. And I think something like that might be appropriate or proposed something like that where we’ll phase in over a five-year period, seven-year period or whatever and everybody is going to be on the same footing at the end of that period and it would come out of their new increases rather some kind of an immediate jump in their cost.
COUNCILMEMBER KENIG: Councilmember Pflumm.
COUNCILMEMBER PFLUMM: Yeah. And to add to what Eric is saying, I mean, especially on the non-wellness people. If this wellness program really does contribute to lower premiums, you know, year after year or five years down the road, then those are the people that should be getting a major increase not a four percent.
COUNCILMEMBER JENKINS: Well, that would be incentivized to get in the wellness program.
COUNCILMEMBER PFLUMM: Yeah.
COUNCILMEMBER KENIG: Councilmember Kemmling.
COUNCILMEMBER KEMMLING: Just one more comment. Just reading numbers off the packet. In 2016, we spent almost $3.6 million on healthcare expenditures. And the proposal is $4.7. So, that’s about a $1.1 million increase. Yep. There it is on the slide. So, just an idea of the current pace we’re on. That’s a $1 million in two years.
COUNCILMEMBER KENIG: Okay. And I think, Reggie, did you still have some of the presentation left to give?
[Vision, Dental, Life, AD&D Voluntary Worksite Benefits slide]
MR. BROWN: So, the last slide is just simply the vision, dental, life and disability premiums recommending no changes to the -- both renewing with Delta Dental and Surency and then no changes to the employee premiums.
COUNCILMEMBER KENIG: Councilmember Jenkins.
COUNCILMEMBER JENKINS: Just out of curiosity, the life monthly rates are pretty low obviously. What is that level of coverage just out of curiosity?
MR. BROWN: I believe it’s 50,000.
MS. HENRICH: The life coverage is 50,000 for employees, 50,000 of accidental death and dismemberment for employees. Employees who have family coverage have $20,000 of coverage on their spouse and $10,000 of coverage on their dependent unmarried children.
COUNCILMEMBER JENKINS: Okay. Great. Thanks. I just never had seen this figure. I didn’t know what it was. Do you carry those with you into retirement or on some depreciating basis? Or it just stops when you retire?
MR. BROWN: It’s just term life insurance.
COUNCILMEMBER JENKINS: Because I worked for the government for all those years too and I was under the Federal Employees Group life insurance plan, it was 100,000 I believe. And then over a ten-year -- when you retired you will good for a 100 until the first year, then went to 90, and every year it went down 10 and then it topped at 10. So, yeah, I guess I still got ten out there if I croak. I guess I better tell my wife so she knows it’s there.
COUNCILMEMBER PFLUMM: That’s a might not want to tell her.
MR. BROWN: Thank you.
COUNCILMEMBER NEIGHBOR: I would move that we --
COUNCILMEMBER KENIG: Councilmember Neighbor.
COUNCILMEMBER NEIGHBOR: Excuse me. Thank you. I move we forward this information and the plan as presented to the Governing Body.
COUNCILMEMBER SANDIFER: Second.
COUNCILMEMBER KENIG: Okay. A motion has been made and seconded. All those -- are you --
COUNCILMEMBER PFLUMM: I have a comment.
COUNCILMEMBER KENIG: Mr. Pflumm, yes.
COUNCILMEMBER PFLUMM: And I just wish when this comes around to Council we could look at the non-wellness. I mean seriously that -- it doesn’t make sense why theirs only went up four percent.
COUNCILMEMBER PFLUMM: Well, if our incentive is to get people into our wellness program so that we have more healthy people, right, and we’re incentivizing them not to by only giving them a $2 increase.
CITY MANAGER GONZALES: We can come up with a concept related to that and put it in the packet memo that you all could discuss at the meeting. Uh-huh.
COUNCILMEMBER PFLUMM: Sounds great.
CITY MANAGER GONZALES: Okay.
COUNCILMEMBER KENIG: Councilmember Jenkins, comment?
COUNCILMEMBER JENKINS: Yes, Carol. And something to address that thought I just had, you know, maybe looking at the single payers to say, you know, maybe some kind of gradual phase-in where we raise their rates a little bit because it’s really just about too good a deal right now I think.
COUNCILMEMBER KENIG: Okay. And before we continue because I remember this now. I can’t remember if it was Councilmember Kemmling who made the comment. But, Reggie, your colleague spoke to, you know, being able to get that information for the analytics. So, if we can just be posted on that I think that would be great for us to have in the future. Just to be able to see kind of the payoff with the wellness programs and how that translates into claims that are being made.
MR. BROWN: Absolutely, yeah. Again, it’s just about achieving the data through Cigna given size and then aligning the data ultimately. So, yes, we’ll continue to work on that.
COUNCILMEMBER KEMMLING: Okay. Thank you.
COUNCILMEMBER KENIG: Councilmember Jenkins.
COUNCILMEMBER JENKINS: Just one last thing. Because we talked about the life insurance thing and that seems like a pretty low number for this day and age. So, I wonder if that would be an option where you could buy additional as an employee. Like, okay, you get the 50,000. But if you want a hundred thousand or $250,000, you could contribute X amount or something like that. And then buy it under that group policy.
MS. HENRICH: One other benefit that is available through KPERS is optional group life insurance where employees can purchase additional life insurance for themselves or their spouses.
COUNCILMEMBER JENKINS: They’d be doing it under KPERS?
MS. HENRICH: Right.
COUNCILMEMBER JENKINS: So, it’s out there already?
MS. HENRICH: Yes.
COUNCILMEMBER JENKINS: Okay. There’s already something there.
COUNCILMEMBER KENIG: Okay. Well, we have a motion on the floor that has been seconded. All those in favor say aye.
COUNCILMEMBERS PFLUMM, NEIGHBOR, JENKINS, VAUGHT, MEYER, SANDIFER, KENIG: Aye.
COUNCILMEMBER KENIG: All those opposed.
COUNCILMEMBER KEMMLING: Nay.
COUNCILMEMBER KENIG: Motion passes.
[Therefore, the motion was made by Councilmember Neighbor and seconded by Councilmember Sandifer to forward to the Governing Body for approval the medical plans from Cigna, the dental proposal from Delta Dental of Kansas, the vision proposal from Surency setting the City's monthly contribution rates, and continuing the agreement with Cigna for life and Accidental Death and Dismemberment coverage, and continuing with Surency Vision and with UNUM for voluntary benefits.
The motion passed 7-1, with Councilmember Kemmling voting no.]
MR. BROWN: Thank you very much. [Inaudible; talking off mic].
3. DISCUSS PROPERTY MAINTENANCE PROGRAMS AND POLICIES.
COUNCILMEMBER KENIG: Okay. The final item to discuss tonight is Property Maintenance Programs and Policies. Over the past few years, there has been continued discussion about more proactively enforcing current property maintenance codes and/or considering a rental registration program. Public comments at past Council meetings, feedback at the Mayor's coffees, and results from recent Citizen Surveys consistently indicate that the public supports greater codes enforcement. Staff will present an update of various programs related to property maintenance and is recommending several revisions to Policy Statement, PS-55, Enforcement of Municipal Regulations Related to Property Maintenance. Paul Chaffee, Planning Director, is going to start the presentation.
Property Maintenance Programs,
Policies and Procedures
MR. CHAFFEE: Good evening. And as Council President Kenig mentioned, staff is going to make a presentation regarding Property Maintenance Programs, Policies and Procedures and the tools that we have available to encourage reinvestment and the upkeep of properties. The enforcement of City codes and ordinances, while it’s broad in nature, includes property maintenance. And it was identified as one of the three top areas for the City to address during the next upcoming two years.
[Q.8 Satisfaction with Various Aspects of Code Enforcement - 2012 to 2017 slide]
And I think one of the things that our public finds, and I know myself and staff finds too that sometimes it’s frustrating when you’re dealing with property maintenance and that the length of time that sometimes it takes to get an issue resolved. And I think over the years, you know, the perception of how long it takes kind of sticks with you. But I think the thing that’s important is as we look at the blue lines on the chart, what are some of the things that we can do to change that perception and to have those blue lines extend further out and into satisfaction. Because in many cases code enforcement issues don’t rate very high with satisfaction. And I do want to make a comment that I dug a little deeper into the numbers to sort of find out if there was one part of town as opposed to another that was more satisfied or dissatisfied. And pretty much Ward IV tended to be the most dissatisfied with Wards I and II running pretty close behind. And Ward III seemed to be the most satisfied. And in many cases it was less than half the percentages that we had.
COUNCILMEMBER SANDIFER: They don’t care about anything.
MR. CHAFFEE: Right.
MR. CHAFFEE: And their issue I’m going to speak a little to that Ward III differs from some of the other ones.
[Overall Satisfaction with Code Enforcementslide]
And even nationally the City of Shawnee ranks pretty much the same satisfaction percentage. But, you know, our goal is to move those on pass the national and the City’s average.
[Ages of Structuresslide]
One bit of information we wanted to provide for you are the age of structures in the City. And as you can see they’re starting to age. Our first big group is the post-1950, post-World War II. We have the houses in Shawnee Village that are starting to push 60 and 65 years of age now. And then we have the structures that were built in 1990 to 2010 is actually our largest grouping.
[Safe Community, Attractive, Economic and Good Governanceslides]
So, code enforcement issues fall in four of our goals that the City has established. And one of them is the safe community to support a well-kept neighborhood and thriving businesses. We are in the attractive, healthy and well-maintained community. Encourage and promotes vibrant and secure commercial centers. Promotes and sustains an inclusive and welcoming community. Well-kept and safe neighborhoods. Economic growth and vitality. Encourages well-planned development and revitalization and cultivates a thriving downtown and vibrant commercial center. And good governance. That we deliver responsive, accessible and courteous service to all customers.
[Program and costslide]
And then based on the array that’s created for the individual programs there are four main programs that code enforcement activities fall into.
Lauren Grashoff is going to make a brief presentation on the neighborhood investment programs that are available.
Neighborhood Investment Programs
MS. GRASHOFF: Good evening. I am the neighborhood planner. And I just was going to go over a few topics here.
[Neighborhood Revitalization Program boundaryslide]
I know we have in 2003, the Governing Body started the Neighborhood Revitalization Program to encourage reinvestment in improvements. The yellow area is actually the initial boundaries that were developed in 2003, and then expanded in 2012 to the green areas. Basically what that program does is for any commercial or residential properties that are improved, that impact the assessed value of the property, improve that more than $5,000, they get a rebate, a 90 percent rebate of the taxes on that increased value. That other ten percent then goes into a neighborhood revitalization fund, but is set aside for redevelopment in these areas and to also pay on those rebates.
Some of the duties as the neighborhood planner that I carry out are focused in what we have was -- we call the Neighborhood Focus Areas. There are four of those in sort of the older, more established areas of Shawnee, eastern Shawnee that don’t have the typical maybe homes associations. And there are several different duties and activities that we’ve carried out over the years. But some of those roles include developing action plans, working with the neighborhoods to preserve the quality of life, dealing with different codes, police enforcement, and then also general communication and education with those groups. Beyond the Neighborhood Focus Areas we also work with homes associations and provide active roles for improvements in the neighborhoods.
Doug Allmon is going to talk about the ASSIST program that we started last year and where that’s been.
MR. ALLMON: Thanks, Lauren. Good evening. Doug Allmon with Planning staff.
If you remember a few months ago we unveiled to you a concept called ASSIST which is really a comprehensive neighborhood stability program. The idea at the 40,000 square foot level was a program that would help neighborhood stability by reducing levels of crime, creating higher levels of health, safety and social interaction. And also increased property values and higher resident satisfaction.
[ASSIST Neighborhood Services Programslide]
And so with that in mind we kicked this program off. We came up with some goals to promote that idea, including promoting safe and vibrant, appealing neighborhoods. Fulfilling sustainable infrastructure needs, fostering neighborhood cohesion, having a targeted cross-departmental approach, providing access to City resources and services and advancing neighborhood stability. At this time we have created our marketing and informational material. You can see an example of our brochure there on the left. And we have placed information about the program on the City’s website.
[ASSIST Departmental Teamslide]
But beyond the scenes of that we have also been creating the tools that we use for the analysis itself. And I’m going to show you some examples of that. As we said, it is a cross-departmental team. We have representation from Planning, including myself and Lauren. We have a code enforcement officer that is liaison from the group in terms of enforcement itself. We have people from our street program manager. People in our Engineering side for stormwater. We have participation by the Fire Department. And our CORE officer also participates. So, as you can see we draw from a breadth of experience and expertise across all City departments. We also have information from our GIS people. We have representation from City administration staff. We also utilize our business liaison and our volunteer coordinator whenever projects arise that may require additional help from outside sources.
[ASSIST Approach is Targeted and Data Driven to Focus on areas of needslide]
As we said when we presented that material to you all those months ago that the idea of ASSIST was to be targeted so that we could focus our resources on areas of need. And so this is an example of the data set that shows multiple code enforcement. And if you notice down at the right far side there’s a -- what we would call a hotspot of data that’s showing a proliferation of code violations. And so from that we decided to take a look at that specific neighborhood.
[ASSIST Approach (Tools)slide]
And what we did was, as I said we built tools. This is an example of our neighborhood analysis windshield survey. We actually take -- all four code enforcements take this tool. They go out and assess each property by address. They look at things like the building conditions of the neighborhood, roofs, chimneys, paint, exterior, those sort of things, and they rate them on a scale. They also look at the condition of the lots, whether there is tree issues, grass issues, various things, you know, illegally parked cars. And then they also do an analysis of other code-related items. They look at things like trees overhanging sidewalks if sidewalks exist in the neighborhood. They look at the ditch section roads or the curbing, those sort of things in terms of infrastructure. And then they rate those. And the great thing about having an interdepartmental team is that our GIS department, our division was able to take that scorecard, that windshield survey that I created and digitize it into the guys’ iPads.
[ASSIST Neighborhood Scorecardslide]
And so as they rate these it generates a score. And it also generates a color on a map. And so if you look at this, what this is showing is a condition based on four scores, not just one, so that it’s not subjective. It’s across four scores. And what the red properties denote are code violation level issues. And so this is actually in the Pioneer neighborhood. And so you can see by parcel number the areas that we need to focus on. And what this does also it generates what we call a neighborhood score. And that neighborhood score gives us a baseline of analysis. What’s the condition of the neighborhood today? And I know that if you read this I think the neighborhood score was 69. That is actually very good. And you can see by the number of red properties that we have very few that are actually in true code violation type status.
[ASSIST Neighborhood Action Planslide]
And so we take this information and we bring it back to the group and we discuss it amongst the departmental group. And what we do then is we create an action plan. And if you look at this example of this neighborhood action plan in particular. The idea is not to find the red properties and immediately go find them. The idea is to promote stability through education. And so if you look at this there is a mailing component. We’re going to target direct mail, contact people. There was actually a lot of storage of useful items outside was the main violation that we found in this particular neighborhood. It wasn’t a lot of conditional exterior problems in the neighborhood. And so we’re going to have an educational campaign. And interestingly enough another thing that we discovered in reviewing this is that some of the lot, quote and unquote, “conditions” was related to the private maintenance of the road ditches in the neighborhood. And so we’ve through our Stormwater division they’ve created an educational mailer that we’re going to mail out to the entire neighborhood that will help in ideas of just simply as keeping leaves and things out of the ditch can go a long way to creating a better looking neighborhood.
So, that’s kind of where we’re at. We’re continuing to refine the program, looking at different data sets and things. But the goal is to continue to create action plans for areas of need where the data tells us that we need to go. So, with that I’ll turn it back over to Lauren and Paul.
COUNCILMEMBER KENIG: Thank you. Councilman Sandifer.
COUNCILMEMBER SANDIFER: Yeah. Doug, do you have a system to break that down to find out which ones are, I know it’s tough, which are rental houses and which are not?
MR. ALLMON: We actually have the ability to look at percentages of what is rental versus owner occupied I think at the block level. I’m not sure, Lauren, if we have the ability to figure out individual ownership in single family.
MS. GRASHOFF: Property owner records.
MR. ALLMON: Yeah. It would just be through the property owner records.
COUNCILMEMBER SANDIFER: Just showing where the property tax bill would go to?
MR. ALLMON: Correct. That’s correct.
COUNCILMEMBER SANDIFER: And have you done much of that?
MR. ALLMON: We actually looked at that in the Shadow Wood neighborhood when we did an analysis. And interestingly enough what we found in that particular example was that the owner-occupied versus the renter-occupied, there really wasn’t that much difference in the scoring of the units.
COUNCILMEMBER SANDIFER: Oh, there wasn’t. Okay.
MR. ALLMON: In that example.
COUNCILMEMBER KENIG: Thank you, Doug.
MR. CHAFFEE: Paul Chaffee, Planning Director. And sort of following up on Councilmember Sandifer’s question. About six years ago we did an analysis down in Shawnee Village because one of the concerns the neighborhood expressed was that they thought the rental properties weren’t being maintained as well as the others. And we did a similar type of windshield survey. And what we found in Shawnee Village was actually that the rental properties were being more well maintained that the owner-occupied properties were. So, that was kind of an interesting finding.
Current Code Enforcement Activities
[Code Enforcement Philosophyslide]
So, our code enforcement philosophy, our goal obviously is to obtain compliance with the municipal regulations. And we want to make sure that the enforcement is fair and impartial, effective and consistent. That citizens are always treated courteously and fairly. That citizens with a property maintenance violation are advised of municipal regulations, given a reasonable chance to correct the violation before they have to go to municipal court with a notice of a violation. And out of the 3,700 cases that we undertook last year, only about 50 or 60 end up going to court. So, the residents are able to work pretty well with us. And it’s sort of taking to court is the last resort where we’ve tried to work with them and give residents extensions. And for one reason or another they just decide that they don’t want to comply with the City’s regulations. And then we do provide flexibility to citizens that have exceptional circumstances. If someone is handicapped and we need to try and go out and find someone or a group that may help them out, we extend the time and work with them in that way.
[Current Code Enforcement Processslide]
So, the current code enforcement process is guided by Policy Statement 55. It’s mainly complaint driven. Only inspection through the CityWorks database which the codes enforcement module we began the middle of last year. We also still have the SeeClickFix application, which is the public’s portal. We have call-ins and we have e-mails. Current staffing, we have four code enforcement officers who work hard. They’re out every day and come back. Some days can’t get everything done that they had anticipated. But eventually the work gets done.
[Complaint Driven Violationsslide]
Service requests, these are the complaint driven notices. You’ll notice that in 2016 there was a reduction in the number of service requests. And those are the complaints that we receive or inspections that we go out on that are driven by another program. While the number is a little lower, it turns out that it’s a good thing. Because some things are working and the economy is recovering. And I’ll go over that in a little bit.
Number of investigations is the ones that we could verify when we made the switch from Lotus Notes to CityWorks we found that it wasn’t counting some of the repeat calls on someone who had just listed as one service request or one investigation rather than clicking each time a code enforcement officer would go out to a certain location. So, we have that part of it fixed. And we went back in to verify as many as we could during that short time period.
[Policy Statement 55 (PS-55)slide]
So, Policy Statement 55 was last revised in November of 2013. And it included proactive code enforcement methods for exterior property maintenance, included the foreclosure of property inspections. You’ll all recall in 2010, ‘11, ‘12, ‘13 and ‘14, there were a lot foreclosures that were going on in the community. We just started the neighborhood focus inspections, started a Yard of the Month program. We did repeat offender inspections and rental property inspections and then inspections of properties near the above complaint-driven. So, if a code enforcement officer drove by and saw a code violation next door or two doors down or up around the corner, he would come back and enter it into the system to be a little bit proactive.
[Foreclosure Inspection Programslide]
So, here is one of the reasons that our number of cases went down which is good news for us. We go out and do inspection of the foreclosures. We get those quarterly from the county. So, our numbers have decreased from almost 1,400 in 2014 down to 242 in ‘16. So, that’s some of the good news. We also found that foreclosures today tend to be in newer subdivisions. So, as we drive by we’re not noticing code violations that we found when it was really pretty heavy down in Shawnee Village and Douglas Highlands and the neighborhood northeast of City Hall. Those tended to be the areas that got hit first with foreclosures.
[Neighborhood Focus Programslide]
Then in the Neighborhood Focus Program, this is a program where each of the four code enforcement officers in addition to doing code enforcement inspections throughout the community, each one is assigned to one of the neighborhood focus areas. And they drive in those areas frequently, take a look to see what’s happening. Has forged some relationships with folks in the community. Lauren through her neighborhood newsletter, which goes to the four neighborhood focus groups, will always have a little code tip of the quarter. And, you know, sometimes it’s, you know, spring is coming up, remember don’t let your grass grow taller than eight inches. Or in the fall be sure to rake your leaves and get them out of the culvert. Because when the rains come and the snow comes, if you don’t, all that happens is the leaves get caught under your ditch section driveway culvert and clogs it up and then water backs up.
And so I think just looking through the numbers that that has been really successful. And I know the code enforcement officers have good relationships with neighbors. If there’s someone in particular that seems to be a consistent code violator, they can go to speak with someone else in the neighborhood and try to get some tips on, you know, how do you handle this person. Or, you know, what would happen if I approached them in this manner. So, those are good things that are going on out in the neighborhoods.
[Repeat Offender Programslide]
We do have the Repeat Offender Program. And that’s a procedure to track addresses where more than two violations occurred in a ten-month period, or a twelve-month period. And you sort of saw that in Doug’s presentation where the hot spots are.
Then after the code violation has been corrected, it’s inspected for six consecutive months just to be sure that there aren’t any additional violations. So, that’s not a call-in. We just go by the property to make sure things aren’t getting out of hand again.
If no violations are noted, then the property is taken off the Repeat Offender List. But if a violation occurs during that six-month period, then the property remains on the re-inspection list for another six months. So, it would be a total of 12 months.
[Single Family Rental Exterior Inspection Programslide]
Single Family Rental Exterior Inspection. We began the program through your program and Hit it Hard in ‘13, ‘14, ‘15 and continuing it in ‘16.
Lauren is going to visit with you all a little bit about rental licensing and inspection in area cities.
Rental Licensing and Inspections
MS. GRASHOFF: All right. As noted in your packet memo, there has been discussions over the years about possible rental licensing or registration programs. We basically took the information that we had before and have updated it for 2016 is when the research was completed. In 2007, the Council examined the issue and did approve single-family rental inspections. And that’s just for the exterior of homes. And then also under this program we currently now actually require duplex and multi-family units to get business licenses, but they are not inspected proactively as part of that program.
[Area cities inspection programs and feesslide]
So, these are area cities here in Kansas that do have various forms of licensing and inspection programs. You will note that there are single family and multi-family there depending on what the cities felt that they needed. They are done annually or they done when new owners take over or new people move into the units. And then the fees vary. It can be based on unit or by building, square footage. There are various different types that these programs, different forms that they’ve taken.
Just to give you an idea when I was doing the research on area city programs, I did talk with the city of Mission. And they set up their licensing program basically as a way to do the proactive inspections for their multi-family and single-family rental units. They said otherwise they would not do those proactively. But that’s just the way that they set up their program. And they use the licensing fees to pay for the internal inspections of those properties.
[Shawnee Business License for Rental Propertiesslide]
So again, currently the City does require licenses for multi-family and duplex units. You’ll see the fee there and that is based on square footage. So, in 2016, we had 146 of those licenses, which came out to about almost $30,000 for those licensing fees. There were 118 duplex units and then 28 actual apartment complexes. Those are not done per building for the license. That would be if one management company has the whole apartment complex.
[Other Property Maintenance Resourcesslide]
Some other property maintenance resources that the City has available. This would be for low-income households, would be for the minor home repair program, which is an allocation that the Governing Body makes every year through the Community Development Block Grant Funds. That’s $25,000 for exterior home repair, paint, roofing, siding, porches, stairs, things like that. And then some immediate needs for interior as far as plumbing, hot water heaters, air conditioning, things of that nature. And then a weatherization program that is actually run through the state and that has to do with energy efficiency for windows and other appliances within households. And then one of the services, non-profits that we have here in Shawnee is Rebuilding Together Shawnee. That also has experience with some exterior and interior home repairs. Actually this year we have been able to sort of work with Rebuilding Together Shawnee to offer some additional assistance to people that maybe couldn’t get enough of what they needed done through that Minor Home Repair program. So, we were able to tag-team those services. It was very beneficial to some of our more needy homeowners. And then we also have the Neighbors Helping Neighbors program. And that’s basically just a way that we can connect people with a need here, our residents, and connect those with people who can help. So, that includes churches, businesses. They obviously are neighbors, homes associations. These projects are not meant to be ongoing projects and they are typically sort of more non-skilled projects as far as if a homeowner has some accessibility issues, if they need to get a tree cut because it’s fallen over on the sidewalk, some sort of one-time projects with those.
[Other Property Maintenance Opportunitiesslides]
Land Bank - We with this looked at other opportunities that might be available for property maintenance. One of the topics that was brought up was a land bank. Overland Park, Wyandotte County and Olathe here in Kansas actually have land banks currently. From what we’ve found in the research is that they were more heavily used while we were in the recession. There was the foreclosure properties. But they with the land banks were able to basically manage distressed properties for neighborhood stabilization. They could basically encourage the reuse and redevelopment of those properties. It could be for commercial or residential for those. And they were able to purchase the properties again that have been abandoned or foreclosed. Once the land bank purchases those properties it removes all taxes, any special assessments, charges, penalties and interest that are due. So, that does help sort of bring the property back to a market value where it can be sold for redevelopment or reuse.
Johnson County Housing Coalition - There are two other partnership maintenance opportunities that we looked into. One was the Johnson County Housing Coalition. This is not a land bank. This is a non-profit that focuses on providing affordable, safe and quality housing units. They are here in Johnson County. Right now they currently own and manage over a hundred properties. But they do have experience. Actually how they started was with home acquisition rehabilitation and resale.
Tenants to Homeowners, Inc. - And then there’s this other program in Lawrence that is similar. It’s called Tenants to Homeowners. That’s also a non-profit. They do both rental properties and then also will subsidize or provide for some other education and affordable rental units.
So, Paul is going to go over the recommendations and further discussion items.
[Recommendations: Proactive Code Enforcementslide]
MR. CHAFFEE: So, staff has prepared a series of recommendations to take a look at. And I’ll kind of flip through the recommendations and then address the ones that are in the staff report. First is to continue the complaint-driven program, the Neighborhood Focus Inspection program, the Foreclosure Inspection Program and Single Family Exterior Rental Inspection program as they’re currently handled.
Utilization of our new codes position as the Codes Administration Supervisor to undertake violation inspections half of their time and then spending the rest of their time managing the overall workload and investigating more complex and difficult cases. There are still cases that others outside of the Codes Administration division do handle. They tend to be more complex in nature. And this would take that off of their plate. And we would do those inspections. The assignment of code enforcement officers to a specific geographic area in the City to build and maintain a relationship in the assigned area. We saw that that worked really well with the neighborhood focus areas. This way they’re sort of the eyes and can kind of see what’s going on. And also I think it’ll make us more efficient. Currently as the co-complaints go on, one of the code enforcement officers just assigns that code or that issue on a rotating basis. So, you may have a code enforcement officer who has a case at 69th and Switzer and he also has a case at 79th and Mize. So, by doing it geographically we can be more efficient while we’re at in one area rather than driving back and forth between them.
Also increase legal support for codes to handle caseload. Help move cases through the system quicker. We’ve created a module in CityWorks where the code officers can dump all of their information that they have regarding the case into the module that the court system will have available. Then whenever they have to go out to court they don’t have to take the whole file out there. It’s all done electronically. But all the letters that go out, all the notifications and dates that the code officer visited with the person, any notes that he makes for any extensions that may have occurred. We also have the ability in CityWorks to download pictures so that the legal folks out there can have those available for them to see also.
Continue to build the ASSIST program and incorporate improved and expanded communication and education through social media including Facebook, NextDoor, use of door hangers, neighborhood meetings. Use the program and increase communication to encourage grassroots neighborhood clean-up efforts. Right now what the code enforcement officers do, they started that this fall is that they go out to a case that’s been called in and no one is at home, they leave a door hangar on the door with a brief description of what the code violation was. They have their business card that they attach and with a phone number and just say, please give me a call so we can discuss your violation. And actually there’s a copy of the door hangar that’s listed out there.
Use target articles in CityLine, the City’s website and social media on mowing and exterior property maintenance to target frequent code violations. One of the other things that we need to do, and this is what I found in Ward III’s complaints. They were pretty heavy on weeds compared to some other. And so to start educating the developers on you need to mow your vacant lots for two reasons I think. One is that it’s a code violation if you don’t. And number two, it makes your subdivision look like a place that folks want to live if they drive in and it’s nicely maintained. It gives a good appearance and we just think that it would increase their likelihood to make their sales. And then also that’s where we have a lot of the mud in the street complaints and just educate them, you know, that you need to go out and hose down the streets after the muddy days like today and you’ve got somebody going up and, you know, getting ready to pour a foundation and then the street is as muddy as the lot and neighbors tend to complain about that quite a bit.
Continue the emphasis on friendly communication in order to achieve voluntary compliance. One of the things that we did this fall was we changed the notification letters. No more do you get the letter, Dear John Doe, and it screams in bold and capital letters that this is a notice of non-compliance or this is a violation of. We have a more friendly letter that is the first page just explaining to them how we got the complaint. We have them if they came in by SeeClickFix or if it was a call-in, or if it was an inspection that an inspector made, so they understand where the complaint came from. Then the second page that’s attached tells them what the code violation is, what part of the code it’s from. Then the steps that you can take to achieve the violation if you need to reattach the gutter that’s falling off, more specific. And then the number of days to complete that violation. And then on the letters we also have the ability to put the picture in so the codes officer can take a picture if it’s more complex, or there are just a lot of things going on. When they call and visit with the code officer, he can have the picture on his screen. The citizen has the picture in the letter and they can talk about the different violations that may be occurring. And it sort of helps them understand a little bit more of what’s going on.
And then continue the research and pursue creation of a land bank trust or other partnerships that we can have for vacant, abandoned properties. Those are the things that we can do just administratively to be a little bit more proactive in some of the things we’ve already done. And we’ll reevaluate the door hangars. Are they effective, are they not, what kind of response rate do we get to those types of notifications.
And then in addition to the above if there is support after discussion, the committee could recommend forwarding the following revisions to PS-55 to the Council for approval. And one would be to create a program to proactively inspect commercial structures in high traffic and commercial corridors. If you remember back on the first chart that we saw about 42 percent of the residents were satisfied with exterior of commercial buildings. And this is a program that we could do especially in the high traffic areas.
Expand the rental inspection program to include proactive inspection of 1,233 multi-family and duplex structures. We do recommend that an enhanced rental registration program not be pursued since fees are already being charged and it would create more administrative work and duplicate the proactive measures that we already have in place.
And then increase proactive work in the Repeat Offender Program for property maintenance and especially for tall grass and weeds.
That concludes our presentation.
COUNCILMEMBER KENIG: Thank you, Paul.
MR. CHAFFEE: Do you have any questions or discussion?
COUNCILMEMBER KENIG: Discussion, Councilman Jenkins.
COUNCILMEMBER JENKINS: Yeah. Paul, congratulations on your new assignment there, the additional duties. Did Carol give you a paycheck to go with that?
MR. CHAFFEE: Thank you.
COUNCILMEMBER JENKINS: I was looking at one part there that was talking about the rental fee for the -- it was 0.006 per square foot.
COUNCILMEMBER PFLUMM: It’s 400 bucks a house.
MR. CHAFFEE: Yeah.
COUNCILMEMBER JENKINS: So, if you got a 500 or little 700 square house.
CITY MANAGER GONZALES: It’s not charged on single-family. Those are only for duplex and multi-family.
COUNCILMEMBER JENKINS: Okay. That’s multi-family.
CITY MANAGER GONZALES: Yes.
COUNCILMEMBER JENKINS: Okay. That makes more sense. Because I was thinking, wow, you’d be talking about $6 or $4 or something like that for these little houses out here. I was thinking, geez, you ought to just go with a minimum like 10 bucks minimum or something and go from there.
MR. CHAFFEE: Well, and that’s one of the reasons we’re not recommending that we enhance that rental program. It just wouldn’t pay for itself. And it would add another 1,400 structures to have to go by and take a look at. We’re doing it anyway. We’re just not charging a fee.
COUNCILMEMBER JENKINS: Okay.
COUNCILMEMBER KENIG: So, just to reiterate what Paul said, most of these are administrative and so they don’t require any proactive votes by us. But for any of those three items that we’re looking at more proactive enforcement or establishing or expanding the rental inspection program. We would need to revise PS-55 and vote on that. So, any support for that? Any discussion, thoughts on that?
COUNCILMEMBER JENKINS: Yeah.
COUNCILMEMBER KENIG: Oh, Councilman Jenkins.
COUNCILMEMBER JENKINS: Yes. I would generally support the three items you had there. I think that looks pretty good. Especially on the proactive work on the repeat offender program. If you have repeat offenders I mean we have to be cracking down on that and make it serious. And I don’t know, you say we already got pretty good marks on the proactive inspection of commercial structures. But that’s not really a very difficult one to do since they’re pretty easy for drive-by and stuff like that on the major commercial areas. So, I guess that wouldn’t be a major increase in the staff requirements or anything like, so that should be okay. And then the rental inspection program, I agree. We should just keep it where it is with those -- keep it limited to what you’ve recommended there.
COUNCILMEMBER KENIG: Councilman Neighbor.
COUNCILMEMBER NEIGHBOR: Yeah. Eric, was that a motion?
COUNCILMEMBER JENKINS: That was supporting those things basically. But I was -- I didn’t make a motion because I thought somebody else might have something to say, so I didn’t want to cut them off.
COUNCILMEMBER KENIG: Well, and before you go I’m just going to ask if there’s anyone in the audience who would like to speak to this item before we continue? I think the audience has deserted us today.
COUNCILMEMBER NEIGHBOR: They’re all on the payroll.
COUNCILMEMBER KENIG: Okay. Back to you, Jim.
COUNCILMEMBER NEIGHBOR: I move that we forward to the Governing Body the recommendations to PS-55 for approval.
COUNCILMEMBER MEYER: Second.
COUNCILMEMBER KENIG: Okay. A motion has been made and seconded. All those in favor say aye.
COUNCILMEMBER KENIG: All those opposed. Motion passes.
[Therefore, the motion was made by Councilmember Neighbor and seconded by Councilmember Meyer to forward to the Governing Body for approval the following revisions to PS-55: create a program to proactively inspect commercial structures in high traffic commercial Corridors; expand the rental inspection program to include proactive inspection of 1,233 multi-family and duplex structures; and increase proactive work in the Repeat Offender Program for property maintenance and especially for tall grass and weeds. The motion carried 8-0.]
COUNCILMEMBER KENIG: Okay. And one thing I want to mention I had neglected on the prior item we voted on, the adoption of health, dental, vision and life. We did have one Councilmember vote in opposition and that was Councilman Kemmling. So, I will try to get better about remembering to note the vote splits. So --
COUNCILMEMBER SANDIFER: Motion to adjourn.
COUNCILMEMBER PFLUMM: Second.
COUNCILMEMBER KENIG: Motion to adjourn and has been seconded. All those in favor say aye.
COUNCILMEMBER KENIG: All those opposed. We’re adjourned.
[Therefore, the motion was made by Councilmember Sandifer and seconded by Councilmember Pflumm to adjourn. The motion carried 8-0.]
(Shawnee City Council Meeting Adjourned at 9:37 p.m.)
I certify that the foregoing is a correct transcript from the electronic sound recording of the proceedings in the above-entitled matter.
/das April 19, 2017
Deborah A. Sweeney, Recording Secretary
Stephen Powell, City Clerk