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HomeMy WebLinkAboutCouncil Minutes - March 9, 2026 Special Meeting (208) 359-3020 35 North 1st East Rexburg, ID 83440 Rexburg.org | Engage.Rexburg.org Special City Council Minutes – March 9, 2026 Mayor Jerry Merrill Council Members: Bryanna Johnson David Reeser Colin Erickson Bill Riggins Eric Erickson Alisha Tietjen City Staff: Spencer Rammell – City Attorney Matt Nielson – Finance Officer Keith Davidson – Public Works Director Alan Parkinson – Planning & Zoning Administrator Scott Johnson – Economic Development Director Deborah Lovejoy – City Clerk 12:00 P.M. City Hall Front Conference Room - Roll Call of City Council Members Review Audit for Fiscal Year 2025 – Matt Nielson and Rudd and Company Attending: Mayor Merrill, Council Member Riggins Council Member C. Erickson and Council Member Tietjen City Staff: Finance Officer Nielson, City Clerk Lovejoy and Deputy Clerk Gonzalez. Audience Members: Auditing professor for BYU-Idaho University, Kevin Kimball, Teresa Flanary auditor with Rudd and Co., Colton Sezlak, a BYU–Idaho student, Justin Marquart, who is also a BYU–Idaho student. Finance Officer Nielson explained that Rudd and Company serves as the city’s auditor. He stated that Teresa Flanary is the lead auditor, and that a team of about four or five auditors work on the city’s audit. On the city side Finance Controller Scott Miller and he are the primary individuals working on the audit. Finance Officer Nielson further explained that the fiscal year ended in September, and internally the city began working on the audit in October. The auditors came on-site at the beginning of January. He mentioned that there are a few changes related to the Governmental Accounting Standards Board (GASB) rules. Many of the changes involved SBITAs, which relate to leases and similar agreements, and those would be discussed later. Another change affecting the city’s accrued absences, which required adjusting the way those accruals are calculated. He noted that they would show that change later. He also explained that another major change would occur the following year, when the MD&A section would have to be updated due to new standards. Although he could have chosen to implement the changes that year, he decided not to because he did not want the city to be the first to test the new format. He mentioned that he plans to attend training with GFOA, and he expected those trainings to cover the changes in detail, so it made sense to wait. Finance Officer Nielson said Mrs. Flanary will cover the first three sections of the audit report, after which he will discuss the MD&A section. Mrs. Flanary explained that three parts of the report belonged to the auditors, while the rest of the report belonged to the city. The first section, which covers pages one through three, is the auditor’s report on the financial statements. She noted that the city has historically kept up well with accounting standards. The finance team regularly attended training and proactively worked to ensure the financial statements complied with required standards. She also mentioned that the team frequently contacted the auditors with questions when they were uncertain, which she described as both unusual and very positive. From a financial perspective, she stated that there were no material issues with the financial statements, and the auditors believed that the statements were presented appropriately according to the required standards. Finance Officer Nielson moved into the MD&A section. He explained that they will not review every page, because doing so would take too long. Instead, he highlighted some key financial points that he believes are important. Mrs. Flanary clarified that the document being reviewed is a draft; however, it is not marked as a draft due to computer issues earlier that day. Some page numbers still need to be verified, and there could be minor formatting issues that will be corrected later. She emphasized that these issues were related only to computers and not to the accuracy of the report. Finance Officer Nielson explained that the city’s assets and deferred outflows exceeded its liabilities and deferred inflows by approximately $191 million at the end of the fiscal year. Of that amount, about $4.8 million was classified as an unrestricted net position, while about $38 million consisted of restricted assets, which were funds available to meet ongoing obligations. He also stated that the city’s net position increased by about $16 million during the year. When reviewing the financial statements, the finances are divided into governmental activities and business-type activities. Governmental activities increased by about $7.3 million, while business-type activities increased by about $8.7 million. He then discussed fund balances. Governmental funds referred to non-utility funds, while business-type funds included utilities such as water, sewer, and sanitation. The governmental fund balances totaled about $25.7 million, which represented a slight increase of about $1.3 million compared to the prior year. Finance Officer Nielson explained that the item the City Council should probably care about the most is the general fund balance. He stated that the balance is approximately $5.7 million. He noted that it had dropped slightly and that the reserve level was now about 29%. He reminded everyone that the city’s policy is to keep the reserve between 25% and 33%. He also explained that projections for fiscal year 2026 showed that the reserve could decrease further, and the finance team is aware of that situation. He said he has informed the City Council for some time that the city will need to tighten spending, especially regarding capital projects. He added that if a recession occurs, the city will likely need to significantly reduce operational expenses as well. Finance Officer Nielson explained that over the last few years, forecasts for general revenues, particularly sales tax revenue, have remained relatively flat. Since sales tax had the largest impact on the general fund budget, this trend is concerning. Based on conversations happening at the state level, he expected that sales tax revenue might even decline this year. He also pointed out that one of the biggest challenges the city is facing is keeping up with inflation, especially in construction projects, where costs have risen significantly over the past five years. The city has been seeing those increases on nearly all its projects. From an operational standpoint, he noted that the city had experienced an average cost-of-living increase of about 2.8% over the last ten years. He recalled that the COLA for the upcoming year is around 2.7%, which provided some context for how costs continued to rise over time. He explained that many people believed property taxes were the solution, but property tax increases did not even keep up with inflationary costs. Because of that, relying on property taxes alone would likely lead to ongoing operational deficits. Finance Officer Nielson said that $1.3 million of the general fund balance had to be used as carryover to balance the fiscal year 2026 budget. He emphasized that this is an important point to consider, as it is the largest amount he has ever needed to use to balance the budget. Typically, the city tried to keep that amount under $1 million. Finance Officer Nielson noted that he would not go through every detailed explanation of the financial statements. Instead, he briefly explained that some statements are prepared on a cash basis, while others used an accrual basis, meaning transactions were recorded when they became due or payable rather than when the cash is received or paid. He said they will discuss those concepts later. When reviewing the net position section, Finance Officer Nielson realized that one of the numbers shown was from the previous year and would need to be updated. He explained that the prior period adjustment would be removed, but the updated figures still reflected a net position of about $191 million, which he mentioned earlier. Finance Officer Nielson moved on to discuss large capital projects, which were summarized on page six of the report. He explained that the city did not complete many street projects the previous year, which he mentioned in earlier City Council meetings. However, the city expected to complete many street projects during the current year. He added that the timing of construction has been unusual, because many streets were built in late fall the previous year. Finance Officer Nielson reported that contributed assets had been very large the previous year, particularly from street infrastructure as well as water and wastewater systems. The contributed assets mostly came from new developments. Developers installed infrastructure such as streets, water lines, and sewer systems, and then transferred that infrastructure to the city. Once the city received it, it became an asset on the city’s books. He acknowledged that it eventually created a liability in the future, since the city would ultimately be responsible for maintaining and replacing it. Finance Officer Nielson pointed out several of the major projects from the year. One of the largest was the new sewer line designed to serve the Teton, Rexburg, and Sugar areas. The city had also purchased land for a future police facility, which has become a topic of discussion. The city paid about $1.3 million for the land, but an appraisal valued the property at $1.5 million. Because of that difference, the city recorded $200,000 as contributed assets, reflecting the value that had effectively been contributed beyond the purchase price. He also noted that the city has been working on upgrades to the wastewater headworks, where a major project has begun. He explained that this project would likely continue for several years. In addition, the sanitation shop project has finally been completed. He said he would not go through every project listed but noted that the report reflected the early stages of several large capital projects. Finance Officer Nielson moved to page seven, which provided a more detailed comparison of financial activity. The table compared governmental activities for the previous year and the current year, as well as business-type activities for those same periods. Another column combined both categories into “all activities.” On the right side, the report showed whether the changes were favorable or unfavorable, with unfavorable amounts shown in parentheses, along with the percentage change. He noted that current assets had increased by about 4%, though he did not review every item in detail. He pointed out that liabilities had increased by about 26%, but he explained that this increase was not concerning, since many of those liabilities were simply obligations that would be paid shortly after the start of the new fiscal year. He also highlighted that capital assets had increased by about 12%, and the notes at the bottom of the page provided additional explanations for those changes. Finance Officer Nielson moved to page eight, which focused on long-term liabilities. He mentioned the changes related to accrued compensated absences, which are required by new GASB rules. Previously, the city calculated this liability by taking the total sick leave and vacation hours owed to employees and multiplying them by their pay rates. Under the new requirements, the city had to conduct additional analysis to determine how much of that leave employees used or cashed out within the following three months. After adding these scenarios and reviewing the data, the calculation is slightly revised, but the change was not considered material. Mrs. Flanary added that this outcome is important because if the analysis has produced a material difference, the city would have needed to record a prior period adjustment in the financial statements to reflect the change in methodology. Since the difference was small, the adjustment could simply be accounted for in the current year. Finance Officer Nielson reviewed the lease liabilities. On the governmental side, these mainly involved police vehicles that the city leased. He reminded the group that the city had been running the police vehicle leasing program for several years, likely around seven or eight years. After some discussion, the group agreed that it had probably been closer to eight years. He also mentioned that the city had been working with Bancorp to analyze the leasing program. Based on that analysis, the city had decided to extend many of the leases beyond the original five-year term, since several of the vehicles were now reaching the end of those initial lease periods. Finance Officer Nielson explained that instead of returning the leased vehicles at the end of the term and selling them, the city had begun extending many of the leases for an additional two to three years. At the end of those extensions, the city would pay about one dollar to purchase the vehicle. This meant the city would own the vehicles outright and could then surplus and sell them independently. He noted that the city tried to maintain two different types of vehicles in its fleet. Administrative vehicles were typically kept longer because they did not accumulate the same high mileage and usage as patrol vehicles, although the mileage might appear low, the engine hours are often five times higher due to the amount of time the vehicles spent idling. Finance Officer Nielson said in addition to administrative vehicles, the city had also been purchasing trucks at the end of their leases. Many of these trucks came off lease after about five years with roughly 40,000 miles, and the city could purchase them for around $18,000. These trucks were then reassigned to other departments, where they would continue to be used for many years. He explained that departments like Parks and Public Works often kept trucks for 15 to 20 years, so acquiring these vehicles through the lease program had been very beneficial. Mrs. Flanary added that there would be some accounting changes related to these vehicles. In the financial statements, there are two categories: lease liabilities and finance purchase obligations. If the city planned to own the vehicle at the end of the lease, accounting standards required it to be treated more like a loan rather than a traditional lease. As a result, those items would move from lease liabilities to finance purchase obligations in the financial statements. Although the classification would change, the underlying obligation remained essentially the same. The shift would likely appear in next year’s financial report as assets moved between those categories. Finance Officer Nielson emphasized that the approach is very strategic, because certain vehicles—such as patrol vehicles—were not ideal for long-term ownership due to heavy wear and tear, while others could still provide many additional years of service. He also noted that the city still has a small finance purchase obligation related to golf carts, which appeared in the financial statements under that category. Finance Officer Nielson reviewed the contracts payable, which are related to SBITAs. When asked to clarify the term, Mrs. Flanary explained that SBITA stood for Subscription-Based Information Technology Arrangements, which essentially referred to software subscriptions that the city used. Finance Officer Nielson reviewed the net pension liability, which was tied to PERSI, the Public Employee Retirement System of Idaho. Instead of calculating those figures internally, the city hired outside professionals to determine the numbers, since those specialists already had established systems and handled similar calculations for many clients. He explained that outsourcing the work had proven to be more cost-effective than doing the calculations in-house. Council Member Tietjen asked whether the change meant the city had paid less into PERSI. Finance Officer Nielson clarified that the change is due to strong investment returns over the past 18 months, which has significantly improved PERSI’s funded position. Because the retirement system’s financial health had improved, the city’s reported liability decreased accordingly. Mrs. Flanary added that the number represented an actuarial estimate of the city’s share of the pension obligation at a specific point in time. If PERSI had theoretically ceased operations at the end of the fiscal year, that number would have represented the city’s portion of the funds needed to meet future obligations. However, because the calculation changed every year based on market performance and other factors, it was somewhat artificial in nature, though still required to be reported in the financial statements. Finance Officer Nielson noted that PERSI is considered one of the top-managed retirement systems in the United States, often ranked among the top ten. He believed this strong performance was partly because PERSI did not include health insurance benefits, which could place additional strain on retirement systems. Although employees did not receive health insurance through PERSI, the absence of that benefit helped keep the system financially stable and well-managed. He then noted that the business-type activities section contained many of the same types of liabilities and explanations. Finance Officer Nielson explained that the city has a water loan through the Department of Environmental Quality (DEQ). The balance on that loan had decreased by a couple hundred thousand dollars, leaving about $6.7 million remaining. He noted that the city was not in a hurry to pay off the loan, since it carried a 30-year term with a very low interest rate of 1.75%. Because of that favorable rate, the city simply made the minimum required payments each year. Finance Officer Nielson reviewed the wastewater revenue bonds, explaining that the city had likely been in about the fourth year of that repayment schedule. There is a full schedule at the back of the report that shows the details. He described the financing as a very good arrangement because the city had spent about $13 million on the project, but only $11 million needed to be repaid, since the first $2 million or so had been forgiven, effectively acting as a grant. The remaining amount was financed at 1.75% over 30 years. He noted that the city had paid off a sewer bond that year, which was positive news. However, the capital improvement plan suggested that the city might need another sewer revenue bond within about three years. He added that the timeline might be extended slightly, depending on how quickly future projects progressed. Council Member C. Erickson asked whether the ice-skating rink would appear in this year’s report. Finance Officer Nielson explained that it likely would not appear immediately in the main section. Instead, it would likely show up in the combining financial statements near the end of the report. The project would also have its own fund, which has been created as Fund 06, so the city could track its operations and financial performance separately. Finance Officer Nielson reviewed the changes in net position comparison. The table followed the same structure as earlier sections, showing governmental activities, business-type activities, and a combined “all activities” column. On the right side, it indicated whether the changes were favorable or unfavorable. He highlighted a few key changes rather than reviewing every item. The first major change involved capital grants and contributions. He said he has never seen so many grants for sewer projects as the city had received over the last few years. These grants have been exceptional and have brought in a significant amount of outside funding for water and sewer infrastructure. For example, wastewater capital grants totaled nearly $6.6 million, compared to about $3.2 million the year before, which he described as a very positive development. He also reminded the group that the city had received a large amount of contributed infrastructure assets from development. Finance Officer Nielson pointed out the investment earnings, which decreased by about one-third overall. He explained that this decline was largely due to changes in the market and falling interest rates. Additionally, as the city began spending more funds on large capital projects, the amount of money available to earn interest naturally decreased. The third item involved the sale of assets. One of the largest transactions was the sale of the Squires property to Valvoline. Although the property has not yet been developed, the city had recently signed a new agreement after addressing some issues related to the legal recording of the property. Valvoline is now planning to sell the property to another buyer. The city agreed that the new buyer would follow the same development timeline requirements, which required development within about three years. Finance Officer Nielson explained that the property was located near Stationary Place, in front of where the WinCo development was expected. The city had originally purchased the property for around $340,000. After acquiring it, the city took the land needed for infrastructure improvements, completed those improvements, and retained the necessary easements for future access and development. When the city eventually sold the remaining property, it made more than $400,000 in profit. He added that the outcome had been somewhat surprising. Two years earlier, the city had tried to sell the property with a minimum bid of about $350,000, but no bids met that minimum. The city decided to hold the property and later put it back on the market, where it eventually received bids of about $750,000 and $820,000. He noted how dramatically land values had increased in that area along 2nd East. He emphasized that the city did not purchase property with the goal of making a profit. The original purpose had been to support infrastructure improvements. The profit was simply a fortunate outcome, and the funds from the sale went directly back into street projects. Finance Officer Nielson reviewed the proceeds from loss on the sale or disposal of operations. The city began the process of disposing of the fire department’s assets and debt early. The fire department transitioned from being operated by the city to becoming a fire district on October 1. He explained that Fire Chief Childs needed to determine his cash flow, so the Finance Department began disposing of some operations and funds earlier than planned so that the fire district could manage its own cash flow. As a result, $2.7 million was transferred toward the end of the fiscal year so the fire district would be prepared once October arrived. He noted that the same process would continue in fiscal year 2026, when approximately four additional funds would be completely closed out and transferred to the district. He mentioned proceeds from the loss or sale of assets and noted that this category also showed a decrease. Finance Officer Nielson reviewed the Wastewater Fund, there were many projects, particularly construction-related projects. Finance Officer Nielson reviewed page 10. Public Safety referred to police and emergency services. Emergency services included both the city’s fire services and ambulance services. The city was still participating in a joint venture agreement for those services, and the page explained how those responsibilities are split. Finance Officer Nielson reviewed parks and recreation. Many people believed that parks generated significant revenue; however, parks only brought in about $40,000 and are therefore highly subsidized by the general fund. Recreation programs, however, had performed well. A transfer of $3,800 was made to subsidize direct program costs. Administrative staff who work in recreation are funded through the general fund, which acted as a subsidy because the department operated within the general fund. However, the recreation programs themselves cover their direct costs through program fees. This has been the department’s goal. He noted that Recreation Director Lewis has done an excellent job helping move toward this goal, whereas the pervious Recreation Director had previously pushed back more strongly and believed the programs should continue to receive more subsidies. The goal is for the fund to fully support itself and eventually begin covering some overhead expenses. Finance Officer Nielson mentioned the golf course, explaining that it has exceeded its budget for expenses but had also exceeded its budget for revenues. The golf course experienced the biggest year it has ever had and was extremely busy. Finance Officer Nielson reviewed the Rexburg Rapids operating loss of about $18,000, which was much better than expected. Over its 15 seasons of operation, the average operating loss had been about $15,500 per year. He noted that this was very good for a public swimming facility, since most government-operated pools typically operate at a loss. The speaker also explained that money from the general fund was transferred to cover capital replacement needs. Additionally, the city did not have to pay debt for the facility because it had been built through urban renewal and then donated to the city to operate. He explained that if the facility had been run as a for-profit business, admission would have needed to be around $20 per person during the first year just to break even, and it would likely cost over $30 per person today. Finance Officer Nielson reviewed the cultural arts funding. Cultural arts included the Romance Theater, the Tabernacle, the Legacy Flight Museum, and the Cultural Arts Fund. The total subsidy for these entities in 2025 was approximately $595,000. A question was asked about the Legacy Flight Museum, and Finance Officer Nielson clarified that it was not managed by the Cultural Arts department. Instead, it was primarily operated by volunteers and City Clerk Lovejoy. It is simply categorized under cultural arts for budgeting purposes. He noted that the major project coming up was the Tabernacle HVAC project planned for 2026, while the major project in the past few years had been repointing the exterior of the Tabernacle. Finance Officer Nielson reviewed the streets fund. The main source of revenue for streets is the gas tax, also known as highway user fees. County road and bridge funding has not been a major source of revenue because it has decreased significantly over the past eight years. However, the city had been addressing this issue with the county commissioners, and the funding had increased slightly the previous year, which was a promising sign. The hope is that this funding will continue to increase. Finance Officer Nielson also explained that 100 percent of franchise fees were allocated to the streets fund. This decision had been made about eight years earlier when the city recognized that streets and related projects were underfunded. For political and strategic reasons, the city transitioned franchise fee revenue from the general fund to the streets fund. However, the speaker noted that if the general fund were ever in serious financial difficulty, the city council could choose to redirect some of those franchise fees back to the general fund. Council Member C. Erickson pointed out that even with these franchise fees, the streets fund was still underfunded. Finance Officer Nielson also noted that the city expected to receive less funding from the state for street projects in the coming years. Although the state had previously provided an additional $1.2 million due to a surplus, that extra funding would likely not continue. Finance Officer Nielson mentioned the city’s business-type funds and explained that these included enterprise-style funds such as utilities. The utility funds consisted of operating funds for water, sewer, and related services, along with construction funds. Despite completing a significant amount of capital work, the city’s cash balance only decreased by about $1.3 to $1.4 million, which was considered reasonable. The city still maintained approximately $23.4 million in cash and short-term investments. He explained that the city managed its investments strategically. Working with Finance Controller Miller, they aligned investment maturities with the city’s capital improvement plan so that funds would become available when projects required cash. Overall, the city typically managed between $48 million and $50 million in investments. Finance Officer Nielson added that wastewater services are provided to the cities of Sugar City and Teton. Waste from those communities made up about 6.43 percent of the total wastewater processed at the plant. However, their waste was more expensive to treat because it traveled a long distance before reaching the facility, especially from Teton, and it was often nearly septic by the time it arrived. He mentioned that sewer rates had increased and that water and sewer rates were raised again in January. A new rate study was underway, and the city expected to receive the results within the next four or five months. Finance Officer Nielson referenced a water loan described earlier in the report and then moved to discuss the distinction between major and minor funds in the city’s financial statements. The major funds are listed in the report. The general fund balance decreased by about $179,000, which was considered a positive outcome compared to what had originally been budgeted. Meanwhile, the streets fund balance increased by about $2 million, bringing the total fund balance to approximately $6.8 million. Although this was a high balance, the city has projects planned, and the funds would be used once those projects were engineered, bid out, and completed. Finance Officer Nielson explained that the remaining funds in the streets budget were largely committed to planned projects. Although the streets fund showed a high balance, the money was already obligated for projects that still needed to be engineered, bid out, and completed. Mayor Merrill added that this is important for City Council Members to understand. During council meetings, when discussing LIDs that the city does not have a large amount of money available to be able to cover all the Local Improvement District (LID) costs. However, Council Member C. Erickson clarified that the city did not actually have excess funds available, because the money has already been committed to projects even though it had not yet been spent. Finance Officer Nielson reviewed the 9th East Corridor project, which had previously been referred to as East Parkway. The corridor runs from Barney to 7th North. The city had already purchased land for the road as well as surrounding park land. The bridge portion of that project had been at risk of cancellation by the federal government because the cost estimate increased significantly. The original estimate had been about $6.2 million, but engineers later estimated the project would cost approximately $11.5 million, and the project had not yet gone out for bids. During a call with project partners, there was concern that the project might need to be canceled. Finance Officer Nielson suggested that they request additional funding from the federal government while the city located additional funding sources locally. He proposed finding funding through urban renewal and the city’s reserves. Although he initially doubted the request would succeed, the partners later confirmed that they had secured additional federal funding. The federal government agreed to contribute $4 million, urban renewal committed another $4 million, and the city planned to use its street impact fee reserves along with a portion of street operations funds to cover the remaining costs. The project was expected to go out for bid and move forward the following year. Finance Officer Nielson reviewed the emergency services funding. The city zeroed out that fund at the end of each year. Emergency services had gone over budget by about $233,000 that year, and they had been over budget by approximately $210,000 the year before. He explained that the city was working with Fire Chief Childs and County Clerk Kim Muir at the county level to revise the budgeting process within the joint venture agreement. They planned to meet in mid-March to discuss those changes. As part of the proposed changes, the speaker recommended implementing a target-based budgeting approach. Emergency services would present their requested funding increases, but the city would evaluate those requests against available revenue. If the department requested a large increase, such as 12% or 20%, the city might respond that it could only afford something closer to 6%. The department would then be responsible for adjusting its budget to fit within that limit. Council Member C. Erickson agreed and emphasized that emergency services needed to stay within their approved budget. He expressed concern that the department exceeded its budget by $200,000 to $300,000 each year. Finance Officer Nielson noted that the city was typically responsible for about 35% to 38% of any amount that emergency services exceeded its budget, with the remainder being shared by other entities. Finance Officer Nielson also proposed that if the department went over budget, the deficit should remain in the emergency services fund as a negative balance and be incorporated into the following year’s budget. This approach would require the department to account for the overspending in the next year. Conversely, if the department came in under budget, the remaining funds could be carried over to help cover future expenses. He explained that this approach would incentivize the department to manage its budget more carefully, although it might also encourage them to request higher budgets initially. Mrs. Flanary asked whether this fund included wildland fire funds. Finance Officer Nielson clarified that wildland funds were not included in this fund, although they appeared elsewhere in the combined financial statements. Finance Officer Nielson moved to Local Improvement Districts (LIDs), which are another major fund. The debt service fund for LIDs had increased by about $500,000. These funds represented money the city had loaned for infrastructure improvements. He added that construction funds are typically brought down to zero at the end of each year within LIDs, which is normal practice. Finance Officer Nielson reviewed the impact fees. Impact fees have increased slightly compared to the previous year. The city collected approximately $900,000 in impact fees overall, including about $70,000 for police, $62,000 for fire, $326,000 for parks, and $429,000 for streets. Council Member C. Erickson asked how the impact fee distribution is determined. Finance Officer Nielson explained that the city conducted an impact fee analysis for each category—police, fire, parks, and streets—and each fee had to be spent specifically within its designated category. The funds were tied to a capital improvement plan for each area. The city conducted these studies with Zions and was currently updating them. He emphasized that the funds cannot legally be redirected to other purposes. For example, the city could not take all the impact fee revenue and spend it on a single project outside of its designated category. He added that the updated studies recommended significant increases in police and fire impact fees. This recommendation was largely due to the increased cost of construction per square foot compared to earlier estimates used in previous studies. The parks impact fee study also recommended an increase, while the streets study was still being finalized. He said the council would be updated as those studies progressed. At the same time, the city was also reviewing capacity fees for water and sewer, which had not been increased since 2022. Those fees were also expected to increase. Finance Officer Nielson noted that about $2.5 million in street impact fees had been carried over, which would likely be used for the 9th East Corridor project mentioned earlier. The project’s share from impact fees was expected to be closer to $3.2 million. Finance Officer Nielson reviewed the golf course fund. The golf course carried over $627,000, which he described as an excellent outcome. Historically, the golf course often ran deficits of hundreds of thousands of dollars and sometimes they had to borrow money to cover those losses. Council Member Tietjen asked about the difference between the Joint Fire Equipment Fund and the Emergency Services Fund. Finance Officer Nielson explained that the Joint Fire Equipment Fund was shared between the fire district and the city. Each entity contributed $105,000 per year to the fund. The money was saved and invested until it was needed, and the purpose of the fund was to pay for major equipment purchases, such as replacing fire trucks. At the time, the fund had accumulated a balance of a little over $1 million. He clarified that this fund is separate from the Emergency Services Fund. The Emergency Services Fund primarily covered operational expenses, such as day-to-day costs of running emergency services. It included only a small amount for minor capital purchases. Council Member C. Erickson noted that although there is currently a carryover balance, the city would face a large expense in the coming years to replace the golf course sprinkler system. The replacement is expected to cost several million dollars. Finance Officer Nielson explained that the city had renamed Fund 51, which had previously been called the Golf Construction Debt Service Fund. That fund had originally been used to pay off debt related to the new nine holes of the golf course, but the debt had been fully paid off the previous year. The city was now using the fund to set aside between $180,000 and $200,000 each year for future golf course improvements. The money came from subsidies from both the county and the city, along with a transfer from the golf course operating fund. The goal was to save enough money over about five years to begin replacing sprinkler systems, potentially one section of nine holes at a time. Finance Officer Nielson noted that the Legacy Golf Course would have a completely new sprinkler system when it opened, hopefully in April. Although the course had not officially opened yet, people had already been using it. The city had not placed flags on the holes yet, but golfers had still been going out to play. Golf Staff would soon need to work throughout the course to complete the additional sprinkler system work. Council Member C. Erickson clarified that Teton Lakes is officially open while Legacy is not technically open yet, even though people were already using it. Finance Officer Nielson mentioned that the course had been busy, partly because the Buddy Pass program has increased participation. Finance Officer Nielson reviewed page 14 of the report, which showed several net income numbers. He noted that the Water Capital Reserve Fund is an important fund. The city carried over approximately $5.56 million in that reserve. After reviewing the report, he clarified that some of the numbers represented a combined total for certain funds. Finance Officer Nielson reviewed highlights from the general fund. The city had budgeted approximately $18.2 million in revenues, excluding carryover funds, but received about $19.4 million, including transfers. On the expense side, the city has budgeted approximately $19.27 million and spent about $19.6 million. Although spending slightly exceeded the budget, the city also brought in additional revenue. Overall, the general fund balance decreased by about $179,000, which is much better than expected. Finance Officer Nielson reviewed page 15 of the report illustrates areas where revenues and expenses were either over or under budget. Some of the discrepancies were related to GASB accounting entries for leases and asset obligations, which were difficult to estimate accurately during the budgeting process. Finance Officer Nielson explained that sales tax revenues had remained strong during the year. Revenue from the sale of assets also performed well. However, investment income came in under budget. The city also did not receive a contribution related to the ice rink project because the project had not yet been fully completed and operational. Shortly after the facility began operating, the developer turned the project over to the city. As a result, the city expected to record a contributed asset of over $5 million in fiscal year 2026 once the official valuation is finalized. He also mentioned the forestry grant, which has not yet been collected. The city had recently submitted a test request for funding a few months earlier to see whether it could still receive some of the grant funds. The outcome was still uncertain, but the city expected to find out soon. Finance Officer Nielson reviewed the street funds. The city had originally budgeted about $9.5 million in revenues for the street fund but received nearly $15 million. This higher-than-expected revenue contributed to an increase of about $2 million in the street fund balance. He explained that part of this increase came from strong state highway user funds, including an additional $1 million that the state had provided due to a surplus. However, the city did not expect to receive that extra funding in the current year or the following year. Under significant expenditures, Finance Officer Nielson pointed out a transfer from street operations that was about $2 million over budget. He explained that this was a positive outcome because the funds were transferred into the street repair or reconstruction fund for projects. The city first covered operational costs such as snow removal and general maintenance through the street operations fund. Any remaining funds were then transferred into the street reconstruction fund to support future projects. The goal was to zero out the street operations fund each year by transferring the remaining balance into project funds. Council Member Tietjen asked whether the city expected to use those funds soon. Finance Officer Nielson responded that the funds would likely be used over the next several years, since street projects often take significant time to engineer, bid, and complete. He also noted that several projects had not started as planned, which explained why some expenditures appeared under budget. One example was an overpass project that had originally been planned but was canceled after the federal government withdrew $2 million in funding. The city intended to continue reapplying for federal funding opportunities whenever possible. Finance Officer Nielson reviewed Ambulance District funding. The speaker explained how the costs of the joint emergency services operation were divided among participating entities. Madison County Ambulance covered about 42% of the total cost, the City of Rexburg covered about 36%, and the fire district covered about 22%. Finance Officer Nielson reviewed the Local Improvement District (LID) debt service funds. These funds are used to help finance infrastructure improvements that benefit specific property owners. Construction expenses were first paid by a construction fund. After the project was completed, the portion owed by property owners was transferred to the debt service fund, which then carried a negative balance until property owners repaid their share over time. The general fund ultimately backed this balance. Because of this structure, he emphasized that the fund was not unlimited. Council Member Tietjen asked whether the city could eliminate interest in LID payments, Finance Officer Nielson explained that doing so would quickly deplete the fund. Without interest, many property owners would borrow as much as possible and take longer to repay the debt, which would strain the city’s financial resources. Council Member Tietjen realized that the fund represented money owed back to the city and acknowledged that it could not be used to reduce LID costs. Finance Officer Nielson reviewed page 18 and provided an overview of the city’s total expenses and what categories those expenses are included. The largest expenditures were for street construction and Local Improvement District (LID) projects, along with police services. He noted that fund transfers appeared to be one of the largest categories but clarified that these were not additional expenditures. Fund transfers simply represented money being moved from one fund to another. Because governmental accounting requires these transfers to be recorded, they appear as expenses even though they are not new spending. The total budget was about $73 million, but if fund transfers were excluded, the city’s actual expenditures were closer to about $62 million. Overall expenses increased by about $1 million, or roughly 1.3%, compared to the previous year. Street expenses decreased by about 18%, while police expenses increased by about 26%. The increase in police expenses was largely due to the purchase of land during the year. Finance Officer Nielson reviewed page 19, which showed the city’s revenue sources. The chart contained many categories, but he highlighted that fund transfers on the revenue side must match the transfers shown on the expense side. Property tax made up only about 10% of the city’s total revenue, which he noted was often surprising to people who assumed it was a much larger portion. State tax revenues represented a significant share of funding, and utilities such as water and wastewater accounted for about 17–18% of the total revenues. Mayor Merrill asked about contributed capital. Finance Officer Nielson explained that contributed capital referred to infrastructure provided by developers, such as water, sewer, and street improvements that developers built and then turned over to the city. These entries were not actual cash revenue; instead, the city recorded them as both revenue and an expense, so they balanced out. The amount could vary significantly from year to year depending on development activity, and that year was a particularly large one. Finance Officer Nielson emphasized that pages 20 and 21 are some of the most important sections because they show operating expenses. In fiscal year 2025, the city had about $48 million in operating expenses. Emergency services accounted for the largest portion at about 22%. However, he clarified that the city only paid about 35% of the total emergency services costs because the expenses were shared through the joint venture. Police services were another major expense, along with water and wastewater utilities. Street expenses were expected to increase in future years as more projects moved forward. Mr. Kimball pointed out that police and emergency services together made up about 39% of operating expenses. Finance Officer Nielson agreed and explained that public safety costs have increased significantly over the past four years. While general revenues had grown by about 19% during that time, police costs had increased by over 40%, fire services by more than 60%, and ambulance costs by over 80%. These increases were mainly driven by rising wages and the addition of personnel. Council Member C. Erickson noted that the city had conducted a salary study showing that police wages had been behind market levels, which had caused the city to lose officers to other agencies. As a result, the city has increased police wages over the past few years to remain competitive. Finance Officer Nielson added that salary studies were typically conducted every five years, and sometimes they revealed significant market adjustments. Police and fire wages have seen particularly large increases in recent years. Finance Officer Nielson summarized that public safety accounted for roughly 40% of operating expenses. Utilities made up about 31%, streets about 6%, and the remaining 24% covered other departments. Many of those other departments are considered overhead departments that support city operations. Some of their costs were reimbursed through internal charges to departments that generated revenue, such as utilities and building permits. These departments paid overhead charges back to the general fund to help cover shared administrative costs. Finance Officer Nielson reviewed operating revenues. Operating revenues totaled about $49 million, which was slightly higher than operating expenses. Utility charges made up the largest portion at about 29%, while state taxes accounted for about 15%. Other sources, such as the golf course and similar activities, were sometimes assumed to generate large revenues but represented only about 5% of the total even in strong years. Internal charges between departments accounted for about 8% of revenue, returning approximately $4 million to the general fund to help pay for overhead services. Mrs. Flanary reviewed page 23 and showed a government-wide view of the city’s finances, which helped answer common questions from residents about why the city charged certain taxes or fees and where that money was spent. This page simplified the information compared to the detailed fund-level statements. The chart displayed the city’s governmental activities across five main categories. The first column showed total expenses for each category, while the next column showed direct revenue, which refers to revenue that is directly paid for a specific service. Direct revenue included things such as fees that residents paid for services. These payments covered only part of the total expenses in most categories. Mrs. Flanary explained that when comparing expenses with direct revenue, most categories showed a deficit, meaning the fees collected did not fully cover the costs of providing those services. Streets appeared to show a surplus that year, but that was mainly due to additional grant funding received during the year. In most cases, governmental services operate with deficits because they rely on general revenues such as taxes to cover the remaining costs. The remaining deficit—about $8.7 million—had to be covered by general revenues, which were shown in the bottom portion of the chart. These included property taxes and state revenues. Finance Officer Nielson emphasized that property taxes were not designed to directly cover a specific service but instead helped fund many government services collectively. He explained that when residents asked why taxes could not be reduced, it was important to understand that lowering those revenues would require reducing services as well. Mrs. Flanary then described the enterprise funds, which represented business-type activities such as water and wastewater utilities. These services generally operated differently from governmental services because they were intended to function more like businesses. Their goal was to break even or generate a small surplus through user fees. In that year, water and wastewater showed positive results, partly due to contributed capital from developers who built infrastructure and turned it over to the city. Finance Officer Nielson added that enterprise funds often showed a positive balance because of depreciation accounting, which set aside funds over time to replace infrastructure when it eventually wore out. However, since depreciation was based on historical costs, replacing infrastructure decades later usually costs significantly more than the amount originally set aside. Mrs. Flanary noted that the city did a good job with long-term planning. Many smaller governments focused only on immediate needs, but larger or well-managed cities needed to plan five, ten, or even fifteen years ahead. This sometimes meant raising rates before costs increased to prepare for future infrastructure replacements. Although that approach could be difficult to explain to residents, it helped ensure long-term financial stability. The discussion then moved to page 24, which showed the major funds at the fund level. Page 26 displayed the related revenues and expenses for those funds. The general fund received particular attention because it served as the city’s financial safety net. If the general funds remain strong, the city’s overall financial condition is usually strong as well. The city’s general fund balance was about $5.6 million, which has decreased only slightly during the year. However, the general fund also transferred nearly $3.2 million to support other funds and operations. These transfers represented subsidies to other programs or services. While such transfers are common, they raised questions about long-term sustainability if unexpected expenses occurred. Mrs. Flanary explained that emergencies—such as equipment failures or infrastructure problems—could quickly drain the general fund if reserves were not available. The city, however, had done a good job building fund balances not only in the general fund but also in other funds such as streets and utilities. This forward planning helped prepare for future projects and unexpected costs. Mrs. Flanary said the general fund appeared financially strong. There was no universal rule for how large a city’s fund balance should be, but the city already had an internal policy. The city’s minimum requirement is 25% of annual expenditure, though city leadership preferred to keep the balance closer to 30%. Following COVID-19, the city’s fund balance had temporarily risen closer to 40%, partly due to federal funding. She noted that while the pandemic period brought significant federal aid, the City Council had been careful not to rely on that money for ongoing expenses. Much of the federal funding had instead been invested in long-term infrastructure projects such as fiber expansion. Mrs. Flanary reviewed the proprietary funds which were shown on pages 28 and 29. Page 28 displayed the balance sheet for these funds, while page 29 showed the operating revenues and expenses. These funds included utilities such as water, wastewater, and sanitation. She noted that the city’s cash and investment balances in these funds are very strong. This indicates that the funds are financially stable, not losing money, and saving enough for future projects and unexpected needs. Finance Officer Nielson added that the sanitation fund balance had decreased compared to the previous year. Previously, the sanitation fund had around $3.4 million, but the balance dropped because the city used some of those reserves to build the new street shop facility. The city had intentionally saved money in that fund so the project could be paid for in cash rather than through debt. Going forward, the main goal for sanitation would be maintaining reserves to replace garbage trucks. Adding a new sanitation route could cost about $600,000, which included the truck and associated staffing costs. Council Member Riggins asked how depreciation is calculated. Mrs. Flanary explained that depreciation was typically calculated using the straight-line method over the expected life of an asset. For example, vehicles might be depreciated over seven to ten years, while buildings might be depreciated over 50 to 100 years. The finance director added that the city often used garbage trucks until they were no longer usable, sometimes keeping them in storage yards to salvage parts for other trucks rather than selling them. Mrs. Flanary also pointed out a line item labeled “grants received in advance” in the wastewater section. This amount, about $688,000, represented the remaining portion of the city’s COVID-related funding. Most of the federal funds had already been used for the city’s fiber project, but the remaining funds were transferred to wastewater and needed to be spent by December. The city planned to use this money for equipment related to the wastewater treatment plant’s headworks project. Mrs. Flanary reviewed the cash flow statement on the following page. This section showed how cash had increased or decreased in each of the proprietary funds. For example, sanitation cash decreased by about $800,000, water increased by about $372,000, and wastewater decreased by about $942,000. The auditor emphasized that these increases or decreases were not necessarily good or bad. Instead, they should be evaluated based on whether they matched the city’s plans. If the city planned to spend money on projects, then a decrease in cash would be expected and appropriate. Overall, she noted that the city’s cash positions and fund balances remained strong across these funds, indicating no major financial concerns. Mrs. Flanary moved into the note disclosures section of the report. These notes contained additional details about the financial statements but usually did not change significantly from year to year. One section described the city’s capital assets, which were listed on pages 41 and 42. These pages summarized the total value of the city’s assets, including buildings, vehicles, equipment, and infrastructure. While the report did not list every individual asset, it showed how much the city had invested in each category over time. Mrs. Flanary mentioned new accounting standards related to right-of-use assets for leases and software subscriptions (SBITAs). These items had previously been listed separately but would be grouped with other assets in future reports due to updated accounting standards. The underlying values would remain the same, but the way they were presented would change slightly. Another note described the city’s installment notes and revolving loans, which appeared on page 43. These represented short-term loans made by the city that were being repaid over time. Some loans were paid off during the year while new ones were added. Finance Officer Nielson explained that these loans were typically small business loans, including façade improvement loans or financing for equipment or property improvements. The program was administered through a loan committee working with Altura as a third-party partner. The city had developed formal policies for the program about eight to ten years earlier after experiencing a few bad loans in the past. Since adopting those policies, the city had been much more careful about approving loans and had experienced strong repayment performance. At the time, about $480,000 remained available in the revolving loan fund for future applicants. These loans were generally used to help local small businesses expand or improve their buildings. In many cases, the city loan served as supplemental financing when a business had already secured a larger loan from a traditional financial institution but needed additional funding to complete the project. Borrowers are required to provide guarantors or sufficient equity in their assets to secure the loan. One recent example mentioned was the Nitro Station project, which had strong financial projections and reliable lease agreements when it applied for financing. Mrs. Flanary reviewed note 10 on page 46, which served as a summary of the city’s long-term obligations. Notes 10 through 14 all related to this same topic and provided additional details. These notes included information about lease liabilities, long-term debt, and repayment schedules. If someone wanted to know what the city was leasing, how much debt remained, or when it would be paid off, those notes contained the full schedules and explanations. Mrs. Flanary noted that the following pages contained many detailed disclosure notes, they are included to provide transparency and meet reporting requirements. Much of the technical information in those notes was generated through templates provided by the state, and the city’s financial staff filled in the city-specific numbers before the auditors reviewed them for accuracy. Finance Officer Nielson added that the city used outside support from Rudd and Company to help manage lease accounting software. The city had previously been paying more than $10,000 annually for the software alone, but by having the firm manage the system, the city was able to reduce that cost and save several thousand dollars each year. The software was especially helpful because many leases had to be recalculated when accounting standards changed. Mrs. Flanary reviewed Note 15 on page 59, which listed instances where expenditure exceeded the approved budget. The auditor reminded the council that overspending in a category was not always a negative issue. Sometimes higher expenditures occurred because revenues also came in higher than expected. When additional revenue is received, it is often reasonable for expenses to increase accordingly. If the difference is not large enough to require a formal budget amendment, it might simply appear in the financial statements with an explanation. Finance Officer Nielson added that making constant budget amendments would require additional staff resources. Since the city did not employ a full-time budget specialist, staff made reasonable estimates and adjustments as needed throughout the year. Mrs. Flanary reviewed Note 16 on page 61, which covered the city’s component unit, the Rexburg Urban Renewal Agency (RURA). This section provided a summary of that agency because it is closely related to the city’s finances. The note included highlights such as the agency’s purpose, its cash and investment balances, and its long-term debt along with repayment schedules. For more detailed information, readers could refer directly to the Urban Renewal Agency’s full financial statements. She reviewed Note 17, which explained fund transfers between city funds. These transfers showed how money moved from one fund to another. Although the transfers appeared as both revenues and expenses in the financial statements, they balanced out overall because the same money is simply moving between accounts. For example, the street operating fund transferred about $3 million to the street reconstruction fund to pay for future projects. Finance Officer Nielson pointed out that the general fund transferred about $3.1 million to other funds. This represented the general fund subsidizing other services or programs. The notes also showed exactly which funds received those transfers. Mrs. Flanary explained the “due to / due from” accounts shown on page 65. These represented short-term internal loans between funds, usually used to handle temporary cash-flow timing issues. For example, the general fund might temporarily cover expenses for another fund until that fund receives its own revenue. These internal loans were expected to be repaid in the short term, usually within a year. If the repayment period were longer than a year, the amount would be reclassified as a different type of liability rather than remaining in the “due to / due from” category. Finance Officer Nielson explained the tax abatement related to Basic American, which appeared in Note 18. The tax abatement agreement is scheduled to end in 2026. City staff have recently met with the county assessor, Shawn Boyce, to review the situation and begin preparing paperwork to annex the facility into the city. Once the annexation was completed, the property would be added to the city’s tax base in the following year’s budget. Finance Officer Nielson mentioned that discussions with the county assessor, the city noticed that the assessed value of Basic American was listed at less than $50 million, which seemed low given that the company had reportedly completed about $113 million in facility upgrades. The assessor explained that the company might challenge the assessment, but it was likely that the final assessed value would increase to somewhere between $100 million and $120 million. This increase would eventually benefit the city’s tax base. However, because the property is located within the urban renewal district, the additional tax value would initially benefit the Urban Renewal Agency rather than the city’s general fund. The city would not be able to add that value to its own budget until the urban renewal district expired. Even so, the increase would still support additional projects within the district. Finance Officer Nielson explained another disclosure that summarized how the city’s fund balances were allocated. This section provided a quick overview of where funds were restricted or designated for specific capital projects. It allowed readers to quickly see which projects the city had planned to spend money on. Mrs. Flanary reviewed the budget-to-actual comparison schedules beginning on page 67. These schedules compared the city’s original budget, the final amended budget, and the actual financial results. The general fund received the most attention because it served as the city’s financial safety net. The original general fund budget expected to use about $1.3 million of existing fund balance to cover expenses. However, actual revenues exceeded expectations by about $535,000, and actual expenditure came in at about $672,000 lower than budgeted. As a result, the city only needed to use about $180,000 of the fund balance, creating a positive variance of roughly $1.2 million compared to the original budget. She noted that similar comparisons are provided for each of the city’s major funds but did not go through each one in detail. Mrs. Flanary reviewed page 85 Schedule of Expenditures of Federal Awards, which lists the federal money the city received either directly or indirectly. The total federal funding for the year was $3.1 million. Of that amount, $2.2 million was a direct award from the U.S. Environmental Protection Agency, and those funds were used during the current year. That EPA award was the program that was specifically audited. Under federal regulations, if an entity spends more than $750,000 in federal funds during the year, an amount that will increase to $1 million next year—auditors are required to conduct additional testing. They must audit 20% or 40% of the federal expenditure, depending on the overall risk level of the entity. Because of this requirement, the auditors select the programs that present the highest risk and test those programs. In this case, the EPA award was selected because of its size, the fact that it was a unique award, and the type of funding involved. All these factors qualified it as a high-risk program, so it was the one chosen for the audit. Finance Officer Nielson asked for the date on the document to be updated, noting that it should be changed to 2025. Mrs. Flanary said the final two sections belong to the auditors. Page 88 contains the auditor’s report on internal controls. The auditors clarify that they do not give an official opinion on the city’s internal controls. Instead, their role is to report if anything comes to their attention that represents a material weakness or a significant deficiency in the city’s internal control systems. There is also another category of issues that may not be as serious but are still worth mentioning. If a concern does not rise to the level of a material weakness or significant deficiency, the auditors include it in a separate management letter. That letter is internal only and is provided directly to management. In contrast, the internal control report included in the audit is external and transparent, meaning it is published with the city’s financial statements. For this year’s audit, the auditors reported that no deficiencies or material weaknesses were identified. Everything appeared to be operating within proper parameters, and the staff responsible for financial oversight seemed aware of their duties and actively monitoring the processes. She noted that there had been a finding in the previous year’s audit. That issue involved the way revenue is recognized for grants that were received in advance. However, the city corrected that problem, and it did not appear again in the current audit, with no additional issues identified. Mrs. Flanary reviewed the compliance report for major federal funds, which appeared on page 90. Earlier, she said she has explained that when a government receives more than $750,000 in federal funding, auditors must perform additional testing under what is called a single audit. This testing examines whether the funds were used according to the rules and requirements tied to that federal funding. The report on page 90 summarized the results of that testing. The auditors reviewed both compliance with the federal program requirements and internal controls related to how those funds were spent. After completing their testing, the auditors reported that they did not identify any significant deficiencies or material weaknesses in the city’s processes. They also concluded that the city complied with the federal requirements in all material respects. Mrs. Flanary explained that the final three pages of the report summarized the additional testing that had been performed. If any issues had been discovered, they would have been listed in that section so readers could quickly identify them without having to read the entire audit report. However, since there were no findings, the section simply confirmed that the testing had been completed successfully. She concluded the presentation of the financial report and asked if there were any questions. Finance Officer Nielson asked whether the auditor could prepare a one-page summary comparing the current year’s financial results with the previous year. This type of summary had been prepared in prior years and was helpful during city council meetings because it allowed council members to quickly see the most important changes without reviewing the entire report. Mrs. Flanary agreed to provide the summary. Finance Officer Nielson noted that completing the audit at this time of year is helpful because the city is about to begin its budget planning season, and the audit results provided important information for that process. Adjournment: Adjournment 8:09 P.M. APPROVED: ________________________________ Jerry Merrill, Mayor Attest: ________________________________ Marianna Gonzalez, City Deputy Clerk 3