[Bboa-members] Waterfront finance sub committee meeting.

Mon Apr 3 12:58:25 PDT 2006

George (& all),

I fully agree that the presentations in the meetings should be using
accepted accounting reporting methods.  I also really think that the tool
currently being used is an attempt to simplify presenting some financial
information to the commissioners & sub-committee members.  However - and
this is the position I continue to take - financial reports complying with
standards set forth by the Governmental Accounting Standards Board (GASB)
have evolved for the sole purpose of "providing the minimum information
required to make long-term fiscal policy decisions" (my quotes).

I am deeply aware of the challenge of anyone not sick enough to actually
ENJOY governmental fund accounting in trying to understand the basic
financial reports now required by GASB for a municipality.  I have presented
the concept and overview to city councils and only see glazed eyes.  So on
some level I understand the effort in trying to use a simpler report to
present a snapshot of how a fund is "doing".  However, I am also aware of
the dangers of making long-term fiscal recommendations without fully
understanding the complete (and "detailed") GASB compliant reports.  To
provide a simplified report to commissioners that has been designed to
eliminate the tedious and incredibly time-consuming process of teaching GASB
"101" is not being fiscally responsible - especially if the municipality is
going to be adopting fiscal policy (that impacts citizens - and berthers)
based on the recommendations of the commission and sub-committees that rely
on these simplified reports.

At the very least, GASB terminology should NOT be used in reports that vary
from their requirements.  A statement of cash flow, for example, has changes
in accounts receivable, changes in accounts payable, and changes in all
activities that affect the amount of cash in the physical bank.  But to show
a statement of cash flow that includes only some components (interest AND
principal portions of debt payment) but eliminating other components (such
as changes in A/R & A/P) is also an incomplete report that cannot be used
for long term fiscal polity decisions.  

Just as: "Beginning fund balance plus revenues less expenditures less debt
principal payments" does not equal ending fund balance, 

neither does "Beginning cash plus revenues less expenses less debt principal
payments equal ending cash" 

So the report used to recommend long-term fiscal policy to the waterfront
commission is not a realistic picture of future fiscal condition no matter
what you call it.

The work load the commissioners and sub-committee members have taken on is
huge - especially in this current marina status.  I will never understate
the respect I have for these people that have a genuine interest in the
marina.  Again, my only stand that I will ever take in these issues is the
quality and completeness of the information provided by the City of Berkeley
to these volunteers to make recommendations back to the policy makers.

Keith Samse

-----Original Message-----
From: George Beier [mailto:georgebeier at hotmail.com] 
Sent: Monday, April 03, 2006 4:53 AM
To: 'Brad Smith'; pk at well.com; 'Keith Samse'
Cc: 'Larry Orman'
Subject: RE: [Bboa-members] Waterfront finance sub committee meeting.

Brad et al,

I like the cash flow method as a basis for our discussions -- it sure is
easy to follow.  However, it is a little misleading to have "Revenues",
"Expenses", etc. as labels.  That implies that were looking at a Profit and
Loss statement of some kind.  Perhaps we should change it to the "Sources of
Funds / Uses of Funds" format commonly found in cash flow statements.

My big concerns --  to quote Donald Rumsfeld (scary!) -- are the "known
unknowns" and the "unknown unknowns".  We know that the float replacement
expenses are significantly underestimated.  We also know that another fall
in a different part of the marina (or another event) could trigger an
expense like we're currently facing on the pier.  Spending down the fund
balance severely impinges on our ability to respond to emergencies such as
this.

George

-----Original Message-----
From: Brad Smith [mailto:brad_smith at earthlink.net] 
Sent: Thursday, March 30, 2006 6:52 AM
To: pk at well.com; 'Keith Samse'
Cc: 'George Beier'; 'Larry Orman'
Subject: RE: [Bboa-members] Waterfront finance sub committee meeting.

> For the Commission's planing purposes, I think the cash flow method being
used now gives us the same result with significantly fewer moving parts.

And this, in my experience, is the salient fact.  Our desire on the
Waterfront Commission is to have as much "sunshine" as possible.  I
understand that in your view there is more accurate financial information in
CAFR, but that document doesn't serve as well as a tool for communicating to
the General Public the Commission's assumptions about the future.  Many
people, with as much or more financial experience as you, have been using
this format for many years.  The Waterfront Commission was the first to use
this format, which is now being used throughout the City.

> The only financial statement that should be considered is the final and
accurate Comprehensive Annual Financial Report (the CAFR) and the city
budget for the coming year.  I never did get an answer about why the
shortfall for 2005 represented in the spreadsheet of $187,976 is different
from the final and accurate 2005 CAFR that shows a net profit of $39,817.
That alone is an overstatement of loss of $227,793.

I had exactly the same question, Keith, and took the time to walk through a
reconciliation of the two documents.  You might want to do the same thing.
You also might note the Statement of Revenues, Expenses and Changes in Net
Assets (CAFR, June 30, 2005, p. 37;
http://www.ci.berkeley.ca.us/finance/CAFR/FinancialPartA2005.pdf ) (accessed
3/30/06) contains a line item for depreciation, which the 5-yar plan does
not.  This alone would throw the bottom line of the two financial statements
out of whack.

> Agitation is good - please keep coming to the meetings and asking the hard
questions.

I agree with Paul; please keep asking questions.  We want to have a solid
understanding of the condition of our physical assets and our financial
condition before we begin to discuss matters where their will undoubtedly be
differences of value and opinion.  Asking questions will help us all,
Commissioners and the public, to have a solid grasp of the situation at our
beloved Marina.

  -- Brad

________________________________

From: Paul Kamen [mailto:pk at well.com] 
Sent: Wednesday, March 29, 2006 11:03 PM
To: Keith Samse
Cc: Brad Smith; George Beier; Larry Orman
Subject: RE: [Bboa-members] Waterfront finance sub committee meeting.

On 3/29/2006 at 8:40 PM Keith Samse wrote: 

Paul, 

Thanks for the good question.  Actually, when a loan is received, assets go
up (cash) and liabilities go up an equal amount (debt principal).  The
result is no net change in the fund balance.

Something is still missing here. When the loan is received, the money does
not remain as a fund asset - it is spent. The new docks that the money buys
only counts as a fund asset if the old docks that they replace had been
depreciated. Speaking as an engineer, not an accountant, I am bothered by
the notion that we can borrow and spend $9M to replace the old docks with
new ones and only count the interest payments as a drawdown of the fund
balance. That would be getting something for nothing. 

	Then when debt payments are made, assets go down (cash) and
liabilities go down (debt principal).  For example, if a debt service
payment is $1,000 and of that, principal is $900 and interest is $100:

	Assets (cash) go down $1,000

	Liabilities (debt principal) go down $900

	An interest expense of $100 does in fact reduce fund balance  but by
only $100.

	The principal amount of the debt service payment ($900) has no
effect on the fund balance.  So the representation on the spread sheet of
the debt service interest reducing the fund balance is correct.  It is the
principal portion of the payment that has no net effect on fund balance.
That, over the seven year period represented by the spreadsheet in front of
the sub-committee tonight, is an overstatement of expenses (and an
overstatement of reduction in fund balance) of $713,863 as follows:

	2005                    $231,545

	2006                      103,250

	2007                       94,767

	2008                       94,767

	2009                       94,767

	2010                        94,767

	Total          $713,863

	That $713,863 brings the negative $308,097 uncommitted fund balance
in 2010 as stated in the spread sheet to a positive uncommitted fund balance
of $405,766.

	Brad made a probably accurate statement that the report in front of
this sub-committee could be considered a modified cash flow statement.
However, the headings on the report of revenues, expenditures, and the
resultant net change in fund balance are very strictly understood terms in
municipal finance.  He is right that a balance sheet should be viewed at the
same time.  However, a view of the balance sheet for each of the years
considered in the exercise before the sub-committee would substantiate my
numbers of overstated expenditures and overstated reductions in fund
balance.

	Please believe me that I fully understand the necessity of annual
increases in fees charged to berthers  that is the nature of things.  The
statement tonight of the numerous years with zero rate increase was a real
awakening for everyone (hopefully).  My only point is that the finance
sub-committee and the waterfront commission should have accurate  and fully
auditable  financial statements if they are to make an intelligent
recommendation concerning rate increases.  What I see being provided by the
city to you and the rest of the committee members and commissioners does not
give you the information you need to make a judgment on what the future
fiscal requirements might be for the marina.  The only financial statement
that should be considered is the final and accurate Comprehensive Annual
Financial Report (the CAFR) and the city budget for the coming year.  I
never did get an answer about why the shortfall for 2005 represented in the
spreadsheet of $187,976 is different from the final and accurate 2005 CAFR
that shows a net profit of $39,817.  That alone is an overstatement of
loss of $227,793.

	Thank you for the obviously hard work you have put into all of these
issues  your website speaks for itself.  If nothing else, Id like to simply
put questions in the minds of the committee members and commissioners that
perhaps they are not being given clear and accurate information by the city.
I get agitated only because Ive been through this so many times before.  

	Keith Samse

Agitation is good - please keep coming to the meetings and asking the hard
questions. Still, I think in this case there are trees blocking the view of
the forest. Since we don't enter depreciation (or, in case I am
misunderstanding an accounting term of art,  "deterioration and decay") of
the docks, the value to the fund balance represented by the loan will be
swallowed up by the replacement project that the loan pays for.

If we do the accounting the "right" way, as you suggest, then we have to
show the huge hit to the fund balance when the loan is received and spent,
and the debt liability begins.  Or we can depreciate the value of the docks
every year, then we would be justified in adding in the increased value of
the new physical asset when the loan money is converted to new docks. Then
start depreciating again over the next 40-50 year life expectancy of the
docks. But we have not been accounting for the depreciation of the docks, so
we can't count the new docks as a fund asset. They just replace the old
docks, and the loan becomes a liability to the fund.

For the Commission's planing purposes, I think the cash flow method being
used now gives us the same result with significantly fewer moving parts. 

I am not at all opposed to changing the title over the spreadsheet. 

	-----Original Message-----
	From: Paul Kamen [mailto:pk at well.com] 
	Sent: Wednesday, March 29, 2006 7:45 PM
	To: Keith Samse; Manager at ci.berkeley.ca.us;
tvesely at ci.berkeley.ca.us; MTam at ci.berkeley.ca.us
	Cc: BBOA; Brad Smith; George Beier
	Subject: Re: [Bboa-members] Waterfront finance sub committee
meeting.

	On 3/29/2006 at 7:05 PM Keith Samse wrote: 

	In the attached spreadsheet that shows Revenues and Expenditures and
resulting Fund Balance, it includes a line item of Debt Service Principal.
As we all know  the payment of debt service principal causes a reduction of
the asset cash and a reduction of the liability debt  the result of
which does not change fund balance.  However, this sub committee is using
this faulty reduction in fund balance to make a recommendation to the
waterfront commission in fee increases based on this misleading reduction in
fund balance.  

I understand that payment of debt principal should subtract from debt
liability, and therefore should not affect net fund assets. But by this
reasoning, shouldn't the value of the Marina Fund be decreased every time a
new loan is taken, to reflect the new debt liability? For example, if we
borrow $9M from Boating and Waterways, then we start with a $9M liability
and the "net fund balance" should be reduced by that amount. 

We seem to have chosen not to decrease the value of the fund balance to
reflect new debt liability, therefore it would not make sense to credit it
back as we pay off the loan. Either way, don't we end up with the same
result when we try to set policy based financial status? 

--------------------------------------------- 

---------
Paul Kamen
Chair, Berkeley Waterfront Commission
510-540-7968  510-219-8106 (cell)
pk at well.com   www.BerkeleyWaterfront.org

---------
Paul Kamen
Chair, Berkeley Waterfront Commission
510-540-7968  510-219-8106 (cell)
pk at well.com   www.BerkeleyWaterfront.org