DATE: October 18, 2017 TO: FROM: SUBJECT: Honorable Mayor Jerry Smith City Council Anne Marie Gaura, City Manager Tim Holdeman, Public Works Director / DSATS Director Brian Dickson, Transportation Planner / DSATS Coordinator Authorizing the Finance Department to Provide Payment on Transit Services Provided by the Voluntary Action Center of DeKalb County from July 1, 2017, through September 30, 2017, via the City General Fund, in Lieu of Delayed Downstate Operating Assistance Program Grant Funding, to Ensure Uninterrupted Public Transit Service Until Grant Funds are Received, in an Amount Not to Exceed $733,897. I. Summary Staff is seeking a temporary payment of outstanding Voluntary Action Center of DeKalb County (VAC) invoices for public transit services, which it provided to the City of DeKalb as part of its agreement with the City from July 1, 2017, through September 30, 2017, from the City s General Fund. This would be a temporary credit from the general fund until such time the City is reimbursed from the Illinois Department of Transportation (IDOT) State Fiscal Year (SFY) 2018 Downstate Operating Assistance (DOAP) grant. The approval of this Resolution authorizes the Finance Director to authorize a line-of-credit for the partial or full payment of invoices received from VAC for the provision of public transit from July 1, 2017, through September 30, 2017, via the City s General Fund. The Resolution also authorizes staff to make direct payments to VAC, up to $733,897, without further Council approval. The City Council approved the Mayor to sign an Intergovernmental Agreement (IGA) between IDOT and the City to provide public transit operating assistance to the City s contracted Transit Services Providers (TSP) at the September 25, 2017, Council meeting. The IGA was approved and executed by IDOT on October 13, 2017. This IGA allows the City to request reimbursement for public transit operation assistance up to three months in advance. Because of delays in IDOT not being able to get their SFY2018 contracts out until September, the City has been unable to provide VAC with any transit funding since July.
The agreement with VAC stipulates that the transit service provider will be reimbursed for services when grant funds from state and federal grants become available to the City. This has meant that VAC has had no payments for services provided for three months. VAC has been using a line-of-credit from First National Bank and donations to continue to provide transit services, but their funding situation is becoming critical. Temporary, very large public transit service cuts and/or fare increases will be necessary in the next week if VAC does not receive some payment on their outstanding invoices in the next few days. Staff is seeking approval to authorize the Finance Director to authorize payment to VAC for services already provided for in an amount not to exceed $733,897. Upon receipt of the SFY2018 DOAP grant funding from IDOT to the City, the City s General Fund will be credited against the existing invoices. II. Background The City is designated as the grantee of all federal and state grants to support public transit in the DeKalb urbanized area (UZA). The City has participated in the DOAP program since July 1, 2005. The City currently contracts with VAC as the TSP for the DeKalb UZA. VAC has agreed to assist the City in providing local match funding for the DOAP grant. Contributors to the local match include fare box revenues, Federal Transit Administration (FTA) Operating Assistance grant funds provided by the City, the City s human services funding to VAC, the City of Sycamore, the County of DeKalb, Kishwaukee College, various human service agencies, Medicare and Medicaid, private donors, and others. Typically, IDOT sends out their grant contracts in May or June, so that municipalities can get their IGA s approved prior to the beginning of the new fiscal year in July. Staff immediately requests an advance payment for services provided from July through September. With the implementation of the Grant Accountability and Transparency Act (GATA), processing of new contracts has been significantly delayed. The City did not receive their SFY2018 IGA until September and staff could not submit its request for payment for the first three months operating assistance until the signed IGA was returned to IDOT in late September. The City IGA was signed and executed by IDOT on October 13, 2017. The City s reimbursement request for the first quarter (July 1, 2017, through September 31, 2017) and the second quarter (October 1, 2017, through December 31, 2017) was approved by IDOT on October 13, 2017. The City s payment request has now been forwarded to the State Comptroller for payment. Payments from the Comptroller s office can take a month or more. This could mean VAC could have to wait an additional month or more before they receive any payment from the City. VAC no longer has the resources to continue public transit services without some immediate financial assistance. The amount of funds allocated to the City for public transit is identified in state and federal appropriations bills. Therefore, the City has assurance these funds are available to the City for the funding of public transit operations. The chances the state will default on its contractual obligation to provide Page 2
these grant funds is extremely remote. However, should the state default on its grant obligation to the City, it is unlikely VAC will be able to repay the City's line-of-credit provided to VAC. The payments from City grant funds is VAC s primary source of revenue to provide transit service, as VAC has been contracted by the City to provide this service. Since 2005, the City of DeKalb has used FTA 5307 grant funds to fund public transit capital purchases and operating assistance. Over the years, the City has purchased most of the public transit fleet that VAC uses to provide public transit as well as purchasing maintenance equipment, radios, cameras, and trip scheduling software. By using FTA grant funds, the City is subject to the FTA Master Agreement, which includes regulations that the City is obligated to provide public transit as long as the City has public transit assets, which were purchased with FTA grant funds. As the IDOT DOAP grant funds 65% of the operating costs of public transit, should those funds be eliminated, the City is still obligated to provide public transit and would have the following options: 1. Work with VAC to severely cut back on public transit services to a level that can be funded with only local resources; 2. Work with regional partners to identify alternative funding sources to subsidize the loss of the 65% of the operating funding for public transit; or 3. Get approval from the FTA to eliminate public transit in the DeKalb region and sell off all existing assets to reimburse the FTA for their investment in public transit for the DeKalb region. The attached Resolution authorizes the Finance Director to approve the payment of existing invoices submitted to the City by VAC for services provided from July to September 2017, in an amount not to exceed $733,897. Table 1 shows the invoices currently on hold for payment: Table 1. VAC July-September 2017 Transit Services Expenses. Invoice Period Total Expenses Less VAC Contribution Invoice Amount Jul-17 $273,303.80 $30,656.33 $242,647.47 Aug-17 $294,906.50 $38,217.28 $256,689.22 Sep-17 $260,862.70 $26,301.95 $234,560.75 Totals $829,073.00 $95,175.56 $733,897.44 The SFY2018 state budget has been passed, allowing IDOT to make payments on their SFY2018 contracts. Staff received the final executed SFY2018 DOAP IGA with IDOT on October 13, 2017. The City s invoice for payment for the first two SFY Quarters (July 1, Page 3
2017, through December 31, 2017), in the amount of $1,170,000, has been submitted to the state comptroller s office for payment. Now that the City s requisition requests are in the comptrollers office, the risk of non-payment to the City is relatively low. However, due to state budget issues, when those payments will be deposited into the City s bank account is uncertain. Conversations with IDOT officials and past history indicate payment should be expected within the next month or two. Staff has been working closely with the City s IDOT representatives to move the payment process forward as quickly as possible. The City will be fully reimbursed for any advances it provides VAC via the General Fund, once the City receives its requested grant funds from the state. III. Community Groups/Interested Parties Contacted City staff has been working with VAC staff to determine how much funding is needed to keep base services going. VAC has taken actions to limit expenses wherever possible. However, VAC has reached the point where services can no longer be provided without some payments on the current outstanding invoices submitted to the City. IV. Legal Impact In the agreement with VAC, Financial Requirements 1.d stipulates: Payment of individual invoices shall not exceed the total amount of funds already received by the CITY from the 5307 and DOAP grant funds. Should payments for services provided be delayed due to delays in payment from grant sources, the CONTRACTOR shall be allowed to temporarily reduce services and/or increase fares until grant reimbursements are received. Section 19 of the FTA Master Agreement stipulates: (3) Delay or Failure to Use Project Property. The Federal Government may require it to return the entire amount of federal assistance spent on its project property if, during the useful life of its project property, the Recipient has unreasonably delayed using its project property, or failed to use its project property. This requires the City to continue to use the FTA funded assets to provide at least a minimum of public transit in the region, even if anticipated grant funding is not provided. As the City is the FTA grantee, it is the City s obligation to ensure public transit is provided, not the contractors obligation. However, the City is not obligated to provide transit services beyond those paid for through identified funding sources. The City is not obligated to provide this continuing funding to maintain transit services based upon the State's failure to timely pay. As noted above, there is the potential that the State could default on its obligation to reimburse the City. If the State did default, it is very unlikely that VAC could reimburse the City for the funding advanced herein. At this point, the likelihood of a State default appears very slim. DSATS staff has confirmed with the State that the State budget has funding in it for this Page 4
purpose, that the City's agreement has been approved, that a request for payment has been submitted, and that payment is anticipated to be issued. The Council is being advised of the potential for default so that an informed decision can be made. Based upon presently available information, that potential seems remote. V. Financial Impact If Council approves the authorization to allow the Finance Director to use general funds to pay VAC for services already provided, the general fund will temporarily be impacted in order to continue providing public transit without interruption. The grant funds provided to the City are statutorily provided to the City, and those funds will be returned to the general fund once payments are received from the City s grant sources. It shall be at the Finance Directors discretion as to how much credit is provided per request in order to maintain proper cash-flow. The financial impact to DeKalb s transit services provider, VAC, has been significantly greater, as they have had to use their own resources to fund public transit for the past three months with no financial assistance from the City. Should the state default on its executed DOAP IGA with the City, the City would likely have to write off any general fund payments provided to VAC as VAC will have insufficient funds available for payments back to the City general fund. If these state funds were eliminated, City and VAC staffs would focus on continuing to provide public transit at significantly reduced levels of service. VI. Options 1. Approve the Resolution to fund public transit operations for the DeKalb UZA, with a temporary allocation of funds from the City s General Fund, until state and federal grant funds are received and credited back to the City general fund. 2. Approve the Resolution, but order staff to put restrictions on the amount of funds which can be allocated from the general fund until the City receives its requested grant funds. 3. Deny the Resolution, thereby continuing non-payment to VAC for the provision of public transit services in the region. In such a situation, VAC shall have the right to significantly reduce services and/or raise fares until such time as grant funds are received and VAC is reimbursed fully for all services provided. As this process could result in a significant amount of staff layoffs and disruption in the ability of transit-dependent residents to access transportation to work, shopping, and medical facilities, resumption of services to existing levels could be significantly more costly in the long-term. Page 5
4. Order staff to begin negotiations with the FTA to disband public transit in the DeKalb region and return the funds provided to DeKalb for public transit vehicles and equipment purchased with FTA grant funds back to the FTA. VII. Recommendation Staff recommends the City Council approve the Resolution, which authorizes the Finance Director to approve the payment of existing invoices submitted to the City for services provided by VAC from July to September 2017, using a line-of-credit in an amount not to exceed $733,897. Page 6
RESOLUTION 2017- AUTHORIZING THE FINANCE DEPARTMENT TO PROVIDE PAYMENT ON TRANSIT SERVICES PROVIDED BY THE VOLUNTARY ACTION CENTER OF DEKALB COUNTY FROM JULY 1, 2017, THROUGH SEPTEMBER 30, 2017, VIA THE CITY GENERAL FUND, IN LIEU OF DELAYED DOWNSTATE OPERATING ASSISTANCE PROGRAM GRANT FUNDING, TO ENSURE UNINTERRUPTED PUBLIC TRANSIT SERVICE UNTIL GRANT FUNDS ARE RECEIVED, IN AN AMOUNT NOT TO EXCEED $733,897. WHEREAS, the provision of public transportation service is essential to the people of Illinois; and WHEREAS, the Downstate Public Transportation Act (30 ILCS 740/2-1 et seq.) ( Act ) authorizes the State of Illinois, acting by and through the Illinois Department of Transportation, to provide grants and make funds available to assist in the development and operation of public transportation systems; and WHEREAS, due to delays in processing the City s State Fiscal Year (SFY) 2018 Downstate Operating Assistance Program (DOAP) Intergovernmental Agreement (IGA) and reimbursing the City for public transit operating expenses incurred from July 1, 2017 through September 30, 2017; and WHEREAS, due to the delay in receiving DOAP grant operating assistance funding for the first quarter of SFY2018 from July 1, 2017, through September 30, 2017, The Voluntary Action Center of DeKalb County (VAC) has received no reimbursement from the City for public transit services provided from July 1, 2017, through September 30, 2017; and WHEREAS, the funding situation at VAC has become critical and VAC must drastically cut services and/or raise public transit fares until VAC receives payment for services rendered during the first quarter of SFY2018; and WHEREAS, Section 19 of the FTA Master Agreement stipulates that: (3) Delay or Failure to Use Project Property. The Federal Government may require it to return the entire amount of federal assistance spent on its project property if, during the useful life of its project property, the Recipient has unreasonably delayed using its project property, or failed to use its project property. As the City has used FTA grant funds for the purchase of public transit vehicles and equipment, the City is therefore obligated to continued use of these assets for the provision of public transit.
Resolution 2017- Page 2 of 2 NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF DEKALB, ILLINOIS: Section 1: That the City of DeKalb Finance Director be authorized to provide a line-ofcredit from the City general fund to VAC for transit services provided from July 1, 2017 to September 30, 2017 in an amount not to exceed $733,897. Further, the Finance Director is authorized and directed to prepare a Line of Credit Agreement in form and content acceptable to her with the recommendation of the City Attorney, to execute the same on behalf of the City, and to thereafter comply with the requirements of the same, within the authority provided by this Resolution. Section 2: That VAC uses the invoices already submitted to the City to request a drawdown on the line-of-credit with the City for partial or full payment of the existing invoices. Section 3: That staff is authorized to make direct payments to VAC, up to the allotted amount, without further Council approval. Section 4: Upon receipt of grant funds from the State of Illinois from the City SFY2018 DOAP grant and FTA Operating Assistance grant funds, the City credit the grant funding against the payments already made. Section 5: If there is additional money owed to the City that is identified as part of the annual audit process, Finance Department A/R staff shall submit an invoice to VAC for payment in full on the annual billings. Notwithstanding the foregoing, the provision of funding to VAC pursuant to the above-referenced letter of credit shall not constitute a general obligation or indebtedness of the City, nor shall it constitute a forgivable payment to VAC. The letter of credit shall require repayment by VAC upon the provision of state funding, at such time as it becomes clear that the state funding will not be provided, or at such time as repayment is required by the City under the terms of the letter of credit. The funding to be extended is provided with the expectation of repayment by VAC. The Finance Director shall be authorized and directed to reconcile future payments made to the City on behalf of VAC as a transit provider (or otherwise) and to apply the same against any then-present indebtedness under the letter of credit where permitted by law, or to require repayment from VAC. Additionally, the City and VAC shall reconcile all payments and transfers between the parties as a component of their customary transit audit and reconciliation process that is completed on an annual basis. PASSED BY THE CITY COUNCIL of the City of DeKalb, Illinois, at a regular meeting thereof held on the day of, 2017, and approved by me as Mayor on the same day. ATTEST: SUSANNA HERRMANN, City Clerk JERRY SMITH, Mayor