Tennessee Emergency Communications Board Financial Management Update

Financial Resources Management Tennessee Emergency Communications Board Jim Barnes, Fiscal Director

TOPICS 2024 TECB and ECD Status Legal and Accounting Changes Base Funding Law Financial Management Resources

2024 TECB and ECD Status As of June 30, 2024 FY2024 Total TECB Revenue: - - - - - - - $152.9M FY2024 payments to or on behalf of ECDs: Section 303 Base amount - - - - - - - - - $81.6M Surcharge Subsidy - - - - - - - - - - - - - $31.0M Section 130 revenue distribution - - - - $18.6M Controller Subsidy and other - - - - - - - - $2.9M TOTAL Payments to ECDs- - - - - - - - - $134.1M

2024 TECB and ECD Status FY2024 TECB other expenses: GIS, Training, and Other Costs - - - - - - - -$0.5M TRA TRS/TDAP - - - - - - - - - - - - - - - - - -$1.1M NG911 Support - - - - - - - - - - - - - - - - - -$14.5M Administration - - - - - - - - - - - - - - - - - - - $2.7M TOTAL TECB Expenditures - - - - $152.8M Percentage paid to or on behalf of ECDs Percentage for Administration Percentage for NG911 Percentage for TRA/TDAP 88.0% 1.8% 9.5% 0.7%

2024 TECB and ECD Status On the August 15, 2024 due date, 74 ECDs had FY2025 budgets filed with TECB. All were on file by September 10 As of July 31, 2024, 33 districts were on-line for CHaaS with a total of 171 CTPs In FY2023 total ECD expenditures reported by 99 districts were $140M and local governments contributed $36.7M toward this cost The average expenditure recorded by ECDs per month for each person on the 2020 census was $1.69

Legal and Accounting Changes - GASB GASB Statements - 91 thru 148 from FY 2022 to FY 2027 Many recent changes and clarifications, mainly in auditor work. Could increase Auditor fees. More distinctive differences and assurances between audit work and administrative - management work have to be documented by auditors.

Legal and Accounting Changes - GASB Changes in audit report: MD&A includes known facts, decisions, conditions, and unusual items, not found elsewhere (reduced duplication); include reference to 7-86-106 that ECDs are not taxing entities; taxes are not a revenue source include a section on change in funding resulting from SB1975 implementation; and place all budget analysis comments and schedules in RSI not in MD&A.

Legal and Accounting Changes - GASB Reporting impact in Statement 101 compensated absences effective FY 2025. Report liability value of accumulated leave (vacation & sick) and other paid time off (include payroll taxes). Do not include sick leave for TCRS retirement (already built into benefit). Anticipated change in definition of Operating Revenues may change report location for Subsidies. With SB1975 implementation, no subsidies exist now.

Legal and Accounting Changes - GASB RSI includes budget comparisons and explanation of variances Original Budget compared to Final Budget Final Budget compared to Actual Expenditures ECD s Capitalization Policy should include that aggregate total values greater than the threshold value should be capitalized. Before this change, if your threshold was $10,000 and you made a single purchase of 10 dispatch chairs at $1,200 each, you would not capitalize and depreciate the chairs.

Legal and Accounting Changes - Comptroller Finance Leases require Comptroller approval A financing lease is defined as an agreement for the use of property and includes one of the following elements: (a) rental payments include an identifiable interest component; or (b) the local government has the right to purchase the property that is subject to the lease at a price that is not based upon the fair market value of the property at the time of the purchase. TN Debt Manual for Local Governments https://comptroller.tn.gov/content/dam/cot/lgf/documents/m anuals/LocalGovernmentDebtManualFinal.pdf

Legal and Accounting Changes - Comptroller From Comptroller of the Treasury Corrective Action Plans must be included in a separate section of the audit report on the entity's letterhead, and labeled "management's corrective action plan It is anticipated that there may be a required Cybersecurity Plan to be filed with the Comptroller of the Treasury. An Interfund schedule may be required to be presented in audits for transfers of funds between component units. At the current time, the Municipal Crosswalk required for all municipalities standardization of their chart of accounts, does not apply to ECDs.

Base Funding Law - TCA 7-86-303. (e) In order to maintain adequate 911 funding provided to emergency communications districts, the board shall annually distribute to each emergency communications district a base amount equal to the average of total recurring annual revenue the district received from distributions from the board and from direct remittance of 911 surcharges for fiscal years 2021, 2022, and 2023; however, in no event shall such distribution be less than the amount the district received in fiscal year 2023. On or before December 1, 2014, the board shall publish on its web site the base amount for each emergency communications district. (Bold font indicates change from previous language)

Base Funding Law - TCA 7-86-303. BASE FUNDING HIGHLIGHTS Based on recurring annual revenue Not less than amount received in FY2023 Base amount published on website Only reduced if the local government funding is reduced ECD may contractually agree to a reduction, i.e. CHaaS One-sixth (1/6) of the base amount distributed every two (2) months, beginning in August (rounded to make equal payments and remove pennies) No changes to Section 130 distribution laws, but almost $17 million was included in base, so amount will be less

Base Funding Law - TCA 7-86-303. Effect of SB1975 on ECD Base funding Starting in FY2025, an ECD s base funding is the sum of the following: FY2023 Base funding FY2023 Surcharge subsidy Controller subsidy FY2023 Section 130 funding The board terminated the surcharge subsidy and controller subsidy programs in its June 11, 2024, meeting because those programs are now merged into the new base funding amount The new base funding total percentages will be used to calculate Section 130 funding distributions

Base Funding Law - TCA 7-86-303. Effect of SB1975 on ECD Base funding (cont d) Base funding on the posted schedule includes funds before CHaaS deductions. Every ECD should budget 3010 funding at the posted base level amount. During the fiscal year, CHaaS participants must record adjustments for revenue and code 4428 Hosted Controller non-cash expenditures that were handled by TECB. The best way to record the hosted controller (CHaaS) transaction for 3 CTPs for an annual transaction is: Account 4428 3010 Description Hosted Operational Services TCA Section 7-86-303 Receipts Debit 23,580 Credit 23,580 To record call handling service paid by TECB and deducted from the district s revenue distribution.

Financial Management Tenn. Code Ann. 7-86-123. Financial report At every regularly scheduled meeting of the board of directors, the board must be provided with a financial report of the emergency communication district's activities, in accordance with guidelines developed by the comptroller of the treasury.

Financial Management Comptroller of the Treasury Publications Accounting and Financial Reporting Manual https://comptroller.tn.gov/content/dam/cot/la/documents/manuals/ECD Manual2022-AugUpdate.pdf (Typical County Emergency Communications District Examples) https://comptroller.tn.gov/content/dam/cot/la/documents/manuals/refer encelinks/E911ExampleF S2021.pdf. (E911 Example Financial Statements) Investment Guide https://comptroller.tn.gov/content/dam/cot/lgf/documents/resources/inv estments/AGuideToInvestingIdleCountyFunds2017.pdf

Financial Management 7-86-106. The emergency communications district so created shall be a municipality The powers of each district shall be vested in and exercised by a majority of the members of the board of directors of the district. 7-86-120 - The board of each district shall adopt and operate under an annual budget. The Board controls the budget, the budget controls ECD operations. Board members should have the most relative, accurate, reliable, financial information obtainable to evaluate ECD needs and progress.

Financial Management Financial Reporting Requirements Financial statements should be prepared in accordance with GAAP. The financial report period should be the most recent month ended prior to a regularly scheduled board meeting and include: a Statement of Net Position (balance sheet) reflecting the financial position of the district. a Statement of Activities (statement of operations showing revenues and expenditures). a budgetary statement that compares budget with actual for the year to date. a summary of investment activity. Examples of these forms are found in the Comptroller Publication

Financial Management MISCELLANEOUS Helpful documents that provide information to the Board: Check register or reconciled bank statement Simple Summary Version of Combined Statements a copy can be found on TECB website at: https://www.tn.gov/commerce/e911/training-resources/tena- presentation.html A comparative statement of expenditures from last fiscal year for the same time period and explanations of the differences

Financial Management INVESTMENTS Tenn. Code Ann. 7-86-122. Idle funds In order to provide a safe temporary medium for the investment of idle funds, emergency communications districts shall deposit and invest idle funds according to the provisions of TCA 5-8- 301. Idle funds are simply funds that are not being used for operating expenses and not deposited in an interest- bearing account ECDs are not required to have investment committees

Financial Management INVESTMENTS ECDs are authorized to invest idle funds in any of the following without any specific authorization or outside approvals: Bonds, notes or treasury bills of the United States or other obligations guaranteed as to principal and interest by the United States or any of its agencies; Certificates of deposit and other evidence of deposit at Tennessee chartered banks and savings and loan associations and federally chartered banks and savings and loan associations. (must be placed competitively and secured by collateral) The state s pooled investment fund established by title 9, chapter 4, part 7;

Financial Management INVESTMENTS ECDs are authorized to invest idle funds in any of the following, if approved by the county legislative body or in compliance with an investment policy adopted by the county legislative body: Obligations of the United States or its agencies under a repurchase agreement; if agreement approved by Comptroller of the Treasury. Bonds rated A or higher of this state; any agency of the state; any county or municipal corporation of this state; any other state or political subdivision thereof.

Financial Management INVESTMENTS Authorized investments, if approved by the county legislative body, (continued) Nonconvertible debt securities rated in the highest category of the following federal government sponsored enterprises chartered by the US congress. The federal home loan bank; The federal national mortgage association; The federal farm credit bank; The federal home loan mortgage corporation; Any other obligations that are guaranteed as to principal and interest by the United States or any of its agencies; The county's own bonds or notes issued in accordance with title 9, chapter 21.

Financial Management RESERVES NET POSITION FUND BALANCE Fund Balance is the accumulated difference between assets and liabilities. It is called Net Position within a business-type activity (Enterprise) fund. We generally refer to Fund Balance or Net Position amounts as reserves. Unless portions have been designated or reserved for certain obligations or commitments by Board action, reserves are unrestricted. Whatever title is used, the classification is intended at a point in time to serve as a measure of financial resources available that were accumulated from prior years financial activities. The result of undesignated reserves is idle funds for investment.

Financial Management RESERVES NET POSITION FUND BALANCE A working definition of reserves is the amount of cash and cash equivalents found on the Balance Sheet in checking accounts and investments not needed for continuing operations. Reserves are not revenues. They are the leftovers (accumulation) of revenues (or profits) that have been counted in previous year s activities and retained. They cannot again be counted or included as revenue in your budget. However, the cash value included in the reserve amount on your Balance Sheet can be budgeted and spent, either in budget approval or by individual board action.

Financial Management RESERVES NET POSITION FUND BALANCE In essence, all you need to do is prepare a realistic budget to maintain your operations and, if it is negative, be prepared to describe to your Board that you are budgeting more expenditures than you anticipate collecting in revenue, but you have available cash in checking accounts or investments to cover the revenue shortfall. You may accomplish the same thing by presenting an expenditure for approval at a Board meeting instead of including it in the budget. This is especially true if it is a capital expenditure. Your Board just needs to be aware that revenues to be collected during the fiscal year are not sufficient to pay for budgeted expenditures. It is OK to authorize this, but, if it happens every year, reserves will eventually disappear.

Financial Management RESERVES NET POSITION FUND BALANCE Legal authority to spend reserves Reserves must be retained or: 1. Used in the operation of the district in compliance with Tenn. Code Ann. 7-86-102(d), which states that the funds received by ECDs from all sources shall be used exclusively in the operation of the emergency communications district and 2. Spent in accordance with an approved budget a. Tenn. Code Ann. 7-86-120. no district may expend any moneys regardless of their source, . . ., except in accordance with a budget adopted under this section; b. Tenn. Code Ann. 5-14-203. All purchases made from funds subject to the authority of this part shall be made within the limits of the approved budget . . .

Financial Management RESERVES NET POSITION FUND BALANCE There is no law in the 911 code that addresses that you can use reserves, however, other laws, governmental actions, and Comptroller staff concur with spending reserves. Other laws are used as guides for proper accountability and reporting purposes. In legislating budget amendments, TCA 5-9-407(3) clearly indicates that the fund balance is an allowable source for payment of authorized expenditures when it says an amendment request shall specify funding sources for the expenditure itemized by federal sources, state sources, local sources or fund balance.

Financial Management RESERVES NET POSITION FUND BALANCE Required or recommended reserve levels? No direct law or policy has been found requiring an ECD to maintain any particular level of funding reserves on hand. TCA 7-86-304(d)(1) defines a distressed district as one that Has deficit total net position; . If negative net position is grounds for distress and punitive action, then you can indirectly infer that some sort of positive reserves on hand are necessary.

Resources Accounting and Financial Reporting Manual for TN ECDs 2022 Audit Manual - Internal Control and Compliance Manual https://comptroller.tn.gov/office- functions/la/resources/manuals.html TN Budget Manual for Local Governments https://comptroller.tn.gov/content/dam/cot/lgf/documents/man uals/LocalGovernmentBudgetManualFinal.pdf Certified Municipal Finance Officer program https://www.mtas.tennessee.edu/certified-municipal-finance- officer-cmfo (not required, but good training)

Resource - Contact Jim Barnes, Fiscal Director James.Barnes@tn.gov Phone: (615) 253-3706 TECB Office Phone Number: (615) 253-2164 Website TECB Home Page: http://tn.gov/commerce/section/e911