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Radnor Township

Citizens Budget and Finance

Advisory Committee

Final Report October 15, 2010

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Table of ContentsINTRODUCTION

EXECUTIVE SUMMARY..1

CITIZEN SURVEY SUMMARY7

REVENUE RECOMMENDATIONS10

EXPENDITURE RECOMMENDATIONS...14

DEBT MANAGEMENT RECOMMENDATIONS..21

LAND MANAGEMENT RECOMMENDATIONS..24

POLICY AND PROCESS RECOMMENDATIONS..25

BUDGET PROCESS RECOMMENDATIONS..28

APPENDIX31

o Resolution 2010-10o Interim Recommendations as submitted on May 20, 2010o A Note on Population, Households, Taxpayers, and the Effect of a

Tax Increaseo Employee Compensation Supplemental Informationo Township Lando Township Debt Service Schedule and Effective Interest Costo Land Acquisition and Land Asset Management Processeso Committee Members

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Dear Radnor Resident,

The Citizens Budget and Finance Advisory Committee (CBFAC) has completed its review of theRadnor Township financial situation. Our final report is now available for public review.

The Radnor Township Board of Commissioners appointed the CBFAC in December 2009 and set

us to work in February 2010. Our objective was to help find ways to solve the Townshipsprojected budget deficits in excess of $8.3 million over the three year period 2010-2012. Themembers of the CBFAC each volunteered for this effort out of individual sense of civic duty andbecause of the great pride we each hold for our community, Radnor Township.

What you will find in this report are the independent analysis and views of nine Radnor citizens onthe state of Radnors financial health. The CBFAC also incorporated the opinions expressed by740 Radnor citizens, as provided through our survey. We solicited the Township for informationand data. We interviewed Township personnel. We interviewed industry experts. We elected notto interview the Radnor Commissioners to ensure that our recommendations were viewed by thecommunity as independent and in no way politically motivated.

The result of our many inquires can be summed in a just few words: The overall fiscalmanagement of Radnor Township is in great need of attention as evidenced by the Townshipscontinued budget deficits that started in 2009 and are projected to run through the year 2012.

The CBFAC unanimously agrees that the presented recommendations should beconsidered prior to seeking a tax increase to resolve the current fiscal issues. Werecognize the Board of Commissioners has the ability to enact a real estate property tax increaseto meet budget demands.

The CBFAC views the work ahead for the community of Radnor to be a very doable challenge.Success will require a focused, on-going commitment to fix the Townships fiscal matters. Thiseffort cannot be viewed as a one and done effort, rather it must been seen as a continuous

process.

The potential for success of this challenge will increase exponentially when the following occurs:

1. Township Citizens understand the financial issues at hand and take ownership of theirduty to ensure that corrections are designed and carried out to the betterment of Radnor.

2. Township Commissioners act responsibly to fulfill the citizens desire to maintain theintrinsic value currently found in the community of Radnor. The Commissioners, as theTownships fiscal oversight board and fiduciary, must ensure the goals needed for thelong-term fiscal health of Radnor are clearly identified, communicated and monitored.

3. Township Employees accept the challenge at hand, summoning the determination to

design and implement the solutions required to maintain or improve the value of theservices they provide to their customers, the Radnor citizens.

We look forward to meeting this challenge with each of our fellow citizens.

At your service,

Members of the CBFAC

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Note: The CBFAC is a committee commissioned by the Township and is not related to the RadnorTownship School District.

DEFICITS IN THE RADNOR TOWNSHIP GENERAL FUND

A recap of recent Radnor budget history

Revenues have increased from 2009 to 2010 due to an 11% real estate property tax increase for 2010,coupled with a recovery in Business Privilege taxes. Yet the Townships tax base is not growing as it hadin the past and does not appear likely to do so in the near future. Of the major taxes, the Township onlyhas the ability to raise the rate of the real estate property tax. The other tax rates are set by the State, sorevenue can only increase by increased economic activity.

While cuts in programs and staff size have been made, expenses continue to rise particularly in the areaof employee salaries and benefits, which make up 55% of the General Fund.

Projected flat revenue growth and increased expenses combine to create a structural imbalance (read:long-term deficits) in the budget. Real estate propertytaxes represent only 40% of the revenue of theTownship, and they simply cannot make up for the lack of growth in tax base and other revenue sources.Previous financial practices may have served to hide this imbalance e.g. paying for short-term assetswith long-term debt, but these unsound fiscal practices cannot continue.

Therefore, the structural imbalance needs to be addressed by immediately enacting measures to reducedeficits NOW and by continuing to reduce the long-term operatingcost of Radnor.

Total

All Funds

General

Fund

All Other

Funds

Revenues 30,995,026 24,099,359 6,895,667

Expenses 32,690,802 22,619,000 10,071,802

Transfers In 6,244,459 1,157,365 5,087,094

Transfers Out 6,244,459 3,813,861 2,430,598

Net (1,695,776) (1,176,137) (519,639)

Capital Outlay 632,700 632,700

Total Fund Balance

Change (2,328,476) (1,176,137) (1,152,339)

2011 - As Projected from 2010 Adopted Budget

Executive Summary

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Issues reflected in Radnor Townships 2010 Adopted Budget

Taken from the 2010 adopted budget, the projected 2011 General Fund (the portion of the budget thatincludes the vast majority of Radnors tax collections and service expenses) forecas ts revenue to be$24.1 million and expenses to be $25.3 million, thereby creating a General Fund deficit of $1.2 million.(Note: In addition to the General Fund, the Townships budget includes seven other Funds, such as theSewer Fund, the Capital Improvement Fund and the Park Improvement & Open Space Fund. For thepurpose of this Summary we will focus on the General Fund. That said, the projected 2011 net roll-up ofthe eight Funds forecasts revenue to be$31.0million and expenses to be$32.7million, thereby creatingan overall deficit of$1.7million.)

Radnors critical budget item the Fund Balance

The budgeting process is a straight forward concept even in government. It compares the differencebetween revenues and expenditures and when expenditures exceed revenues deficits are created. Asignificant element to any municipalitys budget is its Fund Balance or Rainy Day fund. The FundBalance is not a feel-good element of a municipal budget, rather it is the most highly scrutinized fiscalmeasure used to determine the health of a municipality, and Radnor Townships General Fund is noexception. In 2008 the Radnor Board of Commission determined that the Fund Balance was so vital tothe Townships financial health that it passed an Ordinance (20 08-05) that required the Fund Balance

level to remain between 12% and 15% of revenues each year.

The Commissioners, Township management and the citizens of Radnor understand the dangers of ourcurrent operating conditions and the need for immediate actions to resolve them. The CBFACunderstood its charge from the onset to suggest ways to stop the continued deficits by reducingexpenses and to devise new or increasing user service fees while not adversely affecting the servicesmost important to the citizens of Radnor.

General Fund Projections from 2010 Adopted Budget

According to these projections, by the end of 2010, the FUND balance will be $944,585 below the 12%minimum requirement specified in the Fund Balance Ordinance.

2010 2011 2012

Revenues 23,648,572 24,099,359 24,835,683

Expenses 22,171,464 22,619,000 23,314,067

Transfers In 1,147,301 1,157,365 1,168,585

Transfers Out 4,019,630 3,813,861 3,866,836

Net (1,395,221) (1,176,137) (1,176,635)

Beg Fund balance 3,288,465 1,893,244 717,107

Net change (1,395,221) (1,176,137) (1,176,635)

End Fund balance 1,893,244 717,107 (459,528)

End Fund balance 1,893,244 717,107 (459,528)

12% Minimum Fund balance Req't 2,837,829 2,891,923 2,980,282

Fund balance over (under) 12% Req't (944,585) (2,174,816) (3,439,810)

General Fund

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The following is the CBFACs initial summary of the issues it faced. Though some numbers mayhave changed, the information is valuable for the readers understanding of the major challenges.

Exactly as published in March 2010

The Radnor Township Board of Commissioners appointed the Citizens Budget and Finance AdvisoryCommittee (CBFAC) in December 2009 to help them find ways to solve the Townships budget deficit,

and then the Board of Commissioners established the CBFACs charge and guidelines in Resolution2010-10 dated February 22, 2010 (see Resolution 2010-10 in the Appendix).

The CBFACs primary goal is to address the challenging budget deficit while meeting the communitysexpectations regarding the safety, security, quality of life, and essential services that make Radnor such adesirable community in which to live and work.

THE FISCAL CHALLENGE FACING RADNOR

The CBFAC began its work in February 2010 understanding these basic facts:

The Township collects a variety of taxes, including the property tax, the realty transfer tax, thebusiness privilege tax, the mercantile tax, the amusement tax and the local services tax. In addition to

taxes, the Township generates revenue by charging fees for services, permits, and licenses; bycollecting fines; and by receiving state funds and grants.

The property tax is the Townships main revenue source. In 2010, the average residential taxpayer inRadnor will pay $1,011 in property taxes to the Township. Commercial property owners also payproperty taxes.

Township services, such as police, fire, sanitation, library and parks and recreation are part of theGeneral Fund. The 2010 budget for the General Fund estimates revenue to be $24.8 million andexpenses to be $26.2 million thereby creating a General Fund deficit of $1.4 million.

In addition to the General Fund, the Townships budget includes seven other Funds, such as theSewer Fund, the Capital Improvement Fund and the Park Improvement & Open Space Fund. All eightFunds combined make-up the Consolidated Budget. The 2010 Consolidated Budget* estimates totalrevenue of $36.3 million and expenses of $40.1 million, thereby creating an overall ConsolidatedBudget deficit of $3.8 million.

The economic recession has dramatically reduced Township revenues. Although revenue from theproperty tax was stable through 2009, revenue from all other taxes declined from 2006 to 2010 byapproximately $2.3 million.

In order to address the budget problems, the Township has cut expenses and raised revenue. During2009, the Township reduced expenses by a reduction in force of 18 employees (full and part-time). Asa result, actual expenses incurred for 2009 were almost $1.4 million less than originally budgeted. InDecember 2009, the commissioners raised property taxes 11% and raised fees as part of the 2010budget. Still, the Township is using money set aside in previous years in a Reserve Fund

sometimes called a rainy day fund to cover the 2010 deficit. The CBFAC report will suggest waysto eliminate the deficit for the 2011 budget and beyond.

The Township issues bonds to finance projects and to purchase equipment and vehicles which haveuseful lives beyond 10 years. As of 12/31/2010, the bond indebtedness of the Township will be $52.5million in principal payment. The payment schedules vary depending on the bonds. For example, thebonds issued in 2009 will be paid off by 2037 unless the Township decides to pay them off earlier. Ifno debt is paid off early, then the principal and interest paid in the intervening years will total $90.1million by 2037.

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As of September 2009, the Townships bond rating by Moodys is Aa2 which is high quality. Thebond rating affects the cost of borrowing, so Radnor will work to continue to maintain a quality rating.

In 2010, contractual obligations require the Township to contribute $560,000 to the police pension and$718,000 to the civilian pension. In addition, the Township will need to compensate employees retiring

in 2010 for unused sick time and vacation time at an estimated cost of $712,000. Combined theseexpenses make up more than 11% of the total Townships labor expenses in the 2010 General Fundbudget.

Post March 2010 Notes:

1. In the months since the CBFAC prepared these basic facts, Moodys increased Radnors bond

rating to Aa1 as part of an initiative to adjust all municipal bond ratings rather than as a result

of any actions taken by Radnor to address the Townships financial situation.

2. *The Consolidated Budget revenue and expense figures include interfund transfers.

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OUR APPROACH

The CBFAC used the following practices and perspectives to complete its work:

Focus on what Radnor residents truly want from local government

Increase citizen participation within the Townships budgeting process

Solicit public input through Citizens Budget Survey

Understand programmatic demands from department heads and the public

Acknowledge that there are tough decisions that must be made

Remain open minded and recognize that there are no bad ideas

Be creative seek innovative solutions

Offer recommendations based on the majority view of committee members

Aim to understand accurately, recommend intelligently and communicate without judgment

SUMMARY OF MAIN OUR ACTIVITIES

Following is a summary of CBFACs main activities undertaken in this analysis:

Held semi-monthly working sessions to review and discuss Township budget issues

Reviewed and analyzed Township documents, to the extent such existed

Conducted interviews with Township department heads to better understand Township programs andservices

Met with bond counsel and advisor to discuss the Township's current debt burden

Communicated with and met with Township personnel frequently to piece together the Townshipsentire Land position

Met with the Township Manager to discuss his vision for the Township

Held two public meetings April 13, 2010 and June 14, 2010

Issued interim recommendations to the Board of Commissioners, upon their request, on May 20, 2010

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The purpose of the CBFAC Citizens Survey was to create a vehicle for Radnor residents to express theirpreferences on the Radnor Township budget and to provide a means to express their ideas anonymously.The CBFAC used the results of the survey as an initial guide for its work. The CBFAC Citizens surveywas not designed to be a scientific survey, rather it was intended to collect and express some generalthoughts and views of the Radnor citizens.

The CBFAC was pleased that of the 31,000 Radnor residents (24,225 residents when adjusting out forcollege on-campus students) 740 completed the survey. In addition 338 survey responders chose tovoluntarily detail their concerns and issues in the survey.

Examination of the actual results of the CBFAC Citizens survey must begin with the demographics of therespondents. A simple review shows that the majority of the respondents are fully vested in the Townshipand its activities. Of the 740 survey respondents over 95% own their own homes in, and live in, RadnorTownship. All but two of the respondents were over the age of 25 with the majority falling between theages of 45 and 64. Finally, the majority (68%) of respondents have resided in Radnor for greater than 11years.

Interpreting the results of the CBFAC Citizens Survey is not difficult. If one simply focuses on theresponses where a significant majority of the respondents agreed on a particular response (greater than70%) then some very clear indications of Radnors preferences can be cited. In the chart below are thepreferences based on majority opinions.

When asked how Radnor should meet its budget obligations for 2011 given revenue shortfalls and excessexpenditures respondents overwhelmingly stated their preferences as follows:

Radnor citizens do not want to institute a new 1% income tax (79%) in Radnor nor do they want thereal estate property tax to be increased (70%).

Respondents also were clear that Fire, Ambulance & Rescue, Police (for security purposes not fortraffic control), road repair, sewer maintenance, snow removal, trash collection (including recycling)and library services were residents preferred services and should not experience a reduction in theircurrent service levels.

At the same time the majority of the respondents indicated their willingness for decreased servicelevels for Radnors winter recreation programs, its Township beautification efforts, Radnor Studio 21assistance, and open space purchases.

When asked how Radnor should use any surplus of funds beyond the current shortfall, the respondentsoverwhelmingly (78.5%) stated that Radnors preference would be as follows:

To place excess funds (revenues over expenditures) into a rainy day fund.

Many other useful preferences can be derived from the survey results. These preferences should beexplored in greater depth to best understand the desires and needs of the Radnor citizens.

The following are excerpts from the 740 Radnor citizen responses to the CBFAC survey request. The fulldetails and responses can be found on the Radnor website.

Citizens Survey

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The chart aboveis Radnors furnished opinions on WHERE Radnor should look for new oradditional revenues to balance the 2011 budget.

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The table above lists in order of priority Radnors furnished opinions on WHAT

SERVICES SHOULD BE REDUCED in Radnor to balance the 2011 budget.

If required to ba lance the 2011 Radnor Township

budget, Radnor should reduce its expenses for:Agree % Agree Disagree

No

Opinion

Greater than 50% Agree

Winter rec programs 571 77% 132 37

Township beautificat ion 538 73% 157 45

Radnor Studio 21 532 72% 112 96

Open space purchases 517 70% 186 37

Summer classes/camps 511 69% 191 38

Wayne Art Center 476 64% 210 54

Bulk item pick-ups 436 59% 255 49

Willows maintenance 433 59% 231 76

Athletic field maintenance 414 56% 269 57Autumn leaf collections 388 52% 324 28

Less than 50% but gre ater than 30% Agree

Park and trail maintenance 355 48% 342 43

Wayne Senior Center 352 48% 316 72

Street cleaning 327 44% 360 53

Surrey services for seniors 313 42% 349 78

Street signs & traffic lights 304 41% 376 60

Police (traffic control) 279 38% 430 31

Building / code enforcement 253 34% 421 66

Less than 30% Agree

Recycling 219 30% 483 38

Library services 198 27% 508 34

Trash collection 184 25% 522 34

Stormwater management 178 24% 502 60Snow removal 142 19% 570 28

Road repair (patching/paving) 110 15% 600 30

Sewer maintenance 107 14% 577 56

Police (security) 97 13% 615 28

Fire services 70 9% 639 31Ambulance & rescue services 67 9% 639 34

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Recommendation:

Sell Selected Parcels of Township-owned Land, which either serve no or minimal marginal publicpurpose, or are small yet would return high sales value.

Discussion:

According to the Radnors Fund Balance Policy, the proceeds from sales of assets may be used tofinance several non-operating expenses, such as retiring debt early and other non-recurring expenditures.This policy is consistent with expectations set by Moodys Investment Service, so the Townships bondrating would not be negatively affected by the sale of an asset if used to finance non-operating expenses.We reviewed the 644 acres of parks, trails, ball fields and open space available to the Radnor citizenswithin Radnor Townships boundaries. The result of this review identified the following nine select parcels

which either serve no or minimal marginal public purpose, or are small yet would return high sales value(also see Appendix for Exhibit of Township Land). The revenue from the sale of such land itemizedbelow could be used in number of ways, such as notably: (1) to pay-off long term debt; (2) to maintain thefund balance in the Park and Open Space Fund (thus reducing the need to continue to transfer fundsfrom the General Fund to cover payment of debt); (3) to build reserves.

These nine properties total only 39 acres out of the 644 available recreational acres (see Appendix forExhibit of Township Land), and only total 1.55 park acres of the Townships 354 park acres, yet theAssessed Value alone sums to $2.9 million (note, the Assessed Value was determined pursuant to aCounty-wide re-assessment which became effective 1/1/2000). According to Radnor Townships most

recent 2009 General Obligation Current Refunding Official Statement, in 2009 the Township-wideaverage multiple of Market Value to Assessed Value was 1.377x ($4.93 billion over $3.58 billion). If suchgeneral multiple holds true in 2011, or increases beyond, selling the properties above could generate $4.0million($2.9 million Assessed Value x 1.378). In addition to the significant one-shot value, at thecurrent Assessed Values Radnor Township would generate at least $9,400 annually in real estateproperty taxes.

Although acknowledging this Report is about Radnor Township only, in this particular case, when youconsider the same selling event would benefit our exact same boundaries and our exact same tax-paying

Revenue Recommendations

CURRENT

Township's Assessed Value

Estimated (before future

Name Zoned Reason for RT's prior purchase: Acreage Purch Date improvements)

1 Pl ant Ave "Pa rk" (not a pa rk) R-5 The Twp does not know. 0.26 10/28/1980 $148,800

2 Young Tract R-1 For more passive open space. 5.45 10/29/1980 $220,000

3 5th Ward "Park" (not a park) 10.83 06/20/1989 $458,800

4 W Wayne Preserve ("Levin Tract") R-4 To prevent the construction of 20 townhomes. 6.40 09/30/1996 $865,100

5 St Davids Park ("Huggler Tract") R-5 To build a park on the main commercial/retail artery through town. 1.55 08/30/1999 $829,700

6 Chew Tract PLU To prevent t he construction of a baseball field and stadium. 10.55 07/17/2000 $22,100

7 Lea mi ng/Ta lucci /Chew La ne R-3 To prevent t he construction of 9 single-family homes. 2.86 01/11/2001 $160,530

8 Myers Tract R-2 To prevent t he construction of 1 single-family home. 0.55 07/01/2002 $100,400

9 Woodland Ave "Park" (not a park) R-5 To prevent the subdivision and construction of 1 single-family home. 0.30 01/03/2003 $77,380

39 $2,882,810

2010 RT tax, net of 2% disc 0.0032743 $9,439

2010 RTSD tax, net of 2% disc 0.0204507 $58,956

$68,395

(1) St Davids Park is the only property above relevant to the NRPA guideline. 1.55 acres

24,225 relevant population

0.06 ac/1000 pop

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citizens by placingat least $59,000 annuallyalso into RTSDs revenues, the impact is both significantnow and meaningful annually.

Finally, the above annual tax revenue figures were calculated from only current Assessed Values, butwhen you analyze the:

(i) use which was previously prevented, and/or(ii) the zoning, and/or(iii) the valuable location for subsequent highest-and-best use

it is reasonable to recognize that the Assessed Value will increase materially and the annual revenuebenefit within our borders, both to RT and to the same constituents paying RTSD taxes, will increasematerially.

Recommendation:

Adequate resources should be committed to ensuring the efficient and timely collection of Act 511Mercantile and Business Privilege Taxes. Technology should be employed whenever feasible toexpedite the collection and audit of these taxes.

Discussion:

The Township is responsible for collecting and auditing Act 511 Mercantile and Business Privilege Taxes

to insure all businesses pay the appropriate tax. While the Township has a system in place to do so,technology exists which may expedite the collection and audit process. The Township should considerprocuring said technology to support a more efficient collection process.

The Mercantile and Business Privilege tax is estimated to generate $4,950,000 (five year average) in2011; a more efficient collection process may benefit the Township from a cash flow perspective.

Recommendation:

Negotiate a Payment in Lieu of Taxes with Eastern, Cabrini and Villanova.

Discussion:

Valley Forge Military Academy & College (VFMA&C) pays $18,292 to Radnor Township in lieu of taxes.The VFMA&C payment reflects real estate taxes that would be payable to the Township for services

rendered to its residents who live on campus had VFMA&C been subject to Radnor taxes. Eastern,Cabrini and Villanova currently do not participate in the Payment in Lieu of Taxes program. The sameformula used to determine VFMA&Cs payment could be used to determine the payments made by otherinstitutions. In the alternative, a new payment schedule could be created based on charging a fee perresidential student. Payments in Lieu of Taxes are made to municipalities by many colleges anduniversities, including Princeton, Notre Dame, Duke, and Pittsburgh. Estimated additional revenue in2011 if a $20 per residential student annual payment is secured from Eastern, Cabrini and Villanova:$140,000 to $160,000.

Recommendation:

Lease Office Space in the Township Building.

Discussion:

A sub-lease is now in place for a portion of the second floor of the Township building. The CBFACrecognizes that there is more space that can be subleased. Possible renters include the school district,local non-profit organizations, and professional service firms (e.g. law office). Specific recommendationsinclude:

Base the rental rate on the market for office space in Radnor, but do the deal in front of you meaning, do not lose a deal over a perceived market rate in this thin market current environmentcoupled with the challenging layout of the Township building itself.

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Determine the available space after configuring Township staff office usage, and also be willing toinvest relatively small architectural and engineering dollars to study how to maximize the buildingfor multi-tenancy and other third-party tenants.

Be willing to expend retrofit improvement dollars to make sense of the buildings deficiencies. Market the property actively with a professional commercial broker, so they expand the marketing

reach through all the tools they have.

By way of example, sub-leasing 10,000 square feet at a modest $18 per SF per year equals $180,000annually.

Recommendation:

Charge for Services Provided to Other Organizations.

Discussion:

Currently the Township charges organizations that have Township staff assist with an event or otherwisehelp their organization. For example, Villanova University pays an extra duty fee to the Township foruse of police officers for various events, such as graduation. According to Township staff, the feeconsists of each officers overtime pay plus an additional 30% for overhead.

The Township must calculate, and charge, the true hourly cost for staff including benefits. TheCBFAC employee compensation analysis has determined that a 30% overhead charge isinsufficient as, for example in the case of Police personnel, the benefits load is almost 70%.

The Township should apply this approach to all property tax exempt organizations holding eventsin Radnor.

In addition, the Township charges fees to use Township facilities, such as parks, fields andmeeting rooms. The Township should eliminate waiving these fees.

Recommendation:

Perform audit of Cable TV Franchise license and permit fees.

Discussion:

The audit will insure Comcast and Verizon are paying the appropriate contractual amounts based gross

cable television and internet revenues generated by customers in Radnor Township. Estimated revenuein 2010 from Cable TV Franchise Fees is $456,750. The agreement with Comcast is in effect until April30, 2011 and the agreement with Verizon is in effect until 2021. With additional services to the home, aswell as increased adoption of technology by homeowners and business in Radnor Township, an audit atthis time is financially prudent.

Recommendation:

Increase the Youth Sports Program Field Maintenance Fee for non -resident participants to $25per participant.

Discussion:

Currently the Township charges all participants $10. Creating a higher fee for non-residents is consistentwith the fee schedule the Township uses for many of its own recreation programming. Estimated 2010

revenue using current $10 for all participants is $35,710. If 20% of the participants in youth sportsprograms are non-residents, the estimated additional revenue in 2011 is $10,710.

Recommendation:

Create a Radnor Parks voluntary contribution program.

Discussion:

In our survey, we noted that some residents felt that taxes should only support essential services, whileothers appreciated the non-essential amenities that Radnor has provided. One approach to meet the

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expectations of both groups is to seek financial support from those residents who value those extraamenities. The CBFAC believes that the Township parks are one such program. We recommend that aformal program be initiated to raise a substantial portion of the cost of acquiring, maintaining, andimproving the parks and park programs. Residents should be provided with complete information onparks resources and costs to support their decision.

Recommendation:

Consider corporate naming rights for select Township assets.

Discussion:

Townships across the country are investigating new sources of revenue. The solution for some has beento offer naming rights to corporations. The CBFAC recommends that Township staff 1) identify targetedassets and 2) develop a policy for naming rights. Township staff should reach out to other communitieswho have implemented such a program to identify best practices.

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Recommendation:

Reduce total employee expenses by 8% in 2011.

Discussion:

Rising Health Care costs and Pension obligations will deliver a fatal financial blow to RadnorTownship residents if not addressed.

The Township must reduce total annual employee expenses by at least 8% for budget year 2011 and byat least an additional 8% in 2012. Radnor employee expense reductions can be accomplished innumerous ways including:

1) the negotiated reduction of wages and benefits,

2) the use of privatized workforces performing existing Township services, and3) the correct sizing of staff.

The Committee was compelled to review salary and benefit levels because they represent 55% ofbudgeted General Fund expense for the 2010 calendar year. Recognizing that we appreciate ourTownship and the services provided, we needed perspective to evaluate the salary and benefit levels ofour Township employees.

The CBFAC reviewed comparative information (private vs. public - salary & benefit cost information) frommany credible sources (also see Appendix for Exhibit on Employee Compensation SupplementalInformation). We determined that Radnors benefit load is extremely high. The benefit load is the totalcost of benefits as it relates to base salary in percentage terms. The CBFAC concluded that Radnorsbenefit package is twice as costly in comparison with what is being provided by private industry in the Mid

Atlantic Region.

Lets consider our three distinct groups of Township employees:

Non-Union 23 employees: Weighted average salary per employee of $78,600 with an averageadditional benefit cost of $38,800 per employee a weighted average benefit load of 49%.

Radnor Association of Township Employees Union (RATE) 72 employees: Weighted averagesalary per employee of $54,600 with an average additional benefit cost of $32,500 per employee a weighted average benefit load of 59%.

Police Union (FOP) 40 employees: Weighted average salary per officer of $79,000 with anaverage additional benefit cost of $54,400 per officer a weighted average benefit load of 69%.

The Townships overall weighted average benefit load is 61%. In the Mid-Atlantic region, the averageprivate industry benefit load is between 25%-30%.

The majority of Township employees are members of unions and contracts are negotiated periodically.We believe much work is still needed to bring the costs of benefits in alignment with private industrystandards. The CBFAC believes that a 50% reduction in the cost of benefits is required and a carefulexamination of base salaries is warranted.

The Township needs to align base salaries appropriately, considering the educational requirements forthat specific position being held or to be filled. The CBFAC believes that the Township is paying a rate

Expenditure Recommendations

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beyond the skill set or educational level required for many of the positions within our Township. With the2011 FOP contract finalized, and with Request for Proposals (RFP) out on grounds maintenance for ourschools and trash collection, the Township is well positioned to negotiate for improved costs associatedwith RATE. Additionally, the Township should review the number of vacation days, longevity pay, steppay and all other benefits as well. The Townships financial challenge is significant, and employee costsare the largest share of the budget.

Recommendation:

Implement a Moratorium on Acquisition of any Additional Land or Open Space.

Discussion:

The CBFAC issued an interim recommendation to implement a moratorium on acquisition of anyadditional Land or Open Space in 2010. CBFAC still recommends this moratorium until, at a minimum,the fiscal health of the Township is restored and the following discussed procedures are put in place. TheCBFAC recommends a land and open space policy in which prior to acquisition, the Commissionerspresent to the taxpayers the full accounting, reasons, and specific benefits to all at-large citizens forsuch purchase. This analysis would include such items as the acquisition cost, legal fees, insurance,annual maintenance, and the foregone tax revenue from making a parcel tax exempt. See the Appendixfor the Exhibit on Land Acquisition and Land Asset Management Processes for further detail on

suggested land acquisition and management processes.

Radnor Township citizens benefit from 644 acres of recreational space comprised of Parks, Open Space,School District ball fields and open land, and Chanticleer (See the Appendix for the Exhibit TownshipLand). Together with the additional context that there is almost no possible material future citizengrowth for the mature Township, this moratorium should remain and the Township should not acquire theremaining approximate 100 acres of the Ardrossan Estate. We note here (with some points reiteratedagain in the Debt section), that:

(i) the $20 million of Electoral Debt capacity approved by the taxpayers during November 2006referendum, was drafted general in nature citing the reason to preserve open space;

(ii) it was not drafted with the specific reason to purchase parkland;(iii) it established only a funding mechanism (consistent with the first part of a two-part Radnor

Township Comprehensive Plan policy concept of Establish an Open Space Acquisition Fund

to purchase parkland; major acquisitions should be the subject of a referendum);(iv) it did not yet cause a referendum to occur for any major acquisition;(v) and as such, due to all the above, when any specific or particular major acquisition property

is identified, it would then be proper for the Township to make such particular acquisitioncandidate be subject to a current referendum of purchase; and consistent with above CBFACrecommends such current referendum only occur subsequent to the Commissioners presentto the taxpayers the full accounting, reasons, and specific benefits to all at-large citizens forsuch (with such presentation to include also the acquisition cost, legal fees, insurance,annual maintenance, and the foregone tax revenue from making a parcel tax exempt).

Recommendation:

Assess and document the true costs to own, operate and maintain the many Radnor Townshipowned and/or directly sponsored facilities and the underlying real estate value of each. Reduce

Township facility costs to maximize the value each facility contributes to the Township.

Discussion:

Radnor owns and operates two main buildings sites for the operational purposes of the Township:the Municipal Building at 301 Iven Avenue, andthe Public Works garage at 233 & 235 East Lancaster Avenue.

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In addition to these facilities the Township also has either full ownership or a significant stake in the costto operate and maintain the following additional properties:

the Sulpizio Gymthe Willowsthe Wayne Librarythe Creutzburg Center

the Wayne Senior Center

Due to the current budgeting and cost reporting process, the Township is currently unable to provide thereal cost to operate and maintain the many facilities of Radnor Township. Only upon the completion of afull assessment of the actual costs to own, operate and maintain the facilities and the underlying realestate value of each will Radnor then be able to collectively assess the true value of these facilities andtheir respective functions. The CBFAC believes there are significant savings to be found in the utilizationand proper location of the Townships facilities.

Recommendation:

Reduce Legal Expenses.

Discussion:

The CBFAC issued an interim recommendation in May 2010 to execute a revised professional servicesagreement with the Township Solicitor. The CBFAC strongly encourages the Township to make this apriority in an effort to control costs. The agreement should be structured on a fixed (not-to-exceed)monthly payment for all services performed in representing Radnor Township in general legalmatters. The agreement should define categories that would be considered general legal matters, whichwould be covered by this monthly payment. The agreement should establish a protocol for engagementof services for non-general legal matters, which should require prior approval, in writing, by the Board ofCommissioners. In addition to this recommendation, the Township should examine all legal expensesgenerated by boards and commissions to determine if greater efficiencies can be achieved.

Recommendation:

Mandate within legal limits that Employees use Accrued Vacation.

Discussion:Under the previous interpretation of employee benefit policies in the handbook, employees could carryover vacation days and receive compensation for these accrued days once they leave the Townshipsemployment. This unfunded liability is a significant strain on the budget. The policy has been changed,but the accrued benefits prior to the change in policy remain. The Township should determine whether itis legally prevented from changing how the accrued benefits are treated. The Township should alsorequire all employees to use their accrued vacation while still employed in order to reduce the amountthat would be paid in the future. By using their accrued vacation days, Township employees will stillenjoy their vacation benefit for the purposes it was intended.

Recommendation:

Perform Utilization and Staffing Study of Police Department.

Discussion:In recent years, Radnor has employed approximately 45 officers. As a result of retirements and officerson disability, Radnor has had 39 active officers in 2010. According the Township Staff, the communitypolice service actions by officers has declined because of the reduction in the number of officers.Community police service actions include the police checking on banks, vacant homes while people areaway, checking businesses for open doors, visiting schools, etc. In addition, overtime compensation mayincrease, although currently it is not a problem. Finally, Township staff suggests Radnor should expectfewer services, such as traffic enforcement and staff traffic studies, if staffing remains at 39 active officers.The opportunity to save the cost of compensation for additional officers takes priority over the marginal

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adopt a policy that determines the criteria for funding community agencies and guidelines for the amountto be provided. This policy should also consider the overall financial position of the Township. Asdescribed in a recommendation in the budget section, any agencies to be funded by the Township shouldsubmit their request and financial information to the Township as part of the budgeting process.

Recommendation:

Freeze Funding for Radnor Memorial Library for 2011.

Discussion:

The library is operated as a non-profit organization so the employees are not Township employees. Thebuilding is owned and maintained by the Township. The librarys 2010 operating budget is $1,269,168.The library receives funding from the State, County, the Township, the librarys endowment, fundraising,fines and fees, and interest. The library is part of the state library system and therefore receives Statefunding. State funding equals about 9% of the librarys 2010 operating budget. However, the State hascontinued to cut funding to libraries so the library has reduced staff and hours of operation in 2010. TheState will likely cut funding by 9% for 2011. Because the library is part of the State system, it may notcharge a fee for a library card. The Township will provide $815,650 which is about 64% of the librarys2010 operating budget. In addition to state and Township funds, the library relies on fundraising tosecure funds to operate. In addition to the librarys fundraising effort through its annual appeal and

other events, the Friends of the Library is a non-profit organization that also raises money to support thelibrary. Fundraising and Grants revenue is about 10% of the librarys 2010 operating budget. Thelibrarys endowment provides about 9% of its 2010 operating budget. Fines and fees revenue is about7% of the Librarys 2010 operating budget. Less than 1% of the librarys 2010 operating budget comesfrom the County and from earning interest.

Recommendation:

Evaluate Parks and Recreation Programs that do not meet Expenses.

Discussion:

The Township should continue to offer programs that meet or exceed expenses, but terminate those thatdo not. Based on 2009 data, estimated savings from terminated programs will be at least $10,000.

Recommendation:Review Status of Government and Public Access Television Channels.

Discussion:

The Township currently has two government access channels (the Township and the School District) andone public access channel (Radnor Studio 21). The Township collects fees from Comcast and Verizonbased on the revenue generated from cable subscribers in Radnor. As part of the franchise agreementswith Comcast and Verizon, the Township collects a fee to support the public access television channeland then passes most of that revenue to Radnor Studio 21, the organization that operates the publicaccess channel. In 2010, Radnor Studio 21 received $70,019. These funds are supplemented byfundraising on the part of Radnor Studio 21 and by the allocation of staff and equipment purchases andmaintenance by the Township and the School District. Currently, each of these channels operates itsown facility. It would appear that there are potential savings and possibly improved programming (for

example, video on demand), by greater sharing and/or consolidation of facilities and resources. TheTownship should also review the allocation of the public access fees among the three channels.

Recommendation:

Perform an Energy Audit.

Discussion:

Energy rates are expected to increase substantially in 2011 and beyond. The energy audit will identifyways to reduce energy costs. The Township also buys wind energy at a premium. The CBFAC

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recommends cancelling any wind energy contracts for 2011 and may need to consider less expensivesources of energy. Elimination of wind energy premiums equates to $5,390 in annual savings.

Recommendation:

Reduce Usage of Township Vehicles.

Discussion:

The Township currently owns 6 (non-police) vehicles that are used by Township employees to commute.All Township-owned vehicles should be left at the Township building in the evening and Townshipmanagement should work to eliminate unnecessary vehicles. Staff that needs business use of a vehicleshould use they own when possible and can be reimbursed at IRS rates.

Recommendation:

Rely on Citizen Groups instead of Hiring Consultants.

Discussion:

Radnor has a number of citizens qualified to help on specific projects. While tackling all issues of theTownship by a citizen group is beneficial, the CBFAC sees a need for small, highly skilled, volunteerswho can address one topic for a specific period of time. The members of the CBFAC have collectively

dedicated over 1,200 hours to Radnor residents towards the goal of effecting positive change in the 2011budget cycle.

Recommendation:

Perform Audit of Purchases to Insure Sales Taxes are not Paid.

Discussion:

The Township is not supposed to pay the States sales tax, so verify businesses do not add the sales taxfor purchases. This would include, but not be limited to, charges made on employee credit cards.Consultants can be retained to perform a reverse sales tax audit and their fee is a perce ntage of whatthey collect on behalf of the Township. The look-back period is three years.

Recommendation:

Continue to Improve Efficiencies in Trash Collection.

Discussion:

Radnor Township currently has a Request for Proposal (RFP) issued for bids from private companies forwaste hauling. The bids are due back to the Township by mid-October, 2010. The Radnor TownshipPublic Works department will also have the opportunity to bid in accordance with the RFP. The CBFACrecommends Radnor Township award the bid to the low cost provider.

Recommendation:

Adopt mandatory rear-yard pick-up for all single-family rental homes.

Discussion:

Radnor gets complaints from neighbors about the rental properties with household waste piling up in theback-yard because the people leasing do not properly follow Township schedules. Student rentalhousing is a big part of this problem. Radnor could address the problem by mandatory rear-yard pick-upand generate a fee to pay for the extra service. Radnor would generate $350 per rental property.

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Recommendation:

Cease Operating the Willows Mansion at a Loss by the end of 2011

Discussion:

Since at least 2006, the Willows Mansion, which is operated by the Township as a Proprietary Fund(Willows Fund), has not been a self-sustaining enterprise, and has been supported since 2008 bytransfers from the General Fund. The CBFAC recommends that a committee be formed to study andprovide recommendations for the future of the Willows. The scope of this study should include a reviewthat the current debt payments paid by the Willows Fund are correct, estimates of future capital andoperating costs under various scenarios, availability of grant funds, and alternative uses includingsuspending use as a rental facility, sale or long term lease or operation by a private foundation or non-profit entity, or continued operation by the Township. Based on the results of this study and the adoptedrecommendation, the Finance Department should determine the appropriate accounting treatment anddisposition of the Willows Fund.

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Recommendation:

Proceed with refinancing the 2002 Bond Obligation in 2010 and monitor the market for additionalrefinancing opportunities.

Discussion:

The CBFAC issued an interim recommendation to refinance the 2002 Bond Obligation in 2010. At thattime, the estimated savings was projected to be $640,000. Due primarily to declining interest rates, theestimated savings is now expected to exceed $1,200,000. We further recommend consideration of usingthis refinancing to reduce the total outstanding debt of the Township by the amount of previously issueddebt which is not needed according to the 2011 2016 capital plan.Further, the Commissioners should receive a quarterly update of market conditions and refinancing

opportunities. The next first call dates on outstanding debt are 5/1/2012 and 7/15/2014. There may beopportunities to reduce the debt burden in the interim, such as through purchases of debt on the openmarket.

Recommendation:

Cancel $20 million electoral debt capacity from November 2006.

Discussion:

The CBFAC recommends to the Board of Commissioners to cancel the $20 million of Electoral Debtcapacity approved generally by the taxpayers to establish an Open Space Acquisition Fund (duringNovember 2006 referendum, which was general in nature citing the reason to preserve open space).Our second recommendation is for the Board of Commissioners to make it clear that a separatereferendum would be needed for citizen vote and approval of any major acquisition(s). This second

recommendation is consistent with Radnor Townships 1991 Parks, Recreation and Open Space Planspecifically supporting policies set forth in Radnor Townships Comprehensive Plan, in particular the re-statement of Establish an Open Space Acquisition Fund to purchase parkland; major acquisitions shouldbe the subject of a referendum.

Recommendation:

Establish a policy for use of debt and debt limits, and assure that debt does not exceed useful lifeof assets.

Discussion:

The Township has issued significant long term debt. This debt has been used for a variety of purposes,including land and open space acquisition, the new Township building (2004 and 2007), the Townshipgarage (1994), sewers, storm water control, roads, traffic control devices, and vehicles and equipment.

This debt has been used to fund capital items for both the Township and for other entities, such as thelibrary and the fire companies.

At the end of 2010, the Township will have outstanding debt principal of approximately $53 million. Thecurrent outstanding debt will mature over various timeframes through 2037. Debt service payments arecurrently almost $4.8 million, approximately 17% of revenue, per year. Total debt service payments from2011 through 2037 to service the current outstanding debt, principal plus interest, are $86 million. (SeeAppendix for the Exhibit of Township Debt Service Schedule and Effective Interest Cost, andalso note that RTs effective interest rate cost on that remaining debt schedule is 4.740%).

Debt Management Recommendations

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Of the $53 million of outstanding debt principal (the interest obligation is in addition), approximately $7.5million is electoral and $45.5 million is non-electoral. Electoral debt is debt that was issued as a result ofa specific referendum and is not counted when computing state mandated debt limits. The statemandated debt limit is 250% of the average of the last three years revenues. According to the officialdocuments filed with the 2009 bond refinancing, the debt limit is approximately $76 million, so theTownship has reached about 66% of its debt limit. When compared to other similar Townships, Radnorsdebt to market value ratio is among the highest. These figures do not include the debt that RadnorTownship taxpayers support for the School District or the County.

In 2005, the Township entered into a swaption agreement with Lehman Brothers on debt issued in 2004.From this agreement the Township received an up-front payment of $1,040,000 which was used forgeneral revenue for that year. The swaption has a call date February 11, 2014. As of December 31,2009, the swaption has negative fair value $1,560,079, which is the amount the Township would need topay to terminate the agreement. On December 31, 2008, the fair value was negative $3,344,368, withthe reduction to changes in interest rates. The ability to terminate the agreement is potentiallycomplicated due to Lehmans bankruptcy.

In addition to the current outstanding debt, in 2006 Township voters approved a referendum for up to $20million in debt for open space acquisition. As described above, this debt would be electoral debt.

The need for debt is driven primarily by the Capital Improvement Plan. Each year, the Townshipprepares a capital budget for the next five years. In 2008, the capital budget was severely reduced for2009 by deferring many items, many of which were then eliminated in the 2010 capital budget. For theyears beyond 2010, that budget included funding only for vehicles and equipment for the years 20112014. The Capital Improvement Plan for 2011 2015 was not available in time to address in this report.

Specific Recommendations:

Strengthen Township debt policy and capital improvement funding.Section 44-12 of the Administrative Code, entitled Pay-as-You-Go Capital Funding, which was adopted in2008, contains the Township policy on debt. The CBFAC recommends that the Commissionersstrengthen the policy to be more specific about the types of expenditures and the cost thresholds for use

of debt. The policy should specify that debt must not exceed useful life, set an overall debt limit, andprovide additional provisions about debt policy with regard to risk and types of debt. The Commissionersshould review the provisions in the debt policy regarding funding the Capital Improvement Fund. In ourreview, in the past, this funding has been inadequate to fund the authorized capital expenditures, with thenet result that long-term debt may be used to fund expenditures in conflict with the policy. The CBFACrecommends the Commissioners form a committee with the specific purpose of researching andrecommending this policy.

Cease funding vehicles, equipment and other short-term assets through a transfer to the capitalimprovement fund.By having both short-term and long-term assets together in the capital improvement fund, it becomesdifficult, if not impossible, to determine if the capital funding policy is being followed. The CBFACrecommends that the Finance Director review this practice to assess whether it adequately fosters

openness and clarity in Township finance decision making.

Perform a reconciliation of the current outstanding debt to assure that debt is matched to assetlife and that debt service is correctly allocated to funds and programs.While the general purpose of each debt issuance is described in the bond offering, and we could developa general understanding of how bond proceeds were used, we were unable to readily obtain completedetail on the specific assets. We sought this information based on concerns that have been raised aboutdebt exceeding asset life, and our own inquiry regarding debt service transfers between funds. TheCBFAC recommends that this reconciliation be conducted so that the Commissioners have reliable

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information to assess any changes in the retirement of debt in the course of refinancing, to confirm thecorrectness of transfers between funds, and to support seeking a higher bond rating.

Based on this reconciliation and the 2011-2016 capital plan, determine if debt can be reduced byreturning the balance of the capital improvement fund as part the refinancing of the 2002 bond.The Capital Improvement Fund is projected to have a $2.3 million balance at the end of 2010. Thesefunds represent the unspent portion of bonds offered in 2007. As described earlier, there are no items inthe 2010 2014 capital plan which require long-term debt financing. We estimate the net interest cost ofcarrying this balance at $50,000-$80,000 per year. Unless there is a change in the 2011 2015 capitalplan, the CBFAC recommends that these funds be used to reduce the outstanding principal balance aspart of the current debt refinancing.

Conduct reviews of the outstanding swaption from 2005 regularly and with increasing frequencyas February 2014 approaches.CBFAC believes strongly, given the current state of the swaption, and all current market assumptions andvariables that the Township should consider and determine what a fair termination payment is for theTownship to make to retire the outstanding swaption contract at or near said date.

Recognizing the financial difficulties of the Township currently and its projected depletion of its reservefund balance, there is meaningful liquidity facility rollover risk in the swaption agreement if not retired by a

termination payment. In essence, the Township will be required to pay a premium each year to securethe liquidity facility. These facilities can cost highly rated Townships on an annual basis as much as0.50%. The outstanding debt amount being secured from the 2004 series will be approximately$15,000,000 resulting in an annual cost of $75,000 just to secure the facility. As the debt is paid downover time, the premium or cost is reduced. The CBFAC has learned that Moodys views depleting reservefund balances with concern and caution. Should the Township suffer a downgrade from Moodys, thispremium or cost could increase dramatically. The CBFAC recommends that the Commissioners moreclosely monitor conditions surrounding the swaption to identify potential opportunities for early termination.Currently, because of negative arbitrage it does not make sense to consider retiring the arrangement inthe near term. A best case scenario might be for the Township to get out of this arrangement at close tothe initial benefit amount ($1,040,000 plus interest earned). This termination payment can fluctuatedramatically in amount with changes in market conditions.

Whether or not the swaption occurs, the Township should be very concerned about the possibledowngrade in our credit rating from Moodys. A downgrade would likely result in higher carrying costs ofour existing debt as a result of losing refinancing opportunities. If the Township issues new debt it willcome at a higher cost to the taxpayer. The Township should take all actions required to improve ourcurrent rating from Aa1 to Aaa.

Do Not Issue New Debt Until the Strengthened Debt Policy is adopted.The Debt Policy, once developed, will provide the key guidance going forward regarding the use of debt.Until the policy is formally adopted, unless there is an extreme operational emergency, the Townshipshould not issue new debt, other than refinancing designed to capture more favorable interest rates. Thisshould apply to both Electoral and Non-Electoral debt. We believe that a new debt policy can be in placewithin six months.

Seek to improve the Township Bond Rating.Radnor currently has a high quality bond rating from Moodys. Radnors rating is Aa1. While thisrating is adequate, CBFAC understands that other similar nearby Townships have higher ratings. Thereare a variety of factors that influence the bond rating, such as having a fund balance policy, raisingrevenues and/or cutting expenditures in order to maintain a balanced budget, etc. The Township shouldwork towards earning the AAA bond rating from Moodys (and/or equivalent ratings from other agencies)in order to reduce the cost of refinancing existing debt and borrowing in the future.

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Land and Open Space is by far Radnor Townships single largest asset. As such, the Township needs todramatically improve its recording, understanding, and reporting of what it owns, leases, or controls in thisasset category. According to the information the Township was able to provide, the Township owns 409acres, comprised of 399 acres of Parks and Open Space, 2.7 acres of Parking Lots, and 7.8 acres ofproperty with Buildings on such. (See Appendix for the Exhibit of Township Land.) We make thefollowing more specific recommendations:

1) Record and track accurately, reconcile to independently verifiable non-Radnor Townshiprecords, all real property owned and leased, controlled, preserved, deed-restricted, and conserved.

2) Report accurately and openly in a single-source report, inclusive of color-coded/categorized

map, all such real property owned and leased, controlled, preserved, deed-restricted, and conserved.

3) Perform and document a Market Valuation study from a bona fide third-party professional, of allsuch real property owned.

4) Report accurately in the Annual Audited Financial Statements and Footnotes, and in any otherTownship official documents (e.g. any bond issuance Official Statements) all such real propertyowned including accuracy of all purchase and acquisition costs, Delaware County assessed values,and acreage/size. Currently based on the Townships inability to provide any data on acquisition costs forroughly almost one-half of the tax folios it owns, CBFAC believes it may be possible the TownshipsAudited Financial Statements may have been materially misstated, with Land on the Balance Sheet beingpotentially understated (in terms of historical acquisition cost) approximately $6+ million. (This is basedon an assessed-value extrapolation of the Radnor Township Financial Statement historical acquisition

land cost on the books at 12/31/2009 of $12,303,066 reflecting the Township having acquisition costrecords on only 34 of 63 tax folios.)

5) Implement proper diligence methods and procedures for all land acquisitions, whether purchasedor acquired for no purchase price. Such diligence should at a minimum include (i) understanding all coststo acquire, all costs to carry, all opportunity costs and foregone revenue of its tax-exempt and/or vacantstatus, and (ii) understanding why acquiring, reasons for holding it, the taxpayers/citizens who will benefit,and (iii) periodic re-visiting of such reason(s) to see if it has become relevant to sell or dispose.

See Appendix for the Exhibit Land Acquisition and Land Asset Management Processesforfurther detail.

Land Management

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Recommendation:

Encourage non-profit organizations receiving Township support to strengthen fund raisingactivities.

Discussion:

The Township provides support to a number of organizations that are separate non-profit entities,including the Radnor Memorial Library, the three fire companies, Radnor Studio 21, and the WayneSenior Center. In some cases Township support is a mandated distribution of revenues, and in othercases it is voluntary. The level of Township support to the overall budget of the organization also variesgreatly. Many of these entities also solicit direct contributions from residents.

In discussing these entities and Township contributions to these entities, CBFAC members noted various

personal experiences with solicitations from these organizations. We also noted that for organizations wewished to support, it was difficult to determine a fair share contribution, due to lack of knowledge of theorganizations operating costs, how much of their budget was supported by contributions made by theTownship, and thus supported by taxes, and how much of the budget is raised by voluntary contributions.

While these organizations are legally separate, we recommend that these organizations make theirbudgets and financial situation more easily available to Township residents, and that they strengthen theirfund raising efforts to reduce the reliance on Township contributions.

Recommendation:

Retain all Township Realty Transfer tax receipts in the General Fund.

Discussion:

The CBFAC issued an interim recommendation for 2010 to discontinue the practice of transferring 25% of

these revenues to the Park Improvement and Open Space Fund. Looking to 2011 and beyond, theTownship has three options: (1) permanently end the transfer policy; (2) suspend the transfer until 2014,when possibly the economy and the housing market will have recovered from the recession; (3) restorethe transfer revenues in 2011. Option 1 will make funding the purchase and improvements to parks andopen space more difficult and less of a priority than funding other Township services and programs.Option 2 is a temporary measure that takes into account the effects of the current recession, while stillretaining the Townships commitment to park improvement and open space acquisition. Option 3 makespark improvement and open space a priority.

Recommendation:

Evaluate the adequacy of the current financial accounting system to meet the Townships needs.

Discussion:

Through our project, it has been determined that the financial accounting system in use by the Townshipuses outdated technology. Further it is limited in its ability to extract information for ad hocanalysis. Werecommend that early in 2011 the Finance Department evaluate updating the financial accounting system.

Policy and Process

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Recommendation:

Improve the periodic reporting of the Townships interim financial position, including a cash flowstatement.

Discussion:

In reviewing the Finance Department reports provided to the Commissioners, we noted various requests

for better information on the interim financial position of the Townships funds, as we ll as a projection ofcash flow. In the current financial situation, this information is essential to assess revenue andexpenditure flows and make key financial decisions. We recommend that as soon as possible, andcertainly with the adopted 2011 budget, the budget be allocated on a month-by-month basis for bothbudget-to-actual comparison, and well as cash flow projection and monitoring.

Recommendation:

Complete a Revised Employee Policy Manual.

Discussion:

The Townships human resources function is significantly lacking. Under the direction of the newTownship Manager, a study of compensation, job descriptions, hiring practices and performanceevaluation criteria should be completed.

Recommendation:

Develop a Program Budget for All Radnor Township Activities.

Discussion:

A program-based budget will enhance the ability of the Township Manager and the Board ofCommissioners to monitor program costs and benefits. Clarity will allow change in non-performingprograms and enhancement of successful ones.

Recommendation:

Develop a Performance Measurement Program.

Discussion:

Under the direction of the Township Manager, the Township should adopt a management strategy thatuses measures of performance to guide decision making. This strategy should allow for thebenchmarking of the Townships services to performance measures used in other municipalities.

Recommendation:

Establish Radnor Township Employee and Radnor Citizen Savings programs.

Discussion:

Promote the citizen program to keep cost awareness high in the community. For example, encouragingrecycling to reduce tipping fees the Township pays to dispose of solid waste. Create volunteer citizenoversight committee to ensure proper administration of the program.

Recommendation:

Implement a Fixed Asset Inventory and Asset Tagging Program.

Discussion:

Currently the Township does not have a fixed asset tagging program. Given the significant dollar amount,and number of individual items, owned by the taxpayers, Township staff needs to: (1) Ensure all assetsare adequately protected from loss or theft (2) Provide necessary documentation for the effective use,maintenance, management, and reporting of the asset (3) Provide necessary documentation forinsurance purposes.

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Recommendation:

Do Not Start New Programs that Produce a Net Cost Increase in the Budget.

Discussion:

For 2011, the Township should pursue initiatives that save money or are revenue neutral. Programs thatwill increase expenses should not be pursued. This also includes incurring legal expenses for theTownship to benefit individual citizen, or citizen groups, which are outside the scope of local government.

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Recommendation:

Improve the clarity of the budget to enhance decision making and citizen participation.

Discussion:

The Operating and Capital budgets are the result of the annual Township budgeting process. Thesebudgets reflect the results of the input from the operating departments, Township management, thePublic, and the Commissioners. Thus, these budgets are the result of priority setting and provide the keydirection for the operation of the Township for the next budget year, as well as projections for the next twoyears for the operating budget and the next five years for the capital budget.

The budget was a key document for the work of the CBFAC. However, we found several deficiencies in

the budget document which hindered our ability to truly understand the costs of operating the Township.In many cases key details that would have been useful were not documented, which was furtherexacerbated by the loss of institutional memory with the change of Township personnel. As thisinstitutional knowledge is rebuilt, we feel that the Township and the public will benefit from the followingrecommendations to the budget process and budget documents.

Recommendation:

Annually tie Controllable Variable Expenses dollar-for-dollar to the budgeted estimated RealtyTransfer Tax.

Discussion:

Regularly the variability of the Realty Transfer Tax receipts is blamed for budget surprises andshortfallsand windfalls. By specifically linking Controllable Variable Expenses to this budgeted revenue

item, each month during the budget to actual analysis, the Township can react swiftly to mitigating orsuspending the controllable variable expense items. Alternatively, should a windfall occur in real time,such windfall also can be transparent in the monthly budget to actual analysis, and accordingly timelyconsideration can be given to perhaps applying such to increasing the General Fund Balance or, ifprepayments are allowed, to paying down Debt Principal.

Recommendation:

Assure that the Budget Message is readily available to the public.

Discussion:

The CBFAC believes that the Budget Message, as required by the Home Rule Charter, is a keycomponent of the budget by providing information on the overall financial situation facing the township,key changes from prior years, and overall strategies for managing the township and its programs. While

the budget spreadsheets for recent budgets are posted in the Finance section of the Township's web site,we did not see the accompanying budget messages. We recommend that the Budget Messages beposted adjacent to, or imbedded with the budget spreadsheets. We also recommend that the BudgetMessage include information that allows residents to understand how much the various programs cost(e.g. based on an average assessment or per $100,000 of assessment) and comparisons of tax rates andcosts with other nearby Townships.

Budget Process

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Recommendation:

Document estimating assumptions and provide source and authority for transfers.

Discussion:

As currently presented, the budget shows resulting numbers, but does not provide the basis f rom whichthese numbers were derived. The CBFAC recommends that the estimating basis for each major line item

or group of related line items be provided as part of the budget document.

The budget is further complicated by numerous transfers between funds. We believe that (i) lesstransfers should occur, and (ii) more detail should be provided in the budget to explain the reason for thetransfers that do occur and the method used to determine the transfer amount. Further, in some cases,these transfers are estimates which are subject to variance or reconciliation, which then becomes evenmore complicated by necessitating estimate-to-actual feedback reconciliation. All this clouds the actualreporting of the true picture.

Recommendation:

Estimate the payout of compensated absences and include as a line item in the budget for theupcoming and projected budget years.

Discussion:The Commissioners asked the CBFAC to specifically look at the issues surrounding CompensatedAbsences *. According to the 2009 audited financial statements, the liability for Compensated Absencesas of that date was approximately $3.4M. It is our understanding that changes made by theCommissioners in 2009 should end any future accrual of Compensated Absences which will result infuture payout. Thus, the $3.4M balance will decline over time. In the 2010 budget no amounts wereestimated for the future budget years. The CBFAC recommends that each budget include anestimate of compensated absence payments for the current and projected budget years. We alsorecommend that as a note to the budget, the best estimate of the remaining payouts, by year, be providedto account for the remaining amount reported in the financial statements.

* Payment to an employee for compensated absences is made when that employee ceases employmentwith the Township. From a budget perspective, these costs currently are not accrued in the budget.

Recommendation:

Itemize OPEB costs as one or more separate line items in the budget .

Discussion:

Currently, OPEB (Other Post Employment Benefit) costs, which primarily consist of employee healthbenefits following retirement, are not broken out in the budget. (The 2010 budget did include a line itemcalled OPEB, but this was actually for compensated absences). CBFAC believes the OPEB is asignificant cost that is now part of the line item for health benefits. We believe that breaking out this costis an important input in making decisions about commitments made to retired employee and the fullyloaded costs of current and potential new staff. We recommend that the OPEB portion of benefits costsbe broken out in the budget.

Recommendation:

Require outside agencies receiving Township contributions to provide financial reports andbudgets to the Board of Commissioners and the public as part of the budgeting process.

Discussion:

In determining the amount and appropriateness of Township contributions to other non-profit entities,CBFAC believes that transparency will be improved, and decision making enhanced, by having thoserecipients provide their financial reports and budgets to the Board during the budget process. We believe

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o Resolution 2010-10

o Interim Recommendations as submitted on May 20, 2010

o A Note on Population, Households, Taxpayers, and the Effect of a TaxIncrease

o Employee Compensation Supplemental Information

o Township Land

o Township Debt Service Schedule and Effective Interest Cost

o Land Acquisition and Land Asset Management Processes

o Committee Members

Appendix

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Exhibit - Interim Recommendations, which were requested by the Board ofCommissioners. Below is as submitted to Board of Commissioners, on May 20, 2010:

Based upon the work of the Committee to date, supported by the results of the Citizens Survey,the Committee makes the following interim recommendations:

1. Effective immediately, retain all Township Real Estate Transfer tax receipts in theGeneral Fund; discontinue the practice of transferring 25% of these receipts to the OpenSpace Fund.

2. Evaluate refinancing the 2002 Bond Obligation for estimated savings of $640,000; totalactual savings will be subject to market conditions and fluctuations.

3. Omit salary survey project for 2010, resulting in approximately $100,000 of savings.Rely on data provided by neighboring Townships and data from professionalassociations, such as the International City/County Management Association.

4. Execute a revised professional services agreement with the Township Solicitor; theagreement should be structured on a fixed (not-to-exceed) monthly payment for allservices performed in representing Radnor Township in general legal matters. Definecategories that would be considered general legal matters, which would be covered bythis monthly payment. Establish a protocol for engagement of services for non-generallegal matters, which should require prior approval, in writing, by the Board ofCommissioners.

5. Implement an immediate moratorium on further Township indebtedness.

6. Implement an immediate moratorium on acquisition of any additional Open Space.

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Exhibit - A Note on Population, Households, Taxpayers, and the Effectof a Tax Increase

When statistics of the Radnor Township citizens are discussed, it is important to put the statisticsinto relevant context.

1) For example, if a cost/project initiative is being explained in the context of funding it, then the dollarsto support such cost/project initiatives should be compared to the taxpaying units in our Township.

2) For a second example, if a project initiative is being explained in the context of using it, then the unit

of usage should be compared to the relevant users in our Township.

Below are our Townships statistics on Population, Households, and Taxpayers:

Radnor Township total population 31,000Radnor Township population excluding college residents 24,225

(1)

Residential Households (owner- and renter- occupied) 10,125Addl Property-tax Taxpayers (commercial and ground) 930

(1) Approximately 6,800 on-campus dorm/residence students live on the campuses of Villanova

University, Eastern University, Cabrini College, and Valley Forge Military Academy & College(using half of VFMA&C students, since roughly half of VFMA&C land is in RT).

Below is our Townships statistics on Parks:

Radnor Township total population 31,000(2)

Radnor Township population excluding college residents 24,225

(3)

Radnor Township - Parks 354 acres(3)

Additional Open Space in Radnor Township 290 acres(4)

(2) Approximately 6,800 on-campus dorm/residence students live on the campuses of VillanovaUniversity, Eastern University, Cabrini College, and Valley Forge Military Academy & College.These institutions contain approximately 510 campus acres within Radnor Township borders,resulting in 75 acres per 1000 campus population.

(3) 354 acres of Radnor Township Parks exist for these 24,225 Township residents, resulting in14.6 acres per 1000 Township relevant population.(4) In addition to Parks, the same Radnor Township boundaries and citizens benefit from an

additional 290 open recreational acres (an additional 12.0 acres per 1000 Township relevantpopulation) Radnor Townships 84 acres of Open Space, Radnor Township SchoolDistricts 171 acres of fields, and Chanticleers 35 acres (free to citizens with Radnor Librarycard).

Below is an example of the taxpayer cost allocation of a hypothetical real property tax increase tofund a hypothetical $20 million debt issuance

(5):

Radnor Township Debt Service (rounded to nearest $100) $32,000,000(5)

(6)

Debt service (P&I) paid for by Householders/residents (81%) $25,977,800Debt service (P&I) paid for by Commercial/business/ground (19%) $ 6,022,200

(5) Such issuance in this example assumes an effective interest rate cost of 3.42%, over a 30-year level debt-service term.

(6) Such issuance in it of itself alone would cause a 10.4% annual tax increase.

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Exhibit - Employee Compensation Supplemental Information

The CBFAC requested and received comprehensive salary and benefit information for each of our threeTownship employee groups; Non Union, Radnor Association of Township Employees (RATE) andPOLICE. However, as union contracts have been adjusted over time, there are differing levels of benefits

for different employees based on tenure within each of these three distinct groups. As we considered thesituation, we realized that delivering a simple synopsis of benefits was simply beyond the scope of thisreport.

For the purposes of this report, the CBFAC will discuss salary and benefits in a general form.

What are the benefits received by Township employees?

Broadly speaking, the Township provides a base pay, social insurance payments, longevity increases,step increases, comprehensive health care for individuals and families with little shared cost and lowdeductibles and co-pays, dental, orthodontia, vision care, term life insurance, whole life insurance(predominately for RATE and POLICE), AD &D, long term disability, overtime, significant vacation andsick leave allowances and a defined pension plan.

In 1998, for the RATE employees, and in 1981 for the FOP, the pension formulas were adjusted to usean average of the highest three years pay (down from the average of the highest four years pay). Further,the plan documents (for RATE & POLICE) incorporated accrued vacation and compensatory time whichis been paid out at the time of retirement as a part of pensionable compensation. This fundamentalchange to the plan has been costly and will continue to be so. The CBFAC reviewed and discussed ourTownships pension obligations with Bill White (the Townships finance director) and determined thatgiven these changes and the markets recent performance, we find ourselves with a pension plan that isdramatically underfunded.

It is a distinct possibility that our fiscally challenged State may be considering a reduction in the amount ofsupport it provides to municipal pension plan obligations. If our Township was to receive less from theState, for pension support, the Townships obligations would be magnified, and our budgetary deficits

would only worsen.

Many people have read articles about the general differences in compensation & benefits between publicsector employees and private sector employees. The CBFAC has read many of them and has gonefurther in its attempt to validate these differences. We pulled statistics from several credible sources forcomparison purposes.

From the National Compensation Survey: Employee Benefits in the United States, March 2009U.S. Department of LaborHilda L. Solis, Secretary

U.S. Bureau of Labor StatisticsKeith Hall, CommissionerSeptember 2009

Bulletin 2731

In Bulletin 2731 we found Table 10 titled Medical care benefits: Share of premiums paid byemployer and employee, private industry workers, National Compensation Survey, March 2009when compared to the same Table for State and Local government workers to be illustrative of asignificant difference.

Private industry workers in the Middle Atlantic region pay 18% of the single employee cost forhealth coverage and 26% of the cost for full family. State and local government workers in theMiddle Atlantic region pay just 7% of the single employee cost and just 9% for full family.

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In a philly.com article posted September 15, 2010 and written by Adrienne Lu, titled Christie wants publicemployees to work longer and pay more for health care, N.J Governor Christie recognizes the difficultyhis state is facing and is suggesting that pension and benefit reform is the most critical issue facing thecountry for the 21

stcentury. The CBFAC believes that Radnor Township is facing many serious problems

as a result of its pension obligations and benefit costs.

From the U.S. Department of Labors website Bureau of Labor Statistics Economic New ReleaseEmployer Costs for Employee Compensation - Wednesday, June 9

th, 2010

Employer costs for employee compensation averaged $29.71 per hour worked in March 2010,the U.S. Bureau of Labor Statistics reported today. Wages and salaries averaged $20.67 perhour worked and accounted for 69.6% of these costs, while benefits averaged $9.04 andaccounted for the remaining 30.4%. Total employer compensation costs for private industryworkers averaged $27.73 per hour worked in March 2010. Total employer compensations costsfor State and Local government workers averaged $39.81 per hour worked in 2010.

The Towers Watson Survey report on Employee Benefit Policies & Practices - 2010/2011, suggests thatprivate employers in the Northeast, with less than 250 employees, spend 23% on employee benefit costs.

It has been suggested in some of the research that the CBFAC has read, such as the April 2010 reportOut of Balance: Comparing Public and Private Sector Compensation over 20 Years issued by the Centerfor State and Local Government Excellence, that federal, state and local employees have highereducational requirements for the jobs they perform and that this justifies to some extent the differences inaverage total compensation (public vs. private).

Lets consider our three distinct groups of Township employees:

Non-Union 23 employees: Weighted average salary per employee of $78,600 with an averageadditional benefit cost of $38,800 per employee a weighted average benefit load of 49%.

Radnor Association of Township Employees Union (RATE) 72 employees: Weighted averagesalary per employee of $54,600 with an average additional benefit cost of $32,500 per employee a weighted average benefit load of 59%.

Police Union (FOP) 40 employees: Weighted average salary per officer of $79,000 with anaverage additional benefit cost of $54,400 per officer a weighted average benefit load of 69%.

The Townships overall weighted average benefit load is 61%. The CBFAC recommends the Board ofCommissioners and Township staff work together to address this vast public/private sector salary andbenefit differences in Radnor.

With the townships 2010 monthly health insurance premiums being $219,439 for active townshipemployees and an additional $114,561 for retired township employees, meaningful savings for taxpayerscould be achieved with a more equitable arrangement. Clearly, many large employers are already bracingfor dramatically rising health care costs in 2011. In the Philadelphia Inquirer - issue dated ThursdaySeptember 9

th, 2010an Article titled: Survey: