06-28-10 CC WS AgPWS
CITY OF SHOREWOOD
#3
MEMORANDUM
TO: City Council
FROM: Brian Heck, City Administrator
CC: Department Heads
DATE: 6/18/2010
SUBJECT: 2011 Budget
Revenue
The major source of income for the City of Shorewood comes from property taxes,
approximately 92.3%. The balance of revenue or about 7.7% comes from permits, interest
earnings, charges and fees, etc.
Over the past few years, the income from other sources has decreased significantly as is
demonstrated in the chart below. The biggest declines come in building permits, which
accounted for 31.8% of the “other revenue” in 2008 and interest income that accounted for
29.2% in 2008. The amounts generated in 2009 fell to 23.7% and 14.2% respectively. Overall,
we anticipate non-property tax revenue to account for $289,400, which represents a decline of
42.2% from actual 2009. The potential loss of over $200,000 in revenue poses a challenge
given the funding priorities discussed by the Council. The two bar graphs on the following page
illustrate the significance of the loss in permit and interest revenue on the budget.
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Total Other Revenue
250000
200000
150000
100000
50000
0
Acutal 2008Acutal 2009Budget 2010Budget 2011
License and permitsIntergovernmentalChargesFinesMiscellaneous
300000
250000
200000
150000
Permits
Interest
100000
50000
0
Actual 2007Actual 2008Actual 2009To date 2010Budget 2010
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In the revenue projections, staff did not change the levy. The budgeted levy for 2010 is
$4,776,292. The table below illustrates total projected revenue for 2011.
Revenue Source Actual Actual Actual Budget Budget Percent
2007 2008 2009 2010 2011 Change
Property Tax $4,332,741 $4,582,602 $4,703,368 $4,776,292 $4,776,292 0.00%
License/Permits $256,472 $195,419 $127,883 $106,270 $75,725 -28.7%
Intergovernmental $95,901 $78,155 $66,411 $65,000 $67,000 3.1%
Charges $50,819 $50,753 $41,649 $46,000 $37,075 -19.4%
Fines/Forfeiture $77,777 $53,369 $52,968 $55,000 $50,000 -9.1%
Miscellaneous $286,685 $176,535 $82,755 $128,000 $59,600 -53.4%
Transfers $40,000 $40,000 $40,000 $198,842
TOTAL Revenue $5.140,395 $5,176,833 $5,115,034 $5,375,404 $5,065,692 -5.76%
The Transfers in 2007-2009, which came from the liquor fund, were based on projected interest
income from the fund. The budgeted transfer in 2010 comes from a lowered interest expectation
from the liquor fund and $160,000 from the general fund undesignated reserve.
I caution against relying on general fund reserves to fund ongoing operational expenses in the
general fund. These funds are better used to provide one time funding to supplement current
funding for capital projects or infrastructure needs.
KNOWN OBLIGATIONS
In preparing the 2011 budget and related levy, we have a few known obligations. We know
union wages and related labor costs increase 2%. The city’s contribution to support the
Excelsior Fire District is anticipated to increase approximately $13,000 and the contribution for
Mound’s coverage of the island is expected to increase by $1,000. The Council directed staff to
include an allocation of approximately $20,000 for performance increases and related staffing
costs. The first look at the SLMPD budget calls for an increase in the range of $56,000.
Cost Item Estimated Increase Percent Change
Union wages and benefits $7,000 1.41%
Non Union wages/benefits $19,112 2% of gross salary
EFD/Mound Fire $14,000 2.4%
SLMPD* $56,000 5.9%
Total Estimated increase 95,648 2% of total 2010 levy
*
Note: the SLMPD provides a second proposal that results in a $43,250 increase for Shorewood.
The major driver for the increase at the SLMPD appears to be health insurance benefits, estimated
to add $41,000 to the SLMPD costs.
GENERAL FUND OPERATIONAL EXPENDITURES
Council provided staff the following direction in preparing the first pass of the General Fund
operating budget.
1. Provide for the contractual wage and benefit increase of 2% to the union employees.
2. Set aside 2% of the gross non-union wage for performance increases.
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3. Keep other operational expenses close to 2010 levels.
4. Keep transfers to other funds at 2010 levels for now. These amounts may change during
additional discussions.
Staff prepared the 2011 Operating budget based on the direction provided by Council. The
operating budget includes the estimated “known” increases noted in the table above.
The total General Fund operating budget, as currently proposed, decrease over the 2010
budget by $13,365 or 0.3%. The Table below provides a summary of the expenditures proposed
in each department. Notes on specific departments follow the table.
Department Act. 2007 Act. 2008 Act. 2009 Bud 2010 Bud 2011 % $ change
change
City Council $63,319 $69,721 $66,015 $64,194 $83,909 30.7 $19,112
Admin. $149,179 $229,292 $157,234 $154,362 $147,588 -4.4 ($6,774)
Gen. Govt. $243,848 $225,969 $275,662 $236,419 $271,329 14.8% $34,910
Elections $2,894 $47,582 $2,889 $38,939 $11,864 -69.5% ($27,075)
Finance $174,495 $164,651 $180,267 $193,784 $155,559 -19.7% ($38,225)
Prof. serv $196,880 $213,220 $223,859 $199,000 $208,000 4.5% $9,000
Planning $184,855 $206,595 $206,603 $198,960 $189,661 -4.7% (9,299)
Mun. Buld. $316,646 $201,372 $263,476 $373,800 $322,261 -13.8% ($51,539)
Police $1,072,529 $1,139,063 $1,176,928 $1,180,000 $1,236,000 4.7% $56,000
Fire $595,947 $622,935 $600,450 $595,482 $609,482 2.4% $14,000
Inspections $128,142 $137,784 $126,268 $125,143 $114,296 -8.7% ($10,847)
Engineer $132,998 $147,576 $125,781 $111,446 $130,878 17.4% $19,432
PW Serv $605,007 $588,605 $558,945 $512,985 $387,359 -24.5% ($125,626)
Streets $516,221 $842,434 $850,247 $904,107 $935,809 2.8% $25,202
Snow/Ice $69,188 $68,606 $74,452 $85,974 $132,691 54.3% $46,717
Traffic Cntrl $39,276 $46,537 $45,703 $51,049 $51,850 1.6% $801
Weeds $4,459 $9,735 $2,785 $4,900 $9,750 99% $4,850
Trees $29,598 $24,350 $17,450 $33,479 $36,685 9.6% $3,206
Parks $215,290 $244,254 $312,406 $311,381 $326,738 4.9 $15,357
Total 4,741,401 5,230,231 5,267,420 5,375,404 5,361,709 -0.3 (13,695)
Difference 398,994 (53,998) (152,386) - (296,017)
Notes
1. This note applies to all departments and relates to labor allocations. Staff continues to
refine the staffing allocations. Time sheets for the first six (6) months of the year were
examined to estimate the time allocation for public works staff and that is why there is
such a change in public works departments. Staffing levels were also adjusted for parks,
general government, planning, and inspections. Finally, PERA rates increased .25%.
2. The Council budget includes the $19,112 allocation for non-union salary adjustments.
3. Municipal buildings decrease is due to the retirement of debt to the water fund. 2010 is
the last year for the $60,000 payment. However, staff included $30,000 for signage.
4. The streets and roadway budget increases due to added costs for striping and disposal
of street sweepings.
5. Traffic control and Engineering budgets include funds for street sign inventory and
management software.
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6. Weeds/Sanitation provides an allocation for staff costs to carry-out the spring clean-up.
These costs are incurred each year, but not budgeted for.
7. Snow and Ice increase is related to the reallocation of staff time.
8. Park and recreation increase is related to staff reallocation and additional dollars for
equipment maintenance and tree replacement.
9. The park budget also includes funds for AIS treatments. The Lake Minnetonka
Association requested $15,000 from the cities to support the treatment. Council
allocated $6,000 in previous years for this program. Staff allocated $4,000 this year
toward the program
10. Staff did not include increases or decreases to transfers to improvement funds. We
address this in the section below.
TRANSFERS
The City budgets regular transfers to support the equipment replacement fund, local road fund,
and park improvement fund. The status of the funds is provided below.
Park Improvement Fund
The park improvement fund 2010 year-end balance is estimated at $178,598. The current
budget provides a $42,000 transfer for an estimated 2011 balance of $223,589. Planned capital
projects in the parks for 2011 come to $205,200 for an estimated 2011 year-end balance of
$18,389. In order to fund the CIP plan for the parks in 2012 and beyond, a significant increase
in the transfer is required. See table below.
2012 2013 2014 2015 2016
Est. balance 18,389 (130,376) (309,376) (491,376) (820,376)
Est. Transfer 42,000 42,000 42,000 42,000 42,000
Est. total 60,389 (88,376) (276,376) (449,376) (778,376)
Expenditure 190,765 221,000 224,000 371,000 260,000
Difference (130,376) (309,376) (491,376) (820,376) (1,038,376)
Maintaining a transfer of $42,000 is not sufficient to keep the fund afloat beyond 2011, at least
based on the current iteration of the Park CIP. Increasing the transfer and/or providing
supplemental funding from reserves is necessary to continue with improvements to the parks.
Equipment Fund
2012 2013 2014 2015 2016
Est. balance 573,759 425,823 263,596 178,922 14,381
Est. Transfer 100,000 100,000 100,000 100,000 100,000
Est. total 673,589 525,823 363,596 278,922 114,381
Expenditure 247,766 262,227 184,674 264,541 19,243
Difference 425,823 263,596 178,922 14,381 95,138
The equipment fund appears to be adequately funded for the next few years. Going out beyond
2016 requires a bit more vigilance in equipment purchases and additional dollars toward the
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fund to keep it from running a deficit. In the short term, transfers to this fund can be reallocated
to a different fund; however, as stated above, an increase to the transfer is required to keep the
fund solvent beyond 2016.
Local Road Fund
The road fund and program has received most of the attention by council. The following table
illustrates the need for additional dollars in this fund in order to continue with the current road
maintenance and construction program.
2012 2013 2014 2015 2016
Est. balance 1,532,706 751,356 679,875 476,440 (100,898)
Est. Transfer 700,000 700,000 700,000 700,000 700,000
Est. total 2,232,706 1,451,359 1,379,875 1,176,440 599,102
Construction 1,055,850 324,709 469,114 784,768 411,798
Maintenance 425,500 446,775 434,321 492,570 517,198
Est, Total 1,481,350 771,484 903,435 1,277,338 928,996
Difference 751,356 679,875 476,440 (100,898) (329,894)
As the council discussed over the past few months, the need to increase the dollars in this fund
is necessary to continue the planned road improvements and maintenance. Discussion included
internal loans, bonding, and increasing the transfer. At this point in time, staff recommends
increasing the transfer to this fund to $725,000 - $750,000 starting in 2011 and increasing the
amount each year going forward. An internal loan maybe required by 2014. Using some of the
proceeds from the sale of the liquor stores to help capitalize the fund is also a possibility, as it
will take pressure off the levy.
BUDGET WITH TRANSFER INCREASES
The projected 2011 budget with additional transfers for parks and roads will increase deficit from
$296,017 to between $326,017 and $351,017 (this provides an additional $5,000 for parks and
25,000 to 50,000 for roads.)
OPTIONS
Levy
There are generally two scenarios regarding the levy. One is to use the current levy as the base
and the other is to consider the maximum allowable under the current levy limit. Below is how
the two possibilities look. Please note that in the estimates below, I excluded the special levy
amount of approximately $616,000.
1. The council can choose to use the existing levy as the base to establish the levy for the
2011 budget. Based on current information from the Bureau of Economic Analysis, the
IPD is at 1.124. The 2010 levy, less the special levy, is 4,160,292. Applying the IPD
growth factor, 2011 levy can increase $46,762 for a total of 4,207,054.
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2. The Council can choose to base the 2011 levy on the maximum levy identified by the
Department of Revenue. This is estimated to be $4,310,752, an increase of $152,080 or
approximately 3.7% over 2010.
Using the total levy authority available still leaves approximately $145,500 left to balance the
budget without adding anything to the improvement fund transfers.
Fund Balance
The City’s fund balance policy requires 55-60% of the next year’s operating budget remain in
reserve. According to the 2009 audit, the current General Fund balance is 66% of the 2010
general fund budget. The audited fund balance is $3,555,724 and based on current activity, I
estimate the balance to decrease approximately $200,000, leaving an estimated 2010 balance
of $3,355,724. The current estimate for the 2011 general fund budget is $5,361,709. Sixty
percent of the (60%) estimated budget is $3,217,025. Based on the current policy, council can
draw-down approximately $138,699 and still be within the policy guideline of 60% fund balance.
Again, I do not recommend relying on the fund balance to offset operational costs. Fund
balance is better utilized for one-time capital expenses and improvements, or to supplement
existing transfers to recapitalize these funds.
Liquor Store Sale Proceeds
The City maintains approximately $850,000 in proceeds from the sale of its liquor store
operations. To date, the council has not achieved consensus as to how or when to use these
funds. Council comments include “giving” the funds back to the residents, using the funds to
start some type of environmental loan program for neighborhood projects, sitting on the funds,
and transferring the interest, etc.
While there is not a requirement to use these funds, they are undesignated reserves and
consideration should be given to designating the funds or utilizing them in some way.
Based on current conditions, now might be a good time to consider using a portion of the funds
to supplement transfers to the road and park funds.
CONCLUSION
In all, to meet identified operational costs and bare minimum in transfers to support the
improvement funds, the city needs approximately $5,416,709. A levy based on maximum
allowable generates $152,080. This leaves about $198,937 to be made up in cuts and/or use of
available reserves. Of course, a lower levy, results in more use of cuts and/or use of available
reserves.
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