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07-09-12 Work Sess Agenda #2 MEETING TYPE City of Shorewood Council Meeting Item Work Session Title / Subject: 2013 General Fund Budget Meeting Date: July 9, 2012 Prepared by: Bruce DeJong, Finance Director Reviewed by: Bill Joynes, Interim City Administer Attachments: Budget Spreadsheet Policy Consideration: This item will start the 2013 budget discussion for the City of Shorewood. Background: Staff has begun to prepare a General Fund budget that continues to reflect our sensitivity to the economic conditions that residents face. The City of Shorewood has not adopted an increase in the general tax levy for the last several years. The City has budgeted use of about $87,000 of general fund reserves to balance the budget for 2012, which is down from the $160,000 budgeted for the last several years. However, we have reached a point where leaving the levy flat, keeping line item expenditure budgets the same, and relying on minimal expenditures may have run its course. The odds of being over budget in any particular expenditure item is approaching 50% which means we are as likely to be over budget as under budget in almost any department. This year the conversation may be slightly more challenging, given the staffing reductions from previous years which may limit some of the flexibility the City has had to perform all of the functions that the Council and residents desire. The City is not now under any levy limits for 2012. The existing levy limits have expired and were not renewed by the legislature. If the legislature and governor decide to implement levy limits as part of a budget solution, the City will still be exempt due to our participation in the performance measure program through the Office of the State Auditor (OSA). Mr. Joynes has not had an opportunity to fully review the budget or talk to all departments about their budget practices yet. When staff has reviewed the budgets together, we will present a more detailed picture of potential 2013 scenarios. Revenues General changes are minimal in the revenue side. Staff has left the property tax revenues the same as last year for comparison purposes. License and permit revenues have been kept the same. Staff is expecting no change to intergovernmental revenue either from the PERA Aid or MSA street maintenance funds. Charges for service are anticipated to remain similar to the 2012 budget. Staff has increased fine revenue by $2,500 to reflect recent history that indicates additional revenues. The one downfall is interest revenue as rates actually decreased during 2012 and early 2013. Expert guidance Mission Statement: The City of Shorewood is committed to providing residents quality public services, a healthy environment, a variety of attractive amenities, a sustainable tax base, and sound financial management through effective, efficient, and visionary leadership. Page 1 doesn’t expect rates to begin rising until mid-2014, so a conservative approach with reduced revenue projections will be prudent. Expenditures The City Council budget reflects a contingency amount of $20,000, which is a 2% pool for non-union wage increases. The Council will have to set parameters for the non-union staff, but the public works employees covered by AFSCME have a settled contract for 2013 which reflects a 1% increase in base compensation. They have also agreed to a $25 per month increase in city contribution towards health insurance. The other departmental budgets do not reflect any benefit increase for non-union staff, although the practice the last several years has been for a $25 per month increase to cover a portion of the insurance cost increase. The Council budget reflects the continuation of the $5,000 donation to the South Lake-Excelsior Chamber that was approved for 2012. The Council budget shows an increase of $26,400 in transfers on a preliminary basis to the SouthShore Center. This only reflects the increase in staffing cost approved by the City Council in January. We will need to fully review the budget in order to refine the full amount needed to sustain the programming at the Center, although it is hoped that the other partners in the building will contribute to the operations. The Administration budget shows the effect of not having an election in 2013. There still is a possibility that additional equipment will be required if Voter ID is approved at the general election. The Police and Fire budgets show modest increases for the next year, but we have not received final budget numbers from those agencies. The South Lake Minnetonka Police Department budget shows a$26,000 increase for Shorewood in 2013. The formula did not change for this year, so this reflects the increase in operating expenditures from the department. The numbers are subject to change based on the funding formula allocation and pension contribution amounts respectively. The Streets budget reflects the planned increase in the transfer for road construction of 3%. That was a consensus when the 20-Year Street Plan was reviewed last fall to allow our resources to keep up with the amount of maintenance necessary to keep our roads in good repair. The other department budgets are expected to show only modest changes. Financial or Budget Considerations: There is a fairly strong financial impact to the city based on budget changes known so far. The challenge again this year is how to fund the operations of the city long-term without relying on non-recurring revenues. The City Council needs to determine if it will continue to use one-time monies from fund balance to keep the budget in balance. Options: The City Council may discuss any budget changes with staff and begin exploring potential modifications to the long-term funding arrangements for the General Fund operations. Recommendation / Action Requested: Staff recommends that the City Council suggest funding policy and operational changes to staff to review, analyze, and bring back options at the next budget work session. Next Steps and Timelines: The Interim City Administrator and Finance Director intend to have budget discussions at each regularly scheduled meeting date through the summer and others as deemed necessary. Connection to Vision / Mission: Adopting a prudent budget contributes to sound financial management.