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080706 CC WS Min CITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, AUGUST 7, 2006 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 5:30 P.M. MINUTES 1. CONVENE CITY COUNCIL WORK SESSION Mayor Love called the meeting to order at 5:30 P.M. A. Roll Call Present: Mayor Love, Councilmembers Callies, Lizee, Turgeon, and Wellens; Administrator Dawson; Finance Director Burton; Planning Director Nielsen; and Public Works Director Brown Absent: None B. Review Agenda Without objection from Council, Mayor Love proceeded with the Agenda for the meeting. 2. BENEFITS CONSULTANT REPORT Administrator Dawson stated in the fall of 2005 the City's employee benefits committee presented several recommendations to the City Council regarding changes to the benefits that it offered employees. Council had subsequently authorized the services of Stanton Group to conduct an employee benefits competitive analysis. Two of the four survey sources used were the main inputs for the marketplace comparisons. The two surveys were: 1) a 2005 Twin Cities Metropolitan Area Compensation Survey, a survey of 93 local government employers in the metropolitan area; and 2) a 2005/2006 Minnesota Policies and Benefits Survey, a survey which included 316 employers, both public and private. The Stanton Group determined the City's benefits package was generally competitive, though it did identify a few trends that could be considered in the future. Dawson stated the Stanton Group characterized the City's benefits as a "modified cafeteria plan". Among a core group of benefits, employees could choose levels of coverage within a benefit, but could not pick and choose among the benefits offered. Because Shorewood had such a small employee group, allowing voluntary participation could result in fewer employees being covered which, in turn, would increase the per-employee premiums, or may result in not being able to offer the coverage due to a lack of participation. Stanton Group recommended that the City not offer current benefits as voluntary/optional. Dawson then stated the City currently paid up to $680 per month for insurance for the core benefits. He reviewed what the core benefits were. 1. Health: The City offered a traditional Preferred Provider Option (PPO) plan and a health savings account (HSA) plan through HealthPartners. The City fully paid for single-coverage employees, which was common among metropolitan local governments (76% did so). There was a trend among private and a few public employers that single-coverage employees pay something toward their health insurance, and the City could consider this at some point in the future. CITYOF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 2 of8 2. Dental: The City's plan with Delta Dental for non-union employees, and AFSCME for union employees, were commonly offered by metropolitan local governments. As with health insurance, there was a trend among private and a few public employers that single-coverage employees pay something toward their health insurance, and the City could consider this at some point in the future. 3. Short-term Disability (STD): Based on others' practices, the City could consider increasing the eligibility period from the current three days to six days. The savings in premiums, however, would be approximately $100 - $200 annually. 4. Long-term Disability (LTD): No change was recommended. Director Burton reviewed the current L TD policy. 5. Life Insurance: The City currently offered one times annual salary for life insurance. This was a common practice. It was also common to offer a fixed amount of life insurance, and the average in the surveys was nearly $20,000. The benefits committee had discussed both options, and believed either option was reasonable. Dawson noted the Stanton Group averaged the costs of core benefits, and calculated that the City made approximately $585/month available for dependent health insurance and $40/month for family dental, which were comparable with other metropolitan local government employers. The average cost for benefits 3 - 5 listed above was less than $55/month. Dawson stated the City offered a flexible spending account (also known as a "125 plan") which provided pre-tax dollars for a variety of eligible health and care expenses. The $3,000 level that employees could contribute was common. He explained the City would need to modify its FSA plan to conform to federal regulations, as employees participating in HSAs could contribute only toward vision and dental expenses. Dawson stated the other benefits the City provided were vacation leave, sick leave, holidays, tuition reimbursement, and deferred compensation options. The schedule of leave and holidays was comparable to other metropolitan local governments. The level of tuition reimbursement program was somewhat above average. Dawson stated Council had previously expressed concern with the current sick leave policy. The particular concerns were: 1) there was no limit on the number of sick-leave hours an employee could accrue, which was not common practice with other metropolitan local governments; and, 2) the formula used to convert accumulated sick-leave hours to a cash severance upon termination. Currently an employee would receive one-third of their accumulated hours greater than 400. The benefits committee had recommended the City cap the number of sick leave hours at 800, and that 50% of the hours be paid after at least five years of employment. Employees could accrue up to 96 hours annually above 800 hours, and at year-end they would be paid 50% the value of those hours in additional time off or as a contribution to deferred compensation. Dawson explained there were three employees who currently had more than 800 hours of sick leave in their balances. If the City chose to convert to an 800-hour cap, the City could consider the following options to address sick-leave hours in access of 800: 1. No longer have sick leave accrue for those employees, and keep the current severance plan in place for them until their balance falls to 800 hours. This approach could provide CITY OF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 3 of8 an incentive for improper use of sick leave, and it would also add complexity to administration of this benefit. 2. Reduce their balances to 800 hours, and buy down their excess hours. The committee identified the following buy-down levels the City could consider: A. 100% - because employees had relied on the uncapped benefit for the future, if needed. The cost for this approach would be $70,613. B. 50% - this was the value under the proposed sick leave/severance conversion plan. The cost for this approach would be $35,306. C. 33% - which was what the current value would be if they terminated today. The cost for this approach would be $23,514. The benefits committee saw merit in any of those approaches. An additional possibility was for affordability, the three affected employees could convert to the new plan over three years, such that their balance would be reduced proportionately and their buy-down paid over that period of time. If the buy-down was spread over three years, it would be at the employee's then-current rate of pay, which was subject to increases annually, rather than capping the buy-down amount at the 2006 pay rate. Dawson stated other metropolitan local governments offered wellness programs. The wellness program recommended by the benefits committee was a reimbursement program, providing up to $40 (with use of 1 sick leave hour per $20) per month for a variety of wellness and health improvement activities. He noted the program design was adapted from another metropolitan municipality. In response to a question from Councilmember Callies, Administrator Dawson stated the maximum reimbursable amount of $680 per employee had been used for the last three years. Director Burton explained the $680 was based on two-thirds of the average dependent rates for health insurance and dental insurance plus STD, L TD, and life insurance, a formula approved by a Council in the mid-1990s. Director Nielsen noted Council moved to a percentage formula from a fixed-amount so both the City and the employees would share in the rising costs of health-care coverage. Administrator Dawson explained it was common practice for other metropolitan local governments to cover the cost of health insurance and dental insurance for single-coverage employees, and contribute an additional amount to an employee's dependent coverage. Director Burton explained dependent insurance rates were based on the age of the dependents and the number of dependents. Council member Turgeon questioned if the eligibility periods for receiving STD, L TD, and life insurance benefits were too generous (i.e., too short). She stated now may be a good time to change benefits for new hires with regard to eligibility for those benefits. Turgeon then stated the eligibility for per pay- period vacation accrual policy was also generous for the first year of employment. Mayor Love stated a potential employee candidate may not choose to pursue employment with the City if the eligibility period was too long. In response to a question from Councilmember Callies, Administrator Dawson explained the City had to participate in the PERA retirement plan; PERA was mandated by the State. Dawson also explained an employee was entitled to the full value of unused vacation at the time of termination; he noted the maximum amount of vacation an employee could accrue was a year-end amount of twice their yearly earned vacation. CITYOF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 4 of 8 Councilmember Turgeon stated some companies were migrating to a personal-time-off (PTO) system; a system where an employee earned a specified number of days off (based on tenure) for vacation, sick leave, and holidays combined Discussion ensued with regard to the vacation accrual policy. There had been employees that had frequently lost vacation hours because their workload prohibited them from using all their vacation. There was consensus amongst Council that employees should be encouraged to use their vacation. Councilmember Lizee noted that was at times difficult because it was necessary to ensure that essential public services were provided. Administrator Dawson stated there had been a few instances where an employee was unable to take their vacation for reasons outside of their control, and the employee was paid for the value of the vacation time that would have been lost. In response to a question from Councilmember Wellens, Administrator Dawson stated the recommendation was to keep the five core benefits mandatory. He re-explained the current benefits plan was a "modified cafeteria plan", and that the benefits committee and the Stanton Group did not recommend any changes to the five core benefits. In response to a question from Councilmember Callies, Director Burton explained the City had previously used LOGIS to provide health insurance coverage. Approximately four years ago, the City had determined it could provide the same quality of coverage for less cost if it contracted for its own small- group insurance. Burton noted the cost for the insurance did increase 12% - 15% in 2006. Councilmember Wellens stated he would support modification of support the health insurance benefit such that employees with single coverage would pay a nominal amount toward their insurance. Councilmember Turgeon agreed. Director Nielsen stated the combined costs for single coverage for the five core benefits was less than $680; therefore, the benefits for single-coverage employees could be perceived as less than for employees with dependent coverage. In response to a comment from Mayor Love, Director Nielsen clarified the benefits committee did not recommend a single-coverage employee pay a portion of their health and dental insurance costs; the Stanton Group had stated there was a trend to move in that direction. Director Brown stated it was important for the City to remain competitive with its benefits offerings to ensure the City was able to retain and attract quality Staff. Councilmember Callies stated she would prefer the benefit remain status quo; the impact on employee morale and future recruitment efforts versus the costs did not warrant a change. Discussion ensued with regard to whether or not the City should consider converting to only HSA health insurance program, and the possibility of single-coverage employees paying a portion of their health and dental insurance costs. Discussion also ensued with regard to the time-frame for STD to become effective. There was Council consensus to leave the five core benefits status quo as recommended. There was ensuing discussion with regard to the current sick leave policy, the need for a cap on the amount of sick leave an employee could accrue, the formula used to convert accumulated sick-leave hours to a cash severance upon termination, and how to handle employees who had accrued sick-leave hours in excess of a to-be-determined cap. Council asked that Staff determine the cost to buy-down sick-leave hours for employees with hours in excess of 400 hours, 600 hours, and 800 hours based on 100%, 50%, and 33% value options. Staff was also asked to request an opinion from the City Attorney with as to whether or not there was a legal requirement to compensate employees for the sick-leave hours they had accrued in excess of a to-be- CITYOF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 5 of8 determined cap, and if so what the value of the buy-down must be. Council did not think there was a need to allow an employee to accrue additional hours of sick-leave during a year above the cap amount. Council did approve adding the recommended wellness program to employee benefits offerings. 3. 2007 PROPOSED SLMPD BUDGET Administrator Dawson explained on July 25, 2006, the Coordinating Committee of the South Lake Minnetonka Police Department (SLMPD) recommended the 2007 proposed budget for consideration by the four member city councils. The member cities' councils needed to act on the proposed budget by September 1, 2006. He then reviewed the budgetary process as outlined in the Joint Powers Agreement that governed the SLMPD. Dawson went on to explain the SLMPD 2007 proposed budget requested the members cities contribute a combined amount equal to $1,631,525, a $75,525 (4.8%) increase from 2006 to 2007. The City's requested contribution was $815,762 (50% of the operational costs, a formula based on the outcome of the SLMPD Funding Formula Binding Arbitration). The budget reflected a fully-authorized staff of fourteen sworn officers. It also included Investigator Talbot, who was on assignment to the Minnesota Financial Crimes Task Force (MFCTN), as a fifteenth officer on the staff. Investigator Talbot's compensation was fully paid by the State. He noted major costs drivers for 2007 were compensation and insurance for employees, building maintenance, and increases in fuel and energy. Dawson then explained the SLMPD had prepared a separate proposal to provide animal control services. The cost would increase the SLMPD operating costs in 2007 by $39,000. It was premised on hiring two part-time community services officers (CSOs) who together would work 40 hours-per-week. Animal control would also be added to the responsibilities of the current full-time CSO position. An animal- control vehicle would need to be purchased and outfitted for a cost of $33,000, which would be paid mostly with existing financial reserves of the SLMPD. He noted there would need to be an on-going contribution of approximately $4,000 per year to the vehicle fund to replace it in six or seven years. Administrator Dawson stated the proposal was a good value and would be a more effective use of the financial resources the cities were currently paying. Under the proposal, the City's cost for animal control would be reduced slightly. SLMPD Chief Litsey was present, and he reviewed the highlights of the operating. He further stated he appreciated the budget process being reviewed by the Operating Committee, comprised of all member city administrators and managers, and then being considered for recommendation by the Coordinating Committee. Mayor Love stated he appreciated that Chief Litsey had included historical documentation as part of the 2007 proposed budget package. Discussion ensued with regard to arrangements for purchasing gasoline for squad cars. Chief Litsey stated the Operating Committee had discussed the need to establish a capital replacement fund for the public safety building. He stated the Coordinating Committee had requested that he and the Operating Committee prepare a list of items that should be scheduled for repair or replacement, and to estimate those costs. He noted SLMPD financial reserves would be transferred to some of the capital funds in 2007. He anticipated the 2008 budget would reflect contributions for initial funding to a building capital replacement fund for the long term. CITY OF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 6 of8 Mayor Love stated the SLMPD financial reserves had been depleted over the last four years. He asked Chief Litsey what he thought should be done to restore the reserves to an appropriate level. Litsey stated primary capital funds that needed to have additional funding were technology and long-term building maintenance. He then stated the contribution to the vehicle maintenance fund had been severely reduced in the operating budget over the last few years. In response to a question from Mayor Love, Chief Litsey explained the vehicle rotation cycle had been reduced from 2.5 squads per year to 2 squads per year. He noted it could not be reduced any further for safety and reliability reasons. In response to a question from Councilmember Wellens, Litsey explained the goal was to replace a vehicle at approximately 80,000 miles. In response to a question from Councilmember Wellens, Chief Litsey stated violence in the cities' parks was a small part of what the SLMPD discussed as part of its educational programs with the schools. In response to a question from Mayor Love, Chief Litsey explained one way to measure staffing levels was to compare the number of officers to the number of residents. Litsey stated there were data to support the SLMPD was understaffed. He explained there were times when there was only one officer available for a shift, and that caused safety concerns; the goal was to have two officers per shift. He noted there had been a recent day when one officer had responded to 27 calls on a day shift. He would like to have enough staffing to provide proactive services (e.g., traffic monitoring). In response to a question from Councilmember Callies, Chief Litsey stated day-time officers had to file reports from the evening shifts, in addition to responding to traffic accidents, shop-lifting calls, identity theft situations, domestic calls, etc. He commented the SLMPD was inundated with solicitation complaints. He then stated the enforcement officers now respond to conduct complaints on school buses, and there were significantly more neighborhood complaints they had to address. He reviewed the SLMPD process for handling DWI situations. Chief Litsey then reviewed the highlights of the animal control proposal. In response to a question from Councilmember Turgeon, Mayor Love explained that Greenwood had not contracted for animal control services over the last number of years; but it was considering the SLMPD proposal. Councilmember Turgeon stated she wanted to ensure the SLMPD would provide, at a minimum, the same level of animal control services currently provided to the City's residents. Council thanked Chief Litsey for his efforts. Mayor Love recessed the Regular City Council meeting at 8:00 P.M. Mayor Love reconvened the Regular City Council meeting 8: 16 P.M. 4. 2007 BUDGET Administrator Dawson stated the 2007 General Fund draft operating budget contemplated a tax levy of $4,396,308 (an increase of less than 5% from the 2006 tax levy). He noted the draft budget was essentially a status-quo budget, and the proposed tax was a "not-to-exceed figure". He commented the activity indicators were not finalized, but they would be done by the time Council would consider action on the proposed General Fund budget on September 11, 2006. CITYOF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 7 of 8 Dawson stated the key increases in the 2007 General Fund expenditures included: . The Public Works building addition for $170,000, which was one-half of the estimated construction costs. Based on a discussion at the July 10, 2006, Council work session, staff was proposing that $100,000 of that amount would be funded from a transfer from the General Fund Balance and the remainder from the general tax levy. The second half would be funded in 2008. . Increases in SLMPD and EFD expenditures for $62,000. . Salary adjustments as indicated in the Council-approved compensation study for approximately $80,000. . A replacement network server for $17,000. . Additional funding for the Senior Community Services as it requested $13,500. Dawson then stated no additional staffing changes were proposed, and the cost for Orono to provide animal control was used as the budget figure. He also stated preliminary information from Hennepin County on the estimated market values and tax capacity indicated the City's tax base would increase approximately 12% for Pay2007 taxes. The level of transfers to the capital funds was budgeted at the same level as 2006. Dawson explained the enterprise budgets for Water, Sewer, Stormwater, Recycling, and Liquor, (all of which were entirely fee-supported or sales-supported) would be prepared for discussion at work sessions in October. In response to various questions from Councilmember Turgeon, the following clarifications were made. The City would receive approximately $60,000 per year from the State for MSA road repairs; but the City had exhausted the State Aid construction amount of approximately $220,000 it would receive over the next few years. The budget for the Mayor and Council remained the same as for 2006, and per Council action on the 2006 budget the Council Contingency line item had been eliminated. Several program budget descriptions and activity indicators were being updated for the final draft budget. The Municipal Building transfers line item included $60,000 to the Sewer Fund and $50,000 to the Public Facilities Fund for capital improvements. Director Brown explained the number of dead trees on public rights-of-ways had been increasing significantly, and Public Works was averaging 10 - 12 calls per week with regard to dead or diseased trees. He stated there was often question about who owned the tree - if it was on public right-of-way the City was required to remove the tree, even though the tree was often planted by the property owner. In response to various questions from Councilmember Wellens, the following clarifications were made. The City did not automatically receive additional funds because of an increase in its tax base; the City had to levy dollars every year. If Council approved the 2007 draft operating budget as proposed, then the City's tax rate would drop from 29.335 to 26.858 for Pay2007. If a $100,000 transfer from the General Fund Balance was not made, the 2007 tax levy would increase to 7.4% rather the proposed 4.91 %. The tax levy increase for 2006 was 9.3%. Councilmember Wellens and Planning Commissioner Woodruff both noted there was a proposed 8.24% increase in spending, even though the proposed tax levy was just 4.91 %. In response to questions from Commissioner Woodruff, the following clarifications were made. The approximate 20% increase in Staff compensation was in large part a result of making the market rate adjustments recommended in the compensation study. The capital outlay for the Finance Department was CITYOF SHOREWOOD CITY COUNCIL WORK SESSION MEETING August 7, 2006 Page 8 of8 for a laser printer, computer, and bookcase for the senior accountant. The Municipal Building department supplies and materials budget included some maintenance expenses for the building (e.g. repairing siding, some minor exterior landscaping, rebuilding the east stairway, etc.); and the bulk of the support services budget was for the City's insurance package which included workers comp and property and liability coverage (which was paid at year-end). The permit tracking software expense was a carryover from 2006 because the software was not purchased (the software had budgeted in the public facilities fund for 2006). It was anticipated a full-time City Engineer would be hired by 2007; in 2006 there was a .8 Acting City Engineer. The City Engineer capital outlay budget would be defined for the final draft budget. The Public Works Service supplies and materials increase was due in large part to the increased cost of fuel. The Streets and Roadways supplies and materials increase was partially a result of bringing responsibilities for utilities internal. The Snow and Ice Removal increase for supplies and materials was due to a significant increase in the cost of salt; and the capital outlay was for equipment to spread salt and sand on trails. The Traffic Control supplies and materials expense was decreased because light maintenance was reallocated to support services. Discussion ensued as to whether or not Council had previously considered increasing the budgeted transfer amount of $25,000 from Public Works Service to the Storm water Management Fund. Mayor Love thanked Staff for their efforts in preparing the draft budget. There was Council consensus that there was no need for another work session to discuss the 2007 draft operating budget. 5. OTHER In response to a question from Councilmember Callies, Administrator Dawson explained the legal costs listed were the hourly costs for Attorney Keane's services. The SLMPD Funding Formula Binding Arbitration costs were $64,321. 6. ADJOURN Turgeon moved, Wellens seconded, Adjourning the City Council Work Session Meeting of August 7, 2006, 8:59 P.M. Motion passed 5/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder Woody Love, Mayor