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07-11-11 CC WS Mtg Min CITY OF SHOREWOOD 5755 COUNTRY CLUB ROAD CITY COUNCIL WORK SESSION COUNCIL CHAMBERS MONDAY, JULY 11, 2011 6:00 P.M. MINUTES 1. CONVENE CITY COUNCIL WORK SESSION Acting Mayor Zerby called the meeting to order at 6:00 P.M. A. Roll Call Present. Acting Mayor Zerby; Councilmembers Hotvet, Siakel, and Woodruff; Administrator Heck; Finance Director DeJong; Planning Director Nielsen; Director of Public Works Brown; and Engineer Landini Absent: Mayor Lizée B. Review Agenda Hotvet moved, Siakel seconded, approving the agenda as presented. Motion passed 4/0. 2. 2012 GENERAL FUND BUDGET Administrator Heck explained the meeting packet contains the first draft of the City’s 2012 General Fund Budget. This evening Staff’s plan is to provide a general overview of the 2012 budget process. Staff wants to have a discussion about how to go about looking at the budget process from a priority-driven perspective. Staff also wants to discuss some of the City’s issues with regard to budgets. The first draft of the budget is presented in the traditional format. Going forward the presentation will be adjusted to provide Council with a better perspective of what portion of the budget is for operational expenditures, what portion represents transfers to support the City’s infrastructure and capital improvements, and what portion is for enterprise operations. He noted the first draft reflects the requests made by the department heads. Acting Mayor Zerby requested Staff prepare a budget calendar reflecting when budget work sessions will be held, what will be discussed during the sessions, what the expected outcome is of each session and when various approvals of the 2012 General Fund Budget and property tax levy, the 2012 – 2016 Capital Improvement Program (CIP) and the 2012 Enterprise Funds must be secured by. Director DeJong stated he thought the City’s traditional budget process has been pretty standard. He th explained Council has to adopt a preliminary property tax levy and have it certified by September 15. That has traditionally been completed by the end of August. There is a regular City Council meeting on th September 12 this year so Council could take action on the not-to-exceed property tax levy during that meeting. During the next two months agreement has to be reached on a fairly sound preliminary budget for 2012 General Fund expenditures because those expenditures are tax supported. Enterprise Fund discussions and 10-Year CIP discussions have generally occurred during the September through possibly th November time period. The City will likely hold a Truth-In-Taxation meeting December 5, the first Monday in December.. Council can adopt the final property tax levy and budgets during that meeting or th during its December 12 meeting. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 11, 2011 Page 2 of 7 Administrator Heck stated this evening Staff would like Council to provide feedback on the draft budget and from that, Staff can then decide how to structure the work sessions. He then stated because of the State government shutdown it’s not known if the levy limits will be extended for 2012. Director DeJong stated if levy limits are extended for 2012, the City should be exempt from them because the City has been accepted to participate in the performance measure program through the Office of the State Auditor. He explained the draft budget anticipates an expenditures increase of approximately $25,000 (or 0.5%) over the adopted 2011 General Fund expenditures. The department heads have submitted budgets that take into account the economic realities the residents face. DeJong then explained that the last couple of years the adopted General Fund Budget included the use of $40,000 funds from sale of the City’s liquor operations. At the end of 2010, the liquor funds were transferred into the Community Infrastructure Fund for accounting reasons and the funds were to be used for something of community wide value. The draft budget does not include a $40,000 transfer in from those funds. Also, the last couple of years a planned use of General Fund balance was programmed to help balance the General Fund budget. The General Fund balance was down approximately $40,000 at the end of 2010 due to the actual general operations. DeJong went on to explain the balance in the General Fund is above the guidelines specified in the General Fund Policy which is 50% – 60% of the next year’s General Fund budgeted expenditures. The level at the end of 2010 was 61% - 62%. He stated Council should decide if it wants to keep that substantial amount of money in the fund balance or if it would rather transfer out some amount of it for use somewhere else. He explained there is a need for funding in some of the other funds. The CIP and the Long Rage Financial Plan indicate the Stormwater Utility Fund, the Street Reconstruction Fund, and the Equipment Replacement Fund all need additional funds. The surplus could also be used to help offset any shortfall in property tax revenues. The draft 2012 budget does not include any change in property tax levy over 2011. The General Fund budget recognizes an approximate $25,000 in additional revenues in the General Fund to offset the approximate $25,000 increase in expenditures. The question before Council is whether or not it wants to increase the property tax levy to generate $25,000 in revenues or use an alternative method to balance the budget. Acting Mayor Zerby suggested there be some discussion about how a priority-drive budget process could begin to be incorporated into the 2012 budget process. He stated he didn’t think the issue of balancing the 2012 budget could be solved this evening. Before that happens, Council and Staff need to go through the draft 2012 General Fund budget at the detail line item level. He expressed hope that after going through the budget line items and adjusting them there wouldn’t be a need to find other funding sources. Councilmember Hotvet stated because there are two Councilmembers that are going through their first budgeting process and because there are some new programs being discussed a priority-driven budget process may fit in nicely. She commented that type of process may not be a perfect template for the City’s budget process but it would help with identifying the priorities. Councilmember Siakel thanked Director DeJong for the high level memorandum he prepared about the draft budget and the budget itself. She stated that she agreed with Acting Mayor Zerby that going through the budget at the line item level would be helpful. She expressed her preference to have discussion about the priority-driven budget process. She stated she does not support having a big increase in the property tax levy, but she would be open to a combination of things. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 11, 2011 Page 3 of 7 Councilmember Woodruff stated he thought priority-driven budgeting is a useful activity especially for the two new Councilmembers. He commented that when he first became a Councilmember he was not sure what each of the departments did and what a department’s funding is for. He stated Staff has made some assumptions about what they need to do in 2012 and identified the cost for doing those activities. He requested Council be provided more detail about what each department needs. He noted that he thought the assumption should be there will be no property tax levy increase and Staff should identify the impact on City operations of doing that. If by doing that there are insufficient funds to support priority needs, then there are alternative sources for funding that. Woodruff then stated he does not believe Council was provided sufficient information to make any decisions this evening. Because Council has not been provided a copy of the 2010 audit report, it doesn’t know what the General Fund balance is. He cited the Equipment Replacement Fund is programmed to enter into a deficit state in a couple of years. He questioned if a transfer in amount of $50,000 is sufficient. He suggested Staff prepare a document that depicts the flow of funds into all of the various funds and how the various funds are used. A number of the funds are funded by a transfer in from the General Fund. He noted the 2012 draft budget programs a $42,000 transfer from the General Fund to the Parks Improvement Fund; the same as in past few years. Acting Mayor Zerby stated he’s not a fan of earmarking funds but it is worthwhile to know where the money is coming from. Councilmember Siakel stated she would appreciate Council getting regular updates on the fund balances for all of the various funds. Director DeJong noted Council receives an updated General Fund Budget report monthly. Administrator Heck stated Staff can start providing Council with a quarterly report on all of the various funds. Administrator Heck highlighted items not included in the draft 2012 General Fund Budget, noting there will need to be Council discussion about them. There isn’t any increase for the City’s contribution to employee health insurance and other benefits. There isn’t any increase in union salaries. Labor contract negotiations will begin in the next few months. Nothing has been allocated for trails. He explained that the majority of the capital improvement funds are funded through transfers in from the General Fund. He stated he thought going through a priority-driven budget process would be valuable. Councilmember Woodruff noted that the budget document states the draft budget doesn’t reflect any change in salary allocation to more closely match actual time coding to General Fund departments and to Enterprise Funds. He explained that over the last few months he has questioned Staff if the Public Works labor budget is aligned with actual labor expenditures in 2011. The Public Works General Fund labor expenditures to date exceed budget and that implies some Enterprise Fund labor budget is under budget. He expressed he doesn’t want the City to end up in a situation where it has to transfer funds from an Enterprise Fund to the General Fund because the General Fund was under budgeted with regard to Public Works labor. He expressed concern about assumptions used for Public Works labor allocations for the 2012 General Fund Budget. Director DeJong explained the General Fund Budget is based on some expectation from prior years and that doesn’t always hold true. The problem is the City is spending more on general operations than is budgeted for. The Enterprise Funds have healthy balances and enterprise operations are expected to be self funding. The General Fund is primarily funded through property taxes with some revenues coming from protective inspections. He stated that from his perspective there has been a real reluctance from staff to change labor allocations because that change will result in there being an abundance of detailed questions from Councilmembers asking what has changed rather than just accepting it as a change in budgeting CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 11, 2011 Page 4 of 7 philosophy. The 2012 General Fund Budget includes a budget for Tree Maintenance (approximately $30,000) and a budget for Traffic Light Maintenance (approximately $13,000). If those budgets were to be combined, staff would believe they open themselves up to criticism because they didn’t have sufficient detail to satisfy some Councilmembers. DeJong stated that priority-driven budgeting is done at a higher level. It’s not a line item detail view of the budget process. He acknowledged that he didn’t think Council can get there this year, but he did think that could happen at some point. Councilmember Woodruff stated if the General Fund labor spending is over budget there is no revenue source in the General Fund to fund that. He then stated the 2012 General Fund Budget should reflect actual costs so there isn’t a deficit at the end of 2012. Director DeJong stated that requires allocating labor expenditures to specific areas and having employees code where they spent their time so labor costs will be charged to where they actually spent their time. Woodruff clarified that he wanted employees to report what they actually do. Woodruff stated the 2012 labor allocation should reflect 2011 actual to avoid having a General Fund deficit at the end of 2012. Woodruff also stated this is the first time in his tenure where there has been a situation where labor expenditures have been significantly over budget in a specific General Fund department budget. Woodruff clarified he was confident that Public Works employees are doing what needs to be done. Administrator Heck explained that for the 2011 budget he determined the labor allocations based on July – December 2009 and January – June 2010 actual labor usage by department. The actual information indicated that more labor was spent in some enterprise operations than had previously been budgeted for. Prior to last year labor had not been allocated to areas such as tree maintenance and traffic light maintenance. There was labor being spent on those things but there was no specific labor budget for it. In 2011 to date more labor was spent on snow and ice control than was reflected in the actual data from that twelve-month period. He stated Staff will attempt to refine the allocation of Public Works employees for 2012. Councilmember Woodruff stated the 2012 General Fund Budget for Public Works personnel is approximately $184,000, which is the same as the 2011 adopted budget. Yet, the 2010 actual personnel costs were approximately $290,000. Through May of this year, more than half of the 2011 budget for that area has already been spent. Director DeJong stated in order to correctly allocate Public Works labor costs Council needs to be okay with making those changes and, if as a result of doing so there are increases in the 2012 General Fund budget, Council will have to decide how to fund the increases. He noted that Councilmember Woodruff earlier suggested that there be no increase in the property tax levy for 2012. Woodruff stated if properly allocating Public Works labor between the General Fund and the Enterprise Funds and keeping the levy flat for 2012 doesn’t work then Council will have to decide what to do. Woodruff then stated if labor costs are incorrectly being charged to Enterprise Funds there may eventually have to be a rate increase to cover those costs and he doesn’t think that is the correct thing to do. Acting Mayor Zerby asked Staff what the next steps should be. Director DeJong asked if Staff is getting direction from Council to adjust some of the existing programs into something that is closer to what is actually occurring and to reallocate personnel and associated operating expenditures from enterprise operations to the General Fund where they belong and to bring that back to Council for review. Acting Mayor Zerby and Councilmember Woodruff supported doing that. DeJong stated there are areas where no funds are budgeted for labor yet employees charge time to those CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 11, 2011 Page 5 of 7 areas and time isn’t being charged to areas where there is a budget for it. There needs to be Council support for making the labor allocations more realistic because there may be residents who become suspicious because some things in the budget have changed. Councilmember Woodruff stated the actual personnel costs for Elections in 2010 were approximately $40,000. Yet, the 2012 budget for that some item is approximately $16,000. He questioned why the 2012 budget is so low. Director DeJong stated he can increase the budget for Elections personnel costs but he must then decrease the personnel costs in General Government by the same amount. Because, those two budgets are in the General Fund Budget it’s a wash. Director DeJong stated Council could also allocate Public Works personnel costs as a fixed amount. Doing so will allow Staff to more accurately predict what the budget should be for different areas. He commented that actual labor costs for various areas will likely change from year to year. He then stated there is no guarantee that Administrator Heck’s labor allocation for 2011 that doesn’t seem to be working out wouldn’t work out in 2012. Acting Mayor Zerby expressed his preference for taking a fresh approach. He stated he would like to know what it actually costs the City to provide the various services. He suggested starting with the critical services first such as police and fire. He stated parks may not be a critical service. Staff and Council need to prioritize the services provided. He then stated based on discussion this evening it sounds like Council wants to keep a balanced budget and reduce the tax burden. In order to do that there will have to be some reductions. He noted he wants to start by taking a fresh look at things program by program in order of priority for the City and its residents. Administrator Heck stated Acting Mayor Zerby hit on key philosophies of a priority-driven budget process. One of them is to identify what the true cost of providing services is. Another is identifying the services currently provided and how they impact the public. The services then need to be prioritized and the costs for providing the services identified. He commented that the City has to be able to explain why there is a reduction in any service should that happen. He stated there needs to be a way to measure the outcome of providing the services. Acting Mayor Zerby stated he would like to have comparison data for what it costs the City and what it costs other cities to provide certain services (e.g., cost per mile to plow a roadway) prior to having those discussions. Administrator Heck stated he anticipated that the discussion about prioritizing services could be difficult. He commented that the costs for police and fire services are fairly substantial yet the City has very limited control over those costs. Acting Mayor Zerby suggested moving those two services aside and then going on to the next set of priority services the City does have control over. Acting Mayor Zerby reiterated that he would like Staff to prepare a budget process work plan and to identify what the expected outcomes of discussions are and what the critical dates are. He stated he doesn’t want to just have a good budget discussion without there being decisions made. Director DeJong asked Council to clarify what it would like to see first from Staff. Administrator Heck suggested Staff take the current draft of information by department and put it into various groups. For example the first group would include the things the City has to do such as provide police and fire services, make its bond payments, plow snow off its roadways, and so forth. The costs for such services would be identified. The second group would include things such as maintaining the various CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 11, 2011 Page 6 of 7 infrastructures and the costs for doing so. That would continue on until all services provided are included in some group. Acting Mayor Zerby stated he understands Administrator Heck to be saying that Staff will prepare a preliminary prioritized 2012 budget. Heck clarified the services and costs to provide them would just be grouped together. Staff will not prioritize the services. Zerby commented he thought that would be getting away from the priority-driven budget process. Councilmember Hotvet stated after having read the Government Finance Officers Association’s white paper titled Anatomy of a Priority-Driven Budget Process she concluded going to that type of budget process is a lot to undertake. She didn’t think Council and Staff could fully embrace that process now. She suggested taking small steps in that direction. She recommended that the first thing to do to move toward such a process would be to complete a program inventory, noting she thought that process was well defined in the white paper. She stated it would be helpful to her to have department heads tell her what they think is important to do. She then stated the white paper identifies what steps to take, noting there might have to be some adjustments to the process laid out in the paper. She requested Staff identify where the programs fit with the draft strategic plan for the City. Acting Mayor Zerby stated the first step would be to inventory the programs. Step two would be to ask Staff to provide their input on what Staff thinks the priorities should be and what the costs for the programs are. Step 3 would be to incorporate that into the budget and bring that back to Council for discussion. He then stated the various steps could be identified in a 2012 budget work plan. Councilmember Siakel asked Director DeJong if he now had a clear understanding of what Council wants and if there is anything he needs from Council at this time. DeJong responded he thought he understood what Staff has to prepare for the next budget work session. DeJong explained he understands Council to be asking for a definition of what the priorities are for the main programs the City departments provide, noting the focus will be on the General Fund operations and that Enterprise Fund operations will be worked on in the fall. Councilmember Hotvet stated she would like the list to include all the programs not just the top five to ten. Councilmember Woodruff stated he understood Director DeJong to say Staff will provide an exhaustive list of programs. DeJong clarified Staff will provide a preliminary list. Woodruff stated if you take all the General Fund programs on the list and the costs for those programs the costs should equal the draft budget General Fund expenditures. Council can decide if it agrees with the suggested priorities brought forward by Staff. He commented that in a way that process would be similar to zero based budgeting which is difficult to do but useful. He stated he thought the process entailed taking a macro view of a department and converting it into a micro view. He commented that for example he would like to know what it costs to publish the monthly newsletter. He acknowledged that it will be difficult for Staff to pull together some of the cost information. There was discussion about when the next budget work session should be held. th Director DeJong stated he thought Staff, not just him, could have a list of programs ready by July 25, but costs would not be available until August. Administrator Heck stated some costs will be easier to pull together than others. Acting Mayor Zerby suggested Staff provide Council with preliminary information so Council can provide comments via email about whether or not the process is going in the right direction. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 11, 2011 Page 7 of 7 Councilmember Siakel stated the amount of detail needed will likely vary by program. More detail is required for larger programs. She noted she is not expecting to receive a lot of detail on every program. Acting Mayor Zerby suggested maybe lower cost programs receive less focus. 3. ADJOURN Woodruff moved, Siakel seconded, Adjourning the City Council Work Session of July 11, 2011, at 7:00 P.M. Motion passed 4/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: City Administrator/Clerk