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07-25-11 CC WS Mtg MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, JULY 25, 2011 MINUTES L CONVENE CITY COUNCIL WORK SESSION Mayor Liz6e called the meeting to order at 6:01 P.M. A. Roll Call 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 P.M. Present. Mayor Liz6e; Councilmembers Hower, Siakel, Woodruff and Zerby; Administrator Heck; Finance Director DeJong; Planning Director Nielsen; Director of Public Works Brown; and Engineer Landim Absent: None B. Review Agenda Zerby moved, Woodruff seconded, approving the agenda as presented. Motion passed 510. 2. 2012 GENERAL FUND BUDGET Administrator Heck stated the meeting packet contains copies of a number of documents. There is a list of programs for the priority -driven budget process. There is staffing allocation document. There is a document for each department describing the department's mission and activities which mainly come from the 2011 budget. There is a copy of a summary draft 2012 General Fund Budget for revenues and expenditures. And finally there is a budget detail spreadsheet for each department within General Fund operations with an explanation of some of the line items in each department budget. He noted that Director DeJong distributed to Council a schedule for the 2012 budget process. Heck noted the City has a few areas of committed funding. They include: the South Lake Minnetonka Police Department; the Excelsior Fire District and Mound Fire Department; and, the City's debt service for the public safety facilities and the City Hall renovation. He suggested those be put to the side. He reviewed a list of groups he identified for the priority -based budget process. They are: parks and recreation; trails; roadway maintenance; the Southshore Community Center (SSCC); park improvements; wages and benefits; equipment maintenance; and equipment purchases. Heck then noted that the draft 2012 General Fund Budget does not include any wage and benefit increases or any funding for the trail development program. It does include a subsidy for SSCC operations and $19,000 for a performance pool for non -union wage increases only. There is nothing for benefit increases or union wage increases. Mayor Liz6e asked the Councilmembers how it would like to approach the budget discussion. Councilmember Siakel stated from her vantage point public safety is the number one priority for the City. She asked the other Councilmembers if they agree. She stated she didn't recommended cutting funding for public safety. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 25, 2011 Page 2 of 6 Councilmember Zerby stated he agreed with the order of the groups fisted on the priority - driven budget process document. They are: community protection; debt service; roads and trails; communication; parks and recreation; City council; internal support functions; contractual services other; land use and economic development authority; and, environmental. He thanked Director DeJong for preparing a budget process schedule and he supported following the proposed schedule. Administrator Heck stated police and fire services are provided under joint powers agreements and their budgets are set by their respective governing bodies. Council does have total discretion over the Protective Inspections Budget. Mayor Lizee stated the City's General Fund Balance Policy states the City will maintain a fund balance of 55 — 60 percent of the next year's General Fund budgeted expenditures. The 2010 year -end fund balance was 67 percent. Councilmember Siakel noted the 2010 Comprehensive Annual Financial Report states peer group average General Fund information from approximately 120 cities of similar population reflects that the average General Fund balance, as a percentage of expenditures, was 63 percent. She asked if Council wants to reduce the balance in the General Fund to be closer to that average. Councilmember Woodruff stated for a long time council was taxing more than the City was spending and during the last three years an effort was made to spend it down to the Policy level. That didn't materialize due to a control on spending. Director DeJong noted in 2010 approximately $29,000 in fund balance was used and the plan was to use $155,000. Woodruff suggested using some of the surplus fund balance to fund some of the City's needs. Councilmember Siakel stated if the fund balance was reduced to a level of 63 percent of the 2011 budgeted expenditures that would free up approximately $200,000. She asked how that money would be used. Director DeJong explained that the Policy states the surplus funds can be transferred to other funds. There has been desire expressed to make trail capital improvements in the amount of approximately $500,000 and some of the surplus could be used to help fund those improvements. The Policy also allows for a portion of it to be used for expenditure offsets. Once the level of the fund balance is within the Policy limits the balance can't be used to help offset expenditures and property taxes would have to be increased an additional amount equal to the amount of the fund balance used to offset expenditures. Administrator Heck stated Staff recommends bringing the fund balance down to a more reasonable level by transferring surplus funds to capital improvement funds for one time projects. Staff does not recommend using the surplus funds to help offset General Fund operating expenditures. Surplus could be used for things such as the trail programs, for roadway improvements, and for equipment replacement. Councilmember Woodruff stated the draft 2012 General Fund Budget reflects a deficit. If the fund balance surplus is to be used for capital projects the City will have to raise property taxes to fund the deficit. That makes no sense to him. The City already has the surplus it collected from taxes. The surplus could be used to increase the Street Reconstruction Fund and he could support doing that. Councilmember Siakel stated the Budget can be balanced by reducing expenditures not be raising taxes. Councilmember Woodruff stated if that is done then the surplus would be available for other purposes. Councilmember Zerby recommended Council balance the Budget before making a decision on how to use the surplus. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 25, 2011 Page 3 of 6 Mayor Liz& stated if a decision to reinvest in the community is a priority for this Council then Council should commit funding to it. Councilmember Woodruff stated the priority -drive budget document does not include a program for the SSCC. Councilmember Siakel suggested including that in parks and recreation because it's the culture of the City. Administrator Heck stated a decision was made to keep the SSCC budget separate in order to be able to track what it costs to operate it. Director DeJong noted in 2010 the SSCC operated at a deficit of $17,650; that needs to be balanced and that could be done through the use of General Fund Balance. Woodruff stated he would like to track SSCC operational costs separately until a decision is made about whether or not to continue to manage the SSCC after the City's three -year contract for doing that is up. He noted the 2012 General Fund Budget anticipates the City will have to subsidize SSCC operations in 2012. Mayor Liz6e stated she thought it may be easier to get funding from the other cities that own part of the SSCC if it were included in parks and recreation. Woodruff commented that it would be difficult, if not impossible, to break out operating expenses for the SSCC once they have been merged into parks and recreation. Councilmember Siakel stated parks expenditures are not broken out by each specific park in the budget. She asked why it's necessary to do that for the SSCC. She then stated from her vantage point Council needs to decide if it wants to embrace the SSCC as part of the community's culture. It's either a priority for the City or it's not. She asked if the current financial system software is antiquated. Director DeJong stated there are more flexible financial systems and he noted that he spoke with the vendor for the current system and there would have to be a major conversion to a new account structure in order to do some of what is being discussed. Councilmember Zerby asked if the current system will support the upcoming Governmental Accounting Standards Board (GASH) Statement 54 requirements. DeJong stated the current system doesn't provide for tracking by function; it requires a lot of manual effort to do that. Administrator Heck stated Council needs to decide if it wants to make a continued commitment to the SSCC once the City's three -year contract expires. He recommended Council decide if it wants the City to manage the SSCC for the long -term and avoid the painful discussions that went on between all five cities that own the SSCC about the future of the SSCC a few years ago. Councilmember Zerby stated he thought the amount the City pays toward operating the SSCC is small. He expressed the City has a number of parks that residents take advantage of for recreational purposes but the City's senior residents are underserved when it comes to recreational opportunities. He stated the City is fortunate that the SSCC can be used for other purposes such as renting it out to corporations and other interest groups and it receives revenue from that. He then stated it makes the hair on the back of his neck stand up when people refer to the City's contribution to SSCC operations as a subsidy. He doesn't hear that the City is subsidizing its parks, roadways and so forth. He commented the SSCC could be viewed as a glorified picnic shelter. Councilmember Hotvet stated she thought the SSCC is finally taking hold and that it's part of the community. Councilmember Woodruff stated $30,000 was recently spent on the SSCC for a sign. Councilmember Zerby clarified $30,000 was invested in it. Woodruff stated Council needs to decide on the length of the lease it would like to sign. Councilmember Zerby stated he thought the City should continue to take a leadership role and manage the SSCC. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 25, 2011 Page 4 of 6 Councilmember Woodruff stated the topic of extending the contract should be put on a future agenda for discussion. Administrator Heck stated if Council wants the City to manage the SSCC on a longer term basis he suggested the other four cities be approached about that. There was ensuring discussion about the current financial system and other systems that are available. Councilmember Zerby suggested Council at some time discuss the possibility of purchasing and installing a new financial system. Mayor Lizee suggested Staff investigate what options there are and what the total costs of doing that would be. Councilmember Woodruff recommended Staff time be included in the costs. Woodruff asked if there are still funds in the Technology Fund to which Administrator Heck responded there are. Director DeJong stated there is about $90,000 in that Fund. Woodruff stated if it makes sense to purchase and install a new system the money can be found to do it even if it's not budgeted for, noting a budget is just numbers on a piece of paper. Councilmember Siakel asked if all cities track how staff spends it's time on tasks by partial hour or hour increments. She then asked why the City staff does that. Director DeJong stated that's been done for convenience in some areas but not all personnel track their time that way. DeJong noted that 100 percent of his time is allocated to Finance yet he spends a fair amount of his time working on other activities in the City. He stated there is no logical reason for explaining what's being done and lie can't defend it. Siakel asked if it's more cumbersome to do that. Administrator Heck explained that is done with Public Works employees so time spent on enterprise operations can be charged to enterprise budgets. Heck commented that his time could be allocated across multiple departments. Heck stated he and DeJong have discussed the possibility of merging general government and administration. Also trees could be merged into parks and recreation, and traffic control could be merged into streets. Councilmember Woodruff stated that there is not always a direct connection between tasks and departments. For example, on the priority- driven budget document the newsletter is listed under communications but there isn't a communications department. Administrator Heck explained that is under general government. Woodruff stated it maybe helpful to note that the newsletter is under general government and that the web designer doesn't report any of her time to the newsletter but rather to general government. Someone has decided she spends 0.4 of her time on the newsletter yet the financial system doesn't track the newsletter. Expenses for newsletter related things such as postage are tracked in the system. Woodruff commented he didn't think much would be lost by combining administration and general government. Director DeJong stated elections could also be merged with those two areas. Woodruff agreed with that. Heck asked if there is a benefit to Council to track those areas separately. Woodruff stated he was the one that asked for communications to be broken out separately. Councilmember Zerby asked what the postage costs are for the newsletter. Administrator Heck stated he thought the monthly cost is about $500 per month. Heck then stated the majority of the newsletter related costs are for labor with the labor and expense costs being approximately $10,000. Councilmember Woodruff stated there is no environmental department yet environmental is a priority - driven program. He asked if the municipal buildings department included the Public Works facility. Administrator Heck responded some of the Public Works costs are in the Public Works budget. In response to a comment from Councilmember Zerby, Director DeJong explained that the City mows grass and plows snow for the public safety facility located in Shorewood. Councilmember Woodruff stated to the extent the City is providing a significant level of support for the infrastructure at the public safety facility, the City should be charging the other member cities for doing that; the City should not be eating that cost. Woodruff then stated he did not want to discuss the level of support this evening. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 25, 2011 Page 5 of 6 Director Brown explained when the police facility was located in the City of Excelsior, the Excelsior Public Works Department provided mowing and plowing services. Now that the facility is located in Shorewood, the City is taking its turn to provide that service. Woodruff stated he would like to discuss this at a future date. Councilmember Woodruff noted in 2010, personnel costs for elections were close to $40,000 yet only $15,832 is budgeted for 2012, while noting he was not going to press this issue any further. He expressed concern that the professional services adopted budget for 2011 is $199,000 and to date approximately $138,000 has been spent yet the 2012 budget is only $199,320. He questioned if the 2012 budget is sufficient. Administrator Heck explained that all of the assessing costs (approximately $96,000) have been paid for this year. Woodruff stated the 2012 municipal buildings budget reflects costs for things such as the copier and printer expenses. He thought those items should be taken out of the Technology Fund. Administrator Heck explained those costs are for the maintenance agreements on the copier and printer. Councilmember Zerby stated the 2011 municipal buildings budget doesn't include anything for transfers in 2012 yet there was approximately $160,000 in actual transfers in 2010 and there is approximately $104,000 budget for 2012. He asked why. Director DeJong explained the transfer is for debt service payment for the City Hall renovation and that can only be spent out of one place and that is the Debt Service Fl ad. Money is transferred from the General Fund to the Debt Service Fund and the bond payment is made from there. The 2012 budget reflects what should happen. The 2011 budget has a fine item for EDA debt service in the amount of $103,950 and the 2012 budget has a transfer for that amount. There was agreement that the high level General Fund budget high level document has an error in it that needs to be corrected. In response to a comment from Councilmember Woodruff, Administrator Heck explained the 2012 budget reflects that the City is responsible for 50 percent of the operating costs for police. The 2012 — 2016 funding formula has been revised such that the City will only be responsible for only 48.49 percent. Therefore, the 2012 budget for police services will be adjusted down. Councilmember Woodruff stated it appears to him that there is a labor allocation problem for the City Engineer. Administrator Heck stated he believes he has heard two conflicting directions from Council regarding allocation of labor costs. The break out of some labor costs to various departments has been questioned and it has also been requested. He then stated if a person is spending all of their time on General Fund operations there is probably no need to break out their costs by department in the General Fund. But, if they spend time on enterprise operations their time should be broken out. Councilmember Woodruff expressed concern that if all General Fund labor was allocated to two Line items (Public Works and other) it would be difficult to determine how much labor costs for things such as planning. Heck clarified that for Director Nielsen all of his time would be charged to planning; today 10 percent of his time is charged to protective inspections. Councilmember Woodruff stated the costs for enterprise operations have to be kept separate from General Fund operations because enterprise operations are separate businesses. Director DeJong stated the full salaries could be budgeted for in the General Fund. Employees could continue to code their time to either General Fund operations or to the various enterprise operations. A transfer could be made from an enterprise fund to the General Fund to make it whole. He noted that whatever the allocation is it's going to be wrong at the end of the year. The challenge is to make sure the CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 25, 2011 Page 6 of 6 General Fund budget doesn't fall short because of the allocations. If more time is spent on General Fund operations than has been allocated for then the General Fund will have a deficit. Councilmember Siakel stated the 2012 City Council budget includes a $7,500 contribution to the Excelsior — South Lake Chamber of Commerce for the Fourth of July event. She explained she agreed to increase the 2011 contribution to $7,500 because she thought the City's contribution in previous years had been too small and she wanted to make up for that. She suggested the 2012 budget be reduced to $5,000. Councilmember Woodruff stated he would support reducing it to $5,000 or even less. Councilmember Zerby stated at some point he would like to see a formula applied for determining how the South Lake cities should fund the fireworks; something similar to a joint powers agreement. Councilmember Hotvet stated she thought this has been a good initial step toward a priority -driven budget process. She thought the priority -drive programs identified were good. Administrator heck stated he and Director DeJong will meet with staff and come back with recommendations for the General Fund balance. They will adjust the budget to accommodate the possibility of new financial system software. They will prepare recommendations for allocating labor to the enterprise funds. They will prepare examples of what the budget will look like if some of the General Fund departments are merged. A discussion about management of Southshore Community Center operations will be placed on a future agenda. For the next meeting, he asked Council to give thought to upcoming labor union negotiations. Mayor Lizee requested the budget process stay on schedule. Director DeJong suggested South Lake Minnetonka Police Department (SLMPD) Chief Litsey be invited to the August 8, 2011, Council meeting to present the 2012 SLMPD Operating Budget. 3. ADJOURN Woodruff moved, Zerby seconded, Adjourning the City Council Work Session of July 25, 2011, at 7:02 P.M. Motion passed 510. RESPECTFULLY SUBMITTED Christine Freeman, Recorder ( I � �, L,��_ Christine Lizee, Mayor