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10-10-11 CC WS Mtg MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, OCTOBER 10, 2011 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 P.M. Mayor Liz& called the meeting to order at 6:00 P.M. A. Roll Call Present. Mayor Lizde; Councilmembers Hotvet, Siakel, Woodruff and Zerby; Administrator Heck; Finance Director DeJong; Director of Public Works Brown; and Engineer Landim Absent: None B. Review Agenda Zerby moved, Siakel seconded, approving the agenda as presented. Motion passed 510. 2. ENTERPRISE BUDGETS AND CAPITAL IMPROVEMENT PROGRAM Director DeJong stated the purpose for this meeting is to discuss the 2012 budgets for the City's four Enterprise Funds (Water, Sewer, Stormwater Management and Recycling) and the associated 10 -year Capital hnprovement Program (CIP) for each. The meeting packet contains copies of each of those documents. The Enterprise Funds are solely supported by revenues to the City's business operations. Ile noted that at the start of the meeting he distributed copies of a Financial Management Plan (IMP) through 2020 for those four Funds. He stated the budget documents show the actual revenues and expenditures for 2008 — 2010, 2011 budget amounts, 2011 year -to -date actual amounts, 2011 year -end projections, and 2012 preliminary budget amounts. The salary information was determined using 2011 actual amounts for each of Enterprise operation as a base. DeJong asked Council if it had any questions about the Water Fund preliminary budget. Councilmember " Zerby stated the FMPs reflect salaries will increase approximately 25 percent over a ten - year period. He asked Director DeJong to comment on that. DeJong explained that is based on the salary and benefit inflation factor of 2 percent beginning in 2012, noting there is a compounding effect in 2013- 2020. That same inflation factor was used for all expenses starting in 2012 and for revenues starting in 2013. The budget projections for 2012 and forward assume the City will do exactly the same things; baseline services will not change. In response to a question from Councilmember Woodruff, Director DeJong explained with the exception of the Recycling budget the Enterprise budgets include an expense tine item for depreciation. For financial reporting the Enterprise Funds have to be run like a business and they are therefore on full accrual accounting. That means the capital outlay (the cash spent on assets for projects) is not expensed. That capital expense is depreciated over the expected life of the asset. The IMP does not include a line item for depreciation. It does include capital outlay. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 10, 2011 . Page 2 of 5 Councilmember Woodruff stated the amounts for debt service in the Water Fund are not the same in the budget and the FMP. For example, the bond principal amount for in the 2012 budget is $295,000 and in the FMP it's $175,000. Director DeJong stated the amount in the FMP is accurate and he noted he will correct that. Director DeJong noted there may be a need to construct a new water treatment plant in 2012 and that is not reflected in any of the Water operations documents. He stated if the assumption is made to raise the water utility rates by some inflationary amount there will continue to be a very significant balance in the Water Fund. The balance would be much greater than what is needed on a cash flow basis. He asked Council how it wants to manage that. He stated based on the amount of money in the balance he is reluctant to recommend increasing the rates at this time unless other projects are identified that must be done. Mayor Lizee suggested leaving the balance alone at least until Council has its discussion about the City's water connection fee during its November 14 "' work session. Councilmember Siakel agreed with that. In response to a comment by Councilmember Zerby, Director Brown explained the water main extension projects listed in the Water Fund CIP are associated with roadway reconstruction projects proposed for 2012-2015. In response to a question from Zerby, Director DeJong explained revenues from potential water connection fees have not been factored into the Water Fund budget or the FMP. Projects can be funded without that source of revenue. He noted the last few years there have only been a few people who connected to City water. Councilmember Woodruff commented that he is comfortable with applying a 2 percent inflationary factor for revenues in 2013. He stated he thought a small portion of the salaries are being double counted. They are in the Enterprise Fund budgets and in the General Fund Budget. Because the amounts are small he indicated he did not think the budgets should be changed. Councilmember Siakel asked when the water utility rates were last changed. Director DeJong responded in 2009 based on a water study that was done. Administrator Heck stated the rates were adjusted to encourage water conservation, noting the base water usage rate went down and higher usage rates went up. DeJong stated it's difficult to determine if water usage went down because of the adjusted rates or if it was because there was more rain. DeJong then stated at the end of 2011 it should be possible to better assess the impact of the adjustments in rates. Councilmember Woodruff stated there isn't enough data to make a rate decision at this time. Siakel noted there are not a lot of water system related capital improvement projects planned Councilmember Woodruff asked Director Brown to comment on the Radio /ISP Communications System projects planned for 2012 and 2013. Brown stated he should have labeled the project a Superior Control and Data Acquisition (SCADA) System. Brown explained there are five lift stations that are on the web based SCADA System. He stated he is very pleased with that system. He explained that on October 7`' there were two power outages at the sanitary sewer system lift stations on the islands. In the past Public Works employees would have had to drive out to the lift stations on the islands to determine what happened. With the SCADA System they were able to determine it was caused by a power blip without ever having to leave the Public Works facility. They were able to monitor the water levels from the facility. The SCADA System probably saved about four hours of time. The plan is to use the SCADA System for the City's water system as well. In 2011 the SCADA System is planned for the water system but it's most likely it will be completed and invoiced in 2012. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 10, 2011 Page 3 of 5 Councilmember Zerby stated he thought the Water Fund budget was prepared well. But, it appears as if there is some policy woven into the budget. For example, there is not a policy to raise the water utility rate every year yet 2 percent inflationary factor was included in the budget. Also, there is nothing budgeted for water connection fees. Director DeJong stated Staff is open to presenting the budget however Council wants to see it. He then stated part of the State of Minnesota's problem is its budgets have been assuming an increase in revenues but no increase in expenditures until it has actually negotiated labor contracts. Councilmember Zerby stated he would prefer to keep water rates as they are because of the substantial cash balance in the Water Fund. Director DeJong noted the consumer price index inflation is about 1.7 percent right now. The implicit price deflator (the official inflation 'factor the State used for levy limits for a number of years) is over 3 percent. He stated that what ever the project costs are predicted to be they will be wrong. The projections are to give Council a general idea of what may happen. With regard to the Sewer budget and CIP, Director DeJong stated there isn't much scheduled for replacement. In years 2012 — 2021 of the CIP $70,000 has been budgeted for Infiltration and Inflow reduction. The amount is based on the televising that has been done in the past. There are not any capital projects included in the CIP after 2013. The FMP for the Sewer Fund indicates the cash balance will be much greater than what is needed on a cash flow basis (about $600,000 is needed for that). Therefore, some of the Sewer Fund balance (up to $1.4 million) could potentially be used to fund Stormwater Management projects or other activities. Starting in 2014 the Stormwater Management Fund will enter into a deficit state. Director DeJong explained the City charges a flat sewer utility rate of $70 per quarter for residential properties. The City's stormwater utility rate is close to a flat and it varies some based on the size of the lot. The same residents are paying for both the sewer utility and the stormwater management utility. Therefore, he would feel comfortable using some of the Sewer Fund balance for stormwater management projects. Council and Staff have talked about the possibility of bonding for such projects. The City could issue GO Stormwater Utility Revenue Bonds and pay for them over time. Mayor Liz6e stated that historically the City has used funds from the Sewer Fund for non -sewer related projects. Councilmember Woodruff clarified in 2009 $1 million from the Sewer Fund was used to create a Community Infrastructure Fund. Prior to that funds were borrowed, and paid back, from Sewer Fund to purchase the City -owned house. Councilmember Woodruff stated the City has the financial wherewithal to internally finance stormwater management projects from the Sewer Fund. There is no need to jockey the stormwater utility rates. He does not think there is any need to bond for projects at this time. Using internal money is cheaper than bonding. Director DeJong stated the City has kept the option of bonding open. Councilmember Zerby stated he is open to using some of the Sewer Fund balance for stormwater management projects. He then stated Council needs to exercise caution about using too much of the Sewer Fund because the FMPs for the Sewer Fund and the Stormwater Management Fund show that by 2020 the combined fund balance of those two funds will only be approximately $700,000. Each year starting in 2013 revenues exceed expenses for both funds. He noted at some point there will need to be a rate increases to reverse that trend. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 10, 2011 Page 4 of 5 Director DeJong stated the additional stormwater utility projects that are planned could result in additional maintenance demand on the Public Works Department. Some of that maintenance work may have to be contracted out. Councilmember Woodruff stated he's comfortable with the numbers in the FMPs knowing funds could be transferred from the Sewer Fund to the Stormwater Management Fund and both funds would be healthy for a long time. Councilmember Siakel asked what the proposed 2013 Valleywood Circle and Lane Drainage project will entail. Director Brown stated that project, like some of the other stormwater management projects, are associated with roadway reconstruction projects. When the roadway is rebuilt catch basins, storm sewer structures and ponding facilities are added. Director DeJong noted the meeting packet contains a document titled 20 Year Storm Sewer Program Total Cost and it includes storm sewer project costs for projects that are proposed to be done as part of road reconstruction projects. The estimates are subject to feasibility reports being done for the reconstruction projects. Councilmember Woodruff stated reconstructing those roadways is just an assumption and it's the most expensive assumption. It's possible those roadways proposed for reconstruction could be reclaimed instead and that would result in the costs for the storm sewer improvements that would be done as part of those projects being lower. Director Brown noted that Director DeJong has given Council the opportunity to keep all options open. With regard to the Recycling Fund, Director DeJong explained there are no capital related expenditures. The current recycling rates do not cover the costs of the recycling programs. It's not a question of if the rates should be raised; it's a question of when they should be raised. The costs for the program are level. The time to implement a rate increase could be when the recycling contract is renegotiated. Administrator Heck noted the City entered into a 5 -year contract for recycling services effective the beginning of 2010. Councilmember Woodruff stated he likes that the 2012 Recycling Fund budget programs $6,000 in revenues in City Clean -up Fees. He then stated no revenues are forecast for the remainder of the budget forecast. Director DeJong stated the Recycling Fund budget show the revenues from and expenses for the City's clean -up program. The expenses are included in miscellaneous services. It just wasn't extended out. Director DeJong noted that it costs the City money each year to sponsor the clean-up program. The fees generated do not cover the cost. Councilmember Siakel stated it seems to her that if the City has to raise recycling rates it would be nominal. Director DeJong responded that the City has approximately 2,500 residential recycling accounts. If the residential recycling rate were raised $0.50 per quarter that $5,000 in additional revenues would go a long way towards balancing the 2012 Recycling Budget. Siakel stated she used 2,600 accounts and a $2 a year rate increase should balance the budget, and she thought it makes sense to raise the annual rate by $2. Councilmember Woodruff stated the City is in the second year of the five -year contract. Therefore, the 2 percent inflation factor should not be applied for contractual services for 2012 — 2014. Administrator Heck stated he thought there is a small adjustment in the fourth or fifth year of the contract. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 10, 2011 Page 5 of 5 Councilmember lerby stated the Recycling fund FMP reflects the County Recycling Aid will stay flat Director DeJong noted that the Recycling Fund budget does not include anything for organics recycling should the City decide to offer that service City -wide. Councilmember Woodruff stated if the City decided to offer that at the end of the pilot program he assumes is will be a breakeven program. Administrator Heck stated Council needs to discuss if it wants to pursue other options for solid waste collection. Staff is still gathering data for that. With regard to the Stormwater Management Fund, Director DeJong noted there is a lot of stormwater management projects proposed and there is not much funding for them. He explained the FMP for this Fund reflects it will have a deficit of more than $1.2 million at the end of 2020. The Fund enters into a deficit state in 2014 and never comes out of it. Earlier in this discussion Council discussed the possibility of transferring funds from the Sewer Fund into the Stormwater Management Fund. If Council wants to do that he will adjust the two FMPs to reflect that. He noted that many of the stormwater management projects are mandated by the National Pollution Discharge Elimination System (NPDES) standards. He also noted this year the City did a number of projects that were not included in the Stornwater Management Fund CIP. Those projects needed to be done. That could happen again in future years. Director Brown stated Engineer Landini and he are discussing the Minnesota Pollution Control Agency (MPCA) requirements on electronic record keeping. The MPCA has more than highly recommended moving to that in its management letter. The CIP doesn't have anything budgeted for that because Staff has not had the time to evaluate all of the options. Councilmember Woodruff thanked Director DeJong for providing Council with copies of the FMPs for the Enterprise Funds. Mayor Liz6e thanked Staff for its efforts. 3. ADJOURN Woodruff moved, Siakel seconded, Adjourning the City Council Work Session of October 10, 2011, at 6:59 P.M. Motion passed 5/0. RESPECTFULLY SUBMITTED Christine Freeman, Recorder s ® ATTEST Christine Liz6e, Mayor �'`� Bri" eck, Cj AAministrator /Clerk ./'^