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07-09-12 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, JULY 9, 2012 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION Mayor Liz6e called the meeting to order at 6:16 P.M 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:15 P.M. A. Roll Call Present. Mayor Liz6e; Councilmembers Hotvet, Siakel, Woodruff and Zerby; Interim Administrator Joynes; Finance Director DeJong; Planning Director Nielsen; Director of Public Works Brown; and Engineer Landini Absent: None B. Review Agenda Zerby moved, Siakel seconded, approving the agenda as presented. Motion passed 5/0. 2. 2013 BUDGET DISCUSSION Director DeJong noted the City is not under levy limits for 2013. Therefore, there is no restriction on the amount of increase or decrease Council can make on the current approximate $4.76 million levy. No levy limits gives Council a little more flexibility than it has had in the previous few years. DeJong explained this high - level, preliminary 2013 Operating Fund Budget (the Budget) reflects minimal changes to the revenue side. Staff has increased fine revenue by $2,500. To date in 2012 revenues have been coming in higher than in the past few years. If the past they have been around $4,000 a month. So far this year they have been about $5,000 per month. Revenue from interest earnings has been decreased to $35,000 from the adopted 2012 budgeted amount of $45,000. Interest rates are lower than they were at this same time in 2011. He noted that he recently read something that indicated interest rates are projected to remain at the current low level until sometime in 2015. DeJong reviewed changes to the expense side of the Budget. For the last few years the Council budget has included a contingency line item in its budget for performance pay increases. The Budget includes $20,000 for that and that represents close to 2 percent of the current budget for non -union wages. That amount could be low when benefit increases are factored in. The Council budget also includes a $5,000 donation to the South Lake - Excelsior Chamber of Commerce for its Fourth of July celebration. It is the same amount as the actual 2012 donation. Earlier in the year the City settled on a contract for 2012 — 2013 with Local 224, Council 5, of the American Federation of State, County and Municipal Employees (AFSCME), AFL -CIO labor union (the union representing the City's Public Works employees). The contract reflects a 2 percent increase in 2012 and a 1 percent increase in 2013. The contract also reflects an increase in the contribution the City CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 9, 2012 Page 2 of 5 makes for the health benefits for those employees. The contribution was $850 in 2011, and it will be $875 in 2012 and $900 in 2013. The Budget reflects a fairly substantial increase in transfers. The SSCC budget was increased from approximately $35,000 to approximately $60,000 to cover the increase in staffing cost approved by Council in January 2012. The 2013 transfer was increased to approximately $40,000. The 2012 amount was approximately $13,000. The SSCC budget needs to be reviewed in detail to determine what amount needs to be contributed to SSCC operations to sustain programming. The SSCC has an independent fund; a special revenue fund. SSCC operations are funded both revenues it generates and some level of General Fund subsidy or support to fully fund SSCC operations. The 2012 Administration budget reflects the effects of having a general and local election in 2012. Those have been adjusted out of the 2013 budget. The City has not yet received final numbers from the South Lake Minnetonka Police Department (SLMPD) or Excelsior Fire District (FED) for their 2013 budgets. Therefore, the City's Budget reflects the preliminary budget increase amounts for those agencies. The increases reflect the increase in the cost of operations for the agencies. The Streets budget reflects the planned increase in the transfer amount for street reconstruction of 3 percent. To keep up with the amount of roadway maintenance needed to keep the City's roadways in good repair there was consensus in 2011 to plan for that level of increase. The intent is to make the fund for Street Reconstruction self - supporting over the long term, and in order to accomplish that additional resources are needed. There is a modest change in the expense budgets for the other departments. DeJong asked Council if there are any revenue line items it would like to increase. If so, some of them would require an increase in fees through either resolution or ordinance amendment. He then asked Council if there are programs or activities in the General Fund that Council would like to be reduced / eliminated or added. DeJong explained the copy of the preliminary Budget included in the meeting packets reflects the changes he just reviewed plus a general increase equal to the rate of inflation which is equal to 1.7 percent. When looking at that on an overall basis in order to balance the Budget based on where the City is today an approximate 3 percent increase in the property tax levy would be required without any other changes. If adjustments in the General Fund could be kept to approximately 1 percent rather than 1.7 percent the overall levy increase would be around 1.8 percent. The Budget does not include decreasing the amount of General Fund reserves used. For 2012 $87,000 was budgeted. That is the amount included in this preliminary Budget. Any reduction in the amount of reserves used would result in an increase in the levy or other revenue increases in order to balance the Budget. Mayor Lizde stated Council has the opportunity to raise the levy if it wants. This is something it has not been able to do for a few years. She asked Council if it would like to add projects /programs or reduce the priority of projects /programs. Councilmember Zerby noted that he would like to keep Council's tradition over the last few years of keeping the levy increase close to zero. He stated if Council wants to balance the budget with close to a zero percent increase he asked Director DeJong to comment on cuts he would recommend making without severely impacting operations. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 9, 2012 Page 3 of 5 Director DeJong explained the primary driver of the change in the General Fund budget is an increase in staff compensation. He stated reducing that would have a huge impact on the General Fund. One thing that could be considered is a reduction in internal supplies, noting the City is dependent on a number of outside vendors for that. Unfortunately, it is likely there will be a number of increases in supply costs. If supply costs increase and a zero percent increase in the Budget is the objective then there will likely have to be reductions in staffing. Councilmember Zerby stated it looks like the budgeted expenditures exceed revenues by about $200,000. A reduction in Compensation increases will not solve that. Director DeJong explained the amount of change in the bottom line of the Budget is approximately a negative $147,000. He noted that an approximate $87,000 deficit is budgeted, and it was done intentionally. That was done because every expenditure budgeted for will not be spent in 2013 based on history. He stated that some line items will end up being over budget but it varies from year to year. Not much effort has been spent on determining which individual line items were over budget in 2011. Staff is just trying to recognize some variation on an annual basis. Actual spending can vary based on weather conditions for example. Variations are difficult for Staff to predict. Councilmember Zerby stated it is his recollection that there is more budget history available. He thought there was a 4 — 5 year comparison in the past. The 2013 Budget report only reflects the adopted 2012 budget amounts and the amount requested for 2013. Director DeJong explained that he specifically reduced the number of years of history for this preliminary Budget discussion. The Budget report Council will discuss during its July 23, 2012, work session will include more history and detail on a department basis. The intent this evening was to discuss the Budget on a broad level. He stated budget discussions with department heads have begun. Those should be completed and that information should be available for the July 23` meeting. Councilmember Siakel stated she would also like to be provided with more detail and historical information. She then stated she agrees with Councilmember Zerby's suggestion to keep the levy increase for 2013 close to zero. She recommended reviewing the budget in more detail to determine how to possibly achieve that. Councilmember Hotvet stated she thought the Budget is fairly reflective of the current economic times. She commented that costs for most things seem to be increasing. She stated she thought it would be helpful to review the Budget in more detail. She questioned if there may be a more creative way to increase investment earnings. Councilmember Siakel asked Director DeJong why he decreased revenue from interest earnings by $10,000 when compared to the 2012 adopted budget. DeJong stated the 2013 budgeted amount is reflective of what the City is currently earning and what was earned in 2011. He indicated he believes the City will earn less in interest in 2012 than the $45,000 budgeted. He noted that interest rates have continued to drop down over the last two years and he anticipated they would have gone up. In the last two weeks there has been the lowest 10 -Year T -Bill rats ever recorded. He stated this line item could be increased later in 2012 if there is evidence that it would be prudent to do so. He noted he has tried to use his best professional judgment. Councilmember Hotvet stated she would like there to be a more creative approach to the SSCC budget. She recommended there be a hearty discussion about it. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 9, 2012 Page 4 of 5 Director DeJong noted the City has committed to ruining SSCC operations through 2012. He stated that Mayor Liz6e has made it clear that she would like the other SSCC member cities to help fund the operations. Mayor Liz6e stated the City has kept the SSCC operating for the last few years, and the other member cities supported continued operations. Now is the time for the other member cities to contribute to the SSCC operations in order to keep it going. Councilmember Woodruff stated he does not have enough budget information to draw any conclusions about the Budget. Council has not been provided with any information about 2011 actual expenditures and therefore there is no way to know what fund balance resources are actually available. Forecasts for 2012 have not been provided either. That information is critical. He then stated he would also like to hold the line on the levy at least through the initial part of the budget process. He asked Staff to clearly explain to Council what the ramifications of doing that will be and then Council can assess the ramifications. He noted he is not concerned about there being a budget deficit because there are sufficient General Fund reserves to cover that while still maintaining the level of reserves stipulated in the General Fund Balance Policy. Woodruff then stated the 2012 Budget includes a revenue line item titled Transfer from Enterprise Fund in the amount of $40,000. But, it is not included in 2013. He asked Director DeJong if it is from cellular revenues. DeJong stated it is from revenues received from renting water tower space to cellular providers and it is based on Council discussion in 2012. DeJong then explained that $40,000 transfer into the General Fund used to come from the fund for liquor operations. Woodruff suggested Council discuss all of the fund balances during its July 23` work session. It should include what the projections were for 2011, the actuais for 2011, the budgeted amounts for 2012 and the year -end projections for 2012. Woodruff stated prior to 2012 all revenue from cellular rentals had been going into the Water Fund. For 2012 a decision was made to transfer $40,000 out of the revenue into the General Fund. The revenue earned from cellular rentals is much more than $40,000. The balance in the Water Fund is at a point where he does not think there is a need to build reserves in that Fund. He suggested considering transferring more revenue from cellular rentals into the General Fund, noting he did not think doing that would negatively impact anything. Director DeJong stated based on just preliminary 2013 budget information for police and fire, those increases will amount to approximately $60,000. He asked if Council wants to consider a decrease of that amount in the rest of the General Fund operations. Councilmember Woodruff stated he does not know and he would not say so. He noted the City has to share in the operating expense increase for those public safety agencies. To do that the City could consider increasing revenues which could be difficult or impossible to do at this time, it could reduce funding of other programs and activities, or it could increase the use of General Fund reserves. He noted he understands the concern about funding General Fund operations with one -time revenue sources. He stated General Fund reserves were funded by the levy on taxpayers over the years. He noted that it makes no sense to continue to build reserve dollars. The reserves ought to be given back to the taxpayers in the form of controlling the levy. He commented that he thought the City had been building the level of reserves for a number of years. CITY OF SDOREWOOD WORK SESSION MEETING MINUTES July 9, 2012 Page 5 of 5 Councilmember Zerby stated he can support possibly using reserves again if need be. He cautioned against kicking the budgetary can down the road year after year by using reserves to balance the budget. Doing that makes it more difficult to reduce spending all at once. Councilmember Woodruff stated he thought it would be beneficial for Council and Staff to discuss how much risk is being pushed forward. He then stated the City has been managing expenses and using reserves for the last three budget cycles and this would be the fourth. Councilmember Siakel stated there needs to be a healthy balance between kicking the budgetary can too far down the road and using some reserves. But, in order to have a discussion about that Council needs to be provided with much more detail. Director DeJong stated that after having individual department budget discussions he assumes Staff will provide Council with an updated 20 -Year Financial Management Plan. Councilmember Siakel stated for the July 23` meeting she wants Council to be provided with a balance sheet of all funds. She noted Council has not been provided an updated one for a while. Mayor LizCe stated after Council is provided with more detail it will be better able to discuss various alternatives. She then stated the City kept the levy flat for a number of years. She noted there are increases that Council and Staff can't control such as police and fire. There is a cost of doing business. She stated it may be appropriate to consider a small increase in the levy if that is deemed what is needed. Mayor Lizee noted the next Council discussion about the 2013 Budget will occur during its July 23, 2012, work session. 3. ADJOURN Zerby moved, Woodruff seconded, Adjourning the City Council Work Session of July 9, 2012, at 6:49 P.M. Motion passed 5/0. RESPECTFULLY SUBMITTED Christine Freeman, Recorder ATTEST William S. City Administrator /Clerk Christine Liz6e, Mayor