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10-22-12 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, OCTOBER 22, 2012 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION Mayor Liz6e called the meeting to order at 6:00 P.M 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 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, Woodruff seconded, approving the agenda as presented. Motion passed 510. 2. 2013 ENTERPRISE BUDGETS AND CAPITAL IMPROVEMENT PLAN Interim Administrator Joynes explained the meeting packet contains copies of another version of the enterprise budgets and the 2013 — 2022 Capital Improvement Program (CIP). The format of the CIP has been changed to include a brief description of the capital projects. The packet includes budget data on the Southshore Community Center (SSCC). It also contains information about the four enterprise funds —the Water Fund, the Sewer Fund, the Recycling Fund and the Stormwater Management Fund. The four enterprise operations are funded for 2013. He noted a work session will be scheduled to discuss the total CIP after the first of the year along with a number of issues that need to be addressed with regard to funding the capital projects. That will be done in the framework of the long -tern Financial Management Plan (FMP). Joynes then explained the he met with Kristi Anderson, the SSCC program manager, the previous week in order to gain a better understanding of the financial situation for the SSCC for 2012. The 2012 budget includes a transfer from the General Fund into the SSCC fund in the amount of $13,600 to subsidize operations. As of today it appears it will be short by $14,000 — $15,000 by the end of 2012. That is despite the fact that he believes Ms. Anderson has put a fair amount of effort into trying to create new programs and tried to market the SSCC to the best of her ability given the circumstances. Joynes reviewed some options for the SSCC. He recommended Council discuss them after the first of the year. He explained a new SSCC business plan can be created. It is likely it will require some outside help. It may involve a new marketing strategy and maybe consideration of providing new services. Although the SSCC facility is nice, it does have some limitations in terms of visibility and parking. The SSCC could be considered an amenity that the City will have to subsidize; similar to parks and recreation. The SSCC will generate some revenue but not enough for it to be self- supporting. Another option is to make a concerted effort to encourage the other four cities who are co-owners with the City of the facility to contribute to SSCC operations and to the maintenance of the facility. That will be a tough CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 22, 2012 Page 2 of 7 road to go down as well a political road to go down. A persuasive argument needs to be developed over the next year. Residents in the other four cities also use the SSCC. The final option is to abandon the SSCC. He noted that he is does not recommend doing that because it is a useful and worthwhile facility. He stated lie thought it possible to secure resources at a reasonable cost or even for free (e.g. a graduate resource) to help prepare a business plan. Director DeJong noted a $13,600 transfer from the General Fund into the SSCC Fund is already budgeted for 2013. That may need to be increased based on decisions that will be made in the next few months. Interim Administrator Joynes noted the meeting packet contains a copy of the updated 20 -year Street Maintenance Plan. Mayor Lizde stated the SSCC is one of the greater assets the community has; an asset that has been forgotten about by the other four co- owners of the facility. Based on survey results the SSCC is viewed as an asset. She then stated there is a group at the SSCC who is discussing conducting a visioning series with the South Lake community and the five cities who co -own the facility. That would be done over the winter months. The outcome of those visioning sessions would be used to help develop a strategic plan. And, funding needs and approaches could be identified. Lizde then stated she thinks the City needs to continue its support of the SSCC. These last few years have been tough because of the economy, but things are changing. She recommending including the SSCC as part of the parks and recreation program. She stated if that was done money from the other four cities may come more easily and it would be easier to justify. Councilmember Siakel stated she thinks the SSCC should be viewed as an amenity. From day one she has indicated it is part of the parks and recreation culture. She then stated she likes the idea of conducting a visioning series. Some of the feedback from the survey was regarding the desire to age in place. With that goes providing amenities for seniors to use. A lot of seniors already use the SSCC and that could be expanded. She suggested taking more immediate action regarding the SSCC including a review of the contract with CRR (Community Ree Resources, Kristi Anderson principal). She noted that to date revenues are approximately half of what they were in 2011. She recommended reviewing the Cooperative Agreement between the five cities that own the SSCC. Maintenance is going to have to be done to the SSCC and that needs to be funded. She noted that she does not have a problem with the City subsidizing the SSCC because she views it as an asset and an amenity. She stated she thought utilization of the SSCC will likely increase as the population in the South Lake community changes. She recommended taking action to tighten up the SSCC's finances for 2013. Councilmember Woodruff stated in January 2012 the City entered into a new contract with CRR. At that time he expressed his concern about it being a pretty rich contract and one that creates little incentive for CRR to achieve the budget revenue numbers. The contract provides for a very healthy base that is earned by doing nothing more than just showing up, and a commission based on dollar one of revenue. He expressed his support for reassessing the contract. He stated he would like to have the four other cities participate with funding. He explained he was at the SSCC a few weeks ago for lunch and he spoke to a resident from another city who was surprised to find out that the city they live in was not participating. He stated from his perspective the other cities probably think the SSCC has value, but it is because it does not cost them anything. The question of value becomes real for the other cities when they are asked to pay money towards the SSCC. He stated about three years ago the then council was provided usage statistics broken down by city. He asked Staff to work with Ms. Anderson and prepare that information because it will be needed to make a case to the other four cities. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 22, 2012 Page 3 of 7 Councilmember Siakel stated the visioning series will help clarify what the SSCC means to people now and in the future. She clarified she does not expect the SSCC to make money, but it would be nice if it could break close to even. She stated she has no problem subsidizing it a little. But, it appears for 2012 there will be a big gap between where the SSCC's finances will end up and where they need to be. She then stated she would like to discuss a couple of things that could be done to close the gap for 2013. Councilmember Woodruff stated the goal for the last three years has been to try and break even with the understanding that is not easy to do. He noted it was close last year. He then noted another $32,000 is needed in addition to what is budgeted to breakeven in 2013 for a total of almost $46,000 as a subsidy. He also noted there is a $42,000 transfer from the General Fund to the Parks CIP each year. The contribution to the SSCC is higher than to the Parks CIP. Councilmember Siakel explained for 2012 the big issue is the drop in revenue from rentals. Year -to -date actual is approximately one -half of the 2011 total. At the same time class fees are up substantially when compared to 2011. She reiterated she is not expecting the SSCC to be a profit center. It is an amenity and something the City should support. Councilmember Zerby expressed his agreement that there is a need to reassess the contract with CRR. He suggested putting it out for a request for proposals at the beginning of the year to find out what the City's options are. He stated Ms. Anderson does not get paid just for showing up. She should be meeting the requirements of the job description. He does think the job description does need to be reviewed and better defined. Councilmember Woodruff clarified the contract describes her duties. Councilmember Woodruff stated if the City does not like the job Ms. Anderson is doing it can terminate its contract with CRR. But, until that is done she continues to be paid her base fee just for showing up. Councilmember Zerby stated the City has to take some responsibility for making sure Ms. Anderson is doing what she is supposed to be doing. He then stated he is not sure if the Parks and Recreation budget includes the cost of time spent by Public Works personnel. Therefore, he is not sure it is easy to make an apple to apple comparison between the SSCC and the Parks and Recreation subsidies. Councilmember Woodruff stated the SSCC 2013 budget includes a $14,000 line item for Maintenance of Buildings. That is close to twice as much as the most spent or budgeted in the last three years. He asked Director DeJong to comment on that. DeJong explained he is trying to work with Ms. Anderson to change how things are coded so expenses can be tracked better. Maintenance expenses are in three different line items. He noted there is a base maintenance contract, and there is additional cleaning that is part of programs. He explained those expenses are what are included in the Maintenance of Buildings line item. Woodruff stated he cannot see where other line items have been reduced to compensate for the approximate $7,000 increase in that line item. And, that $7,000 is about one -third of the $32,000 shortfall. DeJong stated he will attempt to refine the numbers for next time. Woodruff stated if there are significant, valid maintenance items then the City should talk to the other four cities about helping to fund them. Councilmember Zerby noted the information provided to Council indicates the water heater is scheduled to be replaced in 2016, the roof is scheduled to be re- shingled in 2017, the IIVAC system is scheduled for 2018, and painting and caulking are scheduled for 2012. Councilmember Hotvet stated many of her thoughts have already been mentioned. She recommended adding a maintenance agreement to the Cooperative Agreement and discussing upcoming maintenance costs with the other four cities. She expressed her agreement with working with the visioning group, while noting Council also has to work as elected officials. And, with being creative in finding ways to CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 22, 2012 Page 4 of 7 reduce costs. She stated the SSCC is not an event center; it is a public resource. She then stated she thought it would be wise to include it as part of parks and recreation. Councilmember Siakel asked why rentals are done so much. Director DeJong explained a person who used to rent the SSCC to host cooking classes had been so successful that she moved to her own space. Rental revenue and a portion of the participant fees have gone away. Cargill used to hold meetings at the SSCC; it is no longer doing so. He noted that in 2011 Council authorized the purchase of some new chairs in large part for that reason. Councilmember Hotvet stated Council has a unique opportunity to reevaluate things with the other South Lake Cities. Councilmember Siakel stated the Park Commission has been struggling with what to do with Badger Park. She suggested possibly looking at the SSCC and the Park together as a park and recreation center. She questioned if it may be better to collaborate with the other South Lake cities on this on a higher level With regard to the Water Budget, Director DeJong explained the rates have been covering the operating costs the last several years. He stated he recommends considering having utility bills in the owners names. There have been issues with renters leaving and not paying their utility bills, and then the owners saying it is not their responsibility. Yet, the only wait to collect on them is to certify them to Hennepin County and collect them as property taxes. He explained there are water bonds that could be refinanced. The City has been approached by a couple of different Financial advisers about potentially doing that. He asked Council to authorize Staff to proceed with that. He noted the City has used Northland Securities as its financial advisor. He explained that last time the City issued bonds was in 2008 and that was for the City Hall renovation. He asked Council if it wants to continue using Northland Securities or use another firm. He noted the bond rates are currently very attractive. Mayor Liz& noted that is very good advice. She stated the construction bonds for the public safety facilities were successfully refunded late in 2006. Northland Securities participated in that effort. She then stated the City has a good relationship with Northland Securities and it knows the financial history of the City. She suggested inquiring with Northland to find out if they can help the City. Councilmember Zerby supports refunding the bonds to get lower rates and using Northland Securities to do that. Councilmember Woodruff suggested retiring the bonds. He stated the funds in the Water Fund are virtually earning no interest. There is no place to use those fiords at this time. From his vantage point it will be more cost effective to retire the bonds, noting there would be significant refunding costs. He asked Staff to prepare a proposal to retire the bonds. Mayor Liz6e stated Northland Securities can be asked to give the City a proposal for refunding the bonds and retiring the bonds, and providing the pros and cons for each. Councilmember Woodruff stated he thought it is incumbent on Council to look at other financial firms as well periodically. Interim Administrator Joynes stated the City has been approached by at least three companies that do the same thing. He then stated Staff can invite the three firms to come before Council and give a brief five minute presentation. He noted that usually the refinance rate will be essentially the same. He stated the purpose of them coming before Council is to get an idea about how the City feels about them. He noted the City does not have a designated fiscal agent; many cities do. He also noted there is no rush to refund CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 22, 2012 Page 5 of 7 the bonds. He explained during the work session early next year there will be discussion about expanding the City's water system and water connection costs. If the Water Fund is used to retire the bonds that money is no longer available for expansion and subsidizing connections. Councilmember Woodruff stated it is his recollection that the bonds aren't callable until the second quarter of 2013. Therefore, there is no need to rush into a decision about this. Interim Administrator Joynes noted it would take two months to accomplish the refunding because of all of the things that are involved. Woodruff stated he does not want to rush into this until all of the options are known. Councilmember Siakel stated she would like to have information about the cost to refund the bonds and the impact of retiring the bonds. She noted that she does not have any experience with Northland Securities. She then stated she did not think there would be a downside to open it up to other firms as well. Interim Administrator Joynes stated the three firms that contacted the City are Ehlers, Springsted and Northland Securities. Each could explain their perspectives about refunding and retiring the bonds. Councilmember Woodruff stated the 2013Water Budget includes a $15,000 line item for water meters and that amount is three times as much as has been spent in the last three years. He asked Staff to comment on that. Director Brown explained in the Water Budget the line item Communications was increased because the goal is to go to an internet based system for control and monitoring of the City's water system. The City has gotten out of the practice of routinely pulling wells for inspection, and that routine needs to be restarted. Therefore, there is a significant increase in the Contractual line item. With regard to the water meters, past councils have been reluctant to replace the larger water meters with radio read meters. It chose to go after the lower cost meters which cost roughly $200. The larger meters, which are commercial and irrigation meters, range 1 — 3 inches in size and can cost $600 — $1,500. This would complete the water meter replacement project started a number of years ago. Councilmember Woodruff stated the Water Budget shows a surplus of approximately $8,000 for 2013. It also includes a $290,000 expense line item for depreciation. To him that means that about $300,000 is being put into Water Fund reserves in 2013. Director DeJong explained the budgets for the Enterprise Funds have to include a charge for depreciation in order to match up with the statements found in the City's financial report. When some of the infrastructure is replaced all that is really being done in the financial statement is exchanging one asset (cash) for another asset (a piece of equipment or replacement infrastructure) that gets depreciated over time. Therefore, the entire $290,000 will not be put into a cash reserve. It will depend on the amount of planned infrastructure in the CIP. Councilmember Woodruff agreed. DeJong then explained that because commercial water meters are expensive to replace it may be prudent to include something into the base water rate to build in a regular replacement charge for them. With regard to the Sanitary Sewer Budget, Director DeJong explained the City has been losing around $300,000 the last few years. The biggest reason for that is the dramatic increase in the Metropolitan Council Environmental Services (MCES) service charges a couple of years ago. It is about $200,000 higher than it was in 2010. Sewer interceptors were extended out to new areas where MCES anticipated a lot of housing construction but that hasn't happened. It had planned on collecting a lot of money to pay off its bonding costs through new connection fees. Instead, MCES changed its rates to collect enough money through its regular sewer charges to help pay off a portion of the bonds. At the end of 2011 there CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 22, 2012 Page 6 of 7 was a more than $3.5 million worth of cash on hand in the Sewer Fund. Council can chose to continue to spend that down or raise sewer rates on an annual basis. DeJong then explained that there has been discussion about using some portion of the Sewer Fund to help fund stormwater projects. In 2015 the Stormwater Management Fund starts to run out of money. The stormwater utility charge is a flat fee and it varies a little based on the lot size. The City also has a flat $70 per quarter sewer charge because about half the properties are served by well water and the City has no idea how much water they are using. There needs to be a balance between what is needed in the Sewer Fund and what the stormwater management needs are. He recommended a modest increase in the sewer utility rate to help fund the increase in the MCES sewer charges. Mayor Liz6e stated the sewer utility rate has not been increased for quite some time. She noted that she does not anticipate Met Council reversing the $200,000 annual increase in its sewer charges in the near future. She stated the City needs to be mindful of the stormwater management projects. She asked Council if it would be willing to increase the rate and find a formula to help ease in that increase. Councilmember Woodruff noted he is open to increasing the rate. He suggested doing a sewer rate study done after the first of the year. He then suggested transferring enough money out of the Sewer Fund and into the Stormwater Management Fund to make it whole for the next 4 — 5 years. He noted that a few years ago $1 million was taken out of the Sewer Fund and used to create the Community Infrastructure Fund. Councilmember Hotvet stated she supports doing a rate study. She would like it to include what the rates are for the surrounding communities. Director DeJong stated generally utility rate studies are looked at from a cost recovery perspective. Councilmember Woodruff stated lie would prefer to look at policy differences between the surrounding communities. He commented that when the water rates were adjusted the minimum rate was lowered. He stated there are people in the City who do not use the sewer system a lot, but if the flat rate is raised they will pay more. He expressed hope that it may be possible to have some type of tiered system. Councihnember Zerby noted it would be easier if all properties were connected to the municipal water system. That would provide water usage information that could be helped to estimate sewer system usage. With regard to the Recycling Budget, Director DeJong explained there was a modest increase in the recycling rate last year. The Recycling Fund basically breaks even. Therefore, no change in rates is recommended. Councilmember Woodruff stated he thought the recycling contract with Allied Waste is up in 2013. BD stated he thought it was in effect at least through the end of 2013. With regard to the Stormwater Management Budget, Director DeJong stated the irony of the Stormwater Management Fund on an accounting basis when the depreciation charges are factored in is it appears the Stormwater Management Fund is making a profit. But, because of the cost of capital projects cash is being traded out for new ponds and drainage ways much faster than the cash is being replenished with the quarterly utility fees. He noted this fund does need a cash infusion. He does not think there is a need for a rate change at this time. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 22,2012 Page 7 of 7 Councilmember Woodruff suggested Staff come back with a recommendation of where the additional subsidy (in excess of the $13,600 in the budget) to the SSCC will come from. Mayor Lizde asked Council if it had any comments about the projects in the CIP. Councilmember Woodruff thanked Staff for including a brief description of each of the various projects. He stated that CIP Park Project P0108 for Freeman Park — Eddy Station project detail shows a cost of $11,500 but the CIP shows $8,500. Director DeJong stated the project detail includes the HVAC system in 2022 and that is outside of the scope of the 10 -year CIP. Councilmember Woodruff stated the detail project description for Valleywood Circle and Valleywood Lane states it is a reclamation effort yet in the CIP it indicates it is for reconstruction. Director DeJong stated he will change that project description to reconstruction. 3. ADJOURN Woodruff moved, Hotvet seconded, Adjourning the City Council Work Session of October 22, 2012, at 6:54 P.M. Motion passed 5/0. RESPECTFULLY SUBMITTED Christine Freeman, Recorder Christine Lizee, Mayor S. Jones/ T *erim City Administrator /Clerk