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07-08-13 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, JULY 8, 2013 MINUTES CONVENE CITY COUNCIL WORK SESSION 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:30 P.M. Mayor Zerby called the meeting to order at 6:30 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Hotvet, Siakel, Sundberg, and Woodruff; Administrator Joynes; Finance Director DeJong; Planning Director Nielsen; and Director of Public Works Brown Absent: None B. Review Agenda Woodruff moved, Sandberg seconded, approving the agenda as presented. Motion passed 510. 2. 2014 BUDGET OVERVIEW Administrator Joynes stated during this kickoff meeting for the 2014 budget process he will provide a refresher of what was discussed during the Council and staff retreat held in March 2013, provide an overview of the current financial situation, and talk about the budget process. He noted staff is not prepared to make a recommendation on the 2014 General Fund Budget this evening. He stated he will also share some of the things that will influence the 2014 budget that are different than for 2013. Joynes displayed and explained slides he presented during the retreat. The slide showing the City's cash balance projection is based on the assumption that everything will continue as is. That means no tax increases, funding the purchases identified in the Capital Improvement Program (CIP), and performing routine functions. The City's bond rating (the quasi reputation of the City) may start to decline around 2015. There have been 31 municipalities or counties in Minnesota whose bond ratings have been downgraded during the last year. In Minnesota most municipalities and counties have generally had very strong bond ratings; however, we are seeing that the effects of the recession have resulted in the default on a couple of bond issues. Regarding the General Fund reserves, Joynes explained the City's General Fund Balance Policy stipulates maintaining a reserve level of 55 -60 percent of the upcoming year's operating budget expenditures. That will not be possible long -term without Council taking action to ensure the fund balance remains healthy. That was discussed during the retreat. Joynes explained there is discussion underway about increased requirements by regional and state regulatory agencies for additional stormwater management, pollutant removal, maintenance of holding ponds and record keeping. It's unknown what the requirements will actually be. Some of the requirements could be quite onerous. Those requirements will create a burden on the Stormwater Management Fund. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 8, 2013 Page 2 of 5 Therefore, the Fund needs to be bolstered. Staff is pursuing a stormwater rate study conducted in the next several months as recommended at the retreat. Regarding the Sewer Fund, Joynes explained the balance is relatively good in 2013. The projections show expenditures remain relatively even over time and the Fund balance declining. Around 2016 — 2017 expenditures exceed the amount in the Fund. Conducting a sewer rate study is in order to assist in determining what the sewer rate structure needs be to support operations. Regarding the Recycling Fund, Joynes stated the trends are the same. Joynes noted that staff has solicited quotes for rate studies for the enterprise fiords that are projected to enter deficit states from Northland Securities (the City's bond consultant) and Ehlers. Springsted has chosen not to submit a quote because it represents the City of Excelsior and the water and sewer issues could potentially cause a conflict. Joynes explained Council has approved construction this year of two trail segments identified in the Trail Implementation Plan and one that was not. It will consider authorizing feasibility studies for two segments during the meeting immediately following this work session. Those two segments are slated for construction during 2014. The balance in the Trail Construction Fund will not be sufficient to sustain executing the Plan. The last couple trail activities have been funded by transferring funds from the Community Infrastructure Fund into the Trail Construction Fund. Part of the balance in the Infrastructure Fund came from the sale of the City's liquor operations. Regarding the Southshore Community Center (SSCC), Joynes noted the City had to subsidize the operations for an amount of approximately $47,000. That is estimated to be the case for next year. Joynes explained the State of Minnesota has imposed a 3 percent levy limit on cities with populations of more than 2,500. That will affect Shorewood. The City will be able to levy $142,899 over what the City levied for 2013. He highlighted the budget increases for four agencies the City supports. The Lake Minnetonka Conservation District increase is 4.6 percent and it amounts to a minor amount of money for the City. The proposed budget increase for the South Lake Minnetonka Police Department is 3.4 percent and that would amount to about a $30,000 increase for the City. The expected budget increase for the League of Minnesota Cities is 3 percent. The current proposed budget increase for the Excelsior Fire District (EFD) is 2.8 percent. Based on funding formula for the EFD the City's contribution will be less in 2014 than it is in 2013. Joynes summarized actions taken since the March 2013 Council and staff retreat. They have or will affect some fund balances. ➢ Council directed the sale of the City -owned property located at 5795 Country Club Road. Within the next 10 days or so the house will be put on the market. During the retreat it was estimated the property would sell for about $250,000 and that continues to seem realistic. ➢ Director Nielsen and the Park Commission have been discussing the Park CIP and reducing the scope of the improvements to Badger Park and other parks. The reduction in funding for the Park CIP can help offset some of the other capital needs. ➢ The cost for the Smithtown Road (west) sidewalk is about $200,000 more than in the CIP. The cost for the Excelsior Boulevard Trail is about $136,000 more than in the CIP. ➢ During Council's June 24, 2013, meeting, Council approved the purchase of a street sweeper for a cost of approximately $178,000. That equipment was in constant need of repair. The CIP had the replacement slated for 2020. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July S, 2013 Page 3 of 5 ➢ The Legislature has eliminated sales tax for local governments. That will have a positive impact on the budget. Staff, along with police and fire personnel, is still trying to get clarity of what that means. ➢ The City will begin negotiations with Local 224, Council 5, of the American Federation of State, County and Municipal Employees, AFL -CIO labor union (the union representing the City's Public Works employees) in the next week or two. It's anticipated that there will be increases in health insurance costs. Staff will be meeting with outside resources later in the week to try and gain an understanding of what that might mean. ➢ Council has made a few decisions that have resulted in unbudgeted expenditures. For example, the purchase of speed awareness display signs. They do not add up to much money in entirety. Joynes reviewed items Council asked staff to do during the retreat. ➢ Put the City -owned property at 5795 Country Club Road on the market. Preparations for that are well under way. ➢ Assess what adjustments can be made to the CIP. Staff will review all scheduled purchases to make sure the timeframe is realistic. The City does not need any more surprises like the street sweeper. ➢ During the retreat Staff told Council that to maintain a level of General Fund reserves that is consistent with the General Fund Balance Policy of 55 percent 2 percent will need to be levied each year for the next 8 years. Staff wil I be recommending that. ➢ Conduct a rate study for the enterprise operations. The thought is to spread the rate increases over a several years. ➢ Identify options for using excess reserves in the Water Fund. Joynes noted that staff will have department budgets available to Council before its next budget work session on July 22. He stated that this evening staff would like Council to provide it with some sense of how it would like to approach the budget process and what types of information it would like to receive. Councilmember Sandberg asked what utility franchises the City has coming up for renewal. Administrator Joynes stated utilities and franchises are two different things. Franchises would be for electricity or gas. Director Brown stated the City does not have any coming up. Joynes stated they can be negotiated at the time of agreement renewal. That would not be possible for 2014. It would be possible to look at the stormwater, sewer, and recycling rates and the SSCC. Director Brown explained the Xcel Energy franchise agreement came due about 1.5 — 2 years ago and we were close to an agreement but there were some issues that did not get resolved. Councilmember Woodruff stated the City does not have a franchise agreement with anyone at this time. The agreement with Xcel was more of an administrative agreement; there were no dollars involved with that. He then stated if the City decides to levy a franchise fee on a public utility that simply gets passed along to the rate payers. From his vantage point, that becomes a tax. He noted he is not in favor of doing that because it hides the fact that the City is taxing the residents. He stated Xcel is collecting one fee at this time and that is for the undergrounding of power lines during the County Road 19 project. That will continue for a number of years to come. Administrator Joynes explained the City does have the ability to levy a franchise fee on utilities. The practice has been to identify that as a city franchise fee on a utility bill. There are 20 — 30 cities in Minnesota that do that. He noted the franchise fee is strictly a pass through fee. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 8, 2013 Page 4 of 5 Councilmember Sundberg stated she thought it prudent to look at all revenue options. Franchise fees are very common. She clarified that she does not want to hide anything. She stated utility companies are very willing to work with communities. They do value the good will of communities. Administrator Joynes stated staff will bring that back as an option. He then stated he thought there are limits on what the amount can be. Councilmember Woodruff stated if a 2 percent increase is built into the 2014 budget he wants staff to identify what that will be used for. He suggested staff identify items in the budget that Council could consider eliminating or reducing. He also suggested staff identify things that are not funded but important. That would help with understanding how to spend the extra approximate $40,000 (the 1 percent additional the City is allowed to levy above the 2 percent). Councilmember Siakel stated she is pleased to hear staff is going to conduct rate studies. The City should be charging appropriately for sewer and stormwater management. She stated the big questions she has regarding the 2014 budget have to do with the Park CIP and Public Works equipment replacement. She wants to know what really needs to be done at Badger Park in 2014; she wants a clear picture of the Park's future. She commented that she continues to believe there is an opportunity to tie that into the SSCC. She asked if there are major pieces of equipment that are scheduled for replacement in the Equipment Replacement CIP out past their useful life. Having that information would be helpful to her before she can make a decision about what to levy for 2014. Slaked then stated there is an agreed upon Trail Implementation Plan. She thought the two segments that were approved for construction this year are appropriate. She also thought the two being consider for 2014 should be followed through on. She suggested revisiting the Plan to make sure the Plan is financially feasible going forward. She then stated she believes public safety, police and fire, is very important. She recommended making the budgets for them a priority. She wants to know what they need not just what they can get by with. Councilmember Hotvet noted she agrees with lots of Councilmember Siakel's points. She stated she would like staff to share with Council what it thinks is important in order to maintain Shorewood the way it is. She suggested staff look at things creatively. Councilmember Woodruff explained the 2014 budget schedule indicates Council is not going to talk about CIP for the first time until October, noting that timeline is similar to previous years. By that time the General Fund budget will be done. In the past Council has targeted a transfer amount out of the General Fund to, for example, the Equipment Replacement Fund during discussions about the General Fund Budget without knowing what the CIP needs are. He stated it would be extremely helpful if staff could bring the General Fund and CIP discussions closer together. Mayor Zerby stated the budget timeline indicates the completed department budget worksheets were to be to Finance by July 3. He asked if that has happened. Director DeJong stated he has some of them back and those department budgets prepared. DeJong noted he will be prepared by the July 22 work session. Zerby noted that after seeing Administrator Joynes's slides he is somewhat concerned. He asked if staff has been told to consider reductions to their department budgets. DeJong explained staff has gone through a presentation on the work session items and they understand the situation. Zerby stated the CIP discussion needs to be moved up from October. It will make it challenging to certify the maximum levy by September 15 without having some sense of the entire budget (CIP and operating). CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 8, 2013 Page 5 of 5 He then stated rate studies have been discussed since March. The results of the studies are needed as soon as possible. He asked what is the anticipated timing of them. Administrator Joynes clarified this is not a one year fix. It will be discussed for the next couple of years. He then clarified he did not intend to create the impression that things are as dire as the slides may have portrayed. He stated if the Park CIP is downsized, if the City -owned property sells at a reasonable price and if there is some refreshment of the General Fund reserve that accomplishment would be good for this year. If the rate studies have to wait for a bit that is not a serious problem; a rats increase can go into effect anytime during the year. He noted the fix is a progressive process. Although the information presented on the slides may seem daunting, there is a solution. It will take Council making decisions. The key is to not affect the taxpayers with huge spikes and huge surprises. He noted the intent is to provide Council with a plan that provides for quality services to the residents of Shorewood that they fully expect. Councilmember Sandberg stated for the long -term she recommended the City pursue more sharing of public works services with other South Lake communities. She then stated the City needs to be looking for cost savings as much as revenue sources. Mayor Zerby concurred. Administrator Joynes noted this is a work in progress. 3. ADJOURN Woodruff moved, Siakel seconded, Adjourning the City Council Work Session of July 8, 2013, at 7:02 P.M. Motion passed 510. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: Jean Panchyshyn, City Clerk Sc4i Zerby, May ®r