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07-22-13 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, JULY 22, 2013 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 P.M. Mayor Zerby called the meeting to order at 6:02 P.M. A. Roll Call Present: Mayor Zerby; Councihnembers Hotvet, Siakel, Sandberg (arrived at 6:03 P.M.), and Woodruff; Administrator Joynes; City Clerk Panchyshyn; Finance Director DeJong; Planning Director Nielsen; Director of Public Works Brown; and City Engineer Homby Absent: None B. Review Agenda Hotvet moved, Woodruff seconded, approving the agenda as presented. Motion passed 4/0. 2. 2014 BUDGET — GENERAL FUNDS DEPARTMENTS DISCUSSION Mayor Zerby noted the meeting packet contains a copy of a budget overview memorandum from Administrator Joynes and Director DeJong as well as copies of the draft 2014 General Fund Budget and the department budgets. Administrator Joynes explained the City's tax increase from 2009 — 2013 has been relatively flat. The total levy increase was $59,951 (a 1.27 percent increase over five years with an average increase of 0.25 percent). There was no increase the last three years while expenditures continued to increase. The General Fund Budget was balanced by cost reductions, transfers into the General Fund from other funding sources (e.g., cellular antennae revenue was used in 2014 to help balance the budget), and through the use of General Fund reserves. In 2013 the City used $102,848 of reserves. For a number of years the balance in the General Fund had exceeded the level set in the City's General Fund Balance Policy. During the Council and staff retreat in March 2013 there was discussion about how to approach the 2014 General Fund Budget with a full understanding that there were deficiencies in some of the other funds when projected out over the next eight years. There was general consensus to do the following: 1) increase the levy by 1.5 — 2.0 percent to stabilize the level of General Fund reserves at the adopted Policy level of 55 — 60 percent (that is not an issue for 2014 but will become an issue in subsequent years as transfers are made out of the reserves); 2) conduct rate studies for at least some of the City's Enterprise Operations (recycling, sewer, stonnwater management and water) to determine what rates are necessary to maintain the needed balance in each of the Enterprise Funds; 3) sell the City -owned property located at 5795 Country Club Road (preparation for that is in progress) and apply the proceeds to the fund that Council deems appropriate (it's estimated that after everything is charged out the proceeds would be about $250,000); 4) revisit assumptions in the Capital Improvement Program (CIP) with particular focus on the Park CEP improvements at Badger Park; and, 5) the potential use of Water Fund reserves. The State Legislature has imposed a levy limit of 3 percent for 2014 for municipalities with populations over 2,500. A 3 percent levy increase for the City over the 2013 levy would mean an additional $142,299 CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 22, 2013 Page 2 of 6 in tax revenue. There are exceptions to the levy limit. The City generally includes debt levies in its general levy; state law allows those to be separated out. For the City that means it has an additional allowable levy amount of $645,950 (a 13.6 percent levy increase above the 3 percent), available ($103,950 for City Hall; $245,000 for police; and $297,000 for fire). Therefore, the levy limit is not a limiting factor for the City. The assumption used for 2014 is there is a zero percent levy increase over 2013. The department budgets reflect the same staffing levels and the same service levels as in 2013. The draft 2014 General Fund Budget includes a salary and benefit reserve of $43,000 for non -union and union personnel. The City is currently in negotiations with AFSCME and non -union salaries have not been established. The South Lake Minnetonka Police Department (SLMPD) will be starting negotiations with the union representing the majority of its personnel. It has a salary reserve in its draft budget. Councilmember Siakel noted for 2014 it appears that the City's portion of the municipal contribution to the Excelsior Fire District (ETD) for operations will actually decrease when compared to its 2013 contribution. Administrator Joynes stated that will be adjusted accordingly to be in sync with the most recent FED 2014 draft budget documents. Councilmember Woodruff asked if the $45,000 budgeted for aquatic invasive species (AIS) watercraft inspections will be neutralized by offsetting revenues. Director DeJong noted the overview memorandum explains the 2014 General Fund Budget includes $22,500 in reimbursement revenue and $22,500 in grant revenue from the Minnehaha Creek Watershed District (_MCWD). Administrator Joynes cautioned that continuation of that grant for future years will be up for discussion at the MCWD. Administrator Joynes noted that he has indications that one of the SLMPD member cities may not approve the SLMPD's 2014 Operating Budget that was recommended by three of the four members of the SLMPD Coordinating Committee. The SLMPD 2014 Operating Budget was more controversial this year than in previous years. He then noted that SLMPD Chief Litsey will make a budget presentation to Council on August 12. He explained if all four member cities do not approve the SLMPD budget the SLMPD joint powers agreement (JPA) contains a default provision for addressing the budget. Woodruff stated in the recommended SLMPD 2014 Operating Budget there is an Undesignated Allocation expense line item of $34,000. Woodruff noted he does not like that and he would like that to be taken out. Mayor Zerby (the City's representative to the SLMPD Coordinating Committee) stated he would explain that offline. Director DeJong explained that in 2012 the City subsidized the Southshore Community Center (SSCC) for an approximate amount of $60,000. For 2013 a subsidy of $47,700 was budgeted. The draft 2014 General Fund Budget includes a subsidy of $60,000. Administrator Joynes clarified that the SSCC would continue to operate the way it is based on what is budgeted for a subsidy. Administrator Joynes noted the newly formed Southshore Center Advisory Committee is scheduled to have its first meeting on July 23. Different options for operating the SSCC will be discussed during the meeting. Administrator Joynes explained $13,200 was budgeted for elections in 2014 for election judges and maintenance of election equipment. 2013 was not an election year. During the March retreat Council discussed increasing streets and equipment. The draft 2014 General Fund Budget reflects a $27,500 increase. It also discussed increasing the insurance deductible for municipal buildings; $10,000 was budgeted for that. The Administration Budget and City Engineer Budget decreased for a combined amount of approximately $28,000 for salaries. CITY OF SIiOREWOOD WORK SESSION MEETING MINUTES July 22, 2013 Page 3 of 6 Joynes stated with the increases and decreases just talked about (plus smaller increases) and with a zero percent levy increase for 2014 a $262,804 budget gap remains to achieve a balanced budget. He reviewed some options to bridge the gap. Increase the levy by 1 percent ($47,433), by 2 percent (94,866), or by 3 percent ($142,299). Use $133,200 in General Fund reserves (no more than 3 percentage points of excess reserves can be transferred in one year per the City's current Policy). Transfer administrative contributions (for staff time, building use and technology use) from the Enterprise Funds (conservatively $25,000) to the General Fund. Use the proceeds from the sale of the City -owned property ($250,000). Lastly, reduce services. He noted that as decisions to use General Fund reserves continue the balance will be reduced and it will need to be replenished at a rate of 2 percent annually based on what Council discussed during the March retreat. Joynes reviewed other influences Council needs to be aware of. If Council wants to have a full-time director to manage the SSCC operations with adequate support to run current programs and maybe add programs, it would cost about $150,000. The current 2014 budgeted subsidy of $60,000 would have to be increased to $150,000. Staff is preparing a wish list of technology improvements. 'They will be discussed during the CIP process. The City is speaking with a different health insurance broker this year - the one that deals with the Local Government Information System (LOGIS) Health Care Group - about changes in the law. Regardless of what the City chosen to do about insurance it's anticipated the City will incur a 4 — 8 percent increase for health insurance ($7,590 — $15,180) as a result of the Affordable Care Act. The City is classified as a small group employer; it has less than 50 employees. It cannot join together with another group. For next year there will be no pre - existing insurance factors impacting rates, but there will be an age factor. An effort is being made to factor that into the negotiations with AFSCiME as early on as possible. A budget of $70,000 per year with a 5 percent increase each year for tree replacement for specific projects such as trail projects and for trees diseased by emerald ash borer will be discussed during the Council meeting immediately following this work session. There will be some CIP Funds (e.g., trails, equipment, and parks) that will enter into a deficit state during the next few years unless adjustments are made to what is transferred into them from the General Fund. The Equipment Replacement CIP will be reviewed to make sure the timeline for replacement of items is correct or if the schedule pushed too far out. Rate studies for the Enterprise Operations will help to identify how to stabilize the Enterprise Funds. There are excess funds in the Water Fund that could also be used to help stabilize funds. Administrator Joynes stated Council discussed increased regulations will likely be implemented for stormwater management activities during its March retreat. If the mandates are too onerous they will have a serious negative impact on the budgets going forward. Joynes then stated from his vantage point the longer term budget problem is a solvable problem. Based on decisions Council makes a big step in solving it can be taken for 2014. The process can be finished over the next 2 — 3 years. The City has the ability to generate revenue sufficient to support the level of services the residents of Shorewood have identified as what they would like to have in the resident survey. He noted that staff anticipates there will be more questions as the budget process continues forward. In response to a question from Councilmember Sundberg, Director DeJong explained the Support Services /Charges expense category in the department budgets are generally for contractual services purchased. For example, the Council Budget included $45,000 in fees for Volt Workforce Solutions for the inspectors at Christmas Lake. It was placed in the Council Budget because Council asked that work be done, but it could be moved to another budget. Most of the rest of the increase in that line item is for potential salary and health insurance increases for union personnel. The 2013 budget included a pool for salary increases for non -union personnel. Union increase amounts were known at the time the budget was prepared; therefore, they were factored into the appropriate department budget for 2013. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 22, 2013 Page 4 of 6 Mayor Zerby stated for those items that are increasing substantially it would be helpful if Council was provided with some explanation for the increases in advance of the budget discussion. Councilmember Woodruff concurred. Councilmember Sundberg asked Director DeJong to explain the 781 percent increase in the City Engineer Support Services /Charges expense category. DeJong explained Contractual Services is the retainer with WSB & Associates for engineering services. The amount budgeted for engineering Contractual Services plus the pay -as- you -go engineer services is slightly more than the amount the City paid for Personal Services for a city engineer employee. Mayor Zerby noted that earlier there was a PowerPoint slide that showed an approximately $5,000 decrease in the City Engineer Budget. In response to a question from Councilmember Sundberg, Director DeJong explained the Cellular Antenna Revenue line item is the revenue the City gets for leasing out space on its water towers to cellular service providers. That used to go into the Water Fund. For 2013 Council changed it to go into the General Fund. In response to another question from Sundberg, DeJong explained the City Hall Rent line item used to be for rent for the City -owned property next to City Hall. Councilmember Woodruff asked if the draft 2014 General Fund Budget includes the salary increases given to non -union personnel for 2013. Director DeJong responded it does. The increases came out of the $21,000 contingency for 2013. It was allocated out to the department budgets. Woodruff then asked staff to explain Miscellaneous Revenue Dry Hydrant Charges. DeJong stated it's his understanding that was for charges to the property owner for installing dry hydrants that would run into the lake for areas not served by City water for fire protection. Director Brown explained the charges were treated like an assessment about 18 years ago. Brown noted there was a sunset clause for that, but he is not sure if the sunset date was 15 or 20 years. In response to a question from Councilmember Woodruff, Director DeJong explained that in the Administration Budget there was a huge reduction in the Personal Services category and a relatively similar increase in Contractual Services because Administrator Joynes is not an employee. Councilmember Siakel asked if the Arctic Fever event costs the City $5,500. Director DeJong explained it costs the City a net $1,500, noting that in the past both revenues and expenses have not been tracked. Only the net has been tracked. In the past there has been $7,000 in expenses and $5,500 in revenues from the event. Siakel stated for 2012 expenses were about $137,000 less than revenues. She asked where that surplus was in the budget. DeJong explained the budget is more of an income statement that shows revenues and expenditures. What is being talked about is an addition to the year end 2012 fund balance and that is a balance sheet item. The cash balance went up by $137,000. That does not mean it will be spent in 2014. Siakel stated the City did a number of projects in 2013 that came in under budget. In addition to the $137,000 that was added to the General Fund balance, the 2013 sealcoat project will cost about $60,000 less than budget. The Valleywood Area improvements did not cost as much as budgeted. Salaries are down somewhat. There is some potential for getting money back from the Federal Emergency Management Agency for the recent storm damage. There will likely be a positive impact on the budget because of the sales tax exception for revenues that goes into effect beginning the first of 2014. She asked if the City is really in a dire financial situation for 2014. If so, she asked where the money is going. Administrator Joynes clarified the City is not in a dire financial situation. The City would be in more of a dire situation if Council decides not to increase the levy again for 2014. That would be the fourth year in a row. He noted that he is not recommending Council do that. He stated the cost of goods and services and personnel related expenses continue to increase even though the levy is not increasing. He then stated it's CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 22, 2013 Page 5 of 6 anticipated the General Fund balance will be 64 percent at the end of 2013 but that can change based on a number of things (e.g., more permit revenue and a reduction in sales tax paid). But, some things could cost more or there may be unbudgeted expenditures. He noted that the City's Policy of 60 percent is conservative. He stated there are other city funds that need to be stabilized. And, Council has the ability to do that without a great deal of pain. He commented that he thought the City was in a good situation. He stated the issues identified during the retreat can be fixed in 2 — 3 years. Councilmember Woodruff stated he agreed with Councilmember Siakel's perspective that it's difficult to determine what kind of action Council may need to take for 2014 without having balance sheets for the various funds. He suggested removing the $10,000 expense for insurance deductible from the Municipal Buildings Budget and if there is a need for that then it can be taken out of General Fund reserves. Woodruff then stated the City Engineer Dues and Subscription line item increased about $9,000 when compared to the 2013 budget. He asked why. Director Brown explained the requirements for the new Municipal Separate Storm Sewer System (MS4) permitting system are very onerous. The Minnesota Pollution Control Agency's requirements for stormwater management reporting involve every department in the City. WSB is in the process of developing an online geographic information system (GIS) system that would cost less than what staff had anticipated. It will perform a lot of the record keeping as results are tallied. Woodruff suggested budgeting for the GIS expense in the Stormwater Management budget. Mayor Zerby stated there are some City residents that think City government is too big and the City needs to do a better job with what it has. Yet, the draft 2014 General Fund Budget does not seem to reflect any greater efficiency than the City had before. He is not sure if staff has been challenged with finding ways to save money; it's not obvious to him. The General Fund balance continues to grow each year yet the City doesn't bring the balance down fast enough. At the same time other fund balances are decreasing and for some funds that will become a problem in the not too distant future. He noted for 2012 some line item budgets were greater than what was spent. The City has a history of doing that. He stated as a resident he was asking if the budget was cut to the bone. Director DeJong commented he is not sure what the definition of cut to the bone is. He stated the 2012 annual financial report indicated that seven of the General Fund departments spent more than what was budgeted. The budgets are getting closer to the point where there is a 50150 chance of being over or under budget for any department. The budgets are pretty tight. He then stated efficiencies have been achieved but they are not high - dollar impact. He noted that Director Brown switched cell phone plans for Public Works personnel but that is not going to save a large amount of money. He stated staff is looking at things like that all the time. He stated often times the things being asked for are service improvements; not cost reductions. He noted that about 60 percent of the City's expenses are personnel related. Most of the police and fire operating expenses are personnel related as well. The only way to reduce expenditures substantially is to reduce personnel costs and that may result in reductions in service. Councilmember Woodruff suggested staff reassess the need for budgeting for capital outlay in the Public Works budget. There is $2,500 budgeted for 2014. Director DeJong stated that could be included in the Small Tools and Minor Equipment line item. DeJong explained capital outlay in the General Fund reflects things that are going to last longer than one year and cost less than $5,000. There is no miscellaneous line item in the CIP for lower cost purchases. Woodruff stated if things are budgeted using one philosophy and booked using another one then one philosophy should be changed. Woodruff stated that he thought the Ice and Snow Removal Budget for 2014 is too high and is always too high. He then stated the Recreation Budget includes $10,000 for overtime; the same amount as the 2013 budget. He asked if the City is spending $10,000 on overtime. He stated the Recreation Budget also includes $5,800 for the Materials & Supplies Program Expense line item which is a new fine item. In the CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 22, 2013 Page 6 of 6 same budget there is an expense fine item Arctic Fever /Princess Tea for $7,000 and in another spot there is a $5,000 revenue line item. Therefore, the City is budgeting for a loss. He asked if the City should put events on that cost money. For example, there is a cost to putting on Oktoberfest yet people attend for free. Those types of things should be taken into account. Administrator Joynes stated Council will not be able to make a budget decision for a month. Councilmember Woodruff stated he feels somewhat sad that Council cannot at least provide some high level direction. Administrator Joynes explained the budget process for cities is a procedure. The goal is to get everything the City needs from contributing partners in time to certify the maximum tax levy by September 15 with Hennepin County. He noted that during the previous budget discussion there was a request for staff to provide CIP information for 2014 earlier than it has done that in the past. There is not enough staff time to do the 2014 Operating Budget and the CIP at the same time. He encouraged Council to have patience with the budget process. He stated at other cities he has been involved with it is considered a good thing to add to a general fund balance each year. He noted that since he started working with the City Council has told him that they want the City to provide quality services. That costs money. And, Council has added costs during 2013 to increase that quality. Ile clarified that it is not up to staff to tell Council what services it should degrade or eliminate. That is a political decision that Council is vested to make by State Statute. It is not to be given to staff,' that would be inappropriate. If Council wants to reduce the quality of service staff can tell how that could be done and what the impact of doing that would be. Councilmember Sundberg noted that the information staff provided is what she expected at this point during the budget process. She commented every city in Minnesota is dealing with budget issues and tough choices will have to be made. She stated Council will have to have some thoughtful discussions and maybe make some tough decisions over the next few months. Councilmember Woodruff stated wants Council to have given staff enough information to refine things so that there can be a thoughtful discussion the next time this is discussed. He then stated Council has not discussed whether the levy should be increased in 2014. Administrator Joynes stated a decision about a levy increase would give staff the best direction, while noting he is not sure Council has seen enough information. 3. ADJOURN Woodruff moved, Siakel seconded, Adjourning the City Council Work Session of July 22, 2013, at 7:04 P.M. Motion passed 5 /0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: Je n Panchyshyn, City Clerk c tt Zerby, #ayor