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08-12-13 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, AUGUST 12, 2013 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION 5755 COUNTRY CLLR ROAD COUNCIL CHAMBERS 6:00 P.M. Mayor Zerby called the meeting to order at 6:01 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Siakel, Sandberg, and Woodruff; Administrator Joynes; City Clerk Panehyshyn; Finance Director DeJong; and, Planning Director Nielsen Absent: Councilmember Hotvet B. Review Agenda Siakel moved, Woodruff seconded, approving the agenda as presented. Motion passed 410. 2. 2014 BUDGET DISCUSSIONS Administrator Joynes stated staff has refined some of the numbers in the draft 2014 General Fund Budget since it was last discussed during Council's July 22, 2013, work session. It also reflects more refined final draft budget numbers from other agencies. Joynes reviewed the 2014 General Fund budget assumptions. No new services or staff changes are budgeted for. Administrator services and engineering services will continue to be contracted out. It includes an estimated health insurance increase based on past negotiating history 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). That is part of the salary reserve of 2.5 percent budgeted for union and non -union employees. To date there has been one meeting with the union. Staff has been warned of potential additional health insurance costs associated with the Affordable Care Act of 4 — 8 percent on the portion of the premiums the City pays toward employee health insurance. That could amount to about $7,000 — $15,000. That has not been budgeted for; but, the budget does have the flexibility to handle it. A $60,000 transfer to the Southshore Community Center (SSCC) has been maintained in the budget to subsidize SSCC operations. That will fund the base level of service currently being provided. He explained the City is under a 3 percent levy limit cap for 2014 that the State Legislature adopted for cities the size of Shorewood. Therefore, the City could levy $142,899 (3 percent * $4,763,319) more than it levied for 2013. State law does have a number of exceptions in how the levy cap is calculated. The City has historically not taken special levies for City Hall, police and fire. Under the laws the City levy an additional $615,984 ($103,950 for City Hall; $229,763 for police; and $282,271 for fire) which would bring the levy increase to 12.9 percent. Staff is not recommending the different definitions be addressed in the budget. But, that flexibility does exist. In broad general terms the total 2014 General Fund expenditures are anticipated to be $5,521,298 (a 2.9 percent increase over the adopted 2013 budget and it is primarily related to personnel costs) and revenues are anticipated to be $5,348,940 (a 1.6 percent increase over the adopted 2013 budget). That leaves an unfunded gap of $172,358 which reflects a drop from the 2013 gap. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES August 12, 2013 Page 2 of 4 He noted that Staff recommends continuing the practice of a contribution from the General Fund reserves to the general operating budget. He explained the City's General Fund Balance Policy stipulates maintaining a reserve level of 55 -60 percent of the upcoming year's operating expenditures. It's estimated that at the end of 2013 the General Fund balance will be $3,480,871. The Policy maximum of 60 percent would equate to $3,312,779. Therefore, the amount in excess based on the Policy is $168,092. The Policy also stipulates that if the reserves are higher than 60 percent the excess should be drawn down at a rate of no more than 3 percent per year and used for items such as one time expenditures or General Fund operations. The 3 percent maximum would mean there is $165,639 available. He noted Staff recommends using $102,848 in reserves to help reduce the unfunded gap; the same amount budgeted for in 2013. He explained that would leave a remaining gap of $69,510. A levy increase of 1.5 percent would basically balance the 2014 budget. The remaining $73,389 ($142,889 — $69,510) of the allowable 3 percent levy increase could be set aside for potential use for the SSCC. Council has previously discussed the possibility of a full -time director to manage SSCC operations along with some support. Staff thinks having an additional $73,389 (above the $60,000) to use for the SSCC would provide the required funding for salary and some administrative support. He stated the Southshore Center Advisory Committee is progressing with its tasks fairly quickly. He explained State law requires the City to make its preliminary 2014 maximum levy certification to Hennepin County by September 15, 2013. The levy cannot be increased after that. But, it can be reduced prior the certifying the final 2014 General Fund budget in December 2013. Certifying the max levy will allow for some flexibility. Staff recommends doing that. He stated the City approved rate studies for sewer and stormwater management during its July 22, 2013, meeting. During the regular Council meeting following this work session staff will discuss two concept plans for improvements to Badger Park to help reduce the cost of previously proposed improvements. The City -owned property located at 5795 Country Club Road is on the market and it's estimated the proceeds from the sale of the property will range between $200,000 and $300,000. And, after some refinements to the capital improvement program (CIP) Council and staff will have gone a long way toward addressing some of the issues identified during the March 2013 Council and staff retreat. He expressed hope that by next year that there will be light at the end of the tunnel in terms of making those financial adjustment. He noted the $1,000 — $3,000 adjustments made to the various budget add up to about $70,000. He stated staff will be reviewing at the CIP very closely over the next month to assess if the timing of equipment purchases is still appropriate. He recommended the proceeds from the sale of the City -owned property be used for trails, equipment purchases or other one -time expenditures. He stated additional budget work sessions will be held. He stated that during Council's regular meeting this evening South Lake Minnetonka Police Department ( SLMPD) Chief Litsey will present the 2014 SLMPD budget recommended by the SLMPD Coordinating Committee. He then sated there is a joint budget work session of the Excelsior Fire District (EFD) Board and member City Councils scheduled for August 14, 2013, to talk about the 2014 EFD overall budget. Councilmember Siakel stated because staff is recommending using $102,848 of the $165,639 General Fund reserves in excess of the 60 percent level that leaves approximately $63,000 that could be added to the 2014 budget for use for the SSCC. Administrator Joynes concurred. Administrator Joynes stated during the retreat Council and staff discussed the need to refresh the General Fund reserves over time. A 1.5 — 2 percent levy adjustment would have to be made each of the next eight CITY OF SHOREWOOD WORK SESSION MEETING MINUTES August 12, 2013 Page 3 of 4 years. Leaving the approximate $63,000 in the General Fund balance is equivalent to 1.5 percent for 2014. . He noted he does not think that is critical. He stated using it to help fund a full -time SSCC director would be a reasonable use of those funds. Councilmember Siakel stated from her perspective having a flat levy year indefinitely is not sustainable. Something has to be done to keep the City on solid financial footing. She noted she thinks the 1.5 percent is perfectly reasonable. She stated after the utility rate studies are complete the declining balance in the Stormwater Management Fund needs to be addressed through a rate increase. She expressed her appreciation for Administrator Joynes and staff putting budget numbers together. Councilmember Woodruff stated he agrees a zero percent levy increase is not sustainable, noting he thought Council and staff have done a good job managing with a flat levy for the last four years. He noted he supports certifying a 3 percent levy increase to Hennepin County in September. But, he would . prefer to have the final levy be somewhat less. He stated the enterprise operations are not funded out of the General Fund budget. He then stated he supports not using approximately $63,000 of the available excess reserves. He commented that assumes that between now and the end of November Council will identify opportunities for using those funds. He noted that this first proposal makes sense to him. Councilmember Sandberg noted she agrees this needs to be addressed; it can't be ignored any longer. She stated the City is not the only entity with the challenges of operating a city, staying within budget and providing quality services. She stated the possibility of sharing more services continues to peak her interest more and more, but that is a longer term evaluation. Councilmember Woodruff stated he supports finding ways to save money through more effective operations. He then stated from his perspective the budget has been squeezed over the last four years. And, the budget process is much more streamlined now. Councihnember Sandberg noted she supports certifying a maximum 3 percent levy in September. Mayor Zerby stated the budget information provided indicates the $10,000 cost for the GIS (geographic information system) has been moved to the Stormwater Management budget. He noted that he and Administrator Joynes have talked about a technology package staff will prepare. He asked if the costs for that are included in the draft budget and if it is where is it? Joynes stated that will be discussed as part of CIP discussions. Joynes then stated staff will prepare a list of potential technology improvements for Council to consider. Zerby asked if those are considered CIP items. Director DeJong stated there is a lot of flexibility in how purchases are defined. He explained a number of similar general technology items (e.g., personal computers) can be grouped together so collectively they exceed the $10,000 capital threshold. That is the approach staff has taken. He noted that the 2013 budget includes $10,000 for upgrades to computer operating systems and for upgrading Microsoft Office software. Staff will make a recommendation on that this fall. He noted that Council recommended the GIS expenditure be funded out of the Stormwater Management Fund during its July 22 budget work session. Mayor Zerby stated he wants staff to ensure the GIS expenditure does not get forgotten. Councilmember Woodruff stated the General Fund Budget Summary sheet reflects a 2014 revenue budget for Licenses and Permits of $132,770. The 2013 adopted budget was $124,200 and through June the actual revenue is $81,498. Based on that and the 2010 . — 2012 actual amounts the 2014 budget amount seems too low. He asked staff to reconsider that. He then stated Charges for Services revenue of $41,700 may be too high. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES August 12, 2013 Page 4 of 4 Woodruff then stated the General Fund Revenues Detail / Charges for Services sheet reflects $5,500 for Arctic Fever /Princess Tea; the 2012 actual amount is $3,214. The Recreation Expense Budget reflects a 2014 expenditure of $7,000 for that same item. Director DeJong explained because the Arctic Fever event is held in January some of the revenue comes in the previous December. Woodruff stated if staff is convinced the $5,500 is real than it is. Woodruff expressed concern that staff is budgeting for a loss for Arctic Fever/Princess Tea. DeJong noted the City's support for Arctic Fever is $1,500 net and that has been consistent for the last three years in the budget. He explained he is trying to gross up the revenues and the expenditures. Woodruff explained there is about $170,000 in the Park Fund and $42,000 will be transferred into it this year and the same is budgeted for 2014. All together that is close to $250,000. During the regular Council meeting this evening Council is going to discuss spending about $400,000 on Badger Park improvements. That doesn't work financially. That concerns him. Woodruff expressed concern about the Equipment Replacement Fund. He explained it has assets that include a couple of leases to the EFD for equipment purchases which is great. Unfortunately, there is a cash flow problem now because of the unplanned purchase of a street sweeper this year. He stated he thought that Fund is in big trouble. Administrator Joynes stated the Fund needs some relief. The purchase of the sweeper threw the funding off. It caused concern in a fund that was already weak. Joynes then stated the breakdown of the sweeper this year was really untimely because of the weather. He noted he thought it prudent to assess the assumptions in the Equipment Replacement CIP. Woodruff noted he is not questioning why the sweeper was purchased. Woodruff asked if the cost for some of the major equipment purchases should be apportioned back to the appropriate Enterprise Fund. Examples would be a dump truck or the front -end loader. Administrator Joynes stated the budget reflects apportioning $25,000 for administrative salaries back to Enterprise Funds. The same thing was done last year for a couple of other things. He explained it needs to be estimated on a yearly basis rather than trying to account for in by hour each year. Woodruff suggested asking Ehlers, the firm that will do the two utility rate studies, what it thinks. Woodruff stated he looks forward to addressing fund balances. He explained transfers are made out of the General Fund to some of the other funds for operations. 01000MITUTFRO Woodruff moved, Sundberg seconded, Adjourning the City Council Work Session of August 12, 2013, at 6:38 P.M. Motion passed 410. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ' -2 f S t Zerby, P� ATTEST: IIaI or J46 Panchyshyn, City/Cler