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12-02-13 CC Special Mtg Min CITY OF SHOREWOOD 5755 COUNTRY CLUB ROAD CITY COUNCIL SPECIAL MEETING COUNCIL CHAMBERS MONDAY, DECEMBER 2, 2013 7:00 P.M. MINUTES 1. CONVENE CITY COUNCIL SPECIAL MEETING Mayor Zerby called the meeting to order at 7:00 P.M. A. Roll Call Present: Mayor Zerby; Councilmembers Hotvet, Sundberg and Woodruff; City Administrator Joynes; and Finance Director DeJong Absent: Councilmember Siakel B. Review Agenda Woodruff moved, Hotvet seconded, approving the agenda as presented. Motion passed 4/0. 2. TRUTH-IN-TAXATION PUBLIC HEARING A. Staff Presentation Administrator Joynes explained that the presentation he walked through during Council’s November 25, 2013, work session about the 2014 General Operating Budget has been changed to reflect a 2 percent levy increase (it had been 3 percent) and information has been added about the three tax relief programs available through Hennepin County and the State. The presentation is available on the City’s website as part of the meeting packet. The Budget reflects the approximate $31,000 in savings the City will realize through the sales tax exemption policy. There continues to be some confusion about how to go about getting credit for sales taxes paid on the City’s behalf by contractors doing City projects. Joynes then explained there is a legal requirement for the City to hold a Truth-in-Taxation public hearing. The Truth-in-Taxation requirements are to present the City’s 2014 General Operating Budget, discuss the budget and 2014 tax levy, to take public comment and to adopt a balanced budget. Because there was one resident present for the public hearing he walked through his presentation about the 2014 General Operation Budget. The presentation has nothing to do with the Capital Improvement Program (CIP) or the potential utility rate increases that have been discussed. The highlights of the presentation are as follows. The City’s portion of the property taxes pay for a number of services funded out of the General Fund. They include police and fire protection; street and park maintenance; recreation programs; building inspections; transfers to the Southshore Community Center (SSCC) and capital funds; and, administration, finance, planning and zoning, elections, and other miscellaneous services. The City funds much of its CIP through transfers out of the General Fund to the capital funds. The assumptions used in preparing the 2014 Operating Budget are as follows. A 2 percent tax levy increase is included (the first increase since 2009) for general operations  (primarily personnel costs). That is fairly consistent with what is happening throughout the metropolitan area. There is no change in staffing level or service levels when compared to 2013.  A 2.5 percent salary increase is budgeted for to fund salary increases and benefit changes.  CITY OF SHOREWOOD SPECIAL MEETING December 2, 2013 Page 2 of 5 Transfers to the Street Improvement Fund and the Equipment Replacement Fund were increased by  3 percent. That level of increase is needed for a number of years to stabilize those funds. The use of $102,848 in General Fund balance reserves is included to balance the Budget.  The Budget reflects a savings of $31,000 in sales tax that the City will not have to pay.  The budget does not include any local government aid (LGA). The City has not received any LGA for more than a decade. 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 (or 62.2 percent). The Policy maximum of 60 percent would equate to $3,356,812. Therefore, the amount in excess based on the Policy is $124,059 (or 2.2 percent). 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 projects, acquisitions, or transfers to any City capital fund. The 3 percent annual maximum use would be $167,841. The proposed Budget includes the use of $102,848 in reserves. That would leave an additional $64,993 ($167,841 - $102,848) in reserves available for use based on the Policy. The balance would still be in the target range of 55 – 60 percent. The Policy, which has been in place for a number of years, is very conservative when compared to the Office of the State Auditor’s (OSA) recommendations. Normally the reserve fund would be for operating funds and it would be calculated after any transfers to capital funds. The City calculates it before transfers are made. If the City were to use the OSA’s recommended reserve level of 30 – 40 percent there would be approximately $1 million to use in other places. The City has been very conservative for a very long time. Because the reserves have been healthy, reserves have been used to help fund general operations without impacting bond ratings or the City’s financial safety net. During Council’s November 25 work session Council asked that the additional 1 percent levy included in the Budget to potentially help fund SSCC operations be removed from the Budget. The future of the SSCC operations is not clear at this time. The other four cities that co-own the SSCC with the City and the Minnetonka School District factor into future operations. The worst case scenario that has been discussed would be to continue operating the SSCC in the modest way it is currently being run. The additional $64,993 available in excess reserves could be used for that purpose if needed. The City’s General Fund budgeted expenditures total $5,547,054. Of those expenditures 38 percent is for public safety services (police and fire), 22 percent is for general government services, 18 percent is for public works, 17 percent is for capital transfers and 4 percent is for parks and recreation. Expenditures and transfers have been fairly consistent between 2007 and 2014. The City’s General Fund budgeted revenues total $5,547,054. Of those revenues 89 percent is from property taxes, 4 percent is from transfers and miscellaneous revenues, 2 percent is from licenses and permits, 2 percent is from General Fund balance reserves, 1 percent is from charges for services, 1 percent is from fines and forfeitures, and 1 percent is from intergovernmental. Revenues had been declining from 2009 through 2014. The tax levy was flat since 2009 with a slight increase in 2014. The tax assessment and levy timeline for residential property taxes payable in 2014 has been as follows. Hennepin County collected data on property sales from October 1, 2011 – September 30, 2012. The market value was established on January 2, 2013. The Board of Review process to hear appeals took place from April 2013 – June 2013. The City certified its maximum tax levy of 3 percent for 2014 to Hennepin County in September 2013. The levy cannot be increased after that; it can be decreased. The County mailed out Truth-in-Taxation notices to property owners in November 2013. They reflect a 3 percent levy CITY OF SHOREWOOD SPECIAL MEETING December 2, 2013 Page 3 of 5 increase. The Truth-in-Taxation hearing is being held this evening. In 2014 final property tax bills will be mailed to property owners. The properties in the City experienced an average decline in value of 1.5 percent. That decline was about 1.5 years ago. The average City tax impact is as follows. For a property valued at $250,000 in 2013 its value decreased to $246,250 for 2014, and the tax increased by $14. For a property valued at $375,000 in 2013 its value decreased to $369,375 for 2014, and the tax increased by $23. For a property valued at $500,000 in 2013 its value decreased for $492,500 in 2014, and the tax increased by $33. For a property valued at $750,000 in 2013 its value decreased for $738,750 in 2014, and the tax increased by $73. For a property valued at $1 million in 2013 its value decreased to $985,000 for 2014, and the tax increased $104. That will be different depending on the individual property value. The 2014 property tax distribution for a property in the City located within Minnetonka School District 276 is: 35.2 percent to the school district, 35.1 percent to Hennepin County, 22.5 percent to the City, and 7.2 percent to other smaller taxing jurisdictions. It is based on a home in the District valued at $360,000. The 2014 total property tax percent change compared to the 2013 total tax for residential homestead properties in the City based on statistics from the Hennepin County Assessor’s Office is as follows. Approximately 42.9 percent of the parcels (983) will see a decrease. Approximately 35.6 percent of the parcels (816) will see an increase of $0 – $300. Approximately 14.5 percent of the parcels (251) will see an increase of $301 – $600. Approximately 2.9 percent of the parcels (67) will see an increase $601 – $900. Approximately 4.1 percent of the parcels (94) will see an increase of more than $900. There are three tax relief programs available through Hennepin County and the State. There is a homestead credit refund which is based on income and taxes paid. That refund is available if taxes exceed 2 percent of income for household with income up to $65,409 and 2.5 percent for those over $65,409 and below $105,500. There is a special property tax refund available if taxes increase more than 12 percent and the increase is over $100. There is a renter’s refund for those with household income of $57,169 or less. Joynes noted the detailed budgets are available. The meeting packet contains a summary of the Budget. He also noted the meeting packet contains a copy of a resolution adopting the 2014 General Fund Operating Budget and approving the property tax levy collectible in 2014. Council can adopt the resolution this evening or delay it until its December 9 meeting. B. Public Hearing Mayor Zerby opened the Public Hearing and Public Testimony portion of the Public Hearing at 7:19 P.M. Leo Meloche, 26120 Birch Bluff Road, stated his preliminary property tax statement shows his City tax increasing by a higher percent than Hennepin County or the school district or other agencies. He asked why. Administrator Joynes explained some residents property taxes went up and for others it went down. For some property valuations the City’s 2 percent tax levy increase will result in an increase in the City tax. It is calculated based on a certain formula. He noted that for the last four years the City did not increase its tax levy. That did not necessarily mean a property owner’s taxes went down. He offered that he and Director DeJong could meet with Mr. Meloche after the meeting to look at his personal situation. Mr. Meloche stated his statement shows the County’s tax increased by 6 percent, the City’s tax went up 10 percent, and the school district’s went up 9 percent. CITY OF SHOREWOOD SPECIAL MEETING December 2, 2013 Page 4 of 5 Councilmember Woodruff explained the value of Mr. Meloche’s property in comparison to other property valuations in the City has yielded him a much greater increase than the 2 percent tax increase the City is levying. The County is not increasing its tax levy by 6 percent; it’s much less than that. Director DeJong noted the County is increasing its tax by 2.1 percent for 2014. Woodruff noted that the preliminary property tax statements were in part based on a 3 percent tax levy increase for Shorewood and that has been reduced to 2 percent. It appears that Mr. Meloche’s property is bearing a larger percentage of the dollars that the 2 percent represents than other properties. Director DeJong explained in Minnesota’s property tax system all of the properties in the City are valued for tax purposes. The levy goes against that entire value. What happens to Mr. Meloche’s property is different than what happens overall. For Mr. Meloche his property is going up in value while the average property in Shorewood went down in value. Therefore, Mr. Meloche’s slice of the tax levy pie has gotten bigger. Mr. Meloche asked why Shorewood’s taxes are going up. He stated a business always strives to reduce costs. He asked if the City has done any cost reduction to reduce taxes. Councilmember Woodruff reiterated Administrator Joynes’s notation that the City did not increase its tax levy for four years. He explained that during that time operating costs continued to increase. The City has changed some of the ways it does business in order to spend more effectively. Over the last four to five years there have been a couple of staff reductions. Without reducing the level of service the City cannot change the staffing level or reduce to any significant extent the amount of money the City spends. The City has been very frugal for the last four years while fuel, utility, materials, and salary and benefit costs have continued to increase. Mr. Meloche stated the 2014 Budget reflects a 2.5 percent increase for salaries and benefits. He asked when staff last received an increase in their salary. Administrator Joynes explained last year there were a 1.5 percent salary increase and an insurance increase for employees. The salary increase amount varied by employee based on market place comparisons. He noted for this last year the average union was a 2 – 2.5 percent increase and arbitration awards were at 2 percent in Minnesota. The State settled its contracts at 3 percent this year in order to become more consistent with the private sector. The City generally tries to mirror those trends. Mr. Meloche stated he did not think the private sector wages had increased much. Administrator Joynes stated the information the State uses is from a number of wage surveys done in the private sector. The increase for rank and file employees has been about 3 percent over the last year. Councilmember Sundberg noted that she is the newest member on Council. When she first got on Council one of the things she wanted to focus on was excessive operating costs. She stated she has been impressed with how staff has been able to make equipment last as long as it has; almost to a fault. She then stated this Council is continually asking staff to find out if there are cost reduction opportunities and ways to improve efficiencies. She assured Mr. Meloche that Council will continue with that practice. But, sometimes increases are necessary to maintain the level of service. Mr. Meloche stated he has experience in private business and those he is involved with have not had salary increases like that. CITY OF SHOREWOOD SPECIAL MEETING December 2, 2013 Page 5 of 5 C. Council Deliberation/Decision to Reconvene Councilmember Woodruff stated that based on the November 25, 2013, Council work session when the Budget was last discussed he did not recollect Councilmember Siakel (who is not present) having any issues with it other than her recommendation to reduce the levy increase to 2 percent from 3 percent and that was done. He noted he is okay with adopting the Budget this evening. Mayor Zerby stated he had spoken with Councilmember Siakel and she related that she was comfortable with the Budget as prepared. There was consensus not to continue deliberation of the 2014 General Fund Operating Budget to Council's December 9, 2013, meeting. 3. TRUTH -IN- TAXATION PUBLIC HEARING Sundberg moved, Hotvet seconded, Adopting RESOLUTION NO. 13 -078 "A Resolution Adopting the 2014 General Fund Operating Budget and Approving the ,Property Tax Levy Collectible in 2014" as presented. Motion passed 4/0. 4. ADJOURN Woodruff moved, Sundberg seconded, Adjourning the City Council Special Meeting of December 2, 2013, at 7:33 P.M. Motion passed 4/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder Sco .ea b ,°MTy ATTEST: Jean Panchyshyn, Ciq CIk