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10-13-14 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, OCTOBER 13, 2014 MINUTES 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; Councilmembers Hotvet, Siakel, Sundberg, and Woodruff; Administrator Joynes; City Clerk Panchyshyn; Finance Director DeJong; Planning Director Nielsen; and Director of Public Works Brown Absent: None B. Review Agenda Sundberg moved, Siakel seconded, approving the agenda as presented. Motion passed 510. 2. ENTERPRISE BUDGETS DISCUSSIONS Water Budget Director DeJong explained the Water Fund has a substantial cash balance in it. The revenues from the water utility have not kept pace with the projections from the 2003 water rate study. Part of the reason for that is people have been implementing water conservation measures. Expenditures are going up at about the rate of inflation. There have only been a modest number of connections to the City's water system in recent years because there have not been any large new developments. Therefore, it may be prudent to reevaluate the water utility rates in the next few years. He thought the Water Fund should be relatively stable over the long ran. He displayed a Water Fund Cash Balance projection chart which also showed expenditures for 2014 — 2023 that supported the previous statement. .Sanitary .Sewer Budget Director DeJong explained the Sewer Fund also has a substantial cash balance. It is more than $3 million. There are transfers out of the Fund planned; they had been discussed during the sewer rate study. The transfers are to fund improvements to the stormwater management system and to fund sidewalk/trail projects. Metropolitan Council Environmental Services (MCES) has informed the City that the City may have to make some very costly improvements to its sanitary sewer system over the next four years to reduce the City's stormwater inflow and infiltration (I & I) that eventually flows into the MCES sanitary sewer system. MCES had indicated that it has found issues in almost every sanitary sewer system in the MCES community. MCES's preliminary assessment to the City for excess flow into its sanitary sewer system is $664,000. The Sanitary Sewer Capital Improvement Program (CIP) budgets $70,000 annually for I & I projects which is primarily for televising the Sanitary Sewer lines and making the necessary repairs. That amounts to about a $384,000 difference. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 13, 2014 Page 2 of S Director Brown explained MCES has some sanitary sewer mains within the City's service area. Staff believes some of MCES' mains are being inundated as well and are being counted as part of the City's wastewater flow. Staff has been meeting with representatives from MCES to try and get the City's flow reduced. In response to a question from Councilmember Woodruff, Director Brown explained that MCES has in the past ruled that the cost of any work a city does to mitigate I & I can be credited against a. penalty. The preliminary assessment is approximately $166,000 each year for the next four years and that is the cost of the improvements the City would have to do each of the next four years. Woodruff stated because the City televises its sewer lines annually and makes repairs to problem areas annually he assumes that no significant problems in the City's sanitary sewer system have been found. He thinks the City would be hard pressed to spend that much annually on. repairs. Director Brown noted that he has serious concerns that the MCES sanitary sewer lines that run along Silver Lake and other water bodies take on a substantial amount of water during high water elevation events and rain events. He stated he hopes City staff can negotiate with MCES representatives to reduce the MCES penalty closer to what the City budgets annually. Administrator Joynes stated staff has notified MCES in advance of the event ever happening so the City is on record. He then stated he thought there would be a lot of negative reaction to the magnitude of what MCES has asked of cities in the metro area. He noted he believes the City can negotiate a lower penalty. He also noted that MCES has a $27 million penalty on the table for the City of St. Paul. Councilmember Siakel recapped what she thought has been said. Staff is not aware of any major issues with the City's sanitary sewer system.. The City has been quite responsible in maintaining its system. She asked if the City's wastewater flow is lumped in as part of a larger system. Director Brown stated staff is not aware of any major problems with the City's sanitary sewer lines. He explained more often than not the issues municipalities have with excess wastewater are with private service lines. The City of Golden Valley is a leader in trying to reduce the wastewater flow through private service lines. It televises private lines and in many instances installs lines for private services. There is question as to where the City's responsibility ends. The City gets penalized for all I & I that flows through its lines. Much of that comes from private service lines. He then explained the City has started to try and inspect private services when it televises its lines. Brown explained that MCES has a few wastewater metering stations in the area. Its station out near Vine Hill Road takes wastewater from a portion of Shorewood, a portion of the City of Chanhassen, and some of the City of Minnetonka. Therefore, MCES has to estimate how much of the wastewater comes from each of those Cities. The question is does MCES estimate that I & I relatively correctly. That will be an. ongoing discussion between staff and MCES representatives about that. Councilmember Woodruff asked if the City has any measuring capabilities with its lift stations. Director Brown explained wastewater from houses on Enchanted Island flows through Lift Station 15 located along side of Enchanted Lane. That Lift Station has metering capabilities. Twice a year the City submits a report to MCES about the flows through that Lift Station and MCES uses that information to generate its billing for there. For the Waterford area a large portion of the wastewater from that area flows through the MCES Vine Hill Road metering station. The City does not have a separate system that measures that; it does not have a lift station in that area. He stated staff is considering proposing the City CITY OF SHOREWOOD WORK SESSION MEETING MINUTES October 13, 2094 Page 3 of 5 purchase flow equipment that can be moved around. He will find out if that cost could be counted as an I & I credit. Director DeJong noted that Attorney Keane did litigate with MCES on behalf of the City in the early 1990s about a similar situation. That effort resulted in a significant settlement for the City. In that situation MCES was charging the City for a lot of I & I flow that it was not responsible for generating. Director Brown stated staff attended a workshop with MCES hosted by the League of Minnesota Cities (LMC) during which the excess I & I issue was discussed. The excess I & I MCES wants to penalize municipalities for was a one -day excecdance. It was generated during a one -day major storm event this past summer. Shortly after the event penalty letters were sent out. He noted a graph for Shorewood shows the flows were as expected up until the one -day major rain event in June when. there was a one -day exceedance. Councilmember Woodruff stated the 2015 budget for MCES service charges reflects a 6 percent increase when compared to the 2014 approved budget. He asked if staff has any idea of how efficiently MCES is operating and if a 6 percent increase in its rate is justified. Administrator Joynes explained the Association of Metropolitan Municipalities (AMM) used to monitor things. AMM was originally formed to serve as a watch dog over the Metropolitan Council. AMM used to review the Met Council's budget to gain an understanding of what it was expanding into. AMM would act as a lobbying group for almost all of the metropolitan communities. He noted he is not sure if AMM still does that. Councilmcmber Woodruff stated if there were growth in Shorewood, noting there basically is not any growth, the 6 percent would amount to more than 120 new residents. He then stated he can accept that some of the increase is a result of inflation but that should be a couple of percentage points. From his perspective 6 percent is a substantial increase for a city that has no growth. Director DeJong stated MCES has capital costs that have not been covered by new development. That is likely part of the reason for the increase. DeJong displayed a Sewer Fund Cash Balance projection chart which also showed expenditures for 2014 — 2023. The cash balance projection includes the substantial transfers out referenced earlier. The balance begins to stabilize after 2015. Councilmember Woodruff asked if the expenditures include depreciation. DeJong responded no. DeJong explained when the rate studies were done and when the Financial Management Plans (FMPs) for the Enterprise Funds were developed they were done on cash balance. They needed to be done on a fully accrual accounting basis. The studies tried to project what the rate structures needed to be to fund future capital projects. Councilmember Woodruff stated the profit and loss (P &L) statements do not forecast capital expenditures. He asked that the forecast for capital expense be added to the projections. Director DeJong stated that would be added for the October 27, 2014, Council work session. Mayor Zerby asked if the $664,000 projected penalty would come out of capital and he noted that penalty is not reflected in Sewer Fund Cash Balance projection chart. Director DeJong stated it would either be a penalty that would be paid as an operating expense or it would be capital improvements. Zerby then asked if the $70,000 budgeted in the CIP reflected is reflected in the chart. CITY OF SHOREWOOD 'WORK SESSION MEETING MINUTES October 13, 2014 Page 4 of 5 Recycling Budget Director De3ong explained the Fund has an adequate cash balance of approximately $50,000. The City does not have any recycling capital expenditures. During its regular meeting following this meeting Council will be asked to renew the amended recycling contract. If Council renews the contract the City's per household charge will be reduced from $4.95 to $3.45 per month.. The Recycling Budget included in the meeting packet reflects that change. Absent any adjustment the cash balance will go up significantly provided Hennepin County's grant program does not change. The City receives approximately $20,000 annually in grant funds. Staff will present Council with recycling rate recommendations during Council's next budget work session. Mayor Zerby stated it is his understanding that the rate is being lowered because the vendor is dropping the recycling rewards program. Stormwater Management Budget Director De3ong explained the substantial decline in the Furid's cash balance in this Fund was the impetus for the sewer and stormwater rate studies the City had done by Ehlers. The decline is a result of the numerous stormwater management projects that have been done. Revenues have not met cash flow needs. The Fund needs a cash infusion. One way of doing that will be a transfer in from the Sewer Fund. The Sewer Fund was chosen because it is funded under a flat rate structure for each property; the rate is $70 per conriection. The Stormwater Management Fund is funded on a quasi -based flat rate based on lot size. The Stormwater Management rates are also being increased approximately 20 percent for the next several years to cover capital costs. There may need to be additional increases to fund increases in state and federal stormwater management mandates. Councilmember Woodruff explained that total 2014 budget for Personal Services is approximately $25,600. The 2015 proposed budget is the same. Yet the 2014 year to date (YTD) amount through August is approximately $46,000, the actual for 2013 was approximately $44.000 and the actual for 2012 was approximately $57,600. He questioned if the proposed 2015 budget is realistic. He recommended staff reconsider the 2015 proposed budget. IIe questioned the $5,500 2015 proposed budget for Maintenance Equipment; the proposed budget amount is the same as the 2014 adopted budget amount. Nothing has been spent in that category 2014 YTD and approximately $1,000 was actually spent in 2013. The 2015 proposed budget for General Supplies is $3,000 yet approximately $300 has only been spent 2014 YTD. He asked that those two budget items be reconsidered also. Director Brown stated staff is playing catch up with inspection programs so more dollars are being spent out of the Stormwater Management Fund. Brown explained that the City has replaced a number of culverts this year and the cost for doing that may not be reflected in the 2014 YTD numbers. Councilmember Woodruff explained the proposed budget for the Contractual category under Other Service & Charges for 2015 is $71,500; the same as the adopted 2014 budget. Yet the 2014 YTD actual amount through. August is approximately $2,100 and the 2013 actual amount was only approximately $4,500. He asked staff to reconsider that budget amount. Councilmember Siakel asked why the Contractual budget amount is so high. Director Brown responded it has to do with more thorough inspections and the additional work the City will have to contract for regarding MS4 (Municipal Separate Storm Sewer System) requirements. Siakel asked if that will also result in an increase in salaries. Brown responded yes. CITY OF SHOREWOOD WORK SESSION MEETING MLNUTES October 13, 2014 Page 5 of 5 Councilmember Sundberg asked if it would be possible to provide projected 2014 YTD amounts. Director DeJong stated staff will do that for the next budget discussion. Councilmember Woodruff stated he supports having staff do that. Councilmember Woodruff stated the 2014 approved budget for Miscellaneous Services is $1,100 yet the 2014 YTD actual amount spent is approximately $10,500. The proposed 2015 budget is $1,100. The vast majority of the $10,500 is eligible for reimbursement from the federal Emergency Management Agency for flooding activities. Woodruff stated the 2014 adopted budget and 2015 proposed budget both include $34,000 in depreciation. He does not think that is very much. Director DeJong explained that vast majority of the cost in the stonnwater management system is land. Woodruff asked if the stormwater retention structure put in near Silver Lake was capitalized. DeJong responded. yes. Southshore Community Center Councilmember Woodruff stated he assumes the Southshore Community Center (SSCC) budget reflects continuing with current operations. Administrator Joynes confirmed that is the current assumption. Woodruff stated it shows it is a breakeven activity because of the $47,000 transfer in. Councilmember Sundberg noted the budget worksheet does not include any 2014 YTD numbers. Woodruff noted there are not any 2013 actual numbers either. DeJong stated expenses are tracking a little heavier than in 2013. DeJong noted he had not intended for that budget to be in the meeting packet. In response to a question from Councilmember Woodruff, Director DeJong stated the rate options will be brought before Council in November. Director DeJong noted that the full impact of the 2014 rate changes will not be known at the end of 2014 because they will not have been in effect for a full year. They were implemented part way through the year. 3. ADJOURN Woodruff moved, Siakel seconded, Adjourning the City Council Work Session of October 13, 2014, at 6:44 P.M. motion passed 510. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder S t Zerb , lVlayor ATTEST: Jean Panchyshyn, City her