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07-13-15 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, JULY 13, 2015 r 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 P.M. Mayor Zerby called the meeting to order at 6:03 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Labadie, Siakel, Sundberg, and Woodruff, Administrator Joynes; City Clerk Panchyshyn; Finance Director DeJong; Planning Director Nielsen; Director of Public Works Brown; and City Engineer Hornby Absent: None B. Review Agenda Labadie moved, Woodruff seconded, approving the agenda as presented. Motion passed 510. 2. CAPITAL IMPROVEMENT PROGRAM AND 2016 GENERAL FUND BUDGET DISCUSSION Administrator Joynes noted this is the first 2016 budget work session for Council. It will be a general overview of the budget. The numbers will likely be changing over the next few months. He then noted the meeting packet contains copies of a 2016 General Fund Budget Review document, the 2015 — 2019 Capital Improvement Program (CIP), a General Fund Summary document and General Fund budget details. He explained staff will review the fund balance information and project funding information provided to Council during the April 9 and July 7 Council and staff retreats. He noted that at the end of the discussion staff would like direction from Council on recommended modifications. He reviewed the major components for the 2016 budget. A few years ago staff had pointed out that the levy needed to increase 2 percent a year to maintain the General Fund reserve. Anything above that is optional and up to Council. There are no State imposed levy limits for 2016. The settlement with Public Works AFSCME (American Federation of State, County and Municipal Employees) Local 224 last year was for two years and the increase was 2 percent for 2015 and 2016. A salary reserve of 2.5 percent is recommended for 2016 to give Council some leeway. For the past few years Council has chosen to balance the budget with the use of reserves. He reviewed the major changes in the 2016 Operating Budget when compared to the adopted 2015 Budget; increases or decreases of $5,000 or more. Major revenue changes included: a $7,390 decrease in liquor license revenue because of the closing of the Minnetonka Country Club (MCC); a $20,000 increase in building permits revenue; and, a $10,000 increase in plan check fees. Revenues from permits and fees will be adjusted once there is a better understanding of the rollout of the MCC redevelopment project. City of Shorewood City Council Work Session Minutes July 13, 2015 Page 2 of 7 Major expense changes include: a $50,000 increase in the Council budget for succession planning; a $29,850 decrease in the Council budget contingency line item; a $163,001 increase in the Administrative personal services line item for a new full -time city administrator (it includes salary of $110,000 plus benefits of $27,000); a $105,000 decrease in the Administrative contractual line item for his contract services (his contract ends in December 2015); a $7,000 increase in the assessor's contract; a $66,349 increase (or 6.2 percent) for police services (part of that is for additional patrol officer in 2016); a $9,000 decrease in Public Works contractual services (for building maintenance work that needs to be done in 2015 and not in 2016); and, a $30,000 increase for Public Works transfers. The succession planning expense includes, for example, funding for a compensation study because of the turnover of about one -half of the non -union work face over the next 18 months and additional training. For 2015 there was a contingency for salary increases because the AFSCME contract had not been settled before the 2015 Budget was adopted. The South Lake Minnetonka Police Department (SLMPD) Coordinating Committee asked the Police Chief to consider using reserves in 2016 to help fund the extra patrol officer position. The increase in Public Works transfers is for a $15,000 increase into the Equipment Replacement Fund and a $15,000 increase into Street Reconstruction Fund. Councilmember Sundberg asked if the additional patrol officer will result in the member cities getting better traffic enforcement services, for example, and not just additional. DWI enforcement. Mayor Zerby stated that was the direction from the Coordinating Committee and the Interim Chief had committed to passing that on to the new chief. Zerby then stated there had been a lot of discussion about the issues the City of Excelsior is experiencing and Excelsior representatives have committed to reduce the growth in police services it is requiring. Joynes reviewed the external elements that will affect the budget. The percentages are an approximation. Fire — a 0.3 percent. Police — a 6.2 percent increase. Public Employee Retirement Association (PERA) contribution — no change. The health insurance increase is not known at this time. The increases or decreases for the Lake Minnetonka Conservation District, the League of Minnesota Cities / Association of Metro Municipalities, and the Mimlehaha Creek Watershed District will be negligible. The Shorewood AFSCME contract — a 2 percent increase. Councilmember Sundberg asked why there is such a substantial difference between the increases for fire and police. Administrator Joynes stated it is based on funding formulas. For fire the formula is heavily weighted on assessed properties values (i.e., tax capacity). For police there are three factors: population, tax capacity and initial complaint reports (ICRs). Councilmember Woodruff asked what the total change in the fire budget is. Administrator Joynes responded about 2.7 percent. Woodruff then asked what the total change in the police budget is. Mayor Zerby responded 6.1 percent. Director DeJong noted the fire funding formula changes annually based on all member cities' tax capacity. The police funding formula changes every 5 years because of a court decision. Administrator Joynes provided an update on the Southshore Center. The budgeted net operational deficit for 2015 is $70,000. That covers the salary for the coordinator for the Center. There is another $15,000 in personnel services for counter coverage back up when the individual is the providing coordinator services. The appraised value of the Center facility is $130,000; the value was very well researched. The City has made an offer to buy out the other four cities that co -own the Center based on the appraised value and the 1996 . construction funding formula. That offer has been rejected. Staff has estimated the cost to move forward with legal proceedings at $25,000 maximum. Those costs are reflected in the 2016 budget. City of Shorewood City Council Work Session Minutes July 13, 2015 Page 3 of 7 He explained General Fund reserves are estimated to be $3,981,000 at the end of 2015. The City's General Fund Balance Policy stipulates a reserve level of 55 — 60 percent of the next year's operating expenditures. Sixty percent of the year -end balance would be $3,386,000. That leaves $595,000 available for use (the difference between the two amounts). For 2015 the budget anticipates the use of $142,000 in reserves. That leaves an undesignated balance of $453,000 above the 60 percent that could be available for use. The City's General Fund Balance Policy is very conservative from his perspective. For a General Fund levy of 2 percent for 2016 $267,000 of reserves could be used to fund the levy. Once the $142,000 for 2015 is taken out of reserves it leaves $186,000 for use. If, for comparison purposes, the 2016 levy were to be 4.5 percent the City would only use $143,000 in reserves to help offset the levy. He summarized the needs of the CIP. Based on actions taken the last few years the Equipment Replacement Fund, the Water Fund, the Sewer Fund and the Recycling Fund are stable. All are well funded. The Water and Sewer Funds have exceptional reserves; far in excess of what is needed to maintain operations. There will not be any funding in 2017 . in the Park Improvements Fund to do projects. A portion, about half, of the Badger Park improvements can be funded. A deficit occurs in the Street Reconstruction Fund in 2017. The reconstruction of Strawberry Lane has been advanced to 2017 from 2019. Currently there is no funding for that. Once the Smithtown Road Sidewalk East Extension Project is done in 2016 there is no funding in the Trails Fund for other trails. In 2016 the Stormwater Management Fund goes into a deficit state. Staff has no idea what the new State stormwater management mandates will be or what they will cost to implement. Staff has been directed to resolve the Southshore Center situation (the buyout); there is money to do that. Council has also decided to move forward with the Smithtown Road Sidewalk East Extension Project. He highlighted possible future revenue sources for the CIP Funds that will go into deficit states in the next few years. The City can borrow money from its Sewer and Water Funds. He suggested Council discuss borrowing from the Water Fund from a proper governance perspective because about half the residential properties in the City are not connected to City water and therefore do not pay into that Fund. Is it appropriate to use funds from the Water Fund for a City -wide project? There is a Tax Abatement source the City can draw off the MCC redevelopment project. The amount would range from $1 million from just the City's participation in Tax Abatement and up to $5 million if Hennepin County and the Minnetonka School District also participate. Unfunded capital projects that are somehow connected to the MCC redevelopment could be funded with Abatement funds. The park dedication fees from the MCC project can be used for improvements to parks. There will be revenues from inspection fees because of the MCC project over the next five years and they should be in excess of what it costs the City to run its inspection program. The excess can be used for other things. The City can assess for capital improvements; it has not done so in the past for improvements such as roadway reconstruction. The City can also bond for improvements. The City can also levy for projects identified; a General Fund levy. Or the Economic Development Authority (EDA) can levy for EDA projects. He stated that once the redevelopment of the MCC project begins there are 3 or 4 developers that have shown interest in doing projects in the area near the MCC property. Those would require more participation from the City than the MCC project does. If Council wants to be involved in the economic side of governance the City will be asked to participate through tax increment financing (TIF). The City may also want to buy up some properties in order to consolidate properties. The City can levy money to do that. Currently the EDA has no money to do that. City of Shorewood City Council Work Session Minutes July 13, 2015 Page 4 of 7 Joynes clarified the CIP Funds are not in a real deficit state; Council has not yet decided how to fund the CIP projects. Joynes clarified that this evening staff wants Council to decide if the direction he just reviewed is appropriate or provide staff with other direction. Councilmember Sundberg asked if staff has projections for the park dedication fees and the inspection fees. Administrator Joynes stated the inspection fees are based on projections from Mattamy Homes, the developer for the MCC property. Mattamy has estimated the buildout of the project to take 4 — 5 years. Park dedication fees are paid at the time the final plat is approved. The developer may plat the property all at once or they may phase that. Staff has estimates of what those may be overtime. Sundberg asked for a dollar amount. Joynes stated for 100 residential homes the fees would be $650,000 (a $6,500 fee per lot). Director Nielsen clarified the City can charge a per parcel park dedication fee of $6,500 or at the City's discretion 8 percent of the raw value of the land. Councilmember Siakel stated she would prefer to discuss the City's parks as a. whole from a financial perspective. She would like to know how the parks are used, what revenue is generated from them, what sports teams pay to use park fields and who uses the parks. She also suggested Council discuss if the proposed use of Badger Park is a good fit. Councilmember Woodruff asked if the draft budget provided does not include revenues from or costs associated with the MCC project. Director DeJong responded there are no extraordinary costs or revenues associated with the project in there. Woodruff stated it would be useful to have a profit and lost statement for the project. He then stated at the July 7 Council and staff retreat staff presented an exhibit with a $650,000 park dedication fee amount and a $496,000 building permit amount. But, no associated costs were shown. Councilmember Siakel stated there is one cost in the budget for building permit software for an amount of $20,000. Administrator Joynes stated on the succession plan he provided during the retreat he explained that depending on how the City wants to structure the inspections program when the Building Official retires it may affect the revenues from inspections. There are different options on how to do that. Councilmember Woodruff requested that staff provide an answer on how to resolve the 2016 and 2017 CIP Funds deficits by the time Council discusses this again. The next time Council sees the CIPs there should not be any negative balances in any of the Funds. Councilmember Siakel stated some of the deficits would be eliminated if Council decides to move forward with Tax Abatement. Councilmember Woodruff stated staff would like to know that answer. Mayor Zerby stated some of the items in the ClPs are wishes. Council has not necessarily decided to move forward with them. Council needs to decide which wishes it wants to move forward with. Council concurred. Councilmember Siakel stated the City has the resources to do what Council wants done for the City without significantly increasing the tax levy. It may mean the City has to use options it has not used in the past. Council has the opportunity to do something responsible with the budget yet make needed improvements in the City. City of Shorewood City Council Work Session Minutes July 13, 2015 Page 5 of 7 Councilmember Woodruff agreed Council has lots of options to choose from. Council needs to start making choices. The City has 60 days to certify its maximum levy to Hennepin County. Councilmember Siakel asked what staff wants Council to decide during this meeting. Director DeJong stated everything does not have to be decided during this meeting. He asked if Council wants to seriously pursue financing for Badger Park improvements and trail construction from Tax Abatement. Should it be projected with the City pursuing that alone or with the School District and /or Hennepin County? If so, that effort needs to be initiated relatively quickly. He asked if Council wants to bond for roadway reconstruction to eliminate deficits in the Street Reconstruction Fund. Staff is not sure how much could be funded through the Tax Abatement process if the City does it alone. The Abatement could be used just to construct the Strawberry Lane trail. He asked Council how it wants to fund the Galpin Lake Road trail segment. Does Council want to bond for it or postpone the construction of it? Are stormwater management projects going to be funded through internal borrowing, direct transfers from internal funds or bonding? Those are some of the decisions Council needs to make. Mayor Zerby stated currently the City does not assess for roadway reconstruction or improvements or for sidewalks or trails. Council should discuss those options. He noted that from a macro level he can support spending down reserves to be more in line with the General Fund Balance Policy to try and reduce the impact on the tax levy. Zerby then stated the Equipment Replacement CIP shows large variances in spending between 2015 ($257,000), 2016 ($268,000), 2017 ($59,000), 2018 ($108,500) and 2019 ($53,000). He expressed confidence the 2017 CIP will not stay at $59,000 based on his tenure on Council. He clarified he is not focusing on this CIP; he is just using it as an example. He stated he would like the expenditures to be more consistent from year to year. Director Brown stated Public Works has extended the life of many pieces of equipment. There were about 4 pieces that were up for replacement this year but their life has been extended. He explained a base line dump truck with a very modest design costs $145,000. That is with no telemetrics, joy sticks and so forth; things considered common in the market place. With costly pieces of equipment it makes it difficult to have a flat budget. He asked what difference it makes if the transfers into the Equipment Replacement Fund are relatively flat. Administrator Joynes explained that some cities issue equipment certificates annually and they project 20 years out. They bond for that and flatten the budgets out. But, when you pay as you go there will be spikes. Past Councils have been reluctant to bond. Mayor Zerby stated it is his recollection that there were not many actual spikes in spending. He indicated he would like to see a cost average over a 10 -year period. He then stated a boom truck is slated for purchase in 2016 for a cost of $84,000. He has suggested staff look for support from neighboring cities for sharing in that purchase. A purchase of a chipper for an amount of $45,000 is also slated for 2016. There are a lot of services that provide chipping services. In addition to the cost to purchase equipment there are associated maintenance and operating costs. He thought it prudent to at least consider renting equipment or using a service if possible. Zerby asked for additional information on the $38,000 LED lighting upgrade. Director DeJong stated Cleric Panchyshyn has been working with an electrician to find out what it would cost to retrofit the lights in City Hall and the Public Works facility. There are some odd types of lights in City Hall. Some of the lights do not work all that well and the City has spent several thousand dollars to get them working. LED lighting will result in cost savings and green energy benefits. Based on Panchyshyn's research there should be a relatively quick payback on retrofitting the lights; possibly as quickly as three years. City of Shorewood City Council Work Session Minutes July 13, 2015 Page 6 of 7 Councilmember Sundberg recommended putting Badger Park improvements on hold until there is discussion about the parks as a whole as Councilmember Siakel suggested. She noted that she is not comfortable with funding the improvements at this time until she has a better understanding of the total picture. Director DeJong stated the revenue from the sports teams is less than $10,000 a year. Councilmember Sundberg stated she is more interested in the use of the parks. She then stated it would be helpful for staff to provide the pros and cons for the various funding options for the various projects. Councilmember Siakel noted that she would support creating a Tax Abatement area for the MCC project. She would support using the funds for roadway improvements such as for Strawberry Lane, Country Club Road and Eureka Road. She also supports asking the School District to participate in the Abatement because anything the City does to improve Strawberry Lane would improve safety around Minnewashta Elementary School. That would bring the Abatement up to $3 million. If the City did get Hennepin County to participate in the Abatement she would support reopening discussion about a. pedestrian bridge over Country Road 19 at the LRT Trail. If those two groups do not want to participate then she suggested borrowing from an internal fund to reconstruct Strawberry Lane in 2017. Director DeJong noted that would have tax implications because in order to pay the loan back the tax levy would have to be increased above the 2 percent maintenance level. Siakel stated the City will incur that expense anyway in 2019. Siakel stated she would like to understand more about assessments. She commented that during Council's regular meeting following this work session there will be discussion about Boulder Bridge Pond drainage concerns and about drainage issues in the Freeman Park area. Those improvements have to either be assessed or the storm water fee needs to be increased significantly to meet those types of needs. Councilmember Labadie stated there is a $75,000 rehabilitation of the Skate Park slated for 2016. She seldom sees it being used. She noted she supports taking a global look at the City's parks. Administrator Joynes noted the City is not constrained by State law in how its funds the projects in the CIP relative to the timeframe for the certification of the maximum tax levy. He stated with all the things that have to be done such as establishing a Tax Abatement area and deciding how to fund the initiatives things have to be done to maintain timelines. He understands Council to have dates for the Smithtown Road Sidewalk East Extension Project, Galpin Lake Road trail segment, and Strawberry Lane trail. To meet those dates public hearings have to be held for the Tax Abatement program, for example. The decisions needed on funding sources are required to maintain the timelines Council has set. He then noted Council needs to have a long discussion about assessing and bonding for projects. Councilmember Siakel recommended budgeting for a 2 percent maintenance tax levy at this time. Mayor Zerby stated he was pleased to hear that staff is progressing with the Galpin Lake Road trail segment and with the Strawberry Lane trail segment. Council and staff have spoken about pursuing safe routes to school grants for a long time. There also been discussion about reaching out to the Minnesota Department of Transportation (MnDOT) for the Galpin Lake trail segment because of its location near Highway 7. The Minnehaha Creek Watershed District should also be approached because part of that project deals with protecting a wetland. Director DeJong stated he understands Council's direction to have staff come back with a funding plan for each of the CIP without deficits and the pros and cons for the funding options. City of Shorewood City Council Work Session Minutes July 13, 2015 Page 7 of 7 Sundberg moved, Siakel seconded, Adjourning the City Council Work Session of July 13, 2015, at 6:57 P.M. Motion passed 510. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: Jean Panchyshyn, City CI 2 Sc Zerby, ta)or