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07-27-15 CC WS MinMy LIUMNSWIN 1. 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 6:00 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Labadie, Siakel, Sundberg, and Woodruff; Administrator Jaynes; City Clerk Panchyshyn; Finance Director DeJong; Planning Director Nielsen; Director of Public Works Brown; and City Engineer Hornby Absent: None B. Review Agenda Woodruff moved, Labadie seconded, approving the agenda as presented. Motion passed 510. IMPROVEMENT 2. CAPITAL PROGRAM 1, 2016 GENERAL FUND BUDGET DISCUSSION Administrator Joynes explained that during Council's July 13 work session staff presented the 2016 General Fund Budget in broad terms and the Capital Improvement Program (CIP). During that meeting staff was directed to eliminate all deficits in all CIP funds through 2017. Staff accomplished that with the use of General Fund reserves, fund transfers and proposed tax abatement and special assessment bonds. He summarized the needs of the CIP. He explained the Water and Sewer Funds have exceptional reserves; far in excess of what is needed to maintain operations. The stability of those funds is due in large part to rate increases recommended by Ehlers and implemented about 1.5 years ago. The Equipment Replacement Fund is reasonably stable. The Park Improvements Fund, the Street Reconstruction Fund, the Trails Fund and the Stormwater Management Fund go into a deficit states in 2018. It is difficult to know the funding needs for Stormwater Management Fund because there is no way to know what the mandates will be or what they will cost. The Park Improvements CIP now includes $910,000 in park dedication fees ($300,000 in 2016 and $610,000 in 2017) from the Minnetonka Country Club (MCC) redevelopment project; that is for $6,250 for each of the now proposed 140 lots. Those funds plus the funds already in the Park Improvements Fund should fund the proposed improvements to Badger Park. The $910,000 could go up or down depending on the outcome of the negotiations for the MCC planned unit development (PUD). During the July 13 Council work session there was some discussion about issuing equipment certificates which some cities do. After additional review of the Equipment Replacement Fund's needs, staff has determined if $70,000 were transferred into that Fund from the General Fund in 2016 and with the normal yearly transfers into that fund there would not be a need to issue certificates. The Fund goes into a deficit state in 2018. There are fairly significant expenditures planned for 2015 and 2016. Director DeJong explained there had been discussion about leveling out swings in spending in the Equipment Replacement Fund. There is a challenge in 2023 when a front -end loader is scheduled for CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 27, 2015 Page 2 of 6 replacement for an estimated cost of $250,000. Staff attempted to determine what level of funding is needed over the long haul to mitigate going into a deficit state and to make sure funds are available when the need to replace equipment arises. Administrator Jaynes explained the Street Reconstruction Fund is more difficult to deal with. Roadways are scheduled to be maintained and replaced based on the PASER (Pavement Surface Evaluation and Rating) System rating to a great extent. The fund now assumes $1,250,000 in special assessment bonding in 2017. The Minnesota courts have established assessing 20 — 25 percent of the cost to property owners can be validated and justified. The courts have agreed that 20 percent is the value the newly reconstructed roadway accrues to the property. The League of Minnesota Cities (LMC) is trying to obtain the ability for cities to create a street reconstruction utility that can be distributed across the community. The Fund assumes 20 percent assessment and the remaining amount spread out over the City. Assessments can be determined by linear foot, by developable lot or by unit (parcel). The reconstruction of Amlee Road and Manitou Lane has been moved to 2021 to be reconstructed at the same time as Glen Road to smooth out funding needs. By doing those various things there will not be any deficits in this Fund until 2018. The tax impact to the City of the bond repayments will be about $140,000 per year starting in 2018. Assessing and bonding for roadway reconstruction is new to Shorewood. Assessments will be controversial with residents and residents will ask why improvements were not assessed in previous years. There may be arguments about the amount or the method used for determining the assessment. He is aware of cities that determine the per -unit cost for roadway reconstruction and all properties in the city are assessed for the average cost on a unit basis. Once assessments and bonding have been implemented it ceases to be an issue. But, initially it will be. The City can do nothing and wait until the roadways deteriorate to the point where the residents demand the City reconstruct them and then the property owners pay for that. Some cities do that even though it is contentious. If a decision is made to do that then the City has to at some point quit maintaining the roadways when it will not do much good. He clarified he is not recommending Council do that. He noted Council needs to decide what it wants to do about funding roadway reconstruction. Director DeJong clarified the $140,000 in bond repayment is for the 80 percent the City will pay. The property owners will pay the other 20 percent of the bond issue. He explained the City would issue assessment bonds over a 10 -year period. When a city issues General Obligation (GO) Bonds because the tax rate is better the State requires them to levy 105 percent of the debt service amount because not all of the assessments come in each year. DeJong stated the City has a criterion so that roadways are scheduled for reconstruction when their PASER rating is less than 4 (the rating rages from 1 to 10). Director Brown clarified they do not necessarily get reconstructed but maintenance action is taken. DeJong then stated that Amlee Road, Manitou Lane and Glen Road all have a rating of 2 or 3. For the sake of fiscal considerations the City has somewhat abandoned the rating criteria. Administrator Joynes suggested Council consider lowering the rating trigger for reconstruction/maintenance action. He stated if residents do not think their roadways need to be reconstructed when they have a PASER rating of less than 4 then it would be prudent to have that discussion. He explained the Trail Fund now includes $1 million in abatement bonding in 2015 and $852,000 in 2017. Abatement bonds to some extent are anticipation bonds and sold based on what the City anticipates the tax abatement to be from the MCC project over time. The developer has indicated the buildout will be CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 27, 2015 Page 3 of 6 over 4 — 5 years. The abatement bonding assumes participation of the Minnetonka School District. He, Mayor Zerby and Councilmember Labadie are meeting with Dr. Dennis Peterson, Superintendent of Minnetonka Public Schools on July 29 to talk about the mutual benefits from a number of projects (e.g., the Smithtown Road sidewalk east extension, the Strawberry Lane trail segment and possibly some /all of the Galpin Lake Road trail segment). Director DeJong noted that the construction of Galpin Lake Road trail segment was pushed out to 2018 in the Trails CIP. There would be a deficit in 2018 after the construction of the trail is constructed. No solution has been identified for that. He then noted that all other projects in the Trail Implementation Plan are in tine 2024 Trails CIP. Administrator Joynes stated the Trails CIP assumes the use of Minnesota State Aid (MSA) funds to construct the trail portion of roadway improvements. Director DeJong stated the MSA Road Reconstruction Fund now slates funding for reconstruction of the Vine Hill Road and Highway 7 intersection. The intersection does not function very well primarily on the south side of Highway 7 because of school events. Shorewood is responsible for one - fourth of the project's costs, Deephaven is responsible for one - fourth and the Minnesota Department of Transportation (MnDOT) is responsible for one -half. Staff estimates Shorewood's share to be between $150,000 and $200,000. Administrator Joynes explained the Water Fund is very healthy. It could be used as a resource to fund other things. Mayor Zerby cautioned against using too much of the Fund balance for other things because there is a reasonable possibility that the City may have to construct a water treatment plant. He then explained the Sewer Fund is also healthy. It assumes a transfer of $1,010,000 in 2016 and $190,000 in 2017 to the Stormwater Management Fund. Because everyone in the City uses the sewer system it makes sense to use it as a funding source for stormwater improvements because everyone pays a storm sewer fee. Even after the transfers the Sewer Fund will still have a sufficient balance for basic operations. The City will have a rate study done once it has a better understanding of what the Metropolitan Council's rates will be. The City will also have a rate study done for the storm water rates to determine how much to raise the rates to keep up with new mandates from the state and federal government. He reviewed the major components for the 2016 budget. There is a 2 percent tax levy increase to maintain the General Fund reserve. There are no State imposed levy limits for 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. The budget still assumes a forester /water resources position for $40,000; that was also included in the 2015 budget. 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. 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 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 CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 27, 2015 Page 4 of 6 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, the benefit load for the new administrator and additional training. For 2015 there was a contingency for salary increases because the settlement with Public Works AFSCME (American Federation of State, County and Municipal Employees) Local 224 for 2015 had not been settled. The settlement was for two years which meant the increase for 2016 is known. 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 and the ,budget he saw on July 24 was down to about a 3 percent increase. He noted does not favor the use of SLMPD operating fund reserves because it will leave little in the reserves. 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. 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. There will be a $70,000 transfer from reserves to the Equipment Replacement Fund. That leaves an undesignated balance of $383,000 above the 60 percent that could be available for use. For a General Fund levy of 2 percent for 2016, $267,000 of reserves could be used to fund the levy. That leaves $116,000 above the 60 percent policy 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. Joynes explained that during a Shorewood Economic Development (EDA) Board meeting following Council's regular meeting this evening staff will be recommending an additional 1 percent (about $50,000) levy to fund EDA operations because of increased activities. The City could levy up to $250,000 for the EDA under State Statutes. The levy for the EDA would be outside of a levy limit if there had been one. Once the levy is made the first time people tend not to pay as much attention because it is already included in the budget. He stated on August 10 Council will see request from a developer for a senior housing project and the developer will be asking for assistance from the City. It is likely there will be two more proposals in the next year. He thought most of the costs of the EDA activities could be reimbursed. Joynes stated Council may want to certify to Hennepin County in September a maximum 3 percent levy; 2 percent for the general levy and 1 percent for the special EDA levy. If Council wants to give itself additional room to consider other ways to address CIP funding, it may want to certify a higher levy in September. The final levy can always be reduced. Councilmember Woodruff stated he cannot find the additional. $70,000 transfer out of the General Fund into the Equipment Fund that is noted in the staff memorandum (memo) in the budget detail. Director DeJong stated it is not in the General Fund Budget. It will be a 2015 or 2016 transfer. Woodruff noted that he thought the transfer is a good idea. Mayor Zerby stated it is a good idea only if the proposed equipment purchase is a good idea. Woodruff explained the staff memo talks about bonding for street reconstruction in 2017. Administrator Joynes spoke about the payoff of the bonds will cost $140,000 yet the memo states it will cost $170,000. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 27, 2015 Page 5 of 6 Director DeJong explained the full annual cost of the bonds is $170,000. Of that $140,000 will be paid back through property tax revenue and $30,000 through property assessments. Woodruff noted that is not reflected in the detail budget sheets. DeJong explained that is not in the General Fund Budget because the payback will not start until 2018. Councilmember Siakel stated she is not ready to start assessing for streets in 2016. There needs to be a lot more discussion about that and analysis of that. She explained that only 50 percent of the residential properties are connected to City water. If water is extended when roadways are reconstructed property owners will be assessed twice; for water and for streets. That will be financially difficult for a lot of people. Mayor Zerby concurred. Director DeJong noted there are not many properties along Amlee Road, Manitou Lane and Glen Road so reconstruction assessments could be quite substantial. Councilmember Woodruff stated that is the same for Riviera Lane, Mayor Zerby asked staff to clarify the $40,000 for hockey boards for Cathcart Park in the Park Improvements CIP. Director Nielsen stated that is a place holder and noted the Park Commission has not discussed that. Nielsen explained that consideration is being considered for portable boards for Freeman Park. He noted that he is not ready to include the boards for Cathcart Park in the CIP for 2016. He stated there is hope that there will be a meeting between the Shorewood and Chanhassen Park Commissions to talk about sharing costs for Cathcart Park. Councilmember Sundberg stated there is $9,500 slated in 2015 for tennis courts in Badger Park. Director DeJong stated that routine maintenance has been completed. Sundberg noted that same amount is slated for 2018 and 2021. Director Brown explained that is for resurfacing the courts. The City has found a contractor that will keep doing that maintenance to keep the courts playable. Sundberg then stated because of all of the flux with the MCC redevelopment project and the impact it will have on the surrounding areas she recommends putting the major improvements to Badger Park to the side. Councilmember Woodruff noted that he is not ready to approve a Badger Park expenditure for 2016 but he can support leaving the $577,000 for phase 1 improvements as a placeholder. Sundberg stated she would be more comfortable if it were a 2017 placeholder. Woodruff stated the 2016 and 2017 dollars for the Park could each be moved out one year but that means the potential artificial turf for the ballfield in the Park as proposed by the Minnetonka Lacrosse Association would be moved out to 2017. Sundberg clarified as placeholder amounts. Councilmember Siakel stated she thought there should be something in the 2016 budget for Park maintenance. Councilmember Labadie stated she viewed the discussion with the Lacrosse Association as informational only. There was no discussion about the Association's financial contribution to that turf. Administrator Joynes stated it would be appropriate to move the Badger Park improvements out one year and noted the City will still receive the park dedication fees for the MCC property. Sundberg stated that Badger Park could change dramatically and Council should not hold itself to a plan that was agreed to before Council was aware of the MCC project. Siakel asked if Council has decided if it wants to move forward with a per parcel park dedication fee of $6,500 or the 8 percent of the raw value of the land. Director DeJong stated if the fee was based on the raw value of the land the rough estimate would be about $1.1 million based on a $14 million dollar purchase price of the property. It would be $910,000 if it was based on 140 developable lots. Councilmember Woodruff suggested removing the purchase of the tool to deal with the artificial turf from the Equipment Replacement CIP in 2016 because Badger Park improvements are being moved out. Mayor Zerby reiterated comments he made during Council's July 1.3 work session about the purchase of the boom truck and chipper. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES July 27, 2015 Page 6 of 6 Zerby 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. Director Brown noted that Excelsior city staff has verbally committed to going in on the purchase of a used boom truck. Zerby asked if he expected the budgeted amount to go down. Brown responded no; the City's share of that cost would be $80,000 — $88,000. Zerby then stated there has been discussion with a firm about providing arborist services and possibly providing wood chipper services. Therefore, he is not ready to commit to the purchase of a $45,000 chipper. Director Brown stated many of the City's roadways are being overtaken by tree growth. The City has not put enough resources into dealing with diseased trees and tree trimming to ensure adequate and safe right -of -ways. Zerby stated 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. He suggested having a cost /benefit discussion. Brown stated rental availability of equipment needs to be considered when making that decision. Councilmember Woodruff stated the City has not needed a boom truck and chipper in the past. He asked why the City needs them. now and who would operate them. He then asked what the justification is for the wash bay, the LED lighting upgrade and building permit software. They are slated for purchase in the 2016 Equipment Replacement CIP. Director Brown explained the wash bay is a replacement item. Woodruff commented the building permit software could possibly be shared with someone else. He stated he thought the software would be needed to help with the load for the MCC project and expressed concern that in six years it may not be needed. Councilmember Sundberg stated she would like to learn what the payback period for LED lighting upgrade would be. Sundberg moved, Woodruff seconded, Adjourning the City Council Work Session of July 27, 2015, at 7:02 P.M. Motion passed 510. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder Je n Panchyshyn, City lerl Scott Zerby , l ayor