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12-05-16 CC Special Mtg MinCITY OF SHOREWOOD CITY COUNCIL SPECIAL MEETING MONDAY, DECEMBER 5, 2016 MINUTES 1. CONVENE CITY COUNCIL SPECIAL MEETING 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 7:00 P.M. Mayor Zerby called the meeting to order at 7:00 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Labadie, Siakel, Sundberg, and Woodruff; Administrator Lerud; and Finance Director DeJong Absent: None B. Review Agenda Sundberg moved, Labadie seconded, approving the agenda as presented. Motion passed 510. 2. TRUTH -IN- TAXATION PUBLIC HEARING A. Staff Presentation Director DeJong stated at the end of this meeting Council will decide if it wants to adopt the proposed 2017 General Fund Budget. The Budget was discussed during four meetings that occurred in July and August. During its August 22 meeting Council adopted a preliminary Budget and a maximum tax levy increase of 2 percent. The maximum levy increase was certified with Hennepin County. During Council's November 28 meeting Council increased the Budget by $120,000; an additional $35,000 for forestry services and $85,000 for consulting services for the Comprehensive (Comp) Plan updates. The Budget reflects the use of $192,785 in available General Fund reserves; reserves above the policy amount of 60 percent. He noted that staff recommends Council adopt the Budget as presented. He walked through the presentation for this hearing. The Truth -in- Taxation requirements are to present the City's 2017 General Operating Budget, discuss the budget and 2017 tax levy changes, to take public comment and to adopt a balanced budget either this evening or on December 12. He noted Council will consider the 2017 Capital Improvement Program (CIP) and the 2017 Enterprise Fund Budgets during its meeting on December 12. 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 the capital funds; and, administration, finance, planning and zoning, elections, and other miscellaneous services. The assumptions used in preparing the 2017 General Fund Operating Budget are as follows. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 5, 2016 Page 2 of 6 ➢ It reflects a 2.0 percent tax levy increase over 2016 for General Fund operations - primarily personnel costs. ➢ Staffing for the full -time city administrator position. ➢ Other staffing levels remain the same from 2016. ➢ A 2.5 percent salary increase is budgeted for to fund salary increases and benefit changes. That is included in the Council contingency line item ➢ Transfers to the Street Improvement Fund and the Equipment Replacement Fund were each increased by $15,000. ➢ The use of $192,785 in General Fund balance reserves is included to balance the Budget. That is up $12,637 from 2016. The City's General Fund budgeted expenditures total $6,041,312. Of those expenditures 36 percent is for public safety services (police and fire), 32 percent is for public works, 27 percent is for general government services, and 5 percent is for parks and recreation. The City's General Fund budgeted revenues total $5,848,527. Of those revenues 86.7 percent is from property taxes, 4 percent is from transfers and miscellaneous revenues, 3.1 percent is from General Fund balance reserves, 2.9 percent is from licenses and permits, 1.6 percent is from intergovernmental, 1 percent is from fines and forfeitures, and 0.7 percent is from charges for services. The tax assessment and levy timeline for residential property taxes payable in 2017 has been as follows. Hennepin County collected data on property sales in the Shorewood area from October 1, 2014 - September 30, 2015. The market value was established on January 2, 2016. The Board of Review process to hear appeals on property values took place from April 2016 - June 2016. The County conducts that process at City Hall. The City certified its maximum tax levy increase of 2.0 percent for 2017 to Hennepin County in September 2016. The levy cannot be increased after that; it can be decreased. The County mailed out Truth -in- Taxation notices to property owners in November 2016. The Truth -in- Taxation hearing is being held this evening. The City certifies its tax levy to the County by the end of 2016. In 2017 final property tax bills will be mailed to property owners. The 2017 property tax distribution for a property in the City located within Minnetonka School District 276 is: 38.5 percent to the school district, 33.4 percent to Hennepin County, 21.4 percent to the City, and 6.6 percent to other smaller taxing jurisdictions. It is based on a home in the District valued at $350,000. The 2017 total City property tax percent change compared to the 2016 total tax for residential homestead properties in the City based on statistics from the Hennepin County Assessor's Office is as follows. Approximately 57.0 percent of the parcels (1,387) will see a decrease. Approximately 21.11 percent of the parcels (514) will see an increase of $0 - $300. Approximately 13.6 percent of the parcels (332) will see an increase of $301 - $600. Approximately 5.3 percent of the parcels (130) will see an increase of $601 - $900. Approximately 3.0 percent of the parcels (71) will see an increase of more than $900. The residential properties in the City experienced an average increase in value of 3.5 percent. The average City tax impact is as follows. For a property valued at $250,000 in 2016 its value increased to $258,750 for 2017, and the tax increased by $10 (or 1.4 percent). For a property valued at $375,000 in 2016 its value increased to $388,125 for 2017, and the tax increased by $13 (or 1.2 percent). For a property valued at $500,000 in 2016 its value increased to $517,500 for 2017, and the tax increased by $26 (or 1.7 percent). For a property valued at $750,000 in 2016 its value increased to $776,250 for 2017, and the tax increased by $33 (or 1.4 percent). For a property valued at $1 million in 2016 its value increased to $1,035,000 for 2017, and the tax increased by $41 (or 1.2 percent). That will be different depending on the individual property value. The values are based on sales from up to almost two years ago. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 5, 2016 Page 3 of 6 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. City staff can help individuals get in touch with the right people if they want to pursue any of those options. B. Public Hearing Mayor Zerby opened the Public Hearing and Public Testimony portion of the Public Hearing at 7:08 P.M. George Greenfield, 24715 Yellowstone Trail, asked if there are any line items in the budget for payments to Oppidan Investment Company. Director DeJong explained there is no line item for Oppidan in the General Fund Budget. The City will make payments to Oppidan but not for several years and the funds will come out of special fund that will be set up for that Tax Increment Financing District. JR Campuzano, 25860 Birch Bluff Road, stated that when he purchased his property it may have had a higher assessed value then it should have had and because of that his property tax went up significantly. His tax bill went up about 20 percent one time. He asked if there are any limits in place for how much a property's tax can increase in one year. He noted that he and his family moved here from the State of Connecticut about five years ago. In Connecticut the tax was roughly 1 percent and here he thought it was more like 1.5 percent. The property taxes for a property abutting the lake are somewhat like an anchor around a property owner's neck. The taxes do not create a desire to want to continue to live here. He noted he thought the schools here are good. Mr. Campuzano stated his purpose for coming to this hearing was to learn more about the process. Mayor Zerby noted the State of California passed a Proposition 13 years ago that took into consideration how long a person owned a property. He stated he does not think Minnesota has any type of protection to help mitigate big increases in property taxes. He commented that for property owners who purchased land that fronts the lake 40 years ago, for example, the value of their land is significantly more than the value of their home. Director DeJong explained that Minnesota has arguably the most complicated property tax system in the Country. In Minnesota tax capacity changes at $500,000 or more. All values up to $500,000 have a class rate of 1 percent. Values at or above $500,000 have a class rate of 1.25 percent. Minnesota is probably the only state where it can levy more than 100 percent of the value. Minnesota levies an increase in the property taxes. This year it is 2 percent, last year it was 2.5 percent and the year before that it was 1.5 percent. The rate is applied to all properties in the taxing districts; Shorewood is one of the taxing districts. A person's property tax is determined by their property's proportional share of that total value. The values of properties that front the lake tend to increase faster than others do and therefore the taxes on those properties will be in excess of what the City is increasing its property tax levy by. Mr. Campuzano questioned why the owner of a very high valued property pays more in taxes yet does not receive more value from the community. Director DeJong noted that system is not in place. The current system is based solely on property value and not on usage of community services. Councilmember Woodruff concurred that Minnesota has one of the most complicated, if not the most complicated, property tax system in the Country. He noted that Minnesota has consistently been in the top ten for highest tax in the Country as well. He explained that he and Director DeJong are members of CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 5, 2016 Page 4 of 6 the Association of Metropolitan Cities committee that has to do with policy regarding revenue and taxation. One of the things that committee discusses each year is the property tax system. He encouraged Mr. Campuzano to speak with his legislative representatives about property taxes because they are the ones that would have to push changes to the system. They have made some minor tweaks to the system; unfortunately, the most recent change has made it worse. There has been some discussion about factoring in individual income data into determining how much property tax a property owner should pay. That has not advanced in the legislature for a number of years. Woodruff stated that Shorewood has been very conservative about how much it increases the City's levy. There were at least three years when there was no increase; he thought that was in the 2008 — 2011 timeframe. That was not easy to do but councils did it. Continuing with that practice would result in cutting services. Councilmember Siakel stated her property is located by a street where there have been a lot of houses torn down and replaced with expensive houses. Property taxes for properties along that street have increased substantially over the last few years. She noted that two school referendums were passed last year and they increased property taxes significantly. She stated she thought the County increased its levy about 4.5 percent for 2016 and it will increase about the same for 2017. She noted that for three of her six years on Council there was no increase in the City's tax levy adopted. She stated she thought Shorewood acts quite conservatively. She then stated that a lot of the services Shorewood residents get are local services. The City does a good job of delivering services and doing so for a good value. She encouraged Mr. Campuzano and other residents to talk to their legislative representatives about their concerns about property taxes. Mr. Campuzano questioned the need for a skating rink in two of the City's parks. He asked if there is a cost limit on how many services and amenities the City provides. He noted he likes the community he lives in. He stated he thought the highest tax rate for Minnesota is quite high; he thought it was 9.85 percent. The property tax rate is also high. He then stated he does not think Minnesota was as transient as it could be (i.e.; it does not attract enough people to the area) because of its high tax rates. Mayor Zerby stated that for the $0.21 out of each tax dollar a person pays he hopes residents think they are getting a good value in Shorewood. He encouraged Mr. Campuzano to apply for a position on the City's' Park Commission or Planning Commission or to run for Council so he could learn more about how things work and to provide input. Councilmember Labadie explained that on the back of a property owner's property tax notices and statements there is a 1 -800 phone number a person can call to speak with someone at the Hennepin County Assessor's Office about a property valuation. Michael Smerdon is the assessor assigned to Shorewood; he is assigned to other cities as well. Assessor Smerdon will meet with people. If a property owner still has a concern about a valuation after speaking to and meeting with Assessor Smerdon they can then invite him to come to their home. Based on her experience with him he will adjust the valuation if he made a mistake. She encouraged property owners who have concerns about their new property tax information for 2017 to call the 1 -800 number when they receive their information. Mr. Campuzano thanked members of Council for their service. Mayor Zerby closed the Public Testimony portion of the Public Hearing at 7:23 P.M. Administrator Lerud stated that after the November 28 Council meeting he thought had been some confusion about the General Fund balance. He and Director DeJong put together a short PowerPoint presentation about how the required fund balance and available fund balance are calculated. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 5, 2016 Page 5 of 6 Director DeJong explained fund balance is the accumulated reserves that are created when revenues exceed expenditures in a given year. Each fund created by the City has a positive balance. Fund balance can be used in future years for purposes determined by City Council. It can be transferred to a different fund, it can be used for a one -time project or it can be transferred into the General Fund to reduce the tax levy. Mayor Zerby asked when there is an understanding of what the General Fund balance is for any particular year. Director DeJong explained that will be known after the audit is done for the previous year; it is normally presented to Council in the May /June timeframe. He has a rough idea of the balance before the audit is complete. Director DeJong walked through a presentation on the General Fund Balance Policy (the Policy) which was adopted by Shorewood in 2007. He explained the primary goal of the Policy is to provide sufficient funds for cash flow. For 2017 it is estimated that the City will collect slightly more than $5 million in taxes that it has levied. The City will get that in three payments during the year. Seventy percent of the first half of that is received the end of June and the other 30 percent is received in early July. The City receives the rest of the taxes paid by October 15 on December 1, The City will receive any property taxes paid after October 15 and by the end of the year at the end of January of the next year. Councilmember Sundberg stated the slide states that "The fund balance can vary between 55 and 60 percent and still be considered sufficient." She stated she thought the City's General Fund balance is healthy; not just sufficient. She considers the City's Policy to be conservative. Director DeJong stated Shorewood's Policy is more generous than what the Office of the State Auditor recommends. Director DeJong displayed a bar chart for 2013 — 2017 showing the budgeted expenditures and what 60 percent of those expenditures are. He then displayed a bar chart for 2013 — 2017 showing the year -end actual fund balance, 60 percent of the budgeted expenditures and transfers for the next year (which is how much reserves are required based on the Policy), and the available reserves above the 60 percent level. He displayed a slide showing the changes in the year -end fund balance for 2011 — 2015. It showed that year -end fund balance increased by $1,013,940 between December 31, 2011, and December 31, 2015. There were some one -time events (e.g.; the sale of the City -owned property) that helped contribute to that increase. The fund balance at the end of 2015 was $4,502,167. He displayed a bar chart for 2013 — 2017 showing the available fund balance, the budgeted use of fund balance, and the net available reserves. He displayed a slide showing the available reserve projection by year for 2013 — 2017. It showed the fund balance at the beginning of the year, 60 percent of the year's expenditures and transfers, the available fund balance, the budgeted use of fund balance, and the net available reserves. Because the 2016 year -end fund balance is not known at this time, the 2015 actual year -end balance was used for the 2017 starting fund balance. The projected 2017 available reserves over 60 percent is $684,595. The slide noted that the available reserves grew by $685,573 over the last five years. Councilmember Woodruff stated that when the then Council adopted the Policy in 2007 it thought the 60 — 55 percent level of reserves was prudent because of the financial situation of the country. Council could consider if it wants to adjust the level based on how much risk it wants the City to take. He stated he thought the presentation reflected that councils had budgeted conservatively from both a revenue and expense perspective. Revenue has been under estimated and expenses under spent to some extent for a CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 5, 2016 Page 6 of 6 number of years. As an outgoing member of Council he challenged future councils to prudently spend down the available reserves so the fund balance gets closer to 60 percent. Councilmember Siakel noted Council has a list of priorities to spend available reserves on. C. Council Deliberation/Decision to Reconvene Mayor Zerby noted that he was satisfied with the proposed 2017 General Fund Budget. Council has spent a great deal of time discussing it. He then noted that he thought using some of the available reserves to help fund the Budget was prudent. Mayor Zerby closed the Public Hearing at 7:43 P.M. 3. APPROVING THE 2017 GENERAL FUND BUDGET AND PROPERTY TAX LEVY COLLECTIBLE IN 2017 Councilmember Siakel noted Council could use additional available reserves to reduce the levy increase. Councilmember Sundberg asked what amount of additional reserves would be needed to reduce the levy increase to 1.5 percent. Director DeJong responded about $25,000. Councilmember Siakel stated she thought a 2 percent levy increase was relatively minimal. Mayor Zerby stated he did not support using even more reserves to reduce the levy increase. There are some things that may need to be done (e.g.; things related to the Southshore Center, and traffic calming solutions) that would be funded with available reserves. He thought a 2 percent levy increase was reasonable. Woodruff moved, Labadie seconded, Adopting RESOLUTION NO. 16 -090, "A Resolution Adopting the 2017 General Fund Operating Budget of $6,041,312 for Operations and Approving the Property Tax Levy in the Amount of $5,180,996 Collectible in 2017." Motion passed 5/0. 4. ADJOURN Labadie moved, Siakel seconded, Adjourning the City Council Special Meeting of December 5, 2016, at 7:46 P.M. Motion passed 5/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: Govt. PaKch -),) Je Panchyshyn, City derV Scyy -/.T Xnr