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12-04-17 CC Special Mtg Truth-In-TaxationCITY OF SHOREWOOD CITY COUNCIL SPECIAL MEETING MONDAY, DECEMBER 4, 2017 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 7:01 P.M. A. Roll Call Present. Mayor Zerby; Councilmembers Johnson, Labadie, and Siakel; Administrator Lerud; and Interim Finance Director Rigdon Absent: Councilmember Sundberg B. Review Agenda Johnson moved, Siakel seconded, approving the agenda as presented. Motion passed 4/0. 2. TRUTH -IN- TAXATION HEARING A. Staff Presentation Interim Finance Director Rigdon walked through the presentation for this hearing. The Truth -in- Taxation requirements are to present the City's 2018 General Fund Operating Budget and 2018 property tax levy, discuss the budget and tax levy, and to take public comment. Council will be asked to adopt a property tax levy and balanced budget during its December 11 meeting. The City's portion of the property taxes pay for a number of services funded out of the General Fund. They are four major main operational areas — administration (including finance, planning and zoning, elections, and other miscellaneous services); public safety (police and fire protection); public works;; and, parks and recreation. The assumptions used in preparing the 2018 General Fund Operating Budget are as follows. A A 4.0 percent tax levy increase over 2017 for General Fund operations. The original proposal was 2.9 percent increase. ➢ One new full -time Public Works position which would be allocated 90 percent to Public Works and 10 percent to Ice & Snow Removal. ➢ Other staffing levels remain the same from 2017. ➢ An approximate 10 percent increase in the City's contribution toward employee health insurance. ➢ A 2.5 — 3.0 percent increase in wages. ➢ The use of $117,106 in General Fund balance reserves to balance the Budget; down $75,779 from 2017. The City's General Fund 2018 combined revenues and transfers total $6,078,526 reflecting an increase of $229,999 (or 3.9 percent) when compared to 2017. Property tax revenues are $5,388,236 reflecting an CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 4, 2017 Page 2 of 6 increase of $207,240 (or 4.0 percent) when compared to 2017. The breakout of the revenues and transfers is 89 percent from property taxes, 4 percent from licenses and permits, 4 percent from miscellaneous revenues, 1 percent from intergovernmental, 1 percent from fines and forfeitures, and I percent from charges for services. The City's General Fund 2018 combined budgeted expenditures and transfers out total $6,195,632 reflecting a $154,320 (or 2.6 percent increase) when compared to 2017. Total operating expenditures reflect a $1.33,338 (or 2.7 percent) increase. Total transfers out (Southshore Center, City Hall debt service and capital) reflect a $20,982 (or 1.9 percent) increase. Transfers to the Street Improvement Fund and the Equipment Replacement Fund were each increased by $15,000. The transfer to pay the City Hall debt service reflects a decrease of $9,018 due to the 2017 bond refunding. The breakout of those expenditures and transfers out by program is 36 percent is for public safety services (police and fire), 35 percent for streets, 23 percent for general government services, and 6 percent for parks and recreation. The breakout of those expenditures and transfers out by type is 42 percent for other services and charges, 25 percent for personal services, 19 percent for transfers out, 9 percent for capital outlay, and 5 percent for supplies. The property tax assessment and levy timeline for property taxes payable in 2018 was as follows. The market values were established on January 2, 2017. Valuation notices were sent out in March 2017. Tile Board of Review process to hear appeals on property values took place during April and May 2017. Council discussed the 2018 . General Fund Budget and property tax levy from July through September 2017. The City certified its maximum tax levy increase of 4 percent for 2018 to Hennepin County in September 2017. The County mailed out Truth -in- Taxation notices to property owners in November 2017. The Truth -in- Taxation hearing was being held that evening. The City will certify its final tax levy to the County by the end of 2017. He clarified that this presentation is about the City of Shorewood's portion of total tax bill which is approximately 27 percent. He highlighted some trend graphs. The taxable market value payable in 2018 increased 6.1 percent when compared to 2017. The tax capacity is a derivation of market value; it is determined by applying a class rate to the market value of a property. The tax capacity is ultimately used in calculating tax rates and tax dollars to the property owners. The property tax levy graph reflected the 4 percent levy increase over the 2017 levy. The levy ranged from 1.5 percent to 3 percent over the past few years. The City local tax capacity rate has been going down for at least the last four years because the market value was going up at a higher rate than the tax levy was going up. It is not that way in all cities. The 2018 total City local property tax percent change compared to the 2017 total tax for properties in the City based on statistics from the Hennepin County Assessor's Office is as follows. Approximately 23.5 percent of the parcels (573) will see a decrease. Approximately 40.6 percent of the parcels (989) will see an increase of $0 — $300. Approximately 18.4 percent of the parcels (449) will see an increase of $301 — $600. Approximately 7.8 percent of the parcels (19 1 ) will see an increase of $601 — $900. Approximately 9.7 percent of the parcels (237) will see an increase of more than $900. That full property tax bill includes city, county, school district and other taxing jurisdictions. The City local tax capacity rate for taxes payable in 2017 was 29.45 percent. The 2018 local tax capacity rate went down to 28.745 percent. If there was no change in the market value from 2017 to 2018 there would have be a 2.4 percent decrease in the property tax paid. If the market value increased by 5 percent for 2018 the property taxes would increase from 2.8 to 3.5 percent. There are three tax relief programs available through Hennepin County and the State. There is a homestead credit refund (circuit breaker) which is based on household income and property taxes paid. There is a targeting property tax refund available if taxes increase more than 12 percent and the increase is over $100. There is a senior citizens CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 4, 2017 Page 3 of 6 property tax deferral program; the specifics of that program can be found the Minnesota Department of Revenue website. Fund balance is another term for net worth, retained earnings, or net position. Fund balance is a term used in governmental accounting. Each city fund has an equity position and sometimes those can be considered as reserves depending where they are at. Shorewood has a General Fund Balance Policy. The Policy's goal is to maintain a reserve level of 55 — 60 percent of the next year's budgeted operating expenditures and transfers out. A General Fund Balance chart for 2013 — 2016 actual showed the year -end balance for each of those four years was above 70 percent. The 2017 year -end balance is estimated to be 59.9 percent. The chart shows a deficit in 2017 of $892,785. That reflects the planned use of $ 192,785 in reserves to balance the 2017 budget and $700,000 in transfers out to capital approved by Council early in 2017. Based on the current year -to -date budget numbers he assumed the balance would not be lower than 60 percent at 2017 year -end. Rigdon noted Council will be asked adopt the 2018 General Fund Budget and property tax levy during its December 1.1 meeting. Council will also be asked to approve the 2018 Enterprise Fund Budgets and the 2018 Capital Improvement Program during that same meeting. Councilmember Siakel stated she thought the additional information Interim Finance Director Rigdon provided in his presentation when compared to other years was very helpful. B. Public Comment Mayor Zerby opened the public comment portion of the hearing at 7:18 P.M. George Greenfield, 24715 Yellowstone Trail, stated if the City's tax levy remained the same and the cumulative assessed value of all of the homes in Shorewood went up 5 percent he asked if Shorewood's revenue would go up 5 percent. Interim Finance Director Rigdon clarified it depends on what Council wants to levy. Administrator Lerud explained the City budgets for what it needs; the levy is not based just on the total taxable market value. Mayor Zerby clarified it budgets for the dollars it needs. Mr. Greenfield stated if the levy remained the same and the assessed value increased 5 percent he asked if Shorewood would collect 5 percent more in taxes than it did in the previous year. Rigdon responded no. Zerby reiterated the City budgets for the dollars it needs; the budget is not driven by the assessed value. Councilmember Siakel clarified the levy increase is not the same for all properties; it is based on a property's valuation. She stated she heard Interim Finance Director Rigdon say that the market value has gone up at a faster rate than the tax levy for properties in Shorewood. She then stated she thought Council has taxed for only what the City needs. Mayor Zerby stated part of Council's role is to try and ensure residents are receiving a good value from the City for the taxes they pay. He thought Council has been reasonable with its spending. Councilmember Siakel stated when Council made a decision during its September 11 meeting to set the maximum levy at 4 percent that was done because there were a number of unknowns about projected funding needs. The levy could always be decreased once the funding needs were better known. The levy increase to 4 percent would amount to an additional approximate $50,000 in the tax revenue. Interim Finance Director Rigdon explained the 4 percent levy would bring in about an extra $56,000 over the 2.9 percent levy originally proposed by staff. For every 1 percent increase in the tax levy amounts to about an additional $50,000 in tax revenue. Administrator Lerud explained that when the preliminary levy was set in September the cost to make needed cosmetic improvements to the SSC were not known. The recent quotes he received to do that work came in at just under $100,000. The Building Official thought the City could do that work for considerably less if it served as its CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 4, 2017 Page 4 of 6 own construction manager. There is some of the cosmetic work already budgeted for in the Capital Improvement Program (CIP) over the next five years. He thought if the maximum tax levy was lowered by almost $19,000 (to about 3.5 percent) he thought the City would have sufficient funds to do those improvements. If Council supports doing that then staff will update the Budget and CIP accordingly and have the revised documents ready for Council to take action on during its December 11 meeting. Councilmember Johnson asked who would serve as the construction manager for the City. Administrator Lerud stated Building Official Pazandak would. Johnson asked what would have to be taken off of Pazandak's work load. Lerud stated there may be some additional expense for building inspections. Mayor Zerby noted that Pazandak had served in that capacity when the shelter in Manor Park was built. Mr. Greenfield stated he had a couple of questions /concerns about taxation in general in Shorewood. His questions /concerns were as follows. 1. Inflation in the United States went up 1.8 percent in the last fiscal year. The proposed 2018 tax levy for Shorewood is 4.0 percent. The quarterly assessment for the storm water utility rate went up 20 percent. He asked why the expenses for Shorewood are so much greater than the rest of the country. 2. He found it disconcerting that the preliminary tax levy of 4 percent was passed during a meeting when only three members of Council were in attendance. It did not provide the two absent members of Council with an opportunity to perhaps offer dissenting opinions. He also found it disconcerting that Council decided to do that at a time when it did not have all of the relative information. He did not think there is any fixed principal of taxation in Shorewood. On one hand if a person lives in a neighborhood where there is no storm sewer and no special grading they pay the same storm water utility rate as someone who does have that. On the other hand it was made clear during a recent Council meeting that if property owners living along an unpaved City street wanted it paved the property owners would have to pay the initial cost of having that street paved. He asked if the principal is all for one or one for all, which he believes it should be, or every person for themselves. He thought there should be a uniform principal. 4. He wished some member of Councilor even all of them could justify why the tax levy increase is possible. Over the last two years the City has taken two large properties essentially off the City's property tax rolls and put money into the coffers of private corporations while asking the citizens of Shorewood to assume the added burden. Mr. Greenfield thanked Council for its time. Mayor Zerby stated he thought the one for all and all for one is something Council considers often. It is typically considered for small projects that benefit only a small number of property owners. He then stated the preliminary /maximum 4 percent tax levy is what was earmarked by Hennepin County for the City should the City need it. Based on the discussion during the meeting it appears the 2018 tax levy will be closer to 3.5 percent than 4 percent. The initial proposal was for 2.9 percent. There had been improvement projects (e.g.; the SSC) that will cost more than anticipated. Administrator Lerud explained the 2018 budget process started in June 2017. At that time there was only six months' worth of data available so staff had to estimate more. He noted all members of Council were in attendance during an August work session when the preliminary budget and tax levy were discussed. All of them had a say in the budget and the levy. Since the preliminary 4 percent tax levy was certified in September staff has gathered a lot more information needed to refine the 2018 budget and tax levy. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 4, 2017 Page 5 of 6 Lerud then explained Shorewood will receive some portion, approximately 16 percent of the property taxes the City of Excelsior collects from The Waters of Excelsior project over the life of the tax increment financing (T1F) District. The taxes would be based on the property value before the site was redeveloped. At the end of the TIF District Shorewood will receive 70 percent of the taxes generated by the Waters Project. He then explained that for the Oppidan Shorewood Landing Senior Living project Shorewood will receive the taxes paid to the City based on the property value before the site was redeveloped until that TIF District is decertified; after that the City will collect taxes on the full taxable value. There may be some additional public service costs (e.g.; for example for public safety) going forward. He noted that he did not think the impact of having those two TIF Districts would be a significant burden to Shorewood. Mr. Greenfield stated if Shorewood's tax levy went up 4 percent each year in 20 years it would have gone up 80 percent. Administrator Lerud clarified that what the City captures from the TIF District is taxes on the original assessed value. The City can still collect on increases in its levies based on that original value of the property. Councilmember Siakel stated it is doubtful that anything else would have been done to the Oppidan site; she did not know what else could have been done. The City is still going to collect the tax. At the end of the life of the TIF District the property will be taxed at that new assessed value. Council had repeatedly heard from residents about the need for advanced care for seniors. Mr. Greenfield noted there have been extremely expensive houses built on some large parcels of land along Chaska Road. If those same types of houses had been built on the Oppidan site then they would have been taxed based on the then current value of the property over the 20 years. Mr. Greenfield thanked Council for its answers and time. Mayor Zerby stated Council appreciates hearing Mr. Greenfield's views and he thanked him for coming. Mayor Zerby closed the public comment portion of the hearing at 7:35 P.M. C. Council Deliberation — Discussion of the 2018 Enterprise Fund Budgets and the 2018 Capital Improvement Program Mayor Zerby again noted that Council will not take action on the 2018 General Fund Budget and tax levy this evening. The purpose of this hearing was to gather infonnation and to give staff direction for the December 11 meeting. He thanked staff for the good job they did on preparing the documents. Councilmember Labadie stated she found the documents to be very helpful and easy to understand. They were an improvement over the last few years. She thanked staff for their efforts. Mayor Zerby stated going forward it he thought it would be helpful to see an inflationary line on the trend graphs. Administrator Lerud asked if Council had any comments about the 2018 Enterprise Fund Budgets or the 2018 CIP. Lerud stated the biggest takeaway on the Enterprise Budgets is what appeared to be a significant increase in the water revenue but that is only because the numbers in the past were not realistic. He then stated there will be a 3 percent increase proposed for the water and utility rates and a 10 percent increase proposed for the storm sewer utility rate. Council will be asked to consider those increases in February 2018. Councilmember Siakel stated she would like staff to find out how Shorewood's' storm water utility, rate compares to those in other communities. She questioned if the City's rate is high enough. CITY OF SHOREWOOD SPECIAL MEETING MINUTES December 4, 2017 Page 6 of 6 3. ADJOURN Siakel moved, Labadie seconded, Adjourning the City Council Special Meeting of December 4, 2017, at 7:37 P.M. Motion passed 4/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder Tcottlerby, Mayo r°' ATTEST: Sandie Thone, City Clerk