Loading...
HomeMy WebLinkAbout07.12.10 Work Session Minutes Council Workshop Minutes July 12, 2010 Mayor Larson called the workshop to order at 6:00 p.m. Present: Absent: Also Present: Larson, Donnelly, Fogarty, May Wilson Peter Herlofsky, City Administrator; Teresa Walters, Finance Director; Brian Lindquist, Police Chief; Randy Distad, Parks and Recreation Director; Kevin Schorzman, City Engineer; Todd Reiten, Municipal Services Director; Lisa Shadick, Administrative Services Director; Brenda Wendlandt, Human Resources Director; Cynthia Muller, Executive Assistant Jerry Ristow Audience MOTION by Donnelly, second by May to approve the agenda. APIF, MOTION CARRIED. City Administrator Herlofsky stated at the last meeting Council gave staff some direction on what they wanted for the 2011 budget. Staff has included information on the debt service fund along with information on the general fund. Public safety makes up 60% of the budget and 75% is salaries, so taking 2% - 5% out was very difficult. As far as the debt service fund, because of Vermillion River Crossing we need to do some catching up. Councilmember May felt staff did not do what Council asked, because Council wanted to see by department a decrease of2% - 5% and an increase of2% - 5%. Finance Director Walters understood the direction to be an overall budget decrease. Councilmember May stated Council wanted each department to do that individually. When Council looks at an overall number, they want to see how individual departments are affected by the different scenarios. City Administrator Herlofsky stated staff provided the information under the conditions of the debt service. He noted staffwas also told certain departments were not touchable so staff tried to balance that out because that only left 40% ofthe budget to work with. The actual numbers, other than personnel, are exactly the same as last year. The personnel budget changes are related to PERA and other personnel costs. Councilmember May stated staff needs to do what Council asks them to do. If Council has to make a decision, she understands the overall number, but she is trying to get a grasp of how the changes affect each department fIrst and then we can piece it together. She will listen to what staffhas put together, but felt staffhas not done that exercise. She also asked the information be provided sooner before a workshop. City Administrator Herlofsky stated we wanted to get the meeting done early in July, so we can get direction and have a couple more meetings before September. We need to handle the debt service. We can discuss different percentages, but it will affect personnel. Mayor Larson agreed we need to talk about the debt service and at the last meeting Council wanted to see how an increase or decrease would affect the departments. Mayor Larson asked about the health insurance increase of 10.22%. He recalled last year they discussed those with single coverage receive a check to make up the difference. Human Resources Director Wendlandt clarified that is not how it works. The increase is to the 14 Council Workshop Minutes July 12, 2010 Page 2 premiums from the health insurance carrier. What the Mayor was referring to was the City has a cafeteria plan and everyone receives a set dollar amount to purchase benefits. Last year it was not increased for those with single coverage. A few years ago it was changed so that employees could receive any left over amount in cash or roll it into their 457 account. Some employees waive coverage because they are covered elsewhere. For those who choose more than single coverage, the employer contribution does not cover the entire amount. Mayor Larson asked how much someone who waives insurance receives. Human Resources Director Wendlandt replied if they take no other benefits they receive approximately $300/month in cash or rolled over to their 457 account. Mayor Larson asked for a report on how much the City is paying out for those benefIts for the next meeting. City Administrator Herlofsky stated it is an attempt to make sure each person is paid equally and not based on whether they are married, single, or have children. Mayor Larson stated with hard times, we have to look at everything. Staff asked for clarification that the report should show how much we pay for everyone, how much for single coverage, and employee plus children. Mayor Larson wanted to know how much we are giving employees in taxable income or what they are rolling over. Councilmember Fogarty stated in other places employees receive the amount for single coverage and anything above that becomes the responsibility of the employee. If you opt to not have coverage, then you do not receive a benefit. There is a way to make it equitable and be more frugal for the City. City Administrator Herlofsky agreed that way is more common. Councilmember Donnelly asked about moving a building maintenance staff person from the arena and the pool to City Hall which resulted in increased cost to the general fund. Finance Director Walters stated the arena and the pool are special revenue funds, so they are not part of the levy. Staff was shifted to the general fund. Councilmember Donnelly asked about the 7.1% increase in Police Patrol overtime. Police Chief Lindquist stated there was a reduction requested last year, which was below the requested number. This is to indicate it is going back to the original budget number from 2009. Councilmember May stated with the addition of an officer, she hoped to see a reduction in that number. Police Chief Lindquist stated there is less of a need to backfill the shifts with overtime, but there is still the courts, safe and sober, training, etc. Because we have extra people during the summer, that is a reduction. City Administrator Herlofsky explained the safe and sober program overtime is reimbursed so it is not an additional cost. Councilmember Donnelly would like to see a dollar amount next to the items listed under the general fund so they can see what dollar amount the percent equates to. He noted the general fund did not look that bad, but the debt service fund was a total surprise. Vermillion River Crossing is the biggest problem. Mayor Larson asked staff to explain Hill Dee where in 2007 we should have levied $187,300 and we received $78,914 in special assessments. The City had issued bonds to cover the Vermillion River Crossing Development and the Hill Dee project. Finance Director Walters explained we did not receive as much of the assessments as we thought we would receive. Also we should have levied a higher dollar amount and we didn't because there was a fund balance. The fund balance was only there because we had prepayments in assessments. Because of the prepayments we were able to utilize the fund balance in 2008 and reduce the amount we levied in order to pay the debt service payment. In 2008 development did not occur in Vermillion River Crossing. The prepayments caught up with us and we continued to levy close to the same amount and kept utilizing fund balances until we went negative in 2009. Also, we budgeted a 15 Council Workshop Minutes July 12, 2010 Page 3 slightly higher dollar amount, but not as much as we should have levied in 2010, and we will go even further negative because at the same time we were not receiving the amount of special assessments we had budgeted to receive. This happened because we anticipated development in Vermillion River Crossing and we did not have development. For the Hill Dee project we anticipated receiving $78,000 in special assessments, but we did not assess that much. Councilmember Fogarty asked how can we expect a dollar amount and not receive it. City Administrator Herlofsky explained people do not pay it; it goes on the tax rolls to be paid when the property is purchased. Councilmember Fogarty stated when we do special assessments we are assuming a percentage will write us a check. Finance Director Walters stated that is not the way the financial advisors set it up. They assume that everyone will pay over time and then they anticipate the amount of interest that will be paid over that time period. The people who pay ahead of time, do not pay interest so then you end up with a smaller amount. In this case, more people wrote us a check than was anticipated. City Administrator Herlofsky noted in her short time here Finance Director Walters has brought concerns to his attention and made some real efforts to get things resolved. Previous employees have tried their best to bring to Council each year as small an increase in the levy as possible. Vermillion River Crossings was a time when everyone wanted them to be very successful. There was an attempt to make things work based on a difficult situation. Mayor Larson stated with Hill Dee we are playing banker and eventually we will get caught up. Finance Director Walters stated with Hill Dee you will never be caught up; with Vermillion River Crossings you will if you have development and Council does not waive the special assessments. Mayor Larson stated there is nothing we can do except to levy for it. Finance Director Walters stated when staff put this together we were faced with a huge increase ifwe were to cover everything. We had to develop a plan to be able to do it in a reasonable way that would not affect the residents as much. The result is shifting money between funds. Mayor Larson asked about the auditors at year end. Finance Director Walters explained they look at cash balances at the end of the year and fund balances at the end of the year. At the end of the year we will have a positive cash balance in the debt service fund and a positive fund balance. During the year we will be struggling to pay because our principal payments are all due in February and the City does not receive tax money until June or July. In 2011, we anticipate paying over $3 million in principal payments and approximately $1.4 million in interest. Normally the first interest payment comes in August so you would levy in the year prior to that so you have the cash flow for the February payment. As far as the arena and Walnut Street, our frrst interest payment is due in August and the frrst principal payment is due in February 2012. If you do not levy for it in 2011, you will not have the money in February 2012. City Administrator Herlofsky stated with Vermillion River Crossing, payments got slightly behind and we ended up with a big increase in the bond payment. The amount needed to cover the deficit and the increase in bond payment is $723,091. City Administrator Herlofsky noted in 2005 they were talking about construction starting the following spring and assessments would be paid through the City through the increase in value and the abatement. There was a $1 million grant for the Spruce Street bridge. The past minutes state without the Spruce Street bridge the project could have gone without assistance from the City, but the bridge added another $1 million plus the $1 million grant. The economy turned and things did not turn out as expected. 16 Council Workshop Minutes July 12, 2010 Page 4 Department heads made a serious attempt to adjust the general fund budget resulting in a .32% increase based on adjustments for PERA, health insurance~ and contracts. Finance Director Walters stated ifwe did not shift money we would be at an 11.79% increase in the levy. Staff looked at everything and something needed to be done. It would be best to pay it over time, rather than one lump sum. Payments increase each year. She looked for a fund that had money which is the capital acquisition fund. We have a list of equipment to replace, but we needed a one time fix. That fIX is to transfer $300,000 from the capital acquisition fund to the 2006A bond fund (Vermillion River Crossing). The transfer of $300,000 leaves a fund balance of $31,000. That will carry forward to the next year. The following year we would borrow $162,600 from the capital acquisition fund and pay it back in 2017. This amount was chosen because the equipment certificate debt service fund levy amount is $162,600. That fund is ending in 2011. Instead of cutting it out of the budget~ she is suggesting we utilize the money to pay the debt service from 2012 to 2016. We will build up enough ofa fund balance to pay it back in 2017. Every year the levy would increase by $10~000. If there is development in Vermillion River Crossing, we can adjust this. Councilmember May asked why bother with the equipment certificate levy because that will expire. Why continue it just to shift it over? Finance Director Walters stated it is to utilize the levy that is going away so we are not increasing. Councilmember May stated we are increasing because it would go away. Staff explained we are calling it an equipment certificate levy to show where the money came from. The $162,600 will end in 2020. Other shifts are from the 2005C debt service fund, and the 2003A debt service fund. At some point the levy will have to be increased. Regarding the 201 OC Walnut Street bond, staff changed the entire payment schedule for this project. The schedule from the fmancial advisor sets it up so we do not have negative cash balances. The revised schedule will have negative cash balances throughout the year, but will give a positive cash balance at the end of the year. The fmancial statements will not show we cannot pay our debt. This is based on what the County says we should be receiving. If people decide to prepay assessments, then we have to review it. Councilmember Fogarty asked if the interest we are receiving is higher than the interest we are paying. Finance Director Walters stated it is similar. Councilmember Fogarty asked then why not use the prepayments to buy down the principal. Finance Director Walters stated we could have, but we didn~t. We put it into the fund balance and the next year we reduced the levy. Councilmember Donnelly stated the prepayments did not go towards the bond; they were used to make the levy look better. Finance Director Walters stated she had done the same thing with the ice arena equipment bonds. We will have negative cash balances during the year and positive cash balances and fund balances at the end of the year. After all this we end up with a 3.9% increase in the overall levy. Councilmember Donnelly asked if the Walnut Street payments were increased or decreased with the new schedule. Finance Director Walters stated for Walnut Street the original payment was to be $130,000. It has been reduced to $49,196 for the fITst year. In 2011 there is no levy for the principal and the levy does not start until 2012. In 2012 we will have an increase to the levy because we are going from $75,000 to $135~000 in 2012. After that it is smaller increases and remains consistent from 2014 to 2026. Finance Director Walters suggested not reducing the debt service any further. City Administrator Herlofsky stated we have gone from 11.79% to 3.9%. Councilmember Donnelly stated the $300,000 transfer from the capital acquisition fund we never pay back. Staff agreed. Councilmember Donnelly stated so we have levied $300,000 for equipment we will never buy. The $162~600 which is a loan~ we will pay back. Councilmember 17 Council Workshop Minutes July 12, 2010 Page 5 Fogarty stated this puts us at a 4% increase for 2011, similar for 2012, and keeps it stable until 2018. Hopefully development will occur by then. Finance Director Walters stated this is provided we have no new debt. Any new debt will increase the levy. Salaries make up 78% of the general levy or 48% of total expenditures. We have a transfer of $145,000 to the Senior Center each year. Of this $125,000 is for operations and $20,000 is to repay a loan. The personnel cost for the senior center is $82,205. Revenues are $37,200. This is part of one of the options for Council to consider. Options for the general levy include: Option 1 (staff recommendation) is a 3.5% overall increase as presented which is a .32% increase to the general levy and a 14.86% increase to the debt service levy. All services remain the same and the budget stays the same as 2010. There would be no capital purchases except for the two police cars that will be paid for from the capital acquisition fund. General Fund Reduction Options: Option 1 is a 2.9% overall increase which is to reduce the general levy by 1 %, amounting to $83,000, and a 14.86% increase to the debt service levy. Options for cutting $83,000 include: - Closing the pool. The $75,000 transfer from the liquor store could go to the general fund. - Reduce the transfer to the Senior Center and they would have to cover their expenses through their fees. - A furlough could reduce the levy by $100,000. Option 2 is a 1.9% overall increase which is a 2% decrease to the general levy, amounting to $166,000, and a 14.86% increase to the debt service levy. Options for cutting $166,000 include: - Part-time park maintenance amounting to $31,000. - A combination of any of the two items in option 1 would be a reduction of 1.9%. - Although the overall levy would be reduced by 2%, the general levy would take a reduction of 2.34%. General Fund Increase Options: Option 1 is a 4.9% overall increase which is an increase to the general levy of 1 % and 14.86% increase to the debt service levy. This would be a 1.34% increase in the general levy and an overall levy increase of 4.9%. Options to utilize this increase: - A 2% increase in non-police salaries amount to $63,865 or an increase of. 77%. Employees did take a furlough last year and have not had a salary increase in the past two years. - We would have start-up money for the Deputy Registrar. Mayor Larson noted in the previous option 2, this could have a significant impact on service levels and asked for examples. Parks and Recreation Director Distad stated it is more than just not mowing. We would not have warming houses open, landscaped areas would not be maintained, weed control would not happen, we would not get to graffiti and vandalism as quickly. Mayor Larson asked if all the services are coming out of the parks department. City Administrator Herlofsky replied it is an example of how it would start to affect services. We did not take this further, because we were working very hard on the bond issues. We c~n come back to the service levels. Councilmember May stated in the private sector we have all had to 18 Council Workshop Minutes July 12, 2010 Page 6 maintain services with less. It seems it is too easy to say we have to cut services. You have to come up with ways to maintain services with less. It is back to productivity and different ways of doing things or scheduling or management. She did not want to rely on the comment that if we are talking about reductions, then we will not be able to mow the grass. City Administrator Herlofsky noted taxes have not increased over the last 3-4 years. Departments have worked hard at doing more with less. We will reach a point where it will start affecting staff if we make further reductions. Councilmember May stated that is back to her original question to see what it means for each department. Councilmember Fogarty went back to the bond for the wastewater treatment 1995 of $60,000. She asked if this was a levy to build a future wastewater treatment facility. Finance Director Walters replied no, it is to pay a wastewater treatment debt from 1995. CityEngineer Schorzman stated there were some improvements done to the wastewater treatment facility in Empire. When the Met Council took over, we closed it, but the debt had to be paid off. Option 2 is a 5.78% overall increase which is an increase to the general levy of2% and a 14.86% increase to the debt service levy. Councilmember Fogarty stated ifwe are looking at anything other than the recommendation from staff which is the 3.9%, she does not like that the reductions, with the exception of a furlough, all come from parks. These are the types of things people get upset about. We are taking away the things people need the most right now. They need an affordable poo~ because they do not have the money to do anything. When there are increases, she did not know ifher fITst priority would be that employees get a raise. The rest of us have also not seen a raise in many years. Finance Director Walters stated these are just suggestions and if Council has other options, staff is open to them. The reason parks are looked at is you look at core services versus non-core; want versus need. The Parks Department is a nice to have amenity. Councilmember Fogarty would argue that they help with public safety and gives the kids something to do. To her it is not one or the other. Council was also given information on how the recommendation affects property taxes. Councilmember Donnelly stated no matter whether property values go down, we still have to collect this amount of tax, so the tax rate goes up. City Administrator Herlofsky agreed. As a result of values placed on property there has not been as much of a decrease on commercial and industria~ so you will see a shift to the commercial/industrial side. Finance Director Walters stated one item increased on the revenue side was building permits based on the 2009 actual and where we are now. We are at 98% of the budget now, so she increased it to $320,000 for 2011. Council was also shown transfers from the enterprise funds used to offset costs for the general fund, including liquor operations, sewer, storm water, refuse, and water. Staff is still working on franchise fees for seal coating. Regarding building permits, Councilmember May asked what percent staffwas using to come up with an increase of $100,000. Finance Director Walters looked at 2009 actuals and 2010 actuals and felt we could do at least what we anticipate in 2010. We will receive more than the $225,000 budgeted and close to over $300,000. She anticipated in 2011 we would also receive that same amount. Councilmember May recalled previous Councils used a certain percent to anticipate building 19 Council Workshop Minutes July 12, 2010 Page 7 permits. City Administrator Herlofsky stated even though staffhas made a recommendation of an increase in a previous year, we have exceeded it by a substantial amount each year. This is a conservative estimate. Mayor Larson stated it is true income so we have to use it. Council was provided with expenditures by account. Councilmember Fogarty noted the fire pension is an increase over previous years. Staff stated this is an estimate. It is high, because the City has to cover the losses in the market. Mayor Larson noted the total for other services and charges adds up to an incredible amount of money with no description. Finance Director Walters stated it is training, mileage, professional services, etc. Mayor Larson wanted to know what those are for. Ifthe money is not used, it goes to the general fund. City Administrator Herlofsky stated we had $120,000 in the fund balance last year; that was after $350,000 in cuts early in 2009. Right now we are at 95%. Mayor Larson was wondering ifwe can tweak some areas, but it sounds like we are close to where we need to be. City Administrator Herlofsky stated we can always cut more, but it would have some affect on getting things done throughout the year. Ifwe did not put in overtime for snow removal, it would mean no plowing on nights and weekends. That is something we cannot control. Administrative Services Director Shadick noted as far as elections we will have to start putting money away for new election equipment which will be purchased in 2013 to use in 2014. We do have cost sharing with the County. We have not purchased new equipment since 1998. City Engineer Schorzman noted Mayor Larson had asked about the $34,000 in building inspections, 84% of that is tied up in data processing and IT charges which is integral to the permitting process. Finance Director Walters explained the special revenue funds. The ice arena fund has a negative fund balance of$196,581 and there is no money to transfer. City Administrator Herlofsky stated we have been making sure we are accurately charging the appropriate amount to the arena; not more than we should be. In assigning staff, that will help us to manage it better. Mayor Larson stated we can increase the ice rate and staffwas going to work out a deal with the school. City Administrator Herlofsky stated we looked at the school's billing and what they charge. So the City will be charging the school for ice at the high school games $325/hour, not the usual $200/hour. We also prefer to not have the hockey association back out on hours they have reserved. Councilmember Fogarty stated that should be in the contract and felt the hockey association would agree to that. People who are helping to pay down the debt service should have a higher priority for ice hours than those not helping to pay down the debt service. City Administrator Herlofsky stated rather than transferring money in, over a period of time we would like to operate the arena better to make it more responsible for itself. Mayor Larson would also like to see better use of the arena in the offseason. Councilmember Fogarty asked why the EDA is a special revenue fund. Finance Director Walters stated normally an EDA is not self-sufficient. Normally it receives tax levy dollars. Finance Director Walters stated the Rambling River Center will have a negative fund balance of $262,315 in 2010. Donations will be received and there are room naming rights. There will be $20,000 donated from the general fund and the amountof donations received will be $6,000. City Administrator Herlofsky noted Park and Recreation activities are a very big expense to the general fund budget. The policy of the City was to cover direct costs, but there is a fme line between what is direct and indirect. The administration of the programs is not being covered by 20 Council Workshop Minutes July 12, 2010 Page 8 the revenues. Mayor Larson stated ifwe have staff running the events, those hours should be covered. City Administrator Herlofsky noted we have one full-time person and one half-time person for clerical assistance and half of the time for a recreation programmer is charged to that area. Mayor Larson asked what we are doing to market the Rambling River Center. Staff stated we advertise on the website, have brochures at the door, and place articles in the City newsletter about events. Mayor Larson asked that things that go to individual homes be used to make the Rambling River Center more attractive. City Administrator Herlofsky stated if the sale of the old Rambling River Center is completed this year, that will help that deficit. The membership fees were at $IO/year and it has been doubled to $20/year. We have not lost many members and the revenue is twice the amount, so we may have to be more aggressive. Finance Director Walters stated staff is looking at reducing the transfer from the liquor store in 2011 and bring the pool fund balance down to $323. Councilmember May stated regarding the Rambling River Center, the $20,000 is a transfer. Finance Director Walters stated we have $145,000 transferred in. $20,000 of that is a transfer. The transfer out will pay the debt. However, we are going to reduce the liability. In reducing the liability, it is considered a donation. When the debt is reduced, it is a contribution. The discussion then went back to the pool. Finance Director Walters stated the pool is about $50,000 in the hole every year. Regarding capital projects, Finance Director Walters pointed out under street construction, $2 million was included for projects and the bonding for $2 million to balance it out. This is for the 2nd Street project next year as well as the work in Dakota Estates as part of the CIP. Councilmember Fogarty asked if the franchise fee will pay the bond payments. Staff explained that is for seal coat. The objective is to obtain $400,000 for the seal coating franchise. Councilmember May asked if the additional franchise fees are taken into account with these numbers. City Engineer Schorzman replied no. There is $300,000 in the budget for seal coating for next year as a place holder. Ifwe go with franchise fees, the $300,000 will disappear. The fees would be received late in the year. City Administrator Herlofsky stated he wanted to have the emphasis for this meeting to be on the debt service funds. We still have time to talk about the options Council wants. We could have a short EDA meeting in July and we have five Mondays in August. We need action by Council at the flfst meeting in September at least acknowledging some levy amount. Ifwe do not do it at that time, we have to use this year's amount. We can always reduce the levy, but we cannot increase it. Councilmember Fogarty stated debt service levy aside, she does not want to lose the overall concept. When Council was talking about the phases, she was not looking at the debt service fund, she was looking at the general fund levy. If for no other purpose than to understand what services would be cut, she would like to see some detail from departments. She does not know what she is saving, if she does not know what can be cut. She does not know what her options are. She does not know what a reduction in services means department by department. If you tell a department to cut 5%, what will they have to cut and what will that mean to services and to 21 Council Workshop Minutes July 12, 2010 Page 9 staff. She understood that was a lot of work for staff, but she needs it to understand. Finance Director Walters asked if she wanted to see a 5% reduction. Councilmember Fogarty stated previously Council asked for 2% increase and 2% decrease. Councilmember May stated she expects the department heads to do that work, not the Finance Director. Finance Director Walters stated we have increases in salaries, in PERA, in health insurance; are we looking at the overall budget or the portion that does not include salaries. City Administrator Herlofsky stated that will be up to each department to decide. City Administrator Herlofsky stated staffwill get back to Council with a spreadsheet by department. He asked if Council wanted to have a meeting in July or August. Council would like to meet in July if staff can get the information ready. City Administrator Herlofsky suggested July 26. Councilmember May noted a spreadsheet is helpful, but even just bullet points would do. City Administrator Herlofsky stated if we give a dollar amount, there would have to be an explanation of what that is. The workshop date and time will be discussed at the July 19, Council meeting. As far as the percentages~ Council wanted to see 2% and 5% decrease, and a 2% and 5% increase. MOTION by Fogarty, second by May to adjourn at 8:07 p.m. APIF, MOTION CARRIED. Respectfully submitted~ Cynthia Muller Executive Assistant 22