Loading...
HomeMy WebLinkAbout06.01.05 Work Session Minutes CITY COUNCIL 2006 BUDGET/CIP WORKSHOP MINUTES JUNE 1, 2005 Present: Soderberg, Fogarty, McKnight, Pritzlaff, Wilson (arrived 5:18 p.m.) David Urbia, City Administrator; Robin Roland, Finance Director; Kevin Carroll, Community Development Director; Dan Siebenaler, Police Chief; Lee Mann, City Engineer; Lisa Shadick, Administrative Services Director; Brenda Wendlandt, Human Resources Director; Rosemary Swedin, Accountant; Cynthia Muller, Executive Assistant 1. Call to Order Mayor Soderberg called the meeting to order at 5 :00 p.m. 2. Approve Agenda MOTION by Fogarty, second by Pritzlaffto approve the agenda. APIF, MOTION CARRIED. 3. Discuss 2006 Budget Goals City Administrator Urbia reviewed the 2005 budget goals. Some items which should be addressed as 2006 goals are considered are: 1. Elimination ofthe deficit fund "1991 Annexation" as prescribed by the City's audit firm. The amount is $118,000. 2. Review the HRA capital projects fund to address TIP project deficits due to tax compression over the last few years. 3. Discuss options for Capital Outlay funding (levy versus capital equipment certificates). 4. Discuss strategies for replenishment of the general fund balance. 5. Identify a budgetary contingency plan. 6. Discuss a revenue philosophy shifting from reliance from non-levy sources to levy sources. Mayor Soderberg noted the goal for the general fund balance is 35%-40% and asked where we are today. Finance Director Roland replied as of the end of 2004 we are at 24%. Finance Director Roland outlined the budget process and what management uses to come up with the budget and how they determine expenditures and revenues that are put forth in the budget document. Councilmember Pritzlaff asked about the franchise fee. Finance Director Roland explained the franchise fees are the 5% the City collects from Charter Communications based on their sales of cable within the City. This has been in place since 1998. Some people refer to a franchise fee as an additional tax. $35,000 has historically gone into the general fund to help offset the cost of communications within the City, such as cable casting and producing documents. It helps to supplement the communications budget. The balance over $35,000 goes into a separate capital projects fund which staff is retaining for future upgrades to cameras, video and audio equipment, etc. This fund has Council Budget/CIP Workshop June 1, 2005 Page 2 also paid for fiber optics. Last year the total amount received from franchise fees was in excess of$138,000. Next Finance Director Roland discussed revenue sources, primarily taxes. She presented a worksheet showing the required tax levies that have to be certified to pay the debt. The City has different bonds for different types of payments. There are refunding bonds, lease revenue bonds, wastewater bond, certificates of indebtedness and the Main Street bonds. In 2005 the debt levy is $1,099,009. The Ash Street and Fire Station bonds will be sold on June 20, 2005. The debt levy for 2006 will be $1.5 million. Finance Director Roland presented a spreadsheet showing what the taxable market value and tax capacity values are for 2006. Between 2006 and 2005 the tax base will grow by 14.5%. The number of housing units in 2005 was not the same as it was in 2004. The tax rate is determined by the amount of levy the City requests divided by the tax base. The next spreadsheet showed the computation of tax capacity rate. If staff assumes a 10% levy increase the tax rate would be 42.37% as opposed to a tax rate in 2005 of 43.7%. Councilmember McKnight asked about the 14.5% increase and if it is broken down between new construction and value increase. Finance Director Roland replied it is and explained what the worksheet shows. The valuation of new homes is less than half ofthe growth in the tax base, which means existing homes are being valued higher. The computation worksheet flows into the property tax levy worksheet. This shows how it is split and what goes into the general fund, what is required for debt, and what is required for the fire levy. The City pays a contribution to the Fire Department for their pensions. That number has increased steadily over the last nine years. It started out at $45,000-$50,000 a year and it has gone up by $5,000 every three years. We are in the second year of a $60,000 contribution to the fire pension. In 2004 the City paid $55,000. That contribution is statutorily mandated. The City has for the last four years exceeded the amount that is statutorily mandated sometimes by almost 100%. The Fire Department also receives state aid for their pension which has grown. Last year it was well in excess of $130,000. Their benefits once they have achieved the required years of service and age, the proposal comes to Council the first meeting in August as a request for a certain dollar amount per number of years of service. It is invested along with the annual contributions. For a long time they were not equal to what they received in pension benefits to surrounding communities. Finance Director Roland next presented the financial performa showing actual figures through 2004 as far as the requested levy, the actual expenditures, the computation of valuation, population growth and per capita spending. The 2006 proposed percentage of total levy is 24.2%. Councilmember Wilson noted we have 25% ceiling policy. Mayor Soderberg stated the levy for 2006 would be over $6 million. The performa reflects a 10% levy growth. The next sheet of information was the computation of legal debt margin. The state law is the legal debt margin is 2% of the total market value of the properties in the community. The market value currently is $1,291,198,400. 2% of this is $25.8 million, which means that if every bond the City issued were paid for out oflevy dollars, the City could only have $25.8 million worth of bonds. If a referendum market value bond were done on the $21 million Community Center, how would this affect the debt margin? The City only has $19 million oflegal debt margin left today. $21 million market value referendum debt does not fit under $19 million. This does not include the issuance on June 20, 2005 of $2.28 million worth of fire hall bonds. You would need to Council Budget/CIP Workshop June 1, 2005 Page 3 deduct that from the $19 million to get what our legal debt margin is at this point, which is $16.7 million. Other types of debt which would be included would be if we were to issue bonds to pay for a City Hall. Ifwe were to issue bonds which are totally funded by taxpayer dollars that is how much is left. Ash Street will not be considered in this because it is paid for with other sources of revenue. The Fire Hall bonds and certificate of indebtedness are paid for by levy dollars and are included in the debt limit. Staffwill be reviewing all of the capital equipment and determining the less durable goods versus more durable goods. Less durable would include computers, video equipment, pickup trucks, etc. They have a shorter life span. Large pieces of equipment such as fire trucks, snow plows, graters, things of $100,000 - $200,000 each that have a greater life span of 10 years would be bought with capital equipment certificates. Less durable goods should be part ofthe general fund. The levy represents the type of increase staff is looking at to fund things within the City. The performas assume a 10% increase to expenditures. The expenditure budget for 2005 is $7.1 million. This would put expenditures in 2006 at $7.8 million, of which 71 % would be paid for by taxpayer dollars. 30% would need to come from other sources such as building permit revenues, investment revenues, other governmental revenues, etc. In the past staff has looked at other sources of revenue to fill in the gaps. Staffwill focus more on levy sources and less on other revenue sources. As far as replenishing the fund balance, the years we added large quantities to the fund balance were not planned. They were additional revenues that came in. Staff would like to be able to plan for replenishing the fund balance. Currently the City is at 25% of budgeted building permit revenues and we are at almost 50% of the year. Staff budgeted for 350 building permits, and we are at 53 at the end of May. There are two large tracks of land waiting to build houses. Staff is always looking for other sources of revenue to the general fund to help reduce the property tax. That was the old philosophy. In 2005 the philosophy is that the majority of revenue comes from the property tax. Ifthere were to be levy limits, staff recommended Council not pursue a strategy of levying under the limit. Regarding recapturing the growth the City saw in the last year, Councilmember McKnight would like to look at the number 14. He asked about the new construction because it is important in the fact it is over 50%. He would also like to see a lower number. He liked working some of the capital equipment under the levy even over a number of years. He would like to see a plan to replenish the fund balance. Ifwe buy cars or computers, he would like to pay for them rather than issue certificates. Councilmember McKnight asked staffto explain the $118,000 Annexation fund and if we have to come up with $118,000. Finance Director Roland stated we could solve this right now with the transfer out of a reasonable fund acknowledged by Council. In the early 1990's there was an annexation battle where Farmington looked to acquire Castle Rock and Empire. The City borrowed cash from other funds without setting it up as a loan. The 1991 Annexation Fund has $118,000 of negative cash balance which is not assignable to any fund, but was basically over spent. They did not have the revenues and did not account for it. It has not been a priority in the years where we added to the fund balance to transfer it out of the general fund, nor has it been able to be fixed with a transfer in years we have eaten general fund balance. Staff would like to put together a plan to pay it back. Staff would need to identify a place to take it out of. The auditor's office will want justification for taking it out of a certain fund. If Council gives staff direction, they will put it in the 2006 proposed budget. Ifwe don't spend the expenditure Council Budget/CIP Workshop June 1, 2005 Page 4 budget and have some extra money in the fund balance, part of it could be taken care of in 2005 when adopting the budget at the end of the year and some ifit in 2006. Council agreed for staff to develop a plan. Staff would like to develop a contingency plan for 2006. Whatever money does not get spent would go into the fund balance. This would be part of the general fund. It would not increase over the years, but would be used for emergencies. A set amount would roll over every year for a contingency fund. Mayor Soderberg asked if it was realistic to create such a fund, eliminate the $118,000 annexation fund and still remain within the 10- 14% increase in the levy. Finance Director Roland replied staffwill come up with a budget and those will be our goals. The contingency plan may get $50,000 and the annexation fund gets $50,000 but it would be a start. Councilmember Pritzlaffnoted the issue of the number of building permits keeps coming up. We are looking at 350 and only have 53. He asked what more the building permits fund. Staff replied they go into the general fund and fund the cost ofthe building inspections department, the cost of the planning department, etc. The money goes into one big account. It is kept track of in separate line items. 70% ofthe money that comes into the general fund is from property taxes. 30% is from other places like building permits. Councilmember Pritzlaff asked how much money do we not collect if we are short building permits. Staff replied we currently anticipate a building permit averages $2,597. That is the cost of a base building permit and plan review. Councilmember Fogarty felt 350 building permits will be under every year for the next few years. Police Chief Siebenaler stated building permit revenue only reflects housing, it does not reflect commercial construction. That is not budgeted. It is extra revenue. Council is comfortable with 14.5%, but would like to see 8%, 10%, 14.5%. Mayor Soderberg stated he has asked some questions about population projections. He noted staff is planning on hiring three officers a year for the next five years. He asked if it would be prudent to establish a policy to have a certain number of officers per thousand residents so we do not under or over hire. Police Chief Siebenaler replied that is what his recommendations are based on. In order to catch up with the minimum number we needed to hire, two years worth at the same rate at zero growth, anything beyond that was in anticipation of growth. This year if we do not have the number of building permits come in we would still need to hire people to catch up, but the following years it may not be quite as many. The rates he recommends are based on comparably sized cities with comparable services. He would agree to formalize it with a policy, but the numbers would changed based on services offered, crime rate, etc. The same policy applies to every department. 4. Discuss 2006-2010 CIP Projects a) Levy Impacts of Bonds The Fire Station project will be done in 2005. All of the 2005 projects come to $10.4 million, including Ash Street, the extension of Spruce Street and utility street extension. This is the only project that has not been bonded for yet this year. Staffwill bring the status of the Spruce Street bridge project to Council on June 20, 2005. Staffis in the process of dealing with the developer and financial advisors in order to make the decision as to when is the best time to build this project. All of the 2005 projects except for the Council BudgetlCIP Workshop June 1,2005 Page 5 Spruce Street bridge project are proceeding as planned. The traffic signal at Elk River Trail and Pilot Knob does not meet warrants. For the 2006-2010 draft CIP staff has moved the Spruce Street project to 2006 to show how it would fold in with the other projects. The reason for this is staffwill have to identify as part of the budget process where these projects should continue to fall. We can probably not do $15 million worth ofprojects in 2006. We will have to prioritize which projects go and which do not. Finance Director Roland presented a worksheet showing the annual levies required if the $3 million Spruce Street bonding project were done in 2006. Spruce Street would be 100% assessed to the developer in excess of the amount of the grant. In residential developments, the roads and infrastructure go in as part of the development contract. The developer is responsible for the costs and they spread them over their development. If Spruce Street were a residential development, the cost of the bridge in excess ofthe grant money would be spread over the properties in that development. If the City pays and does not assess for these projects, the City quickly runs out of bonding money. Staff requested help in prioritizing what Council sees as essential projects in 2006-2010. Some are driven by development. City Hall is included in the CIP as a 2007 project. There are no special assessments. It will be totally borne by the taxpayers. The project for Spruce Street is $3 million. We have a grant for $955,000. If we issue bonds it would be $2 million in bonds. This was used to determine the amount of levy assuming there would be no special assessments. Ifwe could special assess the project, there would be no levy requirement and it would not count under the debt limit. Ifit is a 429 project the City is supposed to assess 20% of the project. Spruce Street is a road and a bridge built to benefit the developer so they should pay for part of it, but it also is a cost to the City because the City will actually be constructing it. It is somewhat like Flagstaff and the potential for the high school. When Lakeville built the high school they did it under a development contract with the City. They came to an agreement who would build the road, the school district, to the City's standards and the school district paid for the road that adjoins the school building. As part of that development contract it outlined the amount of credit for sewer, or water, because they are helping the City out by building a larger facility. In the end, the road gets turned back to the City. It is a question of who pays for it or how it gets paid for. Mayor Soderberg asked what the impact would be to move City Hall to 2006. Finance Director Roland replied ifthe construction process were to begin in 2006, if bids were taken in March, bonds would be issued in March or April, the first payment would be in 2007 or 2008 depending on the amount of capitalized interest. It would add a half million dollars to the debt levy. Mayor Soderberg stated realistically we could not move it up to 2006 because of the timing to get everything in place. Councilmember Fogarty stated she talked to City Administrator Urbia and he said Wold could get it done in 9 months so it could go out to bid in March. A decision would have to be made now. Finance Director Roland stated we could use CIP bonds, and since it is an administrative building it qualifies. You also have the option of using lease revenue bonds as well. The CIP bonds have a quarter of a percentage rate better interest. A lease revenue bond is seen as a more risky bond because at any point the Council could say they will not pay the lease. The BRA would own the land and the building and the City would rent the City Hall building from the HRA. Councilmember Pritzlaff asked if there is a figure for repairs to the current building beyond normal maintenance. Staff noted the repairs come out of the general fund balance. Council Budget/CIP Workshop June 1, 2005 Page 6 Flagstaff Avenue is not on the CIP. This is a cost that would be borne by developing properties around Flagstaff and that is not on the CIP because it was not scheduled until 2020. City Administrator Urbia stated the Comp Plan should not be amended until this is resolved. This would bump other projects out. That is not appropriate. Mayor Soderberg noted the worst case is $10 million and there is not a project on the CIP that approaches that. Finance Director Roland stated because it is not ready for development according to the Comp Plan, we could not assess the property owners until that property develops. The property in ag preserve cannot be assessed. So the $10 million or any portion thereof, which is the City's responsibility would be borne by levy dollars, not to mention the amount oftime. With the amount of staff we have, we are fortunate we can rely on consulting engineers to expand the amount of work we can do, but that comes at a cost. Those costs are paid by developers or by projects. We do have a limited staff to be able to throw at projects. Ifthere is a major reconstruction taking place, such as Ash Street, and a new construction of a road such as Spruce Street or 208th Street that is a strain on human resources. Councilmember Fogarty asked if we have staff to oversee a high school project, which is the largest project we have ever seen in the history ofthe City and a City Hall and the miscellaneous projects. Can we accomplish this in one year? City Engineer Mann replied yes. Police Chief Siebenaler stated school projects in the past as far as inspections have been done by a state inspector. As far as engineering, in- house staff could not take care of it all. These would be additional contract people. City Engineer Mann added this is what has been done in the past. We bring on the staff we need and that staff is paid for by the developer or the school. Finance Director Roland stated it could be done, but it comes at a cost. It is whether or not we are willing to pay that cost. And ultimately, whether the taxpayers are willing to pay that cost. 60% of the school districts debt is in Farmington. 40% is in areas outside of Farmington. If the school pays 100% for Flagstaff, for example $10 million, 60% of that $10 million is the debt and levy that will fall on the citizens of Farmington. 40% will fall on areas outside of Farmington. If the City is responsible for the road purely for the school, then the City will bear 100% of the cost of that road, not 60% if it is paid for by the school district. Councilmember Fogarty felt it would be wise to move City Hall to 2006. Mayor Soderberg did not think we could do it and stay within our goals of having only 25% of our levy be debt service. We are at $1.5 million with what has been proposed with the bonds we are letting. Ifwe had another $583,000 that bumps us to over $2 million. Ifwe stay at 25% the levy would have to be $8.5 million. Finance Director Roland stated that is assuming the first payment is due in 2006. Even if construction starts in 2006, it will not be done until 2007. Ifwe start construction in 2007, and it is not done in 2008, the earliest we would have to pay debt on it would be 2008. But something will have to give. City Administrator Urbia suggested asking Wold for a set timeline so Council will have that to make a decision. Councilmember Wilson stated he would support looking at a City Hall in 2006. Finance Director Roland stated if Council has a different priority for the projects, they should advise the City Administrator. City Administrator Urbia stated the County is looking at doing an RFP for the design part of Elm Street. He asked if that would push the reconstruction to 2007. City Engineer Mann replied the reconstruction is shown in the county's CIP as being split between 2007 and 2008, which probably means 2008 to do the work. The preliminary and design engineering is scheduled for 2005 and 2006. That $1.5 million would probably be shifted to 2008. Finance Director Roland stated the difference between a reconstruction project Council Budget/CIP Workshop June 1, 2005 Page 7 and a new construction project is that on a reconstruction the most we can assess is 35% of the reconstruction costs. If that is not enough, then the City will bear part of that on a levy. Councilmember Pritzlaff stated if we assume in 2006 there is a referendum for a Community Center and then shortly thereafter we assess for a new City Hall, we have put a tax burden on the residents by not giving them a choice. Ifwe did the City Hall first and they know they are being taxed for that and they know they are being taxed for the school, it is the resident's option whether they want to pay that much more for a Community Center. Mayor Soderberg stated the best guess is $21 million for a Community Center and we only have $16 million of debt availability. Finance Director Roland noted a lesser price tag on a facility might fit under that amount. b) Impacts of Projects Not Currently Identified in 2005-2009 CIP Mayor Soderberg noted the Community Center and the school are two big projects. City Administrator Urbia stated they have discussed how Flagstaff could affect the CIP. We need to decide if it is a site issue or a road issue. Community Development Director Carroll stated there will be a public hearing at the Planning Commission meeting. Staff wanted to know what issues Council felt should be addressed at the hearing and the CIP is a component ofthat. Staffis planning on addressing three topics. The first one is the comp plan amendment and the rezoning. They will explain the change that will be needed to accommodate the school and the issues related to the change. He asked how far Council wanted staff to go as far as making a recommendation or not regarding the comp plan and rezoning. The second issue is alternatives. If the EQB had decided they needed a public hearing, the issue for the EQB would have been, are there feasible and prudent alternatives to taking the property out of the ag preserve program. That did not happen. The same concept applies here. Are there feasible and prudent alternatives to amending the comp plan in the way that has been suggested? The third topic is less pressing but has the greatest long-term impact and that is the issue of site selection. What is the type of site selection process that can reduce or eliminate problems that everyone is facing regarding this issue? Staff is prepared to make constructive, productive and positive recommendations as to how the process can be fine tuned for the future. Staffs approach will be factual, objective, informative and maintain a positive tone, but get issues out on the table that need to be considered by the public. What happens at the Planning Commission sets the tone for what happens at the Council meeting. Councilmember Pritzlaff agreed with all the items. He wants staffs recommendations. He did not realize how it would bump the numbers. He wants all the information available from staff. Councilmember Fogarty stated usually staff has a recommendation. She asked if there was disagreement among staff as to what the recommendation would be. Staff replied no. Councilmember Fogarty wanted to have a recommendation. The only item she is concerned about is site selection. She is not sure no matter how objectively it is presented it will be taken by some people as criticism of past performance. She wondered if that should be discussed at a later date, separate from this issue. Councilmember McKnight agreed with Councilmember Fogarty, but he did not want to lose this lesson. He suggested opening the door a little on site selection. He left it up to Council Budget/CIP Workshop June 1,2005 Page 8 staff about the recommendation. If they have one bring it, if not, don't. He does not support the City getting involved in alternative sites. Councilmember Wilson felt it should be noted this proj ect is not included in the CIP. Community Development Director Carroll stated he will give it a passing reference. Councilmember Fogarty asked what the impact would be on the CIP ifthe school district agreed to pay for the road. City Administrator Urbia replied it would lessen it, but the segment north of 195th will have to be addressed. We also have 208th Street and the oversizing ofthe sewer. Community Development Director Carroll stated even ifthe school agrees to pay 100% of the cost, there are still people that need to do the work such as review plans, inspections, questions from residents regarding hooking up other properties to City services. It is hard to put a dollar value on those. Police Chief Siebenaler stated part of the discussion is the financial aspect. Council has to ask themselves is this a political or philosophical decision. Is this about money or is it philosophical in the form of planned growth. If it is money, then Councilmember Fogarty's question is valid. Where will Council stand? If this is a philosophical discussion, nothing to do with the money, how strongly should this be pursued? Councilmember McKnight asked will the MUSA process and the ag preserve issue be addressed. Community Development Director Carroll felt they needed to. Councilmember Fogarty felt we should also address the issue of review and comment. Community Development Director Carroll stated they will give them information on the MUSA process and noted there were two Planning Commission members on the MUSA Committee and they can explain that process. Councilmember Wilson wanted staff to be factual and reasonable. He suggested they point out the financial implications of the CIP. Staff should follow what they normally do. He felt it would help the audience to present the pro's and con's. Councilmember Pritzlaff stated his viewpoint on the site selection process is that anyone that builds anything in the City should come to City Hall first. He felt the school failed to come here first. He wants a recommendation, but he does not want options. The issue is not money. His issue is the ag preserve and changing the comp plan. He spoke with City Administrator Urbia regarding a state statute about hooking up to a City utility. The City ordinance says when a City service runs past their home a resident must hook up to that utility within 24 months. City Engineer Mann noted if it is purely a City ordinance, Council can choose not to enforce it. Staffwill have to research the state statutes. Mayor Soderberg stated all of the questions that have been asked and the problems identified could have been addressed had the City been involved in the site selection from the beginning. The state provides guidelines to the school district that includes the City being on the site selection team, including traffic engineers, parks, community development to identify potential problems with sites. Ifthe City had been included early on a lot of these questions could have been answered and this site could have been identified as being problematic. So much so that it might have changed the ultimate selection of a site. The City does have a role in selecting a site for the school. State guidelines provide for it. There is a 170-page document that the school district seemed to ignore in this process. This document is prescribed by the Department of Education that says this is what school districts should do in construction projects. We tried to be included and were repeatedly turned away. Regarding a recommendation, he believed Council BudgetlCIP Workshop June 1,2005 Page 9 planning should not give a recommendation. He has changed his position. Whatever recommendation staff gives, Council will back their decision. Councilmember Pritzlaff stated with the mini-meetings of the Council and school board, he feels left out of the loop. He wanted Council to work as a group. Councilmember Wilson agreed. The problem is that we cannot all get in a room and talk about the issue because of the open meeting law. He has received updates, but not including everyone precludes all from making comments. He suggested giving highlights of the Department of Education requirements for building a school. Council will receive the same information given to the Planning Commission. Councilmember Fogarty stated she does not want the high school project to affect the CIP, nor will she allow it. The City should not pay for infrastructure costs for the high school. Oversizing is another issue. 5. Adjourn MOTION by Fogarty, second by McKnight to adjourn at 8:42 p.m. APIF, MOTION CARRIED. Respectfully submitted, ~p?~ Cynthia Muller Executive Assistant