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HomeMy WebLinkAbout06.04.03 Work Session Minutes City Council 2004 Budget Workshop Minutes June 4,2003 Absent: Mayor Ristow, Councilmembers Fitch, Fogarty, Soderberg Ed Shukle, City Administrator; Robin Roland, Finance Director; Kevin Carroll, Community Development Director; Dan Siebenaler, Police Chief; Randy Distad, Parks and Recreation Director; Lee Mann, City Engineer; Ken Kuchera, Fire Chief; Cynthia Muller, Executive Assistant Councilmember Cordes Present: Mayor Ristow called the meeting to order at 6:00 p.m. City Administrator Shukle stated the purpose of the workshop was to establish goals for the 2004 budget. Council was also provided with some background as to what happened at the legislature and how that affects the city in terms of local government aid cuts. Also provided were revenues and expenditures as of May 31,2003, the lO-year performa, and the 2004 budget calendar. Council will be asked to approve the preliminary budget on September 2,2003. Budget workshops will be held in the fall, with final budget approval in mid-December. Mayor Ristow asked about goal number one for 2003, and ifthe general fund was actually at 35- 40% or was it 25-35%? Finance Director Roland replied last year we adopted 35-40% based on the auditor's recommendations, as they have been stating for the last number of years. We had originally started at 25%, but the auditors have always said that 35-40% would be their preferred goal. The auditors like to see 35-40% particularly in times like these where we would have counted on some of our fund balance in helping to make up any lost LGA. Reverting back to Council's budget as adopted last year, we took a proactive stance oflevying back for a potential loss of LGA. We levied back half, which was $296,000. We put the LGA in the budget, worst case scenario if that goes away, we have $296,000 that we budgeted through the tax levy that we would have to offset any lost LGA. The legislature for 2003 has removed all but $144,000 in LGA from our 2003 budget. Last year we had $590,000 coming in LGA for 2003. Halfwe levied back, so $296,000. If all of it went away, we would have to make up $296,000. We could have taken that out of the fund balance and still been at 35% of expenditures. Our revenues this year, particularly in the area of building permits, are up significantly. Ifthe state gives us $144,000 this year, which is what they are going to do instead of the $596,000, the difference we have to make up is about $150,000 to make it a balanced budget. We have already seen that excess revenue in building permits. Even with the loss of LGA in 2003, given our current situation, staff does not anticipate dipping into the fund balance before the end 2003 because of the planning we have done and because ofthe amount we will receive in LGA. Mayor Ristow asked if that was with the $296,000? Finance Director Roland replied that is with that. She continued, stating for 2004 that $596,000 is gone. What is going to challenge us is the fact that the legislature did not take into consideration that we were $750,000 below our levy limit last year. A couple years ago when Representative Ozment was here, he said we are setting levy limits and you do not lose any levy capacity. In 2004, all ofthat is gone. We need to take Council Budget Workshop Minutes June 4, 2003 Page 2 the amount we levied in 2003, we add back 60% of our lost LGA, which means we take $596,000 x 60% and we add it back to our 2003 levy. The maximum levy we are allowed is what is reflected in the performa - $4.65 million. That will be all we will be allowed. There are no growth factors in the levy limits. In the past when we have had levy limits, they have considered how many households we have, how much commercial/industrial property did we add, how much is inflation. The legislature said no to all of that. You get your 2003 levy and if you lost LGA you get 60% of any lost LGA and that is it. Councilmember Fitch stated it is strange when the state gets in trouble, they punish the cities. Finance Director Roland stated Ron Abrams who is the chair ofthe house tax committee acknowledges they are treating cities unfairly. Representative Strachan voted against this package because he did not believe the levy limits were set reasonably. There are no growth factors and he was very upset with that. He felt growing communities like Farmington should be able to raise their levies enough to make up for the growth. Staff told Representative Strachan we could propose a budget without the LGA we had last year. We had some solutions, we had enough fund balance to fall back on if we needed to. But leave us alone when it comes to levy limits. According to the legislature, there will not be levy limits in 2005. They will reconsider some other things in 2005. Staff believes there will be levy limits in 2005. The number in the performa is no different than the one for Main Street and City Hall. We had anticipated this levy request even before the levy limit came on. We were within $50,000. Finance Director Roland suggested we levy to our limit this year. Last year we could have levied $750,000 more than we did. We could be sitting on roughly $1 million that we collect in taxes. But that was not the conservative, prudent thing to do. Weare not under our levy limit anymore. With a growing community, we have already anticipated this is the amount we will look at. We have talked in the past about how this performa reflects a 10% annual increase in the levy and a 10% annual increase in expenditures and that is what we have gone with. Over time, we have decreased the amount that the top number on the levy has gone up. At this point, staff recommended we levy to our limit which is $4.6 million. Mayor Ristow asked about the growth of the city's tax capacity value at 12% mentioned under note number 1 on the performa. Finance Director Roland stated that was the original plan in 1997. Looking at the line for percent growth in GTCV, when we started out in 1998 the actual number was 9.72. It has gone up and down since then. The numbers received from the county indicate that between 2003 and 2004 our gross tax capacity value will grow 22.88%. Roughly 10-11 % more than anticipated. That being the bottom number in the equation for a tax rate, that would mean even if the tax levy went up, the tax rate would go down, because of that growth. According to the county we are now over $1 billion in market value in the city of Farmington. Which equates to a tax capacity value of$II,372,000. Of that $11 million roughly half is due to new construction. The other half is due to the accelerated value of existing homes in Farmington. Councilmember Fogarty stated Representative Strachan had mentioned part of our $700,000 that we did not use, would be given to other cities. Finance Director Roland stated in reality that is what happened. Councilmember Fogarty stated so Governor Pawlenty could say overall the taxes are not going up on properties. But in individual communities taxes will go up because they took our extra and gave it to communities they feel needed it. Council Budget Workshop Minutes June 4, 2003 Page 3 Finance Director Roland stated the preliminary numbers for 2004 reflect a 9% change in the general fund levy. It would reflect debt as a percentage requested levy at 23.8%, which is below the 25% which is identified as a Council goal. If we follow this plan we will end up with expenditures at 10% or less increase and we will have the revenues to cover that. Finance Director Roland stated she does not inflate building permit revenues unduly. She does not anticipate a growth level at the level we are currently at to budget for 2004. When we revise the budget for 2003 we will take those numbers into consideration. The proposed budget will be at a level we can justify for building permit revenues. It is a solid number. Councilmember Fitch asked ifthe excess will go to the fund balance? Finance Director Roland replied yes. Right now, with the loss of the majority ofLGA and what we have taxed for and where we are in revenues, and we meet our budgeted expenditures, we will break even by the end of2003. We will not dip into the fund balance and we will not see excess revenue. Community Development did an analysis as ofthe first ofthe year. With the plats already approved, there are still 1 ,000 lots still to be built on. Councilmember Fitch stated that has to carry us through our deal with the MCES through 2007. Finance Director Roland stated it is now 2005 and we still have a bunch in reserve. Mayor Ristow asked City Engineer Mann about where we are with the Vermillion River Watershed Board ifthis will have an affect next year on building permits? City Engineer Mann replied it will be awhile before that is implemented. At the same time, staff has talked to Genstar about their development and the AUAR process. We have applied strict standards to that development in anticipation of the MPCA's requirements through the MPDES Phase II. The requirements will end up being less restrictive. The Vermillion River will affect commercial/industrial more than residential. Mayor Ristow wanted to make sure it would not affect permits, we were counting on. Finance Director Roland stated when we estimate permits we pick a target number, and we are very conservative. She would rather be way under on her guess on revenues, than way over. Finance Director Roland reviewed revenues and expenditures for May 31, 2003. At this point, building and permit revenues are at 62% of the annual total and we are at 42% of the year. Intergovernmental revenue will go down significantly on the budgeted side, because on the budget side we have the $876,000 reflecting the LGA amount. We will knock that down where it belongs. We have already received $80,473. Take $500,000 out of the budget number and you have a higher number of intergovernmental revenue we will collect. We will see our first advance on tax revenues at the end of June. We are in a very good position compared to other communities. Expenditures are at 39%. In some departments expenditures are a little higher than the budgeted amount due to two things. We spent a lot of money on capital outlay the first part of the year. That puts an extra weight at the beginning of the year and evens out as the year goes on. Those were budgeted items. Weare currently finishing paying for some personnel who have retired, but chose to take their severance over a period of time. That will balance out at year end. Weare in a strong position in the enterprise funds. The city is not anticipating raising fees in the water, sewer, storm water or solid waste areas. We will look at those as we go through the process. We count on the enterprise fund for some transfers into the general fund to Council Budget Workshop Minutes June 4, 2003 Page 4 help offset overhead cost. Those transfers continue every year and would increase on a reasonable basis. Mayor Ristow asked iftipping fees for the garbage have settled down? Finance Director Roland replied they have. We have seen some stability. The issue is whether or not we are able to continue to put the waste in a landfill as opposed to a garbage burner. Ifwe have to take the waste to a garbage burner we have to take all of it and there is a higher cost. We budget for the higher cost. When we see less, it ends up in the fund balance. We have been paying cash for garbage trucks, not bonding. That is $185,000 a piece. We buy one every year. (Fire Chief Kuchera left the meeting at 6:45 p.m.) Councilmember Soderberg stated on Monday night there were some funds identified with deficits, one was a 1991 annexation fund. Finance Director Roland stated she would like to address that in the 2003 budget. If Council agrees, she would like to wipe that off the books in 2003 through a transfer in the general fund. Those are legal funds that never got cleaned up from the annexation. It is an inner fund borrowing that is not recognized on the books. Councilmember Soderberg asked if our fund balance for 2003 is at 41 %? Finance Director Roland replied yes, it is above our goal. The other deficits in the report which are the PIR fund, which is at $1 million in deficit contains three projects right now. One is 195th Street W where we are waiting for payments from the county and from the school district; 209th Street where we are waiting for developer payments; and the water and sewer extension for Middle Creek were paid for out of the water and sewer funds. Those projects will put us in the positive with cash receipted by September. Regarding the Municipal building fund, as part ofthe building fund budget there were $222,000 worth of transfers that were supposed to come in from other funds. The transfers were not made until the auditors said this construction payment has to be booked. This put us $75,000 down. We have retainage of over $250,000 to pay the contractor on that project. By September we will be in the black on that fund. The other fund that is in a deficit position is the HRA capital projects fund. That relates to the TIP we are receiving from all ofthe districts to make us whole. We bought land, we went into a deficit position in industrial park I and 2. Cash went out and we are looking for TIP payments over time to reimburse that fund. The deficit position got better this year. It started at $560,000 in the hole and we are now at $500,000 in the hole. Mayor Ristow noted the values keep going up. Finance Director Roland replied that is correct, unfortunately the values are not matching what was originally put in the TIP plan as the assessed value. They are significantly lower. The only differences are the East Farmington project and the Dalsin project which are better than the TIP anticipated. Councilmember Fitch asked if that was due to the adjustment the legislature did a few years ago? Finance Director Roland replied yes, the only other thing we are allowed to do in the downtown district is to payoff debt with the TIP we are receiving. City Center is suffering from the lower valuation, but with the replatting of that property and the Elm Park cleanup we will see three more parcels come into the TIP district. Mayor Ristow asked if the downtown is set to where we can only use it downtown? Before we shifted it to the industrial park. We cannot do that any more? Finance Director Roland replied no, the debt that was issued to buy the industrial park land is coming out of the downtown district and all of the TIP that comes from the downtown district is used to pay back that debt. Mayor Ristow thought we did Council Budget Workshop Minutes June 4, 2003 Page 5 balance it out and pay it back. Finance Director Roland replied for example, Minnesota Pipe. We bought the industrial park I land and sold it to Minnesota Pipe for $1. As part of the TIP agreement, all ofthe TIF comes back to the city. Those bonds were issued out of the downtown TIP district, so what happens is when the TIP comes in it pays back the downtown district which pays the bonds. In the TIF agreements there is a limited percentage that goes back to the HRA. Mayor Ristow asked when the TIF comes off of East Farmington? Finance Director Roland replied TIP does not come off East Farmington until 2008. Mayor Ristow thought once the houses were sold and lived in for a year, they were paying the full scale market value. Who gets the cut? Finance Director Roland replied Sienna. The way that the TIF agreement is written with Sienna is that they got $3,256 per lot without the infrastructure. The city pays the bonds first out of the TIF, then we reimburse based on a formula for that $3,256 per lot over time. That will end in 2008. Councilmember Soderberg then asked about the performa and what the legislature has done with giving us a levy limit at where we were. Finance Director Roland stated the performa still anticipates a 10% increase in 2005. Councilmember Soderberg stated if they do the same thing next year, we will not have the capacity to increase our levy. Subsequent years could be problematic. Finance Director Roland stated hopefully Representative Strachan will be able to get his point across to other legislators and install growth factors back into the levy limits. If they can do that, we will be in a better position. If not, 2005 might look the same as 2004 as far as the actual dollar levy goes. Some cities get around levy limits by paying for capital items out of their general fund. Farmington puts capital items in a separate fund and we issue certificates of indebtedness to pay for them over time. What other cities do is they pay cash for these items out of their general fund and they are included in their levy. With levy limits this strict, what they will do to get the extra money they need, is pull the capital items out of the general fund and do what we are doing. There is no limit on debt. Debt is outside of levy limits. The legislature did not install reverse referenda which is a good thing. With reverse referenda, if you could get 5% ofthe people that voted in the city to sign a petition, you could recall the issue and have to have a vote on it. Finance Director Roland asked Council if they would agree to maxing the levy limit. Councilmember Soderberberg stated if we had done that last year, we would be in a better position today. Finance Director Roland stated the budget calendar indicates how staff will proceed for the next few months. Council will see a draft budget on August 18. Council will vote on a preliminary levy and budget on September 2. That is where we max out our preliminary levy and we can reduce it after that, but we cannot increase it. There will be a budget workshop in early October. Councilmember Fitch stated if there are any taxpayers complaining about how high their taxes are going up, his went up 30%. Anything over 12% people can file for a refund from the state for 60% of anything above that 12%. There is no income limit. His valuation went up 13%. Taxes went up because of the school levy. Finance Director Roland stated market value credit is put in place instead of HAC A. Market value credit is paid by the state, not the county or city. We get it instead of our levy. The county collects all ofthe money, they send some to the state, the state sends us money and the county sends us money. The city does not lose any market value dollars in 2003 or 2004. Cities who Council Budget Workshop Minutes June 4, 2003 Page 6 did not have enough LGA, actually lost market value credit. Every dollar the city levies, we will get back. The city receives $389,747 in market value homestead credit in 2003 and 2004. The Council recessed at 7:14 p.m. before reconvening for the City Hall workshop. Respectfully submitted, ~./ .. y/ - ~ #-::;;? . %<. L""-' ,- r "~_.(::p--<.J ynthia Muller Executive Assistant