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HomeMy WebLinkAbout07.13.20 Work Session Minutes CITY OF FARMINGTON CITY COUNCIL MINUTES WORK SESSION JULY 13, 2020 Mayor Larson called the work session to order at 6:00 p.m. Roll Call Present-Larson, Bernhjelm, Craig, Donnelly and Hoyt Absent-None Also Present-Administrator McKnight, Parks and Recreation Director Distad and Finance Director Malecha Agenda Motion by Craig, second by Hoyt,to approve the agenda as presented. APIF, motion carried. 2021 Draft General Fund Budget/Tax Levy Finance Director Malecha presented the first draft of the 20201 General Fund budget and tax levy. Staff has worked diligently to create a financial plan for the city and continues to update it as we work to maintain and improve the city's financial health.A copy of this was provided to the city council earlier this year and is attached to this memo. The financial plan was used as part of the creation of the draft budget. Staff began work on the draft budgets in April.The first draft of the General Fund tax levy represented a $3,128,033 or 29.12 percent increase over 2020.This included all of the projects that are in the financial plan.Those projects are a part of the operating transfers budget. An increase of that size is not feasible to the residents and businesses within Farmington. Department heads reviewed and revised the budgets for their respective departments. City Administrator McKnight and I reviewed and revised the operating transfers budget. All of the changes resulted in an overall increase to the draft General Fund tax levy of $1,380,785 or 12.85 percent over 2020. 2020 Budget 2021 Draft Increase Budget (Decrease) Revenues $3,411,161 $3,377,523 (0.99)% Expenditures 13,642,352 14,782,793 8.36 Fiscal Dis arities 2,294,024 2,294,024 0.00 July 13, 2020 Work Session Minutes -1- General Fund Levy 7,937,167 9,111,246 14.79 Debt Levy 2,805,387 3,012,093 7.37 Net Tax Levy $10,742,554 $12,123,339 12.85% Revenues COVID-19 has created challenging times for many businesses but also the city. Many of the expenses incurred will be reimbursed through the CARES Act funding that the city has received. The greater challenge is the lost revenue that cannot be replaced using CARES Act funding. Property tax payments are typically due May 15th and October 15th. Dakota County has abated penalties for property taxes through July 15th.The city has already recognized a slight reduction in tax receipts for the first half.The largest impact will likely be recognized in the second half of tax receipts. Park and recreation,the Rambling River Center, liquor licensing, and building permits are some of the areas that have seen a reduction in revenue as a part of the General Fund. A reduction is predicted to continue into 2021 resulting in lower revenue receipts rather than the typical annual increase shown in the budget.Through conservative budgeting, there is an anticipated decrease in revenue of roughly$33,000.The following explain the major changes: License and Permits The 2021 budget assumes $432,200 in revenue that is a reduction from the 2020 budget of $473,115.The majority of the decrease is in building permits.There is also a slight reduction in plumbing and heating permits, animal licenses, and liquor licenses. Sewer permit revenue has been moved to the sewer fund. At this time building permits have remained relatively stable for the city, but it is an ongoing concern. Intergovernmental A reduction of$31,000 in MSA maintenance is anticipated for 2021. The remaining aid money received will likely remain stable depending on the continuation of COVID-19. Charges for Services Fire charges have been increased slightly to account for an increase in the contract rates with the surrounding townships. Recreation fees and membership fees have been reduced to account for COVID-19. Fines and Forfeitures The fines and forfeitures revenues have decreased over the last few months, but are still anticipated to come in above budget for 2020. Using that information and conservative budgeting, the number should remain stable for 2021. Investment Income July 13, 2020 Work Session Minutes -2- Investment income has been decreased based upon the city's portfolio. Using conservative budgeting, the city only accounts for investments that are non-callable in the next budget year. This amount is the General Fund's portion of the investment income and does not reflect all of the income received. Miscellaneous Revenue The rental income shows an increase in the 2021 budget to account for other items that may occur throughout the year and are unaccounted for in other areas. Transfers In A detailed breakdown of the transfers in and out of the various funds is included in a separate exhibit in your packet.The transfers into the General Fund are from the enterprise funds to reimburse the General Fund for human resource and administrative costs that benefit the enterprise funds. Expenditures When compared to the 2020 amounts,the 2021 expenditure estimates have been increased $1,140,441. Of this amount, $482,687 is attributed to human resource costs. The majority of the remainder of the difference, $625,351, can be accounted for in the transfers budget. Human Resource Costs All of the budgets include estimated human resource costs based on approved union contracts, an increase in health insurance, and estimates for employee benefits and worker's compensation premiums.The union contracts were approved for 2019 through 2021 and include a three percent wage increase each year. Staff has prepared an RFP process for the city with the intent to lower the overall cost of benefits. Transfers Out The transfers out are comprised of LGA and tax levy. A detailed breakdown of the transfers has been included as a separate exhibit in your packet.This year you will see five additional line items that are a part of the General Fund transfers. They were identified separately to better represent those items that are additional in the financial plan. Rows 6 through 12 that start with 1000 are all a part of the transfers out of the General Fund. All are funded through tax levy with the exception of row 7, which is LGA. The tax levy and LGA on rows 6 and 7 are $45,351 higher than 2020.Those increases are $30,000 EDA, $24,000 general capital (police equipment), $14,175 sealcoat, $825 EAB, and $10,000 of the property insurance premium. The decreases include $30,000 trail maintenance and$3,649 building maintenance. July 13, 2020 Work Session Minutes -3 - Row 9 includes $200,000 for the extension of 202nd Street into Farmington from Lakeville at the north end of Farmington High School. The original number was $300,000. $100,000 of the original amount has been moved to T23 to use liquor store proceeds. Row 10 includes$380,000 for the city's fleet.There was also $100,000 for downtown sidewalks included on row 11, but it has been moved to T23 to use liquor store proceeds.There were additional items included such as a larger fleet amount, arena phase 2, and the Highway 3 backage road first year debt payment.Those items are a part of the financial plan, but have been moved to the future to reduce expenditures for 2021.The items in the financial plan are important for the city to continue, but there are several factors resulting in financial constraints. Fiscal Disparities This amount will be finalized in August.The current draft includes$2,294,024 which is the same as the 2020 budget.The city has historically seen an increase in fiscal disparity revenue each year, but is unknown if that will be the situation in 2021 due to COVID-19. Debt Service Funds Levy The Debt Service Funds budget provides funding for scheduled debt principle and interest repayment obligations, as well as ongoing trustee, assessments, arbitrage, and post-issuance compliance fees related to the city's debt.The levy includes both General Obligation bonds and Interfund loans. The net debt levy for 2021 reflects an increase of$206,706 from the 2020 budget. Ladder One accounts for$268,013 of the debt levy. The Ladder One costs are new expenditures for the 2021 budget. Additional Notes There are numerous factors that have brought the levy increase to 12.85 percent. Those include: • Decreased revenues due to COVID-19. • Approved three-year union contracts that include wage increases. • Issuance of bonds for Ladder One with a debt levy of roughly$268,000 each year for five years. • Vehicles were not included in the 2020 tax levy.The fleet funding came from 2018 General Fund money above the 40 percent fund balance. This means that the vehicle costs are new expenditures for 2021. • General Fund money above the 40 percent fund balance was used to reduce the debt levy$150,000 in 2018 and $240,000 in 2019. July 13, 2020 Work Session Minutes -4- The 2021 draft General Fund budget presented this evening has been reduced multiple times to come to a 12.85 levy increase. Staff understands that this increase will not be approved for the 2021 General Fund budget. Staff is requesting clear direction on where the city council is comfortable with a levy increase. Councilmembers had questions about a number of issues in the budget including police equipment,travel/conferences,fire duty crews, use of the General Fund balance, the 202nd Street extension project, backroad road project, arena projects, approaching unions, the future CIP projects schedule, the impact of the pandemic the rest of 2020 and 2021, the current financial status of the city and more. The consensus of the city council at this point was to work towards a 6% levy increase for the preliminary tax levy in September. This will allow more time to monitor a number of issues. Councilmembers shared final levy goal numbers anywhere between 3-6 percent. Liquor Store Profits Administrator McKnight brought up the issue of liquor store profits. The city had planned to complete a project at the Schmitz-Maki Arena to relocate the ice resurfacer to the northwest corner of the building. The city council rejected the bids received for the project earlier this year due to the high cost of the bids compared to the estimate. The city had set aside $300,000 in liquor store profits to pay for this project. After recent discussions amongst city staff and representatives from the Farmington Youth Hockey Association, the idea of using some of these funds for projects inside the arena instead of the relocation project occurred. Both the hockey association and city staff put together potential projects for the city council to consider. Parks and Recreation Director Distad reviewed the list of potential projects put together by city staff. The consensus of the city council was to use $200,000 in liquor store profits to invest back into the arena. The other$200,000 would be used to help offset increases in the 2021 tax levy. CARES Act Funding Administrator McKnight shared that the city has received its CARES Act funding related to expense for the coronavirus. The amount of aid received is$1,723,785. These dollars had specific uses that they can be used for by the city. July 13, 2020 Work Session Minutes -5- The guidelines developed by the federal government are not as clear as we would like. To qualify for se of the CARES Act funding, expenses must satisfy three distinct criteria- 1. Necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019. 2. Costs not accounted for in the budget most recently approved as of March 27, 2020. 3. Incurred during the covered period of March 1, 2020 through November 15, 2020. Eligible uses for CARES Act dollars include- 1. Medical expenses 2. Public health 3. Payroll expenses 4. Public health measures 5. Economic support Information from the League of Minnesota Cities and the US Treasury Department were reviewed with the city council. Councilmembers discussed how best to assist the businesses community and potential city reimbursement issues. McKnight shared that the city staff will continue to work on this issue and bring back a proposal for the city council to consider as soon as August 3, 2020. City Administrator Update Administrator McKnight updated the city council on the following items- 1. Downtown liquor store lease proposal 2. Fire candidate graduation to be held July 29, 2020 3. Updated the city council on absentee ballot requests for the primary election 4. Discussed support of the police department Adjourn Motion by Bernhjelm, second by Hoyt, to adjourn the meeting at 7:37 p.m. APIF, motion carried. Respectfully Submitted July 13, 2020 Work Session Minutes -6- David McKnight, City Administrator July 13, 2020 Work Session Minutes -7-