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Council Minutes

Minutes of the Grand Forks City Council/Committee of the Whole
Wednesday, August 2, 2006 - 5:00 p.m.________________________

The city council met as the Committee of the Whole on Wednesday, August 2, 2006 at 5:00 p.m. in the council chambers in City Hall with Mayor Brown presiding. Present at roll call were Council Members Brooks, Glassheim, Bakken (teleconference), Kreun - 4; absent: Council Members McNamara, Gershman - 2.

Mayor Brown announced that when addressing the committee to please come forward to use the microphone for the record, and advised that the meeting is being televised live and taped for later broadcast.

1. 2007 Preliminary Annual Budget.

Mayor Brown stated he was pleased to present the budget and looks forward to questions and discussions that follow, that the annual budget is not just critical to the operation of city government, it is an important matter for all citizens, that they will be clear about priorities and especially about how accounting for the use of taxpayer money as they look at the short and long term needs of the city and its citizens. The first priority is that this is a service neutral budget with the exception of servicing new areas due to continuing growth in the community there is neither an increase nor a decrease in the services residents receive.

He stated other important priorities are: salary and benefit commitments to our employees, that from 2001 to this budget we have become more efficient organization by cutting over 20 positions; a strong commitment to public safety and basic services, and with proper funding and planning we are committed to set forth to take care of our streets and assure our public safety personnel are well equipped and well trained so that the people of Grand Forks continue to be residents of one of the safest and best kept communities in the nation; and perhaps the most important priority is the commitment to long term planning that is routed in this budget, this budget lays the foundation for responsible 6-year plan that will make sure that we are not only as effective and efficient today but prepared to be effective and efficient years down the road. The budget includes a 2011 fire hall to address the future growth; and along with capital planning we must have operational planning, how do we staff and provide the resources in the future to maintain the level of service we expect in this community. He stated this budget lays foundation for the 6-year operational plan and asked for all the work to develop in this regard, and the 6-year budget is routed in this year's document and looks forward to working with the council and residents to fully develop this plan over the next few months as we delve into the details of service levels, operations costs, long term goals and needs versus wants.

Rick Duquette, city administrator, echoed the mayor's comments, that as you review Mr. Schmisek's budget presentation this evening, it is important to note that in this budget there is a strong emphasis on handling the growth of Grand Forks by planning for the capital and operational needs of the city government; and that in their recommendations as it relates to public safety and streets. This is a critical connection to future budgetary planning as well, the 6-year plan which is the Mayor's initiative, and strongly supports that. He thanked the department heads, the city auditor and Maureen Storstad, the city council for their guidance and leadership, and Mayor Brown for vision and commitment.

COUNCIL MEMBER CHRISTENSEN REPORTED PRESENT

The city auditor stated that there is not going to be a lot of new information for council members but citizens will get some information that they haven't seen or heard before and wants to take the time to do that. He stated they want the budget document to be a planning and a management tool where a long term perspective must be used, and that they see this budget with the Mayor's call for a six-year plan is the base of the start of that and the foundation to bring that back to you.

The city auditor presented the 2007 preliminary annual budget.

He stated also critical in this and have done this for a number of years, is that the mayor and department heads will upon the vacation of any position review it, look at it to see if it should be filled and always work towards efficiencies; and that since 2001 we have reduced the equivalent of 20.5 full time equivalence out of the budget. He stated in the General Fund will talk to you about some additions to that budget of personnel, that even with that between last year and this year will have a net decrease of 1.5 positions, that will be adding a few but taking out more.

He stated they have some policies on fund balances, that the General Fund budgetary reserve be 15% of the budgeted expenditures, which is to take 15% of this budget, or $3.6 million, we are at $2.9 million and will maintain that but as come back with the financial plan, those things are going to have some discussions, whether 15% is appropriate, 10% or where do we want to be. In addition to that we do have the departmental carryover of $1 million that has accumulated carryover since 1993 when council implemented that policy. He suggested that any excess in the undesignated un-reserve fund balance of the General Fund should be used as a transfer to the Loan & Stabilization Fund to help us defer or mitigate any tax increases because we can use that money for one time large capital expenditures, etc. but unfortunately not at that fund so won't have any to transfer. The excess sales tax dollars used for the Air Force Base retention, etc. stand at about $1.2 million, and in conversations with the mayor and administration we suggest that we hold that money and look at uses of that for any type of realignment costs or things that may come up, don’t know what those costs are, the BRAC is looking at that and find out when surveys go on with the businesses, the Air Force, etc. Re. utility funds in 2003 - when did the cost of service studies there was a policy adopted that they would maintain a utility fund balance of 25% or 3 months of their operating expenditures, and the reason they are higher is that if something goes wrong it is generally a huge expense and have to be ready to cover it.

He reported they will not be recommending any rate increases in sanitation fund, whether Mr. Feland can get approval by the State Health Department to extend the life of the landfill until 2008 or we will see some changes in that budget that may require some tipping fee increases, etc. and perhaps some usage of these funds; there is an ongoing need and a future need in the landfill for infrastructure money and this can only help defer that.

Following the presentation he reported that the preliminary approval will come to the council on August 9, 2006, that once preliminary approval is given you can decrease it, cannot increase it, until later on if have additional revenues or unanticipated cash when doing budget amendments. He stated they will do work sessions as needed. That on August 14 at the committee of the whole and on August 21 at the council will bring forward a document increasing fees and on September 5 will be looking at second reading of the fee ordinance and approval of the final budget.

He thanked the mayor and city council; department heads; the personnel in the finance department: Saroj Jerath, Maureen Storstad and Candi Stjern; and also thanked citizens for input throughout the year.

There were comments and questions by the city council members.
1) Council Member Brooks stated that last year they looked at the Airport and would like to approach the Authority and request the same thing as we did last year in terms of their mill levy.

2) Council Member Glassheim stated he has questions to several items. Mr. Duquette suggested that Mr. Glassheim send those questions to him and to Mr. Schmisek and they can work through those items. Council Member Glassheim stated the real estate tax that they are concerned about is about $8 million, the city budget is about $134 million and overwhelming to listen to the amount of material you have to bring together and the budget is not just what impacts the real estate tax but the budget is 15 times more than that and grateful for the work that staff does in organizing it and keeping it under control. He stated that if the sales tax does go down if there is a plan involved for that or plan for making cuts or come back to council, or how to proceed if not as much comes in as anticipated. The city auditor stated that the first choice and easiest choice is to look at the capital area, and put a hold on those items; depending on how much it goes down probably don't have a good plan but once you get past the capital area the next place you have to look is the personnel area, and would have to draft some plans on where they would look and that is the only place you can do significant savings.

Council Member Glassheim questioned the 6-year plan and if it is adopted. The city auditor stated the start of it is in the area of the capital improvement plan, and will have major projects that they are looking at over the next 6 years, they have not yet put together the operational side of that and will be bringing that to you after finished with this. He stated that they had a demonstration today with a rep. from Springsted on the planning model that they have been working on to allow us to do the operational side of this, that model is close to being completely finished and it will allow us to establish some parameters and do projections in the future - at what point in population growth do you need new personnel and at what point in the growth in miles of city street do you need new equipment and more personnel - and will allow us to put that information or growth factors and tell you what those needs are, and also allow us to play with different income scenarios and take growth and permits and help us look at what kind of property tax may be generated. He stated this will allow them to do "what ifs" and bring that back to council for their consideration.
He stated that will allow us to see the longer term picture, the operational things, and have discussed what happens if only look at the growth in new development or construction, can play that scenario and tell you whether we end up short of cash based on what those projected needs are, allow us to increase operational expenses and allow us to do what ifs if we build the new fire hall in 2011, and what goes along with that in the next year, personnel costs and impact of that; and will start to give us longer term picture as to what a decision today may mean for us.
He stated what will happen with this - will bring along the financial policies that we operate under, will bring recommendations for changes that may impact how we go in the future, and council will have to approve or not before can complete any kind of a plan, different scenarios will be presented to council and citizens for decision..

3) Council Member Christensen stated he was curious about a lot of items in the proposed budget - and as to how we are going to meet unfounded liability in insurance/pension. He stated he was concerned about meeting present problems rather than creating future problems, and will wait and ask questions in a work session as several members are absent and as this doesn't have to be approved until October 10, and would hope that other council persons would have the opportunity to ask questions in work sessions. He stated his questions are - what is the source of revenue to finance the bonds for the training facility - Public Building Fund but also saw a revenue bond (that is mosquito control fees) and interested because we could have purchased a building last year for $450,000 but that has moved from $450,000 to $1.4 million, and that is good penalty to pay for place to store that equipment and training, and is sure will have justification to go from $450,000 to $1.5 million for that facility. The city auditor stated that is the reason that the mayor has asked Service/Safety to look at it and part of the information they are going to be providing is that the $450,000 is the purchase of the building and if that is to become a long term building, then will have to be retrofitted to handle chemicals and store properly according to EPA standards.

Council Member Christensen stated re. pension that he is looking at projected income on the money we are investing at 3.5% but also look at projected in perpetuity of 8.25% and is seeing that we are going to spend $680,000 to make up difference between what is budgeted and what has to go in. The city auditor stated they have $1.7 million budgeted and the contribution is $2.3 million and $1.3 million is to fund the unfounded liability over the next 30 years; $1 million is normal cost and recommended contribution is $2.3 million, $1 million is to fund the normal cost and $1.3 million to fund the unfounded liability, and that is what makes up that annual contribution, the plan is what the actuary gives us and is only as good as what we know today because can change; and that he asked them for a 30 year cash flow and will be sending that information out to the council.
The city auditor also stated that if we had no unfounded liability at this point we would put in about $1 million - that trying to pick up a shortfall of $1.3 a year over 30 years. This year they are covering that $1.3 and asking a budget amendment of $400,000 and that will come from the Loan and Stabilization Fund, going forward the plan is to get it put into the budget so funding it on an on-going basis; that in '07 $360,000 of that is on-going revenue, $283,000 from the Loan and Stabilization Fund; and plan is that in '08 they would try to pick up that additional $280,000 with on-going revenue and get it funded going forward. Council Member Christensen stated he will ask questions at another point in time.

Council Member Glassheim stated that rather than e-mailing his question that they have a work session and need to plan for one.

Council Member Christensen asked if they would have ability to look at the computer program they are getting from Springsteds, that from a planning standpoint it is nice to have access to the tools or data so they have something to review rather than just listen to the report.

The city auditor stated that on the timing schedule for budget approval, council can do what they want to do but would hope they would stay with the same schedule as he has commitments - he will be gone September 9 through 19th, and on August 21 will be at an accounting and auditing update conference, that can probably schedule enough work sessions between to try to resolve issues. He stated there is a problem with moving it out closer as there is a lot of work once the final approval is made for people in is office to put the documents together that go forward to the County.

4) Council Member Bakken stated he was in favor of the 6-year plan; and the police department and fire department training session. He stated he had a couple questions for the city auditor re. Loan Stabilization Fund and if those are one time expenditures. The city auditor stated on the planning tool and what will be included is the information on whether debt has to be issued or what the debt service will mean in that planning document and agrees that we need to look at that debt, that we have huge debt outstanding for a community our size, and reasons for that, and the question on the Loan and Stabilization Fund if those are one time expenditures, that he would treat the office equipment for the police because that is a new item, the digital cameras for the police vehicles because it is a new item, is something they would normally fund as a one-timer and then set up a schedule for replacement; that the carpeting for engineering and planning, $40,000, should have in replacement schedule and should be funded on an on-going basis; and re. the pension fund need to fund on an on-going basis, and is one we need to look at.

5) Council Member Kreun stated we have a 4.18 mill reduction and in an earlier discussion re. 2.5 and have a reduction in the mill levy for the on-going flood protection project; if we pay that off early in 2014, how will that affect or give us the ability for our bond rating to go up because we have considered asking Moody's to bring that forward to see if that can happen, that over the long run if we can up our bond rating we might save even more than the $2 million that is projected in the interest savings if we pay off that bond early. The city auditor stated he wasn't sure if we pay off that debt in 2014 we will automatically get a rate increase, but was told by Moody's that with the debt outstanding that we presently have, we will not get a rate increase until we pay some of that debt off; and the other comment they made was that our flood debt is a major portion of our debt, if we can manage through all of this and can pay debt off sooner than what originally anticipated, he can't guarantee it, but in conversation with Moody's, their comment is that the more you can get off your books the more you can show that you have been able to handle this, the more opportunity we have for that rate increase.

Council Member Kreun asked what other items do we have that are of large proportion that would help us get to the bond rating we would desire. The city auditor stated we have the Alerus bond debt which is huge and when look in the growth in that, we have to be very careful about balancing how we use those sales tax dollars for capital items compared to setting it aside to pay off the debt, if we allowed and had 6% growth into that facility, we could be looking at a payoff of that debt in 2018 compared to 2029. He stated we will be calling some debt, smaller one but a G.O. tax increment bond that is not due for 4 years and will be calling that starting this year with only $20,000 more to call next year and get that off the books. We are at a AA 3 bond rating.

Council Member Kreun stated one of the other expenditures that we have been discussing is the pension funding and wants to know if there is a plan in place whether we want to adjust it, and that is the decision we have to make. The city auditor stated that today he received a 30-year cash flow based on the assumption, that assumptions can be wrong either way, but it will show the contribution based on those and where it will max out, where the big payments start to happen, etc. and how the balance is being used and all the contributions and it will give you that additional information.

Council Member Kreun stated another thing they were discussing is long range CIP planning, and is inclined to go along with the 6-year plan and utilize that, and wants to look at the issues that are going to come before their committee, whether finance or safety/service or both, and have an opportunity to take a look at those and make an informed decision on what they want to do.

Council Member Kreun stated that we are putting a plan together for this particular project and that is why using Loan & Stabilization Funds to smooth it at this time until we get a funding mechanism stabilized to do that over and over, and hopefully there will be a funding mechanism in place in 2014 and won't have to use those mills, and that's what planning to do, and that is why the 6-year planning process is in place.

The city auditor stated in response to comments, that is a valid fall-back position, that we are putting a plan together today for what we know today based on assumptions, and have a plan in place that says we need $2.3 million to fund the plan, and have a way of getting to that point now - and what happens if the market goes to 4% for the next 8 years, then have a bigger gap and if have the fall-back and we are going to leave that 11.5 mills in there and pay that off, and the council at that time should look at that as a source to fund any potential additional unfounded liability as a fallback position because then if the market takes that hit you would have that to look at, the market is going to swing, so if get to that point and the $2.3 or the $2.4 is still good and covered in the mill, then think about it at that point. Mr. Christensen stated then go into a little bit of arbitrage or leverage and if short buy $10 million and doesn't care about the vagricies of the market, and go sell a bond and take that bond and pay that over 30 years but only have a 10 year obligation for your employees to finish the ride; not hard but have to get on the same page and set that up and fund around everything else and get back to the basics to pay our people and make sure we cover their pensions and then deliver our services and build our buildings, and that is his priorities.

Mayor Brown thanked department head for their hard work in the past in holding costs and thanked the finance department for all they have done in this process, and the city council for input, and emphasized this was a neutral service budget but it also needed to honor our salary and benefit commitments to our employees, and have a strong commitment to public safety and to basic services and in laying the foundation for a 6-year capital improvement plan and operational plan.

ADJOURN

It was moved by Council Member Brooks and seconded by Council Member Glassheim to adjourn. Carried 5 votes affirmative.

Respectfully submitted,

John M. Schmisek
City Auditor