Working Session

MAYOR COUNCIL WORK SESSION
Wednesday, July 11, 2007 - - 4:00 p.m.
A101

Present: Mayor Brown, Christensen, Gershman, Glassheim, McNamara.
Absent: Bakken, Brooks, Kreun.

Others: Rick Duquette, John Schmisek, Greg Hover, Al Grasser, John Packett, Todd Feland, Mike Flermoen, Bev Collings, Maureen Storstad, Candi Stjern, Mel Carsen, Kevin Dean, Don Shields, Roxanne Fiala, Al Morken, Daryl Hovland, Pete Haga.

Gershman called the meeting to order at 4:05 p.m.

Matter of Mayor’s Comments on 2008 Budget and Planning Process.

Mayor Brown stated that tonight he will be presenting the 2008 budget which will also serve as the basis for the city’s 6-Year Plan. He commented that the budget requests have been reviewed and prioritized by a budget review team made up of City Administrator Rick Duquette, Finance Director John Schmisek and Budget Officer Maureen Storstad working toward a goal of minimizing any increases in taxes, while continuing to improve the quality of life for citizens of Grand Forks.

Mayor Brown continued that the proposed budget for all funds is $113,222,302, a 16.46% decrease in the overall budget which keeps the mills frozen at 113.5. He added that the budget does use the 7.77% from taxable value increase, of which 4% is from revaluation and 3.77% is from new construction. He also noted that over the last 9 years the City has reduced its total mill rate by 22.78 mills, with operating mills have decreased 32.78 mills, a 24% reduction. Mayor Brown provided a brief overview of some of the items included in the budget which will be discussed in more detail later in the process.

(Christensen joined meeting.)

Schmisek continued the overview of the highlights of major impacts in the proposed budget. He Continued that most of the increase in the General Fund is in the Wages and Benefits area and includes an amount equal to 3.07% for market based salary increases, $310,948 to cover an 18% increase in health insurance costs and that the City continues to fund 75% of the premium with the employee paying the remaining 25%, the movement of funding for the Asst. City Engineer back to 100% General Fund funding with the understanding that any work done for the enterprise funds will be billed to them, half funding for a COPS in schools position that will be coming off grant funding with the other half being funded by the school district, and the addition of a full time planner position which is partially offset by the elimination of a seasonal planner position.

Another major impact in the General Fund is in the area of Maintenance & Operations for increases in fuel and utilities. He continued that there is a decrease in Operating Transfers Out both for PSAP and the Computer Service Fund for a saving in the amount of $83,574.

Schmisek continued that in the Capital area a major expenditure includes replacement of a fire engine for $230,000, other replacement of fleet vehicles as scheduled, and the continued build of reserves to fund future replacements of major equipment.

Schmisek stated that in the revenue area a projected decrease is included for Xcel Franchise Fees, as there was a short-term increase in costs for that utility that also increased our fees, but the time line for that has expired. Overall, there is a projected net increase in revenue before property tax of $623,907, leaving a balance of $983,126 to be covered. The Mayor’s proposed budget covers this amount using property tax increase of $759,897 and cash spend down of $223,229. Schmisek noted that there is a projected cash spend down for 2007 of $50,000 bringing the total cash spend down by end of 2008 to $273,229.

Schmisek distributed a copy of the 2008 Mill Levy sheet based on the proposed budget. He stated that as the Mayor commented the revenue generated from new construction is about 3.77% and the revenue from valuation increase is 4% and are proposing keeping the mills steady at 113.55. He noted that the only change is a transfer of .60 mills in the City Share of Special Improvements to the General Fund.

The floor was opened for questions from Council Members.

Gershman inquired what the actual change was from in the License and Permit Fee. Schmisek stated that they increased overall by 3%, but projecting overall less because this year we have had fewer licenses so far than we had projected and may be less than budgeted.

Christensen commented that he would like to have a discussion about the appropriate level of reserves, as he notes in the CAFR that we are at 25%, which is more than the mandated 15% and being mindful of the cap discussion that took place at the State Legislature this last session that we should be not looking at staying the same, but rather in cutting mills and maybe if decrease the reserves can accomplish that. He continued that he is not opposed to keeping the revenue from new growth, but that any revenue from valuation increase should be returned. Christensen stated that everyone agrees that we don’t want a measure to pass that caps us, so we need to take good faith steps to show the public that we get the message. He added that even though we are only 23 % of the overall tax bill and make a small difference compared to the other taxing entities that we are probably the most visible entity and need to take a stand and hope that influences some of the others.

Duquette asked if the thought from Council is to use reserves to cut the mills. Christensen responded that he was just suggesting that mills should be cut at least as much as the valuation increase, maybe 4.5 to 5 mills and he is not concerned with finding a way to cover that $550,000. He added that he would like to see what a projection for new growth revenue would be going forward and would believe that will be more than enough in the future to make up for those mills. He stated that then we would bring that message to the schools and other entities.

Gershman stated that he is also in favor of keeping the new growth revenue, but would like to keep it neutral for revaluation of property, particularly after the push at the legislature the last session. He suggested that besides staying neutral to valuation increase, he would suggest doing that while retaining the existing services, and maybe fund through the use of reserves, or maybe decreasing the dike mills instead of shortening the timeline as we had discussed last year, but whatever it would take to keep it neutral for the homeowner.

Schmisek stated that he would like to thank Maureen Storstad for all the work that she has done not only on the 2008 budget, but also on the 6-year model development, as that has proved to be more in depth than they had thought it would be when they initially began the process.

Schmisek continued that staff is mindful of the desire by the citizens for decreases in taxes and the discussions on measures to cap spending and that we have cut mills when we can. He added that his concern is that we are at our lowest level ever and if capped at the current level we would have no way to cover future needs. He stated that the key to making a difference in the property tax bill for citizens is to work hard at the legislative level to find a different way to fund property tax. He commented that the City has cut over 30 operating mills and we can not continue at that pace. He added that we can spend down reserves, but that is not an ongoing source of funding and when they are gone we will be without funding for basic needs.

Christensen stated that last year we discussed decreasing the dike mills to 9.5 from the current 11.5, but decided not to based on the argument that decreasing the overall debt of the City would increase our bond rating, but has talked to someone and they are not sure that the level of debt we will lose by paying the dike off early will have any effect on our rating. He continued that if we took 2 mills from the maybe look at some of the other smaller areas like the airport that has a lot of reserves or the library. Schmisek responded that we do not have authority over the airport and may have limit on influence on the library. Schmisek continued that every government entity has general ongoing debt and that is alright and not an impact on the City’s rating, but the dike is viewed differently. He stated that this would be a philosophical discussion as to whether we want to pay off the debt sooner and save the interest or cut mills and pay off in the longer term.

Christensen stated that another discussion item should also be whether we want to dedicate a some of the dike mills to cover the unfunded liability in the pension, which along with the decrease in administrative fees due to a change in the management method for plan assets would then decrease the time for paying off the unfunded liability and the dike will keep going until paid in the original term. Schmisek added that there is also an opportunity to work with the State Investment Board for management of the plan assets that would even further reduce our costs. The group discussed that these options will both be discussed further as the budget discussions continue.

Schmisek commented that currently the rate of inflation is at 2.9% and seems like we should be able to at least be able to justify retaining an amount equivalent to that, as our costs for items needed to provide services go up just like citizens costs.

McNamara commented that we need to demonstrate by action that we get the frustration of the citizens and try to keep our budget neutral as that puts pressure on others to do the same.

Glassheim added that there will be a fight at the next legislative session for a measure to instill caps and there may be an initiated measure that comes up for a vote before that to instill caps and that he would feel better going back to the legislature and being able to say that we tried to cut, even if it was small like a 1.5 mill decrease, it at least shows effort. He continued that his colleagues were very concerned about some word that the school is not planning for any cuts despite the increase that they are receiving in state funds. He added that he realizes that we can not bear the burden for all, but we should try to do something, wherever it can come from. He stated that it would be interesting to see how much difference in payoff it would make, months or years, if we took say a half or one mill from the dike and then maybe take a quarter of a mill from the library, etc. Mayor Brown commented that by taking from the Library you would hurt the lowest income most as they are the biggest user and questioned whether that was where we wanted to go. Glassheim clarified that he is not saying take their whole increase, just maybe instead of $87,000 more they get $50,000 more, just a little from each.

Gershman asked whether there could be at least three mills in our budget, which then would hopefully suggest to the school to find at least six mills (since they are twice our levy), and would really like to see if we could do without the 4% from valuation increase. The group discussed that at that rate would still not have a huge effect, about a decrease of $27 on a $200,000 house, but it would be something. Christensen commented that putting that into perspective an average lunch for two could is about $20, so not a big difference to the homeowner. He continued that we look at inflation which in December was 1.7%, but then our wages are at 3.07% increase and that still may not cover the increased cost for employees on their share of the health insurance premium and we need to get this word out to the people, because all they are seeing is that this is our 4 or 5 year of increases and the average person is not seeing that from their employer and need to show the other side that it is still not a big net increase for our employees and that is an issue for us and we need to get the whole word out as to what it costs to provide these services.

Glassheim had submitted a number of questions via e-mail and Schmisek responded to them. Schmisek stated that the decreases come from a $22 million dollar short-term dike payment which matured in 2007 so now that money moves back to the General Fund, $10 million in capital projects a lot of which are from reduction in flood protection project costs, and the JDA used to budget for costs in the Economic Development Budget and move forward each year, but now leave as cash carryover and if deal comes and need it will utilize it through budget amendment within their budget to bring that money in, so not really an operating saving, just a reporting difference. Schmisek stated that have already talked about the 11.5 mills and keeping it there and then pay off the debt in 2014 versus 2020 and maybe should also consider whether that is good enough. In regards to what effect removing a mill from the dike dedication would have on the payback, he will need to review that and will forward information to the Council on this. The 1.6% population growth is a projection from the MPO. In looking at vehicle replacement, the City is considering energy efficient vehicles within some departments. Duquette added that they will be reaching our to EERC or other consultants for some assistance also on our facilities and being more energy efficient. Gershman commented that he would like to see the city taking an initiative on this, as with LM Glassfiber and Xcel Energy’s work in the wind powered arena that we have excellent opportunities. He continued that Brazil has all government vehicles powered by ethanol and electric and is good to hear we’re looking at this.

Duquette stated that he is glad to get opinions from the Council and that Schmisek will be going into more detail on items within the budget and our core businesses at future meetings before making any firm comments on where we are at with the budget.

Christensen commented that even though it is a philosophical difference that some have he would like to see discussions on enterprise fund revenue and moving more of that to the General Fund to ease the tax burden. He continued that he knows that we are allowed to take up to 20% of revenue for general needs of the government, but would like to see an attorney general’s opinion on what counts to that 20% and what that can be allocated for. He added that if we could double the amount that we currently take from enterprise funds then would not need to talk about cutting anything then could have twice the impact to taxpayers without affecting services or budgets.

Gershman commented that he appreciated the tone that budget discussions are taking so far this year and will look forward to more information in the future.

City Council Budget Resolution.

This item was not discussed.

Meeting adjourned 5:20 p.m.

Respectfully submitted,

Sherie Lundmark
Administrative Specialist Senior