Working Session

MAYOR COUNCIL WORK SESSION
Wednesday, July 2, 2008 - - 4:00 p.m.
A101

Present: Gershman, Bjerke, Glassheim, Christensen (joined in progress), Bakken, Kreun.
Absent: McNamara, Mayor Brown.

Gershman called the meeting to order at 4:00 p.m.

Matter of 2009 Budget.

a) Enterprise Funds

Schmsiek stated that in the packet there are sample utility bills based on the estimated rates for 2009, which showed that for a residential customer using 4,000 gallons the utility bill would increase by $0.96 or 1.8% to $54.65 a month and for a residential customer using 8,000 gallons the utility bill would increase by $1.28 or 1.7% to $75.45 per month. Rates will be discussed in more detail with each individual fund.

Bjerke inquired how much of the Sanitation rate pertains to recycling. Feland responded that $2.00 goes to recycling.

Schmisek continued that Council Members had requested information on the amount of revenue in the enterprise funds that could be transferred to the General Fund to cover expenses. He continued that the state statute limits the transfer to 20% of the operating revenue of a utility. Currently the City does transfer some funds as reimbursements to offset the cost of wages, maintenance and operations in the General Fund departments, which for 2009 will equate to $2,888,097, around 11%. There is an additional $2,298,465 which could be transferred, but Schmisek cautioned that money is currently allocated to cover other expenses within each utility and a shift of the full 20% will lead to larger rate increases within each fund over future years. Schmisek stated that he will demonstrate this in more detail as each utility is discussed.

(Christensen reported present.)

Sanitation –

Schmisek stated that the Sanitation Fund will begin 2009 with an estimated cash balance of $2.3 million, but will spend down this due amount to $1.5 million by Dec 31 due to expenses greater than revenue, which will bring the ending cash balance down to just over the 25% target cash reserve. He continued that the main expenses for this fund are associated with costs associated with siting a new landfill and increased costs from hauling all of our garbage in the 4th Quarter. Feland commented that based on the current permit we hold we will be able to utilize our current landfill through September 2009, but October through December will see the City begin to haul its refuse to another landfill, most likely Gwinner, which will increase costs significantly. He continued that the hope is that we can get a new site finalized and developed in a short period of time and will only haul to another facility for a short time, but that if the siting process is drawn out and a new site can not be found and developed there will be higher rate increases for future years than currently projected.

Schmisek showed the group that over time, the cash reserve in the fund does remain at or just under the 25% level set by Council. Bjerke inquired why the 25% level is used. Schmisek replied that Council had set that rate for the utility funds as a policy decision and at the same time set 15% for the General Fund and that is what strive to meet through the budgeting process. He continued that the reserve is available to meet unexpected needs in a utility, and by the nature of the equipment that is used in the utilities can be spent down very quickly if an emergency repair is needed. Bjerke asked whether there is the ability to have one pool of 25% and use for any utility as needed. Schmisek stated that according to government accounting rules each utility is a separate entity and we can not commingle funds. Christensen stated that perhaps the Council needs to have a discussion about the appropriate levels that they want to keep in all funds, as he has had conversations with Beth Weber at Moody’s and she has said that while they look at reserve levels and debt, it is not major factor affecting the bond rating that the City gets, and perhaps need to look at not having 15 and 25% for reserves any more, but some other lower level. Bakken countered that given some of the challenges coming up in the future perhaps should discuss increasing to 30% for some utilities and is all a personal opinion as to what is best level. Christensen responded that if emergency comes up could always go to the Bank of ND and borrow to meet the need and often get as low an interest rate like 3% and that is same getting on investments when we have this money just sitting there. Gershman asked whether if we took it down to a 15% level could do a one time transfer to the General Fund. Schmisek stated that would have to be done on an annual basis.

Kreun cautioned against just naming a percent without looking within each fund to see what the needs may be and that particularly now as we look at Sanitation those reserves can be spent down very quickly and if take too much could leave us short and also points out that if we have the funds available, it doesn’t make sense to borrow and pay interest.

Feland stated that by using those reserves that is how we are covering expenses with small or no rate increase and noted that $500,000 of expenses covered this year are for the excess cost of hauling our refuse to Gwinner and that is only one quarter and if no landfill is sited and operational early in 2009 as we hope then could look at needing additional $500,000 per quarter going forward for hauling and that future expenses in Sanitation Fund particularly are uncertain at this time as we work on siting process for new landfill. He continued that if unable to site the projected 4% for 2009 and 4% for 2010 will be drastically higher, and that budget and projections presented are assuming that Landfill is approved quickly.

Glassheim noted that after the next couple of years the reserve does stay stable which is our goal. Schmisek added that the 25% level was set as part of the review of the comprehensive rate study that was conducted and adopted by Council in a prior year and that while Council could decide to change that at any time, would like to present the challenges for review prior to those conversations.

Wastewater –

Schmisek stated that this fund starts and ends the year at the target reserve level. Feland commented that in the last year the lawsuit regarding the Wastewater Treatment Plant was settled for $1.2 million and part of that settlement was to make sure that funds were available to cover the to replace and repair the facility as needs arose and would like to keep this level of reserve as a one time was to absorb those costs, as many items such as in reactor tanks can run $100,000 to $200,000 and have worked on a plan to cover routine maintenance once those initial rehabs are completed. Feland continued that he will be bringing forward to the Council in the next couple of months staff reports detailing those needs that are immediate and follow-up with others as soon as they arise, as most are emergency repairs needed to keep the facility operational. He stated that this fund already has a loan they are repaying to the Water Fund.

Bjerker inquired whether these repairs and replacements are routine or due to cleaning up items that could have been done better. Feland replied that a lot are from things that could have been done differently in construction, but some are replacement due to wear and tear and when replaced will be modified so change the future replacement needs. He continued that at this time there is not a replacement fund set up for this facility and are working on that, but in the meantime, having the reserves to use as a one time way to fund things and jump start that wil allow the necessary things to be taken care of and not impact rates. Duquette added that while may not be able to definitely point out why some repairs are needed, we know they are coming and trying to use the reserves as a means to pay for them.

Schmisek stated that there is a capital reserve in the CIP for other items and Council could review that document. He noted that rates projected for the Wastewater Fund are no increase in 2009, 6.21% in 2010, no increase in 2011, 8.61% in 2012, 3.21% in 2013 and 3.92% in 2014 and noted that those rates are dependent on if all goes as projected at this time and will be reviewed each year and may change if revenues decrease or expenses see sharp increases.

Feland noted that this year we did receive a new operating permit which is for a five year term and that for that term there are no new state requirement changes that will affect our plant for those five years and will continue to monitor those items so prepared in case something changes for renewal in five years. He continued that one major issue that we will be dealing with in the Wastewater Department is rehab of the 50+ year old forcemain and will be seeing this item come to Committee and Council in the next year.

Christensen stated that he still sees some potential to keep the reserve stable and still move some more to the General Fund to offset general government expense, which would keep property taxes down and even if don’t take the whole 20%, but maybe at least a small amount more. The group discussed that this is a trade off if rates need to increase to offset the transfer. Schmisek commented that this is a policy decision for the Council to make and that there are some cities in the state that take the full 20% and do have significantly higher utility rates than we do, while boasting that their general taxes are lower.

Water –

Schmisek stated that the Water Fund is staying constant at just under the 25% reserve amount and that there is a spend down of $26,372 of the reserves in 2009.

Bjerke inquired whether there is any water in the Smiley Tower, as he sees it on the rehab list. Feland replied that there is not at this time. He stated that the only work for Smiley would be sanding and repainting and that in the past had proposed demolition, but met with resistance and at that time had said would bring the item back to Council in 2009 so that is why on the list and if we are going to decide to keep it in the community as a symbol, then should make it look appropriate as a symbol. He continued that there was talk about fundraising to cover the cost of maintaining Smiley and if that occurs then would come as a reimbursement for cost to the City of the rehab and if don’t do would line that out of the budget. He added that another component that in the past has been stated to affect Smiley is the reconstruction of the South Washington Underpass.

Gershman stated that he would like to see the salvage value of Smiley as metal prices have been increasing at a rapid rate. Feland stated that did check into that when this item came forward last time and that found the City would have a cost to dispose of Smiley of $100,000 to $150,000. Sletten added that the Northend Tower is also on the rehab list this year and is last tower to be done so included Smiley as also felt may get better pricing by bidding both at once should we decide to go forward with the rehab.

Christensen stated that the Underpass will be at least five to seven years out and shouldn’t tie the two topics together. The group discussed that the construction window for demolition is also short due to concerns from the birding group regarding the falcon nesting there and birds would need to be relocated in right time frame so if plan is to demolish need to be aware of that concern. The group discussed the timing of the Washington Underpass project and that it may even get pushed back further due to State project list and potential for need to do Kennedy and/or Sorlie Bridges. Grasser stated that if the Kennedy Bridge is done would be State cost and no local share, but would see them then rescheduling the Wasington Street Underpass a few years further out.

Schmisek stated that Water Fund has also loaned money to the Wastewater Fund and the Alerus Fund and will be paid back by 2014 when the main new Water Treatment Plant expenses are hitting. Feland noted that in February 2009 will be bringing to Service Safety Committee items related to evaluation of rehabbing existing plant or constructing a new plant in the industrial park and are working on that study now. He continued that one thing in our favor is that there are no regulations yet in place to require testing for cryptosporidium, but has been talk and if that comes into play will have big affect on us. This study will also tell how far back we can push the construction of a new facility. He stated that in the CIP we are including a gradual start of engineering costs and design costs leading to actual beginning construction phases in 2013 and 2014, with completion in 2016 with worst case scenario planned for decision to proceed with construction of new facility to be made in 2009. He added that we are hoping for potential of “grant” from federal level, but given their current budget stressors may not have funds available, and /or potential for using a new sales tax to pay for the half of the construction costs, as they will be so high that users fees alone will not be able to bear them. The group discussed that Minot has approved a 1% sales tax for construction of their new water plant and that Fargo has plans to transfer their dome tax to cover infrastructure needs that they have coming in both wastewater and water treatment. The group discussed that perhaps a ¼ to ½% could cover our needs, but would need to study this more in future if decide want to go that route.

Schmisek stated that this is just a first look at issues in all these funds and will have more information coming forward on each project aspect as it comes on line, but based on plan presented would be looking at about 3% rate increase in each of the next few years.

Stomrwater –

Schmisek noted that there is no rate increase projected for 2009, 2010, or 2011, possible 34.12% in 2012, 2.04% in 2013, and 2.72% in 2014. He stated that there is a use of some construction reserve to cover operating needs in the 2009 budget to keep the rates stable and still allow the construction of a new storm station in 2009, and deficits in 2010 and 2011. One item heavily influencing this fund is the greenway maintenance cost and will have first full year of normal operating cost in 2009 and once those numbers are known, will have a better gauge for costs in future years and if looks like will stay where we think, will start phasing in rate increase in 2011 to smooth it out rather than such steep jump in 2012. Glassheim asked why not start phasing in now and then adjust down later if needed. Feland stated that want to wait and see how the costs come in in first year of normal operation so have a better feel for what is needed, but will revise again even next year. Christensen stated that he also likes the idea of starting now to phase in and wants to make sure that we don’t have to dip into maintenance fee to cover operating costs or vice versa. Feland stated that is already planned for and not cross funding is planned and even at the 34.12% rate, is a very small increase in actual cents on an average utility user.

Public Transit and Dial-A-Ride –

Schmisek stated that these funds show good news for as both show revenues over expenditures and more usage. He stated that the route changes, change in combining Dial-A-Ride and Senior Rider Service and changes in the size of buses being used have all been contributing factors to the turn around in this fund, which used to struggle. Feland distributed to the group a spreadsheet detailing comparative ridership from 2006, 2007, and 2008, and overall ridership is up 6.3% since 2007. He added that another contributing factor may be the gas prices which are leading more citizens to utilize the public transportation.
Alerus –

Schmisek stated that 2009 looks to be a good budget year for the Alerus Center and noted that this is the first year they are budgeting a small profit. He pointed out that $375,000 in revenue is from sales tax and that there are several smaller capital items listed, but that there will be some larger capital needs that are being worked on by the Alerus Board and Staff and will bring them forward once they are done. He added that they are also working with the University to be prepared for any facility changes or expansions that may be needed to accommodate the move to Division 1 in their sports programs.

Bjerke asked whether they are looking at other ways to cover their budget needs for when the sales tax rolls off. Schmisek stated that they are looking at that and beginning to plan for another source of revenue.

Mosquito Control –

Schmisek stated that this fund is even for 2009 and are under the 25% reserve level. Gershman commented that citizens are very happy with this program and the wonderful job that they have been doing to keep our city mosquito free and would like to express that to the department. Shields noted that has been to other communities without a program like ours and can really tell the difference. He stated that the main concern he has is with rising fuel prices and wanted to make the Council aware that if fuel prices continue to climb and reach the $5 to $6 range in 2009 will need to come to Council for rate increase mid-year and that have not asked for residential rate adjustment since 2003 and commercial rates in 2005.

JDA –

Schmisek pointed out that this fund starts with $5.1 million which is nice number to have available for potential projects and reminded that there is also $1.2 million in 2163. Schmisek stated that the Job Development Authority funds can only be used for job creation and economic development. Bjerke asked whether that was a policy or a law. Schmisek will research all guidelines associated and provide the information to the Council.

Parking Authority –

Schmisek stated that his is a bare bones budget and does not have reserves. Hoover stated that he had brought some information forward a couple of months ago regarding some changes, but Council wanted some changes and a smaller scope and is working on that now and will be bringing revision to Council that includes enforcement utilizing a Police Department CSO and a modified fee structure and should have back within 30 days. He continued that what he is working toward is a point where lease rates will cover the costs so that no special assessments will be needed in the future in regards to downtown parking.

Gershman stated that he believes that we should look at the rates and we should start indexing them each year like we do with all the other license and permit rates and that may help them keep up with costs. Hoover stated that he is looking at that as well as has a lease of the top two floors with Central High School. Gershman stated that he would like to see the first level left open for customer parking as that may generate usage and make people feel safer using those spots particularly at night. Hoover stated that is also an aspect that he is working on and look at bottom for customer parking, next level for clients and top two for Central High School.

Meeting adjourned at 5:30 p.m.

Respectfully submitted,

Sherie Lundmark
Administrative Specialist Senior