Working Session

MAYOR COUNCIL WORK SESSION
Wednesday, July 9, 2008 - - 4:00 p.m.
A101

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

Matter of 2009 Budget.

a) General Fund

Schmsiek provided information to the Council regarding the General Fund and impacts projected for 2009. He began with a reconciliation of the fund balance from the 12/31/07 balance in the Comprehensive Annual Financial Report to what is actually available for budgetary needs in 2008. He explained that this accounts for reserved and designated funds and receivables and payables that are adjusted off of fund balance because we anticipate their receipt and expenditure when the next years budget is projected and includes reserves for encumbrances, excess sales tax, department cash carryover, and equipment replacement reserve, along with some other minor designations. The result is an available fund balance for 2008 of $4,443,431 which is just above the 15% target for reserves, a policy set by City Council. Schmisek noted that departments are being asked to use cash carryover for a portion of their capital needs, rather than funding them in the budget.

Bjerke inquired whether the excess sales tax had to be used for military retention and realignment expenditures or if it could be redirected. Schmisek responded that it can be redirected, and in fact, some of it is being used to meet some capital needs in the municipal parking system in the 2009 budget.

Schmisek also distributed a detail of the cash carryover variance which included a listing of items causing the variance, as well as the planned spend down that will occur in 2008.

Schmisek stated that the next information in the packet was a report of expenses by category, assuming the full valuation increase is taken this would be a 5.07% increase in the general fund, which includes health grants which are funded also with user fees as well as capital expenditures which are planned to be funded with departmental carryover. The net increase exclusive of those exceptions is 4.78%. This will translate to a projected spend down of cash reserves of $652,431 by the end of 2009.

Schmisek noted that included in the packet is a list of requested positions for general fund departments, all of which were recommended by administration to be denied. He continued that this does not indicate that there is not a need for those positions, but a result of the increased costs in other areas of the budget and a desire to present as lean a budget as possible and to reduce where possible through attrition. Duquette explained that two of the positions are in the police department and do plan to add one officer in 2010 and one in 2013, but had asked to speed that up to 2009. Kreun asked what the national standard is for officers per population in cities. Duquette responded that the national average is 2 officers per thousand, but our goal is 1.5 per thousand, and currently our force is at 1.3 officers per thousand. Schmisek added that with the planned additions in 2010 and 2013 we will only be maintaining the 1.3 to 1.4 level and not moving closer to our target if population growth continues as projected.

Schmisek stated the next information in the packet is a summary of impacts on the General Fund. In the revenue area, he commented that this information assumes leaving the 4 mills from property tax in the general fund and that equates to the 5.04% projected increase in the real estate tax line item. The sales tax projection is based on increasing the revised 2008 collection projection by 4%, arriving at an overall projected increase for 2009 of 7.4%. Schmisek explained that the state aid, which is the city’s share of state collections, is projected to increase by 22.04% and while that is based on a projection given to the City by the State, is nervous about that number, as we have never gotten an increase even close to that amount. The cable and franchise fees are both projected with an average increase.

Schmisek stated that we are projecting a large decrease in a couple of revenue line items. The court levied fines will be down from what was budgeted for 2008 due to the change in interpretation of the state law that required us to lower our fines to the state level. This should be a discussion when the legislature begins meeting in 2009, and if a change to allow us to raise is passed early in the session, then could see a decrease not as large, but we can’t count on when and if a change is passed so need to budget with law the way it is. Schmisek continued that he is also projecting a decrease in building permit fees, as we have had some rather aggressive years of building the last couple, and as with the rest of the nation, we are projecting a slight slow down in our area, but still average growth. Schmisek pointed out that the next revenue item, admin and engineering fees – projects, is the fees that we charge related to special assessment projects, and that there have been fewer projects requiring this type of work, therefore is budgeting less for the revenue. He continued that other license fees are being increased 3% again this year, as per the Council policy established a couple of years ago to raise slightly each year instead of having to do major increases every five to ten years and added that Council Members may hear feedback on this policy from some of the license holders again this year.

Schmisek continued that overall expenditures in the general fund are up $1.4 million over 2008, with $1.2 million of that coming from a few key areas, which translates to only a 0.7% increase in overall normal expenses. Two areas with large increases are utilities which will increase by 24.10% and fuel which will increase by 24.5%. Schmisek stated that the have been working with our utility vendor and unfortunately even the large increases that we are projecting may not cover what costs actually increase to by 2009, as they are projecting increases of approximately 40% for this heating season over last year.

Schmisek stated that in the capital area, the percent increase does include the purchases funded through the use of department carryover in the amount of $195,000. Other projected increases are wages/benefits at 3.3% and transfers out which includes a one time transfer from excess sales tax for one time capital items in the municipal parking system.

Schmisek explained that the next items in the packet are repeats of some information that was provided two weeks ago on the CIP for the general fund and general fund vehicle replacement schedules and providing the portions of those associated with the General Fund again today so they would be available if needed for discussion. He continued that individual detailed budgets for each general fund department are also included.

Schmisek commented that perhaps the largest upcoming project affecting the general fund is the scheduled construction of a fire station for the southeast section of the City and that project had been included in the CIP for 2011. He continued that this does pose some challenges in funding as shown on the projection sheets included as the last item in the packet. He reviewed four scenarios with the Council – 1) Fire Station constructed in 2011 with zero mill increase in 2009, 2) No Fire Station and zero mill increase in 2009, 3) No Fire Station and 2 mill increase in 2009, 4) Fire Station constructed in 2011 and 4 mill increase in 2009, 5) Fire Station moved back 2 years to be constructed in 2013 and 4 mill increase in 2009, and 6) No Fire Station and a 4 mill increase in 2009. He stated that as the projection sheets show, there are significant decreases in the cash reserves even if the fire station is not constructed and that if this project goes forward as scheduled and there are no mill increases for the general fund, there will be an even more rapid spend down of cash reserves, particularly in 2012 when the operational expenses for the new station come on line. He continued that this is an item that needs Council discussion and are hoping for direction and a policy on what triggers the need for a project such as this.

Christensen stated that it is a policy decision and see if should be discussed and need to look at our reserves and other data to see if there is a need for the station and if not enough in reserves and there is need then maybe time to start looking to the utility funds for some funding. Schmisek responded that would then lead to an increase in the utility user rates so that enough money would be available to cover the capital needs that are coming up in the utility funds. Christensen responded that he understands the philosophy of the reserve accounts that we have set up to cover future expenses and the projected need for more mills in the general fund, but if we don’t want to talk about using some enterprise fund revenue then need to look at what other sources of funding are possible that will not cause taxes to increase for the community and though some also don’t like it, perhaps it is time to also bring up a sales tax to cover infrastructure needs, such as other cities in the state have done.

Schmisek stated that there is one other scenario that he would like to propose, and the one that is the likely recommendation of administration at this point, which is to move the fire station construction back two years to 2013, thereby delaying the need to cover operational costs to 2014, to take a total of 6 mills out of the flood protection bond allocation, with 2 of those mills being moved to the General Fund and 4 being returned to taxpayers. He continued that based on the rates received in the bond sales which came in better than anticipated will be able to take the extra 2 mills from there and still have enough to cover expenses of the bond. He added that even with this scenario by 2014 will be projecting to spend down the cash reserves to about $1.1 million, which equates to an 8% reserve or about one month of expenses from operations.

Schmisek continued with information on percent increases in revenue collections versus costs. He stated that had the Council kept the mills generated from new growth over those years there would have been $1 million more in collections for funding budgetary needs, but that the Council has elected not to take all of those mills each year. He continued that there needs to be a policy decision and that administration is pointing out upcoming needs for the budget so that Council can have the discussion. He added that the Fire Station was put on the CIP and has been left there with no discussion as to funding or whether to remove it if the Council feels the time is not right for the construction of the station and that now is within the 6-year timeframe that need to start planning for funding and need to have the discussion and direction to administration as to how Council wishes to proceed with this project and others. Duquette commented that it is a priority of the Mayor to proceed with this fire station in 2013, but is a concern to drop the reserves down to 8% and agrees that there needs to be some discussion.

Christensen commented that the national trend in housing is slowing and will be here too and has been protected by the Columbia Road fire station for years and has timed the drive and seems to be adequate to get to the area. He added that there is a lot of undeveloped fields in the area and with slow down in economy does not see that filling in rapidly, so if current protection level is adequate, and still want the new station, then come up with an option that will not result in a tax increase and feels that also the numbers projected for the construction are not going to prove to be adequate. Schmisek stated that the estimates provided by the fire station are $1.1 to 1.2 million and that this will not be large station, one truck and 3 shifts of 4 staff for the station. Christensen responded that still does not believe that projected cost will be adequate, particularly if are looking a couple of years out and with rate of increase in prices of construction material.

Duquette stated that the construction of the station needs to be a policy decision by the Council and is not an administrative decision, that so far Council has not said to remove the fire station so are including and trying to plan for it and administration has brought one proposal forward that would result in a net 4 mill cut, taking out of the flood project with 4 mills of that going back to the taxpayers and 2 going to cover increased costs of the general fund.

Christensen commented that there are a lot of needs in the community – new library, fire station, even some needs for maintenance and updates at city hall, but the economy is facing a slow down and with the market squeeze will make it tougher for our taxpayers and that is why he is suggesting looking to the enterprise funds for some assistance with costs as that will spread the burden to a broader base and may be easier for some to pay $5 more on utility bill than large increase on property tax bill.

Bakken responded that an increase in utility user fees still takes money from many of the same people, just out of a different pocket and it hits hardest some of those that can afford it the least, those on fixed income and renters. He continued that there are also significant issues coming for each of the utilities in the not so distant future – i.e. water treatment plant upgrade or new construction, new landfill and hauling costs in the meantime, and need to consider those and not take so much out of the fund it’s not prepared to cover those costs. Bakken continued that already talk that mosquito will be coming in for rate increase to cover added fuel costs and gets a point where the users can’t take any more. He added that there are definite needs in the general fund and need to look at the whole picture and plan for all with out hurting one or the other. Christensen stated that he still doesn’t think that a new fire station could be constructed for $1.2 or even $1.3 million, as the warehouse for Mosquito Control was $1.5 million in 2007.

Kreun asked how building permits have been coming in. Collings replied that they are about even with last years permit numbers and looks to end up being an average year, but might seem slower to some because we had a couple of years with real high building and now getting back to normal. Kreun stated that this seems to show that our economy is staying somewhat static and while some feel there are more houses on the market now than previous years has talked with realtors and it is a normal inventory available. He cautioned that we should be careful that we do not harm the economy by telling people that we are worse off and then create a problem that is not there. Christensen stated that he still feels we just have to decide what the need is and then come up with a way to fund it.

Bakken stated that he does feel that the housing market and sales will start to slow as prices keep going up, but that we have a couple of years between now and the 2011 to look at options for funding and that it is our job to plan for and provide for community needs using the best funding method.

Kreun cautioned that he has a concern with trying to stick all the costs on the enterprise funds and maybe look at a small increase in transfers from there, but then also do 2 mills to general fund this year and perhaps explore a ¼ or ½ % sales tax dedicated to infrastructure, as we can’t meet one need and then let another go by the wayside. He added that he would like to see us keep the reserves stable and still be able to include necessary projects as long as the economy in the City remains on a stable basis. Christensen asked whether there was anything currently funded under the public building fund that could be paid off sooner to realize some interest saving and thereby free up some mills to go to a new project. Schmisek stated that there is not at this time, but could do the fire station with a zero mill increase, just not a good financial picture as it spends down reserves to a very low level. Bakken stated that he would like to see some revenue options put together and brought to the Council for discussion.

Kreun asked what the stipulations are on using enterprise fund revenue. Schmisek replied that state statute allows for the transfer of up to 20% of operating revenue provided that Council determines that there is enough remaining in the fund to cover expenditure needs of the fund. Kreun asked what additional level over what is currently transferred could be done without causing a rate increase. Schmisek replied that there is not any additional available at this time, as it is all planned to cover upcoming expenses so if take that away need to replace that with more from rates.

The group discussed whether there was any funding available if a change in the allocation of the current sales tax was done. Schmisek stated that there are two areas that would be available and that would be to take either from the economic development area or the property tax relief area and this would be a policy decision by the council.

Bjerke commented that there is another option and that is to say “No” to items in the budget. McNamara commented that he also thinks there are some things that might need to change and maybe look at what we do and see if it would be better to outsource those services. Bjerke added that seems that everyone thinks all things need to stay the same and perhaps its time to look at how we do things and see if we really need to do them in the manner that we have been or if there are some changes that could be made that would lead to cost savings – such as do we need weekly street cleaning or could go to bi-weekly and then have those employees do a different duty on the off week. Kreun commented that can’t just say cut something, but need to look at implications first; for instance if cut street sweeping to bi-weekly, then will more debris get in storm sewer than allowed by new EPA regs and then have to clean sewers more often which is more costly than the weekly street sweeping was.

McNamara suggested that Council is the most ignorant about what areas might be targets for changes and that administration would be best to evaluate those and bring forward suggested changes to reduce costs and maybe Council just needs to say here’s what you get figure out how to run on this amount.

Duquette stated that department budget requests came in overall with an average 4% increase and the CPI is at 4.7% so not unreasonable level, as our costs for materials increases just like everyone’s does at home. He continued that what administration is looking for is a policy decision from the Council as to where they would like the priorities to be for the future and what should be included in the long-range capital plan for the City. He continued that administration has come in with a plan which will decrease 4 mills to the taxpayer, yet yield an additional 2 mills to the general fund to cover increased costs and still provide for a new fire station in 2013, that we have cut 30 positions from the budget since 2000 and continue to look for ways to reduce positions where we can in an effort to keep costs down.

Christensen replied that has been here for 8 years and always the same and is Brown still here in 2013 will see a new fire station come in, but at this time given what’s being presented, don’t see how they will be able to cover the personnel costs in 2014, which will require an additional 8 mills with salaries, benefits and equipment.

Duquette restated that administration continues to review all budgets and tries to run the City as lean as possible and still meet the policy levels set by Council and community needs and think we have been doing a good job with that, but Council needs to review their policies and determine how they should be for the future.

Christensen stated that he is still frustrated with the mind set that will not look at the enterprise funds as a source of revenue for the general fund, that some of this policy discussion should be taken up at the quarterly taxing entity meetings – as town is crying for a new library and maybe that should be part of a complex ties in cooperatively with school and county to serve all, that would like to see discussion of a sales tax that would fund needs like infrastructure, that like to see Council set a list of priorities and then work on them to get them done and off the list instead of picking away and not finishing anything,

Kreun commented that he understands the discussion of downsizing and outsourcing, but also need to look at the cost, as it may be more expensive to do that than to continue as we are, but is open to looking at areas and studying potential ways to save.

Christensen stated that perhaps should think about what if we said you have 5% less this year than you had last year, then what would come back from administration. Perhaps, maybe the 3.5% wage increase should also be looked at and maybe those at the top don’t get, but take care of the safety people and those on the front line, because their 3.5% increase won’t even cover their increased costs for bread and milk if prices keep increasing.

Meeting adjourned at 5:30 p.m.

Respectfully submitted,

Sherie Lundmark
Administrative Specialist Senior