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Minutes/Committee of the Whole
Wednesday, July 28, 2004 - 12:00 noon

The city council met as the Committee of the Whole on Wednesday, July 28, 2004, at 12:00 noon in the council chambers in City Hall with Mayor Brown presiding. Present at roll call were: Council Members Brooks, Hamerlik, Glassheim (teleconference), Gershman (teleconference), Christensen, Kerian, Kreun - 7; absent: none.

Mayor Brown stated that we have been in a holding pattern for the last few years because residential and business concerns relating to our shared recovery, but now in a developmental mode to focus on efficiency but also smart planning. The 2005 budget has maintained the mill level and increases are in the form of added growth and growth in the service area, that since 1999 the general fund where most services come from has increased only an average of 1.8% and is much lower than the cost of living or inflation, and without the dedicated mills for the flood protection we are the third lowest mill rate in the state. The 2005 increases are in the form of salary increases, rebuilding our capital funds and cost of utilities; salary increases are $508,000 of the increase, a 2.95% increase from 2004; cars, trucks and other capital needs from the police and fire departments and other departments amount to $370,000 in increased capital, last year the allocation was $24,000 and must plan our future and how we continue to provide the necessary services. He stated the city council, staff and he have worked hard to discuss and determine our priorities.

He stated that earlier in the year in the state of the city address he discussed how Grand Forks should proceed and fundamental to those areas are economic development, capital planning, affordable housing, tourism and business development.
Economic Development : have dedicated $250,000 from 2163 to the Growth Fund;
Capital Planning: must start planning for the future - this budget calls for $1.2 million in excess funds from 2163 - capital planning will reduce the need for special assessments to begin building our infrastructure funds so those costs are not borne by the developers or by the residents.
Downtown and business development: a plan for downtown is being worked out with the guidance of council members and citizens, need to put emphasis on business development and retention, to accomplish this have designated one person from our urban development department to work with expanding how new businesses and programs, like the renaissance zone, develop stronger local business growth through retention and attraction..
Affordable housing: this year the council has put in place vital resources for affordable housing, and this budget continues that by insuring that the appropriate funding levels continue to support these and any new pertinent programs. The reduction of special assessments paves the way for more affordable housing by covering many hidden costs that would be obstacles to families and individuals buying a new home.
Utility funds: a cost of service study was implemented last year and the numbers in the 2005 budget remain consistent with those derived during the study and demonstrates a long term plan and resourceful approach to paying for the vital services. .

Rick Duquette, administrative coordinator, stated as we present the preliminary details of the Mayor's 2005 budget there are a couple items to watch for; our citizens are paying 14 mills for the construction of our flood construction project, that we have set aside funds for flood related expenses that may not be covered by FEMA and since we are close to resolution of this matter, these funds continue to be unavailable. He stated in the general fund $376,000 was put in general fund capital, and is critical to the future success of this community that we continue to build that fund for the out years. He stated in the general fund they moved $244,000 from 2163 funds into the general fund and important as we do our fiscal planning this fall to recognize how we will continue to fund that transfer. He thanked the Mayor and city council for their hard work in work sessions, and also recognized John Schmisek and Maureen Storstad in finance department. He recognized hard work and commitment of department heads and city employees as they are the backbones of the services we provide.

John Schmisek, director of finance, presented the preliminary budget for 2005; and noted some of the highlights: $244,000 from 2163 into the General Fund, that this continues a trend over last few years of one-time transfers to end sometime in the future after planning sessions of money to get us through to make us plan for the future - so funding on-going expenses with on-going revenues.

He reviewed guiding principles fairly quickly as they have gone through these year after year and are familiar with these things but that the budget document should become a planning and management tool, and during work sessions the conclusion has come that after this budget session, they will have more discussion and establish long-term policies and guidance that will make things flow easier in the future; and a consensus in the work sessions and with mayor and administration was that they would review each open position as they occur and work towards more efficiencies - that in the General Fund since 2001 they have reduced 12 full-time equivalents and that it is the administration's and council's intention that they continue to look at that and continue to move in that direction.

He stated that they would like to stay with the guidance to maintain the General Fund budgetary reserve at 15% of budgeted expenditures and is open for discussion, that he has some concerns about making too many changes until they get through the flood control project and knowing what the full expenditures are, potential question costs with FEMA and making sure those are covered before making too many changes in policies that may impact how we are looked at financially and how rated - but are open for discussion.

He noted the fund balances guiding principles that came out of the 2003 cost of service study for major utilities was that would want to keep a fund balance of about 25% of operating expendi-tures - higher in utilities because of magnitude of expenditure required if something goes wrong.

He stated they increased expenditures in pay for performance program that was adopted, the market survey was done showing a 2.95% market adjustment needed to get people to 100% of mid-point or various levels thereof as close as could - big distinction is that kind of salary increase is based on performance reviews, if doing well in performance may get more than the 2.95% and if performance isn't where it should be or need improvement, get less than 2.95% - another critical area for '05 budget was an effort to work towards reviving some capital expenditures in the General Fund esp. and for '05 had to use some carry-over to meet needs of departmental requests.

Utility Revenues - this comes out of the 2003 cost of service studies and their effort to allocate user fees to the proper classes and then restructure a rate increase as needed to meet the requirements of a fund, but to minimize the impact by spending down cash and able to do smaller rate increases and build those up rather than a huge increase when a major capital item comes up and to implement those increases over a period of years. He stated this was a very beneficial tool and the ability to use that cost of service to implement what we see as needs of those departments and a source of enlightenment as we try to do some of the same things for other services - and make citizens understand where we are going indecisions council has to make.

He stated they are working with other larger cities in the state to do a survey of other revenues, fees, permits to see where we sit in comparison to those and will be bring those back to council, and look at evaluation of other service fees.

He stated they have used assumptions esp. for General Fund and Special Revenue Funds where taxes are involved - the property tax of 1 mill equals $98,953 compared to $91,557 in 2004. He stated they wanted to maintain stability in the mill levy and keep tax level consistent but also to continue to provide services - that not recommending a mill levy decrease this year but using the tax generated by the new construction, new valuation increases, to fund those services, until get into a larger planning mode and establish a firm policy.

Sales tax for 2005 - anticipating 4.3% increase, down some and won't make 2004 6.9% and using a lower estimate - the allocation of 1% in 2005 is the same as in 2004 and 49.5% of that sales tax generated by the 1% going to the General Fund, 20.5% to economic development, and 30% going to infrastructure fund, with that fund paying some debt service payments that will be falling off over the next few years and the potential for infrastructure funding. He stated they sold some sales tax revenue bonds for the flood control project, and that has had a major impact on all that we do financially and put some limitations on us.

He stated Mayor's guidance discussed was to continue to provide necessary services at level needed, provide plan for continuing funding of JDA and along with EDC to try to come to agreement as to what is cap in that fund which will allow flexibility on the use of those funds and should have flexibility to use those in other critical areas such as infrastructure. We want to plan for some future large special events in CVB on how do Special Events money, give considerable amount in small amounts to various groups and need to establish this on-going and if some major events that are very important to this community as far as bringing people in and help in on-going basis.

He reviewed tax consequences of 2005 budget - the mill levy and recommending holding it 127.19 mills (113.19 if exclude mills for flood control project) and have had a valuation increase of approx. 8% (including new construction) and looking at total real estate tax of $12.6 million, 14% of operating budget in general fund that is about $8.1 million or 38% of operating expenditure. The effective tax rate for the city of Grand Forks' portion of the mill, without the flood project debt, is about .51% per your market value. The actual tax dollars collected for the general fund over a six-year period has increased an average of 1.5% per year.

He commented on revenue streams - that real estate tax in the general fund will go up $694,000 in this budget and is a 9.4% increase in real estate (and are about 38% of the revenue stream for the general fund). The $694,000 is made up of an increase in valuation of 8% of new construction and of valuation increases - the other amount is that we have reduced the assessment for city special assessment fund by 1 mill and added it to the general fund. Sales tax dollars projected a 4.3% for that to go up, licenses and permits have gone up slightly, intergovernmental revenue has gone down, charges for services have gone down, fines and interest income, no change; franchise fees will go up slightly. We need to be watchful of sales tax dollars, state and city, because that is making up $5 million of our revenue stream or 24%. He stated the money we are receiving from the State for state aid out of the amount that goes to local government and have projection that will decrease by about $46,000 for '05 and that they are working with the State Tax Department and have some concerns on that being a reduction because we hear that State sales tax dollars are going up and that the State Tax Department is looking at that and will continue to pursue that.

He noted that salaries and fringes have gone up by about $694,914, there are additional health department numbers of $188,330 and off-set by service fees and have reduced the wage slippage amount due to unfilled positions, etc. and are finding with the pay for performance we are keeping positions filled and don't have flexibility in that area. The market adjustment and fringes came out to about $448,000 in general fund and that is 2.95%; and also some personnel changes recommended, one being a plus of $29,000 to hire fleet maintenance mechanic in the fire department, that on each of the three shifts have one fire mechanic/fire fighter, and intention is to hire fleet maintenance mechanic and over next couple years the positions of fire mechanic/fire fighter will as go empty will be moved back to fire fighter positions and slight savings after 2 to 3 year period - and eliminated one street maintenance supervisor in the amount of $53,000.

Maintenance & Operation - the $150,000 increase is about 3.8% and excludes some changes for the health department that are fully funded by fees - Increases of the $150,000 across all departments and about $86,000 is due to utility and fuel cost increases. He stated if we have seen line items that are consistently under spent, have reduced those line items and will decrease the annual amount of carry-over that may be available to departments.

Capital Increase up $376,000 but no way near what we should be doing on an on-going basis to have a replacement fund to replace capital in general fund to help prevent higher maintenance costs to get the latest equipment - and will be doing further analysis as we move forward and come back in the planning sessions to get policies put into place. The operating transfers went down slightly for IS and police grants because slight increase in cost to us for use of PSAP.

He stated for the general fund we started with $2.9 million and end with $2.9 if all goes well.
We have excess sales tax in the general fund of $2.3 million and have designated $0.75 million for AFB retention efforts for next several years, and use for FEMA questioned cost we are unsure of, and options are we can use these funds and if have to sell bonds we would sell bonds and fund with a mill levy to pay for it. There is departmental carryover of $1.2 million, $200,000 is misc. department which is controlled by finance department to fund emergency that may come up.
That in the general fund added 1 mill and used one mill reduction form city special fund that we pay on our own property, department conservative on all expenditures. We do have an increase in the general fund of $1.1 million and a lot of that in the salary area and capital area; and increase a catch-up and looking ahead.

Special Revenue Funds (include Public Building, City Share of Special Assessments, Public Library, Emergency Fund): that est. 2004 fund balance of $6.0 million and beginning fund for 2005 $10.8 because in some areas large carryover and haven't spent down that cash.
He stated major changes , increase of about $677,000, that PSAP and E911 are up about $195,000 (up-grading equipment and moving costs), Highway Users Fund down by about $406,000 because have spent that cash down over the years.

Economic Development budget up, est. to be $1.5 million and major part of this as one-time item for '05 but to take $1.2 million to help us with listing of projects approved by council for the years 2005 through 2007 for highway projects and to help pay federal grants and engineering and preliminary work; $150,000 for Alerus concert fund; $250,000 to JDA (not automatic transfer but if they draw down from the cap) and $244,000 from 2163 to fund general fund deficit caused by increase in capital and should be one-time item; CDBG additional carryover that not spent and spend in '05.

He stated what is happening in utilities is an effect of the 2003 cost of service study, the capitals in those recommendations as to rate increases that would be needed over time to fund some of that capital and there are on-going increases in the sanitation department, this fund is somewhat below $1.2 million cash target, this fund has some major capital expenditures (landfill) and try to build that and different rate increase in this fund than was in the 2003 cost of service project because closing some of the cells at the landfill faster than anticipated and revert back to cost of service study in 2006. Wastewater fund, cost of service amounts moving forward through 2009 and have about $4 million in capital projects in 2005 for biosolids and need to build debt service payments.
Waterworks Fund: 2003 cost of service study and have fund being built and know somewhere in the future and have approx. $7 million in construction reserve account to go towards the water treatment plant once needed - and have used that for the Alerus Center to buy its additional parking and pave parking and is being paid back into this fund and should be back in this fund by 2008-2010, and will watch that to make sure it gets back in a timely way. Storm sewer, no rate increase recommended, this fund built up because of higher tapping fees because of annexation, etc.

COUNCIL MEMBER BROOKS EXCUSED

He stated that from the major utilities there is about $2.3 million that is paid to the general fund, 9.3% of expenses, and that money is paid for salary and wages and supplies for some of the administration departments that work with these utilities, such as finance, IS, the mayor's office, the attorney, etc. and did a payment in lieu of taxes and another half a million for that.

He reviewed comparative utility bills from 2,000 to 8,000 gal. per month - for 2,000 gal. per month about $2.31 per month increase, or 5.8%; for 4,000 gal. per month an increase of about $2.89 per month; 8,000 gal. per month an increase a $4.05 increase or 5.9%.

Capital Projects: and have decrease of $4.5 million from 2004 to 2005; majority is decrease of $9 million for flood construction project; $4 million in Wastewater for biosolids project; and higher special assessments because city developing and new projects and doing approx. $2 million more of assessments.

Special Requests: noted requests to make council aware: Humane Society $24,738 in general fund; Humane Society, $150,000 request to help with their building; Grand Forks Historical Preservation, $26,267, portion of share for director of that group; $100,000 for the Arts under economic development; $100,000 for special events under economic development, ($50,000 for services and that is for police services, etc. that we are not reimbursed for); $147,000 for property management; beautification funds of 1 mill; and $190,000 for Economic Develop0ment Corp.; and Alerus concert fund of $150,000.

He stated we have continued need to rebuild capital in the general fund; and need for long range planning to determine what services we should provide, what level of services, and what citizens willing to pay for those services and service levels, and how deliver service at the right price and try to set goals, review and amend as need to.

He reviewed schedule: August 2 as preliminary approval of the budget; August 9 bring ordinances for utility rates to committee of the whole; initial reading of ordinances on August 16; and final approval of the budget on August 16, and postpone to September 6 if necessary, due to the fact in trying to coordinate with utility rates and give public hearing mode to utility rates so public aware of them; and by end of September or first of October send budget to the County

He thanked departments who worked to hold increases down, all the personnel in his department
who worked to get this information out, and mayor and council who are providing resources to provide services and citizens for their input throughout the year.

There were no questions from the city council.

ADJOURN

It was moved by Council Member Hamerlik and Council Member Kreun that we adjourn. Carried 7 votes affirmative.

Respectfully submitted,



John M. Schmisek
City Auditor