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05-28-2019 CCM Workshop (Budget Kickoff)HUTCHINSON CITY COUNCIL 2020 BUDGET KICKOFF MINUTES TUESDAY, MAY 28, 2019 - 4:00 PM CITY CENTER — COUNCIL CHAMBERS 1. Call to Order Mayor Forcier called the workshop to order at 4:00 p.m. Members present included Mary Christensen, Steve Cook, Chad Czmowski and Dave Sebesta. Others present were: Matt Jaunich, City Administrator, Andy Reid, Finance Director and other city directors 2020 BUDGET KICKOFF REVIEW 2. 2020 Budget Kickoff Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich noted that today's workshop is to begin the 2020 budgeting season. Mr. Jaunich noted that setting the annual budget is one of the biggest policy decisions of the City Council. The City's budget documents drive the work of the city and are the forces behind achieving the City's Mission Statement. Mr. Jaunich reviewed the City's mission statement, vision statement, the six core areas of focus which include public safety, health & recreation, transportation, economic development, environment and good government. Mr. Jaunich spoke about statements identified in the City's strategic plan to be completed by 2023. Those statements included wanting to be known as a destination place for recreation, art and leisure; wanting to have a growing, diverse economy with a skilled workforce; wanting to have adequate, affordable housing for all; wanting to have welcoming and safe city facilities to service current and future generations; wanting to have cost effective, reliable and sustainable energy and practices; wanting to have high quality, multi -modal transportation and infrastructure systems; wanting to have active citizen engagement, participation and involvement and wanting to have fiscally responsible management to serve community needs. Mr. Jaunich also reviewed five long-term goals the Council should consider every budget season. Those goals include: 1. What should future tax levies look like? 2. What levels of services should the City perform and provide in the future? 3. What is an acceptable level of debt? 4. What is our level of investment in technology and equipment, and what period of payback is acceptable? 5. What are our future infrastructure needs (roads, utilities, buildings, etc.) and how are we going to pay for them? Mr. Jaunich noted that the purpose of today's workshop is to review the budget calendar that has been established as well as review historical data and items that staff has identified as items/concerns that need to be addressed. Staff would also like to review the Fleet and Facility Plans and how those are established as well as get direction from the Council on what they would like to see during the 2020 budget preparation season. Mr. Jaunich noted that there are three ways to approach a budget — either staff driven, Council driven or a combination of the Council working with staff. Mr. Jaunich reviewed tax rate comparisons of Hutchinson with other McLeod County cities as well as with other regional center city rates. Hutchinson is the second lowest in the county and ranks the fourth highest amongst regional centers. Mr. Jaunich spoke about the price of government which is how many cents for every dollar earned is going to pay for City services, excluding electric and gas utilities. Hutchinson is at approximately 3% for a total cost of government which is rather comparable to other regional centers. Mr. Jaunich provided data on economic comparisons, the 10-year tax rate trend, the 10-year total tax levy trend, the total market value history, the total taxable market value history and the total tax capacity history. Mr. Jaunich explained that the City's tax rate is determined by the tax levy and tax capacity and tax capacity is determined by the market value. While the City has had modest tax increases over the past ten years, the market values only recently have recovered. The City's 2019 taxable value is actually about 0.6% lower than what it was in 2009. 2018 and 2019 total values have exceed a billion and are the highest in the history of the city. Taxable values are starting to come back and the 2019 report shows values increasing by 8.9%, another large recovery on top of 3.9% in 2018 and 5.1% in 2017. Tax increases without value increases end up having a negative effect on the tax rate. The 2012 Homestead Market Value Exclusion enacted by the legislature had a negative effect on the City's taxable market value. The Market Value exclusion ended up reducing the City's taxable market value, increasing the City's tax rates, but recent value increases are lowing those rates. The reduction in taxable value also shifted the tax burden from homesteaded property to other properties. Mr. Jaunich reminded the Council that 2020's Uponor tax abatement, which is estimated around $45,000, likely will have a negative but minor impact on the City's tax rates. Mr. Jaunich further reviewed historical budget numbers including the tax levy from the last five years and tax levies as a percentage. Mr. Jaunich then provided a very preliminary general fund budget for 2020. This includes wages and benefits expected to increase by 3.5%. 2020's budget includes $45,000 for Uponor's tax abatement. Other expenditures are expected to remain relatively flat. A current look has a 0% levy increase, but a 4% increase would be needed to balance the budget. The PILOT payment from HUC will be fully phased in. All other revenues are at 2019 budgeted amounts. Revenues are expected to remain relatively flat. A 1% tax levy increase is equal to $51,220. Mr. Jaunich presented a preliminary general fund five-year budget. Mr. Jaunich provided a list of things to think about when establishing the 2020 general fund budget — such as program changes — need for increase/decrease?; enterprise fund transfers to the general fund; phasing of HSA employer contributions into the general fund; appropriate LGA allocation; analysis of certain line item projections; performance increase percentages; fleet/facility funding; funding of wages and benefits; payroll allocations (general vs. enterprise); Master Park Plan recommendations; continued discussion on general staffing levels and service level needs/wants; appropriate CIP funding and needs; Uponor tax abatement and state budget agreements — LGA increase? Mr. Jaunich mentioned the increase in LGA funds and asked if the non -designated amount be designated for something and asked the Council to think about if they want to do something with the undesignated amount. Mr. Jaunich then reviewed the debt management plan and the target debt levy of $2.6 million. Due to the 1% debt levy increase in 2016 there won't be a need for another debt levy increase until 2023. The 2023 tax levy will be a 1.5% increase. Years 2024 to 2032 will see an average increase of 1.7%. The debt management plan includes financing for heavy equipment in 2017- 2021. The Plan moves annual project costs from $1.5 million to $1.9 million. The Plan moves annual debt limits from $2.2 million to $2.6 million. Increasing interest rates may impact future debt decisions. Andy Reid noted that the current plan allow for debt service instead of building fund balance in a debt fund. Mr. Jaunich also reviewed the five year CIP Plan. Major projects in 2020 include Trunk Hwy 15/Main Street; potential start of a new police station; South Central Trunk Storm; various streets; screener replacement at Creekside; other equipment/vehicle replacements; water & wastewater and other facility improvements. Dan Jochum, Planning Director, presented before the Council. Mr. Jochum provided an update on Facility Planning. Mr. Jochum explained the process used by the Facility Committee for projects. This includes using a Facility Inventory and Facility Condition Index (FCI) with department heads and/or the facility manager. Inventory is compiled by using the FCI, possible projects are ranked based on the FCI and overall need, obtain bids for projects, determine how many projects can be achieved, award bids and complete the work. Mr. Jochum explained that the Facility Committee is composed of nine staff members. Mr. Jochum also explained the project prioritization criteria used which include public health, safety and welfare; facility preservation; facility condition index; facility utilization; and energy conservation. Facility assessment criteria includes envelope, roof, HVAC, lot/structure, electrical, interior, efficiency and mechanical. Mr. Jochum also spoke more about the Facility Condition Index and the scoring used. Mr. Jochum reviewed the various projects done since 2012. Mr. Jochum also reviewed the projects planned through 2025 as well as the funding plan. Dolf Moon, PRCE Director, spoke about the vast amounts of donations received from various organizations for park upgrades. Andy Reid, Finance Director, presented before the Council. Mr. Reid provided an update on the Fleet Committee. Mr. Reid explained that the objective of the fleet policy is to reduce ongoing and replacement costs by addressing acquisition, use, maintenance and disposal of vehicles and equipment. The Fleet Committee is comprised of seven staff members and meet at least twice a year to review and recommend replacements and to review current year purchases and dispositions. The Committee also meets as needed to address immediate needs/opportunities. Mr. Reid spoke about acquisition procedures, disposition, utilization, maintenance, reporting and policy review. Mr. Reid noted that the Committee used a Vehicle Condition Index (VCI) which is a point system measurement used to assess the condition of each vehicle. Annual replacements ideally shall consider the worst VCI scored vehicles and replacements can be prioritized within the 5-year CIP based on the VCL Mr. Reid reviewed the VCI factors used which include service age, miles or hours, utilization, reliability, maintenance and repair costs and condition. Mr. Reid explained the fleet inventory and what the general fund accounts for and what the enterprise funds account for. Mr. Reid spoke about the average annual replacement cost and funding of light fleet and heavy fleet replacements. General discussion was held regarding the use of electric vehicles. The focus of the committee in 2019 includes fleet policy review and modification, prioritizing replacements based on VCI rather than years of service, review energy efficiency options and brainstorm creative alternatives and multi -departmental utilization. Mr. Jaunich then reviewed the various City fund balances. Mr. Jaunich noted that the City is fiscally healthy. The target cash balance for each fund is based on 50% of the 2019 budgeted operating expenses plus the 2019 debt service payments. It is a measure of liquidity and the ability of the enterprise fund to pay for its short-term obligations. Future capital needs and debt service are not taken into consideration when looking at the target cash balance. Mr. Jaunich also reviewed special projects fund balances which include the Community Improvement Fund, Capital Projects Fund and the Public Sites Fund. Mr. Jaunich also reviewed a list of staff concerns or items in need of being addressed. These include: funding for new police station; funding plan for Master Park Plan recommendations; long-term funding sources for heavy equipment; fleet funding still needs to be addressed; construction costs increasing; long-term plan for tipping building at Creekside; impact of water/wastewater storm rate study; garbage rates analysis; realistic revenue projections; continued analysis of the debt fund and future debt needs; growth of salaries/benefits and increasing interest rates. Mr. Jaunich asked the Council to think about the tax levy goal for 2020, any services they would like to see provided and/or increased/decreased in 2020, a specific project/item they would like to see budgeted for and/or done in 2020, or any fee/rate/transfer changes to look at in 2020. Czmowski asked if staff could look into the cost of the rink size being bigger at Park Elementary. Cook suggested the levy increase being around 3% or less. Cook also suggested looking at the campground expansion. He also suggested to keep working on the river/lake basin plan. He also suggested perhaps another phase on the work force housing study. 3. Adjournment Motion by Christensen, second by Czmowski, to adjourn the workshop at 5:25 p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator