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05-26-2020 CCM Workshop (Budget Kickoff)HUTCHINSON CITY COUNCIL 2021 BUDGET KICKOFF MINUTES TUESDAY, MAY 26, 2020 - 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, Dave Sebesta and Chad Czmowski. Others present were: Matt Jaunich, City Administrator, Andy Reid, Finance Director and other city directors. All Council Members were present via electronic means. 2021 BUDGET KICKOFF REVIEW 2. 2021 Budget Kickoff Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich noted that today's workshop is to begin the 2021 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; provide an update on the financial impact of COVID-19; and get direction from the Council on what they would like to see during the 2021 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, 2019 and 2020 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 2020 report shows values increasing by 5.9%, another large recovery on top of 8.9% in 2019 and 3.9% in 2018. 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 noted that COVID-19 could have a significant impact on these numbers come 2021. 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 2021. This includes wages and benefits expected to increase by 3.1%. 2021's budget includes $30,000 for Uponor's tax abatement. Other expenditures are expected to remain relatively flat. A current look has a 5.1% levy increase to balance the budget. LGA is assumed at the same level as 2020. All other revenues are at 2020 budgeted amounts. Revenues are expected to remain relatively flat. A 1% tax levy increase is equal to $52,709. Mr. Jaunich presented a preliminary general fund five-year budget. Mr. Jaunich provided a list of things to think about when establishing the 2021 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); COVID-19 impacts; funding for a new police station; 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 spoke about use of LGA funds. He noted that the City is set to receive $2,569,936 in LGA in 2020 which is an increase of $168,221 from 2019. He noted that 49.4% goes to the general fund and 50.6% goes to various aspects of the capital improvement fund. Capital Projects Fund are for various project currently not designated. He asked the Council to think about whether or not the non -designated amount be designated to something. 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. Mr. Jaunich also reviewed CIP projects for the next five years. Major projects in 2021 include starting construction on a new police station; South Central Trunk Storm (local storm improvements); east rink roof replacement; various streets; various improvements at Creekside (vessels, etc.), other equipment/vehicle replacements, water & wastewater and other facility improvements and other projects. Mr. Jaunich then provided an update on Facility Planning. Mr. Jaunich 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. Jaunich explained that the Facility Committee is composed of nine staff members. Mr. Jaunich 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. Jaunich also spoke more about the Facility Condition Index and the scoring used. 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 uses 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, condition and safety concerns. 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. Mr. Reid noted that the committee's focus for 2020 was to review and recommend 2021 replacements; prioritize fleet replacement for the 2021-2025 CIP; further analyze the VCI factors to determine if the VCI is accurately representing the actual need for replacement for all vehicle and equipment types; and discuss options to standardize the purchasing function for all departments, with potential consideration to a central purchasing employee for light fleet. Mr. Jaunich then reviewed the various City fund balances. Mr. Jaunich noted that these funds are fiscally healthy. The target cash balance for each fund is based on 50% of the 2020 budgeted operating expenses plus the 2020 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: impact on COVID-19 on City finances; what is the economy of the City going to look like 3, 6, 12 months from now?; will any of the City's state aid be impacted?; will the City receive any of the CARES funding?; growth of salariesibenefits; funding for new police station; long-term funding sources for heavy equipment; fleet funding is still insufficient; construction costs increasing; long-term plan for Creekside production; impact of water/wastewater storm rate study; and garbage hauling contract. Mr. Jaunich noted that Creekside has hired a consultant to review Creekside's business model and ways to improve it. Mr. Jaunich then reviewed the economic impacts of COVID-19. Mr. Jaunich noted that the current projected deficit is $246,000. This includes a $184,000 loss of revenue related to Park and Rec programs being cancelled and $62,000 loss of revenue/costs due to the DMV being shut down. There is also a $22,100 projected loss of local sales tax revenues. This estimate could be low dependent on how long the economy is closed down. Every 5% decrease in local sales tax revenue amounts to a $70,000 loss in revenue. The City may have to use cash reserves to cover debt payments. Other related expenses include $20,600 in estimated costs for service counter improvements to protect employees at the DMV, liquor store, administration/finance counter and building inspection/engineering locations. An additional $20,000 has been spent in early additional costs for PPE, leaning supplies, signage, etc. Mr. Jaunich noted it is unclear at this time what type of reimbursement, if any, the City could get from FEMA or State CARES Act funding. Mr. Jaunich also provided a 2020 financial forecast. Staff clarified what the State CARES Act funds could be used for cities. Mr. Jaunich asked the Council's thoughts/ideas on the 2021 budget: 1. tax levy goal? — 0%, moderate increase, or significant increase; 5-year budget plan called for an annual general levy increase of 3%; "very early look" calls for something around 5% (doesn't include any LGA changes), 2. Any services Council would like to see provided and/or increased/decreased in 2021? —Park & Rec, streets, equipment, etc., 3. Is there a specific pro]*ect/item the Council would like to see budgeted for and/or done in 2021? — river/lake improvements, housing, infrastructure, etc., 4. Any fee/rate/transfer changes to look at in 2021? — utilities, licenses, rentals, programs, park dedication, etc. Council Member Czmowski suggested a levy increase could be between 3-5%. Mayor Forcier noted he would like a levy increase to be at 3%. Council Member Christensen suggested a levy increase of 34%. 3. Adjournment Motion by Christensen, second by Czmowski, to adjourn the workshop at 5:05 p.m. Roll call vote was taken: Christensen — aye; Czmowski — aye; Cook — aye; Sebesta — aye; Forcier — aye. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator