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11-24-2020 CCM Workshop (Enterprise Fund Budgets)HUTCHINSON CITY COUNCIL REVIEW OF 2021 ENTERPRISE FUND BUDGETS MINUTES TUESDAY, NOVEMBER 24, 2020, AT 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 Chad Czmowski, Steve Cook, Mary Christensen and Dave Sebesta. Others present were: Matt Jaunich, City Administrator; Marc Sebora, City Attorney; Kent Exner, City Engineer; Andy Reid, Finance Director; Andy Kosek, Creekside Manager; Candice Woods, Liquor Hutch Manager; and Tim Gratke, Water/Wastewater Supervisor. REVIEW OF 2021 ENTERPRISE FUND BUDGETS Matt Jaunich, City Administrator, spoke before the Council. Mr. Jaunich noted that a review of the following budgets will be held at today's workshop: Liquor Hutch, Creekside, Refuse/Garbage, Water/Wastewater/Storm Water. In addition, there will be a review of the local sales tax option and the enterprise fund transfers to the general fund. Lastly, an update will be given on the 2021 budget and tax levy and CIP. 2. Liquor Hutch Budget Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich reviewed the proposed budget for 2021 which sees a total revenue increase of 5.2%. Mr. Jaunich noted that since 2007, total sales have increased at an average annual rate of 2.8% and the customer count has increased by an average annual rate of 1.4%. Through October 2020, sales are up 2 1 % and customer counts are up 3.6%. Proposed expenses for 2021 have increased 4.1%. The 2021 budgeted capital item is a placeholder for potential upgrades. The debt service is related to the 2005 store upgrades and is in the last year of payment. Candice Woods, Liquor Store Manager, provided an update on online orders which increases on a daily basis. The budget includes a proposed transfer to the general fund of $550,000. Mr. Jaunich also provided a 10-year liquor fund forecast. Ms. Woods spoke about protocols in place to protect Liquor Hutch employees during the pandemic. Creekside Budget Mr. Jaunich explained that Creekside's 2021 production model includes a small increase in total bagged product sales. Bulk sales are estimated to decrease 71%, or $175,000, as the bitcon inventory has been depleted and will not likely be replenished until late 2021 or 2022. Total expenses are budgeted at a decrease of 5.3% and total revenue is budgeted at a 4% decrease. The transfer to the general fund is budgeted at $110,000, the same as 2020. The ending cash balance for Creekside is budgeted at $1,832,343. Mr. Jaunich also provided a 10-year compost fund forecast. Andy Kosek, Creekside Manager, presented before the Council and spoke about a sales/marketing firm that the facility uses. The firm is paid on a commission basis. Refuse/Garbage Budget Mr. Jaunich noted that the refuse/garbage budget sees an increase in revenue of 2.4% from 2020. The residential rates have held flat with no rate increase since 2008. Expenses for the refuse/garbage budget will see an increase of 52.4% for 2021. There is a $55,000 transfer that goes out to the tree disease infestation/mitigation fund. This is mainly due to a large increase in capital outlay. The capital outlay assumption for 2021 is based on a potentially new source separated operating model that would go away from the expensive composting vessels that are currently used. The model would require an upfront capital investment of approximately $610,000 as compared to replacing the existing compost vessels at an estimated cost of $1.6 million. Also, West Central's contract was up in October of 2020. Mr. Jaunich provided a 10- year refuse fund forecast. Water Fund Budget Mr. Jaunich explained that the Water Fund budget shows a 2.2% decrease in total revenue for 2021. There will be no rate increase in 2021 and hasn't been since 2011. Water fund expenses are budgeted at a 6.5% decrease. Transfer to the general fund will increase from $60,000 to $70,000 for 2021. The ending cash balance for the water fund budget is budgeted at $3,237,107. Mr. Jaunich provided a 10-year water fund forecast. Kent Exner, City Engineer, spoke about capital items included in the water fund budget. Wastewater Fund Budget Mr. Jaunich explained that the wastewater fund budget sees a 3.4% increase in revenues for 2021. There will be no rate increases in 2021 and there haven't been since 2011. Total expenses have a budgeted increase of 38.0% mainly due to the headworks project. The wastewater fund budget has an ending cash balance budgeted at $4,621,052. Mr. Jaunich provided a 10-year wastewater fund forecast. Andy Reid spoke about the difference in revenues between the water fund and wastewater fund. These center around surcharges mainly. Kent Exner noted that structural changes in the rate approach need to be addressed. Tim Gratke spoke about permitting from the MPCA and that no news is good news as far as any costly changes needing to be made at the plant. Mr. Jaunich reviewed the local option sales tax program and the purpose of it which is dedicated solely to retiring the debt in water and wastewater funds. Mr. Jaunich provided quick facts in reference to local option sales tax, which included: local sales tax on a $100 purchase amounts to $.050; local sales tax is applicable to the same retail purchases, subject to Minnesota sales tax; sale of vehicles by dealers are exempt and instead are subject to an excise fee of $20 per vehicle sold; local sales tax is applicable to any sale made within city limits as determined by the last four digits of your zip code; point of possession determines taxability; purchases item/service received/performed within city limits is subject to the local sales tax; purchased items/service is received/performed outside city limits ex exempt from local sales tax; organizations exempt from paying state sales tax are also exempt from the local sales tax. Mr. Jaunich also reviewed other nearby cities with local sales tax. Mr. Jaunich explained that early retirement of debt is an option if cash reserves are sufficient. While the main purpose of the tax is to retire existing debt, it also allows the City to build healthy cash reserves to help with annual street projects with water & sewer infrastructure improvements, improvements that may be needed in each facility, other projects that create efficiencies and stable water/sewer rates. Mr. Jaunich reviewed the outstanding debt. Stormwater Fund Budget Mr. Jaunich explained that total revenue in the stormwater fund budget is seeing an increase of 3.6%. There is a planned rate increase of 3% over nine classifications. Expenses are budgeted at a 4.2% decrease. City's leaf vacuuming program is accounted for in this fund and street sweeping is also funded by this account. The ending cash balance in the stormwater fund is budgeted at $1,221,084 for 2021. Mr. Jaunich provided a I0-year stormwater fund forecast. Lastly, Mr. Jaunich provided an overview on enterprise fund transfers to the general fund. Mr. Jaunich noted that the liquor fund continues to do really well. There are no rate changes for garbage, water and sewer users. There is a slight rate increase in the stormwater fees. The enterprise fund transfers into the general fund account for 5.9% of general fund revenue. Cash balances continue to remain healthy. Capital needs are starting to increase in the Creekside/Water/Sewer funds. In addition, regulatory agencies may impact future needs and Creekside's business model will likely be addressed in early 2021. Mr. Jaunich provided an update on the general fund budget. Approximately $116,806 has been reduced since September which is mainly reduced wages and benefits related to recent employee turnover. Building permit revenue has increased by $35,000 and back to the 2020 budget level. The plan is to use general fund balance to pay for the 2021 compensation study ($20,000). A general fund tax levy increase of 2.8% is needed to balance the current budget — this is down from 5.6% levy increase in September and is a $147,115 tax levy reduction. Department adjustments have been made based on meetings between Administration/Finance and departments. There still may be budgetary impacts from the employee open enrollment in the various insurance plans. Major budget assumptions that were made for 2021 include operations going back to normal or post -pandemic; departments have essentially held budget flat other than wages and benefits; and the general fund does not include any of the 2021 certified LGA increase of $69,590 (staff proposes to include the increase in the capital projects fund due to uncertainty with the State's budget). In September staff was proposing a 3.9% totally tax levy increase and has now been reduced to a 2.0% total tax levy increase. Mr. Jaunich provided several other metrics on tax rate history, past tax levies, price of government, tax levy comparison to tax base, and tax levy comparison to CPI. Mr. Jaunich also provided an update/review on the Capital Improvement Plan. Some minor adjustments have been made since August which include: overall costs have decreased by $1,947,900, added $15,000 to the Capital Projects Fund for new election equipment in 2022, Fleet Committee completed its 5-year prioritization, Refuse has assumed a change in the source separated operations with a program requiring substantially less capital investment, and the Storm Water South Central Drainage cost estimate was adjusted for 2021. There is a potential for some additional adjustments before approval in December such as Water and Wastewater CIP adjustments expected and directors have been given until the end of November to make any other changes. Mr. Jaunich also provided information on State projections. 3. Adjournment Motion by Christensen, second by Czmowski, to adjourn the workshop at 5:10 p.m. Roll call vote was taken: Christensen — aye; Czmowski — aye; Sebesta — aye; Cook — aye; Forcier — aye. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator