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05-25-21 CCM Workshop (Budget Kickoff)HUTCHINSON CITY COUNCIL 2022 BUDGET KICKOFF MINUTES TUESDAY, MAY 25, 2021 - 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, Brandon Begnaud, 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. 2022 BUDGET KICKOFF REVIEW 2. 2022 Budget Kickoff Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich noted that today's workshop is to begin the 2022 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 American Rescue Plan monies; and get direction from the Council on what they would like to see during the 2022 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 fifth 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 2.7% 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. The City's modest tax increases over the past ten years have been offset by large increases in the city's market values. Since 2018, total market values have exceeded a billion and are the highest in the history of the City. 2021 values increased by 11.2% over 2020. Taxable values are starting to come back and the 2021 report shows values increasing by 6.9%, this on top of a 3.7% in 2019 and 8.9% 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. The City's market value increases have outpaced our tax levy increases, lowering our tax rate. 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 2022. This includes wages and benefits expected to increase by 0.7%. There are less wages and benefits than normal due to dispatch functions moving to McLeod County. Other expenditures are expected to remain relatively flat. A current look has a 2.2% levy increase to balance the budget. LGA is assumed at the same level as 2021. There will be no more E911 funding with the dispatch center moving. Revenues are expected to remain relatively flat. A 1% tax levy increase is equal to $54,308. Mr. Jaunich presented a preliminary general fund five-year budget. Mr. Jaunich provided a list of things to think about when establishing the 2022 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); funding for a new police station; continued discussion on general staffing levels and service level needs/wants; appropriate CIP funding and needs; tax abatements, state budget agreements and the American Rescue Act Plan money. Mr. Jaunich spoke about use of LGA funds. He noted that the City is set to receive $2,646,397 in LGA in 2021 which is an increase of $69,590 from 2020. He noted that 47.9% goes to the general fund and 52.1% goes to various aspects of the capital improvement fund. Capital Projects Fund is for various projects currently not designated. He noted that 2021 will be the second year of the Playground Replacement Fund of $50,000. He also noted that the increase in LGA funds has all been allocated to the Capital Projects Fund. Mr. Jaunich reviewed historical LGA numbers. Mr. Jaunich then reviewed the debt management plan. He noted that the big impact is the new police station. The target debt levy is $2.6 million and the project limit is $1.9 million without a police station. 2022 will be the first projected increase in the debt levy since 2016. The 2022 increase is projected to be at about 14%. These numbers are currently preliminary. Staff is looking at options to "buy down" the debt. He noted that increasing the interest rates may impact future debt decisions. Mr. Jaunich also reviewed CIP projects for the next five years. Major projects in 2022 include completion of construction on a new police station; HATS storage building/fuel site; east rink roof replacement; various streets; various improvements at Creekside, 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. He also reviewed the facility plan budget, the facility funding plan, the playground funding plan and the playground replacement plan. Mr. Jaunich then provided an update on the Fleet Committee. Mr. Jaunich explained that the objective of the fleet policy is to reduce ongoing expenses and replacement costs by addressing acquisition, use, maintenance and disposal of vehicles and equipment. The Fleet Committee is comprised of eight 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. Jaunich spoke about acquisition procedures, disposition, utilization, maintenance, reporting and policy review. Mr. Jaunich noted that the Committee uses a Vehicle Condition Index (VCI) which is a point system measurement used to assess the condition of each vehicle or piece of equipment. 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. Jaunich reviewed the VCI factors used which include service age, miles or hours, utilization, reliability, maintenance and repair costs, condition and safety concerns. Mr. Jaunich explained the fleet inventory and what the general fund accounts for and what the enterprise funds account for. Mr. Jaunich spoke about the average annual replacement cost and funding of light fleet and heavy fleet replacements. Mr. Jaunich noted that the committee's focus for 2021 was to review and recommend 2022 replacements; prioritize fleet replacement for the 2022-2026 CIP; and review hybrid or electric options for police squad car replacement and Park & Recreation administrative vehicle. 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 2021 budgeted operating expenses plus the 2021 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: police station funding/debt impact; what is the economy of the city going to look like 3, 6, 12 months from now; how are we going to handle the ARPA monies; growth of salaries/benefits; long term funding sources for heavy equipment and addressing the city's fleet funding needs; are the increasing construction costs; improvements for Creekside production; long term plan for refuse and source separated program; impact of water/wastewater, storm rate study and interest rates/inflation. Mr. Jaunich then reviewed ARPA funding. Mr. Jaunich explained that nearly $4.97 trillion will be coming to Minnesota governments. Hutchinson is considered a "non -entitlement" unit of local government and about $377 million has been allocated to non -entitlement units of government. Hutchinson's allotment is not known yet but is expected to be higher than the CARES allotment received in 2020 which was just over $1 million. Eligible uses for these monies include responding to the public health emergency, addressing negative economic impacts, serving the hardest hit and improving access to infrastructure. Mr. Jaunich reviewed the guidance to be used for eligible uses and what ineligible expenses include. He also explained how these funds are different than CARES funds. Mr. Jaunich asked the Council's thoughts/ideas on the 2022 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 2.2% (doesn't include any LGA changes), 2. Any services Council would like to see provided and/or increased/decreased in 2022? —Park & Rec, streets, equipment, etc., 3. Is there a specific project/item the Council would like to see budgeted for and/or done in 2022? — park/facility improvements, housing, infrastructure, "Think Strategic Plans", etc., 4. Any fee/rate/transfer changes to look at in 2022? — utilities, licenses, rentals, programs, park dedication, etc. Mayor Forcier asked if there is workforce available for summer seasonal employment. Lynn Neumann, PRCE Director, presented before the Council. Ms. Neumann noted that the starting wage for seasonable employment is low compared to other opportunities in the area and her desire in 2022 would be to increase the starting wage for seasonable employees to be more competitive. John Olson, Public Works Manager, raised the same concerns. Council Member Czmowski noted that he would like to see a levy increase of 2% or under. He also suggested that perhaps another round of stimulus money be provided to those businesses that were the last to open, such as restaurants. He also asked that staff continue to look at adding a splash pad to the budget. Council Member Christensen agreed with Council Member Czmowski's suggestions. 3. Adjournment Motion by Sebesta, second by Christensen, to adjourn the workshop at 5:15 p.m. Roll call vote was taken: Christensen — aye; Czmowski — aye; Begnaud — aye; Sebesta — aye; Forcier — aye. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator