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09-13-2022 CCM Workshop (Preliminary Budget)HUTCHINSON CITY COUNCIL REVIEW OF 2023 PRELIMINARY BUDGET MINUTES TUESDAY, SEPTEMBER 13, 2022, AT 4:00 PM CITY CENTER — COUNCIL CHAMBERS 1. Call to Order Vice President Chad Czmowski called the workshop to order at 4:00 p.m. Members present included Mary Christensen, Pat May, and Dave Sebesta. Member absent was Mayor Gary Forcier. Others present were: Matt Jaunich, City Administrator, and other City directors REVIEW OF 2023 PRELIMINARY BUDGET 2. 2023 Preliminary Budget Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich noted that today's agenda will include a review and reminders, the state budget impact, preliminary levy and past levies, general fund revenue and expenses, proposed staff changes, enterprise funds revenue and expenses, debt management plan and next steps. Mr. Jaunich also reviewed the City's mission statement, vision statement, the six core areas of focus, items included to be completed by 2023 in the strategic plan and 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 reminded the Council that the City Charter requires staff to submit an annual budget by September I". The City Charter also requires the Council to act on the preliminary budget by the second regular meeting in September. After the preliminary levy is set, it can only be lowered, not raised. The Council will need to set the date and time of its Truth -in -Taxation hearing at the second meeting in September and provide a phone number and mailing address that taxpayers may call/contact if they have questions related to the City's property tax levy/budget. The hearing is usually held in early December. The budget will be adopted in mid -late December. Mr. Jaunich commented on the State budget situation which shows a budget surplus projected to be at $9.253 billion. July's updated forecast showed revenues were $69 million higher than projected in February. At this point, nothing is pointing towards any state financial issues that should impact the City's 2023 budget planning. Staff is proposing to increase the general fund levy by 7.4% and the debt fund levy by 2.2%, with a 9.8% increase in the EDA tax levy and a 23.1% decrease in the HRA tax levy, with a total tax impact of 5.2%. Miles Seppelt, EDA Director, presented before the Council. Mr. Seppelt provided an overview to the Council of activities of the EDA and what goes into their tax levy. Mr. Seppelt explained that the EDA Board is requesting of the Council that the EDA levy be increased an additional $18,350. The additional funds would be put forth towards advertising for workforce needs since shortage of workforce is the 91 challenge. The workforce in McLeod County and Hutchinson has declined almost 20% since 2015. It is projected that the workforce will decline even more over the next 10 years. Mr. Seppelt detailed what the additional advertising for workforce would include. Mr. Jaunich provided an overview of past tax levies from 2014 to the present. Mr. Jaunich provided the Council five options for the Council to consider for the preliminary tax levy. The first option would hold both levies flat; the second option would see a 3% increase in the general fund levy and a 2.2% increase to the debt levy; the third option would increase the general fund levy by 4.0% and the debt levy by 2.2%; the fourth option would increase the general fund levy by 5.0% and the debt levy by 2.2% and the fifth option would increase the general fund levy by 7.3% and the debt levy by 2.2%. Mr. Jaunich spoke about a 10-year tax rate trend and provided information on a tax rate comparison from 2021 of Hutchinson to other regional centers, state- wide and county -wide cities. Mr. Jaunich provided a market value history which is a 15.9% increase from 2021 to 2022. Mr. Jaunich reviewed general fund revenues and how they are proposed to be increased and decreased, with an average of a 3.9% increase. Property taxes see an increase of 7.3%; other taxes remain flat%; licenses & permits decrease 0.3%; intergovernmental revenue increase 0.9%; charges for service increase of 2.4%; no increase in fines & forfeitures, increase of 13.4% in miscellaneous revenue, and an increase of 0.5% in transfers -in. The general fund revenues include a 7.3% tax levy increase. $30,000 of this increase is due to the Uponor tax abatement. There will be a 2% PILOT payment increase from HUC. This will be the last year of phasing out of HSA funding from self insurance. There is an increase in the LGA amount (just over $14,900) to the general fund (going with a 50150 split). There is $23,535 in new "monies" from the Annual Ground Rent from HUC for solar array parcel in the Industrial Park. There are no changes to the "transfer -in" from the city's enterprise funds. Mr. Jaunich noted that a 1% tax levy increase in the general fund is equivalent to $56,056. Mr. Jaunich then spoke about local government aid and explained that 50% of the City's LGA in 2023 has been allocated to the general fund and 50% going to the capital fund. The split in 2020 & 2021 was 49%/51% and in 2022 was 50%/50%. Originally when LGA was split out of the general fund in 2011 it was split 40%/60%. The 2023 LGA is budgeted for a slight increase of $29,581 overall. General fund expenses are proposed to increase 3.9%. Wages & benefits are increased 3.2%, supplies increased 12.9%, services & charges increased 4.0%, miscellaneous expenses increased 0.4%, transfers -out increased 3.0% and a 0% increase in capital outlay. Mr. Jaunich noted that the largest impact on the City's general fund expenses is associated with wages and benefits which includes costs for general performance increases and staff timing changes and minor shifts. A 0% increase in health insurance is budgeted for next year. The preliminary budget includes cost associated with separating the Public Works Director and City Engineer positions in the general fund. The additions also include $30,000 for Uponor tax abatement and inflationary factors have been factored into the budget and have had a significant impact and other miscellaneous costs. Supply costs are budgeted to increase 13% and services & charges costs are budgeted to increase by 4%. The preliminary budget is currently balanced. Mr. Jaunich then reviewed expenditures from 2022 to 2023, historical general fund budget information and staffing levels. Mr. Jaunich reviewed the enterprise funds and their proposed increases/decreases. Mr. Jaunich noted that fund numbers include depreciation. He noted that the liquor fund continues to do really well and no more debt payments in the Liquor Fund. There is a shifting of sales tax money due to debt obligations in the water and wastewater funds. There are no proposed rate changes for garbage however there are plans to implement new water and wastewater rates in 2023. There will be a slight rate increase in the stormwater rates. There will be a decrease in fund balances due to capital needs. There will be no changes to the "transfers -in" from the enterprise funds. The enterprise fund balances are healthy. Additional budget factors include a $9.64 million capital improvement plan, minor changes in staffing levels but no major changes in service outside of potentially the Event Center, staffing costs and capital needs are the biggest driver of the city's general fund budget with staffing costs being the biggest reason behind the request of a tax levy increase within the general fund, inflation has a significant impact on the preliminary budget, the HUC PILOT payment is increasing by 2%, and the general fund balance continues to remain healthy. Mr. Jaunich provided an update on the Event Center. He noted that negotiations are going well with Hutch Health who has interest in purchasing the Event Center. The City has hired special counsel to help assist on its State grant payment obligation which currently requires the City to pay back up to $1 million if the building is sold. If Hutch Health does purchase the Event Center, they do not plan to use it in 2023, therefore the Senior Center will remain in the Event Center location for 2023. There is also a possibility, if Hutch Health does purchase the Event Center, they will allow the City to lease the Senior Center space so that the location can remain there. Lynn Newmann, PRCE Director, spoke about how the Event Center will operate in 2023 with the loss of revenue due to the anticipation of the Event Center closing December 31, 2022. Ms. Newmann explained that mainly savings will be seen in a reduction of staffing hours. Additionally, a church organization may potentially remain as a renter on Sundays for 2023. Ultimately rentals will be allowed Monday -Friday from 8:OOam-4:OOpm when staff is regularly there, along with the additional Sunday rental for the church organization. Mr. Jaunich then briefly reviewed the debt management plan with a target debt levy of $2.6 million. The 2022 Debt Management Plan will exceed the target limit of $2.6 million due to the new financing need of a new police facility. 2022 included the first tax increase to the debt levy since 2016 and the debt levy will continue to increase until 2031. Other project limit continues to be at $1.9 million. Low interest rates in recent years have allowed for higher project limits, however that is changing. Mr. Jaunich noted that Council and staff should have a discussion on a new target debt levy. Mr. Jaunich reviewed the following considerations: a 1% levy increase is equal to $79,538, staff is proposing a preliminary City tax levy increase of 5.8% (7.3% increase in general fund), combined with the EDA, HRA and tax abatement levy increases, the preliminary total tax impact to Hutchinson residents will be the equivalent to a 5.2% increase, the current budget is balanced, the current proposed tax levy increase would have a small impact on property taxes. Mr. Jaunich noted that there are still a lot of decisions that need to be made between now and the end of December. The biggest factors behind the levy increase are the standard wage and benefit increases ($302,214) and inflation/increased costs are driving up budgets. Council Member Czmowski expressed that he is overall okay with the increase being proposed however he would lean towards Option 3 or Option 4 that was presented. Mr. Jaunich reminded everyone that a lot can change over the next few months when the final levy is set in December. Council Members expressed that they are comfortable with increasing the FDA's levy as requested. Formal action of the preliminary budget will be taken at the September 27, 2022, Council meeting. 3. Adjournment Motion by May, second by Sebesta, to adjourn the workshop at 5:15 p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator