11-22-2022 CCM Workshop (Enterprise Funds)HUTCHINSON CITY COUNCIL
REVIEW OF 2023 ENTERPRISE FUND BUDGETS
MINUTES
TUESDAY, NOVEMBER 22, 2022, 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, Pat May, Mary Christensen and Dave Sebesta. Others present were: Matt Jaunich,
City Administrator; Marc Sebora, City Attorney; John Olson, Interim Public Works Director;
Andy Reid, Finance Director; Andy Kosek, Creekside Manager; Candice Woods, Liquor Hutch
Manager
REVIEW OF 2023 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 2023 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 2023 which sees a total revenue decrease of -1.8%. Mr. Jaunich noted that
staff is budgeting for a 1% increase in sales revenue over the 2022 forecasted sales. The
anticipated increase with the 2022 budget did not materialize so staff is tempering expectations
for 2023 in hopes that post -pandemic sales have stabilized. The 2023 budgeted sales levels
represent a 14.5% increase over the pre -pandemic sales of 2019. Proposed expenses for 2023
have decreased 1.0%. The 2023 budgeted capital item is a placeholder for future upgrades. The
2023 increase in services and charges is due to increasing credit card fees and the new snow
removal contract. Credit card fees are expected to exceed $145,000 and staff is exploring options
to pass all or some of that cost to customers. The budget includes a proposed transfer to the
general fund of $550,000. Mr. Jaunich also provided a 10-year liquor fund forecast.
Creekside Budget
Mr. Jaunich explained that Creekside's 2023 budget includes an 8.6% increase in revenue. Sales
revenue for bagged product is budgeted at a 16.4% increase to reflect pricing increases due to
rising input costs. Bulk product sales revenue is down 50% due to the depleted supply of bitcon
that won't be replenished until late 2023 or 2024. Other sales revenue is increasing 25% due to
the higher freight costs. Total expenses are budgeted at an increase of 18.9%. The transfer to the
general fund is budgeted at $120,000. The ending cash balance for Creekside is budgeted at
$2,473,437. Mr. Jaunich also provided a 10-year compost fund forecast.
Refuse/Garbage Budget
Mr. Jaunich noted that the refuse/garbage budget sees an increase in revenue of 1.4% from 2022.
The residential rates have held flat with no rate increase since 2008. Expenses for the
refuse/garbage budget will see a decrease of -4.1% for 2023. There is a $55,000 transfer that
goes out to the tree disease infestation/mitigation fund. The capital outlay assumption for 2023 is
based on planned improvements to the source separated operating model. This was originally
planned in 2021, but was put on hold due to permitting delays with the MPCA. The model has
higher costs due to inflation. Mr. Jaunich provided a 10-year refuse fund forecast. In addition,
the fund is proposing to add the position of a Resource Recovery Coordinator to work with the
source -separated program.
Water Fund Budget
Mr. Jaunich explained that the Water Fund budget shows a 12.3% increase in total revenue for
2023. There will be no rate increase in 2023 and hasn't been since 2011. Water fund expenses
are budgeted at a -3.1% decrease. Transfer to the general fund will remain at $70,000 for 2023.
The ending cash balance for the water fund budget is budgeted at $4,036,676. Mr. Jaunich
provided a 10-year water fund forecast and noted that 2026 is the last year of the local sales tax.
Wastewater Fund Budget
Mr. Jaunich explained that the wastewater fund budget sees a -0.3% decrease in revenues for
2023. There will be no rate increases in 2023 and there haven't been since 2011. Total expenses
have a budgeted increase of 13.9%. The wastewater fund budget has an ending cash balance
budgeted at $6,826,509. Mr. Jaunich provided a 10-year wastewater fund forecast.
Local Option Sales Tax
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 sewer 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 is exempt from local sales tax; organizations exempt from
paying state sales tax are also exempt from the local sales tax. Mr. Jaunich noted that the use tax
process is applicable so if a purchase is taxable but the vendor did not charge sales tax, then use
tax must be reported and paid to the State. Mr. Jaunich also reviewed other nearby cities with
local option 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
3.2%. There is a planned rate increase of 3% over nine classifications. Expenses are budgeted at
a -25.4% 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 $831,256 for 2023. Mr. Jaunich provided a 10-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 well. There are no rate changes for garbage.
There is a new rate structure for water and sewer users. There is a slight rate increase in the
stormwater fees. The enterprise fund transfers into the general fund account for 5.7% of general
fund revenue. Cash balances continue to remain healthy. Capital needs are increasing especially
in the Creekside/Water/Sewer funds. In addition, regulatory agencies may impact future needs.
Mr. Jaunich provided an update on the general fund budget. Mr. Jaunich noted that there have
been significant changes made to the preliminary budget and tax levy from September. Staff has
cut $205,911 from the budget based off of new health insurance rates and based on departmental
meetings over the past couple of months. September's preliminary tax levy increase of 7.3% has
been reduced to an increase of 3.6%. Some new revenues have helped with this reduction and
there were some minor changes made to the capital improvement plan. Total general fund
revenues are budgeted at a 2.6% increase and total general fund expenses are budget at a 2.6%
increase. The preliminary level for 2023 is being proposed at a 3.3% increase with a total tax
impact increase of 3.1%. Mr. Jaunich presented three tax levy options which included a 0%
increase, a 3.3% increase and a 5.9% increase and showed the impact of each. Mr. Jaunich did
provide an updated levy assumption with a 3.3% total city tax levy increase.
The Council had favorable comments on the change in the proposed levy increase.
3. Adjournment
Motion by Christensen, second by Sebesta, to adjourn the workshop at 4:55 p.m. Motion carried
unanimously.
ATTEST:
Gary T. Forcier
Mayor
Matthew Jaunich
City Administrator