05-23-2023 Workshop (Budget Kickoff)HUTCHINSON CITY COUNCIL
2024 BUDGET KICKOFF
MINUTES
TUESDAY, MAY 23, 2023 - 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 Tim Burley,
Pat May, Dave Sebesta and Chad Czmowski. Others present were: Matt Jaunich, City
Administrator, Andy Reid, Finance Director and other city directors.
2024 BUDGET KICKOFF REVIEW
2. 2024 Budget Kickoff
Matt Jaunich, City Administrator, presented before the Council. Mr. Jaunich noted that today's
workshop is to begin the 2024 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 and get direction from the Council on what they would like
to see during the 2024 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 in the mid -range amongst regional centers. Mr. Jaunich also spoke about taxable market
values and home market values as they relate to tax rates amongst McLeod County
municipalities. 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 2.4% 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. 2023 values increased by 5.7% over 2022. Taxable values are just as
high and the 2023 report shows values increasing by 18.4%, this on top of a 12% in 2022 and
6.9% in 2021. Tax increases without value increases end up having a negative effect on the tax
rate. The valuation changes over the past few years have shifted more of the City tax burden onto
residential properties. While commercial and industrial properties likely will see a tax decrease
as their valuations have remained flat or had minor changes. As values increase, the market value
homestead credit decreases, impacting residential tax bills. 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 provided information on certified city levy changes for 2023 for other
McLeod County cities and throughout the state. The average tax levy increase was 4.6% within
the county and the average state-wide tax levy increase was 8.5%.
Mr. Jaunich then provided a very preliminary general fund budget for 2024. This includes wages
and benefits expected to increase by 5.3%. This includes increased health costs. There is upward
pressure on costs and borrowing will be more expensive. Other expenditures are expected to
remain relatively flat at this time. A current look has a 7.7% levy increase to balance the budget.
LGA is assumed at a minimal increase for 2024. All other revenues are at 2023 budgeted
amounts. Revenues are expected to remain flat at this time. A 1% tax levy increase is equal to
$58,348. Mr. Jaunich presented a preliminary general fund five-year budget. Mr. Jaunich
provided a list of things to think about when establishing the 2024 general fund budget — such as
program changes — need for increase/decrease?; enterprise fund transfers to the general fund; no
more phasing of HSA employer contributions into the general fund; analysis of certain line item
projections; performance increase percentages; fleet/facility funding; funding of wages and
benefits; inflation impacts; payroll allocations (general vs. enterprise); continued discussion on
general staffing levels and service level needs/wants; appropriate CIP funding and needs; state
budget/tax agreements; local government aid; state legislative impacts; moving start of
performance increase to January 1; funding of major/special projects; benefits survey; impact of
selling old police facilities/event center; and sales tax. Mr. Jaunich spoke about use of LGA
funds. He noted that the City is set to receive about $3,000,000 in LGA in 2024 which is an
increase of approximately $400,000 from 2023. He noted that 50% goes to the general fund and
50% goes to various aspects of the capital improvement fund. Capital Projects Fund is for
various projects currently not designated. He noted that 2024 will be the fifth year of the
Playground Replacement Fund of $50,000. He also noted that 2024 will be the third year of a
50150 split with LGA between the CIP and the general fund. Mr. Jaunich also reviewed historical
LGA numbers.
Mr. Jaunich then reviewed the debt management plan. He noted that the big impact was the new
police station. He also noted that 2022 was the first increase in the debt levy since 2016. The
2024 increase is projected to be at about 3.4%. He explained that increasing interest rates
have/will impact future debt decisions and rising project costs have put pressure on increasing the
debt tax levy. He noted that the debt levy has not kept up with inflation. He also explained that
special assessment rates need to be reviewed and the City still has future debt needs for heavy
equipment and fire trucks.
Mr. Jaunich also reviewed major projects potentially scheduled for 2024. These include: HATS
storage building/fuel site; splash pad/stadium at VMF/locker room at Civic Arena (will need
direction from the Council on these projects and more); various streets; other equipment/vehicle
replacements; biosolid solutions at wastewater plant; other water and wastewater and other
facility improvements.
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 completed based on funding, 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 facilities replacement 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, however the VCI alone does not automatically trigger a
replacement. Departments must demonstrate the operational need for a replacement. He also
noted that since the VCI is a measure of current condition, the fleet committee uses service life,
VCI and other factors when prioritizing replacements for years 2-5 of the 5-year CIP. 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 2023 was to review
availability through state contracts and local dealers due to supply issues; review inflationary
impact on replacement costs and the current funding shortfall for city fleet; analyze and discuss
hybrid and electric vehicles in the current economy; and discuss options for the aging fire ladder
truck (22 years old).
Mr. Jaunich then reviewed the various current City fund balances. Mr. Jaunich noted that the
target cash balance for each fund is based on 50% of the 2023 budgeted operating expenses plus
the 2023 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/watched
These include: levy expectations and meeting costs of employee wages/benefits; growth of
salaries/benefits is the City's biggest cost driver; economy of the City projections; funding for
splash pad/grandstand/hockey rink locker room; construction/replacements costs increasing;
engineering fees and impact on debt levy; examination of all revenues and expenses; moving pay
adjustments to January 1st; selling of City assets; Event/Senior Center operations; interest
rates/inflation; funding for facilities; funding for heavy equipment and fleet; wage allocations;
special assessment rates; sales tax extension; and legislative impacts.
Mr. Jaunich then reviewed legislative impacts for the 2024 budget and beyond. Changes in the
last legislative session include local government aid being increased by about $400,000; one-time
State Public Safety Aid in the amount of $644,000; impact of paid Family/Medical Leave;
bonding bill was approved (includes $3.7 million for Civil Air Patrol project); adding Juneteenth
Holiday in 2023; future of City sales tax requests; PFAS and other environmental regulations;
staffing ratios; adult -use cannabis; election funding; additional funding for housing programs,
workforce housing and infrastructure related to housing; and gas tax increase/new delivery tax.
Mr. Jaunich asked the Council's thoughts/ideas on the 2024 budget: 1. tax levy goal? — 0%,
moderate increase, or significant increase; 5-year budget plan called for an annual general levy
increase of 6-7%; "very early look" calls for something around 6.4% - anything greater than 4%
would likely raise the tax rate; 2. Any services Council would like to see provided and/or
increased/decreased in 2024? — Park & Rec, streets, equipment, etc.; 3. Is there a specific
project/item the Council would like to see budgeted for and/or done in 2024?—park/facility
improvements, housing, infrastructure, "Think Strategic Plans", etc., 4. Any fee/rate/transfer
changes to look at in 2024? — utilities, licenses, rentals, programs, park dedication, etc.
Council Member Czmowski expressed that it will be important to see how the legislative changes
made within the last couple of days will affect the city financially. Discussion was held regarding
staff seeking hard costs for the grandstand project at VMF. Discussion was held on funding a
splash pad project. Discussion was held on the sale of the current police station and the best
process to use.
3. Adjournment
Motion by Czmowski, second by May, to adjourn the workshop at 5:26 p.m. Motion carried
unanimously.
ATTEST:
Gary T. Forcier
Mayor
Matthew Jaunich
City Administrator