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09-12-23 Workshop (2024 Preliminary Budget)HUTCHINSON CITY COUNCIL REVIEW OF 2024 PRELIMINARY BUDGET MINUTES TUESDAY, SEPTEMBER 12, 2023, AT 4:00 PM CITY CENTER — COUNCIL CHAMBERS 1. Call to Order Mayor Gary Forcier called the workshop to order at 4:00 p.m. Members present were Tim Burley, Pat May, Chad Czmowski and Dave Sebesta. Others present were: Matt Jaunich, City Administrator, and other City directors REVIEW OF 2024 PRELIMINARY BUDGET 2. 2024 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, the City's 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 1st. 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 in February 2023 showed a budget surplus projected to be at $17.5 billion, however decisions made by the Legislature in 2023 used up most of that surplus. The next projection will come out in November. Early estimates expect a slight surplus, perhaps $1-$2 billion. At this point, nothing is pointing towards any state financial issues that should impact the City's 2024 budget planning. Mr. Jaunich then reviewed the legislative financial impacts on the City, both the "good" and the "bad". Staff is proposing to increase the general fund levy by 12.1% and the debt fund levy by 2.8%, with a 5.7% increase in the EDA tax levy and a 3.1% increase in the HRA tax levy, with a total tax impact of 9.1 %. Mr. Jaunich provided an overview of past tax levies from 2016 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 5% increase in the general fund levy and a 2.8% increase to the debt levy; the third option would increase the general fund levy by 7.4% and the debt levy by 2.8%; the fourth option would increase the general fund levy by 9.0% and the debt levy by 2.8% and the fifth option would increase the general fund levy by 12.0% and the debt levy by 2.8%. Mr. Jaunich noted that a 0% tax rate change would require the third option with a 7.4% levy increase. Mr. Jaunich spoke about changes to the homestead exclusion and reviewed a I0-year tax rate trend. He also provided information on a tax rate comparison from 2022 of Hutchinson to other regional centers, state-wide and county -wide cities which shows that Hutchinson is basically at the mid -point. He expressed that it appears the majority of cities have set their levies to maintain their tax rates at 0% increases. Mr. Jaunich provided a market value history which is a 5.7% increase from 2022 to 2023. Mr. Jaunich reviewed general fund revenues and how they are proposed to be increased and decreased, with an average of a 6.5% increase. Property taxes see an increase of 12.0%; other taxes remain flat; licenses & permits decrease 11.3%; intergovernmental revenue increase 11.1%; charges for service increase of 0.5%; no increase in fines & forfeitures, increase of 10.4% in miscellaneous revenue, and an increase of 1.4% in transfers -in. The general fund revenues include a 12% tax levy increase. $30,000 of this increase is due to the Uponor tax abatement. There is an increase in the LGA amount of $199,833 to the general fund (going with a 50150 split). There will be a 1.4% PILOT payment increase from HUC. There is DMV fee increase factored in as well as increased interest earnings which total approximately $67,500. There is an expected continued decline in permit revenue of about $50,000. Staff is looking at potential 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 $58,350. Mr. Jaunich then spoke about local government aid and explained that 50% of the City's LGA in 2024 has been allocated to the general fund and 50% going to the capital fund — this was done last year as well. The Council and staff will need to determine use of the LGA funds in the Capital Projects Fund as the funds are not designated for specific projects at this time. General fund expenses are proposed to increase 6.5%. Wages & benefits are increased 6.8%, supplies increased 12.5%, services & charges increased 4.5%, 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, union impacts and staff timing/allocation changes and minor shifts. A 25% increase in health insurance is budgeted for next year. There are additional costs for Elections included in the general fund along with one additional staff person in Public Works. 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 12.5% and services & charges costs are budgeted to increase by 4.5%. The preliminary budget is currently balanced. Mr. Jaunich then reviewed expenditures from 2023 to 2024, 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 very well. There is a proposed rate change in garbage rates since 2018 — the garbage rates are proposed to be increased by 16% for 30/60 gallon carts and 11% for 90 gallon carts. The City is in the second year of new water and wastewater rates which are based off of the 2021 rate study recommendation. These were the first changes in water and wastewater rates since 2011 which didn't have a significant impact on revenue. There is a slight rate increase in the stormwater rates. There is a decrease in fund balances due to capital needs with a high need in wastewater. Again, staff will be evaluating the "transfers -in" from the enterprise funds. The enterprise fund balances are healthy. Additional budget factors include a $13.9 million capital improvement plan, minor changes in staffing levels but no major changes in services, 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 an impact on the preliminary budget, the HUC PILOT payment is increasing by 1.4%, LGA is increasing $199,833 and DMV fees are increasing $45,000, staff is expecting less construction and fewer building permits being pulled in 2024 and the general fund balance continues to remain healthy. Mr. Jaunich then briefly reviewed the debt management plan with a target debt levy of $2.6 million. Starting with 2022, the Debt Management Plan will exceed the target limit of $2.6 million due to the financing needs of the new police facility. 2022 included the first tax increase to the debt levy since 2016 and the debt levy will continue to increase for the life of the plan, leveling off in 2032. Other project limits continue to be at $1.9 million. Low interest rates in recent years have allowed for higher project limits, however we are now seeing the reverse of that. 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 $82,445, staff is proposing a preliminary City tax levy increase of 9.3% (12% increase in general fund), combined with the EDA and HRA tax levy increases, the preliminary total tax impact to Hutchinson residents will be the equivalent to a 9.1 % increase, the current budget is balanced, the budget includes a rate increase to garbage rates for the first time since 2008, and the current proposed tax levy increase would increase the City's tax rate for the first time in 10 years. Mr. Jaunich noted that there are still a lot of decisions that need to be made between now and the end of December. He also noted that staff will be following the Financial Management Plan when it comes to property tax increases and will be evaluating other policy options in an effort to lower the tax burden. He stated the five-year budget plan has shown an estimated tax levy increase in the 5.5% to 6.5% range and that in the last five years the City has had positive circumstances that have positively impacted past levies. He also noted that the City is looking at its toughest budget year with some large negative impacts. The biggest factors behind the levy increase are wage and benefits increases and inflation/increased costs. Council Member Czmowski expressed that he is overall okay with the increase being proposed (option 5 at a 9.3% increase), knowing that it can be lowered before final adoption. Council Member Tim Burley expressed that what he hears from community members is that services need to be maintained, not necessarily enhanced. Council Member Pat May noted that he feels a 9.3% increase is high and he doesn't think community members will want the City to be building new facilities in 2024. In looking at the budget proposed, there isn't a lot that can be reduced when it comes to current services provided. Council Member Sebesta expressed that although a 9.3% increase seems high, the City shouldn't cut back too much as it doesn't want to get caught with a larger increase in the future. Formal action of the preliminary budget will be taken at the September 26, 2023, 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 Matthew Jaunich Mayor City Administrator