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9-10-2024 (Workshop - 2025 Preliminary Budget)HUTCHINSON CITY COUNCIL REVIEW OF 2025 PRELIMINARY BUDGET MINUTES TUESDAY, SEPTEMBER 10, 2024, 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 2025 PRELIMINARY BUDGET 2. 2025 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 seven 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 2024 showed a budget surplus projected to be at $3.7 billion. 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 2025 budget planning. Staff is proposing to increase the general fund levy by 8.7% and the debt fund levy by 3.1%, with a 3.3% increase in the EDA tax levy and a 3.0% increase in the HRA tax levy, with a total tax impact of 6.9%. Mr. Jaunich provided an overview of past tax levies from 2017 to the present. Mr. Jaunich provided the Council four 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 3.1% increase to the debt levy; the third option would increase the general fund levy by 5.0% and the debt levy by 3.1%; and the fourth option would increase the general fund levy by 8.6% and the debt levy by 3.1%. The fourth option, or a 7.1% total levy increase, would mean a 3.259% change in tax rate or a $181 annual increase on a median home value of $275,000. Mr. Jaunich spoke about changes to the homestead exclusion in 2025 whereby the State adjusted the Homestead Market Value Exclusion amounts upwards to address rising residential property values. Mr. Jaunich also reviewed a 10-year tax rate trend. He also provided information on a tax rate comparison from 2023 of Hutchinson to other regional centers, state- wide and county -wide cities which shows that Hutchinson is basically at the mid -point yet lower than other regional centers and other cities state-wide and county -wide. He noted that the average tax levy increase amongst cities in 2024 was 7.5% and the preliminary 2025 levy increases for other cities is averaging 10.78%. Mr. Jaunich provided a market value history which is a 3.3% increase from 2023 to 2024. Mr. Jaunich reviewed general fund revenues and how they are proposed to be increased and decreased, with an average of a 4.6% increase. Mr. Jaunich commented items to note for the general fund include that general fund revenues include an 8.6% tax levy increase ($25,000 of the levy is allocated to the Uponor tax abatement); there is a very minor increase in the LGA amount to the general fund; no PILOT payment increase from HUC; increasing engineering fees factored in; increase in civic arena rental revenue; most other revenues are at 2024 budgeted amounts; and a 1% tax levy increase in the general fund is equivalent to $63,586. Mr. Jaunich spoke to the LGA allocation with 50% of the LGA in 2025 being allocated to the general fund and 50% going to the capital fund; this is the fourth straight year of a 50%/50% split; originally when LGA was split in 2011 the split was 60%/40%; LGA was significantly increased in 2024; there is a minor increase in 2025; and $201,733 is undesignated for future capital needs. Property taxes see an increase of 8.6%; other taxes see a 3% decrease; licenses & permits increase 0.6%; intergovernmental revenue increase 0.1%; charges for service increase of 4.8%; no increase in fines & forfeitures, increase of 5.2% in miscellaneous revenue, and no increase in transfers -in. General fund expenses are proposed to increase 4.6%. Wages & benefits are increased 5.78%, supplies increased 2.3%, services & charges increased 3.2%, miscellaneous expenses decreased 1.2%, transfers -out and capital outlay remain flat. 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 4% increase in health insurance is budgeted for next year. New positions budgeted for 2025 include a new DMV full-time employee with reduced part-time hours, new proposed fire inspector position and an engineering position for a full year vs. a half year as in 2024. The additions also include $25,000 for Uponor tax abatement, inflationary factors have been factored into the budget, and software & licensing increases with the Microsoft 365 conversion are a large part of the increase. The preliminary budget is currently balanced. Mr. Jaunich then reviewed expenditures from 2024 to 2025, 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 will be the second of three rate increases for garbage (three-year plan) — no increases had been made since 2018. The City is in the third year of new water and wastewater rates which are based off of the 2021 rate study recommendation and 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. The enterprise fund balances are healthy. Additional budget factors include a $12.1 million capital improvement plan, no major changes in services, 2 '/z new positions added in the preliminary budget (full year of Engineering position, new DMV employees, new Fire Inspector position), 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, no new revenue increases for 2025 including a 0% increase in the HUC PILOT payment, staff is expecting building permit revenue to remain steady and the general fund balance continues to remain healthy. Mr. Jaunich then briefly reviewed the debt management plan. The big impact was the new police station. 2022 was the first increase in the City's debt levy since 2016. The 2025 increase is preliminarily set at 3.1%. Increased interest rates have or will impact future debt decisions. Rising project costs have put pressure on increasing the debt tax levy. The debt levy has not kept up with inflation when it comes to projects. Special assessment rates need to be reviewed. The City will still have future debt needs for heavy equipment and fire trucks. Mr. Jaunich noted that increasing the debt limit would increase the city's project load throughout the community. Adding $200,000 to the debt plan would increase yearly taxes by $8.00 in 2026 to $34.00 in 2037. Adding $400,000 to the City's debt plan would increase yearly taxes by another $12.00 in 2026 to $35.00 in 2037. Estimated debt related to the new ladder truck in 2027 will add another $35.00 per year starting in 2026 to $59.00/year in 2037. Mr. Jaunich reviewed the following considerations: a 1% levy increase is equal to $88,360, staff is proposing a preliminary City tax levy increase of 7.1% (8.6% 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 6.9% increase, the current budget is balanced, the budget includes year 2 of 3 of a rate increase to garbage rates, and the current proposed tax levy increase would increase the City's tax rate for the second straight year, and the increase in the market value exclusion has pushed tax rates up and shifted the tax burden to non-residential properties. 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. General discussion was held regarding the proposed positions of Fire Inspector and the Engineering position. Council Member Burley expressed that the City really needs to keep things in control with all of the increases/mandates from other entities. Again, staff is proposing a 7.1% increase to the preliminary levy which on average is an increase of $18I/year. Overall council members are comfortable with a 7.1% increase preliminarily with the hope that it can be reduced by final adoption. Formal action of the preliminary budget will be taken at the September 24, 2024, Council meeting. 3. Adjournment Motion by May, second by Czmowski, to adjourn the workshop at 5:05 p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator