Loading...
09-09-2025 (Budget Workshop)HUTCHINSON CITY COUNCIL REVIEW OF 2026 PRELIMINARY BUDGET MINUTES TUESDAY, SEPTEMBER 9, 2025, AT 4:00 PM CITY CENTER — COUNCIL CHAMBERS 1. Call to Order Mayor Protein Chad Czmowski called the workshop to order at 4:00 p.m. Members present were Tim Burley, Pat May, and Dave Sebesta. Member absent was Gary Forcier. Others present were: Matt Jaunich, City Administrator, and other City directors REVIEW OF 2026 PRELIMINARY BUDGET 2. 2026 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 2025 showed a budget surplus projected to be at $456 million. The next projection will come out in November. Early estimates expect a slight surplus, perhaps $1.8 billion. At this point, nothing is pointing towards any state financial issues that should impact the City's 2026 budget planning. Mr. Jaunich did note that future years don't necessarily look good. The next budget biennium currently shows a deficit of $1.1 billion and federal funding cuts could push that number higher. Staff is proposing to increase the general fund levy by 11.3% and the debt fund levy by 3.9% with a total preliminary levy increase of 9.2%. With a 1.7% increase in the EDA tax levy and a 1.8% increase in the HRA tax levy, total tax impact is 8.9%. Mr. Jaunich provided an overview of past tax levies from 2018 to the present. Mr. Jaunich provided the Council six 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 2.3% increase in the general fund levy and a 3.9% increase to the debt levy; the third option would increase the general fund levy by 2.0% and the debt levy by 3.9%; the fourth option would increase the general fund levy by 5.0% and the debt levy by 3.9%; the fifth option would increase the general fund levy by 8.0% and the debt levy by 3.9% and the sixth option would increase the general fund levy by 11.3% and the debt levy by 3.9%. The sixth option, or a 9.2% total levy increase, would mean a 3.590% change in tax rate or a $92.00 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 2024 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 cities state-wide and county -wide. He noted that the average tax levy increase amongst cities in 2025 was 7.7%. Mr. Jaunich provided a market value history which is a 1.7% increase from 2024 to 2025. Mr. Jaunich reviewed general fund revenues and how they are proposed to be increased and decreased, with an average of a 6.1% increase. Mr. Jaunich commented items to note for the general fund include that general fund revenues include an 11.3% 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 but a decrease in Municipal State Aid for Streets and Federal & State grant monies; no PILOT payment increase from HUC but an increase in reimbursement rates for Legal & IT; there is a $152,521 increase in charges for service; a $50,000 increase contribution to the general fund from Water/Sewer/Compost funds; and a 1% tax levy increase in the general fund is equivalent to $67,290. Mr. Jaunich spoke to the LGA allocation with 50% of the LGA in 2026 being allocated to the general fund and 50% going to the capital fund; this is the fifth straight year of a 50%/50% split; originally when LGA was split in 2011 the split was 40%/60%; LGA was significantly increased in 2024; there is a minor increase in 2026; and $206,029 is undesignated for future capital needs. Property taxes see an increase of 11.3%; other taxes see no increase; licenses & permits increase 1.8%; intergovernmental revenue decrease 1.5%; charges for service increase of 5.4%; no increase in fines & forfeitures, increase of 7.3% in miscellaneous revenue, and a 1.8% increase in transfers -in. General fund expenses are proposed to increase 6.1%. Wages & benefits increased 7.3%, supplies increased 4.0%, services & charges increased 4.0%, miscellaneous expenses decreased 0.3%, transfers -out increased 5.2% and capital outlay remains 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 15% increase in health insurance is budgeted for next year and a $32,362 increase to account for MN Paid Family Medical Leave. New positions budgeted for in 2026 include a new full-time employee in IT and a Waterpark/Rec Building Manager (this was inadvertently left out of the 2025 budget but approved for the 2024 budget) along with some staffing changes in Engineering/Public Works. The additions also include an increase of $60,900 in operating supplies to replace outdated equipment at Park & Rec, a $138,500 increase in contractual R&M for the aquatic center/ice rink and an additional $25,000 for fleet funding. The preliminary budget is currently balanced. Mr. Jaunich then reviewed expenditures from 2025 to 2026, historical general fund budget information and staffing levels. Mr. Jaunich reviewed the enterprise funds and their proposed increases/decreases. Mr. Jaunich noted that these numbers include depreciation and the sales tax allocation has been shifted due to certain debts being paid off. He noted that the liquor fund continues to do well but the industry is seeing a decline in sales. There will be the third of five rate increases for garbage with the previous increase being in 2008. The City is in the fourth 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 an 8% 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. General discussion was held on the costs of the hard good pick up and other ways the costs could be covered or the program administered. Mr. Jaunich noted that some of these costs are being incorporated into the garbage rate increases. More discussion will be held on this topic at the budget workshop held on enterprise funds. Additional budget factors include a $15.2 million capital improvement plan, no major changes in services, one new position added in the preliminary budget (IT 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, several fee and usage rate increases for 2026, no new significant revenue increases for 2026, expecting building permit revenue to remain steady and the general fund balance continues to remain healthy. General discussion was also held on the future use of the Event Center. Council Member Burley recommended researching the costs of moving the senior center and looking at eliminating the use of the Event Center. 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 2026 increase is preliminarily set at 3.9%. 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 still need to be reviewed. Mr. Jaunich further detailed adding to the Debt Plan which notes reviewing the debt analysis report, increasing the debt limit would increase the project load throughout the community, the plan includes increasing annual project costs by $200,000 with a 3% inflationary increase every five years, the plan also includes borrowing money to pay for the ladder truck and to remodel City Center, this plan would increase the debt levy from $2.65 million to $3.47 million in 2040, the plan would impact the 2027 levy and the initial impact would cost about $40 per median home. Council Members noted that they would like to know how changes to the debt plan would affect the City's bond rating. Mr. Jaunich reviewed the following considerations: a 1% levy increase is equal to $92,764, staff is proposing apreliminary City tax levy increase of 9.2% (11.3% 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 an 8.9% increase, the current budget is balanced, the budget includes year 3 of 5 of a rate increase to garbage rates, and the current proposed tax levy increase would increase the City's tax rate for the third 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 decisions that need to be made between now and the end of December. He also noted that staff have made significant efforts to have the preliminary levy closer to the actual final levy. However, there are some costs that are still unknown that could have a significant impact on the budget and noted again that there are no new significant revenue sources. Mr. Jaunich noted that there are items not included in the preliminary budget for 2026 which includes a $20,000 request to assist the Chamber/Convention & Visitors Bureau with marketing the community, increased debt load, costs to come up with a Sales Tax Plan, additional revenue to account for VRBOs in the community with the lodging tax and potential other revenue options. Mr. Jaunich further provided an overview of the noted budget changes in revenue and expenses. Lastly, Mr. Jaunich reminded the Council that the biggest factors behind the levy increase are wage and benefit increases of $769,998 and the increase in repair & maintenance costs along with supply costs estimated at $200,000. Council Member Czmowski noted that although he would prefer a lower tax levy, he is okay with what has been presented. Council Member May expressed that staff has done a thorough job on balancing the budget, but a lower levy would be preferred if possible. Council Member Burley noted that he is interested to see what the proposed increased user fees will be, which will be presented in October. He expressed that user fees should be a priority so that those using the facilities are the ones paying for them. Mr. Jaunich reminded the Council that money is lost on all recreational facilities throughout the city on an annual basis. He also noted that the additional items included in the proposed budget - $25,000 in fleet funding, new IT position — can continue to be evaluated. Council Member Burley requested that the budget be reviewed to find the most efficiencies. Formal action of the preliminary budget will be taken at the September 23, 2025, 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