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09-11-2018 CCM Workshop (Budget)HUTCHINSON CITY COUNCIL REVIEW OF 2019 PRELIMINARY BUDGET MINUTES TUESDAY, SEPTEMBER 11, 2018, 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 Mary Christensen, Steve Cook, Chad Czmowski and John Lofdahl. Others present were: Matt Jaunich, City Administrator, and other City directors REVIEW OF 2019 PRELIMINARY BUDGET 2. 2019 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, items included to be completed by 2023 in the 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 Pt. 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 and the budget will be adopted in mid -late December. Mr. Jaunich reported that the State's economy and wage income continue to grow with positive balances expected this biennium and the next. The 2018-19 State budget (February forecast) began with a surplus of $329 million. July's forecast had state revenue collections exceeding the forecast by $28 million. The state ended the first half of the 2018-19 biennium with revenues exceeding the forecast by $348 million. The state's budget reserve now stands at $1.6 billion. The next full budget forecast is expected in December. Unallotment and levy limits don't expect to be in place in the near future. The state's budget situation shouldn't have an impact on the City's 2019 budget. Staff is proposing to increase the general tax levy by 3.1%, with a 7.7% increase in the EDA tax levy and an 8.6% increase in the HRA tax levy, with a total tax impact of 3.3%. This includes a 4.5% increase in the general fund and a 0% increase in the debt funds. Mr. Jaunich provided an overview of past tax levies from 2011 to the present. Mr. Jaunich provided the Council four options for the Council to consider for the preliminary tax level. The first option would hold both levies flat; the second option would increase the general fund levy by 3% and the debt levy by 0%; the third option would increase the general fund levy by 4.36% and the debt levy by 0%; and the fourth option would increase the general fund levy by 4.5% and the debt levy by 0%. Mr. Jaunich provided a market value history which is a 7.7% increase from 2017 to 2018. Mr. Jaunich reviewed general fund revenues and how they are proposed to be increased and decreased, with an average of a 2.4% increase. Property taxes see an increase of 4.5%; other taxes increase 3.3%; licenses & permits increase 17.8%; intergovernmental revenue increase 0.1%; charges for service increase of 0.1%; no increase in fines & forfeitures, increase of 2.7% in miscellaneous revenue, and an increase of 0.4% in transfers -in. The general fund revenues include a 4.5% tax levy increase. The general fund revenues include an increase of the transfer from the HUC in the amount of $269,457 or 10.7%. This includes a renegotiated PILOT payment from 2.75% of operating revenue to 4.50 % with a three-year phase in. Next year's payment will be 4%. There is a decrease of $260,624 in revenue due to the hospital lease buy-out in 2018. Budgeting includes a $60,000 increase in building permit revenue with most of the other revenue sources expected to remain relatively flat. Mr. Jaunich noted that a 1% tax levy increase in the general fund is equivalent to $49,135. Mr. Jaunich then spoke about local government aid and explained that 46% of the City's LGA in 2018-19 has been allocated to the general fund with 54% going to the capital fund. The split in 2017 was 43%/57%. Originally when LGA was split out of the general fund in 2011 it was split 40%/60%. The 2019 LGA is $617,443 higher than the 2011 amount. General fund expenses are proposed to increase 2.4%. Wages & benefits are increased 2.5%, supplies increased 4.0%, services & charges increased 1.8%, miscellaneous expenses increased 2.3%, transfers -out increased 2.0% and no 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 and staff timing changes and minor shifts. There will be a 0% increase to health insurance next year and no new full-time positions are being proposed. There is an increase in seasonal labor costs of $27,834. These numbers include funding for a community survey, inflation and other costs. Mr. Jaunich explained that the preliminary budget is currently balanced. Mr. Jaunich then reviewed expenditures from 2018 to 2019, historical general fund budget information and staffing levels. Mr. Jaunich reviewed the enterprise funds and their proposed increases. Mr. Jaunich noted that fund numbers include depreciation. He noted that the liquor fund continues to do well, as well as other utility funds. There are no proposed rate changes for garbage, water and sewer. There will be a slight rate increase in the stormwater rates. There will be a decrease in the Compost Fund balance due to capital needs. There will be no changes in transfers to the general fund from the enterprise funds. Additional budget factors include a $13.27 million capital improvement plan, no significant staffing cuts and/or changes in service, tone minor program/service change in increased seasonal labor costs to account for a campground attendant, staffing costs and capital needs are the biggest driver of the city's budget with staffing costs behind the request for a tax levy increase, not expecting any increase in the City's health insurance costs and fund balances continue to remain healthy. Mr. Jaunich then briefly reviewed the debt management plan with a target debt levy of $2.6 million. The 2019 Debt Management Plan includes the changes from May of 2016 which increased the targeted limit from $2.2 million to $2.6 million. The new project limit is $1.9 million which is up from $1.5 million. After a 5% levy increase in 2015 and a 1% increase in 2016, staff is budgeting for a 0% increase for the third straight year and is not expecting a debt levy increase again until 2023. Mr. Jaunich reviewed the following considerations: a 1% levy increase is equal to $74,540, staff is proposing a preliminary City tax levy increase of 3.1% (4.5% increase in general fund), combined with the EDA and HRA levy increases, the total tax impact to Hutchinson residents will be the equivalent to a 3.3% increase, the current budget is balanced, the current proposed tax levy increase would have a small impact on property taxes due to the increase in value and slight increase in tax rate. Mr. Jaunich noted again that the biggest factor behind a levy increase are the standard wage and benefit increases expected to cost $186,557. Mr. Jaunich noted again that the loss of the hospital lease payments is being replaced by a PILOT increase. Cook noted that the wage committee spoke about an HSA funding source that will be depleted eventually. Andy Reid noted that the Council needs to decide if the City will continue to contribute to employees' HSA accounts. If the City will continue to do so, then a funding source will need to be created and identified. Cook also spoke about the shortfall in the fleet area. He noted with the liquor fund debt falling off, perhaps that could help out with fleet expenses. Jaunich stated that these two areas (HSA funding source and addressing fleet shortfall) will be worked on by staff. Formal action of the preliminary budget will be taken at the September 25, 2018, Council meeting. Mr. Jaunich noted he will bring two options forward for the Council to consider. 3. Adjournment Motion by Czmowski, second by Christensen, to adjourn the workshop at 5:00 p.m. Motion carried unanimously. ATTEST: Gary T. Forcier Mayor Matthew Jaunich City Administrator