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HomeMy WebLinkAboutCity Council - 05/07/2024 - Workshop APPROVED WORKSHOP MINUTES CITY COUNCIL WORKSHOP & OPEN PODIUM TUESDAY, MAY 07, 2024 CITY CENTER 5:00 – 6:25 PM, HERITAGE ROOMS 6:30 – 7:00 PM, COUNCIL CHAMBER CITY COUNCIL: Mayor Ron Case, Council Members Kathy Nelson, Mark Freiberg, PG Narayanan, and Lisa Toomey CITY STAFF: City Manager Rick Getschow, Police Chief Matt Sackett, Fire Chief Scott Gerber, Public Works Director Robert Ellis, Community Development Director Julie Klima, Parks and Recreation Director Amy Markle, Administrative Services/HR Director Alecia Rose, Communications Manager Joyce Lorenz, City Attorney Maggie Neuville, and Recorder Sara Aschenbeck Workshop - Heritage Rooms I and II (5:30) I. 2023 AUDIT REPORT AND FINANCIAL STATEMENTS Getschow explained the first workshop in May is dedicated to the Annual Comprehensive Financial Report (ACFR) and audit results. The Council will formally accept the ACFR at tonight’s Council meeting. The City’s auditor is BerganKDV. Caroline Stutsman, BerganKDV Partner for the City’s audit, explained it is management’s responsibility to prepare and present the financial statements in accordance with Generally Accepted Accounting Principles (GAAP). BerganKDV’s role is to provide an opinion on the statements. BerganKDV issued an unmodified opinion, meaning the financial statements are considered fairly stated in material respects. BerganKDV considered internal controls in accordance with Government Auditing Standards. There were no findings, which is an achievement as it is uncommon. The City spent over $750 thousand in federal grant dollars, necessitating a Federal Single Audit. The Community Development Block Grant was tested, with no findings reported. Minnesota Legal Compliance was also tested, with no findings reported. Case asked if BerganKDV can detect deception. Stutsman noted along with inquiry, BerganKDV conducts sampling and reviews supporting documents, designed to give reasonable assurance the financials do not include misinformation. Stutsman began summarizing General Fund revenues. In total, General Fund revenues increased by one-half percent from 2022. Taxes and assessments increased due to an increase in the levy. Charges for services increased due to memberships and registrations rebounding. Intergovernmental revenue decreased due to federal COVID grants received in 2022 that did not continue in 2023. The Other category increased due to investment income based on market conditions. Getschow added Community Center memberships and recreation fees are almost fully recovered from COVID years. The City used federal COVID grants as a replacement for lost revenue. Stutsman explained General Fund expenditures increased four percent. The increase was mainly in Police and Parks and Recreation due to increased wages and benefits. City Council Workshop Minutes May 7, 2024 Page 2 Stutsman explained revenues were over budget by six percent, mainly due to investment income. It is common to budget revenues conservatively. Licenses and permits and intergovernmental revenue were over budget. Expenditures were under budget by two percent. Police had multiple open positions throughout the year. The General Fund fund balance increased by $283 thousand. The City is in compliance with its fund balance policy. Stutsman next explained the Water Fund. Charges for services increased due to an increase in rate and consumption. Operating expenses decreased two percent in 2023 due to meter changeout expenses in 2022. There was an operating loss of $1.2 million in 2023, compared to an operating loss of $2.3 million in 2022. Operating income covered approximately 60 percent of depreciation expense. Case asked if the City has an ideal amount of depreciation expense covered by operating income. Ellis stated the current amount of depreciation expense covered by operating income is adequate. The City has a robust Capital Improvement Plan (CIP) and infrastructure replacements are carefully planned. Stutsman explained the Water Fund’s cash and unrestricted net position. Significant investment in capital assets was made in 2023, resulting in a cash decrease. Unrestricted net position continues to increase. Tammy Wilson, Finance Manager, added the City is in compliance with the Water Fund’s fund balance policy. An excess of cash can be used to fund future capital projects in lieu of issuing debt. Stutsman next provided an overview of the Wastewater Fund. Operating revenues increased due to a rate increase. Operating expenses decreased in 2023 due to lift station rehabilitation program costs in 2022. Wastewater charges for services are fully covering depreciation expense. Cash and unrestricted net position increased. Wilson explained this fund is in compliance with the City’s fund balance policy. Case asked if the dry summer affects the wastewater fund. Ellis clarified the Wastewater Fund is independent of environmental conditions and is driven only by water used inside the home. Stutsman next summarized the Stormwater Fund. Operating revenue increased due to a rate increase. Expenses increased due to repair and maintenance costs. Operating income fully covers depreciation expense, which is not always the case for an infrastructure heavy fund. Case asked if the fund balance amount is at a responsible level. Ellis confirmed all utility funds are at a responsible fund balance. Stutsman next discussed the Liquor Fund. 2023 sales and cost of sales are consistent with 2022. The gross profit percentage is 29.8 percent, higher than the metro municipal average. Cash and unrestricted net position are increasing. Case asked how much money is transferred from the Liquor Fund to the CIP. Getschow confirmed $800 thousand is transferred from the Liquor Operations Fund to the CIP. Nelson asked if adults are consuming less alcohol. Getschow noted THC products and beverages have cut into craft beer sales. Alcohol sales may be affected next year when dispensaries open. EP Liquor is on track to sell the same amount or better in 2024. Toomey asked how many liquor stores Edina has. Getschow confirmed Edina has four liquor stores. City Council Workshop Minutes May 7, 2024 Page 3 Stutsman explained the tax capacity increased at a greater rate than the tax levy, resulting in a decreased tax capacity rate in 2023. Getschow noted tax rates are decreasing as development and value increases are outpacing levy increases. The City is experiencing the largest tax rate decreases in the past decade. 2024 is also expected to have a tax capacity rate decrease. Case stated the City experiences three to five new developments each year, resulting in the tax base growing faster than the levy. The Council thanked Stutsman for her time. II. FINANCIAL POLICIES Wilson explained the City’s financial policies. These policies assist in long-term cost-effective provisions, ensure the City provides accurate and timely information, ensure legal use and protection of City funds, and protect the City’s credit rating. Financial management policies include developing a two-year budget, adopting a balanced budget, using one-time revenues for one-time expenses, providing for adequate maintenance and replacement of physical assets, maintaining a budgetary control system to ensure adherence to the budget, and preparing quarterly financial reports. Nelson stated the City was in a difficult financial position in her first two years on the Council, and commended Wilson for her team’s efforts. Wilson explained revenue policies. The City conservatively budgets annual revenues. Building permit revenue is budgeted excluding large one-time projects. The City budgets 89 percent of the amount levied for tax revenue to account for delinquencies. The City has had a low delinquency rate in the past ten years, under two percent. Case asked if delinquent taxes are collected in future years. Wilson explained appeals can result in tax credits. Getschow added unpaid taxes will eventually send a property into delinquency. Case asked if the City’s uncollected tax rate is comparable to other cities. Getschow noted large metropolitan cities may have a larger delinquent tax rate, but comparable suburban cities usually collect around 98 percent of taxes levied. Wilson stated the City eventually collects an average of 99 percent of the tax levy, the remaining portion is adjusted due to appeals. The City sets utility fund user charges at a reasonable rate to fully support costs. A rate study was completed in 2017 by Advanced Engineering and Environmental Services, Inc. The study projected rates for the City to ensure operating and capital needs are met over the next ten years. To date the City has followed the projected rates. Wilson explained the accounting, auditing and reporting policies including establishing and maintaining a high standard of accounting practices in conformity with GAAP, hiring an independent audit firm, and attempting to maintain the Certificate of Excellence in Financial Reporting from the Government Finance Officers Association. The Certificate of Excellence has been received every year since 1990. Wilson next explained the debt policies. The City will confine long-term borrowing to capital projects with a life of more than five years that cannot be financed from current revenues. The City will attempt to keep the maturity length of general obligation bonds below 20 years, and retire at least half the principal amount within ten years. The length of a debt issuance should City Council Workshop Minutes May 7, 2024 Page 4 never be longer than life of capital asset. The total debt levy paid by general obligation taxes shall remain under 15 percent of the general fund budget (the current level is five percent). No variable rate debt will be issued. Future debt issuance will be planned through the CIP process. The City will maintain a pay-as-you-go program for capital purchases. Wilson summarized capital improvement policies. The City will develop a ten-year CIP for projects over $25,000 and will update the plan every two years. Case noted estimates for recent projects, including the outdoor athletic facility and police remodel, were significantly higher than initial projections and asked for the cause. Getschow explained significant inflation is a phenomenon of recent years. The City has completed seven CIP cycles, only recently have estimates been significantly higher than initial projections. Projects going out for bid currently are seeing estimates back at a normal level. Case asked if the City trends costs, for example fire trucks. Gerber stated the City does attempt to trend prices, however the recent cost of a fire truck market-wide has increased exponentially past trend lines. Freiberg asked if the salvage value of a firetruck has increased. Gerber noted a secondhand fire truck can be sold for slightly more, but not a significant increase. Wilson explained the liquor fund is a dedicated funding source for the CIP. The liquor fund has contributed over $8 million of profits to the CIP in the past ten years. Excess general fund balance is also transferred to the CIP. The average transfer from the general fund to the CIP fund is $2.8 million over the past five years. Case noted every tax dollar is put to use, no surplus dollars are stashed away. Wilson explained the general fund fund balance policy is to retain 50 percent of next years budgeted tax revenue as the City receives tax payments in June and December. Additionally ten to 15 percent of next years budget is retained as a contingency. In 2023 $33.6 million was retained in compliance with the fund balance policy, the remainder was transferred to the CIP. For utility funds, the balance retained is a combination of 90 days of operating expenses, next year’s debt payment, the average of two years of capital expenses, and unspent Water Access Charges (WAC) and Sewer Access Charges (SAC). Case asked why WAC and SAC dollars were retained. Ellis stated WAC and SAC dollars are retained for expansion of the utility infrastructure systems. All three utility funds comply with the fund balance policy. Case asked what percentage of households have received a new water meter. Ellis confirmed 17 thousand of 18 thousand households have received a new water meter. There are roughly one thousand remaining commercial meters to be upgraded. The Council thanked Wilson for her time. Open Podium - Council Chamber (6:30) III. OPEN PODIUM IV. ADJOURNMENT