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HomeMy WebLinkAboutCity Council - 11/29/2005 - Workshop APPROVED MINUTES COUNCIL BUDGET WORKSHOP TUESDAY, NOVEMBER 29, 2005 CITY CENTER 6:00 PM, HERITAGE ROOM II CITY COUNCIL: Mayor Nancy Tyra-Lukens, Councilmembers Brad Aho, Sherry Butcher, Ron Case, and Philip Young CITY STAFF: City Manager Scott Neal, Police Chief Dan Carlson, Fire Chief George Esbensen, Public Works Director Eugene Dietz, Parks and Recreation Director Bob Lambert, Community Development Director Janet Jeremiah, Finance Director Sue Kotchevar and Recorder Deb Sweeney I. PURPOSE OF MEETING Mayor Tyra-Lukens called the meeting to order at 6:02 p.m. She explained the meeting would examine the budget and attempt to come to a compromise all Councilmembers could support. She noted the meeting was not a public hearing and there would be no vote. Tyra-Lukens thanked residents for their input and noted public comment could continue at the Truth in Taxation Hearing and right up to the vote on December 13"'. II. PRESENTATION OF BUDGET ALTERNATIVES City Manager Scott Neal gave a presentation outlining the budget process,budgets and levies in prior years, a review of neighboring cities' levies, and four budget alternatives. Neal noted the budget process had begun in May and had been through several discussions since being presented to Council on August 9. Budget increases for the past ten years ranged from an 8.2% increase in 2002 to a 1.4% decrease in 2003. Levy increases ranged from 16.2% in 2002 to a 0.7% decrease in 2003. He noted which years the city was subject to levy limits imposed by the legislature. Based on census data, the City's population has increased by 12,000 people (4,600 households) since 1996. Last year, the number of households increased 3.0%. Neal explained this year's implicit price deflator, an index produced by the Bureau of Economic Analysis to measure increases in the cost of living, is 5.1%, the highest in ten years. Neal also reviewed increases in home values and explained the City does not get a windfall from increasing property values. For example, a median home valued at $161,000 in 1996 paid $3,318 in property taxes, but the median home in 2004 was valued at$310,000 yet paid $3,615. Regarding what neighboring cities are levying, Neal said these comparisons are hard to make because all cities are midway through the process, just like Eden Prairie. However, he cited figures from the Star Tribune projecting levy COUNCIL WORKSHOP MINUTES November 29, 2005 Page 2 increases averaging 11.08% in thirty western suburbs and 9.2% statewide. Neal noted the original budget proposal was below both these averages. Neal then presented four alternative budget scenarios: ➢ Scenario la: The original budget scenario used in the Truth in Taxation notice, which was sent to citizens, generating an 8.4% increase in the budget and an 8.6% increase in the levy. ➢ Scenario lb: Same as Scenario la, minus the debt service levy for Fire Station No. 4, which will be levied in 2007 due to a decision to defer construction. Neal characterized this budget as the "status quo," which would generate a 7.5% increase in the budget and a 7.4% increase in the levy. ➢ Scenario 2: Same as Scenario lb, with General Fund reductions of$200,000, a $252,709 reduction in the CIP levy, and a transfer of$215,000 from the budget stabilization fund. This was the scenario presented at the November 15 Council meeting. The major impacts would be decreasing CIP funding back to 2016 instead of 2019 and loss of flexibilityno major operational changes. Scenario 2 would generate a 6.2% increase in the budget and a 4.8% increase in the levy. ➢ Scenario 3: Same as Scenario 2, except the General Fund reductions are increased to $552,658. Impacts would be the same as Scenario 2,plus cuts in fire staff(90 vs. 95 needed), finance division staff cuts, a reduction in human services grant funding to a 3% increase instead of 5%, delaying a fire engine purchase, cutting $100,000 from the Comp Plan, eliminating new police equipment and new street lights, and reducing the contingency fund from$100,000 to $50,000. Scenario 3 would generate a 5.2% increase in the budget and a 3.5% increase in the levy. ➢ Scenario 4: Same as Scenario 3, except the General Fund reductions are increased to $717,458. This generates a 4.7% increase. This scenario would have all the same impacts as Scenario 3, except there would be 87 fire staff instead of 90, human service grants would be capped at 2005 levels, one FTE in police and one FTE in Streets would be eliminated, asphalt street overlays would be reduced $94,000, engineering design assistance reduced $10,000, and the fuel budget reduced $25,000. Scenario 4 generates a 4.7% increase in the budget and a 2.8% increase in the levy. Neal stated he continued to recommend Scenario lb (his original budget minus the Fire Station No. 4). He reviewed proposed spending by category, noting the big drivers in the increase are wages and benefits, facilities maintenance, and fire operations. Tyra-Lukens asked if there were any changes in employment levels. Neal said there are three new positions: a rental inspections position proposed to be covered by user fees, an immigrant services position formerly covered by a grant, and an assistant fire chief. COUNCIL WORKSHOP MINUTES November 29, 2005 Page 3 Neal showed two-year projections, noting the lower levy increases in 2006 were associated with projected higher increases in 2007. Neal also noted if the parks referendum is included, both the budget increase and the levy increase are higher (about an additional 3.2% increase in the budget and an additional 4.2% increase in the levy). III. BUDGET DISCUSSION Neal invited Councilmembers' questions and comments. Tyra-Lukens said the main directive of the Council had been to see budgets at a 4% and 5% level of increase and to see the impacts of those reductions. She asked for reactions. Aho expressed disappointment the 4% benchmark came in at 4.7%. He had hoped costs could be reduced more without impacting service. He opposed cutting police. It seemed like any department with increases over 4.7% received cuts across the board while other, like parks and recreation, went untouched. Aho said there should be more than $50,000 in savings in legal services. Young expressed a desire to talk about Scenarios 2, 3, and 4 but questioned whether the discussion would be productive. He asked if the Council were willing to discuss options other than Scenario lb. Tyra-Lukens asked if he meant"going beyond" in terms of budget reductions, or levy reductions. Young said the budget is issue#1 before considering levy impacts and Aho concurred. Case said he was uncomfortable bringing the budget much lower than Scenario 2, but the levy could be negotiable. The budget drives future levies,but with the City growing it is not unreasonable for the budget to grow. Case said legal service cost reductions have been examined for four years and they are no silver bullet. If the Council does not have confidence in the City Manager to run the City, a $32 million dollar business, they should replace him. Case said he was comfortable with Scenario 2, but noted it would only save most households a couple of bucks a month, which would be swallowed up by the 30% increase in the school levy. The reduction may not generate enough tax relief to make the reductions worthwhile. He regarded 6.2% as the smallest workable budget increase. Tyra-Lukens agreed the budget should be protected but the levy could be negotiable. Cutting City services is a strategic issue and should only be considered with balanced citizen input. Tyra-Lukens said she was not hearing an outcry for service reductions. She was willing to discuss adjusting the levy but not reducing the budget much past Scenario 2. Case concurred. A levy reduction could at least perceptually help with the "perfect storm" of taxes in a year when the school levy is going up 30% and the county levy up 5.5%. The city's role in that is very small but the levy increase could be adjusted, perhaps to 3.8%, and provide some relief. Tyra-Lukens said the 6.2% increase was already a compromise position for her. The City has deferred maintenance needs and the CIP is important to preserve. The City needs to be a good steward of its roads,parks,buildings, and infrastructure. Butcher said cutting COUNCIL WORKSHOP MINUTES November 29, 2005 Page 4 facilities maintenance constitutes micromanagement. She said other cities try to steal Eden Prairie Staff because of their competence. With ten meetings on the budget so far, Council has done due diligence. The Council should avoid line-by-line reductions and let Staff do their jobs. Butcher suggested readdressing the legal services budget, since there still appeared to be dissent. Neal explained legal services are divided into two approximately equal areas: civil and prosecution. Both are outsourced to the law firm of Gregerson Rosow. Neal said he had surveyed police and found them to be very satisfied with prosecution services. In addition, cost comparisons suggested bringing legal services in-house would be more expensive. Minnetonka employs six full-time attorneys at a cost of$606,700 to do all its civil and criminal work. They estimate $388,000 of that is prosecution. Bloomington has 8 attorneys at a cost of$857,000. In contrast, Eden Prairie spent $280,000 last year, despite the fact that Eden Prairie's activity levels (generated by police) are 7% higher than theirs and growing at a faster rate. Neal said Gregerson Rosow had agreed to grant a fixed fee contract of$240,000 plus hourly rate for jury trials (usually only 2-3 per year). Neal characterized this as a good deal for the City. Young said the comparison to both cities was invalid since both have bloated legal budgets. If one contracted lawyer can handle the workload, so can a single in-house lawyer. Companies invariably go in-house when they get big enough because it is cheaper. He was flabbergasted Minnetonka's budget was so high. Case asked if there were data on other cities. Neal said not as detailed. He noted there were no cities with a single practitioner. Aho suggested looking at other cities that contract services. Among them, Eden Prairie is #1 in service costs but only#4 in population. The civil side should stay with Gregerson Rosow because the institutional knowledge adds value,but the prosecution side does not. Even hiring two FTEs at salaries paid by Minnetonka and Bloomington ($49,000 to $78,000) would be cheaper than a$240,000 contract fee. Kotchevar noted those figures need to be grossed up 30% for benefits and overhead. Young said even then, the city should be able to hire a lawyer for less than $100,000. Prosecution for the City is commodity legal work. Case said he was convinced on some level,but noted that even if the city hired two lawyers for$70,000 each and added benefits and overhead, the cost would be close to $200,000. That is not enough savings to solve the current budget issue. Case recalled this Council had had to make up for the previous Council's imprudent use of one-time revenues and cautioned against making the same mistake. Case said he was getting a lot of feedback to keep programs and services. It's important to maintain Eden Prairie's great quality of life. Young asked to refocus on the absolute budget figures. Council asked its members to suggest specific cuts six weeks ago, which he had done with some mixed feelings. He asked if the Council was interested in reducing the budget, or not. COUNCIL WORKSHOP MINUTES November 29, 2005 Page 5 Tyra-Lukens said when she first joined the Council, she had spent a lot of time trying to look at absolute budget figures and make comparisons to other cities. Eventually, it became clear it would be impossible to control for all the variables in service levels and accounting. An "executive dashboard" approach, where Council looks for things that are out of line, is more appropriate. Tyra-Lukens said she didn't like her tax bill either, but the City's budget is not out of line. Far from ramping up services, the City is barely covering wage and salary increases. In addition, even if the City cut its budget in half, there would be little meaningful impact on residents' taxes. Aho disagreed, saying the budget is out of line. The economy is not growing at a 6-8% level. Lots of companies, including Northwest, Ford, and GM, are making pay cuts. Increasing taxes can also reduce quality of life. Case said that would be true if the city's dollar increase was significant,but it isn't. Even if the City kept its levy flat at a 0% increase, the average homeowner would only gain an extra $2/month and the City would have to slash its budget to get there. Young asked if the Council should just rubberstamp the budget then. Case said the Council had moved toward a compromise and reduced the budget. Young countered that the reductions were only $200,000, with the rest being deferrals. Case said the only area Young had suggested for a cut was legal services. Aho said more could be done in facilities. Some items are priority three yet scheduled to be done immediately. Neal said facilities were a separate budget item and wouldn't affect the budget increase. Case expressed concern over cutting the CIP when the City projects it is $50 million short for roads. Butcher said Council agreed in April to protect the CIP and taking money from it represents a change that seems tactical when it should be strategic. Tyra- Lukens said a change in philosophy could be made next year with input from a random sample of citizens. Aho said citizens are present tonight. Tyra-Lukens said it needs to be a random sample to represent the whole community. Young said his suggestions had not been responded to adequately. He asked again if the Council would vote for any budget other than Scenario lb. Young said he was perfectly willing to incorporate any number of the listed reductions plus others. He proposed adopting Scenario 3 and also cutting conference and travel costs in half, eliminating the new human services FTE, reducing attorney fees by $100,000, and cutting Council salaries in half. Aho asked how many of the fire staff would be tied to the new fire station. Fire Chief George Esbensen said the assistant fire chief and rental inspector positions were workload-related and not tied to the new station. Volunteer staff needs to go from 75 to 95 to support the 41h station. Aho asked why they are needed since the new station is not being built. Esbensen explained volunteers have about an 18-month learning curve to develop proficiency. If ground breaks this spring, the station would be operational in late 2006 or early 2007. Failing to bring on staff now would mean they would not be fully trained until 2007-2008. COUNCIL WORKSHOP MINUTES November 29, 2005 Page 6 Case questioned how much savings Scenario 3 would generate if police and fire are left untouched. Even if the budget were still reduced to 5.2%, the residents wouldn't get much. Case said his house is around the median and he would save $33/year, or 0.87% of his total tax bill. Impacts on services, like cutting the immigrant services position, would be felt much more. Case said the city has increased its population and the cost of living increase is high, so it is reasonable for the budget to go up. Aho said the relationship is not linear. Case agreed but said the City is not increasing its budget linearly. Looking at other cities, the budget increase is not outlandish or unsustainable. Case proposed using additional budget stabilization funds to reduce the levy increase to 3.8% and thus alleviate tax concerns. Tyra-Lukens agreed immigrant services are valuable, noting 50% of the City's 911 calls now come from non-native speakers. The immigrant service position provides a safety net that is a small investment to prevent future problems. Young said he had visited the immigrant services program and agreed it was valuable, but still asked if they were something a suburban community should have. No other city has them. Young said Eden Prairie isn't wildly wasteful,but can do better, and $200,000 is worth saving. Case noted the budget increase had already been reduced from 8.6% down to 6.2%. Other cities also do not have the 2nd largest Somali population, as Eden Prairie does. Case said all the cuts in Scenario 3 are bad ideas. Reducing the Comp plan would impede citizen input. Butcher noted Eden Prairie used to participate in a consortium to provide immigrant services, so other cities do in fact provide these services. Hennepin County is not providing them. Butcher said Council has to consider all groups—if we worry about Northwest pilots' issues, we need to consider immigrants also. The City has a chance to make a positive impact on the front end. Tyra-Lukens said Council directives to Staff over the past ten years have helped them be creative and collaborative, form public-private partnerships, and do more with less. She felt confident Staff had done this efficiently. Aho expressed concern about using levy reductions to hide budget increases. Tyra- Lukens agreed using budget stabilization funds feels uncomfortable. She noted a lower levy now generates higher levies in 2007. Aho said that didn't have to be true. Tyra- Lukens suggested the funds could be used to make the tax statement more palatable this year, and the Council could delve into questions about the role of the City next year. Case said the revenue stabilization fund was designed for this kind of use. The City was very conservative to establish such a fund. He proposed taking $500,000 from the revenue stabilization fund (to go toward one-time smaller expenditures such as office equipment) to get the levy down to 3.8% to provide relief from outside tax impacts. The budget would stay at a 6.2% increase to preserve quality of life. Kotchevar noted using one-time funds to balance the budget would be against the City's financial policy. The City does incur these types of expenses every year. Case said Council must be careful not to dip into these funds too freely,but the revenue stabilization fund was created for this purpose. COUNCIL WORKSHOP MINUTES November 29, 2005 Page 7 Butcher said $500,000 would be too much to draw from the fund. $215,000 would be acceptable. She did not feel compelled to get to 3.8% if it meant making poor decisions for the future. Case noted the Council had already agreed to reduce the fund from 18% to 15%. Neal clarified the reduction from 18% to 15% yielded $980,000, of which $215,000 would be transferred to the general fund in 2006 and another$215,000 in 2007. The balance would go to the CIP. Butcher noted taking more from budget stabilization fund would therefore impact the CIP, which is represents savings for future needs. Neal agreed the biggest impact of Scenario 2 is that the CIP would only be fully funded through 2016 instead of 2019, though the City could re-fund the CIP in future years. Tyra-Lukens asked how much money is in the CIP, not including streets. Kotchevar said $11 million. Case said the City also has a projected $50 million of street repairs to complete in the next forty years, which is unfunded. Dietz explained the City has 220 miles of streets, with a value of $250 million. The City invests 1% per year in their upkeep. Just to keep up with maintenance, the City is projected to be behind $50 million. This does not include a total rebuild, which will also eventually become necessary. Young disputed the unfunded claim, saying the City could do a special assessment for streets, like Edina—there are options. The street situation is overblown. Case said the City should not take down CIP savings when it will need that money for critical needs. Young said his suggestions were not being listened to. Tyra-Lukens said they were,but there are limitations. There is a consensus that some money might be saved in prosecution,but not much. Some of the other proposed cuts are strategic in nature and that takes time and citizen input. The City has done focus groups and brought in consultants in the past and could do so again. Though this costs money, it is the only way to get an accurate picture of what citizens as a whole want. Tyra-Lukens noted the CIP did not exist when she joined the Council. The Council budgeted conservatively to create this fund. She was not eager to budge on the CIP to make the budget look lower. Tyra- Lukens said the budget is prudent given inflation and the City's growth and in line with other cities. Young said he did not see the proposed cuts as unreasonable or harsh. Aho agreed it is only a lesser increase, not even a cut. Tyra-Lukens said given inflation, the reality is a cut. The 5.1% implicit price deflator eats up most of the increase and salaries and benefits take up most of the rest. Neal noted that in past years when there were levy limits, the legislature considered the growth in the number of households plus the implicit price deflator to be an acceptable increase to maintain operations without voter approval of the levy. Under that formula, the acceptable increase this year would have been 9.6%. Aho said what's reasonable depends on the city. Neal agreed and said that is why cities successfully lobbied to remove the limits. Case asked why people want to move to Eden Prairie. He said the City already has far lower taxes than its peers. There is a high quality of life yet the taxes are reasonable. COUNCIL WORKSHOP MINUTES November 29, 2005 Page 8 Tyra-Lukens said the budget discussion had helped,but stated it did not seem a unanimous vote would be possible. It was clear the Council will levy less than the taxation statement,but not clear what the levy would be. Some direction is needed for the Truth-in-Taxation hearing. Neal said he would present the outdated original Scenario la, as required, and would then like to present the proposal as it stands now (Scenario 2) based on Council's discussion. Case asked if Neal could also present the modified Scenario 2 with the $500,000 transfer. Neal said yes. He would present the advertised budget, follow up by showing where the Council is now, and then let the public comment. Tyra-Lukens thanked Staff for their assistance. Aho thanked the citizens present for their interest and diligence. The meeting adjourned at 8:18 p.m.