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HomeMy WebLinkAboutBudget Advisory Commission - 08/24/2010 APPROVED MINUTES BUDGET ADVISORY COMMISSION MEETING TUESDAY,AUGUST 24, 2010 6:00 P.M., CITY CENTER 8080 Mitchell Road EDEN PRAIRIE, MN COMMISSION MEMBERS: Chair Don Uram, Vice-Chair Rick King; Commissioners: Annette Agner, Eapen Chacko, Jon Muilenburg, Richard Proops, Gwen Schultz CITY STAFF: Sue Kotchevar, Finance Manager; Tammy Wilson, Finance Supervisor; Janet Jeremiah, Director of Community Development; Carol Pelzel, Recorder I. CALL TO ORDER/ROLL CALL Chair Uram called the meeting to order at 6:00 p.m. All Commission members were present. MOTION: Schultz moved, Agner seconded, to approve the agenda as published. The motion carried, 7-0. II. MINUTES A. BAC MEETING HELD TUESDAY,JULY 27, 2010 On Page 5, the first sentence in the first paragraph under Item IV, Chair Uram said he did not recall making the statement regarding specific areas the BAC would like to look at. The Commission agreed to delete the sentence "Uram said the BAC has identified specific areas the BAC would like to look at related to the upcoming budget" from the minutes. Uram also suggested the last sentence of the fifth paragraph under Item IV be changed to read "Ultimately the City Council gives the City staff direction". MOTION: Motion was made by Chacko, seconded by Proops, to approve the minutes from the July 27 meeting as amended. The motion carried 5-0-2 with Muilenburg and Agner abstaining because of absence from that meeting. III. UTILITY RATE STUDY FOLLOW UP Chair Uram reported at their last meeting, the Commission met with the Public Works Director and the City's consultant for an in-depth report on the City's Utility Rate Study. The Commission was given the opportunity to review the study and to present their comments for City Council consideration. Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 2 Chacko said he had submitted an e-mail to Kotchevar and Chair Uram that included a spreadsheet analysis of the proposal, along with a memo outlining his questions and concerns. Chair Uram noted that the analysis and memo had not been circulated to other BAC members. Overall, Chacko felt that the proposed rate structure seems regressive, in that it imposed significant percentage increases in rates for low and moderate level users, while it produced a small share of total revenues from biggest tier of users. He noted that the marginal rate structure flattened out through the tiers, whereas some other municipalities for which he had attached an example, had increasing marginal water rates throughout. Also,he is concerned with the significant buildup of funds from this rate structure, which in the end seemed to do little to encourage conservation from the users who put the biggest demands on the system. Chacko said he would also like to see 10 percent of system losses through leaks addressed upfront, especially through free or subsidized residential home audit and leak repair programs. This would also deploy some of the funds being built up to improve the system's performance. Muilenburg asked if Chacko feels the structure should be raised at the highest user tiers. Chacko responded that the entire structure should probably be run on a different scenario to achieve a balance between revenue raising and conservation. Kotchevar asked if Chacko is suggesting they send the report back to the consultant to run a different scenario or does he have a number he would like staff to look at. Chacko said he did submit his comments to Kotchevar and he does not know what the next step should be. He would like to meet with the consultant to get his questions answered. Proops suggested Chacko meet with the consultant and then report back to this Commission. Kotchevar explained staff will be presenting this Commission's feedback regarding the study to the Conservation Commission on September 14 and then to the City Council. Once they receive City Council feedback the consultant and City staff will take that input and determine what makes most sense based on that feedback. Proops said he was impressed with the consultant's proposal and experience. He feels the report was done very professionally and he does not believe there is any place they can second guess them. He feels they should accept the report and move on. Kotchevar asked if Chacko is suggesting they raise all of the rates the same amount. Chacko said he does not know what the rate study is supposed to do. This proposal suggests they raise a considerable amount of funds and he is questioning if those funds will just sit there or will they be used to replace or upgrade the utility system. Kotchevar said the report looks at the life of the infrastructure. As the rates are increased, additional money will go into those funds and they will be used for on-going replacement and maintenance. The study shows how much money will be needed for replacement. Kotchevar also noted in response to a question that any funds built up for the utilities probably should not be used for general budget purposes and that has been the City's policy. Proops pointed out the analysis indicated the consultant looked at each piece of pipe installed and at replacement of those pipes and projected the funds needed for replacement. The second part of the proposal was to determine the reserves that will be Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 3 needed for the replacement. Proops said he depends on this report since the consultant has the experience of working with similar municipalities and they know what they are doing. Chacko said even with the proposed fund balance, he is questioning if that is what they are going to need. He was surprised with some of the balances and the way they were built up. He would like clarification on the fund balances. Kotchevar explained the five- year projection gets the City to a reasonable goal and the study will be updated every couple of years. As they obtain experience, the rates can be adjusted so the balance doesn't grow too big but there are reserves on hand. They are only focusing on a five- year period. King said he is comfortable with the proposed balances and the way they are generated. They need to start generating funds for replacement. Motion: Motion was made by Proops, seconded by King, to approve the report and Chacko and anyone else who would like could study the rates further and if desired, tweak the rates after the report is approved by this Commission. Schultz said it was her understanding that they are just making comments regarding the report to be forwarded to the Conservation Commission. Uram said staff is looking for their feedback and it was his understanding that there was general acceptance of the report at their last meeting. In general, this Commission is supportive of this report, however, there are some things that need to be looked at and it is up to the City Council to do that. The conservation piece is important and he would like to see additional information about conservation included in the study. Uram explained the rates and use of funds are based on the experience of the consultant and the City needs to set money aside for infrastructure reconstruction. Chacko said he is uncomfortable approving something he does not understand and he is struggling with what they are trying to accomplish. Uram said he is not sure staff is asking this Commission to approve the report but to rather support the work that has been done. This Commission has made suggestions for additional information and that should be forwarded to the City Council. Schultz pointed out the report did not address how irrigation revenue covers irrigation expense. It did address what it would take to make the difference up so that cost and revenue matches, however, the report did not suggest how to get more in line. Kotchevar explained with the tiers they are closer to matching the planning period in a year and what it needs to be. The report should include more detail on what it would take to do that. Schultz said the scenario gives them a single tier under residential while commercial is not tiered at all. Kotchevar explained regular commercial accounts do not have tiers while commercial irrigation does. The City's philosophy is commercial should not pay a water surcharge for water used to do their business. Muilenburg asked with regard to conservation if there was any discussion about restructuring water usage during peak times for commercial properties or any suggestions Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 4 for alternate water sources to offset peak usage. Uram said there was not. Muilenburg said this would reduce the burden on the system and looking for alternative water sources for irrigation might be a reasonable approach. Chacko said he likes the idea of accepting the principle of the report to build funds rather than approving the report since he has some issues with the report. He does recognize what has been done but feels they need to revise the scheme to build reserves for replacement. Chacko said he would like to continue to give input as the process evolves. Motion: Chacko moved to amend the original motion to acknowledge this Commission received and reviewed the report of the Utility Rate Study and agree there is a need to build up future reserve funds for replacement and to improve the utility system and to change the rate structure and to continue to look at the discussion and perhaps give other input as the process moves forward. Uram seconded the amended motion. Schultz asked Chacko what additional things he would like to see done with this report. Chacko responded he would like to better understand the report and see if his concerns sent to Kotchevar are accounted for. He said he is not asking this Commission to do additional work. Chacko said he has provided staff with input and he would like to follow up on that. Muilenburg said he understands Chacko's concerns and asked if what he wants to see is how alternate rate structures would work over a five-year period. Schultz suggested they pass on this Commission's recommendation with the understanding that they agree with the report in general but have some things that still need to be reviewed. King said he would support the amended motion. This Commission can continue to look at this report and additional recommendations made by other groups. Kotchevar said this Commission's input would be forwarded to the City Council as well as input from the Conservation Commission. King said the amended motion says this Commission supports the report but there are some things they want to follow up on. He asked that the Commission be informed of any additional information Chacko receives from the consultant. Motion: King moved to amend the amended motion by adding that this Commission recommends that the Conservation Commission look into how the rate structure facilitates conservation. Muilenburg seconded the motion. Vote was called on the amendment to the amended motion with all members voting aye and the motion carried 7-0. Vote was called on the amended motion with all members voting aye and the motion carried 7-0. IV. EDEN PRAIRIE COMMUNITY CENTER FOLLOW UPUram reported the Commission had received a memo from Jay Lotthammer, Director of Parks and Recreation, explaining what is happening at the Community Center and the changes needed. Uram said he took the opportunity to tour the facility and briefly reviewed the history of the Center. Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 5 Kotchevar explained discussion of the Community Center was an item on the Commission's work plan. If needed, they could ask Lotthammer to attend the next Commission meeting to answer questions. Proops said he would like to know what the income is from certain activities versus the cost. Uram pointed out there is a revenue and expense sheet on the back of the memo. Proops said it does not tell them what it is costing the City to run a particular program and if the programs are breaking even. He questioned which activities are being subsidized by the City. Proops asked for a detailed report on expenses and income of the various activities. Uram explained each activity does not have a line detail. He suggested they delay discussion of this item until the next meeting to give the Commission the opportunity to review the memo received. Kotchevar explained Lotthammer previously discussed cost recovery with the Commission and explained all programs met or exceeded cost recovery. Proops pointed out expenses at the Community Center equaled over$3 million and he questioned how much of that is offset. He said he would like a breakdown by activity. Uram explained as a Commission, they discussed early in the year how they wanted to look at big picture items. They have since gotten into greater detail with the utility study and now into specific areas of accounting for the Community Center. He questioned if this is the direction the Commission wants to go in or should they keep it at a higher level. Proops pointed out a budget report provided to them from Kotchevar showed a$1 million difference between revenue and expenses at the Community Center. He feels they need to know specifically where those differences are. Muilenburg said he is not necessarily interested in seeing the specific classes but perhaps programs as a whole. Uram asked if it would be acceptable for staff to provide the Commission with the top ten items with budget variances. Proops said that would be fine with him. Uram asked Kotchevar to prepare a report showing the top ten items on the revenue and expenditure side where there are variances. Agner asked how much of the difference is non-allocated overhead. The Community Center is a big structure and there is a lot of shared staff. She questioned if the information provided at the activity level would get them the information they needed. Agner is concerned staff would devote time and effort on a report that would not show them anything more than what they already have. Kotchevar explained the Community Center Manager's time is coded to one activity and they do not allocate time to other Community Center activities nor do they allocate other staff members time to the various activities. Agner suggested they look at the top ten items and non-allocated items and omit overhead unless it is allocated out. Chacko asked if they knew how much revenue is generated from membership fees. It appears membership is growing relatively slowly, especially to plan, while expenses continue on a stable slope. Kotchevar said she does not have the numbers but knows staff has been pleased with membership growth. She understands initially membership has Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 6 done better than anticipated. Chacko pointed out that the third ice sheet also appears to be underperforming. Uram asked Kotchevar to prepare the information requested and that this item be brought back to the next Commission meeting for further discussion. V. CAPITAL IMPROVEMENT PLAN Kotchevar provided the Commission with a listing of Capital Improvement Projects (CIP)by year and priority for 2011 thru 2015 as requested by staff. She asked what the Commission would like to do with the CIP. She indicated there will be a joint meeting with the City Council on November 17 at which time they will discuss the CIP. Uram asked how the priority process is handled. Kotchevar explained staff asked Department Directors to prioritize their projects. The priorities are categorized as Health and Safety, Maintenance, New, and Necessary in Relation to Other Contracts. Uram asked if each individual project is prioritized within each category. Kotchevar said they are not but are listed by Department. Uram asked if all of the projects are funded in 2011. Kotchevar responded there are funds in the Capital Improvement Fund. However, there are not sufficient funds to fund all of the projects for the five-year period. At the end of the five-year period they have a negative balance of$1.9 million. Uram asked if this CIP takes into account the implementation of the new utility rate structure. Kotchevar responded it does. Uram said it would be very helpful to see the funding sources for the various projects. King suggested they remove those projects that have outside funding sources from this report. He said the report should include those projects the City has control over or pay for with City funds. However, they don't want to lose track of the projects the City doesn't pay for. King said he wants to know how much money the City has available for the projects and the priority of these projects assuming there are more projects than there is funding. This report doesn't show them the funding amounts and how much is available in each fund. Muilenburg said it would be helpful to see the funding sources and how much they can do with the available funding. Proops said in terms of cash flow they don't know what is available and what they will spend. King suggested they ask staff to assemble fund balances, to prioritize projects against fund balances and to recommend they spend within those balances. King said it is difficult to comment on this plan when the projects have not been prioritized by staff and not knowing what funds are available. Uram asked if this information can be obtained. Kotchevar said she would talk to the City Manager and the Department Heads about prioritizing the various projects. Uram said in looking at some of the projects prioritized by department they are mandated by certain laws and funding sources. Muilenburg suggested they revise the CIP to make it department independent. Cross departments may have different priorities. Just because Priority A is the first priority in one department does not mean in another department a Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 7 Level 3 is a higher priority. There are only so many funds available. Uram said it appears the projects are more related to funding than to the department they are in. Kotchevar explained projects were prioritized based on available funding. Their goal is to fund for a five-year period and right now they are not doing that. The Capital Improvement fund is $1.9 million short after five years because of a limited capital levy. The big question is what happens after that five-year period when no funds are available. Kotchevar said she will look at preparing a report showing funding sources and provide that information to the Commission at their next meeting. VI. 2011 OPERATING BUDGET Uram said he participated in the City Council's budget workshop. The memo prepared by this Commission was submitted to the City Council. There was very little discussion about the 2011 operating budget. They reviewed market values for residential and commercial/industrial property. The City's 2011 budget has a$1.6 million difference between revenues and expenditures. It was reported there is a 3 percent reduction in residential property for the next two years and higher for commercial property. Council Member Nelson asked if they need to have two times coverage for severance and accruals for PTO's. The Council seemed hesitant to do anything with that. Council Member Duckstad did bring up the Commission's memo and memo from Commissioner Proops. The Council did talk about maintaining staff wages as recommended. Proops said his memo on how to balance the City's budget was ignored by the City Manager because it was not from the entire Commission. His memo included some recommendations to potentially reduce the budget by $4 million and he would like to discuss those recommendations this evening. Proops said the fire duty crew included in the current budget adds an additional $240,000 to that budget with an additional $340,000 being added to the 2011 budget. Proops said he does not understand how they can spend $340,000 on volunteer fire pay unless they are paying standby wages. If that is the case, this is something the Commission should look at. Another large expenditure is employee medical insurance and dental cost. Proops said he feels the increase for these insurance costs should be borne by each employee. The budget for this increase is $175,000 and the City currently pays all basic medical cost. This is also something they need to look at. Proops said his memo also included a two percent cut across the board for an additional $600,000 resulting in a total decrease of the 2011 budget of$1 million. These items were not discussed by the City Council. Schultz asked if the City Council made any suggestions as to what this Commission should look at for the 2011 budget. Uram said he did not hear any suggestions by the Council to the Commission. Proops said the City Council indicated they want to arrive at a no increase budget and he believes this can be accomplished by considering his suggestions including the payment of the increase in medical costs by the employee. Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 8 Uram explained a motion at a previous Commission meeting was made recommending a flat budget including a two percent wage adjustment. Uram said the Department Heads are in the best position to determine how this can be accomplished and what cuts should be made. Uram questioned if this Commission wants to get into the detail of the budget by providing line item information to the City Council or to maintain a higher level recommendation. Chacko said they have made a recommendation and the process will move forward. He asked if the City Council and/or staff can't balance the budget what would happen. Uram said the City Manager works for the City Council and the City Council would direct him to reduce the budget and in turn the City Manager would direct the Department Heads to reduce their budgets. Chacko said if that doesn't happen they may want to consider forwarding recommendations for possible cuts to balance the budget. Muilenburg said historically the process is where the City Council gives direction on the budget and the City Manager works with the Department Heads to reduce the budget. He said a challenging topic they may want to consider is the uncontrolled increases in health care benefits. Muilenburg said he would like to recommend this Commission encourage the City Council to consider changing their policy to require some initial contribution or percentage contribution of staff to cover the health insurance increases. Uram said it was his impression that the City Council is very supportive of City staff and Council Member Nelson did not want to balance the budget on the employees' backs. Muilenburg said his recommendation is more of being a partner with the employee rather than a complete funding source. He said he is suggesting the City Council look at this further. King said this Commission did recommend to the City Council a flat budget taking into account the wage increase. They need to know the City Council did tell the City Manager this. Jeremiah explained the Council did tell the City Manager at their regular meeting after the workshop there should be a zero increase and he should look at the effects of the zero increase on customer service and other alternatives. King said it seems reasonable that at some point they may want to submit their suggestions for budget reductions to the City Council and to ask them to consider their recommendations. Also, if they want the City Manager to consider their ideas for budget reductions they should transmit those recommendations to him. They are not saying these are the right reductions but are certainly some that should be considered. King said he also believes they should say something about the levy and when the Council sets the maximum rate on September 7 that number should be as low as they can possibly make it. Schultz suggested Proops memo be distributed to City staff. Proops said there are some other things they don't want to lose track of including Assessing and Dispatch and they need to follow up on those areas. They also need to look at the volunteer fire relief pension and fire duty crew. Proops said they must also keep in mind that there will be a transition in management of the City and he thinks they need to supply some continuity to the incoming people. Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 9 King said if Commission members did not have an opportunity to review Proops' recommendations there is still time to review them and decide if they are reasonable to submit to the City Manager. Kotchevar said they could discuss Proops' recommendations at their September 28 BAC meeting. Uram pointed out the preliminary levy will be established on September 7. Motion: Motion was made by King, seconded by Schultz, to recommend to the City Council no levy increase for 2011 in light of the projected deficits over the five-year period. King said this Commission should be comfortable with their recommendations for cutting $1 million from the budget. However, this list of recommendations is separate from the levy. Chacko said drawing the line on the levy has unintended consequences and puts the City Manager in a difficult position. The City Council has asked for a zero budget and Chacko said the City Manager may have other ideas on how to accomplish that. Chacko questioned if they still have time to come forward with their list of recommendations. Muilenburg said the City Council asked to see a zero budget increase and that option doesn't mean the levy has to increase. There may be other funding sources to take care of the overage. King said they may not need to recommend a zero levy increase. The question is how they get to a zero budget. Uram said he is concerned with the impacts of a zero budget on City operations. He would like to see additional information on what a zero budget would mean and what they would have to do to correct that. This is for 2011 and he doesn't know what it means for future years. Following discussion, King withdrew his motion and Schultz withdrew her second. Uram said the Commission's recommendation is for a flat budget and that should be considered when the City Council sets the levy. King explained a problem is the erosion of property values bringing in the same revenues. Perhaps they could raise the levy enough to cover the erosion of market values. Uram stated there appears to be a general agreement that they move forward the list of cuts prepared by Proops to the City Manager with the official statement of BAC to share with the City's Department Heads. Motion: Motion was made by King, seconded by Proops, to move the list of recommended cuts forward as an official BAC item with the comments to be considered as they prepare the budget and as they consider alternatives. The motion carried 5-1-1 with Chacko voting nay and Muilenburg abstaining. VII. REMAINING WORK PLAN ITEMS Kotchevar asked the Commission if they wanted staff to begin working on a financial comparison with another city such as Eagan or Minnetonka. This item was listed on the Eden Prairie Budget Advisory Commission Minutes August 24, 2010 Page 10 Commission's work plan. Proops said he does not feel they should begin this since it did not originate from this group. This would require more detailed work from staff and the results are almost predictable. Motion: Motion was made by Proops, seconded by Schultz, to not do a financial comparison with other cities. King asked if staff feels the comparisons are useful. Kotchevar responded the results were interesting although they have not impacted decision making. Chacko asked if the City benchmarks itself against other municipalities. Uram said there are a lot of benchmarks for communities. This is probably work, time and effort that could be spent on higher priority issues. Muilenburg said before they dismiss the value of this analysis having one data point makes it difficult to evaluate the value of a study like that. If they had several studies over a course of time they could draw better conclusions. King said in the spirit of eliminating work they should eliminate this project and he would vote in favor of the motion. Vote was called on the motion with all members voting aye. The motion carried 7-0. Kotchevar distributed a report regarding the Assessing Division for possible discussion at their next meeting. VIII. ADJOURNMENT Motion: Motion was made by Schultz, seconded by King, to adjourn the meeting. The motion carried 7-0 and the meeting was adjourned at 8:15 p.m.