Loading...
HomeMy WebLinkAboutBudget Advisory Commission - 09/28/2010 APPROVED MINUTES BUDGET ADVISORY COMMISSION MEETING TUESDAY, SEPTEMBER 28, 2010 5:30 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: Scott Neal, City Manager; Sue Kotchevar, Finance Manager; Tammy Wilson, Finance Supervisor; Jay Lotthammer, Director of Parks & Recreation; Gene Dietz, Director of Public Works; Janet Jeremiah, Director of Community Development; George Esbensen, Fire Chief; Rob Reynolds, Police Chief; Paul Sticha, Facilities Director; Jeff Fletcher, Intern; Jan Curielli, Recorder I. CALL TO ORDER/ROLL CALL Chair Uram called the meeting to order at 5:45 p.m. King, Muilenburg and Schultz were absent. II. MINUTES A. BAC MEETING HELD TUESDAY,AUGUST 28, 2010 Chacko said he submitted an email with several changes to Pages 2 and 3 in order to condense his comments on the utility rate study and put those comments in logical order. He also corrected the spelling of the word "principle" on Page 4, Paragraph 4. He changed the second sentence of Paragraph 3 on Page 6 as follows: "It appears membership is growing relatively slowly, especially to plan, while expenses continue on a stable slope." Kotchevar changed the last sentence of Page 3, Paragraph 1, in Mr. Chacko's corrections: "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." MOTION: Proops moved, seconded by Agner, to approve the minutes from the August 24 meeting as amended. Motion carried 4-0. Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 2 III. CAPITAL IMPROVEMENT PLAN (CIP) Neal noted there are several staff members here tonight to answer questions about individual items on the CIP. He said the BAC has discussed prioritizing CIP projects,but he believes determining the philosophy for capital financing may be even more important than prioritizing the projects. There are key questions such as who pays for a CIP project and whether it is paid for by means of tax or non-tax. He said property tax is a dependable source for financing, but it has low levels of support from the public and elected officials. If we are not able to use tax sources, we need to look at non-tax financing such as liquor store profits, interest income, one-time revenues and franchise fees. He said we might begin a policy of assessing street or other projects to individual residents and businesses that benefit from the project rather than spreading the cost across the community. He thought that might create a lot of animosity and public anger and could be a difficult situation for the City Council. He reviewed four options for capital expenditure financing: raise cash to pay for the project; get creative with non-tax revenue sources; spend our inheritance and pass the buck to the future; or lower our standards so that we do not spend money while the infrastructure deteriorates. Staff does not believe the third and fourth options are examples of good stewardship,but that is a political decision. Kotchevar reviewed a slide with a summary of assets, noting we need to invest about $2,000,000 per year to cover depreciation of our assets, and we need $1,500,000 to $2,000,000 per year to keep our roads up to standards. Uram asked if that meant the City should be spending about $4,000,000 per year to account for depreciation. Kotchevar said that was correct. Kotchevar distributed a spreadsheet summarizing general CIP revenues less expenses for 2001 through 2010. She said staff is concerned primarily about the last three years where we are in a deficit situation. We are going to burn through our capital reserves if we don't replenish them. Neal said staff is concerned about the direction this is going and about the immediate future. Chacko asked what caused the surge in revenue in 2002. Kotchevar said there was some one-time money put into the fund. Neal reviewed pie graphs showing the sources of revenue for the CIP for 2001, 2005 and 2010. In 2001 the City levied an amount that was more than sufficient to cover its projected general fund operating costs, and the balance at the end of the year was transferred into the CIP. That helped to accumulate a healthy CIP balance. In 2005 political leadership judged that practice was not transparent and shifted more towards an individual capital improvements levy. In 2010 the capital improvement funding is included in the budget. Neal noted the total revenue shown in the pie graphs was a little over$2,000,000 in 2001, while the total revenue for 2010 is $1,800,000. Proops said he thought we might clarify the maintenance from new projects because maintenance must be continued. He did not think we can ask the question about the Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 3 philosophy until we know what the maintenance needs are. There are a lot of great projects out there, and we have to know what we can do now and what can be deferred. Dietz said the five-year CIP is a spending plan of about$13,500,000, of which $10,300,000 is for pavement maintenance and management. Proops asked if state aid will take care of traffic lights. Dietz said we don't get it in cash but rather we apply to MnDOT for that. He noted our share of the Hwy 169/494 improvements is in Minnesota state aid. He said there are no new projects included in the Parks and Recreation expenditures so those amounts are just maintenance. He noted the $13,500,000 needed over the next five years is not fully funded. Proops asked if the Major Center Area (MCA) expenditures are included in the total. Jeremiah said there is $800,000 in capital improvements for the MCA for the years 2014 and 2015. The City Council made a policy decision that we would pay 20% of any streetscape and way-finding improvements. Neal noted those numbers are not included in the spreadsheet because that is in the Economic Development Fund. Proops asked what happened to the $8,500,000 project. Jeremiah said that was delayed. Chacko asked if a street utility fund for street maintenance issues makes some sense. Dietz thought that would make sense,but the state legislature won't approve it. We have been trying to do that for 8-10 years. Neal said we have tried to create a street utility that would operate on a rolling basis but it never quite gets through the legislature. Dietz said it is one of those things about who pays. If we finance it through taxes, the taxpayer gets a little push from the federal and state governments to pay for that. Some cities have been forced into funding with special assessments, and some day that may happen in Eden Prairie; however, special assessments are not tax deductible. The cost to maintain the streets will continue to grow as the system ages. Uram said from his perspective the philosophy is important. The maintenance piece is 95% of the overall capital projects and funding sources are limited. Based on the projections, the revenue will not cover it. The question is the priority of the revenue piece going forward and will it come from property taxes or something else. He thought he heard everyone say the maintenance piece is absolutely critical. He asked how Mr. Neal would see the BAC participating in the discussion about the philosophy and what the expectations were regarding the timing. Neal replied it would be by providing the Council some wisdom and options about how you think it should be done. The BAC is in a good position to have that kind of conversation. He hoped it would not get down to doing everything but doing it cheaper as we need a dose of realism in the discussions. Kotchevar said it would be a general recommendation or direction. Proops thought the general direction is that we have to separate the maintenance from the capital expenditures. A couple of weeks ago there were proposals for trails, and he didn't know how necessary those were. The trails were a capital expenditure, and they will have to be maintained in the future. He thought we need to look at which new projects can be deferred or spread out more and not always do bigger and better projects. Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 4 Dietz noted the two trails Mr. Proops used in his example were referendum projects, and we are not talking about that kind of money here. Proops noted the referendum balance has been there a long time. Dietz said the money was there and recently we have seen the cheapest prices ever for construction. Proops noted the total MCA plan would be less if we did it now as well,but he thought we have to convince the City Council we need to slow down and not spend as much. Jeremiah said the Chamber of Commerce has requested a meeting to discuss moving up the MCA improvements to make sure the investment doesn't go into other areas. Neal said he appreciated the topics Mr. Proops brought up. We have talked about these matters a lot,but the trail issue is a good example where we went to the people of this community. The people authorized a number of referendum questions and directed us to get the money and do the projects. That is what we are doing. He said it is a political decision whether we should allow the will of a few people who think these are not necessary to thwart the decision of the referendum. Proops thought bringing up the issue of the referendum is dangerous because the amount for the Community Center in the referendum was $6,600,000, and the cost was twice as much. Neal replied the referendum also said we could borrow a certain amount for the community and that was done. Some of the project was to be funded by bonds and the taxpayers and some by developers and donations. He noted we asked the taxpayers to pay for about half of it. This is an issue where we have the same conversation a lot. He thought it is a question of whether the BAC should make some political decisions or whether we can use the expertise of the commission to give advice on other issues. Agner said it gets a little distracting to talk about the trails and the referendum and not focus on the maintenance piece. The focus should be on the maintenance piece as that is the largest one. She thought the discussion is being diverted from the issues to something more emotional. Uram asked Mr. Neal if he was looking for some type of recommendation. Neal said he understood time is running out this year; however, Ms Kotchevar spent time gathering data from staff after the request at the last meeting. She brought that information tonight, and he thought it would be helpful to have recommendations from the BAC about prioritization and how we want to fund the long term capital improvements in the community. Kotchevar said a comment was made about supporting maintenance in the community and she asked what would be the appropriate way to fund that. The City of Eden Prairie operates with different funds, and this is where it gets very confusing. She said tonight we are talking about a couple of funds where we have the most control over the money. The referendum projects are a different fund with a different authority to spend the money. She said we are talking about the maintenance piece and our general CIP. Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 5 Chacko said the discussion always goes to quality of life when the City Council discusses these kinds of issues. It would be nice to connect quality of life to what is being spent. He thought it is a question of how much quality of life we can pay for. He also thought the City's financial statements could be presented in a simpler way so the average person could see where the money is coming from. That might inform the discussion a little more. Uram said this spreadsheet is very helpful because he couldn't get that out of the big picture. Regardless of the funding source, if it comes back to being a maintenance expense, that would be included in the CIP. He thought that is something we should take into consideration. Kotchevar said the handout summarizing sources and uses of funds gives an overview, and the department heads are here to talk about their priorities. She noted pavement management and parks projects are the primary use of the Capital Improvement Fund (CIF). The information shows revenue sources coming in and projects by year. She said we will have $4,600,000 in the CIF in 2011. Neal noted the bottom number on the first spreadsheet ties to the top number on this one. Uram asked about the tax levy figure. Kotchevar said that assumes we will continue to levy at the same level. She reviewed the projections for revenue from the various sources. Jeremiah noted C. H. Robinson has indicated they will not renew their lease at City Center because they are moving those operations to their new facility. Chacko asked if the liquor profits will go up now that we have more square footage at one of the stores. Kotchevar said it may,but staff just used an assumption to base the figures on. Kotchevar said the expenditures are listed by individual projects. Proops asked about the two engineering projects totaling $900,000. Dietz said that is our share of the road project at Birch Island Road, and there is no source of funding for the Duck Lake Road trail crossing. We periodically get complaints from parents about having no trail for children in that area. Kotchevar reviewed the handout summarizing the Facilities Internal Service Fund, noting the projections show that fund will have a negative balance of about$1.1 million in 2015. She said the IT Internal Service Fund ends up with a positive balance of about the same amount, so we could switch those two;however, at the end of the five-year period there is no future funding. Neal asked how many heat pumps are included in the $75,000 per year projected for City Center heat pump replacement. Sticha said a better description would be mechanical equipment replacement. We have about 260 heat pumps. Proops asked about the direct exhaust systems at the four fire stations. Esbensen said those were expensed, noting those Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 6 systems are something OSHA likes to see. Neal explained those were expensed,but we planned to come back and add those in. Neal asked Mr. Sticha about the new floor for Rink 2. Sticha said that is a sand floor and part of the issue with that type of floor is that the sand and pipes shift when we take out the ice. Each year we spend $5-10,000 fixing pipes and the conditions are getting worse, so we put in an estimate to replace it in 2013. Neal noted this is a good example of the kind of complex projects and timing issues we have to take into consideration. If that rink fails during the hockey season, we are in big trouble. We need to design the project and get bids as the construction timeline is very tight and we can't wait until it fails and then fix it. Lotthammer noted there is no guarantee it won't have a catastrophic failure at any point but this is the best plan. It is definitely not operating as efficiently as it could. Chacko asked if there is any grant money available for that as an energy saving project. Lotthammer didn't think it would qualify under the criteria for stimulus funding. Sticha noted those funds could not be used for ice rinks and pools. Neal thought this goes back to the quality of life issue and how much we can afford. Chacko said he heard from some hockey friends that they had to raise money for the third sheet of ice. Neal said the Hockey Association had to raise $1,000,000. We authorized them to sell naming rights throughout the building, and they got credit for those in addition to the cash they brought in. Uram noted the commission has one more meeting before meeting with the City Council. Neal said November 16 is the joint meeting with the Council. IV. EDEN PRAIRIE COMMUNITY CENTER REPORT FOLLOW UP Lotthammer said in his memo he tried to show a little bit of information about what happened before the expansion and what the revenue and operations were at that time. He said there are two big sources of revenue: memberships and ice time. Both sources are in the $1,000,000 range. Everything else is really little stuff that we try to squeeze as much from as we can. There are opportunities to make a difference in revenue with memberships and ice time revenue,but it goes back to political policy. When the discussion came up about raising the membership rates, we had to be sensitive to how much we charge so we have just gradually increased the rates by about 3% per year. Before that we set a price and stayed with it for a long time. Chacko asked if we know where the market is for ice time. Lotthammer said we are fairly high. Neal noted some have argued there has been an over-supply of ice in the last few years. The hockey associations and parents have been successful in getting political support for building ice sheets. Lotthammer noted the third sheet of ice has somewhat watered down the revenue from the other two. Lotthammer said one half of the expenses go to running the plant, and the other expenses are really program areas that have corresponding revenue coming in. He said the people Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 7 of Eden Prairie have accepted the Community Center and are coming in droves. He noted in 2005 we had just over 500 memberships, and in 2010 there are 2000 memberships. In 2006 and 2007 we got$200,000 in revenue from memberships, and now we are at $1,000,000. He thought we are getting close to our maximum cost recovery. In the next couple of years our replacement costs are very small compared to what they will be in ten years. His concern is that revenue will start to go down if the facility is not upgraded and equipment not replaced. He thought we can keep our revenue up if we continue to do preventive maintenance and plan to reinvest in equipment on a yearly basis. We need to protect the asset we have in the Community Center which helps to protect the quality of life in Eden Prairie. Chacko asked where we would be compared to the original plan if we are currently at 75- 80% of the break-even point. Lotthammer said he would not have projected anything above 70%, and it would have been over a longer time. We would be in an even better situation if the economy was where it was in 2006 and hockey had stayed on the trajectory it was when they asked for the third sheet of ice. The Hockey Association is our biggest external customer,but they are having trouble with the amount parents can afford. He noted other arenas are experiencing the same phenomenon. Proops said in one report he saw there was $1,000,000 difference between revenue and expenses. Lotthammer said he thought that was last year's actual figure. Proops asked what this year's figure is. Lotthammer said we are tracking less than $1,000,000,but he was not sure what the total will be at the end of the year. Proops asked if staff has evaluated closing down Rink 2 rather than repairing it. Lotthammer didn't think it is a good option to close it down all the way. We try to maximize use of all three rinks in the winter. The third sheet is down for several months in the summer because we can't schedule enough use on it to make sense. We can stagger the use,but having only two rinks would not satisfy the peak need. We try to bring the rinks up and down as demand and energy costs change. Uram noted there is a$500,000 to $1,000,000 deficit for 2010, and we are near full utilization. He asked if Mr. Lotthammer projected that deficit going forward. Lotthammer said he thought that probably would be right. He said the original design can really drive the final number. He noted Lifetime Fitness gets revenue from outside things like a hair salon. There are some community centers that have no charges for meeting rooms or use of the facility. He said we are closer to the Lifetime Fitness model than the ones that do not charge. People feel they have good access to the Community Center, and the rates are lower than market. V. ASSESSING INFORMATION FOLLOW UP Jeremiah noted this information was handed out at the last meeting. She said Steve Sinell is here to answer questions. Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 8 Sinell said we do an annual assessment, do mass appraisals and spend months gathering data in anticipation of the next assessing date. Staff puts all the information together and comes up with an estimate. Uram said the commission had a discussion about outsourcing. Proops asked if that has been looked at. Sinell said we watch it all the time by looking at staffing levels and total costs compared to other offices. The state controls the tax policy, and the state has given the county the authority to decide on a county or local system. Most counties have chosen the local option. He said in Hennepin County the city is going to pay for assessing services whether the city does it or hires a private contractor. There are no companies that would be able or willing to contract for the assessment in Eden Prairie because it is too big. Eden Prairie's assessment is as big as that of 80 counties in the state. That means we either keep our own office or use the county's office. He noted he has read the county's agreement with Richfield. The county is a very reluctant partner, and they obviously don't want to do it. Proops asked what part they don't want. Sinell said Hennepin County doesn't want to do it because of the complexity and the need for a certain level of expertise. Proops asked if we have the capacity to service some other cities as a way to offset costs. Sinell said we have been focusing on doing the best job we can for the residents of Eden Prairie. The residents of Eden Prairie are our main customer. When it comes down to the little things we can do to make it better for the residents, we do those things. He said the county people have the best interests of the county and the county taxpayers at heart, so they have a different focus. He said we haven't looked seriously at providing assessing services to other cities. Jeremiah said the Assessing Department does provide services to other departments in the City, and it is essential to have the department in-house. Sinell said the big difference would be turn-around time. His department drops everything to take revenue questions. They also participate in the development process and serve as a tremendous source of information for the Engineering and Economic Development Departments. If the service is contracted out, you would get what the contract says you get. We have really worked on our customer service and efficiency, but we haven't actively looked at marketing our services. Uram noted the City of Victoria uses the county at a cost of$36,000 for 2000 properties. Neal said the people of Hopkins would tell you they saved a little money but there is still a debate about whether it was worth it. They are paying the county for the service but when they get questions they have to say it is a county thing. They lose that local point of contact. Chacko said this brings up the quality of life issue again. He thought a relatively small number of people come with their assessment in hand. Neal said not many people show up at the hearing because 90% get their issues worked out prior to the meetings. Without the local assessor you would have hundreds of people at our hearings. Eden Prairie Budget Advisory Commission Minutes September 28, 2010 Page 9 Chacko said the question of outsourcing is moot because we are too big for an individual firm to take over;however he was somewhat concerned about the service issue. Neal said the county would be obligated to take us over but it is an issue of quality of life. Sinell said he spends most of his time on appeals, either in tax court or trying to stay out of tax court. Smaller cities don't have that situation. VI. ADJOURNMENT MOTION: Chacko moved, seconded by Agner, to adjourn the meeting. Motion carried 4-0. Chair Uram adjourned the meeting at 7:35 p.m.