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City Council - 05/03/2022 - Workshop APPROVED MINUTES CITY COUNCIL WORKSHOP & OPEN PODIUM TUESDAY, MAY 3, 2022 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, and Lisa Toomey CITY STAFF: City Manager Rick Getschow, Police Chief Matthew Sackett, Fire Chief Scott Gerber, Public Works Director Robert Ellis, Community Development Director Julie Klima, Parks and Recreation Director Jay Lotthammer, Administrative Services/HR Director Alecia Rose, Communications Manager Joyce Lorenz, City Attorney Maggie Neuville, and Recorder Katie O’Connor Workshop - Heritage Rooms I and II (5:30) I. 2021 AUDIT AND FINANCIAL STATEMENTS Council Member Narayanan was not in attendance. Case inquired why there was a change in auditing companies for 2022. Tammy Wilson, Finance Manager, replied every few years the City has to go out for bid for auditing services. It also provides accountability. Andy Grice from Bergan KDV presented the audit report for 2021. The auditors provided a clean and unmodified opinion of the City’s financial statements. They also issued their report in accordance with Government Auditing Standards. This report is required when there is grant and federal funding. There were no significant deficiencies or material weaknesses in internal control, and no compliance findings. Bergan KDV also conducted a Federal Single Audit. This is required when there is $750,000 or more of Federal funding. There were no compliance or internal control findings. There were also no compliance findings in the Independent Auditor’s Report on Minnesota Legal Compliance. Nelson inquired if these standards are normal for most cities. Grice replied it is not unusual, but not everyone is to this standard. Grice stated the general fund revenues increased about $2.8 million. Taxes and assessments increased about $1.5 million due to the levy, intergovernmental revenues decreased $885,000 due to less federal funding, charges for services increased about $1.7 million due to an increase in registrations, and other revenue sources decreased from $198,000 to negative $297,000 due to worsening market conditions. General fund expenditures increased about $2.1 million. Police increased about $788,000 driven by an increase in wages and benefits. Parks and Recreation increased about $1.3 million due to more programs and activities. Case inquired why the debt service amount has not changed since prior to 2017. Grice replied debt City Council Workshop Minutes May 3, 2022 Page 2 service activity is presented in other funds. Wilson responded the debt service in the general fund is for the fire turnout gear the City leases. Grice stated the general fund budgetary comparison revenues came in better than anticipated by about $4 million. Expenditures came in less than anticipated by $2.1 million. In regard to revenue, general property taxes and assessment were $510,000 higher, Licensing and permits revenue was about $2 million better than anticipated. Intergovernmental revenue was about $4 million higher than anticipated due to American Rescue Plan Act (ARPA) funding. Case stated if it weren’t for the ARPA revenue, the difference would have been about a $1 million loss. Getschow added the City tied ARPA funds to lost revenue. Grice stated charges for services was $2.3 million less than anticipated. Parks and recreation registrations and programming were not quite back to pre-covid amounts. In regard to expenditures, public works decreased by $540,000 due to less striping and crack filling of roads. Parks and recreation was $1 million under budget due to less programming. There was an overall increase in fund balance of $3 million. When reviewing the general fund operations, there was an increase in unassigned fund balances by $3 million. When reviewing the enterprise funds, the water fund operating revenue increased about $1.7 million and was significant due to the water meter change out project. There was a loss of about $1.5 million. The water fund had an increase in cash and investments and unrestricted net position. The significant increase in case and investment balances relates to Nelson inquired what percentage of meters have been changed out. Ellis replied about 6,000 of 18,000, so about one third. Case inquired if everyone has been cooperative. Ellis replied most have been. Toomey inquired how long these meters will last. Ellis responded about 15 to 20 years due to the high-quality softened water. Nelson noted these meters can be monitored via an application. Grice stated the wastewater fund had an increase in operating revenues and fairly flat operating expenses. The increase in revenue relates to rates and usage changes. It did result in an operating loss of $19,000. The fund has experienced significant losses in the past, but there was a significant improvement this year of about $1.7 million almost covering depreciation. The wastewater fund cash and investments balance was $8.7 million and unrestricted net position was $10.3 million. The stormwater fund had an increase in operating revenue of $755,000 due to an increase in rates. Expenses increased as well by $358,000. The fund did cover depreciation cost. The cash and investment balances increased $6.5 million and unrestricted net position increased about $6.9 million. Liquor operations fund had an increase in sales. It generated a gross profit of $3.5 million. There was an increase in the gross profit percentage from 2020 of 29.1 percent to 29.8 percent. Getschow noted we are the fourth largest municipal liquor operation in the state for revenue. Eden Prairie’s gross profit percentage is the best of the municipal liquor operations. 2020 and 2021 were both really good years. In regard to 2022, year-to-date we are down about three percent in comparison to 2021 but above 2019. Nelson inquired how much gets transferred from the City Council Workshop Minutes May 3, 2022 Page 3 liquor fund. Getschow responded currently about $800,000 is being transferred to the capital maintenance and investment fund. Freiberg inquired about Sunday sales and if they have been worth it. Getschow stated Sunday is one of the slower days and sales have been spread across seven days. Freiberg inquired why the City is open on Sundays if sales remain low. Getschow responded to remain competitive with other cities and liquor stores who are open on Sundays. It pays for itself to be open on Sunday. Nelson added people will go elsewhere if the City stores are not open Sundays. Freiberg stated it would be worth exploring the financial aspects. Case noted it would be helpful to have the liquor operation manager attend a workshop to answer some questions about operations and Sunday sales. Grice stated in the liquor fund the was an increase of $2.6 million in cash and investment as well as a $2.1 million increase in unrestricted net position. Revenue and expenditures per capita for government activities displays statewide averages. There was an increase in revenues per capita in total to $1,165. The increase was due to intergovernmental revenue and charges for services. Nelson noted, all things considered, the City has gotten through the last two years of the pandemic in good shape. She inquired if there are many people who are delinquent in tax payments. Grice replied 99 percent are current. Grice stated general fund expenditures per capita increased from $766 to $800. This includes capital outlay and construction, which decreased from $210 to $190. Debt service increased from $73 to $197. The main reason for the increase is parks and recreation expenses with increased programming from previous years. In regard to debt service, this year there were two bond issuances refunded and paid off. New bonds were issued to pay the debt off at a lower rate. Case inquired about removing debt service to have a better comparison to the statewide numbers. Grice replied capital outlay and construction are not easily compared. Getschow added some cities account for things in different ways such as community centers. Nelson added it might be helpful to have notes about particular years, specifically the pandemic. Grice talked about the tax capacity, tied to market values in the City. This increased about three and a half percent from $116.5 million to $120.5 million. The certified tax levy increased from $39.6 million to $41 million. Tax capacity rate remained similar from 31.51 to 31.43. This is the lowest tax capacity rate in the last five years. Case noted the tax capacity rate is very important. Getschow added this is the number that is referenced when comparing with other cities. There is an updated one-page financial fact sheet every few years which can be provided to Council. Nelson inquired if there is a threshold for tax capacity rate for different values of homes. Getschow added in the early 2000s the commercial rate was lowered and taxes shifted to residential properties. Nelson thanked Staff for continuing to excel with the audit. Case stated one comment often received is about the high reserve fund balance. He inquired what the policy is about how much is held back in reserves and if it is a certain portion of the taxes. Grice replied the State City Council Workshop Minutes May 3, 2022 Page 4 Auditor’s Office recommends 35 percent. Wilson added the City does 50 percent of budgeted taxes and 15 percent of budgeted expenditures for the general fund. Nelson noted this allows the City to pay bills in between tax payments. Getschow added having this fund balance is one of the reasons for the AAA bond rating. Open Podium - Council Chamber (6:30) II. OPEN PODIUM III. ADJOURNMENT