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City Council - 10/20/1998 - Workshop APPROVED MINUTES CITY COUNCIL/STAFF WORKSHOP PHILOSOPHY AND DIRECTIONS FOR UTILITY AND LIQUOR ENTERPRISES TUESDAY, OCTOBER 20, 1998 5:00-6:30 PM, CITY CENTER Heritage Room 8080 Mitchell Road COUNCIL MEMBERS: Mayor Jean Harris, Sherry Butcher-Younghans, Ronald Case,Ross Thorfinnson,Jr.,and Nancy Tyra-Lukens CITY COUNCIL STAFF: City Manager Chris Enger; Management Services Director Natalie Swaggert; Parks & Recreation Services Director Bob Lambert; Community Development and Financial Services Director Don Uram; Public Services Director Gene Dietz; Don Sorenson; Liquor Enterprise Managers Bill Lempuses,Mitch Dean, and Jack Shephard; and Recorder Dave Hix ROLL CALL All members were present. I. CALL MEETING TO ORDER Mayor Harris called the meeting to order at 5:11 p.m. H. OVERVIEW - CHRIS ENGER Enger told the Council and Staff the purpose of the workshop was to discuss the Liquor and Utility Enterprises and what changes the Council might want to see in each,both in the near future and the intermediate future. III. LIQUOR AND UTILITY ENTERPRISES A. Liquor Enterprise Discussion Uram reviewed the City's Liquor Enterprise operation philosophy. Since being established in 1977,regulation and control, service to the community, and the ability to cover the operation costs were the operation philosophy up until 1995. Starting in 1995 and into the future the Liquor Enterprise is shifting its philosophy to one of being a "profit center." The Liquor Enterprise operation's sales, cost of sales, gross profit, operating expenses and operating income were reviewed from the years 1996 -projected 1999. CrrY COUNCIL/STAFF WORKSHOP M"WTES October 20, 1998 Page 2 Four sales locations were listed: 1. Preserve 2. Prairie View 3. Prairie Village 4. Den Road The Liquor Enterprise operations has its own building operations fund where all expenditures for building construction are held. To cover cash short falls in the building fund, funds are transferred from operations account to the building fund. The Liquor Enterprise has also borrowed money from the General Fund under the Capital Improvements program. Theses funds are paid back with interest over 5- and 15-year periods. Uram reviewed current initiatives which included recommendation from the Minnesota Municple Beverage Association(NUvIBA). MAMA recommended the implementation of perpetual inventory systems for all stores and a continual review process for store merchandizing and facility presentation. Staff was recommending adjusting staffing levels with the possibility of hiring a Liquor Operation Manager, Inventory Clerk and part-time employees. The Liquor Enterprise will be focusing on customer service to include practicing customer service"basics,"employee training, and management policies. Further recommendations to promote the Liquor Enterprise as a profit center were stated as internet marketing, product kiosks,internal audits, store security analysis, and maintaining and achieving financial benchmarks. Mayor Harris opened the floor for questions and comments. Harris asked what staffs suggestions were to solve the problem of finding part- time employees. Enger stated one possibility is increasing the salary range. Uram agreed and added some sort of benefit package and incentive program may have to be implemented. Case asked if staff had information as to how many"hits"were being received on the City's web site in regards to the Wme/Liquor Page. Enger told the Council that the City's software program can give very detailed reports as to activity occurring on the City's web site. Staff is recommending a separate "Liquor Page" as opposed to the current location on the Calendar. Dean noted that no purchases of liquor can be made over a web site. Uram told the Council it is more cost effective for the City to own the buildings its stores are in rather than leasing. However,the lease location at the Rainbow Center is believed to be a good location, although the current road construction is affecting sales. A continued review was recommended for the Rainbow Center store. Future location recommendations are southwest Eden Prairie, northwest Eden Prairie, and County Road 1 and 169,the Hustad project. Case suggested that a two person Liquor Oversight Committee, possibly meeting quarterly, be established to keep the Council in touch with the day-to-day operations of the Liquor Enterprise. Enger agreed stating there is a different philosophy involved in CITY COUNCHATAFF WORKSHOP MINUTES October 20, 1998 Page 3 managing a break-even operation as opposed to managing a"profit-center" operation. Uram suggested coordinating the Committee meeting schedule with the quarterly or yearly reports that are made by staff on the Liquor Enterprise operations. Harris agreed that a committee would be another opportunity for the Council to hear and participate in the Liquor Enterprise operation. But she stated it was her feeling all of the Councilmembers were interested in the information that is being offered by staff. Case stated he needed a deeper educational process on the operations of the Liquor Enterprise. Harris suggested "keeping more frequent reports on the table" and decide later in the year what the best format or forum would be to provide the kind of information and experience Case is seeking. Thorfinnson suggested putting the meetings on next year's calendar on a quarterly schedule. Younghans agreed that the Council should be involved in the process as a total group. Enger told the Council the NIM BA suggested the Committee as an "efficient protection of the business"to make sure that everybody is always in tune with the workings of the business. Harris charged staff to gather information on how a Liquor Oversight Committee would work,what its expectations would be, and how it would function and interface with the rest of the people involved in the Liquor Enterprise operation. B. Utility Enterprise Discussion Dietz listed three components of the Utility Enterprise: 1. Water 2. Sanitary Sewer 3. Storm Water The philosophy behind the operation of the City's water system is to provide the highest quality,lead in technology,reduce costs to customer,reduce system maintenance costs,unlimited use for the customer and conserve a diminishing resource. The question is: Does the City want the water system to be a source of revenue? Currently the customer pays per thousand gallons used. These funds go to pay the systems operation and maintenance costs. A conservation surcharge is also collected and is used for operating and maintenance costs and funding public education in regards to the City's water system. Capitol Costs, also customer paid, are collected through quarterly charges,trunk assessment charges and a system access charge collected at the building permit stage. Proposed rated for 1999 were stated as follows: 1. Water- $1.25/1000 gallons(a 5 cent increase) 2. Sewer- $1.95/1000 gallons 3. Storm- $3.00/quarter-residential Harris asked how Eden Prairie's rates compared to other metro locations. Dietz, not able to quote exact figures, stated the City was somewhere in the middle of the pack. CITY COUNCHATAFF WORKSHOP M WTES October 20, 1998 Page 4 Dietz stated Public Works is fully staffed for 1998. Projected revenues in 1999 will be $300,000 using the $1.25/1000 gallon charge. Retained earnings at year end 1999,will have a$1.5 million retained earnings balance. $500,000 of this balance is considered surplus or contingent. The conservation surcharge is exceeding projections. Weather conditions and population growth are two factors that dramatically effect revenues that come into the City's water system. Staff is recommending retaining the 5 cent/1000 increase in 1999 for water service(a 3 percent increase in the average household bill)as a hedge against the short fall in access charges and uncontrollable variables such as weather conditions and uncertain development or redevelopment. Lukens stated she would be in favor of small, steady increases in the water system fees and suggested using the surplus retained earnings funds for early pay off of water system debt. Dietz stated capital costs have never come from rates. The question is: "Does the City want to build up the retained earnings as a hedge against what may or may not happen?" Enger stated the City wants to avoid a situation where there is a short fall and where dramatic increases would need to be implemented. He added staff was recommending that the Council consider some sort of build up as a conservative hedge against a short fall. The City's Capital Improvement Plan for the water system will include four additional wells and collector mains and distribution mains at a cost of$5 million. Financing for these costs will come from planned increases in trunk access assessments and access charges and continued land development and redevelopment. Case requested copies of the models that staff used to calculate the 1999 revenues for the City's water system. He stated he would use this information in making informed decisions in regards to density issues. Case expressed his concern that the City's expected revenues were based on population figures that in recent years have been decreasing(from the original forecasts) as the City comes closer to being "built out." Thorfinnson asked how the Utility Enterprise Fund was accounted for. Dietz stated it was held totally separate from the General Fund; as are the capital improvement fees. Public Works has three funds: 1. Operation and Maintenance Retained Earnings Fund 2. Capital Fund 3. Storm Water Fund Thorfinnson asked for total water consumption figures for 1997. Dietz quoted 1997 as being 2.48 billion gallons as opposed to 1996's 2.66 billion gallons; 1999 is projected at 2.6 billion gallons. Thorfinnson stated a very wet year would "wipe out the retained earnings very quickly." Thorfumson suggested a name change in the Retained Earnings Fund. Retained earnings signifies that you're setting money aside from earnings and the system was CITY COUNCIUSTAFF WORKSHOP MINUTES October 20, 1998 Page 5 never designed for that purpose,he added. Enger suggested "Fund Bank." It was the consensus of the Council to maintain the 5 cent/1000 increase in the 1999 water bills. IV. DISCUSSION AND DIRECTION V. OTHER BUSINESS VI. ADJOURNMENT Mayor Harris adjourned the meeting at 6:35 p.m.