City Council - 10/16/2007 - Workshop APPROVED MINUTES
CITY COUNCIL WORKSHOP & OPEN FORUM/OPEN PODIUM
TUESDAY, OCTOBER 16, 2007 CITY CENTER
4:00—6:25 PM, HERITAGE ROOM II
6:30—7:00 PM, COUNCIL CHAMBER
CITY COUNCIL: Mayor Phil Young, Council Members Brad Aho, Sherry Butcher, Jon
Duckstad and Kathy Nelson
CITY STAFF: City Manager Scott Neal, Police Chief Rob Reynolds, Fire Chief George
Esbensen, Public Works Director Eugene Dietz, Community Development Director Janet
Jeremiah, Parks and Recreation Director Jay Lotthammer, Communications Manager Joyce
Lorenz, Assistant to the City Manager Michael Barone, City Attorney Ric Rosow, and Recorder
Jan Curielli
I. BUDGET
Mayor Young called the workshop to order and asked City Manager Neal to begin his
presentation on the budget.
City Manager Neal said he will present a broad outline of several different versions of the
budget and then will review the new operating costs at the Community Center because those
costs are one of the key drivers for the budget this year. Following Council discussion about
the various budget options, Ms Kotchevar will lead a discussion about the Capital
Improvement Plan (CIP) and our process for the Council's review of that.
Neal reviewed the 2008-2009 budget calendar, noting the special Council workshop to
discuss the budget on Tuesday, October 30, at 6:00 PM in the Council Chamber. He said the
regular City Council meetings for November have been shifted to the second and fourth
Tuesdays of the month. The first meeting in November will be held Tuesday, November 13
with a workshop prior to the meeting, and the second meeting will be the November 27
Town Hall meeting at 7:00 PM at Fire Station 4. The Truth-In-Taxation Public Hearing and
CIP Public Hearing will be held December 3. On December 18 the Council will meet to
certify the Final Levy and adopt the budget and the CIP.
Neal said Version 1.0 was the version of the budget we started with and was based on the
Directors and Division Managers input regarding the costs to move their operations from the
current year into 2008 and 2009, including expansions and enhancements as well as staffing
changes. Version 2.0 was the recommendation that the City Manager developed after the
Budget Advisory Commission (BAC) made their recommendations and included some
reductions in operations and some staffing changes from Version 1.0. Version 2.5 is
Version 2.0 plus the use of positive operating results of $250,000 per year from the 2006
General Fund. He said this has usually been plugged into the CIP, but the Mayor suggested
earlier this year to use that money to supplement the 2008-2009 budget. Version 3.0 is the
version the City Council requested in September and increases spending by $1,000,000 in
2008 and also in 2009. There are also a couple of variations in Version 3.0. Version 4.0 is a
zero increase in spending from 2007 levels. Version 1.5 is where we start to come to a
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October 16, 2007
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possible compromise between the various versions. It is essentially Version 2.0 without the
reduction of two full time employees in Housing and Community Services and with the
addition of the 2006 General Fund balance.
Neal then explained that Version 1.0 was based on staff requests with the goal to advance all
operations and services from 2007 into 2008 and 2009. It included new services
recommended by staff and by the Council, a market wage increase for staff and the new
operating costs at the Community Center. He said the market wage increase is about 3% and
is based on research in our peer cities.
Young asked if Version 2.0 was the City Manager's original recommendation to the BAC or
the result of changes recommended by the BAC. Neal said it was his original
recommendation. He said the BAC offered comments on Version 2.0, but we have not gone
through the process of incorporating their comments into another version.
Neal said the bottom line of Version 1.0 is about a $2.9 million increase, with a 7.6%
increase in 2008 and a 2.7% increase in 2009. He said the debt levy is going down by
$170,000 in 2008 and $75,000 in 2009 and is a reflection of our scheduled debt service. The
equipment levy is consistent from version to version and represents the amount needed to
fund the existing equipment replacement plan. The CIP levy is the levy across the tax base
to put into the CIP. He said the HRA levy has occurred the last two years and is blended
back into the budget as operating revenue. He noted Version 1.0 includes all new full time
employee (FTE) requests, with 3.0 new FTE's in 2008 and 2.5 new FTE's in 2009. It
includes service level expansions in Communications, the Community Center, Police and
Fire and a market employee wage increase of 3.5% in 2008 and 3.5% in 2009. Neal said the
7.6% increase in spending translates to a 5.4% increase in the tax impact for a Median
Single Family Home (MSFH), a 7.8% increase for a $5,000,000 apartment, and a 11.9%
increase for a $2,000,000 Commercial/Industrial building. He noted there is no way for the
City to change the tax impact on the different types of property because that is an element of
the state's local property tax system that we have no control over.
Neal said Version 2.0 was an attempt to take a look at what we are doing and make some
strategic decisions about what we should be doing as a City government. It used a model
that defined our services as core, supplemental and mission support and increased some
areas and decreased others. He said this is a 5.1% increase in spending for 2008 and 2.7%
for 2009. It includes FTE additions to IT, Facilities and Police and staff reductions in
Finance, Housing & Community Services, Building Inspections, Fleet Services and
Recreation for a net decrease in FTE headcount. It does not include staffing increases
requested by Police, Fire and Communications. It includes reductions in operating budgets
of approximately $700,000, an employee market wage increase of 3.0% in 2008 and 3.25%
in 2009, and reductions in outsourced human service grants. He noted the tax impact of
Version 2.0 on a MSFH is a 2.1% increase.
Neal explained Version 2.5 as Version 2.0 plus the use of the 2006 General Fund operating
results. It has the same increases in spending as Version 2.0 but adds the positive operating
results from the General Fund so that the tax impact on a MSFH is only a 1.3% increase.
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Neal said Version 3.0 is the City Council request and it has several different ways to get at
our budget and operations as we limit spending growth to $1,000,000 each year, or about
2.5%. This version applies the growth limitation across the board to all General Fund
operating budget and divisions. He noted in this scenario we begin to see actual decreases in
service levels. He reviewed the reductions proposed in this version, noting the reductions in
police officer staffing levels by 3.0 FTE in 2008 and by 2.0 FTE. He said it has a disparate
impact on the Police Department because that department is the most personnel cost
sensitive. That department has the biggest individual department budget and the highest
percentage allocated to its human resource costs. This version also includes suspending the
opening of some of the amenities at the Community Center. The tax impact on a MSFH is a
$14 decrease or a 1.3% decrease.
Neal noted Version 3.1 limits spending growth to $1,000,000 per year and reduces general
employee wage increases to 2%, which is below market level, in order to create funds to
open the new Community Center amenities. It also has a negative impact on the Police
Department operations.
Neal said Version 3.2 applies the Version 2.0 strategic model to the Version 3.0 budget by
making strategic reductions and expansions. It freezes all operations at the 2007 budgeted
levels, includes no increases in staff, and holds the general employee wage increase to 1%. It
does not reduce the number of Police Department employees, and it does open the
Community Center in 2008 as planned.
Neal said Version 4.0 has a zero increase in overall spending for 2008 and 2009 with a
combination of strategic and across-the-board decreases in operation. The debt levy
spending of $170,000 is added to General Fund spending. There is a significant change in
operations and there is no increase in employee wages.
Neal said Version 4.1 has a zero increase in overall spending but includes a market wage
increase to employees by eliminating the CIP levy. Both Version 4.0 and 4.1 have a 4.6%
decrease on MSFH taxes and a 1.2% increase for Commercial/Industrial.
Neal then reviewed Version 1.5, noting this version gets at some of the discussion the
Council had at the last budget discussion in September. It uses Version 2.0 as a base, adds
back the two FTE's in Housing and Community Services and adds the 2006 General Fund
operating balance. There would be a 5.5% increase in spending for 2008, and a 2.8%
increase for 2009. There are some reductions in some of the operating budgets and some
reductions in outsourced human services grants. It does include a market wage increase of
3.0% in 2008 and 3.25% in 2009. The tax impact of Version 1.5 is a 1.7% increase for a
MSFH, a 4.1% increase for Apartments, and a 7.9% increase for Commercial/Industrial. He
noted the 1.7% increase for a MSFH is the lowest increase in the past five to ten years.
Aho said we talk a lot about the employee wage increases being at market level or below.
He asked what the current wage is relative to the market. Neal said we compare ourselves to
a group of peer cities, the MLC cities. We participate regularly in salary surveys with that
group, and we want to be at or near the median salaries for those cities. We are in a variety
of positions with that peer group, but on the average we are at the median or slightly above.
Neal said he and Director of Human Resources Kurt had a chance to visit with
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Councilmember Duckstad earlier this year and laid out a comparison of common positions.
He noted that presentation is available and could be provided to other Councilmembers.
Many of the peer cities are involved in labor contracts and most of them are looking at a
3.0% increase for this period.
Regarding the wage increase, Duckstad asked if he was referring to the 3.0% figure or 3.5%
for each year. Neal said this was part of the discussion at the BAC meetings about what
number do we use. Some of the information shows the increase at 4.6%, which includes a
baseline of 3% and funding for step increases of 1.6% He said about one-third of the work
force is involved in a pay plan where they begin employment at below market wages, and
those employees would receive both the baseline increase and the step increase.
Duckstad said he wasn't entirely clear about that because it was presented to the BAC as a
wage increase, and in addition there was another factor presented as a step increase or a
performance increase. He had the impression the employees got the wage increase and the
step or performance increase. Neal said that is not usually the case because most employees
qualify only for the baseline wage increase. He said there was a discussion at the BAC
meetings about having an "all-in" salary number, and we can discuss it like that; however,
that is not how any of the peer cities talk about the number, so we use the baseline in order
to compare what we are doing to those cities.
Duckstad said in Version 1.0 Mr. Neal talked about a base increase each year of 3.5% and
he asked if 3.5% meant that their wages would increase 3.5%, and in addition there would
be a step increase or performance increase that was a percentage add-on. Neal said that was
true for only about one-third of our employees. Duckstad said so that means at least one-
third of the employees will have an increase of 4.1%. Neal said that is possible.
Young asked what the recommendation of the BAC was. Neal said it was to describe it as an
"all-in" basis. Young asked if that is a 4.6% increase on the entire employee compensation
pool, net of census. Kotchevar said that figure is 4.1% for Version 2.0 and 4.8% for Version
1.0. Young asked if the people who began on the step program began under market for their
job. Neal said that was correct, noting they are worked up in progression with increases
based on performance. He noted the BAC recommendation was that "all-in" wages be
increased 4.1% in 2008 and 3.4% in 2009.
Duckstad asked if granting a wage increase in that manner means that wage increase is equal
to or greater than the cost-of-living index. Neal said we do look at the cost of living, but we
look more at what market wages are doing for our peer cities. We are cognizant of the cost-
of-living index for urban consumers in the Twin Cities area. A couple of years ago our wage
increases were below the CPI, and last year the wage increases were slightly above the CPI.
Duckstad asked if there was a reason why fringe benefits were not added to the wage
increases when they were presented to the BAC. Neal said we tried to provide as much line-
item detail as possible to the BAC. We broke out wages and fringe benefits and detailed our
wage structure, how we compare to other cities, our step plan, health insurance, pension
programs and workers' compensation. Duckstad said one of the papers generated by the
BAC indicated that if you include the wages and fringe benefits for 2008 and 2009 the total
increase would be 12.26%. Young said he did not think that takes into account changes in
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census. Neal said if you take the entire cost of employing people who work here in 2008
with the projections we are talking about, it is an increase of 7.0% and that includes
increases in health insurance costs, pension costs, disability and life insurance. Aho asked
how many new employees are in that figure. Neal said it is the basic wage bill regardless of
census.
Nelson asked if employees pay part of the costs of the fringe benefits. Neal said there are
multiple plans and we gave that information to the BAC so the information is available, but
he did not have it with him. There are four different levels of plans, and there is a cost share
in place for each level. He said we can provide that information to the Council. Nelson noted
that piece is going up quite a bit. Neal said it was projected to go up more than 30% in the
coming year, but we took some corrective action earlier this year to realign the plan and to
shift some of the risk back to the employees. That brought it down from 30% to 17%.
Butcher asked what was meant by using the fund balance in Version 1.5. Kotchevar said in
2006 there were positive operating results of approximately $500,000 in excess of
designated reserves. Our typical practice was to transfer it to the CIP, but at a December
meeting Mayor Young indicated he wanted to earmark that and not necessarily dedicate that
to the CIP so that amount has not been included in the projections going out. Neal said that
provides the Council the opportunity to use those funds without having to make a change in
the CIP document. Young asked if the $500,000 was from the budget stabilization fund.
Kotchevar said it was not, it was excess operating funds after we reserved for the
stabilization fund. Neal said in the past if we had a windfall we used it for the CIP. He noted
that when we were talking about our budget process in 2005 we made a decision to transfer
like amounts into the revenue streams of 2006 and 2007, so what we are proposing here is
essentially the same thing as we did for the last two years.
Duckstad asked if currently the percentage of the budget that makes up wages is about 63%.
Kotchevar said it is about 63-64%.
Butcher said it seemed to her that we are talking a lot about basic philosophy and where we
are at on that. Young said staff gave a presentation on the budget scenarios and we should
ask questions about that presentation now. He was particularly interested in hearing about
the impact on the Community Center and has questions about the CIP. He thought we can
thereafter continue the more global discussion about the budget.
Neal said this year the Community Center is a big extra bite in the budget in terms of adding
something new to our operations. It is similar to last year when we added Fire Station 4 with
new staff and equipment that was over and above the general increase. The total extra costs
for the Community Center is about $900,000 and is broken down into $235,000 for utilities,
$315,000 for new operations and maintenance costs, $270,000 for new programming, and
$130,000 for the debt on the third sheet of ice. He said as part of the decision making
process for the Community Center project we decided we would monetize the ice rental
revenue stream to pay back the debt for the facility rather than using it to defray general
operating costs in the General Fund as we have in the past.
Nelson asked if this is new operating costs or total operating costs. Neal said the new
operating costs are about $900,000, of which $230,000 is attributable to operating the new
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sheet of ice. He said at the request of Councilmember Nelson earlier in the budget process,
the $230,000 attributable to the new sheet of ice is further broken into categories for debt,
utilities, cleaning, wages, and facility and equipment maintenance.
Duckstad said he assumed these are the best estimates because the original estimate was
$1.2 million. He asked what caused it to be cut back. Neal replied we are continuing to hone
in and be more precise on our operating costs. We are doubling the size of our Community
Center, but we have operated all the programs before so we have experience with what the
costs are to operate space like this. He thought it was important to remind ourselves that the
frame of reference for this is different from what it takes to run a home because this is a lot
more than that and we need a continual application of utilities to keep the block of ice
frozen.
Aho asked if this is only operating costs and does not include any new equipment and if it
will be pretty consistent going forward. Kotchevar said that is correct.
Young asked if the operating costs of $900,000 associated with the Community Center are
about one-half of the total increase in the Version 2.0 budget. Neal said that is correct. If we
did not have that addition to our budget this year, our budget increase would be about 3%.
Young asked what figures we had about the operation of the Community Center at the time
we went to referendum. Neal said we can pull that together because we kept the material that
we put together for the referendum,but he could not recall what those figures were.
Kotchevar said she sent the document on the CIP to the Council last Friday and she does not
have a planned presentation for tonight but will answer questions. She said the CIP
document includes all capital items scheduled for the next five years. She said the BAC
recommended that we take a better look at what actual City funds are spent on capital
improvements because the total for all items is such a big number. Of the total of about
$227,000,000 for all CIP projects, a total of about $35,000,000 will be taken out of City
funds. She said the Council will be approving the amount for CIP spending for 2008 and
2009 at the December meeting. She said she has detail on each of the budgets if there are
questions.
Mayor Young recessed the meeting at 5:15 PM and reconvened at 5:30 PM.
Young said it was difficult for him to remember what parts of the CIP have already been
approved and what parts are new. He noted on Page 9 of the CIP document there are a
number of projects that are paid for from the Capital Improvement Fund (CIF). He asked
why some of the parks improvement projects on the list are taken from the CIF and not from
the Parks fund. Kotchevar said there is not 100% discretion on how parks improvement
funds are spent. Lotthammer said, historically, if it is more of a maintenance situation it
comes out of the CIP, and it comes out of the Parks Fund if it is more of a full project.
Young thought a piece of the park referendum accelerated all the playground upgrades.
Lotthammer said it may have been for some of the playground upgrades, but going forward
the CIP would have been the funding source for some of the future upgrades. Young thought
the same thing was true for trails, because he knew there were referendum dollars for trails.
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Lotthammer said the CIP projects would be to do overlays and maintenance of the trails.
Dietz said there is $180,000 per year for trail maintenance. Lotthammer noted we have over
100 miles of asphalt trails and 80 miles of concrete sidewalks in the City. Dietz noted when
we began to do pavement maintenance on roads we started to include dollars for annual
maintenance on our trails.
Young asked Ms Jeremiah how far along we are in the streetscape and wayfinding
allocations from the Economic Development Fund. Jeremiah said the design and detailed
cost estimates are expected to be discussed at a Council workshop in December. Neal noted
it is scheduled for the December 18 workshop.
Neal asked Mr. Lotthammer to clarify if there are some statutory issues on how you spend
park improvement dollars. Lotthammer it is not always as clear as we would like, but
generally we cannot spend it if it is an on-going operating and maintenance issue. Those
dollars have to go to more of a capital project, although there are some gray areas.
Nelson said so you could use park fees for a brand new trail, but you could not use park fees
if you were doing crack filling on that trail. Lotthammer said that was correct.
Young then opened general discussion about the budget. He said there are a variety of
issues. One issue is the various budget versions, and there are other issues such as changes
in service levels and uses of the budget stabilization funds to buy down taxation. We also
have the BAC recommendations and what to do with those for such items as the elimination
of the CIP levy and changes in wages.
Nelson asked about the difference between what the BAC recommended on wages and the
Version 3.0 recommendation. Kotchevar said for 2008 the BAC concurred with Version 2.0,
and recommended a slight decrease for 2009. She said for every 0.5% decrease, there is an
approximate $70,000 savings. Nelson said so their recommendation for 2008 does not really
affect the total, nor are we talking about a large amount of money for the recommended
decrease for 2009.
Butcher said overall when you compare the highest budget version, Version 1.0, with a tax
increase of$58 per year on a MSFH to the most austere version, Version 4.0, with a $49 tax
decrease, there is not a great deal of discrepancy between the two figures. She would like to
look at this a little more moderately and she thought Version 1.5 brings in a lot of the
perspectives we have heard from residents. She suggested we start with discussing one of
the versions, such as Version 1.5. She thought it was hard to focus in on all the discrete areas
and it might be easier to start at the larger level and drill down.
Duckstad said he wants to consider all the versions, but he is more interested in Version 3.0
to the extent it is a reachable possibility. He said Version 3.0 calls for increased spending of
$1,000,000, and it raises the possibility of one of the recommendations of the BAC, to
consider a temporary suspension of the CIP levy. According to the information he read, the
CIP levy has been in existence since about 1999 and currently has a total fund balance of
$9,200,000. The CIP levy is paid into this along with the liquor store revenues. He thought
consideration ought to be given to suspending the CIP levy for at least the 2008 cycle and
possibly for the 2009 cycle. He thought there were sufficient funds in the CIF to sustain that
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kind of a cut. He also thought there is no reason why some of the projects that are under
consideration couldn't at least be held up temporarily in 2008 and 2009. Last year we had a
$15,500,000 Community Center project, and he thought we should realistically look at how
much we should do at one time. Now we are considering the considerable start-up costs of
almost $1,000,000, and he thought there are grounds for the Council to consider slowing up
some of the other projects, much in the nature of Bob Lambert's suggestion to suspend some
of the parks projects and programs for a while. He said the BAC talked about combining the
Economic Development fund and the CIP fund which would give a total of$10,200,000.
Young asked if Council Member Duckstad was suggesting reducing the levy or suspending
it. Duckstad said he thought we should suspend it temporarily because we have adequate
funds in the CIP and Economic Development funds to progress with City needs.
Nelson said if you take the $1,000,000 out, that would offset the Community Center. She
cautioned it will be easy to take it off but hard to put it back on, and we then have the issue
of when do we put the whole thing back and take the increase in taxes. If you assume we
never put it back, then at some time you have to go up to a $1,600,000 levy per year to keep
capital improvements. She thought it just depends on how we want to run the CIF. She could
see if you wanted to offset the $900,000 we could bring the CIP back to $600,000 and next
year it would be easier to put some of the money back. She could see taking it down for a
year or two with the assumption of bringing it back.
Young asked Kotchevar for background on the CIP and how we got to where we are today.
Kotchevar clarified that the $9,200,000 was the balance at the time she presented it, and the
$8,000,000 is the actual projection for the end of the year. The CIP fund was originally
started when the City was rapidly growing and we were collecting a lot of interest from
special assessment projects. Because of a low percentage of delinquent taxes and good
General Fund operating results, we could transfer $500,000 to $2,000,000 in excess funds
into the CIP. A couple of years ago we converted the amount for the CIP levy to $1,000,000.
Young asked if there is any type of accounting or budgeting logic behind the $1,000,000
figure. Kotchevar said that is what we are projecting out, and we thought it was prudent to
levy something every year so we could stretch the fund out longer. Young asked if the levy
is tied to any particular project or group of projects. Kotchevar replied it is not tied directly
to any project. Dietz noted the biggest bite is pavement management, and our street system
is getting older.
Butcher said she was part of the original group that thought it was a good idea to have a
Capital Improvement Plan and set some money aside every year. She asked how we can
responsibly look at all the projects and not think that we have to put money away every year.
She said her worry is that we are not putting enough away because we are spending down
every year. When you look at what you need compared to what you have, she could not
disagree more with a discussion that we should put in less money. She thought it would
definitely hurt not to continue to put money away for these essential projects. She also
thought it was important to understand we had a referendum and our residents spoke and
gave their approval, knowing that this year might be a year when there would be a budget
increase. She said she wanted to be honest and to have the budget to appear as it is.
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Young said he wanted more feedback from staff about the Economic Development fund. He
understood it was originally created to help grow jobs. He also understood that since it was
created we approved the Major Center Area (MCA) and gave some consideration of using
the fund for the MCA. It is appearing to him more like a CIF rather than an Economic
Development fund, and he wanted to know how it would be used in the future. Jeremiah
thought there has been a shift based on the MCA study in regard to the allocation of those
funds; however, she thought the streetscape and wayfinding will benefit the businesses in
that area in the long run. She thought the key is that it is to directly aid businesses and the
MCA study just evolved how we would be using that fund. If there is a preference to go
back to the original primary use of that fund as gap financing, that could be done.
Duckstad said he didn't make the suggestion of eliminating the CIP fund levy himself, but it
came up as a result of a very pensive study by the BAC. As he understood it, the need for
the levy each year is cloudy. He has not been apprised of what specific projects will be
initiated and paid for in 2008 and 2009,but he was not under the impression it would use the
entire $9,000,000, so it seemed reasonable to suspend it if it would not interfere with
projects.
Young asked if we have closed on the sale of land to Presbyterian Homes. Neal said we
gave them an extension at the last council meeting. Jeremiah said it is now scheduled for the
middle of January. Young asked where that money as well as the proceeds from the sale of
the remnant from Fire Station 4 would go. Jeremiah said the current policy is to put it in the
Economic Development fund,but that is at the Council's discretion.
Butcher said it is important to know where the CIP money goes. She did read the BAC
report and noted it represented a lot of hard work, but she wholeheartedly disagreed with
their recommendation about the CIP funds. She said the City Manager also disagreed with
the BAC. She noted they are an advisory board, but more importantly we have to get the
question answered of where the money goes. Kotchevar said there is a detailed listing of all
projects on pages 9 and 10 of the draft CIP Detail. She said there is $4,300,000 planned to
be spent in 2008 and $2,850,000 in 2009.
Dietz noted the total for the five-year CIP projects is almost $15,000,000 and the fund
balance is $8,000,000 now. Adding $1,000,000 per year for the five years will bring the total
fund balance to $13,000,000, or a shortfall of$2,000,000.
Aho asked what other funding sources we have for the CIP and if the information shown on
Page 7 of the draft CIP Detail listed those funding sources. Kotchevar replied the
information on Page 7 is a summary of the expenditures that will be paid from the funding
sources. The Liquor Store profits go into the CIP, so in the summary those profits are listed
as expenditures from the Liquor Fund. Aho asked what the funding sources are. Neal said
there are four components: the liquor store; the levy; and the market value homestead credit,
which is a state property tax relief program where we grant tax relief and the state backfills
that number. He noted the property tax relief program has had some history of unreliability,
so we have decided to include that as a CIP funding source rather than including it in
operating revenue. He said it is not indexed to inflation and the number will continue to be
less. Young asked if we have received that check. Kotchevar said it is scheduled for
December. Neal said the fourth revenue component is the General Fund balance.
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Aho thought we had another source from the budget stabilization fund if we have an excess
over the 15% in that fund. Young noted this year the proposal was to buy down the
operating budget with that fund.
Nelson asked if there is interest earned on the fund balances. Kotchevar said interest is
calculated into the projection. Nelson asked how much that is per year. Kotchevar said it is
about $200,000 per year.
Dietz noted that the category, GTA Funding Under Review, is actually a category set up for
revenue from unknown sources. He said we will get a good share of revenue in that category
from Municipal State Aid (MSA) funds. No transportation projects are funded out of the
General Fund because the usual funding source for those is the MSA account and special
assessments. He noted the BAC said there should be a higher proportion of cost for the
Major Center Area (MCA) paid by businesses. He said the amount of transportation
improvements in this budget is nil, and there is a huge amount of pent-up demand for
projects. Because our system is relatively new, we spend about $2,000,000 per year to
maintain it, but that cost will increase. We hope someday to offset the maintenance costs
with a street utility, but we don't have that right now. He said our City road system is worth
$225,000,000 and as the system ages we will soon run short of funds to maintain it if we
keep the spending level at $2,000,000 unless there are other sources of revenue.
Duckstad noted the CIP levy has gone on since 1999 and has not always been at the
$1,000,000 level. He noted the fund has grown to $9,000,000 and we apparently have not
had huge demands on the fund such that the present issue of temporarily suspending the levy
makes sense. Neal gave an analogy with the Social Security trust fund where we are now
paying more into that fund than we are taking out, but every demographic study shows that
at some point that will reverse and there will be more taken out of the fund than is put into it.
He said we look at the capital improvements in Eden Prairie as a similar situation. We know
the CIP fund balance will be zero in a very predictable time if we don't change the way we
spend it or increase the input to the fund.
In terms of anticipating how much spending we will do on different things that could come
out of the CIP such as building maintenance, Aho asked if the numbers being presented
today are based on accurate looks at analytical data about infrastructure costs and anticipated
maintenance or are they just guesses. Neal replied we feel the numbers are accurate. The
facilities numbers are based on a detailed report put together a couple of years ago by
Facilities Manager Paul Sticha that listed the details of every physical facility we own with
the anticipated replacement and maintenance for each component of the facility. He said we
blend that information into the larger CIP fund. He noted Mr. Dietz and his staff have a
pretty good understanding of the utility and transportation side, as does Mr. Lotthammer on
the Parks side.
Aho thought the roadways are a larger component of the costs and asked how confident we
are in the estimates to maintain and replace those. Young interjected that he struggles with
something of a disconnect when we say we need funding to maintain the road system, but
there is no part of the CIP that includes that. Dietz said there is $2,000,000 for overlays.
Young said, beyond that, if it is a real concern for the City, we should be putting money
away for that and not use it as a justification to keep the levy. Dietz said some of the costs of
CITY COUNCIL WORKSHOP MINUTES
October 16, 2007
Page 11
the overlays are in the operating budget and always have been. He thought we are looking at
three choices within ten years: a permanent funding source for pavement maintenance;
increased taxes; or a massive special assessment. We have been consistent in putting as
much as we can towards maintenance, but right now this amount just barely gets us there.
He said his point is that we are woefully under funded in the long term, and to reduce the
levy flies in the face of what we are seeing.
Neal suggested that we should consider the risk of what happens to that CIP levy in the
future if we are under levy limits. He thought we need to remember that, if the Council
should decide to suspend the levy and there is a change in the legislature and they decide
that we need to have levy limits, under most circumstances the Council would not have the
discretion to add that back. He thought if the idea is to temporarily suspend the levy and re-
impose it at some time in the future, there is a risk that we could not do that.
Duckstad noted as recently as 2004 the levy was only at $500,000. He said we have had the
levy for nine years and accumulated a total of $9,000,000. In the past there has not been a
need for the full amount of money levied. His concern is that we take money every year
from the citizens in the community and put it in a fund that grows and grows, yet many of
the residents need that money. He thought if there is an issue of the fund balance being too
low, then you have to raise the levy,but he is suggesting at this time it is too high so there is
not a need for the levy.
Butcher asked what the $1,000,000 levy translates to for each homeowner. Nelson said it is
about $33 for a MSFH per year. Young said he did not like an argument for the levy that is
based on the yearly tax impact. Butcher thought it was important because it helps
homeowners to understand the concept.
Young said he agreed with Council Member Duckstad's sentiment that, all things being
equal, he would rather have dollars in the taxpayers' pockets. He said a pet issue of his is
how much money in actuality is going into the CIP. In our budget we assumed a 5%
delinquency in taxes, knowing full well that over 99% of taxes come in, and so the 4% was
dumped into the CIP. He thought this is not clear when you look at the balance sheet, and he
thought we should abandon that practice.
Duckstad said the temporary suspension would not put the City in jeopardy of not having a
realistic capital improvement budget. Young thought there is not a comfort level in
eliminating the levy and it would be a hard sell.
Aho said right now it is set at an arbitrary level, and he thought we could look at making an
adjustment to the levy. We could look at temporarily lowering it to offset the increase we are
seeing because of the Community Center. We did have a referendum to approve the
Community Center, but the non-recurring costs came in much higher than the referendum
amount. He wasn't sure people generally understood that additional on-going maintenance
costs would be close to $1,000,000 per year. He thought when we are getting hit with a step
function in one year it would be good to offset that increase by lowering the CIP to some
degree for one year, and that would be his recommendation.
CITY COUNCIL WORKSHOP MINUTES
October 16, 2007
Page 12
Neal thought the Council can be prudent for the future with the CIP and Equipment levy,
maintain our general service levels and also address the impact on the taxpayers by
addressing the budget through Version 1.5. The increase in general spending will be very
close to that of our peer cities around here because they had to certify their preliminary
levies just as we did. He thought this enables us to provide a low impact for taxpayers in
terms of that they are going to pay, and our colleagues in the peer cities are going to be very
hard pressed to match this tax impact.
Regarding the percentage increases, Aho said in Version 1.5 for 2008 there is a 5.5%
increase and a 2.8% increase for 2009. The increase over the two years is actually the
change from 2007 to 2009 and that is a higher percentage than the sum of the increases in
the two years. He thought that is a significant amount of increase and that concerned him.
Nelson suggested looking at Version 1.5 as having a 2.5% increase in spending for 2008
plus the amount per year for the Community Center which is about 3%. There is a 2.8%
increase in spending for 2009 plus the 3% additional for the Community Center. She noted
the new Community Center costs will be consistent but people passed a referendum saying
they wanted it. She thought this is a relatively lean budget that still provides for the
operating needs of the City.
Aho was concerned that the City is 95-98% built out and the population demographics of
Eden Prairie are flattening out. He did not want to see our budget growing at a higher rate
than our population base because that means someone has to make up the difference. Nelson
thought 2.5% or 3% is at or near inflation. Kotchevar noted the implicit price deflator for the
City is 4.3% for this year. Nelson said people call her and say they want value for their
money and, except for the extra costs for the Community Center, it looks like they are
getting pretty good value.
Dietz noted the Guide Plan update that will be available around the end of the year shows an
increase in population of 12,000 people, and some of what is included in the CIP is getting
ready for that increase. The category of MCA Funding Under Review includes projects that
will accommodate and anticipate the population increase. Aho thought we were at about 62-
63,000 population and were expected to top out at 72,000 in ten years. Dietz said we are at
65,000, and we think we may go up to about 77,000.
Young closed the workshop at 6:30 PM.
II. OPEN FORUM
A. MURSHID —BUDGET
This individual was not present at the meeting.
B. RICHARD PROOPS —BUDGET
Richard Proops, 9408 Clubhouse Road, said he had two subjects to address. First, he
thought most of the Council discussion during the workshop related to adjustments
to the General Fund, and he thought the budget reductions should be made to the
CITY COUNCIL WORKSHOP MINUTES
October 16, 2007
Page 13
total budget. He said if the CIP fund were reduced $1,000,000, there would be no
need to look at the General Fund to arrive at the Version 3.0 budget. Second, he
thought the subject of wage increases should be addressed because wages and
benefits account for 70% of the General Fund expenditures. He also thought the
Council should request periodic reports on capital expenditures.
C. KATHY BOWMAN—BUDGET
Kathy Bowman, 11592 Mt. Curve Blvd., said she was against the proposed cuts to
the Human Services budget. She said the various human services provided have been
very important in maintaining the balance of income levels in our community even
though they amount to a very small part of the budget. She thought we need to be
welcoming and have innovative programs to promote diversity in our community.
III. OPEN PODIUM
IV. ADJOURNMENT