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City Council - 05/16/2017 - Workshop APPROVED MINUTES CITY COUNCIL WORKSHOP & OPEN PODIUM TUESDAY, MAY 16, 2017 CITY CENTER 5:00—6:25 PM, HERITAGE ROOMS 6:30—7:00 PM, COUNCIL CHAMBER CITY COUNCIL: Mayor Nancy Tyra-Lukens, Council Members Brad Aho, Sherry Butcher Wickstrom, Ron Case, and Kathy Nelson CITY STAFF: City Manager Rick Getschow, Public Works Director Robert Ellis, Community Development Director Janet Jeremiah, Parks and Recreation Director Jay Lotthammer, Finance Director Sue Kotchevar, City Attorney Ric Rosow, and Recorder Jan Curielli GUESTS: Chris Knopik and John Lorenzini, Clifton Larson Allen LLP Workshop - Heritage Room H I. 2016 COMPREHENSIVE ANNUAL FINANCIAL REPORT/AUDIT Mayor Tyra-Lukens called the workshop to order at 5:35 p.m. Council Member Case was absent. Chris Knopik, representing Clifton Larson Allen LLP, gave a PowerPoint presentation of the 2016 Comprehensive Annual Financial Audit (CAFR). He said Eden Prairie received an unmodified (clean) opinion for the December 31, 2016 financial statement audit, which is the best opinion possible. In regard to internal control items, no material weaknesses were found, nor were any significant deficiencies found. The auditors conducted applicable testing and completed a 25-page check list to verify that the City complied with Minnesota State statutes. There were no findings from that verification. John Lorenzini, representing Clifton Larson Allen LLP, said the general fund revenues were within 1% of budget, and the total expenditures came in at 1.23% below budget,resulting in an increase in the fund balance of$611,295. Tyra-Lukens asked if we have a policy of maintaining a general fund balance of at least 50%. Kotchevar replied it is 50% of next year's tax levy and 15% of next year's budget set aside for budget stabilization and contingencies. Mr. Knopik said the residual balance at the end of the year is on track. Mr. Lorenzini reviewed the general fund revenues and expenditures. He noted the functional breakdown of expenditures has been consistent for the past five years. Aho asked if that is typical for most cities. Mr. Knopik replied there are some unique things in Eden Prairie, such as the additional money the City puts towards some of the nicer amenities because the money not spent on debt service can be used for those amenities. He noted they like to see consistency, and that is the case for Eden Prairie. City Council Workshop Minutes May 16, 2017 Page 2 Mr. Lorenzini reviewed the enterprise funds. The operating revenue for the water fund increased from the prior year because of additional usage and the rate increase. There was a slight increase in operating revenue in the wastewater fund, and the stormwater fund is making progress towards the cash goal of$2,043,000. The liquor fund operations had a 5% decrease in sales, but a $700,000 transfer to the Capital Improvement/Maintenance fund was made despite that decrease. He said the gross profit percentage was down slightly from 2015 when the City's gross profit was above the seven-county metro area. Aho asked if the liquor fund sustained a net profit or a loss. Kotchevar replied there was a small profit from operations of about 5%. Getschow noted the biggest competitor for our liquor stores opened on Memorial Day weekend in 2016, so the figures reflect six months of heavy competition. Kotchevar said 2017 will be a transition year,but it should be static after that. Mr. Knopik commented the City is maintaining the gross profit percentage and is in line with or above peer cities. Mr. Knopik reviewed the estimated market values (EMV). He said the City is currently just short of the peaks in EMV's seen in 2009. Tyra-Lukens asked if the increase is consistent between single family homes, multi-family, and commercial. Jeremiah said the increase is not consistent between the types of housing, and apartments appear to be driving this market. Getschow noted residential still has a lot of value, and all of the sectors have increased in value. Mr. Knopik reviewed the tax capacity and rates, noting there is an inverse relationship between tax capacity and tax capacity rate. He said tax capacity in 2016 increased from 2015, and the tax rate for the City's portion of property taxes decreased from 33.75% in 2015 to 32.14% in 2016. Getschow said the Council has discussed the results of the City survey that showed people do not think the tax rate is lower; however, he thought people are looking at all their taxes, not just the City's portion. We are also in a county that has the second highest rate of the seven-county metro area. The overall tax rates for Eden Prairie are 12.73% lower than the metro area and 15.14% less than the state as a whole. Tyra-Lukens asked if the rate for special taxing is mostly because of the watershed districts. Mr. Knopik said that was the case throughout the metropolitan area. Mr. Knopik said the one of the biggest drivers of the differences in revenues per capita between Eden Prairie and other cities of similar size is the fact that Eden Prairie has not received local government aid (LGA) for over a decade. He reviewed the expenditures per capita, and commented Eden Prairie is able to spend additional money on things such as parks and recreation, public safety and community development programs because the City is not spending as much on debt service as do other cities. Tyra-Lukens noted it is amazing we have a higher tax capacity considering what we lose through fiscal disparities. Getschow noted the value of state-wide median value homes is lower, but there are lower costs of living in other areas of the state. Butcher Wickstrom noted it is such a great message,but it is very hard to explain. Getschow noted the fiscal disparity program is a commercial tax base sharing program that, if it did not exist, Eden Prairie residents' taxes would have been 7% lower. Mr. Knopik said the financial statements and the required OSA financial reporting form will be submitted to the required state agency. They do not expect any difficulty in that process. Also, the CAFR will be submitted to the GFOA before the June 30, 2017 deadline. City Council Workshop Minutes May 16, 2017 Page 3 Mr. Knopik commented on two emerging issues--Governmental Accounting Standards Board Statement Nos. 74 and 75. He said the City will not be affected much by Statement No. 74; however, Statement No. 75 deals with post-employment benefit liability on financial statements. He said four of the five allowable methods of calculation for that liability have been eliminated so that all governments across the country will be using the same method. The new standard will mean the City will have to change cost methods to use an entry-age cost method, and that will result in a slight increase in liability. Kotchevar said there will not be a huge impact for us. Mr. Knopik noted the new standard hits a lot of school districts more because they often paid health insurance premiums for the life spans of retirees. Mr. Knopik reviewed the pension liabilities and assumptions. He noted PERA controls all three pension plans, and also controls what rates are used by the actuaries. In 2016 PERA started to move some assumptions for mortality rates in particular because people are living two-three years longer. The coordinated plan has updated their mortality tables to the 2014 rates,but Police and Fire did not. This affects the funding percentage which trickles down to member organizations. The City cannot control what PERA is doing on this and continues to pay the contributions required; however, this filters into the operations side and can bring a big swing in liabilities. Getschow noted PERA is a state-wide pension program that has to be shown on our balance sheet as a liability. We have to pay in, but we also have to account for estimates and assumptions. Mr. Knopik said the City is doing what is required, and that is the only thing that can be done. Aho asked if the funding percentage that has gone down from 2015 to 2016 actually should be going up. Mr. Knopik said that was correct;however, there is only one state-wide plan in the country that is fully funded. Kotchevar noted PERA is making some changes towards full funding. Mr. Knopik reviewed the assumptions regarding life expectancies. Aho commented he heard life expectancies had gone down. Mr. Knopik said that occurred just recently, so it will take years to see it go down on the life expectancy tables. Mr. Knopik said Eden Prairie has an Aaa bond rating and is one of only 15 cities with that rating out of the 225 Minnesota cities analyzed. He noted the City received a GFOA Certificate of Excellence in Financial Reporting for the 2015 CAFR audit, and he expects that will again be the case in 2016. Tyra-Lukens asked if any of improvements suggested are included on tonight's Consent Calendar. Kotchevar replied they review the financial policies every budget cycle and plan to beef up certain areas. There will be more record keeping and documentation of what we do, but there will be no significant changes. II. 2018-2019 BUDGET Getschow reviewed the timeline and process for the 2018-2019 budget. He noted in 2015 when we put together the 2016-2017 budget we needed to adjust some of the revenues for the Community Center and lower some expenditures in other areas. The work plan process leads into the discussion of the current budget. We received the results of the community survey in City Council Workshop Minutes May 16, 2017 Page 4 March and held a planning session on April 18. All the departments are putting together their proposed budgets for 2018-2019, and those numbers will be presented at a workshop in July. We will follow up those discussions in August and September as needed before a preliminary levy and budget is adopted in September. In the late summer we plan to do some community engagement using our online resources. Getschow said between September and December the Council could lower the budget and levy but cannot raise it above the preliminary amount. One of the issues is that sometimes in July and August we don't know what our fiscal disparity and TIF contributions will be. We will, however, know the figures for the health and dental costs at that time. He noted 85% of the budget is the wages and benefits, and the internal services fund is somewhat fixed. We will spend some time between the preliminary levy and budget talking about the enterprise funds. He said this is the year to adjust our franchise fees. We will talk about what some of our peer cities have done, because 15-17 cities are now using franchise fees. Butcher Wickstrom asked if we anticipate any requests for new hires. Getschow said staff does not expect much in the way of additional hires. There will be some discussion about wage increases for the duty crew and other employees. Getschow reviewed the budget objectives. Aho asked if we expect revenue from building permit fees to continue to be strong. Getschow replied staff believes we can continue strong at our current pace. We keep an inventory of scattered sites that are left for development, and there will be redevelopment. Tyra-Lukens asked about redevelopment plans. Jeremiah replied we are looking very closely at the Golden Triangle area and developments in traffic as well as growth occurring in Edina. There are other areas with opportunities, such as the LRT station areas. Getschow said the Southwest Station development takes out some commercial facilities, but brings in higher-level housing development. Getschow said the June Council workshop will be an update on our historic properties. There will be a presentation that shows the last few years of projects that have been done on those properties. We will invite the Heritage Preservation Commission and the Historical Society to attend the workshop and will invite tenants of the historic properties, as Council Member Case suggested. We will review the current condition of the historic properties and the work done on them, as well as other work being done such as interpretive signs and efforts for education. He noted Mr. Lotthammer will do an overview of the next project, which is the Overlook project. He asked Council Members for any other items to include in the workshop. Butcher Wickstrom asked if we have five and ten year plans for each of the current properties. Getschow said the inventory is done annually and any planning is in the City's CIP. There is money budgeted every year for maintenance of the properties. Butcher Wickstrom suggested we see what we have and what we are spending and then identify where the holes might be so we can look for other funding. Getschow noted we received a grant from State Historic Preservation Office for half the cost of the roof of the Smith Douglas More house. We will pull together all that information as it relates to the properties. City Council Workshop Minutes May 16, 2017 Page 5 Open Podium - Council Chamber Bryan Maloney, Vice President of the Lake Riley Improvement Association, said Mr. Lotthammer attended their annual meeting and walked the members through the updates planned for Riley Lake Park. They are very excited about the improvements being planned; however, they have concerns that the increased number of trailer parking stalls at the park will create safety concerns if the number of boats on the lake increases. Lake Riley is a small lake, and there are practical limitations to the number of boats on the lake. There is increased development around the lake and also more shared access development. He said the DNR estimates about 10% of the homeowners are on the lake at any given time. The proposed number of trailer parking spots will be increased from 15 to 22. He understood the increase is an attempt to eliminate some parking that occurs on nearby roads because of safety concerns for pedestrians. He suggested the "No Parking" zone on Pioneer Trail could be extended. The Association has sent a letter to Council Members detailing their requests to reconsider the additional parking spaces and to assess the impact of adding those spaces to see if it really would reduce the parking along Pioneer Trail. Tyra-Lukens thanked Mr. Maloney for his comments and noted the project is on tonight's Council agenda, but not as a public hearing. IV. ADJOURNMENT