City Council - 05/21/2019 - Workshop APPROVED MINUTES
CITY COUNCIL WORKSHOP & OPEN PODIUM
TUESDAY, MAY 21, 2019 CITY CENTER
5:00—6:25 PM, HERITAGE ROOMS
6:30—7:00 PM, COUNCIL CHAMBER
CITY COUNCIL: Acting Mayor Brad Aho, Council Members Kathy Nelson, Mark Freiberg,
and PG Narayanan
CITY STAFF: City Manager Rick Getschow, Police Chief Greg Weber, Fire Chief Scott Gerber,
Public Works Director Robert Ellis, Community Development Director Janet Jeremiah, Parks and
Recreation Director Jay Lotthammer, Administrative Services/HR Director Alecia Rose,
Communications Manager Joyce Lorenz, City Attorney Ric Rosow, and Recorder Katie O'Connor
Workshop - Heritage Rooms I and H(5:30)
I. 2018 AUDIT AND FINANCIAL STATEMENTS
Acting Mayor Aho introduced the auditors from CliftonLarsonAllen (CLA).
John Lorenzini, Audit Manager, and Troy Gabler, Senior Associate, presented an overview
of the unmodified opinion of the 2018 financial statement audit. Lorenzini stated there were
no material weaknesses, no significant deficiencies, and no legal compliance findings. In
regards to the financial statements, there are two new accounting policies to be adopted:
Governmental Accounting Standards Board (GASB) 75 and GASB 89. GASB 75 now
includes the full liability for retirees having access to the City's health insurance. There is no
change in cost to the City,but rather a more accurate way of accounting. GASB 89 removed
the standard requiring the City to capitalize interest on debt as part of capital assets.
Gabler provided an overview of the financial results. The general fund revenues totaled $2.1
million dollars, about five percent over budget this year partially due to a large increase in
building permits. Expenditures totaled $242,000, about one percent under budget, resulting in
a $2 million fund balance increase for 2018. This will help replenish the budget after
focusing on paying off a significant portion of long-term debt in recent years.
Council Member Narayanan inquired if there are federal penalties for the City gaining more
revenue than budgeted. Gabler responded it is important for the City to have reserves,but
overall it makes sense to have more revenue than expenditures. Aho added the budget
stabilization fund is in place to continue to replenish the reserves with excess revenue.
Gabler stated in regards to the unassigned fund balance, working capital accounts for 50
percent of next year's budgeted tax revenue. Budget stabilization accounts for 15 percent of
next year's budgeted expenditures in case of unexpected projects. There were no budgeted
deficits for 2019. General fund revenues went up about seven percent compared to 2017.
General fund revenues consist of 72 percent property taxes, 13 percent charges for services,
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May 21, 2019
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ten percent licenses and permits, three percent intergovernmental, and two percent for other
revenues.
Narayanan inquired what percentage of property taxes are acquired from residential versus
commercial properties. Gabler responded those numbers should be available through finance.
Gabler stated general fund expenditures are up about three percent since 2017. About 50
percent of expenditures are utilized by the police and parks and recreation departments. In
regards to enterprise funds, the water fund revenue increased 7.3 percent from the prior year
due to a combination of increased tier rates and base charge. The cash fund goal of
$12,441,105 was met. Wastewater fund operations revenue increased 8.4 percent from the
prior year. The goal of$4,878,520 in cash reserves was met. It is important for all three of
the enterprise funds to have cash reserves so special assessments are not needed.
Aho stated it is important to maintain cash reserve funds because the system will eventually
need to be replaced as it ages. Reserves are specifically useful in the case of sewer backups.
Ellis added the City holds an insurance policy covering City water and sewer customers.
Gabler stated operating revenues of the stormwater enterprise fund are up 15 percent from
the previous year. The cash flow provided by operations was $1.7 million in 2018. In 2013,
operating expenses were exceeding the revenue of the fund and the City had to borrow from
other funds to cover stormwater fund expenses. Since 2013, the City has been reimbursing
those borrowed funds. Revenues now exceed operating expenses and the City is building up
reserves. Total cash and investments balance was $2.6 million at year-end and operating
expenses for 2018 were $1.3 million.
Council Member Freiberg inquired when the municipal liquor operations began business
hours on Sundays. Getschow responded in July of 2017. Freiberg noted liquor sales have
remained consistent despite having an extra day of operations throughout the week. Aho
added operating costs had a minor increase. Lorenzini stated the liquor operations fund
transferred $800,000 to the capital improvement/maintenance fund. Net profit is up $37,000
or 5.1 percent from 2017 for the liquor operations fund. The gross profit percentage increased
slightly in 2017 from the prior year and is higher than the seven county metro area.
Lorenzini stated in regards to the estimated market values, there was a$662 million increase
from 2009 to 2019. The market value has recovered from 2009 and surpassed peak market
values from 2009 by $190 million. Getschow noted 2019 value showed improvements at
$10.7 billion, and 2020 estimated market values will be at$11 billion.
Lorenzini stated there is an inverse relationship between tax capacity and tax capacity rate in
the City. The net levy used to calculate these values includes the general fund, capital and
debt service levy. The 2019 tax rate is 31.53 percent. The City continues to have a lower tax
rate than surrounding cities. Revenues per capita are within three dollars of the prior year and
$66 more than cities of comparable size. The largest differences of similar sized cities to
Eden Prairie are between intergovernmental and property taxes. Total expenditures per capita
decreased $13 from 2017,primarily due to decreases in community development and debt
service. Higher debt service expenditures in 2017 equate to paying down public facilities
revenue bonds. The City's expenditures per capita are $96 more than other similar sized
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May 21, 2019
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cities in the State. This is primarily due to the City's parks and recreation, public safety, and
community development programs.
Lorenzini stated next steps include submittal of the financial statements to the Office of the
State Auditor (OSA) and the Comprehensive Annual Financial Report(CAFR) submittal to
the Government Finance Officers Association (GFOA)by June 30, 2019. Effective
December 31, 2019, the GASB Statement No. 84 will impact the presentation of the City's
agency funds. Aho confirmed the reporting will change but the material will not. Lorenzini
confirmed this statement.
Lorenzini stated effective December 31, 2020, the GASB Statement No. 87 will require a
new lease standard. This standard eliminates operating leases. Leases will need to calculate a
debt and right-to-use asset. Aho inquired if there are a substantial amount of leases.
Kotchevar stated the City has a log of all its leases, including equipment such as copiers and
printers. Lotthammer added there are leases in place for City historical properties. Narayanan
inquired if the City leases emergency vehicles. Kotchevar responded no.
Lorenzini stated the City has an AAA bond rating. Out of 357 cities analyzed within
Minnesota, only about 28 have an AAA bond rating. Awarded last year, and every year since
1990, the City received the GFOA Certificate for Excellence in Financial Reporting for the
CAFR audit.
Aho commended City staff and the auditors for their work and suggested these impressive
awards and financial figures should not be taken for granted.
Finance Manager Kotchevar provided a review of the City's financial policies. The City
follows the GFOA's best practices. Financial policies are central to a strategic, long-term
approach to financial management. These policies help support good bond ratings and
mitigate risks to financial condition. The objective of the policies is to protect and enhance
the Council's policymaking ability, provide sound principles to guide the decisions of Staff
and Council, improve and maintain infrastructure, and maintain the bond rating. The City
always budgets for less than projected revenue. It is important for outside organizations to
know the City prepares a CAFR and goes through an audit annually. The City will issue debt
for a project with at least five years of life. Bond rating agencies want to see current debts
being paid off. However, the debt balance ideally should not be too low. The City should
continue issuing debt in order to invest in the community. Debt is planned for through the
Capital Improvement Plan process. Portions of the budget are kept for both emergencies and
stabilization.
Aho thanked Kotchevar for both the report and the updates, and commended the auditors for
a job well done.
Open Podium - Council Chamber (6:30)
II. OPEN PODIUM
III. ADJOURNMENT