HomeMy WebLinkAbout04 02 2018 Long Range Financial Planning Report and Presentation
4646 Dakota Street SE
Prior Lake, MN 55372
CITY COUNCIL WORKSHOP REPORT
MEETING
DATE:
APRIL 2, 2018
PREPARED
BY:
FRANK BOYLES, CITY MANAGER
CATHY ERICKSON, FINANCE DIRECTOR
PRESENTED
BY:
CATHY ERICKSON
TOPICS: A. LONG-RANGE PLANNING
DISCUSSION: Introduction
The purpose of this workshop item is to provide information to the Council on six topics
which, when taken together, represent our long term financial planning:
1) General Fund 2017 year-end results
2) Tax Levy Impacts (growth, inflation, debt service)
3) 5-year property tax projections
4) 2019 Preliminary Budget
5) 2019-2023 CIP
6) Service Impacts
To prepare the 5-year property tax projections, 2019 preliminary budget and 2019-2023
CIP the staff has made numerous assumptions which we will identify in the presentation.
For this session to be most effective, we are asking that the city council discuss the
assumptions and identify which you support. For those that are not supported by the city
council, the staff will remove them from these documents and share the results in
subsequent meetings.
History
The City Council was provided with a Budget/CIP Adoption Schedule at the March 19
Council Meeting (copy attached). The schedule calls for Budget/ CIP related work
sessions on June 18(budget/CIP) and July 16(CIP).
The budget process typically begins with preliminary yearend results, a discussion of the
factors which impact the property tax levy, and a review of a five-year tax projection.
Current Circumstances
1. General Fund 2017 Year-End
The following chart provides a summary of the anticipated changes in revenues and
expenditures for 2017 and the impact on the fund balance:
2017 YE
Revenues/Transfers In $ 13,400,390
Expenditures/Transfers Out 13,208,930
Excess/(Deficiency) of revenues over expenditures $ 191,460
Page 2
The 2018 amended budget includes the use of reserves for one-time purchases as
follows:
The following table shows the impact on the General Fund reserve balance at year
ending 12/31/2017:
The Comprehensive Financial Management Plan (CFMP) establishes the goal of
maintaining a General Fund unrestricted fund balance of 40-50% of projected
expenditures for the subsequent year. The policy recognizes that this need could
fluctuate with each year’s budget objectives and appropriations such as large capital
expenditures and variations in the collections of revenues.
The above chart shows the General Fund reserves in excess of the amount
recommended in the CFMP. Staff recommends using the funds above the 50% fund
balance target towards funding the long-term capital plan items.
• We currently have a funding need for trail replacement and equipment
replacement.
• The funds could also be used to establish a debt service reserve that could be
used to smooth the annual debt service tax levy that can occur based on timing
of partnership projects with the state, county, SMSC, etc.
• The Council has also mentioned the desire to providing funding to the EDA.
Staff does not recommend using the reserve balance to fund current operations.
2. Tax Levy Impacts
Cartegraph 18,990
Budget carryforward for Fire gear 15,000
Laserfiche 40,000
Transfer to PIR Fund (4/16 Council item)148,000
Total $221,990
2018 Assigned Use of Funds
General Fund Balance - Beginning of Year $ 6,684,920
2017 excess (deficiency) of revenues over expenditures 191,460
General Fund Balance - End of Year 6,876,380
2018 Assigned Use of Funds (221,990)
12/31/2017 Unrestricted General Fund Balance $ 6,654,390
2017 Unrestricted Fund Balance as a % of 2018 Expenditures 52%
2017 Unrestricted Fund Balance
Page 3
Preliminary estimated market values have increases $203.6 million or 5.12% from 2018
to 2019, of which approximately $56 million or 1.42% is from new construction.
Preliminary taxable market values have increased $197 million or 6% from 2018 to 2019,
of which approximately $620,000 or 1.8% is from new construction. Based on the 2018
tax rate, new construction will conservatively generate an estimated $205,000 in
property taxes. This equates to about 1.7% of the 2019 property tax levy
The following chart provides a possible basis for establishing the 2019 tax levy based on
factors that impact the Prior Lake community:
Growth (New Construction) 1.70%
CPI-U (MSP) 2.00%
Debt Service* .99%
Total Property Tax Levy
Considerations
4.69%
*Estimated based on preliminary cost of 2018 projects. Once the projects are approved/bonding completed,
the City is committed to the increase in debt service for the projects.
This levy guideline assumes that the long-term plans are funded at levels reflected in the
CIP approved by the previous city council. If not, then we are not able to cover our annual
equipment/facility replacement costs.
In order to fund the present assumption in the 2019 budget draft, a preliminary tax levy
increase of 6.62% is needed. This is above the 4.69% levy that considers growth,
inflation, and approved debt service due to funding for trail replacement, equipment
replacement, and technology as shown below:
City plan includes the following:
100,000
50,000
84,000
1 234,000
1) Funding for annual trail replacement The levy currently
includes $0 for this, so this funding will address current needs,
not growth.
2) Funding for the equipment replacement plan. This is needed
as we are striving to get to a stable long-term founding source
for equipment.
3) Technology plan costs (VOIP system and SAN Controller)
2019 Tax Levy
Guideline
2019 Prelim
Levy Variance
4.69%6.62%1.93%
Total Proposed
Property Tax Levy 566,074 799,489 233,415 1
Page 4
3. Five Year Property Tax Projections:
The following plans and priorities have been included in the five-year plan:
• Commitments to long-term plans (2017 – 2021 CIP)
o Transportation Plan,
o Equipment Replacement Plan,
o Park Equipment Replacement Plan
o Facilities Management Plan
o PIR Fund for Street Overlay
o Technology Plan
• Debt obligations (existing and proposed);
• Increases/decreases in revenues and expenditures (based on historical information
as well as current activity)
• One additional FTE per year has been added to reflect the impact of community
growth and to maintain existing levels of service.
• Contingency funding for Emerald Ash Borer (EAB) management
Based upon the factors noted above, the projected tax levies and the corresponding
breakdowns are shown in the following table:
A summary of the factors/assumptions driving the changes for 2019-2023:
• Personnel Costs commitments made as part of our labor agreements.
• Personnel Adds: The plan includes a new FTE for each year. Staffing priorities
are determined by the City Manager and brought to the Council on an annual
basis via a Personnel Plan work session.
LONG RANGE FORECAST
Adopted Budget
2018 2019 2020 2021 2022 2023
Tax Levies:
General 7,779,182 8,213,358 8,826,039 9,235,439 9,772,104 10,288,012
Equipment Revolving Fund 550,000 600,000 600,000 600,000 600,000 600,000
Revolving Park Equip Fund 238,184 339,292 433,276 527,649 632,832 903,913
Facilities Management Fund - - 30,000 80,000 80,000 105,000
PIR Fund - 95,000 175,000 175,000 185,000 185,000
EDA Fund 140,000 140,000 140,000 140,000 140,000 140,000
Debt Service 3,370,172 3,489,377 3,696,058 4,134,348 4,609,593 4,792,951
12,077,538 12,877,027 13,900,373 14,892,436 16,019,529 17,014,876
Breakdown of Change in Levies:
General 586,390 434,176 612,681 409,400 536,665 515,908
Equipment Revolving Fund 175,000 50,000 - - - -
Revolving Park Equip Fund 24,778 101,108 93,984 94,373 105,183 274,981
Facilities Management Fund - - 30,000 50,000 - 25,000
PIR Fund - 95,000 80,000 - 10,000 -
EDA Fund - - - - - -
Debt (276,784) 119,205 206,680 438,291 475,244 183,358
Total Change 509,384 799,489 1,023,345 992,064 1,127,092 999,247
General 8.15%5.58%7.46%4.64%5.81%5.28%
Equipment Revolving Fund 46.67%9.09%0.00%0.00%0.00%0.00%
Revolving Park Equip Fund 11.61%42.45%27.70%21.78%19.93%43.45%
Facilities Management Fund n/a n/a n/a 166.67%0.00%31.25%
PIR Fund n/a n/a 84.21%0.00%5.71%0.00%
EDA Fund 0.00%0.00%0.00%0.00%0.00%0.00%
Debt -7.59%3.54%5.92%11.86%11.50%3.98%
Total Change 4.40%6.62%7.95%7.14%7.57%6.24%
Projected
1
2
3
4
5
6
7
Page 5
• Contingency funding for Emerald Ash Borer (EAB) management. Director Wedel
has asked that we keep the EAB contingency funding in the long-range plan for
an additional year. He will evaluate it again during the preparation of the 2020
budget cycle to determine if the funding is still needed.
The table below shows the annual funding for the new FTE and the EAB contingency
expenditures:
• Funding for four miles of annual street overlay. The annual street overlay project
has historically been funded from the General Fund. The annual General Fund
levy included annual funding for less than two miles of street overlay. In the
1990’s the City of Prior Lake was adding about four miles of streets per year.
Staff recognized the need to complete about four miles of overlay per year to
extend the life of our streets and minimize our future street reconstruction costs.
If an overlay isn’t done within the 20-25 yr. age range, the street would then need
a full reconstruction. To achieve this goal the Council approved assessing a
portion of the overlay costs to the benefited property and utilization of a PIR Fund
in 2017. Revenues collected in the PIR Fund can be used to pay current and
future overlay project expenditures. Over time, the PIR fund may be self-funding
if a significant portion of special assessments are prepaid. However, it currently
requires funding from a General Fund transfer, debt issuance, or tax levy. By
utilizing the PIR Fund and special assessments, the City can complete more
street miles with a smaller impact on the tax levy.
• Funding for our long-term plans (Equipment, Park Equipment, Facilities and
Transportation) in accordance with 2017-2021 approved CIP.
• Debt service Obligations: The transportation plan has the largest impact on the
tax levy due to the issuance of debt.
If the city council wishes to reduce one or more of these budgets and the associated tax
levies, then we must reduce one or more of these expenditure areas.
4. 2019 Preliminary Budget
Focusing on 2019 only, the primary drivers (numbered below) of the increase are as
follows and correlate to the numbers shown on the table above.
#1 - Increase in tax levy for the General Fund - $434,176
General Fund Expenditures:
o Personnel Costs per Council approved labor contracts
o Personnel Costs for one additional FTE for 2019 ($80,000).
o Personnel Costs also include $90,000 in the Engineering Dept for a
portion of the previous City Engineer’s salary. This is not a 2019
Page 6
addition. In 2018, these funds are to be used for contracted
engineering work for development reviews and street projects. Staff
does not recommend eliminating this from the budget until the
workload needs of the acting PW Director/City Engineer and
engineering staff have been evaluated under the current structure.
o Current Expenditures – modest cost increase for materials, supplies
etc.
o Capital Outlay – Technology plan calls for an increase of $84,000
from the prior year. The plan includes $70,000 for the replacement of
the Voice Over IP (VOIP) system and $16,000 to upgrade the storage
area network (SAN) controllers. Staff is exploring the option of using
the Scott County VOIP system to minimize our cost of a phone
system replacement.
General Fund Revenues:
Significant changes in anticipated revenues other than property taxes include:
• Increase in Payment In lieu of Taxes of $90,000 in accordance with our two-year
agreement with the SMSC. ($70,000 of the increase is an annual contribution for
2017-2019 for a drug taskforce officer.)
• Transfers In – $11,000
#2 - Increase in tax levy for the Equipment Revolving Fund - $50,000
The Equipment Replacement Plan calls for an annual increase in the tax levy for the
Revolving Equipment Replacement Fund. The proposed phasing plan calls for a
$50,000 increase in 2019. At that time, annual funding will remain at $600,000.
#3 – Increase in tax levy for the Revolving Park Fund - $101,108
The Revolving Park Equipment Fund was established to provide for the replacement of
park equipment and trails. The proposed phasing plan calls for a tax levy increase of
$100,000 per year for trail replacement until annual funding is at $500,000. Historically,
the trail replacement funding has been cut from the budget to minimize the tax levy
impact. Funding of $100,000 is included in the 2019 plan
#4 - No tax levy for the Facilities Management Fund - $0
#5 - Increase in tax levy for PIR Fund annual street overlay - $95.000.
#6 - No tax levy change for the EDA Fund – $0
#7 - Increase in tax levy for debt service obligations - $119,205 The City has debt
service of $425,000 falling off in 2019, but the CIP includes debt service for proposed
CIP projects of $538,000 as shown on the table below.
2019
Debt:
Existing CIP (425,209)
Proposed CIP 537,549
Market Referendum 6,866
Change in Debt Levy 119,205
Page 7
The 2018 CIP projects that require bonding and impact the 2019 debt service tax levy
are as follows:
These are preliminary debt service numbers as we have not received bids for our 2018
projects yet.
5. 2019 – 2023 Capital Improvements Plan
The property tax projections include the projects that were included in the approved
2017 – 2021 CIP. Increases in the debt service levy are due to debt repayment on
these planned reconstruction/capital projects. The plan is amended on an annual basis
and will be completed in preparation for the council workshops on June 18 and July 16.
Since the transportation plan has the largest impact on the tax levy due to the issuance
of debt, Staff would like confirmation that we should continue planning on the
reconstruction of 2 miles of streets annually. If not, specific direction should be given to
help ensure that the plan presented at the CIP workshops meet Council expectations.
The property tax projections also include a phasing plan for increasing funding levels in
the Revolving Equipment Fund and funding for sidewalk/trail maintenance and/or
replacement.
The Facilities Management Plan (FMP) is supported by the Facilities Management Fund
and includes funding from Enterprise Fund transfers and a dedicated general tax levy
that is scheduled to start in 2020. The initial amount is currently projected to be
$30,000.
6. Service Impacts
In the past, we have updated the Council on some of the staff challenges in maintaining
the level of service provided within the constraints of available resources including
funding and staff levels. Compounding this challenge is the desire to “catch-up” on
deferred maintenance (streets, trails, etc.) and the increasing need to provide services to
a growing community.
The Council responded to staff requests and community feedback and added staffing in
1) the Police Departments to help address crime prevention, manage the evidence room
and increase proactive policing and 2) the Public Works department to help address the
current parks/streets/trail maintenance workload.
Improvement
Estimated Annual
Debt Service Tax
Levy Impact
County Wide Flashing Yellow Signal Conversion 13,500
Duluth Avenue / TH 13 Signal 115,000
Franklin Trail (CR 44 to Summer) (1972)133,000
Huron/Wildwood/Woodside/Santee (1986)115,300
Fire Pumper 84,000
Fire Station #2 SCBA and Parking Lot 78,000
Total 538,800$
Page 8
Staff can provide further detail of the program areas we believe should be enhanced
upon council request.
Conclusion
Our tax levy request above a target of 4.69% is primarily for funding for our long-term
plans for trail and equipment replacement and an increase in technology spending to
replace our VOIP phone system and SAN controller.
If the Council is considering a tax levy below what we have projected for 2019, then Staff
is seeking direction regarding the Council’s priorities for cutback in 2019. The more
specific the direction, the better regarding:
• Replacement of the VOIP phone system in 2019
• 2018 street projects (impacts 2019 debt service tax levy). Shift street project(s) to
a future year.
• 2019 funding for equipment
• 2019 funding for parks equipment/trails
• 2019 funding for the street overlay project
• 2019 FTE add
Other long-term options to consider are as follows:
• Adjust our debt service levy from even annual debt service payments to one that
targets an annual debt service cash flow of $3.2- $3.5M and still meets our
Comprehensive Financial Management Policy. This would help smooth the debt
service levy impact in 2020-2023. Staff would work with our financial advisor to
develop this plan.
• Establish a debt service revolving fund to be used as projection against spikes in
debt service in a given year. The city could build the balance in this fund by
allocating a portion of General Fund reserves in excess of 50% to debt service
on an annual basis. As the debt service reserve is built up, it can be used to
smooth the annual debt service tax levy that can occur based on timing of our
street reconstruction needs and partnership projects
• Utilize General Fund reserves to fund a portion of the long-term plans.
• Reduce the target of two miles of street reconstruction annually. Staff does not
recommend this approach. The city has over 100 miles of streets. At the rate of
two miles of replacement per year, it will take 50 years to replace all streets.
Additionally, our annual street maintenance costs for sealcoat, filling
cracks/holes, etc. will increase.
For the years 2020 to 2023, Staff would like to schedule one or more sessions with the
Council to discuss a multi-year revenue and expenditure strategy. To the extent
possible, the goal of this effort is to align Council priorities with the cities operational and
capital needs as identified by Staff and resident expectations.
April 2, 2018
1
General Fund 2017 Year-End
Tax Levy Impacts
Five-Year Property Tax Projection
Options to Moderate the Tax Levy Change
Agenda
2
Revenues exceeded expenditures by $190k
Revenues -105% of budget
Lakeridge and Pike Lake Marsh permit/plan check fees
Summit Preserve/Trillium Cove/Haven’s Ridge developer agreement
revenue
SMSC funding for drug taskforce officer
Expenditures -98% of budget
Employee turnover/delay in filling positions
Lower fuel use/cost than budgeted
Street Maintenance
2017 Use of General Fund Reserves
One time funding for severance compensation fund, TH13/150th St
project, and 2017 street overlay
2017 General Fund
3
Beginning Balance -$6.7M
Ending Balance -$6.9M*
Reserve Calculation –54%*
CFMP specifies a range between 40% and 50%
2018 Budget Amendments ($221,900)
Current Balance -$6.7M (52%)
* Not Including Budget Amendments
General Fund Reserve*
4
General Fund Reserve*
5
$12,188,313
$12,729,968
$12,192,316
$12,985,255
$12,563,945
$12,945,738
$13,070,878
$12,767,768
58%61%
57%
50%
46%
47%
51%54%
$11,500,000
$11,750,000
$12,000,000
$12,250,000
$12,500,000
$12,750,000
$13,000,000
$13,250,000
$13,500,000
2010 2011 2012 2013 2014 2015 2016 2017
Subsequent Year’s Budget Actual Fund Balance
* Not Including Budget Amendments
Preliminary EMV Increase of 5.12%
Preliminary TMV Increase of 6%, 1.8% from
new construction
New construction generates an estimated
$205,000 in property taxes (~1.7%)
Tax Levy Impacts
6
Growth (New Construction)1.70%
CPI-U (MSP)2.00%
Debt Service*0.99%
Total Property Tax Levy
Considerations 4.69%
*Estimated based on preliminary cost of
2018 projects.
Tax Levy Impacts
7
City plan includes the following:
100,000
50,000
84,000
1 234,000
1) Funding for annual trail replacement The levy currently
includes $0 for this, so this funding will address current needs,
not growth.
2) Funding for the equipment replacement plan. This is needed
as we are striving to get to a stable long-term founding source
for equipment.
3) Technology plan costs (VOIP system and SAN Controller)
2019 Tax Levy
Guideline
2019 Prelim
Levy Variance
4.69%6.62%1.93%
Total Proposed
Property Tax Levy 566,074 799,489 233,415 1
Include
One new FTE for each year
Contingency funding for EAB management
Commitments to long-term plans (CIP)
Debt obligations (existing and proposed)
Estimates for revenues/expenditures
Phased funding increase for equip. and parks
Projections
8
5-Year Projection
9
LONG RANGE FORECAST
Adopted Budget
2018 2019 2020 2021 2022 2023
Tax Levies:
General 7,779,182 8,213,358 8,826,039 9,235,439 9,772,104 10,288,012
Equipment Revolving Fund 550,000 600,000 600,000 600,000 600,000 600,000
Revolving Park Equip Fund 238,184 339,292 433,276 527,649 632,832 903,913
Facilities Management Fund - - 30,000 80,000 80,000 105,000
PIR Fund - 95,000 175,000 175,000 185,000 185,000
EDA Fund 140,000 140,000 140,000 140,000 140,000 140,000
Debt Service 3,370,172 3,489,377 3,696,058 4,134,348 4,609,593 4,792,951
12,077,538 12,877,027 13,900,373 14,892,436 16,019,529 17,014,876
Breakdown of Change in Levies:
General 586,390 434,176 612,681 409,400 536,665 515,908
Equipment Revolving Fund 175,000 50,000 - - - -
Revolving Park Equip Fund 24,778 101,108 93,984 94,373 105,183 274,981
Facilities Management Fund - - 30,000 50,000 - 25,000
PIR Fund - 95,000 80,000 - 10,000 -
EDA Fund - - - - - -
Debt (276,784) 119,205 206,680 438,291 475,244 183,358
Total Change 509,384 799,489 1,023,345 992,064 1,127,092 999,247
General 8.15%5.58%7.46%4.64%5.81%5.28%
Equipment Revolving Fund 46.67%9.09%0.00%0.00%0.00%0.00%
Revolving Park Equip Fund 11.61%42.45%27.70%21.78%19.93%43.45%
Facilities Management Fund n/a n/a n/a 166.67%0.00%31.25%
PIR Fund n/a n/a 84.21%0.00%5.71%0.00%
EDA Fund 0.00%0.00%0.00%0.00%0.00%0.00%
Debt -7.59%3.54%5.92%11.86%11.50%3.98%
Total Change 4.40%6.62%7.95%7.14%7.57%6.24%
Projected
1
2
3
4
5
6
7
General Fund Change-$434,000
Increase in Revenue from SMSC -$90,000
Increase in Personnel Costs -$425,000
Includes new FTE at $80,000
Includes city engineering funding at $90,000
Increase in Capital Outlay-$84,000
Includes $70,000 to replace VOIP phone system
and $16,000 for SAN controllers
Components of 2019 Tax Levy
Change
10
Equipment Replacement -$50,000
CIP calls for phased in funding/toward $600,000 annual funding
Park Plan -$100,000
CIP calls for phased in funding/Prior year levy did not include
any funding for trail replacement
PIR Fund for Street Overlay-$95,000
Previously funded in General Fund
Debt Service -$119,000
Based on proposed CIP projects
Components of Tax Levy Change
(cont’d)
11
2019
Debt:
Existing CIP (425,209)
Proposed CIP 537,549
Market Referendum 6,866
Change in Debt Levy 119,205
2019 Debt Levy
Projects
12
Improvement
Estimated Annual
Debt Service Tax
Levy Impact
County Wide Flashing Yellow Signal Conversion 13,500
Duluth Avenue / TH 13 Signal 115,000
Franklin Trail (CR 44 to Summer) (1972)133,000
Huron/Wildwood/Woodside/Santee (1986)115,300
Fire Pumper 84,000
Fire Station #2 SCBA and Parking Lot 78,000
Total 538,800$
Delay replacement of the VOIP phone system
Shift a 2018 street project to a future year
Reduce or eliminate trail funding
Reduce equipment funding to 2018 levy amount of
$550,000
Delay 2019 FTE/staff add
Adjust our annual debt service levy from annual
payments to one that targets a specific cash flow
Adjust plan for 2 miles of street replacement
annually
Funding for long-term plans (capital) from General
Fund reserves
Options to Moderate
the Tax Levy Change
13
Does the Council generally support a tax levy that
considers growth, inflation and new debt service? If
not, what level is acceptable?
What options does the council support to moderate
the tax levy?
Questions
14