HomeMy WebLinkAboutLong Range Planning in Preparation for 2015 Budget P try
4646 Dakota Street SE
`oNNESol Prior Lake, MN 55372
CITY COUNCIL WORKSHOP REPORT
MEETING MARCH 10, 2014
DATE:
PREPARED FRANK BOYLES, CITY MANAGER
BY: JERILYN ERICKSON, FINANCE DIRECTOR
PRESENTED
BY: FRANK & JERILYN
TOPICS: LONG -RANGE PLANNING IN PREPARATION FOR THE 2015 BUDGET
DISCUSSION: Introduction
The purpose of this meeting is to discuss and receive City Council direction with respect
to:
1) The 2013 preliminary financial report;
2) 5 -year property tax projections;
3) 5 -year General Fund reserve projections;
4) Service impacts as they relate to community growth
History
Over the past four years we have initiated the budget process with a review of the
factors which impact the property tax levy and General Fund reserves.
Current Circumstances
The preliminary 2013 financial report is included as an agenda item for the City Council
meeting this evening.
This report is organized as follows:
1) Property Tax Levy Projections
2) Use of Reserves
3) Service Impacts
Within these headings, we have factored in the following plans and priorities:
• Commitments to long -term plans (i.e. Capital Improvement Program adopted on
August 26, 2013)
o Transportation Plan,
o Equipment Replacement Plan,
o Park Equipment Replacement Plan
o Technology Plan
o Facilities Management Plan
o Water Operating Plan
o Sewer Operating Plan
o Water Quality Plan
• Debt obligations;
• Estimates for labor contracts (current contracts expire 12/31/2014);
• Inflationary pressures on expenditures
o Consumer Price Index (CPI) for Minneapolis from 2012/2013 = 1.9 %;
• 2014 one -time expenditures were eliminated in 2015
o ERP
o Election Equipment
• Changes in anticipated revenues — based on historical information as well as current
activity;
• Council discussion of use of fund balance reserves during 2014 budget preparation;
• Updated Comprehensive Financial Management Plan (CFMP) requirements.
The projections do not reflect the impact of community growth (number of street miles,
parks, population, etc.) which could necessitate additional resources while generating
additional revenues.
1. Property Tax Levy Projections
Based upon the factors noted above, the projected tax levies and the corresponding
breakdowns are shown in the following table:
Projected
2014 2015 1 2016 1 2017 1 2018 1 2019
Tax Levies:
General 6,347,728 7,059,734 7,390,991 7,629,649 7,791,803 8,304,871
Equipment Revolving Fund 200,000 300,000 400,000 600,000 600,000 600,000
Revolving Park Equip Fund - - - 100,000 105,000 110,000
Facilities Management Fund - 100,000 175,000 225,000 250,000 275,000
EDA Fund 150,000 155,000 160,000 165,000 170,000 175,000
Debt Service 2,751,190 3,209,356 3,681,071 4,063,551 3,456,476 3,680,276
9,448,918 10, 824, 090 11, 807, 062 12, 783, 200 12, 373, 279 13,145,147
Change from Previous Year 34,794 1,375,172 982,973 976,138 (409,921) 771,867
Breakdown of Change in Levies:
General 173,138 1 712,006 331,258 238,658 162,154 513,067
Equipment Revolving Fund (80,000) 2 100,000 100,000 200,000 - -
Revolving Park Equip Fund - - - 100,000 5,000 5,000
Facilities Management Fund - 3 100,000 75,000 50,000 25,000 25,000
EDA Fund - 4 5,000 5,000 5,000 5,000 5,000
Debt (58,344) 5 458,166 471,715 382,480 (607,075) 223,800
Total Change 34,794 1,375,172 982,973 976,138 (409,921) 771,867
General 2.80% 11.22% 4.69% 3.23% 2.13% 6.58%
Equipment Revolving Fund - 28.57% 50.00% 33.33% 50.00% 0.00% 0.00%
Revolving Park Equip Fund n/a n /a n/a n/a 5.00% 4.76%
Facilities Management Fund n/a n/a 75.00% 28.57% 11.11% 10.00%
EDA Fund 0.00% 3.33% 3.23% 3.13% 3.03% 2.94%
Debt -2.08% 16.65% 14.70% 10.39% - 14.94% 6.47%
Total Change 0.37% 14.55 % 9.08% 8.27% -3.21% 6.24%
There are pressures on the property tax four of the five years but most significantly in
2015, 2016 and 2017. A decrease is shown in 2018.
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Focusing upon 2015 only, the primary drivers 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 - $712,000
o Replace reserves used as a funding source with the 2014 budget.
o Expenditures:
o Personnel Costs
o Current Expenditures
o Capital Outlay
o Technology Plan replacements
o Revenues:
o Increase in non - property tax revenues
• #2 - Increase in tax levy for the Equipment Revolving Fund - $100,000
• #3 - New tax levy for the Facilities Management Fund - $100,000
• #4 - Increase in tax levy for the EDA Fund - $5,000
• #5 - Increase in tax levy for debt service obligations - $458,000
To explain in greater detail, one of the primary drivers of this increase is due to the use
of $1,033,000 of fund balance reserves as a funding source for the 2014 budget to
maintain a 0.37% change in the overall tax levy for 2014. This was a short -term option
and not sustainable for the long -term. Of the $1,033,000, Staff and Council
acknowledged that approximately $444,000 would have to be replaced with property tax
revenues going forward, beginning in 2015. About $384,000 was used for the ERP
(financial system) implementation and $100,000 for the second year of health insurance
cost containment measures and do not need to be replaced. The remaining $105,000
was used for a two -year phased use of reserves to achieve the target 45% reserve
balance by yearend 2015; therefore, not necessitating replacement revenues until 2016.
Expenditure increases are due in part to estimated adjustments to personnel costs. All
three labor groups (Police LELS, Police Teamsters and AFSCME) have open labor
contracts starting in 2015. Personnel costs comprise about $7.7M or 60% of the
General Fund expenditure budget; therefore, inflationary changes have a direct impact
on the tax levy. In addition, planned expenditures in the Park Equipment Replacement
Plan and the Technology Plan and inflationary pressures on current expenses such as
supplies, materials, etc. contribute to the increase.
Increases in anticipated revenues offset about $86,000 of the potential property tax
increase. Building permit activity is reflected at a 160 permits /year level.
Additional detail is available regarding revenue and expenditure changes in the
General Fund. Please send me an email to request this information.
The Equipment Replacement Plan calls for an annual increase in the tax levy for the
Revolving Equipment Replacement Fund.
A new property tax levy has been included for the Facilities Management Fund (FMF).
The Facilities Management Plan (FMP) is supported by the Facilities Management Fund
and includes funding from General Fund transfers and a dedicated general tax levy
originally scheduled to start in 2013. The City Council authorized prefunding the 2013
and 2014 transfers in 2012 using General Fund reserves.
A new property tax levy was authorized for the Economic Development Authority (EDA)
in 2013. The EDA essentially depleted its fund balance reserves by the end of 2012 and
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did not have a dedicated funding source for ongoing operations. A small increase in the
tax levy is programmed for each year beginning in 2015.
The debt service levies have been adjusted to reflect savings from bond refundings
approved during 2011 and 2012. Despite the savings, increases were still anticipated
due to planned reconstruction projects, etc. A review of the cash balances in each of the
Debt Service Funds has not been completed at this time but may allow for tax levies to
be adjusted.
A summary of the changes driving the changes for 2016 -2019:
Primary drivers of the 2016 increase:
• Increase in tax levy for debt service obligations
• Expenditure increases
• Increase in tax levy for the Equipment Revolving Fund
• Increase in tax levy for the Facilities Management Fund
Primary drivers of the 2017 increase:
• Increase in tax levy for debt service obligations
• Expenditure increases including Park Matrix
• Increase in tax levy for the Equipment Revolving Fund
• Increase in tax levy for the Facilities Management Fund
• New tax levy for the Revolving Park Equipment Fund
Primary drivers of the 2018 decrease:
• Decrease in tax levy for debt service obligations
Note: 2005 Parks Refunding, 2007 Street Recon & Scott County bonds are paid
off in 2017
• Expenditure increases
• Increase in tax levy for the Facilities Management Fund
Primary drivers of the 2019 increase:
• Increase in tax levy for debt service obligations
• Expenditure increases including Park Matrix
• Increase in tax levy for the Facilities Management Fund
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2. Use of Reserves
The following table reflects the projected fund balance reserve levels for the General
Fund based upon current and possible future commitments:
GENERAL FUND Projected
P2013 P2014 P2015 P2016 P2017 P2018 P2019.
CURRENT FUND BALANCE 6,972,362 6,434,663 5,601,223 5,496,223 5,696,223 5,896,223 6,096,223
Planned use of FB:
1) Budget - Mitigate Property Taxes (250,715) - - - - - -
2) Phase in MV Exclusion Program (150,000) - - - - - -
3) Facilities Management Fund - - - - - -
4) Incentives to Contain Healthcare Costs, Etc (100,000) (100,000) - - - - -
5) Final 2008A Fire Station 81 pmt (190,273) - - - - - -
6) Levy Limits - (443,550) - - - -
7) ERP - (384,890)
7) Target FB45% at YE 2015 - (105,000) (105,000) - - - -
6,281,374 5,401,223. 5,496,223 5,496,223 5,696,223 5,896,223 6,096,223
Projected Increase /(Decrease) from Operations 293,356 200,000 200,000 200,000 200,000 200,000 200,000
Budget Amendments Approved:
1) EDA Technology Village Incubator (37,000) - - -
2) ERP Software Selection Consultant (72,755c - - - - -
3) CR42 Study (30,312) - - -
Other Possible Planned Uses:
1) Election Equipment (50%) - -. _. - ......
2) Comp Plan Update - - -- - - (200,000) - - - -
Yearend Fund Balance 6,434,663 5,601,223 5,496,223 5,696,223 5,896,223 6,096,223 6,296,223
At this point, the Council has only approved the $1,033,000 use of reserves for funding
the 2014 budget. All other amounts shown are based on previous council discussion
and consideration. A projected annual contribution has also been incorporated into the
calculation.
The following chart reflects the impact of the drawdown of reserves (including the
possible planned uses noted above) on the minimum (40 %) and maximum (50 %) fund
balance reserve levels established in the CFMP:
General Fund Reserves
7,500,000
7,000,000 -- ._......_.._.._._..__ --
6,500,000 —
6,000,000 - --
5,500,000 -
5,000,000
4,500,000
4,000,0
P2013 P2014 P2015 P2016 P2017 P2018 P2019
—$— Yearend Fund Balance a1— Maximum (5046) ..Minimum (4096)
The CFMP establishes the goal of maintaining a General Fund unrestricted fund balance
within a range 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
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appropriations such as large capital expenditures and variations in the collections of
revenues.
In no case is the reserve allowed to fall below 40 %.
The CFMP also states that should the reserve amount fall below the 40% targeted level,
the City Council must approve and adopt a plan to restore this balance to the target level
within 24 -36 months. If restoration of the reserve cannot be accomplished within such
period without severe hardship to the City, then the City Council will establish a different
time period.
The above chart shows the General Fund reserves being in compliance with the CFMP
through 2019. The target and minimum requirements (in dollars) decline in 2017 due to
the maturity of the 2005 Parks Refunding Bond.
3. Service Impacts
During the workshop, staff will be presenting information related to the following service
issues:
• Service Alternatives
o Maintain existing level /quality of services;
o Reduce service standards;
o Eliminate services;
o Outsource services;
o Increase services and /or standards.
• Growth Indicators
• History of Resource Additions
• Projected Resource Needs
Conclusion
The projections for expenditures and revenues as portrayed herein are based on the
status quo for services as well as staff resources.
If the Council is considering a limitation on the tax levy or a change in the use of
reserves, this will impact the resources available to deliver the current programs and
service levels. If this is the case, then Staff is seeking direction regarding the Council's
priorities for 2015.
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