10.4. SR 11-02-2015 E04y1� ,.,�� Request for Action
River
To Item Number
Mayor and City Council 10.4
Agenda Section Meeting Date Prepared by
Work Session November 2, 2015 Tim Simon, Finance Director
Item Description Reviewed by
2016 Budget Update Cal Portner, City Administrator
Reviewed by
Action Requested
Continue 2016 budget discussion.
Background/Discussion
Over the past several months, staff presented the budget requests and related goals for each department.
General Fund Update
On September 21, the Council approved a maximum levy change of 2.88%without the quiet zone levy
line item. Since then, staff has reviewed and adjusted for several items bringing the levy change to 1.54%.
A quick summary of the changes from 2015 —2016 proposed General Fund expenditure budget with
proposed adjustments is below:
2015 Adopted Budget $13,312,800
COLA 2% or by union contract 175,900
Staff adjustments (personnel sheet 0
Health Insurance/Pension changes (PERA) 97,000
Inflation/Exp. Adjustments <.6% 78,650
2016 Preliminary Budget $13,664,350
The city tax rate is projected to decrease from 47.19% to 46.0% for 2016,which is subject to change
pending any final adjustments from the county assessor on property values/final adjustments.
Other items:
• Staff requested to add$500 to the library budget part-time pay to account for staff taking minutes
during library meetings.
• ERMU requested their payment in lieu of taxes (PILOT), currently 3% of Elk River electric sales,
to increase to 4% of Elk River electric sales and not donate electricity to the non-revenue
producing city buildings (City Hall, Public Safety, Fire, Library etc.) resulting in an expenditure
increase of approximately$250,000 spread among the departments in Utilities line items with an
offsetting revenue increase.
Financial Impact
N/A
POWERED 6T
Template Updoted 4/14 INAMIRE1
Attachments
■ General Fund Revenues/Expenditure adjustments summary
■ Tax levy breakout
■ October 13, 2015, ERMU commission staff report item 4.2 (PILOT)
N:APublic Bodies\Agenda Packets\11-02-2015\x10.4 sr budgetmemo1102.docx
Revenues Expenditures Difference
2016 Preliminary Budget $ 13,798,400 $ 13,798,400 $
Adjustments (Discussion Items) Account Code Revenues Expenditures Notes
Fuel Various - (40,000) move to$2.50 per gallon
Patrol 101-4-2120-4108 (7,050) New employee insurance
Park maintenance 101-4-5110-4108 2,800 New employee insurance
Fire-Admin 101-4-2310-4108 (3,250) New employee insurance
Equipment Services 101-4-3150-4108 (3,250) New employee insurance
Move to 2015
Snow removal 101-4-3130-4219 (25,550) 350 tons road salt inventory
Police-Admin 101-4-2120-4219 (6,500) tablet replacements
Administrative services 101-4-1210-4201 (2,400) computer replacements
Fire-operations 101-4-2320-4201 (3,500) Station kiosks
Fire-operations 101-4-2320-4219 (15,000) bailout rope hardware
Fire-operations 101-4-2320-4219 (5,000) Station training props
Park maintenance 101-4-5110-4219 (12,000) Fertilizer inventory
Park maintenance 101-4-5110-4219 (2,350) Lighting warranty
Recreation-Admin 101-4-5210-4219 (7,500) Mobile App.3.1 updgrade
Environmental 101-4-2440-4219 (2,500) wetland/shoreland/signage
Energy City 101-4-6220-4219 (1,000) promotion/marketing items
Tax levy adjustment (134,050) - Adjustment to max.
2016 Preliminary $ 13,664,350 $ 13,664,350 $
2015 Adopted $ 13,312,800 $ 13,312,800 $
change 2.64% 2.64%
Notes
B C1
City of Elk River Levied Maximum
Tax Levy Breakout (maximum levy) Pay 2015 Pay 2016
1 General Fund 9,420,700 9,730,900 3.29%
2 Library 63,100 59,400 -5.86%
3 General Property Tax Levy 9,483,800 9,790,300 3.23%
4 Special Levies
5 City Special Assessments 4,221 4,221 0.00%
6 2010 G.O. Capital Improvement Plan Bonds 372,886 366,405 -1.74%
7 Economic Development Tax Abatement 156,450 144,857 -7.41%
8 Total Levy 10,017,357 10,305,783 2.88%
9
10 Total Dollar Change 288,426
11 %Change 2.88%
B C1
City of Elk River Levied Revised
Tax Levy Breakout (revised levy) Pay 2015 Pay 2016
1 General Fund 9,420,700 9,596,850 1.87%
2 Library 63,100 59,400 -5.86%
3 General Property Tax Levy 9,483,800 9,656,250 1.82%
4 Special Levies
5 City Special Assessments 4,221 4,221 0.00%
6 2010 G.O. Capital Improvement Plan Bonds 372,886 366,405 -1.74%
7 Economic Development Tax Abatement 156,450 144,857 -7.41%
8 Total Levy 10,017,357 10,171,733 1.54%
9
10 Total Dollar Change 154,376
11 %Change 1.54%
Elk River
Municipal, Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, RE. —General Manager
John Dietz—Chair
A[ Nadeau—Vice Chair
Daryl Thompson—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
October 13, 2 0 15 4.2
SUBJECT-
Payment in Lieu of Taxes (PILOT) and Other Donations to the City of Elk River
BACKGROUND:
Minnesota municipal utilities do not pay taxes to their city. It is very typical for the utility to
provide a payment in lieu of taxes (PILOT). ERMtJ has a policy which outlines the details of the
P,IL�OT and other donations to the City of Elk River. This policy is reviewed at least once every
five years; the last policy changes were made on Ady 2, 2013,
DISCUSSION:
Delay for PILOT for Electrical Service I I erritory Transfe
On September 8, the commission reviewed proposed changes to the PILOT Policy that would
delay PILOT for the areas acquired from Connexus Energy through the March 20, 2015,
electric service territory transfer agreement. The PILOT was proposed to be delayed for each
customer acquired until the loss of revenue(LOR)payments that are outlined in tile
agreement would complete. These LOR payments are made for 10 years after the acquisition
with a few exceptions for municipal development.
The commission discussed the proposed policy revisions and directed staff to strengthen the
language to be specific to the March 20, 2015, electric service territory transfer agreement.
This would eliminate any confusion regarding PILOT for LOR payments related to previous
,acquisitions. The proposed policy has been updated to reflect the commission's request,
Shift of Policy Mechanics fi-orn Donated Electricity,to,PILOT
The current PILOT Policy outlines in section 3.0 Donated Electricity stating that ERMU
.'shall donate all electricity to the City of Elk River for all of their facilities not associated
with enterprise funds of the City of Elk River." The adn-iinistrative process associated with
this donation is extremely burdensome. Due to its manual nature, this process is also sub�ject
to hurnan and keying errors,
14- P 0 W E a I I T
Page I of2
N A.!T�o
Reh-bie PWjc P T S
o"wer Provider
59
Since the September meeting, staff have had discussions with the City about an option to
maintain the level of donation to the city and reduce the administration burden and risk for
error. ERMU and city staff have been �evaluating increasing the PILOT percentage
contribution from 3% to 4%, and eliminating the donated electricity not associated with street
lights and signal lights. An analysis of the donated electricity, less the usage by street and
signal lights, is equivalent to 0.8%of revenue generated fi-orn electric sales for Elk River
customers. An increase in the PILOT of I% with an offsetting reduction for the elimination
,of donated electricity(with the exception of strect and signal lights) would nearly be a cash
neutral policy change. The city would be seeing an increased expense because they would be
billed the electric usage, but the City would also have an offsetting source of revenue in
excess of the increased expense by approximately$38,000 based on projected 2015 sales
numbers.
For ERMU, this change would eliminate significant staff time to record and post these
donations through the billing system and the general ledger, It would also,give a more
transparent representation of the actual costs, of the City facilities. As ERM-U grows within
the corporate boundaries of the City of Elk River, the additional increase in revenues will be
further increased with the I%change to the PILOT, resulting in additional funds contributed
to the City. It is extremely likely that ERMUs growth in sales will be a higher rate than the
growth of city government and the growth in city facility electric usage. This change is near,
Cash neutral for the City now, but will result in increased PILOT for the future.
Due to the 2016 budget approval process, utilities and city staff agree that a January 1, 20 16,
iniplementation is better. However, to allow city staff to incorporate this proposed change
into their budget, staff looks to get commission approval immediately. This proposed
revision is attached separately and reflects the policy change proposed for October 13, 2015,
ACTION REQUESTED:
Staff recommends the Conunissio�n adopt effective immediately the policy r�evisions to
"ERMU Policy 8.13 -Payment in Lieu of Taxes (PILOT) and Other Donations to the
City of Elk River" which reflects a delay for PILOT related to the March 20, 2015,
electric service territory transfer agreement.
Staff recommends the Commission adopt the second proposed policy language change to
be effective January 1, 2016, which will result in a shift in policy mechanics increasing
the PILOT from 3% to 4% and eliminating the donation of electricity with the exception
of street and signal lights.
ATTACHMENTS:
• Proposed October 13, 2015, revision to EWMU.Policy 8.13-P(�Yment inLieu QfTaxcV
and Other Donations to the Citv qf'Elk River
• ProposedJanuary 1, 2016, revision toER.MUPo1hy8,]3 -
(PI1,07) and Other Donations to the Ci�y qfElk Rivet�
P 0 W E I I I 1i
U
Page 2 of 2 lil
00� NATURE
Refiab%Pubk I
Power ovider F o W E A�o T o P,r
60