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10.4. SR 06-07-2021Request for Action To Item Number Mayor and City Council 10.4 Agenda Section Meeting Date Prepared by Work Session June 7, 2021 Lori Ziemer, Finance Director Item Description Reviewed by 2022 Budget Discussion Cal Portner, City Administrator Reviewed by Action Requested Discuss 2022 budget process and provide Council feedback. Background/Discussion Staff is developing preliminary 2022 budgets and budget meetings will be scheduled in June/July with the administrator and department directors/division managers to review their budget requests. The Council is required to adopt a maximum tax levy prior to September 30 and will adopt the final budget in December. Proposed Budget Schedule  June 7 Council Work Session – General 2022 budget discussion and process.  July/August Budget Work Sessions – Suggested Council budget Work Session dates are as follows: st o 1 Budget Work Session – Monday, July 26 nd o 2 Budget Work Session – Monday, August 9 o Additional Work Session (if needed) – Monday, August 23 or Monday, August 30  September 20 Regular Meeting – Approve maximum tax levy.  October/November – Continue budget, Capital Improvement Plan, and tax levy discussion.  December 6 Regular Meeting – Present and adopt final budget and tax levy. The preliminary 2022 budget will be developed based on the following initial estimates and may be adjusted as we progress through the budget approval process:  Same level of services as the 2021 budget. However, we have significantly more facilities and amenities to maintain.  Wages and benefits: o Sergeants and 49ers union contracts are up for renewal in 2022. o Patrol union contract provides a 3% increase with market adjustment based on peer cities. o 3% increase for non-union employees. The Council should consider another wage study update in 2022 as the previous study will have been four years old. o 5% increase for insurance benefits. o 13% average rate increase for workers’ compensation due to public safety PTSD claims. 35% rate increase is projected for police job classes and a 4.5% increase in all other job classes.  The state fuel contract will be used – fuel price will start at $2.75 per gallon. The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity $0Transfer45% PIF TransferBudgeted TransfersOperating Income Park Improvement Funding$1,200,000$1,000,000$800,000$600,000$400,000$200,000$0$350,000$300,000$250,000$200,000$150,000$100,000$50,000 201220132014201520162017201820192020 Operating Income$916,354$1,049,821$1,048,469$1,029,210$945,652$921,015$969,455$1,066,993$1,023,296 Budgeted Transfers$360,157$422,000$391,013$399,050$438,950$482,850$492,000$500,000$500,000 45% PIF Transfer$250,289$282,519$290,668$265,617$228,016$197,174$214,855$255,147$235,483  Property/liability rates are expected to remain flat, but premiums are affected by other factors such as property values, changes in expenditures, experience rating, and other exposure measures. Changes in Net Tax Capacity Early spring estimates from the county indicate residential market values increasing approximately 7% and commercial/industrial values increasing about 1%, which should result in a NTC increase of roughly 6% or about $1.7 million additional tax capacity. The attached graphical illustrations show the trends in the general fund budget, tax levy, tax capacity, and tax rate over the past ten years. Also attached for consideration this year is a schedule of the debt service levies needed to fund the principal and interest payments on the city’s general obligation debt, which does not include the YMCA, Sales Tax Revenue, or Sewer Revenue bonds. Park Improvement Funding (PIF) The PIF transfer from the Liquor Fund is calculated and made after the prior year’s audit is complete. The funding policy was briefly discussed during a budget meeting last year for potential revision. The PIF policy was adopted in 2008 and revised in 2012. The current policy states: The city may utilize up to 45% of operating income less budgeted transfers from its municipal liquor stores to fund a Park Improvement Fund. The amount will be calculated after the prior year’s audit is complete and will be subsequently transferred via resolution from the City Council. When the policy was updated, the expected transfer amount was $250,000. In recent years, the transfer varied and was significantly less than expected due to the calculation method outlined in the policy. The calculation is no longer conducive to the PIF transfer and has been affected by required GASB audit adjustments to operating income and fluctuations in budgeted transfers. This makes it difficult to properly plan park improvement projects when the funding amount is unknown. Based on the initial PIF funding expectations to provide stability and allow for the accumulation of resources, it is proposed to revise the current Park Improvement Fund policy as follows: Proposed Park Improvement Funding The City of Elk River may utilize up to 45% of operating income less budgeted transfers from its municipal liquor stores or $250,000, whichever is greater, to provide funding for the Park Improvement Fund (PIF). Budgeted transfers and capital improvements which utilize liquor profits will be made prior to the Park Improvement fund transfer. The PIF will be used for further build-out of our current parks, replacement and maintenance of park assets, and the beautification of city parks. The Municipal Liquor Fund cash flow will be reviewed at least annually and prior to the transfer to ensure the fund has retained enough profits as working capital for the operating and non-operating expenditures including personnel costs, maintenance, debt service payments and expansion of physical assets, including store facilities. The amount to transfer to the PIF will be calculated after the prior year’s audit is complete and will be subsequently transferred via resolution from the City Council. The fund will not incur any debt nor spend in excess of the cash available since the transfer will be calculated yearly in June. Council Consideration  Preliminary budget will be drafted based on the same level of services as the 2021 budget. Does the Council desire service level increases/decreases? If so, where?  Any changes Council would like to see to the budget process or format?  Level of debt service to be added to the tax levy.  Proposed revision to the Park Improvement Funding Policy. Financial Impact N/A Mission/Policy/Goal To be good stewards where council and staff work to responsibly grow and develop a sustainable and prosperous community. Attachments  General Fund Budget History  Tax Levy/Tax Capacity/Tax Rate History  Debt Service Levies Transfer Out Capital IźƭƷƚƩǤ Service Charges .ǒķŭĻƷ CǒƓķ Supplies DĻƓĻƩğƌ Personal Services ЋЉЊЋЋЉЊЌЋЉЊЍЋЉЊЎЋЉЊЏЋЉЊАЋЉЊБЋЉЊВЋЉЋЉЋЉЋЊ υЉ υБͲЉЉЉͲЉЉЉυЏͲЉЉЉͲЉЉЉυЍͲЉЉЉͲЉЉЉυЋͲЉЉЉͲЉЉЉ υЊБͲЉЉЉͲЉЉЉυЊЏͲЉЉЉͲЉЉЉυЊЍͲЉЉЉͲЉЉЉυЊЋͲЉЉЉͲЉЉЉυЊЉͲЉЉЉͲЉЉЉ General Fund Budget Tax Levy Tax Capacity Tax Rate 2012$12,678,050$10,275,815$21,592,76747.588 2013$12,836,950$10,175,765$20,200,71950.373 2014$12,870,500$9,853,835$20,298,76048.544 2015$13,312,800$10,017,357$21,227,93847.190 2016$13,884,800$10,171,733$22,031,25846.170 2017$14,594,400$10,563,770$22,868,71746.193 2018$15,456,550$11,063,830$24,046,38246.011 2019$16,221,200$11,938,765$26,006,61645.907 2020$17,019,600$12,865,770$27,823,08646.241 2021$17,532,500$13,103,820$29,409,71344.556 ğǣwğƷĻ υЌЎͲЉЉЉͲЉЉЉЎЊ͵ЉЉЉ ЎЉ͵ЌАЌ ЎЉ͵ЉЉЉ υЌЉͲЉЉЉͲЉЉЉ ЍБ͵ЎЍЍ ЍВ͵ЉЉЉ ЍА͵ЎББ υЋЎͲЉЉЉͲЉЉЉ ЍБ͵ЉЉЉ ЍА͵ЊВЉ ЍА͵ЉЉЉ ЍЏ͵ЋЍЊ ЍЏ͵ЊВЌ ЍЏ͵ЊАЉ υЋЉͲЉЉЉͲЉЉЉ ЍЏ͵ЉЊЊ ЍЎ͵ВЉА ЍЏ͵ЉЉЉ υЊЎͲЉЉЉͲЉЉЉ ЍЍ͵ЎЎЏ ЍЎ͵ЉЉЉ ЍЍ͵ЉЉЉ υЊЉͲЉЉЉͲЉЉЉ ЍЌ͵ЉЉЉ υЎͲЉЉЉͲЉЉЉ ЍЋ͵ЉЉЉ υЉЍЊ͵ЉЉЉ ЋЉЊЋЋЉЊЌЋЉЊЍЋЉЊЎЋЉЊЏЋЉЊАЋЉЊБЋЉЊВЋЉЋЉЋЉЋЊ ğǣ/ğƦğĭźƷǤDĻƓĻƩğƌCǒƓķ.ǒķŭĻƷğǣ\[ĻǝǤğǣwğƷĻ DEBT SERVICE LEVIES ExistingDebt PayableExistingPaidfromTOTAL YearDebtLevyReservesNewDebtDEBTLEVY ЋЉЋЋυЏЉЋͲЏЋАυЍЋЊͲАБЉυВВЌͲВЉАυЋͲЉЊБͲЌЊЍ ЋЉЋЌυЍЋЋͲБЌЉυВВЎͲЍБЊυЊͲЍЊБͲЌЊЊ ЋЉЋЍυЍЊАͲБЍЋυЊͲЉЉЉͲАЌЋυЊͲЍЊБͲЎАЍ ЋЉЋЎυЍЊАͲЎБЉυВВБͲБВЍυЊͲЍЊЏͲЍАЍ ЋЉЋЏυЍЋЊͲАБЉυВБАͲБЏВυЊͲЍЉВͲЏЍВ ЋЉЋАυЍЊВͲЏБЉυВВЊͲЎВАυЊͲЍЊЊͲЋАА ЋЉЋБυЍЊЎͲЋАЉυВВЎͲВЎЎυЊͲЍЊЊͲЋЋЎ ЋЉЋВυЍЊЎͲЏВЉυВВЌͲВЉЏυЊͲЍЉВͲЎВЏ ЋЉЌЉυЍЊЏͲВЎЉυВВЏͲЊЏЍυЊͲЍЊЌͲЊЊЍ ЋЉЌЊυЍЊБͲЊЎАυБЍВͲБЍАυЊͲЋЏБͲЉЉЍ ЋЉЌЋυЍЊВͲЌЊЋυБЍЊͲВЎЏυЊͲЋЏЊͲЋЏБ ЋЉЌЌυБЍЍͲЉЍЎυБЍЍͲЉЍЎ ЋЉЌЍυБЍЎͲЊАЍυБЍЎͲЊАЍ ЋЉЌЎυБЍЎͲЏЌЊυБЍЎͲЏЌЊ ЋЉЌЏυБЍЍͲЌЏЉυБЍЍͲЌЏЉ ЋЉЌАυБЍАͲЏЊЎυБЍАͲЏЊЎ ЋЉЌБυБЎЉͲЌЋВυБЎЉͲЌЋВ ЋЉЌВυБЍАͲЋЍЋυБЍАͲЋЍЋ ЋЉЍЉυБЍЌͲЏБЉυБЍЌͲЏБЉ ЋЉЍЊυБЍЍͲВЉЍυБЍЍͲВЉЍ 5ĻĬƷ{ĻƩǝźĭĻ\[ĻǝźĻƭ υЋͲЎЉЉͲЉЉЉ υЋͲЉЉЉͲЉЉЉ υЊͲЎЉЉͲЉЉЉ υЊͲЉЉЉͲЉЉЉ υЎЉЉͲЉЉЉ υЉ ЋЉЋЋЋЉЋЌЋЉЋЍЋЉЋЎЋЉЋЏЋЉЋАЋЉЋБЋЉЋВЋЉЌЉЋЉЌЊЋЉЌЋЋЉЌЌЋЉЌЍЋЉЌЎЋЉЌЏЋЉЌАЋЉЌБЋЉЌВЋЉЍЉЋЉЍЊ 9ǣźƭƷźƓŭ5ĻĬƷ\[ĻǝǤ9ǣźƭƷźƓŭ5ĻĬƷtğźķŅƩƚƒwĻƭĻƩǝĻƭbĻǞ5ĻĬƷ