5.0. SR 06-11-2001Cap/tM Improvement Plann/ng -June 11, 2001 Item ~ 5.
Capital Improvements Planning
Key Financial Strategies Workshop #3
June 11, 2001
Overview ............................................................................................................................. 1
Finance Tools .................................................................................................................. 1
Revenues ......................................................................................................................... 2
Fund Balances ................................................................................................................. 2
Debt ................................................................................................................................. 2
Project Summaries .............................................................................................................. 4
Library Expansion ........................................................................................................... 4
City Hall Expansion ........................................................................................................ 5
Fire Station(s) .................................................................................................................. 5
Liquor Store .................................................................................................................... 7
YMCA/Community Center ............................................................................................ 8
Ice Arena ......................................................................................................................... 9
Equipment Acquisition and Replacement ..................................................................... 10
Pavement Management Program .................................................................................. 11
Public Works Facilities ................................................................................................. 12
Utility System Rehabilitation ........................................................................................ 13
Sanitary Sewer System ................................................................................................. 14
Water System ................................................................................................................ 15
Storm Sewer System ..................................................................................................... 16
Electric System ............................................................................................................. 17
Park Development ......................................................................................................... 18
Overview
Workshop #3 in the Key Financial Strategies planning process examines the financial
implications of future capital improvements for the City of Elk River. The following
pages contain project summaries for currently identified capital improvements. The
purpose of this workshop is to:
· Review and discuss proposed CIP projects.
· Consider funding options for each project.
· Identify funding gaps and other financial issues.
Finance Tools
The evaluation of capital improvements projects combines need and financial feasibility.
This summary does not attempt to assemble an overall finance plan for capital
improvements. This step will follow in the planning process. It is important, however, to
have a brief discussion of the finance tools available to the City of Elk River for the
financing of capital improvements.
Capital Zmprovernent Planning -June 11, 2001
Revenues
· Property taxes. The City can levy property taxes to support almost every form of
capital improvement. Capital improvements will compete with services for
limited tax dollars. If levy limits are reinstated, it may be necessary to incur debt
to levy outside of limitations for capital projects.
· Landfill surcharge. Revenues from the operation of the landfill provide a
significant financial asset to the City. Landfill revenues are currently paid into the
Library Maintenance, Street Improvement and Government Building funds. The
amount and duration of these revenues play a significant role in capital
improvements planning.
· User fees. The City collects user fees for a variety of purposes. The primary
sources of user revenues include municipal utilities, ice arena, and municipal
liquor operations.
· Assessments. Special assessments may be levied against benefited properties to
pay for all or a portion of the cost of public improvements. The infrastructure
needed to open land for development is generally 100% financed by assessments.
Assessments will play an important role in the rehabilitation of streets and
utilities. The rehabilitation of existing improvements cannot be fully supported
by assessments. Other sources of revenue will be needed for these projects.
· Capital Charges. The City collects capital (connection) charges from the growth
of the utility system. This money is saved for future improvements.
Fund Balances
The City saves money for capital improvements in a variety of special revenue, capital
project and enterprise funds. These funds create important flexibility in the capital
improvements planning process. Cash reserves can be used to eliminate or reduce debt.
Reserves can be drawn upon to supplement other revenues to support debt. The use of
fund balances must be carefully considered in the planning process. Once spent, these
monies cannot be recaptured for other purposes.
Debt
It is unlikely that the City will meet its capital improvement needs without debt.
· Debt Limit. State Law limits municipal indebtedness to 2% of the total taxable
market value of property in the City. This limit is misleading because many
forms of debt are excluded from the debt limit calculation. For Elk River, the
debt subject to the debt limit includes general obligation bonds approved by
voters, general obligation notes for equipment, and lease purchase financing over
$1,000,000.
· Levy Limits. It is likely that the 2001 Legislature will impose levy limits. While
the precise limitations are not known, all previous forms of levy limits have
allowed the levy of taxes for debt to be outside of levy limits. Under levy limits,
2
Capita/~Tmprovement P/anning -June
debt carries broader implications. Borrowing may be needed to free up fund
balances or revenues for other purposes.
Buildings. While the State Legislature gives cities broad powers to borrow
money for public improvements, there are limited debt options for buildings. For
the purposes of the capital improvement projects discussed in this document, the
City may finance buildings with voter-approved general obligation bonds or lease
revenue bonds. The nature of the bonds has property tax implications. The tax
levy for voter-approved is spread on the basis of market value. The levy for lease
revenue bonds is based on tax capacity, similar to all other City levies.
Cap/tal Improvement Plann/ng -June 11, 2001
Project Summaries
Expand existing library facility. Two adjacent residential parcels will
be acquired to facilitate the expansion.
The nature of the expansion has not yet been determined.
Acquire parcels as available.
Design and construct expansion in next five to ten years.
$1,100,000 including land. Cost will vary based on nature and timing
of actual improvements.
Library Maintenance Fund.
levy and landfill surcharge.
surcharge in 2001.
Fund financed primarily by property tax
Increased funding from landfill
Property taxes are sufficient to finance current operating expense.
Landfill revenues should be accumulated and earmarked to pay for
improvements.
Library building financed by 1994D TIF Bonds. Bonds mature
2/1/07 and callable 2/1/04. $120,146 of fund balance reserved for
existing debt.
If fund balance is inadequate, internal borrowing or lease revenue
bonds can be used to leverage future revenues.
Library Maintenance Fund
Revenue
Expenditures
Net transfers
Surplus/Deficit
Fund Balance
Property tax
Landfill surcharge
Interest
Other
Current
Capital
E~n
1997 1998 1999 2000
45,141 46,003 53,534 56,965
37,198 42,580 40,922 57,268
5,701 4,845 5,142 13,114
9,352 8,469 9,881 8,717
97,392 101,897 109,479 136,064
35,199 28,206 39,276 46,407
100,262 39,854 5,381 3,204
135,461 68,060 44,657 49,611
(11,000) (11,000) (11,000) (11,000)
(49,069) 22,837 53,822 75,453
143,044 95,261 118,098 171,920
93,975 118,098 171,920 247,373
Capital Improvement Planning -June 11, 2001
Expand existing City Hall and Police facilities. Programming of
space will begin in 2001. This planning will determine the scope and
cost of the expansion.
Final timing to be determined, but construction anticipated in 2002 or
2003.
$2,500,000 to $3,500,000 (including FFE). Cost will vary based on
nature and timing of actual improvements.
Government Buildings Reserve and/or lease revenue bonds.
This fund receives a portion of the landfill surcharge revenue. A
portion of the project costs can be paid with reserves. The amount of
the cash contribution will depend on revenues for the Government
Buildings Reserve and the use of the Reserve for other projects.
Current fund balance and future revenues should be earmarked to pay
for improvements.
Current City Hall financed with lease revenue bonds. 1997
Refunding Bonds mature 2/1/11 and are callable 2/1/06. $825,000 of
balance in Government Buildings Reserve is reserved for existing
building debt. The use of debt for the City Hall expansion should
account for this existing obligation.
Internal borrowing or lease revenue bonds can be used to finance
costs not supported by reserves.
The continued growth of the City will create the need for one or more
new fire stations. Land has been acquired for a facility in western
part of the City. A site for a "north" station needs to be acquired
(approximately 1.5 acres).
The fire stations will be built as needed to provide service. A specific
timetable has not been established. A north site should be acquired
within the next five years. Current growth trends suggest that the
West Station will be built within ten years and the North Station will
be built within ten to twenty years.
To be determined. The cost will be influenced by site costs, design of
the facility, amount of furniture and equipment, and timing of actual
improvements. Recent facilities in other cities have ranged from
$1,500,000 to $3,500,000.
Government Buildings Reserve and/or bonds.
5
Capita/Zmprovement Planning -June 11, 2001
Monies in the Government Buildings Reserve fund can be used to
acquire land for a fire station.
The construction of the fire station(s) will require the issuance of
bonds. The type of bond becomes a policy decision for the City.
The City can seek voter approval to issue general obligation bonds.
The fire stations can be financed without an election using lease
revenue bonds.
Regardless of the type of bond, the debt will be supported with
property taxes.
Govemment Buildings Reserve
Revenue
Expenditures
Net transfers
Surplus/Deficit
Fund Balance
Property tax
Landfill surcharge
Interest
Other
Current
Capital
Bt~R
1997 1998 1999 2000
0 0 0 0
361,990 416,804 400,226 563,682
20,984 31,422 37,733 91,242
1,800 1,800 1,800 1,800
384,774 450,026 439,759 656,724
0 0 0 0
0 0 0 0
0 0 0 0
(75,000) (185,000) (75,000) 0
309,774 265,026 364,759 656,724
186,649 500,669 765,695 1,130,454
496,423 765,695 1,130,454 1,787,178
Capita/Improvement Planning -June 11, 2001
Build second municipal liquor store. A site for this facility has been
acquired. The size and timing of the facility will be influenced by
legislative action to allow beer and wine sales at grocery stores and
the results of a market analysis.
Final timing to be determined, but construction anticipated in next
five years. A market analysis should be undertaken within two years.
To be determined. The cost will be influenced by design of the
facility, amount of equipment and initial stock, and timing of actual
improvements.
Liquor Fund and bonds.
Depending on timing, costs and operations, the Liquor Fund could
have enough reserves to finance the project with cash. The City can
issue liquor revenue bonds to finance all or a part of the project costs.
Any new debt should account for the outstanding debt (1997 Bonds)
supported by Liquor Fund revenues. The 1997 Bonds will mature on
2/1/07 and can be called at any time. $920,000 in principal remains
to be paid. Annual debt service is approximately $196,000.
Municipal Liquor Fund
Expenses
Operating Income
Adjustments
Noncapital activities
Capital acitivities
Interest
1997 1998 1999 2000
675,454 691,512 826,546 941,722
352,551 455,045 431,835 451,197
322,903 236,467 394,711 490,525
7,375 117,348 64,556 49,508
(153,450) (131,651) (141,250) 78,600
(362,997) (166,980) (151,623) (158,025)
33,615 24,625 20,699 75,439
Net change in cash (152,554) 79,809 187,093 538,047
Year end cash
603,904 691,795 878,888 1,416,935
Capital Improvement Planning -June 11, 2001
The City and the YMCA are considering the construction of facility
that would contain fitness, recreation and meeting uses. No
programming or design for this facility has been undertaken.
A timetable for the project has not been determined. Financial
feasibility for the City and the YMCA will be a driving force.
Initial planning suggests that the City will contribute one-third of the
cost. The current estimate of the City share is $3,000,000. This
amount is likely to change as project planning continues.
Cash and bonds.
No specific funds are currently earmarked for community center
facilities.
The use of cash for the YMCA will create financial implications for
other facility projects.
Debt for this facility could come from voter-approved general
obligation bonds or lease revenue bonds.
Revenue to support the debt could come from property taxes, landfill
surcharge and liquor fund. It is likely that the allocation of revenues
to the YMCA/community center will impact other projects.
Capital Improvement Planning -June 11, 2001
The Ice Arena will require improvements, although the specific needs
have not been determined. Replacement of roof and floor are likely
during this period. Continued growth may also create pressure for
expansion of the Arena.
Building improvements will be needed within the next five years.
$500,000 - preliminary estimate.
Additional planning needed to create more accurate estimate.
Funding for the improvements must be identified. The Ice Arena
operation does not produce net revenues or accumulate a fund
balance.
Funding for facilities improvements will come from user charges or
general City revenues.
As the City moves to comply with GASB 34, the Ice Arena fund will
change from special revenue to enterprise.
Ice Arena
Reven u e
Expenditures
Net transfers
Surplus/Deficit
Fund Balance
1997 1998 1999 2000
Property tax 0 0 0 0
Landfill surcharge 0 0 0 0
Interest 1,490 0 1,543 940
Other 392,849 439,120 499,234 567,035
394,339 439,120 500,777 567,975
Curmnt 229,707 299,531 319,629 397,288
Capital 10,847 120,447 116,965 0
Begin
End
240,554 419,978 436,594 397,288
(204,588) 35,809 (64,183) (170,687)
(50,803) 54,951 0 0
(4,148) (54,951) 0 0
(54,951) 0 0 0
g
Capita/Improvement Planning -June 11, 2001
Capital equipment is an essential element of municipal services.
City creates and maintains 1 O-year projections of equipment
acquisition and replacement needs..
The
On-going
$500,000 to $600,000 per year.
The City does not currently have a long-term funding plan for capital
equipment. In the past, purchases have been financed with a
combination of operating revenues, reserves and debt. While the City
has the ability to borrow money for all types of capital equipment, a
cash-based funding plan avoids the additional finance and interest
expense.
Equipment is currently financed through the General Fund and the
Capital Outlay Reserve. The General Fund budgets approximately
$320,000 for equipment purchases. The Capital Outlay Reserve
receives $120,000 in transfer of funds from municipal utilities.
Additional annual revenues will be needed in 2002 and beyond to
provide for a sustainable funding plan. Property taxes and enterprise
funds are the most likely sources.
Financing all costs through the Capital Outlay Reserve would
improve the ability for long-term planning.
Capital Outlay Reserve
Expenditures
Net transfers
Surplus/Deficit
Fund Balance
1997 1998 1999 2000
Property tax 299 0 0 0
Landfill surcharge 0 0 0 0
Interest 26,400 25,294 15,285 20,137
Other 207,340 70,495 210,973 145,699
234,039 95,789 226,258 165,836
Current 46,113 27,097 29,663 103,360
Capital 222,705 148,767 403,371 118,621
a~n
268,818 175,864 433,034 221,981
105,182 66,976 18,439 103,623
70,403 (13,099) (188,337) 47,478
437,139 514,339 501,240 312,903
507,542 501,240 312,903 360,381
10
Cap/ta/ Improvement Plann/ng -June 11, 2001
This program represents the costs of rebuilding the municipal street
system. The Program finances reconstruction projects. It does not
finance sealcoating or new construction.
On-going.
Approximately $500,000 per year.
Street Improvement Fund - The City has established a fund for street
improvement projects. This Fund provides a funding vehicle, but the
current balance is not sufficient for long-term sustainability. The
City may wish to establish a street improvement permanent
improvement revolving fund under M.S. 429.091. This approach
gives greater flexibility in the use of assessment revenue and creates
bonding authority.
Assessments - Special assessments are a key to financing pavement
management activities. The amount assessed determines the funding
needed from other sources. The timing and flow of assessment
revenues influences other financial decisions. Current planning
assesses 33% of the improvement costs with a ten-year repayment
period.
Other Revenues - Unless all of the costs are assessed, some other
sources of revenue will be needed. Currently, the Street
Improvement Fund receives a portion of the Landfill surcharge. This
revenue plus interest on the investment of the Fund balance should be
sufficient to support the Program for the foreseeable future. If the
landfill monies are not available, then other revenues will be needed.
State aid for road maintenance and construction can only be used for
streets that are included in the state aid street system. Other non-tax
revenues are currently earmarked for various public facility projects.
The only remaining revenue source is the property tax.
Debt - The City does not have sufficient reserves to internally
finance this program. The City should finance improvement costs
through the issuance of bonds and use cash reserves to manage the
cash flow. The City may issue traditional G.O. improvement bonds
or G.O. bonds of a permanent improvement revolving fund. Both
options require (1) not less than 20% of the costs are assessed and (2)
the City must conduct the improvement hearing pursuant to
Minnesota Statutes, Chapter 429.
11
Capita/Improvement Planning-June 11, 2001
Two projects are planned for City public work facilities. The existing
building will be remodeled. Additional storage will be built.
The remodeling is scheduled for 2001. The storage facilities are
planned for 2002.
$125,000 - remodeling
$225,000 - storage
Street Improvement Reserve
Pavement Management Program
Bond proceeds
Property taxes
Assessments
MSA
Landfill surcharge
Interest income 4%
Other
2001
2002 2003 2004 2005 2006 2007 2008 2009
500,000 515,000 530,450 546,364 562,754 579,637 597,026 614,937
0 0 0 0 0 0 0 0
229,000 229,000 229,000 229,000 229,000 229,000 229,000 229,000
44,455 48,004 55,013 66,234 77,819 89,860 102,373 115,378
Total Revenue
Improvement costs
Debt Semce
Other
229,000 773,455 792,004 814,463 841,597 869,573 898,497 928,399 730,315
500,000 515,000 530,450 546,364 562,754 579,637 597,026 614,937
0 0 0 0 0 0 0 0
125,000 200,000
Total Expense
Begnning balance
Ending balance
125,000 700,000 515,000 530,450 546,364 562,754 579,637 597,026 614,937
1,059,378 1,163,378 1,236,833 1,513,837 1,797,851 2,093,085 2,399,903 2,718,763 3,050,136
1,163,378 1,236,833 1,513,837 1,797,851 2,093,085 2,399,903 2,718,763 3,050,136 3,165,514
12
Capita/Improvement Planning-June 11, 2001
Municipal utilities will be replaced or improved in conjunction with
street reconstruction projects.
Tied to Pavement Management Program
To be determined
Reserves in enterprise funds and/or operating revenues.
These costs can be financed separately using G.O. utility revenue
bonds or included with improvement bonds issued to finance street
reconstruction.
13
Capita/Improvement Planning -June 11, 2001
The municipal sanitary sewer system consists of three basic elements:
lateral collection, trunk collection and treatment. The lateral
collection system is built as the City grows. These costs are fully
assessed to benefited properties. Capacity in the trunk collection
system allows the sewer system to expand. The City is responsible
for providing adequate facilities to treatment wastewater collected by
the sewer system.
No major capital investments in the sanitary sewer system have been
identified over the next five years.
NA
NA
Capital improvements will be paid from net income and reserves in
the Sewage Disposal Fund. Income for the Fund comes from user
fees and connection charges.
Sewage Disposal Fund
Expenses
Operating Income
Adjustments
Noncapital activities
Capital acitivities
Interest
Net change in cash
Year end cash
1997 1998 1999 2000
677,804 730,294 797,101 877,655
573,531 702,774 692,018 756,869
104,273 27,520 105,083 120,786
53,338 702,368 673,541 952,222
(6,000) (8,000) (8,000) (20,336)
(660,315) (387,331) (478,273) (449,628)
105,069 90,697 85,691 190,115
(403,635) 425,254 378,042 793,159
1,807,605 2,256,923 2,634,965 3,428,124
14
Cap/tal Improvement Plann/ng-June 11, 2001
The municipal water system consists of three basic elements: lateral
distribution, trunk distribution, storage and treatment. The lateral
collection system is built as the City grows. These costs are fully
assessed to benefited properties. Capacity in the trunk collection
system allows the water system to expand. The City is responsible
for providing adequate facilities to treat and store water needed to
serve the community.
Planning is underway for a new water tower and well. No other
major capital investments in the water system have been identified
over the next five years
Water tower and well - 2001
$
Capital improvements will be paid from net income and reserves in
the Water Fund. Income for the Fund comes from user fees and
connection charges. The City plans to issue G.O. water revenue
bonds to finance a portion of the water tower and well improvements.
Water Fund
Rsv~f~u~s
Expenses
Operating Income
Adjustments
Noncapital activities
Capital adtivities
Interest
Net change in cash
Year end cash
1997 1998 1999 2000
525,646 610,491 627,449 755,462
381,315 403,996 489,272 615,042
144,331 206,495 138,177 140,420
152,233 948,580 648,604 687,559
(108,382) (124,210) (604,347) (191,303)
(260,066) 231,980 (1,431,236) (826,454)
66,476 76,454 98,406 83,375
(5,408) 1,339,299 (1,150,396 (106,403)
1,608,811 2,948,110 1,797,714 1,393,254
15
Capita/Zrnprovement Planning -June 11, 2001
The City builds and maintains facilities for the collection and
management of surface water/drainage.
The City does not currently have a long-term improvement or funding
plan for the storm sewer system.
NA
NA
The City has established a capital projects fund for Storm Sewer
Projects. At the end of 2000, the fund contained a balance of
$312,227.
Additional funding will come from the special revenue Development
Fund. The Fund will be closed and the balance transferred to Storm
Sewer Projects. The Fund had a balance of $750,042 at the end of
2000.
No on-going source of revenue has been dedicated to storm sewer
improvements.
The current situation does not allow the City to borrow money to
finance storm sewer improvements. Debt options for storm sewer
improvements include:
· Improvement bonds or permanent improvement revolving
fund bonds if not less than 20% of improvement costs are
assessed.
· Bonds supported by taxes collected within a storm sewer
improvement district.
· Bonds supported by revenues of a storm sewer utility.
16
Cap/ta/ Improvement Plann/ng-June 11, 2001
The municipal electric system provides electric service to the
community. Revenues of the electric system pay for expansion of the
distribution system and other capital improvements.
Operation and maintenance of the electric system is the responsibility
of the Utilities Commission.
No major capital investments in the electric system have been
identified over the next five years.
NA
NA
Capital improvements will be paid from net income and reserves in
the Electric Fund. Income for the Fund comes from user fees and
connection charges.
Electric Fund
Expenses
Operating Income
Adjustments
Noncapital activities
Capital acitivities
Interest
Ne~ change in cash
Year end cash
1997 1998 '1999 2000
7,281,411 8,060,459 8,596,004 9,389,846
6,182,456 6,887,665 7,174,805 8,268,789
1,098,955 1,172,794 1,421,199 1,121,057
1,024,885 719,540 1,097,333 1,108,046
(81,227) (353,063) (366,909) (382,249)
(1,720,790) (1,303,824) (1,709,602) (1,849,208)
59,156 52,317 72,155 95,256
380,979 287,764 514,176 92,902
513,064 800,828 1,315,004 1,407,906
17
Cap/tal Improvement P/ann/ng -June 11, 2001
The City has needs for the acquisition of land for new parks and the
development of existing park lands. The Park and Recreation
Commission is working to create a plan for park improvements.
To be determined. The Council will receive recommendations from
Park and Recreation Commission planning.
To be determined. The Council will receive recommendations from
Park and Recreation Commission planning.
The City receives park dedication fees from new development. These
monies will not be adequate to meet the City's park development
needs.
The City has also used monies in the NSP/RDF special revenue fund
for park improvements.
Park improvements can be financed under Chapter 429 subject to the
process and assessment requirements. The other option is to seek
voter approval to issue general obligation bonds for park
improvements.
Park Dedication Fund
Revenue
Expenditures
Net transfers
Surplus/Deficit
Fund Balance
1997 1998 1999 2000
Park dedication 148,339 68,418 627,919 205,440
Landfill surcharge 0 0 0 0
Interest 10,044 8,275 9,954 45,014
Other 0 57,730 49,000 0
158,383 134,423 686,873 250,454
Cu~ent 74,638 46,205 34,266 66,017
Capital 148,642 69,744 190,920 116,931
Bec~n
223,280 115,949 225,186 182,948
100,000 (6,875) 0 0
35,103 11,599 461,687 67,506
168,266 206,124 217,723 679,410
203,369 217,723 679,410 746,916
18
Cap/tal _rmprovement P/anning -June 11, 200]
NSP/RDF Reserve
Revenue
Expenditures
Net transfers
Surplus/Deficit
Fund Balance
1997 1998 1999 2000
Property tax 0 0 0 0
Landfill surcharge 0 0 0 0
Interest 16,276 11,690 16,210 27,288
Other 459,123 5,500 238,166 287,908
475,399 17,190 254,376 315,196
Current 0 0 0 0
Capital 0 0 0 0
0 0 0 0
(216,412) (118,346) (232,237) (122,329)
258,987 (101,156) 22,139 192,867
Begin 24,734 287,395 186,239 208,378
End 283,721 186,239 208,378 401,245