05/22/1980 - City Council Finance Committee MEMO TO: FINANCE COMMITTEE
FROM: CITY ADMINISTRATOR HEDGES
DATE: MAY 22, 1980
SUBJECT: FINANCE COMMITTEE MEETING
A Finance Committee meeting will be required prior to the June 3, 1980 City
Council meeting. There are three items to be considered under Public
Hearings at that meeting which require a fact finding and recommendation
by the Finance Committee. Those items are as follows:
1. A Public Hearing to consider an application from the DCR Company for
a $700,000 commercial development revenue mortgage for expansion of Cedar-
vale Lanes;
2. An application from Federal Land Company for a $995,000 commercial
development revenue mortgage for expansion of Yankee Square Office I;
3. An application from Normandale Properties, Inc. , for a $2,080,000
commercial development revenue mortgage for constructing a manufacturing
warehouse facility.
I have enclosed background information on all three (3) items for your
review. I will be happy to coordinate a meeting at your convenience.
The only item that requires attention by the Finance Committee as soon as
possible is further discussion and consideration for computerizing the ac-
counting functions at City Hall. If time permits, we could discuss this
briefly at the meeting when the above issues are discussed. Otherwise,
a luncheon or a brief meeting late in the afternoon someday with the Di-
rector of Finance would be helpful.
City Administrator
NOTE: A financial statement has not yet been received from Normandale
Properties, Inc. As soon as it is received, we will forward a copy
to you.
MEMO TO: CITY ADMINISTRATOR HEDGES
FROM: FINANCE DIRECTOR VAN OVERBEKE
DATE: MAY 22, 1980
SUBJECT: ADMINISTRATIVE TRANSFER ON SPECIAL ASSESSMENT PROJECTS --
SUPPLEMENTAL INFORMATION
Per you direction and at the request of the Finance Committee at the meeting
on March 31 , 1980, I have done some additional research on the City's administra-
tive transfer. The first recorded transfer was at 1% for the year ended Febru-
ary 28, 1970. The transfer remained at 1% through the December 31, 1972, year
end. For the one year ended December 31, 1973, the transfer was 1.5%. It was
then increased to 2% at December 31 , 1974, where it has since remained.
Preliminary reports are written to include the costs of the contract plus 18%
for the areas of engineering, legal, administrative and miscellaneous. As an
approximation, projects are assessed per the following:
ITEM UTILITIES STREETS
Contract Actual Actual
Engineering (1) Varies Varies
Administrative Transfer 2% 2%
Legal 1.25% 1.25%
Miscellaneous (2) Actual Actual
Interest (3) Varies Varies
Notes: (1) Engineering is based on actual charges arrived at from the 6%-10%
sliding scale plus actual inspection of 1%-2% plus other related costs. Depen-
ding on the type of project, this puts engineering somewhere between 9% and
20%.
(2) Miscellaneous costs include such things as publishing, surveying
(easements) and soil testing.
(3) Interest varies substantially due to the timing of the contract
award and actual assessment. Interest is figured from the date of the first
payment to the date of the assessment hearing at the actual rate of interest
being paid on the bonds. Consequently, this becomes a real significant cost
if there is a long period of time between the first partial payment and the
assessment hearing.
The only money that the City of Eagan is collecting for general governmental
operations necessitated by these improvement projects is the 2% administrative
transfer. In my opinion, the burden being placed on the general fund is signi-
ficantly greater than this amount can cover, especially when one considers that
Administrative Transfer Memo
May 22, 1980
Page Two
a portion of this burden lasts indefinitely. There seems to be some misunder-
standing that all engineering and planning costs incurred by the City which
are project related are billed directly to the developer. In fact, the only
costs being recovered are those of the consulting engineer and the consulting
planner, and this is done only when certain portions of their bills can be rela-
ted directly to specific developers. We do not have the capability to try to
directly bill the City Planner' s time or the Director of Public Works' time
back to individual developers.
It seems that we would want to develop a procedure to directly recover the costs
related to preliminary kinds of things, platting, etc. ; however, I do not think
this would be practical for work that directly relates to assessment projects.
Perhaps a more specific example would illustrate what I mean. When Tom Colbert
and/or Dale Runkle sits down and measures for setbacks, determines adequacy
of utilties, etc. , we should bill this time back to the developer on an actual
cost basis. At this point, there is no assessment project involved. When the
decision is made that the City will construct an assessment project, the admini-
strative transfer should cover the associated costs since things get too compli-
cated and too far removed from individual developers for a direct charge back.
This procedure would also allow the City to recover costs for projects con-
structed in developed or semi-developed areas. Our present ordinance has not
been interpreted to allow a charge back for staff time, so that creates an addi-
tional complication that would have to be addressed.
The balance of the "add on" per centages remains in the debt service bond funds
to repay the bonds which were used to pay construction costs in the first place.
The net effect is zero and there is no gain to the City.
I have attached copies of the January 22, 1980, memo which describes procedures
in some other cities and which was used as the basis for our discussions at
the earlier meeting.
Respectfully submitted,
E. J. VanOverbeke
Director of Finance
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MEMO TO: CITY ADMINISTRATOR HEDGES
FROM: FINANCE DIRECTOR VANOVERBEKE
DATE: JANUARY 22 , 1980
SUBJECT: ADMINISTRATIVE TRANSFER ON SPECIAL ASSESSMENT PROJECTS
In trying to determine whether the City' s 2% administrative transfer
on assessment projects is adequate , I surveyed the cities on the
attached exhibit . A secondary objective was to determine how other
cities arrive at project costs to be assessed and this information
is also included on the exhibit . There is no particular signifi-
cance to the cities selected except either their geographical
proximity to Eagan or my personal familiarity with them. It is
difficult to include all the little nuances of the various cities
in a composite survey, therefore it should be used with caution.
The survey also reflects my understanding of the policies of these
cities and is subject to interpretative error, although I doubt
any error would be material in nature .
The administrative trasfers range from a low of 1% in Woodbury
to a high of 4% in Apple Valley. Burnsville also uses 4%, although
this equates to 2% administrative with 1% legal and 1% assessment
roll preparation. However, Burnsville includes more direct project
costs in the general fund and these are intended to be covered
by the transfer. Inver Grove Heights , Mendota Heights and Cottage
Grove do not use readily definable percentages which makes com-
parison difficult . Of the other eight cities including Eagan and
using Burnsville at 2%, there are five cities at 2%, two at 1%
and one at 4%. Maple Grove , Brooklyn Park and Golden Valley also
transfer 1% or 2% to the general fund for assessment costs .
The most obvious conclusion that can be drawn from this survey
•
is that the transfer amounts as well as the overall policies vary
significantly among cities . Without a very detailed cost accounting
system in which costs would undoubtedly exceed benefits and detailed
historical records , it is not . possible to objectively evaluate
the adequacy of the transfers . It appears to be a matter of taking
what the market will bear and justifying it in general , subjective
terms when necessary. We need to guard against financing general
governmental operations from these transfer revenues in light of
their cyclical nature while at the same time we need to try to
recover legitimate direct and indirect costs associated with con-
struction projects . In some way or another every City department
from Planning through Police is involved in varying degrees. Ad-
ditionally, facilities such as City Hall are at least partially
necessitated by these construction projects . The only real question
is the degree and the dollar amount. -
Administrative Transfer Memo
January 22 , 1980
Page Two
It would be my recommendation that we seek Council approval to
add a 1% transfer (of total assessed costs ) specifically for the
assessing function which continues over the life of the bonds and
involves all the parcel splits , combinations and miscellaneous
record keeping. I would also recommend that we recover some money
for having an in house engineer. We could either increase the
administrative transfer, add an engineering transfer or charge
direct payroll costs for time spent on construction projects .
Given the present state of our record keeping system it would be
very difficult and time consuming to go the direct cost route ;
therefore , I would suggest an additional 1% transfer to cover these
costs. This would bring the total to 4% which would put Eagan
on par with Apple Valley, certainly the most comparable city in
the survey.
There is no doubt that we can justify the increase from 2% to 4%
just through the increase in the staff positions of City Adminis-
trator, Director of Public Works , Engineering Aide , City Planner
and Director of Finance . I would assume the 2% has been justifiable
over the years . I would suggest implementation as soon as possible
which would probably have to begin either with the feasibility
reports or at the awarding of the contract . In any event , it would
need to be done before assessment of any project .
I would further recommend that the administrative transfer of 3%
or 2% administrative and 1% engineering (proposed) would be charged
on all non-general fund construction projects such as tennis courts
and bike trails . This would be an attempt to recover related
general fund expenditures which are presently not being recovered.
It would also show a more accurate picture of the total costs of
this type of construction.
In the event these increases would be approved, it would be abso-
lutely essential to budget the revenue very conservatively in the
general fund to control dependence on cyclical , developmental dol-
lars .
Assuming an increase in the transfer account , I would also propose
paying certain preliminary items such as publication of hearing
notices from the general fund rather than trying to allocate them
to specific projects . Our present procedures , while adequate at
one time , have become extremely time consuming and inefficient
with the rapid growth.
Respectfully submitted,
E.J. VanOverbeke
Director of Finance
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