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06/30/2010 - City Council Finance Committee4000 City of Eap ma 'TO: MAYOR MAGUIRE AND COUNCILMEMBER BAKKEN FROM: CITY ADMINISTRATOR HEDGES DATE: JUNE 25, 2010 SUBJECT: FINANCE COMMITTEE MEETING /' 30, 10:00 A.M to 12:00 A.M. As a reminder, a Finance Committee meeting has been scheduled for Wednesday, June 30 from 10:00 a.m. to 12:00 a.m. in Conference Rooms 2 A & B. The purpose of the meeting is to seek direction from the Finance Committee on a number of items that have been referred by the City Council. The proposed agenda and background material for the meeting is attached. " Directors Colbert, Hohenstein, Seydell Johnson and VanOverbeke will be at the meeting to answer Finance Committee questions regarding the long-range financing of City projects, etc. /s/Thomas L. Hedges City Administrator cc: Director of Public Works Colbert Director of Community Hohenstein Director of Parks and Recreation Seydell Johnson Director of Administrative Services VanOverbeke Assistant to the City Administrator Miller Chief Financial Officer Pepper AGENDA FINANCE COMMITTEE MEETING WEDNESDAY, JUNE 30, 2010 10:00 A.M. -12:00 P.M. CONFERENCE ROOMS 2A&B I. AGENDA ADOPTION II. ACCOUNTING/BUDGETING FOR STREET REPAIR SUPPLIES & CONTRACTUAL LABOR III. CITY FUNDS FINANCIAL STATUS F, 14 IV. LONG-TERM FINANCING OF CITY PROJECTS V. OTHER BUSINESS VI. ADJOURNMENT Agenda Information Memo Finance Committee Meeting June 30, 2010 II. ACCOUNTING/BUDGETING FOR STREET REPAIR SUPPLIES & CONTRACTUAL LABOR ACTION TO BE CONSIDERED: To determine a public policy position for recommendation to the City Council regarding the accounting/budgeting for street repair supplies & contractual labor. FACTS: As part of the effort to moderate the increase to the 2010 General Fund Budget, Director of Public Works Colbert suggested transferring certain costs that have historically been accounted for in the City's General Fund Street Department to the Major Street Fund. The costs and dollar amounts for 2010 were as follows: o Crack sealing supplies $32,900 o Bituminous materials 55,000 o Contractual crack seal labor 20,000 Total $107,900 • Since the General Fund was balanced with a reasonable increase, the suggestion was not implemented for 2010. However, the public policy questions should be addressed by the City Council and the 2011 Budget prepared accordingly. • These particular costs can logically be identified with the City's Pavement Management Program and are typically precursor costs to the following year's street reconstruction/overlay program. As part of the General Fund, they are viewed more from the perspective of on-going maintenance costs related to street infrastructure. • The City's share of the actual street reconstruction/overlay program costs (Pavement Management Program) are paid for by the Major Street Fund. As part of the Major Street Fund they are viewed more from the perspective of capital costs related to street infrastructure. • Over a period of years seal coating costs have been moved entirely to the Major Street Fund after previously having been recorded in the Street Department. This change was primarily for the purpose of freeing up resources in the General Fund to meet revenue or budget increase constraints. • The Street Department and the Major Street Fund to a lesser degree are financed by the City's ad valorem tax levy; consequently, the change would not create any additional resources, but would change the accounting and potentially the levy allocation. Public Policy Questions: o Should the costs of certain supplies and contractual labor related to the maintenance/improvement of City streets be transferred to the Major Street Fund? o If the costs are transferred should an adjustment be made to the allocation of the City's ad valorem tax levy? ATTACHMENTS: (None) 8 Agenda Information Memo Finance Committee Meeting June 30, 2010 III. CITY FUNDS FINANCIAL STATUS ACTION TO BE CONSIDERED: To provide direction to staff regarding the financial status of all City funds. FACTS: In the context of the continuing economic challenges, the State's continuing budget problems, and the preparation of the City's 2011 budgets, the City Council has directed the Finance Committee to review the financial status of all City funds. As the City continues to move from rapid development and related new infrastructure construction to a more mature community with renewal and replacement needs, certain development related revenue sources are reduced or eliminated entirely. It becomes difficult to balance current operating needs with current and future infrastructure renewal and replacement needs while determining the proper allocation of ongoing tax levies and the appropriate and best use of existing reserves. • The attached memo provides a great deal of financial information regarding the status of the City's various funds at December 31, 2009 per the City's audited financial report. This is the same type of information that has been previously reviewed by both the City Council and Finance Committee. ATTACHMENTS: • Enclosed on pages through �7 is a copy of the memo from Director of Administrative Services VanOverbeke providing information regarding the financial status of the various City funds as of December 31, 2009. FROM: Director of Administrative Services VanOverbeke DATE: June 21, 2010 SUBJECT: Fund Status At your request, I am providing this updated background information regarding the financial status of the various City funds along with general information about the source of those funds and any restrictions on the use of the funds. The information was last provided in September of 2009. The memo is arranged in the following three sections: Section I. Included is a brief description of each City fund with fund purpose and information about sources and uses of resources. The description is a combination of accounting/legal requirements and information and specific application to Eagan's circumstances. The December 31, 2009 Financial Report includes 39 separate City Funds with each fund considered a separate accounting entity. Certain debt service and capital projects funds are combined in this memo because of their similarities. Section II. Section II identifies some public policy considerations that should perhaps be considered in discussions regarding appropriate uses of fund and/or investment balances. Attachment Included in the attachment is a table listing the various funds or fund combinations with fund balance and investment amounts. The general information and the footnotes provide general information regarding the table and circumstances unique to the individual funds. Section I. GENERAL FUND (1 Fund) Purpose/Sources & Uses of Resources The General Fund is established to account for the revenues and expenditures to carry out basic governmental activities of the City such as general government, public safety, public works, and parks and recreation. Revenue is recorded by source; Le, taxes, licenses and permits, fines and forfeits, service charges, etc. General Fund expenditures are made primarily for current day-to-day operations and operating equipment and are recorded by major functional classifications and by operating departments. This fund accounts for all financial transactions not properly accounted for in another fund, N SPECIAL REVENUE FUNDS (7 Funds) Special Revenue Funds are used to account for revenues derived from specific taxes or other earmarked revenue sources. They are usually required by statute or local ordinance to finance particular functions or activities of government. Housing Fund Purpose/Sources & Uses of Resources This fund accounts for the proceeds of an annual fee equal to 1/8 of 1 % of the outstanding principal balance of certain revenue bonds or obligations issued to finance multifamily housing developments in accordance with the City's housing program and housing plan. It also accounts for the activities of the Housing and Redevelopment Authority in and for the City. The fund will be used to finance future housing -related developments within the City as determined by the City Council. Cable TV Franchise Fees Fund Purpose/Sources & Uses of Resources This fund was established to account for franchise fees paid to the City from the area cable television provider. The money is restricted for cable -related and communications activities. Through this fund, the City provides funding for the City's Communications Department, E -TV and certain fiber projects as approved by the City Council. Minnesota Investment Fund Revolving Loan Fund Purpose/Sources & Uses of Resources This fund was established to account for loan payments made by Biothera for a loan through the State -administered MIF program targeting job growth. The City is allowed to retain 20% of the payments received for seed money for future loans. Recycling Fund Purpose/Sources & Uses of Resources This fund was established to account for the implementation and on-going operation of the City's recycling program. Funding is provided primarily from Dakota County grants and is restricted to recycling activities. This fund is essentially inactive. Cedarvale Special Services Fund Purpose/Sources & Uses of Resources This fund was established to account for the Cedarvale Area Special Services district. This designation allows property owners in the area to pay for and receive special services beyond those provided to the remainder of the community. Eagan TV Fund Purpose/Sources & Uses of Resources This fund accounts for Public/Education/Government (PEG) fees from the cable provider as well as the local cable TV programming activities of Eagan Television (E -TV), which was established in 2008 after BECT was dissolved. DWI Forfeiture Fund Purpose/Sources & Uses of Resources This fund was established in 2006 to account for money received from the court system related to DWI forfeitures. The money accounted for in this fund is restricted for DWI education and enforcement activities. 2 101 DEBT SERVICE FUNDS (6 Funds) Debt Service Funds are established to finance and account for the payment of interest and principal on all general obligation debt, including debt payable from special assessments but excluding debt issued for and serviced by a governmental enterprise. Provisions are made in the City's general property tax levy for money sufficient to meet the general obligation debt. Special assessment levies are sufficient to meet the debt service obligation of the special assessment improvement debt issues. Improvement Bonds Fund Purpose/Sources & Uses of Resources This fund accounts for the special assessment receivables for projects accounted for in the Revolving Improvement Construction Fund, and for which bonds have not yet been issued. Special Assessment Improvement Bond Funds (Combination of 4 Funds) Purpose/Sources & Uses of Resources In general, balances in debt service funds are pledged to repayment of the bonds and cannot be appropriated until the bonds have been retired. By City Council policy, these balances are allocated to the Community Investment Fund after all other Special Assessment Improvement Bond Funds have been determined to be financially sound. Municipal State Aid Bonds Fund Purpose/Sources & Uses of Resources This fund accounts for the debt service payments for the G.O. State Aid Street Bonds sold to provide funding for the Northwood Parkway Overpass across 35E. The debt service is repaid from the City's municipal state aid allotments received annually from the Minnesota Department of Transportation. CAPITAL PROJECTS FUNDS (17 Funds) Capital Projects Funds are established to account for the resources expended to acquire assets of a relatively permanent nature. (Special revenue and enterprise fund resources are not included in this category.) These funds evolve from the need for special accounting for bond proceeds, grants, and contributions for the acquisition of capital assets. Capital Projects Funds provide a formal mechanism that enables administrators to ensure that revenues designated for certain purposes are properly used. Capital Projects Funds further enhance reporting and verification that requirements regarding the use of revenue were fully satisfied. The City's Capital Projects Funds are as follows: Park Site Acquisition & Development Fund Purpose/Sources & Uses of Resources This fund is a combination of the Park Site Fund, which accounted for park dedication fees from developers for the purpose of obtaining and developing parklands, and the Park Acquisition and Development Grants Fund, which accounted for parks -related grant proceeds and corresponding expenditures. The budget for this fund is approved by way of the five-year Capital Improvement Program adopted by the City Council. 3 Community Investment Fund Purpose/Sources & Uses of Resources This fund is financed primarily from special assessment collections remaining after all debt service obligations are met in special assessment debt service funds. The fund is used to pay capital costs and City Council designated start-up operational costs of projects of general benefit to the City. Fire Safety Campus Fund Purpose/Sources & Uses of Resources This fund was created to account for the revenues and expenditures related to the construction of the Fire Safety Campus. Tax Increment Funds (Combination of 5 Funds) Purpose/Sources & Uses of Resources These funds are each set up to account for the revenues and expenditures related to the individual tax increment districts approved in the City, The City's Tax Increment Funds are as follows: • Hwy 55/149 Tax Increment (2-3) Fund • Hwy 55/Grand Oaks Tax Increment (2-4) Fund • Cedar Grove/Hwy 13 Tax Increment Fund • Hwy 55/Blue Gentian Tax Increment (2-5) Fund • Southeast Eagan Tax Increment Fund Equipment Revolving Fund Purpose/Sources & Uses of Resources This fund is used to account for capital equipment purchases financed from a dedicated portion of the City's operating levy. Acquisitions are budgeted through the Part II section of the City's Capital Improvements Program, General Facilities Renewal & Replacement Fund Purpose/Sources & Uses of Resources This fund was created to account for the tax levy collected for providing resources to allow for major repairs for the City's general facilities. The fund also pays the City's share of special assessments levied against City owned property. Revolving Improvement Construction Fund Purpose/Sources & Uses of Resources This fund is used to account for all construction costs for public improvement projects that will be permanently financed by bond sales with debt service payments made from special assessment collections. Cedar Bluffs Housing Improvement District Fund Purpose/Sources & Uses of Resources This fund was created to account for the internally financed loan to the Cedar Bluffs Townhome development and the collection of assessments to repay the loan. nip Fire Apparatus Revolving Fund Purpose/Sources & Uses of Resources This fund was created to account for activities related to the renewal and replacement of the City's fire apparatus. Funding is through a tax levy and through use of equipment certificates. The fund separates the purchase of fire apparatus from the Equipment Revolving Fund. Utility Trunk Funds .Purpose/Sources & Uses of Resources The City's utility trunk funds are used to account for the collection and expenditure of money used to provide over sizing for utilities. The revenues come primarily from area assessment charges and from connection charges. The primary purpose of each trunk fund is to complete construction of the required utility infrastructure across the entire community necessary for full development. Available resources after completion of the original construction are generally earmarked for renewal and replacement of those systems. The following trunk funds are in place and fund titles describe activities accounted for within each fund. Storm Sewer Construction Fund Water Trunk Construction Fund Sanitary Sewer Trunk Construction Fund Major Street Construction Fund Purpose/Sources & Uses of Resources This fund operates similarly to the utility trunk funds; however, streets cannot be classified as utilities. Financing derives from the tax levy, Municipal State Aid, and interest earnings. Expenditures are used to pay the City's share of collector streets, county roads, certain trails, signal lights, etc. INTERNAL SERVICE FUNDS (3 Funds) Internal service funds are established to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost -reimbursement basis. Records are maintained on the accrual basis. Benefit Accrual Fund Purpose/Sources & Uses of Resources This fund's revenues are derived from direct labor charges to other City funds. All benefits are accrued and paid by the Benefit Accrual Fund. Risk Management Fund Purpose/Sources & Uses of Resources This fund's revenues are derived from general insurance premium charges to other City funds. This fund purchases general insurance with certain deductibles and pays all uninsured claims. Workers' Compensation Self -Insurance Fund Purpose/Sources & Uses of Resources This fund's revenues are derived from charges to other City funds. Workers' compensation claims are paid directly from this fund. Premiums for workers' compensation reinsurance coverage required by state statute are paid by this fund as well. 7 ENTERPRISE FUNDS (5 Funds) Enterprise Funds are established to account for the financing of self-supporting activities of governmental units which render services to the general public on a user charge basis. Records are maintained on the accrual basis of accounting. The reports of the Enterprise Funds are similar to comparable private enterprise reports and are self-contained. Creditors, legislators, or the general public can evaluate the performance of the municipal enterprise on the same basis as they can the performance of investor-owned enterprises. Public Utilities Funds Purpose/Sources & Uses of Resources The operations of the water, sanitary sewer, street lighting, storm drainage, and water quality utilities provided by the City are accounted for in this fund. Civic Arena Fund Purpose/Sources & Uses of Resources The City's Civic Arena contains two sheets of ice that are in use about eleven months of the year for ice skating and hockey games. All arena operations including dry floor activities are accounted for in this fund. Aquatic Facility Fund Purpose/Sources & Uses of Resources Cascade Bay, an outdoor recreational pool with slides a "lazy river," and miniature golf course operates during the summer months. Its operations are accounted for in this fund. Community Center Fund Purpose/Sources & Uses of Resources This fund accounts for all activity related to the Community Center with its variety of programs and uses. The outstanding bonds used to finance the construction of the Community Center, although supported by a tax levy, are accounted for in this fund. Fiber Conduit Ring Purpose/Sources & Uses of Resources This fund was established to account for the City costs related to construction of the 11.5 -mile conduit ring installed in conjunction with the Independent School District 196 fiber project. Section II. PUBLIC POLICY General public policy issues regarding the use of balances and appropriate levels of balances in the various funds include the following: Fund Integrity The City's past practice has been to place a high priority on fund integrity meaning that money raised for and being accounted for in a particular fund would be used for the purpose for which it was raised and not made available for other purposes as general revenue. For example, the City's Cable TV Franchise Fees Fund has not been used to provide general government services but has been restricted to Cable TV and communications special purposes. The primary exception to that process involves funds where the original purpose has been met 6 16 and there are remaining assets. The City Council has the discretion in most cases to appropriate the residual assets of that fund to any other authorized public purpose. The creation of the Community Investment Fund formalized the method for dealing with remaining assets in the Special Assessment Debt Service Funds. Highest Priority Funding Items As assets become available, the City is typically faced with the issue of allocating them now or saving them for later in an attempt to get the best long-term return on the resources. Today's project may not be the highest priority over a period of time and it is necessary to strike a balance between short and long-term perspectives. Credit Ratings In spite of very rapid growth and tremendous infrastructure demands, the City has been able to maintain and increase its credit ratings from the bond rating agencies over the years. There are a number of rating factors that have been favorable for the City and have resulted in this very positive outcome. One of the most obvious and clearly noted in the rating reviews has been the City's conservative financial operations resulting in favorable reserves. The agencies have consistently noted a strong trend of prudent management. Please advise, if you want to discuss this information or if you would like anything else. Director of Administrative Services cc: Chief Financial Officer Pepper Attachment General Table Information: In reviewing the available balances included in the table, the following general parameters should be noted: ➢ In certain funds, there is little difference between investments and fund balance while in others there are large differences. The differences relate primarily to how many receivables and payables exist and how the receivables are accounted for in the particular fund. ➢ Certain of the designations between reserved/designated and unreserved/undesignated are accounting requirements, others are in place by City Council action meaning the City Council could change them, and others are there by State Statute. Per accounting standards, deficit fund balances all become undesignated because there is nothing to designate; however, when assets become available the fund balances would be designated for the purpose of the specific fund. The size of the balances should be kept in perspective relative to the assets in the particular funds. For example, the Public Utilities Enterprise funds include capital assets with a historical value of over $258 million. The appropriate level of cash and/or fund balance will vary by fund depending upon working capital requirements, future fund obligations, and circumstances unique to particular funds. Fund Table Notes: (1) The General Fund cash balance includes $577,255 held by the City in escrow deposits to provide reimbursement for City costs related to development. The money does not technically belong to the City. (2) The Housing Fund is owed $670,000 by Cascade Bay as of 12-31-09. The loan is being repaid in annual installments with the last installment due in 2018. The original loan amount was $1,200,000 and the first payment was made in 1999. (3) The General Obligation Recreational Facilities Bonds sold to finance the Community Center, although supported by a tax levy, are accounted for in the Community Center Enterprise Fund. (4) The deficit position in the unreserved/undesignated fund balance reflects costs that have been incurred by the City but not permanently financed through a bond sale. (5) Advances/loans to other funds total $619,459 at 12-31-09. The fund also includes a reserve of $129,050 for debt service on the Ice Arena Bonds which is being eliminated in 2010 with the new arena financing. Although not reflected in either the cash or fund balance positions, the fund includes $1.91 million in special assessment receivables at 12-31-09. Approximately $1.31 million is in green acres status and will be collected only upon certain conditions (primarily sale or development); of that amount nearly $1.1 million relates to the McCarthy property. An amount of $58,750 remains pledged in an account for Open Space Preservation per previous City Council direction. (6) The Cedar Grove Tax Increment Fund includes an asset of $14,163,925 for property being held by the City. The City has historically financed most TIF activity internally with the resulting internal borrowing repaid through tax increment generated by the development. (7) The deficit position in the Revolving Improvement Construction Fund results from the City's practice of financing the construction internally and bonding later. That process allows the City to reduce bonding amounts because assessment prepayments can be used to pay for initial construction rather than for debt service. GOVERNMENTAL ACTIVITIES -- �-------------------_ .------ ---------- ---------— Fund Name Fund Balance GASB Designation --------- Reserved/ Designated Unreserved/ Undesignated Total Cash & Investments :General (1) 2,530 11,566,413 11,568,943 12,021,657 Special Revenue Funds: .......... Housing (2) Cable TV Franchise Fees Minnesota Investment Fund Revolving 2,804,389 2,804,389 2,077,572 2,579,773 2,579,773 2,554,680 5,563 5,563 5,519 Recycling12,993 12,993 12,877 Cedarvale Special Services -- ----------- --- 3,946 3,946 3,910 Eagan TV - — (2,170) ----------- (2,170) (78,110) DWI Forfeiture — ----- ---------- 20—.974--- 20,974- --------21,230 Subtotal Special Revenue Funds 5,427,638 (2,170) 5,425,468 4,597,678 Debt Service Funds: (3) Improvement Bonds (-4) (5,449,554) Assess Improve Bonds 2,245,230 ----- ---------- 1(5,449.,554)..------(5,498,769) 2,245,230 2,102,945 __.ISpecial W§A-- -B-c-n-d-s— ------ - ----- ---- 4,171 4,171 4,1 ------34 Subtotal Debt Service Funds 2,249,401 (5,449,554) (3,200,153) (3,391,690) Capital Projects Funds: Park Site Acquisition & Development : Community Investment (5) I Fire Safety Campus(827,484) I Tax Increment - (-6-)---- 1,439,600 2,845,864 1,439,600 2,845, 864 1,429,534 2,159,524 (827,484) (663,587) ---- ---- 14,163,925 (39,636,866) (25,472,941) (39,241,127) Equipment Revolving I 1,348,297 1,348,297 1,341,996 General Facilities R & R 319,664 319,664 317,116 --------Revolving -Imp ---Construction (7) - (4,250,478) (4,250,478) (4,138,777) Cedar Bluffs Housing Imp District - (430,515) (430,515) (427,093) Fire Apparatus Revolving 325,905 325,905 322,828 Utility Trunk Funds: Storm Sewer 6,227,296 6,227,296 6,186,837 Water Sanitary Sewer Major Street Construction 4,661,505 7,245,838 19,899,647 1 4,661,505 7,245,838 19,899,647 4,618,439 7,180,855 1 20,531,551 Subtotal Capital Projects Funds i 58,477,541 (45,145,343)1 13,332,198�(381,904) Internal Service Funds: Benefit Accrual ,Risk Management 1 iWorkers' Compensation Self -Ins j 1.530,147 1 688,579 4,529,563 1,530,147 1,688,579 1 4,529,563 4,885,457 1,675,552 4,466,310 Subtotal Internal Service Funds 7,748,289 1 7,748,289 11,027,319 Total Governmental Activities 1 66,157,110 1 (31,282,365)1 34,874,745- 23,873,060 BUSINESS -TYPE ACTIVITIES Retained Earnings Fund Name Invested in Capital Assets Net of Related Debt Reserved/ Designated Unreserved/ Undesignated Total Cash & Investments Enterprise Funds:_______ Public Utilities 166,277,325 30,961,217 11,860,177 209,098,719 40,762,551 ­ Civi ena..-----­ Ar ---------------- 1,538,112 485,122 2,023,234 368,121 J -— - — - -- Aquatic Facility Community Center Fiber Conduit Ring 3,976,308 3,119,315 353,459 (746,002) 2,721,596 (274,626) 3-,.230,306 5,840,9.11 78,833 - ------- 401,982 2,995,455 (272,198 Subtotal Enterprise Funds 175,264,519 1 30,961,217 14,046,267 220,272,003 44,255,911 Total Business -Type Activities 30,961,217 14,046,267 45,007,484 44,255,911 Grand Total City i 97,118,327 (17,236,098) 79,882,229 68,128,971 Grand Total Investments --------------- Cash . ..... - _----------- With Flscal----- 68,128,971 OPEB ------- Drug Task Force 6,363,163 614,149 or Street 75,106,283 652,009 - ----------------- -- ----- -- ---- ------ (Ties to total investments -page 133 financial ECC report) 8,295,604 84,053,896 /S Agenda Information Memo Finance Committee Meeting June 30, 2010 IV. LONG-TERM FINANCING OF CITY PROJECTS ACTION TO BE CONSIDERED: To provide direction to staff regarding the financing of certain long-term City projects. FACTS: • Upon completing the review of the financial status of all City funds, it would be helpful to look at known and/or expected long-term financing needs. • At the meeting staff would like to discuss with the Finance Committee certain long-term financing obligations including but not limited to Cedar Grove TIF financing, consideration of a Park Site Acquisition & Development levy, and the Fire Safety Campus financing. • Each of these items may potentially impact preparation of the 2011 budgets and the tax levy dollar amount and allocation. ATTACHMENTS: (None)