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08/28/2001 - City Council Speciali ~y..c.. MEMO ' -city of eagan TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS FROM: CITY ADMIrTISTRATOR HEDGES DATE: AUGUST 23, 2001 SUBJECT: SPECIAL CITY COUNCIL WORKSHOP/AUGUST 28, 2001 The Special City Council Workshop scheduled for Tuesday, August 28 at 4:30 p.m. will be held in the Fire Administration Building Conference Room. The purpose of the meeting is to: 1.) discuss the proposed 2002 General Fund Operating Budget and Tax Levy , 2.) Goals Update (the agenda will be presented at the meeting on Tuesday), and 3.) review calendar for September/October meetings. Some of the topics that City Councilmembers have asked be included under the Goals Update include the status of certain road projects identified in the CIP, i.e., Dodd Road and the ring-road, a potential ordinance change for noise regulations relating to loud music from vehicles, an update on the storm mitigation funding, etc., and a proposed study to examine the status of active and expired PUD's. The one-page calendar for September/October will be prepared and reviewed at the meeting on Tuesday. Action needs to be taken regarding the date change for the 2"a regular meeting in September. PROPOSED 2002 GENERAL FUND OPERATING BUDGET Enclosed on pages ___~__ through ~ is a copy of a memo entitled "Proposed 2002 Budget" that provides a public policy overview of the 2002 Operating Budget and Tax Levy. While the detailed budget is complete in its first draft, there are a number of changes that need to be made in each of the departmental narratives which will be completed in time for a more detailed Council review during September. Every effort was made by the City Administrator, Chief Finance Officer Pepper and Director of Administrative Services VanOverbeke to respond to the questions and direction that was outlined by the City Council at the meeting on Tuesday, August 14. OTHER BUSINESS There are no items for Other Business scheduled at this time. /s/ Thomas L. Hedges City Administrator ~~ . MEMO - city of eagan TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS FROM: CITY ADMII~TISTRATOR HEDGES DATE: AUGUST 24, 2001 SUBJECT: PROPOSED 2002 BUDGET Meeting Purpose/Background The City is required to certify a proposed payable 2002 property tax levy to the County Treasurer-Auditor, on or before September 17, 2001. The purpose of the August 28 Special City Council meeting is to review the status of the 2002 budget and proposed levy and to provide direction to staff. Any modifications as directed by the City Council will then be made in preparation for the regulaz meeting to be held on September 4 at which time the preliminary levy can be adopted in official action. The required material will then be forwarded to the County in time to comply with the September 17 deadline. Previously, the State also required Truth-in-Taxation (TnT) hearing dates, but due to the Legislature's late and sweeping changes to the property tax system, a TnT hearing is not required this yeaz and the County is not required to mail TnT notices until December 14. The final property tax levy that is due at the County no later than December 28, 2001 can be decreased but cannot be increased after the preliminary certification. To the extent that it does not require an increase to the overall tax levy, the budget can be changed at any time throughout the process. Budget Formulation Process Preparation of the draft 2002 General Fund budget began in late-April. Staff, under the direction of the Department Heads, prepared budget requests for consideration by the City Administrator. The City Administrator met with each Department Head in July and completed a comprehensive review of all requests. At the conclusion of this process, the City Administrator asked each department to review priorities, to make additional reductions, and to resubmit their budgets to reduce the overall budget total. In conjunction with the Department Heads the City Administrator is continuing to review and revise the details of the budget for presentation to the City Council at a subsequent workshop in October or November. Through the review process, service delivery is being examined to determine: 1) whether a particular program is necessary; and 2) whether Beater efficiencies maybe attained in providing the service. Furthermore, the budget is being reviewed in light of the City Council's strategic plan and initiatives, as well as policy decisions made by the Council in the past yeaz that have impacted the budget. Modifications as directed by the City Council will be incorporated as the development of the final budget continues. The primary purpose of the August 28 meeting is to consider the "big picture" and provide staff with direction as to dollaz amounts or percentage increases to the overall budget and levy. Accordingly, departmental detail budgets are not provided at this time, but will be distributed for the Council's review and revision at the subsequent workshop. Levy Limits After a brief reprieve, the City's general levy is once again subject to limits established by the State Legislature. Although the State's official levy limit notice is not due to cities until September 1, the formulas are known, and staffhas calculated Eagan's limit to be $18,536,983. Factors for household growth, inflation, and commerciaUindustrial growth are built into the formula and applied for two years from a 2000 adjusted levy limit base. (The last levy limit year was for taxes payable in 2000.) As in the past when the State has imposed limits, debt service levies (including the market value levy for the Community Center bonds) are considered special levies outside the general levy limit calculations. For purposes of this meeting, the 20021evy limit is proposed to be allocated as follows (2001 is also shown for comparison purposes): General Fund (1) Equipment Revolving Fund Major Street Fund Special Assessments on City Property General Facilities R&R Fund Storm Sewer Mitigation (2) Total 2001 $ 13,238,600 700,000 1,000,000 65,000 100,000 0 $ 15,103,600 2002 $ 16,163,500 798,000 1,050,000 25,000 105,000 395,483 $ 18,536,983 (1) The General Fund increase of $2,924,900 consists of the tax levy to replace $1,710,300 of HACA that will no longer be received by the City and $1,214,600 as a resource to support General Fund operations as explained in subsequent sections of this memo. (2) The Storm Sewer Mitigation levy is proposed as an additional use of levy. The Storm Sewer levy will pay a portion of the difference between the total storm sewer mitigation project costs and the $5 million State aid provided for these projects. 2 Special levies, which aze not subject to levy limits, are as follows: 2001 2002 Community Center bonds debt service $ 1,400,000 $ 1,400,000 EDA bonds debt service (Central Pazk) 123,000 212,608 PERA special levy (estimated) 0 25,000 $ 1,523,000 $ 1,637,608 The PERA levy, authorized as a special levy by the State, will cover the required .35% increase in the employer's contribution to the PERA pension fund for eligible employees. City Administrator's 2002 Draft Budget Status The City Administrator's working 2002 General Fund draft budget totals $20,966,200, an increase of $1,685,500 or 8.7% over the 2001 budget of $19,280,700. The 8.7% increase can be broken down into three basic components: City growth, inflation, and expanded services, as summarized below. The numbered items are further explained in the con: esponding notes below: Budget Dollar Increase Increase i0 Inflation (factor used by State in levy limits) 3.4% $ 655,500 i0 Household growth (factor used by State in levy limits) 3.5% 674,800 Subtotal 6.9% 1,330,300 Increases in City service levels: ® Communications Director position ® Other Communications initiatives ® Pazks/Recreation clerical position due to Comm Ctr ® Winter trail maintenance expansion ® PERA contribution rate increase ® Lobbying -ring road construction funding Subtotal Total increase due to growth, inflation and service levels While not a new service, the following item accounts for a significant portion of the total budget increase: ® LOGIS assessment for new Police records system .4% 70,900 .6% 116,200 .2% 40,100 .2% 44,000 .1 % 25,000 .1% 16,000 1.6% 312,200 8.5% 1,642,500 .7% 126,100 9.2% $ 1,768,600 In other words, the draft budget is up 8.7% over 2001, but with the inflation and growth assumptions added to the proposed new services and LOGIS assessment, the budget would be projected to be up by 9.2% total. Therefore, the draft budget reflects a smaller increase than inflation, growth factors and the increased services would suggest. 3 1 -~f ~ f. Notes: OO Inflation and household growth factors would include new staff added to maintain the current levels of service. In 2002, 3.25 FTEs are proposed in conjunction with maintaining current levels of service: 1 Police Criminal Analyst $ 44,700 1 Police Dispatcher 43,300 1 Horticulturalist 40,500 .25 Community Development clerical 9,900 $ 138,400 The Criminal Analyst, a civilian position, will allow the Police to better utilize sworn ofl"icers in the field. The Dispatch position is the first one added since 1992. The Horticulturalist will maintain the growing number of shrub beds and plantings on City property, including the Central Park area, while reducing the need for seasonal help by $10,000. Increasing the Community Development clerical from three-quarters to full- time will help manage the increased workload in that department. Two departments that aze experiencing significant percentage increases for 2002 aze Information Technologies and Communications. Council has identified both departments as areas of focus and priority for City resources. Gasoline prices and energy costs continue to climb with increases in fuel costs in Police, Public Works and Pazks/Recreation and gas/electricity costs in General Government Buildings alone totaling $93,700. ® Expansion of communications (Goa18.0) includes a proposed Communications Director position with salary/benefits of $70,900. The Communications Committee of the City Council is recommending this additional position to fulfill the Council's goal of increased communications. This position would supervise and expand the City's cable television presentations, joint efforts with the Eagan Convention and Visitors Bureau (ECVB) to publicize and promote the City, and all other mass communications products such as newsletters, other printed material, the web site, news releases, etc. The position would work closely with department heads to ensure that a consistent style and message was produced by all departments. The total communications budget is proposed at $365,900 and is further proposed to be fully reimbursed by cable franchise fees and potential resources from the ECVB. The 2002 Communications budget is increased $187,100 (1.0% of the total General Fund increase) over 2001 in order to provide a full color, redesigned newsletter, the new position and other communications initiatives. The frequency of the newsletter is also proposed to increase from four to six annually. ® The Parks & Recreation clerical position is proposed to prepare marketing materials and other information for the Community Center in advance of the Center's anticipated opening in 2002 and on an ongoing basis. This new position allows a reduction in temporary/seasonal salaries of $12,500. 4 ® Expansion of public works services includes the Council-approved Winter Trail Maintenance Program, accounting fora $44,000 increase to the Streets budget. ® The State has increased both the employer's and employee's contribution to PERA by .35% beginning in 2002. We estimate the cost to the City to be $25,000. © Increased lobbying efforts add $16,000 to the Administration budget. The City has an l8-month contract through the conclusion of the 2002 Legislative session. Lobbying efforts will be used to pursue funding for the "ring road" construction, sewer and infrastructure improvements and other benefits for the citizens of Eagan (Goa14.0). ® LOGIS, the information technology consortium Eagan participates in with over 20 other cities, shows an increase of $173,300. $126,100 of the increase reflects the assessment for purchase of the new police records system to be implemented by LOGIS in 2002. The assessment should be viewed as a capital item more than an operating item as it is a one-time, up-front cost for each of three years for the system. Per a recent study LOGIS continues to be more cost-effective than purchasing and maintaining hazdwaze/soflware in-house, and staffing up to the necessary levels. LOGIS and the continued expansion of our information technology capacity aze key to both communications (8.0) and public safety (9.0) goals of the City Council. General Fund Expenditures The following table illustrates expenditure appropriations as contained in the draft budget by major classification: 2001 Bud et 2002 Bud et Increase decrease of total Amount % Amount % Amount % increase Personal Services $ 14,059,000 72.9% $ 15,104,100 72.0% $ 1,045,100 7.4% 62.0% Parts & Supplies 1,252,350 6.5% 1,380,400 6.6% 128,050 10.2% 7.6% Services & Other Charges 3,160,450 16.4% 3,690,600 17.6% 530,150 16.8% 31.5% Capital Outlay 392,200 2.0% 342,100 1.6% (50,100) -12.8% -3.0% Other 35,100 0.2% 37,900 0.2% 2,800 8.0% 0.2% Subtotal 18,899,100 98.0°k 20,555,100 98.0% 1,656,000 8.8% 98.2% Contingency 381,600 2.0% 411,100 2.0°~ 29,500 0.2% 1.8% Total $ 19,280,700 100.0% $ 20,966,200 100.0% $ 1,685,500 8.7% 100.0% For example, in 2001, Personal Services was budgeted at $14,059,000, which is 72.9% of the 2001 budget. The draft 2002 Personal Services total is $15,104,100, which is 72.0% of the tota12002 draft budget. Personal Services are increased $1,045,100, or 7.4% between the two years. The $1,045,100 increase accounts for 62.0% of the total proposed increase of $1,685,500. In our service-oriented role as a local government, labor is our conunodity, and thus consistently drives approximatelythree-quarters of our budget annually. 5 General Fund Revenues As in previous years, General Fund revenues are budgeted conservatively, but realistically. Staff anticipates that the downturn in the economy, coupled with the City approaching full development, will result in lower development-related revenues than prior year actuals. Generally, most revenue line items are not significantly changed. The one exception, of course, is HACA Aid, which the State eliminated in its tax reform package. The $1.7 million the City will lose in I-iACA Aid is incorporated into the levy, as intended by the Legislature for all cities. (See comments in the Property Tax Impact section below regazding reductions in education/transit levies that will offset the increase to the City portion of property taxes.) General Fund Contingency As directed by City Council in the past, the contingency amount has been set at 2.0% of the budgeted General Fund expenditures. For 2002, the contingency is $411,100. The full amount of the contingency is undesignated and is available for the Council to appropriate to any operating department as a particulaz need arises. Also, if an unforeseen liability or revenue shortfall arises in 2002, it could be addressed by the contingency account. Cedarvale Special Services District The Cedarvale Special Services District was established several years ago to fund the purchase of signage and certain property maintenance (primarily mowing) activities. Annual maintenance costs aze $4,000-5,000. Because the fund has a cash balance from prior years, staff is recommending a levy of $3,000-the same amount levied in 2001. Opt-Out Transit Tax Levy With the new tax reform legislation, and transit funding being removed from the property tax levy, opt-out cities like Eagan no longer levy for transit. Going forward, local transit operations will be funded by a portion of the State's motor vehicle excise tax collections. Cities retain the right to levy for capital projects related to transit if they wish. Such levies would be outside the levy limit calculations. Market Value Community Center Bond Referendum Levy This will be the second year of the Community Center bond referendum levy. The $15.3 million bonds aze expected to be issued before yeaz-end, with the first debt service payments due in 2002. The $1.4 million levy is based on debt service levels projected by the City's fiscal consultant. 6 Property Tax Impact Property tax reform has rendered all comparisons between previous years and payable 2002 virtually meaningless. Six major property tax changes occur this yeaz: 1) reduction and compression of property class rates; 2) the elimination of HACA Aid; 3) the new market value credit; 4) the removal of the general education levy; 5) the new State property tax; and 5) the removal of the transit levy from property taxes. All of these factors will combine to make significant changes to the property tax bills. Eagan property taxpayers are projected to pay $8,383,1481ess in property taxes for payable 2002 as a result of tax reform. That is a net figure resulting from a decrease of $17,056,556 due to the elimination of the education levy, an increase of $13,462,816 due to the new State property tax, a decrease of $4,031,210 resulting from the new market value credit, an increase of $2,098,017 due to the elimination of HACA and finally a decrease if $2,856,216 resulting from the removal of the transit levy from the property tax. Eagan taxpayers will most certainly see their overall property tax bill drop, but determining how much they will drop is difficult at this point due to lack of firm information from the State and County. The House Research Department simulations are projecting tax reductions of 28.3% for residential property, 7.8% for commercial/industrialprnperty, and 29.3% for apartments. Attached to this memo is a page from the House Reseazch Department illustrating the impacts of the tax reform for the City of Eagan. The bottom of the page shows the property tax burdens for various hypothetical properties. The baseline tax is House Research's estimate of what property taxes would be for payable 2002 before reform and the alternative is its estimate of taxes after reform. The calculations assume levying full HACA replacement and levying at the levy limit. Calendar for Future Budget Consideration September 4 City Council approve preliminary levy amount October/November City Council reviews detail department budgets October/November City Council holds public hearing on proposed budget December 4 * City Council approves final budget and levy December 14 TnT notices sent by County * This daze may change due to the NLC conference. 7 Executive Summary & Policy Issues For Consideration The proposed budget increase of 8.7% reflects City growth and inflation (almost 7% combined) together with the following new Council initiatives in accordance with the Strategic Goals: - Communications Director position and increased communications efforts - Pazks/Recreation clerical staffrelated to the Community Center opening - Expanded winter trail maintenance program - Increased lobbying efforts for funding of the "ring road" - New IAGIS police records systems Matters of public policy for consideration at this time include: 1) Preliminary Tax levy -The Council is asked to provide direction to staff for preparation of required material for consideration at the September 4, 2001 regular meeting. Z) Total budget increase - In light of growth and inflation, together with new initiatives, what is the appropriate budget increase for 2002? 3) Funding a portion of storm sewer mitigation costs, at least in the current year, with general levy dollars - If it is the Council's direction to levy at or neaz the maximum, is funding for storm sewer mitigation the appropriate use for amounts in excess of the required funding levels for other funds? Or should the balance go to the Major Street Fund, where it was noted in the presentation of the Public Works CIP that that fund is projected to have little cash left by the end of 2006? 4) Funding Communications budget with franchise fees -With limitations on the uses of franchise fee revenues, it is a reasonable option to consider them as a funding source for Communications operations as an alternative to general revenue sources. Franchise fee revenues currently total more than $400,000 annually. Another possible revenue source is the ECVB. There is some risk in relying on franchise fees in that sometime in the future, legislation may be enacted that stops our authority to collect franchise fees. Together with the Deparhnent and Division Heads, I submit these policy issues for your consideration. Each year, I am struck by the ever-increasing demands on Iocal government service, but excited and challenged by the service we provide and our ability to respond to the needs of our citizens. The draft budget attempts to strike a balance between the desire for services and the willingness or ability to pay for them. The City Administrator, Department and Division Heads and staff have worked hazd to bring this budget to this point. We look forward to presenting the information at the August 28 meeting, responding to any questions about the process implications resulting from the draft budget and receiving City Council direction to complete preparation of the budget document and the preliminary tax levy. City Administrator 8 House Research Dept. Simulation 1W4 07/26/2DOl 10:02 AM Taz Burdens by Property Class Res Hmstd ResNonHmstd lUn Res NonHmstd 2-3 Reg Apartments Low-income Apts Seasonal Rcc Com/Ind Lo Tier Com/lnd Hi Tier Publ U: Elec Gen Publ U: Other Ag Hmstd: House Ag Hmstd: Land Ag NonHmstd New Con: Res HS New Con: Other Baseline: Proj Pay 2002: Previous Law (Rev 7124) Page 187 Alternative: Proj Pay 2002: Final Tax & K-12 Bills (7/2~ (all figures in SOOOs) Eagan city Taxable Market Value Net Tax Effective Pctg Pctg Tax Rates Baseline Alternative Change Cling Baseline Alternative Change Chng Base Alter 3,069,155 3,069,155 0 0.0 38,670 27,719 -10,951 -28.3 1.26 0.90 79,979 79,979 0 0.0 1,204 823 -381 -31.6 1.51 1.03 20,870 20,870 0 0.0 368 311 -S7 -15.5 1.76 1.49 262,724 262,729 0 0.0 6,429 4,545 -1,883 -29.3 2.45 1.73 15,520 15,520 0 0.0 177 144 -34 -19.0 1.14 0.92 4,108 4,108 0 0.0 72 S2 -21 -28.6 1.76 1.26 75,482 75,482 0 0.0 2,096 2,027 -69 -3.3 2.78 2.69 991,183 991,183 0 D.0 38,103 35,018 -3,085 -8.1 3.84 3.53 0 0 0 0.0 0 0 0 0.0 0.00 0.00 52,932 52,932 0 0.0 2,040 1,871 -169 -8.3 3.85 3.53 968 968 0 0.0 I2 8 -3 -29.3 1.21 0.86 437 437 0 0.0 2 2 0 -7.9 0.41 D.38 305 305 0 0.0 3 3 -1 -15.6 1.11 0.94 65,706 65,706 0 0.0 889 612 -278 -31.2 1.35 0.93 82,905 82,905 0 0.0 2,831 2,503 -328 -11.6 3.42 3.02 Total 4,722,279 4,722,279 0 0.0 92,896 75,636 -17,260 -18.6 1.97 1.60 Tax Base Tax Rates Pctg Net Tax C ap (Pctg) Ref Mkt Val (mills) Baseline Alternative Change Cbng Base Alter Base Alter Total Tax Capacity 89,775 60,950 -28,825 -32.1 County 23.65 33.08 0.000 0.00 (-) TIF Tax Capacity 492 289 -203 -41.2 City/fown 22. ] S 30.19 0.297 0.29 (-) FD Contrib Tax Capacity ] 3,699 8,058 -S,b41 -41.2 School District 46.73 24.17 1.516 0.740 (_) Taxable Tax Capacity 75,584 52,603 -22,982 -30.4 Special District 3.00 4.52 0.000 0.00 FD Distrib Tax Capacity 7,037 4,140 -2,898 -41.2 Total 95.53 91.95 1.813 1.037 Tax Burdens on Hypothetical Properties Taxable Market Net Ta: Effective Value Petg Pctg Tax Rates Baseline Alternative Chng Baseline Alternative Change Chng Base Alter Res Hmstd: Lo Val 112,300 112,300 0.0 1,177 878 -299 ZS.4 1.047 0.781 Res Hmstd:Avg Val 168,400 168,400 0.0 2,098 1,502 -595 -28.4 1.245 0.892 Res Hmstd: Hi Val 224,500 224,500 0.0 3,084 2,127 -957 -31.0 1.373 0.947 Res Hmstd: F.x-Hi Val 336,900 336,900 0.0 5,059 3,378 -1,681 -33.2 1.SOl 1.002 Apartment (Mkt rate) 300,000 300,000 0.0 7,422 5,276 -2,145 -28.9 2.473 1.758 Comm/Ind: Lo Val 150,000 150,000 0.0 4,185 4,039 -147 -3.5 2.790 2.692 CommMd: Med Val 300,000 300,000 0.0 10,001 9,371 -629 -6.3 3.333 3.123 Comm/Ind: Hi Val 1,000,000 1,000,000 0.0 37,140 34,238 -2,882 -7.8 3.713 3.425 1 i of i