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08/22/2006 - City Council SpecialSPECIAL CITY COUNCIL MEETING AUGUST 22, 2006 5:30 PM EAGAN ROOM-EAGAN MUNICIPAL CENTER AGENDA I. ROLL CALL AND AGENDA ADOPTION II. VISITORS TO BE HEARD III. CONSENT A. ECONOMIC DEVELOPMENT AUTHORITY - Cedarvale Mall Property Management Service Contract with Griffin Companies 5 IV. 2007 PROPOSED CIVIC ARENA BUDGET 2007 PROPOSED TAX LEVY AND GENERAL FUND OPERATING ~. ~• BUDGET VI. OTHER BUSINESS VII. ADJOURN The City of Eagan Economic Development Authority will hold a special meeting as a part of this Special City Council Meeting. Agenda Memo Special Eagan City Council Meeting Consent Item -Economic Development Authority Meeting August 22, 2006 A. CEDAR GROVE REDEVELOPMENT DISTRICT -PROPERTY MANAGEMENT SERVICE CONTRACT WITH GRIFFIN COMPANIES FOR OPERATION OF THE CEDARVALE MALL PROPERTY ACTION TO BE CONSIDERED: To convene a meeting of the EDA, adopt a resolution to approve a Property Management Service Contract with Griffin Companies for the operation of the Cedarvale Mall property and to authorize the EDA President and Executive Director to execute the appropriate documents and to adjourn the EDA meeting. FACTS: • In anticipation of the redevelopment of the Cedar Grove Area, the City is proceeding with the acquisition of the Cedarvale Mall. The City is scheduled to take possession of the mall on September 1, 2006. • While staff, the City Attorney and relocation consultant are working with the mall tenants to facilitate their relocation, a number of them will remain in the building for a period of time after that date. • To minimize the number of changes occurring at that time, staff has solicited a proposal from the property manager that currently operates the mall, Griffin Companies, to continue that service until the remaining tenants aze relocated from the space. The scope of work will include general building maintenance, repairs, cleaning, site management, mowing, etc. It is staff's intention to have the snow removal for the property added to one of the City's snow removal contracts. • Staff and the City Attorney are finalizing the details of the agreement, so it will be in order for approval at Tuesday's meeting. ATTACHMENTS: • Area map on page • Resolutions on pages w • Property Management Agreement available upon request. Cedar Grove Redevelopment Area Cedarvale Mall Site o azs sso t,aoo tr city of Cagan Feet CITY OF EAGAN RESOLUTION TO APPROVE A PROPERTY MANAGEMENT AGREEMENT BETWEEN THE CITY OF EAGAN AND GRIFFIN COMPANY RELATED TO THE MANAGEMENT OF THE CEDARVALE MALL PROPERTY BE IT RESOLVED by the Eagan City Council to Property Management Service Contract Between the City of Eagan and Griffin Companies for operation of the Cedarvale Mall property in the Cedaz Grove Redevelopment District. Motion by: Second by: Those in Favor: Those Against: CERTIFICATION I, Maria Petersen, City Clerk of the City of Eagan, Dakota County, Minnesota, do hereby certify that the foregoing resolution was duly passed and adopted by the City Council in a regulaz meeting thereof assembled this 22"d day of August, 2006. Maria Petersen, City Clerk EAGAN ECONOMIC DEVELOPMENT AUTHORITY RESOLUTION TO APPROVE A PROPERTY MANAGEMENT AGREEMENT BETWEEN THE CITY OF EAGAN AND GRIFFIN COMPANY RELATED TO THE MANAGEMENT OF THE CEDARVALE MALL PROPERTY BE IT RESOLVED by the Board of Commissioners of the Eagan Economic Development Authority to approve a Property Management Service Contract Between the City of Eagan and Griffin Companies for operation of the Cedarvale Ma11 property in the Cedar Grove Redevelopment District. Motion by: Second by: Those in Favor: Those Against: CERTIFICATION I, Jon Hohenstein, Secretary/Deputy Executive Director of the Economic Development Authority of the City of Eagan, Dakota County, Minnesota, do hereby certify that the foregoing resolution was duly passed and adopted by the Authority in a regular meeting thereof assembled this 22"d day of August, 2006. Jon Hohenstein, Secretary/Deputy Executive Director `~ Agenda Information Memo August 22, 2006, Special Eagan City Council Meeting IV. 2007 PROPOSED CIVIC ARENA BUDGET ACTION TO BE CONSIDERED: To approve the 2006-2007 ice rental rates, to approve the 2007 Civic Arena operating budget, and to approve the 2006 purchase of 2007 capital outlay items. FACTS: • The Civic Arena Budget is being presented in advance of the other Enterprise Funds due to the fact that the Civic Arena operations are run on a seasonal basis starting in September as opposed to the calendar year. This is consistent with the practice established over the past few years. • The budget as presented is balanced, provides for the appropriate level of renewal and replacement funds, includes an allocation for capital equipment, and annual debt service. It is presented in a fashion consistent with previous years and provides for continued successful arena operations building on the successes of the enterprise. • Campus Facilities Manager Vaughan, Superintendent of Operations Mesko, City Administrator Hedges, Director of Parks & Recreation Johnson, Director of Administrative Services VanOverbeke, and Chief Financial Officer Pepper have reviewed the proposed rates, revenue estimates, and expenditure requests included in this budget. • The proposed budget is based on ice rental rates being increased slightly for the 2006-2007 season. • The budget is supported entirely by user fees with no tax dollars used as a revenue source. • Since the Civic Arena operates on a season that overlaps two fiscal years, it is important to begin the 2007 capital outlay improvements in 2006 in advance of the new ice rental season. • The proposed capital outlay improvements are presented as part of the proposed 2007 Civic Arena operating budget. ATTACHMENTS: Enclosed on pages ~_ through is a copy of the proposed Civic Arena 2007 budget including rate information, venue and expense information, capital outlay information, and all related material. 2006 Civic Arena Budget Traditionally, the Civic Arena Budget has been acted upon in advance of the other Enterprise Funds and the General Operating Budgets due to the fact that the Civic Arena operations are run on a seasonal basis starting in September as opposed to the calendar year. To provide for proper communication with the various organizations and individuals that are users of the facility, it would be helpful to have rates, revenues and expenditures all formally set by City Council action at the August 22, 2006 special meeting. A rate change is being recommended and the rates would officially be effective September 1, 2006. The budget including the revenues, expenditures, and capital improvements covers the calendar year 2007. Approval to begin purchasing 2007 capital items during calendar year 2006 is also scheduled for consideration in formal action at the August 22 meeting. Campus Facilities Manager Vaughan, Superintendent of Operations Mesko, City Administrator Hedges, Director of Parks & Recreation Johnson, Director of Administrative Services VanOverbeke, and Chief Financial Officer Pepper have reviewed the proposed rates, revenue estimates, and expenditure requests included in this budget. The budget as presented is balanced, provides for the appropriate level of renewal and replacement funds, includes an allocation for capital equipment, and annual debt service. Hourly ice time rental rates are proposed to change; however, Eagan's rates remain competitive while slightly below the average of surrounding ice arenas. The proposed hourly rates continue to aggressively price non-prime time ice rental. The strategy which has been very successful over the years is to maximize rental hours and therefore total revenue even though the hourly rate is lower than nearly all of the competing arenas. Revenues The estimated 2007 revenues are projected to increase to $881,500 compared to the 2006 budget of $850,000. The budget as presented includes a $5 per hour increase to the ice time rental rates. The total increase in revenue results primarily from the increased hourly rates (approximately $10,000), an increase of $20,000 in the budget for Adult Leagues, and a $10,000 increase in sponsorship revenue. Numerous other accounts continue to be adjusted to reflect actual results. There is no significant increase in the total projected rental hours. Included in the revenue estimates is a conservative projection of $2,000 resulting from the Arena Softball initiative that is contingent upon approval of the capital outlay request to purchase the necessary infrastructure. The following table displays the Civic Arena Revenue Summary and Revenue Detail including actual revenues for 2004 and 2005, the approved 2006 budget, and the estimated 2007 revenues. Cv CIVIC ARENA REVENUE SUMMARY 2004 2005 2006 2007 Actual Actual Budget Estimated Rentals-Ice $ 503,402 $ 500,878 $ 465,000 $ 479,000 Rentals-Non Ice 22,287 12,126 20,500 16,000 Services 42,000 42,517 48,500 46,500 Programs 145,171 162,228 161,000 183,000 Events 27,192 24,321 24,000 20,000 Sessions 31,507 24,659 32,500 31,000 Sales 86,431 87,202 93,500 96,000 Other 16,628 12,094 5,000 10,000 Total $ 874,618 $ 866,025 $ 850,000 $ 881,500 CIVIC ARENA REVENUE DETAIL 2004 2005 2006 2007 Actual Actual Budget Estimated Ice Rental-Exempt Ice Rental- Non exempt Equipment Rental Skate Sharpening Learn to Skate Ice Show Open Skate Open Hockey Adult Leagues Equipment Washing Punch Card Revenue Parties Concession Revenue Pro Shop Revenue Vending-Vendor Owned Vending- Arena Owned Home Show Arena Advertising Marketing Money Sponsorships Dry Floor Rental-Exempt Dry Floor Rental-Non Exempt Open Freestyle Circus Interest Other Total $ 401,049 $ 383,574 102,353 117,304 6,897 5,908 10,825 9,941 110,583 114,870 10,805 6,445 21,454 14,504 9,561 9,337 23,784 40,913 10,178 7,881 6,989 7,168 1,723 5,338 58,603 60,891 5,463 5,017 9,653 10,186 5,723 3,940 24,471 21,956 12,376 13,449 5,416 19, 365 11, 365 2,922 761 492 818 2,721 2,365 6,981 9,294 4,231 2,800 $ 874,618 $ 866,025 $ 370,000 95,000 6,500 11, 000 111,000 10, 000 22,000 10, 000 40, 000 12, 000 7,000 4,000 65, 000 6,000 9, 500 6,000 22,000 15,000 15,000 5,500 500 2, 000 5,000 $ 850,000 $ 881,500 $ 380,000 99,000 6,500 10,000 115,000 8,000 20,000 10, 000 60,000 9,000 7,000 6,000 65,000 6,000 12,000 6,000 20,000 15,000 10,000 15,000 1, 000 1, 000 Hourlv Rates The following is a summary of hourly ice rental rates for the surrounding comm unities/arenas proposed for the 2006-2007 skating season. Proposed 2006107 Season Rates For Surrounding Communities Hourl Ice Rental Rates Prime Non-Prime Cit /Arena Time Time Farmington $ 150 $ 120 Apple Valley 165 110 Rosemount 165 115 Burnsville 170 125 Lakeville 180 145 Inver Grove Heights 175 145 South St. Paul 170 140 Richfield 160 130 St.Thomas Ice Arena 190 120 Average Prime Time Rate Excluding High ($190) and Low ($150): $169 Avera a Non-Prime Time Rate Excludin Hi h ($145) and Low ($110): $125 The following is a comparison of Eagan's 2005-2006 rates to the rates proposed for the 2006-2007 season. Eagan Hourlv Ice Rental Rates Season Approved Proposed User/Use 2005-2006 2006-2007 Eagan Association $ 155 $160 Eastview Association 157 162 High School 165 170 Non-Prime 112 112 Turf 75 75 D floor 40 40 Expenditures Enclosed on pages ~ through ~ is a copy of the detailed line item budget information for the Civic Arena. On a comparative basis the proposed 2007 budget of $881,500 is increased by 3.7% from 2006 budget of $850,000. Enclosed on page ~ is a reconciliation that allows a comparison of the budget format on a cash basis to the actual financial report which is reported on a full accrual basis. This page has no budget implications; however it helps explain the differences between the budget and the official financial report as certified to by the independent auditors. The personnel section of the Civic Arena budget is consistent with the presentation for the 2006 budget and continues to reflect the implementation of the recent organizational study. To better utilize resources and to gain efficiencies, the study recommended more consolidation of operations between the two enterprise facilities located on the Municipal Center Campus and the Community Center. The study recommended and the City Council authorized the elimination of the Cascade Bay Manager and Civic Arena Manager positions, and the creation of the Campus Facilities Manager and the Superintendent of Operations positions. This action and the related reallocation of support personnel between the Civic Arena and Cascade Bay are reflected in the following table for the Civic Arena and in the presentation of the Cascade Bay budget. Finally, with the consolidation of the management of the two campus facilities the need for operational support is reflected in this proposed budget through the continuation of an additional clerical/administrative position. The new position was added in 2006 with a one year sunset provision to allow the full implementation of the new operational model and to provide for a management review of organizational needs and service delivery over the year. Staff is recommending that the position be approved on a continuing basis beginning in 2007 to maintain the required support services to the management of the enreronse racniues. Personnel 2004 2005 2006 Proposed 2007 Civic Arena Manager 1 1 0 0 Campus Facilities Manager 0.67 0.67 Building Supervisor 1 1 0 0 Skating School Coordinator 0.75 1 1 1 Maintenance Worker (2 @ 0.5) 1 1 1 1 Operations/Maintenance Worker (1 @ .67) 0.67 0.67 Clerical Technician 0.20 0.20 0.20 0.20 Administrative Coordinator 0.33 0.33 3.95 4.2 3.87 3.87 All partial positions are shared with the Cascade Bay and in the case of the clerical technician also with the General Fund. In addition to the above noted regular employees the proposed 2007 budget includes $150,000 in wages for seasonal employees compared to $145,000 in the 2006 budget. As a result of the above referenced changes, the personal services budget increases by $22,500 or 5.7%. 9 Other significant expenditures changes in the proposed 2006 budget include the following: • Line item 6220 Operating Supplies -General is reduced by $3,000 to more accurately reflect past actual expenditures. • Line item 6357 General Advertising is maintained at $8,000. In the past, the ECVB has assisted the Civic Arena with the advertising for the Home and Leisure show and this line item reflects the continuation of the partnership through the ECVB funding of approximately $3,000 for that promotion. • Line item 6405 Electricity is increased by $3,000 to reflect actual usage. • Line item 6410 Natural Gas is increased by $7,000 to reflect actual usage. Additional adjustments in future years for these two line items (Electricity & Natural Gas) are expected as a result of the improvements being made following the energy audit. Staff has not made an effort to include projected savings from the energy audit related improvements into this operational budget. Completion of the improvements and establishment of a track record will facilitate better estimates in the future. • Line item 6535 Other Contractual Services is increased by $17,100 to more accurately reflect historical usage. This account provides for the more specialized and technical maintenance requirements at the arena, for example refrigeration and HVAC. • Line item 6491 Debt Services Payments is increased by $1,800 to reflect changes in the actual debt service schedule. • Line item 6855 Merchandise for Resale is reduced by $20,000 reflecting the new process in accounting for and pricing the cost of goods sold across the enterprise operations. Capital Expenditures The 2007 expenditure line items show an account for a capital outlay allocation with an appropriation of $10,000, continuing the process implemented with the 2004 budget. Civic Arena capital needs can best be addressed by setting aside some money from each year's operations through the operating budget process and combining that with the use of available retained earnings to provide for capital needs to renew and enhance the facility beyond what is available through the renewal and replacement account. This process clearly designates a Civic Arena use for retained earnings while preventing spikes in annual operating budgets caused by fluctuating capital needs. ~~ Enclosed on page is a list of proposed 2007 capital items for consideration. Renewal and replacement items are included in the first section of the list and are funded by the annual allocation set aside from operations for that purpose. There are no replacement items not funded through the renewal and replacement account proposed in the 2007 budget (second section). The third section includes new items that would either enhance operations at the arena with the goal of increasing utilization of the facility thereby increasing revenues or by maximizing other revenue opportunities. The third section of the list is funded through the annual capital allocation from the operating budget ($10,000 each in 2004, 2005, 2006, and 2007 to date) and from retained earnings as available and appropriate. Enclosed on pag is an ex lanation of each of the proposed 2007 capital items. Also enclose on page is a worksheet showing the infrastructure included in the renewal and replacement funding process. The worksheet shows the cost, being recovered and the useful life of each capital item. Enclosed on page is a copy of the 2006 Civic Arena Capital Improvement List -Update showing a current status of each of those capital needs. At the time of final 2007 budget approval staff is recommending that the City Council approve the purchase of the 2007 capital items in the 2006 fiscal year so they are in place for the 2006-2007 operational season. Cash Position Enclosed on page is a copy of an analysis showing the cash position of the Civic Arena Fund rom inception through the 2006 budget. In summary the analysis shows $347,960 in the official renewal and replacement account and $173,654 of retained earnings over the 12 year period. Those balances will both be impacted in the process of paying for the energy related improvements recently approved by the City Council. On a cash basis, results from operations vary annually depending primarily on capital acquisitions. The analysis demonstrates that the facility is on firm financial footing and should be able to sustain similar operations into the future absent any significant change to market forces. The following is a recap of the status of the Eagan Hockey Association commitment to the addition of the East Arena. The commitment will be completely paid off in 2007. Eagan Hockey Association Contributions to Eagan Civic Arena II 9337.1340.3 $500,000 over 10 year period. Payment Number Date Amount Paid Balance Due $ 500,000 1 02/17/98 $ 50,000 450,000 2 Ice Resurfacer 59,500 390,500 3a 05/05/99 25,000 365,500 3b 05/23/00 50,000 315,500 4 06/03101 50,000 265,500 5 06/03!02 50,000 215,500 6 05/30/03 50,000 165,500 7 06/20/04 50, 000 115, 500 8 06/09/05 50, 000 65, 500 9 05/31 /06 50, 000 15, 500 10 TOTAL $ 484,500 Payments 1 & 2 were deposited directly to the Civic Arena Fund. All additional payments are to be deposited to the CIF. Summary There is a great deal of material presented with this budget proposal to assist the City Council in its consideration of the 2007 budget. The 2007 budget as presented is balanced, continues the results of the organizational study, provides for the appropriate level of renewal and replacement funds, includes an allocation for capital equipment as well as an allocation for some capital improvements, and the annual installment for the scheduled debt service. Although increased, hourly ice time rental rates remain competitive while slightly below the average of surrounding ice arenas. Staff continues to efficiently operate the arenas and to aggressively market the use of the facility to increase revenues and is making every effort to operate a successful business venture per City Council direction. While ice time rental is the basic business of the facility, auxiliary uses account for approximately 19% ($165,000) of the estimated revenues for 2007 and clearly demonstrate management's and staffs commitment to customer service and to expanding revenue opportunities. The continued marketing has attracted some non-ice users, growth of the Home and Leisure Show and extra amenities for our customers. t''~ Positive Civic Arena operations continue with the growth of the skate school provided by the City of Eagan, the continuation of a figure skating club at the arena and the growth in Adult Leagues. The cash position is an indicator of previous success as a business. However, the competition from surrounding rinks and customer expectations demonstrate the need to remain efficient and to remain a preferred vendor for the services provided through the arena operations. This proposed operating budget and the proposed capital improvements assist in meeting that objective. r3 co 0 0 N r X co 0 m tT a> 0 a O r fl.. 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The cumulative balance in that account is carried forward in the unrestricted retained earnings account for financial reporting purposes. ~~ 2007 Capital Improvements Descriptions Renewal and Replacement Hot Water Heaters -The hot water heaters in the West Arena need to be replaced in the very near future. Staff has been working with Harris Services regarding the replacement and potential upgrade to the system. Based on the renewal and replacement schedule, the equipment was scheduled for replacement after 7 years in 2002. There is currently $6,600 in the R&R fund scheduled to be used for the purchase of new water heaters. The preliminary research from Harris Services identifies a potential cost of $14,000 and they are working to determine if this project would be eligible for energy rebates. New Items Arena Softball -Staff is working with the Arena Softball organization to upgrade the East Arena for expanded spring use of the indoor turf. Arena softball is a new sport to Minnesota and Eagan would be the first and only option to try this extreme sport for players of all ages. Half of the arena will be netted from ceiling to the floor to create acaged-in area for arena softball leagues, enlarged batting cages, and to add protection to the lighting. Arena Curtain -The arena currently rents curtains for the annual ice show and staff is requesting to purchase them instead. While owning them would expand the versatility of the ice show, these curtains could be rented to other ice arenas for events or utilized at the Eagan Community Center in the gymnasium for events. ~~ C O .j L C O U (p C C Q O U N T ... N N c N d ,-. ~ M M ~•' O N N ~'~ i ,,, O1AOOOOOOh MOOOOMOO OOOOOOOI~MOOO ON OOONO~COMCOO OMOO OOOONO~A~OMC0OO fD 0 0~ 01 O~ O M O O O o0 O O O O O l1') O (D I~ O M N O O ~~ cM ~ N ~ ~- d'M ~~- M ~N~'d'c'~ O p p (p ~ N M ~ C p M M I~ 0 0 0 0 0 0 0 0 0 0 0 0 O O O O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O O O O 0 0 0 0 0 0 0 0 0 0 0 0 O~~ 0 0~ 0 ~ 0 0 CD O O O O O M O O ll~ In 0 In 0 0 00 O O O X 0 0 CO 0 0 (D ~~ I~ X 0 0 0 O~~ N Cfl O ti ~ M ~ O O N I~ O O M ~( ) ~ M O CO t D I~ M I~ O ~ lf~ In ~ O O ~ ~ O ~ ~ Cfl In O ~ N ~ ~ •- ~ ~ ~ N N O T I~ In L(~ ll~ 1~ O O ~ ~ O lA O '~t ~ ~ ~ ~ ~ A N N '~t r Z U LLI W V 3 g c -o ~ ~ -a o a y ~ N N ` ~ ~ U ~ ` ~ ~ o rnL ~ d ~ .~'`.~ d V C O L ~ ~ ~ ^ ~ v Q 0 Z v ` "' (II ~' ~ ` N ~ ~ . N O N C1 ~~ N m U N to O L O O Q C V N O y ~ y L O ~ O N L 7 O U ~ " ~ ti. °-3 ~ U ~~ cv co ~ LL o 0 3 .~a~ O v~ c :~- ~c.n~-~ ~ Y o ~ o~ °?L~~ cv u~ o u~ 3 m~ co O v, c o~~ o ao a~ a~ o L L V o ~ N f0 C o ~ o -a G1 :_• O~ •- o ~ ~~, ~ L m LL N V y~ L m c, c, ~ L N f0 (U C v, o F--o ~ m O O LL L wU N 7 7 V C" 7 C 7 ~ U~~~ L O 7 7 O ~ O" 7 '~ 7~~ ,C ~ 7 ~ w . O ~ Q U N (~ O ~ ~ ~ O N O ~ ~ O N O . U U ~ O O D Y N O N ~ ~ O ~ U ~ N N O N ~ ~ ~ ~ ~ O O O O N O . U U U ~ ~ ~ ~ O ~ U cn +, ~ ~ a ~ C d f A l0 H 3 ~ LLI Z Q _ ~ ~+ ~ F- W H U' fL' u~ ~!'~ M tD M N O O N U C .N c~ >, N Q. O C6 N N O H ~~ 2006 Civic Arena Capital Improvements List -Update Renewal and Replacement Boiler $ 15,000 Sub-total $ 15,000 See below-- to be completed by 11-1-2006. Replacement Items Computer $ 2,000 Completed Carpet for Community Room 2,000 Change to waxing-carpet not installed. Multi Plexer 5,000 Completed Sub-total $ 9,000 New Items Feasibility and Design Options Rubber Matting Installations Computer CPU Only Sub-total Total Capital Improvements- 2006 Budget $ 5,000 In process pending more planning. 4,000 Completed 1,000 Completed $ 10, 000 $ 34,000 Note: The boiler replacement has been incorporated into the improvements resulting from the energy audit to maximize cost effectiveness of operations. The complete energy related project and funding sources are as follows: Renewal and Retained Improvement Component Replace Earnings Boiler $ 15,000 $ 3,083 De-Super Heater - 25,194 Replace Lighting - 33,518 Total $ 15,000 $ 61,795 Total $ 18, 083 25,194 33, 518 $ 76, 795 ~3 0 O ~ O O 1 N ~ N ~ 1 ~ O ~ 7 ~ ~ O l 1 N m O f0 ~ ~ I ~ ~ ~ M O O c0 f0 N a0 (O I rri ~ O I vo• o ri o I N a0 (O I M ~ I M r a I O N O 1 O ~ I ~ N O (~ I N M c0 1 O N ~ IN j O ~ N N ~ N (O I ti ~ ~ 1 O ~ ~ ~ 1 ' H N r ll 1 ' f9 (O O I r N I o O N O 117 ' FA O r I ~ (O ~ m I p~ N _ ~ M r (O ~ ' sA oD M I OD ~ O I 07 r M I m v r I ~ 117 M fA o ss r O O N ~ M ~ t0 O N ~ M aO M O O N O N < M O W O ~ M O_ 1~ v (~ N v In ~0 O aO r O N O M v O M O vn°v_ N v ~ In (O O 1 i R ~ N 01 M ap Ol O (gyp N O 1~ O N t0 `-' M n o O O ' ~ O O O .M... N i ~ r N m IA O M ~ ~ N N (O O ~ M O O ~ r N O ~ O O l17 QI ~ V VO' O ui r O QI lf/ r O r v M M `-' N ~ ~_ W M V ~ O N O a (~O M r (O n W O M N O M O t0 (r0 V lr O O O aO 7 M N IP .- (O M ~ .-. O O N M O V M t` n ~ to O ' O h N V 01 Of N N O a0 S ~ CO N M O M N (O O r C M •' N U ~ ~ N~ N M r N ' V N L ~ oMp M (Mp ~ N ~ ' M O N y t M M ' N 01 C ~ _ N N r IM M V N ~ p~ ~ In ' CD N M cD ~ W ~ M ~ sA N 'O ~( `~ M ~ ~ N p~ N N N N G1 N N c0 j, C L ~ o c N ~ o ~, Q _ ~ N ~- N C n N ~ c U' E y ~ o m ~' w °" c c~ c v aXi a ya~~a a~ ~ N f0 X y ~ N > ~ ~ N C C ~ 7 N O y A A Vl N ,~O ` ~ ~ > X N L N N N X Z N 7 ~~ Z o ~ U U W U U N W N W `0 c i v ~~, O f~ M W V eD ~ ~ ~ M M (O O N O ~ N c0 O (O I~ a0 N ~ (D f~ (O Nv ~ O ~ r (p M N O O (D N N O m r aD N ~ N R 1~ OMi N O r t` O O N ~ O 117 ~ O ' O (O N N O r ' ~ M a0 .-. O rovrn r .N.. O O O m O W ~ O O M M R ' M O O ' O mom' M r (00 h N O ~ (p M 1~ O r ~ M M r- N O O oD O ~ (00 M N ~ M ~ In V N O V cD ~ N ~ (~O M (O h M M N O m N ~ ~ O M (D O V Q] a ~ N 117 ' ~ ~ N m ~ ~ IP O ' ~ ~ W O W ' m V I~ M N O r ~ ~ i O (O (O O R N ' M M M N ~ V (O N ' O O ~~~ ~ r r r r fA fA f9 f9 `n 'n in C fn r r 4= N = O f` ~. Q ~ ~ C L ~ O Q Q to z 3 (n N M ~ '>' ~ ~ rn r w O d' fA 01 I!] N ~ O O M N V V ~ N R sA N Q> ~ v_ N fA ~ M N fA N M O ~ N M EA r M O ~ C M ~ O ~ (O cD O fA r ~ O (O FA UM7 N N fA ~ N ~ C N 7 N N ~ E f6 N U y ' ~ N N ~ C ~ ~ w w c - E E ~ ~0 U N ~ ~ ~ rn ~ C l0 E n m a~ ° ~ w ~ a ~ ~ ~ a> c m a~ w ~ n m ~ N ~" n n ~ ~ C p O L N N O t0 ~ _ ~ ~ ~0 ~ N N N N Gf a E O L ~ ~U ~~ W U ~ ~ E ~ ~ E U ~ a av Agenda Information Memo August 23, 2006, Special Eagan City Council Meeting V. 2007 PROPOSED TAX LEVY AND GENERAL FUND OPERATING BUDGET DIRECTION TO BE CONSIDERED: • To provide direction regarding the 2007 proposed tax levy, which will be placed on the September 5, 2006, regular City Council meeting agenda for approval and certification to Dakota County. • To provide public policy direction to the City Administrator regarding any questions and/or revisions to the proposed 2007 General Fund Operating Budget. FACTS: • Preparation of the 2007 preliminary General Fund budget began this past April, with departments each submitting budget requests in June. • Since that time, the budget team-City Administrator Hedges, Director of Administrative Services VanOverbeke, Chief Financial Officer Pepper, and Assistant to the City Administrator Miller-have met with each of the departments to finalize the City Administrator's recommended budget. • The general narrative is laid out in a fashion similar to previous years. The individual department budgets are presented in a revised manner incorporating additional information helping to begin the process of enhancing the budget to become a better and more comprehensive planning, policy, and communications tool • The department directors will be present at the meeting to respond to any questions the City Council may have about the proposed budget. • The City must certify a proposed tax levy to the County Auditor, adopt a proposed budget, and select dates for the initial and continuation truth in taxation hearings no later than September 15. Formal City Council action to comply with those requirements is currently scheduled for the September 5, 2006 regular City Council meeting. Material prepared for that meeting will incorporate direction received at this workshop as well as at the August 29 workshop. ATTACHMENTS: • Enclosed on the following pages is the proposed 2007 tax levy and General Fund Operating Budget information. (As an FYI, numbers 104 through 107 were not used in the page numbering; there is nothing missing.) MEMO city of eagan TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS FROM: CITY ADMINISTRATOR HEDGES DATE: AUGUST 18, 2006 SUBJECT: PAYABLE 2007 PROPERTY TAX LEVY, PRELIMINARY GENERAL FUND OPERATING BUDGET AND BUDGET INFORMATION Introduction This proposed budget presents the City Council with an opportunity to continue providing the current level of services while resulting in a reduction in property taxes even after accounting for reasonable inflation on property values. If desired, it also provides an opportunity to begin providing replacement revenues for franchise fees and to enhance funding for the Major Street Fund. The following highlights explained in more detail in the complete narrative provide a summary of relevant facts: > The payable 2007 tax levy for operations included in the proposed budget is at the same dollar amount as the payable 2006 levy. The combined levy including the levy for the Community Center Debt Service is slightly Tess than payable 2006 and means that a Truth in Taxation (TnT) Hearing is not legally required for the second consecutive year. The City Council may wish to consider levying some or all of the amount available under the state threshold to enhance the Major Street Fund or some similar infrastructure need. > The estimated City tax capacity rate for payable 2007 is currently 9.0% lower than the final payable 2006 rate. . > The estimated market value rate for payable 2007 is 8.1 % lower than the final payable 2006 rate (applies only to the debt service for the Community Center). > After providing for a 5.2% inflationary increase in the market value of the average valued house in Eagan as determined by the County Assessor (increasing from $264,281 to $278,021), there is a 3.5% decrease in overall City taxes for payable 2007 (decreasing from $709 to $684) on that sample property. > As is always the case, and especially with a $25 million budget, there are significant fluctuations in required appropriations and /or revenue estimates from year to year that cause anomalies in percentage calculations in certain areas, in certain departmental budgets or even in the total budget. The 2007 budget includes a number of those types of items with an extraordinary fuel cost increase coming in, the biannual election judge wages out, the biannual community survey in, State payment of the Market Value Homestead Credit (MVHC) in, and accounting modifications in both directions to highlight a few examples. The percentage fluctuations are even more dramatic in smaller departments with lower expenditure bases. > In an "apples to apples" comparison the proposed 2007 budget is increased by 4.4% over the approved 2006 budget. Due to the combination of the above mentioned anomalies along with numerous other modifications the overall 2 summary shows an increase for 2007 of 5.6 %. Again, due to the various anomalies and modifications individual department changes vary from a decrease of 22.3% (City Clerk with no election judge wages and a small base) to an increase of 26.5% (Fire after moving certain personnel costs in from Protective Inspections). While remaining sensitive to these variations, staff has attempted to frame the basic public policy matters for consideration at the more macro policy level through out the narrative and through out the entire budget. > Budgets and taxes typically create challenges for staff and elected officials alike and this budget is no different; however, this proposed budget builds on past successes, maintains the desired level of services, and allows for reasonable options for today and into the future. Meeting Purpose The City is required to certify a proposed payable 2007 property tax levy to the County Treasurer- Auditor on or before September 15, 2006. The primary purpose of the August 22 Special City Council meeting is to review the proposed property tax levy, the preliminary 2007 General Fund operating budget, and to provide direction to staff. Any modifications to the proposed levy as directed by the City Council will then be made in preparation for the September 5 regular City Council meeting, 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 15 deadline. Modifications to the preliminary 2007 budget as directed by the City Council can continue beyond that date in preparation for the TnT hearing to be scheduled for a date in November /December and before final budget approval. In a subsequent section of this memo possible dates for the City's TnT hearing are delineated for City Council consideration. It has been the City's practice to hold the TnT hearing in late November or early December, followed by a second meeting in December to adopt the budget. The TnT hearing and the adoption of the budget are required to take place at separate meetings. Although, since the combined levy is slightly Tess than the payable 2006 levy and significantly less than the State threshold, a TnT Hearing is not legally required. In the interest of inviting community participation into the budget process it has been the City's past practice to follow all procedures in noticing and holding the hearing as if it is a legal requirement. The final property tax levy that is due at the County no later than December 28, 2006 can be decreased but cannot be increased from 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. Background In early April staff began the 2007 budget process with Department Director's proposals due to the City Administrator on June 16, 2006. The City Administrator and budget team have met with Directors in preparing the City Administrator's recommended budget that is now being presented for consideration by the City Council. This budget cycle is incorporating the beginning steps of a process of enhancing the budget to become a better and more comprehensive planning, policy, and communications tool. The desired enhancements are consistent with recommendations of the Govemment Finance Officers Association and are generally accepted by practitioners and govemments as 3 • appropriate objectives. While the old budget process and book have served the City well for years, it is important to take the document to the next level. When reviewing individual department budgets please note that staff has not been able to complete the necessary work on refining the Performance Indicators and the Work Plans for this budget draft. They are currently included in each department budget, but will be refined and improved upon for the published budget and in future years. Even though there was no financial assistance provided, since the State Legislature has completed its work, some of the uncertainty associated with previous year's budgeting is eliminated for at least this one cycle. For the last couple of years the budget has been prepared without the benefit of knowing whether or not the State would' provide funding of the MVHC and whether or not formal levy limits or any other types of limitations on local control would be implemented. This budget incorporates the expectation that the State will pay the MVHC to the City per current statute and the City's . levy has been allocated accordingly. As a starting point and consistent with past practice, Directors were instructed to target an inflationary 3% increase or less in each department. In addition they were asked to clearly outline resource requirements to maintain the current level of service and to adjust for budgetary items that fluctuate from year to year. Depending on impacts remaining from adoption of the 2006 budget, other service delivery challenges, and unique circumstances within departments, the 3% goal is clearly not realistic in all departments. It also has proven to be problematic and perhaps unreasonable across the entire budget, if a constant level of services is desired. However, the City Administrator's recommended budget has again been prepared keeping in mind the City Council's continuing financial goal including the objectives to: > Streamline City operations and staffing to reduce City costs and improve efficiencies and output. > Research the impacts of the possible reduction in non - essential services currently provided within the City's annual budget. The following general observations again help provide background to implementation of these goals and to this budget preparation cycle and its unique challenges: > The City of Eagan has historically been a relatively low service delivery City committed to limited govemment. > Numerous services that other communities are evaluating and considering eliminating as part of limiting the role of local government are not provided in Eagan. > During Eagan's years of rapid growth, the allocation of limited resources was balanced between providing services to the development community and to current residents and new residents moving into the City. > At the same time, the commitment to low property taxes and an aggressive approach to user fees was continued and strengthened. > The combination of rapid development, gradual provision of desired, albeit limited, services and relatively low property taxes forced a healthy emphasis on creating efficiencies, a wise and limited selection of services and low cost/efficient service delivery. 4 ➢ The process also drove limited resources to higher priority, essential services and at the same time limited development of non - essential services. ➢ Sound operational budget management by the City Councils and staff consistently helped to generate efficiencies through the delivery of expected services resulting in very high citizen satisfaction in the City. Citizen Opinions /Continuing Reform The proposed 2006 budget provides for a continuation of services at a level that has been satisfactory to the citizens of Eagan. This preliminary budget continues to be responsive to today's circumstances while providing for the highest priority, desired services in the most cost efficient manner possible. City staff continues to work to deliver a balanced budget that provides the services that citizens desire and are willing to pay for at the lowest possible cost, financed by revenues, including property taxes that are fairly collected and consistently allocated to the highest priority services. Given the size and complexity of the General Fund Budget, the inter - relationships with other funds, and diverse perspectives about services, costs, and program value, it can become an overwhelming task to formulate an appropriate and efficient budgeting process much Tess to formulate the budget itself. The logical and foundational questions in budgeting are "what do we do, how much does it cost to do it, and are the results worthwhile ?" According to the 2005 community -wide survey, citizens find great value in the services Eagan provides as demonstrated in the following results: ➢ A "comparatively high" 83% of residents polled rate the value of City services as excellent or good. This is up 6 percentage points from the 2002 City Survey. ➢ A very large 84% rated City services in Eagan as excellent or good in comparison to their previous city of residence. The mean positive rating for all City services is 87.3 %, well within the top five ranked communities in the Metropolitan area. ➢ 56% rated their City taxes as about average or somewhat low. Only 4% said they were very high. ➢ Of 11 City services rated (from police protection to snow plowing and park maintenance) every service was rated excellent or good by 4 or more of every 5 residents who had opinions and was rated higher than our neighboring cities. ➢ 95% rate their quality of life as excellent or good: ➢ Nearly 1 out of 4 residents polled could not think of a serious issue facing the City. Of the issues raised, only 3 (growth, traffic, and airplane noise) garnered double -digit responses (19 %, 14 %, and 13% respectively.) By a 20 -point margin (54% to 34 %) residents favored an increase in City property taxes in order to maintain City services at their current level. Even among those who opposed a tax hike, nearly 30% could not name any portion of the budget they would cut. ➢ Of the citizens who have had interaction with City staff, 79% rate City staff positively, placing Eagan within the top dec'ile of suburban communities. The job approval rating of staff is up 19% from 2002 and among the highest in the metro. ➢ The approval rating for the City Council has increased 22% since the 2002 study. The almost 10 to 1 approval rating of the City Council is at the top of the Metropolitan area suburbs. 5 While rated highly in the past by its residents, the City of Eagan in this survey now ranks among the top four cities in terms of citizen satisfaction — together with Minnetonka, • Woodbury, and Shoreview. In general, Eagan compares very favorably- meaning a higher percentage of approval -to our neighboring cities and to Dakota County in ratings for Quality of Life and in the willingness to consider tax increases, if necessary, to maintain the current level of services. Independent analysis also ranks Eagan highly: > Not only did the Met Council find Eagan to be the number one job producer in the Twin Cities in its most recent study from 2000 -2004, but MONEY magazine July 2006 named Eagan to be among the top 12 best places in America to live. > Starting with cities with 50,000 or more population, the magazine conducted months of research on everything from incomes to taxes, parks to transportation, with the goal of identifying those "small livable cities that had the best possible blend of good jobs, low crime, quality schools, plenty of open space, rational home prices and Tots to do." > Eagan was found to have higher than average median household incomes and education and more miles of walking trails than even the #1 city selected (Fort Collins, CO). These best places "offer a quality of life that is hard to find," and the people who live there, said MONEY magazine, "couldn't agree more." Given this citizen survey information and the various options, the City Council through the public policy process is able to decide the appropriate reforms and /or changes by enhancing revenues, modifying service delivery or implementing some combination of the choices. In continuing challenging economic times such as today's the budget question obviously becomes even more important and responses more challenging than ever. The City Administrator has prepared this document as a preliminary 2007 General Fund Budget incorporating City Council direction, as referenced in the individual department narratives. The preliminary budget is a starting point for City Council consideration and is not presented as a finished product. Importantly, it is balanced and will continue to provide changes to operations in the spirit of reform as well as a continuation of services expected and rated highly by the citizens. It allows for a reasonable continuation of services in 2007 and maintains options for future years. To that end, also included in this budget narrative is information that will allow the City Council to make changes and adjustments to the preliminary budget through the deliberative process. 6 Benchmarks While it is not always complete information and must be used carefully, it can be helpful to show comparisons with similar cities to provide benchmarks on efficiency and productivity. The following attachments may also be useful in making comparisons and in helping to understand Eagan's financial position and budgeting options: • Enclosed on page • is a copy of the recently released State Auditor's Report for 2004 expenditures showing Eagan's per capita spending lowest, • relative to other cities with 50,000 or more residents. • Enclosed on page 23 is a copy of local payable 2006 property taxes of selected other metro cities as well as a number of Dakota County cities. Eagan has significantly lower local property taxes than average in the metro area and the lowest local property taxes compared to any of our neighboring cities except Mendota Heights. City Market Value and Tax Capacity Based on the preliminary information received from Dakota County the City will see an increase in overall market value of 8.5% from $7,025,353,800 for payable 2006 to $7,620,484,300 for payable 2007. The City will also see a net tax capacity increase of 9.3% from $74,524,899 to $81,429,731. The net tax capacity calculation is affected by the fiscal disparities contribution and the tax increment tax capacity being factored into the base tax capacity. This information is demonstrated in the following table. COMPARISON OF MARKET VALUE AND TAX CAPACITY Final Preliminary Change 2006 2007 Amount Per Cent Market Value $ 7,025,353,800 $ 7,620,484,300 $ 595,130,500 8.5% Tax Capacity $ 85,160,030 $ 93,150,301 $ 7,990,271 9.4% Fiscal Disparities (10,064,239) (10,735,570) (671,331) 6.7% Tax Increment Value (570,892) (985,000) . (414,108) 72.5% Net Local Tax Cap $ 74,524,899 $ 81,429,731 $ 6,904,832 9.3% Approximately 19% ($111,184,100) of the increase in overall market value results from new construction with the balance generated through inflation. 7 Tax Capacity Property Tax Levy The City is not receiving any Local Government Aid in 2006 and that will not change for 2007 per the recent State certification. State Statutes sunset levy limits for taxes payable in 2005 so there is no State mandated property tax levy limit on the City to be considered in this budget. The property tax component of the City's proposed certified levy for operations included in the proposed budget is $21,557,307 for payable 2007 or the same as payable 2006. This information is demonstrated in the following tables: COMPARISON OF TAX LEVY FOR OPERATIONS & TAX CAPACITY RATES Final Preliminary Change 2006 2007 Amount Per Cent Operating Levy $ 21,557,307 $ 21,557,307 $ - 0.0% F D Distrib (1,656,452) (1,761,253) (104,801) 6.3% Net Local Levy $ 19,900,855 $ 19,796,054 $ (104,801) -0.5% Tax Cap Rate -City: $ 19,900,855 $ 19,796,054 $ 74,524,899 $ 81,429,731 0.26704 0.24311 (0.02393) -9.0% • 8 Tax related resources available to the City to appropriate in the budgets to provide services are $20,403,745 (all taxes) and $21,557,307 ($20,607,207 taxes and $950,100 MVHC) for the years 2006 and 2007 respectively. The property tax resources for the two years are allocated as follows: Final Allocation of 2006 Property Tax Levy Net • (Not Budgeted) Budgeted Property MVHC Amount of Taxes 2006 Budget Tax Revenue General Fund $ 18,225,400 $ - $ 18,225,400 General Facilities R & R 127,629 - 127,629 Equipment Revolving Fund 862,324 - 862,324 Major St Const Fund 1,188,392 - 1,188,392 Mkt Value Homestead Credit 1,153,562 1,153,562 - Totals $21,557,307 $ 1,153,562 $ 20,403,745 Preliminary Allocation of 2007 Property Tax Levy Net Preliminary Budgeted Amount of MVHC Amount of Taxes 2007 Prelim Tax Revenue General Fund $ 19,067,200 * $ 840,353 $ 18,226,847 General Facilities R & R 134,010 ** 5,906 128,104 Equipment Revolving Fund 905,440 ** 39,906 865,535 Major St Const Fund 1,247,812 ** 54,995 1,192,817 Communications 202,845 * ** 8,940 193,905 Totals $ 21,557,307 $ 950,100 $ 20,607,207 * $ 841,800 or 4.6% Increase ** 5% Increase * ** New The proposed 2007 payable levies for the General Facilities Renewal and Replacement Fund, the Equipment Revolving Fund, and the Major Street Construction Fund are all increased by 5.0% over the actual 2006 payable levies, while the General Fund levy is increasing by 4.6 %. An additional tax levy is proposed to begin replacement funding for Cable TV Franchise Fees as Federal action continues to threaten that revenue source. This levy would begin the process of funding the City's communications budget from General Fund Revenues rather than 100% from Franchise Fees. The proposed levy allocation assumes the State will pay MVHC in 2007 per existing law, consequently there is no replacement levy included as a funding source in the 2007 budget. 9 Market Value Property Tax Levy (Community Center Debt Service) The City's proposed certified levy for debt service based on referendum market value is $1,198,523 for payable 2007 compared to $1,202,093 for payable 2006. That is a decrease of $3,570 or 0.3% from payable 2006 to payable 2007. The resulting market value referendum rate is reduced by 8.1% from 0.0001712 to 0.0001573. COMPARISON OF LEVY FOR DEBT SERVICE & MARKET VALUE REFERENDUM RATES Final Preliminary Change 2006 2007 Amount Per Cent Ref Mkt Value $ 7,024,052,900 $ 7,619,162,400 $ 595,109,500 8.5% Debt Service Levy $ 1,202,093 $ 1,198,523 $ (3,570) -0.3% Mkt Value Ref Rate 0.0001712 0.0001573 (0.0000139) -8.1% The following table illustrates the impact of the market value referendum debt service levy (Eagan Community Center) for average value property for payable 2006 and 2007: Average Annual Payable Market Rate Tax Year Value Per $1,000 Amount 2006 $ 264,281 0.1712 $ 45.24 2007 278,021 0.1573 43.73 Total Levy The following table illustrates the total proposed levy (excluding the Cedarvale Special Services District) for payable 2007 compared to the total levy for payable 2006. COMPARISON OF TOTAL LEVY Final Preliminary Change 2006 2007 Amount Per Cent Operating Levy $ 21,557,307 $ 21,557,307 $ - 0.0% Debt Service Levy 1,202,093 1,198,523 (3,570) -0.3% Total $ 22,759,400 $ 22,755,830 $ (3,570) -0.02% State TnT Hearing Requirement According to the State's calculation, a total levy up to $24,223,450 is permissible before a TnT Hearing is legally required. The calculation allows for an inflationary adjustment in the levy of 6.4% that is not incorporated into the proposed payable 2007 levy as presented. Eagan is $1,464,620 under that threshold after allowing for inclusion of a $3,000 Cedarvale Special Services District levy. This is the second consecutive year in which a TnT hearing has not been legally required. 10 Some or all of that levy capacity could be used to enhance the Major Street Fund levy or any other levy as determined by the City Council. It would probably not be appropriate to direct any of the additional capacity to operations and that is not necessary as the current proposed budget is balanced as presented, unless the City Council desired an increased level of services. The following table demonstrates the calculations: COMPARISON TO STATE TnT HEARING REQUIREMENT Final Preliminary Change 2006 2007 Amount Per Cent Operating Levy $ 21,557,307 $ 21,557,307 $ - • 0.0% Debt Service Levy 1,202,093 1,198,523 (3,570) -0.3% Subtotal $ 22,759,400 $ 22,755,830 $ (3,570) - 0.02% Cedarvale Sp Service 3,000 3,000 - 0.0% Total • $ 22,762,400 $ 22,758,830 $ (3,570) -0.02% State Threshold 24,223,450 Available $ 1,464,620 Total City Property Tax Capacity Rates /Property Tax Impact In summary, based on the above referenced levies and current estimates for taxable market value, tax capacity, fiscal disparities and tax increment values the payable 2007 tax capacity rate calculates to .24311 compared to .26704 for payable 2006, a decrease of 9.0 %. The market value referendum rate for the Community Center bonds debt service calculates to .0001573 for payable 2007 compared to .0001712 for payable 2006, a decrease of 8.1%. 11 The following table of property tax history illustrates the estimated impact of the total proposed levy for payable 2007 taxes and compares the rates and impacts to historical tax rates and impacts for the years 2003 through 2006 on various market value residential properties. Distribution of the MVHC for 2007 is based on consistent levies from other taxing jurisdictions; any change in relative levies will impact the final credit distribution. Eagan Property Tax History City Taxes Only Projected 2003 2004 2005 2006 _ 2007 Tax Capacity Rate 0.29912 0.28702 0.28186 0.26704 0.24311 Market Value Rate 0.0001986 0.0001874 0.000189 0.0001712 0.0001573 Market Value 150,000 $ 404 $ 383 $ 375 $ 352 $ 319 180,000 508 483 474 446 404 . 200,000 578 550 540 508 461 225,000 664 637 622 586 433 264,281 Pay 2006 Average Eagan House Mkt Value , ,,, 278,021 Pay 2007 Average Eagan House Mkt Value ; ,V ,? a l 300,000 925 885 869 820 746 The following table illustrates the impact of these rates on the property taxes on an average market value property ($264,281) for payable 2006 compared to an average market value property ($278,021) for payable 2007 thereby adjusting for inflation on property values. City Portion of Taxes on an Average Market Value House in Eagan 2006 Value: $ 264,281 2006 City Tax: $ 709 2007 Value: 278,021 2007 City Tax: 684 Increase 5.2% Decrease -3.5% Figures Include Community Center Debt Service Levy a ) a-iv cf.k 4,(54 . k/c., -, 12 Impact on Property Taxes Resulting From a Reduced Levy The following table illustrates the impact on an average market value property ($278,021) for payable 2007 resulting from reductions of various amounts in the overall tax levy. The reductions would result from a decision to levy at an amount Tess than the proposed dollar amount. The reductions amount to approximately $3 to $4 on an annual basis for each $100,000 that the levy is reduced. Impact of Reductions in Tax Levy on Average Market Value House City Tax Tax Proposed Amount At Proposed Capacity Levy Adjusted of Levy Rate Minus... City Tax Reduction $ 278,021' Market Value $ 684 0.24311 0.24188 $100,000 $ 680 $ 4 0.24065 200,000 677 7 0.23942 300,000 674 10 0.23819 400,000 671 13 • 0.23697 500,000 667 17 2006 Payble taxes on same house 0.23574 600,000 664 20 valued at $264,281 was $709 with 0.23451 700,000 661 23 tax capacity rate of .26704. 0.23328 800,000 657 27 Impact on Property Taxes Resulting From an Increased Levy The following table illustrates the impact on an average market value property ($278,021) for payable 2007 resulting from increases of various amounts in the overall tax levy. The increases would result from a decision to levy at a higher dollar amount. The increases amount to approximately $3 to $4 on an annual basis for each $100,000 that the levy is increased. Impact of Increases in Tax Levy on Average Market Value House City Tax Tax Proposed Amount At Proposed Capacity Levy Adjusted of Levy Rate Plus... City Tax Increase $ 278,021 Market Value $ 684 0.24311 0.24433 $100,000 $ 687 $ 3 0.24556 200,000 690 6 0.24679 300,000 694 10 0.24802 400,00Q 697 13 0.24925 500,000 700 16 2006 Payble taxes on same house 0.25047 600,000 703 19 valued at $264,281 was $709 with 0.25170 700,000 707 23 tax capacity rate of .26704. 0.25293 800,000 710 26 13 General Fund Revenue Estimates The preliminary 2007 budget as presented is balanced based on a continuation of the City's established budgeting practices; namely, revenues are budgeted conservatively, but realistically. There are no significant increases to user fees for 2007. There is a reduction in the transfers from utilities for operation of the Central Services as some personnel costs are now charged directly to the Utility Funds. As always, there are an infinite number of possible revenue combinations that could be used to balance the preliminary budget at the preliminary budget level or at an increased level to maintain or even enhance service delivery in program areas as determined by the City Council. The financing of the City's General Fund operations remains heavily reliant on the property tax related revenues as 71 % of the estimated 2007 revenue is from that source. This percentage reflects Eagan's situation with little reliance on any State revenue sources to finance General Fund operations. The estimate for MVHC for the General Fund is $840,353 or 3.3% of the total budget. With current State law providing for the payment of MVHC in the City's 2007 fiscal year that revenue source is included in the proposed 2007 budget. Any State response to potential revenue shortfalls in its budget would likely include non payment of the MVHC and would create a revenue shortfall for Eagan and other cities similarly treated. Enclosed on page 24 is a copy of the Comparative Summary of Revenues. Enclosed on pages 7-5 through 21 is a copy of the Revenues By Line Item. General Fund Expenditure Appropriations The appropriations in the 2007 preliminary budget including the extraordinary increases like motor fuels and the accounting changes total $25,354,200 which is a 5.6% increase from the 2006 budget total of $24,017,500 including a minimal contingency in both years. Factoring out the extraordinary increase and accounting changes the proposed General Fund budget reflects a modest 4.4% increase providing for a constant level of services. - Outlined in the following table are the proposed 2007 expenditure allocations compared to the 2006 budget; with allocations summarized by major classifications. Expenditure Summary by Major Classifications % of % of Change % of Total 2006 Total 2007 Total Dollar % Increase Personal Services* $18,432,000 76.7% $18,467,000 72.8% $ 35,000 ; 0.2% 2.6% Parts and Supplies 1,399,900 5.8% 1,656,400 6.5% 256,500 18.3% 19.2% Services and Other Charges 3,867,300 16.1% 4,926,400 19.4% 1,059,100 27.4% 79.2% Capital Outlay 272,400 1.1% 233,600 0.9% (38,800) -14.2% -2.9% Merchandise for Resale 19,000 0.1% 30,800 0.1% 11,800 62.1% 0.9% Contingency 26,900 0.1% 40,000 0.2% 13,100 48.7% 1.0% TOTAL $24,017,500 100.0% $25,354,200 100.0% $1,336,700 5.6% 100.0% * The 2006 to 2007 comparison is complicated by the fact that in this table personnel costs for dispatchers are included in the 2006 Personal Services account while the similar costs for 2007 are included in the Services and Other Charges account as a payment to the DCC. 14 As is well known, in our service- oriented role as local govemment, labor is our primary commodity, and thus consistently drives approximately three- quarters of the City's annual budget. Changes to the overall 2007 personnel budget for existing and proposed personnel compared to the 2006 personnel budget appropriation are further illustrated in the following table. • 2007 Budget General Fund Proposed Personnel Changes Increase 2006 2007 % of Total Budget * Proposed Amount % Increase Existing Personnel Regular Employees Salaries/wages $ 12,590,600 $ 13,116,900 $ 526,300 4.2% PERA ** 991,800 1,120,600 128,800 13.0% FICA 623,400 648,100 24,700 4.0% Health/Life/LTD Insurance 1,630,900 1,789,700 158,800 9.7% Worker's Compensation 366,900 400,600 33,700 9.2% Volunteer Firefighters compensation 385,000 381,500 (3,500) -0.9% Fire Relief Association (pension) 31,900 144,600 112,700 353.3% Subtotal - Existing Personnel 16,620,500 17,602,000. 981,500 5.9% 101.1% New Positions Finance - Accountant II from .75 to FT 20,300 Recreation - Clerical III 49,100 Subtotal - New Positions 69 69,400 7.1% Position Reductions Administration - Asst. to City Admin. (From FT to .8) (16,000) Subtotal - Deleted Positions (16,000) (16,000) -1.6% Temporary /Seasonal Administration (Intem) 17,100 - (17,100) -1.8% City Clerk (Elections) 68,200 - (68,200) -7.0% Comm Devel (Planning Intern) 7,400 13,600 6,200 0.6% Communications (Seasonal Intern) - 3,900 3,900 0.4% Pub Wks/Engineering (Seasonal Intern) 19,400 15,400 (4,000) -0.4% Pub Wks/Streets (Temp /Seasonal) 21,000 26,100 5,100 0.5% Central Svcs Maint. (Temp /Seasonal) 18,400 16,400 (2,000) -0.2% Parks/Recreation (Temporary/Seasonal) 629,300 635,800 6,500 0.7% Tree Conservation (Temporary/Seasonal) 94,400 100,400 6,000 0.6% Subtotal - Temporary/Seasonal 875,200 811,600 (63,600) -7.3% -6.5% Total Personnel $ 17,495,700 $ 18,467,000 $971,300 5.6% 100.0% * To make 2006 figures comparable to 2007, Police dispatch staff and Utilities Superintendent have been excluded from 2006 figures. ** Employer PERA contribution rates mandated by the State increased from 6.00% to 6.25% for Coordinated Plan, and from 10.5% to 11.7% for Police /Fire. 15 As noted in the table, the City Administrator's recommended preliminary budget includes appropriations for one (1) additional position, and an increase from .75 to 1.0 for one (1) position along with the reduction from 1.0 to .80 for a second position. Implementation of these changes results in a net increase in FTE's of 1.05 in the total personnel compliment. Detailed information about each position is included in the department narratives that follow this introductory memo. Numerous other changes reflected in Temporary/Seasonal net to a $63,600 reduction. The increase in wages and salaries reflects the cost of living and step increases per labor agreements. The scenario as presented in the preliminary budget decreases the percentage of the budget dedicated to personal services slightly from 76.7% to 72.8 %. Even with the reduction the allocation continues to reflect the intensity of personnel costs to deliver local govemment services. Overtime allocations remain at approximately the 2006 levels to provide for unavoidable circumstances such as police investigations, police call for service responses that cross shifts, filling out patrol shifts, and snow plowing, etc. The overtime allocation also covers the required peak service demand times without increasing the personnel complement necessary for base level staffing for ongoing activities. 16 The following summary illustrates the anomalies, modifications, and extraordinary items that are incorporated into the proposed budget which can make simple percentage comparisons problematic: 2007 Budget General Fund Explanation of Increases . % Increase 2006 Adopted General Fund Budget $ 24,017,500 e Ses c ' ges COLA and step increases on existing staff $ 873,400 . 3.64% New positions — regular staff 69,400 0.29% Position reductions — regular staff (16,000) -0.07% Non = Personal Se Vi..ce c an a -- Orrdinary and customary/inflationary increases 130,100 0.54% ri'vv Yve ?os 2007 "apples to apples" budget (i'd:ce') $ 25,074,400 4.40% Other "extraordinary" items - .. = Gas/energy costs above normal inflation 185,000 0.77% Increase in City contribution to Fire Relief pension 112,700 0.47% Accounting change for Recreation expenditures 74,300 0.31% _ Increase in DCC costs, net of staff reductions �,.,......—,.... 25 ;400 "" 0.11% 25, 300 0.11 City survey (odd years onlx) �,.- -- -,7-__ Comprehensive Guide` an update (only f,1 2007) 20,500 0.09% f Tree sal�.(o to years only) ___ 15,00 0.06% I munity Services Open House (odd years only) '" 5,900 ' 0.02% j Election judges (even years only) (72 5004, —, -0.30% Move Superintendent of Utilities to Utilities Fund (111,800) "` 0:47 %0 2007 Proposed Budget $ 25,354,200 • 5.57% • Enclosed on page 22 is a copy of the Comparative Summary of Expenditures. Enclosed on pages 29 through 3 is a copy of the Comparative Expenditures by Department by Type. /� Enclosed on pages 33 through 1 is a copy of the individual department narratives and line item preliminary budgets. 17 Contingency Account The preliminary budget as prepared by the City Administrator includes a very small budgeted contingency account of $40,000 primarily for the purpose of facilitating small changes during the budget implementation. This presentation combined with no use of the fund balance to support 2007 on -going operations continues the City Council direction in response to the 2004 budget public policy considerations for use of the Contingency Account and Fund Balance. An adequate savings account is continued in the fund balance to be used to provide security and flexibility in future operations. That savings account remains undesignated in the General. Fund in the preliminary budget. Previously, the City actually budgeted from current resources approximately 2% of the budgeted operations into the contingency account in addition to maintaining the fund balance at approximately 30 to 35% of the next year's expenditures. The fund balance target has subsequently been revised to 40 to 45% of the next year's expenditures. Per previous City Council direction the appropriate level and use of the fund balance will continue to be reviewed for potential future modification. . Supplementary Funding Sources and Uses Not Included In the General Fund Budget In preparing individual department budgets the Department Directors and Division Heads identified certain expenditures that are of a non - recurring nature and when included in the operating budget have a significant impact on the City's ability to finance on -going operations in a consistent manner. Consequently, consistent with the practice established in the 2005 budget and continued in 2006, the City Administrator's recommended 2007 budget has removed certain proposed expenditures from the General Fund operations. Review of the expenditures and consideration for approval will be included with the individual fund budgets at a later date. The proposed funds and requested expenditures are as follows: Public Utilities The City Administrator is recommending that the the following obligations be paid from the Public Utilities operating budget: LOGIS Utiliity Billing Assessment $ 82,400 Utility Billing System Implementation 13,000 Total Public Utilities $ 95,400 • 18 • General Facilities Renewal and Replacement Fund The City Administrator is recommending that the the following proposed projects be given later consideration for financing from the City's General Facilities Renewal and Replacement Fund: Replacement/upgrade of lighting in the Parks Department workshop at the maintenance facility $ 12,000 Replacement/enlargement of the trash enclosure at the Fire Administration building 26,900 Resurfacing of East & North parking lots at Municipal Center 45,000 Carpet replacement Police north stair tower 2,600 Carpet replacement City Hall 2nd floor corridor, waiting area and stairs 6,300 Rooftop screening equipment on Police building 11,700 Fire Administration remodeling 17,000 Fire Administration lobby, stairwell, and training room painting 5,400 City Hall 1st floor security improvements 7,200 Re -side salt storage building 11,800 Seal coat and restrip parking lots and drives at Eagan Community Center and Moonshine Retreat Center 17,200 Total General Facilities Renewal & Replacement Fund $ 163,100 Consequently, no appropriations for any of these projects are included in the proposed 2007 General Fund Budget. Part II CIP • The City Administrator is recommending that the following request be given consideration in the Part II CIP and compete within that allocation for funding: Municipal Center Reader Board $ 40,000 • Total Part II CIP Consideration $ 40,000 Adequate resources are available in each of these funds to provide the necessary funding if the expenditures are approved. Staff will determine a priority expenditure list for funding and present it to the City Council for consideration. General Fund Fund Balance The following proposed expenditures are recommended for approval with the General Fund budget to be financed through the General Fund fund balance. General Fund Fund Balance The City Administrator is recommending that the following obligations be paid from the City's General Fund Balance: Police CJIIN Project $ 45,600 CJIIN IT Needs Assessment Funding 34,500 DCC Dispatch Start Up Costs 54,800 Total General Fund Fund Balance $ 134,900 The General Fund fund balance as reported in the December 31, 2005 Comprehensive Annual Financial Report was $9,659,415. This balance calculates to 39.9% of the 19 budgeted 2006 expenditures and is undesignated and available as a contingency and to provide working capital for operations. The preliminary budget as presented proposes to use the Fund Balance as a funding source for certain one -time, non - operational, expenditures related to General Fund operations that have been removed from the preliminary proposed 2007 budget by the City Administrator. Based on the continuation of City Council direction used in the preparation of the 2004 budget operations, the balance of the Fund Balance is set aside to provide for emergency or unanticipated expenditure appropriations during the balance of 2006 and 2007. During the 2004 budget deliberations, it was determined that it would be prudent to eliminate the budgeted operating contingency and to use the Fund Balance as a contingency account. The position of the fund balance is as follows: December 31, 2005 Fund Balance $9,659,415 Minus Appropriations included in 2006 Budget (169,900) Projected 12 -31 -06 Balance $9,489,515 Minus Proposed Appropriations for 2007 Budget (134,900) Projected 12 -31 -07 Balance $9,354,615 Fund Balance Target at 40% $ 10,125,680 Projected Variance From Target $ 771,065 Again, per previous City Council direction the appropriate level and use of the fund balance will continue to be reviewed for potential future modification. Cedarvale Special Services District Prior to the preliminary levy certification a final determination will be made concerning the appropriate levy for the Cedarvale Special Services District. The levy for payable years 2003 through 2005 was $2,000 annually. The levy for payable 2006 was raised to $3,000 and is currently proposed at that level for payable 2007. Truth In Taxation Hearing Dates On or before September 15, 2006 the City must certify to the County Auditor the dates it has selected for its public hearing and for the continuation of its hearing, if a continuation of the hearing becomes necessary. Cities essentially choose after the counties, special service districts, and school districts, although December 4 and December 11 are reserved for cities until September 15. Given these parameters, December 4 works nicely for the City. The first December meeting has already been scheduled for Monday, December 4 rather than Tuesday, December 5. The continuation hearing, if necessary, could be scheduled for a Special City Council meeting on Monday, December 11 with the final adoption at the second regularly scheduled December meeting on the 19 Action will need to be taken at the September 5 meeting to set the schedule accordingly. 20 • Public Policy Issues The following are matters of public policy for the City Council's consideration at this time: 1. Truth in Taxation Hearing Dates — The Council is asked to approve or modify the recommended dates per State scheduling requirements. The proposed dates are Monday, December 4 which is a scheduled regular City Council meeting for the initial hearing and December 11 which would be a special meeting for the continuation hearing, if one is necessary. Final action would take place at the regular meeting scheduled for December 19. 2. Preliminary Tax Levy — Is the proposed amount and allocation of the 2007 property tax levy appropriate? > Specifically, is the implementation of a replacement levy for communications the desired public policy? > Given the significant reduction in the tax impact, should additional dollars be levied for street and highway infrastructure or some other purpose? The Council is asked to provide direction to staff for the preparation of required material for consideration at the September 5, 2006 regular City Council meeting. 3. Supplementary Funding Sources and Uses Not Included In the General Fund Budget -- The Council is asked to provide a response to the continued use of the supplementary funding sources for the non - recurring appropriations included in the proposed budget. %4. Fund Balance — The Council is asked to reaffirm or modify its determination on \)\""J the use of the Fund Balance as a contingency for operations and as a savings ( , j(j account. oA Ga` , 5. Feedback on Revenue Estimates /Expenditures Appropriations — The City ,y� (1 Council is asked to provide feedback for the City Administrator to continue CJ preparation for the Truth in Taxation Hearing and for final budget preparation. oki k...) > Members of the City Council asked that the cost of storing the Web streaming videos for more than one year be researched in the budget . process. The upfront cost is $14,600 and the annual service charge is estimated to be $2,400. Those costs are not included in the current proposed budget, but can be added if that is the wish of the City Council. Other costs related to this initiative are included in the Communications budget. Together with the Department and Division Heads, I submit this recommended preliminary budget, the enclosed budget information and these policy issues for your consideration. (Lows4t City Administrator Hedges . 21