02/20/2007 - City Council Finance CommitteeAgenda
Finance Committee
February 20, 2007
4:45 P. M.
City Hall Conference Room 2A & 2B
I. Agenda Adoption
II. Highway 149 (Project 778) Funding
~ Short-term options
III. Public Policy Considerations/Future Meetings
IV. Other Business
V. Adjournment
City of Eagan demo
To: Finance Committee:
Honorable Mayor Maguire
Councilmember Carlson
From: City Administrator Hedges
Date: February 16, 2007
Subject: February 20, 2007 Finance Committee Meeting
At the regular City Council meeting held on January 2, 2007 the Finance
Committee was directed to review City financing obligations relative to Project
778 (T H Highway 149 upgrade). At that same meeting the plans and
specifications were approved and advertisement for a bid opening was
authorized.
In putting together background material staff has met and concluded that the
choices made relative to the Highway 149 financing clearly have long-term
ramifications not only for transportation needs but for other potential City projects
of interest and other City obligations. Therefore, it might be most appropriate for
the Finance Committee to consider a two part approach to this challenge and the
background material is presented to facilitate that approach, if that is the
Committee's wish.
Highway 149 (Project 778) Funding -Short-term Options:
First, at a very basic starting point the short-term options include not completing
the 149 Project or finding other revenue sources beyond those allocated in the
current (2007 - 2011) CIP to finance the increased City obligation.
Assuming that it would be difficult from a practical standpoint to abandon the
project and forfeit the committed albeit capped state and federal dollars, the next
short-term option is to allocate additional City resources to the completion of
project while exercising available political capital to encourage the State and/or
Federal governments to increase their shares of the total project costs.
Enclosed on pages ~_ through ~~1_ is a copy of a memo from Director
of Public Works Colbert that provides background on the project including the
project need and the cost sharing arrangements. The memo also delineates the
potential impact on the last four years of the CIP (2008 - 2011), if additional
resources are allocated to the Highway 149 project and not replaced with
additional sources of revenue; either new revenue streams, increases to existing
revenue streams, or some combination.
Public Policy Considerations/Future Meetings:
Second, assuming the City Council chooses to proceed with the Highway 149
project, a more comprehensive review of other potential City projects of interest
and other City obligations and potential funding sources should be undertaken. If
so directed by the Council, the Finance Committee could review the following in
subsequent meetings:
• Available City resources by fund, the defined purposes for those dollars,
and implications (pros and cons) of redirecting any of those balances.
• The comprehensive long-term list of City projects of interest or other City
obligations. Those potential projects include but are not limited to
transportation, other public utilities infrastructure, open space, fire stations,
OPEB liabilities, fiber project, redevelopment obligations, etc.
• The City's approach to lobbying for additional resources.
• Public policy considerations and potential priorities for the City Council.
• Other.
Enclosed on pages ~_ through ~_ is a copy of a memo from Director
of Administrative Services VanOverbeke using this approach as it relates to the
Major Street Fund attempting to raise the appropriate public policy issues for the
Committee and City Council's consideration.
This proposed two part methodology would probably require additional Finance
Committee meetings so consideration should be given to that, if it is the wish of
the Committee.
Please contact the City Administrator's Office if you
advance of the meeting. The City Administrator and
meeting to answer questions as well.
6-~,~,____~
City Administrator Hedges
have any questions in
Directors will be at the
Ciiy of Eat Memo
To: THOMAS L HEDGES, CITY ADMINISTRATOR
From: THOMAS A COLBERT, PUBLIC WORKS DIRECTOR
Date: FEBRUARY 15, 2007
Subject: FINANCE COMMITTEE MEETING -FEBRUARY 20, 2007
On January 2, 2007, the City Council directed the Finance Committee to review the local
financing obligations of City Project 778 (TH 149 upgrade) prior to the contract award
scheduled for the April 5 Council meeting. The need for this review is precipitated by
the significant escalation in local cost participation due to state and federal contribution
caps. It is projected that the growing local cost obligations of this project will exceed the
short range funding available in the City's Major Street Fund (MSF) creating a deficit of
~$2.5 million at the end of the currently approved 5-yr. CIP (2011). This memo will
provide some background information about the project, its cost, the status of the MSF in
relation to the currently approved 5 yr. CIP and alternative funding options for the
Committee's consideration and discussion. In addition to evaluating the financial
obligations of this project to the long-term solvency of the MSF, it may also be beneficial
to have future Finance Committee reviews of other major pending obligations facing the
City in the foreseeable future, and its forecasted ability to financially meet those
obligations as well.
PROJECT 768, TH 149 UPGRADE
Back rg ound
State Trunk Highway 149 is functionally classified as a Minor Arterial in the
Metropolitan Council's regional roadway system. As such, it qualifies for various
funding programs administered. by the Met Council as well as any funding that MnDOT
elects to allocate as part of their State Transportation Improvement Plan (STIP).
Wescott Rd. Safety
The major driving issue for some type of improvement initiated from safety concerns for
the Wescott Rd. intersection (technically located in Inver Grove Heights). The Wescott
Rd. intersection used to be two offset "T" intersections and was part of Dakota County
Road 63 (Dodd Rd. to the south in Eagan and Baffin/Argenta Trail to the north in IGHts).
As part of local development in IGHts, and the jurisdictional turnback of County road 63
to both communities, the Baffin/Argenta Trail intersection was realigned to create the 4-
legged intersection that exists today. This intersection has had a growing history of
3
Finance Committee Memo
February 15, 2007
Page 2
crashes and related safety concerns. MnDOT had allocated $300,000 to install a signal
at this intersection under one of their Safety Enhancement projects. However, the
elevation differential (~2.Sft.) between the TH 149 mainline and the parallel railroad
tracks precluded the mere placement of signal lights. It required a full reconstruction of
TH 149 to raise it to match the RR elevation. This subsequent reconstruction of TH 149
(1,000 ft. in both directions) significantly exceeded the safety improvement funds for
just the signal project.
TH 149 Funding Opportunities
Since TH 149 was not identified as a priority roadway on their reconstruction program,
MnDOT planned to proceed with only a structural maintenance overlay which would
have pushed this highway's eligibility for any type of upgrade/expansion improvement
even further back in their program's priority. Not wanting to lose an opportunity, the
City of Eagan took the lead in applying for Federal funding through the Surface
Transportation Program (STP) knowing that the safety issues, traffic volumes and
intermodal pedestrian trail would help it quality. Subsequently, the City was successful
in securing the maximum amount of $5.5 million in Federal funding. We then worked
with MnDOT to get them to commit their signal safety project and resurfacing
maintenance dollars towards the project. We also pursued MnDOT's Access
Management funds due to the number of accesses that would be closed and/or restricted
as a result of an upgrade to a 4-lane divided roadway. However, MnDOT would not
commit any highway construction/improvement dollars to this project. All totaled,
MnDOT's contribution was maxed out at $2,140,000. Also, since part of the project
would be located Inver Grove Heights, that city would contribute $220,500.
Cost Estimates
The predesign project cost estimate and funding contributions were identified in the
City's Feasibility Report and presented at the Public Hearing on April 5, 2005. The
project was approved with authorization to proceed with detailed design and right of way
acquisition. During the ensuing 18 months, the project's scope was extended further
south into IGHts per their request (to Rich Valley Blvd. -County Road 71). Federal &
State design, environmental and process requirements combined with quickly escalation
construction and property acquisition costs resulting in the following revised estimates
(includes inflationary adjustments on Federal Funds):
Source
Federal STP Funds
MnDOT Funds
Inver Grove Hts.
Everything Else (Eagan)
TOTAL
Feas. Report Est.
$5,500,000
$2,140,000
$ 220,500
$3,310,860
$11,171,360
Final Desip~n/Pre-Bid Est.
$6,094,000 (+ 11%)
$2,256,000 (+ 5%)
$ 803,197 (+264%)
$7,411,168 (+124%)
$16,564,365 (+ 48%)
Finance Committee Memo
February 15, 2007
Page 3
IMPACT ON MSF BALANCE
At the time of the F.R. estimate in 2005, the City's MSF had a projected surplus in 2010
of $9.2 million (the TH 149 improvement was not anticipated and related costs were not
included in the `06-` 10 CIP). In 2006, when preparing the next CIP (2007-2011), the TH
149 Feasibility Report estimate of the City's obligation was adjusted with a best guess
estimate to $4,928,400 (+1.6M). This resulted in a projected MSF deficit of $340,000 in
2011. The most recent final design/pre-bid estimate of $7,411,168 is now projected to
increase the MSF deficit to $2,500,000 by 2012. It should be noted that this projected
deficit may substantially increase even further as other future programmed projects are
re-estimated with the next CIP update due to continued industry cost escalations.
ISSUE AT HAND
Technically, the City has sufficient funding to finance the proposed TH 149 project since
projected deficits are for the end of the 5 yr CIP cycle. However, in order to avoid such a
deficit, it will become necessary for the City Council to either reduce/eliminate projects
in the currently approved CIP's remaining 4 years ('08-'11), or find additional funding to
the MSF (or a combination of both). The remaining 4 years of project costs in the current
approved CIP is $14,132,000, of which $9,236,000 is dedicated to pavement preservation
of our existing local street system. The remaining $4,896,000 (35%) is programmed for
County Road expansion, trailways and congestion relief or safety intersection
improvements.
I am always available to help identify feasible options and/or modifications to our future
construction program or alternative funding scenarios to provide a balanced and
deliverable transportation infrastructure for our community.
c: Gene VanOverbeke, Director of Administrative Services
Russ Matthys, City Engineer
Tom Pepper, Chief Financial Officer
Tim Plath, Transportation Engineer
City of Ea~a~ Mcmo
To: City Administrator Hedges
From: Director of Administrative Services VanOverbeke
Date: February 14, 2007
Subject: Financing Street and Highway Infrastructure
At your request I am writing this memo to summarize how the City has historically
financed the construction of Streets and Highways and what new financing
options might be available into the future. In general my approach to this memo
is to look at what's happening today, how we got there, and what options are
available into the future. From this basis the City Council can develop the
appropriate public policies to continue providing an appropriate and affordable
level of transportation infrastructure to the community. Unfortunately, bringing
the two general transportation goals of appropriate and affordable together is
becoming more challenging by the day.
Historical to Present
For a number of years Eagan was basically involved in the construction of two
types of streets: 1) new residential streets paid for 100% as a result of
development which were financed primarily by special assessments or through
special assessment waivers with developers; 2) new or upgraded oversized
streets (major thoroughfares, minor and intermediate arterials and collector
streets and commercial-industrial streets), which were paid for partially by
assessments against benefiting property owners and the balance or City share
was paid for from other City revenue sources.
In the late 1970's the City consolidated its available street revenue sources into
the Future Road Construction Fund which was subsequently renamed the Major
Street Fund. Authority for a Dakota County Road and Bridge tax levy was
transferred to the City for taxes payable in 1980 and the City has subsequently
used an ad valorem tax levy as a major funding source for the Major Street Fund.
Other Major Street Funding sources historically included the City's allocation of
Municipal State Aid (MSA), the Road Unit Charge, and interest earnings. After
the discontinuation of the Road Unit Charge the available funding sources were
reduced to the tax levy, MSA, and interest earnings. State andlor Federal dollars
were also used to assist in completing projects in which they had an interest; the
effect is similar to assessments in that they reduce the City's ultimate share of
the total project cost.
Currently some dollars are collected for street improvements resulting from the
completion of AUAR studies. The money is designated for transportation
improvements subsequently constructed within the study area.
We usually do not consider special assessments as a funding source for the
Major Street Fund since that Fund's obligation is for construction costs left after
special assessments have been considered. In other words the City's share of
the costs paid through the Major Street Fund is already net of the amount of
assessments that can be collected on the project.
The effect of this accounting/process from a practical aspect is to get money for
each project from every available source, i.e. assessments, County, State,
Federal, etc. and to charge the balance to the Major Street Fund and use its
available revenue sources (ad valorem tax levy, MSA, interest) to fill the gap and
fully fund the project.
I believe a review of this system shows that it has worked very well over the
years and this system is one of the reasons that Eagan has the transportation
infrastructure in place that exists today.
However, over the same period of time factors have changed and the long-term
financial viability of the Major Street Fund cannot be maintained without some
change to the revenue or expenditure side of the equation or through some
combination of changes to revenues and expenditures.
Without going into a great deal of detail I am making the following observations
about the changes that have taken place or will take place:
Historical to Present Revenues:
• The City was declared to not have the authority to collect the road unit
charge in the manner it was being collected and collection was
discontinued.
• The ad valorem tax levy is a major revenue component of the Major
Street Fund revenue and has increased approximately 5% each year.
• The ad valorem levy is subject to levy limits when they are implemented
by the State and effectively takes a secondary position to the levy
necessary to support operations.
• It hasn't happened dramatically to date; however interest earnings
($392,712 in 2005) will decline as the cash balance is depleted.
• As a result of State policy decisions, the MSA allocations to the City have
not keep pace with needs or costs.
Historical to Present Expenditures:
• More costs have been shifted to the Major Street Fund, e.g.
o More street maintenance is charged to the Major Street Fund to
reduce pressure on the City's General Fund.
2
o The City's costs for trail construction (external to an actual park) are
now charged to the Major Street Fund.
o There is more semaphore construction and it is charged to the
Major Street Fund.
• The nature of most projects has changed, e.g.
o More projects involve reconstruction and cannot realistically be
charged to anyone else, i.e. there are fewer assessments and
fewer partners to share in the cost.
o For a variety of reasons, assessments are more difficult to collect.
• Additional traffic calming and other citizen requested control devices and
projects are being implemented as the community matures and traffic
increases.
• Projects have become significantly more expensive due to the cost of
materials, right of way and easement acquisition, and environmental
requirements, among other factors.
Historical to Present General:
• The City has been the lead agency for the construction of certain projects
which advances the construction schedule while increasing the City's
responsibility and in some cases the City's overall costs. It reduces the
City's option of getting out of the project after work has begun or in
capping its financial exposure.
• The City's five year capital improvement plan has tended to finance
obligations in a five-year time frame without demonstrating long-term
sustainability. The TINA study with the resulting long-term deficit
demonstrates the challenge of combing short-term needs and objectives
with long-term needs and objectives and dealing with the consequences of
today's decisions. For example, should the City be saving today's dollars
for construction of a bridge on the ring road in the future or improving Pilot
Knob Road today with today's dollars.
• The City has not developed a formal policy that matches the traveling
public's expectations and pain threshold for delay and inconvenience with
the City's long-term ability to stay ahead of the problems. The City has
admirably instead tried to stay ahead of the pain threshold through
transportation improvements. This City approach seems to be contrary to
the approach of Dakota County, the Metropolitan Council and both the
State and Federal Governments. The result of the City's more responsible
response to transportation needs seems to result in higher City costs and
even less assistance, especially from the State and Federal governments.
It may also inadvertently impact acceptance or use of mass transit
options.
• No clear separation of expectations has been made between local streets
for which the City has 100% responsibility and the highways where the
County or State has the ultimate responsibility, but the highways happen
to run through the City.
~'
Future:
The current funding question for the Highway 149 improvement project, the
potential for reduction in special assessments on the Meadowview
Road/Alexander Road project, the results of the TINA study, and the overall
transportation needs in the metropolitan area and across the State are all factors
in bringing this issue to the forefront in Eagan at this time. It is not very difficult to
see and understand the magnitude of the challenge; however, determining the
appropriate City policies to respond is much more challenging. The following is
not intended to determine any particular course of action but to articulate the
basis from which we can have the discussion and determine a course of action to
proceed.
Future Revenues:
In general it probably will be impossible to raise all the money that could be spent
on good and potentially justifiable transportation improvements within the City of
Eagan. Having said that, I offer the following bullet summary ideas of potential
changes to the current revenue stream that may be helpful on the revenue side;
these all have pros and cons and other issues which I have chosen not to
discuss in this memo and most of the ideas are not original with me. The amount
of revenue that could be raised individually or in combination has not been
determined, but would vary widely and may or may not be worth the challenge to
get implemented:
City Controlled:
• Increase the ad valorem tax levy dedicated to the Major Street Fund
(potentially subject to levy limits).
• Raid other trunk fund balances and use the money for transportation.
• Raise water and sewer user rates to support more operations and/or
other infrastructure improvements.
• Bond to advance dollars or to allow the reallocation of existing revenue
streams, e.g. getting outside of levy limits.
• Implement a contractual road user charge as a condition of subdivision
approval.
• Implement various franchise fees that could free up or redirect other City
revenue sources.
Require State Authorization or Result From State Action:
• Increase in the State gas tax.
• Increase in vehicle registration fees.
• More State resources through bonding or some other mechanism.
• Sales tax exemptions to reduce costs.
• Increased local funding options, e.g. local sales taxes, wheelage taxes,
street utilities, etc.
• Tax Increment Financing for significant transportation improvements.
• Road Unit Charges as impact fees.
9'
Future Expenditures:
There are really only two ways to reduce the City's expenditure obligation
regarding transportation improvements: 1) getting someone else to pay more of
the project costs; or 2) reducing the number and scope of the projects that are
undertaken. These changes may include:
• Increasing the amount of assessments thereby reducing the net due from
other City revenue sources.
• Prioritizing potential projects on a longer time frame and delaying lower
priority projects.
• Redefining the City strategy to deal primarily with local streets and local
obligations requiring the County, Met Council and State to shoulder
responsibility for transportation problems on their systems and joining in, if
and when, they are ready to take action.
Future General:
• Some revenue enhancement choices have the potential to impact the
City's bond ratings. A number of reasons why the City has continually
been upgraded will disappear as a result of some of these potential
choices, e.g. fund balances, fund integrity, and overall financial
management.
• Future costs for storm water treatment and water quality may require a
review of similar funding options as it appears there will be or already is a
significant unfunded mandate for implementation of improvements to the
water quality of storm water discharge.
• Bonding and/or MSA advances are often mentioned as solutions to
funding problems and strictly from ashort-term perspective they are
possible solutions. However, advancing money through bonding or early
receipt of future entitlements does not increase the long-term availability of
funds. In fact, unless there is serious inflation, interest costs will reduce
the money available to actually complete projects. In rapid growth
situations bonding provides a better match between the citizens benefiting
and the citizens paying, but at this stage in Eagan's life cycle, that is not a
factor.
• Actual or perceived increased traffic congestion and problems may
become an economic development issue for companies considering
expansion and/or relocation decisions.
Public Policy Issues:
1. Should a policy be put in place redefining the City's use of its available
transportation dollars away from the larger County/regional problems to
more clearly defined focal obligations or to projects where other agencies
decide rightfully or not that they have no interest, e.g. ring road?
2. What is the appropriate balance between being proactive in avoiding
citizen transportation pain and inconvenience through projects and the
~~
City's ability or willingness to pay for improvements, absent the willingness
or ability of other agencies to provide appropriate resources?
3. Should the City implement any changes to its locally controlled revenue
streams to add more local resources to the revenue mix?
4. Should the City increase its ad valorem tax levy for increased
transportation funding with or without more commitment from other
agencies with equal or greater obligations to the improvements?
5. What role should the City play in advocating for changes at the State level
regarding transportation needs?
I have intentionally stayed away from the numbers in this memo; instead I have
tried to cover the background and potential changes from a policy perspective. I
believe as this is written we can use it to ask the Finance Committee to consider
the public policy implications and potentially recommend changes necessary to
benefit the traveling public in the City through appropriate and affordable
transportation improvements. Practically, the City's response likely will need to
consist of amulti-faceted approach in responding to transportation improvement
needs while getting the expected revenues and expenditures in balance. To a
great extent getting revenues and expenditures in balance is dependent on
others over which we have no control and only limited influence.
Directo Administrative Services
cc: Director of Public Works Colbert
City Engineer Matthys
Transportation Engineer Plath
Chief Financial Officer Pepper
6
FINANCE COMMITTEE MEETING
Meeting Notes
February 20, 2007
Attendance:
Mayor Maguire, Councilmember Carlson, City Administrator
Hedges, Director of Public Works Colbert, City Engineer Matthys, Transportation
Engineer Plath, and Director of Administrative Services VanOverbeke.
Councilmember Carlson opened the meeting at 4:50pm requesting some
background on the Highway 149 project, specifically regarding the reasons for
the significant increase in the City?s financial obligation to the project. Director of
Public Works Colbert explained how the increased cost of materials and right of
way along with increased project scope, combined with the State and Federal
contribution caps are the primary factors in the increasing City share.
Preliminary cost estimates also became outdated as the project progressed over
the 4 year time frame.
Mr. Colbert also reported on his meetings earlier in the day with Legislative
Representatives at the State Capitol attempting to gain additional financial
support for the project. Inclusion in the Governor?s transportation bonding bill
appears to hold the most hope for an increased State contribution. Staff was
directed to continue pursuit of additional funding and is attempting to schedule a
meeting with Department of Transportation officials.
Councilmember Carlson noted concerns about the precedent of the City
spending its resources on State highway needs thereby encouraging the State to
continue to ignore its obligations and to transfer the financial responsibility for
more projects to local units of government.
In response to a question about future similar needs Director Colbert noted other
similar projects outlined in the TINA study including Highway 55 to 6 lanes,
Highway 149 to 8 lanes, Highway 149/Interstate 494 interchange, a new
interchange on Interstate 494 in coordination with Inver Grove Heights, Highway
3 to 4 lanes and Highway 13 (balance to 4 lanes).
Staff was directed to outline a menu of options to provide funding for the City?s
additional cost for Highway 149 and to bring projected long-term revenues into
balance with transportation improvement needs.
It was suggested that a policy be developed that addresses long-term needs and
provides the same long-term financial stability that the City has experienced
historically. The long-term policy should encompass the larger picture including
the CIP and not rely on reappropriating other dedicated City resources. An
increase to the dedicated ad valorem tax levy may very well need to be a
component of the long-term financing plan. Staff noted the likely potential of
other City initiatives competing for the same City resources.
The Finance Committee desires to review the big picture and the menu options
before consideration is given to approving the contract for the Highway 149
project. The contract is scheduled for consideration on April 5, 2007.
The Finance Committee will meet again during the first week of March to
continue its fact finding in preparation for making a funding recommendation to
the full City Council.
Prepared by EJV
To: THOMAS L HEDGES, CITY ADMINISTRATOR
From: THOMAS A COLBERT, PUBLIC WORKS DIRECTOR
Date: FEBRUARY 15, 2007
Subject: FINANCE COMMITTEE MEETING ? FEBRUARY 20, 2007
On January 2, 2007, the City Council directed the Finance Committee to review the local
financing obligations of City Project 778 (TH 149 upgrade) prior to the contract award
scheduled for the April 5 Council meeting. The need for this review is precipitated by
the significant escalation in local cost participation due to state and federal contribution
caps. It is projected that the growing local cost obligations of this project will exceed the
short range funding available in the City?s Major Street Fund (MSF) creating a deficit of
~$2.5 million at the end of the currently approved 5-yr. CIP (2011). This memo will
provide some background information about the project, its cost, the status of the MSF in
relation to the currently approved 5 yr. CIP and alternative funding options for the
Committee?s consideration and discussion. In addition to evaluating the financial
obligations of this project to the long-term solvency of the MSF, it may also be beneficial
to have future Finance Committee reviews of other major pending obligations facing the
City in the foreseeable future, and its forecasted ability to financially meet those
obligations as well.
PROJECT 768, TH 149 UPGRADE
Background
State Trunk Highway 149 is functionally classified as a Minor Arterial in the
Metropolitan Council?s regional roadway system. As such, it qualifies for various
funding programs administered by the Met Council as well as any funding that MnDOT
elects to allocate as part of their State Transportation Improvement Plan (STIP).
Wescott Rd. Safety
The major driving issue for some type of improvement initiated from safety concerns for
the Wescott Rd. intersection (technically located in Inver Grove Heights). The Wescott
Rd. intersection used to be two offset ?T? intersections and was part of Dakota County
Road 63 (Dodd Rd. to the south in Eagan and Baffin/Argenta Trail to the north in IGHts).
As part of local development in IGHts, and the jurisdictional turnback of County road 63
to both communities, the Baffin/Argenta Trail intersection was realigned to create the 4-
legged intersection that exists today. This intersection has had a growing history of
Finance Committee Memo
February 15, 2007
Page 2
crashes and related safety concerns. MnDOT had allocated ~$300,000 to install a signal
at this intersection under one of their Safety Enhancement projects. However, the
elevation differential (~2.5ft.) between the TH 149 mainline and the parallel railroad
tracks precluded the mere placement of signal lights. It required a full reconstruction of
TH 149 to raise it to match the RR elevation. This subsequent reconstruction of TH 149
(~1,000 ft. in both directions) significantly exceeded the safety improvement funds for
just the signal project.
TH 149 Funding Opportunities
Since TH 149 was not identified as a priority roadway on their reconstruction program,
MnDOT planned to proceed with only a structural maintenance overlay which would
have pushed this highway?s eligibility for any type of upgrade/expansion improvement
even further back in their program?s priority. Not wanting to lose an opportunity, the
City of Eagan took the lead in applying for Federal funding through the Surface
Transportation Program (STP) knowing that the safety issues, traffic volumes and
intermodal pedestrian trail would help it quality. Subsequently, the City was successful
in securing the maximum amount of $5.5 million in Federal funding. We then worked
with MnDOT to get them to commit their signal safety project and resurfacing
maintenance dollars towards the project. We also pursued MnDOT?s Access
Management funds due to the number of accesses that would be closed and/or restricted
as a result of an upgrade to a 4-lane divided roadway. However, MnDOT would not
commit any highway construction/improvement dollars to this project. All totaled,
MnDOT?s contribution was maxed out at $2,140,000. Also, since part of the project
would be located Inver Grove Heights, that city would contribute $220,500.
Cost Estimates
The predesign project cost estimate and funding contributions were identified in the
City?s Feasibility Report and presented at the Public Hearing on April 5, 2005. The
project was approved with authorization to proceed with detailed design and right of way
acquisition. During the ensuing 18 months, the project?s scope was extended further
south into IGHts per their request (to Rich Valley Blvd. ? County Road 71). Federal &
State design, environmental and process requirements combined with quickly escalation
construction and property acquisition costs resulting in the following revised estimates
(includes inflationary adjustments on Federal Funds):
Source Feas. Report Est. Final Design/Pre-Bid Est.
Federal STP Funds $5,500,000 $6,094,000 (+ 11%)
MnDOT Funds $2,140,000 $2,256,000 (+ 5%)
Inver Grove Hts. $ 220,500 $ 803,197 (+264%)
Everything Else (Eagan) $3,310,860 $7,411,168 (+124%)
TOTAL $11,171,360 $16,564,365 (+ 48%)
Finance Committee Memo
February 15, 2007
Page 3
IMPACT ON MSF BALANCE
At the time of the F.R. estimate in 2005, the City?s MSF had a projected surplus in 2010
of $9.2 million (the TH 149 improvement was not anticipated and related costs were not
included in the ?06-?10 CIP). In 2006, when preparing the next CIP (2007-2011), the TH
149 Feasibility Report estimate of the City?s obligation was adjusted with a best guess
estimate to $4,928,400 (+1.6M). This resulted in a projected MSF deficit of $340,000 in
2011. The most recent final design/pre-bid estimate of $7,411,168 is now projected to
increase the MSF deficit to ~$2,500,000 by 2012. It should be noted that this projected
deficit may substantially increase even further as other future programmed projects are
re-estimated with the next CIP update due to continued industry cost escalations.
ISSUE AT HAND
Technically, the City has sufficient funding to finance the proposed TH 149 project since
projected deficits are for the end of the 5 yr CIP cycle. However, in order to avoid such a
deficit, it will become necessary for the City Council to either reduce/eliminate projects
in the currently approved CIP?s remaining 4 years (?08-?11), or find additional funding to
the MSF (or a combination of both). The remaining 4 years of project costs in the current
approved CIP is $14,132,000, of which $9,236,000 is dedicated to pavement preservation
of our existing local street system. The remaining $4,896,000 (35%) is programmed for
County Road expansion, trailways and congestion relief or safety intersection
improvements.
I am always available to help identify feasible options and/or modifications to our future
construction program or alternative funding scenarios to provide a balanced and
deliverable transportation infrastructure for our community.
c: Gene VanOverbeke, Director of Administrative Services
Russ Matthys, City Engineer
Tom Pepper, Chief Financial Officer
Tim Plath, Transportation Engineer
To: City Administrator Hedges
From: Director of Administrative Services VanOverbeke
Date: February 14, 2007
Subject: Financing Street and Highway Infrastructure
At your request I am writing this memo to summarize how the City has historically
financed the construction of Streets and Highways and what new financing
options might be available into the future. In general my approach to this memo
is to look at what?s happening today, how we got there, and what options are
available into the future. From this basis the City Council can develop the
appropriate public policies to continue providing an appropriate and affordable
level of transportation infrastructure to the community. Unfortunately, bringing
the two general transportation goals of appropriate and affordable together is
becoming more challenging by the day.
Historical to Present
For a number of years Eagan was basically involved in the construction of two
types of streets: 1) new residential streets paid for 100% as a result of
development which were financed primarily by special assessments or through
special assessment waivers with developers; 2) new or upgraded oversized
streets (major thoroughfares, minor and intermediate arterials and collector
streets and commercial-industrial streets), which were paid for partially by
assessments against benefiting property owners and the balance or City share
was paid for from other City revenue sources.
In the late 1970?s the City consolidated its available street revenue sources into
the Future Road Construction Fund which was subsequently renamed the Major
Street Fund. Authority for a Dakota County Road and Bridge tax levy was
transferred to the City for taxes payable in 1980 and the City has subsequently
used an ad valorem tax levy as a major funding source for the Major Street Fund.
Other Major Street Funding sources historically included the City?s allocation of
Municipal State Aid (MSA), the Road Unit Charge, and interest earnings. After
the discontinuation of the Road Unit Charge the available funding sources were
reduced to the tax levy, MSA, and interest earnings. State and/or Federal dollars
were also used to assist in completing projects in which they had an interest; the
effect is similar to assessments in that they reduce the City?s ultimate share of
the total project cost.
Currently some dollars are collected for street improvements resulting from the
completion of AUAR studies. The money is designated for transportation
improvements subsequently constructed within the study area.
We usually do not consider special assessments as a funding source for the
Major Street Fund since that Fund?s obligation is for construction costs left after
special assessments have been considered. In other words the City?s share of
the costs paid through the Major Street Fund is already net of the amount of
assessments that can be collected on the project.
The effect of this accounting/process from a practical aspect is to get money for
each project from every available source, i.e. assessments, County, State,
Federal, etc. and to charge the balance to the Major Street Fund and use its
available revenue sources (ad valorem tax levy, MSA, interest) to fill the gap and
fully fund the project.
I believe a review of this system shows that it has worked very well over the
years and this system is one of the reasons that Eagan has the transportation
infrastructure in place that exists today.
However, over the same period of time factors have changed and the long-term
financial viability of the Major Street Fund cannot be maintained without some
change to the revenue or expenditure side of the equation or through some
combination of changes to revenues and expenditures.
Without going into a great deal of detail I am making the following observations
about the changes that have taken place or will take place:
Historical to Present Revenues:
?
The City was declared to not have the authority to collect the road unit
charge in the manner it was being collected and collection was
discontinued.
?
The ad valorem tax levy is a major revenue component of the Major
Street Fund revenue and has increased approximately 5% each year.
?
The ad valorem levy is subject to levy limits when they are implemented
by the State and effectively takes a secondary position to the levy
necessary to support operations.
?
It hasn?t happened dramatically to date; however interest earnings
($392,712 in 2005) will decline as the cash balance is depleted.
?
As a result of State policy decisions, the MSA allocations to the City have
not keep pace with needs or costs.
Historical to Present Expenditures:
?
More costs have been shifted to the Major Street Fund, e.g.
More street maintenance is charged to the Major Street Fund to
o
reduce pressure on the City?s General Fund.
2
The City?s costs for trail construction (external to an actual park) are
o
now charged to the Major Street Fund.
There is more semaphore construction and it is charged to the
o
Major Street Fund.
?
The nature of most projects has changed, e.g.
More projects involve reconstruction and cannot realistically be
o
charged to anyone else, i.e. there are fewer assessments and
fewer partners to share in the cost.
For a variety of reasons, assessments are more difficult to collect.
o
?
Additional traffic calming and other citizen requested control devices and
projects are being implemented as the community matures and traffic
increases.
?
Projects have become significantly more expensive due to the cost of
materials, right of way and easement acquisition, and environmental
requirements, among other factors.
Historical to Present General:
?
The City has been the lead agency for the construction of certain projects
which advances the construction schedule while increasing the City?s
responsibility and in some cases the City?s overall costs. It reduces the
City?s option of getting out of the project after work has begun or in
capping its financial exposure.
?
The City?s five year capital improvement plan has tended to finance
obligations in a five-year time frame without demonstrating long-term
sustainability. The TINA study with the resulting long-term deficit
demonstrates the challenge of combing short-term needs and objectives
with long-term needs and objectives and dealing with the consequences of
today?s decisions. For example, should the City be saving today?s dollars
for construction of a bridge on the ring road in the future or improving Pilot
Knob Road today with today?s dollars.
?
The City has not developed a formal policy that matches the traveling
public?s expectations and pain threshold for delay and inconvenience with
the City?s long-term ability to stay ahead of the problems. The City has
admirably instead tried to stay ahead of the pain threshold through
transportation improvements. This City approach seems to be contrary to
the approach of Dakota County, the Metropolitan Council and both the
State and Federal Governments. The result of the City?s more responsible
response to transportation needs seems to result in higher City costs and
even less assistance, especially from the State and Federal governments.
It may also inadvertently impact acceptance or use of mass transit
options.
?
No clear separation of expectations has been made between local streets
for which the City has 100% responsibility and the highways where the
County or State has the ultimate responsibility, but the highways happen
to run through the City.
3
Future:
The current funding question for the Highway 149 improvement project, the
potential for reduction in special assessments on the Meadowview
Road/Alexander Road project, the results of the TINA study, and the overall
transportation needs in the metropolitan area and across the State are all factors
in bringing this issue to the forefront in Eagan at this time. It is not very difficult to
see and understand the magnitude of the challenge; however, determining the
appropriate City policies to respond is much more challenging. The following is
not intended to determine any particular course of action but to articulate the
basis from which we can have the discussion and determine a course of action to
proceed.
Future Revenues:
In general it probably will be impossible to raise all the money that could be spent
on good and potentially justifiable transportation improvements within the City of
Eagan. Having said that, I offer the following bullet summary ideas of potential
changes to the current revenue stream that may be helpful on the revenue side;
these all have pros and cons and other issues which I have chosen not to
discuss in this memo and most of the ideas are not original with me. The amount
of revenue that could be raised individually or in combination has not been
determined, but would vary widely and may or may not be worth the challenge to
get implemented:
City Controlled:
?
Increase the ad valorem tax levy dedicated to the Major Street Fund
(potentially subject to levy limits).
?
Raid other trunk fund balances and use the money for transportation.
?
Raise water and sewer user rates to support more operations and/or
other infrastructure improvements.
?
Bond to advance dollars or to allow the reallocation of existing revenue
streams, e.g. getting outside of levy limits.
?
Implement a contractual road user charge as a condition of subdivision
approval.
?
Implement various franchise fees that could free up or redirect other City
revenue sources.
Require State Authorization or Result From State Action:
?
Increase in the State gas tax.
?
Increase in vehicle registration fees.
?
More State resources through bonding or some other mechanism.
?
Sales tax exemptions to reduce costs.
?
Increased local funding options, e.g. local sales taxes, wheelage taxes,
street utilities, etc.
?
Tax Increment Financing for significant transportation improvements.
?
Road Unit Charges as impact fees.
4
Future Expenditures:
There are really only two ways to reduce the City?s expenditure obligation
regarding transportation improvements: 1) getting someone else to pay more of
the project costs; or 2) reducing the number and scope of the projects that are
undertaken. These changes may include:
?
Increasing the amount of assessments thereby reducing the net due from
other City revenue sources.
?
Prioritizing potential projects on a longer time frame and delaying lower
priority projects.
?
Redefining the City strategy to deal primarily with local streets and local
obligations requiring the County, Met Council and State to shoulder
responsibility for transportation problems on their systems and joining in, if
and when, they are ready to take action.
Future General:
?
Some revenue enhancement choices have the potential to impact the
City?s bond ratings. A number of reasons why the City has continually
been upgraded will disappear as a result of some of these potential
choices, e.g. fund balances, fund integrity, and overall financial
management.
?
Future costs for storm water treatment and water quality may require a
review of similar funding options as it appears there will be or already is a
significant unfunded mandate for implementation of improvements to the
water quality of storm water discharge.
?
Bonding and/or MSA advances are often mentioned as solutions to
funding problems and strictly from a short-term perspective they are
possible solutions. However, advancing money through bonding or early
receipt of future entitlements does not increase the long-term availability of
funds. In fact, unless there is serious inflation, interest costs will reduce
the money available to actually complete projects. In rapid growth
situations bonding provides a better match between the citizens benefiting
and the citizens paying, but at this stage in Eagan?s life cycle, that is not a
factor.
?
Actual or perceived increased traffic congestion and problems may
become an economic development issue for companies considering
expansion and/or relocation decisions.
Public Policy Issues:
1. Should a policy be put in place redefining the City?s use of its available
transportation dollars away from the larger County/regional problems to
more clearly defined local obligations or to projects where other agencies
decide rightfully or not that they have no interest, e.g. ring road?
2. What is the appropriate balance between being proactive in avoiding
citizen transportation pain and inconvenience through projects and the
5
City?s ability or willingness to pay for improvements, absent the willingness
or ability of other agencies to provide appropriate resources?
3. Should the City implement any changes to its locally controlled revenue
streams to add more local resources to the revenue mix?
4. Should the City increase its ad valorem tax levy for increased
transportation funding with or without more commitment from other
agencies with equal or greater obligations to the improvements?
5. What role should the City play in advocating for changes at the State level
regarding transportation needs?
I have intentionally stayed away from the numbers in this memo; instead I have
tried to cover the background and potential changes from a policy perspective. I
believe as this is written we can use it to ask the Finance Committee to consider
the public policy implications and potentially recommend changes necessary to
benefit the traveling public in the City through appropriate and affordable
transportation improvements. Practically, the City?s response likely will need to
consist of a multi-faceted approach in responding to transportation improvement
needs while getting the expected revenues and expenditures in balance. To a
great extent getting revenues and expenditures in balance is dependent on
others over which we have no control and only limited influence.
_____________________________
Director of Administrative Services
cc: Director of Public Works Colbert
City Engineer Matthys
Transportation Engineer Plath
Chief Financial Officer Pepper
6
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To: City Administrator Hedges
From: Director of Administrative Services VanOverbeke
Date: February 20, 2007
Subject: Major Street Infrastructure Funding Options
It is my understanding that staff was directed to undertake two activities resulting
from the Finance Committee meeting of February 20, 2007.
First, a menu of options is to be presented to pay for the significant cost increase
($2.5 more than budgeted in the 2007 CIP) to the City's obligation for Highway
149. 1 believe we might have created the misunderstanding that dollars are not
available in the Major Street Fund to actually make the payment. The dollars are
available and can be used for this obligation. The deficit that is created is in the
5 -year CIP currently programmed through 2011. For all practical purposes there
is no short-term problem in proceeding with the project and in making the
payment from the Major Street Fund. The problem is long-term in getting
projected revenues and expenditures into balance. That will probably require a
combination of new revenues and reduced expenditures.
The following table illustrates the five year CIP including the additional $2.5
million in Highway 149 costs added in 2007.
Major Street Fund 2007 -- 2011 CIP Presentation
2007 2008 2009 2010 2011 Totals
Beginning Cash Balance $11,461 $ 1,921 $ (1,677) $ (2,670) $ (2,846) $11,461
Add itons:
Property Taxes
1,188
1,188
1,188
1,188
1,188
5,940
Municipal State Aid
755
755
755
1,555
1,555
5,375
Total Receipts
1,943
1,943
1,943
2,743
2,743
11,315
Subtractions:
Financing Obligations
11,483
5,541
2,936
2,919
2,736
25,615
Total Expenditures
11,483
5,541
2,936
2,919
2,736
25,615
Ending Cash Balance $ 1,921 $ (1,677) $ (2,670) $ (2,846) $ (2,839) $(2,839)
Using the increased 2007 costs, adjusting the 2007 tax levy to the actual amount,
and including a 5% increase in the tax levy for the years 2008 through 2011
results in the following CIP Presentation:
2007 -- 2011 CIP With 5% Tax Increase and $2.5 Million Additional 2007 Costs
Ending Cash Balance $ 1,981 $ (1,457) $ (2,262) $ (2,181) $ (1,845) $ (1,845)
A long-term increase in the ad valorem tax levy beginning in payable 2008 of
$1.0 million with no other changes in the projected expenditures (except the
additional $2.5 million in 2007) results in the following 5 -year CIP projection.
2007 -- 2011 CIP With 5% Tax Increase and $2.5 Million Additional 2007 Costs
With Tax Increase Beginning in Payable 2008
2007 2008 2009 2010 2011 Totals
Beginning Cash Balance $11,461 $1,981 $(457) $(212) $ 971 $11,461
Additons:
Property Taxes
2007
2008
2009
2010
2011
Totals
Beginning Cash Balance
$11,461
$ 1,981
$(1,457)
$(2,262)
$(2,181)
$11,461
Additons:
755
793
755
1,555
1,555
5,413
Property Taxes
1,248
1,310
1,376
1,445
1,517
6,896
Municipal State Aid
755
793
755
1,555
1,555
5,413
Total Receipts
2,003
2,103
2,131
3,000
3,072
12,309
Subtractions:
11,483
5,541
2,936
2,919
2,736
25,615
Financing Obligations
11,483
5,541
2,936
2,919
2,736
25,615
Total Expenditures
11,483
5,541
2,936
2,919
2,736
25,615
Ending Cash Balance $ 1,981 $ (1,457) $ (2,262) $ (2,181) $ (1,845) $ (1,845)
A long-term increase in the ad valorem tax levy beginning in payable 2008 of
$1.0 million with no other changes in the projected expenditures (except the
additional $2.5 million in 2007) results in the following 5 -year CIP projection.
2007 -- 2011 CIP With 5% Tax Increase and $2.5 Million Additional 2007 Costs
With Tax Increase Beginning in Payable 2008
2007 2008 2009 2010 2011 Totals
Beginning Cash Balance $11,461 $1,981 $(457) $(212) $ 971 $11,461
Additons:
Property Taxes
1,248
1,310
1,376
1,445
1,517
6,896
Tax Increase ,
11000
1,050
11103
1,158
4;310
Municipal State Aid
755
793
755
1,555
1,555
5,413
Total Receipts
2,003
3,103
3,181
4,102
4,230
16,619
Subtractions:
Financing Obligations
11,483
5,541
2,936
2,919
2,736
25,615
Total Expenditures
11,483
5,541
2,936
2,919
2,736
25,615
Ending Cash Balance $ 1,981 $ (457) $(212) $ 971 $2,465 $ 2,465
The following table which is a summary of the currently approved 5 -year CIP
illustrates the impact of State and County projects on City resources. See
particularly the "Summary by Primary Jurisdiction" area.
2007 -- 2011 CIP By Street Type
1,125,000
City
800,000
Total Project Costs
Total 1,925,000
Summary By Primary
Jurisdiction
State
2007
2008
2009 2010 2011 Totals
Arterial & Collector
3,003,244
Total
9,526,644
State
4,928,400
1,450,500
6,378,900
County
470,000
1,900,000
1,200,000 3,570,000
City
3,783,373
3,342,236
750,000 805,000 1,555,000
Total
5,398,400
3,350,500
750,000 805,000 1,200,000 11,503,900
Local Streets
City
Trails
City
Sealcoating
City
Intersection Improvements
State
1,505,500 2,636,700 2,691,000 2,321,000 1,945,000 11,099,200
331,155
366,589
County
1,125,000
City
800,000
125,000
Total 1,925,000
Summary By Primary
Jurisdiction
State
4,928,400
County
1,595,000
City
3,003,244
Total
9,526,644
156,870 138,500 41,500 234,000 902,025
314,808 203,873 174,736 180,632 1,240,638
150,000
650,000
800,000
125,000
500,000
1,750,000
5,363,400
3,098,500
490,000
800,000
275,000
650,000
500,000
- 3,350,000
1,600,500
650,000
-
- 7,178,900
2,025,000
-
500,000
1,200,000 5,320,000
3,108,378
3,783,373
3,342,236
2,359,632 15,596,863
6,733,878
4,433,373
3,842,236
3,559,632 28,095,763
Major Street Fund Share
Arterial & Collector
5,363,400
3,098,500
490,000
665,000
1,000,000
10,616,900
Local Streets
1,007,000
1,695,460
1,454,000
1,538,000
1,321,000
7,015,460
Trails
321,155
156,870
138,500
41,500
234,000
892,025
Sealcoating
366,589
314,808
203,873
174,736
180,632
1,240,638
Intersection Improvements
1,925,000
275,000
650,000
500,000
-
3,350,000
Total Major Street Fund
8,983,144
5,540,638
2,936,373
2,919,236
2,735,632
23,115,023
The table demonstrates $7,178,900 of City Cost related to State Highways
before the additional $2,500,000 is included bringing the new total to $9,678,900.
Any long-term solution will probably require a review of the City's commitment to
cost sharing on State and/or County projects; with review of the timing impact at
a minimum.
If delaying and/or reducing City obligations to State and/or County projects is an
option, the tax increase programmed above is probably the only required City
action at this time. In the event the City desires to proceed with State and/or
County projects on the schedule of the existing CIP and TINA study other
revenue sources will be required. The twenty year shortfall noted in the TINA
report is $35 to $50 million or $1.75 to $2.5 million per year. After the $1 million
increase noted above the shortfall remains at $.75 to $1.5 million per year in that
time frame. Doubling the tax increase to $2 million per year would for all
practical purposes eliminate the projected deficits.
The following chart demonstrates the impact on the 2007 payable average
market value house in Eagan of adding a $1 million levy.
Tax Impact Per $1,000,000 Levy Increase
Total
MSFund City
MSFund Tax Tax Estimated Taxes
Payable Capacity Capacity $278,021 House Value
Levy Rate Rate Amount Increase
2007 Actual 1,247,812 0.01533 0.25239 42.62
$1,000,000 Increase 1,000,000 0,01229 0.26468 34.17
Total 2,247,812 0.02762 76.79 34.17
City Controlled:
• Increase the ad valorem tax levy dedicated to the Major Street Fund
(potentially subject to levy limits).
• Raid other trunk fund balances and use the money for transportation.
Raise water and sewer user rates to support more operations and/or
other infrastructure improvements.
• Bond to advance dollars or to allow the reallocation of existing revenue
streams, e.g. getting outside of levy limits.
• Implement a contractual road user charge as a condition of subdivision
approval.
Implement various franchise fees that could free up or redirect other City
revenue sources.
Require State Authorization or Result From State Action:
• Increase in the State gas tax.
• Increase in vehicle registration fees.
• More State resources through bonding or some other mechanism.
• Sales tax exemptions to reduce costs.
• Increased local funding options, e.g. local sales taxes, wheelage taxes,
street utilities, etc.
• Tax Increment Financing for significant transportation improvements.
• Road Unit Charges as impact fees.
Discount rate5.0%4.0%5.0%5.0%5.0%
Number of years 30 30 40 300 20
Addl taxes/yr$ 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Current levy$ 23,500,000
% incr - addl taxes4.3%
Incr for avg homeowner$ 30
PV of incremental
taxes raised =$ 15,372,451$ 17,292,033$ 17,159,086$ 19,999,991$ 12,462,210