City Council

Minutes of the Special Meeting of the Gallup City Council, City of Gallup, New Mexico, held at the El Morro Events Center, 210 South Second Street, at 2:00 p.m. on Tuesday, March 29, 2016. At such meeting, the following were present, constituting a quorum: Mayor: Jackie McKinney Councilors: Linda Garcia Allan Landavazo Yogash Kumar Fran Palochak Also present: Maryann Ustick, City Manager The Mayor and Councilors conducted a Work Session on the following topic: 1. Long Range Financial Projection and Strategic Planning for the City of Gallup Robert Leland, Management Partners, presented a power point presentation on a ten- year budget forecast for the City of Gallup. A copy of the power point presentation is attached hereto and made a part of these official Minutes. Lyle Sumek, Lyle Sumek Associates, Inc., facilitated a leadership and strategic planning workshop with the Mayor, Councilors, City Manager and Department Directors. The purpose of the workshop included the following areas: • To review and celebrate the City’s achievements and successes for 2015-2016. • To look to the City of Gallup’s future: challenges, opportunities, actions, and projects. • To update the 5-Year Plan: 2016-2021 —outcomes, challenges/opportunities- short term, and actions. • To establish a 1-Year Action Agenda with priorities, activity outlines and deliverables. • To enhance the performance and effectiveness of the City Team: Mayor, Councilors, Management and Employees. There was no official action taken by the Mayor and Councilors during the Work Session. The Work Session adjourned at 8:00 p.m. ackie McKinney, Mayor AHEST: / /7 ,- / Alfr& Abeita II, CitGIerlc Approved 4/12/2016 0) -0) DO) (D V) B 0 CD -, CD n Di 0 I • Create long-term budget forecast for General Fund and utilities • Goals 2020: “Financially sound city providing exceptional services” Management Agenda 2015: “Long-range financial plan with projection” • Forecasting is a best practice Valuable planning tool, avoids “tunnel vision” of looking at only one year at a time • Early warning of adverse trends; provides ability for City to craft timely and prudent budget solutions • Shows downstream effects of today’s decisions • Demonstrates impact of alternative policies or economic outcomes • Budget model can be updated annually bystaff to assist in setting budget parameters 2  General Fund Revenues FY 15-16 Budgeted Revenues • GRTaloneis69% of total GF Tfr-Shared Svcs, $2.7 revenue Other Revenue, • Such reliance on $2.3, 8% a single source is Franchise less typical Taxes, $1.6, 6% nationally Property Product of New Tax, $2.3, Mexico’s public 8% finance system • Topthree sources comprise 83% of total GF revenue 3  ____ ____ Economic Downturns & Unemployment • Recessions every Economic Downturns US Unemp Rate McK Co Unemp Rate six years since -T —-- 16% 1933, every seven Recession Frequency 14% Since 1933-every5.9years I years since 1973 - Since 1973 every 7.2 years I 12% -—— • Forecast assumes next recession in 10% — — 201$ 8% • Modest impact 6% with recovery over 4% .j following two years GRI:-5%from 2% normal growth no’ .10 levels LI — — o rn ‘o a r r o en w f%J Lfl .D r 1% r t% Co Co Co C m o o o o -I -I c a a. a, a c o a Ci 0 000 00 Property: -2.5% -I -( -1 -I -I -I l -I 1 (% e.J rJ Franchise: -2.5% 4  Consumer Price Index High inflation a US Cities & West Urban Composite 16% product of the Last 40 years 3.88% 14% Last 30 years 2.71% 1980s Last 20 years 2.28% 12% Last 10 years 2.00% . Average last 10 Last 5 years 1.79% 10% Last 2 years 1.19% years is 2.00%, 8% which is forecast 6% assumption 4% • Average of last 2% 11 two years just over 1% 0% Un, flU M MUUUflUUUOUUUUfl[]D.flflUEUn 71 73 7577 79 81 83 8587 89 91 93 95 9799 01 03 05 0709 111315 • Federal Reserve -2% target is still 2% 5  Gross Receipts Tax (Muni+Shared) • Excludes GRI $24 Infrastructure $22 • Slowdown $20 assumed from a $18 201$ recession $16 $14 • Assumes GRT $12 excluding food oI oI C C e..4 , ,. -4 4 l ,4 e- 4 N N N N N N and medicine I I I I I I I I I I I I I I I I I I ONWOCOt-1N o o C C C eI -I e-I e-1 -1 .1 t- -I ,-1 N N N N N grows at 2.5%, 15% w 15-year phase- 5% out of food/med 0% hold harmless w .5% loses around CAGR FYO6-15= 2.25% $200K per year, -10% cuts net growth to 1.5% 6  Gross Receipts Tax (Muni+Shared) • Food and medicine DAN Other GRT I Food/Medical s ha Ce: $25 Food/Medical phased out over 15 years starting FY16 Averaged $2.64M in prior five years $20 • Estimated $2.43M in FY 2015-16 $15 State law allows cities to enact a sio hold-harmless GRT up to three-eighths of 1% . Current Gallup gross receipts 000 0-4,-4 I I I I I I I I I I I I I I I I I I I I would generate 00000 £IC1C1r4r4 $2.54M 7  Property Tax Tax Year AV (mu) % Chng Tax Levy* $2.8 2006 303.67 3.23% 6.322 $2.6 2007 335.82 10.59% 7.106 $2.4 2008 341.70 1.75% 7.288 $2.2 2009 350.30 2.52% 7.355 $20 2010 351.83 0.44% 7.405 2011 351.80 -0.01% 6.664 $1.6 2012 351.78 0.00% 7.152 $1.4 $12 2013 348.47 -0.94% 7.091 2014 353.20 1.36% 6.716 r%co ae Lfl%D OO CO rJm Lfl OOO O,-4 NNN NN1 2015 345.83 -2.08% 7.225 I I I I I I I I I I I I I * I I I I I I Lfl D £. CO a 0 en i.o r% CO C 0 ,-i ei en 0 0 0 0 0 -* I 4 ,l 4 ,( ,-( N N N N N *Per $1000 residential assessed valuation 40% CAGR FYOG-15= 3.64% bQ • Assessed values flat 20% for several years 4.’ C 1.0% w no, • Assumes 1% future U .i/0 I U growth -20% ——_____________ • Recession impact lags one year 8  Franchise Taxes . Franchises are for $2.0 solid waste, $1.5 electric, cable tfl C 0 $1.0 • Major reduction $0.5 in FY 2013-14 due $0.0 to City services 0mCOC0,-1rIrflLfl 0000 I r’JNrJr.JN I I I I I I I I I I I I I I I I I I I not being charged 00000 Jtdrd 300% (clean-up year for ° 200% utility finances) A ö -i4i 100% • Average 15% 1.5% 0% ——_r- annual growth ————..--—____ -100% 9  Other Revenue • Comprises lees, interest, GRI $14.0 infrastructure, $12.0 shared services $10.0 (n reimbursement, 0 $8.0 $6.0 z: capital transfers $4.0 • Volatile, generally $2.0 downward trend -—-- I $0.0 0 0 4 t1 , r 4 , t1 e1 r4 e3 c1 r4 e4 J historically I I I I oI o I I I I I I I p I I I I I I I o 0 0 0 0 ,-1 -1 -4 -4 -1 ,-I t- ,- ,-4 1 r3 rJ rJ $5M capital 300% transfer in FY 2014-15 200% Capital excluded 100% from GF going 2.5% 0% forward -100% - • Assumes 2.5% future growth rate 10  General Fund Expenses • Personnel costs: • Personnel • O&M Q Debt Svc —k— Capital • FTE unchanged $24 • Costs and allocation $22 by fund per staff $20 3% growth FY2016- $18 17, 2% future growth $16 PERA rates constant In C a 0 5%vacancy rate _ $12 $10 • Other O&M $8 • 2%growth(CPI) $6 • Debt Service $4 Current obligations $2 • Capital $0 ——.—-——----.- o I o I oo I I ,-i I I • $500K annual I I I I I I I I I I I I I Lfl WCO O 0 -Ie3eflLfl i OOC C en 00000 • ExcludesO.25%GRT (non -G F) Is this high enough? 11  Budget Priorities Are City Decision $O.OM $2.OM $4.OM $6.OM $8.OM $1O.OM • FY 2015-16 GE Police $7 6M budget by Non-Dept 1 $6.1M Fire - $4.1M program Parks/Rec $33M • Budget model 1 Facilities n... $1.4M I does not set Admin - 1.6M Finance .—j $I3M budget priorities, — IT $13M only identifies Library $O.9M $295M Total FY5-16 aggregate Pub Wks $OJM General Fund resources and Planning — $O.5M Budget Courts baseline I $O.4M HRI$o.3M expenditures Non-Dept=Uebt service, capital, prisoner care, insurance, operatinggrants 12 • PERA rates are fixed unless changed by law • Last change in 2014; rates had not changed for several years • New Mexico ranks 48 of 50 states in percent of Annual Required Contribution paid, has 67% funded ratio (80% average among states in 2013) • PERA assumes 7.75% rate of return, which is high California now at 7.5% with plans to lower to 6.5% over time • When discount rate is lowered (only a matter of time), employer costs will jump • PERA’s 2014 actuarial report shows that Municipal Fire is particularly underfunded, which could result in future employer cost increases: Employer Employee Current Increae in Statutory Rate Rate Funded Amortization Rat Required to Plan (Plan 3) (Plan 3) Ratio Period Amortize Over 30 Years Fire 21.65% 8.00% 62.7% Infinite 10.55% Police 18.90% 7.00% 78.3% 32 years 0.77% Other 9.55% 13.15% 81.5% 20 years none 13  Revenue Range @ pluslminus 0.50% • Range of plus or Expenditures Revenues minus 0.5% in $40 Revenues: Optimistic to Pessimistic average annual $35 •0 growth rate $30 • N reflects optimistic C 0 $25 and pessimistic $20 revenue range $15 • Even optimistic $10 level of revenues $5 inadequate to $0 fully fund ongoing I I I I I I I I I I I I I I I I I I I I cn ‘.9 1% 00 O C ,.4 N ‘.9 t. 00 0 i4 N operations given 000 (Ongoing perations only, excludes capital) projected costs 14  General Fund Balance (Fund 101) • Steadydeclinein z;;:::i Fund Balance GFOA Mm. @16.7% ——--State Mm. @8.33% balance, without $12 corrective actions $10 $8 Under State’s $6 minimum reserve level of one month’s ____a — a — a operating ! expenditures (8.33%) in FY 202 1-22 ($2) Deficit by FY 2022-23 ($4) ($6) • Major issue is loss of ($8) GRI on food and Lfl .D 1% C en in e1 rJ r.4 e4 (•1 %4 I I I I I I I I I I I medicine in F.D 1% CO O C en v-I N N N N N 15  Scenario 2: Limit Future Labor Cost Growth - General Fund Balance (Fund 101) • Lower labor cost Fund Balance 1 GFOAMIn. @16.7% --—‘StateMin. @8.33% $12 growth from 2% to 0.5% --————-—--————-- $10 t-.--. - • Slows decline in $81 —- balance,above C $6 __ State minimum — — — — reserve level in FY $4 202425 $2’;.. .i*.Li • Labor . . $0 [I competiveness e.l e-l ,-( 1 r.i r.J N N over time an issue 16  General Fund Balance (Fund 101) • Impose three-eighths Fund Babnce GFOA Mm. @16.7% ——-State Mm. @8.33% 011% GRT hold- $12 harmless tax for food/meds $10 • Other baseline forecast assumptions $8 C apply 0 $6 • Slows decline in balance, above State $4 minimum reserve level in FY 2024-25 $2 • Increases GRT rate from 8.3125% to $0 CO Ob* 0 Lfl 8.6875% I r’J rJ rJ r4 rJ rJ I I I I I I I 1% CO C C en r3 rJ e..J r.J e Could exceed 9% if County also enacts such a tax 17  General Fund Balance (Fund 101) • Reduce spending by i.- Fund Balance GFOA Mm. @16.7% ———-State Mm. @8.33% $1.25M annually $12 (4% cut) starting in $10 FY 2017-18 • Other baseline $8 C forecast $6 assumptions apply $4 • Slows decline in balance, above State $2 minimum reserve level in FY 2024-25 $0 Lfl S.D % 00 0 -4 CJ rfl In I I v.4 rJ N N N N I I I I I I I I I In 1% CO C 0 v.4 N v.4 v.4 .4 v.4 v.1 v.4 N N N N N 18 • Budget model can be used to test General Fund sensitivity to various economic and policy assumptions Set parameters for budget and strategic planning • Can be updated by staff in future years • Similar modeling for utilities is a work in progress • City needs to formally reallocate net assets of joint utilities; will be foundation of individual utility forecasts • Risk Factors • Revenue loss from phase-out of food/med portion of GRT • Higher pension costs 19