City Council

Mayor Cal Sheehy Lake Havasu City Vice Mayor Jim Dolan Police Facility Councilmember Nancy 2360 McCulloch Blvd North Campbell Lake Havasu City, Arizona Councilmember Jeni Coke 86403 Councilmember David Lane www.lhcaz.gov Councilmember Michele Lin Councilmember Cameron Moses City Council Budget/CIP Work Session Minutes - Final Thursday, May 12, 2022 9:00 AM 1. CALL TO ORDER Mayor Sheehy called the meeting to order at 9:00 a.m. 2. PLEDGE OF ALLEGIANCE The Mayor led in the Pledge of Allegiance. 3. ROLL CALL Present: 7- Mayor Cal Sheehy, Councilmember Nancy Campbell, Councilmember David Lane, Councilmember Michele Lin, Councilmember Cameron Moses, Councilmember Jeni Coke and Vice Mayor Jim Dolan *Councilmember Moses was present via remote conferencing. 4. PUBLIC HEARING Presentation, Discussion, and Potential Direction to Staff on the Budget for Fiscal Year 2021/22 (Year-End Estimates), Fiscal Year 2022/23 Annual Budget, and the Five-Year Capital Improvement Plan City Manager Jess Knudson addressed the council and said today’s discussion and presentation will review the proposed Fiscal Year (FY) 2022-23 budget that has been put together with a pragmatic approach in terms of the use of taxpayer dollars for Lake Havasu City. He said the proposed budget includes some changes, one being the centralization of facility maintenance, and is data driven with a focus on aging equipment and vehicles and increased costs in fuel, projects, products, and supplies. Administrative Services Director Jill Olsen said the presentation will focus on the operating budget, revenue and expenditure highlights, and department budgets. Ms. Olsen reviewed the budget process as follows: • Budget Development Lake Havasu City Page 1 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 o 10-Month Timeline Governed by Policy  CIP Starts in September  Operating Starts in December  Council Retreat in February 2022 Highlighted Trends  Detailed Review of Department Budgets  Required to Adopt Annual Budget per Statute and Code • Budget Materials o Operating Budget Book  Financial Projections  Revenue Highlights  Expenditure Highlights  Department Budgets Ms. Olsen said personnel is increasing by 12.9 percent over prior year budget which includes step increases, Cost of Living Adjustment (COLA), healthcare rates (increasing by 7.5 percent), and pension costs. She reviewed the Arizona State Retirement System (ASRS) and Public Safety Personnel Retirement System (PSPRS) pension rate changes as follows: o ASRS:  Rates decreased from 12.41% to 12.17% o PSPRS:  Police – rates increased from 63.53% to 70.59% ($1.1 million additional)  Fire – rates increased from 57.58% to 69.33% ($1.5 million additional) Ms. Olsen reviewed the new full-time positions budgeted in the General Fund and Enterprise Funds as follows: New Full-Time Positions General Fund Department: Position: Admin Services Infrastructure Supervisor Admin Services Programmer Analyst Admin Services Business Analyst Admin Services Accountant Court Case Management Clerk HR/Risk Management Safety Manager Development Services Code Enforcement Inspector Police Police Officer Trainee (2) Police Police Officer Lateral Lake Havasu City Page 2 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 Police Records Clerk (2) Police Detention Officer Police Public Safety Supervisor Fire Firefighter/Paramedic (11) SAFER Grant Fire Management Analyst New Full-Time Positions Enterprise Funds Department: Position: Public Works Regulatory Compliance/Water Quality Specialist Public Works Maintenance Technician Ms. Olsen said the proposed budget includes several new full-time positions to maintain service levels with 26 new positions in the General Fund and two new positions in the Enterprise Funds. Ms. Olsen reviewed the budgeted services, supplies and capital as follows: • Increases by fund: o General Fund - $8.1 million o Water Fund - $879k o Wastewater - $2.3 million • Additions (partial list): o Police Training/Supplies/Equipment - $313k o Police Additional 5 Patrol Vehicles - $286k o Fire Vehicle/Engine/Trucks - $360k o Parks & Recreation Vehicle/Equipment - $285k o Information Technology-related items - $2.9M o Water Fund Operations/Maintenance/Vehicles/Equipment - $879k o Wastewater Fund Operations/Maintenance/Vehicles/Equipment - $2.3 million • Facilities Maintenance Centralized • Continued Fuel Cost Increases Ms. Olsen said the proposed budget includes an increase in services, supplies, and capital over the prior budget, with an $8.1 million increase in the General Fund, $879,000 increase in the Water Fund, and $2.3 million increase in the Wastewater Fund. She noted that the increases in the Water Fund are minimal due to the funding unknowns in that utility. She added that there is an increase due to supplemental items in the Police training/supplies/equipment budget of $313,000 (which are offset with donations, grants, Lake Havasu City Page 3 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 or other restricted revenue accounts specific to the Police Department), $286,000 for five additional police vehicles, $360,000 for Fire vehicle/engine/trucks, $285,000 for Parks and Recreation vehicles/equipment, $2.9 million for Information Technology-related items, $879,000 in Water Fund operations/maintenance/vehicles/equipment, and $2.3 million in Wastewater Fund operations/maintenance/vehicles/equipment. Ms. Olsen explained that facilities maintenance has been centralized citywide and moved over to the Public Works Department budget. She said the proposed budget also includes additional funding in anticipation of fuel cost increases. Mr. Knudson said staff has taken an additional approach this year to set aside dollars in the event fuel costs continue at the same levels or increase; however, if fuel costs decline, those funds would remain set aside. • Other revenues and expenditures: o FY22-23 Contingency Budget = $2.657 million (all funds)  Included in budget for unfunded critical items o General Fund Contingency  $1 million (same as prior year) o Additional Potential Revenue/Expenditure  $8.5 million budgeted in the Grants Fund for funding from the American Rescue Plan Act  $5 million additional revenue potential (i.e. grants, donations, etc.) o Budget Stabilization Reserve for General Fund to 50% o Vehicle License Tax and State Shared Income Tax increases anticipated for FY23 o Property Tax Rate unchanged  With Assessed Valuation increase – additional $388,047 Ms. Olsen said in the proposed budget, staff has included $2.657 million in Contingency (all funds), $1.1 million in General Fund Contingency, $8.5 million in Grants Fund from the American Rescue Plan Act (ARPA) funding, and an additional $5 million in potential grants and donations. She said in the Budget Stabilization Reserve (BSR), staff is proposing to increase the funding level to 50 percent which would give the city six months of coverage in General Fund reserves. She explained that with sales tax being the primary funding source in the General Fund, the city would like to have funding in place to react to any downturn in the economy as it is important for the city to have the tools in place to react appropriately with the understanding that there needs to be a balance between what is placed in reserves and what is spent for operating expenditures and other needs. She noted that many cities with the same primary funding source (sales tax) have at least 50 percent in BSR with others having 100 percent. Ms. Olsen said the city received an estimate for the Vehicle License Tax (VLT) and State Lake Havasu City Page 4 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 Shared Income Tax from the state through the League of Arizona Cities and Towns that was more than anticipated; however, it was determined that the amount was overestimated for VLT; therefore, the city will be removing the additional $8 million in VLT from the tentative budget. Ms. Olsen stated that the city is receiving additional State Shared Income Tax (approximately $3.5 million) that is an anomaly as it is dependent on a change in the tax law and could vary from year to year; therefore, the city will be treating these as one-time funds in the General Fund budget. Ms. Olsen said the unfunded liability in PSPRS is approximately $76 million; therefore, the city will need to look at budgeting options and funding to bring that liability down. She said the city is looking to keep the property tax rate the same (or flat); however, due to the increase in the county’s assessed valuation, an additional $388,047 will be generated, of which $140,000 is related to new construction. Ms. Olsen said the city has budgeted $8.5 million in the Grants Fund for ARPA funds and placed into the following categories as directed by the City Council: • $8.5 million budgeted in the Grants Fund o Breakdown:  $3M – Water/Wastewater Projects  $2.5M – Streets Preservation  $1.5M – Parks & Recreation Capital  $1M – Community Resource Coalition  $528K – Public Safety & Other Ms. Olsen reviewed the department budgets (which excludes depreciation) as follows: Department: FY 22-23 ($ - in millions): Administrative Services 7.50 City Attorney 1.23 City Clerk 0.42 City Council 0.25 City Manager 0.59 Community Affairs 0.12 Human Resources 0.79 Development Services 1.97 Fire 19.83 General Services 7.20 Municipal Court 3.0 Parks & Recreation 8.26 PW Admin & Engineering 0.16 Lake Havasu City Page 5 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 PW Transit 0.83 PW Maintenance Services 2.19 PW Vehicle Maintenance 0.80 Police 20.77 Airport 9.93 HURF (Street) 7.81 Water Utility 23.74 Refuse 7.46 Wastewater Utility 37.96 Ms. Olsen explained that the FY 2022-23 budget book provides more detail with any variances (increases or decreases) listed within each of the department budgets. She noted that any items in the current budget not received by June 30, 2022, have been carried over into FY 2022-23. Mr. Knudson spoke on the importance of carryforwards and challenges when looking at fiscal year budget comparisons. Ms. Olsen reviewed the budget timeline and upcoming meeting dates for adoption of the 5-Year CIP and tentative budget, Truth in Taxation Hearing and final budget adoption, and adoption of the property tax levies. Mayor Sheehy spoke on governmental budgeting and how cities are required by state law to account for any possible grant or revenue source to be able to expend the funds. Mayor Sheehy was in support of increasing the BSR to six months to give the city an equilibrium to ensure that the city is not setting aside too much in reserves but balancing and managing the assets. Councilmember Coke said she understands the increases in healthcare costs and concerns regarding availability of facilities and utilization of emergency room services instead of urgent care facilities. She asked if the city has tracked the wellness program over the years in terms of its impact on healthcare costs and participation levels. Mr. Knudson said the city has been successful with the wellness program over the years in terms of participation and impact on costs. He spoke on the challenges of finding vendors for wellness services. Mayor Sheehy provided a brief historical background on the Northwest Arizona Employee Benefit Trust (NAEBT). He said through the NAEBT, Lake Havasu City has partnered with Bullhead City, City of Kingman, and the Lake Havasu Unified School District to stabilize healthcare costs and provide great coverage for employees. Discussion ensued relative to offering wellness services through local providers/specialists versus outside vendors. Lake Havasu City Page 6 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 Councilmember Coke asked about the addition of new positions for specific programs and if staff is confident in finding those specific positions or bringing them in at a lower level and work on training through the third-party vendors to have them in-house on the technology side, to which Ms. Olsen said the city is hopeful to find experienced candidates specific to the city’s needs and is working with Human Resources on a variety of strategies and options based upon the outcome of each recruitment. Councilmember Coke asked about the current number of vacant positions, to which Human Resources/Risk Management Director Bobbie Kimelton said recruitment has been challenging and the city has been averaging around 30 to 50 vacancies a week across the board. She said the city has some areas that are much more difficult to recruit than others, some of which include information technology, public works, water, and wastewater positions. Ms. Kimelton said the current wage issues are a real problem because the city is receiving interest from individuals wanting to move to Lake Havasu City and work for the city; however, the wages they are asking for are above the top of the city’s pay ranges. Councilmember Lin said there was much discussion at the last meeting regarding the COLA and percentages and asked if the COLA was going to remain at the recommended 3 percent, to which Mayor Sheehy said currently the COLA is being proposed in the budget at 3 percent. Councilmember Lin questioned whether a 3 percent COLA would raise the pay ranges enough to address recruitment, to which Ms. Kimelton said the 3 percent COLA is a value for retention not necessarily for recruitment efforts. She said the city is losing one or two employees a week in water who are resigning to work elsewhere for more money and opportunities. Councilmember Lin questioned whether a 3 percent COLA is enough for the city to retain employees, to which Ms. Kimelton said as a retention tool the COLA is invaluable. She said she would like to say it is enough, but it is probably not; however, the city must balance that with what is affordable. She said 3 percent is better than nothing right now and will go a long way towards helping to retain the city’s valuable employees. Councilmember Campbell said a 3 percent COLA looks different for an employee making minimum wage versus an employee making $80,000 and does not believe a 3 percent COLA will catch up with the current housing crisis. She said the comparable cities used in the Positional Analysis overlooked the tri-cities (such as Bullhead City, City of Kingman, and Parker) and asked if the city is targeting the rural cities as well. She said she was not in favor of an increase across-the-board but rather looking at individual departments based on demand requests. Ms. Kimelton said staff looks at a variety of strategies including comparing the salaries and Lake Havasu City Page 7 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 wages of the market cities identified in the Positional Analysis. She said this is not a problem unique to Lake Havasu City and is occurring everywhere; therefore, it is a matter of not falling further behind what the market is doing rather than trying to get ahead of the market. She added that the city is looking at several strategies including signing bonuses, relocation/moving costs, etc. She said the COLA is intended to keep pace with inflation and living expenses for everyone and is simply a matter of where we find these employees and how to compete with other areas. She noted that some of the programs like the CTE Program in the Fire Department are intended to form a business/education/government partnership to bring people to and keep people in Lake Havasu City and added that the city is working with the Arizona Department of Labor and Arizona Workforce on the possibility of creating apprenticeship programs to teach individuals the skills they need to grow. Councilmember Campbell expressed her support of the city working with schools and colleges to develop partnership programs; however, she was concerned about the COLA issue in terms of demand and supply. She said she would like to see a focus on supply, like buying in bulk, to save money. Vice Mayor Dolan said he disagrees with Councilmember Campbell regarding the COLA. He said the city was very slow to respond with the Positional Analysis and while it accomplished what it was intended to do, it is obsolete at this time. He said he would like to see the COLA higher to keep up with inflation. He said the city needs to take care of the employees at that level or face losing more employees. He said the last two years have been completely unprecedented and to even consider that the city “do business as usual” is something that cannot be done. He said the city needs to stay ahead and take care of the employees and supports a COLA at a minimum of 3 percent. Vice Mayor Dolan asked if the variety of strategies that Ms. Kimelton spoke about were incorporated into the proposed budged, to which Ms. Kimelton spoke on hiring challenges specifically in the Water Department. She said of the last ten water employees who have applied for jobs, each one has asked for a salary that is not in the realm of the existing compensation structure. She explained that the pay scale is a statistical model that over time leans until it collapses which is why a pay scale should be adjusted periodically to allow employees to grow in their positions. Vice Mayor Dolan asked if the applicants who have applied are qualified for those positions, to which Ms. Kimelton replied yes. Vice Mayor Dolan said the city needs to find ways to adjust and fix this issue. Mr. Knudson spoke on the impacts and effects hiring a new employee at the top of the pay scale has on the existing division, department, and city. He said one strategy is looking at targeted positions and divisions, because from an organizational perspective and ability to provide services, the city needs to do something to fill these positions to get the job and Lake Havasu City Page 8 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 work of the city accomplished. Mayor Sheehy said there is flexibility in the proposed budget as presented for the city team to make adjustments in certain departments or where it makes sense for recruitment. Councilmember Coke asked for clarification regarding the budget variance at the bottom of Page 55, Public Works Water, that states “FY 23 includes an unavailable set aside of $720k for supplemental request (pending available funding), and $10k for fuel cost increase,” to which Ms. Olsen said staff reviewed the supplemental requests for Water; however, the Water Fund cannot pay for those requests at this time therefore staff is trying to manage that budget by looking at revenues coming in to determine whether to approve those supplemental purchases. Mayor Sheehy added that until the City Council discusses the utility rates in the Fall, there is uncertainty in available resources in the Water Fund. Councilmember Lane spoke on the purpose of the Positional Analysis and said the City Council’s job is to ensure that the City Manager has the tools to attract and retain the best and brightest employees for the city. Councilmember Lane said he supports a COLA and feels it should be higher than 3 percent but understands that it needs to be balanced and financially feasible. Councilmember Lane asked what the city’s current percentage of unfunded liability is for PSPRS, to which Ms. Olsen said the total amount in unfunded liability is $76 million. Councilmember Lane said he would like to see the city funded at 75 percent, to which Ms. Olsen said she believes the city’s unfunded liability is currently less than 50 percent as they have not contributed over and above the annual amounts. Councilmember Campbell spoke on the increase in available revenues on Page 13, Financial Projections–Refuse Enterprise Fund, due to a security and contractual change with the landfill closure costs. She said she would like to see the increase in revenues go towards reducing the trash rates or looking into a second landfill location. Ms. Olsen explained that the city was holding a security as the city was previously responsible for the liability associated with the landfill closure. She said the city no longer has that under the current agreement; therefore, the city was able to release the security and place the funds back into the Refuse Fund as available funds for the refuse operation. Mayor Sheehy asked if those funds are available, to which Ms. Olsen said approximately $3.5 million in additional funding is available in the Refuse Fund for potential landfill acquisition costs or additional operating programs. Lake Havasu City Page 9 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 Mr. Knudson clarified that trash service is a contracted service and the trash rates are administered by waste management. He said approximately $100,000 each year is added to the financial projections with the intention to build the fund to look at landfill closure options. Discussion ensued relative to the landfill study, recycling program, and lifespan of the landfill. Mr. Knudson noted that the liability of closure was transferred to Republic Services; however, the city needs to have funds in place for after the closure. Councilmember Campbell expressed her concerns with the health and safety of the landfill and said she would like to see the additional revenue directed towards exploring future landfill locations or options. Councilmember Campbell said she understands the need for a new street striping machine but asked if the city is using the proper paint products as there is a lot of fading, to which Streets Maintenance Supervisor Bill Young said the city is using the proper paint products and spoke on the routine maintenance needed to address fading from oils and sealers in the asphalt. Councilmember Campbell suggested the city use the funds allocated for the City Fuel Facility project in the CIP towards negotiating a contract to purchase fuel in bulk to save money. Mayor Sheehy said the funding for the City Fuel Facility project is a placeholder in the CIP that will come back to council if it makes financial sense for the city. Vice Mayor Dolan thanked city staff for their efforts and hard work preparing the budget. He spoke on the budget needs and wants and encouraged citizens to get involved and attend the meetings. Councilmember Lin asked about the budgeted lobbyist expenses on Page 39, City Manager, to which Ms. Olsen explained that those services were previously budgeted under non-departmental; however, through the process of centralizing various functions they were moved out of non-departmental into the City Manager budget. Councilmember Lin questioned the reduction in operation and maintenance costs on Page 44, General Government-Non-Departmental, to which Ms. Olsen clarified that $13 million in FY 2020-22 is a placeholder for grants. Mayor Sheehy asked if the $15 million in FY 2020-22 includes ARPA funding, to which Ms. Olsen replied yes. Councilmember Lin spoke on the $1 million allocated towards the Community Resource Coalition and asked if the remaining ARPA funds have been included in the budget, to which Ms. Olsen explained that the funding has been placed into the categories (outlined Lake Havasu City Page 10 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 above) as directed by the City Council. Councilmember Lin spoke on the COLA and said she supports employees and retention but does not know whether a 3 percent COLA is the right direction. Mayor Sheehy noted that there is flexibility in the proposed budget for staff to look at key areas where the city is having challenges and what makes sense in terms of a COLA, step increase if eligible, recruitment options, etc. Councilmember Campbell expressed her concerns with the COLA. She said the city needs to look at every individual department and was not supportive of an across-the-board COLA increase. Councilmember Moses thanked city staff for their hard work and was appreciative of Human Resources looking into the apprenticeship programs. He said he was in support of the BSR increase, as well as the COLA increase but would like to see it higher than 3 percent as the city will lose more employees if they do not keep up with other cities and cost of inflation. He said the council needs to do something that makes more sense for the overall health of the organization to keep Lake Havasu City open and providing key services to the citizens. Mayor Sheehy thanked city staff for their hard work. He was supportive of the BSR increase. He said the City Council needs to take a balanced approach to the budget that takes into account resources, expenses, and investments. He said he supports the COLA as presented at 3 percent as he feels that it is an appropriate amount that is fiscally responsible. He spoke on the PSPRS pension and said he would like to see future discussions regarding a plan to use additional VLT and income tax money going forward to address unfunded liabilities on the pension plans. Mayor Sheehy noted that the proposed budget is a huge spending plan that addresses investments and operations of the city. He cautioned that a no vote on one portion of the budget is a no vote on the entire budget; therefore, while the City Council may not be in favor of the entire budget, overall if they can come on board and support the overall spending plan and direction to staff as what is being presented is a balanced budget that takes into account taxpayer monies, ensuring the city can provide services to the community, and investing for the future. Mayor Sheehy opened the public hearing. There being no comments, he closed the public hearing. There were no further comments or questions from the council or staff. Lake Havasu City Page 11 Printed on 5/26/2022 City Council Minutes - Final May 12, 2022 5. ADJOURN Upon motion by Councilmember Lane, and seconded, the meeting adjourned at 10:43 a.m. CERTIFICATION I hereby certify that the foregoing is a full and true copy of the Budget/CIP Work Session Minutes of the Lake Havasu City Council held on the 12th day of May, 2022. I further certify that the meeting was duly called and posted, and that a quorum was present. ____________________________________ Kelly Williams, City Clerk/MMC Lake Havasu City Page 12 Printed on 5/26/2022