Appointed Committees

SALES TAX AD HOC COMMITTEE June 6, 2017 Page 1 Committee Members Present: Dean Frantsvog, Rick Hedberg, Shannon Straight, Stephanie Hoffart, John MacMartin, Robert Schempp Members Absent None Others Present: Tom Barry, Stephan Podrygula, Lisa Olson, Dave Lehner, Dan Jonasson, Jason Sorenson, Lisa Jundt, Sue Greenheck, Derek Hackett, Janet Anderson, Kelli Flermoen, Kevin Ternes, Ryan Ackerman, Jim Montgomery, Ron Merritt, Mark Lyman, Alan Walter, Jill Schramm, Josh Wolsky Chairman Frantsvog called the meeting to order at 12:00 pm. Minutes Committee Member MacMartin moved to approve the minutes from the May 17, 2017 Sales Tax Ad Hoc Committee meeting. Motion seconded by Alderman Hedberg and carried unanimously. Flood Control Project Scope, Cost & Funding Discussion The Finance Director presented options for financing the Flood Control Project. He explained, the first approach will refer to West Minot, the second approach to Minot City, and the third approach is the valley wide portion of the project. He showed the assumptions used in the models developed by staff giving consideration to current market rates adjusted for increases over the life of the project and assuming stable construction costs and sales tax collections. He said the models are intentionally conservative because more favorable rates will improve the scenarios. He then used graphs to demonstrate that the current allocation of one half cent is not sufficient to cover the first approach of the project even with 30 year bonds. However, he said, reallocation of the full first penny would be sufficient to provide for the first portion of the project. He illustrated how costs could be smoothed to allow for lower costs early in the project but said, it would lead to additional engineering costs and delays. Mr. Lakefield compared the effects of using an incremental increase to one full penny versus an immediate reallocation. He said, the additional collections early in the project would allow for a compressed timeframe and would most likely equate to cost savings. He continued to show several graphs depicting the following conclusions: an incremental approach to reallocation of the first penny is not sufficient to fund the second approach, even with 30 year bonds, full penny reallocation in 2018 still falls short but buys time, the entire first penny is not sufficient to fund the third approach and additional funding sources would be required. He also concluded, reallocation of the first penny combined with a continuation of the Ward County Sales Tax in 2023 is still insufficient to fund the local share of the Valley Wide Project. The Finance Director used a graph to show the effects of longer term borrowing. He said, the longer bonding period would substantially increase the overall cost of the project. Mr. Lakefield said, his recommendation for the first approach is to commit the first penny in 2018 and bond over a ten year maturity. He also said, they should continue to pursue other financing opportunities such as, the Bank of North Dakota, additional State and Federal participation, exploring additional sales tax collections, and reallocating NAWS after it is funded. He added, reallocating the full penny, would displace funding for Tax Relief, Economic Development and Improvements by approximately 22 mills or $183 per year in property tax for the average home. SALES TAX AD HOC COMMITTEE June 6, 2017 Page 2 Mr. Schempp referenced a report from Ryan Ackerman which, he said, shows the current half cent allocation is sufficient to fund the first three years of flood protection. Mr. Schempp suggested using the longer term to bond, despite the increased interest. He also commented, if economic development works, then it will attract businesses which increases the amount of sales tax generated. Mr. Lakefield explained, the advantage to using one full penny is to provide a cash flow at the beginning of the project and lower the interest in the future. Mr. Barry added, the scenarios provided by staff use revised numbers from what Mr. Ackerman used in his report. They decided to demonstrate cash flows on a more smooth approach rather than having severe cost spikes down the road. He also said, financing over ten years opposed to thirty, saves a net total of about $36M. The idea was to tackle the costs in the beginning and be able to commit to long term projects. Upon questioning about the second penny, Mr. Lakefield responded by saying, it can be reallocated but requires a proportional decrease across the different allocations. Alderman Frantsvog asked if staff is looking at budget savings, to which the Finance Director replied by saying, the departments are well aware of the need for cost savings and are trying to offset to mitigate other expenses. The Capital Improvements Plan is being evaluated to identify potential projects to delay. Alderman Straight asked if special assessments have been considered in comparison to bonds. Mr. Lakefield said, it has been superficially addressed but there is a limited portion of the city that would be included. There are numerous properties owned by the City, from which we could not collect revenues. There are also laws to consider regarding the statutory debt limit. Mr. Schempp said, Ryan Ackerman’s numbers conclude, of the $400M for the project, the City needs $135M and if we bond over 20 years at 4.5%, sales tax would provide enough funds. He added, he is not in favor of front loading higher payments without the ability to finish the entire project. Alderman Frantsvog asked Ms. Hoffart about the sustainability of MADC if the first penny was reallocated toward flood control. Ms. Hoffart responded by saying, the MAGIC Fund currently has $7M- $8M but to put perspective, $8M has been put into the Ag Park. MADC exists to consistently put jobs into the community and new jobs bring more sales tax. In order to stay competitive, Minot needs to offer incentives to bring businesses to Minot. She said, flood protection is important but economic development does not happen on its own. Upon further questioning, Ms. Hoffart said, she has already cut staff from five employees to three and $365,000 each year will stretch but cannot be sustained long term. Alderman Hedberg and Mr. MacMartin agreed, they would like to look at the incremental approach. The Committee discussed the effect it would have on residents to increase property taxes to pay for displaced funds, compounded with any increases from the County and School Board. It may be more palatable for incremental changes to take place. Mr. Schempp moved the City Council devote the entire first penny to the flood control project over the next eight years. Motion seconded by Alderman Straight. Mr. Barry requested some specificity on the motion to ensure staff has the correct amount over what period of time. Otherwise, he said, they will need to develop models. Alderman Hedberg left the meeting at 1:06pm. SALES TAX AD HOC COMMITTEE June 6, 2017 Page 3 Whereupon a vote was taken on the motion by Mr. Schempp, seconded by Alderman Straight and carried by the following roll call vote: Frantsvog, Straight, Hoffart, MacMartin, Schempp. Nays: none At the request of Mr. Schempp, Ryan Ackerman explained, City staff modified the spending plan for their projections but did not change the scope. His plan involved a glut of spending in 2018 but after discussions with staff, smoothed it out to delay spending $30M in 2018 and instead will spend $19M. Mr. Schempp moved the Committee recommend the City Council build and finance in 2017, enough to build the flood control project based on total funds available and borrow as necessary. Motion seconded by Mr. MacMartin. The City Manager said he would like to study for feasibility before moving forward. He said, it makes sense to build as soon as possible but if the City becomes strapped financially to build the first four phases and cannot finish the project it would be a waste. He suggested smoothing out the costs and work to completion. Mr. Schempp amended his motion to direct staff to analyze financing all five phases over eight years. Mr. MacMartin amended his second. Whereupon a vote was taken on the above motion by Mr. Schempp, seconded by Mr. MacMartin, as amended, and carried unanimously. Community Facility Fund Mr. Lakefield provided updated figures for the Community Facilities Fund. Applications are being accepted until June 30, 2017 but a meeting of the Community Development Committee has not been scheduled yet. The Committee requested the Finance Director develop models for the incremental approach spanning five years and ten years. Alderman Straight also requested models to compare two years using the full first penny. The next meeting will be Wednesday, June 14th, at 12:00 pm. There being no further business, the meeting was adjourned at 1:18 pm. Respectfully Submitted, Kelly Matalka City Clerk