Appointed Committees

SALES TAX AD HOC COMMITTEE June 14, 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, Kelly Hendershot, 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 12:03 pm. Minutes Chairman Frantsvog made a clarification to the minutes of the June 6, 2017 Sales Tax Ad Hoc Committee meeting. He said the motion by Mr. Schempp reads as if he intended for the first penny of sales tax to be immediately reallocated to flood control, but the intention of his motion was for City Council to recognize they will eventually allocate the funds at some point during the next eight years. Alderman Hedberg moved to approve the minutes from the June 6, 2017 Sales Tax Ad Hoc Committee meeting. Motion seconded by Alderman Straight and carried unanimously. Flood Control Project Scope, Cost & Funding Discussion The City Manager stated, he and the Finance Director modeled the scenarios that were requested at the previous meeting. Mr. Lakefield presented their findings which used the same assumptions as before regarding bond interest rates and sales tax collections. They demonstrated the funding scenarios comparing an incremental allocation of the first penny using 20-year bonds, a two-year incremental allocation using 10 and 20-year bonds, a five-year incremental allocation using 20 year bonds, a ten-year incremental allocation using 20-year bonds and an immediate allocation of the full first penny using 10 and 20-year bonds. The Finance Director also explained the differences in accumulated interest for each approach. Upon questioning by Alderman Frantsvog, Mr. Lakefield stated, he intentionally did not provide a recommendation as there are a number of ways to make accommodations once staff is given direction from the Council. He added, they need to know how much to reallocate to flood control and whether it should proportionally decrease the other areas of funding. Depending on the approach, the benefits for flood control will affect other areas and the budget needs to be adjusted to address those consequences. Alderman Frantsvog asked if all of the proposals will accomplish the goal of funding flood protection, to which Mr. Lakefield replied by saying, all models accomplish the first milestone, phases 1-4, but there is more uncertainty for the later portions of the project. Mr. Schempp said to build the project as soon as possible with what is available. He referenced Ryan Ackerman’s proposal which includes cost estimates for phases 1-5 using the rates provided by City staff. He said the project can be funded with 20-year bonds but would run out of money using 10-year bonds. It can be completed using sales tax dollars for three years without the need to change anything. SALES TAX AD HOC COMMITTEE June 14, 2017 Page 2 Alderman Frantsvog said the downfall to leaving the budgeting in place is the added interest costs. Mr. Schempp replied by saying, it is not a downfall because the first penny can be allocated later without having to make any changes now. They agreed the plan would have the least effect on tax payers in the short term. Alderman Straight said he would prefer to allocate a full penny immediately whereas Mr. Schempp said, the full penny can be allocated once the Maple Diversion project takes place. Mr. MacMartin said he likes Mr. Schempp’s proposal and clarified, his opinion is not an official endorsement by the Chamber or the Board. He agreed, he would like to keep the current sales tax allocations until the Maple Diversion and eventually reallocate the second penny. He stated, he does not want to see additional property tax increases on top of the increase in insurance. He raised concerns over those residents on a fixed income who would not be able to afford paying more in property tax. He encouraged the Council to look at an additional half cent sales tax which would be more palatable and said it is more fair to spread the cost amongst the people who come into the community from surrounding areas. Alderman Hedberg stated, he supports what the first penny is going towards now and is not in favor of having to increase property tax or cut important projects. He asked Mr. Schempp to explain a section of the proposal he provided to the committee, regarding the 100 year flood designation. Mr. Schempp explained, the Federal Register of August 29, 1995 states that Minot has 100 year flood protection. It may be 15-16 years before the southeast side of the flood wall is completed and his proposal urges the agencies to keep the 100 year designation until the flood control construction is completed. Alderman Frantsvog said, Mr. Schempp’s proposal has the least impact on taxpayers, and asked the Finance Director if he could assure it would provide enough funding. Mr. Lakefield responded by saying, the models they constructed for the previous meeting focus on phases 1-4. Today’s models included the later portion but not valley wide. There is some degree of certainty to commit to a citywide project but we will need other funding sources to pay for the entire valley wide project. The state has only committed to one biennium and it is unknown if there will be funding available later. He said, staff is actively looking for alternatives to fund the valley wide project. Mr. Schempp said, he does not want to give the impression we are not including the rest of the valley. The flood control project includes funding for the construction in Burlington but does not include design costs. Alderman Straight asked the Finance Director if he envisions there to be an increase to the mil levy for the upcoming budget. Mr. Lakefield explained, the state’s buydown is decreasing by 7-8% which the City will need to absorb. There is a decrease in state funding and home values have decreased. As a result, even if we do not increase the budget, there will need to be an increase in taxes. Alderman Straight said, personally, he is willing to commit an additional $2 per month to flood protection, which he calculated to be an average estimate for his property. He stated, the affected residents want to see the Council make a larger commitment to construction of the flood protection project. SALES TAX AD HOC COMMITTEE June 14, 2017 Page 3 Ms. Hoffart said she supports flood protection for the community but thinks it is a good idea to take more time to look at everything rather than reacting now. She added, she understands, as a recipient of sales tax dollars, how important it is to recognize the impact on property owners. Alderman Frantsvog stated, all of their available options have the same ends but differ in their level of commitment. He assured that no one has an appetite to delay the project. He favored the five year incremental approach to gradually allocate the first penny by analyzing the distributions each year. Alderman Straight moved the Committee recommend the City Council use the two year incremental approach to increase the percentage of funds allocated from the first penny of sales tax to flood protection. (Failed) Motion seconded by Mr. Schempp. Alderman Frantsvog asked if the Council would then be responsible for determining how to reallocate those funds, to which the City Manager responded by saying, the Sales Tax ad hoc Committee should make those decisions to forward to Council for approval. Mr. Schempp said, his proposal does not prevent reallocation right away but it does lay out the expectation of using 20-year bonds. It states the penny will be fully reallocated by the time the Maple Diversion takes place so his proposal is still in line with the current motion. Alderman Hedberg stated, the proposal Mr. Schempp brought forward allows the City to maintain what they’re currently doing rather than effect other entities and he is in favor of keeping the first penny as it is. Whereupon a vote was taken on the above motion by Alderman Straight, seconded by Mr. MacMartin, and failed by the following roll call vote: ayes: Straight. nays: Frantsvog, Hedberg, Hoffart, MacMartin, Schempp Alderman Hedberg moved the committee forward Mr. Schempp’s proposal for City Council approval, including: building the enhanced flood control project using first penny sales tax, providing available dollars for both community facilities and NAWS, building south side flood protection, and maintaining the 100 year flood designation. (Approved) Motion seconded by Mr. MacMartin. The City Manager requested more specificity regarding the terms of Mr. Schempp’s proposal. He said, staff needs clarification on how to reallocate the first penny and when. Alderman Hedberg said the proposal includes documentation demonstrating the funding model and suggestions. Mr. Schempp stated, using the information available at the present time, there are three budget years left to decide how to reallocate the first penny or find other funding. Alderman Straight said, he believes the community will be frustrated with the lack of action. Mr. Schempp further explained, the proposal says the City has to build the first part of the project and FEMA has to maintain the 100 year flood protection designation. He added, this keeps the promise to voters in how to allocate funds collected through the first penny of sales tax. SALES TAX AD HOC COMMITTEE June 14, 2017 Page 4 Whereupon a vote was taken on the motion by Alderman Hedberg, seconded by Mr. MacMartin and carried by the following roll call vote: ayes: Hedberg, Straight, Hoffart, MacMartin, Schempp. Nays: Frantsvog. Mr. Schempp made a motion that the City Council recognize they may need to reallocate the first penny of sales tax collections to flood protection in the next couple of years. (Approved) Motion seconded by Mr. MacMartin. Mr. Schempp said the motion is still in line with his proposal but Alderman Straight can reallocate the first penny over the next two years like he had proposed by shifting 25% of the remaining penny the first year and the last 25% of the penny the year after that. Whereupon a vote was taken on the motion by Mr. Schempp, seconded by Mr. MacMartin and carried by the following roll call vote: ayes: Frantsvog, Hedberg, Straight, Hoffart, MacMartin, Schempp. nays: none. Chairman Frantsvog stated, the recommendations will be forwarded to City Council on July 10th. There being no further business, the meeting was adjourned at 1:10 pm. Respectfully Submitted, Kelly Matalka City Clerk