City Council Workshop

AGENDA City Council Workshop April 28, 2020 Council Chambers 5 PM COVID-19 Response Update – Extending Restrictions and Cancelations 5:20 PM Financial Forecast 6:00 PM 2021 Budget: Overview and Status 6:58 PM Recess for Regular Meeting WORKSHOP CONTINUES FOLLOWING REGULAR MEETING 7:30 PM Reconvene Workshop in the Council Chambers (estimated) • Oakdale Marketplace PUD Review • Council Discussion  COUNCIL MEMORANDUM To: Honorable Mayor and City Council From: Chelsea Petersen, Administrative Services Director Craig W. Dawson, Interim City Administrator Date: April 28, 2020 Subject: 2020 Budget Performance, 2021 Budget Outlook General Fund Type of Revenue 2020 Budget % of Budget Property Tax Levy $ 9,066,046 66% Licenses and Permits $ 800,300 6% Intergovernmental Revenue $ 896,500 7% Charges for Services $ 1,185,500 9% Fines and Fees $ 132,000 1% Miscellaneous $ 1,569,500 11% Total General Fund Revenue $ 13,649,846 100% The City of Oakdale’s property tax levy makes up 2/3 of the annual general fund revenue. Our ability to collect on property taxes has traditionally been quite high, so we generally budget that area very close to actual expectations. In the last 10 years the lowest collection was a 92%, and that was in 2010 which was during the last recession. Since then the annual collection rates have been increasing each year and range between 95% and 99%. Currently, Washington County is considering an extension to the property tax deadline which would delay the first half of the year payments to cities by a two weeks. At this time that is not a large cause for concern as the City has adequate fund balance to cover this short gap in cash flow. Staff will continue to evaluate cash flow levels and operational changes at the County level, and may recommend a transfer if the need arises. If delinquencies were to fall to Great Recession levels, the City could see around $725,000 less in property tax revenue in a given year. That amount does incur penalties and interest and remains outstanding until paid, so the amounts would ultimately be recovered over time. Miscellaneous Revenue makes up the next largest revenue category and includes items like interest on investments, franchise fees from underground utilities, transfers from other funds, administrative fees paid from development or capital funds, and land rents from enterprise funds. While this area of the budget makes up 11% of the general fund revenue for the year, it is both stable and budgeted conservatively so a decrease in actual revenue could be absorbed. The next largest area of revenue is made up of Charges for Services which primarily is made up of fees paid to the general fund from city enterprise funds. This makes up for 96% of that revenue area and is done to account for services provided to the enterprise funds that are normally paid out of general fund including items such as utility billing staff, materials, and expenses. Since most of the payments are from internal funds, this revenue area is also quite stable. Intergovernmental Revenue, Licenses, and Permits are the next largest areas of revenue. Again, they are budgeted fairly conservatively so a decrease may be able to be absorbed for 2020. One area that will likely see a departure from expected is the amount allotted for the School Resource Officer as that position has not been needed due to the suspension of in-school activities. At this time, that is estimated to be around $18,000. Also, this area of the budget will need to be monitored for future years expenditures as state and federal funding may be affected. Staff will continue to monitor those revenue sources. Licenses and Permits are generally looking favorable for 2020, but staff has received queries on whether or not liquor license fees will be prorated for the time that on-sale sales were suspended. Staff is continuing to research this item and will provide additional information for discussion as it becomes available. Other Funds Charitable gambling is one fund that is likely to see a significant decrease in revenue this year. It is variable in any year, but with the shutdown of restaurants and uncertainty of how long that may last, it is very unclear as to how that fund may perform. Luckily, the only budgeted expenditures for this year are the annual transfers to the Recreation Fund and the Summerfest Fund. Even if there were no revenue into this fund for a year, it would still be able to support those transfers if needed. Recreation Activities is the only other fund that is likely to see a significant decrease in revenue in 2020, but that will be largely offset due to the anticipated decrease in seasonal staff and activity offerings. At this time, approximately $3,500 in refunds have already been issued for activity and rental cancelations. Additionally, with the potential of program cancelations there will likely be a significant decrease in revenues for the year. Fortunately, a decrease in revenues from programming would be offset by a similar decrease in expenditures on seasonal staff and other program needs. Fund balance The Office of the State Auditor recommends that cities keep a fund balance equal to 30-50% of their general fund operating revenues. The City of Oakdale has maintained a policy in which we strive to maintain a fund balance consistent with 50% of the subsequent year’s General Fund budgeted expenditures. At the end of 2018 the unassigned fund balance was $8.6M, which was approximately 63% of the 2019 budgeted expenditures. 2021 Budget Outlook Washington County issued the 2021 valuation notices recently, and it is currently estimated that Oakdale will see a 4% increase in taxable value for the coming year. This is a preliminary figure, and will be updated by the county over the next several months. At this point in the year, all budget projections and estimates are preliminary. Department Directors have been working diligently on their respective budgets for a few weeks and will continue to fine tune numbers throughout the summer. Significant variations between actual spending and 2020 budgeted amounts as identified by Department Directors may result in budget revisions later in the year. The largest area of our budget is personnel (74%, $10M), and that is also the area that generally sees the largest need for annual increases. One area that we are not likely to get an early indication of any increase is in the area of health insurance. Over the summer we generally get a rough idea, but actual rates are generally not available until late in the summer or even early fall. Another area that is likely to be difficult to address is the area of cost-of-living adjustments (COLA). Two of our five collective bargaining contracts were settled last year and those contracts both have a 3% COLA for 2021. The other three contracts expire at the end of 2020, so negotiations will take place later this year. Additionally, we have several staff who are not represented by any bargaining unit. Budget Parameters As staff continues to fine tune budget proposals, staff is requesting City Council discussion on the preferred approach next year’s budget. The two approaches previously outlined were: - Focus on revenues. This approach will use data on the growth and inflation of property values in the community (currently estimated at 4%), with a focus on maintaining or reducing the tax rate. A budget can then be built to stay within those parameters. - Focus on results. This will take into account City goals, objectives, and priorities as identified by City Council and/or Staff. Any changes to current service levels can be identified and researched, and then a budget can be built to include the identified priorities. Other guides in developing the 2021 budget include: • Twin Cities Consumer Price Index, April 2019-March 2020 o For all items, increased 1.2% o For government, increased 1.4% o For all items less food and energy, increased 2.0% • The 10-year Financial Forecast (summarized earlier in the work session) o 2020: Property tax = $9.0M; Total revenue = $13.65M o 2021 Assumes 3 new full-time firefighters o Scenario A1, no new development and no sales tax revenue  Property tax = $9.6M; Total revenue = $13.8M; Expenditures = $14.3M o Scenario B1, new development and no sales tax revenue  Property tax = $9.35M; Permit revenue = $1.3M; Total revenue = $14.3M; Expenditures = $14.3M Staff Engagement Department heads have been working on their budgets for a few weeks and are getting close to preliminary proposals. At this time, the focus has been on continuing current levels of service and identifying items that need to be addressed next year (e.g. new regulations, change in staffing, etc.) Staff will take comments from Council discussion and work to incorporate them into a comprehensive budget proposals for presentation on May 26th. A few items that have been identified at this point: - GIS System Upgrade: the current host company’s future is uncertain, and the product is also falling short of City needs. Staff have investigated new systems and host capabilities, and have determined a transition to an upgraded system and new host is needed. The initial migration would cost approximately $35,000, plus an annual maintenance that is similar to our current ongoing costs. This cost should be shared between the General Fund and Enterprise Funds. - Expansion of full-time Fire Department personnel: this would include phasing in additional staff over 2-3 years to ultimately become a completely full-time department. The first phase would  include hiring three additional firefighter/paramedics, and after factoring in the decrease in need for the volunteer force to supplement current needs, the net increase would be approximately $300,000. - Police Department Partnerships: there are an estimated $30,000 increased costs associated with partnerships at the Hero Center (regional training facility), as well as breath alcohol testing protocols with Washington County. - Police and Public Works Facilities: we do not have a clear indication as to whether or not the sales tax proposal will be included in an omnibus bill at the capital. Staff is continuing to monitor proposals as well as working on contingency plans. Current estimated costs: $12M for the Police expansion and $15M for the Public Works facility. - Workers Compensation/General Liability Insurance: we are unlikely to have an indication of any increases until the summer. There may be rate increases or changes relating to COVID-19, but it is unclear what they may be and what additional funding may be available. Use of Debt The City of Oakdale has had a long-standing practice of issuing debt to assist with financing costly long- term items such as infrastructure improvements and capital equipment purchases. Infrastructure projects are financed with General Obligation bonds as they need to be paid for at the completion of the projects, and the use of bonds allows for the City to payback the cost of the project over 10 years. Additionally, Certificates of Indebtedness are issued to help finance costly or long-term equipment purchases and allows for a five-year payback period. In both cases, each year the City has had a practice of paying off and issuing new debt each year, so the new effectively replaces the old in the debt cycle. This results in a more steady payment schedule and often a large hike in the property tax levy from year to year can be avoided. Projects and equipment are in the process of being finalized, and the City is currently preparing for a July bond sale, the timing of which is in line with past practice. Below is a history of the last full cycle of bonds that are currently in repayment, along with their 2020 debt service payment amount. Interest rates are currently low, and with a bond rating of Aa2 and favorable past performance, the estimates for 2020 bond amounts and payments are estimated on the next page.  Certificates of Indebtedness GO Bonds *2015B $800,000 $182,070 *2009A $1.3M $ 61,162 **2016B $1M $223,965 **2010A $3.1M $ 183,799 2017B $1M $222,915 2011B $2.2M $ 126,441 2018B $940,000 $229,688 2012A $4.4M $ 150,126 2019B $845,000 $205,115 2013A $2.3M $ 148,448 2014B $2.3M $ 157,019 2020 Est. $845,000 $205,115 2015A $2.5M $ 137,225 2015C $1.6M $ 187,549 *Final payments being made in 2020 2016A $1.9M $ 105,179 so debt will drop off current schedule 2017A $2.7M $ 174,355 and be replaced by 2020 issue 2018A $840,000 $ 53,107 2019A $2.6M $ 220,142 **Final payments being made in 2021 so debt will drop off current schedule 2020 Est. $1.2M $ 120,000 and be replaced by 2021 issue Budget Schedule The remainder of the budget schedule is as follows: May 26 Council Workshop – General Fund June 9 Council Workshop – Special Revenue Funds June 23 Council Workshop – Enterprise Funds August 10 City Council Workshop on General Fund Budget, Preliminary Levy August 25 City Council Workshop as needed September 8 City Council Workshop as needed September 22 City Council Workshop as needed, City Council Adopt Preliminary Levy October 27 City Council Workshop – CIP November 10 City Council Workshop – final General, Enterprise, and Special Revenue Funds, CIP December 8 City Council to hold Truth in Taxation Hearing, Final Budget and Levy Adoption Other Important Dates: September 30 – Certify Preliminary Levy to County December 30 – Certify Final Levy to County *Meeting schedule subject to change