Audit and Investment Commission

City of Woodbury Audit and Investment Commission Meeting Minutes August 13, 2020 Pursuant to due call and notice thereof, a meeting of the Audit and Investment Commission was held at Woodbury City Hall, 8301 Valley Creek Road, on the 13th day of August, 2020. ITEM 1: Call to Order Vice-chair Johnson called the meeting to order at 7:00 p.m. Roll Call Upon roll call, the following members of the Commission were present: Heidi Conrad, Ross Dahlin (via teleconference), Blake Darsow, Ken Johnson, Jeanine Kuwik, John Lehman, Aileen Lyle, Chair and Richard Osborn. Others present: Angela Gorall, Assistant City Administrator; Tim Johnson, Finance Director; Michelle Okada, Parks and Recreation Director and Belinda Reed, Recording Secretary. Item 2: Review of the New Parks and Trails Replacement Fund Ms. Okada noted that the Parks and Trails Replacement Plan (PTRP) presentation would be a broad brush overview of the new fund, followed by a presentation by Assistant City Administrator, Angela Gorall, who will present one of the funding options for the plan: franchise fees. Staff asked the Commission for their questions and comments so that staff can research and gather information to provide the joint Commissions. Ms. Okada noted that the City Council identified the PTRP as a Strategic Initiative to ensure our parks and trails meet the needs of a growing and changing community. Per the Council’s direction, the Parks and Natural Resources Commission (PNRC) is asked to provide recommendations, along with the Audit and Investment Commission’s (AIC) input, for potential funding options. (The Council Strategic Initiative statement will be included in the packet for the September 1, meeting, to help the Commissions understand the Council’s perspective on why they identified this as a Strategic Initiative.) Ms. Okada listed the main discussion points as to why the fund is important, fund framework, funding options, including franchise fees, and next steps. One of the critical success factors in both the Strategic Initiative and overall Council objectives is the quality of life for residents, business owners and guests of the community. Ms. Okada noted that while we have benefited from Woodbury’s continued new development and population growth, we are starting to see our older parks and trails needing replacement. The City of Woodbury has won a number of national awards in large part because of our park system. It was noted that there is insufficient ongoing funding to address the growing liability of an aging park system. Although, Woodbury is still a fairly new community in terms of years, with much of our park system having been built using park dedication and referendum bonding, etc., we are getting to the point where the aging system is of concern. A plan to replace the park system assets is needed. Audit and Investment Commission Meeting Minutes August 13, 2020 Page 2 As the city continues to grow, the Park Dedication Fund continues to fund the building of the new parks built in the new developments. The PTRP fund is what is going to help maintain that quality of life, equity and access to some of the older areas of the city as well, while maintaining the high quality that Woodbury has established as our park system. The park system is aging as our community is over 50 years old, but when talking about park system assets to maintain, it has been determined that a yearly expenditure of $2.9 million will be required. The $2.9 million does not include future inflation or new additions to the park system. The value of the assets in the PTRP is currently about $70 million. The framework of the fund includes supporting the replacement of park and trail amenities as outlined by the comprehensive asset and depreciation plan. The plan recommends replacement of specific park and trail amenities based on standard life expectancy, which is based on local, national professional standards. Ms. Okada noted the “assumptions” located at the bottom of the Parks and Trails Replacement Fund – Draft, were previously viewed and approved by the PNRC at their February 4, 2020 meeting. Generally speaking, new items come out of the Park Dedication Fund, which is a special fund that developers fund. When developers come in, they are required by State Statute to provide funding, based on the percentage of the acres they are developing, to the Park Dedication Fund. When a home is built, the developer pays a fee to the city. The Commission found the “Current Asset Value” a little confusing noting that the current asset value meaning reflects more the amount one could expect to get for selling something on the open market. It was noted that an asphalt trail is an asset; however, you would not go to sell a piece of asphalt on the open market. It was suggested “Current Asset Value” be renamed “Current Replacement” in the plan. Ms. Okada noted that the plan extends out 50 years, as the longest living asset in the PTRP is 50 years. It was noted that the PTRP fund already exists as a capital project fund. In fiscal year 2020, the city levied $500,000 for the first time, as seed money to start the fund. Ms. Okada noted that the assumptions previously discussed, actual expenses and prioritization of replacement, will be presented as part of the Capital Improvement Plan (CIP) process which is evaluated annually. To reiterate, items in the plan are not automatically replaced just because they come up for replacement in the theoretical plan; rather the plan assets will be evaluated yearly and the Finance Department will advise on the rates of inflation each year. The PTRP will be updated annually and new assets added, and it will be determined if the inflation rates need to change based on economics and updated replacement costs. Ms. Okada noted that the PTRP is a theoretical and living document that will change year-to-year as new assets and information are added. Ms. Okada clarified that any trail maintenance would fall under operations maintenance. However, if a trail is completely ripped out and requires total replacement, the full replacement cost would come out of the PTRP fund. Audit and Investment Commission Meeting Minutes August 13, 2020 Page 3 It was noted that the $2.9 million is just a depiction of the liability versus the funding. The PTRP fund currently consists of $500,000 seed money allocated by the City Council in 2019, from the levy, along with the reallocation of approximately $186,000 that was taken from a variety of budgets. It was noted that up until last year, complete playground replacements were placed in the operation’s fund. They will no longer be placed in the operation’s fund: those budget dollars will be reallocated into this fund. With the average yearly need determined to be the $2.9 million, and with the current available funding approximately $686,000, staff is looking for ways to fill the funding gap with a sustainable revenue source. With regard to next steps, additional funding options are being researched, including franchise fees, and the City Council is seeking the recommendation of potential funding options from the PNRC, in conjunction with the AIC. Those recommendations are scheduled to be presented to the Council at their January, 2021, workshop. The PNRC previously approved the PTRP as it is laid out based on the assumptions. Staff noted that the PTRP is a consistent approach that the city uses in other areas, with the asset life divided into expected replacement cost. It was noted that the fleet maintenance fund, HealthEast Sports Center, Eagle Valley Golf Course, EMS, etc., use the same theory. The difference is that the PTRP is bigger and more complex, with so many types of assets, compared to say a fleet of 300 vehicles. Commission commented that they were glad that the city is being proactive in thinking about this issue now. Staff noted that with the stated need of $2.9 million, if we were to add 10 percent contingency and 15 percent for enhancement, the need would no longer be $2.9 million; it would change to $3.4 million. In essence, we would be adding on top of an already aggressive number. History tells us that you rarely replace a park exactly the same way. There is always the desire by the community and/or staff to address that recreation changes over time. A park developed 30 years ago may have different uses today or going forward. Many of the new developments have private neighborhood parks supported by their HOA’s. Those parks do not qualify for park dedication: park dedication can only be used for full public access. The PTRP does not have anything to do with those private entities, nor would funds from the PTRP be used to replace private amenities The Commissions will be looking at what the money target is and that question will be one elements of the overall funding recommendation. Ms. Okada asked the Commission if they had any other questions on the assumptions or the replacement timeline. Hearing none, Ms. Okada asked the Commission to think about what other information they would need going forward. _______________ Ms. Okada introduce the Assistant City Administrator, Angela Gorall. Audit and Investment Commission Meeting Minutes August 13, 2020 Page 4 Ms. Gorall noted that the franchise fee presentation is intended to provide the Commission with an overview of a potential funding mechanism for the PTRP fund, with information to be layered on as the discussion moves forward. A franchise fee ordinance provides guidelines. For example, should a utility company need to tear up an area of roadway, the ordinance provides the guidelines as to how that street will be restored and who is responsible for paying for the reconstruction. In addition, should the utility decide to abandon a facility, or at some point install overhead utilities, or new technology comes along, there would be rules and guidelines as to what happens should that take place. Minnesota Statute allows the local authorities the right to have a gas and electric franchise fee. The term “franchise fee” is the terminology used in the State Statute. These franchises are negotiated in the form of a contract and then they are codified in an ordinance. The Commission inquired about cable TV companies. Staff noted that those fee dollars collected from users go directly to the South Washington County Cable Commission and the city shares that fee with four other communities. Restrictions apply to the cable fees and those fees must be used for cable related activities such as the broadcasting of community type channels. Fees may be applied in two ways: flat fee or fees can be based on a percentage of utility usage. Fees could vary by customer type: commercial, residential, industrial users, etc. There are a series of options that may be considered. Cities also have the right to decide whether to increase or decrease fees. It was noted that although the city establishes the fees, the utility generally passes 100 percent of the costs to their customers. Everybody that gets a utility bill will be paying the franchise fee. Woodbury would rely heavily on a model franchise ordinance provided by the League of Minnesota Cities, which has an attorney on staff that specializes in this area. A chart was provided showing some of the Minnesota cities with franchise fees. Woodbury was positioned at the bottom third of the tax rate, compared to other cities listed in the chart. More and more cities have franchise fees in place. It was noted that some cities are using revenue from their franchise fees for road maintenance and repairs, while others are using for parks and trails. A discussion took place with regard to the big picture as to what are the funding options to fill the $2.9 million. Examples include fund the PTRP fund entirely with franchise fees, or use a mix of franchise fees and property tax. If Woodbury moves towards a franchise fee to fund a specific fund, the city would have a very comprehensive community engagement and communications plan. A discussion took place with regard to debt issuance to fund the plan. The debt would have to match the asset life. Issuing debt for athletic fields and fencing doesn’t lend itself well to the debt market. What does this means in terms of future debt issuance is that it may not be a reliable revenue stream. Other sources mentioned included reserves, redirecting funds and taxing city utilities: water and sewer. Audit and Investment Commission Meeting Minutes August 13, 2020 Page 5 Ms. Okada noted that ultimately it will be up to the joint Commissions to make recommendations to the City Council as to whether or not a franchise fee should be collected to fund the PTRP fund, or whether a combination of property taxes and franchise fees or other options are recommended for funding the plan. Ms. Okada asked the Commission to be thinking about what additional information they would need to help them with their recommendations. Staff will keep layering the information on so that the Commissions will feel well prepared to make their recommendation. The Commission was encouraged to reach out to staff by email or telephone with any questions they may have in preparation for the September 1, joint Commission meeting. Staff will reach out to the Commissions when scheduling the September 1, joint meeting. Item 3: Other Business None Item 4: Adjournment Chair Lyle adjourned the meeting at 9 p.m.