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Home My WebLink About12-09-02y, ~ J kf r CITY OF LAKEVILLE SPECIAL COUNCIL MEETING DECEMBER 9,, 2002 A complete videotape of the City Council proceedings is retained for one year. Mayor Johnson called the meeting to order at 7:00 p.m. Roll call was taken. Present: Council Members Bellows, Mulvihill, Rieb, Luick and Mayor Johnson. Also present: R. Erickson, City Administrator; D. Feller, Finance Director; J. Hawkins, Deputy Clerk. TRUTH IN TAXATION PUBLIC HEARING: Finance Director Dennis Feller stated that the purpose of the Public Hearing is to inform citizens and to provide an opportunity for them to ask questions regarding the City's 2003 budget and the proposed tax levy. Apre-recorded video presentation providing a detailed overview of revenues and expenditures was given by Mr. Feller. Mr. Feller's Truth in Taxation memo {video script) i dated December 9, 2002 is hereby attached and made a part of these minutes. The 2003 budget will be considered for approval by the City Council at their meeting of Monday, December 16, 2002. CITIZENS' COMMENTS AND QUESTIONS: Mr. Brooks Lillehei, 11146 Kenora Way, addressed the City Council and asked what revenues the City of Lakeville receives from the State of Minnesota, Finance Director Dennis Feller stated the City annually receives approximately $499,000 of LGA (Local Government Aid) and $850,000 for the Market Value Homestead Credit. In addition, the City receives state aid for Police and Fire pensions and snowmobile trail maintenance grants. Mr. Lillehei also asked, how much of the State aid does the City anticipate losing as a result of the State budget crisis? City Administrator Bob Erickson responded that, in his opinion, all state aids are at risk.. Other Minnesota cities, especially out-state and core cites,. receive a disproportionate amount of LGA compared to the City of Lakeville. Winona, for example, has a population of only 24,000. persons however they receive almost nine times the LGA as the City of Lakeville. Mr. Erickson also stated that the City of Lakeville is prepared to deal with the legislature's response to the budget crisis in 2003; however, the 2004 budget may be more challenging. Mayor Johnson also responded that v, Special Counci/Meeting December 9, 2002 • since the new Governor has advocated no new taxes, LGA would probably be the most likely State aid to be cut due to the state`s revenue shortfall. Finance Director Dennis Feller provided information that compared. the 2003 tax levy to the 2002 tax levy for all. jurisdictions on a typical $200,000 residential property tax statement. The City's tax levy increased $41, of which $11 was due to the decrease in the Market Value Homestead Credit. School Districts 192 (Farmington) and 194 (Lakeville) increased $167 and $198 respectively due to recently approved voter referendums. The City of Lakeville continues to provide the quality services that residents and businesses expect, while maintaining one of the lowest tax capacity rates in Dakota County. 02.165 Motion was made by Luick, seconded by Bellows to close the Truth in Taxation public hearing. Roll call was taken on the motion. Ayes, Bellows, Johnson, Mulvihill, Rieb, Luick. CONSENT AGENDA • 02.166 Motion was made by Mulvihill, seconded by Rieb, to approve the consent agenda items as follows: a. Fire Fighting :Service Agreement with Eureka Township. b. Renewal of mixed municipal solid waste and recyclable material collectors licenses. c. Agreement for professional planning services with Northwest Associated Consultants, Inc. d. Renewal of billboard licenses for 2003. e. Resolution No. 02-253 adopting position classification and pay plan for exempt and non-exempt positions and setting forth the policy for administration of the pay plan. f. Labor Agreement with Minnesota Teamsters Public & Law Enforcement Employees Union, Local No. 320, Minneapolis, Minnesota, 2003/2004. g. Agreement for legal services with Campbell Knutson, Professional Association. h. Contract to employ the law firm of Rider, Bennett, Egan and Arundel, LLP. Z- Special Counci/Meeting December 9, 2002 i. Time extension for the completion of public improvements in Airlake Development 5"' and 6t" Addition. j. Resolution No. 02-254 accepting. a $6,000 grant from Dakota Electric Association for Economic Development projects. Roll call was taken on the motion. Ayes, Bellows, Johnson, Mulvihill, Rieb, Luick. ITEM 5 Council is being requested to consider a resolution drafted by the .City Attorney supporting Metropolitan Council's redistricting public comment Option 2. The purpose of the resolution is to request the legislature place Lakeville in a district with other growth communities of Dakota County sharing common interests. Council Member Rieb pointed out an error in Paragraph B -the resolution should reference District 4, not District 14. Council Member Luick also noted that when referring to "Metropolitan Council" both words should be capitalized. 02.167 Motion was made by Mulvihill, seconded by Rieb, to approve Resolution No. 02-255 supporting Metropolitan. Council Redistricting Public Comment Option 2. Roll call was taken on the motion. Ayes, Johnson, Mulvihill, Rieb, Luick, Bellows.. OTHER BUSINESS: None. ANNOUNCEMENTS Next regular Council meeting, December 16, 2002 ADJOURN Mayor Johnson adjourned the meeting at 7:55 p.m. Respectfully submitted, __ CZ u th Hawkins, Deputy Clerk Robert D. J nson, Mayor 3- • • t ~ ~. .. . To: Mayor and City Council City Administrator. From: Dennis Feller, Finance Director Date: December 9, 2002 Re: Truth in Taxation Hearing process The Truth in Taxation hearing is scheduled for Monday, December 9, 2002, at 7 p.m. in the City Hall Council Chambers. The purpose of the hearing. is to provide taxpayers the opportunity to ask questions and present comments. At .the hearing, an overview of the proposed budget and any adjustments will be presented. After all persons have had an opportunity to speak, the City Council should close the hearing. Adoption of the budget and tax levy will be at the regularly scheduled meeting on Monday December 16, 2002 Please bring your budget documents to the hearing. Taxpayer Comments A notice of the meeting was published on the Messages page of the Lakeville Life and Times. The Truth in Taxation notices that were mailed by Dakota County stated taxpayers should contact me if they have questions. To date, I have received only two calls related to the information provided on the tax statement. Budget Adiustments Attached is a schedule listing the proposed changes to the preliminary budget. Budget The City's operating plan grants the City Council full authority over the financial affairs of the City. The City Administrator is charged with the responsibility of proposing the budget and for the enforcement of its provisions, which you adopt by resolution. This year the budget decisions are more challenging due to factors over which the City . Council has little control There has been considerable discussion during the past year concerning the prevailing economic conditions and their continuing adverse impact on the State budget. The probability of State reduction in funding to cities increases as the economy remains stagnant. E The 2002 Legislature's actions to address the deficit arguably tapped most of the simple solutions, including the use of State reserves and the elimination of automatic inflation assumption for many State programs. The budget solution also included the elimination of the TIF grant pool, delays in school aid payments and some cuts in State agency budgets. If the State budget deficit worsens, LGA and/or the Market Value Homestead Credits are likely candidates for reductions. Depending on the severity of State budget actions, the City can deal with the consequences in 2003 in a number of ways including, but not limited to, increasing user fees, reductions or postponement in capital outlay acquisitions and delayed hiring decisions. The 2004 budget, however, may be of much larger concern, especially if the State cuts are permanent. To compound matters, the State and Federal government, in reaction to public concerns related to security, the environment and economy, have imposed mandates which challenge the financial resources of municipalities. Such mandates include • Environmental Pollution Agency promulgated rules establishing the National Pollutant Discharge Elimination System (NPDES) storm water system. The rules result in City incurring costs due to reporting and compliance requirements. • Environmental Pollution Agency also promulgated rules relating to Water System Vulnerability Assessment which will result in the City incurring costs in order to evaluate and implement an action plan to protect the water supply from the threat of Terrorism. • The City hired a police officer this past summer based on National Police Core grant funding. originally promised by the Federal Government. However, the Federal government has subsequently announced there will be no grant money available to .offset the costs incurred by the City for the police.officer. Budget issues are exacerbated by the fact that future levy increases are limited to only (0.76%), based on the Implicit Price Deflator. The Implicit Price Deflator is substantially less than the Consumer Price Index, which is currently 2.28%. The City is faced with budget pressures from various factors such as a 4% annual rate of growth, escalating health care costs and unfunded state and federal mandates. A three percent adjustment would be a more realistic inflation factor for calculating the cost of personnel, commodities (I.e. motor fuel and natural gas) and services. The City's ability to react and adapt to state funding cuts is achievable based on the City Council's responsible financial management policies. The City's ultimate levy and budget decision will be a reflection of its mission as well as core values. r~ U General Fund The City has a number of funds, the largest and most significant of which is the General Fund. The General fund accounts for all. revenues and expenditures necessary to provide a full range of services including general government administration, community and economic development, public safety, public. works, and parks and recreation. General fund 2003 estimated revenues are $15,709,463. The largest single revenue category is taxes in the amount of $9,829,719, which represents 62.6% of the total. 1'~~opo~ed Cpl ~d 2~R~v Total Revenues - $15,709,463 Taxes (62.6%) $9,829,719 Other State Aid - (6.3%) Charges Licenses & Inter- (LGA) govenunental (3.2%) $998,755 for permits (3.6°10) $499,158 Services (14.9%) $566,708 (9.4%) $2,336,201 $1,478,922 The 2001 Omnibus Tax Law eliminated the state aid revenue for Manufactured Home Credits. The 2002 Legislature, however, authorized cities to recapture the loss of state aid revenue with a corresponding increase in property taxes commencing in 2003. The proposed 2003 tax levy therefore includes $59,371 to offset the loss of Manufactured Home Credits revenues. Manufactured homes compose approximately 8% of Lakeville's total housing stock. Other revenue .sources include intergovernmental revenues, licenses and permits, charges forservices, other revenues and State-aid. The proposed budget does not anticipate any fee increases in 2003. The 2001 Legislature approved a law requiring cities to submit an annual report. regarding municipal development and construction fees and costs associated with services related to these activities. The first report, covering calendar year 2002, is due by April 1, 2003. Certain fees may need to be adjusted based on the results of the report. • • ~'~O ~ i~i~E~l[~II~ Total Expenditures - $15,925,157 Planning & Inspections Public Works General (9.4%) (21.1%) Government $1,488,722 $3,363,444 (13.7%) $2,180,327 Parks & Recreation (13.7%) $2,181,993 Public Safety Other (38.3%) (3.8%) $6,101,257 $609,414 Of the major city functions, public safety has the largest proposed expenditures in the amount of $6,101,257 or approximately 38.3°Io of the total expenditures. In addition, General Government Services are estimated to be $2,180,237, Community Development and Inspections $1,488,722, Public Works $3,363,444 and Parks and Recreation and Arts Center $2,181,993 and Other $609,414. The proposed budget provides for the financing of pavement management activities, including sealcoating, cracksealing, and patching from the General Fund in 2003. Pavement activities were previously accounted for in the Public .Works Reserve Fund. The pavement management costs are financed with property taxes subject to levy limits. Over the years, actual expenditures have been under budget as departments have done exceptional work to continue providing services at desired levels and below budgeted expenditure levels. • According to the State Auditor's office, Lakeville's per capita expenditures are significantly less than those of other Minnesota cities. Lakeville is able to maintain below average expenditures due to prudent fiscal management and the fact that Lakeville continues to have a ratio of 3.4 employees per thousand population. City a~I~l~evv'`Ile ~ploy~s ~r 7livusau>rl 4.0 3.5 3.0 2.5 1996 1997 1998 1999 2000 2001 .2002 2003 1 It is important that the City maintain an adequate fund balance to ensure adequate reserves for cash flows and minimize potential adverse impacts due to State cuts. The designated fund balance represents the amount of funds required to operate during the first six months of the year. The City's most significant revenue sources--taxes and intergovernmental revenue--do not provide appreciable revenues until the second half of the year. The estimated 2003 ending fund balance is $6,566,885, which is adequate and sufficient but not excessive City a~Takev7le liq~oeea cent lend aimoe 2003 Estimated ending fund balance $6,566,885 Operating expenditures $15,925,157 Percent of expenditures 41.2°Io Special Revenue Funds Special Revenue Funds are used to account for the proceeds from specific revenue sources that are legally restricted to expenditures for specific purposes. Establishment of such funds also enables the City to more effectively manage its resources and minimize tax levies. Revenues from Cable TV franchise fees finance the Cable TV fund operations, which of course provides services for Channel 16 and the live cable casting of City Council and planning Commission meetings. The Environmental Recycling Fund accounts for grants that the City receives from Dakota County for the citywide recycling efforts. The Employee Benefit Fund accounts for severance pay for city employees The City's GIS Fund accounts for the geographic information computer system accounts for all the specific parcels within the City of Lakeville. The primary revenue sources are property taxes and GIS fees that are collected as new lots/parcels of record are created. The Surface Water Management Fund was created several years ago to help manage the City's surface water resources. Fees are collected with the quarterly utility bills. There are no proposed increases in the surface water management fee. The Oak Wilt Suppression Grant Fund was created to account for grants received from the Minnesota Department of Natural Resources. The grant proceeds will reimburse Lakeville residents for 50% of their disbursements for oak wilt suppression. A $10,000 grant approved in 2001 has been extended to June 2003. The E-911 Fund accounts for the revenues from the telephone tariffs that are specially designated to operate the police, fire and ambulance dispatch emergency 911 system. The Economic Development Revolving Loan Fund was created to account for loans to businesses that are either .expanding or building within the City of Lakeville.. dal Revue ~~~~ Cable TV $ 282,129 Environmental Recycling 36,320 Employee Benefit 45,000 Geographic Information Services (GIS) 140,108 Surface Water Management 536,298 Oak Wilt Suppression Grant - Enhanced 911 32,554 Economic Development Revolving Loan $1,072,409 The Municipal Reserves (Internal Service) Fund accounts for the City's general liability, excess liability, property, and casualty insurance costs. The City's primary insurance carrier is the League of Minnesota Cities Insurance Trust (LMCIT). Revenues are derived primarily from insurance rebates and transfers from. the General, Liquor, Water and Sanitary Sewer Funds. The fund will have an estimated $426,796 fund balance in 2003 primarily as a result of self insuring the excess liability coverage since 1993. • h~~il. ~viic~e l~md 1. l~rves ~ Liability, Property and Casualty premiums $ 219,308 Claims and deductibles 50,000 Administrative 34,314 Total $ 303,622 Capital Project Funds Capital Project Funds account for financial resources used in the acquisition of capital facilities and equipment, except those financed by Enterprise Funds. The Equipment Fund accounts for the purchase of police, fire, street and park maintenance equipment. The budget anticipates the issuance of Certificates of Indebtedness to finance the acquisitions costs. Property taxes are levied to pay the principal and interest on the Certificates. Certificates of Indebtedness can be issued for up to five years with repayment financed from property taxes which are not subject to levy limits. • C sp ital Projects Equipment Fund 2003 Police $ 248,473 Fire 155,245 Streets 35,521 Parks 128,336 Other 19,439 Total $ 587,014 The City Council,- at its November 18 meeting, approved the issuance of $1,675,000 Certificates of Indebtedness to finance the 2002 and 2003 equipment acquisitions. Issuance of Certificates to finance two years of equipment acquisitions results in approximately $23,000 of reduced issuance cost. In addition, the City received very favorable interest rates on the bonds as a result of the Al municipal credit rating from Moody's Investor Service and bond market conditions. As such, the proposed 2003 tax levy can be reduced by $5,038. The Building Fund accounts for construction or improvement activity related to public buildings. Transfers from the Liquor Fund provide a vital revenue source that enables the City to build and maintain its facilities. The 2003 proposed Building Fund budget provides appropriations ($570,750) for the architectural design and engineering of the new Public Works Maintenance Facility. The facility, which is anticipated to be constructed in 2004, will be centrally located in the City in order to cost effectively provide City services. ~~ 2003 Expenditures City Hall $ 27,115 Police Department 20,766 Civil Defense Sirens 8,800 Fire Station #1 14,599 Fire Station #2 16,920 Fire Station #3 17,275 Fire Station #4 18,501 New Public Works Facility 570,750 Arts Center 4,360 Historical Society 4,711 Senior Center 21095 Total $ 705,902 The recently completed Fire Station #4 will provide adequate .quarters for ALF Ambulance, Lakeville Police satellite office, and a physical fitness training room for public safety personnel. The bays formerly occupied by ALF Ambulance at the Water Treatment Facility will now accommodate the Fire Department's antique fire truck and ALF Ambulance's Mass Incident trailer. • Enterprise Funds Enterprise Funds account for liquor, water and sanitary sewer operations for the City; they are self-supporting from retail sales and user charges. Operations are managed in much the same way as private enterprises. According to the Minnesota State Auditor, Lakeville ranked third in municipal liquor sales in 2001. Sales are projected to increase from $9.53 million in 2002 to $10.01 million in 2003. As a result, net income before transfers is estimated to attain $896,302 in 2003. ~' 1~~ $11,000,000 $9,000,000 $7,000,000 $5,000,000 $3,000,000 1995 1996 1997 1998 1999 2000 2001 2002 2003 Transfers are made from the Liquor Fund to the Building Fund for construction and maintenance of City facilities and to the General Fund for the. DARE program. The Liquor Fund also provides the financing for Fire Station No. 4 bonds ($206,585); and the Water Trunk Fund ($79,483) provides for the City's share of the meeting rooms located in the Water Treatment Facility. The 2002 Legislature entertained the "wine in grocery" legislation that would have authorized grocery stores to sell wine. Although the bill did not pass during the last session., the proposed legislation will likely be reconsidered during the coming year. If the legislation were to pass, the Liquor Fund could experience a $200,000-$300,000 loss of net income. The water fund accounts for the operation of the water system including supply, treatment, storage and distribution for more than 14,000 customers. Lakeville has the lowest water rates for treated water in Dakota County. The affordable water rates are due to the financial management foresight of the City Council whereby infrastructure improvements such as wells, towers and the water treatment facility are funded by :connection charges rather than water use rates. • • • .• ~ 2003 Total Revenues $ 1,995,761 Expenses (1,486,787) Net operating income 508,974 Interfund transfers (73,628} Capital outlay acquisitions (46,664) Net increase $ 388,682 C The sanitary sewer fund accounts for the treatment and disposal of system effluent. The largest single expenditure. is for Metropolitan Council Environmental Services Division sewage treatment costs in the amount of $2,137,200, which represents 65% of the total budget. ~au~tar~' S~ Operao~g I+~wd Revenues MCES sewage treatment Expenses Net operating income/(loss) Interfund transfers Capital outlay acquisitions Net increase/(decrease) 2003 Totai $ 3,120,275 (2,137,200) (1,173,267) (190,192) (71,874) (45,754) $ (307,820) MCES is increasing sanitary sewer processing costs by approximately 5.7% in 2003. The City Council, at its November 18 meeting, approved a 9 cent per thousand gallon increase in sewer rates to offset the MCES costs. Lakeville has not increased sewer rates since 1998. The sanitary sewer rate changes above would result in approximately $1.62 per quarter ($6.48 per year) increase for the average family in 2003. Taxes The 2001 Omnibus Tax Bill approved by the Legislature imposes a levy limit that can be increased by the number of households (4.72%), Implicit Price Deflator (0.76%) and the percentage increase for new construction of commercial and industrial property (0.27%). The City can also levy special property taxes for debt service, .matching funds for grants and increased pension costs. The 2002 Legislature amended Chapter 475.58 of the State Statutes to enable cities to issue General Obligation Street Reconstruction Bonds without the previous 20% special assessment. requirement for improvement bonds. This new legislation enables the City to fund the entire cost of its portion of these projects with General Obligation Street Reconstruction Bonds if it meets certain requirements. Milling and .overlay costs are proposed to be financed with the new. General Obligation Street Reconstruction bonds. The debt service payments on the Street Reconstruction Bonds are financed with property taxes, which are not subject to levy limits. .The City Council approved a preliminary 2003 property tax levy of $11,929,227 in September. The final levy is proposed to be deduced by $5,038 for the repayment of Certificates of Indebtedness issued by the City Council on November 18. The reduction in the tax levy for Certificates is attributable to the City's Al credit rating by Moody's Investor Service and favorable bond market conditions. The proposed revised tax levy is therefore $11,924,189. • ~'~ lid ~~ Prelumraiv General Fund $ 9,859,663 $ 9,859,663 GdS Fund 103,350 103,350 Cett. of ux~ebt~dness 859,629 (5,038) 854,591 Voter-approveddebt 474,179 474,179 Stream reoonstnadion 309,639 309,639 h~r~proven~rt bonds 322,767 - 322,767 Total tax levy $ 11,929,227 $5,038) $ 11,924,189 Tax levies for bond issues approved by referendum after August 1, 1994, are based on market • value rather than tax capacity value. The only City of Lakeville levy based on market value is for repayment of the 1994 Park Bonds, Z~ 2003 Estimate Market Value $ 3,154,688,600 Tax levy for 1994 Park Bonds $ 2.68,464 Tax rate based on market value 0.0000842 • According to the Dakota County Assessor's Office, the market value for the majority of residential properties increased more than 10%. Homesteaded residential properties have some protection from significant tax increases due to the "Limited Market Value" Law, which states that the taxable market value increase cannot exceed 10% per year. The purpose of the limited market value is to phase in significant market value increases (and taxes) over several years. The limited market value law does not apply to rental housing (with more than four or more units) or commercial/industrial properties or to an increase due to improvements. The 2001 Omnibus Tax Law provided a Market Value Homestead Credit to residential properties. The credit is limited to a maximum of $304 on a $76,000 home. The market value homestead credit is phased-out for homes in excess of $76,000 at a rate of .09% of homes value in excess of $76,000. In other words, as the home appreciates in value, the credit is reduced. • • City v~f hl~ev~le ~ml~obed ~'~ope~y on ltiul I~Omed $1,000 - $800 ~ $600 F $400 -~- 2003 $200 -~- 2002 $- oo~oo~ t,o~~o~~o~go~oo~tio~tio~o ~ti ~~ ~ti ~ti ~ti ~ti ~'~' ~ti ~ti Market Value The average home in Lakeville, valued at $200,000, had a $41 increase in the City share of taxes. Of that increase, $11 was due to the decrease in the Market Value Homestead Credit . and $30 was due to the City tax levy and the increased market value of the home. The City continues to maintain a strong tax base as a result of commercial/industrial development, the increasing value of new residential housing construction, and the continued strength of real estate market valuations. The improved tax base combined with a conservative fiscal policy are dominant reasons for the City's ability to continue to have one of the lowest tax capacity-rates of any city over 5,000 population in Dakota County. • Area Tax Capacity Rates ^ Rosemount .59394 ^ Hastings .50077 ^ Farmington .46854 ^ Inver Grove Hts .42002 ^ Apple Valley .41.576 ^ South St. Paul .41256 ^ Burnsville .41252 ^ West St. Paul .38714 • Lakeville .32945 ^ Eagan .29912 ^ Mendota Heights .28788 • The Council has the ability to adopt a- final tax levy that is equal to or less than the preliminary tax levy approved in September. It may not, however, adopt a final tax levy that is greater than the preliminary tax levy. • The budget and tax levy will be approved by the City Council at its regularly scheduled meeting on Monday, December 16. Historically, Lakeville has had one of the lowest tax capacity rates in Dakota County for cities over 5,000 population. Lakeville's low tax rate is due to: ~ Prudent fiscal management Q! Long term and short term debt policies Investment policy Commercial/industrial growth Fiscal disparities contributions Strategic Growth Management Plan ~ Economic Development Commission's Strategic Plan ~ Two-year budget planning process ~ Five-year Capital Improvement Program Municipal liquor profits ~' Effective risk management The proposed 2003, budget and tax levy reflect the long-term vision, prioritization of services and financial stewardship that are called for in this budget season. •