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Item 07
five Year financt'gaf (Projections and' Assessment April 2014 Z t Table of Contents Pages A. City Administrator Message 4 - 5 B. Executive Summary (including Statement of Purpose —Objectives) 7-13 C. 5 Year Financial Projections ➢ Assumptions 17-25 ➢ 5 Year Financial Projections • General Fund 27-33 • Special Revenue Fund 35-39 • Debt Service Funds 41-45 • Capital Projects Funds 47 71 Enterprise Funds • Liquor Fund 74-75 • Utility Fund 76-83 • Internal Service Fund 85-87 ➢ Tax Levy 89-95 D. Financial Management Policies, Practices and Recommendations 98-107 E. Community and Organizational Assessment Issues Identification and Financial Implications 109-123 3 City of Lakeville Pncitinnnd to 7-hrivv May 2, 2014 To the Honorable Mayor, Members of the City Council and the Citizens of Lakeville: Sound long-term financial planning can serve as a platform to support an organization such as ours which is confronted with the challenges of extended periods of economic flux, changing demographics and citizen expectations of public service. Developing a documented approach to a long-term financial plan can provide an opportunity for addressing the budgetary challenges and issues which confront a governing body. It is our pleasure therefore to present you with the Five Year Financial Projections and Assessment Report. Several themes have evolved from the financial analysis and assessment process. Growth. The construction of new single family residential homes is at levels this community has not seen in more than a decade. The growth will benefit all of is in that financing certain fixed costs, such as administration services as well as debt for facilities such as the police station, are being spread over a large tax base which means lower property taxes for the rest of us. However, with the new residents comes the expectation of a continuance of existing service levels such as those for snow removal, police responses to calls for service and maintenance of park facilities. Our organization has always been lean on resources — especially with respect to staffing. The growth will necessitate that our organization be pre-emptive and proactive in the timely allocation of and budgeting for resources in order to meet resident service level expectations. ❖ Major Maintenance. During the recession and the years that followed, the governing body has been judicious in approving a conservative budget and tax levy. As a result major maintenance of facilities, parks, and other infrastructure has been financed with one-time revenues, debt or in certain situations deferred to future years. M The Five Year Financial Projections and Assessment Report have helped to identify the major maintenance financing issues. With the improving economic conditions and community growth, the City is becoming well positioned to address long term financing of these projects. ❖ Infrastructure improvements. The City has a number of street improvements that will need to be addressed in the coming years; the 2015 — 2019 Capital Improvement Plan which will be presented to the City Council in the coming months will provide the framework of accomplishing the community's transportation needs. Residents indicated in the 2013 community survey that parks and open space are amongst their highest priority. The updated Park and Open Space Plan which will be presented to the City Council this summer will provide guidance in developing future system needs. ❖ Emerging issues. Vision of a distant future is not always clear. There are, however, issues which will be easier to address in the future if we are prepared today. Issues which include the emerald ash borer, high speed internet and technology advancements. The staff is seeking Council direction as we start the process of preparing the proposed 2015 budget and 2015 — 2019 Capital Improvement Plan. There are a number financial management policy issues which are identified in the Report; if the council concurs, staff will work with the Finance Committee to explore the options and provide recommendations. Hopefully the Five Year Financial Projections and Assessment Report will provide the framework for establishing priorities and a financial management plan to better enable us to be ...Positioned to Thrive. Respectfully submitted, Steven C. Mielke City Administrator r � � EXECUTIVE SUMMARY The purpose of a Five Year Financial Projections and Assessment Report is to develop strategies for financial sustainability based on a vision of the future and an identification of established priorities. The process is intended to provide guidance in the discussion of pending issues, policies, projects and programs in advance of the 2015 Budget process. The Report may illuminate operations and/or financial issues which may require "recalibration" efforts. The principal components of the Report include: ❖ 5 Year Financial Projections The Adopted 2014 Budget is the baseline for future Operations Plan financial projections. The 2015 — 2018 financial projections will be based on prevailing economic and community conditions. The projections will take into consideration the financial implications of community growth. The financial position and outcomes of the adopted 2014 — 2018 Capital Improvement Plan are a component of the Five Year Financial Projections. The financial projections are based on assumptions and estimates which are not subject to the same level of examination as what occurs during the normal budget process. As such, the 2015 Budget may vary from the projections contained herein. The issues identified within the Community and Organizational Assessment is not included in the 5 Year Financial Projections unless directed to do so by the City Council. ❖ Financial Management Policies, Practices and Recommendations There are a number of prevailing financial management policies and practices which have been identified for which there are potential improvements which may impact future outcomes. Recommendations are provided which the Council may wish to consider in preparation of the 2015 budget. ❖ Community and Organizational Assessment The objective of the Assessment is to identify current and future conditions as well as issues, projects and programs related to growth, services and emerging issues. The process will also take into consideration the comments received in conjunction with the Envision Lakeville process. Potential financial implications are also identified. 7 S Year Projections Operations As the City emerges from the Great Recession and post -recession era, residential home construction is at or exceeding pre -2006 levels. As such, the 5 year projections assume a commitment to provide requisite resources to maintain service at current levels. The General Fund operational expenditures therefore increase by $15 per person in 2015. The increase is also affected by the deferred Parks major maintenance projects identified in the adopted 2014 — 2018 Capital Improvement Plan. The expenditures increase by $4, $8 and $7 per person in 2016 — 2018 respectively. Although a portion of the increased operating costs are financed with growth related revenues (such as building permits), the primary revenue source — property taxes — also increases by $15 per person in 2015. The tax levy, however, increases by $2, $8 and $6 in 2016 — 2018 respectively. $16 $14 $10 $8 $6 $4 $2 Operati©ns Per Capita Increases Capital Projects The 5 year projections for capital projects is based entirely on the adopted 2014 — 2018 Capital Improvement Plan. 2014 - 2018 PROJECTS Transportation X144,73+6,029 E The overwhelming majority of capital investments are in transportation for the next five years. The projects are financed from diverse revenues sources. The predominant revenue source is taxes. REVENUE SOURCES 2014-2018 Oako10 County laxer 10 35%� Mtu icgml State Aid 13% Special Assessmen- 13% Other��� 7a k 111h) Upem&% Fedeml C,r11mb Willy Thok Fess Fees its 9% 101'. The project priorities and financing may be subject to change in the 2015 — 2019 Capital Improvement Plan. Debt The City will issue approximately $65 million of debt to finance the street improvements, street reconstruction and water infrastructure projects identified in the approved 2014 — 2018 Capital Improvement Plan. As such, the long-term debt liabilities (net of refinancing) will increase from $86 million (2013) to $114 million (2018). $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 Outstanding Debt 2013 2014 2015 2016 2017 2018 The new debt issues will be repaid with a combination of special assessments, water use fees, water connection charges and property taxes. The property tax levy as it relates to street improvements and street reconstruction projects will increase by $5, $7, $7 and $9 per person in 2015 — 2018 respectively and is one of the major factors related to future tax increases. Enterprises The Liquor Fund is anticipated to continue to contribute approximately $1.4 million each year to projects which would otherwise be financed with property taxes. 0J The 2013 Water and Sewer Rate Study prepared by Springsted Inc. projected annual rate increases each year to support water main replacements, major maintenance projects and sanitary sewer effluent treatment and disposal. Street lights will be adjusted each year based on corresponding energy cost increases from electrical utilities (Xcel and DEA). Surface water fees are projected to increase due to storm water projects, community growth and in order to comply with federal regulations. Property Taxes The projected 2015 property tax levy is $25.6 million which is a $25 per person increase primarily as the result of: ❖ equipment acquisitions ❖ additional personnel and other expenditures related to growth ❖ parks major maintenance ❖ street reconstruction projects Projected PropertyTax Levy Per Capita Increases I $30 - i $25 $20 M $15 $10 C $5 j 2015 2016 2017 2018 M Other ■ Street Impr. Assuming no changes in property market values or other factors such as fiscal disparities, the average value home ($226,000 market value) will have projected tax increases of $52 in 2015. The projected increases are $23, $35 and $36 in 2016 — 2018 respectively. 10 $60 $50 $40 $30 $20 $10 $ Street reconstruction continues to be a major factor for increases in the tax levy in future years, however, greater stability in the levy for operations results in $10, $15 and $15 per person increase in 2016 — 2018 respectively. Projected Property Tax Levy Average Value Home - Tax Increase 2015 2016 2017 2018 Year IL..Financial Management Policies, Practices and Recommendations The City has an opportunity to prepare for potential financial management issues based on the results of the 5 year projections. A summary of the issues and recommendations is as follows: Major Maintenance—Transportation a) Explore the various financing options, including a discussion of the issues related to each option, for i. Financing the City share of street reconstruction project costs on a pay-as-you-go method rather than relying on debt ii. Consider establishing a Construction Project Reserve Fund to level off the "peaks and valleys" which will occur from year to year in project costs iii. Implementation plan Major Maintenance - Utility b) Explore the various financing options, including a discussion of the issues related to each option, for i. Financing the utility project costs on a pay-as-you-go method rather than relying on debt ii. Establish a Reserve account to level off the "peaks and valleys" which will occur from year to year in project costs iii. Implementation plan Major Maintenance — Facilities c) Explore the various financing options, including a discussion of the issues related to each option, for financing facility major maintenance. Major Maintenance — Parks and Trails d) Continue the gradual property tax increases in order to establish a long-term sustainable financial structure for financing trail improvements. e) For those funds which are dependent on property tax as the primary financial resource, maintain a fund balance of 40-50% of the subsequent years budget to provide the reserves during those periods when there are significant "peaks and valleys" in reconstruction projects and to provide operating capital until the final tax proceeds are received in December of each year. 11 f) Explore the various financing options, including a discussion of the issues related to each option, for financing major maintenance of parks. g) Assuming there is proper justification for long-term parks and trails major maintenance projects, appropriate a tax levy to the Park and Trail Improvement Fund equal to the amount of tax levy decrease, due to the expiration of the Park Bond levy. Equipment Financing h) Reducing the 2015 levy and increasing 2016 — 2017 levies. i) Consider financing asset acquisitions with a value more than $500,000 with short term debt. Property Taxes: Levy Limits j) Continue a property tax levy strategy of mitigating the adverse operational fiscal impacts in the event levy limits are re -imposed. Revenues Related to Growth 1) Operating budget should be based on conservative revenue projections and in relation to the cost of services related to growth. m) For those years when revenues exceed budget expectations, the favorable results should be appropriated to (a) reserves for those time periods when growth related revenues fall short of budget expectations and (b) capital improvements related to growth. n) For those years when revenues fall short of budget expectations, the unfavorable results should be financed from prior period reserves. Communications — Franchise Fees o) Explore the various financing options with respect to (a) annual unrestricted franchise fees and (b) Communications Fund unrestricted balances — including a discussion of the issues related to each option. Options to be considered include but are not limited to reduction in franchise fee rate and appropriation to one-time capital expenditures, financing services and/or property tax reduction. 12 Community and Organizational Assessment The community and organizational assessment process includes a discussion of issues identification and fiscal implications of those issues. The major themes that evolved during the assessment are related to community growth, services and emerging issues. A summary of the issues is as follows: Community Growth Services Service Continuity Central Maintenance Facility Parks, Recreation and Open Space Fifth Fire Station Liquor Operations Police Engineering Administration Engineering - GIS Technician Human Resources Finance Department -Accountant Code Enforcement Recreation Heritage Center Park Trails Parks - Outdoor ice rinks City Hall Renovation Parks, Recreation and Open Space - Envision Lakeville process Emerald Ash Borer High speed internet Cooperative Ventures Technology Employee education and training 13 14 5 YEAR FINANCIAL PROJECTIONS f 16 ASSUMPTIONS F17 Economic Assumptions The Lakeville community is affected by global, national and regional economic conditions. The economic conditions also affect and influence the City's budget and financial performance. Some of the salient economic indicators and assumptions considered in the development of this report are described below. ➢ Real Gross Domestic Product (GDP). 2014 — 2015 is based on Wells Fargo Economics Group US Economic Forecast as of February 12, 2014. 2016 — 2018 are based on a continuation of 2015 levels. The actual GDP for 2013, 2012 and 2011 actual were 1.9%, 2.8% and 1.8% respectively. 2014 2015 2016 2017 2018 Gross Domestic Product 2.5% 3.0% 3.0% 3.0% 3.0% ➢ Implicit Price Deflator for State and Local Government (IPD). The IPD is the ratio of current dollar gross domestic product (GDP) to constant dollar GDP for state and local governments. The IPD for State and Local Government is provided by the Bureau of Economic Advisors —Table 1.1.9. The 2012 and 2013 indexes were 107.371 and 108.075 respectively. 2014 2015 2016 2017 2018 Implicit Price Deflator - State and Local 0.7% 0.7% 0.7% 0.7% 0.7% Governments ➢ Inflation - Producer Price Index. 2014 — 2015 is based on Wells Fargo Economics Group US Economic Forecast as of February 12, 2014. 2016 — 2018 are based on a continuation of 2015 levels. 2016 — 2018 are based on a continuation of 2015 levels. 2013 was 1.2%. 2014 2015 2016 2017 2018 Producer Price Index 1.9% 2.5% 2.5% 2.5% 2.5% ➢ Inflation — Employment cost index. 2014 — 2015 is based on Wells Fargo Economics Group US Economic Forecast as of February 12, 2014. 2016 — 2018 are based on a continuation of 2015 levels. 2013 was 1.9%. 2014 2015 2016 2017 2018 Employment Cost Index 2.3% 2.6% 2.6% 2.6% 2.6% ➢ Unemployment — US. 2014 — 2015 is IN ➢ based on Wells Fargo Economics Group US Economic Forecast as of February 12, 2014. 2016 — 2018 are based on a continuation of 2015 levels. 2013 was 7.4%. 2014 2015 2016 2017 2018 Unemployment - US 6.5% 6.2% 6.2% 6.2% 6.2% ➢ Unemployment — MN Minnesota unemployment is projected to continue to remain below US levels. Currently 4.6%. 2014 2015 2016 2017 2018 Unemployment - MN 4.09/o 4.0% 4.0% 4.0% 4.0% ➢ Quarter -End (Q4) Interest Rates. 2014 — 2015 is based on Wells Fargo Economics Group US Economic Forecast as of February 12, 2014. 2014 2015 2016 2017 2018 2 Year Treasury Note 0.64% 1.27% 1.800% 2.30% 2.80% 10 YearTreasury Note 3.26% 3.665/o 4.20% 4.70% 5.20% ➢ Tax Exempt Interest Rates. Demand for quality tax exempt debt is anticipated to remain strong. 2014 2015 2016 2017 2018 Tax Exempt - AAA General Obligation - 10 Year 3.00•/o 3.50% 4.00% 4.50% 5.00% ➢ Conventional Mortgage Rates - US. 2014 — 2015 is based on Wells Fargo Economics Group US Economic Forecast as of February 12, 2014. 2014 2015 2016 2017 2018 Conv. Mortgage Rate 4.79% 5.23% 5.75% 6.25% 6.75% 19 ( 20 Financial Assumptions The financial assumptions used for developing projections contained within this report are discussed below. 2016 2017 ➢ Personnel. Based on Minnesota low unemployment and improving economic conditions. 2.3% 2.3% 2014 2015 2016 2017 2018 Cost of Living Adjustments Budget 2.3% 2.3% 2.3% 2.3% Health insurance Budget 10.09/0 10.0% 9.0% 8.0% ➢ Commodities. Not including motor fuels or chemicals. Based on producer price index. 2014 2015 2016 2017 2018 Commodities Budget 2.5% 2.5% 2.5% 2.5% ➢ Motor fuels. 2015 based on Wall Street Journal Economic Forecasting Survey of leading economist. 2014 2015 2016 2017 2018 Motor fuels Budget 2.3% 2.3% 2.3% 2.3% ➢ Chemicals -For roadway ice control and water treatment. Natural gas Budget 2014 2015 2016 2017 2018 Chemicals Budget 2.8% 2.8% 2.8% 2.8% ➢ Utilities. Based on information provided by utility companies, historical trends or industry information. 21 2014 2015 2016 2017 2018 Electric Budget 8.0% 8.0% 8.0% 8.0% Natural gas Budget 2.85/6 2.8% 2.8% 2.8% Telephone Budget 0.09/0 0.0% 0.0% 0.0% Waste disposal Budget 2.8% 2.8% 2.8% 2.8% ➢ Service industry. Based on producer price index. 2014 2015 2016 2017 2018 Service industry Budget 2.5% 2.5% 2.5% 2.5% 21 Budget Assumptions Operating Budgets The adopted 2014 budget is the baseline for the 2015 — 2018 projections. The operating budgets including General, Special Revenue and Enterprise Funds are premised on the following assumptions. a) Growth Building permit activities are at or exceeding those of the pre -Great Recession era levels — especially as it relates to single family home construction. Residential home construction is subject to a number of factors including but not limited to regional employment, housing supply and demand, mortgage interest rates, and consumer confidence. Based on local improving housing market, regional economy and other related factors, residential growth is anticipated to continue at a gradual upward momentum in the coming years. Building Permits Activity Residential dwelling units 2014 2015 2016 2017 2018 Single family 345 370 375 380 385 Townhomes 20 25 28 31 33 Multifamily 50 Total 365 445 403 411 418 Although there are economic improvements with most economists having a favorable outlook to the future, the budget projections are premised on a modest $10 million of investment in commercial properties in each of the coming years. The revenues derived from building permit activity finance general government services such as building inspections. 22 b) Services related to Growth Residential home construction is projected to result in an 8% increase in population over the next five years. 2014 2015 2016 2017 2018 Population (estimated) 59,200 60,283 61,513 62,705 63,920 As a service based organization, the majority of the operating budget is related to personnel costs. As the City grows, so does the need for additional resources to maintain service levels. The following is a summary of the projected staff changes. Projected Staffing Additions Number of Full -Time Equivalent Positions 2014 2015 2016 2017 General Fund Inspections Police Officers Fire - Asst Chief Streets - Maintenance I I Streets - Fleet Technician Parks - Maintenance II Total General Fund Total number of General Fund full time equivalents Utility Fund Utility Maintenance II Environmental Resources Spec. Total Utility Fund Total number of Utility Fund full time eq u i va I ents 2018 1 1 1 1 1 1 1 1 1 1 5 1 2 2 160 165 166 168 170 1 1 1 0 2 0 1 22 22 24 24 25 The General, Special Revenue, Liquor and Utility Funds each provide a discussion of staffing projections. The staffing additions related to growth are projected to have no significant change in the number of employees per capita in the General and Special Revenue Funds. 23 EMPLOYEES PER THOUSAND POPULATION 3.2 3.1 3.0 2.9 2.8 E i 2.7 # OF EMPLOYEES v `€ 2.6 f t 2.5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 c) Parks Major Maintenance The major maintenance of parks systems has been deferred at least in part since the start of the Great Recession. The 2014-2018 Capital Improvement Plan reflects $184,425 of major maintenance projects financed from the General Fund in 2015. In years 2016 — 2018 major maintenance ranges from $83,600 to $65,100. Not included in the financial projections are the various programs or services discussed in the Issues Identification and Fiscal Implications section of this Report (refer to pages 109 -123). 2014 — 2018 Capital Improvement Plan The purpose of the financial projections contained within this report as it relates to the five year capital improvement plan is to provide direction and guidance in the development of fiscal policies and practices related to capital improvement plan. The 2014 — 2018 Capital Improvement Budget is therefore included in and as part of this report. Since the adoption of the 2014 — 2018 Capital Improvement Plan there have been a number of events which have transpired which may affect the next (2015 — 2019) Capital Improvement Plan. 24 In recent months, the City Council has created a School Road Task Force which is charged with the responsibility to review issues of pedestrian and vehicular safety for students traveling to and from schools and to provide recommendations to improve current conditions. In addition, City Council has authorized The Planning Company to complete the Lakeville Parks, Trails and Open Space Plan Update. As a result of these and other subsequent events there may be changes to the five year Capital Improvement Plan. 2015 Budget The purpose of the financial projections contained within this report is to provide direction and guidance in the development of fiscal policies and practices as well as financial framework for the 2015 budget. The financial projections contained within this report are therefore based on estimates which are not subject to the same level of examination as what occurs during the normal budget process. As such, the 2015 Budget may vary from the projections contained herein. 25 26 GENERAL FUND GENERAL FUND Fund Description 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. Uses of Funds As a service based organization, the majority of the City's budget, especially the General Fund, is related to personnel related costs. As the City grows, so does the need for additional personnel resources to maintain existing service levels. Expenditure Summary ,Commodities Personnel 8% 72% t: ,Contractual 20% The General Fund budget is projected to increase by 4% in 2015 (adjusted for population growth). In subsequent years, the per capita expenditures are projected to increase in the 1-2% range. Function General Govern. Public Safety Public Works Parks and Recreat Contingency Total Per capita expend Increase/(dec.) ($) Projected 2015 2016 2017 2018 4,861,981 5,033,524 5,126,602 5,339,987 11, 234, 280 11, 579,986 12, 053, 554 12, 524, 605 3,834,376 4,035,609 4,307,052 4,458,992 3,704,915 3,745,331 3,864,108 3,965,806 105,000 105,000 105,000 105,000 $ 23, 740, 553 $ 24, 499, 451 $ 25, 456, 317 $ 26, 394, 390 $ 394 $ 398 $ 406 $ 413 $ 15 $ 4 $ 8 $ 7 General Fund Expenditures 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Gac Q Q `ya L Qa -2014 2015 2016 2017 = 2018 A discussion of financial projections for each of the functions follows. General Government. Residential building permit activity is projected to increase to pre -Great Recession era levels. In order to have the ability to provide plan reviews and inspections on a timely basis, an additional Building Inspector is included in the projections starting in 2015. All other program cost increases are attributed to economic and financial assumptions. (Refer to pages 18 - 21) Function General Gov. Per capita expend Increase/(dec.) ($) Increase/(dec.) (%) Projected 2015 2016 2017 2018 $ 4,861,981 $ 5,033,524 $ 5,126,602 $ 5,339,987 $ 81 $ 82 $ 82 $ 84 2 1 (0) 2 2% 1% 0% 2% Public Safety. In order to provide adequate police service to a community with a growing population, an additional police officer is projected every year. The staffing increases will result in a continuation of the current ratio of 1 police officer per 1,100 residents. In order to have adequate staffing during weekdays and reduce the reliance on the District Chief, the Fire Department is projected to add a "Duty Crew" and an Assistant Fire Chief to supervise the Duty Crew in 2015. The Fire Department will increase number of participants in 29 the rookie fire fighter class (2015) in order to replace those firefighters who have resigned or retired. Function Public Safety Per capita expend. Increase/(dec.) ($) Increase/(dec.) (%) Projected 2015 2016 2017 2018 $ 11, 234, 280 $ 11, 579, 986 $ 12, 053, 554 $ 12, 524, 605 $ 186 $ 188 $ 192 $ 196 8 2 4 4 4% 1% 2% 2% Public Works. The ability to maintain snow removal standards as a result of increased miles of roads in new residential subdivisions, the Street Department is projected to add two Street Maintenance positions (2015 and 2018) along with increased quantities of ice removal chemicals, motor fuels and other related commodities. An additional Fleet Maintenance position will provide the additional staffing resources required for maintaining a growing City wide fleet. Function Public Works Per capita expend. Increase/(dec.) ($) Increase/(dec.) (%) Projected 2015 2016 2017 2018 $ 3,834,376 $ 4,035,609 $ 4,307,052 $ 4,458,992 $ 64 $ 66 $ 69 $ 70 1 2 3 1 1% 3% 5% 2% Parks and Recreation. Since the last full-time Parks Maintenance position was added February of 2006, the City has developed 50 additional acres of park land requiring maintenance in six new parks along with approximately 18 miles of new trails. In order to provide adequate staffing resources, an additional Park Maintenance position will be added in 2015 as well as two additional seasonal staff positions — one each in 2015 and 2016. There are a number of parks system major maintenance projects which have been deferred at least in part since the start of the Great Recession. The 2014-2018 Capital Improvement Plan reflects $184,425 in major maintenance projects financed from the General Fund in 2015. In years 2016 — 2018 major maintenance ranges from $83,300 to $65,100. 30 Parks and Recreation (Cont.) Function Parks and Recreation Per capita expend. Increase/(dec.) ($) Increase/(dec.) (%) Sources of Funds Projected 2015 2016 2017 2018 $ 3,704,915 $ 3,745,331 $ 3,864,108 $ 3,965,806 $ 61 $ 61 $ 62 $ 62 5 (1) 1 0 8% -1% 1% 1% Property taxes for operations comprise approximately 74% of the revenues for financing General Fund programs and services. (Refer to page 33) Revenue Summary Property taxes Charges for 74% Services 10% Ucenses & Permits 9� Other 7°f Property taxes — for General Fund operations only — is projected to increase due to inflationary factors (refer to pages 32 -33), parks major maintenance (refer to page 25), and new personnel positions (refer to page 23). 31 Revenues (cont.) General Fund The General Fund is also highly dependent on revenues related to community growth such as building permits and engineering fees. As such, the Fund is sensitive to changes in economic conditions. A 10% fluctuation in residential building construction activity can result in a $140-150,000 change in building permit revenues; a 10% fluctuation in platting activity can result in a $60-75,000 change in revenues. Fund Balance The Fund Balance Policy states "The City will endeavor to maintain an unrestricted (committed, assigned and unassigned) fund balance in the General Fund of an amount not less than 40% and not greater than 50% of the next year's budgeted expenditures of the General Fund." The 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. A healthy financial position also allows the City to avoid volatility in tax rates; helps minimize the impact of State funding changes; allows for the adequate consistent funding of services, repairs and unexpected costs; and can be a factor in determining the City's bond rating and resulting interest costs. Function Projected 2015 2016 2017 2018 Expenditures $ 23,740,553 $ 24,499,451 $ 25,456,317 Fund Balance $ 9,443,208 $ 9,781,108 $ 10,159,215 Fund Balance ratio 40% 40% 40% 32 $ 26, 394, 390 $ 10,665,715 40% 2015 2016 2017 2018 Tax Levy $ 18, 030, 462 $ 18, 508, 680 $ 19, 348, 285 $ 20, 097, 748 Increase/(dec.) 1,227,598 478,218 839,605 749,463 Inc./(dec.) 7.3% 2.7% 4.5% 3.9% Percapita $ 305 $ 307 $ 315 $ 321 Increase/(dec.) 15 2 8 6 % Inc./(dec.) 5.2% 0.8% 2.49/6 1.9% The General Fund is also highly dependent on revenues related to community growth such as building permits and engineering fees. As such, the Fund is sensitive to changes in economic conditions. A 10% fluctuation in residential building construction activity can result in a $140-150,000 change in building permit revenues; a 10% fluctuation in platting activity can result in a $60-75,000 change in revenues. Fund Balance The Fund Balance Policy states "The City will endeavor to maintain an unrestricted (committed, assigned and unassigned) fund balance in the General Fund of an amount not less than 40% and not greater than 50% of the next year's budgeted expenditures of the General Fund." The 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. A healthy financial position also allows the City to avoid volatility in tax rates; helps minimize the impact of State funding changes; allows for the adequate consistent funding of services, repairs and unexpected costs; and can be a factor in determining the City's bond rating and resulting interest costs. Function Projected 2015 2016 2017 2018 Expenditures $ 23,740,553 $ 24,499,451 $ 25,456,317 Fund Balance $ 9,443,208 $ 9,781,108 $ 10,159,215 Fund Balance ratio 40% 40% 40% 32 $ 26, 394, 390 $ 10,665,715 40% General Fund Schedule of Revenues, Expenditures and Changes in Fund Balances 33 2014 Projected Budget 2015 2016 2017 2018 Revenues General propertytaxes $ 16,794,367 $ 18,099,469 $ 18,577,687 $ 19,417,292 $ 20,166,755 Licenses and permits 1,947,676 2,093,249 2,098,164 2,125,987 2,156,836 Intergovernmental 608,401 610,946 617,670 624,393 631,117 Charges for services 2,156,037 2,405,990 2,339,225 2,383,524 2,582,369 Courtfines 274,590 279,613 285,318 290,848 296,481 Investment income 44,413 44,337 119,929 176,060 233,662 Transfers from other funds 759,814 720,848 737,427 754,388 771,739 Miscellaneous 61,461 61,931 61,931 61,931 61,931 Total revenues 22,646,759 24,316,383 24,837,351 25,834,423 26,900,890 Expenditures General eovernment Mayor and Council 97,021 98,079 99,164 100,276 101,416 Committees and Commissions 62,794 64,264 65,769 67,309 68,885 City administration 414,982 431,287 443,745 456,381 469,528 City Clerk 188,068 130,840 188,688 139,159 200,038 Legal counsel 82,351 84,409 86,520 88,683 90,900 Planning 440,584 458,541 473,683 488,689 504,322 Community and econ. development 304,275 314,498 324,207 334,039 344,305 Inspections 871,984 1,002,385 1,006,250 1,041,464 1,078,200 General government facilities 422,345 435,669 448,627 462,032 476,028 Finance 643,682 664,043 686,000 704,210 727,311 Information systems 500,268 515,733 530,753 546,008 561,863 Human resources 357,728 365,930 376,409 387,052 398,107 Insurance 289,075 296,302 303,709 311,302 319,085 Public Safety Police 9,113,903 9,501,984 9,891,302 10,292,329 10,716,290 Fi re 1,445,390 1,732,296 1,688,685 1,761,225 1,808,315 Public Works Engineering 928,641 877,699 902,773 989,011 960,879 Streets 2,787,169 2,956,677 3,132,837 3,318,040 3,498,113 Parks and Recreation Parks 2,277,337 2,599,317 2,607,475 2,693,188 2,760,524 Recreation 593,052 603,496 620,731 638,252 656,437 Heritage Center 78,774 81,145 84,104 87,213 90,482 Arts Center 409,258 420,957 433,022 445,455 458,363 Other 105,000 105,000 105,000 105,000 105,000 Total expenditures 22,413,681 23,740,553 24,499,451 25,456,317 26,394,390 Netchangein fund balance 233,078 575,830 337,900 378,107 506,500 Fund balance, January 1 8,634,300 8,867,378 9,443,208 9,781,108 10,159,215 Fund balance, December 31 $ 8,867,378 $ 9,443,208 $ 9,781,108 $ 10,159,215 $ 10,665,715 33 4 34 SPECIAL REVENUE FUNDS 35 COMMUNICATIONS FUND Fund Description The Communications Fund accounts for franchise fees from cable TV operations. Expenditures and other financing uses are used to finance the City's Cable TV and Public Communications functions, including long-term replacement of equipment. Uses of Funds The Communications Fund finances the operations of the Communications Department which is responsible for the City's primary sources of information and communication including City newsletter, City website, and Lakeville Government Television (cable channel 16). The Communications Department also manages the Lakeville Access Television (cable channel 12). The department's mission is to provide information regarding municipal programs and services in a quality and cost-effective manner that engages the community and enhances the City's image locally, regionally, and nationally. Sources of Funds Franchise fees are the primary source of revenues ($610-655,000 per year) for the Communications Fund. The fund also collects approximately $54,500 per year of Education and Government (E.G.) fees annually. Fund Balance The fund balance is projected to increase by approximately $360,000 in the next five years primarily as a result of collecting the E.G. fees. The E.G. fees are restricted to specific program purposes and objectives. 36 Communications Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Expenditures Personnel 2014 2015 2016 2017 2018 Commodities 5,649 Projected Projected Projected Projected Contractual Budget Budget Budget Budget Budget Revenues 70,564 73,400 65,000 50,000 50,750 Franchise Fees 610,915 617,024 629,364 641,952 654,791 Franchise Fees - EG fees 54,500 54,500 54,500 54,500 54,500 Other 516 516 516 516 516 Interest on Investments 8,689 5,449 11,408 17,731 25,074 Total Revenues 674,620 677,489 695,788 714,699 734,881 Expenditures Personnel 326,866 337,024 347,680 358,456 369,729 Commodities 5,649 5,790 5,934 6,081 6,233 Contractual 114,031 116,882 119,804 122,799 125,869 Capital outlay 70,564 73,400 65,000 50,000 50,750 Transfers to other Funds 122,924 79,163 70,621 72,245 73,907 Total Expenditures 640,034 612,259 609,038 609,581 626,488 Net Increase/(Decrease) 34,586 65,230 86,750 105,118 108,393 Fund Balance, January 1 798,469 833,055 898,285 985,035 1,090,153 Fund Balance, December3l 833,055 898,285 985,035 1,090,153 1,198,546 Fund Balance Restricted 54,500 109,000 163,500 218,000 272,500 Unrestricted. 778,555 789,285 821,535 872,153 926,046 Fund Balance, December 31 833,055 898,285 985,035 1,090,153 1,198,546 37 ECONOMIC DEVELOPMENT FUND Fund Description The administrative fees received from issuance of conduit debt in 2008 and the Minnesota Department of Trade and Economic Development (DTED) Economic Recovery Grant are committed to economic development initiatives. Uses of Funds The funds are currently appropriated to the annual dues for Metropolitan Consortium of Community Developers ($7,500). Sources of Funds The primary sources of annual revenues are conduit debt administration fees ($2,500/year). Fund Balance The funds are appropriated to economic development initiatives. Economic Development Fund Schedule of Revenues, Expenditures and Changes in Fund Balances 39 2014 2015 2016 2017 2018 Projected Projected Projected Projected Budget Budget Budget Budget Budget Revenues Interest on Investments 608 564 680 886 1,037 Conduit Debt Fee 2,500 2,500 2,500 2,500 2,500 Total Revenues 3,108 3,064 3,180 3,386 3,537 Expenditures - other 7,500 7,500 7,500 7,500 7,500 Total Expenditures 7,500 7,500 7,500 7,500 7,500 Net Increase/(Decrease) (4,392) (4,436) (4,320) (4,114) (3,963) Fund Balance, January 1 62,366 57,974 53,538 49,218 45,104 Fund Balance, December 31 57,974 53,538 49,218 45,104 41,141 39 40 DEBT SERVICE FUNDS DEBT SERVICE FUND Fund Description Debt Service Funds are established to account for the accumulation of resources for the payment of general long-term principal, interest and related costs also referred to as the "Government Activities Bonds". Not included is the debt issued for and serviced by the Liquor Fund. Sources of Funds The debt is repaid from a myriad of revenue sources. Approximately 55% of the debt is paid for from property taxes with the remaining 45% paid from non -tax sources. Connection C 12% Debt Service Revenue Sources Munirinal States Aid 42 ier al Assessments 8% Uses of Funds New debt issues, based on the 2014 — 2018 Capital Improvement Plan, are as follows: M Repayment Year Purpose Revenue Source Term(yrs) Amount G.O. Improvement Bonds Property taxes 10 $ 5,150,000 2014 Street Reconstruction Water use fees 10 $ 1,950,000 Special assessments 20 $ 3,055,000 $ 10,155,000 Property taxes 10 $ 7,935,000 2015 Street Reconstruction Water use fees 10 $ 2,240,000 Special assessments 20 $ 4,355,000 $ 14,530,000 Property taxes 10 $ 4,300,000 2016 Street Reconstruction Water use fees 10 $ 1,190,000 Special assessments 20 $ 3,190,000 $ 8,680,000_ Property taxes 10 $ 4,855,000 2017 Street Reconstruction Water use fees 10 $ 1,440,000 Special assessments 20 $ 3,235,000 $ 9,530,000 2017 Kenrick Ave: 181st - RR Property taxes 20 $ 2,575,000 Property taxes 10 $ 5,245,000 2018 Street Reconstruction Water use fees 10 $ 1,440,000 Special assessments 20 $ 3,500,000 $ 10,185,000 G.O. Water Revenue Bonds Wells, Towers, Water 2014 Water Connection fees 20 $ 91000,000 Treatment Facility M Fund Balance The fund balance is appropriated to future debt payments. Other Financial Information Credit Rating Moody's Investors Services has affirmed an Aa1 underlying rating on the City of Lakeville's outstanding long-term general obligation debt and the Aa3 underlying rating on the City's lease revenue debt. Legal Debt Limits Minnesota Statutes §475 limits the amount of general obligation debt which is financed solely from property tax levies including Equipment Certificates, Capital Improvement Bonds, Street Reconstruction Bonds and debt approved by referendum. The debt cannot exceed 3% of the taxable market value of the City. Debt excluded from limitations are those for which some other source of revenue is pledged as security including but not limited to improvement bonds, tax increment bonds, utility revenue bonds and revenue bonds. Refunding Debt The City issued $22.450 million of (cross-over) refunding debt in July 2012 to refinance the G.O. Street Reconstruction Bonds 2003 A and G.O. Capital Improvement Bonds series 2004 A. The refinancing has resulted in a net present value savings of $2.235 million over the 17 -year life of the debt. The refunding bonds, as well as the series 2003 A and 2004 A bonds, will remain as City obligations until the two refunded bonds are called and fully retired on or before February 1, 2015. Per Capita Debt 2014 2015 2016 2017 2018 Debt Issued $ 19,155,000 $ 14,530,000 $ 8,680,000 $ 12,105,000 $ 10,185,000 Debt Retired $ (6,135,000) $ (6,410,000) $ (7,495,000) $ (7,630,000) $ (8,475,000) Total outstanding $ 99,110,000 $ 107,230,000 $ 108,415,000 $ 112,890,000 $ 114,600,000 debt Per capita debt $ 1,670 $ 1,780 $ 1,760 $ 1,800 $ 1,790 Debt Service Fund Combined Schedule of Revenues, Expenditures, and Changes in Fund Balances 45 2014 2015 2016 2017 2018 Revenues General property taxes $ 5,304,582 $ 5,271,192 $ 5,766,941 $ 6,282,123 $ 6,945,336 Tax increment 691,447 207,000 207,000 207,000 207,000 Intergovernmental 904,639 906,430 906,316 907,936 898,134 Charges for services 403,951 411,901 419,894 425,306 425,157 Special assessments 765,271 803,535 843,711 885,897 930,192 Investment income 39,818 21,478 18,323 14,025 8,093 Donations 95,000 95,000 95,000 95,000 95,000 Miscellaneous 480 480 480 480 480 Total revenues 8,205,188 7,717,016 8,257,665 8,817,767 9,509,392 Expenditures Principal 6,135,000 6,410,000 7,495,000 7,630,000 8,475,000 Interest 4,182,497 3,546,536 3,268,073 3,352,747 3,539,772 Fiscal charges 23,939 24,500 24,800 25,300 26,100 Total expenditures 10,341,436 9,981,036 10,787,873 11,008,047 12,040,872 Other financing sources (uses) Transfer - other funds 1,603,893 2,436,376 2,717,876 1,805,700 1,848,900 Refunded bonds called (10,735,000) (12,820,000) - - Total other financing sources (uses) (9,194,707) (10, 383, 624) 2,717,876 1,805,700 1,848,900 Net change in fund balance (11,330,955) (12,647,644) 187,668 (384,580) (682,580) Fund balance, January 1 32,420,234 21,089,279 8,441,635 8,629,303 8,244,723 Fund balance, December 31 $ 21,089,279 $ k 8,441,635 $ 8,629,303 $ 8,244,723 $ 7,562,142 45 46 CAPITAL PROJECTS FUNDS_ 47 MUNICIPAL STATE -AID (M.S.A.) STREET FUND Fund Description The Municipal State -aid Street Fund accounts for an annual allotment from the State of Minnesota Municipal State -aid street construction account. Uses of Funds The 2014-2018 Capital Improvement Plan appropriates the MSA allotments to the County's Dodd Boulevard (CSAH 9) from 183rd Street to Hayes Avenue, including the round -about ($3,157,900), CSAH 50/CSAH 60 round -about ($3,344,600), Dodd Boulevard (CSAH 9) from South Lakeville border to County Road 70 ($163,000) and Dodd Boulevard (CSAH 9) from 185th Street (CSAH 60) to 194" d Street. Sources of Funds The City of Lakeville receives an annual allotment of approximately $2.2 million of Municipal State -aid. The formula for distribution of Municipal State -aid has changed; the amount Lakeville will receive in 2016 and thereafter is unknown. Approximately $840,000 is appropriated annually to debt payments with an additional $374,000 committed to pavement management. The Municipal State Aid funds are subject to statutory limitations. Fund Balance The M.S.A. Funds are fully committed to projects identified in the 2014 — 2018 Capital Improvement Plan. The financing is subject to Dakota County advance funding of County Road 50 from 188th Street to Dodd Blvd. (2017) and County Road 9 (Dodd Blvd.) from 185th to 194th Street (2018) projects. Other Financial Information The City Council has created a School Road Task Force which is charged with the responsibility to review issues of pedestrian and vehicular safety for students traveling to and from schools and to provide recommendations to improve current conditions; the task force recommendations may result in changes to the scope and schedule of street improvement projects. The City of Lakeville and Dakota County are contemplating improvements to the detour routes that will be utilized during the County Road 50/County Road 60 projects The cost of detour improvements may result in increased project costs for the County Road 50/County Road 60 project which may impact MSA financing of future projects. 2014 — 2018 Capital Improvement Plan Municipal State -aid Fund Statement of Revenue, Expenditures and Changes in Fund Balance Revenues MSA allotment -Advanced Encumbrance MSA allotment Dakota County Advance Funding Otherfinancing sources - MSA debt Total revenues Expenditures Dodd Blvd (CSAH 9): CSAH 70 to CSAH 46/2 Dodd Blvd (CSAH 9): 183rd St to Hayes Ave CSAH 50/CSAH 60 Roundabout 190th Street: Holyoke - Dodd Blvd. CSAH 50 Expansion: CSAH 60 (185th St) - CSAH 9 (Dodd Blvd) CSAH 9 (Dodd Blvd): CSAH 60 (185th St) - 194th St Total expenditures Net Increase (Decrease) Fund Balance, January 1 Fund Balance, December 31 2014 2015 3,157,900 3,344,600 466,415 2016 2017 2018 6,948,811 6,948,811 (4,396,856) - 6,948,811 2,551,955 6,948,811 2,551,955 $ 7,131,915 $ - $ - $6,948,811 $2,551,955 (3,131,915) - - - - 3,180,712 48,797 48,797 48,797 48,797 $ 48,797 $ 48,797 $48,797 $ 48,797 $ 48,797 M PAVEMENT MANAGEMENT FUND Fund Description The Pavement Management Fund primary purpose is to account for pavement management activities. The fund enables the City Council to establish a relatively stable tax levy. The fund activities account for maintenance costs which would otherwise be accounted for in the operating budget. The Pavement Management Fund enables the City to establish a long-term maintenance program and financing plan which, when taken into consideration with the street reconstruction program, enables the City to develop a consistent long-term financing plan for one of the community's most significant infrastructure assets. Uses of Funds The funds are appropriated to pavement management activities including but not limited to crack sealing, sealcoating and patching. The funds are also appropriated to overlays on major collector streets. Sources of Funds The primary revenue source is property taxes (approximately $1.2 million per year) and Municipal State -a id Street Funds ($374,335). Fund Balance The objective is to provide a beginning fund balance which will finance expenditures until the City receives its July tax settlement. The winter of 2013-14 has been harsh on street pavement conditions. The financial impacts for repairs is yet to be determined. 50 2014 - 2018 Capital Improvement Plan Overlays Kenrick: 185th - 205th 456,807 Kensington Blvd: 205th - 210th 384,841 Holyoke Ave: Heritage - 215th Hol yoke Ave: 210th intersection 172nd St: Kenyon Ave- Kodiak Klamath Tr: CR5-N.CR5 I pava Ave: 185th - CSAH 50 Total overlays 841,648 Total capital improvements 2,017,469 Net Increase (Decrease) Fund Balance, January 1 (41 /, /ZS4) 1.673.296 565,968 59,525 137,694 300,839 699,812 - 625,493 Pavement Management Fund 699,812 1,207,309 1,867,020 Statement of Revenue, Expenditures and Changes in Fund Balance 2,029,183 378,557 (275,097) (125,109) 2014 2015 2016 2017 2018 Revenues Taxes 1,205,350 1,211,531 1,217,588 1,223,676 1,229,795 MSA- Maintenance 374,335 374,335 374,335 374,335 374,335 Total Revenues 1,579,685 1,585,866 1,591,923 1,598,011 1,604,130 Expenditures Maintenance Crack sealing 59,488 61,868 64,343 66,917 69,594 Seal coating 224,973 233,972 243,331 253,064 263,187 Velocity Patching 107,120 111,405 115,861 120,495 125,315 Patching& Minor Overlays 569,878 592,673 616,380 641,035 666,676 Pa rk pa rki ng I ots 30,512 22,187 15,000 15,000 15,000 Sidewalk 25,000 25,000 25,000 25,000 25,000 Conc Curb, Draintile 25,000 25,000 25,000 25,000 25,000 County Road Utility Improvements 25,000 25,000 25,000 25,000 25,000 Bri dge I ns p/Repa i rs 15,000 15,000 15,000 15,000 15,000 Safety Improvements 30,000 30,000 30,000 30,000 30,000 Pavement Asset Mgt Support 30,000 30,000 30,000 30,000 30,000 Other 33,850 35,204 36,612 38,076 39,599 Total maintenance 1,175,821 1,207,309 1,241,527 1,284,587 1,329,371 Overlays Kenrick: 185th - 205th 456,807 Kensington Blvd: 205th - 210th 384,841 Holyoke Ave: Heritage - 215th Hol yoke Ave: 210th intersection 172nd St: Kenyon Ave- Kodiak Klamath Tr: CR5-N.CR5 I pava Ave: 185th - CSAH 50 Total overlays 841,648 Total capital improvements 2,017,469 Net Increase (Decrease) Fund Balance, January 1 (41 /, /ZS4) 1.673.296 565,968 59,525 137,694 300,839 699,812 - 625,493 438,533 699,812 1,207,309 1,867,020 1,723,120 2,029,183 378,557 (275,097) (125,109) (425,053) 1,235,512 1,614,069 1,338,972 1,213,863 Fund Balance, December 31 1,235,512 1,614,069 51 1,338,972 1,213,863 788,810 IMPROVEMENT CONSTRUCTION FUND Fund Description The Improvement Construction Fund accounts for the construction of certain public improvements, such as streets and storm sewers. The City Council has approved a street reconstruction program that replaces aging street infrastructure. Benefited property owners are specially assessed for 40% of the cost with the remaining 60% paid by the City with property taxes. Uses of Funds The funds are appropriated to street construction or reconstruction projects. Sources of Funds The improvement project financing is accomplished with the issuance of General Obligation Improvement Bonds. The special assessments to benefitted properties and taxes for the City share of project costs are pledged to the repayment of the debt. In recent years, the tax levies are amortized as equal annual payments over a 10 year period. However, with the acceleration in the reconstruction program (see "other financial Information" below), the taxes are proposed to be amortized over a 13 year period to mitigate the impact of tax increases on residents and businesses. Fund Balance The bond proceeds are expended within 3 years of issuance as required by IRS arbitrage regulations. Other Financial Information The City has adopted a pavement management plan which addresses maintenance issues based on the OCI (Overall Condition Index) of the street. The street reconstruction program was accelerated in the 2015 — 2018 Capital Improvement Plan in order to improve the City wide OCI and reduce the number of miles of streets which are in failing condition. 52 The Developer adjacent to the road has agreed to construct 190th Street from Holyoke to Highview Avenue in 2014. As such, the improvement project identified in the Capital Improvement Plan ($1.9 million) and the associated revenues from issuance of debt will not be a City project. 2014 — 2018 Capital Improvement Plan Improvement Construction Fund Statement of Revenue, Expenditures and Changes in Fund Balance 2014 2015 2016 2017 2018 Revenues G.O. Improvement Bonds Pledged with taxes 5,147,080 7,934,577 4,301,539 7,427,866 5,245,511 Pledged with special assessments 4,982,019 4,114,008 3,188,171 3,235,244 3,497,007 Total revenues $ 10,129,099 $ 12,048,585 $ 7,489,710 $ 10,663,110 $ 8,742,518 Expenditures 190th Street: Holyoke-Highview + RA Collector Road Reconstruction Kenrick Ave: 181st- RR Tracks Street Reconstruction Total Expenditures Net Increase (Decrease) 1,926,669 3,362,826 2,575,000 8,202,430 8,685,759 7,489,710 8,088,110 8,742,518 10,129,099 12,048,585 7,489,710 10,663,110 8,742,518 53 STORM SEWER FUND Fund Description The Storm Sewer Fund accounts for construction of trunk storm sewer systems. Uses of Funds The funds are appropriated to construction of the City's trunk storm sewer system. Sources of Funds The primary source of revenues is storm sewer fees collected from developers at the time plats are approved. Fund Balance The Storm Sewer Fund balance is committed to future storm sewer project improvements. 54 2014 — 2018 Capital Improvement Plan Storm Sewer Fund Statement of Revenue, Expenditures and Changes in Fund Balance 2014 2015 2016 2017 2018 Revenues Storm Sewer Fees 1,069,877 1,213,945 1,261,440 1,319,636 1,458,853 Other 880 810 740 670 670 Transfers from Debt Service Tax Incr. 63,600 - - - - Total Revenues $ 1,134,357 $ 1,214,755 $ 1,262,180 $ 1,320,306 $ 1,459,523 Expenditures Developer credits Debt Payments 2007 B Refunding Bonds 2009 B Improvement bonds Total Expenditures Net Increase (Decrease) Fund Balance, January 1 Fund Balance, December 31 834,940 906,972 930,720 959,818 1,029,427 100,000 81,000 $ 915,940 $ 1,006,972 $ 930,720 $ 959,818 $ 1,029,427 218,418 207,782 331,460 360,488 430,097 1,149,652 1,368,070 1,575,852 1,907,312 2,267,799 $ 1,368,070 $ 1,575,852 $ 1,907,312 $ 2,267,799 $ 2,697,896 55 WATER TRUNK FUND Fund Description The Water Trunk Fund is committed to the construction of water supply lines, wells and water storage facilities, and provides the debt service to bonds issued to finance the construction of the City's water treatment facility and other trunk infrastructure improvements. Uses of Funds Based on the recently completed Comprehensive Water Plan Update and Water Treatment Facility Expansion Plan, the 2014 — 2018 Capital Improvement Plan identifies the construction of three wells, a new tower and water main trunk extensions to meet consumer demands. Sources of Funds Revenues are derived primarily from connection charges collected at the time building permits are issued and antenna site leases with wireless communications companies. Fund Balance The fund balance is committed to future improvements and debt service payments. The debt payments are dependent on future growth. Therefore, the fund should maintain an adequate balance to enable the City to adjust to construction cycles. Other Financial Information Debt issuance ($9 million) is budgeted in 2014 to finance the improvements contemplated for the upcoming two years. The 2013 Water Connection Study recommended a 2.5% increase in water connection fees each year; the 2014 rate is $4,000 per residential dwelling unit. The rate adjustments are to finance the water system improvements identified in the Comprehensive Water Plan Update prepared by Short Elliott Hendrickson and the Water Treatment Plant Facility Expansion Study prepared by Black and Veatch. 56 2014 — 2018 Capital Improvement Plan Water Trunk Fund Statement of Revenue, Expenditures and Changes in Fund Balance 2014 2015 2016 2017 Revenues Water Connection Fee Antenna Rental Water Revenue Bonds Total Revenues Expenditures Well Construction Well Collection Pipe Well site acquisition Hamburg Ave: 202nd -Hartford Water Tower Construction Water Treatment Improvements Water Main Trunk Extensions Debt payments Total Expenditures Net Increase (Decrease) Fund Ba I a nce, Ja nua ry 1 Fund Balance, December 31 2018 $ 1,457,750 $ 1,634,150 $ 1,699,470 $ 1,766,070 $ 1,829,650 279,340 282,134 284,955 287,804 290,682 9,000,000 10,737,090 1,916,284 1,984,425 2,053,874 2,120,332 1,400,000 1,400,000 - 1,400,000 390,000 1,029,600 160,000 - 23,992 - 500,000 2,600,000 - 1,126,000 1,764,000 - - - 159,000 159,000 159,000 159,000 159,000 1,122,893 2,702,759 647,659 647,659 647,659 4,467,893 9,039,751 806,659 2,206,659 1,836,259 6,269,197 (7,123,467) 1,177,766 (152,784) 284,074 1,960,639 8,229,836 1,106,369 2,284,135 2,131,350 $ 8,229,836 $ 1,106,369 $ 2,284,135 $ 2,131,350 $ 2,415,424 57 SANITARY SEWER TRUNK FUND Fund Description The Sanitary Sewer Trunk Fund accounts for sanitary sewer connection fees collected from developers for connecting to the City's sanitary sewer system. Appropriations are applied to the construction of sanitary sewer trunk systems. Uses of Funds The funds are appropriated to construction of the City's sanitary sewer trunk system. Sources of Funds The primary source of revenues is sanitary sewer fees collected from developers at the time plats are approved. Fund Balance The Sanitary Sewer Trunk Fund balance is committed to construction of future sanitary sewer trunk improvements. 2014 — 2018 Capital Improvement Plan Sanitary Sewer Trunk Fund Statement of Revenue, Expenditures and Changes in Fund Balance Revenues Sanitary Sewer Connection Fees Other Total Revenues 2014 2015 2016 2017 2018 294,500 317,750 323,950 330,150 335,575 20,930 18,315 15,700 13,085 10,470 $ 315,430 $ 336,065 $ 339,650 $ 343,235 $ 346,045 Expenditures Sa nitary sewer trunk 302,000 improvements Total Expenditures $ 302,000 Net Increase (Decrease) 13,430 Fund Balance, January 1 3,598,532 Fund Balance, December 31 $ 3,611,962 173,000 72,000 $ 173,000 $ 72,000 163,065 3,611,962 267,650 3,775,027 206,000 138,750 $ 206,000 137,235 4,042,677 $ 3,775,027 $ 4,042,677 $ 4,179,912 59 $ 138,750 207,295 4,179,912 $ 4,387,207 PARK DEDICATION FUND Fund Description The Park Dedication Fund accounts for park dedication fees received from land developers. The expenditures consist of acquiring and developing City parks and trails. Uses of Funds The funds are appropriated to the acquisition of park land and construction of the City's park system. Sources of Funds The primary source of revenues is park dedication fees collected from developers at the time plats are approved. Fund Balance The fund balance objective at the end of each year is to have sufficient balances available to finance the subsequent year's projects. Other Financial Information City Council has authorized The Planning Company to complete the Lakeville Parks, Trails and Open Space Plan Update. As a result of these and other subsequent events there may be changes to the five year Capital Improvement Plan. Park Dedication fees have in recent years been adjusted based on the changes in values of vacantland. 2014 - 2018 Capital Improvement Plan Park Dedication Fund Statement of Revenue, Expenditures and Changes in Fund Balance 2014 2015 2016 Revenues 230,000 Park Development Fees 791,240 1,026,660 1,007,280 Park Development Fees - credits 339,000 440,000 431,000 Valley Park antenna 20,260 20,260 20,260 Federal Grants 150,000 899,410 Dakota County -Trails 80,685 400,452 Escrows 9,948 1,095,200 Donations/Other 50,000 150,000 - 2017 1,055,920 453,000 20,260 2018 1,232,960 529,000 20,260 150,000 - Total Revenues $ 1,291,133 $ 2,936,782 $ 1,458,540 $ 1,679,180 $ 1,782,220 Expenditures General Items Planning and design Fee Ana lysis -C/I property Developers Credit Other Trail Construction Dodd: 208th to Hwy 50 Northcreek Greenway Trail 185th: Jamaica to Ipava (north side) Maior Construction Veterans Memorial irrigation Pave (2) parking lot Pave hockey rink (3) Aronson parking lot safety netting Berres Ca bin at Ritter - upgrades Kine Park Pave parking lot New playground Irrigatefields #1-6 Lighting Drainage system Park Construction Summerlyn Park Total Capital Improvements Net Increase/(Decrease) Fund Balance, January 1 Fund Balance, December 31 20,000 20,000 10,000 10,000 10,000 7,000 7,000 339,000 440,000 431,000 453,000 529,000 146,700 100,000 1,224,267 319,264 12,000 220,600 131,730 40,000 40,000 255,000 150,000 61 230,000 420,000 420,000 - - 150,000 150,000 150,000 32,500 300,000 1,095,200 2,960,531 983,330 1,040,000 689,000 195,933 (23,749) 475,210 639,180 1,093,220 921,960 1,117,893 1,094,144 1,569,354 2,208,534 $$ 1,117,893 $ 1,094,144 $1,569,354 $ 2,208,534 $$ 3,3! 61 TRAIL IMPROVEMENT FUND Fund Description The Trail Improvement Fund accounts for the long term maintenance, repairs and replacement of the City trails. Uses of Funds Annual maintenance (such as seal coating), repairs and replacement of trails. Sources of Funds The Fund was initially financed with a one-time transfer from the General Fund. Tax levies are contemplated to finance future trail maintenance with the first levy occurring in 2014. The levy will be increased over time in order to establish a long-term sustainable financial structure. Fund Balance The fund balance is reduced from $759,000 (beginning in 2014) to $154,000 (at the end of 2018) as the property tax financing is phased in. A fund balance of 40 — 50% of the subsequent years budget should be maintained to provide the reserves during those periods when there are significant "peaks and valleys" in reconstruction projects and to provide operating capital until the final tax proceeds are received in December of each year. Other Financial Information The Trails Maintenance study prepared by WSB in 2011 stated that the average annual cost to maintain the trails system is approximately $250,000. The cost may vary from year to year depending on the scope of work required for major maintenance and/or replacement. The average annual cost will increase in future years as the trails system is expanded. 62 2014 - 2018 Capital Improvement Plan Trail Improvement Fund Statement of Revenue, Expenditures and Changes in Fund Balance 2014 2015 2016 2017 2018 Revenues Net Increase (Decrease) (248,109) (170,029) (115,712) Tax Levy 45,200 85,000 125,000 165,000 205,000 Other 4,000 2,600 1,800 1,100 600 Total Revenues $ 49,200 $ 87,600 $ 126,800 $ 166,100 $ 205,600 Expenditures Trail Maintenance Trail sealcoating 62,031 55,996 67,200 60,828 134,452 Trail inspections (1/3 of system) 5,000 5,000 5,000 5,000 5,000 N side 165th - Ipava to Highview Av (reclamation) 108,639 E side Highview Av - 175th to CSAH 46 (overlay) 111,526 N side 165th - Ipava to Kenrick Ave (reclamation) 126,996 CSAH 50 - Dodd Blvd to 185th St (overlay) 69,637 S side 165th - Ipava to Kenrick Av 118,752 (reclamation) E side Ipava Ave - North Park/S. entr. to 61,673 165th St. (reclamation) W side Pilot Knob: Fontina Path to Dodd Blvd (reclamation) 108,432 E. side Pilot Knob: 160th - 170th (overlay) 31,332 North Creek Trail: E from Flagstaff to 61,205 North Creek MHP Dodd Trail: Flagstaff - Dodd Blvd (reclamation.) 36,714 Total capital improvements 297,309 257,629 242,512 205,592 237,371 Net Increase (Decrease) (248,109) (170,029) (115,712) (39,492) (31,771) Fund Balance, January 1 759,340 511,231 341,202 225,490 185,998 Fund Balance, December 31 $ 511,231 $ 341,202 $ 225,490 $ 185,998 $ 154,227 63 PARK IMPROVEMENT FUND Fund Description The Park Improvement Fund accounts for the long term maintenance, repairs and replacement of the City Parks. Uses of Funds The funds are used for the major maintenance and replacement of facilities which have exceeded their useful lives. Sources of Funds Tax levies (approximately $350,000 per year) commencing in 2015, if approved by the City Council. Fund Balance A fund balance of 40 — 50% of the subsequent years budget should be maintained to provide the reserves during those periods when there are significant "peaks and valleys" in reconstruction projects and to provide operating capital until the final tax proceeds are received in December of each year. ,d 2014 — 2018 Capital Improvement Plan Park Improvement Fund Statement of Revenue, Expenditures and Changes in Fund Balance Revenues Taxes Expenditures Buildinas Aronson building upgrades Antlers building replacement Playgrounds Steve Michaud LOA Dodd Trail Highview Heights Oak Shores Hypointe Crossing Cherryview Independence Greenridge Orchard Lake Beach Other Improvements 2014 2015 2016 2017 2018 $ - $ 350,500 $ 350,500 $ 350,500 $ 350,500 60,000 275,000 76,500 76,500 76,500 325,000 65,500 78,750 73,000 70,000 50,000 Aronson safety netting, fields 1 & 4 15,500 Pioneer plaza - - 120,000 - - Total Capital Improvements - 350,500 349,500 325,000 337,250 Net Increase/(Decrease) - - 1,000 25,500 13,250 Fund Balance, January 1 - - - 1,000 26,500 Fund Balance, December 31 $ - $ - $ 1,000 $ 26,500 $ 39,750 65 TAX INCREMENT FUND Fund Description The Tax Increment Fund accounts for revenue received from tax increment property that does not require debt financing. The expenditures are for pay-as-you-go contractual agreements as identified in the tax increment plans. Uses of Funds The funds are expended for purposes which are defined in the tax increment plan. Sources of Funds The primary source of funding is tax increments. Fund Balance The fund balance should be appropriated to purposes consistent with the terms of the tax increment plan and tax increment plan obligations. Other Financial Information There are four tax increment districts which are expiring in 2014. The balances within each of the respective tax increment districts can be used for purposes described within the tax increment plan. In order to expend the funds, the tax increment plan may need to be amended. Proposed uses of the fund balances have not been identified in the Capital Improvement Plan. 2014 — 2018 Capital Improvement Plan Tax Increment Fund Schedule of Revenues, Expenditures and Changes in Fund Balance 2014 2015 2016 2017 2018 Revenues Tax increment 507,776 Other 3,640 - - - - Total Revenues $511,416 $ - $ - $ - $ - Expenditures Debt 306,000 Other 4,779 - - - - Total Expenditures $ 310,779 $ - $ - $ - $ - Net Increase $ 200,637 $ - $ - $ - $ - Fund Balance, January 1 482,491 683,128 683,128 683,128 683,128 Fund Balance, December 31 $ 683,128 $ 683,128 $ 683,128 $ 683,128 $ 683,128 67 BUILDING FUND Fund Description The Building Fund accounts for the accumulation and disbursement of funds for the construction or improvement of public buildings. The primary revenue source is sale of assets. Uses of Funds The funds are expended on major maintenance of City facilities. Sources of Funds The Building Fund is financed with one-time revenues received from sale of land to Life Time Fitness. No recurring revenues have been identified for future maintenance. Fund Balance As a result of use of one-time revenues for major maintenance and no proposed on-going revenue source, the fund balance is reduced from $1.023 million (beginning in 2014) to $641 (at the end of 2018). 2014 - 2018 Capital Improvement Plan Building Fund Schedule of Revenues, Expenditures and Changes in Fund Balances Revenues Other financing sources (uses) Transfer from General Fund Special Revenue - Communications Utility Fund Utility Fund - environmental Enterprise - Liquor Fund Total revenues Expenditures - Capital outlay Arts Center Central Maintenance Facility City Hall Fire Station #1 Fire Station #2 Fire Station #3 Fire Station #4 Heritage Center Police Station Total expenditures Net change in fund balance Fund balance, January 1 Fund balance, December 31 2014 2015 2016 2017 2018 270 10,130 - 4,000 2,570 230 8,680 3,430 2,200 460 17,360 - 6,860 4,400 960 36,170 - 14,290 9,170 35,900 19,000 15,800 36,000 1,300 55,000 16,700 17,000 29,600 - 150,712 303,836 - 120,000 77,000 17,400 140,800 20,000 - - 17,600 - - 120,850 - 2,500 5,200 - - 11,000 - - 7,200 - 70,613 81,200 60,050 4,000 7,400 17,100 - - - - 377,825 566,736 112,850 317,650 85,700 (376,865) (530,566) (112,850) (303,360) (76,530) 1,400,812 1,023,947 493,381 380,531 77,171 1,023,947 493,381 380,531 77,171 641 RV E EQUIPMENT FUND Fund Description The Equipment Fund accounts for the purchase of public safety, street and park maintenance equipment. The most significant capital acquisitions are related to replacing vehicles, machinery, and technology. Uses of Funds Equipment acquisition for general government purposes, such as police, fire, streets, engineering, parks, and technology are financed primarily with non -tax revenues such as Liquor Fund contributions and sale of assets. Sources of Funds The primary revenue sources for financing equipment acquisitions during the five year period are Liquor Fund transfers ($4.2 million), property taxes ($3.2 million) and sale of assets ($1 million). The tax levy increases at a steady rate from $675,000 (2015) to $785,700 (2018) in order to minimize significant tax increases while providing adequate working capital during those periods when there are "peaks and valleys" in expenditures due to the equipment replacement schedule. Fund Balance The fund balance is reduced from $3.8 million (beginning in 2014) to $50,443 (at the end of 2017). In 2018, revenues exceed expenditures by $85,812. Other Financial Information All departments evaluated the overall condition of the City's fleet and equipment. In many cases, the expected useful life of these assets has been extended on the condition that there was no adverse increase in repairs or operating costs. 70 2014 - 2018 Capital Improvement Plan Equipment Fund Statement of Revenue, Expenditures and Changes in Fund Balance 71 2014 2015 2016 2017 2018 Revenues General property taxes 300,000 675,000 708,800 745,600 785,700 ALF Ambulance distribution 19,814 Sale of assets 240,500 163,000 234,800 188,000 132,700 Transfer from: Liquor Fund 800,000 825,812 847,063 868,230 894,306 Total revenues 1,360,314 1,663,812 1,790,663 1,801,830 1,812,706 Expenditures Election equipment 26,667 26,667 26,667 - - Fire 832,805 63,332 35,000 666,750 263,750 Parks 485,212 448,221 473,325 362,210 174,130 Police 813,523 316,977 590,898 674,164 80,487 Streets 861,827 742,626 1,283,675 978,294 626,871 Technology 84,902 114,043 93,764 370,256 581,656 Total expenditures 3,104,936 1,711,866 2,503,329 3,051,674 1,726,894 Net change in fund balance (1,744,622) (48,054) (712,666) (1,249,844) 85,812 Fund balance, January 1 3,805,629 2,061,007 2,012,953 1,300,287 50,443 Fund balance, December 31 $ 2,061,007 $ 2,012,953 $ 1,300,287 $ 50,443 $ 136,255 71 72 ENTERPRISE FUNDS 73 Fund Description The Liquor Fund is responsible for controlling the sale of off -sale alcoholic beverages, while generating revenue for the community. This includes abiding by all State Statutes regarding the legal sale of alcohol, offering competitive pricing, while providing superior product selection and customer service. Uses of Funds The net profits from Liquor Operations are projected to be used for the following purposes. Equipment Fund acquistions Police Streets Parks Debt - Police Station General Operations Community recycling Total Sources of Funds Liquor Fund Contributions to Other Funds 2014 2015 2016 2017 2018 208,657 215,389 220,932 226,453 233,254 385,438 397,874 408,113 418,311 430,874 205,905 212,549 218;018 223,466 230,178 400,000 400,000 400,000 400,000 400,000 159,323 162,987 166,736 170,571 174,494 1,200 1,200 1,200 1,200 1,200 $ 1,360,523 $ 1,390,000 $ 1,415,000 $ 1,440,000 $ 1,470,000 Sale of alcoholic beverages. 74 Liquor Fund Schedule of Revenues, Expenses and Changes in Net position Liquor Fund — Revenues, Expenses and Income 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000, 000 6,000, 000 4,000,000 2,000,000 0 Sales 75 2014 Projected Budget 2015 2016 2017 2018 Sales and cost of sales Sales 15,829, 693 16,146, 574 16, 388, 773 16, 634, 604 16,884,123 Cost of sales 11,853,712 12,090,791 12,272,153 12,456,235 12,643,079 Gross profit 3,975,981 4,055,783 4,116,620 4,178,369 4,241,045 Operating expenses Personnel 1,344,654 1,390,687 1,431,219 1,472,318 1,515,097 Commodities 65,786 67,431 69,116 70,844 72,615 Other charges and services 874,430 866,171 872,330 878,959 879,091 Operating expense 2,284,870 2,324,289 2,372,665 2,422,121 2,466,803 Non-operating revenue 31,173 29,450 34,714 39,756 49,534 Depreciation (118,997) (118,997) (118,997) (118,997) (118,997) Bond expense (153,055) (144,346) (134,967) (125,509) (115,550) Transfer tootherfunds (1,360,523) (1,390,000) (1,415,000) (1,440,000) (1,470,000) Total non-operating (1,601,402) (1,623,893) (1,634,250) (1,644,750) (1,655,013) Change in Net Position $ 89,709 $ 107,601 $ 109,705 $ 111,498 $ 119,229 Liquor Fund — Revenues, Expenses and Income 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000, 000 6,000, 000 4,000,000 2,000,000 0 Sales 75 WATER OPERATION FUND Fund Description The Water Operation Fund is a collection, treatment, storage, and distribution system that delivers potable water to over 17,275 residential, commercial, institutional, and industrial properties. Uses of Funds The system accounts for all costs related to the operation and maintenance of 17 wells, 5 towers, 2 reservoirs, water treatment plant, and 312 miles of water distribution system. A utility maintenance position is proposed to be added in 2016 and in 2018 which will allocate time to water and sanitary sewer operations. The 2014 — 2018 Capital Improvement Plan contemplates $1.2 — 2.2 million of water main replacements each year. The water mains will be financed with debt which will be repaid with water fund revenues over a ten year period. Sources of Funds Water utility fees, which are collected with quarterly utility bills, provide more than 95% of the revenues. Net Asset Position The Water Operation Fund will have a projected $3.4 — 3.7 million cash balance over the five year period. The projected balances provide the working capital for operations and a reserve for revenue fluctuations, major maintenance and debt. Other Financial Information Water rates are projected to increase 4.25% per year for the next five years to finance major maintenance projects as well as to repay the debt for water main replacements. The projected rate increases are as recommended in the Water and Sewer Fund Analysis prepared by Springsted Inc. dated November 2013. 76 Water Operation Fund Schedule of Revenues and Expenses 2014 Projected Budget 2015 2016 2017 2018 Operating revenues Charges for services $ 3,218,506 $ 3,424,408 $ 3,643,134 Other 180,322 180,322 180,322 Total revenues 3,398,828 3,604,730 3,823,456 Operating expenses $ 3,875,457 180,322 4,055,779 $ 4,122,194 180,322 4,302,516 Personnel 948,019 969,445 1,026,578 1,086,250 1,157,357 Commodities 349,067 358,052 367,332 376,816 386,549 Other charges and services 1,147,250 1,202,629 1,232,636 1,263,396 1,294,927 Capital outlay 63,540 118,549 15,074 60,717 67,044 Major Maintenance 472,970 482,090 295,907 359,330 366,274 Operating expense 2,980,846 3,130,765 2,937,527 3,146,509 3,272,151 Non-operating revenue (expense) Intergovernmental revenue 1,632 1,632 1,632 1,632 1,632 Interest income 22,296 28,471 74,840 110,017 142,437 Sale of assets 4,500 4,500 4,500 4,500 4,500 Transfer to other funds (143,107) (516,239) (515,264) (1,003,650) (1,006,556) Total non-operating (114,679) (481,636) (434,292) (887,501) (857,987) Income (loss) 303,303 (7,671) 451,637 21,769 172,378 77 SANITARY SEWER FUND Fund Description The Sanitary Sewer Operation is a collection and forwarding system that removes wastewater from residential, commercial, institutional, and industrial properties. The system also accounts for all costs associated with the operation and maintenance of lift stations and sanitary sewer mains. The treatment facility operations are the responsibility of the Metropolitan Council Environmental Services (MCES). Uses of Funds The largest expenditure is for Metropolitan Council Environmental Services (MCES) treatment of system effluent. A utility maintenance position is proposed to be added in 2016 and in 2018 which will allocate time between water and sanitary sewer operations. Sanitary sewer objectives include but are not limited to operations of a sanitary sewer jetter and meter change out program. Sources of Funds Sanitary sewer utility fees, which are collected with quarterly utility bills, provide more than 95% of the revenues. Net Asset Position The Sanitary Sewer Fund will have a projected $2.5 — 2.7 million cash balance over the five year period. Other Financial Information Sanitary sewer rates are projected to increase 6.35% (2015), 6.35% (2016), 4.0% (2017) and 2.9% (2018) to finance anticipated MCES costs, sewer major maintenance projects, equipment acquisitions and new personnel positions. The projected rate increases are as recommended in the Water and Sewer Fund Analysis prepared by Springsted Inc. dated November 2013. W -N Sanitary Sewer Fund Schedule of Revenues and Expenses 2014 Budget Projected 2015 2016 2017 2018 Operating revenues Charges for services $ 4,715,252 $ 5,104,139 $ 5,524,581 $ 5,849,261 $ 6,128,076 Operating expenses Personnel 677,457 691,034 728,133 766,977 811,698 Commodities 84,481 86,981 89,648 92,340 95,118 Other charges and services 276,999 286,036 293,397 300,967 308,752 Disposal charges 3,297,982 3,525,458 3,768,266 4,027,410 4,303,959 Major Maintenance 284,630 440,549 699,483 420,047 433,318 Operating expense 4,621,549 5,030,058 5,578,927 5,607,741 5,952,845 Non-operating revenue (expense) Intergovernmental 1, 632 1,632 1,632 1,632 1,632 Interest income 18,187 12,114 29,427 41,591 55,833 Transfer from other funds 19,045 19,521 20,009 20,509 21,022 Transfer to other funds (146,543) (154,136) (153,241) (158,481) (161,471) Sale of assets 4,500 4,500 4,500 4,500 4,500 Total non-operating (103,179) (116,369) (97,673) (90,249) (78,484) Income (Loss) (9,476) (42,288) (152,019) 151,271 96,747 79 STREET LIGHT FUND Fund Description The Street Light Operation is designed to protect property, health and safety of the community's residents and businesses. Uses of Funds The primary uses (more than 95% of total expenditures) are street light electricity. Sources of Funds Street light utility fees, which are collected with quarterly utility bills, provide more than 95% of the revenues. Net Position In order to maintain adequate working capital, the fund should maintain a net asset position of at least 25% of expenditures. The projected net position during the next five years meets the working capital financing objectives. Other Financial Information Assuming there are annual 8% rate increases by the electric utility providers (Xcel Energy and Dakota Electric Association) as stated in the Financial Assumptions section of this Report, street light fees are projected to increase by $0.45 to $0.55 per quarter for residential customers in each of the next four years, in order to provide existing service levels and adequate operating capital. The street light fees for non-residential properties are based on front footage of the property; fees on non-residential properties are projected to increase by 5-6% per year. 0 Street Light Fund Schedule of Revenues, Expenses and Changes in Net position 2014 Projected Budget 2015 2016 2017 2018 Operating revenues Charges for services Operating expenses Personnel Commodities Other charges and services Operating expense Non-operating revenue (expense) Interest income Transfers to other funds Total non-operating Change in net position $ 742,300 $ 797,211 $ 856,103 $ 919,258 $ 986,977 17,397 17,797 18,206 18,625 19,054 31 32 33 33 34 736,767 740,471 812,291 891,097 977,560 754,195 758,300 830,530 909,755 996,648 1,266 937 2,756 4,206 5,384 (3,436) (3,515) (3,596) (3,679) (3,763) (2,170) (2,578) (840) 527 1,621 (14,065) 36,333 24,733 10,030 (8,050) RM ENVIRONMENTAL RESOURCES FUND Fund Description The Environmental Resources Fund's purpose is to manage, promote and protect the City's natural resources including lakes, wetlands, streams, prairies and woodlands. The objective is accomplished through public education endeavors, surface water infrastructure management and monitoring the natural resources. The Environmental Resources Department is also responsible for developing programs that promote and expand the community's environmental recycling awareness. These programs are designed to encourage landfill abatement and proper waste disposal through education and opportunities. Uses of Funds The environmental resources activities include surface water resource monitoring, infrastructure management, public education and interaction, watershed management and administration of wetland permit program for new development. A new Environmental Resources position is proposed (2016) to address work load requirements from new developments. Sources of Funds Surface water utility fees, which are collected with quarterly utility bills, provide more than 90% of the revenues for environmental resource purposes. Grants are also received from Dakota County for environmental recycling awareness. Net Position In order to maintain adequate working capital, the fund should maintain a net asset position of at least 25% of expenditures. The projected net position during the next five years meets the working capital financing objectives. Other Financial Information Surface water management fees are projected to increase by $0.55 to $0.75 per quarter for residential customers in each of the next four years, in order to provide existing service levels and adequate operating capital. The surface water fees for non-residential properties are based on impervious surface area of the property; fees on non-residential properties will increase by 8% per year. Environmental Resources Fund Schedule of Revenues, Expenses and Changes in Net position Operating revenues Charges for services Operating expenses Personnel Commodities Other charges and services Operating expense Non-operating revenue (expense) Interest income Intergovernmental Transfers from other funds Transfers to other funds Total non-operating Change in net position 2014 Budget Projected 2n15 2n76 2n17 7n7A $ - 683,410 $ 751,050 $ 825,308 $ 906,824 $ 996,297 46,992 1,273 1,311 1,351 (162,783) 232,194 234,991 305,410 324,700 332,666 26,374 27,032 27,705 28,396 29,104 501,568 464,142 475,694 487,536 499,674 760,136 726,165 808,809 840,632 861,444 46,992 1,200 (155, 931) (107,739) (184.4651 1,998 46,992 1,236 (176,445) (126,219) (101,334) t: 3,822 4,073 41716 46,992 46,992 46,992 1,273 1,311 1,351 (162,783) (173,427) (174,839) (110,696) (121,051) (121,780) (94,197) (54,859) 13,073 84 INTERNAL SERVICE FUND MUNICIPAL RESERVES FUND Fund Description The Municipal Reserves Fund is used to account for the City's risk management program relating to general liability, excess liability, property and casualty insurance costs which are charged to other City funds on a cost reimbursement basis. Uses of Funds Under the Governmental Accounting Standards Board (GASB) Statement No. 10, risk management activities of a government entity can be accounted for in either the General Fund or an Internal Service Fund, if one fund is used. The City uses the Internal Service Municipal Reserves Fund to budget such costs. Under this model, operating departments within the various City funds receive a charge from the Municipal Reserves Fund, and all costs (premiums, claims, and related expenses) are reflected in a single fund. This allows for better accountability and monitoring of the City's risk management costs. Sources of Funds The primary source of revenue is charges from other funds. Fund Balance The fund balance is a reserve for claims exceeding LMCIT coverages or sustained periods where claims exceed budget estimates. Other Financial Information The City does not purchase Excess Liability Coverage insurance. Municipal Reserves Fund Schedule of Revenues, Expenses and Changes in Net position 2014 Projected Budget 2015 2016 2017 Operating revenues Charges for services Other Total revenues Operating expenses Other charges and services Operating income Non-operating revenue (expense) Interest income Transfer to General Fund Total non-operating Change in net assets Net position, January 1 Net position, December 31 2018 $ 381,325 $ 390,858 $ 400,630 $ 410,645 $ 420,911 74,150 74,150 74,150 74,150 74,150 a51; d7r. ArCZ nn4 AW 74n non 7nC BnC nCl 428,727 439,445 450,431 461,692 473,234 26,748 25,563 24,348 23,103 21,827 3,150 4,067 3,966 3,854 3,729 (48,555) (49,672) (50,814) (51,983) (53,179) (45,405) (45,605) (46,848) (48,129) (49,450) (18,657) (20,042) (22,499) (25,026) (27,623) 831,991 813,334 793,292 770,792 745,767 $ 813,334 $ 793,292 $ 770,792 $ 745,767 $ 718,144 88 PROPERTY TAXES PROPERTY TAXES The property tax levy finances debt payments for street improvements and reconstruction; park debt and major maintenance, trails major maintenance and arena debt; as well as General Fund operations (such as police, fire, streets and parks) including facility debt payments, pavement management and equipment acquisitions and replacements. The property tax levy is projected to increase annually primarily due to operational costs associated with growth (refer to pages 23 — 24), and inflationary assumptions (refer to pages 20 - 22), debt service for street reconstruction (refer to page 89), and major maintenance (refer to page 25). Tax Levy 2014 2015 2016 2017 2018 Operations 568,811 1,975,689 1,053,824 1,437,675 1,498,895 Ge n e ra I Fund 16, 802, 864 18, 030, 462 18, 508, 680 19, 348, 285 20,097, 748 Pavement Mgmt. 1,205,350 1,211,531 1,217,588 1,223,676 1,229,795 Facilities -debt 1,600,019 1,589,559 1,604,452 1,627,806 1,667,957 Equipment 300,000 675,000 708,800 745,600 785,700 Total operations 19,908,233 21,506,552 22,039,520 22,945,367 23,781,200 Street impr. - reconstr. 3,029,063 3,367,128 3,831,221 4,317,637 4,940,848 Parks and arenas 710,700 750,005 806,768 852,180 892,031 Total 23,647,996 25,623,685 26,677,509 28,115,184 29,614,079 The property tax levy is projected to increase annually primarily due to operational costs associated with growth (refer to pages 23 — 24), and inflationary assumptions (refer to pages 20 - 22), debt service for street reconstruction (refer to page 89), and major maintenance (refer to page 25). Tax Levy $ 23, 647, 996 $ 25, 623, 685 $ 26, 677, 509 $ 28,115,184 $ 29, 614, 079 Increase/(dec.) 568,811 1,975,689 1,053,824 1,437,675 1,498,895 Inc./(dec.) 2.5% 8.4% 4.1% 5.4% 5.3% Percapita $ 407 $ 433 $ 443 $ 457 $ 472 Increase/(dec.) 3 25 10 15 15 Inc./(dec.) 0.75o' 6.2% 2.2% 3.3% 3.3% Property taxes are paid based on the assessors estimated market value — not on a per capita basis. The amount of taxes paid will vary from property owner to property owner based on a number of factors including but not limited to valuation, property class, homestead status and market value exclusion. The per capita information is available to the reader in order to provide a statistic which has relative comparability from year to year. .0 Operations The operations tax levy provides the financing for General Fund (such as police, fire, streets and parks), pavement management, facilities debt service, and equipment acquisitions and replacements. Property Taxes - Operations Total operations 19,908,233 2015 18,030,462 1,211,531 1,589,559 675,000 21,506,552 2016 18,508,680 1,217,588 1,604,452 708,800 22,039,520 2017 19, 348, 285 1,223,676 1,627,806 745,600 22,945,367 2018 20,097,748 1,229,795 1,667,957 785,700 23,781,200 The tax levy for pavement management provides for sealcoating, crack sealing, patching and other street pavement maintenance as well as overlays of major collectors (refer to pages 50 — 51). The tax levy for pavement management amortizes the overlays on collector roads in order to have a relatively stable tax levy rather than levy based on actual program costs which tend to vary significantly from year to year depending on the program schedule. The tax levy for facilities provides for the debt payments related to construction of the Central Maintenance Facility and the Police Station. The equipment tax levy is for acquisition and replacement (refer to pages 70 — 71). The levy is amortized over the 5 -year period in order to mitigate the tax impacts which may occur as a result of significant changes in expenditures from year to year due to the equipment replacement schedule. The increased tax levy in 2015 is primarily the result of equipment acquisitions (refer to pages 70 -71), additional personnel and other expenditures related to growth (refer to pages 22 - 23), as well as park maintenance major maintenance (refer to page 24). Property Taxes -Operations 2014 Operations 2016 General Fund 16,802,864 Pavement Management 1,205,350 Facilities 1,600,019 Equipment 300,000 Total operations 19,908,233 2015 18,030,462 1,211,531 1,589,559 675,000 21,506,552 2016 18,508,680 1,217,588 1,604,452 708,800 22,039,520 2017 19, 348, 285 1,223,676 1,627,806 745,600 22,945,367 2018 20,097,748 1,229,795 1,667,957 785,700 23,781,200 The tax levy for pavement management provides for sealcoating, crack sealing, patching and other street pavement maintenance as well as overlays of major collectors (refer to pages 50 — 51). The tax levy for pavement management amortizes the overlays on collector roads in order to have a relatively stable tax levy rather than levy based on actual program costs which tend to vary significantly from year to year depending on the program schedule. The tax levy for facilities provides for the debt payments related to construction of the Central Maintenance Facility and the Police Station. The equipment tax levy is for acquisition and replacement (refer to pages 70 — 71). The levy is amortized over the 5 -year period in order to mitigate the tax impacts which may occur as a result of significant changes in expenditures from year to year due to the equipment replacement schedule. The increased tax levy in 2015 is primarily the result of equipment acquisitions (refer to pages 70 -71), additional personnel and other expenditures related to growth (refer to pages 22 - 23), as well as park maintenance major maintenance (refer to page 24). Property Taxes -Operations 91 2014 2015 2016 2017 2018 Tax Levy $ 19,908,233 $ 21,506,552 $ 22,039,520 $ 22,945,367 $ 23,781,200 Increase/(dec.) 321,860 1,598,319 532,968 905,847 835,833 %Inc./(dec.) 1.690 8.0.0 2.5% 4.1% 3.6% Percapita $ 343 $ 363 $ 366 $ 373 $ 379 Increase/(dec.) (0) 20 2 7 6 Inc./(dec.) -0.1% 5.9% 0.6% 2.0% 1.7% 91 Street improvements and reconstruction The tax levy for street improvements provides for the repayment of debt for the City share of street improvements as well as the City share of street reconstruction projects. The tax levy for street reconstruction will increase over the next six years (refer to pages 52 - 53), as the City continues its street reconstruction program which commenced in earnest approximately four years ago. The scope of the street reconstruction program will increase in 2015 — 2018 as the City endeavors to reduce the number of miles of streets which are considered to be in failing condition. The debt and debt repayment schedule is typically structured with even annual payments over a ten year period. However, in order to mitigate tax increases for the accelerated street reconstruction in 2015 - 2018, the levy increases will remain relatively consistent from year to year by extending the maturity from ten years to approximately thirteen years. Proper Taxes - Street Improvements and Reconstruction Parks, trails and arenas The tax levy provides for the City share of debt for the Park Bonds, (Hasse) arena debt, trails, major maintenance and parks major maintenance. The final tax levy for the Park Bonds is in 2014. The Park Bonds were approved by voter referendum in 1994. The 2014 — 2018 Capital Improvement Plan included Park major maintenance projects financed with the expiring tax levy for Park Bonds. 92 2014 2015 2016 2017 2018 Tax Levy $ 3,029,063 $ 3,367,128 $ 3,831,221 $ 4,317,637 $ 4,940,848 Increase/(dec.) 238,043 338,065 464,093 486,416 623,211 % Inc./(dec.) 8.5% 11.2% 13.8% 12.7% 14.4% Percapita $ 52 $ 57 $ 64 $ 70 $ 79 Increase/(dec.) 3 5 7 7 9 • Inc./(dec.) 6.3% 9.0% 11.7% 10.4% 12.3% % Inc./(dec.) of Total Levy 0.8% 1.1% 1.5% 1.5% 1.99KO Parks, trails and arenas The tax levy provides for the City share of debt for the Park Bonds, (Hasse) arena debt, trails, major maintenance and parks major maintenance. The final tax levy for the Park Bonds is in 2014. The Park Bonds were approved by voter referendum in 1994. The 2014 — 2018 Capital Improvement Plan included Park major maintenance projects financed with the expiring tax levy for Park Bonds. 92 The City created a Trails Fund with one-time transfer of unencumbered General Fund balances. The Trail tax levy finances those future trail projects not financed with the one-time General Fund transfer. The arena tax levy is for the City share of the Hasse Arena debt. School District 194 also finances its share of cost with a property tax levy. Proaertv Taxes - Parks, trails and arenas 2014 2015 2016 2017 2018 Tax Levy $ 710,700 $ 750,005 $ 806,768 $ 852,180 $ 892,031 Increase/(dec.) 8,908 39,305 56,763 45,412 39,851 % Inc./(dec.) 1.3% 5.5% 7.6% 5.6% 4.7% Percapita $ 12 $ 13 $ 13 $ 14 $ 14 Increase/(dec.) (0) 0 1 0 0 • Inc./(dec.) -0.4% 3.4% 5.6% 3.5% 2.7% % Inc./(dec.) of Total Levy 0.0% 0.1% 0.2% 0.1% 0.1% Cities have from time to time been subject to levy limits imposed by State Legislature. The projections in this report are premised on the assumption there are no levy limits. 93 Property Tax Base The following schedule reflects projected taxable market value for taxes payable 2015 — 2018 based on the assumed new residential home construction (refer to page 22) and assuming no change in market values. Real Estate & Personal Properties Values The projected tax levies on a median value home ($226,000) will therefore result in estimated increases ranging from $53 in 2015 to $36 in 2018 assuming no change in market values or other factors such as fiscal disparities. Median Value ($226,000) Residential Home 2015 Assessors Market Values 2017 2018 Valuation Year 2014 2015 2016 2017 Year Payable 2015 2016 2017 2018 USG Class 3.7% A- Residential 4,203,804,680 4,313,304,680 4,431,804,680 4,552,704,680 B - Commercial 521,576,900 521,576,900 521,576,900 521,576,900 C - Industrial 140,162,100 140,162,100 140,162,100 140,162,100 D - Uti I i ty 7,506,600 7,506,600 7,506,600 7,506,600 F- Agricultural 74,122,237 74,122,237 74,122,237 74,122,237 F5 - Rural Vacant 6,911,000 6,911,000 6,911,000 6,911,000 G - Cabins 747,600 747,600 747,600 747,600 J - Apartments 129,828,800 129,828,800 129,828,800 129,828,800 K - Railroads 4,797,200 4,797,200 4,797,200 4,797,200 P - Personal Property 44,143,400 44,143,400 44,143,400 44,143,400 Totals 5,133,600,517 5,243,100,517 5,361,600,517 5,482,500,517 Percentage change 3% 2% 2% 2% The projected tax levies on a median value home ($226,000) will therefore result in estimated increases ranging from $53 in 2015 to $36 in 2018 assuming no change in market values or other factors such as fiscal disparities. Median Value ($226,000) Residential Home 2015 2016 2017 2018 Taxes - City 920 943 979 1,014 Increase 53 23 35 36 % Increase 6.1% 2.5% 3.7% 3.7% Projected PropertyTax Levy Per Capita Increases $30 $25 $20 $15 f ■ Other $10 a ■Street Impr. $5 f $- 2015 2016 2017 2018. 94 95 Property Taxes 2014 2015 2016 2017 2018 Property Tax Levy Operations General Fund 16,802,864 18,030,462 18,508,680 19,348,285 20,097,748 Pavement Management 1,205,350 1,211,531 1,217,588 1,223,676 1,229,795 Facilities 1,600,019 1,589,559 1,604,452 1,627,806 1,667,957 Equipment 300,000 675,000 708,800 745,600 785,700 Total operations 19,908,233 21,506,552 22,039,520 22,945,367 23,781,200 Streets improvements / reconstruction 3,029,063 3,367,128 3,831,221 4,317,637 4,940,848 Parks including arenas 710,700 750,005 806,768 852,180 892,031 Total 23,647,996 25,623,685 26,677,509 28,115,184 29,614,079 2014 2015 2016 2017 2018 Per Capita - Property Taxes Operations General Fund 290 305 307 315 321 Pavement Management 21 20 20 20 20 Facilities 28 27 27 26 27 Equipment 5 11 12 12 13 Total operations 343 363 366 373 379 Streets improvements / reconstruction 52 57 64 70 79 Parks including arenas 12 13 13 14 14 Total 407 433 443 457 472 Per Capita - Percentage (%) increase / (decrease) over previous year "Total" tax levy 2014 2015 2016 2017 2018 Operations General Fund 2.8% 3.79/o 0.6% 1.7% 1.3% Pavement Management -0.2% -0.1% -0.1% -0.1% -0.1% Facilities -1.4% -0.2% -0.1% 0.0% 0.0% Equipment -1.3% 1.5% 0.1% 0.1% 0.1% Total operations -0.1% 5.0% 0.5% 1.7% 1.4% Streets improvements / reconstruction 0.8% 1.1% 1.5% 1.5% 1.9% Parks including arenas 0.0% 0.1% 0.2% 0.1% 0.1% Total 0.7% 6.2% 2.2% 3.3% 3.3% 95 96 97 Financial Management Policies, P ractices And Recommendations 98 Major Maintenance The City of Lakeville has more than $300 million invested in infrastructure such as roads, water systems, sanitary sewer systems, parks and buildings. Proper maintenance of the infrastructure maximizes the asset value as well as ensuring health, safety and quality of life of Lakeville residents and businesses. If the assets are not properly maintained, long term costs escalate in order to repair, maintain or replace the asset. Transportation The City has adopted a pavement management plan which addresses maintenance issues based on the OCI (Overall Condition Index) of the street. The City has a Street Reconstruction Policy whereby it finances approximately 60% of the street reconstruction with property taxes. During the Great Recession, the City Council chose to finance its share of cost by issuance of debt with the amortization over a ten year period in order to take advantage of the low interest rate environment and to minimize the tax impact to residents and businesses. Street Reconstruction Debt Property Tax Levy $5,000,000 $4,000,000 ` $3,000,000 p Principal $2,000,000 $1,000,000 ' ■ Interest 1 2 3 4 5 6 7 8 9 10 11 12 The City share of costs financed with debt (approximately $4 million per year) is repaid with property taxes over a 10 year period. In ten years the tax levy will be approximately $4.49 million of which $490,000 is for interest. Street Reconstruction Debt $6,000,000 n-:-- _:__I Over the 10 year period the amount of debt retired, which is $4,000,000 repaid with property taxes, $2,000,000 eventually increases to $4.0 _ million. At that point the City is $ issuing debt at the same rate as $(2.000,000) it is being retired. $(4,000,000) $(6,000,000) 1 2 3 4 5 6 7 8 9 10 11 12 Year red ed In other words there is not debt reduction for City share of cost. In addition, the City is issuing approximately $2.5 annually which is repaid with special assessments. Street Reconstruction Debt Total Outstanding Principal $60,000,000 — $50,000,000 — - $40,000,000 $30,000,000 $20,000,000 $10,000,000 1 3 5 7 9 11 13 15 17 19 21 Street Reconstruction De -- Annual interest $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Current Rates 1% Rate Increase Interest rates are currently near historic lows. If interest rates increase by 1%, the annual tax levy for interest expense increases to approximately $730,000 in the 101h year. The street reconstruction program was accelerated in the 2014 — 2018 Capital Improvement Plan in order to improve the City wide OCI and reduce the number of miles of streets which are in failing condition. 100 Recommendation: In order to eliminate or minimize tax levy for interest costs associated with annual street reconstruction projects, a) Explore the various financing options, including a discussion of the issues related to each option, for * Financing the City share of street reconstruction project costs on a pay-as-you-go method rather than relying on debt * Construction Project Reserve Fund to level off the "peaks and valleys" which will occur from year to year in project costs * Implementation plan Utilities The water infrastructure system maintenance costs have increased significantly in recent years due to water main replacements in areas with corrosive soils. In order to finance the projects with minimal short term increase in utility rates, the projects are financed with the issuance of debt repaid with utility fees over a 10 year period (refer to page 76). Although the scope of water main replacements in future years is unknown, if the current trend continues with $1 — 2 million of project costs per year, interest costs will result in higher rates for utility customers. Recommendation: In order to eliminate or minimize utility rate for interest cost associated with annual on-going utility major maintenance projects, b) Explore the various financing options, including a discussion of the issues related to each option, for * Financing the utility project costs on a pay-as-you-go method rather than relying on debt. * Implementation plan * Establish a Reserve account to level off the "peaks and valleys" which will occur from year to year in project costs. 101 Facilities In an effort to minimize the tax impacts to residents and businesses during and since the Great Recession, all major maintenance projects related to facilities were financed from the Building Fund rather than the General Fund. The 2014 — 2018 Capital Improvement Plan identifies the facility major (and minor) maintenance projects to be completed in the next five years. All of the projects, including minor projects, are accounted for in the Building Fund which is financed primarily with one-time revenues from Life Time Fitness (refer to pages 68 - 69). There are currently no defined on-going revenue sources for financing facility maintenance projects from the Building Fund. Recommendation: c) Explore the various financing options, including a discussion of the issues related to each option, for financing facility major maintenance. Parks and Trails Trails major maintenance and reconstruction was identified in a long-term plan prepared by WSB Engineering. The Trail Improvement Fund was created with a one-time transfer from the General Fund. The Capital Improvement Plan is premised on the assumption that the tax levy for trails maintenance and reconstruction will be increased each year as the one-time revenues are depleted (refer to pages 62 - 63). Recommendation: d) Continue the gradual property tax increases in order to establish a long-term sustaining financial structure for financing trail improvements. e) Maintain a fund balance of 40-50% of the subsequent years budget to provide the reserves during those periods when there are significant "peaks and valleys" in reconstruction projects and to provide operating capital until the final tax proceeds are received in December of each year. 102 Parks major maintenance projects have been identified in the five year Capital Improvement Plan. However, since the start of the Great Recession, many of the projects have been and continue to be deferred to future years. The projected 2014 General Fund Budget reflects $184,425 for 2015; in years 2016 — 2018 major maintenance ranges from $83,300 to $65,100 (refer to page 24). The "peaks and valleys" in expenditures therefore create corresponding increases and decreases in the tax levy. Lakeville residents approved a bond referendum and tax levy in 1.994 for park acquisitions and improvements; the last levy for the Park Bonds is in 2014 (refer to pages 92, 93, 95). The 2014 — 2015 Capital Improvement Plan identifies approximately $1 million of park improvements and major maintenance projects for which there is no approved revenue source. It can be presumed that with the approval of the park improvements there is also an assumption the City will appropriate adequate funds for maintenance. The final debt payment provides an opportunity to establish a long-term financing framework for maintaining the facility with no significant change in future tax levies. Recommendation: f) Explore the various financing options, including a discussion of the issues related to each option, for financing major maintenance of parks. g) Assuming there is proper justification for long-term parks and trails major maintenance projects, appropriate a tax levy to the Park and Trail Improvement Fund equal to the amount of tax levy decrease due to the expiration of the Park Bond levy. 103 Equipment Financing The Equipment Fund accounts for the purchase of public safety, streets, parks, technology equipment and vehicles. The expenditures range from $1.7 million (2015 and 2018) to a high of $3 million in 2017 (refer to pages 67 -68). Equipment Fund Total expenditures $ 3,104,936 $ 1,711,866 $ 2,503,329 $ 3,051,674 $ 1,726,894 The primary revenue sources are property taxes, sale of assets (vehicles and equipment), and liquor fund contributions. The tax levy increases at a steady rate from $675,000 (2015) to $785,700 (2018) in order to minimize significant tax increases while providing adequate working capital during those periods when there are "peaks and valleys" in expenditures due to the equipment replacement schedule. The increase in 2015 represents 1.5% in the total City tax levy. Property Taxes - Equipment 2014 2015 2016 2017 2018 Expenditures 708,800 $ 745,600 $ 785,700 Increase/(dec.) 375,000 Election equipment 26,667 26,667 26,667 - - Fire 832,805 63,332 35,000 666,750 263,750 Parks 485,212 448,221 473,325 362,210 174,130 Police 813,523 316,977 590,898 674,164 80,487 Streets 861,827 742,626 1,283,675 978,294 626,871 Technology 84,902 114,043 93,764 370,256 581,656 Total expenditures $ 3,104,936 $ 1,711,866 $ 2,503,329 $ 3,051,674 $ 1,726,894 The primary revenue sources are property taxes, sale of assets (vehicles and equipment), and liquor fund contributions. The tax levy increases at a steady rate from $675,000 (2015) to $785,700 (2018) in order to minimize significant tax increases while providing adequate working capital during those periods when there are "peaks and valleys" in expenditures due to the equipment replacement schedule. The increase in 2015 represents 1.5% in the total City tax levy. Property Taxes - Equipment Recommendation: In order to reduce the significant 2015 tax levy (and future) increases, consider various options including but not limited to: h) Reducing the 2015 levy and increasing 2016 - 2017 levies. i) Financing assets with a value more than $500,000 with short term debt. 104 2015 2016 2017 2018 Tax Levy $ 675,000 $ 708,800 $ 745,600 $ 785,700 Increase/(dec.) 375,000 33,800 36,800 40,100 % Inc./(dec.) 125.0% 5.0% 5.2% 5.49,o' Percapita $ 11 $ 12 $ 12 $ 13 Increase/(dec.) 6 0 0 0 • Inc./(dec.) 120.6% 3.1% 3.1% 3.4% • Inc./(dec.) of Total Levy 1.5% 0.1% 0.1% 0.1% Recommendation: In order to reduce the significant 2015 tax levy (and future) increases, consider various options including but not limited to: h) Reducing the 2015 levy and increasing 2016 - 2017 levies. i) Financing assets with a value more than $500,000 with short term debt. 104 Property Taxes: levy Limits The State Legislature imposed levy limits throughout the late 20th century as a means of controlling property taxes and local government spending. In the last 14 years, the Legislature has re -imposed levy limits on several occasions. It is extremely difficult to predict when the Legislature will impose levy limits. In all instances when it was imposed, levy limits have been punitive to growth cities such as Lakeville. Debt has historically been exempt from levy limits. The 2014 tax levy prepared for the potential re -imposition of levy limits by reducing the tax levy for debt ($300,000) with a corresponding increase in the Equipment Fund levy. The shift was offset by Liquor Fund transfers typically appropriated to police equipment replacement to police station debt. Recommendation: j) Continue a property tax levy strategy of mitigating the adverse operational fiscal impacts in the event levy limits are re -imposed. 105 Revenues related to Growth The City of Lakeville is one of the fastest growing cities in the Twin Cities metro area. The growth, however, is subject to a number of external factors including but not limited to regional employment, housing supply and demand, mortgage interest rates and consumer confidence. The adopted 2014 General Fund budget and tax levy for operations were premised on an increase in revenues related to growth (building permits, engineering and planning fees) that were appropriated to operations and tax levy mitigation. Relying on growth related revenues to finance operations or property tax policies puts the City at financial risk during those periods when building activity does not meet budget expectations. A 10% fluctuation in residential building construction activity, for example, can result in a $140 —150,000 change in building permit revenues; a 10% fluctuation in platting activity can result in a $60-75,000 change in revenues. Historical data demonstrates that such risks are possible and probable. RESIDENTIAL PERMITS 500 400 - 300 200 i PERIDIA"' 0 200+6 2007 2008 2009 2010 2011 2012 2013 2014 2015 201+6 2017 2018 YEAR Total Residential Units Single Family Recommendation: k) Operating budget should be budgeted conservatively and in relation to the cost of services related to growth. 1) For those years when revenues exceed budget expectations, the favorable results should be appropriated to (a) reserves for those time periods when growth related revenues fall short of budget expectations or (b) capital improvements related to growth. m) For those years when revenues fall short of budget expectations, the unfavorable results should be financed from prior period reserves. 106 Fund Balance The Communications Fund accounts for franchise fees utilized to finance communications related activities. Franchise fees related to Education and Government (E.G.) franchise fees are restricted to equipment acquisitions related to E.G. purposes. The Communications Fund has an unrestricted fund balance of approximately $700,000 which is increasing by approximately $50-100,000 per year (refer to pages 36 - 37). Options related to future annual Franchise Fees include but are not limited to: A. Status Quo — Continue to accumulate in Communications Fund B. Status Quo - Continue to accumulate in Communications Fund. Reduce franchise fee rate to level required to sustain Communications objectives and activities. C. Appropriate to General Fund for services which would otherwise be financed with property taxes D. Appropriate to property tax reduction Options related to the accumulated unrestricted fund balance include but are not limited to: Status Quo ,- Continue to account for in Communications Fund ii. Appropriate to a one-time capital project such as facility remodeling or new road improvement iii. Appropriate to property tax reduction Recommendation: 0) Explore the various financing options with respect to (a) annual unrestricted franchise fees and (b) Communications Fund unrestricted balances — including a discussion of the issues related to each option. Options to be considered include but not limited to reduction in franchise fee rate and appropriation to one-time capital expenditures, financing services and/or property tax reduction. 107 108 Issues Identification 16% Fiscal Implications 109 Co�mmunityr Growth The purpose of this discussion is to identify existing and future needs of the City operations to meet the needs of a growing City. Community growth, especially residential, results in more service calls (such as police and fire), and miles of new streets, as well as additional park facilities and trails. Additional resources such as personnel are required in order to meet service levels activities. Service Continuity The financial projections provided in this Report take into account the additional resources (refer to pages 25 — 26) required as a result of community growth assumptions (refer to pages 24- 25). The following is a summary of fiscal implications. FISCAL COMMENT: Estimated Financial Resources Required ?i 2015 2016 2017 2018 General Fund I Inspections 106,809 93,182 98,890 104,784 Police 98,228 197,665 306,213 426,590 Fi re 167,716 173,406 179,088 184,743 Streets 17,443 81,357 155,049 218,056 Parks 91,177 125,860 132,862 138,228 Utility Fund Uti I iti es 40,491 83,723 139,089 Environmental Resources 63,565 78,526 83,260 110 Central Maintenance Facility The Central Maintenance Facility is the base of operations for the Streets and Park Maintenance Departments. The facility also provides the maintenance services for all City equipment and vehicles including police, fire and utilities. As the City fleet and maintenance operations increase, so will the need for storage and fleet maintenance. The scope and schedule of potential expansion have not been determined; however, based on the current community growth, expansion needs are likely to be proposed within the next 5 —10 years. FISCAL COMMENT: The construction and operational costs as well as method of financing for expansion of the Central Maintenance Facility have not been determined. Potential revenue sources are yet to be determined. Parks, Recreation and Open Space Develop sustainable environmental practices to preserve and protect our natural resources, open spaces and greenways. Plan for and enhance the parks, trails and recreation needs and expectations of Lakeville residents such as the community playfield and athletic complex in the Cedar Avenue corridor — Mattamy Development. The Parks, Trails and Open Space Plan is currently in the process of being updated. FISCAL COMMENT: Until such time as the Parks, Trails and Open Space Plan update is completed, the investment, maintenance and operational costs as well as fiscal implications have yet to be determined. Potential revenue sources include but are not limited to property taxes, park dedication fees and user fees. 111 Fifth Fire Station As the City grows, so too will the need for additional fire protection. There may be a need for an additional fire station; however, a completion date or date of initial operation has not been identified. FISCAL COMMENT: The construction and operational costs as well as method of financing and schedule for completion of a fifth Fire Station have not been determined. Liquor The strategic locations of stores and excellent management will enable the City to continue to capitalize on its customer base. The community growth, as well as growth in areas south and west of Lakeville, provides an opportunity to maximize profits if stores are properly positioned for the future. FISCAL COMMENT: The construction and operational costs, as well as method of financing for expansion of the Liquor Store in the vicinity of 1-35 and County Road 70, have not been determined. 112 Services The Community Survey conducted in April 2013 stated that 64% of residents disagreed or strongly disagreed with the position that the City should provide only the minimum level of services necessary. Survey respondents also indicated that a safe community, aesthetics, recreation, open space, environment, transportation and maintaining existing facilities ranked high in importance. Police The Police Department has identified a number of public safety concerns which, if they materialize, will require a greater level of resources for various purposes as shown below. ➢ Crime by residents from other communities ➢ Usage of prescription and illegal drugs ➢ Cyber crimes ➢ Chemical awareness in schools ➢ Need to be visible in community ➢ Being more involved in design (SEPTED) in city and community projects ➢ Maintaining adequate response times (Police) and typical "suburban" law enforcement services ➢ Nuisance calls, such as false alarms. Delayed responses will decrease the quality of life for residents. ➢ Transportation corridors historically bring crime such as drugs, prostitution and robbery. As Lakeville grows it may become very vulnerable to these transient types of crime. FISCAL COMMENT: 2015 2016 2017 2018 Police 98,228 237,665 306,213 506,590 The police positions are financed with property tax levies. 113 Engineering — Construction Administration The City contracts with consulting engineering firms to review and manage capital and development projects. The consulting engineer costs are either charged to projects or billed to the developers. The Public Works staff will be asking the City Council to consider an engineering position thereby reducing the reliance on consultants. FISCAL COMMENT: 2015 2016 2017 2018 Engineering - 131,370 113,376 122,567 If approved, the new position would be financed by the project they are assigned to or direct billing to developers. Engineering — GIS Technician The Public Works staff will be asking the City Council to consider the addition of a GIS Technician position to support increased asset management software implementation, data collection and entry. FISCAL COMMENT: 2015 2016 2017 2018 Engineering - GIS Tech - - 73,635 90,957 The position is financed with property taxes. 114 Human Resources — Employee Wellness Programs Health insurance costs are escalating at a rate far greater than other inflation factors. Providing employee wellness opportunities that encourage healthy lifestyles may enable the organization to better manage health insurance claims. In an effort to reduce employee health costs and insurance premiums, the Human Resources staff will be asking the City Council to consider hiring a consultant to manage components of the health and wellness program. FISCAL COMMENT: 2015 2016 2017 2018 Human Resources 5,258 5,258 5,258 5,258 Cost of the program would be financed from property taxes. Human Resources The Human Resources staff have identified a number of issues to improve personnel management including succession planning, professional development, updating job descriptions, administration of the Affordable Care Act and other legislative actions, recruitment as a result of employee resignations, benefit administration and compensation audits. In order to respond to work load demands, Human Resources staff is recommending City Council consideration of hiring an intern and part-time technician. FISCAL COMMENT: 2015 2016 2017 201 Human Resources 33,861 34,141 35,418 35,418 The Human Resources positions would be financed primarily with property taxes. Finance Department — Accountant The Finance Department's objective is to improve support services to City Council and staff. The new Accountant position would be responsible for assisting with annual preparation of 115 financial statements and budget, antenna site lease administration, facility maintenance contracts, utility billing administration and other accounting related duties. FISCAL COMMENT: Finance Department Senior Accountant Furniture and equipment Total 2015 2016 2017 2018 81,294 84,310 87,440 90,696 7,000 - - - 88,294 84,310 87,440 90,696 The position would be financed with property tax levies (90%) and utility fees (10%). Code Enforcement The 2014 budget provided funding for a new part-time (24 hours per week) Code Enforcement Officer who will be responsible for improving compliance with the City ordinances relating to property. The Planning Department will be asking the City Council to consider increasing the position to full-time in 2016 in order to effectively respond to the number of ordinance violations. FISCAL COMMENT: 2015 2016 2017 2018 Planning - 44,220 44,220 44,220 The code enforcement programs are financed primarily from property taxes and code enforcement fees. Recreation - Programs The Parks and Recreation Director is proposing to add a Recreation Program Coordinator who will focus on expanding and creating environmental education programs at Ritter Farm Park. The position would also be responsible for making recommendations on the remodeling of the Berres Cabin that would be used as a new and improved Environmental Learning Center. The position would evolve from part-time (24 hours per week) in 2016 to full-time in 2018. Funding 116 for the position would be derived from a combination of program fees and property tax levies, the exact amount of which has yet to be determined. Develop additional environmental or educational programs to promote natural and outdoor activities was a comment received as part of the Envision Lakeville process. FISCAL COMMENT: 2015 2016 2017 2018 Recreation - 48,219 68,160 72,990 The recreation program position would be financed with a combination of user fees and property taxes. Heritage Center The Heritage Center is generating rental income as well as recreation program revenues as a result of relocation to the new facility in 2012. The Parks and Recreation Director is recommending a new Recreation Program Assistant to process rental inquiries, and assist with marketing material, coordinating and overseeing recreation programs, Heritage Center volunteers collaboration with other community organizations and businesses, research trends and opportunities and development of the newsletter. The Heritage Center and Arts Center utilize part-time personnel and staff from other facilities to accomplish certain maintenance functions. The Parks and Recreation Director will be requesting City Council consideration of a full-time facility attendant position which will be shared with the Arts Center in order to prepare rooms, perform general building maintenance as well as janitorial duties. 117 FISCAL COMMENT: Heritage Center 2015 2016 2017 2018 Recreation Program Asst 76,080 72,476 74,712 77,046 Facility attendent 32,623 34,141 34,141 34,141 Total 108,703 106,617 108,853 111,187 While the intent is to finance the positions from facility use and program fees, the exact funding source is yet to be determined. Parks - Trails Trail lighting improves the safety of the park amenities. There are numerous trail segments throughout the City which do not have lighting. Trail lighting might be a potential amenity to include as part of a park bond referendum, financed with tax levies and/or park dedication fees. FISCAL COMMENT: The location and anticipated completion schedule for additional trail lighting has not been determined. Trail lighting construction costs have historically been financed with Park Development fees. Operational costs will depend on the number, location and type of trail lighting authorized by the City Council. Trail lighting operating costs are financed with property taxes. There are numerous segments along certain arterial and collector roadways which do not have trails. Providing trails along certain segments of arterials might be a potential amenity to include as part of a park bond referendum, financed with tax levies and/or park dedication fees. FISCAL COMMENT: The construction and operational costs of providing trails along certain segments of arterials or collector roads has not been determined. Construction financing has not been determined; however, potential revenue sources include but not limited to park dedication fees, voter approved bond referendum, property taxes or some combination thereof. Operating costs are financed from property taxes. 118 Parks — Outdoor Ice Rinks The current budget provides funding for eight rink sites including Cherryview, Dakota Heights, Greenridge, Highview Heights, Meadows, McGuire, Parkview and Prairie Lake Parks. Highview Heights Park was added back into the system in the 2011-12 winter season and Cherryview was added back in the 2012-13 season. Bunker Hill (now permanently closed), Quail Meadows and Rolling Oaks have remained closed since 2009 as a result of budget constraints. Within the undeveloped portion of Lakeville there may be a need for future outdoor ice; the location and initial commencement schedule of operation is yet to be determined. FISCAL COMMENT: Should the City Council decide to pursue additional outdoor ice rinks, the annual operating cost of an outdoor rink is approximately $6-8,000 per year per location. Investment in major maintenance may be required to reopen Quail Meadows and/or Rolling Oaks, the cost of which has not been determined. Financing is provided from property taxes. City Hall Renovation Renovate City Hall to improve efficiencies and customer service. Accommodating persons with disabilities to be considered. FISCAL COMMENT: The construction and operational costs as well as method of financing to renovate City Hall have not been determined. Revenue sources have not been identified. 119 Parks, Recreation and Open Space — Envision Lakeville process One of the Community Values identified as part of the Envision Lakeville process was "Access to Multitude of Natural Amenities and Recreation Opportunities." As a part of the process, comments were solicited from the community at large. The following is an overview of the comments received. ➢ Arts Center • web -page improvements • marketing • long range program and facility plan • access improvements ➢ Develop a publicly owned community center ➢ Securing land for future parks ➢ Legacy park ➢ Develop a multi-purpose sports field facility/complex ➢ A way -finding and directional signage plan ➢ Regional outdoor educational programs should be considered for Ritter Farm Park ➢ Funding trail system "missing links" ➢ Protection of natural areas ➢ Review lake and park amenities, programs and policies ➢ Consider more amenities at the lakes or within the park system such as — bike rental, canoe rental, gazebo or exterior entertainment space or venue, etc. Develop an integrated bike trail system along the lakes. ➢ Develop public/private partnerships to provide amenities at the regional parks and at Lake Marion ➢ Consider additional community and ethnic celebrations ➢ Expand Heritage Center programs into the evening and weekends for 50+ active seniors FISCAL COMMENT: The public comments received as part of the Envision Lakeville process have not been prioritized, project schedule delineated or the cost implications determined. Revenue sources have not been identified. 120 Emerging trends and issues Emerald Ash Borer (EAB) Infestation It is not a question of "if" it will happen but rather "when" it will happen. The emerald ash borer beetle which ravages the ash tree population creating expensive cleanup costs for property owners and municipalities is currently in South Eastern Minnesota and the metro area. The proposed budget creates a Forester position that will focus on implementation and administration of the Tree Preservation Ordinance, shade tree disease and infestation control programs, landscaping and reforestation of public lands and parks, maintenance of trees and shrubs and technical assistance to property owners. Property owners will be responsible for disposal of trees on their own respective parcels. Substantial municipal resources will be required when EAB infestation reaches Lakeville. FISCAL COMMENT: The extent of financing requirements depends on the policies and scope of services yet to be determined. There are a number of financing options available including but not limited to property taxes, environmental fees and service charges. An initial $45,000 reserve has been established in the General Fund to finance future boulevard tree removal. High speed internet There is increasing need and demand for residents and businesses to have access to affordable high speed broadband service. Fiber to the premise was noted as comment received from the Envision Lakeville process. FISCAL COMMENT: The construction and operational costs as well as method of financing for providing high speed internet have not been determined. 121 Innovations and Efficiencies Innovation is one of the reasons why the organization has been able to be cost effective and efficient. Effective application of technology is a major factor in optimizing organizational efficiencies. Cooperative ventures The City has a long successful history of utilizing cooperative ventures with other governmental units to provide services cost effectively. Examples include but are not limited to Dakota Communications Center, Lakeville Arenas, ALF Ambulance and LOGIS. Examples of potential future ventures include but are not limited to the following: ➢ Hosting of VolP center for another city ➢ Computer forensics ➢ Gun range ➢ Professional development FISCAL COMMENT: The scope of cooperative ventures to be pursued as well as fiscal implications has yet to be determined. Technology Continue to provide departments with current up-to-date equipment, technology and other resources to efficiently meet service demands. Manage the "butterfly" effect of chasing trends which may not improve productivity or reduce costs. Stay proactive before the organization becomes strictly reactive. Provide some flexibility in the budget to take advantage of innovative processes and technologies. Invest and use technology efficiently. Technology 122 related investments with potential for improved productivity and/or cost effectiveness are as follows. ➢ Virtual Desktop ➢ Mobile app development ➢ Mandatory video for law enforcement ➢ Hosted solutions (Cloud based) ➢ Application software hosting (MS Office 365) ➢ Fiber optics ➢ Salt management system FISCAL COMMENT: The investment and operating costs of potential technology applications to be pursued as well as fiscal implications have yet to be determined. Revenue sources yet to be identified. Employee education and training Stay abreast of technology enhancements to improve efficiency by providing greater use and opportunities to learn new technologies. Increase training for employees to keep abreast of the latest technologies, policies and procedures. FISCAL COMMENT: The investment and operating costs of technology training as well as fiscal implications have yet to be determined. 123 12-4