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HomeMy WebLinkAbout09-11-14 WSCITY OF LAKEVILLE CITY COUNCIL WORK SESSION MINUTES Thursday, September 11, 2014 Mayor Little called the meeting to order at 6:30 p.m. in the Marion Conference Room, City Hall. 1. Roll Call: Members Present: Council Members Swecker, LaBeau, and Davis, and Mayor Little Council Member Anderson joined via video conference Staff Present: Allyn Kuennen, Interim City Administrator; Dennis Feller, Finance Director, Chris Petree, Public Works Director; Cindi Joosten, Human Resources Manager; Julie Werner, Senior Accountant; Brett Altergott, Parks and Recreation Director; Police Chief Jeff Long, Fire Chief Mike Meyer; Deputy Police Chief John Kornmann; Dave Olson, Community and Economic Development Director; Daryl Morey, Planning Director; Judi Hawkins, Deputy City Clerk 2. Citizen Comments Harley Horsager,17141 Jaybell Ct., stated that parks are an important part of life in Lakeville and many park visitors from outside the community bring business to the area. Representatives from Lakeville Friends of the Environment stated that they often visit the parks and host bike rides several times a year. They see people using all the parks and many people state that Lakeville's good parks were one of the reasons they moved to Lakeville. Mayor Little stated that the Council has received many emails and appreciates the public's involvement in the budget process. Council received an email from Tim Roche, new president of the Lakeville Area Chamber of Commerce, asking that any tax increase be moderate and heavily scrutinized; he also had concerns about the formula being used by Dakota County to determine increases in market values and taxes on businesses. 3. Heritage Center Skylight Update Public Works Director Chris Petree updated Council on the Heritage Center Skylight project. Petree stated that since the last work session when other potential options for resolving the skylight issue were identified and discussed, staff has met with Inspect, the City's roofing and structural contractor. Council members had also suggested meeting with contractor Mike Bischel whose recommendation was to replace the skylight panels with a new system. He believed this would be the most economical and feasible. If that is not the direction Council chooses, he would recommend one of three other options: a new lower roof structure; raising the roof structure with translucent side panels for skylights; or new sloped roof panels to replace the skylight with another similar skylight system. Of those three options, he believed building vertical panels would be a better option than raising or lowering the roof deck, since those options would require a structural engineer. Inspec provided a proposal for preliminary design work and opinions of probable cost for the three options at a cost of is $3,325. Detailed design work for whatever option is chosen by the Council would then need to be completed, at an additional estimated $12-14,000 for each option. Cost for actual work is difficult to estimate without structural engineering. Staff is asking for Council's direction on how to proceed. City Council Work Session September 11, 2014 Page -2- The increased project cost of about $30,000 is a result of the age of the panels and the fact that they are no longer manufactured. Swecker asked if the $12-14,000 per option includes any of the necessary materials; Petree stated that is strictly for the design cost for a new system. LaBeau asked if there was any evaluation of the roof or skylights done at the time the decision was made to renovate the building; Petree stated that an evaluation was done on the mechanical equipment but was not aware of one done on the skylights. The project will take up to two weeks and if it isn't started soon, weather could become an issue. Council Member Anderson believes Inspec should have recognized that the project was over budget from the beginning. Now that funds have already been spent there is no way to find a less expensive solution. He suggested in the future when significant cost variances are noticed on a project the Council could hold discussions before moving forward. LaBeau stated that any time the Council moves forward with an unbudgeted item, they need to be sensitive to everyone's needs and not be faced with a forced issue. Swecker stated that it's important to maintain and protect City assets. Little asked if Council members were comfortable with moving forward with replacement of the skylights as recommended. Anderson asked what would be the result if this is not repaired before winter. Petree stated that the leaking roof is damaging and staining the interior ceiling. The skylight panels are 30 years old and have surpassed their expected useful life of 25 years. There is also a risk of diminished structural integrity. Council directed staff to place awarding a contract for this previously tabled item on the next regular agenda for consideration. If approved, funded would be through the Building Fund. 4. Potential 2015 Budget and Tax Levy Mayor Little stated that the main goals of this discussion are to answer questions and take a more in-depth look at scenarios which were discussed at the last work session. Interim City Administrator Allyn Kuennen summarized what has been discussed to date and reviewed the process for determining the tax levy. Historically, Council's goal is to have a conservative, consistent budget and tax levy and to keep them as low as possible to avoid significant increases in the tax levy from year to year. During the recession, the City focused efforts on being as efficient as possible available funds. Adjustments were made in the proposed 2015 budget including internal restructuring of the police and fire departments, reorganization of Public Works Dept., and preparation of a business plan by the Parks Department. As the economy improves the City is challenged to be a good steward of the City's tax dollars while incrementally addressing maintenance and reinstating programs that are enjoyed and expected by residents. Finance Director Dennis Feller stated that the objective of this meeting is for staff to receive guidance from Council on preparation of the 2015 Preliminary Tax Levy and the 2015 Preliminary Budget. The truth in taxation hearing will be held on December 1, 2014, followed by a two week public comment period, with adoption of the tax levy and budget on December 15, 2014. The past two work sessions have focused on the tax levy and budget. In May, a five-year financial projection was prepared to provide Council with a tool to review long-term operational and City Council Work Session September 11, 2014 Page -3- financial issues. The goal of the five-year plan was to create greater efficiency in a long-term budget. Staff is asking Council to consider directing staff to prepare a multiple year budget thereby providing long-term financial and operations guidance. Feller reviewed the two 2015 preliminary tax levy scenarios that were proposed at the August 25 budget work session. Scenario A was 5.5% with a net 2% increase; Scenario B was a 6% increase in the tax levy with a net 2.5% after growth. Feller described the four categories in the budget. Operations: In addition to basic major maintenance and inflationary factors, other projects outside of what would be considered normal maintenance are outlined in the Finance Director's memo. The 2014 street reconstruction project is financed with debt over a ten-year period. Feller discussed potential designations of undesignated funds and asked for direction on how that could be appropriated. These funds can be allocated to major maintenance projects, services related to growth, new services or programs, or to reduce the tax levy. The overall increase in the tax levy for major maintenance was $442,000. The largest single line item is for Parks, $233,000. The potential $76,000 tax levy increase for the Equipment fund would provide for the replacement of existing equipment and new equipment to improve efficiencies. A tax levy increase would be necessary to purchase new, more efficient equipment and hire associated personnel. Several items in the budget are intended to increase efficiencies with Public Works operations including a Mobile Resource Management System for snow and ice removal. Feller reviewed allocated fund balance transfers of $727,000. Swecker asked how much of those funds are still being considered for allocation to the equipment fund. Feller stated that there are three one-time transfers: Communication Fund, $495,000; General Fund, $720,000; and Pavement Management Fund, $524,000. Those transfers were anticipated as part of this budget. Facilities: Over the five-year period there is a $47,600 annual tax levy increase proposed each year. Details were provided on each building for the next six years. If Council does not move forward with this tax levy, beginning in 2016 and thereafter, the budget will be on a pay-as-you- go method for facilities and the tax levy for facilities will fluctuate from year to year. An annual increase of $32,000 is proposed for trail maintenance to mitigate the significant tax increase over a five-year period. A tax levy increase of $13,800 annually is proposed for pavement management. Council has received information on new personnel positions. Details were discussed at a previous work session. Staff is available to answer any questions. Feller discussed the impact of the proposed tax levy. Taxes on a median valued home of $245,000 would increase by 8.3% for the coming year. For Scenario A the City tax levy is $903; under Scenario B the amount is $908. Feller stated that commercial and industrial property values have not changed for 2015. As such commercial and industrial properties will have a 2% to 3% decrease in City property taxes for the coming year. City Council Work Session September 11, 2014 Page -4- Feller stated that one of the primary drivers of the tax levy is street reconstruction. In an older, fully developed city, street reconstruction is part of the annual budget with an annual increase for inflation. Lakeville is in the third year of a ten-year program of implementing a Street Reconstruction program. As such, the property tax levy will increase by approximately $480,000. After the 10th year the property tax levy for street reconstruction should stabilize. Beginning in 2015 the street reconstruction program is accelerated and the dollar amount will be significantly greater than 2014. Council previously directed staff to move forward with the accelerated program with no increase in the tax levy. This results in a longer payoff period, so rather than 10 years, the debt retirement will be spread over 12-14 years depending on the interest rate. Anderson asked if growth in the community would cover a portion of the increased costs and if the actual dollars in the budget are above inflation. Feller noted that the reason the proposed tax levy for operations is above inflation is due to programs such as police reserve recruitment program, volunteer firefighter program, liability and workers comp increases, utility rate increases, and health insurance costs. Feller explained that the median value home will have a property value increase of 8.3% for taxes payable 2015. Lower value homes will pay a higher tax percentage increase than higher valued homes for two reasons. 1) The Park Bond referendum that expired was based on market value, not tax capacity value. 2) Not all properties are increased by 8.3%; some are more, some are less - even as low as 1-4%. Home values are going up but the majority of commercial properties have received no market value increase. This flat market value will result in a 2-3% decrease in City property tax on commercial/industrial properties. Swecker pointed out that this shift in the tax burden between residential and commercial properties is a continuing phenomenon. Davis believes it is important for residents to see the breakdown of where their taxes are allocated between City, County, Schools, etc. so they can clearly compare the various impacts. LaBeau stated that the market value is the assessed value and not necessarily what the property might sell for. Feller stated that residents should be directed to the City's website for more information. Swecker also wants to stress that even though residents might see 5.5% on the tax bill, 2.7% is coming from new residential growth. Davis believes the actual dollar amounts rather than percentages are more impactful and transparent to residents. Swecker also noted that Council has committed to a long-term street reconstruction plan which is about 37% of the increase. Mayor Little is proposing a tax levy of 6.34%, which is a 2.84% net increase adjusted for growth. The budget includes an additional allocation of levy funds to pay down long-term debt and to move toward a pay-as-you-go system. Little is also proposing funding of several staff positions as requested, a traffic enforcement unit, and keeping the rink open at Highview Heights Park. He is also proposing a decrease in the contingency and major park maintenance. The financial impact would be $42.22 on a median value home. LaBeau asked why certain debt cannot be paid down with existing TIF funds. Mr. Feller responded that there are four expiring tax increment districts. At the September 29 work session, staff will present options for modifying those TIF plans. There is some flexibility, but City Council Work Session September 11, 2014 Page -5- expenditures are limited by state statute. There is also $2.2M from the loan repayment which also is restricted by guidelines. One of the TIF plans might need to be reapportioned from the County, in which case the City will receive about $230,000, with no restrictions. LaBeau also stated that constituents are concerned about rising taxes; $35-40 is a lot of money for many people. There are many factors to consider but she believes it is Council's responsibility to make choices based on the wishes of the majority of taxpayers in the community. Feller explained that staff begins with zero -base, bare bones budget and builds from there with essential items. Funding sources are taken into consideration such as state aids and user fees. The remaining portion of the budget not financed with non -tax revenues is financed with the property tax levy. Little stated that he is proposing $125,000 additional each year beginning with the 2015 tax levy to be earmarked toward debt, which would help prevent interest payments in the future. Feller stated that this is a small but relevant step in reducing reliance on debt while also reducing interest and minimizing the tax levy. At the end of 2014 the City's debt will be $90-100M; by 2018 it will be $115M based on current projections. Springsted, the City's financial consultant, advises the City to not include a call provision for the first ten years of a loan. This is the most cost effective, since it provides the lowest interest rate but is subject to a prepayment penalty. The City's share of the 2015 street reconstruction is estimated to be $6M. By spreading the payments out over 15 years, the interest rate is lower. This concept is illustrated in detail in the five-year financial projection. LaBeau wants to make sure that the community understands that the City has this level of debt. Swecker referred to a graphic from the August 25 presentation which shows the cuts that have been made and the percentages of tax levies. Mayor Little stated that he is comfortable with a 2.84% increase in the preliminary levy and asked for Council discussion. Davis stated that he has studied the budget and is comfortable with a 2.25% net tax levy adjusted for growth for the preliminary levy and could possibly go to 2.5%. Swecker appreciated seeing a dollar amount for operations and street reconstruction. There's not a lot of flexibility except with prioritizing the undesignated funds. She is recommending setting the preliminary levy then determining how much is needed for funding priorities, possibly keeping some of the personnel positions in the budget. Anderson stated that the Council has made a firm commitment to road improvements and believes people are concerned about the parks. Council needs to live within their means and use resources wisely. There is work to do before finalizing the budget in December. Anderson is willing to compromise at 3-4% final tax levy increase to be approved in December before taking growth in tax base into consideration, while continuing to work on priorities and strategies. City Council Work Session September 11, 2014 Page -6- LaBeau is focusing on the additional taxes and believes people are sometimes overtaxed. She believes some of the growth can pay for infrastructure or some fees can be restructured. The budget contains a lot of moving targets and unknowns. There will be decisions to be made in the park system when the park plan is completed. She is comfortable with a preliminary levy of 5.5% adjusted. Little is concerned about voting for a preliminary levy that he is not comfortable with and would support a net increase adjusted for growth of 2.75%. Swecker is concerned that this amount will not allow any increase in personnel. Anderson stated that he could not support more than a total of 5.5% unadjusted. Little wishes to leave discussions open, since the levy amount can always go down, but not up. He encouraged Council not to foreclose discussions. Council directed staff to move forward with placing a 5.5% preliminary tax levy on the September 15 agenda for consideration. 5. Other There was no other business. 6. Adjourn Mayor Little adjourned the meeting at 8:15 p.m. Respectfully submitted, I�LVA"Lll .,) Ju i )Hwkins, Deputy Clerk Ma Little, Mayor