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CHA 02/06/2017 TO: Charter Commission Members FROM: Deb Skogen, City Clerk and Staff Liaison Date: February 3, 2017 Re: Charter Commission Meeting of February 6, 2017 Monday This is a reminder to you that the next Charter Commission meeting will be held on , January 6th at 7:00 p.m. in Conference Room A on the Upper Level. In order to ensure a quorum, please remember, the Charter Commission policy requires a member to call or e-mail me before 10:00 a.m. Monday, January 6th, as to whether or not you plan on attending the meeting. You may call or e-mail me at (763)572-3523 or deb.skogen@fridleymn.govas to your attendance. If I do not have a quorum by 10:00 am, I will send out an e-mail to see if additional members will attend. If by Noon there will not be a quorum, I will send out an e-mail to all members and post a notice on the door announcing the cancellation of the meeting for those Commissioners who did not contact me, but came to the meeting. There are three applications for you to review prior to the meeting for two vacancies. The individuals will be present for you to meet them and ask questions. So come prepared with questions. The Commission has been discussing Chapter 7 pertaining to the levy restrictions. A handout and presentation will be made by staff at the meeting reviewing questions you asked at your last meeting. The ordinance recommending amendments to Chapter 2 of the Charter will go to the City th Council as a public hearing on Monday, February 13. The public hearing notice was published and the City Council is aware that it is coming before them. If you have any other questions or concerns, please feel free to contact me. Thanks, See you Monday. CITY OF FRIDLEY CHARTER COMMISSION AGENDA MONDAY, FEBRUARY 6, 2017 7:00 P.M. LOCATION: FRIDLEY MUNICIPAL CENTER CONFERENCE ROOM A UPPER LEVEL 1.CALL TO ORDER: 2.ROLL CALL: 3. APPROVAL OF AGENDA: Motion approving the February 6, 2017 meeting agenda 4. APPROVAL OF MINUTES Motion approving the January 3, 2017 meeting minutes 5. ADMINISTRATIVE MATTERS A. Report of Nominating Committee B. Vacancies Interviews of Potential Commission Members 6. OLD BUSINESS A. Discussion of Chapter7 7. NEW BUSINESS 8. FUTURE MEETING TOPICS/COMMUNICATIONS A. Discussion of Chapter 10 (Tabled until after current franchise negotiations completed) 9. ADJOURNMENT Motion to adjourn the meeting Next Regular Commission Meeting Date: MARCH 6, 2017 CITY OF FRIDLEY CHARTER COMMISSION MEETING JANUARY 3, 2017 CALL TO ORDER: Chairperson Reynolds called the Charter Commission meeting to order at 7:00 p.m. ROLL CALL: Members Present: Commissioners Gary Braam, Don Findell, Manuel Granroos, Cindy Soule, David Ostwald, Barb Reiland, Pam Reynolds, Avonna Stark Members Absent: Lois Scholzen, Rick Nelson, Ted Kranz, Zach Crandall, and Richard Walch Others Present: Deb Skogen, City Clerk/Staff Liaison Wally Wysopal, City Manager Scott Lund, Mayor Ann Bolkcom, Councilmember Ward 3 Jake Foster, City Management and Elections Intern Rich Johnston, Fridley resident APPROVAL OF AGENDA Chairperson Reynolds asked if she needed to call for a motion to amend the agenda to add an item appointing the nominating committee for officers. Ms. Skogen said Chairperson Reynolds could add the item to the agenda and someone could make a motion to amend the agenda. Commissioner Findell MOVED and Commissioner Braam seconded a motion to amend the meeting agenda by adding the appointment of the nominating committee to the administrative matters section of the agenda. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON REYNOLDS DECLARED THE MOTION CARRIED. Commissioner Reiland MOVED and Commissioner Stark seconded a motion to approve the amended agenda. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON REYNOLDS DECLARED THE MOTION CARRIED. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 2 APPROVAL OF MINUTES Chairperson Reynolds asked for a motion to amend the minutes from October 3, 2016. Commissioner Findell MOVED and Commissioner Braam seconded a motion to amend the Charter Commissioner meeting minutes of October 3, 2016. Chairperson Reynolds stated she had some minor edits to the minutes from October 3, 2016. On page 4, fourth paragraph, she would like the minutes to reflect it is her personal belief and personal issu Chairperson Reynolds asked if there were any other changes. She said on page 5, first sentence, the should be removed from the first sentence in the second to last paragraph. Commissioner Reiland agreed. With no other changes, Commissioner Reiland MOVED and Commissioner Stark seconded a motion approving the amendments to the Charter Commission meeting minutes of October 3, 2016. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON REYNOLDS DECLARED THE MOTION CARRIED. Ms. Skogen stated there was one other open motion from Commissioner Findell who MOVED to amend the Charter Commission meeting minutes of October 3, 2016. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON REYNOLDS DECLARED THE MOTION CARRIED. ADMINISTRATIVE MATTERS A.2017 Calendar/Membership Information Ms. Skogen provided the commissioners with hard copies of the approved 2017 calendar and membership information. She asked that each commissioner review the information provided on the 2017 Charter Commission Membership handout and make corrections if needed. B.Vacancies Ms. Skogen stated she had received a resignation from Novella Ollawore, as she had moved out of Fridley. She had received one application from Bruce Nelson which was included in their agenda packet. Commissioner Stark asked if any other applications were received. Ms. Skogen confirmed there were not ly one that was received. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 3 Chairperson Reynolds asked if they would like to discu or wait until he was present. Commissioner Reiland said it looked like he had a lot of good experience that would help the committee and was in favor of considering him. Both Commissioner Reiland and Chairperson Reynolds thought it would make sense to wait until he was in attendance to discuss his application. C.Nominating Committee Ms. Skogen said the Commissioners should appoint a Nominating Committee who would meet before the next meeting to provide a report for the next meeting. The election would then take place in March for the new officers. Chairperson Reynolds said Bylaws stated it was time to create a nominating committee of three commissioners to nominate individuals for the leadership positions and asked for volunteers to participate on the committee. After some discussion, Commissioners Reiland, Findell, and Granroos agreed to become members of the Nominating Committee. Ms. Skogen mentioned the Committee must meet in person, not over-the-phone, to be in compliance with open meeting laws. She also said the meeting needed to take place before next meeting so a report could be provided to the members. Commissioner Reiland suggested they meet after their current meeting concluded. The others agreed. Chairperson Reynolds asked for volunteers who would be interested in serving in a leadership position, and Commissioner Ostwald volunteered for serving as the Commission chair or vice chair. OLD BUSINESS A.Discussion of Chapter 2 Chairperson Reynolds said Ms. Skogen had prepared the amended changes for Chapter 2 in ordinance format for recommendation to the City Council. Chairperson Reynolds said when they met last October, the Commissioners were discussing Chapter 2.07 which is now 2.08, and added the conversation was in the minutes. Her concern was that it did not explicitly explain what in regards to salary and benefits. Chairperson Reynolds provided a handout suggesting changes to the language to this section. After additional discussion regarding the timeline and specificity of the language, the Commissioners decided the language was fine as written, and that this section of the chapter could be sent to Council as prepared by Ms. Skogen. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 4 Chairperson Reynolds also asked why there was not a specific process outlined in Chapter 2 for how a vacancy was determined and then filled. Ms. Skogen responded saying the language for Chapter 2 in the agenda only included the changes or updates being recommended in order to save money when printing the public notice. Commissioner Braam MOVED and Commissioner Soule seconded a motion approving the recommended amendments for Chapter 2 as prepared in ordinance format and sending it to the City Council for the public hearings. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON REYNOLDS DECLARED THE MOTION CARRIED. NEW BUSINESS A.Discussion Pertaining to Chapter 7 Chairperson Reynolds and Ms. Skogen asked Mr. Foster if all of the materials for the discussion of Chapter 7 were provided in the packet. Mr. Foster stated the materials provided had been sent to the Commissioners and Council previously, but he had put them in one packet for easier reference and provided a handout. Ms. Skogen asked Chairperson Reynolds if she would like to open to floor to Mr. Wysopal to begin the discussion of Chapter 7. Chairperson Reynolds said she would like the Commissioners to have a few minutes to looks over the materials prior to opening the discussion. Ms. Skogen said if there is no objection, Mr. Wysopal can begin the presentation he has prepared. Mr. Wysopal thanked Chairperson Reynolds and the Commissioners for their time and agreeing recapped the process so far. He stated city staff had sent a questionnaire detailing the purpose and general thoughts on Chapter 7, with a follow-up memo asking Commissioners and Council members what metrics might be helpful to use in the evaluation of Chapter 7. Based on the responses to the follow-up memo, city staff prepared and provided statistics, metrics, and other measures as requested by Council members and Commissioners. The handout provides metrics they would like to review and address any questions. He stressed they have not tried to be evaluative throughout this whole process, but to seek to discuss it in an unbiased and educational matter so he can provide a financial evaluation of the city in the future. He stated there was no other city that could be compared to Fridley, as Fridley was the only City with the levy restriction. Handout 1 unemployment rate, and personal income) Mr. Wysopal stated the intent of this graph was to provide historical demographics of Fridley; rd where it ranks in population (33 highest in the state of Minnesota), how unemployment and personal income rates have compared to the state averages, and the sources from which the information was obtained. Mr. Foster stated personal income was based on the - personal income metric for the City of Fridley. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 5 Handout 2 Mr. Wysopal said graph 2 showed how state changes can affect how metrics are calculated from time-to-time. For example, up until 1995, estimated market value was used in calculating tax rates. After 1995 the state began to use the tax capacity rate. Estimated market value is the total value of the locally assessed real property values in the city. Tax capacity rate is determined by dividing the total levy by the total tax capacity. Tax Capacity is the valuation of property based on the estimated market value and property class. Commissioner Soule asked why there was such a drastic difference between the estimated market value and the tax capacity rate in 2015. Mr. Wysopal and Mr. Foster were uncertain for the difference and agreed to further investigate. Mr. Wysopal and Mr. Foster wanted to ensure everyone understood these metrics, their impact s tax levy, and why there may have been other drastic changes in the numbers in certain years. Handout 3 Mr. Wysopal defined the tax levy as being the amount of money the City used on its operations through property taxes. He said Springbrook Nature Center began receiving its own levy in 2005. Due to the restrictions, the City needed to start issuing debt to cover operational costs in 2006. He further described the chart on the bottom as being the year-over-year percent change in operational levy. Chairperson Reynolds asked if any of the charts showed when Local Government Aid (LGA) from the state may have changed. Mr. Wysopal referenced an indicator on the charter in 2011 where LGA was cut, but the City was able to levy beyond the restrictions to make up the difference in revenue. Handout 4of Fund Balances Non- Mr. Wysopal described fund balances as being simil- the total money left in a personal checking account one might have between paychecks. He said the City generally receives two . The City must cash-flow during the months in between each of He also said the City Council budget in order to make sure they have sufficient funds until they receive the next property taxes or LGA. Mr. Foster added the chart was not adjusted for inflation. The 1996 total of 39 million dollars was the real dollar amount in 1996 and not what that dollar value would be worth in 2016. Additional discussion took place to clarify any confusion with charts or to address any questions. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 6 Handout 5 Mr. Wysopal introduced the next chart in the same context of the prior handout, but this chart also showed where 35% to mentioned how the City had a strict policy against issuing debt for operational expenses, which puts an additional strain on these funds. They are required to carry a fund balance into the New Year. Handout 6: Chart containing information on county, city, school district, median value home, 2017 total taxes, and whether or not the city was a fiscal disparities net recipient Mr. Wysopal said the next few handouts begin to compare various Fridley indicators with neighboring and similar cities. He further described the information on the chart and how Fridley compares to the other cities. He added it was important to understand there are two rates for home values. Homes are taxed at one rate up to $100,000, and another beyond that amount. Mr. Wysopal described fiscal disparities and how it worked. He said many of the neighboring cities are the largest receivers of these fiscal disparities in the metro area. Mayor Lund added Handout 7: Net Benefit of Fiscal Disparities of Surrounding Communities Mr. Wysopal said this chart would further describe fiscal disparities. He said Columbia Heights receives almost a 25% benefit increase on their property taxes due to fiscal disparities in contrast with Fridley that is losing value. He added, since the fiscal disparities program has been put into place, cities in the metro area put 40% of all new commercial and industrial property that is generated in a city into a pool, and then the state uses a formula to decide who needs these benefits the most. This commercial value, or benefit, is given to cities that have less commercial and industrial growth. Mr. Wysopal used an example in saying a home valued at $171,000 in Fridley would pay about $150 less in property taxes if it were located in Columbia Heights. Commissioner Findell said this program could create a disincentive for a city to further develop its commercial and industrial areas to grow their tax bases. Mr. Wysopal said it is still beneficial as it can add jobs, and it is easier not to have to depend on receiving fiscal disparities. Chairperson Reynolds asked if population figured into the determination of receiving fiscal disparities. Mr. Foster said it might be more related to population density and a lack of room for commercial and industrial development. Further discussion took placed to clarify various attributes of the fiscal disparities program. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 7 Handout 8: Table containing information on city, the total revenues in dollars generated by franchise fees, and whether or not the city had gas and/or electric franchise fees Mr. Wysopal said this graph addresses franchise fees which was a major component of the restriction in Chapter 7, which franchise fees. Mr. Foster said the State Columbia Heights and Brooklyn Park have recently voted to implement gas and electric franchise fees, but the chart does not yet show the revenues generated by these fees. Chairperson Reynolds asked if there were other cities similar to Fridley relating to franchise fees. Mr. Wysopal responded they chose the cities directly neighboring the City of Fridley. Mr. Foster and Mr. Wysopal explained how it was difficult for them and city staff to determine the impact of the revenue dollars as the specific totals from each fee and where this money was used was unclear. Mr. Wysopal further explained that franchise fees can be a way to fund city operations through a source other than property taxes so tax-exempt buildings can also contribute to that revenue. Mr. Wysopal stated that the next few graphs dealt with comparisons of current index measure being used in the levy restriction (CPI) and other similar indexes. Handout 9: % Change in CPI Mr. Wysopal said this graph showed how the CPI had changed from year-to-year, and more about what the CPI is (a measure for consumers). Handout 10: IPD vs. CPI % Change Mr. Wysopal stated the Implicit Price Deflator is another measure that can be used to limit government spending, and that is often used at the state-level to impart restrictions. He defined this particular price deflator as the ratio of current dollar gross domestic product (GDP) to constant dollar GDP for state and local governments. The ratio is used to account for the effects of inflation. Chairperson Reynolds noted the color of the line for the CPI changed from the last chart. Mr. to provide better clarity. More general conversation took place regarding what was included in the CPI and what might impact the index. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 8 Handout 11: % Change CPI vs. % Change in MCI Mr. Wysopal stated the Municipal Cost Index is another measure that is similar to the CPI and has been developed by American City & County. This measure seeks to account more specifically for government expenses and the impact of inflation on these expenses. mentioned property values would go up and the mill rate restriction would account for this value increase, thus, allowing the City not to have to raise their tax rate. Mr. Wysopal summarized the purpose of these last handouts were to demonstrate similar measures to the CPI Handout 12: Local Gross Domestic Product (GDP Minneapolis-St. Paul-Bloomington) Mr. Wysopal described the graph showing the local GDP and what that measure has done since 2001. Handout 13: State and local government investment (National in billions) Mr. Wysopal indicated this graph showed spending in state and local governments and how it has changed over time. Handout 14: Personal income (Thousands of dollars Minneapolis-St. Paul-Bloomington) Mr. Wysopal stated this graph provided information on how personal income has changed in the area since 1994. He noted the percent change in per capita personal income from 1994-2014 is 156.24%. Handout 15: Budgeted Salary Increase vs. CPI % Change Mr. Wysopal said this graph compared the budgeted salary increase vs. the CPI change showing it is any vices and they cannot be outsourced. He added that the salary increases are discretionary and decided on by the City Council. Chairperson Reynolds asked what happened to the CPI in 2009. Mr. Foster responded in saying the market crashed around 2008 and the CPI change in 2009 was likely in response to that crash Chairperson Reynolds followed up asking why a similar drop happened in 2015. Mr. Foster said this drop may have been in response the large increase in CPI in 2011. He said the graph represents a percent change in CPI which may indicate stabilization in inflationary measures. Further discussion took place regarding the CPI and its drastic changes in certain years. CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 9 Chairperson Reynolds asked if the Gross Domestic Product (GDP) or other economic measures, could be compared to the CPI. Mr. Foster said the measures were related, but certainly different. He added the CPI could be overlaid with another access if so desired. More general discussion took place relating to the measures and charts that have been presented by Mr. Wysopal. Handout 16: Chart containing information on the differences and similarities between fund accounting, and fees Mr. Wysopal said this graph was a comparison between the limits statutory cities face and the Fridley Charter or other charter cities. The commissioners reviewed this handout independently. Handout 17: Timeline outlining the major changes in Chapter 7 regarding levy and fee restrictions Mr. Foster distributed the timeline handout to those in attendance and Mr. Wysopal addressed each point on the chart. General discussion took place regarding the timeline handout. Ms. Skogen said the 5% cap added to the restriction in 2001 carried over from the original petition. Mr. Foster said he would make the correction on the chart. . He stated he would like to open the meeting for discussion. He added he wanted to provide these metrics in an unbiased measure so Chapter 7 could be evaluated independently by the Commissioners. Mr. Wysopal said it was difficult to compare Fridley to other cities and evaluate their financial situation. The purpose for this exercise was to better educate and understand what the Commissioner Findell discussed how taxes and fees were determined during the time of the updated language regarding the -sustaining and taxes were more general. Commissioner Reiland added that fees were typically implemented for a specific use. General discussion took place regarding Chapter 7, fees and taxes, and Mr. Wyso presentation. Commissioner Findell stated he would like to continue the discussion on Chapter 7 with specific goals and examples of what the City would like to accomplish, and to better understand the CHARTER COMMISSION MEETING OF JANUARY 3, 2017 PAGE 10 ramifications of the restrictions. The Commissioners agreed the discussion should be on-going and added to the agenda for the next meeting. Mr. Wysopal thanked the Commissioners again for their time and for approaching the issue in a positive and patient manner. Upon prompting from Mr. Wysopal, Chairperson Reynolds agreed the continued discussion of Chapter 7 was a good idea and that the additional metrics and changes requested by the commissioners should be made for the next meeting. Commissioner Reiland also asked if any progress had been made with CenturyLink and Chapter 10. Ms. Skogen responded that the City was still waiting for a response from CenturyLink. agenda. FUTURE TOPCIS Old Business Discussion of Chapter 7 New Business Interview of Bruce Nelson and other applicants for the two vacancies. ADJOURNMENT: Commissioner Braam MOVED and Commissioner Reiland seconded a motion to adjourn the meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON REYNOLDS DECLARED THE MOTION CARRIED AND THE MEETING WAS ADJOURNED AT 8:30 P.M. Respectfully submitted, Debra A. Skogen, MMC City Clerk/Staff Liaison Commissioner Donald Findell Secretary January 4, 2017 Fridley Charter Commission Nominating Committee Report The Nominating Committee consisted of Commissioners Barb Reiland, Don Findell and Manuel Granroos. rd The Nominating Committee met on January 3 after the Charter Commission meeting. After discussion, the Nominating Commission offered the following nominations to serve as the 2017- 2018 Charter Commission Officers: Chair David Ostwald Vice Chair Don Findell Secretary Manuel Granroos All three members have agreed to serve if elected. TH MONDAY MARCH 6 The annual election will be held on at 7 pm in Conference Room A in the Upper Level. /ŷğƦƷĻƩ А 5źƭĭǒƭƭźƚƓ /ƚƓƷźƓǒğƷźƚƓ Based on the feedback commissioners provide in the last meeting, we have identified a few areas in which Chapter 7 has impacted city operations. In speaking with department managers and other staff, we have also been able to come up with specific examples of how the restrictions in Chapter 7 have impacted each of these areas. An outline of these categories that have been identified with their subsequent examples is below: CźƓğƓĭźğƌ ƷƩĻƓķƭʹ 1.Fund balance/reserves 2.Debt financing 3.Utility rates 4.Less money for capital improvement projects 5.Civic campus financing 6.Challenges with state-imposed levies 5źƒźƓźƭŷźƓŭ ƚŅ ƭĻƩǝźĭĻƭʹ 1.Seal coating 2.Public works equipment 3.Emerald ash borer 4.Recycling LƓğĬźƌźƷǤ Ʒƚ ƩĻğĭƷ Ʒƚ ǒƓğƓƷźĭźƦğƷĻķ ĭźƩĭǒƒƭƷğƓĭĻƭʹ 1.Body cams 2.Salaries 3. 4.Retirement of K-9 5.Tax court credits A further analysis of these items will be provided to commissioners in a presentation and report form during the next Charter Commission meeting. A comprehensive case-study further detailing a scenario ter rates will also be added to the end of the report. 2/7/2017 Chapter 7 –Analysis •Areas of impact •Financial trends/management •Examples of the diminishment of services •Inability to react to unanticipated circumstances and mandates Chapter 7 –Analysis •Financial trends/management: Debt Tax supported debt •Due to: •Limited reserves •No new funding sources •Limits on borrowing •Result: •The City is spending ½ of what is was spending on non-utility type capital improvements 1 2/7/2017 Chapter 7 –Analysis •Financial trends/management: Debt Tax supported debt •In 2017 the City will borrow $50 million to replace public buildings Chapter 7 –Analysis •Financial trends/management: Debt Revenue supported debt (utility funds) •Prior to CPI restriction: •Issued debt every 8-10 years •After CPI restriction was lifted: •Issued debt every 2-3 years 2 2/7/2017 Chapter 7 –Analysis •Financial trends/management: Debt $8,000,000 $6,000,000 $4,000,000 $2,000,000 UtilityBonds $0 1980's 1990's G.O.TaxBonds 2000's 2010's Chapter 7 –Analysis •Financial trends/management: Daily operations impacts ЋЉЊЏі/ŷğƓŭĻźƓ…ƷźƌźƷǤ/ƚƭƷǝƭ͵/tL 6.00% 5.00% 4.00% %Increase 3.00% CPI 2.00% 1.00% 0.00% GasolineElectricrateNaturalgas 3 2/7/2017 Chapter 7 –CPI restriction •Financial trends/management: Local Government Aid •A primary revenue source for governmental funds •In 2012 Council shifted LGA to support one-time projects •Provided a much needed funding source for project •If unalloted, there would be no impact on operations Chapter 7 –Analysis •Financial trends/management: Local Government Aid AllocationofLGAfunds 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 OperationsCapital 4 2/7/2017 Chapter 7 –Analysis •Financial trends/management: Civic Campus •Significant maintenance •No “down payment” •Bond ratings •Future borrowing limitations Chapter 7 –Analysis •Financial trends/management: State Levy Challenges 5 2/7/2017 Chapter 7 –Analysis •Diminishment of services: Seal Coating Chapter 7 –Analysis •Diminishment of services: Equipment deferment 6 2/7/2017 Chapter 7 –Analysis •Diminishment of services: Emerald Ash Borer Chapter 7 –Analysis •Diminishment of services: Recycling 7 2/7/2017 Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Body Cams Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Salaries 8 2/7/2017 Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Worker’s compensation Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Retirement of K-9 unit 9 2/7/2017 Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Mandates –PERA •Projecting an increase of 1% to the employer contribution to Police and Fire pension contributions Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Tax court credits •Below is a summary of an actual tax refund, which was settled and refunded in November 2014 (tax years 2010-2014) 10 2/7/2017 Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Tax court credits •Over the past 16 years… $8,000 X 493 petitions $4 MILLION in tax revenue returned •Other taxing authorities impacted by a tax credit have the ability to levy for those lost taxes in the upcoming tax year Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Budget Challenges •Developing the 2017 budget •Revenues •No increase in operational levy due to CPI restriction •Shift ½ of LGA revenue back to support general operations •Transfer of nearly ½ million from other funds •Expenditures •$330,000 in capital deferments •Did not anticipate a 27% increase in WC insurance premiums •Labor negotiations for our Police and Fire unions not completed •Unplanned replacement of K-9 dog 11 2/7/2017 Chapter 7 –Analysis •Inability to react to unanticipated circumstances: Budget Challenges •2018 Budget-what we know so far… –Revenues •Operational levy cannot increase by more than 1.6% or $170,000 –Expenditures •WC insurance premiums -$100,000 •Police and Fire pension increases -$35,000 •If a multi-year labor contract is settled–at a minimum $100,000 •Average increase to electric utility bills –4.93% •Average increase to natural gas utility bills –3.5% •Average gasoline price increases –3.8% •Seal coating increases –11% •Address $330,000 in capital deferments from 2017 Chapter 7 –Analysis •A case study: Utility Funds 12 2/7/2017 Chapter 7 –Analysis •Areas of impact •Financial trends/management •Examples of the diminishment of services •Inability to react to unanticipated circumstances and mandates 13 1 Chapter 7 Analysis Based on the feedback commissioners provided in the last meeting, we have identified three key areas in which the CPI restriction in Chapter 7 has impacted city operations. In discussions with department managers and other staff, we have collected some examples of how the CPI restriction in Chapter 7 has resulted in: 1.Financial trends since inception of CPI restriction 2.The diminishment of services 3.The inability to react to unanticipated circumstances and mandates Along with these examples, we will present a comprehensive case-study further detailing how this CPI restriction has had a lasting impact on the city’s utility funds 10 years after the CPI restriction was lifted. FINANCIAL TRENDS: 1.Fund Balance/Reserves a.Governmental Funds are typically funds that require tax support. i.General Operations ii.Capital iii.Special Revenue b.What is fund balance? i.Provides operational cash flow for upcoming year ii.Serves as a savings account for projects: 1.Upcoming year 2.Long range projects iii.Provides reserves for unforeseen needs c.What has happened to Governmental Fund balances since Charter restriction? i.Between 1986 and 1995, reserves averaged $36 million. ii.In 1996 reserves were $39 million. This equates to $61 million when adjusted to reflect 2016 dollars. iii.As of 12/31/16, it is estimated reserves will be at $22 million. Governmental Fund Balances $40,000,000 4.0% $30,000,000 3.0% 2.9% 2.5% $20,000,000 2.0% 1.7% $10,000,000 1.0% $0 0.0% 1990's2000's2010's ReservesCPI % Change 2 2. Debt a.Historical Tax-Supported Debt Issuance i.For nearly 30 years the City did not issue tax-supported debt. ii.Over the past 8 years, the CPI has increased by an average of 1.4%. iii.With Capital Improvement fund balances depleted, it has become necessary to borrow for equipment replacements (10 year equipment certificates). iv.In 2017, the City will borrow $50 million to replace public buildings. a.Historical Utility Fund Debt Issuance i.Prior to the CPI restriction on utility rates, the City borrowed every 8-10 years for infrastructure projects. ii.In 2007, the CPI restriction was adjusted to exclude Utility Rates from the limitation. iii.The City now borrows every 2-3 years to “catch up” on infrastructure/repair projects for Water, Sewer and Storm Water. 3.Examples of Daily Operations Impacts The City’s operating budgets are dependent on many commodity prices that increase above and beyond the CPI. These include such items as fuel and utilities. a.Over the past ten years, the City’s annual fuel budget for diesel and gasoline has averaged $250,000. Annual variations to the fuel budget have increased as much as 49% (2010 to 2011) due to fuel price and consumption. Consumption can change dramatically from year-to-year, mainly due to weather events (e.g. snow plowing). Annual increases in fuel price have been as high as 33% for unleaded gasoline and 41% for diesel (2010 to 2011). Since 2001, the price for gasoline has increased at an annual rate of 3.8%, which exceeds matching increases in the charter limitation. In order to purchase fuels for police, fire, public works, and other needs, various department budgets make constant cuts to offset the increase, resulting in loss of needed supplies, equipment, and personnel needed to maintain service levels. b.Utility rates have also varied from year to year, creating a similar need for offsetting cuts in facilities budgets. Power has had increases of up to 7% in its general service rate. i.2016 Electric rate increase 4.93% ii.2016 Natural Gas rate increase 3.5% 3 4.Decrease in Capital Investments a.The City’s Capital Investment Program includes budgeting for equipment replacement and infrastructure investment. The increase in costs of these investments, needed to maintain current service levels, regularly exceeds inflation. b.For example, the City deferred $330,000 in park and street equipment in order to balance the 2017 budget. c.With a 1.6% increase in the 2018 Levy, the City will need to consider deferring additional equipment or borrowing for its equipment needs. d.Due to limited reserves, no new funding sources & the limits on borrowing, the City is spending ½ of what it was spending on non-utility type capital improvements. Average Capital InvestmentsGeneral ObligationUtility Bonds 1980's $30,000 $161,000 1990's - $3,399,000 2000's - $4,134,000 2010's $1,228,000 $7,289,000 5.Local Government Aid a.Other than Tax Revenue, Local Government Aid (LGA) is the other primary revenue source for Governmental Funds. b.In the late 2000’s, the State unallocated LGA for several years, often with no advance notice. c.It has not been a reliable revenue source for general operations. d.In 2012, Council made the decision to shift LGA to fund one-time Capital Projects. i.Provided a much needed funding source for projects ii.If unallocated, it would have no impact on general operations. iii.With little increase in the operational levy, in 2016 LGA began shifting back to fund general operation. iv.With LGA being the primary funding source for the Capital Equipment Fund, the 2017 budget reflects nearly $350,000 in equipment deferments and ½ of LGA supporting general operations. v.The City is not anticipating an increase in LGA for 2017. 4 1,600,000 1,400,000 1,200,000 1,000,000 800,000 Capital Funds General Fund 600,000 400,000 200,000 - 2008200920102011201220132014201520162017 6.A Look at 2017/2018 Budget Considerations a.Developing the 2017 General Operations budget: Revenue requirements i.No increase in operational levy to due CPI restriction. ii.Shifted ½ of LGA revenue back to support general operations. iii.Transfer in of nearly ½ million from other funds. Expenditure projections i.Did not anticipate a 27% increase in Workers Compensation Insurance premiums for 2017 (notified of increase 1/10/17). ii.Labor negotiations for Police and Fire not completed prior to budget approval. iii.Unplanned retirement of K-9/unbudgeted replacement of dog. b.The 2018 Operations Levy is required to increase by no more than 1.6%: i.This equates to $170,000 in additional tax revenue available to fund governmental operations and capital. ii.If legislation passes this spring, PERA for Police and Fire pension employer contributions will increase by at least $35,000 for 2018. iii.With a 27% increase in the Workers Compensation premiums, the City anticipates an additional $100,000 necessary for the 2018 budget. iv.The City would be required to find alternative sources to fund a multi-year labor contract for Police. Statutory Cities are allowed to adjust their levy to fund these multi-year agreements. 5 7. Civic Campus Project a.Significant maintenance and improvements necessary all at once on both City Hall and Public Works facilities. i.No reserves or “down payment” available. ii.$50 million dollar bond issuance necessary to address all issues. iii.Size of issuance impacted bond rating. iv.Size of issuance will impact future borrowing and debt limitations. 8. Additional Challenges with State-ImposedLevy Restrictions a.The State has the ability to impose tax levy restrictions on cities, and does so often. b.State restrictions have also been more restrictive than the City’s Charter in some years. i.For example, due to State Aid not being allocated, the State imposed a levy limitation for 2010 which stated the City could not increase its levy by more than the % increase of the prior year’s levy. The CPI restriction in the Charter would have allowed a 3.8% increase, but the State required the prior year % increase which was 2.6%. c.As a result of the City’s Chapter 7 levy restriction, the State updated State Statute in 2014. This updated overrides the City Charter’s restriction when LGA is cut. State imposed tax levy restrictions timeline 6 DIMINISHMENT OF SERVICES: 1.Seal Coating a.Lack of funding leads to seal coating projects being diminished, postponed, or canceled all-together. b.Seal coating improves the lifespan of city roads, and without it the cost of repairing roads increases. c.The cost of seal coating has gone up 11% from 2016 to 2017. Due to these rising costs, seal coating work was cancelled in 2010 and 2011 to balance the City’s budget. Since that time, the City has had to reallocate $100,000 Municipal State Aid funds that are typically used for road construction and major maintenance to continue to pay for the seal coating program. SealcoatAnnualized Annualized UnitInflationInflation Price Since 2008Since 2002 2016$1.384.4%7.4% 2015 $1.47 6.0%8.5% 2014$1.477.1%9.2% 2013 $1.33 6.4%9.1% 2012$1.338.0%10.1% 2011 2010 2009 $1.19 21.8% 12.9% 2008$0.9811.5% 2002 $0.51 Our pavement management program completes major repairs on streets to maintain them in good condition. The wear on streets is correlated to the lifetime traffic, and pavements are designed to handle a predicted amount of vehicle loading. When traffic increases, streets need to have major repaving or reconstruction sooner. In our last series of traffic counts on our major streets performed every 4 years, we have seen 53 out of 55 streets increase in traffic, and the net increase in traffic averaged over 20%. When traffic increases and construction cost inflation outstrips the correlating funding provided, other funding sources such as special assessments for street projects are relied upon to continue our pavement maintenance program. In 2005, a major roadway maintenance policy was enacted by the City Council, which has provided funding from special assessments to property owners adjacent to resurfacing and reconstruction projects. The assessments to single family residential properties are currently in the range of $2,100 to $2,300 for these projects. 7 2. Equipment Deferment For example, the City’s diesel vehicles in recent years have had to meet new emissions standards mandated by the federal government. This has increased costs of diesel equipment between 10% and 20% in addition to normal inflation for each vehicle replaced. This has created the need to defer some equipment in the City’s replacement schedule beyond the optimal replacement year, and when annual maintenance costs become excessive One piece of equipment that was deferred was an emergency power generator a.Essential piece of equipment b.Provides emergency power to lift stations during outages c.Very outdated piece of equipment that results in: i.Reduced reliability ii.Increases in cost of service iii.Reduced performance iv.Additional overall and long-term cost to provide the generator’s function 8 3. Emerald Ash Borer Budget constraint for management of impending Emerald Ash Borer a.Treatment b.Tree removal c.Replacement needs d.The budget constraint is likely to lead to the inability to treat or replace trees that will be effected by Emerald Ash Borer. 4. Recycling a.CPI restriction is applicable to recycling fees (billed with quarterly utility bills). Recycling is mandatory, per State Statute. i.CPI increased average 1.4% /year for the past 8 years. ii.Recycling hauler services contractually increasing average of 4% /year. iii.Contract expires on May 1, 2019 and rates will likely go up. Contract changes such shifting from carts to recycling dumpsters at larger apartments are needed. CPI restrictions prevent needed service shifts. b.Due to the CPI limit, in 2017, the City will be reviewing the fund, potentially cutting programming in the following areas: i.Curbside service frequency (example, from bi-weekly to once per month). ii.Eliminating/reducing the number of drop-off recycling events. These generate 200 tons – nearly 10% of the City’s required annual recycling goal. iii.Programming reduction & service translates into a reduction in grant dollars that reimburse programming. 9 INABILITY TO REACT TO UNANTICIPATED CIRCUMSTANCES AND MANDATES: 1. Body-Worn Cameras for Police Officers Used to increase accountability and transparency, and for evidence documentation. a.Fridley’s current restrictions will not allow them to proactively purchase body cameras for officers. b.May run into difficulties funding body cameras if any mandates are put in place. c.There is potential for the City to be one of the last in the area to have a body cameras. 10 2. Employee Salaries a.Employee salary increases are set by the market rather than any inflationary measures. b.Fridley tends to be a “laggard” in providing market-based salary increases, or below the increases in the metro area. 3. Worker’s Compensation Increase a.2017 presented a 27% increase in worker’s compensation insurance cost. b.This equates to over $80,000 in increased premium costs. c.Without being able to increase the levy, this cost needs to be taken from another source in the City’s budget. 4. Retirement of K-9 Unit a.In late 2016, the police department found it necessary toretire a K-9 dog earlier than initially anticipated. b.The police department lacks funding/resources to efficiently and quickly replace and train the K-9 and handler. 5. Increase in Employer Contributions for Police and Fire Pensions a.As an employer, we are being told to anticipate a 1% increase in police and fire pension contributions for 2018. With a 1.6% increase in the 2018 levy, we do not have funding for that mandated increase. b.Cities without our charter restriction have the ability to levy for PERA increases outside the normal levy. c.If passed by the legislature this spring, Police and Fire employer pension contributions would increase by about $35,000 for 2018. b.We are anticipating we can increase the levy for 2018 by 1.6%. That equates to about $170,000 in additional tax revenue to fund governmental operations and capital. 11 $170,000 additional tax revenue in 2018 -35,000 increase in PERA for Police and Fire pensions (mandatory) o -80,000 increase in WC premiums o It’s important to note that if the Police labor contract results in a multi-year agreement with cost of living adjustments each year, nearly the entire $170,000 levy increase could expended on that one contract alone. 6. Tax Court Petitions c.Each property owner pays their proportionate share of the taxes levied by the City. d.There are two ways to contest the value or classification assigned to a property: Residential properties typically use the Board of Equalization process which impacts the current year’s value-no refund of taxes. Commercial properties most often make their appeals to tax court and can dispute multiple years’ values. If a settlement involves a refund, the county “re-values” property and credits back taxes paid in previous years plus interest. Nearly all petitions are settled outside court. e.Below is a summary of an actual tax refund, which was settled and refunded in November 2014 (tax years 2010-2014). The above repayment to the petitioner was reflected in the City’s final 2014 tax settlement d.Since 2002 there have been 609 petitions settled 493 involved a refund with interest 409 petitions were from 2008-2014 e.If all petitions settled at a conservative $8,000 a year, in the past 14 years the total tax dollars “refunded” amounts to at least $4 million. f.The refunds to petitioners are tax dollars that will never be realized by the City and cannot be levied back due to the levy restriction. g.Other taxing authorities impacted by the settlement have the ability to levy for those lost taxes in the upcoming tax year. 12 CASE STUDY: UTILITY FUNDS The information below further details how the CPI restriction has had a lasting impact on the City’s utility funds. It’s been 10 years since the CPI restriction was lifted. a.In 2001, the newly adopted levy and fee restriction language disallowed the City to be able to raise their water utility fees without voter consent. b.Prior to the CPI restriction on utility rates, the City borrowed every 8-10 years for infrastructure projects. c.Due to the fee restriction, the City was forced to bond for maintenance of the water system and they were unable to recoup the cost of repairs via additional/increased fees or through the tax levy. d.In 2007, the CPI restriction was adjusted to exclude water utility rates from the limitation. e.The City now borrows every 2-3 years to “catch up” on infrastructure/repair projects. Average Debt Utility Bonds Balance 1980’s$161,000 1990’s$3,399,000 2000’s$4,134,000 2010’s$7,289,000