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2008 Budget Introduction
INTRODUCTION TO THE
CITY MANAGER’S 2008-2009
PROPOSED BUDGET ADJUSTMENTS
2008 Budget (PDF)
TO: Honorable Mayor Brady and Members of the City Council
FROM: Patrick Hentges, City Manager
DATE: October 29, 2007
RE: Recommendation on 2008-2009 Budget
Pursuant to the Mankato City Charter, and Minnesota Statues, the City Manager hereby submits to the City Council a proposed recommended budget for the 2008 fiscal year budget for all funds of the City of Mankato. The budget attempts to address the requirements for establishing a levy as required by Minnesota Status, Chapter 279 for purposes of the “Truth-in-Taxation” process.
Budget Process
Prior to the commencement of the 2004 budget year, the City Council established a biannual budget process. The biannual budget process is ideally initiated during the second quarter of the fiscal year (calendar year) preceding the biannual. The City Manager and the Director of Finance meet with all department directors concerning the budget’s goals, objectives, and desired outcomes as well as each department’s requirements by the City Council, to provide approved services efficiently. The various departments of the City of Mankato typically develop internal budget committees. The departments build a bi-annual budget based on a “zero-basis” and “outcome” approach. All spending is prioritized starting with inclusion of programs that accomplish minimum basic service levels and to the performance standards mandated in the past by the City Council. Other spending initiatives and strategic planning priorities of the City are added to the various budgets. The proposed department budgets are then forwarded to the City Manager for review. The preliminary budget document is prepared and introduced to the City Council in August of the preceding budget year. By mid-September, the City Council establishes a preliminary tax levy for purposes of “Truth-in-Taxation.” The final levy may not exceed the preliminary amount as established by the Council, but can be reduced at the time of final adoption. In October and November, the City Council receives a more comprehensive budget document including a budget projection for the 2nd half of the biannual (odd-year fiscal year). The City Manager’s recommendation is based upon the levy parameters by the Council through the preliminary budget. The City Council meets during the month of November to review in detail the proposed budget document. Typically, during the first week of December, a “Truth-in-Taxation” hearing is held, and soon thereafter the Council will formally adopt a final budget and final tax levy for the coming year at a regular City Council meeting prior to the end of the year.
The City Charter and Minnesota Statues require any annual adjustments in the budget for the tax supported fund expenditures and the property tax levy be prescribed to budget procedures in the Charter and/or the “Truth-in-Taxation” hearing process. Accordingly, the City Manager with the assistance of the Director of Finance and Department Directors review the biannual budget and offer mid-term changes due to inflation, capital improvement priorities, and yearly personnel cost increase. The City Manager presents expenditures changes, together with levy adjustments, to the City Council. Essentially, the second half of the biannual budget (the odd year) is revised and approved through a process similar to the adoption of the biannual budget. The midterm adjustment typically does not include the addition of personnel, and increase in total spending for capital carry or spending for new initiatives by the City Council or strategic planning priorities. Typically, the revisions are confined to contractual personnel obligations, unforeseen or inflationary cost increases and reprioritization of capital items within the spending limits established in the biannual budget and of course revenue changes.
General Fund Levy Recommendation
For the past 12 years, the City Council has attempted to maintain a tax levy increase within the limitation of the overall increase to tax capacity and maintenance of the tax extension rate. For the most part, Mankato has achieved this goal despite significant fluctuation in local government aid tax relief and significant changes in the rates on commercial and industrial and non-homesteaded rental property. Using this approach, the preliminary 2008 tax levy was established to increase no more than 9.49% or $994,900 (for General fund, Debt Service fund, & Transit fund).
In addition, an EDA Levy is proposed in the amount of $250,000. This, in essence, brought the overall levy increase to 12.25%. The EDA Levy is intended to fund certain initiatives identified in the City Center Renaissance Program (CCR) and outlined in the Preliminary Budget submitted in August of this year. This includes the component for the culture and the arts. The CCR involved several community members and stakeholders. The establishment of an EDA Levy serves to further diversify the tax levy and the funding streams of tax supported funds. Diversification of the funding streams will help minimize the impact of potential state imposed levy limitations should that action occur. Moreover, the EDA Levy will help kick off the City Center revival, but serve to balance the general EDA budget activity.
The intent of the initial 9.49% levy was to ensure the City’s tax extension rate remain at a constant level, and will not increase the City’s share of property tax bill. The Assessor estimates an aggregate growth in the city’s tax base of 9.55% for the upcoming year. A 9.49% levy increase will provide for a projected balanced General Fund Budget for 2008. As you are aware the Assessor’s office typically is able to only provide projections at the time when the city is establishing a preliminary levy. Last year, a significant increase in the City’s overall market value and tax capacity was due primarily to revaluations and appreciation of existing residential property values. Recent discussions with the County Assessor indicate an approximate new growth in the overall estimated market value of 5.0% (for year payable 2008). Existing estimated market values will increase by an estimated 4.55% (for year payable 2008). The discussions also indicate that the majority of this 4.55% increase will occur in the commercial sector. County officials estimate that the majority of residential property values will remain relatively flat with the exception of a few pockets experiencing increased value.
By establishing the tax levy at approximately 9.49%, the City Council will project a balanced general fund budget. This should occur despite a reduction in Local Government Aid (LGA) in the amount of $510,555. A 9.49% levy increase would maintain service delivery and strategic initiatives.
General Fund Spending Impacts
The following is a breakdown of the items funded through the levy increase of $994,900:
- Approximately 4.8 percentage points of 9.49% increase is due to a loss of $510,555 in LGA
- Approximately 1.1 percentage points of 9.49% increase is due to additional debt service requirements of $116,627
- Approximately 1.2 percentage points of 9.49% levy increase is due to a $126,480 increase in employee health insurance cost (assuming a 10% premium increase)
- The remaining 2.4 percentage point of 9.49% levy increase is due to fund part of $241,238 increase from employee wage increase as outlined in the respective collective bargaining agreements, the resulting benefit costs, and projected vehicle fuel cost increases.
The proposed General fund expenditures are projected to increase by 5.5% or $1,134,845. This level of spending maintains the service levels approved in the 2007 budget; addresses the City Council’s Strategic Planning objectives and provides service to newly developed areas. There are increases in the expenditures due to the following:
- The budget assumes a 3% cost for the cost of living increases for employees through collective bargaining agreements, and at the same time cost for some employees receiving step increases and potential merit pay increases.
- The budget assumes two new positions in the Police Patrol budget at a cost of $133,800 including benefits
- The budget assumes an estimated 10% increase for medial insurance premiums at a cost of $126,480
- The budget assumes an estimated $62,550 of additional capital outlay spending
- The budget assumes an estimated $40,578 of increased costs for fuel and energy
In the event the City Council chooses a 9.49% final levy increase, a budget surplus of $6,446 is projected.
Franchise Fee Discussion:
As you may recall, there have been discussions on the intergovernmental level regarding a proposed franchise fee upon electric and natural gas utilities operating within the respective corporate limits of both Mankato and North Mankato. The details of this proposal are presented in the Recent Developments section of this budget document. The franchise fee concept presents an opportunity for the City Council to review its budgetary funding Strategic Planning. The Franchise Fee, as proposed, is expected to generate roughly $636,000 annually. The Council has a number of options regarding this particular issue. As staff, a recommendation has been set forth whereby a Special Revenue Fund would be set up to account for all franchise fee proceeds. Since the utility companies operate in a designated right of way territory, it is the recommendation that tax supported general fund costs could be transferred into this Special Revenue Fund. In addition, staff has a proposal that all dedicated street lighting costs be accounted for in this fund as well. Staff also is recommending that the remaining franchise fee proceeds will fund a Capital Development Fund. This concept will account for all street lighting augmentations and buried underground utilities. Currently, these are funded through general obligation funding by the city.
The net effect of these proposals would be to reduce the preliminary tax levy in the estimated amount of $353,500. Staff has calculated this to be $11,127,500 or an estimated 6.12% final levy increase (exclusive of the EDA Levy). The Net Tax Capacity Extension Rate would translate to 35.02 for 2008 (compared to 36.13 for the current year).
The aggregate final levy (including the EDA Levy) would then be $11,377,500 or an 8.50% final levy increase. The Net Tax Capacity Extension Rate, under this scenario, would translate to 35.80 for 2008 (compared to 36.13 for the current year). Staff has included tax impact illustrations in the budget narrative of this document. They are located just before the General Fund tab.
The concept of a franchise, should you decide to adopt, will have the net effect of diversifying the revenue streams of your property tax supported General Fund. This could be a critical strategic factor should the state legislature decide to re-establish levy limitations in the near future. Although there are no certainties regarding the levy limitation issue, staff is indicating that it would be financially prudent to keep a realistic perspective regarding the potential of levy limitations legislative action.
Rate Increase Proposals:
Staff has recommended a number of user fee or rate increases for the upcoming year. These proposals are discussed, in detail, in the Enterprise Fund Summary page behind Tab 600.
Among the rate increase proposals are a 10% increase in water utility. This will be utilized to fund the debt principal and interest on the water plant PFA Loan. This project provided expansion to the water treatment plant, reservoir enhancements, and increased water storage capacity.
A 4% increase in wastewater rates is also recommended. The wastewater treatment plant has experienced increased operating costs within the past year. The primary factor contributing to this increase is the impact of the Calpine project. As you may recall, Calpine incurred the construction costs of the enhanced treatment system. At the completion of construction, the facilities were turned over to the city, per the agreement, and the city assumes the maintenance.
Staff is recommending a transit fare increase for fiscal year 2008. The rate increase proposal calls for a twenty-five cent increase in the base fare (from $1.25 to $1.50). In addition, a five dollar increase per month for the frequent rider pass is proposed (from $35.00 to $40.00). The monthly MRCI Pass is scheduled to increase two dollars per month (from $38.00 to $40.00). The last fare increase for the fares listed above was January of 2001.
Staff also recommends an increase in the Mobility (Para-Transit) fares of fifty cents (from $2.50 to $3.00). Likewise, the 10 Ticket Mobility Book will increase $4.50 (from $22.50 to $27.00). Staff is also recommending that the discounted token package be amended from $1.11 per token to $1.25 per token if purchased in a package. The last fare increase, for the items addressed in this paragraph, occurred in January of 2004.
You may have noticed that the fare structure for the University related routes are left unchanged. Farebox and pass rates are set by the University. The contractual arrangement between the City of Mankato and the University provides that the University pay for the entire cost of transit services. Pass sales that occur along the respective university routes are netted against the University invoice. Thus, they are revenue neutral to the City of Mankato. University pass sales that occur along any of the remaining city routes are revenue for the transit fund.
The transit fare and pass increases will be presented to the Transit user group, for review and comment, prior to Council action in December.
City staff recommends a 5% to 7% increase in the base cost of contract ramp parking throughout all of the city ramps. The recommended schedule for implementation is January of 2008. The recommendation calls for a $2.00 per month increase for a 24 Hour Permit Parking (from $38.00 to $40.00). The recommendation also calls for a $2.00 per month increase in 10 Hour Permit Parking (from $28.00 to $30.00). Permit Parking for employees of property owners located within the Core Block Parking District will be charged the above rate, less the amount of the Core Block Assessment per stall, as established by the Core Block Parking District. These rates have not been adjusted since 2005.
The rate increases identified above will be presented for review and comment to the Core Block District property owners prior to Council action in December.
Highlights – All Other Funds
The Debt Service fund has the following significant highlights for the upcoming year:
- Amortized costs for the MN DOT site improvements of $132,600
- Amortized costs for the All Seasons Arena improvements of $106,000
- Addition of the 2006 A Bond Interest of $447,200
- Increased tax levy of $116,627
The Utility fund has the following highlights for 2008:
- PFA Loan Interest, for the new Water Plant, in the amount of $675,155
- Additional chemical costs at WWTP in the amount of $13,000
- Increased budgeted electricity costs at WWTP estimated at $100,000
- Water rate increase (proposed) at 10%
- Wastewater rate increase (proposed) at 4%
The Storm Water Utility fund projects the following for 2008:
- $1,297,990 in proposed capital projects for 2008 (per CIP)
- Use of $546,200 in existing fund reserves to partially fund capital projects
The Transit fund is planning for the following activity in the upcoming year:
- Replacement of a Class 700 Bus funded 80% by MNDOT
- Replacement of all seventeen fareboxes
- Proposed fare increase for base fare, mobility fare, and transit passes
The Parking System fund highlights are as follows:
- Hydro blasting maintenance of all ramps estimated at $30,000
- Contract parking rate proposed increase of 5% to 7% for 2008
The Riverfront 2000 fund highlights for 2008 are as follows:
- Projected city sales tax collections of $4,200,000
- Retirement of the 1998 D Sales Tax Bond Issue
- Master Cash Flow identifies all anticipated uses of funds
The Civic Center Operations fund highlights are as follows:
- Projected operating deficit of $136,080
- 7.1% estimated increase in expenditures
- Contractual costs are identified as the largest reason for increased costs
The 2008 highlights for the Central Garage fund are as follows:
- $145,000 projected increase in purchased fuel costs
- $50,000 projected increase in vehicle parts costs
The Central Services fund highlights are as follows:
- GIS system implementation estimated at $100,000
- Voice Over IP implementation estimated at $100,000
- Security Camera Technology expansion at $20,000
- Civic Center Digital Signage at $20,000
- Web Castings of Public Meetings at $40,000
- Various technology & network upgrades at $149,000
- Potential Atrium upgrades in the amount of $20,000
- 3 year flooring replacement plan is proposed at $25,000
- Potential Central Insurance one-time transfer of $225,000
The Economic Development fund 2008 highlights are as follows:
- Second Street Parking Lot construction at $75,000
- Replacement of Roof Top Units at Stadium Road site $120,000
- $250,000 EDA Levy to fund CCR initiatives
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