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3 Staff Report-2017 budget review104 rSCANDIA Staff Report Date of Meeting: November 2, 2016 To: City Council From: Neil Soltis, Administrator Re: 2017 Budget The following is a summary of significant changes from the 2016 budget and actual activity in the operating and capital budgets and other items for consideration: Fire • Fire Department expenditures are driven primarily by the call for service and the nature of those calls. The 2017 budget request calls for a $0.50 / hours wage increase for all levels and the additional of 5 new members to the Department. The addition of new members to the Department is also reflected in the cost for new turnout gear, testing, and EMT training. Public Works • Personnel service costs are allocated to Public Works based on 82.5% of the Director's time, 90% for 2 of the staff and 85% for the other staff person. The remaining portions of the costs are allocated to the Parks and the 2 Sewer utility budgets. • The Public Works budget includes 100% of the group hospitalization costs for the Director and 3 staff members. • Additional funds have been provided for road maintenance supplies for increased small scale patching. • Engineering costs have been reduced based on charging all engineering costs related to road improvement projects to the Capital fund as a project cost. • Per the discussion at the August work session, the cost of adding GIS layers and to provide GIS access via mobile devices has been added to the budget. • The largest budget item and the largest increase in the budget is the amount of the transfer from the General Fund to the Local Road Improvement Fund. The amount is estimated based on the fund balance policy adopted by the Council. This amount represents the portion of the year end fund balance that exceeds 50% of budget General Fund expenditures. Parks Personnel service costs include 12 hours per week for the office assistance, 5% of a Public Works Department staff person, a summer maintenance worker, tennis instructor, and ice rink attendants. The actual Public Works costs to be charged against the Parks budget will be based on the time recorded for any park or rink maintenance outside of the work performed by the summer maintenance worker. A change from previous year is the allocation of the summer maintenance worker's time and materials for the Wayne Erickson ballfield to the Parks Improvement Fund. These cost are offset by the advertising sign revenues. During the summer the City works with Camp Lakamaga to offer 3 programs: full day, % day, and sports for which the City retains 20% of the fees collected. The City also offers tennis instruction during the summer and ice skating lesion during the winter. The YMCA has made a proposal to hold a Park Play Day program at the Community Center. They have proposed two (2) 5 -week programs that would run 4 days a week at a cost of $80 per child. The YMCA is requesting a grant of $2,000 to partially fund the cost of the program. This has not been included in the information provided. Equipment Replacement Fund • Public Works expenditures for 2017 include: o $200,000 for the replacement of the 2002 Sterling dump truck and plowing equipment. Note that this purchase was deferred from 2016 to provide a better spacing between major truck purchases. This purchase would be funded through issuing a certificate of indebtedness. o $30,000 for the replacement of the 2009 John Deere mower that is used to maintain the parks and community center and used as a snow blower during the winter months. o $8,000 for the purchase of a used roller to allow for an increased level of minor patching by the Public Works crew. The Fire Department's purchase of the SCBA that were budgeted for 2016 are being deferred pending a response on a grant application that was submitted to help offset the costs. That item has been included in the 2017 expenditures. The Fire Department expenditure for 2017 would provide for the replacement of the 1995 Ford that is used as a grass rig at a cost of $85,000. An estimated amount for proceeds from the sale of the equipment being replaced has been provided as a revenue source. Local Road Improvement Fund • No expenditures are budgeted from the Local Road Improvement Fund in 2017. • Under the current Capital Improvement Plan, Old Marine Trail is scheduled to be reconstructed in 2018. • With the funds carried over from 2016, the tax levy for 2017, and the previously referenced transfer from the General Fund, it is estimated that approximately $1,484,000 will be available in this fund at 12/31/2017 to fund the 2018 project 201 Sewer Fund • Personnel service costs are allocated to Public Works based on 12.5% of the Director's time, 7.5% for the remaining staff. The actual costs to be charged against the utility will be based on the time recorded for the required inspections and testing, maintenance, and mowing of the drainfield. • The budget was reviewed by the Wastewater Advisory Committee with the recommendation that $5k be added for raising the septic tank sewer covers and $3k be added for engineering services related to the nitrate issues at the Bliss system and the inflow and infiltration issues throughout the systems. • The Capital Improvement Plan called for the replacement of the panels for lift station #1 and #2 at the Bliss addition. After inspection, Seth Peterson of Bolton & Menk recommended that this replacement be deferred. The replacement of 2 pumps at Bliss lift station #2 is provided for in the budget. • The Wastewater Advisory Committee recommended a 5% rate increase be included in the budget to help offset inflation. With this revenue increase, the utility is budgeted to have a $3,400 positive cash flow in 2017. • The Wastewater Advisory Committee also discussed the long-term capital needs and the options to fund those needs. Primary issue for addressing the capital improvements is having sufficient funds available or sufficient cash flow to service debt for the improvements to the Anderson Erickson drainfield ($200,000) in 2020 and the treatment equipment needed to treat for nitrates at the Bliss drainfield which will likely be required by the MPCA between 2020 and 2025 at an estimated cost ranging from $500,000 to $900,000. With a projected cash balance of $55,000 at 12/31/2016 and positive cash flow of $3,400 a year there will not be sufficient funds by the time the improvements are needed. Uptown • Personnel service costs are allocated to Public Works based on 5% of the Director's time, 2.5% for the remaining staff. The actual costs to be charged against the utility will be based on the time recorded for the required inspections and testing, maintenance, and mowing of the drainfield. • The budget provides for the replacement of a blower in the drainfield. • The projected cash flow for the Upton sewer fund is a negative $349 after making the repayment to the Capital Improvement Fund for the cost of previous improvements leaving the fund in a negative cash position of $900. • The Committee discussed a rate increase and the potential of adding users to the system to help spread the cost over a greater number of users. The discussion will continue at a future meeting. Compensation policy — The City's compensation policy approved in 2013 calls for the pay grades and rates established by the policy to be annually confirmed by the City Council through the adoption of the budget and resolution establishing the grades and steps for each job classification. While there have been changes in the job classifications and employees have advanced up through the established steps based on their work performance, the base levels of pay have not increased since the plan was approved in 2013. At the August work session there was a discussion of increasing the rates based on inflation since 2013. The consumer price index has increased by 3.6% from December, 2013 through September, 2016. For reference a 1% increase in the rates will increase wages and benefits by slightly under $2,600.