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12. Discussion on 2019 Budget and Property Tax Levy Staff Report Date of Meeting: September 5, 2018 To: City Council From: Neil Soltis, Administrator Re: 2019 Tax levy and Operating and Capital budgets Background: At the August work session the Council reviewed an initial draft of the 2019 budget that included inflationary adjustments and recommendations from staff and Committees of the Council regarding changes to the 2018 budget. These changes were based on projected inflation, historical spending patterns, and information provided by outside sources regarding charge or rate increases. A listing of those assumptions and other changes that are reflected in the financial information follow the financial information. Incorporating all these changes and the other budget assumptions that were discussed at the August Work Session, the City’s 2019 tax levy would be $2,313,880. This is an increase of $56,008 (2.5%) from the 2018 levy of which $48,780 would be levied for General Fund activities. It should be noted that for the 2018 levy, the Council reduced the final levy by $125,000 due to the unallocated balance in the General Fund being in excess balance established by the City’s Fund balance policy . The largest components of the levy increase are funding for the codification of City ordinances ($10,000, contract for Sheriff Department services ($8,800) and contractual services for Park maintenance ($13,600). Issue: Are there changes that should be made to the proposed budget in advance of the Council approving a resolution to establish the maximum levy rate for 2019. Proposal Details: The preliminary levy for taxes payable in 2019 must be certified to Washington County and the date of the public hearing must be set no later than October 3rd. The recommended property tax levy would be preliminary and would be used for the estimate of property taxes that would appear on the property tax notices that will be sent out by the county in November. The Council may make additional changes to the budget prior to its adoption in December, but the tax levy may not be increased. Fiscal Impact: The total levy would increase by 2.5%. The decrease in the levy for the Local Road Improvement Fund offsets the increase in the levy for debt service on the bonds that were issued for the 2018 Road Improvement project. Based on the estimated property values provided by Washington County, the estimated market value of properties rose from 2018 by $45,355,200 to $687,795,100 with the taxable market value rising by $47,242,800 to $655,195,300. The resulting levy capacity rose by $508,195 (8.2%) to $6,735,177. As presented the City would levy 34.36% of its tax capacity (36.26% of tax capacity levied for 2018). When the City’ levy is spread over the property value, the net result is the levy as presented would be $3.53 per $1,000 of taxable market value which is an decrease of $0.18 per $1,000 over the 2018 levy. Based on a residential property with an estimated market value of $250,000 the City’s levy as presented would increase from $756 for 2018 taxes to $780 for 2019 taxes. Fund 2016 Actual 2017 Actual 2018 Budget 2019 Budget General Fund 1,484,612$ 1,531,749$ 1,349,820$ 1,398,600$ Debt Service Fund 148,582$ 116,739$ 152,202$ 501,350$ Capital Improvement Fund 30,000$ 30,000$ -$ -$ Equipment Replacement -$ -$ 30,000$ 30,000$ Local Road Improvement 581,142$ 560,533$ 725,050$ 378,930$ Economic Development Authority -$ 5,000$ 800$ 5,000$ Total Levy 2,244,336$ 2,244,021$ 2,257,872$ 2,313,880$ PROPERTY TAX LEVY Summaries of the preliminary revenue and expenditure budgets for 2019 and with a projection of the 12/31/2018 fund balances for those activities supported by the property tax levy follow this report. Options: 1. Recommend preparing the levy resolution based on the previous discussion 2. Hold a special meeting to discuss additional changes to the budget and levy amount Recommendation: Option 1 The levy for debt service increases for 2019 due to the $346,120 to be levied for payments on the bonds issed for the 2018 Street Improvements. In accordance with the 2018 – 2022 Capital Improvement Plan, the funds levied for the Local Road Improvement Fund and for road maintenance in the General Fund have been reduced. The work budgeted for 2019 include engineering, testing, and culvert cleaning where needed for the road that will be included in the 2020 Road Improvement Project. Based on the 2018 -2022 Capital Improvement Plan the budget for road improvement projects for 2020 through 2022 will be $620,000, $450,000, and $320,000 respectively. There may be additional funds available based on the cost of the 2018 Road Improvement project. Capital Improvement Fund projects in the 2018 - 2022 Capital Improvement Plan include the following:  Stormwater plan for the northern portion of the Bliss addition $30,000 based on 50% funding from the Watershed District  Replacement of skateboard ramps at the ice rink - $12,000 based on 50% grant / donation funding  HVAC replacement at Fire / Public Works Building - $15,000  LED lighting project at Fire / Public Works Building - $30,000 Equipment Replacement Fund projects in the 2018- 2022 Capital Improvement Plan include the following:  Replace Public Works Department 2008 Ford F350 and plow The only revenue source for the Park Capital Fund beyond the advertising revenues reserved for the Wayne Erickson lighted ballfield are park dedication fees which are charged when new lots are created. These are being used to repay the interfund loan from the Capital Improveme nt Fund. At the end of 2018 the Park Capital Fund’s debt to the Capital Improvement Fund is projected to be $20,000. In 2018 The Capital Improvement Committee transferred $100,000 to the Park Capital Fund in order to facilitate planning for future projects with the intention that the funds would be repaid out of the proceeds of the Olinda Lane lot. Park Capital Fund projects recommended by the Parks & Recreation Committee for include the following:  Lilleskogen Park wetland restoration - $10,000  Install concrete pads under the bleachers at the Wayne Erickson Memorial Ball Park - $10,000  Expand the pleasure skating rink at the Community Center - $10,000  Clearing and trail work at park lands (Bone Lake, Big Marine School site, and Orwell Court)  Improvements at the Settlers Monument - $5,000  Doors for the picnic pavilion at Lions Park and extending water from the Hay Lake School to the Pavilion - $15,000 The 2019 budget for the Economic Development Authority includes $3,750 for the final payment to the University of Minnesota Tourism Development Center for the Tourism Assessment. BUDGET DISCUSSION COUNCIL WORK SESSION 08/01/18 PERSONAL SERVICE Pay structure - merit step increases for non-bargaining unit employees -2.00% Pay structure - bargaining unit employees -2.75% Mayor & Council wages increase based on Ordinance 156 -5.2% Health insurance - bargaining unit - estimated -10.0% Health insurance - non-bargaining unit - per renewal information from insurer -21.0% PERA contribution rates - no change in rate -0.0% Social security & medicare - no change in rate -0.0% Workers Compensation - League range 3-6% increase -6.0% Wage allocations Administrator - 20% to Planning 20.00% Public Works Director - 201 Sewer Systems 12.50% Public Works Director - 5% Uptown Sewer System 4.00% Wage allocation estimates Public Works staff - Parks Maintenance 7.50% Public Works staff - Community Building Maintnenance 3.00% Public Works staff - Uptown Sewer System 3.00% PT Parks - 20% to Park Improvement fund for lighted ballfield maintenance 20.00% Public Works staff - 201 Sewer Systems 5.50% CONTRACTUAL SERVICES League of Minnesota Cities dues increase -0.0% Property insurance - League range 2 - 3% increase - Liability Insurance - League 2-6% increase - Auto damage & liability - League range 3 - 5% increase - Xcel - electricity --2.0% Contract with Sheriff Department - estimated increase -6.9% Building Permit fees - 45% of Building permit revenues SafeAssure 4.0% REVENUES Building permits - $130,000 less than 2018 projected, $254,000 less than 2017 actual -0.0% BUDGET ASSUMPTIONS 4.0% BUDGET DISCUSSION COUNCIL WORK SESSION - 08/01/18 2018 2019 CHANGE CHANGES FROM STAFF REFLECTED IN THE BUDGET AS PRESENTED REVENUE No cable franchise fees to General Fund - 6,000$ -$ (6,000)$ Lakes Area Television accounting services - 1,800$ 3,600$ 1,800$ Fines and Forfeitures - 12,000$ 10,000$ (2,000)$ EXPENDITURES ADMINISTRATION Lakes Area Television - withdraw from joint powers agreement 6/30/2018 - 5,300$ -$ (5,300)$ No transfer of fund balance to EDA - 20,000$ -$ (20,000)$ ELECTIONS Off year election cycle - 6200 2,200$ (4,000)$ PLANNING - COMPREHENSIVE PLAN UPDATE Planner - Code changes based on Comprehensive Plan - 25,000$ 30,000$ 5,000$ Remainder on comprehensive planning agreement ($43,000 in 2017)- 15,000$ 2,000$ (13,000)$ FIRE PUBLIC WORKS Allowance for fuel cost increase (2016/2017 actual $10,809 / $13,833)- 20,000$ 26,000$ 6,000$ Decreased salt usage (2016/2017 actual $20,368 / $22,784)- 40,000$ 32,000$ (8,000)$ Road Maintenance supplies (2016/2017 actual $16,561 / $15,930)- 30,000$ 25,000$ (5,000)$ Contractual Road Maintenance & Repair - 215,000$ 140,000$ (75,000)$ PARKS Additional PW & Seasonal wages - 11,500$ 14,000$ 2,500$ COMMUNITY BUILDING Added wages for Public Works maintenance - 2,400$ 4,800$ 2,400$ GROUP HOSPITALIZATION INSURANCE - 84,100$ 93,200$ 9,100$ GENERAL FUND CHANGES FOR DISCUSSION BUDGET DISCUSSION COUNCIL WORK SESSION - 08/01/18 2018 2019 CHANGE GENERAL FUND CHANGES FOR DISCUSSIONCHANGES THAT ARE NOT REFLECTED IN THE BUDGET AS PRESENTED COUNCIL Codify City Ordinances - -$ 10,000$ 10,000$ Replace meeting tablets as needed - -$ 600$ 600$ PUBLIC WORKS Computer replacement - -$ 2,000$ 2,000$ PARKS Additional Senior and Youth programming -$ -$ -$ Path & culvert to T-ball field - -$ 3,500$ 3,500$ Buckthorn control @ Lilleskogen - -$ 5,000$ 5,000$ Aquatic Invasive species boat inspections ($3,500 in 2018)- 3,500$ 3,500$ -$ BUDGET DISCUSSION COUNCIL WORK SESSION - 08/01/18 2018 2019 CHANGE GENERAL FUND CHANGES FOR DISCUSSION CAPITAL IMPROVEMENT FUND Bliss Addition Stormwater Plan - 100% of cost to be partially offset by Watershed District - -$ 30,000$ 30,000$ Fire Department - LED lighting - would be offset by savings in the General Fund - -$ 30,000$ 30,000$ PARK CAPITAL IMPROVEMENT FUND Lilleskogen - wetland restoration - -$ 10,000$ 10,000$ Concrete slabs under bleachers - -$ 10,000$ 10,000$ Path from t-ball field to community building / pleasure rink expansion - -$ 10,000$ 10,000$ Clearing and trails at nature parks (Bone Lake, Big Marine School site, Orwell Court)- -$ 10,000$ 10,000$ Settlers monument improvements - -$ 5,000$ 5,000$ Doors for pavilion and water source at Lions Park - -$ 15,000$ 15,000$ LOCAL ROAD IMPROVEMENT FUND Engineering for 2020 Road Improvement projects - -$ 50,000$ 50,000$ CAPITAL FUNDS CHANGES FROM 2018 - 2022 CAPITAL IMPROVEMENT PLAN