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2. Staff Report-2016-2020 CIPJ SCAlVDIA Staff RepoVt Date of Meeting: April 27, 2015 To: Capital Improvement Committee From: Kristina Handt, Administrator Re: 2016-2020 CIP Background: The Council approved bringing back a Capital Improvement Committee in November of 2014 comprised of 5 citizens to help provide more public input into the plan. Because the CIP is part of the Comprehensive Plan, the Planning Commission holds a public hearing (typically at their November meeting) prior to recommending City Council approval. Council approval has occurred concurrent with adoption of the annual budget and final tax levy, generally at the last meeting of the calendar year. Below is a brief description of Capital Improvements Plans: What is a CIP? A Capital Improvement Program, or CIP, is a multi-year (typically 5 years) capital expenditure plan for a City's infrastructure (such as streets, parks and utility systems), vehicles, equipment and public buildings. It identifies the major projects needed and desired by the community, their potential costs and how they would be financed. Including a project in a CIP does not commit the city to that project. The City Council must specifically authorize each one, and the associated funding, before any project may proceed. When the CIP is reviewed (ideally annually, in conjunction with the budgeting process) projects may go forward as planned, advance ahead of schedule, be removed entirely, or new projects may be added, depending upon changes in circumstances and priorities. The Minnesota Land Planning Act requires that the implementation plan portion of the Comprehensive Plan include a CIP for major infrastructure needs (transportation, wastewater, water supply, parks and open space) for a five-year time period. Cities often expand the scope of their CIPs to include other capital needs (major equipment replacements, for example) and sometimes look beyond the five-year time period, up to 20 years in the future for some projects. Such projects represent more of a "wish -list" that can be evaluated each time the plan is updated. As a part of the Comprehensive Plan, the CIP has some legal standing. Minnesota Statutes Chapter 473.865 provides that "a local governmental unit shall not adopt any official control or fiscal device which is in conflict with its comprehensive plan." A fiscal device includes a budget or bond issue; so it is important that the plan and CIP be kept up to date and in synch with city budgets. The primary benefit of a CIP is as a financial planning tool, to help the city plan for the impact of capital needs on future budgets and property taxes, and to help forecast the need for borrowing to undertake major projects. The information developed as part of the capital planning process can help document the need for various projects and help the City Council sort out competing priorities. Scope of the CIP Scandia's CIP includes all capital projects that cost at least $10,000 and have a useful life span of five years or longer. Projects include all capital needs including major repairs to buildings and equipment purchases and replacements. Any projects not meeting these parameters would be reviewed as part of the annual operating budget, but would not be included in the CIP. Funding Sources The CIP identifies a possible funding source(s) for each project listed. The various funding sources are as follows: Capital Improvement Fund Existing City fund, primarily from property tax levy, set aside for capital projects. Debt Service Fund Projects financed by borrowing, later to be repaid with property taxes, and potentially special assessments depending upon the characteristics of the project. Equipment Replacement Fund Internal service fund used to segregate funds set aside for planned replacements of existing major equipment. Funds are transferred from operating budgets (primarily property tax revenues) The fund may also receive funds realized through debt financing. General Fund Annual operating budget, primarily funded by property tax revenues. Park Improvement Fund Existing City fund, receipts from cash -in -lieu of land park dedication fees paid by developers and others who subdivide their land. Local Road Improvement Fund New fund created in 2014 funded with unrestricted fund balance and property tax revenues. To be used mainly to fund mill and overlay and other similar street construction projects. 201 Sewer Funds come from fees paid by users on the 201 Wastewater System Uptown Sewer Funds come from fees paid by users on the Uptown Wastewater System In addition to these sources, it is possible that future projects could be funded from donations, grants, user fees or other sources not listed. Projects benefiting an enterprise or utility fund could be paid from the appropriate fund. Project Priorities Capital improvement projects should be prioritized in some way so that limited funding can be allocated to those which are most important. This is difficult because the varying nature of the projects and their benefits and objectives are so disparate as to be essentially not comparable. Some public agencies have developed elaborate rating and ranking systems to try to set priorities. Complicated scoring systems may have some disadvantages because they may give a false sense of objectivity or precision to the priority setting process. Others use simpler systems, or simply do not try to compare projects that are like "apples and oranges." There is no accepted system or "industry standard" for prioritizing projects. The Capital Improvement Committee developed the following priority rating system in 2008, which was also used for the 2009 and subsequent updates: 1 Critical or urgent, high-priority projects that should be done if at all possible; a special effort should be made to find sufficient funding for all of the projects in this group. 2 Very important, high-priority projects that should be done as funding becomes available. 3 Important and worthwhile projects to be considered if funding is available; may be deferred to a subsequent year. 4 Less important, low -priority projects; desirable but not essential. N/A Used for replacements of existing equipment. Issue: What public works (roads, equipment, buildings, etc) projects should be included in the 2016- 2020 CIP? When? Should any cost estimates be changed? Are there any projects to add to the CIP (Must be a capital project that costs over $10,000 with a useful life of 5 years or more)? Proposal Details: Since the Public Works Director will be resigning in mid-May we will focus on public works CIP projects first so that members can ask technical questions about any proposals or new ideas. We will begin with a road tour and review of equipment at the public works shop before meeting in Council Chamber to review specific project details. Parks and Fire Department projects will be discussed at future meetings. There are currently no active projects for Administration or the Community Center but the committee will have the opportunity at a later meeting to discuss any project ideas they may have. The wastewater committee will meet in June or July to make their CIP recommendations. All sewer projects are funded by users, not tax dollars. Included in your packet are two lists. The first, "Projects By Department," lists all active projects over the next ten years for public works and includes cost estimates. The second, "Projects By Funding Source," lists the revenue sources for the projects. Also included in your packet are project detail reports for each proposal. Public Works: Public Works Director Kieffer is recommending the following changes to the CIP: ➢ Increase estimated cost of Pick up with Plow Replacement to $30,000. This is for the 2008 Ford pickup proposed to be replaced in 2018. ➢ Increase estimate cost of grader to $250,000. This is for the replacement of the 1998 grader in 2018. ➢ Also new in 2016 is a detailed, road specific plan for reconstruction projects. Staff is proposing completing roughly a $1 million project every two years. This would be financed with funding from the Local Road Improvement Fund. ➢ The Street Maintenance Program has been increased to cover the maintenance updates to Pilar Road and surrounding P roads. This is a multi-year project begun in 2015. Ditching, culvert replacement, and gravel are planned for future years. Street maintenance for other roads will continue as in previous years. This consists of seal coating, patching, crack filling, ditching, street sweeping, dust control, tree removal, stump grinding, etc. Fiscal Impact: Included in your packet is a handout titled "Projects By Funding Source." By the end of 2015 the following balances are projected for the funds: Capital Improvement: $321,750 Equipment Replacement: $242,000 Park Capital Improvement: $0 Local Road Improvement: $433,600 The Capital Improvement Fund is projected to have positive cash balances through 2020 when the fund would reach $341,750, if annual contributions of $30,000 are continued. Contributions could be reduced and redirected to Equipment Replacement, Local Road Improvement, available for an interfund loan, or to other areas of the budget or the levy could be reduced. Options: 1) Make changes 2) Make no changes Direction provided at this time will inform staff on how to compose the draft 2016 budget to be reviewed by the Council beginning in August.