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Memo - Discussion of 2002 Future Budgets . Administrative Services Department Office of the City Manager Memorandum To: Honorable Mayor and Members of the City Council From: Steven C. Mielke, City Manage~ Date: February 22,2002 Subject: Discussion of 2002-Future Budgets Although the City Council adopted a 2002 budget a short two months ago, much discussion has been held regarding the potential for budget cuts in this budget year due to revenue shortfalls at the State level. Staff has prepared information items for the Council's consideration that layout a long-term budget picture based upon various scenarios. It also provides information from department head discussions regarding the principles for budget reductions and options for reducing the budget. It is my hope that . we will begin a discussion with the City Council on the status of the 2002 budget and how it relates to future years, as well as beginning the process of possibly making budget cuts for the current year. How bad is the problem? The State is currently projecting a budget shortfall of about $2 billion over the next two bienniums. The Governor has proposed a series of cuts and tax increases intended to resolve the issue based upon a series of assumptions. For the City of Hopkins the Governor's proposal would cut a little more than $300,000 from this year's budget and around $414,000 in next year's budget. At the same time, the leadership in the legislature has apparently struck a deal that would leave local government aids alone for the current biennium, and instead utilize a series of reserves and budget cuts. Therefore, the impact of the Senate and House compromise would be no impact for this year. Their proposal is also based upon a series of assumptions. Word from the League of Cities is that sales tax revenues are down for February, and therefore the budget forecast that is due out in a couple of weeks could, in fact, indicate the deficit to be more than the amount currently projected. That would lead one to assume that the problem will get deeper. While it is too soon to know whether or not the City of Hopkins will experience budget shortfalls as a result of State actions, there are other factors that come into play. . . . Future needs The City Council has indicated a desire to upgrade facilities for our three major operations departments. I ncluded in the attached information is information showing the potential impacts of our normal budget expenditures for current programs and services, with the inclusion of a tax levy to help pay for these new facilities. Staff wants to share this information with the Council and begin a dialogue around how to push the long term goals of new facilities and equipment while still providing programs and services desired by the community in a way that is affordable to taxpayers. Staff would look for direction from the Council on how to go forward in addressing budget issues, not just for 2002 but also for out years so that we can communicate with and to the public around these issues. Mayorccdiscussionoffutu rebu dget . . . Staff Analvsis of Future Revenues and Expenditures - 2003 and Bevond . Budget Analysis The pages and tables attached represent information regarding current programs and future projected revenues and expenditures. Several items need to be addressed. The effect of any changes in aid in the future, the cost of issuing debt for the facility, cost of operating the facility, levy limits and tax increment districts. Table "A" depicts actual historical revenues and expenditures for the general fund. The bot10m percentage is the percent increase in salaries and benefits over the year before. Over the last five years we have averaged 4.95% increase each year. 1 have used this as an average increase for future years except 2003 where I am anticipating a static health care cost. Our total percent increase in expenditures fluctuates year by year. The average percent increase over the last five years has been 4.8%. I have used a similar amount for future years except 2004, when we have some additional CIP expenditures planned. The ratio of fund balance to expenditures stays above 40% through 200 I and then continues to decline through 2007. What this indicates is that we will have less cash to use during the beginning of each year to carry use through to the tax settlement in June. The bond raters look at this ratio and at the ratio between fund balance and current tax revenues, to determine the cities ability to pay its bills. Table "B" depicts Estimated revenues and expenditures in the general fund. The main assumptions in . this table are no aid reductions, 4 - 5 % average increases in salary and benefits and about a 4.5% increase in overall expenditures. The estimates include $50,000 in additional operational costs of the new fire facility. I arrive at this amount by looking at the cost to maintain the Activity Center and assume there will be less activity at the fire department. Activity Center maintenance is $66,000. Table "c" depicts the historic, current and future levies and percent increases. This table corresponds to Table "B" with no aid reductions. The facility is included here in 2003 and beyond with a debt service payment of $700,000. In addition to the facility debt in 2003, there is street improvement debt from 1992, 1999 and 2002 at $145,000 and park improvement debt from 1993 at $190,000. The debt levy continues to increase into the future to pay for pending street improvements. Under the "Tax Capacity" column you'll notice a large decrease in the tax capacity amount from 2001 to 2002. This demonstrates the changes in the tax classification rates which reduces the cities taxable tax capacity which causes a dramatic increase in the tax rate, (see column "Tax Capacity Rate"). Although the tax levy increase from 200 I to 2002 was 8% the rate increased 22%. Looking into the future and assuming tax classifications remain constant, our tax rate is projected to increase 12% over five years. Historically it increased 5% over five years. Table "D" depicts the worst case scenario with the governors proposal being passed, levy limits being implemented at 5% increase per year and no provision to make up lost aid. In 2003 we will be able to absorb the potential lost aid if we levy to our maximum. The same assumptions for expenditures hold true as in Table "B". With levy limits in place we will need to trim our budgets in the future in order to avoid using reserves. Starting in 2004 we have budget shortfalls that continue to grow into the future. . Table "E" corresponds to Table "0" with aid reductions. The levy amount needed to make up the lost aids causes the tax levy to increase 21 %. . General fund revenue and expenditure information, by program, is provided on pages 1 and 2 in the packet. It also demonstrates what percentage of taxes and state aids are needed to support the specific programs. Special Revenue and Enterprise program information is on pages 3 and 4 in the packet. This demonstrates which programs are generating revenues and which programs are using reserves to support activity in 2002. Also included is a list of principles regarding budget adjustments in 2002 and a list of options on responding to the possible cuts in aids. Both of these lists were derived from a brainstorming session involving management staff. Management has not consented to all of the items on the list nor does it support all of the items on the lists. The lists are possible principles and solutions. All of this information is provided to assist in our discussions. . . z o~oooooo~ ~ ~__O~ ~M~~ ~7 ~~~~ o 7070~0~0 0 ~N7M7 -MOO- _00 ~~7~ < ~ ~~~q~q~~ ~ q~~~~ ~~~~ ~q ~~~~ ~ NOU _0~0~~7~ ~ MM~~~ ~OOO 7~ ~~~~ O ~ooN~~-M~ ~ OO~_OO~ ~O~~ OM M7 ~ _O~-- _ _ -~~ 7 NN N -0 = NO ~~ 00 00 ~N ~ ~OO 00 ~M < ~ E-- 0.... Vl VJ. EI'l Vl Vl VJ. .....l MO~OONO~~ '~ ~~OOO- ;::'0-- ~N ~~~~ ~ MooooNOO~oo 00 0~~07 NNooO 00- M-~N _~ ~__~NO-M M O~OOO ~~OOO ~N ~~MN 02 6~~~~00~~ ~ ~~~~~ M~~~ oo~ .~~~0 o~ 7~00~~-M~ ~ 7-~N~ ~ooM- ~o 7~ NU ~~7-- ~ ~ ~~~ ~ ~~ ~ ~ <t: 7N ~ ~ ~N 00 ~~ ~ M Vl Vl Vl Vl VJ. 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Revenue Expenditure Tax & Aid Percent Budget Budget Supported use of 2002 2002 amount Levy & Aid PROGRAMS UNALLOCATED $ 196,778 $ 127,027 $ (69,751) City Council - 101,872 101,872 1.46% Health and Welfare - 6,650 6,650 0.10% COUNCIL - 108,522 108,522 1.55% Administrati on - 100,635 100,635 1.44% Legislation - 17,204 17 ,204 0.25% Agenda - 40,684 40,684 0.58% Personnel - 44,095 44,095 0.63% Capital Improvement Plan - 28,754 28,754 0.41% Wellness - 4,479 4,479 0.06% Infonnation Services - 87,114 87,114 1.24% Special Projects - 35,009 35,009 0.50% Newletter - 30,759 30,759 0.44% ADMINISTRA TION - 388,733 388,733 5.55% Benefit Administration - 17,372 17,372 0.25% Budget - 28,741 28,741 0.41% Cash Management - 9,894 9,894 0.14% Debt Management - - - General Accounting - 47,089 47,089 0.67% Payroll - 40,844 40,844 0.58% Risk Management - 4,963 4,963 0.07% T.I.F. Administration - - - . Utility Bilhng - - - FINANCE - 148,903 148,903 2.13% LEGAL 90,000 122,950 32,950 0.47% Cleaning - 15,90 1 15,901 0.23% Maintenance - 96,714 96,714 1.38% CITY HALL MAINTENANCE - 112,615 112,615 1.61 % Conununity Use 17,100 91,561 74,461 1.06% Senior Activities 53,1 00 118,752 65,652 0.94% Teen Programs 1,200 16,118 14,918 0.21% Activity Center Maintenance - 66,107 66,107 0.94% ACTIVITY CENTER 71 ,400 292,538 221,138 3.16% RECEPTIONIST - 47,892 47,892 0.68% Assessing Information 300 92,552 92,252 1.32% Homestead Information - 34,792 34,792 0.50% Property Valuation - 85,041 85,041 1.21% Special Assessments - 20,470 20,470 0.29% ASSESSING 300 232,855 232,555 3.32% Building Code mspections $ 310,000 $ 145,978 $ (164,022) $ Fire Inspections - 38,778 38,778 0.55% Heating and Plumbing Inspections 65,000 75,620 10,620 0.15% Housing Inspections 7,000 48,596 41,596 0.59% Restaurant/Hotel Inspections 23,000 29,209 6,209 0.09% Miscellaneous Inspections - 68,019 68,019 0.97% INSPECTIONS 405,000 406,200 1,200 0.02% Charter & Council Administration - 17,765 17,765 0.25% . Licensing 6,700 13,863 7,163 0.10% Purchasing - 8,357 8,357 0.12% Records Management 200 9,989 9,789 0.14% Elections - 29,552 29,552 0.42% CITY CLERK 6,900 79,526 72,626 1.04% Page 1 I I GENERAL FUND NET CITY PROGRAM REVENUES AND EXPENDITURES BUDGETS . Revenue Expenditure Tax & Aid Percent Budget Budget Supported use of 2002 2002 amount Levy & Aid PROGRAMS Police Administration - 17,292 17,292 0.25% Property Room Management - 31,779 31,779 0.45% Patrol Operations 219,100 1,835,908 1,616,808 23.10% Heat Team - 62,975 62,975 0.90% Police Reserves - 29,393 29,393 0.42% Investiga ti ons 86,600 300,477 213,877 3.06% Metro Drug Task Force 9,000 89,384 80,384 1.15% Pawn Shop Management 7,100 30,576 23,476 0.34% Police Outreach 4,030 76,077 72,047 1.03% Chemical Health Commission - 7,467 7,467 0.11% Police Counter Act ~ 19,515 19,515 0.28% Dispatch 16,700 383,883 367,183 5.25% Reception & Records Checking - 139,878 139,878 2.00% Systems & Records Management 3,600 360,283 356,683 5.10% POLICE 346,130 3,384,887 3,038,757 43.41 % Emergency Medical Service 6,850 48,721 41,871 0.60% Fire Suppression 46,905 430,247 383,342 5.48% Fire Prevention 8,655 98,940 90,285 1.29% Emergency Preparedness 3,500 15,1]0 11,610 0.17% FIRE 65,910 593,018 527,108 7.53% Public Works Building Maintenance $ - $ 4,108 $ 4,108 $ 0.06% Equipment Services 200 38,772 38,572 0.55% . Public Works Administration - 4,961 4,961 0.07% Engineering Services 3,200 111,010 107,810 1.54% Streets and Alleys 17,615 321,977 304,362 4.35% Street Cleaning - 36,351 36,351 0.52% Snow and Ice Removal 1,000 149,298 148,298 2.12% Seal Coat Zone - 153,253 153,253 2.19% Sidewalk Repair - 30,449 30,449 0.44% Traffic Signs and Signals 150 123,345 123,195 1.76% Street Lighting 300 145,575 145,275 2.08% Mall Maintenance - 32,264 32,264 0.46% Parks 14,950 561,872 546,922 7.81% Tree Service 300 148,222 147,922 2.11% PUBLIC WORKS 37,715 1,861,457 1,823,742 26.05% Playground - 41,011 41,011 0.59% Ice Rink - 17,902 17,902 0.26% Joint Recreation 122,8 I 6 268,316 145,500 2.08% Park Service - 16,410 16,410 0.23% RECREATION 122,816 343,639 220,823 3.15% Zoning Activities & Enforcement 2,500 65,594 63,094 0.90% Sign or Fence Permits 1,500 13 ,25 0 11,750 0.17% Miscellaneous Planning ~ 16,982 16,982 0.24% Community Development Activity - ~ - PLANNING 4,000 95,826 91,826 1.31 % TOTAL GENERAL FlJND $ 1,346,949 $ 8,346,588 $ 6,999,639 $ 100% . Page 2 NET CITY PROGRAM REVENUES AND EXPENDITURES BUDGETS . Revenue Expenditure Revenue Reserve Percent Budget Budget generated amount use of 2002 2002 amount used Reserve PROGRAMS Chemical Assessment Team $ 40,000 $ 40,000 $ - $ - Project Development & Coor. 995,500 1,503,640 - (508,140) TIF Administration - 14,293 - (I-L293) Loan Program 15,000 13,232 1,768 - Community Development Activity 35,000 37,381 - (2.3R 1) ECONOMIC DEVELOPMENT 1,045,500 1,568,546 1,768 (524,814) 15.2% REAL EST A TE FUND 6,500 - 6,500 P ARATRANSIT 104,917 104,917 - - Housing Rehab Projects - 53,656 - (53.656) Housing Rehab Committee Liaison - 25,105 - (15,105) Housing Programs 65,000 24,435 40,565 - HOUSING & REDEVELP. 65,000 103,196 40,565 (78,761) 7.8% Parking Enforcement 45,000 65,707 - (20,707) Parking Operations 37,000 19,182 17,818 - Parking Ramp 16,000 95,249 .. (79.249) PARKING FUND 98,000 180,138 17,818 (99,956) 29.7% SECTION 8 88,000 71,887 16,113 - Communications Liaison 119,500 158,563 - (39,063 ) Web and Message 31,500 31,556 - (56) CABLE TV 151,000 190,119 - (39,119) 13.3% Coffee House 146,500 146,787 - (287) Teen Center 64,500 64,626 - (126 ) . DEPOT 211,000 211,413 - (413) 100.0% TIF 1- 1 1,029,000 1,270,000 .. (2.:1] ,0(0) 18.6% TIP 1-2 48,139 50,718 - (2.579 ) 1.2% TIF 2.1 428,000 421,000 7,000 - TIP 2.6 19,024 18,224 800 - TIF 2.7 77,178 58,111 19,067 .. TIF 2.8 37,000 34,032 2,968 - TIP 2.9 96,000 132,399 - (36,399 ) 1.7% TIF 2.10 61,010 49,862 11,148 - TIF 2.11 3,505,000 3,448,250 56,750 - T.I.F. DISTRICTS 4,271,351 4,212,596 97,733 (279,978 ) ART CENTER 402,358 362,684 39,674 - EQUIPMENT REPLACEMENT 591,000 384,542 362,960 - Water Pumps & Wells 415,800 529,987 - (]14,1~7J Water Distribution 508,200 557,564 - (49.364) Water - capital - 4,700 - (4,700) Water - construction - 375,000 - (375.0001 WATER 924,000 1,467,251 - (543,251 ) 9.2% Sewer Lift Stations 371,250 367,469 3,781 - Sewer Collection & Disposal 1,115,750 l,173,878 - (58,128) Sewer - capital .. 4,700 - (.-1--700) Sewer.. construction - 75,000 .. (75,000) SEWER 1,487,000 1,621,047 3,781 (137,828) 3.0% Refuse Bulk Collection 9,000 55,275 .. l46,175) Yard Waste/LeafCollection 2,500 75,886 - (73.386) . Recycling 116,810 125,733 - (1\,923) Brush Service 2,300 66,620 - (6-U20) Refuse Disposal 495,250 371,895 123,355 Refuse - capital - 8,000 - (KOOO) REFUSE 625,860 703,409 123,355 (200,904) 20.1% Page 3 NET CITY PROGRAM REVENUES AND EXPENDITURES BUDGETS Revenue Expenditure Revenue Reserve Percent . Budget Budget generated amount use of 2002 2002 amount used Reserve PROGRAMS Storm Sewer Maintenance 685,500 487,951 197,549 - Concrete Alleys - 30,400 - (]O,-I-OO ) Storm Sewer - construction - 349,000 - (J49JJOO) STORM SEWER 685,500 867,351 197,549 (379,~00) 4.7% Pavilion Ice Rental 229,325 226,173 3,152 - Pavilion Soccer and Leagues 43,500 71,397 - (27)"\97) Pavilion Dry Floor Rental 8,500 34,125 - (25.625 ) Pavilion - capital - 70,600 - 00,600 ) P A VILION/ICE ARENA 281,325 402,295 3,152 (12~, 122) 6.3% SKATE PARK 48,800 61,589 - (12,789) 36.0% Redev. TIP Bonds 1992 345,500 350,300 - (-1-.800) 2.5% Improvement Bonds 1992 2,834 1,020,192 - (] ,017,35R) 103.6% Park & Rec Bonds 1993 4,549 1,488,615 - (l,48-1-.066) 98.7% Redev. Refunded TIP Bonds 1993 800,000 1,001,620 - (20] ,(20) 24.2% Redev. Refunded TIP Bonds 1993 139,400 159,218 - (19.8]8) 12.2% Redev. TIP Bds Oaks of Main 96 103,000 50,973 52,027 - Redev. TIP Bds Oaks of Main 96 30,000 28,650 1,350 - Housing Bonds-Valley Park -99 145,240 136,375 8,865 - Housing Bonds-Meadow Creek-95 101,800 91,623 10,177 - Redev. TIP Bonds Cty Rd. 3 - 97 221,000 212,483 8,517 - Housing Bonds-Patio Homes - 97 176,100 166,666 9,434 - Housing Bonds-Patio Homes - 99 321,272 242,099 79,173 - . Improvement Bonds 1999 140,600 103,838 36,762 - Refunded Impr. Bonds 2001 227,000 17,153 209,847 - Refunded Park Bonds 2001 216,000 28,577 187,423 - DEBT SERVICE 2,974,295 5,098,382 603,575 (2,727,662) . Page 4 . Principles in 2002 Budget Adjustments . Long-term goals should guide short-term decisions . Don't compromise infrastructure/equipment that will cost more later . Focus on retention and recruitment of quality employees . Modify but not eliminate services (i.e. quality of services in order to save money . Minimize service impacts on residents . Maintain strong reserves . Create awareness in residents that services are at risk . Maintain critical services . Avoid scare tactics . Squeeze budget before cuts in services . All departments should share the burden . Delay significant cuts until full picture is known . Keep mission and vision in mind as decisions are made . Educate residents on situation . Look for efficiencies in service provision . Look to share services with other organizations when appropriate . Educate/involve employees about situation . Provide consistent message internally and externally . Look at cuts in non-service areas before cutting positions . . Maintain strong cmmections with legislators in order to minimize impacts of state decisions . . Options for Responding to cut in State Aid . Take from reserves . Postpone non-essential purchases . Reduce training . Take from current year contingency . Hiring freeze . Eliminate out-of-state travel . Reduce equipment costs by eliminating or deferring items . Reduction in work hours . Voluntary furloughs . Early retirements . Contract for services . Shift costs to other funds . Increase fees to other internal funds . Increase fees for services . Reduce/eliminated programs and services . Defer capital projects, e.g. streets . Eliminate joint recreation agreement . Defer pay equity implementation . Defer facility improvements . . Department reorganization (eliminate positions) . No increase in salaries or benefits . Suspend merit pay . Across the board cuts by each department (4%) .