CR 2014-023 Adopt Financial Management Plan-.4ca
February 18, 2014 City of Hopkins Council Report 2014-023
ADOPT FINANCIAL MANAGEMENT PLAN
Proposed Action
Staff recommends approval of the following motion: Move that the Financial Management Plan as
prepared by Ehlers and staff be adopted and implemented effective for the 2015 budget.
Approval of this motion give direction to staff on the financial direction of the City and provide guidance
in preparing the 2015 and beyond budgets.
Overview
Staff, council and Ehlers, our financial consultant, have been working since last fall to develop a
Financial Management Plan (FMP) for the financial stability of the City taking into consideration
operational and capital needs along with alleviating the financial concerns of several funds. Staff and
Ehlers presented the information from the FMP to the Council in October 2013 and again in January 2014
making adjustments based on discussion from those meetings. The FMP that will be presented at the
council meeting is ready for implementation following adoption by the Council.
The public presentation is still being tweaked and is not quite ready for distribution but will be available
for presented at the council meeting. There are no significant changes from the January presentation.
Primary Issues to Consider
0 Long-term financial stability of the City.
Staff Recommendation
• Staff recommends adoption of the Financial Management Plan.
Supporting Documents
• None attached — however a power point presentation will be available at the Council meeting.
Christine M. Harkess, CPA, CGFM
Finance Director
Financial Impact: $ none Budgeted: Y/N _ N Source:
Related Documents (CIP, ERP, etc.): Notes:
EHLERS
LEADERS IN PUBLIC FINANCE
Financial Management Plan
City of Hopkins
February 18, 2014
0" _ _ _ _ _ _ _ o a -a -E
What is a Financial Management Plan?
■ A multi-year fiscal plan for all tax -supported
funds
■ Integrates:
✓ Existing Debt
✓ Capital Improvement Plans
✓ Future Debt
,/Tax base growth
✓ Future operating expenses
■ Compares entity to standards
✓ Government Finance Officers Association (GFOA)
✓ Similar entities
V
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2/18/2014
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What Makes It Practical?
• Helps to manage expectations
✓ New spending proposals evaluated against other identified priorities
✓ Weigh proposals vs. predefined affordability parameters
■ Helps to maintain assets
✓ Regular replacements
✓ Large periodic repairs
■ Reduces stress during budget process
✓ Previously agreed spending guidelines
✓ Better understanding of the effect decisions have
■ Rating Agencies like multi-year planning
■ Reduces reactivity amidst an unpredictable fiscal
environment and unfunded mandates
® EHLERS
Steps
■ Step One - Review the entity's financial position —
■ Fund balances
■ Annual operating surplus or deficit
■ Projected debt payments
• Step Two: Assemble the Required Information
■ Develop an inventory of all capital needs (CIP)
■ Identify current and alternative revenue sources
• Estimate growth in the tax base
■ Look for new budget needs to meet growth demands
t EHLERS
2/18/2014
2
Steps
• Step Three: Prepare the Model
■ Determine any structural issues with funds
■ Analyze the financial impact of the total requested spending
■ Determine if it meets the affordability limits defined by the
governing body
■ Level out expenditures and bonding to smooth any tax changes
■ Step Four: Council Discussion and Input
■ Layout policy issues
■ Discuss priorities and options
■ Had 2 work sessions with the Council to discuss issues and obtain feedback
5
0 EHLERS
Step Five — Communicate Results
1. Hopkins is in good financial condition
— Adequate reserves to address issues
— Ability to finance needed projects
— Tax base growth captured through redevelopment
• Capture immediately since not utilizing TIF
— Recent rating increase by S & P to AA+
• Only 1 step below AAA rating
2. Need to refine a couple of structural issues in
budgeting, but not significant impact on taxes
3. Will need to increase taxes over next several years
to finance required projects
— Reinvestment in roads, utilities and public facilities is key to tax
base growth and preservation
EHLERS
2/18/2014
3
Assumptions in Plan
• Assumptions in the Plan
1. Revenues (market value) increases starting in 2015 by 1% annually
• Did not account for new development/redevelopment
2. Expenses increase at 3% annually
3. All current CIP, parks, equipment, streets, EDA, HCA and ice arena are
un a as requested by department heads
Park improvements rely on franchise fees to pay for them
4, Hopkins Center for the Arts is no longer funded by EDA fund
$61,000/year now paid from tax levy, leaving these dollars available for redevelopment
projects
• Annual impact to average value home of $9.43
Also plan to levy annually to repay HCA negative fund balance ($140,000/year)
Annual impact to average value home of $21.64
5. Ice Arena — Funded with levy support of $120,000/year
6. Fund balances
Capital equipment is $750,000 or one year of costs
Capital improvements is $300.000
General Fund is 42% + of expenditures per policy
7. Average value home is $225,000 EHLERS
General Fund Budget At October 2014 Work
Session
TOTAL REVENUE
100581328
III—.—
11,114.113 11.112.139
11,-1u.+ 1[.111_,10 11.,. I I. 1111111� 11550.159
13,%3,551
14379.168
TOTAL EXPENSES
10.580.329
10.946.129
11.374.213 11.712.139
12,060,203 12.418310 12,787.971 13.168.310 13.560.059
13,963,561
14379,1%
REVENUE OVER (UNDER) EXPENSES
-
-
-
- - - -
-
-
ON111gPY11ne41.NC4
F.W B 1... a, u.. a4 Au', .I •mac
5.194.143
41 ,.
5.194.143
—
5.194.10.1 5.194.10.1
41 .° 1.1 ..
5.494.141 5.194143 5.194.143 5.194.14.3 5.194.143
13.. 11, 1 1_°
5.194,14.3
1— 11..
S.191, 143
313,6
TAxRATE ON IAXCAPACHY
62414%
62412%
613320% 173111%
74169% 76461% 60148% 81.429%
83341% 68743%
83.638%
TAXRAW%CNANOI
531..
111—
J47°.. I n.,.
173.0 101 482% 1W%
2'C,, 407%
1111%
City TXX444114r MVHC 01 E -u-,
$1,2%
31,298
$1,438 51,$41
$1.602 $1,666 $1.767 $1917
$1.881 SI,981
S1,932
%141 Incr•aw — .—.Q4 Home 122W
6.31%
0.00°7..
111 M% 7.211,.
3.93'7. 4.02%. 6.04% 2 93%
3-54' 5.28%.
.247%
1. 2015 tax increase was estimated to be 140
2. Average tax increase over next 9 years is 70
3. Council directed staff work to reduce this impact
{
EHLERS
2/18/2014
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Council Direction/Consensus
1. Fund balances
— Capital equipment - $750,000 — one year of costs
— Capital improvements - $300,000
2. General Fund balance reserve percentage
— Keep it at current policy of 42% +
3. Funding/levy for Hopkins Center for the Arts
— No longer use EDA fund of $61,000 annually — switch to tax levy
Levy additional dollars to replenish fund balance (currently nearly
$1.1 M in negative cash)
• Reduce impact in earlier years and increase later to lessen impact while
obtaining positive fund balance by 2020, if possible
N-
Council Direction/Consensus
4. Ice area operation and capital needs
Continue to fund depreciation
• This is a good thing
— Reduce levy to support operation and capital
EHLERS
— Average annual deficit with annual capital outlay's for
improvements of approximately $76,000
• Approximately $144,000 over next 5 years
• Positive cash balance by 2020 and in good financial position thereafter
— Need to levy approximately $117,000 beginning in 2021 to pay
for $1.3M bond for refrigeration system
• May decrease depending upon how Council funds/levy's in prior years
Im
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2/18/2014
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What we did to reduce the impact from The October
2013 Work Session
1. Lowered annual debt levy for various bonds
2. Adjusted annual levy for PIR fund
✓ Lower in early years and higher in later years
✓ Still meets all funding needs
3. Adjusted annual levy for Arts Fund
✓ Lower in early years and higher in later years
✓ Still meets all funding needs (pushed out positive fund balance
by 1 year to 2021)
4. Adjusted annual levy for ice arena
✓ Reduced from $120,000 to $65,000
5. Adjusted annual levy for Capital Fund
✓ Lower in early years and higher in later years
✓ Still meets all funding needs
417 EHLERS
Assumptions In Updated Plan
1. Revenues (market value) increases starting in 2015 by
1 o annually
- Have accounted for new development/redevelopment
2. Expenses increase at 3% annually
3. All current CIP, parks, equipment, streets, EDA, Hopkins
enter ort e Arts and Ice Arena are funded as
requested by department heads
- Added total of $6.3Million in street projects in 2014 and
2015
4. Fund balances
- Capital equipment is $750,000 or one year of costs
- Capital improvements is $300,000
- General Fund is 42% + of expenditures per policy
5. Average value home is $225,000 which equates to
210,450 taxable value EHLERS
2/18/2014
;:
General Fund Budget - Today
TOTAL REVENUE
10,580,329 10,948,129 11,274213 11,712,139 12,080,203 12,498,710 12,93].9]1 13,393,310 13,785,059 14188,581 14804188
TOTAL EXPENSES
10,580,329
10,948,129
11,270.213 41,712,139
12,090,203
12,490,710
12,93],9]1 13,393,310
13,]85,059 10.188,581 14800.108
REVENUE OVER (UNDER) EXPENSES
-
-
- -
-
-
- -
- -
EnditFuMS.l.�we
5,194143
5,190.143
5.194143 5,194143
5,190.143
5,2]0.143
5,424,143 6,549,143
5,8]4143 8,099,143 8,324143
Fintl Balance 94 1 X of A—I E.P --
49%
4]°k
48% M%
43%
42%
42X 43%
43% 44% 44%
TAX RATEONTAXCAPACITY
92.414%
92.412%
89.420% ]0.34]%
]4.158%
]].904%
81.584% 86083%
80095% 91.8]4% 99.087%
TAX RATE %CHANGE
8.3M
0.00%
8.42% 6.91%
5.42%
5.05%
4.]0% 4.2BX
404% 3.92% -3.03%
CI T4....9,, MVHC -Exd On
51,298
$11298
$1,398 $11498
$11591
$1,898
$1,798 $1,899
$1,998 52,098 $2.05{
%tab Ina... On .v.Ia home (225k)
6.31%
0.00%
].88% 1.19%
8.85%
6.28%
5.82% 5.55%
5.24% 5.02% -1.91
1. 2015 tax increase reduced by $40 to 100
2. Average tax increase over next 9 years is 100
2
i EHLERS
Council Direction/Consensus
1. Reduce impact to under $100 in 2015
14 EHLERS
2/18/2014
VA
What we did to reduce the impact from the January
2014 Work Session
1. Adjusted annual levy for HCA
✓ Positive fund balance still achieved by 2021
2. Adjusted annual levy for Capital Fund
✓ Lower in early years and higher in later years
✓ Still meets all funding needs
EHLERS
General Fund Budget — as a Result of the Plan
TOTAL REVENUE
10580329 10.9..129 11,2)0.213 11,112.139 12.080.203 12.0. e.',, tell 971 13.303,310 13,705.059 14,188.581 10.804.180
TOTAL EXPENSES
10.580.3]9
10.946.129 11,270.213 11.712.139 12.D60.203
12.498,710 1293].9)1 13,393.310 13.785.059 10.180,561 14.604168
REVENUE OVERIUNDER) EXPENSES
-
- - -
- - - - -
EO' -'-4 Balance
5.184, 143
5.194143 5.194,143 5,194,14) 5.194 ,14)
5.1)4.143 5.424.10.1 5,649,143 5.8)0.143 6.099,143 6,320.143
Futl Bebxco as n % MAuninl l el��n+��z
4. ,,.
47"i„ 46/0 4.1 ,. n � .,,
4]n, 4'1°ro 43°.. 43% 44% 4
TAXMTE ON TAX CAPACITY
fi2414°i°
OJ 412% 081Cb°l. 7325%
b.
65
76 W,1% 70.786% 81111°k 717% 60551% 86442%
igXMTE 14 CI1ANCI
I�?1,,,
000 i° 6.02.0 64 ,. n. i,.
4537„ 410.. ,v IH/. 3S2/. 3.31% ,in
Cly Taaeaefar MVNC or Excluien
$1.280
$1,290 51.393 51,40) St, 578
51,660 $1.759 $1,848 511935 52.022 $1,9)
%Ua Ironase on ew rage home (22.)
M18W Tea Increve
6.3)%
578
0.00% ).2)% 6.)89. 6. %
50 .4 S94 $91
5 )b°,: 5.40% 5.03% 4.721 4.50% .2.40
591 590 $09 S87 U7
1. 2015 tax increase reduced by $6 to 94
2. Average tax increase over next 9 years is 75
2
EHLERS
2/18/2014
2/18/2014
City of Hopkins
Projected City Impacts
$225,000 Single Family Residence -Inflated at 1% Annually
$2,500
$2,000
$1,500
$1,000
$500
$0
2013 2014 T 2015 2016
Cty Taxez�$1,298 $1,298 $1,393 $1487
2017 1 2018 2019 2020
$1,578 $1669 $1759 $1,848
V
Average City Tax increase of 75 City Tax Reduction of 48
11E 310
2015 Levy
Use
Increase
Dollar Increase
Tax
Increase
General Fund
$461,599
$85,000
$44
Capital Fund
$53,000
Art
PIR Fund
$126,597
$19
Pavillion
$65,000
$10
TOTAL
$791,196
$94
Tax Impact on Average Value Home
Annual Monthly
Daily
$94
$7.83
$0.26
EHLERS
9
s Fund
$85,000
$13
Capital Fund
$53,000
$8
PIR Fund
$126,597
$19
Pavillion
$65,000
$10
TOTAL
$791,196
$94
2015 Tax Impact of Levy Increase On Property
Type of
Property
Taxable
MarketValue
100,000
Estimated
Tax Increase
$26.96
125,000
$37.18
Residential
150,000
$47.43
Homestead
175,000
$57.65
Average taxable
210,450
$94.33
value in City
250,000
$88.37
300,000
$108.84
400,000
$149.77
500,000
$347.39
Commercial/
750,000
$535.17
Industrial
1,000,000
$722.94
1,500,000
$1,098.50
2,000,000
$1,474.05
EHLERS
Final Results
1. Hopkins is in a better financial position than it was prior to the FMP
process
✓ Have plan to finance needed road. capital equipment and City owned
facilities
✓ EDA fund is utilized for redevelopment staff and projects rather than
funding the HCA
✓ HCA is funded with additional tax levy and plan in place to address
negative fund balance by 2021 which will allow opportunity to secure
additional outside funding sources in the future
✓ Ice Arena is funded with additional tax levy to allow for needed capital
improvements and a plan to address negative fund balance by 2019
✓ Provides adequate reserves/fund balance for various funds
✓ Funds depreciation (future capital reinvestment needs) of City facilities,
thus reducing need for future borrowing
2. City has road map for future budget processes
1114 EHLERS
2/18/2014
10
Next Steps
1. Utilize the FMP as part of the 2015 budgeting process
• If you don't follow plan, you are not addressing budgetary
issues and are creating a larger problem for future councils
2. Update annually as assumptions change
• Market values
• Projects
• Expenses
• Other revenues
EHLERS
2/18/2014
11