Administrator MemoTY 0
ot C1 e F 0
MINNESOTA g
MEMORANDUM
TO: Mayor and City Council
FROM: Lori Johnson, City Administrator
DATE: August 8, 2013
SUBJECT: 2014 Budget
On Monday we will hold the first budget work session for the 2014 budget. No action is requested at
this meeting; instead I would like to begin with discussion of specific goals the Council has for 2014 that
require additional funding or have an operational or funding impact. Second, I will provide an overview
of the levy and budget. Additional work sessions will be held prior to adoption of the maximum tax levy
on September 9 at which time we will review departmental budgets with department heads in as much
detail as the Council wants. As you know, the final budget and tax levy are not adopted until December;
thus, there is adequate time for future discussion at budget meetings that will be held between the
adoption of the maximum levy and the December meeting at which the levy and budget will be
adopted.
Further, there were several legislative changes this year that affect the 2014 levy and budget. First, levy
limits were put in place for 2014. The Local Government Aid (LGA) formula was changed, and finally
beginning January 1,, 2014, cities are once again exempt from sales tax on most purchases.
This memo will provide an overview of the levy, budget, and other items pertinent to Monday"s
discussion. Because much of the budget is fixed and remains constant from year to year, I will only
address significant changes in the budget. Additionally, this memo and the discussion on Monday will
include only the budgets that include a tax levy as a funding source. The utility and building safety fund
budgets will be discussed later.
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LevyLit-nit
As | stated earlier, levy Um1tsvvere instituted for 2014. Items that fall outside the levy limit are levies for
bonded indebtedness, certificates of indebtedness, payments for bonds of another local unit of
government, principal and interest on armory bonds, referendum levies, preparing for or repairing the
effects of natural disasters, levies for tax abatements, and levies forstorm sewer improvement district
oostsunderM.S.444.2OoseeUassevera|othercountyorp rojectspecif|o|evles. Dtsego~s levy Urn|t
basedontheformu|ais$/L377,9IO Perthe atatute,tho"levy |im|toennot be|essthanthecert|led net
tax capacity levy for taxes payable in 2012 or 2013, whichever is greater." The levies for tax abatement
arid debt are outside the levy limit and can be added to the limit of $4,377,,910.
Levy Calculations and Estimates
For discussion purposes only, various levy increases have been calculated so the Council, can determine
how much of the levy is available for General Fund activities and to fund the reserve funds as included in
the adopted Capital Improvement Plan (CIP) after the required debt and tax abatement levies are
deducted. No levy increase equates to a decrease of $61,520 available for General Fund operations.
The increases lnpublic safety alone are $5O5OOfor ZOl4. The use ofLGA will factor into the levy asthat
revenue may be used to reduce the levy for one of the reserve funds or to pay for capital outlay.
Reserve Fund Levies
The proposed reserve fund levies are consistent with the adopted C|P.However, these levies can be
adjusted based on funding needs and the total levy amount the Council wants to set One reserve fund
]nparticular should bediscussed, that being the Storm Water Fund. The levy was proposed kzbe
reduced fromm$57,7O5in2Ol3to$25,OOO/n2Ol4. With the number and cost ofdrainage projects facing
the City, that levy should be increased to fund those projects that have no other funding source. The
entire storm water funding plan will be reviewed and recommendations for change made as directed by
the Council. Until that project is complete, adjusting this levy is the best option 10fund those projects.
Copies of each of the reserve fund finance sources and uses page from the CIP identifying future
projects and funding are attached for your review.
Econ omicDe ve lopmen t A u th ority (EDA) L e vy
The EDA briefly discussed levying a small amount to fund the EDA and related economic development
activities. EDA's are allowed to levy a maximum of .0185 of the total market value of the jurisdiction.
Obviously, the first levy would be fa[ below the maximum allowed levy. If the EDA wants to levy, it must
make that recommendation tothe City Council. The City Must approve the EDA levy; the EDA can't levy
without City approval.
Net Tax Capacity (NTQ
The County Assessor does not yet have estimated values for taxes payable in 2014. Anestimate should
be available from the County before adoption of the maximum levy in September. Based oninformal
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discussions and market trends, it isbelieved that values have stabilized and will not decrease for the
2O13values used tocalculate 2O14taxes. Attached |saspreadsheet with aNTC sensitivity analysis of
two percent for payable 2Ol4. This data issimply for illustration purposes only because, atthis point,
there is no actual information on which to base the analysis.
Otsego will receive $112,7l1 of LGA |n2014because of formula changes approved by the Legislature
this year. The LGA is not included as revenue in the Genera( Fund because of the uncertainty of future
LGA payments. Including ltasrevenue tofund operations would create afunding gap |fLGA goes away
inthe future. Also, as you are aware, in the past the State has reduced or delayed promised LGA
payments during the same budget year. Therefore, | recommend that the LGA beused tofund one-
time projects or capital equipment purchases.
Effective January 1,2O14,most purchases cities make will beexempt from sales tax. The sales tax
savings for the General Fund is estimated to be roughly around $26,.000. To allow for like comparisons to
the 2013 budget, sales tax has not been deducted from each of the affected line item budgets. Rather,
one lump sum adjustment i*made onthe General Fund summary. The line item budgets will be
amended accordingly before the final budget |sadopted.
Reclassifications and Reallocations:
As you review the budget, you will notice that there are reclassifications, of expenditures among
departments and line items. Furthe�numerous costs such asinsurance, telephone, pay, and others
were reallocated toreflect the actual cost incurred |neach department. Although almost all ofthe line
items were reviewed in detail and changes made as needed, there are a few minor line items or costs
that still need tobechanged. However, because the amounts are not material, the adjustments have
not been included |nthis draft due totime constraints. The total amounts included inthe budget are
accurate, thus, the reallocations and reclassifications can be made later or with next year's budget.
The reclassifications and reallocations make it difficult to make line item comparisons in sonle cases.
Therefore, it is easier to focus on the total budget and the programs and service levels, than it is to focus
line bmline. I will go over the reclassifications and reallocations in the broad scope as we review the
budget'
General Fund Budget Highlig, ts:
First, the attached draftbudget document is in a different format than the version you received earlier.
Also, the draft attached does not include year to date data for 2013 because the most recent data has
not been posted. Detailed explanations ofmany ofthe line items were included |nthe previous
distribution; therefore, detailed information is not included with this draft. |fthere isspecific detail you
want to review, please let rne know, and I will provide it to you.
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Because much of the budget is consistent with last year and no major new programs or services are
proposed, this memo will highlight only the significant changes in each department. Additionally, no
market rate adjustment is included in each department budget although funds are available in the
contingency fund for that pay adjustment. The budget includes a modest increase in health insurance
costs in anticipation of the implementation of premium increases dine to the Affordable Care Act. The
maximum insurance contribution by the City is not proposed to increase.
Staffing Level:
The draft budget includes the same number of full time equivalents (FTE) as in 2013 with the exception
of a .25 FTE increase in the recreation administrative assistant because of the anticipated increase in the
use of Prairie Center. There aro staff increases and reassignments that are needed to fill out the utilities
departments and to assist the public works and street departments with increased work load due to
aging infrastructure and increased use of park facilities. Additionally, part time, seasonal clerical
assistance is needed to input the backlog of files into laser fiche and to perform other duties. Those
positions are not included in the abaft budget and will need to be added if approved by the Council. The
needs in some areas do not justify a full time position; however, by combining needs from several
departments when possible, a full time position may be the best option. With the recent transition to in
house utility staff, we are still evaluating staff needs for utilities and how duties and or staff may be
shifted among the departments to most effectively utilize .staff. More background and documentation
on the requested positions will be provided at future budget work sessions.
Capital outlay.
The majority of capital purchases are funded through reserve finds, not the General Fund. Thus, capital
outlay requests are not included in this budget. There are, however, two items, laser fiche web access
($20,100) and cede enforcement software ($6,700).. that could be funded through the General Fund.
Staff is seeking direction from the Council on providing access to minutes, packets, and other documents
through the City's website at a cost of $20,100.
Budget Overview:
Revenue
1.. Ad Valorem Tax— Estimate entered for discussion purposes only.
. Transfers In - A category called Transfers in was added as a source of revenue. The 2013 budget
included payroll allocations to the Water, Sewer, and Storm 'water funds. In lieu of the payroll
allocations from the administration and finance departments, a transfer in has been added in
the approximately sameamount as last year funded through the water and Sewer Funds. The
$55,600 allocation previously made to the two storm water funds has not been included. More
data on the actual payroll costs charged to those funds needs to be analyzed before including
that transfer. If the transfer is overstated and the public works staff spends less time on storm
water projects, the Street department personal service budget will be over budget; thus the
concern about overstating the transfer.
Expenditures
3. Council —Council Contingency increased.
4. Administration—PayroUa|bcationof $16,000 iseliminated. Supplies increase $1,000 for
purchase ofafire proof safe. GIS costs were reclassified toIT. Possible additions not included in
draft budget include an administrative intern to complete backlog of files that need to be
scanned in laser fiche at an estimated cost of $6,,000 and laser fiche web access software at a
cost of $20,100.
SE|ections—Number ofhead judges increasedtO fOUcHead judge pay $11.00 per hOurand
election judge pay $10.00 per hour. Purchase of two additional voting machines for atotal of
$8,300.
8. Rnance—PavroUe|locationof $49,000 eliminated. Utility .8NUngClerk budgeted directly in
Water and Sewer funds and balance of allocation offset through etransfer |nfrom the utility
7. CitvHaU—PavroUa|looadonofpuNkcvvorksstaf eliminated. Repair and maintenance supplies
increased due to needed building maintenance and for file room shelving of $1,000.
8. Planning — Reduced to 2012 level because comprehensive plan update is complete. Code
enforcement software cost of $6,700 is not included in the budget.
BPo|ice—Wright County Sheriff contract increased B.3percent,, $29,200.
10.Fire - Based oncontract amounts from Albertville and Rogers and anestimated increase from
Elk River. Increases total $20,850.
11. Emergency Management — Increased supplies and siren maintenance costs.
12. Animal Control — Reduced $4,000based onactual costs in 2012.
13. Streets — PayroU a|kocotions to faci |ities and stormwa\erfunds eUm|nate d. No additionai staff
included thus payroll isthe same asZDl3when allocations are factored in. Sign supplies
increased tocomplete the sign rep(acementprognam;si ncostsbasedonactua|/nventoryof
signs.
14.Engineering —The budget for contracted services remains the same even with the fee increase
requested b«HakansonAnderson. The cost for utility relocated may bereallocated toan1n
houseposition instead. There are currently employees who are trained toperform utility
locates. The $SDOOObudget would fund the $5,000 purchase of equipment needed to perform
the locates and would fund part of a position to perform locates and other duties for the utilities
and public works departments. Additionally, $10,000 would still be included in the engineering
budget for Hakanson Anderson to serve as a backup to City staff.
15. Fleet Maintenance — Payroll allocation changed toinclude only the mechanic. Currently
portion ofamaintenance | employee is charged to fleet maintenance. However, that employee
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may be utilized entirely by the utilities departments. The transfer ofthat position to utilities will
create a reduction in public works staff that will need to be filled.
16. Park Maintenance — Payroll allocation changed to eliminate .25 public works FTE charged to Park
Maintenance |n2O13asthat time was not spent |npark maintenance. The addition ofafull
time staff to work in parks in summer and snow plowing and facilities in winter would eliminate
one seasonal position. Operating supplies increased toinclude wood chip replacement. Utilities
were increased to reflect actual costs.
17.Recreation —Administrative assistant position increased from 10 hours per week to 20|n
anticipation of higher use at Prairie Center and higher participation in recreation programs.
Operating and office supplies increased again due to increased use at Prairie Center. Overall,
program revenues are budgeted at $50,000 and program expenditures are budgeted at $55,000.
$20,000 is budgeted for community events.
l8.Prairie Center — Payroll allocation changed to eliminate public works staff time. Budgeted
numbers are estimates based on the remodeled facility and estimated use.
l8.Economic Development —The total budget is comparable to2013but the marketing and
contracted services amounts changed. Nopay isincluded for the EDA commissioners. The EDA
will need to levy for that purpose.
In conclusion, it is difficult to determine the impact of any levy change on taxpayers until an estimated
NTC |sreceived from Wright County. That estimate should beavailable before the preliminary levy /s
adopted on September 9. Therefore, as|stated earlier, the discussion onMonday should focus on
changes in programs or service levels that the Council wants so those costs, if any, can be included in the
2Ol4budget )fthey aren't already. Additionally, the transition ofstaff and changes from contracted tV
in house staff create opportunities for efficiency ofstaff bvreallocating and sharing eXlS1|Ug staff. To
fully staff the Utilities department another position is needed and that position may be a job share
position that could fill needs inpark maintenance orpublic works. All options are being evaluated to
max lmizaiheoutput most eff 1dendy. |tisd|fTicu1ttoput thestaff 1ng discuss|onconc|se|y1namemo
because of the many options, positions, and departments involved. We will begin that discussion on
Monday and continue to refine and explain the options as each department head meets with the
Council atfuture work sessions. |fyou have questions onspecific detail oritems that are not included in
this memo or the attachments and the information would be helpful at Monday's discussion, please
contact meprior tothe work session so|can bring |ttothe meeting.
Attachments:
0 2Ol4Tax Levy Calculations
m Sources and Uses of Funds from ZOl3C|Pfor Reserve Funds included .ntax levy
0 Net Tax Capacity Data
Z
General Fund Daft Budget
Revenues
Total Expenditures
* Expenditures by Department
Letter from Hal an on Anderson dated July 26, 2013, Regarding Engineering Fates
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