Council memo4,�
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CITY F 0
MINNESOTA
MEMORANDUM
TO: Mayor and City Council
FROM: Lori Johnson, City Administrator
DATE: November 7, 2013
SUBJECT: 2014 Budget Review
At recent budget work sessions following adoption of the maximum levy in September, we have
reviewed at length the enterprise and special revenue fund budgets, debt service obligations,
and the CIP. The final discussion topics remaining prior to the December 9 budget meeting
include another review of the tax levy and General Fund budget.
The maximum tax levy adopted by the Council in September sets the levy at $4,539,285 which
is an increase of $161,375 or 3.69 percent. As you are well aware, at the time of adoption of
the final levy on December 9, the Council may reduce the final adopted levy, but cannot
increase the levy. The maximum levy is well under the levy allowed by law as you can see on
the attached Calculation of Property Tax Levy Options. It is important to note that the actual
tax impact on an existing home or business is less than 3.69 percent because of the new
property value that is added for taxes payable in 2014. In 2012 143 new residential units were
built along with commercial build outs of existing structures all which added value to the City's
tax base. At this time, the only estimated tax capacity data available from the County Assessor
is the estimate received in September. Thus, all of the levy and tax impact data is unchanged
from what was presented in September. New improvements produced $21,673,500 of new
value. This new value would produce approximately $96,700 of new taxes, leaving $64,675 of
the proposed increase to be covered by the general tax base. This calculates to an increase of
1.48 percent on the existing taxpayers of Otsego for 2014.
After review and adjustment of the General Fund budget for payroll allocations and minor
corrections based on updated actual data, there is a small surplus of revenues over
expenditures. With the adjustments summarized on the attached Adjustments Summary, 2014
General Fund estimated revenues total $4,084,097 and expenditures total $4,049,180 (after
reduction for the new sales tax exemption) creating a surplus of $34,917. This balance could
remain in the General Fund to fund capital purchases that would otherwise be funded by a
reserve fund, the tax levy could be reduced by this amount, or it could be added to one of the
reserve or bond fund levies.
Attached is General Fund budget data updated to include the operating transfers for personal
service charges to the Water, Sewer, Storm Sewer, and Building Safety funds. Additionally, the
changes directed by the Council in September are included. The Council requested additional
justification for the seasonal staff requested by the Public Works department. A memo from
Brad Belair with his justification was included in the October 28 packet. He will be present to
explain his request and answer questions. The funding for this position has been removed from
the budget pending Council review and direction; the budget will be increased if the position is
authorized which would reduce the current $34,917 budget surplus.
The other outstanding item that has not been discussed is employee pay for 2014. Funds are
included in the Council Contingency allotment for an increase. Earlier this year the Council
directed me to review the existing pay plan and to present options to incorporate a merit
component in the pay plan. I have begun that review and research; however, my
recommendations will not be ready for several months. This fits within the timeframe agreed
upon when the decision was made to take on this project. That likely means that
implementation of a new pay system would not take place until late in 2014 or early in 2015.
Normally, if a pay adjustment is made it is effective beginning on January 1, although last year
the Council approved an adjustment that was effective in April.
As always, there are various options for the Council to consider when setting pay for 2014.
Those options range from leaving pay as is to making a market rate adjustment. Administrative
Services Director Dan Jordet's survey showing market rate adjustments in other cities is
attached. As you can see, some cities apply their market rate adjustment in January and others
choose to make smaller adjustments two times per year. It is evident in this survey that the
norm has moved from the tone of a few years ago when pay was frozen to once again providing
a pay increase. The City in the past has also relied upon comparison city data to determine
what, if any, adjustment to make. Although pay is not the sole or even most important factor in
employee satisfaction and retention, it is a factor if the pay falls below the competition. There
is a balance of being fair to employees and being conscious of the budget factors as well.
There are several attachments to this memo that provide information on each of the topics
addressed above. Additionally, staff will go through the topics in as much detail at the meeting
as the Council desires. Your direction on the tax levy is requested so that we may prepare the
tax levy resolutions for adoption on December 9.
M