SCC Memo (8-26-2024)
City of Otsego│13400 90th Street NE, Otsego, MN 55330│Tel. (763) 441-4414 Fax (763) 441-9163
TO: Mayor and City Council
FROM: Adam Flaherty, City Administrator & Finance Director
DATE: August 26, 2024
SUBJECT: Budget Meeting #4
Previous Meeting
At the budget meeting on August 7, 2024, the City Council and staff were able to complete the initial review
of the draft expenditure budgets for each department within the General fund. Due to time constraints, the
draft revenue budgets and property tax levies were not able to be completed.
On Monday, the Council and staff will review the draft revenue budget of the General Fund and will review
the preliminary property tax levy. Please note that staff is seeking Council input during this budget review
meeting to move the budgeting process forward effectively and efficiently. I have developed an outline of
discussion topics below.
Revenues
The primary source of revenue within the General fund is property tax dollars which account for 71% of
budgeted revenues. An increase of $722,000 (11.40%) in property tax levy is being proposed within the
draft budget.
The primary reason for the percentage increase of the property tax levy outpacing the increase in
expenditures is due to a decrease (58%) in budgeted revenues from intergovernmental sources. The City
had not received Local Government Aid (LGA) for many years, but due to a formula change by the
Legislature, the City received an allocation in 2024, which under current allocation estimates will not be
available to the City again in 2025. Public Safety Aid is also less in the proposed 2025 budget when
compared to the 2024 budget.
The details of these revenues will be reviewed by staff and Council during the budget review meeting.
Capital Project Funds
The City maintains multiple capital project funds. None of these funds have an adopted revenue or
expenditure budgets; rather, the expenditure activity of the respective funds is included within the City’s
ten-year Capital Improvement Plan (CIP).
City of Otsego│13400 90th Street NE, Otsego, MN 55330│Tel. (763) 441-4414 Fax (763) 441-9163
Staff will review source and use cash flow projections for those Capital Project Funds that have a proposed
property tax levy with the City Council and further discuss recommendations on how to continue to provide
adequate funding. A short narrative for each capital project fund that will be discussed:
Pavement Management
This fund accounts for nearly all the street maintenance and renewal projects in the City. The funding
for these projects comes from a property tax levy, franchise fees, special assessments, and municipal
state aid maintenance dollars.
Trails Management
This fund accounts for the ongoing costs associated with the maintenance of the City’s trail system.
Annual costs typically include crack filling, seal coating and trail renewals. The Park system continues to
grow each year as the City builds new parks and trails.
Parks Capital Equipment
This fund accounts for the accumulation of resources to provide for future replacement of major park
capital items, including but not limited to parking lots, shelters, and playground equipment. The
funding for these future expenditures solely comes from a property tax levy.
Revolving Capital Equipment
This fund accounts for the expenditure of funds associated with the City’s vehicle and equipment fleet.
These expenditures are evaluated annually by staff and the City Council during the budget process and
again in the year of purchase. The funding for these vehicle and equipment purchases comes from
property tax levies or sales of end-of-life fleet items.
Fire Reserve
This fund accounts for the accumulation of resources for costs associated with the purchase of fire
apparatus and the construction of a fire station(s) within the City. As the City progresses with the
development and startup of the Emergency Services Department, the purpose of this fund will shift to
accumulating resources for the replacement of fire apparatus and respective equipment. The funding
for these expenditures is currently provided by a property tax levy, and in the future will also be
provided by grant revenues as applicable.
City Buildings & Property Maintenance
This fund accounts for the accumulation of resources to finance City buildings and property
maintenance projects as well as information technology systems for the City Hall/Public Works and
Prairie Center facilities. The development of the projects within this fund has shifted with the deferral
of the Campus Facilities Projects. Many of the projects could have been incorporated into the larger
construction projects, but now must be prioritized and addressed as individual projects.
Property Tax Levy
City staff will review the proposed property tax levy payable in 2025, which includes operating revenues for
the General Fund and the Capital Project Fund levies reviewed during this meeting. Additionally, tax
abatement and debt service levies which remain unchanged since they were reviewed with the City Council
during a budget meeting on May 28.
City of Otsego│13400 90th Street NE, Otsego, MN 55330│Tel. (763) 441-4414 Fax (763) 441-9163
Next Steps
The Council will need to adopt the preliminary property tax levy, which is the maximum amount the City
can levy for taxes payable 2025 prior to September 30, 2024. The timing of this action will be a topic of
discussion at this budget review meeting and any future special meetings for budget review. It should be
noted that the preliminary property tax levy is the amount used for truth-in-taxation notices that are sent
to the taxpayers by Wright County.
The final budget and property tax levy will not be adopted by the City Council until December. Changes to
the budget can still be made between now and then but increases in expenditure become difficult because
the primary revenue source to pay for those increases is property taxes. The property tax levy can be
decreased between now and then, but the levy cannot be increased.
Materials Attached for Discussion
1) General Fund
a. Revenue Line Items
b. Expenditure Function Summary
c. Fund Summary
d. Changes Tracking
2) Capital Project Funds – Cash Flow Summaries
3) Preliminary Tax Levy for 2025