Budget Memo 7 27 16P
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MINNESOTA
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TO: Mayor and City Council
FROM: Lori Johnson, City Administrator
DATE: July 27, 2016
SUBJECT: Draft 2017 Budget Document
Enclosed please find the Draft 2017 General Fund Budget. The Capital Improvement Plan and enterprise
fund budgets will be distributed later. The first budget work session is set for August 8 following the
regular Council meeting. At that meeting, we will begin with another overview of the tax levy and
reserve funds before starting review of the General Fund budget. Four budget meetings are scheduled
to give the Council ample time for thorough review before adopting a maximum levy on September 26.
For your reference, attached is a budget calendar showing the departments that will be covered at each
of the budget meetings.
As you know, the draft budget is developed using a combination of historical data and future
projections: Actual current and historical revenues and expenditures are analyzed. Anticipated
expenditure cost increases and quantity/service changes are estimated. Department head requests are
submitted and reviewed. Programs are added, modified, and deleted as directed by the Council or
recommended by staff. Staffing levels are examined to align staff needs with service expectations.
Further, new and different means of delivering services are considered throughout to create efficiencies
in and increase effectiveness of the services provided.
The draft General Fund budget as proposed is balanced with expenditures totaling $5,173,657. This is
an increase of 6.01 percent or $293,395 over the adopted 2016 budget. Of this increase, $32,050 is for
existing expenditures that were previously not included in the budget; those items are noted below.
Deducting these reduces the budget increase to 5.36 percent. The largest increase, $105,634, is in the
Public Safety departments. Police and fire service contracts are increasing a total of $72,528 and
building inspection costs are increasing $36,686 to meet demands of increased building permit activity.
Below are additional highlights of the draft budget:
Municipal State Aid (MSA) — At the May 9 budget meeting, the Council agreed with staff's
recommendation of reclassifying MSA funds to the Pavement Management Fund to align the
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revenue with the intended expenditure activity. To offset this transfer, the General Fund tax
levy was increased to account for this reclassification of revenues.
Local Government Aid (LGA) — LGA is included in the General Fund revenues with a
corresponding transfer out. My recommendation is that the funds again be used for one-time,
non -operating expenditures. There was discussion previously about transferring the funds to a
reserve fund; however, no action was taken by the Council. Identifying the reserve fund that is
in need of additional revenue and would benefit most from the additional $129,105 LGA
revenue will be discussed at the meeting.
Reclassifications — Several expenditures were reclassified including postage, telephone, rentals,
LMC dues, and insurance. These reclassifications cause some departmental budget fluctuations,
but the totals are consistent with past years.
Additions — Items not previously budgeted and one new program have been added to the
budget:
o Existing Programs Not Previously Included in the Budget:
■ Fines - Fine revenue of $6,000 and the offsetting payment to Wright County
have been added to the budget for the first time. This item is budget neutral.
■ Otsego Prairie Festival - Festival revenue of $13,050 and expenditures of
$18,050 have been added. The $5,000 difference is the City's contribution to
the event. This contribution has remained at the same level for several years.
■ 194 Corridor Coalition - Coalition membership dues of $8,000 are included in the
Council budget.
o New Program:
■ WCAT - A $3,000 reserve for public transportation is included in the Council
budget. Based on past years, there will probably be no cost for public transit in
2017 other than the WCAT administrative fee. Funds were included in the
budget in case a contribution is required in 2017. If the Council desires, this
could be reduced to $1,000 to cover just the administrative fee.
Personal Services —The majority of the General Fund budget is for personal services as this is a
labor intensive, service entity. No new positions are proposed for 2017. Personal services are
increasing in 2017 in general due to the new pay plan, all positions being filled for the full year,
and the resulting actual insurance costs. The City insurance contribution is not increasing this
year and remains the same as it has for the past decade. It is impossible to estimate insurance
costs as they fluctuate depending upon the coverage an employee choses and the age(s) of
those covered. The draft budget includes a two percent adjustment in the 2017 pay plan to
keep it consistent with market. Based on the survey data that has been circulating, cities are
increasing pay between two and three percent.
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Worker's Compensation —Worker's Compensation increased $22,873 for the upcoming plan
year of which $17,634 is accounted for in the General Fund. This increase is expected to
continue for three years until the experience modification factor decreases after the recent
claim is no longer included in the experience modification calculation.
Document Imaging Assistant - This position was included in the 2015 budget but not in the 2016
budget, because estimates indicated that all documents would be imaged in 2015. The position
has been and will continue to be in place for 2016 with funding coming from the elimination of a
proposed but unfilled position in the Administration department. Further, it is expected that
this position will continue through 2017. Therefore, $18,918 was added to the Administration
budget to fund this position.
Information Technology (IT) - To meet increased demand, the number of hours of service per
month was increased from the 2016 budget of 67 hours per month to 100 per month. The
actual 2016 average per month is 74 hours, which has covered urgent and reactive tasks. The
increase in hours/budget will fund proactive tasks that are currently not being done.
Streets - Concrete repair was increased by $7,000 to replace and maintain aging curb and
sidewalk; Completion of light repair and replacement in the shop is included at a cost of
$14,380.
Park Maintenance — Increased funding has been included for splash pad maintenance and
repairs. The splash pad is heavily used and is aging; thus, additional repairs are anticipated.
Tax Levy -
o The tax levy information will be distributed at Monday's meeting. As you may recall, tax
levy scenarios and reserve fund cash flow projections were presented and discussed at
the May 9 budget meeting. At that meeting, the Council gave direction to increase the
Pavement Management Fund levy. That and other reserve fund levies require
additional analysis to identify revenue sources, including tax levy increases, to fund
future projects and expenditures. Even with delaying or reducing projects and
equipment, several funds show deficit balances in the near future. It is much easier to
incrementally increase the levy for those funds now than it is to be put in a position that
leaves no option but to approve a large levy increase at a time when new market value
growth may be stagnant. There is additional new construction value of $71,973,100 in
2016 making it a good time to adjust levies for those funds. Further, it is important to
note that many other cities have instituted franchise fees to cover road improvement,
street lighting, and other costs. Otsego has not, thus Otsego's tax levy will naturally be
higher without franchise fees than with because those costs are included in the levy
while they are not in many surrounding cities.
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In conclusion, the above information is a brief summary of the changes and highpoints of the draft 2017
budget and tax levy. Most of the budget is consistent with last year's requests with minor adjustments
for increased quantities/services and price increases. At the August 8 meeting, we will begin with
presentation and discussion of the t ax levy, General Fund revenues, and the Park and Recreation
department budget. If you have any questions on the draft budget or want specific information for the
budget work session, please contact me.
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