ITEM 1w,
CITY OF
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MINNESOTA
TO: Mayor and City Council
FROM: Adam Flaherty, City Administrator & Finance Director
DATE: June 12, 2017
SUBJECT: Budget Meeting #2
On Monday, Council and staff will continue the 2018 budgeting discussions. I have developed an
outline of discussion topics below. Please note that the information presented during this meeting is
for discussion only and that nothing is final or set in stone at this point of the process. Staff would
only be asking for Council direction on the items below in order to effectively and efficiently move
the budgeting process forward.
Budget Assumptions
The most significant assumption within the General fund budgeting process is those in relation to
personnel. It was discussed during the prior budget cycle, those personnel assumptions would be
clearly defined at the beginning of the budgeting process going forward. It was also discussed that
assumptions for personnel costs would be directly tied to an agreed upon index.
As part of the budget discussions on May 8, 2017, two different national indices from the Bureau of
Labor Statistics were presented. CM Heidner requested that indices better representing this
region/locale be reviewed and discussed at the next meeting. Attached with this memorandum are
two more regional indices, again provided by the Bureau of Labor Statistics.
There was also discussion regarding step increases within the City's pay plan. The City's pay plan
for full-time employees includes 21 grades, each with 9 steps. The percentage increase for each step
within a pay grade is 2.75%. Employees who reach the highest step within their pay grade do not
move to the next grade. There are 6 employees at the City who are currently at the top of their
respective pay grades.
Fund Balance Policy — Calculation of Transfer
The City's fund balance policy outlines that the ending fund balance in the General Fund should be
45% of the subsequent years budget. The policy further outlines that any balance in excess of the
defined 45% minimum, can be transferred to a capital reserve fund at the Council's discretion. A
calculation is attached with this memorandum for review at this meeting.
City of Otsego 113400 901h Street NE, Otsego, MN 553301 Tel. (763) 441-4414 Fax (763) 441-9163
Property Tax Levy — General Information
At this time of the year, much of the information being used is estimates. Based upon the
information currently available from Wright County, the City's tax capacity for the 2018 tax levy
will increase approximately 8%.
The City's tax rate for the 2017 tax levy is 37.852. With the current assumptions for increased tax
capacity, if the City were to levy the same amount, the tax rate would be estimated to be 34.781.
The City would be able to increase the levy approximately $500 thousand more for payable 2018
while still maintaining the current tax rate.
Attached with this memorandum is a chart comparing the Otsego tax rate with those of surrounding
communities in Anoka, Hennepin, Sherburne and Wright Counties.
If the City Council has any specific comments on the City's tax rate, please let staff know of any
specific direction at this meeting.
Property Tax Levy — Tax Abatements
For 2017, the City levied $81,385 for repayment on certain tax abatement agreements. The
estimates used by staff during the 2017 budgeting process have proven to be reliable when
comparing the amount levied to the expected payouts based on respective property tax statements.
For 2018, staff has obtained assessed valuations for each respective parcel and applied the 2017
actual tax rate to arrive at an estimated payout. These estimates show an approximate need of
$65,546 for repayment on the tax abatement agreements.
A summary spreadsheet has been attached with this memorandum to illustrate the estimated payouts
for the remaining tax abatement agreements.
Property Tax Lew — Debt Service
The 2018 property tax levy for debt service totals $708,710 compared to $655,000 for taxes payable
in 2017. This increase is due to the bond issued in connection to the Kadler Avenue Street
construction project. The actual amounts that will be levied for repayment of this bond will more
than likely change as we progress through the bond issuance process. Future levies on this bond will
also be variable depending upon the amount of tax increment generated on future phases of the
Bury parcel as well as any additional parcels that would develop.
A few additional discussion points related to debt service funds:
1) I am looking for approval to close Fund #350. The current cash balance would be transferred
to Fund 9380 to help offset future property tax levies. The remaining special assessment
balances would be collected into the Collector Street Reconstruction (Fund #209).
2) I am looking for approval to close Fund #365. The current deficit cash balance would be
eliminated with a transfer of excess cash balance in Fund #375. The remaining special
assessment balances are deferred until future development, so timing of collections is
currently unknown. When those assessments become due, they would be collected into the
Collector Street Reconstruction (Fund #209).
City of Otsego 113400 901h Street NE, Otsego, MN 553301 Tel. (763) 441-4414 Fax (763) 441-9163
Property Tax Levy — Capital Reserves
A short narrative for each component of the capital reserve levy is as follows:
Pavement Management
This fund accounts for nearly all of the street maintenance and renewal projects in the City. The
2017-2026 Capital Improvement Plan included average annual maintenance projects of $556
thousand and average annual renewal projects of $741 thousand. The funding for these projects
comes from multiple sources including: property tax levy, special assessments, local government
aid and municipal state aid maintenance dollars.
Staff and the City Council will need to have a conversation on how to continue to provide adequate
funding for all future street maintenance and renewal projects.
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 and seal coating. The trail system continues to grow
each year as new housing continues and as the City builds trails along new major roadways such as
70th Street. Staff is currently estimating a need of $30,000 in property tax levy for 2018 in order to
complete the currently scheduled maintenance projects.
Capital Equipment Revolving
This fund accounts for the expenditure of funds associated with the City's vehicle and equipment
fleet. The 2017-2026 Capital Improvement Plan included average annual expenditures of $386
thousand. These expenditures are evaluated annually by staff, 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. Staff is currently estimating the need to increase this
respective tax levy by 3% annually, which would result in a 2018 levy amount of $242,256.
Parks Equipment Replacement
This fund accounts for the accumulation of resources to provide for future replacement of major
park capital items, including but not limited to shelters and playground equipment. The funding for
these future expenditures solely comes from a property tax levy. Staff is currently estimating that an
annual increase of $1,000 in the tax levy will provide adequate resources for future equipment
replacement, which would result in a 2018 levy amount of $56,000.
Trails Construction
The 2017-2026 Capital Improvement Plan identified a number of new trails that could be
constructed along with coordinating street projects during the next 2-3 years. The respective street
projects include CSAH 38 (Odean to TH101) and (Maciver to CSAH 19) which are Wright County
projects, as well as 70th Street (CSAH 19 to Kittredge) which would be a joint project with the City
of Albertville. The currently estimated costs for construction of trails with these street projects are
more than $530 thousand. During the 2017 budgeting process, there was some discussion about
levying tax dollars towards the costs of these trails instead of using park dedication fees. Staff
wanted to renew these conversations prior to projecting a levy amount for 2018.
City of Otsego 113400 901h Street NE, Otsego, MN 553301 Tel. (763) 441-4414 Fax (763) 441-9163
Fire Station
This fund accounts for the accumulation of resources for future costs associated with the
construction of a fire station within the City of Otsego. The current cash balance along with the
taxes levied for collection in 2017 project to be $2,214,464. Staff has developed projections where
an annual levy increase of $10,000 is projected until construction would occur. This results in a
2018 levy amount of $160,000.
Although it depends on a number of factors, there is a likely scenario where the City would have to
bond for additional resources beyond the cash reserves in order to actually construct a fire station.
This would result in future tax levies throughout the life of the hypothetical bond issue.
Storm Water
This levy is for the costs associated with the ongoing review, monitoring, repair, maintenance and
improvement of the storm water systems established prior to current requirements under the Clean
Water Act. The funding for these expenditures solely comes from a property tax levy. Staff is
currently estimating that an annual increase of $1,000 in the tax levy will provide adequate
resources for future costs, which would result in a 2018 levy amount of $26,000.
Next Meeting
There are currently no additional meetings scheduled to specifically review the components of the
2018 property tax levy. The review of the General fund budget is scheduled to begin on July 31 st
There is typically a quick review of the latest information on the property tax levy at each of the
General fund budget meetings.
Staff is looking for direction on whether the Council would like to schedule another meeting to
follow up on the property tax levy after the discussions at this meeting.
Materials Attached for Discussion
1) Bureau of Labor Statistics Indices
a. Consumer Price Index (CPI -U), Midwest Region, April 2017 Report
b. Employment Cost Index, Minneapolis Metropolitan Area, March 2017 Report
2) Calculation of Transfer in Accordance With Fund Balance Policy
3) Tax Rate Comparison Chart
4) Tax Abatement Summary
5) Debt Service Funds — Cash Flow Projections
6) Capital Funds — Cash Flow Projections
7) Tax Levy Summaries
a. Payable 2018
b. Future Projections
c. Uses of Additional Levy
City of Otsego 113400 901h Street NE, Otsego, MN 553301 Tel. (763) 441-4414 Fax (763) 441-9163