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HomeMy WebLinkAbout08262015 City Council Work Session Notes - Budget Kick Off WORK SESSION NOTES ON c D G eT k C 1< 0 Fr MG 2 (,„ 2015 3° u Purpose: pP\-) 6'/90 ,ktt e . Ct^d ` t) J61nv‘ v.-7=60.1"A. Council embeis,Present: S�A � Gt,V r� ,a. nn tr • Gw�4v1 ec 6r S .t, V1,9 \�C+`��(e rr.s O v1 LQ V'1 ` �, ��1' . h,��� �G'�r k3'J"� .S " 1 ,p, ,,�, �, te Called by: o i C l L_ Time! S Date: O J2 /J5 LtstA yy� ** :**** * * <********** c****** * **i*********** 90)44'\ h/) C)19teirli161 kUVIalCii2SA CZFV\r : 4e Sa-te ) k*fAf 641A Pat --"ro dt ?v.-lco e t C,oki\AtA t a ' t oVe r I0 w'r� —�1-�r-� rte_ mac. � 1 y� ".\ 4500 k/y r 11w`/ V Som \ -gt c© Cc-1-k c ,, A A SSC ►s Coc.7o -u/ .a. C.V.4A- Oc:... \ , , , , Qo k.J le --(3\ C"aAt I°"e;/\ • . (A/s August 26, 2015 • C Budget issues - Operating City of S e W a1��Tny d City Clerk-Transition to electronic packets and add overtime for migration process o Police dispatch contract reduced$12,500 to$36,000 c Jail contract reduced$301,869 to$36 c Campground and dump stati revenues up 2016/2017 Biennial Budget Health insurance costs up 9% Kick-off Meeting " Automatic tariff adjustments 2.3%in 2016 and 2.4%in 2017 for Electric and Harbor Electric special contracts(administration's approach) ■ Bring ASLC to 100%of LGS rate in 10 yeas(10%/yr.to Energy and Demand+cpi each year)w/10%rate increase begin 2017 • Bring Icicle Seafoods to 100%of LGS rate in 5 years(4.7%cpi in 2016);thereafter levelized annual increases approximating cpi+20%/yr.(in a dollar value)beginning 2017 w/20%rate increase per year. 2021 at LGS rate. , `lp Electric seasonal rates coming forward as a proposed tariff change 11®,A/N `1' Budget issues - Operating Water Fund rate increase CPI+1%in both 2016 and 2017. Currently unable to fund MRRF due to Third Ave.Water Line loan.Entire 1%to Upcoming budget issues MRRF for tank refurb/demo,abandon wells,refurb production wells,etc. Water Fund reduce subsidies to Icicle;amend tariff to remove grandfather status;replace w/5-year phase-in to eliminate incentives for higher water use Sewer Fund rate increase CPI+1.5%in both 2016 and 2017 to address lagoon maintenance,SMIC sludge pile disposal,SMIC expansion,lift flinetc. S n r c Staffing issues(i.e.MIS,library temp hours,water/sewer summer projects; GIS intern;wage committee reviews,building maintenan ❑ Support for 5%camping fees to waterfront improvements V�y t1 1 August 26, 2015 Budget issues - Operating ` Budget issues — Capital Healthcare Funding strategy. SMIC—breakwater project$20M CHC $3M • Requests$500K in 2016(same as 2015) Roadsproject and sidewalk ADA improvements • Goal to reduce City support$100K/yr.beginning 2017,using reserve strategy _ Electric upgrade transmission line at SMIC • In 2017 request two-tier approach( 0K operating with$100K reserves) • In 2018 request two-tier approach($300K operating with$200K reserves) c SMIC transformers to allow bypass • Reserves to be set aside for facility expansion • 2016 first full-year of 3 providers c SMIC electric load study to plan future needs PSMC $40 c Hospital/clinic expansion needs • requests$200K for operating shortfall(not expected),with incentive to set aside in reserves for facility expansion c Water/Sewer improvements at SMIC pending • Developing a plan for Bond reserves and Expansion reserves • PSMC developing capital budget request outcome of needs assessment - Mk Aa►4RA% ''C \rC)V d,4,d 1r ANUS a 7 Illb\22:0 .5l4 Budget issues — Capital Budget issues — New Debt City Hall carpet replacement Sewer sludge removal$490K loan-$26K/yr. x\ r Police&Fire radios/camera replacement 1 Sewer sludge removal$1.08M loan—69,673/yr. r Consider additional utility sites on campgrounds Harbor USACE breakwater$1.201M loan- J (\\..j , D Waterfront campground restroom grant ti $70,980/yr. „..7 `� r Beachfront erosion SMIC $1.029M loan 330-Ton lift-$147K/yr. v J° P&R warehouse k Harbor Float project(unlikely need to repay)$1.72M Boardwalk repairs -$172K/yr. c Harbor-ABCS Float replacement project Harbor bond refunding saved$16K/yr. Water Tank constructed w/no new debt;recently began repaying Third Ave.water line$150K/yr. 2 August 26, 2015 Recent capital accomplishments Recent Electric capital accomplishments I, r Camelot UG(now) critical Hydro energy test well ^\ - Test of City Hall carpet replacement project ,tj��, Generator project(nearly complete)-critical ADA sidewalk improvements `t Transformer renovation(now)-critical Automation of campgrounds w pay stations 4 o Meter relay and view screen(now)-critical Sewer dump station on waterfront ,t SMIC U�(approx. 1/3 done)-critical Harbor D-Float replacement(critical) Inventory software—high-risk Harbor restroom repairs(high-risk) Fort Raymond controls upgrade(now)—moderate risk Harbor NE fish cleaning station(now;new) [: 9 11 0 ."\D))1 0 Recent capital accomplishments . 'recent Electric capital accomplishments - Harbor N launch ramp repairs(moderate risk) .' Switch at Nash Road-moderate risk - SMIC 330-ton boat lift �)o- Lawing/Victor Creek pole replacement-moderate risk -_ SMIC breakwater($20M phase I,now) QP 1 Questa Woods work(approx.'/2 done)-moderate risk _._ Water storage tank(critical) AVTEC UG(now)-moderate risk - Lowell Point sewer pond sludge removal/repairs(critical) -- SMIC sewer pond sludge removal/repairs(critical) 12 3 August 26, 2015 Budget Goals Implement rate review recommendations Electric Budget G-oals Develop plan for long-term sustainability of infrastructure Funding source for General Fund infrastructure(i.e. roads,building repairs,erosion,ADA sidewalks, warehouse),as allowed thru compliance with fund balance policy o Buugct Goals Maintain current service levels;use temp aides to fill gaps(i.e. library summer hours,building maintenance,water/wastewater) Produce a balanced budget Budget Assumptions General Fund reserves within policy band Continue addressing deferred maintenance(i.e.roads,boardwalk, warehouse,erosion) Strategy for SMH future bond payments Self-sufficient in anticipation of declining federal/state funding Protect long-term financial health of City Strengthen health of enterprise funds and meet critical and high-risk capital needs SMIC economic development,utility expansion 4 August 26, 2015 . Budget-building Assumptions ' General Fund fund balance history Anticipate revenue levels for sales tax, camping, bed tax consistent with 2014/2015 actual levels 1 0 0 0 00007° 0.0 Conservative revenue assumptions given lack of safety net I :. : n '° I n I-Assume State continues to pay >22% PERS costs '- _ I I 11 P >° 4 Assume State revenue sharing decline S_ �,r� '�A s AS,, 'elf ?��° �° 1 Assume 2.3%cola for 2016; 2.4%for 2017 L.A"Nv. " :: I i 11 1 i 1 t p„ °° . . ,,,... , - \rf(0\k 9'A ik 41( .' 4 1i i 19 General Fund Revenue& Expenditure History Historical Info & Trends _ ; v K "A , - i - • I it I � .� i - ff444i , 4 , , 44 - ----- - 20 5 August 26, 2015 Mill Rate History — property ta_ 1100 ,60 — 1 6.00OAO EM 10.00 • - °� Budget Policies - , 1,.0ai,.aa1 Q Eciam 3.0. 200 MI EIS 0,2_®® 312 ® ® 3.12 ® EEO e- - U.W 2000 2001 21011 2001 2003 2W5 MOO 200, 2000 2009 2010 2011 2012 3011 2011 2013 •caxe..w ores rv0/0110•04t..e renes,.,n0. 0 Cash Balances in all funds GF Fund Balance Policy: General Fund $ 4,072,757 The City should maintain a level of undesignated fund Available Harbor Fund(S1,804,107) 500,653 balance equal to at least 3-6 months'of expenditures and Harbor Capful Projects 4,327,189 transfers-out,in order to cover unanticipated revenue s S (i16,7 )M1cCapital Projects 62shortfalls,and to provide an adequate level of reserves to Parking Electric Fund 4,7 8423 cover unforeseen needs and emergencies,as well as to cover Electric Capital Projects 2,173,306 the potential shortfall of all other City funds. Water Fled 801,610 Water Capital Projects 1,539,828 Sewer Fund 244,645 • (no change proposed) Sewer Capital Projects (1,344,750) Motor Pool Fluid 1,168,512 Capital Projects(grants) 2,425,141 Special Revenue Funds(grants) (177,218) Hospital Fund (10,564) , LTC Debt Service 3,468,106 TYC Agency Fund 51,729 Compensated Absences 475.070 Total Cash Balance at 8/25/15 S 24,502,759 22 6 August 26, 2015 0 GF Fund Balance Policy: 0 One-time Revenue Policy: 1. When the level of undesignated fund balance is not within One-time revenues(such as grant administration fees,sales of the desired range,a plan should be developed to bring fund fixed assets,legal settlements,etc.)should not be utilized to fund balance within the desired range within three years. (no change. Proposed budget will ensure fund balance s witr, ongoing expenditures,but should be used to fund capital repairs policy band.) and replacement. The use of one-time revenues to fund annual budgets promotes structural budget deficits in future years. To 2. When the level of undesignated fund balance is below the the extent that the General Fund fund balance has reached 6 desired range, withdrawals from undesignated fund balance months'of expenditures and transfers-out,one-time revenues will should be limited to emergency purposes. be allocated annually to the Capital Acquisition Fund. (no chan9e) (no change proposed) 27 0 Status of Fund Balance Policy Status of One-Time Revenues Policy requires 3-6 months expenditures The General Fund transferred reserves to the Capital and transfers-out in reserves Acquisition Fund totaling$1,321,335 in 2014; first major injection (other than revenue sharing)in more Policy level: $3.0M to $6.1M than ten years, due to reserve levels Propose to transfer one-time Revenue Sharing, if any, Current balance: —$5.0M (4.9 months) to CAF in 2016/2017. 26 (11-wik 2! 7 August 26, 2015 Revenue Stabilization Account Policy Debt Service Fund: The City has established a revenue stabilization account to Debt service funds are used to account for the accumulation of maintain a prudent level of financial resources to protect against resources for the payment of capital repairs and replacement, the need to reduce service levels or raise taxes or fees due to general long-term principal and interest,and related debt costs. temporary revenue shortfalls or unpredicted one-time The Seward Mountain Haven Enterprise Fund accounts for debt expenditures. The balance in this account should be equal to ten related to the issuance of revenue bonds for the long-term care percent of the General Fund's annual revenuesf'This level of facility and is secured by patient revenues and proceeds from a serve isbased on the ity s increasing dependence on the 1%sales tax. visitor industry for the generation of sales taxes,bed taxes,and camping fees,as well as on State funding to fund general (no change proposed) government services. (no change proposed) 31 Status of Revenue Stabilization Accou I Status of SMH Fund 7 This account is currently not funded Funded by transfers to City from LTC facility used solely to - 10%of annual revenue is goal=$1.03 Million pay bond debt o Initial years anticipated surplus but census is a challenge o PSMC/City developing strategy to ensure bond reserves in out-years when reimbursements don't cover bond payments o Balance 12/31/14=$5,019,489(includes sl.97Mreserves) o Balance 8/20/15=$5,441,466(includes$1.97M reserves) c Annual debt payments approx.$1.97 million Outstanding bond balance 08/2015=$23.2 Million 8 August 26, 2015 . i210 0 Status of Hospital Enterprise Fund • Hospital PERS Payment Policy: Utilizes 1%sales tax=$1 Million/yr. for bonds, The City paid PERS to avoid high-cost loan(borrowing capital repairs,capital needs,CHC/PSMC operations from the Motor Pool and Electric MRRF) and in years Cash Balance 12/31/14=$600,058 , when there are sufficient reserves in this fund,they may c Cash Balance 8/20/15=-$156,102 "v be used to repay a portion of those loans. 7 Debt matured 4/1/2013 (no change proposed) c Using$134,704/yr.to repay SGH PERS (Status: This Fund making annual payments of$134,704; balance c SGH PERS Debt Balance 12/31/14=$1.1M owed 12/31/14= $1,104,366) Revenues pledged for SMH debt payments 1 35 Hospital Capital Funding Poli y: SMH Debt Service Reserve Policy: The City will transfer 5% of the previous full years' Fund The City will maintain a minimum level of fund balance reserved Balance Reserved for debt service to the hospital to fund for long-term care facility debt service(equal to the highest .j their annual capital budget. This transfer takes place only in years'principal and interest—$1.97 million). Due to the frequent years where the debt service reserve fund maintains a rebasing of reimbursement rates,as well as the potential for balance at least equal to the single years' highest debt changes in the reimbursement methodology,the City finds it service payments. prudent to accumulate as much reserve in this account as possible. This will hedge against future declines in reimbursement,as well as mitigate timing differences between (Administration will propose a change. Developing a strategy to depreciation and debt lifecycles. The City will therefore not prioritize bond repayment,capital repairs/replacement, facility spend these reserves on anything other than debt repayment. expansion, and CHC/PSMC operating) ) k' (no change proposed) 34 36 9 August 26, 2015 Accrued Annual Leave Funding Polic® {,imit on Allocation of Surplus: The City created an internal service fund for the purpose of The allocation of surplus funds from the General Fund to the accumulating cash to pay for the accrued but unused portion Capital Acquisition Fund should occur only when the General of annual leave for governmental fund employees. This Fund undesignated fund balance exceeds 3 months'reserves. account is to be designated solely for the payment of accumulated leave. ,-o change proposed) (no change proposed) 13, Capital Acquisition Fund Policy: Sales of General Fixed Assets: The City will designate 50%of the previous years'annual Revenues from the sales of general fixed assets should surplus(defined as the difference between revenues and transfers-in,and expenditures and transfers-out)into the Capital be added to the Capital Acquisition Fund. Acquisition Fund for the purpose of financing major capital I maintenance and repairs(defined as items in excess of$20,000), in any year where the General Fund fund balance is within the band of established policy levels. Since expenditures from this fund by definition exceed the$50,000 threshold,they require specific appropriation from the City Council before being spent. (no change proposed) I. (no change proposed) 3II M n I. 10 ` August 26, 2015 . Recurring0 Fund Sourcefor Capital:P Loans from Motor Pool to other Funds: The City should seek recurring funding sources to fund Loans from Motor Pool to the other funds will be capital so that capital spending is not given last priority repaid with interest to the Motor Pool in order to in competing for limited financial resources. safeguard the viability of the long-range vehicle and heavy equipment replacement plan. (no change proposed) (no change proposed) (Status: the City has not identified a source of funds to fund Status: Loan repayments are current. Loans receivable$1.7 capital. State Revenue Sharing has been allocated solely for million from SGH PERS ($808,172);50-ton boat lift($27,698); capital purposes for the past five years.) 330-Ton Lift($882,075). General Fixed Assets historic cost @ 12/31/14>5121 million 41 ♦3 Motor Pool Appropriation Control Policy: ® Equipment Replacement Schedule: • Motor Pool reserves should be preserved for the sole intended The City has established a Fleet Replacement Policy purpose of replacing City heavy equipment and vehicles,based to be approved by the City Council which allows for on the established goals of minimizing fluctuations to annual the routine and timely replacement of City vehicles operating budgets,and exercising fiscal prudence in saving for at a certain mileage interval per vehicle type, with replacement of the City's fleet. the primary goals of maximizing safety and trade-in (no change proposed) values. Status: Cash balance 8/20/15 = $1.2 million (no change proposed) Debt balance 8/20/15 = $0 Status-Fleet Replacement Policy requires update and approval by Council. Asset historic cost = $6.2 million Loans receivable = $1.7 million Upcoming need = $350K fire engine „ µ 11 August 26, 2015 Capital Acquisition Fund Appropriation 0 0 Control Policy: Status of annual rate reviews Capital replacement funds are to be City has been reviewing rates biennially prior to budget restricted and distributed only for major process with annual rate changes included in budget capital outlay expenses. Since capital Reviews are now standard process expenses are defined as those in excess of CPI increase added to tariffs was critical $20,000, all expenditures from these funds Progress made in addressing critical and high-risk capital needs;i.e. require approval by the City Council. • Electric generator project,Camelot repairs,transformer maintenance • Harbor float replacement,fish cleaning station • Water storage tank (no change proposed) • Sewage lagoon dredging and repairs Limited Electric rate review completed in 2015 95 4, l+'S Annual Rate Review Policy Enterprise Fund Depreciation Reserve F i s Rates should be reviewed annually to The City has established a major repair and replacement determine if they are adequate to cover fund(MRRF) for each of its major enterprise funds annual operating and capital costs, plus the (Small Boat Harbor,Electric,Water,and Wastewater). annual cost of depreciation. (no change proposed) Recommendations for annual rate adjustments should be made biennially to the City Council. (no change proposed) 46 48 12 August 26, 2015 , Depreciation Funding Policy: ® Depreciation Funding Policy, contd The policy of the City shall be to fund a minimum 'Funding depreciation' is defined as either placing of 100% of the annual rate of depreciation, equivalent cash into the MRRF Fund, or spending on recognizing that failure to establish adequate capital repairs valued greater than $20,000, such reserves for the replacement of plant and that the total amount invested in major equipment shifts the financial burden of such maintenance and repair is at least 100% of the major repairs and replacement, to future annual depreciation. Investments in new generations, creating an imbalance of inter- infrastructure are not considered investments in generational equity. capital for the purpose of depreciation funding, since they do not replace existing infrastructure. (no change proposed) (no change proposed) 49 51 Status of Depreciation Funding Depreciation Funding Policy, contd Status: • Harbor MRRF=Estimated$O cash vs assets of$27million("a) Exception: Where Council determines that a Annual contribution s/b mm .$l.4M perpolicy specific enterprise fund asset will not be • Electric MRRF=$1.6Mcash vsassets of$59million• replaced at ratepayer or taxpayer cost, but Annual contribution s/b min.$1.8M per policy will be replaced through grants, or not be • Water MRRF=$906Kcash vsassets of$9.1million" replaced at all, it may be prudent not to Annual contribution s/b mm .$216K perpolicy fund depreciation on that item. • Sewer MRRF=$I69K cash vs assets of$12.1 million" Annual contribution s/b min.$264K per policy "Asset values are at historic cost;significantly less value than what itwouldcosttoreplace (no change proposed) assets,and exclude non-depreciable assets(e.g.land). (a)Harbor MRRF depleted for replacement of ABCS Floats. 50 52 13 August 26, 2015 Tax Cap Policy: Continue to support an increase in the Kenai Peninsula Borough sales tax cap above $500. (no change proposed) Council Comments and Direction 14