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HomeMy WebLinkAbout09272021 City Council Work Session Packet Seward City Council Work Session Packet Topic: 2022 Budget Kick-Off September 27, 2021 City Council Chambers Beginning at 5:30 p.m. CIO a f seward 2022 Annual Budget Kick-off Presentation � etq0afs Maintain current service levels Produce a balanced budget General Fund reserves within policy band Self-sufficient; reduced reliance on federal/state funding Protect long-term financial health of City Strengthen the health of the enterprise funds and meet critical and high-risk capital needs �?t( et Ass um tiaras Although 2021 resulted in a better than forecasted revenue year, due to the unknown and lingering effects of Covid and Covid variants, and concerns regarding the possible impacts on tourism and the ability to obtain and retain adequate staffing, conservative revenue assumptions have been used for the 2022 budget. Revenue assumptions are based on sales tax, camping, bed tax consistent with 2019 actual levels. Assume State continues to pay >22% PERS costs; if that changes, could have significant adverse impact to budget. State revenue sharing has not been assumed. Conservative fish tax revenue has been assumed. An increase in property tax revenues due to new construction has been assumed. 3 I � Pecs onne New pay scale (from wage study) will have an impact New council & P&Z stipends will increase salary line items Addition of seasonal fire laborer (summer position) will slightly increase the salary line Impact of IBEW contract (+) $34,800 in 2022 (Electric Fund) Impact from SPEA Contract (Resolution 2021 -086) (+) $ 1 12, 175 in 2022 (GF, Harbor, Water, Wastewater Funds) Savings from health plan modifications will remain through 2022 with an expected and budgeted 10% increase in premiums (common practice) 4 Operafin!y Eliminated Sewer loan payment to GF, based on Council action Audit RFP in near future may impact audit costs Assume 50% of bed tax revenues to Chamber based on status quo Maintain Motor Pool contributions from all funds Reduced library bond debt service due to refunding Eliminated $25,000 in contributions to the Boys & Girls Club due to new TYC operating contract Eliminating the City TYC operating budget Potential close of jail will impact revenue but will save expenses Note: council discussion item and decision 5 i' CounedCommentj an Oirectian 6 �u�of Po�cies q'F 'Fand�afance Pofic The City ' s policy is to maintain a level of undesignated fund balance equal to at least 3-6 months ' of expenditures and transfers-out, in order to cover unanticipated revenue shortfalls, and to provide an adequate level of reserves to cover unforeseen needs and emergencies, as well as to cover the potential shortfall of all other City funds . ( no change proposed ) q'F 'Fand�afance Pofic 1 . When the level of undesignated fund balance is not within the desired range, a plan should be developed to bring fund balance within the desired range within three years. (no change. Froposed budget will ensure fund balance is within policy band.) 2. When the level of undesignated fund balance is below the desired range, withdrawals from undesignated fund balance should be limited to emergency purposes. (no change) 9 Status a f rFund�?a��nce Pofic Policy requires 3-6 months expenditures and transfers-out in reserves 2020 Policy level: $3.0 to $5.8 Million Balance at 12/31 /20: -$7. 1 ( 7.4 months) This does not reflect YTD 2021 expenditures 10 Cane-time "Revenue Poe One-time revenues (such as grant administration fees, sales of fixed assets, legal settlements, etc.) should not be utilized to fund ongoing expenditures, but should be used to fund capital repairs and replacement. The use of one-time revenues to fund annual budgets promotes structural budget deficits in future years. To the extent the General Fund fund-balance has reached 6 months of expenditures and transfers-out, one-time revenues will be allocated annually to the Capital Acquisition Fund . (no change proposed) Sipe- Vear Capital9mprovement Vrojram As required by SCC 5.05.010 (d) , the city manager will submit a six-year program for capital improvements. The program will include estimates of the effect of capital improvement projects on maintenance, operation, and personnel costs. The capital budget will show expenditures for the ensuing budget period, detailed by departments and the proposed method of financing. The proposed capital budget will be presented by the city manager as a separate section of the budget and will be referenced and adopted in the resolution adopting the budget. (no change proposed) 12 i' ccarrin 'Fun Soarcc for Capita( 'y The City should seek recurring funding sources to fund capital so that capital spending is not given last priority in competing for limited financial resources . ( no change proposed) 13 i' Capita i'Aclahoition 'FandVo is The City will designate 50% of the previous years ' annual surplus (defined as the difference between revenues and transfers-in, and expenditures and transfers-out) into the Capital Acquisition Fund for the purpose of financin9 major capital maintenance and repairs (defined as i ems 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) 14 CapilafAcquisilion �and 4 Appropriation Confro(Volic:Y Capital replacement funds are restricted and distributed only for major capital outlay expenses. Since capital expenses are defined as those in excess of $20,000, all expenditures from these funds require approval by the City Council . ( no change proposed) 1s i' .Pimit an Affocation o Sar use The allocation of surplus funds from the General Fund to the Capital Acquisition Fund should occur only when the General Fund undesignated fund balance exceeds 3 months ' reserves . (no change proposed) 16 066t �c rvz cc u� Debt service funds are used to account for the accumulation of resources for the payment of capital repairs and replacement, general long-term principal and interest, and related debt costs . ( no change proposed ) 17 S'eward 'Mtauntain even (SV�10 The Seward Mountain Haven (SMH) Enterprise Fund accounts for debt related to the issuance of revenue bonds for the long-term care facility and is secured by patient revenues and proceeds from a 1 sales tax. ( no change proposed) i8 SV�Oe f Service ujoer e Pofic The City will maintain a minimum level of fund balance reserved for long-term care facility debt service (equal to the highest years ' principal and interest $ 1 .47 million) . Due to the frequent rebasing of reimbursement rates, as well as the potential for changes in the reimbursement methodology, the City finds it 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 depreciation and debt lifecycles. The City will therefore not spend these reserves on anything other than debt repayment. (no change proposed) Status: annual debt service reduced due to 19 refunding bonds in 2016, to $1 .47 million. s'tatus' of SVI-( rFand Funded by transfers to City from Long Term Care ( LTC) facility used solely to pay bond debt Initial years anticipated surplus but census is a challenge Annual debt payments approx. $ 1 .47 million, down $50OK/yr. due to bond refunding in 2016 Outstanding bond balance 12/2020 = $ 15.2 million zo Znferprise "'FundTJepreciafion �eserve ?"ands The City has established a Major Repair and Replacement Fund ( MRRF) for each of ' its major enterprise funds (Small Boat Harbor, Electric, Water, and Wastewater) . ( no change proposed) 21 0 �eci�tian �un�ny PoficY1JeP The policy of the City shall be to fund a minimum of 100% of the annual rate of depreciation expense, recognizing that failure to establish adequate reserves for the replacement of plant and equipment shifts the financial burden of such major repairs and replacement, to future generations, creating an imbalance of inter- generational equity. (no change proposed) Zz i' 9 reel'ation 'Fan in Pofic con[d 6P di 'y -Y, ` Funding depreciation ' is defined as either placing equivalent cash into the MRRF Fund, or spending on capital repairs valued greater than $20,000, such that the total amount invested in major maintenance and repair is at least 100% of the annual depreciation . Investments in new infrastructure are not considered investments in capital for the purpose of depreciation funding, since they do not replace existing infrastructure. ( no change proposed) 23 j'I'^ i;7 i' 9 reel' tion 'Fandi, Pofic , con[ Exception : Where Council determines that a specific enterprise fund asset will not be replaced at ratepayer or taxpayer cost, but will be replaced through grants, or not be replaced at all, it may be prudent not to fund depreciation on that item . ( no change proposed) 24 i' *'S'tatuso a 06 reelatian 'Fun in Status: Harbor MRRF = Estimated $582,858 cash vs assets of $60 million Annual contribution s/b min. $ 1 .5M per policy Electric MRRF = $957K cash vs assets of $70 million Annual contribution s/b min. $ 1 .6M per policy Water MRRF = $852K cash vs assets of $ 15.6 million Annual contribution s/b min. $424K per policy Sewer MRRF = $742K cash vs assets of $ 15.4 million Annual contribution s/b min. $353K per policy * Asset values are at historic cost; significantly less value than what it would cost to replace assets, and exclude non- depreciable assets (e.g. land) . 25 Safes Revenues from the sales of general fixed assets should be added to the Capital Acquisition Fund . ( no change proposed ) 26 AccraedAnnaa(Zeave �un�nJc Vofi c The City created an internal service fund � for the purpose of accumulating cash to pay for the accrued but unused portion of annual leave for governmental fund employees. This account is to be designated solely for the payment of accumulated leave. ( no change proposed) 27 Volor Voo[Appropria(ion Confro[VoIiT 6 Motor Pool reserves should be preserved for the sole intended purpose of replacing City heavy equipment and vehicles, based on the established goals of minimizing fluctuations to annual operating budgets, and exercising fiscal prudence in saving for � replacement of the City' s fleet. ( no change proposed) 28 ,Caans trom 'motor Poofto d6er 'Funds Loans from Motor Pool to the other funds � will be repaid with interest to the Motor Pool in order to safeguard the viability of the long-range vehicle and heavy equipment replacement plan . ( no change proposed) 29 Annaall&afe I&eview Pofic Rates should be reviewed annually to determine if they are adequate to cover annual operating and capital costs, plus the annual cost of depreciation . Recommendations for annual rate adjustments should be made biennially to the City Council . ( no change proposed) 30 � I � Stalwo o Annua R ��ats evilewi City has been reviewing rates biennially prior to budget process with annual rate changes included in budget Reviews are now standard process Consumer Price Index (CPI) increases added to tariffs are crucial to address critical and high-risk capital needs; i.e. Critical Electric infrastructure needs (Nash Road, Transmission Replacement, etc.) Harbor NE launch ramp, float replacement, fish cleaning station Water meter changes Water tank maintenance or replacement Sewage lagoon dredging and repairs 31 7-a�v cap vo fie Continue to support an increase in the Kenai Peninsula Borough sales tax cap which is currently $500.00. ( no change proposed) 32