2010.04.08 Work Session Packetwww I i, M
VIT611"UMI • '01FACI : 1 11 il
7:00 p.m.
Community Room (downstairs)
Pursuant to due call and notice given in the manner prescribed by Section 3.01 of the
City Charter, the Work Session of the Crystal City Council was held at p.m. on
Tuesday, April 8, 2010 in the Community Room located at 4141 Douglas Drive, Crystal,
Minnesota.
I. Call to order and attendance
Mayor Bowman will call the work session to order, and the city clerk will record
the attendance of the Council and City Staff:
Grimes
Norris
J. Moore
Therres
Selton
Mathisen
Anderson
Lewis
L. Moore
Peters
Hoffmann
Banick
Bowman
Hansen
Hackett
Crandall
11. Agenda
The purpose of the work session is to discuss the following agenda item:
General Fund Budgets for 2010 and 2011 *
*A portion of this meeting may be closed to consider development of a labor negotiation
strategy — developing a plan for addressing potential layoffs and budget reduction
options with labor bargaining units.
111. Adjournment
The Work Session adjourned at
GACity ClerkXCouncil\Work sessions\Council wsagenda4.08.10.doc
p.m.
DATE: March 29, 2010
TO: Mayor and City Council
FROM: Anne Norris, City Manager dfi��
Charles Hansen, Finance Director CH
SUBJECT: General Fund Budget Discussion
Background
The City Council and staff have begun discussion of how to respond to a projected
reduction of $921,403 in Local Government Aid (LGA) for the City of Crystal in 2010. It
is expected that the situation will not get any better in 2011 or 2012. A one-time fix
such as we did last year with cuts to capital outlays isn't sufficient or sustainable for
what we expect to be a long-term problem.
Our focus so far has been on service reductions, staff reductions, alternative revenue
sources other than property taxes or LGA, and possible increases in the property tax.
Cooperating with neighboring cities to provide services more efficiently is also being
explored, but such operations take some time to develop.
Discussion
This topic was discussed at a work session on March 23, 2010. A variety of options
were discussed and the City Council requested that the options be organized into
several scenarios that would represent different paths to balancing the budget.
Some of the options were one-time savings that will only occur in 2010. Others would
not begin until 2011. Others could begin in mid -year 2010 and achieve full year savings
in 2011 and thereafter.
Because we will be far into the year 2010 before knowing the actual cut to LGA, we
don't expect to balance the 2010 budget. However it is vital that we make changes in
2010 so that the changes will be fully effective for 2011. We must be able to balance
the budget for 2011 and beyond.
Scenarios
For the attached scenarios, we use the Governor's proposal for LGA cuts, which costs
the City of Crystal $921,403 in the year 2010. We assume that the Legislature can't
substantially reduce the cuts due to the State's budget deficit and that LGA will continue
at this reduced level into 2011 and beyond.
Budget Scenario A
The following is a possible combination of revenue enhancements and service/staffing
budget cuts in 2011 that will balance a $921,403 cut in LGA. It must be remembered
that even in a "no increase" budget for 2011, some fringe benefit, supply and service
costs will show inflation that will have to be absorbed in the budget in addition to the cut
in LGA.
ITEM
DISCUSSION
SAVINGS
General Fund line
Mostly small and non -controversial reductions in
$42,736
item reductions
department budgets, see Attachment A.
Frolics support
Total overtime costs for Police and Public Works
$15,000
departments runs about $25,000, but the Frolics
reimburses the City for $10,000.
Animal Control
Eliminate New Hope contract.
$24,526
Pawn Shop Fees
Increase transaction fee from $2 to $3 per transaction.
$10,000
Franchise Fees
Institutes a fee that will be $1 per month per
$300,000
residential gas and $1 per month per residential
electric meter. Commercial meters will be more.
Property Taxes
Using the 2010 budget as a model, expenses will grow
$87,500
by a little less than 1 % even if we attempt to freeze all
costs. This could be about $100,000. A 2% increase
in the 2011 property tax levy will generate about
$187,500 of new revenue.
It is our understanding that State Law, if not changed,
will allow 2010 LGA cuts to be used as a special levy
in 2011. Crystal's 2010 LGA, in the absence of any
state budget deficit, would have been $2,221,185.
We now assume it will be $533,663, a difference of
$1,687,522. To levy all of that in 2011 would result in
a tax increase of 18% over the 2010 tax levy.
Fire Engines
Use certificates of indebtedness to purchase the fire
$101,900
engines instead of attempting to save up the money in
advance. This will allow for the elimination of a
$101,900 per year transfer from the General Fund to
the Fire Equipment Revolving Fund (FERF).
If the fire engines are purchased in 2011 using about
$750,000 of FERF balance and issuing certificates of
$500,000, debt service would require an annual tax
levy of about $63,000 beginning in 2012.
Issuing a second certificate for $500,000 in 2015 for
the purchase of two rescue trucks will increase the tax
levy to about $130,000 in 2016.
West Metro Fire &
Any savings depend upon the actions of the Board of
$???
Rescue District
Directors.
The items above provide $581,662 of new revenues or cost savings that can be applied
to the LGA cut of $921,403. That leaves $339,741 that must come from reductions in
staffing equal to 4.95 employee full time equivalents.
Budget Scenario B
The following is a possible combination of revenue enhancements and service/staffing
budget cuts in 2011 that will balance a $921,403 cut in LGA. It must be remembered
that even in a "no increase" budget for 2011, some fringe benefit, supply and service
costs will show inflation that will have to be absorbed in the budget in addition to the cut
in LGA.
ITEM
DISCUSSION
SAVINGS
General Fund line
Mostly small and non -controversial reductions in
$42,736
item reductions
department budgets, see Attachment A.
Frolics support
Total overtime costs for Police and Public Works
$15,000
departments runs about $25,000, but the Frolics
reimburses the City for $10,000.
Animal Control
Eliminate New Hope contract.
$24,526
Pawn Shop Fees
Increase transaction fee from $2 to $3 per transaction.
$10,000
Property Taxes
Using the 2010 budget as a model, expenses will grow
$87,500
by a little less than 1 % even if we attempt to freeze all
costs. This could be about $100,000. A 2% increase
in the 2011 property tax levy will generate about
$187,500 of new revenue.
It is our understanding that State Law, if not changed,
will allow 2010 LGA cuts to be used as a special levy
in 2011. Crystal's 2010 LGA, in the absence of any
state budget deficit, would have been $2,221,185.
We now assume it will be $533,663, a difference of
$1,687,522. To levy all of that in 2011 would result in
a tax increase of 18% over the 2010 tax levy.
Fire Engines
Use certificates of indebtedness for the purchase of
$101,900
fire engines instead of attempting to save up the
money in advance. This will allow for the elimination
of a $101,900 per year transfer from the General Fund
to the Fire Equipment Revolving Fund (FERF).
If the fire engines are purchased in 2011 using about
$750,000 of FERF balance and issuing certificates of
$500,000, debt service would require an annual tax
levy of about $63,000 beginning in 2012.
Issuing a second certificate for $500,000 in 2015 for
the purchase of two rescue trucks will increase the tax
levy to about $130,000 in 2016.
West Metro Fire &
Any savings depend upon the actions of the Board of
$???
Rescue District
Directors.
The items above provide $281,662 of new revenues or cost savings that can be applied
to the LGA cut of $921,403. That leaves $639,741 that must come from reductions in
staffing equal to 9.65 full-time equivalent employees.
Budget Scenario C
The following is a possible combination of revenue enhancements and service/staffing
budget cuts in 2011 that will balance a $921,403 cut in LGA. It must be remembered
that even in a "no increase" budget for 2011, some fringe benefit, supply and service
costs will show inflation that will have to be absorbed in the budget in addition to the cut
in LGA.
ITEM
DISCUSSION
SAVINGS
General Fund line
Mostly small and non -controversial reductions in
$42,736
item reductions
department budgets, see Attachment A.
Pawn Shop Fees
Increase transaction fee from $2 to $3 per transaction.
$10,000
Franchise Fees
Institutes a fee that will be $1 per month per
$300,000
residential gas and $1 per month per residential
electric meter. Commercial meters will be more.
Property Taxes
Using the 2010 budget as a model, expenses will grow
$87,500
by a little less than 1 % even if we attempt to freeze all
costs. This could be about $100,000. A 2% increase
in the 2011 property tax levy will generate about
$187,500 of new revenue.
It is our understanding that State Law, if not changed,
will allow 2010 LGA cuts to be used as a special levy
in 2011. Crystal's 2010 LGA, in the absence of any
state budget deficit, would have been $2,221,185.
We now assume it will be $533,663, a difference of
$1,687,522. To levy all of that in 2011 would result in
a tax increase of 18% over the 2010 tax levy.
Fire Engines
Use certificates of indebtedness for the purchase of
$101,900
fire engines instead of attempting to save up the
money in advance. This will allow for the elimination
of a $101,900 per year transfer from the General Fund
to the Fire Equipment Revolving Fund (FERF).
If the fire engines are purchased in 2011 using about
$750,000 of FERF balance and issuing certificates of
$500,000, debt service would require an annual tax
levy of about $63,000 beginning in 2012.
Issuing a second certificate for $500,000 in 2015 for
the purchase of two rescue trucks will increase the tax
levy to about $130,000 in 2016.
West Metro Fire &
Any savings depend upon the actions of the Board of
$???
Rescue District
Directors.
The items above provide $542,136 of new revenues or cost savings that can be applied
to the LGA cut of $921,403. That leaves $379,267 that must come from reductions in
staffing equal to 5.65 full-time equivalent employees.
Budget Scenario D
The following is a possible combination of revenue enhancements and service/staffing
budget cuts in 2011 that will balance a $921,403 cut in LGA. It must be remembered
that even in a "no increase" budget for 2011, some fringe benefit, supply and service
costs will show inflation that will have to be absorbed in the budget in addition to the cut
in LGA.
ITEM
DISCUSSION
SAVINGS
General Fund line
Mostly small and non -controversial reductions in
$42,736
item reductions
department budgets, see Attachment A.
Frolics support
Total overtime costs for Police and Public Works
$15,000
departments runs about $25,000, but the Frolics
reimburses the City for $10,000.
Animal Control
Eliminate New Hope'contract.
$24,526
Pawn Shop Fees
Increase transaction fee from $2 to $3 per transaction.
$10,000
Franchise Fees
Institutes a fee that will be $1 per month per
$300,000
residential gas and $1 per month per residential
electric meter. Commercial meters will be more.
Fire Engines
Use certificates of indebtedness for the purchase of
$101,900
fire engines instead of attempting to save up the
money in advance. This will allow for the elimination
of a $101,900 per year transfer from the General Fund
to the Fire Equipment Revolving Fund (FERF).
If the fire engines are purchased in 2011 using about
$750,000 of FERF balance and issuing certificates of
$500,000, debt service would require an annual tax
levy of about $63,000 beginning in 2012.
Issuing a second certificate for $500,000 in 2015 for
the purchase of two rescue trucks will increase the tax
levy to about $130,000 in 2016.
West Metro Fire &
Any savings depend upon the actions of the Board of
$???
Rescue District
Directors.
The items above provide $494,162 of new revenues or cost savings that can be applied
to the LGA cut of $921,403. That leaves $427,241 that must come from reductions in
staffing equal to 6.5 full-time equivalent employees.
Budget Scenario E
The following is a possible combination of revenue enhancements and service/staffing
budget cuts in 2011 that will balance a $921,403 cut in LGA. It must be remembered
that even in a "no increase" budget for 2011, some fringe benefit, supply and service
costs will show inflation that will have to be absorbed in the budget in addition to the cut
in LGA.
ITEM
DISCUSSION
SAVINGS
General Fund line
Mostly small and non -controversial reductions in
$42,736
item reductions
department budgets, see Attachment A.
Frolics support
Total overtime costs for Police and Public Works
$15,000
departments runs about $25,000, but the Frolics
reimburses the City for $10,000.
Animal Control
Eliminate New Hope contract.
$24,526
Pawn Shop Fees
Increase transaction fee from $2 to $3 per transaction.
$10,000
Franchise Fees
Institutes a fee that will be $1 per month per
$300,000
residential gas and $1 per month per residential
electric meter. Commercial meters will be more.
Property Taxes
Using the 2010 budget as a model, expenses will grow
$87,500
by a little less than 1 % even if we attempt to freeze all
costs. This could be about $100,000. A 2% increase
in the 2011 property tax levy will generate about
$187,500 of new revenue.
It is our understanding that State Law, if not changed,
will allow 2010 LGA cuts to be used as a special levy
in 2011. Crystal's 2010 LGA, in the absence of any
state budget deficit, would have been $2,221,185.
We now assume it will be $533,663, a difference of
$1,687,522. To levy all of that in 2011 would result in
a tax increase of 18% over the 2010 tax levy.
West Metro Fire &
Any savings depend upon the actions of the Board of
$???
Rescue District
-Directors.
The items above provide $479,762 of new revenues or cost savings that can be applied
to the LGA cut of $921,403. That leaves $441,641 that must come from reductions in
staffing equal to 6.75 full-time equivalent employees.
DATE: March 31, 2010
TO: Mayor and City Council
FROM: Anne Norris, City Manager
Charles Hansen, Finance Director CP
SUBJECT: Fire Equipment Certificates of Indebtedness Discussion
The West Metro Fire & Rescue District is planning to purchase four fire engines in 2011
and two rescue trucks in 2015. The City of Crystal established the Fire Equipment
Revolving Fund (FERF) as a capital fund several years ago and has been making
annual transfers to it. It was planned that the FERF would have enough money in it to
pay for Crystal's share of the fire engines in 2011.
Discussion
Recent analysis shows that the FERF will be short of the money needed for the fire
engines in 2011 and short again for the rescue trucks in 2105. Proposals by the State
of Minnesota to cut Local Government Aid (LGA) means that it will not only be difficult
to make up the shortfalls in the FERF balance, but also to continue the current transfer
from the General Fund to the FERF.
An alternative that will ensure funding for the fire equipment and also provide some
relief to the LGA cuts is to adopt the practice of issuing certificates of indebtedness to
pay for fire equipment purchases. These function like a bond issue but are of shorter
duration and smaller in amount.
Financing Plans
Attachment A is the current plan from the Adopted 2010 Budget. The funding shortfalls
are represented by sales of certificates of indebtedness of $180,000 in 2011 and
$120,000 in 2015. It isn't efficient to issue debt in amounts this small. We had hoped
to be able to transfer in surplus money from another fund instead.
Attachment B is the alternative plan. Transfers from the General Fund end after 2009
and are replaced by sales of certificates of indebtedness of $500,000 in 2011 and
$500,000 in 2015. About $750,000 of the FERF balance is used for the purchase of
the four fire engines in 2011 and the remainder is used for the rescue trucks in 2015.
Attachment C is the debt service schedule needed to repay the certificates of
indebtedness. It projects annual property tax levies beginning with $63,000 to be
collected in 2012 for the certificates issued in 2011 and growing to $129,360 in 2016
after the second set of certificates are issued in 2015.
Conclusion
The tax levy to repay the certificates jumps to a level in 2016 that is even higher than
the transfer from the General Fund. However, the current level of the General Fund
transfer isn't meeting the FERF's needs whereas the certificates of indebtedness would
meet the need. A property tax levy for the certificates will also be outside of levy limits if
the State chooses to continue levy limits beyond 2011.
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Attachment C
Fire Equipment Certificates of Indebtedness
Debt Service Schedule
Issue Date
08/01/11
Amount
$500,000
Tax Levy
Term
10 years
Interest Rate
4.0%
with 2nd
$500,000
Tax Levy
Tax Levy
Certificate
Date
Principal
Interest
Total
Balance
Year Coll
Amount
in 2016
08/01/12
20,000
20,000
500,000
2012
63,000
02/01/13
30,000
10,000
40,000
470,000
08/01/13
9,400
9,400
470,000
2013
66,990
02/01/14
45,000
9,400
54,400
425,000
08/01/14
8,500
8,500
425,000
2014
65,100
02/01/15
45,000
8,500
53,500
380,000
08/01/15
7,600
7,600
380,000
2015
68,460
02/01/16
50,000
7,600
57,600
330,000
08/01/16
6,600
6,600
330,000
2016
66,360
129,360
02/01/17
50,000
6,600
56,600
280,000
08/01/17
5,600
5,600
280,000
2017
64,260
131,250
02/01/18
50,000
5,600
55,600
230,000
08/01/18
4,600
4,600
230,000
2018
67,410
132,510
02/01/19
55,000
4,600
59,600
175,000
08/01/19
3,500
3,500
175,000
2019
65,100
133,560
02/01/20
55,000
3,500
58,500
120,000
08/01/20
2,400
2,400
120,000
2020
68,040
134,400
02/01/21
60,000
2,400
62,400
60,000
08/01/21
1,200
1,200
60,000
2021
65,520
129,780
02/01/22
60,000
1,200
61,200
0
2022
67,410
2023 65,100
2024 68,040
2025 65,520
G:\Charlie\Budget\2010 Budget revisiteffire Certificates Debt ServiceAs 3/30/2010 5:23 PM