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2010.02.11 Work Session PacketCRYSTAL CITY COUNCIL WORK SESSION WORKING AGENDA Thursday, February 11, 2010 7:00 p.m. Conference Room A 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 Thursday, February 11, 2010 in Conference Room A located at 4141 Douglas Drive, Crystal, Minnesota. I. Attendance Council members Grimes J. Moore Selton Anderson Bowman Hoffmann L. Moore Staff Norris Hansen Peters Sutter Therres II. Agenda The purpose of the work session is to discuss the following agenda items: 1. *Update on 2010 Community Development Block Grant (CDBG) allocation 2. 2009 year end status 3. Amendment to the Finance Department's 2010 Budget 4. Long range planning for major capital funds: a. Fire equipment replacement fund (FERF) b. Street maintenance fund c. Street reconstruction fund d. County Road 81/Capital levy c. Major building replacement fend 5. Long range planning for future operating budgets 6. Water conservation rates III. Adjournment The Work Session adjourned at p.m. *Documentation will be handed out at the work session on Thursday night. G:\Cily ClerMoundl\Work sessions\wsagenda2.11.10.doc A Memorandum '._fXYSiA I 4 DATE: February 3, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: 2009 Year End Status Preliminary year end data: It is still early in the process of closing out accounts for year end. Some adjustments need to be made on the revenue side and many invoices are still coming in for expenditures. There could easily be another $100,000 of invoices that will come in. The attached spreadsheet shows the General Fund as it currently stands. It appears that there will be a substantial surplus for the year. Part of this stems from the budget reduction made early in 2009 in anticipation of LGA unallotment from the State. When the unallotment was formally announced, it was $112,653 less than we had cut from the budget. Another factor is Administrative Fines. These show revenue of $112,103 compared to a budget of $36,000. However, about $105,000 of these are in accounts receivable at year end. Most of these will need to be certified as special assessments and will be collected in 2011 at the earliest. So fines first recorded as revenue may be turned into cash two years later. Other variances in General Fund revenues tend to cancel each other out. General Fund expenditures are well under the budget. This is the number that will shrink as invoices come in, but it will still be substantial. Property Taxes and Local Government Aid: Property tax levies certified by the City to the County are adjusted before being spread to properties as taxes payable. One of the adjustments is for market value homestead credit. This deducted $467,928 from the levy and was paid by the state directly to the city. That reduced the 2009 levy from $7,916,764 to $7,448,836. Z Only $7,330,070 of the 2009 levy was collected in 2009. This is normal. Offsetting the 2009 shortfall is that $163,983 of taxes and penalties were collected on taxes due in 2008 and earlier. This is shown in the table below. 2009 Original 2009 Amended 2009 Estimated Budget Bu. . dget Year End Property Taxes $7,916,764 $7,448,836 $7,330,070 Delinquent Taxes and Penalty 5,000 5,000 163,983 Market Value Homestead Credit 0 467,928 469,532 Local Government Aid 1,898,952 1,454,269 1,566,922 Total $9,820,716 $9,376,033 $9,530,507 Adequate General Fund Balance Formula: The City of Crystal has a policy for maintaining the proper level of the fund balance in the General Fund. Calculation of the formula with an estimated 12/31/09 fund balance is attached. The formula showed a shortfall as of 12/31/08. Amounts designated for specific purposes also need to be updated. Calculation of the formula will swing back to the positive as of 12/31/09 with the projected operating surplus for the year 2009. This will allow the City Council the option of transferring some of the surplus. Such a transfer would be most appropriate if made to a capital fund. Budget Amendments: Currently, two General Fund departments have exceeded their 2009 budgets. A couple more could be added as the final 2009 invoices are recorded. A resolution will be needed to adjust the 2009 budget for these overages. One project in the PI Fund needs to be carried forward to 2010. It is for tables at the Community Center for $3,000 that were ordered in September but still not received. Problems at the vendor caused the delay. The Police Equipment Revolving Fund was awarded a JAG grant of $57,329 last summer. At the time we thought that all the equipment could be purchased and the grant received in 2009. However little, if any, of the equipment was purchased in 2009. So most of the grant will need to be carried forward to 2010. anticipate that resolutions to accomplish budget adjustments can be brought to the City Council at the March 2, 2010 meeting. P3 CITY OF CRYSTAL 2009 General Fund Budget Results 2009 2009 2009 Variance 2010 Original Amended Estimated Amended/ Adopted DESCRIPTION Budget Sudget Year End Year End Btldget REVENUES Property Taxes 7,916,764 7,448,836 7,300,070 -148,766 8,330,937 Delinquent Tax & Penalty 5,000 5,000 163,983 158,983 6,000 Special Assess. 37,070 37,070 43,937 6,867 58,000 Licenses 118,130 118,130 125,377 7,247 119,300 Permits 245,700 245,700 267,779 22,079 280,400 Inspections 150,000 157,000 212,930 55,930 213,000 State Market Value Hmstd Credit 467,928 469,532 1,604 State LGA 1,898,952 1,454,269 1,566,922 112,653 1,455,376 State Other 284,344 284,344 273,251 -11,093 295,844 Gen Govt Charges 67,320 77,320 100,346 23,026 88,126 Recreation Charges 201,263 201,263 178,461 -22,802 199,580 Comm. Ctr. Charges 90,900 90,900 94,634 3,734 91,700 Pool Charges 202,660 202,660 166,304 -36,356 192,500 Public Safety Charges 84,550 84,550 51,514 -33,036 74,400 Fines & Forfiets 173,300 173,300 258,540 85,240 249,000 Administrative Fines 36,000 36,000 112,103 76,103 54,000 Investments 218,000 218,000 129,692 -88,308 129,000 Miscellaneous 56,400 56,400 51,573 -4,827 57,989 Interfund Services 311,582 311,582 311,582 6 306,753 TOTAL REVENUES 12,097,935 11,670,252 11,878,530 208,278 12,201,905 EXPENDITURES Mayor & Council 167,326 165,466 131,304 -34,162 169,358 Administration 883,809 851,949 839,040 -12,909 876,433 Human Resources 70,973 70,723 68,910 -1,813 63,828 Assessing 190,502 190,502 183,804 -6,698 193,045 Legal 157,000 157,000 186,332 29,332 157,000 Elections 5,788 5,788 3,541 -2,247 43,189 Finance 461,253 460,593 452,321 -8,272 476,700 Police 4,203,564 4,182,330 3,985,611 -196,719 4,284,971 Fire 1,101,420 1,101,420 1,046,561 -54,869 1,037,572 Planning 199,033 195,768 186,680 -9,088 198,665 Building Inspection 213,307 221,967 216,384 -5,583 221,633 Housing Inspection 166,655 166,555 167,437 882 169,161 Environmental Health 49,926 49,926 29,915 -20,011 36,708 Engineering 309,947 308,257 299,838 -8,419 297,903 Street Maintenance 828,348 820,948 796,078 -24,870 823,696 Park Maintenance 656,349 648,409 648,156 -253 669,161 Forestry 162,368 162,668 140,495 -22,173 192,104 City Buildings 200,736 194,592 183,961 -10,631 197,338 Recreation 613,628 613,388 581,689 -31,699 618,825 Community Center 335,841 331,541 325,384 .6,157 340,742 Waterslide / Pool 269,623 269,923 218,597 -51,326 257,823 Operating Transfers 850,539 500,539 500,539 0 876,050 TOTAL EXPENDITURES 12,097,935 11,670,252 11,192,567 -477,685 12,201,905 G:\Charlie\Budget\Long Range Financial Plan\Gen Fund 2009 YE.xls 2/3/2010 10:07 AM P4 City of Crystal Adequate General Fund Balance Formula Object 0100.3615 Preliminary as of Decemer 31, 2009 Unreserved fund balance as of: Less amounts designated for specific purposes: Designated for compensated absences Designated for unrealized gains / (losses) Working capital. - Next year's General Fund budget (6/12 of next year's General Fund budget designated for working capital) General Fund Balance required by policy Fund Balance in excess (short) of formula requirements Amount available for transferring in current year Transfers in current year Uncommitted amount available in current year 12/31 /2008 Fund Balance/ 2009 Budget 12/31 /2009 Fund Balance/ 2010 Budget $6,713,244 $7,300,000 778,774 50,598 12, 097, 935 778,774 50,598 12,201,905 6,048,968 6,100,953 $6,878,340 $6,930,325 165, 096 369,675 (82,548) (89,130) 184,838 ($171_,678 $184,838 G \Charlie\Pr'.:=,'es\Gen Fund ReservesTund Balance reserve policy.xls Prelim 2009 2/2/2010 4:55 PM Memorandum �LIiY5TAl DATE: February 5, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Amendment to Finance Department 2010 Budget Staff Allocations: The Finance Department currently includes four full-time and two part-time employees. One of the department's functions is utility billing and a substantial amount of time is devoted to it. The staff cost for utility billing is charged to the utility funds by two different methods. Payroll costs for one full-time employee who works primarily on utility billing are charged directly into the utility funds. All other Finance Department employees spend smaller amounts of time in support of utility billing. Employees of the Administration Department and the Engineering Department also have employees who spend smaller amounts of time in support of utility operations. The General Fund is reimbursed for the staff costs by means of an administrative service charge that shows up as an expense for Interfund Services Used in the utility funds and as revenue for Interfund Services Provided in the General Fund. Proposed Change: The amount of time devoted to utility billing is higher than it was in the past and that appears to be a permanent change. I believe this can be more accurately reflected in the budget if we take one of the part-time positions and charge the employee costs directly into the utility funds in addition to the one full-time employee who is already charged to the utility funds. The administrative service charge paid by the utility funds to the General Fund can be reduced by the same dollar amount as the employee costs that are shifted to the utility funds. That way, the bottom line costs for all funds is the same. We discussed this change on a staff level when preparing the 2010 budget. I was reluctant to go ahead with it because it would have made it appear that the Finance Department was cutting its budget when we really were not. By amending the 2010 budget now, the change will be in place when we start the 2011 budget process. Finance Department budgets for 2010 and 2011 will be comparable. City Council Approval: If this change is acceptable to the City Council, I will bring a resolution to a future City Council meeting to amend the 2010 budget. The change will shift about $40,000 of employee cost from the Finance Department to the utility funds and reduce the administrative service charge by the same amount. P -1 Memorandum cb�rsi A1 DATE: February 3, 2010 TO Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Fire Equipment Replacement Fund Fire Equipment Replacement Fund (FERF): The City of Crystal set up a Fire Equipment Replacement Fund in 2007 to begin accumulating cash so that purchases of major pieces of fire equipment by the West Metro Fire & Rescue District could be made without having to issue debt. Preliminary results are that the FERF has $872,808 in it as of December 31, 2009. Fire Engines: The City Council has committed to supporting in a plan to purchase four fire engines in 2011 at a cost of up to $2,500,000. Based on the current percentage split between Crystal and New Hope, Crystal's share of the cost would be $1,282,500. Continuing the current rate of transfers from the General Fund will result in the FERF having assets of about $1,140,000 by the end of 2011. Some additional resources will be needed to make up the difference. Schedule 1 shows a sale of certificates of indebtedness of $180,000 in 2011. Rescue Trucks: West Metro is also planning to replace two rescue trucks in the year 2015 at a cost of around $1,200,000. Based on the current percentage split between Crystal and New Hope, Crystal's share of the cost would be $616,000. Continuing the current rate of transfers from the General Fund will result in the FERF having assets of about $500,000 by the end of 2015. Some additional resources will be needed to make up the difference. Schedule 1 shows a sale of certificates of indebtedness of $100,000 in 2015. Variables: Several variables exist in the calculation. The most significant one is the estimated cost of the fire equipment. Other variables are Crystal's share of the cost (currently 51.3%) and the assumed rate of return on investments. Additional Transfer from General Fund: Currently, it appears that the General Fund has the capacity to make an additional transfer of about $184,000 at the end of 2009. This is shown on Schedule 2 and eliminates the funding gap in 2011 while reducing the gap in 2015. P9 Fire Equipment Revolving Fund (Fund 409) Multi -Year Capital Improvement Plan 2010 Adopted Budget Schedule #1 Adopted 2009 2010 2011 2012 2013 2014 2015 City of Crystal Share (51.3%) _ 0 0 1,282,500 0 Q 0 615,600 )Funding Sources Interest Income 19,300 Operating Transfer from General Fund 98,899 Sale of Certifcates of Indebtedness Total )Funding Sources 118,199 Budgeted Expenditures (Over)/ Linder Funding Sources 118,199 Year End Fund Balance 872,808 Assumed Return on Investments 3.0% 23,566 101,900 125,466 125,466 998,274 2.7% 39,931 104,957 180,000 324M8 -957,612 40,662 4.0°0 1,626'. 6,0161 10,710 108,106 111,349 114,689. 109,732 117,365 125,400 109,732 117,365 125,400 150,394 267,759 393,158 4.0% 4.0% 4.0% 15,726 118,130 120,000 253,856 -361,744 31,415 4.0% 0 r, \(:harks\8udaet\2010 Budael\Capital kwrovemenls\10 Flre Eq Rev Fd.xls 2/3I2010 3:41 PM Capital Outlays Engine 11 Engine 21 Engine 31 Engine 32 Rescue 11 Rescue 21 Total )Purchase Cost City of Crystal Share (51.3%) Funding Sources Fire Equipment Revolving Fund (Fund 409) Multi -Year Capital Improvement Plan 2010 Adopted Budget with Additional 2009 Transfer Schedule #2 Amended 2009 2010 2011 2012 2013 l 625,000 625,000 625,000 625,000 2014 2015. 600,000 600,000 011 01 2,500,0001 01 01 01 1,200,000 0 0 1,282,500 0 0 615,600 Interest Income 19,300 Operating Transfer from General Fund 98,894 Additional Transfer from General Fund 184,000 Sale of Certifcates of Indebtedness Total Funding Sources 302,199 Budgeted Expenditures (Over)/ Under Funding Sources 302,199 Year End Fund Balance 1,056,808 Assumed Return on Investments 3.0% 28,5341 47,4901 2,2881 6,703 11,425 16,470 101,900 104,957 108,106 111,349 114,689 118,130 130,4341 152,447 130,4341 -1,130,053 1,187,242 57,188 2.7% 4.0% 110.393E 118,052 110,393 167,582 4.0% 118,052 285,634 4.0% 126,1151 �T 126,115 411,749 4.0% 100,000 234,600 -3 81,000 30,749 4.01/a G:\Char;:. .ge02010 Budget\Capital Improvements\10 Fire Eq Rev Fd.xhs 2+: 3:41 PM Memorandum V.KY Li JAI DATE: February 3, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Street Maintenance Fund Street Maintenance Fund: A commitment was made to the citizens at the start of the street reconstruction program that they wouldn't be assessed for maintenance of the streets once the streets had been reconstructed. The goal was to ensure that residents wouldn't be faced with a new assessment while they were still paying the assessment for street reconstruction. The Street Maintenance Fund was set to pay for the first two seal coat projects after streets have been reconstructed. The fund received an annual transfer from the General Fund and interest earnings on its invested cash. It was projected that these financial resources were sufficient to meet the obligations of the fund. New Projects: Two new projects were added to the fund in the 2010 budget. First is a mill and overlay project on 36th Avenue. This project's cost will eventually be recovered from Municipal State Aid for Streets and special assessments. The Street Maintenance Fund is needed to cash flow the project until these revenues come in. The second project is intensified maintenance on the pavement in reconstruction phases 1 through 3. This pavement is deteriorating faster than expected. Extra seal coating and pothole patching is needed to maintain the pavement until it can receive a mill and overlay. There is no new revenue source to cover this cost. New Financing: The fund goes into a deficit balance in the year 2024 as a result of the new projects. One possible solution would be to increase the transfer from the General Fund beginning with the 2011 budget. The transfers are currently projected to increase at the rate of 3% per year and will be $67,259 for 2011. It would be necessary to increase the 2011 transfer to $100,000 and then add 3% per year to make the fund financially solvent through 2033 when the last street phase receives its second seal coat. P12 CITY OF CRYSTAL STREET MAINTENANCE FUND ANALYSIS Analysis including Municipal State Aid for 36th Avenue iry This analysis assumes that streets will be sealcoated 8 years and 15 years after the wearcourse is put down. This fund will pay for these sealcoatings so that the property owners will not see a special assessment for this work while they are still paying the special assessment on the reconstruction. This analysis assumes that streets will receive an overlay at 21 years after the wearcourse is put down. That work will be paid for by a new special assessment since the reconstruction special assessment will be done by then. New activities are proposed to be added to the Street Maintenance Fund to provide for intensified maintenance of the asphalt in Phases 1 through 3 until they can be overlaid and for a mill & overlay of 36th Avenue. Ending Gen FD Sp. Ass. Invest Invest First Sealcoat Second Sealcoat Phase 1-3 Fund Year Contrib. & M.S.A. Farninus Rate Phase Costs Phase Costs & 36 Ave Balance 2000 670,351 41,242 6,023 705,570 2001 170,000 60,444 1 936,014 2002 179,350 77,083 1 3,100 1,189, 347 2003 184,731 38,784 1,412,862 2004 190,272 49,820 2&3 133,610 1,519,344 2005 195,981 46,337 1,761,662 2006 140,000 79,742 4.25% 1,981,404 2007 144,200 132,989 6.68% 4 80,125 2,178,468 2008 61,573 97,518 4.45% 2,337,559 2009 63,420 70,127 3.00% 5 81,662 2,389,444 2010 65,300 30,000 64,515 2.70% 1 134,798 648,500 1,765,961 2011 67,269 27,900 70,638 4.00% 2&3 341,179 56,135 1,534,444 2012 69,277 24,300 61,378 4.00% 6 171,493 57,819 1,460,087 2013 71,355 20,948 58,403 4.00% 7 105,084 59,554 1,446,156 2014 73,496 17,774 57,846 4.00% 8 168,985 1&4 271,619 61,340 1,093,327 2015 75,701 14,554 43,733 4.00% 2&3 328,498 63,180 835,636 2016 77,972 33,425 4.00% 9 125,624 5 100,434 65,076 655,899 2017 80,311 26,236 4.00% 10 206,557 67,028 488,861 2018 82,720 594,000 19,554 4.00% 46,028 1,139,107 2019 85,202 45,564 4.00% 11 168,016 6 210,914 23,705 867,238 2020 87,758 34,690 4.00% 12 220,924 7 129,240 639,521 2021 90,390 25,581 4.00% 8 207,830 547,662 2022 93,102 21,906 4.00% 13 210,940 451,731 2023 95,895 18,069 4.00% 14 288,082 9 154,502 123,111 2024 98,772 4,924 4.00% 10 254,039 -27,231 2025 101,735 -1,089 4.00% 15 302,211 -228,796 2026 104,787 -9,152 4.00% 15 247,087 11 206,639 -586,887 2027 107,931 -23,475 4.00% 12 271,708 -774,140 2028 111,169 -30,966 4.00% -693,937 2029 114,504 -27,757 4.00% 13 259,430 -866,620 2030 117,939 -34,665 4.00% 14 354,304 -1,137,650 2031 121,477 -45,506 4.00% -1,061,67ct 2032 125,122 -42,467 4.00% 15 371,682 -1,350,706 - 2033 128,875 -54,028 4.00% 1 16 303,886 -1,579,746 G:\Charlie\Budget\2010 Budget\Capital Improvements\Street Maintenance 2010 Analysis 6xlsAnalysis SA & MSA 2/3/2010 3:36 FPA1 3 CITY OF CRYSTAL STREET MAINTENANCE FUND ANALYSIS Analysis including Increased Transfer from the General Fund This analysis assumes that streets will be sealcoated 8 years and 15 years after the wearcourse is put down. This fund will pay for these sealcoatings so that the property owners will not see a special assessment for this work while they are still paying the special assessment on the reconstruction. This analysis assumes that streets will receive an overlay at 21 years after the wearcourse is put down. That work will be paid for by a new special assessment since the reconstruction special assessment will be done by then. New activities are proposed to be added to the Street Maintenance Fund to provide for intensified maintenance of the asphalt in Phases 1 through 3 until they can be overlaid and for a mill & overlay of 36th Avenue. Ending Gen FD Sp. Ass. Invest Invest First Sealcoat Second Sealcoat Phase 1-3 Fund Year - Contrib. & M.S.A.Earnings - bate Phase Costs Phase Costs & 36 Ave Balance 2000 670,351 41,242 6,023 705,570 2001 170,000 60,444 936,014 2002 179,350 77,083 1 3,100 1,189,347 2003 184,731 38,784 1,412,862 2004 190,272 49,820 2&3 133,610 1,519,344 2005 195,981 46,337 1,761,662 2006 140,000 79,742 4.25% 1,981,404 2007 144,200 132,989 6.68% 4 80,125 2,178,468 2008 61,573 97,518 4.45% 2,337,559 2009 63,420 70,127 3.00% 5 81,662 2,389,444 2010 65,300 30,000 64,515 2.70% 1 134,798 648,500 1,765,961 2011 100,000 27,900 70,638 4.00% 2&3 341,179 56,135 1,567,185 2012 103,000 24,300 62,687 4.00% 6 171,493 57,819 1,527,861 2013 106,090 20,948 61,114 4.00% 7 106,084 59,554 1,551,375 2014 109,273 17,774 62,055 4.0011/a 8 168,985 1&4 271,619 61,340 1,238,533 2015 112,551 14,554 49,541 4.00% 2&3 328,498 63,180 1,023,500 2016 115,927 40,940 4.00% 9 125,624 5 100,434 65,076 $89,234 2017 119,405 35,569 4.00% 10 206,557 67,028 770,623 2018 122,987 594,000 30,825 4.00% 46,028 1,472,407 2019 126,677 58,896 4.00% 11 168,016 6 210,914 23,705 1,255,345 2020 130,477 50,214 4.00% 12 220,924 7 129,240 4 1,085,872 2021 134,392 43,435 4.00% 8 207,830 1,055,869 2022 138,423 42,235 4.00% 13 210,940 1,025,587 2023 142,576 41,023 4.00% 14 288,082 9 154,502 766,602 2024 146,853 30,664 4.00% 10 254,039 690,081 2025 151,259 27,603 4.00% 1S 302,211 566,732 2026 155,797 22,669 4.00% 16 247,087 11 206,639 291,471 2027 160,471 11,659 4.00% 12 271,708 191,893 2028 165,285 7,676 4.00% 364,853 2029 170,243 14,594 4.00% 13 259,430 290,261 2030 175,351 11,610 4.00% 14 354,304 122,917 2031 180,611 4,917 4.00% 308,445 2032 186,029 12,338 4.00% 15 371,682 135,131 2033 191,610 5,405 4.00% 16 303,886 28,260 G'\Charlie\Budget\2010 Budget\Capital Improvements\Street Maintenance 2010 Analysis 6.xlsAnalysis SA & MSA (25 2/3/2010 3i36 W 4 Memorandum DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Street Reconstruction Fund Past Studies: Feasibility studies for the street reconstruction program have always been prepared by the Crystal Engineering Department and Short Elliot Hendrickson. These studies involve many variables and require estimates several years into the future. Over the last two years, I have noticed the cash in the Street Reconstruction Fund unexpectedly dropping. This caused me to review the feasibility studies and I found that a couple of additional factors need to be incorporated in them. The first factor is that the street projects rely on Municipal State Aid for Streets (MSA) from the State of Minnesota for part of their revenues. MSA is considered to be earned at the time that a MSA street is reconstructed. However, the State only allots so much MSA to Crystal each year. If we earn more than the allotment, then the excess becomes a receivable that will be paid in future years. The feasibility study failed to recognize that the receivable isn't cash. As of the end of 2009, the receivable equals approximately $2,400,000. The second factor is the private street and sewer improvements. Homeowners pay the entire cost of these improvements, but they are allowed to have them certified as special assessments. The Street Reconstruction Fund is providing cash flow for the improvements until the special assessments are collected. As of the end of 2009, the special assessments receivable equal approximately $1,100,000. Finance Study: I started my own study last summer to address these factors. It was done entirely on a cash flow basis and included the private street and sewer improvements. The study showed cash in the fund continuing to decline with each additional project. Partially because of this study and partially because of citizen concerns over adopting special assessments during a recession, it was decided not to do a street project in 2010. P15 It was decided that Phase 11 could be done in 2011, Phase 12 in 2012, and then pause for a year in 2013. 1 reopened the finance study in order to try to project the timing of projects after the year 2013. In talking to Tom Mathisen, I discovered a couple of problems with the finance study from last summer. First was that I hadn't known about the reimbursements from other cities for their share of the cost of common streets on the borders of the cities. While this adds less than one million dollars spread over the remaining six phases, it does help the cash flow. Second was that my spreadsheets mishandled the cost of storm drainage assets and their reimbursement from the Storm Drainage Fund. Correcting this will significantly improve the cash flow. I am still working on the spreadsheets. It is fair to say that the end result will be much more positive than my study last summer, but not good enough to allow resuming the schedule in the feasibility studies. That was to do projects three years in a row, take off one year, and then do projects three years in a row again. Timing of Future Phases: think it is safe to say that Phase 11 can be built in the year 2011 and Phase 12 can be built in the year 2012. 1 would like to finish updating the study before projecting beyond Phase 12. P16 CSiTA Memorandum l DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: County Road 81 / Capital Levy Cost Sharing Agreement: The City of Crystal reached agreement with Hennepin County in 2009 on a plan for financing the City's local matching share of the County Highway 81 reconstruction. A major component of the plan was that the County would provide interest free financing for most of the local share by purchasing bonds issued by the City. Other parts of the local share will be paid by the Water and Storm Drainage Funds for related assets, special assessments on properties that receive their street access from streets improved as part of the project, and a small amount of municipal state aid for streets. Total cost of the local share should be less than $4,000,000. Bonds: In the summer of 2009, the City Council approved the issuance of up to $2,600,000 of a type of bond defined in state law as a Street Reconstruction Bond. Bonds will be issued in several different series as right of way and construction costs become known. A series of bonds with a value of $1,204,778 were issued in 2009 to cover right of way costs. A tax levy of $534,565 was levied to be collected in 2010 to make a debt service payment of $509,109 due on December 15, 2010. Another series of bonds will be issued in 2010 to cover construction costs and a third series of bonds will probably be issued in 2012 to cover final costs. Actions in 2010: In addition to the new the new 2010 series of bonds, it will be necessary to refinance the 2009 series of bonds. This is because the resolution issuing the 2009 series incorrectly stated that the bonds included the special assessments. The special assessments were intended to be separate from the bonds and will be held by the P.I.R. Fund until they are collected. P17 Memorandum .cr": "YgrAl L DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Major Building Replacement Fund History: The Major Building Replacement Fund was created in 2007 with a transfer of $8,000,000 from the P.I.R. Fund. Since then it has earned interest income and received one other small transfer in 2008. Its fund balance at the end of 2009 is $9,181,000. The purpose of the fund is to accumulate a replacement reserve for the eventual building replacements and major remodeling of the City Hall/Police Station, Fire Stations 1 & 2, Streets/Parks Garage and the Community Center. Projects may be paid for with a combination of a draw from the Major Building Replacement Fund and a bond sale. Streets/Parks Garage: The first project undertaken by the Major Building Replacement Fund is likely to be the replacement of the Streets/Parks Garage. It could easily cost something in the neighborhood of $8,000,000. If the half draw/half bond sale model is followed, that will be about $4,000,000 each. The property tax levy needed to pay debt service on a $4,000,000 bond is something that Crystal probably can't afford until the County Highway 81 bonds are paid off. The final tax levy on the County Highway 81 bonds will be collected in 2014. That means that any bonds for the Streets/Parks Garage should be sold in 2014 so that the first tax levy for debt service can be collected in 2015. This avoids situations where either the tax levies double up in one year or there is a gap with no debt service tax levy. You don't want the tax levy to drop one year and then jump back up the next. h The bonds should be of a fairly short maturity so that the debt service tax levy stays at about the same amount as the $534,565 levy for the County Highway 81 bonds. This would result in the bonds for the Streets/Parks Garage maturing in about nine years. Later Projects: The City Hall/Police Station was built in about 1963 and underwent a major remodeling in 1993. The Community Center was built in about 1990. Both buildings should undergo major remodeling in the 2020 to 2025 time frame. Major remodeling may be almost as expensive as new construction and so another bond issue will be required to finance the work. This is why it will be important to pay off the Streets/Parks Garage bonds rapidly so that the city will have the taxing capacity to handle debt service on a new series of bonds. The South Fire Station was built in 1975 and the North Fire Station was built in 1985. They will also need attention at some point. N P19 Memorandum DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Long Range Planning for Future Operating Budgets 2010 Budget: The City Council and staff prepared the 2010 General Fund budget with a goal of keeping the increase in the budget as close to zero as possible. To accomplish this, no across the board cost of living increase was provided for the employees, some minor service cut backs were made, and costs were reduced where ever we could. Despite this, the overall budget increased by 0.86%. The City buys products and services from outside vendors. Prices for these products and services may increase. Sometimes we can cut back on usage or switch vendors, sometimes we can't. The situations where we can't cut back on usage or switch vendors drove the increase in the 2010 budget. Local Government Aid (LGA): The 2010 budget was prepared with a projection from.the State of Minnesota that it will provide $1,455,376 of LGA to Crystal in 2010. State budget problems in the current biennium may cause a further unallotment of the 2010 LGA. Projections show greater deficits in the state budget in the next biennium. This could result in further reductions in LGA in 2011 and 2012. Such reductions could force the city to make reductions in service levels. Service Levels: The City Council has mentioned reviewing options for the 2011 budget of a 0% increase, a 5% reduction, and a 10% reduction. It must be kept in mind that even the 0% increase will result in a service reduction because of cost increases that are beyond our control. Employee furloughs have been mentioned as one part of a solution to reducing the budget. Furloughs are a difficult solution as they are hard to apply to some employees, F20 such as police. This places the burden on some employees but not others. Furloughs work best as a short term fix. They truly are a service reduction because they result in fewer employee hours available to do the jobs. Extending furloughs over long periods creates uncertainty for employees that will make Crystal a less desirable place to work. Franchise Fees: The always unpopular idea of franchise fees are something we may have to consider again. If the state makes major cuts in LGA and the service cuts needed to balance the budget are unacceptable to the City Council, then you may have revisit this topic. City Council Guidance: The City Council should discuss service levels in all departments and give the staff guidance on where we should look for reductions. P1 :v. Memorandum DATE: February 5; 2010 1-03 Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Water Conservation Rates Legal Requirement: Minnesota Statutes, Section 103G.291 requires that public water suppliers in the metropolitan area use a conservation rate structure by January 1, 2010. Due to the additional work load of the mass water meter change program, we have not been able to implement the water conservation rate structure on time. It appears that the only penalty for this delay is that the City can't apply for a permit to construct a water supply well or increase its authorized volume of water until the conservation rate structure is adopted. Characteristics of Water Conservation Rates: Rate structures may include a service charge (base rate) and a volume based charge. Service charges may cover fixed costs (capital improvements) and the volume charge is for operation and maintenance costs. The rate structure may not include a minimum volume of water in the service charge. A publication from the Department of Natural Resources is attached. It gives examples of conservation rates as follows: increasing block rates, seasonal rates, time of use rates, individual goal rates, and excess use rates. It appears that the increasing block rates are the most feasible and are the ones that most surrounding cities are using. Rates of Surrounding Cities: A couple of examples of rates adopted by other cities are shown below. P2 New Hope — monthly billinc Base fee 1,000 to 10,000 gallons 10,001 to 20,000 gallons Over 20,000 gallons Commercial rate Separate metered lawn irri Robbinsdale — 2 month bill Base fee _ 1,000 to 20,000 gallons 20,001 to 35,000 gallons 35,001 to 50,000 gallons Over 50,001 gallons Water Capital surcharge ation rate 2010 Water Rates allons allons allons allons allons 2010 Water Rates $7.24 $2.20 per 1,000 gallons $2.75 per 1,000 gallons $3.44 per 1,000 gallons $5.16 per 1,000 gallons $0.38 per 1.000 aallons 6.03 4.05 per 1,000 4.40 per 1,000 4.95 per 1,000 4.15 per 1,000 4.95 per 1,000 Implementation Plan: The mass water meter change program is nearly complete. The next step will be for the utility billing system to be converted from billing in the old 100 cubic foot units to the new 1,000 gallon units. This change is far more complex than it would appear and will take at least three months to convert and then test all three billing cycles. Implementation of water conservation rates can be the next project after conversion to 1,000 gallon units. City Council Guidance: A great deal of detail work will go into developing the new water conservation rates. The examples shown above do not begin to reveal the complexity and large number of variations in customers that we will have to work with. We will come back to the City Council at a future work session with more detail on proposed conservation rates, but the City Council should consider if there is any guidance you want to give us regarding conservation rates. P23 Conservation Rates Mri2nesota Statutes, section 103G.291, was amended in 2008 to include a requirement for public water suppliers serving more than 1,000 people to adopt a water rate structure that encourages conservation: Minnesota Statutes, section 1036.291, subd. 4. Conservation rate structure required. (a) For the purposes of this section, "conservation rate structure" means a rate structure that encourages conservation and may include increasing block rates, seasonal rates, time of use rates, individualized goal rates, or excess use rates. The rate structure must consider each residential unit as an individual user in multiple -family dwellings. (b) To encourage conservation, a public water supplier serving more than 1,000 people in the metropolitan area, as defined in section 473.121, subdivision 2, shall use a conservation rate structure by January 1, 2010. All remaining public water suppliers serving more than 1,000 people shall use a conservation rate structure by January 1, 2013. (c) A public water supplier without the proper measuring equipment to track the amount of water used by its users, as of the effective date of this act, is exempt from this subdivision and the conservation rate structure requirement under subdivision 3, paragraph (c). In addition, lllfinnesota Statues, section 1036.291, was further amended to read: Subd. 3. Water supply plans; demand reduction. (c) Public water suppliers serving more than 1,000 people must employ water use demand reduction measures, including a conservation rate structure, as defined in subdivision 4, paragraph (a), unless exempted under subdivision 4, paragraph (c), before requesting approval from the commissioner of health under section 144.383, paragraph (a), to construct a public water supply well or requesting an increase in the authorized volume of appropriation. Demand reduction measures must include evaluation of conservation rate structures and a public education program that may include a toilet and showerhead retrofit program. Public water suppliers serving more than 1,000 residents will need to adopt a conservation rate structure before requesting well construction approval for a public water supply well or before requesting an increase in permitted volume for their water appropriation permit. Examples of Conservation Rates: Below are examples of rate structures that encourage conservation. Many variations and combinations of these examples are possible. NOTE: Rate structures often include a service charge (base rate) and a volume based charge. Service charges may cover fixed costs (capital improvements) and the volume charge is often for operation and maintenance costs. Volume charges usually use units of 1,000 gallons or 100 cubic feet (748 gallons). Increasing Block Rates: Cost per unit increases as water use increases within specified "blocks" or volumes. The increase in cost between each block should be significant enough (25% or more and 50% between the last two steps) to encourage conservation. Example: 0-6,000 gallons = $2.50/1000 gallons. 6,000-12,000 gallons = $3.15/1000 gallons. 12,000-24,000 gallons = $44.00/1000 gallons. Above 24,000 gallons = $6.00/1000 gallons. Seasonal Rates: The rate per unit increases in the summer to encourage the efficient use of water during peak demand periods caused by outdoor water uses. Seasonal rates can take the form of a surcharge added to the normal rate or a separate fee schedule for winter and summer periods. Example: Surcharge method - $1.00/1000 gallons is added on top of the regular fee schedule for all water use between May 1 and October 1. Page I P24 Conservation Rates Page 2 Time of Use Rates: Water rates are higher at times of the day when water use demands are high. This rate requires specialized meters that can monitor water use during specified segments of time, for instance every 15 minutes. Example: Water rates are reduced by $0.75 for customers that agree not to use water for certain purposes or over a set volume of water during certain times of the day or periods of high water demands. Individualized Goal Rate (Water Budget Rate): A rate with tailored allocations developed for each customer. The rates increase as the allocation is used or exceeded by the customer. The allocation is generally based upon winter or January use. Example: A family of four used 6,200 gallons in January. Summer use is higher than January use so a factor is applied to determine a summer allocation (1.5 x 6,200 gallons = 9,300 gallons). 0-6,000 gallons = $2.50/1000 gallons. 6,000-9,300 gallons = $2.75/1000 gallons. 9,300-18,600 gallons = $4.00/1000 gallons. (Allocation is exceeded.) Above 18,600 gallons = $6.00/1000 gallons. Excess Use Rates: Cost per unit increases greatly above an established level in order to trigger a strong price signal that discourages excessive use. This rate is similar to an increasing block rate but with much higher charges for the larger volume blocks. Example: 0-6,000 gallons = $2.50/1000 gallons 6,000-12,000 gallons = $3.15/1000 gallons 12,000-24,000 gallons = $5.00/1000 gallons (Excessive Use Rate) Above 24,000 gallons=$7.50/1000 gallons (Excessive Use Rate) Multiple —Family Dwellings: Total water use in a multiple -family dwelling, which has only one water meter for the entire dwelling, may exceed that of a single-family dwelling. The statute does not require individual water meters for each residential unit within a multiple -family dwelling; however, the required conservation rate at which the multiple -family dwelling's water use is billed must consider the number of residential units within that multiple -family dwelling. Example: A four-plex uses a total of 18,000 gallons per month or approximately 4,500 gallons per residential unit. Water use for each residential unit falls within the first block (0-6,000 gallons) of the above Excess Use Rate example. A rate of $2.50/1000 gallons would apply up to a total use of 24,000 gallons for the multiple -family dwelling. Thereafter, the rate increases according to the rate schedule, always considering each residential unit as an individual user. Non -conservation rate examples: Declining (Decreasing) Block Rates: The cost per unit of water (cubic foot or gallon) decreases as the water use increases beyond the basic block. This rate structure provides no incentive to conserve because the cost of water per unit decreases with increased use. Flat Rates: A set fee allows the use of an indefinite amount of water. This rate structure is used where water is unmetered and provides no incentive to conserve water because cost is unrelated to volume used. Uniform Rates: The cost per unit is the same regardless of the volume used. This rate structure is considered conservation neutral. Service Charge (Base Rate) that includes a Minimum Water Volume: The inclusion of a minimum volume of water in the service charge (base rate) discourages conservation especially if the minimum volume exceeds average customer usage. Conservation Rates 10-13-08.pdf P5 CRYSTAL CITY COUNCIL WORK SESSION WORKING AGENDA Thursday, February 11, 2010 7:00 p.m. Conference Room A 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 - G% p.m. on Thursday, February 11, 2010 in Conference Room A located at 4141 Douglas Drive, Crystal, Minnesota. I, Attendance Council members Staff Grimes ' i Iorris F J. Moore _-2Hansen /Selton ti� Peters ZAnderson _, Z Sutter v! ,Bowman 1� Therres Hoffmann � Z L. Moore F IYrr IL Agenda The purpose of the work session is to discuss the following agenda items: 1. *Update on 2010 Community Development Block Grant (CDBG) allocation 2. 2009 year end status 3. Amendment to the Finance Department's 2010 Budget 4_ tong range planning for major capital funds. a. Fire equipment replacement fLind (FE F) b. Street maintenance fund c. Street reconstruction fund d. County Road 81/Capital levy e. Major building replacement fund 5. Long range planning for future operating budgets 6. Water conservation rates Ill, Adjournment The Work Session adjourned at p.m, *Documentation will be handed out at the work session on Thursday night. G1Cily C1erk\C0undRVV0rk sessions\wsagenda2.11.10.doC P1 Memorandum rCF[Ys7'.V -r_ `i i DATE: February 3, 2010 Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: 2009 Year End Status Preliminary year end data: It is still early in the process of closing out accounts for year end. Some adjustments need to be made on the revenue side and many invoices are still coming in for expenditures. There could easily be another $100,000 of invoices that will come in. The attached spreadsheet shows the General Fund as it currently stands. It appears that there will be a substantial surplus for the year. Part of this stems from the budget reduction made early in 2009 in anticipation of LGA unallotment from the State. When the unallotment was formally announced, it was $112,653 less than we had cut from the budget. Another factor is Administrative Fines. These show revenue of $112,103 compared to a budget of $36,000. However, about $105,000 of these are in accounts receivable at year end. Most of these will need to be certified as special assessments and will be collected in 2011 at the earliest. So fines first recorded as revenue may be turned into cash two years later. Other variances in General Fund revenues tend to cancel each other out. General Fund expenditures are well under the budget. This is the number that will shrink as invoices come in, but it will still be substantial. Property Taxes and Local Government Aid: Property tax levies certified by the City to the County are adjusted before being spread to properties as taxes payable. One of the adjustments is for market value homestead credit. This deducted $467,928 from the levy and was paid by the state directly to the city. That reduced the 2009 levy from $7,916,764 to $7,448,836. P2 Only $7,330,070 of the 2009 levy was collected in 2009. This is normal. Offsetting the 2009 shortfall is that $163,983 of taxes and penalties were collected on taxes due in 2008 and earlier. This is shown in the table below. 2009 Original Budget Property Taxes $7,916,764 Delinquent Taxes and Penalty 5,000 Market Value Homestead Credit 0 Local Government Aid 1,898_,952 Total $9,820,716 2009 Amended 2009 Estimated Budget Year End $7,448,836 $7,330,070 5,000 163,983 467,928 469,532 1,454,269 _1.,566,922 $9,376,033 $9,530,507 Adequate (general Fund Balance Formula: The City of Crystal has a policy for maintaining the proper level of the fund balance in the General Fund. Calculation of the formula with an estimated 12/31/09 fund balance is attached. The formula showed a shortfall as of 12/31/08. Amounts designated for specific purposes also need to be updated. Calculation of the formula will swing back to the positive as of 12/31/09 with the projected operating surplus for the year 2009. This will allow the City Council the option of transferring some of the surplus. Such a transfer would be most appropriate if made to a capital fund. Budget Amendments: Currently, two General Fund departments have exceeded their 2009 budgets. A couple more could be added as the final 2009 invoices are recorded. A resolution will be needed to adjust the 2009 budget for these overages. One project in the PIR Fund needs to be carried forward to 2010. It is for tables at the Community Center for $3,000 that were ordered in September but still not received. Problems at the vendor caused the delay, The Police Equipment Revolving Fund was awarded a JAG grant of $57,329 last summer. At the time we thought that all the equipment could be purchased and the grant received in 2009. However little, if any, of the equipment was purchased in 2009. So most of the grant will need to be carried forward to 2010. I anticipate that resolutions to accomplish budget adjustments can be brought to the City Council at the March 2, 2010 meeting. f' 3 CITY OF CRYSTAL 2009 General Fund Budget Results 2009 2009 2009 Variance 2010 Original Amended Estimated Amended/ Adopted DESCRIPTION Budget Budget Year r_End Year End_ Budge, REVENUES Property Taxes 7,916,764 7,448,836 7,300,070 -148,766 8,330,937 Delinquent Tax & Penalty 5,000 5,000 163,983 158,983 6,000 Special Assess. 37,070 37,070 43,937 6,867 58,000 Licenses 118,130 118,130 125,377 7,247 119,300 Permits 245,700 245,700 267,779 22,079 280,400 Inspections 150,000 157,000 212,930 55,930 213,000 State Market Value Hmstd Credit 467,928 469,532 1,604 State LGA 1,898,952 1,454,269 1,566,922 112,653 1,455,376 State Other 284,344 284,344 273,251 -11,093 295,844 Gen Govt Charges 67,320 77,320 100,346 23,026 88,126 Recreation Charges 201,263 201,263 178,461 -22,802 199,580 Comm. Ctr. Charges 90,900 90,900 94,634 3,734 91,700 Pool Charges 202,660 202,660 166,304 -36,356 192,500 Public Safety Charges 84,550 84,550 51,514 -33,036 74,400 Fines & Forfiets 173,300 173,300 258,540 85,240 249,000 Administrative Fines 36,000 36,000 112,103 76,103 54,000 Investments 218,000 218,000 129,692 -88,308 129,000 Miscellaneous 56,400 56,400 51,573 -4,827 57,989 Inter -fund Services 311,582 311,582 311,582 Q 306,753 TOTAL REVENUES 12,097,935 11,670,252 11,878,530 208,278 12,201,905 EXPENDITURES Mayor & Council 167,326 165,466 131,304 -34,162 169,358 Administration 883,809 851,949 839,040 -12,909 876,433 Human Resources 70,973 70,723 68,910 -1,813 63,828 Assessing 190,502 190,502 183,804 -6,698 193,045 Legal 157,000 157,000 186,332 29,332 157,000 Elections 5,788 5,788 3,541 -2,247 43,189 Finance 461,253 460,593 452,32-1 -8,272 476,700 Police 4,203,564 4,182,330 3,985,611 -196,719 4,284,971 Fire 1,101,420 1,101,420 1,046,551 -54,869 1,037,572 Planning 199,033 195,768 186,680 -9,088 198,665 Building Inspection 213,307 221,967 216,384 -5,583 221,633 Housing Inspection 166,655 166,555 167,437 882 169,161 Environmental Health 49,926 49,926 29,915 -20,011 36,708 Engineering 309,947 308,257 299,838 -8,419 297,903 Street Maintenance 828,348 820,948 796,078 -24,870 823,696 Park Maintenance 656,349 648,409 648,156 -253 669,161 Forestry 162,368 162,668 140,495 -22,173 192,104 City Buildings 200,736 194,592 183,961 -10,631 197,338 Recreation 613,628 613,388 581,689 -31,699 618,825 Community Center 335,841 331,541 325,384 -6,157 340,742 Waterslide / Pool 269,623 269,923 218,597 -51,326 257,823 Operating Transfers 850,539 500,539 500,539 0 876,050 TOTAL EXPENDITURES 12,097,935 11,670,252 11,192,567 -477,685 12,201,905 G;\Charlie\Budget\Long Range Financial Plan\Gen Fund 2009 YE.As 2/3/2010 10:07 AM 114 City of Crystal Adequate General Fund Balance Formula Object 0100.3615 Preliminary as of Decemer 31, 2009 Unreserved fund balance as of: Less amounts designated for specific purposes: Designated for compensated absences Designated for unrealized gains / (losses) Working capital: Next year's General Fund budget (6/12 of next year's General Fund budget designated for working capital) General Fund Balance required by policy Fund Balance in excess (short) of formula requirements Amount available for transferring in current year Transfers in current year Uncommitted amount available in current year 12/31 /2008 Fund Balance/ 2009 Budget 12/31 /2009 Fund Balance/ 2010 Budget $6,713,244 $7,300,000 778,774 50,598 12,097,935 778,774 50,598 12,201,905 6,048,968 6,100, 953 $6,878,340 $6,930,325 (165,096) 369,675 (82,548) 184,838 (89,130) - ($171,678) $184,838 G;\Charlie\Prn ies\Gen Fund Reserves\Fund Balance reserve policy.xis Prelim 2009 2/2J2010 4:55 PM L cr —� 11 Memorandum rsxn� -k_ __j l-C DATE: February 5, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director j SUBJECT: Amendment to Finance Department 2010 Budget Staff Allocations: The Finance Department currently includes four full-time and two part-time employees. One of the department's functions is utility billing and a substantial amount of time is devoted to it. The staff cost for utility billing is charged to the utility funds by two different methods. Payroll costs for one full-time employee who works primarily on utility billing are charged directly into the utility funds. All other Finance Department employees spend smaller amounts of time in support of utility billing. Employees of the Administration Department and the Engineering Department also have employees who spend smaller amounts of time in support of utility operations. The General Fund is reimbursed for the staff costs by means of an administrative service charge that shows up as an expense for Interfund Services Used in the utility funds and as revenue for Interfund Services Provided in the General Fund. Proposed Change: The amount of time devoted to utility billing is higher than it was in the past and that appears to be a permanent change. I believe this can be more accurately reflected in the budget if we take one of the part-time positions and charge the employee costs directly into the utility funds in addition to the one full-time employee who is already charged to the utility funds. The administrative service charge paid by the utility funds to the General Fund can be reduced by the same dollar amount as the employee costs that are shifted to the utility funds. That way, the bottom line costs for all funds is the same. '6 We discussed this change on a staff level when preparing the 2010 budget. I was reluctant to go ahead with it because it would have made it appear that the Finance Department was cutting its budget when we really were not. By amending the 2010 budget now, the change will be in place when we start the 2011 budget process. Finance Department budgets for 2010 and 2011 will be comparable. City Council Approval: If this change is acceptable to the City Council, I will bring a resolution to a future City Council meeting to amend the 2010 budget. The change will shift about $40,000 of employee cost from the Finance Department to the utility funds and reduce the administrative service charge by the same amount. PI Memorandum QTY'o� L;I[YSrA.I .— C. .� DATE: February 3, 2010 Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Fire Equipment Replacement Fund Fire Equipment Replacement Fund (FERF): The City of Crystal set up a Fire Equipment Replacement Fund in 2007 to begin accumulating cash so that purchases of major pieces of fire equipment by the West Metro Fire & Rescue District could be made without having to issue debt. Preliminary results are that the FERF has $872,808 in it as of December 31, 2009. Fire Engines: The City Council has committed to supporting in a plan to purchase four fire engines in 2011 at a cost of up to $2,500,000. Based on the current percentage split between Crystal and New Hope, Crystal's share of the cost would be $1,282,500. Continuing the current rate of transfers from the General Fund will result in the FERF having assets of about $1,140,000 by the end of 2011. Some additional resources will be needed to make up the difference. Schedule 1 shows a sale of certificates of indebtedness of $180,000 in 2011. Rescue Trucks: West Metro is also planning to replace two rescue trucks in the year 2015 at a cost of around $1,200,000. Based on the current percentage split between Crystal and New Hope, Crystal's share of the cost would be $616,000. Continuing the current rate of transfers from the General Fund will result in the FERF having assets of about $500,000 by the end of 2015. Some additional resources will be needed to make up the difference. Schedule 1 shows a sale of certificates of indebtedness of $100,000 in 2015. P8 Variables: Several variables exist in the calculation. The most significant one is the estimated cost of the fire equipment. Other variables are Crystal's share of the cost (currently 51.3%) and the assumed rate of return on investments. Additional Transfer from General Fund: Currently, it appears that the General Fund has the capacity to make an additional transfer of about $184,000 at the end of 2009. This is shown on Schedule 2 and eliminates the funding gap in 2011 while reducing the gap in 2015. P9 Capital Outlays Engine 11 Engine 21 Engine 31 Engine 32 Rescue 11 Rescue 21 Total Purchase Cost City of Crystal Share (51.3%) Funding Sources Fire Equipment devolving Fund (Fund 409) Multi -Year Capital Improvement Plan 2010 Adopted Budget Schedule # 1 Adopted 2009 2010 2011 2012 2013 625,000 625,000 625,000 625,0001 2014 2015 600,000 600,000 011 01 2,500,00001 o 1 4 1,200,000 0 a 1,282,500 0 0 0 615,600 Interest Income 19,300 23,566 39,931 1,626 6,016 10,710 15,726 Operating Transfer from General Fund 98,899 101,900 104,957 108.106, 111,349 114,689 118,130 Sale of Certifcates of Indebtedness 180,000 i 120,000 Total Funding Sources 11.8,199 125,466 324,888 109,732 117,365 125,400 253,856 Budgeted Expenditures (Over)/ Under Funding Sources 118,199 125,466 -957,612 109,732 117,365 125,400 -361,744 Year End Fund Balance 872,808 998,274 40,662 150,394 267,759. 393,153 31,415 Assumed Return on Investments 3.0% ,2.7'Yo 4,0 /o 4.0% 4.0% 4.0% 4 0% 213I2010 3:41 PM Mr.harlia\Budoet\2010 Budaet\Capital Improvements\10 Fire �q Rev Fd.xls Capital outlays Engine I Engine 21 Engine 31 Engine 32 Rescue 11 Rescue 21 _ "Total Purchase Cost City of Crystal Share (51.3%) Funding Sources Fire Equipment Revolving Fund (Fund 409) Multi -Year (Capital Improvement Ilan 2010 Adopted Budget with Additional 2009 Transfer Schedule #2 Amended 2009 2010 2011 2012 2013 2014 2015 625,DOOI 625r000 625,000 625,000 600,000 600,000 I 0. 01 2,500,000101 01 1,200,000 0 0 1,282,500l 0 0 615,600 Interest Income 19,300 Operating Transfer from General Fund 98,899 Additional Transfer from General Fund 184,000 Sale of Certifcates of Indebtedness Total Funding Sources 302,199 Budgeted Expenditures (Over)/ ' Under Funding Sources 302,199 Year End Fund Balance 1,056,808 Assumed Return on Investments 3.0% 28,534 47,4901 2,288 101,900 104,9571 108,106 130,434 152,447 130,4341 -1,130,053 1,187,242 57,188 2.7°l0 4.0% 110,393f 110,393 167,582 4.0% 6,703 11,425 16,470 111,349 114,689 118,130 118,052 126,1151 100,000 234,600 118,052 285,634 4.0% 126,115 411,749 4.0% -3-3 81,000 0,749 4.1}°r u G:\Chars, .gaL\2010 Budget\Capital Improvements\10 Fire Eq Rev Fd.xls .21 3:41 PM JMemorandum �.[7Tf:of DATE: February 3, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Street Maintenance Fund Street Maintenance Fund: A commitment was made to the citizens at the start of the street reconstruction program that they wouldn't be assessed for maintenance of the streets once the streets had been reconstructed. The goal was to ensure that residents wouldn't be faced with a new assessment while they were still paying the assessment for street reconstruction. The Street Maintenance Fund was set to pay for the first two seal coat projects after streets have been reconstructed. The fund received an annual transfer from the General Fund and interest earnings on its invested cash. It was projected that these financial resources were sufficient to meet the obligations of the fund. New Projects: Two new projects were added to the fund in the 2010 budget. First is a mill and overlay project on 36th Avenue. This project's cost will eventually be recovered from Municipal State Aid for Streets and special assessments. The Street Maintenance Fund is needed to cash flow the project until these revenues come in The second project is intensified maintenance on the pavement in reconstruction phases 1 through 3. This pavement is deteriorating faster than expected. Extra seal coating and pothole patching is needed to maintain the pavement until it can receive a mill and overlay. There is no new revenue source to cover this cost. New Financing: The fund goes into a deficit balance in the year 2024 as a result of the new projects. One possible solution would be to increase the transfer from the General Fund beginning with the 2011 budget. The transfers are currently projected to increase at the rate of 3% per year and will be $67,259 for 2011. It would be necessary to increase the 2011 transfer to $100,000 and then add 3% per year to make the fund financially solvent through 2033 when the last street phase receives its second seal coat. p 'l 2 CITY OF CRYSTAL STREET MAINTENANCE FUND ANALYSIS Analysis including Municipal State Aid for 36th Avenue This analysis assumes that streets will be sealcoated 8 years and 15 years after the wearcourse is put down. This fund will pay for these sealcoatings so that the property owners will not see a special assessment for this work while they are still paying the special assessment on the reconstruction. This analysis assumes that streets will receive an overlay at 21 years after the wearcourse is put down. That work will be paid for by a new special assessment since the reconstruction special assessment will be done by then. New activities are proposed to be added to the Street Maintenance Fund to provide for intensified maintenance of the asphalt in Phases 1 through 3 until they can be overlaid and for a mill & overlay of 36th Avenue. Ending Gen FD Sp. Ass. Invest Invest First Sealcoat Second Sealcoat Phase 1-3 Fund Year Contrib. & M.S.A. Earnings Rate Phase Costs Phase Costs & 36 Ave Balance 2000 670,351 41,242 6,023 705,570 2001 170,000 60,444 936,014 2002 179,350 77,083 1 3,100 1,189,347 2003 184,7311 38,784 1,412,862 2004 190,272 49,820 2&� 133,610 1,519,344 2005 195,981 46,337 1,761,662 2006 140,000 79,742 4.25% 1,981,404 2007 144,200 132,989 6.68% 4 80,125 2,178,468 2008 61,573 97,518 4.45% 2,337,559 2009 63,420 70,127 3.00% 5 81,662 2,389,444 2010 65,300 30,OOD 64,515 2.70% 1 134,798 648,500 1,765,961 2011 67,259 27,900 70,638 4.00% 2&3 341,179 56,135 1,534,444 2012 69,2-77 24,300 61,378 4.00% 6 171,493 57,819 1,460,087 2013 71,355 20,948 58,403 4.00% 7 105,084 59,554 1,446,156 2014 73,496 17,774 57,846 4.00% 8 168,985 1&4 271,619 61,340 1,093,327 2015 75,701 14,554 43,733 4.00% 2&3 328,498 63,180 835,636 2016 77,972 33,425 4.00% 9 125,624 5 100,434 65,076 655,899 2017 80,311 26,236 4.00% 10 206,557 67,028 488,861 2-018 82,720 594,000' 19,554 4.00% 46,028 1,139,107 2019 85,202 45,564 4.009% 11 168,016 5 210,914 23,705 $67,238 2020 87,758 34,600 4.00% V 22.0,924 7 129,240 0 639,521 2021 90,390 25,581 4.00% 8 207,830 547,662 2022 93,102 21,906 4.00% 13 210,940 451,731 2023 95,895 18,069 4.00% 14 288,082 154,502 123,111 202-4 98,772 4,92-4 4.00% 10 254,039 -27,231 2025 101,735 -1,089 4.00% 15 302,211 -228,796� 2026 104,787 -9,152 4.00% 16 247,087 11 206,639 -586,887 2027 107,931 -23,475 4.00% 12 271,708 -774,140 2028 111,169 -30,966 4.00% -693,937 2-029 114,504 -27,757 4.00% 13 259,430 -866,620 2030 117,939 -34,665 4.000/a 14 354,304 -1,137,650 2031 121,477 -45,506 4.00% -1,061,679 2032 125,122 -42,467 4.00% 15 371,682 -1,350,706 2033 128,875 -54,028 4.00% 16 303,886 -1,579,746 G:\Charlie\Budgel\2010 Budget\Capital Improvements\Street Maintenance 2010 Analysis 6.xlsAnalysis SA & MSA 2/3/2010 3;36 01 3 CITY OF CRYSTAL STREET MAINTENANCE FUND ANALYSIS Analysis including Increased Transfer from the General Fund This analysis assumes that streets will be sealcoated 8 years and 15 years after the wearcourse is put down. This fund will pay for these sealcoatings so that the property owners will not see a special assessment for this work while they are still paying the special assessment on the reconstruction This analysis assumes that streets will receive an overlay at 21 years after the wearcourse is put down. That work will be paid for by a new special assessment since the reconstruction special assessment will be done by then. New activities are proposed to be added to the Street Maintenance Fund to provide for intensified maintenance of the asphalt in Phases 1 through 3 until they can be overlaid and for a mill & overlay of 36th Avenue. Ending Gen FD Sp. Ass, Invest Investj First Sealcoat ` Second Sealcoat 16Avel se 1-3 Fund Year Contrib. & M.S.A..A. Earnings Rate Phase Costs Phase Costs Balance 2000 670,351 41,242 6,023 705,570 2001 170,000 60,444 936,014 2002 179,350 77,083 1 3,100 1,189, 347 2003 184,731 38,784 1,412,862 2004 190,272 49,820 2&3 133,610 1,519,344 2005 195,981 46,337 1,761,662 2006 140,000 79,742 4.25% 1,981,404 2007 144,200 132,989 6.68% 4 80,125 2,178,468 2008 61,573 97,518 4.45% 2,337,559 2009 63,420 70,127 3.00% 5 81,662 2,389,444 2010 65,300 30,000 64,515 2.70% 1 134,798 648,500 1,765,961 2011 100,000 27,900 70,638 4.00% 2&3 341,179 56,135 1,567,185 2012 103,000 24,300 62,687 4.00% 6 171,493 57,819 1,527,861 2013 106,090 20,948 61,114 4.00% 7 105,084 59,554 1,551,375 2014 109,273 17,774 62,055 4.00% 8 168,985 1&4 271,619 61,340 1,238,533 2015 112,551 14,554 49,541 4.00% 2&3 328,498 63,180 1,023,500 2016 115,927 40,940 4.00% 9 125,624 5 100,434 65,076 889,234 2017 119,405 35,569 4.00% 10 206,557 67,028 770,623 2018 122,987 594,000 30,825 4.00% 46,028 1,472,407 2019 126,677 58,896 4.00% 11 168,016 B 210,914 23,705 1,255,345 2020 130,477 50,214 4.00% 12 220,924 7 129,240 0 1,085,872 2021 134,392 43,435 4.00% 8 207,830 1,055,869 2022 138,423 42,235 4.00% 13 210,940 1,025,587 2023 142,576 41,023 4.00% 14 288,082 9 154,502 766,602 2024 146,853 30,664 4.00% 10 254,039 690,081 2025 151,259 27,603 4.00% 15 302,211 566,732 2026 155,797 22,669 4.00% 16 247,087 11 206,639 291,471 2027 160,471 11,659 4.00% 12 271,708 191,893 2028 165,285 7,676 4.00% 364,853 2029 170,243 14,594 4.00% 13 259,430 290,261 2030 175,351 11,610 4.00% 14 354,304 122,917 2031 180,611 4,917 4,00% 308,445 2032 186,029 12,338 4.00% 15 371,682 135,131 2033 191,610 5,405 4.00% 16 303,886 28,260 G:\Char1ie\Budget\2010 Budget\Capital Improvemenls\Street Maintenance 2010 Analysis 6.xlsAnalysis SA S MSA (2) 2/3/201 0 3:36 W 4 l Memorandum I �c�xrs�ra� r DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: Street Reconstruction Fund H Past Studies: Feasibility studies for the street reconstruction program have always been prepared by the Crystal Engineering Department and Short Elliot Hendrickson. These studies involve many variables and require estimates several years into the future. Over the last two years, I have noticed the cash in the Street Reconstruction Fund unexpectedly dropping. This caused me to review the feasibility studies and I found that a couple of additional factors need to be incorporated in them. The first factor is that the street projects rely on Municipal State Aid for Streets (MSA) from the State of Minnesota for part of their revenues. MSA is considered to be earned at the time that a MSA street is reconstructed. However, the State only allots so much MSA to Crystal each year. If we earn more than the allotment, then the excess becomes a receivable that will be paid in future years. The feasibility study failed to recognize that the receivable isn't cash. As of the end of 2009, the receivable equals approximately $2,400,000. The second factor is the private street and sewer improvements. Homeowners pay the entire cost of these improvements, but they are allowed to have them certified as special assessments. The Street Reconstruction Fund is providing cash flow for the improvements until the special assessments are collected. As of the end of 2009, the special assessments receivable equal approximately $1,100,000. Finance Study: I started my own study last summer to address these factors. It was done entirely on a cash flow basis and included the private street and sewer improvements. The study showed cash in the fund continuing to decline with each additional project. Partially because of this study and partially because of citizen concerns over adopting special assessments during a recession, it was decided not to do a street project in 2010. P .l ! It was decided that Phase 11 could be done in 2011, Phase 12 in 2012, and then pause for a year in 2013. 1 reopened the finance study in order to try to project the timing of projects after the year 2013. In talking to Tom Mathisen, I discovered a couple of problems with the finance study from last summer. First was that I hadn't known about the reimbursements from other cities for their share of the cost of common streets on the borders of the cities. While this adds less than one million dollars spread over the remaining six phases, it does help the cash flow. Second was that my spreadsheets mishandled the cost of storm drainage assets and their reimbursement from the Storm Drainage Fund. Correcting this will significantly improve the cash flow. I am still working on the spreadsheets. It is fair to say that the end result will be much more positive than my study last summer, but not good enough to allow resuming the schedule in the feasibility studies. That was to do projects three years in a row, take off one year, and then do projects three years in a row again Timing of Future Phases: think it is safe to say that Phase 11 can be built in the year 2011 and Phase 12 can be built in the year 2012. 1 would like to finish updating the study before projecting beyond Phase 12. P 'I 6 I C Memorandum DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM: Charles Hansen, Finance Director SUBJECT: County Road 81 / Capital Levy CN Cost Sharing Agreement: The City of Crystal reached agreement with Hennepin County in 2009 on a plan for financing the City's local matching share of the County Highway 81 reconstruction. A major component of the plan was that the County would provide interest free financing for most of the local share by purchasing bonds issued by the City. Other parts of the local share will be paid by the Water and Storm Drainage Funds for related assets, special assessments on properties that receive their street access from streets improved as part of the project, and a small amount of municipal state aid for streets. Total cost of the local share should be less than $4,000,000. Bonds: In the summer of 2009, the City Council approved the issuance of up to $2,600,000 of a type of bond defined in state law as a Street Reconstruction Bond. Bonds will be issued in several different series as right of way and construction costs become known. A series of bonds with a value of $1,204,778 were issued in 2009 to cover right of way costs. A tax levy of $534,565 was levied to be collected in 2010 to make a debt service payment of $509,109 due on December 15, 2010. Another series of bonds will be issued in 2010 to cover construction costs and a third series of bonds will probably be issued in 2012 to cover final costs. Actions in 2010: In addition to the new the new 2010 series of bonds, it will be necessary to refinance the 2009 series of bonds. This is because the resolution issuing the 2009 series incorrectly stated that the bonds included the special assessments. The special assessments were intended to be separate from the bonds and will be held by the P.I.R. Fund until they are collected. f 17 Memorandum CL7 f7 I DATE: February 4, 2010 TO: Mayor and City Council Anne Norris, City Manager FROM- Charles Hansen, Finance Director SUBJECT: Major Building Replacement Fund History: The Major Building Replacement Fund was created in 2007 with a transfer of $8,000,000 from the P.I.R. Fund. Since then it has earned interest income and received one other small transfer in 2008. Its fund balance at the end of 2009 is $9,181,000. The purpose of the fund is to accumulate a replacement reserve for the eventual building replacements and major remodeling of the City Hall/Police Station, Fire Stations 1 & 2, Streets/Parks Garage and the Community Center. Projects may be paid for with a combination of a draw from the Major Building Replacement Fund and a bond sale. Streets/Parks Garage: The first project undertaken by the Major Building Replacement Fund is likely to be the replacement of the Streets/Parks Garage. It could easily cost something in the neighborhood of $8,000,000. If the half draw/half bond sale model is followed, that wil' be about $4,000,000 each. The property tax levy needed to pay debt service on a $4,000,000 bond is something that Crystal probably can't afford until the County Highway 81 bonds are paid off. The final tax levy on the County Highway 81 bonds will be collected in 2014. That means that any bonds for the Streets/Parks Garage should be sold in 2014 so that the first tax levy for debt service can be collected in 2015. This avoids situations where either the tax levies double up in one year or there is a gap with no debt service tax levy. You don't want the tax levy to drop one year and then jump back up the next. P 1 1; The bonds should be of a fairly short maturity so that the debt service tax levy stays at about the same amount as the $534,565 levy for the County Highway 81 bonds. This would result in the bonds for the Streets/Parks Garage maturing in about nine years. Later Projects: The City Hall/Police Station was built in about 1963 and underwent a major remodeling in 1993. The Community Center was built in about 1990. Both buildings should undergo major remodeling in the 2020 to 2025 time frame. Major remodeling may be almost as expensive as new construction and so another bond issue will be required to finance the work This is why it will be important to pay off the Streets/Parks Garage bonds rapidly so that the city will have the taxing capacity to handle debt service on a new series of bonds. The South Fire Station was built in 1975 and the North Fire Station was built in 1985. They will also need attention at some point. P19 Memorandum C.� Al DATE: February 4, 2010 'FQ Mayor and City Council Anne Norris, City Manager FROM- Charles Hansen, Finance Director SUBJECT: Long Range Planning for Future Operating Budgets 2010 Budget: The City Council and staff prepared the 2010 General Fund budget with a goal of keeping the increase in the budget as close to zero as possible. To accomplish this, no across the board cost of living increase was provided for the employees, some minor service cut backs were made, and costs were reduced where ever we could. Despite this, the overall budget increased by 0.86%. The City buys products and services from outside vendors. Prices for these products and services may increase. Sometimes we can cut back on usage or switch vendors, sometimes we can't. The situations where we can't cut back on usage or switch vendors drove the increase in the 2010 budget. Local Government Aid (LGA): The 2010 budget was prepared with a projection from the State of Minnesota that it will provide $1,455,376 of LGA to Crystal in 2010. State budget problems in the current biennium may cause a further unallotment of the 2010 LGA. Projections show greater deficits in the state budget in the next biennium. This could result in further reductions in LGA in 2011 and 2012. Such reductions could force the city to make reductions in service levels. Service Levels: The City Council has mentioned reviewing options for the 2011 budget of a 0% increase, a 5% reduction, and a 10% reduction. It must be kept in mind that even the 0% increase will result in a service reduction because of cost increases that are beyond our control. Employee furloughs have been mentioned as one part of a solution to reducing the budget. Furloughs are a difficult solution as they are hard to apply to some employees, P20 such as police. This places the burden on some employees but not others. Furloughs work best as a short term fix. They truly are a service reduction because they result in fewer employee hours available to do the jobs. Extending furloughs over long periods creates uncertainty for employees that will make Crystal a less desirable place to work. Franchise Fees: The always unpopular idea of franchise fees are something we may have to consider again. If the state makes major cuts in LGA and the service cuts needed to balance the budget are unacceptable to the City Council, then you may have revisit this topic. City Council Guidance: The City Council should discuss service levels in all departments and give the staff guidance on where we should look for reductions. P 21 Memorandum V.SrAl -k_ DATE: February 5; 2010 TO: Mayor and City Council Anne Norris, City Manager FROM_ Charles Hansen, Finance Director C )-,� SUBJECT: Water Conservation Rates Legal Requirement: Minnesota Statutes, Section 103G.291 requires that public water suppliers in the metropolitan area use a conservation rate structure by January 1, 2010. Due to the additional work load of the mass water meter change program, we have not been able to implement the water conservation rate structure on time. It appears that the only penalty for this delay is that the City can't apply for a permit to construct a water supply well or increase its authorized volume of water until the conservation rate structure is adopted. Characteristics of Water Conservation Rates: Rate structures may include a service charge (base rate) and a volume based charge. Service charges may cover fixed costs (capital improvements) and the volume charge is for operation and maintenance costs. The rate structure may not include a minimum volume of water in the service charge. A publication from the Department of Natural Resources is attached. It gives examples of conservation rates as follows: increasing block rates, seasonal rates, time of use rates, individual goal rates, and excess use rates. It appears that the increasing block rates are the most feasible and are the ones that most surrounding cities are using. Rates of Surrounding Cities: A couple of examples of rates adopted by other cities are shown below. P2 New Hope — monthly billing _ Base fee 1,000 to 10,000 gallons 10,001 to 20,000 gallons Over 20,000 gallons Commercial rate _ Separate metered lawn irrigation rate Robbinsdale — 2 month billing Base fee 1,000 to 20,000 gallons 20,001 to 35,000 gallons 35,001 to 50,000 gallons Over 50,001 gallons Water Capital surcharge 2010 Water Rates $6.03 I $4.05 per 1,000 gallons _ $4.40 per 1,000 gallons _ $4.95 per 1,000 gallons $4.15 per 1,000 gallons $4.95 per 1,000 gallons 2010 Water Rates $7.24 $2.20 per 1,000 gallons $2.75 per 1,000 gallons $3.44 per 1,000 gallons $5.16 per 1,000 gallons $0.38 per 1,000 allons Implementation Plan: The mass water meter change program is nearly complete. The next step will be for the utility billing system to be converted from billing in the old 100 cubic foot units to the new 1,000 gallon units. This change is far more complex than it would appear and will take at least three months to convert and then test all three billing cycles. Implementation of water conservation rates can be the next project after conversion to 1,000 gallon units. City Council Guidance: A great deal of detail work will go into developing the new water conservation rates. The examples shown above do not begin to reveal the complexity and large number of variations in customers that we will have to work with. We will come back to the City Council at a future work session with more detail on proposed conservation rates, but the City Council should consider if there is any guidance you want to give us regarding conservation rates. P22 Conservation Rates Minnesota Statutes, section 103G.291, was amended in 2008 to include a requirement for public water suppliers serving more than 1,000 people to adopt a water rate structure that encourages conservation: Minnesota Statutes, section 103G.291, subd. 4. Conservation rate structure required. (a) For the purposes of this section, "conservation rate structure" means a rate structure that encourages conservation and may include increasing block rates, seasonal rates, time of use rates, individualized goal rates, or excess use rates. The rate structure must consider each residential unit as an individual user in multiple -family dwellings. (b) To encourage conservation, a public water supplier serving more than 1,000 people in the metropolitan area, as defined in section 473.121, subdivision 2, shall use a conservation rate structure by January 1, 2010. All remaining public water suppliers serving more than 1,000 people shall use a conservation rate structure by January I, 2013. (c) A public water supplier without the proper measuring equipment to track the amount of water used by its users, as of the effective date of this act, is exempt from this subdivision and the conservation rate structure requirement under subdivision 3, paragraph (c)_ In addition, Allinnesota Statues, section 103G.291, was further amended to read: Subd. 3. Water supply plans; demand reduction. (c) Public water suppliers serving more than 1,000 people must employ water use demand reduction measures, includine a conservation rate structure, as defined in subdivision 4 paragraph (a) unless exempted under subdivision 4 paragraph (c) before requesting approval from the commissioner of health under section 144.383, paragraph (a), to construct a public water supply well or requesting an increase in the authorized volume of appropriation. Demand reduction measures must include evaluation of conservation rate structures and a public education program that may include a toilet and showerhead retrofit program. Public water suppliers serving more than 1,000 residents will need to adopt a conservation rate structure before requesting well construction approval for a public water supply well or before requesting an increase in permitted volume for their water appropriation permit. Examples of Conservation hates: Below are examples of rate structures that encourage conservation. Many variations and combinations of these examples are possible. NOTE: Rate structures often include a service charge (base rate) and a volume based charge. Service charges may cover fixed costs (capital improvements) and the volume charge is often for operation and maintenance costs. Volume charges usually use units of 1,000 gallons or 100 cubic feet (748 gallons), Increasing Block Rates: Cost per unit increases as water use increases within specified "blocks" or volumes. The increase in cost between each block should be significant enough (25% or more and 50% between the last two steps) to encourage conservation. Example: 0-6,000 gallons = $2.50/1000 gallons. 6,000-12,000 gallons � $3.15/1000 gallons. 12,000-24,000 gallons = $4.00/1000 gallons. Above 24,000 gallons = $6.00/1000 gallons. Seasonal Rates: The rate per unit increases in the summer to encourage the efficient use of water during peak demand periods caused by outdoor water uses. Seasonal rates can take the form of a surcharge added to the normal rate or a separate fee schedule for winter and summer periods. Example: Surcharge method - $1,00/1000 gallons is added on top of the regular fee schedule for all water use between May 1 and October 1. Page u P4 Conservation Rates Page 2 Time of Use Rates: Water rates are higher at times of the day when water use demands are high. This rate requires specialized meters that can monitor water use during specified segments of time, for instance, every 15 minutes. Example: Water rates are reduced by $0.75 for customers that agree not to use water for certain purposes or over a set volume of water during certain times of the day or periods of high water demands. Individualized Goal Rate (Water Budget Rate): A rate with tailored allocations developed for each customer. The rates increase as the allocation is used or exceeded by the customer. The allocation is generally based upon winter or January use. Example: A family of four used 6,200 gallons in January. Summer use is higher than January use so a factor is applied to determine a summer allocation (1.5 x 6,200 gallons = 9,300 gallons)_ 0-6,000 gallons = $2.50/1000 gallons. 6,000-9,300 gallons = $2.75/1000 gallons. 9,300-18,600 gallons = $4.00/1000 gallons. (Allocation is exceeded.) Above 18,600 gallons = $6.00/1000 gallons. Excess Use Rates: Cost per unit increases greatly above an established level in order to trigger a strong price signal that discourages excessive use. This rate is similar to an increasing block rate but with much higher charges for the larger volume blocks. Example: 0-6,000 gallons — $2.50/1000 gallons 6,000-12,000 gallons ;-- $3.15/1000 gallons 12,000-24,000 gallons = $5.00/1000 gallons (Excessive Use Rate) Above 24,000 gallons=$7.50/1000 gallons (Excessive Use Rate) Multiple —Family Dwellings: Total water use in a multiple -family dwelling, which has only one water meter for the entire dwelling, may exceed that of a single-family dwelling. The statute does not require individual water meters for each residential unit within a multiple -family dwelling; however, the required conservation rate at which the multiple -family dwelling's water use is billed must consider the number of residential units within that multiple -family dwelling. Example: A four-plex uses a total of 18,000 gallons per month or approximately 4,500 gallons per residential unit. Water use for each residential unit falls within the first block (0-6,000 gallons) of the above Excess Use Rate example. A rate of $2.50/1000 gallons would apply up to a total use of 24,000 gallons for the multiple -family dwelling. Thereafter, the rate increases according to the rate schedule, always considering each residential unit as an individual user. Mon -conservation rate examples: Declining (Decreasing) Block Rates: The cost per unit of water (cubic foot or gallon) decreases as the water use increases beyond the basic block. This rate structure provides no incentive to conserve because the cost of water per unit decreases with increased use. Flat Rates: A set fee allows the use of an indefinite amount of water. This rate structure is used where water is unmetered and provides no incentive to conserve water because cost is unrelated to volume used. Uniform Rates: The cost per unit is the same regardless of the volume used. This rate structure is considered conservation neutral. Service Charge (Base Rate) that includes a Minimum Water Volume: The inclusion of a minimum volume of water in the service charge (base rate) discourages conservation especially if the minimum volume exceeds average customer usage. Conservation Rates 10-13-0$.pdf PL6