HomeMy WebLinkAboutCity Council Minutes 06-20-1994 SpecialMINUTES
COUNCIL STUDY SESSION
JUNE 209 1994
A special meeting study session of the Plymouth City Council was called to order by
Mayor Tierney at 5:33 p.m. in the Council Conference Room of the City Center, 3400
Plymouth Blvd., on June 20, 1994.
PRESENT: Mayor Tierney, Councihnembers Anderson, Edson, Granath, Lymangood,
Councihnember Helliwell arrived at 5:40 p.m.
ABSENT: Councilmember Morrison
STAFF PRESENT: City Manager Johnson, Assistant Manager Lueckert, Finance
Director Hahn, Assistant Finance Director Jacobson, Public Safety Director Gerdes, Park
Director Blank, and City Clerk Ahrens.
ALSO PRESENT: Kelly Boris, KPMG Peat Marwick; Bo Bock, Chairperson of the
Financial Advisory Committee
REVIEW OF ANNUAL COMPREHENSIVE FINANCIAL REPORT
Finance Director Hahn explained that the difference between cash balances and
fund balances relates to whether there are receivables or payables. As an example,
he cited the Minnesota State Aid Fund which has a cash balance of $336,000, but a
fund balance of $3.3 million because there is a receivable of almost $3 million.
Councilmember Anderson asked if this is considered a contingency asset or a
planned asset where state funds are already committed to Plymouth.
Director Hahn stated this money is committed to Plymouth, but the City must
submit an eligible project in order to receive it.
Finance Director Hahn reviewed the General Fund balances and reserves. He
explained that the General Fund covers most of the City's normal operations.
There is currently a fund balance of $5,630,000, which is about 43 percent of the
1994 budget. In the past, the Council has tried to maintain a fund balance reserve
amount of approximately 40 percent of the annual budget. He explained that the
reserve is needed to fund operations until mid -year when the City starts receiving
funds from tax collections.
Councilmember Helliwell arrived at 5:40 p.m.
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June 20, 1994
Page 2
Finance Director Hahn stated the Special Revenue Funds are designed for specific
purposes. The Recreation Fund has a fund balance of $29,000, which is the
minimum that this fund should have so it does not have to borrow during the year.
He stated that last year $2 million was transferred into the Park Replacement Fund
to help fund repairs and replacements for park buildings and trails. Director Hahn
stated he is planning to liquidate the Police State Aid Fund because a separate fund
is no longer needed. The fund receives $220,000 per year for police retirement
and training purposes. He explained that the Building Equipment Revolving Fund
is used to accumulate funds over a period of time to purchase equipment. The
largest portion of this fund is a video equipment reserve of about $500,000. A
part of that would be used to fund the Council Chambers audio/visual
improvements.
Councilmember Lymangood asked what other projects are funded through the
reserve funds.
Director Hahn stated money from drug arrests is held in reserve and then
transferred for use in crime prevention as required by law. Other reserve funds
examples are comparable worth adjustments and Eurasian milfoil eradication.
He stated that the Parkers Lake Cemetery Fund contains money for ongoing
maintenance and other minor items. The last lot was sold several years ago. There
is also a Cemetery Trust Fund which pays for major improvements.
Director Hahn described the Transit Fund and stated that about nine years ago
Plymouth opted out of the metro area transportation program. At that time,
Plymouth residents were being taxed for the transportation system, but received no
bus service. The City now receives about $1 million to fund the Metrolink and
Dial -a -Ride transit programs in Plymouth.
He stated the Community Development reserve funds are used for maps and the
comprehensive plan. The majority of money in the Project Administration Fund,
nearly $3 million, came from administrative fees from tax increment districts.
Some of that is proposed to be used for the City Center expansion project. The
fund also holds contingency money for previous City projects. In addition, the
City pays fees from this fund to Hennepin County for administering the City's
special assessment and tax increment collections.
Director Hahn briefly reviewed the funds established for Community and
Neighborhood Parks, Public Facilities, and HRA Programs, including CDBG,
Section 8, and the Senior Citizen Housing project.
Councilmember Helliwell asked about the funds for the senior citizen housing
project.
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June 20, 1994
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Director Hahn responded that this fund became depleted when the City agreed to
donate $1 million toward that project. There is an ongoing annual levy going into
this fund of over $300,000.
Councilmember Anderson asked why there are so many different funds and why,
for example, the Parkers Lake Cemetery maintenance could not be part of the
City's normal operating budget.
Finance Director Hahn said that now all lots are sold, it could become part of the
operating budget. He stated that staff is working to decrease the government
administration through consolidation of funds.
Councihnembers indicated that they want to consolidate funds wherever possible.
Finance Director Hahn stated the capital funds are divided into General Capital
Projects, Permanent Improvement Revolving, Community Improvement, Storm
Sewer District, Minnesota State Aid, Tax Increment, and Special Assessment
Funds. The Community Improvement Fund was established by City Charter, and
Permanent Improvement Revolving Fund will eventually be eliminated.
Councilmember Anderson asked whether the balance of the Permanent
Improvement Revolving Fund could be used to fund the City Center expansion
project.
Director Hahn stated that a portion is proposed for the City Center and the balance
could also be used to pay some of the unfunded library site costs.
Councilmember Edson explained that the land on Highway 55 for the former
library site was purchased from this fund.
The Council indicated that they would like to eliminate the Permanent
Improvement Revolving Fund when possible.
Finance Director Hahn stated that $2 million was recently transferred into the
Infrastructure Replacement Fund. Staff is doing an analysis to determine if that is
sufficient, along with the annual tax levy.
Councilmember Anderson asked why money is transferred from this fund to a
construction fund, and why money is not directly accumulated in the construction
fund.
Director Hahn explained that the City usually starts with an "unfinanced" project
so the project is started in the General Capital Project Fund. As a more firm
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June 20, 1994
Page 4
project cost estimate is determined, funds are transferred to the specific project
fund.
He stated the Storm Sewer District Funds contain the original funds from the
special levies collected in the early 1980's. This would be the fund to collect any
further money for storm sewer improvements. He reviewed the Minnesota State
Aid Fund and Tax Increment Fund. He stated that the 20 tax increment funds that
were originally created have been rolled into one Development District No. 7 to
give the City flexibility to spend the funds. The Special Assessment Projects Fund
is to fund construction of projects that will be paid largely from special
assessments against the benefiting properties.
Councilmember Edson noted that the City is collecting special assessment funds
from developers in advance since there appears to be $18 million reserved for
construction before the projects are assessed against benefited properties. He also
asked if any of these funds would be used for construction of the new water tower.
Director Hahn stated that these funds are not projected to be used for the new
water tower. He also said that the Utility Trunk Fund is under analysis to
determine whether the balance is adequate for future projects. About 80 to 90
percent of the Utility Trunk Fund is reserved for future replacement and
construction. He briefly discussed the Enterprise Funds - Water, Sewer, and Solid
Waste, and noted concerns with the adequacy of the Sewer Fund. The Sewer
Fund had a $589,000 operating loss in 1993.
Discussion was held on the costly problem of sump pumps being incorrectly
connected to the sanitary sewer system. Director Hahn stated staff is considering
hiring temporary help to inspect residences to determine if the sump pumps are
correctly hooked up, as well as to compare the inside and outside water meter
readings. He stated that an old study of the Amber Woods area indicated that
sump pumps incorrectly connected to the sanitary sewer cost the City $800 to
900 per house per year. Only about 75 percent of the Metropolitan Waste
Control bill to the City for treatment is billed to property owners. He has also
investigated whether there are any grant funds available for inspection of homes
and correctly hooking up sump pumps.
Councilmember Edson stated that perhaps the City's appraisers could become
involved since they have easy access to properties for valuation purposes. He also
said it should be a priority to compare the inside and outside readings on water
meters or change to more reliable meters. He stated the City of Apple Valley has
the same water meters as Plymouth and has found that 20 percent of the meters
were substantially inaccurate.
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June 20, 1994
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Finance Director Hahn stated the Internal Service Funds are used to accumulate
revenues from other funds and pay expenses. He cited as examples the cost of
data processing and photocopy machines. The Central Equipment Fund internally
charges department funds for the cost of equipment, and accumulates funds for
their replacement. He stated the Risk Management Fund has reached $6 million
and is self-funded. He said the ICMA and AETNA Trust and Agency Funds are
required under Internal Revenue Law to be shown as City funds. In the event the
City has financial problems, it technically could use these even though all funds
came from the employees. He described the General Fixed Assets as being assets
that are not related to water, sewer, central equipment, or computers. This would
include City buildings and land, and they are not depreciated like those in
enterprise or internal service funds.
Councilmember Anderson asked why land would not be appreciated.
Director Hahn responded that there is no appreciation shown in governmental
accounting.
He stated that one of the major projects of the Financial Analyst is to determine
the adequacy of various fund balances.
Director Hahn briefly discussed the "Pay As You Go" philosophy verses "Reserve
Funding". He believes that the City has an obligation to set funds aside today so
future residents have sufficient money for park facilities replacement. He stated
this is a philosophical question and cited as an example the City Center building.
Should residents be paying today so there are sufficient funds in 50 years for
replacement, or should half the project be funded from reserves and half bonded?
Or, should an entire project be bonded at the time of need.
Bo Bock, Chairperson of the Financial Advisory Committee, stated the committee
members have widely divergent views on this issue. He believes an argument can
be made either way for Pay As You Go or Reserve Funding.
Councilmember Anderson asked what are the total cash reserves today and on
December 31, 1993. He also asked how much there is in bonds or other liquid
assets of all funds.
Finance Director Hahn stated that today the cash reserves are about $30 million
less than on December 31, 1993. The biggest reasons for the change is that the
City called and paid off about $10 million of outstanding bonds and have been
running all general fund operations for six months without major revenues from tax
dollars. He anticipated that by December 31, 1994, the City will have over $80
million in total reserve funds.
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Councilmember Anderson stated that this amount seems to be more than sufficient
to pay any potential future problem. He asked if the Council or staff has
considered what is a reasonable balance.
City Manager Johnson stated the Financial Advisory Committee is working on this
issue.
Councilmember Edson stated that some of the reserves are special assessment
funds which must be held until the special assessment bonds are due.
The Finance Director estimated that about $18 million is needed to pay off existing
special assessment bonds, with a total of $29 million needed to pay off all existing
bonds. There is about $6 million in risk management reserves, which saves the
City money by self-insuring, and the utility trunk fund has a balance of about $17+
million.
Councihnember Anderson stated that it appears there are about $36.5 million in
critical reserves. If there is about an $80 million reserve by year-end, this results in
an addition $44 million of funds that are not dedicated for a specific purpose. He
would like a list of the City's total outstanding liabilities, as well as an estimate of
cash reserves on December 31, 1994. This information is needed in order for the
Council to work toward its goal of maintaining the current tax rate.
Councilmember Edson requested that this information be provided in a format
similar to that done by the Financial Task Force. A spreadsheet showed the cash
balance of each fund, split by restricted and discretionary, as well as a
recommendation about the needs of each fund.
Councilmember Helliwell stated it is prudent to save money for future needs. She
believes it is preferable to have reserves available for future projects, rather go out
for bond referendums each time a project is proposed. She stated that residents of
Plymouth are currently enjoying things for which previous residents paid, and this
can continue into the future. She also believes that the City must not consolidate
funds too much because we could lose sight of some needs.
Kelly Boris, KPMG Peat Marwick, distributed survey information from various
cities on the percentage of fund balance to budget for 1992, 1993, and 1994. She
noted that Plymouth is in the mid-range. She cautioned that the figures provided
are planned amounts - not what actually occurred in various cities. Ms. Boris
stated that local governments must have a reserve adequate to fund six months of
operations, to fund infrastructure and emergencies, and to maintain the bond
rating. She stated that some cities have less than a 20 percent reserve.
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June 20, 1994
Page 7
Manager Johnson added that many school districts routinely borrow for operating
expenses until the tax levy is received.
The Council indicated they would like to further discuss the philosophy and
appropriate amount of the reserve funds.
Councilmember Lymangood stated he would be in favor of maintaining minimal
reserves, with bonding when there are needs.
Councilmember Helliwell stated that if Plymouth were fully developed and a
relatively stable community, she would support decreasing the reserve. However,
there are still large expenditures that accompany development.
Mayor Tierney stated she is concerned about maintaining the City's Aaa bond
rating, and she sees no real reason to change the 40 percent reserve level to
operating budget. She would support reviewing each fund to determine the
adequate balance for each, and she believes the City should continue the wise
investments that were made in the past. She does not believe the City has
overtaxed or overspent.
Councilmember Granath asked if it is true that Plymouth has been a low taxing
entity.
Councilmember Edson stated that in recent years, only Edina has a lower tax rate
than Plymouth of the major metropolitan cities.
Mr. Bock suggested that residents be surveyed for their opinion on issues such as
whether or not to bond for projects and general philosophy on services and
spending. He stated it may also be useful for the City to define core services, and
determine whether accumulation of reserves is a core service.
Finance Director Hahn stated that one responsibility is to ensure there are no major
spikes in the levy - it should be relatively stable.
Mayor Tierney added that one goal of the Council is long-term planning.
Finance Director Hahn stated the Financial Advisory Committee has been
reviewing the investment portfolio and the option of having an outside investment
manager take care of a portion of it. He stated an investment manager would have
the expertise and time to potentially improve the returns. To date, staff has used
the philosophy to hold investments to maturity.
Councilmember Lymangood stated that by buying direct Aaa or equivalent
investments, there is some guarantee of return and principal. He stated the
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June 20, 1994
Page 8
Council must determine whether it is the City's objective to make the most money
possible on investment of reserves, or to ensure no money is lost. He believes the
City should work to maintain a Aaa bond rating and invest directly, with the
principal objective of not to lose any money. A secondary objective would be to
maximize the return on investment.
Councilmember Helliwell agreed that the City should invest directly. She believes
investment managers are more apt to take risks and a conservative investment
strategy is needed.
Finance Director Hahn discussed the City's debt management. He presented a list
of the City's outstanding debt and stated that none of the bond issues are
candidates for refunding. He stated that most of the issues with high interest have
a final maturity date of 2/1/95 or 2/1/96, and there is only a current potential
savings of a few thousand dollars. Also, some bond buyers look negatively at
calling of bonds. Should interest rates increase, it would be a fmancial loss to the
City to call the bonds.
Councilmember Anderson requested a memo with the potential cost savings.
Councilmember Lymangood also requested that the memo contain the
recommendation outlined above.
Councilmember Anderson requested that the spreadsheet provided by Ms. Boris be
amended to include the amount of cash reserves for each of the cities, rather than a
percentage of budget.
Councilmember Lymangood suggested that this study session to review the Annual
Financial Report be conducted each year after the Financial Report is issued and
prior to budget discussions.
The meeting was adjourned at 6:56 p.m.
City Clerk