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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. Council Study Session 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. Council Study Session June 20, 1994 Page 3 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 Council Study Session 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. Council Study Session June 20, 1994 Page 5 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. Council Study Session June 20, 1994 Page 6 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. Council Study Session 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 Council Study Session 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