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WS — Item 3 WORK SESSION STAFF REPORT Work Session Item 3 Date: November 3, 2014 To: City Council From: Al Rolek Re: 2015 Draft Budget and Tax Levy Background The City Council has been discussing and revising the 2015 budget and levy since the first budget presentation in July of this year. Staff will be presenting the latest revisions and gap analysis during this discussion. Gap Analysis During the last budget discussion, the City Council expressed its thoughts on the use of fund reserves from the Closed Bond Fund to pay for the one-time start-up costs for the Fire Depaitment and lower the levy for this purpose. Staff has updated the gap analysis showing the effects of transferring $480,894 from the Closed Bond Fund to pay for these one-time costs, with a correlating decrease in the 2015 tax levy. This change results in a tax levy which is an increase of $390,028 (down from the original $1,489,621 in July) over the 2014 levy and a tax rate of 43.730%, down nearly 3% from the 2014 tax rate of 46.682%. Since the use of reserves directly offsets the tax levy, a budget gap of $88,394 still exists and must be addressed during this discussion. Water and Sewer Budgets Staff will be presenting the draft 2015 Water and Sewer Fund Budgets for your review. The City Council has approved rate increases for 2015 of 2% and 3% for the water and sewer rates, respectively. The draft Water Fund budget is slightly reduced from the 2014 budget, primarily due to chemicals cost, depreciation expense and capital outlay expenditures. The draft Sewer Fund budget is an increase of $375,365 from 2014, mainly due to increased capital outlay expenditures for infrastructure maintenance and replacements. This will require the use of $493,199 in Sewer Fund reserves to offset these expenditures. The bulk of the capital outlay is related to a program to televise and reline a portion of the city's sewer mains. Staff hopes to take advantage of an MCES grant program to reduce inflow and infiltration into the treatment system, which will nearly double the City's efforts for this program. The City's cost of MCES sewage treatment will be going down by nearly $40,000 for 2015. Discussion Staff will be available to discuss these revisions and budget drafts with the Council during the work session. Attached the latest version of the Gap Analysis and the City draft 2015 budget. We hope to finalize our discussions on the budget so that we may begin to prepare for the public hearing on December 8. Requested Council Direction Staff is seeking direction from the City Council to finalize the 2015 Budget. Attachments 2015 General Fund Forecast Gap Analysis 2015 Draft Operating Budget