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HomeMy WebLinkAbout2023.08.30 CCMinutes - Midyear Budget ReviewMINUTES City Council-Midyear Budget Review Hugo City Hall Wednesday, August 30, 2023 5:00 p.m. Mayor Weidt called the meeting to order at 5:00 p.m. PRESENT: Klein, Miron, Petryk, Strub Weidt ABSENT: None STAFF PRESENT: City Administrator Bryan Bear, Finance Director Anna Wobse, Fire Chief Jim Compton, City Clerk Michele Lindau Finance Director Anna Wobse began by talking about recent changes made in the 2023 legislative session that would have an impact on the budget including a one-time public safety aid payment, repeal of the governor’s salary cap, changes in paid family and medical leave, and two new sales taxes for transportation and metro housing. Hugo would receive a portion of the housing tax that could only be used for affordable housing assistance. In the 2023 legislation session, changes were also made to increase the Local Government Aid (LGA) distributions, of which Hugo would still receive nothing. Another change was that detailed revenue and expense information would no longer need to be included in the Truth in Taxation notices. The City deviated from the flat tax rate policy last year because of the increase in residential home values for 2023. The County’s estimated market value increase for 2024 was 7% for residential and 21% for commercial properties. The 2024 budget was prepared using the same tax rate as 2023 and would be monitored for recommendation to revert back. Wobse talked about having different tax rates for rural and urban saying Council may want to discuss it more at a future meeting. Wobse said staff recommended Council continue contingency budgeting which ensures there will either be a balanced budget or a surplus that could be put towards the Equipment Purchasing Fund. This is in addition to the $200,000 budgeted for tax rate stabilization in the case of an economy decline. She explained the 2024 taxable market value had increased by 12%, and to remain at the lower tax rate, the proposed levy could not exceed $12,312,000. The proposed levy was broken down into seven components, and Wobse provided information on each beginning with debt service. The City had three outstanding bonds that equaled $962 per capita, which was lower than the statewide average of $1,943 per capita. The levy for bonded debt was $993,037 and would remain at that level until pay 2041. The Street Levy would fund the 2024 125th Street and Heather Avenue improvement projects. She noted the Council previously approved using the ARPA funds to pay for the 2023 Birch Tree Ponds improvement project. Additional funds were needed to repair roads damaged by the harsh winter, and in order to cash flow those projects, staff recommended adding $600,000 to the current levy. She recommended Council keep the Equipment Levy at $300,000 to fund future Fire Department and Public Works equipment purchases. The Stormwater Levy and Special Parks Fund Levy would remain at their current levels unless increased by Council. Minutes for Midyear Budget Review on September 30, 2023 Page 2 of 4 The largest portion of the proposed tax levy was for general fund operations. In the General Fund budget were employee wages that included funding for four currently vacant position. Staff was currently looking to fill the fulltime Fire Chief position and a Public Works Utility Lead Position. A Community Development Assistant and Deputy Clerk position would be filled on an as needed basis. Public Works was requesting to reclassify the mechanic’s position to a Pay Grade 6, and staff was requesting to increase the hourly rate for the Audio-Visual Technicians. With the repeal of the Governor’s salary cap, the City Administrator pay grade was proposed to increase to Pay Grade 14, Step 5. All employees were budgeted to receive a 4.5% cost of living adjustment. Health insurance premiums would increase by 7.68%, much higher than the 2.15% last year but not as high as the increase in 2019 by 21%. Wobse talked about the budget for public safety. The 2024 budget had the funding for a fulltime fire chief position, and once a fire chief was hired, officer salaries would be adjusted. The current fire chief also recommended continuing the retention program that was modified last year to increase the hourly rate by $1 instead of $.50 for each year of service from 5-10 years. Washington County requested a new deputy be added for 2024. The City would be receiving $703,253 in a one-time Public Safety Aid payment that must be used to provide public safety, which would cover the cost a new deputy for the next four years. Wobse summarized expenses and revenues saying the General Fund Budget was up $735,457 for 2024. In addition to employee and inflation costs, the increase could be attributed to added cost for ordinance revisions, emergency siren maintenance, training classes, and small equipment purchases. The budget contained funds for website updates and $200,000 for the sixth consecutive year for tax rate stabilization. Revenues were budgeted conservatively by leaving permit fees equivalent to 50 new housing starts and eliminating investment earnings as the market was still unpredictable. Wobse reminded the Council that Fiscal Disparities was a property tax program in the metro area where each community receive a distribution. Hugo receives more than it contributes. The proposed distribution to Hugo had decreased for Pay 2024 but would still pay for over 7% of the total tax levy. The assessor’s report showed the median value home increasesd by 6.6% to $408,700. At a tax rate of 36.371%, the City tax on that home would increase by $100. Wobse presented a list comparing tax rates of ten other Washington County cities. Stillwater was the highest at 49.146%, and Lake Elmo was the lowest at 24.064%. Hugo moved up on the list last year because of the flat tax rate policy, where many cities lowered their tax rate. She explained that when property values decline, those cities would have to increase their rates and Hugo’s would remain the same. She reiterated that Hugo received no 2024 LGA distribution. Also, other cities charge additional fees for stormwater, street lights, street maintenance and sales tax, etc. Hugo does not charge additional fees, and that needed to be factored in when comparing tax rates. Wobse presented information on the American Rescue Plan Act (ARPA) Funds. The City had until December 31, 2024, to spend the $1,668,411.91 received. Initially, the Council was going to spend those funds on the North Star Wetland Bank, but later decided to put it towards road maintenance expenses. The Council needed to decide where the funds for the wetland bank Minutes for Midyear Budget Review on September 30, 2023 Page 3 of 4 construction would come from, and it would likely be dependent on where the revenue from the wetland bank would go. The budget was prepared using the same urban tax rate as 2023, proposing a total 2024 levy of $12,312,000. Wobse asked Council for direction to prepare the preliminary tax levy resolution for consideration at the September 18, 2023, Council meeting. The Truth in Taxation hearing was scheduled for December 4, 2023. The final levy could be lower but not higher than what would be adopted at the September 18, 2023 meeting. There was a question on if there was an internal measurement as a result of things costing more. Wobse replied that there were no hard comparisons, but many invoices now included additional administration fees, etc., and it was surmised that a portion of the levy increase was due to things just costing more. There was a question why the state decided to provide the City a $703,000 safety grant. Wobse replied that it was part of the transportation bill and did not believe it would continue. There was a question about the change in the LGA distribution amounts. Wobse replied that there was now a greater focus on whether cities had unmet needs. Council talked about the affordable housing tax and questioned whether it could be stockpiled. There was also a suggestion about possibly partnering with the County on programs. Wobse said it would need to be spent within three years of receiving, and the rules were still being worked out. There was a question about whether there was a disparity in services from rural to urban taxed properties. The Mayor pointed out there were different cost in fighting fires and road maintenance. Bear added that more detailed discussions would be needed. The Council had a discussion on parks and asked about the park planner salary, insurance on the parks, and the maintenance of park buildings. Wobse replied that the park planner salary now came out of the general fund, along with most minor maintenance needs. Council questioned where funds would come from when some older parks start needing full equipment replacement and upgrades. Wobse replied that is something that would come out of the Parks Fund and Council discussed a possible future need of raising the Parks Fund levy to fund major improvements. There was discussion on whether the budget could be increased for City streets. Wobse and Bear explained there was an additional $600,000 budgeted for that next year, and that was the biggest increase in the budget. There was discussion on the stabilization levy and how large did the City want it to grow. Wobse replied that she recently had a conversation with the City’s bond council who indicated there was no set acceptable limit, and it was a good idea to keep it at a high level to help with future bond ratings. Minutes for Midyear Budget Review on September 30, 2023 Page 4 of 4 There was a question to Fire Chief Compton on whether the retention program was working. He replied that the turnover rate since it started had been cut in half, and he liked the idea of step increases. There were comments about the importance of residents to know they are only getting the utility bills and the City tax bill from the City and no other additional charges. The tax increase was basically due to increase in expenses. There was consensus among the Council to approve the budget as presented. Formal approval of the budget would take place at the second Council meeting in September. Klein made motion, Miron seconded, to adjourn at 5:55 p.m. Respectfully Submitted, Michele Lindau, City Clerk