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Home My WebLink About2009 07-06 City Council Manager Workshop PacketAGENDA MAPLEWOOD CITY COUNCIL MANAGER WORKSHOP 5:00 P.M. Monday, July 6, 2009 Council Chambers, City Hall A. CALL TO ORDER B. ROLL CALL C. APPROVAL OF AGENDA D. UNFINISHED BUSINESS E. NEW BUSINESS 1. Presentation Of Comprehensive Annual Financial Report (CAFR) for 2008 2. Presentation On Proposed Adjustments To Revenue And Expenditures For 2009 Budget 3. Presentation On Outlook For 2010 Budget F. ADJOURNMENT THIS PAGE IS INTENTIONALLY LEFT BLAND AGENDA NO. E -1 AGENDA REPORT To: Jim Antonen, City Manager From: Bob Mittet, Finance Director Date: June 30, 2009 Re: Presentation of Comprehensive Annual Financial Report (CAFR) for 2008 And Response to Audit Comments BACKGROUND At the June 22 City Council meeting, a presentation on significant aspects of the Comprehensive Annual Financial Report (CAFR) was given to the Council by David Mol of HLB Tautges Redpath, Ltd. The CAFR has been completed and submitted to the Council previously for review at the July 6 Council Workshop and is scheduled for acceptance by the City Council at the regular meeting on July 13. YEAR IN REVIEW Financially speaking, 2008 was a successful year for the City of Maplewood. It also marked the beginning of challenging times, not only for Maplewood but also nearly every government jurisdiction in the country. In summary, some highlights follow 1 . The General Fund had an unfavorable variance from budget of ($96,127), because of the Governor's unallotment of Market Value Homestead Credit on December 26, leaving the city with insufficient time to react. 2. The General Fund balance at the end of 2008 is $6,752,051. Fund Balance is required to fund operations during the first half of the following year until the next property tax payment is received from Ramsey County. 3. Total Net Assets increased from $115,386,373 to $124,525,425, largely due to street reconstruction during 2008. 4. The legal debt margin at the end of 2008 is $115,177,601. The State increased the margin from 2% to 3% in 2008. The City has $78,345,029 in total long -term debt. Of that amount, $5,680,000 is subject to the legal debt margin. 5. Debt service funds increased from $12,207,777 to $12,669,078. \\ ci. maplewood. mn. uslmwdfsyslPrivatelCTY _MGR1Agenda ReportsX07.06.09XCAFR Transmittal 063009.doc Packet Page Number 3 of 14 July 1, 2009 6. The Employee Benefits Fund Net Assets decreased from $535,760 to $127,362 due to transfers to other funds, primarily the General Fund, of excess amounts charged in previous years. 7. Revenues from park availability charges increased from $370,544 in 2007 to $803,015 in 2008. INTERNAL CONTROLS The City's Finance Department has undergone some significant personnel changes since the end of 2006. Significant improvements were achieved in 2008 however deficiencies continue. Deficiencies have been identified in the following 1 . Over the past three years, preparation of the CAFR has been done by our auditors rather than staff. 2. Broker Certification forms were not obtained in 2008. 3. Audit adjusting entries were required more frequently than should be expected and reconciliations of accounts were not sufficiently completed. 4. Abandoned property in the form of un- cashed checks have not been turned over to the state. 5. Not all purchasing card transactions were approved by a supervisor or another appropriate employee. Staff will continue to implement changes in 2009 AUDIT TIMING The City Council is receiving the audit results 1 'I2 months earlier than last year. While this represents improvement, it leaves room for further improvement. The addition of Colleen Layman as the Assistant Finance Director in December 2008 has been very welcome. As Colleen gets more acclimated to Maplewood accounting systems, staff expects significant improvements next year. AUDIT DISCUSSION Early in 2008, the staff presented information to the City Council regarding some of the above - listed deficiencies in procedures within the Finance Department. These areas are listed by the Auditor as areas of concern, which was the intent of the information presented to the Council in February and March 2008. Unfortunately, this information was construed by some residents to indicate that Maplewood has a financial problem or crisis. That was never claimed by Maplewood staff and is shown within the CAFR and confirmed by the Auditors that Maplewood operations performed slightly better in some areas and slightly below in others, but all outcomes were, and still are, within acceptable levels per standards of the Government Accounting Standards Board (GASB). 2 Packet Page Number 4 of 14 July 1, 2009 The key information provided within the CAFR and the Auditor's report is that Maplewood does not have a financial problem and is still financially sound. This report acknowledges the procedural problems that existed in the Finance Department through a majority of 2007. Most of those issues have been resolved or will be resolved within the next few months, such that Maplewood will again receive a "clean opinion" for the 2008 CAFR, similar to this 2007 Audit and all previous year's audits. RECOMMENDATION: Staff recommends that the City Council accept the 2008 Comprehensive Annual Financial Report at the July 13 Regular Meeting. Attachment: 1. 2008 CAFR [provided to Council on June 30; available on City webpage] 3 Packet Page Number 5 of 14 Agenda Items E2 & E3 AGENDA REPORT TO: City Manager, Jim Antonen FROM: Charles Ahl, Assistant City Manager /Public Works Director SUBJECT: Budget Reports 1. Presentation on Comprehensive Annual Financial Report (CAFR) 2. Presentation on Proposed Adjustments to Revenue and Expenditures for 2009 Budget 3. Presentation on Outlook for 2010 Budget DATE: July 1, 2009 INTRODUCTION The City Council will be receiving a presentation on the budget from three perspectives as part of this work session, as follows: 1. A presentation from Finance Director Bob Mittet on the status of the existing funds within the City financial system. In effect, this is a report on the closing of the books and a financial report on the status of City Funds. Mr. Mittet will also provide the staff responses to the issues raised during the Audit of the CAFR that was received on June 22 d by the Council. 2. A presentation from Assistant City Manager Chuck AN [who presented the 2009 Budget in the fall of 2008 as the Acting City Manager] regarding shortfalls in revenue within the overall budget and the planned reductions in expenditures. 3. A presentation by City Manager Jim Antonen on the outlook for revenues and expenditures as the staff begins preparations for the 2010 budget. BACKGROUND The previous memorandum, along with the 2008 CAFR from Mr. Mittet, details the final accounting for all funds for City operations through the end of 2008. The CAFR provides for an audited documentation of the amount of funds available to begin 2009. On page 86 of the CAFR, the general fund, which highlights a large portion of the major tax supported operations of the City, provides that the balance within this fund on December 31, 2008 was $6,752,051. Obviously this same amount is what the General Fund begins on January 1, 2009. 2009 Budget Summary The assumption to begin the 2009 Budget is shown on page 213 of the 2009 Budget document in that the General Fund Balance would start 2009 with $6,899,601. This shortfall of $147,550 is due to the failure in the last five days of 2008 of the state of Minnesota provide their second half payment of Market Value Homestead Credit (MVHC). That payment amount was $244,473 and would have provided an additional $96,923 in the General Fund for reserves in 2009. The MVHC is an amount that the state pays to the City to offset property owner property tax payments. Later in this report, the state has provided for the option of the City Council to conduct a special levy to capture these funds from the Maplewood property taxpayers. To understand MVHC: the Maplewood Council determines and sets a budget each year. For example, let's assume that a Maplewood taxpayer has a tax payable to the City of $100 to make the budget. Under MVHC, the state tells the taxpayer that they only need to pay $97 and the state will use other revenues to pay Maplewood the remaining $3, except in this case, the state does not make the payment, shorting Maplewood of the $3. In 2008, that failure totaled $244,473. Packet Page Number 6 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE TWO General Fund — start 2009 $6,752,051 2009 Budget Revenues Line Item Line Item Amount Department Revenue from 2009 Budget $18,488,280 City -wide 1. Unallotment of 2009 MVHC ( $514,877) City -wide 2. Tax reduce settlements 3M /Mall ( $264,000) City -wide 3. Interest of Investments ( $150,000) Finance 4. Building permits /plan review ( $500,000) Comm. Dev 5. Passport/License fees ( $ 40,000) Citizen Sery Total New 2009 Revenue $17,019,403 Revenue Reduction Explanations 1. Governor Pawlenty has announced that again in 2009, that the state will be unable to make their 2009 MVHC payment. That amount is $514,877. 2. A number of major taxpayers appealed their tax capacity assessments and reached agreement with the Ramsey County Assessor on a reduction of $264,000 in planned taxes. 3. The Finance Department invests city funds in various safe investments. The estimated amount for 2009 appears too high as the return on investments has been significantly reduced in the past 6 -8 months and the likely return is significantly lowered by $150,000. The General Fund realized $319,258 in interest income in 2007, which was reduced to $246,697 in 2008. The 2009 estimate is recommended to be lowered to $116,540. 4. The Community Development Department has operated the planning and inspections divisions as an enterprise approach for many years. As recently as 2005 and 2006, this enterprise approach provided the General Fund with excess funds approaching $500,000 annually. That amount continues to decrease and needs to be reduced due to the failure of a number of development projects that would have provide payment of these fees in 2009 to this fund. The reduction is estimated to be reduced by $500,000 from $1,147,520 of revenue to $647,520 in likely revenue. 5. The Citizen Services Department receives revenue from permits, licenses and passport fees. Due to the slowing economy, less people are registering new cars and less people are traveling. The estimated revenue should be reduced by $40,000. 2009 Budget Expenditures Line Item Amount Expenditures from 2009 Budget $18,172,887 1. Savings on fuel contract ( $102,957) 2. 5 unfilled positions in budget ( $248,186) 3. 2 transfers Comm Dev -Pub Wks ( $ 86,030) 4. delayed hirings in Police { $ 95,000) 5. delayed hiring of City Manager ( $ 28,440) 6. delayed hiring of Sr. Admin { $ 9,760) 7. Finance Dept — no intern ( $ 10,000) 8. Reduced MCC support { $ 79,780) 9. Reduce Rec Fund support ( $ 43,550) 10. Dept reductions by 1.46 %( $263,458) Total New 2009 Expenditures $17,205,726 Packet Page Number 7 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE THREE Expenditure Reduction Explanations 1. The Public Works staff negotiated a one -year fuel contract in January 2009 to lock in fuel costs. Average cost per gallon is locked at $1.60 per gallon for 2009, while the budget was estimated in October 2008 at $2.80 per gallon. This results in a savings of $102,957. 2. There are currently 5 positions listed within the budget that have been unfilled due to a `soft" hiring freeze that has been in effect since late in 2008. Those positions are a vacant building maintenance technician, a vacant park maintenance position, a vacant maintenance position at MCC, a vacant IT technician and a vacant reception position. These vacancies result in a 2009 budget savings of $248,186. 3. Two positions that were assigned to Community Development have been assigned to the engineering staff due to the work shortfall in building inspection area. This results in a savings of $86,030. 4. The Police Department was delayed in hiring of the Deputy Police Chief and the subsequent filling of a number of positions due to retirements as the civil service process worked through the necessary steps. This resulted in a savings of $95,000. 5. The 2009 Budget assumed that the new City Manager would start employment on January 1 sc Due to the delay in hiring this saved the budget $28,440. 6. The position of Senior Administrative Assistant was filled with a temporary employee for the first 2 "l2 months of 2009 resulting in a savings of $9,760. 7. An intern proposed to assist the Finance Department has been cut saving $10,000. 8. A comparison of the 2008 CAFR report on the MCC Fund (pages 42 -44) versus the 2009 Budget (page 222 -223) shows that the MCC operations performed much better in 2008, thus the planned use of levy fund monies of $300,000 can be reduced by $79,780. 9. A comparison of the 2008 CAFR report on the Recreation Program Fund (pages 97 -99) versus the 2009 Budget (page 218) that the planned levy monies of $250,000 can be reduced by $43,440 by using fund balance and a cut of expenses of $15,000. 10. A reduction of appropriations to each program has been proposed in the amount of 1.46 %. Each department head will be present to explain the impact of these cuts as listed and explained by program below: a. Program and Acct No. 2009 Budget 2009 Reduction Amount Cit Service Admin — 301 $ 501,390 $ 7,320 Deputy Registrar — 303 $ 361,080 $ 5,272 Elections — 304 $ 52,650 $ 769 Ice Arena Ops — 606 $ 30,000 $ 438 Marketing — 111 $ 278,270 4,063 Total Citizen Services $1,223,390 $ 17,861 Karen Guilfoile: Since the Citizen Services Department is customer service driven I find myself in quiet the predicament in making cuts that do not include reducing staff since a large percentage of the programs are wages and benefits related. As follows: 301 — Citizen Services Administration is 71 % wages and benefit related (if you include IT charges it is 83 %) 303 — Deputy Registrar is 99% wages and benefit related 304 — Election is 89% wages and benefit related costs Packet Page Number 8 of 14 Agenda Items E2 & E3 'A ! ag 9 d Karen G (cont.)The above equals a proposed cut of $13,361 and would be taken from numerous line items in 301 Citizen Services Administration. 606 - Ice Arena Operations the requested budget cut of $439 can easily be made 111 - Marketing the requested cut of $4,063 will be made in various line items throughout the program b. Program and Acct No. 2009 Budget 2009 Reduction Amount Building Inspections - 703 $ 501,920 $ 7,328 Code Enforcement - 707 $ 72,820 $ 1,063 Comm. Dev Admin - 701 $ 370,940 $ 5,416 Nature Center Gen Fund - 604 $ 174,980 $ 2,555 Open Space Mgmt - 605 $ 71,320 $ 1,041 Park and Rec Admin - 601 $ 142,240 $ 2,077 Planning - 702 $ 270,080 $ 3,943 Public Health - 704 $ 51.060 745 Total Comm Dev /Park $1,926,195 $ 24,168 Dewey Konewko: I do not believe these cuts will in anyway result in and/or compromise services we provide to the public. As per your instructions, I did not include any "real" personnel cuts. The following proposed cuts are my recommendations for the 2% reductions in the Community Development and Parks Department: Wages/Temporary - cut $5,000 (Community Development Administration) Fees Consulting - cut $2,000 (Community Development Administration) Fees Consulting - cut $5,000 (Planning) Supplies /Equipment - cut $400 (Public Health Inspections) Supplies /Equipment - cut $1,500 (Code Enforcement) Maintenance Materials - cut $1,000 (Open Space Management) Fees for Service - cut $1,000 (Open space Management) Publishing - cut $1,000 (Nature Center) Fees for Service - cut $1,000 (Nature Center) Fees for Service - cut $4,000 (Building Inspections) #of reductions - cut $3,500 (Parks & Rec. Administration) Total Community Development Reductions $25,400 c. Program and Acct No. 2009 Budget Finance Admin - 201 $ 301,200 Finance Services - 202 381,140 2009 Reduction Amount $ 4,398 5,565 Total Finance $ 682,340 Bob Mittet: Information on cuts to be provided. $ 9,962 Packet Page Number 9 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE FIVE d. Program and Acct No. Fire Safety Ad min — 411 Emergency Mgmt — 413 Fire Prevention — 405 Fire Suppression — 404 Total Fire Steve Lukin: 2009 Budget 2009 Reduction Amount $ 355,740 $ 5,194 $ 23,060 $ 337 $ 89,530 $ 1,307 $1,405,990 $ 20,527 $1,874,320 $ 27,365 A) We will uses $6,000 from not having one paid on call firefighter work on the weekend for the rest of 2009 with the fulltime staff this will have no impact on our service. B) We will uses $8,000 form not having to pay out as much over time required by FLSA for our fulltime staff working more then 56 hours per week for the rest of 2009. This will be done by having them take there VAC time once in every 3 week period to the best we can. This will automatically happen when they have to take there VAC. C) Moving 25% {$13,806} Susan wages from 101 -411 to the EMS fund. Total Cuts Requested: 27,365 -A 6,000 -B 8,000 -C 13,806 TOTAL 27,806 e. Program and Acct No. 2009 Budget Police Admin — 401 $ 868,740 Animal Control — 407 $ 42,080 Investigations — 409 $1,094,060 Police Services — 402 $4,391,320 Total Police $7,502,090 Chief Thomalla: 2009 Reduction Amount $ 12,684 $ 614 $ 15,973 $ 80,271 $109,542 Delay in not filling Deputy Chief Position - $12,057 X 4 months = $48,231 Delay in hiring two officers $9,717 X 4 months = $29,151 Estimated savings in delay of LT promotions $10,000 Total of initial cuts $112,382 Savings in excess of the $95,000 $17,382 Packet Page Number 10 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE SIX Chief Thomalla (cont.) ADDITIONAL CUTS Purchase one less squad car $22,422 Move Tahoe purchase to forfeiture fund from 402 $27,575 Reduce 402 Education Reimbursement $ 8,000 Reduce Repair and Maintain Vehicle in 402 $10,000 Reduce 402 Overtime $24,200 Savings in excess of the $95,000 $17,382 Total of Cuts $109,579 It is believed the cuts in Tuition Reimbursement and Vehicle Repairs and Maintenance will not be needed due to fund balance history so they should have no impact on delivery of services. Moving the Tahoe purchase to the Forfeiture Fund is an accounting shift removing the purchase from the operating budget and will have no impact on the delivery of services. The overtime cuts may have an impact on our ability to hold a Citizens Academy and reduce firearms training sessions if overtime funds become reduced significantly in coming months. f. Program and Acct No. 2009 Budget 2009 Reduction Amount Pub Wks Admin — 501 $ 401,530 $ 5,862 Building Operations — 115 $ 580,860 $ 8,481 Engineering — 503 $ 970,010 $ 14,162 Park Maintenance — 602 $ 938,380 $ 13,700 Snow and Ice Control — 514 $ 326,410 $ 4,766 Street Maintenance — 502 $ 721,900 $ 10,540 Transit Ops — 515 $ 33,920 $ 495 Total Public Works $3,590,230 $ 58,006 Chuck AM and Michael Thompson: Randy Lindblom has accepted a mobility assignment to MnDOT for 5 months, whereby MnDOT will pay his salary. That savings is $42,660. Savings in the administrative budget due to the realignment duties with the elimination of the Deputy Public Works Director will save $16,800. Total savings is $59,460. g. Program and Acct No. Executive Admin — 102 HR Admin — 116 Legal Services — 103 Safety — 114 Total Executive 2009 Budget $ 269,640 $ 284,540 $ 462,500 9,560 $1,026,240 2009 Reduction Amount $ 3,937 $ 4,154 $ 6,753 140 $ 14,983 Total savings in these programs will include increasing the rent charges to office spaces to the City Attorneys and a reduction in the charges of 2% by the City Attorneys. Additional savings will be identified through the year. Packet Page Number 11 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE SEVEN h. Program and Acct No. City Council — 101 Community Outreach — 104 Planning Comm — 107 Park &Rec Comm — 106 Police Civil Sery Comm — 105 Total Legislative 2009 Budget 2009 Reduction Amount $ 148,260 $ 2,165 $ 630 $ 9 $ 1,200 $ 18 $ 310 $ 5 $ 2,380 $ 35 $ 152,780 $ 2,231 No specific savings have been identified in these programs at this time. Further analysis will result in adjustments as necessary. Total General Fund Reductions from $18,090,330 = $264,119 The third and final portion of the General fund after revenue and expenditure estimates are the necessary transfers to and from the fund. 2009 Budget Transfers Line Item 1. Employee Benefits Fund 2. CIP Fund 3. Debt Service Fund 4. Fire Truck Replacement Total New 2009 Tranfers Summary of Revised 2009 Budget Amount Department $480,000 City -wide ( $ 0) Parks needs { $411,125) Pub Wks ( $ 99,640) Fire ($22,525) New 2009 Revenue $17,019,403 New 2009 Expenditures $17,205,726 New 2009 Transfers ( 22,525) New 2009 Net General Fund ($ 208,848) Jan 01, 2009 Fund Balance $6,752,051 Dec 31, 2009 Estimate Fund Balance $6,543,203 * * - This results in a fund balance that is 38.03% of the 2009 Expenditures. The goal from Page 213 of the 2009 Budget was 37.8 %. Note that the fund balance percentage has ranged from a low of 35% used by the City Council in 2005 to the current 37.8% for budgeting. The recommended range is 35% as a low to a comfortable range of 36 -38% to maintain healthy reserves. Packet Page Number 12 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE EIGHT Outlook for 2010 Budget The following is presented to allow the Council to begin to consider their approach to the 2010 budget and to provide staff guidance in preparing the proposed 2010 budget and levy resolutions. Assumed Begin 2010 General Fund Balance $6,543,203 2010 Revenue: • Assume 2009 revenue does not increase • 3M and Mall adjustmens are less - o Increase interest on investments - • Increase of unallotment - a Increase in Admin Charges 2010 Revenue Estimate * - this assumes 0% levy increase for 2010 2010 Expenditures $17,019,403* +$ 150,000 +$ 50,000 -$ 50,000 +$ 49,837 $17,219,240 o Assume no increase from 2009 $18,172,887 o COLA for employees +$ 264,000 0 9 positions vacant with City -$ 684,000 0 2 Comm Dev transfers to Pub Wks -$ 55,000 0 3 Pub Wks; 1 MCC 0 1 IT;! Comm Dev 0 1 Mktg; 1 Cit Sery 0 1 Police o Revised personnel code changes -$ 80,380 o Reduced transfer to MCC -$ 79,780 o Reduced transfer to Rec Programs -$ 43,550 2010 Expenditure Estimate $17,494,177 2010 Transfers • CIP Fund $ 50,000 • Fire Truck Replacement Fund $ 50,000 • Debt Service Fund $421,125 2010 Transfers Estimate $ 521,125 Net for 2010 Estimate - $796,062 Estimate for December 31, 2010 Fund Balance $5,747,141 Needed fund balance at 35 %* of expenditures $6,122,962 2010 estimated shortfall ($375,209) * - note: a 35% fund balance does not provide for a $200,000 reserve for unknown expenditures during 2010. Packet Page Number 13 of 14 Agenda Items E2 & E3 BUDGET REPORT PAGE NINE Options to Consider to Address 2010 Shortfall Option #1 — Raise Levy There will be levy limits in effect for 2010 that will limit the Council to a current estimated increase equal to the Implicit Price Deflator of 0.86 %. That will limit the Council to increase the levy by $103,325. However, the unallotment has resulted in the City loosing $244,473 in MVHC in 2008 and $514,877 in 2009. A special levy could be considered for these amounts in addition, resulting in a possible levy increase . The maximum possible levy increase could be $862,675, which would totally cover the entire 2010 shortfall and allow the filing of one or two of the vacant positions within the City. At this point, staff is considering a recommendation that the Council proceeds with considering a special levy of up to 50% of the $759,350 [$244,473 + $514,877] in lost MVHC from 2008 and 2009 to accommodate reductions. It should be noted that the lost $570,000 in lost MVHC for 2010 cannot be levied in a special levy until 2011. Option #2 — 2 years of Mandatory Leave The City's management and bargaining groups are currently working to negotiate an understanding whereby employees would forfeit their rights to transfer unused leave into retirement, health care or carryover balances. The current employee discussions are focused on implementing this requirement for 2009. It results in an annual savings of $190,000. A two - year program would result in the maximum savings for this option of $380,000. Option #3 — Mandatory Employee Furloughs This option will provide for employees being forced to furlough a total of 8 days. Either a total closure of City Hall or other options could be considered. Each day that all employees are furloughed result in a savings of $47,000 each day. Option #4 — Reduce Program Expenditures As noted above, during 2009, each department was asked to identify 1.46% of reductions in each of their programs. A 2% reduction in each program would result in a savings of $375,000. Option #5 — A combination of programs as identified above. Note: consideration should be given at this time to add an additional $200,000 of expenditures to create a $200,000 reserve for 2010. That is not a part of the budget, but may be an item of consideration. An alternative is to note that reduced expenditures and savings during the remainder of 2009 and into the early months of 2010 should be dedicated to a reserve fund. Recommendation It is recommended that the City Council receive and discuss the various approaches to the 2008, 2009 and 2010 budgets as noted. Direction should be given to prepare a report for a 2009 budget adjustment for the July 13 or July 27 meeting along with an indication of direction for preparation of the 2010 budget. Packet Page Number 14 of 14