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CC VER 2019 12 02CHANHASSEN CITY COUNCIL SPECIAL MEETING TRUTH IN TAXATION MEETING DECEMBER 2, 2019 The City Council met in Executive Session from 5:30 to 6:55 p.m. to discuss the City Manager’s Performance Review. Mayor Ryan called the Truth in Taxation hearing to order at 7:05 p.m. The meeting was opened with the pledge to the Flag. COUNCIL MEMBERS PRESENT: Mayor Ryan, Councilwoman Tjornhom, Councilman McDonald, and Councilman Campion COUNCIL MEMBERS ABSENT: Councilwoman Coleman STAFF PRESENT: Todd Gerhardt, Jake Foster and Greg Sticha Mayor Ryan: Again good evening everybody. Welcome to our council meeting. For those of you that are watching at home or livestreaming from Chanhassen Website, thank you for joining us. For the record we have 4 of our council members here with the exception of Councilwoman Julia Coleman. Our first action on the agenda is agenda approval. Council members are there any modifications to the agenda as printed? It’s pretty short so we’ll move forward with that. PUBLIC HEARING: PUBLIC MEETING ON THE PROPOSED 2020 BUDGET. Mayor Ryan: Tonight we have our Truth in Taxation hearing but if you did look at our agenda for tonight we were in Executive Session earlier today to give City Manager Gerhardt his review and I will share the results with that at our last meeting of the year on December 9th so tonight is our Truth in Taxation hearing and we will be having a public hearing but before that we will begin by Mr. Sticha I know you have a presentation and I will let you lead with that. Greg Sticha: Thank you Mayor and council. I’m going to go through a power point, several slides that kind of goes over some of the changes in the levy and budget for 2020 and some of our comparative data as well as some statistics about the general fund budget. So the entire budget process takes a lot longer than just a couple months. We actually typically start as early as June or July with some early discussions with the City Council as soon as June. And the preliminary budgets that are done by our departments are submitted to the City Manager and myself in late July. They begin their work in late June, early July. A detailed budget meeting is held in August. It was the second meeting in August of this year. Held in work session that goes over the entire detailed general fund budget with the City Council in that work session format. On September 23rd the City Council set a preliminary tax levy to be used for the Truth in Taxation statements which our residents should have received a little over a week ago. The basis of that levy is the starting point for the levy process. The final levy cannot be higher than what the preliminary levy was set at and can only be lower when the City Council then sets the final City Council Truth in Taxation Hearing – December 2, 2019 2 levy on December 9th. This evening’s the public budget meeting or the Truth in Taxation hearing which it’s also called. So before we get into some of the changes in the 2020 budget I wanted to kind of go over some historical statistics about the general fund budget and some of the changes that we’ve seen in it over the last 11 years, between 2009 and 2019. So I took a look at our 2009 general fund budget and put together some of these statistics for council. Total general fund spending in those 11 years has increased $1.89 million for an average annual increase of about 1.7 percent. That’s $172,000 per year. Of the $1.89 million, $1.68 million was for wage increases, health care increases, taxes, pension costs, and added seasonal and part time hours. We actually have the same exact FTE count in 2019 as we had in 2009. Of the $1.894 $432,000 roughly was for increases in the policing services contract and again of the $1.894 million $51,000 was for increases in the required assessing services contract. So if you notice, if you add up those 3 numbers that exceeds $1.894 million which is the total increase spending in the general fund over those 11 years. You actually have a decrease in all other general fund spending over that time period which in so many ways is quite remarkable that the previous City Councils and staff have been able to keep spending to only those things that were necessarily needed during that period. One last statistic I put in there is the largest increase is the wages, health care, taxes and pension and part time and seasonal salaries. That equates to about 2.8 percent per year and if you think about the cost of having employees, cost of living wage adjustments, in particular health care costs contract increases, to increase that spending by less than 3 percent per year is also I think quite remarkable. So let’s take a look at some of the budgeted general fund expenditures comparing 2019 to not only the 2020 preliminary budget but I’ve also included a column called 2020 recommended final budget. Staff’s recommendation is going to be for a final budget that mirrors the 2020 preliminary budget so all the numbers in the second and third column are the same. Looking at the 5 major areas you’ll notice 3 of them are larger than the other 2 and there’s a reason behind it. There are additional services that have been added in each of those work areas and we’re going to get into those here in the next slide. It has to do again like I said with those additional services that were at least included in the preliminary levy by the City Council for discussion purposes before setting the final levy here on December 9th. Revenues not a lot of changes. The largest dollar change within the property tax line item, we did keep license and permit revenues the same as the previous year’s budget. Some small dollar changes into the Inner-government Revenue and Fine and Penalty section, or excuse me other revenue. These were increases for, we had some fire department grants that we get for some of our fire department training and an increase in I believe interest income projected for the 2020 year as well as a cell tower rental agreement increase for the upcoming year. Councilman Campion: Mr. Sticha can you back up two slides? Or back up one slide. Is there a typo on the Community Development 2020 preliminary versus. Greg Sticha: There is. The I believe this number here should be $577,800. I bet you I left the wrong number in there so my apologies. I will make that adjustment for the next power point at the final. Councilman Campion: Alright thank you. City Council Truth in Taxation Hearing – December 2, 2019 3 Greg Sticha: Thank you for catching that. The $577,800 would be the correct number. Councilman Campion: Okay. Greg Sticha: As I stated some minor changes in some of the revenues you’ll notice an identical 4.4 percent increase in the total budget so obviously presenting a balanced budget of expenditures and revenues for 2020. So what impacted the budget and levy for 2020 which is what the Truth in Taxation statements were sent out and based on? The first item we look at each year is the new homes that are in the city of Chanhassen or the new construction dollars which was 1.61 percent for taxes payable in 2020. This amounts to $177,100 in additional property tax dollars. Property tax levy dollars that would be available to the City Council to use for that new construction. We did have I believe in my 15 years the first ever reduction in health care costs and by a significant amount. 16 percent. That had a huge impact on this year’s process and helped fund a couple of these other items that are going to be coming up next on the list. The police services contract had a 5 percent increase in it for their services to provide to the community next year. The average home in Chanhassen increased in taxable market value by 5 percent and that’s important because that’s the measure by which will have an impact on your property tax statement depending on what the City Council sets as the final levy. If your home increased by more than 5 percent in value you’ll see a larger property tax increase. If your home increased by less than 5 percent in taxable market value you’ll see a smaller increase or even possibly a decrease in your city portion of your property taxes. So let’s talk about some of the new services that were added or service levels that were added for at least the preliminary budget by the City Council. It includes an expansion of the fire department’s duty crews of a total cost of around $150,000. It includes one new street maintenance department employee for a total cost of approximately $80,000. It includes a new park maintenance department employee for a total cost of about $80,000 and it also includes a potential $350,000 for pavement management funding. As some may be aware the City Council went through an extensive process the past 2 years to find funding for their portion, for the City’s portion of it’s local street pavement management program and part of that suggested solution was to increase the levy as well as issue a franchise fee which was done earlier this fall. So taking a look at the total levies, comparing them from 2019 to 2020, the increases that you’ll note are not in the debt levy so those stay relatively flat. There’s always a small change in a couple of the debt payments by minor amounts of interest. The other operational and capital levies, the capital replacement levy, the MSA sealcoating levies stayed the same. The increase in the general fund levy was for the additional services mostly that I mentioned in the previous slide and you’ll notice the revolving street construction fund or the pavement management program fund levy increasing by roughly $350,000. The difference being the $2,700 below in the debt levies. For a total levy increase of 6.5 percent based on the preliminary levy. So when you look at this graph you’ll notice the far right column is significantly higher than the previous year’s columns. The levy was set above new growth, the preliminary levy was set above new growth for the first time in a few years. The levy was set above new growth by roughly $510,000 in order for the City Council to review all of the additional needs this community has in terms of the service levels that the City Council City Council Truth in Taxation Hearing – December 2, 2019 4 wants to consider, in particular with the fire department, the park maintenance department and the street department that were mentioned on the previous slide. As well as probably the most significant dollar impact here is the $350,000 for street funding for 2020. So each year we take a look at some property tax statements, some actual Truth in Taxation statements that were sent out a week ago and I pulled 6 of them to kind of review and just kind of see where things fall out on the different valued homes in the city of Chanhassen. As I mentioned earlier the average home increased in taxable market value by 5 percent so I tried to pick home that were somewhat close to that 5 percent meaning that the dollar change that you see in the second to last column roughly equates to the dollar amount for the increase in the preliminary levy above new growth. Had the City Council set a levy at new growth that dollar change column would have been relatively close to zero. Within a couple dollars. So the majority of those would have been within probably a range of $1 to $3 all 6 of those homes in the dollar change column. As the City Council is wanting to review the additional services, those additional services equate to these dollar costs to these homes based on what you see on this graph. So for example the home that is closest to average is parcel 3 with the average home being about $430,000. Taxable market value of $430,000. That home is what would see a $49 increase in it’s city portion of it’s property taxes if the final levy were set at what the preliminary levy was set at. When we had discussions earlier this summer I kind of had ballparked around for the average home about $45 so this is holding out as I projected. This home did increase by 5.8 percent in taxable market value so a little bit above the others within the city so really close to that $45 dollar amount that we had talked about earlier this year. As you will notice parcel 6 for example did see roughly the 5 percent increase in taxable market value. However it sees $147 change to it’s city portion of it’s property tax system. For those that aren’t familiar the State property tax system in the state of Minnesota is a computation based on increased value homes paying more than the lower value taxable market homes so a progressive tax like this, it makes sense that this would be the result of that levy so nothing in any of the Truth in Taxation statements really shocked me that I took a look at. They were all about exactly where I had estimated them to be. So taking a look at a total tax statement for all taxing jurisdictions within a property within School District 112, about 43 percent of that property tax bill, and this is based on an actual Truth in Taxation statement, about 43 percent of that bill is for the school district. 31 percent for the county and then 21 percent for the city so we’re roughly 21 cents on every property tax dollar a average home pays for in School District 112 about 21 cents of that dollar goes to the city. Mayor Ryan: Mr. Sticha did that dramatically change with the, from last year? Greg Sticha: By about a penny. Maybe a penny and a half. Or 1 ½ of 1 percent so it didn’t dramatically change. Mayor Ryan: Okay. Greg Sticha: So now we’re going to take a look at some of our KFS comparables and some of our county comparables and we do this each year to give the City Council some guidance onto how our spending compares to our peers as well as our spending within Carver County. This City Council Truth in Taxation Hearing – December 2, 2019 5 graph shows the 2019 general fund budget expenditures. We obviously don’t have data for our comparable cities for 2020 yet. We’re all following through the same exact process this evening that they are. You’ll notice that the increase in the general fund budgeted expenditures for 2019 was up 1.8 percent for Chanhassen while the average for our KFS was up 4.8 percent and I don’t believe anybody had a smaller increase the way it looks than we had in terms of total general fund budget expenditures. So obviously the city of Chanhassen as compared to our KFS cities looks very, very positive. When you break that into a per capita spending number, taking the budgeted spending divided by the population Chanhassen has the lowest per capita spending of all of our KFS cities with the average being 609 and the City of Chanhassen being 447. Taking a look at the Carver County tax rates, now this tax rate is based on the 2019 tax rate but in a minute I’m going to pull up a different sheet and kind of show you the proposed 2020 tax rates. Chanhassen has the lowest tax rate in Carver County and in a future slide I’m going to show you that Chanhassen has among the lowest tax rates in all of the Twin Cities metro. With the average in the county being 58 and the City of Chanhassen’s tax rate at 21. So for comparative purposes based on the preliminary levy the City Council set and based on the increase in market value that the city of Chanhassen noticed, which is essentially the derivative of how the tax rate comes about, the City’s tax rate for 2020 is actually not going to change that much. So if you take a look at the proposed notice sent by Carver County of the cities within Chanhassen, the City’s proposed rate is only increasing by .03 for 2020 even with the preliminary levy set $510,000 above new growth. Taking a look at Chaska which is a .13 percent increase in the tax rate. Take a look at Chaska for example, their tax rate’s increasing by 2.63 percent. I can assume that they increased their preliminary levy by significantly more than the percentage that they had taxable market value increase in that situation. There were some others that showed some decreases, and you can take a look at some of the others. The line you’re going to want to track here is the urban line and again these are based on the preliminary levy so each of these jurisdictions could see this number go lower when their City Council set their final levies here within the next couple of weeks but I think it’s important to note that even with the increased levy the Chanhassen tax rate will still only increase by a tenth of a percent. So going back to the presentation. So how does the City of Chanhassen compare to other Hennepin County taxing authorities. Cities and this is again based on 2019 rates. Most of the 2020, well all of the 2020 data for the other counties is not available at this point in time. Carver County does share their preliminary levies with us. But if you take a look at the Chanhassen tax rate, of these comparable jurisdictions some of which are obviously definitely different in size than the city of Chanhassen but we’ve looked at these same cities for the last several years. We have the lowest tax rate, and I even tried to find a city with a lower tax rate than Chanhassen that was at least somewhat comparable and I had a very difficult time finding one. I believe there was around the Lake Minnetonka that had a. Todd Gerhardt: Orono. Greg Sticha: It might have been Orono, that did have a lower tax rate but there were very few I could find with a lower tax rate than the City of Chanhassen. So with that I will take any City Council Truth in Taxation Hearing – December 2, 2019 6 questions from council and then ask the City Council to open the public hearing for any questions or comments about the 2020 preliminary levy and 2020 general fund budget. Mayor Ryan: Thank you Mr. Sticha. Council any questions before I open? Go ahead Councilman McDonald. Councilman McDonald: Thank you Mayor. Mr. Sticha would you go back and go into a little bit more detail about the $300,000 that we’re looking at putting into the pavement management fund. What I’m looking at was why are we doing that? If we didn’t do that what would be the impact future budgets and those type of things? Greg Sticha: Let me get to that number. I’ll get to the levies which is this line item right here on this graph. So the City Council decided based on information provided by the engineering department and it’s consultants that the appropriate amount of total spending on roads per year should be roughly $3.6 million dollars in annual road construction and mill and overlay projects in the city of Chanhassen, not including other either State or MSA funded roads as a part of that equation. That number is based on the number of street miles that were built 50 years ago. After a long in depth, detailed discussion of that $3.6 million the City Council then had to arrive at how they were going to come up with the City’s portion of that $3.6 million. How the City was going to fund their 60 percent of the $3.6 million. The City Council decided on a portion to be based from a franchise fee which is going to generate roughly $1.7 million in revenues and another portion in increased property taxes and to get to the City’s share a property tax increase of the $350,000 will be needed either in 2020 or for sure 2021 as well as a portion of the library debt that comes off the books for 2022, roughly $200,000 would be needed to get to the City’s share of the $3.6 million. So that $350,000 is something that in order for us to do $3.6 million per year in roads will need to be levied for or the City Council would have to reconsider that and consider doing less than $3.6 million per year in roads. Councilman McDonald: Okay if I could follow up then. So $350,000 is required for us to initially start a road management plan that we put in place so again what the $3.6 million per, $3.2 million? Greg Sticha: Roughly that’s our share. Councilman McDonald: Roughly so yeah. So we’ve agreed to that. Part of that is going to be funded by the franchise fee that we put together. Is this $300,000 going to be a continuing thing for a number of years or is it a one time thing or a two time thing? What could the citizens kind of look forward to as far as funding our share of the pavement management program? Greg Sticha: Well the $350,000 based on our current projections, and the roads that we plan on doing the next several years will probably need to stay in place for at least the immediate future. It is possible that in extended years beyond the next several years if we are making better progress with our roads. If we see them, that they are in better condition than what we had City Council Truth in Taxation Hearing – December 2, 2019 7 anticipated and if we had less severe winters, a whole bunch of variables that impact our road conditions that it is possible that that levy could be considered for lowering by a future City Council. But at least for the next immediate future, next several years I don’t see a way that that levy would probably be eligible for a reduction unless you wanted to reconsider like I said reducing the $3.6 million per year in roads. Reconstruction. Councilman McDonald: Okay so the alternative is if we were to take that $350,000 out of the budget we would have to revise the pavement management plan and actually spend less per year, thus stretching out the whole program by a number of years. Greg Sticha: That is correct. Councilman McDonald: Okay, thank you very much. Todd Gerhardt: Mayor and council I just wanted to clarify one statement that Greg made is that the library referendum is going to be paid off next budget year 2021 so right now you’re levying $457,000. There’s enough money in reserves that you can pay that off so we’re not really taking the levy money for the library. The debt is paid off so the $457,000 is no longer needed but you’ve levied that over the years so there’s capacity in your general fund of $457,000 so it’s not ethically wrong or anything. You’ve got to come up with another $457,000 to make your total street pavement program balance so that’s one way of increasing the levy or taking what was the library levy without increasing the levy. So you’re not, you know I don’t want people to think you’re taking the library levy and that the library is going to be short money. The library is paid off at the end of this year.