WS 2000 08 21CHANHASSEN CITY COUNCIL
WORK SESSION MEETING
AUGUST 21, 2000
Mayor Mancino called the work session to order at 4:30.
COUNCIL MEMBERS PRESENT: Mayor Mancino, Councilwoman Jansen, Councilman
Senn, and Councilman Engel
COUNCIL MEMBERS ABSENT: Councilman Labatt
STAFF PRESENT: Teresa Burgess, Bruce DeJong, Scott Botcher, and Todd Gerhardt.
BRIEF WATER SUPPLY UPDATE: Engineering gave a brief update on the status of the
watering restrictions and compliance. Council also discussed if the existing watering ordinance
needs to be reviewed, and phosphorus free fertilizer and its impact to the City's water bodies.
DEBT STUDY REPORT: Bruce DeJong presented the summary debt study information. The
data indicates that higher tax levies are required in order for the City to meet its obligations in the
future.
Mr. DeJong discussed Tax Increment Financing (TIF) District l's financing problems.
Minnesota Statutes Chapter 469 covers the limitations on districts established prior to 1979. The
most important date for Chanhassen is April 1, 2001. After that, only principle and interest
payments for debt issued prior to April 1, 1990 with maturities extending past April 1, 2001 are
allowed. The city does have obligations that meet this criterion, which allow the district to exist
until 2003. The issue facing the city is how to deal with the debt incurred after April 1, 1990.
Five bond series were sold after 1990. The principle and interest due on those issues after
April 1, 2001 totals $7,505,308.
One partial solution is the Carver County agreement that any excess increment due to the County
from TID 1 will be returned to the city. Together, the city and county portion of any settlement
equal approximately one-half of the total tax. This solution assumes the existence of excess
increment. However, TID 1 has existing deficits that will consume a large portion of the
available increment.
The district has also been negatively impacted by the reduction in property tax class rates that
have occurred during the past several years. These decreases have significantly reduced the
amount of increment collected in the district. The State of Minnesota has grant funds available
to assist cities with TIF districts hurt by the situation. Mark Ruff, from Ehlers, Inc., recommends
that the city defease at least $2,100,000 this year in order to be able to apply for the maximum
grant amount in 2001, similar to the process followed at the end of 1999 which netted
$1,147,000.
A possible solution proposed by Mr. DeJong is to increase the deficit in the district by defeasing
an amount equal to the estimated available increment throughout the remaining length of the
district. This large amount would need to be financed using non-TIF funds. Mr. Ruff believes
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Work Session Meeting
August 21, 2000
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this is allowable, but changes the nature of the defeasance. The purpose of the defeasance last
year and the $2.1 million this year is to return the city to the position it was in prior to rate
compression. The additional defeasance would be to change the date of expenditure recognition
in order to collect the largest amount of increment possible using the existing language in state
law.
Mr. Ron Batty of Kennedy & Graven is evaluating the legality of this proposal. He will render
an opinion regarding the specific legality of the defeasance and several other issues in
September.
Another option is to refinance the non-qualified debt and pay it back over a number of years
rather than the large payments due in 2002-2004. If the defeasance option doesn't work, some
alternative must be pursued to avoid a huge levy increase in a future year.
Many of the tax-supported debt funds are also in deficit due to under-levying in past years. Mr.
Ruff discussed the plan he has prepared to pay all the debt in a timely manner while smoothing
the required levy amount to avoid dramatic spikes in future years. The report does show that
without action on the TID 1 issue, the city will have difficulty meeting all of its debt obligations.
PRELIMINARY TRUTH-IN-TAXATION BUDGET DISCUSSION: Scott Botcher
presented the preliminary budget as a guide to setting the proposed tax levy for Truth-in-
Taxation purposes. Mr. Botcher reviewed the submittal letter that accompanied the budget work
papers.
There are several points that Mr. Botcher highlighted for the City Council.
The capital improvement program was significantly upgraded last year and will
be presented to the council in September and October for review prior to final
budget adoption.
· The Water and Sewer Utility Fund is little changed from 2000, but the budget
consolidates departments 701-Administration and 702-Operations.
The General Fund includes 1.5 new full time positions - 1.0 for an MIS
technician to deal with desktop issues and 0.5 to upgrade the CSO position to
full-time.
Nearly $200,000 in personnel costs was shifted from TIF districts to the General
Fund. The two reasons are because the Hennepin County district is planned to be
decertified in December and state law doesn't permit this type of expenditure
from the Downtown district after April 1,2001.
Like the 2000 budget, the 3.5% increase shown in the General Fund tax levy is not sufficient to
fully fund the expenditures. This assumes that fund balance will be applied to cover the
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Work Session Meeting
August 21, 2000
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difference that exists. At this time the budget has a $496,000 deficiency of expenditure over
revenues.
City Council members discussed the items brought up by Mr. Botcher and asked several general
questions related to the levy amount. Staff was asked to present some alternatives at the
September 11 levy adoption to resolve the problems presented in the debt study discussion. Staff
was also asked to identify the expenditure differences in the General Fund from 2000 to 2001.
Mayor Mancino adjourned the Work Session meeting at 8:30.
Submitted by Scott Botcher
City Manager