08-22-2022 City Council Work Session MinutesCHANHASSEN CITY COUNCIL
WORK SESSION
MINUTES
AUGUST 22, 2022
COUNCIL MEMBERS PRESENT: Mayor Ryan, Councilman McDonald, and
Councilwoman Rehm.
COUNCIL MEMBERS ABSENT: Councilman Campion and Councilwoman Schubert.
STAFF PRESENT: Laurie Hokkanen, City Manager; Matt Unmacht, Assistant City Manager;
Charlie Howley, City Engineer/Public Works Director; Kate Aanenson, Community
Development Director; Kelly Grinnell, Finance Director; Jerry Ruegemer, Park & Recreation
Director; Don Johnson, Fire Chief; Rick Rice, MIS Manager; and Kim Meuwissen, City Clerk.
PUBLIC PRESENT: None.
Mayor Ryan called the Work Session to order at 5:30 p.m.
2023 PRELIMINARY BUDGET, LEVY, AND CIP DISCUSSION
City Manager Laurie Hokkanen formally introduced Finance Director Kelly Grinnell. Ms.
Grinnell provided an overview of tonight’s budget presentation agenda:
• Review and discuss proposed preliminary General Fund Budget
• Review and discuss the Preliminary CIP for 2023-2027 for tax-supported funds
• Review County assessment report and historical data (Market Values)
• Review and discuss the proposed Preliminary Levy and impact on taxes
• Review upcoming meeting dates and deadlines
• Council input and questions
Preliminary General Fund Budget: A balanced budget is projected for 2023 in the amount of
$14,343,275, which results in a year-end fund balance of $7,739,515. A Revenue Stabilization
Arrangement is proposed to amend the fund balance policy to commit an equivalent of one year
of permit revenue. Ms. Grinnell referenced that the proposed budget relates to the City’s
Strategic Plan priorities of Financial Sustainability and Operational Excellence.
Ms. Grinnell presented a pie chart showing the General Fund revenue sources, which included
property taxes, cable franchise fees (previously accounted for in the CATV Fund), license and
permit fees, fines and penalties, intergovernmental, charges for services, other revenue, and
transfers in (new this year). A table was then presented showing the General Fund revenue
comparison in each of these sources between 2022 and 2023. Highlights of the revenue changes
include the following:
• Cable Franchise Fees were previously recorded in the CATV Fund along with
Communications expenses – reallocated revenue is $154,000
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• Transfer in from CATV Fund - $45,000 to offset increased expense in General Fund due
to moving of Communications expenses from CATV Fund
• Building Permit Revenues – recommend using three-year average of 2018, 2019, and
2020 revenues to budget for 2023 (2021 was an unusually high year)
• Interest Earnings – interest rates have increased so budgeting an additional $80,000 in
2023
Ms. Grinnell then presented a pie chart showing General Fund expenditures by function (Public
Safety, General Government, Public Works, Park and Recreation, and Community Development)
which results in a 6.6% increase. A table was then presented showing the General Fund
expenditure comparison for each function between 2022 and 2023. Ms. Grinnell reviewed the
changes in each of the expenditure functions:
• General Government: Key changes include approximately $200,000 increase in the
Communications Department largely due to the inclusion of wages and benefits for the
Communications Manager and other expenditures that were previously accounted for in
the CATV Fund. About $114,000 (3.8%) of the increase is due to wage/benefit changes
and inflationary increases. Mayor Ryan asked for clarification for the changes in the
CATV Fund. Ms. Hokkanen replied that historically some Communications expenses
have been paid out of the General Fund. The CATV Fund is a special revenue fund which
previously funded the City Recorder position and initially the Communications Manager
position, resulting in two different accounts that were both dedicated to Communications.
Now we are proposing to merge both accounts. There is no spending increase or change
in our Communication operations, we are just combining the two accounts by transferring
the CATV revenues. Mayor Ryan stated that it is budget neutral but that the increase
results from salary and benefits. Ms. Hokkanen confirmed that statement.
• Public Safety: Key changes include the police contract increasing by 10%, with an
additional 10% increase expected in 2024. Fire Department wages and benefits will
increase due to hiring three new captains (cost will be offset by reduced on-call hours).
ARPA funding is planned to be used in 2023 towards these staffing additions. Overall
wages and benefits for the department are increasing $434,000 from 2022. Closing Fire
Station 2 will result in further cost reductions and eliminates the need for a new engine
estimated to cost between $800K and $1M. Mayor Ryan asked for clarification on the
police contract staffing. Lt. Lance Pearce responded that about a year ago deputies
received a significant pay increase to increase employee retention. The increase in salary
and benefits impact from this two-year contract will be seen in 23 and 24. Mayor Ryan
asked if the City was now fully staffed. Lt. Pearce responded that the staff position rates
are the average rates charged to the City. Ms. Hokkanen added that the City pays by
position rates, not by actual person. In 2021 the City received a $200K refund from the
County for positions that weren’t able to be filled through the contract.
• Public Works: A decrease in expenditures of $104,625 is anticipated in 2023. The
expenses for facilities and fleet maintenance area being moved from Internal Service
Funds to the General Fund in 2023, which overall results in little change to the budget.
An additional $194,000 was allocated to the Surface Water Management Fund for wages.
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The budget also includes $90,000 for replacement of streetlights and lighting cabinets.
Mayor Ryan asked about the responsibilities of the electric companies for these
replacement costs. Mr. Howley responded that there are two different power companies
that serve the City, Xcel and Minnesota Valley Electric Company and they both offer
different programs. Xcel has a lot of different contracts as to who pays for what and it is
not consistent within the City. Generally, the City pays for the power for streetlights
within neighborhoods and the electric utility owns those streetlights. The exception is the
streetlights and cabinets located on larger collector roadways such as Kerber and Coulter
Boulevards that are not a part of a neighborhood. They are owned and operated by the
City.
• Community Development: The increase of $25,706 is due to wage/benefit changes and
inflationary increases.
• Parks and Recreation: Key changes include increases in park maintenance expenses due
to wage and benefit increases for both permanent and seasonal employees, recreation
program expenses due to increased event costs such as fireworks and tents, tables,
portable restrooms and other equipment rental, and dance and other program fees are
higher, but they will be offset by increased revenues. Mayor Ryan asked if the City was
considering charging more for rental space and programming. Mr. Ruegemer responded
that fees are reviewed annually and were substantially increased a year or two ago. Staff
is always looking for new ways to increase revenue generation.
General Fund Balance & Revenue Stabilization: Ms. Grinnell explained that fund balance is the
difference between assets and liabilities of which there are five categories:
• Non-Spendable: not in spendable form (such as inventory or prepaid items) and legally or
contractually required to be maintained intact.
• Restricted: Amounts that can be spent only for the specific purposes stipulated by
constitution, external resource providers, or through enabling legislation (such as bond
covenants).
• Unrestricted
o Committed: Amounts that can be used for specific purpose stipulated by
resolution of the City Council.
o Assigned: Resources are intended for spending for a purpose set by the governing
body itself or by some person or body delegated to exercise such authority in
accordance with the policy established by the City Council.
o Unassigned: Residual classification for the general fund and represents fund
balance that has not been restricted, committed or assigned to specific purposes of
the general fund.
Chanhassen’s current policy is that the General Fund should maintain a minimum unassigned
fund balance at year end equal to 50% of following year’s levied property taxes and anticipated
state aid. Staff is proposing to add onto the existing 50% requirement for unassigned but create a
revenue stabilization arrangement to formally set aside amounts for use in case of a revenue
shortfall e.g. building permit revenue. This amount would be set aside as committed fund
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balance in the General Fund in an amount up to the succeeding year’s budgeted building permit
revenue. Ms. Grinnell presented a table showing the calculation of the proposed amount.
Preliminary CIP 2023-2027: Ms. Grinnell reviewed the Capital Facilities Fund, Transportation
Infrastructure Management Fund, Pavement Management Fund, and Capital Equipment/Vehicle
Replacement Fund. The CIP links to the financial sustainability and asset management priorities
of the City’s Strategic Plan.
• Capital Facilities Fund: Mayor Ryan asked about the security fencing and access control
expense and if most Public Works facilities are secured and is this the direction we are
going. Mr. Howley responded that more than half are secured and many of these facilities
end up being an emergency operations center (EOC). As the Emergency Management
Director for the City, Chief Johnson added that there have been specific discussions to
locate the City’s EOC at Public Works. The primary source of revenue for this fund is
property taxes; however, there currently is not enough income to meet the identified
needs.
• Transportation Infrastructure Management (TIM) Fund: Funds the ADA transition plan
improvements, and trails and parking lots pavement management. The dedicated funding
source is also property taxes. There is a positive fund balance at the end of the five-year
CIP; however, it has decreased from where it started.
• Pavement Management Program (PMP) Fund: Funds a number of identified street
improvements. There are multiple revenue sources for this fund including property taxes,
intergovernmental-Non MSA, MSA construction, MSA maintenance, franchise fees,
special assessments, and investment earnings.
• Capital Equipment Replacement Fund: Funds fleet capital equipment/vehicles, fleet
leased vehicles, and technology. Fleet capital equipment/vehicles for 2023 total
$653,900. Technology includes BS&A cloud-hosted service migration,
computer/network equipment purchase/upgrades, and finance software replacement.
Mayor Ryan asked how the City’s building department compares to other cities in terms
of technology and ease of use. Ms. Aanenson replied that processing permits for residents
and contractors has significantly improved over the past year with the online application
and payment process. Reports can also be generated quickly. Ms. Hokkanen added that
the next frontier for permit processing would be to integrate plan review and permit
processing. Revenues for this fund are from property taxes and investment earnings.
• Unfunded Items: The Park Renovation fund does not have a dedicated, ongoing funding
source and there are several park renovation projects that lack funding. The Park
Acquisition and Development fund does have a dedicated, ongoing funding source in
park dedication fees. The Lake Ann Park Preserve project is not included in this list as
the Council has preliminarily reserved $1.3M of ARPA funds to start the project.
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Market Values: Ms. Grinnell presented a chart from the County Assessor’s Report for taxes
payable in 2023 showing the assessment summary, residential, commercial/industrial, apartment,
and agricultural.
Proposed Preliminary Levy, Tax Rate, and Taxes: Ms. Grinnell shared a slide showing the total
proposed preliminary (maximum) levy payable in 2023 is $13,325,000 which is an increase of
$661,924 (5.2%) over the 2022 levy. The projected tax rate for taxes payable in 2023 is 19.9%
compared to 22.4% in 2022. If an additional $250,000 is levied, the tax rate would be 20.3%.
Ms. Grinnell next presented bar charts showing the levy history from 2017 to proposed 2023, as
well as levy projections from 2023 to 2029. Tables were then presented showing the differences
between 5.2% and 7.2% levy projections. A bar chart showing preliminary levy increases with
12 comparable cities was then presented showing Chanhassen as the third lowest increase. If a
7.2% levy was approved, Chanhassen would fall somewhere in the middle. Next Ms. Grinnell
presented a slide showing the tax levy impact on various homes in Chanhassen valued at $300K,
$500K, $700K and $900K. Revenue and expenditure comparisons of state-wide averages were
also presented.
Next Steps: Ms. Grinnell provided the following schedule:
• September 12 City Council Work Session and Meeting: discuss maximum tax levy in
work session and set the preliminary (maximum) levy at the regular meeting
• November 14 (and November 28 if needed) City Council Work Session: Review CIP,
Debt, and Utility Funds and Budgets for all Funds
• October 24 City Council Work Session: discuss General Fund and Property Tax
supported funds
• December City Council Meeting: Hold truth-in-taxation public hearing and adopt levy,
budget, and fee schedule
Mayor Ryan thanked Ms. Grinnell for the presentation. Since Councilmembers Schubert and
Campion are absent, Ms. Hokkanen and Ms. Grinnell will review this presentation with each of
them prior to the next meeting. Councilwoman Rehm also complimented the presentation and
liked the idea of smoothing out the levy increases. Mayor Ryan asked for more information
regarding the revenue stabilization arrangement. Ms. Hokkanen responded that Councilman
Campion had asked if the City was budgeting too conservatively in terms of building permits
given the number of years of growth and revenue we have experienced. Historically we have
purposefully been very conservative in terms of building permits because we acutely remember
2008, we know that the market can change, and we haven’t wanted to be overly reliant on
building permits. What Ms. Grinnell is suggesting is a good compromise between budgeting
more realistically using a three-year average and not being in a position where we would need to
lay off staff or make dramatic cuts because we will have dedicated revenue set aside for that
purpose. Ms. Grinnell added that this would stay in the General Fund but be classified differently
from unassigned fund balance. The rating agencies look favorably on this. Councilman
McDonald asked if its only purpose be for permits or could we use it for other things that we
project revenue for. Ms. Grinnell responded that we could do it for other things but building
permits are probably the largest revenue source besides property taxes and nothing else has as
much volatility. It could be compared to a rainy-day fund. We are proposing to set it up to be
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equal to the following year’s building permit revenue. Councilman McDonald asked if we had a
surplus in the fund what would we do with it. Ms. Grinnell replied that the funds would remain
in the General Fund as unassigned fund balance, and they could be used for one-time uses or
continue to build up fund balance. The goal is that over time the fund stays stable and doesn’t
decrease. Mayor Ryan asked for clarification of the assigned fund balance. Ms. Grinnell
responded that she didn’t see anything that had been formally assigned in the past. It is
something we could choose to do in the future.
Mayor Ryan expressed her appreciation to Ms. Grinnell for the budget presentation.
FUTURE WORK SESSION SCHEDULE
Date Item
September 12 • Preliminary Levy Discussion
• Valley Auto Salvage Request for Expansion of Non-conforming Use for
Recycling
September 26 • Fire Department Open House, 6-7 p.m.
October 24 • General Fund & Property Supported Funds Discussion
November 14 • CIP, Debt & Utility Rate Study Discussion
The work session adjourned at 6:55 p.m.
Submitted by Laurie Hokkanen
City Manager
Prepared by Kim Meuwissen
City Clerk