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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 3/1/2009 *PLEASE NOTE: Since the Glendale City Council does not take formal action at the Workshops, Workshop minutes are not approved by the City Council. Nub GLErE MINUTES Of the GLENDALE CITY COUNCIL— SPECIAL MEETING WORKSHOP & EXECUTIVE SESSION Council Chambers -Workshop Room 5850 West Glendale Avenue March 31, 2009 1:00 p.m. PRESENT: Mayor Elaine M. Scruggs, Vice Mayor Manuel D. Martinez, and Councilmembers Joyce V. Clark, Steven E. Frate, David M. Goulet, Yvonne J. Knaack, and H. Phillip Lieberman ALSO PRESENT: Ed Beasley, City Manager; Pam Kavanaugh, Assistant City Manager; Craig Tindall, City Attorney; and Pamela Hanna, City Clerk WORKSHOP SESSION 1. FY 2009-10 BUDGET— 2ND WORKSHOP CITY STAFF PRESENTING THIS ITEM: Horatio Skeete, Deputy City Manager for Administrative Services; Sherry Schurhammer, Management and Budget Director; and Art Lynch, Deputy City Manager This is a request for City Council to review the proposed 10-year capital improvement plan (CIP). This item incorporates the Council's Strategic Goals while ensuring the city's financial stability by presenting realistic analyses about the provision of city services and future revenue expectations. The Mayor and Council's Strategic Goals continue to serve as the foundation for the recommended budget even as we manage operations through the economic downturn. The proposed capital improvement plan is being presented for review and discussion. It is financially balanced, as required by Arizona state law. 1 The proposed CIP was developed over the last several months based on Council's Strategic Goals. The proposed CIP also was based on Council's past decisions regarding property tax rates and the revenue those rates would generate to pay debt service on bonds. o In order to provide relief to the tax payer, Council chose to reduce the tax rate to compensate for the increase in property values. Council implemented a decrease of$0.10 cents in the primary and secondary rates, with the total rate declining from $1.72 in FY07 to$1.62 in FY08. o Council implemented a $0.02.5 cent reduction in the primary rate for FY09, with the resulting total rate set at $1.5951. The proposed CIP also is based on preliminary information provided by the assessor's office in the summer of 2008 regarding assessed valuation (AV) changes. This is critical because the secondary tax rate and secondary AV drive the amount of secondary property tax revenue available to pay debt service on projects completed in the past and new projects. As a result of the preliminary AV information, a small decline in secondary AV was assumed for FY10, no growth for FY11, and slow but steady growth thereafter. The proposed CIP in this budget workbook was developed based on these assumptions and was balanced for the first 5 years of the plan. Construction of the West Area Library was deferred until FYI 1, with completion expected in FY12. This deferral was done to ease the additional burden of this facility's estimated operating costs on the General Fund operating budget during the current challenging economy. During the last week of February 2009, the assessor's office mailed AV notices to property owners. Those notices reflected the valuations to be used for FY11 secondary property tax revenue. Based on those notices, we now know that residential values in Glendale will decline over 33%. The impact of this new information is explained below. o In the past few years, Glendale experienced dramatic increases in secondary AV for both residential and commercial properties. Secondary AV grew 33% in FY08 and increased another 20% in FY09. o The 2008 real estate market ushered in a period of plummeting property values that will negatively impact secondary AV and secondary property tax revenue that is used to pay debt service for most capital projects. These declines in valuation are driven by the fact that foreclosures accounted for 43% of all residential resales in the Phoenix metro area in 2008; the comparable share of foreclosed homes in 2007 was 15.6%. o For Glendale, FY10 secondary AV for residential property dropped about 13%. While this decline was partially offset by a 12,5% increase in commercial property valuation, 2 Glendale will see an overall decline of 3% for Glendale's secondary AV, as shown in Table 1 below, o In FY11, Glendale residential valuation is expected to drop another 33%based on the notices that property owners received in late February 2009. We expect this residential drop to translate into an overall 19% drop in total secondary AV even after accounting for a projected 4% increase in commercial AV. Table 1 — Secondary Assessed Valuation Glendale's Secondary Percent Secondary SecondaryPercent Secondary Property Change y FiscalChange Prop Tax p y in Prop Prop Tax Year Assessed in AV Rate Tax Tax Debt Valuation Revenue Revenue Service FY07 1,370,989,095 $1.4275 $19,342,269 $17,387,000 • FY08 1,827,019,187 33% $1.3519 $24,664,000 27.5% $22,347,000 FY09 2,193,675,193 20% $1.3519 $29,656,295 20% $23,377,500 Estimate FY10 2,130,907,408 (3%) $1.3699* $29,191,301 (1.6%) $28,352,000 projection FY11 1,724,508,560 (19%) $1.3849* $23,883,527 (18.2%) $35,850,000 projection *Assumes a portion of the primary property tax rate is shifted to the secondary property tax rate,with the total rate unchanged at the FY09 rate of$1.5951. Given the expected drop in secondary AV, property tax revenue used to pay secondary property tax-funded debt service for capital projects will be insufficient if corrective actions are not taken. Table 1 shows a small drop in secondary property tax revenue in FY10, from $29.6M to $29.2M. However, a $5.3M drop is expected in FYI1 with secondary property tax revenue declining to $23.9M This means changes are required to the first 5 years of the proposed capital plan that is included in the budget workbook because the projected revenue cannot sustain the projected debt service for new projects. The new courthouse is the biggest project at approximately $42M in the General Obligation bond program and has the biggest impact on the increase in debt service expected for FY10 and FYI1, If Council did not want to raise the property tax rate, then 3 o The Municipal Court would need to be deferred from FY09 to FY12 and FY13. o The West Area Library would need to be deferred from FY11 and FY12 to FY14, and o Economic development projects would need to be reduced from $20M between FYI0, 11 and 12 to $4M total over FY10 and FY11. Please see the attachment included with this report for a comparative summary of the CIP included in the budget workbook and the changes needed if Council chooses this option. if Council wanted to keep the court project on schedule, an increase to the property tax rate would be needed. A 21.5 cent increase in the rate for FY10 would be required to keep the court on schedule. Should the city's secondary AV perform less strongly than assumed, an additional rate increase in FY11 or beyond could be required. The first budget workshop occurred on March 24, 2009. The recommended operating budget for FY10 was presented and discussed. The Budget Workbook containing the City Manager's recommended budget for FY 2009-10 was delivered to the Mayor and Council on Friday, March 13, 2009. A copy of the FY2009-10 City Manager's recommended budget is also available on the city's website, glendaleaz.com Glendale's budget is an important financial, planning and public communication tool. It gives residents and businesses a clear and concrete view of the city's direction for public services, operations and capital facilities and equipment. It also provides the community with a better understanding of the city's ongoing needs for stable revenue sources to fund public services, ongoing operations and capital facilities and equipment. The budget provides Council, residents and businesses with a means to evaluate the city's financial stability. All budget workshops are open to the public and are posted publicly per state requirements. The Budget Workbook provided to Council also is posted publicly as part of the budget workshop agenda packet. A third budget workshop is scheduled for April 7, 2009 to wrap up any unfinished items. Today's workshop is for information only. Decisions on the proposed budget will not be requested until the last budget workshop occurs. Mr. Beasley introduced the items. He said today's presentation will address the capital improvement plan and the enterprise fund rate recommendations. He said the capital plan is based on the economic conditions known at the time it was prepared. This information includes 4 council's decisions from prior fiscal years regarding the city's property tax rate and which capital projects to move forward. Mr. Skeete presented information about the development of the CIP and the financial assumptions used to develop the plan. He also said new information would be presented today regarding information received at the end of February from the Maricopa County Assessor's Office. Mr. Skeete explained that the city's secondary property tax revenue pays the debt service on general obligation bonds issued for a wide range of projects. He said the last 14 years have brought significant increases in Glendale's property valuations. He said council also has provided direction over the last 14 years to reduce the city's property tax rate. In fact, the city's property tax rate has declined a total of 0.39 cents since FY 1995, with a 12.5 cent decrease since FY 2008. Almost 7.5 cents of the 12.5 cent decrease since FY 2008 was taken from the secondary property tax rate alone. He further explained that property tax revenue is a multiple of two factors, the rate and a property's assessed valuation. Mr. Skeete further explained that council's direction to reduce property tax rates occurred at the same time the economy shifted, with the most significant impact in the residential real estate market. He said the impact of these two forces is intensified by the increased debt service the city must pay as a result of completing over$196 million of general obligation bond projects since 2001, As a result of these factors, a critical decision point regarding property tax rates and planned capital projects has been reached. . Ms. Schurhammer said the capital projects underway this year and planned for the next five years will mean the city must issue general obligation bonds. She explained that the lowered property tax rates council approved in July 2008 were used to develop the capital plan included in their budget workbooks and that assumptions also were used and were based on the best information available. She said one of the key assumptions was the direction of future property values. She stated this was important because those values, along with the rate, drive the amount of secondary property tax revenue to be collected to pay the debt service on general obligation bonds. Ms. Schurhammer said a decline in assessed valuation for fiscal year 2010 secondary tax revenue was known because of the information received from the assessor's office a year ago regarding a 13% decline in Glendale's median residential property values. She said this decline was partially offset by an increase in the value of commercial property. However, the rise in commercial values did not totally offset the residential decline because residential property comprises about two-thirds of all secondary assessed valuation in Glendale. She said the overall impact for FY 2010 was a 3% decline in assessed valuation and a corresponding decline of $500,000 in secondary property tax revenue to pay debt service. Ms. Schurhammer noted staff had assumed no growth in secondary assessed valuation for FY 2011, and slow growth thereafter, when the CIP was developed last fall. She said this assumption was based on information received from the county assessor in the summer of 2008. She said the county assessor's preliminary information underwent significant changes since the 5 summer of 2008 because of the unprecedented real estate market that developed in 2008. She said the assessor's office normally excludes the sales of distressed properties from its valuations for residential and commercial properties. However, because almost one-half of 2008 residential real estate sales were distressed properties, the assessor's office had to revise its valuation method and include distressed sales. This change resulted in Glendale's median residential valuation declining 33%for FY 2011 as shown on the slide. While 4% growth is assumed for commercial properties, the overall assessed valuation for Glendale is expected to drop 19% because residential properties comprise a much larger share of all properties in Glendale. She said the resulting 19% decline in overall assessed valuation will result in a $5.3 million drop in secondary property tax value to pay debt service. Ms. Schurhammer said the bottom line impact on the proposed CIP is that the city cannot afford to do the projects originally planned given the new information just received about Glendale's assessed valuation. Therefore, change would be needed to the capital plan shown in the council's budget workbook. She said the single biggest capital project was the new courthouse with a$42 million dollar budget. She said the city will have to issue bonds within the next several months to cover the court's capital expenses, which means the first debt service payment on the new court facility would be due in FY 2011, at the same time the city's revenue to pay the debt would be dropping significantly. Ms. Schurhammer said two options for addressing this situation were developed for council to consider. She said council could keep the current property tax rates unchanged as long as the court facility and library were deferred and the amount allocated for economic development projects was reduced. The other option is to keep on schedule the courthouse and other capital projects although a rate increase of 21.5 cents would be required. Councilmember Goulet asked for further clarification on the definition of median values for residential properties. Ms. Schurhammer said a median value represented the amount found in the middle of all values if lined up from least to most expensive. . Councilmember Goulet asked how funding for economic development capital projects would be reduced. Ms. Schurhammer said $20 million in economic development projects were planned for the next few years and that amount would have to be reduced to $4 million. Those funds would be available for eligible economic development related projects with the general obligation bond program. Vice Mayor Martinez commented that as far as increasing taxes as an option, he believed it would not be a good idea at this time. Mayor Scruggs commented on the courthouse and library projects. She stated that the full issue was really not about building those projects or raising taxes, but rather how the city was going to pay for operating them once construction was completed because both carried expensive price tags. She noted there was no inclination to make any permanent changes to the base budget and reduce expenses. She explained that the need was to climb out of the operating budget shortfall, absorb state revenue declines, and restore the contingency fund. She explained that in order for this to happen, staff was suggesting the economy would have to improve to a point where they 6 will have money to rectify the budget. She also discussed how the general fund balance was dangerously low and once it was used, it was gone. She explained that what they were being told was that after all this was rectified,they would find the money to build and run the courthouse and library. She reiterated that this discussion should not be about property tax, but about when the city would have enough money to replace everything that was on temporary hold, since no permanent decisions about the budget had been made yet. She added they were not addressing the budget deficit, therefore, she did not see a way they can discuss operating new facilities. She stated she did not support increasing property taxes since it did not take care of the operating of those projects and she did not know when the economy will turn around. Councilmember Goulet remarked that he agreed with Mayor Scruggs and the economic dilemma; however, is the courthouse was a key link to the economic development for the Glendale Corridor. He explained that the courthouse might provide incentive for other business to develop and start a domino effect. He added he understands the economic crises; however,to do nothing was also a no-win situation. Mayor Scruggs agreed with Councilmember Goulet's comments. However, she stated that acting like the situation was different and ignoring it was also not the answer. She indicated that if meaningful cuts in the budget were made then there might be funding for these projects. She noted this was all about choices. She said she would like to know if programs in the base budget were things she would support more than the courthouse. She explained that at this point, there was no choice because the base budget cannot support these projects unless revisions and cuts were made. She noted they had not seriously looked at what they were keeping and weighed it against projects not moving forward. Councilmember Goulet remarked that he too was uncomfortable with all the recommendations and would like to look further. He suggested doing what most people do in hard times, such as cutting out what they do not need and buying only essentials in order keep things that are most needed. He indicated that the biggest thing bothering him in the budget was that there were no dollar figures or time frames included. He stated that some of the recommendations seem to do more harm than good in the long run. He reiterated his stand on cutting out the niceties and keeping to essentials. Councilmember Knaack agreed with Mayor Scruggs and Councilmember Goulet. She commented that after going through the budget, she agrees there was a lot they need to put off, She stated she appreciated the comments about employee furloughs however; maybe they should be having layoffs. She remarked she could not believe an organization this size could not find a way to make the budget more efficient. She discussed how the downtown redevelopment was high on her priority list and believes this was a great time for land acquisition. She added she was very uncomfortable with the expected revenue shortfall and the debt. She indicated she would like to see more definitive cuts and the figures associated with them. She noted that she saw a lot of things they did not have to do right now. Mr. Skeete explained the $14.4 million operating budget shortfall shown in Tables five and six (in the City Manager's recommended budget memo)that is addressed in the recommended operating budget. He said the ongoing base budget reductions totaling $5.4 million, as outlined 7 in Table 5 were already removed from departments' operating budgets. He said those cuts were based on the current situation and where they are today. In addition, the city, over the last four to five years of growth and prosperity, had added new programs with temporary service contracts and those were some of the programs that have been cut. He explained most of those services will be continued by regular employees. He noted this will enable them to see which services people have grown accustomed to using. He added there has been a concentrated effort to reduce the workforce. Mayor Scruggs ask to revisit Table 5. She indicated that staff reported there will be 15% and 6% cuts in the budget that will stay in place, with police and fire coming up with another $550,000 in ongoing reductions. However, the facts are that there were still $8.2 million dollars of expenses to cover, aswell as drawing down the general fund balance to below the 10% mark. She indicated they had repeatedly heard staff was working with what the council wanted and their goals; however, staffs opinion of what should be cut and remain does not allow the council the opportunity to prioritize. She discussed how Chandler could be discontinuing library programs. She asked if those types of cuts would be beneficial in Glendale and why they were not discussing them. She added that when it came to hiring new employees, they would like to see if it was possible to give current employees a raise instead. She reiterated that if they were supposed to be in the policy making role and developing priorities, she would like an opportunity to do that. Mayor Scruggs commented on the email she received in response to the 21 questions she had from a partial review of the budget material in the council budget workbook. She explained she had received the document late yesterday and did not have time to review it. Councilmember Lieberman commented that the budget workbook material contained detailed, section-by-section, department-by-department, information about the cuts incorporated into the recommended budget. He stated that he was devastated they may not be able to continue the courthouse. The Centerline project was based on bringing more business to Glendale with the courthouse being a leader and a foundation to help them. He stated that the ongoing operating budget shortfall in table six was $14.394 million and the total operating transfer from the general fund was $8.231 million, which combined was the Mayor's figure of a $22 million shortfall. He asked how they were going to pay for the courthouse and inquired if last year's money was still in reserve. Ms. Schurhammer explained that the $14.4 million shown on line 14 in Table 5 represents the shortfall between ongoing revenues and ongoing expenditures. She said the $8.2 million on line 12 in Table 5 represents the sum of onetime items such as transfers, pay-as-go capital, economic development obligations and funds to address electricity and utility rate increases. She said the courthouse capital project is included in the general obligation bond program and the debt service for this program is paid by secondary property tax revenue. Mr. Beasley interjected to clarify. He stated the city cannot build the courthouse because the property tax revenue was expected to decline significantly. He said a property tax rate increase is needed although one of council's goals was to not increase taxes. He remarked that the recommendation at this point was to not go forward with the new courthouse and west branch library given the impact of the economy on the city's secondary property tax revenue. He added this had nothing to do with operations. 8 Mayor Scruggs asked Mr. Beasley if he agreed that even if they raise the property tax rate 21.5 cents and build the building, they still did not know where the money would come from for staffing and operations. Mr. Beasley responded that there had been a plan to bring some element of staffing into the building with the current staff and phase into it. Mayor Scruggs suggested finding funds by exchanging some cuts in other departments and their programs to use for the courthouse, which was very important for the redevelopment of the city. Mr. Beasley stated that staff had brought forth a balanced budget based on the goals and direction of the Council. He stated they were not opposed to doing whatever the council wanted; the recommended budget is balanced and creates flexibility for those vacant positions. Mayor Scruggs remarked that perhaps it would be more valuable to the community to take those vacant positions out of the budget. She suggested coming back and rebuilding the staff as money becomes available and needs become known. She recommended making substantial changes now. Mr. Skeete stated that the hiring freeze currently in effect was dealing with the positions that were not there. He explained they were using that vacancy savings to be able to balance the budget. He noted that to decide to eliminate those positions would leave them in the same place they were today. Mayor Scruggs remarked that taking those positions out permanently would reduce the base budget. Mr. Skeete explained that if they took the vacant positions out permanently, the numbers would be lower; however, the impact would be the same. Mayor Scruggs remarked that the impact would be the same this year, but next year they would not have to make up the difference again. She stated they might want to do something different with - those positions. However, as long as it remains there for salaries, that was where it was going. She added that what was needed was money for other priorities. Vice Mayor Martinez asked if the only way they could save the courthouse was to raise property taxes. Mr. Skeete responded that in order to fund the capital cost of the courthouse and based on the assessed valuation received from the assessor's office, they would have to raise the property tax for FY 2010 by 21.5 cents in order to cover the courthouse and the remaining projects. Vice Mayor Martinez wanted to clarify that the only way they will be able to build the new courthouse is to raise taxes. He added that even if they cut everything else, that money will not be able to be used for the courthouse. Therefore, there will probably be no courthouse, since as he had stated in his opening statement, he did not see the council raising taxes at this point. He stated he does give the staff credit for what they had done with the budget. He said he knows it was not an easy job and there were some good things done; however, there may be other things that could be cut. Mr. Beasley indicated 70% of the general fund operating budget was allocated for authorized staffing to provide services. Therefore, the big numbers were basically eliminating people that will in turn eliminate some programs. He explained doing away with that many positions would impact the city when they come into better times. He indicated that the phased approached was being looked at first because it allowed them to assess the economy and make adjustments to plan for both employees and the city. 9 • Councilmember Goulet asked if staff could compile a list of programs that could be cut to equal or exceed the 21.5 cents. Councilmember Clark commented that she thought the 21.5 cent increase equaled what staff provided as a revised CIP plan. Ms. Schurhammer stated that the 21.5 cent rate increase refers specifically to the secondary property tax rate and will allow the city to continue the courthouse as planned, as well as the $21 million in economic redevelopment projects. Councilmember Clark read from the top half of the information provided on page 63.1 and asked if these projects would be done if the secondary property tax rate is increased. Ms. Schurhammer stated she was correct. Councilmember Clark asked about the information on the bottom half of page 63.1. Ms. Schurhammer said the information on the bottom half of that page reflects keeping the property tax rates unchanged, which means deferring the courthouse and library projects and reducing economic development projects. Councilmember Clark clarified that the top half of page 63.1 requires a property tax rate increase and the bottom half requires no rate increase. Ms. Schurhammer agreed. Mayor Scruggs suggested they wait a year and see what happens. She noted this was a very pessimistic scenario. Ms. Schurhammer explained that the impact assessed valuation changes lag the actual real estate market changes. She explained that the assessed valuation and resulting secondary property tax revenue expected for FY 2011 will reflect the real-estate market that occurred in calendar year 2008. She added that the sales tax revenue was in real time and reflects what was going on currently in the economy. Mayor Scruggs voiced her concerns on the economy and how things were not going to bounce back anytime soon. She asked how they can justify raising property taxes to build something they might not have the money to operate. Councilmember Clark suggested taking some construction items such as street parking, parks, public safety, government facility, economic development and flood control out of the capital budget and deferring them. She said the only capital projects that reflect current commitments are those related to flood control. Councilmember Clark commented that it all depended on how they viewed the courthouse project. She said she viewed it as a luxury and they could not afford to spend money on now. Ms. Schurhammer explained that the flood projects started in the current fiscal year had matching funding from the Maricopa County Flood Control District. Councilmember Clark remarked that they should take everything out this year they were not obligated to and slowly, as the economy improves, bring them back on. Mayor Scruggs asked if flood control was included in general obligation funds. Mr. Reedy stated that half were general obligation funds and the other half was flood control money. Councilmember Knaack commented that she was in agreement; however, in the CII', there was a lot of maintenance needing to be addressed. She explained if they do not maintain what they have, there will be worse problems down the road. Ms. Schurhammer stated that restoration and rehabilitation of existing assets were both in the government facility and parks category. Mayor Scruggs asked if those projects would be preserved with no property tax rate increase. Ms. Schurhammer said yes. 10 Ms. Schurhammer reported on public safety capital projects shown on page 97 of the council budget workbook. She said these projects would be retained under the current rate and includes communication equipment for police and fire. Councilmember Clark commented about the west branch library and how it has been on hold for 10 years and will be pushed back for another five years. She explained how people had bought homes and paid impact fees in anticipation of the library. She asked why a more equitable situation had not been created, such as starting the library at the same time as the courthouse over a two to three year period, so the library was not pushed back another five years. She explained the library keeps getting pushed back like it did in 2006 in favor of the public safety training facility and the EOC. The library was to start this year and did not because of the economy. However, when the economy comes back, there is a moral obligation to start the library and not have it deferred for 15 years. She asked staff to see if they could find a more equitable plan for the library. Councilmember Frate commented that staff can always put it in as a place holder; however it did not mean it will happen and could lead to more anxiety for the community if it does not happen on a certain date. Councihnember Clark stated the library was in the budget book for the current fiscal year. She said she and her constituents understand the state of the economy; however, when times get better, they would like a more realistic approach to the branch library. Mayor Scruggs summarized that the discussion was heading toward using the suggested CIP plan that was on the bottom half on page 63.1, which would mean no property tax rate increase. She noted that this option changes only one element for FY 2010 and that is funding for economic development capital projects would decline by $5.2 million. She added they will know more once the stimulus package takes effect and more information becomes available. Councilmember Frate commented that in past budget talks, they had said they could always build the library building, but could not afford maintenance. He noted that because of the economy it was both; they could not afford to build the new library building or staff it. He indicated that this did happen and they have been through cycles like this before. He explained it was better to defer a project, rather than have it half-way finished. He added he was optimistic that Glendale will bounce back quicker than most cities. Mayor Scruggs asked the Council if they were in agreement with the direction given. All agreed. Mayor Scruggs asked for clarification on Table 5 (in the City Manager's budget memo) regarding one-time general fund transfers. She commented on the $1 million reduction from FY 2009 to FY 2010 in the GF transfer (for arena-related debt service) due to additional arena- related revenue. She added that this meant the general fund portion of the arena debt service went from $4.4 million to $3.4 million for fiscal year 2010. She asked Ms. Schurhammer if they expect that to happen again next year for fiscal year 2011. Ms. Schurhammer responded that they do expect the additional $1 million dollars based on the signed development agreement. Mayor Scruggs asked if the city was anticipating an additional $1.2 million based on the Hammond's contract. Ms. Schurhammer replied, yes. Mayor Scruggs asked why not reduce 11 what is shown as a required transfer. Ms. Schurhammer explained that the transfer was a lower number. She stated the debt transfer number is the net number after the revenue offsets have been taken into account. Mayor Scruggs asked for clarification on GF transfer. Ms. Schurhammer explained that the total GF transfer figure for FY 2010 is $17.9 million. She added that the transfer number is distinctly different from the fund balance number. Mayor Scruggs remarked that she wanted to understand the plan of action regarding the CIP review. She asked if the plan is to proceed as recommended unless the council provides other direction. Mr. Beasley asked if at the end of the utility rate discussion, they can come back next week to discuss the material, answer questions, and make any changes. He added if the council was prepared to discuss some issues today, they will be able to do it after the utility rate discussion. Mayor Scruggs commented for the record that in general, she has not liked the way the budget process is being handled. She explained they should have the opportunity to ask questions about each budget and the programs addressed with each department's budget. Mr. Beasley stated he does not believe the current budget presentation has changed much from previous years, except that there is not much money this cycle. As a result, there is not much to propose from staff's stand point regarding supplementals or adjustments. He noted council had all the budget information on the line items, so anything council would like to discuss, staff was prepared to answer. Mayor Scruggs remarked council should have the opportunity to go through the budget more thoroughly. She added she will bring her questions and comments up at an appropriate time later. The discussion on Item No. 1 resumes on page 15, after Item No. 2 is completed. 2. ENTERPRISE FUNDS RATE RECOMMENDATIONS CITY STAFF PRESENTING THIS ITEM: Ken Reedy, Deputy City Manager; and Roger Bailey,P.E., Utilities Director This is a request for City Council to review the rate recommendations for the enterprise operations (landfill fund, and the water and sewer funds). An annual review of the City of Glendale rates for the enterprise operations is consistent with the Council's goal of a city that is fiscally sound and a city with high quality services for its citizens. Sanitation and Landfill Funds In October 2007, the City of Glendale Field Operations department engaged the professional services of R.W. Beck, Inc. to update the Sanitation and Landfill Cost of Service and Rate Design Study. In February 2009, city staff updated the study using current revenue and expenditure projections. Water and Sewer Funds 12 On November 14, 2007, Council authorized Red Oak Consulting to conduct an independent assessment of the existing rates, fees, revenue generation and full cost recovery and provide recommendations to Council. The study ensures that the Utilities Department continues to remain fiscally sound into the future. The contract also allows Red Oak Consulting to continue to provide services on an annual basis. In February of 2009, Red Oak Consulting updated the assessment of the existing rates, fees, revenue generation and full cost recovery for the city's Water and Sewer operations. Rate increases for water and sewer services are required in order for the Water Enterprise Fund and the Sewer Enterprise Fund to maintain adequate operational cash reserves and finance the 10-year Capital Improvement Program necessary for the viability of the water and the sewer systems. At the April 15, 2008 Budget Workshop, the Sanitation and Landfill Cost of Service & Rate Design Study conducted by R.W. Beck Inc., and the Utilities Needs Assessment and the Water and Sewer Rate analysis update conducted by Red Oak Consulting were presented. Effective water, sewer and solid waste management services are critical to community health and safety. To ensure these essential services are financially sound, all revenues and expenses are accounted for in Enterprise Funds. These rate adjustments provide revenues to meet expenses while keeping rates as low as possible for residents. The expansion, replacement and rehabilitation of the utilities infrastructure will ensure that Glendale maintains its long history of providing quality water and wastewater services to its residents and businesses, while complying with all local, state and federal regulations. Prior to any formal action by the Council on changing utility rates, public notice is given and public hearings are held. Consider and provide direction on the enterprise funds rate recommendations provided by staff. Mr. Reedy summarized the enterprise fund rate recommendations annual up-date. He explained the regulatory factor, the cost of fuel, energy and chemical costs:which continue to drive the rate base. This rate base goes into an analysis that calculates the cost to provide the highest quality of service to each class of customer at the most affordable rate. He explained that last year there had been a proposed rate increase for sanitation; however, because of the economy and people throwing fewer things away, they would not have to pass along an increase this year. He added they will recommend a rate increase for landfill gate customers from $30.25 to $32.25. He noted this was to protect the landfill from an excessive flow of waste, if the city was the lowest cost around. He indicated that the life of the landfill was estimated at 43 years. Councilmember Frate asked Mr. Reedy to explain the rate for a Glendale resident. Mr. Reedy explained that if you are a Glendale single family resident, you can bring your water bill and not be charged for less than one ton of material per trip to the landfill, 13 Mr. Reedy summarized the water, sewer and irrigation funds. He stated that in the past, they have dealt with the irrigation rate when they raised water rates. He said the rate increases would go from $19.51 to $21.66. He explained that the model predicts they need to increase water and sewer 11%. He indicated the actual cost in water will go from $31.26 to $3.5.09. The sewer will go from $28.4 to $31.64 with no sanitation increase. He noted the total cost will represent a $7.06 rate increase for the average customer. He explained they had prepared a comparison analysis to other cities. He stated when compared, Glendale was somewhere in the middle of what other cities charged. Mayor Scruggs asked Mr. Reedy to explain some of the regulations put on the city's provision of water and waste water services. She asked staff to touch on those things in order to help provide the public a greater understanding of what it costs to provide the service and why requirements drive costs up. Mr. Reedy explained they have added an improvement mandated by the federal government, a new granular activated carbon filter that has to be replaced annually. The additional cost adds approximately $1.8 million a year to the operation cost of the system. He stated that the $1.8 million was a new cost to customers that happens every year, and those costs have an impact on their rate structure. He noted there were many other examples and regulations changing which affect cost. He stated the costs have implications to the rate structure; however, they do provide safe, high quality drinking water to Glendale customers. Mr. Reedy reiterated they were highly regulated and their mission was to make sure they deliver high quality water that meets all regulatory standards. He indicated that over the last year, staff had looked at every aspect of their budget to see how they can reduce and manage cost. He noted that they have made several changes. Mayor Scruggs stated that she appreciated them looking at ways to reduce cost and optimize services. Vice Mayor Martinez thanked staff for their presentation. He noted that last year he had not received any e-mails or telephone calls regarding odor problems. He asked for an update regarding filters that were to be installed coming from France. Mr. Reedy explained that they did not work the way they were intended, and had been sold. Councilmember Knaack thanked staff for their presentation and the good water they provide. She indicated that at the Green Day Event at the library, the water department was serving cold tap water and it was very good, better than bottled. Councilmember Frate commented on his tour of the Pyramid Peak Water Treatment Facility. He was amazed to see all the technology and innovation in the system. He explained the processes that go into providing a safe good tasting quality product. He noted that most people do not realized all the work put into providing quality water. Councilmember Lieberman commented on bottle water not being regulated as stringently as tap water. Councilmember Frate asked how many gallons of tap water would be equal in price to one bottle of water. Mr. Reedy replied that it would be approximately 800 gallons of city water. 14 The discussion on Item No. 1 resumed. Councilmember Clark asked to look at the Jazz and Blues Festival and their budget. She said the 4th of July event costs were about one-third of the costs for the Jazz and Blues Festival while the attendance was about the same for both events. She asked why the 4th of July event is under consideration for elimination rather than the Jazz and Blues Festival, which was much more expensive. Ms. Frisoni indicated that every event costs somewhere around $100,000 out of the general fund as well as event-generated,revenue that supplements the GF funding. She said the Jazz and Blues Festival has been one of the biggest city revenue generators with last year's numbers being $131,000. Additionally, the Jazz and Blues Festival has the potential to attract people regionally which brings people to hotels in the area. She added that this year sponsorships were not as generous. She explained that in other years, they would have raised $300,000 to this year's $100,000. Councilmember Lieberman asked what comprises a sponsorship and how they tell how much revenue is generated. Ms. Frisoni provided an example. She stated that in the past, APS has been a very good sponsor and has provided between $60,000 and $70,000 in sponsorship fees; however, this year APS was able to fund about $15,000 or $20,000. She stated that they will work with them to look at what event and sponsorship they would like to make available. She explained that the city receives a portion of any revenue that is raised at the event to put back into the festival to enhance it for the next year. She added that in past years, the general fund amount has been $800,000 for festival events; however, next year because of budget cuts, it will be somewhere in the neighborhood of$680, 000. Vice Mayor Martinez commented that he did not see any 2007 actuals for Fiesta Glendale. Ms. Frisoni explained that they did not do it in 2007. She stated that Fiesta Glendale has always been difficult for staff because of the other similar events going on around the Valley. She indicated they had gathered a group of community leaders to assess the situation and the consensus was that the Fiesta Glendale event should offer more of a home-town feel. However, numbers continued to be low at around 10,000 people. Councilmember Clark commented on the Parks and Recreation budget. She asked for clarification on which were the high profile parks. Ms. Benna replied that the high profile parks were the five regional parks. Councilmember Clark asked about the new fee at the Rose Land Aquatic Center. Ms. Benna stated that the child rate was .50 and the adult rate was $1.50 resident and non-resident was $3.00. The new child rate will be $1.00 and adult resident will be $3.00 with non-resident being $6.00. Seniors will be $2.50 and non-resident seniors $5.00. Councilmember asked how many people used the park. Ms. Benna stated that it was the highest attended facility with 48,000 participants during the summer of 2008. Councilmember Clark asked about the amount of fee revenue generated at the facility earned last year. Ms. Benna stated it was $49,850 resulting in a cost recovery rate of 25%; the fee adjustments are expected to result in a 44% cost recovery rate. Councilmember Clark asked about the cost recovery rate or the aquatics activities at the Foothills Recreation and Aquatic center. Ms. Benna said the aquatics program had a cost recovery rate of 49% for the summer of 2008. Ms. Benna expanded on some of the programs that can be used by the public to reduce participant costs such as scholarships, free swim days and punch cards. 15 Vice Mayor Martinez asked a question about recreation location consolidation. He asked if this was based on the usage. Ms. Benna responded yes. She added that they had looked at the attendance and the proximity of other locations that could be accommodated by other facilities located nearby. Councilmember Knaack asked about the ratio of resident to non-resident usage at the Rose Lane Aquatic Center. Ms. Benna said 50% of'the Rose Lane Pool participants were non-residents. Councilmember Lieberman commented that he was interested in the rate comparison in the two parks,•specifically because the Rose Lane area has one of the lowest per capita incomes in the city, against a high per capita income in Foothills. He stated that he really was against raising rates of any sort. He noted the reason the Rose Lane area was so busy was because families could not afford to travel during the summer. Ms. Benna explained that they had looked at that possibility and found that the aquatics facility served individuals from area outside of the city's limits. She said the decision to raise fees was necessary in order to deal with the operational expense to run the aquatic facilities. Vice Mayor Martinez commented that the people who use Foothills aquatic center were people from all over the area. Mayor Scruggs commented that the people with the higher income paid more in property taxes so they paid more into the construction and maintenance of the Foothills facility. Councilmember Lieberman expressed concern with some people not being able to afford the pool. Councilmember Clark asked Ms. Benna to talk about the scholarship program to help disadvantaged individuals participate in the city's aquatics programs. Ms. Benna said the department has an ongoing scholarship program available to Glendale residents only. In the past year over 200 individuals participated in the scholarship program. Councilmember Clark asked if the department had ever applied for From the Heart program monies. Ms. Benna said no. Ms. Schurhammer said city departments are not allowed to apply for From the Heart program funds. Mayor Scruggs inquired about the Copper Canyon High School and the youth sports field programs. Ms. Benna said the city entered into an agreement with the Tolleson Union High School District in 2005 to provide workforce development opportunities through after school activities for a diverse teen population. . She said 21 students were placed for employment last summer through this program and in partnership with two youth employment organizations. Ms. Benna stated the program started with funding from the general fund; however, every year they have been trying to find different avenues to fund the program other than the general fund. In 2007, the department was successful in obtaining a three year Gila River Indian Community grant that will continue until November of 2010. Mayor Scruggs inquired why a similar program has not been offered at other high schools in Glendale so more Glendale students can participate. However, she said she was satisfied that staff will be removing this item from the general fund this year. Ms. Benna agreed. Ms. Benna explained the status of the youth sports field division activities. She said the youth sports fields fulfill a contractual obligation to provide up to 1,000 parking spaces for stadium activities as well as provide sports fields for community youth groups on a year round basis. She 16 said there were approximately 3,000 youth and 10 organizations that were using the fields 86% of the time it was available. She said the arrangement has worked out very well in terms of the logistics and offering services to the youth community. She added that they have opened a concession stand that will help with revenue generation. Mayor Scruggs commented that there was $262,000 in the budget for the youth sports field. She asked if the annual lease payment for the Pendergast property is budgeted in the Economic Development Department and Ms. Benna responded, yes. Mayor Scruggs then inquired about the $262,000 budget for the youth sports field program. Ms. Benna said $187,000 was for the management contract with Global Spectrum, the firm that is responsible for managing the facilities. She said the remaining $75,000 was paid for the irrigation of the site and some landscaping maintenance. Mayor Scruggs asked if the city had received any revenue from Global Spectrum. Ms. Benna said $61,000 in revenue has been received with more expected in the future now that the concession stand is operational. Mayor Scruggs question the fact that Global Spectrum was being paid $187,000 a year for expenses and management; however, were also taking a percentage from additional revenue, which seemed like double dipping. Mr. Lynch stated 40% was for independent activities they run over and beyond the management contract. Mayor Scruggs asked if the city planned to renew the contract. Ms. Benna said that renewal of the contract was likely because in the firm has performed well in managing the facilities. Mayor Scruggs asked if the 10 organizations using the park were the same ones. Ms. Benna stated she could provide obtain that that information and provide it after the meeting. She said Global Spectrum helps staff coordinate uses with the interested organizations and focus on serving Glendale's youth first. Mayor Scruggs asked if field fees were comparable. Ms. Benna said yes. Mayor Scruggs commented this was a very expensive venture when compared with closing pools or shutting down recreation sites. Vice Mayor Martinez asked about preventive maintenance being reduced on signals. Mr. Reedy stated they will still be doing the preventive maintenance; however, will try and minimize any scheduled upgrades. Vice Mayor Martinez commented he hopes they were not reducing something that could cost more down the line. Councilmember Goulet asked about the reduction in striping on cross walks and wondered if it was the wise thing to do. Mr. Reedy said the past practice has been to restripe cross walks every year. Now the Transportation Department will be doing it on a case-by-case basis. Councilmember Goulet inquired about the adjustments to neighborhood traffic mitigation. He noted that was probably one of the more sensitive things with which neighborhoods had concerns. Mr. Reedy responded that the loss in funding was on the construction side. He explained when they receive calls on speeding, they will look for alternatives that can be used; however, they will not move quickly into the construction phase. Mr. Mehta commented on the crosswalks. He stated that the city had been awarded federal stimulus funds through the Maricopa Association of Governments to replace existing striping and markings with thermal plastic striping and markings, which will last for several years. 17 Mayor Scruggs asked Ms. Frisoni about items funded with onetime funds in FY 2009 that will not be continued in FY 2010. Ms. Frisoni explained they will continue since they do have onetime money through June, but will not continue starting in July. Mayor Scruggs asked how much was budgeted for the Thursday Downtown promotion. Ms. Frisoni stated it was $100,000. She also asked how much was budgeted for the Fiesta Bowl Grid Iron project. Ms. Frisoni responded it was $95,000. Ms. Frisoni also provided figures for the Glendale Express Shuttle at $60,000, with a ridership of about 300 a month. Mayor Scruggs asked if any of these programs will be funded in the FY 2010 budget. Ms. Frisoni said no. Councilmember Knaack commented on the "That Thursday Thing!" downtown promotion program and the related monthly promotional events. Ms. Frisoni explained the project as e 12 months of endless fun. Councilmember Knaack said these projects did not generate a good return on the investment. Ms. Frisoni said the merchants had been thankful the city was trying to do something for them and noted that her department's staff will continue to work with the downtown merchants to see how they can support and work with them. Mayor Scruggs and Councilmember Knaack both agreed that the Visual Improvement Program provided a good return on investment and expressed hope that funding could be restored in the future. Councilmember Frate commented that he was concerned with the amount of street sweeping reduction in residential and school areas. Mr. Reedy stated there was a legal requirement to sweep arterials; however, there was no legal requirement as to how often the city should sweep other streets. He explained that because of budget constraints, this was one of the few areas they had an option to do something less frequently. The cost for sweeping on a month-to-month basis was an additional $352,000 a year. He noted most of the high schools were on arterials; however, most elementary schools were on local streets. He added that with the budget situation,there really was no choice. Mayor Scruggs commented that this goes back to talking about priorities in the budget, and those priorities were not as important to the Council as staff believes. She indicated this cut will be a disaster when a storm comes into the valley. Councilmember Clark commented that she had received a call on street sweeping. She stated that after she explained the budget situation and asked what other things they would do without, they decided they could live with street sweeping once a quarter. She explained that the bottom line was there was no money and they cannot do everything as they are accustomed. Mayor Scruggs asked Ms. Schurhammer what was on next week's agenda. Ms. Schurhammer stated that next week workshop will address employee matters and a wrap-up. Mayor Scruggs asked to discuss employee benefits next week. Ms. Schurhammer agreed. Councilmember Frate commented on a memo on graffiti. Mr. Beasley explained that last week, there was a discussion on using council's budget funds for graffiti funding. He also added that there had been no increase in employee benefits or any reductions. 18 Vice Mayor Martinez commented on his suggestion to offer council's "capital" funds for city use. He stated they as Councilmembers should send a message they were also willing take a budget cut for neighborhood improvements. ADJOURNMENT The meeting was adjourned at 4:35 p.m. 19