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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 2/3/2015 City of Glendale 5850 West Glendale Avenue Glendale, AZ 85301 ri7I i 11 Meeting Minutes - Final Tuesday, February 3, 2015 9:00 AM Budget Workshop Council Chambers - Room B3 City Council Workshop Mayor Jerry Weiers Vice Mayor Ian Hugh Councilmember Jamie Aldama Councilmember Samuel Chavira Councilmember Gary Sherwood Councilmember Lauren Tolmachoff Councilmember Bart Turner City Council Workshop Meeting Minutes -Final February 3, 2015 CALL TO ORDER Rollcall Present 7- Mayor Jerry Weiers, Vice Mayor Ian Hugh, Councilmember Jamie Aldama, Councilmember Samuel Chavira, Councilmember Gary Sherwood, Councilmember Lauren Tolmachoff, and Councilmember Bart Turner Also present were Brenda Fischer, City Manager;Jennifer Campbell, Assistant City Manager;Michael Bailey, City Attorney;and Pamela Hanna, City Clerk. WORKSHOP SESSION 1. 15-087 FY15-16 Budget Workshop Staff Contact: Tom Duensing, Director, Finance and Technology Mr. Duensing said this was the first budget workshop for the FY15-16 budget and he wanted to allow enough time for questions. He said they will provide an overview of legal requirements and get direction on any items Council would like more focus on. He said they will review budget law requirements, put together a calendar, and go over the budget process and components. He said they will also discuss future budget items and the next steps in the process. Mr. Duensing next discussed the legal requirements. He explained funds are just an accounting mechanism. He said some funds have to be legally separated for accounting purposes. He said they are combining the general funds sub funds as is best practice. He said there are currently 78 funds and explained how the funds are organized. Councilmember Turner asked if the 5 debt service funds were a subset of the 19 special revenue funds. Mr. Duensing said those funds are separate and in addition to. Mr. Duensing said there are 22 capital projects funds, 1 permanent fund, 4 enterprise funds and 3 internal service funds. He said enterprise funds are self-supporting through user fees. Mr. Duensing said state imposed expenditure limitation is state law, which limits the amount that the city can spend. He said the city is well below the state imposed expenditure limitation. He said state law governs primary property tax levy increases. He said the city has two types of property tax levies. The first is primary property tax which supports operations such as police, fire and parks. An increase on the primary property tax is limited by state constitution to 2 percent. He said the city's share of property tax revenues is fairly small. He said the city also levies a secondary property tax. He said that is used for payment of the city's general obligation debt service. He said this secondary tax is not limited to 2 percent like the property tax levy. Councilmember Turner said on the secondary, Mr. Duensing mentioned a voter approved requirement. Mr. Duensing said that was correct. He said they go to the voters to get bond authorization, so the voters approve sale of general obligations bonds to do these projects, and they are approving the concept the city will levy secondary property taxes in order to pay those back. Mr. Duensing went over the timeline and date requirements, which is a regulated process. He said the tentative budget adoption has to occur before City of Glendale Page 1 Printed on 3/19/2015 City Council Workshop Meeting Minutes -Final February 3, 2015 the third Monday in July each fiscal year and sets the maximum limits for expenditures. The final budget adoption occurs the first Monday in August, with at least 14 days between the adoption of the final budget and adoption of the tax levy. He said the final tax levy occurs the third Monday in August and publication notices include State Auditor General forms. Mr. Duensing discussed the budget calendar and said the financial forecasts came out on December 16, 2014. There are several Council Workshops in March and April. Tentative budget adoption is planned to occur on May 26, 2015 and final budget adoption and property tax levy should occur in June 9, 2015. Property tax adoption is planned to occur on June 23, 2015. Councilmember Turner said they receive input from constituents during their district meetings and asked when the Councilmembers should provide their thoughts and input during the budget process. Mr. Duensing recommended bringing the information back at a workshop for discussion. He said they hoped to have everything incorporated by the workshops in mid-April. Councilmember Turner asked if this information should be discussed at a regular workshop or at a budget workshop. Mr. Duensing said it should be discussed at a budget workshop. Mr. Duensing explained the budget process began with the 5 year financial forecast. Departments then develop their base operating budgets. These budgets are further developed with the budget staff and a proposed operating budget is then prepared. At the same time the CIP plan is being prepared. Council adopts both the operating budget and the CIP budget. The draft budget is presented for Council discussion during the all-day budget workshops. Council will then adopt a final budget by June 30th. Mr. Duensing went over Council's budget priorities for FY14-15, and those were transparency, long-term fiscal sustainability, maintaining public safety and other service levels, maintaining legal and contractual obligations, focusing on staff retention, Super Bowl support and a zero-based budget approach. Ms. Fischer said these key priorities were set by Council last year during the Council Retreat. Mr. Duensing said long-term fiscal sustainability was a big focus last year and said he did not see this as big of an issue this year compared to last year. Mr. Duensing's next item of discussion was budget components and explained the components were for any fund, not just the general fund. He explained revenues were money coming into the city, and these also included transfers into certain funds. He said the four components of expenditures, including operating, capital improvement plan, debt service and contingency. He said in CIP expenditures are usually projects costing$50,000 or more and are not recurring in nature. This is what makes these expenditures different from operating expenditures. Mr. Duensing provided more information about debt service expenditures and said the city is going through bond refunding. He said the issue he was looking at was how to budget for the long term to realize the savings over the next few years. He said he anticipates one more debt service fund. He said when the city refinanced the MPC debt; it was refinanced into city of Glendale debt. He said it acts the same way and has the City of Glendale Page 2 Printed on 3/19/2015 City Council Workshop Meeting Minutes -Final February 3, 2015 same security, and they did that transaction because MPC was no longer necessary in Arizona. He said because they did this, they will probably set up a separate fund. Mr. Duensing said in the December 16, 2014 forecast, there was a$5 million budgeted contingency. He said contingency is not a reserve fund. He said contingency is an appropriated line item in the budget. He said any contingency not utilized will lapse and can be reappropriated the following year. He said contingency is used for unforeseen things and emergencies. He said for the city it is adequate, but is on the lean side. He explained other cities the same size as Glendale only have$1 million in contingency. He said$5 million in the city's current financial situation is an appropriate amount. He also wanted to discuss contingency in the city's other funds. He said they do appropriate contingency in some of the special revenue funds and he explained in order to use those contingency funds, they do have to come before Council for approval. He explained the city also has contingency in the capital projects funds. He said they typically budget to utilize all the resources coming in. He said staff will do further research to make sure this is the right approach. Mr. Duensing said a balanced budget asks the question does the city have adequate resources to cover the appropriated expenditures. He said there are two types of resources, recurring revenues and fund balance which is the city's savings account. He said the savings account can only be spent once. By state definition if the city appropriates expenditures equal to or less than the resources, which is the recurring revenues and the fund balance that meets the definition of a balanced budget. He said it is very common for cities to do that. He said it is dependent on the financial situation of the city. He said this current fiscal year;the city appropriated$2.1 million more in appropriations than the city had resources in the primary General Fund. He said that represented the budgetary impact of the Super Bowl. He said the city had fund balance in the bank to do that. He said it is dependent on the Council and the city's financial situation to continue that practice moving forward. Mr. Duensing said Council could give direction on a balanced budget just using revenues, with no use of the fund balance. He said he was not seeking direction today on this issue, but it is an area where Council can weigh in. He asked if the fund balance was adequate. He explained city policy said 10 percent of projected annual ongoing revenue. He said 10 percent of$200 million is$20 million. He said stable, AAA cities are at least double that amount or more. He said that information will weigh into how Council wants to appropriate the general fund for FY15-16. Councilmember Sherwood said there is a term, possibly federally, where it allowed states and most states participate in something of a fund balance nature, because the revenues are not always going to be the same on a year to year basis, so you use the fund balance to balance that out. He said it is an accepted practice and all but 2 or 3 states use it on a state level. Mr. Duensing said that is a rainy day fund. He said Arizona is more dependent on sales taxes, which is different from states back east where governments are more dependent on property taxes. He explained sales taxes fluctuate with the economy, and it makes sense to have a little more fund balance to deal with those fluctuations. He said this makes it more important that the city has fund balance set aside. Ms. Fischer said that is partly the function of the contingency fund and the contingency fund allows the city to make up any deficiency in revenues. Mr. Duensing said that was correct and the contingency fund is to protect against City of Glendale Page 3 Printed on 3/19/2015 City Council Workshop Meeting Minutes -Final February 3, 2015 unforeseen emergencies and protect the city's revenue as well. Councilmember Tolmachoff asked if increasing the reserves above the 10 percent mark was a goal of increasing the bond rating. Mr. Duensing said it would absolutely help increase the city's bond rating. He said the action Council has taken recently has helped stabilize the general fund and get substantial savings in the general fund and other funds. Had the city had more savings, the bond rating could have been higher and saved more money. Councilmember Tolmachoff said moving forward if the city needs capital projects, would the city have a longer bond price. Mr. Duensing said it is cheaper for AAA rated city to borrow money for projects than an A rated city. Councilmember Sherwood asked what would be the goal for an AAA rating and what percentage of the budget is Mr. Duensing looking at. Mr. Duensing said when he talks about the current policy of 10 percent;he is talking about the general fund. He said much more goes into a bond rating than just fund balance. Rating companies want to see how much debt the city carries as well. They also look at the policies in place and that the city is taking steps to correct the issues. He said an adequate fund balance is very important. Councilmember Chavira said experience, knowledge and wisdom go into the good financial decisions being made. Mr. Duensing said he was following Council direction on that. Councilmember Sherwood said the city policy should really indicate 20 percent of fund balance against the general fund. Councilmember Sherwood asked for a number to think about for the future. Mr. Duensing said putting an additional$20 million in savings;it would mean$20 million in additional revenues or$20M in reduced expenditures. He doubted this could be done in one year. He said Council could set a policy to commit to setting aside money in the fund balance to get to a certain level over time. He said Council can address the interfund loan right now and that will help from a bond rating standpoint. He said he would like to address it during this fiscal year. He said they can also work on the capital lease that is set to run for three more years. He said if they can address the interfund loan issue, he would recommend paying off the capital lease. This could save the city approximately$1 million in interest. Councilmember Sherwood asked again for a percentage. Mr. Duensing said the last city he worked for had an AAA rating and their fund balance was 25 percent, which would mean about$50M for Glendale. Councilmember Tolmachoff clarified on the capital lease and the immediacy of this issue. She asked if this was built into the current budget they were working on. Mr. Duensing said yes. City of Glendale Page 4 Printed on 3/19/2015 City Council Workshop Meeting Minutes -Final February 3, 2015 Councilmember Sherwood said the city is going to have high debt for a long time, and the 25 percent is something for the city to strive for. Mr. Duensing said yes. Mr. Duensing provided information about where the revenue comes from. He said general fund revenue comes from sales tax, property tax, state shared revenue, other sources and transfers in. He said sales tax revenue is about 45 percent and the city is sales tax dependent. He said this is not unusual. The smallest portion is property tax. He explained the city receives about$55 million in state shared revenues. He said this includes state shared sales tax and state shared income tax and vehicle license tax. He said it is very important for the city to maintain their share of state shared revenues. He said the city cannot control this revenue coming in and it is important to protect the city's share of that revenue. He said transfers in from the public safety sales tax funds and that represents approximately 10 percent of revenues. This shows the importance of having adequate fund balance. Mr. Duensing said the majority of expenditures are for Police and Fire services. This is a Council priority and represents about 50 percent of expenditures. He said the majority of transfers out represent the city's debt service. He also provided information about the relative share of expenditures without the transfers out for debt service. He said Police and Fire was about 60 percent of expenditures. Councilmember Turner asked for more detail on the "Other"category under revenues. He said that represents permits, court fees and fines, police and fire revenues and interfund support. Ms. Fischer asked if that included casino revenue as well. Mr. Duensing said that does include casino revenue. Councilmember Turner asked about the transfers out under expenditures and asked Mr. Duensing to break that down. Mr. Duensing said they will be talking about this later and said most of it was debt service. Councilmember Turner asked of that$31 million, what types of projects it breaks down to. Mr. Duensing said about$900 of that is a maintenance transfer to Transportation, $31.3 of that is debt service costs and another$530,000 is for several other different things. Mr. Duensing went on to discuss policy direction. He said policy direction can include operating policy direction, employee related cost increases and service level enhancements. He said there will be a detailed review of the CIP. He said they will also look at the fund balance and discuss adequate reserves and uses for the fund balance. He said they will also look at revenues, including the sales tax rate, property taxes and user fees. Mr. Duensing said the city has to make a decision on the PSPRS rate it will pay. Currently, there are two options, a phased-in approach, which has a lower cost option initially and a no phased-in approach, which has a high cost option initially. With a phased in approach, the city's expenses would be about$3.5 million less in FY15-16. He City of Glendale Page 5 Printed on 3/19/2015 City Council Workshop Meeting Minutes -Final February 3, 2015 said this decreases the funded status of the public safety retirement plan. This approach would cost more in later years. The no phased in approach will cost$3.5 million in FY15-16, but will increase the funded status of the plan and there will be lower contributions in future years. He said they have already built into the forecast that the city would take the higher cost option. He said staff recommendation is to take the higher option and this will offset future increases. Councilmember Tolmachoff asked if the figures are state mandated, and it is the city's option on how those amounts are funded. Mr. Duensing said that was correct. He also said there are other strategies they can look at as well, which will be discussed at a future date. He also said they have to let PSPRS know which option the city chooses by March 31, 2015. Mr. Duensing said discussions will be held on revenues, fund balance and operating budgets on March 17, 2015. On March 24, 2015, discussions will be held on operating budgets and the capital improvement plan. On April 14th and April 21st, 2015, discussions will center on department operating budgets. He also provided a synopsis of the calendar of events regarding budget discussions, tentative and final budget adoption and property tax adoption. He said the state legislature is dealing with a substantial deficit. He spoke about the residential rental tax and if it passes, this rental tax will be eliminated over 5 years. He said that means$6 million to the city. Discussions would have to occur on how the city would cover that lost revenue. Mayor Weiers asked if that was 25 percent of the$6 million annually. Mr. Duensing said it was over 4 years, 25 percent of$6 million. Ms. Fischer said at the end of the 4 years, the city would have seen a$6 million reduction that would have to be sustained going forward, otherwise the city would maintain that$6 million each year. Mayor Weiers said that was not exactly correct, as it would also limit any rental tax from any future growth in the city. Mr. Duensing said that was correct. Mr. Duensing asked Council to bring forward any questions or issues they would like to see addressed. Councilmember Turner said he would like to hear thoughts about benchmarks the city should be looking at if they are thinking about reducing the sales tax increase. He said they also need to make sure they have a handle on the fund balance, bond rating, and debt to income ratios, interfund loans and pay back schedule. Councilmember Chavira asked if they were going to go back through the key budget priorities. Mr. Duensing said yes this would be discussed on February 12th. He would also like to hear about any additional priorities Council may have. Councilmember Chavira said he would wait until February 12th. Councilmember Turner spoke about maintaining public safety and other public service levels and they might want to look at bringing back some of the services that have been City of Glendale Page 6 Printed on 3/19/2015 City Council Workshop Meeting Minutes -Final February 3, 2015 cut. Councilmember Tolmachoff clarified that staff was going forward with preparations of an additional 2 percent increase in primary property tax. Mr. Duensing said yes and this was built into the financial forecast. If Council didn't want to move in that direction, they can look at other scenarios. Mayor Weiers asked if that was secondary or primary. Mr. Duensing said primary. Councilmember Turner asked if they didn't raise it 2 percent this year, it doesn't mean they can't raise it 4 percent the next year. Mr. Duensing said they can and this happened before his time with the city. Councilmember Sherwood said it's the secondary that they are tied to 2 percent max. Mr. Duensing said it is the primary, the secondary is unlimited. He said secondary property tax repays the General Obligation debt,principle and interest. You levy to repay your debt, principle and interest. This can go up or down depending on if you have projects you want to finance or not. Councilmember Sherwood said the previous year they did 2 percent on the primary. Mr. Duensing said the previous year they did 2 percent on the primary and they held the secondary levy. He said the idea behind that is they had substantial fund balance in the debt service fund and they did not want to increase the secondary levy. He also said the city anticipated refinancing. Those things go into the decision making process. Councilmember Tolmachoff said the state shared revenue is based in big part on rooftops and impact fees. She said there are big projects coming up and that is not used in the forecast. She said that will generate revenue for the city going forward. She asked how this was accounted for. Mr. Duensing said the impact fees are anticipated it is best to view these conservatively. Impact fees do not impact the general fund. These have to be used for infrastructure projects. He said the distribution of state shared revenue is based on population and will be determined in the next census. He said the city's population will be based on the Glendale's piece of the population pie in the state. There was further discussion about the growth of the various cities in the state and the amount of state shared revenue. Mayor Weiers said all staff did a great job with the Super Bowl. ADJOURNMENT The meeting adjourned at 10:17 a.m. City of Glendale Page 7 Printed on 3/19/2015