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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 2/16/2016 (3) City of Glendale 5850 West Glendale Avenue Glendale, AZ 85301 r01 Ga Meeting Minutes - Final Tuesday, February 16, 2016 9:00 AM Budget Workshop Council Chambers City Council Workshop Mayor Jerry Weiers Vice Mayor Ian Hugh Councilmember Jamie Aldama Councilmember Samuel Chavira Councilmember Ray Malnar Councilmember Lauren Tolmachoff Councilmember Bart Turner City Council Workshop Meeting Minutes-Final February 16,2016 CALL TO ORDER Present 7- Mayor Jerry Weiers,Vice Mayor Ian Hugh, Councilmember Jamie Aldama, Councilmember Samuel Chavira, Councilmember Ray Malnar, Councilmember Lauren Tolmachoff, and Councilmember Bart Turner [Councilmember Chavira arrived at 9:43 a.m.] Also present were Kevin Phelps, City Manager; Michael Bailey, City Attorney; and Darcie McCracken, Deputy City Clerk. WORKSHOP SESSION 1. 16-045 FY15-16 MID-YEAR FINANCIAL REPORT Staff Contact and Presenter: Vicki Rios, Interim Director, Finance and Technology Staff Presenter: Lisette Camacho, Controller, Finance and Technology Ms. Rios said this item is a mid-year financial review, and she will provide an overview and report on the actual results of the major Operating Funds, the General Fund, Special Revenue Funds, including HURF, Transportation and Public Safety Sales Tax, and Enterprise Funds, including water and sewer, sanitation and landfill. The analysis presented includes the results through December 31, 2015, compared to the current budget which was approved on June 9, 2015. Items are considered on target if they are near 50% of the budget and the actual results from this year were compared to the results at the same time last year. The General Fund revenues and expenditures include the sub-funds. She explained 3 years of data is presented. Ms. Rios said overall, financial results look positive through December 2015 and staff will continue to monitor fund performance. Ms. Rios introduced the City Controller, Lisette Camacho. Ms. Camacho explained some of the sub-funds have been included in the General Fund. She said the General Fund is on target and revenues have increased about 11% over last year. City sales tax increased 3% over last year, without including the sub-fund revenues. State shared revenues are on target and are up 3% over last year. Other General Fund revenues including Development Services Fees, Business License Fees and Franchise Fees are slightly below target. At 47% of budget, Ms. Camacho said General Fund expenditures are also slightly below target at 45% of budget. Without including the sub-funds, expenditures increased approximately $732,000 over the same time last year. HURF funds are on target and revenues increased 5% over last year. HURF expenditures are significantly lower than the target at only 27% of the budget, and this is due to budgeted capital projects which are spent unevenly throughout the year. Revenues in the Transportation Sales Tax Fund are on target and revenues are 8% lower than the same time last year. Ms. Camacho explained this is due to a one-time reimbursement in FY2015 of $1.6 million from the State of Arizona for capital project costs that were less than initially anticipated. After adjusting one time reimbursement, revenues were up $390,000 from last year. Transportation expenditures are below budget due to capital projects which are unevenly spent throughout the year. Revenues in Police Special Revenue Fund are on target and increased 4% above revenues last year. She said there was a change in the method of accounting and budgeting for enhanced police City of Glendale Page 1 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 service and there are no expenditures in this fund. All uses are accounted for as transfers to the General Fund. Transfers out are on target. Revenues in the Fire Special Revenue Fund are also on target, with an increase in revenues of 4% over last year. Due to a change in the method of accounting and budgeting for enhanced fire service, there are no budgeted expenses in this fund and all uses are accounted for as transfers to the General Fund. Transfers out are on target. Ms. Camacho went over the Enterprise Funds and explained water and sewer revenues are above target. Water revenues are in line with FY2013 and FY2014. Sewer revenues are also on target. Expenditures in the Water and Sewer Funds are below target, and this is due to budgeted capital project expenditures which are spent unevenly throughout the year. A decrease in expenditures is also due to a reduction in debt service obligations as a result of refinancing water and sewer bonds in FY2015. Ms. Camacho explained sanitation revenues are on target, which is the same as last year. Expenditures are currently below budget due to a budgeted but unspent capital projects. Landfill revenues are on target and increased 18% over last year. The increase is primarily due to an increase in tonnage from Peoria. Expenditures are below target due to budgeted capital project expenditures which will be spent unevenly throughout the year. Ms. Rios said major funds met or exceeded 50% of revenue targets and expenditures are at or below 50%. She said staff will continue to monitor fund performance. Councilmember Turner said the General Fund revenues excluded holiday season sales which were not included in the figures presented. Ms. Rios said that was correct, holiday sales which occur in December are reported to the city in January. Councilmember Turner asked if those revenues would be included in the 3rd quarter report. Ms. Rios said there is a boost for holiday sales and there will be some differences due to the Super Bowl last year. Ms. Rios wanted to let Council know there was a recent public records request for sales tax data which will be sent out later this week. That response will include January sales information. She said Council will receive that and it will give them a better idea of what the actual numbers are for holiday sales. 2. 16-052 FY16-17 BUDGET WORKSHOP Staff Contact and Presenter: Vicki Rios, Interim Director, Finance and Technology Staff Presenter: Tom Duensing, Assistant City Manager Staff Presenter: Terri Canada, Budget Administrator Ms. Rios said this is the first Budget Workshop and introduced Terri Canada, Budget Administrator, and Tom Duensing, Assistant City Manager. Ms. Rios went over the budget overview and said staff would discuss state law budget requirements, the budget calendar and process, and budget components. She said there will also be discussions on property tax and future budget discussion items, and any next steps. Ms. Canada went over the state budget law and said the city is required to have certain City of Glendale Page 2 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 funds. She also explained state imposed Expenditure Limitations, Property tax Levy and timeline requirements. Ms. Canada provided a copy of the city's Budget Calendar for upcoming budget meetings and events. Ms. Canada said we have workshops scheduled throughout March and April and we may add or delete them as needed. She said we are scheduled for two all day workshops with the Council on April 19th and 21st where the departments will be doing presentations, which is new this year. She said we work into the legal requirements for tentative budget adoption on May 2, final adoption on June 14, and property tax adoption on June 28. We have legal posting requirements for those final dates and we want to keep to those dates. Mr. Duensing said the next budget meeting is scheduled for March 1st, but that meeting may or may not be held as the information on property taxes is going to be discussed at this meeting and any other information may be provided at another meeting. He also said at the request of the Council, the departmental budget discussions will be held on April 19th and 21st. Councilmember Turner said it sounded like they have responded to Council request to dig deeper into individual department budgets and get their questions answered. Mr. Duensing said that is correct. Councilmember Tolmachoff asked if the Public Safety presentation would be held on April 19th or 21st or if Public Safety discussions would be held on a separate day. Mr. Duensing said each department is scheduled to present on those days, but a specific schedule has not been made. He said staff can schedule Police and Fire on the same day if that is Council's desire. Councilmember Tolmachoff said she would like to have Public Safety all in one day. Mayor Weiers said he wasn't sure it makes a lot of difference, but said it looked like Council wanted to hear Public Safety in one day. Ms. Canada went over the budget process, which included the 5 year forecast, development of base budgets and CIP budget, city manager draft budget and adopting the final budget. Ms. Rios provided information on budget components, which includes revenues and transfers, state shared sales tax and state shared revenue, and the city sales tax are the primary components of revenue for the General Fund. She said those revenues are monitored closely by staff and especially staff looks for any legislation that might affect those revenues. She spoke about a bill in the legislature that would limit Residential Rental Sales Tax to those owners who only have 2 or more units within Glendale. She said this comes up almost every year and there is impetus in the legislature to do away with that Residential Rental Tax. Mayor Weiers asked about 2 or more units. Ms. Rios said staff's understanding is that the legislation says 3 units or more, but there is going to be an amendment to limit it to 2 units or more. She said staff will monitor and look at the impact of that legislation. She said it is very difficult to track that because we can't easily tell how many owners have two or more properties in the city but that the City of Glen dale Page 3 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 impact of that could be$2 million overall and$1 million in the General Fund. Councilmember Tolmachoff asked if that bill had been withdrawn. Ms. Rios said the bill passed out of committee last week and is scheduled to go to the floor. Mayor Weiers stated that it had to go to the COW(Committee of the Whole)first. Councilmember Turner said the original bill has been held and that this is on a striker and the original scope of it has been narrowed. Ms. Rios said that is correct, it is a strike everything bill. Ms. Rios said the components of the budget include the Operating Budget, Capital Improvement Plan, Debt Service and Contingency. She said contingency is appropriated to be available for anything unforeseen that could come up. She said that in the General Fund the contingency has been appropriated for $5 million and that is the number that was used in the forecast. However, she pointed out that the Council policy calls for a higher contingency equal to 10%which would be around 20 million. Mr. Duensing said 10% General Fund contingency is a high percentage. He said Glendale is not unusual with a $5 million contingency and that most Arizona cities reduced their contingency appropriation during the recent recession. Ms. Rios explained the state's definition of a balanced budget includes using revenues and fund balance to cover all expenditures. The expenditures include Operating, Capital Improvement Plan, Debt Service and Contingency. She explained staff will present a budget which does not use fund balance as part of the funds used to balance the budget. She explained there is a policy adopted by Council that states ongoing revenues should be enough to pay ongoing expenses. She said this is best practice. She said you will see fund balance being spent and drawn down in the other funds, lick the Enterprise Funds but not in the General Fund. She said the FY15-16 Budget did not have a draw down or use of the General Fund balance and it was budgeted at a $3.4 million surplus. The recent bond rating upgrade by Moody's cited the General Fund policy change and the strongest available reserve levels in several years as positive reasons for their upgrade of the city's bond rating. Moody's also cited sustainably higher reserves more aligned with our peers as a trend or action that could improve future bond ratings. Having this fund balance has helped the city. Mr. Duensing said the June 30, 2015 fund balance was about $28 million and the city's goal is to get that to about $50 million per the Council adopted policy. He said with the amendment to the Arena Management Agreement, the revised estimate is the fund balance will increase this year by $7 million. This assumes we exactly meet our revenue and expenditure projections but historically we have been able to do that. Ms. Rios showed a pie chart of the revenues I the General Fund and said the revenues come from Sales Tax, Property Taxes, State Shared Revenue, other sources and transfers in. She said one of the transfers in comes from Public Safety Sales Tax. She showed another pie chart showing where the expenditures go. She said the funds go to Police and Fire, Public Works, Community Services, Support Services, transfers out, contingency and others. City of Glendale Page 4 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 Mayor Weiers asked how much money goes to the Public Works Department. Ms. Rios responded that about $15 million goes to Public Works. She also explained that the transfers out in the fund go primarily to the debt service funds for MPC debt service. Councilmember Tolmachoff asked if there were any remaining opportunities to refinance any other outstanding debts. Mr. Duensing said there are opportunities and the city's financial advisor is looking for those opportunities and will advise the city when such opportunities make sense. He said the bond market is at a historic low right now, but the expectation is bonds will get more expensive as time goes on. Mr. Duensing said in a typically in a General Fund there are operating expenditures and very minimal debt service. He said in Glendale's General Fund the money going out is going out to support the excise tax obligation will grow to about $36 million once the payments max out in about 2-3 years. He said the size of the debt service supported by the general fund makes Glendale unique. He also explained that the "Other Services" portion of the General Fund includes $15 million budgeted for the arena management fee. He said that agreement was amended and the$15 million has come down to$8.5 million. Councilmember Turner asked about the debt service growing to $36 million in a couple of years and asked what the number is right now. Mr. Duensing said that number is about $21.8 million, with about $1 million of that going to support the city's roads by a transfer into the transportation fund. Councilmember Turner asked a question about percentages of expenditures by the type. Ms. Rios provided the percentages. Ms. Rios provided expenditure information without the transfers out information. She explained the dollar amounts stay the same, but the percentages change. She said police and fire together make up almost 60% of the General Fund: Police is at 39%, Fire is at 21%, Public Works is 7%, Community Services is 7%, Support Services is 14%, Contingency 2%, and Other Services is 10%. Mr. Duensing said key initiatives for FY16-17 include police and fire service delivery analysis, compensation and classification study, PSPRS contributions, sales tax rate assessment, Primary Property Tax, Western Area Branch Library operating costs, arena management proposals, Regional Wireless Consortium, vehicle replacement, transition to Arizona Department of Revenue sales tax collections and HB 2026 regarding residential rentals and its potential revenue impact. Ms. Rios said the most current information they have regarding ADOR taking over sales tax collections is July 1, 2017. Mr. Duensing went on to say it is important to protect the city's revenues. Councilmember Aldama asked about the Sales Tax Rate assessment and asked if that City of Glendale Page 5 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 will affect the outcomes of Prop 457 and the sales tax extension. Mr. Duensing said if the city is able to have solid economic recovery and less anticipated expenditures needs, Council will go back and adjust the sales tax rate. He said about a year and a half ago, they made the 7/10ths tax increase permanent and the necessity for that is because the high amount of debt service the city's General Fund currently has. He said once the city is on a more solid growth and economic development, it is a Council priority to be able to adjust that rate down. Councilmember Turner asked a question about how Sales Tax Revenue would be affected by the transition to the Department of Revenue. He asked if other cities are anticipating reduced revenue because of the collections at the registers going down or because of the disbursements being delayed coming from the Department of Revenue. Mr. Duensing said Councilmember Turner was referring to "the float", which was a delay in the city getting paid with the collections going through the DOR. At the end of the year, the impact should be zero. He said although there may be a delay in getting the revenues, staff will record those revenues so the effect on the end of the year fund balance should be zero. He said a little interest earnings could be lost due to the delay. He said the interest earnings are less than robust. He said other cities are forecasting or anticipating revenue declines because of uncertainty. The DOR will have to manage an enormous amount of data, taxpayers will be reporting differently, and cash will have to be sent out to the cities. He said once the DOR starts to manage the data, it should begin to work out, but many cities are very concerned. Councilmember Turner asked if the city will miss getting all of its revenue with DOR changes. He said the city should be concerned about this. Councilmember Tolmachoff asked if the increased sales tax rate is being used for debt service. Mr. Duensing said that is correct. The amount coming in from the increased rate is roughly$25 million and the amount of debt service is as high as$36 million. Councilmember Tolmachoff asked how much of that $36 million is debt service on Camelback Ranch. Mr. Duensing said it roughly$10 to$12 million per year. Mr. Duensing next discussed key policies for FY 16-17. There has been discussion about the appropriate level of fund balance in the General Fund. Policy was set at 25% of total revenues, or about $50 million. He said Arizona cities are dependent on sales taxes, which tend to fluctuate up and down with the economy. The 25% is a reasonable goal and can be attained in 5 years, with this year being year 1 of the 5 years. He said they need to address the enterprise funds now. He said current policy states 10% is the current level of fund balance for those funds. He did not believe the 10% is adequate for the capital intensive funds. However, he said we have a healthy fund balance in those funds now. He said it is very expensive to maintain the infrastructure and they need to discuss if 10% of the fund balance is adequate. After discussions with the bond rating agencies, they would like to see that amount at 50%, which is about 6 months' worth of revenues. He reiterated that the current fund balances are over that amount. He said it is not critical to change the policy during this process. He said they also need to look at City of Glendale Page 6 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 the Special Revenue Funds as well. He reminded the Council that they have a financial policy to set the Primary Property Tax level at the maximum. Councilmember Turner said the currently policy is that Enterprise Funds fund balance should be at 10% and said maybe the policy should be changed to 50%. He asked what the reality is. Mr. Duensing said the reality is the 50% and that is common in the industry. He said that number is about$40 million for our Water and Sewer Fund. Councilmember Turner asked what our current fund balance is. Mr. Duensing said the city is currently at about 100%, but there is a significant amount of budgeted capital outlay in the Water and Sewer Fund. They have had meetings on the need to replace and rehabilitate our system. He said it is very important to have a robust maintenance program for this infrastructure that is very expensive. After working out most of the issue for the General Fund,they need to start focus on the Enterprise Funds. Mayor Weiers said they currently have about 100% and are doing very well right now. He asked once all the appropriated funds are spent,where would be balance be at that point. Mr. Duensing they would be at about 60% to 70% if we spent all of the $32 million in capital in the budget this year. He said the CIP over the next 5 years is about $100 million. He said they can address it by using the pay as you go system. Other options are to issue bonds for those projects or to defer the project. He said they need to be very careful in deferring projects but not neglect the system. Mayor Weiers said the best example of that are the city roads. Mr. Duensing went on to discuss property taxation. He said they will discuss the history, the legal limits and public notification. This part of the presentation is in response to a Council Item of Special Interest, The Arizona system of property taxation is one of the most complicated in the United States. He explained Arizona has a Primary Property Tax and a Secondary Property Tax. The Primary Property Tax pays for operating costs such as, police and fire services and other operating requirements. The Secondary Property Tax pays for debt service on the General Obligation Bonds. The Secondary Property Tax is the majority of the property tax assessment done in Glendale. That property tax is not limited by the 2%. Any GO bonds have been voter approved and voters have authorized the city to levy a Secondary Property Tax. Per Council direction the city wants to keep the Secondary Property Tax on a taxpayer's bill basically flat. He said the budget will bring back a flat Secondary Property Tax Levy. He said the city is able to make its debt service payments on its current obligations and will be able to make the debt service payments on the bonds issued for the recent property acquisitions and improvements to one of those properties in Westgate and still keep the levy flat. He wanted Council to be aware that although that levy is flat at this time, it can go up due to new properties coming on the rolls. He explained the primary levy for the operations is about$5 million and an increase in that levy is limited to 2%. Mr. Duensing provided information on a property tax bill for a Glendale property owner. He explained the majority of the tax bill goes to support the school districts in the district where the property resides. The City of Glendale primary tax represents 3% of a homeowner's property tax bill. The secondary levy is voter approved and that is about City of Glendale Page 7 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 11% of a property tax bill. There are also county and special districts portions of the tax bill. Mr. Duensing provided actual budgeted numbers for the General Fund revenue and stated that the Primary Property tax represents about $5 million or 2.2%of the General Fund revenue. He also provided a slide that showed figures from a 2% levy increase and how it would affect the tax bill of a Glendale resident with an assessed valuation of $180,000. The information showed the increase in amounts if Council chose to take advantage of a 2%increase. Mr. Duensing went on to discuss the 2% increase which the city can take advantage of, and explained this 2% increase is on existing property. He explained how new property affects the tax levy. He provided information on the history of property tax rates, which showed there were a number of years Council decided to keep the primary rate flat. He said the rate is just the product and what really matters is the check the property owner has to write. He explained that the levy is the rate times the value and if the levy is flat when the value goes up the rate will go down. He said he is anticipating the assessed values to go up. Councilmember Turner summarized what Mr. Duensing said to make sure he understood the presentation. Mr. Duensing explained the figures he used showed are an example of how the tax would go up assuming the city took advantage of the 2%levy increase. Councilmember Turner again summarized the discussion and said it was clear the impact to the homeowner was small, but it made a big difference to the city. He wanted everyone to see it as a building block concept. The carry forward would be very minimal but it could be quite substantial to the city over the next 5 years. He said that is the value of this process. Mayor Weiers said the cost to the taxpayer does keep minimally increasing each year. Councilmember Malnar said this policy is something the Council doesn't have to vote on and it is just automatically in the budget. He said he disagrees with that type of policy. He believes there should be a Council vote on any type of property tax or other tax increase in order to be accountable to the constituents. He said the amount of the increase is a small amount, but it adds up over a period of time and does compound over a period of time. He is in favor of changing the policy so Council will vote on the change. He thinks they should send a message to the constituents that Council is concerned about the property tax issue. He explained the total tax would probably increase anyway due to the assessments and other factors that come into play. He urged Council to remove this policy and they can vote to increase it if it becomes necessary in the future. Mr. Duensing provided slides showing the cumulative effect of keeping the levy flat or taking advantage of the 2%increase. Councilmember Turner said the Council does take a vote to set the property tax levy, and they took a vote on it last year. He recalled it was a split vote last year. He wanted to make sure everyone knew it was a public process, thoroughly discussed, and voted on by Council. Councilmember Aldama said he remembered the vote last year as well. He also agreed with Councilmember Malnar and said Council has a fiscal responsibility to the residents. City of Glendale Page 8 Printed on 3/18/2016 City Council Workshop Meeting Minutes-Final February 16,2016 He said they also passed a balanced budget. Councilmember Chavira said the next two slides referenced by Mr. Duensing will connect all the dots on this discussion. Mr. Duensing said the first slide showed the actual levies for FY 14-15 and FY15-16 and what the levy would look like taking advantage of the 2% increase. The second slide showed the base if the primary levy stayed flat if the city did not take advantage of the 2% increase. If the city took advantage of the 2% increase, it would build on itself each year after that. He also showed what the affect would be in the future if the city were to catch up on prior increases it did not take. He provided an example of how these 2% increases would affect an individual taxpayer. Councilmember Turner provided information on how the homeowner would pay $10 more on their tax bill over the course of 5 years, but it would create millions of dollars in revenue for the city. Mr. Duensing said Councilmember Turner captured the idea behind the 2% increase. He said it was also dependent on what the other taxing jurisdictions do. Councilmember Malnar asked what kind of impact this would have on balancing the budget. Mr. Duensing said it is an $110,000 revenue impact on a $200 million budget. He said they can look at the budget again without the $110,000 figure. He said on a percentage basis it is a small amount of the budget. But he said he has never seen budget requests less than available resources. Councilmember Malnar said it is a small amount of money and wanted to send a positive message to the community. Councilmember Tolmachoff said she had a concern about the perception that residents have. She said Glendale is about 40% higher than Peoria. Glendale needs to be competitive compared to other cities. Councilmember Aldama commented to Councilmember Malnar and said the Council will go through the budget process and he might advocate for services in his district, and that small amount of money might pay for services in the community. He provided an example of increasing library hours. Mayor Weiers said there was a consensus for staff to continue on. ADJOURNMENT Mayor Weiers adjourned the meeting at 10:36 a.m. City of Glendale Page 9 Printed on 3/18/2016