MINUTES ST. CLAIR SHORES CITY COUNCIL BUDGET WORKSHOP January 31, 2015

Transcription

1 MINUTES ST. CLAIR SHORES CITY COUNCIL BUDGET WORKSHOP January 31, 2015 City Council Budget Workshop held at the St. Clair Shores Country Club Golf Course, Masonic Blvd., St. Clair Shores, Michigan Present: Also Present: Mayor Kip Walby, Council Members John Caron, Ronald Frederick, Peter Rubino, Candice Rusie, Anthony Tiseo and Chris Vitale City Manager Michael Smith, City Clerk Mary Kotowski, Finance Director Doug Haag, City Attorney Robert Ihrie and Plante & Moran Representatives Dave Herrington and Lisa Manetta 1. CALL TO ORDER, ROLL CALL AND PLEDGE OF ALLEGIANCE Mayor Walby called the meeting to order at 8:05 a.m. Ms. Kotowski, City Clerk, called roll with a quorum present. 2. ECONOMIC UPDATE PLANTE & MORAN/LEGISLATIVE & REGULATORY UPDATE/BUDGET REFORM/FIVE YEAR FORECAST Mr. Dave Herrington and Ms. Lisa Manetta, Plante & Moran representatives, will cover Agenda Items #2, #3, #4 and #5. Mr. Herrington said that their goal is for this to be an open question and answer session on the slides being presented. He started the Economic Update by saying that the State does not have a pot of money like we thought. When we send money there, we do not get any back. The general economy is doing better and unemployment is lower. At the local level, the general economic reality is that things are the same or worse. Revenue is flat, and there is a great deal of pressure on the expenditure side. No matter how much our house prices go up, revenue is capped at inflation. Unfortunately, it will be a challenge locally no matter how much the economy improves. St. Clair Shores was out in front of other communities doing cost reductions without sacrificing services. Economically, we are working at 35%-40% less revenue than five years ago, and we are going to stay there. The City s economic outlook is not the same as the economic outlook for residents or businesses. The only way a community gets more revenue is to put in new businesses, and we are 98% developed. That is the reality and we need to respond to that new reality for St. Clair Shores. They have provided a solid five-year forecast without any fluff. The City has been able to cut enough out of this to buy us five years. If we cut any more, we are cutting services. Mr. Smith stated that we have 245 full time employees. CDI covers their employees with fees, the Library lives within a Library millage, 140 employees are guaranteed by a millage which covers the Police and Fire and the Court. That leaves us with 33 true General Fund employees, and we still have a $4 million dollar deficit even if we eliminate all of them. We are paying millions of dollars a year in legacy costs. The last two years we did use Fund Balance. We are budgeting much tighter now than we were in We have made changes to how we administer the budget so that there is not fluff added. Mr. Herrington stated that the reason the Fund balance grew in previous years is because we saw the trend downward, and Council decided to do something. Now we are living that trend. We hoped that when we hit breakeven it would stay there, but it did not. Things are getting better now, but we are using the Fund balance. Mr. Smith pointed out that there has been a decrease in our expenses since We did make cuts to spending and pensions, but we had pushed Capital spending down the road. Mr. Rubino commented that we show property taxes increasing at 2% to 3% which is wrong in his opinion. The Federal Reserve just issued a report stating that by 2025 all markets will be down 30% to 50% lower than they are now. Mr. Herrington said that is a prediction, but it is a good point and we need to look at this today. Mr. Smith said that when we do forecasts Council and the public have been overly pessimistic, so we say this is a best case scenario. City Council Budget Workshop January 31, 2015 Page 1 of 7

2 Mr. Herrington said that we need to keep in mind people do not want to live in a community where they pay taxes and the only services they get are police and fire. We need to be strategic. The point that things may get worse is right on, and we need to look at it right now. Ms. Manetta said that according to our five-year forecast the Fund balance will be depleted by The good news is that during the past five years actions have been taken, but things still need to change. The five-year history on revenue includes the millage for Police and Fire and retiree benefits, so the slight increase in the Fund balance is somewhat misleading. Mr. Herrington added that for the 345 millage in 2011 collection was under $6 million, and we are at $7.4 million in The only increase in the last five years was for the 345 millage. Ms. Manetta said that property tax revenue for general operations declined from just under $18 million down to $12.5 million. If it had increased at inflationary amounts, we would be at $21 million in Looking at the long-term nature of declines, in 2009 we had a taxable value of over $2 billion. If we have 2% to 3% inflationary increases, it will take until 2029 to get back to that amount. Mr. Herrington pointed out that projections need to be changed as things happen. From the present value perspective, it will never be better than 2015 because of Proposition A and Headlee. These only help communities that can bring in new business. A recent SEMCOG presentation showed a chart of the State of Michigan, and only five counties had property values that had gone down. Legislation says that 83 out of the 88 counties in Michigan are fine. This tells us we need more representation for our county. We are not seeing changes at the State level because it looks like only five counties are suffering. We thought every community had revenues that were going down. Mr. Smith explained that there is legislation that will help get around the $20 mills cap. It lets you combine with other communities to get an additional $14 mills. More communities are trying to figure out ways to pass a millage that does not affect the $20 mills cap. This can get us back to Many voters do not want to raise their taxes. Ms. Manetta outlined the historical information on millages in St. Clair Shores. Mr. Smith said that we have $700,000 less revenue stream. The Pension Fund lost money, so our portion of pension contribution is going to go up. Ms. Manetta gave a recap of property tax challenges as follows: Significant loss of taxable value (approximately 37% for the City). As a result, 1 mil = approximately $650,000 less revenue than in 2009 The City s Charter authorized general operating mills have been reduced by the Headlee amendment from mills to mills Nearly fully developed (under state law, creation of a new structure is essentially the only way to have economic development and increase tax base) Future growth in property taxes will be limited to inflationary increases Periodic renewal of special millages in competition with other taxing units (schools, county) Mr. Smith said that large developments will want a Brownfield. There may be an increase in revenue, but we will give up something in the short run. For the first ten years we will only get half, but ultimately we will get the full load. Mr. Herrington stated that 312 was discussed quite a bit. Schools are paying off bond millages. Residents have seen millages, and now we are competing against other things baked into tax bills. Ms. Manetta pointed out that revenue sharing is a significant source of revenue. The Cumulative Lost Revenue Sharing Payments since 2000 are $16,403. These represent the effect of the actual decreased revenue sharing payments in comparison to the potential revenue sharing payments if the payments had held constant at the 2000 rate. If compared to inflation since 2000, the decreased revenue sharing payments would total approximately $56.7 million. City Council Budget Workshop January 31, 2015 Page 2 of 7

3 Mr. Caron said that there was a $600,000 drop due to population changes and cuts. We always had to deal with revenue cuts before, it was just a different part of the budget. He asked if Administration can find out the criteria and level of services needed to be provided 30 years ago for a municipality to qualify for Statutory Revenue Sharing. Mr. Smith said he will get that information for Council. Ms. Manetta summarized State-shared Revenue: The City s annual funding level is anticipated to be approximately $2.1 million (28%) less in FY 14/15 than in FY 00/01 Statutory revenue sharing formula expired and was replaced with EVIP (now called CVTRS) Counties are now back in the statutory revenue sharing formula and receiving County Incentive Program funding (in total, $145.8 million was paid to counties in FY 2014) While funding has stabilized in recent years, the future of revenue sharing is uncertain as incentive program amounts are subject to annual appropriation. Mr. Smith will provide Council with a slide on the pension costs and unfunded liabilities, showing where we were when we were 116% funded. The employer contribution was 15.9% while today the contribution is 13% indicating the cost savings for current employees due to contract changes. Ms. Manetta reported information on Retire Health Care. In 2009, it was $7.5 million dollars and actual contributions were $8 million, so it was over funded. In 2010, we started cutting back subsequent contributions so we only covered the current cost. Mr. Smith said the reason we see increases in Pay As You Go is because people are living longer. The larger part is because of the number of retirees. Now there is a hard cap in place, and anyone who retires sees that decrease. The gap will only get smaller if we start funding this or when people die. Mayor Walby said that we do have a source today to pay some of that (about 2/3 of it) and that is the 345 millage. Ms. Manetta summarized our Budget Challenges: Much of the City s tax, grant and permit revenue is specifically earmarked and is not considered discretionary Significant increase in the City s Police and Fire Retirement System Act 345 millage City levied LESS THAN ONE MILL in the year ended June 30, 2003 (.8997 mills) The millage rate is more than SIX TIMES that by the year ended June 30, 2014 ( mills) Major staffing reductions already implemented Capital outlay deferred to balance budget to this point Expense increases likely to out-pace inflationary growth in reliable revenue sources The summary of today s presentation included: The City of St. Clair Shores is facing numerous revenue and cost pressures that are beyond its control The City has remained financially solvent to this point by adjusting to fit the economic environment The economic environment has worsened beyond expectations and recovery will be slow As the City s 5-year financial forecast indicates, St. Clair Shores must make further adjustments to balance a structural budget deficit The City has a revenue problem Mr. Caron pointed out that we also have the two-year lag effect of our primary revenue (property taxable value). Mr. Smith stated the State Legislature has not passed a bill helping municipalities for a long time. There is nothing bad coming that we know of. He will provide Council with the projected road tax funding the City would receive if the May Sales Tax ballot proposal passes. City Council Budget Workshop January 31, 2015 Page 3 of 7

4 Mr. Herrington stated that $7.2 million in the Sanitation Fund looks like we have more than we do, and we are working on changing the way this is reported as these funds cannot be used except for sanitation. Activity on big millages needs to be isolated. In the near future you will see these special millage funds isolated. We are losing money in the Sanitation Trust with property taxes going down. We are still above what we wanted to have, but the trend is not good. Mr. Smith said that in 2008 there was a discussion about how much money there is in that fund, but much of that was put there in case we were sued. Now we are using that excess. The liability is still out there, but every year it is less. Mr. Herrington went over the sheet of assumptions. It is -4% for last year. The donation of $1.4 million under Other Revenue is why it was a positive 8%. In General Fund revenues in 2015 we show an 8% increase but that was because of a $1.4 million donation, otherwise it would have shown 2%. We are budgeting an $800,000 loss. Mr. Smith said we are showing $1 million in expenditures each year. We are still looking at moving Capital spending down the road. It is higher than what we have budgeted, but it is not $5 million. The Consideration of Budget-Balancing Steps to Date are as follows: 1. Consolidation and Outsourcing of Services with Other Units of Government a. 911 dispatch services contracted with SERESA in 2011 at an estimated annual savings of $100,000 b. Animal control services Contracted with Macomb County in 2014 c. Mutual Aid SWAT agreement established within 6 jurisdictions in 2013 d. Shared CLEMIS court and law enforcement software with Oakland County at an estimated annual savings of $100,000 e. Contracted with City of Roseville for inspection services (building, mechanical, plumbing & electrical) in 2011 (estimated) at an estimated annual savings of $200,000 f. Regional purchasing cooperative (MITN) established with 7 jurisdictions at an estimated annual savings of $55,000 - $90,000 g. The City Library has participated in several state and regional programs for the past 30 years to enhance various services with a documented annual savings of at least $5, Privatization of Services a. Trash Pick-up The City has contracted with Rizzo and Waste Management for trash pick-up services and the Rizzo contract was recently renegotiated with favorable terms to the City b. EMS Billing Services City has contracted with Parastar and other firms for EMS billing services for a lengthy period of time at an undetermined cost savings c. Communication Technician These services were outsourced in 2013 d. Rental Inspection, Rodent Abatement and Code Enforcement Inspection the City currently contracts with LSI for these services at an estimated annual savings of $30, Financial Restructuring a. Reduced number of full-time City employees from 298 ten years ago to the present number of 245. This necessitated many operational improvements to increase administrative efficiency b. Health Care insurance reforms realized a 14% savings in FY 2015 alone as a result of favorable claims history and some benefit reductions c. Instituted pension funding changes the General Employees Defined Benefit Plan was closed in 2005 and changed to a Defined Contribution Plan d. Retiree Health Care (OPEB) In 2008 left traditional Blue Cross retirees plan and went to a PPO with a $0/$15 drug card and in 2013 retirees went to Humana for prescription coverage e. OPEB prefunding Beginning in 2010, the City reduced the amount contributed to the OPEB trust for purposes of pre-funding the OPEB liability and from 2011 to current time the City is only paying for the current costs of retiree health care premiums; no prefunding contributions are made f. Delay of capital improvements Mr. Smith said we have looked at what other communities have done, but some of the things on this list are not an option for us. They include: 1. Eliminated services recreation, senior center 2. Contracted out for public safety 3. Volunteer Fire 4. Sale/privatization of enterprise activities golf course, arena City Council Budget Workshop January 31, 2015 Page 4 of 7

5 5. Reduce business hours 6. Furlough days 7. Reduce amounts captured by TIF 8. Non-payment of required pension funding 9. Review/increase of charges 10. New/increased millages a. Mt. Clemens charter amendment to increase operations to 20 mils b. Harper Woods PA 33 millage of 12 mils c. Eastpointe Street lighting special assessment, additional public safety 14 mils on February 2015 ballot d. Headlee overrides Mr. Herrington pointed out that some of these options would not even have an impact on the budget, but almost all of them would impact services. Mr. Vitale asked administration to review the impact of changing the customer service hours (closed one afternoon) with a tradeoff of being open one evening until 7 p.m. Mr. Smith said this was done previously in the Clerk s Office. The public was very unhappy. Parks & Recreation is open late, and they have only one full-time clerk. We can look into doing this again. Mr. Herrington said that no Headlee overrides have passed recently. Mr. Smith said we have a revenue problem, and we have a Fund balance. We cannot cut enough services to get this balanced anytime soon. Residents may not vote for a millage since we have a Fund balance. We will continue to look at everything, but going into this budget year he does not want anyone surprised if we need to spend $3-$4 million from the Fund balance, and that is not being extravagant. We need to look at large expenses and plan for them. We want to make sure we get the audit done early this year, because next year as we go into the budget we would like to start educating people more about our revenue problem. We will need to have dedicated millages. Mr. Caron stated that we need to get a dynamic model built for any services we are providing so that we are never losing money for things such as a 2% pay increase. In order to go to the public for anything, we will need to show them that we have already tried everything. Mayor Walby asked if we want to outsource EMS. Mr. Smith said that would only save money if we reduce staff size, and we cannot do that until Council Member Caron asked to be provided with the breakdown on seasonal operations to make sure their fees are covering the costs of operations and are not a drain on the budget. Mr. Herrington pointed out cities that have significantly reduced their recreation programs have seen a reduction in the quality of their programs as well as their residents. They become landlord communities. Mr. Vitale thinks the development end of CDI should be helping us with the revenue end. They should be out looking at revenue development options. The City should take the opportunity to buy properties that can be redeveloped as condominiums instead of developers coming in and doing that with our properties. Economics should be a part of our community development. It is a positive way to bring in more revenue instead of all these negatives we are looking at. Also, if the City purchases the property, it gives us the ability to make the decision about what is done with the property. Mr. Smith said that right now the lakefront north of 11 Mile Road is single residential. The more condominiums we put up, the more it restricts our view of the lake. This is something can look at doing. If we do not take action on the budget, and we start cutting services, St. Clair Shores will become less attractive. People like St. Clair Shores because of the waterfront and our great recreational programs. If we start cutting services, people are less likely to move here. City Council Budget Workshop January 31, 2015 Page 5 of 7

6 Mayor Walby said we need to get direction. Are we going to cut services? No one wants to cut EMS. He presented the following chart: 3 mils = $4,000,000 ($120 for $80,000 house) 4 mils = $5,400,000 ($160 for $80,000 house) 5 mils = $6,750,000 ($200 for $80,000 house) Operating Deficit = $3 to $4 mil OPEB $1,400,000 Capital $1,000,000 Mr. Smith stated that a millage for general operations would not pass. You have to say where the money is going. We need to start laying the groundwork for why fees are going up, and at the same time let residents know that is still not enough. Our main focus has to be educating the general public on this situation. Mr. Rubino suggested we do a projection with different lines of projections. Most people believe that things are not as good as the media makes it sound. Mr. Caron said that we need to breakdown large expenses, more than just fringe and employee costs. Mr. Smith stated that when we break out Sanitation Trust and P&F millages, it shows we have a 30% Fund balance on everything. We have time to educate people now and still maintain our services. Mayor Walby said he would like the next budget meeting to be about what we plan to do. There is no need to televise any budget meetings before March. Mr. Smith said that we will put together a couple models for P&F/Library/General Operating and P&F/Library/Recreation, and we will work out the numbers for Council. We need to start breaking out large pieces and get mills for them. Our numbers need to be realistic. We will set up one Rainy Day Fund for everyone and the numbers will be adjustable. Mr. Vitale asked for proposals that will drive up square foot value on our homes. He also asked for proposals to increase our State Share Revenue. Mayor Walby stated that we will all work together and anyone with issues or concerns should get with staff. Mayor Walby asked Ms. Kotowski to send out an to Council on Monday asking which date, 2/17, 2/28 or 3/7/15, would be the best for the next Budget Workshop. 8. BLOSSOM HEATH SEAWALL UPDATE Mayor Walby stated that TIFA is in support of funding this project. We will take a loan from the Utility Fund of $200,000 the first year. We have enough money in working capital. We will pay them.5% interest. This is something we have done before. Mr. Smith said that we are submitting for more than one seawall permit. We can do a seawall project on the north side of the seawall and cut across to the entrance way for the Coast Guard Station. There will be land all that way out so you could see land from Blossom Heath Park. The park would regain the entire roadway to provide a buffer. This would give us more land, and we would have a waterfront park. This is not bottomland, and we can fill it in according to the County and the State. We would have 100 feet less seawall to replace with these changes. The only possible additional expense would be the backfilling. Mr. Rayes is working with developers that are digging basements and foundations so that we can use that fill. He will see if there is Federal money available for this project. 9. BROWNFIELD PROJECT UPDATE (FORMER CHAPOTON SITE) Mayor Walby explained that Council has been approached for help with Ciena Health Care Management. They started at $1.9 million. We will probably get less than $1 million. TIFA wants to do a payback of 10 years or less. This will come back to Council and they should all be somewhat on the same page. We will see this with St. Gertrude and Shores Car Wash as well as with other areas. If anyone on Council has issues please get them to Mr. Smith so we can be positive when they come to us. Mr. Smith stated we will help, but we will not give 100% which is what Ciena Health has asked for. City Council Budget Workshop January 31, 2015 Page 6 of 7

7 10. COMMUNITY FOUNDATION Mayor Walby stated that we need a Community Foundation so people can make tax-deductible donations to our community. The Library could have used this for the chairs they are currently trying to purchase. We have not done anything with this yet. We would pick the people using the Sub-Committee for Boards, Commissions and Committees. Mayor Walby asked how Council members feel about this. If we pursue it, he would like everyone to be in agreement. Mr. Smith said that this would need to be created to follow the Charter. Mayor Walby asked Mr. Ihrie to research this and get back with Council. Some foundations prefer to give their money to other foundations. Mr. Herrington pointed out that communities with a strong Fund balance have a hard time getting money, and Foundations do not. 11. AUDIENCE PARTICIPATION (5 minute time limit) The Views and Opinions Expressed Under Audience Participation are those of the Individual Citizen Only and Do Not Necessarily Represent the Views and Opinions of the Mayor, City Council or Administration of the City of St. Clair Shores. Michael Odinez, St. Clair Shores resident, had to leave and asked the Clerk to read his comments which she did: I have a Red Wing hockey game to go to. I have a greater appreciation for what you are all trying to do after being here today. 12. ADJOURNMENT Moved by Council Member Caron, seconded by Council Member Frederick to adjourn at 11:05 a.m. Ayes: All 7 KIP C. WALBY, MAYOR MARY A. KOTOWSKI, CITY CLERK (THE PRECEDING MINUTES ARE A SYNOPSIS OF A CITY COUNCIL MEETING AND DO NOT REPRESENT A VERBATIM RECORD). City Council Budget Workshop January 31, 2015 Page 7 of 7