HomeMy WebLinkAbout1997 05-01 FCA0 AGENDA
BROOKLYN CENTER
JOINT CITY COUNCIL / FINANCIAL COMMISSION
May 1, 1997
City Hall
Council Chambers
1. Call to Order at 7:00 P.M. by: Mayor Kragness
Chair Escher
2. Roll call.
3. Presentation of proposed revision to the Capital Improvements Fund & Reserve Fund
Expenditure Policy.
4. Discussion of the role of the Financial Commission in the 1998 budget process.
5. Update on Fire & Police building needs / bond issue planning.
0 6. Adjournment.
The Financial Commission asked to receive copies of monthly financial reports submitted to the City
Council. The following reports are attached for your review.
General Fund Summary Budget Report - March 31, 1997
Lodging Tax Collection and Distribution Report - March 31, 1997
Liquor Stores Financial Statements - March 31, 1997
Earle Brown Heritage Center Statements - March 31, 1997
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• Attached are:
1. The Capital Improvements Fund Expenditure Policy adopted in January 1994 with
language to be deleted having a line through it and language to be added in italics.
2. The Capital Improvements Fund Expenditure Policy as proposed with only the new
language.
3. The new Capital Expenditure Reserve Fund Policy.
4. Background memos and information supplied to the Financial Commission during its
deliberations on this issue.
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0 fmcommlcapdraft Draft March 97
CITY OF BROOKLYN CENTER
CAPITAL IMPROVEMENTS FUND EXPENDITURE POLICY
POLICY OBJECTIVE:
The City of Brooklyn Center makes unrestricted capital expenditures through one of two funds.
Generally, small capital expenditures are funded through the general fund and planned for as part
of the annual budgeted process for the general fund. Large unrestricted capital expenditures are
funded through the capital improvements fund based on resolution 68-246, which was approved
in 1968. Capital expenditures are also made through other funds such as the M.S.A. construction
fund, the special assessment construction fund, the water fund, the sanitary sewer fund, and the
storm drainage fund. These funds each have restrictions in place to guide their expenditures.
The objective of this policy is to clarify funding for all unrestricted capital expenditures by
specifically defining which capital expenditures are eligible for funding through the capital
improvements fund. Unrestricted capital expenditures not meeting the criteria for the capital
improvements fund must be made from the general fund operating budget.
Specifically excluded from this policy are capital expenditures that are to be reimbursed by
• insurance proceeds. These may be accounted for through the capital improvements fund at the
discretion of the Director of Finance.
SOURCE OF FUNDS:
The sources are ad-valorem taxes, issuance of bonds, state and federal grants, transfers of
unrestricted balances from other funds and investment earnings.
USE OF FUNS:
A-; $25,000. Gapital expenditures of less
$25,900 are to be mftde through the general ftmd operaf* buftet.
B-) Permanent: Any eapiW expenditure that hfts an estftnated useful life of 19 years o
longer.
G:2~ estate,
the aequisition of !mid for eity purposes.
This definition exeludes the aequisition of land for development or resale and exeludes
• velieles.
• The Capital Improvements Fund may be used, pursuant to this policy, for expenditures on capital
equipment, infrastructure improvements and construction, and similar projects having an
aggregate value in excess of $50, 000. The types of expenditures contemplated by this policy
include projects such as:
- building construction, repair, reconstruction, and remodeling, including component
systems for heating, ventilation, and air conditioning
- equipment and furnishings, including furniture, lights, and communications cabling
- street repair, replacement and construction
- park landscaping, shelters, and improvements
- computer, radio, and telephone systems
The expenditures from the Capital Improvements Fund are to be used for general governmental
capital needs and not for enterprise fund capital needs, except as the general governmental
portion of a joint project for both general and enterprise purposes.
Additionally, the capital improvements fund may be used to provide loans to other funds
• maintained by the City. However, loans from the capital improvement fund may only be made
to proprietary funds which have the ability to generate revenue and repay the loan within 10 years
at prevailing interest rates.
AUTHORITY TO SPEND:
Expenditures meeting the above criteria may be funded through the capital improvements fund
based on the following authority limits:
A.) Expenditures from $0 to $25,000 $50,000: Not eligible for funding from the
capital improvements fund. Funding is required through the general fund operating
budget.
B.) Expenditures from $315,001$50,001 to $200,000 $300,000: The City Council
may, through simple majority, approve these expenditures.
C.) Expenditures over $3100,000 $300,001: Following a public hearing, City Council
may, through a 4/5th's majority, approve expenditures in this category.
•
4
• SPENDIN~G LIMITATIONXTJND BALANCE REOUIREMENT:
The objective as described above and previously defined in Resolution 68-246 requires the capital
improvements fund to be a permanent source of funding for planned major expenditures. As such,
the following criteria is established to comply with that intent:
A.) Planned Expenditures: If the proposed capital expenditure is in excess of
X90;000 $300,000 it must have been included in the five year capital
improvements plan for at least two years.
Additionally, the five year capital improvements plan must be approved by the City
Council at a public hearing on an annual basis.
$i
a begiwti~ balanee of $3,000,000 as of 1afmary 1, 1993 and inereased by
Amendments to this poliey require a 4~5th's mftjority by Gity Gouneil vote.
S ROLE OF THE FINANCE COMNU SION:
If a review of an expenditure is requested by the City Council from the Finance Commission, the
Finance Commission will respond on the basis of the following questions:
A) Does the expenditure comply with the Capital Improvements Fund Expenditure
Policy?
B.) Is the expenditure appropriate considering the financial condition of the City?
•
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fmcommkapolcy7
• CITY OF BROOKLYN CENTER
CAPITAL IMPROVEMENTS FUND EXPENDITURE POLICY
POLICY OB.IECTIVE:
The City of Brooklyn Center makes unrestricted capital expenditures through one of two funds.
Generally, small capital expenditures are funded through the general fund and planned for as part
of the annual budgeted process for the general fund. Large unrestricted capital expenditures are
funded through the capital improvements fund based on resolution 68-246, which was approved
in 1968. Capital expenditures are also made through other funds such as the M.S.A. construction
fund, the special assessment construction fund, the water fund, the sanitary sewer fund, and the
storm drainage fund. These funds each have restrictions in place to guide their expenditures.
The objective of this policy is to clarify funding for all unrestricted capital expenditures by
specifically defining which capital expenditures are eligible for funding through the capital
improvements fund. Unrestricted capital expenditures not meeting the criteria for the capital
improvements fund must be made from the general fund operating budget.
Specifically excluded from this policy are capital expenditures that are to be reimbursed by
insurance proceeds. These may be accounted for through the capital improvements fund at the
discretion of the Director of Finance.
SOURCE OF FUNDS:
The sources are ad-valorem taxes, issuance of bonds, state and federal grants, transfers of
unrestricted balances from other funds and investment earnings.
USE OF FUNDS:
The Capital Improvements Fund may be used, pursuant to this policy, for expenditures on capital
equipment, infrastructure improvements and construction, and similar projects having an
aggregate value in excess of $50,000. The types of expenditures contemplated by this policy
include projects such as:
- building construction, repair, reconstruction, and remodeling, including component
systems for heating, ventilation, and air conditioning
- equipment and furnishings, including furniture, lights, and communications cabling
- street repair, replacement and construction
0 - park landscaping, shelters, and improvements
- computer, radio, and telephone systems
6
. The expenditures from the Capital Improvements Fund are to be used for general governmental
capital needs and not for enterprise fund capital needs, except as the general governmental portion
of a joint project for both general and enterprise purposes.
Additionally, the capital improvements fund may be used to provide loans to other funds
maintained by the City. However, loans from the capital improvement fund may only be made
to proprietary funds which have the ability to generate revenue and repay the loan within 10 years
at prevailing interest rates.
AUTHORITY TO SPEND:
Expenditures meeting the above criteria may be funded through the capital improvements fund
based on the following authority limits:
A.) Expenditures from $0 to $50,000: Not eligible for funding from the capital
improvements fund. Funding is required through the general fund operating
budget.
B.) Expenditures from $50,001 to $300,000: The City Council may, through simple
majority, approve these expenditures.
C.) Expenditures over $300,001: Following a public hearing, City Council may,
through a 4/5th's majority, approve expenditures in this category.
SPENDING LIMITATION/FUND BALANCE REOIJIREMENT:
The objective as described above and previously defined in Resolution 68-246 requires the capital
improvements fund to be a permanent source of funding for planned major expenditures. As such,
the following criteria is established to comply with that intent:
Planned Expenditures: If the proposed capital expenditure is in excess of $300,000 it must
have been included in the five year capital improvements plan for at least two years.
Additionally, the five year capital improvements plan must be approved by the City
Council at a public hearing on an annual basis.
ROLE OF THE FINANCIF, COMMISSION:
If a review of an expenditure is requested by the City Council from the Finance Commission, the
Finance Commission will respond on the basis of the following questions:
A) Does the expenditure comply with the Capital Improvements Fund Expenditure
Policy?
• B.) Is the expenditure appropriate considering the financial condition of the City?
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. CITY OF BROOKLYN CENTER
CAPITAL EXPENDITURE RESERVE FUND POLICY
POLICY OBJECTIVE•
The objective of this policy is to provide funds to meet emergency needs for capital expenditures
that may arise from time to time. While the City carries property and casualty insurance, the City
may need additional funds beyond insurance proceeds in the event of natural or other disaster
impacting its buildings and their contents, as well as other improvements to real property. Also,
unanticipated failure of buildings or improvements to buildings may require immediate
expenditure of funds for repair or replacement that are not covered by insurance. The funds
placed in the Capital Expenditure Reserve Fund are not to be considered a source for planned or
recurring capital needs, but only to deal with emergency needs as described due to damage, loss,
or failure of existing buildings and other improvements to real property.
USE OF FUNDS:
Funds may be expended from the Capital Expenditure Reserve Fund for the repair or replacement
of buildings or other improvements to real property and their contents where the repair or
replacement is necessitated by damage to such buildings or other improvements to real property
and their contents due to:
• 1) natural disaster such as a tornado, storm, flood, earthquake, or fire
2) fire, vandalism, terrorism, explosion, building or component collapse
AUTHORITY TO SPEND:
Expenditures meeting the criteria for the use of funds may be funded through the Capital
Expenditure Reserve Fund upon Resolution of the City Council finding that the criteria for
expenditure have been met and that the use of funds would not otherwise be covered by insurance
proceeds, except that the City Council may authorize the use of Capital Expenditure Reserve
Funds in anticipation of the receipt of insurance proceeds providing that such funds used in
anticipation of insurance proceeds are repaid to the Capital Expenditure Reserve Fund from such
insurance proceeds.
FUND BALANCE:
The Capital Expenditure Reserve Fund shall be established at $1,000,000. Such fund balance
shall increase each year by the interest earned on the fund balance. In the event that the fund
would drop below $1,000,000, the City Manager shall prepare a plan for restoring the balance
to $1,000,000. The fund balance target should reflect an analysis of the City's uninsured
exposure to the losses identified in this policy. Such plan, as well as whether the balance should
be made higher of lower, shall be reviewed by the Financial Commission and City Council. The
• plan adopted by the City Council shall be included in the budgetary process, if the fund's balance
is not restored by transfer of existing funds from another fund, such as the Capital Improvement
Fund.
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City of Brooklyn Center
• A great place to start. A great place to stay.
To: Financial Commission
From: Michael J. McCauley'
City Manager
Date: February 27, 1997
Re: Capital Improvements Fund Expenditure Policy
Attached please find an analysis performed by Charlie Hansen on disaster exposure for general
governmental operations and the need for a Reserve Fund. The upper end of the exposure was
$1,000,000 for a public safety dispatch radio system. Generally, the upper end of exposure is
around $500,000 for temporary space, which exposure may be reduced through insurance in the
future.
To provide greater definition of the uses to which funds might be used in a Capital Improvement
Fund, I would propose the following language for discussion to replace the existing language on
• use of funds:
USE OF FUNDS:
The Capital Improvement fund may be used, pursuant to this policy, for
expenditures on capital equipment, infrastructure improvements and construction,
and similar projects having an aggregate value in excess of $50,000. The types of
expenditures contemplated by this policy include projects such as::
- building construction, repair, reconstruction, and remodeling, including
component systems for heating, ventilation, and air conditioning
- equipment and furnishings, including furniture, lighting, and communications
cabling
- street repair, replacement, and construction
- parr landscaping, shelters, and improvements
- computer, radio, and telephone systems
The expenditures from the Capital Improvement Fund are to be used for general
governmental capital needs and not for enterprise fund capital needs, except as
the general governmental portion of a joint project for both general and enterprise
purposes.
6301 Shingle Creek Pkwy, Brooklyn Center, MN 55430-2199 - City Hall & TDD Number (612) 569-3300
Recreation and Community Center Phone & TDD Number (612) 569-3400 FAX (612) 569-3494
An Affirmative Action /Equal Opportunities Employer
•
An overview of the differences between the proposed Reserve Fund and a Capital
Improvement Fund are illustrated as follows:
(Planned Expenditures Minimum Balance Annual FundingDisasterj
•
•
Reserve Fund No $1 Milllion + Interest Yes
Capital Improvements Yes ► No Yes No
The following table shows the changes in balances for a 6 year period (Note: there are
minor variations in balances and assumptions with other statements. This table was
designed to illustrate in a general fashion.):
Interest Assumption
ESTIMATED EXAMPLE
Capital Improvment
5.00%
1997 1998 1999 2000 2001 20021
Beginning Balance (Cash)
$3,639,935
$3,677,141
$2,245,521
Interest
$181,997
$183,857
$112,276
Transfers In
$154,439
$400,000
$420,000
Loan repayments
$84,523
$84,523
$89,511
Expendituresi'Transfers
($383,753)
($2,100,000)
($2,000,000)
Ending Balance
$3,677,141
$2,245,521
$867,308
$867,308
$43,365
$441,000
$80,398
($350,000)
$1,082,072
$1,082,072
$54,104
$463,050
$57,500
($550,000)
$1,106,725
$1,106,725
$55,336
$486,202
$57,500
($600,000)
$1,105,764
Capital Reserve
Beginning Balance
$1,000,000
$1,050,000
$1,102,500
$1,157,625
$1,215,506
$1,276,282
Interest
$50,000
$52,500
$55,125
$57,881
$60,775
$63,814
Loan repayments
$0
$0
$0
$0
$0
$0
Expenditures
$0
$0
$0
$0
$0
$0
Ending Balance
$1,050,000
$1,102,500
$1,157,625
$1,215,506
$1,276,282
$1,340,096
This table is also set forth in a graph attached to this memo. The impact of bonding on
taxes and a $75,000 home are set forth on the attached sheet. These numbers on
construction are preliminary. Much work needs to be done to refine the basic concepts
into more specific plans. There are issues that may also need attention regarding buildings
that may need inclusion with the solution of the Police space needs. Also attached is the
preliminary 1996 year end cash balances prepared by Mr. Hansen.
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Em efis Police Fe Combined
Parking $715,000
Construction $3,193,700 $2,900,000
Storage $50,000
Contingency $550,000 $4Q0600
$4,508,700 $3,390,000 $7,898,700
Financing
Capital Fund $3,500,000
Bonds $4,398,700
impa ts:
l Bonds: IPrincipal
Term
Debt Service
Current Levy
% Increase
$4,000,000
10 Years
$575,000
$6,442,436
8.93%
$4,000,000
15 Years
$442,512
$6,442,436
6.87%
75,000 House Principal
Term
Tax Increase
Current City Tax
% Increase
' $4,000,000
10 Years
$43.61
$250.38
17.42%
$4,000,000
15 Years
$33.41
$250.38
13.34%
Bonds: Principal
Term
Debt Service
Current Levy
% Increase
$3,000,000
10 Years
$429,912
$6,442,436
6.67%
$3,000,000
15 Years
$329,618
$6,442,436
5.12%
75,000 House Principal
Term
Tax Increase
Current City Tax
% Increase
$3,000,000
10 Years
$32.76
$250.38
13.08%
$3,000,000
15 Years
$25.09
$250.38
10.02%
Bonds: (Principal
Term
Debt Service
Current Levy
% Increase
$7,000,000
10 Years
$1,004,912
$6,442,436
15.60%
$7,000,000
15 Years
$772,130
$6,442,436
11.99%
75,000 House Principal
Term
Tax Increase
Current City Tax
% Increase
$7,000,000
10 Years
$76.37
$250.38
30.50%
$7,000,000
15 Years
$58.50
$250.38
23.36%
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Capital Funds: General Government
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2001
0 1999 2000
1997 1998 Year
1 .It Capital Improvement .o. Capital reserve
2001
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City of Brooklyn Center
A great place to start. A great place to stay.
To: Financial Commission
From: Michael J. McCauley
City Manager
Date: November 12, 1996
Re: Capital Improvements Fund Expenditure Policy
At the last meeting of the Financial Commission, discussion began on the issue of changing the
policy to use accumulated fund balance for upcoming projects. The specific project being
targeted for use of funds is the building needs for police and fire. The fund balance requirement
in the current policy is $3 Million plus inflation. Mr. Hansen calculated that balance at
$3,278,000 as of 12/31/95. The policy issue being suggested for review is the benefit of a large
fund balance versus using a major portion of that balance to address major building needs. The
interest on $3 Million could be used for minor projects and the inflationary increase in the fund
balance required by the policy. I would submit that it may be more productive to convert some of
that fund balance into facilities and their renovation, than to have the money accumulate.
If the is revisited, the 4/5ths voting requirement policy and $200,000 limits should also be
reviewed as to their efficacy. One of the concepts we will be working on for the 1997 budget
process is a 5 year financial plan. That plan may include building fund balance for use in the 2nd
or 3rd year of a cycle. For example, a project may exceed the capability to raise revenues in a
single year and be scheduled for the 2nd year of a budget cycle. This would work by taking
$200,000 from year one of a budget cycle with $200,000 from the second to complete a major
project such as a street project. The 4/5th requirement would potentially delay planned projects
due to an inability to gain an extraordinary majority. $200,000 is also not a large expenditure in
the area of street reconstruction. This has not been an issue where the funding comes from State
Aid or the use of bonds, but the course I am pursuing would have us place monies into a capital
improvement fund to be accumulated and spent in budget cycles. Thus, monies could be put into
the fund for a specific purpose, only to have those fund locked up by the need for an
extraordinary majority.
One of the possible avenues we briefly explored at the last meeting was to create a working
capital fund to receive funds and the release them for projects and a permanent fund for
emergencies or longer range issues. Separating the fund amounts would facilitate an internal
savings plan and the goal of having some amount of capital in reserve.
•
6301 Shingle Creek Pkwy, Brooklyn Center, MN 55430-2199 • City Hall & TDD Number (612) 569-3300
Recreation and Community Center Phone & TDD Number (612) 569-3400 • FAX (612) 569-3494
An Affirmative Action /Equal Opportunities Employer 13
0 MEMORANDUM
TO: Michael J. McCauley, City Manager
FROM: Charlie Hansen, Finance Director C H
DATE: February 26, 1997
SUBJECT: Report on the Need for a Reserve Fund
In recent meetings with the Financial Commission, we have discussed the possibility of
amending the Capital Improvements Fund Expenditure Policy. You have proposed the
creation of a separate Reserve Fund with a balance which would be dedicated to be held
for catastrophic events not covered by insurance or any other means. The remainder of
the Capital Improvements Fund would then become available to meet current City needs
for buildings or parks. How large the Reserve Fund should be is the main question.
Steve Sydow and I analyzed all the events we could think of which could cause a
catastrophic loss to the City which wouldn't be reimbursed by insurance. Most of the
events we thought of would be covered by our insurance except for the following:
Environmel cleanup
There are several locations where the City has fuel tanks in the ground for either heating
fuel or gasoline. We could buy insurance for this except that our tanks are older than
allowed by the insurance standards. Fuel tank leaks often aren't detected immediately and
result in costly and extensive cleanups. We didn't develop a cleanup cost estimate due to
the unknown extent of the fuel (if any) which might have leaked from our tanks.
Storm clan
If a major storm, such as a tornado, came through the City, there could be extensive
damage to buildings and structures owned by the City, and large numbers of downed trees
in parks and on buolevards. Reconstruction of buildings and structures would be mostly,
if not entirely covered by insurance. Tree removal and other cleanup costs would not.
Even so, Diane Spector doubts that the non covered cleanup costs would exceed $200,000.
•
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0 Business interuption
If a City building were destroyed by storm, fire, or other cause, insurance would pay to
rebuild and refurnish it. However, our current insurance wouldn't pay the costs of
relocating operations to other sites while rebuilding was taking place. We are in the
process of getting quotes for business interruption insurance for the Liquor Stores, Golf
Course, and Heritage Center. Similar insurance, called rental value insurance, could be
obtained for City Hall and other buildings as needed. In the absence of such insurance,
the cost of setting up operations in alternate locations would be paid by the City.
The worst case would probably be to relocate City Hall and the Police Department. City
Hall occupies about 15,000 square feet and the Police Station another 8,500 square feet.
It is impossible to say what office space would be available to rent at some unknown point
in the future or exactly what it would cost. Steve Baker believes that if the need were
today, the space is available and would cost about $15.00 per square foot per year. We
would probably need to rent 25,000 square feet for at least a year at a cost of $375,000.
There would be additional costs for the temporary rental of furniture, copiers, a telephone
system, etc. I assume public safety dispatching would be shifted to Hennepin County.
The total uninsured cost could easily reach $500,000.
0 E moment failure
The City owns several pieces of equipment which are nearing the ends of their useful lives
and could fail unexpectedly and in a way that would make a complete replacement
necessary. Two examples are the main telephone system and the public safety dispatch
radio. If the failure were caused by a component simply wearing out, as opposed to some
external factor, insurance most probably wouldn't cover the loss. A new telephone system
might cost between $100,000 and $200,000. A new public safety dispatch radio system
could cost between $500,000 and $1,000,000. As I recall the discussion from a couple of
years ago regarding switching to Hennepin County dispatch, replacing our radio with new
equipment of similar technology would cost $500,000. Upgrading to the new 800
megahertz system the state is developing would cost more.
In all of the above examples, the cost estimates are based upon staff estimates, and not on
any extensive research. We felt it was unlikely that more than one of these scenarios was
likely to happen at once. If this analysis is to be the basis for setting the balance in the
Reserve Fund, you could simply take the most expensive example.
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IS