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HomeMy WebLinkAbout1997 05-01 CCP Joint Session with Financial Commission AGENDA BROOKLYN CENTER JOINT CITY COUNCIL / FINANCIAL COMMISSION May 1, 1997 City Hall 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. 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 • Attached are: • 1. The Capital Improvements Fund P P n 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. • fincomm \capdraft Draft March 97 • CITY OF BROOKLYN CENTER CAPITAL IMPROVEMENTS FUND EXPENDITURE POLICY POLICY O TF'.C'TIVF 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 Q throu 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 FUND 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 FUND The D R ift 1 L a l aftee A. ) M a j or. i ea pi ta l ex t emeeeds $25 Gapital expenditures of less tha s are to be made thratigh the general ftmd operating J . B.) Permanent Any eapita4 expenditure that has an estifflaied ttseful life of 10 years a 1011 estate, V'__n1­eftt:s to real of land fer eity purposes. 3 • 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 or both general and enterprise a J f g rP 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 $2000 $50,000: Not eligible for funding from the capital improvements fund. Funding is required through the general fund operating budget. B.) Expenditures from $ 25,001 $50, 001 to $200,000 $300,000: The City Council may, through simple majority, approve these expenditures. C.) Expenditures over $200,000 $300,001: Following a public hearing, City Council may, through a 4 /5th's majority, approve expenditures in this category. • SPENDIN MUTATION BALANC REOUTRFMENT • The objective as described above and rev' _� p iously defined m Resolution 68 ..46 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 $29G;999 $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. o s , 1993 and inereased by the A±nendmetits to . uu.S3 rvu. y 4, m ajerit y -- - - • ROLE OF THE FINAN E 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? • S fincomm \capo1cy7 CITY OF BROOKLYN CENTER • CAPITAL LMPROVEMENTS 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 P P g 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 FUN) 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, o, and telephone systems 6 The expenditures from the Capital Improvements Fund are to be used for general governmental e 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 REQUIREMENT 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 FLNANCE CONEMI ION 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 P � o ion of the City. 7 CITY OF BROOKLYN CENTER • CAPITAL EXPENDITURE RESERVE FUND POLICY POLICY OB TF'C'T 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. FUi\TD 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 t he balan ce to $1,000,000. The fund balance target should reflect an analysis of the Ciry'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. =3[ 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 S 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 - pare landscaping, shelters, and improvements - computer, radio, and telephone systems The expenditures from the Capital Improvement Fund are to be used for general Bove- rnmental 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 dumber (612) 569 -3300 Recreation and Community Center Phone & TDD Number (612) 569 -3400 - F-LY (612) 569 -3494 An Affirmative Action /Equal Opportunities Employer C • An overview of the differences between the proposed Reserve Fund and a Capital Improvement Fund are illustrated as follows: Planned Expenditures Minimum Balance Annual Fundin Disaster Reserve Fund I No � � 1 Milllion + Interest Ca ital ]in rovements I yes Yes t No I Yes No The followina 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 5.00% ESTItii IATED EXA- PLE Capital Improvment 1997 1998 1999 2000 2001 200 Beginning Balance (Cash) $3,639,935 $3,677,141 $2,245,521 $867,308 $1,082,072 $1,106,72 Interest $181,997 $183,857 $112,276 $43,365 $54,104 $55,33 Transfers In $154,439 $400,000 $420,000 $441,000 $463,050 $486,20 • Loan repayments $84,523 $84,523 $89,511 $80,398 $57,500 $57,50 Expenditures, Transfers ($ 383 ,753)($2,100,000)($2,000,000) ($350,000) ($550,000) ($600,OC Ending Balance $3,677,141 $2,245,521 $867,308 $1,082,072 $1,106,725 $1,105,76 Capital Reserve Beginning Balance $1,000,000 $1,050,000 $1,102,500 $1,157,625 $1,215,506 $1,276,28 Interest $50,000 $52,500 $55,125 $57,881 $60,775 $63,81 Loan repayments $0 $0 $0 $0 $0 $; Expenditures $0 $0 $0 $0 $0 $ Ending Balance 51,0 0,000 $1,102,500 $1,157,625 $1,215,506 $1,276,282 $1,340,09 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. vluch 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 TMr. Hansen. • IO erects P-QUC2 Fite Combined Parking $715,000 Construction $3,193,700 $2,900,000 Storage $50,000 Contingency $550,000 $490.000 $4,508,700 $3,390,000 $7,898,700 Financin Capital Fund $3,500,000 Bonds $4,398,700 Im pacts: Bonds: Princip 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% 175,000 House!Princi al Term Tax Increase Current City Tax % Increase $4,000,000 10 Years $43.61 $250.38 17.42% I ' i $4,000.000 15 Years 533.41 $250.38 13. • 'Bonds: iPrincipal Term Debt Service Current Lew %Increase 1$3,000,000 10 Years $429,912 $6,442,436 6.67 %i $3,000,000 15 Years $329,618 $6,442,436 5.12% f 75,000 House;Principal Term Tax Increase Current City Tax % Increase I $3,000,000 10 Years $32.76 $250.38 13.08% $3,000,000 15 Years $25.09 5250.38 10.02% Bonds: I Principal Term Debt Service Current Levy % Increase $7,000,000 10 Years $1,004,912 $6,442,436 15.60% l $7,000,000 15 Years $772,130 $6,442,436 11.99%1 75,000 House�PrinciwI Term Tax Increase Current City Tax % Increase $7,000,000 10 Years 576.37 $250.38 30.50% " � I $7,000,000 15 Years 558.50 $250.38 23.36% • t! ' Capital Funds: Ge G overnme n t 3 \ 2 4 N 7 1998 I I))) 2000 2001 Year 2001 i Capital Improvement p. Capital reserve 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 changin- 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 $3,273,000 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 inflationar 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 policy is revisited, the 4 /5ths voting requirement 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 inabilit to g ain 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 ra an�e 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 • FLY (612) 569 -3494 An Affirmative A ction l Eaual Opportunities Employer 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: Environmental 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 damage 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. • l �(