2024-06-18 CC Meeting Minutes WorkshopMOUND CITY COUNCIL
SPECIAL WORKSHOP MINUTES
June 18, 2024
The City Council of the City of Mound, Hennepin County, Minnesota, met in a special workshop
meeting session on Tuesday, June 18, 2024 at 6:00 p.m. in the Council Chambers in the
Centennial Building.
Members present: Mayor Jason Holt, Council Members, Sherrie Pugh, Paula Larson, Kathy
McEnaney and Kevin Castellano.
Members absent: None
Others present: Finance Director, Noah Iverson, and Deputy City Manager Maggie Reisdorf.
Stacie Kvilvang and Kyle Sawyer from Ehlers.
The Special Workshop Meeting was called at 6:00 pm.
Utility Rate Study and Financial Management Plan
Utility Rate Study.
Kvilvang introduced this item to the City Council. She informed that about a year ago, the City
Council approved working with Ehlers on a Financial Management Plan and later a Utility Rate
Study.
Kvilvang provided a review of the Utility Rate Study first. She provided a review of what
enterprise "business funds" are and that the City of Mound has four of these funds including:
Water, Sanitary Sewer, Storm Sewer, and Recycling. She stated that these funds are meant to
be operated like a business and should have sufficient cash for capital projects, operations,
replacement reserves, and debt. She also stated that the funds should have a minimum of six
months of operating expenses excluding depreciation, following year's bond/debt payments (if
any, funding for capital projects, and the flexibility to accommodate unforeseen repairs.
Kvilvang reviewed the fixed costs of these funds including staff, equipment/vehicles, supplies,
cost to send out bills, and meters. She stated that it is important to understand the fixed costs as
these costs need to be covered by the based charges of the system and are not subject to
usage of the system.
Kvilvang noted that running a utility system is operating and capital intensive as it pertains to
cost. She noted that the costs of the water system are broken down as such: Debt (49%),
Operating (29%), and Capital (22%). She noted that the costs of the water system are broken
down as such: MCES (21%), Debt (24%), Operating (17%), and Capital (38%).
Kvilvang reviewed highlighted that the purpose of the study was to get the funds out of about a
$10M deficit in a timely manner. She said that the study included reviewing the usage,
conservation methods, and equitability of the rates, making sure that the financial health of the
funds would be maintained in the long run, that capital planning was part of the model, and how
that collectively would impact user bills over time.
Kvilvang provided information on the assumptions and other factors used for the study. The
included consumption data on the past five -years, as well as precipitation. Other assumptions
included a 4% increase in expenses each year, 4% CIP inflation, and an MCES increase of 7%
annually. She said that no interest income was projected and that all capital projects where
included except the upcoming Water Treatment Plant. She also noted that storm water projects
continued to be funded by the tax levy.
Kvilvang noted that the approach to the study was to understand how businesses and residents
would be impacted with the changes, how funds would be impacted, and the impact on staff.
Kvilvang said that the study reviewed the funds' base/fixed fees, the tiers, and usage versus
revenue. The explained that charges for water and sewer usage are based on volumetric
charges, specifically at a rate per 1,000 gallons. She said that for water, the rate increases for
higher consumption (AKA: tiered). She said that there are also base fees for water and sewer.
Kvilvang explained how the city currently bills. Specifically, that commercial is billed monthly,
and residential is billed quarterly. She said that apartments are currently considered commercial
and therefore are billed monthly. She noted that one significant change that is being
recommended is that apartments (multifamily) need to be changed to residential and each unit
needs to pay a base fee per state law. She said that the building is only paying on base fee at
the moment and that that is incorrect.
Kvilvang reviewed the fixed fees of the water fund and noted that based fees are currently
covering the fixed costs of the system, which is good. She said that there is no recommendation
at this time to change the fixed fees of the water fund. She provided an analysis of the current
water fund tiers. She noted that currently, usage rates are the same regardless of user (which is
appropriate), but that multi -family is in the same category as commercial and should be in a
category of its own.
Kvilvang provided an analysis on 2023 residential water usage tiers. She noted that there are
too fee low users that are captured in tier 1 (22%). She said that are too many users captured in
the first two tiers (95%) and that the tiers don't promote conservation.
Kvilvang provided a proposed breakdown of water tiers where Tier 1 would capture about 44%
of users, Tiers 1 & 2 would capture 78% of users and the model would promote conservation.
She said that a big benefit would be that more users would fall within the lower tier.
Kvilvang did a review of the current rates versus proposed rates for 2025 for the water fund.
She said with the tier changes and the billing changes for multi -family, an additional $362,000 in
revenue would be captured. She also said that water usage would be more equitable. She
stated that currently, residential is paying more than their share of water used (82% used versus
covering 87% of the current revenue). She said that commercial and Multi -Family are using
about 18% and only paying for 13%. She said the proposed changes would fix this.
Kvilvang showed a proposed "get well" plan that would get the city out of the hole for the water
fund in five years. She said that this would include maintaining adequate cash balances. She
said that it would also include an annual transfer of about $165,000 from the liquor funds
between the years 2025 — 2029. She showed a plan for the sewer fund that included a bond in
2024 that would replenish the fun from prior expenditures and to cover some current
expenditures. She provided a high-level review of the storm water fund. She noted that this was
not part of the review, but said that work is still needed to address this fund and getting it out of
the negative.
Kvilvang did a review of the current rates versus proposed rates for 2025 for the sewer fund.
She noted that Multi -Family would be changing from monthly to quarterly billing. She said with
the proposed 2025 rates, there would be an additional $220,000 in revenue generated.
Kvilvang provided a chart that showed proposed rates between the years 2025 and 2028 and
how the rate changes would impact residential users within a three tiers. She did the same with
Multi -family and commercial properties.
Mayor Holt stated that the City needs to make sure that it communicates the significant changes
with the Multi -family properties. Kvilvang agreed.
Kvilvang did a review for utility rate changes for all four funds between the years of 2018 and
2024.
Councilmember McEnaney asked how the previous City Councils' chose to do no rate increases
for many years.
Iverson stated that there was a time when several property owners came to a City Council
meeting demanding that rates be lowered and that the City Council chose at that time to do so.
Mayor Holt stated that residents were complaining about the cost of their bills and that the
previous City Council decided to cut the storm water fees drastically as well. He stated that
admittedly moved to the City of Mound having a difficult time understanding why the rates were
so high. He said however that the previous City Council decided to "trick the system" and
reduce bills when they shouldn't have and now the current City Council is having to fix it.
Councilmember Castellano expressed frustration as well, noting that people should have been
paying for what they were using.
Mayor Holt said that it is hard to him to increase rates, but that he now understands why it has
to be done.
Councilmember McEnaney agreed that she now understands it better
Mayor Holt stated that if the previous City Councils' would have done slight increases every
year instead of zero percent increases in some funds, they City would be in a way better place
today and not have had to play catch up.
She then provided a proposal for rates for the years 2026 — 2033. She did a review of
community rates of neighboring cities as well, noting that there are communities around the City
of Mound above and below our utility rates. Kvilvang provided some recommendations to
residents on how to conserve water.
Councilmember McEnaney stated that the City should provide some of this information in visual
form to residents, including the rate comparisons with other cities.
Councilmember Castellano agreed and added that the City needs to educate residents on the
system and the increases that are coming.
Kvilvang stated that education on conserving water is important too
Financial Management Plan.
Kvilvang introduced this item to the City Council. She listed the goals related to Plan which
included the following:
1. To incorporate past decisions regarding franchise and dock fees.
2. To eliminate tax levy reliance for sewer fund.
3. To reduce reliance on internal borrowing to lessen strain on financial reserves.
4. To manage tax levy increase to below double-digit increases.
5. To assure there is a plan in place for capital needs.
6. To assure that there are appropriate fund balances to provide resources for unforeseen
costs.
7. To limit future debt to the extent needed to keep funds "healthy".
Kvilvang provided a review of the assumptions and other factors that went into the study that
included the following:
1. The General Fund reserves are maintained at 50% of the next year's expenditures.
2. The sewer and water rates were incorporated from the rate study.
3. The updated dock free structure was incorporated.
4. That all capital projects were incorporated per the capital improvement plan.
Kvilvang explained that the water treatment plant financing was not part of this plan, that the
plan includes not assessing for street projects in the future, and that storm water projects would
continue to be funded by tax levy (Capital Improvement Fund).
Kvilvang went into detail about Franchise Fees and the 2024 rate increases. She explained that
the City Council would need to decide when and how in the future increases could/should be
made.
Kvilvang reviewed capital projects and equipment costs over the next ten years totaling about
$71 Million.
Kvilvang stated that the study assumes that the tax base will increase 2% annually. She said
that this is based on the fact that there is no new residential and commercial growth built in and
that active TIF districts will be decertifying in 2026, 2028 and 2031.
Kvilvang said that the Plan is based on additional assumptions that include a 2% increase in
revenues, a 4% increase in expenditures, and 4% CIP inflation.
Kvilvang reviewed projected debt that will be taken on over the next ten years.
Kvilvang did an analysis of the Capital Improvement Fund, the Community Investment Fund,
Equipment Replacement Fund, Building Replacement Fund, Street Maintenance Fund, Dock
Fund, Area Fire Service Fund, and General Fund. For each fund she reviewed the projected
annual spending, fund goal balances, and revenue sources.
Kvilvang recommended that as part of the General Fund discussion, that the City Council
should consider updating its fund balance policy to a range of 45% - 55%, with a target of 50%.
She explained that the current policy was 42% and that the change would provide financial
flexibility while remaining fiscally responsible.
Kvilvang provided information on tax levy and rate trends based on all of the data coming
together with the assumptions incorporated. She reviewed, based on that information, the
impact the rates have on an annual basis on an average value home.
The City Council agreed to a move forward with updating the fund balance policy to a target of
between 45%-55% from the current 42%.
The City Council was ok with an allocation change of liquor funds. The change would include
taking $165,000 of the current $300,000 transfer that currently goes to the Street Maintenance
Fund and allocated that amount to the Water Fund for the years 2025-2029. The change would
allow the Water Fund to get out of the hole in five years.
The City Council agreed to continue to review the use of Franchise Fees and increase fees from
time to time when it makes sense to offset levy requirements.
The City Council agreed to the recommended fund balances within the Financial Management
Plan for Capital Improvements, the Equipment Fund, the Community Investment Fund, the
Building Replacement Fund, and the Street Maintenance Fund.
Kvilvang asked the City Council for direction on the annual levy. The City Council discussed
trying to get the 2025 levy to 5% instead of 5.35%. The City Council was otherwise
understanding of the projected increases each year and how it was a projection based on
assumptions that would have to be reviewed with real time data each year.
Councilmember Castellano recommended that the City Council make this information available
to residents in a meaningful way. He said that the City Council needs to explain that this study
and plan were done and why. He recommended having information on the city website. He
stated that as a resident, he would think people would want to understand this information.
Mayor Holt thanked Councilmember Castellano, of the finance committee, Ehlers and staff for
all their work on these documents.
Kvilvang thanked the City Council.
Ad'iourn
Motion by CM Castellano to adjourn the meeting at 7:28 pm. Seconded by CM McEnaney. All
voted in favor. Motion carried.
l t
Attest: <evin Kelly, lerl
Mayor Jason R. Holt