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2007-07-31 Budget Workshop`. [7 AGENDA MOUND CITY COUNCIL BUDGET WORKSHOP Tuesday, July 31, 2007 6:30 P.M. 1. Call meeting to order 2. Introduction of 2008 Budget process by City Manager 3. Presentation of 2008 Budget worksheets by Finance Director 4. Discussion/preferences for levy increase and fund balance Adj ouxn • • To: Mayor and Council From: Kandis Hanson Gino Businaro Re: Year 2008 Levy and Budget Date: July 26, 2007 Dear Mayor and Council, Once again we embark on a most difficult task-the 2008 Budget. Per your request, we are presenting to you a Budget and Levy proposal this early in the budget process, so that you have the opportunity to give us direction primarily in the area of the Levy and the General Fund Balance. We have scheduled additional meetings to review this budget in • more detail before numbers are certified to the County. Enclose please find a draft of the main pages relating to the General Fund and the Levy. Here is information that will help you in your analysis: General Fund • Two scenarios are enclosed. Scenario 1 is with no levy increase and an unbalanced budget, Scenario 2 sets the General Fund Levy at a level equal to the amount necessary to achieve a balanced budget and therefore maintain the fund balance. • The specific amount of Current ad Valorem Taxes is 95% of the levy, less the amount paid by the State in Market Value Homestead Credit. • The Fiscal Disparity Distribution is not available at this time. We are using last year amount for now. • $60,000 of the State Aid for Street is being allocated to the General Fund and the balance is credited to the Seal Coat Fund. • Building Permits and related fees are coming in way below projection and we are hoping that $140,000 will be achievable. • Plan Checks also are not coming in at the projected rate. We think that $70,000 is on the optimistic side. • Court Fines are coming in way lower than projected in 2007. • • Interest on Investment is tied to cash flow and the market. • Proceeds from the Sale of Bonds is proportionate to Capital purchases in the • Police, Street and Parks Departments. • Promotions reflect the $60,000 requested by the Gillespie Center. • The Cemetery budget includes $19,000 for a new fence. • The increase in Contingencies reflects a rainy day amount of $15,000 and other costs as proposed by the Personnel Committee. • The audit cost was increased by 15% and the administrative/computer costs by 5%. • The general liability insurance was increased by 5% and workers comp by 10%. • Dental insurance by 3%, LTD by 3% and Life Insurance by 3%. • Salaries were adjusted by 2.5% cost of living and steps for employees who are not at the top of their salary scale. • The General Fund Balance is the result of the assumptions given above. Your direction on this item is a most critical one. Levy: • In Scenario 2, the 11.9% Levy for General Purposes was used to show what increase is needed to generate enough revenues to be equal to the proposed expenditures. Your direction on this item is a most critical one. • All other levies are required by the bond schedule or by other binding commitments. • The Mound HRA levy of $190,000 (estimate) is based on levy authority per • Statute and Council decision to use the money for the Transit Parking Deck. • The Fiscal Disparity amount used is the same of last year for now. • It is too early for us to get numbers from the County to calculate the tax rate and the impact of that rate to the various property values, therefore the tax rates shown are very tentative. The detailed budget pages for each department and all other funds will by distributed later in the budget process. If you need specific information on the budget, on the above information, or on any other subject, please let us know in advance so that we can research it for you. With all of us working together, we are sure that we will have a good preliminary budget in September and a final budget in December that you will be willing to support. 2 City of Mound 2008 Preliminary Budget Assumptions i• • Cateaory Scenario 1 General Fund Levy Increase 0.00% General Fund 2008 Increase(Decrease) = Revenues Less Expenditures (397,872) General Fund Undesignated Balance % 19.45% 3 GENERAL FUND SUMMARY OF REVENUES AND EXPENDITURES 2005 2006 2007 2008 2008 % INCREASE ACTUAL ACTUAL APPROVED REQUESTED PROPOSED (DECREASE) REVENUE GENERAL PROPERTY TAXES 2,888,834 3,307,775 3,275,636 3,235,576 3,235,576 -1.22% INTERGOVERNMENTAL REVENUI 346,706 315,152 318,060 322,060 322,060 1.26% LICENSES 19,220 16,685 19,600 18,500 18,500 -5.61% NON-BUSINESS LICENSES & PERMITS 226,283 274,794 243,300 247,900 247,900 1.89% GENERAL GOVT. CHARGES 499,988 502,948 498,000 495,400 495,400 -0.52% OTHER REVENUE 365,135 453,607 362,500 338,050 338,050 -6.74% INTERFUND TRANSFERS/BONDS 293.645 325.894 162.000 147.000 147.000 -9.26% TOTAL REVENUE 4.639,811 5.196.855 4.879.096 4,804.486 4,804,486 -1.53% EXPENDITURES CITY COUNCIL 77,172 78,771 84,590 80,689 80,689 -4.61% PROMOTIONS 3,750 5,250 5,500 61,500 61,500 1018.18% CABLE T.V. 42,141 42,263 43,000 43,200 43,200 0.47% CITY MANAGER/CLERK 290,935 312,079 336,445 350,488 350,488 4.17% ELECTIONS & REGISTRATION 435 16,956 2,850 17,925 17,925 5.71 ASSESSING 84,359 84,187 86,950 92,050 92,050 5.87% FINANCE 244,696 285,088 361,930 379,806 379,806 4.94% COMPUTER 18,647 9,459 13,950 20,000 20,000 43.37% LEGAL 130,772 123,130 135,460 140,507 140,507 3.73% POLICE 1,581,701 1,649,134 1,546,418 1,738,296 1,694,770 9.59% EMERGENCY PREPAREDNESS 6,071 7,268 7,100 7,100 7,100 0.00% PLANNING & INSPECTION 381,398 415,316 431,051 460,482 460,282 6.78% STREET 937,728 914,572 889,269 809,467 807,467 -9.20% CITY HALL BLDG & SRVS 98,193 109,369 106,770 118,078 109,778 2.82% PARKS 384,392 389,788 465,399 540,035 533,475 14.63% CEMETERY 7,641 7,797 10,447 33,771 29,771 184.96% RECREATION 3,000 0 5,000 5,000 5,000 0.00% CONTINGENCIES 28,773 13,870 16,700 41,700 41,700 149.70% TRANSFERS 475,216 434.652 304.610 326.850 326.850 7.30% TOTAL EXPENDITURES 4.797.020 4,898.949 4.853.438 5,266.944 5,202,358 7.19% INCREASE (DECREASE) -157,209 297,906 25,658 -462,458 -397,872 -1650.70% FUND BALANCE, JANUARY 1 1,340,889 1,146,634 929,956 1,402,654 1,409,901 51.61% ADJUSTMENT TOAUDIT -37.046 -67.544 FUND BALANCE, DECEMBER 31 1.146.634 1.376.996 955.614 940.196 1.012.028 5.90% FUND BALANCE AS A PERCENTAGE OF EXPENDITURES: 23.90% 28.11% 19.69% 17.85% 19.45% NOTE: UNDESIGNATED ONLY IS PART OF FUND BALANCE. • •i C] 4 7/2s/2oo7 i• CITY OF MOUND TAX LEVY RECAP 2005 2006 2007 2008 2,717,660 3,126,774 3,524,817 3,524,817 0.0000% 368,440 364,060 368,250 366,860 21,800 21,400 20,900 20,500 33,350 67,890 71,010 72,120 71,200 75,000 73,300 71,500 136,860 139,067 141,167 143,162 143,340 141,494 144,179 146,717 28,500 30,600 26,900 17,700 142,450 114,500 111,700 112,100 0 66,700 68,600 65,100 35,000 31,000 64,200 67,500 0 0 32,234 29,252 0 35,000 37,513 70,308 0 0 0 116,270 0 0 0 42,460 14,320 3.420 0 0 TAX LEVIES REVENUE-GENERAL PURPOSES REVENUE -LEASE PAYMENTS 2001A JUDGMENT BOND FIRE RELIEF G.O. IMPROVEMENT 2001C G.O. IMPROVEMENT 2003A G.O. TAX INCREMENT 2003C G.O. IMPROVEMENT 2004A G.O. EQUIP. CERTIFICATES 2004C G.O. IMPROVEMENT 2005A G.O. EQUIP. CERTIFICATES 2005C G.O. IMPROVEMENT 2006A G.O. EQUIP. CERTIFICATES 2006C G.O. IMPROVEMENT 2007A G.O. EQUIP. CERTIFICATES 2007C LEASE EQUIPMENT LOAN TOTAL LEVY • SPECIAL TAXING DISTRICT HOUSING & REDEVELOPMENT AUTHORITY (SPECIAL TAXING DISTRICT) Properly Value: • Property Value: Properly Value: Properly Value; 136.124 136.124 173.281 190.000 2005 2006 2007 2008 TOTAL LEVY 3,712,920 4,216,904 4,684,769 4,866,365 CERTIFIED LEVY 3,712,920 4,216,904 4,684,769 4,866,365 FISCAL DISPARITY -278.460 -285.070 -303.426 303,426 NET LEVY ~ ~~~ ~~ 4.562.939 CITY PROPERTY TAX RATE 37.295 37.259 36.409 34.717 Tax Tax Tax Tax 150,000 559.43 558.89 546.14 520.76 200,000 745.90 745.18 728.18 694.35 250,000 932.38 931.48 910.23 867.93 300,000 1,118.85 1,117.77 1,092.27 1,041.52 3.88% 27.30% 3.88% 4.14% -4.65% 5 7~2si2oo7 City of Mound 2008 Preliminary Budget Assumptions Category Scenario 2 General Fund Levy Increase 11.90% General Fund 2008 Increase(Decrease) = Revenues Less Expenditures 608 General Fund Undesignated Balance % 27.11% • C, 6 i• i• GENERAL FUND SUMMARY OF REVENUES AND EXPENDITURES 2005 2006 2007 2008 2008 % INCREASE ACTUAL ACTUAL APPROVED REQUESTED PROPOSED (DECREASE) REVENUE GENERAL PROPERTY TAXES 2,888,834 3,307,775 3,275,636 3,634,056 3,634,056 3 10.94% INTERGOVERNMENTAL REVENUI 319 220 3 00 3 500 318 500 98 -5.66% LICENSES ' 16,685 19,6 , , NON-BUSINESS LICENSES & 283 226 794 274 243,300 247,900 247,900 1.89% PERMITS GENERAL GOVT. CHARGES , 499,988 , 502,948 498,000 495,400 0 495,400 050 338 -0.52% 74% -6 OTHER REVENUE 365,135 453,607 894 325 362,500 000 162 338,05 147.000 , 147.000 . -9.26% INTERFUND TRANSFERS/BONDS 293.645 . . TAL REVENUE 4 639.811 5.196.855 4 879.096 5,202,966 5.202,966 6.64% TO EXPENDITURES CITY COUNCIL 77,172 78,771 84,590 500 80,689 500 61 80,689 500 61 -4.61% 1018.18% PROMOTIONS 3,750 141 42 5,250 263 42 5, 43,000 , 43,200 , 43,200 0.47% CABLE T.V. CITY MANAGER/CLERK , 290,935 , 312,079 336,445 350,488 350,488 4.17% 71% 5 ELECTIONS & REGISTRATION 435 16,956 2,850 0 17,925 050 92 17,925 050 92 . 5.87% ASSESSING 84,359 244 696 84,187 088 285 86,95 361,930 , 379,806 , 379,806 4.94% FINANCE COMPUTER , 18,647 , 9,459 13,950 20,000 20,000 43.37% 73% 3 LEGAL 130,772 701 581 1 123,130 649,134 1 135,460 1,546,418 140,507 1,738,296 140,507 1,694,770 . 9.59% POLICE EMERGENCY PREPAREDNESS , , 6,071 , 7,268 7,100 7,100 82 7,100 282 460 0.00% 78% 6 PLANNING & INSPECTION 381,398 415,316 72 431,051 269 889 460,4 467 809 , 807,467 . -9.20% STREET CITY HALL BLDG & SRVS 937,728 98,193 914,5 109,369 , 106,770 , 118,078 109,778 2.82% PARKS 384,392 389,788 465,399 540,035 1 533,475 771 29 14.63% 96% 184 CEMETERY 7,641 7,797 0 10,447 000 5 33,77 000 5 , 5,000 . 0.00% RECREATION 3,000 773 28 870 13 , 16,700 , 41,700 41,700 149.70% CONTINGENCIES TRANSFERS , 475.216 , 434.652 304.610 326.850 326.850 7.30% TOTAL EXPENDITURES 4,797,020 4.898.949 4.853.438 5,266.944 5 202,358 7.19% INCRERSE (DECREASE) -157,209 297,906 25,658 -63,977 608 -97.63% FUND BALANCE, JANUARY 1 1,340,889 1,146,634 929,956 1,402,654 1,409,901 51.61% ADJUSTMENT TO AUDIT -37.046 -67.544 ' ~8 67 1 41~ 47.60% FUND BALANCE, DECEMBER 31 14~, 6.634 76. 6 1 ~ ~,+ FUND BALANCE AS A PERCENTAGE 90% 23 11% 28 19.69% 25.42% 27.11% OF EXPENDITURES: . . • NOTE: UNDESIGNATED ONLY IS PART OF FUND BALANCE. ~ ~iss~2oo7 CITY OF MOUND TAX LEVY RECAP TAX LEVIES REVENUE-GENERAL PURPOSES REVENUE -LEASE PAYMENTS 2001A JUDGMENT BOND FIRE RELIEF G.O. IMPROVEMENT 2001 C G.O. IMPROVEMENT 2003A G.O. TAX INCREMENT 2003C G.O. IMPROVEMENT 2004A G.O. EQUIP. CERTIFICATES 2004C G.O. IMPROVEMENT 2005A G.O. EQUIP. CERTIFICATES 2005C G.O. IMPROVEMENT 2006A G.O. EQUIP. CERTIFICATES 2006C G.O. IMPROVEMENT 2007A G.O. EQUIP. CERTIFICATES 2007C LEASE EQUIPMENT LOAN TOTAL LEVY SPECIAL TAXING DISTRICT HOUSING & REDEVELOPMENT AUTHORITY (SPECIAL TAXING DISTRICT) 2~ 2006 2007 2008 2,717,660 3,126,774 3,524,817 3,944,270 11.9000% 368,440 364,060 368,250 366,860 21,800 21,400 20,900 20,500 33,350 67,890 71,010 72,120 71,200 75,000 73,300 71,500 136, 860 139,067 141,167 143,162 143,340 141,494 144,179 146,717 28,500 30,600 26,900 17,700 142,450 114,500 111,700 112,100 0 66,700 68,600 65,100 35,000 31,000 64,200 67,500 0 0 32,234 29,252 0 35,000 37,513 70,308 0 0 0 116,270 0 0 0 42,460 14.320 3.420 0 0 12.83% 136.124 136.124 173.281 190.000 27.30% 2005 2006 2007 2008 TOTAL LEVY 3,712,920 4,218,904 4,684,769 5,285,818 12.83% CERTIFIED LEVY 3,712,920 4,216,904 4,684,769 5,285,818 FISCAL DISPARITY -278,460 -285.070 -303.426 -303.42E NET LEVY 3.434.460 ;~,~~ 4.381.343 x$2.392 13.72% CITY PROPERTY TAX RATE 37.295 37.259 36.409 37.909 4.12% Tax Tax Tax Tax Property Value: 150,000 559.43 558.89 546.14 568.63 Property Value: 200,000 745.90 745.18 728.18 758.18 Property Value: 250,000 932.38 931.48 910.23 947.72 Property Value: 300,000 1,118.85 1,117.77 1, 092.27 1,137.26 8 •i •i 7/26/2007 'Y 5341 MAYWOOD ROAD CITY OF MOUND MOUND, MN 55364-1687 To: Mayor and Council From: Kandis Hanso Gino Businaro Re: Programming Options - 2008 Budget Date: July 26, 2007 PH: (952) 472-0600 FAX: (952) 472-0620 WEB: wwuv.cityofmound.com Our charge as City officials is to provide for the health, safety and welfare of the citizens. That generally means provide for the basic needs. Other services beyond that scope can be thought of as enhancements to quality of life and can oftentimes be reduced or eliminated. With that in mind, Council Members are asked to think in terms of "programs" when you think of reducing the budget. You may ask yourself: What programs are non-essential and can be curtailed or eliminated to reduce the budget with the least amount of impact to the citizens? You could consider the following programs for cutback: --designate several parks as natural, eliminating their mowing --review status of green spaces, to determine other possible uses, including sale to the public, cutting back on maintenance demands plus adding revenues --increase the time between grass and weed trimming citywide --beach maintenance --beach and park weed spraying --port-a-potties in parks --skate park contribution --contribution in money and in-kind to the Gillespie Center --garbage pickup downtown --CBD parking program, and the corresponding services --phase out City involvement in redevelopment --garden maintenance of Greenway, Streetscape, Public Safety Facility, new pump houses --weed spraying on sidewalks and roadsides --street sweeping frequency --striping of crosswalks and parking lots --sidewalk repair --pothole repair • --seal coating --snowplowing 3:30 p.m. to 7:00 a.m. and on weekends (overtime) --snow removal from sidewalks --snowplowing only after 4" accumulation printe~± on recycled paper --signage repair, replacement and additions --tree trimming in the ROW • --Operation Clean Sweep and other nuisance abatement --Recycling Program --crime prevention activities --events (supplies and labor, esp overtime) -Spirit of the Lakes Festival contribution and support -Music in the Park contribution and preparation -National Night Out -ribbon cuttings -ground breakings -other unplanned events (i.e., Scherven Park Dedication, Skate Park Ribbon Cutting, 911 Remembrance, Frank Weiland Park Dedication, Andrews Sisters Trail dedication) --PD response to car lockouts --PD response to property damage accidents --police programs, such as Triad or others (eliminating an officer) --close City Hall one day per week (10 hour days), reducing utilities --close the cemetery --close the Depot --newsletter frequency or elimination --annual employee picnic •i • 10 i• ,G; I~ LEAGUE of j~INNESOTA CITIES GOVERNING & MANAGING INFORMATION Guidelines for Preparing City Budgets • 215b., ~~iy 200 148 UNIVERSITY AVE. WEST The League of Minnesota Cities provides this publication as a general ST. PAUL. MN 5 5 1 03-2044 informational memo. It is not intended to provide legal advice and should not be used as a substitute for competent legal guidance. Readers should PNONE: (6511 281-1.200 consult with an attorney for advice concerning specific situations. TOLL FREE: (8001 925-1122 ©2007 League of Minnesota Cities FAx:(651) 281-1299 WEg: WWW.LMC.ORG Atl rights reserved • ~~ •i Preface ........................................................................................................................................................... 2 I. II. A. B. C. D. E. F. III A. B. C. D. E. IV. A. B. C. D. E. F. G. H. L J. K. L. M N. New .for 2008 ..................................................................................................................................... 5 Budgeting basics ........................................:................................................................................ ..6 Budget is a plan ................................................................................:...................................... ..6 Capital planning ...................................................................................................................... ..7 City fund balances ................................................................................................................... ..7 Budget format .......................................................................................................................... ..8 GASB 34 ..................................................................................................................................... ..8 Budgeting process ....................................................................................................................... .. 8 Expenditures ..... ..................................................................:........................................................ 12 Categories of expenditures ...................................................................................................... 12 Budget considerations .....................................................................:..........:............................ 15 Pension and retirement costs ................................................................................................... 22 Fees, dues, and insurance costs ............................................................................................... 28 Tax costs ...................................................................................................:.................................32 Revenues ..................................................................................................................................... 3 8 -Tax revenue ...............................................:.......................................:.....................................38 Property taxes ........................................................................................................................... 3 8 Setting the property tax levy ...................................................................................................39 Local lodging taxes .................................................................................................................42 Gambling tax and fund ................................................................................................................42 General state aid ..........................................................................................................................43 Market value homestead credit ...............................................................................................45 Fiscal disparities programs ......................................................................................................46 Categorical state aid ....................................................................................................................47 Amortization aid ..................:.......................................................................................................51 Loss of amortization aid entitlement ........:..............................................................................51 Street and highway funding ........................................................................................................52 Highway user tax distribution fund .........................................................................................54 Additional revenue sources: Licenses and permits ................................................................. 54 •i •i Guidelines for Preparing City Budgets 2008 3 12 • I. New for 2008 On May 30, Gov. Pawlenty vetoed the main tax bill containing many local government budget drivers. The 325-page, vetoed omnibus tax bill (omnibus simply means it covers many topics) contained local government aid (LGA) increases, measures to fix LGA volatility, increased property tax refunds, tax increment financing provisions and many other provisions that affect cities in Minnesota. Here's a quick summary of the new laws that did pass and significantly affect city budgets: • No changes to local government aid (LGA). Revisions to the LGA formula in 2003 create increased volatility in the amount of LGA cities receive; this volatility continues to affect 2008 budgets. (See page # 44.) • No levy Limits. (See page # 39.) • For. levy year 2007, taxes payable 2008, the percentage increase in the implicit price deflator (IPD) is 1.042853. (See page # 60.) • No changes to the MVHC reimbursement program. Note: Do not budget to receive MVHC dollars above your total certified levy. (See page # 45.) • Best-value modifications to municipal contracting law. (See page # 29.) • Liquor license fees increase. (See page # 55.) • Park dedication fees standardized. (See page # 57.) • Wellness programs and employee recognition services-for cities. (See page # 15.) • Minnesota renewable energy objectives and energy-related legislation. (See page # 58.) • Public safety funds for police training, squad car cameras, COPS grants, defibrillators and soft body armor reimbursements. (See page # 51.) • Police and firefighter disability cost containment measures. (See page # 24.) • Requirement removed for a licensed engineer to work on individual sewer treatment systems. (See page # 13.) • Permit fee limitation on minor residential improvements repealed. (See page # 54.) • Changes in criminal law, setting higher monetary thresholds for misdemeanor may affect prosecutions. (See page # 13.) • Electronic waste recycling program created. (See page # 13.) • Changes to cemetery law, making cities or the state responsible for some costs. (See page # 14.) • Guidelines for Preparing City Budgets 2008 13 Budgeting is critical for city finance and administration. Proper budgeting • : can assist the co"uncil in a number of respects, .Budgeting is a means by which the council: can`obtaim estimates of the expected revenues for the coming year,and-plan. city spending; Because budget preparation involves necessary decisions about the use o#'money, it facilitates important decision- making and can be tied to achieving specific goals set by the council. Once . the council has allocated available money amongst the various city services, the budget can help control: expenditures. At-the conclusion of the budget year, the budget document can help the council evaluate the level and quality of city services provided during the. year: B. Capital planning When cities prepare their budgets for the upcoming fiscal year, councils must be aware of "the Gong-range financial problems and demands facing the city. In addition to the annual budget, a city would be well-served to prepare along-term financial plan that includes a capital improvement program, a long-term revenue program, and a capital "budget. A capital improvement program and a' capital budget are especially critical. Capital budgeting is a list of needed-capital: improvements (sewer and water infrastructure, public buildings; equipment:.ar land purchases), their order of priority; ..and the means of fnancing. The capital budget summarizes, for a five-'or six-year period; the capital or money requirements for capital improvements or purchases. A capital budget allows a.city to build up a fund balance for capital projects. Priorities in the capital-budget program remain tentative and the council should review them annually. A capital budget often provides many advantages, incltitling: (1) reducing or stabilizing the property tax rate; (2) preventing peaks and valleys in a city's debt retirement program; (3) allowing the city to "move gradually to a pay- as=you=go pr"ogram of capital expenditure financing; and (4) helping to preserve the city credit rating. by preventing an over-extension of credit and maintainirig'a credit reserve for emergencies at all times. Although capital budgeting may appear cumbersome and unwieldy to a small city, this is actually not.the case; A capital .budget provides protection to the small city, helping it avoid commitments and debts that would limit its ability to later pay for needed capital improvements. C. City fund.. ~balances~: State lawmakers are increasingly interested in accurate statistics on local fund balances. Unfortunately, municipal fund balances are not comparable to the state fund balance Cities' annual reports are likely to show high year- end balances because of the end-of--the-year influx of revenues from propertyy taxes and state aid. These reserves, however, are needed to cover the operating expenses of a city for the first five to six months of the next calendar year, until cities again receive property tax. revenues and state aid in June and July. • Guidelines for Preparing City Budgets 2008 14 • see 5action rv. revenues. Minnesota cities also participate in revenue-sharing and property-taX-relief l ue programs known as local government aid (LGA) and market va homestead credit (MVHC). LGA supplements property tax revenue; MVHC reimburses property tax revenue taken by a state homestead credit. see section v. rrurh-~„-raxar~on. Cities must prepare and adopt proposed budgets and proposed property tax levies. Cities over 500 population, with more than nominal proposed property tax increases, are required to provide notice of the proposed budget adoption and to hold public hearings on the proposed budget and property tax levy. The truth-in-taxation (TNT} process is described later in this document. 2. Timeframe Cities generally prepare budgets in the summer. On or before Aug. 1, the ota 7 Department of Revenue notifies cities of state aid amounts. On or before . n. Minn, slat. § a7 Sept. 1, the Department of Revenue notifies cities of the applicable levy Minn. Stat. S 275.74, subd. 1, limit, if any. On or before Sept. 15, cities must adopt their proposed budget Minn. Stat. § 275.065, 5~ba. I(a>. and certify their proposed levy to the county auditor. The TNT public § 275.065, S„bd. 6, Stat Minn comment hearings, if required, must occur between Nov. 29 and Dec. 20. By . . Dec. 27, cities must certify their final property tax levies to the county Minn. Staf. § 275.07. auditor after official adoption of the final levy and budget. Cities generally receive property. tax revenues and state aid at the end of the year, and again in June and July. The county treasurer distributes property b D d i • ecem er. n tax to cities in two settlements, the first in June and the secon The state distributes LGA payments to cities in two equal installments on or Minn. scat. ~ 477A.ais. around July 20 and Dec. 26 each year. Cities receive half of their MVHC Minn. Star. § 273.1384, subd. a. reimbursement on Oct. 31 and the remaining half on Dec. 26. 3. Budgeting challenges Beginning in 2003, many Minnesota cities faced difficult financial shortfalls. The 2003 Legislature substantially reduced state aid payments to cities, while at the same time imposing severe levy limits on cities over 2,500 population. Cities may need to continue considering a variety of strategies for meeting this ongoing challenge, including: • Reducing or even eliminating some services. • Increasing reliance on user fees and other non-aid, non-tax revenue. • Developing a transitional fiscal strategy, such as increased reliance on debt or use of reserves until the revenue base has stabilized. • Finding more efficient ways to operate the city. • Pursuing alternative service delivery methods, such as cooperative agreements with other governments, service contracts, use of volunteers, • privatization, and consolidation. Guidelines for Preparing City Budgets 2008 15 •i Figure 1 ..:... ~.____r:........., annn s.,.r ~nn~ Ex enditure area 2000 Expenditures Percent of Total 2005 Ex enditures Percent of Total Current Ex enditures General Government 370 442 578 9.00% 450 446 249 9.05% Public Safet 775 507 014 18.83% 1 036 315 026 20.83% Streets/Hi hwa s 307 482 356 7.47% 376 601 247 7.57% Sanitation 22 989 979 0.56% 26 925 322 0.54% Health 31 955 287 0.78% 23 463 711 0,47% Libraries 60 707 360 1.47% 70 031 072 1.41 Park/Recreation 252 021 177 6.12% 353 731 395 7.11% HRA/Econ Dev 203 986 721 4,95% 351 671 473 7.07% Air orts 7 395 593 0.18% 11 460 166 0.23% Miscellaneous 81 154 319 1.97% 81 093 445 1.63% Interest 233 375 718 5.67% 253 269 338 5.09% Ca ital Ex enditures Total Ca ital Outla 1342 196 057 32.59% 1 355 699 038 27.25% Princi le Pa menu 428 633 130 10.41% 584 714 483 11.75% Total 4 117 847 289 100.00% 4 975 421 965 100.00% Other Financin Uses Debt Redem tion -refunded bonds 22 624 040 186 $97 439 Other financin uses 55 719 134 12 371 522 Transfers to Enter rise funds 72 684.745 98 231 352 Transfers to Governmental funds 625 675 269 708 394 930 Figure 1a 1,800 1,400 N G ,2UU =1,000 c 800 ~- 600 c 400 0 200 1,356 . ~~~g ,',`~ ~~~y , ~~~ , ~y~ 3~`~s zY r F0.~ ~`~`s ~~¢ ~~R Q~~r Mr~a~ ~ I;1 Q~~YG ~Pp!`~ ~A~, ~a~ `~RS~ s~ N~~ ,. ~~r ~,1 Q ~~y~ c Q~ Guidelines for Preparing City Budgets 2008 354` 352 •i • 16 2. Public safety M;nn. star. § 626.s4ss. The basic costs of public safety include police protection, fire protection, Minn. stet. § 6266462. ambulance service, emergency preparedness, and some protective inspections. Cities should be sure to budget for public safety training costs. Training costs include statutorily required training, such as police-pursuit training and training requirements for part-time police officer ]icensure. z007 Minn. Laws ch. 54, art. z The 2007 omnibus Public Safety Act modifies the monetary threshold for amending Minn. star. § 6o9.sz. thefts including misdemeanors. Any theft where the value of the property or services stolen is $500 or less is a misdemeanor. (Misdemeanors used to be a theft of $250 or less.) Cities in Minnesota are generally responsible for prosecution of lower-level crimes that occur within the city limits; check with the city attorney as to whether or not the modified monetary theft thresholds impact the city's 2008 budget. 3. Streets and highways Almost all cities maintain streets and incur.substantial associated expenditures. Programs include snow and ice removal, seal coating, street lighting, and street repairs. Sidewalk repair and replacement should also be considered. 4. Sanitation • The cost of sanitation is another basic expenditure.. Cities should consider the costs of sanitary sewers and treatment plants, refuse collection and disposal, recycling, street cleaning, weed eradication, and insect and pest control. 2007 Minn. Laws ch. 48 adding The 2007 Legislature enacted laws creating estate-wide electronic waste Minn. Stet. § 1 ISA.1310 to recycling program. Although counties and solid waste districts coordinate 115A.1330. this program, cities may assist with collection of recyclable electronic wastes. A city may not force households to use public recycling facilities for electronic devices that are subject to this new law, but all recycling programs must comply with the new law. 2007 Minn. Laws, ch. 131, art. 1, The 2007 Legislature removed a licensing requirement that may save cities § 73 amending Mann. Stet. § money. An engineer is no longer needed to design, install, maintain, inspect 11.5.56, subd, 2. or operate an individual sewage treatment system (ISTS) with a flow of 000 gallons of water per day or less if the system designer, installer, 10 , maintainer or inspector is licensed and the local unit of government has not adopted additional requirements. This provision is effective now but expires on Dec. 31, 2010. 5. Health General health costs include hospital facilities, nuisance abatement, dilapidated building removal, cemeteries, and other health-related topics. • Guidelines for Preparing City Budgets 2008 13 17 B. Budget considerations As•noted above, common expenses across all categories of expenditures include salaries and otler employment costs, equipment, supplies, materials, maintenance, repairs, training; and fuel costs. Cities may need to give certain types of common expenses special consideration when planning budgets,. Salaries, berefits, pension obligations, fees, dues, insurance costs, and tax~costs all influence the costs of city government across categoric"s of expenditures. The following explanations of items in these expense areas provide guidelines for their budget implications. 1. Employment costs Cities must budget for the wages, benefits, and workezs' compensation costs of both .elected. officials and city employees. For most cities, this includes budgeting for health insurance costs. Employers must also budget for retirement-.related costs such as Social Security, Medicare, PERA, and relief association contributions. a. Preventive health services program and employee recognition ser ices #or, cities, • 2007 Minn. Laws, ch, 59 amending As of Aug, 1, 200.7., all. cities .have statutory,authority to establish and operate Minn. scat. § i s.ab, errtployee wellness programs and employee recognition programs. For • employee wellness programs, cities may provide staff, equipment, and facilities and may expend; funds as, necessary o. achieve the objectives of the program. State Auditor's Statement of The state auditor's current published position addressing expenditures on both Position Employee Recognition employee recognition events and city wellness programs is a somewhat narrow Programs and Events. tnterpretatlon Of the new law, The Lea gue is currently. in; discussion with the state auditor's off ce on this issue. However, best practice suggests careful review of expenditures on employee wellness programs;.and employee recognition events with, the city attorney and city council before spending money on these activities. b. Wages and benefits The budget must consider the salaries and benefits of the mayor, council members; city clerk; treasurer, assessors, auditors; attorneys, and other city officials, along with other city employees: c. Adjustmdnt factors To estimate the cost ofthcse salaries; a good starting point is salaries from prior years. Cities can'use the most recent full year for-which they have actual salary data and adjust the amounts tb anticipate changes in wages. Adjustment factors include: pay equity; rriarlcet wage rates, aril cost~of-living increases (such as the consumer price index), employment contracts, and merit increases. Guidelines for Preparing City Budgets ?008 i5 • ~8 • h. State and Federal Fair Labor Standards Act (ELBA) 2y u.s.c.A. §§ tot-zty. The federal. Fair Labor Standards Act (FLSA) defines the employer requirements for minimum wage, overtime compensation and compensatory see u.s. Deparnnent of Labor. time, exempt and non-exempt status, child labor standards, and recordkeeping in relation to these requirements. ' See the LMC HR & Benefits Final It is a good practice for cities to review the FLSA and job classifications to see FLSA Regularivns. if this federal law will impact any city employees' pay or status. If you have any questions about the FLSA, contactthe League's HR & Benefits Department. Minn. stet. §§ t77.2t-.3s. Minnesota also has a Fair Labor Standards Act. The purpose of this act is to establish minimum wage and overtime compensation standards, to safeguard See MN Department of Labor & tnaustry. existing minimum wage and overtime compensation standards, and to sustain purchasing power and increase employment opportunities. In situations where both the federal and the state FLSA address an issue, the employer is required to follow the law that is of greatest benefit to the employee. The state minimum wage. applicable for 2008 is $6.15 per hour for most employees. Fair Minimum Wage A.ct of.2008 ~ May 2007 Cbngreas increased the federal minimum wage. The increase 29 U.S.C. 2U6(a)(1) amended by . ' 10 per hour but will phase in incrementally. On or about July 24, tOtalS $2. • H..R. 2206 L10 U.S. Congress 2oo~-zoos . 2007, the federal minimum wage increases by :70 cents to $5.85 per hour. . Another .70 cent increase occurs: on July 24, 200.8, increasing the federal minirnurn;wage to .$6:55 per hour. The'final .70 cent increase will put the new: federal minimum-wage at $7.25 per-hour on July 24, 2009. Minn. Stet. § 177.24, subd: t. According to the state FLSA,: cities. must pay. employees. $6.15 per hour or more if the city's revenues are $625,000 or more anal at least $5.25 per hour if the city's revenues are less than $625,000. If the Minnesota Legislature does not-act next session (2008): to. change the estate minimum wage, cities may need to consider paying the higher federal minimum wage of $6.55 per hour beginning on July 24, 2008,-because employers are generally required to follow the law that is of greatest benefit to the employee. There are a number of minimum wage exceptions to both the state and federal FLSA: Cities are encouraged to review both'laws before deciding to compensate an employee at a rate that is less than state minimum wage The League.'s HR & Benefits Department, publishes..a number of memos on aspects of FLSA, which are available on the LMC; web site. The various see LMC xx information Memos. ;. department also provides a comprehensive. human resources guide for see LMC Hx ReferBnce Manual, members, the online HR Reference Manual. The comprehensive LMC HR Reference. Manual addresses personnel .issues and. is available on the LMC. web. site. i. Bonuses A.G. op. toy-a-s (Jan. 22,19so~. The attorney general has determined that bonuses constitute a gift; therefore, they are not lawful city expenditures. Cities, however, can have merit-based i pay systems. • t~ Guidelines for Preparing City Budgets 2008 f 19 Minn. stet. § 3s3.ozs. There is special authority for cities to offer deferred compensation to city • managers or chief administrative officers. Within six months .of beginning employment, the manager or..chief administrative officer may elect to be excluded from PE]ZA. The city may agree to contribute deferred compensation Minn. Stet. § 356.24, subd. 1. See for these individuals. Such contributions must comply with federal tax laws. Section III.C.b.d Volunteer No city may make a contribution to a deferred compensation plan for volunteer Firefighters and so~:a1 security. or emergency on-call firefighters in lieu of withholding social security benefits, if applicable. k. Severance ply Minn. Stet. § 465.72, subs. t. Cities must also consider any expenditure for severance pay to city employees. Severance pay provided for an employee leaving employment may not exceed an amount equivalent to one year of pay. Vacation and leave When budgeting, cities must be mindful of costs associated with employee time off, whether the time off is for holidays, vacation, sick leave, school- related leave, family leave, military leave or any of the other leave provisions that may apply to city employees. Additionally, cities should budget for the cost of having temporary replacements for employees absent for significant time periods. m. Health insurance- costs In budgeting for future health and dental premiums, cities need to be aware of underlying trends in the cost of health and dental care. While growth in health insurance premiums has moderated slightly in the past couple of years, health and dental care costs continue to increase faster than the general rate of inflation. Health experts and actuaries project that the inflationary cost of healthcare will continue to outpace inflation and average wage growth by wide margins -medical costs are likely to increase by about 10 percent over the coming year with dental costs increasing by about 5 percent to 8 percent. Cities offering health and dental benefits will also need to consider their own group's claims experience when determining what type of increases they will experience for the coming year. If your city is pooled with other groups, your experience and that of the entire pool may serve to increase health and dental premiums by even more than the projected inflationary trends. For planning purposes cities may want to base their budgets on the underlying trend in medical costs: that is, assume health premiums will increase no less than 15 percent by July 1, 2008. Given the particularly volatile nature of health claims, it's probably a good idea for cities to build in significant cushion to their budgets for this line item. Premium increases of 20 percent or more are still common in the market today, although increases seem to be stabilizing somewhat and some cities have reported lower than 10 percent increases in the past year or so. Guidelines for Preparing City Budgets 2008 19 •i • 20 • Minn. 5tat. § 471.611, subas. 1, 2. Local governments must identify separately in their budgets the amount they spend on health insurance benefit. payments for retirees during the contract or policy period. The payments must be recorded as expenditures for the fiscal ` year during which the. payments are: made.. Benefits must be approved by a separate council action if payments are for employees (or former employees) .who are not covered by a collective bargaining, agreement. Employers providing employer-paid healthcare benefits. must coordinate these benefits with Medicare. See the Governmental Accounting In 2004,"the Governmental Accounting::?Standards Board.(GASB) issued standards Board. Statement No. 43: Financial Reporting for Post-employment Benefit Plans summaries of GASS Statements. Other Than Pension Plans, and' Statement No 45: Accounting and Financial Reporting by Employers for Post Employment Benafit Plans Other Than Pension Plans; establishing uniform financiat reporting standards to measure "New GASB A.ccoun6ng and report the long-term costs ofother post-employment benefits (OPEB) plans Standards for OPEBM" Minnesota (~:g ~ retiree health benefits or life insurance}, as well as the funding status of Ctties (March 2006, p. 21}. these progralris: Cities typically have funded retiree benefits on a pay-as-you- go basis, which has created unfunded liabilities that, up to this point, have not been reflected in the cities financial reports until after employees retire. Cities will now. need to project the long-term costs of offering and paying for these benefits for both current and future retirees. Virtually all Ivinnesota public-sector employers will, have some OPEB liability, regardless of their size, whether they contribute towards retiree contributions or currently have retirees on their health plan. This is due to a provision in Minnesota statute;;that requires cities (and other public-sector entities) to allow early retirees the option to stay on the active employee plan until they turn 6~. In Minnesota, when an employee retires under age 65, the most the city can charge is the group premium rate for the active employee plan. This rate is typically less than the retiree's expected,cost and creates an issue known as implicit rate; subsidy, which is considered'to be other post- employment benefits under GASB- and must be,quantified and reflected on the city's financial statements. Smaller entities (those with less than 50 employees) with age-rated premiums who do NOT contribute towards retiree coverage may not have any GASB-related OFEB liability, since older emp]oyees and retirees are paying the"true.'',cost of coverage.. GASB 34 and Other Governmental standards will be phased-in based on. the revenue of the employer -after These Accounting: Effective Dates from Minnesota State Auditor's Office. „ DeC. 1 S, 2006, for phase I governments (total annual revenue of more than $100 million);. after Dec. 15, 2007, for phase 2 governments (total annual - $100 million); and after Dec. 15, 2008,_for phase 3 revenue of $10 League of Minnesota Cities (800) 92s.1122 or 6s1.2s1.12o0. . governments (total annual revenue of less. than $10 million). Cities should take steps now to comply with these complex new standards.: Contact the League's HR & Benefits Department for more.nformation. ': A city may f nd that if needs to hire an actuary in order to project the future costs of offering and paying for retiree benefits. Cities should consider the additional cost for hiring an actuary as they prepare their city budgets. t • Guidelines for Prepazing City Budgets 2008 21 21 b. Defined benefit plans • Defined benefit retirement plans are known as such because members' benefits are computed using a formula and are not based on the amount the member contributed to the plan. PERA has four types of defined benefit plans: Basic, Coordinated, Correctional, and Police and Fire. The Basic Plan closed to new members in 1968 when Social Security coverage became available for most see PERA employer Manuai, city employees. Generally, all new city employees, other than fire and police officers, participate in the Coordinated Plan. For descriptions of the plans, see part three of the PERA Employer Manual. c. Defined contribution plans A defined contribution plan (DCP) involves contributing into a retirement account, which the employee will receive in lump sum upon application. Defined contribution plans include plans for elected officials and plans for see PEItA Employer Manual. volunteer ambulance personnel. For a description of defined contribution plans, see part four of the PERA Employer Manual. d. Employer contribution rates Employers are required to withhold employer and employee contributions, at rates established by statute.. Employer contribution under the basic and coordinated plans includes both a match to the employee contribution and an see PERA Employer Manual. additional employer contribution. For further information on contribution rates and reporting, see part seven of the PERA Employer Manual. • e. Pension contribution increases continue Minn. stet. § 3s3.2~. Under the Coordinated Plan increase, both employee and employers share a phased-in contribution rate increase. The employee contribution rate does not increase between January 2008 and January 2009. Employer contribution rates Minn, scat, § 3s3.bs. increase by .50 percent of salary between January 2008 and January 2010. Contribution rates for the Police and Fire Plan will also increase incrementally. The following tables summarize the 2008 contribution and current projected increases in these two plans: Coordinated Plan Rates Date of Increase Employee Rate Employer Rate Total Rate Jan. 1, 2008 6.00% 6.50% 12.50% Jan. 1, 2009 6.00% 6.75% 12.75% Jan. 1, 2010 6.00% 7.00% 13.00% For more information on volunteer police and Fire Plan Rates (2010 contributions not yet available) firefighters' relief associations pensions please see the LMC I-iFt Date of Increase Employee Rate Employer Rate Total Rate Reference Manual Jan. 1, 2008- 8.60% 12.90% 21.50% Jan. 1, 2009 9.40% 14.10% 23.50% • Guidelines for Preparing City Budgets 2008 23 22 • There are three different possibilities of withholdings of Social Security .and Medicare. An employee will have one of the following possible withholding .situations: . Both Social Security and Medicare are withheld. • .Neither Social Security nor Medicare is withheld. • Only the Medicare portion is withheld. (N,ote: In no case wpuld any employee have only the Social Security portion withheld.) The following chart summarizes required withholdings: Type of Plan Social Security Medicare No qualified plan Yes Yes Coordinated Plan Yes Yes Basic Plan Hired on or before 3/31/86 No Yes Hired on or before 3/31%86'and elected lviedcare participation No Yes ri 10/89 referandurn Hired after 3/31 /86 No Yes .Police & Fire. Plan ' Hired on or before 3/31/86 No No Hired after 3/31/86 No Yes Election officials Paid less- than $1,300 per year No No Paid $1,300 or more per year Yes Yes a. Medicare and Social Security withholdings 26 us.c.~. § 3121 (b)(~X~. Determining the category for each employee is no easy task. Generally, a a2 u.s.c.A. § aio (a)(?~~F}. public. employee who is not participating in a qualified retirement system through his. or her employment is subject to both the Social Security and the Medicare withholdings. The retirement plans offered through PERA have been deemed "qualified" retirement systems. Thus, employees who are not participating in PERA (such as some elected officials and part-time, seasonal or temporary employees) might fit into the category of those having both Social Security and Medicare withheld. Guidelines for Preparing City Budgets 2008 25 23 d. Volunteer firefighters and Social Security • Cities have many questions about the applicability of Social Security and Medicare withholdings to volunteer firefighters. There are essentially two issues surrounding this matter. One must first determine.whether avolunteer firefighter is an employee. If so, one must then determine if the volunteer firefighters' relief association plan would be a qualified retirement plan under the IRS criteria. First, is a volunteer firefighter an employee? If the volunteer is compensated only as a reimbursement for actual expenses incurred, prior IRS rulings suggest the volunteer would not be viewed as an employee and withholding would not be required. If the compensation is a result of anything that is not justifiable reimbursement (i.e., supported by receipts for the expense), the compensation may constitute a wage. In other words, the IRS could see the individual as a paid employee rather than a true volunteer, and. withholdings would likely be required. While some IRS rulings indicate earnings of a nominal amount would not constitute a wage, there is no clear definition of a "nominal amount." Cities may want to err on the side of caution and make withholdings on any earnings close to minimum wage. 26 cFR § 313121(b)(7}-(2)(d)(2}. The second issue is whether a volunteer firefighters' relief association plan would meet the standards necessary for it to be deemed a "qualified" plan under IRS regulations. It does not appear that these plans are sufficient to meet the standards because they fail to meet the 100 percent non-forfeitable benefit • requirement necessary for part-time; seasonal, and temporary employees. This requirement means that the plan must allow the retirement withholdings to be returned to the employee if the employee has not yet vested 100 percent. Relief association retirement plans do not allow this type of refund and do not fully vest until a firefighter has participated for many years. Although there is an exception to withholdings for employees hired temporarily to handle disaster emergencies, this would not appear to exempt volunteer firefighters from Social Security and Medicare withholdings. The ongoing and continuous relationship volunteer firefighters have with their cities in providing firefighting services probably precludes a "temporary" relationship. Fire departments and relief association plans can differ substantially from city to city in Minnesota. Because of these differences, a city will have to look closely at its particular situation to determine whether or not its volunteer firefighters would be exempt from withholdings. Cities that believe they have special circumstances may want to request a revenue ruling or a private letter ruling from the IRS. (There may be a fee for such rulings.) e. W-2 reporting of Social Security and Medicare 26 u.s.c.A. § 3ao~ (a). Generally, all city employees, including elected officials and firefighters, should receive a W-2 form after the end of each year. The W-2 is a statement of the employee's earnings and withholdings for the year. City employees should not receive IRS Form 1099, which should be given only to individuals • who have an independent contractor relationship with the city. Guidelines for Preparing City Budgets 2008 27 24 I i• ,.. b. Web publication Minn. stet. § 33tA.o3~ Local governments can use theirweb sites or recognized industry trade journals to disseminate solicitations of bids or requests for information/proposals, Six.months after designating such a dissemination method, a city may use the method as an alternative to (rather than in additian to) statutory newspaper publication requirements. c. Best-value contract criteria added 2007 Minn. Laws, ch. 148 art 3, § As an alternative to awarding contracts to the 9'owest responsible bidder, 31-33, amending Minn. Stat.§ cities may award a contract for construction, alteration, repair or 471.345. maintenance work to ttie vendor or contractor offering the best value. "Best value" describes a result intended, in the acquisition of all goods and services, Price must be one of the evaluation. criteria when acquiring goods and services. Other evaluation criteria may include, but are not limited to, environmental considerations;.quality; and vendor performance. Cities, towns or other municipal corporations such as Housing Redevelopment Authorities (HRAs) or Economic Development Authorities (EDAs) or watershed districts may now- use e~dther the lowest responsible bidder or best value purchasing procedures: d. Tra~nn~ in best value procurement; procedures required 2007 Minn. Laws, ch. 148 art. 3, § Any city staff administering the best value purchasing process or any city 5, amending Nunn. star. § 16C.o3. consultant preparing or evalua'tmg solicitation documents must first acquire training in requests for proposals for ,pest. value construction projects. The commissioner of Administration may establish a training program for state and local officials, and vendors and contractors, on best value procurement for construction projects. If the commi signer establishes such a training program, the state may charge a fee for providing training. The League and other agencies are currently working with the "Department of Administration to determine the form the training, what information to include, and how best to disseminate that training. 3. Association dues Cities should include membership dues paid to organizations in their budgets. Guidelines for Preparing City Budgets 2008 29 25 4. Insurance expenditures Most cities are members of the League'ofMinnesota'Clties Insurance Trust (LMCIT) for property, liability; auto, and workers' compensation coverage. If your city purchases insurance from a private company, you should ask your provider about insurance coverage options In budgexing_for. premiums,,t's important to keep in mind that in addition to considering the rates; you also.need to take into. account any changes in your exposures,(i.e., payrolls, city expenditures, property values, etc.) and any changes in your city's experience rating since those factors will also affect the city's premium costs. See LMCrf memo; City Budget The following is LMCIT's best estimate for what might be seen in Crus acrd LMCIT Premiums remium rates for 2008. These are ve relimin ro ections and are p rYP ~'P j absolutely nbt guarantees. LMCIT needs to conduct actuarial reviews and rate development work and get a firm indication of what reinsurance costs will be before giving any defnite.answers.on, premium rates for 2008. The final results could look very different. Cities may wish to check back with LMCIT in the fall for an updated outlook on premiums. a Liability In geneFal, liability loss casts; seem o be holding relatively stable. There will be„some effect of,the increase, in the statutory: tort limits, but LMCIT nevertheless hopes to be able to keep liability rates .flat or to a fairly modest increase. For budgeting purposes, a reasonable approach might be to assume a liability rate increase' in the 2 percent to 4 percent range. b. Property' Reinsurance :costs are a much more important factor in property than in liability: While-property reinsurance costs. have been dropping a bit in recent months, that trend could. change very quickly if there are major hurricanes or other disasters that cause large property losses. For budgeting purposes, L1vI~IT suggests cities budget for perhaps a 3 percent to 4 percent rate increase, but we'd caution that`tliis is an area where the reinsurance market can change quickly, with a corresponding effect on the rates'LMCIT has "to charge member cities. c. Auto Auto liability and physical damage loss patterns have been stable. LMCIT expects a flat to moderate rate increase and suggests cities budget essentially for an inflationary increase of 3 percent or so on rates. • •i Guidelines for Preparing City Budgets 2008 31 26 r. . • i• • 1 t b. Fe.deral~fuel taxes 26 us.c.A. § ba~b~b>~z)(c). Cities are exempt from the federal excise taxes on gasoline and most diesel § 4081(a)~2}. A S C 26 U fuel purchased for the exclusive use of the city. The federal excise tax on . . . . gasoline is currently 18.3 cents per gallon. The federal excise tax on diesel fuel and kerosene is currently 24.3 cents per gallon. See IRS Publication 510, Exoise Different tax rates exist for some special fuels such as ethanol and aviation Taxes. fuels. Contact the IRS for further information about these rates. Dyed diesel fuel and dyed kerosene sold for nontaxable' uses is not subject to federal excise tax, but is subject to state excise taxes. i, Exempt gasoline purchases See IRS Publication 510, cnapter 2. There are two ways a city can use the federal tax exemption for gasoline purchases; the'city° can: (1) purchase the gasoline without paying the tax by filing a certificate with the vendor.; or (2) apply for a refund using IRS Form 8849. See Appendix F, Forms i ana 2. First, a-city can purchase the gasoline without paying the tax by filing a "Certificate of Ultimate Purchaser" with the vendor: THe form certifies that the gasoline is for the exclusive use of the city. If the city buys its fuel directly from a wholesaler, it should file the form with the wholesaler. If the city buys its fuel from a retailer, t~should f le the form with the retailer. The retailer must then provide a "Certificate of Ultimate Vendor" to their supplier. 26 u.s.c.A. § 5azi. The second way for a city to use the tax exemption is to pay the tax at the zb us.c.A. § 6a27(i>. time of purchase and apply for a refund on -IRS Form 8'849 at a later date. Generally; this approach is -used by cities unable to locate a vendor that will sell gasoline without charging tax. Applications for refunds may be made at the end of the year, but may be made quarterly if the gasoline taxes during the quarter are $750 or more. ii. Exempt diesel fuel purchases: There are also two ways a city can purchase diesel fuel without paying federal excise tax; the city can: (1) purchase dyed diesel fuel; or (2) ~ purchase undyed diesel fuel tax-free from a registered ultimate vendor. zb u.s.c.A. § aosz~a>. First, cities may purchase dyed diesel fuel without paying federal excise tax. Dyed-fuel is dyed red to mark it as fuel sold for nontaxable uses. Cities that buy dyed diesel fuel should be certain that a notice stating "Dyed Diesel Fuel, Nontaxable Use OnYy; Penalty For Taxable Use" appears on all papers and receipts concerning their purchase of the' dyed diesel fuel. Guidelines for Preparing City Budgets 2608 33 27 i. Exemptions Minn. slat. § 297A.70, subs. 2. public schools, public libraries, public hospitals, and public nursing homes are exempt from sale"s and use tax: Minn. Stet. § 297A.70, Subd. z, 3. Some specific, limited exemptions to sales'and use tax apply to certain items. Some of the more common city purchases not subject to sales and see MN Revenue sales Tax Fact use tax include: bulletproof vests; repau' and replacement parts for 5hcet 135, Fire Fighting Equipment. emergency reSCUe vehlcleS, including fire trucks and ambulances but not police cars; certain solid waste disposal machinery and equipment; and certain firefighter personal protective equipment. Capital equipment Minn. stet. ~ 297A.6s. The purchase or lease of capital equipment is exempt from sales tax and See MN Revenue sales Tax Fact eligible for refund claims. "Capital equipment" means machinery and sneec 103, cap;tal Equipment. equipment used primarily from manufacturing; mining'or refining tangible personal property to be sold ultimately at retail. Few city purchases will fit this exemption, but certain purchases -made by city water or electrical utilities may qualify. For refund eligibility, check'with the Department of Revenue. iii. Motor vehicle sales tax Minn. stet. § z97a.o2. The~state motor vehicle~sales tax of 6.5 percent applies to all city purchases Minn. Slat. § 168.012; Saba' t(bj. of vehicles except specific emergency vehicles that are not required to be t Minn. stet. § 297B.o3 ~sj. registered. In general; fire vehicles, ambulances, and police patrols are not =- taxable since their registration is not requited. Bookmobiles or library see MN Revenue sates Tax Fact delivery vehicles are also exempt. sheet l25, Motor Vehicles. Payments 'on vehicles leased by cities are treated as individual transactions subject to the general Minnesota state sales tax rather than to the motor Minn. slat. § 297A.70, Suba. 3(a)(7). vehicle sales tax. Lease payments on motor vehicles leased by cities are exempt from general sales tax if the vehicle is exempt from registration. Vehicles acquired using a lease agreement that includes a buyout option may be considered a sale subject to the motor vehicles sales tax. 3. State fuel tax Minn. slat. § 296A.07, Suba. 3. Cities are generally subject to state gasoline and special fuel petroleum Minn. stet. § 296A.08, Subd. 2. taxes. The state gasoline tax is 20 cents per gallon. Ethanol blends of gasoline are taxed at lower rates. (An ambulance service, licensed under state law, and some public transit systems or transit providers are exempt from the state gasoline tax.) Other special fuels such as diesel and kerosene fuels are also subject to state petroleum tax. Minn. Slat. § 296A.08, Suba. 1 to>. Although dyed diesel fuel is not subject to federal excise tax, it is generally subject to state tax. (Dyed fuel is dyed red to mark it as fuel sold for uses riot subject to federal fuel tax.) Undyed diesel fuel is likewise subject to state tax even though cities may be eligible for a federal refund of the • federal tax charged on undyed diesel fuel. Guidelines for Preparing City Budgets 2008 35 28 i• • I• Figure 2 Revenue Source 2000 Revenues Percent of Total 2005 Revenues Percent of Total Pro a Taxes 851 847 300 23.05°10 1 249 049 022 29.70% Tax Increments 286 294 619 7.75% 242 654 164 5.77% Other Taxes 178 836 194 4.84% 226 '958 340 5.40% State Grants 911 942` 401 24.68% 906 '881 341 21.56% S eciaf Assessments 238 106 X604 6.44% 291 499 40'1 6.93% Char es for Service 300 323 276. 8.13% 437 075 223 10.39% Interest Eamin s 268 294586 7.26% 119 643 710 2.84% Federal Grants ` 154.610 669 4.17% 195 704 019 4.65% Licenses and Permifs 127 555.864 3.45% 169 244159 4.02% Coun and Local Grants 51 964 871 1.41 % 66 732 492 1.59% Fines and Forfe'~ts 36 122.554 '•0.98% 42 452 540 1.01% Other Revenues 290 400.862 7.86%' 258 292153 6.14% Total 3 695 693 796 100.00% 4 206 186 564 100.00% Other Financin Sources Revenues from Borrowin 698 933 832 958 915 038 Other Financin Sources 69 073 8.65 24 425442` Transfers from Enter rise Funds 136 638 293 170 777 277 Transfers from Governmental Funds 625 700 563 708 394 930 Figure 2a City Revenues for 2005 1400 . . y 1200 1000 9Q7 ~ 800 soo 437 0 400 243 227 196 169 zoo 42 0 ~Rr ~~` ~r ~5 ~~r \sr ~~qs ~r ~~r y~r ~r Jar c +~ ~.:~ t~ Guidelines for Preparing City Budgets 2008 37 29 2.. Tax capacity: Tax capacity is the measure of property tax base value. Each taxable parcel has an individual tax capacity,. The. tax capacity of. a property is determined by multiplying its class rate by the property's assessed market value. For example, the tax capacity of a $150000 .owner-occupied home would be: $150,000 x 1 percent = $1,500. Each jurisdiction has a total tax capacity that: is the sum of the tax capacities of all the parcels in the jurisdiction. This total property tax base, based on the sum of tax capacities, is used to compute the local property tax. Technically, the total tax base figure must be reduced by 10 percent of the power line value in the community, the captured tax increment value, and the fiscal disparities contribution value, if any, to arrive at the tax base for computing the local tax rate. C. Setting the property tax levy. Each year, cities. certify a properly tax levy for the following year in dollars, not'at a specific rate. To compute the city'tax rate; the city's certified levy is divided by the city's total tax capacity'. The property tax levy should be set at a level. to raise adequate revenue for the operating budget when combined with other expected revenues. The final level of expected revenue should be su~cient to result in a projected • year-end fund balance to cover possibie emergencies or contingencies. n-ti„n. srac. § 2~s.62. Cities with populations greater than 2;,500 and cities receiving taconite aid must file an annual report with the commissioner.of Revenue. The report will require separate information on levies for debts, libraries, and general levies. The annual deacil'me to .submit the report is by Dec. 30. It the report is not filed by Jan. 30, a 5 percent LGA penalty will be imposed. 1. Levy limits The 2007 Legislature did not impose levy limits d. uring the 2008 regular Mi~,r~, scat. § 2~s.~~. session; therefore, c'it'ies axe not subject to state=imposed levy limits as they budget and levy for 2008. a. Special levies When. levy limits are in effect; the Legislature exempts some levies from the Minn. slat. § ns.~o, sUna. s. overall levy limit. These exempt levies are called "special levies" and they include: • Debt levies for principal arrd interest on ail bonded indebtedness or for most certificates of indebtedness: • Voter-approved levies assessed against market value. • Armory construction levies. • Guidelines for Preparing City Budgets 2008 39 30 • Several types of general obligation bonds, however, are excepted from Mn,n. star. § a~s.ss, referendum requirements. For example, cities are able to issue bonds for some street reconstruction projects without regard to the traditional election Minn. scat. § a~s.s21. requirements. Also, cities have authority to issue bonds without an election for some tax increment bonds and certain capital improvements used as a city hall, public safety or public works facility. Levies applied on the basis of referendum market value fall more heavily on homestead property than levies applied on the basis of tax capacity. This is because agricultural and seasonal recreational residential property is exempt from the referendum market value definition, so the burden of a referendum levy falls exclusively on remaining classes of property, including homestead, apartment, and commercial industrial property. Cities must specifically advertise this referendum market value requirement as part of the referendum levy notice. 4. Property tax delinquencies Sometimes property tax payers do not pay their property taxes, which will reduce the city's property tax receipts for that year. When the delinquent property taxes are eventually collected, penalties and interest will be Mann. star. § z~6.13i. applied. Half the interest on tax delinquencies outstanding for more than one year is split between the city and county in proportion to their tax levy, with the other half going to the schools. All penalties on tax delinquencies are • equally divided between counties and schools only. 5. Property tax relief programs The state provides direct property tax relief to property taxpayers in certain situations. These programs do not provide the city with any additional revenue, but they are based on the overall level of taxation in each community. Knowledge of these programs may be useful for the budgeting andtruth-in-taxation process. a. Targeting Minn. Stat. § 29UA.04, susa. 2. Homeowners whose property taxes have increased by more than 12 percent and by more than $100 are eligible for astate-paid reimbursement, or special refund, of the tax increase. The homeowner's property tax shall be automatically reduced by a special refund equal to 60 percent of the amount of the increase over the greater of 12 percent of the prior year's property taxes payable or $100. In addition, owners of non-commercial cabin property whose property taxes have increased by more than 10 percent and by more than $100 are eligible for a credit equal to 75 percent of the first $300 of the increase. • Guidelines for Preparing City Budgets 2008 41 31 F ~~e~nerai state aid Cities in Minnesota reeeiue a variety of shared revenues -from the state. Each of these programs has a separate policy goal, and, taken in combination, the programs and~their impact.on city finances pan be confusing. The following sections describe these programs and their interaction with the city budget- setting ,process. 1. Local government aid, Local ,government aid (LGA) is intended.to reduce disparities between cities in both. revenue. needs and taxable wealth by equalizing cities' ability to provide average-level services at reasgnable property tax rates. a. Background LGA was originally established in 1971 as a per capita revenue sharing/properly tax relief program that initially replaced the exempt property reimbursement program and the sales tax per capita aids. In 1973, the LGA program was expanded as cities lost other miscellaneous revenues. • ;Since the LGA-program was created, the formula has been amended or changed frequently. In 1993.; the Legislature. enactedsa new formula based on relative city "need" and tax°base. That formula distributed aid for amounts above a grandfathered base of the LGA ~rseeived in 1993. ' • For all cities, revenue.need~is corppared tq ab>lity tq pay or revenue-raising capacity Taconite aid, is phased in to the ability-tq-pay calculation. Cities that have revenue needs that exceed -their local ability to, pay receive a share of the LGA distribution. b. LGA program Minn. star. § 4~~a.ot i. The current LGA formula is the. outcome of a 2003 revision. The formula for cities over 2,500 population uses a number of statistical variables to measure each city's expenditr2re need. The. new need formula variables include: (1) pre-1940 housing percentage; (2) population decline over the past 10 years; (3).accidents-per capita; (4) average household size; (5) metro or non-metro; :and (6) adjusted net tax capacity. Small cities of 2,500 population or less'remain subject to the od need formula variables, which are: (1) :pre-1940 housing percentage; {2) population decline 1990-2000; (3) commercial/industrial.markct slue percentage; and (4) population. Guidelines for Preparing City. Budgets 2008 43 32 • 2. LGA Payments: i• Mi„n, stet. §4~~A.o~s. LGA payments are made to local units of government in two equal installments on or around July 20 and Dec. 26 each. year., A city may request that all or part of its Dec. 26 payment be made at anytime after Aug. 15 if the. distribution is necessary to meet: the city's cash flow needs. These requests should be directed. to the commissioner of Revenue. a~. . Notification and certification Minn. stet. § 477A.0)4. The commissioner of the Department of Revenue will.notify each city of its 2008 LGA distribution during the. fast week of August 2U07. This notification includes the data and factors used to compute the LGA distribution. Cities have 60 days to appeal the calculation or factors used in the computation. City officials should use the official state LGA notification in the budget-setting process: b. Status ol: city for aid calculations Minn. stet. § 477A.014, subd. i, ~ regard to annexation and consolidation, a city's population status on June 30 is used as the basis for the calculation and distribution of aid the subsequent year. However, the Department of Revenue must now have extensive=information about annexations boundary adjustments), or changes in form of government, by July 15 to calculate local government aid adjustments for taxes payable the following°year: ~. Market value homestead credit M;nn, stet. § 273.issa• The.MVHC program replaced homestead and agricultural credit aid, which was repealed in.2002..Beginning with.taxes payable. in 2002, homesteads became el}gible i'or state paid credit of as much as, Q,.4 percent of a home's market value. Homeowners do not apply for this credit-it's automatically applied. and the state reimburses.local governments for the value of the credit: See MarketVa(ue Homestead credtt,w(. Please. note: NNHC is a part of each city's certified levy, Part of your levy is paid to your city by the county from property tax receipts, with the balance. paid by the state via MVHG reimbursement. MVHC is a state credit that is already figured in as a parkion of your eertifed levy. Note: Do not budget to receive MYHC.dohars above your total certif ed levy. The maximum credit is $304 per home. A home with a value of.$76,000 receives the maximum credit. The credit i :reduced by $9 per $10,000 of value in excess of $76,000-so, homes that are valued at $414;000 or more do not qualify for any credit: The full amount of MVHG does not go to cities, Rather, it is proportionately distributed among the various taxing districts' in which the home is located. Guidelines for Preparing City Budgets 2008 45 33 2. Distribution Generally,. each community receives a tax base distribution from the program based on the relative fiscal capacity of each community. Fiscal capacity is measured by market value per capita: Cities with relatively less fiscal capacity receive' a larger distribution from the program. 3. Impact on levies City officials are not required to make any adjustments to their levies as a result of the fiscal disparities program. The county auditor makes the adjustments before the local-tax rates are computed. Each city raises a portion of its levy (known as th'e distribution levy) through the fiscal disparities program. The distribution levy. is determined by multiplying the city's prior year tax rate by the distribution value. The distribution levy is subtracted from the certified levy before the local tax rate is computed. In this manner, a portion of each city's levy is raised from local taxpayers, and a portion is raised from all commercial and industrial property in the fiscal disparities area: 4.: , Impact on taxpayers - Non-commercial/industrial property owners are taxed entirely at the total .local property tax rate that. reflects the net impact of the fiscal disparities • program on each community. The program may cause the local tax rate to. be-higher:or lower depending on whether the city contributes more tax base value to the area-wide pool than they receive in distribution value. Commercial and industrial properties have approximately 30 percent of their tax capacity taxed at th'e area=wide tax rate. The other 70'percent of their tax capacity is taxed.at a.local tax rate. The area-wide tax rate is the same. throughout the fiscal disparities: area; therefore, the overall property tax burden on commercial and industrial properties reflects less variation from community to community'than property tax burdens on other types of properties. I. Categorical sate aid Other aid programs. distribute funds to cities. for specific purposes. 1. ~ Fire and police,state aid Minn. stet. §§ 69.0 I-.o3i. Another primary source of intergovernmental revenue. is state aid for police Minn. Stet. § 4zaA.os. and fire services. This money is apportioned-as state aid to qualifying cities for fire-Nand: police retirement and relief.: If there is no firefighters' relief association; themthe ftre aid must be used to maintain ,the; fire department. ,. Minn. Stet. § 69.02]; Suva. s. Funding for these programs; comes from the, state general. fund and is based on taxes paid to the state for certain insurance. policies. • Guidelines for Preparing City Budgets 2008 47 34 • !f you have any questions regarding Regardless of how it is calculated, fire state. aid; is paid to the city treasurer. Form FA-l, please contact the Minnesota Department of Revenue If a duly incorporated relief association exists, the treasurer must transmit at ~ssi ~ ssb-6o96. the, aid within 30 days tp the relief..association if the association has filed a financial. report-:with the, city treasurer .and has met all other statutory provisions pertinent to, the aid apportignment. 3. Police state aid program i• a. Qualifcation To participate in the. pplice state aid.. apportionment, the clerk of each city employing one or more police officers must file a certification of police For both forms, instructions and officers. The certification forms are sent in December to all cities employing letters about both forms see police officers. The annual certification for peace officer state aid is the M;nnesata Revenue Webste. Certification of Peace Officers form (Form PA-1). Please note that the Form PA-1 must be signed and dated by the appropriate authority (municipal clerk, county auditor, etc.). If the form is not signed and dated, the form will be returned. Minn, Stat. § 69,01 t, st,bd. 1.(g), For police state aid purposes, a police officer is any person who meets all of the following criteria: • Primary source of income from wages is from direct employment by a city as a law enforcement officer on a full-time basis- of not less than 30 hours per week. • Has beenemployed for a minimum of six months before Dee. 31 preceding the current year's certification on March 15. • Sworn to enforce local ordinances and the general criminal laws of the state. • Authorized to arrest with a warrant. • Member of ~a local, police relief association or the public employees' police and fire fund. ... • Certified or meets the requireanents for eerhification by the Minnesota Peace Officers Standards and Training (POST} Board. Minn. Stat. § 69.021, st,bd. 7a. Police state aid calculations depend on the nunlb'er of full-time police officers, excluding part-time officers. If a city contracts. with the county or another city for police service, the city must; receive a. credit applied to its contract`of a proportionate amount of the state aid the county or city receives based on the number of full-time police officers providing service to the city. Guidelines for Preparing City Budgets 2008 49 35 Contact the POST Board for further The reimbursement amount available per officer depends on the number of • information at (651)643-3060. ellglble officers and is+not determined `until all of the applications have been received. Large changes in the total number of police officers in the state could affect the total amount available. The fmal amounts will be determined and checks should be mailed to cities by mid-September. 2007 Minn. Laws, ch. 54, art. 1, The 2007 omnibus Public Safety act and the omnibus Transportation Act Subd. 6. allocates additional public safety money for 2008 and 2009 for the following: • $25.0,000 per yeax for cameras in squad cars;.lpcal law enforcement must provide a 25 percent match. See Minn. stet. § 299x62. ~ .About $1.38,000 per year for Community Oriented. Policing (COPS) grants to hire new police officers and for peace. officer overtime. The commissioner of Public Safety awards COPS grants pursuant to current law. See Minn. Stet. § 299A.38. ~ $50,000 per year for grants to local law enforcement to buy defibrillators; these grants are for counties outside the metropolitan area. ~ $508,000 each year for soft body armor reimbursements pursuant to current law. J. Amortization aid Minn. scat. § 423A.o2. All local police acid salaried firefighters' relief associations and • consolidation accounts must amortize their actuarial deficits by Dec. 31, 2010. 'Three: amortization state -aid :programs assist cities with relief associations and:citieswhose:consoldation accounts have merged with the P)/Ii;A Police and Fire fund to meet their amortization requirement. Portions of this aid also fund actuarial deficits in the first class city teacher funds and volunteer'fire state aid. K. Loss of amortization aid entitlement Minn. Stet. § 423A.02, Subd: z. When local police and: salaried firefighter, relief associations become fully funded, they lose entitlement to these aid distributions. Generally, once a city runs out ofthese funding programs, it cannot .become eligible again and loses these funds permanently except under limited circumstances. C7 Guidelines for Preparing City Budgets 2008 st 36 • Minn, 5tat. § 162.18, SUsa. i Any city with a population of 5,000 or more may issue and sell obligations, or bonds; -for the purpose of establishing, locating, relocating, constructing, reconstructing,, and improving municipal state-aid streets. The bonds, issued in anticipation of MSA payments, may be issued in amounts not to exceed 90 percent of the amount of the last annual allotment preceding the bond issue the city received from the construction account in the municipal state- aid street fund. Minn. Stet. § 162,09, SU>~a. t. The funds may only be spent on 20 percent of total miles of city streets and. county~highvuays.witl'n the jurisdiction, plus the additional miles of county and state roads turned back to the city. Minn. lt. 8820.1400, subp. 3. Cities must designate a minimum of either 25 percent of their total MSA distribution or $1,000 per kilometer of improved MSA streets towards general maintenance of MSA-designated streets. If cities wish to receive more than the minimum; they may request that up to 35 percent of the total distribution be used for general. maintenance. The request for the maintenance distribution is due by Dec. 13 for funding for the next calendar year: For further information on the.MSA program;. contact: Office of State Aid, Department of Transportation; State; Transportation Building, St. Paul, MN 55155. Teiephone: (651.):296-1662: 2, Cities with populations. less than 5,000 • Smaller cities are not eligible for'the direct state a>d program. They do, however,'. have access to state funding for certain c©unty and state roads that pass through their communities. Counties, liken cities, are constttutionally guaranteed a portion ofthe highway'user distribution fund. Twenty-nine percent of the fund is dedicated for certain county roads and highways. Min,,. stet. § 16z,os. State law requires a portion of this aid to counties to be set aside for use on county state aid roads'within the cities with populations of less than 5,000. The percentage allocated in each county for these roads depends on the estimated costs of construction projected over the next 25 years for the county state- aid system road's that are within smaller cities. The total amount available for this municipal account varies widely from county to county. Those dollars the county does not spend on roads and highways in smaller cities will be spent on other county roads in the townships or unorganized areas of the county. The commissioner of Transportation regulates compliance of county boards. Minn, Stat. § !62.08, subd. a, Despite the requirement to setaside`a portioti ofcounty state aid for cities, the county can divert this money for other uses. County boards can appeal to the commissionerof Transportation for permission to use the money elsewhere in the county (such''as outside small cities on county and township roads.). These requests can be' made when the County `State Aid system lying within cities under 5,0'00 population is improved'to required standards. The commissioner can grant requests to use these funds on non-city roads. The CSAH municipal account is valuable to smaller cities. Cities should ~• increase their efforts to use available set-aside funds. If they do not, counties are likely to lobby to eliminate the requirement. Cruidelines for Preparing City Budgets 2008 53 37 Cities receive revenues from businesses and occupations licensed by the • city, such as sales of food, beer, cigarettes, liquor establishments, bowling alleys, waste disposal contractors; and heating and utilities connections. This classification-would include non-business licenses, such as those regulating dogs, signs, bicycles,. and buildings. Whenever a city requires a license or permit, it may set a fee for the license or permit. In gEneral, statutes granting authority to issue licenses do not specify maximum fees. In a few cases, however, the statutes set maximum fees for city licenses or'prohibt fees. For instarice, state law sets maximum fees for off-sale liquor licenses. 1: Off-sale intoxicating liquor fees increased 2007 Minn. [..aws ch. 89 § 6 The 2007 Legislature enacted changes to the annual fee cities may charge amending Minn. Stat. § 340A.408, for off-sale intoxicatin li uor licenses. The new law includes hi her fees subd.3. g q g and a refund of $100 for license holders :who meet certain training criteria. Note: The state. demographer determines population for the following fee levels. City-issued off-sale license fees may not exceed these amounts (even in limited situations where a city happens to charge an occupational tax to the licensee): • $1;300 for cities of the first class'(ari inerease'of $500). • $560 for .cities. over,10,000 and under 100,000: in population located • outside the seven county metro. area (an increase in of $360). • , $380 for cities with,,population over 10,000 and under 100,0001ocated in the seven county metro area (an increase of $.10.0). • $310 for cities of between 5,000 and 10,000 population (an increase of $160). • $240 for cities with less'than 5,000 population (an increase of $140). 2 Fee discount for training and enforcement The city must reduce the off sale license fee by $100 if the licensee agrees to meet the following condtioris: • Has a private vendor train all employees within 60 days of hire. • Annually has a private vendor train all employees in laws pertaining to the sale of alcohol; the rules for identif cation checks, and the responsibilities of establishments serving- intoxicating liquors.. • Posts, a policy requiring identification checks. for all.. persons appearing to be 30 years old or less,,- , • Establishes a cash award and incentive program to award employees • who catch underage drinkers, and establishes a penalty program to punish employees in the event of a failed compliance check. Guidelines for Preparing City Budgets 2008 ss 38 • 2007 Minn. Laws, gyn. I i6 The 2007 Legislature standardized the timing and criteria for setting park amending Minn. Stat. § 462.358, dedication fees. When" land is Subdivided due to development the city may subd. 2b. choose to accept„cash instead. of land as set by the city's ordinance. As of Aug. 1, 2007, the city must determine the cash fee no later than final approval. of the subdivision, and the fee must be based on the average fair market value of unplatted land that fias not already paid park fees. For redevelopment, the city may choose to accept a cash fee based on fair market value of the land no later than.the time of final approval of the replatting. Subdivision regulations and ensuing land dedications are complex;, best practice suggests cities consult the city attorney for specific legal advice relating to land use, development, subdivisions, and park dedication fees. i• 6. RedeveFopment 2007 Minn. Laws, ch. 134, art, z, o New law allows grant awards for redevelopment anywhere in the state. The 9-10 amending Minn. Stat. 4 commissioner of em to ent and economic development (DEED) may now 116J.57S. p ~ award grants of up to 50 percent for eligible redevelopment grants. The remaining 50 percent of the grant money is for redevelopment sites located outside of the. metro. area. (Previously, the law prioritized funding in greater Minnesota.) The commissioner must give priority to redevelopment projects whose costs are; related: to the' expansion of a bioscience business in Minnesota. 7. Charges for services, Cities may also. receive revenues from election filing`fees, sales of maps and ordinances, assessment searches, court fees, police patrol and fire service fees, street and sidewalk repair, parking fees, refuse collection, water and sewer charges, inspection fees, and service charges such as those made by libraries, museums, and recreation facilities. 8. Fines and forfeits The budget should include expected amounts from violations bureaus, courts, confiscated deposits, and collections on bonds or surety held for enforcement or security purposes. Cities should be careful that the expected revenues do not set an expectation that police issue a certain number of citations. 9. Enterprise funds These items would include expected transfers from various enterprises to reimburse the city for administrative activities performed by city staff, office overhead, unencumbered. fund balances, etc., for departments such as municipal liquor stores or an electric. utility. I• Guidelines for Preparing City Budgets 2008 57 39 • V. Truth-in-taxation Minn. star. § 27s.o6s. In 1988, the Legislature adopted a program of notice. and hearing requirements for proposed. property taxes, commonly referred to as truth-in- See the MN Department of taxatlOn (TN'I~,,,The TNT law requires cities tp adopt a proposed budget and Revenue for more information on certify a proposed levy to the county, auditor on or before Sept. 15. The TNT county uses the proposed levy to prepare parcel-specific.property tax notices. Further, the TNT program generally requires cities hold 'a series of public hearings between Nov. 29 -and Dec. 20 to present the proposed levy and budget, and to provide an opportunity for the public to comment and make recommendations. The statute provides for the selection of hearing dates and specif es cerhain,-public advertisement,requr:,ements. Some cities are exempt from the TNT hearing requirement. Cities of 500 population or less are exempt from he TNT hearing process. Cities over 500 population with nominal proposed property tax increases may also be exempt from holding TNT hearings. Minn. star. § z7s.o7. All cities must adopt a final levy and; budget; certifying the fmal levy to the county auditor by Dec.. 27, 2007. • A. Proposed levy and ~b`ud~get Minn. Star. § 27,5:065, subd. ~ dal. A'll uities must adopts proposed 2~00~`budget and. certify a proposed 2008 See Appendix C for sample levy to the county auditor on"Or before Septa 15;'2007. The proposed levy is resolution. the. total of all levies the city intends to impose, both general and special levies. (Any market value-based referendum levies must be certified separately fro' m the rest of tle. city's proposed property tax.) 2007 Minn. Laws; ch. 146, art. s, If a city or taxing authority lies in two or more counties; the home county § 10 amending Minn. Star: § 275.065, subd. ] e. auditor shall certify the proposed levy and the proposed local tax rate to the -other county auditor by Oct. 5, unless the home county has agreed to delay the certification ofits proposed property tax levy, in which case the home county auditor shall certify the proposed levy and the proposed local tax r-ate to the other county auditor by Oct. 10. Minn. Star. § 275.065, subd. 6(m). With some limited exceptions, the TNT statute generally prohibits any subsequent increases,in the proposed levy'iince adapted; therefore,. city officials should carefully consder'ther levy' needs before certifying the proposed levy to the county. In contrast, the proposed budget is not subject to a restriction on subsequent increases. • Guidelines for Preparing City Budgets 2008 59 40 • Minn. Stet. § 275.065, subd. 6(b} The public comment hearings must occur between Nov. 29 and Dec. 20. The (e)' c©ntinuation hearing;must occur at least five busin'ess'days, but not more than"14 business days; afterthe-initial hearing. All public comment hearings must be held after 5 p:m.; Monday through Friday, or anytime on Saturday. No public comment hearings may be scheduled on Sunday. Minn. Stet. § 275.065, sued. 6(q. The subsequent hearing must be held on or before Dec. 27. The subsequent hearing must lie held `on a date`subsequent to~the date of the initial public hearing. If a continuation hearing is held, the subsequent hearing must be held either immediately; following the continuation hearing or on a date subsequent to the, continuation. hearing.,, Minn. Stet. § 273.065, Subs. 6(h). The county auditor is responsible for coordinating the selection of hearing Minn. Stet. § 275.065, SUbd. bp), dates for the initial and continuation hearings for" ]Deaf units of government are not required to schedule the Citie i i i l s: es. ng, c t ud within the county, .inc date of the subsequent hearing through the county auditor. Cities must Minn. Stet. § 275.065, Snbd" 6(j>. certify the dates on which they elect to have their initial hearing and continuation hearing to the county auditor at the same time the city certifies its proposed levy to the county auditor (on or before Sept. 15). Minn. Stet. § 275.065, Subd. 6(j?. Cities may not select an initial hearing date that conflicts with the initial hearing date of another taxing authority. Cities may,, however, select a date for its continuation hearing that conflicts .with the continuation hearing date of another taxing authority if it. is not: possible to avoid the conflict. A city can hold TNT public comment hearings on the night of a regularly scheduled city council meeting as long as that date is available. If this is the case, the city should separately convene the TNT hearing and the council meeting. For example; the city could convene the TNT hearing and adjourn to conduct the regular council meeting. The subsequent hearing may be held Minn. Stet. § 275.063, subd. 6(a). at a-regularly scheduled council meeting: or at a special meeting scheduled for the purpose of the subsequent hearing. Minn. Stet. § 275.065, St,bd. 6(jj. gy Aug. 20, the county auditor shall notify, city clerks of the dates on which " school districts and regional library districts have elected to hold their initial and continuation hearings. The first and second Mondays of December are reserved for the use of cities until Sept 15. In 2007, the reserved dates are Dec. 3 and Dec, 10. Minn. Stet. § 275.065, Subd. 6(f). mall counties except Ramsey County, no city may select Dec.'6, 2007 (the first Thursday in December);, for its, initial: hearing date since this date is set aside for;county initial hearings. Within Ramsey bounty; cities may choose Minn. Stet. § 275.065, Stii;a. s. Dec, 6, 2007; for its initial;hearing; but not Dec. -11, 2007 (the second Tuesday of December), since. Dec. 11 is the date far Ramsey County; the Minn. Stet. § 275.065, subd. 6(g). Clty Of St: Paul; and Independent School DistrictNo. 625 to hold their joint °within the metropolitan" area, no city may select ddti I i on; n a ng. initial hear Dec. 5`; 2007 (the first Wednesday in December);. for its initial hearing date since this date is set aside for the metropolitan special taxing districts to hold their joint initial hearing. Guidelines for Preparing City Budgets 2008 61 41 n 2 500 • 2. Cities over 500, but. not more tha , Minn. Star. § 27s.065, Suba. sa(e). Cities with populations over 500, but not more than 2,500, that are required Minn. Stat. § 646.12, subd. 1. to hold hearings must post a notice of their proposed tax levy in the three Minn. star. § z7s.o6s, SUba. sacs>. most public places in the city. The advertisement must be posted not less than two business days, nor more than six business days before the hearing. Minn, star. § 27s.o6s, Saba. sa(b). No published advertisement is required for these cities. The advertisement see Appendix n for sample notice. must be in the form specified in Minn. Stat, § 275.065, subd. Sa(b), and include notice of the city's intent to adopt a property tax levy and budget for 2008, and the time, date, and location of the initial TNT hearing. 3. Ci#ies over 2,500 population Minn, stat. § 276.066, subd.. sacs). Cities with populations of more than 2,500 population that are required to Minn. Stat. § 275.065, s~ba. sa<~}. hold hearings must publish an advertisement at least the size of done-eighth see Appendix E for Sample notice. page standard-size newspaper. The advertisement for these cities must be in the form specified in Minn. Stat. § 275.065, subd. Sa(c), and include information on the current local tax rate, the proposed rate if no levy increase is adopted, and the tax rate under the proposed budget in a form prescribed by statute. Minn. Star. § 276.065, Subd. sacs). The advertisement must be published throughout the city (publication in more than one newspaper may be necessary) that includes local and/or state news and is published at least once a week.,The advertisement must not be placed in the section of the newspaper that includes legal notices and classified advertisements. The advertisement must be published not less than two business days nor more than six business days before the hearing. F. TNT hearings The TNT law generally requires cities to hold a series of public hearings in order to present the proposed levy and budget, and to provide an opportunity for the public to comment and make recommendations. Minn. Stat. § 275,065, Snbd. 6. The TNT process involves up to three hearings:. an initial hearing, a continuation hearing, and a subsequent hearing. The initial hearing, and the continuation hearing if necessary, is held to discuss the city's proposed budget and proposed property tax levy for the following year. The subsequent hearing is held to adopt the city's final property tax levy. The separation of the public comment hearings (initial and continuation) and the official adoption hearing (subsequent hearing) is intended to allow time for the city council to carefully consider and possibly incorporate concerns raised by the taxpayers. While many major decisions regarding the levy and budget may, in fact, be quite final by the time of the initial hearing, cities should listen to the comments and attempt to incorporate them where feasible. :~ Guidelines for Preparing City Budgets 2008 63 42 • • .Voter approved operating or capital expenditure levies. Levy increases for operating costs or capital expenditures approved by the voters at a ' referendum held after certification of the proposed levy. • Bond referendums. Levy increases to pay principal and interest on bonds app"roved. by voters after certification of the proposed levy (does not apply to bonds issued without voter approval). • Natural disaster costs. Levy increases to cover costs incurred due to a natural disaster occurring after certification of the proposed levy (cities mush appeal to the commissioner of Revenue for approval). • Tort judgment costs. Levy increases for amounts necessary to pay tort judgments that become final after the proposed levy was certified (cites must `appeal to the commissioner of Revenue for approval). H. Compliance and enforcement Minn. stet. § 275.065, SUbd. ~. State law authorizes the Department of Revenue to document compliance with the TNT requirements. Cities required to hold public TNT hearings must.complete.Form TNT<20U8 and return it when the final levy is certified to the county. Cities whose final levy exceeds their proposed levy due to an allowable exception must also complete a supplemental form. The commissioner of Revenue is responsible for determining whether local • governments have fully complied with the TNT laws. If a city is found to be "substantially out of compliance," the city's property tax levy is limited to the amount levied in the previous year, No increase in the levy is allowed. t. Administrative costs No state funding is provided to administer the TNT process, so all costs incurred must be paid. by the participating local governments. Minn. Stet. § 275.065, s~hd. a. Counties may apportion their costs for the preparation and mailing. of the notices among all of the participating local governments. If the county decides to apportion these costs, they must use a statutorily specified apportionment formula. i• Guidelines for Preparing City Budgets 2008 65 43 VI. Financial reporting There are a number of budget and financial-statement reporting and publication requirements with which cities must comply. Following is a summary of some of the relevant statutory requirements. Cities should consult with their city attorneys and with their accounting and auditing professionals as to the specifics of their compliance. The fiscal year for all cities is the calendar year. This applies to all city funds. A. GASB reporting standards 1. GASB Statement No. 34 In June 1999, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 34, which established new financial reporting standards for state and local governments throughout the United States. All cities that issue audited annual financial statements need to comply with some or all of the GASB 34 standards for financial reporting. The authoritative audit guide suggests it would issue an adverse opinion on financial statements that are not in compliance with GASB 34. ., GASB 34 is a financial reporting framework that measures the overall net financial condition of the city by taking into account all long-term assets and • liabilities. One of the major aspects of GASB 34 is that long-term assets should be reported at initial cost less depreciation. GASB 34 now applies to cities of all sizes (as of fiscal year 2004). see GASB wensite. The breadth and efforts that are required to implement the new standards may be substantial, and cities should budget for associated implementation and staffing costs. see osA Wen site. The new standards are lengthy and are not discussed in detail in this see GFOA Wen site . document. For further information on GASB 34, contact the Governmental Accounting Standards Board (GASB), the Minnesota Office of State Auditor, or the Government Finance Officers Association (GFOA). 2. GASB Statement No. 43 see GASB For more information. jn 2004, the Governmental Accounting Standards Board (GASB) issued summazies ofGASB statements. Statement No. 43: Financial Reporting for Post-employment Benefit Plans See previous sections on GASB 43 Other Than Pension Plans, and Statement No. 45: Accounting and Financial and 45 Retiree Health Insurance Reporting by Employers for Post Employment Benefit Plans Other Than Pension Plans, establishing uniform financial reporting standards to measure and report the long-term costs of other post-employment benefits (OPEB) plans (e.g., retiree health benefits), as well as the funding status of these programs. Implementation is being phased-in, with the smallest employers required to implement the reporting standards in financial statements for periods beginning after Dec. 15, 2007. • Guidelines for Prepazing City Budgets 2008 67 44 • Minn. Stat. § 471.698, suba. 1(a). The city clerk must prepare a detailed statement of the financial affairs of see osA web site f°r fnan~ial .the city in the style and form prescribed by the state auditor. The statement statement form pursuant to Minn. mUSt S110W the follOWing: Stet. § 471.698. • All moneys received, sources, and respective amounts. • All disbursements for which orders have been drawn upon the treasurer. • The amount of outstanding and unpaid orders. • All accounts payable. • All indebtedness. • Contingent liabilities. • All accounts receivable. • The amount of money remaining in the treasury. • All items necessary to accurately show the revenues, expenditures, and financial position of the- city. Minn. Stet. § 471.698, snbd. 1(b). The clerk must file the statement in the clerk's office for public inspection and present it to the city council within 45 days after the close of the fiscal year. • Minn. Slat. § 471.698, subd. 1(c>. The clerk must publish the statement within 90 days after the close of the fiscal year in a qualified newspaper of general circulation in the city. If there is no qualified newspaper, the clerk must post it in at least three public places in the city. It is not necessary to publish individual disbursements of less than $300, if disbursements aggregating $1,000 or more to any person, firm or other entity are set forth in a schedule of major disbursements showing amounts paid out, to whom, and for what purpose, and are made a part of and published with the financial statement. Minn. star. § 471.69s. Small cities (less than 2,500 population) are now allowed to publish a summary of their financial statements in a form prescribed by the state auditor. Minn. Star. § 471.698, subd.l(d). The clerk must submit,, within 90 days after the close of the fiscal year, a copy of the statement to the state auditor in such summary form as may be prescribed by the state auditor. 2. Cities over 2,500 population Minn, stet. § 471.697. In any city with a population of more than 2,500, according to the latest See OSA web site for financial federal census, the clerk or chief financial officer must prepare an annual statement f°rm pursuant i° Mi°n. financial report and statements in accordance with Minn. Stet. § 471.697. Stet. § 471.697. • Guidelines for Preparing City Budgets 2008 69 45 F; . Enforcement power ~of state auditor Minn. stet. § a7t.699. If a city fails to file. a financial statement or report required under Ch: 471 by the due date, the state auditor is authorized to send personnel to the city or to contract with a private firm to complete and f le the financial statement or report. The city will be charged for these expenses..lf the city fails to pay these charges within 30 days of billing, the state auditor will notify the commissioner of finance, who will then deduct.this amount from any state aids or shared taxes owed to the city. The state auditor's annual report on cities. includes a list of all cities failing,to file afinancial- statement or report. Note: The state auditor will withhold state aid for cites that do not submit required financial statements or reports: Minn. star. § a7t.bs9s. A special exception to the deadlines for filing .exists for cities located in areas that have been declared disaster areas. G. City reporting under` Minn., Stat. § 6.74 Minn. star. § 6.74. Cities are required to report their financial activities annually to the Office of State Auditor under Minn. Stet. § 6.74. The OSA collects financial. data that is used to provide uniform data to the Legislature, the Minnesota Department of Transportation, the U.S. Census Bureau, and other interested parties. See GSA financial reporting forms under Minn. Stet. § 6.74: The OSA sends out reporting forms to city clerks to be used to collect GAAF. financial data. One form is for cities with audited financial statements cash Bess. prepared in accordance with generally accepted accounting principles (GAAP). Another form is sent to cities using the cash basis of accounting. Minn. stet. a 6.7a. Cities should ensure the forms are filled out properly and returned promptly. Mann. stet. § b.s3, Anyone who refuses or neglects to obey lawful direction of the state auditor may be guilty of a felony with a minimum penalty of $3,000 or imprisonment. Completion of these forms pursuant to Minn. Stet. § 6.74 does NOT relieve cities of their responsibilities to prepare and publish financial statements under Minn. Stet. § § 471.697, 471.698 or 471.6985. H. Devet4pment fee reporting Minn. slat. § 16B.685, Minnesota statute mandates an annual report to the state regarding municipal development and construction fees and costs associated with services related to these activities. The filing deadline is June 30. Cities that collect $5,000 or less in fees do not have to file this report. Guidelines for Preparing City Budgets 2008. 71 • • C7 46 i• i• i• Appendix A Estimated Expenditures* (sample form) City of Date 2008 Budget Account 2006 2007 Budget Actual Actual General government Mayor and Council Elections Financial administration City clerk Treasurer Assessor Auditing Legal Publications Personnel administration City buildings Land use planning Other Public safety Police Fire Protective inspections Civil defense Other Streets and highways Streets and alleys Snow removal Lighting Sanitation Sanitary sewers Storm sewers Sewage disposal plant Guideiines for Preparing City Budgets 2008 47 2008 Estimated 73 Appendix B Estimated Revenues* (sample form) . City of Date 2.008 Budget Account 2006 2007 2008 Actual Actual Estimated Taxes General property taxes Tax increment financing Franchise taxes Special assessments Licenses and permits Intergovernmental revenues Federal grants State grants Local government aid Firefighters' relief aid Police pension aid Police training aid Municipal state aid Other County grants Other Charges for services General government Public safety Parking Sewers Refuse disposal Recreation Libraries Other Fines and forfeits Guidelincs for Preparing City Budgets 2008 75 •i •i •i 48 C7 App~r~dix C These sample resolutions .can be used by a,city council.in proposing and adopting he city tax evy. Home rule charter cities and certain other cities may need to modify this resolution to conform to other requirements. This information must be reported in dollar amounts. Sample resolution adopting proposed property tax levy SAMPLE RESOLUTION ADOPTING PROPOSED TAX LEVY .. RESULUTION'NO. , r RESOLUTION APPROVING 2007 TAX LEVY, COLLECTIBLE IN 2008 Be it resolved by the council of the City of ,County of ~, Minn.esota, that the following sums of money be levied for the current year, collectible in 2008, upon taxable property iri the City of ,for the `following purposes: Total levy $ The city clerk is hereby instructed ta, transmit a certified copy of this resolution tg the county auditor of County, Minnesota. ' -. Adopted by the city council on • Attest _ ;.; Mayor City Clerk Sample resolution adopting the final property tax levy SAMPLE RESOLUTION ADOPTING FINAL TAX LEVY RESOLUTION NO. RESOLUTION APPROVING 2007 TAX LEVY, COLLECTABLE IN 2008 Be it resolved by the city council of the City of ,County of ,Minnesota, that the following sums of money be levied for the current year, collectible in 2008 upon the taxable property in the City of ,for the following purposes: Total levy $ The city clerk is hereby instructed to transmit a certified copy of this resolution to the county. auditor of County, Minnesota. Adopted by the city council on Attest Mayor f• Guidelines for Preparing City Budgets 2008 City Clerk n 49. Appendix E (Sample published notice for cities over 2,500 population) (Based on sample issued by the Department of Revenue) NOTICE OF PROPOSED TOTAL BUDGET AND PROPERTY TAXES The (city) city council wil[ hold a public hearing on its budget and on the amount of property taxes it is proposing to collect to pay for the costs of services the city will provide in 2008. • SPENDING: The total budget amounts below compare the city's 2008 total actual budget with the amount the city proposes to spend in 2008. 2007 Total Actual Budget Proposed 2008 Budget Change from 2007.2008 TAXES: The property tax amounts below compare that portion of the current budget levied in property taxes in the city of (city) for 2008 with the property taxes the city proposes to collect in 2008. 2007 Property Taxes Proposed 2008 Property Taxes Change from 2007.2008 LOCAL TAX RATE COMPARISON: The following compares that city's current local tax rate, the city's tax rate for 2007 if no tax levy increase is adopted, and the city's proposed tax rate for 2008. 2007 2008 Tax Rate if 2008 Proposed Tax Rate NO Levy Increase Tax Rate °~o ATTEND THE PUBLIC HEARING All (city) residents are invited to attend the public hearing of the city council to express their opinions on the budget and on the proposed amount of 2008 property taxes. The hearing will be held on: (Day/Date/Time) (Location/Address) If the discussion of the budget cannot be completed, a time and place for continuing the discussion will be "' announced at the hearing. You are also invited to send your written comments to: (~ifY) (Location/Address) • Guidelines for Preparing Budgets 2008 79 50 • 2) CERTIFICATE OF ULTIMATE REGISTERED VENDOR (IRS Model) (To support a claim related to a sale of gasoline by a wholesaler at a price that does not include excise tax to a state or local government for its exclusive use under section 6416 of the Internal Revenue Code.) Effective Date The undersigned vendor ("Vendor") hereby certifies that Vendor sold the following amount of gasoline at a price that did not include the excise tax to-- (name of state or local government) A copy of the certificate of ultimate purchaser signed by such government is attached, (number of gallons}, or (percentage of vendor's purchases from supplier) Vendor purchased the gasoline from-- (name of Vendor's supplier) Vendor has the necessary records of sale to support this certificate. Vendor has not submitted any other certificate relating to the gasoline covered by this certificate. Vendor is not eligible to claim a credit or refund of gasoline excise tax under section 6416 for the gasoline covered by this certificate. Vendor understands that the fraudulent use of this statement may, under section 7201 of the Internal Revenue Code, subject • the undersigned or any other party making such fraudulent use to a fine of not more than $l Q00Q or imprisonment for not more than 5 years, or both, together with the costs of prosecution. Signature of authorized Vendor Title T.I.N. Name and Address of Vendor Source: Government Finance Officers Association, Federal Liaison Center (202) 429-2750 • Guidelines for Preparing City Budgets 2008 81 51