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Home My WebLink About06-24-2024 CC Agenda Packet - work sessionAgenda City Council Work Session Monday, June 24, 2024, 5:00 PM City Council Chambers | 2780 Kelley Parkway, Orono, MN 55356 952-249-4600 /https://www.oronomn.gov/ Roll Call Work Session Item Preliminary Budget and Levy Guidance Adjournment Sign up for email notifications at https://www.oronomn.gov/ 1 Date: June 24, 2024 Item: Presenter: Maggie Jin, Finance Director Section: Work Session Item Title: Preliminary Budget and Levy Guidance 1.Purpose: The purpose of this item is to receive preliminary budget and levy expectations and guidance from the City Council. 2.Staff Recommendation: Provide staff directions on 2025 budget expectations and guidance. AGENDA ITEM COUNCIL ACTION REQUESTED Provide staff directions on 2025 budget expectations and guidance. Exhibits Budget Memo 2024.06.24 2 MEMORANDUM To: Mayor Walsh and Orono City Council From: Maggie Jin, Finance Director Subject: 2025 Budget Date: June 24, 2024 Attachments: 2025 Budget Work on the 2025 budget has begun. Individual departments are currently preparing their budget requests. The City Administrator and Finance Director will begin to meet within the week with each department to discuss and refine the department budget requests. This will be the third year of utilizing the budget committee in the budget process. A chart illustrating the budget process is attached to this memo. In brief, department heads provide their budget requests to the Finance Department. These requests are reviewed and adjusted during meetings between the Department Heads, the City Administrator, and the Finance Director. As each process is completed by staff, the budget committee follows up with a meeting to review and provide guidance to the development of the Preliminary Budget and Tax Levy. The full Council will be updated at the work sessions. Adoption of the Preliminary Budget and Tax Levy will be at the second meeting in September. Major factors that impact the budget are as follows: Inflation has slowed from the previous year but continues to be a factor in building the 2024 budget. The current annual (May to May) CPI-U is 2.6%. The CPI includes a wide variety of items in its calculation so it does not mean all budget lines are equally impacted. Wages and benefits. The city has four labor unions that cover most of the city’s employees. These contract all have a 3% increase for 2025. Wages and Benefits make up approximately 65% of General Fund expenditures; it is expected that this expenditure category will have the greatest impact on the budget. It is anticipated that health insurance premiums will increase by approximately 10% for next year. As part of the budget process, staff will review non-union compensation in response to concerns regarding competitiveness with neighboring cities. Tax Levy/Tax Capacity Rate. The City’s property tax base continued to increase during the 2024 assessment period. While the County numbers are not final, the current estimated taxable market value has increased to $4,997,539,503, which is an increase of $86,145,185 (1.75%). The current estimated tax capacity is $58,985,547. Taking additional factors in, the estimated adjusted net tax capacity for taxes payable in 2025 is $58,597,796, an increase of 1.76%. 1 3  In 2024, the Orono Fire Department was in operation beginning July 1. For 2025 budget, the Orono Fire Department will be operational for a full year. The increase in expenditure for this department will follow the increase in operation. At the end of the Long Lake Fire Department contract on December 31, 2025, the amount budgeted for Long Lake Fire will be eliminated. It is possible that in the future, the City will have some contracts with neighboring cities that will offset the costs. In the meantime, the cost is absorbed into the General Fund operating budget.  Cost for assessment services provided by the Hennepin County Assessor’s Office will be absorbed in the county’s budget and will no longer be included with the city’s budget. In 2024, the amount was $270,000 in the general fund budget. In the near future, the city will see some relief in the pressure on the levy as two required levy amounts will be eliminated. The need for the levy portion paying for LL Fire will be eliminated from the 2026 levy. The 2014 GO Improvement Bonds will be eliminated from the levy in 2029. The 2025 budget process has some challenges, with phasing in the levy increases needed to properly fund the capital and operating needs of the fire department while balancing the remainder of the city’s needs. The City’s strong financial reserves and long-term funding identified for the city’s capital plan has the City in a good position to navigate the current situation to maintain a stable tax rate. Over the past several years, the Council’s budget guidance has been to deliver a general fund budget that keeps the tax rate steady. If the Council determines that there is a different objective, staff will work to prepare a budget based on keeping the tax rate level. As part of the budget process, staff will bring additional suggestions in order to meet the guidance provided. Included with this memo are two different scenarios for the property tax levy and rates. The first scenario is an estimated calculation of the levy amount to maintain the same tax rate as in 2024. The second scenario would keep the levy stable for the majority of funds (Facilities, Pavement Management, Parks, Community Investment) and takes into account the most minimal needs in the General Fund. Also included is a chart detailing the annual budget process and the budget timeline. 2 4 Finance Begins Initial Preparation Timeline Distributed to Departments Workpapers Distributed to Departments Preliminary Budget and Levy Discussion (Work Session) Staff Develops General Fund Budget Budget Committee Meeting for General Fund Budget Review: General Fund Budget and Tax Levy (Work Session) Staff Develops Enterprise and Internal Service Funds Budgets Budget Committee Meeting for Enterprise Funds and Internal Service Funds Budget Review: Enterprise and Internal Service Fund Budgets (Work Session) Budget and Tax Levy Updates Continues Budget Committee Meeting for Preliminary Levy/Budget (tentative) Budget and Levy Update (Work Session) Adopt Preliminary General Fund Budget & Tax Levy (Council Meeting) Staff Develops CIP and Utility Rates Budget Committee Meeting for CIP (tentative) Capital Improvement Plan (CIP) Review (Work Session) Staff Updates Fee Schedule Capital Improvement Plan (CIP) Review (Work Session) Staff Continues to Refine Budget Budget Committee Meeting for Fee Schedule and Budget Updates Fee Schedule Review (Work Session) Truth In Taxation Hearing (Council Meeting) Adopt Budgets, Tax Levy, CIP & Fee Schedule (Council Meeting) Staff Submit Reports to County and State MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER ● Staff ●Budget Committee ●Council Work Session/Meetings Goal Setting Planning Preparation Review Approval 3 5 2025 Budget Timeline MAY • May 24 – Budget Timeline Distributed to Departments • May 31 – Budget Workpaper Distributed to Departments to Update JUNE • June 21 – General Fund Department Draft due to Finance • June 24 Council Work Session – Preliminary Budget Guidance • June 25 to July 3 – Meeting between Department Head, Finance and City Administrator JULY • July 15-17 – Budget Committee Meeting for General Fund • July 22 Council Work Session – General Fund Budget Update AUGUST • August 9 – Enterprise Fund and Internal Service Fund Draft due to Finance • August 14-16 – Budget Committee Meeting for Enterprise Funds and Internal Service Funds • August 26 Council Work Session – Enterprise Funds and Internal Service Funds Budget Update • August 28-30 – Budget Committee Meeting for Preliminary Levy/Budget (tentative) • August 30 – Additional General Fund Budget Updates due to Finance SEPTEMBER • September 1 – Capital Improvement Plan Distributed to Departments to Update • September 9 Council Work Session – Preliminary Levy / Budget • September 23 Council Meeting – Preliminary Levy / Budget Adoption • September 30 – Capital Improvement Plan Draft due to Finance OCTOBER • October 2-4 – Budget Committee Meeting for Capital Improvement Plan (tentative) • October 14 Work Session – Draft Capital Improvement Plan • October 15 – Fee Schedule Distributed to Departments to Update • October 28 Work Session – Draft Capital Improvement Plan NOVEMBER • November 8 – Fee Schedule Draft due to Finance • November 13-15 – Budget Committee Meeting for Fee Schedule and Budget Updates • November 25 Work Session – Fee Schedule Update • November 25 Council Meeting – Truth in Taxation Hearing • November 26 – Additional Budget, Capital Improvement Plan, Fee Schedule Updates due to Finance DECEMBER • December 9 Council Meeting – Final Levy / Budgets, Capital Improvement Plan, Fee Schedules Adopted • December 28 – Staff submits report to County and State by this date ● Staff ●Budget Committee ●Council Work Session/Meetings 4 6 City of Orono SCENARIO 1 Tax Rate 2025 Over / Under 2024 Actual Estimated TAX CAPACITY 2024 2025 Amount Percent Net Tax Capacity (Adj Net Tax Capacity) $57,584,888 $58,597,796 $1,012,908 1.76% LOCAL LEVY Total levy all funds $9,415,100 $9,582,100 $167,000 1.77% TAX CAPACITY RATES 16.35% 16.35% 0.00 5 7 City of Orono SCENARIO 2 Tax Rate 2025 Over / Under 2024 Actual Estimated TAX CAPACITY 2024 2025 Amount Percent Net Tax Capacity (Adj Net Tax Capacity) $57,584,888 $58,597,796 $1,012,908 1.76% LOCAL LEVY Total levy all funds $9,415,100 $10,093,453 $678,353 7.20% TAX CAPACITY RATES 16.35% 17.22% 0.88 6 8