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01. Budget MessagecrTYOF City of Kalispell Id OFFICE OF THE CITY MANAGER 201 First Avenue East MONTANA Kalispell, MT 59903 May 15, 2014 Honorable Mayor Mark Johnson Members of the Kalispell City Council PO Box 1997 Kalispell, MT 59903 Ladies and Gentlemen, It is my pleasure to submit for your consideration the Fiscal Year 2015 proposed budget for all municipal operations. This letter is intended to serve as the budget message for that proposal and outlines the nature of the approximately $46,000,000 budget plan for the coming year. This message is not intended to identify all the specifics of the budget document, but rather provide an overview of the revenues and expenditures, fund levels, unique attributes impacting the budget, and significant budget related activities of the organization. The budget document is a substantial policy and managerial tool that highlights the interaction between the staff and the governing body. Through the budget document, service levels are established, policy directions are initiated, and fiscal positioning is achieved. The budget is an effort in cooperation between the entities of the City and the public as a whole. The FY15 continues to recommend the management of municipal services in a fashion that accepts taking advantage of new opportunities to adjust the services we provide to the residents of Kalispell. Last year, we privatized airport management services. This year we are proposing to contract out part of forestry activities to test this as a potential model for future years. The past year has been identified with looking to the future, taking steps in that direction with our infrastructure development and our community planning. While municipalities across the country deal with reduced revenues and seemingly shrinking funding opportunities, I feel it is important that we continue to develop our own path. While that sometimes requires difficult conversations and decisions, the dialogue generally yields productive outcomes. While we create the budget document to provide the best services we can within our respective means, it is vitally important to continue the effort to identify the services that the community desires and matching the appropriate level of service to that desire. I am pleased to present the FY15 proposed budget and am comfortable in the allocation of funds, the expected service levels resulting from this funding distribution, and the continuing preparation of community infrastructure into the future. ACCOMPLISHMENTS IN 2013 AND 2014 As the FY2015 budget is proposed, it is appropriate to return to recent municipal accomplishments. While the listed items are only a sample of the improvements and respective municipal accomplishments, they do represent a concerted effort across departments for the improvement of services being offered by the City of Kalispell. ➢ Implementation of a training simulator for law enforcement ➢ Adoption of the Core Area Plan and development of policies toward financing programs ➢ Acquisition of the permanent lease from DNRC for the Kidsports land ➢ Improved efficiencies of the solid waste operation through expansion into adjacent areas ➢ Construction of the pedestrian/bike trail along Highway 93 (expected to be complete by the adoption of this budget) ➢ Initiation of the pedestrian/bike trail along Three Mile Drive Received commitment from the State Department of Transportation for the completion of the Alternate Highway/Bypass Received commitment from the State Department of Transportation for the expansion of Four Mile Drive ➢ Completed review and adoption of the water and sewer impact fees, which had been in discussions since 2010 ➢ Initiated design of the Westside Interceptor ➢ Implementation of general fund reserve policy (reserves have gone from 14.96% in FY12 to 19.4% projected in FY15) ➢ Adopted a budget the has taxation levels below the maximum allowable (approximately 1.6 mills less than our cap in both FY14 and FY15) ➢ Privatized Airport Management Operations ➢ Implemented paperless meetings and enhanced productivity efforts with the incorporation of iPads for council use Partnering with local agencies on the efforts for implementation of the Core Area Plan in conjunction with the development of the rail park Completed a productive outreach effort in Washington D.C. with elected representatives and Federal Agencies related to the TIGER Grant application ➢ Initiated a Downtown planning study similar to the Core Area ➢ Initiated an update to the Urban Renewal Plan for the South Kalispell area PROPOSED FY2014 BUDGET AT A GLANCE Major highlights and conditions of the proposed FY2015 budget include the following: The proposed 2015 budget is based on service levels needed to accomplish the goals outlined in the budget for each department, balanced with available resources. ➢ The General Fund budget is developed with an eye toward meeting the established reserve amount of 20%. Though there is available space within the taxation formula to accelerate the amount dedicated to reserves for this upcoming year, the budget is proposed with a balance of meeting that policy and the provision of property tax relief. The proposed budget identifies an end balance that is 19.4% of the budgeted revenues. Property tax is the primary source of revenue for the general fund and is anticipated to increase through new growth and the allowable inflationary index as identified in state statutes. This is always a difficult assumption to make as final valuations are not released until August, when we will know what the final property tax valuation is for the ii year. Reviewing new additions to county records, however, however, we feel comfortable with the forecast applied to the revenue projections. Senate Bill 96, from the 2013 legislative session has reduced the amount of personal property tax collected, effectively decreasing the amount the City of Kalispell collects in tax receipts. However, there is an addition in the reimbursement of funding based on Senate Bill 96 that is accounted for in the entitlement line item of our revenues. While the projected numbers do present a calculated effort for accurate forecasts, they do limit the ability to project trends for future years until we can see how the new legislation impacts our receipts for more than one or two years. Solid Waste is proposing a new process to rehabilitate our side -arm loaders after 4 years of operation. Typically, we operate the apparatus for 4 years, then use it for 4 years as a secondary piece of equipment in order to get 8 years of service out the equipment. Under the new process, we would perform an $85,000 rehabilitation after 4 years, use it another 4 years as a primary apparatus, then use it for 4 more years as a secondary piece of equipment. With a replacement cost of $290,000, Solid Waste is projecting a savings $445,000 over a 15 year span and $480,000 over a 25 year span. Full-time equivalencies: o While we have reallocated various positions/hours within the general fund, we have not increased any positions in this fund. o In Forestry, we are reducing the total FTE by a full position, as part of the contracting services model we are testing for this upcoming year (see the forestry description under enterprise funds.) o We are shifting 0.25 FTE from Community Development to the Building Department as part of a shift in responsibilities to better use this resource and meet the needs of the Building Department, which is seeing increased activity. Also in the Building Department, we have identified appropriations for an additional inspector (1 FTE), should the demand for building review activity increase. The building department acts as an enterprise fund that can only have a reserve equal to one year's operation, which we have accumulated (see the Building Department description under enterprise funds). If the activity is not sustainable, we will not add the inspector. y As was the case with last year's budget process, the Ambulance fund identifies a general fund transfer incorporated into this year's budget. An EMS funding report and recommendation has been produced that identifies options related to staffing and funding the EMS activity for the City of Kalispell. This includes presenting an option to the voters related to a dedicated mill levy. Should this go to the voters and pass, funding will be available for budgeting in the FY16 budget. Should it fail we would look at making adjustments with attrition in order to reduce the amount of the subsidy in the future. Based on preliminary discussions, we have added additional revenue for parking meters and permits. This will assist in bringing the revenues closer to the expenditures for this respective activity. Following the work session where information on parking was presented, the Parking Advisory board reviewed the options and voted in favor of recommending fee increases in parking and permits. As per discussions at the work iii session, downtown parking will continue to be reviewed as part of the downtown planning process in order to identify the long-term management for parking. Should the resolution increasing downtown parking not be approved, the numbers will be corrected. Last year, Central Garage was moved from the general fund to an internal service fund. This allows us to display fuel usage within the respective departments. This is the first year we will have both past usage (FY14) displayed in the line items, in addition to the projected usage for FY15. This display will allow us to more easily demonstrate increased costs over time. I have included a 5-year CIP for the municipal departments that outlines expected timeframes for equipment replacement and capital projects. This schedule helps to forecast the needs of the department and outlines projects that are being planned in future years. The CIP will be updated on an annual basis with some projects being adjusted on the timeline and equipment being deferred, based upon priorities and available resources. It does provide, however, a good idea of what the City is looking at for capital improvements in future years. While it is not represented in the budget, we are working on the costs associated with shifting our utility billing operations from a schedule of billing every two months to a monthly billing cycle. While there would be associated costs with this transition, including the likelihood of 1 additional FTE that would be split across the utilities, the increased service should be considered as part of the discussion. In addition to creating consistency on a monthly basis for the customer (rather than a larger bill every two months), there is the potential to alleviate a large burden for an individual customer that may be experiencing a leak in a service line that could go an extra month prior to being identified. This scenario does occur and leads to unexpected costs for the customer. We anticipate the discussion regarding the potential shift in this service to occur when we are discussing our utility enterprises during budget sessions. Following efforts of trying to maintain uniformity across the organization, I have added a 3.3% increase in non -union employee salaries. This is comprehensive, including base adjustments, longevity pay, certification pay, etc., as accounted for in the contract with Fire Department employees. As we have two current labor units in negotiations, we will adjust the 3.3% to be an average of all units, assuming the averages will provide the same compensation over time. We do anticipate that negotiation with the two labor units will be completed by passage of the final budget. Grant funds continue to assist in delivery of municipal services. As an example, dashboard cameras that are being installed in our new computers are being partially funded with a grant that is paying for 2 Cameras and a portion of the server system. Additionally, a grant has been applied for that would pay for bullet proof vests for our Special Response team. We have these items budgeted for within the department budget. If we are successful with the grant, we would re -allocate that funding to replace a patrol motorcycle that is ready for replacement, but had to be deferred based on other priorities in the proposed budget. We will likely know if we are successful with the grant prior to consideration of the final budget and will make adjustments at that time. For the second straight year, we are receiving a credit from MMIA for Liability insurance. This credit has been applied in the funds as a decreased expense. Health care costs from MMIA are projected to remain flat, which is good news as the initial projections were 5% or higher. Similar to last year, is that the experience factor 1V being applied to the City of Kalispell provides for a slight decrease in premiums. Though we don't anticipate being able to avoid premium increases in the future, remaining stable for the past two years is an enviable achievement in respect to health care premiums. GENERAL FUND REVENUE PROPERTY TAX Property tax is the primary revenue source within the general fund. As we do not receive final property valuations for the current year until the first week in August, we are required to forecast revenues with incomplete information. In FY13, we saw an unexpected decrease based on the central assessment of respective utilities. In FY14, our valuation was impacted by the expansion of the West Side TIF District. For FY15, we anticipate the valuation to increase in conjunction with last year's growth of taxable property. However, we tried to be conservative in our estimates, knowing that the final numbers usually require some modification. Additionally, we kept the value of the growth below the three year rolling average. We think our estimates are accurate in projecting a higher level than FY14 as we saw considerable properties completed that we project to be on the tax rolls, and trend that we anticipate through the next two years. We are currently trending for increased residential and commercial building in 2015. However, the timing of the construction and the timing of the property assessment creates difficulty in forecasting when the increase in taxable property will result in increased valuations. General Fund Revenues by Percentage General Fund Revenue By Type FY15 Fines and Forfeitures 6% Charges for Services Miscellaneous 8% 7% PropertyTaxes 51% i Intergovernment Revenues 25% Licenses and Investment Permits Revenue 1% 0% u GENERAL FUND EXPENDITURES Expenditures in the General Fund are budgeted at $10,010,368. This is a 3.09% increase from the total expenditures adopted in the FY2014 budget. Expenditure categories are broken down in the chart below. Breakdown of General Fund Expenditures by Percentage General Fund Expenditures by Type FY15 Capital 1% Services and ❑ebt Service Supplies 1 % 2I1 % Personal Services 77% V1 SPENDING LEVELS BY DEPARTMENT The following table provides a comparison of general fund departmental expenditures from FY14 to FY15. The table is included to demonstrate the funding levels for respective activity in this year's recommended budget as compared to the previous year. Changes may be indicative of large capital items, significant additions to department responsibilities, or other changes of operation and maintenance costs. Table 1. Comparison Increase from Prior Year- General Fund Departments FY2014 FY2015 Adopted Proposed General Fund Departments Budget Budget % change City Manager $177,397 $180,061 1.5% Human Resources $151,429 $153,224 1.19% Mayor/Council $112,648 $119,142 5.76% City Clerk $105,701 $138,762 31.28% Finance $255,683 $266,550 4.25% Attorney $426,579 $436,542 2.34% Municipal Court $333,361 $342,583 2.77% Public Works $36,819 $39,522 7.34% City Hall $259,645 $257,992 -0.64% Police $4,073,422 $4,202,846 3.18% Fire $2,523,184 $2,668,306 5.75% Planning Department $341,653 $355,246 3.98% Community Development $84,578 $68,693 -18.78% vii SPECIAL REVENUE AND ENTERPRISE FUND REVENUES, EXPENDITURES, AND BALANCES Below is a table of the Special Revenue and Enterprise Funds, with their related revenues, expenditures, and fund balances. Those funds that are bolded are addressed in the narrative following the table. Table 2. Revenues, Expenditures, and Fund Balances in Special Revenue and Enterprise Funds Fund Revenues Expenditures Balance SPECIAL REVENUE FUNDS Parks $1,493,000 $1,591,000 $175,000 Forestry $209, 000 $191, 000 $80,169 Ambulance $1,015,000 $1,010,000 $5000 Building Department $369,000 $467,000 $305,000 Light Maintenance $237,000 $317,000 $15,000 Gas Tax $387,000 $541,000 $201,000 Street Maintenance $2,220,000 $2,381,000 $1,057,000 ENTERPRISE FUNDS Airport Operations $74,000 $68,000 $105,000 Water (operating) $3,240,000 $3,563,000 $2,976,000 Sewer (operating) $4,200,000 $4,412,000 $1,069,000 Storm Sewer (operating) $761,000 $1,603,000 $489,000 Solid Waste $1,146,000 $1,421,000 $828,000 FORESTRY The Forestry Special Revenue Fund was established in 2001 with the following objectives: 1) hazard reduction program, 2) replacement for removals or vacant sites, 3) pruning cycles for inventoried trees, 4) public education and site assistance, and 5) maintain a departmental tree maintenance unit. The last five years of the program have focused on addressing Dutch Elm Disease within the urban forest. With this effort, the remaining objectives have been considered less of a priority, though the department is trying to focus year-round efforts on the urban forest. During last year's budget process, an assessment increase was proposed, and rejected. In response, services were reduced to initiate cost saving measures. In the FY2015 budget, we are looking at contracting out some of the responsibilities. With the departure of our year-round forestry employee, we are taking the opportunity to reset the operations with the reduction of the fixed personnel costs and contract out some of the operations to assess the effectiveness of the level of services that can be provided under this model. If it is effective, the current assessment level would allow for sustainability into the 2020's, depending upon the level of contract services elected. If it is not effective, we would likely revisit discussion of an assessment increase in the future. AMBULANCE The ambulance is considered a special revenue fund as it generates a significant portion of its revenue from sources that are committed to the fund's operation. This revenue comes from the billing for services, similar to an enterprise fund. However, as collection of full amount of billing is impacted by Medicare, etc., this fund is essentially supported by a general fund subsidy. This budget presents that subsidy in correlation to the personnel required to run the ambulance operation. The subsidy for FY2015 is a little over $250,000. It is expected that this transfer will increase in the future as capital replacement is needed and personnel costs increase. The unique nature of the operation presents the challenge of how to philosophically approach the funding of this department. Over the past year, a committee reviewed the operations and funding options available for EMS operations. The committee presented its report to City Council at a work session in March, recommending that the Council consider placing a ballot issue on the November General Election seeking a dedicated mill levy for EMS operations. This levy would remove the general fund subsidy, noted above, implement a capital equipment replacement process, and provide staffing that would limit the number of calls that are currently being dispatched to neighboring jurisdictions. Should the ballot issue be placed on the November election ballot and fail, we would likely reduce staffing through attrition. This would save in personnel costs, though we would likely see additional emergency calls being handled by neighboring jurisdictions. Either way, we would be responding to the level of service the community desires to have. LIGHT MAINTENANCE The light maintenance fund is one of the funds we are asking Council to review. At a work session in March, we presented several options for council to review, from a reduction in services to an enhancement of services to previous levels. At the time, council expressed a desire to see the light maintenance district adjusted to be a citywide district, rather than those properties within 300ft. of a street light. This recognizes the community benefit of street lighting. We are currently progressing through the efforts to bring that potential change to council. However, we are not making the adjustments in the budget at this time. If the change passes through council, after the appropriate publication requirements, changes will be implemented in the final budget. Likewise, if the change is not implemented, we will reduce the staffing that is in the budget in order to sustain the fund balance with reduced services. ix The last increase in this fund was in 2003. This fund is impacted by the increased cost of electricity that has occurred over time through rate increases and the increased amount of lights added to the system. Additionally, more lights have increased the amount of labor required. We currently have 585 street lights that we own and maintain. BUILDING DEPARTMENT The Building Department acts as an enterprise fund that is allowed by State law to have a one year contingency fund, which have reached and are required to have spending levels for the next year to lower the reserve amount. We have reached this level due to increased activity in building and through the addition of electrical inspections. We are proposing additional staff to account for the increased activity. In the proposed budget, we are shifting 0.25 FTE from Community Development to the Building Department as part of a shift in responsibilities to better use this resource and meet the needs of the Building Department, which is seeing increased activity. Additionally, we have budgeted for an additional inspector, should our commercial review activity maintain its level of activity, in addition to a sustained increase in housing applications. If revenues and reserves drop due to a decrease in activity as they did in 2010, staff will be reduced accordingly. As part of the increased level of activity we are currently having difficulty completing our fire inspection responsibilities and we have are starting to see some delays in commercial and residential plan reviews which is typical for spring construction. We currently have 22 single family, 6 residential remodel and 14 commercial permits in the plan review process. The test is to see if this trend continues. AIRPORT In the fall of 2014, voters chose to reject plans to move forward with an expansion/realignment of the airport's footprint. In order to create savings in the airport fund, operations have been privatized as of January 1, 2014. This change is projected to save almost $20,000 in airport operations. At a March work session, council discussed the potential of updating the Urban Renewal Plan that had identified the airport improvements as one of the primary goals for the plan. With the results of the election, the Urban Renewal Plan needs to be updated to identify the long term plan for the area, including the airport. Planning is currently working on a Request for Qualifications to solicit an independent consultant to facilitate this plan update. We would anticipate that the plan, at its completion, would provide a roadmap for where the community visions South Kalispell and the respective relationship with the City Airport. The planning process would likely identify several alternatives and costs associated with them, as well as challenges that need to be assessed, including maintenance costs associated with the airport, as identified in the budget CIP. Once an updated Urban Renewal Plan is in place, we can take the next steps in our operational efforts, comfortable they are in line with long-term visions. PERSONNEL COMPENSATION AND BENEFITS Currently, two labor units are in negotiations for the FY15 and beyond collective bargaining agreements. Last year, we completed a three year contract with the IAFF which established a three year agreement for FY14, FY15, and FY16 with total compensation adjustments of 1.3%, 3.3% and 3.3% respectively. x As we have entered into collective bargaining agreements, one of our goals is to create some consistency across the organization in respect to salary increases. While there may be circumstances that prevent this, depending upon the respective bargaining unit, market conditions, etc., it does give us a direction for future year compensation decisions and forecasting. While we are currently in negotiations with AFSCME and the Kalispell Police Officers Association, we anticipate that negotiations will be complete by passage of the final budget. In respect to non -union employees, we are recommending the 3.3% increase for FY15 that is in line with the IAFF contract. This increase is total compensation, including any base adjustment and longevity components. The table below presents a history of compensation for our respective labor groups. Salary Increase for Respective Labor Groups (Overall Increase- Inclusive of Base Adjustment, Longevity, Merit, etc.) Police Contract Fire Contract AFSCME Contract Non -Union FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 FY13 FY14 FY15 3.05% 1.3% NA 3.5% 1.3% 3.3% 2.55% 2.65% NA 2.5% 2.5% 3.3% During last year's review, I proposed a market analysis and matrix review to better align our organization with the market. As part of the labor negotiations, this market analysis has been initiated. Following the completion of the collective bargaining efforts, we will begin the review of the data for the non -union employees. The desired outcome for this effort will be a wage matrix that provides consistency for advancement through a respective pay range for employees while connecting every position with the respective market. Currently, employees are hired into a respective range, yet are advanced only through base adjustments. A new matrix would provide a mechanism for advancement through a pay range in an equitable fashion. Health care increases for MMIA are projected to remain flat for FY2015, with a slight reduction for the City of Kalispell. This is two years in a row that the City of Kalispell has not had an increase in its health care premiums. This is the result of the level of claims across the MMIA system, which Kalispell is part of, and even lower claims submitted from the City of Kalispell participants. While we don't anticipate that premiums will continue to remain flat, we do continue to urge employees to take part in the wellness programs that are offered, such as health screenings and flu shots. CONCLUSION The proposed budget was developed and is recommended as an appropriate use of the resources available to the City. The FY15 budget has been prepared with the goal of adding increased value to the document with the addition of the Capital Improvement Plan, and a continued effort in simplifying the document to best represent the revenue and expenditure items to their respective funds. The focus of the budget during this year's preparation and implementation, as was the case with last year's budget, has been on maximizing the resources we currently have. Building a culture and environment with our current human resources is a xi cost—effective way to approach the future, as building from within can often have large benefits over simply adding additional resources. It is anticipated that the local economy will continue to trend upward with steady growth. We anticipate that property growth in the next two years will show an increase over the past two years, though we are being conservative in the forecast, recognizing that there are variables outside of our control that impact the final economic outcomes. In conclusion, I believe the budget development process continues to be enhanced through the mutual efforts of staff and the City Council. New initiatives are being developed in an effort to improve the quality of services while operating in a revenue restricted environment. The employees of the City of Kalispell have done an exceptional job in striving for an improved community through their collective efforts, as can be seen with developments incorporated into the budget. The City Council has been effective in providing direction from which to work as we try to create a document that is effective and beneficial. Finance Director, Rick Wills, has done an exceptional job in coordinating changes in the budget format and keeping track of the process along the way through many emails and conversations related to the budget. The collective goal of all involved has been to create the mechanism from which municipal services are offered to the residents of the City of Kalispell. With these acknowledgements, I present the proposed FY15 budget. Respectfully, ouglas /R.Russell City Manager xii