02. City Manager Budget MessageCity of Kalispell
OFFICE OF THE CITY MANAGER
201 First ,avenue Fmt
Kalispe-U, lvST 59903
September 11, 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 budge# 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. Moreover, as changes will
be implemented between the preliminary hudget and final budget adoption. numbers in this
document may be slightly different than the final budget.
The budget document is a substantial policy and managerial tool that highlights the interaction
between the staff and the governing body. Through the budget do-cument, service lever 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 budget 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- pell- 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
convaTsations and decisions, the dialogue generally yields productive outcornes. While we
create the budget document to provide the hest 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 altocation, of
funds, the expected service levels resulting from thlS fundleg distribution, and the continuing
preparation of community infrastructure into the future.
ACCOMPLISHMENTS 1N 2013 AND 2014
As the FY15 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 ❑NRC 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
➢ 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 FYI 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 FY2015 BUDGET AT A GLANCE
Major highlights and conditions of the proposed FY15 budget include the following:
➢ The proposed FY15 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 preliminary 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
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released until August, when we will know what the final property tax valuation is for the
year. Reviewing new additions to county records, 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, and then use it for 4
years as a secondary piece of equipment in order to get 8 years of service out of 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 of approximately $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 added any positions in this fund.
o In Forestry, we arc rcducing 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 included 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.
9 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.
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
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board reviewed the options and voted in favor of recommending tee increases in parking
and permits. As per discussions at the work 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.
➢ 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% 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, Police and AFSCME employees.
➢ 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
being applied to the City of Kalispell provides for a slight decrease in premiums. Though
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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 de 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 F 14 as we saw considerable properties
completed that we project to be on the tax rolls, a trend we anticipate continuing through the
next two years. We are currently trending for increased residential and commercial building in
2015. However, the tinning 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 FYI 5
Fines and
Forfeitures
696
Charges for
Services
8°r6
Interquvemment
Revenues
25%
7%
Property'raxes
nv--- 51%
LlCensesandil )-Investment
ParmFks Revenue
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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 FY14 budget. Expenditure categories are broken down in
the chart below.
Breakdown of General Fund Expenditures by Percentage
General Fund Expenditures by 1j pe FY1
Capital
1 �YG
Services and Debt Service
Supplies 10
1 °In
Personal
erviCeS
77%
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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 Hail
$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
1 $68,693
1 -18.78%
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SPECIAL REVENUE AND ENTERPRISE FUND REVIEW E , 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
51,493,000
$1,591,000
$175,000
Forestry
$209,000
$1-91,000
.$80,169
Ambulance
$1,01.5,000
$1,010,000
$5000
Building Department
$369,000
$467,000
$305,000
Light Main tenon ce
$237,000
$31 ,000
$1.5,000
Gas Tax
$387,000
$541,000
52D1,000
Street Maintenance
$2,2-20,000
$2,381,000
51,057,000
ENTERPRISE FUNDS
Airport Operations
$ 4,000
$68,000
1051
Water (operating)
$3,240,000
$3,563,000
$2,976,001)
Sewer (operating)
$4,200,000
$4,412,000
$1,069,000
Storm Sewer (operating)
$761,000
$1,603,1300
$489,000
Solid Waste
51,146,000
$1,4 1,000
$828,000
FORESTRY
The Forestry Special Revenue Fund was established in 2001 with the fallowing objectives: 1 }
hazard reduction program, 2) replacement for removals or vacant sites, ) pruning cycles for
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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 FY15 is a little over $310,000. 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
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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.
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, and is 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 anticipate
additional revenue resulting from 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.
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
vision.
PERSONNEL COMPENSATION AND BENEFITS
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. As we have entered into collective bargaining agreements with our other two
labor units, one of our goals was 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. Using this as a guide we recently approved contacts
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with AFSCME and the Kalispell Police Officers Association. In respect to non -union employees,
we are recommending to provide the same consistency as we have with the labor units in order
to provide parody across the organization. The table below presents compensation for our
respective labor groups far the next several fiscal years.
Salary Increase for Respective Labor Groups
(Overall Increase- Inclusive of Base Adjustment, Longevity, Merit, etc.)
Police Contract
Fire Contract
AFSCME Contract
Non -Union
FY15
FY16
FY17
FY15
FY16
FY17
FY15
FY16
FY17
FY15
FY16
FY17
2.4%
3.0%
3.3%
3.3%
3.3%
NA
3.3%
3.3%
1.3%
3.0%
NA
NA
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 have begun 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 FY2615, 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
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.
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In conclusion, I believe the budget devetopment 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 white operating in s 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 WilIs, 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 KaIIspel1. With these acknowledgaments, I present the
proposed PY15 budget.
Respectfully,
Douglas R. Russell
City Manager
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