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02. City Manager Budget Letter 2018 Prelim BudgetONCITY OF ria WNno _� � l Ll A- - MONTANA April 25, 2017 Honorable Mayor Mark Johnson Members of the Kalispell City Council PO Box 1997 Kalispell, MT 59903 Ladies and Gentlemen, City of Kalispell OFFICE OF THE CITY MANAGER 201 First Avenue East Kalispell, MT 59903 It is my pleasure to submit for your consideration, the Fiscal Year 2018 proposed budget for all municipal operations. This letter is intended to serve as the budget message for this proposal, and outlines the nature of the approximate $80,000,000 budget plan for the coming year. This budget, similar to last year's, represents the financial impact of significant infrastructure projects, including the Westside Interceptor, the 4th Ave East reconstruction, and the CORE Area Redevelopment. 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 budget and final budget adoption, numbers in this document may be different than the numbers in the budget document itself. The annual budget development demonstrates the interaction between policy establishment and administrative implementation. Over the past few years, we have seen this documented through service level establishment in the areas of light maintenance, street maintenance, law enforcement, EMS services, building department services, etc. This year, that policy development process continues as we discuss forestry and stormwater, along with revisiting EMS. It is the creation of these policy level expectations that the budget comes to life for a community. The services that are presented with numbers and words in a budget become part of the daily activity throughout the community as implementation occurs, further representing the importance of the budget creation process. Combined with last year's efforts, we are seeing an emphasis on infrastructure as guiding the process for budget development. Council has diligently addressed these areas throughout Kalispell to not only manage the current state of infrastructure needs, but also preparing for the future with the anticipated growth. In addition to infrastructure, Council has also focused on the quality of life demands for our community, addressing areas with the CORE Area redevelopment, improvements in parks, and responding to law enforcement demands in the community. A balance in these areas continues with this year's budget as we move into work sessions trying to refine the specific service levels to provide in the community, while at the same time, knowing that resources are limited and need to be appropriately distributed. Though this is a one-year budget, it does not exist in a vacuum and is presented with the long range destination in mind. I am pleased to present the FY18 proposed budget and am comfortable in the recommended appropriations, the expected service levels resulting from this funding distribution, and the efforts to adjust service levels and delivery methodologies to the community we are serving. ACCOMPLISHMENTS IN 2016 AND 2017 As the FY18 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 accomplishments, they do represent a concerted effort across departments for the improvement of services being offered by the City of Kalispell, and in some cases dictate the projects that we will be undertaking in FY18. During last year's budget, we increased resources for the parks and recreation budget, including adding additional FTE for Kidsports that will aid in maintenance of the facility and alleviate staffing pressure for the overall department during early spring and late fall when staff were previously pulled from normal duties to aid in the Youth Complex startup operations. Additionally, the enhanced funding provided opportunities to initiate system improvements with capital replacement and bathroom improvements. While not initially budgeted, Council took action to convert a portion of Begg Park to an off -leash dog park. This project was initiated through the adoption of the South Kalispell Urban Renewal Plan Update as it was initially proposed to be constructed with TIF funds. After deliberations, however, Council elected to use unappropriated funds in the Park's budget to make the improvements, along with a $10,000 contribution from Paws to Play. The facility should be open during the summer of 2017. Following the approval of a Resolution of Intention for the construction of the West Side Interceptor, we began the process of land and easement acquisition for the preferred route for this major infrastructure improvement. As design work has progressed, amendments to the initial route have altered and are continuing to be amended based upon the challenges of designing such a long sewer line through numerous topographical conditions and geological formations. The project is still on schedule to begin construction in 2018. Many resources have been dedicated to the implementation of the CORE area redevelopment. Progress over the past year has included completing a negotiation with Northwest Drywall on a relocation plan for their respective business, submission of the environmental assessment to the Federal Rail Administration (which is anticipated to be approved within the next few months), the submission of the request by the railroad to abandon the line, and the initiation of negotiations with the railroad to acquire the easement along the current line so it can be developed into the trail once the tracks are removed. There have been significant challenges to overcome to get to this point in the project as it includes many stakeholders, agencies, and funding avenues. The continued efforts of staff, the council, our partners, and the community in general will play important roles in completing this project. The construction of Glacier Rail Park is anticipated to start this summer, pending the receipt of acceptable bids and the award of the construction contract. 11 Council has recently awarded the construction contract for the Kidsports project that will provide the infrastructure to for the creation of additional multi -purpose fields. In response to the growth of the construction industry in the City of Kalispell, Council approved additional staffing in the Building Department in last year's budget. This decision has been a valuable addition to maintain pace with amount of plan review and inspection activities the department has been facing. This is anticipated to continue, as will be identified later in the transmittal letter. In addition to staffing in the Building Department, Council also increased staffing within the police department, including the addition of a K9 officer, Cairo, and his respective handler. Cairo has been authorized to begin work for the department and is being used in both drug detection and community outreach. Last fall, the Alternate Highway/Bypass and Four Mile Drive opened to the public, completing a long-standing effort to improve traffic patterns in the City. Council adopted an update of the South Kalispell Urban Renewal Plan that outlined the options for long term use of the airport and potential projects in South Kalispell. This action has led to discussions with a user's group regarding potential privatization of airport operation and maintenance responsibilities. These discussions have been progressing and the issue is anticipated to come before Council during the upcoming summer. The city completed an organization wide -leadership training program. This six -module program focused on leadership, communication, and conflict resolution. The council participated in an annual outreach effort in Washington, D.C., with elected representatives and Federal Agencies related to the TIGER Grant and CORE area redevelopment. The city is working with the State of Montana on the long-term use of Highway 93 through Downtown Kalispell, including traffic configuration around the County Courthouse Couplet. Discussions and the formation of a steering committee are anticipated to begin later this year. This past legislative session, the City Council elected to join the Montana Infrastructure Coalition to aid in the implementation of our respective legislative priorities. Progress was made in a couple of areas, including hearings in the Senate and House on a local option sales tax. Additionally, at the time of this writing, it appears that a bill will pass that raises the gas tax by 0.045 cents. Kalispell could see up to $300,000-$500,000 a year for road projects, pending final bill language. PROPOSED FY18 BUDGET AT A GLANCE Major highlights and conditions of the proposed FY18 budget include the following: The proposed FY18 budget is based on service levels needed to accomplish the goals outlined in the budget for each department, balanced with available resources. Property tax is the primary source of revenue for the general fund. It is limited to increases through growth and the allowable inflationary index as identified in state statutes. Projecting property taxes is a difficult assumption to make as final valuations iii are not released until August. Reviewing new additions to county records, however, we feel comfortable with the forecast applied to the revenue projections. Based on the growth projections and the inflationary adjustment, we will still remain approximately 4.5 mills below the property tax cap (pending mill levy valuation). To accomplish this, we will be using some of the cash carryover from FY17 to cover the proposed expenses for FY18. While this would not be a sustainable process, there are long term adjustments that can mitigate that condition in the future. As we are nearing the 20% reserve fund in our adopted policy (18.5%), we are comfortable moving forward knowing we have additional taxing authority if needed in addition to service level adjustments. We have taken efforts to streamline the budget presentation over the past few years, and have been making respective adjustments as necessary. For this year, we have inserted images of respective capital projects into the budget document. Ideally, this will help facilitate the budget review process. During the budget sessions, we will be soliciting council feedback to identify if this is a practice worth continuing. Public Works is currently soliciting bids for the 4th Avenue East that will be constructed throughout the end of FY17 and into FY18. This includes water -line and road replacement. There are 14 blocks that are part of the overall project. This project has been placed into this year's budget and is broken out as expenditures into the appropriate funds. As part of the project, transportation will return to two-way travel on 3rd and 4th Avenues, as has been identified in the transportation plan and has been reaffirmed with discussion at the council level in preparation for the project. For the past two years, we have appropriated funding for a redesign of the municipal website. Our efforts over these past two years have been to make improvements in online billing areas, including building permits, EMS billing, and on -site credit card access. This has delayed a full effort to move forward with the website redesign, though it is an important step for our communication platform with the community and is again included in this year's proposed budget. As identified earlier, the construction of the Glacier Rail Park is anticipated to begin this summer. As such, we anticipate activity in the fund created specifically for this project. A new fund has been created to track expenditures for the recently adopted Downtown Business Improvement District. The original district will continue with expenditures for that district and work plan being associated with that respective fund. All new revenues and expenditures will be identified in the new fund. The Community Development special revenue fund is projected to continue paying the annual assessments on the 6 parcels at Old School Station. This is offset partially by receipt of funds in the respective tax increment fund. Any change within the ownership of these lots will change the actual budgeted amounts. All 6 of the parcels are on the multiple listing service and readily available for sale. Last year, the budget appropriated funding to the parks department in an effort to account for the impact of the mill levy value not being a consistent standard when compared to overall growth. This approach has been used again this year to provide attention to the overall operation of the parks department. This year's proposed improvements include: o Irrigation improvements in Northridge Park, o Playground improvements in Thompson Park, and o Trail development design work for Highway 93 (though grant funding for this is possible). 1V Activity in the Building Department continues to increase. With large building projects submitted this past year, we are estimating our building permit revenue increasing by about $300,000. We project similar permit applications for FY17. As such, the department will continue to face an increase in service delivery expectations. To account for this increase we are looking at increasing staffing with an additional inspector and increased hours for support staff. These positions are explained more in- depth below in the full-time equivalencies subsection. Full-time equivalencies: o Building Department: We are proposing: 1) an increase for front desk support by 0.4 FTE in the Building Department to make the current 0.6 FTE a full FTE in front desk support. 2) A new full time FTE is being proposed for the Building Department as an inspector. The current and anticipated commercial projects support adding this position to provide the necessary service delivery for review of plans and inspection services. The addition of the personnel within this fund is supported entirely by its revenues and is forecasted to be able to support the increased personnel through anticipated succession planning should revenues at some point in the future drop below sustaining levels for the fund. o Police Department: For FY18, Flathead Valley Community College has approached the City with a request for an arrangement similar to School District 5. This program splits the cost of an additional officer to serve as a School Resource Officer. In discussion with FVCC, they envision the position to be similar to the school program in that they would have an officer available to provide educational programing, interact with students and faculty, and provide support as needed for the college. The benefits of this program is that it adds an additional officer to the department that can be used to support the mission of the department while being predominately funded by our partner. In this case, FVCC would provide 75% of the funding and the City would provide 25% of the funding. We would have full access to the officer's time during the summer months and when support would be needed throughout the school year. o Stormwater Department: During a worksession with council, the stormwater fund was reviewed, including the demands being placed on the department by the most recently approved MS4 permit. At the worksession, guidance was provided to move forward with more refined levels of service based upon a potential phased increase in rates. This effort is ongoing and will be presented during the budget approval process. However, that final approach to the potential rate increase will determine how the FY17 budget will look. Hence, the presented budget is presented as though there is no increase in staffing or rates. We do anticipate this to change by the time the final budget is presented in August as options will be presented to council for a rate increase that will allow for a 1.0 FTE increase. o Forestry Division of the Parks Department: Similar to the stormwater fund, a worksession was held with Council to review the status of the service delivery and to receive guidance moving forward. Council requested that staff bring back options for addressing the backlog of pruning, tree and stump removal, and to provide funding for maintenance operations moving forward. Like stormwater, this information is currently being prepared and will be presented to Council prior to the presentation of the final budget. As was stated during the worksession, we anticipate this will include the addition of 1.0 FTE for the ongoing maintenance operation. Pending direction that is taken related to this activity, the final budget v numbers will likely be changed as the number presented in this preliminary budget represent moving forward with current staffing and service delivery levels. While an addition of an FTE is not included in the proposed budget, caseload demands in the prosecutor's office are reaching a point where consideration of an additional prosecutor is warranted. A review of other 1st class cities reveals the caseload per prosecutor ratio as identified in the following table. As can be seen, we have the highest caseload per prosecutor and the second highest caseload per prosecutor for non -traffic offenses. Currently, the adjunct attorney and city attorney are filing in where needed and as time allows. Should final valuation numbers for property taxes increase from projections, the final budget will likely have an addition to the attorney's office. This may be with either a full employee, or possibly a contracted addition to the office. Non- Ratio of Cases filed Ratio of No. of traffic cases to per 2015 cases to City Prosecutors offenses Prosecutor MCW stNS Prosecutor Billings 4 5,830 1,458 14,788 3,697 Bozeman 4 2,039 510 7,432 1,858 Butte -Silver Bow* 5 2,254 451 5,147 1,029 Great Falls 2.25 2,230 991 9,467 4,208 Helena 2 2,240 1,120 6,275 3,138 Kalispell 1 1,548 1,548 5,212 5,212 Missoula 5 9,585 1,917 18,280 3,656 Last year's budget had two officers included as part of a grant funding program. These costs were offset by increases in the cash designated for capital. The grant application was not successful. However, council elected to fund two offices with general fund monies halfway through the year. Thus, the amount designated for capital for FY17 was less than the adopted budget identified. For FY18, the amount designated for capital is represented by the amount that would be needed to fund the one officer we currently have that is funded by a grant. When the grant funding expires, the amount of funding going to capital will decrease to cover the ongoing personnel costs. Thus, we are able to provide a mechanism to build capital funds in the general fund, and also have funding available for when our grant funded officer becomes the sole responsibility of the City of Kalispell, halfway through FY19. In addition to the funding designated for capital identified above, council may want to have the discussion about increasing the mill levy specifically to increase capital funds for future development projects associated with the Core Redevelopment project. While costs have been identified to complete the project, we have seen variables emerge that have required fine tuning this plan. These variable have included, but are not limited to, property tax assessment that drastically reduced Tax Increment in the West Side TIF, changes in valuation of Centrally Assessed properties, an enhanced environmental assessment required by the Federal Rail Administration, and negotiations between parties involved in the project. Any funds that would be applied to capital would likely allow for reduced bonding in the capacity of the West Side TIF. Last year, Council adopted a new rate schedule for Emergency Medical Services. This increase was projected to increase rates to a level that would provide self-sufficiency for vi the operation. Unfortunately, actual revenues realized were significantly less. We had fewer ALS and BLS calls than were projected from last year's numbers and the payer mix increased from 65% of the billing being provided by a subsidy program that only pays a pre -determined amount to 86% of the payer mix. As such, the transfer from the general fund for this year's budget is increased from the last year's amount of $150,000 to approximately $350,000. This is close the FY16 budget transfer of $380,000. This is an area that will be discussed, later in this transmittal letter and during upcoming budget sessions. In response to the lower than expected receipts, staffing has been reduced to 6 personnel, rather than bringing in a seventh person on overtime in situations where we previously called in the additional responder. Additionally, there is no capital in this year's preliminary budget, though we had a projected $130,000 initially set to replace cardiac monitors. Last year's budget identified the need to review funding for two different areas of service for potential rate increases. Recently, stormwater assessments and forestry assessments have been reviewed with council as part of their respective level of service. At these presentations, council identified levels of service and requested rate assessment options to reach those potential levels. These two areas will continue to be reviewed during the budget approval process, leading up to the final budget adoption in August. Any increase in rates will be required to go through the prescribed notification process as defined in state statutes. As such, both funds are presented as though there is no rate increase, but are expected to change as the process continues, including potential increases in staffing, as identified in a following section of this transmittal letter. Additionally, we are proposing a rate analysis as part of the updated facilities plan being proposed for utilities (Council had a previous worksession on the need for updating the facilities plan prompted by development that is taxing water delivery capacities). This rate increase was also identified as part of the agreement with Evergreen Sewer District as a way to accurately identify separation of costs and charges between the two utilities. The inclusion of the 5-year Capital Improvement Plan outlines expected timeframes for equipment replacement and capital projects. This schedule helps to forecast the needs of the departments and outlines projects that are being planned in future years. The CIP is updated on an annual basis with some projects being adjusted on the timeline and some equipment being deferred, based upon priorities and available resources. For the fifth year in a row, we are receiving a credit from MMIA for liability insurance. This credit has been applied as a decreased expense. However, the credit is not projected to be as large as the previous year. Thus, it appears that liability costs have increased. It is, however, indicative of a smaller rebate, though it does limit the resources we have to apply to other areas. Health insurance costs from MMIA are projected to increase 1.8% for next year. Last year's increase was approximately 7.3%. We have been fortunate to not have experienced the larger increases that have been present in the insurance industry. vii 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. For FY18, we anticipate the valuation to increase in conjunction with last year's growth of taxable property. Below is the graphic representation of our revenues by their respective sources. General Fund Revenues by Percentage General Fund Revenue By Type FY18 Fines and Forfeitures 4% Charges for Services g% \, - -- 25% Licenses and Permits 1% Miscellaneous 8% Investment Revenue 0% PropertyTa 53% V111 GENERAL FUND EXPENDITURES Expenditures in the General Fund are budgeted at $11,405,247. This is a 4.8% increase from the total expenditures adopted in the FY17 budget. Expenditure categories are broken down in the chart below. Breakdown of General Fund Expenditures by Percentage General Fund Expenditures by Type FY18 Capital 2% Services and ❑ebt Service Supplies 0% 21% Personal Services 77% ix SPENDING LEVELS BY DEPARTMENT The following table provides a comparison of general fund departmental expenditures from FY17 to FY18. 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 departmental responsibilities, or other changes in operation and maintenance costs. Table 1. Comparison Increase from Prior Year- General Fund Departments FY2017 FY2018 Adopted Proposed General Fund Departments Budget Budget City Manager $1891750 $1931333 Human Resources $1681445 $1721099 Mayor/Council $147,610 $156,113 City Clerk $1241876 $1271704 Finance $279,316 $284,064 Attorney $4701722 $4771875 Municipal Court $3621869 $368058 Public Works $391711 $481702 City Hall $3071050 $2901903 Police $41728, 647 $51071, 616 Fire $2,670,356 $2,898,815 Planning Department $3711258 $3781095 Community Development $851873 $88,263 change 1.89% 2.17% 5.76% 2.26% 1.70% 1.52% 1.46% 22.64% -5.26% 7.25% 8.56% 1.84% 2.78% 0 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 in bold are addressed in the narrative following the table. Table 2. Revenues, Expenditures, and Fund Balances in Special Revenue and Enterprise Funds Fund SPECIAL REVENUE FUNDS Parks Forestry Ambulance Building Department Light Maintenance Gas Tax Street Maintenance ENTERPRISE FUNDS Airport Operations Water Sewer Storm Sewer Solid Waste Revenues $117331396 $277,200 $1, 210, 000 $113501000 $392, 800 $415, 804 $3, 612, 602 $78,974 $5,615,796 $13,2681808 $1,370,236 $110101100 Expenditures $119301805 $348, 555 $1,152, 211 $925, 500 $473, 225 $605,630 $411781068 $68,411 $8,502,649 $17,870,822 $2, 479, 885 $112171488 Balance $3921293 $42, 041 $22,799 $1,7311208 $1701413 $346,028 $115521061 $170,317 $6, 698, 644 $70 84,875 $2, 315, 442 $110321294 xi FORESTRY As identified previously, the Forestry Division of the Parks Department has been brought before Council for service delivery review. Options will be brought forward for further review related to completing the current backlog of pruning and removals and to address maintenance into the future. This service delivery level will be paired with options related to assessments and current resources, along with division of labor between contract work and FTE's. STORM WATER Similar to Forestry, the Storm Water fund has been brought to Council for review and long term operational sustainability needs. Council has identified a preferred service level and will be receiving options related to the assessments, implementation scheduling, and notification. Both Forestry and Storm Water will be brought forward prior to final budget consideration. AMBULANCE In previous years, council has initiated attempts to reduce the transfer from the general fund to the EMS fund (which is a special revenue fund as it receives a majority of its funds from user fees). Discussions have included staffing levels, rate structures, privatization, dedicated mill levies, etc. There was a previous attempt at a dedicated mill levy and a rate increase this past year. The rate increase, as identified earlier in the budget letter, failed to generate the projected revenues due to a higher concentration of subsidized payers that limit reimbursements, and a decrease in call volumes for ALS and BLS type calls. It is not anticipated that an additional rate increase under the same circumstances would generate the revenue to address this transfer amount. This area will be discussed with Council during the upcoming budget session to identify the next steps related to this area of service delivery and the challenge of providing resources to the operation. AIRPORT Council has been reviewing the airport since the vote for expansion was overturned through a voter referendum. As part of deciding what would happen long-term, council updated the South Kalispell Urban Renewal Plan this past year. During discussions on options available for the airport, a group of users came forward, requesting Council consider turning over maintenance and operation responsibility to the user group. These discussions have been progressing to the decision making point. It is anticipated that this could come before council prior to the final budget. PERSONNEL COMPENSATION AND BENEFITS Over the past five years, we have strived to produce compensation decisions that provide equity across the organization. Attempting to spread this equity to the non -represented employees of the City of Kalispell, we have previously averaged the total compensation (step plus base adjustment) increases for the three labor unions to apply that amount to the non -represented employees. For the upcoming year, we have been able to create parity across the labor units and apply that to the non -represented employees as well. This provides a total compensation increase of 2.8%. xii Salary Increase for Respective Labor Groups (Overall Increase- Inclusive of Base Adjustment, Longevity, Merit, etc.) Police Contract Fire Contract I AFSCME Contract I Non -Union FY 18 1 FY 19 1 FY20 I FY 18 1 FY 19 1 FY20 I FY 18 1 FY 19 1 FY20 I FY 18 1 FY 19 1 FY20 2.8% 1 2.55% 1 3.18% 1 2.8% 1 2.55% 1 NA 12.8% 1 NA I NA 1 2.8% NA NA Health care increases for MMIA are projected to increase 1.8% for FY18 for the City of Kalispell. This increase is shared between the city and the employees, depending upon the respective employee plan. Two years ago, the increase was 5.3%. Last year the increase was 7.3%. Overall, our average for the three years is 4.8%. In an effort to maintain lower rates, MMIA continues to encourage employees to participate in their wellness program activities, which are designed to identify preventive illnesses and avoid long-term cost exposures. CONCLUSION The proposed budget was developed and is recommended as an appropriate use of the resources available to the City. This year's budget represents some large projects that will likely have a significant impact on future development and quality of life, including; the Westside Interceptor, 4th Avenue, and the Glacier Rail Park. Additionally, this past year's construction has been significant, as evident by the results seen in the Building Department. However, much of that construction has been with tax-exempt institutions. Though we anticipate this growth driving other sectors of the community, there isn't the tax value growth that correlates with the increased construction. This circumstance creates a unique impact with the presentation of an annual budget. While there is a desire to increase services, the funding sources and levels require a cautious approach to forecasting in order to prevent building an unsustainable capacity. Hence, while we present the preliminary budget for FY18, our eyes are already on FY19. In conclusion, I believe the preliminary budget preparations are a demonstration of the efforts of the employees of the City of Kalispell in striving for an improved community through their collective efforts. Furthermore, the direction provided by the City Council has been effective in outlining areas of focus for service delivery in the community. Finance Director, Rick Wills, has done an exceptional job in continuing to provide incremental changes to improve budget presentation, fiscal sustainability, and financial oversight. The collective goal of all involved has been to create the mechanism from which municipal services are delivered to the residents of the City of Kalispell. With these acknowledgements, I present the proposed FY18 budget. Respectfully, eDouRussell City Manager