Workshop Item - Joe Huss, Finance Director/Asst. City Manager; Ali Bong, Deputy Finance Director
Title
Title
Special Workshop - 2023 Proposed Tax Levy and General Fund Budget
end
Background
Council devoted a generous portion of the January 29, 2022 Winter Retreat to discussions on development of the 2023 tax levy and General Fund budget. The retreat discussion focused on the following:
1. Basics of the budget process
2. Process improvement feedback
3. Budget development
4. Levy development
5. Strategic priorities
Topics 1-3 had a brief presentation followed by the opportunity for in-depth council discussion. This workshop serves as a recap of the results from the budget development facilitation, and in-depth discussion on topics 4 and 5.
Levy and Budget
Economic conditions that affect the levy
Similar to driving forces that affect the budget, certain economic conditions that affect property values impact and influence the Council’s decisions regarding the tax levy.
- City growth, economic expansion
- Stable community, economic expansion
- Economic contraction
Strategy
Every year council provides guidance on the desired outcomes for the coming year, ensuring alignment with the Council’s top priorities and the adopted Strategic Plan. This guidance also provides structure for staff to begin creating department-level budget proposals.
The driving force in developing the budget is the guidance provided by the council through the values, priorities, and initiatives outlined by the council. By statute, the city is required to adopt a preliminary levy and general fund budget in September. Staff is seeking feedback on the Council’s preferred strategy for developing the budget and preliminary levy. There are multiple ways that Council can provide guidance to staff on how to establish the levy. These include indicating a preferred or targeted tax rate, establishing a maximum percent increase/decrease to the budget, or setting the total levy amount.
- Tax rate - for the past several years Councils have guided staff in developing the levy, and subsequently the budget, by establishing a preliminary rate. Over the last decade most levies have held the rate steady, constraining the levy increase exclusively to growth in tax capacity within the property class categories and new growth via development.
- Budget % increase/decrease - another common practice to set the levy is to indicate a total percentage increase/decrease to the property tax portion of the budget.
- Levy amount - in the past, municipal governments’ levies were statutorily limited by a set dollar amount and most municipalities set their levies accordingly.
Strategic priorities
The City’s strategic priorities fund was last discussed at the March 8, 2021 workshop as item 3-3; minutes are attached.
The strategic priorities fund was established May 2019 from the proceeds of the dissolution of the North Suburban Hospital District (NSHD). On May 6, 2019, Council directed that the proceeds of $2,648,000 from the NSDH dissolution be placed in a strategic priorities fund to be used pursuant to Council priorities that were to be determined once a policy was established. Additionally, Council directed that $100,000 of this amount be set aside as a matching grant to assist in funding Veterans Memorial Park. Subsequent levies have included direct allocations to the Strategic Priorities Fund: $325,000 in the 2021 budget, adopted December 21, 2020; $250,000 in the 2022 budget, adopted December 19, 2021. An additional transfer of $4.2 million of unrestricted General Fund reserves was approved by Council at the end of 2021, bringing the total strategic priority fund balance to $7.2 million.
At the time the funds were placed into the Strategic Priorities Fund, the City Council expressed its intent to develop a policy governing expenditures from the fund. Per Council discussions, it was intended that the fund be used only for items the Council considers to be of high priority for accomplishing established strategic initiatives. With the adoption of the 2021 levy, Council also expressed a desire to establish a strategy whereby, in the event of an economic downturn, the City would have a funding source from which to draw to maintain basic service levels without putting undue pressure on Blaine property owners via the tax levy. With respect to the preceding parameters, Council was supportive of reviewing a draft policy for use of strategic priorities funds that is modeled after the capital improvement fund policy. In 2019 and 2021 Council expressed support that expenditures from the fund must be supported by at least five (5) affirmative votes of the Council.
Below is the current framework for a draft policy based on the information above and subsequent feedback received from Council. Furthermore, the most current draft of the policy is attached to the Legistar item.
1. Policy Statement - the purpose of the Strategic Priorities Fund is:
a. To fund items that the Council considers to be of high priority for accomplishing established strategic initiatives; and
b. To provide a supplemental, levy-stabilizing funding source from which to draw to maintain basic service levels in the event of an economic downturn
2. For Strategic Priorities
a. Expenditures or transfers from the Strategic Priorities Fund shall be made only after careful deliberation of the City Council.
b. The city council must identify that:
i. The project/strategic priority will advance or achieve one or more of the strategic initiatives identified in the City’s adopted Strategic Plan; and
ii. The project/strategic priority has sufficient community-wide benefit consistent with other city goals, programs, or policies.
3. For Economic Downturns - The City Council will consider the use of the Strategic Priorities Fund as a supplemental funding source for the General Fund in the event of an economic turndown as measured by:
a. A decline in the City’s overall taxable property value of 0.5%; and
b. A 5% or greater decline in General Fund non-property tax revenue as measured against total General Fund revenue; and
c. A mid-year decline in revenue to the extent that the General Fund’s reserves would otherwise be depleted
4. Expenditures or transfers from the Strategic Priorities Fund are to be made only upon the adoption of a resolution approved by an affirmative vote of at least five (5) Councilmembers.
Examples of strategic fund uses suggested by council include:
• Aquatore Park bandshell
• Traffic signals
• Trails (109th street)
• Redevelopment
• Road expansion
• Reserve for levy containment
There are other potential uses of the strategic priorities fund that either this Council or the previous Council has brought up in the past, including:
• Supplemental resource for funding capital equipment purchases
• Facilities Fund reserve
While the above other potential uses could be specifically incorporated into the strategic priorities fund use policy, staff feels that they are adequately and more properly addressed under the Strategic Initiatives section of the Policy.
Staff Recommendation
Review data and information presented and discuss City Council priorities, initiatives, and recommendations.
Attachment List
Retreat Presentation
Budget Workshop Presentation
Retreat Agenda Item
Draft Strategic Priorities Use Policy
Recommendation
Staff will present information on the above topics for Council discussion and guidance on next steps in the budget process.