Expensive Infrastructure

Wastewater treatment plants are probably the most expensive items a city deals with. These involve a great deal of equipment and structures to effectively treat wastewater to meet the stringent requirements of Minnesota Pollution Control Agency. These requirements keep our receiving waters clean.

Financing the Becker Wastewater Treatment Facility wasn’t as simple as selling bonds and applying debt service but we did do that as well. The city had taken steps to provide for these types of structures by anticipating some of the costs. We also used other funds that were available for use in lowering the debt necessary to finance the facility.

Outside of debt service the next largest funding source are SAC funds. SAC is short for Sewer Availability Charge. The city uses a system of determining the residential equivalent(s) for each intended use of the sewer system. One household is considered a residential equivalent. Presently the SAC change for a residential equivalent in Becker is set at $4000. This fee is paid at the time a building permit is issued and represents the new homeowners share of the costs for a wastewater treatment facility. $835,000 of SAC funds were used to reduce the amount of debt needed in building the present facility. SAC funds will also be used on an annual basis to write down the levy requirements on the bonds sold to finance the facility.

Other funds were used to lower the bond (loan) amount. Unspent construction funds on an earlier wastewater project were used to provide $243,000 of the project costs. $75,000 of sewer use funds were used. The project provided for the elimination of a lift station and as such some trunk funds were used in the amount of $365,000. A portion of the project involved upgrades of the industrial sewer portion of the plant. The industrial portion of the project upgrade was estimated to cost $1,282,871. Industrial user fees to cover the cost of capital were used to cover this cost. Two other funding sources were taped for an additional $1,000,000. These funds were set aside for future needs.

The remaining costs were bonded for. As we set out to accomplish the project we were faced with the question of tertiary treatment. This is a final cleanup of wastewater to bring the discharge pollutants to a very low level. Making the choice to move ahead with this was a responsible choice for the environment but added about $1.7 million in additional costs. These costs were not initially bonded for so additional debt service will be accomplished with a bond sale on January 15^th. The good news with this is the annual debt service was anticipated and already part of the city levy.

Overall the wastewater treatment facility will serve approximately 3500 residential equivalents of users. Additional expansion to the plant has not been anticipated until 2020, so we will be set for many years to come. With an overall cost of roughly $14.7 million dollars we can’t afford these types of improvements too often.

Budget Process

One of the final actions taken by the city before the end of the year is that of setting the levy for city taxes to be paid in 2008. In getting to this end a number of actions and activities occurred before a final number was arrived at.

The budget process starts in June typically, this year we started in May, with copies of the financial statements being sent to department heads for them to consider their needs for the coming year. The reason we started in May this year was help us all better understand the budget process and the impact of the Department of Revenue rule change which changes the way power plants are valued for purposes of taxation. That being said the rule change will be phased in over a period of three years, the first resulting in a reduction of value equal to reduction in taxes to be paid by Xcel to the city proposed at $145,000. When the numbers were finally calculated the loss in taxable value of all utility property was $546,206. All utilities will pay an estimated $120,459 less in 2008 than they did in 2007 towards city taxes.

Working through the budget process the council was asked to consider a number of things. Obviously we needed to consider the decrease in tax capacity. We considered budget “growth”. We worked through the contingency plan and identified what items were suitable for consideration in this budget cycle. The plan has identified both revenues increases and expenditure decreases. The council also considered basically 3 budgets from each department. There was a zero based budget, a small increase budget, and a perceived needs budget.

With the wealth of information it took some time to wade through all the factors. It was felt the contingency plan should be reviewed by departments and changes made to reduce operating expenses or increase revenues. Both of these were recommended. It was also felt it difficult to provide for no growth in the expenditure side of the budget. With these considerations the budgets from each department were assembled into a preliminary budget and the impact in terms of tax rate was developed. After some minor changes this became the preliminary budget and associated levy request.

Within Minnesota we’re required to certify a preliminary levy by 15 September. The preliminary levy becomes the cap, or the most that we could levy. From that date until the final levy the city has the opportunity to adjust the levy downward as the budget is better refined and costs become known. With the understanding the budget gets started in May or June the actual expenditures for the majority of the year are unknown at that time. Having the benefit of actual expenditures of 10 months helps with the assessment process in making final cuts.

The Truth in Taxation hearing is held during the first meeting in December. At this time proposed final adjustments to the levy are made. This year we were able to cut an additional $96,581 from that of the preliminary levy. In the end our levy was $49,837 less that that for 2007. Unfortunately with the reduction in Tax Capacity, due to the rule change, the tax rate will increase slightly for 2008.

As we consider the 2009 budget we’ll again need to consider the same factors we did for the 2008 budget period. The need for fiscal prudence continues as we face challenges of tax base and operational expense. Some changes may be made to the process but I think you can agree the budget process involves more than one may think.

Trunk Charges

As a city grows, it develops needs to expand its infrastructure to meet the needs of added population. We may start with new subdivisions but they require the support of wastewater treatment facilities, wells, water towers, lift stations and other trunk facilities to provide the public improvements we all expect to have in a city.

Financing these types of facilities can be challenging and also can be handled by a number of different approaches. Each one has its pros and cons depending on how you look at them and whether you are a developer or not. In Becker we have chosen a number of different approaches to address the costs for infrastructure with charges and fees that support their establishment and replacement. Some infrastructure is supported by taxes, but most are not. They are largely supported by some form of user fees.

One of these mechanisms is that of Trunk Charges. Through a study of the infrastructure needs for water, sewer, and storm sewer the city looked at the need for trunk facilities that would be needed to serve the community when fully developed. Trunk facilities are the wells, water towers, lift stations, and over sized water and sewer mains as examples. They are primarily items we all need for the properly functioning systems we use, but serve the whole rather than individual households. Once we quantified the needs of these types of systems we attached price tags to them, looked at the comprehensive land use plan to ascertain densities of development and determined the “price” for trunk facilities of water, sewer and storm sewer. This becomes a fee a developer pays to the city for developing in the city. This charge is based on a per acre cost for the amount of land developed. In exchange the city pays for and installs these trunk facilities that provide development with the needed public improvements.

In managing this system a few things stand out as concerns. One involves the time of development. The city council in controlling trunk facilities controls the extent of development through capacity in the trunk facilities developed. They also control the timing of construction of these facilities. If a developer wants to move ahead of the city with development and the city doesn’t have the resources to install it, the developer can install these trunk facilities at his expense. This comes with a few provisions. The council needs to be agreeable to the situation, the developer pays all costs associated with the trunk facility that meets our expectations and the developer is not given credit for the trunk facility he installs. He is still expected to pay the city for the trunk costs associated with his development.

One of the cons to this approach is that of cash flow. Essentially the city has to finance the establishment of a trunk facility prior to development taking place. As such, early on there are expenses without cash support. In the middle term cash flow seems to meet needs. As the city becomes more fully developed, cash flow becomes less of an issue. In recognizing that problem a slow and deliberate approach is utilized in managing growth.

There are other methods Becker uses to recover costs which I’ll address another time. Keeping finances in perspective helps in managing growth and its consequences. In the end, maintaining control is in everyone’s best interests.

The Bottom Line at Pebble Creek

Each year the city council sets rates for Pebble Creek Golf Course, this year being no different. The discussion however this year centered around a change that would make the course profitable. Pebble Creek has not made a profit since 2001. There are a number of reasons for the change, most notably that of an increase in golf courses but also a declining number of players.

Pebble Creek continues to be a fabulous golf course in excellent condition. The goals of the council continue to be to maintain the course to that extent but also to bring the charges in line with the costs of running the facility. Steps have been taken to reduce the maintenance budget this coming year by 5-6%. This is on the heads of a reduction in maintenance expenses over the past couple of years.

Looking at balancing the budget, revenues were looked at along with the mix of play between season pass holders and green fee paying customers. It was noted that 75% of the play on weekends was played by season pass holders. With weekend play being the premium time, this is when the course needs a stronger mix of green fee paying customers to generate revenues.

Another factor in dealing with revenues is the cost for a season pass. With many members playing a large number of rounds of golf their cost per round was very low in comparison to green fee rates. This is the advantage of a season pass but the benefit to Pebble Creek was felt to be inadequate in terms of the price paid for a season pass. Making an adjustment to these rates was needed to meet the revenue requirements of the facility along with a rate that was fair and comparable to other area golf courses.

In reviewing these factors and accomplishing a business plan to address expenses and revenue needs a partial change in direction was needed. What was proposed and accepted by council is one season pass rate of $1200. This is an increase of slightly over $200 for non-residents but a large increase for residents of a little more than $500. We recognize that some members will not participate at that rate but part of the goal is to see more green fee paying customers. Freeing up playing time during prime times in the weekend is a benefit with the change of player mix.

The bottom line is we need to change the bottom line and we felt making these changes will improve the finances of Pebble Creek. Without these, the fund balance for golf will run in deficient. The city no longer has an option to keep rates as low as they have been but rather run the course as a business while maintaining a positive cash flow.

Periodic Financial Reviews

Periodically we look at the long term debt of the city and see if there are opportunities to make a change that benefits the finances of the city. Recently that effort was done concerning a couple of issues. The first involved the Tax Increment District 1. This district was established about 24 years ago with intended development to occur along the frontage road, most of which occurred in the area of Sherburne Avenue and Highway 10. There was also development that occurred along Bank Street as part of the original district. Tax Increment takes the value before development and freezes it at that rate and when development occurs a new value is determined. The property owner pays taxes just like any other property but the “increment” between the before and after value creates a tax that is collected separately and used for economic development purposes.

As development occurred the city collected increment to offset costs associated with public improvements. The area of benefit expanded in 1994 to include a larger improvement district and as debt was incurred the proceeds of this district were pledged to debt service for the 1996A Tax Increment Bonds.

As time progressed and revenues were collected the city recognized that these bonds could be called as adequate revenues were available to pay off the debt. As there were sufficient revenues to address the debt the need to continue the Tax Increment District was unnecessary. Dealing with that the city decertified the Tax Increment District which places the property within that district out side of a tax increment district becoming part of the entire tax base of the city.

With the early payment of the bonds the city was able to reduce the required levy to met bond requirements recognizing an impact of approximately $35,000 per year. The city also saves in interest expense over the remaining life of the original issue for the bonds that will be paid off. These bonds also had assessment income pledged to debt service so with the bond paid, that revenue comes to the general fund until the assessments are paid in full.

Managing debt service involves more than making payments and keeping the books. The benefits of periodic reviews of debt service seem to be apparent with this example. The tax payers of the City of Becker become the winners when these actions are taken.

Advisory Committees

The City of Becker has a few advisory committees that are served by residents of the community. These include the Planning Commission, Economic Development Authority and the Park and Recreation Committee. Each year terms expire for incumbent members which allows for others to participate in serving their community in an advisory role. These position are voluntary however a per diem is paid.

For 2008 the city has 2 seats on the Planning Commission that will expire and one seat on the Economic Development Authority that expires. If anyone is interested in applying for these positions please request an application. You must be a resident of the city to apply. We have posted a form on the web site at www.ci.becker.mn.us or a copy can be mailed out or emailed as you prefer. The number at city hall is 763-261-4302. Requesting a copy by email please use nfiereck@ci.becker.mn.us.

Hockey Arena

Hockey Arena

The Becker Big Lake Ice Association has been diligently working on a plan to provide an ice arena for use by Becker and Big Lake participants. This organization has worked hard to address ice time needed to practice and play. They recently have submitted a working plan to provide for an arena in Big Lake on property they acquired in the Big Lake Marketplace.

Their plan provided for a joint powers board to be established among those entities that would participate in the funding of the facility. Having the facility on property owned by the association not only would diminish some of the costs associated with construction it would allow the Association to use that as collateral in seeking a loan to finance a portion of the facility. The association also intended on providing additional funding for construction costs. They had asked the cities of Big Lake and Becker for assistance with the remaining costs of construction. They had also wanted to seek participation from the associated townships as well.

In allocating costs the Ice Association devised a formula using 4 factors. These factors were (1) population and number of skaters (2) budget (3) users and (4) responsibility. These factors were used in conjunction with each other to determine an appropriate share of costs, and benefits, of an ice arena.

The city council held workshops to discuss and address questions concerning the proposed facility. As part of the follow up, alternate locations were also discussed and the impacts of cost shifts as a result were also reviewed. The council was impressed with the Ice Association’s level of organization and will to fulfill the association’s dream of an ice arena. There was a good deal of honest hard work accomplished to find a proposal that was fair for those parties involved.

The council discussed the matter at its November 6^th meeting and felt the City of Becker was not willing nor in a position to participate at this time. They cited location and cost per participant as issues. They also felt our present tax base situation did not lend itself to financing. They did feel this to be a good project but difficult to participate in.