July 22, 2013 Work Session

Attendance:  Reinhardt, Hughes, Williamson, Bren, Sippel, Engineer Pearson, Attorney Beck, Administrator Tolsma, Clerk Lewin, Superintendent Goman.  Bruce Kimmel from Ehlers.

 

  1. BRUCE KIMMEL – STREET LIGHT FINANCING DISCUSSION
    1. Bruce Kimmel from Ehlers will be in attendance to discuss the potential for financing the street light project and answer any questions from the council. –

Reinhardt explains Kimmel is the city’s financial advisor.  Kimmel said he’d be covering existing debt from 2010 and talk about new money.  Kimmel said there is one existing debt issue that financed several projects.  He said the city has a S&P AA- rating, which is extraordinary.  He said the present bond issue is year 2011-2025.  Kimmel said yields are the key thing and they’re on an uptick with interest rates.  He said bond issues can mash a lot of things together but to the investor what matters is if it's GO, tax exempt or the credit rating. 

 

Kimmel said typically the council decides what to bond for, how much and a repayment schedule.  Kimmel said it makes sense to bring to benchmark examples for consideration.  The first one is street lights for $540,000 to fund $505 of project costs and 35K for credit rating, bond attorney and financial advisor fees.  Williamson asked why ten years.  Kimmel said under state law there is a maximum term of ten years of repayment.  He said using this as an example they ran it for ten years.  Kimmel said he spoke with Mary Ippel about financing the street lights.  He said a lease revenue bond is a rent to own  He said the lease bond is a higher interest rate than a GO.  He recommends exploring the lower interest rates.  Williamson said the useful life for the existing lights are 25 years so a  depreciation schedule for the new ones should approximate that.  He would have hoped the financing could be more like 15 years.  Kimmel said the state forces a faster amortization and  he agrees about useful life but their hands are tied.  Kimmel refers to lessening the impact of $1,000,050.00 to finance street lights and public works facility over 15 years. He said a street light only bond is all inclusive of 2.55% and on the bigger bond TIC of just over 3% is some context on the ranges. 

 

Sippel said on the 2010 bond there was a bidding process where the rate was offered and variable.  Kimmel said the rates are fixed.  He said variable rate debt can be issued but most cities fix.  He said the larger the bond a higher debt levy and all levy numbers are at 105% due to cities promise to levy that amount in case of collecting less than the debt amount.  They can be canceled every year after as they are repaid.  Both options are ran as level debt service over ten and 15 years respectively.  The new debt service could be ramped up starting at a lower rate.  Interest would be slightly higher due to low interest rates.  An extension of existing debt bond could be extended beyond 2025.     

 

Kimmel said regarding street lights, that term is no more than a ten year term, if payback of a public works facility and payback with property taxes, the PW facility could be stretched out a little more.  He said there are creative ways.  Kimmel said it would be reasonable to pay back debt service from the utilities.  He said a lot of communities pro-rate and use utility enterprises.  He’s assuming this is all coming from the levy.  Williamson said they talk about matching the depreciation schedule with the debt schedule.  Kimmel said if the rate curve really goes up, then they might look at useful life of the debt ratio but the sweet spot should be strived for with the lower interest rates.  Reinhardt said with the last bond issue an appropriate amount was discussed.  She remembers under a million was questioned about paying the same fees.  Kimmel said for very small amounts borrowed, they will typically go to banks.  He said $35K of total costs of issuing for the street light projects and $45K for twice as much money for the larger sum borrowed.  He said if there is crowding in the market, investors pay more attention to big bonds.  He said smaller bonds typically have higher interest rates. 

 

Reinhardt asked about being in the midst of public works building when bonding and knowing street lights are ordered but there are projects still out there, she wonders about when bonding for unknown.  Kimmel said bond when the money is needed.  He said the market can’t be timed and there is no right or wrong answer.  He said the PW part of the bond issue would be a CIP bond.  He said a public hearing would have to be held and bonds could be issued and have flexibility to divvy the money.  Reinhardt asked about perhaps a lift station, perhaps a street.  Kimmel said it would be a different statutory authority.  Williamson wondered what if the project wasn’t carried out.  He wonders about latitude and legality.  Kimmel said it’s not a good position.  He said the best would be to pay off the debt service.  He said it’s important to know what the money is going to be spent on.  He recommends bond proceeds being spread out over a number of things and cash could be used to fill in the gaps as clarity is important. 

 

Goman asked about bonding and then not going ahead and can the bond be used to pay off existing debt.  Kimmel said the 2010 issue, categories were covered so, it’s probable.  Kimmel asked about a working estimate of $4-500,000.  Kimmel asked if some cash could be put towards that project.  He said a document and public hearing could say the city is considering bonding up to $400K for a public works facility.  He said that way, it’s not over bonding.  He said the vast majority has been bonded for but if the cost goes higher, cash could be used to pay the difference.  He said it’s better to bond lower than higher.  Sippel said a resolution was passed to bond for the street lights and Kimmel said the marker has been placed so they are set.  He said they’re meant to prevent cities from bonding for things that were done previous.  Sippel said he doesn’t like to predict what we would spend it on.  He said he’d rather the bond be spelled out. 

 

Beck asked about the time frame for bonding.  Kimmel said a presale report, actually recommended terms and conditions and rates could be by the next meeting. He then said bids from the market are taken and the bonds are awarded to the bidder.  It’s typically about a month so he said by early October would be about when the cash would be issued, usually around two months or less.  Williamson said cash could be used but they’d be losing out on using other people’s money and depleting the reserves.  Williamson said the other option is to not do anything.  He said Bandaids could be put on and a fix-it-when-it-breaks approach.  Reinhardt said she had a resident ask how the street lights were going to be paid for and wondered if this resident could bid on the bond.  Kimmel said a direct purchase bond agreement could be entered into.  He said it would have to be a bond.  If they had to go to the market the bond buyer could make an aggressive bid to buy a big chunk. 

 

  1. 2014 PRELIMINARY BUDGET
    1. Included for review are a staff memo, the preliminary 2014 budget, and an updated capital improvement plan. 

Tolsma said the assumption was based on keeping the levy flat to see where the numbers came in.  He said he accomplished it but a $19K general fund transfer was used.  The rental of the PW facility was figured at 24K for the year the GIS was figured at $3K.  Tolsma said compensation, for the ease of budgeting he starts with 3% and increases line items that deal with increased compensation.  He said the numbers were taken from the League’s guide.  He said health care premiums will not be finalized until September.  Reinhardt said regarding the 19K transfer, $100K was transferred back into the general fund last year.  She said they’ve been flat since 2009.  She said she doesn’t like drawing down reserves and she would be comfortable to putting it back to $980K and not plan on a fund transfer. Police and fire budgets are still unknowns according to Williamson and the Historical Society request is not factored in.  Hughes said the LMCD had a budget increase and he thinks the fire budget will be discussed at their next meeting.  Williamson said he added up the debt service of  $82,626 and depreciation of $185,000.  Sippel asked about the revenue and the substantial jump from the water fund, 601.  Tolsma said that includes the revenue from the water tower leases so this is offsetting the costs.  Goman said the increase for the fiber optics is adding to the increase. 

 

Sippel said on expenditure side there is a substantial jump.  Tolsma said it’s already at 80% this year.  He said he discussed with Farniok and what happened, at one point PERA, Fica and Hosp (hospital insurance) are separate line items and they were grouped and the budget didn’t reflect this.  He said they’ve been under-budgeted as a result.  Sippel asked why it wasn’t carried through and Tolsma said administration was the only one that wasn’t broken out correctly.  Sippel said he’s wondering where the numbers came from.  Tolsma said he could go back and find an older one and see where the 2012 and 2011 numbers were.  Sippel asked about a different report that doesn’t allocate it out showing a grand total of the departments instead of divided out according to the allocation.  He would like to see the aggregate totals.  Sippel said he’d like to see it on everything.  Hughes said for tree maintenance under building and grounds fund, 316 and 317, some was budgeted this year but nothing has been spent.  He said there was discussion about what was going to be replaced.  Tolsma said building and grounds is strictly around city hall.  He said going to page three and half of page four is street department. 

 

Reinhardt asked about other unknowns besides police, fire, health insurance.  Tolsma said the snow budget is always unpredictable.  Williamson said it helps to look at a three year average.  Hughes asked about the TCE's.  Tolsma said that’s included in the CIP.  Williamson thinks it might not be fair to incorporate this into the annual budget and it should be capital investment instead.  Reinhardt said it will be interesting to see about street light savings with the new streetlights. Tolsma said the sales tax will be a savings as of January 1st and the invoices will have to be watched closely to make sure we’re not being charged.  Reinhardt asked about the timeline.  Tolsma said September 16th is the date to take action on the preliminary levy. Williamson reminds that everything needs to be added in by then and it can be adjusted lower before December.  Tolsma wonders about an extra meeting and the sense is it’s not necessary as they’re close.  Reinhardt asked how the PW’s lease was factored in. Tolsma said he just scrutinized the budget finding places that money has been budgeted but not used. 

 

Williamson said nothing is locked down tight.  He said perhaps another reserve fund should be started with some money for the TCE’s.  It shouldn’t be called that but something that can be started for this potential.  Goman said even the annual costs to replace the filters would come from the superfund created as a result of the contamination.  Williamson thinks it still might be worthwhile so there isn’t a distortion in the future.  Reinhardt said the money could be levied and put into a public improvement revolving fund but she’s not sure she wants to separate it and name it.  Hughes asked about the dynamic sign proposed with the county.  Goman said there is a meeting tomorrow.  Hughes said the last he heard they want to put a dynamic sign at the Narrows and Arcola bridges.  Williamson said he thinks this is one of the best preliminary budgets he has seen.  

 

2013 CIP plan. 

Tolsma said everything has either been discussed recently or a carry over from the older CIP.  He said the rotary construction is always on the CIP but is vague until street priorities are determined and if anything is going to be done.  Hughes said he thinks road construction with or without curb and gutter depends on the watershed and stormwater runoff needs to be considered.  Streetlights is priority number one and public works is at the top.  Drainage, sidewalk repair, radio read meters and ash tree replacement.  Tolsma said they’re not sure about the prioritization.  Trees are being treated at present but it may become necessary to replace the trees.  He said life expectancy of corridor trees is 30 years and they’re 15 years into the life of the present trees.  Williamson said tree disease is endless.  He said there is always something. 

Shoreline Drive retaining walls.  Goman said there are walls in front of Pres Homes, Lk Mtk Motorsports, Edgewater Apartments.  He said an assessment was done and pushing out is increasing about 5% per year.  Reinhardt asked about the age and Goman said they were built in 1988.  Williamson wonders about Hennepin County’s responsibility and Goman says there isn’t any.  Williamson thinks this should be investigated as it’s necessary to ask.  Reinhardt wondered what needs to be decided on this, especially for 2014.  Reinhardt said this is always presented but nothing ever gets done.  She wonders what the intent is.  Road inventory has been previously done and Reinhardt asked Pearson if he can work off of previous.  Bren said she reads minutes of other cities and every year there seems to be a street project and as a result the streets are in good shape.  Goman said if there isn’t a street project, he pushes for a lift station.  Reinhardt wondered about a street and a lift station at the same time and Goman said yes, it’s possible to do both at the same time.  Sippel thinks the inventory needs to be updated including utilities because the previous street survey was just streets.  He thinks the streets can be assumed to have deteriorated at a similar rate.  Pearson added unless there was exceptional usage due to construction projects. 

 

  1. STREET LIGHT INSURANCE COVERAGE
    1. Included for review are a memo from the last city council meeting regarding street light coverage and a printout from the city’s insurance agent showing annual savings by switching to a higher deductible. –

Tolsma said this was requested at the last council meeting for the annual savings with a different deductible for all the insurance, not just street lights.  Williamson said he didn’t see a big difference, you save $500, you spend $500.  Williamson thinks it makes sense to add the street lights to the policy and reanalyze in a year.  He said he’s not impressed.  Sippel suggests going for the $2500 deductible and don’t add the street lights.  Reinhardt said she would be in favor of including the street lights and in favor of increased deductible.  Williamson is in favor of including the street lights, not increasing the deductible and looking again at it next year. 

 

  1. WATER TOWER DISCUSSION
    1. Included is a memo from City Attorney Nancy Beck giving a brief description of events dealing with the paint finish of the water tower. 

Beck said the memo included describes the current condition of the water tower and Tolsma and Goman have more details.  She summarized the points in the memo and advised the council that she’s engaged a litigation attorney for consultation on this. Since the estimated cost of repairs exceeds $100,000, litigation is worth considering.  The goal is to reach a settlement with the contractor if possible. She said a demand letter has been sent to Maguire Iron stating the work is defective and needs to be fixed. The response is they stand by the original proposal for minor repair work and the warranty has expired.  She sent a follow up letter to Maguire Iron and is waiting for a response. Sippel asked if the industry standard for the work is for 15-20 years, why was there only a two year warranty?  Beck said a 2 year warranty period is standard for construction contracts, but a contractor’s obligation to repair defective work is not limited to the warranty period.  There is a 2 year statute of limitations for suing a contractor for correction of defective work starting from when the city was aware that the work was defective. The reason for this is that defective work often does not show up until after the warranty period has expired. Hughes asked about water quality.  Goman said water quality has not been affected yet but this is something that needs to be taken care of.   

 

  1. MEETING FOLLOW UP
    1. City Attorney Nancy Beck will follow up on the July 11th special meeting and discuss the next steps for the city. –

Beck prepared a summary of the health department report presented and a summary of the PowerPoint.  She said it takes out the science and geology and highlights issues with respect to the city’s water supply.  She said the city’s water supply is governed by federal drinking water standards.    She said until 2013 the state used the same guidelines but recently adopted new guidelines.  She said the standard the city needs to meet is the five parts per billion and the city’s treated water supply is well below that level.  Beck thinks it would be helpful to correlate dates of test results to which well was running at the time of the test.  Williamson questions that because what’s being pumped might not be the water that is tested.  Goman stated that the water tower fills and empties several times a day so we can determine which well the water came from for the test dates.  Beck asked how the city determines which wells are used.  Goman said it’s based upon the DNR permit.  Beck said the Federal standard is being met so there is no legal obligation to do anything at this time. Williamson said there needs to be more information.  He said it’s obvious the city wants to do the right thing.  Goman said it’s on their radar now so continued testing will be done.  Sippel said he thinks the city should be transparent.  Beck passed out an initial draft of something that could be shared with the residents.  Open, accurate, factual is the best informative process according to Williamson and Sippel.  Reinhardt suggests the council read through Beck’s draft and send comments to Tolsma. 

 

  1. MISCELLANEOUS
    1. Mound Fire Department press release. 
    2. Hughes asked about the Eagle Scout project.  Tolsma said he met with the Scout today and three options were discussed.  He said the historical kiosk seemed to peak the Scout’s interest so he’s going to discuss this with his Scout master.
    3. Goman said there was an after-action storm meeting with emergency management and the county’s response to trees, drainage, traffic signals.  He said there are some decisions that need to be made on the city’s behalf as it affects the county roads. He said there was disagreement regarding responsibilities. 

 

Meeting adjourned at 9:56 p.m.