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2012, 06-12 Special Retreat Meeting Minutes MINUTES SPECIAL RETREAT MEETING SPOKANE VALLEY CITY COUNCIL CenterPlace Regional Event Center 2426 N Discovery Place,Room 213 Spokane Valley,Washington June 12,2012 8:30 a.m. Attendance: Councilmembers Staff Torn Towey, Mayor Mike Jackson,City Manager Gary Schimmels,Deputy Mayor Cary Driskell, City Attorney Brenda Grassel, Councilmember Mike Stone,Parks and Recreation Director Dean Grafos, Councilmember Mark Calhoun,Finance Director Chuck Hafner, Councilmember John Hallman, Community Development Dir. Arne Woodard, Councilmember Steve Worley, Senior Engineer Ben Wick, Councilmember Kelly Konkright, Deputy City Attorney Rick VanLeuven,Police Chief Others Present Morgan Koudelka, Sr.Administrative Analyst Bill Bates, Chair Planning Commission Michelle Rasmussen,Administrative Assistant Rod Higgins, Planning Commissioner Carolbelle Branch,Public Information Officer Nina Culver, Spokesman Review Ashley Stoltz, Legal Intern Diana Wilhite, Citizen Raba Nimri, Accountant/Budget Analyst Deanna Griffith, Administrative Assistant Deven Nickerson,Administrative Assistant Chris Bainbridge, City Clerk At approximately 8:30 a.m., Mayor Towey called the meeting to order and welcomed everyone. After self-introductions by Council and staff, Mayor Towey extended thanks to staff for their work in putting this meeting together and the accompanying materials; and reminded everyone that the objective today is discussion of ideas and options and to use that discussion as a guideline for the 2013 budget. Mayor Towey said that our City is better financially than most cities now, but we have a long way to go and said he is sure changes will occur between now and when the budget is actually adopted later this year. City Manager Jackson said today's objective is by the end of the day, to make sure council concerns are addressed, and that the budget sheets are thoroughly vetted so staff has direction from Council as we work to prepare the actual budget. He said the main focus includes the financial objectives, then determine what Council wants to accomplish from today's meeting; he said all the information is in the worksheets; the department heads have been through a"snapshot"of their own budget; but that during the overall process, we might discover some things we wish to change; he said that the budget is 1/2 of 1% over last year's budget, so we could find we need to put things back in, or take other things out; he said the idea for today is to discuss what's relevant, including economic development and revenues, and how we'll provide what we need to provide; he said he plans ending today's meeting with a wrap-up discussion on the ending fund balance, which will also be discussed more tonight under street preservation by Engineer Worley. Mr. Jackson said we could find by the end of 2013 that our ending fund balance might not be $26 million, and if so, it could mean we're not accomplishing as much preservation as we had anticipated. City Manager Jackson led the discussion on the financial objectives. Financial objectives listed on the white board(taken from the business plan): Special Council Meeting,June Budget Retreat:June 12,2012 Page 1 of 19 Approved by Council: July 10,2912 * 2013 Budget — Maintain basic service levels with reduced resources to maximize funds available for street preservation. * Current budget worksheets reflect%of 1% increase over 2012 expenditures. 1 The general fund balance minimum set at 15% It was stated that 15% is not sufficient to help in any economic downtown, and Mr. Jackson said staff will be recommending we keep the$26 million general fund balance. Suggested New#1: "Maintain 36%minimum general fund ending balance." 2.Maintain the same Service Level Stabilization fund at current level of$5.4 million through 2015. 3. On an ongoing basis, transfer to the Street Capital Fund, 40% of the ending fund balance which exceeds $26 million. This will be done in the first quarter of each year following reconciliation of the previous year's books. This preserves the City's $26 million ending fund balance while also funding a portion of street capital projects from the General Fund. Mr. Jackson said the description would be more accurate to call it"street capital preservation projects." 4. New- increase property tax by 1%plus new construction. Mr. Jackson said that of course these suggestions are subject to council input. To explain the history of our property tax levy, Mr. Jackson said that when this. Council came in in 2010, the City had passed a Finding of Substantial Need and increased the 2010 property tax by 1% plus new construction; when Council later asked if that could change, they were told it could not but staff suggested an alternative would be to take the $100,000 that represents 1%, and set that aside for 2011 and put that toward our assessment, which affectively reduced the taxes; and said there was no increase in property taxes for 2012. Mr. Jackson said that adds up each year, and the 1% increase to the citizens represents less than $3.00 a year, or about 300 a month, which he said is a very small amount and all it does is try to keep up with inflation. Councilmember Woodard asked if we continue to not take the increase, can we go back for an accumulative total. Finance Director Calhoun explained that if it is not taken, it becomes like a banked capacity; and that now it is about $250,000, but a year ago it would have been greater; he said it moves around depending on the assessed values of the city. Mr. Jackson said the accumulative impact of that money over time is even more powerful, as over the years it would be about two to three million; and said in reality.it's just keeping up with a fraction of inflation; that inflation over the last few years was about 2.5% each year where as the maximum allowed property tax by law is 1%. The direction to department heads this year, said Mr. Jackson was to maintain the basic service levels with the reduced resources used to maximum funds available for street preservation; to run as efficiently and lean as possible, but provide the services; and he said although they are not budget proposals, the scenarios of three, six, and nine percent reductions were built into the worksheets, with each reduction representing a substantial decrease in services. Mr. Jackson also noted that over the past few years we have"squeezed about$3 million from the budget" and said that includes about nine vacant positions. He further explained that most line items expenditures in 2013 will not exceed what was actually spent in 2011; but just to keep up with inflation,we would need an increase in the budget while allowing room for efficiency; and said each department displayed an excellent effort to keep the ''/2 of 1% increase. When Council was asked if there were any missing components or if Council would like to see a different approach, Mayor Towey asked if we assume inflation at 2.5% and we have 1/2 of 1% increase and there is a shortfall, where would that money come from. Mr. Jackson replied that as we work through each department budget, we'll show where the money comes from and what the corresponding services in reduction would be; he said reductions could come from a variety of places, for example, in the Deputy City Manager Budget we are no longer doing a community-wide survey; he said reduction in services Special Council Meeting,June Budget Retreat:June 12,2012 Page 2 of 19 Approved by Council: July 10,2912 would come out of the general fund; and he stressed that the goal is to spend as little as possible and increase the carryover. Finance Director Calhoun then gave an overview of the budget worksheets; explained that there are twelve sections in the book including department budgets; and said each department produced budget sheets showing line item expenditures and what was actually spent in 2011, and what is proposed for 2013. He discussed some of the recurring and nonrecurring activities and the percentage increase or decrease in each department; then said that the sales tax estimated increases are based on what we have been experiencing; he noted State shared revenues are down by over $298,000 which he said, is reflective of the state legislative adopted budget eliminating the distribution of excess taxes. He also noted that the ending fund balance for 2013 has less than $26 million; and said the hope is always to have revenues come in higher than expected and expenditures come in lower than expected; he said for the past few years, we have done a great job keeping expenses down. City Manager Jackson said sales taxes have increased only slightly but in looking at the projections,there are a lot of opposing forces working against us, and the reduction in State shared revenues has and will have, a huge impact. Mr. Calhoun also noted that these figures will change between now and when the budget is actually adopted. Mr. Jacksons said as we look at 2012, we note we have spent more money than the City took in in revenue; he said the expenditures were used for good purposes, but any time you spend more than you bring in, there is cause to reflect on the method of spending; and said this time, it is due to nonrecurring expenses on street preservation; he said we call it "nonrecurring" but it is always ongoing; and he emphasized that for the first time in this City's history,we spent more than we took in. Mayor Towey said that since emphasis now is street preservation,we must make sure we have a revenue stream for that; he said we started with 100%over$26 million, but it seems now the 2013 budget will fall below that $26 million estimate; and said we need to either lower the threshold, or determine an outside revenue source. Councilmember Grafos said the sales tax projection from the 2012 budget has a projection of 6.2% increase in 2013, but said that is not based on the revenues, which he said would be the correct way to do it; he said that Mr. Calhoun is using the original number, so if we took the 14.2 and added back what we're increasing, the ending fund balance would go up going into 2013 because we're doing an accrual system in lieu of revenues coming in after the fact and that makes it more difficult to project into next year. Mr. Calhoun said he calculated the sales tax based on what we've received for the four months this year as well as historically what we received in the first four months of other years; he said that is a fairly good projection, but there is no way to project that number precisely. Mr. Calhoun explained the sheets showing the figures from 2009 to 2012 each year and how the general fund balance actually decreased; he went over the FTE history (full time equivalent), said the high year was 2010 and we have dropped nine and one-half positions in one year and that overall, 2013 reflects about 1.375 fewer FTEs for a total FTE count of 85.875. City Manager Jackson said it doesn't mean we won't fill those vacant positions at some time in the future. Mr. Calhoun also have a brief history of CPI(Consumer Price Index) and its yearly fluctuation, and summarized by stating that the average CPIU increase was 2.48%; the average CPIW was 2.54%, and the average social security increase was 2.6%. City Manager Jackson said that the main point is, inflation is real, and when we have a budget that is less than inflation, it puts pressure on the budget; he said if you want to continue the same services, a rate of inflation would be included in the budget; that we can make budget cuts but said that you reach a point, and said we are getting close to that,where you reduce services to a point where it has an impact, such as in response time to people; the said we have an outstanding staff doing everything they can, and said we need to realize that; and again said the objective is to provide services, and that it takes resources to provide those services. Tab #1: General Government and Legislative worksheets Finance Director Calhoun gave an overview of the worksheets explaining some of the figures such as the $50,000 set aside for retirement and Labor and Industries; and a contingency figure of $350,000 to Special Council Meeting,June Budget Retreat: June 12,2012 Page 3 of 19 Approved by Council:July 10,2912 provide some coverage in case some departments are too tight on their projected increase. Mr. Jackson further explained that when we reduced the budget last year, we initiated the contingency, and reminded Council that staff had that discussion with the Finance Committee, and said this is so if something does come up, we won't have to come back to council, and said so far, we haven't had to use those funds or come to council to explain that we have fallen short; he said once we establish the budget, we try to meet it, so this covers whatever may come our way that is not anticipated; and said it could even cover something in Public Works, but not from the street or stormwater fund; we said we still have a small amount in public safety, and at one time had $1 million to cover any increase in cost for public safety, but said that has now been reduced to almost nothing. Mr. Calhoun said our current City Hall lease expires in 2013. Mr. Calhoun said that IT support includes cost for monthly server maintenance and staff continues to research the idea of bringing in a full-time person to work on"help desk"problems, thus freeing the IT staff to do other more involved work that we are currently paying a contractor for; and said our staff could handle those duties for a fraction of the cost of the contractor, and having the additional staff member, would still mean spending less overall. Mr. Calhoun mentioned that the audit will be performed this year at a cost of approximately$85.00 per hour; that they budgeted$90,000 for the audit in 2011 but the actual amount was $68,000;and estimated this year's audit at$70,000. Legislative,City Council: City Manager Jackson said there were some minor changes such as office and operating supplies reduced from $3,500 to $2,000. Councilmember Grassel asked why there is an increase in payroll taxes and benefits, and Mr. Jackson explained the increase is primarily due to insurance coverage. Mr. Calhoun said every year those figures change based on the individual's coverage;and said the health insurance will increase about 10% each year and that Asuris premiums went up about 11% and Group Health premiums increased about 7%; and confirmed those figures are just for Councilmembers. Mr. Jackson said staff can get the actual breakdown on the health care cost increases later. Mr. Jackson mentioned they were able to more closely project the actual cost of the lobbyist at $38,000; and now that we have some history of broadcasting council meetings, that figured was reduced to $42,000. Mr. Jackson said travel increased some most likely due to the increased cost of airline travel and hotels; and mentioned that Councilmembers share those funds. Tab #2: Executive and Legislative Support Mr. Jackson said this is the City Manager's budget, and he referenced page 31 of the Business PIan concerning impact of budget reductions; he said the largest change is the reduction to meet the 1% of the professional services line item and that figure was cut in Half; he said we normally use Prothman Company to recruit for new department heads,but we could use other consulting agencies as well;he said occasionally we use outside legal counsel and if we had to go over-budget, the contingency could be used; he said there is a slight increase in travel and mileage as the City Manager's car allowance was not previously budgeted. In response to comment from Councilmember Grassel about the increase in wages, Mr. Jackson said this represents a 2.5% increase and that the new contract has not yet been negotiated. Mr. Calhoun said we are using that figure as a holding place throughout the budget. Tab#3: City Attornev/Le2a1 Support City Attorney Driskell explained that his office consists of two attorneys, one administrative assistant, and two interns; that the bulk of what his office does is drafting and reviewing contracts and ordinances, and the overall structure of the City; he said the difference in wages is mostly due to not having a Deputy City Attorney for most of the year; he said training was reduced; and he said his office relies heavily on on-line publications, and have virtually no hardbound publications except for the RCWs(Revised Code of Washington) and WACs (Washington Administrative Code); he said they occasionally use outside council but at an average rate of$250.00 a hour, they try not to unless there is a need for a particular expertise, such as in the case of Shoreline Management. Special Council Meeting,June Budget Retreat: June 12,2012 Page 4 of 19 Approved by Council:July 10,2912 At approximately 10:00 a.m.,Mayor Towey called for a break;the meeting reconvened at 10:15 a.m. Tab#4: this&Admin Services Mr. Jackson said page 39 of the Business plan outlines the Operations and Administrative Services Department, which includes human resources, central reception, and public information. He explained the vacant positions include a Deputy City Manager and an administrative assistant to the Deputy City manager; and to meet the 1%reduction, said there is not a lot of room for reductions as this department is mainly people; they have switched to doing the annual survey to every other year; and noted the copier maintenance was zero in 2011 as it was previously funded under general government. Councilmember Woodard said the Deputy City Manager has been vacant for about two years now and he asked if Mr. Jackson plans to continue with that vacancy or remove the position, and he asked about the administrative assistant position as well. Mr. Jackson responded that he has taken a hard look at that position and it needs to be filled; and said it would be shortchanging the City if he didn't fill it; he said he has taken his time with that position, that he has been focusing on hiring department heads and waiting to see how everything settles out and said he has been more involved in operations and less involved in legislature, and said he should be spending more time with the constituents rather than buried in work; he said he can wait to fill the position and mentioned the aspect of economic development; he said the City's real emphasis should be infrastructure and focus on what we do well like roads, bridges, and parks; that if we start to move into marketing or other economic development activity that our partners are providing, we start to step out of our realm of expertise. Mr. Jackson said this kind of work takes considerable training and is a profession in itself; and to think we can piece this together with staff simply won't work in the long term, as the right choice for this position is someone with economic development background. Mr. Jackson said for every employee we have, we must get 100% from them; and every time we have a vacancy we re-write the job description to make sure we hire the person to give us the most value for the organization; if council wants to remove it, he said he can bring this back later but the intent is to fill the Deputy City Manager position when he is ready as it leaves a hole in the organization and there is more work than one City Manager can provide on a sustainable basis and that it has become obvious that the amount of work we have in this City is large and it takes an extraordinary amount of time to prepare for each council meeting. Councilmember Woodard asked if when Mr. Jackson has to be out of town or on vacation and someone is delegated as the Acting City Manager, if there is an increase in their pay. Mr. Jackson replied there is not; as that has been a favor and courtesy that department heads are willing and able to do. Mr. Jackson explained that we have an extremely flat organization structure; that it is rare to see a Deputy Community Development Director or a Deputy Parks and Recreation Manager, and said that is one of the ways we hold down costs; that when a Department Head has to be gone, they rely on staff; he said it is efficient and saves us money and we do it because our focus is to hold down costs and not grow the organization. Concerning economic marketing, Mr. Jackson said in examining an organization, you look for where the void is and plan accordingly; that every time we add a park, like the Old Milwaukee Trail, we add future costs to the City; and said we need to consider that whenever we add a new facility. Mr.Jackson said it is his understanding that the Economic Development Ad Hoc Committee is working on a plan, and when they make a report, a decision can be made if we are going to add a program, and if so, what resources will be needed; or to continue to work with our partners. Conversation switched to the City's upcoming Tenth Anniversary and Public Information Officer Branch noted there are no funds dedicated in that regard. Mr. Jackson said staff will need to add that under general government. Tab#5: Human Resources Human Resources Manager Whitehead said some of the changes they are working on to reduce the budget include such things as not requiring a pre-employment physical for every employee but instead examine which positions include a physical component; he said advertising is one of the biggest expenses Special Council Meeting,June Budget Retreat: June 12,2012 Page 5 of 19 Approved by Council:July 10,2912 and they are working on a plan to reduce that by implementing an on-line system; that regarding training, they are planning to bring courses to all employees, Iike safe driving. Mr, Whitehead said the Health and Wellness funds do not include the $8,000 annual savings we realize by having the Wellness Program; and he briefly explained that some of the health care increases are based on experience throughout the state. At Council request,Mr. Whitehead also explained the various benefits city employees receive,which lead to further discussion on the difference between social security and retirement benefits and whether retirement is mandatory, and what the percentage is that the employee pays and what percentage the City pays, with Councilmember Woodard asking about the possibility of letting employees own their own system instead of paying into a state system. Mr. Jackson said PERS retirement is mandatory, and we must either pay into social security or have a substitute plan, adding that we all realize that social security won't sustain anyone on retirement. Tab 146: Finance and Information Technology Finance Director Calhoun said ironically, his department could not produce their budget at or below the 1%; but they did use the vacant position to cut back to a thirty-hour work week to help with the capital policy and a variety of research projects; he said staff works hard on the day-to-day duties but there are other tasks such as development policies or conducting research; he said he plans to fill the vacant accounting technician position. Tab #7: Community Development City Manager Jackson said we will be proposing some restructuring in this department at no cost increase and said it will actually save money. Community Development Director Hohman starting by discussing page 57 of the business plan and the various department divisions and the responsibilities and duties in each division. With the proposed changes as noted on the organizational tree, Mr. Hohman said the City will realize about a 3.5%net reduction, and said staff has worked hard to reduce as much as possible; and added that the new permitting software was a positive cost benefit. Mr. Holman spoke of the proposed consolidation of associate and assistant planner as an attempt to have a group of staff members examine land use and long-range planning. Director Holman also noted that his goal is to create a dynamic group to focus on taking customer service to the next level and have a customer service policy that will be unequal to any other jurisdiction, and he said part of that can be accomplished by having a planner at the commercial building permit section; and to take reach out a step further by working toward having a certified site plan; to focus on available properties and identify what needs to be done initially, such as traffic and environmental issues, and have those completed at those sites to make it easier for development to occur. He said the position of permit facilitator will require a higher educated, higher certified person at the counter to provide that needed service, and said he plans to have a residential plans examiner at the counter to process such things as basic remodels like garages, or adding a shed or room. Mr. Hohman said they need a development services coordinator as they haven't had anyone designated as the contact person for developers, and said he envisions this as an individual staff member who fills in unofficially where needed to help coordinate all the projects from the contractor/developer side and city side; and to consolidate that even further, said two of the planners would be moved over to the building division to be supervised by the planners, and a three-quarter position will be reduced to a fifty percent position. Mr. Hohman said a part-time assistant planner resigned last month and that position will be re- evaluated and will actually be eliminated into next year, giving an overall net reduction of three-fourths of a position. City Manager Jackson explained that any re-classifications would come to council for approval consideration; and any change in structure without change in classifications would be done administratively. Director Hohman explained that his department will see a substantial savings due to the revisions in organization and approximately an $80,000 savings with the reduction of the PLUS permitting and software service agreement with Spokane County. After Director Hohman said he worked to develop a staffing level that is sustainable, and said the Planning Division took a big cut with the Special Council Meeting,June Budget Retreat:June 12,2012 Page 6 of 19 Approved by Council:July 10,2912 reduction of 1.5 positions along with splitting duties;he said his department is at a stage where every staff member is very busy; and if a large project were added, they would have to examine how to fit that in, which he said would not preclude the possibility of using a consultant; and said if that were to occur, he would work to identify the cost and work with City Manager Jackson to bring that to Council; and he again emphasized that every staff member is maxed out and everyone seems motivated to get the projects completed. Tab #8: Parks and Recreation Beginning on page 73 of the Business Plan, Parks and Recreation Director Stone went over the various divisions and the associated tasks; he said there are six divisions with nine FTEs; he said he had to cut $42,000 to make the 1% goal, and part of that included eliminating the planning professional services to begin a skate park; the reduction of CenterPlace seasonal staffing; and the purchase of replacement chairs at CenterPlace, and said there were various other line items cut over the entire Department. Mr. Stone noted that the swimming pools need painting, and the cost just for Terrace View Pool starts at $35,000. Deputy Mayor Schimmels asked why the sewer rate fluctuates, and Mr. Stone said it might be due to the different added features,but that he will need to research that issue. Director Stone said the Senior Center Division boasts over 1,000 members; that they occupy the east wing of CenterPlace and when they are not there, the space can be rented. Mr. Stone also noted that CenterPlace is open about eighteen hours a day, seven days a week, and they rely heavily on seasonal employees, or hosts, to work evenings and weekends to manage the events and the people, and said many times it is these hosts who are the first contact with the public. Mr. Stone said they hold over 900 events annually, and there could be a point in the future where he would need to transition some of those seasonal workers into a permanent positions working evenings and weekends. There was general discussion about this Department and Mr. Stone stated that if we were to remove the $317,000 funds from the building replacement fund, it would have a dramatic effect. Councilmember Hafner asked about the lack of grants applied for under the category of the Centennial Trail; and Mr. Stone responded that he does not have the staff or time to apply for grants;but that line is included in case there might be a needed capital improvement project. He said the Centennial Trail is an interesting project as the entities involved are still tying to finalize a new agreement, and the delay concerns what each district wants to contribute to the trail; he said there are some sections of the trail that are badly eroded and repair work should be done or we will end up with a major challenge; and said there are no repair dollars in the 2012 or the 2013 budget for the trail. It was noted the State owns the trail and each entity is responsible for the maintenance of the trail within that entity's jurisdiction. Mr. Jackson said we do routine maintenance of the part of the trail in our City, but there is no funding for major repairs, and the condition of the trail is gradually declining. Councilmember Grassel asked about using the $315,000 contingency funds for major reconstruction, and Mr. Jackson explained that would not be our responsibility; adding that it is very difficult to work through the State and he finds it almost impossible to believe we still don't have an agreement. Mr. Jackson said grants aren't usually available for trails, but we will keep looking; adding that the State does not have the money either for that type of work. City Manager Jackson said the finance committee thought we should keep the building replacement fund so we could replace the facility in Pventy to thirty years; but using those funds is something we could research. At approximately 12:25 p.m.,the group took a break for lunch and reconvened at approximately 1:05 p.m. Tab#9: Public Works Senior Engineer Worley introduced Public Works Administrative Assistant Deven Nickerson and explained that Mr. Nickerson worked with former Public Works Director Kerstin over the last several years in putting the budget together. Mr. Worley began by discussing page 83 of the Business Plan, which gives an overview of the department's organization. Mr. Worley explained that they are a very small department consisting of four divisions: street maintenance, stormwater, capital improvement program, Special Council Meeting,June Budget Retreat:June 12,2012 Page 7 of 19 Approved by Council:July 10,2912 and traffic. Mr. Worley said some of the proposed budget cuts were due to the Director vacancy, and that it is anticipated that someone new coming in would not be paid at the same level as the outgoing Director. Mr. Worley noted that $48,000 is allocated for TIP management (Transportation Improvement Program) to hire a consultant to help with the TIP and grant applications as we don't have enough staff to do that; and he said overall, their general fund is almost 4% less than what was proposed in 2012, and stressed that this budget is at the bare minimum. Mr. Worley said that the street fund budget is budgeted almost exactly to revenues, and he discussed those revenues as shown in the data. Mr. Worley explained that we took about $200,000 from the Poe Contract that we had been using for street preservation and put it into the street preservation line item, which balances the expenditures with the revenues.Mr. Worley said staff would like to construct a truck wash facility at the maintenance shop for about $180,000; he said the facility would be used to spray the chemicals off the snow plow trucks as the chemicals are very corrosive and we want to keep those trucks operational as long as possible; adding that we bought older used trucks from DOT (Department of Transportation ), and we are on a program to replace a plow truck every few years; and said public works budgeted within the available revenues. It was noted by Finance Director Calhoun that the seasonal employees are separated from the regular staff in order to get a better picture of seasonal needs, and a truer picture of wages. Mr. Calhoun also discussed the funds being set aside for future snowplow purchases. Councilmember Woodard asked that the topic of snowplows and purchases be added to a future council agenda. In discussion preservation, Mr. Jackson said staff went through the preservation contract we have with Poe and went back to 2007 and added the inflationary increases and other changes to the contract, and explained that $200,000 was the net that we were able to separate from that contract and keep in good faith with the contract originally agreed to; so that amount was moved to preservation and can go out on a bid basis; and said Poe can do grind and overlay as a component of their maintenance contract which was what was awarded, while preservation can be subtracted out and bid out separately. Councilmember Grafos said his concern is that the contract states grind and overlay but doesn't quantify that type of work. Mr. Jackson explained that it would cause crack sealing or other repair work instead of grind and overlay, and said if grind and overlay is the best choice at any time, we should keep that option available, whether by contract basis or not; and said it is because of the contract that we were able to get those projects done so quickly. Mr. Worley said this is the biggest year we have had for street preservation because of Council's priority for preservation and he showed a table entitled "Poe Asphalt Street and Stormwater Maintenance Contract" that shows how the Poe contract costs are broken down for the various projects. Mr. Worley explained there was $1.145 million slated in the Poe Contract for street preservation and that there is a long list of items that we can do within the Poe contract; and said staff decided to delay some of those projects and put those funds into street preservation; the explained that decision was made prior to Council putting the $2.8 million from the general fund end balance into street preservation; and he explained the strategy of bringing the cost down to the 2007 costs plus inflation, as noted above, and redistribute those funds into different activities. Mr. Worley pointed out that the dollar figures for pavement removal and overlays, and for pothole cutout and patch, grew substantially from 2009 to the estimated figure in 2012; and explained that this occurred because we kept falling further behind in preservation so we kept shifting money into those two categories because that need kept growing and we did not want to get any further behind than could be avoided. Mr. Worley explained that the overall contract amount has gone up as well because over the last several years, former Public Works Director Kersten tried to get as much preservation work done as possible within the contract because the contract was the only vehicle available to do those projects. For 2012, funds were moved around and we tried to put as much money into the street preservation as possible; and Mr. Worley explained that subsequent to that, Council decided to put more money into street preservation and staff began bidding out those projects; and said we got some bid results which will be explained at tonight's meeting. Mr. Worley said that if we had not had those funds, we would not have been able to do Appleway or University which are on the pavement management list for this year; and Special Council Meeting,June Budget Retreat:June 12,2012 Page 8 of 19 Approved by Council: July 10,2912 again stated that these funds, in addition to what Council approved earlier, allowed us to do as much of the 2012 pavement projects as possible. For the 2013 contract, Mr. Worley explained that we would remove $200,000 and put it in the budget under a street preservation line item and then re-distribute those funds; then go back to do those other projects like crack sealing, or shoulder repairs; and said the question for 2013 is what other funds will be available for other street preservation projects. Councilmember Woodard asked why the maintenance contract was the only available one for those projects; and said if we wanted to do preservation,why wasn't that done on a bid basis? Mr.Jackson responded that we had a contract for a certain amount of money, and used the money already approved for grind and overlay; he said the grind and overlay costs have increased over the years, and said it's nothing extraordinary that we couldn't use the Poe contract for that purpose;and Mr. Worley concurred it was well within their scope. Councilmember Grafos said the Poe Contract in 2007 was about $1.1 million and now it's about $1.5 million; and said the contract includes thirteen categories; and said what has happened over time in that contract, because there were limited funds for road repair, and that staff was trying to get grants for major contracts, instead of having Poe concentrate on crack sealing and other things that would have prevented us from going into a whole reconstruction on those roads, those funds were diverted, so now we're spending the majority of that contract on grind and overlay with a no bid contract with Poe; and said if we Iook back, the work that was done and the contracts that are coining in we have lower bids on those contracts; and said we are basically just giving that whole contract to Poe on a no bid basis. Mr. Jackson explained that Poe did bid that contract; and said it is a misconception to say they didn't bid it; he said they bid the contract, it was a competitive bid for a multiyear contract, and they won that bid.Mr.Jackson agreed the costs have come in lower this time whether they will next time is speculative; but he stressed that when that contract was bid,we got the best price; he said the contract has grown over the years but it is not a diversion. Mr. Jackson explained that as the City had more money,we increased the Poe Contract for them to do more maintenance; he rhetorically asked if now is the time to stop and examine what is maintenance and what is preservation. He asked if we ever intended to only put crack sealing, shoulder repair and other efforts into that contract at the time, and answered we did not. Mr. Jackson said when it comes time to renew that contract, if we want grind and overlay separate we can consider that; but it all falls within the maintenance category; and he explained again that what causes the conflict and puts pressure on the system is a lack of resources. Mr. Jackson explained that there is nothing to say if we had only focused on crack repair all of these years, that we wouldn't have had any roads fall into total reconstruction; and said that we could do crack repair over the years to extend the road three or four years, but eventually it will take a grind and overlay to preserve that road in most cases; he said it is a matter of choice, it is the most visible and it puts the roadwork on a major arterial on Appleway; he said we have heard many good things about Appleway and said he feels it was the right place for that construction and it demonstrates that the City is working toward road preservation. Mr. Jackson said to be fair to Poe,we want to maintain the contract we agreed to, and said $200,000 is the amount; and said this has not been discussed with Poe yet;but that is the amount we felt we could remove and still keep in good faith to the contract terms we previously agreed to. Councilmember Woodard said he feels Mr. Jackson is missing seine of Councilmember Grafos' point; that these contractors he has talked to would have bid had they known there was half a million dollars in grind and overlay, or knew it would have grown to $1.145 million in asphalt type work; he said they didn't bid it perhaps because they didn't want to get involved with just crack sealing; and again said if those contractors had known that contract would have grown to over a million dollars, he feels many more contractors would have "jumped in." Mr. Jackson replied that the bid was bid collectively; that this was a general contract and at the time it was not know how much grind and overlay would be needed; and said this has obviously grown to a point where Council is uncomfortable; and said it needs to be reviewed; but he recommended letting the contract run its course and then review it to determine if grind and overlay would be included, or to examine other options on how the contract should be structured. Councilmember Woodard said the point he was trying to make is, the contract is a lot different today than Special Council Meeting,June Budget Retreat:June 12,2012 Page 9 of 19 Approved by Council:July 10,2912 it was four years ago; said he doesn't want to call it a "bait and switch" because he feels it was not intentional, but rather is just how it has grown. Councilmember Grafos added that he realizes we have to honor the Poe Contract; but going forward feels we should split that off so the maintenance portion of a future contract would be a lot less than $1.5 million. Going back to the slides, Mr. Worley explained how the original contract in 2007 changed over time. Councilmember Grasse' acknowledged that it is sometimes difficult to split out maintenance from preservation; and said her recollection about putting the $200,000 into the Poe Contract, was because they were already on site doing maintenance and it would have been overlapping; and said we didn't want two contractors in conflict over the same project. Mr. Worley said there were numerous issues and that was part of it; but also that we get a faster response time with Poe, as when we put out a project for bid, we must prepare a bid package, publish the bid, award, and then manage the contract and therefore there is an additional cost on every project; and said he feels the idea here was that Mr. Kersten was trying to get as much work done on these streets as possible, with the available funding. Councilmember Woodard said the couple of contractors he spoke with indicated that the contracts of about$150,000 and above, are jobs that they would have wanted to bid on; and said he asked both of the contractors he spoke with, how they would have bid on this differently, and said they indicated they would not have charged 22% overhead, but rather between nine and eleven percent. Councilmember Woodard said the only thing he cares about is getting asphalt on the streets for the citizens, with the best product for the least amount of money; and he asked how this could be done better in the future. Mr. Worley said the best alternative is that we know street preservation is a high priority, and this year we have funding for it and are getting those bids out; he said we have the benefit of having this in the contract and getting these projects out as well. Mr. Worley said that if we have the funding in the future to continue the street preservation program and look at 2013 to do that program, then what's in the Poe contract can then go back and do the other types of normal maintenance work and therefore, we'd be doing both; we'd be putting money in the street preservation projects and bidding it out on the larger projects, and still have that same amount of money in the Poe Contract to do all the maintenance that needs to be done; but he cautioned that the bottom line is,there is more need then money to fill that need. Mr. Nickerson said when we put out the RFP for the maintenance contract, staff originally estimated we would stay around $500,000 for grind and overlay, and Mr. Worley added that the County had estimated work done in each of those categories in our city in prior years, and that figure was the basis for the maintenance contract; that all the bidders put in their bids for it and Poe was the lowest bidder. Councilmember Woodard said he is not debating the issue of who won the bid; but said this is a different situation; he said he realizes some of it is "sour grapes" and some of it is, perhaps the other contractors didn't understand the RFP, or didn't understand the exact nature of what was being asked for. Councilmember Hafner agreed we have to try to take care of both maintenance and preservation; and not just do one and forget the other. Councilmember Woodard asked about the $180,000 wash facility and said he doesn't see that in the 101 fund; and said he doesn't see money in a replacement fund for the shop. Finance Director Calhoun said the City just purchased the shop in 2011 so there is no money currently set aside. Mr. Worley then moved to Fund 402, stormwater management and hit the highlights of the summary, and noted this fund shows an approximate 5% decrease for 2013. Concerning the slight increase in wages, he explained two temporary seasonal stormwater interns are usually hired for the summer; said there was only one in 2012 and the goal is to have two for 2013; and he noted some of the costs have decreased under contracted stormwater maintenance due to recent bids. Mr. Worley noted that the lease has ended for the previous public works shop rented through Waste Management. In response to Councilmember Grafos question about how many pieces of equipment we have, Mr. Worley responded that we have ten trucks. Councilmember Grafos asked what kind of a $200,000 car or truck wash do we need for those ten trucks. Mr. Worley explained that because the trucks are so big, we need a catwalk system to be able to get over the trucks; and said that cost is an estimate, and staff expects to get more information. City Special Council Meeting,June Budget Retreat:June 12,2012 Page 10 of 19 Approved by Council: July 10,2912 Manager Jackson said the corrosive materials rust the trucks, and said if we keep those trucks hosed off, we will save money. Discussion turned to vactoring and the decamp facility, and Mr. Worley said we will be able to do more, for less cost; that instead of waiting for the materials to drain, the materials can be dumped and the driver can immediately go back out and get more drywells; and once the water drains out of the materials, we only have to haul away the solids so the volume of disposal goes way down and so does the time it takes to perform these functions. Mr. Worley said he recently met with representatives from WSDOT and toured the site; and they agreed with the idea of hiring a consultant to review each of the three areas of their site to determine the best and most efficient use; and confirmed that the decision for the use of the facility has not been finally determined. Mr. Jackson said once we get the details we will report to Council; and said there is a possibility we can locate our facility on WSDOT's site. Tab #10: Public Safety: a contract service—Morgan and Chief VanLeuven In moving to Addendum B in the Business Plan, Mr. Jackson said today's discussion will be ideas and potential concepts. Chief VanLeuven gave some history of the personnel changes over time, of the volume of monthly calls; of the high level of customer service that all officers are aware of, and of the importance to be informed on all issues; and he spoke of staffing and work shifts challenges. In response to a question about cost, Senior Administrative Analyst Koudelka said the approximate cost per officer including all their support, is $130,000. Chief VanLeuven mentioned the success of the recently formed traffic school, discussed crime prevention and school resource deputies, and of shared programs with the police and the School District; and said that we have one of the best property crime units in the State; and noted the success of the false alarm ordinance. In addressing financial issues, Senior Administrative Analyst Koudelka explained the impact on our contract costs over the years and on the budget in terms of how we might reduce cost; and said it is obvious we keep putting pressure on our general fund and staff has been examining innovative alternatives to help reduce a budget that has become increasingly difficult to further tighten. In looking at the budget sheets, Mr. Koudelka explained that the bulk of the supplies is to maintain the Precinct Building; and regarding the $53,395 under Miscellaneous Services/Contingency, said the 1% increase was applied to this budget with a result overall of less than 1% increase, and the amount under that 1% was placed in this contingency line item. He explained that final costs are determined by the actual expenditures made by the County and of our cost of the use of those services, and noted there are trends worth examining. Mr. Koudelka said that there are numerous contracts and they all have different amounts due at different times; said in the past we did a fairly good job of estimating costs but when the economy changed, it became more difficult to give a good estimate; he said past items were based on normal growth in population and expenditures, and said now we don't know where the revenues will come in; he said in Public Safety,the economy has unique impacts on crimes and the amount of resources needed; and said it's not always practical to scale back in the public safety arena as demands and workloads increase even in a tight economy. Mr. Koudelka said we have a new contract in place for police services with a new calculation method; and said he feels the estimate was low for 2011; and City Manager Jackson stressed these figures are our best estimates. Mr. Koudelka said that we use a multi-year trend and factor in any recent changes or one-time expenditures into the forecast; said page 2 of the budget focuses on public safety contracts; that we made the normal projections and made the 1% goal without reducing the service level, and feels this budget will accommodate what the true costs are, which is $20 million; and said we will have to monitor this and if we see any items that need changing, he will address those with the City Manager. City Manager Jackson said we have confidence in this budget; but if we reduce the contingency, it increases the likelihood of having to come back and explain that because of certain circumstances, we can't make this budget; he said any increase in this budget would result in a decrease in any of the other budgets; that we are fully funding law enforcement and are reaping that benefit; and said to simply increase that to increase the margin of error would mean we would have to go back to other department Special Council Meeting,June Budget Retreat: June 12,2012 Page 11 of 19 Approved by Council: July 10,2912 budgets. Mr. Koudelka said as an example, the public defender's average annual increase is 13.6%; that as the economy worsens and more people use public defense, we see the rate going up for multiple reasons; to compare the public defender with the prosecutor, the prosecutor has about twice as many attorneys, and suggested this is something to explore; he said it is imperative we provide adequate representation to indigents. Mr. Koudelka also noted that annual increase for pretrial services is about 18%; and 11% for detention services; he said we can accommodate these increases this year but cannot continue to do so moving forward. Mr. Koudelka said we operate under the tenet that we are not interested in growing government, so we use the private sector when possible and use competition to provide the best service for the best price; that we did that in the past in selective instances, but now that our city is ten years old, we are using the same contract and not employing those important tenets; and said now is the time to consider those issues as the opportunities become available. Mr. Koudelka then explained about the prosecution services and costs associated with the number of jail days, number of trials per case, and detention services, and added that the County handles felonies; and said for detention services, although our numbers decreased, so did the overall numbers which give us a higher percentage use; which means our costs are going up even though our true usage as far as workload is going down; he said we are the only city in the top ten cities that doesn't have its own prosecutor. As it is now, he said, we don't have a lot of control over the rest of the system; that there is no one to prioritize our cases and ensure that charges are timely filed; said the cost of detention is $134 a day per prisoner, and if a person stayed for a full year, that would amount to $48,000 for one prisoner; that court costs can be determined by acts of the prosecutor; and that there are alternatives to jail time such as day reporting, or electronic home monitoring; and currently the prosecutor does not distinguish between our cases and the county's cases. Mr. Koudelka explained that we want to ensure our cases are a priority; and said that has not happened in the current contract as the county focuses, for good reasons, on felonies. Mr. KoudeIka said we have a different focus; and reiterated that the public defender and pre-trial contracts have experienced double-digit annual increases. In answer to Councilmember Hafner's question if he thinks it is time to get our own prosecutor for 2013, Mr. Koudelka said he does, if that is Council's desire; and said we could use performance measurements to assess how such a system works.Mr. Jackson said we are not looking for definitive direction today and asked Council if they have any strong feelings to let him know; said these are concepts which would be developed and brought back; that prosecution requires employees and a place to house those employees; that we are exploring real opportunities to reduce costs; that managed competition generally works well in very large municipalities, but we are limited; that we can bring this in-house or use the County's services. Council indicated this sounds good to them to have staff continue to explore this and bring back further reports to Council. The group took a break at 3:05 p.m., and reconvened at 3:20 p.m. Tab#11: Ending Fund Balance—Mark Calhoun City Manager Jackson said issues to consider concerning the ending fund balance include how much do we need, what's the right amount, and how would we use it; and said after that discussion, the plan is to return to the topic of financial objectives and talk about street preservation; he said the objective is to get some ideas of how to achieve at least partial execution of our street preservation plan over the next few years. Finance Director Calhoun explained that as discussed previously, the question is, how much does the City need for an ending fund balance. He explained that an "ending fund balance" in accounting concepts is the difference between the assets and the liabilities, or receivables and payables; said in examining an ending fund balance, the primary objective is to maintain adequate resources to cope with the day-to-day operations and contingencies that come up, and said historically the City has set a minimum general fund balance of 15%; that when we ended the adopted 2012 budget era, it would appear we will be looking at about 74%, which is based on taking the anticipated ending fund balance of $26 million divided by recurring expenditures and revenue budgets, to give us 74%. Mr. Calhoun explained that an ending fund Special Council Meeting,June Budget Retreat:June 12,2012 Page 12 of 19 Approved by Council: July 10,2912 balance is used for ongoing operations and to handle such things as cash flow and said we generally use about 1/12 of that fund each month with two significant differences. He explained that property taxes are due at the County Assessor's office April 30 and October 31, and for us that represents $10.8 million from our general fund budget, split in two payments means we receive about$5.4 million per installment; yet while we are waiting for those revenues, he said cash reserves drop, and said this represents some of that cash flow need. Concerning remittances we get from the State like sales tax,Mr. Calhoun explained that those revenues generally come in with about a two months' lag time; said when the City was first established, it was decided to just account for one-month lag, and said from a cash flow standpoint, that was a good decision. He explained that adding the State's lag time for our revenues, and the lag in property taxes represent about a $7 million cash flow need; and by dividing that $7 million by our recurring expenditure budget produces a minimum cash flow requirement of about 20%, and because the City has always had a minimum fund balance in excess of that amount,we have never experienced a cash flow problem. Mr. Calhoun said we also must determine what is needed for operations and whether we want one or two months' operational needs; and said if one were to divide one month of operational needs by twelve, that gives almost $2.9 million or about $5.8 million for two months. Mr. Calhoun said assuming we want collectively with two months of operational needs, which is his recommendation, that combined with the other mentioned needs, that gives about 36.88% or about $12.8 million. Mr. Calhoun recommended keeping our reserves at their current level of about 74%to handle such things as unknown future expenditures, Sullivan Street Bridge, the possibility of building or owning a City Hall, and for other unforeseen reasons. Councilmember Woodard said people find it impressive that we have $26 million in reserve on a $35 million general fund budget; and even more so when it is learned we only have $7 million in total debt; and said that story should be shared more with the public; he said his goal is never to destroy the $26 million unless we had to do a capital purchase, or we have to do something like the Sullivan Bridge because we don't get grant funds; and said he would not vote in favor again as he did this year, to move 100% over the $26 million to help pay for street preservation; and said he likes the policy we have with the 40% of the ending funding balance over $26 million going to street preservation. Councilmember Wick said he also does not want to spend the reserve down, but would rather look at this as a type of savings account where we could make some one-time expenditures, but nothing recurring; said it took a long time to build up and we don't want to spend it down immediately; and asked if perhaps there are some one-time costs in which we could invest. Mayor Towey said traditionally since 2003 the carryover funds were for extreme emergencies; and said we are at a point where we have quite a bit of buffer, but are starting to see with this last decision to move 100% over $26 million to street preservation instead of 40% over $26 million that the question is now, do we want to continue that or even do both: use it as an extreme emergency fund, then if that falls below $26 million, we need to make sure we will see results returned to the City, such as economic development investment projects where we know we will get the funds back. Councilmember Hafner said he seriously considered that the cash balance could be 50% instead of 36: and said he was surprised when we came up with that as this discussion appears to be on- going to keep the 72; he said those funds belong to the people and if we can reserve 50%of that to handle any emergency; then take half of the amount left and put it into a bridge fund to add to that $10 million. There was council discussion of how much one might use for bridge replacement, and/or take from reserves,with Councilmember Hafner mentioning that there is always a possibility of getting grant money to handle that as well. Mayor Towey asked what cities do when they fall below their cash revenues. Finance Director Calhoun explained that if a city establishes a fund balance minimum percentage and they fall below that, the choices are to increase revenues or reduce expenditures, or some combination thereof. City Manager Jackson said or an option is to borrow money for cash flow, which he explained is what some cities do, and stressed he is not suggesting that. Councilmember Hafner again stated his suggestion as noted above or by keeping to the 36%, he said it would still give a fairly good cushion of cash reserve, and the excess Special Council Meeting,June Budget Retreat: June 12,2012 Page 13 of 19 Approved by Council: July 10,2912 could be used for other major projects such as road preservation or a city hall,for example, which he said would be preferable to continue spending half a million a year for rent ; and said we need to discuss having a public relations organization to "toot our own horn for our city" adding that we had 5,000 more permits this month over last month; and said someone should be able to tell that. Deputy Mayor Schimmels suggested looking at the bigger picture and the graph on the last page; said our ending fund balance is down and our expenditures are up; and said we didn't get to this point by gambling with our fund balance. Mayor Towey repeated what was said earlier by Mr. Jackson, that this is the first time in this City's history that we have spent more money than we have taken in; and that is a red flag. Councilmember Hafner asked where the over-spending occurred, and Mr. Jackson indicated it was spent predominately in street preservation. Councilmember Grassel said she doesn't like that wording that "we spent more" and said it wasn't as if we borrowed that money; it was money sitting there in a slush fund; and said meanwhile the cost of those roads has doubled; said the money was doing nothing so it was moved over for the citizens for the badly needed road preservation; and said if we sit on this money and do nothing,the roads deteriorate; and again said she doesn't like the way it was stated,that we spent more than we brought in, as she feels that is confusing, and Councilmember Woodard said it is deceiving. Mayor Towey said that we have to distinguish between expenditures and investments; and said this was an investment for the future and saves us money for the future; and said he feels it was correct to set those funds aside for preservation; but we want to be careful in the future; and the options he sees for this situation is to either lower the threshold, or seek outside revenues. Councilmember Grafos said before the ending fund balance is discussed, council need to discuss what it will be used for and should discuss a revenue source for our roads; said departments went through the exercise of not having more than 1% increase on the general fund balance, but said the fact is, we are less than 1% on the general fund; he said there was a huge increases in wages and benefits for the staff, and said he would like to see a cap in 2013 of wages and benefits to remain at the level of 2012; and said the cost for wages and benefit has increased 17% in three years and inflation was at 8%; which is $1,192,000 a year in three years and said that is unsustainable;and said doing so would bring that figure down by about$400,000; and what he would like to see then is to take 6% of that general fund and dedicate it to roads; and drop the ending funding balance to $20 million and take another $4 million for the bridge and leave that other $2 million alone, and take that 6% out of the general fund and see where we are at the end of the year; and said with the increase in revenues with what we have in the budget already;he said there are seven and a half vacant positions and the per employee cost is about$84,000 for each employee, so that represents about $600,000; and said we can't keep raising wages and benefits at 17% every three years. Councilmember Grassel agreed and asked the City Manager when we go into negotiations, and suggested we have comparisons to not just public sector pay scales and benefits, but to the private sector as well; and said often when the comparisons are done, it should be state-wide; and said part of the data to consider is cost of living on this side of the state. Councilmember Wick asked for clarification of how Councilmember Grafos arrived at 17%; and Councilmember Grafos said take the actual dollars spent on wages and benefits in 2011, and move it forward to 2012, it jumped over$1 million dollars. For further clarification, Mr. Jackson said salaries are raised with a COLA (cost of living adjustment) by 2.5% and for those who have not topped out of their salary range, there is also a possible 4% merit increase; and said health care benefits also increase, and said staff can break out those figures if council desires. Mayor Towey said since we have no control over the mandatory increases in benefits,that figure would have to be subtracted from the data. City Manager Jackson said the real question that staff will examine is, are we at a point to impact employee wages and benefits; and said we need to examine the whole picture; he said part of the point in the merit system is that you try to bring in employees at a lower amount then if you had a fixed rate; that we bring employees in at a fixed amount but they have a good opportunity to increase annually if they do a good job; he said even though we have good retention, these vacancies came about because employees left the City's employ; he said we are trying to grow our economy and move this City forward and prosper and said these are the people who will do that for us; that these people are our most valuable Special Council Meeting,June Budget Retreat: June 12,2012 Page 14 of 19 Approved by Council: July 10,2912 resource. Mr. Jackson said we can come back and have those discussions with Council and Mr. Calhoun can look at what each percentage or half of a percentage of salaries and what that means in terms of the actual budget. Parks and Recreation Director Stone said what he is hearing is that there is some belief that a portion of the fund Council is looking for can be achieved in the general fund through the employees; but said that won't solve the overall problems if we are trying to fund street preservation or other capital programs; and said regardless of what happens in the general fund, we must look at some sort of outside revenue source; and if we are not committed to that, we might as well go through the budget and take it down. Councilmember Grafos said he thinks we can do both and said he is not saying to go backwards; but said the City spent over$8 million in wages and benefits in the 2012 budget, and he suggests capping that to that we will spend in 2013; and said he is not saying anyone is going to go back or take a pay cut; but said he is saying,we will not increase it for one year; and that we will go back to the general fund and take 6% and devote that to roads, which is about$1.8 million. Director Stone said if you look at the reductions all the departments made, a 6% will have a significant impact on programs and services. Councilmember Grafos said what the staff has done in the departments is fine and said he is not suggesting pulling another 6% from the departments;but just freeze the wages for 2013. Finance Director Calhoun explained that assuming a 2.5% COLA, along with the potential 4% merit increase; the 2013 budget assuming the 2.5% COLA, that ads about $169,000 in wages, benefits and payroll taxes across all the funds; so each 1% of COLA awarded in 2013 cost the city about $67,000 across all the funds. Councilmember Woodard said if we don't start, we'll never be there; that something that "bugs the citizens" is that the median income of Spokane Valley over the last three years dropped from$55,000 to $48,000,while City pay has gone up considerably; and said they feel it is unfair; he said the private sector has taken a tremendous hit while City employees' salaries continue to increase; and said City employees are substantially above those same positions in the private sector in most cases. Councilmember Woodard said if he had his way he'd cut 15%just to get started, although he knows that is not even a starting point to start to talk to the unions; and said he feels we have to freeze wages, COLA and the step increases; and it has to come down to something that equates to what's happening in the real world. Councilmember Wick said in his experience with private enterprises,there has not been a dramatic decrease and that they are sitting par with our City as far as increases and COLAs; he said he doesn't see where we are significantly above pay scales of anyone else, and said if that were the case, we would not have turnover because if pay were significantly higher here, no one would ever want to leave. Councilmember Grassel said that is why she asked for comparison of actual figures; and Mr. Jackson said we can provide that. Councilmember Wick also noted we have the lowest number of staff of all cities; said we have a low number of employees as many are "jacks of all trades" in that they do more than employees in different regions; and in order for our City to be successful with a lower number of staff,he said we have to have higher efficiency of staff. Councilmember Hafner suggested for every action there will be a reaction that should be considered. Councilmember Grafos said if you add wages and benefits for 2013 compared with 2012, it's about $344,000 difference. Councilmember Hafner asked what happens in 2014 when the wages are no longer frozen; and asked what would be the net benefit. Councilmember Grafos said we need a way to fund the roads, and instead of raising taxes for another year; that we are just coming out of the recession and we need to take a portion of that general fund and set it up for roads. City Manager Jackson said he added "street preservation needs" on the white board list; said he hopes there are other suggestions; that it boils down to the magnitude of the problem; that historically, that is the reason the City separated street preservation from the general fund, but now we are pulling it back in; he said the preservation is outstanding; he said we are not trying to portray anything other than the fact that we have spent more than we brought in; but by funding preservation from the general fund and by putting it into the general fund, you are making it a component of that fund; and said when you spend money for general fund purposes that exceed revenues, it is a cause to reflect; that we are not in financial problems because we have a reserve;he said we have a healthy general fund to provide such things as police services. Mr. Jackson said Special Council Meeting,June Budget Retreat: June 12,2012 Page 15 of 19 Approved by Council:July 10,2912 the question came up today whether we need to add police services; and he said every department could talk about who they would add so as to function in the most ideal manner; but said that the fact is, we don't know what might happen in the future nor could we predict what kind of infrastructure problem might fall upon a City to cause us to use that$26 million; and said it is therefore a philosophical question of holding on to that which was generated through sales and property tax and look for a way to solve this problem, or do you run the general fund down and put so much pressure on it you can't provide the basic daily services; and said when you spend that non-recurring money, that leaves you at the end of the day of having spent down those reserves, but not solving the problem. Mr. Jackson said the general fund cannot solve this problem; and said we have not solved this problem in our nine years because we have never had a designated revenue source to address this issue. Mr. Jackson said in examining the preservation plan, it indicates a need for $8.5 million for arterials and collectors, and $4.8 million for local access roads for a total of$13.8 million; and said perhaps the solution is to just address preventive maintenance on arterials and collectors, then the most essential roads in front of businesses, and if they need to be reconstructed then do that; or just fix the potholes; he said somehow we have to tailor the problem to meet our ability to fund it; but said squeezing that last little bit from the general fund doesn't go far in solving the entire preservation problem. Councilmember Grassel said the confusing part is, in 2007 or 2008 we already put in an outside revenue source,the utility tax, and said if a city isn't going to include preservation in a budget,then at a minimum it should include street maintenance; which is a recurring cost you need to have; so what is confusing is there is a 6% utility tax and she said she doesn't recall ever doing a road project without some sort of grant associated with it, and said she thinks these will be decisive issues in the upcoming state and national election; and said what she thinks is convoluted in this conversation is, that you start out with $13 million and now we have managed to work our way back to $5 million; and said when she examines a city budget that is a part of the mandatory line item and said that is what the community expects their tax dollars to be used for—roads, safety, and infrastructure; and said to say we can't put it in the budget, or it won't work in the budget,that doesn't connect with the citizens. Councilmember Hafner agreed there is no easy solution and said he feels council will likely be discussing this again next year since there are no sustainable sources to take care of it; and said council is avoiding the idea of perhaps having a bond issue in the future. Councilmember Grafos said if we take a portion of the general fund; that if you know the general fund is$35 million,we know we will have$2.1 million to work with; instead of waiting to get to the end of the fund balance and question what to do with the funds; you'd know you'd have those dollars available. Councilmember Hafner suggested that $2 million a year won't come close to taking care of the problem; and said another three or four million would be needed. Councilmember Woodard said he has a potential solution; and he asked when do we have to renegotiate with Waste Management and Sunshine and Mr. Jackson said the franchise expires in 2014, about the same time as the solid waste contract. Councilmember Woodard asked if we could meet with the haulers to start working "on what the damage period" is going to be; and said it will be six or seven years with those entities before we can do anything unless we negotiate with them up-front according to the WTC Rules (Washington Trade Commission). Councilmember Woodward said he feels it is ludicrous to hire a consultant for the next two year period when we can do it in a week;and if we want to take control of our solid waste issues; and said if we were to negotiate now, we could go into a contract with the haulers which would include some portion of the savings coming to us; and said he realizes it will be called a tax since everything that comes to the city is a tax; and said it's the difference between what the citizens are paying now at$109 a ton and what it could be if we negotiate a 10-15-20 year contract with the haulers; and we could pick up that difference and use it for road capital or preservation; he said he has estimated that would be between four and seven million dollars a year for ten to twenty years depending on the term we can negotiate; and said there are two haulers who want to do something; he said it will save between $30-50 a ton; he said we have an increase on recyclables coming on of about 32 cents per can so the citizens will see an increase in their garbage bill regardless of when single stream goes on-line. Special Council Meeting,June Budget Retreat:June 12,2012 Page 16 of 19 Approved by Council: July 10,2912 Councilmember Woodard said we will have another very short deadline in two years because of this consultant, to make a decision; and in November we will get the alternatives of a ten to twenty year plan and we will be in the same place we were last year; he said we could negotiate on our own transfer center, said our citizens paid for that; and said if it was put to a vote; that some of the City Council of Spokane would transfer that to us for one dollar; he said we have to negotiate the whole thing of us taking control of our solid waste; and said the savings would go to road preservation; he said he knows is a possibility but no one wants to look at it. City Manager Jackson said he mentioned at the last council meeting that Council needs to consider the entire scope which includes collection; and said certainly that needs to be investigated; the said we are trying to work with the regional partners; the said if he gets direction from Council that we want to move off in our own direction we can do that and said he thinks some of the cities are contemplating that; he said it is a balancing act;we need to look at the full cost and said that is what this study will tell us;that it is designed to help each partner either collectively or individually move into the alliance or move out on their own, but it does not include collections. Mr. Jackson said staff met with Sunshine and Waste Management and has had ongoing discussions;he said he believes the franchise agreement coincides with the contract; and what we have to consider is how much time we have to exercise our rights when that franchise agreement ends; he said any deal we strike is a cost to the citizens so you're working to hold down the cost of the current system and that any money that the City would generate from solid waste would mean that the individual homeowner is paying that cost as it is not money that automatically comes to us; regarding collections, he said that is something we need to do independently as a City; he said the consortium is not looking at collection and said Cheney and Spokane City each have their own collection. Mr. Jackson said we need to look at all possible options, including the possibility of bringing this in- house, and said he is not advocating that position, but that all options should be considered. Councilmember Woodard asked if there is anything that precludes us from negotiating prior to the end of the contract; and said he has done some research and it appears nothing precludes that particularly for the collection; and said he is looking at the total savings from all aspects; and that it appears the consultant will take two years to report. Mr. Jackson said they just met last week and set the end of September of this year as the deadline; that they are going to give the consultant six weeks, and said he realizes this is a very aggressive schedule. Councilmember Woodard asked if it makes any sense that we are paying $109 and we have lowered the cost; but it will go up again and said by the time we get to the end of the contract, we'll be at $115 a ton; and said it drops to $60 by using other things such as the Waste-to- Energy Plant, that the difference is something we could capture that doesn't increase the net to the citizens. Deputy Mayor Schimmels said we couldn't take that transfer station for $1 if we had to; that according to law we have to pay current value; and said the issue is the tipping fee of$45.00 and how to get it down the road; he said that would be our cost. City Manager Jackson said that he and Finance Director Calhoun have thought about having a system in place to generate funding for street preservation; he said we didn't get into this situation overnight and we won't get out of it overnight; and said the real answer is to pull together as a team and generate additional revenue under the existing tax base in this community; and in order to that and sell our community, we have to do it in a positive manner; we know we have a street preservation problem and he rhetorically asked if council thinks it's impacting the quality of life now or preventing businesses from coming; and said he doesn't think so; he said the potential is there; that about three years ago we were generating $3 million or more than we are now in sales tax; the said we will have to live with this problem; he said if we go back and get 6% we will be forced to close some swimming pools, or shorten hours; or potentially have slower response time for permits; he emphasized he is not saying we wouldn't do everything we could to have business as usual; but realistically, we have squeezed nine and a half positions and $3 million out of the budget in the last few years. Mr. Jackson said there comes a point when you can only get so much effort; if we work to grow the economy, then 40% of every dollar we bring in over $26 million will go to street preservation; he said we do the best we can and put as much Special Council Meeting,June Budget Retreat: June 12,2012 Page 17 of 19 Approved by Council: July 10,2912 toward street preservation as possible, but the reductions aren't achievable without growing our economy or looking to other revenue sources. City Manager Jackson said we have discussed how low our taxes are and that this is a great place to do business; he said we only have one utility tax on phones and that generates a lot of discussion and he said he feels this is a city which is not likely to impose other utility taxes; adding that the phone utility tax saved the street fund. Mr. Jackson said we need a way to define preservation; that we have discussed separating the street fund and street preservation but the message is not being sold and somehow we need to re-group; he said the concept of separating preservation isn't working; that the original idea was almost artificial to try to determine what component of the city can't we afford or that we aren't doing now, and it's preservation. He said we could somewhat isolate that problem of preservation, and if we had a tab fee or some other resource , we could designate that to preservation; but said we are operating at a base level with our general fund and our services, Mr. Jackson said not thinking about the money, but if one were to concentrate just on which services are unnecessary or what would we like to cut, what conclusions would we reach; he said City consists of the departments of Law Enforcement, Public Works, Community Development, and Parks and Recreation, and everything else falls under those functions necessary to operate a City, like accountants and attorneys; and said these are the basics and there are no superfluous programs; the recreation programs operate at 100%recovery. Councilmember Grafos said that we are actually taking that 40% from the general fund just not doing it after the fact; he said he realizes we are not at the point of Spokane; but if we continue the way we are and don't designate a realizable source for at least some of those funds,we'll never do it; he said the core services are important, so why not take a percentage of the general fund and dedicate it to the roads and at the end of the year said he thinks our revenues will go up; so the funds will grow at one end, and the expenses will be held at the other. Councilmember Grafos said at the end of 2013, if we squeezed it too tight, then those dollars don't exist, but we'd still have that $26 million, City Manager Jackson asked if Council wants to spend below the $26 million, or in other words, lower the threshold. Councilmember Grafos suggested putting in a line item of about 6% or $1.8 million; and leave the $26 million. Mr. Jackson said if these were intermediate steps , it should include the need for a sustainable revenue source; that either the economy will improve or we will have to implement a source; he said he worries that like this year, we've taken over $4 million for preservation but we're not telling our story, and said four or five years from now, we'll get to the point where we will realize we can't spend any more of the ending fund balance; and said he wished there was a way that we could agree that the existing revenue will not cover this; and said if we did this to get us by and then by 2015 we haven't increased revenue by 17%,we would have to implement some kind of a plan so the public will know what we're doing; and said the revenue from this year isn't being used as a leverage to increase any future revenue needs; he said this just continues what we have been doing with the only difference now of having a willingness to spend the ending fund balance. Councilmember Grassel said she recalled from former City Finance Director Thompson's report that we are spending the carryover as the carryover was put into the general fund to meet the expenses of the general fund. Mr. Jackson explained that was just a forecast;that the same thing is in this budget; he said if the revenue didn't keep up and council decided we can't cut any of our services any further, and we were $1 million short, we'd use that money to supplement our general fund, but explained that what Councilmember Grassel was referring to, was always in the form of a forecast. Councilmember Grassel said if the $26 million is 74%, she doesn't have a problem using 100% of everything above $26 million for that because she said keeping a 74% balance is unheard of and she asked what was the finance committee's justification for having the $26 million. Councilmember Hafner said that the forecast for the subsequent years is now below that $26 million, so we won't be putting any money aside for roads. Mayor Towey concurred we are already below $26 million. Councilmember Grassel asked about the justification of using 40% above $26 million; and City Manager Jackson said the reason is to preserve our current ending fund balance; and said it is a philosophical issue; do you keep those funds there or do you use it for some other purpose. Councilmember Hafner reiterated that if we have 50% in reserve, that would be more than enough to take care of the problems; and Mayor Towey Special Council Meeting,June Budget Retreat: June 12,2012 Page 18 of 19 Approved by Council: July 10,2912 again stated that if we are going to sustain street preservation for the long term, we have to lower that threshold or have outside revenue. Community Development Director Holtman stated that another option is to grow the City; which was what Mr. Jackson mentioned. Mr. Hohman said staff has been working very hard over the Iast few years to try to put a program together to change the perception of doing business in the City; he said from his perspective he is a little concerned as we still have a long way to go; that we have made good progress but we have to put in programs and get to the next level to where it is sustainable, predictable, and consistent; and said based on some of the things he has heard, he is concerned whether that level of service will be able to be maintained; he said we have a very high performance staff and it would be difficult to maintain that goal without some of the necessary tools. City Manager Jackson said he and Finance Director Calhoun will take all this information and will look at the budget again; he said he will prepare a budget to align with expectations while exercising his management expertise and authority to deliver a reasonable budget; and once that is turned over to council, council can make other changes; and said he is hopeful he and Council will be closely aligned; that this needs to be put this into a policy statement and we need to give it time to work. Mr. Jackson said there is a multitude of new businesses and development; that if we believe in our City we should believe we will increase our revenues. He said there have been about 1700 new businesses over the last year, and Public Information Officer Branch showed the quick one-minute PowerPoint scrolling down the names of those establishments. City Manager Jackson ended by stating he hopes Council will take what he said in good faith;that Spokane Valley's staff that has been working very hard and after a while, you start to see the stress and strain of a lot of good work and high productivity; and said he is hesitant to reduce our already lean workforce, and said he defies anyone to find a city running more lean and economical than our City; and said it takes people to get the work done and that he is hesitant to make additional reductions. In the interest of time,the meeting adjourned at 4:45 p.m. )111° g ATTE Tl omas E. ToN ey, ayor Christine Bainbridge, City Cler Special Council Meeting,June Budget Retreat: June 12,2012 Page 19 of 19 Approved by Council: July 10,2912 Poe Asphalt Street and Stormwater Maintenance Contract Remaining Contract $76,174 of Contract Spent 93.52% $33,033 97.76% $99,901 93.53% Budget $1,175,119 $1,475,119 $1,545,119 $1,685,119 Item Code Description 2009 Actuals 2010 Actuals 2011 Actuals 2012 Estimate 2343 Asphalt Repair-Pavement Removal &Overlays $559,587.79 $654,773.50 $955,831.02 $1,145,000.00 2340 Asphalt Repair-Pothole Cutout& Patch $42,722.13 $47,251.89 $190,180.93 $75,000.00 2340W Winter Asphalt Repair-Pothole $138,801.74 $0.00 $0.00 2320 Shoulder Repair $35,498.97 $75,169.46 $109,693.46 $20,000.00 2330 Gravel Road Grading $132,909.53 $50,627.17 $47,264.55 $40,000.00 2344 Crack Sealing $36,659.26 $368,984.36 $0.00 $30,000.00 2610/2620 Sidewalk& Path Repair $7,785.57 $5,767.78 $0.00 $180,000.00 2645 Guardrail Repair $4,103.43 $8,282.30 2646 Fencing Repair $966.60 9742 Swale or Ditch Grading $7,242.87 $0.00 $20,000.00 9710 Drainage Structure Repair& Installation $22,952.10 $197,442.34 $78,934.01 $20,000.00 9747 • Curb Gutter& Inlet Repair $2,840.13 $12,751.32 $10,062.55 $5,000.00 2511/2512/2513 Bridge Inspection & Repair $98,687.39 $0.00 $0.00 2712 Miscellaneous Service $20,500.36 $14,751.06 $44,969.23 $10,000.00 New Emergency Call Out (Winter) $2,253.96 $0.00 Snow Removal $140,000.00 Total $1,098,944.97 $1,442,085.74 $1,445,218.05 $1,685,000.00 Remaining Contract $76,174 of Contract Spent 93.52% $33,033 97.76% $99,901 93.53% 2007 $1,175,119 Original Contract $175,000 C.O. #1-Small Preservation Projects $1,350,119 Total Contract 2008 $200,000 Snow Contract- Emergency $1,475,119 C.O. -Renewal Contract $1,175,119 Orig. Contract $300,000 Street Preservation $31,369 C.O. #2-Install conduit at 8/16th on dishman $95,000 C.O.#3-Stormwater Repairs $70,000 C.O.#4-Crack Sealing and Potholing $1,871,488 Total Contract 2009 $1,175,119 Renewal Contract $1,175,119 Total Contract 2010 $1,375,119 Renewal Contract $1,175,119 Orig. Contract $200,000 Preservation $100,000 Change Order#1-Additional Street Maint. $1,475,119 Total Contract 2011 $1,545,119 Renewal Contract $1,175,119 Orig. Contract $200,000 Preservation from 2010 $70,000 Wage and Equipment increase $100,000 Additional Street Maint. 2010 $1,545,119 Total Contract 2012 $1,545,119 Renewal Contract $ 1,545,119 2011 Contract Amount $140,000 Snow Removal Contract $1,685,119 Total Contract