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Agenda Item - 2021-03-18 - Number 3 - Approval of September Meeting Minutes (1-fDbt CITY OF LAKE OSWEGO Budget Committee Meeting Minutes IC) O September 24, 2020 OREGOr´┐Ż Members present: Kent Studebaker, Mayor Scott Havens, Chair Theresa Kohlhoff Steve Dodds, Vice Chair John LaMotte Al Calabria Jackie Manz Lin Carson Daniel Nguyen Shannon Cruz Skip O'Neill Charles Erekson John Wendland Aaron Rapf Staff Present: Martha Bennett, City Manager; Anthony Hooper, Deputy City Manager/ Public Works Director; Shawn Cross, Finance Director; Megan Phelan, Assistant City Manager; Jennifer Waverly, Budget Analyst; Brad Stevens, Assistant Finance Director; and Erica Rooney, City Engineer The City Budget Committee meeting was taped and is online with supporting information. Click on any Interactive Agenda item in color to go to that point in the video. 1. Call to Order and Roll Call Havens called the City Budget Committee meeting to order at 6:25 p.m. virtually via Zoom meeting. 2. Approval of Budget Committee meeting minutes for May 9, 2019 Wendland moved the approval of the minutes of May 9, 2019. Manz seconded the motion and it passed unanimously by roll call vote. 3. Update on City's Revenues and Expenditures in the current biennium given COVID-19 and recession Cross presented the financial results for the first year of the biennium budget. He explained the status of the General Fund revenues, including the decrease in Hotel/Motel taxes and Gas taxes, but Property tax revenue has remained stable. He reviewed the financial reports and explained the status of the first year of the biennium budget, which looks good overall. Property taxes came in about 1.1 M more than estimated, the city received a one-time payment of approximately 900K from Comcast for delinquent taxes, and investment income was higher than estimated. The city received two insurance rebates, one rebate is from the City of Lake Oswego Budget Committee Meeting Minutes of September 24, 2020 Page 1 of 6 health insurance and the other rebate is from workers compensation insurance. He explained that Intergovernmental revenues are much higher than anticipated because of the Coronavirus Aid, Relief, and Economic Security Act (CARES), however revenue replacement does not qualify for CARES. The General Fund is transferring into the Capital Project Reserve for the City Hall project, because not all of the City Hall project is being funded under LORA. Cross reported the Tourism Fund receives 1.4% of the 6% Hotel/Motel tax, however that tax revenue source is down due to decreased business travel, due to COVID. He reported the Public Art Fund receives 1.5% for qualifying city projects. The council approved a $50,000 increase to the Arts Council contract. A budget adjustment will be completed. He reported the Sewer Fund refinanced the second round of LOIS bonds. The initial was 35M, and 25M was refinanced, which should save the city approximately 3.8M in interest payments over the next 15 years or the equivalent of 3.3M Net Present Value (NPV). He reported the Street Fund has state shared revenues with the gas tax, which came in less than estimated, however there is revenue from county vehicle registration fee. He explained that property tax revenue looks good. It is budgeted at 94% and the city should still get at least what was budgeted. Manz inquired about franchise fees, specifically related to Century Link. Cross explained that there are only a few companies, such as PGE and Comcast that pay the majority of the franchise fees. Manz asked if the gas tax has rallied. Cross confirmed gas taxes lags about two months behind and was down about 300K. 2.7M was budgeted for gas tax. LaMotte asked about the decrease in the Hotel/Motel taxes. Bennett explained the revenue is down about 70%, and the city has only received approximately 30% of the budget. LaMotte inquired about the Waluga Field project. Cross clarified the project was in last year's budget. Bennett explained that the challenge with the tourism funds is, it will affect next year's grants. Calabria inquired about the favorable fund balance. Cross confirmed that there is a favorable beginning fund balance. Cross explained how the funds are directed, will be determined when the City Council sets their goals. Cross clarified that changes to the current biennium budget are done through City Council by approval of a supplemental budget. Rapf asked what the minimum required balance is for the General Fund. Cross explained that it is a policy minimum set by the City Council. The estimated savings in the current biennium budget were designated as reserve for the City Hall project. The budget report used in this presentation can caused some confusion, due to the revenue amount being allocated to the department being shown as a negative number. Manz inquired about the gateway art project being funded by the Tourism Fund. Bennett confirmed that the gateway art project is committed and that tourism funding for the project is available. The artist is under contract to produce the work. Nguyen brought up the impact of a recession, declining revenues, and what to anticipate. Bennet explained the impact of compression and how it directly affects the property tax revenue in the City of Lake Oswego. The property values in Lake Oswego are high. Bennet stated what could happen, similar to 2008, is a decrease in construction. Currently there is not a significant down turn in construction. The conservative approach to setting a property tax City of Lake Oswego Budget Committee Meeting Minutes of September 24, 2020 Page 2 of 6 amount for the city's budget, should serve the city well. Revenue sources based on consumer activity have been impacted and will continue to be lower, due to COVID. Bennet anticipates overall revenue impact to be stable. Rapf inquired about SDC's staying consistent. Bennet reported that SDC's are high, and that the impact of COVID has not changed the pace of construction. Wendland asked if the consistent construction would provide an uptick in property tax revenue. Cross stated there is usually a three and a half to four percent increase. Bennet mentioned other trends that occur during recessions, such as decreased home sales and decreased commercial construction. Wendland asked if any of the hospitality decrease could be supplemented in some way. Bennet made a note about grants for events that can be held in the future. LaMotte asked about revenue backfill from the State or Federal government. Cross confirmed that monthly reimbursements are anticipated through the month of December. LaMotte asked if the money is being used to backfill city staff and funding for local businesses. Bennet clarified that the money can only be used for direct expenses that have occurred as a result of COVID. It can't be used to backfill decreases in revenue. Manz stated the transient lodging taxes are from hotels, Airbnb, B&B's only. Restaurants do not pay transient lodging taxes. 4. Discussion of street capital projects (paving and pathways) as directed by Council Rooney discussed the Street Fund budget and future Capital Outlay scenarios. Rooney provided information on revenue sources for the Street Fund budget and outlined the roadway/street system components of the street expenditures. She provided a further breakdown of the street expenditures, which include Engineering, Public Works/Maintenance, and Capital. In the current biennium, 98% of the Capital budget was designated for paving. A council goal has been to increase the PCI (pavement condition index) to 70. A $12M Street Bond was secured in November of 2019, to increase the paving efforts. Rooney explained the City Council's 2020 goals and priorities for streets. She also included priorities from the Transportation System Plan (TSP) and the Transportation Advisory Board (TAB). She presented the fund balance estimates, which includes the current and future flow of funding. She explained the street portion of the CIP (Capital Improvement Plan), and all of the street capital projects that are slated for the future. Regarding choices for the future, she recommended continuing maintenance of the existing streets, structures and assets. A pavement analysis is conducted every three years. She shared a map of the proposed paving locations throughout the city, for the next two years. She shared a list of path and bike projects that have been completed over the past five years. She shared a map of the TAB's (Transpiration Advisory Board) school priorities for pathways. The highest priorities will cost approximately $31 M. Rooney discussed the balance between paving and other street projects, such as pathways. She explained the options for reduced paving funding in the future. City of Lake Oswego Budget Committee Meeting Minutes of September 24, 2020 Page 3 of 6 Rooney pointed out that the City Council's 2021 goals would be set in January and noted considerations for street future funding. Mayor Studebaker inquired about the pathway project near Bryant Rd. Rooney explained that the projects vary, but they are all pedestrian projects. The outcome of the project may be to improve pedestrian safety or a separated pathway. Bryant Rd. was identified as a larger project. Calabria inquired about the list of CIP projects and how it is prioritized. Rooney clarified that the list of unfunded projects from the CIP, in the budget document, is listed in alphabetical order and it is not listed in order of priority. Calabria inquired about the PCI target. Rooney explained the history of the PCI. Rooney further clarified, 84 is the optimal target for PCI, in order to maintain the best return on the investment. She stated that it is difficult to achieve, because it requires an enormous amount of funding. Originally the city would have needed $80M to achieve that goal, so council chose to get PCI to at least 70. Kohlhoff inquired about the cost for the safe routes to schools list. Rooney clarified to do the top eight projects recommended by TAB, the cost would be approximately $31 M. Rooney explained that amount could vary depending upon the amount of grant funding and funding from other sources. Kohlhoff asked about GO Bonds as a source for the safe routes to schools projects. Manz asked if the city was still following the dig once policy. Rooney confirmed that the dig once approach was still be considered for all of the city projects. Manz inquired about the list of pathway projects and whether or not some of the projects are still wanted by the neighborhoods. Manz mentioned that the TAB has done a fantastic job. Manz thanked Rooney for the presentation. Rapf asked about the consulting fees the city pays per year. Rooney estimated the consulting fees to be between 10%-18% of total cost of a project. Rapf asked if the $460K was for a specific project or if it was the total for the year. Rooney explained $460K is the biennium budget and the $460K is going towards the Knaus Rd. pathway project. Rooney clarified the Knaus Rd. pathway project, which does include some storm drain, is not being done in conjunction with a paving project. Rapf asked for clarification on the budget gap. Rooney explained the option of reduced paving funding, in exchange for increased pathway funding. Chair Havens asked if paving needed to be increased, so that the city does not slip back under 70 PCI. Rooney explained the current funding is not enough to maintain the PCI. Rooney explained in order to reach a PCI of 84, according to the analysis done in 2019, $25M would need to be budgeted in the first year, $8M budgeted in the second and third years, $6M in the fourth year, and $8M in the fifth year. There are over$240M worth of bike and pathway projects in the CIP. LaMotte asked about the 2017 state transportation program and whether the program ends in five years. Cross clarified the $12M street bond would be paid over 20 years. LaMotte asked if the $460 was for Knaus Rd. Rooney clarified that it is. LaMotte mentioned the policy discussion needed for the pathway priorities. Rooney clarified that SDC cannot be used for paving. SDC can only be used for capacity improvements. City of Lake Oswego Budget Committee Meeting Minutes of September 24, 2020 Page 4 of 6 Wendland inquired about other funding sources for the bike and pedestrian projects. Wendland asked how the larger projects with the state get started and what the process is. Rooney explained that regional and state funding is extremely competitive and it depends on what the criteria is. Four or five on the larger projects are on regional listings. Chair Havens gave direction on moving the meeting forward and limited decision making. Mayor Studebaker clarified this meeting is not for making changes to the budget. It is an informational meeting and the changes will be made in March, after the city council has set the city goals at the beginning of the calendar year. Chair Havens stated this is an informational meeting. Calabria asked for clarification about using the $2M General Fund surplus for paving projects. Cross clarified the residuals or one-time savings are typically used for one-time projects. Cross explained the Parks bond can be used on Park pathways. The Parks bond can only be spent on Parks projects. Rooney explained SDC can be used for bike and pedestrian capacity projects, but not at 100% rate. Some SDC is being used for the Knaus Rd. pathway project. Hooper clarified the SDC is being used for a signal project. Rooney explained SDC collection from commercial projects has tapered off. Rapf asked about the Park bond. Cross explained $24M of the $30M authorized has been sold. The idea being as the three old GO Park Bonds are paid off, new debt is issued. Two of the three came off, so one new bond was issued. Bennett explained that the Park bonds cannot be used for street pathways, because the funds have already been designated for other projects. There are some pathways on the parks project list that were identified in the Parks master plan, however they are not school pathway projects in the right-of-way. Cruz asked if the 2019 transportation report was by priority, by recommendation, or a wish list. Rooney clarified the 2019 report she was referring to was the Pavement condition index report. The projects in the PCI report are listed in order of PCI and that is taken into consideration. The Transportation System Plan (TSP) came out in 2014 and has all the transportation project listed, in an unprioritized list. The TSP list can be prioritized in many different ways. The 37 school projects were taken from TSP and TAB prioritized them. 5. Identification of major issues affecting biennium 2021-23 Bennett discussed the budget issues for 2021-23. Bennett discussed PERS increase of 3% of total payroll, which ends up being about 12%. Other personnel costs, there will be wage increases that will be offset by a decrease in health care costs. Recession related activities, revenue that is business related. There has not been construction activity slack. Bennett was surprised that Calabria did not ask Cross a question about the Fire Department. The long term financial sustainability of the Fire service needs to be addressed. Bennett mentioned the city's ability to pay for capital projects. The city council will give direction on the street fund projects in early January. There are significant capital related needs in all of the utilities. Bennett stated she tells people that you want to do capital projects just in time, delay capital projects to the place where it becomes really expensive if you don't do it on that day and no sooner than that. The city will be spending energy on this topic. Bennett inquired about other budget topics from the past that she needs to know about. City of Lake Oswego Budget Committee Meeting Minutes of September 24, 2020 Page 5 of 6 Wendland stated because the city is in a biennium, it might be helpful to reconvene the budget committee earlier at an introductory meeting, to discuss some of the bigger issues, to get feedback and ideas. Bennett agreed. LaMotte suggested a meeting in late January. Bennett acknowledged what was said and she said that the timing would be worked on. Manz mentioned everyone on the budget committee has the ability to talk to Bennett, Cross, Stevens, etc. about any questions they may have on the budget. Manz mentioned the city is fortunate with the roads. Mayor Studebaker gave a shout out to the first responders with regard to the wind storms and fires in the city and other communities. Bennett mentioned the street crew assisting to clear the streets, during the wind storm. Chair Havens gave direction on future meetings. O'Neill acknowledged that it was Mayor Studebaker's last budget committee meeting. Rapf acknowledged O'Neil, Mayor Studebaker, Kohlhoff, and LaMatte. 6. Adjourn Budget Committee The Budget Committee meeting was adjourned by Chair Havens at 8:30 p.m. Respectfully submitted, Jennifer Waverly Budget & Financial Analyst APPROVED BY THE CITY BUDGET COMMITTEE: City of Lake Oswego Budget Committee Meeting Minutes of September 24, 2020 Page 6 of 6