COUNCIL BUDGET HEARINGS
Members of Council met in budget hearings on May 22, 2001 and May 23, 2001 at 2:00 p.m. Members of Council present were Council President McGlumphy, Mr. Ritter, Mr. Pitts, Mr. Gorman, Mr. Truitt, Mr. Carey, Mr. Speed, Mr. Salters, and Mr. Ruane.
Staff members present were Mr. O’Connor, Mrs. Mitchell, Mrs. Tieman (Administrative Services Director), and Mrs. Green.
Mr. O’Connor briefed members on the Fiscal Year 2001/2002 City of Dover’s Operating Budget, stating that it includes total expenditures in the amount of $81.7 million. Of that amount, $15.4 million is for capital items. The Budget also includes estimates for fiscal years 2002/2003 and 2003/2004 to provide a long-term view of trends in the City’s revenues and expenditures. The Fiscal Year 2001/2002 Budget includes no property tax increase, a proposed water rate increase, no wastewater increase, and an increase of the Kent County Wastewater Adjustment Charge. The City’s basic municipal services are provided through the General Fund, Electric Revenue Fund, and Water/Wastewater Fund.
The General Fund includes public services such as police, fire, library, parks, beautification, recreation, street cleaning, leaf collection, snow removal, trash pick-up and disposal, planning and zoning, and certain development projects. Administrative and support services are provided to this fund by departments of the Intergovernmental Fund with proportional expenses included in this budget. The total expenditures for the 2001/2002 General Fund are $18.6 million.
The Water Fund finances production and distribution of potable water. Administrative and support services are provided to this fund by departments of the Intergovernmental Fund with proportional expenses included in this budget. The proposed 2001/2002 Operating Budget totals $4.1 million. Since 1998/1999, the Water/Wastewater Fund has been treated as three separate funds: Water, Wastewater, and Kent County Sewer Adjustment related items.
The Wastewater Fund finances wastewater transmission for utility customers. Administrative and support services are provided to this fund by departments of the Intergovernmental Fund with proportional expenses included in this budget. The proposed 2001/2002 Operating Budget totals $2.9 million.
The Electric Fund provides financing for electric energy to the greater Dover community. Administrative and support services are provided to this fund by departments of the Intergovernmental Fund with proportional expenses included in this budget. The proposed Operating Budget totals $55.2 million projecting a five percent increase from fiscal year 2001, of which $35.5 million is the expected expense for the purchase of power.
It is the City’s mission to provide customers highly efficient and superior quality service through City operations. Staff is vigilant about the changes in public service functions, and confronts the challenges that are presented by these changes. It was felt that the 2001/2002 Budget accomplishes these goals.
Mr. O’Connor reviewed the capital projects and the philosophy of including these projects in the budget at this time. He stated that staff has provided a pro-active budget, explaining the expansion of water utilities by acquiring areas to become dependent on the City for water service in the future when the area becomes developed. This same type of action is taken for electric; however, the goal is to eliminate outages. Mr. O’Connor explained the proposed project for the installation of transformers to tie with Conectiv at 230KV for triple redundancy to provide both quality and quantity of service. The goal is to expand the City’s customer base, otherwise, the cost of service will continue to increase.
Mr. O’Connor stated that the City’s rate structure is designed to maintain competitiveness. As the community grows, issues such as the types of residents and businesses that are attracted to the area must be considered. He explained that if the rates are too low, the City would attract low income residents and if the rates are too high, the City would attract only high level income residents. It is the City’s goal to maintain a balance in this regard.
Mr. O’Connor also explained staff’s philosophy with regard to user fees. It is his feeling that the value of property should not determine cost of service. The City of Dover, as well as many other municipalities, are becoming less reliant on taxes and more reliant on user fees. He referred to the proposed water fee increase and explained that one of the projects included in the budget is the Dead End Water Main Removal. This project will eliminate the existing dead end water mains throughout the City by interconnecting the dead ends with existing mains to create loops. Mr. O’Connor explained that these dead end mains do not provide adequate circulation within subdivisions and the result is stagnant water which produces odors. This project will improve water quality, help eliminate the odor, and reduce complaints from customers and residents.
With regard to the proposal to eliminate the fuel adjustment, Mr. O’Connor advised members that over the last five years the cost of energy to the City has increased in excess of six percent and will increase an additional two to three percent, depending on the demand charge for the next year. The contract with Duke Energy levelizes these rates. Although the City no longer has an association with fuel, the City chose to have the fuel adjustment remain on the account as a credit. The proposed budget eliminates the fuel adjustment to help off-set the additional cost of energy that will be incurred by the City.
Due to concerns with the proposed rate increases, Council directed staff to develope “Plan B” for the budget which includes a reduction of costs in various departments and no rate adjustments. Considering that several members of Council were recently elected to office, Mr. O’Connor suggested that if “Plan B” is approved, members review the budget after the first quarter of the fiscal year. This would allow actual costs to be obtained, as well as provide a minor indication of the impact of the budget reductions, considering that for a longer period of time these reductions will have an effect on the level of service.
Mr. Salters reminded members that there are revenues expected for the City and that costs are not increased based on the projected revenues. However, when there is a necessity or a vision for the future, there may be the need to consider an increase in certain areas or services. Although he encouraged members to be prudent and vigilant in the review of the proposed budget, he cautioned members not to “micro-manage”, feeling that Council should rely more on the expertise of staff.
Mrs. Mitchell distributed the Revised Budget (Plan B) and details regarding the proposed changes, including line items for each department where the reduction was made to bring the budget balance up to a more acceptable level for Council. She stated that department heads were advised that if there is a concern with any of the reductions or a critical issue that would prevent them from operating without the funds to relay their concerns to the City Manager or Finance Director who would advise Council accordingly. Mrs. Mitchell cautioned members that the reductions may impact the level of service currently being provided. She explained that attempts were made to make the reductions in areas where the department head had more flexibility to manage the associated costs. She stated that some reductions will not have an impact on the level of service, such as eliminating the purchase of vehicles which were changed to leases. This is a matter of financing which will provide the City additional funds. If a department head does not agree with the line item for which the reduction was made, Mrs. Mitchell assured members that they will be provided the opportunity to make the reduction where they feel the savings could be achieved, thus providing the net reduction included in their department.
Responding, Mr. O’Connor stated that an example of reducing a level of service could be to eliminate the service of cutting high weeds on vacant lots. This service would not endanger the residents if it were eliminated but would deplete a level of service that the residents have become accustomed to. Another example would be if there was an electric outage, rather than being able to restore the power within 15 minutes, it may take 20 minutes. These types of reductions may be realized with the reduction of employees and hours, which will be a decision of Council.
In response to Mr. Ruane, Mrs. Mitchell stated that although it has been past practice, she recommended that a policy be established that would require the following carry forward balances: 1) General Fund - five percent; 2) Water/Sewer Fund - ten percent; and 3) Electric Fund - $1.5 million. She also recommended that a committee be established to develop a budget policy for the City of Dover. The proposed carry forward balance, according to Plan B, for the General Fund represents approximately $270,000 more than the five percent recommended.
Responding to Mr. Salters, Mr. O’Connor stated that there may be a situation that would require either a reduction in expenditures or an increase in revenues in order to meet the minimum carry forward balance. Mrs. Mitchell assured members that according to the GFOA practices, a five percent carry forward balance for the General Fund is recommended. She also advised members that the State of Delaware is currently at five percent.
With regards to questions of Mr. Ritter regarding personnel, Mrs. Mitchell stated that Plan B has eliminated the additional employee requested for the Administrative Services Department and has eliminated fulfilling positions that are currently vacant in several departments.
Mr. Ruane requested additional details regarding right-of-way fees and noted that with the exception of the City of Dover, Conectiv, and Comcast, other utilities are not paying such fees to the City of Dover. Mr. O’Connor stated that the City has changed the policy from franchise fees to right-of-way fees. The concept is that the City owns and maintains assets (rights-of-way, easements, underground facilities, electric poles, streets, and various other properties). The City will grant rights and charge a fee to other adjoining utilities to use these assets. The telephone company, Verizon, does not feel they should be subjected to the fee and the City is involved in an on-going lawsuit with them. He stated that Conectiv (telephone), and Comcast (cable), pays the City “rent” for use of the City’s rights-of-way. The development of the fee was based on the maintenance of these rights-of-way such as tree trimming, grass cutting, code enforcement, and other ancillary services. It was the City’s feeling that it would not be fair to charge the telephone and cable companies without also charging the City’s Electric Department or Water Department for use of these rights-of-way.
With regards to departmental cost allocations, Mr. O’Connor stated that the City has two constant cost allocations: 1) rights-of-way fees; and 2) Inter-Governmental department charges whereby a percentage was established to represent a portion of the services that are provided by that department for the different funds. Although he was not familiar with exactly how the percentages were established, he indicated that they had been effective for many years.
Mr. Carey moved to recommend acceptance of the 2001/2002 Budget as revised (Plan B), and that the First Reading of the budget ordinances take place during the Regular Council Meeting of June 11, 2001, seconded by Mr. Salters.
Mr. Ritter indicated that he had several additional questions regarding the budget. Responding to his questions regarding the City’s Internet Service, Mr. O’Connor stated that the proposed 50 customers have not been acquired to date. Mrs. Tieman explained that although the revenue is based on the assumption of more customers, consideration must also be given to the fact that the City will not have the costs associated; therefore, if there is a reduction in revenue for this service, there will also be a reduction in its associated expense.
Mr. Ruane stated that he also has additional line item questions.
Mr. Speed called for a point of order, stating that there is a motion on the floor and that the questions being asked are not pertinent to the motion. He requested additional time to review the revised budget and recommended that a vote be taken on the motion at this time.
On a call for the question by Mr. Salters and request for a roll call vote, the motion to recommend acceptance of the 2001/2002 Budget as revised (Plan B) failed by a roll call vote of seven (7) no, two (2) yes (Mr. Salters and Mr. McGlumphy).
Mr. Salters stated that any questions regarding the budget may be asked of staff. The Budgets were distributed several weeks ago to allow Council the opportunity to review the budget and to question the Finance Director/Treasurer or City Manager.
Mr. Ruane, stating that he was opposed to the motion at this time, explained that he would like more time to allow for clarification of the Revised Budget (Plan B) as it compares to the budget items/issues previously determined by Council.
At the request of Council President McGlumphy, staff provided details regarding whether or not the following budget items/issues, as mentioned by Mr. Ruane, were a part of the proposed budget revised (Plan B):
1)Trash Fee - The trash fee remains included in the revised proposed budget (Plan B).
2)Artis Drive Project - The Artis Drive Project is not included in the revised proposed budget (Plan B). This project was removed from the proposed budget.
3)Water Rate Increase - The revised proposed budget (Plan B) does not include a Water Rate Increase. The Water Rate Increase was removed from the proposed budget.
4)Fuel Adjustment Rate - Elimination of the Fuel Adjustment Rate (Credit) has been maintained in the revised proposed budget (Plan B). There was no change with the fuel adjustment rate to the proposed budget.
Responding to Mr. Ruane, Mr. O’Connor stated that the impact to a customer using 1,000 KWH per month would be a $3.70 increase in their electric bill per month. According to the APPA, the average household uses 750 KWH per month. This adjustment would generate approximately $1.75 million in revenue for fiscal year 2002. Without the elimination of the fuel adjustment credit, the minimum carry forward balance will not be met. Mr. O’Connor stated that based on the level of service and future projections, there are no other areas in the Electric Fund that can be eliminated to produce additional funds.
5)Carry Forward Balances - The Carry Forward Balances are at the level previously discussed (5% General Fund, 10% Water/Sewer Fund, and $1.5 million for Electric Fund) in the revised proposed budget (Plan B). The Carry Forward Balances in the proposed budget have been adjusted.
6)Hiring Freeze - The revised proposed budget (Plan B) imposes a hiring freeze on any new personnel positions in the departments. It funds at the current level of operations. All requests for new positions were eliminated from the proposed budget and are not included in the revised proposed budget (Plan B). It was noted that the hiring freeze is to become effectively immediately, and includes those positions that were proposed in the third budget revisions.
Council President McGlumphy reminded members that the hiring freeze was implemented as a result of previous discussions by Council, with the exception of those positions that are critical in nature. In response to Mr. Ritter, Mr. O’Connor explained that he determined that it was critical to fulfill a position, providing the example that it is necessary to have three (3) employees to perform a substantial amount of the City’s tree trimming work. If one (1) of those position becomes vacant, it is his opinion that it would be critical to fill the position rather than have two (2) employees that are not able to perform their job.
7)Miscellaneous Items - The miscellaneous items (i.e. projects, lawsuits, contractual services) has been maintained in the revised proposed budget (Plan B). These items include both expenditures and revenues such as the right-of-way litigation and contractual agreement for the farming of the Garrison Farm.
Responding to Mr. Ruane, Mr. O’Connor concurred that the budget amounts for many of the items involving lawsuits are only estimates at this point.
Noting that the description of the primary programs for fiscal year 2001/2002, as provided for each department were not updated according to the budgeted amounts, members requested that they be provided an update of these programs to coincide with the Revised Proposed Budget (Plan B).
Mr. Gorman moved to adjourn until 2:00 p.m. tomorrow (Wednesday, May 20, 2001), seconded by Mr. Carey and unanimously carried.
The meeting reconvened on May 20, 2001 at 2:00 p.m.
Members were provided with details indicating the reconciliation of the proposed budget and the revised proposed budget (Plan B) for fiscal year 2001/2002. Mrs. Mitchell explained that this information provides the 2002 draft budget figures and the results of instituting the revised proposed budget (Plan B).
Staff explained that there are situations where employees were moved from one department or division to another, which is reflected in the salaries. Mr. O’Connor also stated that in accordance with the negotiated employment agreements, several positions were reclassified.
There were several miscellaneous policy and procedural questions of Council, such as lease payments, municipal street aid funds, etc., explained by staff.
Mr. Ritter stated that, according to the news, it is a national trend that municipalities are cutting their budgets and advised members that Sussex County recently made significant reductions in their budget so that it was not necessary to increase fees since the economy is not improving. Although he would prefer to have both, Mr. Ritter recommended that either the fuel adjustment credit remain in the budget or that the trash fee be eliminated.
Responding, Mr. Salters reminded members that any reduction in revenues will require a reduction in services. It was his feeling that staff has done an excellent job in reducing departmental expenditures to help meet the level of carry forward balances desired and that it would not be wise for Council to reduce the services currently being provided by the City.
Concurring, Mr. Pitts stated that he has learned from attending several National League of City functions that several communities and municipalities are instituting user fees and that it is apparently the trend across the nation.
Referring to the fuel adjustment credit, Mr. Ritter stated that the elimination of this credit would cost a resident an average of $1.50 - $2.00 per month. However, it provides the City an estimated $1.75 million in revenue. Since this amount is based on energy usage, Mr. Ritter indicated concurrence in maintaining the credit. With regards to the trash fee, he explained that a single person or senior citizen who produces one (1) bag of trash per week is required to pay the same amount as a large family who may fill their trash can and have extra trash bags for pickup, which he felt was not fair.
Responding to Mr. Truitt, Mr. O’Connor explained that a one cent tax increase would provide approximately $87,000 and that the $5 per month trash fee provides approximately $600,000 in revenue. Mr. Truitt noted that approximately 1/3 of the properties in the City are tax exempt and they would have the benefit of trash pickup without payment unless it remains a separate fee. Referring to fairness, it was his opinion that it is more fair to require all residents to pay equally for this service rather than just those residents that pay taxes.
In response to Mr. Pitts, Mr. O’Connor stated that there has been an increase in insurance premiums, both health and liability coverage, gasoline, etc. He could not identify any items necessary for the operation of the City that were reduced. He advised members that the per capita has decreased, explaining that there has not been an increase in the number of employees, yet the City is growing and continues to provide the same level of services to more customers.
Mr. Carey suggested that Council consider reevaluating the adopted budget in January to determine where the City is financially, how the projects have progressed, if there is a need for adjustments, etc. He also felt that departments should be required to provide anticipated dates for major expenditures in order to assist the Finance Director in determining when large expenses will be incurred.
Council President McGlumphy called for a brief recess at 3:26 p.m. The meeting reconvened at 3:40 p.m.
Mrs. Mitchell stated that in order to provide a better understanding, the Transportation Enhancement Grants were removed from the budget to be considered separately. He explained that these grants are applied for by the Planning Department after meeting with the City Manager, Public Works, and Recreation Directors to determine needs. When the project involves public improvements, the engineering design and planning phases are completed under the Planning Department and then passed onto the Public Works Department for the construction phase. The City pays for all project expenses and then applies for reimbursement from the State of Delaware for the 80% match. Mrs. Mitchell provided members details regarding the grant applications currently in progress.
Mr. DePrima explained that these grants are federal programs passed on to states for availability to municipalities and private organizations. The municipality/organization is required to front the money for the project. He advised members that monies for design costs are not reimbursed until completion of the project; however, construction costs are reimbursement as invoices are submitted, in accordance with the contract, which could range from 30 days to six months or one year.
Responding to Mr. Ruane, Mrs. Mitchell stated that these projects were separated for clarification purposes only, feeling that their previous presentation in the budget caused confusion. Since these grants have an impact on the General Fund, they have been listed separately to provide members a clear and concise account of these funds.
Mr. DePrima suggested that, in the future, these grants be included in the budget as a separate account for projects. He stated that there has not been consistency in how these grants were presented to Council in previous years.
Mrs. Mitchell explained that in the future, these grants will be presented as a fund expense in the General Fund rather then being included in a specific department’s budget. It was her feeling that there are several other projects listed in the department’s budget and that the inclusion of the grant expenses caused confusion.
In response to Mr. Speed, Mrs. Mitchell stated that approximately $300,000 is expected to be reimbursed in fiscal year 2002 for previous years’ projects. Mr. Speed noted that the expense to the City for the New Burton Schutte Park Underpass Phase II and Hanson House Rehab Projects for fiscal year 2002 is approximately $300,000. Since the expenses for the Downtown Pedestrian Amenities Grant Phase III is not expected until fiscal year 2003, the reimbursements for fiscal year 2002 will offset the expenses for fiscal year 2002.
Mrs. Mitchell reminded members that she, along with Mrs. Tieman, made reductions in the departmental budgets in areas that they felt could be managed by the department head. These changes were indicated in the Revised Proposed Budget (Plan B). If there were any concerns of the department head, they were requested to advise them so that they could be forwarded to Council for review. She stated that the Public Works Director has indicated a critical need for one of the positions eliminated from the Sanitation Department. He agreed to take an employee from the Streets Department to allow for an additional employee in the Sanitation Department. Also, the Mayor has agreed to delay the purchase of a computer provided in his budget to allow for the City Clerk’s Office to keep the purchase of a computer. Mrs. Mitchell explained that staff will incorporate these changes, as well as the inclusion of the Transportation Enhancement Grants, into the proposed revised budget and felt that these items needed to be mentioned so that Council would have a record and to provide the ability to follow the revisions to the proposed revised budget (Plan B).
Mr. Gorman complimented and thanked the City Manager, Finance Director/Treasurer, and Administrative Services Director for their work in the preparation of the budget. He noted that the general, overall economy of the United States is not as healthy as it has been in the last five years. He felt that it will be imperative for staff and Council to maintain continual vigilance throughout the year and, considering that a budget policy will be adopted, Mr. Gorman agreed with the suggestion of a mid-year review. Due to changes being made to departmental budgets in a short period of time, he suggested that there be a meeting held by Council and department heads to explain what was done and why it was done and ask for their cooperation in working within the budget throughout the year.
Mr. Ruane echoed appreciation to staff for their assistance during the budget process. For clarification purposes, he noted that the originally proposed budget was reduced $2.7 million. In addition, he stated that the original proposed budget provided a total carry forward balance in the amount of $117,946 for the three major funds. As a result of the revisions, the new total for the carry forward balances is in the amount of $3,056,326, which he felt reflects good budgeting and the responsible work of staff and Council.
Mr. Gorman moved to recommend acceptance of the 2001/2002 Budget as revised (Attachment #1), seconded by Mr. Carey and carried with Mr. Ritter voting no. (It is noted that acceptance of the 2001/2002 Budget requires the adoption of budget ordinances. A First Reading of the budget ordinances will take place during the Council Meeting of June 11, 2001 and a Final Reading will occur during the Council Meeting of June 25, 2001). The budget hearing tentatively scheduled for May 24, 2001 will not be necessary and is canceled.
Mr. Carey moved for adjournment, seconded by Mr. Salters and unanimously carried.
Meeting Adjourned at 4:19 P.M.
Respectfully submitted,
William P. McGlumphy
Council President
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