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FY 05 Budget TransmittalMEMORANDUM Januaw 12,2004 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Fiscal Year 2005 Budget Transmittal For the second straight year, the City of Dubuque is contending with serious budget concerns. While the local economy has remained stable, the state and national financial situation fluctuates with uncertainty. As a result, the City of Dubuque is facing some budgeting difficulties principally passed along by the State of Iowa. Funding cuts, combined with new federal and state mandates, have contributed to another challenging budget. To insure funding is being spent in the most efficient manner, the entire City budget has been examined and evaluated. Every opportunity to reduce expense and increase revenue was considered. This budget carefully balances the need for quality, dependable City services with the obligation to be fiscally responsible. Although demanding, completing the budget was made less difficult by the proactive actions of the City Council. By investing in Dubuque's future through neighborhood reinvestment, downtown redevelopment, riverfront development, creation of industrial parks, community beautification, and utility modernization and extensions, the negative impact of outside influences has been mitigated for the coming fiscal year. Despite the difficulties of the Fiscal Year 2005 budget, the City will be able to offer the tenth consecutive year without a property tax increase for the average homeowner, with five of those years actually resulting in a property tax decrease. It also will not change our determination to implement the Vision, Goals and Priorities, as established by the City Council. Our Vision for the Community A City of... History Beauty Opportunities Excitement Masterpiece on the Mississippi The Honorable Mayorand Ci~ Council Members January 14,2004 Page 2 City Council Goals In five years the Council wants the following for the community: < Improved Connectivity: Transportation and Telecommunications < Planned and Managed Growth < Diverse, Strong Dubuque Economy < Riverfront Development < Partnering for a Better Dubuque City Council Priorities (2003-2005) Top Priority: Southwest Arterial: Funding, Land Acquisition Stormwater Projects: Carter Road Detention Basin 32nd Street Detention Basin: Expansion Bee Branch Creek Restoration Project Street Program: Funding, Improvement Projects Zoning Ordinance Update Erosion Policy and Strategy High Priority: Telecommunications Strategy and Cable Franchise Renewal Annexation: Policy and Implementation Riverfront Development Projects Federal Strategy Five Flags: Evaluation Budget: Service, Inventory, Cost of Services, Tax Rate Continued Priority (2002-2004) Downtown Master Plan Management Priorities Julien Dubuque Bridge River Valley Initiative State Grants Industrial Park Development: Next Phase Riverfront Master Plan: Implementation Star Brewery Lease Adams Company: Acquisition, Relocation Capital Improvement Program: New and Maintenance Maior Proiects (2003-2005) nd Stormwater Projects: Carter Road, 32 Street Detention Acquisition U.S. 20 Improvement Project The Honomble Mayorand City Council Membem January 14,2004 Page 3 As the City works to implement these, there are funding issues that are contributing to a budget shortfall that must first be made up: Expense Changes < Police and Fire Retirement expense has been increased more than $400,000 based on notification from the State of Iowa of an anticipated change in rates from the current rate of 20.48% to 24.92% (a 21.7% increase) for FY 2005. This is in addition to the increase from 17% to 20.48% (a 20.5% increase) received in FY 2004. < Estimated energy costs for the Grand River Center ($123,000 for the City's 50%) and property insurance of the center ($24,200). Health and dental insurance expenses have increased by 46% in Fiscal Year 2004 ($1,591,805), and Fiscal Year 2005 expenses are projected to increase by 12% ($605,041). The proposed budget offsets this increase by realizing a $158,072 savings from health care plan modifications. Revenue Changes < Interest earnings decreased from $800,000 to $500,000. < Franchise fees for 12 months versus eight months in current year (+$361,654), which replaces non-recurring CIP cuts used last year to balance the budget. The State of Iowa has notified cities that the Fiscal Year 2005 budget will include the elimination of the Bank Franchise Tax. This translates into a $145,000 reduction for the City. The Iowa League of Cities advises cities to incorporate an anticipated additional cut of approximately 2% in State revenues for the Fiscal Year 2005 budget. The result of this State reduction is $173,328. Dubuque Greyhound Park and Casino expansion is on line for August 1, 2005. Although there will be no expanded gaming revenue in Fiscal Year 2005, it will positively impact the City in Fiscal Year 2006 and beyond. While these items represent budget challenges, the City of Dubuque has been more fortunate than other parts of the country and the State of Iowa. Dubuque's City Council has been proactively investing in the future of our community. By using City resources and leveraging state, federal and private investments, all Dubuque residents and the Dubuque economy have benefited. In the 1980s, Dubuque averaged 8.9% unemployment, compared with the statewide average of 6.6%, and the national average of 7.3%. In 1982, the Dubuque unemployment rate was 14.2%. Then Dubuque became more aggressive in the area of The Hono~ble Mayorand City Council Membe~ January 14,2004 Page 4 job creation, forming partnerships and investing in the community. From 1997-2002 the average annual unemployment rate was 3.3%, down significantly from the levels of the 1980s. In 2003, the Dubuque unemployment numbers experienced some fluctuation, but overall employment remained strong. In 2002, Dubuque County finished the year with an overall average unemployment rate lower than the state for the first time in a quarter of a century. In 2003, Dubuque is on pace to achieve this milestone for the second consecutive year. According to iowa Workforce Development, Dubuque's unemployment rate began at 5% in January 2003, before dropping to 3.7% in April. The unemployment rate continued to decline and was recorded at 3.1% in October 2003. During that same month, the unemployment rate for Iowa was 4.5%. Dubuque's unemployment rate for October 2003 was lower than every major city in Iowa (Cedar Rapids 3.9%; Des Moines 3.2%; Iowa City 3.2%; Sioux City 4.5%; Waterloo 5.1%; Davenport 4.1%; Council Bluffs 4.7%). In November 2003, the unemployment rate was 3.4%. For January through November 2003, Dubuque has averaged an unemployment rate of 3.8%. During the same period of time, the state of Iowa averaged 4.3%. In 2002, Dubuque, Des Moines, and Sioux City were the only metro areas in Iowa to finish the year with net job gains. In 2003, Dubuque is projected to end the year again with increased net job gains. Area officials are working to increase the payroll and number of paychecks for area residents. In fact, recently McKesson announced plans to create 74 jobs that would create almost $3.1 Million in new annual payroll. Throughout the year, other projects like Vessel Systems ($1 million in new payroll) and Barnstead International ($1 million in new payroll) for example, have helped to create more dollars for Dubuque residents. Statistics kept by Iowa Workforce Development show the positive momentum Dubuque is experiencing. By comparing the number of jobs in Dubuque County in 1980 (43,700) with 1990 (46,000) with November 2003 (51,600), you can see that the efforts being put forth to attract and retain business have been successful with the rate of job creation increasing from 230 per year in the 1980's to 431 per year from 1996 to 2003. The turnaround Dubuque is experiencing with its business community is not going unnoticed. In 2001, the Greater Dubuque area was listed in the "Metro Business Retention Index" as second in the nation for business retention for the nation's 324 metro areas. Also, the Greater Dubuque area was ranked first by the Milken Institute for their "Top 50 Metros/High Tech Output Growth 1997-2002." The past year has The Honorable Mayorand City Council Membem Januaw 14,2004 Page 5 garnered Dubuque attention for local, state, and national recognition including being listed as one of American City and County magazine's 2003 Crown Communities. The job creation numbers and unemployment numbers show that Dubuque is holding steady in a very volatile economic climate. Our construction numbers reveal an even more encouraging picture. From 1990-1998 the City of Dubuque averaged 350,000 square feet of non-residential construction each year. The five-year period from 1999- 2003, the City of Dubuque averaged neady 1 million (988,203) square feet of non- residential construction each year. The year 2003 also saw continued growth in the number of residential units with 182 units being constructed. This is the second highest number since 1995 (with last year's 192 being the highest), and 40% higher than the seven previous year's average of 130 units per year. The total community assessed valuation has increased 78.5% over the last thirteen years from $973,733,675 to $1,738,500,017, which is an average increase of 6% per year. Establishing partnerships continues to play a key role in moving forward with many of the City's long-range plans. The best example of this - the America's River Project - has been an amazing success. The International Economic Development Council recently recognized the America's River partnership for its innovation and creativity by bestowing an honorable mention for its public-private partnership. The pairing of public and private investment dollars has changed the face of Dubuque's dverfront. Through private investment, Vision Iowa dollars, and local, state and federal dollars, the $188 million America's River project has moved from dream to reality. This $188 million development represents an amount equal to 11% of our existing assessed valuation. The consultant's analysis show that after this initial investment, the City can expect over $150 million in additional private development, an amount equal to 9% of the City's assessed valuation. At the end of 50 years the City will own the Grand Harbor Resort and Waterpark, which could produce lease revenues that could reduce property taxes by 27% for the average homeowner. Partnerships and City investments have been key in the redevelopment of downtown. Since 1985, the following has occurred in downtown (including Port of Dubuque): Fac/ade Building New Real Estate Public Net New Renovation RehabilitationConstruction Sales Improvements Jobs $4,498,705 $61,800,327 $117,317,663 $76,173,696 $26,640,104 +1,744 As with the non-residential construction numbers, much of this growth has occurred recently. The Honorable Mayorand City Council Members Janua~ 14,2004 Page 6 Since 1998, 58%($44,213,844)ofthe $76,173,696in downtown real estate sales has occurred. Since 1999, 57% ($34,930,319) of the $61,800,327 in downtown building rehabilitations has occurred and 78% ($20,892,079) of the 26,640,104 in public improvements have been done. Since 2000, 83% ($97,448,066) of the $117,317,663 in new construction has occurred. Since 2000, 43% (755) of the 1,744 jobs have been created. These redevelopment numbers are impressive, but Dubuque has also begun to grow again. As these census numbers will tell you, Dubuque at one time was a growing, thriving community. Population in Dubuque 1950 1960 1970 1980 1990 2000 2010 49,671 56,606 62,309 62,374 57,538 57,686 + +14% +10.1% +0.1% -7.8% +0.3% ? The stagnant-to-decreasing population trend of 1980 and 1990 is starting to turn around, and there are many reasons to be optimistic about the future. Dubuque continues to grow geographically. Between 1990-1995, only 40 acres were annexed into the City of Dubuque. Since 1995, just over 3,000 acres have been annexed into the City, with an additional 700 acres anticipated to be annexed in the next year. Much of this is a credit to the utility extensions by the City, which opened up almost 7,000 acres of land for development. Transportation Pinks are being created. The federal government has provided most of the $25 million that has been invested at the Dubuque Regional Airport since 1995. Between Wisconsin, Iowa and Illinois over $400 million is being spent between 1998 and 2005 to create 4-lane connections to the Quad Cities, Ames, Cedar Rapids and Madison, Wisconsin, with improvements to Chicago. The City Council has realized the importance of the neighborhoods. All existing parks were remodeled and 13 new parks, consisting of 60 acres, were created. The City Council has more than tripled the commitment to the street program to an annual average of $7.2 million, reconstructing or resurfacing 70% of the streets between 1990 and 2009. Approximately 30 abandoned properties were purchased and rehabilitated. Fifteen Police Officers were added and Community Oriented Policing was implemented, reducing high impact crimes in targeted neighborhoods. Historic Preservation was The Honomble Mayorand City Council Membem Janua~14, 2004 Page 7 emphasized, with new financial support programs and the adoption of standards for projects. The City has accomplished many things while minimizing the financial impact on the average homeowner. Including Fiscal Year 2005, the City has not raised property tax for the average homeowner in ten years, with five of those years resulting in a property tax decrease. The City has decreased property taxes for the average homeowner by 7% over the last ten years, or an average property tax decrease of just under 1% a year (0.8%). Including the City portion of property tax, the sewer fee, water fee, refuse fee and stormwater fee, the average homeowner will pay $41.90 more in Fiscal Year 2005 for City services than they paid in Fiscal Year 1995, an average increase of only $4.19 per year. How does the City of Dubuque compare with the other large cities in the State of Iowa? Tax Rate Comparison for Nine Largest Iowa Cities Rank City FY 04 Tax Rate 9 Waterloo $18.37 8 Des Moines $17.05 7 Iowa City $16.80 6 Council Bluffs $16.43 5 Sioux City $15.95 4 Davenport $14.63 3 Cedar Rapids $12.83 2 Dubuque $10.07 1 Ames $9.64 (FY05 Proposed) AVERAGE $14.64 Dubuque has the second lowest property tax rate. The highest ranked city 0Naterloo) is 82% higher than Dubuque's rate, and the average is 45% higher than Dubuque. The Honorable Mayorand City Council Membem Januaw 14,2004 Page 8 Refuse Rate Comparison for Seven Largest Iowa Cities 2004 Rank City Monthly Rate 7 Ames $20.50 6 Cedar Rapids 5 Iowa City 4 Des Moines 3 Watedoo 2 Sioux City $11.50 1 Dubuque Monthly Pay As You Throw $12.95 $12.10 $11.75 $11.50 $8.50 (FY05 Proposed) Average per type $16.00 $11.36 AVERAGE $12.68 Dubuque has the lowest monthly refuse rate. The highest ranked city (Ames) is 141% higher than Dubuque, and the average is 49% higher than Dubuque. Water Rate Comparison for Largest Iowa Cities with Water Softening Rank City Water Rate (800 cubic feet/resident average) 5 Ames $18.42 4 Des Moines $15.86 * 3 Council Bluffs $14.00 * 2 Dubuque $13.28 (FY05 Proposed) 1 Cedar Rapids $12.48 AVERAGE $14.81 * Based on 1,000 gallon increments, 133.69 cubic feet per 1,000 gallons Dubuque has the second lowest water costs for the average homeowner. The highest ranked city (Ames) is 39% higher than Dubuque, and the average is 11.5% higher than Dubuque. The Honorable Mayorand City Council Membem Januaw 14,2004 Page 9 Sewer Rate Comparison for Nine Largest Iowa Cities Rank City 9 Iowa City 8 Des Moines 7 Waterloo 6 Sioux City 5 Ames 4 Davenport 3 Council Bluffs 2 Dubuque 1 Cedar Rapids Sewer Rate (Based on 800 cubic feeFmonth) $31.82 $21.56 $18.95 $17.11 $16.78 $15.13 $15.12 $13.68 (FY05 Pmposed) $13.43 AVERAGE $18.18 Dubuque has the second lowest sewer costs for the average homeowner. The highest ranked city (Iowa City) is 133% higher than Dubuque, and the average is 33% higher than Dubuque. Stormwater Utility Rate Comparison for Cities In Iowa* Rank City Rate 10 Des Moines $5.29 9 Garner $2.63 8 Cedar Rapids $2.50 7 Budington $2.00 6 Boone $1.95 5 Sioux City $1.84 4 Ames $1.50 3 ClearLake $1.50 2 BeEendod $1.50 I Dubuque** $1.29 (FY05 Proposed) AVERAGE $2.20 * Average Monthly Residential Fee **There are three residential rates: 85% of the homes pay the $1.29 rate, smaller homes pay less and larger homes pay more. The Honorable Mayor and City Council Members January 14, 2004 Page 10 Dubuque has the lowest Stormwater Utility cost. The highest ranked city (Des Moines) is 310% higher than Dubuque, and the average is 70.5% higher than Dubuque. Dubuque has minimized the impact on the average homeowner in several ways: 1. Proactively investing in the community to diversify the economy. 2. Averaging almost 6% annual growth in assessed valuation. 3. Reduction in workforce since 1980s of nearly 13% (67.20 FTE), despite adding 15 police officers. 4. Implementing a retirement incentive program during the past calendar year resulting in eight retirements and a projected cost savings of more than $150,000 over the next five years. 5. Increased use of Federal/State grants. 6. Diversification of revenue base. 7. Increased public/private partnerships. 8. Reduction of property tax supported debt. 9. Entrepreneurial City Council policy decisions. Despite every effort to keep costs to a minimum, the following increases are recommended: A 3% increase in water rates is being proposed for Fiscal Year 2005. The additional funding would be directed to water operations and debt repayment. This would be a 1.59% annual average increase since Fiscal Year 1992. The Sanitary Sewer Utility was increased in Fiscal Year 1992 by 3%. The utility did not increase again until Fiscal Year 2002 when a 4% increase was implemented. The recommendation is for a 4% increase in Fiscal Year 2005. This would be a 0.92% annual average increase since Fiscal Year 1992. The transition to Pay As You Throw refuse collection has been very successful. As predicted, the recycling program has witnessed a substantial increase in collections, and illegal dumping has not been a widespread problem. The solid waste collection fee is recommended to increase from $7.60 to $8.50 per month, and single use refuse sticker fees will increase from $1.05 to $1.15. The additional income will fund an The Honorable Mayor and City Council Members January 14, 2004 Page 11 increase in operating expenses including increased health care costs, vehicle fuel, vehicle repair and extra refuse tipping fees. Parking fees are recommended for an increase. This will include fines, meter rates and ramp fees, as well as a modification to the courtesy ticket program to one ticket per license, instead of one per year. The proposed increases would generate an estimated $227,066 in revenue. A $10 research fee for each local criminal check done by the Police Department is being recommended and will generate $22,800 in revenue. Additional increases in recreation fees for basketball, softball, volleyball and golf are also proposed for Fiscal Year 2005. These fee increases are detailed on the Fact Sheet in the Citizen's Guide budget overview section. The remaining budget shortfall is proposed to be made up by: Maintenance level machinery and equipment expenses ($248,148), non- recurring decision packages ($90,434), part of a recurring decision package ($500), and recurring operating expenses ($110,918)for Fiscal Year 2005 totaling $450,000 were able to be funded by a savings from Grand River Center projects coming in under budget. This is a one-time revenue source. Each year an overhead factor is calculated for the City Manager's Office, Budget and Personnel activities and used to recharge expenses to each enterprise fund. Beginning in Fiscal Year 2005, the Legal Department and City Clerk's Office will be included in this recharge to the enterprise funds. This will more accurately reflect the services provided to these funds by these departments. For the second year, the Professional Conference Travel budget for General Fund (excluding Economic Development's Washington DC travel) will not be funded - saving $76,374. This cut again deeply concerns me because we are partially mortgaging our future by diminishing our ability to find solutions to existing problems and to learn how to better serve our fellow citizens. < The Department Managers' annual strategic planning session is not funded for the second year saving $20,000. Prior to Fiscal Year 2004, gaming revenues from taxes and lease payments (not the annual DRA distribution) was split 33% to the operating budget and 67% to the ClP. In Fiscal Year 2004, the first operating budget shortfall of more than $1 million was addressed through a change in this formula to a 50/50 split between the ClP budget and the operating budget (excluding the DRA annual distdbufion). The Honorable Mayorand City Council Members Januaw 14,2004 Page12 Fiscal Year 2005, I am recommending that formula be adjusted to reflect 75% for the operating budget and 25% for the ClP budget. This will pump an additional $1,091,610 into the Fiscal Year 2005 operating budget. Finally, it is important to recognize this budget was developed to include certain assumptions. The capital improvement program budget reflects the current Iowa Supreme Court ruling, which found in favor of the Dubuque Racing Association. If that ruling changes, there will be a drastic reduction in revenues available. The shortfall is estimated to impact the CIP budget by $21,780,256. Again, this was a complex and challenging budget, and it required the assistance of many City of Dubuque staff members. I am especially proud of the work that was done this year, including input from Department Managers and City Commissions. I would like to thank Administrative Services Manager Pauline Joyce, who retired after completing this final, difficult budget. Her nearly 31 years of services to the City of Dubuque have been invaluable. Also, I would like to thank new Budget Officer Dawn Lang, along with Office Manager Juanita Hilkin and Secretary Kevin Firnstahl. Corporation Counsel Barry Lindahl and City Clerk Jeanne Schneider continue to provide their expertise and assistance throughout the budget process. I would like to say how much I appreciate the courageous and entrepreneurial leadership of the Mayor and City Council. This year, I was privileged and honored to be named the International City/County Management Association's "Outstanding Manager of the Year." While this award was given to me, it belongs to the Dubuque City Council - who constantly and consistently make the difficult decisions and provide guidance - and to the Dubuque City staff who work so diligently to achieve the City's goals and vision. I respectfully submit this budget to the Mayor and City Council for consideration and deliberation. While I know that all needs and requests were not met, I believe the budget as presented keeps the community moving forward in a fiscally responsible manner. MCVM:jh