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Budget Message FY 07 i5~~~E ~c/4.~ MEMORANDUM {-" January 9, 2006 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Fiscal Year 2007 Budget Transmittal Message The Fiscal Year 2007 budget process includes new leaders and one leader in a new role, including: Mayor Roy D. Buol At-Large Council Member Ric W. Jones 1st Ward Council Member Kevin J. Lynch 2nd Ward Council Member Karla A. Braig I welcome them as they continue public service in their new roles. City leadership also involves veteran Council Members, including: At-Large Council Member Ann E. Michalski 3rd Ward Council Member Joyce E. Connors 4th Ward Council Member Patricia A. Cline The City begins this process with four City employees having been called to active military duty: Steven L. Olson Thomas P. Reed Brant E. Schueller David B. Welsh Over the last four years the following City employees have been on active duty and have returned safely: Debra R. Bisping Frederick A. Brimeyer Jamie S. Karshbaum Gregory A. Merfeld Benji M. Young We thank them for service to our country to protect our hard-earned freedoms. The Honorable Mayor and City Council Members January 9, 2006 Page 2 The Fiscal Year 2007 budget is about growth. The things the City needs to do if we want to continue growing, which of course it must do to provide economic opportunity for Dubuque families, and the things that need to be done to preserve and enhance the quality of life for the citizens of today, based on improvements that need to be done in reaction to growth that has happened in the past. The best examples of future growth initiatives include budgeting for the extension of utilities in annexation areas and the construction of IA 32/Southwest Arterial. The best examples of projects that need to be done in reaction to historical growth are the expansion of the park system and the Bee Branch Creek Restoration Project. To provide greater opportunity for economic expansion, while maintaining and enhancing the quality of life, a community must be willing to invest resources. Those resources include human capital, like time and talent, and financial capital. These investments involve emergency services; preventive services; safe drinking water; treated sewage; properly disposed of waste; engineered, maintained and plowed streets; planned growth; safe housing; respect for the rights of people; safe construction practices; sound financial practices; proper record keeping; respect for the law; state-of- the-art communication systems; appropriate use of technology; communicating with and providing information to the public; modern and accessible parks and recreation opportunities; entertainment; education through access to books and the internet; economic expansion and job creation; transportation; and sound management practices emphasizing accountability, problem solving, employee and citizen input and forming partnerships. These are all the role of the City of Dubuque and others. To achieve the expectations of Dubuque citizens will not be easy and will continue to require a concerted effort by all those involved. This Fiscal Year 2007 budget document was built on the City Council Vision, Goals, Priorities and Management Agenda established in September 2005. Of course it is understood each year, as that annual strategic planning session provides direction for budget preparation, that this recommendation is an attempt to interpret the results of that session through the use of limited resources with competing priorities. That could be made all the more challenging through this budget process in that three of the elected officials reviewing the recommendation were not on the City Council when the 2005 Strategic Planning Session was held. The established City Council Vision, Goals, Priorities and Management Agenda are as follows: Dubuque 2020 Vision Statement Dubuque is a city of history, beauty, opportunities and excitement: Masterpiece on the Mississippi. The Honorable Mayor and City Council Members January 9, 2006 Page 3 The vision statement was approved to include: 'The City of Dubuque is a growing city with a strong, balanced economy and connections to the world. The Dubuque community takes pride in our history and heritage and has actively preserved our picturesque river and community. Dubuque citizens have choices of quality livable neighborhoods and fun things to do; and are engaged in the community. Dubuque city government is financially sound and providing services with citizens getting value for their tax dollars." Five-year goals for the community: . Improved Connectivity: Transportation and Communications . Diverse, Strong Dubuque Economy . Planned and Managed Growth . Partnering for a Better Dubuque . Riverfront Development The City Council adopted a Policy Agenda 2005-2007 and developed 10 priority issues. These issues were divided into top and high priority: Top Priority . Southwest Arterial - Funding for the arterial is once again the NO.1 transportation priority for the City of Dubuque. . Intermodal Transit Facility in the Port of Dubuque . Downtown Master Plan Implementation . Bee Branch Stormwater Improvement Project . Erosion Control Policy High Priority . Municipal Communication Utility Referendum . Airport Master Plan Implementation . Police Department Staffing and Deployment . Neighborhood Crime Reduction Strategy . Library Renovation Also established was the Management Agenda for 2005-2007. These 18 issues represent short-term projects for the City Manager and City of Dubuque staff. Included in the Management Agenda are items that are considered Major Projects that involve significant city resources and may span more than one year for completion: Management Agenda . Federal Building . Water Pollution Control Plant Upgrade Plan · Infrastructure Upgrade Strategy and Action . Annexation Study Update . Zoning and Subdivision Ordinance Update The Honorable Mayor and City Council Members January 9, 2006 Page 4 . Petroleum Plume Remediation · Regional Community Safety Training Center . City Leases: Upgrade . After School Program Development . Major Projects · Casket Company Completion and Tot Lot · Shot Tower Renovation Plan and Project . Storm Sewer Projects . Gateway Landscaping Project . A.Y. McDonald Park Project . Pyatigorsk Park Project . Bergfeld Recreation Area · Comiskey Park Improvement Project . Pet Park The City has a solid foundation to build upon as recognition in the recent past can attest: · The City of Dubuque was selected as the 2005 Employer of the Year by American Legion Post #6. . Phoenix Award for Port of Dubuque Brownfield Redevelopment from the United States Environmental Protection Agency Region 7. · Best Development Award for the America's River project from 1,000 Friends of Iowa. · 10 Great Places to Discover Midwest Charm, USA Today. · All-Star Community Award for America's River project from the Iowa League of Cities. . Best New Development Award for America's River project from Main Street Iowa. · Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officer's Association. · Superior Levee Maintenance Award from the U.S. Corps of Engineers. · Excellence in Communication for Interest-Based Bargaining Committee from the Dubuque Area Labor-Management Council. . Family Self Sufficiency Program Success from U.S. Department of Housing and Urban Development Region 7. . Housing Choice Voucher Home Ownership Program Success from U.S. Department of Housing and Urban Development Region 7. · Dubuque Carnegie-Stout Public Library Accreditation by the State Library of Iowa. . Police Department accreditation by the Commission on Law Enforcement Accred itation. . Tree City USA by the National Arbor Day Foundation. The Honorable Mayor and City Council Members January 9, 2006 Page 5 . The Greater Dubuque Area was ranked #1 by the Milken Institute for High Tech Output Growth, 1998-2003. · The Metro Business Retention Index for November 2001 ranked the Greater Dubuque area 2nd in the nation for business retention. · Forbes magazine ranked Dubuque 13th of 168 cities for the Cost of Doing Business. . The May 2004 issue of Expansion Management magazine selected Dubuque as one of just 50 Five-Star Communities in the country. Identifying schools and home affordability as the two most important quality of life issues, they selected Dubuque as #7 for quality of schools and #1 in housing affordability. They also ranked Dubuque #11 in peace of mind for its level of safety. . The Milken Institute's 2004 Best Performing Cities Index ranked Dubuque 34th out of 118 small U.S. metropolitan areas. · American City and County magazine selected Dubuque as one of only six Crown communities in 2003. . A December 2002 Des Moines Register editorial, entitled, "Dubuque shows how," began "Few Iowa cities were hit harder in the '80s. Few have a better outlook now." The editorial ended saying, "The Dubuque story might offer lessons for every Iowa city." . In 2004, Country Music Television named Dubuque County as the #4 Top Destination to Visit Worldwide. . In May 2003, USA Weekend magazine selected the Upper Mississippi River Valley as the Third Most Beautiful Place in America. · Dubuque received the Merit Award for Economic Development for the America's River project in 2004 from the International Downtown Association. . The National Trust for Historic Preservation named Dubuque to its 2005 list of America's Dozen Distinctive Destinations, an annual list of unique and lovingly preserved communities in the United States. · A 2004 study by the Milken Institute showed one-year wage growth in Dubuque outpaced 75% of all U.S. smaller metros. · Dubuque was designated a Preserve America Community in November 2004. . Inc. magazine ranked Dubuque #62 out of 274 metros measured on its list of "Best Cities to Do Business in America" in its May 2005 issue. Dubuque climbed 177 spots from last year! The Fiscal Year 2007 budget recommendation you will be reviewing over the next six weeks has been prepared with the intent of minimizing the cost to the taxpayer. A decrease in the revenue projections from the Dubuque Racing Association of $8,804,571 over the next five years, and an increase in sales tax that did not meet aggressive projections have meant less operational and capital resources in Fiscal Year 2007 than was anticipated when the projections were done last year. This has meant that the property tax impact on the average homeowner was not able to be decreased as much as hoped for and additional borrowing was required in the stormwater utility, contributing to a recommended increase in that fee. The Honorable Mayor and City Council Members January 9,2006 Page 6 The property tax is recommended to have a decrease in property taxes for the average homeowner of $18.83 (3.73%). This is a decrease from the cost to the average homeowner in Fiscal Year 2006 of $504.62, down to $485.79. If this is adopted by the City Council through the budget process, it will be the sixth decrease of the property tax impact on the average homeowner in the last twelve years. However, it will not meet the Budget Policy Guideline established by the City Council in December 2005 of a 5.44% decrease. The City of Dubuque property tax rate for the City portion of the property tax bill reached a high of $14.58 per thousand dollars of assessed valuation in Fiscal Year 1987. The Dubuque Greyhound Park and Casino, the Local Option Sales Tax and operating efficiencies brought the property tax rate down to $12.61 by Fiscal Year 1994. The recommendation for the Fiscal Year 2007 property tax rate is $9.9803 per thousand, a slight increase from the Fiscal Year 2006 property tax rate of $9.6991. This will mean that the Fiscal Year 1987 property tax rate of $14.58 is 46.1 % higher than the Fiscal Year 2007 recommended property tax rate of $9.9803. FY 06 Tax Rate Comparison for Nine Largest Iowa Cities 9 Waterloo $19.16 8 Council Bluffs $18.39 7 Sioux City $17.97 6 Iowa City $17.86 5 Des Moines $16.52 4 Davenport $15.24 3 Cedar Rapids $13.99 2 Ames $10.17 1 Dubuque $9.98 (FY 07) Average without Dubuque $16.16 Dubuque is the LOWEST in the state for property tax rate. The highest ranked city (Waterloo) is 92% higher than Dubuque's rate, and the average is 62% higher than Dubuque. The reduction of the estimate of available resources from the Dubuque Racing Association has had the most impact on the Drainage Basin Master Plan funding, with a reduction of $3,621,000 in DRA resources available over the next five years. The City of Dubuque gets two major sources of revenue from gaming. The annual distribution from the Dubuque Racing Association is dedicated 100% to the Capital Improvement Program. The taxes and lease payments from the Dubuque Racing Association and Peninsula Gaming are split between the Capital Improvement Program budget and the Operating Budget for property tax relief. In Fiscal Year 2006 this split was 62.72% to the Operating Budget and 37.28% to the CIP. In Fiscal Year 2007 the The Honorable Mayor and City Council Members January 9, 2006 Page 7 recommended division is 70% to the Operating Budget and 30% to the CIP. This exceeds the operating guideline adopted in December 2005, which was 62.72% to the Operating Budget. The implementation of the Bee Branch Creek Restoration Project is the key to saving over 1,100 homes from flooding during severe rainstorms that seem to come all too frequently. Quickening the pace on the part of the project from the 16th Street Detention Basin through the damming affect of the railroad tracks will allow for a quicker redevelopment of the former Dubuque Pack site and more timely flood relief for North End residents. This budget recommendation includes an accelerated rate of increase of the Stormwater Fee and now the fee caps out at $5.00 in Fiscal Year 2012, instead of $3.50 in Fiscal Year2013. FY 13 FY07 FY08 FY09 FY10 FY11 FY12 and Beyond Previously approved $2.00 $2.25 $2.50 $2.75 $3.00 $3.25 $3.50 Stormwater Fee Fiscal Year 2007 $2.25 $3.25 $4.00 $4.25 $4.25 $5.00 $5.00 Recommended Fee FY 06 Stormwater Rate Comparison for Iowa Cities with Stormwater utilities 14 13 12 11 10 9 9 8 8 7 6 6 5 4 3 2 2 1 Des Moines Ackley Cedar Rapids Carroll Garner Davenport Dewitt Ames Dubuque Marshalltown Burlington Iowa City Boone Sioux City Clear Lake Bettendorf Marengo Mason City $6.12 $3.08 $3.04 $3.00 $2.63 $2.50 $2.50 $2.25 $2.25 (FY 07) $2.16 $2.00 $2.00 $1.95 $1.84 $1.55 $1.50 $1.50 $1.00 Average without Dubuque $2.39 The Honorable Mayor and City Council Members January 9, 2006 Page 8 The highest ranked city (Des Moines) is 172% higher than Dubuque's rate, and the average is 6% higher than Dubuque. The water fees are recommended to increase by 4%. From Fiscal Year 1983 through Fiscal Year 2007, this is an average of 1.9% annual increase, with six of those years showing no increase. FY 06 Water Rate Comparison for Largest Iowa Cities with Water Softening 6 Iowa City $28.80 5 Ames $18.42 4 Council Bluffs $17.44 3 Des Moines $16.22 2 Dubuque $14.40 (FY 07) 1 Cedar Rapids $14.11 Average without Dubuque $19.00 The highest ranked city (Iowa City) is 100% higher than Dubuque's rate, and the average is 35% higher than Dubuque. The sewer fees are recommended to increase by 9%. Increased operating costs account for 5% of this increase. Debt payment for capital needs accounts for 3% of this increase. A facility plan will be conducted in Fiscal Year 2007, which will culminate in a major renovation plan that will require long-term debt, so 1 % of this increase and future year increases are to provide capacity for that debt. From Fiscal Year 1993 through Fiscal Year 2007, this is an average of 1.8% annual increase in sewer fees with nine of those years showing no increase. FY 06 Sewer Rate Comparison for Nine Largest Iowa Cities 9 Iowa City $31.82 8 Des Moines $25.16 7 Waterloo $18.95 6 Ames $18.45 5 Council Bluffs $17.20 4 Sioux City $17.11 3 Cedar Rapids $16.52 2 Dubuque $15.78 (FY 07) 1 Davenport $13.76 Average without Dubuque $19.87 The highest ranked city (Iowa City) is 102% higher than Dubuque's rate, and the average is 26% higher than Dubuque. The Honorable Mayor and City Council Members January 9, 2006 Page 9 The refuse collection fee is recommended to increase from $8.70 per month to $9.46 per month. This is a 8.74% increase. From Fiscal Year 1994 to Fiscal Year 2007, this is an average of 0.5% annual increase, with five of those years showing a decrease and three years having no increase. FY 06 Refuse Rate Comparison for Nine Largest Iowa Cities 9 Ames $21.00 8 Cedar Rapids $13.85 7 Sioux City $13.13 6 Council Bluffs $13.00 5 Iowa City $12.60 4 Waterloo $12.30 3 Des Moines $11.75 2 Davenport $10.15 1 Dubuque $ 9.46 (FY 07) Average without Dubuque $13.47 The highest ranked city (Ames) is 122% higher than Dubuque's rate, and the average is 42% higher than Dubuque. Fiscal Year 2007 Budaet Initiatives Management Team members attending the Faces and Voices Diversity Conference in Dubuque $6,205 Additional Marketing Funds for the Airport $10,000 Contribute towards a revenue guarantee to get another hub for the Airport through the existing carrier or an additional carrier $250,000 Part-time Inspector in the Building Department $42,363 $149,600 Part-time Custodial Services for Federal Building, including a lead custodian position, and a vehicle Increased funding for the Employee Diversity Training Program $28,350 Part-time Library Assistant in Circulation $16,124 Library van to provide material return boxes on west side $12,050 The Honorable Mayor and City Council Members January 9, 2006 Page 10 Part-time Landscaping Maintenance Worker $32,682 Matching funds to East Central Intergovernmental Association to leverage funding for a full-time Transportation Planner from Federal Government at ECIA $5,000 Equipment to make the Municipal Services Center the back-up Emergency Operations Center $3,736 Establish Community-Oriented Policing as a separate unit in the Police Department commanded by a Captain and the upgrade of the Police Officer positions in the unit to Corporals $38,112 Add one additional Corporal to the Community- Oriented Policing Unit to bring the staffing to five from fou r $77,462 Fund the Neighborhood Resource Center at the new Prescott School building in Downtown Dubuque $26,770 Add Wellness and Fitness Classes at Comiskey Park Community Center, Prescott School Community Center and Neighborhood Resource Centers $3,060 Part-time secretarial position in City Manager's Office, including equipment and office reconfiguration $29,366 Improvements to City technology, including a new website that will allow for internet payments $259,449 Vehicle to be shared by City Engineers Power lift cots for ambulances $19,000 $26,538 $5,000 Participate in a partnership to do a community-wide needs assessment for children Create Police Sub-station at Carnegie-Stout Public Library for Community-Oriented Policing use $13,556 The Honorable Mayor and City Council Members January 9, 2006 Page 11 Renewal of Tutor.com at Library for youth homework assistance via the internet Install security cameras at the Riverwalk Provide equipment for Municipal Services Center to become an Area Red Cross Shelter Creation of a Bluffs Comprehensive Plan Assist Lifetime Center with relocation analysis Relocate Chaplain Schmitt Memorial Miller Riverview Park Expansion Study Renovate Waller-Cooper Park, the last park that has not been renovated Carnegie-Stout Public Library Renovation Project New Airport Terminal Project Sanitary Sewers related to annexations Catfish Creek Sanitary Sewer Interceptor Reconstruction Bee Branch Creek Stormwater Restoration Project IA32/Southwest Arterial Mississippi River Main Channel Transient Boat Dock Facility Water Mains related to annexations E.B. Lyons Interpretive Center Expansion Well Project E.B. Lyons Interpretive Center Expansion Septic Tank Project Federal Building Renovation $8,445 $75,000 $13,000 $10,000 $10,000 $80,000 $57,500 $45,000 $1,469,875 $16,610,060 $3,723,000 $1,904,250 $19,813,329 $41,044,857 $3,500,000 $2,175,000 $15,000 $15,000 $2,200,205 The Honorable Mayor and City Council Members January 9, 2006 Page 12 Intermodal Transportation Facility in Port of Dubuque $12,000,000 Design Guidelines for Downtown Master Plan Implementation $65,000 Community Health Center $250,000 $500,000 Community Marketing The largest operating budget financial issue in this budget deals with the huge increase in costs of $438,841 related to Transit. I am recommending a combination of service modifications, a fare increase and an increase in the property tax subsidy from $708,119 in Fiscal Year 2006 to $923,384 in Fiscal Year 2007, for an increase of $212,841. Also looming in the background is the remote possibility that the Iowa Supreme Court will agree with the Des Moines District Judge that found the City of Des Moines' Utility Franchise Fee contrary to State law. The Fiscal Year 2007 projection for Utility Franchise Fees in Dubuque is $1,481,525, all for property tax relief. Should a refund of past collections be ordered, the City has collected $2,722,669 through 2005. If this 2% Utility Franchise was no longer collected, it would not save the consumer any money, because it would be automatically replaced by the 1 % County Local Option Sales Tax and the 1 % Dubuque Community School District Local Option Sales Tax. Conclusion It was another great year for Dubuque, highlighted by the completion of the envision process by the Dubuque Area Chamber of Commerce and the Community Foundation of Greater Dubuque. There were 38 new non-residential permits issued in Fiscal Year 2005. This is a large increase over the 27 built in Fiscal Year 2004. The valuation of non-residential permits was $66.1 million, up from $40.3 million in Fiscal Year 2004. Calendar Year 2005 was the fourth consecutive year of record real estate sales, with $168 million in sales through October 2005. Three significant agreements were reached in 2005. The Mediacom Franchise, the lease that will lead to the expansion of the Mississippi River Museum and Aquarium and the agreement to allow table games at Dubuque Greyhound Park and Casino. The Honorable Mayor and City Council Members January 9, 2006 Page 13 Approximately 3,000 jobs have been added to the local economy since the beginning of the Greater Dubuque Development Corporation River Valley Initiative. Dubuque ranked second in the State for job growth between July 2002 and July 2005. This budget is about growth. In 1999 the City of Dubuque had no 4-lane connections to an interstate highway system. Now Dubuque has five 4-lane connections to the outside world: . 1999 - Highway 61 4-laned to Interstate 80 at Davenport . 2004 - Highway 20 4-laned to Interstate 35 north of Ames . 2004 - Highway 151 4-laned to Highway 380 in Cedar Rapids · 2004 - Highway 218 in Waterloo, connecting to Dubuque by 4-lane Highway 20, opened 4-lane as part of the Avenue of the Saints that connects to Minneapolis/St. Paul . 2005 - Highway 151 4-laned to Interstate 90-94 at Madison, Wisconsin 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 Commissioners. I would like to thank Budget Director Dawn Lang, along with Office Manager Juanita Hilkin and Secretary Kevin Firnstahl, for putting together the budget, with the assistance of Assistant City Manager Cindy Steinhauser. Corporation Counsel Barry Lindahl and City Clerk Jeanne Schneider continue to provide their expertise and assistance throughout the budget process. I respectfully submit this budget 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. f\;( k~ /}((1 Michael C. Van Milligen MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager D~~~E ~~~ MEMORANDUM January 7, 2006 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Utility Franchise Fee Corporation Counsel Barry Lindahl advises that a District Court in Des Moines has ruled that the City of Des Moines Utility Franchise Fee is in violation of Iowa Code. Until an Iowa Supreme Court decision is rendered, this ruling has no impact on Dubuque. According to the Alliant Energy and Aquila Utility Franchises, the City of Dubuque has the right to impose a 3% Utility Franchise Fee by unanimous vote of the City Council. In Fiscal Year 2004, when the State of Iowa reduced City revenues by $1.1 million after the City budget was adopted and health care costs took a huge unexpected increase, the City had four viable choices. 1. Make major cost reductions, including employee layoffs. 2. Pay for the deficit by canceling Capital Improvement Projects, a one-time source of revenue that just delayed the problem for one fiscal year when property taxes could be raised to deal with the shortfall. 3. Get concessions from the employees. 4. Implement a Utility Franchise Fee. The City Council chose to do all four (See the Attachment). Five positions were cut, some Capital Improvement Projects ($378,791) were canceled, some of the unions and all the non-represented employees had changes in their health care coverage and dental premiums, and a 2% Utility Franchise Fee was established. Year-to-date, the Utility Franchise Fee in the City of Dubuque has generated $2,722,669.53. Should the City be required to reimburse those funds, several Capital Improvement Projects would need to be canceled. . Even more significant is the impact the elimination of the Utility Franchise Fee would have on the City's operating budget. The Fiscal Year 2007 budget that is being presented to you on January 17, 2006, will recommend no increase in property taxes to the average homeowner. In fact, it will recommend an $18.83 (3.73%) decrease from the Fiscal Year 2006 cost to the average homeowner of $504.62, down to $485.79. If this is adopted by the City Council through the budget process, it will be the sixth decrease of the property tax impact on the average homeowner in the last twelve years. The revenue in Fiscal Year 2007 from the Utility Franchise Fee is projected at $1,481,525. If the City is not allowed to collect this revenue source, that would mean significant budget cuts or a property tax increase on the average homeowner from the recommended level of $485.79 to $527.71, $41.92 (8.6%). Since the Fiscal Year 2007 recommendation is an $18.83 decrease (3.73%) from the Fiscal Year 2006 level of $504.62, the increased cost over Fiscal Year 2006 to the average homeowner would be $23.09 (4.58%). An example of what a citizen of Dubuque paid in December 2005 for the Utility franchise Fee is $4.43. Remember this Utility Franchise Fee displaces the county 1 % Local Option Sales Tax and the School District 1% Local Option Sales Tax on the utility bills. So, if the Iowa Supreme Court agrees with the Des Moines District Judge and Dubuque can no longer collect the Utility Franchise Fee, the Dubuque citizen saves no money. They would just begin to pay the Local Option Sales Taxes, and that money would no longer go to keep down the City of Dubuque property taxes. I fully anticipate the Iowa Supreme Court to overturn this Des Moines District Court decision and I believe that the City of Dubuque should proceed through the budget process as if there will be no change in the Utility Franchise Fee. Should the Iowa Supreme Court rule against the Utility Franchise Fee after the Fiscal Year 2007 budget and tax levy is adopted, I would recommend a significant reduction in Fiscal Year 2007 CIP's to delay addressing this problem on a long-term basis until the Fiscal Year 2008 budget process. This would allow time to more judiciously implement a strategy. 01J ~ (~ ()l MiChael C. Van Milligen MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Dawn Lang, Budget Director Randy Gehl, Public Information Officer D~~~E ~c/k.~ MEMORANDUM July 25, 2003 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Budget At the July 21,2003 Public Hearing on the Fiscal Year 2004 budget amendment, the City Council set a public hearing on a proposed Utility Franchise Fee for July 28, 2003 at 6:00 p.m. at the Dubuque Carnegie-Stout Library Auditorium. After receiving citizen input, listening to the City Council discussions over the last two months, and further examining the available options, I respectfully request Mayor and City Council approval of a 2% Utility Franchise Fee effective October 1, 2003, on the franchises held by Aquila and Alliant Energy for electricity and natural gas. In the Franchise Fee Agreement with Aquila and Alliant Energy, the Franchise Fee is capped at 3% and a unanimous vote of the City Council is required for approval. My recommendation is for a 2% Utility Franchise Fee with a rebate for the full 2% to organizations currently exempt from sales taxes. By state law, the 2% Utility Franchise Fee would take the place of the City 1 % local option sales tax and the School 1 % local option sales tax for those who are required to pay those taxes now. Sales tax exempt entities would receive a rebate of the franchise fee. This would mean that no individual, business or organization would see an increase in their costs, but the City would see an increase in general fund revenues. The Franchise Fee would allow the restoration of many of the cuts proposed for the Fiscal Year 2004 budget, including restoring the non-union employee wage freeze; restoring positions in Fire, Police, Parks and Five Flags departments; restoring library hours; maintaining existing rates and Saturday service in the Transit department; and reinstating education and training for city staff. Under this recommendation for a 2% Utility Franchise Fee, the City general fund would receive an estimated $641,000 in Fiscal Year 2004 and $879,535 in Fiscal Year 2005. This change would be done in conjunction with the Fire Union concessions to overtime 1 , . , pay and acceptance of the change in dental benefits, saving the City $62,206. The non- union employees, Teamster's Union, Operating Engineers, and Transit Union also have agreed to pay 100% of their dental premiums and accept changes in health care coverage for a savings in Fiscal Year 2004 of $167,379 as part of expense reductions approved in March 2003. To make up the remaining funds needed to balance the budget in Fiscal Year 2004 ($378,791), I would suggest that the following Fiscal Year 2004 Capital Improvement Projects be canceled: CIP projects canceled to make up balance for FY 04: Fire Dept. Station #2 driveway and exterior improvements Fire Dept. radio to replace telephone lines Fire Dept. Station #4 improvements Fire Dept. Station #5 improvements Softball Fields at Vets Historic District Grant program Total $ 62,000 $ 17,500 $ 5,800 $ 13,600 $139,500 $139,450 $377.850 The City of Dubuque is struggling with a substantial budgetary shortfall - mainly the result of a $1,070,425 funding cut from the State of Iowa. This reduction came without warning, and it impacts every department and division within the City. Even more unfortunate, this shortfall comes on the heels of a difficult budgeting process and represents an additional revenue loss. Planning for the Fiscal Year 2004 budget began with City Council goal-setting in August 2002 and included a thorough, detailed and intense examination of the City's finances. The budget process continued with a series of public hearings in February and March. At that time, the City Council addressed a $1 million shortfall, which included a $312,513 state-mandated increase in police and fire pension costs and a 35% boost in health insurance. While considering these cost increases, Council Members had to take into account stagnating tax revenues after a national economic downturn. Dealing with a budget shortfall is a challenging task. Throughout the process, the City Council made the difficult, but financially responsible decisions. The Fiscal Year 2004 budget, which included the ninth consecutive year of no property tax increase for the average homeowner, was approved and sent to the State of Iowa for certification by the March deadline. Unfortunately, the budget story doesn't end there. After the budget was certified, the Iowa Legislature passed laws that dramatically reduced State aid to cities. The City of Dubuque immediate.ly lost $1,070,425 in revenue or 3.28% of the general fund operating expense. Also, health insurance costs have continued to increase at a rate exceeding budget expectations. The projected recurring cost in Fiscal Year 2004 to cover health insurance is an additional $613,766 (with $315,000 in other budget shortfalls). After addressing a $1 million shortfall during the initial budgeting process, the City's operating budget now faces a reduction of $1,799,103 in tax funds and a $200,088 shortfall in non-tax supported funds. The State 2 , of Iowa has permanently eliminated this funding to cities making this reduction an annual, recurring loss. Therefore, finding a solution for this revenue loss cannot be a one-time, short-term solution. The City of Dubuque runs a lean operation that provides excellent services at some of the lowest rates in the State of Iowa. The following compares Dubuque with the other large cities in Iowa: Property Tax Rank CITY TAX RATE 9 Waterloo 18.37162 8 Des Moines 17.04857 7 Iowa City 16.81344 6 Council Bluffs 16.42850 5 Sioux City 15.95108 4 Davenport 14.63000 3 Cedar Rapids 12.82969 2 Dubuque 10.2730 1 Ames 9.63962 The highest-ranked city (Waterloo) is 79 % higher than Dubuque's rate, and the $14.665 average is 42.8% higher. Refuse Rates RANK CITY MONTHLY FEE PAY AS YOU THROW 7 Ames $20.50 No (average tee tor private service) 6 Cedar Rapids $12.56 Yes 5 Iowa City $12.10 Yes 4 Waterloo $11.00 Yes 3 Des Moines $10.25 No 2 Sioux City $9.50 No 1 Dubuque $7.60 Yes The highest-ranked city (Ames) is 170 % higher than Dubuque's rate, and the $11.93 average is 57% higher. Water rates RANK CITY WA TER USED (800 cubic feet/residential average) 5 Ames $18.42 4 Des Moines $15.86 3 Council Bluffs $14.00 2 Dubuque $12.88 1 Cedar Rapids $12.48 The highest-ranked city (Ames) is 43% higher than Dubuque's rate, and the $14.73 average is 14% higher. ' 3 , Sewer Rates RANK CITY SEWER FEE (Based on 800 cubic ftImonth) 9 Iowa City $31.82 8 Des Moines $21.56 7 Waterloo $18.95 6 Sioux City $17.11 5 Ames $16.78 4 Council Bluffs $15.12 3 Davenport $13.76 2 Dubuque $13.12 1 Cedar Rapids $10.73 The highest-ranked city (Iowa City) is 143 % higher than Dubuque's rate, and the $17.66 average is 35% higher. Stormwater Utility Rates RANK CITY RA TE* * Average Monthly Residential rate 8 Des Moines $4.60 7 Burlington $3.00 6 Gam~ $2.63 5 Cedar Rapids $2.25 4 Boone $1.95 3 Sioux City $1.84 2 Ames $1.50 1 Dubuque $1.29 The highest-ranked city (Des Moines) is 257 % higher than Dubuque's rate, and the $2.38 average is 84.5% higher. The City of Dubuque workforce has declined by nearly 12 percent or 69 positions since 1981, in spite of adding numerous services. Initiatives during that time period have included: Yard waste and recycling Economic development efforts County-wide E911 dispatch Comprehensive housing programs Community oriented policing DARE and other drug-related programs Rental property inspections Operations of the new leisure pools McAleece Recreation Complex City Focus newsletter Industrial pretreatment and lead and copper testing programs Fifth Street Parking Ramp Fourth Street Parking Ramp Hazardous materials team 4 Advanced life support ambulance service Government Channel 8 programming Cable TV monitoring and regulation Additional commissions including Long Range Planning, Environmental Stewardship, Investment Oversight, Development Review Committee Extensions of bike and hike trails City-operated FBO functions Increased zoning code enforcement Developers and builders roundtables Implementation of riverfront plan Downtown circulation study Implementation of the Neighborhood Reinvestment Strategy Lead paint abatement program School resource officer program Washington D.C. initiative Increased security operations at the airport Thirteen additional neighborhood parks Reinstatement of traffic accident investigations jPolice K-9 unit Even with a Utility Franchise Fee, the amended Fiscal Year 2004 budget includes the elimination of five additional positions for a total reduction of 74 or nearly 13 percent of the workforce since 1981. This has been accomplished despite adding certain positions, like 15 Police Officers, since 1994. Public safety exemplifies one of those areas where the City provides excellent service. The Insurance Service Office (ISO) rating is a national classification system that rates a community's fire protection capabilities with a score of 1 to 10, with 1 being the best. The ISO rates 45,898 fire departments nationwide. The City of Dubuque finished higher than 96.2% or 44,148 of the other fire departments in the country with a Class 3 rating. The City of Dubuque's ability to deal with a fire is in an elite class of 1,750 departments that are rated between 1 and 3. This puts the City of Dubuque in the top 3.8% of fire departments in the country. No fire department in the State of Iowa has a higher classification than Dubuque. Under State of Iowa law, franchise fees may be implemented as part of an agreement between local governments and a utility company. In Dubuque, Alliant Energy and Aquila provide electric and natural gas services to businesses and residences. These agreements are made to ensure service to all customers in a community and outline the terms under which utility companies provide service. The intent of these fees is to reimburse local governments for use of public rights-of-way and other public services. A franchise fee typically is calculated on a percentage of the revenues derived from the sales of gas or electricity to customers in that community. A franchise fee can be imposed as a percentage of gross sales, so the exact amount would vary each month. However, the impact of a franchise fee in Dubuque would not be as significant due to some changes in the State of Iowa taxing system. If the City of Dubuque were to implement a franchise fee in 2003, residential property would pay the 5 2% franchise fee in addition to the 3% Iowa tax for a total of 5%. However, in 2004 the State tax declines to 2%, while the franchise fee would remain at 2%. The total in 2004 is 4%. The total in 2005 is 3%. By the year 2006, the State tax is phased out, and only the franchise fee remains at 2%. When a community implements a franchise fee, local option taxes cannot be collected. In the case of Dubuque, this 2% in local option sales taxes would come off of residential, commercial and industrial bills. Therefore the consumer sees no increase in their costs, but the City would see an increase in general fund revenues. , Commercial/industrial customers are not receiving a break on their state sales tax (unless the electric or gas is used in processing). Entities that are currently exempt from sales tax would also be exempt from the franchise fee. Sales Tax and Potential Franchise Fees on~~,~l!!~,iml!.J Gas and Electric Bills within City Limits Calendar Year i 2001 2002 2003.Jan.-June Cu.rr~~~ J.iily:Sept: 2l).1)~ O<!t-Q~<;, ~O~~ 21)Q? ~QQ9 ~tiJ,j.el!Y9.!!9 State Tax City Local Option School Local Option Franchise Fee 5.00% 1.00% 0.00% 4.00% 1.00% 0.00% 3.00% 1.00% 0.00% ~.OQ.% 1_.00% 1.090/0 3.00% Q.OQ.% 2;!fQo/~ 0:900/0 Z,Q.9.o/? 2.00% 11,QQ?@ 2.00% ~.QQ'4 2.00% 6 Impact on City Residents 6.00% 5.00% 4.00% ?~. $~J!!fP ~ig ~ieQ% ?'.Jl!l% Sales Tax and Potential Franchise Fees ong9'mijJif&l!E!1!~}n!Q!!tj~~ Gas and Electric Bills within City Limits Calendar Year State Tax City Local Option School Local Option Franchise Fee I mpact on Comm.llnd. 2002 5.00% 1.00% 0.00% 6.00% 2003 Jan.-June 5.00% 1.00% 0.00% 6.00% !!t~i ;,!,iJ)i&fp.1 :i,QQ~! 1.,!i!~~ ,1;G@&'. ~~~ ~~ ~9Bi!!i~ 5.00% Q~RQ'Y~ Q:l;iQ% 2.;9P% 7,OP.!Y. 2004 and beyond 5.00% 2.00% 7.00% Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee. Sales Tax and Potential Franchise Fees on~[@,-~,I!~:~~~mll~:~Rr[p,!nl~~'" within City Limits Calendar Year State Tax City Local Option School Local Option Franchise Fee Impact on Tax Exempt 2002 0.00% c\!l!'''ftl (;;Jit1\~s!iPt1b 000% r,n..,"...... gi~ Rlili~.i ~c~1lli ~()Q<<:((1 wI rebate 2004 and beyond 2.00% 0.00% wI rebate "Sales tax exempt includes private nonprofit educational institutions, nonprofit private museums, tax~certifying or tax- levying body or governmental subdivision, including state board of regents, state department of human services, state department of transportation, all divisions, boards, commissions, agencies, or instrumentalities of state, federal, county or municipal government which do not have earnings going to the benefit of an equity investor or stockholder. Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee. The revenues from a 2% Utility Franchise Fee are projected to be $641,000 in Fiscal Year 2004 (9 months) and $879,535 in Fiscal Year 2005. Since the City would no longer collect the City local option sales tax the City could lose $216,399 from the Fiscal Year 2004 CIP and $324,437 from the Fiscal Year 2005 CIP. As directed, I met with the leadership of Teamster's Union, Local #421 and the Dubuque Professional Firefighter's Association, Local #353. 7 The discussions with the Teamsters revolved around the Park Ranger position. The Teamsters membership had already rejected a wage freeze and already accepted all the requested health care changes. They asked the City to consider raising the entry fee at Eagle Point Park from $1 to $2, which would generate over $60,000, more than enough to pay for the Park Ranger position, or cancel a Park's Division Capital Improvement Project. The Firefighters reiterated their willingness to change their FLSA overtime to comp time and accept paying their full dental premium, which is accepting part of the health care changes accepted by other employees (except the Police union). This will save the City $62,206 in Fiscal Year 2004. I have included this $62,206 savings in my revised budget recommendation. If the City Council does not approve the Utility Franchise Fee, all the previously approved cuts, including the non-union wage freeze and the position eliminations, will be implemented. To fund the three Fire Equipment Operator positions, the Park Ranger position, restore Saturday Fixed Route Bus Service and not increase Fixed Route or paratransit fares, the funding will come from the Capital Improvement Program budget in the amount of $307,729, and the $62,206 offered up by the Fire Union by accepting the changes in dental premiums and allowing FLSA overtime to be compensated through time-off, instead of overtime. The canceled CIPs are the Historic District Grant Program ($139,450), the softball field renovation at Vet's Park ($139,500) and $28,779 of the $62,000 Fire Station #2 driveway and exterior improvements. Canceling these CIPs and not adopting a Utility Franchise Fee merely pushes this problem into Fiscal Year 2005, which is already looking at a 10.54% property tax increase for a maintenance level budget. This will push the anticipated Fiscal Year 2005 property tax increase of 10.54% to 13.77%. The implementation of this franchise fee also pushes some of the budget issues into Fiscal Year 2005, but it also provides an additional $238,535 in revenues because the franchise fee will be collected for 12 months instead of the nine months in Fiscal Year 2004. With a utility franchise fee the projected Fiscal Year 2005 property tax increase is approximately 12%. 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N - C"")I g:i .0 - C "0 ".CO. - C 0 Q) 0 0- ::l rn 0 ~ "0 0 - Q) ,"t.-: a, a' E rn "0 0 c: ro N '~ c:,I' N~ ~ OJ <II ::l Q) ro ro c C >< (.) 0- x - 0 '0 '13 Q) c .0 ~ Q) 01 'C l- x E vi rn U ro rn - c C 01 Q) 2 rn ~ 0 c Q) ~ Q) Q)"ti) c ro > ,- ~ >, (/) o ,~ ro c (/) 01"0 Q) <( Preparer: Barrv A. Lindahl 300 Main Street Suite 330 Dubuque IA 52001 (563) 583-4113 ORDINANCE NO. ESTABLISHING A FRANCHISE FEE OF TWO PERCENT (2%) OF THE GROSS REVENUE OF INTERSTATE POWER COMPANY, ITS SUCCESSORS AND ASSIGNS, GENERATED FROM THE SALE OF ELECTRICITY WITHIN THE CITY OF DUBUQUE Whereas, City of Dubuque Ordinance No. 58-93 (City of Dubuque Code of Ordinances Appendix D), adopted by the City Council on the 4th day of October 1993, grant~d to Interstate Power Company, its successors and assigns (hereinafter referred to collectively as the Company), nonexclusive authority for a period of twenty-five (25) years to maintain and operate its electrical system within the limits of the City of Dubuque; and Whereas, Ordinance No. 58-93 provides that the City Council may, impose a franchise fee not to exceed three (3) percent of the gross revenue of the Company generated from the sale of electricity within the City of Dubuque; and Whereas, the City Council has determined that a franchise fee is in the best interests of the City of Dubuque. NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF DUBUQUE, IOWA: Section 1. Effective October 1, 2003 and for the term of the franchise granted by Ordinance No. 58-93, there is hereby imposed upon the Company a fee equal to two percent (2%) of the gross revenue generated from the sale of electricity within the City of Dubuque; and Section 2. The Company shall certify to the City Manager in a form acceptable to the City Manager records establishing the gross revenues from the sale of electricity within the City of Dubuque and shall pay the fee to the City within thirty (30) days following the last day of the preceding month; and Section 3. The fee imposed by Sec. 1 shall not apply to any sale of electricity by the Company that is exempt under Iowa Code S 442.45 from the tax imposed by Iowa Code S 442.23 and in computing the amount of the fee, the Company shall not include such sales, unless it is impracticable to do so, in which event the City Manager may ", provide for a rebate of the amount of the fee for such exempt sales of electricity to the Company's customers. Passed, approved and adopted this 28th day of July, 2003. Terrance M. Duggan, Mayor Attest: Jeanne F. Schneider, CMC City Clerk D~~~E ~c/k.~ Pauline Joyce Administrative Services Manager MEMORA__ - ~"..&.. July 17, 2003 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Budget At the July 9,2003 Public Hearing on the Fiscal Year 2004 budget amendment, the City Council directed me to further examine a Utility Franchise Fee. After receiving citizen input, listening to the City Council discussions over the last two months, and further examining the available options, I respectfully request Mayor and City Council approval of a 3% Utility Franchise Fee effective October 1, 2003, on the franchises held by Aquila and Alliant Energy for electricity and natural gas and that a public hearing be set for Monday, July 28, 2003, at 6:00 p.m. to further consider this matter. In the Franchise Fee Agreement with Aquila and Alliant Energy, the Franchise Fee is capped at 3% and a unanimous vote of the City Council is required for approval. The Franchise Fee would allow the restoration of many of the cuts proposed for the Fiscal Year 2004 budget, including eliminating the non-union employee wage freeze and bringing down next year's projected property increase in Fiscal Year 2005 from 10.54% to 8.05%. Recognizing that over the last nine years there has not been a property tax increase for the average homeowner for the City portion of their property tax bill, in fact, there has been five decreases totaling 7%, this 8.05% increase in Fiscal Year 2005 would be a 1.05% increase over a ten year period. As we are all aware, the State of Iowa handed the City of Dubuque most of this problem when the State cut funding to local governments state-wide by $60 million, which is a cut to the City of Dubuque of $1 ,070,425 The State of Iowa might have inadvertently provided a solution to a budget crisis they created. In 2002 the State of Iowa began phasing out the 5% State sales tax on residential utility bills. The State is reducing the tax by 1 % a year through 2006. In 2006, there will no longer be a State sales tax on residential utility bills. Adoption of a City of Dubuque Utility Franchise Fee of 3% would be mitigated by this drop of 5% by the State of Iowa. 1 There are further mitigating factors which lessen the impact of the 3% Franchise Fee on residential properties. Currently. residential properties pay a 2% local option sales tax (1 % to the City and 1 % to the schools) on their utility bill. State law removes the local option sales tax from a utility bill when there is a franchise fee. Therefore, a 3% Utility Franchise Fee only costs the residential consumer 1 %. The residential consumer would see a high of a 6% charge on their utility bills in 2003 with the State sales tax and Utility Franchise Fee, but go down to a 3% charge in 2006 and beyond, because of the State sales tax reduction and the removal of the local option sales tax. The City of Dubuque is struggling with a substantial budgetary shortfall - mainly the result of a $1,070,425 funding cut from the State of Iowa. This reduction came without warning, and it impacts every department and division within the City. Even more unfortunate, this shortfall comes on the heels of a difficult budgeting process and represents an additional revenue loss. Planning for the Fiscal Year 2004 budget began with City Council goal-setting in August 2002 and included a thorough, detailed and intense examination of the City's finances. The budget process continued with a series of public hearings in February and March. At that time, the City Council addressed a $1 million shortfall, which included a $312,513 state-mandated increase in police and fire pension costs and a 35% boost in health insurance. While considering these cost increases, Council Members had to take into account stagnating tax revenues after a national economic downturn. Dealing with a budget shortfall is a challenging task. Throughout the process, the City Council made the difficult, but financially responsible decisions. After approval, the Fiscal Year 2004 budget, which included the ninth consecutive year of no property tax increase for the average homeowner, was sent to the State of Iowa for certification by the March deadline. Unfortunately, the budget story doesn't end there. After the budget was certified, the Iowa Legislature passed laws that dramatically reduced State aid to cities. The result for the City of Dubuque is a reduction of $1,070,425 in revenue or 3.28% of the general fund operating expense. Also, health insurance costs have continued to increase at a rate exceeding budget expectations. The projected recurring cost in Fiscal Year 2004 to cover health insurance is an additional $613,766 (with $315,000 in other budget shortfalls). After addressing a $1 million shortfall during the initial budgeting process, the City's operating budget now faces a reduction of $1 ,799,103 in tax funds and a $200,088 shortfall in non-tax supported funds. The State of Iowa has permanently eliminated this funding to cities making this reduction an annual, recurring loss. Therefore, finding a solution for this revenue loss cannot be a one-time, short-term solution. The City of Dubuque runs a lean operation that provides excellent'services at some of the lowest rates in the State of Iowa. The following compares Dubuque with the other large cities in Iowa: 2 , Property Tax Rank CITY TAX RATE 9 Waterloo 18.37162 8 Des Moines 17.04857 7 Iowa City 16.81344 6 Council Bluffs 16.42850 5 Sioux City 15.95108 4 Davenport 14.63000 3 Cedar Rapids 12.82969 2 Dubuque 10.2730 1 Ames 9.63962 The highest-ranked city (Waterloo) is 79 % higher than Dubuque's rate, and the $14.665 average is 42.8% higher. Refuse Rates RANK CITY MONTHLY FEE PAY AS YOU THROW 7 Ames $20.50 No (average fee for private service) 6 Cedar Rapids $12.56 Yes 5 Iowa City $12.10 Yes 4 Waterloo $11.00 Yes 3 Des Moines $10.25 No 2 Sioux City $9.50 No 1 Dubuque $7.60 Yes The highest-ranked city (Ames) is 170 % higher than Dubuque's rate, and the $11.93 average is 57% higher. Water rates RANK CITY WATER USED (800 cubic feet/residential average) 5 Ames $18.42 4 Des Moines $15.86 3 Council Bluffs $14.00 2 Dubuque $12.80 1 Cedar Rapids $12.48 The highest-ranked city (Ames) is 44 % higher than Dubuque's rate, and the $14.94 average is 15% higher. 3 Sewer Rates RANK CITY SEWER FEE (Based on 800 cubic ftfmonth) 9 Iowa City $31.82 8 Des Moines $21.56 7 Waterloo $18.95 6 Sioux City $17.11 5 Ames $16.78 4 Council Bluffs $15.12 3 Davenport $13.76 2 Dubuque $13.04 1 Cedar Rapids $10.73 The highest-ranked city (Iowa City) is 144 % higher than Dubuque's rate, and the $17.65 average is 35% higher. Stormwater Utility Rates RANK CITY RATE' 'Average Monthly Residential rate 8 Des Moines $4.60 7 Burlington $3.00 6 Garner $2.63 5 Cedar Rapids $2.25 4 Boone $1.95 3 Sioux City $1.84 2 Ames $1.50 1 Dubuque $1.29 The highest-ranked city (Des Moines) is 257 % higher than Dubuque's rate, and the $2.38 average is 85% higher. The City of Dubuque workforce has declined by nearly 12 percent or 69 positions since 1981, in spite of adding numerous services. Initiatives during that time period have included: Yard waste and recycling Economic development efforts County-wide E911 dispatch Comprehensive housing programs Community oriented policing DARE and other drug-related programs Rental property inspections Operations of the new leisure pools McAleece Recreation Complex City Focus newsletter Industrial pretreatment and lead and copper testing programs Fifth Street Parking Ramp Fourth Street Parking Ramp Hazardous materials team 4 Advanced life support ambulance service Government Channel 8 programming Cable TV monitoring and regulation Additional commissions including Long Range Planning, Environmental Stewardship, Investment Oversight, Development Review Committee Extensions of bike and hike trails City-operated FBO functions Increased zoning code enforcement Developers and builders roundtables Implementation of riverfront plan Downtown circulation study Implernentation of the Neighborhood Reinvestment Strategy Lead paint abatement program School resource officer program Washington D.C. initiative Increased security operations at the airport Thirteen additional neighborhood parks Reinstatement of traffic accident investigations Police K-9 unit Even with a Utility Franchise Fee, the amended Fiscal Year 2004 budget includes the elimination of five additional positions for a total reduction of 74 or nearly 13 percent of the workforce since 1981. This has been accomplished despite adding certain positions, like 15 Police Officers, since 1994. Public safety exemplifies one of those areas where the City provides excellent service. The Insurance Service Office (ISO) rating is a national classification system that rates a community's fire protection capabilities with a score of 1 to 10, with 1 being the best. The ISO rates 45,898 fire departments nationwide. The City of Dubuque finished higher than 96.2% or 44,148 of the other fire departments in the country with a Class 3 rating. The City of Dubuque's ability to deal with a fire is in an elite class of 1,750 departments that are rated between 1 and 3. This puts the City of Dubuque in the top 3.8% of fire departments in the country. No fire department in the State of Iowa has a higher classification than Dubuque. Under State of Iowa law, franchise fees may be implemented as part of a service agreement executed between local governments and a utility company. In Dubuque, Alliant Energy and Aquila provide electric and natural gas services to businesses and residences. These service agreements are made to ensure service to all customers in a territory and outline the terms under which utility companies provide service. The intent of these fees is to reimburse local governments for use of public rights-of-way and other public services. A franchise fee typically is calculated on a percentage of the revenues derived from the sales of gas or electricity to customers in that community. A franchise fee is imposed in lieu of licenses or permits that would otherwise be required. A franchise fee can be imposed as a percentage of gross sales, so the exact amount would vary each month. However, the impact of a franchise fee in Dubuque would not be as significant due to some changes in the State of Iowa taxing system. If the City of 5 .. Dubuque were to implement a franchise fee in 2003, residential property would pay the 3% franchise fee in addition to the 3% Iowa tax for a total of 6%. However, in 2004 the State tax declines to 2%, while the franchise fee would remain at 3%. The total in 2004 is 5%. The total in 2005 is 4%. By the year 2006, the State tax is phased out, and only the franchise fee remains at 3%. When a community implements a franchise fee, local option taxes cannot be collected. In the case of Dubuque, this 2% in local option sales taxes would come off of residential, commercial and industrial bills. Commerciallindustrial customers are not receiving a break on their state sales tax (unless the electric or gas is used in processing) therefore, their overall bill would go up 1 % with the 3% franchise fee. Entities that are currently exempt from sales tax would not be exempt from the franchise fee, but they would still be exempt from sales tax. Sales Tax and Potential Franchise Fees on R",stc:!~!iiTi!! Gas and Electric Bills within City Limits Calendar Year State Tax City Local Option School Local Option Franchise Fee Impact on City Residents 2001 5.00% 1.00% 0.00% 6.00% 2002 4.00% 1.00% 0.00% 5.00% 2003 Jan.-June 3.00% 1.00% 0.00% 4.00% ....... ;~riei:il :J1ii~""e ." ,...'" ..I'o....!P. 3~01i~ '1:0.Q~ ]~O:Q~ p:Qo,% ~0Q3 pCltr'Q~ 3.00% !Jl)!t~ M9".A ~,Q6.~ ~:o~% ~ ~~ 3.00% 5:QQ~ ~ !!Iil!1~ 3.00% ~,9]~ g!)]~ ~Yi>:W ll1D~ 3.00% a,'Qgj! 6 I Sales Tax and Potential Franchise Fees on c:o"fuml!fGl~l)l'Idl!1~iistrj~1 Gas and Electric Bills within City Limits Calendar Year State Tax City Local Option School Local Option Franchise Fee Impact on Comm'!lnd. 2002 5.00% 1.00% 0.00% 6.00% 2003 Jan.-June 5.00% 1.00% 0.00% 6.00% CLiIi~Q! :,J1!iy~~m ;;]JJJ\$ ~'.'!lQ~ ~~Q(j~ "00'" 7~_. 'ilL!! 2PO:> Oar.,rre~; 5.00% 6;QQ% lj;oP.% ~\'!:ip.~ llM$ 2004 and beyond 5.00% 3.00% 8.00% Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee. Sales Tax and Potential Franchise Fees on "g~~~.Xii.K~~~ijjp(Bfi)plfriilfs" within City Limits Calendar Year State Tax City Local Option School Local Option Franchise Fee Impact on Tax Exempt 2002 0.00% curreiit l~alj:-SeIiiJ 0.011% ?QQ~ Qf!:;\il~?: ~&Jj~ ~;Q~ 2004 and beyond 3.00% 3.00% .Sales tax exempt includes private nonprofit educational institutions, nonprofit private museums, tax-certifying or tax- levying body or governmental subdivision, including state board of regents, state department of human services, state department of transportation, all divisions, boards, commissions. agencies, or instrumentalities of state, federal, county or municipal government which do not have earnings going to the benefit of an equity investor or stockholder. Any electricity or natural gas used in processing is exempt from sales tax, but not exempt from the franchise fee. The revenues from a 3% Utility Franchise Fee are projected to be $1,081,997 in Fiscal Year 2004 (9 months) and $1,622,184 in Fiscal Year 2005. Since the City would no longer collect the City local option sales tax the City could lose $216,399 from the Fiscal Year 2004 CIP and $324,437 from the Fiscal Year 2004 CIP. 7 ~ r:::- r:::- r- .... r- _10 N '" '" .... 0:> '" "a <0 .... ..... r-. ~ .... ltla cti ..... .... r- N ..j C.N .... N N Ol N N !;~ Ol. e e N. <0. '" ~ ~ ~ ~ ~ U 0 a;- a;- '" <0 a;- r- r- - Ol Ol Ol Ol Ol Ol ltl '" "'. '" 10 Ol. "'. -....0 "a as <0 cti Ili ~ <0 ltla '" Ol ~ ~ <0 0:> ~ c.N > "l ~ ~ 0:> a. ~ E>-"" -u..~ ~ ~ ll:: W .... r:::- ~ r:::- a <f1. ~ ~ ~ ~ ~ r- r- .... 0 0 0 0 N '" '" .... 0:> '" "'~ a a a a a <0 .... ..... r-. ~ .... a a a a a cti ..j ..j :0 m oj ci 10 <0 a .... r- N .... N N Ol N N ltl ::l .... .... a Ol. 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Q; - - '" 0 "0 "" o"'c. ltl '" '" OC () .s :J OC .....OCO () Z Z Z REVISED 6/16/03 D~~~E ~~~ MEMORANDUM June 11, 2003 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Budget Like other cities, Dubuque has experienced many challenges and overcome difficult obstacles throughout the years. Each experience has tested this community's resolve. While every city plans carefully to avoid potential problems, in some cases the unexpected strikes. The City of Dubuque is struggling with a substantial budgetary shortfall - mainly the result of a $1.2 million funding cut from the State of Iowa. This reduction came without warning, and it impacts every department and division within the City. Even more unfortunate, this shortfall comes on the heels of a difficult budgeting process and represents an additional revenue loss. Planning for the Fiscal Year 2004 budget began with City Council goal-setting in August 2002 and included a thorough, detailed and intense examination of the City's finances. The budget process continued with a series of public hearings in February and March. At that time, the City Council addressed a $1 million shortfall, which included a $312,513 state-mandated increase in police and fire pension costs and a 35 percent boost in health insurance. While considering these cost increases, Council Members had to take into account stagnating tax revenues after a national economic downturn. Dealing with a budget shortfall is a challenging task. Throughout the process, the City Council made the difficult, but financially responsible, decisions. After approval, the Fiscal Year 2004 budget, which included the ninth consecutive year of no property tax increase for the average homeowner, was sent to the State of Iowa for certification by the March deadline. Unfortunately, the budget story doesn't end there. ~ After the budget was certified, the Iowa Legislature passed laws that dramatically reduced State aid to cities. The result for the City of Dubuque is a reduction of $1,195.425 in revenue or 3.54 percent of the general fund operating expense. Also, health insurance costs have continued to increase at a rate exceeding budget expectations. The projected recurring cost in Fiscal Year 2004 to cover health insurance is an additional $613,766. After addressing a $1 million shortfall during the initial budgeting process, the City's operating budget now faces a reduction of $1.9 million in tax funds and a $200,000 shortfall in non-tax supported funds. The State of Iowa has permanently eliminated this funding to cities making this reduction an annual, 1 recurring loss. Therefore, finding a solution for this revenue loss cannot be a one-time, short-term solution. With such a profound funding decrease, the City Council might have considered raising revenue through a property tax increase. However, once a city has certified its budget (and tax askings), raising property taxes is no longer an option. With the fiscal year beginning on July 1, a solution must be found. There have been many suggestions of how to deal with the budget shortfall, and City staff has been exploring all opportunities to cut costs. Some ideas, after more research, have been rejected due to funding restrictions, minimal savings, or other concerns. One proposal has been to use reserve funds. Although the City of Dubuque does keep reserves, dipping into those funds at this time is risky, especially during the economic downturn. The City Council has established the guideline of maintaining a 10-percent reserve or $2,556,000 for the general fund operating budget. The reserve fund provides sufficient cash flow to pay bills and provides a safety net during a major catastrophic event. The City's reserve fund is a measure of its financial health or stability. Bond rating agencies - the "banks" that cities use to borrow money - will ask about that reserve policy and examine reserve levels. Drawing on those balances without a plan to deposit money in the future can damage a city's ability to borrow at reasonable interest rates. If we spend our reserves, we risk lowering our bond rating and increasing project costs. Also, the City would not be prepared if there was a catastrophic event. Cities FY 02 CAFR indicated a cash balance of $19,876,418 on June 30, 2002. Following is an explanation of the cash balance and the amount that was undesignated going into the Fiscal Year 2004 budget process. Cash Balance per 6/30/02 CAFR (page 24) Purchase orders outstanding June 30th Continuing appropriation authority covered in first budget amendment $19,876,418 (3,330,054 ) (9,464,028) Available Balance $ 7,082,336 Less 10% reserve per Guideline Less Jan 1, 2002 ORA Distribution used to Support FY 03 CIP's per Guideline Plus amount of ORA Distr. used in advance (2,556,000) (4,358,000) 578,000 Unencumbered funds needed to support next Years budget per Policy Guideline Period 13 correction to fund 410 (200,000) (127,209) Uncommitted balance' $ 419,127 'Used to support FY 04-08 CIP since non-recurring balance 2 Another suggested solution is to delay or eliminate capital improvement projects. It is important to note that the capital improvement budget is a separate budget from the operating budget, and capital improvements receive funding from different sources. Capital improvements are projects that do not occur every year, such as creating a neighborhood park, repairing a street or fixing a sewer. The operating budget pays for recurring expenses like salaries, supplies, and utilities. Money collected through certain taxes, like the local option sales tax and gaming taxes, is restricted and can only partially be used to pay salaries. Gaming revenues are not as predictable as other funding sources and are best used for one-time projects. Although the current budget crisis is caused primarily by outside influences, we do not want to take actions that will cause a future budget crisis of our own making. The June 2003 ruling by the U.S. Supreme Court lets stand an Iowa law taxing the Dubuque Greyhound Park and Casino at a much higher rate than riverboats. This decision further limits the City's ability to use capital improvement money for salaries. The City stands to lose $17 million from the five-year capital improvement program because of the higher state tax rate that may now be imposed on Dubuque Greyhound Park and Casino. Five million dollars will be made up with a higher stormwater utility fee, but the remaining $12 million will result in cancelled capital projects. While this will negatively impact the City's ability to do capital projects, it also helps to demonstrate why these funds are better left out of the operating budget. Money put towards capital improvements often can be leveraged for grant dollars. In some cases, for every dollar spent by the City, the state and federal government, along with foundations, contribute as much as $9. Eliminating these projects means a loss of more than just the City contribution. Finally, the capital improvement budget pays for major maintenance projects. If that maintenance is eliminated or delayed, the cost most certainly will be higher in the future. Since learning of the budget deficit, all departments and divisions have been combing through their budgets in an attempt to eliminate expenses. A hiring freeze planned for July 1 was implemented immediately. Training and travel budgets were slashed for all departments. The police and fire departments are facing budget cuts, and many have questioned why these departments are shouldering part of the load. When examining the operating budget, the departments facing the biggest reductions are those that require the most funding to operate. Nearly 60 percent of the operating budget supports police, fire, and emergency communications. The remaining 40 percent funds all other City departments including the library, parks, streets, engineering, health, finance, utilities, transportation, planning, building, housing, economic development, human rights, and the manager's office. Each department was given a target reduction based on its percentage of the operating budget. The recommendation to City Council does eliminate three Fire Equipment Operator positions and two Police Officer positions. All five Fire Stations would remain open and no Police Officers would be lost to Patrol. The three Fire Equipment Operator positions 3 are the drivers for the Assistant Fire Chief/command car. The Police Officer positions will be covered by reassigning the Traffic Safety Officer to Patrol and the Canine Officer to a regular beat. The City will still have a Canine Unit. There are sufficient vacancies in Police to avoid any layoffs. There are no vacancies in Fire, but some may be created with the proposed retirement incentive. It is recommended that the City provide employee assistance program services and outplacement services to any laid-off employees. In addition, each laid-off employee will be entitled to unemployment compensation. The expense for a laid-off employee will be approximately $10,000. To encourage people who are currently eligible to retire to do so, to avoid lay-offs, it is further recommended that a retirement incentive program be established. Employees who plan to retire between July 1,2003, and January 1, 2004, will receive a $10,000 cash bonus. As you can see, that was potentially money that was going to be paid out anyway to the laid-off employee. Another way to make up the deficit is to increase revenue. To do that, the City is considering higher fees for services in several departments including building, planning, and leisure services. Raising fees alone, however, isn't enough to make up the difference. The State of Iowa didn't just cut its funding to Dubuque. All cities across the state were impacted with the $60 million state-wide cuts, and most are struggling to deal with the revenue loss. In Iowa City, for example, the police, fire, finance, and leisure services departments all face staff reductions. Des Moines, dealing with a $5 million shortfall, has recommended eliminating 40 existing positions and not filling 72 others. Library hours were reduced, five librarians eliminated and fines increased. Cities across the state are looking at ways to reduce expenses and increase revenues while having the least impact on services. Every City department will be impacted by the budget, including the city manager's office. The city manager's office includes human resources, public information/graphics, administrative services, and neighborhood development. I am recommending the elimination of one position and related supplies and services for a savings of $60,858 and restructuring the administrative services division to save more than $50,000 over the next two years. Another cost-saving measure is eliminating City Expo, the City's annual free open house, which is organized through the public information office. Finally, I am recommending the elimination of City Focus in its current format. Two years ago, City Focus was completely redesigned and printed in full color. Although the publication has become a popular and effective communication tool, City Focus was deemed too expensive to continue. The elimination of staff and services comes after years of working harder and smarter with fewer employees. The City of Dubuque workforce has declined by nearly 12 percent or 69 positions since 1981, in spite of adding numerous services. New programs during that time period have included: 4 Yard waste and recycling County-wide E911 dispatch Comprehensive housing programs Community oriented policing DARE and other drug-related programs Rental property inspections Operations of the new leisure pools McAleece Recreation Complex Fifth Street Parking Ramp Fourth Street Parking Ramp Thirteen additional neighborhood parks Reinstatement of traffic accident investigations Police K-9 unit And many others Fiscal Year 2005 is already shaping up to be a very difficult year. You may recall that on page 44 of the Citizen's Guide for the Fiscal Year 2004 budget, I included information that said the City could be looking at a 10% increase in the property taxes for the average residential property. We know this size of an increase would not happen, so the City is already facing cuts in next year's budgeting process. This was before the state reduced City revenues by $1.2 million. The City is also receiving preliminary information from the State of Iowa that revenues will be further eroded in Fiscal Year 2005 with a significant state-mandated rollback of residential property values, coupled with a residential equalization order. This impending difficulty with the Fiscal Year 2005 budget provides further evidence that spending down reserves or canceling capital improvement projects to just delay the Fiscal Year 2004 budget problem to Fiscal Year 2005 will probably not be productive. One of the challenges facing the City Council for Fiscal Year 2005 will be the prospect of considering ways to enhance revenues or cut services. Two options that will be available to the City Council, along with others, will be a property tax increase or establishing a franchise fee on electric and natural gas bills. The City is allowed to adopt a franchise fee on electric and natural gas bills up to 3%. The franchise fee adoption is not a referendum issue. By state law the fee may be adopted by a majority vote of the City Council, but the franchise agreement requires an affirmative vote of all the members of the Council. If a franchise fee is adopted, the City may no longer apply the 1 % local option sales tax to these same utility bills. Therefore, a 3% franchise fee only increases the cost to the consumer by 2%. A 3% franchise fee would generate an estimated $1.9 million per year. Until Fiscal Year 2002, the State of Iowa had a 5% tax on utility bills. Beginning in Fiscal Year 2002, the State of Iowa began reducing that utility tax by 1 % a year until it reaches zero in Fiscal Year 2007. Legislation has passed the State Legislature, but not yet signed by the Governor, that would keep the state tax at 3%, still a 2% reduction. Three concerns expressed about a franchise fee are its impact on non-taxable properties, 'low income residents and economic development. In the area of economic development, that concern is partially relieved in the area of natural gas in that large 5 users can buy their natural gas on the open market. Aquila advises that when the tax is calculated on gross sales, the company only gets charged a fee on the cost to transport the natural gas to the company, not the product purchased from another company. To relieve the concerns of non-taxable property, the City could offer a rebate on the fee for non-taxable property. To assist low/moderate income residents, the City could offer a rebate to those at 80% of median income and below, on a graduated basis. As you can see, there are many variables in this issue. I am not recommending the electric and natural gas franchise fee to solve the current budget crisis, but it could be considered during next year's budget process. To resolve this year's budget shortfall, I am recommending five courses of action. This includes: 1. Wage freeze for non-bargaining unit employees; 2. Expense reductions that do not involve cutting City positions; 3. Increases in certain sources of revenue; 4. Expense reductions that involve elimination of City positions; and 5. A retirement incentive program to help avoid layoffs of new employees and outplacement and employee assistance services for anyone who is laid off. First and foremost, I want to recognize the sacrifice of the non-bargaining unit employees who will not receive a pay raise in Fiscal Year 2004, for a savings of $551,100. The City has five collective bargaining agreements with the following: Teamster's Union, Local #421 Dubuque Professional Firefighters Association, Local #353 Dubuque Police Protective Association Amalgamated Transit Union, Local #329 International Union of Operating Engineers, Local #758 Only the Transit Union does not have an agreement for Fiscal Year 2004 and is currently involved in negotiations. The four remaining unions were asked to not accept their Fiscal Year 2004 pay raise. If all four unions accepted this proposal and no pay increase was negotiated with the Transit Union, the City would save an additional $779,300, or a total of $1 ,230,400, including the non-bargaining unit employees. The unions refused to accept a one year wage freeze. 6 The Health Care Committee consists of a representative from four of the unions, the non-represented employees and the City Manager's Office. The Firefighters Association is no longer a member of the Health Care Committee. Any Health Care Plan changes must receive a unanimous vote of the committee members. The agreement to maintain this committee expires on June 30, 2003. The adopted Fiscal Year 2004 budget approved by the City Council included a challenge to the Health Care Committee to save $236,000 through plan redesign. The Police Association voted no to the redesign, so this savings was not realized. The remaining members of the committee supported the changes as long as a two-year agreement to maintain the Health Care Committee is in place. The Health Care Committee would now exclude the Police Association and the Firefighters Association. Changes in their health benefits would be a subject of collective bargaining upon contract renewal. The health plan savings used in this budget recommendation includes only the three remaining unions and the non-represented employees. Instead of a $236,000 savings, it is a $167,379 savings. The budget issues to be addressed are listed in Attachment 1. In priority order with the first item being the highest priority to ke51P, I recommend the budget be amended as follows: 1. Non-bargaining Unit Employee Wage Freeze - $551,000 (Attachment 2). 2. General Fund expense reductions that do not involve cutting City positions are listed on Attachment 3. 3. General Fund increase in revenues are listed on Attachment 4 4. General Fund expense reductions that involve elimination of City positions are listed on Attachment 5. 5. Cuts/Revenue enhancements for all other funds are listed on Attachment 6. 6. Cuts/Revenues that were considered, but not recommended are listed on Attachment 7. 7. Departmental explanations by their priority are listed on Attachment 8. Staff reductions will be effective no sooner than 30 days after City Council approval of the budget amendment, or such time during the fiscal year as the City Manager determines best meets the operational needs of the City within the budgeted amount. The City Manager retains the same flexibility with the hiring freeze. The City is working to fill a nearly $3 million budget shortfall in the fiscal year that begins July 1. This must be done realizing that safety of the public cannot be compromised. 7 As the City deals with the state-imposed budget crisis, we must also plan for the future, recognizing that tough issues face the City. Over the last few years the City has lost two of the three airlines that serviced the airport. If the City were to lose the last airline that would have a devastating effect on the economy of our area. The Carnegie-Stout Public Library faces loss of accreditation with reduced hours, reduced staff, and less investment in the collection. The library is the City's main contribution to culture and education in our community. It is free to the user, so no one is excluded by income, and serves as a door to a brighter future for disadvantaged youth. The City's budget shortfall is extensive and its impact will be felt throughout the community. Although our local economy has managed to stay strong, our state and national economy are struggling. While it's difficult not to dwell on the negative, what happens to a community when faced with a challenge reveals its true character. Communities that pursue creative solutions, engage residents, and make the tough decisions are often those who emerge stronger in the end. There is an opportunity for public comment on the budget. A public hearing on the budget amendment is scheduled for 6 p.m. Wednesday, July 9 at the Five Flags Theater, at the corner of Fourth and Main Streets. fV!~if! ~ ~ Michael C. Van Milligen " MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Pauline Joyce, Administrative Services Manager All City Employees 8 As directed, I met with the leadership of Teamster's Union, Local #421 and the Dubuque Professional Firefighter's Association, Local #353. The discussions with the Teamsters revolved around the Park Ranger position. The Teamsters membership had already rejected a wage freeze and already accepted all the requested health care changes. They asked the City to consider raising the entry fee at Eagle Point Park from $1 to $2, which would generate over $60,000, more than enough to pay for the Park Ranger position, or cancel a Park's Division Capital Improvement Project. The Firefighters reiterated their wiliness to change their FLSA overtime to comp time and accept paying their full dental premium, which is accepting part of the health care changes accepted by other employees (except the Police union). This will save the City $62,206 in Fiscal Year 2004. I have included this $62,200 savings in my revised budget recommendation. If the City Council does not approve the Utility Franchise Fee, all the previously approved cuts, including the non-union wage freeze and the position eliminations, will be implemented. To fund the three Fire Equipment Operator positions, the Park Ranger position, restore Saturday Fixed Route Bus Service and not increase Fixed Route or paratransit fares, the funding will come from the Capital Improvement Program budget in the amount of $307,729, and the $62,206 offered up by the Fire Union by accepting the changes in dental premiums and allowing FLSA overtime to be compensated through time-off, instead of overtime. The canceled CIPs are the Historic District Grant Program ($139,450), the softball field renovation at Vet's Park ($139,500) and $28,779 of the $62,000 Fire Station #2 driveway and exterior improvements. Canceling these CIPS merely pushes this problem into Fiscal Year 2005, which is already looking at a 10.54% property tax increase for a maintenance level budget. This will push the anticipated Fiscal Year 2005 property tax increase of 10.54% to 13.77%, instead of reducing it to 8.05%, as would the implementation of a Utility Franchise Fee. Administrative Services Manager Pauline Joyce has provided the attached additional information on these very important issues. /YiJ/ ft;, );,/1 Mkhael C. Van Milligen '------ MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Pauline Joyce, Administrative Services Manager 9 ...". ~-0~~rr C:C:;-J01-'J;c:-'H~~~'-odS22_~-'-__L__'~C-_'~'--~----_'- ---- VJC'v I __' . ". '. . "Il'll:.? '. f'<\.\<ew"'("\\\' S t-1 ~ 90-/(oj\", 1:;:0 iF ,;' :~.- 71 7" "-:-j I ' .)- \' 1_'" J~ O,~. :' ,- ,.., "" k .J WI. .-----.--~~-._.~,~.--...--. USA KRAGNES, CASE NO. CE 49273 Plaiij.tiff, vs. RULING ON MOTIONS FOR SUMMARY JUDGMENT CITY OF DES MOINES, IOWA, Defendant. A contested hearing on the parties' cross-motions for summary judgment was held before the undersigned on November 22,2005 as previously scheduled. Upon consideration of the arguments made at the hearing, and having reviewed the court file and being otherwise duly advised in the premises, the court rules as follows: The plaintiff seeks various forms of reliet~ both individually and on behalf of a purported class of similarly-situated individuals, all based on the contention that the franchise fees charged by the defendant to customers of Mid-American Energy who are residents of Des Moines is an illegal tax. Specifically, she seeks this court's declaration iliat the fees are illegal, an injunction prohibiting the continuing charging of the fees, and a refund of those fees which were improperly charged. In addition, she seeks class certification pursuantto lowaR.Civ.P. 1.262. This latterrequest is the'subject of a separate motion, which will be taken up in the event the defendant is unsuccesslu! in its motion for summary judgment. The plaintiff bas filed two motions for summary judgment; tbe .first deals ..vith this court's subject matter jurisdiction and has not been ll!no:J l:JIH1SIO :.l~{:;T~ 10:b "I) S- N~r qnilI '1\ '",HinOJ 'JllOd 0311.::1 . '_.__._-'~~_.'..~_.._...- - -_._...._".,,~~........._-~~>> "..,.:_J;.,_..~"." ~ resisted. The plaintiff's second motion for sllDl!llllI)' jUdgment! (as well as the defendant's motion) pertains to the merits of the claim that the franchise fees are illegal. The standards regarding summary judgment are well settled in Iowa.. It is the moving party's burden to establish both thellhsence of any material factual issues, and its entitlement to judgment as a matter of law. IowaR.Civ.P. 1.981 (3); American Legion. Hanford Post 5 v. Cedar Rapids Board of Review, 646 N.W.2d433, 437 (Iowa 2002). In detennining whether this burden has been met, the court reviews the record in a light most favorable to the nonmoving party. Barreca v. Nickolas, 683 N.W.2d 111, 116 (Iowa 2004). If the motion is properly supported, the resisting party may not merely rely upon its pleadings; it "must set forth specific facts showing that there is a genuine issue for trial," or summary judgment would be appropriate. lowaR.Civ.P. 1.981(5); Weinzetl v. Ruan Sinllle Source Transport Co..-587 N.W.2d 809,810 (Iowa Ct.App. 1998). However, the converse is also true-"When the evidentiary matter tendered in support of the motion does not affirmatively establish uncontroverted facts that sustain the moving party's right tojudgment, summary judgment must be denied even if no opposing evidentiary matter is presented." Griclione v. Martin, 525 N.W.2d 810, 813 (Iowa 1994). In this case, there is no meaningful dispute as to the underlying facts. In 1987, the city, of Des Moines passed ordinances extending franchises previously granted to Towa Power and Light Company and Midwest Gas Company regarding the provision of electricity and narural gas. These ordinances included the assessment of a franchise fee, l The plaintiff's se!,ond motion for summary judgment is in actuality a motion for pllttial summary judgmenr, as it does nor deal with the scope ofporential monetary remedies available to the plaintiff in the (!;vcnt me fees are declared to be illegal, That will be taken up at a later time, if ne.;essary, once the court has also dealr with the companion motion for Class certification. 2 --","._~--,,",-------,--- . ____.__J_~._.__.~______ .....,e-~..,"_.___~__._,__"-....:..____ ori~ly in the amount of one percent (1 %) of the gross receipts derived from the franchisees from the sale of electrical energy or natural gas to customers within the corporate limits of the city of Des Moines. The city was specifically excluded as a customer to whom the franchise fees were to be assessed. Effective September 1,2004, the franchise feeswere increased to three percent (3%).2 At this time, the city also provided that the fees could be increased to as much as six percent (6%). Effective June 1,2005, the fees were increased to five percent (5%). in determining the amount of tee to assess, the city never looked at the costs attributable to the regulation of the operallon ofthe public utilities covered by the franchises. Instead:, the monies generated by the collection of the franchise fees] were placed in the city's general fund and used for such purposes as hiring more police and firefighters, increasing library hours and street improvements. The plaintiff has been a resident of the city of Des Moines since 1994, and a customer of MidAmerican Energy and its predecessors for a comparable tinJe. She seeks a refund of any franchise fees charged from and aJ.tei'Julv~ It is clear from the manner in which the franchise fees have been assessed and used that they serve the essential purpose of a tax; namely they constitute "a charge to pay the cost of government without regard to special benefits conferred." Home Builders Assoc. of Greater Des Moines v. City of West Des Moines, 644 N.W.2d339, 346, '33346, 347 (Iowa2002). The purpose of these fees is not [0 recover the city's expenses in inspecting, licensing, supervising or otherwise regulating an activity; rather, they have 1 The 2004 ordinances also acknowledged lhe merger of Iowa Power and Light Company and Midwest Gas Company into a. sIngle entity-~1idAmerican- Energy Company. Separate ordinances were passed regarding the provision of elecn-ical energy and nflnIrn.1 gas. J The fraI'Ic.hisc fees. were collected by the utilities from their customers, and in rnrn paid to the city. ~ ~ been implemented to raise revenue well beyond the CQstincurred by the city in overseeing the franchise extended to the utilities in question. See City of Hawarden v. US West ComIIlUnications. Inc;. 590 N.W.2d 504, 507 (Iowa 1999) The city is by no means shy regarding the purpose of the franchise fees; it has proudJyack:nowledg~ in its papers the extent of excess revenue generated by these fees~"franchise fees which contribute millions of dollars per year to the City treasury and which allowed for one of the biggesttax cuts in City history,...." Defendant's Brief in Support of City's Resistance to Plaintiff's Second Motion for Partial Summary Judgment, page 1. The question then becomes whether the city's claimed ability to levy such a tax can be justified under Iowa law. In order to survive such scrutiny, the city must establish specific legislative authority to do so. "A city may nor levy a tax unless specifically authorized by state law," Iowa Code 9364.3(4)(2005)4 (quoted in Home Builders, 644N.W.2d at 345). The city contends this authority. comes from a number of statutes, which when read together allows for the imposition of a franchise fee in whatever amount the city deems appropriate. There are numerous references in the Iowa Code to "franchise fees" that any municipality may impose involving the operation of a public utility. The primary reference is found at Iowa Code S364.2( 4)(f), which contemplates the assessment of a "city franchise fee" upon "customers of a franchise." Iowa Code 9364.2(4)(f) (2005). The filet that this statute is the source for such a fee is buttressed by the language found in Iowa Code 9480A.6 (2005), which refers to the collection of a "city franchise .. While prior editions of the Iowa Code are implicated due to the chronology of events covered .in this litigation, the COLlrt will generally refer to the current lan,g:uag.c of any given statute. as there hac; been no change in the srarutory language applicable to this ruling to the present. 4 .. _.._..._~:_._--,- _._----'--'--...;-,.,.;..-~ fee... pursuantto section 364.2:, subsection 4...." Clearly, the Code allo;ws forfue imposition of a franchise fee by a municipality such as the defendant. This does not end the analysis, however. The question then becomes whether the stal:\rtes allow for1:hcUJ>e of such a fee as a revenue-generating measure, as has been undisputedly done in this - instance. Otdimrrily, a fee imposed by a municipality may only be used to cover its administrative expenses in exercising its police power. Home Builders. 644 Nc W.2d at 347. This has been the case both before and after the advent of home rule for municipalities. Id. (authorities omitted). Absent specific statutory authority to do so, a municipality may not justify a revenue-generating fee as an implied incident of its regulatory or police power. Id. a1.350 ("[A]n implied power to tax [is] a notion antithetical to Iowa's home rule principles."). The city's argument that the aforementioned. statutory references to franchise fees allow it to assess such fees "without limitation as to. .. the amount of the fee" (Defendant's Brief in SUpport of Motion for Summary Judgment, page 5) isat odds with this holding. In order tojustify its franchise fees as revenue-generating measures, the defendant must establish starutory grounds for their use in such a manner. This it cannot do. The defendant once again points to Iowa Code g480A.6 and its counterpart, Iowa Code g480A.3, as justification for the use of the franchise fee as a tax. IowaCode S480A.3 allows for a user fee to be assessed against a utility to be used to recover the city's "management costs caused by the public utility's activity in the public right-of- way." Iowa Code S480A.3 (2005). On the other hand, Iowa Code g480A.6 does not allow for the assessment of a franchise fee against a utility where a user fee pursuant tQ 5 _.,-,."_..~-"--,".,--_',--;,.;,.;.....,~-,-,._-,.,".,-"~~-_..~-~~___._-,-,.L..,__.> "--'~-"_._~.-~.,'. .' Iowa Code ~480A.3 has oeen assessed. Iowa Code ~480A,6 (2005). The defendant argues that this statutory dichotomy allows the use offranchise fees to generate revenues beyond the amoWlt necessary to cover its expenses in regulating the franchisee. The defendant reads too much into this language. All these statutes mandate is that a municipality may use one of two methods to recover its regulatory expenses regarding a franchise: .it may impose a user fee pursuant to S480A.3. or a franchise fee pursuant to. S480A.6, but not both.' These statutes (10 not constitute the specific authari2ation required to justify the franchise fees as a tax, The legislature has not provided specific statutory autharity for the use, of a city's ~ franchise fee as a revenue-generating measure. Therefore, it constitutes aiax which has been assessed in violation ofIowa Code 9364.3(4). The plaintiff's second motion for summary judgment should be and is hereby granted. The court will. enter an appropriate declaratory judgment, as well as an injunction prohibiting the continued assessment of the illegal tax. IT IS THEREFORE ORDERED that the plaintiff's first motionfor summary judgment is granted as unresisted. The district court has subject matter jurisdiction over the issues raised by the litigation in question, and the plaintiff's petition states a claim upon which relief may be granted. IT IS FURTHER ORDERED that the plaintiff's second motion for summary judgment is granted. The court hereby declares and orders that the franchise fees , The same is true regarding the final stnluleS upon which the defendant claims justification for the use of the franchise fees as a revenue-generating measure, lowa Code ~423B.5 and ~423E.3(2). Both these statutes refer to aa franchise fee or user fecI> imposed on the salespdce from the sale ofeJectr.iciryor natural gas. Absent more specific language, these references:only pertain to the options available to a municipality in recovering its COS15, nO\" as grounds 3S the use-of one (user fee) to recover costs and the- oilier (franchise fee) to genemtc revenue. 6 -.,--------.,....-..,-....-.--..-.----. _...._~_.,._-_._--_._, - ,~"'--_:_'-~-'-~--""-'"..._~----------:._._- _.;.---~ :.,..," ....~_....- assessed by the City of Des Moines to customers ofMidAmerican Energy Company Of its predecessors pursuant to Ordinance No. 6280,6281, 14,341 or 14,342 from and after July 27, 1999 are illegal as constituting unauthori:.:ed taxes. The court further enjoins and otherwise prohibits the defendant, City of Des Moines, Iowa, from collecting or assessing any franchise fe.es pursuant to the aforementioned ordinances while this ruling remains in . VI) "I- led oJ rv(,'; force andeffuct. IT IS FURTHER ORDERED that issues relative to the monetary relief requested by the plaintiff, including an award of attorney fees and the issue of court costs, shall be. determined by such future proceedings as aretequired, depending on the resolution of the plaintiffs motion for class certification which shall be dealt with in a separate ruling. IT IS FliRTHER ORDERED that the defendant's motion for summary judgment is denied. Dated this 5th day of January, 2006. :tvlichae1D. Huppert Judge, Fifth Judicial District Copies to: Brad Schroeder ~ Mljl'k Godwin ./ 7