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HomeMy WebLinkAbout3.A. Building Internal Service Fund To: Mayor City Council Mark McNeill, City Administrator From: Julie A. Linnihan, Finance Director Topic: Building Internal Service Fund Overview -2012 Budget Introduction: The City has undergone significant growth and as a result, has constructed several new public facilities and buildings that are currently charging rents to the individual departments within the City. This rental rate and annual accumulation has been a topic of discussion during the 2012 budget process. Background: The City established a building fund in 1998. Since this time, the fund has been adjusted to provide for replacement, maintenance, as well as potential future construction, and the rates for departmental rental have been changed to reflect the fund status. The City has constructed several new buildings that have not required the issuance of debt (see attachment A) and currently the only facilities that are paying annual debt service are the Fire Station, constructed in 1998 and the Public Works facility, constructed in 2005. At this time the fire station debt is a specific line item on the property tax statement, and the annual debt service for the Public Works Facility is paid from the Building Internal Service fund. The Building Internal Service fund has collected revenues since the fund was created, and is estimated at year end 2011 to have collected $8.8 Million in revenues, from departments ranging from Administration to Police to Public Works. The fund has also received approximately $8 Million in transfers, primarily from the General Fund, as well as transfers from closures of the Recreation and Telecom funds. This has been offset by capital outlay from the fund for projects such as the Aquatic Building, Library and Police Station, some of which have required fund transfers and debt issuance, specifically for the Public Works Facility, of approximately $12 M. The fund has also received some revenues from grants, interest earnings, and other miscellaneous sources. This has resulted in an anticipated balance as of 12/31/2011 of $6.1 Million. As the City reviews the status of the IS Building fund, it may be helpful to review Attachment B, that details the anticipated revenue flow for the fund (based on proposed rental rate reductions) and the known capital outlay that will reduce the fund position. This is based on the rental rate charges that have been established for the 2011 budget year, reduced by 20 % for 2012, and offset by the most recent estimates of the needed capital outlay. Attachment B also lists four policy initiatives that are asked to be considered for the Building Internal Service Fund, which allocates the use of the revenues received annually into the fund, as well as defining more clearly where the expenses and outlays of the fund will be directed. These initiatives will be reviewed and updated with Council as more time and history evolves, allowing staff to more clearly determine if the fund is functioning as the Council intends. Also attached are two draft policies that provide revisions to the existing Park Asset fund and the Building fund. This policy will route the rental revenues and offsetting expenses for the Recreation area into the Park and Recreation IS fund, and removing said activities from the General Government Building IS fund . Please review attachment C & D. Recommendation: Staff is currently reviewing the history and details specific to the building rent and fund utilization as well as the formulas used to establish departmental rental rates. Staff will be bringing a recommendation related to the rental rates and utilization of funds, prior to the adoption of the final levy, in December, 2011. I � h /budgetl2 /building fund ws memo -E-luner‘,k How has the City paid for its current buildings? Year Built or Purchased Building Method of Payment 1991 City Hall Cash 1995 Community Center Cash Voter Referendum to Issue Bonds. 1997 Fire Station #1 Debt service paid by mix of market value tax levy and cash on hand. 2003 Police Station Cash 2003 Library Cash Bonds issued with Council approval. 2005 Public Works Building Annual debt service paid out of Building Fund. 2011 Fire Station #2 Cash 6 - & b r4- eJ , M c n t fA How has the City paid for its current buildings? L` P c ptt Year Built or Purchased Building Method of Payment 1991 City Hall Cash 1995 Community Center Cash 1997 Fire Station #1 Voter Referendum to Issue Bonds. Debt service paid by mix of market value tax levy and cash on hand. 2003 Police Station Cash 2003 Library Cash 2005 Public Works Building Bonds issued with Council approval. Annual debt service paid out of Building Fund. 2006 Aquatic Center Cash 2011 Fire Station #2 Cash Buildings for City Use — listing 2012 budget Building Internal Service fund Overview Fund Projections (less recreation program rental revenues - $320,000 impact) Annual Anticipated Beg. Bal. Annual Annual Debt Annual Capital Maintenance Ending Cash Cash Revenues Service Outlay Expenses Position 20 % Decrease * ** * ** 2012 Analysis 6,152,205 613,152 (450,000) (150,000) (50,000) 6,115,357 2013 Analysis 6,115,357 613,152 (450,000) (90,000) (50,000) 6,138,509 2014 Analysis 6,138,509 613,152 (450,000) (300,000) (50,000) 5,951,661 2015 Analysis 5,951,661 613,152 (450,000) (100,000) (50,000) 5,964,813 Policy Initiatives for General Government Building Internal Service Fund: * Building fund will provide for annual debt service allocation of $450,000 through the term of Public Works Debt Service (73 % of annual rental charges) ** Annual Capital Outlay for fund will be reviewed at budget cycle and authorized by Council (estimate 15 % of the annual rental charges) * ** Annual maintenance costs for fund will be estimated and reviewed annual at budget cycle, allowing for on -going maintenance (estimate between 5 and 10 % of annual rental charges) * * ** Unspent rental rates will be accumulated in the fund for future building needs as defined by Council and staff. c• Prit ch,YYle ref City of Shakopee, MN General Government Buildings Internal Service Fund (i.e. the "Building Fund ") Fund Purpose The purpose of this internal service fund is to set aside funds to pay for debt service and major maintenance items associated with the City's general government buildings. "General Government Buildings" include City Hall, the Library, the Police Station, current and future Fire Stations, and buildings housing the Public Works Departments. The fund may also be a means of setting aside funds to provide a portion of the cost for future City building; however, it is not intended to fully replace the issuance of debt, which will impact the future tax levies as the annual principal and interest payments will be reflected in the annual tax levy. Revenue Sources The primary source of revenue for this fund is the annual "building rent" which is paid by individual City departments, and the interest earned on such funds. From time to time, the City Council may transfer other funds into this fund for specific or general purposes. The annual rent to be collected on each building shall be established based on an analysis of the building life and usage, as well as anticipated specific building needs, such as unique HVAC or security requirements. In cases where multiple City departments share a single building, the rent for that building shall be allocated among departments as determined during the time of annual budget preparation . Intended Expenditures At the Council's direction, money in the fund may be used for: 1. Annual debt service payments on debt issued for the construction or remodeling of a General Government Building. (This currently provides the funding for the Public Works Building, for which bond payments will expire in 2025.) 2. Replacement and major maintenance items for existing General Government Buildings, defined as: a. Those items necessary to protect the City's investment in the building, or b. Those items necessary for the continued or evolving use of the building, and c. In excess of $10,000 dollars and with a useful life of greater than 5 years. Examples of such items include replacement, and in some cases major repair, of: ➢ building exteriors (roof, foundation, siding, brickwork, trim, etc.) ➢ heating, cooling and ventilation systems ➢ entryways, windows and doors ➢ parking lots, walkways and exterior lighting ➢ special assessments specific to long term property improvements ➢ elevators ➢ safety and security systems 3. Investments in General Government Buildings intended to increase their energy efficiency, thereby lowering the ongoing operating costs of the building. Pcifack,meive City of Shakopee, MN Park & Recreation Asset Fund Internal Service Fund (i.e. the "Park & Recreation Fund ") Fund Purpose The purpose of this internal service fund is to set aside funds to pay for replacement and major maintenance items associated with the City's Park and Recreation facilities. "Park and Recreation " assets include the Community Center and Ice Arena, Youth Building, SandVenture Aquatic Park, trails, shelters, tennis courts, skate parks, and other park and recreation related amenities. The fund may a lso be a means of setting aside money to provide funds for portion of the cost for Y g Y p P future improvements or additions; however it is not intended to supplant referenda, donations or grants for major fundraising efforts. In the future, construction of significant building additions, replacements or improvements will likely need to be funded through the issuance of debt, which will impact the future tax levies as the annual principal and interest payments will be reflected in the annual tax levy. Revenue Sources The primary source of revenue for this fund is the annual "rent" paid by the various divisions of the Parks, Recreation and Natural Resources Department, as well as the Park Maintenance Division of the Public Works Department. From time to time, the City Council may transfer other funds into this fund for specific or general purposes. The annual rent to be collected on each asset shall be established based on analysis of the building life and usage, as well as anticipated specific building needs, such as unique HVAC or security requirements. Intended Expenditures At the Council's direction, money in the fund may be used for: 1. Replacement and major maintenance items for existing Park and Recreation assets, defined as: a. Those items necessary to protect the City's investment in the asset, or b. Necessary for the continued or evolving use of the asset, and c. In excess of $10,000 dollars and with a useful life of greater than 5 years. Examples of such items include replacement, and in some cases major repair, of: ➢ Playground equipment and accessories ➢ Trail overlays and improvements ➢ Park shelters, restrooms, storage and support buildings ➢ Tennis courts, Skate Parks and other outdoor recreation facilities ➢ Community Center and Youth Building updates ➢ Aquatic Park enhancements and major repairs ➢ Ice Arena enhancements and major repairs ➢ Repairs and upgrades to the roofing, HVAC, parking lot, lighting and /or other major components of any of the above listed building 2. Investments in Park and Recreation buildings and facilities intended to increase their energy efficiency, thereby lowering the ongoing operating costs of the building.