Property Services Fund
2022-2027 Financial Plan
Introduction
The Property Services Internal Service Fund is responsible for the operations and maintenance of the City-owned buildings including police precinct structures, fire stations, and public works buildings. The Property Services division is responsible for space and asset management, security management, and energy management services for City properties. The fund does not provide services to the Convention Center, Water facilities, or the Minneapolis Park and Recreation Board buildings. The Property Services fund is also responsible for the Radio Shop which maintains the City’s emergency communications network. Property Services is part of the Finance and Property Services department within the City Coordinator’s department.
The Property Services fund collects revenue from City departments that are either housed in City buildings or use the services provided (building space, operational maintenance, security, space and asset management, energy management, janitorial and radio services). The proposed building and communication equipment charges to City departments are calculated through cost allocation models using historical and anticipated operational costs. The cost recovery structure is configured to enable the fund to charge the amounts required to recover the cost of the goods and services provided to City departments and the cost of the fund’s overhead. The Property Services Fund collects revenue for City Hall rent and remits it to the Municipal Building Commission (MBC) to reimburse the MBC for maintenance and property management services.
Included in the Property Services Fund is the Property Disposition Fund. This fund was created in section 14.120 of City Ordinance for the purpose of recording proceeds from the sale of City property. The ordinance did not specify the use of proceeds.
Historical financial performance
Over the last five years, the Property Services fund revenue has slightly increased from $26.7 million in 2016 to $27.7 million in 2020. Beginning in 2016, the Property Services fund collected $4.0 million annually in asset preservation rental income as part of the allocation model to fund facility repairs and improvements to City owned buildings. The Property Services Fund will continue to collect revenues from City departments that occupy City buildings to fund improvements for facility repairs and upgrades. This practice replaces funding through net debt bonds.
The Property Services fund increased its net position by $1 million from $35.4 million at year-end 2016 to $36.3 million at year-end 2020. As previously noted, starting in 2016 the fund collects $4.0 million annually in rental income from departments for facility repairs and improvements. Due to the timing of projects over the past three years, only two-thirds of this funding has been spent, which resulted in increased net position. The council has approved a rollover of the 2020 budget of $3.9 million to the 2021 operating budget due to delayed asset preservation projects.
Current Year Projections
Revenue
The 2021 revenues are projected to be $26.4 million, representing a slight increase of $0.1 million or 0.4% from the original revenue budget of $26.3 million. The increase in 2021 projected revenues is mainly due to revenue from work for others. Work for others revenues include discretionary repairs and upgrades which can vary from year to year depending on the available budget of City departments. A base budget is recorded each year and increased as additional projects are completed and billed to other City departments. The 2021 rent revenues are projected to be $22.4 million. Included in rent income is the charge to City departments for use of City owned buildings.
Expense
The 2021 expenses are projected to be $28.3 million, representing a decrease of $1.8 million or 6.1% from the original budgeted expense of $30.1 million. Included in the 2021 expense budget is a conservative estimate for costs related to projects completed for other City departments. As the projects are requested and expense is realized, the offsetting revenue is collected through the billing process. Also, facilities management expenses are projected to be $2.7 million lower than budget due to lower projected expenses in the asset preservation projects. The City Council approved $3.9 million of 2020 budget to rollover to 2021. It is anticipated that half of this rolled over amount will be used in 2021, and this is reflected in the 2021 Facilities Management projections and the 2021 budget.
The fund has an appropriation of $3.4 million (originally $5.4 million less $2 million MBC rent reduction) for pass-through costs for the services provided by the Municipal Building Commission for maintaining the City’s space in City Hall in 2021.
Net Position & Cash Balance
The Property Services Fund’s projected net position at the end of 2021 is $34.4 million, which is an increase of $2.0 million, or 6.0% from the budgeted ending net position of $32.5 million. This variance is mainly due to the $2.0 million expected delay in asset preservation projects. The fund’s projected cash balance at the end of 2021 is $4.5 million, which is an increase of $2.0 million from the budgeted ending cash balance of $2.5 million.
The Property Services Fund cash balance includes operating cash, capital preservation project fund and the cash balance in the Property Disposition Fund, a fund that receives proceeds from the sale of City property. The cash balance in the Property Disposition Fund at year-end 2020 was $1.6 million and is projected to be at $1.6 million at year-end 2021.
2022 Budget
Revenues
The 2022 revenue budget for this fund is $29.6 million, representing an increase of 12.6%, or $3.3 million from the original 2021 revenue budget of $26.3 million. The increase is due to increased rent charged to departments housed in City owned buildings including the New Office Building for property maintenance and facility repairs, which includes vacant spaces until the vacated buildings are transferred or sold. Also, the 2022 revenue budget for the Work for Others and Parking Facilities departments are calculated based on historical information unlike the prior years.
The 2022 revenue budget is $29.6 million, representing an increase of $3.2 million, or 12.1% from the 2021 projected revenue of $26.4 million as a result of the rent increase due to similar reasons stated above.
Expenses
The 2022 Expense Budget is $31.0 million, representing a $0.9 million increase from the $30.1 million budgeted in 2021. The 2.9% increase is mainly due to the rent increase as a result of the New Office Building.
Transfers
The 2022 revenue budget includes a General Fund transfer-in for $1.1 million, which is to cover the cost of City Hall rent for the space occupied by Property Services including the City Hall vacant spaces. The fund has received these transfers on an annual basis and expects the transfers to continue in future years.
There is no transfer-out budgeted for 2022 for Property Services Fund.
Debt Service
There are no debt service payments planned for 2022.
Net Position & Cash Balance
The Property Services Fund has a 2022 budgeted net position of $33.1 million. This represents a decrease of 4.0% from the 2021 projected amount of $34.4 million. This decrease is mainly due to the projected delay in the asset preservation work planned in 2021.The financial policy related to net position for the Property Services Fund directs that the net position should not fall below two times the annual depreciation amount. The Property Services Fund is projected to be in compliance with this policy in 2021 and 2022 as the target net position is projected to be $1.6 in 2021 and $1.6 million in 2022.
The 2022 budgeted year-end cash balance is $3.1 million, and the 2021 year-end projected balance is $4.5 million. The Property Services Fund cash balance includes operating cash and the cash balance in the Property Disposition Fund, a fund that receives proceeds from the sale of City property, and cash in the Capital Asset Preservations Project Fund. The cash balance in the Property Disposition Fund at year-end 2021 is projected at $1.6 million. Financial reserve policies for the internal service funds determine that the cash reserve for the Property Services Fund should not be less than 15.0% of the operating budget, or $3.8 million for 2021. It is projected that the fund will not be in compliance with this policy by $1.0 million.