Budget Message

To: Honorable Mayor and City Councilmembers

From: Kris M. Busse, City Administrator

Re: 2023 Proposed budget and preliminary levy

Date: August 25, 2022

This memo serves as an introduction to the 2023 Proposed Budget and Preliminary Levy. Budget preparations began in early June to allow council sufficient time for review and consideration prior to adopting the preliminary budget and levy. Staff is taking a new approach this year with departmental budget presentations. The finance director will present at the September 6 study session to provide the council a tutorial on navigating the City’s first interactive budget document and a brief overview of the 2023 proposed budget. All departments will then present in one session to the Council on September 13. If additional time is needed, another study session has been scheduled for the evening of September 14. This will allow council members and staff a comprehensive view of the budget. Council will review the Capital Improvement Plan in the coming months and another overall budget review on November 1. Statute requires adoption of the preliminary levy on or before September 30, 2022. City staff will place the preliminary budget and levy on the September 20th agenda for council action. The preliminary levy can be lowered but not increased from the preliminary amount. Staff is planning to hold the budget public hearing on December 6, 2022, and adopt the budget at the December 20, 2022 meeting.

Economic Outlook

Over the years, Owatonna has shown its diversified economic base results in continued growth. The City had another strong year in terms of number and valuation of building permits. At the end of July, the city had issued 1,155 building permits totaling nearly $48 million total valuation. Last year at this time the city had issued 1,143 building permits totaling $29 million in valuation. Many exciting projects were completed in 2022. The Courtyard by Marriot held its grand opening in August. The 106-room hotel adds additional vibrancy and traffic to downtown. The city plans to hold a ribbon cutting in late September for the newly constructed streetscape. The streetscape with its wider sidewalks, outdoor furniture, plantings, additional dining and merchandise display space makes the downtown a more inviting pedestrian friendly destination. The new High School is scheduled to open in the fall of 2023 which has already resulted in attracting new residents to Owatonna. Staff expects this trend to continue. In terms of community development, new projects underway include expansions in manufacturing and additional housing. For example, CDI has broken ground on a new 200,000 square foot manufacturing facility that will add 50 positions. The new Munson Eye Clinic also broke ground this summer. The relocation of this facility will allow the city to demolish the old clinic and reconfigure the parking lot to maximize parking spaces and efficiency benefitting the newly revitalized downtown. Construction is also underway for the new Smart Bus facility located in the industrial park. The city is experiencing steady growth in apartment complexes. Westlake Meadows Apartments have broken ground on a 276-unit complex located west of Lowes. The complex includes many amenities such as a pool, workout rooms, parking garages, dog park and trails. A 75-unit apartment is under construction on the corner of Cedar Avenue and 26th street.

Looking forward, over the next five years, several tax increment financing (TIF) districts will be decertified, and a significant amount of tax capacity will be added to the city’s market value. Although TIF doesn’t immediately add to the City’s tax capacity, it has many ancillary benefits and the eventual addition to tax capacity.

Budget Highlights

One significant factor that needed to be included in 2023 budget planning was inflation. In 2022, fuel costs increased dramatically along with most materials and vehicles. Certain adjustments were made to allow for reasonable increases.

This budget reflects strategic investments to continue to support community growth and development. The 2022 budget advances all four key focus areas of the City’s Strategic Plan; Infrastructure, Economic Vitality, Quality of Life and Efficient, Effective and Economical Government. In terms of Infrastructure, staff continued its work in addressing the current and future needs of city-owned facilities. This is a significant project that will take years to achieve. Staff will continue work on financing options for the overall plan needs. For 2023, funding is included for roof repairs to several key buildings. They include: fire hall, law enforcement center (LEC), main airport hangar complex and Merrill Hall. Investments will also be made for new roof top units at the LEC and the second half of funding for mechanical upgrades at River Springs Water Park. Another important project includes a new cablecast server to aid in livestreaming of council meetings and offering close captioning for our viewers .

The city, along with many other communities, received funding from the American Rescue Plan Act (ARPA) of 2021. The federal funding that remains will be utilized to reconstruct the Vine Street parking lot. This lot serves the downtown and with the recently installed streetscape, parking was reduced to accommodate wider sidewalks for outdoor dining and merchandise display space. The Vine Street lot will be redesigned to add more parking through an efficient layout. ARPA funding will be used for remodeling city council chambers to allow for better video and sound quality for meetings and improved accessibility. Plans are to include a new Comprehensive Plan with the remaining ARPA funding.

Fostering Economic Vitality is critical to creating a diverse economic base that attracts and maintains quality jobs and continues growth in the city tax base. Building on the success of the previous year’s progress and looking to assist with future growth, an additional full time staff member has been added to the budget. This position will be responsible for community development issues related to annexations and will assist with economic development. Other investments for economic vitality include $75,000 added to a neglected/hazardous buildings fund and $50,000 to the matching grant fund. $75,000 was added to the council chamber renovation project. $5,000 increase in each of the EDA and HRA levies is also included. The city is also collaborating with the Chamber on a community-wide branding project and has included $25,000 in the budget to aid in this effort.

Quality of Life is an important component to any city’s growth. Cities today need to attract residents and better serve existing residents through quality amenities in a safe community. This budget includes funding for new furniture at River Springs Waterpark, new canoes, kayaks, paddleboards at Lake Kohlmier, additional funding for trail overlays and pickleball equipment. Two part-time recreation facility assistants will be added to the budget to assist with operations at Brooktree golf course. Public safety is also of critical importance to the community. Replacement 800 MHZ radios are needed in the police and fire departments. Current radios are no longer supported. Staff has applied for grant funding for this key equipment. If the grant is not awarded, the city will have to issue equipment certificates.

Efficient, Effective and Economical government has been addressed through implementation of the new OpenGov system. The new software offers greater efficiencies and increasing number of devices to ensure full use of the technology. I feel its time to include .7 position in the IT department. SeeClickFix will allow staff and the public an efficient way to bring maintenance issues to the correct department to address. Online permitting for building permits, zoning permits, business licensing and special events will allow the public to apply for permits when it’s convenient for them and not have to worry about office hours. The 2023 budget will be an interactive, online document offering the public detailed budget information. The additional staff person in Community Development will help manage the added responsibilities of the City’s continued growth. Additional opportunities for community engagement will also be provided through the new system. Attracting, Developing and retaining a high performing municipal workforce is a key component of the strategic plan. A modest wage increase has been included along with the results of the market review to ensure continued internal and external equity. Funding has also been included to continue the implementation of the culture assessment and blueprinting project.

The Vehicle Replacement Fund (VRF) provides funding for vehicle and equipment needs for all city departments. This fund was created after the recession in 2008 to address the dilemma of choosing between much needed equipment versus other important capital projects. By establishing this fund, equipment can be replaced at recommended intervals and more accurately reflects the true costs in their respective departments/programs. This internal service fund provides funding for core city vehicles through monthly charges to the general fund for vehicle use. 2023 purchases include a variety of equipment needs throughout the city. For example, engineering vehicle, squad cars, road grader, street sweeper, tandem axel truck, Parks tractor and attachments, golf utility vehicle, pickup trucks, and skid steer.

Recommendation

I am recommending a preliminary increase in the levy of 9.00%. Early estimates from the Steele County assessor indicate the city’s tax capacity increasing over 10%. This growth will minimize the impact to the taxpayer. The city has a history of strong economic growth. The tax capacity growth over the last three years has exceeded the increase in the levy. The proposed 2023 budget reflects strategic investment to accommodate and continue economic growth. This budget closely follows the strategic plan.

Special thanks to the finance department and Department Heads for their work developing the 2023 budget for their work on the budget and CIP documents and the department heads for their excellent work in developing the programs necessary to carry out the vision and strategic plan of the city council.