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April 14, 2009 Minutes CITY OF DENTON CITY COUNCIL MINUTES April 14, 2009 nd After determining that a quorum was present, the City Council convened in 2 Tuesday Session on Tuesday, April 14, 2009 at 4:00 p.m. in the City Council Work Session Room. PRESENT: Mayor Burroughs; Mayor Pro Tem Kamp; Council Members Heggins, Moreno, Mulroy, Thomson and Watts. ABSENT: None 1. The Council received a report, held a discussion and gave staff direction regarding the preliminary Five Year Financial Forecast and the Over 65 Property Tax exemption. Bryan Langley, Director of Finance, stated that the overview and purpose of the presentation included a review of FY 2008-09 long-term plan, discussion on possible changes to assumptions for the preliminary FY 2009-10 long-term plan, provide information concerning over 65 property tax exemptions, discussion on possible exemptions in the context of the five year financial forecast and the next steps in the budgeting process. Key assumptions – Key assumptions in the 2008-09 long-term plan included appraised value growth; sales tax growth; franchise fee growth; transfers; merit increase-civilian; meet & confer; and health insurance. Assumptions for appraised value growth were at 3.3% for 2009, 4% for FY 2010, 7% for FY 2011-2013. Sales Tax growth was assumed at 2% for 2009 and 2010 and 5% for the remaining three years. Franchise fee growth was projected at 2% for the remaining 4 years; transfers at 6% for 2009 and 2% for 2010-2013; merit increases at 4% for all years of the plan; meet and confer at various percentages for 2009 and 4% for the remaining 4 years; and health insurance with a 6% growth for all years of the plan. Appraised value history - over time appraised values had increased substantially; with 3.3% growth last year. Most other years had high single or double digit growth. Adopted 2008-09 long term plan - included a possible 2.5 cent tax increase in 2010-11 with new funding of $.5 million per year. No particular programs were anticipated. This was just a planning tool. Key assumption changes – Due to current economic conditions, changes being considered included: (1) reduce appraised value growth assumption from 4% to 0% in 2009-10 and 4% for future years which would incorporate anticipated loss of revenue associated with Denton Presbyterian Hospital; (2) reduce sales tax growth assumption from 5% to 2% for 2010-11 forward; (3) incorporate an additional 1% for franchise fees for Denton Municipal Utilities; (4) reduce expected building permit and inspection fees for 2009-10 and 2010-11; and (5) adjustments were based on preliminary information with additional changes to be considered during the upcoming budget process. Impact of AV/sales tax growth assumptions - reduction in sales tax growth assumption from 5% to 2% beginning in 2011 reduced income by $7.1 million over the five-year planning horizon. Combined impact of appraised value and sales tax assumption adjustments resulted in a decline of approximately $24 million of the five year planning horizon. City of Denton City Council Minutes April 14, 2009 Page 2 Fund balance reserve - a higher beginning fund balance was predicted than previously forecast. The ending fund balance from 2007-2009 was reviewed. Preliminary 2009-10 long term plan – included a 2.5 cent tax increase for 2010-11; a 1% franchise fee; new funding; and 0% ad valorem growth for FY 2010 with 4% each year thereafter. Other items to be considered – (1) updated long term plan was primarily based on FY 2008-09 plan with revenues and expenses not specifically mentioned not updated and the upcoming budget process to refine the plan; (2) the financial plan assumed an additional $500,000 per year for new and/or enhanced program which equated to $7.5 million over the five-year planning horizon; (3) the plan assumed an annual average 4% increase in employee compensation which equated to approximately $10 million over the five-year planning horizon; (4) non-airport gas well funds could be appropriated for General Fund purposes; (5) management had considerable latitude and flexibility to heavily influence costs over the coming years; (6) slight adjustments to appraised value, compensation, sales tax, and other assumptions could have a profound impact on the plan such as a 1% increase in appraised value estimate for each year added approximately $9 million to the five year plan with later years of the plan affected most; (7) the financial plan should not be considered in absolute terms but should guide decision making by providing a general forecast of the future; and (8) the financial plan was still in its infancy and much work would be needed to be done before the plan was completed in late July. Actions already taken – the 2008-09 adopted budget included funding for 22 new positions in the General Fund; however, due to concerns over the forecast, management had not filled 13 of those positions and those 13 positions had been removed from the long term plan. Management had also implemented a “soft” hiring freeze with all vacant positions requiring ACM approval to be filled. Additional actions might be necessary as projections were finalized. Current property tax exemptions offered - the individual value of exemptions for disabled persons, disabled veterans, homestead and over age 65 were reviewed. Other entities exempt from property taxes in the City of Denton included UNT, TWU, Denton ISD properties, Denton County facilities, and Federal and State properties Over 65 exemptions in the Metroplex were reviewed. Over 65 exemption tax impact - for every $5,000 increase in the over 65 property tax exemption; approximately $148,000 would be lost. If the exemption were increased from $25,000 to $55,000 approximately $888,000 in additional revenue would be lost on an annual basis with $596,000 lost in the General Fund and $292,000 lost in the GO Debt Service fund. If the exemption was increased to $55,000, total annual loss of revenue would equate to approximately $1.6 million. Recommendation - for any changes to be effective in 2009-10, Council must approve an ordinance by July 1, 2009. Since the final appraised values were not known, committing to an increase in the exemption may be premature at this time. Staff would present alternatives for consideration in the 2009-10 proposed budget. City of Denton City Council Minutes April 14, 2009 Page 3 Next steps – next steps to consider included (1) continue to refine revenue and expenditure th estimates; (2) preliminary appraised value estimates would be available May 15 with weekly updates for appraised values provided until the final figures were released; (3) during May-July management would refine projections and prepare a recommended budget with regular updates th to the Council; (4) the certified appraised values would be received from DCAD on July 24; nd and (5) September 22 the Council would adopt the tax rate and approve the Annual Program of Services. Mayor Burroughs stated that the situation was such that Denton’s exemption was lower than neighboring cities and that the problem, at some point, needed to be addressed. A secondary issue was a mechanism where the program would be tied to a need basis rather than a blanket over 65 exemption. Council Member Mulroy asked about the purpose of a tax exemption for people over 65. Langley stated that the most common justification was that seniors were on a fixed income that was not growing and to provide an exemption to relieve of some of the property tax burden. There really was a variety of different reasons. Council Member Mulroy stated that these were individuals who had retired and had their income plateau. The exemption was one way to protect their ability to stay on their property because their income was either flattened or diminished. Years ago the principle of an exemption had been accepted and now it was needed to determine the right amount of the exemption. The right thing to do was to catch up with other cities. It was not “if” but how to do the catch up. Langley stated that a phased in approach would be better than doing the increase all in one year. City Manager Campbell felt that Council needed to make a recommendation to consider some change for next year during the budget process.If the increase were going to be implemented for st the next tax year, it needed to be done before July 1. Robson Ranch residents had asked Council make a decision while the existing members were still on the Council. Council Member Heggins felt that based on the present economy, the over 65 residents had moved from a want stage to a needs stage. She suggested a two step plan of perhaps $15,000 per year. Langley replied that staff would need to know what type of stair step plan was wanted; a two year plan, $5000 per year or some other combination. Mayor Burroughs suggested preparing both of those types of scenarios including conclusions. How much would have to be eliminated or how much would be the increase tax for everyone. The proposal would either have to eliminate programs or shift the burden of the increase to all tax payers to accommodate the over 65 tax payers. Council also needed to know what they were budgeting made sense. Council Member Moreno stated that the lost revenues from Presbyterian Hospital and sales tax needed to be considered. He would be in favor of a five year phasing of $5000 per year. It was a difficult task to do until firmer budget figures were known. City of Denton City Council Minutes April 14, 2009 Page 4 Council Member Mulroy stated that it was not a matter of purpose or if it should be increased. It was how to do the right thing by the seniors. He would advocate that Council be in a position to st make a commitment and pass an ordinance by July 1 with whatever plan the Council agreed to- whether that be all at once, in small steps or large chunks. Council Member Thomson stated that one encouraging sign was that commercial construction was going up. New buildings were coming on line which would help the local economy. He was in favor of a stair step approach to be presented before he was no longer on Council. Council Member Watts felt that there either had to be a subtraction off revenues or an addition to the tax rate. A tax shift burden was going on even without the addition of this tax exemption. Council needed to decide what kind of commitment it was going to make. City Manager Campbell felt that there was a consensus on the Council to do something. The question was when and what type of plan. Council could approve something at the next meeting whether that be $15, 000 this year and $15,000 next year, $5000 per year for five years or other possible options. Council Member Thomson expressed a concern about binding other councils for five years. The intention might be to bring the exemption up to a certain level in a number of years but this Council could not bind other councils to that decision. Council Member Mulroy was in favor of taking a first step this year. He would like to see some expenditures cut rather than new revenue in tax rate. Council Member Watts felt that bad times always caused people to look at things. He felt it would be good to go through the budget and identify areas that might not be achieving the goal they want. He felt that personnel costs should be the last thing to look at. Look at areas the city was subsidizing that it did not need to be doing. Not everything in expenditures was absolutely needed. With no further business, the meeting was adjourned at 5:35 p.m. __________________________________ MARK A. BURROUGHS MAYOR CITY OF DENTON, TEXAS __________________________________ JENNIFER WALTERS CITY SECRETARY CITY OF DENTON, TEXAS