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HomeMy WebLinkAbout2025-01-13 Transcription (Budget Overview & Highlights)Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:./.Icitychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [00:00:20] Good morning, everyone. It is, uh, January 13, 2025. We're going to start, uh- and it is 8:00 AM. We're going to start the city council budget work session agenda. How are we going to go this? It will be just we're going to start this. Maybe we need to push the city manager on the finance later if we don't- if we run out of time, and we're going to start by the budget overview and highlight of city manager office finance. The first one is the city attorney. [00:00:52] Okay. Everybody ready? Long day. Get comfortable. A lot of budget talk. Uh, we're going to start with the city manager overview as we typically do. Uh, feel free to interrupt and ask questions as we go along. Otherwise, you'll have as much time as you want to uh, talk through things afterwards as well. We do have a long day of presentations from each of the department heads as well. Let us know if we're going too fast or too slow for you, and we'll get through the day. Um, I always like to, uh, start with just a review of the schedule, uh, that's in front of you, you should have the printed slides in front of you, as well as what's on your monitor there. Um, a couple of things to note. Uh, February 4th, uh, is when we like to finalize, uh, our CIP and begin our bonding preparations. We really need to at that council meeting also focus in on what the maximum tax rate is. If you decide that you want to move that tax rate around at all, know that February 4 is probably your last opportunity to have those discussions and provide staff direction, uh, because on February 18th, we have to, uh, start that process. Uh, March 11 is also about the time in which we need to have all of your expenditure decisions at that point. You can always go down, but you can't go back up. Um, just remember those two key dates there. We will look to have the actual adoption of the budget on April 15th, and that'll give us a couple of weeks to get it filed with the county auditor. You have a long document in front of you that you just got a few days ago. It's a difficult document to work through. What I like to do is just really try to have you key in on a few different sections of that budget, so we won't go through all those. But as you spend some time over the next couple of months looking at the budget, here are a couple of sections that I would suggest you go through once or twice to make sure you're familiar with there. Okay, Uh, just a reminder on what our fund structure is. Um, we'll spend most of the time, uh, talking about the general fund, which is kind of your discretionary, uh, dollars that fund your general government, fund your public safety, your police, your fire, your parks, your library, senior center, etc. That's where property taxes are really coming in, and you have quite a bit of discretion on how those are used. But you'll also hear information about our special revenue funds, our enterprise funds, capital project funds, etc. Uh, we'll start on the special revenue funds, just quickly what those are. Those are ru- funds funds in which revenues are received, and there are strings attached to how you can spend those dollars. We receive CDBG dollars from the federal government. They have rules and regulations about how we can spend those dollars. Uh, you can also see, uh, that we have, um, uh, things like the road use tax on there. Again, we're limited in how we can use road use tax dollars, and thus, there's special revenue funds. Our enterprise funds are funds that we run more or less like a business, except without the profit motive. So we charge a fee for those various services. Waters a good example. You're going to pay a rate for the amount of water that you use, and that's the revenue that we use to operate our water system. So each of those are kind of self contained business units. Our internal service funds, we're happy to answer questions about. We don't spend much time at all talking about those. Those are basically internal funds. So for example, our Page 1 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httl2s:.I..Icitychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. equipment fund, individual departments or operations will pay money into the equipment fund, and that's where we do our vehicle purchases, our maintenance, and things of that nature. It's kind of in and out accounting within uh, uh, the city budget there. Again, most of the time will be spent on the general fund. A really quick recap on the current year budget, the fiscal year 2025 budget. For the fourth straight year, we had taxable valuation falling short of expenditure levels, and you'll have a fifth straight year with the budget that we're presenting today, the fiscal year 26 budget. Um, one of the main drivers of that was the residential rollback rate, which we'll cover here in a little bit. It had a drop to 46.3%. It was at 54% in fiscal year 2024. So an 8% drop, which was the largest annual drop on record, and the 46.3 was one of the lowest points in the history of the rollback. And again, we'll talk about that a little bit more. A continuing trend, not surprising, looking at the news. Uh, it seems like anytime there's natural disasters anywhere in this country, and that's having a significant impact on particularly property insurance, but we've seen both our liability and fire and casualty insurance, really jump up quite a bit in the last few years, and that's a trend that we're projecting will continue. Those are obviously expenses that we have to take care of first before we look at other parts of our operation. Uh, when those are going up in double digit increases, it really puts the pressure on those other operational needs that we have. [00:06:35] Jeff, I know that you're going to address this later, but is there an increased for this year? Are the percentage increases? More double digit increases, yes. That'll be listed up on an upcoming slide. But in total, it's about $875,000 in new expenses just in the increase over two fiscal years. Significant pressures there. Well, we were able to maintain the property rate for the second straight year, so no change. That followed 11 straight years of decreasing tax rate. We did make some great progress towards the strategic plan. We took the first step to supporting fair free transit with the second step coming before you in this budget document. That is the fiscal year 26. And we were pretty limited in what we were able to, uh, uh, do in terms of employee growth. We had one employee in the general fund. That was the civilian crime analyst in the police department, and we added 2.75 in our enterprise funds to support those operations. Again, that's the current year that we're in. We're going to start with a talk of all the significant headwinds that we're facing, and we've been talking about these. These are not foreign. These are things that have been in front of the city council all the way back to 2013, 2014, when the first round of property tax reform was enacted by the state legislature. However, the challenges are getting increasingly difficult, uh, for us to navigate. And Is I mentioned in my transmittal letter in the budget document, we are certainly facing the most difficult budget time since I have been here, and I'm projecting that, the next few years will be even more challenging. These headwinds are really starting to impact our ability to maintain our service levels. Let's go through each of these one by one. [NOISE] In 2013, the state reduced commercial and industrial taxability from 100%-90%. So instead of paying taxes on 100% of your commercial or industrial property, you paid taxes on 90%, which is still that same percentage today. The state did provide a backfill. They tried to make cities whole for this, and they did for a number of years until fiscal year 23 when they started to scale those dollars down. We were getting 1.5 million annually from the state, which is the equivalent of about 14-15 employees in our organization. Then you will see that fiscal year'26 is the last year we will receive any backfill from the state. We'll receive about 308,000 is what we project. Then in next year's budget, we will no longer have Page 2 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httl2s:Zlcitychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. any backfill. So going into next year's budget, we already know we've got to reduce $300,000. We won't get that revenue. Uh, there was a second backfill created in the 2022 legislative session. What they did is they converted a property tax credit that was also provided in 2013 to a tax exemption, and local governments get to bear the brunt of tax exemptions. The state has, again, created a backfill for this, but they were very clear in creating that backfill. That it is likely not going to, uh, continue to be available beyond 2030. We've already started to see this revenue source start to decline. The table on the screen tells you which funds that increases with the biggest impact to the general fund. So by 2030, we expect this will be fully phased out. But certainly over the next few years, we'll- we'll expect to see continued erosion of this backfill. Okay. This is the residential rollback that we talked about. So, um, there's a lot of years on this screen here. This goes all the way back to 1978. And you can see, uh, and in '78-79, we had a sharp decline, and then it's been year to year, pretty minor increases or decreases. There's definitely some trends of ups and downs. It was rare until last year to see more than 2% movement, uh, on an annual basis. And then you can see, uh, going from 54-46%. So, uh, what this means is if you own residential property, this is the percent of the value that you're paying taxes on. So just like I talked about with the commercial and industrial, paying 90%, residential right now is paying 46% in this tax year, and that goes up about 1% to 47% for fiscal year 26. Um, the note at the top in green tells you that a 1% change is about 1.1 million. So that's a pretty big jump when you go from 54- 46, as we took last year, uh, and every percent's $1 million. That was a tough one for us to take, and we're continuing to adjust to these 40% residential rollbacks. The thing to remember now is that multifamily property is included in this rollback, right? So we went through this long period from 2014 up until last year in which the multifamily property, which used to be commercial was phased into this residential rate. It is residential now, so going forward, we have about 82% of our tax base tied up with this factor. So these percentage swings mean more today than they ever have for the city with multifamily properties being included, uh, in those. Uh, this rate is set by the state. It's released about November 1st or so every year, and there's a statewide formula based on the growth across the state that dictates what this percentage is. [00:12:32] 1 beg pardon on interrupting, but just to be clear on that, when we talk about multifamily, we're talking pretty much landlords getting a huge tax cut over a period of 10 years, so basically paying about half now what they used to pay a decade ago. [00:12:46] Correct. uh, uh, accepting that valuations probably grew over that time, too, so their property values probably grew, but, yes, the percentage of their property that's taxable was more than cut in half. [00:12:57] Do you know when you take a look at our year to year budget drop or- sorry, income drop because of this? How much of that is broken out? If you don't have this, that's okay, but broken out to, what it would have been had the multifamily, um, uh, been left, and is that even at 90%? (00:13:16] Page 3 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https:,/,/citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Yeah, I don't have the annual numbers, but from the 2014 year, so the legislation was passed in 2013. From 2014 to right now is about $30 million in cumulative revenue loss to the city over that period of time. [00:13:30] 1 think I had looked at this. I think it was around six million. It would have been just this year alone. And again, that's kind of estimating based on what we know- we know the [inaudible 00:13:37] was and how it increased. So about six million, I think it would have been this year. (00:13:43] So when I look at that, I hear $6 million in burden for running the city shifted from multifamily landlords, some of whom have quite big facilities here in town to spread out among us individual property owners. So that- that's what I hear, anyway. I just wanted to kind of make that point for those people that are listening in and disconnecting some dots. [00:14:06] 1 think that's a good point, and we won't spend a whole lot of time today thinking about property tax reduction in terms of what's coming forward. But I think what's been concerning for us is, there's never been a holistic review of property taxes, right? So there's been efforts to go in and address what legislature may see as a particular issue. Like, taxes are too high on this particular property cla- property class. And what you do is you squeeze that balloon, so you relieve pressure somewhere and you push pressure somewhere else. And that's what you're describing. [00:14:38] 1 want to make sure I fully understand, too, that single family homes, whether they're owned and owner occupied or rented, are all categorized as residential. Duplexes are residential, but anything above a duplex is Residential? It's all residential. Previously, was multifamily starting at more than a duplex residential [OVERLAPPING]? [00:15:00] How did that change? Is it simply the occupancy being owner occupied versus rented, or is it the quantity of units? [00:15:09] Uh, I'm not- I'm not 100% sure on that. I'd have to get back on that one. [00:15:15] Either way it harms, Iowa City, but I am curious about that. [00:15:19] Yeah. Page 4 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https:./.Zcitychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [00:15:20] But this graph showing both residential and the multifamily, right? [00:15:24] Correct. As of- as of the really last fiscal year is when those two merged. [00:15:31] Okay. [00:15:32] Understand. [00:15:32] Previous multifamily, uh, prior to 2013, it was commercial, so it was 100%. Uh, and then it would have gone to 90. And then it went down about 4% a year until it merged. [00:15:48] Uh, building permit trends, we like to look at these. This is the construction value and calendar years. Uh, these are leading indicators. So as we- as we think about building our tax base, uh, we look at what kind of permits we're issuing and we can kinda project out what that may mean for our tax base. And the story here is that, uh, when the 2013 tax reform was entered, you can look at those years really 2016-2019, where we were averaging over $200 million in permits per year. That allowed us to grow past some of those challenges or at least maintain status quo operations. Uh, once you hit the COVID year where we were under $100 million, and you can see, uh, we've been averaging about 125, 130 since then, with the exception of the 2023 number, um, that's not going to allow us to- to grow out. So we look at the number of permits that we're issuing and we're kind of forecasting ahead. And when I say the next few years are gonna be even more difficult, it's because I'm not seeing a whole lot of tax growth, uh, through our building permit numbers, projected tax growth that's gonna get us past some of these reform efforts. [00:16:56] Jeff, I know, uh, 2016 was the Chauncey, right? [00:17:00] Twenty -sixteen had both the Chauncey and the rise. So there was two major projects at that time. [00:17:04] So was 2023, and I should remember this- was that the tailwinds? [00:17:09] Page 5 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Yeah, you had two- two projects, you had the, um, Myrtle Riverside project, because this is when you were issuing the building permit, right? It's not the certificate of occupancy. So this is the Myrtle Riverside and the FeatherStone Senior Housing. [00:17:22] Okay. Thank you. [00:17:23] And that really drove that. And we talked about this at our economic development committee, uh, last week. Really, when you look at the 2024 numbers, uh, what we're lacking is a major project, and those major projects typically in the past, have been students or senior housing are what driving the, you know, the growth in those really good years. Um, the NEST project that you're referencing would have hit in 2022, 1 believe. [00:17:48] All right. Thank you. [00:17:51] Uh, no, I'm sorry, 2022 would have been Gil Bain, and 2021 would have been that Tailwinds NEST project, excuse me. But there's a couple of things. So you can think of the orange as your- your tax base, right? So you're looking and then the line is the- the year-to-year growth numbers. So you can see at the left side of the graph, the line is, uh, higher up. That means we were getting annually higher percentage rates of growth. Uh, starting in '23, through the right side of the graph, you see that, uh, percentage increase represented on that line graph go down quite a bit. Uh, in Iowa, property is reassessed every two years, and those are in the odd years. So, um, really in those even years, what we're looking at is purely new growth. You're not seeing a reassessment of properties. And, uh, the- so that's why we group the- the 2% at the bottom. Yeah, and again, you can really see the difference between the 11.05, the 10.46, the 11.78. When your tax base is growing on average 5-6% per year, that's- that's where we need it to be to, uh, maintain those status quo operations. As we move into fiscal year'23 and '24, you see the negative growth over those two years, and you see the 5.87% growth or on average, a little less than three, that's not going to be sufficient to maintain those status quo operations. And if you look back at just the last five years, so fiscal year'22, uh, to what we're projecting in fiscal year'26, it's less than 2% per year taxable growth. Uh, unfortunately, we see those, uh, same numbers probably being projected out in the next few years, uh, which is why we've expressed so much caution with this budget going forward. Uh, State of Iowa Property Tax Reform. We covered the 2013, uh, one pretty good there. Um, uh, so what we haven't talked about is the 2023 legislation. There was a new military and senior homestead exemptions. Uh, so if you're, uh, a property owner- a residential property owner and you served this country or you qualify as a senior, uh, there's an additional tax incentive for you. And, uh, we estimate that that action took just under 28 million off of our tax rolls, and that's a- a little over $400,000 per year in revenue loss to the city. So not debating whether that's a good policy decision or not, just- just simply stating the fact that that policy decision has, uh, real implications on our budget. And then the big piece, uh, is the library and emergency levy being phased out. Uh, it'll be about $2.1 Page 6 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,//citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. million in lost revenue when fully phased. Uh, it will be fully- and those two will be fully eliminated in fiscal year'29, uh, but it could be sooner. So the way the state structured this is the faster you grow, the faster it phases out, but- but we will be fully phased out by fiscal year, uh, '29. Um, we have to get back to an $8.10 levy in our general fund, and you'll see in a slide that, uh, uh, Chris will review in a little bit. We're, uh, about $8.40 right now. So that's the difference. We got to get from $8.40 back to $8.10, uh, by fiscal year'29, and that's another, uh, 1.5 million in revenue that we've gotta shed from our budget over those years on top of the other, uh, backfields that I've mentioned earlier. [00:21:26] 1 know that this is more just what's happening. But is there any, um, was there any explanation for why it was- the decision was made to roll it back to $8.10? [00:21:37] Uh, $8.10 is where the General Fund CAP has been historically for decades. So what they did is they took the value of your emergency and library levy, and there was a whole long list of levees. Just the emergency and the library were the only two that Iowa City had. Different cities had different combinations of levees that were eliminated. But we got to take that value and add it to the $8.10. All right? So we have 40- excuse me, $0.47 in those two levees. So we added that to the $8.10 and then get in the process of bringing it back down. That's how they phased it, essentially. And then to get to your earlier question, here's the property and liability. So the, uh, projection that is in front of you is that our property insurance will increase another 35% in this coming year and that our liability insurance will increase another 15% in this year. So again, as we start the budget process with our departments, we're looking at these figures and saying, "Okay, we've got $875,000, uh, over the two years that really have to be addressed before we can start looking at those, uh, department budget requests. [00:22:43] Here's a quick question on the insurance piece. Jeff, I know in the past, we've talked about the city being self -insured. Can you just kind of explain a little bit what these premiums are for compared to what we may be, um, save ourselves or how- how we manage that risk? [00:23:00] Yeah. Uh, you wanna- to take a stab at that, Nicole? [00:23:03) Uh, sure. So we're self -insured but have, like, uh, what do I want to say for like large claims is when the insurance will kick in. So I couldn't tell you exactly what that deductible is, but I think on our equipment roof, that was around 500 or so in total, we're paying $2.50, and the insurance company is picking up the other $2.50, something like that. Um, so yeah, it's something our brokers look at every year as far as what- where should we keep those deductibles and- but yeah, as Jeff said, the market is- is not good. Our brokers were just here. The numbers were looking a little better, and then the fires happened in California. So we'll see what they- we won't get our actual rates for FY26 till sometime in June. Page 7 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https:././citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [00:23:52] And just to close the loop on where my question is coming from, even with an $875,000 increase in our costs over these two fiscal years, we think that those policies are worth the cost, right? I mean, we're looking at how that all balances out and- [00:24:10] Absolutely and what we need to do- we do everything we can to- to keep those lower in terms of the - the measures that we can take, but the world around us is- is absolutely changing and driving those numbers up, yes. [00:24:22] Yeah. [00:24:25] Okay, uh, I'm going to, uh, step aside and turn it over to Chris O'Brien, who's gonna walk you through the revenue portion of our budget presentation. [00:24:41] Good morning. Uh, from the revenue side of things, I think it's important following Jeff's overview to keep in mind a lot of the property tax information that he's kind of laid out here plays directly into what we're gonna see from the revenue side of things. Uh, and I think this first slide, uh, you know, the - keeping in mind, this is all revenue sources where we'll kind of get into the general fund here in a second. So even when you're taking into account all of the enterprise funds that we have, all the funds or all the different budgets that we have, property taxes still makes up about 1/3 of what we're talking about, uh, as far as the revenues that come into the city. So all these constraints that we've seen, that we've talked about, as far as the property tax reform impacts everything as far as what we do with the city. Uh, now carry that forward to when we're looking at the general fund. Uh, you're looking at 2/3 of the revenue that we- we bring in for the general fund come from property taxes. Several other things that play into it. Um, we can talk- if you have specific questions about, uh, some of the other- other components to the general fund, uh, resources- oh I'm sorry, revenue sources, but that 66% that comes from property tax. Uh, it makes it difficult we- as things constrict for us to continually fund our sources moving forward. Um, I think the miscellaneous being the- the other key component. Uh, that's where you start looking at kind of charge of racks, fines. There's things that play into that. It kind of- it's a catch-all of- of a lot of different revenue sources. Uh, but the- the thing to remember going forward is the impact the property tax has on- on the general fund specifically. Uh, Jeff kind of stole- stole the thunder for the next slide, um- [00:26:29] Can I- can I ask a quick question about the intergovernmental, that segment of the Pie? Um, this is, I understand, a revenue slide. In Iowa City, what is our intergovernmental inflow versus outflow? Like I mean are we, uh, uh, a revenue generator or is it an expense to collaborate with other governmental bodies? Do we - Page 8 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [00:26:50] So it's- [00:26:50] 1 think it's- is this just state funds coming to us or county funds coming to us or is this an exchange of services? [00:26:56] So right it's- so like your grants- a lot of like your federal state grants, and then 2080 agreements that we have with other- other entities. Uh, so it's kind of- I'm trying to think of what other- what we have as far as going out for 2080 is. It's mostly- it's mostly incoming, so it's- it's mostly a revenue source. [00:27:13] Okay. [00:27:14] And this also include the backfill that we receive. Where am I gonna receive again? [00:27:19] Correct. (00:27:23] Yeah, so that, um, and- and what you saw, so there was- there was a 2.3%, oh, sorry, 2.6% decrease, uh, from the prior year, and most of that was related to that- that backfill phaseout. So that's where you saw that decrease come from. Uh, so as I mentioned, Jeff did a good job of kind of stealing the thunder from this slide, um, you know, he- he mentioned that by FY29, that $8.40 that you see up in the- the upper right-hand corner of this slide has to be down to $8.10. Now, uh, my understanding is it could also be sooner depending on what- what growth rates happen. Uh, but one of the other things that we wanted to note on this one is if you look at how we maintained that 15.633 this year was we kind of flipped the- the debt service and the employee benefits to where we raised one, dropped the other one to kind of cover in order to maintain that 15.633. Um, and Jeff also mentioned that- that dropping to $8.10 will be about a $1.5 million per year revenue hit for the city moving forward. Uh, but we did wanna highlight the fact that the employee benefits and the- the debt service order did a flip from '25- '26 in order to- to kind of maintain that balance. Questions on this one? Like I said, I know Jeff covered a lot of it, but there's- there's really a lot going on in this slide as far as how it pertains to what we do moving forward. [00:28:51] Very big picture question, just a policy question to maybe put on the table. We're talking about that overall levy being $15.6663. Thank you. Um, and that being flat the last two years. I know that prior to Page 9 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. that, it had been coming down for 10, 11, 12 years. Um, what kinds of factors would staff look at as far as ever recommending an increase in that overall rate? [00:29:27] So, um, as we, um, looked at it this year, the employee benefits- dropping the employee benefits level and raising the debt service. One of the things we're gonna talk about in subsequent slides is why we have to increase debt service. We don't have to. Why we think we should increase the debt service. And that's a lot of the inflationary proj- impacts on our projects. It's the fact that we can't use general fund to support capital as much. So we've got to be able to build that debt service capacity. Uh, we also know that we've got to bring down that $8.40 another $0.30, as well. So, uh, we're looking at probably, uh, as we bring down the general fund over the next few years from $8.40-$8.10, our goal would probably be to push up the employee benefits levy a little bit more and recapture some of this, again, to keep a stable tax rate. Ultimately, we always wanna keep, uh, uh, from a staff standpoint, we would never wanna present you with a recommend- a recommendation to increase taxes. Um, however, once we start getting into service level cuts when we're talking about cutting our core services, uh, that'll certainly be something that weighs on our mind. What we think we will try to do going forward, uh, is take the $0.30 off that $8.10 in the next few years and add it into both the employee benefits and the debt service to keep it flat. So our goal is to get through this with a flat rate, uh, and also build debt service capacity. [00:31:05] Can- I don't know who can answer the- the- the two levees transit and tort, I understand probably have maximums to them, and I don't know where we are with those. And the reason I'm specifically focused on transit is when we later talk about how we support, uh, the free bus, I know that, you know, we're - we're coming up with lots of creative solutions to- to su- support that bus, but why is it not just part of the transit levy? [00:31:29] Yeah, transit. But that one's been maxed out for as long as I can remember. So, uh, even back to when I was actually with parking in transit, we've had that $0.95 transit levy that's been there the entire time. So one that one- that one has been maxed out forever- [00:31:45] As long as you can remember. [00:31:50] So you're- you're sort of talking about the trends. Um, this doesn't go all the way back to when we started the decline in, um, in the property taxes, but we had, like Jeff said, once again, er, an 11 year drop followed by this will be the third straight- as we propose, this will be the third straight steady, holding steady that we've- we've- we had two years that we held steady, and we're proposing a third. Um, you know, I think back when we first started the drop, Iowa City was one of the top, one of the higher property taxes that there was in the state. Now we're kind of sitting that middle of the pack. Um, Page 10 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. sorry, that'll be on the next slide here. Whoops. Um, sorry. I got a little ahead of myself. Um, I think all of us understand that the residents here want to maintain lower property tax rates. I mean, that's something I think that back when Tom was here and Jeff has continued is that constant trend of making sure that we're not, not overly raising taxes. You're going to see a slide later where we, we show how we compare to comparables in Iowa and just some of the, the changes that you've seen both with Iowa City and then with a lot of our neighboring communities, er, that really, I think, tells a story of, of what Iowa City has done over the last 10, 15 years versus what- what we've seen others do over that same time period. Er, this one we just kind of want to put out there so that I think everybody needs to remember that there's other things that residents have as far as tax rates that- that'll show up in their property taxes. Er, Iowa City is only about 39%. Er, I think the school district, er, is another factor. It's at 42%. There was a time here in the last 10 years or so that Iowa City, this has kind of flipped, where - what Iowa City had was around 43%. And I think just with the pressures that I think every entity, county, er, school, um, all the other entities that, that, er, factor into the property tax rate have- have felt. There have been changes that have made that have kind of flipped that where Iowa City that trend of us dropping our taxes has shown as we've- we've dropped down into that 39%, um, 39% of the total tax rate. And you've seen Iowa City school district kind of get up into that 42% as they've had similar pressures to what we've had. Er, this was the one I was talking about as far as the slide of where- where other entities are. Um, I mean, Waterloo is kind of an outlier. Um, I think with the others, you've seen sort of, er, almost less than double digit growth or um, less than double digit reduction, but, uh, we've seen a spike in Waterloo. Um, you've seen Iowa City, um, we've kind of dropped below the Davenport, Des Moines, Cedar Rapids over tha- that time frame, um, inching closer to some of those communities that are just below us. Um, but I think it's told, like I said, quite a story, er, and especially when you see that we're once again proposing a 26, er, a flat- a flat rate with no increase. Um, and I'm guessing that we'll probably see others that potentially have, er, additional increases moving forward as they have the same pressures that we have. Questions on the slide kind of tells the story. [00:35:22] 1 think maybe just the perception of Iowa City as such an expensive place to live in the state, is that related more to the valuations of our property, or they per acre a lot higher than these other- than some of the other cities? [00:35:38] Yeah, I- I think that that would be, we would agree that it's the valuations versus what others maybe see. I think obviously having a strong university committee, I mean, there's a lot of things that I think while others may have seen decreases, we've kind of held just- just due to the way Iowa City is, er, versus some of those other communities. [00:35:57] Also explain sorry- that also explains why when people are actually playing- paying their property taxes, they're not necessarily seeing it drop, correct? It's because the valuations keep going up. [00:36:08] Page 11 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,[/citychannel4.comlcity-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Correct. [00:36:09] 1 keep having this conversation with my husband, but I just wanted to put this out. [00:36:12] Yeah, my wife and I had that same one over the weekend, so. Er, so as we're looking, I know we've spent a lot of time on property taxes, but I- I think some of the other things that we want to talk about are those- the other what we would consider, I'm- I'm putting in their quotes, major revenue sources. Um, you know, I- I think there's this perception that, oh, hotel motel tax is a huge driver, um, of city revenues, when, in fact, if you- you really look at it, um, you know, you're talking $2 million on a- on a substantially larger budget than that. So -so when you see increases in that hotel/motel tax, and- and granted, we're- were seeing very positive trends coming out of- of what happened during COVID, where we -we took some steps back. Um, it's just a drop, really in the bucket of what- what we need as far as, er, providing the revenues that- that the city needs in order to maintain its budget. Um, I'm trying to remember in 18, that dip, I think it was- if I remember right it was the graduate. Um, obviously, and then we- we kind of hit COVID, which- which put quite a hit on the- the hotel/motel industry, and then we've - we've come out of it pretty strong here these last three years, er, but still, we're at $2 million, um, which overall, um, doesn't really get us to where we need to. And I- I think one of the things that 1 know Jeff has kind of- kind of talked about and I know he's talked to you guys about is that need for additional revenue sources, um, while we- we keep seeing constriction in the property taxes, there's not a lot of options that we have in Iowa in order to try to make up the those drops that we're seeing from property tax revenues. [00:37:51] So these values that we're seeing up here, is this the amount that Iowa City gets? Because my understanding is motel/hotel tax is done in- in the aggregate for multiple cities, and then it's divided by a ratio, and then we get half of that for public safety, and the other half goes back to, is that- am I misunderstanding how that mechanism works? [00:38:13] Yeah. So this is all- this is what's collected in Iowa City. There's no sharing between communities. So this represents Iowa City hotels remitting to the state and the state then remitting to us. And then, yes, there's a formula on how it's, er, how it's distributed. [00:38:29] So the CVB- that is the C- this is the CVB portion. No. That's then maybe what I'm confusing it or. [00:38:38] Yeah, 25% goes to like 47%, 47 and change is PD, and I think the remainder is Parks and Rec. Um. [00:38:45] Page 12 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:llcitychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Okay. But the numbers on here are the amount that come to our general fund? [00:38:48] Correct. [00:38:49] Thanks. [00:38:52] Er, so another util- or another major- once again, major revenue source that we wanted to talk about was a utility franchise fee. Um, Iowa City is currently at 1%. Um, 2009 is when this- this was enacted. Er, Iowa City kind of jumped on it right away in 2010. Er, I think we implemented a 2% right away, then backed it off to 1% pretty quick, um, and as you can see, er, in 2024, we're at 983,000, um, which once again here, you're talking half the motel- hotel tax. So not- not really a massive driver. Um, one of the things we're proposing for 2026 is a- a 1% increase. Er, you're by state law allowed to go up to 5%. You kind of see where Iowa City sits, once again, er, middle of the pack. Er, even at 2%, it really wouldn't change really our place amongst other communities. We're kind of- we've just dropped, er, kind of in a - a tie with Council Bluffs as far as utilizing that 2%. Um, we're estimating that if- if that were enacted, that would take that revenue up to about just over 1.9 million, er, for those, um, for the utility franchise fee, which would go to I think the- the main driver for that is the ability to fund fare free transit with those proceeds. Um, so you'd have, um, some write away projects, you'd have some, um, but the- the main driver is that- that extra, um, 1% would be- would be used for the fare free transit that we've implemented. [00:40:34] So the utility franchise, er, that came- that goes to the general fund? [00:40:41] Correct. [00:40:42] Okay. Sorry. [00:40:44] You said if we increase it to 2%, that we'll generate double the amount? [00:40:561 Correct. Er, sort of the next major revenue source, road use tax. Um, whoops. Sorry, I kind of went back. Um, so this is showing you sort of the trends that we've seen. Er, I think 2016 was, I think the last time they did an increase. Er, I saw a big spike when they did, I think, a dime, if I remember, increase. After that, you've sort of seen it drop down in that- in that trend line showing just moderate increases over time. Um, so while we've seen those moderate increases, I think everybody's aware that the- the Page 13 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. pressures on- on road projects and on major infrastructure projects continues to grow to where this road use tax isn't keeping up with what's needed for- for repairs. Um, you know, I think we're in a $11 million deficit, not deficit, but you'd need, I think, they're saying in the $11-$15 million in order just to keep up, er, with the repairs that are needed. Um, and in order to find a revenue source that can cover that, er, with property taxes continuing to constrict, it- it makes it tough, um, as we're looking at maintaining core operations to- to look at those infrastructure projects and find ways to- to source revenues for those. Um, and then when you couple that with what we've seen in inflation over the last decade and specifically here in those last five years, well, we saw some positive trending over the last year, I mean, we're still at a- a massive increase in what the costs are for us to do these, er, types of- of public infrastructure projects, as they're also seeing revenue streams tighten, er, for city projects. Er, which kind of brings us to kind of tying this all together from the revenue side is one of the revenue sources that I know we've, er, come to you about before is the- the LOST. Um, and I think one of the reasons we wanna, er, make sure that we- we talk about in conjunction with what we see with road use tax is when you're looking at those public infrastructure projects and you're looking at the size of those, there just aren't a lot of options for us as far as funding sources that can- can handle that kind of a project, whereas LOST is one of those. Um, and like I said, I- I know we've- we've kind of gone into at length discussions with you on this before, so I won't spend a lot of time on this, but, er, we just wanted to make sure that you- it was on your radar as we were having these discussions about what- what one of those major revenue sources could be, and one of the few options that we have a a city, um, in kind of the wake of what we're seeing from the state in order to- to get at some of those projects. [00:43:43] Do we have an estimate of what the 1% lost for Iowa City would be annually now? I understand it may make a difference who near us also adopts it, but it was 8.8 million back. [00:43:55] About the same [OVERLAPPING] It's about the same. [00:43:561 Okay, thank you. [00:43:59] And, if you, you know, if you want to equate that to a project, if you look at something like Court Street, which we're looking at is a nine- nine-ish million dollar project, you know, that- that would be one project. [00:44:14] Is the reason why, like, I'm seeing Cedar Rapids their purpose, they're able to say it's 100% street repair? Is that because it went into effect in 2009 that it's grandfathered in? So that, okay. [00:44:32] Gonna pass the torch. Uh, Kirk will be doing the expenditure portion of this. Page 14 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https:,Zlcitychanne]4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [00:44:40] You all have to draw straws. [LAUGHTER] [00:44:42] Kirk Lehmann, Assistant City Manager, for those listening from home. Er, I'm just going to talk very broadly about expenditures. Obviously, as each department comes in and talks about their budgets, they're mostly gonna be focusing on expenditures. So I'm looking at the broad overall trends, not really getting into that nitty gritty departmental level, uh, side of things. So in terms of which funds expenditures come out of, er, as you would imagine, the general fund being our largest source of revenue, it's also our largest source, er, of expenditure. So that's about, er, 73.6 million. Um, it also has the most flexibility. Er, as Chris had mentioned, most of that comes from property taxes, er, but it is a substantial portion. So that's probably what I'm going to spend the most time on, er, as part of this presentation. Uh, our next largest group then is enterprise funds, so that's those business like funds. Er, within that category, we have 66.7 million. Um,t hings like water, sewer, garbage parking, the housing authority also comes out of that, er, but because those generate their own revenues, er, we will talk about it, er, broadly, but we won't spend too much time focusing in on it. Uh, followed by capital improvements or capital projects is our next one. Er, as tied to our five year capital improvement plan, that's about 65.9 million. Um, for context, the- the transit and equipment project is equivalent to about half of that amount. So that- that shows you it's used for major projects, um, but, uh, obviously there's a lot of need, er, with those things. And then we have our smaller fund amounts that we have as well, which includes the special revenue fund, um, things like folk funded by grants, specified levies, or purposeful transfers, er, and then also our debt service fund, er, 14.4 million, er, which accounts for our payments on general obligation bonds and tax increment, uh, revenue bonds as well. So like I said, most of the time, I'll spend on the general fund expenditures. Er, I will also go over debt service, and we'll cover the enterprise fund balances more generally, and then you'll have a separate session that's on the CIP to talk more about those large capital projects. So wi- within our general fund expenditures, um, a lot of it goes towards public safety. Er, in terms of departmental revenues more general- or departmental expenditures more generally, about 29.7 million goes to fire or police. Those are obviously 24/7 operations. They're very staff intensive. So that's a significant portion of our general fund budget, and they don't generate additional revenue, uh, through other sources, generally. Uh, we also spend about, uh, 20.2 million, er, in our parks, library, and senior center departments, er, and then 14.2 million on kind of our internal departments like clerk, er, the city attorney's office, city manager's office, and finance, then about 9.4 million, uh, for neighborhood development services, public works, and transportation services. Uh, the reason those are so low in our general fund expenditure categories are primarily because they get income from other sources. So you think of transportation services. Uh, obviously, you have lots of grants similar for NDS when you have the housing authority bringing in money, you have- they're also bring in rents or public works, where you have a lot of those enterprise funds. So wi- within our general fund, um, looking mostly at, er, the way that funds are used. So this is not tied to departments. The graph up there is tied to how funds are used. Um, we spend about 39% of our general fund on public safety, so that does include police and fire generally. It also includes things like building inspections, things in other departments that are tied to public safety, um, and then we also Page 15 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https:,/,/citychannel4.com/city-council.htm]) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. spend about 23% on culture and recreation. So that does include library, it does include some parks expenditures, but it includes other investments as well that we make. Now, comparing that to other communities that we see across the state, especially those that are our peer communities, er, with peer communities, you usually see them spending about half of their general fund, er, on public safety. Uh, in all cities in Iowa, it's about 44% of general fund, er, on public safety, and then you see them spending less on culture and recreation. So we are in a really fortunate position where we are able to invest, uh, in culture and recreation and still provide high quality public services. Er, as you'll recall from the Polkos survey, um, presentation that I gave the other day, er, we have really positive ratings on- on categories tied to education, arts, and culture, especially how we stack up against other communities, and a lot of that's tied to our investment in it. But we are also able to maintain, er, those public safety expenditures and high qualities of service with a pretty lean budget. But that also means that there's not a lot of, uh, flexibility in how we do that. Uh, we obviously want to make sure that we continue to provide high quality services, uh, as we look at these. [00:49:46) And when it comes to how we spend our general funding expenditures, then most of that's personnel. A lot of that's tied to especially those staff intensive services, but about three out of every $4 goes to personnel. So a lot of that's driven by things that are bargained, things like salaries, things like benefits. It also means that if we make cuts into our budget in the future or to the general fund budget in the future, that does have implications for our staffing levels and potentially layoffs if we continue to see restriction in these things. We also spend a substantial amount on services or about one in every $5. That includes things like professional and consultant services, internal service funds, and then also training and education, repair and maintenance and funding for other initiatives. So that's where the aid to agencies and those kind of capital outlays to a lot of our partners comes from that slice. And then the smaller amount, about 6% spent on other categories, things like supplies that we have to replace or capital outlays, which includes things like vehicle replacements, library materials, operating equipment, larger billing, maintenance improvement projects. And then we do have a contingency item, which is about 1%, and that contingency does include, um, some capacity building that we built into our budget in FY 24. So around that time, we started planning for our fifth fire station and started putting some funds into that budget. We'll talk a bit more about that capacity building element as we move along. But any questions on those couple of slides? [00:51:21] With the Capital outlay, that's across departments, right? Like. [00:51:24] Yeah, across departments within the general fund. [00:51:27) Okay, thank you. [00:51:28] Page 16 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,//citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Yeah. And then the way that that's changed over time is we've seen an increase in our general fund expenditure, so that's positive. 3.5%, it's about 2.5 million. But most of that does come from things that there's not a lot of flexibility in the way that we allocate those funds. So about 80% of that increase is due to increased personnel costs. Again, that's tied to bargained wages, benefits, things that we kind of have set in place that there's not a lot of flexibility around. Uh, we also have seen increases in service costs. A lot of that's due to inflationary pressures that have been discussed already. And then also some smaller increases in the cost of supply is, again- again, tied to inflation. That being said, we have been able to offset that somewhat. Specifically in decreased capital outlays, that amount fluctuates year to year, so that wasn't really a planned thing. But the way that we reacted in a planned manner was through our contingency fund. So you'll see that that decreases from 1.4 to about a million. That decrease is tied mostly to reducing the amount that we're setting aside for capacity building for a fifth fire station. Jeff will cover that in more detail, but we're looking at, if that makes sense in this current budget environment. And so a way to offset some of those increases is by looking at that. And to put into context, this 3.5% increase in expenditures is the lowest increase that we've been able to manage. Since basically COVID has started. So it really does represent an increase in expenditures that's really tied to maintaining core services, trying to control our growth with the understanding that we have challenging budget times coming up ahead. [00:53:24] For personnel, we're in the middle of negotiating staff increases with the unions. What are the assumptions that I mean, you have to pick an assumption somewhere in the middle and just build the budget off of that and adopt later or adjust later? Is that how? [00:53:421 Yeah, I would say that a lot of our assumptions are tied around the trends that we see in other communities. So we try to do our best to estimate what we think that increase will be. And obviously, as we plug in those numbers, it could adjust it up. It could adjust it down. But we put in our best guess based on the trends that we see. And that takes us to debt service. Again, as a reminder, this is payments on general obligation and TIF revenue bonded debt. This our debt service is funded by a specific levy that doesn't have the same cap on it that our general fund expenditures do. That being said, we do have an adopted policy from 2015 that council adopted our city's debt management policy. That does place three guidelines that we use. The first is not a guideline. It's a hard cap set by the state, which is that we cannot increase our debt service to more than 5% of our total assessed property value. The second is an internal policy that sets our debt service levy as 30% of our total levy. And then the final is a goal to try and have our net outstanding debt be 0.5 or 75% of our total value. And that's tied to our Moody's, the way that they look at debt. So in terms of how we're doing with those goals, generally, we're looking pretty good. So that first benchmark, the debt limit imposed by the state, the amount of debt that we could have is about 438.7 million. We expect to have about 65.7 million in GO and TIF debt at the end of this fiscal year. So by the end of next fiscal year, we anticipate being at around 15.4% of that state limit. We're well below that. That's not the the limit that is really restricting the way that we set our debt. A lot of the way that we look at our debt is set by internal goals and internal policies. The second benchmark is tied to the debt service levy as a percentage of our total debt Page 17 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,[/citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. or as a percentage of our total levy. Our current debt levy that we anticipate for FY 26 is $2.66 or $2.66 for every $1,000 of taxable value. That is an increase from our debt service limit levy that we had last year, again, as we see this need for increased capital project and increased capital investment. But it's currently 17% of our total levy. So again, that's well below our policy that we've established internally. Now, the third benchmark is really the more restrictive of the benchmarks. It's tied towards maintaining a Triple AAA credit worthiness bond rating. So there's a lot of value in having that low bond rating, it means that less of our payments go towards interest and more of our payments go towards the direct costs that we want them to, such as strategic plan initiatives. And so obviously, that's a positive thing. But in terms of hitting that goal of 0.75% of our total assessed property value, for FY 26, we're going to be at about 0.77%. So we're not quite at that target. I think we hit the target last year, and we've had to increase it since then. That being said, when the policy was set, we were significantly higher than we are now in terms of that percentage. So we've seen that come down over time, and we're still pretty close. But it's an important goal to keep in mind, even as it will be more and more challenging in the future. As property tax reforms shift more pressure onto our debt service levy out of our general fund. So it's a challenge, but it's also has some really positive effects for the city. And in terms of talking about that Moody's Triple AAA rating, I just wanted to dive a bit more deeply into how we compare to other communities. So in 2024, Moody's did reaffirm our Triple AAA quality bond rating. We've had it for many years now, which has been a really positive thing. But we are among 11.6% of cities nationally with this rating, as you can see in the chart here. So we are at the top, and that does exclude junk bonds as some cities don't even really have a rating. They're just a wild gamble as people invest in those. But the factors that Moody's uses to look at these bond ratings are things like revenue characteristics. That's things like our income levels that we have relative to US and averages. We also look at our market position. So that's things like revenue, predictability and stability, our asset condition and utilization, making sure that we're maintaining things in good quality. Uh, and then they also look at our financial position, so things like our debt service management, our fund balance management, and our budget flexibility that we have. So, for example, if you cap out all your levies, it's going to look- going to reflect poorly as if there is a challenge that comes up, you're not going to be able to react to it in any meaningful way. And then finally, debt affordability, which is our ability to issue additional debt and make sure that we're not over leveraging ourself. Uh, so in our credit reports, Moody's is very, very complementary of our budget management practices and our effectiveness, just as an organization overall. They recognize that we provide high quality services. And that we do it with a relatively lean budget. But they did note that bond ratings could be negatively impacted if there's a substantial and sustained increase in the reserve or the reduction of our reserve funds that we keep on hand in case there emergencies or if we see a large growth in our debt leverage. So it's important to keep those factors in mind as we look forward to the future. Again, maintaining this strong financial position that we've been able to place ourselves into will be more challenging in the future, but it does lower those borrowing costs for us. [00:59:49] I'd like to just highlight something real quick. One of the things and please correct me if I misstate. One of the things that previously had been part of the budgeting and the value of saving money through general funds to put towards these capital improvement projects or other kinds of projects, whether Page 18 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,[/citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. they'd be parks and rec or whatever, is that we didn't have to borrow money. So one of the impacts, at least as I see it, and certainly, correct me if this is a mistake is what appears on paper like a property tax benefit, a rollback for our residents, which, in fact, just reduces our ability to pay cash, essentially, for projects and forces us to put more borrowing in order to maintain these kinds of things. Actually costs our residents more in the long run because we now have to pay money for that borrowed. We have to pay a little extra fee for that borrowed money, so that even though it makes for good headlines coming out of Des Moines that, oh, look, we're going to roll back your property taxes. Bottom, you know, as you look out this beyond just tomorrow out to, you know, future years, it seems to me, anyway, that while we can make this work, we should be you know, we should point out that this is the reason we haven't been doing it this way before is because we've been saving Iowa City residents money by trying to at least whenever possible, save up to, you know, pay cash, if you will, versus take out Is that correct? [01:01:14] That's a very fair, good point. Yeah. We've been able to build up capital reserves for projects as a way of reducing the overall cost in terms of those financial costs on interest payments. Yeah, absolutely. (01:01:27] Thank you. And also, thank you for the city staff keeping those payments as cheap as possible with the Triple AAA rating. [01:01:34] We do our best. And then I did just want to make a last comparison in Iowa as to the Moody's ratings. We are one of three communities in Iowa that maintains that rating. The other two being West Des Moine which has higher median income, growing tax base, and newer infrastructure more generally, as they're a newer community in a lot of ways. And then Cedar Falls, which was upgraded in 2020, based on strong cash flows and their modest debt loads that they maintain. So with that, I'm going to turn it over back to Jeff to talk about fund and fees. [01:02:07] 1 guess, any more questions before I walk away? [01:02:10] 1 ask this question every year, so I'll ask you. [01:02:12] Okay. [01:02:131 Do we have a way of quantifying the value of that Triple AAA rating versus AA 1 or 2? Like, what- what does that actually get us in terms of beneficial interest rates? [01:02:25] Page 19 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:Zlcitychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Turn that over to Nicole? [01:02:27] There's no hard fast calculation because obviously, interest rates can move and whatever. The estimate that our financial advisor has put down is 150,000 a year is what it's saving us. So about an FTE probably is what it saves us in interest cost. [01:02:43] Thank you. [01:02:45] Thanks. [01:02:48] Alright, we're going to jump into enterprise funds, and you're going to hear from each of these operations a little bit later today. So I'm not going to go through in- in any detail, but what we like to do is just give you a picture of the health. Unlike the bond ratings that Kirk just went through, we assign the ratings on the right that you're seeing on the screen. So this is just our perspective from the city manager's office on the- on the health of these funds. And we do have a few that- that need monitoring, parking in transit. Obviously, parking coming out of COVID, we ate through a lot of the fun balance there. We're seeing more maintenance needs there. So we're just kind of carefully monitoring that one transit, as we're looking to stand up fare free again. lust want to make sure we're doing so in a responsible and sustainable way. Wastewater is genuinely in really good position. The- the monitoring that we're looking at here is we have a very large project coming before you. That also involves us getting into the renewable natural gas business where we'll be selling that gas. So we just put some quash in there not knowing how those large bids would come in and how that gas market is going to be. Obviously, that- that market could be volatile. And we've got some revenue assumptions based on gas sales to pay off the debt associated with that project. So otherwise, in good shape, and the airport is still running as kind of a break even operation, but ever so slightly. That's one that we'll just continue- need to continue to- to monitor because they're pretty close to being to the point where they might need general fund support to continue operations going forward. I'll leave it there unless anybody has questions. Otherwise, you'll have an opportunity to- to dive deeper into each of these funds later today. So what does this budget have in terms of utility rates and fee changes? We do have a 3% water rate increase that is suggested. It's approximately $1.12 per month per home, and that's really just to support operations as- as inflation continues to impact the operations of the water division. As Chris had mentioned before, we do have a projected increase of 1% in the gas and electric franchise fee that would provide about $1,000,000 per year into the general fund that would be transferred to transit to support the continuation of our fare free and transit system. For the first time in about eight years, we're suggesting that we increase our housing inspection fees that's equates to about a 6% increase. [01:05:39] Page 20 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. But the way it's calculated is based on the number of units and the number of bedrooms of a particular. So it's- it's a little less straightforward. Uh, but- but you can think of it as about a 6% increase. This would bring in about $60,000 in annual revenue, so not a major source. But essentially, what we like to do is cover our costs. So we look at the cost of doing inspections, and those are reflected in the fees we set. And for the last eight years, we've been covering those costs, and as we look forward, uh, those costs are escalating faster than, uh, the revenue, uh, from the housing inspection fees. So a pretty modest increase there. But again, just trying, uh, to get ahead of what we see is, uh, a need for property tax subsidy of that housing, uh, inspection program. [01:06:26] 1 guess out? [01:06:27] Yes. Oh, thank you. Uh, the 3% for the water rate, [01:06:321 when you say approximately 1.12 dollar a month per home, I think you're referring to the basic use, right? [01:06:391 Probably, yes [01:06:40] I- I really think that we should put that on because when we say $1.12 cent and my bill is $200 a month, it's not going to be $1.12. 1 guess, you know, you can add approximately 112 months per home, like on a basic used. [01:06:59] Yeah, we have- we have a, um, uh, consumption rate that we say is the average household. I forget if that's 800, 800, um, it's a cubic feet? Is that 800 cubic feet of water? It would be the average home. But you're right, there's gonna be many homes that are higher than that. There's a few that are lower than that. [01:07:19] Yeah, just, you know, for the- for the sake of the public because everybody will say, Oh, that's- that's a flat rate. [01:07:25] Yeah. [01:07:25) So it seemed like a flat rate $1.12 cent for any bill, and that's it. Page 21 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,/citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [01:07:30] Yeah. [01:07:30] And that's not the case. Thank you. [01:07:32] And before you switch, I wanted to ask, who, um, will be paying the inspection fees? [01:07:39] Uh, the- the property owner or sometimes the property management company, um, whether those fees ultimately get passed down to renters and- and it's probably the case, like any fee. Uh, they'll probably be passed down over time, uh, but those fees are charged not to the tenants, but to the building owner. [01:08:01] And for the $11, we're- we increase again $11, right? (01:08:06] Co- correct. So we tried to again, the fees are calculated based on the number of units and the number of bedrooms in a particular, uh, uh, complex or- or structure. Um, so we gave a couple of examples there. $11, uh, increase for your three bedroom household, uh, and then 12 plex might be 542 per unit. Uh, we are, uh, recommending that we introduce a new curbside yard waste sticker. You may be familiar that we have a sticker for,uh, waste. So if you fill up your bin and you have extra bags, you can buy a sticker, and we'll pick those up. What we've seen with the yard waste program, uh, that does not have that sticker is,uh, quite a bit of extra being left out outside of the bin. Uh, so, uh, we're trying to recognize that trend that we're seeing and introduce a $2, uh, curbside yard waste sticker fee. So it operate very similar to the waste fee, uh, but allow us to capture some additional revenue from some of those super users of our, uh, yard waste program. [01:09:12] So I'll admit I might be a super user. However, I- I do remember that we had this sticker fee in the past, many years ago, and I can't remember when exactly it went away, but if I remember correctly, the reason it went away largely was because of the quantity of waste that didn't make it where it needed to go, and it actually ended up costing us more money in the long run to clean out storm drains and clean out creeks and pay people for damage because of that is, are- are you- are you repeating a mistake? [01:09:43] Yeah, that's a fair- fair question. I think we're trying to strike a balance there. So what Councillor Moe is referring to is that if you make it so expensive to people throw out their yard waste, they're probably gonna dump it in a nearby creek or- or, uh, in some other, uh, place that ultimately can cause stormwater complications and more expensive fixes down the road. Uh, I don't recall when, uh, that Page 22 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,[/citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. that was probably, um, it was well before my time before we had any type of pay as you throw yard waste. Do you recall, Ron? [01:10:15] It was bag- it was the bag system we sold- we sold the bags. [01:10:18] Okay. [01:10:19] Switched when we went to the bins. [01:10:23] Okay. So when we went to the bins, uh, five or six years ago, probably, you know, time flies, but, uh, we had those the bag system was what Ron was referring to. But in this case, we- we don't believe that the $2 extra is going to cause that- the illegal dumping concern. We'll- we'll see. We'll be able to monitor how much is coming in, uh, and compare that to past years. Um, but we- we get to a point where sometimes we're pulling up to units, and there could be a- a full bin and seven, eight, nine other loads on- on the curve there. And that's really what we're trying to get in front of. Now, clearly, if we have another natural disaster like a derecho and there's a significant yard waste, um, generation, uh, we can come up with alternative programs. We've opened up remote sites for free drop before. Uh, we can, uh, suspend use of the stickers. We can do any number of things to accommodate any type of high demand incidents. [01:11:28] 1 just want to ask you the $2 new refuse fees. Is this like we used to choke that, and now we- or this is the first time? [01:11:361 This is the first time. So if- if you just use your bin, uh, then you will never have to get a sticker. But this is a new sticker. Right now, we only have a sticker for the waist. Uh, so your green lid, uh,-. [01:11:50] And this is not gonna include the leaves and everything, right? The leaves is still for free. [01:11:54] The leaves would- the vacuum leaf vacuum service is still for free, yes. And then a $5 minimum landfill fee for residential yard waste. Uh, again, uh, pretty- pretty minor here. Uh, but as we take a kind of holistic look at our, uh, yard waste program, uh, we felt like a $5 minimum at the landfill was appropriate. Okay, we'd like to give just a picture, um, of what our, uh, tax rate decisions would look like for a household. Now, the assessed value that we use is 100,000. Uh, we do that just for the- for the ease of math. So if you own a $300,000 home, you can just multiply all these by three. Uh, in that Page 23 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httls://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. second line, you see the taxable valuation, and you see that going up. So, uh, that gets back to the residential rollback slide. In 2015, it was 46%. So that's where you're seeing the 46,343, and then it goes up to 47.4%. So, uh, that rollback goes up. You're going to pay a little bit more taxes. However, we have a flat, uh, levy rate, so there's no change there. And at the end of the day, it'll be $17 more per $100,000 of assessed value. So again, if you have a $300,000 home, you're going to take that 17 by- times three to figure out what Iowa City's tax rate decisions are. So we're holding our tax rate the same, but we have to understand that because of the rollback, the taxability of the property is going up, and the property owners going to pay the City more in taxes. This is a busy slide, but we like to look at this, and this is in the budget document, too. This is kind of looking at the suite of services that we offer. So your- your refuse, your recycling, uh, your sewer, your water, your stormwater, your property taxes, most of those are being held flat in this particular budget. And again, recognizing that we're using the hundred thousand dollar property assessment for that suite of services, it's about a 1.5% increase year over year. Now, that does not include the 1% franchise utility that would be in addition to this. Um, but for the City's services, it's about a 1.5% increase year over year. Alright, I want to shift to some strategic plan, uh, conversations and focus on where we're moving, uh, the needle on some of your strategic plan priorities. But I did want to just take a minute. This is a document that you saw a few weeks ago in your information packet from Neighborhood and Development Services. As we've, uh, kind of near the end of the ARPA era, I think it's just really important to reflect back on how we expended those dollars. And I hope you're as proud of, uh, the impact that we are making, uh, as we as staff are. If you look at how we decided to spend those ARPA dollars and compare that to your strategic plan values and some of your initiative, you'll see that we invested very much, uh, the majority of those funds, uh, in, um, uh, housing and in social service support, in BIPOC business support, uh, and all things that a- align really well with your strategic plan. So again, this is a document that- that we've been providing to you quarterly or a snapshot of that document we've been pro- providing quarterly. And, uh, it's- it's pretty satisfying just to take a step back and- and about all the projects that we've been able to push forward, uh, with those federal dollars. [01:15:33] And when- when do those funds all need to be spent? [01:15:35] Uh, end of 2029. End of 20 what? I'm sorry? Twebty-nine. Thank you. Uh, we're going to talk a little bit about Fare -Free Transit, and you will hear from, uh, Darien a little bit later today, so I won't steal too much thunder, but you know that we- in the first year, the pilot had 40% growth in, uh, year over year from when we were charging a fare to when we pulled those fares away, 40% growth was really an amazing number. I think what's shocked us a little bit is how that number continues to grow in Year 2. So now we're comparing, uh, uh, months, uh, against fare -free months. So, uh, we started in August. We saw what we thought was a pretty typical 2.4% growth year over year, and then you can see what the numbers have done since then. And we're seeing double digit, a really strong double digit growth year over year, which tells us that, uh, people are probably changing habits. We're probably seeing people make decisions on how they're moving, um, and that's ultimately what we set out to do with this program. So, uh, combine that with the survey results that you just got that Kirk presented at your last Page 24 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httl2s://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. meeting, and you can see that at least, uh, uh, 16, 17 months in, the Fare -Free is really producing the results that, uh, that we had hoped to. [01:16:57] So last year- [01:16:58] 1 don't know if that question for you or later. How we like, count the measure or how we measure this the increase? Is this sort like, like ho- how we measure how many rider has been increased? [01:17:12] Yep. So the- the drivers, uh, they- they have on their tablets now, they can click, uh, where, uh, people are coming on, and they can track how many are riding per- per route. So the transportation team can actually go in and look at per route and see which routes are performing at different levels. And then we just started in December, collecting that per stop, as well. So over time, we'll be able to get really granular with- with that type of analysis. [01:17:38) Okay. [01:17:39] Similarly, this might be answered later on. But, um, are we approaching pre COVID levels?'Cause I know that that was something that was moving slowly, but are we? [01:17:51] Yes. I- I'll let Darien cover that going forward, um. [01:17:55] I'll put a pin in it. [01:17:55] But, uh, we'll give her a heads up. Uh, yes, we are- we are definitely getting back to those levels. Um, we did, uh, increase parking in part, uh, with this current budget, uh, to help pay for Fare -Free. Those revenue projections were not hitting what we thought we would. They're falling, uh, well short of those, but I think we'll- we'll be okay. We'll continue to see those, uh, hopefully climb, uh, in the- in the years to come and the need for Fare -Free. We're still- we're still technically, uh, kind of in that pilot period where we- where we can lean on the- the federal, uh, dollars there. So we'll see those parking numbers rebound, but so you know they're not, uh, completely hitting those numbers. Those are also supporting block by block and some additional, um, uh, parking deck maintenance program. Uh, the 1% growth and utility franchise fee we've mentioned, um, we just have to be careful with- with the use of the utility fee for operations. If you think back to the slide that Chris presented, the utility fee is- is a pretty stagnant revenue source, meaning you're not seeing 2, 3, 4% growth year over year. It's pretty flat. Um, and Page 25 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httl2s://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. obviously, operational costs do not operate- do not act in that same manner. So, uh, between the parking funds and the utility, we think that we've got a- a good plan set up, but we're going to have to carefully monitor that year over year and make sure those operational costs don't far exceed what those revenues are producing. And talk, uh, a little bit about climate action. Um, there's a number of programs that we should be really proud of here. Um, that I'm most proud of with our climate action team is the partnerships piece of it. They are very effective, whether that is working internally with departments, and you can see here, uh, working with the Police Department to introduce electric bikes and electric vehicles into their fleet, um, but also external partners, too. Uh, the Resilience Hub program with the Neighborhood Centers and Bike Library is a great example, collaboration with the Home Builders. Really, if you look at all their programs, uh, there's effective partnership embedded in all of those. And I'm- I'm really proud of that, and I think we're doing some great work, uh, with our climate action efforts. Okay, our- our neighborhood and housing, and I want to talk, uh, a little bit about what we've done in the- in the past and where we stand today. But in the past, one of the things that we've talked about is the need to diversify revenues that support our- our housing measures. And I think we've done a- a good job of that. And what I'm suggesting with this budget is that we need to lean on those alternative revenues, uh, at a time like this when property taxes are being squeezed. So we've effectively used tax increment financing when we've had opportunities. The NEST project that was mentioned earlier, it is a good example of using fee and lieu dollars to support the Duplex rehab projects in the South District. We have the Foster Road TIF, uh, that is, uh, holding now a balance of about 650,000 for affordable housing projects to be used anywhere in the community. Every year, we add about 130,000 to that pot. So, uh, the six- the 650 is where we'll be at the end of this budget year that we're talking about, um, but that continues to provide dollars that can support affordable housing efforts. Our Riverfront Crossing Fee and Lieu balance is now, uh, over $6 million, and those are ready to be deployed. So we've established really solid revenue sources, uh, uh, that are out there. And then I also mentioned that our ARPA eviction prevention partnership, uh, still has $500,000 remaining that will- will continue to be utilized through the end of fiscal year'29. So some of those alternative revenue sources are accumulating and are working in the community, uh, even today. Um- I- I saw you mentioned twice '29. [01:22:00] 1 saw this'26. Is this being extended? [01:22:041 Uh, do I have my dates mixed up? I do. I have my dates. [01:22:07] December '26. [01:22:08] December'26, I apologize for that. [01:22:10] Yeah, cause I think good. Page 26 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [01:22:131 Thank you for correcting me there. I'm surprised Tracy didn't throw something at me. Uh, uh, I think I have the phase in of the property tax of fiscal year 29 in my- off my- my mind. Thank you for catching that. The 3.75 million PRO -.Housing grant award, um, uh, we're really proud of that. One of 21 communities in the country to receive that. Uh, you know the Comprehensive Plan process is in motion. That's really going to address that regulatory reform. Uh, and then, uh, that also provided about 2.8 million in federal funds for us to pursue public housing projects. So again, another example of outside revenue, uh, that we're able to, um, put to use here in the community. [01:22:55] Jeff, is there any, um, I don't know, charter, I guess, is the best way to say it. Um, with a new administration coming in, is that-, uh, is this award stable? [01:23:09] Uh, yes, I believe this- this we have a grant agreement in this case. Uh, now there are additional rounds of PRO -Housing grants, and we have an application for round 2. I'd say those are a little less stable, but if you have a grant agreement in place, you should feel pretty- pretty good about that. [01:23:27] Uh, we- we do really appreciate all of our nonprofit partners, and, uh, I think what, um, I'm proud of is continuing to collaborate with them to leverage funds. So, um- uh, we have a number of examples. One from the past year is, uh, partnering with DVIP to leverage state funds. So we- we brought property, uh, that we had acquired through our affordable Housing Fund, uh, as a match so that they could build, uh, new housing on the east side of Iowa City. And that's just a- a good example of- of us working in partnership with a lot of people who are, uh, dedicated to, uh- uh, housing issues here in Johnson County. Uh, so changes in our Fiscal Year'26, uh, budget. Um, the biggest one is I'm suggesting, uh- uh- a, um, shift from utilizing general fund dollars to support LIHTC to using other revenue sources. So we talk about this in terms of the million dollars that we've provided in the Affordable Housing Fund for the last several years. Actually, last year was 1,030,000. I'm suggesting we push that to 800,000 and really focusing on taking the LIHTC piece out of the property tax equation, if you will. Um, so, uh, what we would look to with the LIHTC program is to rely on alternative approaches to funding those. So that would be, uh, TIF, could be our Riverfront Crossings, uh, funds. It could be tax abatement, uh, any other, uh, strategy, but not the cash from the general fund. So that would change our affordable housing dist- distribution fund to include the following. There would still be $500,000 to the trust fund for general support of their housing, uh, efforts. The security deposit risk mitigation stays the same, winter shelter would stay the same. We would still have funds set aside for emergencies. Uh, typically, uh, this would be, uh, displacements that are unanticipated in the community. We have 25,000 in our opportunity fund, and then 17 in the Healthy Homes program, as well. Uh, so this is a shift to reduce the general fund contribution to the Affordable Housing, uh, Fund. But what I'm trying to communicate with the previous slide and this one is it doesn't signal that the city is- is deprioritizing, uh, housing at all. Uh, it does say that we have accumulated a lot of other revenue sources, and we have other tools that we can Page 27 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. lean on in times when there's pressure on the general fund. I also noted the Street Outreach program funding, which is not part of the distribution model is- is still funded in the- in the city's Fiscal Year'26 budget. [01:26:16] Can you speak to the actual expenditures versus the budgeted amount of the LIHTC funds? Have those always been fully used fill- in the last budget year or are those actually more difficult to spend? [01:26:28] Yeah, the last several years, we've transferred those dollars to the Housing Trust Fund, who does, uh, funding rounds for LIHTC applicants. Uh, LIHTC projects are unique in that they often might take a couple of years to fund. So, uh, someone could get awarded, uh, those funds, but they may not get the state LIHTC, meaning they could get the local Housing Trust Fund award, but they may not get the s- the state award. So, for example, the- I believe the last LIHTC project, uh, supported by the, uh, Housing Trust Fund Board was the housing project at- at Roosevelt School or the former Roosevelt School. They have not been able to secure LIHTC funding, and my guess is they'll continue to try, but that's why it can take- um, take some time to do that. If you look at the senior housing project on Herbert Hoover, that's under construction now, they didn't get it their first time applying to the state, either. So these funds we could transfer to the trust fund. They can obligate those in an award, but they may not actually get to the point where they're being expended for several years. When we look at utilizing TIF, and that's one of the things we're contemplating on the ACT property is utilizing TIF to support LIHTC, you have a- um, you have the same challenge in that the applicant still has to- if they're going for the competitive LIHTC, they still have to go through an award cycle or more. Um, but we can, um, not from the city standpoint, not expend those dollars right of way. We can- we can hold those dollars, and they ultimately would, um, uh, kind of come through in a TIF agreement that comes to you as opposed to a transfer to the trust fund. [01:28:17] So when you're, um- just to sort of emphasize this, it's not that the city is no longer going to support LIHTC. It's that the funding source is coming from a different place. [01:28:29] Correct. We're looking at shifting the funding source for LIHTC. [01:28:32] So the- the affordable Housing Fund is there. It's simply that a portion of it that has been under that is now going to be funded from a different way, but it's still going towards the overall affordable housing. [01:28:44] Right. Yes, and there's nothing to say that the 500 we transferred to the trust fund under this proposed scenario, can't be used for LIHTC. They could still award it to somebody that is- uh, has secured or is pursuing LIHTC. But we, in- in years past, had provided the 500 to the trust fund for general use and Page 28 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:/.Icitychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. another 200 specifically for LIHTC. We put strings on that to say, this is only for LIHTC projects. That piece of it, I'm suggesting we take out. [01:29:13] And that essentially we would be doing that kind of support and tagging, but coming from a different source. [01:29:20] Correct. So going back to, you know, this- this slide here at the top, uh, we could use the Foster Road funds. We've accumulated 650,000. Those are just sitting in our affordable Housing Fund. Um, we could deploy those for use to support LIHTC projects. Uh, we could- if the project were to be located in the Riverfront Crossings District, we could use those dollars to support a LIHTC project. And then, of course, through TIF, if there's, you know, the- the theory being, uh, at least on the- the ACT property, if we go down that path, is that there's other taxable growth that's being built. We capture some of that growth and taxable value, and then we can invest that into a LIHTC to provide, um- uh, affordable housing on that site. [01:30:03] >But the- the affordable Housing Fund was one million, and we used to give 50% of that to the Housing Trust Fund, right? And now, uh, when we used to do that, we have like another $500,000. What- what cut we made? You mean, like the LIHTC was also out of that, that's why you're taking the 200? [01:30:28] Correct. So the middle part of this screen here, um, where it says the Affordable Housing Fund distribution, this is what's proposed in Fiscal Year'26. Really, um, it gets pretty close if we were to add another bullet and put 200 to the trust fund for LIHTC projects. [01:30:46] 1 see. [01:30:46] That's what would be more kind of, uh, characteristic on what we've done. [01:30:49] It was coming from the same part. Okay- okay. [01:30:52) Yeah. So- so again, in Fiscal Year'25, the trust fund would receive 700 from us, not 500. And that- but two of that 700, uh, would be just for LIHTC. [01:31:04] Sure. Page 29 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httl2s://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [01:31:04j Uh, one of the things I'm really excited about and proud of is the investment in facilities that, uh, haven't received a whole lot of investment in the past few decades. And its part of our strategic plan is to really improve public spaces and- and the spaces in which the- the staff is working. So a- a number of exciting projects are in- in various phases. Uh, the Senior Center, we've completed Phase 1, Phase 2 is coming up. Uh, landfill equipment buildings under construction. Uh, we just awarded the bids for Fire Station 1 and the City Hall, third -floor renovation project. And you can see down the line the- the level of investments that- that are planned, uh, in city facilities. And I think we should all be proud of that. This is- these are all being done, uh, with, uh, little or no impact, uh, in terms of our debt service, uh, levy, um, and our utility rates. And that's pretty rare that you could take on this level of facility investment and not have that kind of significant impact either on your debt service or on your utility rates. So very proud of- of the work that's being done here, and we know that that list can be a lot longer, that there's a lot of deferred maintenance and needs, uh, particularly as we grow, but this is one area in which, uh, I think, uh, we're doing really well in the strategic plan. We'll talk a little bit about some of our core infrastructure. Chris talked a little bit about road improvements, and we'll get into the CIP stuff, so I won't, uh, dwell on this too long. Um, the bottom line is the project costs are increasing more than our - our revenue is increasing. So we're really trying to build that- that debt service capacity back up, which means we're trying to push up that debt service rate so that we can borrow more, um, and continue to do the same level of investment. In our last pavement condition index study that we did around 2020, that study suggested that we need about $11 billion more annually to hold- excuse me, to hold the line on our roads, right? That's- that's not really realistic, but what they've essentially told us is, unless you have $11- $11 million more per year, you should expect that you're going to be losing ground on your road network. Um, so we're- we're doing what we can not to lose even further ground. And again, that means building up that debt service capacity. Really proud of how we are moving forward with the implementation of the, um, I think it's 2016 now, 2017, uh, parks master plan to the point now where I think Julie's ready to do an- another master plan because we've gone through and we've touched all the- all the different parks. Uh, we don't have the- the new master plan funded in the budget, but it's something we'll consider going forward. There's a long list of projects that are either underway or that we'll be getting kicked off in 2025 and 2026, and Julie will talk a lot about these during your CIP, uh, presentation, so I won't, uh, run through that list today. But there is a bullet at the very bottom. As roadway expenses are getting- are- are pushing higher and more of our bonding goes to roads, that means there's less available for those quality -of -life investments, and we're trying hard not to sacrifice those quality -of -life investments, but that's the pressure that the budget is feeling right now. In terms of our core operations, we do have a number of position additions in this budget. There are three federally funded housing -related positions. So, uh- um, there's a housing authority position that you just recently considered. Um, that is, um, fully funded by the federal government. We have two positions fully funded by the PRO -Housing grant, so no impact on property taxes there. You previously approved the conversion of a part-time assistant city attorney to a full-time, that's reflected in this budget for the first time. And then new to you would be the maintenance worker in the water division. This is a Maintenance Worker 3 to support Water Division operations and a new mechanic in our Equipment Division. Um, really, with specific to the mechanic, what we've seen is that, uh, it is harder and harder to Page 30 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. get replacement equipment. We see more orders that are canceled due to high demand across the country, and then we see, uh, longer times in which vehicles, once they're ordered, are actually delivered, in some case, multiple years for some of that heavy equipment, which means we're putting a lot of stress on our existing fleet. And we could really use another mechanic to help stay in front of that. We are still responding to the wage and compensation analysis. Uh, that was a big piece of our strategic plan that we wanted to do. Um, and we've already done reclassifications for the AFSCME and, uh, Confidential employees that were rec- uh, excuse me, recommended in that report. Uh, we are in collective bargaining now with both Police and Fire, and we're trying to adjust to some of the market corrections that were noted in that report with that bargaining. And then, uh, we're- the last step is to look at some of the confidential wage scale, uh, changes that were talked about in that report, and that's kind of the piece that we'll pick up after collective bargaining with Police and Fire. So this budget does, um, as Kirk noted, have the flexibility in- in it for us to adapt to the market corrections that were needed in those public safety wages, and we look forward to bringing, uh, the results of the collective bargaining, uh, sessions with Police and Fire to you here shortly. Um, the fifth fire station, and this was - this is a tough- uh, a tough one for, uh- uh- us here to- to put forward. But, um, as I- as I, uh, noted early on, uh, the- the trends that we're seeing in valuation and the projections that we have for valuations and revenue loss going forward in the next few, uh, years makes it to where I don't think it's feasible for us to, uh, continue to- to try to stand up a fifth fire station, uh, as we had hoped to in- in Fiscal Year'28. So, uh, we've been taking a lot of steps to get to the fifth fire station. Pre-COVID, we purchased two pieces of property that would house a new fifth fire station and allow us to relocate Fire Station 3. Fire Station 3 is the one by Earl May and Procter & Gamble. Um, and then, really through the Fiscal Year'23- '25 budgets, we've been building additional contingencies in the fire budget, uh, and we overhired two positions- two firefighter positions that count towards the minimums that fifth station. And the hope was that we could continue to add contingency funds into the fire budget so that when Fiscal Year'28 rolled around and we got the stations built, that we could pay to operate those- uh, the- the- the new station, which is probably going to be 1.5-1.8 million annually per year when you think of just the- the 24/7 nature of the operations and personnel costs. So again, as we projected ahead, we really just didn't see how this was going to be feasible. And in order to shrink the projected deficit that's in front of you, uh, we actually reduced the contingency, uh, that we had, uh, previously placed in the budget. So in this current year's budget, there's $700,000 in contingency in the fire department budget. So that's $700,000 geared towards future staffing that really Chief Lyon and the department can tap into for other needs. That is being reduced to 300,000 with the budget that's in front of you. And again, a signal that, uh, actually continuing to increase that is- is probably not realistic. Um, the 300, uh, I wanted to maintain in there because if we can't stand up a fifth fire station, I think we do need to look at ways to build capacity in the fire department under that fourth station model. So you have to recognize that the calls for service are increasing, uh, quite a bit year -over -year. And while a fifth station may be ideal, there are other measures that we can take to work within the four -station model that can support those employees delivering those services. So that's something that we'll look at going ahead. Uh, we weren't going to propose anything with this budget simply because property tax reform continues to be talked about, and we don't know what that's going to look like going forward. Uh, we do plan to hold on to the property and hope to revisit the fifth fire station, but it probably won't be until after'29 with the final phase in of the 2023 property legislation. Fire department is not the only one that's feeling the, uh, Page 31 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:/Icitychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. pressures of serving a growing community without getting the operational support and the budget. Uh, it's across the board, and you can ask the staff as they come up in front of you today to talk about that if you'd like. But it's challenging. We're asking employees to do more, uh, and to serve a growing population year after year after year for more than a decade now in a lot of cases. And, uh, it's definitely taking its toll on parts of the operation. [01:40:46] One of the things we really take a lot of pride in is funding external organizations and providing a lot of grant programs that- that provide value add to the community. And as a signal of what's coming ahead, I'm suggesting we have to- to pause and hold flat on most of those. There's, uh, also small decreases in some of those. So I want to talk about external partnerships and some of those value add programs. Uh, the first being aid agency. It's probably the largest grant program that we do that supports ex- external organizations. And for the first time in several years, I'm recommending that we hold that flat. Uh, this is just on what's pictured on the screen on the table to the right is just the general fund support. Remember, there's CDBG support as well, but the general fund pays the majority of the aid to agency's grant program. And it's one that the Council's taken a lot of pride in and- and previous councils have really increased the amount of money that we're providing to social services and we- we dated back to 2019 when- when the general fund support was only a quarter million, and you can see that we, uh, have gone up 158%, uh, to the current year. Uh, what I'm suggesting is that we cannot continue to do that without sacrifices somewhere else in the budget. So I'm recommending that we do hold that flat. I'm also recommending that our arts and culture partnerships are held flat. That would be the, uh, the organizations like the Englert and Riverside film scene, UNESCO City of Literature, uh, that we support every year. They have asked for increases, and understand those increases are probably justifiable with the- the pressures on their budgets and- and their operations, but not seeing how we can do that. Um, there is a- a reduction in support for the, uh, Cedar Rapids, uh, based EDC, which provides economic development sup- to support to, uh, communities throughout, uh, Johnson and Lynn Counties. We've historically funded that organization at $25,000, and I'm recommending that we reduce that to $10,000. Uh, we also have small reductions, uh, in our, uh, public art grant program and our historic preservation grant program. These are just a couple of thousand dollars each. But again, a signal that, uh, times are- are- are certainly tightening and that some of these programs cannot continue to receive increases or maybe even be held flat going forward. The Racial Equity Social Justice grant program was supported, uh, with this last budget of- with $100,000 in, uh, general fund dollars. I'm recommending that we go back to our fiscal year'23 funding level, which is $75,000, so reduction of 25. However, you have about $620,000 in your Black Lives Matter account that can be used to make that program whole. So it doesn't necessarily mean- mean that program needs to be reduced. Uh, you can still do $100,000 of grants, uh, if you'd like, uh, what I'm suggesting is that the general fund only- only contributes $75,000. And then finally, there's a $50,000 reduction in the city's GRIP program. This is our general fund, uh, housing rehabilitation program. It's- its typically funded at about $200,000 per year, and I'm recommending we take it down to $150,000. Uh, we do receive program income. So these are loans that are paid out, and some of that program income will help us get closer to $200,000, uh, but it's- it's, uh, it's a drop that will, um, probably reduce the number of rehabs that we're able to do by- by one or two properties per year. I think what I really want to stress with these, um, is I think I'm not sure, uh, based on what I think maybe Page 32 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:/Icitychanne]4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. ahead in '27, '28, '29, that we can even continue to hold these flat without intentional service level reductions elsewhere in the budget. I think holding them flat is probably the best case scenario going forward. [01:44:471 Can you mention- I know it was a much smaller amount, but wasn't there, um, a grant amount that we were giving to public art as well? [01:44:56] Yeah, so the public art program, uh, is funded at $56,000. That's not all a grant program. That's just total dollars provided. That includes some maintenance dollars and things like that. Uh, so $56,500 is what is supporting public art in the current budget. The fiscal year'26 budget, uh, reduces that to $52,000. So about $4,500 decrease. The historic preservation grants, um, are at $42,000, and it's a reduction to $40,000, so a $2,000 cut. Wrapping up with the final few slides here, uh, just a note on our financial position. One of our goals in the strategic plan is to continue to increase the emergency re- reserve and the facility reserve. We're not able to do either in this budget. The emergency re- reserve remains flat at $5.4 million. The bullets there indicate kind of what those dollars could be used for, A and we may need to use those dollars with what may lie ahead, but we're not able certainly to add to that, uh, that $5.4 million with this budget. The facilities reserve is something we started in fiscal year'19. Uh, we saw some large surpluses between fiscal year'19 and fiscal year 2023, and we took those surpluses and we put them into a facilities reserve. And the hope was that we could tackle a number of public position - public facility projects without, uh, having to, um, pursue, uh, debt for those projects. However, we do expect that with the City Park Pool project, that fund will be completely depleted, uh, which means for future projects, we are going to have to rely more on debt, and we may have to go to the public for referendum support to- to get those projects off the ground. Um, I don't foresee us in the next few years being able to continue to add, uh, to that facilities reserve. It's certainly something we'll- we'll keep as a goal, but, um, it'll probably be fully depleted, uh, in fiscal year'26. The general fund balance, uh, the kind of the unrestricted portion of that balance, uh, is going to be projected at 34%. Um, our policy says it should be between 25-35%, so we feel pretty good. It's still within that policy number, um, but that's been as high as about 42% or 43% in recent years. So we are bringing down that balance, uh, as- as the, um, kind of budget is structurally, uh, underwater, um, with expenses outpacing our- our- our tax based growth there. So we just need to monitor that. Getting back to Kirk's comments on Moody's, um, some reduction within our policy is okay, uh, but we can't continue to see that go down and expect to maintain that Moody's rating. All right, final thoughts on this year's budget, uh, it's definitely the most challenging budget environment that I've seen since I've been here. I think the city probably faced it with the great recession and, uh, the 2008 range and probably around the 2000 range, as well, um, but we've got some- some tough years ahead, and '27-29 will- will certainly even be tougher than '26. We are budgeting a deficit. I'm not presenting a balanced budget to you. However, it's not the first, uh, deficit budget that this Council has seen. In the past, we've been able to flip deficits into surpluses, um, but that's going to be increasingly more challenging. So any expenditure ads that you want to do at this point, unless you're identifying cuts, you're going to be adding to a six- a $2.6 million dollar deficit in the general fund. Um, again, our hope is that we'll be able to get that close to zero, um, through, uh, Page 33 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at httl2s:,I/citychanne]4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. conservative budgeting practices, but, uh, I'm less and less confident of that going forward. Uh, we do have the resources to extend fare free transit and continue to make a- a really significant, uh, investments in housing, and both of those are your top strategic plans. So I feel really good about continuing to move those two, uh, programs forward, but it will require on the transit side, a 1% gas and utility franchise fee increase, which is- which is no small matter. We are expanding our debt service capacity. Uh, I really feel like that's a big- a big thing for- for us to be doing. Uh, if we cannot increase that debt service levy rate, we are going to continue to fall behind on those infrastructure projects, and what you're probably going to see is fewer parks and rec and fewer public facility projects being able to fund in our CIP because those road projects will- will absolutely take more of our- of our bonding capacity going forward. And then I mentioned finally the public facilities. I think we should be really proud of the investments that we're making in public facilities. They're overdue. They're definitely needed, um, and they'll serve this community very well going forward. So recapping my last slide, looking ahead to- to next year's budget, uh, we're going to, uh, be in the whole $300,000 right off the bat with the- the last of the, uh, backfill payments being made in fiscal year'26. We still have $1.5 million to reduce. Remember taking that $840 levy back to the $810. That doesn't all have to be in that one year, but we've got to make progress on that. Uh, I mentioned the external partnerships and grant programs. It's gonna be really tough to maintain those unless we identify a different revenue source to - to do that. Um, the debt service levy, I think we see about two or three more years of increase needed there to really get us to- to the capacity that- that we need. I don't for- foresee any major utility rate increases, but you'll probably continue to see 2% or 3%, um, in water. Um, the wastewater will largely depend on how those bids come in, uh, going forward and what that gas market looks like this time next year, uh, but some modest increases there, uh, really just keeping tabs with inflation. Um, everything else on that slide we've really looked at, um, really careful monitoring of the general fund balance. That's probably the one thing that I'm- I'm most concerned about this- this time. If we can't flip that $2.6 million dollar deficit that we're projecting and get that close to zero, um, we're going to continue to see, uh, um, larger and larger deficits, which are going to draw down those- those balances, which is, uh, concerning and I think we'll put our- our AAA bond rating at risk at that time. Uh, we do have the emergency levy. We really have not used the emergency levy except for a few property acquisitions, uh, since we started that 10 or more years ago, and we may need to- to tap into that emergency levy to- to smooth out some- some operational challenges, particularly if there's additional property tax reform that's considered. And we all know it's going to be considered. It's being talked about quite publicly right now. Um, uh, not knowing what that is makes fiscal year'27, '28, and '29 even a little bit more scary. Uh, so I appreciate your time a little longer than usual today. Um, you'll have a chance to hear from all the departments, uh, as we move on throughout the day, but I'm happy to recap or answer questions, uh, from this morning. [01:52:27) 1 know that we have our CIP meeting coming up in a about a week and a half or so, um, and I know that we've had, um, some significant focus on the master plan facilities, um, study. But, um, in terms of having essentially zeroed out our facilities fund through the, um, the City Pool Park, do we have, um, significant projects that- that currently are at risk or- or projected plans that are at risk even though we've- we have talked about facilities, but I know that that's not a planned thing. Page 34 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https:,[/citychannel4.com/cif-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [01:53:10] Yeah, I think anything moving forward. So if you think of, uh, perhaps a partnership with the county on a law- on a law enforcement facility or relocation of Station 1, uh, those are probably going to require, uh, voter approval. [01:53:26] Okay. [01:53:26] Right? Um, and once you have the voter approval, you can levy- you can, uh, do the additional levy that you need to, um, to fund those projects. So that's when you'd see a really large spike in your debt service, uh, is if you have to go, uh, go down that route. But everything else that's, uh, really in our plan, uh, you know, the Senior Center Project, the- the City Park Pool, um, uh, equipment building, transit building, we feel pretty good about right now, yes. [01:53:54] Thanks. [01:53:55] Any other question for Gift? (01:53:58] Yeah, is it in line with Councilor Alter's questioning about the facilities reserve? This forces us on some of these projects to break them into smaller units if we don't have the reserve fund, too, right, which ends up costing us more to actually achieve that singular project. [01:54:16] Correct. [01:54:17] Can you sort of unpack that a little bit? [01:54:181 Yeah. So you see that in our rec centers a lot. So if you look at the CIP or you look at past CIPs, you see that one year we might do the HVAC and then we'll come back in and do, uh, maybe refinish the floors or do the restrooms, and every year is a separate project, um, uh, because we're capped at what we can do on a- on a per project basis. So right now that's about $1.3 million per project, uh, as opposed to a $10 million, uh, rec center rehab, which may be more efficient and may stretch those dollars further. In that case, we'd have to go to the voters and get 60% approval to do that. So that's why you see a lot of the- the facility projects underneath, uh, what used to be $700,000, if that's the number you're thinking of, but now it's been increased to- to $1.3 million. Page 35 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [01:55:09] This is a uniquely frustrating thing for me because I've seen it over and over again where for a $10 million project, it costs us $20 million to do it because we have to break it up into small pieces. And it's just- it really inefficient way of operating. So not a criticism, but there's a good reason to have a reserve - a reserve fund, and if we can have that again, that would be really efficient. Yeah. [01:55:30) Okay, I guess before we wrap up, go to break, I just want to ask there is a lot of information here to digest, and there is a lot of recommendation and cut and add and change. Well, can you remind me when as a Council we discuss that, is this run as a work session or how? [01:55:47] Yeah. So yeah, typically what's happened is you've, uh, kind of paused now and then gone through all your department discussions. At the end of the day, if you still have the energy and the time, you can have those discussions today. Otherwise, uh, you can set your work session time for your regular meetings, uh, to do that. We'll typically just have a standing agenda item to discuss budget on all those four o'clock work sessions going forward. Um, but it's probably a good idea to get a sense of how much discussion may be needed, right, how- how much is on your mind, 'cause you may need to set a special meeting to have budget deliberations. Uh, so that would involve us checking schedules and making sure that we get all the proper notices out. But if there's a lot to talk about and you feel like you're going to need several hours of dedicated time, you're probably going to want a separate budget, because thinking- thinking ahead, we really want to get the tax rate locked in on that March 4 meeting, and then by that first meeting or your only meeting in March, you really need to, uh, have your expenditure related decisions. [01:56:51] And if we were to make some changes to recommendations or what have you, I know that there needs to be an appropriate amount of time for departments to be able to make that- those. [01:56:59] Yeah [OVERLAPPING]. [01:57:00] And what's the deadline for that if we want to make any changes? [01:57:06] You know, really, the- the, um, ex- I'll say this. If you're thinking about increasing the tax rate that's got to be February 4, right? [01:57:19] February 18th. Page 36 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at https://citychannel4.com/city-council.htmi) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. [01:57:21] It can be made on the 18th? [01:57:221 Yep- it can be made on the 18th. [01:57:24] It could be made on the 18th, um, but they'll have to vote on the 18th, correct? [01:57:29] 1 don't think there's any vote on that. [01:57:32] Okay. Just a public hearing? [01:57:35] Yeah. [01:57:35] Okay. [01:57:35] Public hearing is in April. [01:57:37] So you're setting the public hearing at that time? [01:57:39] Well, we'll set it after that, but we have to get it into the county by March 5th. [01:57:43] Okay. Okay. [01:57:43] In March. [01:57:44] So you in February 18th, if you're thinking about tax rate changes, and then the expenditures is the March 11th. So really your expenditure decisions need to be made by March 11. [01:57:55] Page 37 Iowa City City Council Budget Work Session of January 13, 2025 (audio and video recordings can be found at.https:,/,Icitychannel4.com/city-council.html) This represents only a reasonably accurate transcription through Verbit: AI -Based Transcription & Captioning Services. For greater detail please refer to the meeting recordings. Okay. [MUSIC] Page 38