City of Rochester Minnesota 2024-2025 Operating Budget
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City of Rochester 2024-2025 Adopted Budget TABLE OF CONTENTS SECTION I -Transmittal and General Summaries Letter of Transmittal Budget in Brief Recommended Budget Message City Council’s Budget Priorities Vision, Principles, and Priorities Mission Statement R.I.S.E General Summaries Summary of Means of Financing 2024 Summary of Budget by Fund and Character 2024 Budget Recapitulation of Expenditures 2024 Trend Data by Object 2024 Summary of Means of Financing 2025 Summary of Budget by Fund and Character 2025 Budget Recapitulation of Expenditures 2025 Trend Data by Object 2025 Frozen Positions SECTION II -Operating Expenditure Budget Details- All Funds -Operating Revenues- All Funds -General Fund City Council Mayor City Administration 311 Public Information System City Clerk Elections Parking Ticket Collections Administrative Fines Finance City Attorney Human Resources Community Development DSIC & North Station Maintenance Information Technology City Hall Maintenance Police Animal Control Dispatch
City of Rochester 2024-2025 Adopted Budget Fire Community Development-Building Safety Flood Control Emergency Management Engineering Infrastructure Maintenance Administration Fleet Maintenance/PWTOC Building Traffic City Lighting Music Art Center/Civic Theater/125 Live Community Reinvestment Economic Development Administration CBD Maintenance Joint Facilities Maintenance Unallocated Contingency General Fund -Library -Municipal Recreation System Park and Recreation Administration Recreation Tennis Swimming Pools Parks Parkway Landscape Maintenance Plummer House F.E. Williams Golf Graham Arena National Volleyball Center Recreation Center -Mayo Civic Center -Airport Airport Operations US Customs -Mass Transit Administration -EDA Administration -Parking
City of Rochester 2024-2025 Adopted Budget -Sanitary Sewer Wastewater Utility Sewer Fund Debt -Storm Water Utility -Rochester EDA -Operating Revenue SECTION III -Internal Service Detail 2024 -Internal Service Detail 2025 -Internal Service – Revenues SECTION IV -Capital Improvement Budget – Summary 2024 -Capital Improvement Budget – Summary 2025 -Capital Improvement Budget – Revenues SECTION V -Debt Service Budget – Details 2024 -Debt Service Budget – Details 2025 -Debt Service Budget – Revenues SECTION VI -Decision Packages 2024 -Decision Packages 2025 SECTION VII -Additional Requested Decision Packages 2024 -Additional Requested Decision Packages 2025 SECTION VIII -Outside Agency
City of Rochester 2024-2025 Adopted Budget SECTION IX -Outside Agency Applications SECTION X -Six Year Forecast Summary SECTION XI -Rochester Public Utilities Operating Budget SECTION XII -Rochester Public Utilities Electric Utility SECTION XIII -Rochester Public Utilities Water Utility SECTION XIV -Rochester Public Utilities Personnel Budget SECTION XV -Rochester Public Utilities Supplemental SECTION XVI -Capital Improvement Plan Airport Parks Golf Recreation Center Mayo Civic Center Streets Traffic Mass Transit Pedestrian Facilities Parking Sewer and Water Storm Water Water Reclamation Flood Control Destination Medical Center Downtown Development/Tax Abatement District Fire
City of Rochester 2024-2025 Adopted Budget Police Library Administration -Rochester Public Utilities Capital Improvement Plan Electric Water Appendix I -City Council Study Session Presentation – 4/24/2023 Appendix II -City Council Study Session Presentation – 7/17/2023 Appendix III -City Council Study Session Presentation – 8/21/2023 Appendix IV -City Council Study Session Presentation – 8/28/2023 Appendix V -City Council Study Session Presentation – 9/11/2023 Other Supplemental Information -City Council Meeting Presentation – 12/04/2023
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City of Rochester 2024-2025 Adopted Budget Section I Transmittal, Budget in Brief, Recommended Budget Message, City Council’s Budget Priorities, General Summaries, and Frozen Positions
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December 4, 2023 Honorable Mayor and Council Members, On behalf of our entire organization, I am pleased to provide the Adopted 2024-2025 Operating Budget and 2024-2029 Capital Improvement Program (CIP). In total, the adopted 2024 budget includes expenditures of $579.1 million, of which $101.5 million is supported by the property tax levy. This includes $213.7 million in expenditures necessary to operate and maintain the Rochester Public Utilities (RPU) Water and Electric utilities. General Fund expenditures account for $114.4 million and the 6-year CIP totals $1.1 billion. This budget prioritizes a commitment to continuous improvement. This marks the second to last year that Holistic Budget Stability Funds remain to offset necessary rebuilding of the tax levy to recover from the zero-levy in 2021 and sustain service levels. As Lodging Tax has recovered, this budget sets a new strategy to direct growth in the Lodging Tax, which exceeds the cost of operating the Civic Center, toward the capital reserve that will provide for ongoing capital reinvestment. We are proud to have continued to refine internal processes and work closely with teammates, operational leadership, and the City Council to accomplish our second two-year budget. This has achieved a more iterative and forward-thinking planning process that allows the team to move away from a 12-month cycle, and create greater adaptability and consideration of future factors such as resources, reorganization, and policy changes. This allows us to adjust plans based on evolving circumstances, while placing a greater focus on long-term outcomes to achieve City Council Priorities and fulfilling the Community Vision. The 2025 Supplemental Budget year will be less robust, focusing primarily on planning, to deliver on significant public and private investments, any economic shifts or adjustments to forecasted costs of commodities. This budget brings to life key investments such as a 311-Customer Service Division, the first phases of the Fire Department Strategic Plan, support for Public Works service delivery, solidifies funding to support health and wellness in public safety and across the organization, and significant capital investment in sustainable energy. During the many months of review, the City Council showed a high level of support for the decision packages that were advanced, and an understanding of the baseline adjustments that were necessary in order to resource the labor contracts that were negotiated. Special appreciation to Rachel Houdek, Aaron Parrish, Josh Duerr, Noloan Schild and the Leadership and Finance Teams for their outstanding efforts in developing a budget that assures we remain fiscally responsible, while improving communication and aligning services with strategic priorities. We also thank the community, as we focus on making Rochester, MN a place where everyone can enjoy a high quality of life. Sincerely, Alison Zelms, City Administrator -1-
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City of Rochester Minnesota 2024 Budget in Brief -3-
ROCHESTERMN.GOV Budget in Brief 2 In an effort to ensure that the budget process is transparent, accessible and easily understood, the Budget in Brief was created for the first time in 2018. This document is intended to provide you with information about your City’s budget process. Included in the Budget in Brief are totals for revenues and expenditures. Also included in the Budget in Brief are facts about the various departmental budgets. It is important to note that the City of Rochester is able to maintain its positive financial condition and AAA credit rating due to the fiscally responsible actions taken in the prior years and by prudently investing in service level enhancements as resources allow. The 2024 budget represents a financial commitment to the vital and necessary services that our residents and businesses depend on. It also continues some prior year cost reductions, while prioritizing necessary strategic investments for a growing city. This includes leveraging Federal Rescue Plan dollars made available to mitigate the ongoing economic challenges and other impacts that COVID-19 presents to the community. The 2024 budget is a second attempt at a two year budget. It is where budget priorities and an initial budget for both years is set. Budget in Brief Align resources with City Council strategic priorities Advance the City’s commitment to financial sustainability Prioritize both operating and capital expenditure The Goals of the Process are: Ensure sufficient revenues exist to deliver existing and proposed services and projects As a steward of taxpayer dollars, the City of Rochester, MN prides itself on providing transparency and accountability in its budget. Budget Process April City Council affirms Strategic Priorities, discusses budget priorities, and discusses factors influencing the budget August Team presents City Council with 2022 recommended operating budget & CIP September Max Levy Set - Adopt Preliminary Budget & CIP December Public Hearing & Adoption April - August Budget Development August Finance Department Prepares Budget September City Council Reviews Budget Documentation November - December • City Council finalizes Budget and Capital Improvement Plan • Public Notification on Budget & Service Modifications • City Council Discusses any Revisions to Recommended Budget -4-
ROCHESTERMN.GOV Budget in Brief 3 The 2024 adopted budget is $579,056,567 million. General Fund expenditures account for $114,414,692 million of the $579.1 million and the CIP totals $182,999,175 million. The six-year CIP totals $1.1 billion. The inclusion of Rochester Public Utilities’ (RPU) budgets with all other City budgets is to ensure a comprehensive financial picture. It is included in the same document for the benefit of the Mayor, City Council, community, and Rochester team. 2024 Adopted Budget Budget Formula + = + Baseline Budget Service Modifications Capital Improvement Program Budget Rochester has received a Certificate of Achievement for Excellence in Financial Reporting for almost 50 years, the longest in the state of Minnesota. City of Financial Distinction The City of Rochester has a AAA Rating -5-
ROCHESTERMN.GOV Budget in Brief 4 Where the Money Comes From Tax dollars are accounted for in the General Fund, along with license fees, permit fees, state shared revenues, interest income, miscellaneous revenues, and prior year revenue. This portion of the budget is comprised largely of discretionary funds, since the Mayor and City Council can allocate the funds to programs and services in any area. There are few restrictions on how these resources may be allocated. The City cannot use fees collected from services for discretionary use. General fund dollars are used to support such City services as police and fire, as well as streets, community development and administrative support services. General Fund Enterprise, Special Revenue, Capital Improvement Plan, Airport, Debt, and Internal Service Fund 2024 Total Operating Revenue Inclusive of RPU The City of Rochester has a few different enterprise and special revenue funds. Enterprise funds are entirely funded through customer charges and do not require tax support. These include electric utility, water utility, sewer utility, storm water utility, and the parking fund. Special revenue funds are a combination of customer charges and taxes. These include: municipal recreation, library, and transit. As shown in the chart, the majority of funding for the City of Rochester budget comes from sources other than property taxes. Those taxes fund 17.53% of the total revenues. Items like charges for services, which are items like electricity, water, parking, and sewer fund the total budget by 45.34%. $114,414,692 $464,641,875 *Miscellaneous Revenues include: Charges for Service 45.34% Other Taxes 1.22% Prior Year Revenues and Fund Balance -.25% Miscellaneous Revenue 21.19% Licenses and Permits .91% Taxes Ad Valorem 17.53% Intergovernmental Revenue 13.86% Special Assessments .20% 45.34% .91% .20% 1.22% 13.86% 17.53% 2024 Total Operating Revenue, inclusive of RPU 21.19% -.25% - Non Property Tax Debt Payment Revenue - Capital Improvement Program - Revenues In Lieu of Tax Enterprise Funds - Private funds - Fines, forfeits, and penalties -6-
ROCHESTERMN.GOV Budget in Brief 5 General Fund Revenue $114,414,692 2024 Property Tax $101,530,873 Property Tax Allocation for Median Home Value of $289,600 Property Tax In total, the City of Rochester receives $101.5 million from residential and commercial property tax. Residential property owners pay approximately 55.9% of that total while commercial property owners pay 33.2%. Of the $101.5 million, 68.4% supports the General Fund, while 10.3% supports the Parks & Recreation department and 8.2% supports the Rochester Public Library. Average Residential Home Commercial/Industrial Property 39.3% Olmsted County 43.5% City of Rochester 15.7% School District (535) 1.5% Olmsted County HRA 20.6% Olmsted County 22.8% City of Rochester 8.2% School District (535) 8.0% Olmsted County HRA 47.7% State of MN Taxes Ad Valorem 60.6% License & Permits 4.5% Misc Revenue 17.6% Charges for Govt Services 3.9% Intergovernmental 6.7% Other Taxes (such as Hotel/Motel tax, Cable Franchise Fee, and People Coop Franchise 5.9% Fines, Forfeits, and Penalties .3% Prior Year Revenue .5% 17.6% 6.7% 5.9% 4.5% 3.9% .3% .5% 2023 General Fund Revenue FIG 1 60.6% General 68.4% Debt. Internal Services 4.1% Parks and Recreation 10.3% Airport .6% CIP 8.4% Rochester Public Library 8.2% 10.3% 8.4% 8.2% 4.1% .6% 2024 Property Tax 68.4% Public Safety $583.78 Library $115.74 General Government $204.62 Capital Improvement $118.64 Public Works $160.03 Municipal Recreation $145.02 Music & Arts $16.06 Airport $8.15 Debt $58.53 Public Safety $583.78 Library $115.74 Debt $58.53 General Government $204.62 Capital Improvement $118.64 Municipal Rec. $145.02 Public Works $160.03 Airport $8.15 Music & Arts $16.06 Property Tax Allocation for Median Value Home of $289,600 -7-
ROCHESTERMN.GOV Budget in Brief 6 Overall, the adopted 2024 budget includes expenditures in six major categories for all funds. The largest being the CIP at $183 million dollars. Approximately 25% of the City’s total budget is invested in Employee Services, with a total of $143.5 million dollars. This expense is for the City’s full-time and parttime employees, which allows the City of Rochester to deliver high quality services. Approximately 71% is related to salaries, while 29% is related to benefits. 2024 Adopted Budget of $579,056,567 • Mayor and City Council • City Administration • City Clerk • Elections • Administration Fines • Finance • City Attorney • Human Resources • Planning and Zoning • Information Technology • City Hall Maintenance • Music Art City/ Civic Theatre/ 125 Live • Community Reinvestment •Development Administration • Economic Development • CBD • Unallocated Contingency Public Safety 56.6% Public Works 16.6% General Gov. 17.5% Other 9.3% Where Does the Money Go? • Engineering • Street Infrastructure • Fleet Maintenance • Traffic and City Lighting General Fund Expense $114,414,692 • Police • Animal Control • Dispatch • Fire • Building Safety • Flood Control and Emergency Management Top 5 CIP Projects 2024 Adopted Budget Employee Services 24.8% Contractual Services 27.4% Other Charges 12.6% CIP 31.6% Debt Service 3.8% Miscellaneous -.2% 31.6% 24.8% 27.4% 12.6% 3.8% -.2% What is a Capital Improvement Plan (CIP)? The City of Rochester’s Capital Improvement Plan is a mid-range plan, which spans 6 years. The CIP identifies capital projects, provides a planning schedule and identifies funding source The information also includes the 5 year Capital Improvement Plan for Rochester Public Utilitie (Electric Utility and Water Utility). Percentage of Total Projects Percentage of Total Investment Community & Economic Development Community Facilities Parks & Recreation Public Infrastructure Transportation Public Safety General Government Rochester Public Utilities Capital Improvement Plan - CIP 2024 CIP Projects Inclusive of RPU Top Projects 200 Projects 22 Categories $195,197,147 Total Investment (Includes project reserves) 8.50% 29.00% 4.50% 3.50% 8.50% 4.50% 4.50% 36.50% 37.3% 25.5% 12.4% 21.4% 0.6% 0.1% 0.9% 1.7% Rapid Transit Implementation $35.1M Planning/Design for Terminal Building Energy Sustainability Improvements $7.5M Liquid and Solids Upgrade $17M Downtown Energy S $7.2 Broadway Avenue North Regional Park & Ride $12.2M Strategic Redevelopment $10M (Total Project Cost $143.4 million) (Total Project Cost $84 million) (Total Project Cost $12.2 million) (Total Project Cost $38 million) (Total Project Cost $15 million) -8-
ROCHESTERMN.GOV Budget in Brief 7 CITY OF ROCHESTER 2022-2023 ACTION PLAN - ADOPTED BY CITY COUNCIL ON 12/6/2021 Action Plan Strategic Priorities Foundational Principles Organizational Vision City Vision - Environmental Stewardship - Fiscal Responsibility & Sustainability - Public Safety - Social Equity - Compassion - Affordable Living - Economic Vibrancy and Growth Management - Quality Services A vibrant, compassionate, innovative team. Rochester is a City that cares. Where all people are treated with dignity and respect. Where residents, employees, and visitors enjoy a high quality of life. Where business and industry thrive, and where the land and environment are renewed and sustained for the benefit of all. It is a welcoming and diverse community. Renowned for its reputation as a center for growth and innovation. Characterized by its safe and friendly neighborhoods. Committed to health and wellness for its people. Connected both physically and socially. Dedicated to the sustainable and responsible use of public resources. In order to achieve these priorities, the Council has committed to a legislative and process structure that emphasizes Strategic Governance and Inclusive Decision-Making: • Service delivery models consider partnerships where City is not always the leader • Decision-making is informed by citywide communication and engagement strategy with Diversity/Equity/Inclusion (DEI) at the forefront • Teammates create action plans/annual commitments aligned with Foundational Principles and Strategic Priorities • Policy and operational actions reflect equitable community investment Strategic Priority: Affordable Living Strategic Priority: Economic Vibrancy and Growth Management Strategic Priority: Quality Services Areas of Focus • Housing variety and affordability • Transportation options and access • Equitable regulatory landscape and creative incentives • Access to opportunities and amenities • Owner-occupied affordable housing • Increasing ownership opportunities for Black, Indigenous, People of Color, and Seniors Areas of Focus • Create clarity, alignment, and unity with economic development partners in defining City leadership and community values • Establish competitive and sustainable approach to effectively allocate DMC resources, Legislative allocations, and City revenue • Develop implementation tools and strategies for Comprehensive Plan to ensure current decisions reflect future projections • Adopt design guidelines that better reflect Council and community values Areas of Focus • Cultural and recreational opportunities that provide access and equity • The organization and services reflect changing demographics and needs identified by the community • Operations are sustainable, integrated, and easy to navigate • Service delivery is optimized, cost effective, and reflect our Foundational Principles Action Plans will be developed to identify goals, actions, and performance indicators that help advance priorities. VISION, PRINCIPLES, AND PRIORITIES Vision, Principles, Priorities CITY OF ROCHESTER 2022 LEGISLATIVE PRIORITIES - ADOPTED BY CITY COUNCIL ON 10/04/21 2 BACKGROUND The city of Rochester is the third largest city in the State of Minnesota with a population of over 119,000 and anticipated to grow by 50% over the next 20 years. It stretches across 55 square miles. Rochester is home to major employers including Mayo Clinic and our strong small business community. Rochester has been recognized as an All-American City, a Gold LEED certified City and is consistently recognized as one of America’s most livable cities. It hosts over 3.3 million visitors each year. Rochester is a unique place that enjoys a growing and diverse population, a high employment rate, and international connectivity unlike other Midwestern communities of a similar size. As home to the Mayo Clinic, Rochester competes with cities across the nation and around the world for the best and the brightest minds in health and technology. City residents overwhelmingly believe Rochester offers them a high quality of life, providing arts and entertainment typically found only in larger cities along with an accessible parks and trails system that contributes to community identity and livability. CITY OF FINANCIAL DISTINCTION The City of Rochester has a AAA Rating Rochester received a Certificate of Achievement for Excellence in Financial Reporting for almost 50 years, the longest in the state of Minnesota. 2022 COMMUNITY SURVEY RESULTS 81% plan to remain in Rochester for the next 5 years would recommend living in Rochester to others 80% 78% ROCHESTER, MN rate Rochester as an excellent or good place to raise children rate the quality of life in Rochester as excellent or good 81% rate the overall feeling of safety in Rochester as excellent or good 75% A representative sample of 828 residents of the Rochester were collected between March 9 to April 27, 2022. The margin of error around any reported percentage is 3% for all respondents and the response rate for the 2020 Community Survey was 16%. Survey results were weighted so that the demographic profile of respondents was representative of the demographic profile of adults in Rochester. 2022 Community Survey Results -9-
ROCHESTERMN.GOV Budget in Brief 8 Rochester at a Glance Library 360,000 visits (12.83% increase) and 2.19 million collection use (9% increase) Parks & Recreation is responsible for (2022) 2,978 acres of parkland 1,550 acres of flood control lands 600 acres of parkway lands 100+ miles of paved trails to explore 142 individual park areas to visit Rochester Fire Department Over 12,000 calls for service Moved from an Insurance Services Office (ISO) rating of 3 to a 2 (best rating is 1) Rochester Police Department Sworn strength of 150 Approx. 60,000 incidents Approx. 350 DUI arrests 300% 250% 111% 152% 185% 201% 208% 240% 255% 262% Population Park Acres Miles of Electric Distribution Lines Miles of Water Main Area (Square Miles) Miles of Streets Number of Parks Number of Fire Hydrants Number of Full Time Employees 17% 200% 150% 100% 50% 0% Percent Change Percent Change of Operating Indicators 1980 - 2022 Incorporated in1854 Square miles 55 Population 125,000 30,000+ Construction Inspections 230+ Planning Applications Reviewed 800+ New Housing Units 12,000+ Construction Permits Issued 3,000+ Housing Inspections $600M+ in Construction 4.3 billion Wastewater Utility collects and treats gallons annually and beneficially reuse 10 million gallons of biosolids as a natural soil amendment in 2023 Community Development Department * *Based on most recent demographers estimate -10-
ROCHESTERMN.GOV Budget in Brief 9 Rochester Public Utility • 844 miles of distribution lines and 42.4 miles of transmission lines maintained and serviced • 618.3 miles water distribution pipe maintained and serviced • 65,500 customer calls (est.) • 14,500 walk ins (est.) • 4,400+ safety training assignments completed • Projected to meet annual energy savings goal of 1.5% of average retail sales (17,621,930 kWh) • Maintained nearly 500 miles of street • Annual mill & overlay project 28,469 tons of blacktop • Chip sealed 74.8 lane miles • Crack sealed 112 lane miles • Blacktop patched 5,500 tons • Poured 720 yards of concrete • 730,000 projected RPT riders in 2023 • 2.75 miles of full complete street construction Public Works (2022) • Gold LEED City • AAA Bonding Rating • Certificate of Achievement for Excellence in Financial Reporting for almost 50 years • Top 3 Best Places to Live in the U.S. - Livability • Top 7 Most Beautiful Cities in MN - World Atlas • Top 25 Best Place to Retire - Forbes • Top 4 Best Cities to Buy a House in America - Martha Stewart • Top 6 Best Small College Areas – University Business • First American City to become an Intercultural City (ICC) • Inclusive Workforce Employer (I-WE) Designation from Workforce Development Board of Southeast Minnesota Awards and Accolades City Attorney (2022) Prosecuted 1,615 misdemeanor cases Prosecuted 430 gross misdemeanor cases. City Clerk (2022) Assisted over 25,000 people in person or through the City’s main phone line Rochester Public Music 22,038 people served across the community during summer 2023 with 13 consecutive weeks of programming! -11-
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Honorable Mayor and City Council Members, On behalf of the entire City of Rochester team, it is a privilege to present the recommended 2024-2025 Operating and 2024-2029 Capital Improvement Plan (CIP) budget. This budget is a testament to the discipline of City staff and City Council to both remain committed to our Strategic Priorities and Action Plan items and to be responsible stewards of our community’s resources. Our strong financial stability continues to allow Rochester to manage the needs of today, while providing opportunities to strategically invest and plan for the future. The last several years have been a testament to our resilience as a City and as a community which has allowed Rochester to persevere, and ultimately thrive. We have worked together throughout the past two fiscal years to sustain core services and advance key strategic priorities. I am grateful for the Council’s direction and support throughout the budget development process as this budget was developed to lead Rochester toward addressing the most foundational and pressing needs of our City. Commitment to Continuous Improvement Every year throughout the year, the City team strives to foster a culture of cost mitigation and continuous improvement by assessing the needs and demands across all areas of the City to directing the necessary resources to the most pressing needs while not being overly reliant on additional levy funding to accomplish these tasks. These continuous improvements have impacts across the City, and while they do not reduce or eliminate the need for tax levy and utility rate increases, they significantly change the timing and amount of cost escalation while still providing quality service. Some examples of prior decisions and new requests include the following: Public Safety – operational shifts that otherwise would require ongoing increases in new staffing, facilities, equipment, and vehicle replacement: • Repositioned SROs to Downtown for 2023 summer months when school is out in order to increase safety and vibrancy at low cost. • Fire calls for services mitigated over last decade by implementing medical dispatch protocols to limit rolling fire trucks to non-emergent medical calls and delay need for added fire station. • Partnering with County to dispatch calls to Community Outreach Specialists, direct or jointly responding, to reduce calls for service and new costs to Police and Fire. • Reorganized Emergency Management with existing resources to develop better organizational and community-wide training protocols focused on prevention and relationship building which will inform future ongoing investment. -13-
Community Enrichment - Improving existing service through informed planning and optimizing existing resources: • A Library space study is identified to refocus from prior expansion discussions toward engaging with the community to identify overall community wide access to library services and the infrastructure needed to support current and future operation. The results of the space study will inform future programming, collection, services, and the resource and funding impacts of achieving the outcomes identified. • Reorganized the Parks and Forestry Division to streamline response to high priority tree and park issues and provide more attention to long term planning and coordination of alternate funding. Reviving public initiatives and volunteer programs to increase community involvement in maintaining parks and provide more attention to boulevard trees. Adjust standards and timelines outlined in the Urban Forest Master Plan and other planning documents to align with council budget goals and expectations. • Civic Music has maintained an annual program with four teammates for decades and is proposing a revised summer music schedule and new levels of programming to assure free or donation-based programming for all its offerings and improve accessibility through language and other services – absorbing many inflationary increases with budget impacts due to eliminating unrealized revenue from the budget to ensure financial integrity. High-Performance Government - Centralizing services and reorganizing existing personnel resources to better support our team, improve customer service, at lowest ongoing cost: • 311 implementations to consolidate resources, replace some existing software (eliminate the cost and use to implement and support 311), provide a better connection to the community, and take phone answering off plates of teammates who deliver the resulting service. • Expanded IT coverage through centralized service delivery results in a small increase to the budget and significantly higher service to departments through 24/7 on-call and seven days a week service, including police, fire, parks, library and emergency management. • Health and wellness programming is now being resourced centrally and brought in house to better serve Police and Fire to address physical fitness and better fund mental health and other prevention programs to reduce PTSD and Long-Term Disability and Health costs. • Restructured Mayo Civic Center to a contractual service model in 2020. This constrains the annual City cost of operation to $4.2 Million ($4.0M in 2024 and $4.2M in 2025, before contracted service model the budget was approximately $6.5M annually). The 2024/2025 budget recommends that any new growth in the -14-
lodging tax be dedicated to a capital maintenance fund to support future reinvestment in the facility. Development Services and Infrastructure & Public Services – Shared resources, evaluating service delivery models, and investing in process improvements creates financial capacity that isn’t fully absorbed in new rates: • Community Development moved to electronic plan review, which has improved the review process for development applications and improved response times to applicants. The response time for residential plan review previously took up to 6 weeks and now 98% of residential plan reviews are completed in 2 weeks or less. 100% of residential plan reviews are completed in 3 weeks or less. • The WRP has been optimizing operations, allowing for a reduction in chemical usage as part of the process. The estimated 2023 savings from the amount spent in 2019 is $446,000. Notably, this savings would have been doubled, but chemical costs have significantly increased over the last 4 years. • The Public Works and Community Development administrative teams reorganized to a Development Services and Infrastructure Team. This restructuring has resulted in a reduction in customer response time from days to hours and has reduced the building permit issuance time from 2-5 days to same-day issuance • Prior to 2019, the City contracted for Destination Medical Center Program Management for our management of the DMC Initiative. We projected financial savings of $750,000 per year and enhanced productivity given the higher level of cost for contracted hours. In addition to enhanced productivity, we have engaged more effectively in community co-design and business forward strategies as projects are delivered. • This budget invests in RPU through Automated Metering Infrastructure (AMI) that will increase efficiencies, better detect theft, improve revenue accuracy, and increase conservation. The significant operation savings anticipated for Electric and Water utility combined, is about $1M. • RPU regularly evaluates cost of necessary contract services and transition to FTE when there is neutral cost or savings with in-house management that is more flexible. This has resulted in 5 converted positions since 2019, in customer service, marketing, accounting and IT. Although the value or cost offset cannot be specifically quantified for most of these strategies, City operations are constantly being adapted to better serve at the same or lower cost. This allows our budget to focus primarily on year-over-year growth due to cost of living and personnel contracts, inflation and increases for the cost of goods (materials, software, equipment) and focuses additional spending toward capacity for historically under resourced services to reach quality levels and meet new service demands influenced by growth and community expectations. -15-
Budget Summary Overall, the budget process and recommendations strive to meet the recommended best practices from the National Advisory Council on State and Local Budgeting. This budget is constructed through an almost six-month process considering the following high level financial, operating and policy outcomes: • Incorporates a long-term perspective; • Establishes linkages to broad organizational goals; • Focuses budget decisions on results and outcomes; • Involves and promotes effective communication with stakeholders; and • Provides incentives to government management and employees. In addition to our emphasis on continuous improvement and strategic investment, this 2024-2025 budget prioritizes funding to promote core services and improve structural security within the budget. The Mayor and City Council’s Foundational Principles, Strategic Priorities, Action Plan, and a longstanding tradition of being fiscally responsible aid the decisions made within this budget document. Through collaborative efforts, we are committed to keeping the property tax levy focused on core services that maximize the objectives of our planning documents to serve our residents, businesses, and visitors. This focus prioritizes various investments in facility maintenance, vehicle and equipment replacement, and staffing to meet current service demands while also maintaining responsible practices to assure long-range financial stability. I want to recognize the efforts of Dale Martinson, Aaron Parrish, Rachel Houdek, Noloan Schild, Jason Rohloff, the Leadership Team, and the Finance/Information Technology team for their involvement in the process. Also, continued appreciation to Mark Kotschevar and Peter Hogan from Rochester Public Utilities (RPU) for their ongoing work to combine RPU with the other City budgets, so the Mayor, City Council, and Community can view one document containing all City budgets. Significant Financial Drivers Impacting Levy Change in 2024-2025 The most significantdriverof the levy adjustments each year is related to financial support necessary to deliver on the contractual obligations to our personnel. Each year we generally expect at least a 5% shift in the budget in order to meet contractual labor obligations that are driven by demands in the labor market and obligations necessary in order to continue to provide services to the community. Other demands include inflationary and CPI changes that impact commodities (materials and goods), contractual services, and vehicles/equipment. In 2024 there are larger adjustments in General Fund with personnel, commodities, and absorption of new software license costs for Police, increasing costs of materials for street maintenance, and an attempt to address challenges in the vehicle and equipment maintenance fund. Beyond this, the levy is absorbing the cost of financing what is necessary to complete the heating and cooling needs for City Hall, Mayo Civic Center, Art Center, Civic Theater and -16-
the Library. In addition, the 2024 Levy is absorbing almost $1 million in ongoing expense that was being offset by one-time holistic budget stability funding that is scheduled to decrease another $715,000 in 2025, and be fully expended by 2026. Finally, there are approximately $2.35 million in decision packages that impact the Levy as well as $2 million in non-Levy funded decision packages recommended for 2024 which achieve: Most of the projected levy growth sustains and supports our existing portfolio of services. Of the decision packages recommended, $1.6 million in 2024 and 2025 Decision Packages combined are for one-time expenses that are not an ongoing operational cost. Below is a reflection of the key drivers impacting the levy: Note: “Other” includes increases in Utilities, Software Maintenance. In addition, the projected increases above total more than 9.44% with the additional expenses offset by additional non-levy revenue. -17-
Revenue Summary The budget developmentprocess starts with the forecastingof non-property tax revenues to fund City services and projects. This strategy allows the City to establish revenue amounts that limit the need to rely on levy dollars, thus creating structural integrity in our budget practices that allow the City to strategically invest and commit to the service levels that are expected of the City. To that end, the tax levy is also critically reviewed to establish what the appropriate capacity should be based on the relative growth of the tax base in relation to the total amount that is levied to fund programs and services. In total, the 2024 recommended budget includes $575.4 million in revenue (inclusive of RPU) of which $101.5 million is funded with property taxes. Property tax use remains a vital piece of funding operations, with 17.65% of all operating revenue being attributed to it, but as shown in the graph below, it is far from the only driving factor. 45.63% of all operations are funded through charges for service, which includes RPU being funded by the rate payers, totaling $205.3 million of its $213.7 million total budget. Moreover, miscellaneous revenue (which includes Payment in Lieu of Taxes) represents 19.97% of all operating revenue. These totals are reflective of the City’s commitment to maintaining core services while maintaining fiscal responsibility. Local Government Aid (LGA) allocated to the operating budget is flat from 2023 at $3.9 million, meaning the taxpayers and rate payers of Rochester are proportionately funding more of the operating costs in 2024 relative to 2023. Given the inconsistency and general decline of LGA funding, the increase provided by the State was allocated for capital projects as they are more one time and nature and can be scheduled to absorb declines in LGA more effectively than ongoing operations. -18-
In addition, tax levy is relied upon to fund core operating functions as shown in the chart below. Police, Fire, Public Works, and the Public Library all rely on levy dollars to cover 85% or more of their respective budgets, showing the importance of maintaining levy support for these core services to keep service levels at a high standard. Another significant component of revenue necessary to support related services are the utility rates. • The current sewer rates are adopted from 2022 through 2027, per the rate study process and approval from 2021. Rate increases are approximately 1% annually for wastewater utility customers in 2024 and 2025. Wastewater connection fees increase at approximately 3.5% annually and are related to projected inflation and the increased cost of wastewater treatment plant infrastructure. • The recommended Water Utility budget anticipates a 5.5% general rate increase and an additional $1.32 addition to the customer charge to support the proposed Advanced Metering Infrastructure in both 2024 and 2025. The impact to an average residential water customer is $1.65 per month in 2024 and $1.67 per month in 2025. • The recommended Electric Utility budget anticipates a 3.2% general rate increase plus $1.94 per month addition to the customer charge to support the proposed AMI project in 2024 and a general rate increase of 4.0% in 2025. For the average residential electric customer this represent a monthly impact of $2.17 per month in 2024 and $2.91 per month in 2025. -19-
General Fund The City’s property tax accounts for approximately one-third of a Rochester taxpayer’s total bill (the others being Olmsted County, Rochester Public Schools, and State of Minnesota). The recommended budget anticipates a total levy of $101.5 million (9.44% more than 2023) in 2024. The 9.44% change is not a “tax rate” increase. It is the difference in the total amount of tax recommended to be collected versus the prior year. The total tax amount is spread across properties based on the value construction will absorb the tax adjustment first, then other properties will absorb based on category (apartment, commercial, residential, agricultural, industrial, etc) proportionately to how assessed value for the category and each individual property has changed. Properties that increase more in value absorb more of the tax - whether it stays the same increases or decreases. As shown above, the City’s tax rate has steadily declined while tax capacity and the overall property tax levy has increased. The decrease in the property tax rate with the corresponding increase in tax capacity and property tax levy directly correlates to the growth of the city. The average rate of change in the tax capacity of the City from 20142023 has been 7.61% while the average rate of change for actual property taxes levied during that same time has been 6.60%, thus showing the City has remained consistent and mindful of the impact that property taxes have on the taxpayers. This illustrates how the City has been moving in a positive trajectory in its ability to maintain existing service levels as they are today. However, additional departmental services and the evolving needs of the community dictate that the City evaluate its service levels on a regular basis -20-
to both assess the strategic priorities as well as adjust those priorities based on the changing service needs while also maintaining the strategic investment strategy to sustain itself long term and not to the detriment of the taxpayers. Despite the fact that property taxes only account for 17.65% of all revenues, it is the most visible and often discussed revenue source, as it supports police, fire, community development, library, parks, public works, and many administrative functions. The General Fund disproportionately relies on property tax revenue to fund these services. To address growing challenges to fund vehicle and equipment replacements, the 2024 recommended budget has allocated $500,000 to build up the equipment revolving fund as part of a funding injection to adequately address the vehicle and equipment replacement needs across all City departments. The 2025 budget starts building in a steady indexed increase to account for the increasing cost of vehicles resulting in an additional $1.2 million in levy allocation as well as small increases in enterprise fund allocations that will be needed to address vehicle and equipment replacements that are currently underfunded and will cost even more when replaced in the future. Moreover, in 2025 the budget recommends adding additional capacity to allow for the evolving employee service, workload capacity, and debt service needs related to the new Parks and Recreation Maintenance facility with $1 million built into contingency funds to provide flexibility to address these pending decisions. In addition, it is also recommended that Payment In Lieu of Taxes (PILOT) paid to the General Fund from enterprise operations be maintained with current formulas, which are forecast to increase slightly more than typical in 2024 and 2025. Finally, the budget is forecasting additional hotel/motel tax revenue that is recommended be used to build up the facilities and maintenance fund and reduce the impact of any future major capital investment in the Mayo Civic Center complex on the tax levy. -21-
All Fund Summary To fund all recommended expenditures, Table 1 provides the detail of the proposed 2024 and 2025 Major City Revenues. For comparison, the 2023 Adopted Budget revenues are also provided. The increases show steady growth across all revenue areas, and thus shows the commitment to providing quality services while not overextending what is charged for taxes or service charges. As you can see hotel/motel tax is anticipated to increase and be dedicated to operational and capital funding for the Civic Center Complex. Inspection Permit revenue is also anticipated to increase and will absorb much of the decision packages and baseline change related to development services. Payments in lieu are from utility funds that offset general fund costs and account for what would have been levied if they were private utilities. Finally, we see that parking ramp revenue is starting to increase relative to corresponding utilization increases. -22-
Expenditure Summary The total 2024 recommended (including RPU) budget is $575.4 million which includes all operating and CIP expenditures. The recommended budget is compared to the City Council’s 2023 adopted budget to show where changes have occurred in the operating, CIP, and debt service portions of the budget. Note that RPU’s budget fluctuates due to the nature of the electric and to a lesser extent water utility and should be considered a snapshot comparison. As shown in the graphic below, the 2024 recommended budget is maintaining steady levels of operations. This was maintained even with notable shifts to build up funds for facility upkeep and replacement as well as investing in the vehicles and equipment revolving loan fund with the forward-thinking approach to address these areas of need while continuing to prioritize core service levels. The 2024-2029 CIP projects were developed while being mindful of future investments across both the City and RPU with the 2024 recommended CIP allocating $179.6 million while the 2025 CIP allocates $201.6 million in project expenses. In keeping with the notion of strategic investment and continuous improvement, the CIP remains aware of the levy needs across other areas of the City as the levy amounts used on CIP projects remain consistent, with the budget recommending utilization of $8.5 million in levy in 2024 and $8.8 million in levy in 2025. -23-
Personnel Costs The City provides a wide range of public services through our committed and dedicated teammates. Overall, employee service expenditures total $143.5 million of the City’s total budget (inclusive of RPU) for 2024, accounting for 24.9% of the overall budget and 37.8% of the operatingbudget(not including CIP and debt service). In a competitive labor market and with inflationary pressures being experienced both for individuals and for the City, these costs understandably are increasing. For context, below are a few key economic indicators: • The Rochester unemployment rate is 2.3% which is lower than the state and national averages. • While it has moderated, inflation continues to be a discussion point: In addition to the ability to recruit new teammates, retention of our talent is also important. Our recent Employee Engagement Survey has indicated a need to be mindful of our compensation and benefits. -24-
Below is a summary of employee services costs in key areas of the City budget: 74.9% of employee service costs as a percent of total General Fund Budget 60.7% of employee service costs as a percent of total Municipal Recreation Budget 76.6% of employee service costs as a percent of total Library Budget 24.9% of employee service costs as a percent of overall budget In addition, our employee services costs increased in the following manner from 2023 to 2024: 7.3% increase for employee service costs in the General Fund 6.6% increase for employee service costs for all Levy Funded Departments Overall salary and benefits represent 37.8% of the total operating budget (excluding CIP and debt service). Current labor contracts continue to reduce the cost of health insurance premiums paid by the employer, however other personnel costs are rising to keep up with the demands of the labor market. Employees are our greatest asset and without them the City cannot effectively provide the services residents value and expect. -25-
Capital Improvement Plan The final significant piece of the recommended budget is the 2024-2029 CIP which totals $1.1 billion over the six-year projection (inclusive of RPU). For 2024, the CIP is divided into 22 categories and projected to be funded by 36 different sources. In 2024, the CIP totals $179.6 million (excluding project reserves) of which $8.5 million (or 4.7%) is funded through the tax levy. It should be noted that the current six-year CIP only includes five years of RPU CIP data which will be updated following the presentation of the updated RPU budget and CIP to the Board in September. Notable 2024 projects include (these reflect 2024 project costs and not total costs for multi-year projects): Summary The City of Rochester has foundational principles and strategies in place that have created a resilient and thriving community. All stakeholders involved have worked collaboratively to sustain core services and advance key strategic priorities through thoughtful investment and the commitment to providing quality services at an affordable cost to the community. Through Council’s direction and support throughout the budget development process, this recommended budget was developed to address the most foundational and pressing needs of Rochester while also committing to invest in the City’s strategic priorities. I am proud to present this budget document, which provides a look at 2024, and 2025 as well as a glimpse at what is to come based on decision packages that are not yet recommended as well as our six-year Capital Improvement Plan. I look forward to the discussion and collaboration that will lead to finalization and adoption. Sincerely, Alison Zelms, City Administrator City of Rochester, MN -26-
City of Rochester 2024-2025 Adopted Budget City Council’s Budget Priorities
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Organizational Vision Foundational Principles Strategic Priorities City Vision - Environmental Stewardship - Fiscal Responsibility & Sustainability - Public Safety - Social Equity - Compassion A vibrant, compassionate, innovative team. - Affordable Living - Quality City Services for Quality Living - Economic Vibrancy and Growth Management Rochester is a city that cares. Where all people are treated with dignity and respect. Where residents, employees, and visitors enjoy high quality lof life. Where business and industry thrive, and where the land and environment are renewed and sustained for the benefit of all. It is a welcome and diverse community. Renowned for it’s reputation as a center for growth and innovation. Characterized by its safe and friendly neighborhoods. Committed to health and wellness for its people. Connected both physically and socially. Dedicated to the sustainable and responsible use of public resources. In order to achieve these priorities, the Council has committed to a legislative and process structure that emphasizes Strategic Governance and Inclusive Decision-Making: • Service delivery models consider partnerships where City is not always the leader • Decision-making is informed by citywide communication and engagement strategy with Diversity/Equity/Inclusion (DEI) at the forefront • Teammates create work plans/annual commitments aligned with Foundational Principles and Strategic Priorities • Policy and operational actions reflect equitable community investment Strategic Priority: Affordable Living Strategic Priority: Economic Vibrancy and Growth Management Strategic Priority: Quality Services for Quality Living Areas of Focus • Housing variety and affordability • Transportation options and access • Equitable regulatory landscape and creative incentives • Access to opportunities and amenities Areas of Focus • Create clarity, alignment and unity with economic development partners in defining city leadership and community values • Establish competitive and sustainable approach to effectively allocate DMC resources, Legislative allocations, and city revenue • Develop implementation tools and strategies for Comprehensive Plan to ensure current decisions reflect future projections • Adopt design guidelines that better reflect Council and community values VISION, PRINCIPLES, AND PRIORITIES Action Plan Action Plans will be developed to identify goals, actions and performance indicators that help advance priorities. Areas of Focus • Cultural and Recreational opportunities that provide access and equity • The organization and Services reflect changing demographics and needs identified by community • Operations are sustainable, integrated, and easy to navigate • Service delivery is optimized, cost effective, and reflect our Foundational Principles -27-
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