SUPPLEMENTAL BUDGET 2025
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City of Rochester 2025 Supplemental Budget TABLE OF CONTENTS SECTION I -Transmittal and General Summaries Letter of Transmittal Adopted Supplemental Budget Message 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 Summary of Budget by Fund and Character Budget Recapitulation of Expenditures Trend Data by Object SECTION II -Operating Expenditure Budget Details- 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 Bold Forward Unbound DSIC & North Station Maintenance Information Technology City Hall Maintenance Police Animal Control Dispatch Fire Community Development-Building Safety
City of Rochester 2025 Supplemental Budget 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 -Sanitary Sewer Wastewater Utility
City of Rochester 2025 Supplemental Budget Sewer Fund Debt -Storm Water Utility -Rochester EDA -Operating Revenue SECTION III -Internal Service Detail -Internal Service – Revenues SECTION IV -Capital Improvement Budget – Summary -Capital Improvement Budget – Revenues SECTION V -Debt Service Budget – Details -Debt Service Budget – Revenues SECTION VI -Decision Packages SECTION VII -Additional Requested Decision Packages SECTION VIII -Outside Agency SECTION IX -Outside Agency Applications SECTION X -Six Year Forecast Summary SECTION XI -Rochester Public Utilities Operating Budget
City of Rochester 2025 Supplemental 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 Police Library Administration -Rochester Public Utilities Capital Improvement Plan Electric Water
City of Rochester 2025 Supplemental Budget Appendix I -City Council Study Session Presentation – 09/09/2024 -City Council Study Session Presentation – 08/26/2024 -City Council Study Session Presentation – 4/15/2024 -City Council Meeting Presentation – 12/04/2023 Other Supplemental Information -City Council Meeting Presentation – 12/02/2024
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City of Rochester 2025 Supplemental Budget Section I Budget Message, Budget in Brief, City Council’s Budget Priorities, and General Summaries
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City of Rochester 2025 Supplemental Budget City of Rochester, MN Letter of Transmittal
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December 2, 2024 Honorable Mayor and Council Members, On behalf of our entire organization, I am pleased to provide you and the Rochester community with the Adopted 2025 Supplemental Operating Budget and 2025-2029 Capital Improvement Program (CIP). The 2025 City of Rochester and Rochester Public Utility (RPU) Water and Electric Utilities is $719,842,871. That total includes $394,179,716 for operations, $292,827,356 for capital improvements, and $32,835,799 for the debt service fund. The supplemental budget required some significant adjustments from the forecast in August 2023 to appropriately resource the items mentioned. I am grateful for the City Council’s direction and support throughout the budget development process, as this budget was developed to lead Rochester toward addressing our city's most foundational and pressing needs. During their review, the City Council made the following revisions to the adopted budget to reduce the Levy from the original recommended levy of $112,041,952 (a 10.35% increase) to the final adopted levy of $111,645,142 (a 9.96% increase). To do so, the following items were removed to accommodate the downward adjustment of $396,810. We especially appreciate Rachel Houdek, Brian Anderson, Aaron Parrish, Josh Duerr, and the Leadership and Finance Teams' outstanding efforts in developing a supplemental budget that assures we remain fiscally responsible while improving communication and aligning services with strategic priorities. We also thank the community as we continue to focus on making Rochester, MN, a place where everyone can enjoy a high quality of life. Sincerely, Alison Zelms, City Administrator Internal Auditor - $158,443 Parks Snow Grooming Equipment - $213,333 Website Toolkit Subscription - $10,000 Council Travel - $15,034 This budget includes the second to last year of supplementary revenue from the holistic budget stability funds prioritized to reduce the tax levy burden after the zero-levy year and pandemic impacts, with $713,750 invested in stabilizing the levy. This budget prioritizes supporting necessary City services, increases law enforcement personnel wages to a competitive level at the median of competing agencies, funds fire personnel wage adjustments, adjusts revenue to rebuild the Silver Lake Pool, and addresses other critical needs like increasing personnel funded by building permit revenue to deliver the $5 billion Bold. Forward. Unbound. in Rochester project, and incorporates funding received due to the public approval of new Sales Tax Revenue focused on street reconstruction, economic vitality, a regional sports and recreation complex, and flood control and water quality. 2025 $719.8 million Operations $394.2 million Debt Service $32.8 million Capital Improvement Program $292.8 million City of Rochester Budget 2025, Inclusive of RPU City of Rochester 201 4th Street SE - STE 266 Rochester, MN 55904-3781 Phone: 507-328-2000 Fax: 507-328-2727 201 4th Street SE - STE 266, Rochester, MN 55904-3781 www.rochestermn.gov Phone: 507-328-2000 Fax: 507-328-2727 -1-
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ROCHESTERMN.GOV Budget in Brief 2 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 2025 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. The 2025 Supplemental Budget modifies the previously approved 2024-2025 Operating 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 2025 Supplemental 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 and any Revisions to Recommended Budget November - December • City Council finalizes Budget and Capital Improvement Plan • Public Notification on Budget & Service Modifications -4-
ROCHESTERMN.GOV Budget in Brief 3 The 2025 adopted budget is $719,842,871 with the General Fund expenditures accounting for $126,331,898. The Capital Improvement Plan (CIP) accounts for $292,827,356 with the five-year supplemental CIP totaling $1.2 billion. The City’s other major funds including the Enterprise, Special Revenue, Debt, and Internal Service Funds and Airport total $300,683,617. 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. 2025 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 52 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 2025 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 15.51% of the total revenues. Items like charges for services, which are items like electricity, water, parking, and sewer fund the total budget by 38.01%. $126,331,898 $593,510,973 *Miscellaneous Revenues include: - 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 $126,331,898 2025 Property Tax $111,645,142 Property Tax Allocation for Median Home Value of $288,200 Property Tax In total, the City of Rochester receives $111.6 million from residential and commercial property tax. Residential property owners pay 55.1% of the levy, commercial property owners pay 33.2%, apartment complexes pay for 10.5% of the levy and other sources account for 1.2% of the total levy. Of the $111.6 million, 69.4% supports the General Fund, while 10.1% supports the Parks & Recreation department and 7.7% supports the Rochester Public Library. -7-
ROCHESTERMN.GOV Budget in Brief 6 Overall, the adopted 2025 budget includes expenditures in six major categories for all funds. The largest being the CIP at $292.8 million dollars. Approximately 22% of the City’s total budget is invested in Employee Services, with a total of $158.3 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. 2025 Adopted Budget of $719,842,871 • Music Art City/ Civic Theatre/ 125 Live • Community Reinvestment • Development Administration • Economic Development • Central Business District • Unallocated Contingency Public Safety 56.6% Public Works 16.2% General Gov. 18.3% Other 8.9% Where Does the Money Go? • Engineering • Street Infrastructure • Fleet Maintenance • Traffic and City Lighting General Fund Expense $126,331,898 • Police • Animal Control • Dispatch • Fire • Building Safety • Flood Control and Emergency Management Top 5 CIP Projects (Total Project Cost $157.1 million) (Total Project Cost $43 million) (Total Project Cost $84 million) (Total Project Cost $120 million) (Total Project Cost $6.5 million) • Mayor and City Council • City Administration • City Clerk • Elections • Administration Fines • Finance • City Attorney • Human Resources • Planning and Zoning • Information Technology • City Hall Maintenance -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 A representative sample of 635 Rochester residents were collected between July 19 to August 25, 2024. The margin of error around any reported percentage is 4% for all respondents and the response rate of the 2024 Community Survey was 15%. Survey results were weighted so that the demographics profile of respondents was representative of the demographic profile of adults in Rochester. 2024 Community Survey Results -9-
ROCHESTERMN.GOV Budget in Brief 8 Rochester at a Glance Parks & Recreation is responsible for 2,989 acres of parkland 2,011 acres of additional public lands 100 playground areas 145 individual park areas to visit over 50 miles of trails and sidewalks Rochester Fire Department • Projected over 12,000 calls for service • 250 fire responses • Over 6,000 medical responses • Over 500 commercial inspections completed • 68 fire investigations conducted Rochester Police Department • Sworn strength of 155 officers • Approx. 60,000 incidents • Approx. 400 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 32,000+ Construction Inspections 225+ Planning Applications Reviewed 880+ New Housing Units 12,500+ Construction Permits Issued 22,000+ Housing Units Inspected $830M+ in Construction 4.57 billion Wastewater Utility collects and treats gallons annually and beneficially reuse 10.8 million gallons of biosolids as a natural soil amendment in 2024 Community Development Department * *Based on most recent demographers estimate -10-
ROCHESTERMN.GOV Budget in Brief 9 Library 375,000 visits (4% increase from 2024) and 2.2 million collection use (5% increase from 2024) Rochester Public Utility • 857 miles of distribution lines and 42.4 miles of transmission lines maintained and serviced • 620.3 miles water distribution pipe maintained and serviced • 66,380 customer calls (est.) • 15,100 walk ins (est.) • 6,200+ safety training assignments completed • Projected to meet annual energy savings goal of 1.5% of average retail sales (17,621,930 kWh) • Maintain over 500 miles of street • Chip sealed 27.4 centerline miles • Annual mill & overlay project 18 miles • Blacktop patched 8,706 tons • Poured 579 yards of concrete • Street sweeping: 16,000 miles Public Works (2024) • Gold LEED City • AAA Bonding Rating • Certificate of Achievement for Excellence in Financial Reporting for almost 50 years • One of the Best Places to Live in the U.S. - Livability • Inclusive Workforce Employer (I-WE) Designation from Workforce Development Board of Southeast Minnesota • 2nd Best Place for Veterans to Live by Veterans United Awards and Accolades City Attorney (2022) Opened: 552 gross misdemeanor cases 2026 misdemeanors 176 petty misdemeanors Assisted 549 crime victims City Clerk (2022) Issued 1281 licenses in 2024 Processed 1008 requests for public data/records Executed 538 contracts of behalf of the City Hired, trained, and coordinated over 800 election judges for the 2024 General Election Rochester Public Music produced 32 community events, reaching 20,633 residents and visitors in 2024! -11-
ROCHESTERMN.GOV Budget in Brief 10 City of Rcohester High Performance Organization (HPO) Philosophy Organize as a City to create an extraordinary public service organization by supporting the purpose of each department’s services with the belief: • The City can achieve anything through teamwork, innovation and collective strategy that supports the overall mission of the organization • HPO seeks to build and support an organizational culture where achievements are celebrated, teamwork is elevated, passionate people thrive and we are purpose driven This approach helps achieve the Organizational Vision and ensure we are “a vibrant, compassionate, innovative team.” High Performance will only be achieved through constant focus on building and nurturing an organizational culture that will support the HPO Philosophy. Creating an organizational environment that prioritizes people, problem-solving, service optimization and customer relationships is critical. It involves a holistic approach encompassing culture, organizational structure and team development. 1. CULTURE OF EMPOWERMENT & COLLABORATION • Foster a culture that values and prioritizes people. Ensure employees feel heard, valued and empowered. • Encourage open communication and feedback at all levels. • Recognize and reward achievements to boost morale. • Participate in learning opportunities and training to increase knowledge around diversity, equity and inclusion (DEI), have a growth mindset and embed new learnings and skills into daily business practices. 2. • Implement a systematic problem-solving framework to address challenges efficiently. • Encourage a culture that views problems as opportunities for improvement. • Establish cross-functional problem-solving teams to tackle complex issues. Forward Team, Leadership Forum and Impact Team Model. PROBLEM-SOLVING FRAMEWORK 3. • Regularly assess and optimize service processes to enhance efficiency and quality. • Implement technology solutions to streamline workflows and improve service delivery. • Solicit customer feedback regularly to identify areas for improvement. SERVICE OPTIMIZATION 4. • Develop strong relationships with customers by prioritizing their needs and expectations. • Build capacity for employees in customer service skills and empathy. • Utilize customer feedback to iterate and improve products/services. CUSTOMER-CENTRIC RELATIONSHIPS High Performance Organization -12-
ROCHESTERMN.GOV Budget in Brief 11 6. • Identify and nurture leadership qualities within the organization. • Establish a leadership development program with mentoring, coaching and skillbuilding components (HPO Academy). • Encourage leaders to lead by example, promoting organizational values. LEADERSHIP DEVELOPMENT 7. • Foster collaboration between departments through regular cross-functional meetings. • Implement shared goals that require collaboration between different teams. • Encourage social interactions through team-building activities. INTERDEPARTMENTAL RELATIONSHIPS 8. • Establish a robust communication strategy, utilizing both formal and informal channels. • Implement tools for transparent and accessible communication. • Conduct regular virtual Teammate Town Hall meetings to inform teammates about organizational changes and updates. EFFECTIVE COMMUNICATION 9. • Embrace a culture of continuous improvement where every process, policy and structure is subject to regular review. • Encourage employees to propose improvements and provide constructive feedback. CONTINUOUS IMPROVEMENT 10. • Build an organization that is agile and can adapt to changing conditions. • Promote a flexible work environment that accommodates diverse needs and preferences. FLEXIBILITY & ADAPTABILITY 11. • Prioritize employee well-being by offering wellness programs and mental health support. • Promote a healthy work-life balance to prevent burnout and enhance productivity. WELL-BEING & WORK-LIFE BALANCE 12. • Establish key performance indicators (KPIs) to measure success in each area. • Hold leaders and teams accountable for meeting performance and improvement targets. MEASUREMENT & ACCOUNTABILITY By implementing these strategies, our organization can create an environment that values its people, solves problems effectively, optimizes services and builds strong customer relationships, all while fostering growth and adaptability. The tactics to achieve the cultural outcome will continue to adjust and evolve as we see success and build toward the next level. Forward Together 5. • Periodically review and adapt the organizational structure to align with business goals. • Implement a clear career growth path for teammates, emphasizing skill development and promotions from within. • Provide ongoing development and mentorship programs ORGANIZATIONAL STRUCTURE & CAREER GROWTH -13-
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Honorable Mayor and City Council Members, On behalf of the City of Rochester team, it is a privilege to present the recommended 2025 Supplemental Operating and 2024-2029 Capital Improvement Plan (CIP) budget. This budget is a testament to the discipline of City staff and City Council in remaining committed to our Strategic Priorities and Action Plan items and being responsible stewards of our community’s resources. Our strong financial stability continues to allow Rochester to manage today's needs while providing opportunities to invest strategically in our future. We have worked together throughout recent fiscal years to sustain core services and advance key strategic priorities. This represents the second to last year of reliance on holistic budget stability funds, with $713,750 invested to stabilize the levy. 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 our city's most foundational and pressing needs. Commitment to Continuous Improvement Every 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 and 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 impact the City. 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. Although the value or cost offset cannot be quantified explicitly 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 in 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. Teammates have continued to reorganize, looking at every vacancy and retirement as an opportunity to consider how our operation should flex or sustain with current needs. We continue to rely on technology, invest in modernized equipment, and adjust organizational capacity to provide the highest quality of service with reasonable funding strategies. -15-
Budget Summary Overall, the budget process and recommendations strive to meet the best practices recommended by 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, the 2025 supplemental 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, staffing, and addressing market pay demands to meet current service demands while maintaining responsible practices to assure long-range financial stability. I want to recognize the efforts of Aaron Parrish, Rachel Houdek, Josh Duerr, Brian Anderson the Leadership Team, and the Finance/Information Technology team for their involvement in the process. Also, continued appreciation to Tim McCollough 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 2025 The most significant driver of the annual levy adjustments is the 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 to meet contractual labor obligations driven by labor market demands and obligations necessary to continue providing services to the community. Although this is a Supplemental Budget, it includes several crucial structural changes for the future of Rochester. These changes are based on the approval of the Sales Tax Extension, a measure aimed at advancing street reconstruction, continuing to invest in flood control and water quality, bolstering economic vitality through housing production and workforce development, and constructing a new regional sports and recreation center. Further, the announcement of “Bold. Forward. Unbound. in Rochester”, a seven to ten-year $5 Billion construction project that will solidify Rochester as Mayo Clinic’s flagship location and transform the delivery of healthcare requires that the City do its part to resource the delivery of this investment while still delivering the day-to-day service expected by other private investors, the community, and our residents and business owners. Increasing construction permit revenue of $2.6 Million more than funds the $1.9 -16-
million expenditures for 13 new positions necessary to address these projects. Finally, the other significant changes in 2025 are related to the finalization of three major labor contracts related to public safety, the need to advance the requests for three public safety-related positions that were not initially included in the two-year budget, and the financing strategy required to construct Silver Lake Pool and Bath House ($5 Million) in addition to other project elements that were already projected. The necessary levy increase from 2024 to 2025 is a $10.5 million adjustment. Of that total, $2.78 million, or 26%, is needed to fund authorized contracts for Firefighters, Police Officers, and Sergeants due to necessary market adjustments for the Police and Sergeants receiving significantly under-market hourly wages. Another $507,654, or 0.5% of the increase, is needed to fund the reconstruction of Silver Lake Pool. These two items were not anticipated when the budget was forecast in 2023. The original 2025 levy was anticipated to increase 8.55% over the prior year. Most of the projected levy growth sustains and supports our existing portfolio of services. The new projected levy is anticipated to increase by 10.35% - the public safety contracts and Silver Lake Pool account for most of the change. Fortunately, other revenues have increased, and across all service areas, we were able to make other adjustments to mitigate the impact of those additional costs significantly. As a reminder, the 10.35% 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. Other properties will absorb based on category (apartment, commercial, residential, agricultural, industrial, etc.) proportionately to how the assessed value for the category and each individual property has changed. Properties with increased value absorb more of the tax - whether it stays the same, increases, or decreases. Finally, approximately $1.5 million in decision packages impact the Levy, however $670,956 in one-time decision packages for 2024 were removed from 2025 and future budget projections, offsetting much of the levy impact in 2025. There were two additions not originally included in the 2025 budget that were added by necessity. The first is a Fire Inspector position that is fully offset by additional permit revenue that better reflects historical receipts. The second are two Dispatch positions, that result in a net cost of $35,000 to the levy based on our valued partnership with Olmsted County for joint dispatch services. These investments achieve: -17-
Below is a reflection of the key drivers impacting the levy: Note: “Other” includes increases in Utilities and Software Maintenance. In addition, the projected increases above total more than 10.35% with the additional expenses offset by additional non-levy revenue. Revenue Summary The budget development process starts with forecasting 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 City's expected service levels. To that end, the tax levy is also critically reviewed to establish the appropriate capacity based on the relative growth of the tax base in relation to the total amount that is levied to fund programs and services. The 2025 recommended budget includes $689.4 million in revenue (including RPU), of which $112 million is funded with property taxes. Property tax use remains a vital piece of funding operations, with 16.25% of all operating revenue being attributed to it. Still, as shown in the graph below, it is far from the only driving factor. Charges for service, which includes RPU being funded by the ratepayers, fund 39.57% of all operations and total $215.3 million of its $215 million total revenue. Moreover, miscellaneous revenue (which provides for Payment in Lieu of Taxes) represents 19.7% of all operating revenue. These totals reflect 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 $3.96 million, meaning the taxpayers and ratepayers of Rochester are proportionately funding more of the operating costs in 2025. A slight, expected increase of $156,440 was allocated to the Capital Improvement Plan (CIP). Given the inconsistency and general decline of LGA funding, the increase provided by the State was allocated for capital projects as they are more time in 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. -19-
Another significant revenue component necessary to support related services is the utility rates. The current sewer rates are adopted from 2022 through 2027, per the rate study process and approval from 2021. Rate increases for wastewater utility customers in 2025 are approximately 1% annually. Wastewater connection fees increase at approximately 3.5% annually and are related to projected inflation and the increased wastewater treatment plant infrastructure cost. The recommended water utility budget anticipates a 5.5% general rate increase and an additional $1.32 to support the proposed advanced metering infrastructure. This would impact an average residential water customer by $1.67 per month. The recommended Electric Utility budget anticipates a 4% general rate increase. For the average residential electric customer, this represents a monthly impact of $4.30 on average. 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 2025 supplemental budget anticipates a total levy of $112 million (10.35% more than 2024). The percent 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. -20-
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 city's growth. The average rate of change in the tax capacity of the City from 2014- 2023 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 positively and incrementally 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 regularly to both assess the strategic priorities and 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. Even though property taxes only account for 16.25% 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 2025 budget starts building in a steady indexed increase in to account for the increasing cost of vehicles, resulting in an additional $1.1 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. The 2025 supplemental budget also 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 will be revised pending final issuance. 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 2025. Finally, the budget is forecasting additional hotel/motel tax revenue that is recommended to fund a planned increase in contractual obligation, with the majority allocated to build up the facilities and maintenance fund and reduce the impact of any future significant 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 details of the proposed 2025 Major City Revenues. For comparison, the 2023 and 2024 adopted budget revenues are also provided. The increases show steady growth across many revenue areas, representing 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. It will also absorb $1.99 million in personnel costs related to implementation of Bold. Forward. Unbound. in Rochester. 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 2025 supplemental (including RPU) budget is $689.4 million, which includes all operating and CIP expenditures. The recommended budget is compared to the City Council’s 2024 adopted budget to show where changes have occurred in the budget's operating, CIP, and debt service portions. 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 2025 recommended budget is maintaining steady levels of operations. This was achieved 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. The 2024 adopted CIP allocates $183 million while the 2025 CIP allocates $257 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 the utilization of $8.5 million in the levy in 2024 and $9.3 million in the levy in 2025. Personnel Costs The City provides a wide range of public services through our committed and dedicated teammates. Overall, employee service expenditures are $157.9 million of the City’s total budget (inclusive of RPU) for 2025, accounting for 22.9% of the overall budget and 39.5% of the operating budget (not including CIP and debt service). In a competitive labor market and with inflationary pressures experienced both for individuals and the City, these costs are increasing understandably. Furthermore, our settled labor contracts from the last few years constrained pay here while many of our peers provided increases (some significant). 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. -23-
Below is a summary of employee services costs in key areas of the City budget: 76.6% of employee service costs as a percent of total General Fund Budget 57.7% of employee service costs as a percent of total Municipal Recreation Budget 73% of employee service costs as a percent of total Library Budget 22.9% of employee service costs as a percent of overall budget In addition, our employee services costs increased in the following manner from 2024 to 2025: 13.05% increase for employee service costs in the General Fund 9.2% increase for employee service costs for all Levy Funded Departments -24-
Overall salary and benefits represent 39.5% of the total operating budget (excluding CIP and debt service). Current labor contracts continue to reduce the cost of health insurance premiums the employer pays. However, other personnel costs are rising to keep up with the demands of the labor market. This was addressed thoughtfully with market adjustments to the Police and Sergeant contracts and increases associated with the Fire contract finalization. The well-being investments made in 2024 were appreciated and helped to solidify meaningful but reasonable agreements. Employees are our greatest asset; without them, the City cannot effectively provide the services residents value and expect. 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 (including RPU). For 2025, the CIP is divided into 24 categories and projected to be funded by 39 sources. In 2025, the CIP totals $257 million (excluding project reserves) of which $9.3 million (or 3.6%) is funded through the tax levy. It should be noted that the current five-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 2025 projects include (these reflect 2025 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. I am proud to present this supplemental budget document, which builds on the original 2024-2025 budget with a supplemental annual budget that advances key strategic priorities through thoughtful investment in operations and capital improvements. I look forward to the discussion and collaboration leading to finalization and adoption. Sincerely, Alison Zelms, City Administrator City of Rochester, MN -25-
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City of Rochester 2025 Supplemental 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-
CITY OF ROCHESTER, MINNESOTA MISSION STATEMENT The mission of the City of Rochester is to provide a safe, attractive environment through the responsive, efficient and cost-effective delivery of municipal services. The City will strive to enhance community pride by improving the physical, environmental, economic, cultural and social quality of the community. -28-
Respect Integrity Safety Excellence Identify, plan for, and support customer needs Seek and consider input from our customers to continually improve services Treat every customer well Treat customers in a personal and professional manner while being firm, fair, and compassionate Be an active listener to the customer Maintain a work environment that is free of disrespect and false information Provide equitable and honest treatment to all customers Follow through in a timely manner or as communicated Maintain privacy and confidentiality as applicable to Minnesota State laws Be knowledgeable in my area of responsibility Be professional in my actions, manners and appearance Meet or exceed customer needs for City services RISE to the top of Customer Service Employees act responsibly and take ownership for their actions Documented safety procedures for employees and customers Communicate clearly when dealing with emergencies or safety concerns -29-
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City of Rochester 2025 Supplemental Budget City of Rochester, MN General Summaries
City of Rochester, MN Revenue Summary of Means of Financing the Adopted Budget 2025 Description Taxes Ad Valorem Other Taxes Special Assessments Licenses and Permits Fines, Forfeits and Penalties General 77,424,114 7,285,874 7,978,241 304,131 Library 8,644,679 4,343 Municipal Recreation System 11,294,131 1,045 Mayo Civic Center 376,229 F.E. Williams Rochester International Airport 602,845 Transit EDA Administration Total Governmental 97,965,769 7,662,103 7,979,286 308,474 Operating Budget Parking Enterprise 50,748 471,343 Sewer Utility 1,000 Storm Water Utility 20,378 Total Enterprise 72,126 471,343 Funds Budget Total Operating Budget 97,965,769 7,662,103 8,051,412 779,817 Internal Service Funds 329,479 Capital Improvement 9,311,754 420,000 Debt Service 4,038,140 Rochester EDA Opioid Settlement Fund Total Budget 111,645,142 7,662,103 420,000 8,051,412 779,817 -31-
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