Pandemic adds to budget uncertainty
New City Finance Director Jerome Illg gave Lake City City Councilmembers some things to consider Monday as they began work on the city’s 2021 budget.
Budgeting always involves some unknowns: this year one of them is COVID-19.
In his presentation, Illg identified the several ways the pandemic could impact the city financially.
Lower rates could mean lower investment income.
The pandemic may influence property values.
Utility bill collection could become more difficult. Right now the city is following Minnesota Public Utilities Commission recommendations not to do shut-offs and charge late fees during the pandemic.
The city might be required to change the amount it contributes to the Public Employees Retirement Association.
And the state could change local government aid amounts as it works out its own budget issues.
Council Member Cindy McGrath asked what would happen if the state government decides to postpone the due date for property taxes.
City Administrator Rob Keehn said that could mean a later payment to the city.
Council Member Russell Boe said there could be some savings to the city if COVID-19 prevents the pool and summer recreation from operating.
Council Member Amy Alkire asked about the pandemic’s potential impact on marina and ambulance revenue.
Keehn said he didn’t have the numbers yet for the ambulance service, but at the marina they plan to begin putting boats in the water a little later than usual.
He wants to make sure that happens safely and that marina customers are following state guidance while at the marina.
For the past three years, the city has had levy increases of about 3.5 percent per year, according to budget materials presented at the meeting.
The statewide average for cities in the years 2019 and 2020 was 6.1 percent per year, Illg said.
A 3.5 percent increase this year would amount to about $125,500.
City staff costs are expected to rise by $160,000 year over year. Collective bargaining agreements call for a 3 percent increase in salaries of employees covered by those agreements. Employees not covered by collective bargaining agreements usually receive the same increase. Together they total $90,000.
Insurance, meanwhile, is assumed to be rising at a rate of 15 percent, or roughly $70,000 year over year.
Raising the levy just enough to cover those additional costs would cause an increase of about 4.46 percent.
City Councilmember Jason DeVinny asked the council to be aware of this.
“Are there other conversations we need to have about costs and what we think is reasonable from a tax levy perspective?” he said.
Mayor Mark Nichols noted that for the last few years insurance costs have come in under projections and suggested basing the calculations on an increase lower than 15 percent.
Illg advocated for keeping the assumption higher. The city could reduce the levy later if insurance quotes were lower.
“I hate to put us in a difficult situation in which we put a lower amount on it right now” and find out after September that it’s too low.
Nichols said that with all the uncertainty, he’d like the council to discuss freezing some expenditures like travel and possibly instituting a hiring freeze.
“Now is the time to show our citizens that we are being very conservative on spending and really watching our money,” he said.
The council will continue to work on the budget and capital plan through the spring and summer. Approval of the preliminary levy is expected on Sept. 14. The deadline to do so is Sept. 30. Approval of a final property tax levy, which can be the same amount or lower than the preliminary levy, is expected on Dec. 14.
