Council discusses future financial plans

The Owatonna City Council has approved a resolution to move ahead with the city’s five-year street reconstruction plan, intending to issue up to $1.6 million worth of general obligations bonds for the planned 2026 work.

The debt service levy will be in place over the 10-year life of the bonds; the city will cover costs associated with other project components, such as utility improvements, with other funds.

The upcoming work is planned for Cardinal Drive and Ivy Street, and is expected to wrap up this fall.

But it was the review of the city’s 10-year financial management plan during the work session prior to council meeting that got the most attention.

The preliminary FMP was first introduced in April, followed by some adjustments on the recommendation of city staff, said Dan Tienter, senior municipal adviser with Ehlers and Associates.

At the top of the list were questions about the best way to handle the financing of the proposed public safety facilities – a new fire hall and a new police station, which currently have a price tag of up to $65 million.

The revised FMP presented to council members May 18 splits the cost and debt into two phases, then delays the full payments until 2029. The two phases would include two bonds, each about $30 million, one issued in 2027 and the other in 2028.

It does not change the project cost, Tinter said, but delaying the issuance of the second bond would mean no interest payments on that $30 million. Issuing a single bond for the entire amount would begin the interest on the full amount immediately.

The new plan uses the rates of a 25-year bond.

Another option to “tweak” the 10-year plan brought city personnel into the equation.

“One consideration is to reduce full-time equivalent employees from 19.2 to 16.7, resulting in a $225K reduction in (levy) contingency from 2027 to 2029,” Tienter said. That would reduce the original proposed cost to the city by $2.25 million over the life of the FMP.

“These are very high-paying (jobs), it looks like,” said Council Vice President Doug Voss, who led the meeting in Council President Kevin Raney’s absence.

“How are you figuring this,” he asked of the wages and positions. “Are they park and rec personnel? Is there department heads? Police chief? Fire chief?”

Adding one FTE in 2032, for example, was represented as a cost of $169,000; two FTE in 2028 had a cost of $415,800. Adding three FTE in both 2030 and 2031 was listed as $567,000 and $592,000, respectively.

The positions include a firefighter, three police officers, two Community Service Officers, some maintenance positions and more, said City Administrator Jenna Tuma.

“Are there some assumed increases over the years, because once again, that seems very high, per job, to me,” Voss said.

An inflation rate of 4% year over year was factored into the 10-year plan, Tienter said.

Additionally, the numbers are what is called the “fully-burdened cost” of a full-time employee, he said. That means it includes any salary or wages, fringe benefits, additional uniforms, travel, training, technology and – in the case of new police officers, any new vehicle that may need to be purchased.

“Per FTE, the number may seem a little larger,” Tienter said, “but that’s because we’re including all of the anticipated costs of the various FTEs across the city.”

The reduction in employees over the course of the decade was a concern for Councilor Don McCann.

The original plan called for 6.7 FTE in 2027; the recent revision dropped the number to 5.2 FTE.

“What’s not going to get done? We’re running lean now – and now you’re pushing things out,” he said to Tuma. “We can’t continue to do everything that everybody wants” if the city cuts staff.

“The number could be a lot higher, if everybody got their way,” Tuma said of the reductions. “What we’re seeing is people are working really long days and weekends, and we’re going to burn people out, if we haven’t already.

“We want to be fully transparent on the full cost of an employee,” she said. “It’s not just their wage and benefits, but it’s the equipment and the technology that’s needed for them, too. That 5.2 is fully needed.”

McCann repeated his concern: “What are we not going to be able to provide (as) a service to our community because we’re trying to be so frugal and so lean on certain things? I’m not picking on previous councils, but things got kicked down the road, and then you end up with a disaster.

“I don’t want that to happen,” McCann said, “but again, I understand we’re trying to be as lean as possible, minimize the amount of property tax increases the city has to charge to provide services … but something’s got to give. We can’t be all things to all people.”

Nothing is set in stone, Tienter reminded the council.

“Part of the financial management plan, the consideration, vetting and ultimate approval of these FTEs would happen as part of the city council’s regular budget development process,” he said, when the budget discussions and hearings arise later in the year.

The reminder was important, because one of the categories factored in is the proposed tax levy for each of the next 10 years.

The original tax levy increase for 2027 – using the preliminary FMP – was 18.1%. After discussions with staff, Tinter said, and the reduction of FTEs, the rate dropped to 17.1%.

The 2028 tax levy was a gulper: 29.9%. Using the reductions discussed with the staff, it dropped to 19.9% with the suggested adjustments.

From there on, the tax levy hikes are more manageable, the highest coming in 2030, at 11.7%.

No action was taken on the financial management plan.