City Financial Planning Recap & Management Overview

Financial Planning Pine City January 19, 2023

Overview Recap and summary of past discussions No formal updates to assumptions from 2021 Other funding sources (Sales Tax) Key discussion points and prioritization 2

RECAP 3

Financial Management Plan-What is Funded? Maintain healthy general fund balances Provide expected city services Fund capital plan Fire equipment and facilities Public works equipment Park improvements Street improvements to 2030 Street, sidewalk and storm 4

Financial Management Plan-What is Funded? South Pine Government Center Multi-phase design renovation Phased over 3 years $7.26M project cost (inflated to $7.7M) Roof replacement was done in 2021 5

General Fund Balance Goal Remember, you are paid twice/year Need to cover day to day expenses (salaries, utilities, etc.) and any unforeseeable expenditures Not everything can be planned for Reduce budget impact for emergency situations Goal is 40%-60% Currently meeting the goal Provide sufficient cash flow between receipts of taxes 6

Key Assumptions Plan uses conservative assumptions: City s existing tax base grows 2% annually Non-capital expenses inflate 3% annually Capital costs inflate 4% annually Non-property tax revenues (including intergovernmental) increase 2% annually 7

Street Improvements City faces challenges regarding street improvements Street, storm and sidewalk Street, Storm Sewer and Sidewalk Utility Total Streets Included in the plan to 2030 Engineering projects: 2022 streets 10th St SE 3rd St SE WM loop 3rd Ave SW 3rd St SW and RR 4th Ave and 5th Ave SW 4th St SE 7th St SW 8th Ave SW 1st Ave SE and 1st St SE 8th St SW 9th St SW 11th St SW to River Woodpecker Ridge phase 4 Woodpecker Ridge phase 5 12th St NW 5th St SE 605,700 1,219,500 1,100,000 1,369,700 1,381,700 1,211,300 1,446,300 1,211,200 1,169,600 768,460 1,212,100 1,200,400 1,228,200 1,179,700 1,088,900 277,300 536,500 817,000 1,610,000 1,005,000 1,226,900 1,381,700 1,107,200 1,536,300 1,033,000 1,105,400 991,400 1,054,200 1,183,500 1,228,200 1,335,600 520,100 920,700 1,422,700 2,829,500 2,105,000 2,596,600 2,763,400 2,318,500 2,982,600 2,244,200 2,275,000 1,759,860 2,266,300 2,383,900 2,456,400 2,515,300 1,088,900 797,400 1,457,200 Does not include utilities - Total $18,206,560 $18,056,200 $36,262,760 8

Capital Improvements Capital Improvement Plan Funds capital equipment purchases Fire, Public Works, Parks and Administration Other capital such as mill and overlay and sidewalk repair Totals $6,609,100 to 2030 Funded in the Plan 9

Major Capital Improvements-Included in Plan Capital Purchase Year Cost (Not inflated) ERP System 2022 $115,000 South Pine Government Center-2023-2025 $7,200,000 Future Street Projects 2022-2030+ $10,715,000 Robinson Park improvements 2023-2026 $610,900 Fire Trucks and equipment 2022-2025 $1,010,000 Tanker 2022 $190,000 10

Funding Strategies: Streets Specially assess 30% of street projects Includes street, sidewalk and storm sewer. Finance projects with bonds repaid with property tax Need to consider 429 vs. Street Reconstruction Plan Bonds 11

Equipment and Vehicles Finance with combination of cash and bonding (levy) Need to consider debt limit issues 12

South Pine Government Center Design and renovation of existing municipal building $7.26M-$7.7M (inflated) Funded with debt levy Need to consider debt limit issues 13

Total Levy to Taxpayers Includes: General Fund Levy Levy for Existing debt Capital equipment Future street projects-to 2030 South Pine Government Center 14

Summary Financial Management Plan 12-16-21 Actual Adopted 2021 Preliminary 2022 Projected 2020 2023 2024 2025 2026 2027 2028 2029 2030 Ending General Fund Balance (FB) Restricted Unassigned Fund Balance as a % of Next Year's Expenditures 2,012,857 2,012,857 2,184,757 2,184,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 1,894,757 - - - - - - - - - - - 90.9% 89.9% 75.7% 73.5% 71.3% 69.3% 67.2% 65.3% 63.4% 61.5% 59.7% Total Other Special Levies Increase/(Decrease) in Total Tax Levy 685,965 772,776 3.95% 812,358 4.88% 925,376 25.07% 1,184,377 14.08% 1,568,316 17.97% 1,659,957 5.09% 1,928,278 10.78% 2,063,458 2,175,744 2,333,738 5.80% 4.89% 5.95% Net Levy to Taxpayers 1,560,708 1,622,382 1,701,609 2,128,214 2,427,918 2,864,325 3,010,257 3,334,752 3,528,051 3,700,463 3,920,657 Tax Rate on Tax Capacity Tax Rate % Change 63.591% -2.70% 63.344% -0.39% 61.357% -3.14% 74.505% 21.43% 83.330% 11.85% 96.381% 15.66% 99.305% 3.03% 107.853% 8.61% 111.867% 3.72% 115.033% 2.83% 118.826% 3.30% City Taxes on $153,300 Residential Homestead $ Tax Increase/(Decrease) % Tax Increase / (Decrease) 782 46 823 41 838 15 1,056 218 26.05% 1,211 155 14.69% 1,436 225 18.61% 1,516 80 5.59% 1,689 173 11.38% 1,795 106 6.31% 1,891 96 5.33% 2,001 110 5.81% $ $ $ $ $ $ $ $ $ $ $ 6.20% 5.28% 1.79% Average annual property tax increase on median value single family residential property is $131 from 2022 to 2030 15

Conclusions from 12-16-21 Significant amount of capital projects included Government Center, road project and general equipment and maintenance Cumulative tax impact projections too high to be affordable Average increase of $131per year on median value home Direction to consider a more spread-out funding of projects 16

03-02-2021 RECAP 17

Changes in March 2, 2022 Update Spread out timing of projects and pushed things out further Road projects and Government Center Tax impact reduced slightly Average increase of $92 per year on median value home Less gets done in the plan, however Government center project spread over 8 years which may not work Tax impacts still too high and delay in some capital projects not desirable. Needed to consider prioritizing projects 18

Summary March 2, 2022 Actual Adopted 2021 2,184,757 2,184,757 Final 2022 1,954,757 1,954,757 Projected 2018 1,641,953 2019 2,031,357 2,031,357 2020 2,012,857 2,012,857 2023 1,815,757 1,815,757 2024 1,815,757 1,815,757 2025 1,815,757 1,815,757 2026 1,815,757 1,815,757 2027 1,815,757 1,815,757 2028 1,815,757 1,815,757 2029 1,815,757 1,815,757 2030 1,815,757 1,815,757 2031 1,815,757 1,815,757 Ending General Fund Balance (FB) Restricted Unassigned Fund Balance as a % of Next Year's Expenditures - - - - - - - - - - - - - 89.8% 90.9% 90.7% 78.8% 71.1% 69.0% 67.0% 65.0% 63.2% 61.3% 59.5% 57.8% 57.8% Total Other Special Levies Increase/(Decrease) in Total Tax Levy 734,997 702,102 685,965 772,776 3.95% 728,041 -0.31% 560,786 7.45% 722,537 11.66% 794,989 6.45% 1,029,532 13.99% 1,192,787 9.33% 1,245,411 4.31% 1,518,457 12.41% 1,549,417 3.09% 1,765,710 9.02% Net Levy to Taxpayers 1,438,772 1,501,302 1,560,708 1,622,382 1,617,292 1,737,733 1,940,331 2,065,392 2,354,363 2,573,922 2,684,791 3,018,084 3,111,359 3,392,101 Tax Rate on Tax Capacity Tax Rate % Change 63.738% 65.358% 2.54% 63.591% -2.70% 63.344% -0.39% 58.317% -7.94% 60.835% 4.32% 66.595% 9.47% 69.498% 4.36% 77.668% 11.76% 83.246% 7.18% 85.129% 2.26% 93.821% 10.21% 94.298% 0.51% 100.791% 6.89% City Taxes on $153,300 Residential Homestead 701 736 782 823 41 5.28% 796 862 66 8.29% 968 1,036 68 7.02% 1,186 150 14.53% 1,304 118 9.92% 1,366 63 4.81% 1,542 176 12.89% 1,588 46 2.95% 1,740 152 9.55% $ $ (27) -3.26% $ $ 106 12.25% $ $ $ $ $ $ $ $ Tax Increase/(Decrease) % Tax Increase / (Decrease) $ 35 $ 46 4.97% 6.20% Average annual property tax increase on median value single family residential property is $92 from 2022 to 2031 19

Prioritization Capital projects are driving projected tax impacts Cannot significantly reduce impacts without reducing cost of projects Government Center is $8.6 million (with inflation a longer phasing) General Capital Improvement Plan (fire, public works, parks, admin., mill/overlay, sidewalks) is $10,750,000 Street projects total $18.2 million without utility portion $10,715,000 funded in 1st draft of the plan 20

Prioritization Street project costs are fixed only real option is to prioritize those most in need and take on a manageable amount annually General CIP can be reviewed to prioritize expenditures, but City just went through a comprehensive process to identify needs Government Center cost is significant and may offer the best opportunity to reduce costs in the plan Do you need the full investment in the building to run government? Exploration of alternatives for city operations and for the building should be explored 21

Other funding sources What are your revenue sources? Property taxes Special assessments Sanitary sewer/water/storm water utility fees Franchise fees (gas and electric utility surcharges) Sales tax Tax increment financing Tax abatements Project-specific bonding bill allocation 22

Local Sales Tax Local sales tax can only be used to fund capital projects (buildings) Roads, utilities, general infrastructure not eligible Must include findings that projects are of regional significance Need to be able to demonstrate this for legislature Most studies conclude 50%-60% of sales tax collected within a city comes from those outside the community Pine City is likely on the higher end of that range 23

Projected Local Sales Tax in Pine City Annual Sales Tax Revenue1 0.25% 0.50% Tax Collection Year 2019 2020 2021 2022 $175,000 $176,750 $178,518 $180,303 $350,000 $353,500 $357,035 $360,605 Debt Potential2 $2,450,372 $4,900,744 1 Source: Minnesota Department of Revenue 2 Assumes 3.5% Interest for 20 years Shaded area indicates projections assuming 1% inflation from 2019 24

What is the process to enact a local sales tax? 1. Adopt a resolution Indicate proposed tax rate (0.5% typical) Detailed description of the proposed projects Document regional significance of projects Estimate amount to be raised for each project Identify length of time (20 years is typical) and total amount to be collected 25

What is the process to enact a local sales tax? 2. Submit resolution and background documents to state tax committees Must submit to House and Senate tax committees by Jan 31 of the year special law is requested Data and documentation about regional benefit must be included 3. Legislate Authorization Work with local legislators to introduce legislation and secure legislative approval 26

What is the process to enact a local sales tax? 4. Adopt another resolution accepting the new law, if approved File resolution with Secretary of State 5. Hold a referendum City must conduct a referendum within 2 years of receiving authority to impose the tax Must include a separate question for each project to be funded each question must be approved to use sales tax proceeds 6. Pass and ordinance imposing the tax and notify the Commissioner of Revenue 27

How is the tax administered? City notifies the department of revenue that a local sales tax has been enacted at least 90 days before imposing. Taxes will be collected along with other sales taxes paid in the City The DOR will remit the proceeds of the tax, less refunds and a proportionate share of the cost of collection, at least quarterly, to the City 28

Q A & 29

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