PORT HURON CITY COUNCIL SPECIAL BUDGET WORKSHOP - MONDAY, FEBRUARY 15, 2010, 100 McMORRAN BLVD., ROOM 408

The Port Huron City Council met for a special budget workshop on Monday, February 15, at 7 p.m. in room 408 or the Municipal Office Center. Mayor Pauline Repp opened the floor for public comment, and when there was none, she made a short introduction, stating that the budget will be in front of the council in April and this meeting was a chance to learn what might be coming down the road and ask any questions of staff now.

She turned the meeting over to John Ogden, City Finance Director. Mr. Ogden started with a financial update. Right now they are only looking at $3.9 million in revenue sharing but after looking at some of the facts on the State website, he felt it might be closer to $3.4 million. He also stated the income tax revenue will be down and so will property tax revenue. This will probably look like a $5.5 million revenue decline.

The good news is the police department has been able to get stimulus grant money to cover the wages for two officers. He also stated there was a decrease in expenditures throughout the city offices overall.

The general fund was not as good as it could be. Bond rating agencies look at the general fund to see if it's in good shape. Port Huron has had an A+ rating for four or five years now, but in November they were down graded to an A. Over the next 20 to 30 years of bonds, this will add up to about one-quarter of a million dollars on lost savings.

Mr. Ogden stated the street funds were good and the water/sewer funds were good as well.

Mayor Pro-tem Steve Miller asked if the city was on budget right now.

Mr. Ogden said that the city is under on expenditures but revenue is down and may not cover everything. After the first week in May, when all the income tax payments have come in and property tax information is available, they will have more updated data.

Councilmember Alan Lewandowski asked if the bond rating could be down graded more.

Mr. Ogden said it is always a possibility. He joked that we do live in the southeast corner of Michigan. He did mention that the bond companies have been very hard on Michigan lately.

Mr. Ogden moved on to the preliminary projection for the 2010 - 2011 budget sees more declines in property values with will bring the property tax fund down. The city is also looking at the waste water fund being down as well.

As everyone knows, MDOT has purchased a lot of property where the bridge plaza will be located, so obviously that won't be on the tax roll. Property owners will most likely see lower property taxes as their taxable value decreases. The city can't even estimate where the city income tax will be as those are completely dependent on jobs.

At this point the city has word from the state that revenue sharing will stay flat. There are two pieces to this. One is constitutional and is based on sales taxes. The other is statutory and this is the side that can be adjusted by the state.

On the expense side, there has been a reduction of staff. The union contracts have been finished and those employees did get a 2% wage increase. Any employee hired after July 2008 had concessions written into their contracts so the city will see a savings there in the future.

As far as projected costs and revenues in Water/Wastewater funds go, they have not figured in any rate increases at this time. If they do this, they project usage will be unchanged. They are looking at revenue of about $15 million. They project the expenditures to be about $12 million. The debt services add on another $9 million. To balance this they are using transfers from the general fund, land purchased fund, etc.

The utility funds are the funds collected from selling water services to the three surrounding townships. On the sewer side, the city processes the sewage and there is a cost sharing plan in place for those who buy those services from the city.

Operating and maintenance will be lower than in the past.

The debt service is growing. It will peak in 2020 and then decline. The city will use savings as long as it's available. This gets the city through until 2014. At that time there will be a revenue gap. The projection is that there will have to be a 50% to 60% increase to cover it. However, if the council would raise rates 6% now, which adds up to about $3 extra a month on an average water bill, this would avoid that huge increase in 2014. After 2020 there wouldn't need to be any more rate increases.

Mr. Ogden's office did some rate comparisons to other utilities. Gas rates have been up and down since 2002. Electric and cable have continually risen about 3% annually. They also did a comparison to other cities that are similar to Port Huron and measure their usage in cubic feet. They used 2,000 cubic feet as a comparison for a average family. Muskeegon was on the low side, seeing a quarterly bill of $75.40. Bay City was on the high side with a quarterly bill of $254.60. Port Huron's average bill was $144.00 quarterly.

The townships around the city who use the sewer services pay a percentage on the plant. There are three townships who do this and those townships added together pay about 40%.

Councilmember Lewandowski pointed out that over the last couple of years, the city has made some improvements to the plant to help cut costs. He thought this should help with savings there.

Mr. Ogden pointed out that if they factor in the utility savings the city will see with the new plan the council recently approved, that will help the utility bills be lower too.

It was pointed out that there are street costs included in the sewer pavements as the streets are being torn up to replace the sewers.

Councilmember Jim Fisher pointed out that if the streets were separated out of this, there wouldn't be as big a gap in the debt service.

Mr. Ogden countered that there would be a gap somewhere.

Mayor Pro-tem Miller wanted to know if there were any loans we could refinance at this time because interest rates were so low.

Mr. Ogden felt that refinancing doesn't work. Most of the bonds are 20 year bonds. He said refinancing would be cost prohibitive.

He stated that the Erie North project qualified for funding on the sewer side but not on the water side. However, the city was informed by the DEQ that if they keep filing the paperwork, they might eventually qualify.

Mayor Pro-tem Miller asked if the economy were to improve would revenue improve too?

Mr. Ogden said that it might. The city income tax is based solely on jobs so unless the job market improves, the city will not see any improvement there. Property taxes will hopefully improve, but the bridge plaza will definitely affect this. He also said that property taxes will not improve quickly because of Proposal A, which only allows property taxes to raise at the rate if inflation. Property taxes are a big chunk for the schools.

Mayor Repp asked when the last time the sewer and water rates were increased.

Mr. Ogden said that it was 2007.

Mayor Repp felt that no one on council wanted to see a rate increase here but if the city doesn't do it sooner or later the city will run out of savings. She asked if Mr. Ogden was anticipating a water rate increase?

Mr. Ogden simply said, not for the near term.

Mayor Repp wondered if the council would be fiscally responsible not to raise rates a little?

The next item on the agenda was the Organization Committee Update, headed by Bob Eick. Besides Mr. Eick, Julie Roberts, John Ogden and Jim Brennan were on the committee.

Mr. Eick stated that the goal of the committee was to match loss of revenue with services the city provides and figure out how it can work. How does the city change what they've been doing.

Staff is a big thing. Because the city is a service provider, it requires people to deliver that service. Michigan has been in a recession since 2002. In 2002 there were 321 full time positions. By 2009 they had reduced it by 60. They expect to reduce it again by another 16. Every area of the city has been impacted. By taking away the 60 positions, they have saved $13 million since 2002.

Two years ago the police dispatch department was combined with the county saving $600,000 annually. Grants have been applied for and received, adding to the savings. The Fire Department has reduced 10 positions and a Deputy Chief for a savings of $3,500,000 since 2002.

The Parks and forestry department has been reduced by 1 supervisor and 5 staff positions. They have also done a good job in cross training everyone. They have outsourced certain jobs to local contractors, like grass cutting in the larger parks. The DPW has eliminated 13 full time positions and possibly 10 more with this budget.

The Engineering Department and the DPW have received lots of grants to help keep their costs down.

The recreation department has eliminated the department head and some staff members.

Julie Roberts, Human Resources Director, said that there have been some significant savings in the pension and healthcare area. They have adopted a hybrid retirement plan for new hires which has an increased employee pension contribution. The healthcare savings plan includes no healthcare for retirees (they can purchase it while they work and have it for when they retire) and changes to the healthcare coverage over all.

Some figures she shared were that prior to 1998 the healthcare coverage cost the city about $18,000 per family per employee in todays costs. Now with the concessions, it costs $11,000 per family per employee.

There are prescription drug rebates for the city and they received a check for $179,000 in 2009. They will continue to look for more healthcare savings. They will also continue to cross train employees to work in different departments. In the past, if someone was hired for one department, they would stay in that department. Now, they find that if the work load is higher in a different department, they can send employees to different departments to cover the work load.

Mr. Eick stated that citizens will see a reduction in services. With loosing this much staff, it's hard to get around that. The city will continue to provide the best services possible.

Mayor Pro-tem Miller wanted to know how the fire station is staffed.

Mr. Eick said that they have a sufficient staff at the fire stations. They have also been talking to local townships to see about mutual aide and they have been looking at regionalization. He pointed out that the employees recognize that the city is in a tough situation and are working with less and doing well. A majority of the positions have been eliminated through retirement. There are about 20 positions that will come up for retirement soon. Some they will have to fill, but they will look at each one to see where they can cut back.

Mayor Repp gave a regional cooperation update. She said that Mayor Pro-tem Miller, herself and City Manager Bruce Brown have been meeting with surrounding cities and townships to discuss joint projects they could work on together. The conversations have been positive but there seems to be nothing they can work on together now. She stated that everyone likes the services they have now, so it might have to get a little tighter to get them to buy in to this idea.

Finally they had a brief discussion of City Council items. The first being a modest increase of water/sewer rates. If they go 3%, the monthly charge will be a change of $1.30 and get the city somewhere to 2015 or 2016 before the debt gap appears. If they do a rate increase of 6%, the monthly increase would be about $3 and this would generate about $750,000.

There obviously is a hiring freeze in place right now.

The impact of a 2% salary increase for non-union employees and department heads was looked at. City Manager Brown said that the department heads had asked to be excluded from this. However, if they were included, the city would be looking at an annual increase of $90,000. If you exclude the department heads and some supervisors from this, it drops to an annual increase of $60,000.

Councilmember Brian Moeller asked if anyone had looked at manditory furlough days. Julie Roberts said they were looking into it, but felt that it was a short term fix and that eliminating positions when workers retire was the better way to go, however, they are looking into it.

Councilmember Moeller also asked if the city had changed the overtime policy. Apparently when he worked in the police department, if someone took two days off for sick time, then worked the rest of the week but got held over for overtime somewhere in there, they still got paid time and a half for the overtime, even though they didn't work a full 40 hours.

City Manager Brown said this was the first time he'd heard of this. He was not aware this was happening.

Councilmember Moeller said he had asked this question before and it had not been looked at so he was just checking to see if anyone was aware of this. Councilmember Lewandowski said he was aware it was happening in the DPW and is still happening. Councilmember Moeller said he wanted them to check it out.

Councilmember Lewandowski said he would not support a 2% raise for the union negotiators until the contract was settled. He also stated he would not support the 1% property tax collection fee that was introduced.

Councilmember Moeller said he would not support increases on anything as long as there is waste. He pointed out that the city owns 6 properties in the township that it pays property tax on to the township. He said he would rather give those properties away than pay taxes on them. He said he couldn't understand why the city does this.

The Council then asked, what happens next.

Mayor Repp said that she certainly doesn't want to see water rates increase but they might have to look seriously at this. Will it be needed for this budget?

Mr. Ogden said that the meetings in April will be about the budget. They will schedule a Public Hearing for the first meeting in May so that residents can comment on the budget.

Councilmember Ruiz finally spoke, saying he had called the city clerks office to find out how resolutions are made or what the procedure was. He felt that Councilmember Moeller presented his resolution on the bank too quickly. He felt there was a process and procedure that needed to be followed and he would like to see that happen in the future. He stated that he was not sure if there was a conflict of interest in him voting on the bank resolution because he has family members who work there.

Councilmember Moeller said that he would explain it for Councilmember Ruiz. If a councilmember stands to make no monetary gain from a resolution, they can vote on it.

Mayor Repp stated that while she didn't have an objection to the motion, she felt that when it is done like that, it blocks the public from being able to comment on it.

That said, the meeting was adjourned.

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