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HomeMy WebLinkAbout2025/08/11 - ADMIN - Agenda Packets - City Council - Study SessionAGENDA AUGUST 11, 2025 6:00 p.m. Study session – Community Room Discussion item 1. 2026 Operating budget Members of the public can attend St. Louis Park Economic Development Authority and city council meetings in person. At regular city council meetings, members of the public may comment on any item on the agenda by attending the meeting in-person or by submitting written comments to info@stlouisparkmn.gov by noon the day of the meeting. Official minutes of meetings are available on the city website once approved. Watch St. Louis Park Economic Development Authority or regular city council meetings live at bit.ly/watchslpcouncil or at www.parktv.org, or on local cable (Comcast SD channel 14/HD channel 798). Recordings of the meetings are available to watch on the city's YouTube channel at www.youtube.com/@slpcable, usually within 24 hours of the meeting’s end. City council study sessions are not broadcast. Generally, it is not council practice to receive public comment during study sessions. The council chambers are equipped with Hearing Loop equipment and headsets are available to borrow. If you need special accommodations or have questions about the meeting, please call 952.924.2505. Meeting: Study session Meeting date: August 11, 2025 Discussion item: 1 Executive summary Title: 2026 Operating budget Recommended action: No action needed at this time. Policy consideration: 1. Does the city council support the recommended general fund budget, one-time spending ($294,752) and levy increase ($556,685) as presented, understanding that capital projects will require additional levy increases? 2. Does the city council support a flat Housing Redevelopment Authority levy in 2026 of $1.19 million with the understanding that additional external revenues are going to the Affordable Housing Trust Fund to support programs? 3. Does the city council support an Economic Development Authority levy of $375,000 in 2026, a planned increase of $187,000 from 2025, to cover non-personnel programming funded out of the development fund? 4. Does the city council support the recommended transfers between internal service funds to ensure each fund is meeting policy and best practice guidelines? 5. Does the city council support lowering the funding for public art for light rail stations from $175,000 to $75,000 to align with the current plans for the projects? 6. Does city council wish to add $80,000 in the 2026 budget to add public art to the Dakota Park Pedestrian bridge? Summary: On June 16, 2025, the council received an update to non-property tax city revenues and expenses forecasted in 2026. This report includes recommended operating spending and reduction proposals in the general fund (the city's largest fund that supports core city services) and is supported largely by the property tax levy as well as recommendations for the development fund, Affordable Housing Trust Fund (AHTF), associated Economic Development Authority (EDA) and Housing Redevelopment Authority (HRA) levies, as well as the city’s internal service funds. Staff is seeking specific feedback on whether the council’s priorities have been accurately captured and reflected in the proposed budget, and whether the council is seeking additional investments in other city adopted priorities. Financial or budget considerations: On Sept. 2, 2025, the city council will receive a report on forecasted capital expenses and revenues as well as recommended new spending proposals for 2026. At that meeting, staff will present a more complete proposed 2026 budget and a comprehensive recommended levy increase for 2026. Strategic priority consideration: Not applicable. Supporting documents: Discussion Prepared by: Amelia Cruver, finance director Reviewed by: Cheyenne Brodeen, administrative services director Approved by: Kim Keller, city manager Study session meeting of August 11, 2025 (Item No. 1) Page 2 Title: 2026 Operating budget Discussion Background: On July 15, 2025, the city council discussed the base budget projections for 2026. This report will lay out the recommended new operating programming recommendations and their levy impact. This report assumes the restructuring of levies in the Information Technology (IT) and Municipal Building and Infrastructure Funds, as discussed in the council report from June 16, 2025. This levy neutral shift continues to spend on the same activities as prior years but funds them through charge backs to the appropriate funds and departments. The levy that was previously going straight to those two funds will now support the general fund. Charges from general fund and utility fund departments will support the IT and Municipal Building and Infrastructure funds. 2026 Budget Roadmap Date Topics Issues and Decision Points June 16 Base Budget and Context • 2024 Actual versus Budget • 2025 decisions with trailing budgetary impacts • 2026 revenue projections • Personnel expense projections; Paid Family & Medical Leave • Employee Benefits Fund • Internal service funds change July 14 2024 Certified Annual Financial Report and Audit • 2024 financial performance • 2024 fund balances • Audit findings and corrective action plans Aug. 11 Operating Budget Proposal • New proposals for the 2026 operating budget, fund balances and levy implications Sept. 2 Capital Improvement Plan (CIP) and Final Levy • Revised CIP 2026 – 2030 and budget implications • Complete levy recommendation • Projected levy impact by property type and quartile • Fee adoption Sept. 15 Levy adoption • Maximum levy adoption October TBD TIF Management Plan update • TIF district performance • TIF district recommended transfers and decertification, if any Mid- November County mails Truth in Taxation property tax notices • Residents receive an estimate of their 2026 tax bill and information on the public hearing in December 2025 Nov. 10 Council report and discussion: Revised budget • Revisions to the budget and adjustments to the levy, as needed. In November 2025, the levy can only go down from the maximum set in September 2025 • Review the 2030-2034 CIP Dec. 1 Council report and public hearing: Truth in Taxation • Residents share feedback on the proposed 2026 budget Dec. 15 Council report, discussion and vote: Budget adoption • City council adopts the 2026 budget and CIP Study session meeting of August 11, 2025 (Item No. 1) Page 3 Title: 2026 Operating budget Budget Process: In April 2025, staff began to work on the 2026 budget by first analyzing the closed year’s budget performance. Departments used the information gleaned from analyzing the prior year’s budget against the actual results to adjust line-item budgets and plan for budget requests. This year’s investment in Open Gov budgeting software allowed for departments to do this with more specificity than in previous years. While staff worked to analyze data, the city manager reached out to policymakers to understand their priorities for the 2026 budget to guide the work of departments. Council members gave direction to 1) use data-driven decision-making to ensure financial sustainability, 2) maintain critical services, and 3) support vulnerable populations - all while being mindful of the impact on taxpayers. In May 2025, departments prepared budget requests. For any new or expanded programs or additional full-time employees (FTEs), departments prepared proposals. These proposals described the request and the rationale and shared results data on the effectiveness of the proposal, community engagement around the request, and a racial equity analysis of the proposed change. In addition to new proposals, department heads also worked with finance staff to confirm personnel rosters and project revenue from fees and permits. The outlook for all municipal governments contains fiscal uncertainty due to tariffs and sweeping changes to federal taxes and safety net programs, persistent inflation and high interest rates. In anticipation of a rockier financial outlook, departments were asked to identify potential budget operating reductions as a part of this year's budget process. This forward- looking work allows the city to reduce spending on programs that have grown out of date, are historically underspent compared to budget or are no longer a top priority for the city. The analysis is also a refined way of making reductions should deeper cuts be needed due to larger economic uncertainty. Additionally, reduced spending helps to offset new proposals aligned to city priorities and emerging needs. Present considerations: 2026 operating budget recommendations by fund In July 2025, the city manager met with all department heads and leaders to hear their accomplishments from 2024, goals for 2026 and associated requests for the city budget, as well as reduction scenarios. Below is a summary of the proposed budget changes by fund. General Fund Most of the city’s core government functions operate out of the general fund. Below is a list of the net change in departmental budgets as a result of policy recommendations for 2026. As a reminder, salary spending is also increasing by 5% and benefit expense by 12% as discussed on June 16, 2026 in the 2026 base budget report. Of the total spending increase of $851,437 listed below, $294,752 are one-time dollars that will be funded through use of fund balance rather than the property tax levy. This brings our recommended total ongoing net increase related to new proposals to $556,685. Reductions proposed for 2026 are predominantly areas where the city has historic underspending or where we can operate more efficiently and effectively. Proposed increases are items where 1) the city is historically underbudgeting, 2) we are doing clean-up from one- Study session meeting of August 11, 2025 (Item No. 1) Page 4 Title: 2026 Operating budget time sources to ongoing where needed, or 3) not funding the increase would result in a reduction of services for residents. Details on all proposed cuts and increases are outlined below. Department Approved Reduction Total Approved Increase Total Expected Revenue Changes Net Operating Changes Parks & Rec $ 76,800 $ 752,433 $ 265,086 $ 410,547 Police $ 25,500 $ 332,252 $ - $ 306,752 Admin Services $ 34,500 $ 226,500 $ 92,000 Communications & Technology $ - $ 10,000 $ - $ 10,000 Building & Energy $ 1,800 $ - $ - $ (1,800) Community Development $ 2,535 $ - $ - $ (2,535) Engineering $ 3,527 $ - $ - $ (3,527) Fire $ 10,000 $ - $ - $ (10,000) Public Works $ 50,000 $ - $ - $ (50,000) $ 204,662 $ 1,321,185 $ 265,086 $ 851,437 • Parks and Recreation is offsetting the proposed increases below with an ongoing reduction of $76,800. This reduction comes from reducing underspent line items in their budget and ending a mulch delivery service previously provided to residents at a loss. Recommended increases are outlined below. Of note are recommendations for two previously outsourced services to be brought in house: 1) brush site management and 2) full-year recreation center concessions and enhanced skate school. This second item specifically is recommended as a package that includes hiring both a full- time supervisor and temporary staff for both concessions and the skate school, securing operating supplies for the concessions stand, and anticipating fully offsetting savings and revenue. There are three interlocking proposals as part of this package and they are noted with an (*) in the table below. Brush Site Management Annual cost to manage the city site for processing wood debris from city operations, city tree removal and pruning, and transferring yard waste collected through the city’s curbside yard waste collection. Recommendation is to bring this in-house based on current market conditions and results of an RFP process which showed a much higher expense to outsource this service. $250,000 annual Recreation Supervisor* This position would oversee the skate program, aquatic program as well as concessions. Hiring this position would allow the city to eliminate two current part-time positions, repurposing $66,620 of existing budget. $110,783 annual Study session meeting of August 11, 2025 (Item No. 1) Page 5 Title: 2026 Operating budget Concessions Operating Temporary Staffing* This is necessary for the city to continue to provide a non- summer concession stand at the Recreation Center. The hockey association did not express interest in renewing their contract. There is a goal of new revenues completely offsetting this cost. $103,000 annual Concessions Operating Supplies* This is necessary for the city to continue to provide a non- summer concession stand at the Recreation Center. There was not interest from the hockey association in renewing their contract. There is a goal of new revenues completely offsetting this cost. $70,000 annual Temporary Staff Cost Increase Increasing temporary staffing budget to align with demand for the skate program. This is a clean-up item. The full temporary staffing budget for this item is $250,000/year. Previously, only $127,000 was budgeted. $113,000 annual Tree Injection Reimbursement Program The annual cost to fund the residential tree injection reimbursement program. This is a clean-up item where an ongoing program was previously funded with one-time sources. $9,000 annual Annual Tree Sale The annual cost to fund the spring tree sale, providing subsidized tree stock to residents. This is a clean-up item where an ongoing program was previously funded with one-time sources. $35,000 annual Access to Fun Scholarship Annual cost to provide the “Access to Fun” scholarship program. This is a clean-up item. The full program cost of the Access to Fun Scholarship is $20,000/year. Previously, only $10,000 was budgeted. $10,000 annual Temporary Staff Cost Increase Increase the temporary staffing budget to support the high demand for staffing with recreation programs. This is anticipated to be offset with additional program revenue and is levy neutral. $10,000 annual Overtime Increase This increase to the overtime budget will support the growing administrative needs across the entire Parks and Recreation department. Historically, this has been underbudgeted. $6,000 annual Animal Care Wall Required re-design of interior animal wall to keep current with updated enclosure standards and best practices for captive animals. This proposal also eliminates the need for a planned $10,000 investment in 2028. $30,000 one- time Contractual Services Increase Increase in budget for contractual services for growing demand in recreational programs. This is anticipated to be offset with additional program revenue and is levy neutral. $5,650 annual Study session meeting of August 11, 2025 (Item No. 1) Page 6 Title: 2026 Operating budget • Police is offsetting proposed increases by $25,500 in reductions to a handful of service expenses in their budget that are regularly underspent. Recommended increases are outlined below. Overtime Increase Police overtime has historically been underestimated. This increase will right size the budget for those overtime costs incurred by police because of extended training time, personnel attrition and times of understaffing. $250,000 annual Drone Program Purchase and maintain 3 drones to use in police investigations. $25,000 one- time $10,000 annual eBike Patrol Purchase and maintain 2 electric bicycles. $9,000 one- time PepperBall Launchers Increase non-lethal options to officers in unsafe situations. $25,752 one- time $3,500 annual • Administrative Services is offsetting proposed increases by reducing spending by $34,000 through finding more cost-effective software for meeting minutes, reducing the contractual services budget and charging processing fees for credit cards. Recommended increases are outlined below. Elections Temp Staffing Request for additional office personnel for temporary staffing during the 2026 primary and state elections. $40,000 one- time Membership/ Dues Increasing the annual budget for REI membership and dues to gain access to a robust network of resources $2,500 annual Public Art* One-time requested budget to install public art in conjunction with St. Louis Park light rail stops as directed by city council. $75,000 one- time* Laserfiche Software to increase HR efficiency through streamlining electronic documentation and workflows. (Initial cost captured in FY25 budget) $3,000 annual NeoGov Perform Software to increase HR efficiency with automated employee evaluations, performance tracking, and displaying results in a platform specific to the public sector. (Initial cost captured in FY25 budget) $16,000 annual Strategic Plan Development of a city-wide strategic plan to support and guide the city priorities currently being created through Vision 4.0. $50,000 one- time Consulting budget To support implementation of necessary racial equity and inclusion programs and policies such as a Language Access Plan, Title VI program, and the development of a framework for community engagement. $42,000 one- time Study session meeting of August 11, 2025 (Item No. 1) Page 7 Title: 2026 Operating budget *Public Art: in Spring of 2025, council directed staff to appropriate $175,000 for public art to be a part of the St. Louis Park light rail stops. After further discussions, the recommendation was to focus on murals for both sites. Murals are less costly to install, so the dollar amount has been reduced in this proposal to match the estimated cost of installing two murals. This reduces the cost by $100,000. • Communication and Technology made several adjustments within its base budget to better use its existing spending authority; also includes a nominal increase to support department staffing structure needs. • Building and Energy found modest reductions to their professional services budget and is not proposing any increases in 2026. • Community Development found modest reductions to their professional services budget and is not proposing any increases in 2026. • Engineering found modest reductions to their professional services budget and is not proposing any increases in 2026. • Fire found modest reductions to their conference and training budget and is not proposing any increases in 2026. • Public Works has analyzed historical spending in its contractual services budget and is proposing a reduction of $50,000. This will right-size the budget to match future spending. The department is not proposing any increases for 2026. Study session meeting of August 11, 2025 (Item No. 1) Page 8 Title: 2026 Operating budget The total general fund balances in the general fund at the end of 2024 was $28.627 million. Our target fund balance policy is 45% of the next fiscal year’s budgeted expenses, which is $24.737 million. The city had an additional $864,823 above our target which can be used to: pay for one-time expenses, offset anticipated capital expenses in our long-range plan, or shore up cash balances in other funds that are below where they should be. Not all proposals submitted by departments are funded in this recommended budget. Unfunded proposals included a request for a new position and some reductions to originally proposed amounts. Additionally, on May 5, 2025 council discussed funding public art on the Dakota Park Pedestrian Bridge. Though not included in this recommended budget, the August operating budget conversation is the appropriate time for council to direct staff to dedicate funds for this purpose, if desired. Lastly, on June 2, 2025, council discussed their salaries, set a tentative amount, and requested a study session conversation on the equity impacts of council salaries. That conversation is being scheduled and will be held prior to the Sept. 2, 2025 budget discussion so that council’s final direction can be incorporated into the preliminary levy. In the base budget discussed on July 16, both salaries and benefits are anticipated to grow between 2025 and 2026. As reported then, we estimate salaries growing by 5% and benefits 34% 3% 25% 38% New Operational Spending by City Priority All other: Providing responsive and excellent government services St. Louis Park is committed to being a leader in racial equity and inclusion in order to create a more just and inclusive community for all. St. Louis Park is committed to continue to lead in environmental stewardship. St. Louis Park is committed to creating opportunities to build social capital through community engagement.Note: Other city priorities will be discussed in the capital budget. Study session meeting of August 11, 2025 (Item No. 1) Page 9 Title: 2026 Operating budget expenses by 11%. Additionally, the items listed in the tables above, minus any savings, reductions or increases in revenue, would increase the levy by 1.6% on their own. Compensation study In the summer of 2025, the City of St. Louis Park commissioned a comprehensive job classification and compensation study for non-union roles. Union roles have been evaluated compared to the city's compensation philosophy on a rolling basis as their contracts have been negotiated. It has been several years (2017) since the city has conducted a similar study, which provides an objective and documented method for job analysis and evaluation. It also provides the basis for determining pay. The goal is to make sure that staff is being paid competitively across other cities in the metro area and to understand how well aligned salaries are to the city’s adopted pay philosophy. The results of this study will be received by the city after the 2026 budget process, so no increases will be built into the 2026 budget at this time. As the city puts together a plan for next steps, it will utilize fund balance and multiyear implementations as needed to meet any gaps highlighted by this study. While no levy increase is included this year as a result of the compensation study, it will put upward pressure on future budgets. Other operating funds: Affordable Housing Trust Fund and Housing Rehab Fund The city established the Affordable Housing Trust Fund (AHTF) in 2018 to provide opportunities to expand funding resources for affordable housing and advance the city’s affordable housing goals. Along with pooled Tax Increment Financing (TIF), the Housing Redevelopment Authority (HRA) levy funds the AHTF. The 2025 budget added to these sources with new state dollars in Local Affordable Housing Aid. These revenues began in 2024 and are estimated at $800,000 in 2026. This funding originates from a statewide tax enacted during the 2024 legislative session. At that time, St. Louis Park’s annual share of the revenue was estimated at approximately $650,000. Because the tax was only collected for half of the year in 2024, the city received about $330,000 in its first year. For 2025, revenue projections have exceeded initial expectations, with the city anticipated to receive approximately $820,000 in affordable housing tax revenues. Since the funding is tied to a percentage of statewide sales tax collections, annual revenue amounts are expected to fluctuate year-to-year. As previously reported, special state legislation authorizing the city to deposit unobligated pooled tax increment financing (TIF) into the Affordable Housing Trust Fund (AHTF) is set to expire at the end of 2026 unless renewed by the state legislature. During the 2025 legislative session, city staff collaborated with the League of Minnesota Cities and state legislators to introduce bills that would make this authority permanent and extend it statewide. In parallel, staff and the city’s lobbyists worked with St. Louis Park legislators to propose an extension of the city’s existing special legislation as a backup measure. Unfortunately, neither proposal passed during the 2025 session. Staff will continue to make this a top legislative priority for the 2026 session. If legislation is not enacted, the city will still be Study session meeting of August 11, 2025 (Item No. 1) Page 10 Title: 2026 Operating budget able to pool TIF for affordable housing but will lose the ability to deposit those funds into the AHTF—significantly limiting the flexibility and impact of these resources. The HRA levy has been in place since 2001. Based on current budget needs and the other revenue sources coming into the AHTF, staff recommends maintaining the current level of support through the HRA levy, holding the levy amount steady at $1,1941,33 in 2026. Staff further recommends that the city continue directing pooled TIF to the AHTF to the fullest extent possible and maintain the current levy support for this work so that the city can maximize assets for affordable housing opportunities. Additional expenditures on the horizon include assistance to the Wooddale Station development, the Minnetonka Twin-homes project, a few other prospective developments, increased program funding to meet community needs, and potential need for future housing improvement areas. The AHTF supports housing programs for things like down payment assistance and rental assistance, as well as the larger housing projects mentioned above. The proposed budget for housing programs in 2026 includes an increase from 2025 to address affordable housing needs in 2026. Economic factors like other available funding, interest rates, and the housing market impact the take-up of these programs, making actual spending fluctuate from year-to-year compared to budget; however, we anticipate maintaining the current level of funding in the AHTF will likely meet demand for these programs in 2026. The fund balance in the AHTF at the end of 2024 was $7.2 million, an increase of $2 million from last year. This balance is well above the annual spending in the fund because the purpose of this fund is not only to provide ongoing programmatic support but to allow the city to make land and building purchases that may further our housing goals as they become available. The city will continue to preserve and grow and healthy fund balance in this fund to support the city’s priority to increase affordable housing. Development Fund The development fund serves as the primary funding source for the EDA’s activities and operations. Its primary revenue source is currently one-time dollars from the sale of EDA- owned properties. Beginning in 2022, EDA levy dollars have also been contributed to the fund. At one time, the development fund grew to a balance of over $30 million. Over the last decade, it has been significantly drawn down for: • EDA operations and administration including personnel costs, and planning studies/initiatives. • Strategic property acquisitions (4800 Excelsior, Bridgewater Bank Corporate Center as well as the Beltline and Wooddale Station developments). These strategic acquisitions have allowed the EDA to assert greater control and direction over what is constructed on those sites. In 2022, the fund was also used to acquire a commercial building for the affordable commercial land trust pilot. • Economic development activities, programs and initiatives, along with small business assistance within the city. Recent loan recipients include The Block, Practical Systems, STEP, Honey & Rye Bakehouse, London Square mixed-use building and Mexico City Study session meeting of August 11, 2025 (Item No. 1) Page 11 Title: 2026 Operating budget Café. In 2023, the EDA established a new commercial business assistance program as well as a façade assistance program for the Texa-Tonka commercial area. In recent years, the city has taken steps to stop the spend-down of this fund and preserve the existing fund balance, $9.219 M at the end of 2024, for economic development projects. Those steps have included: • Moving all payroll costs from the development fund to the general fund so those ongoing costs can be supported by ongoing levy revenue. • Moving $177,000 of expenses from the development fund to the general fund for arts and public outreach programs that are an ongoing expense to the city and not a onetime project. • Create and adopt a two year plan to offset other costs budgeted and paid out of the development fund: associated with land maintenance, non-loan business development supports, and the cost of zoning analysis and outreach related to land sales. Staff estimates that there are a total of $375,000 in annual ongoing expenses. In 2025, the EDA and council began to close that gap with an EDA levy of $187,000. The two year plan calls for an EDA levy of $375,000 in 2026 to cover the remaining costs. • The development fund will continue to fund business and development loan programs, as those programs generate revenue that can be used to finance new loans in the future. Climate Investment Fund In 2021, the city council established the Climate Investment Fund (CIF) to enable the city to reach its greenhouse gas emissions reduction goals by incentivizing property owners to participate in climate action. This fund has proven to be a successful way to leverage private investment dollars when owners are ready to make improvements that reduce carbon emissions and lower energy costs. At the June 9, 2025, study session, staff discussed the CIF fund balance and projected expense trends with the council. Assuming that expenditure trends plateau at approximately the current level ($200,000 per year), staff anticipates depleting the Climate Investment Fund by year-end 2026: 2025 and 2026 expenses are projected. Staff asked whether the city council wished to budget future funds needed to accomplish the goals of Climate Action Plan. In response, the council gave staff direction to identify an ongoing funding source for the fund that supports a $200,000 annual investment into climate action incentive programs. Revenue Expenses BALANCE 2021 500,000$ 500,000$ 2022 300,000$ 77,060$ 722,940$ 2023 -$ 106,704$ 616,236$ 2024 -$ 217,360$ 398,876$ 2025 200,000$ 198,876$ 2026 200,000$ (1,124)$ Study session meeting of August 11, 2025 (Item No. 1) Page 12 Title: 2026 Operating budget Staff is currently exploring two funding sources for this annual investment: utility franchise fees and the general levy. Currently, franchise fees support road maintenance. This year, the city will incorporate an underground risk assessment to its planning for road improvement projects in order to increase the amount of water main replacements completed annually. In September, staff will know more about what these long-range revisions to the CIP will mean for our use of franchise fee revenues. If there is an opportunity to divert $200,000 (approximately 4% of franchise fee revenues), staff will consider franchise fees as a source for funding the CIF. Alternatively, staff would recommend increasing the levy by $50,000 a year over four years, utilizing fund balance to cover the difference until the fourth year of implementation. This would use approximately $100,000 of additional general fund balance and could be reviewed each year during the budget process as spending and revenue needs change. Council direction will be sought in the Sept. 2, 2025 city council study session on a final recommendation for supporting the Climate Investment Fund permanently. Internal Service Funds Employee Benefits Fund The Employee Benefits Fund is used to account for payments to external vendors to provide insurance and other benefits to current employees and former employees. On June 16, 2025, staff discussed the need to increase the annual levy from $200,000 to $400,000 to correct a long running structural deficit in the fund. By increasing the levy to $400,000, budgeted expenditures will match budgeted revenues. The cash balance in this fund was $100,000 at the end of 2024. Because this fund is supported by the property tax levy (which is paid in two installments in the second half of the year) the cash balance for this fund should mimic the general fund. Approximately half of the annual spend should be in the fund to cover cash flow needs. In order to meet this target, the Employee Benefits Fund should increase its cash balance by $100,000 and staff recommend a transfer of unobligated general fund dollars to meet that goal, in addition to the increase in levy discussed earlier in the summer. Property and Casualty Insurance Fund This fund spends money to pay for damages to city property that are incurred during the year. Many of these expenses are reimbursed by our insurance policy, but not all. Historically there is an average of $150,000 in unreimbursed spending, excluding 2022 which was an outlier due to the unique watermain break recovery program. The city’s insurance premiums are also paid for out of this fund, but that expense is covered through charges from all relevant city funds. Given that the largest revenue stream into the fund is reimbursements from insurance claims which are ongoing throughout the year, the cash balance is really only needed to help cover unreimbursed expenses. The target cash balance is $75,000 for this fund. As of December 2024, the cash balance for the Property and Casualty Insurance Fund was $1.36 million. This is because a transfer was made into the fund to support the watermain project and a large portion was left in the fund while all remaining claims were processed. Now that all claims have been closed, staff recommends transferring the bulk of that cash balance back to the general fund. This would increase visibility for reserve dollars and streamline investment strategy for all the city’s unobligated fund balances. Study session meeting of August 11, 2025 (Item No. 1) Page 13 Title: 2026 Operating budget Vehicles and Equipment Fund This fund records all the expenses from new and replacement vehicles and equipment for all departments. Charges to city departments are the primary sources for the fund, but some revenues from the sale of older assets are also deposited in the fund. Staff produces a ten-year replacement plan for all city assets and each year a thorough review is done to adjust replacement timing as needed based on the condition of the assets. Annually, this fund spends an average of $2 million. Since the primary source of revenues is the general fund charge backs, which is itself largely funded by property taxes, staff targets a cash balance of 50% of the average annual expense budget to avoid cash flow problems. At the end of December 2024, the cash balance in the Vehicles and Equipment Fund was $500,000. Finance recommends transferring $500,000 of unobligated general fund dollars to the Vehicles and Equipment Fund in order to bring the cash balance in this fund up to 50% of the following year’s spending. Municipal Building and Infrastructure Fund This fund supports maintenance and improvements to city owned buildings as well as public infrastructure other than roads such as streetlights and electrical boxes. The annual spend out of this fund is around $800,000 but is more variable than other funds depending on the timing of larger renovation projects. In addition, budget for replacement of streetlight and other infrastructure items were only added to this fund in 2025, so more variability is possible in the coming years. At the end of 2024, the cash balance in this fund was $1.5 million, around the amount of spending seen in a high-water mark year. Staff recommend keeping these dollars in the fund while more data is collected on annual spending after the increased budget in 2025. Technology Replacement Fund This fund accounts for citywide spending on hardware and software technology tools. The source of revenue for this fund is charge backs to the customer departments that are benefitting from the spending. Annual spending from this fund is between $1.8 and $2 million. While this fund receives dollars from multiple funds, the primary source is the property tax supported general fund. For this reason, staff recommends that the target cash balance for this fund be around half a year’s worth of spending. At the end of 2024, the cash balance in the Technology Replacement Fund was $1.1 million. This cash balance meets our target and does not require further action in the 2026 budget. In conclusion, staff recommends the following transfers to ensure that each internal service fund has a cash balance that ensures smooth operations and strong fiscal stability. The net result of the transfers summarized below would be an increase of $400,000 to the general fund unobligated cash balance. Study session meeting of August 11, 2025 (Item No. 1) Page 14 Title: 2026 Operating budget Recommended 2026 Transfers, Internal Service Funds Transfer From Transfer to General Employee Benefit Vehicle and Equipment Fund General $ 100,000 $ 500,000 Property Insurance $ 1,000,000 Operating changes with budget and policy impact Credit Card processing fees The City of St. Louis Park has been absorbing the third-party credit card processing fee for residents, which was much less costly when using a credit card was not a popular way to pay one’s city-held bills. This absorption of the fee by the city has now become burdensome, as the cost of this business practice is pushing $350,000 - $450,000 annually, largely in the utility and general funds. Rather than increase the levy or fees to account for this budget shortfall, staff is proposing to pass the 3% credit card processing fee onto the individual card holder. The top three business lines at the city generating these fees in 2024 are: utilities at 31%, parks and recreation at 31% and building and energy at 32%. Utility customers include all rate payers for water, stormwater and sanitary sewer as well as solid waste. Customers all have the ability to pay for utility bills with a check or electronically with checking information if they want to avoid this charge. For those that continue to use credit cards to pay utility bills, they would see around a 3% increase in charges in addition to any rate increase in 2026. The increase for the charges would be one-time and the rate would not increase unless the surcharge were to change. This would apply to all rate payers, which includes residents, businesses and non- profits. For parks and recreation credit card transactions, 17% of transactions were made by non- individuals; mostly by private schools/universities and organizations renting arena ice for training. The majority of credit card fees in parks and recreation come from aquatic park passes. The credit card fees paid by a resident purchasing a $60 aquatic park pass would be $1.80. This is a relatively small increase and it would avoid costs rising by around $100,000 in the department to cover credit card fees. Credit card fees would be paid by customers using a credit card to pay for permits and licenses in building and energy. These are all customers undertaking some kind of voluntary activity and the fee allows the convenience of using a credit card, asking those benefiting from the convenience to pay for the small fee avoids passing it along to others. If the council is supportive of this change, staff will begin preparing immediately by reaching out to third-party processors. Each company will have a different process, and some may be more time-consuming than others. For that reason, finance staff cannot confirm a Q1 start date for passing along these fees to customers, but will work throughout 2026 to transition all payment processors at the city. Finance staff will work with communications staff to make sure residents and rate payers are aware of the dates that these changes are implemented. Study session meeting of August 11, 2025 (Item No. 1) Page 15 Title: 2026 Operating budget Update on Paid Family and Medical Leave (PFML) Staff continues to make progress in evaluating the best implementation option for the city regarding Paid Family and Medical Leave (PFML). In collaboration with our benefits consultant, CBIZ, a Request for Proposal was issued to identify a private vendor to administer PFML as an alternative to the State of Minnesota’s program. We are currently reviewing the submitted proposals with CBIZ to assess the best fit based on cost, service delivery and integration with other related benefits, such as long-term disability. Staff is encouraged by the competitiveness and quality of the proposals received. Both finalists offer a lower price (0.79% of total payroll verses 0.88% through the state) and faster customer service for determination of benefits. For these reasons, it is very likely that the city will pursue a private benefits plan rather than participating in the State of Minnesota’s insurance program. The benefits to staff will be just as generous as the State of Minnesota’s plan and the cost, which is still planned to be shared 50/50 with employees, will be less than the state’s plan as well. When a final vendor is selected, the contract will be brought to council for approval. Next steps: On Sept. 2, 2025, the city council will receive a report on the 2026 capital improvement recommendations and an all-inclusive levy recommendation for 2026.