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HomeMy WebLinkAboutStudy Session Agenda Packet 11-07-16STUDY SESSION AGENDA CITY COUNCIL CITY OF WHEAT RIDGE, COLORADO 75001 W. 29th Ave. Wheat Ridge CO November 7. 2016 6:30 p.m. Individuals with disabilities are encouraged to participate in all public meetings sponsored by the City of Wheat Ridge. Call Carly Lorentz. Assistant to the City Manager at 303-235-2667 at least one week in advance of a meeting if you are interested in ,participating and need inclusion assistance.. Citizen Comment on Agenda Items 1. Staff Report(s) 2, 2017 Budget Presentation 3. Fruitdale School Update and Discussion 4. Elected Officials' Report(s) FI-11owe]:1611IV121►rI -r4twu �?- Wh6atFd OFFICE OF THE CnY MANAGEr.**---"g 1!I . l f r i TO: Mayor and City Council FROM: Patrick Goff, City Manager DATE: October 31, 2016 (for Study Session of November 7'") SUBJECT: Proposed 2017 City Budget On November Th, I will present the proposed 2017 City Budget. This memorandum includes my budget message along with an outline of the public engagement steps that have occurred to date. New Budget Engagement Tools: Two new citizen engagement tools were added to the budget process this year 1) Citizen Outside Agency Review Committee and 2) Balancing Act online budget engagement tool. The recommendations from the Outside Agency Review Committee are included on page S. Prior Action: • July 25, 2016 -- first public meeting to provide opportunity for citizens to comment on the budget • August 22, 2016 — second public meeting to provide opportunity for citizens to comment on the budget • October 17, 2016 — proposed 2017 budget books were distributed to City Council and made available for public review on the City's website and in the City Clerk's Office. • October 18. 2016 — proposed 2017 budget made available online for the public to review Future Action: • November 7. 2016 — City Manager presents balanced budget to City Council during the Study Session • November 14. 2016 — as required by Section 10.7 of the Wheat Ridge City Charter a public hearing will be conducted to provide an additional opportunity for citizens to comment on the proposed budget prior to its adoption. Notification of the public hearing will be made on the City Website, City Facebook page, and in the Wheat Ridge Transcript. • November 28, 2016 — as required by Section 10.9 of the Wheat Ridge City Charter, the budget must be adopted by resolution on or before the final day (December 15, 2016) established by state statute for the certification of the next year's tax levy to the county. Proposed 2017 City Budget November 7, 2016 Page 2 The proposed 2017 budget includes the following: • $9,035,579 million in proposed expenditures directly linked to City Council strategic mals • A balanced General Fund budget in the amount of $31,172,401 • An unrestricted fund balance of 85,687,070 or 18% of expenditures (17 °%p minimum reserve level) • A General Fund transfer of 83,000,000 to the Capital Investment Program (CIP) • A General Fund transfer of $100,000 to the Capital Equipment Replacement Fund • A .71,10 decrease in the General Fund budget compared to the adjusted 2016 Budget • Proposed CIP fund in the amount of $3,649,000 • Special revenue funds in the amount of 86,865,073 • Proposed budget (all hands) in the: amount of S41,685,474 Staff is looking, for City Council direction and consensus on the proposed budget. If you have any questions prior to the November 7'" Study Session, please do not hesitate to let me know. The 2017 proposed budget message. found on pages 1 1 - 21 of the budget book, is included below: OVERALL SUMMARY Wheat Ridge's total proposed General Fund operating budget for 2017 is $31,172,401 excluding transfers. The City's total 2017 operating budget represents a 0.7% decrease compared to the adjusted 2016 Budget. The ,projected 2017 General Fund ending fund balance is $7,068,070. Of this amount. $5.687,070, or 18% of expenditures, is considered the unrestricted fund balance. The City's financial policies require that the City maintain a ininiirium unrestricted fund balance of at least tivo months, or approximately 17%, of its General Fund operating expenditures, as recommended by the Government Finance Officers Association (GFOA). The total proposed City Budget for 2417, which includes the General Fund, CIP and Special Revenue Funds, is $41,685,474. The CIP Budget is at $3,648,000 and the eight Special Revenue Funds' proposed budgets total $6,865,073. Sales tax, the City's largest revenue source, for 2017 is projected to increase by 3.8°/a compared to 2016 estimated revenue. Sales tax revenue is projected to increase by 7% compared to 2016 adjusted revenue. Overall, total General Fund revenues for 2017 are projected to increase by 2.6% compared to 2016 estimated revenue and increase by 4% compared to 2016 adjusted revenue. LONG-TERM FISCAL CHALLENGES I:ong-term fiscal sustainability remains one of the City's greatest challenges. The City's 2017 - 2025 CIP budget demonstrates the severity of the City's funding gap in regard to unfunded capital needs. The 2017 Proposed Budget includes a transfer of $2 million from General Fund undesignated reserves to the CIP budget for a portion of the City's 86.32 million match for the Wadsworth reconstruction project. Transfers in the amount of S3 million and S 1.32 million are proposed for 2018 and 2019, respectively, for the remaining City match. Proposed 2017 City Budget November 7, 2016 Page 3 In addition, $1 million will be transferred to fund other CIP projects in 2017. However, in order to provide the additional funding for the City's match for the Wadsworth reconstruction project, no transfer from the General Fund will be available in 2018, and only $1.75 million will be available in 2019 for other CIP projects. Therefore, preventative street maintenance will be limited to $500,000 a year in 2017 and 2018 and all other discretionary CII' projects will be eliminated between 2018 and 2020. Beyond 2017, funding the CIP will continue to be difficult unless new dedicated revenue sources are identified. If the City's 2010 ballot question, 2E. passes on November 81h, the City's $6.32 million match will be funded through a temporary sales tax increase. In addition. � 12 million will be funded for the Gold Line commuter rail and $10 million for the Clear Creek Crossing infrastructure improvements and $4 million for improvements to Anderson Park. And, three million a year from General Fund undesignated reserves would again be available to fund preventative street maintenance and other CIP projects. WHEAT RIDGE FIVE-YEAR GOALS The Mayor. City Council and staff periodically work together to develop and update a strategic plan that includes a vision, goals and action agenda. Staff used the most current goals and action agenda as a guide to develop strategies and prioritize projects for the 2017 Budget. Five -Year Goals: 1. Economically Viable Commercial. Areas 2. Financially Sound City Providing Quality Service 3. Choice of Desirable Neighborhoods 4. More Attractive Wheat Ridge 2017 Action Agenda: • Revenue enhancement • Engage development and redevelopment opportunities • Community r neighborhood building • Code enforcement • 38th Avenue Corridor implementation • Targeted housing incentive policies • Multi -modal transportation The proposed 2017 Budget includes the following expenditures to address the Five -Year Goals and the 2017 Action Agenda: (Division #) Goal 1: Economically Viable Commercial Areas • Urban renewal funding for Renewal Wheat Ridge (RWR) projects $300,000 (105 to RWR) • Enhanced Sales Tax Incentive Program (EST1P)/Tax Increment Financing (TIF) 5564,000 (105) Ridge at 38 public events S 140,000 (105 to Localworks) Citywide public relations and marketing efforts $22,500 (1 fly & 113 Proposed 2017 City Budget November 7. 2016 Page 4 • Wheat Ridge Business District (WRB:D) brant program $45,000 (105 to WRBD) • Live Local events $50,000 (105 to Localworks) • Building up Business Loan Program (BUBL) $25,000 (105 to Localworks) • Realtor, new resident and developer positioning tours $20,000 (105 to Localworks) • 44'x' Avenue Corridor marketing efforts $7,500 (105) • 29`h Avenue Marketplace marketing efforts $5.000 (105) • 38"' Avenue marketing $40,000 (105 to Localworks) • Ridge at 38 banners and lights program $25,000 (1.05 to Localworks) • Gold Line marketing materials $10,000 (105) • Neighborhood Revitalization Strategy update $27,500 (105 to Localworks) • Kipling/1-70 Corridor planning effort $100.000 (123) • Wadsworth reconstruction project $2? million (CIP') Goal 2: Financially Sound City Providing Quality Service • PreventtatIN a street maintenance $500,000 (CIP Fund) • Fleet acquisition and replacement '$547,0100 (303) • Employee compensation -- 3% projected pay- for -performance $450,000 (610) • Lakewood crime lab services '$63,000 (212) • Regional crime lab $49.157 (212) • Employee safety and wellness programs $43,530 (112 & 610) • Socrata Open Budget software $7,500 (101) • Contractual sales, tax auditing services '$3.6,300 (1 15 ) • Community Solar Garden lease payments $80,167 (610) • Replace heat exchangers at outdoor pool $35,0100 (623 ) Goal 3: Choice of Desirable Neighborhoods • Prospect Park improvements $2,225,0010 (OS & CT Funds) • Recreation Center maintenance $115,000 (CT Fund) • Traffic: Safety. Life Quality and Crime Reduction (TLC) Program $40,000 (105 to WR2020) • Home lnvestrnent Loan Program (HIP) $25,000 (105 to WR2020) • Police Department community -oriented neighborhood programs $36,288 (21 l ) • Police Department park patrol $34,900 (203 & 211) • Police Department special events overtime $29,000 (21 l ) • Two part-time park rangers $23.400 (203) • ADA improvements citywide $50.000 (CIP) • Discovery Park ADA accessibility playground -$125,0010 (CTF) Goad 4: More Attractive Wheat Ridge • Parks & trails maintenance projects $425,000 (CTF and OS Funds) • Open Space improvements $50,000 (OS Fund) • Citywide right-of-way maintenance $65,311 (603) • Gold Line station right-of-way maintenance $13,416 (603 ) • Bus shelter and bench maintenance, cleaning and snow removal $40.000 (303) Proposed 2017 City Budget November 7, 2016 Page 5 • Large -item pickup progra3n $5,000 (303) • Anderson Park water Iine $100,000 (603) = 2.0 FTE Community 'Service Officers $102,000 (203) * Facility repair and maintenance for historic buildings S38,110 (625) • Founders Park playground $100,000 (CT Fund) The following budget expenditures are not directly related to any one of the City Council goals, but are worthy of noting and are included in the proposed 2017 Budget: • City sponsorshipslcommunity partnerships: o Carnation Festival $60,000 contribution, $25,500 staff overtime and $2,000 for barricades (102) In 2016 City Council appointed a Citizen Review Committee to make recommendations for contributions to outside agencies. Following are the Committee's recommendations for -1017: o Senior Resource Center (SRC) circulator bus $26.500 (102) o Arvada Food Bank $9,000 (102) o The Action Center $1,900 (102) a Arapahoe House $1,800 (l 02) o Audits Information Network $1,400 (102) a Court Appointed Special Advocates $1,800 (102) o Colorado Senior Connections $3.400 (102) a Family Tree $1,600 (102) o Family Tree Gala event $'650 (102) o Institute for Environmental Solutions $1,300 (1€12) o Jefferson County Library Foundation $1,300 (102) o Wheat Ridge Community Foundation $5,000 (102) o Wheat Ridge Optimist Club $1,200 (102) o 'Wheat Ridge High School STEAM $14,000 (102) o Feed the Future Backpack Program $7,000 (102) a Regional Air Quality $.2,100 (102) a Exempla Lutheran Leaves of Hope event $2,500 (102) a Jefferson Center for Mental Health $2,500 (102) o Jefferson Center for Mental Health Gala $2,5110 (102) o Wheat Ridge High School Farmers 5000 $2,500 (102) • Wheat Ridge Active Transportation Advisory Committee $1,000 (102) o Outdoor Lab Foundation $18,000 (102) Miscellaneous Expenditures o Court appointed attorneys mandated by House Bill 1309 $12,500 (1.09) A TRADITION OF EXCELLENCE IN A.C.T.L.O.N! The City of Wheat Ridge has earned a reputation for repositioning itself and becoming a convnnunity of choice. In 2015, the City celebrates the 10th anniversary of the development of the Neighborhood Revitalization Strategy (NRS) plan. This grassroots, community -driven planning document has guided the transformation the City has experienced over the past ten Proposed 2017 City Budget November 7. 2016 Page 6 years. The City has received numerous state and national awards for its local partnerships and innovative approaches to service delivery. The City's reputation was created by the excellent stewardship provided by past City Councils and staff at all levels. An Engaged Communith A commitment to excellence has helped position the City to respond and plan for future needs, The demand for services, amenities, and community events that provide opportunities for citizens to come together has increased. Participation in educational academies. involvement on boards and commissions, and overall, participation in community and neighborhood planning efforts has also increased. The City has an extremely engaged community, focused not only on the Short-term viability of the City, but more importantly, on the long-term sustainability of the City. An Engaged Organization City staff. at all levels, continually approach their jobs looking for ways to improve the level of sen ice, contain costs, improve efficiency, leverage partnerships and generate innovative ideas so the community receives the best possible service. The City actively pursues .grant opportunities and has a solid track record of success in receiving.. grants. For example, the City received a S25 million grant from DRCOG in 2015 for the reconstruction of Wadsworth Boulevard. City staff is empowered to continue to look for additional cast -effective opportunities to partner with local and regional organizations, to explore and expand the use of alternative service delivery opportunities. to continue to use volunteers where feasible, to increase cost recovery, and to discontinue or reduce service standards for those programs that are that are less of a priority.. Priority- Based Budgeting In 2016, the City embarked on year five of the Priority Based Budgeting (PBB) process. The City has received national recognition and interest from other local g,uvermnents who are considering switching to a priority -driven budget. The City engaged the Center for Priority Based Budgeting in 2012 to facilitate the transition from a more traditional incremental budgeting process to a priority -driven budgeting process. The Center's mission is to "lead Coirimunities to fiscal health and wellness." Priority Based Budgeting is another tool that will allow the City's management team to improve the programs and services provided by aligning resource allocation with the results the City is working to achieve. The primary area that cc c continue to integrate into the budget process is the t0cus on budget variances. Budget variances generally occur because certain line items must be budgeted based on projected use such as staffing, fuel, and utilities. Howc\ er, circumstances such as employee turnover, the weather or the economy dictate what those true expenditures will be on an annual basis. For example, if we experience an unusually bad winter or fuel prices skyrocket, mid -year supplemental budget appropriations may be required. In addition to continuing the variance exercise for development of the 2017 Budget, staff added a contingency reduction exercise. Included in the City Manager's Budget is a management contingency fund in the amount of'$100,000. This is the result of a consolidation of City-wide contingency funds in 2014 which enabled staff to cut approximately $160,000 from the 2017 Proposed 2017 City Budget November 7, 2016 Page 7 proposed budget. In the past, contingency funds have been budgeted for carrying out policy direction by City Council that may not have been planned for at the time of budget development. An example of this would be engineering or design work required for a public project. Overall, for the 2017 Budget, departmental budget requests were reduced by approximately $1.6 million in order to fund those expenses that were considered critical to meeting the City's defined results. Collectively, the variance and contingency fund tools have played an important role in the continued integration of a priority -driven budget system. This process has enabled staff to look at the budget data through a different lens. REVENUES AND EXPENDITURES The total 2017 Proposed Budget is $41,685.474. The Budget is based on projected revenues of $40,097,719. In addition, the beginning fund balance for 2017 is projected at $12.414,494 which brings the total available funds to $52,512,213. This will provide for a projected ending fund balance of $10,826,739. which is a 40% increase compared to the 2016 Adopted Budget. Detailed revenue and expenditure tables are presented in the Revenue and Expenditure Summary section of this Budget. GENERAL FUND General Fund revenue is projected at $33,272,401, which is a 2.6% increase compared to 2016 estimated revenues. In addition, the beginning fund balance for 2016 is projected at $8,068,070, which brings the total available funds for the General Fund to $41,340,471. General Fund expenditures total $31,172,401 excluding transfers. General Fund expenditures represent a .7% decrease compared to the adjusted 2016 Budget and a 3% increase compared to the estimated 2016 Budget. This will provide for a projected ending fund balance of $7,068,070, of which $5,687,070 (18'% of operating expenditures) is considered unrestricted. CAPITAL INVESTMENT PROGRAM FUND CIP Fund revenue is projected at $5,116,825 ($3,000,000 transferred from the General Fund) which is an 8% decrease compared to the 2016 estimated revenue. In addition. the beginning fund balance for 2+017 is projected at $1,033,971 which brings the total available funds for the CIP Fund to $6,150,796. The proposed 2017 CIP includes the following projects: $2.2 million for completion of Wadsworth environmental assessment • $500,000 for street preventative maintenance • S435,000 for 29'h Avenue and Fenton Street intersection improvements • $233,000 for a new traf ie signal at 32'J Avenue and Xenon Street 0 $140,000 for an environmental assessment re-evaluation for the Clear Creek Crossing project ■ $50,000 for citywide ADA infrastructure improvements • '$50,000 for Clear Creek Master Plan update 0 $30,000 for completion of Bike/Pedestrian Master Plan 0 $ 10,000 for Maple Grove Reservoir emergency planning Proposed 2017 City Budget November 7, 2016 Page 8 CIP expenditures total $3,648,000, which is a 40%p decrease compared to the adjusted 2016 Budget and a 31 % decrease compared to the estimated 2016 Budget. This will provide for a projected ending fund balance of $2,502,796. Typically, the ('I1" Budget is funded primarily with General Fund undesignated reser-,,•es. The City Council adopted a General Fund reserve policy in 2011.setting the minimum reserve level at 17%. In order to maintain this minimum reserve balance in the General Fund in 2017 and beyond, a limited amount of funds will be available to fund the CIP Budget after 2017. To continue funding CIP projects at a more sustainable level, City Council will need to consider substantial cuts in the City's operating budget or find new revenue sources for CIP projects. Between 2017 and 2019. the CIP Budget will receive a transfer in the total amount of 50.32 million from the General Fund for the City's match for the Wadsworth reconstruction project. This will limit the amount of funds available for other CIP projects. The proposed CIP Budget for 2020 to 2025 projects a $3 million annual transfer from the General Fund for CIP projects. OPEN SPACE FUND Open Space revenue is projected at $1,788,000 which is a 38% increase compared to the 2016 estimated revenue. The large increase is primarily due to state grants for Prospect Park and developer fees. In addition, the beginning fund balance for 2017 is projected at $1.246,667, which brings the total available funds for the Open Space Fund to "$3.0134,667. Open Space projects for 2017 include: • Renovation of Prospect Park • Replacement of trail in Johnson Park • Replacement of Bass lake retaining wall • Open Space Management Plan update • Miscellaneous Open Space improvements Funding is also appropriated for five Parks maintenance workers. Open Space expenditures total $2,911,050 which is a 16%a decrease compared to the adjusted 2016 Budget and a 12vi%o decrease compared to the estimated 2016 Budget. These expenditure increases are due to renovation of Prospect Park in 2017. This will provide for a projected ending fund balance of $123,617. The future five-year Open Space Budget proposes the continuation ofmiscellanecus open space improvements, parks maintenance projects, trail replacement and repair, Prospect Park improvements, improvements to the new public works and parks operations facility, the City's match fair the JefTerson County River Corridor project and funding for five Parks positions. CONSERVATION TRUST FUND Conservation Trust revenue is projected at $300,500, which is equal to the 2016 estimated revenue. In addition. the beginning fund balance for 2017 is projected at $360,291, which brings the total available funds for the Conservation Trust Fund to $660,791. Proposed 2017 City Budget November 7, 2016 Page 9 Conservation Trust projects for 2017 include: • Renovation of Prospect Park • Recreation Center maintenance projects • Discovery Park ADA accessibility playground • New playground in Founders Park • Parks maintenance projects • Resurfacing of tennis and basketball courts Conservation Trust expenditures total $615.000, which is a 5% increase compared to the adjusted 2016 Budget and a 57%e increase compared to the estimated 2016 Budget. This will provide for a projected ending fund balance of $45,791. The future; l'i've -Year Conservation Trust Budget proposes providing funds for Recreation Center maintenance needs, parks maintenance projects, resurfacing of tennis/basketball courts. playground replacement, and facility improvements to the Parks Maintenance Shops. RECREATION CENTER OPERATIONS FUND Recreation Center operations revenue for 2017 is projected at $2,177,023, which is an increase of 08% compared to the 2016 estimated revenue. In addition, the beginning fund balance for 2017 is projected at $695,970, which brings the total available funds for the Recreation Center Operations Fund to $2,872,993. Recreation Center expenditures total $2,408,098, which is a I% increase compared to the adjusted 20I6 Budget and a 2% increase compared to the estimated 2016.Budget. This will provide for at projected ending fund balance of $464,895. OTHER SPE('I.XL REVENUE FUNDS Several other Special R % enue Funds are also included in this Budget to track revenues and expenditures that are designated by law to be used for specific purposes or are used to simplify the budgeting process. Those funds include the Public Art, Police Investigation, Municipal Court, Equipment Replacement. and Crime Prevention/Code Enforcement funds. Detailed revenue and expenditure information for these funds can be found in the Special Revenue Funds and the Line Item Accounts sections of the Budget. DEBT The City currently has no debt. However, the City does have the following long-term financial obligations: Renewal Wheat Rid&e The City's Urban Renewal Authority (Renewal Wheat Ridge), is a component of the City and does have a loan in the amount '$330.299 from the City for the purchase of an environmentally contaminated property at 38`x' and Yukon Court. This loan will be paid -off with the sale of the property at 38`x' and Yukon in 2016 or 2017. Additionally, the Urban Renewal Authority provided a lean in the amount of 52.455 million for the Kipling Ridge commercial center development. The tern] of this loan expires in 2023 and will be paid from sale's and property tax incremental revenue from the Kipling; Ridge project. The balance of the loan as of December 31, Proposed 2017 City Budget November 7, 201+1 Page 10 2015 will be 52.350 million. Community Solar Garden On March 23. 2015, the City entered into an agreement to purchase electric generating capacity in a solar garden. The agreement was funded on April 13, 2015 with a lease agreement for $800,000. The solar power capacity is recorded as capital assets in the amount of $776,628. A portion of the loan proceeds was used to pay issuance casts of $23,372. Annual payments of $80,167.08, including principal and interest accruing at 5.75%. are due through May 1, 2030. As of December I. 2016, the City has a capital lease outstanding amount ofS1,075,574. For its participation, the City receives energy credits trom Xcel to be: used to pay this lease and against energy consumption at various facilities. COMPENSATION, BENEFITS AND STAFFING Personnel -related expenses account for the largest portion of the City's Budget; therefore, maintaining this investment is a high priority. In 2013, the City launched a new compensation plan for full-time/part-time benefited employees that is financially sustainable and will help the City recruit and retain top talent. Additionally, the compensation plan is market-based and fully aligned with the. Performance Management Project (PMP) that has culminated in the full implementation of pay -for -performance system. The City's pay-for-perfom-lance model is consistent with the culture and commitment to A.C.T.I.O.N ". -- the City's core value-, of Accountability — Change — Teamwork — Integrity -- Opportunity Now! It is important for the City to reward employees who exemplify these core values and who help achieve the City's strategic results. The new compensation plan consists of two sub plans 1) a pay -for -performance open range plan, which includes civilian and police sergeants and higher ranks. and 2) a sworn step plan, which includes police officer I and 11 positions. Employees will be eligible for a performance increase on January 1, 2017, based on how well they meet the core values and competencies of the new PMP system. The pay -tier -performance budget is determined on an annual basis according to what comparable organizations are providing and what the City can of ord for that fiscal year. The City conducted a biennial market review in 2016. For 2017,.the market shift in compensation was %Qu for the City civilian plan and 6% for the sworn step plan noted above. The proposed 2017 budget includes $450,000 in the Central Charges budget to fund performance increases for both sub plans. The updated plan is under development and will be included in the final budget document. The City continues to provide a competitive benefits package to employees that includes medical, dental, life and disability benefits. Throughout the year, staff works closely with the City's benefit broker, IMA. to ensure that the City is controlling benefit casts while: still providing a competitive benefits package to its emplcati°ees. kti hick is a vital part of the City's total compensation approach to pay. The City currently provides Kaiser Permanente plans for employee medical benefits. Medical premiums will increase by only 1.4% for 2017. There are several key factors that play a rale in Proposed 2017 City Budget November 7, 2016 Page 11 calculating: the City's health care premium renewal. Participation in the Wellness Program is a positive contributing; factor to the minimal premium increase. Historically, the City's premium increases ranged from 10 — 15%, which is the market average. The 1.4% increase for 2017 is well below that average. The City will continue to encourage enrollment and active participation in the Wellness Program. There will be no increases to the dental, life and short-term disability premiums in 2017. In 2017, the City will continue to offer the High Deductible Health Plan (HDHP). This pian was added in 2013 and is a consumer model of health care paired with a Health Savings Account (HSA). However, the City will no long offer the traditional HMO plan but will replace it with a Deductible HMO (DHMO) which has a $500 individual deductible and a $1,500 family deductible. The change to a DHMO has also contributed sig,Tnificantly to the low 1.4% increase in overall medical insurance premiums. The premiums for both the employee and the City are lower for a HDHP but the out-of-pocket costs to the employee are higher. The goal of the consumer -driven HDHP and DHMO is to encourage employees to manage casts through effective use of health care. The 2017 staffing Ievel will increase by a net of 6.0 FT E's for a total of 237.575 FTE's in all funds. For the first time in 15 years, staffing levels will exceed the 233.755 FTE's authorized in 2002 before the budget reduction program and elimination of positions in 20013 and 2004. General Fund 4.0 FTE Police Officers — Police Department - In 2015 the International Association of Chiefs of Police (IACP) presented their findings from a staffing study to the City Council. The final report provided seventeen recommendations primarily focused can the addition of staff, policy revisions, scheduling and realignment of the organization. The highest recommendation from the study was to augment patrol staffing with four additional police officers. With the addition of four new police officers, the Police Department will be able to create a new Watch iV covering the busiest hours of the day from 1 Ia.m. to 9 p.m. and would allow Watch 11 to move back to the hours of 3 p.m. to I a.m., providing additional personnel during the times of. highest call load. In addition. these new police officers will allow the department to continue staffing the Crash and Traffic Team (CATT) to increase traffic safety throughout the community. Crime Prevention/Code Enforcement Fund 2.0 FTE Community Service Officers -- Police Department - In 2014. City Council approved funding three part-time Community Service Specialists to increase code enforcement efforts. In 2016, the City hired two additional part-time Community Service Specialists whose primary function was to serve as neighborhood code enforcement specialists for the TLC Neighborhood program. However, these positions were not trained to handle calls for service regarding animal control issues. While these positions had significant benefits, such as providing assistance in addressing proactive cede enforcement during the peak service times of the year, the administrative duties of constantly hiring, training and supervising, became burdensome and inefficient. In order to adequately provide staffing for both functions of Proposed 2017 City Budget November 7. 2016 Page 12 code enforcement and animal control and to eliminate some of these inefficiencies, two full-time Community Service Officers will be hired. In addition. two part-time Park Rangers will be included in the budget to continue to provide park and greenbelt patrol. In the back of the staffing section of this book you will find a proposed Five -Yeas Staffing Plan for 20113 to 2022. Over the last decade we have done our hest to provide a level of service expected by City Council and the community. The City has typically operated with a very lean staff, however, as community expectations change we must ensure the City has adequate staffing; to meet those demands. This Plan will be evaluated annually to determine the most cost- effective way to continue providing exccptional customer service and quality progi-ams. 7 -� City of �W h at �j�c CnmuNiTY DEVELOPMENT Memorandum TO: Mayor and City Council FROM: Kenneth Johnstone, Community Development Director 1 WRHA Executive Director and Lauren Mikulak, Senior Planner 1 WRHA Staff Liaison THROUGH: Patrick Goff, City Manager D� DATE: November 1, 2016 (for November 7`h study session) SUBJECT: Fruitdale School Redevelopment Update Early in 2016 a Development Agreement was approved among the Fruitdale School Partners, the Wheat Ridge Housing Authority (WRi-IA) and the City of Wheat Ridge. The Agreement established, among various other terms, City and WRHA financial commitments to the redevelopment of the property into a mix of 16 market rate and income restricted rental housing units. City Council was most recently updated on ongoing project milestones on August 3. The Wheat Ridge Housing Authority was updated on October 25. The purpose of this memo is to provide an update to City Council in anticipation of City Council taking subsequent action on an Amended and Restated Development. Agreement and accompanying final project financial pro forma prior to closing. BACKGROUND: At the regular business meeting of February 22, 2016 City Council approved a Development Agreement with Hartman Ely Investments and the WRHA for the redevelopment of Fruitdale School. Approval of the Agreement followed several months of discussions related to the terms of the development and financing, and several meetings with City Council and the WRHA at both regular meetings and study sessions. The redevelopment is being called Fruitdale Lofts and will include 16 residential apartments, five of which will be income -restricted. The front portion of the lot will be improved surface parking and landscaping. The rear portion of the property will include ground -mounted solar panels, and other energy efficiencies will be incorporated throughout the building. The historic school and cottage will be rehabilitated following National Park Service standards. The approved Development Agreement commits funds of the City and Housing Authority for the project. By way of brief summary. the Agreement includes the following obligations: • The City agreed to contribute a grant of $470,000 and a short-term loan of $1,900,000- 52,100,000 to enable HEI to redevelop the project. • WRHA agreed to contribute a grant of S 170,000 and a loan of $400,000. • HEI's cash -on -cash return was capped at 22'°./0, and any amount exceeding this rate is returned to the WRHA and City to repay outstanding loan balances. A waterfall finance structure was established such that if the property were to be sold or refinanced in the future, the City, WRHA and developer will share in those sale proceeds in a mutually beneficial way. Project Milestones Afiir the February City Council approval, the following critical path items were completed: • in March, the Jefferson County District Court issued an order quieting the title and. removing the 1883 deed restriction and reverter clause. • A zone change for the ,property was approved in May. • Jefferson County Community Development provided a letter of support in May for additional HOME funds, committing $680,000 in total.. • In June, a land exchange with the school district was finalized and the approved subdivision plat was recorded. • The National Park Service and History Colorado (state historic preservation office) approved the redevelopment proposal in June. This makes the project eligible for approximately $925.00() in federal historic preservation tax credits and 51,000,000 in state tax credits. • HE] selected The Abo Group, a Lakewood -based architectural firm, to begin final drawings. Since the August 15 update to City Council, the following additional tasks have been completed: • General Contractor and subcontractors have been selected • A commitment has been received from Commerce Sank to purchase all of the $1.000,000 in state tax credits at a 90%p discount rate (better than the 85% assumed in the February 22 pro forma) • A commitment has been received from Pinnacle Real Estate Management to sell 55% of the federal tax credits at a discount rate of 80% (slightly less than the 85% assumed in the February 22 pro forma) • Staff has reapplied for a potential $200,000 grant from the State Historic Fund: however, that outcome will not be known until February 2017 • The City Treasurer has set aside approximately $1,900,000 of the funds needed from the City to meet our previously agreed upon financial commitments to the project • Xcel Energy has granted an extension to the deadline for having the solar power system completed, preserving that funding source • Site plan and building permit applications have been submitted with hall construction documents Other updates The approved Agreement anticipated that a final financial pro forma would be reviewed and approved prior to closing on the sale of the property. With the closing tentatively scheduled for November 18, that final review is occurring now. Staff has re-engaged Economic and Planning Systems (EPS) to assist in our review of the terms in the pro forma on behalf of the City and WRHA. The pro forma has in fact been through multiple iterations over the past several months as additional information has become available and better information has been developed regarding project financing, construction costs. soft costs. etc.. Largely. the data in the pro forma has stayed consistent with what has previously been reviewed by City Council. There are a few notable changes, which are summarized below: 2 1. Hazardous Materials Abatement. One construction cost change in the pro forma pertains to the hazardous materials abatement. Additional asbestos has been identified and the manner in which it is required to be abated is more costly than previously understood. Nearly $200,000 in additional costs will be incurred. As Council may recall, the previously approved Development Agreement anticipated a potential additional $190,000 in City short term loan financing specifically because hard costs were still very preliminary. The current draft pro forma would capture that additional amount and increase the total amount of the City's short term loan to $2.115,000. 2. Tax implications. As we have gotten closer to executing this public private development deal, HEI has brought on their attorneys and tax consultants to review the details of the terms. it has been determined that there are additional tax implications associated with several of the project funding sources: • $900,000 in state historic tax credits are federally taxable • $680,000 HOME grant is taxable • $470,000 City grant is taxable + $170,000 WRHA grant is taxable Simply absorbing all of these tax events into the pro forma would make the project economically unfeasible. The federal taxes on the state tax credits (approximately $300,000) will need to be absorbed into the pro forma, and how that occurs is still part of what is being negotiated between HEI, City Staff and EPS. As a partial solution to reducing the tax impact to the pro forma for the three grants, HEI has proposed to modify those into long terms loans. A term of up to 40 years has been proposed, though that is still be negotiated through the terms of the Development Agreement and accompanying final version of the pro forma. 4n the positive side, this does mean that the City and WRHA may recover these funds in the future, albeit quite some time out in the future. 3. Repayment of City short-term loan. Another notable change is the fact that HEI (despite their diligent efforts) has not been able to sell the remaining 45% of the federal tax credits. Under the terms of the approved Agreement, these tax credits were to have been used to pay back the approximate $2.115,000 City short-term loan in years 2 and 3 of the project. The combined impact of the taxes on the state grant and the as of yet lack of a sale of a portion of the federal tax credits impacts the project's ability to pay back the City loan in the early years of the project. Staff is actively working with HEI to revise the Development Agreement and pro forma to reflect the changes and updates that have occurred over the last many months. The current version of the pro fonma and current draft of the Amended and Restated Development Agreement propose that only approximately $1,000,000 of the City loan would be paid back in year 2 and the remaining; approximately $1,000,000 would be paid back over a much longer period of time, as currently proposed, up to 40 years. Staff is analyzing the cash flaw implications of such a change relative to the City's general fund budget, other budget priorities and Council's policy regarding restrictive reserves. 4. Operating;, Costs. As mentioned previously, the majority of the project costs in the previously approved pro forn-ia have been confirmed in the final project pro forma and only minor changes have occurred. As noted on page 2 at bullet point S in HEI's November I letter, one additional operating cost has been proposed — a $1 0,000/year special asset management fee. As described in the letter, this fee is proposed to cover the ongoing expenses associated with financial analyses and paperwork associated with the many layers of the complex project tinancing. As with other operating expenses, this expense is paid from ongoing project rental revenues and would not be a direct cost to the City or WRHA. Next Steps As noted previously, a closing on the sale of the property from the WRHA to Fruitdale School Partners is tentatively scheduled for Friday. November 18. Various legal documents are being drafted by all partners and will need to be finalized for execution ori that date. We have tentatively scheduled November 14 for a City Council meeting to take action on an Amended and Restated Development, though additional review and amendments will need to occur in a short timeframe to meet that goal. Staff: the City Attorney and EPS along with HE] and their financial consultant and attorneys are working diligently reviewing the revised terms in the pro forma and associated Amended Agreement. Staff s is seeking to minimize the duration of time that City loans go partially unpaid. Further, as with the previous Agreement, we are seeking to ensure a financial waterfall structure that provides an appropriate potential upside to the City/WRHA in the event the project exceeds financial projects and potentially is sold or refinanced at a later date. These conversations are ongoing and we will be able to provide more information M regards to any changes in the deal terms at the November 7 study session and at the next scheduled City Council meeting, planned for November 14. Attached to this memo is a similar project update and summary provided by HEI, as well as a letter from HEI offering further explanation of the project changes. Attachments: 1. Fruitdale lofts Redevelopment Update (HE[) 2. November 1, 2016 HEI letter (not including the referenced attachments) 4 Twopw e„IRti In? mown - rq O.gbrl 6uldaq eo•e�Fld In. 7977 FRUITDALE LOFTS The Adaptive Use of the National Register of Historic Places' Fruitdale Grade School, designed by architect, Temple H. Buell .74 )p 11 F W u. Er•�W Avr fruRdMl� Frultdale Lofts, Hartman Ely Investments LLC Attachmrant I FRUITDALE LOFTS Wheat Ridge, CO RMIDALE LOFTS TS MADE POSSO #T FINANCING PMC1AA • CRY OF WHEAT R" • CRYWIDF MANA$ • COLORADO C -PACE PROGRAM + COMAMERCE EAW • NARTMAN ELY INVESTAAENIS • XfFER$OFI COUNTY COfAAWNITY DEMOPMEMT • PINNACLE REAL ESTATE MANAGEMENT • STATE OF COLORADO • WHEM RIDGE HOUSING AtinAORVY • LRNRED STATES OF AMERICA 100% CCMS=UCI M DOC UM ENTS ;k Status Summar. — Construction drawings complete and submitted for building permit. — Amended and Re -stated Development Agreement to be reviewed on 11-7-16. Final construction bids due 11-14-16. -- All financing committed and. ro,.. se scheduled for 11-18-16. roundbreakingcerernc�ny Nn easy ece er f — Hazardous material abatement starts 12-1-16 - (significantly more asbestos in building than previously known). 'Reconstruction starts 1-1-17" Solar power system completion required by 4-� ,7qWrand opening in September/October 2017" Fruitdaie Lofts, Hartman Ely Investments LLC Financial Summary: — City $470,000 grant and WRHA $170,000 grant are now long term loans instead of grants. (paid back via future property appreciation and refinance/sale, likely between year 15 and year 40, 2031-2056). — HEI has spent over $+650,000 to -date in hard costs and internal management effort to get Fruitdale ready for construction. — City patient capital of $2,115,000 is paid back as noted below: • Approximately $1,075,000 from initial tax credit investments (late 2017 through 2018). • Approximately $330,000 if additional federal tax credit investors ;loin project (late 2017 through late 2018). Alternative is HEI pays back approximately $485,000 over time, using its internal tax savings from, these tax credits. • Balance, including interest, from future property appreciation and refinance/sale, likely between year 15 and year 40. — WRHA patient capital of $400,000 is paid back as noted below: • Interest payments begin in year 11 (2027). • Balance, including remaining interest, from future property appreciation and refinance/sale, likely between year 15 & year 40. Profit split of any additional property appreciation value from net proceeds of future refinance/sale: • 45% to City. • 45% to WRHA • 10% to HEI. Fruitdale Lofts, Hartman Ely investments LLC Current Landscape Plan: } ' • i desi"grOVp,'rKL gn Fruitdale Lofts, Hartman Ely Investments LLC ATM &ISTnvG TREE f+l TO REM" TRANSPLAWFO TREES TRASH EWAOSURE AREA MAIL KX)SK TENFL,E WELL W -MORTAL GARDEN CF Pt TM WSMWEBEWC4 095"Y PANEL ($Y D*WO MSTWG R!Rf TREES (3) ro REw4w CRAWMIi FENOMG LYGMTIM TYP TRANSPLANTED TAPE (Tj W 44TH. Current First Floor/Garden Level Plans: � Ip a Fruitdale Lofts, Hartman Ely Investments LLC -of *AND cjuxr' Current Second Floor/Loft Plans: �4.�.. W. -V Fruitdale Lofts, Hartman Ely Investments LLC HEI Hartman Ely Investments LLC 2120 Bluebell Avenue Boulder CO 80302 720.333.0110 November 1, 2016 City of Wheat Ridge Wheat Ridge Housing Authority Mr. Kenneth Johnstone 7500 West 29"" Avenue Wheat Ridge, CO 80433 Re: Fruitdale Lolls Redevelopment and pro forma update Dear Ken. 1 am writing to send you a Fruitdale Lofts update and the most recent pro forma for review, prior to the November 18"" closing and our purchase of the property. As WRHA and the City revieGv this letter, it is important to keep in mind some key issues that this project has kept in delicate balance: • Fruitdale is a very complicated deal with many inter -related parts and many remaining risk issues. • The project is relatively small and has very few economies of scale to offset the necessary redevelopment effort. • Our net cash flow at stabilized occupancy of approximately $30.000/year is only $2,500/month. An unforeseen vacancy of just two of the apartments for an extended period of time due to fire or flood repairs would reduce that cash flow to $0. Despite those complexities and risks. we believe that the redevelopment is going well: • Final construction drawings were submitted for building hermit and final subcontractor bids on October 25". • Hazardous material abatement is scheduled to begin on approximately December 1'. • The attached appraisal indicates that Fruitdale's proposed special features have had a very positive effect on the property's appraised value after stabilized occupancy is achieved ($2,830,004, $164.375/unit) . • Construction completion is scheduled for September 2017. Hov.ever, some revisions to the project's overall deal structure are required to keep everything on track. Those revisions result from our recent detailed taxation analysis, a more detailed analysis Attachment 2 of future asset management effort and a more significant scope of hazardous material (hazmat) abatement per the attached report. The proposed deal structure revisions are: 1. The grants noted by the Development Agreement (City $470.000,. WRHA $1.70.000 and. HOME $680.000) would be revised to be 40 -.car. no -interest loans. That does not change the pro forma regarding early year cash Ilo\tis but provides substantial later year benefits for the City/WRHAI,Iefto since that tectal of $1.320.000 will now be paid back. 2. Due to our in-depth taxation analysis. not all of the $900,000 of State tax credit proceeds can be used initially to payback City patient capital. $300.000 of that amount needs to be reserved for a federal tax obligation that HEI will have from that taxable income. so that the overall deal remains economically viable. So, payback of that $300,000 is deferred to a future Property refinance or ;sale as allowed by the Development Agreement. Our team has analyzed man% different potential ways over the past several weeks to structure this part of the deal and this appears to be the best way. 3. Payback of the City's $2.115,000 patient capital andinterest on that patient capital has been extended due to higher development costs/more patient capital required. the State tax credit taxation issue noted in item 2 above, and a lower investment rate for federal tax credits (80% vs 85%). Payback will occur as noted below: Approximately $1.075.000 of the $2.115.000 from initial tax credit inweslinents (late 2017 through 2018). An additional approximately $390,000 if another federal tax credit investor(s) join the project (late 2017 through late 2018). The alternative to that scenario is that HEI will pay back approximately $485.000 over time. using its internal tax savings from these tax credits. • The balance of City patient capital payback, including interest, will come from future property appreciation and a future refinance/sale, Likely between year 15 and year 40. 4. The start of interest payments for WRHA patient capital is deferred from Year 7 (2023) to Year 11 (2027). 5. A special asset management fee of $10,000iyear for 25 ears is requested. This fee would cover the additional dime each year to analyze financial performance and prepare the complex annual financial analyses and reports to the City, WRHA and multiple lenders that are part ofthis complex project. 6. Some miscellaneous pro forma adjustments are required to accommodate the revisions noted above, are shown by the attached version 32 of the pro forma. and are summarized below: Cash Flaw: 6,1 The $200.000 HEI deferred development fee is paid over 10 years instead of 8, to help maintain minimum net cash llows, 6.2 The start of WRHA interest par ments is deferred from year 7 to } ear 11. to ,avoid overlapping the end of development fee payments in years 7-10 and creating low cash floe levels in years 7-10 that would make I'ruitdale infeasible/not able to get financing. That overlap was possible in prior pro forma versions. primarily due to longer loan terms, Overlap is not possible now, since the commercial loan has a 25 -year amortization/term and the PACE loan has a 20 -wear term (instead of the 30 -year loan term shown by previous pro formas), Please note that the main reason for two loans is that the Property Assessed Clean Energy (PACE) loan interest rate is fixed at 5.5% for 20 years, thus reducing overall deal risk. Another positive aspect of the final commercial/PACE loan package is that the total loan balance at the potential Year 15 sale is mucli lower (approximately $672.000 instead of $1,145,000 shown by the original Development Agreement's pro forma), producing more net property value from a sale or refinance at that point. The two loan amounts are shown per the recent City�kide Banks loan commitment. We have shifted loan amounts a hit #ruin the commitment letter to be a bit more conservative ($IOOK more from Citywide and $I OOK less from PACE). Ultimately. final loan amounts % ill be based on final construction cost bids and a detailed PACE tabulation of our solar and energy/water efficiency costs vs their guidelines. 6.3 Interest on City patient capital is shown deferred to a future refinance or sale, as noted in item 3 above. 6.4 A start-up interest reserve of $15.000 is also .added since net cash flows are now reduced, as a buffer for potentially slower lease -up and even lower Year I cash flow than currently projected. 6.5 Apartment rents have increased and we are now including estimated electricity revenue for all 16 units of $50/month. The total rent for the five affordable units are still within HOME maximum rent amounts and $50/month for all utilities is still a good scenario for all tenants, as compared to what a total monthly gas/electric bill would cost in similar apartments in other developments. Total expenses are also increased (electricitw due to a more accurate power usage estimate. property management due to rent increase and asset management as noted above). Sources and Uses: 6.6 The City patient capital amount has increased to the maximum $2.115.000 allowed by the Development Agreement. 6.7 The federal tax credit investor rate is reduced from 85% to 1! 0%. The State tax credit rate is increased from 85% to 90%. 6.8 We have reduced the soft cost contingency to $50,000, since most soft costs are now known. 6.9 Estimated construction costs have increased. Hazardous material consulting and abatement costs have also increased significantly. due to the increased scope of hazardous material abatement from the attached report. Picase note that abatement scope could increase during construction, since it is not Financially feasible at this stage to investigate all hidden areas within walls, crawl spaces and utility tunnels, 6.10 As a related issue, getting the final Guaranteed Maximum Price (GMP) contract with Palace Construction signed within budget is still a pending issue but we are on trach: for that by the November 18`h closing (the GMP amount wvill be confirmed by final sub bids on November 10`x'). As additional hard cost backup. we have included the current Palace estimate for information. However, please treat that attached estimate as confidential information, since Palace will be receiving final bids from subcontractors soon. 6. i 1 The hard cost contingency is reduced to $275.000, since the current abatement and construction estimates are now based on much more detailed design information. The appropriate issues noted above have been included in the attached draft Amended and Re- stated Development Agreement. Finally, since redevelopment planning for the Fruitdale School has been such a long and arduous process, it is important for WRHA and the City to know that HEI remains 100% committed to the overall #=ruitdale project. As part of that commitment, please note that: A. To -date, we have paid for over $214,000 of actual outside project costs and have committed to additional outside costs of approximately $100.000 through the end of' November 2016 to get Fruitdale tinder construction. That total of over $30+0,000 is more than double our required $147.000 equity amount. B. We have been working intensively on this project since March 2015 and Fruitdale has been HEI's primary development project over that approximately 19 month time. Although we have not kept a detailed log of HEI's total design. development management, solar design and historic consulting services over that time. a very conservative estimate of the cost of those services plus the cost of HEI's further efforts over the next month to get Fruitdale under construction is noted below. + ,lim Hartman at an average of one-half available time (20 hours/week x 4 weeks/month x 20 months x $150/hour = $240.000). • Susan Ely at an average of one-third available time (13 hours/week x 4 weeks/month x 20 months x $110fhour = $114.400). ■ That conservative total of approximately $355.000 far exceeds our $220,000 development fee that is due at closing. In addition, it is important to note that this HEI fee is not just for typical development management services. That fee also includes, ■ Our substantial time to provide in-house design services and a detailed analysis of multiple potential redevelopment concepts prior to the current plan for 16 residential units. ■ Historic tax credit applications and tax equity investment negotiations. ■ Applications for 4 outside funding grants. Two applications to the State Historical Fund, one to the Anschutz Foundation and one to Charge Ahead Colorado (for electric vehicle charging stations). • Applying for solar power incentive funding and lengthy negotiations with Xcel Energy to maintain their solar incentive award. These design. historic. grant writing and solar power services are often provided by separate consultants for additional fees. C. The conscr-� Lo k c total of hard and soft cost items A and B above is over $650.000. We believe that this level of investment far exceeds what any other redevelopment group would have risked to prepare this relatively small project for construction. Please let me know if you have any questions or comments on this update. We look forward to resolving these issues so that we can stay on schedule and the revitalization of the Fruitdale School can remain a success for everyone involved. Sincerely. Ill MIfit li u' ►►1lE 1�'i 1!►i'� tlu 1►f11�Y �! rL� .line Hartman Manager Encl: Redevelopment Summary dated 10/31/16 Pro forma version 32 dated 10/28/16 (confidential) Amended and Re -stated Development Agreement (10131116 draft) Updated site plan, for Development Agreement Exhibit t~ Palace cost estimate dated 10/19/16 (confidential) BBG appraisal dated 10/14116 Terracon hazardous material report dated 10/20/16 Final construction drawings and specifications dated 1+0/24/16 (under separate cover)