Loading...
HomeMy WebLinkAboutApproved Minutes - 2010-01-22 PMCITY COUNCIL SPECIAL MEETING MINUTES January 22, 2010 Afternoon Session Mayor Jack Hoffman called the special City Council meeting to order at 10:15 a.m. on January 22, 2010 at the Lake Oswego Municipal Golf Course. Present: Mayor Hoffman, Councilors Jordan, Hennagin, Johnson, Olson, Moncri ff, and Tierney. Staff Present: Alex McIntyre, City Manager; David Powell, City Attorney; Robyn Christi , City Recorder; Joe Hertzberg, Facilitator; Ursula Euler, Finance Director; Brant Williams, Director of Economic and Capital Projects; Jordan Wheeler, Management Analyst Mr. Hertzberg reconvened the meeting at 1:14 p.m. Mr. Hertzberg summarized the discussion so far. He noted that there were many baseline activities, which the Council should review at some other time to identify potential efficiencies and service improvements. He mentioned the Council agreement that a major focus for this year was to take a systematic look at the major planning efforts underway in order to coordinate and sequence them. He spoke of the Council getting a good understanding of what a master plan really meant and what followed from planning. He noted the three planning pillars of the Comprehensive Plan, the Financial Master Plan, and the Facilities Master Plan. He commented that there were a number of items in progress, to which he added siting a new tennis facility and improving the economic development strategy. He indicated which items they would discuss as part of the budget discussion, which left six items for discussion now. Councilor Olson commented on the need to keep the Foothills framework development plan and the locally preferred alternative for the streetcar in mind, as they were part of the City's holistic planning efforts in shaping the city of the future and meeting density requirements. • Possible Special Funding Allocation Items The Council discussed the six items for possible special funding allocations: expanding the Gallery Without Walls, creation of the Iron Mountain Heritage Trail, purchase of the National Guard Armory, golf facility improvements, Westside dog park, and the Rosemont pathway. Councilor Jordan asked for clarification on what `expanding the Gallery Without Walls' meant. Mayor Hoffman explained that it came out of conversations with the Arts Council on whether providing more funding to the Arts Council to double the amount of sculpture in downtown Lake Oswego would have an impact on economic development and get more people out of the car to shop in the downtown. He commented that it was both a budget and an economic development issue. Councilor Olson commented that she saw the creation of the Iron Mountain Heritage Trail as a similar type of goal because it also would effect economic development. She mentioned the potential for a heritage corridor from Oregon City to Lake Oswego with Oregon City's recent initiative for a federal National Heritage Area and West Linn's efforts to tie its historic districts into that area as well. Councilor Tierney asked why the golf facility improvements were categorized differently than a new tennis facility. Mr. Mclntyr indicated that the Council could categorize these improvements City Council Special Meeting Minutes Page 1 of 15 January 22, 2010 however it wanted to, but staff did not have clear direction on either the visual access improvements or the driving range. The Council agreed that making a decision on the golf course would be a goal. Councilor Moncrieff mentioned that the completion of the final section of the Rosemont pathway was a funding issue. Councilor Olson advocated for not purchasing any more open space until the City developed and funded a plan to maintain the existing public open space. Councilor Jordan agreed, pointing out that open space purchases made in conjunction with Metro or federal grants amounted to unfunded mandates because it cost the City money to maintain the properties. She suggested not purchasing any more open space without maintenance funding attached, as the City was not managing what open space it owned now. Councilor Olson observed that pathways were similar in that the City kept building pathways without a budget or plan to maintain them. Mayor Hoffman recalled that, in almost every open space purchase in which he has been involved, the City was one step ahead of a builder or developer and seized an opportunity. Councilor Olson conceded the point but argued that at some point the City had to say no and let the land go on the property tax rolls. Mr. Hertzberg asked if `protect and manage watersheds' related to the open space discussion. Councilor Jordan commented that the Council has not yet discussed the Clean Streams and Sensitive Lands programs in the broader context of managing the watershed. She suggested leaving it up on the board as something for the Council to decide to do or not do this year. Councilor Olson recalled that, at the time of the adoption of the Clean Streams Plan, the Council said it would circle back to the Lake Corporation's white paper and direct staff to work with the Corporation on the first steps of implementing the Plan. She described the second part of the Plan as partnering with the Lake Corporation to implement some of their suggestions. She suggested using half the time of one of the new FTEs to do that work. Mr. McIntyre reminded the Council that staff did not yet have funding to implement any part of the Clean Streams Plan, as the new fees did not go into effect until July 1. Mr. Hertzberg mentioned the next topics of increase civic engagement, new logo and consistent branding, and a new website. Mr. McIntyre mentioned the recent temporary logo change to the Centennial logo. He asked whether the Council wanted to return to the sailboat logo next year or develop a new logo as part of a `branding' of Lake Oswego (creating an identity) using a public process. Councilor Tierney indicated that they should discuss the issue, but it was not baseline. Mr. McIntyre discussed a new website as part of the branding concept also. He commented that Lake Oswego could afford to make its website more professional, and then maintain it as a baseline item. He indicated that he could bring this initiative forward through the budgeting process, or the Council could make it a goal and he would prioritize it against the other services. Mayor Hoffman discussed his concerns regarding increasing civic engagement. He pointed out that unless someone took the initiative to do civic engagement, it would not get done. He spoke of expanding civic engagement, citing increasing the circulation of the electronic newsletter as an example. He commented that, while the same people tended to attend the Round Tables, that forum did force people with different interests to listen to each other. He acknowledged that most of the 35,000 residents did not care much about the City operations as long as the utilities worked. He suggested inviting Adam Davis to speak to the Council about the widespread lack of trust in government in Oregon. He indicated that that was something that he wanted to combat in Lake Oswego but he did not know how to do so. He mentioned his concern about the Americans for Prosperity Oregon, a movement to limit government that was increasing in Oregon. He cited the situation in Damascus as an example of a lack of trust in government: the people did not allow the City Council to increase fees and charges without going to a vote. He spoke of the importance of the City reaching out to the Lake Oswego residents who did not trust the government, and getting the message across that the City was not raising fees just to raise fees but rather to pay for infrastructure improvements. He indicated that City Council Special Meeting Minutes Page 2 of 15 January 22, 2010 he was not certain that increasing civic engagement was a goal but it was something that he saw a need for in the future. Councilor Olson commented that the people would trust the government by its actions. She advocated for reducing the property tax rate in the next budget cycle as a way of showing their citizens that the Council was aware that it has done nothing but raise fees for the last year. She referenced an e-mail from Andrew Longley that summarized what the Council heard at the last Round Table in asking the Council to recognize the residents' economic struggles and to look for ways for the City to economize and reduce the cost of living in Lake Oswego. Mr. Hertzberg noted the next topic of senior transportation. Councilor Hennagin explained that, given the City's demographics, he thought that the Council might need to revisit the idea of a regularly scheduled senior shuttle around town (even though staff found it financially unfeasible in the past). He acknowledged that they might not do it this year. Councilor Jordan mentioned that there was some indication that TriMet would provide enhanced and improved bus service in Lake Oswego once the streetcar came through. She concurred that a privately operated or franchised shuttle service providing on call service was prohibitively expensive. She noted the possibility of partnering with SMART in Wilsonville to provide additional local transportation. Mr. Hertzberg noted the next topic of neighborhood planning. Councilor Jordan argued that, if the Council chose not to use staff next year for neighborhood planning but instead to use staff to address a more pressing need, that choice did not mean that the Council was not interested in neighborhood planning. Councilor Tierney commented that this was part of the scoping of the systematic planning effort. Mr. Hertzberg mentioned hearing comments that the topics of updating the Downtown parking management plan and developing a plan for the North Anchor were LORA topics. Mr. McIntyre clarified that the Council was simultaneously doing goal setting for LORA. He reported that, per the LORA Board's direction, staff was doing further explorations of the North Anchor project, including looking at the library as a possible anchor. He explained that staff has heard constant comments that the downtown parking requirements were too strenuous for some businesses. Therefore, as part of the economic development discussion, staff was considering whether to revisit the parking requirements. He indicated that both these projects were in progress. Mayor Hoffman mentioned that the comments from the experts at the Mayor's Institute on Civic Design last July regarding his presentation of the North Anchor project using a library as the anchor were relevant to this discussion. He noted that the Council would view the DVD next Tuesday. Councilor Tierney discussed the three compartments of items that he saw. He spoke of ongoing goals established in the past and still pertinent today, such as the LOIS, water, and streetcar projects, which the Council needed to affirm as ongoing projects. He mentioned the Council goals of items above the baseline that it wanted to accomplish in 2010, some of which had budget implications. He indicated that the third compartment contained the Council expectations that set a standard for what became staff goals, such as his expectation of an annual audit report in 2010 with no material weaknesses. He mentioned his confusion with respect to what a master plan was. Mr. Hertzberg listed the long term, ongoing goals as Foothills, streetcar, LOIS, Sewer Master Plan, Lake Grove Plan implementation, Foothills boat dock, North Anchor, and Downtown parking management. He described the economic development strategy, infill, and secondary dwelling units as completing 2009 goals with the new tennis facility moving along. Mr. McIntyre indicated to Councilor Hennagin that LORA would complete Millennium Park and Lakefront Park this year. Councilor Tierney suggested that the Council annually re -affirm long-term projects, such as the streetcar, since people might be elected who did not support the project. Mayor Hoffman agreed that the Council needed to affirm with enthusiasm that the streetcar and the water project were City Council Special Meeting Minutes Page 3 of 15 January 22, 2010 community and Council goals. Councilor Jordan suggested putting the projects with estimated dates of completion (LOIS, water, streetcar) on a different timeline than an annual goal. Mayor Hoffman observed that secondary dwelling units (SDUs) and infill were at two different levels. He described SDUs as at a detail -oriented level while the Planning Commission has already forwarded infill to the Council. He commented that attainable and affordable housing was another important factor in the discussion on housing stock. He agreed that the big look at planning should capture this issue. Councilor Hennagin suggested adding to the long-term goals the re -affirmation to connect up the waterfront parks along State Street. Councilor Olson recalled Mr. Williams' explaining that there were `off ramps,' or potentially insurmountable obstacles, in the Foothills project where the Council could decide to stop the project. She asked whether that same concept applied to the streetcar project. Mr. McIntyre commented that, while they tended to blend the Foothills and streetcar projects together (because one would not happen without the other), on a practical level they were on two separate tracks. He indicated that, despite the difficulties to date, Foothills would likely move forward, whatever the obstacles. Encountering obstacles raised the question of how broadly it moved forward (e.g. number of housing units). He explained that staff included `off ramps' because some things might be deal killers, which the City wanted to know about at the beginning of the process, rather than at the end of it. Councilor Olson clarified that that was also her concern with respect to the streetcar, given the need to obtain funding agreements from other agencies. Mr. Williams indicated that, since a general funding plan would be part of the DEIS, the Council would get a sense of the funding when it reviewed the DEIS and the locally preferred alternative. Mr. Hertzberg noted that the Council discussion defined a goal as a new, large initiative. He mentioned the long-term ongoing goals with objectives/action steps for this year. He commented that there might be other specific Council goals, such as the golf facility improvements. Mr. Hertzberg recessed the meeting at 2:01 p.m. for a break. He reconvened the meeting at 2:12 p.m. • 2010 Budget Mr. Hertzberg explained that this was an opportunity to discuss the deeper policy and philosophical issues involved with budgeting before getting into any details. He emphasized that the Council would make no decisions today but it should reach a clear direction for moving forward. • Proposed Budget Balancing Principles Mr. McIntyre commented that a mistake he made last year was not seeking Council direction on what principles and tools he had available to use in balancing the budget. He indicated that the department heads have submitted their budgets, and the total was 5% (c. $2 million) above the projected operating revenues ($42-$43 million). He mentioned receiving an additional $2 million in above baseline requests, raising the difference to $4 million. He commented that the simplest method for balancing the budget would be to take the $2 million for baseline requests out of reserves and deny the other $2 million in above baseline requests. He pointed out that staff made these requests based on what they heard the public asking for, which meant that outright denial might not be the best method for handling those requests. He presented the principles for balancing the budget prepared by Jordan Wheeler, Ursula Euler, David Donaldson, and Kam Frederickson. He discussed the use of the reserves, which he defined as contingency plus fund balance, or the City's savings account. He mentioned that the City's general fund reserves were at $19.4 million. He stated the principle that he would not use reserves City Council Special Meeting Minutes Page 4 of 15 January 22, 2010 to balance the City's operational budget, but he might suggest using the reserves to fund one-time efforts, such as investing $1 million plus in the Foothills development plan. He indicated to Councilor Olson that these budget principles were consistent with the City's financial policies. Councilor Olson commented that she did not think that the City should dip into its reserves for any reason. Mr. McIntyre indicated to Councilor Hennagin that the urban renewal funds were not available for the Foothills project because it lay mostly outside the urban renewal district. He observed that they could do some cost allocation for the portion that lay within the district. He explained to Mayor Hoffman that there were some pre -designated funds in reserves, such as the Minter library endowment fund, the $900,000 set aside for the library, and the fire truck replacement fund. He indicated to Councilor Olson that $12 to $13 million of the reserves were not dedicated. He recalled the Council's change in general fund policies last year to set fixed percentages for contingency (16%) and ending fund balance (14%). He mentioned that these percentages were at the Council's discretion, although staff did recommend some conservatism in light of the possibility of using the full faith and credit of the City's general fund in the future when going into the bond market. Mr. McIntyre confirmed to Councilor Tierney that, even though the document did not say so, the City did not shift capital expenditures from current revenues to reserves. Mr. McIntyre discussed the next principle of planning for future liabilities by budgeting appropriate reserves balances and /or specific contingencies (the 14% and 16%). He explained that, in order to maintain the 14% and 16% ratio of reserves to revenues, he increased the reserves as the City's revenues increased. He discussed the principle of full cost allocation, in which the City's various non -general fund funds paid the general fund for administrative services performed by general fund paid employees. He recalled the Council direction last year to do a full cost accounting analysis to update the City's 12 - year -old cost allocation study. He reported finding half a million dollars that the general fund could recapture through full cost allocation. He indicated that staff would shift those funds appropriately. Councilor Tierney argued for achieving a net zero effect on the taxpayer/ratepayer by reducing general fund revenues by the half million dollars it would now get from these other funds. He observed that the taxpayer/ratepayer already paid that half million dollars to the utility enterprise funds. However, the City did not include that half million dollars in its current year's budget. Doing the full cost allocation and transferring that half million dollars to the general fund essentially added an unanticipated half million dollars (a windfall) to the general fund. He contended that, rather than using that half million dollars to increase the general fund base, as suggested by Mr. McIntyre, the City should not treat the money as a windfall but instead reduce its budget by that amount and not collect half a million dollars in property taxes from the taxpayer/ratepayer in order to offset the unexpected funds. Mayor Hoffman summarized the policy question as whether the City should spend the half a million dollars, return it to the taxpayer, or put it in the City's savings account (reserves). Councilor Johnson posed another question of whether the Council wanted each fund to pay for itself completely. Councilor Olson agreed that, with the general fund paying more than its fair share for the past 10 years, the taxpayers have been paying the half million dollars through their property taxes. Full cost allocation should shift that to taxpayers/ratepayers paying through the utility and/or enterprise funds. However, not reducing the property taxes to reflect that shift represented a `double whammy' to the taxpayer/ratepayers. Mr. McIntyre mentioned the next principle of levels of service, which spoke to acknowledging that the City performed its baseline services as a matter of course. He indicated the principle of following the City's financial policies. He said that the CIP principle acknowledged that the City City Council Special Meeting Minutes Page 5 of 15 January 22, 2010 would develop a five-year capital improvement plan (CIP) and fund the first year through the budget process. He indicated that the one time revenues principle acknowledged that the City would use any one- time revenues it received against one-time costs and not for operations. He mentioned struggling with the wording of the revenue projections principle of `revenue estimates for budget purposes shall be conservative yet realistic.' He clarified that staff would err on the side of conservatism, or, what Councilor Olson referred to as 'reasonable conservatism.' He mentioned the principle of building a budget on the property tax rates and fees in place for 2010. If the Council should change the property tax rate, he would change the budget to reflect the new revenues. He explained that the unforeseen expenses principle related to having the management flexibility to deal with things that occurred during the year. He indicated to the Council that the one-time revenues referred to revenues such as SDCs, grants, or stimulus money, but not permit fees. He emphasized the theory that the City should be self-sufficient through operating revenues. • PERS Planning Mr. Hertzberg noted the three new issues added to the discussion: use of reserves, what to do with the full cost allocation revenue, and reducing property taxes. He directed the discussion to the first topic of PERS planning. Mr. McIntyre reviewed the situation with the City's PERS base payment increasing by about $2 million in FY 2011/2012. Mr. Hertzberg asked if the Council directed Mr. McIntyre to set aside money in this year's budget as part of planning ahead and spreading the PERS 'hit' over two years. Councilor Jordan commented that, while she agreed with the philosophy of prudently planning ahead, the legislature was trying to find a way to alleviate this major hit on the local governments that would withstand court challenges. Ms. Euler indicated that the $2 million was a high estimate. Councilor Olson indicated to Councilor Hennagin that the 3% automatic increase in the assessed property values would bring an additional $750,000 to the City, assuming no change in the City's millage rate. Mr. McIntyre indicated to Councilor Hennagin that the salary increases were about 1.5% to 2% next year on a compensation base of $30 million. Mr. Hertzberg noted the Council direction to Mr. McIntyre to set aside money this year towards the PERS payment next year. • Library Funding Mr. McIntyre recalled that last year the Council decided to reserve $900,000 to supplement the new library district money coming to the City for a future capital fund project. He asked if Council wanted him to set aside $900,000 this year in the same manner. Councilor Jordan recalled that she had adamantly supported setting aside the entire $900,000 last year. She suggested setting aside half that amount this year for the library building fund and leaving the other half in the general fund for other purposes. She mentioned that she would like to see the library planning process begin in FY 2010/2011. Councilor Hennagin commented that he had thought the Council would discuss library funding in connection with the financing options available for the West End Building (WEB). He mentioned wanting to see a spreadsheet that showed how the City could take advantage of the low interest rate, amortize the WEB debt, and reduce the principal without going out for a bond. He spoke of possibly using urban renewal funds to pay off the WEB and then turning around and using urban renewal funds for the library. He indicated that if the City could demonstrate that doing so would cost the city residents less money in the long run, then he would re-examine his prior position last year on setting aside the $900,000. City Council Special Meeting Minutes Page 6 of 15 January 22, 2010 Mayor Hoffman suggested going through all the topics first before discussing them in detail. Councilor Ti rn y concurred. Mr. Mclntyr indicated to Councilor Ti rn y that the only City revenues that could potentially increase substantively were the property tax revenues; all other revenue streams were relatively stable. Mr. McIntyre observed that the goal for today was the Council providing him with direction for balancing the budget, and not the Council making any decisions today. He pointed out that the tighter the Council made the frame, the harder it was for him to balance the budget. He noted that he already needed to find operating funds to put towards the PERS payment. He gave an example of cutting $1 million from the budget: at $100,000 per staff position, that choice would mean cutting 20 positions. Councilor Olson commented that not having the second quarter financial results showing this year's revenues and expenses made it difficult for her to evaluate what would be a logical direction in which to go. She asked to see what the trends have been in the last three years of the reserve fund balance before deciding to continue to eat away at the reserves. She described the situation as making a decision in a vacuum. Councilor Tierney clarified that his point was that the fact that the City's upcoming personnel expenses were exceeding revenues meant that there was less money for spending, which went to the library funding question. • Street and Pathway Funding Mr. McIntyre referenced the budget principle of using the available fees and taxes prudently in noting that the Council did not adjust the Street Maintenance Fee. He pointed out that the Street Maintenance Fee was almost purely capital -related; the more money the City had, the more streets staff would do, and the less money, the less streets. He confirmed to Councilor Olson that the City would receive some new money from the State. Councilor Tierney asked what other potential revenue sources staff could find to put towards this item. Ms. Euler mentioned franchise fees as the most likely short-term option available. Mr. McIntyre observed that annexation could bring in additional property taxes, although there was always the question of whether it would cost more to service the annexed properties than the City would gain in property tax revenues. He recalled that the Council already allocated the hotel -motel tax increase to the iron furnace restoration. He discussed an option used by other cities of charging the residents an 'in lieu tax,' or a franchise fee, on the City's utilities of sewer, water, and surface water. Ms. Euler observed that the framework discussed by Mr. McIntyre pointed out that, while some expenditures were operational, most were capital. She indicated that putting the right money in the right pots would clarify the situation for staff in terms of operations versus capital. Mayor Hoffman spoke of considering a property tax revenue increase through annexation as part of a short-term financial management plan. Councilor Jordan mentioned that the potential Clackamas County auto registration fee could be an additional revenue source in the long-term, after the funding of the Sellwood Bridge. Mr. McIntyre mentioned his current assumption that there were no additional revenues available. Mr. Hertzberg noted the Council direction to Mr. McIntyre to report back to the Council on potential additional revenue sources. Arts Funding Mr. McIntyre mentioned that historically the City has provided funding to the Arts Council through the Percent for Arts program. However, since the City has done no major building projects, there has been no money for the Percent for Arts program. He noted the question that came up last year of whether the City should use funds to keep the Arts program alive, with the Council deciding to allocate $100,000 to the Arts Council for its operational costs. City Council Special Meeting Minutes Page 7 of 15 January 22, 2010 Councilor Jordan commented that the discussion the other night changed the focus of the Percent for the Arts in light of the economic development benefits of the arts to the City. She suggested that the Council revisit the Percent for Arts ordinance. She advocated for putting the economic development -related arts funding for the Arts Council in the budget as a separate line item. Foothills Redevelopment Mr. McIntyre recalled the earlier staff discussion with the Council on the investment required for the Foothills development effort. He explained that staff has not yet spent the $400,000 that Council allocated to the effort because they were trying to reach a deal with the other parties. Mr. Williams clarified that staff estimated a $1.5 million total project cost with $500,000 recovered through other sources, leaving $1 million to come out of the City's general fund. He indicated that they would need to budget $1.1 million in next year's budget. Mr. McIntyre indicated that his operating assumption was that the funding for this one-time expense would come out of the reserves, and not the operations budget. He explained that he saw this as a question of investment. He argued that the City would likely get back more than $1 million of benefit from this investment. • West End Building (WEB) Mr. McIntyre indicated that the first of the two operating assumptions he had (based on the facilities strategy adopted by Council last June) was that by May he owed the Council a financing strategy that shifted the debt burden for the WEB away from the general fund to some other as yet unspecified source. He mentioned that a bond was the only way to fund the WEB debt. He indicated that, while staff has discussed leasing the WEB with interested people, the problem was the cost of the tenant improvements and the preferred 10 -year lease commitments. He observed that a 10 -year lease commitment ran contrary to the Council's plan to possibly revisit selling the building after five years. He indicated that, in response to the Council's second staff directive to program the WEB, staff was having a space study done to relocate Building, Planning, and Public Works to the WEB. Councilor Tierney observed that if the voters turned down permanent financing, the City would have spent X amount of dollars programming a space that it did not own. He suggested holding the financing discussion sooner than May. Mr. McIntyre indicated to Councilor Hennagin that staff would check back with Chip Pierce shortly regarding whether the market still appeared favorable for pursuing a strategy of funding the debt out of the general fund at a low interest rate. He acknowledged that this strategy did not accomplish the Council directive to shift the burden from the general fund. • Use of Reserves Mr. Hertzberg mentioned the principle not to use the reserves for operating expenses but to allow their use for specific expenses, such as the Foothills plan. He noted Councilor Olson's counterpoint of not using the reserves for any expenses. Councilor Tierney and Mayor Hoffman each agreed with not using the reserves for anything but long-term investments. Mr. McIntyre pointed out that the City's reserves exceeded the levels required by policy, although some of that excess was pre -designated. Councilor Johnson commented that she did not think that the City should use reserves as contingency, but rather that the City should build a separate contingency and budget it. She spoke to defining what contingency meant. Mr. McIntyre agreed that there was a semantics issue, as the source of the City's contingency funds was the reserves. City Council Special Meeting Minutes Page 8 of 15 January 22, 2010 Mr. McIntyre indicated to Councilor Jordan that the City's financial polices required maintaining 30% of the City's operating budget in reserves, which was split between 14% contingency and 16% ending fund balance. He disagreed with Councilor Olson that the City has been slowly eating away at its reserves every year, noting that staff has built the reserves to $19.3 million. Councilor Jordan agreed that last year was the first time that the Council dipped into the reserves. Councilor Olson referenced Mr. McIntyre's comment that the undedicated reserves were at $13 to $14 million, which was down from the $16 to $17 million in reserves a few years ago. She commented that she appreciated Councilor Jordan's comments about re -thinking the library funding. She argued that if the Council continued to look at the reserves as a source of funding for one-time projects every year, then eventually the City would no longer have this pot of money. She advocated for the Council developing a philosophy about the use of the reserves as part of a long-term financial plan. She commented that the issue got back to needs versus wants. She indicated her support of the library stakeholders starting a capital fund raising campaign for a new library or the dedication of some urban renewal money. She agreed with identifying a site in order to start long-term planning but she stated that she found it questionable to take a huge chunk out of the general fund reserves every year for a library capital program. She spoke in support of making one decision in light of long-term planning, as opposed to making a decision on a yearly basis. Councilor Moncrieff agreed with the principle of using operating revenues to pay for all operating expenses. She spoke in support of allowing use of the reserves for one-time long-term investment projects, such as doing a capital improvement project immediately in order to save money in the long run. Mr. Wheeler explained to Councilor Hennagin that if there were no unforeseen events requiring the contingency funds in any given year, then staff re -budgeted the 14% again the next year. Mr. McIntyre described the reserves as similar to a household savings account. He commented that a homeowner used savings account funds to pay for one-time expensive projects, such as replacing a roof, which he/she could not pay for out of his/her regular paycheck. He observed that a lending institution, in evaluating whether someone would qualify for a loan to purchase a new house, looked at a person's income, expenses, and savings account to see if he/she had a strong enough package to offset their concerns. He summarized the philosophy choice as whether one paid to repair a leaky roof out of his/her regular paycheck and cut the kids getting braces or whether one paid for it out of a savings account. Councilor Jordan commented that the idea behind a long-term investment was to invest in something that would not only pay back the investment but also make the investor more money. She argued that investing some reserves to stimulate economic development that brought in more tax revenues to the City was a worthwhile investment. Councilor Olson agreed with Mr. McIntyre's metaphor but pointed out that the $900,000 for the library was not a leaky roof. She spoke to prioritizing requests, instead of considering every request that came in to be equally important. She reiterated that the Council needed to frame a policy for the use of reserves. Ms. Euler commented that the line item contingency was for annual expenditures not planned for in the budget plan. If nothing unplanned occurred, then staff rolled the contingency back into the fund, but otherwise, staff had the money available to deal with unexpected situations. She agreed that the reserves were a savings account. She suggested that the Council establish minimum balances at which the reserves should stay. Mayor Hoffman remarked that the City was in the business of trying to maintain the business and housing values in the community, as well as developing more income (property taxes). He mentioned the argument that investing in a major library would be a major investment in the community, which would result in higher property values and higher property taxes. He City Council Special Meeting Minutes Page 9 of 15 January 22, 2010 commented that First Addition was not one of the highest value neighborhoods in the region by accident but rather because it was close to a vibrant downtown and Millennium Plaza. He argued for using the reserves to invest in economic development actions that would result in increased property tax revenue to the city. Councilor Hennagin indicated that calling the reserves 'a savings account' but using the contingency for unexpected expenses confused him because, personally, he used his savings account for unexpected expenses. Mr. McIntyre explained that Oregon Budget Law used the terms 'contingency' and 'ending fund balance,' which he held equaled the reserves. He described the reserves as the savings account in general and the contingency as a specific set aside that allowed the Council to pay for unbudgeted expenses. He confirmed that the reserves included the contingency. Councilor Johnson indicated to Councilor Tierney that she did not want a contingency as part of department revenues. Mr. Hertzberg summarized the discussion as most Councilors supporting the use of the reserves for specific purposes, and Councilor Olson and Ms. Euler suggesting developing clear policies on minimum balances and the use of the reserves. Councilor Jordan indicated her understanding that Councilor Olson wanted policies around the funds that were not in the operating budget and that were in excess of the percentages that the City's financial policies required keeping in reserves. • Library Funding Councilor Jordan indicated that, while she still felt strongly about building a fund to move forward with planning a library, she thought that, under the current circumstances, they should save half of the $900,000 to use for whatever purposes chosen by the Council. In exchange, the City should start the library planning process in FY 2010/2011, including determining a site. Councilor Moncrieff supported putting the $900,000 back into the general fund budget and setting a goal to site a new library in 2010, which would help the Friends of the Library with any fundraising efforts. Councilor Olson agreed with not taking any money out of the reserves for the library. She suggested encouraging the Friends to start thinking about a capital campaign and looking into the redevelopment district fund options. Mayor Hoffman indicated that he did not favor putting the $900,000 back into the general fund. He recalled the push for a new library in the 1990s that eventually came to nothing, despite library studies and site studies. He noted that there was a new push occurring this year. He wondered whether they should spend $100,000 in FY2010/2011 to revisit what the community needed in a library, including whether a library should serve as the North Anchor in the Downtown. He expressed his concern that gradually reducing the money for the library capital fund was a slippery slope that led to the library dropping off the radar screen. Councilor Hennagin suggested waiting to see the full proposed budget before discussing what to do with the $900,000. He spoke to considering the question in the context of what cuts they needed to make to balance the budget and how they would fund the WEB debt. Mr. McIntyre indicated to the Councilor that he could present different options for using the $900,000 in the operating budget, although he understood Council's current direction as setting aside the $900,000. Councilor Johnson spoke to the Council making a decision about how to allocate the $900,000 this year and developing a longer term policy on how to address library funding, in light of this new ongoing source of revenue from the library district. She argued that this was a policy level issue and a decision that the Council should have in place before the Budget Committee meetings. She indicated that, while she thought it had been important to allocate the full $900,000 last year, she agreed that the allocation should be substantially less this year and that the Council should start working this year on siting the library. City Council Special Meeting Minutes Page 10 of 15 January 22, 2010 Councilor Tierney concurred with Councilor Hennagin's request for Mr. McIntyre to bring back different options regarding the use of the $900,000 so that the Council could make a decision in a broader context. He commented that the fact that library circulation was decreasing raised the fundamental question referenced by Mayor Hoffman of what did the community need in a library. Councilor Jordan commented that many people believed that the library district vote meant that the Lake Oswego library would be increasing its services by $900,000 every year. She agreed that the Council needed to address the scope of future library services and what the new library would look like to carry the community through the next 20 years. She pointed out that the City had no place to house its art and historic collections for public viewing. She speculated that technology might change the library function to an archival function for those collections. Mayor Hoffman concurred with Councilor Johnson that this was a policy issue on which the Council needed to make a decision, as opposed to diverting it to the Budget Committee. He clarified to Councilor Tierney that he saw the policy issue as whether the community needed a new library building and what that building would look like. Councilor Johnson indicated that she saw the policy issue as the funding level for the library in the future. Ms. Euler suggested another principle of not discussing funding until they had a plan for whatever project they were thinking about. Councilor Moncrieff agreed with Ms. Euler, stating that that was why she thought it important to find a site and start the plan. She indicated that she was not comfortable tying up $900,000 this year when there were so many competing interests. Mr. McIntyre suggested that this year the Council look at the $900,000 as a one-time revenue source available to pay off one time needs. Councilor Hennagin reiterated Councilor Tierney's suggestion of staff preparing the budget with the $900,000 as a set aside, seeing what needed to be cut in order to balance the budget, and then the Budget Committee deciding how much of the $900,000 to put back in. He indicated that he would not oppose making a policy decision prior to the Budget Committee meetings. Councilor Johnson mentioned her concern with labeling the $900,000 as one time revenue. She pointed out that if the Council decided not to allocate any of the money to the library, that choice would make it difficult later on to get any of that money back for the library. She reiterated her proposal that the Council make a policy decision regarding the level of library funding in the long- term. Councilor Jordan reiterated her desire to move forward with library planning in order to know what to do with the library district funds when they received them, as those funds were strictly for capital uses. She pointed out that what she and Councilor Johnson were talking about was a policy for down the road after the City determined the need for a new library and a site. She commented that the $900,000 discussion referred to building the capital fund and moving forward with a decision on the library. She argued that if the Council put no money towards that fund, then the effort would fall off the table. She suggested the Council making a decision on the library as a goal. Mr. Hertzberg summarized the discussion as agreement that the decision on the allocation of the money should be a Council policy decision. He noted that several Council members have indicated that this decision was inextricably linked with planning for the future of the library. Councilor Olson suggested setting a goal as mentioned by Councilor Jordan and letting Mr. McIntyre determine how much money he needed to budget for the staff work/consultant studies towards accomplishing that goal, and not tying it to the $900,000. Councilor Jordan spoke of taking the cost of the staff work/consultant studies out of the $900,000 as part of library future planning, and leaving the rest available for other needs. The majority of the Council confirmed to Mr. McIntyre that if the study cost X amount of dollars, then he had whatever was left over to use in balancing the budget. Councilor Hennagin and Mayor Hoffman each indicated that he did not agree with that statement. Councilor Hennagin questioned the need for a new library study, while the Mayor supported one. City Council Special Meeting Minutes Page 11 of 15 January 22, 2010 Mr. McIntyre commented that he estimated the cost of all the various items up on the wall that the Council wanted staff to explore as more than $900,000. He pointed out that right now, the budget requests were $4 million over the projected revenues, and therefore, he had no money to pay for any of the items on the wall. He suggested looking at strategically investing the money left over from the $900,000 in some of these items, including a library study in the mix. He mentioned that the City had many facilities needs, noting that, in the Council's earlier facilities discussion, the library facility did not have priority over the police facility. He observed that this was a sequencing question and a question of how much could the City and its residents afford. He asked if the Council wanted staff to focus specifically on the library right now or see huw the library stacked up against the other facilities needs. Councilor Jordan reiterated the Mayor's concern that doing so might postpone the library down the road again. She argued that they did not want to do that because the library was an integral part of the community services provided by the City. Councilor Jordan indicated to Councilor Tierney that she was not saying the library rose to a higher priority. She explained that the only way she saw to build the police/fire/community services/maintenance facilities was through bond measures. She argued that they needed to continue to seed money for the library because one day they might have to bond in order to build it, although they might find other resources along the way. Mr. Hertzberg asked the Council whether it was prepared to fund a comprehensive library study on the need for a library, what a library would look like, and what the capital requirements would be. He asked whether it wanted to treat it as a one-time expense or put it into the general fund for ongoing purposes. Mayor Hoffman spoke in support of the one-time funding option because the financing option for the library building might be bonding the $900,000. He supported keeping the library separate. Councilor Moncrieff commented that if the Council agreed on siting the library in the downtown, then it was also a LORA issue. Mr. Hertzberg recessed the meeting at 4:11 p.m. for a break. He reconvened the meeting at 4:18 p.m. • Use of Full Cost Allocation Funds Ms. Euler commented that that it made sense to use full cost allocation to put the right costs in the right areas, and then make decisions based on that. Mr. H rtzberg reviewed the options for using the full cost allocation funds: adding them to the general fund, adding them to the reserves, or reducing other revenues to create a neutral effect on the general fund. Councilor Jordan commented that, one way or another, last year the City paid for these services, and last year the City had to dip into reserves to cover its expenses. She suggested that full cost allocation would put the costs where they belonged, and perhaps reduce what the City might have to take out of reserves to fund its operations. She questioned the perception that the $500,000 was extra money. Councilor Moncrieff discussed her preference of allocating the $500,000 to the street maintenance fund and instituting a two-year ramp up in doubling the street maintenance fee. Councilor Olson mentioned her preference to lower the impact of City fees and taxes to the residents. She indicated that Councilor Moncrieff's suggestion to keep the street maintenance fee lower would accomplish that objective. Councilor Johnson concurred. Mr. McIntyre pointed out that the street maintenance fund was one of the funds that owed the general fund money. He observed that an unintended consequence of full cost accounting was the street fund now needing to pay its fair share of the burden. He confirmed Councilor Johnson's point that the general fund was the Council's discretionary money to spend as it collectively saw fit. City Council Special Meeting Minutes Page 12 of 15 January 22, 2010 He commented that shifting general fund monies to the street fund, instead of raising the street maintenance fee, would theoretically be at the expense of some other service. He mentioned that the utilities should pay for themselves. He indicated to Councilor Hennagin that most of the enterprise funds had a fund balance that they could use to pay their share. Using the sewer fund as an example, he acknowledged the argument that this meant that the sewer fund would have less money to pay for capital projects. However, the sewer fund balance grew because it was not paying its fair share. Mr. Wheeler indicated that the golf fund and the street fund were the two funds that would have difficulty paying their fair share. Mayor Hoffman stated his agreement with the full cost accounting principle and with transferring the $500,000 to the general fund, followed by Council discussion of what to do with the funds. Councilor Johnson pointed out that they could put the $500,000 towards the PERS set aside. Councilor Tierney agreed that the funds should pay their fair share. He noted the next question of what to do with the money coming into the general fund. He argued that they were simply shifting where the money came from, and not expanding the pie by $500,000. He mentioned that the 3% assessed property value increase generated $750,000. He suggested reducing that percentage to 1 % in order to generate the same amount of money that the 3% would generate without a windfall of $500,000. He indicated to the Mayor that he supported keeping the pie the same. Councilor Tierney observed to Councilor Johnson that the street maintenance fee was a complicated formula with a scientific base. Councilor Hennagin indicated that philosophically he did not disagree with paying the street maintenance fee according to the formula; yet doubling the fee impacted the retail businesses the hardest, just when they were facing economic difficulties. He supported putting the $500,000 in the street maintenance fee this year and reducing the street maintenance fee increase as an attempt to help the retail businesses. Councilor Tierney concurred with Councilor Hennagin's points about the business community but pointed out that their citizens were also feeling the impacts of the economy. He disagreed with shifting the burden from the business community to the residents. Councilor Olson concurred with Councilor Tierney that the citizens should benefit from a reduced property tax rate, and that it was cleaner to raise the street maintenance fee, which would impact both the retail businesses and the citizens. Councilor Jordan observed that a fluctuating street maintenance fee resulted in the City not having predictability in the revenue stream it used to pay for the service. She indicated that she did not know how much reducing property taxes would save individual homeowners. She questioned whether doing so would make a significant difference to homeowners, unless the City reduced them for the long term. She stated that she did not want to sacrifice the City's long-term ability to provide the services that the residents have come to expect in order to do something that might seem politically opportunistic. She indicated to Councilor Olson that the State had ways for lower income people, such as the seniors on fixed incomes who came to the Round Table, not to pay property taxes. She stated that the Council needed to see what effect putting the $500,000 towards street maintenance would have on the street maintenance fee and achieving the 70 PCI target over time. • Arts Funding Councilor Hennagin suggested allocating $105,000 because of inflation. Councilor Olson observed that the Arts funding was supposed to be funded by the Percent for Arts. She wondered, since there were no funds in the Percent for Arts, whether it should therefore not be funded. She mentioned her hope that the City would soon build new maintenance and police facilities, which would put money into the Percent for Arts. She recalled being told over a year ago that the Arts Council was working towards becoming self-sufficient, but she has seen no City Council Special Meeting Minutes Page 13 of 15 January 22, 2010 evidence of that. She stated that she would not support increasing the funding, but rather decreasing it. Councilor Tierney suggested that Mr. McIntyre incorporate into the City budget the budget that the Arts Council submitted to the Council for review. The Council, as a policy maker, could then discuss this baseline service in the context of the budget. Councilor Moncrieff concurred. Councilor Jordan recalled her earlier comment that they needed to separate the Percent for Arts from the Arts Council, as she did not believe that the Percent program was ever meant to serve as Arts Council funding. She requested a discussion with the City Attorney about the Council policy on the Percent for the Arts. She pointed out that the arts have proven to be a tourism/economic development tool for the City. She suggested funding the Arts Council at $100,000 a year at a minimum. She observed that public art disappeared in communities that failed to fund it from the City level. She mentioned the Arts Council's successful fundraising efforts outside of City funding. Councilor Hennagin mentioned his understanding that the Percent for Arts was supposed to pay for art installed in or nearby the building that paid the funds into the program. He argued that the City needed to continue its public art program, given that it was significant enough to end up on the front page of the Oregonian's Metro section. Councilor Olson asked if she misunderstood that the City's budget support would gradually decrease as the Arts Council increased its own support. Mayor Hoffman confirmed Councilor Hennagin's understanding of the Percent for Arts program. He commented that it has evolved since its inception as a statewide program adopted by individual cities. He mentioned the clear message heard from the business community at the economic workshop held at Marylhurst: the Gallery Without Walls was one of the principle attractors in the downtown driving retail business. In light of the significance of the arts, he supported a $200,000 funding level as an investment in adding to the value of the community and to the economic development of the city. Councilor Johnson concurred with Councilor Jordan about separating the Arts Council from the Percent for Arts and funding them separately. She indicated that she did not want to increase the funding level without figuring out where the arts fit into economic development. The majority of the Council agreed with Councilor Tierney's earlier suggestion. Councilor Olson stated that she was not questioning the value of the arts, but she wondered whether her understanding was wrong that the City would reduce its funding as the Arts Council increased its outside funding. Councilor Jordan commented that, while that had been the original intent, there was never any basis for understanding how that would happen. Councilor Olson indicated that she would like to see the history of the funding. • Foothills Development Plan Mr. H rtzberg noted the assumption that the funding for this would come out of reserves based on the budgeting principles that Council has not yet adopted. Mr. Williams clarified that staff would budget $1.1 million for this item in the FY 2010/2011 budget. The estimated $1.5 million cost included the $400,000 carried over from the FY 2009/2010 budget. The City should get $500,000 of that cost back in FY 2010/2011, making the net cost to the City $1 million. Councilor Jordan asked to keep in mind during the street maintenance fund discussion tomorrow that the City could use those funds to maintain pathways, even though the City has never used the funds for anything other than the road surface area. Mayor Hoffman mentioned another discussion item of whether to use the motor vehicle fee/gas tax only for capital with any maintenance coming out of the street maintenance fee. 4. ADJOURNMENT City Council Special Meeting Minutes Page 14 of 15 January 22, 2010 Mr. Hertzberg adjourned the meeting at 4:50 p.m. Respectfully submitted, Robyn C ristie City Recorder APPROVED BY THE CITY COUNCIL: O"ne 1,x2010 . JacIy�FToffman, City Council Special Meeting Minutes Page 15 of 15 January 22, 2010