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Request for Council Action And REQUEST FOR COUNCIL ACTION Date: 03/25/19 Item No.: 7.a Department Approval City Manager Approval Item Description: Joint Meeting with the Finance Commission to Receive New Recommendations 1 BACKGROUND 2 At the September 17, 2018 joint City Council - Finance Commission meeting the Council directed the 3 Commission to continue working on their previous recommendation to establish new measures associated 4 with the Capital Improvement Plan (CIP) review process. 5 6 The Council may recall that at various points in prior discussions on this topic, the Commission 7 recommended that the Council establish CIP priority rankings which eventually evolved into priority 8 guidelines. The Commission later recommended the establishment of new CIP categories that would be 9 subject to varying levels of review and purchasing authority. This latter recommendation was presented 10 at the September 17, 2018 joint meeting. 11 12 During this meeting, some councilmembers expressed an interest in having a standardized approach for 13 reviewing the City’s capital needs as well as the best management practice of periodically reviewing 14 capital asset-related policies and strategies. At the same time, there was strong support amongst the 15 Council for retaining the current $5,000 City Manager purchasing authority. Comments were also made 16 with regard to capital-related decisions take place outside the CIP conversation and how those decisions 17 may also warrant a revised review process. The minutes from this meeting is included in Attachment B. 18 19 Since the September Joint Meeting, the Commission held follow-up discussions at their November and 20 December 2018 meetings as well as their February and March 2019 meetings to incorporate the additional 21 guidance received from the Council. Copies of the staff report and minutes from those meetings are 22 included in Attachment C. 23 24 Based on those continued discussions, the Commission’s revised recommendation is highlighted below. 25 26 27 Page 1 of 3 28 RECOMMENDATION: Establishing New Procedures Associated with Selected Capital 29 Asset Categories 30 The Finance Commission is recommending that the City Council establish new evaluation procedures for 31 the following: 32 33 . Higher-cost, asset additions valued at $500,000 or greater 34 . Higher-cost asset replacements valued at $500,000 or greater that feature substantial changes 35 from their original size, functionality, or purpose 36 37 In addition to these new up-front procedures, the Commission further recommends adding a look-back 38 procedure that would determine whether the asset additions/replacements as defined above produced the 39 expected outcome. The look-back timetable would vary by asset type or initiative and would generally 40 feature the following parameters (where applicable): 41 42 . Estimated vs. Actual acquisition costs 43 . Estimated vs. Actual on-going operational costs 44 . Estimated vs. Actual utilization 45 . Estimated vs. Actual program outcomes 46 47 Finally, the Commission recommends that these new procedures be memorialized in the City’s Capital 48 Investment Policy. A draft version of the revised Capital Investment Policy that reflects the Commission’s nd 49 intentions is included in Attachment A in markup form. The revision is referenced as the ‘2 Proposed 50 Revision’ to distinguish it from the proposed changes that the Commission had advocated at the most 51 recent joint meeting with the City Council in September of 2018. 52 53 In addition to general language changes, the revised Policy includes two exhibits as described below: 54 55 . Exhibit A features a sample fiscal note for the Document Archival & Retrieval system using 56 hypothetical numbers. 57 . Exhibit B features a sample fiscal review for the Neighborhood Park Building using hypothetical 58 numbers. 59 60 Members of the Finance Commission will be in attendance at the meeting to present their 61 recommendations. 62 POLICY OBJECTIVE 63 See above. 64 FINANCIAL IMPACTS 65 Not applicable. 66 STAFF RECOMMENDATION 67 Not applicable. 68 REQUESTED COUNCIL ACTION 69 The Council is asked to receive the recommendations from the Finance Commission and determine the 70 appropriate next steps. 71 72 Prepared by: Chris Miller, Finance Director Page 2 of 3 Attachments: A: Draft Revision to the Capital Investment Policy B: Minutes from the Joint City Council-Finance Commission meeting on September 17, 2018. C: Staff Reports and Minutes from the Finance Commission’s November & December, 2018 meetings; and February and March 2019 meetings. Page 3 of 3 Attachment A 1 Capital Investment Policy (March 25, 2019 2nd Proposed Revision) 2 3 The purpose of the City’s Capital Investment Policy is to ensure future capital improvements, 4 maintenance, and replacements are made when needed in a manner which is both fiscally and 5 operationally prudent. The Policy also outlines the general process for considering higher-cost 6 capital asset additions or replacement of existing assets that feature substantial changes from their 7 original size, functionality, or purpose. 8 9 The goal of this policy is to provide a stable funding mechanism for the City’s infrastructure by 10 setting aside specific resources on a periodic basis. This will ease the burden on present and future 11 taxpayers, without significant fluctuations in annual property tax levies. 12 13 It is not the intent of the City Council to fund major new facilities, which have not had the original 14 funding established either through tax increment, general taxes, bonding or other such sources. 15 The replacement funds and corresponding fund interest earnings are expected to be only for 16 replacement purposes. 17 18 Scope 19 All City departments are included in this Policy and City funds are included in the 20-Year 20 Capital Improvement Plan (CIP). The CIP identifies the timing and financing of all capital items. 21 22 Policy 23 24 . The City will develop a 20-year Plan for capital investments and update it at least every 2 25 years. 26 27 . All capital investments shall be made in accordance with an adopted Capital Improvement 28 Plan or in conjunction with a strategic or other long-term planning process. 29 30 . The City will coordinate development of the capital improvement budget with development 31 of the operating budget. Future operational costs associated with new capital improvements 32 will be projected and included in operating budget forecasts. 33 34 . The City will provide ongoing preventative maintenance and upkeep on all its assets at a 35 level adequate to protect the City’s capital investment and to minimize future maintenance 36 and replacement costs. The City should periodically review and follow industry- 37 recommended replacement schedules for all City capital assets. 38 39 . The City will identify the estimated costs and potential funding sources for each capital 40 project proposal before it is submitted to Council for approval. 41 42 . The City will determine the least costly financing and acquisition method for all new 43 projects. Page 1 of 9 Attachment A 44 45 . For future development or redevelopment proposals that require public infrastructure 46 and/or public financing assistance and/or City support services, a fiscal analysis shall be 47 prepared identifying the project sources and uses. The analysis should also demonstrate the 48 costs and benefits of the project. The cost of this analysis shall be borne by the developer. 49 50 . The City will establish departmental Vehicle and Equipment Replacement Funds. The City 51 will appropriate monies to them annually to provide for timely replacement of vehicles and 52 equipment. The amount will be maintained at an amount equal to the proportion of useful 53 life expired multiplied by estimated replacement cost. 54 55 . The City will establish a Building Capital Maintenance Fund, and will appropriate funds 56 to it annually to provide for timely maintenance of all buildings supported by general 57 governmental funding. Only maintenance which meets the capitalization threshold shall be 58 paid for out of this fund. Maintenance includes major items such as roof repair and HVAC 59 replacement. 60 61 . The City shall establish a Street Infrastructure Replacement Fund to provide for the general 62 replacement of streets and related infrastructure throughout the community. The annual 63 MSA capital allocation, will be included as a part of the source of funds for computing the 64 adequacy of this fund. This fund has been formally categorized by the Council as a 65 permanent fund, whereby the interest proceeds are only used for the stated purpose. The 66 cash reserve amount should remain between $8-12 million. 67 68 . The City shall establish a Park Capital Maintenance Fund to provide for the general 69 replacement of parks and related infrastructure throughout the community. The funding 70 should equal the proportion of useful life expired multiplied by estimated replacement cost 71 for all park system assets. 72 73 . Within each enterprise fund, the City shall establish a funding mechanism to provide for 74 the general replacement of related infrastructure throughout the community. The funding 75 should equal the proportion of useful life expired multiplied by estimated replacement cost 76 for all enterprise fund system assets. 77 78 . From time to time the City Council shall establish additional replacement funds as the need 79 becomes apparent. 80 81 . The Finance Commission will annually oversee and report to the City Council a review 82 and analysis of planned capital investments and related reserve balances. The purpose of 83 such analysis will be to gauge the health and sustainability of City reserves related to capital Page 2 of 9 Attachment A 84 investments for the short (1-3 year), medium (4-9 years), and long term (10+ years). It will 85 also take into account related borrowing and repayment costs. 86 87 . Capital Replacements should be considered using the following priority guidelines 88 rankings (in order): 89 1.
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