Finance Committee - February 18, 2025
The Regular Meeting of the Finance Committee of the City of Fargo, North Dakota, was held in the Commission Chambers at City Hall at 10:00 a.m., Tuesday, February 18, 2025.
Commissioners present or absent were as follows:
Present: Kolpack, Piepkorn, Strand, Turnberg, Mahoney.
Absent: None.
Staff attending: City Administrator Michael Redlinger, Assistant City Administrator Brenda Derrig, Water Utility Director Troy Hall, Assistant Finance Director Jamie Bullock, Finance Director Susan Thompson.
Mayor Mahoney presiding.
Order of the Agenda:
Commissioner Kolpack moved the Order of the Agenda be approved. Second by Strand. There was unanimous approval.
Minutes:
Commissioner Turnberg moved the Minutes from the January 21, 2025 Finance Committee meeting be approved. Second by Piepkorn. There was unanimous approval.
4Q Year End General Fund and Preliminary Financial Sales Tax Report:
Ms. Thompson said through January, revenues exceeded expenses by about $1.1 million and going into February, she is still waiting on final payments from the State. She said there is State aid and also the highway tax and some grant applications coming through and in November, the City Commission approved any excess to go to Transit. She said at the end of the year she is projecting the City will have revenues and excess expenses of about $340,000.00.
In response to a question from Commissioner Kolpack asking about the approved budget total for 2024, Ms. Thompson said every time the Commission approves a budget adjustment, those amounts are added and subtracted throughout the year. She said a lot of the adjustments are due to staffing and what happens over the course of a year.
Ms. Thompson said the audit will start in March and she should have final information at the end of the June. She said sales taxes through November shows some increases, with year-to-date growth of 3.4%. That number is below 2022 and 2023, she stated; however, those were COVID rebounds and she is happy to see the 3.4% increase.
Budget 2026 Timeline, Process, Guidance:
Ms. Thompson said as far as the budget process, she would like to discuss what worked and what did not work last year and what things the Committee wants to change. She said she wants to make sure the Committee is focusing on cash balances and suggests a line item be added for a fund balance increase. She would also like to incorporate compensation discussions, legislative property tax initiatives and a balanced approach to incorporating the new public safety sales tax, she stated.
Commissioner Kolpack said there are opportunities for being very transparent about the budget; however, she wants to tell the story throughout the entire process so the community stays engaged and understands the challenges facing the City.
Ms. Thompson said a preliminary budget calendar includes upcoming Finance Committee meetings, dates for department meetings and dates for the Mayor’s preliminary budget presentation, public hearings and final approval. She said the public safety sales tax is going to be a big part of the conversation going forward and until compensation is decided, the budget will not be able to move forward; therefore, it is important that a timeline is set as soon as possible.
Commissioner Kolpack said both chiefs have met and are working on what recommendations they will bring forward.
Ms. Thompson said she would prefer if there was an overall joint proposal rather than two different proposals. She said due to the fact that Finance is in the middle of ERP and is also working on a new timekeeping system, it would be beneficial to get the budget wrapped up earlier this year and would also give Finance more time to spend on the budget book to make it more explanatory. She will send out instructions to each department with a spreadsheet to enter budget requests and explain ideas and priorities, she stated. She then presented charts outlining revenues and expenses and explained that the budget starts with the general fund, and each of the revenue sources includes issues that need to be addressed. She said the first is property taxes and the initiative in the Legislature would cap the budget at 3% revenue growth, which excludes any new community growth. She said she did the math and using last year’s numbers, 3% is $1.3 million and Fargo’s growth has averaged about 3%. She said for this illustration it shows the City has about $2.5 million of property tax revenue that could potentially be used to fund the budget next year. The new item will be the public safety sales tax and how that flows through the general fund, she stated. Other issues in the general fund, she said, include franchise fees, primarily Xcel and Cass County Electric, which are capped at 5%. She said the City moved the fees from 2% to 4% recently and she does not know if there is an appetite for another increase. She said it has been a mild winter again this year, so fees are quite a bit less than what was budgeted. She said licenses and permits are another big component and she leans on Inspections and Engineering to help project that, which is based on rates and she wants to be sure the fees are covering all of the City’s expenses. She said those are also based on the economic outlook and with higher interest rates and the cost of components, she wants to know what can be expected for building and related revenues. She said federal grants are primarily for the Health Department and usually accompany expenses, so that is a wash and it goes up and down depending on what programs Health is participating in. She stated the City has recognized all of the COVID and CARES funds as of the end of 2024. Other State revenue is primarily health grants, library aid, fire tax, State aid and highway distribution, she stated, which have been generally flat. She said grant revenue is for things the City charges out to local entities, such as school nurses and school resource officers. There are also charges for services, such as engineering fees, she said, as well as charges for police at the airport. She said the Engineering CIP is also a driver of the general fund revenue. She said if the City is doing big projects, there are fees that come through and if it is a lighter engineering year, of course there are less fees. She said there is a miscellaneous account that includes interest income and the City does benefit from investing Diversion money; however, next year some contractor payments for the Diversion will be made, so that balance will decline, resulting in less interest.
Mayor Mahoney said building permits are anticipated to be the same or possibly less this year. He said the building industry is concerned about costs.
Ms. Thompson said the City charges fees and does not want to be at the top of the fee structure; however, the City needs to be sure it is covering costs. She then went through a chart outlining the major buckets for expenses. She said salaries are 70 percent of the general fund and annual step increases cost the City an estimated $1 million. She said whatever implications there are with the public safety compensation plan, the conversation must also include the compensation plan for non-public safety employees. Health insurance costs the City $10 million each year, she stated, and for each 1 percent increase in rates, it costs the City another $100,000.00. She said another big component is pensions, which was about $5 million last year. Other Services, she said, is a hodgepodge of expensive things such as legal services, consultants, the City’s contribution to MetroCOG, IS costs, security, parking enforcement, banking fees, cleaning, snow removal, the jail contract and community partnerships and assistance programs. This year, she said, she is going to be thoroughly looking at the Other Services bucket, particularly the use of consultants. She said there are usually three reasons why the City uses consultants: someone is too busy and needs someone to do it for them; it is too complicated and technical expertise is needed; or it is something someone has the time and ability to do, yet it would be better perceived if it comes from a third party. She said energy is another large expense, which is largely out of the City’s control. Repairs and maintenance, which includes facilities contracts and IS annual software licenses, last year cost about $1.6 million. She said it was discussed last year during the budget that the world is moving more toward cloud-based subscriptions, which have become very expensive. She said as the City moves to the new finance software system, she is going to be strategic on how IS-related items are coded in order to keep track of all of them. She said she is working on a master software list to make sure there are no redundancies and the City is using everything and that will be one of the hot talking points this year. She said supplies are largely out of the City’s control and include a wide range of items including medical supplies, books for the Library, uniforms, ammunition, tools, sand salt, cleaning products and all of those items are at the mercy of inflation. For travel and education, she stated, some responses she has received is to re-evaluate those items and learn more about online training possibilities and rotating training opportunities among employees. The bulk of Professional Services, she stated, is insurance such as NDERF, which is the City’s liability insurance, plus property and cyber insurance. She said Miscellaneous includes employee wellness, employee recognition and safety. She said there is also the Debt Service bucket, which includes payments for the fire and police stations, City Hall, the Public Health building and the subsidy to Transit. She said Capital is anything over $10,000.00 and most of those items go to the Fund 475 and the last item is a placeholder to demonstrate the City’s commitment to increasing cash balances. She would like to show that the budget has revenues in excess of expenses, she said, so that can boost cash balances. She said one of the conversations held last year was to get back to the basics and the core mission and to determine what is the function of government. She said there was also talk about what requires excellence, what can be good enough and what does not need to be done. She also talked about rebuilding from possible budget decreases in that past and on what the City is trying to get caught up.
Commissioner Kolpack said she would like the Cabinet to come back to the Commission with a strategy that identifies the priorities and the recommendations for each department, including a personnel plan to support that strategy, whether it is a three or five-year rolling strategy that can come back to the Commission for consideration. She would ask the Cabinet to provide those priorities from each department and in addition to the personnel plan, she said she would like to see the associated capital strategy and what does that look like five years out so the Commission knows what is coming. She said the Fire Department has been working on that for a while, there will be a study on the capital needs for the next 10 years. She said there are also projects in Utilities and we have to start with the strategy with the priorities coming from Cabinet to meet that strategy and those priorities, what are the personnel and capital needs, how do we map that out from a revenue and an expense perspective, so those would be my requests.
In response to a question from Commissioner Strand asking if any of the Federal mandates and executive orders will have an impact on the City, Ms. Thompson said she is watching that and does not anticipate any significant issues; however, a lot of the City’s funding from the State is passed through from the Federal government.
Mayor Mahoney said he is anticipating even with things standing still, the budget will be at $136 million with $4 million for steps and other items.
Commissioner Piepkorn said if the City follows what is happening nationally, the State and the City get a lot of funding from the Federal government and he would anticipate that the City will be doing a lot of reductions.
Commissioner Turnberg and she would like to see the City get back to its core mission. She said residents are fed up with so seeing so much spending and wants to see a decrease in spending. She said with what just happened with Fargo Parks and the huge increases that were proposed, which created a lot of uproar, the City needs to streamline. When Commissioner Strand proposed cuts last year, there were all sorts of expenses that she had no idea about, she said, and perhaps the City needs to cut back and not provide all the extras.
In response to a question from Commissioner Strand asking about some of the ongoing efforts and what are some of paths the City is on that cannot be abandoned, Mr. Redlinger said there are some metro wide projects that need to continue; however, there are some choices that we will have to be made, such as the hiring plan for 2026, which may have to be more austere, and what additional efficiencies can be realized.
Fixed Meter Fee Rates:
Water Utility Director Troy Hall gave a presentation on fixed meter fee rates, stating the City has replaced 5/8-inch residential meters with 3/4-inch meters as a City standard practice over the last several years. He said prior replacements were due to either existing meter failures or customer request. The City is undergoing a system-wide AMIU meter replace project, he said, where all 5/8-inch meters will be replaced with 3/4-inch meters. Since starting the project, he said, the Utility has been evaluating the minimum meter charge ahead of the replacement project. Minimum water rates in 2025 are $10.40 for the 5/8-inch meter and $20.20 for the 3/4-inch and the goal is to minimize impact to residential water users, especially in the core neighborhoods and he presented three alternatives, including staying with the current structure, the same base rate for both size meters and to charge by the volume. He said options 2 and 3 are revenue neutral, while option 1 would increase revenue.
In response to a question from Commissioner Strand asking does the City have to upgrade meters or is it required to go the larger size, Mr. Hall said the main reason for the upgrade is to standardize inventory and parts. He said the larger meters also allow more water through, especially for homeowners or businesses with irrigation systems.
In response to a question from Mayor Mahoney asking if a blend of options 1 and 2 is possible, Mr. Hall said that could happen, he did a financial model; however, there was a rate increase for 2025, which shows revenue is adequate.
In response to a question from Commissioner Piepkorn asking, with the new meters, meter readers are no longer needed and how much money would the City save since those employees are no longer needed, Mr. Hall said two of the meter readers have been allocated to new duties so they are still employed.
Commissioner Piepkorn said he supports the volumetric option, which would give residents an incentive that if they use less water, they would spend less money. He said in the older neighborhoods it is a good idea to replace the meters; however, he asks to not make it mandatory due to the fact that many of those neighborhoods are lower-income residents and the City needs to be sensitive to increasing their costs.
Lead Service Line Replacement Project:
Mr. Hall gave an update on the lead service line replacement project and with the lead service line grant availability, there is unlikely to be another chance at this significant federal funding. He said when the City is doing a street replacement project, that is when the public site of the water line is replaced; however, homeowners are responsible for the private side, which is from the curb stop to the house. He said as a result of issues in Flint, Michigan, EPA testing levels went from 15 to 10 parts per billion and that drove a lot of the new regulations that will go into effect in November 2027. He said the City has until then to come into compliance with the new EPA rules, which is why the government has made this grant funding available for lead service line replacement. He said the City knows where the majority of lead services lines are located and there are about 2,152 in the City. He said notices were mailed to customers with known lead service lines in October with information about the replacement options and to date, more than 300 customers have requested to receive information when more program details are available. He said community benefits of the program include lowering the risk of lead exposure for future generations, it potentially improves home competitiveness when selling, helps bring construction work and grant dollars into the community and improves Fargo’s water system. He said the grant funding officially runs out in 2029 and needs to be secured by 2026. Effective October 2027, EPA lead and copper rule improvements requires all lead service line replacement within 10 years. He said the project total is estimated at $35 million, with a loan forgiveness grant of $23.3 million. The local share is $11.7 million and the loan terms are 30 years at .5% with payments beginning in about 2031. He said the goal is to have all the lead service lines out of service by 2030 or 2031, which will be a real benefit to the community. The public side is 100% City funded, he stated, and options for the private side replacement is the customer pays anywhere from $1,000.00 to $1,675.00 and the customer cost could be assessed to the property or the customer can pay in full. He said it will also be more cost efficient to bid out the project by unit cost and have certain contractors doing the work, which will be the most cost efficient. He said the process is also not too invasive, contractors drill underground and only excavate around the curb stop and the process can take as little as a few hours. He said the City will make several attempts to get information to property owners to take advantage of this great opportunity and it will result in more safety for all residents.
Adjourn:
The meeting adjourned at 11:30 o’clock a.m.