Mayor Dr. Tim Mahoney Presents 2022 Preliminary Budget To The City Commission

On Monday, July 26, Fargo Mayor Dr. Tim Mahoney presented his Preliminary 2022 Budget to the Fargo City Commission. The Mayor recognized the City’s resiliency, responsiveness and re-emergence as some of its most important and distinguishable characteristics. Mayor Mahoney stated the following to the City Commission:

"This is the 2022 City of Fargo Mayor’s Preliminary Draft Budget presentation. The presentation is designed to be informative and filled with detailed financial data. It also highlights the stories of our current success and anticipated achievements in 2022. Fargo is on a trajectory for continued success, and I am looking forward to a promising 2022 working with you and our staff.

It’s important to begin today by recognizing the process that went into this draft preliminary budget. Department and division heads worked very hard to submit their requests by early May. After that, the Budget Team assembled the requests and began its review. Meetings with Department Heads were held in late-June, early July. I worked closely with the Budget Team from early June through today. I encourage you to look at the 2022 Preliminary Draft Budget and provide your thoughts following today’s presentation. We worked very hard to make this budget presentation fully transparent and understandable.

North Dakota Century Code requires municipalities to prepare a budget each year. Fargo Home Rule Charter directs the Mayor to prepare and present the draft budget to the City Commission.

Through the work of this team of leaders (each of you), along with our excellent public employees, residents, businesses and community partners, Fargo continues to be THE regional leader across the board. We are proud of our role in the metro and what we do for our people and the neighboring communities that rely on us. We are also on the national scene as a crown jewel in the Upper Midwest – there’s no question about this. Fargo is mentioned in the same sentence as other high-performing cities in our region and beyond.

Listen to these fantastic honors that were received in the last year for this community we call homme.
Insurify ranked Fargo as the number one housing market in North Dakota. WalletHub recognized Fargo as being home to the most healthy people per capita in the entire nation. WalletHub also selected us as the number three happiest city in the country and the fourth best place for renters nationwide.
This is really exciting; for the past ten years in a row, Forbes has ranked us in the top ten best places in the United States to retire. That’s quite a track record.
This community and this organization, The City of Fargo, North Dakota, is resilient, responsive and re-emergent.

Throughout our community’s history, our resiliency has been tried and proven true...again and again. When this community faces a test, it steps up and meets the moment. The responsiveness of this organization is without question. We respond every day, in good times and in difficult ones, when our citizens and neighbors need us. Now, I’m proud to report that Fargo is re-emerging after the last 18 months of challenges brought on by the COVID-19 virus.

We are getting back to the priorities and initiatives that make us FARGO and make our citizens proud to live here. A city’s budget is a reflection of its goals: its objective. Fargo’s budget reflects our purpose and what we want to achieve for our residents. It is a budget about Fargo, and for Fargo. I spent a great deal of time thinking about my fellow Commissioners and the various goals you have communicated to me, our City Administrators and department heads over the past year as I was crafting this budget to truly arrive at something I feel is a reflection of our collective values and priorities. With that in mind, I’d like to provide you with a sense of the big projects and major initiatives on the horizon for 2022. We worked hard to centralize our efforts on six thoughtful objectives, which will challenge us to think beyond today to be aspirational in reaching the next level.

1. Attracting and Retaining a Talented Team
   Talented people are required to provide excellent service to our residents and we need to ensure we are attracting and retaining the best. There is a nationwide retention challenge in cities like ours, and we are people-powered, which is why we are committed to investing in our team.

2. Funding Essential Infrastructure
   One of Fargo’s biggest competitive advantages is its infrastructure. Pipes, roads, water mains, sanitary sewers, snow plows and lift stations may not seem flashy or exciting, but I guarantee you they are our bread and butter. That is, one of those services that we do, and we do it well. Infrastructure is the critical link to providing world-class services to our community and we need to continually invest in these areas.

3. Reinforcing Our Strong Commitments to Public Safety.
   This is another bread and butter topic. Fargo is known for its excellent Police and Fire Departments, and as a Commission we have always prioritized public safety, time and time again. This preliminary budget addresses the core needs of a growing city that needs its public safety agencies now more than ever to keep our people and properties safe. These men and women are some of our most important front-line ambassadors being asked to serve in instances of incredible danger and challenges 24/7 each and every day of the year.

4. Supporting Community Equity Initiatives
   We hear the term equity quite a bit. Let me share what I feel it specifically means in this preliminary 2022 budget. It means offering services which are fair and impartial, such as providing winter sheltering to our community’s most vulnerable. It means providing community engagement services, implementing the core neighborhoods plan, incorporating body-worn cameras in the police department, further actions on code enforcement, making permanent the position of the Director of Diversity, Equity and Inclusion and more.

5. Funding Delayed Requests Due to COVID-19
   In our 2021 budget, we enacted many defensive measures due to the uncertainties surrounding COVID-19. We suspended many capital expenditures, offered no competitive wage adjustment for our team members, froze travel and education accounts, and more. We only added two new employees in the current year’s budget. This resulted in some of the unfunded 2021 requests being carried over and included in this 2022 budget. We need to play some catchup this year to keep up with the needs of our growing city. We cannot defer these needs if we want to remain The Regional Leader.

6. Efficient and Effective Use of Federal Funds
   Through unprecedented federal financial support to aid in our COVID-19 response efforts, Fargo has been committed to leveraging these one-time appropriations to advance initiatives that will have far-reaching impacts on our community for decades to come. We’ll discuss these more in detail later in this presentation. Our metro area is progressing rapidly on two legacy projects. To me, ‘legacy’ means putting in the hard work now to protect future generations of residents from flood and drought disasters. These two projects are multi-generational.

2022 is a pivotal year for both the FM Area Flood Diversion Project and Red River Valley Water Supply Project. This upcoming year will be when we evolve from thinking and planning the FM Diversion into action – real progress that the public will see firsthand as the construction of the Diversion channel gets underway. Now more than ever, we can see the need for permanent protection from droughts. In fact, an analysis by the U.S. Bureau of Reclamation has shown that a drought similar to the one witnessed in the 1930’s would inflict a nearly $30 BILLION dollar devastation to our metro area if that were to occur again. Delivering water from the Missouri River to our valley via the Red River Valley Water Supply Project is the answer. Construction has already been started on this project and will continue in 2022.

So, let’s put those main objectives we discussed earlier to work by laying out six major initiatives for this Preliminary 2022 Budget.

1. Core Neighborhoods Plan Implementation
   While this will be led by the Department of Planning and Development, the work of this plan will intersect nearly all of our City departments in one way or another. It is directly tied into community equity. It’s about neighborhood preservation and our first coordinated, intensive effort focused on Fargo’s original housing stock and neighborhoods. This is a deliberate commitment to preserving that housing to ensure we avoid blight in the middle of our core. We want to leverage public investments with private dollars in a proactive way to enhance these neighborhoods to increase property values. A strong Fargo core means a stronger Fargo for everyone.

2. Body-Worn Camera Integration at the Fargo Police Department
   This project will truly take our excellent Police force to the next level and place it in the company of other high-performing police departments. It is critical for the accountability of everyone: our public, our officers and the media. It’s important to remember this project will also replace all TASERs in the department, as well as the cameras in the police cruisers and the PD headquarters interview rooms. It’s a comprehensive investment into our on-going commitment to transparent public safety and the trust between law enforcement and the public.

3. Investments in Street-Level Excellence
   We are only as effective as our street-level services because that is our bread and butter. This budget will fund a south side fueling station to improve response times for our public works crews, a new motor grader and truck-mounted plow to improve snow removal response efforts, new street sweepers and additional police cruisers...just to name a few. Also, did you know we just started using remote-controlled lawn mowers in our Public Works Department this year to allow us to become more efficient in doing better work, while also protecting our employees from risky situations with steep inclines? That’s just another example of street-level excellence. It’s happening here in Fargo every day.

4. Harm Reduction and Homeless Support
   We will be continuing and enhancing our efforts in Harm Reduction through our teams at Fargo Cass Public Health, the Fargo Police and the Fargo Fire Department. We are making progress in these areas and mitigating the effects of hepatitis and AIDS in higher numbers than ever before. The usage of NARCAN has been shown and proven to save lives here right in the community. We’ve come a long way, but there is more work to do, and we remain committed to doing it.

5. An Emphasis on Code Enforcement
   Another bread and butter task for our team is code enforcement. As you all know, we’ve doubled down on this and we have no intention of slowing. With Fargo being a community whose residential demographics still skew slightly towards renting instead of owning, we need to make home ownership more attainable and more attractive and that starts with the basic building block of this community: our neighborhoods. We need to ensure our residents’ investments in their properties stay strong by empowering and supporting our Inspection Team’s vigorous efforts. Your home is your castle and you care what’s right next door to you. This budget further supports and enhances the efforts of the Inspections Department.

6. The FARGODOME
   Thirty years ago, a group of community leaders got together and assembled a plan to rally the community around the construction of this game changer. They said it was the right time and the right plan. It has served us well: Bison football, Garth Brooks, Pink, Monster Jam, the largest Sandbag-filling site in the nation and more. But if you listen to our FARGODOME experts, consultants and consumers of the facility, it needs improvements to maintain and expand its competitive advantage. We are falling behind our competition in Sioux Falls, Minneapolis, Grand Forks and even Bismarck. When we see our facility full to capacity (18,500 for football games or 22,000 for concerts), the restrooms, corridors, entryways and facilities are no longer enough. During concerts such as Garth Brooks and Pink with a packed house, we hear countless complaints of congestion, wait times and lines.

In shows where we fill half the house, the per-person consumer spend in the arena is TWICE as much as the per-person purchases during “full house” shows.
People communicate their opinions with their dollars by simply refraining from buying things during their visits when we’re full. That is a missed opportunity for us. So, just as we heard 30 years ago, RIGHT NOW is the RIGHT TIME to do something! Rob Sobolik and his team will be bringing forward the plan to take us to that next level in the next few months and how we get there. We need it and the community of Fargo needs to retain its competitive advantage in this vital category.

Now let’s look at the major categories of our General Fund.
It’s no surprise: the bread and butter, the core of what makes us great are the people of Team Fargo. It takes people to serve our residents well, and over 77% of our General Fund is invested into Team Fargo employees. About 22% of the General Fund goes towards operating expenses; and 0.3% is invested in certain capital funding efforts.

Let’s discuss the Personnel Expenses section first. As you may recall in this year’s current 2021 budget, we only funded 2.25 General Fund employees of the 20.25 requested. Just ten percent. Those unfunded requests don’t go away and we saw many of these return as requests for 2022, along with the emergence of additional needs for this community. It is time to play a bit of catch up (as well as respond to the growth of our city) with a modest increased investment in new personnel to position Fargo for the future.

For 2022, we received requests for a total of 38 new employees funded by the General Fund and we are recommending the addition of 18 new employees (eight in public safety and ten in non-public safety areas). Let’s discuss the additions to Team Fargo in some detail because it’s important. I am proposing bringing on-board another property appraiser, a buildings and grounds maintenance attendant, a public health nurse and public health coding specialist to assist in harm reduction efforts and a senior accountant to assist in financial reporting and grant accounting efforts.

I am also proposing bringing on board a customer service and reference librarian, a building inspector, a planner to implement the Core Neighborhoods Plan and two equipment operators in public works. These are all bread and butter-focused positions for Fargo that directly improve services to the public.

For the eight recommended positions in our Public Safety departments we are creating command leadership for the future growth of the Fargo Fire Department with the addition of an assistant fire marshal and a fire training captain. This will ensure we are remaining on the leading edge of fire service excellence and keeping up with housing, commercial and industrial projects that are growing Fargo.

In the Fargo Police Department, we are committed to the vision of further aligning the department to our community with strong values and data-driven efforts. This budget puts three more officers on the street, one support specialist to assist with the body-worn camera efforts and two crime analysts to evaluate our data trends and effectively direct our policing responses.

In our enterprise funds (which are not funded through the General Fund), we saw requests for four new employees and I am recommending the addition of two. In Transit, an equipment technician to maintain MATBUS vehicles to ensure street-level excellence in another “bread and butter” operation. In Mains & Hydrants, we are recommending transferring a public works services manager from the streets budget to the main and hydrants budget. This accurately classifies this employee’s work in the correct funding category and is a reflection of our on-going efforts to be fully transparent of the realistic budget numbers and personnel necessary to carry out the work of our daily operations.

As we discussed, this year’s recommended additions really include the combination of the employees that would have been funded between both 2021 and 2022 if COVID-19 wouldn’t have occurred. We are proactively addressed last year’s deferrals and this year’s needs; and we need to do so before it snowballs into another year of deferrals and negative impacts on our residents. We cannot kick the can down the road another year.

For a side-by-side comparison, let’s discuss the additional investments in Team Fargo proposed for 2022 in the General Fund. A total of 18 new employees compared to 2.25. Maintaining our 86% employer-share of the single plan of health insurance into 2022. Increasing the employer-share of the family health insurance plan from 72% to 80% to avoid employees who are at the top of their individual step plans (which is more than 25% of our workforce) from actually receiving less take-home pay. We should promote longevity and experience, not penalize it.

In contrast to the 2021 budget (which included no competitive wage adjustment), I am strongly recommending a three percent increase for our employees in 2022. Additionally, I am supporting nearly $95,000 in reclassification requests as recommended by the City’s Position Evaluation Committee for inclusion in this 2022 budget. It is critically important to remain competitive as the Regional Leader in attracting and retaining the best and brightest to serve Fargo. Our team matters and these investments show that we understand their importance. With a slew of retirements coming in the short term, we need to put plans in place now to stay on our current trajectory and attain our growth potential.

Let’s now review the Operating Expenses section of our budget. Nearly $1.25 million in additions are recommended for funding (which includes investment in network and server technologies, the Land Development Code Growth Plan update, maintenance costs with our soon-to-be implemented public meeting agenda management system and more). I will review more of the higher-priced individual projects later.

For deductions, we won’t be requiring a lobbyist in a non-legislative year, so that item has been eliminated in the Administration budget. We continue to actively monitor and make modifications to reflect actual-spent costs to budget numbers, which allowed us to reduce budgets in the Auditor’s and Assessor’s Departments. We are seeing lower incarceration costs, so that item has been adjusted downward. We are improving budgetary transparency for our SWAT budget costs by removing these from the General Fund and placing them in a separate special revenue fund to eliminate the co-mingling of funds for this effort. Since SWAT receives funding from several other non-City sources contributing to this effort, we felt it most transparent to separate this from the General Fund. Fargo Police Department fully supports this effort. The net operating expense increases recommended for this section of the budget amounts to about $1.1 million.

Ssome of those individual projects requiring the increases within the operating expense category include:

• $100,000 (at the request of Public Works) to utilize contracted snow removal for the Industrial Park. This will allow staff to focus on new growth areas, such as the Amazon development in North Fargo.
  *The City uses many software programs and packages which require annual service agreements. These fees typically see double-digit increases each year. Following COVID, we also see a growing usage of video conferencing across our departments and the 2022 Budget helps pay for those fees as we work to maximize efficiencies across the organization.
• Additional time was added to our City Attorney’s annual budget for its prosecution services related to the rollout of Police Department’s body-worn camera project.
• A $35,000 increase in the Planning & Development budget will fund work on the Land Development Code Growth Plan Update.
• We are also representing our bread and butter here by funding $35,000 in needed repairs for equipment at Central Garage. It’s pretty simple - street-level excellence requires well-functioning equipment on our streets.

It’s now time to get into the Capital Expenses section of our budget. It’s important to remember that we have a number of different capital funds. It may seem like a lot, but the reason for that is how these expenses are funded; that is, the revenue streams are the ones that fund the capital. There are essentially two categories of capital funds:

• Enterprise (Utility) Capital
• Non-Enterprise Capital.

In The City of Fargo, we have:

• Five separate non-enterprise capital funds
• Twelve separate enterprise capital funds.

Again, it’s based on the sources of revenue, particularly with respect to the Enterprise Utilities.

There is a certain amount of capital that resides in the General Fund. The capital in the General Fund tends to be more “operating” in nature, as opposed to capital that tends to be more “one-time” in nature. For that reason in 2018, we created a separate capital fund (Fund 475) for capital items (including vehicles and equipment) that were more “one-time” in nature. It also included equipment & vehicle replacements that formerly resided in the General Fund. This helps with the annual fluctuation in the capital dollar amounts in the General Fund.

For example, the purchase of a new Fire Truck can have a big impact on the General Fund budget. It allows the Utility transfers to the General Fund to be reduced. Fund 475 represents capital that is less routine, non-operating capital. So, this capital has been separated from the General Fund. It has also allowed us to better manage the spending associated with those items because they are more easily tracked under the same fund designation. The revenue sources for Fund 475 are utility transfers, primarily the Water, Wastewater and Solid Waste Utilities. In doing that, the transfer burden on the Utilities was decreased somewhat, but has been rather consistent over the last decade.

Now let’s showcase some individual projects within these capital recommendations. Within fund 101, we are including funding for our fire department’s drone program, which has proven incredibly valuable in firefighting AND investigations, along with funding Inspections software upgrades and a replacement of the crime scene investigations camera at Fargo PD. Also, we’re funding a vitally important facilities master plan for our public libraries.

In fund 219, we are including funding to replace the HVAC of the Downtown Skyway system.

Within fund 241, we are including a software update for the RoCo and Mercantile ramps.

Fund 403 includes funding our Geographic Information Systems software needs, which permeate so many of our departments’ daily work.

In fund 475, you see:

• The motor grader for a new snow removal route,
• A million dollars to fund a vitally-necessary replacement of breathing apparatus for our fire fighters
• Computer equipment and cybersecurity safeguards in the era of malware and cyber-attacks
• Setup costs for the new police cruisers
• Vehicle replacements in the street department operations.

Again, we’re all about funding our bread and butter activities here; this isn’t fluff.

A few years ago, we started asking department heads to provide a five-year capital outlay schedule in an effort to get a better handle on the building needs and requests Citywide. This helps the Budget Team see the “big picture” so I can recommend an efficient and timely capital budget. Since building-related capital is usually for larger expenses and are typically financed through a bond sale or loan, we thought it made sense to categorize these as “debt-funded” capital. The thought was to treat these requests similar to the state revolving fund (SRF) loan programs, where, each year, you submit projects (for which you’re “considering” seeking SRF loan financing) to get it placed on what’s called an Intended Use Plan (IUP). Once on the IUP, it doesn’t mean it’s funded, but the SRF program uses it as a planning tool and knows what requests are out there.

To actually receive funding, you need to submit a follow-up application to be reviewed and approved before it’s funded. We would like to operate similarly with Fund 402. So what you see in the budget is our version of a debt service capital intended use plan. Ultimately, those that would be subsequently approved for funding would be financed through a bond sale (or loan) with an annual debt service requirement. Revenue for the debt service fund is proposed to be initiated through a transfers from the Metro Cities ARP allocation in 2022.

That will allow us to establish a fund balance in 402 to satisfy debt service obligations going forward. The fund balance could also be supplemented by proceeds from the sale of City-owned property such as Mid-America Steel, the former Police Building, the former Public Health Building, Park East Property, etc. If the proceeds from a Metro Cities ARP transfer or City-owned land sales were placed in a debt service capital fund, it may be a way to address some of the annual debt service requirements. You can see that this total of projects listed is about $6.5 million dollars.

This budget includes a $2 million Metro City ARP appropriation to seed the beginning of the money needed to fund these items. We will now move onto the twelve different enterprise capital funds.

• Fund 501 – Water Utility
• Fund 521 – Wastewater Utility
• Fund 531 – Solid Waste Utility
• Fund 450 – Water Sales Tax
• Fund 455 – Wastewater Sales Tax
• Fund 268 – Newman Outdoor Stadium
• Fund 554 – Fargo Civic Center
• Fund 570 – FARGODOME
• Fund 524 – Storm Water Utility
• Fund 528 – Street / Traffic Light Utility
• Fund 541 – Forestry Utility
• Fund 552 – Transit Utility

As we have discussed previously, The City of Fargo received nearly $22 million in funding allocations via the Metro Cities and HUD portions of the American Rescue Plan (ARP) Act. Our recommendations are to utilize about $13 million of those funds on important and impactful projects, which will positively benefit Fargo residents for decades to come. This includes the capital to fund:

• The Core Neighborhoods Plan implementation
• Site cleanup costs for the Mid-America Steel property
• Replacing the City’s core accounting and financial system
• An Engagement Center with corresponding services for our homeless residents
• A new Southside Fueling Station to improve efficiencies and response times to residents in the growing south area of Fargo
• Sheltering activities
• An Ultrafiltration Membrane buildout at the Water Treatment Plant.

The City also received a Public Safety CARES allocation and this budget includes spending about $1.1 million on:

• The Fargo Police Department reorganization plan (as presented by the Police Chief)
• Facility repairs on the current interim downtown Engagement Center building; and
• Upgrades to the Emergency Operation Center (EOC)’s technology.

The General Fund is a summation of the costs associated with executing our daily bread and butter activities to provide the citizens of Fargo the services they need and deserve. This is the primary fund in which property taxes go towards, which precisely why the Budget Team is laser-focused on maximizing resident impact on this piece of the budget. These numbers represent a thoughtful reflection of the overall budget themes and objectives discussed at the beginning of this presentation. The recommended 2022 General Fund Budget is about $104 million.

77.7% of our general fund is devoted to the salaries and benefits of Team Fargo. I’ve said it before and I’ll say it again – we cannot forget, in all these numbers, that we are people-focused first and foremost. I come to work here every day being so incredibly proud of Team Fargo and the services we offer to this community. I hope we never lose sight of just how fortunate we are to have this caliber of people serving our city.
They are truly second to none.

So now that we’ve discussed all of the expenses associated with our services, we will show our recommendations to pay for them in the Revenues section of this budget presentation. Revenues are estimated at about $104.5 million in 2022. This indicates a fully-funded and balanced budget to meet our needs. It includes:

• Increased tax revenue from rising property values (which is a positive sign for any urban community with growth aspirations).
• Increasing revenues from the State of North Dakota brought about by an improving economy.
• And you will also notice a fairly large percentage increase in the Transfers line item, so let’s touch on the two items which are included. It includes...
• A portion of the revenues from the proposed sale of the Island Park Ramp (which you will hear about at this evening’s Commission meeting).
• A revenue replacement transfer of $2.5 million from the Metro City ARP we discussed earlier in this presentation.

Property taxes are an important component of this revenue picture but...what may be surprising to some is that property taxes do not amount to even half of our General Fund revenues. We are well diversified in this (and many other) areas.

For utility fee increases, we are only recommending one increase for the upcoming year. We are recommending increases to account for costs in the Stormwater section of our organization. This change would result in a one dollar per month increase in the residential rates and a three dollar per month increase (with variables) in the non-residential rate.

There was also a request submitted to the Budget Team for an increase in the Streetlight section to expedite the LED streetlight conversion project. We decided to wait on this effort until we can see the result of ongoing, bipartisan discussions in Washington on a federal infrastructure bill. If this legislation is passed, we anticipate it being especially relevant to this effort and could eliminate the need for a future utility fee increase. So, we are in a bit of a holding pattern on that for the next few months.

The City has the ability to levy 64 mills to fund governmental operations and we are currently utilizing 53 of those. I am not proposing any increase in City mills in 2022 for Fargo residents. The City Commission has had a stable City mill levy history in the past several years, as shown in this chart. In fact, mills have been reduced by 5.25 since 2013.

I know that we oftentimes dive into the nuances of government expenses and it can sometimes lead to information overload. In consideration of that, I asked our Finance Team to conduct an analysis with a different view on our spending. That is, how much is the cost of local government to our taxpayers?

If you think of a dollar bill as representing 100% of the average Fargo household’s gross income, the cost that household pays for City services amounts to a nickel.

One nickel. And in Fargo, perhaps it’s a buffalo nickel, right?

But seriously, approximately 5% of the average Fargo household’s gross income pays for City services. I’m proud to say that our households in Fargo are getting their value out of this resilient, responsive and re-emergent local government as we strive to meet and exceed our commitment to the Fargo community.

During the next ten days, I encourage you to review the draft 2022 Budget with your liaison departments. Please discuss any suggestions, comments or questions with our department heads and City Administration. They will consider your recommendations and the Budget Team will work through potential inclusions into the revised draft brought forward for your ultimate approval.

I’d like to conclude by acknowledging that Fargo’s story of success really belongs to those who make all of this possible.

• Our Residents
• Our Businesses
• Our Neighboring Communities
• Our Community Partners
• Our Visitors.

These are the ingredients that allow us to be The Big City with an Even Bigger Heart.

We are grateful and honored to be given the opportunity to lead this community and provide it with the high-quality services it deserves. As a team, let’s work together to get this budget done and to deliver for the Fargo community in 2022!