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Mayor Mahoney Presents 2023 Preliminary Budget To The City Commission

07/29/2022

On Thursday, July 28, Fargo Mayor Dr. Tim Mahoney presented his Preliminary 2023 Budget to the Fargo City Commission. The Mayor highlighted how the support of the City’s people and services ultimately leads to continual excellence.

Mayor Mahoney stated the following to the City Commission:

"This is the 2023 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 2023.

Fargo is on a path for continued success, and I am looking forward to a promising 2023 working with City staff. It’s important to begin 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 and early July. I then worked closely with the Budget Team from early-June through today. 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, and the 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, 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.

Accolades
We are also on the national scene as a crown jewel in the Upper Midwest – there’s no question about that. Fargo is mentioned in the same sentence as other high-performing cities in our region and beyond. We have received fantastic honors in the last year for the community we call home…
• Wallethub recognized Fargo in the top ten least stressed cities.
• Forbes ranked Fargo in its ten best places to retire – and we are the ONLY city to have received that designation consecutively for over 10 years running.
• Wallethub also recognized Fargo for being in the top fifteen best places for renters.
• Livability classified Fargo within its top 100 best places to live.

Through our people and the world-class services we deliver, we provide the backbone to allow this community to truly flourish.

Legacy Projects
Our metro area is progressing rapidly on two legacy projects. To me, ‘legacy’ means putting in the hard work now – all of us – to protect future generations of residents from flood and drought disasters. We have two projects underway which are truly multi-generational. 2023 is a pivotal year for both the FM Area Flood Diversion Project and Red River Valley Water Supply Project.
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 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 2023.

In my opinion, we have six major initiatives for 2023:

  1. Prioritize the retention of Team Fargo.
  2. Ensure street-level excellence.
  3. Bolster operational resiliencies.
  4. Emphasize smart growth.
  5. FARGODOME expansion.
  6. Advance a Performing Arts Center.

General Fund
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 75% of our General Fund is invested into Team Fargo employees. Salaries and benefits to our staff are the key to the successful services provided by our City. About 24% of the General Fund goes towards operating expenses; and 0.3% is invested in certain capital project funding efforts.

Personnel Expenses
Team Fargo offers fantastic service – day in and day out. This happens across our organization constantly. We continue to be guided by three core principles for our team: recruit, reward, retain.

The City of Fargo has utilized a needs-based, focused approach to new position requests this year. Consistent with previous budgets, we are investing in core people to help them deliver the backbone services that our residents expect and celebrate.

• In our Street and Sewer Division of the Public Works Department, we are adding an additional Equipment Operator for snow removal services, street cleaning, and maintenance.
• In Engineering, we are bringing in new full-time employees to fill current contract positions. This is a cost neutral move for the City and will improve outcomes on the street.
• In Finance, to bolster our ranks, we are recommending the approval of a new Assistant Finance Director to help Team Fargo transition to a new technology platform (ERP) and to continue to serve our Departments.
• As we grow our new Diversity, Equity, & Inclusion Department, we are recommending a Program Coordinator to assist Dr. Hogan with his important work, and to add to our emerging DEI activities.
• In Human Resources, like Finance, we are recommending a new Assistant HR Director to help grow this team and to meet the needs of Team Fargo throughout our excellent organization.
• And finally, our best practice work in the Harm Reduction program within Fargo Cass Public Health, a model for the Upper Midwest and – frankly – the country, needs some help on the streets. To meet the needs of a growing Fargo, we need to have more people out on the street to meet our clients where they are, and where they need us. This additional staff will make sure we have our people ready to serve when the need is there.

I am proud of our utilities in The City of Fargo, and I am recommending two modest position additions in these areas.
• In Traffic Engineering, a position to assist our team maintain our ever-expanding network of street lights throughout the community.
• In the MATBUS Transit Department, a maintenance position to make sure our buses are safe and ready for the road to serve our residents and businesses.

This is the summary of Team Fargo, with my recommendations for the 2023 Budget. At just over 1,000 employees, Team Fargo serves the public day in, day out with the high-quality service that we are known for.

Our people are the story of our success, and I want to provide a high-level summary of our investment into personnel in 2022 and 2023. In the table on Slide 12, you will see the New General Fund employees we have added in 2022 and 2023, along with the Competitive Wage Adjustment provided in both years of 3.5% each year. For 2023, a 3.5% competitive wage adjustment equates to approximately $2 million for General Fund employees.

A few weeks ago we received the results from a market study that paint the picture of where our people are relative to their peers in local government. This was a huge undertaking by our Human Resources Department. In addition to implementing portions of this new market study, we are also moving forward with steps on our employees’ anniversaries and reclassifying positions when workloads increase, and the corresponding responsibilities. As you will see through the totality of these substantial investments, we are taking care of our people today – and their future tomorrow – by retaining our talent and sending a clear message: You matter to Team Fargo.

Slide 13 illustrates a strong history of building up and bolstering our public safety teams. Here’s an interesting fact – nearly 25% of the Fargo Police Department’s current full-time staff members have been added in the last ten years. For 2023, staffing Fargo Fire Station #8 will be brought on with Commission approval at a time to correlate with opening of new station. For 2023 at FPD, we will continue working with Chief regarding ongoing discussions of staffing and needs. Priorities are to fill vacant positions and support current staff – with adjustments to the pay scale. Both departments will be funded to undertake mental and physical well-being at work: mental health initiatives and comprehensive baseline physicals for better tracking the health trends of our first responders.

We continue to consistently evaluate both the short-term need and the long-term implications of adding new public safety employees.

Our community embraces its public safety agencies and we need to ensure we are looking at more than just salaries and employee headcounts. We need to ensure the details of serving our existing public safety responders are prioritized in this organization.

In addition to the items just mentioned, we are proposing the allocation of over $300,000 in CARES Public Safety one-time funding for immediate and long term needs for our two public safety agencies, ranging from wellness care to our existing personnel to facility planning efforts.

Operating Expenses
In the photo on Slide 15, we see Darrell, our Water Mains and Hydrants Foreman, performing hydrant flushing in one of our neighborhoods. We’re working for you – always.

Before we get into the big picture overview, we wanted to get into a few highlights of the operating expenses which are unique and new.
• Downtown Engagement Center – nearly a half of a million dollars.
• Suicide prevention with Fargo Cass Public Health and FPD.
• Conducting smaller market studies in Human Resources each year instead of waiting a few years to do an organization-wide assessment.
• We also are tracking inflationary measures and other aspects which are impacting our operating budget this year.
• Fuel and energy – nearly a half million dollar increase.

Slide 17 shows the changes proposed within each department’s operating expenses.

Over $3 million in additions are recommended for funding. These numbers are the result of considerable forensic review by our Budget Team. Below are the three highest departmental increases:
• The Street Department’s $427,000 increase largely reflects new snow contracts, Cleanup Week and increased fuel costs.
• The Fargo Police Department’s $407,367 increase reflects higher fuel costs for squad cars, which are driving around town 24/7, the mental health initiative we mentioned previously and annual software subscription fees.
• For Social Services, you see an increase of $346,421 for Harm Reduction Services. In the prior two years, this was funded via COVID-19 funds and this is the first year you will be seeing it as a cost within the General Fund budget. This is the third year of our three-year community commitment.

As we all know, we have two seasons in Fargo – winter and road construction. We need to fund heavy equipment to make these world-class services possible!

Capital Expenses

Now…just so we’re all on the same page, 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: non-enterprise capital, enterprise (utility) capital; and in The City of Fargo, we have: four separate non-enterprise capital funds; and ten 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.

Here are some highlights of the recommended capital items. Through COVID, we saw the importance of virtual conferencing; and we’re expanding that with this budget. A new motor grader would be used for expanded snowplowing zones. Integrating more City utilities into our unified GIS system will better serve residents. Other capital items include facility improvements across the organization. And – a Budget Team favorite – the Zodiac boat for the Fargo Fire Department.

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 reserved for larger expenses and are typically financed through a bond sale or loan, we thought it made sense to categorize these as “debt-financed” 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.

Slide 22 includes the first six enterprise capital funds and the recommended capital funding amounts included in this 2023 Budget.
• Fund 501 – Water Utility
• Fund 521 – Water Reclamation Utility
• Fund 531 – Solid Waste Utility
• Fund 450 – Water Sales Tax
• Fund 455 – Water Reclamation Sales Tax
• Fund 570 – FARGODOME

Slide 23 includes the remaining four enterprise capital funds and the recommended capital funding amounts included in this 2023 Budget.
• Fund 524 – Storm Water Utility
• Fund 528 – Street/Traffic Light Utility
• Fund 541 – Forestry Utility
• Fund 552 – Transit Utility

Slide 24 shows the full roll-up of the General Fund expense projections. 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, deserve and demand. This is the primary fund in which property taxes go towards, which is 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 objectives discussed at the beginning of this presentation. The recommended 2023 General Fund Budget is proposed to be about $113 million.

Slide 25 shows a graphical representation of the table you just saw. This high-level executive summary clearly indicates that 75.9% 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. And 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.

Revenues
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 2023 Budget presentation. The table on Slide 27 showcases revenues estimated at about $113.1 million. You can see a variety of the changes that have occurred over the past year. We are seeing an increase in property taxes proceeds. State aid payments are projected to increase by over 30 percent, which is very beneficial for this Budget. We acknowledge and appreciate our partnerships in Bismarck and across the state which have made this possible. You will notice a decrease in our transfers because a portion of the money generated by the sale of the Island Park Parking Ramp was included for the 2022 General Fund Budget in this category.

During last year’s Preliminary Budget meeting, Deputy Mayor Piepkorn called for a substantial portion of the proceeds generated through that ramp sale to go back into the parking fund instead of all proceeds being placed into the General Fund. That was an excellent suggestion and we incorporated it into the final 2022 Budget.

Again, this is a graphical roll-up of the high-level executive summary of the City’s estimated revenues for the 2023 Fargo General Fund. 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.

Fargo continues to be the regional leader, especially in the regionalization of utilities for our metro. We are proposing increases to utility fees this year; we need to.

We are seeing hefty increases (nearly 25%) in the fees for the chemicals, equipment and supply costs associated with the operation of our utility systems. Energy costs have increased up to 45%. As a result, we are recommending two increases to our residential customers. The first is a $2.50 rate increase in water rates for the average residential home. The second is a $2.50 rate increase in water reclamation (wastewater) fees for the average residential home. These charges will amount to an increase of less than 10% of an average homeowner’s monthly bill, even though our costs are increasing by a much higher percentage.

How did we do this? By regionalizing our utilities with neighboring communities and maximizing economies of scale.

We are also recommending a $5 per ton for commercial tipping fee charges at the Landfill, but will not have an impact on our residential customers.

The City does has the ability to levy 64 mills to fund governmental operations and we are currently utilizing only 51 of those mills. The Municipal Airport Authority is requesting to continue seeking two mills from our property owners.

We are proposing a two-mill increase in City mills in 2023 for Fargo residents. The 2023 value of a Fargo mill is $715,833, which is an increase of $55,000 from the 2022 value. The City Commission has had a stable City mill levy history in the past several years, as shown on the chart on Slide 30. In fact, mills have been reduced by 3.25 since 2013.

We have done this against the backdrop of rapidly rising costs, increasing the number of employees within Team Fargo, expanding our world-class services and serving a community which has grown exponentially every year.

I think it’s very important to consider the impact this proposed increase mill levy would have on our homeowners. When you take into account the most recent median home value of the Fargo metro of $225,600 (as identified by the FMWF Chamber), this two-mill bump would equate to an annual increase of only $20 in property taxes. Raising taxes is not something I take lightly – period.

When considering the impact of inflation on our daily operations, the need to invest in our people and the excellent services funded through this Budget, I truly believe this increase (which is about the same as the cost of one large pizza) is a great return on investment for Fargo residents.

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 view a dollar bill as representing 100% of the average Fargo household’s gross income, the cost that household pays for City services amounts to about 4.84 cents on the dollar. That’s even a decrease from last year’s presentation.

I’m proud to say that our households in Fargo are getting their value out of this local government as we strive to meet and exceed our commitment to the Fargo community. This return-on-investment is simply outstanding!

During the next week, I encourage you to review this draft of the 2023 Budget with your liaison departments. Please discuss any suggestions, comments or questions with our department heads and City Administration. They will consider your input 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 community partners, our neighboring communities and our visitors.

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 2023!"