FY 2020 Budget

Fiscal Year 2020 Budget for the City of Spencer, Iowa

TABLE OF CONTENTS

Introduction: Mission Statement ………………………………………………………………. 4 City Map ………………………………………………………………………… 5 Organization Chart ………………………………………………………………. 6 City Officials …………………………………………………………………….. 7 Council Ward Map ………………………………………………………………. 8 Spencer Profile …………………………………………………………………… 9 Budget Overview: Finance Director’s Budget Message ………………………………………………10 Budget Development …………………………………………………………….. 20 Financial Management Policies …………………………………………………. 22 Employees by Function …………………………………………………………. 32 Budget Resolution ……………………………………………………………….. 35 Budget Certification Page ……………………………………………………….. 36 Combined Budget: Government Wide Funds …………………………………………………………. 39 Proprietary Funds ………………………………………………………………….40 Fund Summary:

General Fund Summary …………………………………………………..41 General Fund Line Items………………………………………………… 42 Restricted Cash Funds Line Items……………………………………… 48 Special Revenue Summary ………………………………………………. 51 Special Revenue Line Items ….………………………………………….. 52 Debt Service Summary…………………………………………………….54 Debt Service Line Items………………………………………………...…55 Capital Projects Summary ……………………………………………….. 57 Permanent Fund Summary ………………………………………………. 58 Permanent Fund Line Items ………………………………………………59 Proprietary Summary ……………………………………………………..60 Proprietary Fund Line Items …………………………………………….. 61 Internal Service Fund Summary ………………………………………… 66 Internal Service Fund Line Items ……………………………………… 67

Detailed Budget Information: Public Safety …………………………………………………………………….. 71 Police ……………………………………………………………………. 72 Communication Center ………………………………………………….. 78 Fire ………………………………………………………………………. 82 Building / Inspections ……………………………………………………. 88 Public Works …………………………………………………………………….. 93 Street Department ………………………………………………………. 94 Public Works Administration …………………………………………… 100 Street Lighting ………………………………………………………….. 102 Traffic Control ………………………………………………………….. 103 Snow Removal ………………………………………………………….. 104

2

Public Works (continued)

Storm Water …………………………………………………………….. 105 Street Cleaning …………………………………………………………. 106 Culture & Recreation ……………………………………………………………. 109 Library …………………………………………………………………… 110 Parks …………………………………………………………………….. 114 Campground …………………………………………………………….. 118 Aquatic Center ………………………………………………………….. 122 Cemetery ………………………………………………………………… 126 Community & Economic Development ………………………………………… 131 Tax Increment Financing ……………………………………………….. 132 Economic Development ………………………………………………… 134 Housing ………………………………………………………………….. 136 Local Option Sales Tax …………………………………………………. 138 Other Community & Economic Development ………………………….. 140 General Government ………………………………………………………………143 Mayor and Council ………………………………………………………. 144 Administration ……………………………………………………………148 Election ………………………………………………………………...…152 Legal Services …………………………………………………………… 153 City Hall / General Buildings ……………………………………………. 154 Property Insurance ……………………………………………………….. 158 Other General Government ……………………………………………….162 Debt Service ……………………………………………………………………….169 Capital Projects ……………………………………………………………………173 Capital Projects Detail ……………………………………………………175 Enterprise Capital Projects Detail ……………………………………….. 177 Proprietary ……………………………………………………………………...… 179 Sanitary Sewer ……………………………………………………………180 Airport …………………………………………………………………… 184 Solid Waste Collection ………………………………………………… 188 Landfill ………………………………………………………………….. 194 HHW Regional Collection Center ………………………………………. 196 Golf Course ……………………………………………………………… 202 Central Garage ……………………………………………………………208 Fuel Equipment ………………………………………………………….. 209 Internal Service Fund

3

Mission Statement Spencer enriches the quality of life of it’s citizens while attracting new business investments, high quality jobs and a growing populations.

Vision Statement A vibrant, thriving center of the region’s growth.

4

5

Organizationl Chart

Spencer Citizens

Advisory Commissions Planning Commission Civil Service

Library Board Airport Board

Mayor / City Council

Park Board Golf Board Board of Adjustment

City Manager

City Attorney

Deputy City Manager

Fire

Finance

Planning

Professional Services Legal Engineering

City Clerk

Police Communication Center

Library

Parks & Recreation Cemetery

Golf Course

Public Works Street Maintenance Fleet Maintenance Solid Waste Landfill Sanitary Sewer Custodial Services

6

City Officials Elected

Mayor

Kevin Robinson Tom Nelson

Councilor Councilor Councilor Councilor Councilor Councilor Councilor

William “Bill” Orrison Steve Bomgaars Leann Jacobsen

Ron Hanson

Richard “Rich” Prentice

George Moriarty

Appointed

City Manager Amanda Mack Deputy City Manager/Finance Director Brian Weuve City Clerk Theresa Reardon Police Chief Mark Warburton Fire Chief John Conyn Public Works Director Mark White Planning Director Kirby Schmidt Park & Recreation Director Delray Bredehoeft Library Director Mandie Muehlhausen Director of Golf Operations Brian Mohr

7

8

Profile of the Government The City of Spencer was incorporated as a town on March 26, 1880; and organized as a City of the Second Class on March 21, 1892. Spencer is the county seat of Clay County and is located in northwest Iowa. Spencer is located at the confluence of the Little Sioux and Ocheyedan rivers and is the regional hub for northwest Iowa. The population of the city was 11,233 as of the 2010 census and the land area covered is approximately 11.18 square miles. The city is empowered to levy a property tax on real property located within its boundaries. It is also empowered by state statute to extend its corporate limits by annexation, which occurs from time to time. Spencer is organized under the Mayor-Council form of government with an appointed City Manager, in accordance with the State Code of Iowa. The Council retains most decision making authority such as policy setting, adopting ordinances and budget and staffing levels. The City Council has seven members, five of which are elected according to wards and the remaining two members are elected at-large. All members serve four year staggered terms. The Mayor is elected at-large and serves a two-year term. The Mayor does not have a vote, but may in certain circumstances veto decisions of the City Council. The City provides the normal municipal services such as police and fire protection, street and infrastructure construction maintenance, parks and recreations, planning and zoning, library services as well as operates two cemeteries. Also provided are sanitary sewer and solid waste and recycling collection. The City owns and operates the regional landfill that serves a four county area. Electric, water and communication services are provided Spencer Municipal Utilities, whose Board of Trustees is appointed by the Mayor and confirmed by the City Council. Date of Incorporation 1880 Form of Government Mayor/Council Fiscal Year July 1 to June 30 Area of City 11.18 square miles Population 11,233 (2010 Census) Average Home Market Value $128,263 100% Property Value $801,871,574 Miles of Roadway 90.4 Fire Stations 1 Number of Full-Time Employees 5 Paid on call Firefighters 35 Police Stations 1 Sworn Officers 19 Civilian Employees 9 Employees Full Time 82 Part Time 92

9

To: Mayor and Council Members From: Brian W. Weuve, Deputy City Manager/Finance Director cc: Amanda Mack, City Manager Date: March 15, 2019 Re: Fiscal Year 2019/2020 Budget

Background Each year the City is required by state statute to prepare and adopt a budget, and shall certify taxes as needed to fund the operations of the city. Staff has analyzed revenues, expenditures and council priorities to prepare the budget and tax levy for your consideration. The final budget contained within this document represents the decisions made by the Council throughout the budget process. The budget document format this year is the same as last year. Summary information is presented for each of the fund type (i.e. General Fund, Restricted Cash, Special Revenue, Debt Service, Capital Projects, Permanent funds, and Proprietary funds). Detailed budgetary information is then presented by Budgetary Function (i.e., Public Safety, Public Works, etc.) and within each function by operating department (i.e. Police, Fire, Street Maintenance, Snow Removal, etc.). On each detailed departmental page, the allocation of the budget by fund type is highlighted. This type of budgetary presentation was chosen to demonstrate to all involved what the total monetary commitment is required to operate each department in an easy to access location. This format allows the reader to understand the full cost of each of the city’s operations at a single glance and in a centralized location. Previous budget documents had departmental information spread throughout the document. For the sixth consecutive year, staff has proposed a budget with NO INCREASE to the property tax levy. This produces no impact to residents or business in the city, absent changes in the state’s rollback formula and changes to property valuation – for which the city has no control. The budget maintains our current levy rate of $11.99999 per $1,000 of property valuation. The city continues to monitor the state’s financial condition as it is imperative to the continuing receipt of property tax “backfill” dollars. Several major changes to the state’s property tax system were made during the 2013 legislative session. For each assessment year beginning in 2013, residential and agricultural property value growth is capped at 3 percent, or whichever is lowest between the two classes (the coupling provision remains). The rollback percentage for these two classes of property changes annually based upon the growth limitation as mentioned above. This has been the case since 1978 when residential and agricultural property were first subject to an assessment limitation order or “rollback” that limits the annual growth of property values. Prior to the 2013 overhaul of the property tax system, property value growth was limited to 4 percent per year for agricultural, commercial, industrial and

10

residential properties. If property values grew by more than 4 percent, the taxable value was rolled back to comply with the assessment limitation system. (Iowa League of Cities, Budget Special Report FY 2018-19) Commercial and industrial property were given their own rollback, which began at 95 percent for valuations established during the 2013 assessment year and 90 percent for the 2014 assessment year and thereafter. The rollback percentage for these properties will remain fixed at 90 percent regardless of how fast or slow the valuations grow. (Iowa League of Cities, Budget Special Report FY 2018-19) The legislature created a standing appropriation, beginning in FY 2015, to reimburse local governments for the property tax reductions resulting from the new rollback for commercial and industrial property. This “Backfill” was funded at 100 percent by the legislature for fiscal years 2015-2018 and cities receive these funds in a similar manner as property tax revenue. Future backfill appropriations are capped at the FY 2017 level. (Iowa League of Cities, Budget Special Report FY 2018-19) The following chart displays the history of the rollback in Iowa since its inception in 1978.

History of the Rollback

120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%

Agricultural

Residential

Commercial

Industrial

Multi-Residential

As the state faces budgetary uncertainty, there is concern the state will not make good on its promise to backfill the lost property tax revenue. These funds are utilized by the city to maintain vital city services and programs. Without the continuation of these funds, the city may be faced with the decision to increase the levy rate, cut services or both. Staff will continue to monitor actions being taken by the legislature with regards to funding of the backfill. Proposals were made in the 2018 legislation session that would have begun a three to five year phase out of the backfill, depending on a city’s recent valuation growth. This legislation did not pass prior to the end of the session, however new proposals have been brought forth in the current 2019 session that will eliminate the backfill. The budget, as presented, maintains the current staffing levels within each department with the exception of the Planning Department. Based on an upcoming retirement, staff is proposing to reorganize the department and add an additional full-time staff member. This will allow the Department to better handle the inspections, nuisance abatement and planning functions. City staff believes these levels represent the

11

best balance between the need to provide the best service to the residents of Spencer and the Council’s desire to maintain an affordable tax bill. As a reminder, staff does not have a crystal ball to fully determine what will be needed in all cases for all situations. Snowfall greater than average is a perfect example of this. If greater than average snowfall is experienced, or the timing of events requires greater amount of overtime, the snow removal budget will be impacted. For this example, it should be noted, that money allocated for other routine street maintenance will be reduced due to the redirection of employees time to snow removal. If we do miss a budget projection, city staff/administration will bring that to council’s attention and explain the need for an amendment to the current budget. City Council needs to remember that a missed projection due to unforeseen circumstances is not a failure on the staff’s part, but a reason why it is hard to budget 18 months in advance of the actual expenditures. There will always be unforeseen events that will have an impact on the budget. Overall, we have a lot to be thankful for. The city continues to experience growth in the property valuations, which enables us to maintain the tax levy. While some of this growth is the result of a re- evaluation of the existing property, there is also growth due to recent new construction that has occurred in the past few years. The city continues to budget conservatively which has allowed the city to build cash reserves to meet future emergencies and needs. If not for these cash reserves, the city would be looking at an increase in the levy to meet service demands. For example, in FY 2016, the city’s overall valuation increased just $18,000, which translated into $171 in new taxes for the general fund. In FY 2016, the city was able to tap into cash reserves in order to maintain a level tax levy. Our challenges compared to other rural, non-metro, governmental entities across the state seem small. Spencer has been blessed with a growing tax base, increased housing starts, and new commercial and industrial business looking to locate or expend in our community. All of this allows Spencer to continue to offer a great quality of life at an affordable rate to our residents. Budget calendar Date Who What August 24, 2018 Staff

Distribution of FY20-24 Capital Improvement Plan (CIP) revision worksheets CIP worksheets were due to Finance Department Distribution of FY19-20 budget request worksheets to departments Review of proposed FY20-24 CIP plan Budget worksheets due to Finance Department Public Works Committee to review respect budget requests Public Safety, Progress & Development and Finance & Personnel Committees meeting to review respective budget requests Hold public hearing to discuss proposed budget and tax levy for FY 2020 and approve

September 28, 2018

Staff

November 27, 2018

Staff

December 19, 2018

Council / Staff

December 21, 2018

Staff

January 28, 2019

Council / Staff

February 6, 2019

Council / Staff

March 4, 2019

Council

12

March 11, 2019

Staff

Certify final tax levy and budget to County and State Review and approve proposed utility rate increases

April / May 2019

Council

Budget Impact Issues Wages and benefits

The city’s only collective bargaining agreement went into effect July 1, 2017. The contract negotiated a cost of living adjustment for the fiscal years beginning July 1, 2017, 2018 and 2019. The amount of the cost of living adjustment was $1,350 each year. The Council also approved a salary matrix for non- collective bargaining employees in the amount of $1,350 for non-management positions and a 2.5% adjustment for management and supervisory positions. The proposed budget has been built with these wage adjustments included. In addition to employee step increases, the impact of the increase in wages to the overall budget is $208,658, which includes the addition of the new position in the Planning Department. Initially, the earliest drafts of the budget included a 10 percent increase in health insurance rates. The actual renewal came in at 6.1 percent. To achieve this renewal rate, the insurance trust that the city belongs to had to initiate a plan design change. The city belongs to the Iowa Governmental Health Care Plan (IGHCP) which is a trust consisting of over 30 cities, counties and school districts across the state of Iowa. The city has been a member since Fiscal Year 2008, and as a result of our participation in the trust has seen an average increase in cost of 4.48 percent per year. The change adopted by the IGHCP Board of Directors, increases the fully insured out of pocket maximums. This change reduced the overall plan renewal by five to six percent. The risk associated with this increase will be borne by the City’s partial self-fund and not passed on to employees. Even with the increase in potential liability, the city does not see a need to increase the annual contribution to the partial self-fund account. No other benefit changes are anticipated or proposed for the upcoming year. As mentioned previously, one new full-time positions is being added under this budget. Internal Charges & Services As part of the overall goal to identify the costs associated with providing services to the residents, the city began to departmentalize certain additional internal service charges in Fiscal Year 2019. Beginning with the Fiscal Year 2019 budget, the city now allocates group health insurance and workers compensation premiums on a departmental basis, similar to what had previously been done with FICA & IPERS contributions. This new practice allows the city to track total costs of providing these services and without the need to estimate the amount of premium for each function. Ideally, the city would also allocate property insurance expenses utilizing this same methodology, however the premium make up provided by our current insurance provider does not allow for a departmental breakdown of their expenses. The only way to break down insurance costs is based on insurance category (i.e., liability, property, vehicles, etc.). The Finance Department continues to monitor and make inquiries regarding the use of the Central Garage stock parts account and the increasing deficit in the fund. While the overall fund should carry a deficit

13

balance based on the fact that stock parts have been purchased but not utilized, the increasing amount of unused stock being purchased is of continued concern. Revenues Revenue for many of the city’s operations remains fairly consistent. Increase in revenue is primarily coming from rate increases, service demand increases or reimbursement rate increases. The city has seen steady growth in revenue received through the Road Use Tax. The revenues that make up the city’s allocation from Road Use Taxes are comprised of two state revenues. The first is the Road Use Tax Fund which is a dedicated highway user revenue, collected through a state excise tax on fuels. The second source of revenue is the TIME-21 fund. In 2008, this additional source of state revenue was established by changing certain vehicle registration fees and schedules and by increasing trailer and title fees. These two sources of revenues are combined to create the allocation received by the city on a per capita basis. The budget being proposed for Fiscal Year 2020 will increase rates for solid waste collection, sanitary sewer rates, and the city’s combined sewer initiative (CSI) fee. The following chart outlines the proposed fee increases and impact on the residents. If the budget is approved, the Council will need to formally adopt the increase in solid waste fees. The sanitary sewer and CSI fee increases have been previously adopted by the Council.

Current Rate $17.50

Proposed Rate

Monthly Impact**

Annual Impact**

Service

% Increase

$18.20

4%

$0.70

$8.40

Solid Waste Sanitary Sewer*

$8.95 $4.67 $3.34

$9.31 $4.86 $3.47

4% 4% 4%

First 1,00 gallons Next 49,000 gallons Over 50,000 gallons

$1.12

$13.44

* Sanitary Sewer rates are per 1,000 gallons of metered water usage Combined Sewer Initiative $15.00

$16.25

8.3%

$1.25

$15.00

TOTAL $36.84 ** The monthly and annual impact for sanitary sewer rates was calculated on the average residential use of 5,000 gallons per month. Debt Service The city levies approximately $1.08 per $1,000 of property valuation to pay existing General Obligation debt. The city has a current financial model that outlines existing debt and the levy required and also demonstrates when the city has the ability to incur additional General Obligation debt while having no impact on the overall debt levy. The current debt schedule shows rapidly declining General Obligation debt and the city has issued or plans on issuing debt in the coming years to maintain the debt levy. The budget, as proposed, plans on issuing up to $2 million in General Obligation notes to cover the acquisition and renovation of the new city hall facility. Projects that will require the need to issue general obligation debt are programmed into the budget as the levy allows. 2020 - 2024 Capital Improvement Plan (CIP) The CIP is a five-year plan to provide for the acquisition of equipment and the maintenance and construction of public facilities. The 2020-2024 is prepared as a standalone document and is prepared $3.07

14

outside of the operating budget process. Since the projects identified within the CIP all have funding sources that are independent of the operating budget, this process allows both staff and elected officials the opportunity to study and discuss these projects in greater detail since the process is not competing with the operating budget discussion. The process also allows more time to be spent on reviewing and scrutinizing the operating budgets for each department. The entire 5-year CIP is approved by the Council in coordination with the operating budget, however only the projects that have expenditures identified in Fiscal Year 2020 have been included in this budget. The adopted CIP document can be found on the city’s website or accessed by clicking here. Levy Request & Impact Staff begins the preparation of each new budget with the stated goal of not increasing the overall levy rate above the $11.99 per $1,000 of valuation. The ability to maintain the levy at this rate mainly depends on two factors. The first factor is the amount of new funding being requested by the departments. The second factor is the increase in property valuation as determined by the County Assessor and any applied state modification to valuations. The city experienced 3.59 percent growth in taxable valuation for taxes payable in Fiscal Year 2020. This is on top of the 3.76 percent increase for Fiscal Year 2019. Combination of new construction and overall increases in property values account for this increase. The following chart shows the growth in property valuations the city has experienced the last two years. The valuations are displayed by property class type for both 100% valuation and taxable valuation. Taxable valuation is determined after state mandated rollbacks and any other tax credits or exemptions have been applied.

100% VALUATIONS - ALL PROPERTY

TAXABLE VALUATIONS – ALL PROPERTY

Increase / (Decrease)

Increase / (Decrease)

FY 19

FY 20

FY 19

FY 20

Property Class

537,263,740 541,079,910

3,816,170 (10,370) 3,894,971 591,410 8,341,819

298,830,866 2,031,480 166,923,753 28,228,599 20,801,552 1,914,513 (1,188,984) 518,342,495 800,716

307,971,790 2,088,499 170,429,228 28,760,868 26,067,421 1,983,140 (1,155,648) 536,964,171 818,873

9,140,924

Residential

3,731,040

3,720,670

57,019

Ag Land

185,470,829 189,363,800

3,505,475 532,269 5,265,869

Commercial Industrial

31,365,110 26,414,651

31,956,520 34,756,470

Multiresidential

889,684

909,859

20,175 68,627 33,336

18,157 68,627 33,336

Railroads

Utilities W/O Gas & Electric Military Exempt Valuation W/O G&E Utilites Gas & Electric Utility Valuation Valuation with G&E Utilties

1,914,513 (1,188,984)

1,983,140 (1,155,648)

785,860,583 802,616,721

16,756,138

18,621,676

16,010,991

16,831,408

820,417

6,042,892

6,822,997

780,105

801,871,574 819,448,129

17,576,555

524,385,387

543,787,168

19,401,781

Source: Iowa Department of Management

In terms of levy dollars, this new valuation allows the city to collect an additional $219,825 without impacting the tax levy. So, if the value of a property remained the same for Fiscal Year 2019 and Fiscal Year 2020, the homeowner would not see an increase in their individual taxes paid. The overall tax levy is comprised of several smaller component levies. These levies are used for general operations, property insurance, employee benefits and debt service. A comparison of these levy rates is as follows:

15

FY 2019 Levy Rate $8.10000 0.28827 3.00375 8.38827

FY 2020 Levy Rate $8.10000 0.25801 3.00375 8.35801

FY 2020 Dollars Generated $3,974,524

City Levy

Increase / (Decrease) $148,058

% Change

3.87% (7.03%) 2.80% 3.49%

Regular General Levy

126,601

(9,579)

Liability, property & self-insurance costs Ag Land (Not included in Total GF Levy) Total General Fund Regular Levies

6,273

171

4,107,398

138,650

Special Revenue Levies Police & Fire Retirement Other Employee Benefits Total Employee Benefit Levies

0.70451 1.82721 2.53172

0.73805 1.82393 2.56198

362,148 894,970 1,257,118

29,335 31,790 61,125

8.81% 3.68% 5.11%

1.08000

1.08000

577,666

20,050

3.60%

Debt Service Levy

Total City Levy

$11.99999 $11.99999

$5,942,182

$219,825

3.84%

Special Taxing District Levies SSMID 1*

4.0004 2.00000

4.0004 2.00000

66,248 27,109 93,357

(85) (279) (364)

(0.13%) (1.02%) (0.39%)

SSMID 2*

Total Special Taxing Districts

$6,035,539

$219,461

3.77%

Total City and Special Taxing District

* SSMID taxes are only paid by those properties located within one of the city’s two SSMID Districts. These taxes are added above the overall City levy. The impact on residential and commercial property is displayed below. The estimated impact is based on a simple calculation including the property valuation, state rollback and proposed tax rate. Individual property impact will vary based on whether the property qualifies for any tax exemptions and if the county has adjusted the property value. The graphic shows the comparison between the estimated taxes paid in Fiscal Year 2019 and Fiscal Year 2020.

Residential Property

100% Valuation

$100,000

$200,000

$300,000

FY 2019 55.6209% 55,620.90

FY 2020 56.9180%

FY 2019 55.6209%

FY 2020 56.9180%

FY 2019 55.6209%

FY 2020 56.9180%

Rollback

Taxable Value

56,918.00 111,241.80 113,836.00 166,862.70 170,754.00 $11.99999 $11.99999 $11.99999 $11.99999 $11.99999 $11.99999

Tax Rate

Estimated Taxes

$667.45

$683.02

$1,334.90

$1,366.03

$2,002.35

$2,049.05

Change due to Rollback Change due to Rate Increase Total Change per Year Change per Month

$15.57 $0.00 $15.57 $1.30

$31.13 $0.00 $31.13 $2.59

$46.70 $0.00 $46.70 $3.89

16

Commercial Property

100% Valuation

$150,000

$300,000

$500,000

FY 2018

FY 2019

FY 2018

FY 2019

FY 2018

FY 2019

Rollback

90.00% 135,000

90.00% 135,000

90.00% 270,000

90.00%

90.00%

90.00% 450,000

Taxable Value

270,000 450,000

Tax Rate

$11.99999 $11.99999 $11.99999 $11.99999 $11.99999 $11.99999

Estimated Taxes

$1,620.00

$1,620.00

$3,240.00

$3,240.00

$5,400.00

$5,400.00

Change due to Rollback Change due to Rate Increase Total Change per Year Change per Month

$0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00

$0.00 $0.00 $0.00 $0.00

Comparable Entities Below are levy rates for Fiscal Year 2020 for the city’s comparable cities. Cities listed are between the population of 9,800 and 15,000. As you can see the City of Spencer’s rate is very favorable compared to similar sized cities.

Fiscal Year 2020 City Tax Levy

$10.00 $12.00 $14.00 $16.00 $18.00

$0.00 $2.00 $4.00 $6.00 $8.00

As a city tax payer, your tax dollars also support other governmental entities. These entities include Clay County, Spencer Schools, and Iowa Lakes Community College. The chart below shows the preliminary distribution of the tax dollars paid by Spencer residents to these entities. Until the levies are certified by the State of Iowa, they are considered preliminary and may be subject to change.

17

PROPORTIONATE SHARE OF FY 2019 TAXES

County 19%

School 41%

Iowa Lakes 3%

City 37%

Conclusion It is always interesting to see the breakdown of how the public’s tax dollars are utilized. Not all of the city’s departments or expenditures are funded by property tax dollars. The following graph shows the areas that receive at least partial funding from property taxes and the amount that $1 of tax revenue will support. The general areas that receive taxes and the departments they support are as follows: 1. Public Safety a. Expenditures related to Police, Fire, Communication Center, Building Inspections, Animal Control 2. Culture and Recreation a. Expenditures related to Library, Parks, Aquatic Center, Campground, Cemetery 3. General Government a. Expenditures related to Mayor and Council, City Clerk, Elections, Legal Services, City Hall and buildings 4. Debt Service a. Expenditures related to principal and interest on outstanding debt 5. Employee Benefits a. Expenditures related to city portion of health insurance, city portion of police/fire pension, unemployment insurance, worker’s compensation insurance for non-business type activities 6. Tort Liability a. Expenditures related to property and liability insurance premiums for General Fund Department

18

Where $1 of Taxes Goes

Public Safety $0.33

Employee Benefits $0.21

Debt Service $0.10

Culture & Recreation $0.18

General Government $0.16

Tort Liability $0.02

Attached is the approved budget for Fiscal Year 2020 that includes the General Fund, Special Revenue Funds, Debt Service Funds, Capital Project Funds, Permanent Funds, Proprietary Funds and Internal Service Funds.

19

BUDGET DEVELOPMENT Fund Structure The financial matters of the City of Spencer are arranged into groups called funds. Each fund is a separate accounting activity. The funds are: Governmental Funds using cash basis accounting: General Fund is the chief operating fund of the City. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. From this fund are paid the general operating expenses, the fixed charges, and the capital improvement costs that are not paid from other funds. Special Revenue Funds account for proceeds from specific sources (other than those accounted for within capital projects funds) which are usually required by law or regulation to be accounted for in a separate fund and to be expended for specific purposes. Debt Service Funds account for money dedicated to paying the city’s bonded general obligation debt. Debt associated with proprietary funds are included in those budgets. Capital Project Funds account for the larger construction projects in the city. This includes projects for both general fund departments as well as proprietary fund departments. It also includes the city’s general capital improvement reserve fund which is utilized for a varying degree of projects. Permanent Funds account for resources that are legally restricted to the extent that only earnings, and not principal, may be used to purposes that support the City’s programs for which the resources were given for. Proprietary Funds using cash basis accounting: Enterprise Funds account for business-like activities of the city. There are five proprietary funds that include the Sanitary Sewer, Northern Plains Regional Landfill, Solid Waste Collection, Northwest Iowa Regional Airport and the Spencer Municipal Golf Course. Proprietary fund operations do not receive support from property tax dollars. Internal Service Funds account for providing goods or services to various city departments. These include the Central Garage and Fuel Equipment Fund. The Central Garage accounts for the purchase of stock parts utilized in the repair and maintenance of city equipment. The Fuel Equipment Fund accounts for the operation of the central fueling facility that is utilized by the City, Spencer Schools and Spencer Hospital. Major Funds Major funds are the funds of the city that are larger in terms of assets, liabilities, revenues or expenditures. The General Fund is always a major fund as well as the Road Use Tax Fund, Local Option Sales Tax, Debt Service, Capital Projects, Sanitary Sewer, Solid Waste and Landfill Funds. Funds considered non-major funds may be considered major for one or more years depending on the activity in that fund.

20

Budget Process The Clay County Assessor is responsible for determining the valuation of property located within the city. Valuations used for the Fiscal Year 2019 budget were established as of January 1, 2017. The county sends out new valuation notices to affected property owners for the budget that will go into effect July 1 st the year following the assessment year (I.e. January 1 2017 assessments will be used to determine taxes for the Fiscal Year beginning July 1, 2018). Residents have the ability protest their valuation statement to the Clay County Local Board of Review by filing a petition for review prior to April 30. The City’s budget process begins in late summer for the following year. The five-year Capital Improvement Plan is prepared by departments and brought to the Council in early November. This document is approved by the Council in conjunction with the budget in March. Preparation of the operating budget begins in December when the Department Directors are given their budget request worksheets to complete. The Finance Department completes the salary and benefit projections for all departments as well as general revenues. At this time, the city also updates the five- year financial model for the sewer, solid waste and landfill operations. These forecasts models assist in preparing the budget and in determining the any rate increases needed to fund operations. Management and City Council review the proposed budget and tax levy beginning in January. Each department is assigned to a specific Council Committee for the budget review process. The assignments are as follows: Council Committee Departments Responsible For: Public Safety Police, Communication Center, Fire, Building Inspections Public Works Streets, Solid Waste, Airport, Sanitary Sewer, Landfill Progress & Development Library, Parks, Campground, Aquatic Center, Cemetery, Economic Development programs Finance & Personnel Administration, Debt Service, Employee Benefits, misc. programs Upon completion of the Council review, the Finance Department finalizes the budget and tax levy for presentation to the full City Council to set a public hearing. Notice of the hearing is published not less than 10 days and no more than 20 days before the public hearing in the local newspaper. After the public hearing the Council will adopt the proposed budget, which must be certified to the Clay County Auditor no later than March 15 th . Budgets are legally adopted at the program or function level for all departments. The city has the ability to shift budget amounts within the programs/functions with governing body approval. The current year budget must be amended if the budgeted expenditures will likely exceed the total for the entire program. This is done through a public hearing process similar to the adoption for the original budget. All appropriations lapse at the end of the fiscal year for which they were budgeted.

21

FINANCIAL MANAGEMENT POLICIES The City of Spencer has an obligation to its citizens to plan for the adequate funding of the services desired by the public, including the provision and preservation of public facilities, to manage municipal finances and resources wisely, and to carefully account for public funds. The City strives to ensure that it is capable of adequately funding and providing for local government services needed by the community. These policies provide the framework for fiscal management and guide the decision making process. The policies operate independently of changing circumstances and conditions. Objectives 1. Revenue policies are established to furnish guidelines for determining the revenues necessary to provide basic municipal services to the community. 2. To guard against the possibility of wide variations in any of the city’s revenues by maintaining a diversified, yet consistent revenue stream. 3. To ensure that operating expenditures meet the City’s requirement to provide services, within the framework of available resources. 4. To provide a framework for the establishment and maintenance of adequate cash balances and reserves to allow the City financial flexibility and security. 5. To provide a framework to encourage planning for future growth and infrastructure repair. 6. To encourage conservative debt management while maintaining the flexibility to use the various financing mechanisms that are available to the City. 7. To maintain a high standard of accounting practices through a good system of financial controls based on recognized best practices. 8. To maintain a policy of full and open public disclosure of all financial activity and information. REVENUE POLICY Generally, the City of Spencer’s revenue policies are meant to furnish guidelines for determining the revenues necessary to provide basic municipal services to the community. To guard against the possibility of wide variations in any of its revenue sources, a primary goal of the City is to maintain a diversified, yet consistent revenue stream. An important factor in the City’s ability to preserve a strong, uniform revenue stream is the diversity and growth of its tax base, which is largely dependent on the vitality of the area’s economy. Thus, the City resolutely encourages economic development through the implementation of financial policies that create a favorable tax climate, while meeting service demands of businesses and residents. General Revenue Policies 1. A diversified, yet stable, revenue system will be employed to protect the City from possible short-term fluctuations in any of its revenue sources. 2. A continuous effort will be made to obtain new revenue sources in order to maintain a balanced budget and to reduce the reliance on property tax as a major source of funding. 3. Through community and economic development, a broader tax base will be pursued to increase tax revenue and help reduce annual fluctuation in the property tax rate. Property Taxes 1. In order to provide stability and consistency, the property tax levy should remain unchanged unless determined necessary through an annual review. 2. The City’s total levy rate shall be reviewed annually and evaluated using the fundamental underlying conditions, economic conditions, service level changes, State or Federal mandates or any other changes that affect the City’s ability to provide basic City services

22

or maintain sufficient cash reserves. The increase or decrease in the total levy rate shall not exceed the cumulative effect of the underlying changes. These changes shall be quantified and documented. Urban Renewal - Tax Increment Financing Policy Purpose The City creates urban renewal districts to: 1. Respond to an individual capital project or capital projects within designated areas: 2. Support investment in an area believed to have development potential; 3. Promote neighborhood revitalization; 4. Generate money for infrastructure incentives to leverage community growth; 5. Finance infrastructure construction and repair; 6. To provide economic development grants as incentives for businesses to locate to or expand within the community; and 7. Distribute the cost of local development incentives among the various taxing units benefiting from a long-term increase in property tax revenues. Guidelines The City shall adhere to Chapter 403 of the Code of Iowa, in the creation of urban renewal plans and subsequent implementation of those plans. The powers granted in this chapter constitute the performance of essential public purposes for the State of Iowa and the City of Spencer. The powers conferred by this chapter are for public uses and purposes for which public money may be expended and for which the power of eminent domain and police power may be exercised; and that the necessity in the public interest for these provisions is declared as a matter of legislative determination. The assessed value of property within each urban renewal district, which is subject to a division of revenue from taxation - tax increment financing (TIF), is determined by the Clay County Assessor each year. The City uses TIF to leverage economic activity, offset taxpayer burden, build public improvements, incentivize job creation, and finance public investment in infrastructure deemed necessary for community growth. Process 1. Notify all affected taxing jurisdictions 30 days prior to filing certification with the Clay County Auditor. The amount of value reservation required for the next fiscal year is due annually by December 1st. And, upon written request from a taxing jurisdiction, meet and confer with that jurisdiction on the intended reservation. 2. Taxable valuation reservation will be based upon the debt and contractual obligations certified with the Clay County Auditor. 3. Prepare and distribute exhibits, including formulas and calculations of TIF dollars.

23

Restrictions 1. Distribution of Incremental Property Taxes No less than 40% of the incremental value from all urban renewal districts combined will continue to be release to all taxing jurisdictions. 2. Sunsets The City establishes sunset dates for all TIF districts as provided in Chapter 403.17(10), Code of Iowa, as follows: in an urban renewal area designated an economic development area in which no part contains slum or blighted conditions, the plan shall be limited to twenty years from the calendar year following the calendar year in which the city first certifies to the county auditor the amount of any loans, advances, indebtedness, or bonds which qualify for payment form the division of revenue provided in the Code of Iowa, Chapter 403.19. 3. Powers of Municipality The City shall have all the powers necessary or convenient to carry out and effectuate the purposes and provisions of Chapter 403.6 and the additional powers granted in Chapter 403.12 of the Code of Iowa. 4. Fluctuation/Reserves Tax increment reserves will be established to help offset major fluctuations in the reservation requirements. Funds held in reserves will be specifically identified and held for a future debt or contractual obligation. Municipal Enterprises 1. User charges and fees will be established at a minimum level sufficient to cover all costs of providing the service, including operating, debt service, capital and replacement expenses. 2. At least every three years, user fees and charges should be reviewed. When necessary, user fees and charges should be re-calculated and revised to reflect the actual cost of activities. 3. All utilities, including sewer, solid waste, and landfill enterprise programs, should be fully self-supported through user fees or charges. Federal & State Assistance All available funding from federal and state sources will be pursued to finance appropriate programs, services and capital improvements projects, including those mandated by statute. OPERATING EXPENDITURES POLICY Operating expenditures must meet the City’s requirements to provide services, within the framework of available revenues. Fiscal control and long range financial planning is necessary to guarantee that the City’s current and future finances remain sound. The following operating expenditure policies guide the evaluation and control of the City’s appropriations and expenditures. 1. For all business enterprises, expenditure projections for a five year period will be developed on an annual basis. Projections should include estimates of anticipated operating costs for programmed capital improvement projects, equipment and capital facilities replacement and maintenance schedule. 2. Current expenditures should be paid with current revenues or excess cash reserves.

24

3. Current expenditures should not be balanced by postponing needed expenditures, accruing future revenues, issuing short term debt, or paying for routine operating costs out of minimum cash reserves. 4. The operating budget should provide for adequate maintenance of capital assets and equipment and provide for their orderly replacement. 5. The City will encourage the provision of services through the private sector and other public agencies whenever and wherever greater efficiency and effectiveness can be achieved. 6. The City will maintain risk management and safety programs to reduce costs and minimize losses. RESERVES AND CONTINGENCIES POLICY The establishment and maintenance of adequate cash balances and reserves allow the City financial flexibility and security and is recognized as an important factor considered by bond rating agencies and the underwriting community when reviewing City debt issuance. Along with maintain the City’s credit worthiness, such cash balances and reserves provide the means to handle economic uncertainties, local disasters and other unanticipated financial hardships, as well as, to meet cash flow requirements. In addition to the designations noted below, fund balance levels will be sufficient to meet funding requirements for projects approved in prior years that are carried forward into the new year including debt service reserve requirements, reserves for encumbrances and other reserves or designations required by contractual obligations or generally accepted accounting principles. 1. A positive cash balance should be shown in the general fund at the end of the fiscal year. At a minimum, the balance should be 25% of general fund appropriations for the succeeding fiscal year in order to provide adequate cash flow and emergency cash funding. 2. A positive cash balance should be shown in each of the City’s enterprise funds at the end of the fiscal year. At a minimum, the balance should be 25% of the enterprise fund appropriations for the succeeding fiscal year to order to provide adequate cash flow and emergency cash funding. 3. Restricted cash reserves should not be used to finance routine operating expenses that exceed budgeted levels. 4. Cash reserves should not be used to finance capital projects, unless those reserves were specifically earmarked for that purpose. 5. Revenues will equal or exceed expenditures for each budget year unless there are funds available in excess of the cash reserve requirement policy. Excess cash reserves may be used to balance revenues and expenditures as long as the minimum cash reserve requirements of this policy are met. 6. Short-term borrowing, such as tax anticipation notes, in order to meet the requirements in a) through e) of this section is strictly prohibited. 7. The City’s annual budget is considered balanced if the cash reserve requirements, the working capital requirements and the revenue and expenditure requirements of this policy have been met (Sections 2-4). Working Capital 1. The City will assemble sufficient cash reserves in operating funds for working capital so that short term cash flow financing is not required. The cash reserve will be no less than 25% of the next year’s operating budget, the same level as required for the general fund. Operating funds are defined as the general fund, employee benefits and enterprise funds. 2. Short-term borrowing, such as tax anticipation notes, in order to meet the preceding working capital requirements is strictly prohibited.

25