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Consideration of request by Finance Director for approval of 2024 Budget Re-estimates in advance of 2025 Budget Adoption
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Submitted by:
John Ruggini
Department:
Finance
A. Issue
The Common Council annually approves a current year (2024) budget re-estimate. This is typically adopted in November along with next year budget (2025). However, due to the need to pay bills in advance of the November adoption, I am requesting pre-approval of 3 items.
B. Background/Options
There are currently three departments requiring additional spending authority to pay bills through the end of the fiscal year. While this is typically done as part of the next year budget adoption in November, in these three situations, bills are outstanding and should be paid prior to budget adoption.
Fire Department Equipment Repairs
$40,000 is necessary to reflect the actual repair costs to our vehicle fleet in 2024. Additional repairs and replacement tires are needed for the fleet that have not yet been completed due to already expending the annual budget. $304,519 has been spent to date of a revised budget of $290,077. $70,000 was originally budgeted but increased by fund transfer due to a significant accident for which there will be insurance proceeds but less the City’s $25,000 deductible. In general, the base budget has not kept up with increasing cost and complexity of the Fire vehicles and an increase is also proposed for the 2025 Budget that will be presented in October.
Property Tax Litigation
The litigation reserve account was created a number of years ago to isolate and fund the extraordinary litigation costs, primarily associated with property tax litigation, experienced by the City, outside the regular operating budget of the City Attorney's office. Annually the litigation reserve budget is set as an estimate of anticipated litigation costs for each calendar year, but litigation by its very nature is often unpredictable in scope and complexity.
We projected this year’s tax litigation budget at $290,000, but had depleted those funds with work conducted through the end of July. This is primarily due to extensive and complex discovery associated with hospital exemption cases, and ongoing expert witness fees associated with the mall litigation, which continues to be pending while we await final appellate decisions for the 2013-15 tax years. Additional new cases have been filed and served on the City in recent months, but the most intensive work on those new matters will not take place during this budget year.
In meeting with Attorney staff, the Assessor and the Finance Director last month, we determined that it is likely we will require an additional $200,000 to finance the known anticipated expenses related to these tax matters through the end of 2024. This includes both expert witness fees and the costs of outside counsel. With the departure of the Deputy City Attorney, the use of outside counsel is even more critical to the success of these matters.
We do not intend to publicly outline the specific costs in each case, in order to preserve some degree of confidentiality in our litigation strategy, but can provide detail to the committee if requested in closed session
Boston Store Holding Costs
In 2022 the Community Development Authority acquired the 15-acre Boston Store building and surrounding parking lots located on the southern end of Mayfair Mall that had been vacant for at least five years. $5,000,000 was borrowed to be financed by Tax Increment District 10 - Mayfair Reserve. To date the City has spent $5,059,195. Of this total, $4,396,727 was spent on acquisition costs (including land, financing, legal and due diligence). $661,468 has been spent on holding costs including utilities, insurance, repairs, fire protection, security, common area maintenance agreements with Mayfair Mall and property management.
The closing with Brookfield Properties is currently scheduled to occur by the end of the year and bills have been paid through and including July. In order to reimburse for bills paid in excess of $5,000,000 and ensure sufficient expenditure authority until year-end, the budget for the Boston Store project, should be increased $200,000. It is recommended that these expenses be budgeted and charged to TIF 10.
C. Fiscal Impact
The Fire Department repairs and Property Tax Litigation totaling $240,000 will be offset by interest earnings exceeding budget so there is no impact on fund balance; other than, absent these costs, are year-end surplus would be larger than projected.
The Boston Store budget re-estimate of $200,000 will be charged to TIF 10 whose anticipated year-end fund balance is $662,535
D. Recommendation
I recommend that the 2024 budget be re-estimated as follows:
1. Fire Department Equipment Repairs - increase by $40,000, from $290,077 to $330,077
2. Property Tax Litigation - increase by $200,000 from $290,000 to $490,000
3. Boston Store Project - increase by $200,000 from $5,000,000 to $5,200,000 to be budgeted within Tax Increment District 10