CITY OF PEORIA, ARIZONA PINE ROOM, CITY HALL November 15, 2005 A Study Session Meeting of the City Council of the City of Peoria, Arizona was convened at 8401 W. Monroe Street in open and public session at 4:05 p.m. Members Present: Mayor John Keegan; Councilmembers Bob Barrett, Cathy Carlat, Joan Evans, Vicki Hunt, and Carlo Leone. Members Absent: Vice Mayor Patricia Dennis Other Municipal Officials Present: Terrence Ellis, City Manager; Steve Burg, Senior Deputy City Attorney; Meredith Flinn, Deputy City Manager; Prisila Ferreira, Deputy City Manager; John Wenderski, Deputy City Manager; Mary Jo Kief, City Clerk; Constance Copeland, Assistant City Clerk; Stephen Bontrager, Dave Moody, David Nakagawara, David Leonardo, Bob McKibben, Grady Miller, Neil Mann, Brent Mattingly, Jeff Tyne, J.P. de la Montaigne, and John Schell. Audience: Approximately 15 individuals were present. Subject for Discussion only: Peoria Center for Performing Arts – Construction Contract and Lease Agreement Grady Miller, Communications and Public Affairs Director, provided an update of the budget and construction timeline for the Peoria Community Theater. Mr. Miller introduced Eric Sletten, President of Sletten Companies, the Construction Manager at Risk contractor; Ray Richardson, Vice President of Sletten Companies; Mark Barton, Project Manager with Sletten Companies; and Ed Striffler, Peoria Construction Superintendent, Facilities Management Department. Mr. Miller reviewed the construction costs and explained that Council had originally approved $9.7 million in January 2005. Staff reported to Council in March 2005 that costs had risen to $14 million after Sletten reviewed the project scope with the subcontractors. City of Peoria worked closely with Sletten and Westlake Reed Leskosky, architect, to reduce costs from $14 million to $10.2 million by June 2005 when staff provided an update to Council. When Sletten solicited bids from the subcontractors in October, they reported that construction bids increased the project cost to $12.9 million. Mr. Miller outlined the steps taken to reduce the project costs including: • Square footage reduced from 25,000 square feet to 20,000 • Two classrooms versus four • Less complex roof structure • Reduction in steel • Use of weight-bearing masonry walls • Less expensive glass system Mark Barton, Project Manager with Sletten, provided an overview of the increase in construction costs nationwide. He emphasized the busy real estate market and construction boom in Phoenix metro area, the double digit inflation caused by heavy demands for construction materials and skilled labor exceeding the available resources, and the high energy costs that have increased price of steel, plastics, insulation, asphalt, and other building materials. Mr. Miller gave examples of other major projects in the Phoenix metro area that have experienced increased project costs. Ed Striffler, City of Peoria Construction Superintendent, explained the role of a Construction Manager at Risk contractor. He reported that Staff was satisfied that Sletten had identified lower cost alternatives. Mr. Striffler reported that Staff was comfortable with the Capital Improvement Budget of $12.9 million for the project and believed that the numbers were valid. Mr. Striffler reported that Sletten would be responsible for all costs over and above the Guaranteed Maximum Price. The construction contract locks in today’s price. John Wenderski, Deputy City Manager, identified the funding sources: Theater Works Capital Contribution of $200,000, City of Peoria Arts Fund $1.4 million, revenue from the Half Cent Sales Tax Fund $4.6 million, and $189,438 available from the project demolition fund. The total amount to be financed is $6.8 million with an annual debt payment of $520,000. Mr. Wenderski advised that the City could withstand this increase. In response to questions from Councilmember Barrett, Mr. Wenderski advised that the Arts Fund contribution may increase in the future. Terry Ellis, City Manager, commented that the Community Theater project was started eight years ago. At this time, it is not reasonable to redesign the Theater. Reductions in the scope of work would be offset by the increase in costs and erode any cuts in scope savings. Mr. Ellis stated that unfortunately the City and Theater Works was not ready to do this project any earlier. Many staff hours have been invested in the project. The City has already spent $1 million on the project. Mr. Ellis stated that the Community Theater is vital to the downtown revitalization goals of the City. He noted that the costs of the project should be considered over the long term. Mr. Miller reported that if Council approves the contract in the Regular Council Meeting this evening, the ground breaking would be tomorrow, November 16, 2005. In response to questions from Council, Mr. Miller advised that the project is estimated to be completed in twelve months providing there are not weather or other unforeseen conditions that would delay completion. Councilmember Barrett stated his excitement for the Community Theater and added that the Theater would be the centerpiece for the downtown redevelopment and would increase public interest in the redevelopment project. Councilmember Hunt expressed thanks for the efforts of City Staff, Theater Works individuals, and Sletten Companies to bring this project to fruition. Councilmember Leone added that he has waited a long time for the project to begin. Mr. Miller summarized that the City of Peoria is protected from increased costs on the project other than initiating small change orders which are provided for in the contingency fund. Mr. Miller summarized the key provisions of the lease agreement with the Community Theater: • Twenty year term of the lease at $1 per year • Theater Works will carry Commercial General Liability Insurance with a minimum of $1,000,000 single coverage and $3,000,000 general aggregate • City of Peoria and its officials named additional insureds on insurance policy • The City of Peoria is entitled to 12 days use of the facility annually • City Manager or designee to serve as an ex officio member to the board of directors and executive committee • A ticket surcharge of $1 will go into a City reserve fund • Theater Works will be responsible for the operation of the theater as well as day to day custodial care and maintenance of the facility • The City of Peoria will be responsible for maintaining landscaping and parking lot as well as the building infrastructure such as the roof, heating and ventilation system, and other systems • Theater Works must maintain an operating reserve of $25,000 initially which will then increase to 10 percent of Theater Works’ operating budget • Theater Works must offer preferred rental rates to Peoria- based organizations. Terry Ellis, City Manager, added that the lease agreement also provides that the City Manager as ex officio member to the board of directors and executive committee will also provide input on budget, finance, and personnel matters. Discussion ensued regarding using the Reserve Fund for wear and tear and general upkeep of the Theater. Mr. Miller also explained that the City reserved just 12 days so that the Theater would have as many days as possible to gain revenue. Theater Works would be good stewards and work with the City when there was a need for additional days. Discussion ensued regarding maintenance responsibilities. Mr. Miller reported that there is a provision in the lease that any damage by the tenants or sub-let tenants would be the responsibility of Theater Works. Mr. Ellis added that the $1 surcharge fund is a sinking fund and would be set aside for repair of items such as the heat/air- conditioning. The fund would build over time. Mr. Miller advised that the amount of the surcharge could also increase over time. Mayor Keegan asked if there were any other questions or comments. There were none. Mayor Keegan declared a ten minute recess at 4:45 p.m. The meeting reconvened at 5:10 p.m. Mid-Year Financial Review Jeff Tyne, Budget Director, explained that Staff would provide Council a mid-year overview of all major operating funds of the City. Brent Mattingly, Director of Finance, reviewed the current financial year. He reported that Staff would be presenting the 2007 Budget to Council in April, 2006. Mr. Mattingly stated that the Fiscal Year 2006 General Fund Revenues total $91.2 million with the following breakdown: Sales Tax Revenues 34% State Shared Revenues 29% Charge of Service 23% Other 8% Franchise Fees 3% Property Tax 3% Mr. Mattingly reported that the estimate for General Fund Revenues has increased to an estimated $97 million based on increased construction costs and sales tax revenues from the last three months. Mr. Mattingly reviewed the Sales Tax revenue received from the retail businesses. He noted that auto dealerships contribute 39 percent, Big Box stores contribute 12 percent and grocery sales contribute 15 percent. Reviewing the history of retail sales tax, Mr. Mattingly reported the Fiscal Year estimated Budget has increased since March to $15.3 million. Mr. Mattingly reviewed the Financial Report for Sales Tax from Construction Contracting and building permits. He emphasized the continued strength of the single home and commercial construction in Peoria. The Fiscal Year estimated budget is $6.2 million in revenue from Construction Contracting. Mr. Mattingly reported that the Revenue Committee made up of various lead Staff from Departments of Finance, Economic Development, Public Works, Community Development, Engineering, and Utilities review the Sales Tax Audit, Education and Collection estimates. The Fiscal Year Estimated Budget has been increased to $850,000 based on current activity and last year’s performance. Mr. Mattingly updated Council on the State Shared Revenues and explained that projections have increased by $384,000 for Sales Tax based on the first quarter revenue. Mayor Keegan asked if the impact of the current year Census was incorporated in the projections. Jeff Tyne, Budget Director, reported the City’s information came from the League of Cities and Towns. The Fiscal Year Budget for 2007 will reflect Census information. Mr. Mattingly summarized the increase in Fiscal Year 2006 Revenue estimates which totaled $5.7 million. Councilmember Carlat questioned a line item for “Government Revenue” from the Comprehensive Annual Financial Report ending June 30, 2005. Mr. Mattingly advised that “Government Revenue” in that report referred to tax revenue from both sales and property taxes. Discussion ensued regarding a line item for “charges for services” and the increase. Mr. Mattingly explained that increases for costs for fuel and the City fleet impacted those figures. The Budget Office checks the costs of services against the value of the service. He explained that impact fees were approved by Council. Mr. Mattingly reviewed the Expenditure Budget totaling $99.2 million including: Personnel 63% Contractual 26% Capital Outlay 6% Commodities 5% Mr. Mattingly reviewed the General Fund Balance at June 30, 2005 of $52.7 million. He explained that designations for policy reserve, reserve for the Municipal Office Complex, economic development reserves, encumbrances, inventories and prepaid items; and designation for library equipment have reduced the available fund balance to $20.3 million. Discussion ensued regarding the planned remodel and construction project for the City Hall Complex. Mr. Mattingly also reported on one-time expenditures and an increase in policy reserves and savings. He reported that with adjustments the estimated funding for Fiscal Year 2007 Budget to be $15.8 million. Projects in progress would carryover funds to the next fiscal year. Mr. Mattingly provided an Update on Commitment identified for Fiscal Year 2006 including: the Beardsley Extension, renovation of City Hall grass areas, Fleet Fund deficit, Rio Vista grant loss, initial estimate for Peoria High School pool renovation, repairs of City Hall cooling unit this summer, Court staffing requirements due to increased caseload, and other miscellaneous items. Mr. Mattingly also reviewed commitment in the adopted Capital Improvement Program. He explained that the construction market continues to affect projects like the remodel of the Maintenance Operations Center and the Theater project which may require Staff to make future adjustments to the Capital Improvement Programs. Mr. Mattingly reviewed contributions from the Half Cent Sales Tax Fund that are estimated to contribute toward ongoing programs and toward other Capital Projects including the new Development Services building, remodeling the Maintenance Operations Center, the Community Theater, and the radio system/CAD upgrade. Jeff Tyne, Budget Director, explained that the City uses many forecasting resources including: Principles of Sound Financial Management for a long term approach for Council policies, the TAPE Measure Process, and the Growth Trends Forecast. Mr. Tyne advised that the expected financial picture is based on the economy, Council policies, Legislative adjustments, and operations which include personnel-related trends and growth-related trends. Mr. Tyne provided an overview of the long-range forecast and highlighted economic assumptions: long-term regional economic growth, strong residential development pattern, strong building activity, softer auto market, higher inflation, and employee-related costs that exceed inflation which include increasing healthcare costs and retirement contributions. Mr. Tyne noted that indications are good for a growing economic base in Peoria especially for large retail and big box stores. New dealerships are also expected to be built in Peoria in the next few years. Mr. Tyne reviewed graphs demonstrating sales tax on retail, general fund sales tax activity, State Shared Revenue from 2003 to estimates to 2011, a projection of ongoing sources and uses. He reported that revenues are expected to exceed expenses from 2007 through 2011 with the larger gap in 2007 and a smaller gap in 2011 due to expected fuel and energy costs and the impact of new positions. Mr. Tyne outlined Fiscal Year 2007 Budget issues including: maintenance of existing service levels, operating impacts of the Capital Improvement Program, fuel and utility costs, employer increase to retirement and health care, and unknown State Legislative action. Discussion ensued regarding ways to support the Capital Improvement Program and the impact of Legislative action on municipalities. Mr. Tyne explained that the Half Cent Sales Tax Fund continues the City’s commitment to Public Safety and also assumes some Sports Complex operational costs. Another alternative would be a Capital Project Chargeback System which may be incorporated in the future. Mr. Tyne reviewed the Streets Fund which is impacted by air quality mandates, aging infrastructure, underdeveloped roads, and funding for Capital Projects. Mr. Tyne noted that there is also a one-time adjustment for revenue based on the mid-decade Census. Mr. Tyne continued that in the Transit Fund expenditures outdistanced revenues. He referenced the impact of increased fuel costs. Mr. Tyne also noted that the Legislature reduced funding to the City for the last two years. Mr. Tyne also reviewed the Residential Sanitation Fund, Commercial Sanitation Fund, Water Operations Fund, and the Wastewater Operations Fund. Mr. Tyne concluded by reviewing the Operating Budget process calendar for the year. He noted that the Budget Kickoff for City Departments is scheduled for November 18, 2005. The City Manager will work with Department to develop their budgets. Adoption of the tentative Budget is scheduled for May 16, 2006. June 6, 2006 is the Public Hearing and Tax Levy followed by the scheduled adoption of the Final Budget. Brent Mattingly added that earlier in the meeting Councilmember Carlat had questioned “charges for services” from the Comprehensive Annual Report ending June 30, 2005. He explained that the majority of “charges for services” are Impact Fees. Fees are affected by the number of single family residential home permits which have increased significantly. In addition, the values of residential homes and commercial properties in Peoria have also increased. Mayor Keegan asked if there were any additional questions or comments. There were none. Adjournment: Being no further business to come before the Council, the meeting was duly adjourned at 6:15 p.m. ____ __________________________________ John C. Keegan, Mayor ATTEST: ______________________________________ Mary Jo Kief, City Clerk