STEVE NASBY
CITY ADMINISTRATOR
WINDOM (POPULATION 4,423)

The City of Windom, like all communities across the United States, is being squeezed by the concurrent forces of rising costs for goods, services, and labor, while the bond market demands higher interest rates on new debt for capital projects. For those of us old enough to remember the late 1970s and early 1980s, the current economic situation is like a bad movie we have seen before. The good news is that it will end. But the ending will be different.

Planning during a time of high uncertainty

As trustees of public funds, we city officials need to prepare our annual budget and long-range financial plan with a higher degree of uncertainty, while remaining mindful of the impact these economic conditions will have on taxpayers. Financial best practices can help manage our economic risks. Best practices include maintaining strong reserves, adopting a formal Capital Improvement Plan, forecasting a five-year budget, paying attention to debt service management, using cash to make purchases, and employing a structured investment strategy. Expense risk can be mitigated somewhat by measures such as looking at locking in pricing via contracts or shuffling capital projects to maximize savings through economies of scale or lowering mobilization costs. Partnering with other municipalities or counties can also provide a cost savings. In Windom, we work jointly with Cottonwood County on seal coating. The county has the seal-coating machine, but does not own a street sweeper, so we trade services with them to complete projects on both city streets and county roads. Both parties save on costs versus hiring a contractor.

Now may be an opportunity to invest in municipal funds

here is an opportunity right now for cities to invest in municipal funds. Markets for certificates of deposits, federally backed securities and other permitted investments are going up due to the Federal Reserve’s decision to raise the Federal Funds rate. In our community, we use a laddering approach to invest our reserve funds. Advantages include a guarantee that some cash will be available at set intervals to meet cash needs without incurring penalties for early distribution. Also, it lowers risk by increasing options to get in or out of the market. With the volatility of the current market, this is key. The more rungs on your ladder the greater diversification you have in your portfolio. Even with the economic challenges, I am confident of the professionalism in our municipal organizations to succeed.

DARIN NELSON
FINANCE DIRECTOR
MINNETONKA (POPULATION 53,760)

This time last year, inflation started to become a talking point during our 2022 budget development. Indications at the time were that inflation would quickly moderate and not be a significant concern. Fast-forward a year, inflation is now one of the key drivers in the development of our city’s 2023 budget and long-term forecasts.

What’s happening at the pump

One of the most notable items affected by inflation has been fuel. Minnetonka was fortunate to lock in 2022 fuel prices under the state contract before prices started to spike. Those prices will expire at the end of the year, and new pricing will undoubtedly be much higher. Inflation is also affecting natural gas and electric rates. These two areas have been relatively stable and historically haven’t been much of a budget discussion topic until this year.

From a long-term perspective, our latest five-year Capital Improvement Program (CIP) forecasts higher than average increases almost across the board, from vehicle replacements to construction and maintenance contracts. These increases are detrimental to available fund balances and will continue to drive future levy increases.

Minnetonka is using reserves to supplant increased capital outlay costs. The city’s fund balance policy allows excess funds to be transferred to capital project funds for one-time uses. The city’s General Fund ended the 2021 fiscal year in a solid financial position, with revenue exceeding budget due to various activities.

Moving up a fire engine purchase decision

One of these uses included advancing an originally scheduled fire engine purchase from 2023 to 2022. Supply chain disruption has increased the build time on fire engines from an average of 12 months to 18 months, which meant the fire engine would not arrive until mid-2024 if the city waited until January 2023 to order. There were also signals that suggested prices could increase 10% before year end, on top of already escalated pricing. Considering these factors, the city council authorized advancing the fire engine purchase to 2022, likely saving the city over $80,000.

Still being cautious about reserves

Reserves are a limited resource and can only go so far. As part of the annual budget and CIP development process, long-range levy forecasts are developed and shared with the city council. By forecasting future levy increases, the council and staff can better prioritize future needs and balance them against limited resources.