By Jon Duckstad

As the work intensifies to shape a 2008/09 Eden Prairie city budget, it is a time for the City Council to balance spending and taxes, to examine short- and long-range goals and to consider how future revenue will keep up with fast-rising expenses and cumulative debt.

The work process includes a “first.” The city manager, staff and council are being assisted by a conscientious Budget Advisory Task Force. It is the initial step to improve the budget-making process; we are learning from it and are seeing ways the council can more pro-actively guide its direction. To improve is a must as we try to restrain spending and keep taxes under control.

First, spending is sharply up. A review of our 2006/07 budgets reveals significant spending increases over previous years:

Year        Total              % Increase

                Budget           (Decrease)

2005        $33,943,801      + 5.3% 

2006        $36,968,552      + 8.9%

2007        $39,261,313      + 6.2%

If this same level of spending continues, our total city-operating budget will double in 13 years, even though our population growth will have leveled off markedly. The recent $15 million Community Center project and additional park projects have raised additional fiscal concerns. For example, the increased annual cost of operating the center, over and above the anticipated revenue from the facility, reportedly will be about $1 million annually.

Serious concerns do not end here. Cumulative debt has increased substantially since 2004. The Community Center project was an outgrowth of demand for expanded services. It also is a component of the cumulative debt. Debt can be relatively painless when the tax base is growing but can turn out troublesome if development slows as other costs continue to rise. As Eden Prairie ages, we need to think about that.

Year          Debt obligation  

2005          $34 million

2006          $45 million

2007          $50+ million  (anticipated)

The 2008 projected increase in debt service obligation of approximately $345,000 will drive the 2008 and 2009 budgets even higher.

So how much spending is necessary? Our City Council must decide annually what is necessary to deliver city services. For a view of how we might determine that level, a review of the 2003 and 2004 budgets may be helpful:

Year          Total                 % Increase/

                  Budget             (Decrease)

2003           $31,509,348      (-1.4%)

2004           $32,238,933      + 2.3%

In the face of state decisions to hold off on certain types of funding to communities, needs were reviewed and solutions were found. That council – which included current Council Member Sherry Butcher and Mayor Phil Young, also a member then – should be complimented for their valuable contributions to those budget initiatives.

As a result of these 2003 and 2004 budgets, the city was awarded three distinguished and coveted awards from the National Government Finance Officer Association: 1) The Certificate of Achievement for Excellence in Financial Reporting for the year ended Dec. 31, 2003; 2) a Distinguished Budget Presentation Award for the period beginning Jan. 1, 2004; and 3) an Award for Outstanding Achievement in Popular Annual Financial Reporting for the fiscal period beginning Jan. 1, 2003.

In addition, the city was awarded the highest bond rating, AAA, from Moody's Investors Services in 2003. Out of 834 cities in Minnesota rated by Moody's, only six had bonds rated AAA.

A solution to burgeoning budgets may require our City Council to take a more pro-active approach to guiding the direction of the budget-making process. Our City Council should consider providing guidelines to the city manager to improve the process.

These should include three practices Moody’s recognizes valuable when it sets a bond rating:

* Fund-balance target levels: A plan could be adopted establishing certain fund balance levels to assure tighter expenditure controls.

* Capping debt levels: A debt policy that sets a cap or limit on cumulative debt.

* Multi-year budget planning: Annual budget initiatives should embrace multi-year (three- to five-year) planning. This would enable our budget process to adequately spread out starts on significant capital improvements or other costly items to insure sensible budget planning.

These actions could strengthen our ability to rein in spending and maintain fiscally responsible budgets.

Jon Duckstad is in the first year of a four-year term on the Eden Prairie City Council.