View Agenda for this meeting

 SATURDAY, FEBRUARY 11, 2006 AT 9:30 A.M.

Mayor Landry called the meeting to order at 9:30 A.M.


ROLL CALL: Mayor Landry, Mayor Pro Tem Capello, Council Members Gatt, Margolis, Mutch, *Nagy, Paul

*Member Nagy arrived at 9:41 A.M.

ALSO PRESENT: Clay Pearson, City Manager

Kathy Smith-Roy, Finance Director

Stephanie Sharpe, Budget/Management Analyst

Marina Neumaier, Assistant Finance Director

Jeff Hall, Senior Financial Manager


CM-06-02-035 Moved by Paul, seconded by Gatt; CARRIED UNANIMOUSLY:

To approve the agenda as presented.

Roll call vote on CM-06-02-035 Yeas: Capello, Gatt, Margolis, Mutch, Paul,


Nays: None


Mayor Landry advised that this was a special informational meeting of the Council to receive briefing from staff regarding the composition of the City of Novi millage rate and special funds. There will be no action items and no decisions will be made. The meeting is to talk about some of the financial aspects of the City regarding what might or might not be on the horizon and to educate themselves so better decisions can be made.

1. Background Briefing regarding the Composition of the City of Novi Millage Rate and other Special Funds:

a) Cost and Benefits to the City of a Mid-Decade Census Ė Stephanie Sharpe, Budget/Management Analyst

Stephanie Sharpe advised that according to the State Revenue Sharing Act, an increase in population of 10% since the last preceding state wide federal census is required in order to be eligible for special census revenue payments. Prior to 1999 the required increase was 15%. As of December 1, 2005, Noviís estimated population increase was 12.9% based on SEMCOGís estimate of 53,537. Therefore, Novi has surpassed the 10% required to be eligible. Noviís 2000 census population was 47,386.

Ms. Sharpe said according to the State Revenue Sharing Act, a special census shall not be less than 3 years from the enumeration date of a regular statewide federal decennial census. A special census may be completed in 2007, but further research is required to

determine specific deadlines, and the entire cost of a special census would be at the Cityís expense. She said for $200, an official cost estimate may be requested from the US Census Bureau. In 1986-87 Noviís special census population was 27,897 and the cost was approximately $21,000. In 1996 Noviís special census population was 40,533 and the cost was approximately $39,000. This was an increase in population of 23% from 1990.

The State of Michiganís funding for special census revenue payments comes from a supplemental appropriations bill which must be passed by the House and Senate, or included in the appropriations budget. The Governor must sign the appropriation of special census revenue payments, and they are appropriated on an annual basis.

The Stateís financial condition is a factor in the non-Constitutional portion of State Revenue Sharing payments. There has been a decrease in the statutory portion of Novií s State Revenue Sharing payments since 2001-2002.

Ms. Sharpe displayed a chart, which was in Council packets, and showed Noviís special

census payments and State Revenue Sharing payments since 1993. She noted that special census payments totaled approximately $84,000 in 1995-96, $400,000 in 1996-97, $1.1 million in 1997-98, $600,000 in 1998-99, $700,000 in 1999-2000, and $500,000 in 2000-2001. Ms. Sharpe noted that the total of these special census payments over the 6 years shown in the chart total approximately $3.5 million.


Mayor Pro Tem Capello said it seemed there would be an increase in the last four or five years of the decade, so why does it show an increase in the first five years. Ms. Smith-Roy explained the increase is in the last five years, and not in the first five years. She said the reason it falls over to the 2000-2001 fiscal year is because the State is on a different fiscal year than we are. So we received a portion of the payment in that last year that was actually the new decade. Mayor Pro Tem Capello said it looks like we have an increase starting in 2000. She said no, it was a carry over from the mid decade period from 1995 to 2000. He said it really stopped in 2000 and she responded he was correct. Ms. Smith-Roy said because it fell in a different fiscal year for the State versus our fiscal year, thatís why it shows in that time period. He asked if it was retroactive and she said she had never seen a retroactive adjustment. The appropriations are typically approved in each year. She said because the Stateís economy was very strong during the 1997-98 period there was a spike and the State allocated almost 100% of what we were entitled to. She said the appropriation could be any dollar amount that the legislation approves. For example, they can say they are going to appropriate $1 million for special census payments. All the communities who completed a special census, during that time period would get their pro-rata share, based on their increase and population, of that million dollars. So, in the later years that is why we received less than what was anticipated.

Mayor Pro Tem Capello asked if there was a restriction that the mid decade census could not be done towards the end of the decade. Ms. Smith-Roy said it could not be done in 2009, but pursuant to the legislation the way it is currently provided, the law requires that it not be within less than three years. She said it must be completed sometime in 2007, but they havenít been able to pin point the exact date, and havenít contacted the State and the U.S. Census Bureau to determine the exact final date in 2007. Mayor Capello said Council needs to allocate the money and move forward now if we want to do this. Ms. Smith-Roy said it should be appropriated either in 2006 or 2007. Also, with the direction of Council, they would gather more information regarding what the time line needs to be, how long it takes to complete the census, and what has to be done to meet those deadlines. Mayor Pro Tem Capello said if the State allocates a million dollars, but if only two cities apply then only two cities share the million for that year. She said they would share in their proportionate share. So, for example, two cities do a census, and one city is entitled to a 70% increase and another community is entitled to a 30% increase that is how it would be separated. He said then it has to do with the number of cities applying receiving their pro rata share. If less cities do a census, we will get more money regardless of what the State allocated. She said he was correct and he said the more cities that do it then we will get less money. Ms. Smith-Roy said they had that experience in both of the prior mid decade census. We pooled with other cities to make it stronger legislatively. She thought there were at least 37 other cities in the 1980 mid decade census.

Member Mutch commented it should be noted there is no proposed increase in State Revenue Sharing according to a newspaper article that the proposed State budget for the upcoming year proposes no increase. He said his understanding was that this would be a separate appropriation for a special census. This isnít going to be factored in based on what we would get otherwise through State Revenue Sharing. This is a separate appropriation in the process. Ms. Smith-Roy said he was correct. Member Mutch said until Michiganís economy turns around he felt it was unlikely we would get extra money. He asked if there were other areas where a special census would benefit the City, for example additional liquor licenses because our population has increased. Ms. Smith-Roy said she was not sure how the liquor licenses would impact the community, and would have to research it. In terms of other types of State Shared Revenue, for example, like the Act 51 Gas and Weight Tax that has a population factor, but has not been typically adjusted, and she didnít know if thereís authority to do that for a special census. Member Mutch asked that she do research into where else we could see some additional benefits. He thought it would help justify the cost. Member Mutch said even the liquor license component, knowing what they are worth in the community, and how they could be used as an economic development tool would be money well spent.

Member Margolis asked if there was a time when an appropriation hasnít been made. Ms. Smith-Roy responded there has not. However, they did allocate some portion to the special census. Member Margolis said if a special census was done now it would affect us until the end of this decade, and Ms. Smith-Roy agreed. So, if at any point from now forward, there was an allocation made, we would benefit from that no matter when the census was done. Ms. Smith-Roy said yes, through 2010. Member Margolis asked if there was any way to get an indication of the direction that might go. Ms. Smith-Roy said there really isnít, and that it was very political. Itís a legislative decision that must be signed by the Governor. There are a number of steps that need to be taken for them to take action. In our most current condition, she would say that the risk-reward is not there. Member Margolis said the cost seems to be based somewhat on population of the census. Ms. Smith-Roy was sure that was one of the factors but didnít actually review what the computation was, but it would be one of the factors. Member Margolis said from her calculations it could be around $50,000. Ms. Smith-Roy agreed that would be a good ballpark, and for $200 we can get a more accurate figure.

Member Nagy asked how much Novi received from the 1980 mid decade. Ms. Smith-Roy replied they didnít research the 1980ís but for the 1990ís $3.5 million was received out of our proportionate share of the allocation that was made by the legislation. Member Nagy said the City really charges a nominal fee for liquor licenses, and sometimes what happens is they transfer, and they buy it for $40,000 or $50,000. She asked if the fee was set by the Council or was there a law that said only so much could be charged. Ms. Smith-Roy replied she didnít know and would need to research it. She said she knew that the payments received subsequent to that, and related to liquor license are dictated by State law.

Member Paul asked where the funds go, like the $3.5 million that came in. Ms. Smith-Roy said back in the 1980ís and through most of the 1990ís, there was a small portion of the State Revenue Sharing that was allocated to the different other funds, but with Proposal A there changes as to how that is allocated. The entire amount of the State Revenue Sharing now goes to the General Fund. Member Paul said when it goes to the General Fund then we have recommendations on how it is to be used, and then Council decides at budget time. Ms. Smith-Roy said that is correct. In terms of the budget process, it was during those years, when those payments were received that they were included in the budgeted revenue for the General Fund that was used for appropriations. Member Paul said with the $50,000 Council might spend if some money is appropriated, it would be money well spent; and she thought that would be very positive. She asked if the packet memo was correct regarding the Governorís statement that there was not going to be any increase in the State Shared Revenue. Ms. Smith-Roy said thatís correct. Member Paul said the $200 fee would clarify what Council would do in regards to the actual money spent. So if Council spent $200, they would tell us we have close to $50,000, and then Council would proceed forward. Ms. Smith-Roy said correct. Member Paul asked if Council would do that at budget time, and Ms. Smith-Roy said it could be appropriated at Councilís direction, and at any time.

Member Mutch said while sitting on the Library Board in the late 90ís, he always thought that it was a little unfair that the special revenue census money didnít come to the library. However, Member Mutch now thought going to the General Fund was a good idea, and at Councilís discretion they could share that among the funds. In the past, that wasnít the practice.

b) Special Funds, including Tree Fund and Special Assessment Districts Ė Marina Neumaier, Assistant Finance Director and Jeff Hall, Senior Financial Manager

Marina Neumaier stated in their material they have highlighted important Tree Fund facts. She said some things to consider with the Tree Fund are these funds were intended to cover most of the cost of City tree replacement and maintenance. The expenditures of these monies are managed by the City Forester. The money comes from proceeds from fines, monies paid by developers through closeouts of financial guarantees, conditions of permit issuance, and the street tree maintenance charge. Proceeds coming from the Tree Fund vary from year to year. The financial activity of the Tree Fund is currently accounted for within the Parks, Recreation and Forestry Fund. Ms. Neumaier said effective March 1st, a separate Special Revenue Fund was created to account for the activity of the Tree Fund. The proceeds will be recorded as revenue each year, will be easily identifiable, and easily tracked. She explained where the Tree Fund balance is now. The year started off with approximately $893,000, receipts that come into the fund are a little over $180,000, and $370,000 has been spent, which left a balance as of December 31st of a little over $700,000. Council recently appropriated funds for contractual obligations of about $285,000 from this fund. Therefore, currently the balance available for future planting is a little over $400,000.

Member Nagy asked if Catholic Central will be giving the City trees or planting trees. Ms. Neumaier said those plantings will begin in 2006, with a little over 233 trees each year, and will go on for 10 years. Member Nagy said at the last Council meeting Mayor Pro Tem Capello mentioned the developers, she agreed, and thought it would be good to use that and still keep money in here. It is good to have this amount of money. She assumed that when they are doing the planting of the trees that it wonít be just street trees, but also trees in parks, etc. Ms. Neumaier said the expenditure of those funds are managed through the City Forester, and they would include trees throughout the City. Member Nagy said for example, Lakeshore Park; they put in evergreens and various other trees, and she asked if those trees would be coming out of the street fund or out of Parks and Recreation. Ms. Neumaier said the appropriation would be coming out of those plantings that are contractually obligated for those types of tree replacements.

Member Gatt asked what kind of fines would generate revenue to this fund. Ms. Neumaier said there could be fines from ordinance violations pertaining to woodlands. Member Gatt said he read in the Oakland Press there are some communities in the County that are forming a drive to get federal funds to combat the Ash Borer disease, and the costs involved. He asked if Novi was involved in that, and if not are they planning to become involved. Ms. Neumaier didnít know if they were involved in that particular program. She said they had tried for several $20,000 grants throughout the year, but as far as that program she didnít know.

Mayor Pro Tem Capello asked if the Tree Fund included the fund for replacement trees or for street trees also. Ms. Neumaier replied the proceeds that come in are for trees that have been removed and canít be replanted on the site. She said her understanding was that these proceeds are used for trees throughout the City. She said she would have to research this, and asked if he was talking about plantings of street trees. Mayor Pro Tem Capello said there was a time when the Forester, rather than allowing the developer to plant street trees, required the developer to put that money in escrow to specifically plant trees in neighborhoods. He asked if any of that money was left, and if so is it in this fund. Ms. Smith-Roy said it was not included. The escrow monies are kept completely separate with each developerís financial guarantee account. He asked if there was any money in the Street Tree Fund where trees have not been planted where they should have been in a development. Ms. Smith-Roy said there are some. In fact, last Monday night Council approved the appropriation of $365,000, so the difference between the $365,000 and the $285,000, was money taken from Street Tree

Escrow accounts for the City to complete plantings. There are others that are outstanding, but she didnít have a list today. Mayor Pro Tem Capello said Council should look into this because there are probably residents that need their street trees put in. As long as the money is there it should be done. He asked how much money was left in the financial guarantees to plant replacement trees.

Ms. Neumaier said there is a little over $6 million in outstanding woodland financial guarantees. However, that doesnít mean that those monies will necessarily become proceeds into the Tree Fund. What happens is upon closeout of a project and the final woodland inspection is done, each project has its unique circumstances depending on how the permit was issued. At that point it is determined how much money can be transferred into the Tree Fund. She said they wouldnít know that until project closeout. Mayor Pro Tem Capello said he brought this up several months ago. There is $6 million there, and if we give the developers the incentive to, replant trees or put the remainder of the money in the Tree Fund, and maybe agree to give 60-70 % of that money to improve our open space park land, we have some definite revenue we can collect. He said in the future, he wanted to look at giving the developers the incentive to cash in their guarantees at a reduced rate so we have some money to spend.

Member Paul asked how Mayor Pro Tem Capelloís idea could work. Ms. Neumaier responded the first two steps would be to look at what the ordinance allows, at the individual project permit issuance, and determine if there are any specific conditions of the permit. Member Paul understood there would probably have to be an ordinance change and asked for an example of how that could work? Ms. Neumaier said for example, we could consider when a project comes in for plan review and the woodland review determines how many trees need to be removed from the site, at that point, if we determine what is feasibly allowed to be replanted on that site only, and then make it a condition of the permit that they are required to pay that money into the Tree Fund up front. The dollar amount that goes in now is determined by ordinance, so it would be something they would have to look at.

Member Mutch asked what is the amount of the street tree maintenance charge, and where it goes. Ms. Neumaier responded that itís a $25 per tree charge paid by developers, and the money goes into the Tree Fund. Member Mutch asked how many trees they have to pay for. Ms. Neumaier said it was based on their approved site plan, and the total number of street trees required by the site plan. Therefore, in a majority of cases it would impact residential projects. Member Mutch said then if they have to plant 100 street trees they put $2,500 in the Tree Fund with the understanding that for long term that would cover the cost of the City Foresterís maintenance or a part of the replacement cost. We do have a lot of money in there now. However, at some point the amount in that fund will decrease because there are just so many trees in the City. Member Mutch thought that ten years out or sooner the cost to maintain trees throughout the City would exhaust that fund. He had thought there should be a funding mechanism like a maintenance charge to ensure money in that fund for the long term. Member Mutch said now he knows there is such a fund but he is concerned that all the money might be spent on replacement trees and nothing set aside for maintenance. He commented he would like to see the money separated out, because the purpose of that $25.00 isnít generally to replace the next street tree; it is to pay for the long term maintenance. He felt if there wasnít an established funding source for street tree maintenance it will come out of the General Fund or it wonít get done. He felt if it came down to planting street trees or hiring a police officer, the trees wouldnít get done. In the future, he would like to see a proposal that sets aside the maintenance charges, and a vehicle to make the fund sustainable long term. The street trees are important to residents and he wants to insure maintenance costs are financed long term.

Member Nagy agreed with Member Mutch. She said you canít foresee diseases that come to a tree or a species of trees, but there are also trees planted by developers that are awful or a species that should not be planted in Michigan, such as the Kentucky Coffee Trees that were planted in Novi. She agreed that $25.00 a tree would not cover a lot of maintenance, and thought It would be financially prudent to set aside a maintenance fund only for the pruning of trees and the replacement of trees. She noted there were other types of trees that need additional maintenance such as spraying or special chemicals. She said the Pin Oaks and the White Pines are dying so the replacement/maintenance cost is much higher than she thought they realized.

Member Paul asked if Parks and Recreation could analyze the Forestry Department, and how many maintenance things they have done in the past. She said Forestry is a very small department and she wanted to know how they could do that and what it would entail. She said we have one Forester and a very small Parks and Recreation crew. So, would that be a maintenance fund to hire an organization to come in and what would that cost. She asked if they are doing that currently. Member Paul said she would like to know about this by budget time.

Ms. Smith-Roy said as of March 1st they would separate the Tree Fund from the Parks and Recreation Fund. She said they could start a separate revenue line item for street tree maintenance charges, and they will track that. She said it would be very difficult to do that going backwards. In terms of current maintenance, staff is doing maintenance on a regular basis. The portion of maintenance that is done on street trees on major roads, etc. is actually charged to the major and local streets. A portion of that is not coming from either the Parks and Recreation Fund or the Tree Fund; it is actually being charged to the major and local roads. This is consistent with many communities across the State. She said they donít track, exactly, the dollar amounts of other types of maintenance done in terms of park areas, etc. She thought it was self explanatory by the charges by that particular staff in the Department of Parks and Recreation Fund.

Member Paul said, last year, along Taft Road the electrical company cleared out tree branches along the power lines and they were left on the ground because they said it wasnít their job to clean it. She said someone cleaned it up, and asked if it came out of the road fund. Ms. Smith-Roy said she would have to go back and find out if it was our staff that did it or a contractor that the utility company hired. She said the trimming that our Forestry staff does gets charged back to major and local roads, and the contractors that we have hired in the past. Member Paul asked if other cities do it differently. Ms. Smith-Roy said in some communities, the funds in their major and local street funds is barely covering their road maintenance costs so they have to fund through other sources like their General Fund.

Mayor Pro Tem Capello noted that after living in his home for 13 years, they just got a notice on their door that their trees would be trimmed this spring. He said Member

Mutch has a good point. Mayor Pro Tem Capello said the new developments that dump into the regional basin are required to pay a storm water maintenance fee; is that correct. Ms. Smith-Roy said the ones that continue to tap into our regional basins pay a tap fee. He said he was talking about the maintenance fee. Ms. Smith-Roy said yes, they refer to it as a tap fee, and it is for future maintenance. She said they would be talking about that when they get into the millages. He asked if it was in a separate fund and she replied it was. He said then this could be done for the Street Tree Maintenance Fund. She said it would be done as an accounting mechanism with a separate line item, but would still fall under the Tree Fund. Mayor Pro Tem Capello thought two new ordinances would be needed. One ordinance to deal with money in there now, and the second to give the developers the incentive to cash in those guarantees, and pay money into the fund. He said with the new developments often times canít handle all of the trees coming on site, and the money goes into the Tree Fund. He cited Park Place and said there was money being held from Park Place that was carried over from Mystic Forest. He said the goal is to get the trees back on the site, and when that canít happen just pay the City 70% instead of holding these funds forever.

Member Nagy asked about charging tree maintenance to major and local streets, and whether they were talking about the actual Municipal Street Fund. Ms. Neumaier said no, that would be the Major and Local Street Fund. She asked if that fund was there for repair of roads. Ms. Neumaier said it is under Act 51. It is an allowable expenditure for the maintenance of those trees, trimming and things of that nature. Member Nagy said she wanted to keep as much money in the Major Roads and Street Funds as possible, and thought a separate account would be great.

c) Millage Composition, Headlee Amendment Effects and Proposition A Ė Kathy Smith-Roy, Finance Director

Jeff Hall, Senior Finance Manager, explained funds that were not funded by an operating millage. He said over the years the City had created several Special Assessment Districts for purposes of road construction, water and sewer projects, street lighting, sidewalks and other subdivision improvements. The SAD Fund was established to pay debt related to SADís prior to 1988. The SAD Revolving Fund was established for future maintenance on SADís, and for special purposes as designated by City Council. The City has an administrative policy that addresses differences between actual construction costs and the total assessment amount. If actual costs come in at less than 95% of the total assessment, the City will refund the excess to the owners of record at the date the SAD is closed. If the actual costs come in greater than 5% or more over the assessment, the City will reassess the owner for that difference as well. Any difference less than 5% over or under is absorbed by or retained in the SAD Revolving fund. On June 30, 2005 the Revolving Fund had a balance of over $2 million made up primarily of excess proceeds from SADís already closed, annual interest earnings on those funds, and the 1% interest rate that was charged over a debt rate fund SAD where the City issued debt. He said it is important that current SADís could have negative balances in the future when they are closed, and for that reason any funds in the revolving funds would remain there until all SADís are closed to cover our need potential negative balances. Once all SADís are closed, if any excess proceeds remain, they recommend using those proceeds for future maintenance of SAD projects, for example, continued road maintenance.

Mr. Hall discussed Enterprise Funds which are self sustaining funds and are supported primarily by user charges. The Cityís funds are Water and Sewer Operations, Ice Arena and the Meadowbrook Commons Senior Housing facility. He said the most significant aspect of the revenue of these funds is that the user rates are reviewed on an annual basis. Other revenue funds are Major and Local Street Funds that are financed specifically by the Cityís share of State Gas and Weight Taxes.

The Judgment Trust Fund was established as a source of debt service payment for judgment bonds, if any are issued, and also for payment of claims not covered by property and liability insurance. Mr. Hall said, to date, funding has primarily been through transfers from the General Fund. The Contributions and Donations Fund was established to receive private contributions and donations and to be used for parks development, road improvements, and telecommunications infrastructure. This fund accounts for donations to Parks and Recreation, Tim Pope Memorial Fund, Beautification Committee, World War II Veterans Fund, and other donations to the City. Mr. Hill said the Federal Forfeiture Fund accounts for receipts from shared forfeited proceeds relating to the high profile drug and money laundering case in 2005. Finally, the Walker Building Fund accounts for donations that are specific to the expansion of the Novi Public Library. This fund includes the initial $1 million donation, and also matching donations from the Walker family.

Member Mutch asked about SADís and if when they are closed, the funds would be used for some other purpose, but he didnít anticipate not doing SADís in the foreseeable future, and asked if there was a cut off date. Ms. Smith-Roy said what they are recommending is that for all SADís prior to 2000, they are in the process of closing several SAD Funds each year that were established before 2000. She said from 2000 on, those SADs are being handled and accounted for on a current basis. So, we donít need to hold the proceeds for any SAD Funds that occurred after 2000.They are recommending the Revolving Fund remain in tact because the other, approximately 50 funds, have negative balances in there that are very old. She said it might be Councilís decision, through resolution, to not go back and assess those residents for negative balances when they might have been completed 15 or 20 years ago. She said they want to net those proceeds and there will be proceeds for sure, left in the end, but she couldnít tell Council how much at this time. Member Mutch asked when she would anticipate coming to Council for some kind of action to deal with that. Ms. Smith-Roy said she would guess that those remaining funds could be closed in the next 4 to 5 years. She said they would be accumulating interest and the funds will be kept separate, and Council, at that time, can designate how those proceeds are used. They donít have to be used for road maintenance; that was just a recommendation from their department in light of the fact that much of the funding came from road SADís. Member Mutch said five years from now Council will have a nice pot of money to do something with. She answered hopefully. Member Mutch asked if there were any recent SADís that had negative balances? She said no, they are keeping those current. However, they have a couple they are looking at now that do have negative balances but they are related to another SAD that has a positive balance. As long as the parcels within those reciprocal SADís are the same, we can net the proceeds. If the parcels are not the same they canít net them and have to go through another process. He said it didnít sound like she would be back before Council asking them to reassess any of these older projects. She said probably not, but might if the SAD payment is still ongoing. She said their recommendation would be not to go back to the residents whose SAD payment has been completed. Member Mutch asked if she would anticipate bringing a list of projects back to Council in the near term. Ms. Smith-Roy said no, we are approaching this by each year. We are trying to take 3 to10 SAD projects and analyze where they are at. She said it would be done on a case by case basis. He said the Judgment Trust Fund would be used to pay off bonds related to judgment, and asked if that was done for the Sandstone Bonds that were issued for the repayment of the park bonds. Ms. Smith-Roy said no, the refinancing of the taxable bonds related to the judgment trust are being funded through the General Fund in the General Administration Department.

Member Nagy asked what a negative balance on an SAD was. Ms. Smith-Roy said what they are talking about there is where the actual construction costs exceeded the amount collected from special assessments. Member Nagy asked how that happens. Ms. Smith-Roy said she is speculating, but for the most part a lot of it has to do with change orders that occur throughout the project, things like soil conditions and other conditions in the community that cause the construction costs to go beyond what was estimated. Member Nagy referred to, on the second page, other funds, water and sewer, ice arena, Meadowbrook and that the Enterprise Funds are self sustaining operations. She said they just received a book regarding water capacity, and that more pump stations would be needed. Member Nagy asked if there would be a presentation on the CMOM Report. Ms. Smith-Roy thought it would be brought forward as a departmental report in the future.

Member Margolis agreed that they should not go back and reassess those people whose SADís closed with negative balances. She wanted to verify that Ms. Smith-Roy was saying that there is a practice and process in place for that not to happen with funds that are current. Ms. Smith-Roy said there was.

Mayor Pro Tem Capello thought they had corrected that because they do have a 25 year period on SADís where they close out, especially the private ones. Ms. Smith-Roy said the SADís that have bonds associated with them or that are constructed for the purposes of roads cannot exceed 15 years. The SADís that are constructed for water and sewer are allowed to expand to 20 years or longer. The water and sewer SADís are now kept within the Water and Sewer Fund and are accounted for in that manner. Again, in addition to the road and other types of drain SADís are reconciled on a regular basis. She said since 2000, they will not have that situation. They will come to Council within five or six years of the project, when we have all of the data for the construction costs, if in fact they need to reassess or refund. In case of the refund, we just do that through information in an off week packet. It wouldnít require them to provide a resolution. He asked what she meant by refund. She said for example, if we constructed an SAD where it was estimated to be a million dollars but the actual construction costs came in at $800,000, that $200,000 would have to be refunded. The approach taken in the past was for those properties that still owe on the SAD we would reduce their payments from the backend. For those who paid it off on the front end, we would issue a refund to those property owners. Mayor Pro Tem Capello, said letís say for utilities, you might have a 20 year SAD for water and sewer allocated to vacant property, and so many taps per parcel. If at the end of the 20 years, we donít have our

money, the SAD closes out, but that doesnít mean that we are not going to collect the money in the future as people tap in, correct. Ms. Smith-Roy said that is the advantage of the special assessment, it is attached to the property and included in the property tax bill for 20 years whether itís vacant or not. It doesnít matter if they tap in or not, that property owner is paying for that special assessment. Mayor Pro Tem Capello said donít they also have to pay a tap fee. Ms. Smith-Roy said yes. He said so we might have allocated 10 taps to that property, but as it got developed with a higher density they might have to pay for 20 taps. We can still recover the full amount of the 20 taps. Ms. Smith-Roy said yes, because the tap charge itself and any other related charges, perhaps an availability fee in addition to the tap charge, those charges come into the Water and Sewer Fund, and offset the cost related to that portion of the construction. The SAD typically is just to run the utilities through the area. Mayor Pro Tem Capello used the 9 Mile Road sanitary sewer as an example, and asked if those property owners actually have to pay the SAD back on a continuing basis or only as they tap into that sewer. Ms. Smith-Roy said that is a complicated question. We do have one small section that we call the 9 Mile SAD that was processed just like a regular SAD, it was added to their property tax fees. Something unique about the 9 Mile area was that in addition to that, we have a number of payback agreements, which are ordinances City Council just approved in December. Those ordinances relate to specific costs for the Cityís Water and Sewer Fund to recover those costs through payback charges that are assigned as people tap in.

Member Mutch asked regarding the Enterprise Funds and the comment that they are self sustaining, if the ice arena was still getting General Fund subsidy. He said thatís not an ongoing subsidy. Itís a one time loan they are paying back. She said he was correct.

Ms. Smith-Roy said they would now move into the millage rate portion of the presentation, and a couple pieces of legislation that impact millage rates are the Headlee Amendment and Proposal A. She explained the Headlee Amendment required local units of government to permanently roll back its maximum authorized millage rate when the property tax revenue increase is greater than inflation as a result of the increased assessed value of current property, not new property. The amendment also requires voter approval for new taxes or restoration to the authorized millage. The vote is called the Headlee override. Proposal A was created to provide local units of government with a means of going back to the voters, if necessary, for additional taxes. It created a new valuation called taxable value for the purposes of calculating the property tax. The annual taxable value is capped at the lesser of the rate of inflation or 5% unless the property is sold or transferred. Property that is transferred or sold becomes uncapped and in general the taxable value increases. She displayed a chart showing what the City of Noviís experience with regard to the State Equalized Value and taxable value since Proposal A has been in place. The gap is widening between the taxable value and the SEV value. She said we are in a unique situation, in Novi, in that the gap is relatively small compared with communities that are built out, that gap is growing. Whatís helping Novi is the growth we have. She said the combination of both Headlee and Proposal A has created a very negative impact on government when applied to the current Headlee formula. She said they would talk more about that as they went through the millage rate.

Ms. Smith-Roy said in May 2005 they presented how the millage rate is calculated to Council. The process is they obtain estimated taxable values from the City Assessor during the end of February and beginning of March. Then they calculate the required and related millage for the Debt Service Funds. The next step is to calculate the Headlee factor, and then apply it to all of the special millages we have up to the maximum limit. Next, we compute the General Fund Millage using 10.5 as our benchmark. Whatever millage is available after the special millages and the debt millages is then applied to the General Fund. The last step is that they receive on May 1st the County verified taxable value and Headlee calculation. At that point, we recalculate the millage rates to exactly what they are supposed to be for the resolution that is adopted by Council in May.

Ms. Smith-Roy showed the spreadsheets used to calculate the property tax, millage rates and the estimated revenue for the related funds. The first line is the SEV, the next section PA 35, which is Headlee and Proposal A, and are the taxable values which are the estimates obtained from the City Assessorís office. She said what she was demonstrating was what the actual final figures were for the 2005 taxable values and the final reduction factors used for the current budget year. The middle section, Usable Tax Base, is what the Finance Department does to help the Treasurerís office for processing certain paperwork that they need to do, and to give us a cushion in our property tax revenue estimates for the allowance for the Board of Review, State Tax Tribunal and County Factor adjustor. She said the County factor is the numbers they get back on May 1st . If there are any differences between what our estimates are and their number,, rather than come back to Council with new budget numbers for the Estimated Revenue, they put that estimated allowance in, and reduce the estimated tax values so that there is a cushion there.

Ms Smith-Roy explained the Headlee Formula is the actual formula and how it is calculated. We had a unique experience last year, we were one of about five communities in all of Oakland County that had no Headlee reduction. The primary reason was because of the growth and new value added to the tax rolls was greater than the growth from uncapped properties. She said that is the most significant factor. The prior year Headlee factor estimate was .9936 and the actual came in at .9927. That seems small when applying it to the billion dollars of taxable value, but it is a fairly significant number sometimes.

The next portion was a spread sheet of the tax millage rates She described each of the special millages and how this relates to the numbers in determining the components of the millage rate. The Municipal Street Fund was established to help supplement the Major and Local Street Funds, because as the City was growing there werenít sufficient funds from the Act 51 monies for the major and local streets to do construction. In the future it was anticipated that there would be enough to handle maintenance. She said what they are seeing now is the revenue to the major and local streets are increasing 2% to 6%, but maintenance is increasing 12%. There was vision here in terms of knowing that those two funds were not going to be sufficient for the City to maintain its roads.

The next millage is Police and Fire established in the late 1980ís to help supplement the General Fund for additional police, fire and fire and rescue equipment for at least 20 years. Today we utilize that fund by obtaining a schedule from the Fire Department for equipment needs for the next 20 years, we set aside the portion that needs to be financed and the remaining funds are then transferred to the General Fund to subsidize the Police and Fire operations.

The Park and Recreation Fund helps pay for park maintenance and supplement programs for Seniors and Youth. It was never intended that those programs would be funded in their entirety from user fees. The Forestry Department has been added to the Park Maintenance Department within the Parks and Recreation Fund. This has caused an increase in the General Fund subsidy, because it was never intended that this fund cover those additional costs.

The Drain Revenue Fund was established to provide revenue for maintenance and construction of detention basins throughout the City. The City has gone through a series of different processes with regards to its Regional Detention Basins. We were originally on Site Detention Basins, then to Regional Detention Basins, and now we are back to Site Detention Basins for new construction. The Drain Revenue Fund millage was thought to possibly be eliminated in future years, because in connection to that a Drain Perpetual Maintenance Fund was established, where development that came into the City would be charged a tap in charge or future maintenance charge. This would go into a fund, earn interest and grow so it would cover future maintenance charges. The amount in that fund is $4.9 million, and in information provided to Council, the recent experience in terms of the maintenance, construction, and dredging costs that have occurred related to that fund. She said it would be difficult to recommend to Council the elimination of the Drain Revenue Millage. She thought what should be done is some additional research on the projected maintenance costs for the future are, how often dredging will occur, and then a third component is we have the Storm Master Plan approved, of which $55,000 was approved by Council to be included in next years budget. There were also a number of other items in that plan, and there needs to be a provision and a projection of when and what we plan to implement out of that Master Plan.

Ms. Smith-Roy said the last special fund is the Library Fund that was a millage rate established for the Library. The Walker Fund is a separate Fund. The last item is the Debt Service Funds that represents 1.99 of the 10.54 mills, and the different Debt Service Funds that are covered by that can be seen on the material given to Council. The Debt Service Fund millage rate is calculated by first computing what the principle and interest payments are for the year, and then taking that amount and dividing it by the taxable value. So what happens is as the taxable value increases, this millage rate actually declines, and allows it more capacity for some of the other operating millages.

Ms. Smith-Roy said other numbers on the chart show the City Charter millage rates which are the maximum allowed by our Charter. The next two columns show the Headlee adjusted Charter maximums, which for both of these years happen to be the same. However, typically that is not the case, if there is a Headlee reduction factor in place you would see the most current year being less than the previous year because the reduction is permanent as you move forward. The column in yellow is our actual levy for 2005 and the furthest column to the right shows the number of mills that are still available. She said that is the difference between the Headlee max and the actual.

She then pointed out the estimated revenue based on the estimated taxable value for those various funds. So, for example, in the General Fund it is $14 million, and the remaining capacity, what that .33 mills equals based on the 2005 taxable value, would generate another million dollars in revenue. She asked if their were any specific questions about this chart.

Mayor Landry said the City by its Charter is allowed a certain millage rate for each of these funds. She said yes. Mayor Landry said what Headlee does is even though the residents have authorized the City to tax them at a certain millage rate, Headlee could work to decrease that millage rate. So, as the property tax revenue increase because property values increase, the amount of money that goes into the City could be greater. What Headlee does is if that property value increase exceeds inflation it will not allow the City to keep the money. Then, even though the millage rate isnít going to change, Headlee will force the City to decrease that millage because it doesnít want the City to have the extra money without going to the taxpayers and accounting for it. Ms. Smith- Roy said he was correct. Mayor Landry said while the taxpayers could tell the City it has 6.5 mills for the General Fund, next year the City might only have 5.4, because if your property values are going up the City canít keep the extra money. He said the City has to go to the taxpayers and ask for a Headlee override, because the taxpayers will decide whether the City can spend that extra money or not. So, even though costs might be going up every year just like the value of property is going up, the legislature has to go to the taxpayers and say "just to keep the millage the same we need resident approval to do that". He asked if he was correct. She said he was. He said we did not have a Headlee roll back last year. She agreed and he asked why that occurred?

Ms. Smith-Roy said because of the growth in the taxable value itself, how much that taxable value increased for the City of Novi. So much of that growth was related to new construction versus existing construction. Mayor Landry said in the description in the material Ms. Smith-Roy said "as a result of the increase in the assessed value of the current property". He asked if that was where she was going, and she replied yes. He asked what she meant by new property. She said thatís new construction, new money coming onto the tax rolls for the first time. Mayor Landry said if there is a vacant parcel in 2005 and in 2006 a subdivision is on that property, thatís new property. She said thatís new money. He said but in 2007 thatís existing property and she agreed. She said this led them into the next point of what caused them to have the 1.0 factor is that that new construction now is not going up as high as inflation. For example, this year the inflation rate as specified by the State of Michigan is 3.3 for purposes of our Headlee calculation. She said they are anticipating, based on the City Assessors estimate now of somewhere between a 2.5% and a 2.8% increase in those properties that existed on the books already because of the market. Mayor Landry asked her to explain the remaining capacity. Ms. Smith-Roy said it is, for example on the chart for the General Fund, under the Headlee max the City is allowed to charge 5.01 mills. That is how much our Headlee has rolled back. However, since we are only charging 4.68 because we want to keep the millage rate at 10.5, it allows us to have .33 mills additional gap to increase taxes or to change one of the other existing operating millages, if Council wanted to keep it at 10.5. She said that remaining capacity was a very significant factor with our rating agencies that we have the ability to, without going back to the taxpayers, have a cushion in our property tax millage in case some unforeseen event occurred. Mayor Landry said that is why our bond rating is so high, and she replied it was one of the factors. Mayor Landry said that is one of the factors why the lending institution rating is high is because the City Council has the ability to increase the millage rate and we have not done it so far. She said he was correct. Mayor Landry said, so under our Charter using the General Fund, we are allowed 6.5, but as a result of Headlee we are limited to levying 5.01, but we are only levying 4.6. She agreed.

Mayor Landry said next year that 5.01 could go down so the remaining capacity might go down. Ms. Smith-Roy said he was correct. Mayor Landry said as long as there is a number in that capacity, we donít have to go to the taxpayers. However, if there is no number in the remaining capacity, assuming that we need more or the same amount of money as the year before, we would need to go to the taxpayers and ask them to allow the City to go back to what had been charged or some higher number. She agreed. Mayor Landry said eventually some City Council will have to go to the taxpayers, and say to keep the same amount of revenue we have had they would have to authorize them to increase the millage rate. She agreed. She said expanding on that later she will talk about the fiscal analysis and what the projection is for that to happen. When the fiscal analysis was done a year ago they thought it could occur as early as 2007, but now we think that wonít occur until 2008 because we had the one year of no reduction factor.

Mayor Landry said Proposal A is another way of limiting the amount of income that goes to a City, and she replied that he was correct. He said because usually the millage rate is applied to the State Equalized Value, but Proposal A changed that by saying to the City that they cannot apply the millage rate to the SEV. They said they were going to create a new value called taxable value, and even though the SEV might increase because the home increased in value, they will not let the municipality tax on the SEV as we are going to create this new taxable value. This taxable value is limited to some percentage or rate of inflation, whichever is smaller. She agreed. Mayor Landry said then for all cities in Michigan it is a double whammy between Headlee and Proposal A, because Headlee affects the millage end of the equation and Proposal A affects the taxable value end of the equation. So one is coming down and the other is limiting how much it can go up.

Member Mutch said looking at a remaining capacity she made a statement talking about reallocating the capacity, but in reality there are only two funds where we can increase the capacity without going back to the voters, one is General Fund and Drain Revenue. The others have maxed out and even if we had remaining capacity over all we canít increase these other funds without voter approval. Ms. Smith-Roy said he was correct. Member Mutch said so right now there is almost .06 of a mill in remaining capacity, so the maximum the Council could levy without going to the voters, and assuming Debt Service stayed the same is about 11.1 mills. He said there isnít a roll up provision, and she said he was correct. He asked if Proposal A implemented that, and she responded it was Headlee and compounded by Proposal A, because the numbers used in the formula for Headlee are the new taxable value numbers.

Member Mutch said in terms of the revenues received by the City, the City and its existing tax base can only capture the rate of inflation. We get that percentage on the current tax base and then whatever new revenue is received from new development and the adjustment. He said between this year and next, this would be the only additional revenue the City receives from property taxes.

Member Margolis, referred to the chart on the State Equalized Value and the Taxable Value. She said the issue of the taxable value being under the SEV, her interpretation is that as the real estate market drops and the turn over lessens in properties, that gap will really increase because people are staying in their homes longer, therefore we are not getting that jump up, correct. Ms. Smith-Roy said yes, because of the way the Headlee is structured, and that is where a lot of the criticism is in the formula itself for Headlee, because there are adjustments to the formula that could fix part of this problem. Ms. Smith-Roy said as communities are getting built out that gap is going to get larger, and since that amount negatively impacts the reduction factor, we will see a greater reduction. Member Margolis said there is no off set between the two issues, they both basically will continue to impact us. Ms. Smith-Roy said she was correct. Member Margolis said to clarify for the community the issue of having that remaining capacity available in our millage, and the effect on our bond ratings is really like a member of the community and their credit cards. If you are maxed out on your credit cards, you are not considered as credit worthy, because you have no capacity to borrow in the future, and thatís the same concept. Ms. Smith-Roy agreed.

Member Gatt said in a depressed real estate market like we have now in Michigan why would the gap increase. Would the SEV continue to raise higher and why. Ms. Smith-Roy replied it is not because of the depressed market, it is because as people live longer in their homes that gap will get larger. He said as people live longer in their homes the taxable value will remain constant, but if the market is not good and homes are not increasing in value like they did ten years ago doesnít the SEV then lower itself also. She said it does and that is what we are seeing now and one factor why that gap appears to be constant. The other piece for us is the growth with so much new development included in both of those figures, and it also keeps the gap fairly constant. If looking at a community that is totally built out, that gap is very large and growing. Member Gatt said on the operating police and fire funds are these infinite perpetual funds or did the voters say it was good for X amount of years. She said yes, and Novi is unique because they have a number of these special revenues and special millages, but these are permanent charter operating millages. Member Gatt said they would be there forever and Ms. Smith-Roy said until Headlee reduces them to zero.

Member Paul said the Assessing Department is very small and asked if they had the ability to continue assessing as needed. Ms. Smith-Roy replied she had not heard that they need additional staff. Member Paul said she knew they also looked at building projects under construction, and make at least three to four stops as they are building to make sure the materials are what were proposed for that building. Member Paul said it is the only department that decreased over the last five years in staffing and asked for information at budget time. She was looking at the Drain Revenue Fund and was not sure what they wanted to do in regard to the construction costs of the dredging. They were much more expensive than anticipated and the Drain Revenue Fund might not be enough to carry some of those projects through in the future. Ms. Smith-Roy said there are actually two separate funds. The fund that provides the millage generates about $1.5 million in revenue. The fund that contains all of the tap in fees that have been collected when we were a regional detention basin, and we are still collecting a small amount because certain sites canít have their own site basin, and those fees as of June 30, 2005 were about $4.9 million. She was not sure they could terminate this millage and sustain what is needed in the Drain Perpetual Fund with a $4.9 million balance. She didnít think it would generate enough income to do self sustaining and do the dredging every 10 or 15 years, and maintenance of the current basins. She said they would need to research that, and would also need Council policy direction on what they want to adopt out of the Storm Water Master Plan. Member Paul said the Storm Water Master Plan was done about a year ago, and Ms. Smith-Roy agreed. Member Paul said when they did it there was a lot of implementation that they were looking at. She asked if they would receive anything back from the departments regarding what they recommend for the Storm Master Plan, or is that something Council needed to ask for. Ms. Smith-Roy said the Engineering Department made a recommendation to take the first three steps; she thought one of them was another additional plan, and it totaled about $55,000.

Mr. Pearson, City Manager, said that the CIP has been presented to the Planning Commission and Council will be seeing that, has three projects for 2006-07 totaling $115,000, and for 2007-08 it is $200,000. There are no significant capital projects over the next five or six years of the CIP.

Member Paul appreciated that when they do the study they do some implementation of why that money was spent. So, for the Storm Water Master Plan, she wanted to take the recommendations and slowly pick away at those, and these funds would then cover some of those maintenance items. She wanted to hear more about the Drain Revenue Fund and what their recommendations were on how it needed to be manipulated in the future. She thought it was complicated since there were two funds that served in similar capacities, and yet not the same. A lot of time people are concerned about their backyard eroding and problems with flooding, and she would really like to look at it. Member Paul asked for more information from Mr. Pearson, his departments or administration in the future.

Member Paul said the Police and Fire Fund just covers the equipment and staffing, and nothing else, is that correct? Ms. Smith-Roy replied yes. When the fund was first established they designated the specific number personnel that were added, at that time, and continued to budget for only those positions. She said they only transfer from the General Fund for those positions. However, since this happened with the reduction through Headlee, and the growth in the community, this fund was never able to completely cover the cost of additional staffing that was necessary. That is when they decided to make the accounting change to transfer what was left, because there was no way this millage could cover the additional staff since that time period.

Member Paul said she understood that Parks and Recreation covered the youth and senior programs. However, how does the Forestry Department and the impact of the Forestry Department change the component of what that was intended for. Ms. Smith-Roy said it doesnít change the component, but she wanted to let Council know that there might be a question as to why the General Fund subsidy to the Parks and Recreation grew over the last five or six years. She said the reason it grew was because we transferred what was in the General Fund into this fund. Departmentally and operationally it made sense, because that department is now reporting to the Parks and Recreation and Forestry Director. It is just an accounting function and they didnít want to leave the impression that we are paying for more programs. She said that was not what caused the additional subsidy, it was the transfer of the Forestry Department to that fund. Member Paul said when Ms. Smith-Roy made the comment about the major and local roads having the trees trimmed and paid to that fund, does the Forestry Department ever fall under the DPW since they handle roads. Ms. Smith-Roy said in terms of tree maintenance itís very nominal, in terms of what the costs are charged to those, partly because of the youth of the trees in our community. So, that charge is very small but if any time Parks, Recreation and Forestry, Water and Sewer or DPW staff works specifically in other areas it gets charged through their time card to the appropriate fund.

Member Nagy said we do see how it affects cities around Novi who have built out and all these State Revenue Sharing, Headlee and Proposal A. She said in some cities there has been a tremendous layoff in staff. She asked if there was something Council could do to make sure that doesnít happen to Novi, so that we donít have lay offs. Ms. Smith-Roy said they do have some suggestions but ultimately itís a matter of City Council policy direction. So, what we can do is plant a few seeds, and put some ideas out there but ultimately Council needs to make policy decisions with regard to that. She said she would like those ideas especially starting by this budget time. Member Nagy said other cities are cutting back on public service.

Mayor Landry said it seemed to him that one of the things any city should have to do, to avoid the situation Member Nagy talked about, is lessen the commitments and expenses that we make to people or expenses into the future that are contrived or locked into. He said Legacy costs come to mind. If you enter a contract that you will provide this benefit, and it increases 25% and Headlee will only allow your income to go up by the rate of inflation, a City should limit its long term commitments to anything that has a likelihood of increasing greater than the rate of inflation. He said from his perspective, the bottom line on all of this is that given the fact that Headlee decreases the income to every city in the State of Michigan and every city will eventually have to go to their voters, which is the purpose of Headlee, to ask the voters to allow them to override its roll back. He said his best guesstimate was that the City would most likely be in that position in 2007 or 2008. Ms. Smith-Roy thought it would be within two to five years to increase the millage. Obviously, that depends on other factors. She said if there are other debt issues, etc., that are approved, that is a component of our 10.5.

Mayor Landry said the more Capital Improvement Projects that are in part privately funded from parks foundations, Walker, etc., the more private dollars that come in lessens the amount of City dollars. Therefore, we donít have that future commitment, and also helps. He said most of the major CIP projects, and most of our committees have been trying to partner with private industries, and asked them to shoulder some of the burden.

Member Mutch asked, regarding the Drain Revenue Funds, about projection. He said it is an interesting revenue/expense pattern, because we have certain maintenance costs each year, which are probably much less than what we are collecting in tax compared to other funds where we are scraping for every cent. Then every five or ten years we have the Meadowbrook.Lake, Village Oak Lake or the big dredging construction project that suddenly requires multi millions of dollars, which we have been socking away in Fund Balance, and then we get into that pattern of maintenance. He would like to see a schedule that looks at what the major construction projects are out there and with maintenance costs, and also look at the perpetual maintenance fund. That may be an area where we could see a millage reduction or offset. Member Mutch said he did not want to reduce the millage going forward, but he didnít want to drop it down for a few years, and then have to raise it again. He suggested they also look at the Perpetual Maintenance Fund. It is generating almost $200,000 a year in interest, and at some point that is intended to help supplement the cost to that Revenue Fund. He said that might be an area where they could see a millage reduction and the taxpayers could see the benefit of our growth and tax base by seeing a reduction or at least off setting an increase in some other area if we have to go to the voters. He asked if they have done those kinds of projections yet?

Mr. Pearson said what they have talked about and envisioned is that they essentially have a Phase 2 to the Storm Water Plan that Council saw last April, and that gets more specific with some of those projects. He said last night Council was sent a project he felt would be eligible, and is heavily grant funded. He anticipated bringing a proposal to fine tune the Storm Water Plan so we can give the Finance Department a fiscal plan for those operations, and also our construction people an idea. Member Mutch thought this was one area where there is some flexibility, and whatever can be done to give some relieve, he thought if would be more likely that the taxpayers would be more receptive if Council had to go to them for a request in funding in other areas.

Ms. Smith-Roy said twice in the last 10 years, they did exactly that. She said they have reduced the Drain Millage and increased the General Fund Millage. She said they have provided for Council we have done that and reduced the drain millage and increase the General Fund millage.

Ms. Smith-Roy said based on the 2005 taxable value, one mil generates $3 million in revenue. She said they provided for Council in their supplemental data a debt service schedule for a $20 million, 20 year bond issue. That shows that the estimated cost would be from .2 to .42 mills per year. In addition to that our Debt Service millage portion of our property tax millage is below 2 mills for the first time in a long time. She said they have strived to continue to reduce it. Because the more they can push the millage rate into operating millage and do the pay as you go system, the more projects and things we can do that we are not spending on interest. We have the sixth highest taxable value in Oakland County but of those six communities we have the highest debt millage rate. They are all below 1 mill in terms of their debt millage. The Cityís tax levy of 10.5416 represents 27.6 of the total property tax levy. We canít operate in a vacuum. When talking about property tax dollars it is not just the tax dollars that the City receives, but also what goes to education, the County and parks.

Ms. Smith-Roy said in the future, types of millage rates and proposals the City can consider once we get below the 10.5, is the Headlee override, many communities have been successful in doing that, an additional millage rate or some combination, we could consider a voter approved debt millage rate. She said when talking about the Headlee override what they would like to recommend is when we go back to the Headlee override take it to the Charter max or some level that will create a situation so that we donít have to come back every three to five years for that specific operating millage. Also, when we provide additional infrastructure in the community we have to consider the operating costs related to that. Recently, the Library contracted Plante Moran to do a study for them for the increased operating costs for a variety of proposals they have for library renovations or building a new library. She said that is a good example of looking at the big picture and what it would cost to maintain. She said Council has passed a number of resolutions to allow them to combine debt issues and issue refunds and that has helped to keep the debt millage low.

Ms. Smith-Roy said there are a couple of sources, Council Members and City Administration refer to the budget and the future. She said she has provided Council with four questions from Budgeting for Outcomes. 1) How much revenue will we have, and what will the price of government we can charge our citizens. Is 27% of the property tax dollar what they are willing to pay for local government and is 10.5 mills the max the community will pay. 2) What outcomes matter most to citizens, public safety, roads, etc., 3) How much do we spend on each one. 4) How can we best deliver each outcome that citizens expect. Once you have made the allocation of how much you think should be spent in each area, instead of doing a base budget, think that we have X amount of dollars to dedicate toward public safety and how can we best do that. Instead of thinking about the base budget and how much it costs us, the number of staff, for example, and instead of looking at other formulas that we have considered like the number of staff per thousand. Perhaps, that is not a good way to look at it. Maybe look at it and say this is how much money is available, how can we generate the results we need to satisfy the residents that we are doing the best with their tax dollars.

Mayor Landry thanked Ms. Smith-Roy and her staff for an excellent presentation.

Member Margolis thanked Ms. Smith-Roy and her staff. She thought citizens should know the value her staff brings to the City, and how much she really adds to the City staff by the work she does.

Member Margolis said her pet issue is how do we set goals for this community and how do we budget for outcomes. She said she just finished reading the Price of Government, and what it did was provide this kind of process to add businesses; outcome is profit. It is easy to budget for profit. However, for non-profits and governments, the outcomes are not clear. It sets a process to budget for the outcomes that are important. She said she really wants to look at the goals Council sets for this community and it had to be a thought this had to be a thoughtful process. These goals have to include the smaller capital projects. She said the first step of this process is that citizens generally have a very interesting reaction to tax rates. Citizens tend to keep the cost of government of gross personal income. When that amount gets too high they rebel, and come back and say wait a minute you are raising them up.

The first step is to look at what our percentage of taxes are as compared to personal income in the city. She asked how much work it would be to look at that. Ms. Smith-Roy said they could do a general computation and give them some information that might help before summertime. However, it wouldnít be as accurate as bringing in a consultant firm, but that would be very expensive, but could be a goal of Council as they look forward. Member Margolis asked Council to get some consensus to go in that direction because it would allow them to set things up so that future Councils would not have to deal with these kinds of issues as much.

Member Nagy commended Kathy Smith-Roy and her staff for their work. This was excellent and very informative. Member Margolis has a very good point and Member Nagy felt that the next time Council does goal setting it should be based on economics. When we look at taxes in the City, people forget that we are one of the lowest in Oakland County. She said considering that we are a 98.2% white collar community with many million plus dollar homes we are still the 6th lowest in the County. She didnít foresee cutting services to people. She said Council has added to the Police and Fire Departments and added equipment to departments that need it. The future has to be how do we most efficiently provide the best services without cutting staff.

Member Mutch agreed and said the information presented was very clear and helpful. His concern is that when breaking down the millage, because of Headley, most of our millages have either rolled back or stayed constant. The one millage that hasnít is the General Fund and between 2001 and 2005 that is over a half a mill increase in that fund. So while we have seen the reduction in the other millages and the overall total stayed the same the General Fund millage has gone up which is a million and a half dollars based on our current revenue pattern. At the same time, looking at the growth in our tax base in that same period, we have increased almost a billion dollars in tax base. His concern is that even with that growth in the tax base, it isnít reflected in the millage. That says to him that at a time in the City when we are maximizing our revenues in tax base growth, new development, building fees and all those other funds that are coming in, our costs are apparently exceeding the ability for that growth to pay for it. We have to build a City that we can afford to pay for in the future. He said looking at these numbers, we canít afford what we are running today with the revenues coming in, and he thought long term they would really not be able to afford the kind of City we all want. He said legacy costs are one thing but we should be smart about growth and development. He said when he hammers on the point that there is too much density in certain areas, or we are extending infrastructure beyond our ability to pay for it; such as Major and Local Street Funds and what we get from the State doesnít pay to cover it. He said with maintenance costs increasing 12% each year, how long can we sustain that. He said if looking across the State, Novi is one of the largest tax base and is larger than most Counties in Michigan. Yet, we come to the budget session every year and are really scrambling for that dollar. He thought they really need to decide what they want to pay for and how to pay for it versus a pattern of OK we want to get this millage amount and then work from there. He said that would not work for us long term. He didnít want to say things were bad, because overall he thought things were going fairly well for Novi, especially when compared with the National and State economies.

Mayor Landry thanked Ms. Smith-Roy and her staff for a wonderful presentation and for coming in on a Saturday morning and for all others who attended this morning.



There being no further business to come before Council, the meeting was adjourned at

11:33 A.M.

______________________________ _______________________________

David Landry, Mayor Maryanne Cornelius, City Clerk

______________________________ Date approved: February 21, 2006

Transcribed by Charlene Mc Lean