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Calendar quirk will cost U of M $41M in payroll

by Tim Post, Minnesota Public Radio

St. Paul, Minn. – Because of a once in a decade quirk in the calendar, employees at the University of Minnesota will receive an extra pay check in the next fiscal year, and it could cost the university upward of $41 million.

Employees at the University of Minnesota usually receive 26 paychecks a year. But in fiscal year 2011, which starts this summer, 14,804 of them will get 27 paychecks.

It’s a phenomenon that pops up in the payroll calendar every 11 years for organizations that pay bi-weekly, and the U’s chief financial officer Richard Pfutzenreuter knew it was coming.

“I’m surprised it hasn’t been on people’s radar here,” Pfutzenreuter said. “We’ve talked about it on numerous occasions over the last couple of years, but we’re a complicated place and I think the communication isn’t always as good as it could be. We knew it was coming.”

Here’s the real problem for the U; the 14,000 extra checks will cost the school $41 million in fiscal year 2011.

Pfutzenreuter said the cost comes just as the U faces declining funding from the state.

“It is unfortunate that hit exactly now,” he said. “If I could somehow alter the calendar and push this problem out I would.”

It’s a problem Jim Medlock at the American Payroll Association knows all about. Medlock helps the group’s 30,000 members with payroll education.

He’s heard from plenty of companies over the years dealing the extra paycheck dilemma. His advice, don’t make any big changes to your payroll system.

“If you do make big changes you want to make sure you’ve notified the employees well in advance so that they can start planning for those changes,” Medlock said.

Medlock said one of the potential changes could mean dividing an employee’s yearly salary into 27 checks for one year, instead of the usual 26. But that means workers would get 27 slightly smaller checks, and he said companies that have done that had to give employees plenty of warning.

“Those had to start planning two years in advance to make that change in the salary process, as well as notifying the employees that it was going to happen,” he said.

The University of Minnesota doesn’t have two years to plan for such a change; the new fiscal year is less than four months away.

At this point the U plans to pay employees that 27th check, at least that’s what the university’s general counsel has recommended.

And with an eye to the future, U leaders are already planning how to pay for the extra check in the year 2021, so they’re not caught off guard by a quick in the calendar in another 11 years.

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We also pay our employees every two weeks. This quirk in the payroll calendar will impact us in 2015. We will be ready.

Lakeville was the champ in 2008 in terms of gross sales and gross profit. Lakeville’s gross sales in 2008 were $14,443,355. Their gross profit was $3,603,240. Eden Prairie was ranked #4 in gross sales at $10,987,111. We were right behind Richfield ($11,302,384) and right ahead of Columbia Heights ($7,490,942).

Lakeville also was #1 in 2008 in Net Profit with $1,371,108. Eden Prairie was #2 at $1,226,374. Edina was #3 at $1,073,376. Richfield was #4 at $939,285. Our net profit as percent of sales in 2008 was 11.2%. That’s not the highest in the state, but it’s the highest in the metro area. Lakeville’s was 9.5%. Edina’s was 8.9%. And Richfield’s was 8.3%.

Eden Prairie has, by far, the highest level of non-operating revenue in the state at $361,474. The next highest non-ops revenue is in Lakeville at $180,478. We owe our distinction in this area to our lease of space at our Den Road store to Hollywood Video. Unfortunately, that situation has changed significantly lately as Hollywood Video is leaving our space. We are actively recruiting new renters to fill the former Hollywood video space. We won’t see the impact of the Hollywood Video change in the State Auditor’s report until 2012.

We’re in the retail liquor business for two basic reasons: to control the distribution and sale of liquor in our city and to make profit that we can use for property tax relief. In 2008 Eden Prairie transferred $800,000 of its $1,226,374 Net Profit into our Capital Improvements Fund. This means that we did not have to tax our residents for $800,000 worth of improvements to our parks, sidewalks, trails and other public facilities. Lakeville transferred $517,796 of its $1,371,108 Net Profit. Edina transferred $1,277,800 of its $1,073,376 Net Profit. Savage transferred $1,036,800 of its $457,562 Net Profit.

How does a City transfer an amount more than what it made in Net Profit? I don’t know for sure, but I would suspect that they chose to transfer excess profits from previous years that were sitting in their municipal liquor funds. That’s not unusual. We may have to do that in the near future.

We’ve been very busy renovating our liquor stores during the past five years. During that time we’ve made major improvements to our three stores. We’ve used liquor store profits to fund all of those improvements. We opened our newest renovated store next to the Rainbow grocery store in January. Now we’re ready to start making some money. Our goal is to be the best municipal liquor operation in the state. I’d like to have the highest Net Profit operation in the state by 2011.

If you would like to know more about Eden Prairie’s three beautiful liquor stores click here: Eden Prairie Liquor.

Governing is a good source of balanced reporting about government at all levels. I read it, and I know that most of my peers read it too. Mr. Harkness authors a regular column called the Potomac Chronicle. His March column is titled “States, Localities Face a Lost Decade.” It’s a good piece and well worth the couple of minutes it’ll take you to read it.

I suppose I like the column because it affirms my personal view of what I think we’re likely to see in the future for local governments. Sad to say: I’m not optimistic. The economy will recover because it has market forces and political forces working together to push it toward expansion. There is no such combination of forces working together to push local government in any coherent direction. Some want local governments to do more with more. Some want us to do more with less. Others want us to do less with less. Fortunately, I haven’t heard anyone say they want us to do less with more, but who knows, maybe that voice is just late getting to the table.

For city governments in Minnesota, our property tax system offers stability and predictability. Those two attributes are similar, but they are not the same thing. It’s a stable system because property values are, generally, relatively stable when you look at them through a long term lens. They are much more stable than sales or income taxes.

In Minnesota, property taxes are predictable because of the lag built into our system of assessment-taxation-collection. The property taxes that are payable in 2010 are based on the value of property in January 2009 which is based on the sales data of comparable properties in 2008. This is what I mean about predictability. We know that sales data from 2010 will impact values that will be set in January 2011 for taxes payable in 2012.

The buffer offered to city governments by this system is important: it protects a key revenue stream from sudden decreases during times of economic downturn, but it also represses quick revenue recovery when the economy turns around. The buffer in our system means that we can reasonably forecast a major element of our municipal revenue stream a couple of years in advance. It’s good to know the future, even if it’s bad news. Our property tax revenue forecast for the future: flat and getting flatter.

A ‘lost decade’ may very well be in store for cities all across our country as revenues flatten and stay flat, and as elected officials fear the public reaction to even the slightest increase in tax burdens. That’s the future I see anyway.

Sorry.

The Minnesota Department of Natural Resources (DNR) has opened four lakes in Eden Prairie to what they call “Liberalized Fishing.” The lakes in Eden Prairie that are included in the DNR’s announcement are Staring, Duck, Rice Marsh and Smetana.

Liberalized fishing is allowed when a fish population is endangered due to the lack of oxygen available in the water. Traditional fishing regulations are liberalized to allow the public the opportunity to catch the fish before they die. Lakes opened to liberalized fishing have signs posted at the public access or along the shore, and announcements will be made in the local newspaper and through the DNR Section of Fisheries central office in St. Paul.

Liberalized fishing doesn’t relax all fishing rules. I have included the liberalized fishing rules at the end of this blog post. The lakes are only open to these fishing rules until March 7. It is uncertain if the DNR will extend the dates for liberalized fishing past March 7, but if they do, they will post that information on the DNR website.

Fish taken from lakes opened to liberalized fishing usually are lethargic and located near the bottom of the ice or near springs. The DNR recommends that anglers use caution and check ice conditions before beginning to fish on opened lakes. The photo was taken by our Parks & Natural Resources Manager Stu Fox yesterday at some open water on Staring Lake. I’m not sure if you can see it in the photo or not [click on the photo for a better look] but the congregation of carp at this open water site is impressive. It might be nice if these carp, for example, were liberally removed from our lakes.

I’m hoping that conservatives and liberals alike can enjoy a few sunny and productive days of liberalized fishing in Eden Prairie, and abide by the DNR’s rules:

Rules for taking fish from lakes opened to liberalized fishing:

• The lakes are only open to liberalized fishing for a short time period. So check the dates on posted signs or in local newspapers.
• You are required to have a resident angling license to take fish on liberalized lakes.
• You may take fish in any quantity for personal use from lakes opened to liberalized fishing.
• You may sell rough fish.
• You may take fish by spear, gillnet, or angling (check each lake at the access site, gillnets may not be allowed at all lakes).
• You may not use seines, hoop nets, fyke nets, or explosives to take fish.
• All trespass laws are in effect and you should abide by them when accessing lakes. Do not leave any trash or litter on the lakes and take home all fish that are caught 

This revised forecast is a slight improvement from November’s estimated current biennium deficit of $1.2 billion, but it will still be a challenge for the Legislature to find a way to resolve the $994 million deficit during this legislative session. The differences between the last forecast and today’s are a $184 million reduction in projected expenditures, and a $25 million net-increase in revenues. Most of the spending reductions are from slightly lower state expenditures and higher Federal reimbursements for Medicaid spending.

The forecast also takes a look at the future economic outlook, which in the case of the February forecast is about the same as the November forecast. Over the current biennium, real GDP growth is now expected to average 1.8%, which is up slightly from the 1.4% projected in November. On the employment side, there will be a slight increase in employment levels when the 2010 census work begins, but these jobs are only temporary. In a bit of positive news, the forecast predicts that sometime during the 2012-2013 biennium that wages and employment will reach their pre-recession levels. On the budget deficit side, the FY 2012-2013 budget shortfall is $363 million more than projected in November, totaling $5.789 billion. This figure does not factor in general inflation.

So to sum it up: It could have been worse. If you’re interested in the full documentation of today’s announcement, you find the documents online at: http://www.mmb.state.mn.us/fu-2009-nov.

What I did not know, until this past Friday, was that Eden Prairie is viewed as a leader in this area by our peers. Enjoy the article below from the Minneapolis/St. Paul Business Journal.

Friday, February 26, 2010

City of Minnetonka seeks sponsorships

Minneapolis / St. Paul Business Journal – by kenny smith staff writer

Minnetonka introduced a new policy Thursday inviting businesses, organizations and individuals to sponsor all or part of city hosted events.

This comes following a September 2009 Minnetonka City Council approval of a policy which allows for the city to formally accept gifts, donations and sponsorships as long as they keep with the city’s mission.

“Budget pressures of the past few years inspired staff to begin thinking of new ways to fund events and programs offered by the city that directly benefit our residents, and which might at the same time inspire local businesses and organizations to become more involved in the community,” said Jacque Larson, community relations manager for the city of Minnetonka.

This is the first time the city of Minnetonka has actively pursued sponsorships and donations from the business community.

“In developing practices related to sponsorships, the city has looked to examples from other cities, including Eden Prairie and Blaine,” said Larson.

Some upcoming opportunities include Summer Festival, the Burwell House Ice Cream Social, Music in the Park and the Farmers’ Market, among other.

To gain an idea of what a sponsorship may look like, imagine the following, The Dairy Queen Burwell House Ice Cream Social or Swanns presents The Burwell House Ice Cream Social.

kjsmith@bizjournals.com | (612) 288-2109

All contents of this site © American City Business Journals Inc. All rights reserved.

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Wednesday, February 17, 2010, 11:25am CST | Modified: Wednesday, February 17, 2010, 12:07pm

St. Paul Union Depot lands $35M in stimulus funds

Minneapolis / St. Paul Business Journal – by Alex Ebert Staff writer

St. Paul Union Depot will receive $35 million in federal stimulus funding to complete construction of a transportation hub, the Ramsey County Regional Rail Authority announced Wednesday.

The funds will come from $1.5 billion in Transportation Investment Generating Economic Recovery (TIGER) grants program, part of the federal stimulus bill passed last year. The Ramsey County Regional Rail Authority asked for almost $140 million to fund the $237 million total project cost.

The $35 million is a small chunk of the money Minnesota requested for transportation projects; in total, Minnesota requested about $1.4 billion, according to the US DOT. The Highway 169 and Interstate 494 upgrade project, to eliminate the remaining stop lights, along with 33 other projects, remain on the state’s unfunded TIGER wish list.

Ultimately the St. Paul Union Depot will be a hub linking the Central Corridor light rail line with Metro Transit, Greyhound and Jefferson bus lines and Amtrak’s hub. The construction is set to start after the U.S. Postal Service moves its Union Depot mail-sorting operations to Eagan by the end of 2010.

In December, Ramsey County selected a team led by Golden Valley-based M.A. Mortenson Co. to construct the project.

aebert@bizjournals.com | (612) 288-2112

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What’s next? There are still some possible funding strategies for this project, especially if there is another federal stimulus bill later this spring that is aimed at high priority transportation projects. Until then….

The voluntary program allows residents who are disturbed by aircraft noise to report it to MAC via a telephone call or through an online complaint system. If the noise is occurring between the hours of 10pm and 7am, which is the time when the voluntary noise mitigation guidelines are in force, the complaint will generate a letter from MAC to the offending pilot. The letter confirms the offense, reminds the pilot of the voluntary noise mitigation guidelines at Flying Cloud Airport and asks the pilot not to re-offend.

In 2009 there were 450 of these letters sent out by the MAC to 99 different operators. Some of the people receiving these letters were pilots who, for one reason or another, were not familiar with Eden Prairie or Flying Cloud Airport. When they were made aware of the noise guidelines in this letter, they wrote or called back to apologize and pledge their future compliance.

But most of the letters, 63% of them, went to only three operators. One operator got more than 100 letters in 2009. The identities of the recipients of these letters is not public data, so MAC does not release it to the public. But it’s a safe bet that these three operators are probably air charter operators who fly out of Flying Cloud. Just a guess.

These are operators who know the rules about noise mitigation at Flying Cloud, but need to break them in order to fulfill a customer’s needs to be wherever they need to be at whatever time they need to be there. They operate tax-paying businesses at the airport that employ people. That’s important. They provide necessary business travel services that help support the businesses in our community. That’s important. They also probably don’t have much of a choice about times of departure when it comes right down to it. If a paying client has to be in downtown New York City for a meeting at 8am tomorrow, that flight is going to be leaving at a time that violates the noise mitigation guidelines. That’s regrettable, but that’s what is going to happen.

So what do we do about this? The City does not manage the noise mitigation guidelines. It’s a MAC responsibility. MAC would like to change the program to allow them to send out the letters less frequently. The recipients of the bulk of the letters don’t need to be reminded that they are violating the noise mitigation program. They know it. They don’t need to get a new letter every time they violate the program. The letter is not going to cause them to change their behavior. The letter, in that sense, allows MAC to “check a box” in its compliance with the Final Agreement, but it does not help to create less noise for our residents.

I don’t know what we’re going to do about this request, but I do know the City Council is going to take it up for discussion at its March 9 Council meeting.

The tax on that list you might not know much about is the State’s property tax. If you pay residential property taxes, your taxes go to several levels of government: cities, counties, school districts, watershed districts, park districts (in some cases), housing & redevelopment authorities and the Metropolitan Council. That covers most of them, at least for residential property owners.

What is not widely understood, however, is that more than half of the typical property tax payment from an Eden Prairie commercial/industrial taxpayer goes to recipients outside our city borders: the State of Minnesota and the Metropolitan Fiscal Disparities Program. For example, there is a prominent Minnesota retail electronics business here in Eden Prairie with an annual property tax bill in 2009 of $352,414. Of that total, 11% of it goes to the City, 15.7% to the County and 14.1% to the School District. 28.3% goes to the State of Minnesota and 27.4% goes to the Fiscal Disparities Pool.

The 27.4% of their tax bill that goes to the Fiscal Disparities Pool is then redistributed throughout the metro area based on a need formula that was produced by the State Legislature a couple of decades ago. For the past two years, Eden Prairie has been advocating for a bill that would require the State Legislature to at least study the formula to see if it is accomplishing its goals. The bill gets out of committee, but never goes anywhere after that. Maybe this year…

So if you’re a business owner in Eden Prairie, keep this in mind. Yes, your city, county and school district tax you – but the biggest bite of your property tax dollar is taken by our friends in State government. Try listening to the public debate on property taxes at the State Legislature this year to see if you can hear any reference to that taxing relationship. My guess is that you won’t.

“I know a guy who knows a guy who has a house in Woodbury (or Burnsville or Bloomington or Shoreview, etc.) with the exact same valuation as my house here in Eden Prairie and his taxes are half what I pay here. Why is that?”

It’s a hard question to answer, on so many levels. The easiest answer that we try not to give reflexively is that the observation/allegation is not accurate/true. Our local property tax system in Minnesota is too complicated for this to happen very often. Just think of Eden Prairie for a moment. Everyone who lives in Eden Prairie lives in one city and one county, but there are three public school districts and three watershed districts that tax property in Eden Prairie. While the most common property tax combination of taxing bodies in our city (City of Eden Prairie, Hennepin County, Eden Prairie School District and Riley-Purgatory-Bluff Creek Watershed District) covers 90% of our residential taxpayers, there are other combinations of property tax rates in our city that complicate our ability to explain to residents how their taxes change from year to year. For example, the property tax bill for a $300,000 home in the Hopkins School District and Nine Mile Watershed District is different than the property tax bill of the $300,000 home in the Minnetonka School District and the Riley-Purgatory-Bluff Creek Watershed District and different still from the $300,000 home in the Eden Prairie School District and Lower Minnesota River Watershed District.

But even though the property tax question is complicated to answer, we still try to answer it. One of the ways that we try to answer this question is to compare our financials and operations regularly to a group of 12 comparable suburban communities. This group of cities is called the Municipal Legislative Commission (MLC) Group. It includes the following cities: Maple Grove, Plymouth, Minnetonka, Eden Prairie, Edina, Bloomington, Burnsville, Apple Valley, Eagan, Lakeville, Woodbury and Shoreview.

We recently completed a ten year analysis of the municipal property tax impact to on a hypothetical $300,000 property in each of these twelve communities. For this analysis, we used only the city’s property tax impact. We also kept the value of the hypothetical home the same for each year of the analysis, which is helpful in comparing the impact over time.

Now for the results…

In the first year of our analysis, 2001, of these twelve cities Eden Prairie ranked 3rd highest in terms of its city tax impact on the $300,000 sample property. Only Apple Valley and Burnsville were higher. In 2003, Eden Prairie moved down one rank to #4. Eden Prairie moved down the chart three more spots to #7 in 2005. We stayed #7 again in 2007. In 2009, we dropped one more spot to rank #8.

Reducing our relative property tax rank among our peer cities has been a goal of the City Council since I came here in 2002. It’s been a challenge from the City Council to City staff each year. We may not have reached the lowest property tax impact among our peers, but our results are indisputable: in the space of ten years we have reduced our relative property tax ranking among our twelve peer cities from #3 to #8 – all while keeping Eden Prairie’s image and quality of life in excellent shape.

And we’re not done yet. The challenge from our Council is still there: Continue to improve the value of our property taxes while continuing to enhance Eden Prairie’s community image. It’s a tough challenge, but we’ve made great progress toward this goal over the past ten years. We’re going to continue our work on it in the next ten as well.