Grand Island City Council Study Session - April 15, 2025

This was an open meeting of the Grand Island City Council held on April 15, 2025 at 6:00 PM in Council Chambers. The council discussed the FY2026 budget parameters, including revenue projections, expense estimates, and a proposed use of vacancy savings, as well as the future of the city's power generation portfolio, with a focus on building new natural gas capacity. Council members present included Council President Sheeran, Councilmembers Stelk, Nickerson, Brown, Mendoza, O'Neill, Pollock, Lanfier, and Mayor Steele. Councilmembers Conley and Hodzi were absent. Staff included City Administrator Laura McAloon, City Attorney Carrie Fisk, Assistant City Administrator/CFO Patrick Brown, and Utilities Director Ryan Schmitz.

Presentations and Proclamations

• Recognition of Grand Island Utilities Department Workers: The Mayor and council recognized line workers and dispatch operators for their exceptional response to the March 19 blizzard, which knocked out power to over 10,000 residents. Crews restored power in less than 24 hours, then assisted Fremont. On April 1, strong winds (70 mph) caused multiple outages in northwest and northeast Grand Island, and crews again responded quickly. Utilities Director Schmitz noted that Grand Island was one of the few utilities to have all customers restored that night. The recognition included a call for a photograph of the workers present.

Discussion Items

Financial Expenditure Review and FY2026 Budget Discussion

• Presenters: Patrick Brown (Chief Financial Officer) and Patrick Schultz (Budget Manager).
• Economic Outlook: The city enters the FY2026 budget process with cautious optimism due to an unpredictable economy. GDP growth is expected at 1.8% (down from 2%). Nebraska economy is projected for modest growth. Sales tax revenue, the city's largest general fund revenue source, is running 1.5% ahead of last year; a 1% increase is projected. Inflationary pressures persist in construction materials, fuel, equipment, and contracted services.
• Budget Parameters: Revenue increases are anticipated at 2% (about $1.1 million more). The property tax ask is proposed to remain flat at $12 million (the amount, not the rate). Operating expenses are expected to increase 10% across the general fund (about $1 million increase). Personnel expenses (salaries, benefits, pensions) are anticipated to increase 4%. No new full-time equivalents (FTEs) are proposed in the general fund for FY2026, with exceptions only if revenue-supported.
• Vacancy Savings Proposal: The city typically has vacancy savings due to turnover and unfilled positions (last year about $3.6 million). Currently, these savings go to the bottom line (reserves). The administration proposes a new policy: 50% of vacancy savings would stay in the general fund for staffing stabilization (e.g., COLAs, bargaining unit agreements, health insurance increases). The other 50% would be reviewed annually: first ensure the cash reserve meets the 30% minimum threshold, then any remaining amount would be transferred to the capital improvements fund for future projects. This would require a change in fiscal policy, which will be brought to council for a vote.
• Council Discussion: Councilmembers asked about the risk of accumulating a large unused fund, the impact of tariffs on utility and public works purchases (vehicles, transformers, etc.), and the possibility of using vacancy savings to reduce the property tax ask. Staff noted that current federal and state grants appear stable, though some future grant opportunities (e.g., BRIC emergency management) may disappear. The council expressed interest in further refining the vacancy savings proposal.

Future of Grand Island Power Generation

• Presenter: Ryan Schmitz, Utilities Director.
• Current Portfolio: Grand Island's generation assets include coal (Platte Generating Station, PGS, ~100 MW, built 1975), natural gas turbines (GT1, GT2, GT3), and renewable contracts (wind and solar). PGS is subject to federal Clean Air Act rules; the current administration has stayed new rules, extending PGS life. GT1 is aging and may become uneconomical to maintain. The city has excess capacity (green bars on charts) but that will decline as contracts expire.
• Options Presented: Three options were discussed: (1) Do nothing – rates would absorb the $4.1 million annual debt payment that ends in August 2028, but eventually capacity shortfalls would require drastic rate increases. (2) Build 22 MW of new natural gas generation – financially negligible rate impact, but leaves a larger gap if PGS is forced offline. (3) Build 37 MW of new natural gas generation – estimated cost of $111 million (based on ~$3 million/MW), with a potential 3% rate increase to cover the remaining $2.2 million annual gap after debt service, capacity market sales, and O&M. The 37 MW option brings the city close to covering the loss of PGS (100 MW) and provides flexibility for future technologies like small modular reactors (SMRs) by 2040.
• Staffing: The buildout would require repurposing existing positions: an operations trainer (to address declining experience – average operator tenure dropped from 32 years in 2013 to 9 years in 2025) and a temporary EIC technician trainer (to mentor replacements for aging staff). The city also plans to move water system monitoring to the dispatch center, potentially reducing operator shifts from 20 to 15 over time via retirements.
• Timeline: The next Southwest Power Pool interconnection study window opens in April 2026. The city needs a consultant to begin the process. Construction costs would start hitting around 2028, aligning with the end of current debt. Council support is needed to authorize hiring a consultant.
• Council Discussion: Councilmembers expressed strong support for the 37 MW option, noting the timing advantage of the $4.1 million debt fall-off and the risk of higher costs if delayed. Questions covered the role of the Southwest Power Pool (SPP), potential for gas pipeline from Northwestern Energy (now more cooperative than under previous ownership), the need for dispatchable generation (versus intermittent renewables), and the possibility of using the PGS site for gas conversion later. Council also discussed the potential for economic development from data centers (which require careful capacity management) and programs like smart thermostats (which offer negligible capacity savings).

Key Outcomes

• No formal votes were taken; this was a study session for discussion and direction.
• Consensus from council appeared to favor the 37 MW generation buildout (Option 3) as the prudent path forward, with a request for staff to proceed with hiring a consultant to begin the SPP interconnection process.
• Budget Direction: Staff will refine the FY2026 budget parameters, including the vacancy savings policy change, and bring them back to council for formal action. The council expressed interest in potentially reducing the property tax ask in the future.
• Next Steps: The administration will prepare a fiscal policy amendment for the vacancy savings proposal and present it to council. For power generation, staff will seek council approval to engage a consultant for the interconnection study and preliminary design work.