AGENDA #1a

MEMORANDUM

TO:                  Mayor and Town Council

FROM:            W. Calvin Horton, Town Manager

SUBJECT:      Preliminary Report on Development of the 2006-07 Proposed Budget

DATE:            March 22, 2006

The purpose of this memorandum is to report the status of work on development of the 2006-07 budget.

This is not the Manager’s recommended budget.  The Manager’s recommended budget will be presented to the Council on April 24, 2006.

INTRODUCTION

Overall Budget Issues for 2006-07

Key issues for the upcoming budget for 2006-07 include the following:

• Economic conditions.  While it is still early, we anticipate a slowing of the economy for the State by the end of 2006-07.
• Services and Stability.  We want to preserve the quality of services that citizens want while maintaining fiscal stability.
• Fuel Costs.  We anticipate increased fuel costs over the amounts budgeted for 2005-06 of approximately 20 cents per gallon for all types of vehicle fuel. 
• Bond Sale.  Per the Council’s proposed schedule, we would have a bond sale of $7.75 million in the fall of 2006-07.  The sale would require an interest-only payment in spring of 2007 of approximately $200,000.
• Downtown Development Initiative.  We earlier made a recommendation that the Council use $500,000 from existing funds to support parking for affordable housing at the development of Lot 5 and the Wallace Deck.  We anticipate that we would have a reduction in parking revenues when building begins on Lot 5 in 2007.  There would also be some additional costs for continued work on this initiative and related costs which we estimate at $60,000.
• Cost of operating the new Town Operations Center.  These costs include higher operating costs for items such as utilities for the larger-sized plant. We also estimate that we will need additional fuel because the new site is further from the center of Town than the current site.  In addition, we anticipate a three-month transition period during which we will need to have both the new and the current sites in use. 
• Capital Improvements.  We need to carefully review the 15-year capital improvements plan to ensure that we are meeting capital maintenance needs for Town facilities.
• Downtown Services.  We recommend improved services to the Town’s downtown district, especially police services.
• Pay Plan. The Town pay plan needs to maintain competitive compensation that continues to attract quality Town employees, based on prevailing wages in the Triangle labor market.
• Benefits. Medical benefits are currently projected to increase about 11 percent town-wide.

In addressing these key budget issues, the Council requested that budget information for next year be presented in a format that separates the base budget for continuing current operations from optional additions to the base budget that could be considered by the Council on a case by case basis. 

Based on this guidance from the Council, this status report provides our preliminary revenue and cost estimates for General Fund and Transportation Fund base budgets, and presents additions to the base as options for the Council’s consideration.  We also present preliminary budget proposals for the Stormwater Management, Housing and Parking Funds.

SUMMARY

Key Changes from the March 8 Budget Working Session Presentation

Revenue estimates were not updated at the March 8^th Budget Working Session presentation from the January 12 Council Retreat.  The Orange County tax assessor has provided an updated estimate of the tax base, and we are able to raise our original tax base estimation of $5.35 billion of assessed valuation to $5.46 billion of assessed valuation.  The total revenue available from property tax revenues is increased by $483,000 over the March 8^th presentation to $25.7 million.

Sales tax revenues have come in at a higher rate in the current year than anticipated at the time of the January 12 report.  We have raised our estimates of sales tax revenue for the current year to $9.1 million, approximately $900,000 over the current year budget.  The increased current year estimate affects the estimate of receipts in 2006-07, as does an increase in the expected sales tax rate of growth to 5 percent from 2005-06 to 2006-07.  Total sales tax receipts estimated in January as $9.2 million now are estimated to total $9.6 million in 2006-07.  While it is not unusual to have revenues in excess of budget, we have included $765,000 of the increase as a special use of fund balance.

On the cost side of the budget, we have just received new estimates for the proposed Aquatics Center which would require an additional $750,000 in funding.  We have added a provision for this amount in the preliminary report.

General Fund

• Base expenditures for next year’s budget are estimated to total approximately $46.2 million for the General Fund.  Base revenues total approximately $47.3 million.  The difference of about $1.1 million is available for priority additions to the preliminary base budget. 

• Additional funds are available for priority additions to the preliminary base budget and include the following: a new level of carry-forward ($1 million), Fire Protection Reserve ($114,000); a traffic grant adjustment ($50,000); additional sales tax revenue ($765,000), and one-time fund balance of $1 million as a result of a change in financial reporting requirements.  If the Council uses $1 million of the total $2 million in fund balance resulting from a change in financial reporting requirements, there still would be approximately $1 million available for use next year.

• Priority additions to the base budget total $4.2 million in costs and $4,200 in revenues.  Total costs for the preliminary base budget with priority additions are $50.4 million.  The difference between the total costs with priority additions and the total available revenues is a shortfall of $122,200.

• Other additions to the base total $614,700.

• We believe that the Council’s budget considerations should take into account the importance of retaining an unreserved, undesignated fund balance level sufficient to respond to emergencies, to take advantage of unexpected opportunities, and to preserve the Town’s current bond ratings of Aaa and AA+.

• We estimate that the value of one cent on the property tax rate will be approximately $546,000 in 2006-07.

Transportation Fund

Preliminary estimates of revenues and expenditures for the Transportation Fund base budget for next year show revenues equal to costs based on a $13.3 million base budget.  We have provided a preliminary list of possible additions to the base budget.

Stormwater Management Fund

Preliminary estimates of revenues and expenditures for the Stormwater Management Fund base budget for next year show revenues equal to costs based on a $1.6 million budget with a transfer of $532,000 to the General Fund as in this year.

Parking Funds

On-Street Parking Fund:  On-street parking revenues are expected to be about $600,000, about even with estimated revenues for 2005-06.  For 2006-07, we estimate revenues to be sufficient to allow a transfer of about $157,000 to the General Fund. 

Off-Street Parking Facilities Fund: Preliminary estimates of revenues and expenditures for the Off-Street Parking Fund base budget for next year show revenues equal to costs based on a $1,298,000 budget.  The budget assumes that Lot 5 will not be available for parking beginning in February of 2007.

Public Housing Fund

Preliminary estimates of revenues and expenditures for the Housing Fund base budget for next year show revenues equal to costs based on a $1,638,000 budget, a decrease of $3,000 from the original 2005-06 budget.

Other Funds

We also present preliminary budget proposals for the Debt Service Fund, the Capital Improvements Fund, the Housing Loan Trust Fund, the Library Gift Fund and the Downtown Service District Fund.

Budget Process to Date

The Council began the budget development process on January 12, 2006 with discussion at the annual planning retreat, followed by a community forum held on January 26, 2006 and two budget work sessions on March 1 and March 8.  Advisory boards and commissions made presentations on March 1 and the Town Manager and staff made presentations on March 8.

Remaining Budget Schedule

The Council will conduct a community forum on the 2006-07 budget this evening. 

Budget work sessions are currently scheduled for April 5, May 17, May 31, June 7 and, if desired, June 14.  Additional sessions may be scheduled.

The Manager will present a budget proposal on April 24; a public hearing on the recommended budget is scheduled for May 10.

The Council is scheduled to consider adoption of the budget on June 26.

PRELIMINARY GENERAL FUND BUDGET

Update on Current Year Revenues

Revenues in the current year are expected to be about $46,313,000, higher than budgeted by $1,260,000.  As we reported on January 12, the primary reason for the higher projection is the overall increase in sales tax estimates.  The sales tax estimates for 2005-06 were based on the information available in spring of 2005.  We underestimated the receipts for the 2004-05 year, and as a result used a base that was too low in estimating the 2005-06 receipts.  We used 3.5 percent for sales tax growth and our current projections show growth of 7.6 percent for 2005-06.  As a result, we have increased our estimate of sales tax in excess of budget to $918,000, based on our overall expected increase of 7.6%. 

As reported in January, interest earnings are anticipated to be higher than budgeted by about $200,000 because of interest rate increases.  We received a better banking agreement when CCB changed over to SunTrust, and we received over $4 million in property tax from a single mortgage company two months early, providing additional interest earnings. 

Other taxes and licenses are anticipated to be $90,000 greater than originally estimated because cable franchise fees increased substantially in 2005-06, as reported in January. Hotel and motel occupancy has been greater than anticipated, and we estimate that receipts from this source will exceed budget the $600,000 budget by about $100,000.

Utility franchise fees are based on a 3 percent tax on utility company gross receipts.  As such, the fees are affected by changes in the weather.  We are still estimating that we will receive the full budgeted amount for 2005-06 of $2,056,000 despite the mild winter.

Receipts from property tax revenues and other sources are projected to be close to budgeted amounts. 

Update on Current Year Expenditures

Expenditures are anticipated to be lower than budget by approximately $500,000.  These savings are primarily a result of salary savings from unfilled positions and positions held vacant. The other major source of savings is in costs we were able to avoid as a result of the mild winter. 

Summary of Estimated Current Year Revenues Less Current Year Costs

In summary, total estimated current revenues for 2005-06 (excluding any use of fund balance) are expected to be approximately $46,313,000.  Also budgeted for use in the current year is $2,755,000 in fund balance, providing a total available to spend in the current year of $49,068,000.  Total estimated current expenditures are expected to be approximately $47,139,000. 

The balance available for use in a future year is made up of several parts.  The normal carry forward is increased from $800,000 to a new level of $1 million; there is a planned set aside for new fire fighter positions of $114,000; a traffic grant adjustment adds $50,000 and there is additional sales tax of $765,000.  In addition, we have included $1 million of the approximately $2 million available from the change in financial reporting procedures.  The funds available total approximately $50 million.

General Fund Revenues for 2006-07

Property Tax

We estimate the property tax levy to grow by about $705,000 to $25.6 million.  The largest component of the property tax is the levy on real property.  We have received preliminary estimates from Orange County and have based our estimate on their information together with historic trends for the overall tax base.  We estimate an increase of about 3 percent overall.

Other Local Taxes

• Cable franchise revenues represent a tax of 5 percent on local Time Warner gross receipts.  We expect revenues to be about $500,000 in the current year and remain at the same level next year.

• Revenue from the 3 percent Hotel/Motel occupancy tax is expected to total about $700,000 in 2005-06 and 2006-07.

State-Shared Revenues

Sales Taxes

Sales tax revenue from the 1 percent sales tax based on Orange County receipts, the two ½ percent sales taxes based on State-wide collections and the ½ percent based on a combination of State and county collections are expected to be higher than estimated in the current year. We estimate that the two State-wide ½ percent taxes would increase from the current year estimates of $1.99 million and $1.97 to $2.09 million and $2.07 million, respectively; the 1 percent tax would increase from the current year estimate of $3.49 million to $3.67 million; and the combined ½ percent tax would increase from $1.65 to $1.97 million.  Combined, the sales tax is estimated to be $9.56 million, a $455,000 or 5 percent growth over 2005-06 estimates.

Motor Fuel Taxes (known as Powell Bill funds)

Motor fuel tax revenue is based on receipts of 1¾ cents of the State gasoline tax allocated to local governments, based on population and local street mileage in each jurisdiction. This revenue totaled $1,482,000 in the current year, or about $9,000 more than last year.  For next year, we anticipate revenues will increase to $1,492,000.

State Fire Protection Funds

We anticipate no change next year in the level of State Fire Protection Funds, totaling $1,063,000.   If State Fire Protection Funds were to increase, we would recommend that this increased funding be used to hire additional firefighters.

Utility Franchise Tax

Utility franchise taxes are derived from a 3 percent tax on gross revenues from public utilities in each jurisdiction, and are collected by the State for distribution to cities and towns.  We estimate that utility franchise fee distributions will meet the current year budget of $2,056,000 and will be the same next year.  Because the fees are dependent upon utility charges, they are affected by weather conditions and can vary from year to year. 

Beer and Wine Taxes

Assuming full receipt of the Beer and Wine tax revenue normally distributed in May to cities and counties, we estimate allocations from this source of about $220,000 for the current year and $225,000 next year.

In summary, we estimate State-shared revenues would total about $14,396,000 for next year. 

Other Revenue Sources

• Service Charges for various Town services and programs (including zoning compliance permits and Parks and Recreation programs) are estimated to decrease slightly from the current year’s estimated revenues of about $1,650,000 to about $1,620,000. The decrease of about $30,000 from current year revenues is expected because of anticipated decreases in a number of development related revenues.  There may be additional decreases in charges for services because of the possible closure of the Community Center if the Council decides to proceed with renovation plans, although we anticipate that the reduced revenues would be offset by reduced costs.

• Revenue from most licenses, permits, and fines, including privilege licenses and vehicle licenses, are expected to remain about the same as budgeted in 2005-06, with the exception of special use permits.  Because of major developments making submissions in 2005-06, we anticipate an increase in special use permits in the current year with estimated revenues of about $189,000, with a drop in revenues in 2006-07 to about $72,000.  Total charges for services are expected to be about $1.6 million in 2005-06 and $1.5 million in 2006-07.

• Investment income is expected to remain at about $340,000.

Summary of Revenues

In summary, we estimate General Fund revenues, including the use of $1,929,000 from the current year and $1 million carried forward from 2004-05, would total about $50 million.  However, our estimates at this point are subject to change based on changing local, State and national economic conditions.

The table below shows comparative estimates of total General Fund revenues for the current year and next year.

General Fund Costs

As requested by the Council, the preliminary estimate of General Fund costs for next year’s budget is shown in a format separating the base budget costs from optional additions to the base budget that could be considered by the Council. The table on the following page is provided to compare the preliminary base budget for next year to the current year’s base budget.  Attachment 1 is provided to show estimated costs for the base budget next year with additional columns to show preliminary options for consideration by the Council. 

Base Budget

The base budgets submitted by departments would allow continuation of basic services, but with little flexibility for unexpected occurrences.  The increase in the base budget is about $1.2 million or 2.8 percent.

We have been able to off-set new costs with reduced costs in other areas in the base operating budget, except for a few items including the following:

• the full-year cost of pay increases authorized for nine months this year ($230,000)
• Increased cost of employee medical insurance ($342,000)
• Increase in fuel costs because of increase in price per gallon ($108,000)
• Increase in natural gas ($12,000)
• Increase in electricity rates ($100,000)
• Increase in electricity cost for Town Operations Center operations ($61,000)
• Increase in fuel costs because of increased distance to Town Operations Center ($27,000)
• Town Operations Center utility transition costs ($13,400)
• Increase in vehicle replacement charges ($115,000)
• Increase in fleet use charges ($52,000)

The base budget does not include contributions to other service agencies except for the Chapel Hill Downtown Economic Development Corporation ($70,000), the Chapel Hill Public Arts Commission ($150,000) and $69,000 for visitor information and events as required by the laws regarding Hotel/Motel taxes.  Capital improvement costs in the base budget are limited to items involving contracts or other binding commitments made by the Council.

Total base debt service requirements are about level between 2005-06 and 2006-07, because the planned increase in the Town Operations Center debt is almost entirely offset by the decrease in other preexistent debt for a total base budget debt service of $4.8 million. The planned issuance of $7.75 million in General Obligation bonds in the fall of 2006 would require an interest-only payment of about $213,000 in 2006-07 and an additional debt service payment of about $813,000 in 2007-08.  Debt service on existing bonded debt and the Town Operations Center debt will increase by about $250,000 from 2006-07 to 2007-08, as well; since we recommended and the Council elected to pay reduced principle on the Town Operations Center debt in the first two years, to ease debt service payments in 2005-06 and 2006-07. 

The preliminary base budget includes costs necessary to continue current operations, but does not include costs for competitive employee compensation adjustments, any new positions or funding for contributions to agencies other than those listed above. 

Capital Improvement Costs

The base budget for the capital improvements program would require a $283,000 transfer from the General Fund and would limit costs to current installment debt payments and contractual obligations.   This base level would include the following:

• 152,000 Annual installment payment on renovations at Hargraves Center and A. D. Clark Pool

•   56,000 Annual payment on proposed contract for repairs at the Inter-Faith Council shelter

•     8,000 Annual payment on roof repairs at the Chapel Hill Museum

•   37,000 Annual payment on roof repairs at the Town Hall, Fire Stations #2 and #3

•   30,000 Annual payment on repairs to various tennis and basketball courts

Summary of Revenues and Expenditures

With estimated costs as discussed above and no reserve for pay adjustments or agency funding, the preliminary General Fund base budget costs would be about $46.2 million for 2006-07, and could be funded with total estimated revenues next year of $47.3 million.

Optional Additions to the Base Budget

The preliminary status report includes the following recommended priority options:

Reserve for Pay Adjustments

• The preliminary base budget expenditure estimates do not include a reserve for pay adjustments needed to be competitive in the Triangle labor market ($772,000).  We will present specific pay recommendations as a part of the recommended budget on April 24, 2006.

Police

• Five Officers for Downtown Police Patrol (9 months) ($261,000).  Additional positions are needed to create a downtown police patrol.  We recommend adding five positions and transferring two positions from other police operations.
• Police Mobile Data Terminals ($54,000).
• Additional software licenses and maintenance ($17,700).

Fire

• Six Firefighters (3 months) ($92,000).  The six additional officers would be the second phase of a three-year plan to increase staffing for the Fire Department by 18 firefighters.  State Fire Protection funds carried forward from the current year would off-set the cost of the new firefighters by $70,000, leaving a net cost of $22,000 in 2006-07.
• Vehicle to be shared by three on-shift Assistant Fire Marshals (first year cost) ($4,200).

Library

• Children’s/Teen Librarian (9 months) ($37,000).  The position would assist in serving children and youth at the library and respond to the 37 percent increase in children’s program attendance between 2000 and 2005.

Public Works

• Groundskeeper - Downtown District (9 months) ($27,600).  An additional dedicated groundskeeper would help improve the appearance of the downtown.

Engineering

• Traffic Technician (9 months) ($35,400).  The traffic technician would assist with signs and markings.  The cost of the position would be offset by increased revenues from the State ($35,400), a reduction in temporary salaries ($9,000) and a reallocation of Traffic Division funds ($8,400).
• New vehicle for Traffic Program Supervisor (first year cost) ($3,700).

Parks and Recreation

• Temporary salaries and supplies for Hargraves after-school tutoring program ($29,400).

Other

• Interior bus posters ($1,000).
• On-demand on-line video streaming of Council meetings (Town Clerk) ($31,000).
• Downtown Economic Development Initiative ($60,000).
• Funding for Non-profits for Affordable Rentals Group ($12,000).

Performance Agreements with Other Agencies

• Level provided for human service contracts, hotel/motel allocations and grants to other agencies in past years ($489,000). This level represents a continuation of payments made to various recipients for service contracts and allocations and grants at the same level as the current 2005-06 fiscal year. Note that the base budget includes $287,000 for Performance Agreements with other Agencies:

  • Chapel Hill Downtown Economic Development Corporation ($70,000)
  • Chapel Hill Public Arts Commission ($150,000)
  • Hotel/Motel tax required allocation for visitor information and events ($67,000)

Debt Service

• The proposed $7.75 million General Obligation bond sale for fall of 2006 would require an interest-only payment in 2006-07 of approximately $213,000.

Capital Improvement Program

• Optional capital improvements presented for consideration in the 2006-07 budget include the following and would have a total cost of $1,357,000, with an additional $60,000 funded from cell tower use revenues for a total of optional capital improvements of $1,417,000.

  Projects proposed for cash financing

  •         90,000      Extraordinary Maintenance, Emergency Repairs
  •         25,000      Curb Cut Improvements - ADA Compliance
  •         16,000      Jay Street Paving
  •       280,000      Town Hall: Replacement of HVAC Units
  •       135,000      Town Hall Vestibule Doors
  •         70,000      Mobile 800 MHz Radios for Fire Apparatus and Command Vehicles
  •         95,000      Fire Station #3 Capital Maintenance
  •       163,000      Fire Station # 2 Capital Maintenance
  •         60,000      Small Park Improvements
  •         65,000      Building Condition Assessment Program
  •         75,000      Parking Lots/Bike and Pedestrian Paths/Greenway Trails
  •         47,000     Greenways
  •         20,000     Cemetery Beautification

Projects proposed for installment contract financing

•       276,000      Community Center capital repairs (Total cost $2,000,000)

In addition to the capital improvement priority additions listed above, we have included an additional request for $750,000 as an additional allocation for the Aquatics Centers.  We have just learned of increased cost estimates that would require additional funding.

Priority Additions Summary

Attachment 1 provides summary budget information showing the base budget request as discussed above and two columns showing potential additions to the base budget in two priority sets.

Priority additions and estimated costs are shown in Attachment 1.  Adding the potential priority options to the base budget would result in a General Fund of about $50.3 million and would leave a shortfall of $122,200 after the addition of $4,200 in new revenue for a new planning fee for concept plan review. 

Other Options (not included in base budget)

Optional additions in this category and estimated costs are included in Attachment I.  The list includes additional options for consideration by the Council that were requested by Departments, Advisory Boards and Commissions and citizens to enhance existing programs and services for 2006-07.

A budget with these additions totals about $51 million and includes the following:

• Temporary salaries for learn to swim program at A.D. Clark Pool ($1,800).
• Inspections Plan Reviewer (12 months) ($71,700).
• Library Materials Processor (temporary) ($27,800).
• Database Administrator (10 months) ($66,000).
• Groundskeeper - TOC (6 months) ($18,400).
• Two Police Officers (9 months) ($104,333).
• Rescue equipment (Fire) ($4,700).
• Defibrillators (Parks and Recreation) ($10,200).
• Online Parks and Recreations registration application with online payment capability ($12,400).
• Street Reconstruction - Friday Center Drive ($200,000).
• New vehicle for Streets crew leader (first year cost) ($3,300).
• Self Contained Breathing Apparatus (Fire) ($59,100).
• Chapel Hill Public Arts Commission ($35,000)

In addition to these requests, we received requests from citizens and Advisory Boards and Commissions which we have not included in either priority additions or other additions, because of budgetary constraints.  These requests include:

• A Community Design Commission request for a part time planner;
• An Active Living by Design request for a transportation planner;
• A citizen request for $60,000 for seed money for a children’s camp at the Piedmont Wildlife Center;  and
• A Million Solar Roofs Committee request for $10,000.

We will continue to work with the Council in evaluating potential budget options as we work toward preparation of a recommended budget.

PRELIMINARY TRANSPORTATION FUND BUDGET

Key issues for the Transportation budget for next year include:

• The level of State and federal operating assistance available next year.
• Increased funding needs for employee medical insurance and workers’ compensation insurance and unemployment insurance costs.
• The local match requirement for capital equipment.  We expect to have more complete information in time for preparation of the Manager’s Recommended Budget.  We have included our best estimate.

Preliminary estimates of revenues and expenditures for the Transportation Fund base budget for next year of $13.3 million indicate that no tax increase would be necessary to continue current services. 

Expected revenue available for the system is based on preliminary estimates of federal and State operating assistance, and assumes that contractual arrangements with Carrboro and the University would continue based on current cost sharing agreements.  Discussions are underway with the University and Carrboro regarding specific services desired for 2006-07.  The final level of State and federal operating assistance will not be known until later this spring. 

Budget Revenues

A major issue for the Transportation Fund each year is the level of federal operating assistance, federal capital grants and State operating assistance available for transportation services. Revenue estimates for the base budget include:

• Our preliminary estimate of federal operating assistance includes almost flat funding of $1,115,000. 

• We anticipate that we will receive State operating assistance of $3,396,000 for 2005-06, $896,000 more than we budgeted.  A portion of the increase is one-time and a portion is continuing.  We estimate that in 2006-07 we will receive $2,934,000, an increase of $434,000 over the 2005-06 budget.

• University payments would be about $4.7 million based on its share of requested services.

• Carrboro payments would be about $938,000.

• The Town’s share of costs would be about $2.7 million.

Our preliminary estimate of total revenues available for next year would be about $13.3 million including the use of vehicle license fees, as in past years, and $140,000 of fund balance.

Transportation Budget Costs

The cost of providing the base budget Transportation services next year is estimated to be about $13.3 million or about 5.5 percent over the current year’s amended budget, with key cost increase areas as noted below:

• Anticipated medical insurance increase of 11 percent ($111,000).

• Workers’ compensation increases of $66,000.  Approximately $24,000 of the increase is because $40,000 of the Transportation Fund’s workers’ compensation costs were allocated in error to the General Fund in the current year.  The balance is an estimate of the increased costs associated with increasing staff and the general increase in medical costs.

• Anticipated unemployment cost increases of $11,000.

• We have increased the fuel budget from about $1,253,000 to about $1,763,000 ($510,000).  We used a rate of $2.50 per gallon and $2.20 per gallon to cover an anticipated increase in the average cost per gallon for buses and other transportation vehicles, respectively.  Of that total increase, $130,000 is attributable to the additional miles required for six months working from the new Town Operations Center.  We made our calculations using the number of total weekdays for half a year multiplied by the average number of buses leaving per day together with the additional round trip distance (8 miles) from the current site to the new Town Operations Center site.

• We have preliminarily estimated that electricity costs would increase by $63,000 ($12,000 because of price increases, $46,000 for the additional cost for the new Town Operations Center, and $5,000 for transition costs).

• We have estimated the contribution to the vehicle replacement reserve at $300,000.  We expect to have more complete information on the local match requirements in the Manager’s Recommended Budget to be presented on April 24, 2006.

The total preliminary estimate of costs to continue current routes and fare free service is about $13.3 million next year. Expenditures at this level would not require additional revenue from the Town.

Summary of Revenues and Expenditures and Fund Balance

Preliminary cost projections equal preliminary revenue projections at about $13.3 million.  The planned use of $140,000 in fund balance would leave sufficient fund balance for a 12 percent minimum reserve.

Potential Additions to the Transportation Base Budget

Possible additions to the base budget include the following:

• An allocation for employee pay adjustments effective October 1, 2006, which would cost approximately $290,000.
• Additional funding for University routes - Bible Church and U route ($224,000).
• Additional funding for Carrboro feeder service ($80,000). 

In 2006-07 the University would cover the cost of the specific additional routes requested for University service and Carrboro would cover the cost of the new feeder service.  Pay adjustments or other additions to the base budget would be shared by the Town and our transit partners, the University of North Carolina at Chapel Hill and the Town of Carrboro.  The Town pays approximately one-third of the cost of any additions.  Priority options total $594,000.  The Town portion of the additional costs would be approximately $132,000.

OTHER FUNDS

We are developing budget recommendations for the following other funds and present a preliminary budget picture below.

Stormwater Management Fund.  Stormwater Management Fund estimated revenues for 2006-07 total about $1.6 million, approximately the same amount as budgeted in 2005-06.  The $532,000 transfer to the General Fund for current operations is expected to remain about the same as in 2005-06.

On-Street Parking Fund:  On-street parking revenues are expected to be about $601,000, about the same as originally budgeted for 2005-06.  For 2006-07, we estimate revenues to be sufficient to allow a transfer of about $157,000 to the General Fund. 

Off-Street Parking Facilities Fund: Revenues for the off-street parking lots are estimated to be about $1.3 million, about the same as originally budgeted for 2005-06.  The estimated budget assumes that Lot 5 would be closed in February of 2007 with the beginning of construction of the condominiums, retail space and parking as proposed in the Downtown Initiative, but current estimates assume that all other parking would continue to be available.  

Housing Fund:  Estimated costs for next year total about $1,638,000, an increase of about $38,000 from the original 2005-06 budget.  Fund balance has been used to achieve a balanced budget, because no increase is anticipated in the federal housing subsidy.  Estimation of the subsidy has been made more difficult, because the federal government is requiring a new budgetary year for public housing.  The federal subsidy will be determined on a calendar year basis; although the Town will continue to budget on a fiscal year basis.  As a result, the Council may need to amend the public housing budget mid-year, when we learn of the amount of the subsidy for public housing for the second half of the fiscal year. 

Debt Service Fund:  A transfer from the General Fund of approximately $4,827,000 would be required to make scheduled payments for principal and interest on the Town’s debt obligations for next year.  The debt payments include about $2,661,000 for on-going debt and an estimated $2,166,000 for the debt service payments related to the Town Operations Center.  Total base debt service would be about level between 2005-06 and 2006-07, because the planned increase in the Town Operations Center debt is almost entirely offset by the decrease in other preexistent debt for a total base budget debt service of $4.8 million.  The planned issuance of $7.75 million in General Obligation bonds in the fall of 2006 would require an interest-only payment of about $200,000 in 2006-07 and an additional debt service payment of about $800,000 in 2007-08. 

Capital Improvements Fund: A transfer of $283,000 is included in the base General Fund budget proposal. The base budget amount only includes payments for ongoing contractual obligations. Optional funding levels for the capital improvements program are presented in a separate report.

Housing Loan Trust Fund:  Projects will be funded as directed by the Council, with costs restricted to be in balance with revenues.

Library Gift Fund:  For the preliminary base budget, we project a transfer to the General Fund of $45,000 as in past years. 

Downtown Service District Fund: The current tax rate of 5.12 cents is estimated to generate about $70,000 in revenue in the current year.  Downtown district revenues are allocated entirely to the Downtown Partnership. 

The Chapel Hill Downtown Partnership brings the resources of the Town, University and downtown community together to maintain, enhance and promote downtown as the social, cultural and spiritual center of Chapel Hill through economic development.

Requests by Others

The Council has received funding requests from other agencies which are not included in the base budget or in the list of priority additions for the Council’s consideration.

Some of these requests are appropriate for consideration through Community Development or HOME Program funding and are discussed in separate reports in this agenda item. All requests will be considered as we work toward preparation of the Manager’s recommended budget.

CONCLUSION

We hope that this status report on the development of the 2006-07 budget will help the Council as it continues its deliberations. We look forward to receiving further feedback, advice and instruction from the Council as we continue work on the budget. The Manager’s recommend budget will be presented to the Council on April 24, 2006.

ATTACHMENTS

1. General Fund – Revenue and Cost Estimates for 2006-07 (p. 20).
2. Transportation Fund – Revenue and Cost Estimates for 2006-07 (p. 21).