AGENDA #1a

MEMORANDUM

TO:	Roger L. Stancil, Town Manager
FROM:	Kay Johnson, Finance Director
SUBJECT:	Preliminary Report on Development of the 2007-08 Proposed Budget
DATE:	March 28, 2007

The purpose of this memorandum is to report the status of work on development of the 2007-08 budget.

This is not the Manager’s recommended budget. The Manager’s recommended budget is scheduled to be presented to the Council on April 23, 2007.

SUMMARY

General Fund Overview

With the 2007-08 budget year, the Town will be able to enjoy several new and renovated facilities: the Town Operations Center, the Aquatics Center and the Community Center. The new facilities bring improved services to the community, but they also bring increased debt service and operating costs. The costs related to the new facilities, as well as a number of other developments, offer challenges in developing the 2007-08 budget.

When we projected the General Fund revenues and costs for 2007-08 in the 2006-07 budget, we estimated an almost $2 million shortfall between revenues and costs and planned to use $1 million in fund balance to cover a portion of the increase. The projected shortfall was made up of an increase in projected debt service costs (approximately $1 million), an increase in personnel costs because of 15 new positions, and projected increases in operating costs because of the opening of the Town Operations Center, the Aquatics Center and the re-opening of the Community Center. Since those projections were made, we have had a number of developments which are expected to affect the General Fund budget:

While sales taxes derived from State-wide revenues have increased as projected, sales tax revenues based on sales within Chapel Hill have continued to drop. Our current sales tax projections are $700,000 less than projected in 2006-07.

6 additional grant-funded firefighters with an additional matching cost of approximately $120,000 in 2007-08.

The Downtown Initiative was approved, with costs expected to add as much as $500,000 to the budget between 2006-07 and 2007-08, including the possible set-aside of $300,000 for environmental remediation.

The federal government changed the funding method and subsidy for Public Housing with costs likely to exceed revenues by $237,000 or more.

The Town’s actuarial study yielded an estimate of liability for retiree health benefits that is significantly higher than that of similar sized governmental units.

The Aquatics Center is currently planned to open in February of 2008, several months earlier than estimated at the time of last year’s budget projections.

After the planned use of $2 million in fund balance ($1 million in normal carry forward and $1 million in planned fund balance use to cover increased debt service), the base budget of $50.2 million exceeds expected revenue sources by approximately $310,000. While the shortfall could be covered by fund balance, we don’t recommend doing so. Fund balance is appropriately used for one time costs, such as capital purchases or one-time contracts, rather than for operating costs which recur year after year. With one cent on the tax rate equal to $556,000, the base budget would require a .6 cent tax increase.

Possible priority additions to the budget total $4.7 million. The Town could use as much as $2.1 million in fund balance to cover one-time costs in the priority additions and still retain a fund balance of 15 percent, excluding the planned reserve for debt service in 2008-09 and 2009-10 of $400,000 and $600,000, respectively. However, we would not recommend the use of fund balance for any ongoing costs, since on-going costs should be covered by on-going revenues.

Of those possible priority additions, $2 million are for continuing cost items and $2.6 million are for one-time costs. At a $52 million budget, the Town could retain a 15 percent unreserved fund balance, retain the planned reserve of $1 million for debt service payments in 2008-09 and 2009-10, and use a total of $2.11 million in fund balance for one-time costs. Funding for $2 million in priority additions for continuing operations would cost 3.7 cents on the tax rate. One-time priority additions total, $2.6 million and could reasonably be funded by use of fund balance or as a tax rate increase. The chart below summarizes the alternatives for use of fund balance and tax revenues.

Potential Budget Shortfall	Continuing Operations	One-Time Costs	Cents on the Tax Rate
Base Budget	309,795		0.6
Priority Additions Continuing operations One-time costs	2,036,425	2,620,300	3.7 4.7
Fund Balance Available		2,110,000	3.8

The Council can reach a balanced budget through a combination of use of fund balance, reduction in costs and tax rate increases. (See Attachment 1, General Fund Revenue and Cost Estimates.)

Transportation Fund Overview

The Transportation Fund is expected to have base costs of $14.7 million, with revenues to cover all but $168,000 of those costs, a smaller shortfall than projected in 2006-07. Priority additions totaling nearly $700,000 are presented for consideration. The cost of additions would be shared by the Transit partners and would require an additional $218,000 from the Town. A 0.3 cent tax increase would cover the difference. (See Attachment 2, Transportation Revenue and Cost Estimates.)

Overall Budget Issues for 2007-08

Key issues for the upcoming budget for 2007-08 include the following:

Economic conditions. While it is still early, we anticipate a slowing of the economy for the State in 2007-08. We also anticipate a continued slowing in retail sales tax receipts in Chapel Hill.
Services and Stability. Our goal is to preserve the quality of services while maintaining fiscal stability.
Debt Service Costs. As projected in 2006-07, debt service costs are increasing by almost $1 million in 2007-08 because of funding for General Obligation bonds issued in 2006-07 together with funding for the Town Operations Center, the new Aquatics Center and the major Community Center renovation.
Cost of operating the new facilities. These costs include initial operating costs for the Aquatics Center, higher operating costs for items such as utilities for the larger-sized plant for the Town Operations Center, and operational costs for reopening the Community Center including the addition of air-conditioning. We also estimate that we will need additional fuel to and from the Town Operations Center because the new site is further from the center of Town than the current site.
Downtown Development Initiative. We anticipate costs of between $280,000 and $580,000 for continuing work on the downtown development initiative. Some of these funds may be budgeted in 2006-07 and some in 2007-08. The need for environmental remediation, if any, will determine the total cost of the project.
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.
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. The cost to maintain current medical benefits is currently projected to increase about 11 percent town-wide.

In addressing these key budget issues, we have continued using 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.

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.

Budget Process to Date

The Council and staff participated in a review of the budget process in fall of 2006. The process began with a combined Council and staff retreat to review Council goals and objectives on January 19 and 20. The retreat was followed by a community forum held on January 31, 2007 and a budget work session to continue examining goals and objectives on February 7. Priority additions to the base budget reflect Council priorities as discussed at the retreat and budget work session. Advisory boards and commissions made presentations on February 28. At the same meeting, the Transportation Director made a presentation to provide the Council with background information on the Transportation Department services and goals and needs for the future.

Remaining Budget Schedule

The Council will conduct a community forum on the 2007-08 budget this evening.

Budget work sessions are currently scheduled for April 11, May 2, and May 23. Additional sessions may be scheduled.

The Manager is scheduled to present a budget proposal on April 23; a public hearing on the recommended budget is scheduled for May 16.

The Council is scheduled to consider adoption of the budget on June 11.

PRELIMINARY GENERAL FUND BUDGET

Update on Current Year Revenues

Revenues in the current year are expected to be about $47.7 million, more than budgeted by $300,000. The primary sources of revenues in excess of budgeted amounts are occupancy taxes ($150,000), special use permits ($158,000), and utility franchise fees ($250,000). On the other hand, sales taxes are currently estimated to be under budget in the current year by approximately $360,000. Sales taxes based on state-wide sales continue to increase, but sales taxes based on sales within the Town decreased from 2004-05 to 2005-06 and continue to decrease. Reasons for the decrease include citizens traveling outside of Orange County to make purchases, citizens using the internet and avoiding Orange County sales taxes, and reduced population growth in Chapel Hill relative to population growth in Orange County and in the State.

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

Update on Current Year Expenditures

After putting cost containment measures into place to help off-set the expected increases in the base budget for 2007-08, expenditures are anticipated to be lower than budget by approximately $1,530,000. These savings are primarily a result of cost containment measures, salary savings from unfilled positions, costs we were able to avoid as a result of the delayed move to the Town Operations Center and a mild winter.

Summary of Estimated Current Year Revenues Less Current Year Costs

In summary, total estimated current revenues for 2006-07 (excluding any use of fund balance) are expected to be approximately $47.7 million. Also budgeted for use in the current year is $3.7 million in fund balance, providing a total available to spend in the current year of $51.4 million. Total estimated current expenditures are expected to be approximately $49.5 million, for a total of $1.9 million in revenues and fund balance over costs. Of that amount, $1 million is anticipated for normal carry-forward and $900,000 as available above the normal carry-forward amount.

General Fund Revenues for 2006-07

Property Tax

We estimate the property tax levy to grow by about $500,000 to $25.6 million in the current year. 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 three percent overall in property taxes for 2007-08.

Other Local Taxes

Cable franchise revenues represent a tax of five percent on local Time Warner gross receipts. We are projecting revenues to be about $550,000 in the current year. Effective January 1, 2007, the Department of Revenue changed the distribution calculation for cable franchise revenues, but has issued no estimates of the impact on individual governments. Following guidance from the League of Municipalities, we are budgeting next year’s revenues to remain about the same as prior years.
Revenue from the three percent Hotel/Motel occupancy tax is expected to total about $850,000 in 2006-07 and $935,000 in 2007-08. Revenue trends are affected by University events and general economic trends.

State-Shared Revenues

Sales Taxes

Sales tax revenue is expected fall short of budget in the current year by about $336,000. While we estimate that the two State-wide ½ percent taxes will exceed the budget in the current year and continue to grow next year, we expect the one percent tax on Chapel Hill sales to decrease in both the current year and next year. Combined, sales tax is estimated to increase about one percent over the current year estimate of $9.22 million, to $9.33 million in 2007-08.

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 $1,459,000 in the current year, a decrease of about $23,000 from last year. For next year, we anticipate revenues will remain about the same at $1,460,000.

State Fire Protection Funds

We anticipate no change next year in the level of State Fire Protection Funds, totaling $1,063,000.

Utility Franchise Tax

Utility franchise taxes are derived from a three 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 slightly exceed the current year budget at $2,300,000 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 $230,000 for the current year and next year.

In summary, we estimate State-shared revenues would total about $14,382,000 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 increase slightly from the current year’s estimated revenues of about $1,576,000 to about $1,661,000. The increase of about $85,000 from current year revenues is expected because of the (re)opening of parks facilities in 2007-08.
Revenue from most licenses, permits, and fines, including privilege licenses and vehicle licenses, are expected to remain about the same as budgeted in 2006-07, with the exception of special use permits. Because of major developments making submissions in 2006-07, we anticipate an increase in special use permits in the current year with estimated revenues of about $130,000, with a drop in revenues in 2007-08 to about $20,000. Overall, revenues related to residential development are expected to decrease in 2007-08. While the Town is expecting condominium developments, these developments are not as large as Southern Village and Meadowmont. Total charges for services are expected to be about $1.6 million in 2006-07 and $1.4 million in 2007-08.
Investment income is estimated to be about $500,000 in the current year and $350,000 next year. Investment revenue is high in 2006-07 because of the Town’s substantial fund balance.

Summary of Revenues

In summary, we estimate General Fund revenues, including the use of $1,533,000 from the current year, would total about $49 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.

	06-07 Budget as Amended	06-07 Estimated	07-08 Projection
Property Taxes Other Taxes Licenses/Permits State-Shared Grants Service Charges Interest Other Interfund Transfers Fund Balance	25,713,000 1,235,000 1,532,000 14,421,000 424,000 1,559,000 414,000 307,000 1,798,000 3,661,000	25,728,000 1,439,000 1,644,000 14,277,000 429,000 1,576,000 504,000 380,000 1,717,000 1,533,000	26,130,000 1,524,000 1,376,000 14,381,000 415,000 1,661,000 354,000 283,000 1,803,000 2,000,000
Total	51,064,000	49,227,000	49,927,000
(Rounded to nearest thousand.)

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 $1.74 million or 3.6 percent. Most department budgets have increased primarily because of pay increases in the current year and are roughly in line with current rates of growth in the economy. The largest increase in operating expenses is for the Parks and Recreation Department. The increase results in large part from the opening of the new Aquatics Center and the reopening of the Community Center.

The Information Technology base budget has increased at a greater than average rate as a result of cost growth in four areas, all of which are contract services: Town-wide networking and desktop software additions, VOIP telephone maintenance contract costs, fiber optic data and voice services for the Town Operations Center, and web site hosting costs. The Engineering budget has also increased at a greater rate, primarily due to greater emphasis and costs in the operation, management, and improvement of the computerized Traffic Signal System serving Chapel Hill and Carrboro, including provision of comprehensive traffic engineering support services.

General Fund Expenditures
Department	06-07 Original Budget	07-08 Base Budget	% Change
Mayor	104,570	108,700	3.9%
Council	234,510	242,700	3.5%
Manager	891,680	925,170	3.8%
Clerk	412,800	423,210	2.5%
Human Resources	722,440	716,060	-0.9%
Finance	1,127,560	1,152,740	2.2%
Information Technology	886,940	939,680	5.9%
Legal	270,730	273,770	1.1%
Planning	1,111,820	1,154,010	3.8%
Inspections	782,600	786,130	0.5%
Engineering	1,982,190	2,064,420	4.1%
Public Works	10,678,040	10,993,870	3.0%
Police	11,104,510	11,340,410	2.1%
Fire	6,569,500	6,545,430	-0.4%
Parks and Recreation	2,318,470	2,861,680	23.4%
Library	2,214,230	2,196,150	-0.8%
Non-Departmental¹	843,260	744,820	-11.7%
Capital Improvements Transfer	1,275,250	588,650	-53.8%
Estimated Medical Insurance Increase	-	376,535	N/A
Liability Insurance Increase	-	72,000	N/A
Workers Compensation Increase	-	195,000	N/A
Subtotal	43,531,100	44,701,135	2.7%
Debt Service - Base	2,798,050	3,044,575	8.8%
Debt Service - Town Operations Center	2,165,950	2,491,450	15.0%
Total Base Budget	48,495,100	50,237,160	3.6%
¹2006-07 Budget shown net of contributions to agencies, as they are not included in base budget in 2007-08.

Increases to the base budget include:

The full-year cost of pay increases authorized for nine months this year - $148,882
Increased cost of employee medical insurance - $376,500
Increase in workers’ compensation expenses - $195,000
Hepatitis B vaccinations for at-risk personnel (OSHA requirement) - $39,790
Reopening of Community Center - $60,020
Opening of Aquatics center - $224,390
Increase funding for preventative tennis court resurfacing - $20,000
Increase in operations expenses attributed to the move to the TOC - $134,000
Increase in natural gas - $24,700
Increase in electricity cost - $53,613
Increase in vehicle replacement charges - $226,867
Increase in fleet use charges - $58,655
Increase in water and sewer charges - $34,700
Increase in vehicle fuel costs - $24,059
Liability insurance - $72,000
SAFER grant match - $117,000
Increase funding for streets reconstruction - $90,000

The base budget does not include contributions to other service agencies except $93,500 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 up sharply between 2006-07 and 2007-08, because of the planned increase in the Town Operations Center debt and because the issuance of $4.95 million of General Obligation bonds in the fall of 2006 requires an additional debt service payment of about $416,000 in 2007-08. Debt service on the Town Operations Center debt will increase by $325,500 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 total contractual obligations for 2007-08 total $689,900, but after reallocating $101,250 in carry-forward funds from other capital projects, the base budget for the capital improvements program would require a $588,650 transfer from the General Fund. This amount limits costs to current installment debt payments and contractual obligations. This base level would include the following:

Annual payment on renovations at Hargraves Center and A. D. Clark Pool	$146,000
Annual payment on renovations to the Community Center	232,900
Annual payment on the new Aquatics Center	183,000
Annual payment on proposed contract for repairs at the Inter-Faith Council shelter	55,000
Annual payment on roof repairs at the Chapel Hill Museum	8,000
Annual payment on roof repairs at the Town Hall, Fire Stations #2 and #3	36,000
Annual payment on repairs to various tennis and basketball courts	29,000
	$689,900

Summary of Revenues and Expenditures

With estimated costs as discussed above and no reserve for pay adjustments or discretionary agency funding, the preliminary General Fund base budget costs would be about $50.2 million for 2007-08. Funding for these costs would primarily come from estimated revenues for next year totaling $47.9 million, plus $2 million of fund balance. The remaining shortfall is $310,000 for continuing operations. While there is available fund balance to cover the shortfall in the current year, we recommend using a recurring source of funding for recurring costs. With one cent on the tax rate equal to $556,000, the base budget would require a .6 cent tax increase.

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 ($754,790). We will present specific pay recommendations as a part of the recommended budget on April 23, 2007.

Inspections

New Code Enforcement Officer ($72,086).

Planning

Carolina North consultant ($50,000).
High Density Development consultant ($20,000).
Sustainability, Environment, and Energy Committee consultant ($25,000).
Tree ordinance consultant ($25,000).

Police

Reverse notification development plan ($22,000).

Public Works

GroundskeeperII position to provide landscape maintenance at the TOC ($38,449).

Information Technology

Contracted support services to service the TOC ($46,250).
Intern or temporary salary for IT website development ($21,500).

Finance

Risk Management broker for Workers’ Compensation ($20,000).

Housing

Housing subsidy – overhead costs ($236,700).

Other

Staff development training expenses ($100,000).
Retiree health liability ($560,000).
Downtown Initiative ($364,000).

Performance Agreements with Other Agencies

The level provided for human service contracts and grants to other agencies in past years ($736,900). This level represents a continuation of payments made to various recipients for service contracts and grants at the same level as the current 2006-07 fiscal year. The base budget includes only the $93,500 required as a function of the Hotel/Motel tax for the promotion of cultural events and tourism.

Performance Agreements with Other Agencies	Base Budget	Potential Additions
Human Services
Human Services Advisory Board Recommendations		225,000
Friends of the Chapel Hill Senior Center		30,000
Joint Orange/Chatham Community Action Agency		18,900
Orange County Senior Center		46,700
Orange County Retired Senior Volunteer		12,300
Total Human Services	-	332,900
Arts
Chapel Hill Public Arts Commission		150,000
Cultural Arts Dinner		500
ArtsCenter		10,000
Total Arts	-	160,500
Affordable Housing
Orange Community Housing and Land Trust		124,000
Affordable Rentals Group		13,500
Total Affordable Housing	-	137,500
Economic Development
Contributions to culture and tourism		8,500
Chapel Hill/Orange County Visitors Bureau		85,000
North Carolina High School Athletic Association		30,000
Downtown Economic Development Corporation		70,000
Orange County Economic Development Commission		6,000
Total Economic Development	93,500	106,000
Total Contributions to Agencies	93,500	736,900

Priority additions can be funded either through fund balance, reduction in other costs, or new revenue sources. The chart below shows priority additions that would be appropriate uses of fund balance and those that would be best funded through other options.

Priority Additions To the Base Budget

	Continuing Operations	One-Time Costs
Potential costs of general market and merit
adjustments effective October 2007	754,790
Staff development training	100,000
Code Enforcement Officer	72,086
Groundskeeper II	38,449
Carolina North consultant		50,000
High Density Development consultant		20,000
Sustainability, Environment, and Energy Committee consultant		25,000
Tree consultant		25,000
Reverse Notification Development Plan	22,000
Risk Management Broker		20,000
Information Technology services (web and TOC)	67,700
Contributions to Agencies	736,900
Housing Subsidy	236,700
Retiree Health Liability		560,000
Work truck for sign installations (First year cost)	7,800
Downtown Initiative		364,000
Priority CIP projects		1,556,300

Totals	2,036,425	2,620,300

Other options that we are unable to recommend because of concern for budgetary constraints include requests by Departments and others to enhance existing programs and services for 2007-08. These are included in Attachment 3.

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.
The local match requirement for capital equipment grants. We will revise the estimate as information about next year’s grant funding becomes available, and have included our best estimate at this time.

Preliminary estimates of expenditures for the Transportation Fund base budget for next year total $14.7 million and exceed current Town available revenues by about $168,000. We do not anticipate sufficient fund balance to cover the shortfall. At $556,000 per one cent, a 0.3 cent tax increase would be required to fund the base budget as projected for 2007-08.

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 2007-08. 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 flat funding of $1,115,000.
We have received State operating assistance of $3,433,000 for 2006-07, $133,000 more than budgeted. We are estimating 2007-08 operating assistance to remain at $3,400,000.
University payments would be about $5.6 million based on its share of requested services.
Carrboro payments would be about $1.07 million.
The Town’s share of costs would be about $3.5 million.

Our preliminary estimate of total revenues available for next year is about $14.5 million including the use of vehicle license fees of $140,000 as in past years.

Transportation Budget Costs

The cost of providing the base budget Transportation services next year is estimated to be about $14.7 million or about 5.9 percent over the current year’s original budget, with key cost increase areas as noted below:

Anticipated medical insurance increase of 11 percent for $113,000.
Workers’ compensation increases of $58,000.
Anticipated property and liability increases of $16,000 and $29,900 from both general rate increases and the additional cost to insure the new facility.
Fuel cost increases of $370,000 attributable to the additional miles required for working from the new Town Operations Center.
Increase in utility costs of $42,000 for the additional cost of the new Town Operations Center.
We have estimated the contribution to the vehicle replacement reserve at $291,620. This preliminary estimate may be adjusted as grant awards are announced and matching requirements are verified before the Manager’s Recommended Budget is currently scheduled to be presented on April 23, 2007.

The total preliminary estimate of costs to continue current routes and fare free service is about $14.7 million next year. Expenditures at this level would require additional revenue of $167,606.

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, 2007, which would cost approximately $221,000.
2 additional Mechanics - $114,763.
Administrative Receptionist - $49,162.
Parts Clerks -$43,457.
Elimination of reduced service schedules - $107,665.
Expanded service to Weaver Dairy Road Extension at rush hour and midday - $91,458.
Training for maintenance staff - $13,500.
Marketing and promotion - $15,000.
Charges by General Fund - $20,216.

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 shared additions. Priority options total about $698,000. The Town’s portion of the additional costs would be approximately $218,000.

Also under consideration is added service to the Chatham Park & Ride Lot ($291,430 offset by grant revenues of $101,666.) The expansion of service to the Chatham Park & Ride lot would cost $189,764 and would increase the University’s contract by that amount.

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 2007-08 total about $1.6 million, approximately the same amount as budgeted in 2006-07. The Stormwater Fund currently provides $500,000 in direct services to the General Fund.

On-Street Parking Fund: On-street parking revenues are expected to be about $600,000, about $34,000 less than originally budgeted for 2006-07. For 2007-08, we estimate revenues to be sufficient to allow a transfer of about $126,000 to the General Fund.

Off-Street Parking Facilities Fund: Revenues for the off-street parking lots are estimated to be about $1.4 million, about $167,000 less than originally budgeted for 2006-07. The estimated budget assumes that Lot 5 would be closed in early 2008 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: There are new accounting and budgeting rules required by HUD for 2007-08, as well as a new funding allocation. The new rules are intended to encourage housing authorities to operate like for-profit property management firms and limit the ability to fund overhead costs with program revenues and federal grants. The new funding allocation is expected to result in decreasing federal subsidies. The combination of a decreased subsidy and limited funding of overhead costs has led housing agencies to reexamine management and overhead costs.

Estimated costs for next year total about $1,583,000, a decrease of about $55,000 from the 2006-07 budget, while HUD’s operating grant is expected to decrease by about $106,000. New limitations on funding of overhead costs would require $236,700 in other funding (requested as a transfer from the General Fund) to continue current operations.

Debt Service Fund: A transfer from the General Fund of approximately $5,536,000 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 $3,045,000 for on-going debt and $2,491,000 for debt service payments related to the Town Operations Center. The issuance of $4.95 million in General Obligation bonds in the fall of 2006 requires an interest-only payment of about $105,000 in 2006-07 and added debt service payments of about $460,000 in 2007-08.

Capital Improvements Fund: A transfer of $589,000 is included in the base General Fund budget proposal. The base budget amount only includes payments for ongoing contractual obligations, partially offset by a reallocation of carryforward. The Town has accumulated a number of capital maintenance projects. Attachment 4 shows a listing of those projects which make up the priority additions to the base General Fund budget.

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 nine cents is estimated to generate about $142,000 in revenue in the current year. Downtown district revenues fund a groundskeeper position and are allocated 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 2007-08 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 recommended budget is currently scheduled to be presented to the Council on April 23, 2007.

ATTACHMENTS

General Fund – Revenue and Cost Estimates for 2007-08 (p. 19).
Transportation Fund –Revenue and Cost Estimates for 2007-08 (p. 20).
Departmental Budget Additions List (p. 21).
Capital Plan Recommendation Summary-Fiscal Year 2008 (p.23).