AGENDA #2
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TO: |
Mayor and Town Council |
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FROM: |
Roger L. Stancil, Town Manager |
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SUBJECT: |
Response to Request for Budget Cuts Sufficient to Provide a 2007-08 Budget with no Tax Increase |
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DATE: |
June 6, 2007 |
The purpose of this budget work paper is to respond to the Council request made at the May 23 Budget Work Session for a budget proposal excluding a tax increase for 2007-08.
The Manager’s Recommended Budget included a 1.9 cent tax increase in the General Fund and no increase in the Transportation Fund. That increase was projected in the budget discussion for 2006-07. The Recommended Budget included that increase to cover the debt service and operating costs for the following new and renovated facilities:
In the 2006-07 Budget, the Council also added 21 new positions, primarily in public safety. The Recommended Budget for 2007-08 includes the cost of these positions funded for a full twelve months.
The Town’s debt service costs have outpaced revenue growth. Increase in debt service in FY 2007-08 from FY 2006-07 alone is approximately $1,000,000, equivalent to almost two cents on the tax rate. There is much to show for this investment - a new Town Operations Center, a new Aquatics Center and a renovated Community Center. The costs of operating those new facilities, however, are also an increased expense.
In November 2003, the voters authorized $29.36 million in bonds. If the Town had issued those bonds at one time, the average tax effect in each of the 20 years that the Town would be repaying the bonds would be 4 cents on the tax rate. In addition to this voter-approved debt, the Town has almost doubled its debt service requirements to pay for the new Town Operations Center. While property values continue to increase, that increase is not sufficient to cover the increasing debt service. Without a tax rate increase, the Council would need to decide what services to eliminate or reduce. This is difficult when there appears to be a high level of citizen satisfaction with basic Town services.
While property tax revenues continue to show growth, sales tax revenues based on retail sales within Chapel Hill have continued to drop. Our current sales tax projections are $400,000 less than projected in 2006-07.
Other expenditure pressures in the 2007-08 budget include the following:
The budget shortfall included in the Manager’s Recommended Budget was $1,042,000. A portion of the shortfall can be made up with $180,000 in revenue omitted from the Manager’s Recommended Budget because of a clerical error. Council members also propose using $519,000 in forced savings in the current year budget for next year’s budget. The Recommended Budget anticipated building the fund balance with these savings in order to mitigate the future tax rate burden associated with the Town’s increasing debt service in the coming two years. While the funds can be used for next year’s budget, we would not anticipate a similar savings in 08-09. If our projections are correct, the Council would need to continue to use fund balance for operations, find another source of revenue, or reduce services.
I had proposed to use a portion of the $180,000 clerical error to fund the Youth Council request ($40,000) and a fuel reserve ($80,000). The $80,000 would have raised the budget for gasoline in the 2007-08 budget up to the current price of gasoline, approximately $2.52 per gallon for the Town.
If the clerical error and the fund balance are used to avoid a tax increase, the remaining funds required to achieve that goal is $343,000.
I recommend that you eliminate the fuel reserve. We will report to Council in December on the Town’s fuel experience in this volatile fuel market and recommend an appropriation from the Council’s contingency if required. I recommend adding back support for the Youth Council at a reduced rate ($35,000). If Council accepts this recommendation, the new target is $378,000.
Under the general principle that the newest proposed additions should be the first items removed from the budget, we offer the following reductions:
In place of the police officer position, the Council could consider a position reduction in public housing which could yield about the same amount as a police officer. This action will require a layoff or reassignment.
We remain committed to providing the services that the Town and the Council wish to continue at the highest level possible. Reduced funding, however, will affect service levels and will reduce the flexibility for new proposals during the year.