AGENDA #1b

BUDGET ISSUES AND PRELIMINARY ESTIMATES

FOR 2004-05 BUDGET

GENERAL FUND

Brief Update on Current Year Budget 2003-04

Revenue in the current year is on target with budgeted amounts except:

• Property tax is expected to be $452,000 above the adopted budget because of a higher tax base than budgeted.
• We anticipate at least $108,000 in FEMA reimbursements that are not yet budgeted this year.
• Utility Franchise Fees are expected to be below budget by about $130,000 based on collections to date this year.  Collections are historically volatile because the industry is affected by market fluctuations.
• Interest earnings are expected to be below budget by about $80,000 because of lower cash balances and low rates.
• Powell Bill revenues are below budget by about $80,000 because of a census count correction reducing Chapel Hill’s population (one of the factors determining the Town’s Powell Bill allocation) and because of a reduction in State dollars available for Powell Bill distribution overall from the prior year ($20,000).
• The Occupancy Tax is expected to be below budget by about $40,000 because of lower hotel/motel receipts.

• Sales Tax revenues are anticipated to be close to the amount budgeted.  The census recount which reduces the Town’s sales tax base in the current year appears to be largely offset by an increase in overall sales.

We will do our best to limit expenditures to a total that is $800,000 under the budgeted amount in the General Fund as planned.  If we are able to attain this goal, we should be able to maintain a balanced budget this year and use $800,000 for next year, consistent with practice in previous normal years. 

Overall Budget Issues for 2004-05

Key issues for the upcoming budget for 2004-05 include:

• Current economic conditions and uncertainty about the pace of economic recovery for the Town and for the State as a whole.

• New debt service for design and site work on the Town Operations Center ($150,000).

• New debt service for General Obligation bonds to include covering the cost of $700,000 in open space already purchased.

• The need for a pay plan to maintain competitive compensation that continues to attract quality Town employees, based on prevailing wages in the Triangle labor market.

• Projected potential increase of about $460,000 (15-18%) in employee medical costs as this sector of the economy becomes less competitive and medical costs continue to rise.  A projected potential increase of about $158,000 (23%) in workers’ compensation costs relates, in part, to increased medical costs.

Assumptions and Preliminary Estimates of Major Revenues

in the General Fund for 2004-05

• The State will begin to make a slow recovery this year and the recovery will continue at a slow pace in 2004-05.

• A property tax base estimated at $4.43 billion next year, assuming about a 3% growth over an estimated base this year of $4.3 billion.  Revenue on the estimated base would be about $22.2 million, with 1 cent of the tax rate generating about $442,800.

• Sales tax revenue of about $7.8 million is about a 3.5% increase over the existing sales tax budget based on the expected slow economic improvement next year. 

• Franchise tax revenue is expected to be about $2.04 million.  This is an increase of about $60,000 over the current year budget estimate.

• Beer and Wine tax revenue of about $205,000, the same as in the current year.

• Powell bill funds for street maintenance totaling $1.35 million, about the same as received this year.

• Interest earnings of about $145,000 are based on interest rates increasing slightly from current low levels.

• State fire protection funds at the same level as last year ($850,000).

• Other service charges, fees, permits, licenses and transfers at current levels.

In summary, we estimate total General Fund revenue of about $41.3 million, including normal use of $800,000 in fund balance and $491,000 in additional fund balance accumulated from prior year savings that the Council set aside to offset any potential tax rate increase in 2004-05.

General Fund Cost Issues and Preliminary Estimates for 2004-05

• Funding design and site work for the Town Operations Center.

• Paying full year costs of pay increases authorized for 9 months in 2003-04.

• Providing for moderate increases in operating costs.

• Providing funds for a projected increase in medical insurance and workers’ compensation costs.

• Continuing adequate employee compensation adjustments to remain competitive in the Triangle labor market.

• Continuing funds for technology improvements.

• Continuing funds for the recommended 15-year Capital Improvements Program.

Considering the issues notes above, attached is a summary of our preliminary cost estimates for a base budget for 2004-05, and estimates for potential additions to the base budget.

Beyond 2004-05

The Council will need to determine a potential schedule for the issuance of General Obligation bonds authorized in November 2003, while planning for debt repayments necessary for design and construction of the Town Operations Center.

General Fund Conclusion

• The estimated base General Fund budget totals about $40.8 million and could be funded with estimated total revenues of $41.3 million including normal appropriated fund balance of $800,000 and the Council reserve for one-time use of $491,000 leaving a difference of about $536,000.

• Potential additions to the base budget including compensation adjustments, providing grants to other agencies at prior year levels, an allowance for moderate increases in operating costs, estimated payments on debt for the design and site work for the Town Operations Center, estimated payments for the debt service for new General Obligation debt would total $1.9 million and would require additional revenue of about $1,344,000 next year.

• 1 cent of the tax rate in 2004-05 is estimated to generate about $442,000 in revenue.

• The preliminary budget estimates do not include the cost of any new positions or potential new programs or services.

TRANSPORTATION FUND

Brief Update on 2003-04 Budget

Revenue in the current year is on target with budgeted amounts except:

· We received an increase of approximately $889,000 in State operating assistance during 2003-04.  This increase was the result of the General Assembly’s decision to make a distribution on a one time basis of additional State Maintenance Assistance Program (SMAP) funds to municipalities.  It is anticipated that this additional revenue would allow a transfer to the Transit Capital Reserve Fund to be used toward the Transportation Operations Center.

Preliminary Revenue Estimates for 2004-05

· A major issue for the Transportation Fund each year is the level of federal operating and capital grants and State operating assistance available for transportation services.

· Our preliminary estimate of federal operating assistance includes an increase of about $93,000 in preventative maintenance funds. 

· We anticipate that State operating assistance will continue at the budgeted level for 2003-04 (approximately $1,574,000).

· Our preliminary estimate assumes continued participation by the University and Carrboro at current levels and an allocation of fund balance of about $535,000 in fund balance. Our preliminary estimate of total revenues available for next year would be about $10.5 million.

Preliminary Cost Estimates for 2004-05

· Our preliminary estimate of costs to continue current routes and fare-free service and provide funding for compensation adjustments, expected medical and workers’ compensation increases, and matching funds for capital expenditures would total about $11 million next year. Expenditures at this level would require an allocation of fund balance of about $535,000 for 2004-05.

· Potential additions to the base budget include:

o Paying full year costs of pay increases authorized for 9 months in 2003-04.

o Providing for moderate increases in operating costs.

o Providing funds for a projected increase in medical insurance and workers’ compensation costs.

o Increase in General Fund charge for management services.

OTHER FUNDS

Parking Funds

Initial review of parking revenues and parking activity for the Town’s off-street parking lots this year indicates that parking revenues would be adequate to cover parking expenses and debt service.

Public Housing Fund

For the Town’s public housing program, we anticipate a continuing level of federal support sufficient to ensure that revenues cover costs. 

ATTACHMENTS

1. General Fund Preliminary Revenue Estimates for 2004-05 (p. 6).

2. General Fund Preliminary Cost Estimates for 2004-05 (p. 7).

3. Transportation Fund Preliminary Revenue Estimates for 2004-05 (p. 8).

4. Transportation Fund Preliminary Cost Estimates for 2004-05 (p. 9).

5. An Overview of Debt Issuance and Repayment (p. 10).

6. Potential Funding for Transportation Operations Facility (p. 15).