ATTACHMENT A

MEMORANDUM

TO:                  Mayor and Town Council

FROM:            W. Calvin Horton, Town Manager

SUBJECT:       Status Report on Development of the 2000-2001 Budget

DATE:             March 29, 2000

INTRODUCTION

The purpose of this memorandum is to report the status of work on development of the 2000-2001 budget.

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

Process To Date

The Council began the budget development process on January 14, 2000, with discussion at the annual planning retreat, followed by a community forum on January 25.

Eight Town advisory boards made budget requests and comments in work sessions conducted on February 16.

In accordance with federal requirements, the Council considered and approved a Housing Department budget on March 6.

The Council received budget presentations from eleven Town departments in meetings conducted on March 1 and 3.   The remaining three departments will make their budget presentations to the Council on April 5.

Remaining Schedule

The Council will conduct a community forum on the 2000-2001 budget on March 29, and may conduct further budget discussions that evening in a work session format. 

The Manager will present a budget proposal on April 24; and, the Council has scheduled a budget work session on April 26.

The public hearing on the budget will be held on May 10. An additional work session is tentatively scheduled for May 17.

The Council is scheduled to consider adoption of a budget on June 12^th.

Recommended Additional Work Session

We recommend that the Council schedule an additional work session during the week of April 17^th for Council discussion of key issues.  We believe that such discussion will be valuable to the Council in working toward a final budget.

SUMMARY

General Fund

The present General Fund tax rate is 52.4 cents.

Based on estimates at this stage of budget development, the costs of continuing present services in the General Fund would total $33,475,000, including:

·        new debt service payments ($430,000)

·        employee pay and classification adjustments recommended by consultants ($789,000)

·        an increase in the allocation for capital improvements ($190,000)

·        A cost increase in employee medical insurance ($113,000)

·        Higher workers’ compensation insurance costs ($54,000)

·        An allocation for higher fuel costs ($46,000), and

·        Implementation of curbside refuse collection next year ($53,000 savings in first year)

·        Elimination of four police officers assigned to work at the high schools and middle schools ($219,000 savings)

Costs of providing services in areas proposed to be annexed effective June 30, 2000, would add $16,000 to the total, principally for public works services.  The planned annexation of Southern Village effective June 30, 2001, would add about $99,000 in costs:  $65,000 for six firefighter positions to be filled in the last quarter of the fiscal year and $34,000 for a sanitation crew and installment purchase of equipment.

Annexation costs would raise the projected budget total to about $33,592,000.

With revised base revenues now estimated, increases in fee revenues discussed by the Council, use of interest earnings on bonds proceeds, and a normal use of about $800,000 fund balance, a budget at this level could be balanced by an increase of 3.1 cents in the current General Fund tax rate, from 52.4 cents to 55.5 cents.

A penny on the tax rate would generate about $302,000 in 2000-2001.

Transportation Fund

The present Transportation Fund tax rate is 3.9 cents.

Based on present information, we estimate costs next year would total about $6,961,000.  Costs are projected to increase primarily because of:

·        Employee pay and classification adjustments recommended by consultants ($245,000)

·        An allocation for higher fuel costs ($128,000)

·        Increased overtime costs because of inability to fill regular positions ($109,000)

·        Higher workers’ compensation and medical insurance costs ($47,000), and

·        Costs of one service attendant position ($24,000) and one mechanic position ($30,000) necessary to provide proper maintenance for the bus fleet.

We estimate base revenues of $6,492,000 in 2000-2001.  Additional revenues of $469,000 would be necessary to balance the budget.  We recommend use of about $225,000 in fund balance, similar to past years; and, implementation of the special $5.00 vehicle registration fee authorized by the Legislature to support transit services ($125,000).  In addition, a tax rate increase of 4/10^ths of a cent would be needed, raising the tax rate to 4.3 cents for the Transportation Fund.

Option:  We recommend that the Council consider an option that would provide fare-free bus services for all passengers on all routes. 

Under a proposal being discussed by staff representatives of the Town of Chapel Hill, the University and the Town of Carrboro, the University would pay the full costs of fixed-route services that are used almost exclusively by University students, staff, and faculty, specifically routes on the campus and express services from park-ride lots.  Each of the transit partners would share remaining system costs based on the “share of population” method now in use for all cost sharing.  Passengers would be able to board any bus and ride to any part of the system without charge.

Passenger fares and passes now generate about 27% of transit system income. Under this proposal, the transit partners would be responsible for full system costs.  The Town would pay about $177,000 more in next fiscal year if the fare-free proposal is adopted, equivalent to a tax rate increase of about 6/10ths of a cent.  We estimate that total ridership would increase by 5-10% if the proposal is implemented.

Landfill Fund

Operation of the County-wide solid waste management function is scheduled to transfer to the County effective April 17, 2000.  Therefore, the 2000-2001 budget for this operation will be prepared by the County Manager for review and adoption by the County Commissioners.

Housing Fund

The Council adopted a 2000-2001 budget for the Housing Fund on March 6, consistent with the federal schedule for budget submittal.

Estimated costs for next year total $1,404,000.  Federal operating assistance, rents paid by public housing residents, and normal use of fund balance should be sufficient to meet costs.

Other Funds

Debt Service Fund: Transfers from the General Fund and proposed use of interest earnings on bond proceeds would be sufficient to make scheduled payments of $2,109,000 for principal and interest on the Town’s prior debt obligations and $430,000 in new debt payments on the new bonds sold in February, 2000.

Capital Improvements Fund: Transfers and other revenues will provide $783,000 in funding for projects described in the following report on the Capital Improvements Program.

On-Street Parking Fund: On-street parking revenues will be sufficient to allow a transfer of about  $340,000 to the General Fund.  No changes are proposed in parking fees or fines.

Off-Street Parking Facilities Fund: Revenues are expected to be about $1,016,000 and costs about $1,006,000. The preliminary budget includes $35,000 for continued maintenance improvements of the Rosemary Street Parking Deck.

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: We project a transfer to the General Fund of $35,000, the same as in this fiscal year.

Downtown Service District Fund: At this stage of budget development, we propose no change in the Downtown Service District tax rate of 6.2 cents.  Revenues are estimated to be about $46,000 in 2000-2001.  The Downtown Commission proposes to continue services to the District under contract to the Town.

GENERAL FUND BUDGET HIGHLIGHTS

General Fund Revenues

We anticipate no new sources of revenue in the General Fund for 2000-2001. Since our January report, we have refined estimates of base revenues and have taken into consideration increases in certain fees.  We also recommend that interest income on bond proceeds be used to offset about half of the cost of new debt payments next year so that the budget impact of these payments is phased in over a two-year period. 

Property Taxes and Other Local Taxes:

·        We estimate the property tax base for the current year will be about $10 million more than previously estimated.

·        We expect about $60 million in normal property tax base growth next year.

·        Annexations anticipated to be effective June 30, 2000, would add about $15 million to the tax base.

·        The total property tax base for 2000-2001 is estimated to be about $3,020,000,000.

·        With the revised tax base estimate, one cent on the tax rate will generate about $302,000.

·        Cable television franchise taxes are estimated at about $275,000.

·        Hotel/motel occupancy taxes are projected to total about $585,000.

State Shared Revenues:

·        Local option sales taxes are projected to increase by about 5%, from $5.7 million to $6 million. (We continue to estimate conservatively due to the potential impact of Hurricane Floyd on the portion of sales tax revenue based on State-wide collections.)

·        Utility franchise taxes are predicted to increase about 4%, from $1.65 million to $1.72 million.

·        Motor vehicle fuel taxes (also known as Powell Bill funds) are predicted to increase about 3%, from $1.318 million to $1.35 million.

·        State fire protection funds are expected to remain the same at $850,000.

·        No change in other State-shared revenues is anticipated.

Charges for Services:

·        Recommended increases in fees charged for various planning and development review services would generate about $80,000 above the present level of revenue (from $135,000 to $215,000).

Licenses, Permits, Fines and Forfeitures:

·        A recommended increase in the privilege license fee for the miscellaneous business category would produce about $25,000 in additional revenue.

·        Building inspection permits based on collections to date are now expected to be about $600,000 in the current year, an increase of $100,000 over our January estimate.

·        For 2000-2001, we estimate building inspections permits will continue at the higher level.

·        A 15% increase for engineering inspections is estimated to raise revenues by about $10,000.

Interest Income on Bond Proceeds:

For 2000-2001, we recommended allocating interest income from the newly issued bonds to help pay the additional debt service on these bonds in the first year. 

With new debt payments of $430,000 next year, we recommend about half this amount, or $215,000 be paid from interest income anticipated on the bond proceeds prior to expenditure for the various capital projects.  By allocating these earnings for the new debt service, the budget impact of the additional expense could be phased in over a two-year period. 

Interest income on bond proceeds can only be used for the capital projects or for debt service payments.

General Fund Costs

Services:  Most General Fund services would continue as in the present budget.  Two services would be changed:

·        Elimination of four police officer positions now assigned to work at the high schools and middle schools ($219,000 savings).

·        Implementation of curbside refuse collection next year ($53,000 savings in first year).

Cost Increases:  The estimated cost of continuing most services and providing for annexations planned for 2000-2001 and 2001-2002 is about $2,000,000 higher than in this fiscal year.  Components of the increase include:

$ 789,000        Funding pay and classification adjustments as recommended by          consultants (see discussion below)

   430,000        Additional principal and interest payments on new bonds

   200,000        Full-year cost of 8-month pay increases effective in 1999-2000

   175,000        Additional funding for the full year cost of six firefighter positions funded for six months this year ($145,000) and three other positions funded for 9 months this year ($30,000)

   113,000        Estimated cost increase for group medical insurance programs

   100,000        Additional retirement payments for law enforcement officers as required by State law

   100,000        Additional funding to continue the capital equipment replacement program approved by the Council in prior years

     54,000        Increased cost of workers’ compensation insurance  

     46,000        Allocation for higher fuel costs

  25,000        Cost of $1.00 tipping fee increase in estimated landfill fees

  18,000        Cost of public works and other services for annexations planned to be effective June 30, 2000

  65,000        Cost of six firefighter positions for the last quarter of the year, to prepare for annexation of Southern Village effective June 30, 2001

  34,000        Cost of sanitation crew and installment purchase of equipment in preparation for annexation of Southern Village

Grants to Others: Funding for grants to other agencies in exchange for specific services would continue at about the same level as in this year.

$ 178,200        Human services agencies performance agreements

   129,750        Hotel/motel occupancy tax performance agreements, including:

87,750 Chapel Hill-Orange County Visitors Bureau

20,000 Arts Center

  7,000 Chapel Hill Public Arts Commission

                                                10,000 North Carolina High School Athletics Association

                                                  5,000 Fiesta del Pueblo

              77,000           Orange Community Housing Corporation

   30,000          Orange County Senior Center

   18,900          Joint Orange-Chatham Community Action Agency

   12,300          Orange County Retired Senior Volunteer Program

     6,000          Orange County Economic Development Commission

           $452,150          Total

Capital Improvement Costs

Preliminary cost estimates for 2000-2001 include $783,000 in funding for capital repair and maintenance of Town facilities, an increase of $190,000 over the present budget. 

Increased funding will allow installment contract financing to pay for renovation of the Hargraves Community Center and the A.D. Clark Swimming Pool and structural repairs and exterior renovation of the Old Post Office and the Old Town Hall (Inter-Faith Council Community Shelter).  Total costs of $1.2 million would be repaid over a ten-year period.  Payment in the first year would be about $90,000 and about $180,000 in succeeding years.

This method of financing would require a public hearing and approval by the Local Government Commission.  Installment financing is a frequently used method in North Carolina and we anticipate no difficulty in obtaining approval of the Commission.

The preliminary capital improvements program also lists projects to be paid for with bond funds and funds provided by grants from others.  In addition, consistent with the Council’s desire to establish a 15-year capital improvements program, we include a list of unfunded projects identified by department heads as being needed now or in the near future and a list of longer-range projects.

Employee Pay and Classification Recommendations

Town employee compensation increases recommended for fiscal year 2000-2001 would implement the second phase of the pay system review that began in 1998:

• Study Initiated: During 1998-99 the Council directed that a review be made of the way that pay increases are granted.  A consultant worked closely with the Council and with employees in developing recommendations for a simpler and more predictable system for granting and communicating increases.

• Phase 1:  With adoption of the 1999-2000 budget the Council adopted a new pay structure and approved funds to implement Phase 1 of the pay system.  Employees received salary increases to place their salaries onto salary steps, and many employees received increases to reduce salary compression.  Phase 2 would be considered with the 2000-2001 budget, and would include implementation of results of a labor market review.  The Council authorized funds in 1999-2000 for a consultant to conduct a labor market study and classification and pay review.

• Phase 2:  The Town-wide review of Town positions in comparison to the labor market has been conducted, and the priority for employee pay changes this year would be to implement those study results.  Classification and pay changes would be implemented October 1, 2000.

Implementing Classification and Pay Study results:  Projections from other employers show that area organizations anticipate a pay increase averaging 4% to 5% for their workers, and the employment market in the Triangle area is competitive due to the low unemployment rate.  If the Town is to continue to attract and retain good workers, it is important that the Town's wages be competitive and that employees at all levels of the organization receive a reasonable increase in their salary. 

Every four to five years the Town conducts classification and labor market reviews of all positions.  The Council approved funds in the 1999-2000 budget for a consultant to conduct this survey, and Condrey and Associates from Athens, Georgia, has been conducting this review since July 1999. The consultant’s pay study will provide the basis for recommendations on classification and pay.

Along with authorizing a classification and pay review, the Council adopted a resolution to set a policy on the Town’s competitive position within the area labor market.   The resolution adopted by the Council said, “The approximate third quartile of market data shall be used to determine local market comparability for Town positions.”   Paying salaries at the 75^th percentile for all positions rather than the median or average rate should allow the Town to be more successful in recruiting and retaining employees in the competitive Research Triangle Area labor market.  The consultants have collected this market data and are making recommendations on implementing salaries at the 75^th percentile of the local market for all classifications.

Implementation costs:  Costs for classification and pay plan implementation would include several components:

• The proposed new October 1, 2000, salary schedule would maintain current schedule components such as hiring rates, probationary steps, intermediate steps, and the Job Rate, but would be revised so that compression in the lowest grades would be lessened.  The structure of the new schedule would be the same from the bottom to the top of the scale, instead of compressed at the bottom. 

• With acceptable performance, employees with salaries below the new Job Rate would be put onto a step (Hiring rate, Probationary step, or steps 1 through Job Rate) in the new salary schedule. Employees with one or more years of service would receive an additional step, so that salaries will not be compressed with those of new employees. These step adjustments would be the employee’s pay increase for 2000-2001.

• An average increase of 4.5% is proposed for employees above Job Rate.

Increases would be implemented October 1, 2000.  Costs for these increases and related benefits, implemented as of October 1, are anticipated to be $1,088,000 in all funds ($789,000 General Fund,  $242,000 Transportation Fund,  $15,000 Parking Fund, and $42,000 Housing Fund).

A detailed report on employee pay and classification recommendations will be presented along with the Manager's Recommended Budget.  The consultant is scheduled to make his report to the Council on April 26.

TRANSPORTATION FUND BUDGET HIGHLIGHTS

We note that conversations continue with the University and the Town of Carrboro regarding specific bus services desired for 2000-2001; and, that the final level of State and federal operating assistance will not be known until later this spring.

Budget Revenues

For the Transportation Fund budget for 2000-2001, we recommended an increase of $5 in the current vehicle license fee of $15 per vehicle, with the increase allocated for the Transportation system.  The additional $5 per vehicle is estimated to generate about $125,000 next year.  Other revenues sources are expected to remain the same next year with estimated amounts as follows.

·        Federal operating assistance is expected to be about $735,000, an increase of about 8.9%.

• State operating assistance is expected to be about $550,000, the same as in the current year. (The additional of $515,000 received this year from a special legislative appropriation is not expected to continue next year.)
• University payments would increase from $1.4 million to $1.53 million, and increase of about 11% due to higher personnel costs and escalating fuel prices.
• Carrboro payments would increase substantially next year from $486,480 to $608,000 due primarily to the percentage change in its population under the Memorandum of Understanding agreement, along with increased operating costs.
• Chapel Hill payments would be about $1,735,000 reflecting higher personnel and fuel costs.
• Sale of passes and fares are estimated to increase to about $1.7 million.

With the proposed increase in vehicle fees and revenue changes in base revenues as noted above, we estimate total revenues for 2000-2001 would be about $6,617,000.

Transportation Budget Costs

The cost of providing Transportation service next year is estimated to increase by about 11%, with key cost increase areas noted below:

·        Because of escalating fuel prices we estimate the increase needed in the fuel budget next year would be about $128,000 (from $197,000 to $325,000).

·        Continuing difficulty in hiring qualified drivers to meet service demands is expected to result in higher overtime salary costs.

·        Consultant’s recommendations for pay and classification adjustments totals about $245,000.

·         A request for one service attendant position and one maintenance mechanic position to provide adequate bus repair and maintenance would add about $54,000 in costs.

Our preliminary estimate of costs to continue current services totals about $6,961,000. 

With estimated costs of $6,961,000 and revenues of $6,617,000, we believe consideration of an increase in the Transportation tax rate is necessary.  We recommend that the revenue gap of $344,000 be funded with about $225,000 in fund balance and an increase of about 4/10 of a cent in the Transportation tax rate.  Closing the entire gap using fund balance would reduce the remaining undesignated fund balance to about $525,000 (less than 10% of the current budget) which would be below a prudent and minimal level recommended by the Local Government Commission.

Option:  We recommend that the Council consider an option that would provide fare-free bus services for all passengers on all routes. 

Under a proposal being discussed by staff representatives of the Town of Chapel Hill, the University and the Town of Carrboro, the University would pay the full costs of fixed-route services that are used almost exclusively by University students, staff, and faculty, specifically routes on the campus and express services from park-ride lots.  Each of the transit partners would share remaining system costs based on the “share of population” method now in use for all cost sharing.  Passengers would be able to board any bus and ride to any part of the system without charge.

Passenger fares and passes now generate about 27% of transit system income. Under this proposal, the transit partners would be responsible for full system costs.  The Town would pay about $177,000 more in next fiscal year if the fare-free proposal is adopted, equivalent to a tax rate increase of about 6/10ths of a cent.  We estimate that total ridership would increase by 5-10% if the proposal is implemented.

Costs of implementing the fare-free system are not included in the preliminary budget total.

Requests by Others

The Council has received a number of funding requests from other agencies.

Some of these are appropriate for consideration through Community Development or HOME Program funding and are discussed in separate reports in this agenda item. Some are appropriate for consideration by the Human Services Advisory Board and have been referred to the Board for their review.

The preliminary budget includes no special grants to other agencies except those listed in the above section titled "Grants to Others."

CONCLUSION

We hope that this status report on development of the 2000-2001 budget will be helpful to 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 Manager’s recommended budget. The Manager’s recommend budget will be presented to the Council on April 24.

Attached to this report are the following tables and graphs relating to our General Fund revenue and expenditures estimates: