AGENDA #1a
MEMORANDUM
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Status Report on Development of the 2001-2002 Budget
DATE: March 28, 2001
INTRODUCTION
The purpose of this memorandum is to report the status of work on development of the 2001-2002 budget.
This is not the Manager’s recommended budget. The Manager’s recommended budget will be presented to the Council on April 23.
SUMMARY
General Fund
Based on our estimates at this stage of budget development, the initial cost of continuing present services in the General Fund would total about $35,480,000. Adding $135,000 in estimated installment costs for a new Public Works site, net additional cost of $81,000 for technology improvements, and $150,000 for additional capital maintenance needs would bring total General Fund costs to about $35,846,000 for 2001-2002.
Considering the effects of property revaluation effective for next year, a budget at this level would require a potential General Fund tax rate of 49.4 cents, a decrease of 4.1 cents from the current rate of 53.5 cents. The effective tax rate increase at this level would be 4.8 cents over the estimated General Fund equalization rate of 44.6 cents.
Transportation Fund
For the Transportation Fund, we believe current Transportation services could be continued next year with a Transportation tax rate of 3.6 cents, a reduction of .7 cents from the current rate of 4.3 cents. The rate of 3.6 cents would be the same as the estimated equalization rate for Transportation, with no effective increase in the Transportation tax rate next year.
Combined Tax Rates
Based on these preliminary estimates for both funds, the combined potential tax rates and effective rate increases for next year would be as follows:
Calculation of Effective Tax Rate Increase
General FundTransportation Fund Total
Potential Rate for
2001-2002 49.4 cents 3.6 cents 53.0 cents
Equalization Rate 44.6 cents 3.6 cents 48.2 cents
Effective Potential
Rate Increase 4.8 cents 0 cents 4.8 cents
The cost of an effective tax rate increase of 4.8 cents if paid on a monthly escrow basis would be $4.00 per month for a property value of $100,000, $8.00 per month on a value of $200,000 and $20.00 per month on a value of $500,000.
Detailed information about estimated revenues and expenditures for the General and Transportation Funds is included in this report, followed by summary tables and graphs for the General Fund estimates. Attachments 1, 2, 3 and 4 provide further information on the property revaluation.
Budget Process To Date
The Council began the budget development process on January 19, 2001, with discussion at the annual planning retreat, followed by a community forum on January 23.
Eight Town advisory boards made budget requests and comments in work sessions conducted on February 14.
The Council received budget presentations from eleven Town departments in meetings conducted on February 23 and 28.
Remaining Budget Schedule
The Council will conduct a community forum on the 2001-2002 budget on March 28 and may conduct further budget discussions that evening in a work session format.
The Manager will present a budget proposal on April 23, and the Council has scheduled budget work sessions on April 4 and 25, and on May 2.
The public hearing on the budget will be held on May 9. An additional work session is tentatively scheduled for May 16.
The Council is scheduled to consider adoption of a budget on June 11th.
GENERAL FUND BUDGET HIGHLIGHTS
General Fund Revenues
We anticipate no new sources of revenue in the General Fund for 2001-2002. Since our January report, we have refined estimates of base revenues and have taken into consideration increases or decreases based on revenue receipts to date. At this time, we believe there still is a possibility that the State Legislature ultimately may propose to withhold the intangibles and inventory tax reimbursement revenues next year, totaling about $700,000. We will develop a plan to delay or postpone certain expenditures next year in case such withholding is proposed by the Legislature. We will make recommendations on this issue with the Manager’s recommended budget in April.
The potential reduction of 4.1 cents in the General Fund tax rate results from the revaluation of real property in Orange and Durham counties. The tax base is expected to increase about 27% (including normal growth), from $2,595,000,000 this year to $3,294,000,000 in 2001-2002. With these changes, the total tax base (including personal property, motor vehicles and public utilities) would increase from $3,041,000,000 this year to a total estimated base of $3,744,000,000 for next year. Therefore, the total change in the tax base would be about 23%. At this level, each l cent of the new tax base, excluding the proposed annexations, would generate about $374,000 in revenue.
· Cable television franchise taxes are estimated at about $300,000, an increase of about 3.5% over the current year.
· Hotel/motel occupancy taxes are projected to total about $640,000, the same as estimated this year.
· Tax on vehicle rentals (a new source of revenue in the current year) is expected to total about $15,000 this year and next year.
State Shared Revenues:
· Local option sales taxes are projected to increase by about 5%, from $5.9 million to $6.2 million. (This estimate is subject to change, depending upon the final quarter sales tax receipts for the current year, to be received on May 15)
· Utility franchise taxes are predicted to increase about 4%, from $1.815 million to $1.887 million.
· Motor vehicle fuel taxes (also known as Powell Bill funds) are predicted to increase about 2.8%, from $1.38 million to $1.42 million.
· State fire protection funds are expected to remain the same at $850,000.
· No change in other State-shared revenues is anticipated, other than the potential withholding of the reimbursement revenues as noted above.
Charges for Services:
· The increases in fees charged for various planning and development review services adopted by the Council last year would continue next year, with total service charge revenue from all estimated at about $1,031,000 next year.
Licenses, Permits, Fines and Forfeitures:
· Recommended increases in the privilege license fee for the miscellaneous business category would produce about $55,000 in additional revenue next year if adopted by the Council in April.
· Building inspection permits based on collections to date are now expected to be about $600,000 in the current year. For 2001-2002, we estimate building inspections permits will continue at this level.
· Permits for engineering inspections are estimated to generate revenues of about $85,000 in 2001-2002.
General Fund Costs
Services: Most General Fund services would continue as in the present budget. One service would be changed:
· Implementation of the second phase of curbside refuse collection would continue next year ($168,000 in additional savings in next year, with cumulative savings for the two-year period of $195,000).
Cost Increases: The estimated cost of continuing most services for 2001-2002 is about $2.3 million higher than in this fiscal year. Components of the increase include:
$816,000 Funding pay adjustments to continue the pay system and policies approved by the Council over the past two years (see discussion below)
590,000Increase in General Fund costs for the capital improvements program as discussed in section below on capital improvements costs
250,000 Full-year cost of pay increases funded for only eight months in 2000-2001
150,000 Additional funding to continue the vehicle and computer replacement programs approved by the Council in prior years
130,000 Estimated cost increase for group medical insurance programs
135,000 Cost of installment financing contract for purchase of Public Works land
100,000 Cost of potential $4.00 tipping fee increase in estimated landfill fees
90,000 Estimated increased in cost of workers’ compensation ($70,000) and property and liability insurance ($20,000), subject to change pending final notice of cost for next year
81,000Net cost increase to fund the first phase of technology improvements as presented to the Council on February 26. (Total additional costs of $135,000, with the cost of an additional “help-desk” position ($54,000) funded from transfer of a position in the Police Department, resulting in net additional cost of $81,000)
40,000Allocation for higher fuel costs
With these cost increases, the General Fund budget for next year would total about $35,486,000. We note that estimated operating costs for next year were held to an increase of 1.5% over the current operating base for all departments, saving about $110,000 over earlier projections of about a 3% increase. Operating costs were held constant in last year’s initial budget proposal for the current year, and were reduced by an additional 2% by the Council as a part of the final budget adopted for the current year.
Capital Improvement Costs
Preliminary estimates for the Capital Improvements Program next year reflect our efforts to develop a 15-year time frame for both needed capital renovations and on-going capital maintenance, as well as modest investment in small capital additions. The preliminary estimate of expenditures to continue the program initiated last year to address more of current capital needs using installment financing totals $1,035,000, funded with $980,000 from the General Fund and $55,000 from cell tower revenues in the Capital Improvements Fund. Because last year’s program was partially funded by one-time revenues in the Capital Reserve Fund, the General Fund contribution of $980,000 is an increase of $590,000 over the General Fund contribution in the current year of $390,000.
The current year capital improvements budget included $783,000 in new funding, with $390,000 provided by the General Fund, $350,000 provided by a one-time appropriation from final balances in the Capital Reserve Fund, and $43,000 from cell tower revenue. To continue capital improvements at this level for 2001-2002 would require an initial contribution of $740,000 from the General Fund, plus an additional $90,000 to provide for the full year cost of installment projects funded for one-half year in the current budget year. This addition brings the total General Fund requirement for 2001-2002 to $830,000 to continue the current level of funding.
In addition to the continuation of these projects, our preliminary estimate for next year includes an addition of $150,000 to the current level in order to make further progress in addressing capital renovation needs for additional projects proposed for installment financing. With this increase, the General Fund contribution for next year would total $980,000, an increase of $590,000 over the contribution of $390,000 from the General Fund in the current year.
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. A full discussion of the proposed capital improvements program is provided in a separate memo.
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
149,000 Hotel/motel occupancy tax performance agreements, including:
96,000 Chapel Hill-Orange County Visitors Bureau
20,000 Arts Center
10,000 North Carolina High School Athletics Association
10,000 Former Lincoln High School project “Glory to Tragedy”
7,500 Chapel Hill Public Arts Commission
5,000 Fiesta del Pueblo
500 Community Cultural Arts Dinner
87,000 Orange Community Housing Corporation
30,000 Orange County Senior Center
18,900Joint Orange-Chatham Community Action Agency
12,300 Orange County Retired Senior Volunteer Program
6,000 Orange County Economic Development Commission
$481,400 Total
With estimated costs as discussed above, total General Fund costs would be about $35,846,000 for 2001-2002. With revised base revenues as now estimated, and a normal use of about $800,000 in fund balance, a General Fund budget of $35,846,000 could be balanced by a tax rate of 49.4 cents in the General Fund, a decrease of 4.1 cents in the current General Fund rate of 53.5 cents.
A penny of the tax rate, excluding the proposed annexations, would generate about $374,000 in 2001-2002.
Considering the effects of the property revaluation effective for next year, a potential tax rate of 49.4 cents would be an effective increase of 4.8 cents in the General Fund (based on an equalization rate of 44.6 cents.)
The cost of providing services for the planned annexation of the Notting Hill and Southern Village areas is being considered as a separate proposal. Cost of services provided in the areas to be annexed would be paid by the additional revenue expected from the annexation. Under the proposed annexation service plan, the full year annual cost of six firefighter positions ($275,000) funded for only the last quarter of the current year would come from estimated annexation revenues in 2001-2002.
Employee Pay and Classification Recommendations
Last year the Council completed a two-year study process to update the Town’s pay structure and adopted a pay plan with three key goals:
· a pay structure that provided a simpler and more predictable system for granting and communicating increases,
· a pay structure that would provide for career advancement and recognition of performance, and would prevent future compression of salaries, and
· a pay structure with pay ranges that are competitive in the Triangle labor market. This goal follows the Council’s resolution setting the policy of competing at the 75th percentile (top quartile) of the local market.
The new pay plan and pay structure were implemented October 20, 2000. Town turnover rates are down and recruiting to fill vacancies has been easier. We believe that paying more competitive salaries and providing possibilities for salary advancement may be among the reasons for improved recruitment and retention.
We recommend implementing salary increases by continuing to follow the simplified pay plan structure adopted last year, and continuing the policy of competing at the 75th percentile of the market. The recommendations have 3 components, each addressing a key pay system goal:
(1) 2.75% pay range adjustments: The hiring rate, probationary step, other steps and maximum rate in each of the salary ranges would be adjusted 2.75%. This adjustment maintains hiring rates and ranges that are competitive and would help maintain salary ranges that are competitive with the 75th percentile of the local market.
(2) Regularly scheduled step adjustments: Consistent with the adopted pay structure, employees with salaries below the Job Rate would have their salaries adjusted to the next step in the salary range. This adjustment meets the goal of providing career advancement and preventing future compression of salaries.
(3) Performance increases: An average merit increase of 4.5% would be granted to employees whose salaries are above the Job Rate, with the amount individual employees would receive varying based on their performance rating.
Employees with salaries below the Job Rate would receive items 1 and 2 with satisfactory performance; employees with salaries above the Job rate would receive item 3. Salary increases would be implemented October 5th.
Costs for these increases and related benefits, implemented as of October 5th, are anticipated to be $1,074,000 in all funds ($816,000 in the General Fund, $198,000 in the Transportation Fund, $20,000 in the Parking Fund, and $39,000 in the Housing Fund)
Importance of salary increases: 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. The employment market in the Triangle area remains competitive due to the continuing low unemployment rate. Wages at both the 75th percentile and the average salary will continue to increase. Projections from area private sector employers show that they anticipate a pay increase averaging at least 4% for their workers.
Considerably more detailed information on all of these recommendations will be presented in the Manager's Recommended Budget and in budget working papers for the Council's work session on April 25.
TRANSPORTATION FUND BUDGET HIGHLIGHTS
Conversations continue with the University and the Town of Carrboro regarding specific bus services desired for 2001-2002, including discussions of fare free service and other service options. We note 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 2001-2002, revenue sources are expected to remain the same next year with estimated amounts as follows.
· Federal operating assistance is expected to be about $750,000, an increase of about 2%.
With the continuation of vehicle license fees adopted this year and revenue changes in base revenues as noted above, we estimate that total revenues for 2001-2002 would be about $7.6 million.
Transportation Budget Costs
The cost of providing Transportation service next year is estimated to increase by about 9.5%, 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 $325,000 to $453,000).
· Continuing difficulty in hiring qualified drivers to meet service demands is expected to result in higher overtime salary costs.
· Pay adjustments to continue the pay system and policies approved by the Council last year total about $198,000.
Our preliminary estimate of costs to continue current services totals about $7,875,000.
With estimated costs of $7,875,000 and revenues of $7,598,000, we believe a Transportation Fund budget that continues current services could be balanced by use of about $277,000 in fund balance and an equalized Transportation tax rate of 3.6 cents. At this rate, there would be no effective increase in the Transportation tax for 2001-2002.
Options: We are developing service improvement and funding options for the Council’s consideration that would include:
· Implementing a fare free system for all passengers for a portion of next year and for 2002-2003.
· Extending the hours of evening service on some bus routes and at certain park and ride lots.
· Improving the service connections within the Town’s system and the Triangle Transit bus system.
· Developing a strategy for on-going marketing initiatives to promote transit ridership.
We anticipate presenting these and other options for consideration by the Council during the budget process. We will continue to work with our partners, the University and the Town of Carrboro, in the development of service and funding options.
OTHER FUNDS
Housing Fund: Due to a revision in the federal schedule for submittal of budget for the Housing Fund for 2001-2001, the Council has not yet considered the Housing Fund budget for next year.
Estimated costs for next year total $1,465,000, an increase of 4.4% over the current budget of $1,403,000. No significant changes or new personnel are proposed for Housing operations next year. Federal operating assistance, rents paid by public housing residents, and normal use of fund balance should be sufficient to meet costs and maintain adequate reserves well within federal guidelines.
Debt Service Fund: A transfer from the General Fund of $2,423,000 would be required to make scheduled payments of $2,423,000 for principal and interest on the Town’s debt obligations for next year.
Capital Improvements Fund: Transfers and other revenues will provide $1,035,000 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 $360,000 to the General Fund. No changes are proposed in parking fees or fines.
Off-Street Parking Facilities Fund: Revenues are expected to be about $1,103,000 and costs about $1,048,000. The preliminary budget includes $35,000 for continued maintenance improvements of the James C. Wallace 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 $36,000, about the same as in this fiscal year.
Downtown Service District Fund: At this stage of budget development, we propose no change in services in the Downtown Service District. The current tax rate of 6.2 cents is estimated to generate about $52,000 in revenue in the current year. Based on preliminary revaluation information for the Downtown Services District (tax base of $112.5 million), the equalized tax rate to provide the same current level of revenues ($52,000) for the District next year would be 4.6 cents.
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 2001-2002 budget will help 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 23.
Attached to this report are the following tables and graphs relating to our General Fund revenue and expenditures estimates:
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Table 1 |
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General Fund Revenue Estimates (p. 12). |
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Graph |
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General Fund Revenue Comparisons by Type (p. 13). |
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Table 2 |
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General Fund Expenditure Estimates (p. 14). |
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Graphs |
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General Fund Expenditure Comparisons (p. 16). General Fund Expenditure Comparisons by Department Category (p. 17). |
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Table 3 |
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Analysis of Tax Base 2001-2002 (p. 20). |
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Graph |
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Property Tax Revenues (p. 21). |
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Table 4 |
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Taxable Assessed Values Last 22 Years (p. 22). |
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Graph |
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Tax Base Five-Year Growth (p. 23). |
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Table 5 |
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State-Shared Revenues (p. 24). |
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Graph |
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State-Shared Revenues (p. 25). |
ATTACHMENTS
1. Tax Base and Revaluation Information. (p. 27).
2. Calculation of Equalization Tax Rate (p. 28).
3. Calculation of Equalization Tax Rates (p. 29).
4. Potential Effective Tax Rate Increases (p. 30).