BUDGET ISSUES AND PRELIMINARY ESTIMATES

FOR 2003-04 BUDGET

 

GENERAL FUND

 

Brief Update on Current Year Budget

 

• Revenue in current year is on target with budgeted amounts except for interest earnings expected to be lower than budget, but offset by estimated increases in other revenues, including property taxes.  Expenditures on target with projections, enabling us to maintain a balanced budget this year and use $800,000 for next year, consistent with practice in previous normal years.

 

• We have received two full quarters of franchise tax revenue so that earlier conservative projections of additional revenue expected this year ($1,630,000) is on target and virtually assured.  To date, the Council has allocated $648,000 of this amount, and is scheduled to consider recommendations to allocate an additional $815,000 for capital improvements and $167,000 to help replenish debt service reserves on January 13.

 

• Based on latest information available from the State and the League of Municipalities, we believe there is a good possibility that no State revenue will be withheld this year, and that we should receive another $1 million dollars this year that the Council has not allocated.

 

• Potential uses of any additional revenues could include additional funds for costs required for planning the new Town operations center, reserving funds for new debt service on general obligation bonds to be sold later this year, increasing fund balance reserves or other uses as the Council may desire.

 

Overall Budget Issues for 2003-04

 

Key issues for the upcoming budget for 2003-2004 include:

 

·        Current economic conditions and uncertainty about the pace of an economic recovery.

 

·        Potential impacts on local government revenues of a projected State budget deficit of about $2 billion for 2003-04.

 

·         New debt service costs on the final phase bond sale for 1996 bond projects ($425,000).

 

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

 

·        Projected potential increase of 20% in employee medical costs as this sector of the economy becomes less competitive and medical costs continue to rise.

 

·        Additional costs of planning the new Town operations center.

 

Assumptions and Preliminary Estimates of Major Revenues in the General Fund for 2003-2004

 

• There is still considerable uncertainty about the overall economy at the present time.  

 

• Because of the current forecast for a deficit of more than $2 billion for the 2003-04 State budget, there is also still considerable uncertainty about the impact this deficit could have on local government revenues next year.  However, based on State legislation adopted last year regarding the utility franchise tax revenues and authorization for the new half cent sales tax adopted by the County this year, our preliminary revenue estimates for 2003-04 are based on full receipt of State-shared revenues next year. 

 

• We note specifically that the potential exists for the General Assembly to make changes that could affect local revenues based on its review of the overall State budget during the upcoming session of the legislature.

 

With these basic assumptions, our preliminary estimates for major revenues for next year are as follows:

 

• A property tax base estimated at $4.24 billion next year, assuming about $80 million in growth over an estimated base this year of $4.16 billion.  Revenue on the estimated base would be about $2l.2 million, with 1 cent of the tax rate generating about $424,000.

 

• Sales tax revenue of about $6.4 million (3.5% increase) from existing sales taxes, and an estimated $1.2 million from the new ½ cent sale tax adopted this year.

 

• Franchise tax revenue of $2.1 million (assuming full receipt from State).

 

• Beer & Wine tax revenue of about $205,000, the same as in the current year (assuming full receipt from the State).

 

• Powell Bill funds for street maintenance totaling $1.4 million (decrease of 6% based on State budget decisions last year).

 

• Interest earnings of about $200,000 (based on interest rates continuing at low levels next year).

 

• State fire protection funds at 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 $40.3 million, including normal use of $800,000 in fund balance as in past years (see Attachment 1).

 

General Fund Cost Issues and Preliminary Estimates for 2003-04

 

• Funding new debt service on final sale of 1996 bonds.

 

• Paying full year costs of pay increases authorized for only 7 months in 2002-03.

 

• Providing funds for moderate increases in operating costs.

 

• Providing funds for a projected increase in medical insurance costs 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 noted above, attached is a summary of our preliminary cost estimates for a base budget for 2003-04, and estimates for potential additions to the base budget.

 

General Fund Conclusion

 

• The estimated base General Fund budget (excluding compensation adjustments and grants to other agencies) totals about $37.6 million and could be funded with estimated total revenues of $40.3 million, leaving a difference of about $2.7 million.

 

• Potential additions to the base budget, including compensation adjustments to remain competitive in the Triangle labor market, an allowance for moderate increases in operating costs, providing grants to other agencies at prior year levels, funding new debt service on 1996 bonds, and restoring funding for capital improvements at prior year levels would total about $3.5 million, and would require additional revenue of about $832,000 next year (see Attachment 2).

 

• 1 cent of the tax rate in 2003-04 is estimated to generate about $424,000 in revenue.

 

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

 

 

TRANSPORTATION FUND

 

Budget Issues and Preliminary Estimates for 2003-04

 

• 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.

 

• The projected State budget deficit of $2 billion could impact the continued availability of State operating funds for next year (about $1.6 million in current year).

 

• Assuming the continuation of federal and State operating assistance at current levels ($932,000 and $1,574,000 respectively), continued participation by the University and Carrboro at current levels, and normal allocation of about $250,000 in fund balance, our preliminary estimate of total revenues available for next year would be about $9.7 million at the current property tax rate of 4.3 cents.

 

• 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 $10.3 million next year.  Expenditures at this level could require additional Town revenue of about $350,000 for 2003-04.

 

OTHER 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.  Based on interest rates in the current debt financing market, a potential refinancing of the existing Certificates of Participation for parking facilities could generate savings in annual parking debt service costs.

 

• For the Town’s public housing program, we have received notice from the Department of Housing and Urban Development (HUD) that the initial level of subsidy available for public housing operating costs could be reduced as much as 30% from the current subsidy level of about $1.1 million in the Housing operating budget.   Such a reduction would have a drastic impact on funding available for our current public housing programs.   We will keep the Council informed on this matter as the HUD budget process continues.

 

ATTACHMENTS

 

1. General Fund Preliminary Revenue Estimates for 2003-04 (p. 5).
2. General Fund Preliminary Cost Estimates for 2003-04 (p. 6).