MINUTES OF A BUDGET WORK SESSION HELD BY THE MAYOR AND COUNCIL OF

THE TOWN OF CHAPEL HILL, NORTH CAROLINA, MONDAY, JUNE 15, 1993

Mayor Broun called the session to order. Council Members in attendance Julie Andresen, Joyce Brown, Joe Capowski, Mark Chilton, Joe Herzenberg, Barbara Powell and Alan Rimer (arrived at 8:02 p.m. due to a presentation at the Carrboro Board of Aldermen meeting). Council Member Werner was absent excused. Also in attendance were Town Manager Cal Horton, Assistant Town Managers Sonna Loewenthal and Florentine Miller, Parks and Recreation Director Mike Loveman and Finance Director James Baker.

Mr. Horton presented an overview of the recommended 1993-94 budget, noting proposed additions and deletions to achieve a property tax rate of 59.1 cents per $100 valuation. Mayor Broun inquired whether the purchase of an automobile was included in nine-month funding for narcotic investigator positions. Mr. Horton said purchase of one automobile was proposed. Council Member Andresen inquired whether option a or b was proposed for the Town's outdoor nature program. Mr. Horton said the less expensive option, option b, was recommended. Mr. Horton stated that a one-time use of fund balance for energy projects was being recommended. He noted that the proposed pay adjustments for Town employees could be postponed to September 1st and the opening of the library could be delayed by one month to early November. Mr. Horton stated that the projects would produce a substantial return on funds. He also reviewed options concerning the Town's water and sewer sales tax exemption, including possible redesignation of $166,000 to the General Fund and transferring $158,000 from the debt service fund. Mr. Horton stated that another option would be to reduce services by $324,000 if the exemption were denied.

Council Member Andresen noted that the worst case scenario would be if the Town did not receive requested water and sewer sales tax exemptions. She said this would necessitate paying back funds borrowed from the debt service fund. Mr. Horton said this was not necessarily the case. He noted that it was possible that sales tax revenues received by the Town might be greater than anticipated, predicated on restoration of local growth in some state sales taxes. Council Member Andresen said if the exemption were denied, the net effect would be higher taxes. Mr. Horton said this was absolutely correct. He added that the Town had the fortunate circumstance of having a little bit of additional revenue this year. Council Member Andresen thanked Mayor Broun for forwarding a letter to Preston Howard concerning the Town's request for a water and sewer sales tax exemption. She noted the importance of balancing input from citizens and elected officials in the decision-making process.

Council Member Brown inquired when the Town's exemption request might be heard. Mr. Horton said the request might be heard as early as later in the week, with a decision being made by the Division of Environmental Management being made shortly thereafter. He added that the Local Government Commission was scheduled to consider the Town's exemption request on Tuesday, July 6th at 2:00 p.m. Mr. Horton noted that Commission typically rendered its decisions on the same day as its hearings. He expressed hope that Council Members would be able to attend the Local Government Commission meeting. Council Member Andresen inquired whether there was a mechanism to appeal the Local Government Commission's recommendation in the event that it was to deny the Town's exemption request. Mr. Horton said he would not recommend appealing the Commission's decision. Council Member Brown inquired about limitations on the exemption's duration. Mr. Horton said the Town was eligible to apply for exemptions through fiscal year 1995-1996.

Mayor Broun noted that the sewer service situation was still in an uncertain status, particularly regarding service rates and assessments. He stated that the Council would possibly provide some financial assistance to people having sewer service problems, particularly low-income individuals and families. Mayor Broun noted that $166,000 of Town funds had been committed to water and sewer projects, irrespective of whether or not the exemption requested was approved. Mayor Broun also said he believed the Town was legally entitled to the requested exemption. He suggested that the Council adopt the Manager's recommendation of having a reserve fund of $324,000 for water and sewer projects. Mayor Broun inquired whether unspent funds could be returned to the Town's debt service fund. Mr. Horton said this would not pose any technical problems since the funds were in a reserve account for use as the Council directed.

Council Member Capowski inquired about the Town's water and sewer project needs. Mr. Horton said he was not aware of any unmet Town water and sewer needs. He added that efforts were underway to address fire hydrant related needs. Council Member Capowski inquired whether there was any reason that the funds could not be used for Town water and sewer needs. Mr. Horton said the funds could be expended on community needs. Council Member Andresen inquired whether funds could be used to purchase land at Cane Creek. Mr. Horton said he believed this was permissible, although it would be best to verify this with the Town Attorney.

Council Member Brown inquired about the Council's degree of flexibility regarding water and sewer sales taxes. Mr. Horton said the Council had some flexibility in its decision making. Council Member Brown inquired about the amount of community development block grant (CDBG) funds available for water and sewer projects. Mr. Horton said approximately $122,000 was available over a three-year period. Council Member Brown asked whether this amount could be increased by the Council. Mr. Horton said this was correct. He added that the Attorney had indicated that the water and sewer grant funds were primarily intended for low-income persons. Council Member Andresen said the Mayor's proposal was very generous and had interesting ramifications. Mayor Broun said if the entire $324,000 in water and sewer project funding were not utilized, it could be returned to the debt service fund. Council Member Andresen noted that the Council had not decided how to apply funding for water and sewer service projects. She stated that the Council would make decisions concerning possible income assistance guidelines in the near future. Mayor Broun noted that there were a number of policy decisions and legalities concerning subsidy-related matters.

Council Member Capowski inquired about the timeframe for completion of the projects. He inquired about the possibility of dropping the property tax rate by 0.8 cents by providing reserve funding of $166,000 rather than $324,000. Council Member Capowski also inquired whether the Town was required to hold $324,000 in reserves. Mr. Horton said this was correct. Council Member Capowski inquired about the status of debt service for the library. Mr. Horton said this was difficult to specifically identify. Mayor Broun noted that funding for water and sewer projects was contingent upon the status of the Town's exemption request and on the Council's future decisions concerning subsidies for provision of service. Mayor Broun stated that he recommended establishing a contingency fund for sewer service regardless of the outcome of the Council's exemption request.

Council Member Chilton said he thought putting an additional $158,000 into a contingency fund was an interesting idea. Council Member Chilton said he was not certain why a decision was needed right away. Mr. Horton said the principal need was to adopt a budget by July 1st. Council Member Chilton noted that even if the Local Government Commission granted the Town's exemption request, Mayor Broun was proposing that $324,000 in contingency funds be made available for sewer assistance. Mayor Broun noted that the Council might elect to put more than $166,000 in reserve for sewer projects. Mr. Horton added that it was also possible to make mid-year adjustments.

Council Member Andresen noted that providing for emergency sewer service needs would receive a favorable response from the Division of Environmental Management. Council Member Chilton emphasized the importance of assuring that the intent was a genuine one. Council Member Andresen said there were advantages and disadvantages to allocating the funds for sewer projects and assistance. Council Member Capowski inquired whether it was correct that OWASA was not going to charge customers until the sewer projects were completed and operational. Mr. Horton said it was possible that customers would not be hooked up to the system when they were billed. Council Member Capowski inquired about proposed project timetables. Mr. Horton said some of the projects might be completed during the 1993-94 fiscal year. Council Member Capowski said this would necessitate completing projects in twelve and a half months or less. Mr. Horton said this was possible and that Town staff had urged OWASA to move ahead with project completion as soon as possible. Council Member Capowski said he had trouble believing that any projects would be completed during the next fiscal year. Mr. Horton said funds could be effectively encumbered in the next fiscal year. Council Member Powell said she concurred with the importance of encumbering funds. She inquired who would decide on income qualifications for sewer service project assistance. Mayor Broun said the Council could discuss and act on this matter once OWASA provided additional information.

Correcting his earlier statement, Mr. Horton noted that project construction was scheduled to commence, rather than to be completed, during fiscal year 1993-1994. Council Member Capowski asked whether there was any estimated completion date for the three proposed sewer projects. Mr. Horton said no completion date had been estimated. Council Member Powell said she thought that the estimated completion date was two years. Mr. Horton said this was the original estimate. Council Member Powell inquired about criteria for establishing income qualification levels. Mr. Horton said qualification models similar to those for housing might be used. Council Member Andresen suggested that the best approach might be to handle matters on an individual project basis.

Council Member Rimer requested a clarification concerning estimated project construction costs. Mr. Feller said the cost estimates did not reflect discount factors. Council Member Rimer inquired whether it was correct that interest costs to homeowners were not built in. Mr. Feller said this was correct. He noted that the total estimated cost for all the projects was $2.2 million. Council Member Rimer suggested that the Council might consider providing assistance with sewer project-related interest costs to homeowners. Council Member Andresen noted that OWASA could provide similar assistance. Council Member Brown noted that this evening's discussion had focused on future actions and events. She stated that some important decisions could be made once OWASA provide additional information. Council Member Brown noted that the Council had to adopt a budget prior to July 1st. Mr. Horton said one possibility was adopting an interim budget. Council Member Brown inquired about the purpose of an interim budget. Mr. Horton said the principal purpose was to provide a basic budget for sustaining Town operations. Council Member Andresen said it made a lot of sense to adopt an interim budget until the sewer exemption issue had been resolved.

Council Member Powell inquired about the advantages of sewer service fund contingencies. Mr. Horton said the primary advantage was resolving public health problems relative to the failure of septic tanks. Council Member Powell inquired whether the entire $324,000 in funds had to be used. Mr. Horton said this was correct. Mr. Horton said he did not recommend a specific commitment for expending the funds. Council Member Powell inquired about the most convenient approach for staff. Mr. Horton said the most convenient approach was the one best serving the Council's and community's needs.

Council Member Capowski inquired about the Town's current average interest earnings. Mr. Baker said the interest rate had been in the range of 3.25 to 3.75%. Council Member Capowski said the Town was earning very little interest. He stated that a 0.8 cent property tax increase was proposed next year to address sewer service problems. Council Member Capowski said he thought it was highly improbable that the Town would spend any funds in fiscal year 1993-1994 on sewer needs in the community. Mr. Horton said this was correct in terms of actual cash payments. Council Member Capowski inquired why it was preferable to encumber funds. Mr. Baker said this was primarily to ensure proper cash flow.

Council Member Capowski said encumbering the funds would necessitate another 0.8 cent increase in the property tax. Council Member Chilton noted that the Town had these funds on hand. Council Member Capowski said the proposed 59.1 cent property tax rate included $324,000 for sewer reserves. He stated that if the reserve amount were adjusted to $166,000, the property tax rate could be decreased by 0.8 cents. Mr. Horton said this was not the case unless the Town could be certain of receiving an exemption. Council Member Capowski said if the Town did not receive its exemption, it could have $158,000 in reserve with a 59.1 cent property tax rate. Mr. Horton said this was not possible because once funds were encumbered, they were spent. Mayor Broun inquired whether it would be possible to take $158,000 in debt service and put it in the General Fund instead of the sewer contingency fund in the event that the exemption were granted. Mr. Horton noted that the Town could be in the same situation next year.

Council Member Brown inquired about the possibility of a future budget amendment to address sewer service items. Mr. Horton said contingencies could be arranged as book transactions. Mayor Broun noted that the Council had until June 28th to act on the matter and could possibly adopt an interim budget. He noted that another option was to allocate $158,000 to a sewer contingency fund. Mayor Broun noted that the Town could also allocate $324,000 regardless of the Local Government Commission's decision regarding the Town's exemption request. Council Member Capowski inquired about the maximum duration of an interim budget. Mr. Horton said there was no set limit. He noted that staff preferred to proceed with adoption of a budget as soon as possible to proceed with other matters. Council Member Andresen said she liked the idea of an interim budget.

Council Member Herzenberg said he preferred adoption of a budget with a reserve fund. He stated that this approach would outline the Council's clear intent and provide future flexibility. Council Member Powell said she also preferred adopting a budget with a reserve. Council Member Chilton also expressed his concurrence with putting $158,000 in a reserve fund. Council Member Capowski said he preferred maintaining maximum flexibility by not having an additional reserve until the actions of OWASA and the State were clear. Council Member Andresen noted that OWASA had a number of items to consider about per foot installation costs and related matters.

Mayor Broun said if the Town's exemption request were approved, $158,000 could be taken out of debt service and put into the General Fund. Council Member Capowski said he was not suggesting that the Town could drop its property tax rate until OWASA's and the State's actions were certain. Mr. Horton noted that the Town would need to have $324,000 in funds set aside in case the exemption request were denied. Mayor Broun added that if the exemption were granted the Town could take $158,000 in debt service and put it into the General Fund and spend it. Mr. Horton noted that if the Council adopted a budget with a reserve, at least $324,000 would have to be set aside initially. Council Member Chilton noted that the proposed property tax rate was stable under the different scenarios. Council Member Brown said it would be preferable to adopt a Town budget on June 28th. Mr. Horton said it would be possible for staff to provide a proposed and interim budget for the Council's consideration on June 28th.

Mr. Horton said he recommended instituting charges for off-street parking on Sunday afternoons and evenings. He stated that this change in policy would generate an estimated $30,000 per year in additional revenues. Council Member Herzenberg said this was a good idea. Mayor Broun inquired whether there were any objections to the proposal. Hearing none, Mayor Broun said he sensed general agreement on the proposed adjustment.

Noting that pay range adjustments for Town employees were to take effect on September 1st, Council Member Capowski inquired about assumptions for the proposed increases. Mr. Horton said a maximum of 4.75% increases were proposed for lowest-paid employees, while a maximum of 3% was proposed for higher-paid employees. Council Member Capowski asked whether changes in the 401-(k) program were proposed. Mr. Horton said no changes in benefits, including the 401-(k) program, were proposed.

Council Member Herzenberg suggested that the Town install four to six additional trash receptacles in strategic locations in the Franklin Street area. Mr. Horton said staff would be pleased to follow up on this requested. Council Member Powell inquired whether rollout refuse collection carts would be available for purchase by individuals. Mr. Horton said he suggested that the Council provide flexibility to make them available for sale to individuals. Council Member Herzenberg noted that some area residents were displeased about the possibility of losing their roll carts. Mr. Horton said an item concerning the purchase of roll carts would be included on the Council's June 28th agenda.

Council Member Brown inquired about the possibility of raising the tip fee for ash. She added that there was no possibility of receiving an increase in fire protection funding from the State. Mr. Horton said Town staff did not anticipate any change in fire protection funding. Council Member Brown inquired about the amount of additional revenue if the University were charged full price for ash disposal. Mr. Horton said a formal proposal would need to be made to the Landfill Owners Group. Council Member Rimer noted that the ash tipping fee had been set on the basis of whether or not ash disposal would be allowed at the landfill. Council Member Rimer said he was not willing to trade off fire protection costs for landfill costs. Council Member Brown requested that staff provide additional information concerning ash disposal fees. Mr. Horton said he was not certain that a $25 per ton tipping fee for ash would be recommended by the Landfill Owners Group. Noting that other jurisdictions had higher tipping fees, Council Member Rimer said he thought this was a fair assumption. He added that if proposed new regulations went into effect in the fall, landfill expenses would likely increase. Council Member Rimer also stated that hazardous waste disposal fees had tripled in recent years. Council Member Brown suggested investigating increased tipping fees so as not to burden taxpayers.

Council Member Andresen requested that the Manager provide information on County funding of a Carrboro library facility. She noted that the proposed location of the Town's new library facility would be less convenient than the current location for Carrboro residents. Council Member Andresen suggested that Orange County consider basing allocations for library services on the number of people served. Mr. Horton stated that Mayor Broun could send a letter to Orange County Commission Chairperson Moses Carey outlining this request.

Council Member Andresen said the Town provided a handsome benefits package for its employees. She suggested that the Council consider reducing the benefits package by one percent. She requested that staff provide options to the Council in the staff's follow-up report. Mr. Horton stated that while the Town provided an adequate benefits package, it was not a leader in the Triangle area. He expressed hope that the Council would consider leaving the employee benefits package in its current form. Mr. Horton stated that he could provide information concerning a one percent benefits reduction but would not recommend it. Noting his concern about maintaining the Town's property tax rate, Mayor Broun also noted that Town employees had not received a pay increase since October, 1991. He stated that reducing benefits by one percent amounted to a one percent reduction in employee compensation. Mayor Broun suggested that the Council not reduce the Town employee's benefits package.

Council Member Brown noted that Council Member Chilton and herself suggested that the Manager have all Town staff examine individual departmental budgets for additional efficiencies. Noting the scope of the proposed task, Council Member Rimer said he concurred with this approach for future budget cycles. Council Member Andresen expressed her concurrence with Council Member Rimer that although the suggestion came too late in this year's budget cycle, it would be a good idea for future years. Mr. Horton said staff could begin working on Council Member Brown's and Chilton's proposal in concert with preparation of the Town's 1994-1995 budget. Mayor Broun said he believed that the Police and Fire departments needed to be exempt from the possible reductions. Council Member Andresen noted that the Council could have asked the Manager to prepare a no tax increase budget. She added that very few people appeared to support cutting services.

Council Member Chilton said although Council Member Brown and himself understood that the timing of the proposal was not the best, it did not reduce the importance of the issue. He stated that the primary emphasis was finding increased efficiencies in the Town's departments and divisions. Council Member Chilton noted that cuts could be made in the Council's budget. Council Member Rimer inquired about the percentage of the Town's budget composed of personnel costs. Mr. Baker said approximately seventy percent. Council Member Rimer said given this fact, the net effect would be no salary increases for Town employees. He added that ten percent reductions in Town departments would necessitate programmatic cuts. Mayor Broun suggested that staff continue to look at possibilities for more efficient operations. Council Member Rimer stated that a five percent budget reduction was not attainable without the elimination of a pay increase for employees.

Council Member Brown said she was proposing that all Town employees make suggestions for possible budget reductions. Mr. Horton noted that it would take time to arrange for initial and follow-up meetings due to shift arrangements and other scheduling-related considerations. Council Member Brown suggested that the staff provide information on a sliding pay increase scale of 4.75% for lower-paid employees to 2% for higher-paid staff. She also suggested the possibility of reducing the Council's budget. Council Member Chilton concurred, noting that $2,000 was proposed for professional services, to pay for costs of catering some meetings. Council Member Andresen noted that some meetings were held during the dinner hour. She stated that one way to resolve this matter was to have all meetings begin at 7:30 p.m. Council Member Chilton said that some Council Members did not favor starting any meetings at 5:45 p.m. Mayor Broun suggested that the Council's professional services line item could be reduced by having less dinnertime meetings.

Mayor Broun said he sensed a consensus among the Council to undertake the suggestions of Council Members Brown and Chilton in development of the 1994-1995 Town budget.

Council Member Brown inquired about the status of possible additional mass transit funding in the General Assembly. Mr. Horton said although the final budget had not been adopted, the situation looked quite favorable for additional mass transit funding. Mayor Broun inquired when adoption of the State budget was anticipated. Mr. Horton said adoption was anticipated in the next few weeks. He added that there was no certainty of how the Department of Transportation would distribute mass transit funding to communities around the state.

Council Member Capowski noted that the University had prepared very austere budgets several years ago, with five percent budget reductions. He added that the proposed reductions were never implemented. Council Member Capowski expressed his support for Council Member Brown's and Chilton's suggestion as part of the 1994-1995 budget preparation process. Mr. Horton said staff could accommodate this process.

Council Member Capowski inquired whether the Town had a paid savings suggestion system. Mr. Horton said initial staff work on such a program was underway. Council Member Capowski said he generally believed that these types of programs were a good idea. Council Member Andresen requested that staff redistribute an earlier memorandum concerning proposed training budgets. Mr. Horton said staff would do so.

Council Member Capowski inquired when the Council would discuss proposed salary increases for employees. Mayor Broun said this could be done this evening or on June 28th. Council Member Brown suggested that the Council also discuss the tipping fee for ash disposal. Mayor Broun noted that the Manager's proposal was for a 4.75% salary increase declining to 3%. He added that Council Members had requested information concerning a 1% reduction in the 401-(k) plan and a sliding pay increase scale ranging from 4.75% to 2%. Council Member Capowski said he favored additional staff information prior to further discussion of staff salary increases and benefits. Mayor Broun inquired whether the Manager had sufficient guidance from the Council. Mr. Horton said yes.

The work session concluded at 10:00 p.m.