SUMMARY MINUTES OF A WORK SESSION

SUMMARY MINUTES OF A WORK SESSION

OF THE CHAPEL HILL TOWN COUNCIL

WEDNESDAY, JUNE 12, 2002, AT 4:00 P.M.

Mayor Kevin Foy called the meeting to order at 4:17 p.m.

Council members present were Flicka Bateman, Ed Harrison, Mark Kleinschmidt, Bill Strom, Dorothy Verkerk, Jim Ward, and Edith Wiggins.

Mayor pro tem Pat Evans was absent, excused.

Council Member Dorothy Verkerk left at 5:55 p.m.

Staff members present were Town Manager Cal Horton, Assistant Town Managers Sonna Loewenthal and Florentine Miller, Town Attorney Ralph Karpinos, Assistant to the Manager Bill Stockard, Finance Director Jim Baker, Human Resources Director Pam Eastwood, Engineering Director George Small, Public Works Director Bruce Heflin, Police Chief Gregg Jarvies, Parks and Recreation Director Kathryn Spatz, Transportation Director Mary Lou Kuschatka, Inspections Director Lance Norris, and Town Clerk Joyce Smith.

Mayor Foy explained that tonight's work session was to make the necessary decisions to adopt an interim budget on June 24. Then, based on actions that the State legislature might take, the Council will adopt a final budget on July 26^th, he said.

Item 1 - Manager's Update on Recommended 2002-03 Budget and Schedule

Mr. Horton stated that a legislative bill that would secure the Town's Utilities Franchise Tax and the Beer and Wine Tax was making progress in the NC House and Senate. He said that it seemed as though the bill would be enacted in some form, but noted that there is a long way to go before such a bill would end up on the Governor's desk. Mr. Horton added, though, that the staff was encouraged enough to have brought forward some additional budget proposals for the Council's consideration.

1a. Potential Budget Adjustments.

Mr. Horton reviewed information from Attachments #1 & 2 of his June 12^th memo to the Mayor and Town Council regarding Potential Budget Adjustments. He pointed out that his original recommendation had been to raise the tax rate to an equivalent of 6.8 cents. Then, on May 15^th, he said, the staff listed several adjustments (one-time sales tax revenue, off-street parking revenue, transfer from the Off-Street Parking Fund, reduction in street construction, and use of fund balance) that would reduce the increase to 5.0 cents. Mr. Horton said that the staff had later recommended additional adjustments that would reduce the tax rate to 4.0 cents. But, if the estimated $2,250,000 in Utilities Franchise and Beer and Wine revenue were secured by legislation, he said, the tax rate increase would be reduced to 2.9 cents. Mr. Horton added that this would be after budgeting for step pay increases at 3.78% below job rate, average merit increases of 3.78% above job rate, and additions to the capital improvement budget.

Mayor Foy determined that the recommended tax rate would be 4.9 cents if the Town were not to receive the taxes withheld by the State. He also clarified that adopting an interim budget would not be setting the tax rate. Finance Director Jim Baker explained that State law requires towns to adopt either a budget or an interim budget before July 1^st. He said that the primary purpose of an interim budget is to provide for pay and salaries, debt service, and the usual and ordinary operating expenses of the Town until the final budget can be adopted. Mr. Baker added that interim appropriations would not ordinarily be used to provide new programs, pay salary increases, new positions, or major capital equipment. Revenues to fund interim appropriations would normally come from revenues not related to property taxes as recommended in the statute, he said.

Council Member Wiggins determined that there would be enough money in other funds to cover expenses for a month without using property tax revenue. Mr. Horton pointed out that the Town could also use reserves, but added that he did not think that would be necessary.

Council Member Strom asked how the Town would refurbish fund balances if those were used for employee pay increases. Mr. Horton replied that the staff would not propose using money from the fund balance for that purpose. He said that they would need only relatively small amounts from the transportation, housing, and/or parking funds. Mr. Horton explained that the Town ordinarily would use about the same amounts to pay for pay adjustments in those funds. By conservative budgeting of expenditures and revenues, he said, they would expect to replenish the fund balance. He stressed that this if the Town did not receive the withheld funds then he would not recommend any change in salaries.

Council Member Strom, emphasizing that he was not taking issue with the staff's proposal, said that it would be useful to see a plan to refurbish fund balances (sidewalks, greenways, etc.) over time. Mr. Horton replied that in recent years those had not been paid from the fund balance but from regular operating funds. One way to address that would be to set the tax rate at a level to obtain or accumulate additional funds for those purposes, he said. Mr. Horton noted that the parking fund is different, however, because the proposed increase in fees would produce additional revenue. It would seem reasonable to use some of those funds this year, he said.

Mayor Foy noted that the State was facing several years of difficulty, which will have an impact on the Town even if the Town is able to secure this year 's withheld funds. Mr. Horton said that much would depend on what actions the legislature takes this year. Mayor Foy pointed out that the proposed legislation would set Town revenue as the last thing the State could take, but asked how the Town would be situated if the governor does take it again in the third quarter. Mr. Horton replied that the proposed legislative bill would require the General Assembly to ask the governor to use those funds. He said that, if passed, this would make him feel confident. Mr. Horton noted that his budget is a very conservative approach, pointing out that it is better to be conservative than to come to the Council in the middle of the year stating that the Town has to find $2 million.

Council Member Ward asked Mr. Horton to remind him about how the Town would achieve the additional revenues for off-street parking and fee increases. Mr. Horton explained that the key action that the Council had voted favorably for on May 15^th was to raise parking fees by about 25%. He said that the Council had also discussed raising fees in off-street lots, authorizing the staff to charge for parking in lot #5 from 6:00-9:00 p.m., and raising the lease fee from $65 to $85. Mr. Horton noted that the Town Council had also asked the staff to investigate reconfiguring lot #5, using coin vending machines, and using "smart cards" or credit cards for parking.

Council Member Ward asked how much of the $250,000 would result from changing fees from $1.00 to $1.25 per hour. Mr. Horton replied that the total amount would come from that. Mr. Baker added that there would be an additional $47,000 from on-street parking fees. Council Member Ward recommended keeping parking fees where they were, considering the current economic difficulties and the competition to Downtown merchants from Southpoint Shopping Mall.

Council Member Harrison stated that the staff recommendation that he would least like to pursue would be charging at lots #3 & #5 from 6:00-9:00 p.m. He asked for a breakdown of that revenue, and Mr. Horton replied that it would be $26,000.

Council Member Dorothy Verkerk expressed skepticism about Chapel Hill's restaurants being hurt by Southpoint, but Council Member Harrison was adamant that they were being negatively affected by Southpoint and other shopping malls.

Council Member Wiggins determined from Mr. Horton that parking fees could be raised any time during the year. She recommended that Mayor Foy form a committee of merchants, citizens and Council members to identify other possibilities, such as providing discounts or stamps to Downtown customers. Mayor Foy agreed that merchants should be involved in developing a plan. He suggested that the Town Council promote that, pointing out that parking is never free even when it appears to be. Somebody has to pay for it, he said, whether that's through fees, taxes, or some other way. Mayor Foy pointed that if the Town raised the parking fee it would be the first increase in ten years.

Council Member Kleinschmidt clarified that the rate increase would be at both the meters and the parking deck. He asked if this would include changing the lease agreements with the Franklin Street side of parking lot #5 to eight hours rather than 24-hour leases. Mr. Horton replied that the plan was to place meters on the front portion of that lot and to lease spaces in the rear portion. Council Member Kleinschmidt inquired about using the leased spaces for metered parking in the evening. He determined from Mr. Horton that the lease agreement could be terminated with a six months notice.

Council Member Strom noted that if the Town does not raise parking fees it will raise the tax rate by 3/4-cent. Even though there is some "anecdotal sentiment not to do this," he said, the rates have not been raised since 1993 and the Town had been generous this year by providing free bus service. He pointed out that consultants have repeatedly said that hours of operation and merchandising is what brings people into the stores. Council Member Strom noted that retail sales had increase by 12% this year in Orange County and that lots #3 & #5 were being underutilized. Therefore, he said, this would be a fair increase and better than asking citizens to pay an extra 3/4-cent on the tax rate. He suggested that the Town Council stop criticizing its Downtown area and begin promoting its strengths.

Council Member Wiggins stated that she was not opposed to raising fees as long as it is done through a process that involves others so that it had more support.

Council Member Harrison agreed, but remained opposed to charging for night parking. He noted that buses do not run at night and that people have to take cars to get to Downtown restaurants.

Council Member Bateman asked if Council Member Wiggins was stating that the Town wanted the $300,000 from parking but would like the various stakeholders to get together and discuss options for obtaining it. Council Member Wiggins said that this could be the charge. Council Member Bateman pointed put that the Town would not be gaining that revenue during the time that a committee was discussing it.

Mayor Foy said that his concerns about Downtown parking were broader than cost. He added that this is a comprehensive issue that the Town probably should deal with on an ongoing basis. Mayor Foy agreed that starting off by looking at the money, as Council Member Wiggins had suggested, "would not be a bad idea." But, the Town still has to get $300,000 into the budget from somewhere, he said.

Council Member Ward spoke in support of forming a committee and beginning a process. He agreed that the Town does much to support the Downtown, such as offering free buses, garbage pick-up, and policing. But, Council Member Ward said, the timing is not right to add this layer onto the Downtown area now. He recommended getting the group together and asking them to find perhaps $150,000.

Council Member Verkerk opposed the idea subsidizing parking by paying more taxes, even by those who do not drive.

Council Member Ward pointed out that a thriving Downtown provides benefits to the greater community.

Council Member Kleinschmidt pointed out that the parking proposals could be dealt with separately.

Council Member Ward asked if it would make sense to keep on-street parking as it is but make changes elsewhere. Mr. Horton replied that the Council could do that as a matter of policy. Council Member Ward asked how that would affect behavior. Mr. Horton replied that people would use convenient, on-street parking before they would go to the lots. Council Member Ward proposed not changing the rate on off-street parking, which is about $47,000, and then letting a group of stakeholders figure out how to get the remaining $253,000.

Council Member Harrison proposed taking the evening parking out of the proposed changes.

Mayor Foy pointed out that this was not what Council Member Ward had proposed. Mayor Foy summarized Council Member Ward's proposal: to not raise the on-street parking rate, but to raise the other rates. Mayor Foy explained that this would amount to about $253,000, $47,000 less than the Manager had recommended.

THE PROPOSAL FAILED (2-6), WITH COUNCIL MEMBERS WARD AND WIGGINS VOTING AYE AND COUNCIL MEMBERS KLEINSCHMIDT, BATEMAN, VERKERK, STROM, FOY AND HARRISON VOTING NAY.

COUNCIL MEMBER HARRISON PROPOSED NOT RAISING ON-STREET PARKING AND NOT INSTITUTING NIGHT PARKING, FOR A TOTAL OF $73,000 LESS THAN THE MANAGER'S RECOMMENDATION. THE PROPOSAL FAILED (4-4), WITH COUNCIL MEMBERS KLEINSCHMIDT, WARD, HARRISON AND WIGGINS VOTING AYE AND COUNCIL MEMBERS BATEMAN, VERKERK, STROM, AND MAYOR FOY VOTING NAY.

Council Member Bateman told Council Member Harrison that she would have voted for a proposal not to institute night parking. Council Member Harrison replied that he was willing to rephrase it and propose it again. Council Member Wiggins verified that the Council would at some point deal with her suggestion to form a group.

COUNCIL MEMBER HARRISON PROPOSED NOT INSTITUTING NIGHT PARKING, WHICH WOULD MEAN ABOUT $26,000 LESS THAN THE MANAGER'S RECOMMENDATION. THE PROPOSAL FAILED (4-4), WITH COUNCIL MEMBERS KLEINSCHMIDT, BATEMAN, HARRISON AND WIGGINS VOTED AYE, AND COUNCIL MEMBERS VERKERK, STROM, WARD, AND MAYOR FOY VOTED NAY.

COUNCIL MEMBERS VOTED ON THE MANAGER'S RECOMMENDATION. THE RECOMMENDATION WAS APPROVED (5-4) WITH COUNCIL MEMBERS KLEINSCHMIDT, BATEMAN, VERKERK, STROM AND FOY VOTING AYE AND COUNCIL MEMBERS WARD, HARRISON AND WIGGINS VOTING NAY.

Council Member Wiggins pointed out that even though this was called the Manager's recommendation, it was the Council who had asked him to draw it up.

Regarding the traffic-calming component, Council Member Kleinschmidt commented that this did not seem to be of widespread community interest. He opposed allocating $88,000 for speed humps and other traffic-calming devices during the difficult budgetary climate.

Council Member Verkerk argued that traffic-calming was an extremely high priority for parents living on dangerous streets. She said that the issue comes up every week and is one that needs to be dealt with right away. Council Member Kleinschmidt stressed that he did not want traffic-calming to be confused with a discussion of sidewalks, which he felt were important. He argued that traffic-calming concerns seem to result from people driving too fast through their own neighborhoods. In good times, Council Member Kleinschmidt said, the Town should help them out. But since these are not good times, he said, he proposed shelving the item.

Council Member Strom, explaining that he lives on one of those streets, said that he did not think the issue was frivolous. He explained that he worries about his child riding his bike on the street. Council Member Strom made a counter proposal to make $44,000 available this year for traffic-calming.

Council Member Wiggins pointed out that street safety, though important, had not been given priority until a group had recently come before the Council asking for it and it was added to the budget. Noting that the Northside neighborhood had been asking for help in their neighborhood for years, Council Member Wiggins suggested addressing safety issues in a fair and equitable way. She said that some had difficulty understanding why money can be found for speed bumps, which is something people can control by not speeding, while elderly Northside residents cannot sit on their porches because of fear of drug dealers.

Council Member Bateman wondered if the other half of the money could be used for an extra security officer in Northside. Or, she asked, did Council Member Wiggins have some other concrete proposal in mind. Council Member Wiggins replied that the Northside people had not requested the money because they had been told that this was not the year to do so. Mr. Horton interjected that these funds could allow the Town to fill an additional police position that was being held vacant. He said that this officer could be assigned to work on drug issues in the community.

Council Member Strom remarked that traffic-calming had not suddenly appeared as an issue. He stated that there had been a process in place for making engineering recommendations in response to citizen-initiated petitions. This had been funded in the budget for several years, he said, but the money had been removed.

Council Member Wiggins stressed that she did not mean to imply that traffic-calming was not important. She said, however, that she had requested in the past that it be linked to other safety concerns. Her objection, she said, was to letting it come back into the budget in reaction to a group of petitioners without allowing the Northside area concerns to be addressed as well. Council Member Wiggins commented that people can keep their children out of the street, but that a resident not being able to sit on her front porch in Northside was a life and death issue.

Mayor Foy suggested letting the Manager to decide the best way to apply the $44,000 to safety issues in Northside. Mr. Horton suggested using it to augment police services and to focus on the community-wide project of eliminating drug sales and helping to restore the neighborhood.

Council Member Ward recommended getting feedback from the community on how to spend the money. Mr. Horton commented that he would expect the community to state that to the Council.

Council Member Wiggins expressed satisfaction with the decision.

THE COUNCIL VOTED UNANIMOUSLY (8-0) TO ALLOCATE $44,000 FOR TRAFFIC CALMING AND $44,000 FOR NORTHSIDE SAFETY ISSUES AT THE MANAGER'S DISCRETION.

Council Member Harrison stated that speeding makes people nervous, but having drugs sold in Chapel Hill is a very serious problem and the solution benefits everyone.

Regarding Attachment #1, Council Member Ward noted that the Town would not have that $235,000 sales tax revenue next year because that is a one-time source of funds. Mayor Foy replied that the transfer from the off-street parking fund was a one-time thing as well. He stated that the money was being used to subsidize State-seized funds, which, hopefully, would not happen again. Mayor Foy stressed that the Council was proposing a bare bones tax increase. Next year, he said, the Town might be in the same position of having to raise taxes and not be able to find a way to lower the amount. The Town is in a perilous position because of the State's billions of dollars in shortfall, said Mayor Foy.

NOTING THAT THE COUNCIL WOULD NOT SET THE TAX RATE UNTIL JULY, HE SUGGESTED VOTING TO ENDORSE THE PROPOSED 4.9-CENT TAX INCREASE, WHICH IS WHAT IT WILL HAVE TO BE IF NOTHING HAPPENS IN THE LEGISLATURE. THE COUNCIL ENDORSED THAT UNANIMOUSLY (8-0).

Regarding attachment #2, Council Member Ward proposed using the $2.2 million in Franchise and Beer and Wine Tax money to reduce the tax rate 3 cents, rather than 2 cents. He recommended making the money used for reduction $1,233,000, rather than $822,000, and subtracting the $411,000 from pay adjustments.

Council Member Wiggins agreed "to a point," but said she wanted to first see if anything could be taken out of the General Fund Pay Adjustments, agenda item 1b.

Council Member Strom explained that he would not support the proposal because the Town's established principle was to compensate its employees when possible. Tax increases are required to do that, he said, adding that he agreed with the Manager that the first money in should go to employees.

Council Member Verkerk remarked that, as a State employee, she was tired of people using her salary to balance the budget.

Council Member Kleinschmidt said that he had been wondering about giving employees even more of an increase. He said that he had repeatedly stated the need to improve Town employees' pay during his political campaign and would never support not increasing it.

Council Member Ward stressed that he too valued Town employees, but thought they were well compensated. He said that he was trying to lower what he thought was a huge tax increase during this extraordinarily difficult year.

Mayor Foy commented that Council Member Ward's suggestion should not be characterized as not valuing Town employees, and agreed that Town employees were well paid in this market. He said that he was comfortable with the Manager's recommendation, which seemed like a fair way to spread the money around.

Council Member Ward said he hoped to get some support from Council members for whittling the tax increase down to 1.9 cents, if not from salaries then from somewhere else.

Council Member Wiggins stated that the return on this will be much greater than the $614,000 invested in employee wage increases.

Mayor Foy, noting that there was no support for Council Member Ward's proposal, suggested moving on.

1b. Capital Improvements Program.

Mayor Foy asked Mr. Horton if it was correct that there had been no money allocated for the Capital Improvements budget. Mr. Horton replied that there was the barest amount the Town could scrape by with, $478,000 total. This was for debt on items that the Town cannot do without, he said. These include: acquisition of the new public works site ($130,000), beginning debt service payments to repair the IFC community shelter ($58,000), installment payments on replacing the roof at the museum building ($9,000), infrared rescue cameras ($28,000), updating the geographic system base aerial maps ($48,000), payment on improvements at Hargraves Center and the A.D. Clarke Pool ($180,000), and a required payment by contract on the Meadowmont School gym ($38,000). Mr. Horton added that all of these items had either been contracted or were essential. He explained that the $814,000 that the staff was recommending would be in addition to this $478,000.

Council Member Verkerk was excused from the meeting at 5:55.

Mayor Foy asked the staff if it would be accurate to say that the Council was now looking at the staff's recommendation for how the additional $814,0000 should be spent, if it comes in, not at what the staff had cut out. Assistant Manager Sonna Loewenthal replied that the staff had looked through the items that they would have proposed for this year if there had been a more reasonable amount of money at the start. Then, she said, they looked at the items that they think meet the priorities of the Council, i.e. maintaining physical assets of the community, addressing public safety issues, and to trying to put some money toward additional items, such as sidewalks, which were a high priority for the Council. Mr. Horton added that the staff would have recommended putting more money into sidewalks, greenways, and bikeways if they had it. He added that maintenance of Town property would have come second, but there was no money for that.

Council Member Wiggins said that she would take the staffs' recommendations on the CIP.

Council Member Strom asked if funds would be available from bond money for the police station generator. Ms. Loewenthal replied that the bond money had been allocated to other repairs and there would be nothing left for the generator. Council Member Strom expressed support for the staff's recommendation. Other Council Members said they supported it as well.

Council Member Ward asked the staff what they would remove if they were asked to prioritize. Ms. Loewenthal replied that delaying the Post Office renovation to another year would free $180,000. Mayor Foy stated that he would not support that because the building was getting worse.

THE COUNCIL VOTED TO SUPPORT THE MANAGER'S RECOMMENDATION (5-7) WITH COUNCIL MEMBERS BATEMAN, STROM, HARRISON, WIGGINS AND MAYOR FOY VOTING AYE AND COUNCIL MEMBERS WARD AND KLEINSCHMIDT VOTING NAY.

Item 2 - Transportation Department

Mr. Horton pointed out that the staff had essentially already presented this information in Item #1. Mayor Foy asked Mr. Horton if he had what he needed from the Council on Items 2b & c. Mr. Horton suggested that the staff go ahead with both of those and then take it into account in the final budget. He noted that this is part of what the Town relies on to help pay the bills in the Transportation Fund.

Item 3 - Public Works Department - Report on Charges of Commercial

Haulers for Garbage Collection

Mr. Horton pointed out that the staff still did not know what the County attorney's opinion would be regarding whether or not Orange County could require all persons who collect commercial waste to obtain a franchise from the County. As part of that agreement, he said, haulers would deliver all the material they collect to the County's waste processing facility. Mr. Horton said that it might be the fall before the Town would receive an answer from the County attorney.

Public Works Director Bruce Heflin presented a fee schedule, which included a basic fee of $500 per eight cubic yard container per year for one collection per week, noting that the schedule also compared that fee to the original $750 fee identified in the staff's April 24^th report. Mr. Heflin stated that the new fee schedule was in response to a question from the Council about what level of fees would minimize "defections" to the private sector. He said that $750 probably would be safe, but that $500 would be even safer.

Mr. Heflin reminded the Council that they had also asked what private haulers were charging for this service. He said that the staff had inferred that a typical range of costs for a single, eight-yard container was between $800 and $1,200 per year for once a week service.

Mayor Foy noted that a $500 fee would generate a net of $182,000 additional revenue and would reduce the cost of providing the service to about $800,000. He pointed out that the Town would be charging about half of what Durham, Carrboro and private haulers charge. Mayor Foy added that the Council should decide what to do with the additional revenue if they decide to go ahead with the fee.

Council Member Harrison asked if residential areas that already were being charged for dumpster pickup had been included in the figures. Mr. Heflin replied that they had been. Council Member Ward asked if the $500 figure assumed a 20% loss of customer base. Mr. Heflin replied that it did, adding that a 25% loss was assumed with the $750 fee option. Council Member Ward pointed out that this probably means a 20% reduction in recycled materials.

Council Member Bateman stated that this would be so only if the county does not require the franchise.

Council Member Strom asked if there was a way to exempt residential customers from the $500 fee. Mr. Heflin replied that it would depend on whether apartment complexes were categorized as residential or as single-family residences and detached townhouses. Council Member Strom asked about including apartments. Mr. Heflin replied that 318 of the 700+ apartments were multi-family. Council Member Strom proposed making that distinction.

Council Member Wiggins asked if the distinction would also be made between multi-family homes and apartments. Moreover, she asked, how does and apartment complex businesses differ from other kinds of businesses? Council Member Strom replied that he sees apartment complexes as a residential component of the community. He explained that he was distinguishing between where people are domiciled and where people are selling goods and services for profit.

Council Member Wiggins rejected that distinction because apartment complex owners make a lot of money and contribute to the tax base of Chapel Hill just like other businesses. Council Member Strom said that taxing apartments seemed like double taxation to him. Council Member Wiggins pointed out that apartment complex owners would be charged the fee, not those who rent the apartments.

Mayor Foy noted that with "pay-as-you-throw" the Town would move toward everyone paying. He said that he sees charging this fee as a step in that direction. Council Member Wiggins asked if Mayor Foy was suggesting making this change when the Town institutes "pay-as-you-throw." He explained that he meant he could support making the distinction that Council Member Strom had proposed based on the Town's plan for the future.

Council Member Ward agreed with Council Member Wiggins that the distinction should be between profit-motivated and residential, regardless of the type of business.

Council Member Kleinschmidt agreed that the Council should think about apartment complexes as being just like any other business. He noted that the cost, about $40 per month, would make a very small difference in anyone's rent if complex owners spread it out among apartment dwellers. Council Member Kleinschmidt pointed out that renting an apartment is different from owning a townhouse.

Mayor Foy commented that there did not seem to be support for Council Member Strom's proposal.

Council Member Harrison stated that some owners of single-family, detached home feel that they would be discriminated against if charged for dumpster pickup.

Mayor Foy asked the staff if they could make a rational distinction between owner-occupied and renter-occupied houses. Mr. Horton replied that he did not think the staff could make that distinction. Town Attorney Ralph Karpinos commented that this might be something to link to the Rental Licensing Program once that it up and running. He explained that one of the objectives for that program was to identify property that is rental as opposed to owner-occupied. Absent that, said Mr. Karpinos, it would be very difficult to know which are owner-occupied and which are not.

Council Member Harrison predicted that the bitterest complaints would come from neighborhoods where one can see that they are single-family houses and that they have dumpsters. Mr. Horton, after determining that Council Member Harrison was talking about detached homes, suggested that the distinction might be made between single-family, detached and single-family roadhouses, townhouses and condominiums. Several Council members noted that this would be a difficult distinction to make.

Council Member Bateman commented that the neighborhood in question was a complicated one. Mr. Horton cautioned that this could be a perilous distinction to make because it would be very difficult to administer.

Council Member Strom commented that this was what had lead him to propose the distinction that he had, which he described as more defensible. He argued that separating residential and commercial establishments would be a cleaner first step in this process.

COUNCIL MEMBERS VOTED ON COUNCIL MEMBER STROM'S PROPOSAL TO APPLY THE FEE TO NON-RESIDENTIAL. THE PROPOSAL WAS DEFEATED (3-4) WITH COUNCIL MEMBERS STROM, WARD, AND MAYOR FOY VOTING AYE AND COUNCIL MEMBERS KLEINSCHMIDT, BATEMAN, HARRISON AND WIGGINS VOTING NAY.

COUNCIL MEMBER BATEMAN PROPOSED OPTION #1, AND COUNCIL MEMBERS APPROVED IT (5-2), WITH COUNCIL MEMBERS KLEINSCHMIDT, BATEMAN, WARD, HARRISON, AND MAYOR FOY VOTED AYE AND COUNCIL MEMBERS STROM AND WARD VOTING NAY.

Item 4 - Engineering Department - Presentation of Draft Business Plan for

Implementation of Utility-Based Stormwater Management Program

Mr. Horton explained that the Council had recently authorized the staff to seek proposals to obtain the service of an engineer to develop a business plan for a stormwater management utility. Stormwater Management Engineer Fred Royal then introduced Elizabeth Treadway, representing AMEC Earth and Environmental, a national engineering firm specializing in water resources that has worked with other municipalities in North Carolina. Mr. Royal explained that Ms. Treadway would give a preview of what might be included in such a proposal. He said that the staff would present a formal plan on June 24th, at which time they anticipate a resolution from the Council on how to proceed.

Ms. Treadway noted that Chapel Hill has a history of addressing its community's needs. She said that the issue of water quality protection from pollutants that come through stormwater run-off is a hot topic nationally. She stated that North Carolina would be challenged to deal with the issue through a permit activity process that would begin in March 2003. Ms. Treadway noted that Chapel Hill had given a lot of thought to this subject and had received much public support, involvement, and recommendations. She listed the following Town initiatives:

· Stormwater Management Committee, 1994.

· Stormwater Utility Technical Review Committee, 1999.

· Stormwater Alternatives Report, 1999.

· Stormwater Utility Development & Implementation Committee, 2001.

Ms. Treadway explained that the same energy that had been directed toward the issue of wastewater in the 1970s was now being focused on drainage. She pointed out that the two issues are similar in terms of challenge but that drainage is more difficult because it cannot be contained as a wastewater system can. Ms. Treadway described a stormwater utility as the tool that bridges the gap from planning to reality. She noted that the Town had two primary means of funding a major infrastructure initiative:

· To continue with the way it has been funding, though resources remaining within the General Fund in competition with other priorities.

· To move toward a user fee-based stormwater utility and bring properties that do not pay property taxes into the Town's revenue potential. This would spread the issue across the base of the community and move $975,000 per year out of the General Fund.

Ms. Treadway outlined the reasons why municipalities are turning toward a user-fee system:

· It is a stable means of funding.

· It creates a revenue source that cannot be allocated to other purposes .

· It is adequate to meet current needs and potential long-term needs through a capital improvement program.

· It is flexible in that it allows the Town to provide credits to those in the community who are actively trying to help solve the problem and reduce public cost.

Ms. Treadway explained that a stormwater utility would be put together with four basic pieces: public education, program development, finance, and a billing database. She said that all four need to be in place and that they lead to the diligence required for a legal establishment of the rate structure. Ms. Treadway suggested using a stakeholder group to establish the basic policy around the utility (how it operates, how it is funded, what it looks like, and how many staff people). She noted the many financial decisions that must be made, including who should pay, how much they should pay, and what the rate structure should look like. Ms. Treadway pointed out that having current aerial information is critical, adding that it was good that the Town was updating that. But the piece that drives the rate, she said, is the program that the Town develops to deliver services to the community. She stressed that the fee must correlate with demand and be used for a specific purpose.

Ms. Treadway explained that proceeding with the utility in Chapel Hill probably would take from 20 to 24 months. She stressed getting the Town's data in place as soon as possible and encouraged Council members to continue having the aerial photography updated if they choose to move forward with the utility. While that is underway, Ms. Treadwell said, there is much to be done regarding program structure and the 50 or so policies that need to be worked through.

Council Member Strom verified that the aerial photography the Town had scheduled was the same product Ms. Treadway was recommending. He asked if there was a way that the fee structure could be based on property value, usage, or square footage, rather than being a flat fee. Ms. Treadway explained that it was not a flat fee. She said that just as other utility fees are per kilowatts or gallons, for example, stormwater utilities would be structured with a rate to be multiplied against whatever the rate base is.

Council Member Strom asked if taking creeks off the list in five years would be a reasonable and defensible service level. Ms. Treadway replied that it would be a defensible service level, but whether it is reasonable or not would depend on whether the Town wanted to pay the cost. She added that it would be a reasonable goal to build a program from.

Council Member Harrison explained that he had been on a committee formed to set up such a system in Durham in the mid-90s. He said that the City of Durham's attempt had been taken to court and the judgment, he thought, had been that Durham was spending fees on items that were not water quality related. Ms. Treadway replied that the issue in Durham was that the enabling legislation had not been stated correctly to cover the services that Durham had in their program, most importantly the water quality requirements to meet their permit. North Carolina's Supreme Court had first allowed it, she said, but after the change in political parties the Court had brought it back and stated that the language was not specific enough. But, the legislature cleared the language up, Ms. Treadway explained, and it no longer is an issue. Council Member Harrison commented that he felt assured that Chapel Hill would not spend time in court as Durham did.

Council Member Ward said that the public education component must be very important. Ms. Treadway described it as "absolutely critical." Council Member Ward stressed making sure that the fee is based on impact to stormwater, and not a flat fee, so that those who are not contributing to the problem are not asked to pay inappropriately. Ms. Treadway repeated that there typically is a body of 50-60 policies that must be worked through that are important to that foundational issue. Her firm works from the principle that the Town will be sued, she said, even though only one in five is sued.

Council Member Foy explained that the Town had once had a Stormwater Advisory Committee but had disbanded it. He asked if forming such a committee would be one of the first things the Town should do. Engineering Director George Small commented that a new committee would be slightly different from that Stormwater Liaison Committee. He said that the staff would come back to the Council with a proposal to create an Interlocal Government Liaison Committee that would discuss general issues. But, if the Town decided to go with the utility, said Mr. Small, then there would be two different committees with some of the same people possibly on both.

Mayor Foy asked how OWASA might be part of this. Ms. Treadway replied that one of the most important parts of running any kind of fee-based system is the efficiency with which you can deliver the bill and receive your revenues back. She said she understood that OWASA was interested in working with the Town on this issue. It would be a great asset to have their utility billing system available to the Town, she said, and she recommended pursuing that.

Mr. Small noted that the staff already had discussed this with OWASA and that OWASA had no problem physically with adding it to their billing systems as long as the utility pays for that. Mayor Foy asked if there had been any discussions with OWASA about adding the functions of this utility to its regime. Mr. Small replied that OWASA's charter does allow them to operate a stormwater utility and that it had been discussed. Ms. Treadway interjected that her firm typically does an organization review, since a utility can be lots of different things to a community. She said that it does not always require a new organizational structure, but can require one. Ms. Treadway explained that the utility can be stand-alone, or incorporated into an existing utility, or a funding method in which the oversight duties are added or absorbed into an existing operation. She has seen it done many different ways throughout the country, she said.

Mayor Foy expressed reluctance to establish a separate utility as such. Noting that the Town already was spending $1 million between Engineering and Public Works, he wondered how those responsibilities would shift if the Town were to set up a new off-site utility. Mayor Foy said he supported going forward but had concerns about how to structure it. He added that he hoped OWASA could be part of the utility in one way or another, and hopefully not just for billing.

Council Member Bateman agreed with Mayor Foy, noting that Chapel Hill was a municipality that already had separated out its water and sewer functions. She said she supported the idea of OWASA being the "lead agency" on this since many of the mechanisms were in place and the public looks toward that utility as the one that manages water.

Council Member Kleinschmidt wondered if the fact that OWASA extends beyond Town boundaries would create some negative feelings if the Town were to do this. Mayor Foy replied that OWASA could presumably provide a service to one segment of its area in exchange for the fees that are recovered for that service. He said that he did not see why that would be an impediment, adding that the Town's other partners will eventually have to do the same.

Council Member Strom agreed that OWASA could provide key administrative help here, but noted that OWASA's expertise is not in stormwater. Council Member Strom remarked that the Town's Public Works Department had much experience with stormwater. He suggested not establishing a separate utility with a standing board but using this as a funding mechanism to focus efforts through existing Town organization to address stormwater. Council Member Strom agreed that OWASA could help the Town through its in-house billing system. He endorsed using the money for operations rather than administration and recommended trying to keep the utility in Chapel Hill.

Council Member Ward said he was inclined to lean that way as well, and recommended creating a "lean machine."

Council Member Harrison also agreed, adding that taking this somewhere else would stop work already in progress in the Town's Engineering and Public Works Department.

In response to a question from Mayor Foy regarding the process, Mr. Horton said that the staff would come back on June 24^th with an outline of steps that the Council might consider to move the matter forward. He noted that key issues would be:

· costs and how to deal with them;

· staffing and how to apply it:

· the continuing need for help from the consultant;

· and, the issue of who votes and decides what things will be done and who pays.

Mr. Horton pointed out that Chapel Hill's citizens will be the ones paying and will want the Council to have a role in deciding what is done with the funds. There certainly can be a role for OWASA, he said, and the Town would be foolish not to investigate that. He added that he understood the notion of keeping it lean.

Item 5 - Other Matters as Desired by the Council

Council Member Strom asked when the Council would have an opportunity to evaluate uses of the new commercial trash fee that they supported tonight. Mr. Horton replied that he assumed that the Council would want to apply it to reduction of the tax rate. Council Member Strom said that he assumed that as well but wanted it to be clear about it.

COUNCIL MEMBERS VOTED UNANIMOUSLY (7-0) TO APPLY REVENUE FROM THE COMMERCIAL TRASH FEE TO REDUCTION OF THE TAX RATE.

The meeting adjourned at 7:07 p.m.