SUMMARY MINUTES OF A WORK SESSION

OF THE CHAPEL HILL TOWN COUNCIL

THURSDAY, OCTOBER 14, 2004, AT 5:00 P.M.

Mayor Kevin Foy called the meeting to order at 5:00 p.m.

Council members present were Sally Greene, Ed Harrison, Cam Hill, Mark Kleinschmidt, Bill Strom, Dorothy Verkerk, Jim Ward, and Edith Wiggins.

Staff members present were Deputy Town Manager Florentine Miller, Assistant Town Manager Bruce Heflin, Town Attorney Ralph Karpinos, Finance Director Kay Johnson, and Town Clerk Joyce Smith.

Mayor Foy reminded Council members that 2005 would be a difficult budget year.  The Council was facing more than a 20% potential tax increase, he said, and he pointed out that Council members had agreed to address the budget early this year.  Mayor Foy suggested discussing how to address such a looming tax increase within the confines of the Council's responsibility to set policy and participate in Town management.  He recommended four possible approaches to the 2005 budget deliberations:

1.  Appoint a committee of citizens to work with the staff to look at the current budget, including programs and personnel, and advise them as to changes they might make to either increase revenues or decrease costs.

2.  Appoint a committee of Council members to review potential options for addressing the budget and bring that back to the full Council for a recommendation.

3.  Hire an organizational efficiency consultant to advise the Council and Town Manager.

4.    Appoint a committee of citizens, each of whom have special expertise, and one or two Council members to work with an organizational efficiency consultant to advise the Council and the Manager.

Mayor Foy introduced Dr. Jack Vogt, of the University of North Carolina School of Government, and invited him to help the Council focus their discussion.  Dr. Vogt referred to a new book entitled The Price of Government by David Osborne, author of Reinventing Government. The Price of Government suggests an approach to budgeting that was worth looking at, Dr. Vogt said.  He noted that there were summary articles available as well.

Dr. Vogt said that he had reviewed and been impressed by the Town's budget documents, particularly the amount of long-term planning involved.  He noted the large amount of citizen involvement in the budget process and pointed out that the Town's method was to have a base budget with several expansion levels on top.  Dr. Vogt said that the Town might want to discuss having a reduction level as well.

Dr. Vogt recommended considering a more outcome-oriented approach to budgeting, such as that described in The Price of Government.  This would include having a revenue-driven budget, he said, explaining that doing so would mean identifying and setting outcomes into priorities and funding only what the Town can fund.  The trick would be to mesh that theory with practicalities, limitations, history, and Town traditions, he said.  Dr. Vogt described this as a revenue-based and outcome-oriented approach to budgeting whereby the Town would set priorities and fund only essential services.  Chapel Hill had moved in that direction, he said, but more movement probably was called for.

Dr. Vogt emphasized that the Town's staff did have the talent and knowledge to reach some of these goals.  He wondered, though, if they had the capacity to do so.  Creating budget reduction levels includes political risk, he pointed out, and it requires much work as well.  Dr. Vogt noted that other units of government, comparable to Chapel Hill in size and budget pressure, have budget analysts working in their finance departments.  This might also be called for in Chapel Hill, he said.

Dr. Vogt noted that the Town had an ambitious capital program and had issued a fair amount of debt.  The growing debt service was now hitting home, he pointed out.  He also noted that the Town's potential private sector projects would be complicated.  Negotiating such contracts takes more work in capital financing than most cities are accustomed to, said Dr. Vogt.  He told Council members that Charlotte had an employee who spends all of his time on debt management.

Mayor pro tem Wiggins asked for a further explanation of “outcome-based budget.”  Dr. Vogt replied that a town might invest more in hiring police officers in order to achieve a higher or better level of service in its downtown area, for example.  An outcome based budget would take that a step further by trying to achieve an objective, such as reducing crime, by putting those police officers downtown.  Dr. Vogt explained that the difficulty with that approach is that many extraneous variables can enter the process and affect the crime rate.  Such budgets had achieved some success, he said, giving Charlotte and Catawba County as examples.

Dr. Vogt outlined the basic premises of David Osborne's book.  He was personally hesitant to see outcome-based budgeting as a panacea, though, because it was very difficult to achieve.  It required exceptional communication, strength, and expertise on the part of many Town elements, he explained.  Dr. Vogt said that the approach had worked in Charlotte and Catawba County, but pointed out that those were more conservative business areas of the State.

Mayor Foy asked if pressure on the tax rate had motivated those governments.  Dr. Vogt replied that he thought it had prompted Charlotte's “balanced score card system” and their commitment in the 1980s not to raise taxes and move toward user fees, contracting, and privatization.  Catawba County had wanted to be a leader, and this was a progressive, forward-looking thing to do in the 1990s, he said.  Dr. Vogt explained that adopting such a system had helped Catawba County get through the recession.

Mayor pro tem Wiggins asked what cities were in Catawba County, and Dr. Vogt listed Hickory, Newton, and Concord.

Council Member Greene wondered if Chapel Hill could use “zero-based budgeting” or some version of it.  Dr. Vogt replied that there had not been much interest in that approach since the 1980s.  But Winston-Salem had instituted a very selective approach to zero-based budgeting, he said.  It is called a “zero-based budgeting review,” in which they examine a couple of programs in depth each year.  Winston-Salem had reduced spending and they believe they can achieve the same level of service, he said, but he pointed out they had only been into it for one year.  Dr. Vogt said that zero-based budgeting means going deep into current spending and trying to reorganize and re-engineer in order to achieve the same level of service while spending less.

Council Member Ward asked Dr. Vogt to compare having the staff attempt to reduce the tax rate with having a citizen board or some other entity do so.  Dr. Vogt replied that an outside board could provide a fresh perspective and insights and could cause the staff and/or Council to make changes that produce some savings.  Moore County had done that several years ago, he said, and they had felt it was worthwhile.  Dr. Vogt said that the approach often included an outside consultant who has experience in this work.  Council Member Ward asked how the staff would be involved.  Dr. Vogt replied that the consultant would interview staff and others and bring back recommendations.

Council Member Harrison pointed out that building permits had once been the only mandated responsibility for municipalities.  Everything beyond that was called “expectations,” he said.  Council Member Harrison noted the large number of expectations that Chapel Hill faces.  He asked Dr. Vogt for an opinion on entering a budget with a potential 20% tax increase due to necessary expenses such as the new Town Operations Center (TOC). 

Dr. Vogt pointed out that the decision to build the TOC had already been made.  So there already were sunk costs and projects that would generate additional expenditures moving forward.  He noted that there was debt service on the outstanding debt and that the Town would also issue new debt, which is a mandated cost as well.  “I don’t think there’s anything you can do about that,” he said.  Dr. Vogt stated that outcome-oriented budgeting probably would not alleviate those sunk costs as the Town moves forward.  But prioritizing might help, he said.

Mayor pro tem Wiggins asked Mayor Foy what he wanted the Council to do.  Should they decide on no tax increase?  Should they decide on some tax increase and determine a process to make that possible?  Mayor Foy replied that he was interested in spending only a certain amount of revenues.  He said, though, that it seemed a little premature to state what, if any, the tax increase would be.  However, the Council could make judgments about government for the following year, said Mayor Foy.  Doing so would give them the confidence that they would raise taxes only because they have to, he pointed out.

Mayor Foy commented that even though many of the expenses were for things that citizens wanted to have done, the Council was frequently asked why government costs so much.  He wanted to be able to say that the Council had done what they could and that this was the best government they could get, at the services they deliver, and that this is the right price for that. Council members would have to work harder this year on the budget, he pointed out, adding that they might incorporate some of the ideas being presented tonight.  Mayor Foy said that attempting a zero-based budget sounded like an incredible amount of work and disruption to the organization.  So, the Council was faced with extraordinary costs and at least some questions from citizens about whether or not these expenses were necessary, he said.

Mayor pro tem Wiggins suggested looking at the Mayor’s option #4.

Council Member Hill noted that last year was the first time he had participated in the budget process.  He had struggled with it, he said, and did not feel that it had accomplished much.  He wondered how Chapel Hill’s expenditures would compare with other municipalities of the same size.  Does the Town spend as much on parks and recreation as other cities?   What are other cities’ revenue streams?  Council Member Hill pointed out that Chapel Hill had a large university in its center that does not pay taxes.  Last year’s budget process did not allow him to feel that he could address expenditures in the base budget, he said.  Council Member Hill spoke in favor of getting an outside, objective view that would help the Town make changes.

Council Member Hill said that he would like to be in a position to affect the tax rate and to make certain that the Town was getting as much as it could for its money.  The Mayor's four options really were one option, he said, since option #4 was the other three combined.  Tonight's Council meeting was essentially replacing option #2, said Council Member Hill.  He suggested spending the same amount of time on the budget that the Council had spent last year, but applying it differently.

Council Member Harrison commented that the Council was facing a budget that was much worse than anything it has seen before.  He advocated for including a study structure and for option #4 in the Mayor’s memo.  Council Member Harrison noted that there was much expertise in Town and recommended having a structured process through which experts would challenge the Council.  Such a committee could also help explain what the Town is facing to the rest of the public, he said.  Council Member Harrison wondered, though, if a paid consultant would be worth the fee.  He asked for information on what other communities' experiences had been.

Council Member Strom agreed that option #4 was an amalgam of the other three options.  He thanked Mayor Foy for his comments, and agreed that the Council had to be confident that they were making correct choices.  The staff had made very careful judgments and recommendations, said Council Member Strom.  But, given the pressures on the budget this year, he wanted to know that the Town had “drilled down into the particular budgets” and justified expenses, costs, programs and priorities.  He recommended doing so in an inclusive way that involves Council members, citizens, and experts.  Council Member Strom agreed that it was important to have outside expertise and guidance.  That would allow the Council to have confidence at the end of the process that their judgment had been confirmed and that their recommendations were necessary, he said.

Council Member Verkerk wondered if a committee would be able to move fast enough. She also said that she had in the past felt pushed into approving employee positions without having thought about whether doing so would fit into a long-term plan.  Council Member Verkerk suggested looking into how the Town pays its employees, and she described the current system as antiquated.

Mayor Foy asked Dr. Vogt for an estimate of how long it would take a committee and consultant to help the Council make decisions about next year.  Dr. Vogt replied that a consultant alone would be workable but that adding a committee could present problems for the upcoming budget.

Council Member Ward expressed support for having a consultant.  He had wanted a committee as well until he heard Dr. Vogt’s last response about time constraints for the coming year, he said.  Council Member Ward suggested quickly determining what Town services would look like with no tax increase if the Town meets its current obligations, such as the TOC.  Then the Council could present layers up or down from there, he said.  Council Member Ward remarked that clarifying the budget in this way would allow citizens to more easily advocate for their priorities.

Mayor Foy said that the Town finance director could provide the Council with fixed costs, such as debt service, and the Council could identify a range of tax increases.  This information could include a list of services that increases would provide as well as what the lowest increase could be, he said.   Mayor Foy pointed out that this would lead to cutting or slowing some things down.  But it would describe the fixed services that would not be cut, he said.

Council Member Kleinschmidt commented on the challenge of finding a consultant who would not suggest cutting the kinds of services the Town wants.  This was why it would be important to have a citizens committee, he said, and he asked for more information about Winston-Salem's experience.  Dr. Vogt replied that the Winston-Salem process was an ongoing one confined to one, two or three functions each year.  Council Member Kleinschmidt suggested taking the time to find a consultant who would pay attention to the citizens' committee.  He stressed that the Town should make sure that the charge preserves Town values.  Council Member Kleinschmidt suggested addressing only a couple of discreet government services this year and developing a multi-year plan to scale back. 

Mayor pro tem Wiggins said that she had envisioned the consultant advising Council members on whether or not they are using funds in the most efficient way rather than telling them which programs to cut or retain.  She had been troubled by the lack of connection between board and staff presentations during the budget process, she said, adding that this had put the Council in an awkward position.  Mayor pro tem Wiggins suggested that advisory boards review some of the staff budgets before they are brought to the Council so that Council members would not be in the position of receiving two budget priorities. 

Mayor pro tem Wiggins expressed support for Mayor Foy's approach to minimizing any budget increase.  She said that making deep cuts was the only way to prevent a tax increase, and pointed out that there was time to do so.  Mayor pro tem Wiggins cautioned, however, that the Council retreat in January probably would slow things down.

Council Member Strom remarked that if the Council hires the right person and gives him/her the correct charge then they could use a citizens group in an advisory capacity that would not slow the process down.  He agreed with Council Member Hill that using the amount of time the Town typically spends on the budget in a different way could be effective.  He emphasized that the Council should be clear that the consultant and/or group, while collaborating with staff, would be hired by, responsible to, and managed by the Town Council. 

Mayor Foy proposed that the Council not follow the usual budget process from January forward.  He recommended reworking the entire process and pushing it back as far as possible, perhaps to April, with forums and work sessions scheduled for April through June.  In the interim, Council members could participate in a group with citizens and a consultant, he said.  Mayor Foy noted that there probably would be a budget presentation in March.  But the Town could get as much work done as possible through the new process, digest that during the March period, and begin focusing on the budget in April, he said. 

Council Member Verkerk verified that Mayor Foy was recommending option #4. She noted that Dr. Vogt had cautioned about the extra time it could take when a citizens committee is involved. Mayor Foy replied that he believed the Council wanted citizen involvement.  The committee could be similar to the one for Parking Lots 2 and 5, he said, noting that that committee had used a consultant and been efficient. Mayor Foy pointed out that citizens would donate their professional expertise.

Council Member Greene agreed that citizen involvement was important and that there was plenty of expertise in Town.  A citizen’s committee could help the Council by being ambassadors to the community, she pointed out.

Mayor Foy recommended proceeding with option #4 and reworking the process from January onward.

Mayor pro tem Wiggins pointed out that when she first joined the Council the budget deliberation process had not been the way it currently was.   Previous Council members had revised it, she said.

Council Member Hill suggested finding potential committee members through existing advisory committees.  Mayor Foy replied that the traditional way to recruit citizens was through an ad in the newspaper.  Also, Council members probably know people who would be helpful to the effort, he said.  Mayor Foy agreed with a comment by Council Member Harrison that having one or two former mayors and/or Council members on the committee might help.

Council Member Ward said that the Winston-Salem committee included high-ranking CEOs.  He noted that a number of people in the University system might help out, as Dr. Vogt had done tonight.

Council Member Harrison stated that advocates for various departments within the Town would be needed.  He recommended finding a consultant first; however, since the Council would learn during conversations with applicants about how their experience might help the Town accomplish its goal in its timeframe. 

Council Member Verkerk expressed wariness about finding committee members through advisory boards.  "Advocacy and efficiency can be opposing forces," she said.  Council Member Verkerk suggested hiring a consultant and then asking that person whom s/he would like help from.

Mayor Foy said he envisioned the citizen’s advisory committee being small, five to seven people.  Council members agreed.

Council Member Kleinschmidt pointed out that citizens who had served on many boards might be more appropriate than those who had served on just one.

Mayor Foy asked Deputy Town Manager Flo Miller if she understood what the Council was asking.  Ms. Miller replied that the Council wanted the staff to bring back an outline that would essentially be a request for a proposal from consultants, with space for the Council to fill in the blanks, she said.  Ms. Miller stated that the staff would begin identifying potential consultants and would bring a list back to the Council.  She pointed out that the Council had not yet determined the charge.  Ms. Miller asked Council members if they wanted the staff to work on finding the consultant first and then work on the charge.

Mayor Foy said that it would be helpful if the staff could distill what was said today into a charge.  He offered to help with that.  Mayor Foy recommended that the staff bring a report back to the Council at the next regular business meeting on October 27, 2004.

Mayor pro tem Wiggins pointed out that there was a separate issue of the calendar process itself.   There were points along the way where the staff must perform essential tasks, she said.  Mayor pro tem Wiggins suggested developing a schedule that meshes those tasks with what the Council had discussed tonight.  Mayor Foy pointed out that this did not need to be done soon, and Mayor pro tem Wiggins agreed.

Council Member Ward recommended making sure that Town advisory boards were aware that the schedule might not be the same this year.  The Council would not want to undercut their budgetary discussions or make them feel that they were wasting time, he said.  Council Member Ward suggested that the staff notify all advisory boards that the Council was reassessing the budget process.  Mayor Foy and others agreed.

Finance Director Kay Johnson offered to develop a schedule and a list of citizens who could potentially help.  She would bring that back to the Council on October 27, 2004, she said.  Ms. Johnson agreed with Mayor pro tem Wiggins that there were some essentials, such as having a recommended budget, the staff must perform with or without advice. 

The meeting adjourned at 6:34 p.m.