BudgetMessage_Pres_05152013_FY_13_14 NEW HANOVER COUNTY
ALCOHOLIC BEVERAGE CONTROL BOARD
523 S 17"'Street
Wilmington,NC 28401-5548
Telephone: 910-762-7611 FAX: 910-343-0491
Website: http://neii-hanover.abc.nc.goN
CEDRIC A.DICKERSON,Chair ROBERT W.M ARTENIS,Vice Chair
AUGUSTUS C.EVERETT,Jr.,Member DAVID MATTHEWS,Member
THOMAS WOLFE,Member DANIEL W.SIT ES,Chief Executive Officer
May 6, 2013
RE: Budget Message
Dear Members of the Board:
The Proposed Budget Document for the fiscal year July 1, 2013 through June 30, 2014
(FY13/14) has been prepared in accordance with North Carolina General Statute 18B-702
"Financial operations of local ABC boards" and related information provided by the NC ABC
Commission. The ABC Board determines, through adoption of an annual budget, the level of
customer service that the ABC system will provide, the resources available for operations, and
the resources available for capital projects.
The primary drivers during the preparation of this budget included the need for revenues
sufficient to fund capital improvements as well as to provide distributions to beneficiaries, and
projected operating costs required to sustain acceptable levels of customer service during fiscal
year 13/14.
Revenues: The budget consists of projected revenues from liquor sales, mixed beverage
surcharges, wine/mixer sales, interest income and miscellaneous receipts of about $35.7 million.
There are positive signs that the economy is continuing to slowly respond; however, there seems
to be significant uncertainty. Therefore, I feel ABC revenues will remain and projected operating
revenues reflect a proposed average sales increase of 2.00% percent.
Disbursements: On the disbursements, or"appropriations" side, there are projected expenditures
for Taxes, Cost-of-Sales, Operating expenses and Capital Outlays for almost $34.6 million, plus
local Alcohol Law Enforcement and tax/profit distributions of $4.2 million. The excess
disbursements over revenues will come from "Net Assets Restricted for Capital Improvements"
and "Unrestricted Assets". Based on the Board's plan for the new ABC Campus, there will be
substantial disbursements for the building project over three fiscal years (current year, upcoming
fiscal year and FY14/15), because the building is not scheduled for delivery until about
September 2014.
The Board's Budget Process: The budget process was started immediately after the 3rd quarter
financial statements were finalized. The Proposed Budget Document is attached and will be
released to the Board and the public today. A public hearing should be scheduled no earlier than
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10 days from today. It was decided at the April Board meeting to hold the public hearing at
the next regular Board meeting which is scheduled for May 21, 2013.
Highlights of the Budget: Key elements include:
• Only modest sales increases are projected because of the uncertainty of the economy.
• A new facility project is still in the planning stages and is not scheduled for completion
until September 2014.
• The assumption is that debt may be incurred as all capital improvements may not be
funded through cash.
• Employee pay increases will be based on merit (as a result of performance reviews),
promotions and/or to adjustments-to-market. No employee cost-of-living pay increases
were included as none are allowed by Board policy.
• Alcohol law enforcement monies increased to provide for a replacement vehicle;
otherwise law enforcement funds remained the same to assist in controlling the alcohol-
related issues within the County.
• Distributions to beneficiaries were budgeted as 75% of net profits projected to earn
during the upcoming fiscal year.
Goals: Our goal is to continuously enhance the level of customer service for both retail
customers and mixed beverage permit holders (LBD customers).
Fiscal Policy: There are no major changes in fiscal policy.
Debt: The Board does not have any debt at this time; however, debt may be incurred during
FY13/14 largely dependent on the actual constriction bids.
Priorities and Assumptions:
• The Board's primary source of revenue is through the sale of spirituous beverages. A key
assumption is the amount of expected sales growth. Revenue projections are calculated
using expected sales growth combined with historic sales figures.
• The Board's books and records are maintained based on the Enterprise method of
accounting; which is different than the Fund method of accounting used by most
government entities.
• Depreciation and the cost of post-employment benefits are a part of the Board's annual
financial statements; however, these expenses are not reflected in the modified-cash
budget. Projected cash outlays for Capital Expenditures are reflected in the budget.
• The Board contracts primarily with the New Hanover County Sheriff's Department;
however, the Board renewed its law enforcement contract with the City of Wilmington
Police Department for additional coverage.
• Alcohol Education: Most ABC Boards in NC are required to contribute 7% of net profits
(after certain adjustments) for alcohol education; the NHC ABC Board is not subject to
this law because there were applicable local acts in existence before the 7% law was
enacted. In accordance with local acts, profits are distributed to the County and
municipalities for use at their discretion.
• NC ABC Commission Rules (4 NCAC 2R.0902) define "working capital" as "the total
cash, investments and inventory less all unsecured liabilities."
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• As of March 31, 2013, —per internal calculations:
• Minimum working capital was calculated at about $1.0 million.
• Maximum working capital was calculated at about $6.5 million.
• Actual Working Capital (net of"Restricted for Capital Improvements") as
of 03/3 1/20 13 was $3.7 million.
• Funds "Restricted for Capital Improvements" are currently $2.56 million; the
Board may consider increasing this amount at the June 2013 Board meeting
(scheduled for June 18th)
• In addition to providing for operating expenses and distributions, the Board must
retain a level sufficient to "seed" future capital improvements and expansion
costs.
Staffing Summary:
The Board has 43 full-time and 17 part-time employees; which equates to 53 full-time
equivalents (FTE's). These employees are distributed within the departments as follows:
Store Employees 42
Distribution Center and Logistics Employees 6
General & Administrative Employees 5
Total 53
Suggestions for Future Budget Considerations:
• Finalize a ten-year operation/strategic plan to determine future financial requirements of
the Board.
• Determine if 75% distribution of Net Income (after required tax and alcohol law
enforcement distributions) is appropriate for the beneficiaries. The Board strives to
provide a fair share to its beneficiaries while retaining sufficient funds for future
expansion and improvements.
Conclusion:
The Proposed Budget Document reflects the Board's commitment to fulfill its mission based on
known information.
Daniel W. Sykes
Chief Executive Officer
Attached: Proposed Budget Document for Fiscal Year 2013/2014
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