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2011-04-14 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 32 BUDGET WORK SESSION,APRIL 14,2011 PAGE 163 ASSEMBLY The New Hanover County Board of Commissioners held a Budget Work Session on Thursday, April 14, 2011, at 3:04 p.m. in the Harrell Conference Room at the New Hanover County Government Center, 230 Government Center Drive, Wilmington,North Carolina. Members present were: Chairman Jonathan Barfield, Jr.; Vice-Chairman Jason R. Thompson; Commissioner Ted Davis, Jr.; Commissioner Brian M.Berger;and Commissioner Richard G. Catlin. Staff present were: County Attorney Wanda M. Copley; Deputy Clerk to the Board Kymberleigh G. Crowell; County Manager Bruce T. Shell; Budget Director Cam Griffin; Assistant County Manager Andre' Mallette; Assistant County Manager Chris Coudriet;and Clerk to the Board Sheila L. Schult. Commissioner Brian M.Berger arrived at 3:07 p.m. and Commissioner Ted Davis,Jr.arrived at 3:15 p.m. Chairman Barfield called the meeting to order and requested County Manager Bruce Shell present a budget overview for FY2011-2012. BUDGET PRESENTATION County Manager Shell stated this first budget briefing was primarily an overview and is not a recommended budget. Rather, it is an attempt to explain where the County is after significant analysis, show what would be a balanced budget and obtain input from the Board. Overview • Tax Base: $33.9 billion(decrease of approximately$250 million). • Value of a penny: $3.3 million. • Decrease in tax base results in decrease of revenue of$1.6 million(constant tax rate). FYI 1-12 April 14 Budget • Proposed tax rate of 47.1 is an increase of.55 cent. • Tax rate will fund net cost of increased debt. Revenue • Sales Tax revenue is estimated to increase by $7.7 million from FY10-11 to FYI 1-12 (able to budget for full year rather than half year as in the past). • Fund balance of$2.75 million has been proposed to be appropriated. • Increase in Ad Valorem Revenue$210,000($1.8M—$1.6M). County Manager Shell made the following points: • Due primarily to sale of bonded debt,debt service increased while installment debt decreased from prior year to this year. • Net effect is a $1.8 million increase which is equivalent to .55 cent on the property tax rate to cover the bonded debt. • Debt service will increase more in FY13 than FY12 and this proposal provides the cushion for this year and allows filling the expected larger hole in FY13. • Decisions made for this fiscal(FY12)will impact next fiscal(FY13). • Attempt made to minimize the use of appropriated fund balance. • Amount of fund balance is currently 18.4% (approximately $44.3 million undesignated). Goal is 16.67%or two months; State requires a minimum of 8%. • $2.75 million appropriation reduces fund balance to approximately$41 million(roughly 17.3%). • There is no salary lag currently budgeted in FY11-12. There was a $1.3 million salary lag budgeted in FY10-11. This will increase the budget by $1.3 million and lead to a greater increase in fund balance if all other factors remain the same. • Contingencies increased by $243,665 from $506,335 to $750,000 to allow for possible state actions and/or some flexibility in fuel prices. • Aaa bond rating will not be in jeopardy based on these proposals. • Based on discussions with Board, suggesting that$500,000 be set aside for economic development and infrastructure. If approved,the money would be transferred into a separate escrow account and could not be allocated without Board approval. Expenditure Highlights • Debt impact$1.85 million. • Cape Fear Community College (CFCC) net debt increased $5.1 million (sold $70 million of bonds to cover the Union Station Building);remaining debt decreased$3.25 million. • Furloughs would be eliminated(equates to$1 million). • Recommend funding for merits(equates to$600,000). • Increase in contribution to CFCC of$500,000. • NHC Schools decrease in funding of$250,000. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 32 BUDGET WORK SESSION,APRIL 14,2011 PAGE 164 County Manager Shell made the following points on the Expenditure Highlights: • When bonds are sold,expenditure increases need to be covered. • CFCC requested an increase of$1.1 million above where current funding. • Neither CFCC nor New Hanover County(NHC) Schools has had an increase since 2006. • The difference between the two organizations: • CFCC has seen an increase of over 25%in students and a building increase of 40,000 square feet which increases cost of operations,utilities, etc. • NHC schools asked for operating increases of$3 million and capital outlay increases of$3 million. No guarantees that state money will be received to assist with capital outlay items. Outside Agencies Request for funding increased by $700,000. County Manager Shell stated that he has not taken a position on the funding increase request at this point and would like Board input. In response to questions, Budget Director Cam Griffin explained the increases are a mix of old and new requests. Special Fire Service District Fund • Tax Base$12.7 billion. • Value of a penny: $1.2 million. • Tax Rate 6.75 cents: • Recommended increase of.75 cent from FY10-11 rate of 6 cents (for unincorporated part of county). • No fund balance appropriated in FYI 1-12(FY10-11 $881,097). County Manager Shell made the following points on the Special Fire Service District Fund: • Tax rate was not raised during current fiscal year. • If the Monkey Junction annexation is allowed to proceed there will be an impact on property tax through loss of tax base and sales tax. In response to Board questions, County Manager Shell provided explanation for the suggested increase: • Fire Services requested 9 new positions;recommendation is for 3. • Different approach taken with the consolidation and not using fund balance in fire district. • There are contingencies to be addressed while working with Castle Hayne VFD, Myrtle Grove VFD and Wrightsboro VFD. • Agreement has been reached with Castle Hayne VFD; • Negotiating with Wrightsboro VFD on possible purchase; discussing fair lease rate or buying it. Have not been able to come to terms on purchase but should be able to bring something forward soon. • Agreement has been reached with Myrtle Grove VFD. VFD moving assets into a trust and County would then rent at fair market value. • As a result of consolidation,the increase is actually smaller than without consolidation. • The budget includes two tankers and a new roof, the Board has already approved the tanker purchases. Environmental Mana eg ment The Board held a brief discussion regarding the status/layup of WASTEC. In response to questions, County Manager Shell provided the following information: • Cost to operate is$500,000 per month. • Environmental Management budget is an enterprise fund and is suppose to stand on its own but has not been able to do so and has a negative fund balance. • County General Fund has loaned money to the Enterprise Fund. As of last fiscal year, the Enterprise Fund is in debt to the General Fund by approximately $4.2 million. Debt may increase due to a forthcoming budget amendment. • With recent Board action,there will be improvement with the loan. However,when the June 30, 2011 audit is complete, the loan will increase due to this fiscal year being bad for the department; it will reduce the next fiscal year. • Board has the option to raise the tip fee. If the tip fee stays the same, money will be made due to the fees being paid to dump into landfill and will help in eliminating the loan and assist in increasing Environmental Management fund reserves. Result is placing the County in a stronger position to make positive decisions. The downside is that more trash is being disposed of in landfill. • Thirty-eight employees have been given notice and are currently working to layup WASTEC. The expectation is that staff will come forward with a landfill and recycling operation and not budget for the operation of the incinerator. Additional FY11-12 Discussion: In response to Board questions, County Manager Shell explained that if the tax rate is not increased the shortfall is$1,830,983 and does not include the$700,000 increase in outside agency requests. Those requests would cause an additional shortfall. Budget Director Cam Griffin stated that the $2.75 million plus the $1.85 million is NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 32 BUDGET WORK SESSION,APRIL 14,2011 PAGE 165 needed to balance the budget or adjustments must be made. The result is a .55 cent increase in the tax rate and a reduction in fund balance by$2.75 million. At the request of the Board, New Hanover County Schools Superintendent Dr. Tim Markley stated that based on the NC General Assembly House proposed budget, loss of red light camera funds and a million dollar reduction by the County equates into approximately a $26 million reduction (10% — 12% reduction). School employees are technically employees of the State and furloughs can only be mandated at State level, not local. Two years ago the NC Department of Instruction cut employee pay by 1%and has not provided pay raises for same time frame as County. NHC schools have eliminated about 250 positions over last couple of years. In response to Board questions, Tax Administrator Roger Kelley stated that $23 million is the worst-case scenario for what could be lost through the property tax appeals process. Currently, there are two hundred fifty property tax appeals pending which total to approximately $150 million. Some appeals have been resolved, there are still some pending and as of April 14, 2011 approximately $4.5 million in tax value has been lost through the appeals process. Commissioners Davis, Berger and Catlin stated they did not support a property tax increase. Consensus of the Board is that the budget cannot continue to be balanced by mandatory furlough of County employees. The Board clarified that the elimination of furlough does not constitute a raise, but brings employees back to their FY2008-2009 salary rate. The Board agreed with the following proposed budget calendar for Fiscal Year 2011-2012: 2011 April 14(3PM) County Commissioners FYI 1-12 Budget Work Session May 2 (4PM) County Commissioners FYI 1-12 Budget Work Session May 12 Recommended FYII-12 Budget presented to Board of County Commissioners (informally) May 16 County Manager Presents FYII-12 Recommended Budget at Board of County Commissioners Meeting FYI 1-12 Recommended Budget Information to Departments and Non-County Agencies June 6 Public Hearing on FYI 1-12 Budget June 20 Adopt FYI 1-12 Budget ADJOURNMENT There being no further business, Chairman Barfield adjourned the meeting at 4:18 p.m. Respectfully submitted, Kymberleigh G. Crowell Deputy Clerk to the Board