2015-05-14 Special Meeting
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33
BUDGET WORK SESSION, MAY 14, 2015 PAGE 297
ASSEMBLY
The New Hanover County Board of Commissioners held a Budget Work Session on Thursday, May 14,
2015, at 2:06 p.m. at the New Hanover County Government Center, Harrell Conference Room, 230 Government
Center Drive, Wilmington, NC.
Members present: Chairman Jonathan Barfield, Jr.; Vice-Chairman Beth Dawson; Commissioner Skip
Watkins; Commissioner Woody White; and Commissioner Rob Zapple.
Staff members present: County Manager Chris Coudriet; County Attorney Wanda M. Copley; Assistant
County Manager Tim Burgess; Budget Director Cam Griffin; Assistant County Manager Avril Pinder; Finance
Director Lisa Wurtzbacher; and Deputy Clerk to the Board Kymberleigh G. Crowell.
Chairman Barfield called the meeting to order and requested County Manager Chris Coudriet to begin the
presentation.
County Manager Coudriet provided a brief overview of the information to be discussed noting that while he
still believes his request of the Board to increase the property tax by 5 cents is the correct request, the revised
recommended budget is based on the Board’s directives to look at ways to reduce the increase to 2 cents. He asked
Budget Director Cam Griffin to start the presentation by reviewing the revised budget recommendation.
Revised Budget Recommendation
Budget Director Cam Griffin presented an overview of the revised recommended budget, which reflects a
reduction in a property tax increase from 5 cents to 2 cents. She reported the information is based on the following:
Revised debt schedule; savings will be approximately $2.1 million
Schools recommendation reduced from $2,640 per average daily membership (ADM) to $2,600 per
ADM. ADM is estimated at 27,036; savings will be approximately $1 million; current fiscal year
amount is $2,575
Reduction in funding elevators from five to four; the one not being replaced is a non-public elevator;
savings is $160,000
Increase in sales tax estimate from 2% to 5% over the FY14-15 estimate:
Staff feels it can recommend a 15% increase over the FY14-15 adopted budget; assumes that the
FY14-15 sales tax receipts will be approximately 10% over budget; information actually reflects
an increase of 5% over what is expected to be received in FY14-15; will provide $1.6 million;
with the adjustments in the revenue and in the expenditure there is $5 million.
Financing change from one-time costs to recurring costs:
Staff reviewed the appropriate Fund Balance; when the budget was recommended the Fund
Balance was being used only for one-time expenses, using the additional $3 million will be
financing recurring expenses
The total adjustments based on the Board’s direction is $8 million; and
Adjustments needed for a 2 cents tax increase is $8.9 million, an additional adjustment of $916,035 is
needed
County Manager Coudriet noted that the savings presented are for one year, not multiple years savings. At
some point, staff would have to address increasing the ADM funding to try to get to $2,700. The $2.1 million of
interest only is effective for one-time savings for next year’s debt service. Staff has been trying for the last several
years to use Fund Balance only for one-time capital outlay or other one-time expenses. More of Fund Balance can
be spent if the Board remains comfortable using the Fund Balance for recurring costs. Staff confirmed in response
to questions there is a total of $9.7 million coming out of Fund Balance with $3 million of it being used for recurring
expense; the recurring expense reference is primarily referring to debt service payments regarding debt or any other
operating expense in the budget. The $6.7 million use of Fund Balance was tied to one-time expenses.
Fund Balance Analysis Review
Finance Director Lisa Wurtzbacher presented information on the Fund Balance analysis and in response to
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questions on the type of collections; the County has collected through March 31:
Budgeted $162 million for ad valorem, to date $159 million has been received;
Budgeted $54 million and received $29.5 million in sales tax; and
Other revenues originally budgeted $64 million and through different budget amendments, it increased
to $66.3 million. To date, $41.1 million has been collected.
Finance Director Wurtzbacher further explained that when taking the Fund Balance appropriated out of the
equation, the County collected $230 million of the $280 million budgeted. In looking at current projections it is
believed funds will be slightly over the revised budget in terms of collections. The year started with appropriated
Fund Balance at $8.5 million and throughout the year the Board has approved various budget amendments that have
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either increased or decreased the appropriated Fund Balance. As of March 31, the amount is at $13.8 million in
terms of what has been budgeted to appropriate for Fund Balance. However, the reason there is a 0 in terms of
actuals is because that is an unknown until the end of the year. The actuals number reflects the revenues less the
expenditures at the end of the year. Historically, the County is on trend of where it wants to be; yearly Fund Balance
should not increase by $10 million. The County is heading in the right direction and it is thought that some Fund
Balance will be used this fiscal year but that will not be known until the end of the year.
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33
BUDGET WORK SESSION, MAY 14, 2015 PAGE 298
In response to questions regarding how the County projections are calculated, County Manager Coudriet
reported that there is a need to look at how projections are calculated; in reviewing the analysis presented, the
margin of growth has tightened over time. In terms of sales tax collections the County is closer to budgeting what is
really received and the same is the occurring trend with property tax. While thought is the trend is heading in the
right direction and Fund Balance is being added to above and beyond what is appropriated; it doesn’t mean it is
being used and the addition is getting smaller.
In response to additional questions about using Fund Balance, Finance Director Wurtzbacher reported that
based on what has been received in sales tax and ad valorem, it is estimated that the expenditure will be where it was
last year; some of the Fund Balance will be used to balance the budget. She further noted when looking at Fund
Balance growth, theoretically not all of it would go to the unassigned Fund Balance which is what is used to
calculate the percentage. There are other categories of Fund Balance that come to the total Fund Balance, so some of
the growth would go to other categories as well.
Budget to Actual Comparison Review
Finance Director Wurtzbacher reported that Staff was asked to look at budgeted to actual sales tax and ad
valorem taxes historically and presented the following information:
Budget to Actual Comparison
Ad Valorem & Sales Taxes Budget to Actual Comparison
2009 2010 2011 2012 2013 2014 2015
Revenue Collections
Ad Valorem taxes:
Actual 151,679,364 153,149,665 157,919,322 160,778,932 159,760,979 165,307,926 159,632,368 E
Budgeted 150,785,035 151,449,581 158,778,525 156,967,697 160,084,721 161,641,517 162,065,212
Over/(Under) Budget 894,329 1,700,084 (859,203) 3,811,235 A (323,742) 3,666,409 B (2,432,844)
Sales taxes:
Actual 43,647,808 38,187,697 44,362,565 49,505,298 51,442,948 52,960,484 29,574,594 E
Budgeted 51,224,533 39,827,821 38,873,501 46,541,536 47,573,746 52,488,986 54,172,350
Over/(Under) Budget (7,576,725) (1,640,124) 5,489,064 C 2,963,762 D 3,869,202 D 471,498 (24,597,756)
The following was noted regarding the comparison:
A:
Fiscal Year 2012 was a property revaluation year.
B:
Fiscal Year 2014 included a one-time revenue increase of approximately $2.5 million due to the
overlap of traditional motor vehicle collections and the new tag and tax collection system.
C:
Additional revenue received over budgeted amounts due to the allowance of the new Article 46 sales
tax to be collected beginning October 1, 2010 as opposed to January 1, 2011, the original date
anticipated and budgeted for.
D:
Fiscal Year 2012 and 2013 continued to see effects from the recovery of the recession.
E:
Reflects collections through March 31, 2015.
In response to Board questions, County Manager Coudriet responded that this budget to actual comparison
information does not include the revaluation which is not effective until January 1, 2017.
Ad Valorem Increase of 1, 2, and 3% over 2.4% Budgeted as Increase from FY14-15 to FY15-16 Review
In response to Board questions regarding the ad valorem scenarios presented, Budget Director Griffin
confirmed that the increase of 2.4% annually starting with the FY14-15 base is the model being proposed. County
Manager Coudriet stated that the tax base has grown on average of 1.1% each year and that Staff cannot recommend
a proposal of more than 2.4%. In response to questions, Staff confirmed that the Tax Administrator bases the ad
valorem numbers on building permits, revenue stamps, etc. and the revaluation is not reflected in the FY17-18
information presented and only reflects 2.4%.
Review of Sales Tax Increase of 2, 5, 6, and 7% over the FY14-15 Estimate, which is 10% Over the FY14-15
Adopted
Budget Director Griffin provided an overview reporting that when the County Manager presented the
budget it reflected a 2% projection in sales tax over what will be received in FY14-15, which is actually 12% growth
over the adopted budget and is what the Staff projects. All information presented is based on assumptions that
nothing will occur in the North Carolina General Assembly (NCGA). Staff increasingly feels changes are coming
from the NCGA and it is difficult to say what the impact will be on the budget. County Manager Coudriet further
stated that in FY14-15, $54.1 million is what is currently budgeted and is the baseline; will be closer to $59.5
million; it is assumed that it will reach $62 million next year.
Review of Debt Service – Interest Only Comparison
Finance Director Wurtzbacher provided an overview of the County’s debt service noting:
The Cape Fear Community College (CFCC) bonds are reduced to reflect interest only with one
payment in February 2016;
Although there is not a final debt schedule yet, the Local Government Commissioner (LGC) has stated
that regardless of whether or not the project is done the payment must be made for the Heritage Park
project;
The first issuance of the school bonds was to be an interest payment in February 2016
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33
BUDGET WORK SESSION, MAY 14, 2015 PAGE 299
In response to questions, she explained that normally two payments are made per year; one payment is
interest only and one is interest and principal with the bonds maturing one time per year. In today’s information,
principal is deferred and only interest is paid for 18 months; principal will be due February 1, 2017. It was noted
that only $18 million of the $35 million parks bonds is the responsibility of the County; the balance is the
responsibility of the City of Wilmington. The City repays the County for its portion of the parks bonds as does
CFPUA for the Marquis Hills/Heritage Park projects. After making these adjustments, the reduction in estimated
debt service for FY16 is $2.1 million for a revised debt service now of $51.3 million.
There are costs when principal is deferred out longer and by statute it cannot be deferred any longer than 36
months. If principal is deferred for 24 months there is no significant savings in FY16, but there would be a cost of
an additional $1.4 million. It is similar for a deferment of 36 months; no savings in FY16, but there would be a
savings in FY17 and FY18 for a total of approximately $8 million. However, if the County deferred for 36 months,
the cost would be an additional $2.5 million above and beyond the normal. Finance Director Wurtzbacher reported
on her conversation with the Local Government Commission (LGC) about structuring. The LGC stated it would
support 18 months interest only, but discourages 24 months and 36 months interest only due to possible negative
response from rating agencies. A brief discussion was held about how the County would have to explain to the
rating agencies why it is deferring longer than 18 months, the proposal to pay for bonds and look at policy for pay
down ratio. When reviewing the policy, Staff would have to look at the policy for the pay down ratio to pay down
the principal and make sure the County is staying in compliance. In response to additional cost questions, Finance
Director Wurtzbacher reported that she is working on the long-term cost at the 12 months to 18 months window,
comparing what the County had in the debt schedule and what is proposed in the handout. She will provide the
information upon completion. Being able to combine the two issues and having first debt service payment in
February 2016 should not be viewed negatively; as it is something standard as six months later the County would be
making a payment.
Prioritization of CIP and IT Recommendations
In response to the request to provide a prioritized list of needs, Budget Director Griffin reported that there
were more requests than what is shown on the presented list. Staff used a more strategic budgeting approach with
the IT projects by looking at IT staff availability and had the departments make a business plan to help everyone
look at the payoff for projects; they also looked at initial costs and long-term cost/savings. County Manager
Coudriet reported that the total anticipated startup costs is recommended at $220,000, but $180,000 of the $220,000
is out of the General Fund. The Freedom One Solution Mobile Application will be paid from the Fire Services fund;
the rest is being paid from the General Fund. In response to Board questions, Staff confirmed that the 911 projects
will be paid for using grant funds.
A brief discussion was held regarding the elevators at the New Hanover County Judicial Building. Staff
originally recommended replacement of all five elevators in terms of economies of scale and mobilization. After
further discussion with the Board, Staff has taken the non-public elevator out of the replacement schedule. At the
request of the Board and County Manager, Property Management Director Jerome Fennell explained that as it
pertains to economies of scale it would be to the County’s advantage to replace all five elevators, but if asked to
only replace four that is doable. In response to questions about the reason of need to replace rather than fix existing
equipment, Property Management Director Fennell reported that parts for the elevators are becoming obsolete.
When an elevator goes down, the out of service time depends on what has broken down; if it’s something such as a
door closure issue that’s several hours; if it’s a generator, it could be possible weeks to repair. If an elevator had to
be fully replaced it would take at least a month to install and have it usable.
In response to Board questions about the CIP prioritization order, Finance Director Wurtzbacher confirmed
that the grant funds would be money coming in for the 800 MHz Public Safety Radio System Update and Backup
911 Center and the Emergency Operations Center projects and would not impact the General Fund. The actual
General Fund impact is $1.6 million for the General Government Revenue items which are affected by ad valorem
taxes: elevator replacements; roof replacement at the Government Center and Main and Northeast Libraries; Main
and Northeast Libraries HVAC replacement; and drainage improvements. Staff confirmed the Carolina Courtyard
Renovation has been paid for by the Parks Bond and fundraising. The Health Building Renovation - Phase III will
receive no reimbursements since it is Medicaid Maximization money that the Health Department has been collecting
over the years and the funds are available.
In response to Board questions about the HWY 421 water and sewer expansion, County Manager Coudriet
reported that based on discussions with the CFPUA there is a tentative agreement to ask the Board, as part of the
$500,000 committed in the economic development line item for next year, to appropriate $100,000 to the Cape Fear
Public Utility Authority (CFPUA) for purposes of the preliminary engineering report (PER). CFPUA will not move
forward without the engineering report. It will be about six to eight months before the report will be completed; so
any loan proceeds would be based on that PER. There would be no CIP or loan impact in next year’s budget if this
agreement goes according to plan. Savings will come from the General Government Revenue items.
Addendum Discussion
Staff provided the following:
Updated model for revenue collection;
New Hanover County Schools fuel savings:
Realized $171,251 in fuel savings;
Costs increased by similar amount for tires, parts and contracts repairs;
State reduced funding mid-year by $89,650 due to State’s fuel savings; and
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33
BUDGET WORK SESSION, MAY 14, 2015 PAGE 300
Similar reduction is anticipated next year.
Correspondence from Commissioner Zapple regarding how staff revised the initially proposed budget;
NCACC Sales Tax Correspondence:
Originally recommended for FY14-15 sales tax distributions a 3% to 4% increase over FY13-14
receipts;
Local sales tax distributions statewide are coming in for FY14-15 which are considerably higher
than that; to date distributions are up 13.2%;
Total statewide local sales tax collections for this fiscal year are likely to exceed 7% above FY13-
14 receipts; Recommending counties consider a 3% to 4% increase for FY15-16, but local
economic conditions should drive revenue forecasting.
County Manager Coudriet responded to Board questions that the County retains all of the quarter cent sales
tax. The tax was framed as a source of revenue to sustain the quality of life venues, but there never was an action of
the Board to dedicate that source of revenue so it went into the General Fund. Without it there would have been at
the time approximately $7 million worth of cuts; it has gone into maintaining the quality of life venues.
Board Discussion
In Board discussion, Commissioner White requested Staff to reexamine the proposed budget again to
eliminate the 2 cents proposed property tax increase, so that there will not be a need for the increase. He requested
Staff to look at the following:
Further reducing the per pupil allotment;
Reducing the CFCC contribution as there are still carryover projects from last year it has not gotten to
yet. CFCC staff will be overseeing those projects in the upcoming year and bringing online new
projects up to the limit of whatever the Board approves now. The parking lot project is the biggest
ticket item and there may be opportunity to find the funds in the parking fee revenue at CFCC;
Daycare subsidy - it is a Federal and State program which appears to have a lot of overlap and not a
justification for adding the local level to provide funding at all three levels;
Due to actions taken in connection with the recent pay and classification study, Commissioner White
would not be able to support the proposed merit and cost of living for a total of 4%; proposes the
Commissioners take a pay cut of 8% to be more in line with other counties and not participate in what
Staff proposes for employee pay raises.
Commissioner Zapple asked Staff to provide clarification on the Smart Start program. As he understands it
the Smart Start program relating to the daycare subsidies there are 150 cases that are on the wait list, but the actual
number of cases is closer to approximately 250 people and their families. It is one of the strategic priorities to have a
positive impact on education, reducing juvenile recidivism and have a strong impact on the community. He
requested the Board take into consideration when looking at reducing the daycare subsidy that it’s beyond the
numbers presented as there is tremendous return on investment.
Vice-Chairman Dawson asked for clarification on the breakout of the 12% education debt and 28%
education; if that meant the education 28% category included any school bonds payments. County Manager
Coudriet responded that the 12% education debt does not include the school bond payments because the County has
not started to pay on that as of yet; it is for what is existing and includes CFCC. She requested Staff to look into the
CFCC and School budgets to see if there are any capital projects that could be finer tuned and prioritized to see if
any savings could be achieved.
Commissioner Watkins also requested Staff to reexamine the budget to eliminate the proposed increase of 2
cents and commented that he has no issue with the Board’s pay being reduced. The three priorities of the
Commissioners were economic development, quality education, and public safety. He does not view not increasing
or not funding as a cut, but rather maintaining which provides a savings.
Chairman Barfield stated on the daycare subsidy that it is a double-edged sword; however, it is needed to
help people become self-sufficient over the long-term. A goal of his is to help more parents become self-sufficient.
County Manager Coudriet proposed holding another budget work session within two weeks and would
work with Staff to see what dates may be available for the Board. By general consensus the Board is agreeable to
having another work session within two weeks.
All handouts used during the meeting are available for review in the Budget Department.
ADJOURNMENT
There being no further discussion, Chairman Barfield adjourned the meeting at 3:57 p.m.
Respectfully submitted,
Kymberleigh G. Crowell
Deputy Clerk to the Board