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2015-06-04 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, JUNE 4, 2015 PAGE 314 ASSEMBLY The New Hanover County Board of Commissioners met for a Budget Work Session on Thursday, June 4, 2015, at 3:35 p.m. in the Harrell Conference Room at the New Hanover County Government Center, 230 Government Center Drive, Wilmington, North Carolina. Members present: Chairman Jonathan Barfield, Jr.; Vice-Chairman Beth Dawson; Commissioner Skip Watkins; Commissioner Woody White; and Commissioner Rob Zapple. Staff present: County Manager Chris Coudriet; Deputy County Attorney Kemp Burpeau; and Clerk to the Board Teresa P. Elmore. Chairman Barfield called the meeting to order and announced that the purpose of the meeting is to continue discussion of the FY15-16 Recommended Budget. County Manager Coudriet expressed appreciation to the Commissioners for their attention and direction given to the budget process and he reminded the Board of the information provided in an email earlier in the week summarizing the modifications identified at the last two budget work sessions and a spreadsheet on Fund Balance projections scenarios. The objective of the work session is to get a consensus of changes from the Board, which he would present as a summary of changes at the public hearing for comments. Budget Director Cam Griffin provided a summary of the previous Budget Work Sessions discussions:  May 14, 2015 Session resulted in decreasing the tax increase from 5 cents to 2 cents within $916,035 of the 2 cents. Specific changes incorporated were:  Reduction in funding to County Schools of $1,081,440 by rolling back the average daily membership allocation to $2,600 from the propose $2,640;  Reduction in debt service of $2,138,546 by adjusting the debt schedule to reflect one interest payment for both the community college bonds and the first installment of the public school bonds;  Reduction in the capital improvement plan of $160,000 by reducing the number of elevator replacements at the Judicial Center from five to four;  Increase in estimated sales taxes of $1,624,361 by projected growth of an additional 3 percent over the recommended budget;  Appropriation of an additional $3 million from fund balance for recurring expenses, but still maintain the 21 percent policy.  May 28, 2015 Session resulted in reducing the budget further by $925,200 and offered a balanced budget at a 2 cents tax increase. Specific changes incorporated were:  Reduction in funding to the community college of $550,000 by reducing its capital investments in approximation to the cost of a kitchen renovation and construction of a maintenance facility;  Reduction in childcare subsidies by $225,200 by lowering the projected participation rate to 100 children;  Reduction in funding the Juvenile Justice Services review by $150,000 with money available for a degree of analysis. Finance Director Lisa Wurtzbacher responded to questions concerning the spreadsheet analysis of fund balance projections using scenarios of the County’s current fund balance policy of 21%, the National AAA median of 19.5%, the North Carolina AAA median of 18%, and the Board’s prior policy goal of 16.67%. The County maintained slightly above the 21% goal in 2014. She cautioned the Board against lowering the fund balance below the policy goal of 21% as the Local Government Commission (LGC) and the bond rating agencies would consider the policy goal in their assessments of the County. However, she pointed out that going below the fund balance policy would not cause the County to be downgraded, as a multitude of factors is considered. The LGC does not give the County a finite percent for the fund balance. She estimated that decreasing the fund balance by $3 million would still provide a 21.7% fund balance and that .5% of the fund balance represents $1.3 million and .7% represents $1.9 million. In discussion of the risk in delaying the selling of bonds for a few months, Ms. Wurtzbacher reported that the County is on the LGC calendar for July 21, 2015, and the County has started spending funds for the Schools in particular the new school on Edgewater Club Road. Normally the County would have cash from the bonds before spending on school construction projects. In addition, the community college will require expenditures for two new buildings. If the college spends greater than expected, the County may need to liquidate some investments for a $10 million shortfall. However, the County would reimburse itself from the bond proceeds, as stipulated in the capital project ordinance. Delaying the bond purchase by six months would save $1.7 million in interest payment. In discussion of the potential risk of increasing interest rates, Ms. Wurtzbacher expected the rates to increase and recommended that the bonds be purchased this summer. County Manager Coudriet concurred with the conservative approach and warned that the other options could have a high-risk tolerance level. In discussion of the fund balance policy, County Manager Coudriet cautioned that a zero tax increase would consciously violate the current policy, as it would take $3 million from the fund balance for recurring costs. Commissioner White suggested changing the fund balance policy to 20.5%, which is more than the median rate for North Carolina counties, or the budget could be further reduced by cutting more expenses. Commissioner Zapple NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, JUNE 4, 2015 PAGE 315 responded that the Commissioners should be conservative in planning for the future by having sufficient money set aside in the fund balance and he was not in support of changing the 21% policy that was established less than 4 years ago and he did not support changing the policy to meet the County’s operation obligations. In discussion of the impact of major storms or other emergencies on the fund balance, Commissioner Watkins suggested that short-term loans could be provided by local banks. Chairman Barfield disagreed and said that the County should not borrow money for recovering efforts from a disaster. In a prior storm, the County’s focus was to find ways to handle debris removal. In case of an emergency that causes the County to reduce its fund balance, Director Wurtzbacher explained that the policy stipulates a plan must show how the County would return to its 21% goal within a two-year period and the County would respond to the bond agencies that the County expects reimbursement from FEMA. County Manager Coudriet reported that in a recent no name storm with little countywide impact, the County spent $1.3 million in debris pickup and the county did not qualify for federal disaster assistance. Vice-Chairman Dawson commented that the Commissioners must plan for the future and it is difficult to know the outcome that the General Assembly would impose on counties in regards to the sales tax redistribution and the potential loss of $15 million of sales tax revenues in the next three years. She believed it would be prudent for the Commissioners not to violate its fund balance policy in case of an emergency and other unknown factors besides the impacts of major storms. Furthermore, violating the fund balance policy could potentially affect interest rates and the County’s borrowing ability. Chairman Barfield expressed concern about the proposed legislative changes on the sales tax redistribution and its potential impact on the County. He reported that he would be going to Raleigh on Tuesday with a delegation of municipal leaders to debate the Senate bill. County Manager Coudriet reported that the bill calls for the effective date to be July 1, 2016; however, another version has been filed by Senator Bob Rucho of Mecklenburg County that would place caps on the amount a county could receive and the growth rate based on different models than Senator Brown’s bill. The Commissioners discussed the following funding issues: Capital Improvement Projects (CIP) County Manager Coudriet reported that to offer a balanced budget with a zero cent tax increase would require the elimination of the first year of the five-year CIP. The plan was offered in order to schedule long-term replacements of the County’s infrastructure and to have limited investments in County facilities to preserve the overall rate of spending. The five-year strategy schedules maintenance of major projects like the jail expansion so that the County can anticipate and plan for the costs. The Commissioners discussed the following funding matters: Replace four of five elevators at the Judicial Center at a cost of $640,000 Commissioner Watkins reported on reviewing the maintenance records for the elevators and believed that sufficient backup existed between the elevators for any downtime or repairs. Chairman Barfield, Vice-Chairman Dawson, and Commissioner Zapple supported funding for the replacement of four of the five elevators; Commissioners Watkins and White opposed funding. Replace the HVAC Units at the Main Library and Northeast Library at a cost of $253,000 In discussion of the replacement of the HVAC units at the libraries, County Manager Coudriet reported that the Finance Director chairs a capital review team that evaluates and determines which projects should be scheduled for replacement based on maintenance cost and cost benefit analysis. The units are 15 years old and at the end of their use. Chairman Barfield, Vice-Chairman Dawson, and Commissioner Zapple supported funding for the HVAC units; Commissioners Watkins and White opposed funding. Drainage Improvement Projects Recommendation of $140,000 In discussion of the Countywide Drainage Improvement Projects, County Engineer Jim Ianucci reported that the County works with the communities in correcting slope grades or larger scale drainage problems. Property owners are responsible for small-scale projects on their properties, but the County works on projects that benefit the whole community or corrects drainage problems abutting to school property. One of the upcoming projects includes building an overflow pond for the new school on Edgewater Club Road. Chairman Barfield and Commissioner Zapple reported on visiting the Rock Hill community to see and hear about their drainage problems. Chairman Barfield, Vice-Chairman Dawson, Commissioner Zapple and Commissioner Watkins supported funding the recommended budget amount of $140,000. Commissioner White opposed the increased funding amount. Cape Fear Community College Funding Vice-Chairman Dawson asked whether the meeting with the executive staff from the community college resulted with any further reductions above the $550,000 included in the budget plan. Commissioner Zapple responded that the discussion was continued, but progress was being made in the right direction. Commissioner White agreed that the discussions have been positive and that both parties are in agreement that the yearly process NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, JUNE 4, 2015 PAGE 316 needs to have a better flow of information on projects whether they are fully funded, midway of funding or new plans for the next fiscal year. The meeting was recessed but other reductions should be found. Debt Service for the Issuance of Cape Fear Community College and Public School Capital Bonds County Manager Coudriet reported that the County is spending money on bond projects without having bond proceeds available and $12.9 million has been appropriated for the fiscal year. The County would not have sufficient cash on hand for both the community college and school construction projects. Chairman Barfield, Vice-Chairman Dawson, and Commissioner Zapple supported the issuance of the community college and Public School capital bonds by the summer. Commissioners White and Watkins supported waiting until the end of the year to avoid the interest payment of $1.7 million. Childcare Subsidy for 100 Children County Manager Coudriet reported that the funding amount for the childcare subsidy was reduced by $225,200 by lowering the projected participation rate to 100 children. Commissioner White opposed funding the childcare subsidy, as it is a Federal and State program, which the County is not required to fund. Commissioner Watkins said he supported the subsidy as long as funding would not increase every year and as long as the funding would go to privately owned daycare businesses. He viewed the subsidy as meeting the strategic priorities of quality education and public safety with an emphasis on the early prevention of crime. Vice-Chairman Dawson requested to be kept updated on the program by DSS. Chairman Barfield, Vice-Chairman Dawson, and Commissioners Zapple and Watkins supported the childcare subsidy for 100 children. Commissioner White opposed any funding for the subsidy. Juvenile Justice Services Study County Manager Coudriet reported that reducing the funding for the Juvenile Justice Services study by $150,000 would still provide an adequate degree of analysis for the review. New Hanover County may be included in a pilot program as it is highly likely that the legislators will raise the legal age of juveniles. Additions to the Budget for Outside Agencies County Manager Coudriet reported that additional funding requests have been received from outside agencies as follows: $10,000 to the Arts Council $10,000 to the Children’s Museum $9,000 to the Cape Fear Resource, Conservation, and Development $5,000 to the Friends of Fort Fisher Museum Commissioner Zapple supported funding for the Arts Council as it is important to the tourism and cultural organization and provides pure economic development. He also supported funding the Children’s Museum since the City of Wilmington plans to match the County’s funding. Many elementary students visit the museum at no charge and it serves all sectors of the community. Commissioner Watkins supported funding the Cape Fear Resource, Conservation, and Development as they may find grant money for projects that would benefit citizens in excess of the $9,000 funding request. He also supported funding the Friends of Fort Fisher Museum as it supports the economic development of the area through tourism. Commissioner White supported funding of both requests. Vice-Chairman Dawson reminded the Commissioners of the funding mechanism put in place for outside agencies based on a two-year application process and the agency’s support of the County’s strategic plan. Although many organizations promote tourism and have a tremendous economic impact to the community, she felt that it was more important to take care of County assets first, such as the Library, Museum, Parks and Gardens. She wanted to be assured that the County departments received support for their programs and were fully funded with their requests. County Manager Coudriet responded that the Recommended Budget included seven additional positions. In regards to the Friends of Fort Fisher, Vice-Chairman Dawson reminded the Commissioners that the Board approved the one-time funding request last year and she would support a second year; however, the Commissioners should be watchful with the two-year funding commitment. Organizations should understand that the funding is for only a two-year commitment. She believed that the County should support its own museum before supporting State historic sites. Chairman Barfield and Commissioner Zapple supported funding for the Children’s Museum as the museum st supports the priorities of the strategic plan in educating children for the 21 century. Commissioner Watkins reported that he was contacted by members of the LINC organization about increasing their funding by $10,000 for their program. Although the Commissioners supported the program, they did not want to go against their current two-year funding commitments. Furthermore, the County Manager noted that the County supports the program by providing two county properties to the group. Vice-Chairman Dawson suggested that the Commissioners might want to set a certain percentage or a funding amount for non-county agencies who apply for funding and to be sure to limit the funding for the two-year process. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, JUNE 4, 2015 PAGE 317 Fund Balance Policy Discussion County Manager Coudriet reported that additional funding would be needed in the fund balance for the $6 million of recurring operating expenses and it would be an intentional violation of the County’s fund balance policy of 21 percent without providing a clear plan for restoring. Commissioner White noted that it appeared that the majority of the Board was prepared to vote for a tax increase and he suggested that the Commissioners vote to cut their salaries by 8% to bring conformity with peer counties and as a gesture to the citizens for the tax increase. Commissioner Watkins agreed with an 8% cut in the Commissioners’ salary. Chairman Barfield, Vice-Chairman Dawson and Commissioner Zapple commented that they work more than 40 hours a week in their duties as Commissioners and based on the current salaries listed with the School of Government, New Hanover County’s pay schedule was in line with peer counties. Merit Pool and Market Adjustment In response to Vice-Chairman Dawson’s request for the status of merit increase and market adjustment, County Manager Coudriet said that the merit and market adjustment have not been removed from the budget as he felt strongly on the need to continue the investment in the dedicated and talented workforce of New Hanover County. Commissioner White reported that the City may be providing a 2-3% increase for their employees, the Cape Fear Public Utility Authority has a 2% increase proposed and the State plans to give a 2% increase; he suggested that the County should provide a total of 2% increase whether a merit or market adjustment. An increase of 1% would add $750,000 to the Budget. Chairman Barfield, Vice-Chairman Dawson, and Commissioners Zapple and Watkins expressed support for the Manager’s recommendation and for taking care of the County assets of employees. Vice-Chairman Dawson pointed out that the Recommended Budget calls for a reduction of .9% of the Fire Service Tax; therefore, property owners in the unincorporated area, approximately one-third of the County, would see a .9% reduction in the Fire Service tax bill. ADJOURNMENT There being no further discussion, Chairman Barfield adjourn the meeting at 5:15 p.m. Respectfully submitted, Teresa P. Elmore Clerk to the Board Please note that the above minutes are not a verbatim record of the New Hanover County Board of Commissioners meeting.