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2016-04-14 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, APRIL 14, 2016 PAGE 505 ASSEMBLY The New Hanover County Board of Commissioners held a Budget Work Session on Thursday, April 14, 2016, at 2:05 p.m. at the New Hanover County Government Center, Harrell Conference Room, Room 601, 230 Government Center Drive, Wilmington, NC. Members present: Chairman Beth Dawson; Vice-Chairman Jonathan Barfield, Jr.; Commissioner Skip Watkins; Commissioner Woody White; and Commissioner Rob Zapple. Staff members present: County Manager Chris Coudriet; County Attorney Wanda M. Copley; and Deputy Clerk to the Board Kymberleigh G. Crowell. Chairman Dawson called the meeting to order and requested County Manager Chris Coudriet to begin the presentation. County Manager Coudriet stated that there are several topics to cover, commended the Budget staff for pulling together all the information requested by the Board and asked Chief Strategy and Budget Officer Beth Schrader and Chief Financial Officer Lisa Wurtzbacher to begin the presentation. New Hanover County Schools Preliminary Budget Chief Strategy and Budget Officer Beth Schrader stated that New Hanover County Schools (NHCS) Superintendent Dr. Tim Markley and Chief Financial Officer Mary Hazel Small were present to answer any questions. The formal school budget will be considered for adoption by the Board of Education at the beginning of May. The request presented today is based on the Board of Education’s requests for changes to the staff’s recommended budget as follows: FY15-16 FY16-17 ADOPTED REQUESTED DIFFERENCE Current Expense $70,610,100 $75,319,264 $4,709,154 Projected Enrollment 26,986 27,426 440 / 1.6% Per Pupil $ 2,620 $ 2,750 $130 / 5.0% Capital Outlay $ 3,000,000 $ 3,000,000 $0 Sub-Total $73,610,100 $78,319,264 $4,709,154 Debt Service $20,063,992 $22,824,222 $2,760,230 Total Request $93,674,092 $101,143,486 $7,469,384 The $2,750 per pupil allocation includes positions for JC Roe, anticipated state salary and benefit increases for all locally paid positions; proposed implementation of projected salary increases; teachers for elementary, middle and high school; counselors and social workers for high schools; middle school counselors; additional special education teachers; technology support; central support positions; and workforce management system. Officer Schrader noted that for every $10 per pupil allocation increase there is $273,740 in increased cost and for every $20 per pupil allocation increase there is $547,480 in increased cost. In FY15-16 the Board approved $3 million in capital outlay for the school system. In response to questions as to capital outlay drivers for the budget year, Officer Schrader reported it covers Year 2 funding for Sidbury Road Transportation Division and the Lakeside demolition, partial funding of the A/C for Brogden Hall (remainder in bond), cafeteria line renovation and equipment replacement at NHHS; boiler replacements at Freeman and Bellamy; replace main electrical switchgear at Laney; phase two of access controls systems at various schools; and playground equipment replacements at various schools. County Manager Coudriet reported that what the movement has been towards is recommending this year a $3 million capital outlay and $2,700 per pupil allocation which including debt service is a total request of $99,774,786. This is continuing with the administrative agreement the County Manager’s office and School Superintendent committed to a number of years ago with the understanding that it would take three years to get to this point. He noted that it is the School Board, not school staff, asking for a higher per pupil allocation of $2,750. County staff is not prepared to recommend a higher amount. In response to questions about school bonds and capital outlay, County Manager Coudriet reported that the $160 million school bond is for a defined set of projects. The $3 million capital outlay is not project specific which allows the schools to plan accordingly and have flexibility to handle items such as ongoing maintenance for buildings not part of any of the current or proposed forthcoming bonds. Chief Financial Officer Small reported that the Local Government Commission no longer allows schools to take general fund fund balance and transfer it to capital projects unless it is an emergency. She also noted that lottery funds cannot be used for technology and buildings that are not schools. Sheriff’s Office Request Officer Schrader reviewed the Sheriff’s Office adopted, amended and requested budgets as follows: FY15-16 FY15-16 FY16-17 ADOPTED AMENDED REQUESTED DIFFERENCE Admin / Judicial $7,175,658 $6,957,486 $7,958,572 $1,001,086 Support Services 1,874,279 2,276,590 2,599,104 322,514 NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, APRIL 14, 2016 PAGE 506 Detectives / Patrol / Vice 15,744,370 15,816,967 17,259,562 1,442,595 Animal Services 1,349,103 1,345,806 1,488,451 142,645 Detention 16,510,482 16,740,957 17,330,395 589,438 Sub-Total $42,653,892 $43,137,806 $46,636,084 $3,498,278 In reviewing the expansion requests, Officer Schrader noted the requests submitted to the Budget department are absolutely necessary and are very realistic: FY16-17 Requested Notes Animal Services* Counter Project $ 35,000 Enhanced safety/security; identified in recent Security Camera 47,575 security audit Support Services Firing Range Equip. Replacement 113,975 Equipment failure annual fee; Training CALEA 16,400 Detention GED Program (Partnership w/CFCC) 23,088 Job readiness; Reduce recidivism; Accreditation Program 18,170 Professionalism; Effectiveness; Safety Total $254,208 * Animal services projects have a revenue offset (Escrow) The expansion request also includes twenty-two positions and are broken down as follows:  Detention – 8 detention officers  Heroin Initiative – 2 detectives (VICE)  Investigations – 2 detectives  Elements/Gang Task Force – 2 detectives; 2 intervention specialists  Civilian Staffing Analysis:  Replace 15 casual part-time administrative support staff with 4 fulltime support staff and 2 fulltime data specialists. This will create a more efficient and effective operation. This recommendation is supported by the Sheriff and Chief Human Resources Officer. IT Governance Committee Officer Schrader reviewed establishment of the IT Governance Committee (ITGC) a new business practice started last fiscal year: Who: 10 person, multi-functional team made up of department heads across the organization What: Projects costing greater than $5,000 or take greater than 20 hours of staff time to implement or introduces new technology to NHC How: Evaluate / rate IT-related resource requests (both monetary and/or staff) The ITGC provides a holistic view of IT needs enterprise-wide and helps departments articulate the business case and realize greater value for IT investments. The FY17 requests totaled to $3,581,700 and the ITGC prioritized eleven projects. Ms. Schrader reviewed the funding for the eleven projects noting that when the Board approves the one-time cost the ongoing annual maintenance is also approved: Category General Fund 911 Surcharge FY16-17 Prioritized FY16-17 Prioritized Total 1x Cost $2,113,200 $295,000 $2,408,200 Ongoing 427,200 40,000 467,200 Total $2,540,400 $335,000 $2,875,400 Staff explained the County receives funding for its 911 system and can use the funds in order to help support those related activities. There is a statewide fee, not set by local government boards, that is charged on every phone bill, landline and mobile. The fees goes to the state who then allocates it to local governments operating public safety warning points. Some of the eleven projects are eligible to be paid for using the surcharge funds. County Manager Coudriet reported that staff is in the process of reviewing the projects and is not prepared to recommend all eleven to the Board. It is understood that cost matters and it is staff’s obligation to provide the Board a balanced budget. There are some projects which must be recommended such as the replacement of the Planning and Inspections software OneSolution which will no longer be supported/maintained after about eighteen months and the Medicaid mandate for the Health Department to update its practice management system/electronic health record solution software. Capital Outlay Requests Officer Schrader reviewed the capital outlay requests for FY17 and noted that where investment is really being seen is in equipment and vehicles: Category General Fund Fire Service Env. Mtg. 911 Fund Total Equipment $972,494 $224,801 $1,314,528 $282,010 $2,793,833 Technology 0 36,400 0 0 36,400 NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, APRIL 14, 2016 PAGE 507 Vehicles 920,002 254,000 224,000 0 1,398,002 Other Improvements 35,000 10,000 0 0 45,000 Total $1,927,496 $525,201 $1,538,528 $282,010 $4,273,235 The total capital outlay request is $4,637,604 but the same basic principal has been applied here as with ITGC. This information has been prioritized but is not necessarily what staff would recommend to the Board. Capital outlays are considered one time expenditures but not necessarily part of the CIP. Capital Improvement Projects (CIP) Chief Financial Officer Lisa Wurtzbacher stated that this is the second year of capital improvement program. Last year’s approach looked at projects on a cash flow basis while this year’s approach looked at projects from a whole project costs view. Similar to the ITGC a committee reviewed the full list and the prioritized list below shows the total cost and funding source: FY16-17 General Loan Grant / Other Prioritized Fund Proceeds Economic/Physical Development $14,600,000 $14,600,000 Cultural/Recreation 4,400,000 3,050,000 $1,350,000 General Government 870,000 870,000 Public Safety 3,081,172 2,626,972 454,200 Fire Services 5,027,360 4,640,580 386,780 Env. Management 3,300,000 3,300,000 Total $31,278,532 $3,496,972 $22,290,580 $5,490,980 She stated the $14.6 million for economic/physical development is the estimated construction cost for the 421 water/sewer expansion and the $4.4 million for cultural/recreation is for the Myrtle Grove Library replacement. Debt Schedule In reviewing the debt schedule Officer Wurtzbacher noted that this information does not include the refunding nd occurring on April 27, 2016. Staff will be presenting at the May 2 Board meeting the proposals received for borrowing funds for the Ogden fire station land and fire truck. The project information is estimated while all other items shown are exact. The debt service is increasing by $4,863,382 with the largest increases in the public schools and debt service funds. It does take into account the debt service for the $92 million borrowed in August 2015: Adopted Budget Requested Increase/ 2016 Budget 2017 (Decrease) General Fund* $16,926,503 $16,648,431 ($ 278,072) Public Schools Fund* 19,986,935 22,766,130 2,779,195 Debt Service Fund 14,403,914 16,650,557 2,246,643 Total Debt Service 51,317,352 56,065,118 4,747,766 Fire Service Fund 590,301 709,568 119,267 Environmental Mgt. Fund 513,407 509,756 -3,651 Total Debt Service $52,421,060 $57,284,442 $ 4,863,382 *Amounts exclude bond service charges Voter Approved Debt (’06, ’08, ’14) Officer Wurtzbacher reviewed the bonds from 2006, 2008, 2014 which are the $164 million CFCC bonds, $35.5 million Park bonds and the $160 million Public Schools bonds: Debt Service Fund $16,650,557 Plus: Public Schools Fund 4,383,450 $21,034,007 Less: Dedicated $.02 / $100 Ad valorem ($ 6,046,702) Sub-total $14,987,305 Less: CoW Parks Bond Repayment ($ 1,214,926) Less: RZEDB CFCC Federal Subsidy ($ 681,646) Debt Service Funding Gap $13,090,733 She reported for these bonds the debt service will be $21,034,007 in FY17. The “less” items are dedicated revenue sources for paying the debt service on these bonds and there is a gap of $13,090,733 for those particular debt issuances. It is roughly the equivalent of 4.33 cents. County Manager Coudriet reminded the Board that 100% of the 2 cents approved, including any incremental gain, goes toward debt reserve and none of it funds the general government operations. A brief discussion was held on the gap of $13 million. Staff explained that it reflects what the gap would be if everything presented today was fully funded and the amount needed to fund the debts approved in 2006, 2008 and 2014. This is the gap in terms of the amount of money having to be taken out of the General Fund and put into the Debt Service Fund even after the tax increase because the tax increase is not enough to satisfy the outgoing cash. It does not take into consideration the County Manager’s forthcoming cuts nor what the Board’s decision will be on the public schools average daily membership (ADM) amount. The County’s three largest expenditures are CFCC, New NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, APRIL 14, 2016 PAGE 508 Hanover County Schools and Sheriff’s office. As other debt sunsets that does not mean it’s available to go back to debt service because operating expenses have been incurred which show up under the County’s obligation to pay. Drivers of Fiscal Year 2017 Change in Debt Officer Wurtzbacher provided a brief overview of the change in debt for 2017:  Public Schools Fund:  First full year of debt service for $52M issuance of New Hanover County Schools GO bond issuance  Debt Service Fund:  First full year of debt service for $40M issuance of Cape Fear Community College GO bond issuance  Fire Service Fund:  Issuance of 2017 bank loans for Ogden Fire Station land and fire tender Fund Balance Discussion Officer Wurtzbacher provided the following Fund Balance Sensitivity Analysis and represents where we were as of June 20, 3015:  Actual Fund Balance is 19.2% / $55,123,865  Fund Balance at NHC Policy of 21% is 60,371,177  Fund Balance at 20% is $57,496,359  Fund Balance at 19% is $54,621,541  Fund Balance at 16.67% (previous goal) is $47,923,215  Fund Balance at 8% which is the Local Government Commission recommended minimum is $22,998,544. She reported that based on conversations with S&P the County will maintain its AAA bond rating; she had not heard back yet from Moody’s. The 19.2% fund balance didn’t negatively affect the County this year. However, S&P asked a lot of questions about the plan to return to the 21% policy and asked for detailed information on the one time expenditures. The bulk of the County’s revenue comes in between November and February through the ad valorem tax. The County is cash flowing operations all the time which is the main reason why a fund balance is kept. The hope is that by the end of this fiscal year the County is able to show the rating agencies, the Board and citizens that it’s moving up from the 19.2%. In terms of budget discussions, essentially by the end of FY17 the County should be back at the 21% to remain in compliance with the debt policy. County Manager Coudriet stated that the County will get back to the 21% due to management practices and Board actions moving forward. The Board would need to decide sooner rather than later if it wants to change the percentage amount. Staff stands by the 21% as the right amount for a county this size, the cash flow needs and then the additional element of the risk profile for it with disasters. In response to questions about what is the total gap amount, Officer Schrader stated it is $27 million. She explained this amount is based on the requested budget which is not necessarily what would be recommended. It assumes that funds are added in to include some undesignated economic development funds; that healthcare will remain exactly as it is today; there is no change in the pay/rate mix; includes a 1.5% market/merit increase for a full year implementation; that all 50 positions are included; there is not a salary lag which will reduce the debt; and does include the debt. In response to questions about maintenance costs for the new buildings at CFCC and the schools, County Manager Coudriet confirmed that the County is responsible for the maintenance but the level is at the Board’s discretion. If there was a change the state could not step in and say the County has to do it as the CFCC Board of Trustees does not have the same ability to bring suit against the County the way the school system does. It is completely within the Board’s discretion of how much capital expenditures to allocate to the schools. Timing & Next Steps: th • April 28 – County Manager informally presents recommended budget nd • May 2 - County Manager formally presents recommended budget rdrd • May 3 through June 3 – BOCC Work Sessions th • June 6 – Hold Public Hearing thth • June 20 or 27 – Adopt Budget ADJOURNMENT There being no further discussion, Chairman Dawson adjourned the meeting at 4:10 p.m. Respectfully submitted, Kymberleigh G. Crowell Deputy Clerk to the Board Please note that the above minutes are not a verbatim record of the New Hanover County Board of Commissioners meeting.