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2016-05-12 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, MAY 12, 2016 PAGE 541 ASSEMBLY The New Hanover County Board of Commissioners held a Budget Work Session on Thursday, May 12, 2016, at 2:03 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; Deputy County Attorney Kemp P. Burpeau; and Deputy Clerk to the Board Kymberleigh G. Crowell. Chairman Dawson called the meeting to order, thanked the Budget and Finance staff for the hard work on the FY16-17 budget and requested County Manager Chris Coudriet to begin the presentation. th County Manager Coudriet stated that the information disbursed to the Board via email on May 11 to be used during this work session reflects suggestions from at least one and in many instances more than one Commissioner. It does not represent a consensus of the Board. He reported that the upcoming bond closing for the refunding of the 2006, 2008 and 2014 bond issuances will result in approximately $7 million in savings across the 20 years of the debt. Result is the debt service payment for next year will be less than what is in the budget recommendation. Based on where the County stands with fund balance it is staff’s recommendation that the $789,646 savings should accrue to fund balance to help move closer to 21% debt limit policy. Based on the long term savings from the refunding, County Manager Coudriet reported that the 5.5 cents rate increase recommendation can be lowered to 5.35 cents. This is the rate increase necessary to serve all of the debt payments from 2006, 2008 and 2014 due now, in the future and build up the debt reserve. The rate increase to satisfy the incremental increase next year only for said bonds remains at 4.3 cents and will not add to the debt reserve. He noted that if the Board decides to approve the 4.3 cents instead of the 5.35 cents staff would have to ask for another increase next year. He then asked Chief Budget and Strategy Officer Beth Schrader to provide an overview of the th spreadsheet sent to the Board on May 11. Review of Recommended Board Changes for Discussion Chief Budget and Strategy Officer Beth Schrader reviewed the recommended Board changes document: Additions(Reductions)Notes High Addition - Brings CFCC to FY17 Requested level of CFCC Current Operating Expense $547,405 $10.9 MM CFCC Current Operating Expense $150,000 Low Addition - Increases CFCC to $10.5 MM CFCC Capital Outlay $86,000 Low Addition - Funds building signs and vehicles with CFCC Bond Premiums CFCC Capital Outlay $2,000,000 High Addition - Funds $2.0 MM for renovation of Schwartz Ctr out of Premiums, General Fund (GF) or both Cape Fear Literacy Council 9,500 Low Addition - $9,500 is the FY16 funding level 10,000 High Addition - $10K is $500 above FY16 funding level UNCW Track $167,000 Year 1 Funding; $167K in Year 2; $166K in Year 3 Cape Fear Res. Conserv. & Dev. $9,000 $9K is the FY16 funding level Friends of Fort Fisher $5,000 $5K is the FY16 funding level Warrior Family Ministries $7,200 WARM, Inc. $10,000 One Love Tennis $6,000 Increase brings allocation to $25K the FY16 funding level CFCOG - Continuum of Care for $12,500 Increase brings total allocation to $25K / yr Homelessness Recovery Resource Center $5,000 Coastal Horizons / WHAT ($100,000) Eliminate 4th High School-based Health Clinic at Hoggard NHC Schools Current Expense ($2,189,920) Hold the line at $2,620 per pupil; Encourage NHCS to use Current Expense Fund Fund Balance to bring allocation to $2,700 equivalent NHC Schools Capital Outlay ($985,000) Funds $2.015 MM for two NHCS priority projects ineligible for lottery funds ACCESS of Wilmington (5,000) Reduces Allocation to $5K Wilmington Business (50,000) Eliminate the extra $50K Development Contribution to Fund Balance / ESTIMATED FY16-17 Impact Debt Refunding Savings 789,646 (789,646) High Additions $3,568,751 (4,119,566) Low Additions $1,256,846 Other Discussion Points Reduction in Proposed Rate Increase ($454,056) Reduction in Ad Valorem due to long term impact of debt savings of '06 and '08 Refunding from 5.5 cents to 5.35 cents Eliminate Contribution to Debt Reserve ($3,111,300) Reduce corresponding Ad Valorem tax rate in Debt Service Fund from 7.35 cents by 1.05 cents to 6.3 cents (2 cents passed in FY16 plus 4.3 cents in FY17 to meet current year needs) Funding of CFCC Capital Outlay Funding would come from Bond Premiums allocated to the $4.3 MM set aside for Downtown projects, but would not impact GF spending plan / tax rate. If funded via GF, in whole or part, will impact GF spending plan. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, MAY 12, 2016 PAGE 542 In response to questions about when the debt refunding savings takes effect, Officer Schrader and Chief Financial Officer Lisa Wurtzbacher reported that savings will take effect in FY16-17; the largest savings will be seen then and it varies from year to year. The estimated debt savings of $789,646 is split between the Debt Service Fund and School Fund. It was reiterated that staff’s recommendation is to put the debt savings into the fund balance reserve. The Commissioners discussed the following funding issues: UNCW Track Resurfacing Discussion was held about the severe need for fields and athletic facilities in the County. It was felt the funding request from UNCW would foster a partnership that would allow field and tennis court access by the public. In turn this would save money in that the County would not have to purchase land and build facilities. The Board discussed their individual meetings with UNCW Chancellor Sartarelli and how he and his team did not want to contact the school system until the City and County positions were known. In response to questions, County Manager Coudriet stated that the first year payment would be made sometime in the course of the fiscal year. Officer Wurtzbacher would work with the finance officials to determine payment time. The Board directed staff to work with Chancellor Sartarelli to meet with the School Superintendent and the County Parks and Gardens Director to discuss what level of involvement might come from the school system. There was a general consensus of Board support for this request based on the terms of the agreement and the level of school involvement. It was noted the City Council included funding in its budget for three years and if this request was approved by the Board it would show a strong partnership between the City, County and UNCW. Cape Fear Community College In response to questions, Officer Schrader stated that the funding of the CFCC capital outlay would be from bond premiums allocated to the $4.3 million set aside for downtown projects. It has not been spent yet and there would not be an impact to the General Fund spending plan/tax rate. A brief discussion was held by the Board about the needed repairs for the actively leaking roof of the Schwartz Center; the importance of investing in workforce training; and why CFCC cannot find funding of the athletic program needs through institutional funds or other budget efficiencies. It was noted that the capital outlay request is lower than originally planned due to CFCC planning to utilize the Foundation and other sources to put funds towards the roof renovation. Officer Schrader reminded the Board that the rules of the NC Connect Bond funds specifically state that the funds cannot be used for athletic facilities. In response to funding request questions, Officer Schrader clarified that the actual funding request is for $2.17 million in capital outlay and $547,405 in current operating expense. She reported that in follow-up conversations with CFCC staff, they have stated that if they had to prioritize the highest capital outlay needs, the confirmed minimum amount needed is $773,373. Again, bond premiums would fund this amount which would not have an impact on the tax rate. This amount would cover the highest priority projects that must be done next year and are most critical to student safety, building preservation and retaining the value of the assets. In follow-up questions, County Manager Coudriet confirmed that the County supplements some of the salaries on the administration side not the instructional side. New Hanover County Schools In response to questions about the school capital outlay funding, County Manager Coudriet reported that for a period time the County did not fund capital outlay. The recommended $3 million is for the County’s maintenance responsibilities, based on an administrative verbal agreement with the schools and is separate from the $160 million bond issue. This is the amount that has been appropriated to the schools for the last two years. It helps the schools deal with deferred maintenance and offset the need to address some maintenance issues prior to the next bond request in 2020. The amount gives the schools a guaranteed commitment rather than telling them what projects they can work on. The schools choose the projects on an annual basis. He noted that with the $3 million appropriated in the current year the schools committed to two-year costs that equal the recommendation of $2.015 million, which results in a savings of $985,000. In further discussion on capital outlay, Officer Schrader reconfirmed that $2.015 million would cover the majority of the identified capital projects. County Manager Coudriet stated that the schools could achieve the $3 million by the County’s appropriation of $2.015 million and using capital fund balance. Officer Schrader reminded the Board that per a 2014 Local Government Commission memorandum and NC General Statutes, schools cannot transfer monies from the fund balance of the General Fund for activities in the Capital Outlay Fund. The only exception is when there is an emergency that occurs or something that absolutely could not have been anticipated when the budget was adopted and requires approval by the County Commissioners to make that happen. Currently the school system has a $20.9 million fund balance in the General Fund, 93% of which is county dollars, and approximately $1.4 million in fund balance in the Capital Outlay Fund. Discussion was held about setting the per pupil amount at $2,660 instead of the recommended $2,700. In response to questions, County Manager Coudriet stated the schools could achieve the $2,700 amount by using fund balance from its Current Operating Expense fund. Officer Schrader reported that if the Board approved increasing the per pupil amount to the midway point of $2,660 it would result in a savings of $1,094,960. It was noted that the Commissioners cannot force the School Board to use fund balance to make up the per pupil funding difference. It would have to be a choice of the School Board to do so. However, it is permissible for the Commissioners to take the schools fund balance into the account when it chooses how much to appropriate to meet the needs of the school system. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 33 BUDGET WORK SESSION, MAY 12, 2016 PAGE 543 Constitutionally the County is required to make sure when all those sources are all combined that the school system has the resources needed to provide sufficient education. The general consensus of the Board was that it was comfortable setting the per pupil amount at $2,660 which represents a good faith effort by the Board to send a clear signal to the community and the School Board that it supports their efforts. Concerns were expressed about the amount of the fund balance in the General Fund. At the direction of the Board, staff will provide a historical breakdown of the school system’s budget so the Board can see where the funds are allocated and how the dollars are spent. Wilmington Business Development A brief discussion was held about the recommended funding for Wilmington Business Development (WBD). In response to questions, County Manager Coudriet stated that the increase is above the existing contractual amount and was not requested by WBD. It is the third year of a recommendation from the administration to fund an additional $150,000 to amplify what WBD is doing from an economic development perspective; particularly to target industries in the clusters identified by the Garner Report. It is also staff’s reaction to what it heard as a priority for job creation and investing in a variety of items. Similar investments have been made over the past few years, at the discretion of the Board, with organizations such as the Film Commission and Southeastern Economic Development Commission in the spirit of giving partner agencies more resources to do more work. A request was made of staff to provide the Board with information on specifically what WBD would use the funds for and what type of return can be anticipated. Wrap-up Discussion In response to questions about the “eliminate contribution to debt reserve” discussion point, Officer Wurtzbacher stated that part of what staff is trying to achieve with the 5.5 cents is to have the ability to fund not only the debt already issued but the debt that will be issued in the future. It is the rate needed to allow a buildup of reserve funds so when future debt is issued there will not be a need to request a tax increase next year. County Manager Coudriet stated that if there was a tax increase of only 4.3 cents, which would only fund the current debt, staff would have to ask for the difference of 1 cent next year. Officer Schrader reviewed the additions and decreases based on information received during the meeting and received general consensus of the Board as follows: Additions(Reductions)Notes UNCW Track Resurfacing $167,000 Year 1 Funding, $167K in Year 2 and $166K in Year 3 Cape Fear Literacy Council 9,500 $9,500 is the FY16 funding level Cape Fear Resource Conservation & $9,000 $9K is the FY16 funding level Dev. Friends of Fort Fisher $5,000 $5K is the FY16 funding level Warrior Family Ministries $7,200 WARM, Inc. $10,000 $5K increase from FY16 funding level One Love Tennis $6,000 Increase brings allocation to $25K the FY16 funding level CFCOG - Continuum of Care for $12,500 Increase brings total allocation to $25K / yr Homelessness Recovery Resource Center $5,000 NHC Schools Current Expense ($1,094,960) $2,660 per pupil NHC Schools Capital Outlay ($985,000) Funds $2.015 MM for two NHCS priority projects ineligible for lottery funds ACCESS of Wilmington (5,000) Reduces Allocation to $5K Contribution to Fund Balance / Debt 789,646 (789,646) ESTIMATED FY16-17 Impact Refunding Other CFCC Capital Outlay $773,373 Funds 5 priority projects from Bond Premiums (campus security software upgrade, building signs for North campus, 2 vehicles, HVAC for carpentry lab and Schwartz Center roof replacement) ADJOURNMENT There being no further discussion, Chairman Dawson adjourned the meeting at 4:05 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.