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2001-04-23 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 BUDGET WORK SESSION, APRIL 23, 2001 PAGE 557 ASSEMBLY The New Hanover County Board of Commissioners held a Budget Work Session on Monday, April 23, 2001, at 5:00 P.M. in Room 501 of the New Hanover County Administration Building, 320 Chestnut Street, Wilmington, North Carolina. Members present were: Chairman Ted Davis, Jr; Commissioner Julia Boseman; Commissioner William A. Caster; Commissioner Nancy H. Pritchett; County Manager, Allen O’Neal; County Attorney, Wanda M. Copley; and Clerk to the Board, Lucie F. Harrell. Vice-Chairman Greer was absent due to attending his daughter’s wedding which was held out of town. Chairman Davis called the meeting to order. He expressed appreciation to persons attending the meeting and informed them that no decisions would be made on the FY 2001-2002 Budget since this was a Work Session for the Commissioners to discuss the challenges facing New Hanover County with the upcoming budget. He turned the meeting over to County Manager Allen O’Neal. County Manager O’Neal referred to the memorandum regarding budget adjustments that he had faxed to the Commissioners and advised that on April 16, 2001, the Board directed Staff to prepare two budgets using a 1.8 cent tax increase over the current tax rate and a 4 cent tax increase over the current tax rate. Staff was directed to develop a budget that would do the least amount of harm to citizens receiving services and to the employees of County government. Two scenarios have been prepared and there are some down sides to each proposal. If the Board decides to increase the current tax rate by 1.8 cents or 4 cents, some staff positions will have to be eliminated as well as specific services and departments. A tax increase of 1.8 cents will probably cause the County to receive lower bond ratings because money from the Fund Balance will have to be used to balance the budget, which will reduce the County’s Fund Balance to the minimum balance required by the Local Government Commission. This will be detrimental to the County because reduced bond ratings negatively impact the financing ability of the County. It takes years for local governments to earn good bond ratings. Commissioner Boseman and Commissioner Pritchett spoke in opposition to balancing the FY 2001-2002 Budget by using Fund Balance. Commissioner Caster expressed surprise for Staff considering use of the Fund Balance and stated that he did not realize that the tax rates suggested would mean using Fund Balance. County Manager O’Neal responded that in order to achieve either of the proposed tax rates, a reduction in services and employees and use of some of the Fund Balance would have to occur. He explained that the proposed tax increase of 7.6 cents was suggested as a minimal tax increase after cutting all departmental budgets to the bare minimum amount. This tax increase allows for nothing but the straight line operation of County government and services provided, preservation of the Fund Balance, and an increase to the School System to cover the costs of opening new schools. Further discussion was held on how bond ratings are determined. Finance Director Shell explained that bond rating agencies look at a broad array of issues when determining ratings beginning with the Fund Balance. The economic viability of the community, educational system, medical facilities, diversity of industry, retail sales, and a growing tax base were items considered by bond rating companies. With unprecedented growth in population and an increasing demand for infrastructure, New Hanover County has been able to achieve outstanding bond ratings which has saved millions of dollars in financing projects. Normally, when a community incurs more debt, the Fund Balance should grow so services and programs can be supported. Bond rating companies do not favor a shrinking Fund Balance and expect the obligations of the community to be met even if the tax rate has to be increased. Cutting programs and services is not favorably viewed by bond rating companies. Discussion followed on the impact of federal and state budget decisions on county governments. County Manager O’Neal advised that without knowing what the N. C. General NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 BUDGET WORK SESSION, APRIL 23, 2001 PAGE 558 Assembly or U. S. Congress will enact regarding mandated services before adoption of the FY 2001- 2002 Budget is another reason why the County must have sufficient Fund Balance in place to maintain its stability and meet federal and state requirements. Further discussion followed on being in the same situation in FY 2002-2003. Commissioner Pritchett expressed concern for using the Fund Balance and stated if the Board does not face challenges this year, the budget shortfall will be even greater for the next fiscal year. County Manager O’Neal agreed and stated that FY 2002-2003 will be worse in terms of meeting the County’s debt obligations. This debt is the result of supplying to the community the services requested. Chairman Davis strongly objected to placing the funding shortfall on property owners by increasing taxes year after year. He advised that something has to be done to keep the tax rate under control. A lengthy discussion followed on the need for the N.C. General Assembly to allow New Hanover County to enact a one-cent local option sales tax to fulfill the school needs. County Manager O’Neal urged the Board to move forward with lobbying the legislature for a one-cent local option sales tax. He also referenced the upcoming hurricane season and expressed concern for a possible change in the existing reimbursement by the federal government, which could have tremendous impact on the Fund Balance if a hurricane should strike the County. Under current arrangements, it takes years to recover money spent by the County for a hurricane. Staff does an excellent job in obtaining reimbursements, but the County never recovers 100% because of lost interest on the money used through the recovery process. This is another reason why the County should maintain a strong Fund Balance. Chairman Davis requested an explanation of what items would have to be cut if the tax rate is increased by 1.8 cents to pay the debt indebtedness for schools. Budget Director Griffin responded that the following actions would have to be taken: •Eliminate Funding for Outside Agencies •Eliminate Legion Stadium Contribution to the City •Eliminate Renovation of Main Library •Eliminate Contribution to Airlie Foundation •Eliminate Employee Appreciation Day •Eliminate County-wide Training Program •No Additional Funding for the Southeastern Center •No Additional Funding for Cape Fear Community College •Budget $2 million from the Undesignated Sales Tax in General Fund •Budget $1.6 million in Veterans Park Project in General Fund •Cover Indirect Cost with Inspections Fee in the amount of $350,000 •Appropriate $3.4 million from the Fund Balance Budget Director Griffin explained that use of $2 million of the undesignated one-half cent sales tax would leave approximately $2.5 million for Environmental Management and $2.5 million for Water and Sewer. In all the tax scenarios, 7.6 cents, 1.8 cents, and 4 cents, the County will be budgeting $4 million of the Schools Fund/fund balance. County Manager O’Neal noted that with a tax increase of 7.6 cents, all County Departments and agencies will take a hit without the public experiencing a downgrade in services. Commissioner Caster requested an explanation of what would happen if the tax rate is increased by 1.8 cents with no use of the Fund Balance. County Manager O’Neal responded that the following actions would have to taken: NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28 BUDGET WORK SESSION, APRIL 23, 2001 PAGE 559 •No funding would be available for water and sewer projects without substantial increases in user fees. •No funding would be available for drainage projects. •Funding to outside agencies would be eliminated. •All capital projects not already in progress would be delayed. •No development would occur on park property including Veterans Park. •Funding to Schools, Cape Fear Community College, and the Southeastern Center would be decreased. •All unnecessary programs would be eliminated. •Hours would be cut for the Cape Fear Museum and Library. •The Department of Aging would be cut back to providing meals and other life continuing programs. • Plans for Airlie Gardens would be stopped. •Each County Department would be requested to cut positions which would result in the public receiving less than efficient services and responses. The County would also be obligated to pay each employee for personal leave accumulated plus COBRA medical benefits for 18 months. In concluding his remarks, County Manager O’Neal stated that Staff can prepare a plan to balance the budget with a tax increase of 1.8 cents, but many services, programs, and employee positions would have to be eliminated which will result in a lower quality of services to the public. Commissioner Boseman asked why the Sheriff’s budget had increased with recent annexations. Budget Director Griffin explained that the increase was largely due to implementation of the Pay and Classification Plan in the Sheriff’s Department. Commissioner Boseman referenced the new pay plan and asked if the upper level employees received a majority of the salary increases. County Manager O’Neal responded that increases were spread among all employees with 25% of the employees receiving virtually nothing. These employees are not happy, but it is impossible to conduct a Pay and Classification Plan that will satisfy all employees. A lengthy discussion was held on the many issues that need to be addressed and the importance of the Board providing direction to Staff. Chairman Davis urged each Commissioner to review the information presented so the Board can decide on how much the tax rate will have to be increased for FY 2001-2002. He recommended scheduling another Budget Work Session. After discussion, the Board decided to schedule a Budget Work Session on May 3, 2001, at 5:00 P.M. ADJOURNMENT Chairman Davis adjourned the meeting at 6:30 P.M. Respectfully submitted, Lucie F. Harrell Clerk to the Board