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2022-02-03 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION MEETING, FEBRUARY 3, 2022 PAGE 311 ASSEMBLY The New Hanover County Board of Commissioners held a Budget Work Session on Thursday, February 3, 2022 at 2:00 p.m. in the Harrell Conference Room at the New Hanover County Government Center, 230 Government Center Drive, Wilmington, North Carolina. Members present: Chair Julia Olson-Boseman; Vice-Chair Deb Hays; Commissioner Jonathan Barfield, Jr.; Commissioner Bill Rivenbark; and Commissioner Rob Zapple. Staff present: County Manager Chris Coudriet; County Attorney Wanda Copley; and Clerk to the Board Kymberleigh G. Crowell. Chair Olson-Boseman called the Budget Work Session meeting to order and announced that the purpose of the meeting is to discuss budget priorities for Fiscal Year 2022-2023. FISCAL YEAR 2022-2023 BUDGET WORK SESSION Chief Financial Officer Lisa Wurtzbacher provided a brief overview of Fiscal Year (FY) 2021 and presented the following information on the fund balance:  Fiscal Year (FY) 2022-2023 Budget Work Session:  FY 2021 and 2022 Results:  FY 2021 increase in fund balance - $366 million:  Addition of $350 million in mental health and revenue stabilization fund  Unknown impacts of COVID-19 pandemic  FY 2022 revenues through quarter two continues to show growth:  Sales tax  Real estate transfer taxes  Inspections  FY 2021 Fund Balance:  FY 20-21 Results:  Total Fund Balance of $473 million  $14.4 million reserved for future capital improvement projects (CIP)  Unassigned fund balance of 21%  FY 21-22 Budget:  Original appropriation $190,000  Additional appropriation $1.9 million  Committed $4.9 million for community violence initiatives In response to Board questions, Ms. Wurtzbacher stated that of the $14.4 million reserved for future CIP for FY 2023, $13.8 million has been budgeted for renovations for the Board of Elections, the North College Road Walking Trail, South College Road Walking Trail, Phase II of the Northern Regional Park at Castle Hayne, and a replacement facility for Vice. If sales tax revenue continues on its current trend, the County could come in $6 to $7 million over budget. Sales tax revenue over what has been budgeted for could likely fall into unassigned, but the funds could be restricted. It is hard to say because most of the time there is not one bucket of money that falls into a particular category. Chief Strategy Officer Jennifer Rigby continued the presentation by giving an update on the strategic plan. She presented the following information:  Strategic Plan 2022 Annual Report Out of Year 4 of 5:  Intelligent Growth and Economic Development:  Investment since 2018: $9.7 million: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION MEETING, FEBRUARY 3, 2022 PAGE 312  Strategic investments continue to show a positive return on investment  Increase jobs paying above the living wage by 3,714 jobs  Regained 1,544 net new jobs from last years’ report out making up for the losses experienced last year  Complete communities had a slight decrease in terms of services within one-mile likely due to closures of in-home childcare services  Superior Education and Workforce:  Investment since 2018: $39.6 million:  An 11-point gain in children ready for kindergarten rd  3 Graders reading at grade level continue to decline  Learning express usage is up 566 views from last year  Free WiFi has stayed flat; however, a new pilot was created to provide direct service  Workforce has declined from .89 qualified applicants In response to Board questions, Ms. Rigby confirmed that there was no early testing of children in 2020 due to COVID-19. It was done in the spring of 2021 and will be done again in the spring of 2022.  Superior Public Health and Safety:  Investment since 2018: $39.2 million:  Opioid overdoses and deaths are increasing and trending higher than our base year.  Almost 51,000 new customer interactions in marginalized communities to promote healthy nutrition and exercise NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION MEETING, FEBRUARY 3, 2022 PAGE 313 th  Emergency calls responded to within the 2019 90 percentile is 92%  Slight increase in 911 calls per capita  Good Governance:  Investment since 2018: $3 million:  Creation of $1.25 billion Community Endowment  $300 million Revenue Stabilization Fund  $50 million Mental Health and Substance Use Disorder Fund  Inclusion of Equity as a new shared value and intentional language in the Strategic Plan  +86% employees vaccinated against COVID-19  Final Design for new Government Center  10 National Association of Counties Awards and 1 Best in Category for County Administration and Management Budget Officer Michelle Daniels continued the presentation with information on budget equity, highlights, and priorities:  Budget Equity, Highlights, and Priorities:  Budget Equity – History:  Linking Strategy to Budget:  Diversity, Equity, and Inclusion: Office, Policy, Strategic Plan, Mission, Shared Values  Budget Equity: product and process that identifies how programs and services impact marginalized communities and underrepresented populations; drives and guides how we intentionally target marginalized communities and underrepresented populations  Budget Equity – Continuation Budget:  Budget Target: Creates capacity within existing budget; evaluates how to maximize existing resources  Equity Assessment: Tool assesses programs and services departments have been engaged in  Budget Equity – Enhancement Budget:  Request:  Charges departments to think strategically about how they can incorporate equity into their request  Tool assesses if and how equity is factored into programs and services department is looking to enhance or create  Budget Equity – Outlook:  Equity Action Plan:  Focuses on FY 24 and beyond  Charges departments with thinking about ways to broaden the budget equity lens  Helps us to forecast what is on the horizon  Continuation Targets: evaluated during revaluation cycles  Budget Highlights – Revenue:  Property Taxes:  $47.9 billion FY22 Assessed Valuation  1 Penny = $4.75 million In response to Board questions about organic growth and the value of a penny, Ms. Daniels stated that organic growth can affect the per penny value by an increase in new development, redevelopment, or things that may not have been captured initially. County Manager Coudriet further explained that it largely comes from things being added to the tax base that are taxable and not there the year before. The only way someone’s property increases in value is during the revaluation or if a property owner pulls a permit to make improvements, which would grow the value of the property by the additional investments, not the market growth that the property had enjoyed. The private sector is putting about 2.5% of new value on the ground to be taxed every year.  Sales Taxes: 13.1% over FY22 projections  Fees:  Reduce/Eliminate for specific services  Tip Fee  Budget Highlights – Expenses:  Inflation:  General Operating Expenses  Capital Expenses: vehicles and construction  Non-County Agencies:  FY 22: 34 Recipients and $948,671 awarded  FY 23: 42 applicants and $1,505,034 requested  Committee review: allocation methodology revised  Budget Priorities: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION MEETING, FEBRUARY 3, 2022 PAGE 314  Tax Rate Reduction: one or more years, fund balance policy, and debt policy  Education: average daily membership (ADM) rate, teacher assistants, and CFCC  Community Building: Port City United and post ARP  Workforce Housing: revenue pledging and leverage  Infrastructure: education facilities, growth, and County CIP A brief discussion was held about the forthcoming budget request from Cape Fear Community College (CFCC). Commissioner Barfield stated that CFCC will be requesting an increase of about $5 million for operational costs. The increase includes salary increases for key staff and maintenance, including roof repairs. In response to Board questions, Ms. Wurtzbacher confirmed that the debt service for CFCC will decrease about $1.2 million in the upcoming budget.  Next Steps – Priorities:  Confirm Priorities:  Are we headed in the right direction?  Is there anything you have stated that we overlooked?  Refine Priorities:  Does it appear we fully understand your vision?  Are we communicating the plan as you see it?  Identify/Establish Additional Priorities:  Did this presentation make you think of anything we need to consider?  Ongoing - throughout the process we may need to pivot  Next Steps – Meetings:  March Budget Work Session:  Preliminary Revenue Estimates  Continuation Budget  Enterprise Funds  April Budget Work Session:  Revenue Estimate Update  Preliminary Expenditure Estimates:  Enhancement Budget  Individual/Two Board Member Sessions – end of April: th  Manager’s Recommendation on May 16:  Includes Non-County Agency Funding Committee Recommendation th  Public Hearing: June 6 th  Budget Adoption: June 20 GENERAL DISCUSSION A brief discussion was held about the request from the Town of Carolina Beach (Town) for the County to contribute $3 million towards the purchase of Freeman Park. In response to Board questions, County Manager Coudriet stated his understanding is that as part of the compromise on the lawsuit between the Town and the parties involved, the cost to purchase Freeman Park would be $7 million. In the proposed model, the County would effectively pay for most of the park. He also provided a brief history of how this matter got to this point. The park is in the unincorporated area, but if the County were to agree, it would be paying for things that the public already has a right to do in its current form. He understands that the Town has approached the Tourism Development Authority (TDA) for funds from the Room Occupancy Tax (ROT) fund in addition to the ask of the County. It was noted that there is $1.3 million available in the ROT account designated for Carolina Beach that could be used towards the purchase. For the Town to borrow the money to purchase the park it would have to get approval from the Local Government Commission (LGC). The Town would not likely do away with fees to use the beach because that is how it generates revenue to fund law enforcement, security, and trash. The Town owns the parcel that serves as the beach access point and that is what gives it the ability to charge for access. In response to Board questions, Ms. Wurtzbacher stated that at the March budget work session the Board will be provided preliminary revenue numbers and discussion will begin about the continuation budget. At that point, staff will really be starting to put numbers to the budget. Commissioners commented on how they prefer the full budget work sessions versus individual/two member meetings with staff. County Manager Coudriet stated that it is important that staff has not misunderstood about whether they should be proceeding with a budget that has a tax decrease, or not. It is something that needs to be decided sooner rather than later by the Board. He asked, for example purposes, if it was the expectation of the Board to revisit the debt policy to be higher than $2,200 of debt per citizen. At a recent meeting, the Board suggested that the ADM rate would be less than $3,434. He understands the Board is getting a lot of questions about housing, understanding that that there likely will not be a bond, but leverage can be other sources of money and whether the County is going to be willing to pledge some of its growth. Essentially, staff is trying to get a sense of how to proceed from this point to prepare for the next work session. Chair Olson-Boseman stated she would like to see the County start to spend some of the $350 million (the Revenue Stabilization and Mental Health and Substance Use Disorder Funds) in some manner. In response to Board questions, Ms. Wurtzbacher confirmed that the interest from it was pledged for next year. Vice-Chair Hays stated that the County has some very solid growth and feels there is a need to look at the NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION MEETING, FEBRUARY 3, 2022 PAGE 315 projections on the growth, particularly as the sales tax is due to be higher and could result in some taxpayer savings. She is not willing to go into the corpus of the $300 million of the Revenue Stabilization Fund (RFS). Commissioner Barfield stated that during the last meeting the discussion was around the need to eventually tap into the principal of the $350 million due to the projected use of Port City United. He stated that when the Board voted to give teachers a pay increase, it became perpetual. The question becomes what else is to be cut from the budget, keeping in mind that there cannot be additions to the budget if there is an effort being made to cut without increasing the tax rate. He does not want to tap into one-time money without looking at other options first. A $2.5 million bonus was given to teachers and then the Board increased teacher pay without thought being given to the impact on the tax rate. Now there is a desire to reduce the tax rate and he would like to know how that works. Commissioner Zapple expressed frustration that the Board approved a $3,434 ADM and it turned out to be $3,472 which totals out to be approximately $1 million. County Manager Coudriet stated that while he understands what the Board is stating, staff needs to put together a budget that meets expectations of all and is looking for direction particularly around the tax rate. The tax rate is what is most in the Board’s control. While the County is currently ahead in sales tax collection by $6 million, if the Board takes away one penny of tax rate, that is $4.75 million removed from the budget. From a staff perspective, they need to know if the instruction is to think about FY 23 with a rate that is $0.475. He does not think staff can help as it relates to ADM and principal in the escrow funds until the top line is known, staff needs to know if the rate needs to be less than $0.475 because everything will begin and end with that. In response to Board questions, County Manager Coudriet stated that as it relates to the debt service fund, if there is no need that year to disburse the funds, they build up in a fund balance, but most years the County still must transfer general fund money into the debt service fund. At some point, it will flip and when that happens, the Board can begin to lower the amount of the rate. The rate can also be adjusted for a future school bond or community college bond. Ms. Wurtzbacher stated the tipping point is probably in the next couple of years because the County did start dipping into the fund balance of that reserve account. She does think the County is at the point of potentially decreasing that rate in the next year’s budget. County Manager Coudriet stated that the debt service rate is inclusive of the $0.475 tax rate. When the fund was established, the Board set the rate at 100% of the dollars being used to pay the debt. It would take a policy commitment of the Board to change the reserve amount. Commissioner Barfield stated that in 2018-2019 there was a push to reduce the tax rate, it was approved, then Hurricane Florence put the County in a deficit and went below the fund balance policy. It took until this past year to get back to where the County is now. To him, revenue stabilization means that if that happens again, the County has a pot of money that will stabilize the revenue. Hurricanes are going to happen again and a significant portion of the life of the landfill has been lost. During that time the Board was not thinking about a hurricane but about how to reduce the tax rate. It put the County into a bind, and that is not a place he wants to get to again. In response to Board questions, County Manager Coudriet stated that the County was not reimbursed 100% of the expenses by the Federal Emergency Management Agency (FEMA) for Hurricane Florence. Commissioner Zapple stated that he agrees with Commissioner Barfield to use the RSF for emergencies but thinks maybe only $100 million of the $300 million should be set aside. A brief discussion was held about the landfill life that was lost due to the Hurricane Florence vegetative debris. In response to further questions about debt service, Ms. Wurtzbacher explained that the debt service this year is $60 million. Part of the debt service comes from the amount of the tax rate that the Board has set aside for school debt, park bonds, and community college bonds and the rest comes from the general fund rate. A brief discussion was held about how the County compares to other counties in the state. County Manager Coudriet stated the County is in the lower quartile of its peer group, which includes Wake County, Mecklenburg County, Durham County, and Cabarrus County. It is less than Pender County and may be equal to Brunswick County. In terms of service, the County does more than Wake County such as having a comprehensive parks system. New Hanover County is about as full service a municipal government as county government gets. In response to Board questions, Ms. Wurtzbacher stated that for the community violence initiative the Board was asked to approve was the framework that staff laid out which was the programs and the funding sources, which it did. County Manager Coudriet stated it did assume that in the outer years, the County would have to go principal somewhere and the better principal investment was out of the $350 million. The Board would be asked to consider approving a budget amendment to do so when that time arrives and it will take a supermajority to pierce the principal. He thinks staff was clear about the sources of revenue that need to be looked at as being available. A brief discussion was held about the NC Azalea Festival funding request of the City of Wilmington (City) and the County to each provide $35,000, for a total of $70,000, to sponsor a concert after the coronation of the Azalea Queen. In response to Board questions, County Manager Coudriet stated that staff does not have an official ask for the $35,000 and only knows what has been reported by the media. Concerns were expressed by some of the Commissioners and staff was asked to contact the appropriate person(s) with the ask to attend an upcoming meeting to discuss the request with the Board. County Manager Coudriet requested direction from the Board in terms of what staff should be thinking about going forward in relation to funding housing affordability. Vice-Chair Hays stated that staff needs to bring a plan forward for discussion. Commissioner Zapple stated that he thinks the plan he wrote the opinion article about NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION MEETING, FEBRUARY 3, 2022 PAGE 316 is logical and the way the County should go. Commissioner Barfield stated that the next meeting with the City has not been scheduled yet and the County has already made the determination of what it is not going to do, which is unfair to the City. The plan was to meet with the City after the subcommittee did its work to make a recommendation to both elected bodies. In response to Board questions, County Manager Coudriet confirmed as it relates to the quarter-cent sales tax it falls to the County Commissioners to put that on an upcoming ballot. To run a countywide bond, it would take a decision of the five Commissioners. If City officials chose to run a bond that is within their purview to do so, but similarly he thinks the City representatives at the subcommittee meeting said that they were not interested in running a city bond. The County Commissioners could run one or the other. If there were a city bond, it would only effect municipal property owners. He reiterated that staff does need to know to prepare for that or not as it requires staff to think about FY 23, which begins in less than six months. County Manager Coudriet stated that at this point, there is not clarity or priority around what to do about housing. He understands there is the will of the Board to address it, but the form of revenue is what is outstanding. As further summarization of the work session, he thinks as it relates to the tax rate, there is still not a clear directive from the Board on whether or not to lower the tax rate as a policy decision. As such, staff is going to assume a rate of $0.475 unless a majority of the Board says otherwise as they need to know how much is out there to put together a reasonable set of revenue assumptions. The Board will either reduce or add to it based on policy decisions. He noted that the rate affects how much sales tax the County, the City and the beach towns receive. In response to Board questions, County Manager Coudriet stated that the budget assumes the landfill tipping fee would increase but he is not sure by how much. The fee has either been lowered or remained flat for several years. It will be discussed in more detail during the March work session. Regarding the ADM for the schools, County Manager Coudriet stated there was expression by the Board but not a directive to have a baseline ADM of $3,434 with the understanding that staff is to visit even more tightly what the actual number of students is going to be. Staff would assume it to not be less than $3,434 because that is what the Board adopted intentionally for the year. Again, the sensitivity analysis would be on the number of students not on the rate. As the ADM rate is known, the Board will address it. He also knows there is interest on the topic of teacher assistants, and he thinks some briefings are trying to be arranged on that matter, but staff will remain neutral on it at this point. It is also known to be prepared for a rather significant increase in the community college budget but should that be favorable or not he thinks there is no Board consensus on that. With community building, he thinks all agreed to continue with Port City United following the protocol and while the Board did not commit year over year into the corpus, the plan did assume at some point in the outer years to access it if there is a supermajority vote on those budget actions. If the Board wants to meet the CFCC at its ask, the Board could not afford to lower the tax rate even with the increase in sales taxes because the County’s costs of doing business are also going to increase. He has not seen the budget request so he cannot say if a majority of it is in capital. On workforce housing, a meeting will be scheduled with the City. However, the Board needs to understand from a staff perspective that staff cannot come into the meeting with what the County plan is because no direction has been received from the Board. On infrastructure, education facilities are part of today’s agenda review, but that also could be inclusive of CFCC if the majority of their request is in capital. The question becomes would the Board want to use debt proceeds or the above 21% working amount. He explained that the reason debt policy is included as a budget priority is that at some point the Board may make commitments on debt that is in violation of the policy, so the focus needs to be kept on it. In response to Board questions, Ms. Wurtzbacher stated that the County is not yet at the top of the fund balance policy. However, discussions have been held about the various initiatives and she has also spoken with Mr. Anderson about education facilities to determine what it would financially look like. If the Board was to consider an affordable housing bond, understanding that it probably is not on the table anymore, and a school bond, the County will start getting pretty close to the limit. ADJOURNMENT There being no further business, Chair Olson-Boseman adjourned the meeting at 4:10 p.m. Respectfully submitted, Kymberleigh G. Crowell Clerk to the Board Please note that the above minutes are not a verbatim of the New Hanover County Board of Commissioners meeting.