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2023-03-30 Budget Work Session & Agenda Review NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 697 ASSEMBLY The New Hanover County Board of Commissioners held a Budget Work Session and Agenda Review on Thursday, March 30, 2023, at 3:04 p.m. in the Harrell Conference Room at the New Hanover County Government Center, 230 Government Center Drive, Wilmington, North Carolina. Members present: Chair Bill Rivenbark; Vice-Chair LeAnn Pierce; Commissioner Jonathan Barfield, Jr.; and Commissioner Rob Zapple. Staff present: County Manager Chris Coudriet; County Attorney Wanda Copley; and Clerk to the Board Kymberleigh G. Crowell. Chair Rivenbark called the Budget Work Session meeting to order and announced that the purpose of the meeting is to discuss Fiscal Year 2023-2024 budget priorities and the April 3, 2023 Regular Meeting agenda. FISCAL YEAR (FY) 2023-2024 BUDGET WORK SESSION Chief Financial Officer Eric Credle and Budget Officer Michelle Daniels shared the following information:  FY 2023-2024 Budget Work Session:  Five year Capital Improvement Plan (CIP):  General characteristics:  Fixed asset with a useful life greater than five years  Cost of $100,000 or more  Requires more than 12 months to complete  Process: CIP committee evaluates capital improvement project requests  FY 2024-2028 Capital Improvement Projects – General Fund: In response to Board questions regarding the administration building at the Arboretum, County Manager Coudriet stated that the entire facility is projected to be replaced including ingress and egress, making the facility handicap accessible, and replacing the core structure including the cafeteria. The design of the facility is budgeted to take place in FY 2023-24. County Manager Coudriet reported that all the CIP projects, except for the Last Frontier - Water/Sewer project, were budgeted in the second year of the current CIP and FY 2023-24 will bring them forward to be first year projects. The water and sewer costs were not previously included because they were not known but have been added as the only new costs. In response to Board questions regarding American Rescue Plan Act (ARPA) money for the projects, County Manager Coudriet stated that there is no ARPA money for these projects due to the conditions surrounding those funds. Regarding the new Board of Elections building, County Manager Coudriet stated that it was already an approved project with a capital project ordinance.  Cape Fear Public Utility Authority (CFPUA):  Chemours contamination impacting drinking wells  Short Term Action: convert $40,000 of existing water/sewer loan program funds to grants for establishing community water stations  Medium Term Actions:  500+ County residents are adjacent to existing water lines  75% of surveyed residents said they would pay monthly water bills if financially assisted with hook-up  Approximate cost per hookup is $6,000 each - $3+ million in total (consider two year County budget appropriation to pay this cost) NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 698  Fund $500,000 water/sewer prioritization study for unserved communities  Long term actions: installation of water/sewer for all A brief discussion ensued regarding the cost and logistics of setting up community water stations, which would be a replica of what CFPUA did at Veterans Park and Ogden Park. As for sewer, County Manager Coudriet stated that sewer would be addressed as part of the long term action because there is not a ready-made adjacency issue, and the urgency is around the water supply.  Recycling and Solid Waste:  FY 2023 adopted budget: $23.2 million  38 positions  Manages and operates:  Landfill  Recycling drop-off collection system  Household hazardous waste and electronic waste collection system  Construction and debris recycling facility  In-vessel composting operations  Roadside litter management  FY 2024 Tip Fee: $52/ton  No increase  Includes $2 state surcharge  Tip fee history: Ms. Daniels stated that the FY 2024 budget assumes no increases to the current tip fee of which the $2 state surcharge is included for disposal of solid waste, construction, and demolition debris. In addition to the $4 increase adopted last fiscal year, $2 of the increase is attributed to ongoing operating and capital expenses and the addition of the litter program which was added last fiscal year. The other $2 is a surcharge to repay the $3 million loan to the General Fund over a five-year period in which the County is currently in year two. The table above serves as a historical reference for the last several years of the adopted tip fee. There was a decrease for five consecutive years followed by a flat rate for four years until last year’s increase. The $2 state surcharge has been in place at least 12 to 14 years and has not increased in that time. In response to Board questions regarding the County’s relationship with Sonoco, Environmental Management Director Joe Suleyman reported that the County has a fantastic relationship with Sonoco and the current manager of Sonoco works very closely with County staff daily. The County’s contract with them expires at the end of this fiscal year. The staff is working to submit a two-year extension but will have to go out for bid for the service within the next two years. Economically, the current cost of recycling is low, so Sonoco is covering their operational costs by increasing charges to other customers such as GFL Waste Management and other smaller haulers. Because the County has a contractual setup, even with the market down, the County is only paying a few thousand dollars a month for recycling and staff expects the commodity market to rebound in the near future.  FY 2024 Recycling and Solid Waste Budget Estimate: $25.6 million Ms. Daniels stated that there is more work to do on balancing the budget, but as it stands, the expectation is for the FY 2024 Recycling and Solid Waste budget to be $25.6 million. That includes three new positions to assist with operations and maintenance. The increase is largely due to the increase in capital and capital outlay expenses such as increased capital needs and capital projects, debt financing for capital outlay which increased over FY 2022- 23, appropriated fund balance which increased over FY 2022-23, and includes no salary comp study, market, or merit adjustments.  Post-Closure Care Fund:  FY 2023 year-end estimated balance of $1.5 million  $1,158,869 transfer is included in FY 2024 budget request  This amount has been transferred each year since FY 2015 (historically utilized for closure)  Recent estimates are a total post-closure care cost of $75,697,968 NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 699  To fully fund post-closure care would require $2.7 million per year from FY 2024 to FY 2050  $2.7 million equals a tip fee amount of $6.75 per ton (based on current tonnage) In response to Board questions regarding the gap between the planned appropriation and what is needed each year for closure and post-closure, Mr. Suleyman stated that it is a crucial decision how that gap is closed, but he has a partial solution which will be discussed later regarding landfill gas. There will be revenue that the County can expect to receive from the landfill gas project. However, it does not completely close that gap. So, at some point in the future, a future Board may have to increase the tipping fee. A brief discussion ensued regarding not having enough funds in the closure and post-closure funds. County Manager Coudriet stated that the tipping fee cannot be for more than what can be justified as annual operational expenses.  Recycling and Solid Waste – Capital Improvement:  Both FY 2024 projects are slated to be funded with transfers and reserve funds  Fire Rescue:  FY 2023 adopted budget:  Operating - $20 million  Capital projects - $1.6 million  132 positions  Provides fire protection and rescue services mainly in the unincorporated areas of New Hanover County  FY 2024 tax rate - 7.25 cents:  No increase  Tax base estimate: $19.4 billion  3.42% or $642.3 million increase from FY 2023  Generates about $504,000 additional revenue  FY 2024 estimated sales tax - $5.5 million:  No growth over FY 2023 estimated year-end total Ms. Daniels stated that there is no plan to adjust the tax rate for Fire Rescue. The tax base grew from $18.8 billion to $19.4 billion and based on the estimated 99% collection rate, the 3.42% increase in the tax base is expected to generate just over $500,000 more than last year. As stated in more recent monthly sales tax updates and in the first budget work session, the current plan is to apply no growth to the FY 2023 sales tax projection. This logic generates about $5.5 million in sales tax for Fire Rescue. The tax base for FY 2023 is $18,789,740,000 and is projected to be $19,432,010,000 for FY 2024 with the new value of the penny being $1,935,428.  FY 2024 budget estimate - $19.5 million: In a comparison of the FY 2023 and FY 2024 budgets, there is little variation across all categories from year to year making up for the slight decrease in their overall operating expenditure. There is a slight increase in salary and benefit costs, offset by the slight decrease in operating and capital outlay. Capital outlay is for one fire engine replacement, the Marine 14 vessel replacement, three vehicle replacements, equipment replacements, station alerting system for three stations, and fire hydrant installation on existing water lines. There is an increase in medical. There is no debt financing or use of fund balance currently included. The total may end up around $20 million to $22 million depending on salary increases and inclusion or elimination of enhancement requests. The engine being replaced in FY 2024 is less expensive than the ladder truck replacement in FY 2023.  Fire Rescue – Capital Improvement:  Both FY 2024 projects are slated to be funded with debt  In addition to the $19.5 million for FY 2024 operations an additional $15.5 million for capital projects is being budgeted, totaling a $35 million appropriation. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 700 In response to Board questions about the Castle Hayne Fire Station, County Manager Coudriet stated that the property owners of the current station wanted to sell the property and Fire Chief Donnie Hall found another property just south of the current property which the County purchased a year ago. The County is in the design phase of the project alongside the design of the Gordon Road Fire Station which will be located near Harris Road. As for the Holly Shelter Fire Station, County Manager Coudriet stated that the station will be in year six or seven of the CIP and staff will be looking in FY 2025 to identify a location based on the development pattern of the area.  Stormwater Services:  FY 2023 adopted budget - $4.2 million:  14 positions  Ensures continued upkeep of the stormwater management system throughout the unincorporated areas of the County  FY 2024 stormwater fee: $5.65 per equivalent residential unit (ERU) per month (or $67.80 annually)  Services initiated in FY 2021  FY 2022 - $12 annual fee implemented to pay for debt:  Absorbed $3.5 million in expenses (initially ARPA, later adjusted to General Fund)  FY 2023: first year full fee was imposed Ms. Daniels stated that the County is going into the fourth year of operation and the fee of $5.65 per ERU per month or $67.80 per ERU per year will be maintained. During FY 2022 while planning for the use of ARPA funds, it was decided to allocate this revenue to cover the expenses for the service. It was later discovered debt was not an allowable use of funds and opted to impose a reduced fee in the amount of $12 for the full year. Further clarification on the guidance led staff to believe this was not an allowable use of ARPA funds and before year end the remaining $3.5 million in expenses was absorbed in the general fund budget.  FY 2024 budget estimate - $4.2 million: The estimated stormwater services fund budget remains at $4.2 million. There is very minimal change in the budget allocation from year to year. With the program in operation, additional equipment needs listed in the table above have been identified, as well as the need for one project manager. In response to Board questions regarding projects, County Engineer Jim Iannucci explained that the County has a prioritized list like a CIP plan. There are hundreds of projects and staff continues to build on those. The budget is split into maintenance and capital. When projects rise above maintenance with piping and other things that are going to require longer, more construction, those are moved to capital projects. The projects have been prioritized based on impacted structures. Staff have been utilizing the crews in house to do most of the pipe work because the complexity of that work is in citizens’ backyards. A lot of vegetation work has been contracted out. Staff have been leaning heavily on maintenance projects while trying to get ahead with capital projects. Regarding the need for help, Mr. Iannucci stated that staff has requested one new position which will be a construction superintendent project coordinator because there are two crews, but not two complete sets of equipment, so this person will plan projects out. A brief discussion ensued regarding metrics to compare the progress of the stormwater program. Mr. Iannucci stated that the staff is using ESRI, which is GIS based mapping, to track the projects his team is working on. The Stormwater team is in the startup phase of utilizing the software. As to equipment, the County purchased equipment but does not have two of everything even though there are two crews, but what they have is enough.  General Fund – revenue projections and continuation expenditures: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 701  The impact of inflation will be considered as we continue to work through budget development In response to questions regarding sales tax projections, Mr. Credle stated that staff has projected out the rest of FY 2023 and expect a repeat for FY 2024. Staff expect the projections to hold but not to grow significantly as they have over the last few years.  Summary:  Five year Capital Improvement Plan:  Significant increase - larger projects for outside agencies/partnerships  Primarily funded with debt  Recycling and Solid Waste: no change in the $52/ton tip fee  Fire Rescue: no change in the 7.25 cents tax rate  Stormwater Services: full fee maintained at $5.65 per ERU per month  Next Steps:  April work sessions to be scheduled  May: Board member briefs th  May 15: Manager’s recommendation (includes Non-county Agency Funding Committee Recommendation) th  June 5: Public Hearing th  June 19: Budget adoption Discussion ensued regarding next steps. County Manager Coudriet stated that the staff is not ready to give the Board a recommended budget so there would not be consistency in providing a line item budget at this time, th but it will be provided on May 15. There is no obligation for New Hanover County Schools (NHCS) to provide its th recommended budget prior to the statutory May 15 deadline, which is historically when it is received. NHCS Superintendent Charles Foust is working extremely hard to take costs out of the budget because there are fewer students in the school system than there were five or ten years ago. Capital needs for the school system were briefly discussed along with how policy decisions are made regarding school funding. Commissioner Barfield commended Commissioner Zapple for his interview about nonprofit funding. The media has created a narrative that the County is pitting nonprofits against each other by saying they are double dipping, which is not true. The County is trying to help the nonprofits grow and fulfill their mission. He hopes the media will get the narrative right and not have it as a negative, but more as a positive. The goal is to enhance what the nonprofits are doing, not to make it seem as if they are double dipping. In response to Board questions, Ms. Daniels stated that this year, information for other funding sources was requested as part of the application process and the County has this information. However, if information was requested about the other funding sources, staff would direct the requester to the funding source for information. Commissioner Barfield stated that he does not want the Non-County Agency Funding Committee to penalize nonprofits who are applying for grants, assuming they are double dipping. Mr. Credle stated that staff wanted to ensure that the nonprofits were not submitting the same application twice and are now comfortable that was not the case. DISCUSSION OF APRIL 3, 2023 AGENDA ITEMS The Board reviewed and discussed the agenda items for the April 3, 2023 Regular Meeting as noted: Consent Agenda Items. No items were discussed. Regular Item #7: Consideration of a Contract Between the New Hanover County Recycling and Solid Waste Department and Archaea Energy Operating, LLC to Design, Build, and Operate a Landfill Gas to Renewable Natural Gas (RNG) Facility. In response to Board questions, Mr. Suleyman stated that five bids were received for taking the landfill gas to convert it to renewable natural gas. Renewable natural gas is similar to natural gas. From the bids received, Archaea Energy Operating, LLC (Archaea) was selected, and a contract was negotiated which the Board is being asked to approve for an initial 20-year term with the option to do two five-year extensions. Archaea will stand up the operation at their own expense. The facility will convert the raw landfill gas into renewable natural gas. They will also install a pipeline from the point of delivery to U.S. Highway 421 and interconnect with the existing Piedmont Natural Gas pipeline. In return for the lease agreement, Archaea will provide the County with a fixed payment of $300,000 per year that will be escalated by CPI and then a variable payment which is based on the heat value of the gas sold. Again, it will be a $300,000 fixed payment starting on the first day of the commercial operation date. The variable payment is $3.08 per million British thermal units which is a measure of heat energy. That is assuming that the landfill gas provided meets the landfill gas quality standards which are spelled out in one of the NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 702 appendices in the contract. The department does not feel it will be an issue to meet the standards. To summarize, Archaea will come in, pay for all the infrastructure to collect all the landfill gas that provided to them from the point of delivery, condition the gas growing up through their pipeline to the Piedmont Natural Gas pipeline, and send the department a check every month for the next 30 years. Generally speaking, in total between $900,000 to $1.3 million per year in revenue would be coming to the department in addition to the $300,000. County Manager Coudriet stated that based on this, raising the tip fee is not necessarily the first course of action. In response to further Board questions, Mr. Suleyman stated that Archaea will be provided with space on a long-term basis. The space is the eight acre parcel that was purchased approximately two years ago that has frontage on U.S. Highway 421 with the intention to move the department’s administrative operations here. Two acres of that parcel will be given up to Archaea so that the connection to the pipeline is not so overly burdensome. There will be a disruption during the two years the facility is being constructed, but he does not see any issues in working with Archaea to make it work. Regular Item #8: Rezoning Request (Z23-03) – Request by James Yopp with River Road Construction, LLC and Hoosier Daddy, LLC, applicant and property owner, to rezone 29 parcels totaling approximately 42.10 acres of land, including 5741 Carolina Beach Road and 18 unaddressed parcels on Shiloh Drive north of Manassas Drive, from R-15, Residential to (CZD) R-5, Residential Moderate High Density for 10 single-family residential lots and 327 residential townhomes with associated open space and amenity center. Planning and Land Use Director Rebekah Roth stated that a request to continue this item has been received. Regular Item #9: Rezoning Request (Z23-07) - Request by Cindee Wolf with Design Solutions, applicant, on behalf of Ernest Faison II, property owner, to rezone approximately 0.96 acres of land located at 6505 Carolina Beach Road from R-15, Residential to (CZD) B-2, Regional Business to convert an existing single-family home for a contractor’s office with an accessory structure and outside storage and other limited commercial uses. Ms. Roth stated that a request to continue this item has been received. Regular Item #10: Rezoning Request (Z23-01) - Request by David Long with Castle Hayne Development Group, LLC, applicant, on behalf of James Stone with Ashton & Avery, LLC, property owner, to rezone four parcels totaling approximately 11.5 acres of land located at 3400 Castle Hayne Road from R-20, Residential, to CZD B-2, Regional Business for general retail and outdoor display. In response to Board questions regarding the number of peak trip hours, Ms. Roth stated that the request is for a Tractor Supply Store, and the trip generation counts are based on the premise that farmers will not visit the store during peak driving hours. Staff has confirmed with the Wilmington Metropolitan Planning Organization (WMPO) that the code being used for the trip generation is correct and an accurate representation based on the anticipated use. There will be nothing in the existing utility easements along Gladiolus Road which will provide an additional vegetative buffer. STAFF UPDATES Project Grace Update. Brian Eckel of Cape Fear Commercial (CFC), Mike Brown with Cape Fear Development, Brian Thomas with Monteith Construction, and Chris Boney with LS3P were present to provide an update on Project Grace. Mr. Brown stated that his team approached the County back in November with an interest in looking at the Project Grace plans at their own risk. It has been proven across the country that there is a direct correlation between cultural civic and cultural arts investments along with public investment and what that does for the local economy, entrepreneurship, and quality of life which is a major objective of any growing town that wants to attract and retain talent. Downtown Wilmington looks vastly different today than it did 10 years ago, and the future is very bright for the County. Looking forward 20 years and studying Project Grace, public engagement and discussion were at the forefront. The plans and alternative strategies were evaluated for project delivery. On the public engagement discussion component, it was important to understand the perspectives of all citizens and stakeholders and make sure the project had support. The project team met with over 70 groups, both large and small, and reached out to countless other employers. The groups included, but were not limited to, several Rotary Clubs, the Chamber of Commerce, Cape Fear Community College leadership, several leaders in the faith community, Genesis Block, Wilmington Business Development, the Wilmington Convention Center, and the Historic Wilmington Foundation. The team also met with leadership from Save Our Library, which was a very respectful and educational conversation and they have had several conversations since with Diana Hill. The team toured the library in downtown Durham, which was a very impressive project led by their library director. Based on the research and conversations the team has had in the community, the community seems to be very much in favor of this endeavor and very much behind it. The second part of the study was evaluation of the project plans. Since November, the team has taken a deep dive into the plans the County purchased from Zimmer Development last fall. The team was able to identify approximately $4 million in savings spread across 27 identified areas of opportunity. Mr. Brown stated that the team looked at the challenges of a renovation as opposed to building new and felt that building new is the right approach. Mr. Eckel stated that the team was unsure until a month ago, but now that the analysis has been completed, they are all in on the project and excited to move forward. The team has studied the Local Government Commission (LGC) meeting and taken into consideration the points that were made about the project. CFC has submitted the development agreement to the County, with a not to exceed amount of $60,524,860 and would manage the project at a reduced fee of 3.5%. At the completion of the project, CFC would purchase the southern parcel for no less than $3.5 million. State Treasurer Dale Falwell had requested the property be sold using an upset bid process. To be transparent to the taxpayer, CFC is proposing to have two appraisals done. If the appraisals are within 5% of each other, then CFC will pay the higher number and that will be the purchase price, but not less than $3.5 million. If the appraisals are greater than 5% apart, a third appraiser will be hired who will review both appraisals and set a price. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 35 BUDGET WORK SESSION AND AGENDA REVIEW, MARCH 30, 2023 PAGE 703 Construction of the southern parcel will then be constructed in 24 months. If there is multi-family housing, no less than 5% of that will be for workforce housing. The development agreement will be on the Board’s May 1, 2023 agenda for consideration. Mr. Thomas with Monteith Construction updated the Board on the bidding process. He stated that his team has looked at the drawings with LS3P and made some changes. The bidding process for the project will be managed like the Health and Human Services project and the judicial building downtown. The County will select the general contractor and negotiate the fee and general conditions. It is the same delivery method that is used in 95% of counties throughout the state, particularly on large and complicated projects. Mr. Thomas talked about bid fatigue where subcontractors just start to put a number on things. The best way to overcome that is to revise the drawings and have them clear, tight, and concise. There will be three to seven bids on every scope of the project. Mr. Eckel reviewed the project schedule reiterating that the development agreement is scheduled to be presented to the Board on May 1, 2023. After the bids are received, a third party general contractor will review the numbers, just like what was done with the Government Center, and put it all in a report. Mr. Eckel’s team will come back to the Board on July 17, 2023 to review and tighten up the numbers. If the Board agrees to proceed at that point, everything would be sent to the LGC for review at its meeting on September 12, 2023. Construction would be set to begin on October 2, 2023 with project completion scheduled for summer of 2025. In response to Board questions regarding structural revisions to the plans to bring costs down, Mr. Thomas explained that they looked at the parking deck and how close it tied into the existing structure. They looked at how to integrate the two areas for efficiency and were able to take out some of the structural modifications and commodities such as one entrance. They have also gone back and looked at the soil tests and borings to see what foundation will be needed. The building will be on pilings and in discussions with contractors, the footprint of the pilings required was able to be reduced. As far as the programming and the look of the building are concerned, very little has changed. As to the cost difference, there are savings with this path versus the 20-year lease that was the previous plan. To build the plans as they were back in November, it would have cost $64 million. Because of the changes, the cost has been reduced by $4 million. County Manager Coudriet clarified that there will be financing costs in addition to the cost of the project itself. The previous developer was not interested in the fee for development model that is being brought forward today. The previous model depended on a 20-year income. The significant difference is the financing. Regarding debt issuance, County Manager Coudriet stated that if the Board were to proceed, the County would likely issue debt this time next year, or maybe a little bit later. In response to Board questions about the private development portion of the project, if there is a multi- family component, at least 5% would be workforce housing. There may be a boutique hotel and other uses. The uses of the private development have not yet been decided, but the first floor will be commercial. CFC is currently in talks with restaurants and retail businesses and making a hard push for a grocery store. A brief discussion ensued regarding the next steps. Chair Rivenbark thanked Mr. Eckel, Mr. Thomas, Mr. Boney, and Mr. Brown for the update. ADJOURNMENT There being no further discussion, Chair Rivenbark adjourned the meeting at 5:00 p.m. Respectfully submitted, Kymberleigh G. Crowell Clerk to the Board Please note that the above minutes are not a verbatim record of the New Hanover County Board of Commissioners meeting. The entire proceedings are available online at www.nhcgov.com.