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HomeMy WebLinkAbout2025-01-30 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 413 ASSEMBLY The New Hanover County Board of Commissioners met on January 30, 2025, at 1:34 p.m. for a Budget Work Session in Conference Rooms 138-139 at the New Hanover County Government Center, 230 Government Center Drive, Wilmington, North Carolina. Members present: Chair Bill Rivenbark; Vice-Chair LeAnn Pierce; Commissioner Dane Scalise; Commissioner Stephanie A.C. Walker; and Commissioner Rob Zapple. Staff present: County Manager Chris Coudriet; Clerk to the Board Kymberleigh G. Crowell; and County Attorney K. Jordan Smith. Chair Rivenbark called the meeting to order, stating that the purpose is for the Board to discuss budget priorities for the 2025-2026 fiscal year. FISCAL YEAR (FY) 2025-2026 BUDGET WORK SESSION PRIORITIES DISCUSSION County Manager Coudriet thanked the Board for the opportunity to hold this first work session of the FY 2025-2026 budget. He then turned over the presentation to Chief Financial Officer Eric Credle and Budget Officer Amanda Kostusiak. Mr. Credle and Ms. Kostusiak shared the following information concerning the FY 2025-2026 budget:  FY25-26 Budget work session:  Budget review items: current economic conditions, revenue, property tax revaluation, expenditures, education, and public engagement and timeline  Current economic conditions: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 414  Revenue:  Interest income: general fund (GF)/revenue stabilization fund (RSF)/mental health and substance use disorder (MHSUD) funds  FY25 budget = $14.5 million Mr. Credle clarified in response to questions that the FY 2024-25 budget includes $14.5 million in interest from RSF and MHSUD funds, as well as the General Fund. He projected that for FY 2025-26, interest earnings would range between $11 million and $12 million.  Impact of cuts = $13 million annually  North Carolina county tax rates: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 415 th  New Hanover County is the 16 lowest out of 100 counties  Tax rate range is $0.27 to $0.99  Average tax rate is $0.62 County Manager Coudriet addressed questions, stating that although Brunswick County serves as a comparable county due to its proximity, it offers a different set of services. Additionally, for comparison, the County uses Wake, Mecklenburg, Buncombe, and Catawba counties because of their service levels and larger annual budgets. He also confirmed that the County has the lowest tax rate among the top 10 most populous counties.  Property tax value revaluation sensitivity:  The value of one penny is $5.16 million, currently  GF actual expenditures were $296 million in FY21 times 23% inflation for a change of $68 million Discussion ensued about the property tax value revaluation sensitivity slide. County Manager Coudriet confirmed that initial projections suggest a possible 40-50% increase in property values, aligning with internal analysis shared with the County Manager’s Office. Mr. Credle added that if property tax values increase by 65%, the current $0.45 tax rate will generate $150 million in revenue. A tax-neutral rate would be $0.27, while setting the tax rate at $0.35 would generate an additional $68 million above tax-neutral levels, reflecting a $0.10 tax rate decrease. When asked if $68 million represents organic growth since the last revaluation, Mr. Credle explained that this amount accounts for inflation impacts on operating expenses, with costs rising an average of 23% since 2021. County Manager Coudriet reported that tax notices will go out in late February, with a briefing scheduled beforehand. Mr. Credle responded to questions about the value of a penny, stating at the assumed revaluation increase of 55%, that it will equate to approximately $8 million. Mr. Credle then stated Ms. Kostusiak would continue the presentation.  Expenditures:  Potential GF expenditure increases:  Note: Enhancements have not been fully vetted Discussion ensued regarding the reassignment of funds back to the General Fund, such as workforce housing and pre-K expansion. With the expiration of American Rescue Plan (ARPA) funds, budget allocations are being reassessed, factoring in inflationary pressures and organic growth. County Manager Coudriet highlighted the $50 million MHSUD fund, noting that the County has already drawn from the principal. He emphasized the need for a policy decision on how much principal, if any, should be spent annually. Historically, the RSF was designed to grow its corpus, but the MHSUD fund was intended for immediate use. Mr. Credle reported that $8 to $9 million from the MHSUD principal is budgeted for FY25, alongside ARPA funds previously used for workforce housing, typically covered by the General Fund. Some General Fund expenses were temporarily shifted to other funding sources but are expected to return to the General Fund in FY26 unless directed otherwise by the Board. County Manager Coudriet cautioned that relying on one-time funds for ongoing expenses, such as school nurses and therapists, is unsustainable and will quickly deplete the $50 million fund. He reiterated the need for clear direction on the use of the MHSUD corpus, noting that more principal spending reduces interest accumulation. Mr. Credle added that the NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 416 RSF is down $3 million, and the MHSUD fund is projected to decline to $42 million. Without changes, funding school nurses and therapists from the MHSUD fund would exhaust it within five to six years. The discussion then ensued about potential strategies to address projected financial challenges, the Board’s priorities and ensure long-term fiscal sustainability. County Manager Coudriet confirmed in response to questions that a potential solution may be to stabilize the property tax rate to fund priorities while alleviating pressure on the MHSUD fund. He also proposed using principal funds for another year but acknowledged, as Mr. Credle noted, that this approach would deplete the MHSUD fund within five to six years. Regarding the $68 million inflation adjustment for operating expenses, reflecting a 23% cost increase since 2021, County Manager Coudriet clarified that the alignment between inflation projections and expenditure increases was coincidental, not deliberate. The County has historically absorbed rising costs through alternative revenue sources without significant service cuts or policy changes, allowing incremental service expansion. However, he cautioned that this reliance on limited revenue streams may not be sustainable long-term. Mr. Credle further confirmed that the similarity between the inflation projection and expenditure figures was unintentional, as the numbers were derived through separate processes. Discussion further ensued about the Commissioners’ desire to have more information on individual items on slide 17. Mr. Credle stated that additional information will be provided in future sessions, with some figures presented as ranges, though midpoint ranges are shown for today's purposes. County Manager Coudriet confirmed that ARP funds are ending, and if the Board wishes to continue funding certain items, they may need to return the revenues to the General Fund. He highlighted a few examples of uncertainties in the budget due to pending information and evolving circumstances. For the K-12 system, the budget will not be available until April 1, leaving current estimates based on assumptions, such as maintaining funding levels at a minimum. Conversely, the community college budget request has been submitted, totaling approximately $2.2 million, covering both capital and operating expenses. While some budget figures are more concrete, others remain estimates due to unknown market conditions and the Board's decisions on potential funding increases. Additionally, there is interest in restoring approximately $1.4 million in FY25 budget cuts, focusing on parks and facilities management. Regarding debt service, Mr. Credle confirmed an incremental increase projected to range from $1 million to $2 million. Ms. Kostusiak continued the presentation as follows:  Education:  County spending per average daily membership (ADM) – Public Schools: County Manager Coudriet confirmed that the ADM graph only reflects the County’s supplemental funding.  New Hanover County Schools (NHCS) operating funding including Pre-K:  Does not include nurses, therapists, deputies (SROs)  NHCS Capital Outlay:  Unspent bond, lottery, and prior years’ county capital commitments amounted to approximately $12.5 million on June 30, 2024  New Hanover County Schools ADM: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 417  Source for 2016-2024: New Hanover County Board of Education 6/30/24 Annual Report – NC Department of Public Instruction final average daily membership  Source for 2025: NHCS Staff – For the month of November 2024  Excludes Charter Schools County Manager Coudriet noted that charter schools are funded at the same ADM rate as traditional public schools. As to how the funds per student are tracked when leaving school, he stated that he is unsure how the reconciliation is done between the school system and charter schools. If a student leaves a traditional public school and goes to a charter school, the money follows the student. If a child returns to the traditional public school, there may have to be a waiting period until the next fiscal year to recapture the lost revenue. Discussion ensued about factors affecting school funding, enrollment trends, and budget complexities. County Manager Coudriet explained that while charter school enrollment continues to grow, the rate has slowed significantly compared to the previous decade. ADM has remained flat since 2021, following a sharp decline after 2020, with enrollment trends influenced by factors such as fluctuating kindergarten enrollment, children entering and leaving the system, and broader demographic shifts. Declining birth rates were highlighted as a key factor in reduced enrollment, with County Manager Coudriet noting that even historically fast-growing school systems, like Wake County, are now experiencing slower growth due to fewer children entering the system. Concerns were raised about charter schools receiving county supplemental funding at the same level as public schools, despite not being required to provide services such as food and transportation, because of state mandates. Additionally, staffing cuts in public schools, coupled with rising operational costs due to inflation, have further strained resources as financial demands on the system continue to grow. County Manager Coudriet reported that the NHCS superintendent plans to deliver the NHCS budget request st by April 1. He reconfirmed that the community college’s budget request has been received but has not been processed. Ms. Kostusiak continued the presentation as follows:  ADM: Budget vs. Actual:  Includes Charter schools  FY24-25 NHCS contribution:  All-in funding estimate: 31.7% of budget  General Obligation Bond request for capital expected in FY26 In response to questions regarding Legion Stadium, County Manager Coudriet confirmed that the all-in budget does not capture funding and explained that according to the memorandum of understanding (MOU), the County, NHCS, and the City of Wilmington (City) are each responsible for one-third of any maintenance and improvements at Legion Stadium. Essentially, making the County responsible for two-thirds.  Cape Fear Community College (CFCC) County Funding Operating Budget: NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 418  The County also pays $9-10 million annually in debt service on the 2008 $164 million General Obligation Bonds  CFCC: County Funding Capital Outlay: Discussion ensued regarding the CFCC request. County Manager Coudriet stated that the request has been received but not processed yet. The capital request portion is approximately $2.1 million, and in total the request is about $5 million. Mr. Credle confirmed that the County expects to reverse monies for the old Bank of America building from the state. Chair Rivenbark commented that it will be for the purchase and the $30 million upfit. County Manager Coudriet also confirmed that SROs are in the Sheriff’s budget and school nurses and mental health therapists are in the Health and Human Services (HHS) budget. The number shown in today’s information for SROs reflects only the County’s personnel. Any City SROs would be in the City’s budget. He also cannot confirm if city officers are still in the schools. Ms. Kostusiak continued the presentation as follows:  Public engagement:  Brewing Budgets:  Public dialogue and listening sessions  Held at local coffee shops: five were scheduled and they have all been held Ms. Kostusiak reported that there will be more sessions in the March-April period to keep residents actively engaged in understanding the allocation of their tax money. She explained how the program works and what the data signifies. Additionally, Ms. Kostusiak introduced a new program that allows residents to simulate budget adjustments, teaching them about the budget process. Although about 20 individuals attended the sessions and around 10 people used the program, she hopes its usage will grow. She responded to questions stating that staff will investigate sending out mailers or emails to encourage more citizen participation.  Balancing act:  On-line budget balancing by expense type:  Budget timeline: Discussion ensued regarding upcoming budget work sessions. There was a request to move the March 6, 2025 budget work session due to a conflict with the Carolina Beach Centennial celebration. After a brief discussion, the Board agreed to reschedule the March 6, 2025 meeting to 9:00 a.m. and hold that day’s agenda review meeting immediately afterward. The Board also requested that future budget work session notices include a note that agenda review meetings will follow immediately after moving forward. A brief discussion was held about the forthcoming property tax revaluation. County Manager Coudriet responded to questions stating that a full measure and list has not been done since 2017, which was the first time it NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 36 BUDGET WORK SESSION, JANUARY 30, 2025 PAGE 419 was done since the 1990s. The 2021 revaluation also was not a full measure and list process nor is the 2025 revaluation. Discussion was held about topics the Board wants to hear about at the next work session. Commissioner Scalise emphasized the importance of determining the actual impact of the revaluation. Precise numbers, rather than estimates of 55%, 65%, or 70%, will provide clarity and guide future discussions. Commissioner Walker inquired about potential available funding the County can obtain to replace other funds, specifically in terms of future opioid settlements. County Manager Coudriet explained that any forthcoming settlements will follow the NC Attorney General’s approved order and must be tied specifically to the opioid intervention. While there may be opportunities, there are very tight restrictions on how and where the funds can be applied. He reminded the Board that the primary sources of revenue staff can recommend are property taxes, which the Board controls by setting the rate. Every sales tax the Board could implement without voter approval is already in place. He further stated that staff will provide the definite size of the tax base and the best estimate of revenue neutrality at the March 6th budget work session. Commissioner Scalise added that more clarity on the information provided on slide 17 (Potential General Fund Expenditure Increases) would be beneficial, as opposed to best estimates, referencing Vice-Chair Pierce and Commissioner Zapple’s earlier comments. A discussion ensued about the proposed 2026 school bond. County Manager Coudriet explained the process of putting a bond question on the ballot. Typically, the bond question appears on the November ballot rather than the primary ballot, and it cannot run any sooner than 2026. He also noted that a priority set for the County and shared with the Board is preserving debt capacity for something like a potential school bond. He explained that with the debt policy of $2,200 per person, 20% of the operating budget, and 1.85% of the overall tax base, the County will have about $120 million in debt capacity for all projects, not just schools. Further discussion touched on the potential to raise the per-person amount of the debt policy. County Manager Coudriet noted that the Board established this policy, and the County was one of the first to use a per capita measure on debt. He added that policy changes should ensure adherence to standards important to rating agencies and should be comparable to the population, tax case, and ability to pay. Mr. Credle commented that staff have contacted the County’s advisors for relevant data but are not ready to share it yet, and the conversations align with this perspective. A brief discussion ensued about the non-county agency funding application process. Ms. Kostusiak reported that 77 applications were received for grant funding consideration. The application period has closed, and reviews are about to begin. Based on the discussion and Board request, Ms. Kostusiak stated that each county commissioner will receive a binder containing the applications. County Manager Coudriet reminded the Board that the Non-County Agency Funding Committee makes funding recommendations to the Board, not staff based on the Board policy the committee is charged with following. Staff does provide a budget amount, which, historically, has been the amount from the prior year with some growth. Also, staff are not recommending any growth this year unless the Board directs a budget larger than $1.6 million. ADJOURNMENT There being no further discussion, Chair Rivenbark adjourned the meeting at 3:01 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.