Capital Project Review Council Work Session

December 15, 2009

Cary Town Hall, Room 10035, 316 N. Academy St., Cary

Council Attendees: Mayor Harold Weinbrecht, Mayor Pro Tem Julie Robison, Council Members Gale Adcock, Don Frantz, Ervin Portman, Jennifer Robinson, and Jack Smith

Opening Statement – Town Manager Ben Shivar

The purpose of the work session is based on Council’s direction provided to staff during the October 13, 2009 work session requesting that staff come back to Council with groupings of projects that can move forward without issuing any new debt.

Process utilized to arrive at tonight’s staff recommendation

The staff recommendation outlined in the 12/15/2009 work session meeting packet (see Exhibit A attached to and incorporated herein) removes funding from 39 projects in order to support 62 projects grouped as “Continue”.

Shivar noted that he wants it completely clear that the funding taken from the 39 “Postpone” projects will be removed from those projects, and those projects will be stopped in order to move forward with the 62 “Continue” projects. There is no other way to keep those 62 projects moving forward without the issuance of debt.

Shivar explained the process that staff went through in order to group the 125 projects (previously classified as Maintain, Efficiency, Higher or New) that Council directed staff to focus on:

• Department Directors ranked their portion of the 125 projects under review from most important to the community to least important to the community.
• Administration staff reviewed these rankings, and for the most part, the final list presented this evening is very similar to the Department Director rankings/groupings.
• Staff believes that the recommendations provided to Council this evening accomplish what Council directed: no new debt and no tax increase until FY 2012.

Expectations for the FY 2011 Capital Improvements Budget/Plan

• As far as the FY 2011 capital improvements budget/plan (CIB/P), that budget/plan will be very similar to FY 2010 with approximately $5M to $6M available for the FY 2011 CIB.
• The FY 2011 CIB/P will not pick up any of the projects grouped in the “Postpone” category.

Points to keep in mind when considering staff’s recommendations this evening

Shivar said it is important to wait and see how the economic environment transpires over the next year or so. Even without issuing any new debt, there is still a lot of pressure on the operating budget. Page 17 of the Exhibit A points out that even with staff’s recommendations this evening, there is still the need for a one to two cent tax increase in FY 2012.

Shivar said a tax increase may not come about, but even after staff has re-categorized projects, there remains about $14 million in general fund fund balance over and above the four month reserve amount that can be used in a couple of ways. There is also an estimated $17 million remaining in general capital reserve fund balance at the end of June 2010.

Shivar proposed considering using $10 million in the general fund fund balance (referenced above) to “write down” some debt in lieu of funding additional projects. Taking this action would provide about what is needed to avoid the FY 2012 tax increase mentioned earlier.

These points are something that don’t need to be decided tonight but should be kept in mind as we enter into the FY 2011 budget process.

Goals for tonight’s worksession

• Council and staff will gain an understanding of the Town’s situation, including our limits and parameters regarding what we can do assuming there will not be significant economic relief over the next two to three years.
• Council will arrive at a final list of projects that can move forward. There are many projects that staff is not moving forward with right now, so a focus of tonight’s meeting is to have a final list of those to move forward.

Presentation of Worksession Materials – Scott Fogleman

1. Page 2 of Exhibit A

• Discussed background leading to this work session; reminded Council that utility projects were off the table for the purpose of this discussion.

2. Page 3 of Exhibit A

• Reminded Council that the information on this page was provided in work session #1.

• Pointed out fact that Council directed staff to focus on the 125 general capital projects classified as efficiency, maintain, higher or new for the purposes of work session #2.

3. Page 4 of Exhibit A

• Presented the considerations that staff used when reviewing the 125 capital projects.

• Clarified that the $3.9 million in unencumbered balance noted in the town center area plan (the Cary Elementary Renovation project within the “Postpone” category) had already been voted on by Council. That vote was to return these funds (which were determined to not be needed for project completion) to general capital reserve fund balance. The renovation of the Cary Elementary building IS moving forward – it’s just that $3.9 million of originally budgeted funds within this project are returning to general capital reserve fund balance.

• Robison asked what happens to projects on the “Postpone” list to ensure they don’t fall off of the radar screen. Fogleman responded that these projects will be placed on the “Not Included” FY 2011 CIB/P list. Shivar added that these projects are important and we want to come back to them.

4. Page 5 of Exhibit A

• Presented the capital project groups utilized to sort the 125 projects and the definitions for each (Continue, Delay or Postpone).

5. Page 6 of Exhibit A

• Explained the number of projects in each group and provided an overview of staff recommendations. Explained that the goal was to eliminate as much debt as possible.

• Clarified the third bullet on page 6. The word DELAY should be changed to POSTPONE.

• Stated that 6 of the 19 projects in “Delay” are contributing to the debt need and are the primary reason for the outyear debt service needs being so high (see pg 17).

6. Page 7 of Exhibit A

• During the staff review of the 125 projects, specific projects were moved to the Complete and Mandate categories. These are projects that should originally have been grouped as “Complete” or “Mandate” and were mis-classified.

• Noted that $2.2 million in the US 1/64 and Cary Parkway Interchange projects was debt, so moving that to the “Complete” category helps with the debt burden noted on page 17.

7. Pages 8 – 11 of Exhibit A

• Page 10 - Line 90 on page 10 (“Delay” project list) notes a $68 million balance in these projects. Of this balance, $63 million is supported by unissued debt.

• Page 11 – Lists the 39 projects selected for “Postpone”.

• As a reminder – all grouping recommendations were guided by the considerations discussed on page 4.

8. Pages 12 – 13 of Exhibit A

• The cash balance in the 39 “Postpone” projects is outlined on page 13. If ultimately we postpone the 39 projects, the $20.6 million noted on Line 40 at the bottom of page 13 is what could be directed somewhere else.

9. Page 14 of Exhibit A

• Rows 41 – 49 are “Mandate” projects with unissued debt in them that could be “swapped out” with cash from the “Postpone” project balances.

• Rows 51 – 57 are “Continue” projects with unissued debt in them that could be “swapped out” with cash from the “Postpone” project balances.

•  Total cash needs (Mandate and Continue projects with unissued debt) = $24.2 million.

• Postpone” has $20.6 million in cash which leaves a $3.6 million gap that would need to be found in another source.

• Line 61 notes that we expect $20.7 million in general capital reserve fund balance at the end of FY 2010. This recommendation uses this to meet the $3.6 million need leaving $17.1 million (Line 62) in estimated general capital reserve fund balance at the end of FY 2010.

10. Page 15 of Exhibit A

• The council asked how the staff recommendations at this work session will impact the outyear debt scenario. Response: The top four lines on the graph note where we were as of the October 13, 2009 work session. The bottom line represents the effects of tonight’s recommended changes.

• Debt service for everything moving forward (from now into future) is the top line. Essentially, the top and bottom lines represent the delta between no new debt and new debt.

11. Page 16 of Exhibit A

• This chart notes what’s needed to keep fund balance whole (with the four month reserve).

12. Page 17 of Exhibit A

• This entire scenario assumes no new debt.

• Line 4 – 0.7 in FY 2010; 2.8 million in FY 2011: This is the debt service that we’d be “saving” in each year’s budget if we executed tonight’s recommendations.

• Debt service impact is about $10 million in FY 2014. That’s why fund balance available for capital would grow in the future.

Council Discussion

Robison asked the key driver of the potential one cent tax increase in FY 2012 (Page 17). Fogleman referenced Row 7 in FY 2012 and stated $1.9 million in FY 2012 is what we need to “keep fund balance whole” (maintain policy of four months reserve in fund balance).

Robison asked if staff looked at scenarios to maintain the four month fund balance margin with available funding that we make available through tonight’s recommendations. Fogleman replied that any one-time action is not staff’s preference for a mechanism to maintain fund balance.

Portman commented that we wouldn’t be picking up any future year fund balance. Fogleman concurred and stated growth occurs naturally in FY 2011 as we “save” by not having to pay as much debt service.

Portman asked what’s driving the margin produced in FYs 2014 – 2016. Fogleman said it’s a combination of two assumptions: 25 new positions coming on per year and estimated revenues rebounding somewhat.

Portman stated absent those 25 new positions per year, it seems that “normal” inflation is covered by growth in revenue in the base. Fogleman concurred.

Robinson stated if we cut operations, we need additional margin for the four months reserve. She asked if it’s necessary for us to take this type of distilled look at the operating budget and see what cuts might be needed. Shivar stated there are a lot of options. The budget process is the best place for these. Tonight’s scenario isolates the impact to the operating budget.

Portman asked if the historical 41% in tax base growth in FY 2009 is correct. Fogleman replied yes, and he added that particular year’s growth is due to the revaluation. Shivar directed council’s attention to years 2006, 2007, and 2008, which represents a lot of revenue. He stated we’re not anticipating this for several years, and that’s what has been helping us afford our operating and capital.

Portman stated staff has done exactly what council asked. He stated this review is really extensive and puts us in a good position assuming continued tough times, and gets us ready for a rebound in the future. He’s concerned about delving into the details too much as this is a nice package in its current form.

Smith stated the harsh reality is we’re in tough times. People’s opinions vary on the recovery time.

Adcock likes Shivar’s idea of paying down debt. She stated that’s what “real” people do at home.

Robison added to Adcock’s comment on paying down $10 million in debt. She stated that anything after that (the $10 million) really needs to be left alone in fund balance as contingency funding. Shivar agreed and stated that is what he is recommending.

Robinson said that she doesn’t want to “pull the thread” on this package, but does want to highlight several projects:

• Page 11 line 117 (Postpone) – ST1119 – Carpenter Fire Station Road Widening (NC 55 to Cary Glen Blvd) – Developer Agreement
• Page 11 line 126 (Postpone) – ST1166 Carpenter Fire Station Road Extension and Railroad Bridge

Staff noted that there is another $12 million needed to complete ST1166 in future years that has not been funded.

Portman asked the consequence if we don’t do ST1119 as a developer agreement is involved. Engineering Director Tim Bailey responded that the developer isn’t subject to adequate public facilities rules (APF) if the development is developed under the current, approved scenario.

Council asked about getting grant money for these projects. Bailey responded that the trend is for the state to focus more on major highways instead of widening of roads like this.

Portman asked how much in developer improvements the developers would not have to do if ST1119 is postponed. Bailey said that the developer will continue with the development with no requirement to do anything on this – it’s the Town’s responsibility (Cary Park).

Frantz asked if the $5 million to $6 million available in FY 2011 for capital projects will be available for existing and new needs. Shivar replied yes.

Frantz asked whether or not the town manager recommends council move forward. Shivar stated he recommends that council move forward with the projects listed on pages 8 and 9 (the “Continue” group). These projects are in various states of progress.

Frantz stated with all of this information on a spreadsheet, it doesn’t give the council a good understanding of what these projects accomplish. So, he doesn’t feel like he can make a decision (i.e., landbanking). He asked what we want to buy. Shivar stated landbanking was one of staff’s priorities (considerations) that they took into account when grouping projects in these categories – to reserve some money for acquiring land. He stated the Town has done this exceptionally well in the past and should continue this.

Portman stated staff determined the landbanking project was important to preserve. Council will still have option to approve specific purchases. Shivar reminded Council that $10 million in COPs debt is off of the table and represented funds available for open space/landbanking are the balance of cash in Project GG5000.

Robinson asked how Cameron Pond park and the related greenway fits into the projects moving forward. She asked if there is money to do this or if council can set aside money to plan for either the greenway or a park so we can be ready when more funding is available. Parks, Recreation and Cultural Resources Director Mary Henderson stated staff would need money to design these, because the design can’t be done in-house.

Portman asked if staff can plan this with some of the money in the “Continue” projects. Henderson replied no; not without removing another project.

Doug McRainey, of the parks, recreation and cultural resources department, estimated the park master plan to cost about $50,000; the park design to cost about $200,000; and about $2 million to build. He stated design would take about 12 months due to the length of the public input process.

Ben Shivar stated that staff will consider the Cameron Pond Park/greenway during the FY 2011 capital budgeting process.

Robinson asked if staff can even take on a master plan exercise right now. She suggested that this might be undertaken as part of the FY2011 CIB so that the money would be available in July 2010.

Robison noted that the more pressing Cameron Pond issue is noise and visual barriers on 540. Robinson commented that the people that live there would say the needs are 50/50, and these residents strongly want both.

Frantz asked if there are storm drainage projects on the “Postpone” list. Shivar replied no and added that these are on the “Continue” list.

Portman asked if the Turnpike Authority is receptive to the barrier wall. Council members replied yes, but added we have two months to change the design. Otherwise, the wall is out of the question. NCDOT will design if we pay for construction.

Robison noted that it could cost $1.3 million to build the wall without landscaping. Robinson said that NCDOT wasn’t planning on landscaping anything.

Weinbrecht asked the ramifications if council approves everything recommended by staff exactly as presented, but later decides to move things around later? Council stated the most impactful would be changing the “Continue” list after tonight.

Portman stated the council’s ability to fund something will be greater if we execute staff’s recommendation than if we don’t.

Adcock asked for details about page 11 (“Postpone”) list – Line #14 – PR1109 – TCAP – Cary Elementary Renovation project. Council stated that’s the money coming back to general capital reserve fund balance from the project after the bid award. The project is already moving forward.

Robinson referred to line #117 on page 11 – ST1119 Carpenter Fire Station Road Widening (NC 55 to Cary Glen Blvd) – Developer Agreement. She stated if council can’t find something in the “Continue” list to swap with this project, then council at least needs to keep this in the forefront as many people think this is unsafe.

Weinbrecht asked how many of these “Postpone” projects could be included on a future bond referendum list and then really raise taxes. Smith concurred that the council should start considering impactful tax increases with bond issues.

Weinbrecht stated if a bond referendum is held, the Town must make a clear statement that taxes will go up instead of a statement about there being a history of no tax increases after referendum approval. With bond issues he thinks it’s important to actually raise the taxes.

Robison suggested reaffirming with the voters that they really would take a tax increase for these projects that were approved in the 03 Referendum. She believes we should hold another referendum.

Fogleman noted there is $63.5 million of unissued debt sitting in “Postpone” projects, $30 million in remaining 2003 Transportation GO Authority, and another $6 million in 2003 Parks, Recreation and Cultural Resources GO Authority.

Frantz stated the council appreciates what staff has done. He stated that if council wants to move forward on some of the previously approved projects that we put a referendum before the voters and impress upon them that if they approve the referendum their taxes will go up.

Smith stated in hindsight, the council has created a difficult situation by going strictly with debt and not raising taxes with bond issues.

Robison referenced the “Continue” list on pages 8 and 9. She stated the biggest ticket items are in western Cary (McCrimmon, Louis Stephens, Morrisville Parkway). She asked if we’re financing these with debt. Fogleman replied that staff’s recommendation “swaps” debt in the “Continue” projects out with cash from the “Postpone” projects, so it doesn’t matter if these projects originally had debt in them.

Robison clarified that nothing has been spent/encumbered for the Louis Stephens Drive project; even though it’s shown on the “Continue” list. Fogleman replied yes. Bailey stated $1.8 million in NCDOT grants are playing into the fact that this project is in the “Continue” list. The Morrisville Parkway project will be bid next week. Staff placed a high priority on these related projects.

Robison said If we look at what we’re continuing with, it’s supporting the network west of NC55. The Town should highlight that X% of what we’re going to “Continue” is going toward the area west of NC55. We’re doing what we can do.

Shivar suggested a question on the Town’s biennial survey to gauge public interest on a debt referendum.

Frantz thinks the survey is subject to manipulation as its internet based. Public Information Officer Susan Moran stated the survey is not internet based; rather, it’s telephone questions. She stated a question on the biennial survey will give council a better idea of whether or not they want to spend $100,000 to $150,000 on a referendum. She stated that floating the idea of a tax increase will be out there.

Robinson stated it’s important how the question is crafted. Moran stated staff will work with the survey consultant, and Council will have the opportunity to review question(s).

ACTION: Portman moved to accept staff’s recommendation. Smith provided the second. Council granted unanimous approval.

Robison referenced page 10 (“Delay” list) and asked if there has been thought about the length of the delay. Portman thinks it’s safe to say there will be opportunity in FY 2012 (referring to page 17; lines 7 – 9).

Robison stated one thing council can do in the next budget worksession is look at the “Delay” group and plot out the debt service we can bear and when. This will help determine when projects can occur. People are going to be asking Council when the Town can do these “Delayed” projects. Weinbrecht stated the Town cannot do these projects in the next two years. Portman stated it’s contingent on the overall economy. Shivar added it could be sooner rather than later, and staff will continually monitor the situation.

RECAP OF ITEMS FOR STAFF TO KEEP IN MIND:

1. Cameron Pond Park – should appear in FY 2011 CIB/P
2. Tax referendum question should appear on Town’s next biennial survey
3. Place “Postpone” projects on FY 2011 Not Included CIB/P list
4. ST1119 Carpenter Fire Station Road Widening (NC 55 to Cary Glen Blvd) – Developer Agreement. Need to keep this on the forefront if we can’t find something to “swap” funding sources with.
5. Continue to monitor economy and Town’s ability to re-look at some of the projects on the “Delay” and “Postpone” lists.

ACTION: Robison moved for closed session for the following purpose. Robinson seconded the motion, and council granted unanimous approval.

Pursuant to G.S. 143-318.11(A)(3), closed session is needed to consult with attorneys employed by and/or retained by the Town in order to preserve the attorney-client privilege between the attorneys and the Town. Among other things, the council expects to receive advice concerning the following lawsuit: Sumter Utilities, Inc., v. Town of Cary.

The council concluded closed session and returned to open session. The mayor adjourned the meeting at 6:54 p.m.