Minutes of the 2004 Council/Staff Retreat
February 27, 2004 through February 29, 2004
Mid-Pines Resort
Southern Pines, NC

Click here to view the entire retreat power point presentation (3,500 KB)

Council Attendees: Mayor Ernie McAlister, Mayor Pro Tem Jack Smith, Council Members Marla Dorrel, Mike Joyce, Jennifer Robinson, Julie Robison and Nels Roseland

Staff Attendees: Bill Coleman, Town Manager; Ben Shivar, Assistant Town Manager; Susan Moran, Public Information Officer; Scott Fogleman, Budget Director; Tim Bailey, Engineering Director; Karen Mills, Finance Director; Allan Cain, Fire Chief; Valiria Willis, Human Resources Director; Bob Strowbridge, Inspections and Permits Director; Mary Henderson, Parks, Recreation and Cultural Resources Director; Jeff Ulma, Planning Director; Ricky Barker, Associate Planning Director; Windy Hunter, Police Chief; Kim Fisher, Public Works/Utilities Director; Mike Bajorek, Public Works Division Director; Rob Bonnie, Utilities Division Director; Bill Stice, Technology Services Director; Charlie Henderson, Town Attorney; Sue Rowland, Town Clerk

February 27, 2004

Session 1: Retreat agenda, purpose and outcomes

The retreat began at 1:30 p.m. Mr. Coleman welcomed everyone. Council and staff introduced themselves. Mr. Coleman encouraged the council to focus on their vision for the community and how decisions during the retreat will accomplish the vision.

The group watched the “Quality of Real Life” video.

Session 2A: Budget and Finance

Mr. Fogleman’s presentation on Cary ’s financial status and future is attached to and incorporated in these minutes as Exhibit A.

Mrs. Mills’ presentation on population growth is attached to and incorporated in these minutes as Exhibit B.

Discussion

Mrs. Mills stated 15% debt service is aggressive. She noted that the Local Government Commission (LGC) must approve debt service. She added the legal debt limit in the CAFR is unrealistic (8% of assessed value). She stated that 10% is the guideline for general obligation bonds.

Mrs. Mills reminded the council that Cary ’s fund balance policy is a six-month goal with 50% of expenditures for six months. She stated the state recommends an 8% fund balance (one month cash flow). She stated the utility fund balance policy is a nine-month goal with 50% of expenditures for nine months.

Mr. Joyce asked how utility projections are made. Mrs. Mills stated it depends greatly on the weather, which is an unknown factor when planning. She recommends being more conservative in the sales forecast next year.

Ms. Dorrel asked when the capital plan became 10 years. Staff responded that this occurred approximately five years ago.

Mr. Fogleman’s presentation on Fiscal Year 2005 is attached to and incorporated in these minutes as Exhibit C.

Discussion

Mr. Roseland asked about paying debt service from fund balance. Mrs. Mills stated it is not a good practice. Mr. Roseland stated that using fund balance for short-term operating needs is acceptable, but only if it is for a short term practice (i.e., for one year or less). Mr. Fogleman stated fund balance is a one-time cash savings, and it is considered poor financial planning to do this, although it may be a consideration on a short-term basis.

Mr. Coleman stated he would not want to go to the LGC and ask to pay debt service with fund balance (as policy). He stated the council may appropriate money from fund balance to support the operating budget, which includes debt service. He stated that Cary did that this year by taking $3 million in reversion from the 2003 budget and placing it in the 2004 budget.

Mr. Roseland stated cash flow has never been an issue in Cary . Mr. Coleman stated there will be choices to make as part of this year’s budget process. He stated that the council decided to appropriate money from the general fund last year to avoid raising taxes, and this is always an option. He added there is $11 million over the six-month fund balance policy. He concurred that there is not a cash flow problem, but he stressed that there are choices that council must make in the budget process. He stated this presentation is intended to show the many choices and many decisions that council must make during the budget process. He added that this is the first year for these types of choices and issues.

Mr. Roseland stated the council could use the general fund $11 million margin. Mr. Fogleman reminded the council that capital investments result in operating costs.

Mr. Bailey’s presentation on transportation capital planning is attached to and incorporated in these minutes as Exhibit D.

Discussion

The council concurred with staff’s new revenue approach and the project selection process.

Discussion

Mr. Fogleman focused the council discussion on the following:

Financial Status and Future

•          Reflections on Information

•          Questions and Discussion

•          Guidance and feedback from Council Members

–           Flexibility of tax rate

–           Flexibility of solid waste/recycling fee among others

–           Flexibility of service levels

–           Expectations of capital program and related funding levels

Mr. Coleman stated it is important to do something with the revenues and expenditures to create margin, because a margin does not currently exist. He stated choices include property taxes, fees, and fund balance. He asked for council feedback on their priorities in approaching the budget.

Mr. Coleman stated Cary has had the same tax rate since council raised taxes to build the Herb Young Community Center (more than 12 years ago). He added that Cary recently had a tax decrease. He asked council’s feeling about the tax rate and whether it is an avenue to use to create leverage for more debt for parks, roads, etc. He stated Cary has spent over $100 million in the last five to six years on parks, and a small portion of it was debt; most was paid with cash. He stated if the council wants to maintain this level of spending on parks, then they must make choices to take other approaches, because Cary is not generating the same level of fund balance as in past years. He asked the council if they are willing to be flexible with the tax rate.

Mr. Roseland suggested an efficiency exercise. He stated the Institute of Government recently did a benchmarking study, which showed that Cary has an efficient police department. He stated this study showed that Cary was not efficient (cost-wise) with the fire, public works/utilities, and inspections and permits departments. He cannot entertain adjustments to the tax rate until council and staff undergo an efficiency exercise to involve everyone in making hard choices. He wants each department to look at 20% efficiency reductions and staffing ratios.

Mr. Joyce wants to prioritize, which will add up to revenue. He reminded the council that some issues from the February 26, 2004 closed session are not included in the figures presented. He is not in favor of a tax increase.

Mayor Pro Tem Smith stated it was unpleasant when the council last raised taxes. He stated that taxes and fees are symptoms, and he feels council’s energy should be focused on curbing appetite – specifically, looking at levels of service, defining programs as “nice to have” vs. “must have.” He does not want to raise taxes, but he is in favor of revisiting initiatives and service levels. He is willing to hear more about fee increases.

Mrs. Robinson appreciates the recalculating of transportation priorities. She wants strict prioritization on road projects so citizens will understand the need for any future tax increases. She feels that if citizens see a need, then they will understand a future tax increase.

Mr. Joyce disagreed with Mrs. Robinson. He stated the community as a whole will equate the building of a park to a tax increase instead of equating road needs to a tax increase.

Mrs. Robinson stated citizens will vote for potential tax increases with any future bonds. She agrees with efficiencies and priorities across the board.

Mr. Roseland stated that people are willing to pay a premium to live in Cary . He stressed that council should keep this in mind in future fiscal years, although due to the economy, this particular fiscal year is different.

Ms. Dorrel stated that Cary has been headed for a tax increase for some time. She stated past decisions have put Cary in its current predicament, including the past decision to cut the tax rate by a penny. She suggested that the council be less ambitious and not accelerate projects as much. She voiced the need for an incremental tax increase so that it will not be so drastic in future years. She stated she does not think citizen standards and expectations have changed. Cary has a demanding constituency, and the Town has always delivered. She is unsure if the citizens are ready for the Town to lower standards, and instead, Cary citizens may be willing to pay more. She is in favor of looking at combinations of things that might result in a minimal tax increase. If at all possible, she would rather this happens when the economy turns around instead of this year.

Mrs. Robinson voiced her preference to an incremental tax increase if necessary.

Mayor Pro Tem Smith stated the challenge is that there is not a mandate. He stated there is an element of the community that is well paid and has high service expectations; there are senior citizens who cannot afford a tax increase; there are conservatives who do not want to spend more. He is not suggesting reducing services to an unsatisfactory level, but he feels there is opportunity to pace ourselves and take a hard look at future investments.

Mr. Coleman clarified that he hears the council say they want to make sure the Town is doing everything as efficiently as possible prior to entertaining a tax increase. Mayor Pro Tem Smith responded that this is partly true. He suggested that staff look at key numbers and keep challenging employees, but he added that he believes staff has been doing this for some time now and he questions how much more can be done in this area.

Mr. Coleman stated he understands that staff needs to make sure the things Cary is doing actually need to be done and that value is gained from doing these things. He stated a question to determine is whether what we are doing moves us towards the intended accomplishments.

Mr. Roseland is not interested in damaging quality of service. He stated an efficiency review will show history and data that might be able to point to how to save costs. He suggested to review the numbers of staff (i.e., do we have too many staff members staffing certain facilities?).

Mr. Joyce stated that government is not designed to make money, but government should break even. He stated Cary ’s revenue declined due to slow growth. He wants to cut across the board and increase revenue to make up the $2 million shortfall in the coming budget.

Mayor McAlister complimented staff on the presentations. He sees two issues: (1) a short-term issue this year is a shortfall of $2 million; (2) a long-term issue is how to get back to where we were with the surplus every year and funding projects without using debt. He stated the question is how to get back to having operating expenses and debt service match the revenue, with enough margin to fund some projects that are needed. He stated the current situation did not occur overnight and cannot be completely fixed with the upcoming budget. He feels there is much value in cutting expenses and ensuring we are getting the maximum out of what we have. He feels there are more palatable ways to deal with the shortfall this year than increasing taxes in these economic times. He summarized that he has not heard a lot of support for a tax increase. He stated council’s challenge is to determine which projects and services need to be included in the FY 2005 budget, and to recognize that if the council must increase taxes in the future to get back on track, it should only be done after cuts and after people have felt the pain (even citizens). This builds a case in the future if a tax increase is needed. He stated there are too many “want to haves” instead of “have to haves” that need to go away.

Ms. Dorrel stated she is unclear of the direction that Mayor McAlister feels the council should go. Mayor McAlister responded that Cary should be able to consume operating expenses and debt service within the revenues, and there should be some margin to fund projects. He stated revenue in excess of expenses that is not used to fund projects should be put in fund balance in order to build it back.

Mr. Roseland stated the existing fund balance is $11 million over the council’s stated policy. Mayor McAlister stated he is not referring to the existing fund balance, but rather where it is headed with current practices.

Ms. Dorrel stated there has been a concerted effort among the council to spend down the fund balance because it was higher than needed. She stated this is a philosophical question. She added that she never perceived that the council’s expectation was to keep drawing down on the fund balance beyond the six month amount.

Mayor McAlister stated that six months is not a static number, as it changes with each the budget. He stated the council has been going in the wrong direction with fund balance.

Mr. Roseland disagreed. He stated Cary ’s fund balance is much larger than other AAA cities, and he does not want to hoard money from Cary citizens.

Mayor McAlister stated the trends shown today show that Cary is not headed in a healthy direction. He stated he is not comparing Cary to other towns or to what the state says we must have in fund balance. He stated he has seen a clear trend that shows we cannot sustain the direction in which we’ve been going.

Mr. Roseland stated he has no interest in drawing down the fund balance below the six-month council policy.

Mrs. Robinson stated the budget should exceed expenditures each year and should continue to add to fund balance.

Mayor McAlister stated another issue is whether to continue to fund capital expenses through debt or by creating margin. He stated the council should re-establish healthy trends.

Mr. Shivar noted the importance of the council re-establishing additional operating margin to pay for capital expenses instead of using all debt. Mayor McAlister stated this would be appropriate. He stated the real question is not whether to debt-fund or margin-fund improvements, but rather what we can sustain over the long-haul. He stated that debt is only too much if it causes us to overrun revenues. He would prefer to get back to a healthy mix of debt and margin-funded improvements, using debt when appropriate, but having margin to put towards the capital expenses as well. He added that Cary ’s budget projection is $2 million in the negative for the coming year. He asked what this number would be if the present trend continues.

Mayor McAlister stated the council can increase revenues without increasing taxes, but it will require growth, which does not happen overnight. He stated how growth impacts the FY 2005 budget is important, but how it impacts 2010 is the big picture.

Mrs. Robison stated she hears clearly that one of Mayor McAlister’s solutions is to bring more people into Cary . She asked if he has other solutions.

Mayor McAlister the solution has three components: (1) increase revenue; (2) moderate growth in expenses; and (3) recognize that we can’t continue to add debt and spend reserve on capital expenses without getting into the same upside position that we’re in this year. He urged the council to challenge all three elements.

Mr. Coleman stated the important issue to remember is balance. He stated there should be a balance among all three in order to have a balanced community. He added that every successful community has balance in its level of growth, levels of taxation and revenue generation and levels of services that are geared to the population who has the ability to pay for them. He stated these decisions are re-evaluated every year, and the budget process allows a continual re-evaluation. He stated that staff’s challenge each budget year is to look at these issues clearly and objectively and present the information clearly and objectively to the council.

Mr. Ulma likened this process to the planning and growth management issue by stating that balance is critical. He stated not everything is regulatory, and coming up with an appropriate mix of tools is important.

Mayor Pro Tem Smith stated there is a problem with the recent growth number of 0.8%. He does not want to use the term “slow growth.” Instead, he wants to strive for a sustainable growth rate.

Mr. Coleman stated the population growth rate identifies the issues too narrowly, because population is just one component of growth. He noted that different communities handle different levels of growth. He stated another community’s growth rate is not relevant to Cary . He stated that setting a population growth rate is too narrow of a focus. He stated Cary needs balance in growth management strategies instead of focusing only on population. He encouraged the council to move away from that and suggested they instead set targets and set different measures.

Mr. Roseland stated the biggest revenue is expensive residential houses. He stated staff should track this.

Mayor McAlister stated the council made a decision in 2001 or earlier to flatten growth, which flattened revenue. He stated the council needs to address this.

Mr. Roseland stated there is a proposed $80 million operating budget with a $2 million concern. He believes that staff can identify the 2.5% efficiency in the operating budget to make up this difference. Mr. Coleman agreed, but he stated this is not the focus of the discussion. He stated staff is trying to show council that the budget environment will be much different this year than in past. He added that much emphasis has been placed on major projects in the recent past. He said that council cannot do this any more in the near future without adding more debt, because there is no margin between revenues and expenditures.

Mrs. Robison stated the council needs a strategy if they plan to implement the bond plans, and the council must be committed to generate revenues to pay off debt service. Mr. Coleman concurred. He stated this must come from a combination: growing tax base, creating efficiencies, being clear on priorities and focusing on things we need to be doing and the pace at which we do them.

Mrs. Robison questioned what programs and services are actually not needed, and she requested that staff provide concrete information to council showing the savings that would result if “unnecessary” programs were eliminated.

Mr. Roseland stated there are many parks, recreation and cultural resources capital needs. He suggested that greenways are capital amenities that serve many Cary citizens without expensive staff operating costs.

Mr. Coleman stated that identifying strategies and issues that need more thought about whether they are “want to haves” instead of “need to haves” will be part of the budget discussion.

Mr. Joyce suggested that staff clearly define pros and cons with the budget process. He wants staff to do a better job with staff reports and include information on how projects/issues financially impact Cary in the short-term and long-term.

Mr. Fogleman’s presentation on economic development is attached to and incorporated in these minutes as Exhibit E.

Discussion

Mr. Coleman stated Cary should have a more focused economic development strategy. He noted that many strides have been made through the Economic Development Commission, and the decision now is how to pursue economic development with the commission and the chamber and to determine what role the Town should play.

Mr. Joyce stated as a result of the February 26, 2004 closed session, he feels that downtown development will be stimulated. He stated that economic development does not only relate to bringing businesses to Cary . He feels that sewer and water will open up much tax base.

Mayor McAlister stated to foster development of the tax base, Cary must first stop inhibiting it – i.e., the action just taken to reduce the impact fees. He stated that eliminating hurdles are as important as providing incentives.

Mrs. Robinson wants the Economic Development Commission to have a stronger role in decision making. For example, she wants them to weigh in on projects.

Mrs. Robinson stated it is hard to find large single family homes on large lots in Cary . She wants to look at factors creating this problem. Mr. Joyce stated this would work well near Jordan Lake .

Mr. Roseland stated there are opportunities for this in the Maynard loop (older houses on ½ acre lots). He suggested to stimulate 3000 square foot houses on ½ acre lots like the original Preston . Mr. Ulma stated that zoning districts specify minimum lot sizes. He stated other factors to consider are the market, cost of land, cost of development requirements, etc.  Mr. Bailey added that some of the larger lots were not served by town utilities and, therefore, had to be larger lots.

Mr. Coleman stated the fewer regulations, the more incentive to develop, and the more flexibility, the more ability to develop. Mr. Ulma stated that balance is difficult.

Mr. Coleman stated that the Economic Development Commission said a while back that there were not enough high-end larger lot homes. He agreed that it seems to be detrimental not to have more of this type of development. He stated this again goes back to balance: job growth, tax base growth, and a wide variety of residential options to choose from for quality of life.

Mr. Roseland referenced a June 2001 Wall St Journal article, which is attached to and incorporated in these minutes as Exhibit F. He stated it is the people who want to live in Cary who drive the economy. He wants to focus on quality of life and developing balance.

Mayor McAlister stated if we eliminate hurdles, then people will come.

Mayor Pro Tem Smith stated another element is nurturing. He stated at the emerging issues forum, the theme was to get away from the big feast or famine and instead put energy in 10 companies with 10 jobs each. He suggested an incubator process with Wake Tech or to build on SCORE. He suggested to get venture capitalists more involved. He stated it is important to figure out ways to make Cary an attractive area to spawn innovation and small companies. He suggested to build off sister cities for business development, and he feels that a lot can be done with Markham . He stated his experience has been that all of Cary ’s sister cities have major arts and craft environments. He stated in Cary , Lazy Daze could be a week-long and not just in the downtown area. He stated this would draw the arts and crafts community, which would feed the economic engine.

Mr. Coleman stated the question is how to do it. He stated that historically Cary has given the chamber $75,000 to do routine economic development activities (recruiting trips, ads in site selection magazines, etc.). He stated the question is how to be more aggressive with economic development and to decide the Town’s involvement and how much money to put into it.

Mayor Pro Tem Smith suggested to set targets and to utilize the Economic Development Commission. He stated the Chamber plays a tactical role, and the Town should nurture this relationship.

Mrs. Robinson stated there are many opportunities through existing Town programs (i.e., Cary Road Race, etc.) to expose Cary to many people. She added that staff should focus on maximizing venues and exposing them. She encouraged staff to look at what draws people to other towns. She feels this will be low cost.

Mayor McAlister concurred, and stated the big cost is building the product, and this has been done. He feels that Cary needs a marketing element.

Mayor McAlister stated he feels incubators are something to look into. He stated it is critical to grow existing businesses, which will cost mostly time and not money.

Mr. Roseland stated the Money Magazine article creates an opportunity for Cary to create positive interest. He noted that he moved to the area due to a similar article in 1992. He stated we need to look at how we can improve relationships with major employers in the region and not just in Cary .

Mrs. Robinson stated Cary ’s Web site is an important tool as a follow-up to the Money Magazine article. She stated it should include a list of employers located in Cary by category, real estate agents, etc. She stated Cary ’s Web site should be a launching pad for this type of information with the goal to encourage people and businesses to relocate to Cary .  

Ms. Dorrel stated the Economic Development Commission has discussed the importance of Cary ’s Web site as a marketing tool. She asked if staff has asked business people to look at our Web site to see if the information is adequate.

Ms. Moran stated as a result of interaction with RBC representatives over the past few months, Cary created a business web section and a video. She stated the web page focuses on what staff and the chamber identified to be the key issues that might interest potential businesses. She stated this site has not yet been launched, but she expects to launch it in the next couple of weeks. She will seek council’s and the Economic Development Commission’s feedback on the site.  

Ms. Moran stated the Town’s approach to communications has been public relations – not marketing. She added that marketing generally involves money. She stated with the new business portion of the Town’s Web site, she has worked with Mr. Fogleman to move more towards economic development. She stated staff is also working with the chamber to help them beef up their information on their Web s