Work Session Minutes of the Town of Cary , North Carolina
SUBJECT: Operating Budget
LOCATION: Building A front conference room, 316 N. Academy Street , Cary
DATE: May 25, 2004

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

Mayor McAlister called the work session to order at 4:38 p.m. He complimented the staff with the way the budget discussions are taking shape. He stated staff understands that this is the year to make cuts.

The draft budget is attached to and incorporated in these minutes as Exhibit A.

Mr. Coleman, Town Manager, stated the proposed FY 2005 operating budget totals $82,685,744, which is a 4% increase over last year; the FY 2005 utility fund budget totals $31,380,238, which is an 8.8% increase over last year. He stated staff recommends that the tax rate remain at $0.42 per $100 valuation; recommends no rate increase for the solid waste fee (and he noted that staff is looking at future changes to reduce costs and increase efficiencies and will report back to council in the near future); and recommends 23.25 new positions for a total head count of 1,046 employees. Staff does not recommend school funding. Staff recommends funding private, non-profits to match the current year funding. He noted the affordable housing funding is limited to money the Town will receive from the community development block grant. Staff recommends reconfiguring the elementary school resource officer program by moving two officers to the new 9^th grade centers proposed by the school system and moving one officer to patrol and one officer to investigation. He added that this change reflects a better utilization of police resources based on the department’s needs and priorities.

Mr. Coleman stated the staff recommends an 18.8% increase in water and sewer rates for the coming year, primarily due to lower water consumption.

Mr. Roseland questioned when the positions related to USA Baseball come on line. Mr. Fogleman, budget director, responded that these positions would be needed very late in the next fiscal year. Mr. Bajorek, director of public works, stated the turf will be in place and staff will maintain the fields so they are ready for the fall. Mr. Coleman added that staff is looking at many ways to operate this facility, including the possibility of contracting out the maintenance if staff feels it will be better for the facility and more efficient for the Town.

Mr. Joyce stated the Town is staffed at about nine employees for every for 1000. He applauded Mr. Coleman for keeping this tight. Mr. Coleman stated Cary ’s philosophy is that the most expensive solution to a problem is to add people.

Mr. Coleman stated Cary still faces low revenue growth in the coming year; he stated the current estimate is a 1.2% increase in revenue growth, and this is the second year this growth has been at this level. He added that this may be turning around based on additional construction activity, but it may be another two years before we see a major impact on revenue generation.

Mr. Fogleman explained a particular fund balance issue. He stated the Town loaned the N.C. Department of Transportation (DOT) money for the Highway 55 widening, and DOT will repay that money to the Town. He stated the Town chose not to give the DOT cash from the general fund, because it would have reduced the Town’s flexibility. He stated the staff was in the process of obtaining a certificate of participation on the campus expansion, and staff chose to piggyback on that loan for the Highway 55 widening. He stated the Town must service the debt until DOT pays back the loan in 2007. He stated staff proposes this year to fund this $1.3 million from fund balance, knowing we will be paid back in 2007 at which time an equal amount of cash will be put back into the fund balance. He added that it is not a good idea to fund 20 years of commitment out of fund balance, but this case is only a three year deal to ease cash flow in the next two budget years. He stated a total of $3.6 million will be put back in the general fund by 2007.

Mr. Roseland stated there was discussion at the retreat about a $2 million shortfall, and he asked how this shortfall was absorbed in the budget. Mr. Coleman stated part was from an appropriation from fund balance to cover the debt for the Highway 55 widening; he stated part was also from appropriating the estimated reversion from the FY 2004 budget of about $2 million. Mr. Fogleman added that many departments held the line on requests based on early information.

Mr. Roseland urged Ms. Moran, the Town’s public information officer, to get the message to the media that Cary needs to watch expenditures, but he worries about “shock” numbers that will resolve themselves and the same for next year. He specifically referenced a WRAL news report that indicated Cary residents may see a $0.14 tax impact in the next few years. Mr. Coleman stated this was the reporter’s conclusion, and staff has never said or even intimated that this will happen.

Ms. Dorrel is glad to see the projected $2 million deficit covered, but she is concerned with covering $1.3 million out of fund balance. She stated the fund balance can absorb it this year, but she questioned it for future years. She added that getting money back later does not help the short-term crunch. She suggested reviewing the possibility of restoring the 2001 tax rate, and she feels that the one cent reduction was a mistake. Mr. Joyce disagreed.

Mrs. Robinson stated by FY 2006, it is sobering to see some of the decisions the council will have to make in order to maintain the fund balance at the current level approved by council (50% of expenditures for six months). Mr. Coleman responded that fund balance is important for cash flow, emergencies, cash position support bond rating, etc., but he doubts the staff would ever recommend a tax increase to maintain this level of fund balance. He stated it is important to balance this issue with all other issues. Mrs. Robinson stated a lower fund balance would reduce the Town’s flexibility. Mr. Coleman concurred.

Mayor Pro Tem Smith asked if the DOT could possibly withhold the Highway 55 loan payback. Mrs. Mills, finance director, stated the Town has a contractual agreement. Mr. Roseland stated funds would come from the state highway fund.

Mayor Pro Tem Smith stated the council must weigh the many needs of the community and make tough decisions and determine if the needs warrant a tax increase. He stated that Cary is doing a lot to promote revenue activity (adjusted fees, etc.). He suggested that the council make tough decisions this year and next year to manage spending with the hope that we’ll reach a point where revenues and expenditures converge and we can maintain the status quo. He would rather cut or postpone/delay to send a message that we are not going to raise taxes unless there is no other option.

Ms. Dorrel concurred with Mayor Pro Tem Smith. She added that the council may at some point want to revisit the six month fund balance policy, which is somewhat arbitrary.  

Mayor McAlister stated he is comfortable with using fund balance for the Highway 55 situation.

Mr. Joyce stated it is important to recognize needs vs. wants. He suggested a one-year moratorium on parks, recreation and cultural resources capital spending (refer to the May 12, 2004 work session minutes for more discussion). He stated this could be re-evaluated next year.

Mr. Coleman stated staff has thoroughly reviewed all program areas to identify the areas where reductions are possible or decisions can be postponed. In addition, he stated it is important to maintain the current level of service and quality of service. He stated that the low revenue growth caused staff to limit what was part of the operating budget for this year.

Mr. Coleman stated staff did a cursory sensitivity analysis on revenue generated from parks, recreation and cultural resources fees. Mr. Fogleman distributed a handout, which is attached to and incorporated in these minutes as Exhibit B. He stated even if all the fees are doubled and the same numbers of people continue to participate, it would generate $1.5 million, or $1.33 cents on the tax rate. He stated the next stage is to perform a more in-depth analysis and look at sensitivities, including how the fees compare to surrounding Towns.

Mayor McAlister stated if Cary ’s programs are full, then this is an indicator that there is a lot of room to increase fees. Mrs. Henderson, director of parks, recreation and cultural resources, said staff will review this as well as the cost of providing services.

Mr. Joyce suggested to do something drastic with non-resident parks, recreation and cultural resources fees.

Staff will move forward with the sensitivity analysis, and hopes that recommended changes can be implemented with the new calendar year.

Mr. Coleman stated the 18.8% proposed increase for utility fees is due to lower consumption and major increases for facilities, particularly additional sewer capacity in northern Cary . He stated with this rate increase, the staff is trying to equalize rates among the tiers based on consumption and cost requirements in each tier. He noted in past years staff has adjusted rates to achieve other goals. He noted that the rate model recommends tying cost to consumption. Mrs. Mills added that at the October 8, 2003 utility fund work session, the council directed the staff to move back towards this philosophy.

Mr. Coleman stated staff has reduced utility related costs where possible and is not increasing utility related costs unless it is mandatory (i.e., biosolids dryer). Mr. Joyce stated if the Town sells more water, then we do not have to raise fees. Mrs. Mills concurred; she added that utility costs are fixed in the utility fund. Mr. Joyce asked if restructuring the tier system to entice more water usage is a possible solution. Mr. Coleman replied that it would be difficult to predict what effect simplifying the tier system would have, because staff does not yet know if past actions are a result of rates or conservation efforts, and staff will not have a clear idea of this until the next budget year. Mrs. Mills added that weather is a critical factor. She noted that other utility providers in the area are also experiencing lower sales. She stated the cost must cover the expenses.

Mrs. Robison left the meeting at 5:23 p.m. (her return time is noted in the minutes).

Mr. Roseland stated Cary has over-achieved its conservation targets. He asked about allowing Monday watering for certain hours. Mr. Fisher, director of public works and utilities, recommended against this, because it would consume capacity which would lead to future plant expansions being necessary sooner than anticipated.

Mr. Roseland questioned the $318,000 budgeted for conservation in FY 2005, because Cary has exceeded the conservation policy objective. Mr. Coleman reiterated that staff does not yet know the cause of the reduction – whether it’s the conservation program, the weather, etc. He stated the proposed budget will continue funding the education program, but staff has eliminated the enforcement part of the program. Mrs. Mills added that eliminating the $318,000 would decrease the utility rates approximately 1%.

Ms. Dorrel asked what it would take to not have a utility rate increase. Mrs. Mills stated an 18% increase generates almost $2 million in cash. She added that consumption forecasts were 10% too high, so they must be adjusted.

Mr. Coleman stated $1.5 million goes from the utility fund to the general fund to cover operational costs (i.e. finance, human resources, engineering, etc.). He stated that maintenance has been combined to increase efficiency, and the cost of public works staff is in a separate fund that is charged back to the utility system. He stated the utility system needs to pay for these types of expenses.

Mayor Pro Tem Smith stated we can’t fix the rate model this year, and he would rather see user fees as proposed because there is a direct correlation (which is fixed cost) to users.

Mr. Coleman stated there is some discretion in the money we spend for conservation efforts. Factors include the drought we recently had, the capacity issue, and the interbasin transfer requirements that require Cary to develop and maintain a conservation program. He stated there are no specific instructions attached to this interbasin transfer requirement, however. He stated staff will gauge what kinds of changes can be made and the resulting cost reductions and the impact on the rates. 

Ms. Dorrel feels that conservation education is important to continue because of constant changes in the population.

Mr. Roseland is opposed to a zero increase in rates for apartments, while increasing single-family rates by 18%. He wants more information about the impact on:

            Single family small, medium and large houses
            Small, medium and large businesses
            Small apartment complexes

Mrs. Mills replied that multi-family irrigation is only 4% of the total metered irrigation.

The council noted that in past budget years they have increased business utility rates to the point that they now subsidize irrigation of singe family homes. Mr. Roseland responded that the council just reduced impact fees by 30%. He has not heard from the business sector that there is a utility rate problem to fix. Mayor Pro Tem Smith and Mrs. Robinson noted the importance of Cary providing a business-friendly environment.  

Mrs. Robison returned to the meeting at 5:49 p.m.

Mr. Roseland left the meeting at 5:49 p.m. , and he did not return.

Mr. Coleman stated staff will review the utility issues raised and will provide the council with suggestions for changes and impacts on the proposed rates, and the council can determine at that time if they want to make changes to this portion of the budget.

Mayor McAlister left the meeting at 5:51 p.m. (his return time is noted below).

Ms. Dorrel asked staff to provide historical data since the beginning of the rate system regarding rate increases and decreases at each tier. Mr. Coleman stated staff will put together information on utility expenses, the tier system, how rates have been adjusted among the different tiers, information on what percentage each tier makes up of total, etc., and will get this information to the council.

Mayor McAlister returned to the meeting at 5:54 p.m.

The council agreed to digest the information that Mr. Coleman will provide and then determine if an additional work session is needed to discuss if staff should change their recommendation.  

Mr. Coleman stated the changes that the council directed him to make at the capital budget work session will be on a separate list for council to adopt when they adopt the budget (see the May 12, 2004 minutes for more detail).

Mayor Pro Tem Smith stated the Town could save $6 million if we suspend park efforts for one year. Mr. Coleman stated there are some elements of the parks capital budget that need to go forward, and part of this $6 million is money for open space. He stated staff elected to forego additional debt in the street capital budget to catch up on other projects and due to the impact on future budgets. He said staff can consider a similar scenario for parks, and the debt portion could be funded instead of the entire current proposal.

Mr. Joyce stated he is interested in prioritizing spending to help future budget years.

Mayor McAlister asked about the timing on debt service and when savings would be realized. Mr. Fogleman said the Town would sell the debt around the end of FY 2005, and the debt service would hit in FY 2006 or FY 2007. He added that delaying some projects would put the Town in a better position for the FY 2006 budget.  

Mrs. Henderson stated the White Oak greenway project is part of the White Oak conservation, and the greenway is programmed to be built with the installation of the sewer line. She stated it will be much more cost effective to do the greenway and sewer line at the same time. Mayor McAlister stated that this is a compelling reason to move forward with the White Oak greenway. He suggested to focus on the Bartley park. He asked if there are any downfalls in delaying this project for one year. Mrs. Henderson stated the one downfall is that there would not be a park to serve this area, but she stated she can support the one-year delay of this project.

Mr. Coleman stated staff can also look for other ways to fund the White Oak project to possibly avoid using debt. He stated one possibility is reprogramming money for the public works/utilities parking deck to this project. He feels it is important for the White Oak project to continue on schedule.  

Mrs. Henderson stated there are no joint use facilities at Bartley Park . She stated they have almost completed the master plan and had planned to bring the plan to council in the next two months.

Mayor McAlister stated that delaying the Bartley park project would bring the parks, recreation and cultural resources budget below the transportation capital budget, which sends a message that transportation is a high priority without increasing spending in that area.

Ms. Dorrel stated that this project will probably cost more if it is delayed, but it will provide relief in the short-term and will allow Cary to collect the loan money from the state in FY 2007.  

Mrs. Robison is not convinced that this park is a deal breaker when looking at challenges for coming years. The reasons stated are not compelling enough for her to support removing it from the capital budget. She stated costs do not come on line for a few years out.

ACTION: Mayor Pro Tem Smith made a motion to postpone Bartley Park for one year. Mr. Joyce provided the second. Mrs. Robison voted “no,” and Mayor McAlister, Mayor Pro Tem Smith, Council Members Dorrel, Joyce, Robinson and Roseland voted “aye.” The motion carried by majority vote. (Mr. Roseland was absent for this vote, but he was not officially excused from the meeting; therefore, he is counted as an “aye” vote.)

Mrs. Robinson does not think now is the time to add another $5 million for an aquatic center. She stated that $5 million is already budgeted to use for land acquisition and design that would lead to the next fiscal year. She stated this should not be construed as a signal that Cary is backing off the aquatic center, but rather that we have a tight budget and need to add this money in future years.

Mayor McAlister stated he had a similar conversation with the county commissioners. He assured them that if they provide the requested funding, then Cary will continue with the funding plan. He is confident that the commissioners do not interpret this as a lack of commitment to the project, but instead that Cary stands behind the existing $5 million and encourages others to invest.

The council discussed the issue of the Maynard Road Crossing shopping center road extension. (Refer to the February 12, 2004 council meeting minutes, specifically rezoning 03-REZ-15, for a more detailed discussion that occurred during the rezoning process.) Mr. Bailey stated the Town would incur all costs except $15,000 of reimbursement. He stated $700,000 is needed from fund balance to keep the project moving forward.

Mrs. Robison stated that her request at the February 12, 2004 meeting was that the connection be added to the road prioritization list, but she did not expect to see the money request in the FY 2005 budget. She is surprised at the high estimate, because the developer’s estimate was much lower. Mr. Bailey responded that the developer’s estimate was a construction cost estimate. He stated the biggest issue is crossing the commercial property and severing almost a ¾ acre of commercial property. He stated that the Town would need to purchase the right-of-way and residual property that would no longer have value. He stated the current estimate is more complete than the developer’s estimate. He does not think there is any interest on behalf of the adjacent property owner to dedicate right-of-way. Mr. Bailey noted if the Town does not proceed with this road connection, then future developments would be required to do this at no cost to the Town. He stated there is no way to gauge when this future development may occur, and no plans have been submitted.

Mrs. Robison stated the issue is a mute point if the council does not provide funding in the FY 2005 budget, because the developer is doing the work this year.  

Mr. Joyce asked if we can delay connectivity somewhere else to provide money for this project. Mr. Bailey stated there are no active projects that can be postponed.

Mrs. Robinson stated if the Town does not proceed at this time with this project, then the developer would be required to build a stub, and when Maynard Crossing is built, the connectivity ordinance would require the developer to build the link which would complete the connection.

Mrs. Robison stated this is a large amount of money for a convenience connection, and she appreciates if council does not want to fund this $700,000 in FY 2005. She noted that homeowners filed a valid protest petition on the rezoning, and connectivity was an important part of the protest petition.  

All council members concurred not to fund this in FY 2005 from fund balance ($700,000).  

ACTION: Mayor Pro Tem Smith made the following motion to call for closed session, which was seconded by Mrs. Robison and unanimously approved by council:

Pursuant to G.S. 143-318.11(a)(6), closed session was called to consider the competence and performance of certain Town employees.

(Mr. Roseland was absent during this vote; however, he was not officially excused from the meeting; therefore, the record shows that he voted affirmatively.)  

No business was conducted following closed session. Mayor McAlister adjourned the meeting at 7:22 p.m.