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Work
Session Minutes of the Town of 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 The purpose of the work session is to promote
discussion among Council members regarding priority setting as it relates
to requested Capital Improvement Budget/Program (CIB/P) projects and
initial programming for Fiscal Year 2006, to provide guidance to staff
regarding Council’s desires in terms of fund balance, debt capacity and
specific FY 2006 projects, and to pursue and promote discussion among
Council members regarding the long-term capital funding philosophy for
transportation and parks projects (funding versus project driven). Staff
is requesting that Council make decisions on methodology and philosophy. Assistant Town Manager Ben Shivar said that
staff developed information to bring council into the budget process
earlier in response to previous council concerns and requests for more
involvement with the development of the CIB/P. Mr. Shivar said that staff
is looking for feedback from Council on staff’s approach to the budget. I.
PRIORITY SETTING Budget Director Scott Fogleman said that
Council identifying the highest priority of projects for long term
purposes helps staff to set targets for those projects. (Staff’s
PowerPoint presentation is attached to and incorporated in these minutes
as Exhibit A). Mr. Fogleman said that a couple of years ago
staff adopted an approach to identify project requests as either funded
(meeting set funding targets) or unfunded to help with setting priority
levels. Those categories are taken into consideration when developing the
CIB/P. Ms. Dorrel asked for clarification on the
definitions of funded and unfunded. Mr. Fogelman responded that staff
started the capital improvement process with five different funding target
levels. He said it was ultimately decided that based on committed to
projects and timing and current needs one version of an early target in
terms of funding needed to be changed. He said with the internal funding
philosophy for prioritization they changed the funding target; however,
the idea of funded versus unfunded remains the same in concept. Mrs. Robinson asked if funded is identifying
requests for funding. Mr. Fogleman responded yes. He stated that rather
than having different categories for request for funding, manager
recommended for funding, and council approved for funding, staff chose to
use the term funded throughout the process. He said that the ultimate
definition is different for council awarded funding and project manager
requests for funding. Ms. Dorrel asked about adequate funding for
funded projects. Mr. Fogleman responded that it depends on council
approval of appropriations in a given year and is based on commitment and
priorities for certain projects. He said that just because the term funded
is used doesn’t mean that a project is funded. Mr. Shivar added that it
is key to what is submitted by department directors and to the level of
availability of funding. Mr. Fogleman stated that staff has used the
terms funded and unfunded internally for the past two years and
understands what it means at certain points in the process. However, he
understands the confusion created by those terms and staff will look into
using alternative terminology. Mr. Fogleman said that using a target type of
approach allows staff to look at revenue growth for the coming year and
determine high priority projects. Mr. Shivar added that it is also a good
way of indicating priority limitations for projects. II.
FY 2006 FINANCIAL PICTURE - GENERAL AND UTILITY CAPITAL RESERVE
FUNDS Mr. Fogleman stated that the general capital
projects are transportation, fire, general government, and parks,
recreation and cultural resources. Mr. Joyce asked if the numbers presented in
the fund balance chart exceed the six months fund balance goal set by
Council. Mr. Fogleman responded yes, stating that the general fund is for
operating expenditures. He said that debt service for projects is
typically appropriated through the CIB. Mrs. Robison asked about the increase in the
Powell Bill fund balance from FY05 to FY06. Mr. Fogleman replied that
there weren’t as many Powell Bill qualifying projects on the list for
FY06 as there were for FY05. He said that it is heavily restricted to
certain types of transportation projects, as the population grows, the
revenue grows as well. Mr. Joyce asked about spending for Powel Bill
money. Mr. Fogleman said that Powel Bill money is used for qualifying
projects in the upcoming CIB. He said if a midyear request is received for
which Powell funds are eligible then staff would recommend using Powell
Bill money as that funding source. Ms. Dorrel asked about the reduction of Powell
Bill funds in 2004. Mr. Fogleman replied that 2004 was the year that the
governor borrowed funds for other higher priority needs. Mrs. Robison asked about fee categories for
general fund debt service. Mr. Fogleman said the fees present the cost of
financing. He said it includes the various fees charged by the banks,
lending institutions, attorneys’ fees, etc. The fees do not necessarily
correlate to any given project category. Mayor McAlister asked about the escalating
debt service, adding new increments of debt to finance projects, and
removing debt from completed projects completed. He also asked about
runoff if no new debt were added. Mr. Fogleman responded that there is a
net figure which includes old debt as well as the new debt service. He
said that if no new debt is appropriated for FY06 in the budget process,
the debt would increase for FY06 and FY07 and then starting decreasing in
FY08. He said dependent upon various loan amounts and payments it would be
somewhere between $300,000 to $500,000 per year as it amortizes. Mrs. Robison asked if the new wastewater
facility debt was included. Mr. Fogleman responded no, stating wastewater
debt is a separate analysis under utility debt. Mr. Joyce asked about borrowing money to pay
for land. Mr. Fogleman said it is appropriated with debt. Mrs. Robison asked about the percentage of
water or sewer debt attributable to newly annexed areas. Mr. Fogelman said
little or none has been used for those projects because about $13.5 million
was appropriated in the utility operating fund fund balance. Mr. Joyce
then asked if money is in place for someone who petitions the town for
water and sewer. Mr. Fogleman responded that a series of capital projects
are set up when bringing in new areas. Mrs. Robison asked about the increase in
revenue for FY04 for water and sewer development fees. Mr. Fogleman
responded that it would be the clear driver of the revenue going up. He
stated that in March of 2004 fees were decreased by 30%; it would also
depend on whether the economy bouncing back. He said that the number of
permits did increase in FY04. He said that a certain base of income for
number of permits issued has been volatile over the years and that a
slight increase in permits could be the reason for the increase for both
water and sewer. Ms. Dorrel stated that she noticed that there
wasn’t a similar peak in Transportation Development Fees (TDFs), and
asked if that had to do with timing. Engineering Director Tim Bailey
responded that revenues for TDFs cannot be predicted. He said that credits
exist for TDFs. Mr. Fogleman added that significant credits are
outstanding in the system. He said that built up credits will most likely
be used to offset payments, so the possibility of a significant reduction
is likely. III.
OVERVIEW OF INITIAL FY 2006 CIB PROGRAMMING Mrs. Robison asked about the $500,000
requested for sidewalk projects for FY06. Mr. Fogleman stated that
sidewalks are handled through the project priority listing. He said that
that the funds are allocated for sidewalks and then a determination is
made as to funding recommendations for specific projects within the
target. Mr. Joyce asked what happens to unrestricted
funds and their location in the general fund balance. Mr. Fogleman said
that capital projects are set up for funding once council adopts the
budget and the money is set aside for that purpose. Mr. Roseland asked about debt road capacity.
Mr. Shivar said that the Town has substantial debt capacity. Mr. Fogleman
added that the Town would need about $15.3 million in transportation bond
authority and $4.3 million in parks and recreation bond authority. He
said it would most likely mean about $2 million in incremental debt
service by 2008. Mrs. Robison stated that council needs to
determine which transportation projects to go forward with or to delay.
Mr. Joyce added that council may need to adjust their priorities. Mr. Smith asked how priorities are
established. Mr. Fogelman said they are executed in the thoroughfare
master plan identifying needs with the Town. Mr. Bailey added that council
has already executed agreements on medium projects. He said that high
priorities are those projects for which council has authorized staff to
proceed and funding exists to complete the project. Mayor McAlister said council has to decide how
to fund the gap, which may mean eliminating projects set forth by staff.
He suggested that council review the options and determine how to proceed.
He said that stopping existing projects and reappropriating funding is the
least appealing option because staff was authorized earlier in the process
to move forward with those projects. Mr. Roseland said it would help to know how
much general fund fund balance is left over and above the 50 percent
policy goal. Mr. Shivar stated that the amount left is basically $11
million over the 50 percent goal. Ms. Dorrel asked about the $7.8 million
general government request. Mr. Fogleman responded that there is no
restrictive type of revenue source for the general government project
category. He said it is for either a cash or debt funding mechanism and
staff suggested using restricted type revenues for projects for which
those restricted revenues qualify; however, no restricted revenue could be
identified for the general government projects. Mr. Fogleman said that staff would be able to
provide council with information on specific projects within the
developmental pipeline and any consequences for specific projects with the
decision implications. Mr. Roseland said that for any projects which
have been dormant for 10 years, closed out, or addressed through other
means, then the money needs to go into the general fund fund balance and
not linger for years to come unless there is a very compelling reason to
do so. Mr. Shivar responded that each Mr. Shivar said staff will work to provide
explanations on any projects for which council would like further
information. Mayor McAlister said that debt will need to be
added to complete some of the projects done. He said that council needs to
determine which projects to delay and which to fund with debt. Mrs. Robinson said that council should give
staff direction on how much they are comfortable with in transferring
funds from the general fund balance and how much debt they are willing to
take on, and then prioritize the list from there allowing staff to provide
recommendations based on council guidance. Mayor McAlister asked about issuing debt on
bond issues and using a guideline to estimate debt capacity. Mr. Fogleman
said that that has been done where adjustments have been identified thus
far. He said by subtracting $8.2 million from the $11 million over the 50
percent policy goal then there will be approximately $3 million left at
the end of FY06. Mrs. Robison asked about the general fund
balance offsetting transportation and parks, recreation and cultural
resources. Mr. Fogleman said looking over and above the 50 percent goal of
the fund balance, which is equal to 6 months worth of operating
expenditures and debt service within the general fund, it depends on
whether council decides to adjust the policy to mitigate debt needs into
the future. Mr. Roseland questioned whether the Town needs
to have the amount of fund balance we currently have. Mr. Shivar said
staff can look into reducing the fund balance. Mr. Roseland asked about the margin created if
using a 35 percent goal and suggested comparing it with larger cities. Mr.
Smith asked about the risk to the AAA bond rating if reducing the goal to
35 percent. Mayor McAlister asked whether additional debt within the
acceptable limits would affect the bond rating more than a decrease in the
fund balance. Ms. Mills said responded that several things are taken into
consideration for the bond rating. She said that every bond rating is
based on individual cities and the pros and cons of the financial position
of that city. She said that the Town’s fund balance has provided
significant value in the rating compared to the size of the government;
the agencies looked at the willingness of the council to set priorities
and bring in revenues. Mayor McAlister asked about the rating agency
analyses. Ms. Mills stated that the agencies expect council to use their
authority to make decisions and bring revenues to the priorities going
forward. She said it depends in part on how critical the projects are to
maintaining quality of life in your city; they are looking at management,
council willingness to make tough decisions when needed, and the economy.
Ms. Mills said that in comparing Mrs. Robison said that the fund balance policy
goal needs to be reviewed to determine how much is needed to keep a
healthy strong balance and to also find out what is available to offset
potential debt accumulation. Mayor McAlister said that the capital budget
cannot be evaluated without looking at other factors. He said that Council
needs to have some idea of what would happen if everything were funded
with debt and what affect it would have on the Town’s income statement
in two years. He said that the incremental level of debt that might be
added to fund projects will not equate to what already exists. Ms. Dorrel said that when the Town’s fund
balance was higher the town received significant revenues from the
interest and council needs to understand the impact of lowering the fund
balance. Ms. Mills added that lowering the fund balance target is a
one-time solution. Mr. Joyce asked about the $66 million in debt
sold in July. Mr. Fogleman responded that $22 million is utility
related and the remaining is debt that is associated with previously
funded projects for which the Town is ready to issue the debt to proceed.
He said some of the projects for FY06 represent the first year of funding
and some represent the last year of funding. Mrs. Robison said that council also needs to
understand the impact debt service would have on taxes. Mayor McAlister
said in order for that analysis to be valid a flat tax rate would have to
be considered. Mr. Fogleman said that staff needs to identify the
incremental cost. He said that cost recovery could be done with either
revenue production or cost reduction. Mayor McAlister said that he does
not want a tax increase to become the default. IV.
WRAP-UP Mr. Roseland asked staff to provide more
details on the radios requested in the budget. Mrs. Robinson requested information on what
would happen if council went with a fraction of the debt. She would also
like to receive any other materials that would be helpful as they go
through this list to make recommendations for project cuts. Ms. Dorrel requested information on what
investments have already been made on particular projects. Mr. Joyce requested the line item budget for
the Parks, Recreation and Cultural Resources Department; he is
specifically interested in information regarding cultural resources. Mr. Roseland said with respect to cultural
resources, he would like staff to think about significant downtown
improvements to help with economic development and to consider some
reserve contribution for downtown. Mrs. Robison asked about transportation
requests for the CIP with respect to the south Mrs. Robinson questioned the widening of
Maynard Road/Kildaire Farm at this time, especially in light of the fact
that there are other roads, such as Ten Ten, that are overburdened. She
said she would like the project reviewed again because she doesn’t think
that the widening will be an enhancement to the community. Mr. Smith said that staff needs to reassess
proposed road widenings and requested information on which projects could
be delayed. Mayor McAlister stated that Council would like
to receive the requested information at least five days prior to the May
19th work session. He thanked the staff for their presentation
and commended them on a job well done. The work session ended at |