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(Contact the town clerk at 919-469-4011 for official minutes)

Work Session Minutes of the Town of Cary, NC

FY 2009 Budget

May 20, 2008

5 p.m.

Conference Room 10035, 316 N. Academy St., Cary, NC

Present:  Mayor Harold Weinbrecht, Mayor Pro Tem Julie Robison, Council Members Gale Adcock, Don Frantz, Jennifer Robinson and Jack Smith; Council Member Portman arrived late, and his arrival time is noted in the minutes

The meeting started at 5:09 p.m.

Work session handouts are attached to and incorporated herein as Exhibit A. Also, refer to Exhibit A attached to and incorporated in the May 13, 2008 work session minutes for materials distributed at that meeting. Reference to this attachment herein is stated as “May 8, 2008 Exhibit A”.

Town Manager Coleman stated the council had extensive discussion at the last budget work session about revaluation and the proposed $0.33 revenue neutral tax rate. He stated staff has reviewed the collection rate of 99.2% vs. the 98% on which the recommended tax rate was based. He stated using a 98% collection rate, the required tax rate would be $0.3199; using a 99.2% collection rate, the required tax rate would be $0.3238. He stated staff reviewed historical tax rate collection data (see Exhibit A), and tax collection rates dip when the economy is in a recession, which is a factor in using the 98% figure. He does not think the collection rate will be as high in FY 2009 as it has been in the past.  

ACTION: Mrs. Robison moved to accept the staff recommendation of the revenue neutral tax rate of $0.33 as a starting point in the FY 2009 budget. Mrs. Robinson provided the second, and council granted unanimous approval. (Mr. Portman was absent for this vote.)

Mr. Frantz asked the appropriate time to review the tax rate to ensure we do not have a spike in future years based on debt service. Mr. Coleman stated this will be reviewed in more detail with the capital budget discussions.

Mr. Coleman stated at the May 13, 2008 work session some council members asked for additional information comparing the FY 2008 budget to the FY 2009 budget. These materials are contained in Exhibit A incorporated herein. Mr. Coleman stated the change from the FY 2009 budget compared to the FY 2008 budget is around $9 million; about half is for personnel related expenses, and the other half is for operating expenses. He stated the Town’s pay plan is a pay for performance plan, and the Town does not give cost of living or any “entitlement” increases. He stated the pay for performance plan allows individuals to get between 0 to 10%, and the average last year was 4.88%. He stated the one major program change for FY 2009 is the solid waste program changes that will be implemented in the spring; however, he stated several of these budget changes will be reflected in the FY 2008 budget because it was a mid-year appropriation. Mr. Fogleman stated some of the appropriations made mid-year in FY 2008 will result in about a $500,000 reduction in the FY 2009 budget. He stated this will be shown on the list of changes to the proposed budget.

Mr. Coleman stated with the current and projected levels of capital spending will require a tax increase beginning in FY 2010 (assuming revenues and expenditures remain fairly constant). He stated tax increase projections vary from 1.42 cents to 2.45 cents on an annual basis. Mr. Coleman directed council’s attend to Page 48 of May 8, 2008 Exhibit A for more detail, and Mr. Fogleman explained the five scenario shown on this page.

Mr. Portman arrived at 5:35 p.m.

Mr. Fogleman stated the ultimate policy direction is whether to (1) hold the line at 15% debt service and use cash and the available debt when possible to the highest priority projects, or (2) move forward with a conscious plan to say that council has identified these priorities through master plans and community expectations, and we are committed to tax increases if necessary to fund these projects. 

Mr. Frantz stated it seems the only way the council can hold the line at 15% debt service is to not add any capital expenditures in FY 2009 and FY 2010. Mr. Fogleman clarified that the council would not be able to add any new capital expenditures funded with debt. He stated there is about $8 million in any given year that is recurring revenue in the general capital area (transportation development fees, vehicle license fees, interest earnings, etc.).

Mrs. Robison stated the 15% will be different as the operating budget grows. She stated some policy decisions may be to (1) hold the annual debt service at 15% of operating expenses; or (2) not issue debt without increasing the tax rate. She stated the voters over the years have approved bond issues, but the council has not raised taxes. She stated Page 48 of May 8, 2008 Exhibit A shows that the Town cannot continue to absorb these expenses without a tax increase. She thinks the council should consider a policy that would generate the pennies of revenue needed on the tax rate to fund the bonds that voters approve.

Mr. Frantz stated council has directed staff to stay at or below 15% debt service, but he does not think it is possible based on information presented. Mr. Portman suggested instead basing it on assessed value.

Finance Director Karen Mills stated at the previous financial work session the council also talked about fund balance, and council did not want to go below four months. She added that a change was made from total fund balance to unreserved fund balance. She stated council also discussed the debt ratios, and one was the 15% and the other was ratio and debt total assessed value. She stated other topics discussed at that meeting related to the utility fund.

Mr. Portman asked if the entire streetscape program is in the capital improvement plan. Mr. Coleman concurred. Mr. Portman stated the streetscape plan seems to be part of a bigger plan (i.e., performing arts center). Mr. Fogleman stated the performing arts center is on the “not included list” for reference purposes. He stated to fund the “included” plus the “not included” would cause the debt service percentage to grow to 32.7% at its peak in 2014. 

Mr. Coleman stated this information provides a context in which to move into the capital budget discussions.

The council discussed the aquatics facility and the performing arts facility with the potential of using cash on hand (originally for aquatics) for the performing arts center and using debt in the future for aquatics when ready to move forward. The council agreed with moving through the capital budget discussions prior to making a decision about these issues.

Mr. Smith stated in some cities much public support for projects is gained through private fundraising. Mrs. Robinson stated there is an organization interested in doing fundraising for the performing arts center, but they can’t do this until the council commits to do the project. Mr. Portman would like to begin a dialog about what this project will take from other proposed projects and what impact it will have on the tax rate.

Mrs. Robison asked the amount of tax increases the voters agreed to with recent bond referenda. Mr. Coleman stated voters have said yes to a fourteen cent tax increase for the last three bond referenda, and council has not raised taxes for these projects. He stated this has been possible partly due to growth. Mrs. Robinson stated the council has also made sacrifices with the budget.

The council moved into the utility rate smoothing prior to talking about capital projects.

Mr. Coleman stated the rate model considers operating expenses, capital improvements with regard to debt, and certain assumptions concerning consumption to help calculate the projected rate needed to meet budgetary requirements. He referred to Page 13 of May 8, 2008 Exhibit A for an illustrative diagram that shows over the next 10 years there will need to be a series of rate increases with a spike of about 18.6% in 2013. Staff suggests a series of smaller rate increases to avoid the spike. He outlined the pros and cons.

The council discussed the rate structure. Mr. Coleman stated the council can direct a review of the rate structure at any time, and staff revisits it every budget year.

By consensus, the council concurred with staff’s recommendation for smaller rate increases to avoid the spike. The utility rate will increase by 5.5% instead of the 1.2% as originally proposed.

The council moved into the utility capital budget discussion. Mr. Coleman stated the total for the utility capital budget for FY 2009 is $48.8 million. (Refer to Pages 28 through 38 of the May 8, 2008 Exhibit A.) Some council members requested information on how the FY 2009 utility capital budget historically compares to the past five to six budget years and the return on investment. Mr. Coleman stated staff can review this for the items that are maintenance related or those that are to increase operational efficiency and reliability of the system.

Mr. Coleman moved into the general government capital budget (begins on Page 35 of May 8, 2008 Exhibit A). He stated the big issues are parks and recreation and transportation. He stated the FY 2009 transportation capital budget, other than the streetscape project, is primarily geared to making major road improvements that staff believes are high priority based on feedback from council and the public.

The council discussed the Highway 54 improvements. Engineering Director Tim Bailey stated the survey work has concluded and design has begun. He stated staff would be in a position to begin property acquisitions in FY 2009.

Mrs. Robison is not certain if the Highway 54 road widening is worth the social costs. Mrs. Robinson thinks it is important to look at existing capacities and determine the real current burden. She thinks a few years ago the council took a very aggressive stance towards road improvements, and as a result she thinks some roads were upgraded that were not essential (i.e., SW Maynard loop area).

Mr. Frantz would like to delay the Walker Street improvements until development occurs in downtown. Mrs. Robinson thinks it would be beneficial to acquire the land for the Walker Street improvements before the density is developed.

Mr. Bailey stated Chapel Hill Road (Highway 54) is not necessarily a high priority issue today. He stated it was brought forward because of interest at a council/staff retreat to focus some funding in the downtown area. He stated the Town has federal funding for the Walker Street improvements, and we may lose the $1 million of federal funds if the project is delayed. Additionally, he stated there are current level of service problems at the intersection of Academy and Chatham Streets, and Walker Street would provide an alternate route. He stated the streetscape project may result in more narrow lanes, which will impact capacity.

Mr. Portman stated the town center improvements total $48.5 in the FY 2009 budget. He stated the future year budget numbers are even larger. He stated council needs to either decide to move forward with this plan with the necessary tax increase or not move forward with it. He wants a conversation about the total vision and the cost so council can determine their commitment to the plan. He stated if council is not committed to the total vision, then the next step is to determine if the scale and scope of the streetscape plan stands on its own.

Mr. Smith thinks the $48 million in the FY 2009 budget shows that the council is making progress to improve the downtown. He does not think the issue is the entire downtown plan. Mr. Frantz added that the FY 2009 level of commitment sends a message to the private sector that the council cares about the downtown and is willing to invest in it.

Mr. Portman asked if council would be doing the streetscape and other related downtown improvements in the FY 2009 budget without the large vision for the downtown (i.e., performing arts center, media center, the central park etc.). Several council members replied that they think the council would move forward with the FY 2009 downtown projects even if council is not committed to the larger vision for downtown.

Mrs. Robinson stated that council needs to decide on their commitment to the performing arts center so that people will know what to do about private fundraising.

Mr. Portman does not understand how the council can commit to the total downtown vision and stay within the debt ratios agreed to. He wants to know if there is anything needed in the downtown vision that is not in the capital plan (i.e., performing arts center, etc.), and if so, he would like to put it in the plan and look at what it does to the numbers. He stated at that time the council can make a decision.

Mr. Smith stated the council needs to talk to the county commissioners about the status of the hotel/motel/food/beverage money. He stated they approved money for Cary, but Cary isn’t using it. Mrs. Robinson stated the commissioners have been clear that if Cary wants to use the $10 million, then the council needs to take action. If not, she stated they will give the money to another purpose in the county.

Mrs. Robison asked staff to clarify for council the required timing of using the county money. Mr. Coleman stated the county commissioners will need to see a conceptual plan and have enough information to allow them to determine if the request fits their criteria for a venue facility that would bring revenue into the county.

Mrs. Robison stated she would like Mr. Bailey to provide a more in-depth assessment of the proposed Highway 54 improvements at the next work session.

Mrs. Robinson wants to review other projects in the capital budget that could be postponed (i.e., performing arts center, etc.). Mrs. Robison stated another alternative is to have a bond referendum.

All council members agreed that the next budget work session will be June 3. Staff will work with council to determine additional dates.

The meeting adjourned at 7:10 p.m.