EXECUTIVE SUMMARY

TOWN OF CARY

EXECUTIVE SUMMARY

FISCAL YEAR 2009

Introduction

The Budget in Brief presents an overview of the annual budget for the 2009 fiscal year for the Town of Cary, North Carolina. This summary provides highlights of the Town’s major funds including the General Fund, Utility Fund, and Capital Improvements Funds. The various budget documents, including this Budget in Brief, present data in tables and graphs with some accompanying text providing explanatory or supplemental information. Information typically covers a five-year period, including actual figures for fiscal years 2005, 2006, 2007, estimated figures for FY 2008, and the adopted budget figures for FY 2009. In addition, this document includes the Town Council's goals and initiatives and a brief summary of each department’s responsibilities.

Budget Development

Budget development began in December 2007 with the Town Manager’s official kick-off of the budget season. Departments began submitting prioritized budget requests to the Budget Office for the capital budget year, the ten year capital improvement planning period, and the annual operating budget in late January 2008. After reviewing the initial budget requests, the Town Manager, Assistant Manager, and budget staff met with departments to allow them to more fully explain and justify their requests. Emphasis was placed on maintaining a strong financial position, maintaining service levels in operations, identifying opportunities for further efficiencies in the organization, reducing costs, and future planning. In addition, departments submitted streamlined budget narratives, which focused on program objectives and performance measures. Both quantitative and qualitative performance indicators were included to help measure progress toward program objectives. February 2008 was the month designated to formally solicit and gather public input on priorities for the upcoming fiscal year during which interested parties could communicate their budget priorities for the coming year in person at one of two public hearings, by phone, or by email. Once the recommended budget was submitted to Council in May, there were three public hearings to gather feedback from the public. The budget development process this year also included six full Council work sessions prior to Town Council adopting the FY 2009 Budget on June 26, 2008.

Review of Revenues

General Fund: Revenue assumptions driving estimated FY 2008 and budgeted FY 2009 figures were based on an economy that is showing signs of slowing down, which is having an impact on population, assessed value, and the volume of new building permits. Population growth affects several of the large revenue sources in the general fund including ad valorem taxes, sales taxes; utilities franchise tax, wine and beer taxes, building permit fees, building inspection fees, environmental permits, sanitation fees, and cable television franchise fees.

The Town of Cary's population growth rate has varied over the years, as seen in the chart below. Variables that have impacted these rates include the health of the national and local economies and in the early 2000s additional growth management efforts were put instituted. The Growth Management Element of the Town’s Comprehensive Plan has included measures such as an Adequate Public Facilities ordinance, and water, sewer, and transportation development fees to help ensure that additional growth does not occur before the required infrastructure is in place. The economic recovery of the last several years has helped the growth rate rebound from the FY2004 low of 1.3%.

During 2002, only 466 new single family permits were issued compared to an average of about 1,500 per year in the mid 90s. The assessed value on which tax receipts are calculated is based on what has been built by the prior January 1, meaning that FY 2009 revenues are based on values as of January 1, 2008. The fiscal year 2009 ad valorem tax base is being impacted by the real property revaluation that occurred recently in Wake County that became effective January 1, 2008. This is a process in which the tax value for all land and buildings is updated to approximate the market value of each property. The previous tax valuations had not been updated since January 1, 2000. All real property in North Carolina must be reassessed at least every eight years according to state statute. Even though the tax base amounts for real property typically increase substantially as a result of revaluation, it does not mean necessarily that the revenue requirements for a jurisdiction increase proportionally. A historical perspective of the Town’s assessed value (tax base) growth since FY 1995 is provided in the graph below. The extremely high growth rate in 2001 and 2009 reflects property revaluation which is done every eight years in Wake County. Assessed Value is a very important factor to the Town of Cary as the property tax revenue represents 54% of total General Fund Revenues. The tax rate was reduced from 54 cents to 43 cents in FY 2001 as a result of property revaluation in Wake County. The tax rate was further reduced to 42 cents in FY 2002 and remained steady until it was reduced to 33 cents in FY 2009, again as a result of property revaluation.[m1]

Expected sales tax revenues totaling $25.3 [m2] million in FY 2009 make up 21.6% [m3] of all General Fund Revenues. The historical growth rate of this major revenue source was greatly impacted by the economic slowdown of the early 2000s, but the economic recovery has helped this revenue source recover in recent years. The graph below depicts the historical growth of sales tax revenues and includes the one cent (Article 39) which is distributed based on sales delivered in Wake County, the two half cents (Articles 40 and 42) which are distributed state-wide based on the population of each county, and the one half cent (Article 44) which is distributed based on a combination of both approaches mentioned. Article 44 was approved in December 2002 to replace the expiring Inventory Tax Reimbursement and Intangibles Tax Reimbursement revenue sources.

In FY 2001 the monthly solid waste fee, which covers the Town’s primarily residential collection program, was reduced from $11.50 per month to $7.67 per month. In FY 2006, the fee was increased to $11.75 per month. This change was the result of a comprehensive review of the Town’s solid waste program, which produced two main recommendations: 1) increase the fee so the service eventually pays for itself; and 2) convert from backyard collection to automated curbside collection to provide safer, more efficient solid waste collection. The solid waste and recycling monthly fee history since 1993 is included below.

In 1994, service was changed from twice a week back yard collection to once a week. In 2006, the process of converting to curbside automation and dual stream recycling began with full implementation in effect beginning in FY 2008.

The percentage of program cost recovery has varied over the years and was 50% in FY 2005. At the FY 2005 rate of $7.67 per month, 50% of the program costs were being subsidized by other general fund revenue sources, including the entire tax base (both residential and commercial). The $11.75 rate implemented in FY 2006 recovered about 77% of the total program costs from the customers receiving direct services and includes the costs of actually collecting and disposing of the garbage, recycling materials (net of revenue received from selling recyclable materials), and yard waste. The adopted rate of $14.00 for FY 2009 continues the expectation of a 77% program cost recovery rate.

Other significant general fund revenues include recreation-related revenues of $4.0 million, $5.9 million from building permits and related fees, $2.6 million from the utility franchise tax, and $2.0 million in net interest from investments. Total general fund revenues for FY 2009 are budgeted at $117.2 million which represents a 5.0% increase from estimated FY 2008 revenues.

Utility Fund: FY 2009 utility fund revenues are budgeted at $50.8 million. In FY 1998, the Town undertook a utility rate study to review the rate structures, recommend a new rate structure to address the equity of cost recovery from different customer classes, and develop a model that provides a flexible planning tool for calculating utility rates. This resulted in the introduction of a tiered rate structure and a monthly base charge for all users. The tiered rate structure shifts more of the burden to the higher volume users that have substantial effects on the peak demand of the system. FY 2009 is the eleventh year water and sewer retail revenues have been budgeted using this rate structure. The combined utility bill for a 7,000 gallon per month residential customer is expected to rise 5.5% in FY 2009 over FY 2008 rates. The primary driver of these rate increases are costs of capital infrastructure improvements. Revenue from water retail fees is expected to decrease 4.1% from estimated FY 2008 revenues, and sewer retail fee revenue is expected to increase 12.8%. The major sources of revenue for the utility fund are water fees of $20.9 million and sewer fees of $25.7 million.

Until August of 1993, the Town of Cary purchased all of its water from the City of Raleigh. Since its opening in 1993, the Cary/Apex Water Treatment Plant has provided water for both Cary and the neighboring town of Apex which owns 23% of the plant and bears 23% of the capital cost, as well as a portion of the plant’s operating costs based on Apex’s actual water usage. In addition, Cary began selling water to the Town of Morrisville and the Raleigh/Durham Airport in FY 1994 and entered into an agreement to sell raw water to Chatham County during FY 1996. The Town also provides water for Wake County’s portion of the Research Triangle Park. In order to meet high peak demands, Cary also entered into agreements to purchase water from the cities of Raleigh and Durham to supplement the supply from the Cary/Apex Water Treatment Plant. Since the water treatment plant expansion was completed in the spring of 2002, the Town of Cary is no longer reliant upon other municipalities for any of its water supply. In April of 2006, the Town of Morrisville utility system merged with the Town of Cary system and the two are now operated as one with Town of Cary staff assuming responsibility for the newly combined system. Costs directly related to the merger are being recovered through a rate differential being charged to utility customers in Morrisville’s jurisdiction until the merger costs are fully recovered, which is expected to take approximately fifteen years.

Review of Expenditures

Operating expenditures and transfers of $115.0 million are budgeted in the general fund for FY 2009, including $14.3 million for debt service. Debt service has grown substantially over the past few years as the Town has ramped up its capital spending. In FY 2000, debt service of $1.6 million made up 2.4% of all general fund expenditures and transfers. In FY 2009, debt service of $14.3 million makes up 12.4% of all general fund expenditures and transfers. This increase has allowed the Town to take advantage of the historically low interest rates that have been available in the early 2000s. To help ensure debt service levels remain manageable, the Town Council set an informal ceiling level for general fund debt service of 15%. Of the total general fund operating costs in FY 2009, personnel costs represent approximately 54%, operations and maintenance represent approximately 25%, capital equipment represent approximately 1%, and debt service represent approximately 12.4%. [m4] Inter-fund transfers from the general fund include $4 million to help fund portions of general government, fire, and parks, recreation, and cultural resources (PRCR) related capital projects.

Budgeted utility fund expenses and transfers total $49.5 million for FY 2009. Of this amount, $12.8 million, or 25.8 % is budgeted to cover utility-related debt service requirements. Of the total utility fund operating costs in FY 2009, personnel services represents approximately 27.8%, operations and maintenance represents approximately 35.5%, capital equipment purchases represent approximately 2.6%, and debt service represents approximately 25.8%[m5] . Transfers from the utility fund include $1 million to help fund the purchase of open space as identified in the Open Space and Historic Resources Plan.

Regarding staffing needs, the demand for services continues to grow and it has become increasingly difficult to maintain quality service with current staffing levels. Consequently, 25.25 additional full time equivalents (FTEs) are included in the FY 2009 Budget. The staffing ratio for FY 2009 is 8.9 employees per 1,000 population, which is 0.4 less than it was in

FY 2008. These additional positions are needed in order to maintain current essential service levels and to keep up with the demand for high quality services even as the Town has increased service levels with special facilities (e.g. WakeMed Soccer Park, USA Baseball).

Capital Budget Considerations

The FY 2009 Capital Improvements Budget (CIB) includes $49,048,382 for water and sewer projects, and $78,005,332 for the general capital category including transportation, parks, fire and general government projects.

In the utility CIB, $18.7 million in revenue bond proceeds supports odor control initiatives at the North and South Cary Water Reclamation Facilities, continuation of the Town’s reclaimed water projects and construction of various sewer parallel force mains. The FY 2009 utility CIB also utilizes $26.7 million in utility capital reserve fund appropriations, $3.2 million in utility capital reserve fund revenues, $212,720 in Western Wake Regional Wastewater Management Facility (WWRWMF) municipal partner reimbursements and $207,000 in Town of Apex water treatment plant-related reimbursements to support water and sewer capital needs. Two utility fund transfers to utility capital reserve fund balance totaling $1.9 million are also budgeted in FY 2009. These transfers are clerical in nature and place funds generated for capital expenditure in the utility capital reserve fund where they will be available for future capital appropriations.

In the general CIB, a transfer of $4 million from the general fund supports transportation, fire, parks and general government needs while a $1 million utility fund appropriation is directed to open space acquisition. A total of $3.1 million in FY 2009 general capital reserve revenues and $26 million in general capital reserve fund balance are also dedicated to general capital projects

Other funding sources utilized in the FY 2009 general CIB include: $35.1 million in newly appropriated general obligation bond debt to fund construction of the Town’s downtown streetscape project, the re-allocation of $4 million in previously appropriated debt to the Cary Parkway Pavement Rehabilitation project and $4.8 million in new installment purchase debt for the replacement of two pumper trucks, the construction of Fire Station #8 and the construction of the Town’s first district maintenance facility.

Water CIB projects for FY 2009 total $11,377,590. $9.7 million, or 85%, of this amount funds water line expansions and improvements, while $900,000, or 7%, supports needs at the Cary/Apex Water Treatment Plant. The remaining $733,190 funds water system management, water storage tanks and cross-connection control initiatives.

The Sewer CIB totals $37,670,792 in FY 2009. $18.5 million, or 49% of the FY 2009 sewer CIB, is directed toward waste water collection projects. $10.5 million, or 28% of the FY 2009 total, funds waste water system management projects such as odor control initiatives at the North and South Cary Water Reclamation facilities. Another $3 million, or 7% of total appropriations, supports pump station and force main expansions and eliminations. Other sewer capital needs addressed in FY 2009 include: $1.7 million for reclaimed water projects, $775,900 for sewer system repair/replacement and $175,000 for laboratory equipment at the North Cary Water Reclamation Facility.

A total of $2.9 million is also included for the Western Wake Regional Wastewater Management Facility (WWRWMF). This initiative represents a partnership between the Town of Cary and the towns of Apex, Holly Springs and Morrisville to develop, design and construct a regional wastewater treatment facility in western Wake County. The Town of Cary’s portion of the FY 2009 appropriation for this purpose is $2.7 million, while the municipal partners’ FY 2009 share totals $212,720.

Transportation CIB projects for FY 2009 total $49,245,454. Funding for construction of the downtown streetscape project totals $35.1 million or 71% of the total FY 2009 transportation appropriation. $10.8 million, or 22% of the total FY 2009 transportation appropriation, supports major road maintenance. This includes projects such as the Cary Parkway Pavement Rehabilitation project, the Town’s annual street improvements project, annual bridge/culvert repairs, railroad grade crossing repairs and street storm drainage system rehabilitation.

A total of $2.2 million appropriated in FY 2009 supports control system projects such as traffic calming measures and signalization and alternate mode initiatives such as annual sidewalk improvements, bicycle facilities implementation, Cary Transit needs and connectivity priorities.

The remaining $1.2 million appropriated in FY 2009 addresses road capacity issues. $500,000 provides for lane additions and signal changes at the US 64 and Edinburgh Drive intersection, while $200,000 funds a consultant review of the Cary Parkway/High House Road intersection recommending improvement alternatives that better facilitate traffic at this heavily travelled intersection. A $500,000 appropriation for adequate public facility off-site mitigation is also included.

Fire CIB projects for FY 2009 total $4,674,878. $3,344,378, or 72% of the total FY 2009 fire appropriation, funds construction of Fire Station #8 in the O’Kelly Chapel Road area. $1,320,000 or 28% of the FY 2009 fire capital appropriation is for apparatus. Projects supported by these funds include the replacement of pumper trucks #1221 and #1283 and the purchase of a transport system for trench rescue equipment. The FY 2009 CIB also includes $10,500 for funds needed to complete construction of a rear entrance driveway for Fire Station #5.

The Parks, Recreation and Cultural Resources CIB totals $19,570,000. The most significant aspects of the FY 2009 Parks CIB are: the appropriation of $15.8 million for construction costs associated with the renovation/conversion of the old Cary Elementary building into the Cary Elementary Community Arts Center; the appropriation of $1.5 million for continued development of the Bartley and Mills community parks; the appropriation of $880,000 directed toward greenway design and construction; the appropriation of $642,000 for renovation and enhancement of special facilities such as the AM Howard Farm, Cary Tennis Park, Hemlock Bluffs Nature Preserve and WakeMed Soccer Park; the appropriation of $570,000 for park and greenway renovations and court lighting enhancements and the appropriation of $178,000 for public art elements that are integrated into other projects currently underway.

The General Government portion of the CIB totals $4,515,000. $1.1 million addresses storm drainage issues on Town property and supports the Town’s storm drainage private assistance program. $1 million is directed toward open space acquisition, while another $1 million supports implementation of a downtown parking plan. $600,000 is directed toward the Town’s sanitation and recycling truck replacement program. $750,000 supports construction of the Town’s first district maintenance facility. The remaining $65,000 funds implementation of the Town’s identification and wayfinding signage plan for the downtown area.

Conclusion

Growth management efforts and the economic downturn of the early 2000’s combined to create a dramatic decrease in the Town’s population growth rate from a high of 14% in 1996 to around 2% in FY 2005. Recent upturns in the economy and related population and development growth, combined with the sound policies and management practices utilized in the Town of Cary have helped maintain the Town’s solid financial condition as exhibited by its AAA debt rating with all three major rating agencies. With a healthy economy, modest increases in the Town’s growth rate, continued focus on improving the efficiency and effectiveness of operations and service delivery, the quality of life in Cary will continue to flourish.

The FY 2009 budget addresses Town Council’s goals and priorities for the upcoming year and continues to prepare for the Town’s needs in the near future. The budget is fiscally sound, addresses needs on a priority basis, and is balanced in accordance with State statutes.