Morganton City Manager Sally Sandy gave her 2016/2017 Fiscal Year Budget presentation Monday, June 6, 2016, and the the City Council approved the budget ordinance Monday June 20, 2016.
City Manager Sally Sandy's 2016-2017 Budget Message
Honorable Mayor and Members of the City Council
Morganton, North Carolina
In accordance with the North Carolina Local Government Fiscal Control Act, the recommended budget for fiscal year 2016-2017 is presented for your consideration. The budget document represents balanced revenues and expenditures. Achieving a balanced budget remains a challenge and requires cooperation from all City departments. The capital budgets include equipment replacements, facility improvements, park improvements and funding for updating masterplans. The budget summary by fund is included below.
|Fund Description||FY 15-16||FY 16-17|
|- Powell Bill||673,422||576,930||(96,492)||(14.00%)|
|Total General Fund||24,039,830||22,389,825||(1,650,005)||(7.00%)|
|CoMPAS CATV Fund||4,524,745||4,535,000||10,255||0.02%|
|Cemetery Trust Fund||61,750||11,750||(50,000)||(81.00%)|
|Less Interfund Transfers||(667,428)||(688,353)||(20,925)||3.00%|
Not included in the summary above, but presented within this document, is the budget for the Intergovernmental Service Fund. This fund is an internal service fund and represents costs already accounted for within the General and Enterprise Funds. Inclusion of this fund in the statistical summary above would present these expenditures twice.
This budget contains funds for operations and the capital improvement program (CIP) in the General Fund. The General Fund capital program includes equipment purchases, routine and new funding for park improvements, and funding for masterplans for Recreation and Downtown. We continue to fund improvements to existing facilities. The City staff continues to pursue grant and public/private partnership opportunities to finance capital projects. Morganton Department of Public Safety aggressively seeks grants to enhance operations and assist in funding equipment purchases. General Fund CIP totals $3,630,906. Grant funding for General Fund next year is $1,110,591.
The utilities include capital programs that appropriate funding for equipment purchases, plant improvements, distribution system, and infrastructure improvements. The total CIP in all utility funds is $3,013,799. As our infrastructure ages, staff continues to plan for systematic improvements. Masterplanning, rate studies and business model evaluations are taking place in all utility funds.
The 2016-2017 total budget is $71,119,175 and is $3,629,205 or 5% less than the revised budget for fiscal year 2015-2016. Once again the continuation and inclusion of capital projects whose duration spans for more than one fiscal year or that get moved to the next fiscal year make that comparison somewhat skewed. The largest reduction is in capital and accounts for about $2.6 million. Operational decreases are just under $1 million. Most of the operational savings is in the reduced healthcare costs.
The City of Morganton continues to partner with other governmental partners in the areas of economic development, airport service, public library services, 911-Emergency Services, and narcotics enforcement. In the 2016-2017 budget proposal these entities are funded as follows:
Burke Development, Inc. (BDI) - $255,397
Burke County Library - $232,500
Burke County Emergency Communications - $240,518
Burke County Narcotics Task Force - $20,000
Foothills Regional Airport Authority - $46,774
Total - $795,189
These contributions represent 5 cents on the tax rate. The BDI contributions fund operations, local incentives to industry and debt service on the business park. The Foothills airport request includes funding for operations and $36,917 for capital. The capital request is to accumulate local matching funds for federal grants for airport improvements in the future.
The drug task force continues to operate without an increase in funding request. In addition to the cash contribution, Morganton Public Safety assigns one officer to the task force. At the end of the next fiscal year, Morganton will no longer participate in the Burke County Narcotics Task Force. Joint narcotics task forces have mostly stopped operating as the drug enforcement business has drastically changed. The Department of Public Safety is committed to a safe drug-free community and will always cooperate fully with all law enforcement to achieve that goal.
The library request is the same as last year. Finally, the City continues to budget $5,000 a year to maintain the library grounds which is in addition to the requested amount in this schedule.
The operational funding for the joint 911-emergency operations continues to be budgeted at $240,518. Costs vary slightly year-to-year, depending on personnel costs.
The City of Morganton continues to work with local partners of BDI, Burke County, and WPCC to encourage the State of North Carolina to plan for the redevelopment of the Broughton Campus and adjoining state property. The redevelopment of the State property has the potential to be a game changer for our community, this region and all of Western North Carolina. This project is under the direction of the North Carolina Department of Commerce. The opportunity to develop this property and to create economic development at this magnitude adjacent to a new $150 million State hospital will not come again anytime soon. The first phase of the study conducted by the UNC-School of Government (SOG) Development Finance Initiative (DFI) staff is complete. The redevelopment concept has been presented to State and local partners and legislation is proposed to allow phase two of the process to move forward and remain under the direction of Commerce. The funding for the development of a western campus of the North Carolina School of Science and Mathematics (NCSSM) was approved at $58 million in the ConnectNC bond referendum. NCSSM could be the catalyst for the ultimate redevelopment of the state properties and for tremendous private investment in this community.
The General Fund is the home of traditional government services –public safety, sanitation, street maintenance, inspections and zoning, recreation and administration. By its very nature, the General Fund houses services that are not self-supporting. The General Fund is where community development meets economic development.
Certainly the utilities provide the foundation for development, but the General Fund activities set the tone for quality of life, sense of place, and atmosphere of our City. CoMMA, Recreation, Main Street and the Community House paint our picture, tell our story, and provide opportunities that attract our citizens and our visitors to Morganton. This fund is extremely dependent on ad valorem taxes, sales taxes, and other state collected revenues. This fund is greatly affected by decisions of the NC General Assembly.
The 2016-2017 proposed General Fund budget is $22,389,825. This is $1.6 million less than the revised budget for 2015-2016. There are no proposed changes to services currently provided. The goal continues to provide quality service at the most affordable price possible. While continuing to invest in quality of life activities, facilities and initiatives that will attract new development and millennials to our City.
The 2016-2017 budget includes $325,000 for masterplans. Both Main Street and Recreation departments need updated masterplanning for the next 15-20 years. Current plans are more than 15 years old. The previous plans have served us well by guiding our investments in those programs and allowing us to leverage over $40,000,000 in private investment in our community. Funding for the plans include a State grant of $96,107 for the downtown plan estimated to cost $255,000. Capital reserve funds of $228,893 will fund the remainder of the downtown plan and $70,000 for the recreation plan. These plans are investments in our future and road maps to generate development. Since they are so closely related to economic development, one-time capital reserve funds are appropriate to use.
The ad valorem tax rate is recommended to remain at $0.53/$100 value. One cent on the tax rate generates approximately $157,041 which is slightly less than last year. Total ad valorem taxes for fiscal year 2016-2017 are budgeted at $8,239,934 which represents 37% of the General Fund revenues. Tax revenue is flat which is largely due to depreciation on equipment at our largest taxpayers’ facilities being greater this year than the new investment in equipment and upgrades. This is the second year that ad valorem taxes have been flat which is troubling. A continuation of flat tax growth will ultimately lead to the necessity to consider a tax rate increase or changes in levels of service.
We continue to miss the $215,000 in privilege license taxes that were eliminated by the General Assembly in 2014. To that end, the proposed budget includes $240,000 in revenue to be generated by a motor vehicles tax of $20. This tax has been used by other communities for years but it would be a new tax to our residents. The tax would be assessed on personal tagged vehicles once a year and be included on the motor vehicle tax bill generated by DMV. In the last session, the General Assembly made no provision to replace privilege license revenue, but did vote to increase the allowed motor vehicle tax from $5 to $30 per vehicle. This $240,000 represents 1.53 cents on the tax rate and is critical to balancing the budget.
The tax reform movement and actions of the General Assembly related to sales tax have direct impact on the City and funding for general government activities. The sales tax restructure that happened in 2015 was very controversial and pitted NC community against NC community. Sales tax is budgeted at $3,748,000. This represents an expected 10% growth over the current year with most of the growth coming from the reallocation and a projected increase of $258,000 to Morganton. After adjusting for the reallocation, Morganton has seen a 7% growth in sales tax in 3 years which is tied to improvements in the economy and more retail choice in the market. Sales tax is the second largest revenue in the General Fund budget.
The downtown special tax is budgeted to remain at $0.14/$100 value and will generate approximately $116,094. One cent on the downtown tax generates approximately $8,400. The tax rate of 14 cents was set in 1995 and will fund 20% of the Main Street expenditures in 2016-2017.
Solid waste fees are proposed to remain at $10.00 per month and generate about $1,142,000 annually. Other state-collected local revenues that are included in this budget are $1,865,000 in utility franchise taxes, $78,867 in beer and wine taxes, and $478,917 of Powell Bill funds.
Occupancy taxes have seen steady increases since the Tourism Development Authority was formed and since there has been a concerted effort to grow tourism. Certainly, Morganton is a big contributor to “heads-in-beds” growth as our festivals, recreational events and attractions grow. The 2016-2017 budget includes $90,000 of occupancy tax which represents ½ cent on the tax rate and is used for marketing our community and all it has to offer. The Red, White & Bluegrass Festival is included for 2017 at a total cost of $100,000. The projected revenues are $80,000. The festival is planned to be a 3-day event and will take place July 1-July 3. July 4th will be a free, family fun day with traditional activities, music and fireworks.
The General Fund includes $18,181,989 of operations, $576,930 of Powell Bill expenditures, and $3,630,906 of capital improvements for 2016-2017. Additional highlights for next year’s appropriations include the following:
- $60,000 brick and mortar repair
- $73,000 sound improvements
- $400,000 fire truck
- $385,000 patrol car replacement
- $421,826 fire equipment / gear
- $96,000 facilities improvements
The Public Safety CIP is being funded by $770,000 installment financing proceeds for the fire truck and patrol cars. Additionally, grant funds of $524,484 are included for equipment.
- $178,000 rear loader
- $52,000 replacement of Good Habit Rabbi
- $37,500 mowing equipment
- $265,000 street sweeper
Public Works CIP requests for the rear loader and the sweeper are funded by $443,000 in installment financing proceeds.
- $49,000 weight room upgrade
- $20,000 Petanque courts
- $80,000 park improvements
- $400,000 MLK, Jr. park renovation
- $180,000 skatepark project
- $64,000 mowing equipment
The Martin Luther King, Jr. Park renovation is being funded by $150,000 from Kate B. Reynolds Foundation and $250,000 from the Recreation Foundation. The two new offerings for next year are the Petanque courts, funded by general fund and the skatepark funded by $75,000 general fund, $90,000 Recreation Foundation and $15,000 private donations.
Lastly, the General Fund budget proposal includes an appropriation of fund balance of $173,642 which represents just over a penny on the tax rate. Appropriating this amount of fund balance will not cause a violation of your policy of keeping at least a 15% fund balance in reserve. However, like the capital reserve monies for the Masterplans, fund balance should be one-time money.
The proposed 2016-2017 budget is $5,890,500 and includes no appropriation of retained earnings to balance the budget.
The proposed budget keeps current water rates the same for next year. A household inside the City using 5,000 gallons of water a month will continue to pay $14.40. Outside customers pay double the inside rates. Morganton continues to have water rates lower than our neighbors and lower than similar utilities across the state. An updated rate study is ongoing. Results and recommendations on rates will be presented to City Council late summer 2016.
In addition to the rate study, an updated 20-year Masterplan is also being completed. For the past several years, we have been investing in improvements at the water treatment plant. Currently, a multi-year capital project to rebuild the clearwell storage tank is underway. The project is being funded with State funds at 0% interest for $1,258,552.
The 2016-2017 budget continues funding for water tank maintenance of $309,000 and includes $350,000 for replacing aging lines. Water usage is growing around 1% year over year. On average, system-wide usage is 48% of total capacity at about 8.7 million gallons per day. Over the last couple of years, water department personnel have replaced out-dated meters and repaired leaking lines. The more accurate meters and leak repairs have reduced non-billed water by 13%.
The total proposed electric budget for 2016-2017 is $33,641,125 which is $465,325 less than the 2016-2017 revised budget. Effective July 1, 2016, the Power Agency is passing on a wholesale rate decrease to Morganton of 0.4%. The wholesale rates are based on an assumption of load growth system wide and adjusted for weather and other variable factors. This is the second year of wholesale rate decreases made possible by a debt restructuring last year.
During budget year 2015-2016, Morganton customers received a decrease in rates. Once again, staff recommends passing on another rate decrease of 1.6% effective August 1, 2016. We are budgeting to set aside rate stabilization of $350,000 to offset future wholesale increases. Fiscal year 2015-2016 was an unusual weather year which resulted in a smaller rate stabilization set aside than originally planned.
The average 1.6% retail rate decrease should net $2.40 a month to a typical residence. Commercial and industrial customers will see monthly reductions ranging from $21 to $400. As always, individual usage patterns and other factors will affect the reductions for each customer.
The proposed budget includes a CIP request of $760,425. Two new trucks costing just over $350,000 are planned to be financed. The multi-year upgrades to older industrial substations continue with planned investment of $160,000 to better serve Viscotec and EJ Victor. Additionally, the three-year project to inspect all poles and make necessary replacements continues at an annual cost of $50,000.
The total proposed budget for fiscal year 2016-2017 is $5,339,328 and like water, includes no appropriation of retained earnings. Treated wastewater averages about 45% of daily capacity or 4.7 million gallons per day. Modest growth of just less than 1% is anticipated.
The 2016-2017 recommended budget includes no increase in rates for wastewater treatment. Inside customers will continue to pay $28.38 a month for 5,000 gallons treated. Although not as low as water rates, our wastewater rates are competitive regionally and statewide.
The project to convert the plant from a pure oxygen facility to a traditional treatment facility is in design. The design fees of $621,170 are in the sewer capital project fund and will be reimbursed from the project borrowing when the project construction is awarded and the financing is closed.
The proposed CIP is less aggressive than the last few years in anticipation of the updated Masterplan, the new rate study and oxygen conversion project. However, sewer line rehab and manhole rehab is included at $250,000. The Bethel basin rehab work will begin next year and is funded at $200,000. These systematic investments are paying off as non-billed sewer has been reduced by 12% over the last couple of years.
The proposed budget for CoMPAS for fiscal year 2016-2017 is $4,535,000. On the surface, the budget is very similar to this year and it looks like “business as usual”, in reality, nothing could be further from the truth.
In January 2016, the City contracted with a consultant to advise on best business practices to change the business model for CoMPAS or to help us assess if the business should be sold. The consultant concluded and the Council agreed that CoMPAS is a viable business that can serve the Morganton community well and generate positive cash flow with a restructure of the service. The restructure is taking place over the next 18 months. The consultant confirmed that the market for video service through cable television is in tremendous decline while programming costs for the service are growing at roughly 6-10% a year. Customers are choosing to “cut the cable” while turning to other methods of watching selected programming. Video programming costs in next year’s budget is $1,923,000 or 42% of total budget. In budget year 2018, CoMPAS will be in a contractual position to drop duplicate channels and to cut that cost.
Meanwhile, the demand for reliable and superfast internet service continues to grow. The internet pipe is actually the technology that is providing alternate means for customers to watch television. Our consultant has encouraged the City to take advantage of excess internet capacity already in our system and to grow our customer base in that segment of our business. Growing internet customers is the key to a financially successful CoMPAS.
In short, we are transitioning from a cable television business to an internet business. Television will still be provided to CoMPAS customers, but the business model will require pricing video products at market rates and tightly monitoring future capital expenditures in that area. To that end, effective August 1, 2016 some equipment costs and premium programming costs will increase. Costs for equipment will increase from $2.00/month to $7.00/month depending on the equipment type. HBO will increase from $15.95/month to $17.95/month. In January 2017, programming costs will increase 8%. Basic cable service will go from $70.95/month to $75.63/month. The budget conservatively includes an assumption of the continual erosion of cable customers.
Phone service will remain priced at the same level as today. The usage of home landlines is decreasing. Business customers provide the greatest opportunity for growth in phone customers.
The biggest changes in CoMPAS offerings will be associated with internet service. The emphasis will be on more speed at market prices. Options for speeds in internet service will be streamlined to better match the market. Customers who receive the lowest residential speed of 10Mbps for $39.95/month will be grandfathered at that price, but will begin paying a $2.00/month fee for modem rental. The 20 and 30 Mbps speeds will be eliminated. The customers currently receiving those services will be upgraded to 50 Mbps service priced at $49.95/month. The $10/month bundling discount will remain in effect for one year. Next year the discount will drop to $5.00/month and by year 3 (2018) it will be eliminated. Internet customers are projected to grow by 236 next budget year. Two hundred are residential and 36 are business customers. New speed options and pricing effective August 1, 2016 will be as follows:
Current 15-16 Proposed 16-17
Standard Definition – Primary box $5.00 $7.00
Standard Definition – Additional box(es) $4.50 $7.00
High Definition – Additional box(es) $7.95 $9.95
Standard Definition DVR
Additional recorder(s) $7.95 $9.95
High Definition DVR – Primary recorder $9.95 $14.95
High Definition DVR – Additional recorder $7.95 $14.95
Cable Modem w/o voice - $39.95 level only $0.00 $2.00
Res – 200Mbps/4Mbps to 50M/10M $54.95 $49.95
Res – 30Mbps/7Mbps to 50M/10M $69.95 $49.95
Res – 50Mbps/10Mbps $89.95 $49.95
Res – 100Mbps/20Mbps $134.95 $59.95
HBO $15.95 $17.95
Reconnect fee $15.00 $30.00
Wire Maintenance $0.95 $2.95
System investments for next year as requested in the CIP total $153,200. This amount includes $50,000 for system expansion to new customers, an upgrade to our troubleshooting system for $50,000, and $20,000 for fiber activation.
These recommended changes should make CoMPAS cash flow positive by June 30, 2017. The budget includes funding of $18,000 to continue with the services of our consultant through this transition.
Cemetery Trust Fund
The Cemetery Trust Fund is a fund designed to accumulate funds for maintaining the City owned cemetery and providing perpetual care for that property. The budget for 2016-2017 is $11,750 Lot and niche sales and marker sales remain around $10,000-$12,000 per year.
The newly constructed columbarium was opened during this year with niches for sale. As cremation becomes more popular, the columbarium will fill the need for our citizens to have a beautiful and respectful place for interring loved ones.
The proposed budget does not include using any one-time funding from the original fund since no capital projects are planned for next year.
Intergovernmental Service Fund
The Intergovernmental Service Fund includes the Warehouse and Garage and the Information Resources Management Services (IRMS) Department. The total budget for these services for 2016-2017 is $2,057,065 which is slightly less than last year. These departments provide services to the other funds.
The IRMS budget is $975,065. Much like the utilities budgets, IRMS has projects that span multi-budget years. Contracted services which include support costs for hardware and software are $286,580 or 29% of the IRMS budget. As technology continues to be a significant vehicle for how we serve our customers, annual costs increase. The upgrade to the studio is complete and next year we will turn focus to a document imaging project. Document storage and retrieval is crucial for City business and is budgeted at $50,000 next year.
The 2016-2017 budget includes $352,000 for inventory purchases which is a slight decrease from the current year. Purchasing and warehouse staff continue to work closely with departments to keep inventory on hand to perform required work while ensuring products on hand and costs of carrying inventory are not excessive.
The equipment services budget for 2016-2017 is $730,000 which is exactly the same as the current budget. The fuel purchases line item at $475,000 represents 65% of total budget. Fortunately, gas prices have remained low for several years which has allowed us to reduce that budget. The CIP recommendation is $48,000 and includes a new brake lathe and a new air compressor. This is the first capital investment at the City garage in several years.
The proposed budget includes funding for 282.25 positions. Currently, 37.25 allocated positions are not filled and not funded in this budget.
The budget proposed for fiscal year 2016-2017 includes a 1.0% cost-of-living adjustment (COLA) for all employees that would be effective with thepay period beginning July 9, 2016. The total cost of the COLA city-wide is $112,190.
In addition to the COLA, this budget also includes a 1.5% merit award that would be effective for eligible employees for the pay period beginning on March 4, 2017. This will be the second year that merit awards have been available since 2009. Employees receiving acceptable performance reviews will be eligible for merit. Merit rewards high performing employees and helps to address pay compression.
Reinstating a merit system is one tool to attract and retain a well-trained and motivated workforce. Another tool is competitive pay. The 2016-2017 budget includes $40,000 for a pay and classification study. The last study was conducted in 2004. The study will compare Morganton’s pay grades and salaries to similar organizations in the public sector and to private sector pay where appropriate. Results of the study would not affect budget until fiscal year 2017-2018.
During the current year, Morganton shifted from being self-insured to being fully-insured. On January 1, 2016, Morganton joined the State Health Plan for active employees. Qualifying retirees were transitioned to a Blue Cross Blue Shield plan. This transition means that the taxpayers of Morganton are no longer bearing the direct risk of health insurance claims. This transition resulted in a savings from budget to budget of over $700,000 in the costs of health insurance to employees and retirees.
The total cost for insurance benefits next year is $1,178,756 for active employees and $739,385 for retirees. Law enforcement separation allowance has increased $39,095 and is funded at $189,669 next year.
The 2016-2017 proposed budget is $71,119,175. No services currently provided are being decreased or eliminated. Funds are provided to do future planning for downtown development and recreation. CoMPAS is being restructured with emphasis on internet service. No ad valorem tax increase is proposed, but a new motor vehicle tax of $20 a year is included. Traditional utility rates are remaining the same or decreasing slightly. Department Heads and the City Council have worked together to create a budget that is fair and reasonable.
Recognizing all the hard work and difficult decision making that goes into creating a $71 million budget, I want to thank the department heads, the dedicated employees who continue to do the work, the City Council for guidance and especially Karen Duncan, Finance Director, for her oversight and commitment to the budget process.
However, this year I wish to propose a challenge with this budget – Morganton and Burke County are at a significant crossroads. How we navigate and more importantly, how we as a community influence and orchestrate this crossroads, sets the stage for success or failure in the future. The choice is ours. Change is a fact-of-life and we are living in a time and in a place experiencing great change.
The journey from our furniture and textile roots to advanced manufacturing, creative entrepreneurship, and science and technology opportunities continues. The journey is not easy. The challenges of attracting young people and their families to choose a life in this community are real. As we work to attract new business and jobs, we suffer the loss of existing business and jobs. In a time where 24-hour news, instant “knowledge” through social media and polarized, divisive leadership rules the day, leading a community into a successful future is harder than ever.
In the movie, The Blind Side, Michael Oher, a kid whose circumstances have made him a lost cause, easily written off by society got a second chance. He was taken in and supported by a family, a teacher, and a coach who were unwilling to give up on him. During his journey from certain failure to success, Michael writes an essay about courage and honor to earn a grade that will make him scholarship eligible for college. Michael chooses to write about The Charge of the Light Brigade. In his essay, Michael writes…”Courage is a hard thing to figure. You can have courage based on a dumb idea or mistake…Sometimes you might not even know why you’re doing something. I mean any fool can have courage. But honor, that’s the real reason you either do something or you don’t. It’s who you are and maybe who you want to be. If you die trying for something important, then you have both honor and courage, and that’s pretty good.”
So, how does this relate to the budget and what is the challenge? I propose to the community of Morganton that this budget represents courage – it supports the provision of basic service, it supports beautifying our community, it supports safety in our community, it supports development and it supports reinvesting in critical infrastructure. Our day-to-day services represent courage.
Now for the challenge. The challenge, as I see it, is to serve with courage, but to find the strength to add honor. It is the honor that will challenge us to strive for more. I believe it is our challenge to build on the budget to strengthen our partnerships, to identify new initiatives in our masterplanning, to fight for the redevelopment of the State property, to continue to invest in our quality of life amenities, to support initiatives that make Morganton special and to remain committed to supporting existing businesses while working to attract new business. It is our challenge as a community to not only be who we are today, but to define who we want to be and then to do what it takes to ensure that is who we become. Working together to achieve our dreams and success for this community is how we serve with both courage and honor.
Incidentally, it worked out for Michael Oher as he went to Ole Miss on a football scholarship, was drafted by the Baltimore Ravens and now is a Carolina Panther!
I remain humbled and honored to serve with a team of individuals who believe in the value of the whole. I am grateful for the opportunity to live, work and play in a community not satisfied with sheer existence, but one that strives for greatness.
Sally W. Sandy, CPA