June 14, 2005

To the Honorable Mayor and Town Council of the Town of Blowing Rock:

I am pleased to provide you a copy of the FY 2005-2006 Annual Budget and Budget Ordinance (#2005-03). This document was prepared by Town Staff and represents a comprehensive publication of the Town’s plans and policies for the upcoming fiscal year.

The Adopted 2005-2006 Budget was initially presented to Town Council on May 10, 2005 and copies were made available to the Town Clerk and the public. The Town Council held a Budget Worksession on the budget on May 17, 2005. Pursuant to N.C.G.S. 159-12 (b), the Council held a public hearing on the proposed budget on June 14, 2005. The FY 2005-06 Budget was formally adopted on June 14, 2005.

The 2005-2006 Budget Document provides a financial plan for the ensuing fiscal year and has been developed in accordance with the Town Council’s Priorities and Action Plan established in our January Retreat and during our Council/Departmental meetings held over the past several months.

The key components of these directives from the Town Council and the budgetary principles on which this document is based are:

·         Basic Town services are continued with funding at adequate levels.

·         Revenue projections are estimated at realistic, conservative levels.

·         Continued funding of the 5-year Capital Improvements Program.

·         Continued focus on Comprehensive planning efforts.

·         Conformance with the adopted Town of Blowing Rock Comprehensive Financial Policy.

Based on Town Council direction, the Adopted FY 2005-2006 Budget maintains the ad valorem property tax at $0.295 per $100 valuation. To cover a Watauga County landfill tipping fee increase from $42/ton to $45/ton, the FY 2005-06 budget will increase commercial solid waste charges to cover those additional costs. All other Town fees and charges will remain the same in FY 2005-2006.

The FY 2005-2006 Adopted Budget totals $5,119,695 for all Town operations, capital improvements, and debt service requirements. This is an increase of 2.05% over last year’s adopted budget of $5,016,795. 

On behalf of all Town coworkers, I thank you for your continued guidance and support of our efforts to meet your priorities in the delivery of quality and efficient services to the citizens of Blowing Rock.

Respectfully Submitted,

Scott E. Hildebran

Town Manager

BUDGET SUMMARY

 

 

FUNDS OF THE ADOPTED BUDGET

 

General Fund

The General Fund contains all governmental services that do not generate sufficient revenue to support their activities (Police, Emergency Services, Recreation, Public Works, Administration, Planning/Inspections, etc.). The General Fund is balanced with no increase in the current property tax rate of $0.295 per $100 valuation. This rate will provide approximately $2,252,000 in property tax revenues based on an expected collection rate of 97.0%. The Town’s tax base is split between two counties – Watauga and Caldwell. Watauga County represents approximately 95.0% of the total property tax base. Caldwell County accounts for the remaining 5.0%. The total property tax base (excluding vehicles) is estimated to be $787,000,000, which is slightly higher than FY 2004-2005, and is based on information from the Watauga & Caldwell County Tax Offices. A penny on the tax rate is projected to generate $78,700 in revenue. The Town’s property tax base is estimated to be approximately 85% residential and 15% commercial.

The FY 2005-2006 Adopted Budget for the General Fund totals $3,763,345 or 2.36% more than the FY 2004-2005 Adopted Budget of $3,676,590.

Water and Sewer Fund

The Water and Sewer Fund contains all water production, water distribution, wastewater collection and wastewater treatment activities of the Town. This fund is self-supporting. At this time, the FY 2005-06 Adopted Budget maintains the current water and sewer rate structure. However, due to pending major water and sewer capital needs, a comprehensive financial analysis of our utility system is needed.

Some of the future water and sewer capital improvements identified include:  additional raw water supply and storage, increasing the dam level, water interconnection with the Town of Boone, land exchange with the U.S. Park Service, sewer line replacement and plant upgrades, installation of sewer to all areas of the corporate limits, and possibly a new wastewater discharge.

The Adopted Budget includes funding for McGill Associates – Financial Services Division to develop a Water and Sewer Financial Plan. This financial plan will be used to develop and schedule water-sewer rates that not only fund any necessary capital improvements, but more importantly, help sustain the day-to-day maintenance and operation of the utility system.

The study will analyze water and sewer fund expenditures, billing and collection data, proposed infrastructure capital improvements over a 10-year period, and make recommendations based on the findings. As a result, the Town can establish a utility financial model to fund and plan future Water & Sewer Capital Improvements in phases and mitigate the effects of year over year fluctuations.

The FY 2005-2006 Adopted Budget for the Water and Sewer Fund totals $1,356,350. This is a 1.20% increase over the FY 2004-2005 Adopted Budget of $1,340,205. Additional funds are being transferred and set aside in the Water/Sewer Capital Reserve Project Fund to help in funding major water and sewer capital needs/expansions.

Capital Reserve Project Funds

The Capital Reserve Project Funds (General and Water/Sewer) exist as a tool to help in the financial planning of future large-expense capital projects. In recent years, Town Council has adopted a number of financial policies related to increasing the amount of money contributed to these Funds. In the FY 2005-2006 Adopted Budget, the General Fund and the Water/Sewer Fund will both continue to make significant financial contributions to the Capital Reserve Project Funds. The amounts appropriated $310,000 and $230,000, respectively.

The total contribution to the Capital Reserve Projects Funds for FY 2005-2006 is $540,000, or approximately 10.5% of the Total Adopted Budget. This allocation compares favorably to the $530,000, or 10.5% appropriated in the FY 2004-2005 Adopted Budget.

 

FISCAL OUTLOOK

Estimating revenues continues to be a challenge. Several factors include:

1.                   The Economy – The U.S. economy is expected to continue to improve in 2005, but the pace of improvement will slow compared to 2004. Western North Carolina’s economic growth continues but at an even slower pace. There also is still concern about higher energy and fuel costs as well as inflationary pressures.

2.                   The State Legislature – The State’s FY 2004-2005 budget appears to be in somewhat better shape than in past years, with current budget estimates on track; however, the State still has to close a gap of $1.2-1.3 billion in discretionary, high-priority spending heading into FY 2005-06. The Senate’s proposed budget makes the temporary state half-cent sales tax permanent. That half-cent tax was due to expire on July 1, 2005. Other considerations are increased cigarette taxes, increased transportation fees and a possible state lottery.

Therefore, as always, revenue estimation for the upcoming fiscal year reflects a conservative approach by the Town.

SOURCES OF REVENUE

Ad Valorem Tax (Property Tax)

Two characteristics of the property tax distinguish it from other forms of taxation and underlie the methods of determining tax liability and enforcing collection. The first characteristic is that the property tax is levied on property itself, not the owner. The second is that the tax is measured by the value of the property as a marketable item, not by the owner’s ability to pay. Thus, it is often called an “ad valorem” tax, from the Latin phrase meaning “according to value.” In North Carolina, property tax rates are customarily expressed in dollars per $100 of valuation. The maximum property tax rate allowed in North Carolina is $1.50 per $100 of valuation. In Blowing Rock, the property tax rate is $0.295 per $100 of valuation. On a $300,000 home, the total annual Town of Blowing Rock property taxes due would be $885.00.

In FY 2002-2003, the General Assembly approved higher exemptions for senior citizens aged 65 or older and for citizens who are 100% disabled and subsist on a specified household income that does not exceed a 2004 annual income of $19,200. This action, while attempting to reduce the impact of the overall tax burden of this population, does result in a nominal loss of property tax base for the Town.

Total Ad Valorem tax revenues (including current and prior years, motor vehicles, and penalities/interest) are projected to be $2,330,500 in FY 2005-2006. In North Carolina, the property tax is the only significant source of revenue that the State allows local governments to control.

Sales and Services

The Town has a number of services that it “sells” to the public. These services are covered in the Town’s Fee Schedule. There are no services, except water and sewer, solely supported by “Sales and Service” revenue. All others are augmented by property tax revenue, to some degree, to meet service demands. For example, only a portion of the Planning Department budget is supported by revenue generated from zoning and building inspection fees. Property tax revenue and other General Fund revenue support a large portion of the Planning Department’s budget. Some services which produce “Sales and Service” revenue include:

·         Commercial Solid Waste/Recycling Fees

·         Parks and Recreation Department Fees (Pool, Day Camp, Program Registration Fees, etc.)

·         Cemetery Fees

·         Zoning/Building Inspection Fees

·         Water/Sewer Charges

This source of revenue will provide approximately $307,350 in revenue for next fiscal year to the General Fund. Water and sewer related charges (and interest) are estimated to total $1,356,350 in FY 2005-2006.

Due to a proposed increase in commercial landfill tipping fees from $42 per ton to $45 per ton by Watauga County, the Adopted budget includes an increase in commercial solid waste fees to cover these additional costs. A breakdown of the proposed fee increase is included at the end of the Budget Message.

A detailed list of all fees/charges can be found at the Schedule of Fees/Charges section of the budget document.

State-Collected Local Taxes

In FY 2005-2006, there are three statewide revenues whose estimates depend on economic forces: Utility Franchise Tax, Telecommunications Sales Tax, and Beer and Wine Tax.

The assumptions for the utility franchise, telecommunications sales tax, and the beer and wine taxes anticipate only nominal growth over the prior year largely due to the numerous changes in the revenue formulas in recent history and the sensitivity to which these revenues respond to weather and market forces. In 2001, the General Assembly replaced the utility franchise tax on local telephone service with a new sales tax on telecommunications. The Town experienced its first full fiscal year of telecommunications tax revenue in FY 2003-04.

Currently, each town’s utility franchise tax is based on actual receipts from electric service only within the municipal boundaries. The League of Municipalities anticipates statewide growth in the 3.0-4.0% range. However, they note that these revenues are highly sensitive to the weather. Mild winters, cool summers, and any significant rate increases or decreases can cause these receipts to change. Because of increased competition and technological and regulatory uncertainties, the League expects statewide growth of the telecommunications sales tax to be negative or flat.

These funds are collected by the State and are distributed to the Town based on the actual receipts from the providers of these services and commodities within the Town limits. This revenue source is expected to be $151,000 for FY 2005-2006. These are strictly General Fund revenues.

Sales Taxes

The Local Option Sales Taxes now consist of a one-cent sales tax, and three one-half cent sales taxes. The authority to implement a third one-half cent sales tax was approved by the General Assembly and approved locally by the Watauga County Board of Commissioners in 2002 and replaced the State reimbursements for repealed local taxes. In this exchange, the General Assembly repealed the local government reimbursements for the intangibles tax, inventory tax, homestead exemption, and sales tax on food stamp purchases effective July 1, 2002. Based on North Carolina League of Municipalities estimates, the Town will lose approximately $6,350 in FY 2005-06 revenue in the one-half cent sales tax exchange for reimbursements. However, the NC General Assembly has proposed to hold local governments harmless from this exchange, and the budget anticipates a $6,350 “hold harmless” payment.

Two and one-half cents of the seven cents paid in sales tax on retail sales in North Carolina represents the local share of this local option sales tax. This tax consists of a one percent tax that was first levied in 1971, a one-half cent tax levied in 1983, a one-half cent tax levied in 1986, and a one-half cent tax levied in 2002. The State of North Carolina collects the sales taxes and distributes them to the local units. Sales tax revenues are distributed on a proportional population basis to municipalities in Watauga County as opposed to proportional local government ad valorem levies. According to fiscal analysts with the General Assembly, retail sales in North Carolina should increase 4.0-5.0% in FY 2005-06. Sales tax revenues (including the new one-half cent proceeds and the hold-harmless payment) are projected to be $333,850 in FY 2005-2006. This is strictly a General Fund revenue.

Hotel/Motel Occupancy Tax

The Blowing Rock Tourism Development Authority levies a hotel/motel occupancy tax on the gross receipts from the rental of transient accommodations in the Town of Blowing Rock. These taxes are collected locally with a current tax rate of 6%. The TDA has approved $243,375 in funding for the Town in FY 2005-06 to use in support of the various tourism-related operations of the Town. Additionally, the TDA will compensate the Town with $16,150 for handling the administration and collection of the occupancy tax.

Powell Bill Street Allocation

The use of these funds is restricted to maintaining, repairing, constructing, reconstructing or widening any public street or thoroughfare within the Town limits that is not State-maintained. Bridges, drainage, curb and gutter, sidewalks and other necessary appurtenances are also approved uses of these funds. The determination of the amount of the allocation comes from a formula containing a municipality’s local street miles and population. To receive funds, each municipality must file an annual certified map and an annual expenditure report. Due to the Governor and the General Assembly using proceeds of this revenue source recently to supplant State revenues, we anticipate stagnant growth in Powell Bill funding in FY 2005-2006. This revenue is estimated to be $81,000 for FY 2005-2006. This is strictly a General Fund revenue.

ABC Revenue

These proceeds come from a contribution from the local ABC Board from the sales of alcoholic beverages. The revenue is estimated at $120,000 for FY 2005-2006.

Grants

At this time, the Adopted FY 2005-2006 Budget does not include any grant funding proceeds. However, the Town will eagerly seek grant-funding opportunities during the year and request amendment of the budget as required.

In FY 2004-05, the Town completed two (2) NC Department of Transportation Enhancement grants - one for the South Main Trail Restoration Project ($142,500) and the second for the South Main Street Sidewalk Project ($225,000). In addition, the Town received a N.C. Governor’s Highway Safety Program grant totaling $23,180 (including a $900 town-match) for a Checkpoint Trailer and (2) hand-held radar units.

Other

Other miscellaneous revenue includes: privilege licenses, interest income, miscellaneous income, cablevision fees, parking tickets, 911 contributions/donations, book sales, park lease, town property rental income, snow removal reimbursement, etc. These funds are expected to be $180,120 for FY 2005-2006.

This revenue source is projected for an increase due to Visitor Cent er rental income and developer reimbursement for sidewalk installation.

Fund Balance

On June 30, 2005, the Undesignated General Fund Balance is projected to be approximately $1,148,500 or 30.5% of FY 2005-2006 General Fund revenues. There is no fund balance appropriated in the Adopted Budget.

According to the Local Government Commission, the minimum level of undesignated fund balance available for appropriation - to enable the unit to meet current obligations, to prevent the unit from experiencing cash flow difficulties, and to aid the unit during emergencies, is 8% of the prior year's expenditures. However for units of local government of our population and budget size, the average fund balance ranges from 40-65%.

According to the recently adopted Town of Blowing Rock Comprehensive Financial Policy, the Town established as a goal to achieve an undesignated fund balance in an amount equal to 50% of the Town’s General Fund Budget.

In summary, the sources of revenue described in this section account for 100% of all revenues budgeted for FY 2005-2006.

EXPENDITURES BY FUNCTION – GENERAL FUND

General Government (Governing Body, Administration/Finance, & Central Government)

This function accounts for $765,165 or 20.33% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Copier Lease & Computer Upgrades

·         Transfer to Capital Projects Fund for Sewer Projects ($205,000)

General Government (Public Buildings & Grounds)

This function accounts for $206,470 or 5.49% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Funding for Town Hall walkway entrance & Council Chamber HVAC improvements

·         Continued funding for Tree Planting Program for public areas

·         Continued funding for Christmas Decorations

·         Continued funding on debt service for Tiller/Lane Property

·         Initial funding on debt service for the Visitor Center

Public Safety (Police & Emergency Services)

This function accounts for $1,105,690 or 29.38% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Initial replacement funding for (2) Police Vehicles {Sedans or 4X4 SUV’s}

·         Continued funding of Debt Service - (4) Police Vehicles

·         Funding for Police Computer Software Upgrades/Taser Gun

·         Continued funding for a new Emergency Services Building

·         Continued funding for part-time Emergency Services Staff

·         Continued support for the Blowing Rock Volunteer Fire Department

·         Continued support for the Blowing Rock Volunteer Rescue Department

·         DARE program

 

Transportation (Public Works – Streets)

This function accounts for $782,330 or 20.79% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Initial funding for Chipper/Shredder

·         Initial funding for Tiller/Lane Parking Facility

·         Continued funding for various Storm Water improvements

·         Continued funding for a Truck

·         Continued funding for a Dump Truck

·         Continued funding for Sidewalks (Replacement/Installation)

·         Continued funding for implementation of the Pavement Plan

 

Environmental Protection (Public Works – Sanitation/Recycling)

This function accounts for $304,800 or 8.10% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Initial funding for a new Commercial Garbage Truck

·         Increased funding for County Landfill Tipping Fees (Commercial)

·         Continued funding of Garbage Packer

 

Economic and Community Development (Planning/Zoning)

This function accounts for $195,445 or 5.19% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Continued funding for GIS Project

 

Culture and Recreation (Parks & Recreation and Community Contributions)

This function accounts for $403,445 or 10.72% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Transfer of Landscaping Division into Parks & Recreation per Master Plan

·         Continued funding for the Parks and Recreation Playground Equipment

·         Continued funding for Swimming Pool Design/Replacement

·         Continued funding to resurface Tennis Courts

·         Community Contributions totaling $8,500

-          Appearance Commission ($3,000)

-          American Legion ($3,000) for building use

-          Community Library ($2,000)

-          Crimestoppers ($500)

·         Continued funding Landscaping/Beautification

·         Continued funding for Walk-Behind Tractor

 

EXPENDITURES BY FUNCTION – WATER/SEWER FUND

Environmental Protection – Water/Sewer Fund

This function accounts for $1,356,350 or 100% of the Water/Sewer Fund.

Major capital projects/improvements/programs are:

·         Initial funding for Mini-Excavator (Field Operations)

·         Continued funding for (2) Trucks and Skid Steer (Field Operations)

·         Transfer to Capital Projects Fund for Water/Sewer improvements ($230,000)

·         Continued funding for Debt Service on Sewer Bonds

 

EXPENDITURES BY CATEGORY

Personnel Expenditures

Personnel expenditures include salaries, FICA, group insurance, retirement, longevity pay, and other miscellaneous benefits for 52 full-time coworkers, several part-time positions as well as seasonal workers. The FY 2005-2006 Adopted Budget for Personnel Expenditures is $2,359,570 or 46.09% of the total budget. In the FY 2004-2005 Adopted Budget, Personnel Expenditures were $2,305,050 or 45.95% of the total budget.

Highlights include:

-          No new positions have been included in the FY 2005-2006 Adopted Budget. One vacant position, previously allocated in PW-Sanitation, was eliminated and transformed into funding for contracted vehicle maintenance. A detailed list of all FTE (Full-Time Equivalent) positions by department can be found at the Authorized Position Allocation Summary section of the budget document.

-          Cost of living adjustments of 3.0% are included for Town personnel.

-          Health insurance and dental insurance costs have increased 12.5% for FY 2005-2006 or an increase of approximately $35,000 for the Town.

Operating Expenses

Operating expenditures include all costs other than personnel and capital outlay. Many operational expense increases are linked to inflation, so the CPI is used to evaluate proposed increases. Debt service requirements, increased service demands, and enforcement of regulations directly affect other operational expenditures. The FY 2005-2006 Adopted Budget for Operating Expenditures is $2,502,160 or 48.87% of the total budget. In the FY 2004-2005 Adopted Budget, Operating Expenditures were $2,444,420 or 48.72% of the total budget. This category also includes transfers to the Capital Reserve Project Funds.

Highlights include:

-          Insurance (property/casualty/liability) costs and Workers Compensation Coverage costs reflect no change based on an improved loss/ratio and experience modifier this past year.

-          Debt service costs of $79,600 are included for the purchase of the Tiller/Lane Property* and $54,570 for the purchase of the Visitor Center*. Also, the Sewer Bond refinancing is allocated at $221,030 for FY 2005-2006 with the final amortization in 2012. All other capital financing requirements are funded in the Adopted Budget. A detailed Amortization Schedule for FY 2005-2006 can be found at the Debt Payments section of the budget document.

* The Tourism Development Authority is funding these payments via the occupancy tax.

-          Includes increased funding for Watauga County commercial landfill tipping fee expenses, expected higher fuel expenses and additional Main Street streetlight placement expenses.

Operating Capital Outlay

Operating Capital Outlay expenditures are for the purchase of machinery, equipment, and other items that are too permanent to be considered expendable at the time of purchase, have a value greater than $500, and have a life expectancy of at least one-year. The FY 2005-2006 Adopted Budget for Operating Capital Outlay expenses, for both the General Fund and Water/Sewer Fund, total $257,965 or 5.04% of the total budget. In the FY 2004-2005 Adopted Budget, Operating Capital Outlay Expenditures were $267,325 or 5.34% of the total budget.

Operating Capital Outlay appropriations do not include transfers to Capital Project Funds, which are included in the Operating Expenses Category.

Highlights include:

-          A detailed list of capital purchases for FY 2005-2006 can be found at the Five-Year Capital Improvements Plan section of the budget document.

Comprehensive Plan Initiatives

A major focus of the past several budgets has been overall comprehensive planning and its implementation. The Adopted FY 2005-2006 continues this trend, with the following plans and initiatives underway:

- Town Comprehensive Plan        - Town Signage Plan (TDA funded)          - Storm Water Study

- Town Landscape Plan              - Parks and Recreation Master Plan        - Town Sidewalk Plan

- Town Pavement Plan                - Water & Sewer Capital Improvement Plan & Extension Plan

CLOSING

The Adopted FY 2005-2006 Budget is balanced in accordance with State statutes and attempts to address the goals and priorities that have been set by the Town Council for the Town’s future.

In closing, the enclosed budget reflects my recommendations based on departmental meetings, evaluation of existing service needs, and input from the Town Council and citizens over the past year. The FY 2005-06 budget represents a level of funding, which will allow the Town to continue to maintain current service levels while making organizational changes to be cost effective and more efficient. It is important to remember that with any budget, external forces can affect these projections. As a result, the figures proposed in the FY 2005-06 budget are a conservative estimate of our revenues and expenditures for the next year. As always, the budget will require some fine-tuning.

Finally, I would like to take this opportunity to express my sincere appreciation to the staff and the Board for their patience, understanding, and dedicated work on this important policy document.

Respectfully Submitted,

Scott E. Hildebran

Town Manager