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 $2,209,000 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 96.0% of the total property tax base. Caldwell County accounts for the remaining 4.0%. The total property tax base (excluding vehicles) is estimated to be $772,000,000, which is slightly higher than FY 2003-2004, and is based on information from the Watauga & Caldwell County Tax Offices. A penny on the tax rate is projected to generate approximately $77,200 in revenue. The Town’s property tax base is estimated to be approximately 85% residential and 15% commercial.

The FY 2004-2005 Recommended Budget for the General Fund totals $3,676,590 or 1.93% less than the FY 2003-2004 Adopted Budget of $3,747,590.

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. The Water and Sewer Fund recommends a 9% increase in water and sewer rates for FY 2004-2005. This proposed increase is only the second increase in 10 years, or since FY 1994-1995.

In order to qualify for many State and Federal loan/grant programs, the Town must demonstrate that customer rates are of a sufficient level to warrant assistance and be comparable to the USDA average. Based on preliminary results of a N.C. Rural Water Association Rate Study, the Town needs to raise rates to meet current and future operating and capital costs. Future water and sewer capital needs include: an additional raw water supply and storage, increasing the dam level, a water interconnection with the Town of Boone, a land swap 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 increased rates are expected to provide sufficient revenues to support all Water and Sewer Fund operations for FY 2004-2005.

The FY 2004-2005 Recommended Budget for the Water and Sewer Fund totals $1,340,205. This is a 6.85% increase over the FY 2003-2004 Adopted Budget of $1,254,205. 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.

The Capital Reserve Project Funds (General and Water/Sewer) exist as a financial tool to help in the financial planning of future 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 2004-2005 Recommended 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 will be $300,000 and $230,000, respectively.

The total proposed contribution to the Capital Reserve Projects Funds for FY 2004-2005 is $530,000, or approximately 10.5% of the Total Recommended Budget. This allocation compares favorably to the $570,000, or 11.4% appropriated in the FY 2003-2004 Adopted Budget. A separate updated Capital Projects Budget Ordinance, to designate formal project appropriations, will be presented to Council later in the year.

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

2. The Legislature – the State’s FY 2004-2005 budget appears to be in somewhat better shape than in past years; however, they still have to close a gap of $500-$800 million in discretionary, but high-priority spending in an election year.

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

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 $18,000 annually. 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 $2,285,900 in FY 2004-2005. In North Carolina, the property tax is the only significant source of revenue that the State allows local governments to control.

The City 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 Parks and Recreation Department’s budget is supported by revenue generated from program registration fees. Property tax revenue and other General Fund revenue support most of the Parks and Recreation Department’s budget. Some services which produce "Sales and Service" revenue include:

• Commercial Solid Waste/Recycling Fees

• Building Inspections/Zoning Fees
• Cemetery Fees
• Recreation Fees
• Water/Sewer Charges

This source of revenue will provide approximately $304,590 in revenue for next fiscal year to the General Fund. Water and sewer related charges (and interest) are estimated to total $1,340,205 in FY 2004-2005.

Due to a proposed increase in commercial landfill tipping fees from $40 per ton to $42 per ton by Watauga County, the recommended budget includes an increase in commercial solid waste fees to cover these costs. In addition, the recommended budget includes a 9% increase in water and sewer fees. A breakdown of the proposed fee increases 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.

In FY 2004-2005, 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 3.0-3.5% 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.

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 $138,610 for FY 2004-2005. These are strictly General Fund revenues.

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 $15,000 in 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 $15,000 "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 the recently approved 2002 one-half cent. 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. The League of Municipalities anticipates statewide growth in the 3.5-4.5% range. Sales tax revenues (including the new one-half cent proceeds) are projected to be $320,000 in FY 2004-2005. This is strictly a General Fund revenue.

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 $238,555 for the Town in FY 2004-05 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 administrative and collection of the occupancy tax and $7,500 for reimbursement costs associated with town staff-support time.

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 to supplant State revenues, we anticipate nominal growth in Powell Bill funding in FY 2004-2005. This revenue is estimated to be $81,000 for FY 2004-2005. This is strictly a General Fund revenue.

These proceeds come from a contribution from the local ABC Board from the sales of alcoholic beverages. The revenue is estimated at $125,000 for FY 2004-2005.

At this time, the Recommended FY 2004-2005 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.

Currently, the Town is recipient of 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). Staff anticipates these projects will be completed by mid-to-late summer.

Other miscellaneous revenue includes: privilege licenses, interest income, miscellaneous income, cablevision fees, parking tickets, 911 contributions/donations, book sales, park lease, snow removal reimbursement, etc. These funds are expected to be $159,285 for FY 2004-2005.

This revenue source is projected for an increase due to State snow-removal reimbursement costs and developer reimbursement for sidewalk installation.

On June 30, 2004, the Undesignated General Fund Balance is projected to be approximately $850,000 or 23.1% of FY 2004-2005 General Fund revenues. There is no fund balance appropriated in the proposed budget. Also, the Recommended FY 2004-2005 Budget includes an appropriation of $65,000 to the General Fund Balance as initial repayment of the China Creek property purchase.

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 June 30, 2003 average fund balance ranges from 40-65%.

In summary, the sources of revenue described in this section account for 100% of all revenues budgeted for FY 2004-2005. Without an expanded menu of revenue sources approved by the State, local governments in North Carolina will be forced to continue to rely upon the few sources of revenue they actually control to meet citizen demands for basic public services – mainly the property tax.

This function accounts for $786,605 or 21.39% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Computer/Copier Upgrades
• Increased funding for Insurance (Liability, Workers Compensation), Audit and Legal Services
• Transfer to Capital Projects Fund for Sewer Projects ($200,000)
• Transfer to General Fund Balance ($65,000)

This function accounts for $216,510 or 5.89% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Funding for Town Hall Carpeting & HVAC
• Funding for part-time Landscape Staff
• Funding for Tree Planting Program
• Continued funding for Walk-Behind Tractor
• Continued funding for Christmas Decorations
• Continued funding on debt service for Tiller/Lane Property Purchase

This function accounts for $1,063,880 or 28.94% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Funding of Debt Service - (4) Police Vehicles
• Initial funding for (2) Police Vehicles (Sedan and 4X4 SUV)
• Funding for Police Computer Upgrades
• Funding for part-time Emergency Services Staff
• Continued funding for Emergency Services Building/Design
• Continued support for the Blowing Rock Volunteer Fire Department
• Continued support for the Blowing Rock Volunteer Rescue Department

This function accounts for $762,780 or 20.75% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Initial funding for a 4X4 Truck
• Increased funding for Storm Debris Removal
• Continued funding for a Dump Truck
• Continued funding for Sidewalks (Replacement/Installation)
• Continued funding for Special Paving

This function accounts for $293,145 or 7.97% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Continued funding of Garbage Packer
• Increased funding for County Landfill Tipping Fees (Commercial)

This function accounts for $199,110 or 5.42% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Continued funding for GIS Project

This function accounts for $354,560 or 9.64% of the total General Fund budget.

Major capital projects/improvements/programs are:

• Funding for a Park & Recreation 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 $11,500

• Main Street Beautification ($5,500)
• Community Library ($2,000)
• DARE ($500)
• WataugaNet ($3,000)
• Crimestoppers ($500)

This function accounts for $1,340,205 or 100% of the Water/Sewer Fund.

Major capital projects/improvements/programs are:

• Initial funding for a Utility Truck (Field Operations)
• Initial funding for a 4X4 Truck (Plant Operations)
• Continued funding for Backhoe
• Transfer to Capital Projects Fund for Water/Sewer ($230,000)
• Funding for Debt Service on Sewer Bonds

Personnel expenditures include salaries, FICA, group insurance, retirement, longevity pay, and other miscellaneous benefits for 53 full-time coworkers and seasonal workers. The FY 2004-2005 Recommended Budget for Personnel Expenditures is $2,305,050 or 45.95% of the total budget. In the FY 2003-2004 Adopted Budget, Personnel Expenditures were $2,171,095 or 43.41% of the total budget.

Highlights include:

• No new positions have been included in the FY 2004-2005 Recommended Budget. 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 are recommended at 3.0% for Town personnel.

• Health insurance and dental insurance costs have increased 11.5% for FY 2004-2005 or an increase of approximately $30,000 for the Town.

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 2004-2005 Recommended Budget for Operating Expenditures is $2,444,420 or 48.72% of the total budget. In the FY 2003-2004 Adopted Budget, Operating Expenditures were $2,582,595 or 51.63% of the total budget. This category also includes transfers to the Capital Reserve Project Funds.

Highlights include:

• Insurance (property/casualty/liability) costs have increased 13% for FY 2004-2005, or an increase of approximately $8,800 for the Town. This increase was largely the result of our loss/ratio and experience modifier. Workers Compensation Coverage costs reflects no change.

• Debt service costs of $81,850 are included for the purchase of the Tiller/Lane Property. Also, the Sewer Bond refinancing is allocated at $225,530 for FY 2004-2005 with the final amortization in 2012. All other capital financing requirements are funded in the Recommended Budget. A detailed list of all Amortization Schedules for FY 2004-2005 can be found at the Debt Payments section of the budget document.

• Allocations for fuel have been increased in all departments to reflect the rising costs.

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 2004-2005 Recommended Budget for the general fund and water/sewer fund (excluding capital transfers) Operating Capital Expenditures is $267,325 or 5.33% of the total budget. In the FY 2003-2004 Adopted Budget, Operating Capital Outlay Expenditures were $248,105 or 4.96% of the total budget.

Highlights include:

• A detailed list of capital purchases for FY 2004-2005 can be found at the Five-Year Capital Improvements Plan section of the budget document.

A major focus of this past year’s budget has been overall comprehensive planning and its implementation. The Recommended FY 2004-2005 will continue this trend. The plans and initiatives that are underway or will be begun during FY 2004-2005 are as follows:

This Recommended Budget for FY 2004-2005 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. The budget is fiscally sound, and although it does not fund all the requests made by departments or external groups, it does meet the top priority needs of the Town and is set at a level to maintain service levels to citizens, even under the unusual economic circumstances facing the State and nation.

In closing, the enclosed budget reflects my recommendations based on departmental meetings, evaluation of existing service needs, and input from the Town Council over the past year. The FY 2004-05 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 2004-05 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. We look forward to reviewing the proposed budget with the Board and making adjustments, as the Council deems appropriate.

Respectfully Submitted,

Scott E. Hildebran

Town Manager