June 13, 2006

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

I am pleased to provide you a copy of the FY 2006-2007 Annual Budget and Budget Ordinance (#2006-04) for your review and consideration. 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 Recommended 2006-2007 Budget was presented to Town Council on May 9, 2006 and copies were made available to the Town Clerk and the public. The Town Council held Budget Worksessions on the budget on May 11 & 16, 2006. Pursuant to N.C.G.S. 159-12 (b), the Council will hold a public hearing on the proposed budget this evening (June 13, 2006).

The 2006-2007 Proposed 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, including funding of the Parks/Recreation & Landscape Master Plan and initial funding of the Water/Sewer Capital Improvements Plan.

·         Continued focus on comprehensive planning efforts.

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

The 2006-2007 Proposed Budget Document reflects the budget as amended during Town Council deliberations. An updated Budget Message Summary is attached to this correspondence.

Based on Council direction, the Proposed FY 2006-2007 Budget includes a revenue neutral tax rate of $0.2425 per $100 and proposes an additional $0.0375 cents dedicated for capital improvements, for a total ad valorem property tax rate of $0.280 per $100 valuation. All other Town fees and charges will remain the same in FY 2006-2007.

The FY 2006-2007 Recommended Budget totals $5,698,125 for all Town operations, capital improvements, and debt service requirements. This is an increase of 11.3% over last year’s adopted budget of $5,119,695.

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 RECOMMENDED 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 total property tax base (excluding vehicles) is estimated to be $1,004,200,200, which is higher than FY 2005-2006 budget base of $787,000,000, and is based on information from the Watauga & Caldwell County Tax Offices. A penny on the tax rate is projected to generate $100,420 in revenue. The significant change in valuation as of January 1, 2006 is due to the Watauga County revaluation of real property and is expected to decrease slightly as a result of appeals, which are still in process. The Town’s tax base is split between two counties – Watauga and Caldwell. Watauga County represents approximately 94.55% of the total property tax base. Caldwell County accounts for the remaining 5.45%. The Town’s property tax base is estimated to be approximately 85% residential and 15% commercial.

State law requires the inclusion of a revenue-neutral tax rate in the budget immediately following the completion of a general reappraisal of real property to provide its citizens with comparative information. The revenue-neutral rate is defined as the rate that is estimated to produce revenues for the next fiscal year equal to the revenue for the current fiscal year if no reappraisal had occurred. The rate is then adjusted by a growth factor equal to the average annual percentage increase in the tax base due to improvements since the last general reappraisal. Using the formula mandated by state law, the revenue-neutral tax rate for the Town of Blowing Rock is 24.25 cents per $100 valuation. (See revenue-neutral property tax worksheet attached at the conclusion of this budget message.)

The recommended property tax rate for FY 2006-07 is 28.0 cents per $100 valuation, which represents an overall decrease from the property tax rate of 29.5 cents for FY 2005-06. This rate will provide approximately $2,727,400 in property tax revenues based on an expected collection rate of 97.0%. The recommended FY 2006-07 budget will set aside $.0375 of the proposed $.280 General Fund tax rate revenues toward future capital projects – the new emergency services building and other undesignated capital projects.

The FY 2006-2007 Recommended Budget for the General Fund totals $4,325,595 or 14.94% more than the FY 2005-2006 Adopted Budget of $3,763,345.

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 2006-07 Recommended Budget maintains the current water and sewer rate structure. However, due to pending major water and sewer capital needs as outlined in the recently adopted Water & Sewer Capital Improvement Plan, 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, water interconnection with the Town of Boone, water and sewer plant upgrades, extension of water and sewer lines, and overall maintenance.

The Recommended 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 will 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 to year fluctuations.

The FY 2006-2007 Recommended Budget for the Water and Sewer Fund totals $1,372,530. This is a 1.19% increase over the FY 2005-2006 Adopted Budget of $1,356,350. Additional funds are being transferred and set aside in the Water/Sewer Capital Reserve Project Fund to fund 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 2006-2007 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 from the General Fund will be $742,930 and the Water/Sewer Fund will be $230,000.

The total proposed contribution to the Capital Reserve Projects Funds for FY 2006-2007 is $972,930, or approximately 17.07% of the total Recommended Budget. This allocation is a substantial increase over the $540,000, or 10.5% appropriated in the FY 2005-2006 Adopted Budget. As mentioned above, the recommended FY 2006-07 budget will set aside $.0375 of the proposed General Fund tax rate revenues for future capital projects – the new emergency services building and other undesignated capital projects.

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 modestly in 2006, but the pace of improvement is slow due to the lack of high-wage job creation. 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 continued interest rate hikes.

2.                   The State Legislature – The State’s FY 2005-2006 budget is in much better shape than in past years, with current estimates exceeding budgeted amounts by $2 billion; however, the State still has high-priority spending demands heading into FY 2006-07. These priorities include funding overdue state building maintenance/repairs/renovations, increasing the state’s emergency preparedness fund, funding expected higher than projected school enrollment, providing county Medicaid relief, mental health reform, state salary increases, funding capital needs, such as roads, infrastructure, etc., and elimination of the temporary half-cent sales tax. All of these spending demands well exceed the expected revenues.

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 recommended FY 2006-07 property tax rate is $0.280 per $100 of valuation. On a $400,000 home, the total annual Town of Blowing Rock property taxes due would be $1,120.00.

The N.C. General Assembly has provided higher exemptions for senior citizens aged 65 or older and for citizens who are 100% disabled and subsist on a specified household income not exceeding a 2005 annual income of $19,700. 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 penalties/ interest) are projected to be $2,804,000 in FY 2006-2007. 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 $313,000 in revenue for next fiscal year to the General Fund. Water and sewer related charges (and interest) are estimated to total $1,372,530 in FY 2006-2007.

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 2006-2007, 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 $141,800 for FY 2006-2007. 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 both the Watauga County and Caldwell 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 State estimates, the Town will lose approximately $450 in FY 2006-07 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 $450 “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 and Caldwell 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 4.5-5.5% in FY 2006-07. Sales tax revenues (including the new one-half cent proceeds and the hold-harmless payment) are projected to be $350,500 in FY 2006-2007. This is strictly a General Fund revenue.

Hotel/Motel Occupancy Tax

The Town of Blowing Rock, via 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 recommended $275,330 in funding for the Town in FY 2006-07 to use in support of the various tourism-related operations of the Town. Additionally, the TDA will compensate the Town with $17,050 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 2006-2007. This revenue is estimated to be $86,000 for FY 2006-2007. 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 $122,500 for FY 2006-2007.

Grants

The Recommended FY 2006-2007 Budget includes expected grant proceeds for both a Stormwater Study ($50,000, which includes a $10,000 town-match) and a Sewer Infiltration/Inflow Study ($40,000). Both grant projects are located in the Capital Funds and not included in General Fund revenues.

In FY 2005-06, the Town received a N.C. Governor’s Highway Safety Program grant ($23,180, which included 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 $216,315 for FY 2006-2007.

This revenue source is projected for growth due to increased interest rates on idle town funds.

Fund Balance

On June 30, 2006, the Undesignated General Fund Balance is projected to be approximately $1,275,000 or 33.88% of FY 2005-2006 General Fund Budget. There is no fund balance appropriated in the Recommended Budget.

According to the Local Government Commission, the minimum level of undesignated fund balance available for appropriation is 8% of the prior year's expenditures. A minimum fund balance level is necessary to enable the unit to meet current obligations, to prevent the unit from experiencing cash flow difficulties, and to aid the unit during emergencies. However for units of local government of our population and budget size, the average fund balance ranges from 63-70%.

According to the recently adopted Town of Blowing Rock Comprehensive Financial Policy, the Town established 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 2006-2007.

 

EXPENDITURES BY FUNCTION – GENERAL FUND

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

This function accounts for $1,126,145 or 26.03% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Copier Lease & Computer Upgrades

·         Transfer to Capital Projects Fund for Sewer Projects ($200,000)

·         Transfer to Capital Projects Fund for General Capital Projects ($358,600) - new Emergency Services Building and other future capital needs

·         Community Library Support ($2,000)

General Government (Public Buildings & Grounds)

This function accounts for $196,520 or 4.54% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Funding for Town Hall 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

·         Continued funding on debt service for the Visitor Center

Public Safety (Police & Emergency Services)

This function accounts for $1,168,790 or 27.02% of the total General Fund budget.

Major capital projects/improvements/programs are:

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

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

·         Increased funding for a part-time telecommunicator

·         Funding for Police Computer Software Upgrades/Radar Equipment

·         Funding for an additional Emergency Services Department position

·         Continued funding for architectural/engineering of new Emergency Services Building

·         Continued funding for part-time Emergency Services Staff

·         Continued support for the Blowing Rock Volunteer Rescue Department

·         DARE program

·         Crimestoppers Support ($500)

Transportation (Public Works – Streets)

This function accounts for $904,485 or 20.91% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Funding for upgrade of part-time position to full-time Equipment Operator I position

·         Funding of Snow Plows/Spreaders

·         Funding for contracted Right of Way Clearing

·         Continued funding for Master Signage Plan

·         Continued funding for Tiller/Lane Parking Facility

·         Continued funding for various Storm Water improvements

·         Continued funding for Chipper/Shredder

·         Continued funding for a Truck

·         Continued funding for a Dump Truck

·         Continued funding for Sidewalks (Replacement/Installation)

·         Continued funding for Pavement Plan implementation

Environmental Protection (Public Works – Sanitation/Recycling)

This function accounts for $304,405 or 7.04% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Continued funding for Commercial Garbage Truck

·         Continued funding of Garbage Packer

Economic and Community Development (Planning/Zoning)

This function accounts for $209,385 or 4.84% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Funding for Permit Tracking Software

·         Initial funding for Land Use Code Review

·         Continued funding for GIS Project

Culture and Recreation (Parks/Recreation & Landscape)

This function accounts for $415,865 or 9.61% of the total General Fund budget.

Major capital projects/improvements/programs are:

·         Initial funding for Parks/Recreation & Landscape Capital Improvement Plan

·         Continued funding for the Parks and Recreation Playground Equipment

·         Continued funding for Swimming Pool Design/Replacement

·         Community Contributions totaling $6,000

-          Appearance Commission ($3,000)

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

·         Continued funding Landscaping/Beautification

·         Increased funding for part-time Landscape Assistant

·         Continued funding for Walk-Behind Tractor

EXPENDITURES BY FUNCTION – WATER/SEWER FUND

Environmental Protection – Water/Sewer Fund

This function accounts for $1,372,530 or 100% of the Water/Sewer Fund.

Major capital projects/improvements/programs are:

·         Continued 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 53.5 full-time equivalent coworkers, several part-time positions as well as seasonal workers. The FY 2006-2007 Recommended Budget for Personnel Expenditures is $2,504,570 or 43.95% of the total budget. In the FY 2005-2006 Adopted Budget, Personnel Expenditures were $2,359,570 or 46.09% of the total budget.

Highlights include:

-          One and ½ new positions have been included in the FY 2005-2006 Recommended Budget. One part-time Equipment Operator I position, allocated in PW-Streets, was transformed into a full-time Equipment Operator I position. Also, a new full-time Firefighter/EMT position was created in the Emergency Services Department. 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 9.3% for FY 2006-2007 or an increase of approximately $29,800 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. Increased energy and fuel costs, increased service demands, and enforcement of regulations directly affect other operational expenditures. The FY 2006-2007 Recommended Budget for Operating Expenditures is $2,578,305 or 45.25% of the total budget. In the FY 2005-2006 Adopted Budget, Operating Expenditures were $2,146,960 or 41.94% 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 a small decrease based on an improved loss/ratio and experience modifier this past year.

-          Includes increased funding for expected higher energy and fuel expenses.

-          Includes increased capital transfers to the General Capital Projects and Water/Sewer Capital Projects Funds.

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 2006-2007 Recommended Budget for Operating Capital Outlay expenses, for both the General Fund and Water/Sewer Fund, total $107,800 or 1.89% of the total budget. In the FY 2005-2006 Adopted Budget, Operating Capital Outlay Expenditures were $130,550 or 2.55% 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 2006-2007 can be found at the Five-Year Capital Improvements Plan section of the budget document.

Debt Service

Debt service requirements for payment of principal and interest on borrowed funds such as bonds and lease-purchase payments are allocated in this category. The FY 2006-2007 Recommended Budget for Debt Service Expenditures, for both the General Fund and Water/Sewer Fund, total $507,450 or 8.91% of the total budget. In the FY 2005-2006 Adopted Budget, Debt Service Expenditures were $482,615 or 9.43% of the total budget.

Highlights include:

-          A detailed Amortization Schedule for FY 2006-2007 can be found at the Debt Payments section of the budget document.

Comprehensive Plan Initiatives

A major focus continues to be on overall comprehensive planning and its implementation. The Recommended FY 2006-2007 maintains this trend, with the following plans and initiatives underway:

- Town Comprehensive Plan                                - Town Master Signage Plan (TDA funded)          

- Parks/Recreation & Landscape Master Plan       - Town Pavement Plan               

- Water & Sewer Capital Improvements Plan        - Town Stormwater Plan 

- Downtown Streetscape Plan     

CLOSING

This Recommended Budget for FY 2006-2007 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 2006-07 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 2006-07 budget are a conservative estimate of our revenues and expenditures for the next year.

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.