The Recommended 2007-2008 Budget was presented to Town Council on May 8, 2007 and copies were made available to the Town Clerk and the public. The Town Council held Budget Worksessions on the budget on May 20 & 21, 2007. Pursuant to N.C.G.S. 159-12 (b), the Council held a public hearing on the proposed budget on June 12, 2007 at 7:00 p.m. An abbreviated copy is also available online at www.townofblowingrock.com.

 

 

 

May 8, 2007

 

 

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

 

Pursuant to Section 159-11 of the North Carolina General Statutes, I am pleased to present the Recommended Budget for FY 2007-2008 for your review and consideration. This proposed budget 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 both the Parks/Recreation & Landscape Master Plan and the Water/Sewer Capital Improvements Plan.

·         Continued focus on comprehensive planning efforts.

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

 

The FY 2007-2008 Recommended Budget totals $5,898,765 for all Town operations, capital improvements, and debt service requirements. This is an increase of 3.5% over last year’s adopted budget of $5,698,125.

 

 

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 General Fund is balanced with no increase in the current property tax rate of $0.280 per $100 valuation. This rate will provide approximately $2,812,000 in property tax revenues based on an expected collection rate of 97.0%. The recommended FY 2007-2008 budget will once again set aside over $.03 of the proposed $.28 General Fund tax rate revenues toward capital projects – the new emergency services building and other capital projects.

The Town’s tax base is split between two counties – Watauga and Caldwell. Watauga County represents approximately 94.61% of the total property tax base. Caldwell County accounts for the remaining 5.39%. The total property tax base (excluding motor vehicles) is estimated to be $1,035,206,900, which is higher than FY 2006-2007 budget base of $1,004,200,200, and is based on information from the Watauga & Caldwell County Tax Offices. A penny on the tax rate is projected to generate $103,520 in revenue. The Town’s property tax base is estimated to be approximately 85% residential and 15% commercial.

 

The FY 2007-2008 Recommended Budget for the General Fund totals $4,510,565 or 4.27% more than the FY 2006-2007 Adopted Budget of $4,325,595.

 

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. The FY 2007-2008 Recommended Budget includes a water/sewer base rate adjustment of 5.0% to offset rising operating and capital costs, and to fund major water and sewer capital needs as outlined in the recently adopted Water & Sewer Capital Improvement Plan. This rate adjustment is only the third adjustment in 13 years, or since FY 1994-1995. In addition, the FY 2007-2008 Recommended Budget includes an increase in water and sewer availability fees for new residential connections ($600 per bedroom to $750 per bedroom each for both water and sewer). Availability Fees are charges to individual users representing the cost of creating the infrastructure to serve their demand for service. Sometimes these fees are called “impact fees” indicating that they represent the monetary impact on the Utility’s system in making this capacity available to its customer base. This is the first rate adjustment in availability fees in 10 years, or since FY 1998-1999.

 

Some of the future water and sewer capital improvements identified in the plan include:  additional water supply and storage, water interconnection with the Town of Boone, major water and sewer plant upgrades, extension of water and sewer lines, and overall maintenance.

 

The FY 2007-2008 Recommended Budget for the Water and Sewer Fund totals $1,388,200. This is a 1.31% increase over the FY 2006-2007 Adopted Budget of $1,370,200. The increased rates are expected to provide sufficient revenues to support all Water and Sewer Fund operations for FY 2007-2008.

 

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 2007-2008 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 $736,085 and the Water/Sewer Fund will be $240,090.

 

The total proposed contribution to the Capital Reserve Projects Funds for FY 2007-2008 is $976,175, or approximately 16.54% of the Total Recommended Budget. This allocation compares favorably to the $972,930, or 17.07% appropriated in the FY 2006-2007 Adopted Budget. As mentioned above, the recommended FY 2007-2008 budget continues to set aside over $.03 of the proposed General Fund tax rate revenues for 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 2008, but the pace of improvement is slow due to the lack of high-wage job creation. North Carolina’s economic growth continues to follow the same pattern. There also is still concern about higher energy and fuel costs, a softening housing market, as well as recent interest rate hikes. According to Lee Mandell, Fiscal Analyst with the N.C. League of Municipalities, with over seven statewide-collected municipal revenues strongly influenced by economic factors, the degree of any predictable growth in these revenues is uncertain.

 

2.                   The State Legislature – The State’s current FY 2006-2007 budget estimates are running above projections with unexpected growth in tax payments from capital gains on stock and real estate sales; however, the State still faces high-priority spending demands heading into FY 2007-2008. These priorities include providing long-term county Medicaid relief and state salary increases; funding school and university increased enrollment and funding huge capital needs, such as roads, infrastructure, etc. The State also had pledged last year to eliminate, in FY 2007-2008, the remaining temporary state taxes enacted in 2001 – a quarter-cent of the state sales tax and a quarter-percentage point in the highest state income tax bracket. All of these demands at the state level exceed their expected revenues in FY 2007-2008 and as a result may impact our local government revenues.

 

Therefore, once again, 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 2007-2008 property tax rate maintains the current tax rate of $0.280 per $100 of valuation. On a $500,000 home, the total annual Town of Blowing Rock property taxes due would be $1,400.00.

 

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 2006 annual income of $20,500. 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 $2,891,500 in FY 2007-2008. 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 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 $316,400 in revenue for next fiscal year to the General Fund. Water and sewer related charges (and interest) are estimated to total $1,388,200 in FY 2007-2008.

 

As mentioned previously, the FY 2007-2008 Recommended Budget includes a water/sewer base rate adjustment of 5.0% to offset rising operating and capital costs. Each water account or sewer account will be charged an additional $.75 per month, equating to an increase of $9.00 a year for water and $9.00 per year for sewer.

 

Also, the FY 2007-2008 Recommended Budget includes a new method for calculating zoning permit fees and building permit fees for new residential and commercial construction – going from an estimated cost of new construction method to a square footage fee for new construction. This change will bring Blowing Rock in line with the method utilized in Watauga County, Caldwell County and the Town of Boone. The proposed permit fees will affect each individual project differently – as some building permit projects will realize a building fee increase while others will decline.

 

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

 

State-Collected Local Taxes

In FY 2007-2008, there are four statewide revenues received by the Town whose estimates depend on economic forces: Utility Franchise Tax, Telecommunications Sales Tax, Beer and Wine Tax and the new Video Programming Tax (formerly Cablevision TV Franchise 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 2.5-3.5% 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.

 

With increased competition, telecommunications rates are dropping even as the base is expanding. Technological and regulatory uncertainties and untaxed competition from out of state companies (i.e. Vonage and other VOIP providers) tend to constrain growth in this revenue. However, because of compensating changes in the municipal share of the distribution, the League expects some possible growth in this revenue.

 

Beer and Wine taxes are distributed statewide based on local government population, as such this revenue is estimated to remain flat.

 

Effective January 1, 2007, state legislation eliminated local cable franchise fee revenue. Local video programming revenue replaced the lost revenue and, due to no historical base, is estimated at a revenue neutral level.

 

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 $195,300 for FY 2007-2008. 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.

 

Two and one-half cents of the 6.75 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 3.0-5.5% in FY 2007-2008. Due to the proportional population distribution basis and a relatively flat population, sales tax revenues are projected to be $370,000 in FY 2007-2008. 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 $287,690 in funding for the Town in FY 2007-2008 to use in support of the various tourism-related operations of the Town. Additionally, the TDA will compensate the Town with $17,425 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 a flat population growth, higher gas prices, and municipal annexations around the state that effect distribution, we anticipate stagnant growth in Powell Bill funding in FY 2007-2008. This revenue is estimated to be $85,000 for FY 2007-2008. 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 2007-2008.

 

Grants

At this time, the Recommended FY 2007-2008 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. A current grant application for $500,000 is under review with the N.C. Park & Recreation Trust Fund for improvements to the Robbins Swimming Pool. A decision on the grant will be made after adoption of the FY 2007-2008 Budget.

 

In FY 2006-2007, the Town received grant proceeds for a Stormwater Study ($50,000, which includes a $10,000 town-match). This grant project is located in the General Capital Projects Fund and not included in General Fund revenues.

 

Other

Other miscellaneous revenue includes: privilege licenses, interest income, parking tickets, donations, book sales, park lease, town property rental income, sale of fixed assets, contribution from the Volunteer Fire Department, snow removal reimbursement, etc. These funds are expected to be $224,750 for FY 2007-2008.

 

This revenue source is projected for growth due to increased interest rate income and a contribution from the Volunteer Fire Department toward a position in the Emergency Services Department.

 

Fund Balance

On June 30, 2007, the Undesignated General Fund Balance is projected to be approximately $1,475,000 or 34.09% of FY 2006-2007 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 June 30, 2006 fund balance ranges from 62-65%.

 

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 2007-2008.

 

 

EXPENDITURES BY FUNCTION – GENERAL FUND

 

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

This function accounts for $1,154,225 or 25.59% 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 ($360,000) - new Emergency Services Building and other future capital needs

·         Community Library Support ($2,000)

 

General Government (Public Buildings & Grounds)

This function accounts for $195,530 or 4.33% of the total General Fund budget.

Major capital projects/improvements/programs are:

 

·         Continued funding for public building improvements

·         Continued funding for Tree Planting Program for public areas (via TDA)

·         Continued funding for Christmas Decorations (via TDA)

·         Continued funding on debt service for Tiller/Lane Property (via TDA)

·         Continued funding on debt service for the Visitor Center (via TDA)

 

Public Safety (Police & Emergency Services)

This function accounts for $1,286,395 or 28.52% of the total General Fund budget.

Major capital projects/improvements/programs are:

 

·         Initial replacement funding for (2) Police Vehicles

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

·         Increased funding for part-time telecommunicators

·         Continued funding for Police Department Building renovations

·         Continued replacement funding for in-car video cameras

·         Funding beginning January 1 for an Emergency Services Department position

·         Continued funding for part-time Emergency Services Staff

·         Continued support for the Blowing Rock Volunteer Rescue Department

·         DARE program

·         Crimestoppers Support

 

Transportation (Public Works – Streets)

This function accounts for $920,150 or 20.40% of the total General Fund budget.

Major capital projects/improvements/programs are:

 

·         Initial replacement funding for a Dump Truck

·         Increased funding for Parking Facilities Reserve (via TDA)

·         Increased funding for various Stormwater improvements

·         Increased funding for contracted Right of Way Clearing, Tree and Leaf Removal, etc.

·         Continued funding for Master Signage Plan (via TDA)

·         Continued funding for Chipper/Shredder

·         Continued funding for a Pick-up Truck

·         Continued funding for Sidewalks Replacement/Installation (via TDA)

·         Continued funding for Pavement Plan implementation

 

Environmental Protection (Public Works – Sanitation/Recycling)

This function accounts for $306,950 or 6.81% of the total General Fund budget.

Major capital projects/improvements/programs are:

 

·         Continued funding for Commercial Garbage Truck

·         Continued funding for Garbage Packer

 

Economic and Community Development (Planning/Zoning)

This function accounts for $218,780 or 4.85% of the total General Fund budget.

Major capital projects/improvements/programs are:

 

·         Continued funding for Permit Tracking Software

·         Continued funding for Land Use Code Review

·         Continued funding for GIS Project

 

Culture and Recreation (Parks/Recreation & Landscape)

This function accounts for $428,535 or 9.50% of the total General Fund budget.

Major capital projects/improvements/programs are:

 

·         Upgrade part-time Park Maintenance Assistant position to full-time

·         Includes funding for part-time staff for downtown litter pick-up patrol

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

·         Final payment on the Memorial Park Playground Equipment (via TDA)

·         Community Contributions totaling $6,000

-          Appearance Commission - Plant Material and Fountain Utilities ($3,000)

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

·         Continued funding Landscaping/Beautification (via TDA)

 

EXPENDITURES BY FUNCTION – WATER/SEWER FUND

 

Environmental Protection – Water/Sewer Fund

This function accounts for $1,388,200 or 100% of the Water/Sewer Fund.

Major capital projects/improvements/programs are:

 

·         Initial funding for a Sewer Jet and Sewer Camera

·         Initial replacement funding for a Pick-up Truck

·         Continued funding for Mini-Excavator (Field Operations)

·         Continued funding for Debt Service on Sewer Bonds

·         Transfer to Capital Projects Fund for Water/Sewer improvements ($240,090)

- includes $10,000 for Water Meter Replacement Program

 

EXPENDITURES BY CATEGORY

 

Personnel Expenditures

Personnel expenditures include salaries, FICA, group insurance, retirement, longevity pay, and other miscellaneous benefits for 54.5 full-time equivalent coworkers, several part-time positions as well as seasonal workers. The FY 2007-2008 Recommended Budget for Personnel Expenditures is $2,689,745 or 45.60% of the total budget. In the FY 2006-2007 Adopted Budget, Personnel Expenditures were $2,504,570 or 43.95% of the total budget.

 

Highlights include:

 

-          One new position has been included in the FY 2007-2008 Recommended Budget. A part-time Park Maintenance Assistant position, allocated in Parks/Recreation and Landscape, was transformed into a full-time position. Also, the Recommended Budget includes funding beginning January 1, 2008 for a full-time Firefighter/EMT position in the Emergency Services Department that was part of a shared funding arrangement with the Volunteer Fire 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 an average of 3.0% for Town personnel. The respective department directors will determine the distribution method of these adjustments.

 

-          Health insurance and dental insurance costs have increased 4.8% for FY 2007-2008 or an increase of over $17,500 for the Town.

 

-          A Town 401K supplement of 1.0% of salary is included for all general personnel to go toward the N.C. 401K Supplemental Retirement System. Sworn law enforcement personnel receive a 5% supplement per state statute requirement.

 

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 2007-2008 Recommended Budget for Operating Expenditures is $2,633,215 or 44.64% of the total budget. In the FY 2006-2007 Adopted Budget, Operating Expenditures were $2,578,305 or 45.25% of the total budget. This category also includes transfers to the Capital Reserve Project Funds.

 

Highlights include:

 

-          Funding for increases in insurance (property/casualty/liability) costs and workers compensation coverage costs.

 

-          Funding for expected higher energy and fuel expenses.

 

-          Continued 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 $125,125 or 2.12% of the total budget. In the FY 2006-2007 Adopted Budget, Operating Capital Outlay Expenditures were $107,800 or 1.89% 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 2007-2008 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 2007-2008 Recommended Budget for Debt Service Expenditures, for both the General Fund and Water/Sewer Fund, total $450,680 or 7.64% of the total budget. In the FY 2006-2007 Adopted Budget, Debt Service Expenditures were $507,450 or 8.91% of the total budget.

 

Highlights include:

 

-          A detailed Amortization Schedule for FY 2007-2008 can be found at the Debt Payments section of the budget document.

 

Comprehensive Plan Initiatives

Over the past four years, the Town Council has had a major focus on overall comprehensive planning and its implementation. The Recommended FY 2007-2008 Budget maintains this trend and continues to fund the following planning initiatives:

 

- 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  (Summer ’07)

- Downtown Streetscape Plan (Summer ‘07)        

 

CLOSING

 

This Recommended Budget for FY 2007-2008 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 2007-2008 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.

 

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