BY DEBBIE PAGE
With a July 1 deadline looming, the Troutman Town Council and key staff began its delayed budget process on Friday morning with an overview of the financial picture, past and present, and a look at the impacts that the economic crisis, resulting from COVID-19 shutdowns, may have on the town’s budget during the next fiscal year.
Interim Town Manager Jim Freeman told the council that the town is currently in good shape with a healthy cushion in its fund balance savings, but he cautioned that the consequences of the COVID-19 pandemic were out of the town’s control.
Council member Paul Henkel said that the council should pat ourselves on the back for our general fund balance. “We can weather this situation better than towns that are operating on a shoestring,” he said.
Freeman congratulated Finance Director Steve Shealy on his efforts to construct a balanced 2020-21 budget using conservative calculations that reflect decreased revenue projections while maintaining the services that citizens expect.
On Monday, the group will again meet to hear individual department needs, with department leaders appearing one at a time before the council, either in person or virtually, to make their requests.
A LOOK BACK
Freeman first took council members through analyses of town revenue streams from 2015 through 2018 (the latest available from the NC Department of State Treasurer (NCDST)). In 2018, property taxes made up just over a third of the town’s revenue, with intergovernmental moneys (nearly 16 percent) and sales tax (about 11 percent) comprising the other larger streams.
Sewer and water collections made up about 35 percent of the money collected, with the remaining revenue coming from sales and services, debt proceeds, and miscellaneous sources (about 5 percent).
Shealy expects 2019 revenues to roughly reflect these same percentages.
Over those four years, property tax collection grew from about $684,000 to $807,000. Water and sewer proceeds from $767,000 to $837,00, while sales tax rose from $199,000 to $260,000. Intergovernmental funds rose from $233,000 to $374,000.
Because the town does not rely heavily on sales tax revenues in its budget, Shealy said Troutman is in better shape than larger municipalities that do. He also noted that water and sewer collections have surprisingly improved over the last two months, with some customers paying off balances.
Freeman praised the town’s tax collection rate, which ranged from nearly 99 percent in 2015 to 100 percent last year, though he noted that financial difficulties may delay some residents paying their property taxes in January.
The town’s fund balance, or savings, is at 53 percent of the annual budget, well above the state average of 47 percent. The council passed a tax increase in 2016 to build the fund balance, which had dipped to 27 percent in 2017.
State statutes mandate that towns have 8 percent (one month’s operating expenses) in the fund balance but recommends about 50 percent be in savings for lean financial times.
In 2018, the NCDST reported that Troutman spent 61 percent of its budget on operating expenses and to pay debt on municipal projects, 25 percent on salaries and wages, and 14 percent on other capital needs.
Public safety was the largest town expenditure (26 percent), followed by general government spending (16), transportation (12), other needs (11) and debt service (9).
Water and sewer utilities, which function as a self-sustaining separate part of the budget, accounted for about 26 percent of 2018 expenditures.
Shealy expects 2019 spending percentages to be similar to the previous year.
UPCOMING EXTERNAL BUDGET INFLUENCES
Freeman cautioned council members that possible shortfalls were on the horizon. NCDST recently advised municipalities that extended unemployment of citizens will negatively impact property tax revenue collection.
The N.C. Department of State Revenue also warned that due to the uncertainty of the length of the economic downturn, sales tax revenues for 2020-21 will experience a decline, but the department could not predict the extent of the impact.
On a positive financial note, the state’s alcohol beverage tax and overall ABC Store sales appear to be increasing during the pandemic.
Freeman also said that the town’s general revenue sources, such as building development, permit, and recreation fees and utility sales tax on electric and natural gas will decline because of reduced commercial economic activity.
The town’s water and sewer collections could also be impacted. Gov. Roy Cooper issued an emergency order on March 31 prohibiting water and sewer disconnections and a six-month utility repayment period for accumulated balances. Freeman warned this could cause uncollected bill delinquency.
The utility funds could also lose revenue because of closure or reduced operation of commercial and industrial entities as well as local schools. The new System Development Fee Structure, mandated by the state, is also being developed and may affect the existing fee schedule of $2,000 for water and $3,000 for sewer connection.
Council member Paul Bryant noted that construction in some residential developments is slowing, and Henkel added the lack of Planning and Zoning meetings in the state shutdown also impacted ongoing projects. However, Town Planner George Berger, attending the meeting virtually, said construction is still happening, and he is reviewing site plans for future projects.
Shealy noted that Troutman’s 2019-2020 property valuation of $593,110,000 represents a 12.4 percent increase, but with the fragile state of the economy, the town will most likely not sustain such a large increase in valuation in 2020-2021.
He recommended no tax increase to the current 52 cents per $100 valuation property tax rate. However, Shealy warned that because the collection rate could be less, he planned for a conservative 96 percent collection rate in his proposed budget for next fiscal year.
To balance the utility fund budget next year, Shealy recommended a 2 percent sewer rate increase but no water rate increase. He explained that cost of sewer treatment (because of increasing federal regulations) versus revenue is over 50 percent, but water costs, though they increased 2 to 3 percent, are steady with incoming water bill revenue.
Shealy budgeted for the sales tax revenues to remain at this year’s rate, though he does have some concern they may actually be lower.
To create a balanced budget without a tax increase, Shealy recommended taking $44,697 from fund balance. He reminded council members that they added $360,000 to the fund balance last year, so this withdrawal is comparatively minor.
BUDGET REQUESTS PREVIEW
At its February 28 retreat, the council voiced support for spending $450,000 for two ballfields, fencing, drainage, associated improvements, and an additional parking lot at ESC Park. Shealy recommended the fund transfer for the project in his proposed budget, but he advised council members to delay the project for a period of time until they can better assess the uncertain economic environment.
The Parks and Recreation Committee is looking for matching funds, sponsorships, and grants to help defray the costs of the fields, which have been long-requested in public feedback about desired park amenities.
Freeman also added that loosening rules will free up stimulus money for projects that spur economic development. If staff can tie the ballfields and parking improvements to tournaments or other economic benefits, the project could possibly qualify.
Shealy also noted several cost increases, including a 2 percent increase in health insurance premiums. State mandated retirement increases of 9.7 percent to 10.84 for police officers and 9.09 to 10.29 for other town employees will also affect next year’s employee benefit costs.
Shealy also included a 2.5 percent cost of living salary increase for all employees, but Henkel recommended that they delay giving the raise “until we see how things pan out.” Sally Williams agreed, adding that they could give the COLA increase retroactively if the financial conditions allowed.
Another significant expense is the upgrading of four police radios, which are outdated and are no longer being supported by the manufacturer, at a cost of $2,300 each. An additional school resource officer and the purchase of FLOCK plate reader cameras are also on the department’s wish list.
Freeman urged council members to replace all the police radios, not just the requested four, because they are a “priority.”
Council member Eddie Nau, a retired officer, strongly agreed. “‘You cannot put a cost on an officer’s life. You may as well send them out without a gun and bullets,” he said. “The radio was probably the most important piece of equipment I had.”
The Planning and Zoning and Parks and Recreation are both asking for an additional half-time staff member. Other recreation requests include a new Christmas tree, greenway holiday twinkle lights, playground equipment, and additional ball field parking.
Public Works needs $19,000 to replace a leaky roof and additional money for street sweeping, water tank maintenance, and engineering services to meet increasing growth demands.
General government budget requests include $16,000 for the state-required Code of Ordinances Recodification, as well as some updated equipment and computer software.