The Henderson City Council’s first look at revenues for the upcoming budget showed that department heads shouldn’t hold out hope for any requested spending increases and that city residents can expect to pay more starting July 1.
Finance Director Traig Neal had a bit of good news: Henderson won’t need to dip into the depleted general fund balance to get through 2005-06, and the city should be able to avoid an increase in the property tax rate. That rate rose this fiscal year from 61 to 64 cents per $100 of valuation.
“We’ll try not to raise property taxes,” said Bernard Alston, who heads the council’s Finance and Intergovernmental Relations Committee.
On the other hand, Neal is recommending a 10 percent increase in water rates and a 15 percent increase in sewer rates. Those increases would apply inside the city and to people in the rest of Vance County and elsewhere who are Henderson utility customers, such as Franklin County water users.
In the general fund, the projected revenues for next year don’t offer much prospect for boosting the fund balance, which stood at less than 3.5 percent of the budget on June 30, 2004, the close of the last fiscal year. The state’s Local Government Commission sent a letter in February putting Henderson on notice of the need to raise the fund balance to its minimum standard of 8 percent. The city needs $388,000 to reach that level if it counts and saves Powell Bill money, which the state provides for road maintenance; if the city aims for an 8 percent unrestricted fund balance, it will need to find roughly $600,000.
The council didn’t discuss ways to boost the fund balance Monday night.
But Neal’s projections for the rest of the current fiscal year, ending June 30, include pulling $19,001 from the fund balance, $30,460 less than was budgeted for the year.
Without the use of the city’s accumulated savings next fiscal year, Neal projects general fund revenues of $13,369,730, down more than $145,000 from $13,514,949 this year.
The main reason for the decline is that some one-time items, such as the $90,000 sale of a piece of land near the Operations & Service Center, won’t be repeated next fiscal year.
“We need to start looking at revenue enhancements,” Alston said. “Then, philosophically, we need to come up with areas where we think we can trim.”
Neal agreed: “We’re going to have to find new revenue or look at the types of services we offer.”
Neal expects property tax collections this year to meet expectations, with a boost of $44,000 from better-than-expected collections of past taxes. But despite a rising collection rate by the Vance County Tax Office, the property tax revenue for 2005-06 is expected to increase only $20,000, to $4.374 million, because of the declining tax base amid closing factories and deteriorating housing.
That projection reflects what Neal said is a conservative forecast of next year’s revenues. “We didn’t want to come in over” budget.
He said he used the minimum increases in state revenues and kept this year’s projected figures for an assortment of county, state and regional funding sources whose budgets also are still in the works.
The one significant source of increased revenue for the next fiscal year is the sales tax. Neal expects the city to receive $57,000 more than anticipated from the sales tax this year, and he projects a further 3 percent increase in 2005-06 to $2.282 million.
The only other area that is producing significantly more revenue than budgeted this year is the cable television franchise, projected to bring in $136,780 this year, more than $10,000 above budget. Neal projects $137,000 in 2005-06.
On the other hand, the vehicle rental tax is off $11,000 this year to $20,000; refuse collections are off $35,000 to $1.65 million; and parking tickets are down $8,800 to $4,200.
“Sanitation is coming in under what we projected,” Neal said. “We feel like that’s tied in with the way water and sewer are coming in, and that’s not good.” He said the problem is a rise in vacant city homes: Having fewer occupied homes means sending out fewer utility bills.
The biggest projected drops are in the areas Neal said are hardest to project: the utilities franchise tax and state drug tax forfeitures.
The state forfeitures are down from a budgeted $37,094 to $5,690 this year and nothing next year because you can’t predict such law enforcement actions. The utilities franchise tax is down to $635,000 from a budgeted $678,000 and is expected to bounce back a bit in 2005-06 to $654,050.
The final payment for the utilities tax doesn’t reach the city until September, Neal said. And because so many industries have closed, there’s less use of utilities and thus less tax revenue.
The combination of reduced industry and vacant housing is having a bigger effect on the water and sewer funds, which are separate from the general fund.
Water sales from the city system are down almost $235,000 from the current budget to a projected $2.004 million this year, and Franklin County’s purchases are down $42,000 to $1.387 million.
The only good news in the resulting revenue shortfall of $277,0000 is that the city hasn’t needed to buy as much water from the Kerr Lake Regional Water System, cutting expenses by about $175,000.
Neal said the numbers aren’t finished for the regional system yet, but because all of the partners are experiencing the same decline in use as Henderson, regional revenues are going to fall short of the budget. The regional system was planning to add $207,000 to its fund balance, Neal said, so the disappointing sales should result in the water system’s fund balance being unchanged.
Water sales tumbled in late January or February, Neal said. He said Tom Spain, who heads the city’s Water Reclamation Facility, has found that many industrial customers are instituting programs to save money.
Neal cited Iams, which he said spent less than half as much in March on its city water bill as it spent in July.
“It’s impossible to budget for that kind of thing,” Neal said.
That’s why he is proposing a 10 percent increase in the rates that Henderson charges its water customers. Neal did not account for any increase in the price the regional system charges the city. Even that 10 percent increase would leave the city with about $25,000 less in water revenue than it budgeted for this year.
And the water fund is in good shape compared with the sewer fund, which doesn’t benefit from savings on regional water purchases.
“We’re particularly concerned about the sewer fund,” Williams said.
“The sewer fund did not do good this year,” Neal told the council members. He projects a $284,000 shortfall in sewer revenue this year, from $3.129 million to $2.845 million.
And unlike the water fund, which is benefiting from more new taps than expected, the sewer system has not received a single request for a new tap since October, Neal said. The revenue from taps fell from a budgeted $22,000 to $4,000.
“Good Lord, we’re shut down, ain’t we?” Wilkerson said in response to the tap news.
To make matters worse, the sewer fund was budgeted to use $257,780 of its fund balance this year. With the decline in sewer revenue, that figure ballooned to $549,280.
“We can get that deficit down to zero,” Williams said.
Neal explained that money from the capital reserve, leftover cash from the sewer capital improvement project and a transfer from the healthier water fund can cover the $549,280 deficit.
Short of “extremely drastic measures,” Neal said, there’s no room for cutting the sewer budget, so he is proposing the 15 percent rate increase for next year. He expects sewer charges to total $3.24 million in 2005-06, up 14 percent from this year’s final projections. Overall sewer revenues still will be 5 percent lower than this year, Neal said.
For all of the city’s expenses, the finance director pledged to hunt for savings. “We’re going to cut them all that we can possibly cut them.”
“We’re not going to make a whole lot of changes this time because we can’t afford it,” Alston said about the budget Williams must present this spring.
“We’re way ahead of the game,” Williams said, “but the game’s going to be a lot tougher.”
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