City Manager Eric Williams issued answers Friday to eight budget questions City Council member Elissa Yount submitted April 18.
That memo came six days before Williams’ scheduled presentation of his budget proposal for the fiscal year that starts July 1. He’ll unveil the budget at 7 p.m. Thursday in a meeting of the council’s Finance and Intergovernmental Relations Committee at the Municipal Building.
The public hearing on the budget will be Monday, June 6, during the City Council’s regular meeting. On Monday night the council switched the date of that meeting from June 13 to June 6 to allow council members more time to consider the questions, suggestions and complaints related to the budget.
Williams’ memo stretches to eight pages, plus four pages of exhibits on Henderson’s debt levels and two pages of e-mail messages Embassy Square Foundation Executive Director Kathy Powell sent to Yount and Clean Up Henderson Committee Chairwoman Lynn Harper. The debt information relates to Yount’s first question, about the city’s debt limit. Powell’s e-mail messages apparently relate to several questions Yount had about the Embassy project.
(Powell has tried intermittently since March to set up a “nonpublic” meeting involving herself, Embassy foundation Chairman Sam Watkins, Harper and Yount to discuss the Embassy project. Powell sent the latest request Thursday, while Harper and Yount were out of town and out of touch with their e-mail.)
Yount accepted the answers without comment Monday night at the council’s regular meeting.
Below are Yount’s questions and excerpts from Williams’ answers:
What is the maximum debt limit of the city at this time with the present tax base?
Under state law, the city may borrow up to 8 percent of the net assessed value of property in Henderson. As of June 30, 2004, that tax base totaled $742,946,229, for a debt limit of $59,435,698. At that time, the city carried $41,525,456 in debt.
Which priority is the most pressing for the city — the sewer plant or the water plant expansion to 20 mgd or the cultural center? (This question came up again May 9 during the City Council’s discussion of the Kerr Lake Regional Water System’s proposed expansion to a capacity of 20 million gallons per day, a $21 million regional project. Williams devoted two pages to this answer.)
“This is a question, in my opinion, that has no easy ‘this is the most important/pressing; this is next, etc. etc.’ In fact, an answer of such simplicity is simply unrealistic for a variety of reasons.”
Williams cited the different funding mechanisms and support structures for the three projects. The water and sewer systems are enterprise funds, meaning they pay for themselves and should produce a profit; the Embassy performing arts center’s operational expenses would likely fall under the city’s general fund.
Further, the water plant is under a partnership that includes Warren County and Oxford, “spreading the financial responsibility over a wider group of beneficiaries,” and the regional water rates are below average for North Carolina. The sewer plant, a decaying structure whose replacement likely would cost more than $20 million, is strictly a city enterprise, has higher-than-average rates and has fewer customers than the water system. “It takes on a different potential fiscal impact on our customers than the Water Plant work and the impact of that on our rates.” The Embassy theater, if the foundation succeeds, won’t cost the city anything more than the already-spent funds for land acquisition and architectural plans. The operational costs are unknown, but in an ideal scenario, the city will have little or no annual expenses for “a huge, almost immeasurable, asset.”
Williams noted that the council’s retreat in spring 2004 produced a priority list that made Embassy Square No. 1 and the sewer plant and related infrastructure No. 2. The water plant was left off the list, the city manager said, because it was a project already under way.
The council’s federal lobbying agenda for fiscal 2006 places the water plant No. 1 and the Embassy project No. 2 under appropriations, the water plant No. 1 under authorizations, and the wastewater system No. 2 under grants.
“Each of these has a relationship (to one degree or another, and it may vary from time to time) on components of our community which can affect general economic development, job creation, overall quality of life and the like. Thus, the argument could well be made (and it is certainly one I would make) that they are all of similar importance and significance.”
Williams said it makes no sense to approach them one at a time because they are of equal importance. “They are all important and, to the extent resources, focus and energy are available, they should all be pursued concurrently.”
What amount of money has the Embassy Square borrowed and what are the terms? We need to know this so we can determine when this property may be returned to the city and if it will be an asset that the city can borrow against. Nonprofits are required to file financial reports or audits and the council needs to be aware of the status of Embassy Square for the city’s future planning.
The answer, Williams said, depends in part on how you define “borrowed.”
As the leadership of the Embassy Square Foundation explained the situation at a meeting May 3, weeks after Yount issued her questions, the foundation has a five-year construction loan secured by the land the city bought with the bulk of the $1.794 million “borrowed’ by the Embassy project. The city is supposed to get the land back, along with the library and without any debts on it, by the end of 2008.
Williams wrote that he assumes the performing arts center and connecting land won’t be ready to be conveyed back to the city that soon.
Once the city has some of the land and buildings, it may borrow against them.
How do you propose that we come up with the revenue to run the new library?
“Funding for Library operations, both existing and new, is a challenge and may very well remain one for a number of years.
“My upcoming budget recommendations for ’05-’06 will put forth my best effort (as I have in the past) to provide City funding in a manner that will allow the Library to operate both in its current location for the majority of the year and for the several months of the new Library during the balance of the ’05-’06 fiscal year, with ongoing concerns about ‘parity and equity’ being a part of my thought process in that regard.”
Williams repeated his almost annual argument that the city should give the library an amount equal to 3 cents on the property tax rate, as authorized in a 1951 referendum in Henderson. The county should cover any shortfall, Williams wrote, but he accepts the City Council’s desire to keep funding the library on a 50-50 split with the county.
Williams did not suggest any new revenue stream for the library.
What are the projections for the annual operation costs of the cultural center?
Williams said he doesn’t have those figures, which the Embassy foundation is fine-tuning for use in its capital campaign for the theater. But the goal is for the building to be “as self-sustaining as possible and, thus, impact the City’s budget as little as possible.”
The city manager referred Yount to Powell and Watkins.
When is the auditor coming before the council to discus our audit?
“I acknowledge, once again, your request(s) in this regard and, as you know, and as you have requested through the City Clerk’s Office, this matter is being placed on the Council’s Agenda for the upcoming regular council meeting this coming Monday, May 23rd.”
(The council voted 7-1 Monday night, with Harriette Butler opposed, to direct Williams to arrange a meeting with auditor Curtis Averette as soon as possible.)
When will a plan be formulated for recouping our fund balance?
“Such a plan has been evolving over the last number of months,” although Williams did not offer any hints of a grand strategy to boost the fund balance. “The next major step in the plan will be recommendation(s) forthcoming in the ’05-’06 budget,” which he will unveil Thursday.
For now, Williams has presented bits of good news or potential good news regarding the fund balance. For example, the city manager noted that council action April 25 cut the use of the fund balance this year by $30,460 to $19,001. Most of the savings came by an accident: The city set aside the amount of money the state said would be necessary to get licenses for the Fire Department’s new ladder truck, then discovered that a $1,000 cap applied to those fees. That saved the city $20,460 from the current budget. The other $10,000 came from money the Appearance Commission was given to match a grant that didn’t come through.
Williams also pointed to the long-term savings anticipated if the city goes ahead with a guaranteed energy-savings contract with Energy Systems Group. That project also could expedite the sale of the Municipal Building, with the proceeds going into the fund balance.
How do you propose that we establish a contingency appropriation in this year’s and future years’ budgets?
On the one hand, it’s simple, Williams wrote: You simply create a contingency fund in the budget and appropriate money to be used as an emergency fund or to go back into the fund balance if no emergencies develop. The problem is that if “emergencies” drain the contingency every year, the fund balance doesn’t grow.
Williams pointed to the financial problems the city has dealt with, particularly noting a “very conservative” taxing policy and the debt-building investment in the police station and the recreation center.
“In conclusion, I trust this information will provide some further insight into your opening paragraph regarding ‘questions concerning the City’s future budget needs that I (you) need to be clear on before I can make decisions on the 2005-06 budget.’ ”