April 22, 2005

To the Mayor and City Council:

Submitted for your review and consideration is the proposed FY 2005 – 2006 budget for the City of Washington. This year we are proposing to staff the EMS operation with enough personnel to operate a 24/7 stand alone operation. We are also proposing to begin construction on an auxiliary fire station, which will provide the needed response time for the western area of our corporate limits and maintain our class 5 fire rating.

With that said, the proposed FY 2005 – 2006 budget reflects the following operation funds:

Including special revenue funds and barring any Capital Project or Grant Project Fund items not wrapping up at year’s end, the total budget is $53,073,918. The budget also includes some of the initiatives identified by the Council at its planning session in February 2005.

GENERAL FUND

The proposed General Fund of $14,698,912 includes increases in certain fees, a draw down of its fund balance, and a $.04 tax increase to reach a balanced budget. The original requests by department heads in the General Fund totaled over $15,665,366 compared to initial projected revenues of $11,582,676, thus creating a $4,082,690 shortfall.

Proposed Fees

Proposed fee increases for the General Fund are:

Appropriated Fund Balance

Even with the proposed minor increases in fees, a proposed tax increase, reducing hours of operation at the swimming pool, reducing requested capital outlay, and reducing the number of requested positions in the General Fund, we were still forced to appropriate $705,497 of the General Fund’s fund balance in order to balance the FY 2005-2006 proposed budget. It is estimated that at June 30, 2005 the City will have an unrestricted fund balance of $4,100,000, not including unspent restricted Powell Bill revenues, which is equivalent to 27.89 % of the proposed General Fund appropriations. The N.C. Local Government Commission (LGC) guidelines call for at least an 8% fund balance, which includes unspent restricted Powell Revenues. The proposed appropriated fund balance will reduce the estimated balance to $3,394,503 or 23.09% of the General Fund proposed appropriations, still well above the required minimum. Please note that the City Council’s new policy is to maintain a fund balance greater than 20%.

Capital Outlay

The General Fund capital outlay amount requested by department heads totaled $1,889,403. My proposed General Fund Budget includes $1,528,460 in capital outlay to be funded as follows:

(1) $1,058,920 from a USDA loan/grant for the construction of the secondary fire station and equipment;
(2) $136,580 cash outlay for building improvements, office furniture, software, and miscellaneous equipment; and
(3) $332,950 of installment note financing for computer replacements, computer network improvements, vehicle replacements, and equipment replacements. The debt service payment on the proposed $332,950 installment note for 59 months is anticipated to be $64,345 annually.

Even with the above funding of capital outlay, much needed requested items from various departments have been removed for purposes of balancing this budget. These deletions are police cars, various trucks/maintenance equipment, computers, radios, and communications equipment.

Lastly, the remaining proposed capital outlay budgeted includes $10,000 for special community initiative projects targeted by Council. These include a $5,000 match for the Beebe Memorial Park improvements and a $5,000 match for the Veteran’s Park improvements. The current year $10,000 appropriation match for the memorial skateboard park will be brought forward into FY 2005-2006.

Property Tax Rate

As stated above, this proposed budget does recommend a property tax rate increase of $0.04 over the City’s current rate of $0.55. Please note, this proposed budget relies on a $705,497 appropriation in fund balance. Of this appropriation $136,580 is being used to acquire capital and $568,917 is being used to fund recurring costs. However, capital outlay in the FY 2006 – 2007 should be planned to meet the needs of past neglect – particularly in the Police Department.

Currently $0.02 of the tax rate is being set aside for public safety capital needs, specifically for the Fire Department. The Public Safety Capital Reserve Fund with the upcoming FY 2005 – 2006 budget allocation will have $443,295 which is currently undesignated until a decision is made on how to use it. If the USDA loan/grant is not awarded to the City, the annual revenue could more than likely cover the debt service for the second fire station. If the USDA loan/grant is approved, the reserve savings could be applied to the proposed City/County joint Public Safety Center.

Economic Development

An appropriation of $55,000 is included in the General Fund budget for Downtown Washington on the Waterfront. Hopefully, as this organization matures, our contribution will begin to taper to approximately one half of this amount.

The Beaufort County Economic Development Commission (EDC) submitted a request for $100,540 for their FY 2005-2006 operations. The proposed City budget maintains the same funding level as the current year ($94,891) for EDC operations. This proposed City budget also includes $78,823 for debt service payments on the industrial park acquisition and $28,569 for the City’s half of the Skills Center. The agreed upon incentive grants for Prettl Noma ($46,750), Camfil Farr ($8,828), Impressions ($10,000), Specialized Vehicles (Hackney) ($12,500), and Brooks Boat Works ($5,000) are included in the economic development portion of this budget.

Water Fund and Sewer Fund

As a reminder, the LGC is concerned about the finances of both the Water Fund and Sewer Fund. Specifically, that the fees charged for water and sewer services are not sufficient to cover the full cost of providing these services to our customers. The LGC has every expectation that the City will rectify this revenue short fall. My proposed budget includes rate increases for water and sewer services. I must point out that our Public Works staff is not comfortable with the current operational funding level of either fund.

Water Fund

A rate increase of 11% is proposed for water sales and services. This rate increase, in part, is due to the delinquency of a large industrial customer water bill account for the past two years. Efforts are underway to recoup these revenues.

The Public Works Director requested $141,172 in capital outlay, which I have recommended to be financed in the following manner: a cash outlay of $19,772 will be for meters, computers, and printer replacements and the borrowing of $121,400 from a financial institution for the capital acquisition of Phase I security system at the water treatment plant, vehicle replacement, and upgrade to the SCADA equipment. The debt service payment on the proposed $121,400 installment note for 59 months is anticipated to be $27,904 annually.

Sewer Fund

A rate increase of 5% is proposed for sewer sales and services.

Capital Outlay in the amount of $200,222 was requested by the Public Works Director. I have recommended the purchase of $200,222 in capital to be financed as follows: a cash outlay in the amount of $6,272 for computers and printer replacements, and miscellaneous equipment and an installment note of $193,500 for vehicles, equipment, motors and pumps at lift stations, generators, and one bar screen at the wastewater treatment plant. The debt service payment on the proposed $193,500 installment note for 59 months is anticipated to be $44,474 annually.

Storm Water Utility Management Fund

A 5% increase in fees is proposed for this fund. The proposed budget of $406,025 is supported by the proposed rate increase.

The director has requested capital outlay of $18,682. I recommend approval of these purchases as follows: $6,272 cash outlay for a solid phase extraction unit for storm water sampling and $12,400 installment note for a new vehicle. Installment note debt service payment on the proposed $12,400 for 59 months is anticipated to be $2,851 annually.

Electric Fund

The Electric Fund’s proposed budget is $29,605,587; of which $21,193,200 is the estimated cost of purchased power by the City for FY 2005-2006. Of this, approximately $21,050,000 will be purchased from the Power Agency and $140,000 from the federal Southeast Power Administration (SEPA). SEPA sells hydroelectric generated power produced from the federal dam on the Savannah River.

Electric Rate

A rate increase is currently proposed for the Electric Fund as a result of a fossil fuel adjustment by the Power Agency. This rate increase is due to the increase in the price of coal. Council is scheduled to set the rate increase at the April 25th budget work session. The proposed budget presented is based on passing the entire rate increase to all customer classes.

Capital Outlay

The Electric Director requested $1,216,110 in capital outlay expenditures for FY 2005-2006. I recommend $836,710 to be acquired as follows: a $144,710 cash outlay for computer and printer replacement, load management and capacitor switches, Phase 1 and Phase 3 electric meters, and other miscellaneous equipment; and $692,000 installment note financing for a 150KW generator at the municipal building, AMR meters, and electric system improvements. Installment note debt service payment on $692,000 for 59 months is $156,708. However, only one half of the payment is budgeted for FY 2005-2006.

Human Resources

Departmental requests for new personnel totaled ten (10) employees across the city organization, six (6) of which are the badly needed firefighters. Nine (9) new positions are recommended in the proposed budget. Funding for the six firefighters is to be provided by Beaufort County. In the event that they are not funded, my recommendation is to notify the County that the City of Washington will no longer provide EMS services. One part time data entry clerk position is being upgraded to a full time position in the Police Department. A domestic violence investigator has been added to the Police Department funded fully for two years by a grant of $40,000 annually, if the City provides matching funds of $13,335 (automobile and equipment). One full time recreation maintenance worker is added which will be funded through reductions in overtime and part time salaries.

There is also a recommended reduction of part time salaries in the Aquatic Center of $12,400. Staff and I are recommending that the pool be closed on Sundays and one hour earlier each day. This results in an estimated corresponding reduction of $4,000 in utility costs. The Electric Director has recommended a reduction of two positions: one full time customer service representative due to Beaufort County assuming responsibility of their billing and collection for their water system and one full time telecommunicator at the operations center which has been replaced with two part time positions.

Salary and Benefits

This budget contains no cost of living raises for employees. A 3.9% COLA was requested based on the Consumer Price Index for urban cities less than 50,000 population at a cost of $355,753 including fringe benefits. Phase II of the Pay Plan which was a part of the Pay and Classification Study is in the proposed budget at a cost of $122,847 including fringe benefits. Merit Pay, Job Maturity and Probationary raises are also included at a cost of $149,390. Health Insurance costs increased by 6.6% ($73,140).

Fund Balance Appropriated, Electrical Reserve, Administration Charges and Transfers between Funds

As noted above, $705,497 of General Fund’s fund balance was used to balance the General Fund Budget.

The Electric Fund Reserve is estimated to remain at approximately $5,000,000 after administration transfers ($1,182,559), payment in lieu of taxes ($104,078), and return on investment ($789,418) were made to the General Fund. Further reduction of the Electric Fund Reserve is strongly discouraged since unanticipated expenses, such as hurricane/tropical storm damages with no FEMA reimbursements, could erode this reserve significantly. It is imperative that the administrative transfers, the payment in lieu of taxes, and the return on investment transfers be available for the FY 2006 – 2007 budget year.

The General Fund will also receive the following revenues from other funds, other than the Electric Fund, and from non-profit organizations for administrative services: Water Fund $246,822; Sewer Fund $247,304; DWOW $74,328; and WTDA $86,234.

The E911 Surcharge Fund has fund balance appropriated in the amount of $47,222 and the UDAG Fund has fund balance appropriated in the amount of $20,802.

I look forward to the coming budget work sessions to discuss this budget in much more detail and receive your input and direction. I want to thank all department heads for their spirit of cooperation and patience in the preparation of this budget. I particularly want to thank Carol Williams for her untiring efforts and assistance.

Respectfully submitted,

L. Stewart Rumley
Interim City Manager

CITY COUNCIL AMENDMENTS TO THE PROPOSED CITY MANAGER BUDGET:

General Fund

1. The proposed advalorem tax rate increase of $0.04 was removed. The advalorem tax rate for the fiscal year 2005-2006 will remain at $0.55 per $100 value. However, advalorem taxes proposed were adjusted up slightly due to the collections received during fiscal year 2004-2005.

2. Anticipated Article 39 Sales Taxes were reviewed and increased based on the projection to be received during the remainder of fiscal year 2004-2005.

3. Installment Note Proceeds were adjusted to cover the proposed financing of the wash bay at the City garage, the City=s share of the construction of the new skate board park, the removal of equipment proposed for the fitness center, and the removal of equipment proposed for the Communications Department.

4. The State Reimbursement for Medicaid EMS transports was increased based on the revenue received during the first part for June 2005 for fiscal year 2003-2004.

5. The City renegotiated the EMS contract with Beaufort County. The County has agreed to pay the City for the next five years $124,621 annually for EMS services provided in the Old Ford and Clark Neck Fire Districts. The City will also be allowed to keep all revenue collected for EMS transports from the districts, instead of remitting a percentage of it back to the County.

6. The City renegotiated the Fire and EMS contract with Washington Park. Washington Park will begin paying for fire and EMS services based on the fees that Beaufort County assesses residents in the Old Ford and Clark=s Neck Fire Districts for the same services.

7. The City will increase its fees charged for EMS services beginning July 1, 2005.

8. Beaufort County Commissioners reduced the amount of revenue by $2,500 that it remits to the City for support of recreation services for fiscal year 2005-2006.

9. The City proposes to reduce its recreation programs during fiscal year 2005-2006 by limiting the time that games will be played, limiting the number of teams that will participate in the various leagues, and decreasing the length of scheduled games for the various sports activities that are offered.

10. The City Council exercised its reduction in force policy by eliminating three full time positions. The Communications Director position, the Chief Building Inspector, and the Deputy Fire Marshall positions were eliminated as of June 30, 2005. As a result of this action revenues anticipated from administration charges from the Water Fund, Sewer Fund, and Electric Fund were adjusted.

11. The City Council also approved the reorganization of certain employees due to the reduction in force. Beginning July 1, 2005 the EMS billing clerk will be removed from the Finance Director=s Division and placed in the EMS Division of the Fire Department. Also the remaining costs associated with the building inspectors will be moved into the Fire Department for accountability as of July 1, 2005.

12. Beginning July 1,2005 the critical communications to the public will be performed by contracted services as needed.

13. A new contract with VC3, a company that hosts the City=s web site and payment modular for Internet collections of utility payments, was renegotiated saving the City $11,028 annually.

14. Due to the settlement agreement with the airport lawsuit, the City Council felt that the legal fees projected for fiscal year 2005-2006 could be reduced.

15. During the budget process the City went out for proposals for its insurance coverage on general liability, property, and equipment. Only one proposal was received, from its current insurance carrier with the NCLM insurance pool. The anticipated premiums to be paid during fiscal year 2005-2006 were reduced by $63,000.

16. During the budget process the City Council obligated funding to a developer for street improvements in a proposed new subdivision on the east end of the City limits.

17. Due to the proposed reduction in the recreation programs being offered by the City during fiscal year 2005-2006 various divisions in the Recreation Department expenses were adjusted to reflect the cost reduction.

18. During the budget process the City received proposals for its recycling contract. The anticipated expense to be paid during fiscal year 2005-2006 was reduced by $49,500.

19. During the budget process the City Council obligated the City to build the proposed skate board park at a cost of $150,000. Funding for the park will be provided by Private Contributions and Installment Note Financing.

20. Other various fees are to be implemented or increased with the proposed fiscal year 2005-2006 budget. A new fee being added is a $5.00 administration fee to telephone handled credit card transactions. This fee is being implemented to try to encourage customers to use the Internet for their payments and to detour customers from calling in to make their payments. The fees for the sale of cemetery lots, and grave openings were adjusted to do away with the differential cost between resident and non-resident status. The resident fees for recreation activities were increased, while the non-resident fees remained the same. Certain fees charged by the Recreation Department for services in the Civic Center and Aquatic Center were adjusted.

Water Fund

1. City Council approved an 11% rate increase for water customers beginning July 1, 2005.

2. The cost for insurance coverage for general liability, property, and equipment were adjusted by $6,800 to accommodate the new rates received during the budget process.

3. Administration Charges paid to the General Fund for services rendered were adjusted by $17,872 to accommodate the reduction in force policy exercised.

4. During the budget process the City received bids on the chemicals it plans to use during fiscal year 2005-2006 for water treatment. The bids received were higher than anticipated, therefore the division of water treatment was adjusted to accommodate the anticipated increase in cost of 13.43%.

Sewer Fund

1. City Council approved a 5% rate increase for sewer customers beginning July 1, 2005.

2. The cost for insurance coverage for general liability, property, and equipment were adjusted by $7,300 to accommodate the new rates received during the budget process.

3. Administration Charges paid to the General Fund for services rendered were adjusted by $18,501 to accommodate the reduction in force policy exercised.

4. During the budget process the City received bids on the chemicals it plans to use during fiscal year 2005-2006 for wastewater treatment. The bids received were higher than anticipated therefore the division of wastewater treatment was adjusted by $3,000 to accommodate the anticipated increase in cost of 37%

5. City Council placed on hold the $31,500 cost proposed for engineering services to begin the investigation of an alternate disinfection system for the sewer treatment plant.

Electric Fund

1. The sale of electricity for fiscal year 2005-2006 was reevaluated based on projections of power cost for the fiscal year.

2. The cost for insurance coverage for general liability, property, and equipment were adjusted by $18,500 to accommodate the new rates received during the budget process.

3. Administration Charges paid to the General Fund for services rendered were adjusted by $51,131 to accommodate the reduction in force policy exercised.

4. Due to the reduction in force of the Communications Director, services previously provided by that department are going to be contracted out during the upcoming fiscal year.

5. The cost of purchase power anticipated during the upcoming fiscal year was reduced based on forecast projections in climate.

Storm Water Fund

1. The City Council approved a 5% rate increase for storm water customers beginning July 1, 2005 to cover operational cost and state mandates on storm water management.

Airport Fund

1. During the budget process the City Council received notice from NCDOT-Aviation that Warren Field had been awarded a $150,000 grant, requiring a $16,667 local match, for airport improvements. Revenues and expenses were adjusted to accommodate the grant award.

2. Due to the settlement of the lawsuit with the prior fixed base operator during the budget process, the cost of legal fees anticipated for the fiscal year were reduced.

3. Insurance cost anticipated for the fiscal year were increased to accommodate the additional coverage cost for airport employees.

The attached spread sheet pages reflect a more detail accounting of the changes by fund to the proposed City Manager's Budget. At the final budget workshop the City Manager stressed to City Council that the City could not continue to pull down on its reserves in the general fund, that the City could not continue to rely on transfers from the electric fund to the general fund to support operations, and could not continue to provide services or programs at the current levels without looking for other revenue sources in forthcoming budgets.