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and Members of City Council:
Please find enclosed for your consideration a proposed budget for Fiscal Year 2009/10. This proposed budget includes all operating, special revenue and capital project funds of the City of Roanoke Rapids. In contrast to prior years, the proposed budget does not include an enterprise fund. This is because all activities associated with The Roanoke Rapids Theatre are now being recorded in a special revenue fund. The total amount appropriated for expenditure in these multiple funds that, when combined, make up the proposed budget for Fiscal Year 2009/10 is $16,637,795.
The Local Government Budget and Fiscal Control Act mandates that each local government shall operate under an annual balanced budget. By definition, a budget is balanced when the sum of all estimated revenues and appropriated fund balance is equal to the sum of all appropriations for expenditure. The Act also mandates that each local government shall have on hand on June 30 of each year, an undesignated fund balance equal to no less than 8% of the current year’s expenditures. The proposed budget you have been presented meets both of these criteria.
This budget message focuses on the City’s General Fund; the fund that is used to record the City’s day to day operations. The General Fund’s proposed budget for Fiscal Year 2009/10 is $14,489,792, which is $678,857 more than the current year budget. This increase is the result of an appropriation of $312,941 to help restore the City’s undesignated fund balance to an acceptable level plus an appropriation of $400,000 to be reserved for future payment on the City’s tax incremental financing bonds. No change is being requested in the City’s property tax rate. The proposed budget has been balanced using the current property tax rate of 62.4 cents per each one hundred dollar valuation, an estimated 2009 taxable property value of $1,110,263,019 and an estimated collection rate of 98.02%. In addition, this budget does not propose an increase in residential or commercial solid waste collection and disposal fees. For example, a taxpayer whose home is valued at $100,000 would receive a total 2009 bill of $812.59. This bill would be made up of a property tax bill of $624.00 and a solid waste bill of $188.59.
Each year it has become increasingly difficult to prepare a balanced budget. Like the State of North Carolina and many other municipalities, the City of Roanoke Rapids is facing significant financial challenges brought on by a global recession. Our difficulties have been compounded by the continuous erosion of our fund balance over the past eleven years, and the City’s obligation to repay $21.5 million in tax incremental financing bonds. Although City Council may be tempted to seek a quick, short term solution by implementing across the board cuts and freezing vacant positions, it is critical that all funding decisions be based on principles of sound financial management. Across the board cuts reduce funding for our higher priority programs and services as well as those deemed a lower priority. A policy of freezing all vacant positions and not replacing employees who resign would result in severe understaffing in departments with a high rate of employee turnover. Unmonitored, these two practices have the potential to leave the City’s higher priority programs and services under funded and severely understaffed. We have attempted to keep these fundamental concepts in mind as we have prepared this proposed budget for your consideration.
Although the City of Roanoke Rapids currently finds itself short on dollars and cents, we have a wealth of human capital in the form of long term, dedicated employees. Our employees have struggled through seven years of increasing needs coupled with seven years of shrinking budgets; making them well aware that “business as usual” is no longer getting the job done. City employees challenge themselves daily to find innovative ways to provide affordable services to our citizens, but the divide between the cost to provide even basic services and our ability to fund these services grows greater each year. We have allowed ourselves to get so far behind that this budget cannot properly address all of the City’s property maintenance issues or adequately restore our prior level of service. The proposed budget attempts to use the City’s limited resources as wisely as possible by addressing the major goals and priorities which were set at Council’s March 14 work session. Specifically, priority funding is provided for restoring the City’s financial stability and credit worthiness, providing a high level of police and fire protection, and addressing public health, safety and appearance issues through solid waste and refuse collection, funding for a more aggressive enforcement of the City’s minimum housing code, junk vehicle ordinance, unsafe buildings ordinance, and our nuisance ordinance which addresses overgrown grass, trees and shrubs. Our goal in preparing this proposed budget has been to address these primary issues; but with a minimal impact on the City’s taxpayers. This, as you will see, is a difficult balance to achieve.
Economic Summary
Halifax County has been labeled a Tier 1 Economically Distressed County since the North Carolina Department of Commerce first began designating tiers. In 2002, Halifax County’s unemployment rate was 12% or twice the state average at that time. Since then, an increased emphasis on economic development has created significant job opportunities within the City and County. Unfortunately, job creation has been unable to keep pace with recent job loss. Employment data demonstrates that the entire state is feeling the effects of the current recession. The February, 2009 job numbers are alarming. Halifax County’s unemployment rate for February was 14.8%; while the state’s average was 11.3%. In comparison, the February overall average for the entire United States was 8.5%.
Economic uncertainty is an issue locally, as well as throughout our state and nation. Questions abound as to the length and depth of the current recession. It is too soon to know whether or not President Obama’s stimulus package will provide a financial “jump start” for the economy. Both economists and political pundits are predicting that the country will remain in recession for the majority of calendar year 2009, with a recovery expected to begin in late 2009 or early 2010. In the meantime, cost saving measures recently taken by Council and those proposed in this budget will be crucial to the City’s ability to endure this downturn and remain financially solvent.
On March 2, 2009 the City entered into a lease agreement and a purchase contract with L&M Hospitality, LLC for the purchase of The Roanoke Rapids Theatre. The buyers have subsequently announced their plans for a $35 million addition to the facility. Under terms of the lease agreement, the City will receive annual lease payments in excess of $1.3 million. These lease payments are a critical revenue source for the City of Roanoke Rapids. Without these payments, we will have a very difficult time rebounding from our current financial crisis and will find ourselves unable to repay the $21.5 million tax incremental financing bonds without a substantial increase to our tax rate.
Outside the Entertainment District, the City is seeing only a slight interest in the development of additional residential, commercial and retail properties. Building permit values for the first three months of 2009 fell to $1.04 million; less than 25% of the amount collected during the same time period last year. If this trend continues, the 2009 building permit values will be the lowest recorded since City staff began accumulating this data in 1997.
The immediate financial stability of the City of Roanoke Rapids is greatly dependent on the success of The Roanoke Rapids Theatre, while our long term growth and development remains intertwined with that of the entire Entertainment District. Since 2005, the tax base of the 123 acres in Phase 1 of the Entertainment District has grown from $292 thousand to $39.4 million. It is imperative that the City of Roanoke Rapids and surrounding areas come together and support The Roanoke Rapids Theatre and the development of the Entertainment District. Without their successful growth and development, future City Councils will have no choice but to increase the City’s tax rate.
Budget Overview
The growth rate of many of the City’s General Fund revenues is directly tied to our state and local economies as well as overall population growth within the City. Therefore, recent job loss combined with the severe downturn in the housing market, an unprecedented number of home foreclosures and the related problems being experienced by major lending institutions are concrete reasons for concern. The City’s weakened economy and declining population since 2001 limits our allocation of state shared revenues. In response to these growing concerns, City staff has secured more than $21 million in outside funding over the past seven years and City Council has reduced the number of full time City employees from 165 to 138, outsourced services, and dramatically reduced spending. Hopefully these measures will prevent any further erosion of the City’s fund balance.
In order to maximize the use of our available revenues, the proposed Fiscal Year 2009/10 Budget was developed using the zero based budgeting method. In lieu of funding departments based on a percentage of their past expenditures, funding is based on each department’s minimum program needs for the upcoming year. Each department has been required to prepare a detailed request for funding; justifying both personnel needs and operating expenses. These requests were then evaluated as to need, amount and their relationship to Council’s goals and priorities. As a result, there are no new programs proposed in this budget. Positions are funded at the post March 15, 2009 level with no merit increases or cost of living adjustments proposed. Only one position has been added; a fireman which was previously approved by City Council.
Revenues
Ad Valorem (Property) Tax
Ad valorem tax revenue is the single largest revenue source for the City of Roanoke Rapids, comprising 46% of all General Fund revenues in the proposed Fiscal Year 2009/10 Budget. In their 2007 report “By the Numbers”, the John Locke Foundation compares Roanoke Rapids to all other North Carolina municipalities with a population between 5,000 and 24,999, and finds us to be an “average property tax burden city”. This publication also ranks municipalities on their tax burden per capita, with the ranking of 1 representing the town with the highest tax burden. Out of the 90 municipalities ranked, the City of Roanoke Rapids was ranked 51 for the year 2007. Twelve months earlier, the same report ranked us 39.
The 2009 ad valorem tax collections are projected to be a little under $6.8 million. This amount is computed using a proposed tax rate of 62.4 cents; the same as the 2008 tax rate. In the 2007 Budget Message, I recommended that City Council review the tax rate annually taking into account the prior year’s change in the Consumer Price Index. In following that guideline, there was no increase in the Consumer Price Index for calendar year 2008, and no property tax rate increase is being recommended for next year. The proposed budget includes $6,756,376 in current year ad valorem tax collections. Of that amount, $193,315 represents incremental tax collections in the Entertainment District and must be reserved for theatre debt service payments.
Sales Tax Revenue
Projected sales tax revenue are adjusted to reflect a 1% decrease in collections when compared to the current year budget. The amount projected is based on actual current year collections and the statewide economic outlook as reported in “Municipal State Collected Revenue Estimates”, published annually by the North Carolina League of Municipalities. The computation assumes a continued decline in the City’s retail sales and an increase in hold harmless revenue. As our local economy rebounds from the current recession, we will see an increase in our sales tax revenue. The proposed budget includes $2,315,115 in estimated sales tax revenue. Of that amount, $252,000 is estimated to be received in the form of hold harmless revenue.
Investment Earnings
Existing cash balances are temporarily invested to earn the City income in the form of investment earnings. These earnings become a revenue source and reduce the total income required to balance the City’s budget. Continued use of large amounts of fund balance has caused the amount of cash available for investment to fall more than 50%, from a high of $5.4 million in 2002 to our current balance of $2.6 million. Our shrinking cash balance combined with lower interest rates has significantly reduced the City’s current year investment earnings, and the uncertainty in the financial markets has caused us to take a conservative approach when estimating investment earnings for Fiscal Year 2009/10. The proposed budget includes $59,400 in estimated investment earnings.
Fund Balance
Fund balance is created when, during a given fiscal year, revenues exceed expenditures. It is therefore very difficult to replenish and should only be used to assist with very large capital purchases and non recurring emergency situations. It should not be used, as City Council has done since 2001, to fund the City’s ongoing operating costs. On June 30, 2001 the City’s undesignated fund balance was $2.9 million or 30.1% of the Combined General Fund expenditures. After seven years of relying on this reserve to balance our budgets, our June 30, 2008 undesignated fund balance fell to $1.2 million or 8.3% of the Combined General Fund expenditures. Since July, 2008 City Council has again drawn on the undesignated fund balance; this time to fund an additional firefighter. The City’s undesignated fund balance now stands at 8.1%. If City Council continues to ignore the pleas of staff to conserve this vital asset, your lack of fiscal accountability may border on mismanagement of public funds and could result in corrective action being taken by the Local Government Commission. Please see attached Exhibit A “Roanoke Rapids Budget & Economic Data”.
It is imperative that City Council make restoring the fund balance an immediate priority. The City’s undesignated fund balance is our only source of available cash during an emergency. Past experience has shown us that the cost for cleanup associated with one hurricane can easily exceed $1 million. Although the state and federal government reimburse the majority of cleanup costs, it can take 12 to 18 months to receive these funds. It is therefore City Council’s responsibility to maintain a sufficient fund balance to enable us to meet these emergency needs. It will take several years of conservative budgeting to restore our cash reserve to its necessary level. As I have recommended in the past, City Council should adopt a policy stating that the City’s undesignated fund balance shall at no time be lower than 20%.
Although funds were set aside last year to begin replenishing our fund balance, the City’s loss of revenue due to the economic downturn and expenses related to the theatre will prohibit that from happening in the current year. The proposed budget for Fiscal Year 2009/10 reserves $312,941 to be used to replenish the City’s fund balance reserve. It is my recommendation that City Council make a commitment to the taxpayers to use these funds for that purpose only.
Solid Waste User Fees
Each year we evaluate our solid waste user fees based on the full cost to provide this service. In 2006 we made the program self-supporting by establishing fees based on both the direct and indirect cost of service. City staff has computed the cost to provide this service for Fiscal Year 2009/10, and does not think that the additional cost warrants an increase in fees. Therefore, we are not recommending an increase in solid waste fees. The annual cost to provide once a week collection of solid waste and the basic refuse service is proposed to remain $188.59 per container for Fiscal Year 2009/10. We are requesting that this amount be charged to each residential unit in the form of a solid waste user fee, and that businesses having a rollout container be charged $15.72 per container per month. The Fiscal Year 2009/10 proposed budget includes $1,316,593 in solid waste revenues.
Roanoke Rapids Theatre Lease Revenue
A new source of revenue for Fiscal Year 2009/10 is the monthly lease payment from L&M Hospitality, LLC, for the lease-purchase of The Roanoke Rapids Theatre. Payments began on March 2, 2009, and are scheduled to continue through May, 2023. Payments of $428,338 are anticipated to be received in Fiscal Year 2008/09 and will be placed in a theatre reserve account to be used only in the case of an emergency. The Fiscal Year 2009/10 proposed budget includes $1,361,001 in theatre lease revenues, and provides funding to place $400,000 of this payment into the theatre reserve account. I strongly recommend that City Council continue to fund annual deposits into the theatre reserve account until an amount equal to one year of lease payments has been reserved.
Other Revenues
Other major sources of Combined General Fund revenue projected for Fiscal Year 2009/10 include Powell Bill $464,370, Utility Franchise Tax $950,000, Cable Franchise Fees $120,000 and combined grant and donation revenues of $152,017.
Expenditures
Debt Service
The City’s current amount of outstanding debt is $25.4 million; our legal debt limit is $63 million. Of this outstanding debt, $21.3 million is for The Roanoke Rapids Theatre. The balance, $4.1 million, represents debt incurred by the City for the construction of Fire Stations #1 and #2, renovations to T. J. Davis Recreation Center, the Neighborhood Resource Center, the repayment of our General Obligation Bonds, the construction of the Halifax-Northampton Regional Airport and the purchase of a fire truck, police cars, garbage truck and other equipment.
After a review of the City’s financial statements, Moody’s recently downgraded their rating of the City’s General Obligation Bonds from A3 to Baa1. In their report, Moody’s noted concern regarding the City’s diminished fund balance, narrow tax base, and negative results to date from our SWAP agreement. The report also states Moody’s concern that the City’s commitment to repay $21.5 million in tax incremental financing might place too much additional strain on an already weakened fund balance. The other two agencies have not updated their rating of the City’s General Obligation Bonds. Those ratings remain an A from Standard & Poor’s, and 82 from the North Carolina Municipal Council.
The City’s debt service payments in Fiscal Year 2009/10 will be $3,142,018 or the equivalent of 29.02 cents of our tax rate. Debt incurred for the purchase of a fire truck and public works equipment will be paid in full during Fiscal Year 2009/10. City Council should be very cautious about incurring any additional debt at this time. The City’s high debt to cash ratio may make it difficult to get approval for additional borrowing.
General Administration
Because the City of Roanoke Rapids is in fact a service provider, personnel costs are our greatest expenditure. Salaries and benefits represent 50% of the proposed budget. Funding is being requested for 139 full-time positions as compared to the 151 full-time positions originally funded in the current budget. This reduction of thirteen positions was accomplished through outsourcing tax billing and collection, employee resignations, retirements and Council’s March, 2009 budget cuts. City Council voted earlier this year to add one additional firefighter, effective July 1, 2009. That position has been funded.
The proposed budget does not include funding for a cost of living or merit increase for City employees. Funding has been appropriated to continue the City’s longevity program and a 401(k) deferred compensation program which provides matching contributions up to a maximum of 3% for non-law enforcement personnel. Other items provided for in the proposed budget include a 10.7% increase in employee health insurance premiums and estimated premium adjustments for employee life insurance, property and liability coverage and worker’s compensation insurance. Increased funding has also been provided throughout the budget for fuel related line items. A change in the Fee Schedule is proposed to provide a small increase in the cost of photocopies. The general government and administration budget totals $1,910,956 and includes the legislative, general government, administrative, elections, finance, information systems, revenue collections, legal, economic development and governmental buildings departmental budgets. The proposed budget amount for these services is $127,817 less than the current year budget of $2,038,773.
Public Safety
Fire and police services make up the public safety portion of the proposed Fiscal Year 2009/10 Budget. Combined, these budgets total $4,311,299; an increase when compared to the current year original budget amount of $3,801,335. This increase is due mainly to additional officers qualifying for the police separation allowance, adding two firefighters and a police evidence clerk, increased training budgets and funding the replacement of 12 sets of outdated turnout gear. The debt service portion of the budget includes funding for the annual payment on the lease-purchase of 20 replacement police vehicles, a fire truck and construction of Fire Stations #1 and #2. No increase in service fees charged to the public is being requested. Major public safety objectives for the coming year include:
∑ Replacing 5 aging bulletproof vests which no longer meet manufacturer’s warranty for safety and reliability
∑ Continuing to facilitate increased citizen involvement through the Citizens’ Police Academy, Citizens on Patrol, Police Volunteer Service Program, National Night Out and Neighborhood Watch programs
∑ Continuing police foot and bicycle patrols to supplement regular patrols in the uptown and downtown mill villages and other high crime areas
∑ Continuing special enforcement team activities on the Interstate and in high crime and drug neighborhoods
∑ Continuing to promote new and existing community policing initiatives
∑ Continuing to promote gang awareness and prevention
∑ Replacing 12 sets of outdated turnout gear
∑ Continuing joint training exercises with the Roanoke Valley Rescue Squad
∑ Continuing to meet increasing staff training requirements
∑ Continuing to conduct fire prevention programs including pre-incident fire surveys
∑ Recruiting, equipping and training volunteer firefighters
∑ Executing two multi-agency disaster drills
∑ Offering Fire Safety Home Inspections and CPR classes
Public Works
The Fiscal Year 2009/10 proposed budget for all public works functions is $2,773,290, a $326,792 reduction from the current year budget of $3,100,082. There is no funding provided for part time hours for any public works service; CADA has indicated that they will have funding available to provide temporary employees throughout the year. Included in this budget is the solid waste tipping fee paid to the County for the City’s use of the landfill. Also included are funding to provide for the City’s street lights, tub grinding services, replacement of rollout carts, storm drainage improvements, street maintenance and contracted services. The cemetery expansion is scheduled to open in July, providing 132 additional four grave lots and 7 two grave lots with headstones. The debt service portion of the budget includes funding for the annual payment on the purchase of a garbage truck and other equipment. There are no changes recommended for public works related fees. Major public works objectives for the coming year include:
∑ Opening of the cemetery expansion in July, 2009
∑ Coordinating changes in garage services with other departments
∑ Improving maintenance and repair of streets
∑ Continuing storm drainage improvements
Recreational and Cultural Resources
The proposed budget for recreational and cultural resources is $1,463,316; a slight decrease from the current year budget of $1,482,710. Funding for part time hours has been adjusted, and provides for the continuation of the currently reduced levels of operation. Fee Schedule revisions are being proposed for library fees, T.J. Davis rental fees, Kirkwood Adams rental fees, Aquatic Center rental fees and Roanoke Canal Museum fees. Major recreational and cultural resources objectives for the coming year include:
∑ Completing City park erosion control project
∑ Developing a long-term strategy for the City’s aging tennis courts
∑ Facilitating improvements at the Martin Luther King, Jr. Park
∑ Continuing to work with the Canal Museum Committee and Halifax Tourism to promote and operate the Canal Museum
Planning and Development
Development activity in and around the City has declined, but code enforcement activities continue to increase. During calendar year 2008, $17.8 million in building permits were issued, compared to $36.5 million in 2007. In addition, 353 (366 in 2007) abandoned, junk or nuisance vehicles were removed from the City, 956 (795 in 2007) houses were inspected, 69 (73 in 2007) dwellings were renovated to comply with the minimum housing code and 35 (28 in 2007) dwellings were demolished. The proposed budget includes $45 thousand for demolition of dilapidated dwellings. No Fee Schedule changes are being proposed. The proposed planning department budget is $360,529, down significantly from the current budget of $480,658. This decrease is due to City Council’s reduction in force of three and one-half (3 1-2) positions. Major planning department objectives for the coming year include:
∑ Aggressively enforcing the City’s minimum housing code
∑ Facilitating the extension of infrastructure in the southern corridor area in coordination with developers, Halifax County and the Roanoke Rapids Sanitary District
∑ Continuing facilitation activities with the developers of Premier Landing, Carolina Crossroads, Gregory Subdivision, River’s Edge, Cross Creek Village, Farm Fresh, Ballantrae Subdivision and other individual developers
∑ Continuing efforts toward Level 3 Certification of code enforcement officers in all building trade areas
∑ Working with the Roanoke Avenue Merchants & Professional Association to continue revitalization efforts in the uptown and downtown business districts
∑ Aggressively enforcing the City’s junk vehicle ordinance
Summary
Although this message focuses on the proposed Fiscal Year 2009/10 Budget for the Combined General Fund, there are many additional funds which are addressed in the annual budget ordinance. These include the Police Separation Allowance Fund, Economic Development Fund, Municipal Swimming Pool Fund, Drug Enforcement Fund, Hodgestown Fund, and the Roanoke Rapids Theatre Fund. In addition, the City’s grant and capital project fund budgets are presented for informational purposes only, as required by state statutes. These include the Roanoke Canal Museum Project Fund, Clean Water Management Trust Fund, CDBG Revitalization Fund, Carolina Crossroads Public Roadway Fund, Carolina Crossroads Water/Sewer Fund, Carolina Crossroads Music and Entertainment Fund, The One North Carolina Fund, Construction and Relocation of Fire Station #2 Fund and the North Carolina Clean Water Management Trust Fund. Some of these grant and capital projects will be completed and their funds closed in the coming year while new funds will be opened as grant opportunities arise.
The proposed Fiscal Year 2009/10 Budget is balanced in accordance with The Local Government Budget and Fiscal Control Act. While it does not fund all of our departmental needs, it does begin to address City Council’s major goals and priorities for the coming year without requiring an increase in the City’s property tax rate or solid waste and refuse user fees. In doing so, departmental budgets and staff have been drastically reduced, impacting both the quality and quantity of services we will be able to provide to our citizens. As always, we will continue to seek new ways to minimize our costs and improve efficiencies through technology, public-private partnerships and new or revised work processes.
When facing such overwhelming financial challenges, it would be easy for us to focus on the negative. I believe that would be a mistake. There’s an old saying “when you find yourself in a hole, first stop digging”. We are in the worst economic downturn that this country has seen since the great depression, and the citizens of Roanoke Rapids are relying on you as their elected officials to make the extremely difficult but necessary decisions that will lead us through this trying time. Your ability to govern depends on the trust and confidence placed in you by your constituents. It is time to put aside your political differences and focus on the needs of this community. With these challenges comes the opportunity for you to correct past mistakes and create the honest and transparent government that the citizens of Roanoke Rapids deserve. There is no doubt that the citizens are paying close attention, and are going to hold you accountable for your actions.
I would like to commend my staff for the teamwork, vision, and sense of accountability to our citizens they have displayed as we developed this proposed budget. In these financially difficult times they continue to be innovative and resourceful in addressing budgetary priorities within the City’s shrinking resources. I offer a special thank you to Finance Director MeLinda Hite and her staff who worked diligently to provide the financial information needed to prepare this proposed budget.
Despite the immediate funding challenges we are facing, I am confident that growth and prosperity remain on the City’s horizon. City staff is eager to work with you to meet the changing needs of our citizens. As we move forward, we must all remain committed to providing affordable quality services within the City of Roanoke Rapids.
Respectfully submitted,
Phyllis P. Lee
City Manager
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