Durham's FY10 City budget -- beyond the layoffs

Next year's City budget -- which includes an $11.1m, or 3.1% decrease in overall spending, about 90% of which comes from the General Fund -- has gotten a disproportionate amount of attention for the proposed layoff of 35 municipal employees and pay freezes for all employees except public safety.

Employees also will face a nearly 10% increase in health insurance premiums, along with the beginning of a phase-out of the longevity bonus program.

While much of the discourse has revolved around those cuts, there are more items of interest when you delve into some of the fiscal details. Here are a few highlights; expect more to dribble out in the coming days and weeks as Council debates the budget in special sessions and next Monday night's public hearing.

Water/sewer on the rise. The sorry state of Durham's water rates has been no secret; before last year's tiered rate implementation, Durham was in the bottom decile of all NC cities with respect to water prices, a situation that impaired funding sources for increasing water supplies, new reservoirs, sewer replacement, etc.

The FY10 budget includes a 9.25% increase in rates, though the lowest tier is held at constant pricing. Those funds are intended to support $61.5 million in capital improvements this year alone.

But looking at the multi-year water and sewer fund projections, it looks like this is a starting and not an ending point.

By 2015, total water and sewer sales are projected to increase a total of 43% above and beyond next year's 9.25% increase.

Although some of that is certainly due to increased population growth leading to more water sales, the revenue growth outpaces personnel and operating expenses, which are projected to grow 24% over the same period.

It's also an increase in funding over what was expected when this year's budget was drafted; revenues are expected to be 6.4% higher in FY14 than they were in last year's long-term projection.

One major difference: plans to grow the fund balance for water/sewer, reducing the impact of future droughts on the ability of the system to meet its debt obligations and avoid running deficits. For FY10, Durham proposed to draw almost $600k from its fund balance; by FY15, a $7.6 million savings in fund balance is projected.

The City would also increase its overall debt coverage ratio -- a financial industry measure of how well the municipality can meet its fixed bond repayment obligations -- from 1.52 to 2.05 over the same period. (A 1.0 DCR is minimally required.)

Streets, sidewalks and transportation. Although funds remain under the general obligation bonds for ongoing dirt street paving, re-paving, and sidewalks, there's no new operational funding this year for those items.

In fact, Jim Wise noted in The Durham News this weekend that newly-requested traffic circles and neckdowns will be on hold this fiscal year.

Still, Bonfield's getting ready for future years, and it seems trying to make sure that the City doesn't fall back in to the trap of deferring maintenance on the streets too long -- with a $5 million annual appropriation alerted to start in FY11 to pay to maintain streets.

DATA, meantime, will find its current routes frozen pending state help; the bus service escaped cuts in large part because of Federal stimulus funds available, but near-term scrutiny on DATA spending and operations is clearly in the cards. An expected increase in license plate registrations by the General Assembly for Durham might allow the exploration of new routes or service expansions -- though expect any impact there to be minimal.

Tough year for hospitality, development. Although Durham's financial projections for next year project a slight increase in property tax revenue (1.3%) and only a modest drop in sales tax (5%), two ancillary sources of revenue -- the hospitality tax and planning fees -- are set for nearly 20% declines.

The City budget projects a 17.2% decline in the occupancy tax, a reflection perhaps of the drop in business travel amidst the current recession.

At the same time, fees taken in by the planning department for reviewing site plans and other documents are projected to drop by over 21%, an unsurprising event perhaps given the slowdown in construction. Inspection fees are seen to decline only 5%, however.

Capital projects. Although tax increases were clearly on the table if voters passed the '05 and '07 bond issues, the City is holding the line on any property tax increase this year -- with the City taking a harder line on debt service as well as capital projects this year.

While there are $71 million in capital projects set for the year, the "focus" is "to complete existing projects already approved and underway," Bonfield says. According to the city manager's budget transmittal letter, only a few new capital projects are on deck in this year's budget:

• Phase II of the Durham Convention Center renovations; the City and County will split the $5.2 million project cost.
• $140k in improvements to Rock Quarry Park/Edison Johnson Center.
• $860k in upgrades to the old City Hall facility now housing the Durham Arts Council.
• $2.2 million in upgrades to the Durham Bulls Athletic Park.
• Funds for a master-planning study to determine the needs for a new police headquarters.

One bonus addition: $500k in initial funding for a Deferred Maintenance Fund, the first step in trying to keep routine (but unfunded) capital repairs from festering until major capital project expenses are needed. A list of such projects is already written and prioritized, Bonfield says.

Public safety. Police and fire staff will be the only employees to see their planned salary increases this year, with the year two implementation of a proposed pay/classification study on ice with the current economy. The new Fire Station 15 will open, but with personnel reallocated from other stations to staff the facility.

Overtime pay for "targeted enforcement activities" like Operation Bulls Eye will continue in the new fiscal year.

Neighborhoods and youth. Funding for neighborhood commercial revitalization will rise $250k this year, to $750k in total, supporting projects that help to bring businesses -- and thus, jobs, retail, and eyes on the street -- to several targeted community areas in Durham.

Meantime, three Community Development FTEs previously focused only on North-East Central Durham will move to Neighborhood Improvement Services, re-aligned with community relations coordinators there to form a Division of Community Engagement -- now focused on neighborhoods throughout Durham.

One big driver of previously-committed new expenses: recreation centers for youth. The Holton Career and Resource Center, a partnership with the County, DPS and Duke, brings an almost $600k personnel price tag in the new year. Walltown's rec center adds another $220k; smaller amounts will be used for the Birchwood Neighborhood Center and a teen center at the Old Lyon Park building.

Comments

[Todd P]

Great analysis, Kevin.

With all the unspent bond money from the 2005 and 2007 voter-approved bonds (and even earlier), it is disappointing to not see the City moving ahead with more capital projects than the small number of almost entirely downtowm projects you listed.

Waiting to initiate these projects will end up costing Durham a lot of money, as our money will not go as far. Contractors may never be as hungry as they are right now.

[Phil]

Regarding water pricing -- did you hear the freak-me-out NPR feature on how Fresno has a one-fee all-you-can-eat plan for residential water use?

http://www.npr.org/templates/story/story.php?storyId=104466681

[GreenLantern]

Folks really need to watch their water bills after the new online billing system was put in place. I had a bill in February for $175, when my average water rate was $25 a month. I called and insisted on a meter re-read, and afterwards, my bill dropped back to normal. I won't be paying anything until July for my trouble.

And if you're curious, I do follow the adage "If it's yellow, let it mellow...."

[Bond Buyer]

Todd P:

Again, there is nothing to prevent the City in going forward with unspent 05 and 07 bond commitments, and they will. Those were moneys committed by Council in referenda and have nothing to to do with the FY10 budget.

[Todd P.]

@Bond Buyer - You are right that there is nothing to prevent the City from going forward with spending the 2005 and 2007 bond funds. The problem is that they are not actually planning to do it in the 2009-10 budget year.

Check out the 2010-2015 Capital Improvement Plan. Of the $71 million in capital spending planned for the next year, NONE of it is being paid for with General Obligation Bonds, despite the fact that most of the 2007 bonds have not been spent at all.

In addition, none of that $71 million is going to transportation - streets and sidewalks, which one would think would be pretty easy to spend since the DurhamWalks plan is done and the pavement condition survey is done. And very little is going to Parks & Rec.

The $71 million is going to:
Water - $48 million
Wastewater - $12 million
Downtown - $6 million
Stormwater - $1 million
Gen Svc - $1.6 million
Housing - $1.5 million
Police & Fire: $150,000
Culture & Rec: $140,000

http://www.durhamnc.gov/departments/bms/pdf/cip10-15_pre_intro.pdf

In 2007, the City asked voters to approve $20 million in bonds to repave 100 miles of streets, fix 3 miles of sidewalks, and pave a mile of dirt streets. The vast majority of that money remains unspent, and will not be during the next year per the CIP. Its been 18 months since the election, and apparently will be 30 months or more before it is spent. What is the city waiting on??

http://ww2.durhamnc.gov/cip/pdf/bond2007_faq.pdf

Maybe I am reading this all wrong, and if I am, I hope someone can explain it more clearly.