FROM STAFF REPORTS

Statesville City Manager Ron Smith presented the proposed budget for fiscal year 2022-2023 to the City Council on Monday evening.

The spending plan, which maintains the current property tax rate of $0.5478 per $100 valuation, provides for a 2 percent pay increase for city employees as well as implementation of the next phase of the pay study. The city would also absorb the increased cost of insurance premiums, which could have cost each employee $1,200 per year, and increase the city’s 401(k) matching contributions for employees.

The proposed budget calls for maintaining the city’s existing water and sewer rates, which council increased by 20 percent for the current budget year.

Under this plan, the General Fund budget of $51,070,630 would increase by 12.85 percent, or $5.8 million, from the current budget. That includes a fund balance appropriation of $2,732,530.

The proposed budget also includes more than $10 million in capital spending for construction of a new garage facility, new police vehicles, computer infrastructure upgrades, two new dump trucks and an automated garbage truck.

The entire budget message is available below.

City Manager’s Budget Message

May 2, 2022

To the Honorable Mayor and Members of City Council:

This is the official conveyance and presentation of the proposed budget for the 2022-2023 fiscal year.  This budget proposes maintaining the tax rate at $0.5478 and is based on an overall valuation of $3,483,100,000, with a property tax collection rate of 99%.  This reflects an increase of almost $63,034,000 in valuation from this fiscal year. 

FY2022 was influenced by many factors, some positive and some negative. On the positive side the city has seen unprecedented funding from the federal and state governments, with almost $32,000,000 being allocated through a combination of the federal American Rescue Plan Act (ARPA) and through a direct appropriation in the State of North Carolina’s most recent budget. These are once-in-a-generation funds and have been assigned to necessary improvements and actions. The two largest projects where these funds will apply are to complete a $20,000,000 water line replacement project and to build the new Fire Station 1. Additional money from the state has been allocated to transportation projects that will be identified over time on an as-necessary basis.

Maybe the most exciting news over the last year has been the economic growth that is coming to Statesville. Numerous industrial announcements have been made, some located in key parts of the city that have been dormant for many years. Almost 7,000,000 square feet of construction, valuing roughly $660,000,000 with the creation of 700 jobs, have been announced in both existing and new industries.

In addition to the industrial growth, Statesville is experiencing a housing boom. Most of the physical development has occurred south of the city, but planned development is in the entitlement phase in areas all around Statesville. To date, we have seen 160 new homes and 60 apartments built this year, with over 525 approved subdivision lots and 252 multi-family units on the way. Staff estimates that at present there are close to 2000 lots and 856 multi-family units in the planning stages. It remains to be seen how long this will continue, but it is certainly a sign of healthy growth.

Conversely, the city is struggling with inflationary costs and supply chain impacts. These impacts are manifesting themselves more in the enterprise funds, as they rely heavily on larger capital purchases. In the last year alone, the Electric Utility has seen transformers rise in cost tenfold, while lead times are not in weeks, but in months. This is a key component for future growth, as all development that uses the city’s electric system must have these basic infrastructure needs. One will see that in Electric’s budget, this is having a major influence on their spending habits.

Recruitment and retention of employees has also become increasingly difficult. The city has always competed with other local governments for talent, but with the increase in wages in other areas of the workplace, we are now competing with a broader group. The actions of the Council over the last few years have done much to help us in this, however more than ever we need to continue to make our salaries and benefits competitive.

Because most of our growth is either still in its infancy, and in many cases still on paper, we have not recognized the revenues that will inevitably come. There are demands on our services now, with no real way to pay for them. This budget is more creative in the use of debt and fund balance to bring it into balance, while meeting the fundamental needs of the city.

Two recent actions should help the city in the long term as we grow. The hiring of a Grants Coordinator will give us the capacity to aggressively apply for grant funding, and the engagement of Davenport Financial Services to assist in our capital planning and funding model for the future will allow us to be more strategic in our approach to larger capital needs that will inevitably accompany the growth coming to Statesville. 

Statesville is well situated to succeed as it continues to be “discovered”. Jobs, housing, and commercial development are happening, in part because of our location and strong utility and road infrastructure. We are striving to cultivate that growth through this budget, but there are still unmet needs.

GENERAL FUND SUMMARY

“The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. The primary revenue sources are ad valorem taxes, state and federal grants, and various other taxes and licenses. The primary expenditures are for public safety, streets, sanitation, recreation and parks, and general government.” – City of Statesville Annual Comprehensive Financial Report.

FY2022	FY2023 Proposed	Change	% Change
$45,257,500	$51,070,630	$5,813,130	12.85%

The proposed General Fund budget of $51,070,630 reflects an overall increase of $5,813,130 or 12.85% from the prior year.  Most of this increase is found in a fund balance appropriation of $2,732,530. The ad valorem property tax revenues of $19,419,000 are based on estimated property values of $3,483,100,000, a property tax rate of $0.5478 per $100 in assessed valuation, and a collection rate of 99%.  One penny on the tax rate generates $348,310 in revenue.  This reflects an increase of $63,034,000 in tax valuation over this year.

Major Revenues

Ad Valorem Taxes are estimated at $19,643,500; an increase of just over $600,000 or 3% from the prior year. 

Local Option Sales Taxes are estimated at $9,700,000; an increase of $1,700,000 or 21.25% based on current year collections and growth projections. Through this year we have seen historically high sales tax receipts but feel the city is approaching a plateau. Revenues are estimated higher, but in line with what we experienced in this year’s collections.

Electricity & Natural Gas Sales Taxes are estimated at $2,190,000; up from $2,150,000 in current year collections and projections.

Residential Sanitation Fees are recommended to be decreased to $60 per year, down from $120 per year. The revenue loss will be offset by a reimbursement from the Electric Utility. 

Powell Bill revenue is estimated at $800,000, which is an increase from $675,000 this year.  

Recreation revenues are budgeted at $450,000, a decrease from this year’s total.   

 Major Expenditures

There were over $12,700,000 in General Fund capital requests for FY2023.  Many of these requests are being deferred and are not recommended for approval. However, as mentioned previously, debt and fund balance are being used to fund a larger percentage of capital requests this year.  The total capital funding request has been decreased to $10,240,800. 

Some of the major capital items included in this budget proposal:

• Construction of a New Garage Facility
• Police Vehicles
• Police Department Roof
• Computer Infrastructure
• Garage Equipment Improvements
• Two Dump Trucks
• Automated Garbage Truck
• Upgrades to the Soccer Complex, and Harris, Martin Luther King Junior, Bristol Road Parks

 Fund Balance Appropriation

Fund balance is meant to be used as a “rainy day” fund, or a way to fund major opportunities or projects.  This year, I am proposing that we utilize $2,732,530 in fund balance to account for one-time projects and costs.

Downtown Tax District

Assessed values for the downtown service district increased by 3.5% from last year to $105,661,115. This is the first year of increased valuation in the downtown in three years.  I am recommending maintaining the Downtown Service District tax rate at $0.10 per $100 assessed valuation.  Revenues are estimated at $105,000 based on a collection rate of 98%. One penny on the service district tax rate generates $10,566.  

Woods Drive Dam Tax District

In April 2015, City Council approved the creation of the Woods Drive Dam Municipal Service District effective July 1, 2015 for the purpose of providing funds for routine maintenance and periodic repair of the dam. The assessed value is $2,312,900.  I am recommending maintaining the Woods Drive Dam Municipal tax rate at $0.21 per $100 assessed valuation. Revenues are estimated at $4,857 based on a collection rate of 100%. One penny on the service district tax rate generates $231. As required by law, any unspent funds on maintenance of the dam each year will be reserved for future repairs to the dam. 

ENTERPRISE FUNDS

Enterprise funds operate on a philosophy that they will “stand on their own two feet”. Revenues result from exchange transactions associated with the principal activity of the fund, an example being the payment of an electric bill for the electricity used. These funds do not rely on the ad valorem or sales tax and receive no assistance from the General Fund. The city’s enterprise funds include the airport, electric, water and sewer, civic center and stormwater.

AIRPORT FUND SUMMARY

FY2022	FY2023 Proposed	Change	% Change
$2,385,200	$2,896,800	$511,600	21.49%

The Airport is continuing to provide growth in the City’s General Fund property tax base with an aircraft valuation exceeding $65,000,000 and buildings over $30,000,000.  However, the airport did see a sharp decline of roughly $50,000,000 in aircraft valuation due to the exodus of Lowes. The proposed budget for the Airport Fund is $2,896,800. Operational expenses of the airport are funded primarily with ground and hangar lease and fuel flow revenues generated from the operation of the airport.

ELECTRIC FUND SUMMARY

FY2022	FY2023 Proposed	Change	% Change
$48,680,000	$67,089,200	$18,409,200	37.82%

The proposed budget for the Electric Fund of $67,089,200 is balanced with no across the board change in retail or wholesale electric rates. This fund has seen the most significant impacts over the last year, and I anticipate more of the same in FY2023. Supply chain issues and inflation have caused the city to make some fundamental changes in how it prepares for growth. Larger purchases are taking place due to extreme lead times, but those purchases are also at higher prices. The consequences for not doing this could be a slowdown in the ability to facilitate new development.

In addition to those pressures, the utility is preparing for future growth by purchasing trucks and equipment necessary for a new crew. The crew will not be hired until late in FY2023, but due to the delay in receiving major vehicles the orders must be made now. Because of the high costs, I am recommending that debt be used instead of using retained earnings to fund the construction of electric’s portion of the new Warehouse and Operations Center.

Finally, the City Council recently made the decision to begin funding, through a reimbursement, the cost of street lighting. This amounts to just over $500,000 per year.

Major Revenues

Electric Sales account for most of the revenues in this fund and are estimated at $45,815,000; an increase of 1.54% from the prior year adopted budget.

Wholesale purchased power costs of $35,709,304 are decreased by 1.77% from the previous year.   

Major Capital

This budget proposal includes almost $21,504,000 in capital funds for system improvement and expansion, up from $3,573,000 in FY2022. 

Some of the major capital projects are as follows:

• Trucks and equipment for new line crew
• Improvements and expansion
• Distribution lines for Delivery Six
• Electric Operations Center (Warehouse) rebuild

 WATER & SEWER FUND SUMMARY

FY2022	FY2023 Proposed	Change	% Change
$15,236,000	$18,191,500	$2,955,500	19.40%

In FY2022 there was a 20% increase in water and sewer rates. The city previously had rates too low to support the needs of the fund. In addition, an asset inventory assessment revealed major infrastructure needs, including the “spine” water line project, which is a main line that travels from the water plant, through the downtown to South Statesville.  Replacement of this line is necessary based on age of the infrastructure, the line is from the 1940s, and the importance of that line to the entire system.  The city was fortunate to receive $20,000,000 in funding from the state to assist with the construction of this project, which will take multiple years.

The five-year Water and Sewer Rate Analysis presented to Council last year incorporates all the costs of this fund, future debt to fund the completion of some major projects, and some excess to build fund balance for future projects.  The recommendations of our previous analysis were to incrementally move water and sewer rates, but it has not been enough to deal with our current and upcoming capital needs.  The analysis recommended another rate increase of 5% to both water and sewer for this coming fiscal year, but due to the money received from the state, we can avoid that increase. 

Major Revenues

Based on the 20% increase in the current year’s rates, the city has seen an overall increase in revenues. Water sales are estimated at $5,275,000 and sewer fees at $8,521,000.  Unfortunately, this year we saw the closing of the city’s largest water user, which has had a negative impact on sales. However, the city hit its benchmark overall regarding the rate increases.

Major Capital

I am recommending $3,861,300 in capital outlay this year to address some of the most critical needs, and to begin working on capacity planning at the Fourth Creek Wastewater Treatment Plant. This will be funded through water and sewer rates, a transfer from the Water & Sewer Capital Reserve Fund of $395,000, and appropriated fund balance of $2,966,500. This plan is a result of the updated water and sewer rate analysis performed last year, which is heavily influenced by projects coming in the next several years.

Some of the major capital projects are as follows:

• Waterline rehab projects
• Water Treatment Plant SCADA (Supervisory Control and Data Acquisition) system
• Standby generator/switchgear
• Exit 45 sewer expansion

CIVIC CENTER FUND SUMMARY

FY2022	FY2023 Proposed	Change	% Change
$1,782,000	$1,065,000	($717,000)	(40.23%)

The proposed budget for the Civic Center is $1,065,000; a decrease of 40.23% from last year. In the FY2022 budget the roof was replaced at the Civic Center with a cost close to $700,000.  Civic Center fees are estimated at $215,000, a decrease from last year. Transfers from occupancy tax receipts are projected at $850,000 to balance the budget. Any excess collections of occupancy taxes will be reserved for future capital and/or debt service for the facility. 

Revenues and usage are beginning to come back, albeit slowly. A Market Analysis has been completed, with associated recommendations to help make better use of the facility.  Completion of the Vance Hotel, as it is currently being considered, could be a game changer for the Civic Center. The availability of a hotel within walking distance of the center will potentially help with recruitment of more mid-week, and longer functions.

STORMWATER UTILITY FUND SUMMARY

FY2022	FY2023 Proposed	Change	% Change
$2,350,000	$2,260,000	($90,000)	(38.30%)

The proposed budget for the Stormwater Fund is $2,260,000 with no recommended increase in fees.  Stormwater fee collections are anticipated at $2,210,000 and we have appropriated fund balance at $50,000.  This was a planned appropriation as we knew there were several large projects on the horizon and the fund was performing at a surplus to build into those projects. 

Major Capital

Major capital projects and equipment are budgeted at $595,000, which are as follows:

• Holland Drive wing wall replacement
• Sunningdale Lane box culvert
• Lucille Street culvert replacement

CITY OF STATESVILLE EMPLOYEES

Since mid-2019, or the beginning of the 2020 fiscal year, the city has made significant moves that have touched every one of our full-time positions.  In fact, some employees have seen multiple increases in salary over that time.  Several key actions have occurred, including the implementation of a career development program for various departments, raises to the City’s minimum wage, and a 2.5% across-the-board increase.  These have all been worthwhile and necessary moves.  These actions have cost the city roughly $1,600,000 since 2019, which carries forward each budget year.  In FY2022 the Council increased employee salaries by 2%, across the board.

In addition, the Council approved developing, and funding, a four cycle pay review for all positions.  In FY2022 the public safety departments portion of the study was implemented.  This budget proposes to fully fund the second cycle of increases and to begin the study for the third cycle, and possibly fourth, cycle. This budget also increases salaries for part time positions, which have proven difficult to fill in these days where hourly rates have risen significantly.    

The cost of group health insurance will increase by 10% in the upcoming year, which equates to an increase of $1,200 per employee, or $800,000, per year. This is a significant increase that will be absorbed by the city and these costs will not get passed on to the employees. There will be an increase to family and employee plus coverages, but not for employee only plans.  

This budget does include plans for fully funding a matching deferred compensation program (401k). For each 1% that an eligible employee defers the City will match .5% up to 2.5% of the employee’s pay. 

There were sixteen positions requested in the upcoming year’s General Fund budget.  Because of pressures on the general fund due to employee costs, I have recommended funding one of these requests from a combination of various fund revenues. I will caution that as revenues are realized from new development, we must add positions associated with growth. The staff cannot continue to address increased service demand in the same fashion as it has always been done.

There are seven full time equivalent positions being recommended in the enterprise funds.  One Project Coordinator and a new Line Crew consisting of five Linemen are recommended in the Electric Fund.  Funding for the Line Crew is recommended for a later start date due to equipment availability.  One Skilled Laborer is recommended in the Stormwater Fund.

 BUDGET SUMMARY

The funds detailed in the preceding sections comprise the 2022-2023 Proposed Municipal Operating and Capital Budget proposal of $142,573,130. The totals for the six operating funds are shown below:

Fund	FY2022	FY2023 Proposed	Change	% Change
General	$45,257,500	$51,070,630	$5,813,130	13%
Electric	$48,680,000	$67,089,200	$18,409,200	38%
Water and Sewer	$15,236,000	$18,191,500	$2,955,500	19%
Civic Center	$1,782,000	$1,065,000	($717,000)	(40%)
Airport	$2,385,200	$2,896,800	$511,600	21%
Stormwater	$2,350,000	$2,260,000	($90,000)	(4%)
Total	$115,690,700	$142,573,130	$26,882,430	23%

In addition to the recommended operating budget, proposals are included for other annually appropriated funds as follows:

Fund	FY2022	FY2023 Proposed	Change	% Change
Risk Management	$7,175,000	$7,982,000	$807,000	11%
E-911	$75,000	$8,000	($67,000)	(89%)
Occupancy Tax	$950,000	$1,083,300	$133,300	14%
Total	$8,200,000	$9,073,300	$873,300	11%

 

KEEP A WEATHER EYE ON THE HORIZON

Statesville weathered the pandemic much better than expected.  We are standing strong based on development, sales tax activity, and developer’s bullish view of the City.  This budget helps us to maintain this status, take care of our infrastructure, and provide the basic services to our residents.  However, it does not truly contemplate some staffing and capital needs.  There are always needs that will be left unmet, and in this case, it is because of the balance necessary to complete this budget exercise without pushing too far.

As development continues to occur, we do not want to get too far behind on the staffing that will inevitably follow. Hiring and retaining quality employees, investing in our systems, and looking to the future is truly important. It is important that we continue to take stock of, and track, the impending growth, while measuring the need for new people and capital expenditures. Actions taken over the last year have shored up our ability to plan for this growth, now we must work through the transition period until the revenues associated with that growth materialize.

RECOMMENDATION

This proposed budget achieves some of the efforts we need, but at a cost. Retaining our staff and recruiting when we have vacancies is paramount to the city providing quality services. Although not the only aspect to achieving this, but certainly one of the top, is pay, especially in a time of high inflation. The Council has done a great job over the last few years in keeping our pay competitive, but now more than ever those efforts need to continue.   The city is in the second round of a four cycle pay review, and the results are funded in this budget. In addition, I am recommending a 2% increase across-the-board to employees, as was discussed at the Winter Planning Retreat. I truly believe we should do more, but it would take a tax increase to make that  happen.

Therefore, based on the factors presented I recommend to the City Council the City of Statesville’s FY2023 Operating and Capital budget.  This budget of $151,646,430 reflects an overall increase of 22% from the current fiscal year.  Ad valorem property tax revenues are projected at $19,256,000, based on estimated property values of $3,483,100,000, which reflects an increase of $63,034,000 in valuation from this fiscal year.  I propose maintaining the property tax rate of $0.5478, per $100 in assessed valuation, based on a collection rate of 99%.  A General Fund balance appropriation of $2,732,530 has been included for one-time capital expenditures.  Unassigned fund balance is estimated to be just over 65% at the end of FY2021. One penny on the tax rate generates $348,310 in revenue. 

I want to thank the departments, and particularly the budget team, for their assistance in preparing this FY2022-2023 budget proposal.

I appreciate the consideration of the City Council in reviewing the budget and providing us with the tools to provide quality services to the citizens of the City of Statesville.  We look forward to reviewing this budget proposal with you and receiving your comments and instructions.

Respectfully submitted,

Ronald R. Smith
City Manager