|
|
LONG-RANGE FINANCIAL PLANNING COMMITTEE MEETING JANUARY 2, 2007
1. Chairman Roy Thomas called the meeting to order at 4 p.m. with Committee members Gary Meredith, Eric Magill, Bill Wichmann, and Clifton Mitchell present. Town Administrative Official Charles McMullen and Chief Kenneth McLaughlin were also present. Marc Grimes joined the meeting at 4:03 p.m.
2. The Pledge of Allegiance was recited.
3. There were no changes to the agenda. Gary Meredith made a motion to adopt the agenda. Eric Magill seconded the motion, and it was approved unanimously.
4. There were no changes to the minutes from the October 17, 2006, Long Range Financial Planning Committee Meeting and the October 31, 2006, Joint Town Council/Long Range Financial Planning Committee Meeting. Gary Meredith a motion to accept the minutes as presented. Eric Magill seconded the motion, and it was approved unanimously.
5. Roy Thomas said that he scheduled the meetings on the same day as the Town Council meetings and referred to his December 26, 2006, memorandum concerning the Time Line for Financial Considerations before the Town Council.
6. Roy Thomas said that he would like to start with item 6 on the agenda, Review of First Draft of the FY 2008 Budget and explained that they should discuss the assumptions that go into the budget at this meeting. He thinks that the assumptions drive the numbers. He also explained that this is a macro rather than a micro budget and said that he neither has nor wants access to the Town’s accounting system, which means that his numbers do not always match. He then referred to page 1A that replaces page 1 of the Revised Budget. He said that he compared the major assumptions from last year with where the Town is today. He then noted such line items as Building Permits, down by $125,000; Interest Income, down by $275,000; Property Taxes, down by $376,000; Transfer Taxes, down by $533,000; and Sale of Assets, down by $325,000. Mr. Thomas said that the difference for revenues is $1,634,000 less for FY 2007 – 20012. He said that he noted in Column K that this is done without factoring in Fairway Village. Charles McMullen said that he doesn’t think that this subdivision will start until the end of FY 2007 or the beginning of FY 2008. Roy Thomas then noted some expenditure projections: 15% increase for insurance and salary increase for FY 2007 was 5% and 4% from FY 2008 – 20012. He noted that there were no head count increases from FY 2007 – 2012 but did add ½ person in Public Safety, which increased the budget by $175,000 for those years. He explained that there is a conflict in this because the ½ person was already approved by Council but there was no money in the budget for this ½ person, which is the reason that a budget adjustment was needed. He then said that income for this period—2007 - 2012 is down by $1,634,000 but expenses are up by $175,000; therefore, the total difference from last year’s budget is $1,809,000. In answer to a question from Chief McLaughlin, Roy Thomas said that there is no head count increase projected for this time period. Mr. Thomas then referred to page 2A, which replaces page 2 and said that he has graphically prepared budget projections for this year and last year. He then referred to Line 12, which lists the actual surplus for the years from 2000 - 2006. He then referred to Line 14, which shows last year’s budget projections and said Line I 14 shows that they plan a budget deficit of $558,000 for this year; next year’s to be $323,000; FY 09 to be $604,000; and the year 2012 will have a balanced budget with an $85,000 surplus. He said that the current deficit projection will now be $688,000 for this year, $865,000 for FY 08, $852,000 for FY09 and so forth. He said that the difference can be found on Line 26; i.e., $1,883,000. He then explained that the newest projections show a deficit for FY 2013. He said that these assumptions do not include a tax increase. He said that BJ Keen and Charles McMullen have helped him understand the real estate transfer tax. He said that last year’s assumptions were based on 50% from sale of new homes and 50% from resales. In answer to a question from Mr. Thomas, Charles McMullen stated that the Town has only issued two building permits that have realized income from the transfer tax because many people built homes on land that they have owned for more than 1 year. Mr. Thomas said that he thinks that the Town has raised about $325,000 in transfer tax revenue through November and will raise about $350,000 by December. Bill Wichmann noted that this means that the Town has raised 62% rather than 67% of its projected goal. He thinks that the budget underestimated income and overestimated expenses and said that he hopes that this process will improve. Roy Thomas agreed with his comment and noted that the latest projection for transfer tax is over $500,000. Bill Wichmann noted that they budgeted $558,000 for this. Roy Thomas then noted that his estimated figures for Fairway Village can be found on page 4 and said that these numbers need work; he said that they are out too far and thinks there are too few new homes, but this is a starting point. He said that he projects 5 new homes and 85 resales for a total of 90 sales. He referred to Line 28 and said that the value of a new home is $350,000, and the value of resale homes is $375,000. He said that these numbers also need work and went into brief detail about this. He said that transfer taxes in Line 43 are projected at $504,000 for FY 2007 and $547,000 for FY 2008 and agreed with Bill Wichmann that they may be too low. He then referred to the Analysis of Tax Increases Required page, which showed tax increases of 7.75% per year in FY’s 09, 10, 11, 12, and 13 for a cumulative tax increase of 45%. He explained the sheet entitled the X Factor states that during the period 2007 through 2013 if expenses are raised by $100,000, the taxes must increase by .6% per year and went into some detail about this. He again said that the assumptions drive the budget. In answer to a question from Marc Grimes, Roy Thomas said that he thinks that the “Nally” annexation is moving forward but also said that they must proceed as though there is no annexation. In answer to questions from Eric Magill, Roy Thomas said that the interest income is going down because some of that interest is going into the reserve accounts and the $1,600,000 decrease in income means that more money will be removed from the fund balance. He also confirmed that real estate taxes are going down because he expects fewer new homes to be built but said that Fairway Village could change that projection. He also confirmed that the reduction in Sale of Assets figure occurred because the Shores’ house was not sold. Roy Thomas agreed that the insurance figure dropped 2% in FY 2007 but said that he factored in a 15% increase for subsequent years. He also confirmed that the ½ person increase in the Public Safety Department would cost $175,000 over the 5-year period. In answer to a question from Charles McMullen about the disparity in the building permit projections in relation to Fairway Village, Roy Thomas said that the Fairway Village number is pushed out so far, and the number is so low; he said that the Fairway Village numbers need to be reworked. Discussion followed about 84.5 number used for Fairway Village projections, the possibility of the developer selling the lots in Fairway Village and the transfer tax ramifications of such sales, and the possible need for a change in Town regulations dealing with this matter. Mr. McMullen suggested that the Town look at the construction cost figure. He explained that the Town now uses the figures supplied by the developer or contractor rather than figures such as a percentage number based on the IPC square footage cost to the contractor; he thinks that this figure is $89 per square foot. Mr. McMullen explained that this number applies when someone comes in to build on a property that they have owned for less than a year; they must pay a transfer tax of 1½% of the cost of building the home; they have already paid the 1½% transfer tax on the price of the land. He thinks that this ICP figure should be used rather than costs supplied by the developer or builder. Marc Grimes said that Ocean City does something similar to this; they tell the applicant what the home will cost to build. Roy Thomas said that he added this suggestion to the list of recommendations for the Town Council. He then explained the three possible ways that the Town can collect transfer taxes on property: 1) when the land is purchased, 2) when a home is built on property owned less than 1 year, and 3) when the house is sold to a third party. Discussion about whether the Town would collect transfer tax when a land/home package is sold before it is built and when the actual home is built on that land. Mr. McMullen said that he discussed this issue with the previous Town Manager and the Town Solicitor but got no definitive answer. Roy Thomas said that the Town Solicitor told him that the ordinance says transfer taxes are owed whether the property is flipped or not when the land is purchased, when the building permit is obtained on property that is owned for less than a year, and when the house is sold. Discussion continued about such matters as the sale of sections in Wedgefield and Avon Park by Gulfstream to Gemcraft and the loss of transfer taxes to the Town and the ramifications of the sale of an entire development such as Fairway Village. Chief McLaughlin asked about the ramifications of a sale of one corporation to another corporation, but Roy Thomas said that is too technical a question to answer at this time. Cliff Mitchell thinks that there is some uncertainty as to how this works and also thinks that research on this matter is needed, and the Town Council may need to make some changes. He thinks that once this is done, that every possible permutation should be documented and distributed so that everyone is working from the same page. Roy Thomas said that they should not get too focused on Fairway Village; this development will help solve the Town’s financial problems but cannot do it entirely. Mayor Meredith said that tax increases could be done on a yearly increase. Marc Grimes brought up the possibility of increasing revenues by such means as raising building permit fees to the same rate charged by neighboring towns. Bill Wichmann wholeheartedly agreed with Marc Grimes’ statement and questioned the amount that could be raised by the newly enacted rental tax because he doesn’t think that the Town knows how to collect this tax. He then said that they have collected more revenue than they anticipated, and the expenses are not nearly as high as budgeted. He then said that the Council only has authority for the budget for the next fiscal year and doesn’t see gloom and doom if the Town does a better job of projecting income and uses the rental tax and increased building permit fees to raise more income. He doesn’t know what will happen way down the road and is primarily concerned with the next fiscal year. He thinks that the Town can do a better job in preparing the budget. Eric Magill said that the Town knows how much it will obtain from property taxes and how much it will cost to operate the Town in a given year. He thinks that it is daunting that the Town is using $1,000,000 from reserves each year to make up the difference between these two figures. He thinks that the Town needs to raise taxes in order to balance the budget and cut operating expenses to correct the operating deficit. He thinks that the Town has a problem when it has an operating deficit. He said that the Town is going into its slow period for collecting real estate transfer taxes; Marc Grimes said that there are nine sales pending in Ocean View at this time, which will settle within the next few months. He then explained the amount of revenue that they might generate. Cliff Mitchell said that they need to be aware of the timing of the expense and income within the current year and noted that the document shows that 83% of the revenue is in although the Town is only two-thirds of the way through the fiscal year but also noted that property taxes are shown for the entire year. Bill Wichmann agreed with that statement and but noted that the payroll figures, which are skewed because the Town has not had a Town Manager for several months, are not at two-thirds. He thinks that a better job can be done in this area and also agreed with Eric Magill’s statement and said that the Town cannot be sure of what it will raise in transfer taxes. He went on to say that he has a difficult time telling property owners that the Council will raise their taxes when it has several million dollars in reserves. Marc Grimes said that they should focus more on the actual dollar amount of the tax increases rather than the percentages because property taxes are very low in this area, people are used to paying much higher property taxes in the areas in which they lived formerly, and the actual amount is less frightening to people. Roy Thomas disagreed with this assumption. Bill Wichmann agreed with Marc Grimes and briefly noted how small the average tax increase would be. He said that this is the type of situation in which a Town newsletter would be beneficial and again said that he has a problem raising taxes by even this small amount when the Town has a surplus. Mayor Meredith reminded him that much of the surplus is real estate transfer tax money, which has very definite limits on the way that it can be used. Roy Thomas then explained that the surplus will be spent within the next 24 months: $1,200,000 for the police station; other expenses for capital equipment for the police station; and this year’s operating deficit of between $600,000 and $700,000. He said that their objective is to deal with the 5-year plan and said that if they want to cut it to only 1 year, they should work on reducing this year’s operating deficit in FY 2008. He agreed with Bill Wichmann that it is not all gloom and doom but thinks it will be gloom and doom if they don’t do anything or make the wrong decisions. He doesn’t think that transfer taxes will be as great as they once were because there are not enough open lots in the Town. The need to make assumptions for Fairway Village was mentioned. Mayor Meredith thinks that a tax increase will be needed but agreed with Marc Grimes that they should talk in dollars and give examples of what a tax increase will mean in dollars. Roy Thomas said that they must be able to tell taxpayers that they did the best they could with the money that the taxpayers gave to the Town when they raise taxes. In answer to a question from Mayor Meredith about the way that the rental tax would be collected, Roy Thomas explained how Bear Trap collects its rental fees, and Charles McMullen explained that he has talked with realtors and sent out information to them and hopes to have meetings with some of them. He said that he will meet with the Town Clerk about sending out the appropriate information to the realtors. He suggested that this information could be transmitted through the HOA’s. Marc Grimes explained that the quickest way to disseminate this information is go through SCORE, an organization comprised of all Sussex County realtors. Mr. Grimes explained that SCORE can put out this information via its daily e-mail. He said that many realtors do not have Ocean View business licenses. Chief McLaughlin agreed that this is a problem with contractors. Mr. McMullen noted that the business license fee is very low. Mr. Thomas said that they must go back to the assumptions and raised the issue of Fairway Village. Charles McMullen said that he thinks they will start construction in June 2007. Mayor Meredith suggested that they should use 32 homes for FY 2008, and 60 homes for the next 5 years. Marc Grimes is not sure that they will have any settlements in FY 2008. Charles McMullen said that it will be built in phases, and they will need money from the previous phases to start the next one. After some discussion, Roy Thomas said that he would put in 15 for FY 2008, 45 for FY 2009 and the following years. He said that this raises the numbers for building permit fees, interest income, and property and real estate transfer tax figures but doesn’t change the sale of asset figure. Discussion about the impact of these figures, the increase in transfer taxes, and the increase in competition took place. The Committee agreed that Roy Thomas should include a recommendation to the Council that the construction costs should be increased to $89 per square foot. Marc Grimes recommended that the building permit fees be increased to reflect the fees charged by neighboring towns. Charles McMullen said that he has gathered information from neighboring towns about their building permit fees and is preparing a table to present this information to the Council. The Town’s contribution to the emergency fund was mentioned, but Mr. McMullen said that it was such a small amount that it wouldn’t have a significant impact. He recommended that they use a percentage under new construction and said that some towns do a percentage for all building permits across the board and mentioned several towns’ fees and experience. He suggested a percentage of 1½ to 2% across the board and confirmed that it would be that percent of the recommended construction fee. He agreed that 2% of $90 would be $1.80 per square foot rather than the present figure of $.25 per square foot. Mr. McMullen suggested that business license fees be increased. Roy Thomas said that he would add that suggestion as a line item and as a recommendation to the Town Council. Chief McLaughlin asked about the penalties for nonpayment of the rental tax and suggested that the Town look at imposing such fines. Marc Grimes said that the biggest problem will come from people who rent their homes via the Internet. In answer to a question from Cliff Mitchell about the 5 % increase on resales, Marc Grimes said that he thinks that there will be more resales in the upcoming years; he thinks the figure could go as high as 15%. In answer to a question from Roy Thomas, Charles McMullen said that it is up to the Council as to whether it will impose an increased building permit fees on all construction or just new construction. Roy Thomas said that he will assume that it will only apply to new construction at this time. He said that they must now focus on expense assumptions. In answer to a question from Eric Magill, Mr. Thomas said that the $10,000 donation to the fire company does not include the emergency fund amount. Mr. Magill said that this donation will increase because of the increase in building permit fees. Mayor Meredith reminded attendees that the South Coastal Library has asked for a 3-year donation for its capital improvement campaign. Charles McMullen said that the Council may want to decide if it wishes to continue to donate a percentage of the building permit fees to the emergency fund or if it wishes to settle on a specific amount. Roy Thomas said that he will research this issue. In answer to a question from Eric Magill about the decrease in professional fees, Mr. Thomas explained that he used last year’s numbers. He only addressed the line items on the front page for assumptions and confirmed that professional fees for the water project are found under the water project. Roy Thomas explained that the biggest expense falls under employee costs. Chief McLaughlin said that they spent a great deal of time analyzing these figures and said that they must have an increase in police personnel in order to maintain the present level of services that they provide. He thinks that they are being very conservative in requesting three officers over the next 5 years. He said that he will complete the Comprehensive Manpower Study by January 15th, but also said that they will need more capital equipment if they hire more officers. He said that such things as vehicle maintenance and vehicle replacement costs were not included last year. He also said that they will have a problem with the 4% salary increase because the OVPD is falling behind other municipalities; he noted that the Lewes PD now has a starting salary of $39,000 starting in January 2007. He mentioned the number of officers that the Town has lost or might lose in the future. He said that they are now gathering information from other towns. Cliff Mitchell said that they must have some systematic way of addressing such matters as whether the Town’s wages are in line with the area and whether the Town’s staffing is adequate. The issue of the salary/manpower study was raised. Chief McLaughlin agreed with Cliff Mitchell’s statement that his budget experience has never been that someone expected to receive something simply because they said that they needed it. Chief McLaughlin said that they were gathering this data because the manpower study was never done. Roy Thomas again referred to the Comprehensive Service Level Study and said that it will be difficult to deal with personnel issues until that is received. Charles McMullen said that he doesn’t think that this study has anything to do with salaries. Discussion followed. Eric Magill said that the complaints are down so he would need to see some justification as to why more officers are needed when the trend is going the other way. Roy Thomas said that it would be detrimental to discuss this matter until the plan is finished. Chief McLaughlin again said that capital expenses would be associated with new hires and also said that at some point in time, they must determine what level is service is needed. Mayor Meredith suggested that that the pay increase be raised to 5 or 6% since the income level has been raised. Roy Thomas said that he has already done some analysis on this and said that costs increase by $200,000 over the next 5 years for every percent of pay increase. He said that he can realistically increase the pay increase to 5%. In answer to a question from Cliff Mitchell, Mayor Meredith said that the pay raise is received if someone is doing a superior job and noted that the Town has a long-term staff and thinks that they will have to give them a 5% increase in order to keep them. He is using that percent increase for budget purposes and said that it might be even higher. He noted that the income figures have increased and thinks that the payroll figure could also be adjusted. Cliff Mitchell and Eric Magill disagreed with that assessment. Roy Thomas said that Mayor Meredith has a point and said that he could prepare a plan with a 4%, 5%, and 6% pay increase. Eric Magill used figures to support his belief that if an officer is added, the entire gain from Fairway Village will be wiped out and created a higher deficit. Chief McLaughlin said that he understands this comment but said that service will be reduced if additional officers are not hired. Roy Thomas said that the Town will be spending $2,000,000 more than it takes in over the next 3 years even with the Fairway Village. Roy Thomas said that he will put these figures in and discuss this issue at the next meeting. Marc Grimes said that wages, especially on the public safety side, are driven by the wages in neighboring towns. Bill Wichmann said that the Town lost three officers in less than 3 years and have hired two officers but this has been expensive when the costs of such items as the Police Academy and other training are considered. He said that two other officers are mindful of opportunities outside the Town. Eric Magill said that he thinks that other factors beside pay are involved; he thinks that they were looking for other opportunities. He said that two people took pay cuts to come to the Town; he said that the officers are not totally motivated by money. Chief McLaughlin said that he would like to be competitive; he would like to be at the middle of the pay range rather than at the bottom. He said that experts say that any salary study should be nationwide rather than town or county wide; they look at towns in comparable circumstances. Marc Grimes said that quality of life is a factor; working on Central Avenue in Ocean View is different than working on the downtown streets in cities such as Baltimore or Washington, DC. Roy Thomas said that the Town should pay what it can afford to pay and should not be driven by what is out there but did agree that this is a consideration. Mayor Meredith said that they should look at the possibility of giving a 5% pay raise. He also suggested that the Town should change the Charter to require a property reassessment every 10 years rather than every 5 years; he said that it would save the Town $100,000 in FY 2012. Roy Thomas disagreed with 10 years and said that he thinks that 7 years would be acceptable. He stressed reassessments are needed to ensure that the tax structure is always fair. Eric Magill said that the last reassessment was done in 1995-96 and said that there was about a 10% fluctuation in taxes during those 15 years. Roy Thomas said that if the reassessment is done in 7 to 10 years, it will be removed from this budget cycle. Mayor Meredith said that they should recommend to the Council that the reassessment be done every 7 to 10 years. He also asked why the Town is spending so much money to have properties assessed each year. Discussion followed. Charles McMullen said that all construction done during the year is reassessed. Roy Thomas suggested that they end the meeting now and asked if anyone had anything else to discuss. Eric Magill said that they should look at the professional line item. Roy Thomas said that it will be difficult to look at individual line items without a Town Manager. Eric Magill said that they should know what is contained in the $88,000 figure. Roy Thomas said that he would look at this but can’t guarantee results. Eric Magill reminded attendees that a request has been made to hire a Town engineer on retainer. Mr. Magill said that they were not sure of the utility expenses for the police station. In answer to a request from Mayor Meredith, Chief McLaughlin said that they should be able to get these figures. Cliff Mitchell said that some of these items should be looked at from a management as well as a budget perspective, and they should be constantly looking at different ways to do things in order to ensure that its operations are most effective. Roy Thomas said that it will be difficult to do that this year. Mayor Meredith agreed with both statements. In answer to a question from Eric Magill about adjusting the figure for the DPW building, Roy Thomas said that these figures do not include the latest estimate for the DPW building. Roy Thomas said that they will discuss capital at the next meeting. Roy said that this touched nothing on capital, only last year’s numbers that were put in for capital.
Mayor Meredith made a motion to adjourn the meeting. In answer to a question from Chief McLaughlin, Roy Thomas said that the next meeting will be held on January 16th. Marc Grimes said that he will not be able to attend that meeting. Eric Magill seconded the motion, and it was approved unanimously. The meeting adjourned at 5:39 p.m.
Respectfully submitted,
Roy Thomas Chairman Long-Range Financial Planning Committee
Transcribed from recording: January 14, 2007
Top of Page Copyright© 2001-2004 Town of Ocean View, Delaware |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||