Town Of Sharpsburg Annual Budget Message Fiscal Year 2009-2010

Town of Sharpsburg Annual Budget Message Fiscal Year 2009-2010 TO:

Honorable Sheila Williams Board of Commissioners

FROM:

Robert E. Masters Jr. , Administrator/ Budget Officer

DATE:

May 26, 2009

RE:

Budget Message

In accordance with the North Carolina Local Budget and Fiscal Control Act, the Town of Sharpsburg Budget Ordinance for the fiscal year beginning July 1, 2009 is presented herewith for your review and consideration. On the date the Budget is submitted to the Board of Commissioners, a copy was filed in the Office of the Town Clerk where it shall remain for public inspection until adoption. North Carolina General Statutes (GS 150-13(a)) direct that the Budget Ordinance and Tax Rate adoption take place no later than July 1, 2009. A public hearing date has been scheduled for 6:00 p.m., June 25, 2009 in the Town Hall. North Carolina General Statute 159-12 requires this date to be published and said hearing held before the Commissioners adopt a Budget Ordinance. In addition, North Carolina General Statute 159-6 directs that if the budget ordinance is not adopted by July 1st, the governing body must adopt “interim appropriations for the purpose of paying salaries, debt service payments and the usual ordinary expenses” of the unit until the ordinance is adopted. The FY 2009-10 Budget was prepared by the Town Administrator working closely with the various staff department heads to prepare a financial planning document that accurately projects anticipated revenues and expenses for the next fiscal year. The Town Administrator, Mayor, and Board of Commissioners have conducted several public work sessions to prepare a working budget for the Town of Sharpsburg.

Property Tax Rate The current ad valorem tax rate for the Town of Sharpsburg is currently set at $.50 per $100 of valuation. That tax rate will remain unchanged in the FY 2009-2010 Budget.

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Budget Considerations Historical Context. The FY 2009-10 Budget Ordinance for the Town of Sharpsburg is balanced as required by the North Carolina General Statutes. Only three years ago, Sharpsburg faced a situation where the balance of unencumbered funds was dangerously low. This was primarily the result of maintaining very low user rates for town services such as water, sewer, electricity, and garbage collection. Instead of raising the price of services as the cost of providing them increased, Sharpsburg opted to “absorb” these costs itself each year by using its general fund balance. This situation was further complicated by an unwillingness to increase property tax rates. Failure to properly manage the cost of providing town services to its citizens resulted in drastic cuts in spending and higher utility rates for town citizens. At the onset of FY 2009-10, the Town’s unencumbered fund balance still remains a problem and is below an acceptable level. During the course of FY 2008-09 the Town was forced to increase electric user rates by 16% to cover unanticipated wholesale prices of electrical power that the Town purchases from Progress Energy. Likewise, water/sewer user rates were increased by 10% in an effort to make the Water/Sewer Department and enterprise fund financially solvent. Both of these rate increases were difficult measures to impose on the citizens of Sharpsburg but they were absolutely necessary. It is imperative that the Town maintain adequate user rates for all utilities now and in the future to ensure the Town remains financially solvent. Sewer Rehabilitation Project. Sharpsburg’s wastewater collection system was first installed about 30 years ago. Since that time, little or no effort was made to maintain or improve the system. This neglect has resulted in a collection system that has been allowed to develop a substantial inflow and infiltration problem. Inflow and infiltration or I & I, are terms used to describe the ways that groundwater and storm water enter into dedicated wastewater or sanitary sewer systems. Dedicated wastewater or sanitary sewers are pipes located in the street or on easements that are designed strictly to transport wastewater from sanitary fixtures inside your house or place of business. Sanitary fixtures include toilets, sinks, bathtubs, showers and lavatories. Inflow is storm water that enters into sanitary sewer systems at points of direct connection to the systems. Various sources contribute to the inflow, including footing/foundation drains, roof drains or leaders, downspouts, drains from window wells, outdoor basement stairwells, drains from driveways, groundwater/basement sump pumps, and even streams. Infiltration is groundwater that enters sanitary sewer systems through cracks and/or leaks in the sanitary sewer pipes. Cracks or leaks in sanitary sewer pipes or manholes may be caused by age related deterioration, loose joints, poor design, installation or maintenance errors, damage or root infiltration. Groundwater can enter these cracks or leaks wherever sanitary sewer systems lie beneath water tables or the soil above the sewer systems becomes saturated. Often sewer pipes are installed beneath creeks or streams because they are the lowest point in the area and it is more expensive to install the pipe systems beneath a roadway. These sewer pipes are especially susceptible to infiltration when they crack or break and have been 2

known to drain entire streams into sanitary sewer systems. Average sewer pipes are designed to last about 20-50 years, depending on what type of material is used. Often sanitary sewer system pipes along with the lateral pipes attached to households and businesses have gone much longer without inspection or repair and are likely to be cracked or damaged. During FY 2008-09, Sharpsburg applied for a $30,000 grant from the NC Rural Economic Development Center to help finance a badly needed Preliminary Engineering Report (PER) to address the Town’s wastewater collection system repairs. The completed PER identified a severe wastewater I & I problem and an estimated cost of repairs at over $4,000,000. Later, the Town applied for a $1,000,000 grant from the NC Rural Economic Development Center to assist in financing actual wastewater system repairs identified in the PER. Facing a $4,000,000 repair, the Town has also applied for grant and low interest loan assistance from the United States Department of Agriculture (USDA) Rural Development. Electric Rates. The prior year, 2008-2009 have been unprecedented in terms of utility costs. The price of coal forced the wholesale cost of electricity much higher than expected. During the course of FY 2008-2009, the Town was compelled to raise the electric rate 16%. After that rate increase, the cost of retail electricity for a Sharpsburg customer remained approximately 20% lower than nearby customers in the Cities of Rocky Mount, Wilson, and Tarboro. With adoption of the FY 2009-10 Budget Ordinance, a 6% electrical rate increase was adopted in another effort to recover costs of providing the service to Sharpsburg customers. Water/Sewer Rates. Sharpsburg purchases all of its water directly from the City of Rocky Mount. Rocky Mount also provides Sharpsburg with wastewater treatment under contractual terms. On May 15, 2009, Sharpsburg was informed of a significant rate increase in the cost of wholesale water and sewer services. On average, the cost of water increased by 15% and sewer treatment services by 10%. The Sharpsburg Board of Commissioners had no choice but to increase its own retail rates for its citizens to offset this additional expense to the town. Garbage/Recycling Rates. Historically, the town’s garbage and recycling rates have only been high enough to recover the cost of contracted garbage pick-up and recycling services. Town services associated with the roadside pickup of yard waste and other items have been provided to citizens without an off-setting revenue stream. The cost of providing these services has continued to rise and attempts must be made to recover these expenses. Effective July 1, 2009, the retail cost of garbage pickup once a week will be $20 and recycling $8 per month representing a 40% price increase. Personnel Expenses. The FY 2009-2010 Budget mandates no salary increases or cost of living adjustments for the next 12 months. New Equipment. For FY 2009-2010, the Town has budgeted $10,000 each year over a three year period for a new truck in the Electrical Department. 3

Maintenance of Equipment. The town continues to budget $115,750 per year for debt service on the electric power sub-station. For FY 2009-2010 the Town has budgeted $45,000 for maintenance of the electrical substation. Beginning in FY 2009-1010, the Town has budgeted $31,000 for annual maintenance of two water tanks and $5,000 for annual maintenance of the generators used at sewer lift stations. Both of these maintenance issues are considered absolutely critical to the Town’s ability to provide adequate services to its citizens and to properly safeguard equipment already purchased.

Sources of Revenues for FY 2007-2010 Revenue Source Property Taxes Sales Tax Utility Fund Transfers Other Taxes Powell Bill Misc. Revenue Garbage/Recycling Electric Water/Sewer Totals

FY 2007-08 Budget $308,300 265,500 141,930 87,000 76,000 39,450 196,725 2,320,400 1,128,610 $4,563,915

FY 2008-09 Budget $223,119 230,000 474,125 95,600 75,840 53,091 191,000 2,446,500 1,235,000 $5,024,275

FY 2009-10 Budget $288,000 224,000 240,200 97,800 70,000 16,600 252,000 2,670,024 1,373,356 $5,231,981

This Table reveals several interesting facts worthy of discussion. In a small town that provides electric service to customers it is not unusual that the electric department generates the most revenue.

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Other utilities and services such as water, sewer, and garbage collection are usually less than the amount of electric revenue collected. In most communities, ad valorem property taxes contribute to revenue much more heavily than indicated for Sharpsburg. Currently, the local option sales tax (2%) returned by the State of North Carolina to the counties and allocated to the town contributes as much revenue as do property taxes. Low property values, poverty, and general low wealth conditions are systemic problems in Sharpsburg that must be addressed. Generally, taxes and fees should be able to finance the general and administrative functions of government operations. But, low property values and a low tax rate do not provide sufficient revenues to support general government and administration in Sharpsburg. Accordingly, some level of financial support for these operations must be derived from providing services such as electric, water, and sewer to customers. This is especially true of the Electric Department that contributes 51% of the total Sharpsburg budget.

Comparison of Expenditures Budget Years 2007-2010

Budget Category Personnel Fire Dept Police Dept Consulting Travel/Training Capital Equip Fuel Maintenance Purchase Water Purchase Sewer Purchase Electric Debt Service

FY 2007-08 Budget 814,345 55,000 379,000 96,580 20,500 39,370 59,195 32,400 171,500 419,800 1,364,169 249,750

% Inc 29% 21% 15% 5% 39% 31% 22% 70% 15% 7% 7% 16%

FY 2008-09 Budget 1,153,484 70,000 445,114 101,250 33,500 57,000 75,500 108,000 202,339 450,000 1,471,936 296,022

% Inc -5% -30% 12% 43% -34% -73% -29% 36% 3% 16% 11% -5%

FY 2009-10 Budget 1,100,064 54,000 503,886 176,481 25,000 33,000 58,500 168,500 208,333 538,862 1,655,000 281,022

Many expenses are reduced for FY 2009-10 but there are notable exceptions. Maintenance costs continue to rise as the Town struggles to initiate and maintain standard maintenance on its equipment. Also notable are the continual increases in the cost of water, sewer treatment, and wholesale electricity.

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Closing Comments. The Sharpsburg FY 2009-2010 Budget provides sufficient revenues to provide minimal services to residents while attempting to improve the Town’s overall financial posture. At the close of FY 2008-09, all utility and enterprise funds are supported by adequate rates to maintain solvency. The balance of available funding between the various enterprise funds and the General Fund are beginning to adequately describe the Town’s true financial posture. During FY 2009-2010, every effort will be made to further set aside unencumbered general revenue funds to an acceptable level.

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