Ocean View looks into financial crystal ball

With a series of major capital projects behind them and transfer tax revenues continue to loom, members of Ocean View’s Long Range Financial Planning Committee met Tuesday, Nov. 13, to consider how to tackle a fiscally challenging future in the town.

In the first of a series of meetings planned on a long-range, five-year financial plan, new Town Manager Conway Gregory presented to committee members a draft plan he developed with town department heads, with a goal of getting the town firmly back on the positive side of the books.

“We need to be looking five years out,” Gregory said. “You need to look at how much money we will have and focus on a macro level. The micro level I’ll take care of with my department heads,” he assured them.

Gregory said he had pretty much finalized the town’s 2009-fiscal-year budget with those department heads, with the long-range plan looking at future financial forces through the 2013 fiscal year.

The goals of the plan, he said, were several:

• To balance the town’s budget within five years. “We need to get our house in order,” he said.

• To reduce the town’s dependence on transfer tax revenues, which have fallen off throughout the region in a soft real estate market.

• To make government more efficient, with knowledge that the town’s revenues could drop further in coming years, and to make town government “lean and mean,” if so. Gregory said his current goal was to use town resources efficiently without jeopardizing services provided to citizens.

• To provide more amenities to citizens — something Gregory said he felt the town was lacking. “We don’t provide as many as we need to,” he said.

As proposed, Gregory’s five-year plan meets the stated goal of balancing the town’s budget in five years. It also meets a goal of keeping the town’s operating capital with a cushion near $800,000 — four months of operating capital for the town.

Gregory said that cushion is needed because the town’s fiscal year runs from May 1 to April 30, while it doesn’t see much of its yearly revenue until after Sept. 1, when tax revenues start to come in.

Canal Landing a potential silver lining

Raising some eyebrows among the fiscal conservatives on Tuesday night was Gregory’s “sunny-day vision” that includes anticipated revenues from development of the planned Canal Landing residential project on recently annexed lands, as well as some grants.

Gregory said the five-year plan was developed with the idea that the town’s downside risk was greater than its upside potential — a conservative plan with that “sunny-day vision,” he said.

“It’s based on transfer tax going back up,” he acknowledged, citing anticipation that housing starts and other potential impacts on town revenue would be positive in the near future and over the five-year period.

“If Canal Landing comes online,” he said, transfer taxes could come in at a higher rate than this year or last year. Revenues in the 2009 fiscal year were projected in the plan to rise 9 percent above 2008’s $859,000, and to run around 12 percent above 2008 levels from 2010 through 2013.

At the end of 2013, with Canal Landing expected to start selling homes in 2010, the town would have an estimated $1.6 million in revenue that year.

“We’re betting there will be an increase in transfer tax revenue,” he said, looking at potential home sales in both Canal Landing, with 286 homes proposed, and Fairway Village, with 126 homes planned and initial construction now under way.

A detailed risk-assessment analysis pointed to the potential of Canal Landing to either benefit or hurt the town’s budget. The project is still considered highly risky for the town to count on, since the land for the project hasn’t even come to settlement with the developer and the real estate market could negatively impact both that and any eventual sales of individual homes.

“Canal Landing is very important to us,” Gregory said. “We need to be prepared.”

An increase in the project’s completion rate could boost the town’s revenue by $282,000 at 25 percent, or $1.128 million at 100 percent. Drops in anticipated rates would reduce the town’s revenue by the same amounts. The same is true of general transfer tax revenues, with a 1 percent increase paying off as $46,000 and 10 percent as $460,000. Drops would hurt the town’s bottom line in the same range.

Councilman Roy Thomas criticized the reliance on Canal Landing and transfer taxes in general, however.

“The problem I have with your budget is that there is no less reliance on transfer taxes than in the past,” he said.

“If we plan on Canal Landing, we will be in the same position as when Bear Trap was built out. We just died. And we had $5 million in the bank to carry us then. We’re not putting any money away now, and there will be nothing in the bank when Canal Landing ends,” Thomas added.

Gregory said that was one of the issues he was counting on the committee to discuss in the coming months and years, to help make a plan for that long-term future and decide on a budgeting philosophy that would meet the town’s goals.

Despite the plans for potential instances of doom and gloom, Gregory noted a number of areas where positive impact are anticipated in the revenue picture, such as proposed hikes in property tax, which was increased 9 percent in the 2008 fiscal year and was “spent very quickly,” Gregory acknowledged.

Were the worst to happen, Gregory said the town would look at additional property tax increases, reductions in departmental spending adjustments, reductions in capital spending and — as an emergency measure — force reductions in 2012 and 2013.

However, 2009 will be a year without more property tax increases, as the town manager proposes, owing to the impact on property owners of costs for water system hookups.

But from 2010 through 2013, Gregory plans to request 3 percent annual hikes in property tax. Building permit fee increases (from 25 cents to $1 per square foot) and the new rental tax are also expected to boost revenues in coming years.

Councilman Bill Wichmann said he felt most of the town’s property owners could handle a property tax increase, since most pay more for cable television annually than they do in town taxes. “My fear, my concern is if we start cutting services. I’m nervous about even thinking about cutting services,” he said.

“If Canal Landing doesn’t happen, we could be looking at a 10 or 15 percent tax increase,” Thomas countered.

Along those lines, Mayor Gary Meredith said he felt the town should look at perhaps 5 percent annual tax increases instead of 3 percent increases, helping to reduce the town’s reliance on transfer taxes overall. “I think that would help a lot,” he said.

Still, Gregory said he had followed the previously established “Grimes/Magill budget rule” that called upon the town to allow only an 8 percent upward adjustment for annual budget costs in the 2008 fiscal year, followed by maximum 4 percent adjustments in each of the following five years.

“We’ve had seven years of plenty, and as fate would have it, I arrive on the scene as we enter seven years of famine,” Gregory said in Biblical parable.

Beyond completion of anticipated and planned capital projects in the 2009 fiscal year (including needed expansion of office space at town hall and for public works), Gregory said his plan was to consolidate spending, leading to a budget surplus by the end of the 2013 fiscal year.

Employee needs a consistently rising cost

Despite the conservative leanings on spending, Gregory nonetheless told committee members that he expected to need two additional part-time public works employees and a half-person administrative position in the 2009 budget. The latter, he said, was negotiable based on needs in public works and finance. “But we’re stretched to the limit as it is,” he noted.

With those needs in mind, Gregory said his immediate plan was to not automatically fill any jobs left vacant by resignations, to instead spend money as needed.

“I promised you I would spend your money as if it were my own. I will be stingy and spend it judiciously,” he said.

Gregory said he planned to continue council members’ directives on competitive employee pay raises, with a 5.5 percent salary increase in the 2008 fiscal year and 4 percent increases planned in each year from 2010 through 2013. He noted plans to possibly adjust the 5.5 percent increase across all employees in 2009, with the completion of a salary survey and analysis.

Also expected to continue to raise costs for the town is employee health insurance, which the council this year tapered back from a “100 percent, Cadillac plan” to one with a $200 employee contribution before deductibles kick in, resulting in $20,000 in savings for the town. “We still provide a good health plan compared to everyone else,” he noted.

Plans for employee costs also include a limitation of overtime to 5 percent of total salaries in the 2009 fiscal year. “We need to get a handle on this overtime business, which is eating us alive,” he added.

Gregory noted that his department heads had already agreed to maintain a 4 percent departmental cost adjustment from 2009 through 2013, after an 8 percent adjustment given in 2008.

But he emphasized that salaries and benefits are a significant portion of the town’s overall expenses, and ones that cannot easily be cut without curtailing services to citizens. With regular cost increases anticipated, Gregory said salaries and benefits would range from 66 to 69 percent of the town’s total expenses from 2009 through 2013.

Gregory resolves $2M operating deficit by 2013

Despite that somewhat fixed and rising cost for the town, Gregory’s efforts to operate town government more efficiently showed in the bottom line for total cost increases over a 13-year-period.

From 2000 through 2013, costs were expected to increase 565 percent, an increase of $2.236 million in 2013. But between 2008 and 2013, those costs were only anticipated to increase 37 percent — just $716,221, assuming no new employees are hired.

Gregory noted that government costs generally rise 8 to 10 percent annually these days — three to four times the rate of inflation — across all municipal government. Those, he said, were simply the costs of providing services.

Thomas countered that he didn’t see much in the way of service cuts in the five-year plan.

“I don’t see any services being cut,” Thomas said. “The cost of government is increasing, and I see nothing but additions. Employee salaries are going up. The budget is increasing double the rate of inflation.

“I think we need to reduce the rate of increase,” he added, while praising Gregory for having managed to — at least in the plan — have pulled the town’s government out of a $2.6 million hole that was left after last year’s budget discussions.

Some savings in the town’s upcoming budget years could be made through recommended cuts and delays in capital projects. Gregory said he was recommending the town limit drainage investment to $858,000 through 2013 — about half the amount estimated for needs by the town’s consulting engineer, Alan Kercher.

Gregory said at least some of the drainage work was needed, but the total cost was simply unaffordable in the near future. “We might as well fold our tent along with everything else and go home,” he said, if the town spent the full $1.655 estimated cost of all needed drainage improvements.

Also getting a cut is the estimated bill for street repairs, at $700,000 of an estimated $1 million.

After more than $4 million was spent on the new public safety building, officials are also sensitive to ongoing calls for a new public works facility.

Gregory put that item at the center of the fiscal chopping block Tuesday, scrapping all but $300,000 of the estimated $1.42 million needed, with the smaller sum to go to a minimal amount of desperately needed room.

Also bursting at the seams is the town hall, where Gregory said he had moved Finance Director Lee Brubaker to the mayor’s office, shifting the mayor’s workspace to a closet-sized room that is shared with the town’s computer network.

“We are literally out of space,” he said, asking for $150,000 in the 2009 fiscal year to accommodate expansion at town hall, as well as $30,000 to match a time-sensitive state grant for a new gazebo in the town park.

Also on the chopping block is the police department’s regular schedule of vehicle replacement, which had been set to provide a new vehicle every two years. Instead, Gregory said he was ending the town’s recently instituted vehicle take-home policy for officers and was moving the replacement schedule to two vehicles in the next five years.

“Every one has to share in the pain,” Gregory said of the planned cuts.

Gregory did say, however, that he planned $405,000 in unallocated funds to remain ready for emergency needs, which might include replacement of a police vehicle if that need arises ahead of schedule. He said he would have two criteria for any such spending: “It must be justified, and you must show me how we are going to pay for it.”

That same request he made of committee members on Tuesday, as he asked them to bring back to him at their next meeting a list of recommended changes and alternative proposals that he hopes will help the town meet its financial goals.