The Village Council conducted a special meeting for a budget workshop on Friday, April 29, 2022, at 10:00 a.m.
Highlights of the workshop include the following:
- Increased inflation, as measured by the CPI (March 2022 8.5%) is having a direct impact on increases in personnel and operating-related costs ($400k and $293k respectively) at approximately 8.0%.
- Includes a 3% COLA (Cost of Living Adjustment) and a potential 3% Merit increase for a total of 6% for high performers to remain competitive locally and regionally within the state. On average, other local municipalities are indicating and recommending a 10%-12% cumulative increase between COLA and Merit raises.
- Includes funding for the establishment of Social Security, a benefit that has never been offered to Village employees. As we understand, there are less than 3% of cities & towns across the state (including the Village) that do not provide Social Security as a benefit.
- Includes two new positions, one of which is for a part-time Building Inspector/Code Enforcement Officer and the other is a Project Manager to support the Public Services Director.
- THE BOTTOM LINE – the recommended budget calls for a 3 ½ cent tax rate increase to the base rate. This in effect will bring the tax rate up from the current FY22 rate of $0.6863 to the proposed rate of $0.7213.
Annual Local Government Budget Process:
For those that may not be familiar with the process, much of which is required by NC General Statute, below is a brief outline of the process followed by a summary, the background on municipal service districts, recommendations, and additional highlights.
- Early March – Presentation of the “budget calendar” to department heads. Department heads begin planning capital needs for the next fiscal year (July 1 – June 30), expenditure estimates, and justifications for each line-item expense being requested.
- Early April – Budget review and analysis meetings. The Village Manager, Finance Director, and each Department Head meet to discuss cost savings, wants vs. needs, and ensure the budget proposed addresses Council directives from the annual retreat. This behind-the-scenes work could require multiple meetings to refine each department’s budget.
- Late April/early May – Village Manager and Finance Director prepare a draft budget which is presented to Village Council at its first budget workshop (other workshops may be required) that are open to the public. The result is a balanced budget (required by NC Local Government Fiscal Law) which must be adopted by the governing body by June 30th of each year. A public hearing will take place at the May regular Council meeting (on May 20 this year) and then the budget is adopted at the June regular council meeting (on June 17 this year). Village staff may refine the budget based on feedback from the public and the Council between the May and June meetings.
If you were unable to attend last Friday’s Council draft budget workshop, click HERE to view the draft budget presentation.
As you review the presentation, and in particular the revenues portion, you will notice that the recommended budget calls for a 3 ½ cent tax rate increase to the base rate. This in effect will bring the tax rate up from the current FY22 rate of $0.6863 to the proposed rate of $0.7213.
The primary factor influencing the proposed rate increase is being driven by the state of the economy with increased inflation, as measured by the CPI (March 2022 8.5%). This is having a direct impact on increases in personnel and operating-related costs ($400k and $293k respectively) at approximately 8.0%. The revenues generated from this increase, without making other cuts to the budget, will be needed to fund the “day-to-day” cost of doing business.
Included in the slide presentation is a slide that shows what the annual effect of a tax increase would have compared with home values. As an example, a home with an assessed value of $1M at the current tax rate ($0.6863) is $6,863 compared to the proposed tax rate ($0.7213) of $7,213, which is an increase of $350.00 for the year.
Specific to personnel-related costs, the draft budget includes a 3% COLA (Cost of Living Adjustment) and a potential 3% Merit increase for a total of 6% for high performers to remain competitive locally and regionally within the state. On average, other local municipalities are indicating and recommending a 10%-12% cumulative increase between COLA and Merit raises.
The FY 23 draft budget also includes funding for the establishment of Social Security, a benefit that has never been offered to Village employees. As we understand, there are less than 3% of cities & towns across the state (including the Village) that do not provide Social Security as a benefit. Also, important to note is that all full-time Village employees will have to vote on whether to participate in Social Security as a new benefit as they will have to contribute to the program. A vote for approval must exceed 51% of the number of employees and it’s an all-in participation if approved.
The General Fund’s budget includes two new positions, one of which is for a part-time Building Inspector and Code Enforcement Officer to assist the current Chief Building Inspector and the other is a Project Manager that will be split between the General Fund and the Enterprise Fund. The Project Manager will have a share of duties & responsibilities in support of the Public Services Director in both the public works unit and utilities unit of the Department.
Increases in operating costs include items such as gas, oil, maintenance & repair costs to vehicles, machinery, and equipment.
Additionally, revenues generated from the base rate, including a portion of Accommodations Tax revenue (a restricted revenue source to fund specific expenses related to beach nourishment, recreation, and tourism), will fund the Village’s debt service obligation ($3.47M).
Note that the Municipal Service District (“MSD’s”) zone rates for MSD Zones A & B will remain the same at $0.0908 for Zone A (beachfront) and $0.0556 for Zone B (Dune ridge & East Beach). As a reminder, revenues generated from a portion of the base rate and the two MSD Zones help fund the debt service payment on the 2018 GO Bond for the private beach nourishment project and replacement of the groin tubes.
Municipal Service Districts (MSDs): The Municipal Service Districts were established prior to the 2009-2010 Village-funded beach nourishment project to generate the required revenue to pay for that project. Since that time, the MSDs have contributed to funding additional shoreline protection related projects including the Terminal Groin (Phase I), marina jetty wall extensions with spurs, Bald Head Creek dredging project with sand placement along Row Boat Row, and continue to fund the principal & interest owed on the most recent private beach nourishment project in 2018-2019.
To conclude, in our effort to minimize the proposed tax rate increase, the recommendations presented to Council considered a balance between adjustments to the base tax rate and projected accommodations tax revenue that are used to fund Beach Renourishment debt service payments. Without these considerations of adjustments, the actual tax rate increase needed to fund the FY23 budget would have been much higher. After careful analysis, it was determined that a tax rate increase of $0.0350 would be needed to specifically fund increased costs associated with personnel and operating expenses. Additionally, the fund balance appropriation requested is included to help fund “tangible” one-time capital item expenditures requested by department heads to meet their mission and includes funds for a fall road paving project.
- Overall decrease projected between the current FY22 budget and the proposed FY23 budget of $411k that is attributed to a decrease in one-time capital expenditures requested in FY23 in addition to other one-time fund balance transfers that occurred throughout the current fiscal year.
- Although a decrease is referenced, there is still an increase in personnel & operating costs accounted for that represents an 8.0% increase.
- Capital expenses account for $505k and are to be funded primarily through a fund balance appropriation for these one-time needed purchases – to minimize costs, staff reduced requests for Capital expense items by approximately $287k.
For more information about taxes on BHI, view our fact sheet, “Understanding Taxes on Bald Head Island” HERE.