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April 24, 2007 Work Session Minutes
April 24, 2007 Work Session Minutes
MINUTES OF WORK SESSION
OF THE NEWPORT NEWS CITY COUNCIL
HELD IN THE 10th FLOOR CONFERENCE ROOM
2400 Washington Avenue
April 24, 2007
3:30 p.m.
PRESENT: Sharon P. Scott; Joseph C. Whitaker; Charles C. Allen; Herbert H. Bateman, Jr.; Joe S. Frank; William Haskins; and Madeline McMillan -- 7
ABSENT: None -------------------------------------------------------------------------------- 0
OTHERS PRESENT: Randy W. Hildebrandt; Stuart E. Katz; Mabel V. Washington; Neil Morgan; William Mitchell; Alan Archer; Butch Blanks; Allen Jackson; Florence Kingston; Brian Ramaley; Eileen Leininger; Gregg Jones; Lisa Cipriano; Rhonda Everton; William Keeler; Robin Rose; Sabine Hirschauer; Lottie Vincent; Cleder Jones; Kim Lee; and Jennifer Walker
I. Staff Presentation: Proposed Fiscal Year 2008 Waterworks Budget
Mr. Randy W. Hildebrandt, City Manager, introduced Mr. Brian Ramaley, Director, Department of Public Utilities, to brief City Council on the Waterworks Fiscal Year 2008 budget.
Councilman Haskins inquired whether Waterworks contributed directly to the City’s retirement system for its employees. City Manager Hildebrandt replied Waterworks contributed the same rate as the City contributed to the retirement system.
Councilman Haskins felt Waterworks needed to contribute its employee’s share to help the retirement system become actuarially sound. City Manager Hildebrandt replied he would have staff study the matter.
Councilman Haskins questioned the delay in the study regarding alternatives to the City’s retirement and health benefits for City employees and retirees. City Manager Hildebrandt replied alternatives for the City’s retirement and health benefits were an extremely complicated matter that could have a major impact on employees and retirees. He expressed the need to have the City explore all options thoroughly before making a recommendation to City Council. He did not want to give his perspective until he was confident that all issues were reviewed.
Councilwoman McMillan explained that the premise of Councilman Haskins’ question was that Waterworks, as an enterprise fund, should contribute the share of money needed for their employee’s retirement out of that fund. City Manager Hildebrandt explained that would be asking Waterworks to contribute at a rate higher than what the rest of the City. He indicated he would study the issue and determine the implications and whether that was an appropriate vehicle.
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Councilman Haskins did not understand why the City was not contributing the amount of funding to the retirement fund recommended by the actuary. He stated the retirement and healthcare deficit continued to get worse and the only way the City could address the matter was by having a plan to increase its contribution to the fund each year for a certain period of time. The plan continued to get under funded each year and the retirement and healthcare amounts continued to grow. He felt it would satisfy the retirement and healthcare deficit by requiring Waterworks to pay its share. City Manager Hildebrandt replied he would offer a recommendation on the matter at a later date.
Mr. Ramaley reported on Waterworks FY 2007 year-end projections, and FY 2008 budget requests. (A copy of his presentation, “Waterworks Fiscal Year 2008 Budget,” is attached and made a part of these minutes.)
Mr. Ramaley stated Waterworks FY 2008 revenue projection was less than 1% below expectation, expenditures were under-budgeted by $3.20 million, and net fiscal year 2007 expected operations amounted to a $2.7 million surplus.
Mr. Ramaley stated the City learned of a potential use for the FY 2007 $2.7 million surplus within the last 24 hours. He reported staff noticed turbulence around Walker’s Dam on the Chickahominy River, and City engineers believed a major rehabilitation project was imminent for portions of the Dam. The Dam was shut down until a final assessment could be made, but staff felt confident that the boat locks were failing. The estimated cost of the rehabilitation project for the Dam could be more than $1 million. He explained Walker’s Dam was the City’s primary source of raw water, particularly in a dry year. The Dam, which kept fresh water up stream and salt water down stream, was built in 1942 and acquired by Waterworks in 1946.
Mayor Frank inquired how often Dams were inspected. Mr. Ramaley replied Waterworks had a Dam consultant who conducted bi-annual and annual Dam inspections.
Mayor Frank inquired whether there was an earlier indication of problems at Walker’s Dam. Mr. Ramaley replied no, and indicated a rehabilitation project to repair sheet paling was done in 1996 and a major rehabilitation project was done in the 1980s. However, because the Dam was built by the War Department in 1942, it was largely sheet palings and was something that the City had to replace sooner or later, although they had no prior indication that the Dam was on the verge of failure.
Councilwoman McMillan inquired whether the rehabilitation of Walker’s Dam would require Waterworks debt service to increase more than the 8.5%. Mr. Ramaley replied Waterworks anticipated using surplus funds, depending on the costs to rehabilitate the Dam.
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City Manager Hildebrandt inquired about total funding that Waterworks had in reserves. Mr. Ramaley estimated the current surplus amounted to $16 million.
Councilman Bateman inquired whether Waterworks would implement simulation stress tests in the future on the new rehabilitated Walker’s Dam to make themselves aware of upcoming problems. Mr. Ramaley replied he could not answer that question, but noted Walker’s Dam was only 3-feet high, and was constructed hastily in 1942 to prepare Newport News as a port for World War II. He indicated the issue of the Dam was more of a tidal barrier rather than a Dam.
Mr. Ramaley reported Waterworks’ proposed FY 2008 operating budget was $79.42 million, which was an increase of $4.6 million or 6.2% over the FY 2007 operating budget. He stated the increases were due to: 1) debt service – 26.1%; 2) payroll & fringe benefits – 3.9%; 3) return on interest to the City (ROI) – 12.6%; 4) utilities – 3.7%; 5) contractual services – 4.5%; 6) chemicals – 2.3%; and 6) vehicle & power equipment fuel – 0.7%.
Mr. Ramaley reported Waterworks requested nine additional full-time positions. He indicated the budgetary impact of the nine positions was only net $114,000 and that seven part-time positions would be eliminated as part of the proposal. He noted Waterworks manpower historical perspectives for the last 23 years. For the last 15 years, increasing manpower needs were met by reassessing and re-engineering what was in place.
Mr. Ramaley explained the FY 2008 low usage lifeline rate proposal, effective July 1, 2007, which was contingent upon implementation of Waterworks new billing system. He stated the Summer Consumption Rate (SCR) would increase to $0.59/HCF and the System Development Fee would increase 8% for FY 2008.
Mr. Ramaley noted that the Capital Improvement Plan (CIP) for Waterworks included $30,326,000 and of that amount $15.6 million was from General Obligation (GO) bonds, $11 million was from Revenue bonds, and $4 million would come from pay-go Cash Capital. He explained the funding uses were for: 1) Water Supply (mainly for the King William Reservoir); 2) Water Treatment; 3) Water Transmission & Distribution (for water pipelines); and 4) Business Operations (for the SAP Billing System and the Enterprise Asset Management System).
Mayor Frank inquired about the maturity dates for Waterworks’ CIP projects. Mr. Ramaley replied GO bonds matured in 20 years, and anticipated Revenue bonds matured in 30 years.
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Mayor Frank inquired about the useful life for the SAP Billing System and the Enterprise Asset Management System. Mr. Ramaley replied Waterworks hoped for a useful life of 20 years or more, but noted the systems would require upgrades.
Mr. Ramaley sought City Council’s approval for the Low Usage Lifeline Rate Structure, the $2.92 increase for usage over 6 HCP for single metered residential and all other customers, a $0.03 increase in the summer conservation rate, and the approval of nine additional positions.
II. City Council Review and Input on City Manager’s Recommended Fiscal Year 2008 Operating Budget
City Manager Hildebrandt advised real estate assessments were estimated to be $280 million more than the amount expected when his recommended Budget was submitted to City Council on March 27, 2007. (Copy of memo, “Estimated Real Estate Assessments,” dated April 18, 2007, is attached to these minutes.) He stated this increase would yield $2,000,000 more in real estate tax revenue for FY 2008. He offered the following three alternatives for adjusting the proposed FY 2008 Operating Budget by $2,000,000: 1) use the total amount to offset the $2,400,000 estimated shortfall in the telecommunications tax; 2) reduce the real estate tax rate by one cent ($1,400,000), with the remaining $600,000 applied to the telecommunications tax shortfall; and 3) use the full $2.0 million to reduce the tax rate by two cents more to $1.12 per $100, which would require $600,000 in expenditure reductions. He asked City Council for input on the above recommendations.
Councilman Haskins stated he personally wanted to see the real estate tax rate reduced to $1.08. He asked the City Manager to adjust the budget and report back to City Council with a recommended budget noting a real estate tax rate of $1.08. City Manager Hildebrandt stated he would have the information available at the May 1 Budget Work Session of City Council. He alerted Dr. Kilgore, Interim Superintendent, Newport News Public Schools, that if the tax rate was reduced to $1.12, the schools would have to share in the reduction of operational costs.
Vice Mayor Allen felt a $1.08 real estate tax rate was not rational and indicated if staff was going to spend time composing figures, a more rational number might be better, i.e. $1.12. City Manager Hildebrandt stated he could offer City Council a budget recommendation for tax rates from $1.12 to $1.08. He stated each penny lost on the tax rate was $1.4 million that the City would have to reduce expenditures or increase other revenues.
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Councilwoman McMillan inquired whether City Manager Hildebrandt relayed information to Dr. Kilgore that teacher salaries would have to be cut should the City lower its real estate tax rate below $1.12. City Manager Hildebrandt replied his comment to Dr. Kilgore was that if he was required to cut the tax rate below $1.12, he would delete the last items put into his proposed FY 2008 budget ($730,000 for schools and a ½% increase for City employee salaries).
Vice Mayor Allen stated the City Manager could only recommend a dollar figure for the schools, not an item. He stated each year City Council was falsely accused of cutting teacher salaries, when in fact it was the Schools who cut teacher salaries. The City’s responsibility was to give the Schools a lump sum and the Schools were responsible for distributing the funds throughout the school system.
Councilwoman McMillan stated no matter how many times you shared information with the public they do not understand that City Council has no control over how the schools distribute its funding.
Councilwoman McMillan suggested, in light of the request for new employees in the City Manager’s recommended FY 2008 budget and the Waterworks budget, that the City Manager implement a hiring freeze for one year since the City was in the process of restructuring its benefits plan. City Manager Hildebrandt stated some positions were necessary, i.e. employees for the new Downing Gross Center, but would recommend freezing other new positions.
Councilwoman McMillan inquired whether the position for an individual with expertise in identifying and soliciting sponsorship or donations at the Downing Gross Center could be held out for another year. She felt the City Manager had to look at the City’s overall compensation plan and how it would affect the budget.
Vice Mayor Allen stated the Downing Gross Center could collapse if the City did not hire a soliciting specialist. He felt the funding the specialist raised would make up for one year’s salary and benefits.
Councilwoman McMillan felt there were personnel areas, not only new personnel that could be reduced. City Manager Hildebrandt replied if the real estate tax rate was reduced below $1.08, certain authorized positions may have to be reduced.
Mayor Frank was comfortable with reducing the real estate tax rate to no lower than $1.12. He indicated City Council had to take into account inflation, gas costs, retail sales, automobile sales, etc. for FY 2009 and beyond. He felt if City Council cut the rate too low, it might not be able to sustain the cut over the next few years. He felt $1.08 was not a sustainable rate in looking at the tax rate over the last 20 years, and noted
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the tax rate had not been below $1.12 since 1989. Beyond that, the schools had done a good job, in good faith, in developing its recommended budget. The separation of salary increases for teachers and staff members was very positive, along with the deletion of 37 positions. Mayor Frank supported fully funding the school budget and felt City Council could do that by not decreasing the real estate tax rate below $1.12. He was not in objection to looking at reducing the rate below $1.12, i.e. $1.11, but was concerned about sustainability over the years. He sympathized with residents concerned about increases in their property assessments. City Council had to make sure the budget was responsive to the entire community and not react to citizen pressure. He did not believe one particular number would satisfy all, and felt City Council had to maintain government services at the level that the overwhelming majority of people in the community expected.
Councilwoman McMillan stated she was happy the Mayor noted the roll-down affect. The more the fees and taxes go up, the less disposable income residents would have to spend in other areas, which would affect the City’s sales tax revenue, meal tax revenue, etc.
Councilman Haskins felt City Council had to look at the population of the community and their ability to pay, and consider the increase in assessments to residents over the last several years. The assessment this year increased more than 18%. He felt a reduction in the real estate tax rate to $1.08 was logical.
City Manager Hildebrandt stated he was comfortable with recommending a $1.12 real estate tax rate and felt it was sustainable, given what the City might face in the future. He stated any budget could be cut, but by cutting the budget one must be aware it would have impacts on services, and contributions to private organizations.
Councilman Bateman referenced an email he received from Ms. Pixie Killebrew regarding suggestions for cutting spending. (A copy of the email from Ms. Killebrew is attached and made a part of these minutes.) Councilman Bateman shared with the City Manager his suggestions for cutting the budget.
Councilwoman Scott stated she received only one email asking that City Council not reduce the budget compared to many emails urging City Council to reduce the budget. She voiced concern about sustainability and did not want to cut the real estate tax rate too much, just to have to come back and raise it in future years, which could create a more volatile situation. She did not believe City Council could reduce the budget below $1.07, but indicated she would like to see figures referencing a $1.12 to $1.10 reduction in the real estate tax. She agreed with Vice Mayor Allen that if City Council had to cut the Schools budget it would be left up to the School Board to determine its priorities.
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Mayor Frank stated there were risks in letting citizen groups drive the budget process. Although they were well meaning, there were thousands of parents and businesses dependent on the school system to educate children and prepare them for college and the future job market. There were citizens who used the libraries and depended on the parks and other services that the City provided. He stated City Council was looking at a substantial cut in the real estate tax rate by decreasing it to $1.12.
Vice Mayor Allen stated there were a lot of agencies that received a minimum amount of funding from the City that generated services far and beyond funding they received, i.e. the Boys & Girls Club of the Virginia Peninsula who received $140,000. He stated it was easy to kick every soft side of the football that you want, but it did not make the game go better. He stated citizens wanted to cut everything but what affected them.
Councilwoman McMillan stated there was always a certain percentage of waste and things the City could do without. Perhaps this was the time for City Council to eliminate waste, without providing an extreme level of discomfort for any department. The citizens were well-intended, and felt it behooved City Council to find ways to cut the budget by streamlining and becoming efficient in budget negotiations.
Councilwoman Scott inquired about Community Support to agencies outside of the City, i.e. on the Southside, and felt City Council could look into decreasing Community Support budget obligations. City Manager Hildebrand replied there were regional organizations that the City supported, i.e. Planning District Commission, Hampton Roads Economic Development Agency, the Hampton Roads Military and Federal Facilities Alliance, etc., and these were regional organizations that the City was contributing funding to at the same rate as all Hampton Roads Cities.
Councilwoman Scott asked that the City Manager look into Community Support to see if there were any recommendations for cuts. City Manager Hildebrandt stated he would offer Councilwoman Scott his recommendations for cutting Community Support to various organizations that he felt offered less value to the City in the services they provided.
City Manager Hildebrandt reminded City Council of the May 1 Special Budget Work Session at 3:00 p.m. to offer scenarios for cutting the real estate tax rate.
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THERE BEING NO FURTHER BUSINESS,
ON MOTION, COUNCIL ADJOURNED AT 5:15 P.M.
Jennifer D. Walker, CMC Joe S. Frank
Chief Deputy City Clerk Mayor
Presiding Officer
