City Council Agendas & Minutes

City of Hampton, VA 22 Lincoln Street Meeting Minutes Hampton, VA 23669 www.hampton.gov City Council Randall A. Gilliland Joseph H. Spencer, II Ross A. Kearney, II George E. Wallace Angela Lee Leary Paige V. Washington, Jr. Molly Joseph Ward, Mayor Staff: Mary Bunting, City Manager Cynthia Hudson, City Attorney Katherine K. Glass, Clerk of Council Brenda J. Vaccarelli, Deputy Clerk Wednesday, March 24, 2010 1:00 PM Hampton Roads Convention Center CALL TO ORDER/ROLL CALL Molly Joseph Ward presided Present: Randall A. Gilliland, Ross A. Kearney, II, Joseph H. Spencer, II, George E. Wallace, Paige V. Washington, Jr. Absent: Anglea Lee Leary Mayor Ward called the meeting to order at 1:02 p.m. She shared that Councilman Gilliland was on the way and Councilwoman Leary was attending a medical appointment with her husband. Councilman Gilliland arrived at 1:03 p.m. Agenda 1. 10-0113 Budget Process Update PRESENTED by Mary Bunting, City Manager; Karl Daughtrey, Finance Director; Chris Snead, Budget Director; John Eagle, Assistant City Manager; and James A. "Pete" Peterson, Assistant City Manager. Ms. Mary Bunting, City Manager, thanked everyone for attending and agreeing to conduct the session in a more formal work session than they historically do. She said she believes this will make for a freer flowing session as they go through all the data they will need to go through today. The City Manager said they have a series of things to go through with Council and it will be done in a combination of open and closed session items. She explained the open session will be a review of our revenues. She said they have applied revenue estimates since the first time staff came to Council which is a combination of things such as final real estate numbers from the assessor. She said the Commissioner of the Revenue will provide staff information about the personal property tax rolls and then as the Peninsula Town Center comes on line they will see City of Hampton, VA Page 1 of 31 Printed on 4/22/2010 City Council Meeting Minutes some of the generic performances and projects and retailers and see who was announced and signed leases and those kinds of things, reliable projections on meal taxes and the like and Mr. Karl Daughtrey, Director of Finance, will walk through those. They will also cover, to the extent they are able, the State budget situation and when the State adopts, how it applies to us at a local level which can be very challenging. Some of the things are done on a formula basis and we can tell you what our implication is with HB599 revenues. Others, like Social Services, we are going to take all this out as we don't know what our allocation is until they actually send that down and Mr. Daughtrey will share with you the best he can on that. As a result of the revised revenues, Ms. Chris Snead, Budget Director, will walk you through the revised budget gap that we are starting with. We want to spend the bulk of today talking about how we as a budget team are looking to bridge that gap. There are things we want to get Council feedback and reaction to because if Council is not comfortable with the direction staff is going they still have time to change course. She said they will also discuss possible fee increases that staff would like Council to entertain. She said they have taken the approach of having to avoid any general tax type of increase as much as possible, but rather focus on programmatic fees where the cost of service has gone up over the years and they have not adjusted the fees to keep up with the costs. The City Manager said they will also discuss a plan to balance and offset some of the one-time expenses and that is part and parcel with the Capital Budget because a lot of those one-time expenses are in the Capital Budget and they have scaled back because of the economy, and minimize use of fund balance as much as possible. She said they will also discuss the employee survey and benefit changes. What we got from the employees in terms of their preferences and staff’s reaction as to that if we need to go that route, where we are likely to go and why we are likely to go that path. She explained that once they do that then they will move into some of the more personnel specific items in closed session. The City Manager noted that there are one or two other closed session matters to be discussed. In terms of managing our time that is what we are trying to achieve today. The City Manager said Mr. Daughtrey would begin unless there were questions from Council. Councilman Kearney asked what the time frame for the meeting was. In response, the City Manager said she hopes to be finished by 4:30 and a lot of that depends on how much time Council wants to spend on discussions. She noted that staff presentations are being kept to a minimum as much as possible. Overview of State Budget Approved by the General Assembly State Budget Update Mr. Daughtrey referred to Tab 2 in the notebooks provided to Council and stated the General Assembly budget was adopted on March,14, 2010, and is basically a $70 billion two-year budget. He noted that the budget has unprecedented cuts both to state programs, local governments and school boards. Mr. Daughtrey stated that despite all the reductions we breathed a sigh of relief because it wasn’t as bad as the House Budget amendments. Strategies Used to Balance the Budget Mr. Daughtrey stated State used some key strategies to balance their budget and budgeted new fees or higher fees as part of the budget process. He said they also use City of Hampton, VA Page 2 of 31 Printed on 4/22/2010 City Council Meeting Minutes Federal Stimulus dollars because of the Health and Human Services Budget and they bulked up their 2 year revenue forecast to $262 million. Mr. Daughtrey said it was important to note the deferral of $504 million to the Virginia Retirement System (VRS) for State employees. He explained the State is reducing their contribution rate to the VRS and have indicated that they will repay that back over a ten year period with interest. He further explained that the State did not allow the localities to take advantage of this mechanism to reduce their budget. Impact on Local Governments Mr. Daughtrey said they were pleased to see that the State maintained its $1.9 billion of the Car Tax Relief Program and the City will continue to receive $15.4 million. He said that generally provides 60% tax relief on the citizens’ personal property tax bills. He said the State also restored some of the HB599 funding for the police services and the City's share is going to be $6.8 million, a reduction of $674,000. Mr. Daughtrey said it is better than anticipated. Councilman Kearney stated three years ago the Commonwealth of Virginia took away our ABC board funds. Mr. Daughtrey noted that also includes wine taxes. Councilman Kearney asked if he remembered correctly that it was almost a million dollars and that money was supposed to be rolled over to the 599 funds. In response, Mr. Daughtrey stated that was not correct and that it is used for other State purposes. Councilman Kearney said the State was supposed to give it back to us in another fund and he thought it was going to be in the 599 funds. In response, Mr. Daughtrey said he wasn’t sure. Councilman Kearney said in other words the State just took the resources and never gave it back to us. In response, Mr. Daughtrey said that was correct. Councilman Kearney said he hopes that when the City distributes position papers they should reiterate the situation that fell into our lap the last three years and the City had no recourse. He said the ABC tax was originally put in after prohibition so the local communities could govern and keep tabs on the sale, use and distribution of alcoholic beverages and the State has taken that position away from us and he believes it is wrong. Vice Mayor Spencer noted that some communities didn’t even have alcohol because they were dry counties and dry cities. Jail Per Diem Funding Mr. Daughtrey stated the State budget cuts the jail per diem reimbursement from $8 to $4 a day per prisoner and also changes the State per diem for State responsible inmates. He noted this is expected to have about a half million dollar impact on the City. Virginia Juvenile Community Crime Control Act Funding Mr. Daughtrey said the funding source for detention centers in Virginia was reduced by 5%, or a $21,000 impact. He noted that in 2008, the State implemented what it calls a City of Hampton, VA Page 3 of 31 Printed on 4/22/2010 City Council Meeting Minutes reduction in state aid to localities and they set aside $50 million that they were going to take away from all of the localities. He explained the City’s share of that $50 million is $1.1 million. He further explained the budget increases that $50 million to $60 million and that is likely to have a $200,000 impact on the City’s budget. Mr. Daughtrey stated this is another source of revenue the State is taking from the City. He said they will write a check to the State in January 2011 for $1.3 million. Councilman Wallace asked if that included the $20,000. In response, Mr. Daughtrey said that was correct. Councilman Wallace said they should make a copy of the check and send it to the Daily Press people so they can see it is aid to the State. Councilman Gilliland asked if it was aid to the State. In response, the City Manager said it is aid to the State and that is what some localities call it in their budget documents. She noted that in Governor Kaine's original budget he zeroed this out so when the General Assembly adopted this all these have the affect of causing the State cuts to go up. She said some get better, but some like this one which is a $1.3 million, actually got worse because it was not in the original State budget cut submission. Councilman Wallace said they are not going to cut you all the way across your throat, but just half way and you will bleed just as much. Libraries, Electoral Board, Constitutional Officers Mr. Daughtrey said the State is reducing funding to libraries by 15% which is a $33,000 impact to the City and the State is reducing funding for the Registrar and Electoral Boards by 20%, which is about $13,000. He noted that the State is restoring some of the funding to the Constitutional officers but they won’t know the full impact of that until March 26, 2010. He said that will be applied to the impact to the City and staff will provide Council with those details once we have them. Councilman Wallace asked if there are any opportunities for us to consolidate the Constitutional officers and the City’s Finance Department. In response, Mr. Daughtrey deferred to the City Manager and stated the Finance Department doesn’t dupliceate any services that the Treasurer and Commissioner of the Revenue do. He said it would be more or less supervising those functions to see if the synergy of the resources can be combined and whether you can reduce resources at the same level of tax. Councilman Wallace said he knows there are some models in other communities. Mr. Daughtrey said he knows the City of Richmond, Virginia doesn’t have a combined function, it has a separate treasury function but they finance the whole function. He said he doesn’t know of any combined function. Mayor Ward said it is unique to Hampton and the Treasurer doesn’t do the investments. She said Finance has already taken over that and that changes the relationship. The City Manager stated Governor Kaine originally zeroed out all funding for Treasurers and Commissioners of the Revenue with the exception of the salaries. She said he also included a provision that would have allowed localities to disinvest from those offices and bring all those functions into City government. She explained that as the General City of Hampton, VA Page 4 of 31 Printed on 4/22/2010 City Council Meeting Minutes Assembly restored money to the offices they also killed the legislative authority that would have enabled us to do that. The status quo remains that to disinvest there would have to be a voter referendum eliminating the offices. The City Manager said they certainly could reduce the functions where it is not clear functionality like the investments that have already been done, but the legislative authority that would have enabled us to do that more freely was killed by the General Assembly. She said they had a conversation with a variety of localities regarding that issue and compared to other localities Hampton has an exceptionally smooth relationship with the Commissioner of the Revenue and the Treasurer. She said she doubted if they would save any money if they had to pick up the positions out of those offices. Social Services Mr. Daughtrey said the State budget reduces a number of programs for the Social Services programs and individual locality cuts have not been provided. Councilman Wallace said he would like to know what the cuts are before we come to a conclusion and arbitrarily change it without any consideration. The City Manager said she believes as they receive more detail staff can come back and share that information with Council. She said the services we are talking about tend to be reactive services like general relief and monies that are in the Medicaid programs and those kinds of things. She noted that typically the State is paying anywhere from 80% to 100% of that cost and when they pass that on to the City it would be 80% to 100% of picking up that cost. The City Manager said the prevention programs that we do have are already operating substantially with local dollars and if we do lose any State support of those she wouldn’t necessarily have the same position. She said Mr. Daughtrey is referencing the ones where the local Social Services Department is the administrator of Medicaid and other funds. She said from a social policy perspective she doesn’t like the fact the State is making cuts in those areas but she believes it would be very hard for the City to pick up the full expense of those programs if the State decided to cut them. Public Education Mr. Daughtrey said the General Assembly reduced public education by almost $600 million and he has learned from our school system that they are losing $19.7 million in State revenues. He said their total budget is being reduced by $24.7 million in revenues. Mr. Daughtrey noted that he had a conversation prior to the meeting which is why the information is not included in the presentation materials. Councilman Wallace asked what the difference was in Federal money. In response Mr. Daughtrey said the other is miscellaneous local revenue. The City Manager said the schools have a million dollar loss from the City due to the local funding formula. She said she talked with Dr. Linda Shifflette, Superintendent of Schools, this morning (March 24, 2010) and the schools budgeted for a greater impact from the State and a greater impact from the City based upon preliminary projections and they will be meeting with the School Board tonight to talk about roughly $5 to $6 million in things they will be able to restore because of the State budget situation. The City Manager said even though it is awful, it is better than what they budgeted for and the City’s situation got better than what they had budgeted for so the schools are going City of Hampton, VA Page 5 of 31 Printed on 4/22/2010 City Council Meeting Minutes to be in the position of restoring some positions and various other kinds of operating expenses. Mayor Ward asked if the City’s decrease is $1 million, what is the rest. In response Mr. Daughtrey said it is various miscellaneous revenue resources. The City Manager said it is Federal impact aid, athletic fees and those kinds of things. She said originally they were told to plan for a $2.7 million decrease and based on the preliminary funding formula projections that is what the formula would have produced but as our revenue projections were more refined and we ran it through for a final number it was roughly a million dollars not $2.7 million, and they were very appreciative of that. Overall Impact for the City Mr. Daughtrey said staff has built in a revenue loss of $4.3 million from the State and that is the worst case scenario based on Governor Kaine's budget as well as the House amendments, and they know that number will improve. He explained that over the next couple of days as he receives more information from the State they will likely have some restoration to $4.3 million. He further explained that number may range from $400,000 and upward. Virginia Retirement System (VRS) Mr. Daughtrey said effective July1, 2010, the State is requiring all new employees to pay their 5% contribution to VRS and the State is also giving the locality the ability to pass that contribution on to the employees. He said as a part of the City’s budget process, they are recommending that we pass a 5% member contribution to new employees starting July 1, 2010. Councilman Wallace asked if it was the entire 5%. In response, Mr. Daughtrey said for existing employees, the City could pick up from 1% to 5% and staff is recommending the City pick up 4% and the employees pick up 1%. Mr. Daughtrey said Ms. Chris Snead will talk more about that later in her presentation. Councilman Wallace asked about the $770,000. In response, Mr. Daughtrey said he believes $500,000 was budgeted. The City Manager explained that $770,000 was across all funds but some positions will be eliminated in the budget process so the net result of the general fund only and then the reduction of positions; Solid Waste funds; Coliseum funds; and all of our Enterprise funds. Councilman Wallace asked if the general fund generates those and would the net money be coming into the funds. In response, the City Manager said only $500,000 of that helps the general fund and the other part would help the other funds. For instance, all the solid waste employees who would now pay their 1% that helps the solid waste fund. She said the way they do the accounting it would go to the benefit of the general fund. Mr. Daughtrey said the State is changing the eligibility for retirement. He explained that previously an employee could retire with full benefits at 50 years of age and 30 years of service. He said they are moving that to the rule of 90, which is 60 years of age with 30 City of Hampton, VA Page 6 of 31 Printed on 4/22/2010 City Council Meeting Minutes years of service. He said the long term perspective is that it is going to drive down the cost of retirement to local government into the State retirement system and they indicated it would make it more comparable to the private sector. City of Hampton FY11 Revenue Projects Mr. Daughtrey provided Council with an overview of the revenue projections for FY 11. He said staff developed the projections with the assistance of Mr. Ross Mugler, Commissioner of the Revenue, Mr. Bob Williams, Treasurer and other staff throughout the City including Mr. Jim Wilson, Director of Parks and Recreation, Mr. Steve Shapiro, Director of Codes Compliances, Healthy Family Partnerships and a number of other staff. He said the revenue projections are based on current fees and rates that are in place now. Mr. Daughtrey said they are not planning any fee increases that Council will be looking at and Ms. Snead will talk about some proposed fee increases later in her presentation. Revenue Estimates Mr. Daughtrey provided Council information showing the revenue projections by major revenue classification. He stated the fiscal year revenue projections total $294.6 million which is $3.5 million less than the FY2010 budget. He said $2.1 million of that reduction is related to appropriations from fund balance. He noted that they are budgeting less one time uses of fund balance. Mayor Ward asked if that is from undesignated fund balance or designated fund balance. In response, Mr. Daughtrey said it is undesignated fund balance and they were $9 to $10 million above policy and they still have $5 to $6 million above policy. Mayor Ward said they took $6 million out last year Mr. Daughtrey reminded Council that they didn’t have to use the full $6 million because our revenues were better than anticipated and we had expenditure savings. Councilman Wallace asked, with the anticipated savings at the end of this current fiscal year, might we be able to move forward and not have to take the entire $2.1 million out of fund balance. Mr. Daughtrey said he anticipates that they would come close to what we budgeted for 2010, although they have some State reductions. He explained they have some positive impacts in personal property and real estate and expects the revenues to be pretty much close to what they budgeted at the end of 2010. Mayor Ward asked if they were going to take any money out of designated fund balance. In response, the City Manager said they are not going to take it out of designated fund balance. Mayor Ward said she thought that is what they were using for retirement. The City Manager said that would be happening in this fiscal year and it will be paid out this year. City of Hampton, VA Page 7 of 31 Printed on 4/22/2010 City Council Meeting Minutes Ms. Snead said if they have savings it will be in the positions they held open with the exception of capital projects that roll over. Mr. Daughtrey said from a revenue perspective he expects to be pretty much on budget and he doesn't expect that to generate any significant revenues over budget. He said Ms. Snead will talk about the expenditure side. Mayor Ward said they might see a better case scenario than the $4.3 million and she hates to take that much from the fund balance. Mr. Daughtrey said they are above the policy and still will be. Mayor Ward said that might increase that number. In response, Mr. Daughtrey said it could. Councilman Wallace stated all three rating agencies reflected in their narrative about the fact that we had not used a significant amount of fund balance and that we anticipate using a lesser amount this year. Mayor Ward said she hates to use it to fill a budget hole. Councilman Wallace asked if a different scenario is anticipated. In response, the City Manager stated we are certainly sensitive to that but you cannot perpetually rely on that and we need to be able to have a transition plan and you will see there are more expenses in the capital budget, one time expenses that we could have done than the $4 million. The City Manager said they are going to make a deliberate step down from the use of fund balance but last year they had roughly $12 or $13 million in excess of fund balance and when we did $6 million we deliberately saved half to help us make that transition over one or two more years. She said the plan is $6 million one year, $4 million the next, step down another $2 million as the economy improves so that you are not perpetually relying on it but you are doing it in a strategic deliberate transitional fashion, and that is why we came up with $4 million. She stated there was some thought to use more than that because we have more in excess of fund balance but the team ultimately agreed that it was tempting, but not wise. The City Manager said she believes this is a comfortable level to use and we will still have money left in excess of fund balance that could be used again next year if necessary to get through what everyone thought would be a three year or so transitional economy process. Mayor Ward said she didn’t object to using funds for one time expenditures and they all agree that is important. In response, the City Manager said it is not being used for rainy day items. Mayor Ward said she can call it whatever she wants but at the end of the day if they don’t have enough income to meet expenses it is revenue borrowed from the fund balance. The City Manager said it is being used specifically for the capital budget which is truly one time uses. She said she understands where Mayor Ward is going, and she doesn’t mean to be combative but it is truly for one time things. City of Hampton, VA Page 8 of 31 Printed on 4/22/2010 City Council Meeting Minutes The City Manager said she would hate for the Daily Press to characterize it as plugging the hole because that is not what it is. Councilman Kearney said during the good years we were putting more money into fund balance than we needed. Mayor Ward said she just wants everyone to be at the same place and live in reality. Councilman Kearney stated we are all asked by the general public how we are doing and his answer has been that he believes Hampton has been pretty well prepared for what is occurring right now. He said it is what we are getting from the State that is really tripping us up right now and we don’t have control over that and it is a point of concern. The City Manager said the rating agencies said we had prepared well and it gave us more flexibility than some other localities because we did have such a healthy fund balance position. The City Manager said if you are ever going to use it this is the time to use it. FY11 Revenue Estimates by Classification Mr. Daughtrey provided Council with information showing the total revenues and what portion is made out of what classification. General property taxes are the City’s main source of revenue which makes up 64% of the total budget and other local taxes make up about 24%. Overall, 85% of the City’s revenues come from local sources and 15% come from State and Federal sources. Councilman Kearney asked what the other local taxes are. In response, Mr. Daughtrey said other local taxes are business license taxes, meal taxes, and consumer sales taxes are the main big taxes under other local taxes. Councilman Kearney asked if the City will see some growth with the Peninsula Town Center coming on line. In response, Mr. Daughtrey stated yes. Councilman Kearney said the City prepared for the Coliseum Mall going off line and additional was put into the budget each year to compensate for that loss. In response, Mr. Daughtrey said a million dollars was added. Councilman Kearney said the City is looking at the possibility of growth occurring again that was there in the 1990’s. The City Manager said one of the interesting things to happen in that time frame is that we never really lost as much as we thought we would lose because of other things that were coming on line, like BJ’s Wholesale Club and other things at the Power Plant that were coming on line. She noted that while the City lost that particular property, overall citywide we didn’t lose by the full amount that was projected. Councilman Kearney said right now we have the advent of a real support system occurring. City of Hampton, VA Page 9 of 31 Printed on 4/22/2010 City Council Meeting Minutes The City Manager said anyone who has been to Peninsula Town Center knows it has been a very happening place. Councilman Kearney said if you talk to the merchants in the area, they have seen a tremendous increase in their numbers too because of that. It is doing exactly what we hoped for. Annual Growth (Decline) in Actual Revenues Mr. Daughtrey provided Council with information showing growth declined in the general funds actual revenues over a ten year period of time. He said from 2002 to 2008 revenue was experiencing positive growth annually of 6.5% and they see a downward trend started with fiscal year 2009 and we expect that trend to continue to 2011. He said a small decrease is also expected in 2011 as we know the pressures from the drop in real estate assessments and State revenues. General Fund Actual Revenues Per Capita Mr. Daughtrey stated that compared to other localities, Hampton ranks the lowest at $2,029 million. He explained that Newport News, Norfolk and Portsmouth receive a payment in lieu of taxes for public utility operations and they receive a sizable amount of $9 to $10 million plus from their public utility operations to the general fund which is one of the differences that would drive our revenues. He said there are certain functions that are reported in the general fund in these cities, for instance. Hampton reports the golf courses as enterprise operations in the City and Newport News reports their golf courses as part of the general fund and when you look at Hampton’s sales tax per capita it is lower than the regional average because you know we have not had the Mall fully operational. He said that number is changing but some of what is driving our numbers is our sales per capita is a little lower than some of the regional sister cities. Mr. Daughtrey said he believes the bulk of the major difference is due to the general property taxes per capita. He noted that in real estate tax rates, Hampton has the third lowest real estate rates behind Virginia Beach and Suffolk. Newport News, Norfolk and Portsmouth rates are higher so they are generating more revenue on the real estate basis and he believes these are some of the factors that explain why revenues on a per capita basis are lower than some of the other communities. Councilman Kearney said the debate we had was that we wanted the citizens to keep the money themselves instead of the City maintaining it. Vice Mayor Spencer said it might not be a bad idea to put the tax rates below these, because Hampton has reduced for years while others haven’t. Councilman Gilliland said Hampton has a lower median home value than any of the other localities. Mr. Daughtrey said the real estate tax rate in Portsmouth is up to $1.24 and Newport News is at $1.10. Mayor Ward agreed with Councilman Gilliland that you need both numbers to really understand. The City Manager said it would be interesting to show the average real estate tax paid by a home and that would reflect the actual housing value differences. City of Hampton, VA Page 10 of 31 Printed on 4/22/2010 City Council Meeting Minutes Vice Mayor Spencer agreed with Councilman Gilliland that Hampton is not at the average or below the average. He said he believes it is even more significant because Hampton does a fine job because we’ve got a lower value home to tax and we have a lower rate on those homes. Councilman Wallace asked what it cost to service a home compared to the tax generated by a home. Mr. Daughtrey said he doesn’t remember the number but Mr. James A. “Pete” Peterson, Assistant City Manager, worked on the analysis of the value of a house that broke even. The City Manager said the other thing we have done before with a more direct comparison is because people intend to compare us is they looked at two things they have that we don’t have. Mr. Daughtrey has alluded to one of them already, payments of taxes that are done by Waterworks. The City Manager said, in the case of the City of Newport News, Waterworks makes a substantial contribution in terms of a payment incentive because they are not a non- taxable entity. It is called a payment in lieu of taxes to the Newport News general fund. They pay somewhere in the order of $9 million a year, which they take from retained earnings in the Waterworks fund, and pay into the City’s general fund. She said that is a perfectly appropriate accounting principle based on the fact the City of Newport News made the investment in the Waterworks system. It is basically a return on investment contribution back to the general fund. Newport News starts with a $.30 to $.40 tax rate differential from what Hampton gets when you consider the money they are paying back in, the payment of taxes, and consider the shipyard. There is no other entity in the region that pays taxes in nearly the amount of the shipyard. There is no comparison to either of those two, so you could say that Hampton starts out at a $.30 to $.40 tax disadvantage which we are able to make up and yet we still have a lower tax rate. She said that is not to say they are doing things wrong or bad but they have a different set of circumstances and needs than Hampton does. It is an illustration that Hampton has a long tradition of trying to be very lean in administrative overhead and ensuring the community partnerships are able to maintain a satisfactory level of service and not a lot of positions per capita and that is how we make up that tax rate differential. She said that is not to disparage another community; it is pure fact. Current Real Estate Taxes Mr. Daughtrey stated the assessor projects a 2.71% decline in assessed values which translates to about $3 million loss in real estate revenues going from $117 million to $114 million. He said they anticipate no change in the collection rate of 98.4% and each penny is about $1,096,610 compared to a penny in 2010 was $1,025 million. He said other cities are expecting a decline in their assessments. Virginia Beach is expecting the highest at 5.75%, Newport News is expecting over 2% decline in assessments. Mr. Daughtrey noted that Hampton is the lowest in the region besides Newport News. Annual Growth in Real Estate Assessments City of Hampton, VA Page 11 of 31 Printed on 4/22/2010 City Council Meeting Minutes Mr. Daughtrey stated that over a 31 year period of time Hampton has not had a decline in real estate assessments and in 2011 is the first year they are projecting a decline over the 31 year period of time. He noted that the long term simple average is about 7% growth for that 31 year period of time. Current Personal Property Taxes. Mr. Daughtrey said they expect personal property taxes to be $1.6 million over the revenue projection. He explained that as part of projecting the 2010 budget, we expected a 10% decline, and we are experiencing a 4% decline so it is positive that we are realizing the 4% benefit. He further explained that there are three factors that are influencing the FY11 estimate: 1. New car registrations, a 19% decline from 2008 to 2009, although we had some incentives, people are still not buying new cars as in the past. 2. Second factor is a positive factor that offsets the decline in new cars. The people are buying used cars and the demand for their values are increasing, especially trucks and SUVs. 3. Positive impact from the Peninsula Town Center on business personal property. Mr. Daughtrey said we expect the FY11 personal property taxes to be level with the projections for 2010 which will generate about $1.5 million in this budget process for 2011 and will maintain a collection rate of 96%. Councilman Gilliland asked if they are making the right conservative assumption given the fiscal pressure folks are under. Mr. Daughtrey said he met with the Treasurer and believes they can produce at that level. The City Manager said in December 2009, when you had the first real estate tax payment, within the 30 days we typically would measure that and were on track with maintaining our collection rate. She stated they have not experienced any changes in the collection ratio. Other Local Taxes • Tobacco Taxes - negative decline in tobacco taxes so we are reducing that by $200,000. • Business License Tax - anticipate an increase of $207,000 from the impact of the Peninsula Town Center. $200,000 expected mainly from retail sales. • Delinquent Decal Fees – will collect a significant portion of delinquent decal fees. In the past $3.6 million has been collected. Mayor Ward said Council changed the law and as September 1, 2009, no one had to pay a decal fee at all. The City Manager said the Treasurer has lost an effective collection tool but they have been able to make up with other measures but there is a lot of staff time and intensity involved in what they did. She stated there is no more powerful collection tool than the decal itself and people complain about paying the fee and not getting the decal. City of Hampton, VA Page 12 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Kearney said the point of having a decal is worthy of debate with national security and homeland security and he hopes to have an opportunity to discuss that in an open session with the general public. The City Manager said they can do that and she believes it would be a wise move to reinstate the decals. Mayor Ward said they talked about the taxes at the Mayors and Chairs meeting but not about the decal. The City Manager said staff would support putting the decal back in place. Councilman Kearney said if there is no objection he would like to discuss it. Mayor Ward said they will talk about it. • Sales and Meals Tax – expect an increase of roughly $499,000. For FY2010 $13.7 million was budgeted and it is tracking at $13.2 - $13.3 million for this fiscal year. The Peninsula Town Center is expected to make up some of that loss and add $500,000 to the budget. Councilman Kearney said they downplay that and keep it as low as possible. Mr. Daughtrey said they are conservative in their perspective but at the same time they only budgeted for the stores that are currently leased and they didn’t budget for the unknowns. On meal taxes they expect an impact of one million dollars which translates to about $29 million of new activity over the two fiscal years. He said they expect anywhere between $80 and $90 million new impact in new sales revenues in 2011. The City Manager said it is correct to say in concert with Mr. Peterson and the Commissioner of the Revenue, that they applied some discount for possible transfer of activity within the community. Mr. Daughtrey said specifically for meal taxes. We believe there is a displacement factor more so on the meal tax side and they applied a discount factor of 30%. Councilman Kearney said also from what they learned from Yaromir Steiner and others, including the Cordish family, the introduction of these new eateries are the only ones you can find in the Commonwealth of Virginia, such as the NASCAR Grille, that are drawing people from all over the region here, so in fact they are not hurting our other localities, but adding to it being a destination. Sales Tax Per Capita Hampton is below the regional average for 2009 at $91.34 million. Meal Tax Per Capita Hampton is slightly above the regional average at $90.66 for 2009 and expected to increase slightly and to continue in 2011. City of Hampton, VA Page 13 of 31 Printed on 4/22/2010 City Council Meeting Minutes Mr. Daughtrey said the meal tax is 6.5 and Newport News, Norfolk, Portsmouth, and Suffolk are the same and Chesapeake and Virginia Beach are lower. Councilman Gilliland said people can make a decision about what restaurant they go to based on the meal tax. Vice Mayor Spencer said it is amazing how it is said it is 5% instead of .05%. He said people ask him about it every day. It is not a nickel it is a half a penny. Councilman Wallace said they have to spend $200 before it gets to $.50. Communications Sales Tax • January 2007, the State instituted a new 5% tax on telecommunication services, telephone, wireless, cable, direct TV and all of those things and they anticipated this would bring in more revenue and that is not happening. • $8.7 million was budgeted and they will probably come in at $8.1 million. • Significant drop off in land lines. • People are using their cell phone as their primary line. • Cable franchise agreement with Cox Communication is expiring in May 2010 which means the City gets 2.19 % of the total pool and we allocate a portion to the Cable franchise fee and the remaining portion comes to the city as a communication sales tax. • As of 2010, Cox Communication will no longer be sending the information to identify what portion is cable franchise fee. • Have to budget a transfer to the EXCEL fund for what used to be called the cable franchise fee. • Increasing revenue budget by $1.4 million but transferring it to the EXCEL fund. The City Manager said this has a real policy issue connotation because when the EXCEL fund was established with the cable franchise revenue specifically going to it that is why we created that fund when there was a dedicated source of revenue for it. She explained that the State was taking over that dedicated source of funds and even as we renegotiate franchise agreements, it will no longer be able to be used to support this activity. If we want to continue to support the EXCEL fund, in essence we have to carve out of the larger communications sales tax, the money that was being used for the EXCEL fund, which we can do. That is what the budget is presuming we will do but it is not as clean as it used to be. You could say literally that the whole EXCEL fund, the arts activities and what not were being supported by the cable franchise fees and that is no longer the case. We will be subsidizing those activities through general fund revenues via the communication sales tax. Councilman Kearney asked if that means those areas like the arts will have to compete with everyone else regarding the budget. The City Manager said they have been spending $1.4 million and they will keep spending $1.4 million and that is the designated fund to use. Council has to determine if it wants to put it in the general fund and they all compete or whether you want to continue funding at $1.4 million. City of Hampton, VA Page 14 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Kearney asked if the City Manager will provide Council her rationale for that decision. The City Manager said unless Council indicates otherwise, she is leaning towards keeping the $1.4 million because those are activities that have historically been valued by the community. She said there are policy choices involved and today is an opportunity to get an early read on how you feel about those things. She will follow up with each of you individually as you have had more time to think about them Councilman Wallace asked if they were still in negotiation with Cox Communication. In response, the City Manager said they were. The City Manager said the current law has changed such that anything they negotiate successfully must go to the cable channels which are currently funded in the general fund. The opportunity in that negotiation is to get recurring funds to support the capital needs of the City’s channels. She said it is not just the City’s channel but the school channel as well and one of the issues was if there is funding to be had it would help the long term general fund requirements for supporting capital upgrades and maintenance of those facilities. Councilman Wallace asked if there is a correlation between the negotiation and what we have historically received. In response, the City Manager said the cable franchise fee has now been assumed by the communication sales tax. Councilman Wallace asked what the City has historically used for the maintenance of the cable system that they are now negotiating with Cox Communication. In response, the City Manager said it is two different things. She said they don’t get to do what they historically used to do because the state took that option away. The City Manager said she is proposing that since the revenue source has been generating on the order of $1.4 million, they take it out of the communication sales tax. Councilman Wallace said he totally agrees with that, he was just trying to get a handle on the negotiation of the maintenance of the Cox structural system and what they have historically done. Mr. Daughtrey said they budgeted $8.7 million for the general fund share of the communication sales tax and that is going down in 2011 in the sense that they will receive $8.2 million for general fund and $1.4 million for EXCEL fund. There is a bottom line impact of $450,000 decrease in the overall communication sales tax that will impact the general fund. That revenue source, when they initially talked about it, was larger then and would support the general fund and it has not happened. He said the last couple of fiscal years they have noticed a decline in communication sales tax. Councilman Wallace said that is probably because of land lines. NOTE: Councilman Washington left the meeting at 2:04 p.m. Revenue from Use of Money and Property City of Hampton, VA Page 15 of 31 Printed on 4/22/2010 City Council Meeting Minutes Mr. Daughtrey said this is primary interest income. It has been a tough market to earn interest on with real estate rates as low as .20% in the marketplace. We believe rates will increase to 1% next year and although they will increase to 1% it will still have an impact on our budget process and we will expect a budget reduction of $197,000 in interest income. Charges for Services Mr. Daughtrey said this is the first year we are budgeting revenues for the operation of Buckroe Pier and they expect $394,000 for the operation of the pier. They also expect an increase of $238,000 in EMS fees. An increase was instituted in 2010 and they anticipate it will impact 2011 revenues. Councilman Kearney requested a breakdown of what has been done in the past with those fees. He also asked that they be compared to the other cities in the region. He said he noticed the other communities have talked about raising their fees and he would like to ensure the City is not going above or beyond the other localities. Miscellaneous Revenue Mr. Daughtrey said the Treasurer has done an excellent job of collecting the $30 fee for delinquent taxes and they are bumping the revenue estimate up to $800,000 which translates to about $187,000 impact. He said for the last two fiscal years they have collected about $800,000 and they believe that will happen again in 2011. Councilman Wallace asked if the increase of $187,000 is predicated on more of a change or collection rate. In response, Mr. Daughtrey said it is more of a historical collection trend. State Revenues Mr. Daughtrey said when he developed the estimates this includes the worst case scenario. He said they budgeted $4.3 in state revenue reductions and they believe that revenue number will come down some when they receive all the information and staff will provide Council with an update within the next week. Councilman Kearney asked about the HB 599 funds with a reduction of $2.5 million. He said that fund was put in effect in the 1980’s to stop annexation. He asked if that means you can now annex. In response, Mr. Daughtrey said no. Councilman Kearney asked about the Jail Per Diem which is affecting everybody, they are reducing the number. He said the biggest problem is the state is not picking up their prisoners and the City has to hold them. He asked if there was any recourse with that. Vice Mayor Spencer said that was a great question and asked what could be done about that. Councilman Kearney said it is an unsafe situation and very unfair. Vice Mayor Spencer said they have talked about that and they want to rent our jail space for the state system for out of state inmates. City of Hampton, VA Page 16 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Wallace said they get the revenue. Mr. Peterson said staff can look into it further but the state has a time limit and they extended that out by about five days or a week and they will wait until the last part of that time before they make a decision. Mr. Daughtrey said he has a definite answer as to what they call State responsible inmates and they say any person convicted of one or more felony offenses, and some of their sentences are one year or more, that is what the State is supposed to be responsible for. Contractual/Internal Commitments Impacting Revenues Mr. Daughtrey said 2% lodging and 2% meal taxes is $346,722 and transfers to the EXCEL fund is $1.4 million. Vice Mayor Spencer asked Mr. Daughtrey to explain the 2+2. He asked if that was a shortage. In response, Mr. Daughtrey said it is not a shortage, it is a positive. Vice Mayor Spencer asked if they were on budget for the Hampton Roads Convention Center (HRCC) with the 2+2. He said he doesn’t want it to be construed they are not. In response, Mr. Daughtrey said the City is on budget. Vice Mayor Spencer said the funding source put in place to pay for the HRCC is working the way it was projected and this is money that is being transferred as it was programmed to do. In response, Mr. Daughtrey said this is the net increase that was planned to transfer because they are anticipating more meal and lodging taxes in 2011. Vice Mayor Spencer said they are building up the balance of the 2+2 funds set aside for the HRCC in case there is a time when it is not as much. In response, Mr. Daughtrey said they have already reached the $16 million operating reserves so this is all used for operations and maintenance. Councilman Wallace said they have a reserve that was created two years ago before they started construction of the HRCC and that is part of the $16 million. Vice Mayor Spencer said what was projected when this was in the decision making stage is working and paying for itself and there is excess being applied to other operations. Mr. Daughtrey said they have reached the $16 million total operating reserve that is required. The City Manager said to be clear, they are generating everything they expected from the 2+2 revenue and more but they always plan for a subsidy of the operation that it doesn’t cover. She said they are not saying the 2+2 covers everything. Vice Mayor Spencer said however they are able to generate more money in the 2+2 than planned which would help defray some of those costs they are speaking of. City of Hampton, VA Page 17 of 31 Printed on 4/22/2010 City Council Meeting Minutes Mr. Daughtrey said incremental tax revenues are due to the Peninsula Town Center as a part the contractual agreement with the Peninsula Town Center CDA. The agreement stated that incremental tax revenues over the base year 2004 would be shared. He said they project that to be $351,274 for 2011. For meal taxes they would share 25% with the CDA over the base year and they expect that to be $310,364. Councilman Wallace asked if those meal taxes were generated in the CDA area. In response, Mr. Daughtrey said it is generated in the CDA above the base year 2004. Mr. Daughtrey said they agreed to share 100% of the base year for real estate taxes in 2004 which is $213,000. He said they expect the real estate tax amount to change because there will be some supplements for the new stores that are opened and it will change during fiscal year 2011. The City Manager said that concludes the revenue part of the presentation. NOTE: A 5 minute break was taken at 2:13 p.m. The City Manager said Ms. Chris Snead will walk through the budget gap and where they are really starting from. Ms. Snead referred to Tab 3 and stated the revised budget scenario and the original budget scenario include reconciliation as to how they got from $21.5 million to where we are now at $19.4 million. She said the biggest changes were in the revenue estimate change original scenario looking at $13.6 million change in revenue and that was as a result of State revenue loss, real estate taxes and the loss of one time monies that we used in the budget for the capital budget and one time funds. Ms. Snead stated since that time Mr. Daughtrey provided better revenue estimates and they didn’t lose as much and the fund balance and the debt reserve money still remains the same. She explained that they are really only losing $7.6 million as a net change in revenues and this actually makes us better where we have $6 million that we can add to the $21 million budget gap. Ms. Snead said they had some base budget changes and Mr. Daughtrey talked about some of these because of the additional monies, the communication tax that used to go straight to the EXCEL fund, they have a transfer now to the EXCEL fund of the $1.4 million. She said the reason why this number is $661,000 is the original scenario already had the $213,000 built in from the real estate taxes. This equals the meals and sales taxes and admission taxes. She said in the original scenario they didn’t have the additional revenues from the 2+2 that goes to the HRCC fund. She said all were base budget changes in that regard and moving to the expenditure drivers. They originally built in $2.7 million cuts from the school budget but in essence they are only reducing their budget by $1 million so that actually added to the gap of 1.6 million. Councilman Wallace asked if that was based on the formula. In response, Ms. Snead said it was based on the funding formula. Ms. Snead said they originally had $3.5 million as an increase in debt service and they were able to have a debt service increase of $1.4 instead of $3.5 which saved $2 million from the original scenario. City of Hampton, VA Page 18 of 31 Printed on 4/22/2010 City Council Meeting Minutes Ms. Snead said the City purchased a new radio system which was a lease purchase and they are able to make that payment for the current fiscal year out of resources that are currently available but it had to be added to the capital budget as a lease purchase payment. She explained it is one of those budget items that we usually carry money for in the capital budget. She said that brings us to a revised budget shortfall of $19.4 million. The City Manager said on the actual budget scenario that is the starting point for $19 million, you will see several things were added that they have already made decisions not to do. The presumption was at one point fully funding the Hampton University (HU) pledge even though we have since talked about it with Dr. William Harvey, President, and the community about being able to fulfill that in the near term. She said it is added but later you will see it come out but the reason they do those types of things is accounting from one budget year to another budget year. She said certain things were added in and are coming back out and Ms. Snead did the same thing with the capital budget. She put all the capital budget items in but they have made some decisions to scale back the capital budget. The City Manager said the $19 million gap, while it is a real gap, they have already made several decisions to bring that $19 million shortfall back in alignment where they need to be. Ms. Snead said they start with $19.4 million and they used various strategies that we have talked to Council in the past about what we are going to do in order to balance the budget. She said one of the first things, the City Manager had a group of employees to get together to come up with some various fee increases where they could actually increase fees to get more revenue. Ms. Snead referred to Tab 4 and stated the information showed what a penny on the real estate tax would generate as well as personal property, amusement, tobacco, lodging-transient, and meal taxes would be. She said in order to equalize the loss of revenues on real estate and property taxes it would take three cents. The City Manager said they are not necessarily proposing that but they have to run an ad so many days out of the first public hearing on what the proposed effect to the real estate tax rate is going to be, and if you want to preserve the ability to raise that either for City or school purposes they would have to advertise to preserve that opportunity. She said the school board is planning to discuss whether they want the school system to consider a real estate increase to be dedicated to the schools. Councilman Kearney said the schools are going to ask City Council. In response, the City Manager said they would have to ask City Council because they couldn’t do it themselves but they understand that they are part and parcel of the local funding formula agreement and that if they want more than what the local funding formula produces, they have the ability to ask the City Council to consider a dedicated tax increase. She said from what she gathers there are some who are in favor of asking and there are others who are undecided. The earliest opportunity to make a decision on that was at the evening meeting of March 24, 2010. She said they will let her know later this evening and she will let Council know whether they want to do that or not. The City Manager said if the school board wants to do that and council wants to afford the opportunity to hear that out they would need to advertise that potential increase as part of the public hearing process. She said it doesn’t obligate you to do it but it does preserve the opportunity to hear out their requests and to consider it and to have a public hearing on City of Hampton, VA Page 19 of 31 Printed on 4/22/2010 City Council Meeting Minutes that point. The City Manager said staff needs direction from Council if the school board comes forward with that request as to whether Council is comfortable with staff putting the provision in the tax ad to preserve the opportunity. Councilman Wallace said he would like to preserve the option because he doesn’t know what the implications are and he would certainly like to have the opportunity to say yes we need to ante up two pennies towards equalization in order to keep the schools funded and sustained at operational level. He said if we don’t advertise we don’t have that option. He said they may want to add some other considerations. Vice Mayor Spencer asked how much is dedicated to the schools now. In response, Ms. Snead said it is three cents. The City Manager said she believes it was two cents way back when. Vice Mayor Spencer asked for clarification. The City Manager said the two cent original dedication was the starting point when they set up the local funding formula. She said they actually put 100% of the three cents into the initiative that was designated for school construction. The City Manager said it doesn’t get lost in the funding formula. Vice Mayor Spencer said they are already above the funding formula with three cents. He said that is critical and they need to ensure everybody understands that. In response, the City Manager said to be clear, that’s going to the school construction. Vice Mayor Spencer said the funding formula they devised to work out to fund city operations as well as participating in the school operations. Vice Mayor Spencer asked the date by which we need to advertise. In response, Mayor Ward said March 25, 2010, is the last date. Vice Mayor Spencer said tomorrow is the last date and they are just now finding out whether or not they want to do it. The City Manager said they haven’t asked and they are going to discuss it at their meeting tonight. Councilman Kearney said they need to know if the formula they have put together over the last four years, how much more has the City given the schools than what was in the formula. He said historically when the transfer of funds have occurred in July and August when all of the sudden the State says there is more money available, the City has given that money to the school system, where the sister cities on the Peninsula and in the Hampton Roads region have taken that money and put it in the general fund. He said he believes they need to do that. Councilman Kearney said he has sat there before and said to do this for the sake of the schools and everybody comes in and says you already voted that you were going to do it, how can you not do it and he doesn’t like that. Councilman Kearney said he recalls on two occasions where they had to do something they went ahead and did it, and advertised it later and had to vote on it at a later date. He said that doesn’t prohibit them from doing it after that date. City of Hampton, VA Page 20 of 31 Printed on 4/22/2010 City Council Meeting Minutes The City Manager said the one challenge Council has with regard to the school budget and this is why they were saying that, is that they have the school contracts and they are supposed to make decisions by mid May 2010 to do all their school contracts. She said if they ask to save positions and things like that we are bumping up against legal time frames of advertisement they wouldn’t be able to get it all done by May 15, 2010. Councilman Kearney said that is Victor Helman’s fault and he should have been doing this ahead of time. The City Manager said she doesn’t even know if they are going to ask but she wanted to make Council aware that they may make that request and she believes it is incumbent upon her to make Council aware of that. Councilman Kearney said the City Manager is doing her job and he appreciates that. Mayor Ward said Council doesn’t know where the cuts are yet so there may be a reason that goes beyond Council’s relationship with the schools. Councilman Kearney said he talked with Dr. Shifflette as a friend and a former educator and told her he knew what kind of situation she was in and what he got as feedback was that he was willing to raise a couple of pennies in order to meet the needs they had that they saw were critical but Dr. Shifflette had to do something else. He said she had to show him where she had cut and he wanted to make sure that 1 Franklin Street had substantial amount of cuts as compared to what happened in other schools. He said there are two or three schools that never were accredited for four years as the budget kept going up and that really angered the people in the neighborhood because it was the only school that was not accredited. He said he needs to see what they have cut and he knows he has no authority in telling Dr. Shifflette what to do but he has to be assured that the cuts have been made on the administrative side and she has done away with a lot of hoopla in order to have the best budget she can for him to vote for an increase. Councilman Kearney said he goes back to remind everyone that at the last minute they discovered the school was going to put Astroturf inside of Darling stadium for $1 million and it was no where in the budget. He said the school board didn’t even know when that happened. Councilman Kearney said he is leery of their practices and he has discussed this with Dr. Shifflette and told her he has to feel good about saying he will go a penny or two higher. He said he was not speaking for anybody else but himself. Mayor Ward said that is what she has heard anecdotally in the community. Councilman Kearney said Vice Mayor Spencer has alluded to that because he believes it was Raymond Washington who was Superintendent and they did two pennies. The City Manager said the reason why they haven’t made a decision about that yet is because they were waiting to see where the state budget situation turned out and where the local budget situation turned out. She said they are going to be able to restore between $5 and $6 million tonight and only after they do that will they understand as a body whether they think the cuts are drastic enough to warrant them doing that. She said she is not trying to prejudge Council whether they should or shouldn’t but only to say if Council wants to do it on a time frame that honors the May 15, 2010, adoption deadline they would have to preserve, for them or for the City, whether you want to have that opportunity by advertising a consideration of that option. City of Hampton, VA Page 21 of 31 Printed on 4/22/2010 City Council Meeting Minutes Mayor Ward said she believes they should go through the rest of the material first. Vice Mayor Spencer agreed with Mayor Ward. Ms. Snead explained that it doesn’t obligate Council if they do advertise. She said they have a legal requirement to advertise 30 days prior to the public hearing. Councilman Wallace stated that it is most logical to preserve the opportunity to provide adequate funding. Advertising would preserve the opportunity to do something if Council is satisfied. He stated that it is his belief that doing so would communicate to the community that Council are reasonable stewards of local dollars when saying the capacity exists to do this and Council will take the opportunity to do this if it is necessary and beneficial. If not, Council won’t exercise it. Mayor Ward said she understood Councilman Wallace’s point. The City Manager said they would move on and come back. Ms. Snead referred to the proposed city-wide tax/fee increase and stated they are looking at a $.75 tax on boats and RVs. Councilman Wallace asked how that compared to other localities. Ms. Snead said Hampton is below several of the localities that have fees. Mayor Ward said we were at $1.00 before. Ms. Snead said that is the recommendation. The City Manager said that is a calendar year tax so they can only budget for half the year’s revenue and there has been a 30% discount applied for unexpected boat loss as a result of the tax. Councilman Kearney said where the tax is somewhat unfair is at a $30,000 boat but start talking about a $1.8 million boat with those coming into the community and start charging them. He said that scares him because he doesn’t believe they get anything for their services. The City Manager said they tried valiantly with the Hampton Delegation to get a change in the law that would allow them to make some distinctions for those types of boats and it died in the House for a variety of reasons and it leaves the City only with this option. The City Manager said she believes it is six months or less, the boat owners are not considered a resident boat and there may be some things they can do with the marina owners. Councilman Wallace asked if it is 6 months within a calendar year or 6 months duration. In response, the City Manager said that it is a calendar year. Mayor Ward said that is one of the challenges. City of Hampton, VA Page 22 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Gilliland asked if someone was going to be hired to go down there and check. Mayor Ward said they are assessed pursuant to marina leases and you have to prove or disprove and they have to declare the boat is somewhere for six months or more and that is why it is such a difficult tax. The City Manager said they have tried to come up with other ways and fundamentally it comes to an equity question and they have done a yeoman’s effort to get people to understand the benefit of having the boats dock in the community. It is an equity question that continues to get out there. She said they thought by coming in lower than some of the other communities and working with the owners and the Commissioner’s Office, they would be able to mitigate and come up with a larger impact and that was the best thing to do. She said they can revisit it and that is why they are doing the preliminary work session today. Councilman Gilliland said it is not an equity question. It is a perceived equity question and he doesn’t believe it should be characterized in that way. He said he understands the politics of it and if you are going to raise it you might as well raise it a lot because either way you are not going to get a lot of money out of it. He said those who have the resources who are the most mobile will move the vessel. He said you might as well make it $5 or whatever the heck it is you want to make it. He said as long as you are going to drive them away, make it worth your while. Councilman Gilliland said he understands. The point is the net financial benefit is not having a boat tax and the fact that it is difficult for some people to do the math and understand the math; that is the reality. He said he understands the politics is to say stick it to the guy with the big boat and the reality is you are sticking it to yourself. He said it is like the people who say they don’t want to pay for the decal on my car that they don’t get anymore but part of that is it distributes the taxation to folks who don’t own real estate. He said no boat tax puts more pressure on the home owners of real estate tax rate, not having a $28 fee for registering a car or a decal you no longer get places pressure on the real estate tax rate and that is just the truth. Vice Mayor Spencer said Hampton Creek all the way up to the Booker T. Washington bridge is dredged by the Federal government so the larger and more expensive boats are in an area that is dredged and maintained by the Federal government and the United States Army Corps of Engineers (USACE). Mayor Ward said she believes services we provide to boat owners that aren’t included like police and fire protection for instance. We have a police and fire boat that have costs associated with that and there is an argument that people live on their boats and don’t pay any real estate tax. Councilman Gilliland said the math says you end up getting less revenue not more revenue by having a boat tax and the fact it is counterintuitive for the majority of the population doesn’t make it untrue. Ms. Snead said the majority of tax and fee increases have been at the recommendation of the Treasurer and Commissioner of the Revenue. She said there is a $20 increase in the business license fee and an administrative fee on delinquent business licenses. Ms. City of Hampton, VA Page 23 of 31 Printed on 4/22/2010 City Council Meeting Minutes Snead said there is a proposal to increase the vehicle license fee $2 based on each of the categories. Vice Mayor Spencer asked if that was the no decal fee. In response, Ms. Snead said yes. Mayor Ward said one thing important to remember about the license fee is that the City still exempts cars under $1,000. She said despite the fact they have changed the way the City is reimbursed by the State for car taxes, previous Councils chose to continue to accept cars under $1,000 even though they didn’t have to. The City Manager said in looking at whether to propose fee changes in these categories, the Treasurer and Commissioner of the Revenue used what other cities are doing. She said the business license issuance fees have been $30 for many years and in other cities it is $50. The City Manager said the City gets no benefit from being lower and that is what drove that recommendation. She explained the increase is either bringing Hampton in line with other localities or in some cases, like the building permit fees getting closer to the cost of issuance within that ability allowed by State law. Police Services Ms. Snead said they have recommended a range of fees from fingerprint fees, crime report, accident reports, taxi permit, accident photos, funeral escort, taxi cab inspections, tow truck inspections and a wide load hauling permit. The City Manager said funeral escorts is the big fee in terms of what it generates and Hampton is the only locality not doing that. She explained the charge is paid for by the funeral home and then recouped as part of the services they offer to the resident. She said they have resisted that fee but it is routine practice throughout the region to charge for that service. Councilman Kearney said he cannot support that fee. Parks and Recreation Ms. Snead said increases are proposed for school age programs, summer programs and the monthly fitness room fees. The City Manager said they planned to do a $5 increase last year and because the change in the bell schedules and parents saying they needed more time to plan for it, they withheld the $5 increase for a year and in fact waived the registration fee for the year as a consideration. She said they didn’t set the school bell schedule but it was something they tried to do to be sensitive to the parent needs. The City Manager said they try to have the rates be close to covering the service of the program and the overhead of the program because they don’t want to put the City in a position that they are undercutting the private sector programs. She said even with the $5 rate increases it is substantially cheaper than the prevailing programs. The City Manager reminded Council that last year staff provided them with a comparison of other programs, whether they were an actual private provider or non-profit provider and even with the $5 increase they would have been the lowest and that is still the case today. City of Hampton, VA Page 24 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Kearney reminded everyone that when they first started this they asked the private providers if they wanted to step up and actually do this for the City in using the school and they didn’t want to do it. He said the City Manager didn’t mention the other problem they had last year or the year before when those with children with special needs said their children were not being provided for. In response, the City Manager said they do have therapeutic programs. Councilman Kearney requested staff to provide Council with information regarding what is available for therapeutic programs. The City Manager said it was recognized in the CIP process that the parents of children with disabilities that participate in the therapeutic aftercare program would prefer to see them all consolidated in one location. She said there is an elementary school site, middle school, and high school site for therapeutic needs. The City Manager explained, as much as possible children with disabilities are integrated with other children in the after school programs but those who have unique disabilities and require extra care are handled in the therapeutic program. Councilman Wallace asked if there was a charge on school age registration for prior years. In response, the City Manager said the charge was waived for one year because of the school bus schedule change. Councilman Wallace asked if the charge was $15. In response, the City Manger said the charge was $20. She said the weekly rates are going up $5 which is what they were scheduled to do this past year. Councilman Kearney said he thought the summer playgrounds were free. In response, the City Manager said the City has been charging a fee for those for some time and many years ago they were free. Mayor Ward asked about shelter fees. In response, Ms. Snead said residents are charged and the fee has been increased for non-residents. Ms. Snead asked Mayor Ward if she felt the fee was too high. In response, Mayor Ward suggested that non-residents be charged more than $10. Councilman Kearney agreed and said it should be much more than $10. Mayor Ward said it costs more than $10 to haul the trash. The City Manager said this is a surcharge on top of the existing fee. Councilman Kearney said he knows that but would still charge more than $10. The City Manager said they are paying more than $10. Ms. Snead said this is on top of the regular fee. The City Manager asked if Council feels comfortable in putting in a larger rate. In response, Councilman Kearney said he supports a larger fee. City of Hampton, VA Page 25 of 31 Printed on 4/22/2010 City Council Meeting Minutes Darling Stadium Ms. Snead said the increase doesn’t impact the school portion of the rental for Darling Stadium. Councilman Kearney asked if these increases for all that have been considered by staff. In response, the City Manager said they are planning to put these increases in the budget unless they hear major concerns from Council. Councilman Kearney asked about parking in the Coliseum area. In response, the City Manager said the fee is already in the ticket surcharge. Councilman Kearney said it is $2. The City Manager asked Councilman Kearney if he is suggesting an increase in the parking charge. Councilman Kearney asked the City Manager if she considered going up another $1. In response, the City Manager said that would go into the Coliseum fund. She said she was focusing on the general fund but she will go back to look and see if it makes sense. Councilman Kearney said he believes it is a time when they have to look at everything they can and that is why he agrees with Mayor Ward about the park rangers. Councilman Wallace said they need a listing of the fees and the changes across the board. The City Manager said a change in fees was not recommended for the solid waste user fees or stormwater user fees and staff will make the full listing available. Councilman Wallace asked to include the fees from other localities. Building Permits Ms. Snead said they are also proposing building permit fee increases and the information will be provided at a later date. Ms. Snead with the additional fee increases they are looking at $1.6 million in additional revenue. Councilman Gilliland requested a breakdown of the building permit fees. He said the construction industry is decimated where nationally the unemployment level is at 9% or 10%, in the construction arena it is at 24% or 25%. He said he is not sure they should be sticking it to the construction industry right now. The City Manager said the Board of Zoning Appeals fees and things like that are included in those fees. She said they have not changed those fees in many years and they are out of alignment with other localities. She explained that when the matter came up to the Planning Commission in the course of updating because of the State Code, they asked if the full cost of the zoning appeal case process was included and they weren’t; they were just going to what other cities were charging. City of Hampton, VA Page 26 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Gilliland said he is very interested in activity based accounting. The cost to perform an activity and charging a reasonable price associated with that activity is fine but he could care less about what everybody else is doing. He said he can guarantee that most of them have not rationalized that on an activity based accounting method. The City Manager said in that particular case with the zoning appeal, they actually walked through how it costs the City more than the prevailing practice to process one of those fees. She said through the artificial competitive process of trying to be in the same ball park, they kept it artificially low. She noted that the Planning Commission said it should be raised more than everybody else but capture the actual cost for the service to benefit the developer or the resident who is seeking that change. It doesn’t benefit the general tax base, it benefits the actual applicant of the particular fee, which was the philosophy they were trying to use with the building permits. She explained that was why it has not been finalized because they are going back to look at the activity based accounting for what it actually costs to issue particular charges. Councilman Kearney referenced the problems regarding fire calls, especially with faulty alarms. He said he was told some time ago that some communities handle first and second calls free and after that there is a charge for going on the call. He asked if Hampton has such a rule. In response, Mr. Jimmy Gray, Interim Assistant City Manager, said Hampton doesn’t have that and many have that built into the fire prevention code where you respond to a location after the third time there is a charge. He said most of the time that is corrected with a repair or an adjustment to the alarm system. He said it is more of a nuisance. Councilman Kearney asked staff to look into that. Mr. Peterson said that is also true in police calls. Councilman Kearney said it is worthwhile and they are not talking about going to the person’s home. The City Manager said staff will be glad to look into that. She said it is typically a change of behavior type of fee as opposed to a revenue generation fee. Fund Balance Utilization of Fund Balance Ms. Snead provided Council with the information regarding what staff is proposing to use fund balance on. She said the breakwaters at Buckroe is going to end up being $500,000 and they are proposing to use fund balance for the 2010 Celebration so there is only one more year of funding for 2011. She said every other year they do the Hall of Fame and that would be recurring expenditures. Vice Mayor Spencer asked if that was the Sports Hall of Fame at the Hampton Coliseum. In response, Ms. Snead stated that was correct. Ms. Snead said they are also proposing to use fund balance for building maintenance and parks and recreation. City of Hampton, VA Page 27 of 31 Printed on 4/22/2010 City Council Meeting Minutes Councilman Kearney said he didn’t see any information on the new fire station in Northampton. In response, the City Manager said it has already been funded and they are ready to go out to bid. Councilman Kearney asked about the inquiry regarding pouring all the concrete at one time for the 911 Center. In response, the City Manager said she doesn’t know if that has actually come back yet. Councilman Kearney said he would like to know even if they are not moved in, if the concrete is poured in anticipation of how much need they are going to have to do it at one time. In response, Mr. Gray said they would have to have the design of the new 911 center first to understand the square footage. Councilman Kearney said he thought they already had the design for the 911 Center. In response, Mr. Gray said it is included in the FY11 CIP. Mr. Peterson said they have a conceptual drawing. Councilman Kearney said using the conceptual drawing you might be able to get an idea of what the square footage would be for a rough calculation. He said he would fight to have that money put in at the time it is being done in knowing that movement could occur within the next three years. Capital Budget Ms. Snead said in order to fully fund it she had about $9.9 million and in addition to utilizing fund balance they also scaled back the projects in the Capital budget. Ms. Snead provided Council with a schedule indicating reductions of general fund contributions to the FY2011 CIP. Councilman Wallace said there have been so many iterations that he is unsure where things stand but does not mean that as a criticism. The City Manager said Councilman Wallace has seen more than others because he has seen the information at the Planning Commission meetings as well. Ms. Snead said the information shows the projects that have been reduced, deferred to a future year or they completely eliminated a project for a year which equals $3.6 million. Ms. Snead also provided Council with information of the Capital budget of all the projects that are proposed and funded in the Capital budget for FY11. The City Manager said almost all of the things that contributed to the Master Plan implementation and or economic tax base expansion have been delayed for a year or more as part of this Capital Budget and CIP process. She explained that is not because they are not important, but because of the economic situation they needed to make some reductions in places and it was easier to do that. She further explained that it would be harder for them to take anything else off that list. She said they kept the things that are fundamentally obligations on hand. The City Manager said she would have liked to have had more stay ins with the Master Plans and the tax base expansion but City of Hampton, VA Page 28 of 31 Printed on 4/22/2010 City Council Meeting Minutes that was one of the reasons they were very careful not to exhaust of all their excess fund balance. She said if there was an opportunity that came along in a particular area that was not budgeted for they always have the opportunity to go to fund balance for those things. She noted they also earn interest on the bonds and they have some flexibility they reserve to do those kinds of things but they will not see many of those margin projects in this capital budget, or the larger CIP for that matter. Councilman Wallace asked if there was any way to present that. In response, the City Manager said staff will provide Council information to show that. Mayor Ward asked how the Capital Budget gets funded and what the debt service is going to be for the next fiscal year. She said she knows the City is planning to borrow some money next year, but she wants to know when the debt service would actually get paid. She said she believes while this may be clear for Council and staff, the average person needs clarification. Ms. Snead said there are various funding sources to the capital budget and they are planning to use $10.4 million of general fund revenues and that is broken down by the money we get from the State for highway maintenance which is $4 million. She said they are also proposing to use fund balance of $3.9 million and general operating from tax dollars where they will be getting transition of funds to go back to using some of the general tax dollars to fund the capital budget instead of using all fund balance. She said that equals $10.4 million, but in addition to that they have a number of other funding sources to fund these projects, such as the Congestion Mitigation Air Quality (CMAQ) funds, General Obligation Bond Proceeds (BP) to the tune of $24.3 million and $10.3 million for the schools for their maintenance. Ms. Snead said included in the project is the money for the new courthouse at $23 million. She explained that while they may borrow that money in FY11, it is a 20 year debt service and they won’t begin to pay that until FY12 and that debt service is going to be roughly 10% which is $2.4 million each year. Ms. Snead said it could be less than that depending on the interest rate. Mayor Ward said it also depends on what the construction costs would be. She said there isn’t actually any expenditure listed in the FY11 budget other than the design costs. Ms. Snead said there is construction money that the City is going to borrow but there is no debt service because they will begin to pay that in FY12. The City Manager said at the Mayors and Chairs meeting, they were discussing the challenges that each of the localities are having with budgets and the issue of the courthouse in the region came up. She said they were reminded that the Williamsburg- James City Courthouse was actually done under judicial order. Councilman Kearney said that was exactly right. The City Manager said they asked when it was last done and she couldn’t remember but the Williamsburg-James City County administrators reminded her that when they did the courthouse several years ago it was done under judicial order. Councilman Kearney asked if that was also the case with the courthouse in Yorktown. In response, the City Manager said she would have to check, but it may be. City of Hampton, VA Page 29 of 31 Printed on 4/22/2010 City Council Meeting Minutes The City Manager said a courthouse was put in the budget and it was taken out and the judges actually took them to court over unsatisfactory conditions. She said it is not just for the judges but for the public that is served in the courthouse. The City Manager stated the judges have that right to take them to court and she is not saying Hampton’s judges have threatened that but there are examples of that happening in our region. Councilman Kearney requested a list of those projects in the Capital fund but which have not yet been built. He said he remembers the big debate about putting the rocks down there along where the Seafood Market would have been because it is deteriorating. He said they ended up putting stone instead of a permanent breakwater. He said there have been issues and he would like to know where they are in the process. In response, the City Manager said the fire house took a while because of land acquisition and the same thing with the boat ramp. She said they would take care of Councilman Kearney’s request. Councilman Wallace asked if they were going to discuss the garage. In response, the City Manager said they would talk about the garage. Ms. Snead said they are not transferring $1 million to the Industrial Development Authority (IDA) for the Hampton University (HU) project and they are not sending any general fund money over to the EXCEL fund other than the $1.4 million to subsidize the American Theatre and they scaled that back last year and this year they are taking it completely away. Councilman Kearney requested an explanation in writing. The City Manager said she believes there are some opportunities in working with Mr. Michael Curry. Councilman Kearney said he believes staff is going to do what is best but he would like to get information. In response, Ms. Snead said it is only $51,000 which was left that was transferred over to subsidize that and they were able to offset that pretty easily. The City Manager said she believes they will offer some increased offerings that they can recoup through admission charges. Councilman Kearney asked for a breakdown of their operation during the year. He said he believes Council needs to see that. Parking Garage Analysis Mr. James A. “Pete” Peterson, Assistant City Manager, did not make a complete presentation and information on the parking garage analysis is attached. Workforce Polling Results Mr. John Eagle, Assistant City Manager, reviewed the Employee Survey results and the presentation is attached. Closed Meeting City of Hampton, VA Page 30 of 31 Printed on 4/22/2010 City Council Meeting Minutes 2. 10-0114 Closed session as provided in Virginia Code Section 22.1-3711A.1 and .7 APPROVED - the motion specified that there would be no taping of the closed session portion of the meeting due to the discussion of personnel matters. Motion made by: Councilmember Ross A. Kearney, II Seconded by: Councilmember Joseph H. Spencer, II Ayes: 5 - Randall A. Gilliland, Ross A. Kearney, II, Joseph H. Spencer, II, George E. Wallace, Molly Joseph Ward Nays: 0 . 10-0116 to consult with legal counsel regarding specific legal matters regarding the budget process and requiring the provision of legal advice by such counsel NO ACTION REQUIRED . 10-0117 to discuss specific personnel decisions and changes proposed in the budget process NO ACTION REQUIRED . 10-0133 Motion to adjourn the meeting at 5:46 p.m. and to reconvene in closed session at 8 a.m. on March 31, 2010. APPROVED Motion made by: Councilmember Ross A. Kearney, II Seconded by: Councilmember Joseph H. Spencer, II Ayes: 5 - Randall A. Gilliland, Ross A. Kearney, II, Joseph H. Spencer, II, George E. Wallace, Molly Joseph Ward Nays: 0 ______________________ Molly Joseph Ward Mayor __________________________ Katherine K. Glass, CMC Clerk of Council Date approved by Council ______________________ City of Hampton, VA Page 31 of 31 Printed on 4/22/2010