Town Manager Teresa Piner offered an unusual solution to meet the town’s capital needs for the next fiscal year.
Piner told commissioners the town could borrow as much as $2.3 million and spread loan payments out over a period long enough to avoid a tax hike for property owners.
Commissioners met for two hours Monday night and spent about half that time going over Piner’s proposal, which calls for borrowing money for a host of uses, from paving unpaved streets and construction of a new building at the Public Works Center to the purchase of up to five police cars and other equipment for the Parks and Recreation Department.
“We asked our department heads to put together a list of needs in each of their departments and what they brought back totaled $3.8 million,” Piner told commissioners. “We asked them go back and look at what they most needed, what their true priorities were.”
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Department heads came back with a new list that still totaled more than $2 million. “Most of the items on this list have been there before. These are needs they’ve had for a while,” Piner said.
Capital needs are one-time, large-dollar purchases and don’t include recurring costs such as employee salaries and routine operating expenses.
Funding those items through a loan is a unique approach. Most towns use money from receipts collected the previous year through taxes, fees and other revenue services.
Piner said her proposal kept two goals in mind. “We wanted to be able to do this without a tax increase and we were mindful of the town’s policy that we keep our fund balance at or above 40 percent, which is what our policy calls for,” Piner said.
She told commissioners the town could afford to borrow the money and repay the loans because the town currently has very little debt and conversations with the parties that hold the town’s loans lead her to believe she could defer payment on one of next year’s loans. Funds from that loan, a $165,000 note to Wake County, was used to pay for the new section of Wendell Park. Wendell’s only other loan is a $189,000 loan that is scheduled to be paid off in two more years. Piner said the town would essentially continue the make the same amount of loan payment to repay the new loans.
Breaking out the numbers
Piner’s plan calls for the town to borrow about $341,000 with a 5-year payback. The town would borrow another $571,000 and pay that money over 10 years. The remainder of the money – just over $1.3 million – would come from Powell Bill funds that are paid to the town by the state each year. The town would essentially borrow 15 years worth of Powell bill allocations from the state and forego those payments the the following years. The Powell Bill money is state money disbursed to towns and counties through a formula that considers the amount of state-owned roads within that jurisdiction.
Towns are restricted in how they can spend Powell Bill funds, so the money must be used to improve streets sidewalks and other transportation infrastructure, such as bike paths.
Piner’s plan calls for spending $800,000 in Powell Bill funds on street resurfacing. That would cover a lot of the street maintenance needs identified by former Town Manager Hugh Montgomery in 2011. The plan also calls for spending another $306,000 on park improvements if the town is awarded a Parks and Recreation Trust Fund grant.
Commissioners had few comments about the plan during Monday’s meeting, but Piner said she and Finance Director Butch Kay had already reviewed the plan with Mayor Tim Hinnant prior to Monday night’s budget session.
Piner described Monday night’s meeting as the start of the budget process. There are a lot of unknowns so far, including projections of how much money the town will bring in next year through property taxes and other fees.
“We have had some new construction that we will benefit from, but not a lot. We expect we will have had much more new construction next year as many more homes are built,” Piner said.