Chris Kennedy: Insights into Pittsboro's proposed spending plan

Posted 5/19/21

The News + Record talked with Kennedy to get some more insight into what town leadership hopes to achieve with the proposed budget, and what he thinks is most important for residents to know.

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Chris Kennedy: Insights into Pittsboro's proposed spending plan

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Posted

PITTSBORO — Since his arrival last summer, Town Manager Chris Kennedy has overseen Pittsboro’s dramatic expansion plans — both to accommodate expected growth and address longstanding issues. In the proposed town budget for fiscal year 2021-22, which Kennedy developed in partnership with town staff and the board of commissioners, he addresses the town’s water contamination issues, its stressed sewer capacity limits, the demand for a larger administrative staff and more.

The town’s ambitious plans will cost residents more money than they’re used to paying, but Kennedy hopes the compensatory value will outweigh heightened expenses.

The News + Record talked with Kennedy to get some more insight into what town leadership hopes to achieve with the proposed budget, and what he thinks is most important for residents to know. The town will host a public hearing on Monday, May 24, to discuss the budget a final time before the board of commissioners can vote to adopt it. Anyone interested in attending can access the Zoom meeting via the town’s website, pittsboro.gov.

In the proposed budget, the town’s enterprise fund sees a dramatic jump in spending (264.8% in its capital expense) as compared to the current year budget. Can you explain the basics of a general fund versus an enterprise fund, and why the latter saw a big increase in proposed expenditures?

The Town budget is comprised of two funds, the General Fund and the Enterprise Fund. The General Fund covers the basic operations of the Town — the police department, administration, planning, engineering, recreation, all those types of things. Enterprise funds throughout North Carolina can be comprised of different things, but for Pittsboro, our Enterprise Fund covers our water and sewer operations. The Enterprise Fund in Pittsboro includes the Town’s water treatment, water distribution, sewer treatment and sewer collection. In other places, for instance in Apex, their Enterprise Fund also includes a storm water utility and an electric utility. But, again, for us here, we just have water and sewer.

The Enterprise Fund is run similar to a private business, and I think the major difference between the Enterprise Fund and the General Fund for folks to understand is that when we talk about tax dollars — the ad valorem revenue that a municipality receives — none of those tax dollars go to the Enterprise Fund. The Enterprise Fund is only funded by the user rates our water and sewer customers pay. So, when you get your water and sewer bill, those receipts to the Town are what pay for the water and sewer side of our operation.

With regard to the increase in expected expenditures next year, the Enterprise Fund is seeing such a big increase in the proposed budget over the current year budget because the Town is increasing the number of water and sewer projects in next year’s work plan. As I stated during the Board’s budget retreat and the May 10 public hearing on the budget, next year’s budget strives to get us closer back to “par” with our infrastructure. We have many needs, but projects targeting water quality and sewer I&I (inflow & infiltration) are top priorities and are seeing dollars commensurate with the needs.

Part of that is addressing the town’s PFAS contamination in the drinking supply, which has been a hot-button issue for more than a year. Can you explain what plans the town has in the next year and beyond to improve water quality, and how we see that reflected in the proposed budget?

For several months we’ve been planning and implementing an advanced water treatment project that is bringing a PFAS targeted water filtration system at our water plant. The initial project will install a GAC (granular activated carbon) system. As we have discussed during our Board of Commissioner meetings, this GAC project is designed to filter out in excess of 90% of all PFAS from our drinking water.

Next year’s budget currently proposes $1.4 million, which is in addition to $1.2 million that’s already been appropriated by our Board thus far. The $1.2 million appropriated by our Board in February is to get the project going — these dollars allowed us to buy the vessels that hold the GAC media, to buy the media itself and to pay for the necessary engineering work for the project.

The second part of this first phase implementation comes in next year’s budget, in the amount of an additional $1.4 million to complete the project. The Town is expected to receive $1.28 million in funding from the federal ARP money, and our Board has agreed with my recommendation that we spend 100% of that $1.28 million towards this water quality project. With the additional funds, we anticipate to purchase the remainder of the infrastructure required and to be complete with the initial advanced water treatment project by the end of this calendar year. So, by the end of December 2021, we expect that advanced treatment to be live and providing GAC filtered water to our customers.

This initial advanced water treatment project is what we call our “fast track” project, and the one we have discussed over the last few months. The fast track project aims to provide advanced treatment measures in a quick manner that reduces time and costs. For instance, we will have pipes and other infrastructure that is commonly buried, not buried with this project because the expense is too great. We are also designing the project to treat just over the first million gallons, which is right around our average daily consumption — the water plant’s capacity is two million gallons per day — to keep costs down. For the next phases, where more permanent practices of construction are desired, we hope to be recipients of a $2.2 million grant from the federal government to go towards us installing filtering measures to treat the full plant capacity. We are also keeping a keen eye on grant or no interest loan opportunities that are expected to come with the other sections of the ARP funding. We are focusing our energy mostly on this first phase to ensure timely completion, but we are also planning ahead for the next series of projects.

You mention hoping to secure some federal grant money, and I know in the past you and the board of commissioners have explored several different ways to secure funding so as to limit how much you need residents to contribute through utility rates or taxes. Can you tell me more about some of what you’re working on?

Yes, back in April, I submitted a request to Congressman David Price’s office to be a part of his list of projects that he is eligible to take to the U.S. House Appropriations Committee as part of a funding opportunity titled Community Project Funding. This earmark funding opportunity has not been available in the last 10 years or so, but it is back this year to fund any number of projects defined in the House guidance. The project eligibility list includes projects tied to PFAS removal. The Town submitted its project to Congressman Price and fortunately we made his top 10 list that he will send to the U.S. House Appropriations Committee. We asked for a $2.2 million grant under the Interior and Environment section of the Community Project to help us with our PFAS issue. We are hopeful that by around next February or so we will get some good news and find out the federal government funded phase two of the project. Again these dollars will bring us closer to providing 100% of the water plant capacity with advanced treatment.

In addition to grants and State funding, we have also talked to a few private institutions about financing to reduce the financial burden on one year’s rate payer base. But as you might imagine, financing for these types of projects is not like getting a common mortgage, and so we’ve struggled to find a good partner to be able to say, ‘OK, let’s do a three to five year loan on some of these infrastructure projects and see what we can do to not put that financial burden just on one year’s rate payer base.’ But we are still trying and continue to explore a myriad of funding options.

For now, the payer base will have to assume some of the cost burden for these projects. Utility rates will almost certainly go up to support infrastructure development. The most recent iteration of the proposed budget increases water rates by 43% and sewer rates by 30%. Can you talk a bit about the behind-the-scenes process to arrive at those increases?

In a way, the process is kind of like balancing your checkbook or your household bills. You take what you anticipate to be your expense, and then you look at your revenue and say, ‘OK, can we match these?’ One thing that’s important to keep in mind is that, unlike the federal government where they can just draft an appropriations bill and have a budget that is not balanced, we cannot do that. As our budget officer, I have to present to my Board a balanced budget. We look really hard at the projects that are included and try to decide what are top priorities within our funding constraints.

We went through a lot of filtering to decide on a reasonable project list. There are many projects that we need to do, but only so much that we can do, constrained by both our resources and our dollars. Our top needs for next year included solutions to the water quality issues and our sewer capacity constraints. Also, in budgeting at our level and like that of your household, we had to make some assumptions and do our best with averages to see how much we have to work with. Projecting on the water and sewer side can be complex because we have averages but consumption varies. The average customer in Pittsboro uses just over 3,100 gallons of water per year right now, but that could change as technology improves the efficiency of fixtures and appliances; we have to account for such things. So, using the information available to us, we’ve factored our best judgments into our projections and into our calculus to arrive at these proposed rate increases that we expect will generate enough revenue to see important projects through.

Originally, at the budget retreat, my budget proposal had 53% and 68% increases for water and sewer. Those proposed percentages were needed to fund the anticipated projects with simple math using only user rates. After the Board consented to the project list as a reasonable list of projects, we then sought alternatives for funding these projects to offset some of these costs and lessen the percentage increase. Using existing dollars generated via our System Development Fee collected, moving projects into Capital Project Funds to shield them from our fund balance policy, and the appropriation of reserve dollars has allowed us to reduce the percentages down to 43% to water and 30% to sewer.

After the budget retreat on April 17, we really took a deep dive looking for the best strategy to fund these projects. Striving for creative and defensible solutions from a budgeting perspective, allowed us to bring those numbers within a lower stratosphere. We know that those numbers are still high, but at same time they’re for much needed projects. We hope that people see value in the Town investing in their infrastructure.

You were able to keep taxes constant in the proposed budget — $0.4333 per $100 of property valuation. How were you able to keep taxes down, and do you think the future tax rate might even decrease as commercial growth continues?

Well, to answer the first part, going into the making of this budget we expected that utility rate increases were going to be needed to move languishing projects forward. Also, factoring in the context of the last year — job uncertainties with COVID, other types of financial insecurities and uncertainties — we knew that keeping the tax rate the same was important. Regardless of the yearly context, we never wish to go into a budget saying, ‘Hey let’s go raise rates and raise taxes.’ That’s never our intent. We strive to provide high quality service at an affordable rate, at a rate where everyone feels they get exactly what they pay for. We strive for high quality service provision, within the funding restraints, and we will only plan to propose tax increases when we see services suffer. Again, knowing that the utility side was likely to go up, I worked with our staff to keep the taxes on the other side of the ledger static. This year we also we got a little help, honestly, with the revaluation. Since values went up, that certainly helped us remain fixed on the tax rate.

To your second question, I do think there will be a point in the future when the tax rate can go down. I am not sure how quickly we will get to that plateau as for the next few years I anticipate we’re going to grow in expense as the demands of the community also grow. However, eventually I expect our growth in operations to level off and I can see us definitely lessening the tax rate because we’ll get to an equilibrium where we can provide equivalent service to greater populations without needing to raise the tax rate. I’m not sure if that’ll be in five years, 10 years or longer, but I think we all hope to be there sooner than later.

The proposed budget funds eight new positions. How many were requested in the budget process, and how did you determine which requests to fulfill?

I think the number was probably well in excess of 20 new positions. In conversations we had, the question was really, what we do we need immediately for next year. We get a lot of calls about maintenance of roadways, our right-of-way mowing, our parks maintenance, utility work, street work, any number of things. But what you’ll see in this year’s budget are the foundational positions that support all of these functions. Human Resources, public information, grants, purchasing and the like support all sectors of our operation. Right now, everyone’s doing about three or four different things, and that is not sustainable. We will lose our talent to other agencies and our service will suffer. Having a few more folks around will allow all of us to do our job better.

The town has elected to host two public hearings on the proposed budget although only one is required. What would you encourage residents to do, to read, to consider in advance of the second hearing scheduled for Monday?

I would just say if you read the budget and something doesn’t make sense, just ask the question. Whether it’s during or before the public hearing session, call me, call one of your elected officials on our Board of Commissioners, and ask why something is in there, or why something isn’t in there. We may not have an answer for everything, but for us to be ultimately responsive and adaptive to the needs of our community, we need to listen. And so that’s why we’re having two public hearings when the State only requires us to hold one.

Sometimes people think it’s not worth it to come to the hearings and speak because they feel like the budget’s already done, so why bother now? But even if something doesn’t end up in this year’s budget, I take note of it and try not to forget it for next year’s budget preparation. We try to have a long memory with this stuff. So, even if it does not fit within the budgetary constraints this year, simply asking the question may get something funded for future years.

Anything important you want residents to know that we might not have covered in previous questions?

We’ve worked really hard here at the Town to try to present a budget that’s responsive to the needs of the public. We developed a budget that we hope represents the entirety of the population; we tried not to ostracize anyone while funding our most pressing needs.

We want an open process with public input on it. COVID has hampered that somewhat, but we’re trying to do our best to be transparent and present ideas and project designed to help Pittsboro. Like any budget, there may be some who are for or against parts of it, but at the end of the day, we hope that people look at it and say, ‘You know what? Chris and his team at the Town are really looking out for us, they want to do right by us and bring us a high quality level of service.’”

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