County manager: Insights into Chatham’s $149.9 million spending plan

Proposed budget is 10.4% higher than current year’s; lowers tax rate slightly

Posted 5/12/21

The Chatham County Manager’s Office unveiled a proposed 2021-22 fiscal year budget of $149.9 million last week. The expenditure proposal is not quite final: the board will host a public hearing on …

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County manager: Insights into Chatham’s $149.9 million spending plan

Proposed budget is 10.4% higher than current year’s; lowers tax rate slightly

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The Chatham County Manager’s Office unveiled a proposed 2021-22 fiscal year budget of $149.9 million last week. The expenditure proposal is not quite final: the board will host a public hearing on the budget next Monday, with board work sessions to follow on May 20, 21 and (if needed) 25. The budget is set to be finalized June 21 to meet the state-required June 30 budget adoption date; the county’s fiscal year begins July 1. County Manager Dan LaMontagne discusses particulars of the budget in this email exchange with the News + Record.

What’s statutorily required in and of the county’s budget?

North Carolina local government must comply with numerous statutory requirements when developing its annual operating budget. Following are several of these requirements.

• The annual operating budget must provide funding for all debt obligations.

• The total projected revenue and the total proposed expense must balance. Revenues and expenditures must balance within each fund as well as the larger operating budget comprising all funds.

• The manager’s recommended budget for the coming fiscal year must be presented to the governing body of that unit of government no later than June 1.

• A public hearing must be held prior to the adoption of the annual operating budget.

• The annual operating budget for the next fiscal year must be adopted no later than June 30.

With respect to units of county government, the annual operating budget must sufficiently fund operating and/or capital expenses associated with certain county-level agencies that are not under the direct authority of the county. Among others, these include:

• Board of Elections

• Sheriff’s Office

• Schools

• Department of Health

• Register of Deeds

• Department of Social Services

In the budget message, it was stated that “rapid growth and expansion” is happening now in Chatham County. Can you outline a few important ways this budget properly prepares the county for that growth?

Anywhere from reviewing development applications, enforcing environmental and health regulations, ensuring public safety, and attending to the health, social and educational needs throughout the jurisdiction’s population, a local government offers a range of public services. As the population grows within the local government’s community, the local government must amend and/or augment its operations to meet the growing, and sometimes changing, needs of the expanding population. This holds true in the case of Chatham County.

The recommended FY21-22 budget offers several measures across the organization and various other agencies funded by the county to account for the present and forecast growth of Chatham County. These include the recommendation of:

• Enhancing technology to promote the continuity of service and capture greater operational efficiencies. Software upgrades in several departments, cloud-based software application solutions, and off-site network backup storage are examples of these technology enhancements.

• Implementing staffing plans throughout various departments and agencies to maintain expected levels of service throughout the community, meet certain statutory or regulatory mandates, as well as provide for proper limits on span of control within various operation.

• Implementing pay and classification plan that ensures market competitiveness for the recruitment and retention of employees necessary to provide expected levels and types of public services as the county continues to grow.

• Providing funding for current and future capital needs that will support the building of education and other facilities necessitated by a growing population.

Thinking about growth: looking at the trendlines you consider in your planning process, do you foresee a time where that growth will generate enough additional tax revenues that would provide an opportunity for a significant drop in the county’s tax rate?

The county’s goal is always to maintain a tax rate that responsibly meets the community’s needed and desired levels and types of services. As the county grows, so too will the cost of providing these services. Ideally, the revenue generated from this growth will at least match the corresponding costs for supplying public services.

Some expenses, however, are realized earlier on in the growth of a community — for instance, providing educational facilities. This reality is one reason the county has adopted a capital funding process that plans for and funds large future capital investments. This planning, which is driven by the county’s debt model, enables the tax rate to remain relatively stable and as low as possible over a longer period.

It should be noted that the type of development that will be experienced in Chatham County will have an impact on future tax rates. Historically, residential property does not pay for itself in terms of taxes received and services provided. Generally, residential growth places a greater burden on public services as compared to commercial or industrial growth. At the same time, commercial and industrial properties create greater tax revenue generation as compared to residential development.

Looking back on this current fiscal year, particularly on the question of revenues for the county…what’s surprised you, given that the entire fiscal year has taken place during a pandemic?

This time last year, our projected revenue outlook was not optimistic. With the pandemic came uncertainty — particularly with respect to locally collected sales and use tax revenues. What might such a universally experienced crisis do to consumer behavior? The fortunate surprise, however, is that consumer spending did not slow, it merely shifted to more local and online activity.

Regarding the $2.4 million to support the opening of Seaforth High School — can you clarify, for those who don’t follow the intricacies of capital and operating costs for schools in N.C., what kinds of things make up that large expenditure?

The $2.4 million to support the opening of Seaforth High School covers many different areas within the school. For example, the school system will be opening a new building while not closing any of their existing buildings; this will increase their total square footage and will necessitate the need for additional maintenance and janitorial staff. Additionally, the new school will need personnel to fill roles that exist at other schools — for example: school office/support staff, guidance counselors, teacher assistants, and technology support. In addition to those staff positions, there are 10 core teachers and a curriculum coach that are being funded with local funds. Finally, there are costs that are district-wide, but which will see an increase with the opening of a new school — these includes: additional supply costs (school and athletic supplies), additional transportation costs, increases to insurance, contractual increases (such as garbage collection), and increased utility costs due to operating an additional building.

The $180,000 addition to the existing teacher supplement: where does that put the level of Chatham’s supplement, and how does that compare to the supplements offered by our surrounding (and sometimes competitive) counties?

This area of the state is the most competitive region when it comes to average supplements contributed to teachers’ pay. Six of the top 10 highest average teacher supplement school districts are in this region. Chatham is the seventh-highest district in the state. The county’s goal for the teacher supplement is to maintain Chatham’s standing as fifth in our region and 10th in the state. This year Chatham was surpassed in our region only by the much larger Wake, Chapel Hill, Durham and Orange school districts. Chatham’s average teacher supplement in FY 20 was $6,481. At the same time, Orange County’s average (4th in the region) was $6,552 and Alamance County — sixth in our region and tenth in the state — was $4,812.

The proposed operating budget also funds 31 new positions. How many positions were requested during the budget process, and how did you determine which requests to fulfill?

In total, 43 positions were requested during the FY2021-22.

All requests for expanding personnel undergo an expansion review process. As part of this review process, several factors are considered. First, alternatives to the request are identified. Alternatives for personnel expansions may often be the reorganization of work functions and restructuring of existing personnel, interdepartmental or interagency collaboration, relevant application of technology, or outsourcing work functions where appropriate. In other instances, no alternatives are available, or the available alternatives have already been exercised and the need to expand remains. Next, the expansion request is measured against other factors such as:

• Justification of need

• Is there a statutory/regulatory mandate for the request or will a mandate not be met without the request being filled?

• Immediacy of need

• Prospective outcomes if the request is filled

• Prospective outcomes if the request is not filled

• Alignment with organizational and/or operational goals and/or values

• Availability of funding and long-term sustainability of the request

Personnel expansions are ultimately recommended in consideration of these and other factors.

How does the budget address lessons learned from last year’s cyberattack?

Following the cyber event, the county took action to make numerous improvements to the county’s technology systems to enhance redundancies, fortify access control, mitigate security vulnerabilities, and reduce user interface security threats. Many of these measures have been addressed in the current fiscal year, while others are slated for funding in the recommended FY 21-22 budget. Several of these improvements for the coming fiscal year include upgrades to various software application and the migration of certain departmental applications to a cloud-based software solution as well as implementing offsite data backup.

How does the county’s fee structure compare general to our surrounding counties?

The proposed fees and fee changes for the FY21-22 budget are intended to maintain the county’s cost recovery model. Like in many other jurisdictions, these fees seek to cover the cost of providing certain services to the end user, which helps alleviate the burden to all other taxpayers in these instances. While benchmarking the county’s fees against surrounding jurisdictions is an appropriate practice for awareness purposes, the county does not use benchmarking to dictate the decision-making process. In most cases, we can anticipate seeing some instances where the county’s fees are somewhat higher and others where our fees are somewhat lower than other counties in our region.

In the budget, $5.2 million is earmarked for debt service related to Seaforth. Can you explain debt service and address the county’s overall debt level, and what within the budget addresses debt?

Debt Service is the amount of funds allocated in the annual operating budget to cover repayment of interest and principal on all active debt incurred by the county.

Chatham County continually evaluates the appropriate method to financing capital needs, including the incurrence of debt. Debt funded projects are modeled prior to approval. Once approved, funds to cover the payment of future debt are set aside through the county’s debt reserve. The county’s debt model factors in several assumptions when determining the solvency of the county in issuing new/additional debt.

Most jurisdictions have a “CIP,” or a Capital Improvement Plan/Program. What some call a “CIP” is actually a wish list. A true CIP has two primary components or legs.

• First Leg, “The Plan”: A CIP must consist of a prioritized itemization of capital purchases and improvements that follow a timeline of phased activity from planning to completion and the costs associated with all steps along the way.

• Second Leg, “The Funding Strategy”: A CIP must have a dedicated funding source or mechanism to financially support the Plan.

The distinguishing characteristic of the Chatham County CIP is that its CIP is stabilized by three legs, not just two.

• Third Leg, “The Model”: The Chatham County CIP is informed by the county’s debt model. Debt funded projects are modeled prior to approval. Once approved, funds to cover the payment of future debt are set aside through the county’s debt reserve. The county’s debt model factors in several assumptions when determining the solvency of the county in issuing new/additional debt.

This third leg shifts the question from “when can we afford it?” to “when does the public need it?” The debt model provides a greater capacity for informed decision making, enabling the public need to drive funding availability more effectively.

It should be noted that the debt model does not operate outside of and exclusive from the annual operating budget. Annually, the Board of Commissioners affirm that they still see the value that our debt model has for future financial planning and growth considerations when they continue to allocate a portion of the ad valorem property tax to the debt reserve. That allocation is currently at the equivalent of 9.2 cents of the property tax rate and the FY2021-22 budget proposes to increase that amount to 9.7 cents.

The long-term and disciplined adherence to debt model budgeting, along with the continued support for funding the debt model by the County Board of Commissioners, has established a level of financial stability that encourages the confidence of rating agencies, resulting in exceptional bond ratings for the county. Its bond rating allows the county to borrow at lower rates of interest, which further improves the long-term financial health of the county and reduces the amount of local tax dollars required to finance large capital projects.

What would you invite Chatham residents to do, to read, to consider in advance of the public hearing on the budget set for May 17?

Chatham residents are encouraged to review the budget document in advance of the Monday, May 17, public hearing at 6 p.m. The budget document contains a lot of information and staff understands that it may not be possible for residents to read the entirety of the document. In that case, we would encourage a resident who is interested to read the budget message in detail — that section of the document will provide a thorough overview of what the rest of the document contains and ultimately what the manager is recommending for the next fiscal year. The recommended 2021-2022 County Budget can be found on the Chatham County website.



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