Tuesday, March 5, 2024

$487M in city needs could lead to 2- to 4-cent tax increase for FY25

Wilmington City Council and staff held its first FY25 budget session Nov. 17 in 929 N. Front St.

WILMINGTON — As the city wrapped up its first budget work session for fiscal year 2025, staff proposed a tax increase to pay for needed ongoing maintenance costs.

READ MORE: With 15 unfinished projects on the books, city considers postponing capital plan

Last year, the City of Wilmington chose to defer its capital improvement program by one year to dedicate funding to unfinished projects, specifically from the 2014 $55 million transportation bond and 2016 $38 million parks bond. More than half of the 38 transportation projects are still incomplete and 10 of 21 parks and recreation projects are still in the works 

For the next fiscal year, staff is proposing splitting its five-year capital improvement plan into maintenance needs and infrastructure projects so fewer repairs and replacements are deferred in place of new initiatives.

To do so, assistant budget director Suzanne Gooding is recommending a tax increase, between 2 and 4 cents — which would be a 5% to 10% hike. A portion of that, likely 1 cent, would be dedicated solely to a maintenance fund.

With the city’s current tax rate of 39.5 cents, 1 cent would equal $2.2 million per year.

After staff reviewed submitted proposals from department heads earlier this year, the next five-year plan calls for $87 million in maintenance and $400 million in infrastructure, as of November. $67.7 million would come from the general fund for parks and recreation, streets and sidewalks and public facilities.

Three enterprise funds — stormwater, parking and golf — would pay for their respective department needs: $18.5 million for stormwater, $300,000 for parking and $1.2 million for golf.

The most recent capital improvement plan, 2018 to 2023, focused mostly on maintenance and the city saw an increase in “pop-up,” or unplanned, needs for infrastructure. Maintenance and preservation focus on keeping existing assets — such as city buildings, the Riverwalk, street pavement markings and sidewalks — in good condition.

Infrastructure refers to standalone projects that impact the entire city — that “change the landscape of the community,” assistant budget director Suzanne Gooding said council during a work session Nov. 17 — such as a new fire station or downtown greenway trail.

Prior to 2018, many unplanned maintenance needs occurred throughout the year as the focus was infrastructure. Therefore, the budget department is seeking an “equilibrium” to manage both, Gooding explained at a Nov. 17 council work session.

“As you get a larger population, you have to start focusing on not only new stuff but maintenance thereof and we’re finding ourselves in a dilemma,” city manager Tony Caudle said at the meeting.

The solution is a new funding strategy to address long-term maintenance, so projects are not competing for the same bucket of money against new projects.

Budget director Jennifer Maready explained most maintenance needs are funded by cash on hand, as opposed to long-term projects, which typically require financing and the city incurring debt.

A dedicated tax rate would allow more maintenance to be prioritized and funded, she added.

The $400 million over five years for infrastructure needs are typically funded 80% by debt capacity and 20% by the general fund. With the city’s $68-million purchase of 929 N. Front St. as its new headquarters, which the city closed on in July, there is currently no available capacity in the debt service fund, Maready said.

“Debt capacity is the value of additional debt available to invest in projects without the need to increase the tax rate,” city spokesperson Lauren Edwards said. “This is not related to the ability to issue more debt.”

By state law, the city has capacity to issue more debt, but its internal policy is much lower.

The city first floated the purchase of Thermo Fisher with a 3-cent tax increase and reduced it to 1.5 cents. It ultimately backtracked in April to cover the cost without raising taxes. The city shifted 1.12 cents of its 39.5 cent tax rate to pay for debt service. It also paid $8.5 million out of its general fund and financed the remaining with low-obligation bonds.

“I think everyone’s goal is to have no tax increase or lower taxes,” council member Luke Wadell told Port City Daily. “It’s certainly mine.”

The remaining tax increase was proposed for immediate capital needs, though Waddell said “I’ll be honest with you, I’m unclear on it.”

The goal is to pay down the debt accumulated by the bonds with the proceeds from selling off the now-surplus properties city staff once occupied. Right now two properties, 226 S. Front St. and 1536 S. Front St., are under contract for $1.9 million and 302 Willard St. had a pending bid of $715,000. Three more are currently seeking bids and four others are in the planning stages to prepare to be bid out.

Deputy city manager Chad McEwen told the Local Government Commission in June, the parcels could cumulatively rake in up to $20 million in potential revenue.

Thermo Fisher’s three-year lease revenue — $1.8 million annually — to the city will also help cover debt payments. Money remaining after the debt is paid will go toward the maintenance of 929 N. Front Street, which has been estimated to cost nearly $3 million annually.

“It;s the first budget session,we have quite a few more to nail down,” Waddell said. “THere will be quite a few more robust discussions.”

Also two new council members — Salette Andrews and David Joyner — will join the board next month, adding their input to the future budget.

Strategic Plan

In coordination with the city’s five-year capital plan, the city is also developing an updated strategic plan. The last one was adopted by council in 2016, to cover through 2020. It included six focus areas and according to deputy city manager Mary Vigue was “too large to make meaningful change.”

The previous plan was mainly used in the budget process whereas the 2025-2030 strategic plan will include specific objectives with actionable initiatives.

“How do we do things differently as a city over the next five years to be more competitive?” Vogue said of how to form the plan. “The plan’s intent is to provide a strategic focus for the community and city staff and opportunities for those who live, work and build businesses here.”

The proposed strategic plan will have five focus areas: 

  • Housing and neighborhoods — centered on affordability of quality housing options
  • Economic development and culture — keyed in on economic growth, job creation and cultural vibrancy attracting and retaining businesses
  • Organizational excellence — internal recruiting, developing and retaining a diverse workforce
  • Safe, healthy and engaged community — to reduce violent crime, and improve vehicular safety, emergency management and resiliency, expand work associated with the homeless population and youth involvement
  • Transportation and infrastructure — to develop an efficient, accessible, sustainable multimodal network focused on reducing congestion and improving options

The city contracted with Transpro in February 2022 for $107,531 to help write a strategic plan and conducted community surveys and focus groups last summer. City staff sought council input and executive leadership feedback in October and November last year. 

Between May and August 2023, city staff formulated objectives and initiatives based on the guidance from the community and city.

“This is a living, breathing document that will change as our situation changes,” Caudle said. “We want to determine if council thinks we’re headed in the right direction and if we’re not, get us feedback.”

Vigue said performance measures will be developed after the plan is adopted so staff can track its progress. It would provide twice annual council updates and a public dashboard.

“We think this is a really unique opportunity to coordinate the CIP with the strategic plan,” Caudle said. The objectives and initiatives will directly coincide with prioritizing the funding of projects requested by city departments.

City staff will bring back to council in January a detailed five-year capital maintenance plan and five-year capital infrastructure plan for review, along with cost estimates on requested projects. It will also offer a more thorough draft of its strategic plan for further discussion as budget sessions unfold.

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