Tuesday, February 27, 2024

City considers 2.5-cent tax increase, as Skyline Center makes up 10% of budget

The Wilmington City Council discusses the FY25 budget at a Jan. 29, 2024, meeting. (Courtesy photo)

WILMINGTON — Costs associated with the City of Wilmington’s purchase of the former PPD building are coming back to haunt some council members.

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

The city council held its second budget work session Monday and heard a proposed funding plan for Wilmington’s maintenance and infrastructure projects over the next half-decade. The council will be asked to vote on a budget in the next few months.

According to the presentation, the city has $487 million in needs, but it is proposing to fund $74 million in the coming years.

To help do so, staff’s proposal is to transfer $2 million from its fund balance and use $1.8 million in proceeds from its property sales of 302 Willard St., 1536 S. Front St. and 222/226 S. Front St. Plus it suggests freeing up $1 million from a deprioritized project. 

However, the most financially significant suggestion is a 2.5-cent property-tax increase to the next budget. 

The 6.3% increase would contribute an additional $5.62 million per year to be used for the projects. Under the city’s proposed funding strategy, 1 cent — or $2.25 million — would be set aside for smaller maintenance costs. 

Larger projects would be funded 80% through debt-financing, and by separating the two mechanisms, less-intensive projects will no longer compete for priority and can be accomplished faster.

Some members of council were not easily accepting of staff’s tax increase suggestion.

“My concern is this makes us look very non-transparent as it relates to the purchase of 929 N. Front Street,” Spears said during the meeting. “We said that we will make that purchase without doing a tax increase but then we turn around the next fiscal year and propose 2.5 cents.” 

The council member referenced the address of the former PPD building, now city headquarters called the Skyline Center, purchased for $68 million in July 2023. City council considered a 3-cent increase, then a 1.5-cent increase, but backed down altogether in April 2023 after significant pushback.

“This looks shady,” Spears said.

To pay for the Skyline Center, the city shifted 1.12 cents of its current 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. But as a result, the city has no available capacity in the debt service fund, meaning it’s limited in its ability to invest in projects without a tax increase.

However, city staff have put forth $6.86 million to be dedicated to upfitting and repairing the Skyline Center. It breaks down as follows: 

  • City-occupied space upfits: $3 million
  • Window seals, gaskets and exterior caulk: $1.35 million
  • HVAC management system modernization: $1.78 million
  • HVAC unit replacements: $130,000
  • Leased space upfits: $350,000
  • Cooling tower: $250,000

The city’s capital improvement plan has been accompanied by a property tax increase since FY13-FY17, when it shot up 5 cents. 

“We’ve said that for many years that it was going to be a tax increase when we did the CIP, so it was somewhat separated from purchasing this building,” Laura Mortell, city budget director, said.

City spokesperson Dylan Lee detailed to Port City Daily Thursday the city’s acquisition of the new Skyline Center and parking facility will save approximately $55 million over construction alternatives to city operations space needs and downtown parking needs. 

“Not spending these funds on building and parking space allows greater opportunity to accelerate the CIP schedule,” Lee said.

Council was also aware it would have to make some repairs on the building when it signed the purchase agreement.

“They weren’t deal breakers at the time,” Spears said, referring to the purchase. “But I mean, we’re talking about $3 million and $5 million, couple of $100,000 here and there. It’s going to add up.” 

Council member Luke Waddell questioned the immediate need for the Skyline Center improvements. He said he understood the window repairs, due to being in a coastal town, but not the HVAC upgrade. Staff explained the modernization was critical because it cannot control or troubleshoot the system from a central site; the city has to bring people in to conduct maintenance. The system parts are also getting harder to acquire.

Waddell then suggested council postpone the city-occupied space improvements to shore up the $3 million in FY24, around half the cost of one year with 2.5 cents added to the new property tax.

“We should try and make it work as it is, however possible,” Waddell said.

The funding plan does include a host of other infrastructure projects, including two bridge replacements on Fourth Street ($10.7 million) and Pine Grove Drive ($6 million) and a rehabilitation on Front Street ($771,000). 

All three structures have had to restrict load allowances; the Fourth Street bridge can’t be used by Wave Transit and emergency vehicles. The Front Street bridge is a rehab project, previously funded for FY23, but now is in need of additional money due to inflation and construction costs. This project will extend the bridge’s life. 

The Riverwalk will also see some love in the CIP. The connection behind Cape Fear Community College from the Hilton Hotel to the Coastline Inn is failing, so staff have budgeted $2.4 million to renovate it. There is also $230,000 set aside for lighting improvements on the southern half.

Other funded infrastructure projects include 

  • Pool fencing at Legion Stadium
  • Basketball court lighting at Robert Strange Park
  • Greenfield Lake walking bridge repairs
  • Thalian Hall exterior improvements
  • Roof replacements for MLK Recreation Center, the Hemenway Center, Greenfield Lake Boathouse, Hannah Block Community Arts Center.

In addition, $42 million is budgeted for the maintenance fund, which covers facility upkeep, bike/ped routes, street paving, and similar other costs. The Skyline Center is budgeted $700,000 from this fund.

Mayor Bill Saffo questioned why the city could not use its fund balance to help offset some infrastructure costs instead of raising taxes.

“What’s the percentage that we are saving by carrying more money — which is the taxpayers’ money — into the reserve account, which should be applied over [the years]?” Saffo said. “My past experience over the years has been that we’ve used that money strategically for capital improvement projects that were one time projects.”

Mortell explained doing could affect its bond rating; the city recently became a AAA-rated, or high credit, entity. A change in rating could restrict some opportunities to get debt-service approved by the Local Government Commission — as it did with the Skyline Center. 

Saffo asked if the city ever had trouble selling its bonds, even when it was at a AA rating; Mortell said no.

The city also has a policy to keep its fund balance, or reserve, at 25% of operating expenses, though the state only requires 8%. Mortell said transferring the $2 million proposed in the plan would put the city at the city’s preferred baseline to respond to emergency funding needs. She brought up 2018’s Hurricane Florence cost the city $34 million; half of it was paid for through fund balance. The city also has around $5 million in outstanding debt.

At the end of the presentation, new council member David Joyner asked city manager Tony Caudle if staff would present a proposed budget without a tax increase at the next budget session. Caudle said no, but agreed to per Joyner’s request.


Tips or comments? Email journalist Brenna Flanagan at brenna@localdailymedia.com.

Want to read more from PCD? Subscribe now and then sign up for our morning newsletter, Wilmington Wire, and get the headlines delivered to your inbox every morning.

Related Articles