WILMINGTON — The Wilmington City Council seems to be shifting course to address revenue needs in this budget cycle after raising the tax rate last year to pay for capital needs debt service couldn’t cover, largely as a result of the Skyline Center purchase.
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Council is more than a month away from receiving the city manager’s recommended budget but met on Friday to get an update on where the next fiscal year stands.
“We’re not planning on bringing to you a tax increase,” City Manager Tony Caudle said at the meeting.
New Hanover County has seen a 67% increase in property values in its revaluation this year; this means Wilmington can bring in the same amount of revenue it did last year, with a rate of 27 cents per $100 dollars of value, though this would be 28 cents if accounting for 2.51% of budget growth due to rising costs. The rate is currently at 42 cents.
Despite the increase in revenue, this year’s budget has a remaining funding gap between $500,000 and $1 million. Like many municipalities, the city is grappling with an increase in costs, particularly employee pay and benefits, but the city is unique in one area affecting revenue.
Budget and Research Director Laura Mortell pointed to the 1.12 cents of the property tax rate dedicated to paying down the Skyline Center debt as a “contributing factor to the constraints on revenue growth.”
The 1.12 cents was shifted in 2023 to help cover the $68-million purchase of the city’s new headquarters, alongside a $8.5 million payment from its general fund and financing with low-obligation bonds.
Council’s goal was to avoid raising property taxes to cover the debt; however, the limited debt capacity as a result of the purchase left the city in a bind last year, when it proposed a new capital improvement plan. The plan suggested spending $74 million on projects over the next few years; the larger ones would be 80% financed through debt. Council ultimately chose to raise the property tax by 2.5 cents.
Because of this year’s revaluation, the city is proposing to shift a quarter of a cent back to the general fund, deobligate 3.5 million from the rail realignment project and put it toward the Skyline Center debt. Caudle suggested applying the $3.5 million directly to the debt; the faster the city pays it down, the less interest it will have to pay.
The city will also continue to apply any revenue from the sale of surplus property to the debt service. Because city offices are consolidated in the Skyline Center now, many of its old office buildings can now be put up for sale. This was the case for three Chestnut Street properties that were sold for $1.7 million last December and will now be turned into a grocery store.
Mortell said the “sale of certain properties is imminent in this year or the beginning of next year,” though didn’t elaborate on which and how she knew they would be sold soon. Staff did note the passage of Senate Bill 203, which is still being considered by the General Assembly, would attract more buyers, as it would allow the city to forgo a public bid process and negotiate privately.
Still, staff assessed $2.1-million as a “conservative” estimate for the sale of these properties to apply to debt service. This would allow three-fifths of a cent to be transferred back to the general fund.
Though progress is being made on the debt service, there is still a budget deficit. Staff have reduced this estimate since January and will need to bring it to zero before the recommended budget is presented next month.
One way the budget could be balanced is through a budget reduction exercise Caudle asked each city department to participate in earlier this year. Departments identified line items that could be decreased or eliminated. The overall goal was to shore up $3 million from the cuts; Caudle said the proposals came in slightly less than that.
“Some of the proposals, at first blush, look good; others looked probably not viable,” Caudle said. “We’re in the process now trying to go back through and verify numbers to make sure that the numbers that were put forward by the departments are indeed correct, then to determine how they rank in priority to other departments.”
The exercise identified 24.33 full-time equivalent positions and line-item reductions in contracts, training, cable TV, and food and beverages, along with service-level changes.
Because Caudle has not vetted the suggestions yet, he didn’t want to share more details about what was proposed in a public setting, despite council member Luke Waddell requesting the information.
“I got a little pushback last year for me bringing stuff up last-minute,” Waddell said, noting he didn’t want the same criticism this year.
Caudle said he expected the council to provide feedback and changes to be made ahead of needed approval; the next fiscal year begins July 1.
“I’m going to be very blunt here: You’re getting your budget 30 days ahead of what law says you’re supposed to get it,” Caudle said. “And we can’t get a much more premature in that process because right now, we don’t have a feel for the second largest revenue source In the general fund, which is sales tax.”
The budget team noted it was “cautiously optimistic” about bringing in $46 million in sales tax revenue, a $1 million increase over last year’s collection.
Mayor Bill Saffo said he had real concerns about the revenue deficit.
“We should all have concerns about that because everybody wants salary increases,” he said. “I mean, this is what this budget is about.”
In the preliminary budget, the city is contemplating a compensation package with additional funding between $7 and $8.5 million.
“At the same time, we have this [capital improvement plan] that I don’t think we’re going to be able to meet in any way, shape or form … we as a council need to reevaluate that CIP to determine what we’re gonna narrow it down to, what we can really laser-focus on, and then we can put up a three buckets, five buckets — I don’t care one to five years, five to 10, and then forever — because some of these projects we’ve been talking about for 20 years and they’re not going to come to fruition,” Saffo said.
The five-year plan was presented last year after the city estimated $487 in capital funding needs. The city also suggested funding smaller projects solely through revenue on hand, leaving debt service for the bigger spends, in order to get those done faster.
Some of the projects in the plan include two bridge replacements on Fourth Street ($10.7 million) and Pine Grove Drive ($6 million), a rehabilitation on Front Street ($771,000), and Riverwalk structural repairs ($2.4 million).
Council nor staff identified any projects they wanted to see removed or delayed, aside from the $3.5 million to go to the rail realignment project, a bypass railroad route between the Davis Yard in Navassa and the Port of Wilmington. The project has been in the works for years, but it is unclear if, how and when it will move forward as focus turns to the Cape Fear Memorial Bridge replacement.
Caudle said he already discussed with staff about focusing on a smaller number of projects. Waddell noted he would like to see better accountability measures for projects that exceed budgets.
“Right now we’re just kind of flying fast and loose; the budget really doesn’t mean anything,” Waddell said. “That would incentivize, in my opinion, incentivize staff, and give some sort of consequence that we’re not going to go over this number.”
His suggestion pairs with Saffo’s desire to focus on fewer projects, getting them done faster, before prices inflate beyond the approved budget for a project.
The mayor brought up the idea of redirecting some city’s engineers who are finishing up the city’s 2014 transportation bond projects to work on the neighborhood traffic calming program and free up some funding for the CIP.
In last year’s budget, council voted to increase the tax from $5 to fund a neighborhood traffic-calming program. The program has $1.8 million in funding that was intended for addressing the many complaints about speeding and reckless driving council gets from constituents.
Council member Kevin Spears was against increasing the tax last year.
“Now things are tight and we’ve leveraged an extra $25 on people with vehicles, and we didn’t do anything with the money — so now we need to reallocate,” Spears said on Friday.
Staff explained it had a hard time finding engineers for the program due to the competitive pay at other municipalities or in the private sector.
Caudle raised the idea of putting together a transportation initiative, made up of some transportation-related projects in the CIP, to be funded through the city’s $25 motor vehicle registration tax. Because the tax must be used on transportation costs, Caudle was hesitant to apply it to the entire CIP.
Saffo lamented how long it would take to form another plan, which would most likely be placed in the hands of a consultant.
“Even if you hired them today, if he was in this room or she was in this room, it’s going to take you two to three years before you bring this up,” Saffo said.
Though this is council’s third budget session, several members expressed wanting to start conversations about each council member’s priorities and ideas earlier on in the process.
“We don’t need to wait on a budget workshop,” Charlie Rivenbark said. “We need to sit down at least once during a year and just have these open meetings where we get this stuff out on the table and talk about it.”
Salette Andrews said she would like to see a board retreat at the beginning of the process.
Similar statements were made last year, though each budget session has been structured around presentations thus far. However, Caudle has encouraged board members to share their thoughts at each session to help him craft a budget they will vote for.
The city manager is on track to present the recommended budget at council’s May 16 meeting. Another budget session is thereafter scheduled for May 16, with a public hearing on May 20 ahead of a June adoption.
Reach journalist Brenna Flanagan at brenna@localdailymedia.com.
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