Town Council Minutes Morehead City, North Carolina  Tuesday, May 28, 2024, at 12:00 p.m. Budget Workshop Meeting #3  The Honorable Council of the Town of Morehead City met in Special Session on Tuesday, May 28, 2024, in the City Hall Council Chambers, 1100 Bridges Street, Morehead City, North Carolina to conduct Budget Workshop Meeting #3. The purpose oft this meeting was too continue review oft the proposed FY 2024-2025 Budget. Those in attendance were:  COUNCIL PRESENT: STAFF PRESENT:  Mayor Gerald A. Jones, Jr.; Councilmembers Richard Abell, George Ballou, Lee Stiles, Bill Taylor, and Harvey Walker. City Manager Chris Turner, Finance Director/Assistant City Manager Jewel Lasater, Public Services Director/Assistant City Manager Daniel Williams, Police Chief Bryan Dixon, Human Resources Director Leesa Jensen, Public Information Officer Anna Smith, Assistant Finance Director Leeann Vinson, Fire-EMS Chief Courtney Wade, Planning and Inspections Director Sandi Watkins, Parks and Recreation Director Jessica Mayo, and City Clerk Cathy Maceo Donald of the Carteret County News-Times, Downtown Morehead City Inc. Executive Director Kathryn Metts, Alyse  Campbell.  OTHERS PRESENT:  Kelly, and Jan Willis.  CALLTO ORDER  Mayor. Jones opened Budget Workshop #3 at 12:00 p.m. with a quorum present. City Manager Chris Turner briefly reviewed the slides presented at Budget Workshop #1 and #2, noting the budget that includes a General Fund of $22,905,189; Water & Sewer Fund of 10,588,080; Solid Waste Fund of $1,542,601 for a total annual budget of $35,035,870. The  proposed budget reflects an increase of5.37% over the current budget.  Mr. Turner also reviewed the tax rate history comparison of the city's peers showing that Morehead City is the only local government entity that has not raised taxes within the last four (4) years and reiterated how tax increases by other municipalities within the county impacts the sales tax distribution. As a result, the City's sales tax revenue is expected to close the year, on June 30, 2024, at -.01% as compared to 2023 due to not having kept pace with its peers. He reminded the Town Council that the Unassigned Fund Balance cannot be used to offset this loss as the Unassigned Fund Balance Policy requires that a balance equal to 30% of the City's total expenditure be maintained. Finance Director/Assistant City Manager Jewel Lasater presented a slide reflecting how other municipalities tax ralte levy impacts the sales tax distribution based on sample levy amounts. The sample showed that the City's sales tax revenue would drastically fall below its peers if the City's tax rate is not increased. She explained that the City's allocation has been declining by as much as one half (1/2) percent each year based on its peers tax increases. Mr. Turner reiterated that he is not in favor of tax increases; however, the City cannot continue  to carry the burden of services without raising taxes. May 28, 2024 Morehead City Town Council Budget Meeting #3  1    Councilmember Ballou stated that others have increased their rate due to a reduced tax base, and Morehead City has been able to hold its rate because it is blessed with a higher tax base. Ms. Lasater stated that the need to increase the tax rate extends beyond services provided. She stated that rates must be increased to keep up with inflation, the Consumer Price Index (CPI), salaries, as well as increased service costs. The City's revenue is projecting an increase of only $241,469.00 or 1.36% across all revenue sources. Ms. Lasater said that this is far less than in the past. Councilmember Ballou asked for the breakdown of total revenues over the last five years. Ms. Lasater agreed to provide the data following the meeting. After the meeting, the followingfour (4) charts were provided ini response to Councilmember Ballou's s request  TOWN OFI MOREHEAD CITY  TAXF RATE CHANGES & PROPERTY REE EVALUATION YEARS HISTORY FYE2 2000 FYE2002 FYE2008 FYE2 2012 FYE2014 FYE2015 FYE:2016 FYE2 2020 FYE 2021 FYE2025 ALLYEARS (0.02) (0.16) 0.07 0.03 0.01 0.02 0.03 0.40 0.38 0.22 0.29 0.32 0.33 0.35 0.38 0.38 0.41 650.000 2.200,000 (1.260.000) 111,000 (56.000) 79,000 110,000 786,000 730,000  REEVALUATION) YEAR=REY increase inProperly (Decrease) TaxR Rate TaxRote increase (Decrease) nProperly Taxl Levy  BASE YEAR REY REY REY  REY  REY  NETE EFFECT 0.03 0.01  TOWN OF MOREHEAD CITY RESIDENTIAL & COMMERCIAL REAL PROPERTY  Does not include Personal Properly TYPE Commercial Residential  ESTIMATED PROPERTY VALUE  % 61% 39%  $ $  834,071,090.00 1,308,779,439.00  TOWN OF MOREHEAD CITY GENERAL FUND MAJOR REVENUE ITEMS TAX CONTRACT FEES  ADVALOREM SALESTAX UTILITYSALES COUNTY DISTRICT AMBULANCE TOTAL CHANGE  TAXES  PRIORY YEAR  ACTUAL June3 30.2 2020 ACTUAL June3 30, 2021 ACTUAL June3 30,2 2022 ACTUAL June 30,2 2023 PROJECTED June3 30,2 2024  Fiscal YearEnding 7,777,200 3.341,213 1,045,900  1,099,700 14,208,793 NA  NA  Fiscal Year Ending 8,611,029 4,094,490 1,050,177 962,460 1,121,790 15,839,946 1,631,153 11.485 Fiscaly YearE Ending 8,856,909 4,349,170 1,069,820 1,449,000 1,088,158 16,813,057 973,111 6.1455 FiscalYearEnding 9,149,899 4,582,400 1,100,688 1,739,000 1,240,678 17,812,665 999,608 5.9556 Fiscal YearE Ending 9,230,363 4,582.136 1,121,842 1,773.793 1,346,000 18,054,134 241,469 1.369  GENERAL FUND ALLF REVENUE & EXPENDITURE ITEMS from2 2020A ACTUAL  ChongeinRevenue: 2024P Changeir inExpenditures: 2024P PROJECTEDf from2 2020A ACTUAL ChangeinR Revenue Over (Under) Expenditures  2,639,555 5,027,178 (2,387,623)  14.3396 31.649  May 28, 2024 Morehead City Town Council Budget Meeting #3  2    TOWNO OF MOREHEAD CITY SALES TAXD DISTRIBUTION. AMOUNTB BY ALLOCATIONI RATE  Impacto of SalesT Tax Revenue based on FYE2 2020 Allocation Rate Allocation Rate Changes Occuri inN May ofe eachf fiscal) Year  ACTUAL ACTUAL ACTUAL ACTUAL PROJECTED PROJECTED FIVEYEAR FYE:2020 FYE:2021 FYE 2022 FYE:2023 FYE2024 FYE2025 IMPACT 10.00426% 9.61810% 9.45073% 9.21510% 9.06510% 8.97510% 3,341,213 4,094,492 4,349,171 4,582,400 4,582,136 4,625,704 3,341,213 4,258,883 4,603,902 4,974,826 5,056,853 5,156,126 0 (164,391) (254,731) (392,426) (474.717) (530,422) (1,816,688)  Allocation Rate Actual/ Allocated to Cily Allocated based onF FYE2 2020F Rate Difference  Mr. Turner stated that the City has stretched its ability to operate under the current tax rate to the breaking point. He reviewed the scheduled debt service for four (4) major projects: the purchase of a Pierce Velocity Aerial Tower fire engine beginning in 2025, the purchase of two (2) Pierce Enforce Pumper fire trucks beginning in 2026, construction of the new Fire Station #3 beginning in 2026, and the construction of the Parks and Recreation Center Renovation which is not yet included in the Capital Improvement Plan or the budget due to unknown costs. Mr. Turner stressed that any dollar added to the debt schedule will have an  impact on the Unassigned Fund Balance percentage.  Mr. Turner presented a chart reflecting the FY2025-2026 General Fund budget projections based on a County property re-evaluation of 10%, 15%, and 20% increases with a $0.41 tax rate, a three percent (3%) increase in salaries and benefits, and debt payments for the Fire Station #3 and the Pierce Velocity Aerial Tower only. It showed that the City would only  see aj positive gain under a 20% increase scenario.  10% Increase $22,558,500 $23,228,533 ($670,033)  15% Increase $23,030,154 $23,228,533 ($198,379)  20% Increase $23,501,808 $23,228,533 $273,275  Revenues Expenditures Revenue Over (Under) Expenditures  Under the current tax rate, it is estimated that the City would realize a loss of $608,871 under the 20% County re-evaluation scenario. It is for these reasons that he is requesting an ad valorum tax increase of $0.03. Ms. Lasater noted that without the increase the City will have a very  difficult time presenting a balanced budget for FY2025-2026.  In response to Mayor Jones' question, Ms. Lasater stated that these projections are based on the current tax collection rate of99.26%. She then shared some ofthe large reoccurring costs for the city, pointing out the amount ofi increases since 2019. Utilities alone have increased by 68% ($343,175) which is more than the value ofone cent ($.01) on the $100 valuation.  Mr. Turner reviewed the priorities that were identified during the Town Council and Staff planning retreats. Staff identified, as three (3) of their top objectives, the need to expand city revenue and grow reserves, establishment of a Geographic Information System GIS)/Information Technology Department, and staff engagement with the North Carolina  May 28, 2024 Morehead City" Town Council Budget Meeting #3  3    Department of Transportation to provide input and prepare for the impact of Interstate 42. Mr. Turner stated that economic development is the way to expand revenue streams and noted that establishing an Economic Development Officer position was also one of the Town Council's  objectives for the year.  Mayor Jones offered the Town Council the opportunity to ask questions and share their Councilmember Taylor asked how much was included in the budget for Downtown Morehead City, Inc. (DMC) following the last budget meeting. Mr. Turner stated that no amount was added to the budget because the City has not received proof of their reinstated non-profit status. He added that it is not Staff's desire to defund DMC and he noted the great work they have accomplished in sustaining the vitality of the downtown area. Mr. Turner stated that the Town Council may approve a budget amendment in support of their vitality efforts once their non-profit status is reinstated, but not economic development because such efforts need to be spread across the whole city. He was unsure of the price point for vitality, but it would not be at the same price point as what has been provided in the past. Mr. Turner shared that research of historical city records revealed that the intent of past Councils was to stand up the organization and get it stabilized and then let it stand as a self-supporting organization. He reported that the NC. Alliance, which is comprised of 29 counties and for which Mayor Jones is the only serving mayor, has requested that the Town of Morehead City host a "Blue Economy Week" to include  concerns.  a boat show.  Councilmember Stiles asked what expenses could be cut to reduce tax increase from $.03to $0.01. Mr. Turner explained that he cut $5.2 million from the requested budget SO that only a $.03 increase would be required. The only way for the City to continue operating without the requested increase will be to cut staff and/or services and defer those services to the County. The Council will need to decide what services to cut. "The City has squeezed the funds for the last five (5) years until there is nothing left to squeeze." - Mr. Turner advised that the only service  acity is required toj provide is building inspections.  Councilmember Ballou asked for confirmation that the Council has been presented with a do-or-die budget and there is no way to cut even $.01 ($240,000) from the tax increase knowing that a re-evaluation is forthcoming, and he proposed that the Economic Development Officer position be cut which would account for half of the needed amount. Mr. Turner explained that capital improvement items generally will not relieve the burden on the operating funds and the re-evaluation will not provide immediate relief. Explaining why he did not suggest an increase last year, Mr. Turner stated that Staff was seeking to see how lean they could operate this year, not knowing that the County would delay the re-evaluation. Mr. Turner stated that he is also a taxpayer, and that reducing the tax rate by a penny would be an emotional decision that will have very little impact on citizens as the average homeowner would only realize about $8.00 savings per month. To cut the Economic Development Officer position is saying that the Council is choosing to forgo revenue development in favor of vitality only. Ms. Lasater explained that the $.03 increase was proposed believing that the re-evaluation would be accomplished this year; had they known, Management would have requested an $.08 or $.09 increase. She added that the longer the City delays an increase, the further the City falls behind. Referring back to the Future Debt Service chart, she noted that the $.03 increase will provide the growth needed to apply for the upcoming debt service and without it, she will not be able toj justify thel loans.  May 28, 2024 Morehead City Town Council Budget Meeting #3  4    Councilmember Ballou asked if the City is working with the County Economic Development Officer. Mr. Turner stated that Staffis working with all partners including the NC Alliance. He pointed out that the County's Economic Development Officer is focused on the county and is not looking at Morehead City's growth and well-being. At this time, the only person, besides himself, who is focused on the City's economic development efforts is Planning and Inspections Director Sandi Wakins, who is already overburdened with her regular Planning  duties.  Councilmember Ballou was adamant that he would not support a $.03 increase and asked Mr. Turner to save $0.01 on the tax increase. Mr. Turner responded saying that he had already  demonstrated that iti is not possible.  Councilmember Walker stated that when he looked at what staff requested in comparison to what was recommended, it shows that the City is still not doing what it needed to address current and future needs. He stated that Mr. Turner has done what was asked of him by evaluating the state of the City and doing what is required to put the City in a stronger position. If he says that a $.03 increase is needed, the Council needs to support him. The Council owes the citizens our commitment to take the right steps to fix the position oft the City.  Councilmember Taylor also spoke in favor of the tax and water/sewer fee increases stating that in 2011, the City looked at future needs and determined that a three percent (3%) annual increase of water/sewer fees would provide the funds needed for future improvements; however this was discontinued during COVID and it is now vital that this practice be reinstated. Councimember Abell also agreed with the tax increase, saying that it has been delayed long enough. Inflation is affecting everyone, including the City, as proven by the data presented  during this meeting.  Councilmember Stiles referred to the tax rate chart and stated that the Council has done a great job holding the tax rate as long as possible on behalf of the citizens, but after seeing the information provided during this meeting, he now agrees that an increase is necessary to prevent cutting city services. He also agreed that the City needs an Economic Development Officer to  bring new businesses into the city that will increase future revenue.  Councilmember Abell asked if the Town had ever reduced the tax rate. Mayor Jones asked the Council not to confuse the matter by suggesting ai revenue. neutral position as the rate is not the same as the amount paid. He stated that if a re-evaluation is completed in the next year or two, the City could look at a revenue neutral tax rate. Councilmember Ballou stated that the Council has not approved a revenue neutral budget during the time hel has served on the Council. Mayor Jones explained that the budget consideration is not just about the tax rate. He explained that there was a time when 40% of the City's taxpayers were part-time residents; they paid taxes equal to full-time residents but only utilized city services for a portion of the year. That is what helped hold the tax rate down. COVID changed this as many are now staying in town for the majority oft the year. He added that the Town Council will be doing the citizens an injustice ifthe City does not do what is necessary to maintain services. He noted that Mr. Turner is doing what he can to cut expenses while seeking to acquire State appropriations on behalf of  May 28, 2024 Morehead City" Town Council Budget Meeting #3  5    the City. Mr. Turner shared that Public Services Director/Assistant City Manager Daniel Williams recently spoke with Representative Celeste Cairns about the possibility of acquiring state funds in support of three (3) critical shovel ready projects: Water and Sewer Operations Center ($1.8 million), Water Asbestos Line Replacement ($4.5 million), and Wastewater Asbestos Line Replacement ($5.3 million), and he worked diligently to meet the near immediate deadline. He added that the City is a zero budget entity, and he could have asked for a higher  increase but only asked for what was absolutely necessary.  At the Mayor's request, Mr. Turner shared that the reason state representatives contact the City when funding becomes available is because the City has proven that it will complete projects as promised in a professional manner. Mr. Williams pointed out that expenses for the Fire Station are not included in the budget because the funds have been provided by the State. Councilmember Ballou thanked them for their efforts in securing the State funds.  Councilmember Stiles asked ifit was: farfetched to expect the County to increase the sales tax amount. Ms. Lasater understood that the County could raise sales tax another $0.25 from $6.75 to $7.00, but this would require a public referendum on the ballot and she was fairly confident that all of that increase would go directly to the County and would not be distributed to municipalities. Mr. Turner stated that a switch to a hybrid tax calculation rather than per capita calculation would benefit the City; however, it would hurt many of the City's peers and would diminish cooperation throughout the county. Therefore, he would not support it.  Mr. Turner noted that the department heads are the collective experts who have collaboratively prepared the budget presented for consideration; they are fiscally responsible, and hej proclaimed that they are a vital part oft the brain trust moving the city forward.  Councilmember Stiles stated that he trusts the staff and thanked them for their hard work  inj preparing the budget. ADJOURNMENT  There being no other business to discuss, Mayor Jones adjourned the meeting at 1:16  p.m.  ADCITYA  Attest:  E  CartCanphag Cathy Campbell, City Llerk  May 28, 2024 Morehead City Town Council Budget Meeting #3  6