City Council Minutes Tuesday, May 6, 2025, at 2:00 p.m. Morehead City, North Carolina Budget Workshop Meeting #1 The Honorable Council of Morehead City met in Special Session on Tuesday, May 6, 2025, in the City Hall Council Chambers, 1100 Bridges Street, Morehead City, North Carolina to conduct Budget Workshop Meeting #1. The purpose of this meeting was to review the proposed FY 2025-2026 Budget. Those in attendance were: COUNCIL PRESENT: Mayor Gerald A. Jones, Jr.; Councilmembers Richard Abell, George Ballou, Lee Stiles, Bill Taylor, and Harvey Walker. STAFF PRESENT: City Manager Chris Turner, City Attorney Derek Taylor, Finance Director/Assistant City Manager Jewel Lasater, Public Services Director/Assistant City Manager Daniel Williams, Planning Director Sandi Watkins, Police Chief Bryan Dixon, Deputy Police Chief September Tuttle, Fire-EMS Chief Courtney Wade, Human Resources Director Kristen Flexer, Information Technology Director Matthew Goodwin, Parks and Recreation Director Jessica Mayo, Assistant Finance Director Leeann Vinson, Public Information Officer Anna Smith, Revenue Officer Tiffany Riggs, Purchasing Officer Sarah Currie, Special Events Officer Victoria Veith, Grants Manager Kelli Jones, Administrative Support Manager Morgan Gilbert, Library Manager Danijela Mitchell, Deputy City Clerk Shawne Southard, and City Clerk Cathy Campbell. OTHERS PRESENT: Todd Wetherington of the Carteret County News-Times, Chris Monteleon, and Jan Willis. CALL TO ORDER Mayor Jones opened Budget Workshop #1 at 2:02 p.m. with a quorum present. Mayor Jones called on City Manager Chris Turner to lead the budget discussion. Mr. Turner gave credit to Finance Director/Assistant City Manager Jewel Lasater, Assistant Finance Director Leeann Vinson, Revenue Officer Tiffany Riggs, and Purchasing Officer Sarah Currie for the budget document as presented. The Council was reminded that Budget Meeting #2 will be held on May 13, 2025, and Budget Meeting #3, if needed, will be held on May 20, 2025. All budget meetings will begin at 2:00 p.m. Budget Meeting #2 will be followed by the Council's regular monthly meeting. Mr. Turner began by reviewing the meeting agenda and explained that the Fee Schedule has been aligned with the budget and would be adopted along with the Budget. He then reviewed the Council and Staff Work Flight Analogy chart, reminding the Council and Staff of where their focus should be directed to improve effectiveness and efficiency regarding purpose and vision, strategic goals, priority action items, planning and oversight, projects and day-to-day tasks. This was followed by the presentation of a slide showing how each dollar of revenue is applied to expenditure categories: Public Safety ($0.51), General Government ($0.22), Capital May 6, 2025, Morehead City Council Budget Meeting #1 1 Projects ($0.10), Cultural & Recreation ($0.07), Highways & Streets ($0.05), Debt ($0.04), and Disaster Planning ($0.01). Mr. Turner ended the introduction by reviewing the budget development timeline. BUDGET OVERVIEW Turning to the budget overview, Mr. Turner shared that he cut $2.9 million or 6% from the Departments' Requested Budget resulting in a balanced budget. The proposed FY2025-2026 Budget of $42,821,631 reflects a 21.2% increase from the current year's budget that includes a General Fund of $30,076,751.; Water & Sewer Fund of $11,414,280.; and Sanitation Fund of $1,330,600. Sanitation includes recycling, garbage, and green waste pick up. The budget proposes a tax rate reduction from $0.41 to $0.39 on the $100 valuation, and contains the following: 3% Cost of Living Adjustment (COLA). Upt to 5% longevity payouts for qualified full-time employees. 3.5% Utility Rate increase as required for the enterprise fund. Addition oft the following positions: O Reclassification of a part-time HR Technician to full-time o Reclassification of two (2) part-time Police Positions to one full-time Police Records Specialist Three (3) Police Officers Building Inspector II ) Three (3) firehghter/Paramedics , ITS System & Security Analyst Aj part-time IT Support Technician Water Plant Operator Requests were submitted to add six (6) police officers and nine (9) irehghterparamedics, but such could not be sustained in a single budget cycle; therefore, an incremental increase is proposed for both departments to meet National Fire Protection Association (NFPA) and Police Workload Assessment standards. Mr. Turner proposed that three (3) be added for each departments in the following two (2) budget cycles. In response to a question about why the Sanitation Fund was increased by $200,056. and if the addition of a Water Plant Operator would meet the requirement for additional monitoring, Mr. Turner stated that the increase was needed for solid waste operations. Public Services Director/Assistant City Manager Daniel Williams advised that the City operates three (3) water plants and at the time the third was built the Council budgeted for three (3) operators SO that one could be assigned to each plant but the third was not hired. Since that time, operations and maintenance have increased to the point where the third plant operator is now essential because personnel from the Water Department are being pulled daily to help with maintenance at the Water Plants. TAX RATE Mr. Turner presented a chart reflecting the City's ad valorem tax rate history since 2001, showing the City's tax rates in comparison to the revenue neutral rates of the same time periods. May 6, 2025, Morehead City Council Budget Meeting #12 The chart showed that from 2002 to 2007 the City's tax rate of $0.38 was a bit above the revenue neutral rate $0.30; 2008-2011 the tax rate was $0.22 with a revenue neutral rate of $0.2064, from 2012 - 2016 the tax rate steadily increased from $0.285 to $0.35 and remained at $0.35 until 2020 when it was raised to $0.38. The revenue neutral rate during this time period was $0.2862. In 2021 the revenue neutral rate increased to $0.3515 but the tax rate remained at $0.38 until 2025 when it was increased to $0.41. Today, the revenue neutral rate is $0.2719 and it is proposed that the tax rate be reduced to $0.39. Mr. Turner reviewed a summary of the tax rate history for Morehead City, its municipal peers and Carteret County, showing that Morehead City has had the lowest rate ofincrease with the exception for Carteret County that does not have the same level ofinfrastructure expenses as municipalities or wastewater monitoring demands, allowing it to hold its tax rates at a lower level. He also noted that Morehead City is different in size, commerce, and traffic from its neighbors SO that its burden to provided services is greater than its peers. Morehead City provides services to all who come into the city, not just the residents. Councilmember Ballou expressed appreciation for the historical data but questioned how Mr. Turner would address the current revaluation where many properties doubled in value. Mr. Turner explained that a valuation increase of 52% will result in an increase of a couple of hundred dollars for taxpayers; however, they would probably realize an increase even at a revenue neutral rate. It is the responsibility of the City to set the rate where it can maintain services without placing an extreme burden on the taxpayers. It was Staff's opinion that $0.41 was too high as it would generate $15.5 million in revenue while $0.39 will allow the City to maintain operations and achieve all its capital projects without having to draw from the Unassigned Fund Balance. He reminded the Council that city policy requires that this fund remain at 30% to protect the city against hurricanes or other traumatic events. The Federal Emergency Management Act (FEMA) will not provide funds for at least two (2) years after a major event, and the City will need to be able to support itself while awaiting reimbursement. The City is in a strong position at 30%, if it does not draw-down below this threshold. The fund's current level will allow the City to sustain itself for a minimum of 36 month. Finance Director/Assistant City Manager Jewel Lasater explained that last year's tax increase was presented at six (6) cents lower than what was needed, expecting that the revaluation to provide the additional six (6) cents. Had the City raised the tax rate last year by the full nine (9) cents, the revenue neutral rate today would be $0.33. Councilmember Taylor pointed out that the Council often makes plans for future budget years and he gave the example of the new ladder truck. He explained that the truck had to be ordered two (2) years ago at a lower rate knowing that a significant increase was about to be applied to the cost, and now it is time to pay for the truck. Mayor Jones added that the City Manager sets the budget based on Council's direction of essential needs, and the tax rate is determined based on the budget; the rate is based on the needs, not the needs on the tax rate. Mr. Turner stated that department heads are allowed to ask for whatever they want, but they must be prepared to defend their request to him, and afterwards he has the hard job of determining what is most important to the taxpayers while maintaining a fair and reasonable budget. A chart was displayed showing the amounts projected to be received from the different revenue streams (ad valorem taxes, sales tax, utility sales tax, county district contract, and ambulance fees) for FY 2024-2025, and how much the City is expected to be over or under the May 6, 2025, Morehead City Council Budget Meeting #13 projected amount at year end for each oft the categories. It showed that the City is expected to be slightly above expectations in all categories except sales tax, which is expected to fall short by 1.64% or $75,549. A review of the Unassigned Fund Balance showed that the fund is expected to close the year on June 30,2025 at 42.30% of total expenditures with $2.7 million available for appropriation, and to close out FY2025-2026 on June 30, 2026, at 31.21% of total expenditures with 364,700 available for appropriation. Mr. Turner then presented a chart oft the City's future debt service budget and fund balance impacts. It showed that the City is committed to pay debt payments in the amount of $696,050 in FY2025-2026 for the ladder truck, the fire engine, and construction of Fire Station #3 and another $772,800 in FY2026-2027, the equivalent of $0.0207 on the tax rate. The requested Recreation Center (W.S. King Building) Renovation project has been proposed under three (3) options that are not included in the proposed budget. Moving forward, the project will add to the tax rate based upon the option selected. Option 1 - $6.5 million with $566,092 paid in FY26-27, adding $0.0152 to the tax rate Option 2 - $21.1 million with $1,845,461 paid in FY26-27, adding $0.0495 to the tax rate Option 3 - $14.4 million with $1,132,185 paid in FY26-27, adding $0.0304 to the tax rate Option 1 would provide an additional 9,000 square feet to include a gym, a floor, and multi- purpose field repairs, but no parking remediation. Currently, the City is out of compliance with its parking regulations for this facility. Option 2 would provide the addition of 65,000 square feet to include two (2) gyms, two (2) floors, an indoor walking track, multi-purpose field repairs, and parking remediation. Option 3 would provide the addition of 30,000 square feet to include two (2) gyms, two (2) floors, an indoor walking track, multi-purpose field repairs, and parking remediation. Mr. Turner did not recommend moving forward with either project until the Council determines which option is best for the city, and pointed out that Option 1 would raise the tax rate to $0.395, Option 2 would raise it to $0.43, and Option 3 would raise it to $0.405. WATER & SEWER FUND A 3.5% increase is proposed for the Water & Sewer Enterprise Fund to maintain and sustain the water and sewer services provided to the City's customers. A chart of the fund growth from 2023 to the present was presented. SOLID WASTE FUND Sanitation or Solid Waste services include garbage, recycling, and yard waste collection. This is also an enterprise fund. There is no increase proposed for this fund; however, it is anticipated that an increase will be applied in FY 2026-2027. FEE SCHEDULE Mr. Turner advised that there are a few incremental and minor changes to the FY2025- 2026 Fee Schedule. The Fee Schedule can be found at the back of the budget book with all changes highlighted in blue text. May 6, 2025, Morehead City Council Budget Meeting #14 The Council took a short break at 2:52 and reconvened at 3:00 p.m. Councilmember Walker left the meeting at 2:55 p.m. COUNCIL DISCUSSIONS Mayor Jones opened the discussion portion of the meeting, inviting Councilmembers to ask questions. It was noted that the Councilmembers may not have had the chance to review the budget since it was distributed the afternoon before this meeting. Councilmember Ballou repeated a question he asked Mr. I'urner during the break about what impact would removing the proposed new positions and reclassifications have upon the tax rate . Mr. Turner provided a chart, developed during the break after receiving the question. It showed that removing the proposed positions would reduce the tax rate by $0.027. This would include salary, benefits, and COLA. Mr. Turner pointed out that he removed, from the Staff's requested budget, the positions he felt could be delayed while still providing the same level of service, which reduced the rate by two (2) cents. Ifthe Council desires to reduce the tax rate to a specific value, he will ask for direction about what should be cut from the budget. It was noted that it would need to be cut from operations, not water and sewer, sanitation, or capital improvements. Councilmember Stiles stated that he does not want taxes to be high, but he also does not want to diminish the services offered to the citizens. Ifthe rate is dropped, then the Council will need to alter its vision for the City. Mr. Turner reported that Chief Dixon is committed to adding all new positions to the patrol division and Chief Wade will hire frontline FirefighterParamedies: Councilmember Abell stated the City is growing and it was noted during the Planning Committee meeting that Planning Department also needs another code enforcement officer. It was his opinion that the tax rate is not unreasonable. Councilmembers indicated that they needed time to digest the budget before they would be ready to ask further questions. Councimember Stiles asked Mr. Turner to address the question raised earlier the same day during the Finance and Administration Committee meeting about the implementation of live- streaming or video-taping council meetings for public viewing. It was proposed that meetings could be recorded and shared via the City's Facebook page and/or YouTube after the meetings. These would not be edited except to remove foul language. The option would have an initial $5,000 cost, with a reoccurring $3,000 annual cost. Mr. Turner briefly reviewed again the threats posed by live-streaming. Councilmember Abell asked if there would be a possibility of being able to jump to a particular area of interest rather than listening to the full meeting. IT Director Matthew Goodwin suggested that it be considered like a YouTube video where you could skip but it would not include chaptering or linking it to an agenda. The $5,000 option is proposed utilizing the equipment already available without adding new equipment. Councilman Stiles stated that staff has now addressed the two (2) objections which he noted as costs and additional task demand upon Public Information Officer Anna Smith. May 6, 2025, Morehead City Council Budget Meeting #15 In response to further questions, Mr. Goodwin stated that chaptering may be possible and at this time the camera is proposed to be fixed but may be adjustable. He said the service could be controlled by scheduling where the recorder is set to begin at a specific time and then a simple button push would stop it. Mayor Jones asked the council members to express their desire to add this item, or not, to the budget at the cost of $5,000. The Council expressed consensus in favor of adding it to the budget. ADJOURNMENT There being no other business to discuss, Mayor Jones adjourned the meeting at 3:23 p.m. GeraldA, Jones, JMayor - Attest: êthus Canpbut Cathy Campbell, City' 'Clerk 1358 May 6, 2025, Morehead City Council Budget Meeting #16