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HomeMy WebLinkAboutAgenda - 11-19-1996 - 9b t ' ORANGE COUNTY BOARD OF COMMISSIONERS _ Action Agenda Item No. 94 ACTION AGENDA ITEM ABSTRACT Meeting Date: November 19, 1996 SUBJECT: Long Range School Capital Funding DEPARTMENT: Manager/Budget PUBLIC HEARING: YES: NO: x BUDGET AMENDMENT: YES: NO: x ATTACHMENT(S): INFORMATION CONTACT: Revised Capital Funding Policy Rod Visser, ext 2300 Previous Capital Funding Policy Sally Kost, ext 2151 TELEPHONE NUMBERS: Hillsborough -732-8181 Chapel Hill -968-4501 Durham -688-7331 Mebane -227-2031 PURPOSE:. To adopt a revised capital funding policy for school and County capital projects; to endorse a conceptual framework for the formation and activities of a Citizens Capital Needs Advisory Committee. BACKGROUND: School Capital Funding Policy Since early Summer 1996,the Budget Director has been working with staff of the two school systems to develop options for funding the long-term capital needs of both school systems. In August 1996, the Budget Director presented an initial report citing several possible approaches. Following Board comments and direction, and several refinements to the capital funding plan by the Budget Director, the Board of Commissioners at the October 15, 1996 meeting approved the funding approach represented in Option 5B. This option,which is summarized at Attachment 1, includes a combination of sales tax and property tax revenues for capital projects. The current policy (Attachment 2) provides that 80 percent of the Article 40 one half cent sales tax revenue and 60 percent of the Article 42 one half cent sales tax revenue is dedicated to School projects, with the balance of this revenue dedicated to County projects. Under current practice, pay-as-you-go funds are allocated between the County and the Schools, with funds to pay debt service on 1977 and 1988 school bonds then subtracted from the annual pay- as-you-go allocations to the schools. Also under current practice, any payments for private placement financing are subtracted from a school system's allocation(i.e. from Chapel Hill-Carrboro for McDougle Elementary). 2 r Probably the most significant distinction between current practice and future policy is that under Option 5B, funds required to pay debt service will be subtracted prior to remaining funds being allocated between County and School capital projects. Option 5B provides that the funding sources that are currently used for capital and debt service will continue, but that funds for all future and existing debt service (whether County or School) will be subtracted prior to determining annual allocations between County and School capital projects. After debt service is subtracted, remaining capital funds will be divided between County and School projects equally. Other notable changes between old and new funding policies include: • Rescission of past practice of earmarking $750,000 annually to each school system for recurring capital funding. Also rescinded is the plan that would have gradually increased the amount of annual recurring capital appropriations to reflect the split in average daily membership (ADM) between the two school systems. Under Option 5B,recurring capital allocations will be made annually to the two school systems based on the ADM split of the estimated proceeds of 3 cents on the Countywide ad valorem tax rate • Although all half cent sales tax proceeds will continue to be allocated to school and County capital projects and debt service, specific earmarking of"80%of original half cent sales taxes and 60% of additional half-cent sales taxes"to school capital expenditures has been deleted • In order to provide greater flexibility to County and school capital project planning and funding, specific references to certain dollar amounts as the basis for various categories of capital projects have been deleted • The restriction on use of"net two-thirds debt reduction" for health and safety related projects (although this mechanism has not been used since the 1987 policy was adopted) is removed to provide additional funding flexibility • Reference to a five year CIP is removed, as the County has been preparing ten year CIPs for better planning related to educational impact fees Capital Needs Advisory Committee During their review of school capital funding options,the Board of Commissioners also indicated the desirability of their appointing a Citizen Capital Needs Advisory Committee to review stated school and County capital project needs prior to formal decisions on a proposed November 1997 $40 million bond referendum. Staff suggests the Board consider approving an advisory committee that would work with a facilitator between early January and early March 1997 to provide recommendations to the Board of Commissioners concerning composition of a November 1997 bond package. A suggested composition for this committee is: 3 members to be nominated by the Orange County Board of Education; 3 members to be nominated by the Chapel Hill-Carrboro Board of Education; 1 member to be nominated by the Orange County Recreation& Parks Advisory Council; and 6-8 citizens to be selected by the Board of Commissioners at-large. Applications/nominations would be solicited by early December, with appointments to this short-term advisory committee, and a proposed charge to the committee,to be presented to the Board of Commissioners for approval at the December 17, 1996 meeting. RECOMMENDATION(S): The Manager recommends that the Board approve the revised capital funding policy, and approve the conceptual framework outlined for the work of the Citizen Capital Needs Advisory Committee. 3 Summary of Capital Policy A. Sources of Funds The following sources of funds will be allocated for Capital Projects and Debt Service: 1. All proceeds from the Article 40 and Article 42 one half sales tax 2. Revenue from the property tax as follows: • $800,000 • The equivalent of 2.7 cents on the tax rate based on valuation as of 1996-97. This earmarking will be adjusted each revaluation cycle. • The amount necessary to retire the 1992 School Bonds. (In 1997-98 this amount is $4.7 million.) • The amount of the reduction in the Human Services function of the County budget (equivalent of one half of one percent of the budget or $50,000) in 1994-95 for automation projects in Human Services. • Utilities Extension Fund - This amount may vary in that it based on the increase in property tax base as a result of expenditures in the Utilities Extension Capital project. The amount currently planned is $35,000 for 1997-98 and $25,000 for each year thereafter. 3. Impact Fees for each school system. 4. Public School Building Fund 5. Other revenues that are restricted including, payment-in-lieu, grant funds, rental revenue and inmate fees as a result of the new jail addition. B. Debt Service Prior to funds being allocated for specific projects, all debt service, including private placement financing will be subtracted from the unrestricted funding sources. C. Allocation All sources of unrestricted revenue, less debt service is then allocated between County and School projects based on 50 percent of the net amount for School projects and 50 percent of the net amount for County projects. Funding between the two school systems will be allocated based on the 10`h day enrollment adjusted each year. For example, the 10' day enrollment as of September 1996 will be the basis of the 1997-2007 Capital Improvements Plan. These percentages will be rounded to one decimal place. Impact fees will be projected and allocated to each school system, although these fees may be used to pay debt service. When impact fees are used to pay debt 4 service, the equivalent amount of the projected impact fee will be allocated to each school system. For the first three years of the planning period (1997-98, 1998-99 and 1999-2000 impact fees are dedicated to the cost of the new schools. D. Funding Levels It is the intent of the Board of Commissioners to "hold harmless" School projects and County projects as identified by the amount of funding projected in the 1996- 2006 Capital Improvements Plan. To achieve this intention, the following funding options will be used: • The difference between the amount of general obligation debt service payments at the peak year of the debt schedule and the actual debt service payment will be earmarked for the Orange County Schools until the time that any shortfall that would have been realized by that system is made up. • For County projects, beginning in 1998-99 the equivalent of one cent on the general fund property tax rate will be necessary. The Board of Commissioners may at that time consider shifting the one cent capital reserve fund to be dedicated to County projects.(see Capital Reserve section below). E. Capital Reserve The capital reserve fund, established by the Board of Commissioners in 1995-96 is equivalent to one cent on the General Fund Property Tax Rate (not adjusted for the 1997 revaluation of property but adjusted for revaluation of real property beyond the 1997 revaluation.) This reserve will accumulate during 1996-97 and 1997-98 with these funds used for site acquisition for schools and or recreation, or the combination of both. The Board of Commissioners will evaluate this reserve fund during 1998-99 to determine if this one cent reserve should continue. F. School/Parks/Recreation It is the intent of the Board of County Commissioners to evaluate each new proposed school in both School Districts for joint use to include park and recreation use. G. Recurring Capital Recurring capital for each School System will be based on the equivalent of three cents on the General Fund Property Tax Rate (not adjusted for the 1997 revaluation of real property but adjusted each revaluation thereafter.) Funds will be allocated to each school system based on the State Department of Public Instruction planning allocation which is the same method used to allocate current expense appropriation. 5 POLICY FOR INSERTION INTO THE POLICY MANUAL MEETING DATE: September 22 , 1987 NUMBER: P: 0290 EFFECTIVE DATE: September 22 , 1987 REVISIONS: POLICY• ORANGE COUNTY CAPITAL POLICIES 1. Eighty percent (80%) of the original half-cent sales tax revenue and sixty percent (60%) of the additional half- cent sales tax revenue shall be dedicated to school capital expenditures. Such expenditures shall be limited to acquisitions of or improvements to land, buildings, and equipment costing $50,000 or more. Any year in which such revenues exceed such expenditures, the excess shall be transferred to the School Capital Reserve Fund. 2 . Twenty percent (20%) of the original half-cent sales tax revenue and forty percent (40%) of the additional half- cent sales tax revenue shall be dedicated to county capital expenditures. Such expenditures shall be limited to acquisitions of or improvements to land, buildings, and equipment costing $30, 000 or more. Any year in which such revenues exceed such expenditures, the excess shall be transferred to the County Capital Reserve Fund. 3 . The School Capital Reserve Fund shall be used to accumulate funds for acquisitions of or improvements to land, buildings, and equipment for school purposes costing $50, 000 or more. 4 . The County Reserve Fund shall be used to accumulate funds for acquisitions of or improvements to land, buildings, and equipment for county purposes costing $30, 000 or more. 5 . A vehicle Capital Reserve Fund shall be established and used to accumulate funds for the acquisitions of county vehicles. 6 . Each year, an amount equal to $800, 000 minus the amount required for that year's debt service on school bonds issued prior to the 1987-88 fiscal year shall be appropriated in the General Fund budget and transferred to the School Capital Reserve Fund. 6 7 . Debt incurred under the "two-thirds net debt reduction" rule shall be limited to instances where the health and safety of Orange County citizens are threatened. 8 . The amount to be appropriated to each school system for recurring capital expenditures shall be $750, 000. This appropriation shall be in effect for a period of at least five years and includes funds for roof repairs. 9 . County capital expenditures with a cost of $30, 000 or more and useful life of at least five years shall be considered capital projects and accounted for in capital project funds. 10. During each fiscal year, the Board shall adopt a Five- - Year Capital Improvements Program. The Five-Year Program shall include anticipated county capital expenditures costing $30, 000 or more and anticipated school capital expenditures costing $50, 000 or more, as well as available financing sources. The first year of the adopted Five-Year Capital Improvements Program shall be incorporated into the pext annual operating budget recommended to the County Manager.