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HomeMy WebLinkAboutAgenda - 03-31-2005-6ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABS'iRACT Meeting Date: March 31, 2005 Action Agenda Item No. _~ SUBJECT: Options for Implementing Capital Funding Policy Revisions Including 60-40 School/County Funding Target DEPARTMENT: Manager/Budget PUBLIC HEARING: (Y/N) No ATTACHMENT(S): 2/03/98 Capital Funding Policy 1 1/16/04 BOCC Resolution 1/04/05 CHCCS Chair Letter 2/21/05 OCS Chair Letter Tables - FY 2005-06 Capital Funding Options Tables - Summary of School and County Capital Funding Options INFORMATION CONTACT: John Link or Rod Visser, ext 2300 Donna Dean, ext 2151 Durham 688-7331 Mebane 336-227-2031 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hitl 968-4501 PURPOSE: To review and consider alternatives for potential changes to the existing Orange County capital funding policy that will guide the development of County and Schools' ten year Capital Investment Plans for 2005-15. BACKGROUND: During several meetings and work sessions in Fall 2004, the BOCC reviewed and discussed the implications of the County's Capital Funding Policy, that was originally adopted in December 1996 and most recently updated in February 1998. A key theme of the Board's discussions was the desirability of allocating more resources for the repair, maintenance, and upkeep of existing County facilities and for the development of additional County space and facilities as appropriate. At their regular meeting on November 16, 2004, the Board of Commissioners adopted a resolution that implements a policy of allocating a target of 60 percent of capital expenditures for school projects and 40 percent for County projects over the next ten years. The Board directed staff to revise the existing capital funding policy to streamline and simplify it and to reflect the adoption of the 60-40 capital funding target,. As the BOCC requested, the adopted policy was forwarded to the Board of Education of both school systems for review and comment. The school boards' responses are included in accompanying attachments to this abstract. Staff have developed a number of options that would "operationalize" the 60-40 capital funding policy, as outlined in accompanying tables. Because the funding options are complex and not self-explanatory, staff plan to make a detailed presentation at this March 31 work session that will explain the layout of the tables. Far example, Rows 10-13 of the 2005-06 Capital Funding Options Table identify the four major components of the capital funding policy (debt service; school debt and peak debt service for OGS; net pay-as-you-go funds; and recurring capital) and summarize how each is treated under the different options presented,. The presentation will also allow staff to summarize the key elements and implications of each option. For example, should the BOCC determine that it wishes to implement the 60-40 policy so that the County would receive comparatively more capital funding over the ten year period while eliminating the responsibility of the Orange County Schools to pay a portion of the debt service for Cedar Ridge High School, Option 4 would likely be the approach to choose, In options 2 and 4, where the OCS responsibility for Cedar Ridge debt is eliminated, OCS would receive higher net funding during the first several years, but lower funding in later years because of the concomitant elimination of "peak debt service" funding for OCS that is a component of the existing capital funding policy. As part of the presentation, staff will respond to Commissioner questions about the calculations and/or implications (such as those noted above) of any particular option. As the BOCC compares the differences between the various options, it should be noted that there should be a base funding level established each year from pay-as-you-go revenue below which the amount designated for County projects will not fall, Within that amount, there should be an annual baseline designated for County recurring capital that will begin to address identified County facility and maintenance needs. Staff were mindful of a number of questions in developing options for the Board's consideration, and the Board may wish to reflect on these as well as it contemplates its guidance to the Manager and staff: • What funding sources should be included in the calculation of the 60-40 target (e.g. dedicated sales tax, general obligation bonds, certificates of participation, private placement, other alternative financing approaches)? • What funding sources should not be included in the calculation of the 60-40 target (e.g, school impact fees, Public School Building Capital Funds)? • Should the 60-40 target focus only on long-range capital funding, or should it also incorporate recurring capital funding (e.g, for capital projects of smaller scope or of a routine maintenance nature)? • Does the 60-40 target apply only to the period 2005-15, ar should it be applied on a rolling basis to each subsequent ten-year CIP period until the BOCC makes a formal decision to change the policy? • If the Board of Commissioners makes decisions that increase or decrease the amount of total capital funding expected to be available during the ten year period (e.g, future bond referenda), is the 60-40 target to be recalculated to reflect the new total? • If such a recalculation is to be made, when should that take effect (e,g, with the development of the next ten year CIP update, immediately)? • Should the provision in the current capital funding policy, requiring the Orange County Schools to fund from its pay-as-you-go capital funding allocation that portion of debt service payments for Cedar Ridge High School that exceed the $12,5 million in voter-approved bond funding for the project, be removed from a revised capital funding policy? If the BOCC determines at this work session that one of the presented scenarios adequately reflects the Board's intent of how to "operationalize" the proposed 60-40 capital funding split, staff will immediately proceed to distribute the underlying ten-year capital revenue projections to both school systems. Those ten-year projections will become the basis for both the County and Schools' 2005-15 Capital Investment Plans. Staff would expect to be able to present the recommended County CIP to the Board at the April 14 budget work session, and the Schools' requested CIPs to the Board at the May 5 budget work session. If the BOGC determines that it needs to consider additional options and/or to deliberate further over the ones presented at this March 31 work session, staff will need to develop an alternate timeline for presentation and consideration of the County and Schools' 2005-15 CIPs. After the Board makes a determination, either at this work session or during a subsequent meeting, about which 60-40 capital funding option it wishes to have staff implement, staff will bring back for formal BOCC adoption a revision to the Febrtaary 1998 capital funding policy that will reflect the decisions made by the BOCC. FINANCIAL IMPACT: As noted in the staff presentation and accompanying spreadsheets. RECOMMENDATION(S): The Manager recommends that the Board receive and discuss the options related to the 60-40 targeted capital funding split, and provide direction (at this work session or a subsequent meeting) on a revised capital funding policy that reflects the Board's chosen option to operationalize the 60-40 capital funding target. (Adopted 12/7/96) (Revised 2/.3/98) Orange County Board of Commissioners Capital Funding Policy A Sources of Funds The following sources of fiords will be allocated for Capital Projects and Debt Service: 1 All proceeds fi~om the Article 40 and Article 42 one half sales tax The North Carolina General Stahites require that 30 percent of the Article 40 and 60 percent of the Article 42 sales tax revenue be earmarked for school capital projects or debt service on debt issued for school capital projects 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 nay 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. Impact Fees for each school system. Public School Building Fund 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 finds being allocated for specific projects, all debt service, including private placement financing will be subtracted fiom the uruestricted funding sources. As an exception, the Orange County Schools are responsible for finding directly from their pay-as-you-go capital allocations, that portion of the cost of a new high school in the Orange Cotnty School system beyond the $12.5 million bonds approved by voters for that school in November 1997, C. Allocation All sources of w~resticted revenue, less debt service, is then allocated between County and School projects based on 50 percent of the net amowrt 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 20°i day enrollment adjusted each year. For example, the 20°' day enrollment as of September 1998 will be the basis of the 1999-2009 Capital hnprovements Plan. These percentages will be rounded to one decimal place. hnpact fees will be projected and allocated to each school system, although these fees maybe used to pay debt service, When impact fees are used to pay debt service, the equivalent amount of the projected impact fee will be allocated to each school system. For the first tluee years of the planning period (1997-98, 1998-99 and 1999-2000) impact fees are dedicated to the cost of the new schools. All fiords allocated to capital projects are to be accounted for in a Capital Project Fund under a Project Ordinance adopted by the Board of Connnissionet°s. The Project Ordinance will include a detailed break down of each cost category related to the project, as outlined in the Sample Capital Project Ordinance at Attachment 1, which is incorporated by reference into this policy. Whenever County or School project bids exceed budget or come in lower than projected, or any other factor affecting the project budget occurs, County departments or the school systems would be expected to present revised capital project ordinances for adoption by the Board of Commmissioners.. 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 peals year of the debt schedule and the actual debt service pa}nnent will be eam7arlced 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 in adopting this policy instructed staff to identify other funding options rather than a tax increase to make up this shortfall. The Board of Connnissioners may consider shifting the one cent capital reserve fiord to be dedicated to County projects (see Capital Reserve section below). L. School/Parks Capital Reserve The school/parks capital reserve fiord, established by the Board of Connnissioners in 1995- 96, receives annual allocations 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 acctmrulate during 1996-97 and 1997-98 with these fiords used for site acquisition for schools and or recreation, or the combination of both. The Board of Connnissioners will evaluate this reserve fiord duuing 1998-99 to determine if this one cent reserve should continue. F School/Parks/Recreation it is the intent of the Board of County Connnissioners to evaluate each new proposed school in both School Districts for,joint use to include par]< and recreation use. G. Recurring Capital Retuning 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 hrsh°uction planning allocation which is the same method used to allocate current expense appropriation. H Plamring Period During each fiscal year, the Boazd of Conunissioners shall adopt a ten year Capital hnprovements Plan. The ten year plan shall include anticipated County capital expendihu-es costing $30,000 or more (excluding equipment) and anticipated school capital expendihu-es costing $50,000 oi° more (excluding equipment). Equipment costing $1,000 or more can be considered as pant ofthe Capital Lnprovements Plan. The first year of the adopted Ten Year Capital Imps°ovements Plan shall be incorporated into the next annual operating budget recommended by the County Manager. APPROVED 11/1(/04 7 ORANGE COUNTY BOARD OF COMMISSIONERS A RESOLUTION GOVERNING THE EXPENDITURE OF CAPITAL FUNDS ON ORANGE COUNTY GOVERNMENT AND PUBLIC SCHOOL STRUCTURES WHEREAS, the Orange County Board of Conunissioners has adopted a Schools Adequate Public Facilities Ordinance that makes pl°edictable the development of school facilities for the next decade; and WHEREAS, the County dedicated 77 percent of its capital expenditures for school purposes over the I S-year period from 1988 through 200.3; and WHEREAS, during that same period necessary capital expenditures for County projects were deferred, delayed, or curtailed due to lack of sufficient fiords; and WHEREAS, there is a large bacldog of building construction necessary to meet the needs of a growing county that require a determined effort to bring to bear additional capital r~esourees in a timely mamler. NOW, THEREFORE, BE IT RESOLVED that the Orange County Board of Commissioners does hereby adopt in principle a policy of allocating a target of 60 percent of capital expenditures for school projects and 40 percent of capital expenditures for county projects over the decade beginning in calendar year 2005. This, the 16th day of November, 2004. Chapel Hill-Carrboro City Schools Lincoln Center, 750 S. Merritf Mill Road Chapel Hill, North Carolina 27516 -2881 The Board of Education Nell C.. Pedersen Superintendent Moses Carey County Commissioner 901 L,ystra Lane Chapel Hill, NC 27514 Deaz Commissioner Carey: Telephone: (9191967.8211 Ext. 226 FAX: (9191933-4560 Llsa Stuckey Chair, Board of Education Ianaury 4, 2005 The Orange County Board of County Commissioners requested feedback from our school district concerning the recently adopted 60 - 40 split of capital funds between the schools and the county. The Chapel Hill -Carrboro City School Board discussed the resolution at its December 2, 2004 meeting. At the School Board's direction, I shared our questions with the Collaboration Committee at its December 13, 2004 meeting. At your request, I am writing this letter so that my Board's concerns can be shared with the other members of the BOCC. The Schooi Board understands that there are county facility needs that, if met, would provide value to the community. Funds are insufficient to meet all of these needs as well as the anticipated needs of the school districts. However, we have several concerns about the rationale and implications for the 60 - 40 split. 1. We do not see the need to adopt a target for allocating capital spending. Of specific concern is how future conditions which are not present or anticipated today will be addressed using ttre target. We would recoinmend that instead of identifying a formula, the BOCC work in conjunction with a community task force and prioritize capital needs in light of conditions present when the decisions aze made. Some flexibility seems inevitable since the future cannot be predicted. If the goal is to address unmet county needs and to make citizens aware that priorities have shifted, that can be done without the limitations and inflexibility of apre-determined target.. 2, No basis for the 60 - 40 ratio is apparent. We are not aware that an assessment of capital needs has been made which compares the county needs versus the school needs that exist now or are anticipated to exist in the future, 3 The Board of Education is concerned about how a 60 - 40 split would be implemented For example, would the split apply to bond money, alternative funding and / or sales tax funds? In addition to needing a new elementary school within the next decade, our district is very concerned about maintaining and upgrading our older facilities, Frequently, upkeep of older buildings revolves around health and safety issues. Should a bond be l passed or alternative funding pursued, conditions may exist where both new construction and renovation monies are needed. Zn the past, county capital needs advisory task forces and county commissioners have had the freedom to prioritize such needs without regard to pre-set formulas. 4. Capital spending decisions should meet the requirements of both state law and SAPFO. Should either district experience sudden, unexpected growth, the need to bui ]d a new school and maintain older ones may occur at a time when the 60 - 40 ratio would not permit additional school spending. We appreciate the opportunity to voice our concerns and perspective. As you move forward with further consideration of the policy, we hope that you will pursue a course that is flexible enough to meet both known and unanticipated needs. ~ncerely, 1 'sL)a--t:'~ ~~ Lisa Stuckey Cc: Neil Pedersen /John Link School Link ire Orange County Board of Education Dr Shirley Cazraway Superintendent Board Members: Libbie Hough, Chair Brenda Stephens, Vice Chair Elizabeth Brown Randy Copeland AI Hartkopf Delores Simpson Dennis Whirling 200 East King Street Hiilsborough, NC 27278 Telephone: 919-732-6126 FAX: 919-7:32-8120 GpUN}~,p~ ~~ ~ C+2 9 F~ n k TB41 February 21, 2005 Mr..Iohn Link, County Manager P.O. Box 8181 Hillsborough, NC 27278 Dear Mr. Link, Thank you for the opportunity to comment on the 60/40 capital spending targets proposed by and initially endorsed by your board in November 2004, The Orange County Board of Education has addressed the proposal on two separate occasions and no major concerns or reservations were voiced. We understand the motivation for attempting this sort of plan, as school construction has taken the lion's shaze of capital expenditures in Orange County for well over the last decade.. We do, however, have some questions/comments that are somewhat logistical in nature about the target and hope that furore discussions will clarify these issues for our school community. They are as follows: 1. We support the target, and would also like the comfort that goes along with being able to plan year-to-year as it relates to ongoing needs.. How will the 60/40 targets impact recurring capital allocations, if at all? 2. We are assuming the target is,just that and will be adjusted based on demonstrated need. How will the county deal with unexpected high growth? If unexpected growth should occur, what adjustments will be made for the growth that Mebane brings to the Orange County School system? 3 We understand that SAPFO drives constnrction, but also deal with the reality that Mebane was not party to that agreement, Will SAPFO continue to be the driving force in responding to school construction needs? What sorts of efforts to further dialogue with Mebane will the county be making? Again, thank you for the chance to raise these issues with you prior to your final approval of your capital spending targets. We look forwazd to working with you to address the educational needs of every, child in this county. Best regards, ~~bl. Libbie Hough, Chair Orange County Board of Education /pmc cc: Orange County Boazd of Education Orange Counry:ScHonls Providing educationol oppwurrtities.(orsuecessful funrres