October 31, 2012

The Durham Town Council

Durham, New Hampshire 03824

Re: Administrators Proposed 2013 Operational & Capital Budgets

Administrators Proposed 2013-2022 Capital Improvement Plan

Dear Honorable Members of the Council:

I am pleased to present the Administrators proposed 2013 Budget, which includes the General Fund, Water Fund, Sewer Fund, Library Fund, Parking Fund, Depot Road Lot Fund, Churchill Rink Fund, and Stone Quarry TIF Fund budgets, as well as the Administrators proposed 2013-2022 Capital Improvement Plan incorporating the FY 2013 Capital Fund budget utilizing a ten-year time horizon for your review and consideration. The proposed budget once again reallocates scarce resources, supports limited funding for targeted initiatives, and is intended to generally sustain and in some circumstances enhance the current level of municipal services available to residents and taxpayers of Durham.

The development of the proposed budget was part and parcel of a rigorous, yet inclusive process. The Business Manager and I have evaluated (and modified as needed) each budgetary line item utilized by the municipality in an effort to assure ourselves, and thereby the Council, that requests are justified and reflect meaningful efforts on the part of our boards, committees, commissions, trustees, and departments to accomplish the broader goals and objectives articulated by the Town Council and the community as a whole. Our effort was intended to eliminate unnecessary requests altogether, identify and take advantage of new efficiencies, and align spending to the extent possible with the 2012-2013 Town Council goals thereby allowing the Council to focus its limited time on broader policy issues impacting the overall community. It should be noted that departments did a fine job developing budget proposals that were tight and meaningful for FY 2013.

Durham Has Responded to a Challenging Economic Environment

Much progress has been made in our collective efforts to make Durham a better place in which to live, work, and obtain goods and services over the last five years. We have worked hard to spend the taxpayers money wisely and have provided the maximum number of desired services possible within the limits of the Town budget. Every effort is being made to stabilize the cost of the various services the municipality provides. Like many other communities throughout the state, the tax rate is significant and today, in the wake of the Great Recession, it places a particularly heavy burden on the property taxpayer. Of particular concern is the fact that unless some additional means of financing the requirements of local government can be found, this burden will continue to increase, particularly amidst an environment of downshifted costs from the state and limited revenue streams.

It is in this context that the Town of Durham has been engaged in the process of budget development for the 2013 fiscal year (January 1st December 31st). A primary driver within Durhams municipal budget is personnel-related costs that account for 64% of total spending. To offset these costs, in FY 2009 & 2010 there was no pay increase included as part of the Administrators proposed budget for non-unionized, salaried personnel in anticipation of the difficult economic environment that was developing within the state and the nation. A 2% increase was budgeted for non-union personnel in 2011. In 2012, there was not an increase budgeted for non-union personnel. For 2013, the Administrator does include a 2% increase for non-union personnel. Two collective bargaining contracts remain outstanding for 2013: the public works contract and the firefighters contract.

The Importance of Sound Business Practices

The Town of Durham continues to be economically and prudently operated. It functions as a purveyor of public services, and staff is working hard to implement business practices to control costs and maintain the municipalitys fiscal position during uncertain times. Over the last several budgetary cycles we have worked to hold operational expenses flat as a short-term strategy to limit the impact of the U.S. macroeconomic situation on Durham taxpayers. But this is not in and of itself a sufficiently broad or sustainable approach to address Durhams long-term needs. Faced with an escalating full (town, local school, state school, and county) tax rate in recent years, additional strategies are being implemented with the goal of creating a more agile municipal entity poised to seize upon business, grant, and regulatory opportunities that are consistent with our community values. These include:

• Economic development and smart growth activities intended to broaden the tax base to mitigate anticipated future cost increases across the municipal operation in areas that are specifically targeted for development or redevelopment;
• Making strategic investments to ensure Durhams long-term sustainability and resiliency such as bringing the Spruce Hole well on line in 2014, moving forward with an innovative adaptive management strategy to address water quality deficiencies within the Great Bay Estuary, moving to renewable energy where viable, stormwater improvements, and more.
• Rethinking the manner in which services are delivered by departments utilizing Kaizen techniques in an effort to improve efficiencies and mitigate cost centers over the long-term;
• Working with UNH to find win/win partnership opportunities intended to broaden the tax base, better link the campus to the broader community, make UNH/Durham more desirable for residents/students alike, and ensure fair compensation from UNH for its fiscal impact upon the Town;
• Controlling escalating health care benefit costs by changing health insurance providers, exploring new health care options for the mutual benefit of employees/employer, and discussing additional employee contributions toward health insurance co-pay levels. All municipal employees presently contribute 10% — 20% toward monthly health insurance premiums incurred by the Town;
• Coping with increasing utility costs and working creatively to offset them in the future through wholesale power purchase agreements and investment in green technology;
• Maintaining a strong balance sheet and favorable bond rating status by working to stabilize and in the long-term increase the undesignated fund balance within the General Fund, maintaining a strong Overlay account, realistic revenue/expenditure projections, and maintaining a contingency fund equal to approximately 1% of the total budget to cover unforeseen, unanticipated circumstances.

Fiscal Year 2013 Budgetary Proposal

This years budget cycle has resulted in a proposed 2013 General Fund budget totaling $12,410,419.00, a spending increase of $1,133,210.00 or 10.05% compared to FY 2012. Due to an infusion of revenue from a variety of sources (see General Fund Revenue section below), a number of which directly offset proposed expenditure increases for the coming year, non-property tax revenues are expected to increase dramatically in FY 2013 by $661,696.00 or 14.1% to $5,354,900.00. In total, this years budgetary proposal is projected to increase the 2013 local municipal portion of the tax rate by 36 cents (or 4.72%) to $7.97 from the estimated 2012 level of $7.61. If debt service associated with the new Durham Public Library project that overwhelming passed (74%) by referendum last year is subtracted from the equation, the municipal tax rate increase would be 1.77%.

Revenue projections do continue to include an annual $225,101.00 payment from UNH to Durham which began in 2009 to compensate the community for the Universitys financial impact upon the Town in areas such as roadways, traffic, and policing services. Budgetary projections take into account this additional revenue, a projected $18 million infusion into the tax base associated largely with the Capstone project as of April 1, 2013 (an initial increase largely associated with Capstone was added to the tax base for 2012 totaling $15 million), holding Overlay at $300,000 due to a number of outstanding property tax abatement appeals pending with the Board of Tax and Land Appeals/Superior Court, no use of fund balance, and recommended expenditures.

The proposed Sewer Fund budget reflects a 0% increase in user fees in 2013 (a rate of $5.75 per hundred cubic feet), while the proposed Water Fund budget carries an anticipated 5.3% increase in user fees (a rate of $4.18 per hundred cubic feet) for FY 2013.

For comparative purposes, the twelve-month September 2011 to September 2012 Consumer Price Index (CPI-U) numbers are: U.S. City Index 2.0%, Northeast Urban Index 1.7%, and Boston-Brocton-Nashua-MA-NH-ME-CT 1.7%.

A listing of highlights from the proposed FY 2013 budgets follows:

General Government

1. A 2% pay increase is budgeted for non-unionized personnel, as is a 1% pool of funds for market-based wage adjustments, if necessary.
2. In FY 2001, the Town had 85.6 full-time equivalent (FTE) employees. Despite the implementation of new programs and initiatives since that time, we have been successful over the years in identifying strategies to increase efficiencies and hold our workforce relatively static. The FY 2013 budget includes 86.60 FTEs. (1.8 FTEs are the result of a proposed Health and Safety Inspection Program at the Fire Department focusing on rental units in Durham that would be offset by revenue.)
3. This budget and fiscal forecast, as was the case in 2011 and 2012, proposes to bond the 2013 road program. The decision to do so was not taken lightly but seen as the only way to avert an approximate 9% municipal tax rate increase in 2011 while also stabilizing to the extent possible 2012 and 2013 tax rate projections. It gives another twelve months for the community to broaden the tax base so as to mitigate anticipated future spending increases associated with paying cash once again for Durhams ongoing long-term roadway maintenance program.
4. Funding is again budgeted to contract out a third day for Assessing services to more adequately yet still minimally meet the demands of the department. There are delays in our ability to respond to requests and workload remains marginally behind with only three days of staffing yet generally speaking we are meeting the Towns basic assessing needs. $52,500 is also included to pay for the cost of a statistical assessing update in 2013 as required by state regulations.
5. In 2012, the Town increased the number of hours for the part-time Parks and Recreation Director position from 20 hours per week to 30 to more accurately meet the needs and aspirations of the community within this bourgeoning functional area. With this investment, we experienced a 30% growth in recreation programs and a 40% increase in attendance at Parks and Recreation events. Based upon a unanimous recommendation of the Parks and Recreation Committee and a careful analysis by the Administrator of municipal priorities, funds are included to support moving the Director position to a full-time salaried classification in 2013 at an additional cost of $32,550.
6. A total of $161,000 is budgeted once again in 2013 (it was budgeted, but not expended in 2012) from the Urban Development Action Grant (UDAG) account to specifically support smart growth central core redevelopment should a major redevelopment project require public partnership in order to come to fruition in areas such as transitioning one-way to two-way traffic, offsite underground utility infrastructure improvements; or for part-time economic development staffing, consultative, engineering, traffic modeling, or economic development project-related services.
7. Funds are tentatively budgeted for the new Town Office project at 8 Newmarket Road, the former Peoples United Bank site, presently under conceptual development. (See CIP plan for details, as well as Looking Ahead at Durhams Fiscal Forecast Projections section below.)
8. The Contingency account is again funded at $100,000 to protect against unanticipated/unforeseen expenditure requirements and as a way to sustainably increase undesignated fund balance over time from the present level of $992,950 to the desired $1.5-$2 million level per Council policy. (If not expended, this appropriation lapses and monies are transferred to fund balance.)

Social Service Agencies

Looking Ahead at Durhams Fiscal Forecast Projections

In each of the last several budget cycles I have expressed concern that unless we as a town were willing and/or able to strategically reallocate resources to meet desired outcomes, increase revenues, significantly grow the tax base, change the present system of state-wide taxation, increase fairness in the existing Oyster River Cooperative School District funding formula, alter/eliminate the levels and types of services presently provided, or change our future aspirations in areas such as new facilities, programs, staffing, and land conservation we would be unable to sustain controlled growth in the tax rate over the long-term on the municipal side of the rate.

Given anticipated expenditure and revenue trends, an annual municipal (local) tax rate increase of 3.75% has been projected over the next ten years in our fiscal forecast as being necessary in order to maintain sound fiscal health for Durham without loss of service. Over the next five years, however, that average is 6% assuming anticipated projects and requests actually come to fruition (see attached 10-year General Fund fiscal forecast). Between 2018 and 2022, the average projected municipal (local) tax rate increase is 1.5%. In 2014, we anticipate a local tax rate increase of 12.59% assuming all plans come to fruition including paying cash for the road program (presently bonded) and bringing a new $2,945,000 +/- town office facility on line at the former Peoples United Bank site at 8 Newmarket Road (excluding property sale proceeds from 15 Newmarket Road estimated at $1,200,000 and new taxes generated from the redevelopment of the former Town Office site).

I look forward to talking more with the Council and the community concerning the FY 2013 proposed budgets and the proposed 2013-2022 Capital Improvement Program.