Page 1 A joint meeting between the Board of Supervisors of Albemarle County, Virginia, and the Albemarle County School Board was held on November 5, 1997, at 4:30 p.m., Room 235, County Office Building, McIntire Road, Charlottesville, Virginia 22902. SCHOOL BOARD PRESENT: Mr. John E. Baker; Mr. R. Madison Cummings, Jr.; Mrs. Susan C. Gallion; Mr. Jeffrey D. Joseph; Mr. Stephen H. Koleszar; Mrs. Karen L. Powell; Dr. Charles M. Ward. BOARD OF SUPERVISORS PRESENT: Mr. David Bowerman; Mrs. Charlotte Humphris; Mrs. Sally Thomas; Mr. Walter P. Perkins. BOARD OF SUPERVISORS ABSENT: Mr. Charles Martin (arrived at 5:53 p.m.); Mr. Forrest R. Marshall. OFFICERS PRESENT: County Executive Robert W. Tucker, Jr.; Deputy County Executive Mr. Richard E. Huff, II; Assistant County Executive Mrs. Roxanne White; County Attorney Mr. Larry W. Davis; School Division Superintendent Dr. Kevin C. Castner; Deputy County Attorney Mr. Mark Trank; Director of Finance Mr. Melvin Breeden; Director of Building Services Mr. Al Reaser; Director of Fiscal Services Mr. Jackson Zimmermann; Assistant Superintendent for Support Services Mr. Frank E. Morgan; Assistant Superintendent for Instruction Mrs. Diane T. Ippolito. Agenda Item No. 1. Call to Order. At 4:45 p.m., Mrs. Humphris, Board of Supervisors Chairman, called the meeting to order. At 4:45 p.m., Mrs. Powell, School Board Chairman, called the meeting to order. Agenda Item No. 2. Presentation: FY 1998-99 Projected General Fund Revenues. Mr. Breeden summarized the staff report which is on file in the School Board Clerk s office and made a part of the permanent records of the Board. The November revenue projection for the next fiscal year is the first step in the annual budget process for both operating and capital budgets. Revised revenue estimates are provided by the Department of Finance in late October after the second-cycle real estate and personal property tax bills have been sent out. Based on actual billing numbers, these revenue estimates reflect more current information than was available for the March 1997 projections. Overall revenues are projected to be approximately $1.8 million less than projected due to a significant drop in the estimated rate of increase in personal property tax revenues. Fiscal year personal property revenues were budgeted at $20.6 million with a revised Fiscal Year 1998 assessment of $18.7 million, a drop of almost $1.9 million in the current fiscal year. For Fiscal Year 98/99, the drop in projected personal property revenues is compounded by the Fiscal Year 97/98 reduction, as evidenced by the variance between the personal property tax revenues projected last March and this November. The March 1997 projection of $23.5 million was based on a continued 13 percent trend in personal property increases, a rate of increase that has been fairly consistent over the past five years. The November projected revenues of $20.4 million are based on an 8.6 percent rate of increase. The lower rate of increase in the current year, in addition to the lower rate of increase projected for next year, results in a
Page 2 $3.1 million dollar decrease in personal property revenues over what was projected last March. The variance between Fiscal Year 1997/98 budgeted and Fiscal Year 1998/99 projected personal property tax revenues shows an actual decrease of $268,020. The drop in the rate of increase for personal property revenues is due to slower growth in both vehicle value and sales. The rate of increase in the number of new vehicles has leveled off, as has the purchase of used vehicles. New vehicle sales prices have not increased as much as we had projected with dealers reporting some sticker prices at level or below last year s prices. This lower rate of increase in both vehicle sales and value is not isolated to Albemarle County but is being experienced by other localities throughout the state. In addition to the significant drop in personal property taxes, both mobile homes revenues and machinery and tools revenues have been revised downward in the current year, also due to a slow-down in the rate of purchases and the declining values of older mobile homes and equipment. Although not indicated, interest revenues are also projected to decline by approximately $200,000 over the Fiscal Year 1997/98 budgeted amount. Mr. Bowerman said over the estimated collections this year of $96,816,000, the County has spent money now in order to collect taxes for next year; instead of the $5.2 million more, it will be approximately $4.0 more. Mr. Breeden agreed with Mr. Bowerman. Mr. Breeden recommended that the Boards receive the report for information. He noted that staff is looking at reasonable tax increases for next year, but the trend on the personal property taxes is throwing the projections off. Agenda Item No. 3. Memorandum of Understanding/Allocation of Revenues. Mrs. Roxanne White summarized the staff report which is on file in the School Board Clerk s office and made a part of the permanent records of the Board. She noted that the draft Memorandum of Understanding was prepared in response to questions generated by the School Board on one of the County s financial policies that deal with developing a Memorandum of Understanding on the annual allocation of revenues. The purpose of the Memorandum of Understanding is to establish a procedure for allocating to the County of Albemarle and to the Albemarle County School Board the estimated general fund revenues available in a given fiscal year. The three points of the proposed policy as follows: 1. Revenue Allocation Agreement. Beginning with Fiscal Year 1998 Operating and Capital Budgets, 70.55 percent of local taxes net of revenue-sharing requirements and the 3 percent increase in Tourism Fund revenues will be allocated to the School Board to fund the local share of the School Board s operating budget, local debet service costs and pay-as-you-go capital improvements. The remaining 29.45 percent of local tax revenues will be allocated to the general government. 2. End of the Year Revenues. Excess local tax revenues will be shared at the end of the year in the same proportion as the estimated revenues after the County s Fund Balance Reserve policy has been fulfilled.
Page 3 3. School Board Responsibility. If the School Board requires additional funds over the agreed-upon allocation, it must, subsequent to a public hearing, adopt a formal resolution requesting that the Board of Supervisors approve a tax rate increase for specific School Board programs or incentives. Mrs. White said that at the end of the year, excess revenues would be shared proportionately (as noted above) and that the School Board would be required to hold a public hearing and adopt a resolution if it desired a tax increase. The Meals Tax has not been included in the revenue projections. Mrs. White said that one of the questions raised is about the difference between the Meals Tax and the 60/40 split. Under the old system, we would subtract the committed expenditures from total revenue and give the School Division a 60 percent split, or approximately $815,000 more. Under the new system, a 70.55 percent portion of the net revenue gives approximately $70-85,000 more than the School Division would have under the 60/40 split. She noted that she is often asked how this would affect the School Division in the future. She then explained that in a worst-case scenario of no new borrowing, the operational budget for the school budget reserve increases because of the decreased need for debt services. The School Division has the flexibility to shift funds from the capital budget to the operating budget. As far as the end-of-the-year excess revenues are concerned, the average for 1991-96 variances between what was budgeted and what was collected was about $1.5 million. The third part of the memorandum provides that the School Board could request a tax rate increase after holding a public hearing and adopting a formal resolution. If the School Board requested the tax increase, the School Division would receive all of the funds generated by it. Mrs. Powell said if the Capital Improvements Plan (CIP) is rolled in with the debt service, why has the School Board not revisited the CIP when it needs additional funds for operation? Mrs. Gallion said because it is the local government who makes the decisions about capital improvement needs. It does not go back to the School Board to be adjusted. Dr. Castner clarified what Mrs. Powell asked regarding the CIP. If there is a reduction in capital needs due to the need for more operating expenses, was this something that has always been available as an option? Mr. Tucker said this proposal gives more flexibility to the School Board. Before, the local government was expected to cover the costs as it could. Dr. Castner said when the Board is dealing with the budget in February, many CIP contracts are already set and cannot be changed, although you could affect the year after. Now, we have a different window of opportunity to change matters. Mr. Reaser said the CIP issue is complex. For example, for next year, the CIP has a $650,000 cash contribution from local government. The School Board has budgeted $600,000 to buy technology. If the School Board chose not to use it for capital, then it would become one-time money, because if it is rolled into the operational budget as a recurring cost, then it becomes an entirely different animal. Payments for the projects that are bonded now, approximately $20 million, will not be made until a year from now. The Boards would need consider at delaying projects for three or four years before a significant impact occurs. Mrs. White said the CIP Technical Review Committee recommends that the high school addition be pushed further into the future due to the debt service. The School Board will be asked to make a decision regarding this issue. Mr. Koleszar asked what is included in the debt service. Mrs. White said because there was approximately a $2.0 million increase in actual debt service from the current year to next year, in order to not have to come up with $2.0 million in one year, the Board of Supervisors has been putting money aside for the last three years. One of the reasons it was able to reduce the debt service reserve numbers is that it saved approximately $4.0 million in the $20 million high school bond, which is the difference between budgeting a bond at 7 percent and having it come in at 5.5 percent. Mr. Tucker said the County does not, contrary to popular opinion, spend everything it gets. He also noted there is a debt reserve for the new jail.
Page 4 Mr. Joseph asked about the tax rate the School Board is empowered to determine. Mrs. White said it would be the real estate tax rate. The School Board would determine how much more money it needed and the amount of the rate that would be needed in order to raise that much revenue. Mr. Joseph then asked how a tax rate change would affect the following year. Mrs. White said the shared percentages would go into effect. Dr. Ward said the names of both staffs were listed on the staff report and asked if they had both worked on the report. Mr. Tucker said the County staff had done an initial draft after consulting other localities and then met with the School Board staff. Dr. Ward asked whether the report recommendation was a joint recommendation of both staffs. Mr. Tucker said both staffs had recommended the concept, but there is no actual proposal on the table. Dr. Ward asked whether Dr. Castner was recommending that the School Board adopt this proposal. Dr. Castner said we are at the discussion stage. However, there are areas which he would have written differently. He noted that this is an issue for the School Board and Board of Supervisors to work out. Mr. Baker asked about the comparison between this proposal and the 60/40 split. He noted that in the past, the School Division has been given more than 60 percent. Mr. Tucker said the 60/40 split has historically been used in building budgets. The 67 percent reflects total taxes, including state and federal monies. The 60/40 split normally refers just to the local taxes. Mr. Baker asked if it was negotiable to do the debt service in an out year rather than this budget year, or if it was binding as a premise in this memorandum. Mr. Bowerman asked Mr. Baker if he could further clarify his question. Mr. Baker said if the School Division did not deal with the CIP and were not accorded the 70.55 percent this budget year, if the CIP would be funded as it was done in the past. Mr. Tucker said the CIP had to be reduced somewhere, either by the School Board or the Technical Review Committee. The Board of Supervisors has not had the responsibility or authority in the past; this would give the School Board both. Mrs. Gallion said if we do not reduce the capital, we do not see the effect in year one because of the way the projects are contracted. Mrs. White said if you do not borrow money next year, you save $100,000 in the debt-reserve account. The maintenance money is increased at $150,000. The Boards would have to increase the maintenance money in order to level-fund. Mrs. Powell said that the 70.55 percent is coming from current percentages and asked if there was going to be a significant increase in debt service because of the new high school. Mr. Tucker said the debtservice reserve is for the new high school. Mrs. Powell said she does not see a big difference between the status quo and this proposal. Either way, the School Board is requesting more money and has no independent power to tax. In the last few years, the School Division has submitted lists of unfunded priorities, which are similar to this request for more funding. Mrs. Thomas asked how the money that the schools receive from the state affects this proposal, because by the time the School Division works on its budget, it does not always know what will be received from the state. Dr. Castner said the Composite Index affects the amount of money received from the state, and it is expected to decrease. In two weeks, the new Composite Index will come out, and the School Division will know how much money will be received from the state. Mr. Morgan said there is a shortfall which is getting greater each year as less money comes from the state due to the Composite Index formula that is used. Mrs. Thomas said the Composite Index issue does not make our situation any worse. Mr. Morgan said there is a loose relationship. For instance, if we used CIP pay-as-you-go money last year for
Page 5 technology, this would have enabled us to take full advantage of the state matching funds. Mr. Baker asked if the Memorandum of Understanding and the 70.55 percent figure exempt federal and state funds from the County s calculations, so whatever the amount of state funding, it does not affect the local funding. He also asked about increasing taxes for a specific project -- when that specific need is met, does the school division revert back to the previous split funding? Mr. Bowerman said the way he envisioned it, the School Board could recommend a tax decrease after it no longer needed the funding. Mr. Koleszar said he saw it as an obligation to only ask for whatever revenue was needed, so when the School Division no longer needed the excess funding, it could request that the tax rate be changed back. Mr. Baker asked whether the School Board could request a specific amount of money or a specific tax rate. Mrs. White said the School Board could request a tax rate increase by determining what rate was needed in order to raise a certain amount of money. Mr. Baker said since the School Board had not previously been in the business of setting taxes, he would prefer that the School Board request a certain amount of money and let the Board of Supervisors determine how to raise it. Mrs. Humphris agreed and said this is preferable, as it allows the Board of Supervisors to hear from the community regarding the types of decisions made. Mrs. Powell asked if the school division received additional money from the state, whether the division would have to give back the local money. Mr. Bowerman said if the Composite Index changes and more money is received, the school division would initially receive the 70.55 percent in the budget allocation. If the School Board finds that additional revenue received from the state cannot be used, then that allocation could change. Mr. Koleszar said if the school division received extra money from the state, the School Board would have to decide if the extra money is needed for programs, and if the money is not needed, then a lower tax rate could be recommended. Mr. Baker asked what the state and federal funding meant under the resource allocation in the Memorandum of Understanding (on file). Mrs. White said that state and federal funds are not used as part of the 70.55 percent, just local tax revenue. Mrs. Powell asked about the methodology used to obtain information from other jurisdictions. Dr. Castner said there may be a state increase in revenue of $1.3 million or 2.5 percent, which may be influenced by the election. However, he noted that the staff report shows a 12.8 percent increase or $5.9 million that is needed. This is a difficult budget year, and the review of the Memorandum of Understanding is timely. He said the School Board has a good case in asking for a tax increase, but he cautioned the Boards about blending operational and capital debt service assuming that growth is solely a school division issue. Growth is a community issue, and the School Board cannot control it. On another issue, the fixed rate of 70.55 percent does not even cover this year's needs. The School Board will either have to make budget cuts or recommend a tax increase. The last time the split percentage was greater than 70.55 percent was when Sutherland Middle School opened. Monticello High School is much more complex than Sutherland. When comparing the school division with other jurisdictions, he pointed out that Henrico County has a split percentage system, and their tax rate is 0.96 or 55 percent higher than Albemarle s. Chesterfield County s rate is 1.06 or 76 percent higher; in Richmond City, it is even higher. He noted that today s meeting is timely for communicating and improving the Memorandum of Understanding process. Dr. Ward asked if a consultant could provide assistance regarding CIP projects, especially in reference to timelines and impact on funding and savings. Mr. Baker agreed and asked what the timeline was for the School Board to consider the Memorandum of Understanding.
Page 6 Mrs. Powell asked what other information was needed before the Boards could move forward. She noted that she had received information from Mrs. White giving a breakdown of the school system's operational budget, debt services, and capital outlays. Looking at the methodology, she did not see continuity on whether they included capital costs or debt services; most did not mention either. Mrs. Thomas said a significant increase in capital expenditures means a significant increase in operational expenses, whereas the information is being presented as if there is the ability to do one or the other. Mrs. Powell said this would cause the School Board to have a public hearing and ask for a tax increase in order to fund the salaries of teachers, administrators, and classified employees. Mr. Tucker said Chesterfield, Richmond, and Virginia Beach are three communities that have a similar agreement or proposal where operational expenses and debt services are included. Mrs. White said that capital outlays and debt services were included. Mr. Joseph said the Memorandum of Understanding needs to be reviewed annually at a joint meeting of both Boards in order to assure that it remains current. Dr. Castner said the cost-of-living allowance also needs to be considered and perhaps included in the Memorandum of Understanding. Mr. Tucker said the cost-of-living issue would need to be resolved fairly soon due to planning for the budget process. Mr. Baker asked if the Boards would remain with the current 60/40 percent and then adjust the percentage at another joint Board meeting in the near future. Mr. Tucker said this issue needs to be resolved in order for staff to move forward with budget preparations, and there needs to be an agreement regarding the Memorandum of Understanding within the next month or so. Mr. Koleszar recommended that the Memorandum of Understanding be scheduled on the joint meeting agenda for December 3, 1997, before the meeting with legislators. Dr. Ward agreed with Mr. Koleszar and asked that a timeline be developed concerning how both Boards should approach this issue. Dr. Castner said because the school division finishes the budget first, staff will need to know about the agreed-upon percentage and dollars by the middle of December. Agenda Item No. 4. Other Matters Not Listed on the Agenda. Mrs. Thomas said she appreciated the School Board s support regarding the Meals Tax. Mr. Cummings thanked the community for supporting the Meals Tax. Agenda Item No. 5. Adjournment. At 6:05 p.m., Mr. Perkins offered a motion to adjourn the meeting. Mr. Bowerman seconded the motion, and the motion passed unanimously. Motion was then offered by Mr. Cummings, seconded by Mrs. Gallion to adjourn, and the motion passed unanimously. (Note: A break was taken until 6:34 p.m. The School Board then reconvened for a Special Meeting.)