Financial advisers told the Albemarle Board of Supervisors last week that some of their financial plans were actually working against their stated goals. They recommended strategies they said would make new revenues immediately available, including a future tax rate increase, to address some of the $125 million in unmet priority capital needs.
“I was very pleased that there are some small changes in the way we approach our funding that will allow us to make a small step toward the unfunded items in our capital improvement program,” said Ann H. Mallek, board chairwoman.
In recent budgets, Albemarle has gutted its capital budget and put a focus on maintenance projects as opposed to new construction. While Davenport & Co. recommended some new funding strategies, the board decided to take a wait-and-see approach and factor the firm’s recommendations into its regular capital budget process later this fall.
County Executive Tom Foley told the board at a meeting Thursday that Davenport’s assessment created an opportunity for them to move the capital budget in a new direction, particularly as they head into a strategic planning retreat on June 30.
“Our real purpose today is to talk about the long-term issues rather than to figure out what specific project we can get finished tomorrow,” Foley said. “It’s to see if you all want to take a different direction than we have taken over the last two to three years.”
Bill Letteri, Albemarle’s assistant county executive for finance and management, told the board that absent new direction, county staff would start the next capital plan assuming only maintenance items would be funded again.
“I think we’d probably all agree that a maintenance-only program really isn’t what we think a long-term capital program should look like,” Letteri said. “We do know eventually we are going to have to build schools, we are going to have to build fire stations, and we are going to have to build roads.”
David Rose, a senior vice president with Davenport & Co, said he had evaluated Albemarle’s $200 million in unmet capital needs and its investments in maintaining existing infrastructure.
“What has been somewhat sobering about that $200 million of needs is that about $75 million … is really going [toward] maintenance needs,” Rose said. “Those are really ‘have to’s’ if you are going to continue to keep this county at the pristine level that you expect of a AAA [credit rating] county — that’s a benchmark of places that people want to go and look to as doing things right.”
“We have a pretty good level of maintenance program right now we feel is sustainable,” Foley said. “But it’s not more than the industry standard.”
Rose said Davenport’s first recommendation was to refinance and restructure existing debt to take advantage of Albemarle’s AAA credit rating and a “currently favorable construction market.”
“We can responsibly, without raising the tax burden, we can add immediately $10 million to your capital program,” Rose said.
Supervisors were receptive to this recommendation and directed staff to factor this revenue into the next capital budget process, which will begin later this summer and lead to a joint meeting in December with the School Board to review the budget recommendations.
Second, Davenport recommended that Albemarle relax some of its debt policies, which it projected could make $111 million available in new debt capacity during 2017-2021.
“We are going to recommend … creation of a policy that talks about what is prudent in terms of how fast we pay down our debts,” Rose said. “You are almost working counter to what you are trying to do [by] deferring and pushing a lot of absolute critical needs … at a time when you could have done them cost effectively and not exacerbate the tax rate burden.”
Davenport’s third proposal received only mixed support from the supervisors. That was a recommendation to dedicate the equivalent of a 3-cent real estate property tax rate increase toward capital needs.
“That translates to about $60 million of additional capital projects,” Rose said. “That could occur immediately, or you could do that three years from now, or five years from now.”
Supervisor Dennis S. Rooker suggested the capital planning committee evaluate multiple scenarios to take into account Davenport’s recommendations.
“I think it would be fruitful for the [CIP committee to consider having] 2 cents of additional [revenue] available for capital — that could come just from growth in revenues, that could come from a tax increase if we voted to do it,” Rooker said. “What priority projects would emerge?”
“When we sit down to vote on the tax rate, I want to make sure we have the best information,” Rooker added.
The board directed Foley to develop two approaches in the next 10-year capital plan. One will feature a maintenance-only capital budget with an additional $10 million for priority projects, and a second will add a hypothetical 2-cent tax rate increase in future years.