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WORK SESSION

 

JANUARY 4, 2017

 

 

Town Manager's Proposed Capital Improvement Program

 

At a WORK SESSION of the Town Council of the Town of South Kingstown, County of Washington, in the State of Rhode Island, convened at the Town Hall, in and for said Town on the 4^th day of January 2017 at 6:30 PM.

 

            PRESENT:   

                                                Margaret M. Healy, President

                                                Abel G. Collins, Vice President

Bryant DaCruz

Liz Gledhill

Joe Viele

 

Also present: Stephen A. Alfred, Town Manager, Patricia Sunderland, Finance Director,   Aimee Reiner, Director of Administrative Services, Colleen Camp, Executive Assistant, L. Vincent Murray, Director of Planning.

 

The Pledge of Allegiance is given.

 

The Town Manager discusses why we develop the Capital Improvement Program.  The Capital Improvement Program is a planning financial document.  The key with the Capital Improvement Program is a yearly review of projects and financial framework that the community is operating in.  If there are recession conditions we have to look at changes in how we put forward projects.  In good economic times we may accelerate projects. 

 

The reason we have a Capital Program is to provide a needs statement for infrastructure, to prioritize an implementation schedule to meet those needs, and to provide financial data relative to the community’s ability to manage and finance the cost of the needs of the community.  It is important to note that based upon the Town Charter and the Capital Budget Ordinance this is the Town Council’s document.  The Town Manager prepares it and it is up to the Town Council to make the revisions that they feel are appropriate. 

 

A Capital Project is anything over ten thousand dollars with a useful life and greater length in use than the years that it is financed.  Types of Capital Projects include, but are not limited to Town Facilities, Roadways, Equipment, Maintenance & Improvements and Recreation Facilities.  Funding sources include, but are not limited to property tax support, fair share development fees, and assets held by Capital Reserve Funds. 

 

The Utility Funds do not take property taxes.  The funding for any capital improvements comes from the rate base itself.   The debt service for the bonding for the Neighborhood Guild comes from the trust funds, not through the property tax.  When we look at the combination of all the different projects within the $27,000,000 Capital Improvement Program, only a portion is directly associated with property taxation and conversely it has impact on the assets of the various funding sources. 

 

The Town Manager discusses the statistical profile for the community.  There are 431 acres in recreation space within the community, 150 miles of roadways and infrastructure.  We are 56.8 square miles of land and 62 square miles with Wordens Pond and the Great Swamp.   

 

The Census data in 1990 shows that 16.4% of people within the community were below the age of 14, it was 18.6% in 2000, and in 2014 was down to 12.7%.  For the age of over 60, we went from 15% in 1990, to 14.8% in 2000, up to 22.8% in 2014.  As we continue to see declining birth rates and reductions in residential development within the community or residential development of plus 55 developments, we will continue to see an increase in over 60 years of age and a decline in under the age of 14. This means we are going to see a greater demand for elderly programming within the community.   

 

One other interesting change is in the age group 15 to 24 where there is a sizable increase.  What happened was during the Census in 2000 there were three dormitories under construction, so there really was not an increase in population but an increase in bed availability.  We look at service needs to ensure that those service needs are reflective of the general community.  According to the 2010 census the population in South Kingstown has increased from 27,921 in 2000 to 30,546 in 2010.  

 

In 2006 the median single family house price in South Kingstown was $370,000 and we are now at $332,000. The average assessment in FY 2007-2008 was $418,672 and in FY 2016-2017 the average assessment is $350,214, a $68,458 decline.  From 2008 through 2017 we see an average household increase of about $617 or 1.25% on a yearly basis, well below the cap of 4%.  Over the past five year period there has been an average 1.33% tax levy increase. 

 

The unemployment rate in South Kingstown in 2007 was 4.4%, it peaked during 2011 at 9.9% and is back down to 3.8% in November 2016.  The workforce in South Kingstown is approximately 16,500 people, of which 620 are looking for employment. 

 

In the last five years, the major driver as far as revenue increases is directly related to property taxation where we are averaging over $900,000 per year between municipal and school purposes.  These increases are attributed to reduction in state aid and local revenues. 

 

The municipal expenditure program has increased 1.73% or an average of $353,890 per year over the past five years.  The school fund transfer has increased 1.30% or an average of $634,203 per year.  In the 2011-2012 school year enrollment was 3,458 students; if you divide that number of students into the school fund transfer amount of $48,216,336 the average property tax per student is $13,943.  In the 2016-2017 school year enrollment is 3,096 students and you divide that number of students into the school fund transfer amount of $51,387,349 the average property tax per student is $16,597.  Essentially enrollment has declined by 362 students or 10.5% over five years yet you have seen a $2,655 increase in the cost per student or 19%.  Most of the increase is attributed to the loss in state aid and the fact that just because you drop several students doesn’t necessarily mean that you are saving dollar for dollar. Instead of having a class of 22 students you may be having a class of 16 students so your expenses associated with educating that classroom that now has 16 are an exponential increase in the cost per unit.   There is a balance that has to be looked at.  Why are the numbers moving in the direction that they are and what is the prognosis for the future. 

 

When we look at the NESDEC report which predicts student loss up until 2026, the question becomes how do you maintain the number of school buildings being occupied without looking at what the enrollment on a per class basis will be, and how do you maintain the buildings if in fact you do not need to maintain them. 

 

In FY 2011-2012 the Tax Transfer to the School Fund was 82.51% of the School Fund Revenue Statement; in FY 2016-2017 it is 85.75% due to the education aid formula that has an eight year step down of approximately $340,000 per year over the eight years and because the education dollars are being distributed on a per pupil basis.   For every 100 students that you lose you are losing the residual value that was coming from that student, so you have a step down loss and a unit loss in the enrollment market.  If we continue to see the losses both on the municipal and school side there will be greater pressure brought as far as tax dollars are concerned.       

 

In South Kingstown the Motor Vehicles excise tax value for FY 2016-2017 is $198,929,263, up from a value of $169,817,200 in FY 2011-2012.  If changes occur at the General Assembly this year in regard to reductions in the taxing of Motor Vehicles, there could be impacts on the community.  We need to make sure that our legislators are aware and have a good understanding of what the implications are of various tax plans that are being floated at this point. 

 

In FY 2011-2012 the municipal share was 22.37% and has increased to 24.69% in FY 2016-2017, the school share was 75.72% in FY 2011-2012 and in FY 2016-2017 dropped to 73.92%.  The total property tax levy in FY 2011-2012 was $66,120,832 and in FY 2016-2017 it was $70,398,298.

 

The Town Manager Six Year Capital Improvement Program FY 2017-2018 through FY 2022-2023 is proposed at $20,380,035, down from $24,049,890 in FY 2016-2017.  The reason for the reduction is we are not showing the $6,600,000 for the Recreation Center because it is under construction and will transition in FY 2017-2018 from a Capital Project to an Operating Program.  Also, you have $4,150,000 in bonds that were in FY 2016-2017 that disappear.  The only bonds showing in FY 2017-2018 are bonds associated with the Neighborhood Guild in the amount of $1,000,000, $400,000 associated with the General Municipal Program and $4,000,000 for the School Program. 

 

The Annual Fund Element or the Town Manager FY 2017-2018 pay as you go program is proposed in the amount of $2,773,500 or $276,050 more that the adopted FY 2016-2017.  The amount may need to be reduced based on the size of the demands in operational budgets support.   The General Fund, Senior Services Fund and the School Fund influence tax dollars.  The Water and Wastewater Enterprise Funds are rate based. 

 

The School Improvement Program Capital Improvement Program proposed for FY 2017-2018 is going from $5,235,200 in the current year to $7,910,060 and would require them to perform another needs assessment.    The bonding requirements have not been provided for the entire proposed project because until we see what buildings they are using and what projects have been approved by the State, what the cost is of the projects that have already been approved by the State and are allegedly to be completed by 2020, we are going to have to have a better understanding of how those dollars are going to flow and for what purpose. 

 

The Town Manager discusses issues of concern that the Town Council needs to develop policy directives on and to take actions if necessary.  The first concern is the declining student enrollments.  There has been a loss of 1,269 or 29% of the students since FY 2001-2002. It is forecast that 326 more students will be lost over the next 5 years or a 36.4% loss since FY 2001-2002.  The six year program that has been submitted by the School Department looks to use the entire amount of School Facilities that are being used today.  If we were to fund the projects based upon the estimates that have been provided by the School Department exclusive of architectural or engineering design work that has been completed to provide probable costs, we are looking at about a$7,900,000 expenditure for what they have indicated their needs to be.  It would mean that we would have about $4,200,000 of bonds.  We already have $1,000,000 in the current year of which we are using $800,000 before June 30, 2017.  We are looking at $1,700,000 of addition bonding that would come from program reductions or the need to get voter authorization for additional bonding.  The bonding would not occur until FY 2022-2023 if it were ever authorized. 

 

We are also looking at the School Department wanting to commit $1,600,000 over the next six years to parking lot improvements.  The concern is are we going to be improving parking lots on buildings that will not continue to be used for an educational purpose going forward.  State School Housing Aid provides a 35% reimbursement and is suspended if the facility is not used for educational programs.  The recommendation is that there needs to be a long term study, a fiscal planning analysis and a staffing and efficiency review.  The last time they did a study of the sort was in 2010.

 

The next area of concern is fair share development fees for school purposes.  Declining enrollment trends indicate that no new school buildings will be needed in the foreseeable future.  It is recommended that the fair share development fees for school purposes be suspended beginning July 1, 2017. 

 

Since 2014 we have collected $4.60 per $1,000 for all real estate sales.  The Town retains 47.83% of the realty tax fees.  Of the fees retained by the Town 77.3% is dedicated to the Open Space Reserve Fund for the acquisition of Open Space.  The Open Space Reserve Fund balance as of June 30, 2016 is $731,223.  We anticipate collecting $300,000 in fees in FY 2016-2017.  The Town Council has committed funding to the Whaley and Wells Farms.  The planned expenditure for FY 2016-2017 is $569,000.  We anticipate a balance on June 30, 2017 in the amount of $462,223.  

 

The Town has been successful in obtaining grant funding in the amount of $400,000 from RIDEM for the Bike Path Connector from St. Dominic Road to South County Commons.  The total projected cost of the project is $600,000 and it is recommended that $200,000 come from the Open Space Reserve Fund.  It is also recommended that $100,000 be set aside and placed into the Affordable Housing Trust Reserve Fund for the purpose of preparation of a comprehensive analysis of specific affordable housing needs and identification of actions to better address needs.

 

In FY 2010-2011 the debt level or mortgage for the Town was $26,351,618, since that time it has been paid down through FY 2015-2016 to $12,034,185 or 54% of the Town’s outstanding debt.  In FY 2016-2017 the debt level will increase to $15,292,432 due to borrowing $4,150,000 for the Recreation Center and $1,000,000 for the School Department.  If we did not borrow any more funds through FY 2022-2023 we would be down to an indebtedness of $5,946,000.  However if there are important projects to be done they should be integrated.  In FY 2018-2019 the following bond issues are planned: $400,000 for the Road/Bridge Improvement Program, $1,000,000 for the Neighborhood Guild (non tax associated) and $2,000,000 for School Building Improvements.  In FY 2020-2021 a bond issue in the amount of $2,000,000 is planned for School Building Improvements for total new debt in the amount of $5,400,000.

 

When we borrow, the debt service payments don’t begin until the following year.  All of our debt, exclusive of the debt associated with the Recreation Center, is forecast to be let with equal principal payments for twenty years.  Based on the size of the bond issue for the Recreation Center in the amount of $4,150,000, it is suggested to have the debt principal payments for the first three years less than what equal principal payments would be, then in the fourth year go to equal principal payments for each of the next 17 years.   The reason being is that one of the large bonds for the schools drops off in the third year so we can increase the debt service associated with the Recreation Center without having a profound impact on the number of tax dollars necessary from one year to the next. 

 

If the School Department really needs the $7,900,000 we would probably see a bond sale necessity to go forward.  Debt service on that would not be within this six year period.  The debt would occur in FY 2023-2024.  If the $7.9 million is necessary they do not have the bond authorization at this point.  It would be put before the electorate in either 2020 or 2022.  In FY 2016-2017 the net bonded debt per capita is $439.  Some communities are significantly higher. 

   

The Town Manager discusses the funding sources that support the proposed projects in the six-year program including municipal bonds, unsecured funding, secured funding, future CIP funding, funds from operations or fund balance, and impact fees and Open Space Fees. 

 

The Third Party Revenue Sources are discussed including:  State School Housing Aid -35% reimbursement, Fair Share Development Fees - educational and recreational, Neighborhood Guild Reinvested Income - programs and facility improvements, Diane Drive Wastewater Expansion - sewer construction, Real Estate Conveyance Tax - percent of dollars collected retained for Open Space Reserve Fund, and Superfund Reimbursement - Rose Hill and Plains Road Landfills. 

 

The debt related property tax burden is discussed.  Currently the average taxpayer has a tax bill of around $5,300. Of that amount around $79 goes toward the cost of debt service or $0.23 of the $15.09 tax rate.

 

The Town Manager discusses bonded debt as a percentage of the tax base, debt service as a percentage of a tax levy, debt per capita, per capita debt as a percentage of per capita income, debt service as a percentage of operating revenue.  The Town of South Kingstown is one of only four municipalities in the State of Rhode Island with an Aa1 bond rating.

 

Discussion ensues relative to the establishment of the Debt Service Fund.

 

Discussion ensues relative to the Debt Service Schedules including Required Debt Service, Future Debt Service and all Municipal Debt Service Programs. 

 

Discussion ensues relative to Fair Share Development Fees.  Fair Share Development Fees cannot be used for operational costs, only brick and mortar expansion for facilities necessary because of incoming population, acquisition of land for recreation facilities and development of the facilities.  As mentioned earlier in the presentation it is recommended that the Fair Share Development Fees for educational purposes be suspended beginning July 1, 2017.

 

Discussion ensues relative to the Fee Exemption for Affordable Housing.  Housing limited to affordable occupancy is exempted from payment of Fair Share Development Fees for Open Space, Conservation, Park and Recreational Land.   

 

The following members of the public comment:

 

Ken Burke

Karina Burston

 

Adjourn at 9:41 PM.

 

ADJOURNED,

 

 

Dale S. Holberton, CMC

Town Clerk