Joint City County Planning Committee - Regular Meeting

You want to get to it? Nope. And I just want to reiterate, I'll be entertaining comments and dialogue on this item at the official public hearing. Tonight is for us to receive the presentation. There is nothing for us, no action for us to take tonight. There is nothing for us to address other than to receive the presentation. Thank you. No walk-up music, Mayor? You two, you gotta win this budget first. You gotta balance this budget first. You started it.

Good evening to everyone here, in person, and to those joining us on Durham Television Network and online. I'm City Manager Beau Ferguson, and I'm honored to present my proposed budget for fiscal year 26-27. I want to begin tonight with a reality that shapes everything you will hear in this presentation. For the first time in many years, we project that we will have less property tax revenue next year than this year. Our general fund revenues are smaller than last year's, no City of Durham administration in recent memory, and no City of Durham City Council has ever built a budget under these circumstances. This decline is driven almost entirely by a one-time factor. the unusually large volume of successful property tax appeals following last year's revaluation, particularly of major commercial properties, which resulted in substantial refunds. These refunds reduced both the current year's revenues and next year's revenues. While this creates a difficult reset this year, we expect revenue growth to resume in future years once this budget adjustment is behind us. We are also navigating inflation, rising fuel and operating costs, and increasing service demands from a growing city. Our position vacancies are dropping, which is a great trend, but that also adds to the cost of providing public services every day. In a year like this, our responsibility is to practice careful stewardship, to protect core services, to care for our workforce, and to invest where our residents need it most. This proposed budget reflects that stewardship. Even in a challenging year, we have made careful choices so we can maintain essential services, continue progress on our top priorities, and be transparent about the trade-offs required to do so. Our strategic plan remains our roadmap. It reflects what Durham residents tell us matter most, and it ensures that our decisions align with our shared values. This budget is also shaped by what we heard from our residents and city council through retreats, surveys, and community conversations. We approached this work with discipline and care, with a focus on fairness and long-term sustainability. Tonight, I'll walk you through the key numbers, and more importantly, what those numbers mean for our neighborhoods, our services, our employees, and our shared future. I want to begin tonight by thanking Mayor Leonardo Williams, Mayor Pro Tem Javier Caballero, and Council Members Nate Baker, Shanetta Burris, Chelsea Cook, Matt Kopach, and Carl Rist. Your leadership and guidance have shaped a responsible budget in an extraordinarily challenging year. Earlier this year, City Council and our staff spent time in two retreats discussing the path ahead. This proposed budget responds directly to that guidance and to the real challenges that Durham is facing. By the end of this presentation, I hope you'll see that this proposed budget reflects Durham's values and positions us to navigate the coming year with care, discipline, and prudent stewardship of taxpayer dollars. This is a responsible proposed budget for a challenging time. Families are feeling the strain of rising prices, and city government faces those same pressures. Inflation and increased fuel prices are putting a pinch on everything we do. Durham continues to grow, but this year our costs are growing faster than our revenues. This budget protects the essential services that our residents rely on, from public safety to clean water to safe and well-maintained streets and sidewalks, while making targeted investments in our highest priorities. We asked every department to propose up to 5% reductions so that we could redirect limited resources towards these highest priority needs. While not all of those proposed cuts were incorporated into my budget, departments identified many substantial reductions that did help us balance this year's budget. I want to thank our department leadership, many of whom are here tonight, for helping us achieve thoughtful savings through this process. But one word does stand out above all others as we announce this year, and that is unprecedented. As I mentioned earlier, for the first time in many years, our revenues are smaller than the previous year and our general fund is smaller than last year. That reality required difficult, disciplined decisions. Our revenue picture is more constrained than we expected and several factors shape this year's budget related to that. Pay and benefits costs are up, and the cost of benefits continues to rise, while vacancies are trending downward. Sales tax revenues are growing more slowly than in prior years. Inflation is driving up costs for fuel, equipment, and supplies. And most significantly, property tax appeals reduced our revenue this year and next. After last year's countywide revaluation, more than 10,000 appeals were filed. Many appeals were granted, including several involving large commercial properties. The overall assessed tax base has been reduced by about $2.6 billion, requiring the city to issue refunds totaling roughly $5 million in the general fund and $9 million across all funds. These adjustments will reduce our property tax revenues for next year as well. And yet it is important to underscore that this is a one-time correction related to the unique timing and nature of these appeals. We expect revenue growth to return in future years as these corrections work their way through the system. While we have no control over the property tax appeal process or inflation, we do control how we respond. We acted quickly. We sharpened our assumptions and we took a more conservative approach to balancing this budget while still making meaningful progress on our highest priorities. The total proposed FY26-27 budget is $766.1 million, compared to $722.2 million last year. But our general fund, the core of our operating budget, is smaller than last year, proposed at only $326 million. This is a decrease of $489,000 over FY26. Despite the loss of property tax revenue, I am proposing a budget tonight with no property tax rate increase. For a median value home of approximately $424,000, this results in a city tax bill of about $1,853 next year. At a time when residents are feeling financial pressure, the ability to maintain the current tax rate of 43.71 cents per $100 of assessed value is a significant accomplishment, and it was a key priority identified by the city council in our February budget retreats. Even as the general fund dips this year, personnel expenses increased by $8.4 million. Operating expenses have decreased by $7.3 million in large part thanks to the hard work of our departments to find cost savings, allowing us to protect core services and maintain a balanced budget without raising taxes. Water and sewer rates will increase by 12% for the average customer. Our goal is to have modest annual sustainable rate increases to minimize the impact on our customers while also covering our increasing operating capital improvement and regulatory costs. Stormwater and parking rates remain unchanged. Fee adjustments are proposed for development review services and certain parks and recreation rental use fees and programs. Despite all these challenges, our financial footing remains strong. We have a healthy fund balance well above our reserve policy, and we're proposing to use 2.2 million of that fund balance for one-time departmental needs from this budget. Because this fund balance is strong, we continue to hold a AAA bond rating from all three major agencies, saving taxpayer dollars on long-term borrowing. Even in a year of constrained revenues, our priorities remain clear. Protect core services and invest where it matters most so our investments have the greatest impact. Public safety is one of our most essential responsibilities and one that our residents value most. The city has made significant investments in a range of public safety efforts, both traditional and non-traditional, over the last five years. our commitment to public safety and the employees who provide these life-saving services remain strong. I'm proud that this budget includes authorizing 16 new fire department positions to staff Ladder Company 8, ensuring strong response times as our city grows. These positions won't be brought online until later this year when existing firefighter vacancies are filled, but we are committed to activating Ladder Company 8 to meet the needs of our growing city. We are also funding firefighter cancer screenings, improved station security, necessary equipment and furnishing replacement, and a significant increase in overtime. We also remain committed to a comprehensive, evidence-informed violence reduction plan, a joint effort with Durham County to measurably reduce gun violence using a community-wide approach. This work is underway now and will continue throughout this coming year. While this budget does not identify specific resources for this initiative, we stand ready to roll up our sleeves to find ways to respond quickly when our plan is formed and receives council approval. Our employees are at the heart of everything we do. They keep this city running every day, and we remain deeply committed to caring for them responsibly. This proposed budget includes 2% raises as a result of structural adjustments to all pay scales, The budget also fully funds the Durham minimum livable wage, which increases 14%, the largest amount ever, this year to $25.09 per hour. Unfortunately, this budget does not include pay for performance or step increases this year. The revenue loss we absorbed due to the property tax appeals made it impossible to identify the resources necessary to fund pay for performance and step increases. Despite that disappointing news, we are funding a new classification and compensation study next year to ensure our pay structure remains sustainable and in line with the market. While merit increases could not be funded this year, the market study will give us critical data to help us ensure our employees remain paid commensurate with their market value. We are continuing our 5% employee contribution for eligible employee 401K plans, and we are uncovering increased costs for the state retirement system, which ensures stable lifetime income for eligible employees. We are also absorbing nearly all of the 8% increase in health insurance and 3% increase in dental insurance, with only modest increases passed on to employees who have copays, I'm sorry, who pay a share of their premiums. These investments demonstrate our continued commitment to offering a strong competitive premium benefits package. We are making a major re-imagined commitment to addressing homelessness in this budget. Together with Durham County and our partners across the Durham Continuum of Care, we are completely rethinking how homelessness services are delivered in Durham. Our new strategic framework to prevent and end homelessness calls for a $13 million community investment in the first year alone, including $9 million in direct rental assistance. The city is committing $4.55 million of those dollars in one-time federal and ARPA interest dollars to support the first year of that effort. We're making a large initial investment in this work, and we're calling on our partners in Durham County, Duke University, AJ Fletcher, the Durham Continuum of Care, and our philanthropic community to do so as well, so we can fully fund our year one commitment. If fully funded, by next summer, we aim to reduce unsheltered homelessness by 30%. youth homelessness by 50% and make meaningful reductions among senior, veteran, and families experiencing homelessness. Our long-term goal is simple. When someone becomes homeless in Durham, they obtain housing within 30 days. This proposed budget also provides $100,000 for emergency home repairs and continuing $725,000 for eviction diversion assistance. Reliable public transit remains essential to our city, and the progress we've made is being noted. As you heard earlier this evening, Go Durham has been recognized by the North Carolina Public Transportation Association as the Urban Transit System of the Year for 2026. This recognition is a testament to the commitment of the city and our partners in the Durham County Transit Plan to improving our services and our infrastructure, generating record-breaking ridership along with improved customer satisfaction. That same partnership will make it possible to continue fare-free bus service for another year. And we're grateful that our partners at Durham County and GoTriangle have expressed their support to provide an $8.2 million one-time contribution to our transit fund from the Durham County Transit Plan to make this happen. However, the long-term sustainability of fare-free transit will require serious discussions amongst all of the funding partners, and we look forward to that work in the coming year. Alongside the investments I've just outlined, this budget also requires us to confront some difficult trade-offs to keep our resources focused where they matter most. This budget does include a small number of staff reductions. Nine positions are being eliminated in this proposed budget. Four of those positions are currently vacant. The remaining five employees have been notified and in most cases we are working closely with them to identify opportunities to transition them into comparable roles elsewhere in the city organization. These decisions are never easy. but thankfully they represent a very small part of our overall workforce of approximately 3,000 employees. At the same time as these reductions, we are adding or repurposing 59 positions in key areas such as planning and development, water management, fire, and community safety. Only 18 of these positions are fee-supported, only 21 are tax-supported, 10 of these are being funded with one-time money, and 10 are repurposed from other roles within the organization. These workforce adjustments reflect areas of growing service demand, including the continued investment in our youth with a new position to support our Youth Works program, so more young people can gain career experience and build pathways to economic mobility. While we are proud of these promises kept in next year's budget, we also need to consider prudent service reductions to ensure a balanced budget. One such difficult decision is the proposed early closure of Forest Hills Pool, originally slated to close permanently at the end of this year's season in August, 2026, but now proposed not to open this summer at all. Nearby hillside pool is ready to welcome additional residents this summer due to the closure of Forest Hills. Another reduction is the pause in installation of new speed humps, which now will only happen as part of street resurfacing projects we're called for. This coincides with an internal review of the best traffic calming methods to ensure the safety of Durham's neighborhood streets. We are also eliminating or reducing funding for several partner organizations. All these partners do great work in our community, but when faced with constrained resources this year, our proposed budget recommends reducing or eliminating our assistance to many partners to help focus our resources on core city services. This year, $927,000 in outside agency funding is being proposed to be redirected to protect and enhance essential city services. While we strongly support the missions and work of these organizations, we simply cannot propose funding them at prior levels in next year's budget. Capital projects often represent the signature projects and investments that define our community and support key services. But the reality of funding these major investments is harsh. Rising costs and competing demands make it challenging to deliver the projects our community is asking for and expects. And this is not the year to overpromise. So we used three criteria to prioritize projects in our CIP. Completing work on projects that are already underway, maintaining existing assets, and addressing health or safety needs. Skyrocketing construction costs are putting significant pressure on our 10-year CIP, and we have carefully evaluated projects so that we made sure we are funding those that are critical or already underway. The total CIP includes $798.4 million in projects across transportation, stormwater, water and sewer, fleet, and general capital needs. Examples of some of these projects that received funding include our annual pavement management program and our annual sidewalk repair program, both of which are supported with voter-approved funds from our 2024 Connect Durham bonds. Funding is included to support our new Emergency Operations Center in conjunction with Durham County. Planning is gonna be underway for our next fire station in Southeast Durham, and a number of trails and multimodal street improvements for safer driving, biking, and walking will also be advanced. We also included projects to improve stormwater infrastructure, including the South Ellerbe Stormwater Restoration Project, as well as watershed planning. We also have several water and sewer projects including, importantly, the Jordan Lake Water Treatment Facility, sewer collection system rehabilitation, sewer extensions and improvements, and water regulatory improvements to address PFAS. Looking ahead, future capital needs may require additional bond programs as our city continues to grow. Now that I've shared highlights from the proposed budget, it's time for our elected leadership and our community to take a closer look. The proposed budget and capital improvement program are now available for your review at durhamnc.gov forward slash budget. City Council and our staff will review the details during budget work sessions next week on May 27th and 28th, beginning at 9 a.m. in the committee room on the second floor of City Hall. These conversations will help the council, our community, and our employees better understand the choices and trade-offs within this proposed budget. We invite everyone to tune in on the Durham Television Network, our YouTube and Facebook live streams, or on our website. We also welcome public input at our next budget public hearing on Monday, June 1st, during the regular city council meeting at 7 p.m. So as I close tonight, I want to return to what guided every decision in this proposal, stewardship in challenging times. This year demanded difficult choices, choices that were not comfortable for any of us to make or recommend. But because of these choices, we are still able to deliver meaningful progress on the priorities that matter most. We are investing in public safety. We are advancing a reimagined homelessness response. We are caring for our employees. We are providing fare-free public transit. We are protecting essential services. We are delivering critical infrastructure. And we are doing all of this without a proposed property tax rate increase in a year when our revenues have actually declined. We're being transparent about the trade-offs I'm recommending. disciplined in our approach, and committed to focusing our limited resources where they will do the most good. That is what stewardship looks like in a year like this, staying disciplined, staying focused, and staying true to our values, even when the numbers get tough. But stewardship is not just about what we hold back, it's also about where we move forward. And tonight, you've seen that we are moving forward in a number of key areas. Even in a constrained environment, we are making shared progress, a project that reflects the voices of our residents, the leadership of our city council, and the commitment of our dedicated employees. Durham has navigated challenging economic times before. What carries us through is our ability to stay true to our values, make good choices, and keep our eyes on the long-term well-being of our employees and our community. This proposed budget follows that tradition. I want to thank our city council for your leadership, our employees for your service, and our residents for your trust. Together, we will continue to move Durham forward thoughtfully, responsibly, and with a shared commitment to the people we serve. Thank you.

Thank you, Mr. Manager. Thank you for your presentation. And just want to reiterate that the first public actually starting after tonight, you can. And I'm speaking to the general public as well as those who are in the room. This is now our budget as a council. YOU WANT TO SPEAK WITH US, YOU SCHEDULE MEETINGS OR SPEAK WITH US AND YOU CAN JUST INFORM US ON WHAT YOU CARE ABOUT MOST AND WE WILL LISTEN AS BEST WE CAN AND CONSIDER ALL OF THE THINGS. I CAN TELL YOU RIGHT NOW, NOT EVERYBODY IS GOING TO BE HAPPY. ACTUALLY, NO ONE IS GOING TO BE FULLY HAPPY WITH THIS BUDGET. THERE ARE A LOT OF TRADE-OFFS. I think I made it pretty clear how I feel to my colleagues, but we have a lot of work to do and we are dealt an impossible deck of cards here. But I do appreciate your effort, Mr. Manager, getting us started here. So over the next two weeks, we will take time to deliberate amongst one another and with the public. And then on June 1st, we'll have public engagement. We'll have a little more time, another two weeks, and then we'll be making a decision on this budget as we move forward.