City Council - Special Meeting

I might do it from here if that's all right. Renee

Ted Cole C. Okay. With Yes. I remember your name, but I didn't. Yep. Okay. Great. Nice to meet you. Thank you. All right.

Are we ready? All right. Like to call the meeting for February 9th meeting order. There you go. Now you're Now we're good. I would like to call again the special meeting of February 9th to order. Um and recognize city manager Megan Garner.

Good afternoon. I'm not used to seeing y'all in the daytime like this. Usually used to seeing you in the in the evening. So for the current fiscal year, the city onboarded Davenport and Associates um to work with us on long-term financial planning focused on capital related needs. So what they're here to what he's here to discuss, this is Ted Cole with Davenport, is not pertaining to our general operations and maintenance. This is focused on capital. The information was derived from the CIP for the current year that was um included in the budget process and upcoming needs. Your priorities from your December work session were shared with them to focus on certain areas. I know the city has never engaged um any sort of long-term financial planning like this. It's a lot to uh process. It's a lot to digest. they have um very in-depth modeling that they do. So, if you're a spreadsheet guru and you just live in that kind of world, you might want to go hang out with him afterwards. But, we're going to start um with as long as city council is okay with it on the utility fund and and walk you through sort of where we are and how things look in the future. The caveat that I will tell you about the utility fund is Davenport and Associates is working with Hazen and Sawyer, our engineering firm, who also work on our rate structure. They have been doing that. This is probably at least the third or fourth year that they've been working on that. So, they work in tandem with the capital needs and the rate structure. And obviously the rate structure for the upcoming fiscal year is nowhere near the point yet of being presented to council for sort of a target. But we'll walk through the

utility fund first and then we'll do the same thing on the 10 side. It would be ideal for city council when you get to your level of comfort with the information that you receive, whether that's today, at a subsequent meeting, and whenever you get there, to have some sort of consensus for staff, so we know what to finalize and include or not include in the upcoming budget process. So, the first step was the goal setting that you did in December. We've done that for the last couple of years. City Council has gone through that exercise and this help helps to take it a step further so we know what the upcoming f fiscal year looks like and years beyond. You know, it would be nice for us to get to a place as a city, especially as it pertains to capital to look more than one year out and know and understand what's expected. City council knows because you've set the priorities. staff knows what we're working with and we can kind of go from there. So, having said all that, I'll turn it over to uh Ted Cole and we'll start walking through the utility fund.

All right. Well, thank you. Good afternoon. Um the book in front of you is also what's on the screen. There may be a little more of the slide you can get on the screen. I don't know where you pick up the page numbers, but the page numbers in the bottom right corner. So whichever way you're most comfortable viewing the information um and I guess you'll keep going on the slides for me you'll

okay yeah so if you go to page two um as manager said this is utility focused um with an emphasis on capital a forward five plus years look so you know you're going into the FY20 27 budget 28 29 30 31 um we have talked to Hazen who's doing the more detailed rate structure everything we're presenting here although it's at a higher level should be generally consistent with what they're doing um and this will be refined as we get additional information like another audit budget uh we're not looking for any action so happy to take questions along the way however you'd like to do it I'm going to go through about 15 slides. There are things in the appendix that might be of interest to you like all of the detail related to the utility debt as well as the the CIP that we're working with the capital improvement plans. All right. So, first section is on uh credit overview. If you go to page four on the right hand side, there are three um commonly used rating agencies for local government debt. Moody's standard and pores and Fitch. Um the city is not rated and that's not because you're not creditw worthy. You've just never needed to have a rating. You've always when you've issued debt, you've been able to take advantage of bank financing or state and federal funding programs that typically don't require a bond rating. But there are a number of slides in here that reference the rating agencies. Not because we think you need to get rated, but sometime in the future, a a rated bond issuance might be a viable option for you for some of your capital projects. And we want to be in a mode where we're managing ourselves in a way that's consistent with what the rating

agencies look at so that if you ever get there, um, you know, you're you're managed in a way that they would look favorably. Plus, that's a very good proxy for what the local government commission in Raleigh is looking at when they're looking at your debt applications, bank financing, if you go that route. Um, so the fact that you're not rated is is not an issue at all and and you may never get rated. Um, but if we do, if that ever um is a viable funding approach, we want to be prepared for that. and and what you're going to see on page five is specific to utilities. There's a lot of info on the left hand side, but if kind of break it down, I think it'll make sense to you. This happens to be Moody's, one of the three rating agencies, and it is their methodology for rating local government utilities. So, in this case, your combined water and sewer system. And they start with data. They're very data driven. Um, and they have a scorecard. And within that scorecard, you'll see they have four areas of focus. The first is what they call system characteristics. That's worth about 30% of the rating. And it's picking up things like the asset condition, how the useful life of your assets, is it been maintained and upkeep? Um, or is it been, you know, largely depreciated? and and that indicates there's a lot of capital needs necessary um service area particularly the wealth and certain demographics of the service area primarily looking at things like medium family income they want to understand the economy that you serve right is it growing uh are higher paying jobs the assessed value the income levels that gives them an important part of their analysis and then the size of the system generally speaking larger is

better, right? You have more economies of scale. Um, so those system characteristics represent 30% of the rating. And the check boxes there under the long-term control are just just an acknowledgement that those aren't things that you all can manage, right? Budget to budget or yeartoear. Those are really longer term plays in terms of investing in the system, the the evolution of the of the economy or the service area and the size of the system. Financial strength is the second criteria that's worth 40%. You do have more control here, right? So, we're talking about something called annual debt service coverage. And in a nutshell, what that means is if you have a water and sewer system, right? And you're bringing in revenue from your customer base, the first thing you have to pay are your salaries, utilities, supplies, chemicals, etc. Revenues minus those expenses are what we call revenues available for debt service. Right? Debt service is the next thing that has to be paid. And debt service coverage is measuring how many times over do those revenues available actually cover your debt. And you only pay your debt dollar for dollar obviously, but the goal is to be able to demonstrate, let's say for every dollar of debt service we have to pay, we've got a $140 or a $150 or $2 available to pay it. That indicates you have strong cash flow. If revenues were to decline unexpectedly, expenses were to go up unexpectedly, it gives you that cushion to make sure the debt can be paid. And and that is very important for a revenue bond, a utility revenue bond. Because if you think about it, what you're giving the lender is a lean on the system revenues. There's no mortgage on the

facility. It's not backed by your taxing authority. So there's a lean on your revenues and we want to be able to demonstrate that we have ample revenues available to make the payment. So that debt service coverage is an important concept. And you'll see that here in a moment in in in a little bit clearer format. Days cash on hand, that's liquidity. How much cash do you have? Um how much is it as a percent of your utility budget? How many days of operating would your cash cover if you didn't have revenues coming in? So it's kind of like in the general fund, your fund balance, right? Higher levels of liquidity and reserves are better. And then debt to operating revenues. So those are three very specific calculations that they do and the check boxes there those are both short-term and long-term um concepts right you can manage those to some extent in your budget and how you operate the system management is a 20% so how you're managing your rates um planning procedures compliance with regulatory um regiments and and and uh requirements and and we go on into that regulatory compliance and capital planning. So little harder to measure empirically. It's more sort of subjective. What sort of processes do you have in place for the management of the system? And that not only means your staff, but how um how informed and interactive is is the elected body as well. And then finally um debt legal provisions. If you were to go and borrow money, some bond documents are stronger than others, right? They they might hold you to a higher level of uh reserves or debt coverage. Others could be written more liberally and they take that into

account. So very data driven. um they look at audits, they look at budgets, they look at um they look at your rate history, they pull certain information from the census, um and they come up with this overarching um rating and and a lot of times people think it's all about debt, right? Your bond rating is all about debt. It's certainly part of it, but there's a lot more that goes into it. Okay, page six on the left. We subscribe to a database that Moody's the rating agency maintains and this is specific to water and sewer systems. And in the upper left you can see nationally across the country they rate about 276 water and sewer systems either AAA, double A or single A. Those are the three highest rating categories. And then within North Carolina, they rate 26 water and sewer systems, AAA, double A, single A. The majority are in the double A category both nationally and in North Carolina. They rate 26. So clearly many systems in North Carolina don't have a rating. It's not uncommon. The right hand side you can see um rated uh utility systems in North Carolina. Um we're starting at the highest rating category of AAA. We have Moody's standard and pores and Fitch because some rating some issuers have multiple ratings, some some don't. You can kind of get an idea for the water and sewer systems across the state that have ratings and and the how highly they're rated. Um again, you're not rated not because you're not creditworthy. may be something depending on your capital needs that could be in your future. Any questions on that?

Okay. So, that's a little bit of background on credit and ratings. And this will be important because when we get into the projections, right, we're going to look at forwardlooking projections and we're going to establish for starters some parameters for those models. We want to have a minimum level of debt coverage of 1.4 times. Remember I said for every dollar of debt service, we want to be able to demonstrate we've got at least a $140 available to pay it. We've taken that upon ourselves and talking with staff for today's purposes of establishing that as a minimum. It's not set in stone. If you know, you might have a bond document that says it's 125. We've we've we've bumped it a little bit. We've also established a range of cash. We would want want it to be anywhere between 50 and 100% of the operating budget just for starters. Right? So when we get to the projections, those two parameters, coverage and cash are going to run through there and we're going to we're solving for your operating expenses. We're solving for your debt, but we're also solving to meet those parameters. Okay. So, we're going to start with um your debt profile on page eight. Um you've been active with projects obviously. Um you've got about $85 million of debt outstanding. The vast majority of that is revolving loans, low interest loans. If you can keep tapping into that resource, all the better. Um they don't require a rating. Um they're they're, you know, they're relatively straightforward in terms of the process. um particularly if you've done them before, you kind of know the drill. Um and so don't take any of this to mean that we we need to go in a different direction from revolving loans. Not the case at all. Just don't know whether that is a resource that's going to be

continually available for all of your capital projects. Um every bar in the upper left there is a fiscal year starting with the year we're in 26. And obviously getting into 27, we're having that big step up in your payment. But you've known that's coming. Y'all have been preparing for that. And you can see the dollars on the right hand side. Principal interest in total. Um we're stepping up from about $600,000 a year in debt service to you know 3435 3.4 3.5 million. Right? So a significant step up. This is for the debt you've committed yourselves to. We're going to build on that and and look at some scenarios of what additional level of debt might be necessary to fund your capital projects. So page nine, again, a lot of numbers, but I think what I'd like to do is go down the 2024 audited column. This is a historical look, right? So 22, 23, and 24 are from the audits. 25 is budget, 26 is budget. When the 25 audit comes out, this can be updated. When you get a good handle on 26 estimates, 27 budget, those can be incorporated. But let's go down 2024. We start, and every line has a number. We start with charges and services, your operating revenue, right? 9.9 million. We then have the the revenues that come in from the various agreements with Meban investment earnings that you're recognizing on your reserves and then all other revenue on line six. Um a big chunk of that is SDF revenue coming in system development fee revenue. I think that's what you refer to those as, right? SDFs. So all of those revenue sources together a little over $13 million. This is on a combined water and

sewer. Your operating expenses on line eight were 77. So that is everything excluding debt service and depreciation since that's not really a cash item, right? You don't you don't spend depreciation. So it's salaries, chemicals, suppliers, all your operating expenses. Those have to be paid first. And then we get to line nine, which is what I was referencing earlier. It's simply revenues over expenditures. Um re and that we call that revenue available for debt service 5,492. Right? Your debt service that year on line 12 was $557,000. So you had 5.4 million with which to pay the 557. And there in blue on line 13 your coverage was 9.84 84 times. For every dollar of debt service you had to pay, you had $9.84 to pay it. Your coverage has been very strong, well over two times. But we also know you've been raising rates and doing other things in anticipation for the big step up in debt. Um, and so you can see in the 25 budget, your coverage was estimated or budgeted to be around 5.6 six times around seven times in the 26 budget. But when we look back historically, your coverage has been very strong and I would say anything over two times I would call very strong. Okay. So then we go remember I'm on the 24 column after debt service you have on line 15 the 4.9 million. That's what's left after you pay your debt. We're then capturing capital, other uses of reserves, and at the end of fiscal 24, there was a surplus of about $3.4 million, which is what got

added to reserves. And at the very bottom, we're tracking your reserves two ways. We're t tracking it as a percent of your budget. It was about 96%. So you had almost a year's worth of reserves um equal to your budget or 351 days cash on hand. That is just simply if we had no revenues coming in, how many days would our reserves cover our operating expenses? So they're measuring the same thing two slightly different ways. And when you look back over the history, your coverage has been over 100% based on the 25 and 26 budget. still pretty solid at the, you know, the low 80%. So, historically, this has been managed very well. Coverage has been good. Cash has been good. You can see what your revenues have done over this period of time. They've grown from about on line 7 8.6 million to 13 million. Your operating expenses have grown from about 6 million to call it 9 million. So, this gives us the historical perspective. And now we're going to get into a discussion about 27 and beyond, right? The projections page 10, this is that debt service coverage ratio. So the the left hand side, the blue bars are tracking the coverage from the prior page, right? We were at five times, we got up to almost 10 times. So the blue bars are your actual performance on coverage. And the red dotted line, as I said earlier, alluded to earlier, that is what we've established for the purposes of this discussion in the model of sort of a minimum level of coverage we would like to be able to demonstrate going forward of a 1.4. You've been well above that, but we're also getting ready to show you a lot of additional capital. And you might say as we go through this, you know, maybe we want to be a little bit higher, maybe we

want to be a little bit lower. Thought this was a good place to start. Um, and then on the right hand side is where we pull in some of those comparisons to other rated water and sewer systems. So, let me get your bearings here. On the right hand side, Graham, we've shown your coverage in 24, 25, and 26. That's the gold bars. That's where you landed on your coverage in each of those three years. And then in the dark green, you've got the AAA, double A, and single A national water and sewer coverage. This is the median. So it's the midpoint of each group. Half are going to be higher, half are going to be lower. But we like to look at the median. And relative to the dark green, which are the national, you're further out to the right. Higher is better. You compare very favorably there on coverage. And then North Carolina systems are in the lighter green. AAA, double A, single A. Same takeaway. You all compare very well to those based on your historical performance. And you go down to the bottom right. Like look at the double A. This is the detail for the North Carolina doubleA. The median is 2.7, but within that group, there was somebody as high as 6.3 and as low as a 160. And this you can see the high and the low for the AAA's and the double A's. Okay. So coverage is very important. We're going to that's going to run through our model and the way you've performed historically um looks very solid. All right. 11. Same idea except now we're looking at cash. So the the bars on the left hand side are your performance over the last five years or three years plus two budgets. The lighter green is your operating

funds. Um the darker green is your system development funds and the the two dotted line are sort of those range that we have targeted to try to land somewhere in between that. Right? We want our cash um to land somewhere between 50 and 100% of the budget or the or the expenditures. The right hand side is the comparison. So we've got Graham over 24 25 26 in gold. We're comparing ourselves to the the national in the dark green, the North Carolina and the light green. Little bit lower than the medians. Um but when you get into the details right you can see for example the double A's the median is 220% but somebody in that group was 477 and somebody was 17%. And you got to go back to that rating methodology right you you've got the management finance debt you can be strong in some areas a little bit weaker in other areas and still be a double A. And so my expectation would be, you know, there's some outliers on the low end in that North Carolina doublea, but I suspect either that was just, you know, an audit situation where they had spent a bunch of money and they were getting money back the next year from a bond issue or they're just very strong in other areas that offset that weakness. So it's not you don't have to be lined up at at double A for every one of those metrics. You can have some that are stronger to offset some that might be a little weaker. We felt like for cash that 50 to 100% was a reasonable starting point for a target. All right, any questions on that? Know it's a lot of information. All right, the forward discussion, forward look starts on 13. This is the capital

improvement plan for the water and sewer fund. You'll see it runs from FY 26 to 31. We've got a subtotal there under column G. Then you've got a placeholder for fiscal 32 to 35 and a grand total broken up into four or so major categories. The first down there through line 15, water and sewer distribution major projects going out to 31. That's about $30 million worth of projects. If you look under column G, then you've got maintenance and lift stations. That category is about 6.6 million out to 31. Water treatment plant, um, line 24, it's about 21 a.5 million out to 31. And then finally, um, wastewater treatment plants, another three. So the grand total of all of these projects on line 30 in green, it's about $61 million of projects through 31 and another six to 7 million um out to 35. So the whole thing represents about 68 $69 million worth of projects. And we've talked about this with staff um a few different times. We've made a few adjustments, particularly like noted on lines 21 and 22. We've updated those. I think we moved them forward a couple of years based on some intel or input we received from the utility folks. Um, but that's what we're working with for now. We're going to show you a model that funds all of these projects along with the operating expenses and trying to manage ourselves to that coverage and that cash. Um the very bottom is showing you a starting point for how those projects would be funded. And we've got two two

sources, debt and cash. Um and you can see by fiscal year a different combination of debt and cash. We've tried to, you know, be reasonable in our allocation there and, you know, smaller projects paying cash for, larger projects needing debt, uh, bundling debt where we can. And you'll see under column G for the $61 million of projects, we've we're going to be modeling about 48 million of debt and 13 million of cash. that is going to evolve over time for sure but it's a starting point for the discussion. Okay. So talk a little bit about our model assumptions on 14 operating expenses. We're starting with the 26 budget. That's the most current information we have. Uh we've got some growth in personnel expenses at 4 and a.5% a year. Materials three and a half% a year. other operating expenses at 3% a year. Kind of went through that with staff and felt like that was a good starting point for operating expenses, capital expenses. We've got all the capital that I just covered. And we did make one adjustment um when the water treatment plant comes online. We've done a one-time adjustment for additional materials. I think it was carbon, maybe granulated carbon. um a one-time step up of 150,000 when that plant comes online. Okay. Revenue growth. Uh we've got a two and a half% earnings rate on your investments. You're earning more than that today. You're probably around a 375. So we've got a little bit of conservatism. Uh the Mebban agreement revenue is is projected to come, you know, to follow the interlocal agreements. Um, and we're not

assuming any other growth in revenue for starters. What we're going to show you is how much revenue growth you need to to make all of this work, but we're not assuming any baseline revenue growth for starters. We're we're, for example, we're not assuming there's 200 connections a year or anything like that. Again, we're starting at a pretty high level. We're just going to show you you need this amount of revenue growth each year. and revenue growth is going to come from new connections, flow or rate increases. We're not staking ourselves out on one or any of those particularly. It's more just revenue growth has to be at this level to make this work. And then I think that's where Hazen comes in behind and is able to to show you very detailed rate structure that would support that. And as I alluded to, we're going to hold ourselves to that 140 coverage in cash between 50 and 100%. All right, page 15. The debt that's running through this model, remember I said about 48 million of this capital would be funded with debt. We're assuming a 25year term at a 5% interest rate. That's higher than the current market, but this is a multi-year plan. um level debt service kind of like a mortgage. So 25 years at 5% if you can get a lowinterest revolving loan all the better that that will reduce your interest expense. There's some other nuances to how revolving loans are structured but think this is a good um set of assumptions for the model. And then you'll notice down the bottom right we've got four different debt assumptions or borrowings running through the model. 1 in 27, 1 in 28, 29, and 31. The sum of all of that is that 48.5 million I

talked about. The rest of the capital, the rest of the 61 or so is going to be cash funded from the system. No general fund support coming in. Cash would only be used from the utility system. And so 16 really kind of brings this all together, right? and it's fiscal 26 out to fiscal 32. The very top line in pink is the amount of revenue growth needed to make this model work. And when I say make it work, well, what have we done? We've we've managed line 14 the coverage so it doesn't fall below 1.4. and we've managed down on line 26 that the cash doesn't fall below 50% of the budget. And what you're going to see is your operating expenses are growing on line 9. Remember I said there's 3 and a half 4 and a.5% depending on what type, right? So operating expenses are growing from 87 to 111. Your debt service is growing from 600,000 to 6.4 million. That's not only the step up for the debt you've already issued, right? You know, that's coming, but this other debt that we're assuming in our model. So, we're we're funding the entire CIP between debt and cash. We've got growth assumptions for our operating expenses. We've got coverage minimum of 140, cash minimum of 50%. And basically back to the top, we need revenue growth in the charges for services um according to that line. Now that could be hey we're getting x number of new customers every year. There's some revenue growth there. Uh maybe we've got

to consider rate increases. There's revenue growth there. We're not suggesting that revenue growth is going to come from any one of those. This is meant to be very high level. But we need to the order of 10 12 2029 is a big number 19% revenue growth in order for all of these things to happen. And that's because particularly in 2029 the debt for the water treatment plant starts. That's when that hits. You know, could we do a little bit of interest only on the loan? Do some other things? Maybe there's some ways that this could be massaged a little bit to smooth that impact out a bit or maybe push it off a year, but order of magnitude. Um, you know, a couple of years at 10 to 12% revenue growth. 2029's a big one, almost 20% and then we're back to 5 to 6% growth in revenue. Um, so not suggesting that you got to go into your 27 budget with a 10% rate increase. That is not the takeaway here. Takeaway is we need revenue growth of about 10% however we might get there. And and you're going to be getting that information as you go through the budget. Hey, there's a baseline of new customers that we can count on for this amount of revenue. That means rates might need to cover the balance. This is intended to give you that forward look. This is the sort of thing that you know the local government commission would want to see if you go to them for a debt approval. If we wanted to go to a bank or wanted to go and get a bond rating, these sorts of projections called a pro-forma model are very helpful and and hopefully helpful locally, right? Just for you all to understand what's coming. And I'm sure as you're thinking about this, you go back and you look at the CIP and say,

"All right, well, you know, is there anything in here we want to manage? Is there projects that maybe are nice to have, but maybe not absolute requirements? Should we move something out a year or up a year?" Just an iterative process that will likely occur as you're getting to the point where you've got to set rates in fiscal 27. But as Megan said earlier, we want you to know what's likely to be needed in 28 and 29 and 30 when you're thinking about the 27 budget. And that really gets to these key, you know, I don't know, next steps, I guess, on page 18 are just observations. They're pretty straightforward and self-explanatory, but I think the idea is to try to maybe put a a little bit of an institutionalization on this process into the budget so that you're looking at something like this every year. It's a multi-year forward look, not just focused on the the the budget year at hand. Um, as I said, this type of exercise would be well received from the local government commission, from the rating agencies. This gets to that management topic, right, about rate setting and and projections and planning. Um, this will absolutely need to be updated when the 25 audits finalized, 26 estimates are ready, working with more detailed information from Hazen. So, I think it's a it's very good work product in terms of of of it providing you perspective, but I would expect it will be updated and fine-tuned as we go forward with better information. Any questions on that?

You said that the the 5% is not It's just a good guess. But what's like the going rate right now for some of these products

for the debt? Yeah. If you were going um if you're going to a bank, four and a half% is probably where the banks are for 20 25 years. Revolving loans, that's a subsidized rate. Um you know, they've been really low. They're not as low as they used to be, but I think they're still probably under 2%. Um, but those are usually paid back over 20 years rather than 25. So, um, there's a little bit of cushion in there. Um, but compared to the bank financing world, um, you know, maybe it's a half a percent, 3/4 of a percent. I'm getting the different um if we got a double A rating, how how much more borrowing power do we have?

Turn your mic on, Ricky.

I'm sorry, it's on. Let me move forward. Um so if we go with if we work oursel out or it works out that we go with a um double A rating, how much more boring power would that give us? So, couple ways I would answer that with obviously with the SRF, no rating required, right? You can you can get funding that way. Um, but you got to qualify. Bank financing. Generally speaking, banks are willing to go 20 years fixed rate. And as I've said, you don't need a rating for that. Um, but it's a 20-year term. You get a rating and you go to the bond market. Now you're able to tap into 25 or maybe even 30-year debt if it makes sense. The local government commission would have to approve that. And then you're talking about, you know, maybe instead of four and a half, maybe you're at a um a 390 or a 4%, right? So I mean, it's not multiple percentages, but on an 1820 million borrowing, going that extra five years helps, right? and a and a and a better interest rate helps and that you know that can move the needle in some cases. And but that those borrowing rates will eb and flow um as the market you know digests all the things that are going on financially and beyond finances. So, if there isn't anything else on the utility fund, we can roll on to the general fund or we can continue on utilities. It's whatever the will of the council is.

I just have a question for the process. So, like obviously these numbers will be better with the audit. We've got personnel numbers and everything to add in to here like after this meeting, what's the process? Do we get this back in a more refined manner? So on the utility side, I will say there's less room to maneuver because we're operating within state guidelines on what has to be funded. So this will generally come back to you as a part of the budget process when you receive your budget book in May. Megan, how how close are we um to being able to actually get rated whether it's single A or double A or triple A?

So we would work on the rating process when we were going for a borrowing. So when we need to do something that is bond funded, we would get rated as a part of that. Okay. I didn't I didn't know if we had to get rated up front.

No. And and if you look at page 13, you do not have to get rated up front. Typically, if a a rating is required, it's done in conjunction with a debt issuance. Um and again, that will be driven by in our model, the first debt, I'm on page 13, the first debt is in fiscal 27 and it's about 13 million. And you could kind of look in that year and you see the different projects. Lift station Elm Street, um, Hall River, Outfall, those are the big projects that are probably driving that debt. Now, if you say, "Look, those are all eligible for, excuse me, eligible for revolving loans or or what have you, then that that should be pursued. If those are not eligible or you're not approved for those, then we would probably be looking at either a bank financing or a bond financing. That's the point where you might say, "Okay, we got to go to the bond market. We need longer term rating, longer term debt. Let's establish our rating as part of that process." But you'd want to make sure you have exhausted those other options. You could go and get a rating without a bond issue. They will do that, but it really doesn't. I mean, it it kind of cures a curiosity maybe, but it doesn't there's really no practical reason because you'd need to go back when the bond issue is coming to do it. So, my my experience has been determine if that type of debt is necessary. And again, that would be because these other funding options aren't available. And then we address getting a rating and planning that that

debt. And keep in mind, you know, with the local government commission, I know you know this, but they don't want you borrowing any money until the project is bid. They want they want to know when you borrow the money from whomever. Even revolving loan. They don't they you might get approved for the revolving loan, but you can't pull the money down until the bid because they want to make sure your borrowing is adequate but not excessive. Not too much, not too little. It's the right amount. And they do that by saying you got a bid for X, you got money equal to X, everything works and you can proceed. So a lot of this will be driven by engineering and bidding timets and and that's why the reserves are critical, right? It it it's an expensive business, right? When you're talking about engineering and right ofways and all the other things associated with utilities, you've got to be able to cash flow those things until you're a point where you can be ready to borrow money and maybe pay yourself back. So the reserves are really important for a number of reasons but but particularly for managing the cost associated with capital on the engineering and design work because the LGC doesn't want you borrowing for design work. They want you borrowing when the bid the project is ready to be constructed.

Thank you. Okay. Is the city council ready to move on to the general fund? Okay, thank you. Aaron is he's got it up.

All right, this got general fund on the cover. Page two. Uh likewise, um we're going to talk a little bit about credit. We're going to talk about fund balance. We're going to talk about debt and then the CIP. And then it'll be a forward look. be some common themes here in the back of this book in the appendix is a lot of detail of the numbers we ran which we can look at if there's any questions all of the detail of your existing debt very little debt by the way on the general fund general fund side of things. Um so we go into the credit ratings on page four again not rated not because you're not creditworthy just haven't needed it. the right hand side. Now, we're looking at cities and towns. Nationally, from the Moody's database, they rate over 2,000 cities and towns. The majority of them are double A. Within North Carolina, they rate 43 cities and towns, and you can see who falls out in the triple and double A category. Okay. Um, all over the state, small and large, growing, not growing. It's a real mixed bag. But again, like we just talked about, for one reason or another, their capital needs have driven them to go into the bond market where you need a rating and that's why it was established. Page five on the left, um, another scorecard, right? Slightly different methodology, but they start with the data. The economy is worth 30%. So income levels, your full value per capita, that is your total tax base per person. And your economic growth as a region, how does it compare to the economic growth of the United States?

It's 30% of the rating. You don't really manage those budget to budget or um in the short term, they're long term. Financial performance, it's really all about fund balance, right? In the general fund, that's worth 30% of the rating. Where is your absolute fund balance level and what has the trend been? Maybe fund balance has dipped down. That in and of itself is not a negative. It depends on what it was used for. Right? Using fund balance for capital or one time absolutely preferred over using fund balance for ongoing costs. Institutional framework is 10% of the rating. That is a North Carolina thing. They look at every state. North Carolina is a good government state compared to other states. you have a lot of control over your budget, so you get a really good score just because of being a North Carolina city. And then finally, leverage. It's debt and debt-like items. So, it's actual debt, pension obligations, post-employment benefits for retirees, things like that. Fixed costs. Okay. Very data driven. All right. Go to page seven. This is very high level through the 24 audit. The left hand side is looking at general fund revenues versus expenditures. Revenues are in the gold line. The expenditures are in the bars. And you can see for each of these years the operating revenues is um in excess of the operating expense expenditures and debt service and in most years capital outlay. So you've got a you know at a very high level you got a structurally balanced budget, right? Revenues have been growing, expenses have been growing, but there's a favorable variation there or or correlation there. Revenues are over expenditures. And that means on the right hand side, your general fund fund balances have been growing, right? In

absolute dollars, they've grown from about 11 million to almost 16 million. That's total fund balance. and and you know if you look at an audit, right, your general fund fund balance has lots of categories and that's what the different colors represent. The darker green component is the unassigned fund balance. That's the component of the fund balance that you all have the most control over, the least amount of restrictions. It's really sort of your checking account, if you will. And that in the dark green has grown every year. took a little bit of a step down in 24. Um, but you'll see here in a moment, very strong. You're in a you're you're in a good place on the general fund side or the tax supported side compared to the utilities. You're in a good place um on this side of your operations as well or finances. If you go to page eight, we've graphed on the left your fund balance as a percent of your budget. And I would look at the dark green line in this graph. It's the unassigned fund balance. Um, and you've been at 60% um from 2019 to 23. took a little bit of a step down um in 24 and and landed uh you know 55% or so. And you can see the comparison down below. Graham is in gold. That's your unassigned fund balance as a percent of your budget and you can see the national cities and towns in light green, the North Carolina cities and towns in darker green and your bars further to the right. that's stronger, more reserves as a percent of your budget. You're well above those medians. But you can also see like within the North Carolina doubleA's

there's some the blue line there's somebody as low as like 15% and somebody as high as 100%. So it's a pretty wide range um within that double A rating category. right hand side is restating your policy first which says that you want to maintain a minimum fund balance equal to at least 30%. You've been well above that, right? That's what that red line is on the left. That's your policy. So, you've operated at a higher level than your policy. We then wanted to introduce a concept of saying, well, if we have capital needs that are significant, is there some fund balance that we could potentially consider using to help fund the capital needs? And you're going to see when we get to that, we're also assuming some debt. But what this chart on the right hand side is saying for fiscal 24 and I will say we really want to see what 25 looks like before any decisions would ever be made. But in fiscal 24 um the expenditures under column A were 19.9 million. Right? That's part of the calculation. If you had a policy level at 40, 45, or 50, now your policy is at 30. We're not suggesting you change that. But what we're getting to is how much of that additional fund balance could you possibly use for your capital program? And we're we're starting at maintaining at least 40% in the fund balance. We wouldn't want to take it below that. And what you're going to see over in column E is if you were willing to take the fund balance down to 40%, there'd be about $3.3 million. that could be potentially used for capital. If you were willing to take

it down to 45%, there'd be about 2.3 million or 50% 1.3. So, this is what we're calling excess fund balance above 40%. Which would mean you're still 10% above your policy, which is 30%. Again, just a concept at this point that we've been discussing. And you'll see where that money or those reserves come into play when we talk about the capital program. Okay. All right. So, debtwise on page 10, very low debt outstanding, a little under $2 million of taxup supported debt, non-utility debt. And you can see it's very level payments for the next four years. It takes a little bit of a step down level. Again, everything um on the books today is paid off by 2033. So that all of that debt will be gone. That right hand side column says 10-year payout. That is a ratio that we're we look at. You'll see a graph on it in a moment. It's measuring a forwardlooking 10-year period. And it's saying how much of that debt will be retired in 10 years. It's a higher a higher percentage is better. Means you're advertising your debt more quickly. You're not backloading it. Y'all are at 100%, right? You can't get any better than that. 100% of this debt will have been repaid in the next 10 years. Page 11 introduces some potential debt policies for the general fund. Um, we have three of them that we're showing you here. The left hand side is that payout I just talked about. When people set a policy on that, they're often setting a minimum, meaning we don't want

to fall below, let's say, 50 or 60%. Because remember, the way that calculation works is if the debt pays off in 10 years, it's 100%. But as soon as you start looking at maybe a 15-year debt or a 20-year debt, that payout's going to drop. That's just because it's longer than 10 years. So you're at 100%. We're suggesting that you could have a policy that allows you to drop to 50 or 60% and that would be viewed as a very reasonable policy. So you have some room there for that ratio to come down. The middle of the page is measuring the debt outstanding as a percent of your tax base. Tax base is about 2.5 billion. Your debt outstanding remember it's a million9 as a percent of the tax base is very small 0.08%. A policy might be we don't want to go above 2%. You're a long way from that. That would mean to us just in a vacuum one we already know you haven't you don't have a lot of tax supported debt outstanding. That's not a bad thing obviously and it also tells us you have real debt capacity as a city. Now what do I mean by that? I mean you it's a very reasonable conversation to talk about issuing debt for capital projects because your your debt ratios are very low. You compare very favorably there at the bottom to other rated communities. So there's ample capacity. Now the other part of that discussion is what's our affordability right a lot of communities have capacity but the affordability is there money in our budget to service that debt is a is a related but

different and very important question. So before we get to the affordability discussion, you have ample debt capacity. Very reasonable conversation that you might be issuing debt for capital. Doesn't mean you should, but you you certainly have capacity if you decide that's what you want to do. Now we talk about the affordability on 12. And I start on the left hand side here. It's on a fiscal year basis starting with 26 column B is in boy that is the payments you're already committed to the million9 that you've already issued $334,000 a year. Column C is a placeholder for new debt for the capital program, but we haven't put that in yet. We're going to do that in a moment. So column C is just a placeholder. Column D is annual PIGO that you're already spending. It's in your 26 budget. Presumably, it'll be in your 27 budget, 28 and beyond. We've assumed that it stays flat at a million4. Maybe it grows this. That's where this could get refined and updated for various capital projects. Column E is PGO or cash that you're already budgeting for street resurfacing 750,000. So column D and E are cash funded improvements or investments that's already built into your budget. We're assuming those can continue. So when you look at column F as in Frank, it's summing up everything to the left, your existing debt and those two PGO commitments, right? And the the the payment in F is about 2.5 million. Columns G, H, and I is where we identify

where does that money come from, right? Where is that money in the budget? Well, the first is the appropriation for debt service is 334. You've got an appropriation for the the capital at a million4 and another for 750 for the streets. So those you can find and tie back to the budget. So and and J is a placeholder for new revenue. We'll talk about that in a moment. So we look at column K. K is the sum of all those revenue sources, right? And F is the payments. And when you get to column L, we compare the payments under F, the revenues under K. And you'll see for the next four years it's like it's perfectly matched, right? The revenues that are in your budget in 26, assuming that those can continue in 27 and beyond are perfectly matched to the expenditures under column F. Right? So before any new capital, right, we haven't talked about the CIP yet, but before any new capital, we've we've got a good handle on how you're budgeting for debt and payo. And it it's sustainable, right? You got to be able to budget those amounts every year going forward, but it's sustainable. And as that debt pays off, column L, you start to have some some surpluses. Okay? And as Megan said at the very beginning, this is just the capital budget, right? There's nothing about operations going through here. This is just capital. So that's our starting point. Now we go and we talk about the actual projects. Page 14. And there's basically five categories of projects. The first is a new fire substation, then new fire apparatus, then there's the design work for the

Graham Regional Master uh park master plan, and um and then your your ongoing capital. Plus, there's a an added component we're going to look at, which is additional funding for street resurfacing. you're already funding about 750,000 a year. Um we are going to run a scenario where we um measure the ability to add another 550 to that. My understanding is there's been discussions about street studies etc and trying to keep pace with c resurfacing and the 750 again is already built into your budget. We're going to run a scenario where we add another 550 to that. And that was information that came back from staff as a number that they felt would allow you all to keep up andor catch up. Okay. On the right hand side, remember I talked about excess fund balance. um we are going to for the time being assume that we could use about 3.3 million from the general fund fund balance which would allow you to still be at 40% which is above your current policy. So again this is not a recommendation at this point. It it's not been before you for any approval. Uh, I do think we want to look at how FY25 ended up and and get a better feel for for where you're headed on the 27 budget. It's just simply saying you've you've done very well with fund balances and there may be some money that you could commit to to capital. All right, page 15. We've run a couple of scenarios. Scenario one is a $6 million fire substation and a million dollars for the fire apparatus,

right? And we've run three cases within scenario one. Case A is where you you use that 3.3 million of reserves and that means we need debt of about 3.7 million. Case B is that you debt fund the fire and the apparatus and you leave reserves for the Graham master park planning cost, the design work. And then case three, we pull in all of that PO plus the extra 550 a year for re street resurfacing. So we're sort of building a case around a $6 million fire station. And then scenario two, exactly the same except we're assuming the fire station is eight million. That's the really the big difference between the two. Is the fire station a $6 million project or an $8 million project? The green boxes at the bottom. If it's a fire station borrowing, we're assuming a 20-year term at 5%. If it's a fire apparatus, we're assuming a 10-year term at 5%. So we get to 16, which is kind of where it all comes together. There are supporting analyses for each one of these cases in the back. But look under scenario one in green. You've got 1 A, 1 B, and 1 C. Let's go down one A, right? What are we funding first? We're funding a $6 million fire station, a $1 million fire apparatus. We've got your annual PIGO of a million4 over this horizon. That's 7 million million4 a year. We've got your 750 a year street resurfacing over this 5year period. That's 3.7 million. So we're funding on

line 9 $17.8 million. Some of it is debt. Some of it is PIGO. The debt is 3.7 million. The PIGO is that 14 million, but remember that's already in your budget, that million4 and the 750. In order to do that, we've measured on line 12 what number of pennies you would need in the 27 budget, the budget you're about to go into to make this work. And it would be just under one penny, right? One penny for you all generates $270,000 give or take. To do the entirety of case 1A, remember what we're funding. In addition to the money you're already contributing, we would need the equivalent of one more pennies worth of revenue beginning in fiscal 27. If you go to case 1B, what are we funding? $6 million fire station. million dollar apparatus, $4.1 million for the Graham Regional Park design. That can't be debtfunded initially. That has to be cash funded. Maybe you could reimburse yourselves later, but the local government commission generally speaking doesn't want don't does not want local governments borrowing for design work. You can get that money back if you borrow for construction, but in this model, we're assuming that's cash funded. And then you've got the same 7.1 and 3.7. Remember, those are the the sum of all those years worth of the million4 and the 750. So, in case 1B, we're funding a grand total of 21.9 million with $7

million of debt. We bumped up the amount of debt. And in order for that to work, we would need additional revenue coming into this budget for capital equal to 2.8 pennies on the tax rate beginning in 27. And then 1 C, we've dropped the Grand Park, but we've picked up an additional 550,000 of street work. So you see the Grand Park is zero under 1C and the additional street resurfacing is 2.2 million. That's 550 over 5 years. Um and in order for that one to work, we'd need the equivalent of about 2.4 pennies worth of additional revenue coming in to the um to the model. So that's really the affordability of this. We have no concerns about your ability to get local government commission support for issuing debt about being able to borrow the money. That is not the concern because you have such low levels of debt. I think the real question is all right well one are these projects we want to do that that you all will figure out. But if you decide you do want to do them, it's really about making sure the money is in the budget to service the debt and continue that payo. The three columns on the right in blue, exactly the same setup except it's just the fire station is 8 million instead of six. And so the impacts are a little bit higher than the corresponding case on the left. Okay. Can I ask a quick question?

Yeah. Um, for this 4.1 million, I don't know if this is for you or for staff, but is there any way to cut that design up um and not design the entire park, but in design a quadrant of it um so that we're not designing and then changing it and paying for it twice. It can be. It would be something that the uh firm who did the master plan would have to break up and I'm sure it would be an additional cost to get them to take that 4.1 and the rec director and I have already had a conversation about that

and he's looking into it or not favoring that. Okay. Um so there's a potential that that 4.1 would become closer to a million or lower than 4.1 million. All I can say is if it's designed in phases, it would be less than 4.1. That's great. That's all I need. And then we had also talked to Burke at our December meeting and he said that um for the street resurfacing it was going to be 2 million to catch up with all of our streets. Um and we've got 1.3 allocated on page 14. is that

the 1.3 is basically to freeze the current level of paving knowing that we have a lot of roads that are getting ready to come online from subdivisions in the coming months or maybe year. So this isn't this number isn't to play catch up. This is just to to basically freeze where we are. Keep going. Okay. Um when we did our priorities did we wanted to play catch-up on a lot of this stuff. Is that correct council? Let me let me make sure I'm I'm explaining this right. You you said on page 14. I don't see the 1. Yeah. So, it's the uh 750,000. Uh 750,000 plus the 550,000. Oh, okay.

So, that's that's 1.3 and 2 million was uh identified by our public works director, right? Not the 1.3,

right? And that's that's annually 1.3. So when you go to page 16 like column one uh 1 C, right? Look at lines seven and eight. Seven is the 750 a year for five years and then line eight is 500 thou 550 a new 550 a year. So maybe that's the 2 million. It's not all at once. It's spread out over five years. Megan, does that make sense or am I in my head we need an extra million in there to play catchup? No, what he has budgeted or sort of what he has through the model

is playing catchup with the 2 million is and we contacted our public works director as we were going through this so that we were all on the same understanding. Okay, great.

Correct. That's 2.2 2 million of additional resurfacing that you're not budgeting for now, but it's 2.2 million over five years. When when you look down under any of these scenarios and you see these dollars popping up out there in like 29 or or or 32, those are the years where if you were to fund any one of those scenarios, and remember to fund the scenario, we measured the new revenue you need coming in in fiscal 27 budget you're going into those dollars. are as other debt pays off dollars that would be freed up. Right? So if you did this hypothetically column 1B, you would you would need the equivalent of the 2.8 pennies starting in 27. that that would be enough to fund that entire program and you would start to have some freed up dollars uh beginning in 29. That that's my that was really what that's for is to try to show you if you were to do that case when would dollars start to be available because other stuff is paying down. That's what's there. Starts modestly, but it does step up because, you know, I mean, you're going to have another CIP that takes a year off and adds a year and so on and so forth. So, the key takeaways um are page 17 kind of the same. You've managed yourselves extremely well, got very strong fund balance, well above a really strong policy of 30%. I

do think it's reasonable that there's some of that money that you could comfortably commit to the capital program. Um, you have very low debt. Your debt burden is not a concern. The capacity is there. It's really the affordability. Um you you obviously need to make decisions along the way about your priority projects. Um, and to the point about the Graham Regional Master Park Plan

that that 4 million, we have it being spent over two years, like two and two. That doesn't really get to your question. But if you were to do it the way it's been modeled, you you've you've you've designed this whole thing and there's nothing in this model about building it, right? And that that's an important um takeaway about that project. Um what would a phasing approach look like? What kind of dollars are we talking about? We talked a little bit about staff about that and and recognize that that's something that will need to evolve. Um maybe the fire station, the fire apparatus is a little bit more near-term, more tangible. really good projects by the way to finance those those would get a lot of support from the LGC and the lenders because it's you know public safety asset you you would have a very essential facility but take a take a step away from the projects just hopefully a process that's helpful to y'all as you go into your budget again you're going to be focusing your budget on the 27 action items you need to take but hopefully this gives you some perspective of what you can do in 27 to set yourselves up to be able to fund projects for the next three or four years.

Question lowering the design cost instead of saying design the end product. I have found from my experience in the government when you break it up to we'll design the next phase and so forth cost never goes down you know and what what ends up happening is new administration come you start tweaking it and all of a sudden what you thought you were going to save you're how you're going to spend human nature being what it is. Oh, I have a chance to change something versus if you have a a design that says here's a the part's going to be built with all the aspects we agree on. It's there. When you start programming to build it, you have an idea of what the end cost is going to be. But if you got a way, well, we're going to do phase one and phase two, but phase three, uh, we're going to hold off and design that three years down the road. I'm just Yeah. Again, we're we're that would become designing a park by committee because now it's we design get it designed now we're gone. They need to design the next phase and

it might not be anything compatible with the the long-term plan for the park. Sure. So, it's one of those, hey, pay now, pay later, but usually paying later, you're going to pay more. I can see how that would definitely could go down like that. I think with our past um park plans um with Melanie Wiggins, it you can also design something and then it we completely redesigned over her and and what was already spent there. And so trying to be very conscious on let's design what we can build right now. Um but I understand what you're saying both ways.

My question is if we go for bond service on the um fire station is is that would that be difficult for us in instead of taking it out of um our rainy day funding? Um, we can we can

no the the the process of securing that debt is about a three-month process. Um, this would line itself up really well for a bank financing which doesn't require a bond rating. Um, you got to get it designed and bid, right? Because again, you would have to go to the LGC for the debt approval and they'd want to say, "What's the bid? this amount of debt. But that's that's all just timing, right? Our financing schedule, like I said, maybe it's three months, two council meetings, there's a public hearing, couple resolutions, there's a bank RFP, but from start to finish, LGC approval. Um, we would start with what is the uh architects, what's their schedule, right? finished design, when will they be ready to bid the project, and then we we layer in the financing schedule right on top of that, and we figure out, hey, we want to go to the LGC in October. And it's it's a very straightforward financing process, not overly burdensome on staff. Um, and as I said, because it's a fire station, I think it would get um a lot of interest from lenders. It's a really good piece of collateral. Um, I would imagine that would be done what we call an installment financing, right? So, you're not talking about in that case, there's not a voter referendum required. It's an installment debt that's used very widely in North Carolina. The council approvals would be uh a public hearing, two resolutions, then there's the LGC approval. So, there's plenty of opportunity for discussion about the

financing. So, no, I don't think it would be a burdensome process. Um, and maybe the toughest part is just getting comfortable with what that debt payment's going to be and is there an action needed in the fiscal 27 budget to take care of it. Would it would would it make it um more easily to swallow the pill from the 6 6 million to the 8 million RC? I say it one more time going from six to eight.

Yeah. Would it make it easier for for uh us to sell to the residents of the gra? Um I don't know. uh maybe not my area of expertise. I I think of it as what do you need? What's the cost? Um there is in my analysis the impact is about a half a penny's worth of debt service. Well, the question is what's does the extra $2 million investment add? it would be a bigger station. And that's a question that really instead of a two door, you'd get three doors.

And if I may add, it's not only the size of the station. A lot of it's going to be driven by cost at the time that we go out for bid. You know, I think three bays would probably be ideal for them and their operations, not just now, but you know, to get us a little bit into the future. But a lot of it we don't know until it goes out for bid, construction bids. And we can't do bids until it's designed. And as he mentioned, the design cost cannot be funded, at least not initially, through any sort of financing. You have to pay for that upfront and then you go towards financing for construction, the purchase of equipment, you know, the FFN that would be a part of the building. So the city would have to pay for the design at least upfront and maybe not ever get reimbursed for it. I just I want to make sure that because that's an important distinction that you know we all need to be on the same page and understand what that looks like for us.

Yeah. If if there were a borrowing for the fire station, as the manager said, you would you could certainly recapture the money you spent on design equipment, FFN, um all of those things. Um but you got to front some of that money to get to that point.

Well, real quick, going back to the mayor's suggestion about, you know, designing what we can build Um and and you know I I worked in government contracting for years. So I understand Bobby what you're saying um costs are always going to be going up. They don't come down, they go up. But I think kind of and correct me if I'm wrong, what you were trying to say was like in a case where you might have something designed, right, and then we have a turnover of personnel like happened with Melody, right? And the design she had, and then the next council or whatever comes in and says, "Oh, I don't like that. Let's let's do this." And then you're paying double for the design work. I think that I think that's the point you were trying to make.

Let's just bite off what we can build. Yeah. And you can always take the chance that yeah, that phase three might be a little bit more expensive, but we might have we might have either just broken even of what it would have been or it might be a little less and not double paid.

Right. Is that is that what you were Okay. I just want to make sure I understood what you were saying. So, okay. Gotcha. U there's a couple of slides behind here about different types of debt. I don't think there's a need to spend a great deal of time on that. Um grants and PGO obviously that's cash. general obligation bonds, those have to be go that has to go through a voter referendum um to approve that type of debt. Um installment financing, lobs or cops, they're all the same thing. That is more than likely what like a fire station financing be. Um it would be secured by a deed of trust on the building. You all make your annual payments uh and budget every year. That's pretty typical. Revenue bonds would be for um water sewer most often. Uh special assessment bonds, those actually that authorization has sunset in North Carolina. And then a different type of uh debt that is not commonly used but sometimes applicable special obligation bonds. We've seen those for special projects like event centers, stadiums. um not real widespread use but might be applicable for certain projects down the road. But for a fire station fire apparatus very straightforward that uh installment financing is be most like most likely.

This special obligation bond can you can you use that for for parks? There's certain projects that are eligible. It might need to be in a U municipal service district to qualify. Now, you could create a municipal service district. Um, my guess is it would be eligible for parks, but I'd want to double check that. Um, and and the what a special obligation is for you all. big source of revenue for you is sales tax, right? But that is not a tax of the city of Graham. You get a distribution from the county and the state. So, as a city, you're able to pledge, excuse me, pledge that sales tax because it's not a tax of the city, it's a revenue you receive. Now, you might pay for the debt from your other revenue, but it's a way to pledge, in this case, sales tax for a project that maybe doesn't lend itself to really good collateral like a fire station. That's why I mentioned earlier like an event center or a ballpark. Maybe parks and wreck facilities line up well for that because it's not great collateral. You know who who there's nobody that really is going to foreclose on a on a park. Um so that that may be a use there and I'll I'll follow up with staff on the legislation for the purposes. If if I may go back to question about general funding of the park, I guess what's important is identifying those

things that need to be built that can't be deferred because for example building that uh large covered facility, you don't want to defer building that later because then you will have done some utility works that then you're going to have to go back in. You know, it's a question of picking the right things to plan on to build initially because hey, this is where the uh bike trail is going to be. Yeah. Okay. You don't have to worry about, you know, that can be deferred. But when it comes to the building, the amphitheater, you know, physical structures, we should be looking at building those up front because there's all the, you know, infrastructure issues that need will have to be done anyway. So, you want to do it up front. So yes, you don't have to design all the trails and everything else, but the physical things that need to be built. We should be looking at building that.

Makes sense. It makes sense. I think uh I'm interested in hearing faucet's conversation coming back with with the firm because I I think we've identified as a council that what we want that northeast northeast quadrant with the fire station that's our priority first build that'll be the first design in my opinion. Any other questions? We lost one. Um, I don't have any other questions at this time. Do we see you again or do we direct all our questions to staff moving forward?

You can send the questions to me. Okay, great. Yeah, we're happy to come back anytime if a refresher, an update, whatever is appropriate and we'll work through Aaron and Megan. Sure. Um, question for Megan. Have we heard back from audited numbers? Are they still projected for the 28th of this month? Um, I heard an update last week that they were having teams assigned to audit work, but I have not heard anything beyond that. Okay, great. Thank you. Thank you. Yeah, appreciate it. Thank you. Really informative. Thank you. Thanks

Megan. Tell us again you want us to sit with this and then just give you direction at the end of tomorrow or or March meeting or or what do you need from us?

So it's whenever city council is at the comfort level you feel like you need to make a decision. It would be helpful for you to direct staff either in this meeting, at tomorrow's meeting, at a special meeting, you know, whenever it's we're in the in the public. So it's a consensus among council and not just individual members, but to let us know what your appetite is for projects for funding understanding that the penny or pennies or half a penny, whatever that kind of go along with it so that we know we already have the baseline for your priorities, but the level of funding commitment um city council has to accomplish whichever might be on the list. Um, council, do y'all have thoughts right now? Do you need some time? You want to look at a special meeting sometime later this month?

I'm thinking about Yeah, I per I know. Can you smell it? It's burning. Um I mean I would like to have another special meeting about it before we like make a decision on it because simply be it's a lot of material to digest and we're not going to have it done by tomorrow. Uh we are not going to have this done by tomorrow. So I'm not going to. So is the rest of council thinking a similar thing? you'd like a little couple weeks to sit on this with the discussion only centered on fire department. I think it's on. He turned it off.

What we've gone over is fire department, parks and wrecks, streets, but when you look at all the project, we need to look at all the other Yep. Megan, is there a operating budget that we're going to get that's similar to this or you just want us to look at the capital improvement and give it give you an idea from here? Capital focused. Okay, great. Um, which are all listed here? Yeah, that is your current year, right? CIP, right?

I understand that it's got columns for future years, but that was included in the budget book for the current fiscal year. Megan, how many how much money does one penny bring in? Around 270,000 of those tax increases were a little high coming into but I mean we could spread it out over three years which would probably be the best way to do that for which part? Um let me go back to Hold on. I'll show you under you find the page

talking about the amount of tax u revenue we would need to generate extra. Let me see if I can 16. What's that? 16. Hang on a second. I'm not there yet. the ones on scenario one or

Yeah. Yeah. Because you know when you look at them I mean 79 cents is a pretty good hike you know unless we don't know. I think how I look at it is we have a a duty to protect our our community and and we are beyond due for a a fire substation. Um and we've got some some big infrastructure stuff to work with. Um Yep.

Can you guys give me an idea of how long you want to sit with this and we can go ahead and plan the next special meeting so we can get that alert alert announcement out? It's the 9th right now. Do you want to plan it for the last week of February? I need more time. I say a couple of weeks. I mean, so whatever that puts us at. I don't have a calendar in front of me. Well, the week of the uh two week two weeks is the week of the 23rd. You all okay with that? Yeah. Okay. Um staff, do you want to pull a date from that week and let us know? I think um Ted, is there availability that you have?

Which week is for the last week in February? February 23rd. 23rd through the 27th. Yeah, Thursday the 26 is a good date. The 23rd on my afternoon. I can do either one.

I will point out that department's budget requests are due the 27th of that week. So, if it's possible to do earlier, that would be great. If it's not possible, we understand. So, that we can give them a a direction. Yeah. Let's do the 23rd. Can we do 1:00? Can we do like a three 3M? Have anything on my calendar? I'm good. Late in the month. I can make it work. Okay. Special meeting.

Yeah, I I can make three earlier time would be ideal, but I can make three o'clock work. I can just move some stuff around. I mean, we could do one, right? I mean, it's better for you guys. I've just got meetings in the day. Oh, okay. All right. 3:00 Monday, February 23rd here. Okay, that sounds great. Well, if is there anything else that you guys would like to discuss or questions before we adjourn this or even other scenarios that you would like included between now and then? I would love to see the the operating and personnel. Um,

we won't have those, right? That's why I was trying to push that back. Um could we could we do the um um fire station um bank clone and the Vietnam fire truck out of the set of hill you're talking about as another scenario. Yes ma'am. Yeah, just understanding that the design for the fire station would be PGO, so we would have to fund that. Messed up there. You're right. No, you're good. We can run any scenario y'all would like.

Do we know a ballpark for the design fee for the fire station? Under 10 million. Help me narrow it down from there. So, I would um the ballpark would go under four million. Great. Great. That seems to be the theuh other number. Without looking at comps and what people have paid for design work, I would anything I give would certainly be an ignorant and uneducated opinion. So, we'll stick with under four million. Under four million.

Okay. Um, does Chief have comps or can you pull comps for us for that? So we looked at recent stations for the construction. Well, really maybe it might have been total project. So we can try to parse out design work for some that were done recently to kind of narrow it down. But those numbers are kind of generally how we came up with the six to eight range for the project as a whole. Okay. Any other questions?

Yeah, just to clarify, the the next meeting about this will be the 23rd at 3. Mhm. Okay. Yeah. And you should have just received a calendar invite to hold that for you. Oh, thank you. Yeah. I guess it would help if we knew what the $6 million design is. You know, you know what? It's buying a two bay. Well, like she said, probably two three bay or you know, I don't think there's any way we can get a three bay for six million. So, it probably be two, right?

Most likely. It's just hard to nail that down when nothing is designed and we don't know what construction prices are going to do between now and the next 12 or so months once it's being designed. That $6 million is to build it. Yes. Not design. Design build. Not design build extra. Yeah. Separate. Okay. All right.

Yeah. Uh I hear you inputed this. If not, that's fine. But I'd like to just make a little comment about what they're talking about. Fire department fire station. Um you design it. Come up here and talk in the mic, please. Um, you could design it however you wanted. Three bays, four bays, 10 bays, however many bays you're saying. But in the con first construction of it, say we want to construct just a two bay, but have it designed for additional bays years down the road. Randy, would you state your name and

Randy Phillips, 130 Barton Street? Thanks, Randy. Yep. Good. Um, do you all have any other discussion or questions or options now? It's been a good educational Okay. class. Class class dismissed. No, I need a motion and a second to adjurnn. If you

if I may make one comment, this is something that we would like to do as city council on an annual basis. This was a lot in your first session to kind of bite off knowing that we've never gone through this process before, but do know that this is something we plan to do annually to keep city council informed and everyone knows sort of our path forward from here and we can confirm that at different phases throughout. So, this is something that we hope to not be a oneanddone, but to come back to you, you know, at least on an annual basis with updated modeling and confirmation of what city council would like to accomplish. Thank you, Megan. Do I have a motion to adjurnn? Motion to adjurnn. I second.