The proposed FY2021 Budget was initially presented by the Town Manager to Council on March 18th and prepared based on a pre-COVID assumptions.  In order to eliminate the need for Property Tax and Meals Tax Rate increases, the Town Manager worked with staff to cut an additional $1.2 million out of an already lean Budget. This revised proposed Budget of $20.2 million was presented on April 8th.  The $20.2 million consists of the General Fund at $11.0 million, Utility Funds at $7.4 million, Park and Rec Fund at $0.6 million and the CIP at $1.2 million.  This revised budget plan represents a (15%) percent decrease over the adopted FY 2020 Town’s budget of $23.7 million.  

Given the extraordinary circumstances of the COVID-19 emergency, the Town Council gained consensus on the adoption of an Interim Emergency First Quarter Appropriation of $5.0 million rather than the customary Annual Budget appropriation. The logic was two-fold. First, this alleviated the need for many public meetings during the state of emergency and minimized the health risk and heavy staff workloads during this time of uncertainty.  Second, early on in the pandemic there was very little data available to accurately predict the economic impact, costs and potential stimulus associated with this unprecedented health emergency.

As the initial appropriation was limited, an additional appropriation for the balance of FY 2021 Quarters 2 through 4 (October 2020 through June 2021) must be revisited and approved before the beginning of second quarter.  

Under Section 15.2-2506 of the Code of Virginia (1950), as amended, the budget is a fiscal planning document and its adoption by Town Council does not authorize any expenditures.  In order for budgeted expenditures to be made in FY 2021, the Town Council must, in addition to adopting the Budget, adopt a resolution appropriating such funds.  Further, once funds are appropriated by Town Council, they must be spent within the same fiscal year they were appropriated, or the Town Council must re-appropriate those funds to be expended the following fiscal year.  Such re-appropriations are often necessary for capital improvement projects, which may take several years to complete.

Pursuant to Section 15.2-2503 of the Code of Virginia (1950), as amended, the Town Council must approve for fiscal planning purposes a budget that contains a complete and itemized classified plan of all contemplated expenditures, all estimated revenues, and all estimated borrowings for the Town during the fiscal year beginning July 1, 2020 and ending June 30, 2021 (“FY 2021”).

Attachment 1 shows the preliminary budget plan for FY 2021 Quarters 2 through 4.  Expenditures are limited to essential costs needs to provide current level of service.  The only change is Public Work’s request to reinstate two cash funded capital projects, Membrane Replacement and LEAP Aeration totaling $333,780, deferred in the FY 2021 First Quarter budget and appropriation. According to Scott House, Wastewater Plant Superintendent, membrane replacement approximately every 8-10 years is a critical maintenance requirement for the BSWF Wastewater Treatment Plant.  The membranes are now at the end of their expected useful lives and the Superintendent has learned can degrade quickly once failure begins, a significant risk to continuity of plant operations.  Furthermore, the Town’s contract with SUEZ to purchase new membranes offers savings of $77K if remaining balance is paid before December 31, 2020.  The LEAP Aeration project totaling $160,000 will provide energy efficiencies and is best implemented at the time of membrane replacement.

In addition, the Engineering Planning and Development Department is utilizing FY20 CIP budget carryover of over $500K to complete the Nature Park Well connection.  This project is expected to expand the Town’s sustainable water capacity by 100 gallons per day or 50% of the system’s additional water resource requirements of 200 gallons per day.  Also, this department has access to $40K in FY20 operating budget carryover for the Zoning Ordinance project.

More information for the Fourth Quarter (4Q) of FY 2020 should be available in late July.  This information will be used to review FY21 Revenue forecasts and COVID impacts. As a reminder, revenue is collected in arrears and cycles vary based upon due dates (Attachment 2). 

As stated before, quarterly budgets are atypical in Virginia and presents challenges summarized below.  It is staff’s recommendation that Council consider adopting the balance of the FY 2021 Budget allowing staff to focus on operational improvements, preparation of the GFOA Distinguished Budget Award submission and FY 2022 budget preparation.

·       Opportunity Costs or Time not spent on:

o   GFOA Award

o   FY22 Budget preparation begins in early fall

o   Continuous improvements

o   Operations and Maintenance projects

·       Administrative burden and unforeseen upcoming issues as we move through 1Q:     

o   “We do not know, what we do not know.”

o   Potentially time intensive purchase/procurement process that is bound to create errors and inconsistencies.

• Requisitions (REQ) for annual contracts, must be limited to 3 months or 1 quarter due to the narrow appropriation available.  Once an additional appropriation for the next quarter is available, staff will need to input, review and approve change orders to the initial Purchase Order (PO).  A system override from Finance may be required for CIP projects or annual contracts such as insurance and maintenance agreements that require full payment early in the fiscal year as the full appropriation is not yet available but payment must be released.
•  Change Orders have been a minimal part of our processes.  As such, only the Procurement review is currently established in workflow.  With the magnitude of what is being requested, we may need to expand workflow for the Change Order process. 

·       Additional time required for quarterly budgets may result in Overtime cost (~$20K).

·       Quarterly appropriation is unprecedented approach and difficult to manage based on standard operating and system controls.

o   Municipalities adopted an annual budget and utilized cost containment measures.

NEXT STEPS and RECOMMENDATIONS:

1. Attachment 1 provides an overview of staff’s Proposed FY 2021 2Q-4Q Budget.  Given the COVID crisis, discretionary spending has been eliminated and the budget reflects costs to support current service levels.  The Town Manager will continue to review all purchases over $5,000 and limit spending to essential needs only during this time of uncertainty.  Staff will continue to monitor Revenue forecasts and will report trends to Town Manager in case course correction and more restrictive cost containment is required.

2. Town Manager and staff are working with Davenport on Short Term Borrowing options to provide flexibility during this time of uncertainty. As more information is known, a Public Hearing will need to be scheduled to proceed.

3. July 28 Work Session-  FY 2021 2Q-4Q Budget discussion, Revenue update, Short Term Borrowing Update

4. August 11 Meeting- Available if additional Budget or Financing discussion/Public Hearing is needed.

5. September 8 Meeting- FY 2021 2Q-4Q Proposed Budget Public Hearing 

6. If needed, a special Budget Work Session could be scheduled in mid-September.

7. September 22 Meeting- Town Council Adopt FY 2021 2Q-4Q Budget (Attachment 1).  This budget is limited to essential services due to uncertainty. 

8. Schedule additional CIP Budget Work Session(s) in early fall focused on capital project needs and timing.  Consensus on this strategic plan is important as it would enable the Town to react quickly and benefit if Federal Stimulus becomes available.

DEADLINE FOR ACTION:

Under Section 15.2-2503 of the Code of Virginia (1950), the governing body shall approve the budget and fix a tax rate for the budget year no later than the date on which the fiscal year begins.  As the initial appropriation was limited to 1Q, the Town Council must appropriate funding for the balance of FY 2021 before the beginning of the second quarter or no later than September 30, 2020 to ensure continuity of government operations.