Apex Town Council Talks Finances

Day 2 of the Apex Town Council retreat was heavy on our financial situation, including a discussion about a potential future Park bond

Happy Snow Day! The Apex Town Council met on 2/13 for Day 2 of our retreat, the final meeting of a pretty intense week. Here is what I learned:

Financial Condition Review

Key Take Aways: Apex’s financial position so far this year is strong

We started the session with a mid-year financial review from our Finance Director. Here are some highlights, keep in mind this is mid-year (so 50% is the benchmark):

• Revenue is at 54% of budget (4% above expectations at this point)

• Expenditures are 38% of budgeted with another 7% “encumbered”

• Water/Sewer fund at 57% of revenue, 49% expenses

• Electric 57% of budgeted revenue collected, 50% expenses

Our cash balance/equity remains strong.

We’d like to see Days Cash on Hand for Electric move up (it has been inching up with policy changes over the past year).

In terms of our debt picture,

I’ll speak to this more in the next section where we went into greater detail, but overall our financial and debt picture is very, very strong.

Financial Advisor Update

Key Take Aways: We’re creating a separate community investment fund, and planning to fund it at 7 cents of our tax rate going forward. This gives us $100m in additional debt capacity for future projects.

We contracted the services of DEC and Associates to evaluate our finances and associated policies. We’re putting into place several recommendations we discussed as a Council.

The biggest one that I am most excited about is the creation of a “Community Investment Fund” (or CIF). This new fund is what we will use to service debt as well as fund any “paygo” projects (projects which we pay cash for, rather than take on debt). This new fund will have a dedicated tax rate associated with it; initially set by splitting off 5.54 cents of the tax existing rate (this is a very low value - Holly Springs is at 12 cents)

The goal is to reach a ‘steady state’ where as debt is paid down and the size of the fund grows, that represents capacity for future borrowing or paygo projects. Likewise, whenever we’re discussing bonds and associated tax increases, that directly and specifically is going to refer to rate going to fund the CIF. Accordingly, the 2021 Transportation Bond has a (final) scheduled tax increase of 1.5 cents this coming year. That will move the CIF rate to roughly 7 cents. Going forward we will break down our tax rate into Operations and CIF rates.

We are going to establish several debt policies which are centered around the CIF rather than metrics we previously used - 50% “coverage ratio” (CIF balance vs yearly expenditures) and since the CIF represents a “split” from the General Fund, we are going to lower the reserve levels in the general fund from 25% to a range of 20-25%, and require anything above 30% in the GF to transfer to the CIF annually.

So that’s the heavy stuff. It’s a major step forward in transparency of our debt levels, opportunities, and expenditures and I think it’s a very positive change.

Moving on. We also discussed our current debt situation, including planned issuances, as well as the implied capacity by the current CIF funding plan. Bottom line is, our current financial situation allows us to:

A) Borrow enough money to cover all named and funded projects currently in the budget (Pleasant Park, Tunstall House, etc)

-and then-

B) Have approximately $100m of available debt capacity for additional projects, with $23m every two years starting in 2030

..without a debt servicing tax increase beyond the 1.5 cents planned for this year.

Town Council directed staff to plan for that 1.5 cent increase in 2026, as advertised in the 2021 bond, but they modeled out what spreading it out as a half cent over 3 years would look like as well. Final decision here will come as part of the budget.

So, that was the heaviest part of the day. But, it’s all good news, our financial picture is strong, and we have capacity to future make progress on our capital plan.

Town Facilities Study and Recommendations

Key Take Aways: The study concludes our space needs will grow by 31% over the next 20 years, with Town Hall, APD, AFD, and Water Resources identified as key needs. Although costly, Town Council wants to be aggressive in planning any new facilities for future needs

So, the town contracted with Creech and Associates to do a comprehensive facilities study to look where we needed space, and when. It was a long study, and a long report, so here are some highlights:

• We believe our space needs will increase 31% over the next 20 years

• Town Hall has one of the largest “deficits” in space needs. The Tunstall House was mentioned as potentially a vital “relief valve” there to serve as overflow until a long term solution was developed (I’m guessing, another building)

• A “Public Safety Campus” on Hunter Street (fire station 3 campus) was also identified as a critical need. We discussed our investments here

• The current Apex Police Department HQ is another area pressed for space, and there are some plans for expansion of this building which could help.

• Perry Road Site for a Water Resources campus also came out as a critical need. The Council here again discussed being aggressive when building the new campus to address future space needs (extra story on buildings, etc).

You can see how all of this sounds very expensive, and quickly eats into that $100m of borrowing capacity we were just discussing. None the less, Council as a whole seemed supportive of an aggressive strategy.

That brings us to lunch.

This is already getting pretty long, I’m going to come back later and do a part 2 - the afternoon, where we discussed the budget survey results, Council capital project priorities, Park capital project priorities (and details of a potential Parks bond?), and a discussion about changing Council meeting and work session schedule.

-terry