By DAVID BORAKS
DavidsonNews.net

It’s budget-writing season for local governments and the picture this year is an ugly one, thanks to weak tax and fee revenues and state and federal funding cuts. County officials are dealing with big budget shortfalls and plotting layoffs and downsizing. Half our county’s library branches are closing. In Davidson, Town Manager Leamon Brice says there’s only one way to survive: Restructure.

Davidson’s Town Board met for an all-day work session Wednesday to start crafting a 2010-11 budget. The message: Revenues could be flat, at best, compared with the budget adopted for this fiscal year. Spending may need to be lower.

Town staff showed the board what the budget might look like based on an overall 11.7 percent cut in spending. The budget would total about $7.03 million, down from the adopted 2009-10 budget of $7.96 million.

Given the relatively small size of Davidson’s budget, an 11.7 percent cut appears certain to be painful. Wednesday’s beginning draft suggests there could be double-digit percentage cuts in most areas, from street maintenance and recreation to planning and public safety.

“What you see reflected here is, ‘Man, these revenues aren’t looking good, we need to respond,’” Mr. Brice told DavidsonNews.net after Wednesday’s meeting. He said town staff did some rough estimates of “how could we trim here and how could we trim there?”

Over the next two months, Mr. Brice said, town staff and commissioners will be taking a hard look at everything in the budget – almost like starting at zero and rebuilding, he said. That talk echoes last year’s “open the doors” budget process, where the town looked at what it needed just to keep the doors of Town Hall open. But it’s likely to go farther this year, the manager said.

“What we’re going to look at now is how do we re-create ourselves, for lack of a better word, into a structure that comes out in the most efficient way to provide the services that we have to provide with the least amount of money,” he said. Wednesday’s preliminary figures were an “early attempt,” he said, and “this will change when we really get into that restructuring kind of talk.”

Said Mayor John Woods: “I think we are responding to the economy just like everybody else is. We don’t have enough specifics yet to explain what those are, but we’re looking at everything that’s going on, both on the revenue side and on the expense side, to determine how to best respond in this economy.”

FLAT INCOME AHEAD

Weak revenues are the biggest challenge the town faces, and in that respect, the town is no different from neighboring towns and Mecklenburg County, or even state and federal government.

Davidson is assuming property tax revenues – the biggest portion of town income – will be unchanged from last year.

Sales taxes (11 percent of revenue) have been falling in the past couple of years, and could be flat again this year.

Prepared food & beverage and hotel occupancy taxes, which account for 2 percent of the town budget, are projected to rise only slightly.

And the town’s income from investments is also down, from $95,000 in 2009 to $20,000 in this fiscal year. It’s not likely to recover much either, Mr. Hardy said.

Meanwhile, the town is already getting less from a variety of county and state sources, and the 2011 fiscal year probably won’t see any improvement, especially given those governments’ own budget problems, town officials said.

This budget year, the state unexpectedly told cities and towns it was keeping two-thirds of the beer and wine tax it normally distributes. Davidson’s share, adopted in a budget amendment a couple of months back, was cut from a projected $42,000 to $14,000.

Charlotte Area Transit System has told the town it’s getting $10,000 less in transit planning money this year. And Mecklenburg County is cutting its contribution to Davidson Fire Department.

Figures for 2010-11 will be clearer after town officials hold a budget planning meeting with Mecklenburg County officials on April 12, Mr. Brice said.

Davidson did get one positive surprise recently: It is recovering $60,000 this budget year in utility franchise taxes. Those are taxes on gas and electric utility payments that are collected by the state, and shared with cities and towns. A private contractor has been reviewing the properties that the state uses to allot those payments and found Davidson and other towns are owed money for properties that were improperly classified as outside the town borders, Mr. Hardy said. About one-third of recovered payments will go the contractor. Davidson’s share of the utility franchise taxes will be higher going forward.

EVERYTHING ON THE TABLE

Wednesday’s session, in a meeting room at Davidson Village Inn, included talk about reducing or restructuring some town services, adding new fees, perhaps for trash pickup, and possibly reviving a proposed second Municipal Services District – and property tax surcharge – on commercial properties in the Exit 30 area. (The board rejected the proposal last year, and some board members again raised questions about the idea.)

Also on the table are personnel costs. The board held a nearly three-hour closed session Wednesday afternoon whose topic was described only as “personnel implications of the FY11 budget.” The board almost certainly was discussing the most painful aspects of a potential restructuring – what to keep and what to cut.

In a graph described as “very preliminary,” Finance Director Eric Hardy showed spending for personnel could fall from roughly $3.8 million this year to $3.4 million or $3.5 million in 2010-11.

Does that mean layoffs at Town Hall? Maybe, Mr. Brice said later. The town will be looking at trimming pay, benefits and other personnel-related costs, and even staff, Mr. Hardy said.

Will the next budget include a tax increase? “Everything’s on the table,” Mayor Woods said after the meeting. Commissioners Wednesday also reviewed relative comparisons of the town’s tax rate (currently 36.5 cents per $100 of assessed value). While it’s the second highest in Mecklenburg County (behind Charlotte), commissioners were told it’s near the bottom of a list of 14 small, suburban college towns across the state.

While everything may still be on the table, town officials were careful Wednesday to say that they’ve made no final decisions yet. “This is something we’re continuing to work on,” Mr. Hardy said.

SOME EXPENSES RISING

The rough plan Mr. Hardy presented the board Wednesday showed a couple of expense categories rising – expenses the town must absorb even in light of challenges on the revenue side.

The biggest jump could come in legal expenses. One slide in Mr. Hardy’s presentation showed legal fees rising 69 percent in the coming year, from $67,500 to $114,010.

The slide did not explain the change in detail, but the town is facing elevated legal costs. That’s due in part to a developer’s challenge of the town’s Adequate Public Facilities Ordinance, or APFO. (The developer of 329-unit Summer’s Walk neighborhood off N.C. 73 is battling the town in federal court. See our coverage under the APFO tag.)

One subject not discussed publicly Wednesday, but which also will be a factor next year, is how much the town will have to contribute to cover a budget shortfall at the MI-Connection cable system. Davidson owns the system along with the town of Mooresville.

It’s not growing as originally expected, and with big principal payments coming due next year on the towns’ $92.5 million in debt, town and system officials say they expect the system won’t be able to cover its costs. With the cable system and weak economy in mind, Mr. Brice in January warned Town Hall employees that layoffs are a possibility.

MI-Connection’s volunteer citizen board is working on its budget now. Mr. Brice said he’d love to have an estimate of the system’s needs right now. But “things are going to change no matter what,” with the 2010-11 budget.

Mr. Hardy also said the budget does not include other potential expenses as well. Besides a possible payment to the cable system, Davidson faces a pressing need to build a second fire station on the east side of town, and it is hoping to catch up and keep up with street maintenance, he said. Planning studies are also on the wish list.

BUDGET MEETINGS

The town board likely will take a little extra time this year to discuss the budget, as it looks at a potential major restructuring of town government, Mr. Brice said.

“We’ll be working on the restructuring, what does the new organization look like?” he said. He gave no specifics about what that might mean, or how it might affect the size – or even existence – of town departments and staffing.

“It’s almost like looking at a zero-based budget,” Mr. Brice said. “We’ve got a brand-new day, what do we have to do? … I think we are truly looking at tear it down and build it back.

The board must approve a new budget in June, before the July 1 start of the fiscal year.

CORRECTION: Davidson’s tax rate is 36.5 cents per hundred. The original version of this article was incorrect.