MEMORANDUM

TO:            Mayor Bill Grant
                    City Councilors

FROM:   Mr. Billy Peppers, City Manager

CC:            Mr. Nathan Ingram, Assistant City Manager
                     Ms. Annie Fortner, City Clerk
                     Ms. Melissa Forrester, Finance Director

DATE:       July 30, 2024

RE:             Fiscal Year 2025 Budget

Mayor Grant and Councilors,

Our team is pleased to present you with a draft of the Fiscal Year 2025 Operating Budget for the City of Canton. As with prior years, the draft budget is an all-funds budget for your consideration to adopt—it is not just the general fund but includes special revenue funds that are separately recorded as well as our enterprise funds for utilities. The all-funds operating budget for the City of Canton is recommended at $83,469,025, an increase of slightly over $1 million from FY2024. This represents a total budget increase of 1.3%.

PROCESS

The budget process for recommendation and adoption are found in the Charter. The corresponding sections are listed below:

Sec. 2.29. - Powers and duties of the city manager.

The city manager shall be the chief administrative officer of the city. He shall be responsible to the city council for the administration of all city affairs placed in his charge by or under this Charter. As the chief administrative officer, the manager shall:

(5) Prepare and submit the annual operating budget and capital budget, including any and all requested substantiating detail supporting planned line-item revenues and expenditures, to the city council. The annual operating and capital budgets for the next fiscal year are to be submitted 75 days in advance of the start of the next fiscal year.

Sec. 6.25. - Submission of operating budget.

On or before a date fixed by the city council, but not later than 30 days prior to the beginning of each fiscal year, the city manager or his designee shall submit to the city council a proposed operating budget for the ensuing fiscal year. The budget shall be accompanied by a message from the city manager or his designee containing a statement of the general fiscal policies of the city, the important features of the budget, explanations of major changes recommended for the next fiscal year, a general summary of the budget, and such other comments and information as he may deem pertinent. The operating budget and the capital improvements budget hereinafter provided for, the budget message, and all supporting documents shall be filed in the office of the city clerk and shall be open to public inspection.

Sec. 6.26. - Action on budget.

(a) The city council may amend the operating budget proposed by the city manager or his designee; except, that the budget as finally amended and adopted must provide for all expenditures required by state law or by other provisions of this Charter and for all debt service requirements for the ensuing fiscal year, and the total appropriations from any fund shall not exceed the estimated fund balance, reserves, and revenues.

(b) The city council, by ordinance, shall adopt the final operating budget for the ensuing fiscal year no later than 30 days prior to the end of the fiscal year or until such time as prescribed by city council. If the city council fails to adopt the budget by this date, the amounts appropriated for operation for the current fiscal year shall be deemed adopted for the ensuing fiscal year on a month-to-month basis, with items prorated accordingly until such time as the city council adopts a budget for the ensuing fiscal year. Adoption of the budget shall take the form of an appropriations ordinance setting out the estimated revenues in detail by sources and making appropriations according to fund and by organizational unit, purpose, or activity as set out in the budget preparation ordinance adopted pursuant to section 6.24.

(c) The amount set out in the adopted operating budget for each organizational unit shall constitute the annual appropriation for such, and no expenditure shall be made, or encumbrance created in excess of the otherwise unencumbered balance of the appropriations or allotment thereof, to which it is chargeable.

Sec. 6.27. - Tax levies.

The city council shall levy, by ordinance, such taxes as are necessary. The taxes and tax rates set by such ordinance shall be such that reasonable estimates of revenues from such levy shall at least by sufficient, together with other anticipated revenues, fund balances and applicable reserves, to equal the total amount appropriated for each of the several funds set forth in the annual operating budget for defraying the expenses of the general government of this city.

I will note that unfortunately the City Manager was delinquent in submitting a draft of the budget to the City Council at the described 75-day period. This year’s budget draft was made available to the City Council and public on Friday, July 26, nine days later than prescribed. I have addressed this timeline with our finance team, and we will not replicate the error moving forward.

The City Council will hold the required public hearing on the FY2025 Budget on Thursday, August 1, 2024 at the regular meeting of the legislative body. The City is only required to host one public hearing on the budget prior to action. Staff will recommend action, pending discussion, on Thursday, August 15, 2024. Any member of the Council that has further questions, concerns, or needs clarification can schedule a meeting with the City Manager and finance team over the next couple of weeks. Once adopted, the approved budget will be implemented with the start of the City’s fiscal year on Tuesday, October 1, 2024.

MILLAGE RATE

The City Council adopted a recommended millage rate for property taxation of 5.4 mills, a continuation of the same rate charged to property owners within the municipal boundaries of Canton since 2017. Additionally, the Cherokee County Board of Commissioners adopted a Fire Tax District millage rate of 2.888 mills. While the citizens of Canton do not pay a direct millage rate to Cherokee County for contracted fire services, the City of Canton is billed for the total of the property tax digest at the adopted Fire Tax District millage rate had it been applied to Canton property owners. This bill is paid in one lump sum payment under the existing intergovernmental agreement between the City of Canton and Cherokee County in May following the tax collection in November. The current City of Canton Millage rate was adopted on July 18, 2024 following three public hearings (June 6, 2024, July 11, 2024, and July 18, 2024).

BUDGET OVERVIEW

The General Fund Budget for the City of Canton is recommended to increase from $25.5 million to $27.8 million in FY25. This $2.2 million increase in spending is offset by increased revenue collections of property tax ($629,000), motor vehicle taxes on new vehicle sales ($208,000), franchise fees for utilities ($118,675), occupational taxes—commonly referred to as business licenses ($136,200), insurance premium taxes ($417,200), sold assets ($100,000), and use of fund balance ($2,403,744). The largest decrease in revenues will be $1.1 million in funds cleared in FY2024 from the American Rescue Plan Act. Payments to Cherokee County for fire services will increase to $7,091,000 ($425,100 over last year).

The City operates with 139 full-time employees (currently 127 of these positions are filled). Of these, 10 are paid for fully through enterprise funds (7 in the Water and Sewer Fund and 3 in the Sanitation Fund). The average hourly rate of pay for non-exempt full-time employees is $26.32 per hour. The average annual pay for hourly sworn police positions (work 2,236 hours annually) is $70,135 and civilian hourly employees (work 2,080 hours annually) earn an average of $60,006. This class of hourly employees includes police officers through the rank of lieutenant, public works technicians, court clerks, inspectors, support managers, finance clerks, administrative assistants, utility billing customer service representatives, technology support, community development customer service representatives, records clerks, investigators, public outreach staff, and maintenance.

The total salaries and wages for the City of Canton is recommended to increase approximately $850,000 in FY2025. This increase is related to the creation of 3 new positions as well as the implementation of the Compensation & Classification Study by Condrey & Associates. Under that study approved by the City Council in November 2024, the consultant reviewed and compared City of Canton positions including job duties, Fair Labor Standards Act classification for exemption status, and compensation ranges with 14 local governments in the surrounding market. Those included the cities of Acworth, Alpharetta, Dunwoody, Gainesville, Holly Springs, Johns Creek, Kennesaw, Lawrenceville, Marietta, Milton, Roswell, Suwanee, Woodstock as well as Cherokee County. The recommendation (not considering the step and grade scale for 2236 sworn employees in the Police Department or the implementation of a step and grade scale for public works non-exempt employees) was an overall increase in the City’s existing pay scales of $139,128 or 2.63% of payroll. In addition, the recommended movement of the scales, the firm recommended an additional equity adjustment to control compression within each scale of 4.79%. Management took the recommendations of Condrey & Associates with a few tweaks based upon years of service within the specific position versus years of service with the City as well as the implementation or continuation of step and grade scales in Police and Public Works.

The budget reflects the following new positions as requested by departments: annualizing one full-time administrative assistant for City Hall, one new Fire and ADA Inspector, and one Building & Code Compliance Technician.

This proposed budget includes up to a 10 percent increase in employee health benefits that represent only the employer share. There is an increase of 3 percent in workers compensation insurance, 7 percent in all other insurance, and 8 percent in electricity for general fund purposes. There will also be an increase in utilities in the water and sewer operations as portions of the new sewer plant come online. Additionally, based upon a report from GMEBS (the City’s defined benefit retirement plan) and MissionSquare (the City’s defined contribution retirement plan) the budget reflects an 18 percent increase in retirement expenses.

Additionally, major capital expenses within the budget include continuing construction of the water pollution control plant expansion, intersection improvements and addition of a signal light at Reservoir Road and Reinhardt College Parkway, SR 140 road design projects in North Canton, design and construction of the West Main Pedestrian Corridor project, continuing implementation of Transportation Master Plan projects, continuation of a Parks & Recreation Master Plan, design and replacement of the Etowah River Park canoe launch, groundbreaking at the South Canton Park project, street resurfacing projects, stormwater upgrades throughout the City and at Etowah River Park, improvements to the City’s water treatment plant, design of the new Etowah River Pedestrian Bridge, design of a replacement South Canton water tank, replacement of the Brown Industrial Park water line and booster pump station, design and construction of waterline improvements at Highway 20 and Interstate 575, lighting and sound enhancements to the Canton Theatre, and city-wide security cameras.

USE OF FUND BALANCE

Since 2013, the City of Canton has utilized reserves to keep property taxes low. In 2016, the fund balance was budgeted for use but due to vacancies and projects that did not get started, none was used. In 2017, the City utilized $1.7 million in reserves for general operations, allowing the City to reduce the millage rate from 5.6 mills to 5.4 mills. As employment with the City has steadied and departments are being efficient in the expenditure of budgeted funds, the fund balance that has been utilized to supplement revenues in the budget has been decreasing. As of the most recent audited fiscal year ended (September 30, 2023), the fund balance of the City was $17,779,963. This fund balance includes one-time recognition of American Rescue Plan Act Funds, some of which have been categorized toward specific projects such loans to the Canton Housing Authority, facility improvements as part of the Schneider Electric projects, and kick-starting projects in the next round of SPLOST or the Tax Allocation District. The proposed FY2025 budget was built upon using $2,403,744 in fund balance. The City utilizes approximately $2.3 million monthly for operations.

If the City did not have a fund balance, the budget would require a millage rate of 6.586 mills.

Respectfully submitted,

Billy Peppers, City Manager