12/17/08 — County to schools: Tap lottery funds now

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County to schools: Tap lottery funds now

By Steve Herring
Published in News on December 17, 2008 1:46 PM

Wayne County's $22 million school facilities plan could be in jeopardy if the state decides to raid lottery and ADM (average daily membership) funding to help offset a ballooning state budget shortfall.

That, county commissioners said Tuesday, is why the school board needs to act quickly to obligate those funds even if it requires a special board session to do so.

County Manager Lee Smith told commissioners that he has a "tremendous fear" that the state could commandeer those funds, which the county has banked on to help pay for the schools' capital projects in lieu of a tax increase.

It wouldn't be the first time the state had taken such action, Smith said, noting the same thing happened years ago to inventory and intangibles tax revenues.

Even the state helping with the cost of Medicaid has cost the counties sales tax revenues, Smith said.

Commissioners nodded in agreement when Smith said the indication he had received from them is that next year's budget will not include a tax increase.

Smith expressed his concerns while updating commissioners about a meeting between county and school staff about the school facilities plan.

Commissioners last month asked for the meeting to clarify some questions about the plan including the project timeline, county ownership of the building and insurance.

Smith said the school board had "tightened" the timeline and had reviewed project estimates to ensure they were within budget.

The insurance question also has been resolved, Smith said.

Under the proposal, the county would own the school buildings and lease them back to the school system. Currently the schools are insured through the N.C. Department of Public Instruction.

The county will be able to continue that coverage even though the buildings will belong to the county, Smith said.

The project and funding must be approved by the Local Government Commission before it can proceed. Smith said he is hopeful the application process can get under way in January or February.

As originally proposed, the county would borrow about $16 million with the remainder coming from local sources. The debt would be repaid through sales tax and lottery revenues.

But the lottery funds could be in danger and sales tax revenues continue to slide, Smith said.

Smith said he hopes he is wrong about how low sales tax revenues will decline, but added that he doesn't think he is.

Smith said the school board should consider obligating some $6.2 million in lottery funds for the project. The schools could use that money to do one big project or several smaller ones.

That in turn, could allow the county to reduce the amount to be borrowed to between $12.5 million to $13 million. The county could use bank financing to finance the project instead of the more costly and complicated means that would require bonds.

Smith noted that Wake County recently had started a similar process, but when it went to sell the bonds did not find any buyers.

Commissioner Jack Best said that Smith had mentioned on several occasions that the school board needed to act on securing the funds.

"You need to continue," he said. "It would be a shame to mess around and not get it. You have encouraged them (school board) several times and they have not heeded your warning. If they miss that money then the whole $23 million project is in danger."

Commissioner John Bell said he had attended a recent meeting in which speakers said the state was "looking at every effort to take money back."

"If you have any money laying around and not using it, they are going to take it," Bell said.

Commissioner Steve Keen asked Smith if the school board had looked at its priorities just in case there isn't enough money to do all of the planned work.

Smith said it had.

"It is almost impossible to suggest something to the school board," Best said. "But it might be worth them having a special session."

Best said state legislators will be looking at a $2 billion to $3 billion budget deficit when the legislative long session opens in about six weeks.

"Where are they going to get the money," he said. "They are going to grab cash."

To illustrate his point, Best noted that the schools already had to surrender more than $700,000 to the state.

Commissioners suggested the school board needed to obligate the money prior to the start of the legislative session.

However, county attorney Borden Parker pointed out that it is not just the General Assembly the county needs to be concerned about.

"That was the governor," Parker said of the money already returned by the schools. "It is not just the legislators, it is state government. What I am trying to point out is that it is just not in six weeks."

"We need to move as expeditiously as possible or we may not have the money," said Commissioner J.D. Evans.

Bell said it wasn't that commissioners were trying to tell the school board what to do.

"But either we spend it locally, or the state will take it," he said.

Commissioner Andy An-derson said that the possibility of lost funds affected more than just schools.

"This advice applies to everybody," he said.