03/17/11 — County weighs sales tax hike

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County weighs sales tax hike

By Steve Herring
Published in News on March 17, 2011 1:46 PM

A dramatic multimillion-dollar decline in sales tax revenues over the past several years coupled with uncertainty over the future of state lottery funds had county commissioners toying with the idea of a quarter-cent local option sales tax for capital projects -- most likely for schools.

Commissioner Andy Anderson even renewed the notion that school consolidation should be considered as a way to save money.

Neither of the ideas got past the talking stages as commissioners met at the Goldsboro Country Club for a workshop on county finances. Nor did commissioners indicate if they would support either measure.

County Manager Lee Smith said after the meeting that the preliminary Capital Improvement Plan he presented last November included the quarter-cent proposal three to five years out.

The tax would require voter approval in a public referendum to be implemented.

"It basically showed that if you put it in place, this is what it will do and this is kind of the timing," he said. "I will probably put it back in there as an option. If you want to do certain things, you need to put it place.

"But when you do a referendum for a sales tax, the only ones that have passed have been for very specific things like a school or multiple schools or a building. That is the only way that it will work. If you don't name it, it is going to fail."

Smith said he does not think a sales tax would pass in Wayne County today because of anti-tax and anti-government sentiments across the state.

"I understand that," he said. "I have to pay taxes, too. I think you have to educate and say to the general public, 'If you want these schools or these things, here is the cost and here is how we are going to do it. Do you want to do it on property tax and it cost you 'x' on your house? Or spread it to everybody who pays sales tax?' Show that option and let people choose."

Smith said commissioners had never specified what such a tax would support, but that in the Capital Improvement Plan he had tied it to schools, which would probably be his recommendation again.

Wayne County is preparing to embark on a $15 million renovation and construction project at Norwayne and Eastern Wayne middle schools that would be financed by federal bonds.

The county hopes to use lottery funds to pay the principal and use local funds for the interest. The federal government would reimburse the interest, about $750,000 to $800,000, annually.

Lottery funds are now in question because the governor's proposed budget would pirate them away from their original intent of capital projects to help pay for education expenses.

Sales tax revenues are suffering as well, county finance officer Pam Holt told the board. However, a low debt service has helped the county weather the financial crisis, she said.

"If we had high debt, we would not be where we are," Smith added.

The county receives revenues from three sales taxes -- Article 39, a one-percent tax, and Articles 40 and 42, one-half percent taxes. Schools receive 30 percent of Article 40 revenues and 60 percent of Article 42 money.

Another one-quarter cent tax, Article 44, was absorbed by the state when it took over the counties' shares of Medicaid costs on Oct. 1, 2009.

"That put us, at that time, in a positive position by three plus million dollars," Smith said. "But now it is starting to shift because they are cutting our reimbursements."

Sales tax collections from last July to this past February total $9.3 million compared to the prior year's collection of $10,265,376 -- a decrease of $935,000 for eight months compared to the same period a year ago, Mrs. Holt said.

Mrs. Holt said she had attended a recent meeting of county finance officers where state officials had promised that sales taxes were up.

"We don't see it here at all," she said.

Commissioner Jack Best asked Smith if the county could gauge increases by a breakdown of the sales tax numbers.

"You can't tell," Smith said. "When the department of revenue sends it to you and you ask for a breakdown, they say that they can't do it, that it is proprietary and they can't give it to you."

The county does not receive any details behind the revenues, Mrs. Holt said.

"When it comes in, I can see what I got on (articles) 39, 40 and 42, but we don't get like well the state got this much total and this much is administration and where it came from," she said. "We don't get that."

Sales taxes are allocated quarterly.

Best said that based on the sales tax history that the county is looking at a loss of almost $5 million over the past three years.

Smith said that county departments had been cut back over those same years to meet those revenue so that the county did not have to increase taxes.

"If we had not, we would have been over budget," he said.

"Looking here today and what has been done, we need to take our hats off to the departments," Best said. "They have kept us within our revenues. Some other counties have taken out of their reserves and now they don't have any reserves left."

Commissioner Steve Keen asked how the county would factor in the governor's proposed education cuts with lost sales tax revenues for schools.

"Just a couple of years ago, (the schools) were getting $4.5 million (annually)," Smith said. "Well now that has dropped back to $3.5 million, so there is a million dollars missing. We have to watch that because that is what we use for the schools for their annual buying capital, repairing things.

"We have talked about if the lottery money goes away and we use (the $3.5 million annual sales tax) to make the payment on the $15 million -- we have got to watch that because it will take almost a million dollars of it which will cut it real close to what they need annually just to repair (items)."

Using that $3.5 million to make the $1.5 million annual bond payment would get close to leaving schools barely enough to cover needed repairs, Smith said.

Keen then broached the idea of the additional quarter-cent local option sales tax if the lottery revenues go away.

Smith said that his Capital Improvement Plan would include the quarter-cent sales tax at some future date. It would add $2 million to $2.5 million in revenues annually, he said.

"If you look at how the dollars are running and coming down like it is, as fast as it is, that is why I think we need to look harder at schools, more consolidation of schools to cut down on some of these expenditures," Anderson said. "Our sales tax is coming down about $5 million since 2008, but if we can cut some capital expenditures down in the schools by more consolidation it would cut down on some of this, wouldn't it?"

Smith said his Capital Improvement Plan would look at consolidating some county buildings.

"You are going to cut down on operational costs," he said. "Operational costs are your biggest. Debt service is cheap. It is the operations that are the killer."

"Well I think, too, when you look at that you have to propose a quarter cent to sustain what you've got if they start taking back on this end, you've got to build it in to build up this end," Keen said. "As they keep taking away you have to keep adding to just to sustain.

"You can't even talk about consolidations or new buildings just to stay where you are."