04/11/11 — County says cost shift will force tax increase

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County says cost shift will force tax increase

By Steve Herring
Published in News on April 11, 2011 1:46 PM

Wayne County taxpayers could see their tax bills almost double in one year should state lawmakers go along with financial shifts as detailed in the governor's budget proposal that would force counties to raid their fund balances to survive that cost shifting.

An additional 62 cents per $100 of value on the tax rate would be required in one year on top of the present rate of 76.4 cents to rebuild the fund balance to its current level. For a person owning a home with a value of $150,000, the increase would equal an additional $930 annually in taxes.

Any planned capital projects, including schools, would grind to a halt as well.

"I do believe that this is a last-ditch effort by the state to force the hand of other legislators to make some cutting decisions and some things that they have to do," County Manager Lee Smith told commissioner at their Tuesday meeting. "Now what is happening is counties are standing up and saying, 'No you don't.' So they are forcing other legislators to make a decision. I get it, but boy, that is scary on our back."

Commissioners called the proposal unfair, crazy and a slap in the face to the county's prudent and good stewardship.

Commissioner Jack Best said the state needs to realize that the money in the fund balance isn't the county's and is already allocated to different projects.

"It is allocated to the future debt that we have with employees. That (debt) is way more than (the fund balance)," Best said. "Our money is dependent on us making sure we can do our projects in the future. We have to cash flow ours. Eight percent, man in one month, if anyone hiccups, you couldn't even make your payroll. That is crazy.

"The whole thing is everybody blames the Republicans. Everybody blames the Democrats. The problem is that they won't stand up and say that we have a problem and we need to cut some things out and get down to basics. That's the problem with that crowd up there they just won't make a stand because they are afraid that somebody won't vote for them. That is Republican and Democrat."

According to the North Carolina Association of County Commissioners, a representative of the governor's office circulated a chart of counties' 2009-10 fund balances to the House and Senate Appropriations chairs.

The purpose was to illustrate that counties have sufficient reserves on hand to withstand the proposed financial shifts, association officials said.

The chart refers to an 8 percent statutory set-aside based on a county's general fund revenues. The chart indicates that counties need only $799 million of their available $2 billion fund balance.

There is no statutory fund balance requirement. The 8 percent represents reserves of one month's expenditures, or 1/12 of a fiscal year, according to the association. That is the minimum needed to prevent a county or municipality from receiving a letter of warning from the Local Government Commission indicating fiscal problems.

Association officials said that a disclaimer by the Local Government Commission was edited out of the chart. The disclaimer reads, "The figures presented include a county's working capital, which is needed to meet daily expense and maintain a favorable bond rating, as well as funds being banked for specific school construction and other infrastructure projects."

Approximately 35 percent, somewhat more than $34.5 million, of the county's budget is in the fund balance.

If the state were to force the county to use the amount over the 8 percent, it would require the extra 62 cent on the tax rate in one year, Smith said.

"Capital projects would stop due to the fact that the county would not have sufficient funds in reserve to ensure payments in cases of emergencies," Smith said. "The North Carolina Local Government Commission would not approve any projects and our bond rating would be reduced tremendously."

The state obviously is still seeking ways to cost shift to counties and to cities, Smith told commissioners.

If legislators want to "break the back of the taxpayer" they can do so by shifting those costs to property taxes, he said.

"That is absolutely unfair. I cannot believe that they would even consider doing that," Smith said.

The county sent the information, but included its future projects -- schools, Health Department, Services on Aging -- showing that the county has obligations for the money in its fund balance, Smith said.

"We put our money away for a reason," he said. "We have policies that we put in place. It is not just rainy day funds. What they were trying to say is that all you need is your 8 percent. No. You have to be able to make it. The 8 percent you cannot touch. You need money to be able to put on a roof if it comes off a building. That is what we have tried to do and a lot of counties have."

Smith said he had sent e-mails to state leaders calling the notion "totally irresponsible" to even consider it.

"We have been fiscally responsible and we should not be penalized for the mistakes of others," Smith said.

Smith said local legislators told him they do not support such action and he encouraged commissioners to talk to other state lawmakers.

He also said that local residents need to talk to legislators.

Commissioner Andy Anderson said someone needs to "get hold" of those on the national level and tell them that they have got to cut, too.

"It is just beyond my belief that they would try to penalize counties that have been fiscally prudent," County Attorney Borden Parker said.

"Is what this is implying that (Gov. Bev, Perdue) is going to take the difference between our 8 percent and what we have?" Commissioner Steve Keen said.

"What she is trying to do is to tell the legislators what the counties are flush, the municipalities are flush -- let them absorb some of these state costs," Parker said.

This is on top of the jail issue, Smith said.

Smith was speaking of another proposal in which inmates serving one-year or less for misdemeanor crimes would be housed in local jails. That could lead to jail overcrowding and cost the county close to $700,000 a year.

"They are not including that (jail)," he said. "But Health Department funds, Department of Social Services funds, reimbursements for most of inmates when they cut those things we would have to use fund balance. Or what they do is force a tax increase. Cities and counties have capital improvement needs. Things that we have planned for that we will have to borrow money."

For example, the county plans to sell $15 million in bonds for construction projects at Eastern Wayne and Norwayne middle schools. Once that money is borrowed part of that 35 percent fund balance is obligated, Smith said.

While the 35 percent might sound high, it is still not considered to be where the county ought to be, Smith said.

"It is not even enough to carry you for a half a year if something were to happen," he said. "If you look at the future cost of our employees that is $36 million. There goes your fund balance."

Smith said he is hopeful that the current county budget will end with slightly more in revenues than expenditures. To help make that happen, the county began making cuts at the start of the budget year, he said.

"What did the state cut; what did they change?" he said. "Don't cost shift."

Commissioner John Bell said the county had actually started cutting seven years ago to remain fiscally sound.

Keen said he had spoken to a commissioner from a different county while in Raleigh recently who told him his county was looking at possible 12-day employee furloughs next year. The man also said the budget would represent an overall 5 percent reduction in employee payroll.

"If we do what we say and that is, as Mr. Keen said, to maintain at the levels that we are and not have a property tax increase and sales tax and not do those things now when the state cost shifts, we will be forced to cut local county services," Smith said. "That means a decrease in services to citizens. That is really a tax increase because they are going to get less service for the same buck that they pay. They will get less service of the local things that we provide."

Smith said county commissioners across the state had talked about a quarter-cent sales tax for capital projects. Now some are saying they might need that quarter cent just to survive the state budget.

"That means there goes a school. There goes a Health Department," he said. "Once it goes into operations it is done. Once you put it into operations it is eat up. You had better plan those things (sales tax) for capital and find some ways to work within your operation budget and that is what we have done."