With an eye on trimming enough from the proposed budget to avert a property tax increase next fiscal year, the New Hanover County Commissioners looked Thursday at everything from “nickels and dimes” to possibly several million dollars in additional cuts.
While some commissioners discussed putting off a few capital improvement projects, Commissioners Skip Watkins and Woody White favored getting the bulk of the money from the county’s substantial savings account.
By reducing the savings policy from the current 21 percent to 18 percent or 19 percent and using the resulting $6 million to $9 million for budget needs, the county could avoid raising property taxes at all in the 2015-16 budget year, Watkins said. “That frees up a lot of money that is the taxpayers’ money,” he said.
In June 2014, the county had a fund balance of $63.7 million.
White agreed, reiterating his long-held stance that the county should avoid a property tax rate. The economy benefits when residents can keep more of their money, he said.
“Right now I feel like we’ve beat the horse about as far as we can beat it, Watkins said, referring to previous cuts that pared County Manager Chris Coudriet’s 5-cent property tax rate increase to 2 cents. “When it comes right down to it, we need big money. We don’t need nickels and dimes.”
But Chairman Jonathan Barfield and Commissioner Rob Zapple were skeptical. One reason the county has a AAA bond rating — the best available, which translates into lower interest rates for borrowing money — is the healthy savings account, Barfield said. “I would hate to see us reverse that trend,” he said.
Zapple concurred that the bond rating is important; a AAA rating can save the county millions of dollars in interest over the life of a 20-year public construction bond. But he also was concerned about using savings for ongoing operations. Typically, the county dips into the fund balance for one-time expenditures, such as capital projects, he said.
Additionally, Zapple noted that the N.C. General Assembly is considering action that could have a significant impact on local government budgets and necessitate using the savings account. Among them is a proposal to redistribute sales tax revenues, which could cost New Hanover County and Wilmington millions of dollars a year.
The current property tax rate is 55.4 cents per $100 of property value. Residents of the unincorporated area pay an additional 7.9 cents per $100 for fire protection, but Coudriet has proposed reducing the rate to 7 cents.
The N.C. Local Government Commission’s policies require counties to keep a fund balance equal to 8 percent of the total operating budget. The money is needed not only for emergencies or catastrophic storms, but also to maintain cash flow. Tax revenues do not come in on an even basis over the 12 months of a given fiscal year. Typically property taxes come in near the end of the calendar year, while sales tax revenues are received quarterly.
For years New Hanover County had a goal of keeping at least 16 percent in savings, in part because of the risk of a major hurricane in this area. But fund balances also are looked to by bond rating agencies; those agencies determine whether a county is an excellent financial risk, or a dubious one.
Two years ago the county commissioners adopted a policy of keeping the fund balance at 21 percent, which equates to about 75 days of operating expenses.
Budget Director Cam Griffin said rating agencies often see local governments changing the fund balance policy, but typically it is to strengthen it. Those agencies may view retreating from a stronger policy as a red flag, which could affect, though not determine outright, a bond rating, she said. But she also noted that having a solid savings policy, as opposed to unpredictable ups and downs in the fund balance, is important in maintaining a strong bond rating.
Other suggestions for budget cuts included holding off spending $800,000 to replace elevators in the county courthouse, with the understanding that the county might have to find that money if an elevator breaks down. The commissioners cut out one elevator at their last budget work session but on Thursday discussed putting off the entire $800,000 project until a future budget year.
Commissioner Beth Dawson also wanted more information on capital projects and Cape Fear Community College’s capital improvements request. The board had previously agreed to reduce its contribution to CFCC by $550,000 by putting off two projects, including a kitchen remodeling in one building. But they also discussed Thursday whether more could be saved.
No consensus came out of the May 28 meeting, and the board may meet one more time before a planned June 8 public hearing on the $306.6 million operating budget.
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