The council is expected to vote June 10 on adopting a budget and setting the tax rate for the fiscal year that beings July 1.
The council must decide whether to accept Town Manager Kyle Sonnen-berg’s recommended 41.3-cent “revenue-neutral” tax rate or to lower the rate even more.
(The Pilot erred in rounding off the 41.3-cent figure to 41 cents in a recent story. Even that small change would make a difference of $36,000 in tax revenues.)
The current tax rate is 50 cents per $100 of assessed valuation. “Revenue-neutral” means the town is able to reduce the rate and still produce as much revenue because of the recent county revaluation of real property.
A public hearing will be held during the 7 p.m. meeting, before the council votes on the adopting the budget and tax rate.
The council debated the tax rate and budget during a work session Tuesday.
The proposed budget funds services at the present level while reducing the tax rate. This can be done because the county’s revaluation has resulted in an increase of 21 percent in the town’s tax base — plus the normal 4 percent growth rate.
Council member Marquita Daniels wanted to cut the rate to 40 cents for the new fiscal year, lowering property tax revenues by $156,000. The difference could made up from the General Fund balance, she said.
Sonnenberg said that could set a undesirable precedent.
In the past, the fund balance has been used in capital reserve funds to pay cash for big projects like the new town library, the new fire station, the new recreation center, a planned renovated police station and renovations for Public Works in the Access Printing building. The council wants to carry out other capital projects without having to either add to the tax rate or borrow money, council member John McInerney said.
The fund balance has also been used as a safeguard against fiscal emergencies. It has 25 percent of the year’s operating budget set aside in reserve from the General Fund balance. Most municipalities the size of Southern Pines do this routinely, Sonnenberg said.
“We have explicitly not used fund balance to pay for fund operations,” Sonnenberg said. He said doing so would “send a different message on policy.”
He expressed concern that hard economic times will depress the town’s revenue flow and make the fund balance even more critical.
Under the proposed property tax rate, revenues from property taxes of $4.8 million for next year would fund almost half of a $9.1 million General Fund budget, down from the $9.2 million for this year. The rest of the funding comes from other sources, primarily sales taxes and fees.
The council didn’t agree on any reductions during its Tuesday budget workshop. But it did agree on the need to add expenditures, such as funding for a capital project to complete Knoll Road as a connector between Midland and Pinecrest High School Road. That project has been pending for years. The money would probably have to come from the fund balance, Sonnenberg said.
Even with the proposed level of expenditures in the coming fiscal year, the expected final fund balance in the General Fund would be more than $3 million.
The council debated the politically sensitive subject of the tax rate, coming down to a tentative 3-2 voice poll Tuesday favoring a flat 41 cents.
Council members McInerney and Fred Walden and Mayor Pro Tem Mike Haney were in the majority. Mayor Frank Quis joined Daniels in the minority. Quis said he was playing “devil’s advocate” during a lengthy discussion.
Sonnenberg warned that in the long run, taxes could go back up or services could be cut if the council approves further reductions from the revenue-neutral level.
Complicating the matter are potential sudden drops in other revenues. In recent years, for example, Gov. Mike Easley and the N.C. General Assembly have dipped into the Highway Trust Fund, which supplies Powell Bill street-paving funds to local governments.
Southern Pines has regularly used part of its General Fund balance to shore up road resurfacing programs, including a sidewalk project, which the regular state Powell Bill monies don’t pay for.
Sonnenberg said his is the only proposed revenue-neutral tax rate among the four big local governments, including Moore County, Pinehurst and Aberdeen.
Capital Projects
The N.C. Department of Transportation installed a new traffic signal at Morganton and Pinecrest High School roads early this year. That eased traffic flow could finally allow the town to do a long-pending project to take traffic from Midland Road and route it to Pinecrest Plaza and Morganton Road, avoiding the congested traffic circle and easing traffic on Midland. That is not in the budget, but may be added, possibly using more of the General Fund balance, for the council to vote on June 10.
Already in the capital reserve budget is a plan to construct Patrick Road from Pinecrest High School Road to Tanglewood Road, eventually carrying traffic parallel to Morganton and away from Pinecrest High School Road toward downtown Southern Pines.
The development of new apartments and some commercial businesses in that location are making it feasible to get started on the new connector, which will also require navigating a stream crossing and increasing the cost, Sonnenberg said.
The money for the Knoll Road project might be provided by the Town Council, since escrowed funds from development of the Mid-South golf residential community, earmarked for construction of the road, came in slower than expected. Because of lagging lot sales, the account lacks an estimated $100,000 to complete the road connector.
“This would be something for the community,” McInerney said.
Taking more money from the fund balance to lower the tax rate, which normally funds the capital reserve would be ill-timed because of the economy and lower sources of revenue for the town, Sonnenberg said after the meeting.
Sonnenberg said in a telephone interview that in two years, $580,000 in needed equipment replacement for routine services will be needed — considerably more than in the coming year’s budget, which is less than $200,000.
“I don’t know what’s going to happen,” he told the council.” I’m concerned that for the past four years, our revenue sources have been stagnant.”
Council Members’ Questions
Daniels pointed out that recreation fees charged don’t entirely pay for recreation programs. “I don’t think [users] could pay it [the full cost],” she said.
She questioned Police Department vacancies, which occur with periodic turnover. Some salary and benefit money is saved because of brief vacancies.
One council member said those funds could pay for the $36,000 gap in revenues, should the tax rate go down to 41 cents.
But no decisions were made on any specific cuts. Sonnenberg said he didn’t know where cuts in expenditures could be made to further reduce the tax rate.
“What do you do when it’s time for merit increases for personnel and there have to be some increased expenditures?” Haney said. “You have to be careful. Just because it feels good to start cutting taxes — I’m concerned we’ll be in a position later to raise taxes. Not increasing taxes is a good thing.”
Another unavoidable increase is a 13 percent hike in insurance premiums, which is not under council control except in the personnel coverage, where the town pays 100 percent for employees. The employees, however, pay 100 percent of the cost to cover dependents.
Under a revenue-neutral budget, he acknowledged, “some people will still be paying more taxes, because their individual property has increased more greatly in value in the past eight years than others whose property values have not increased beyond the regular fair market value.”
If the tax rate were cut further, the difference in tax bills would be $10 or $20 for an average taxpayer with $100,000 or $200,000 worth of taxable property in Southern Pines, Haney said.
But Daniels argued that perception plays a part in the eyes of the taxpaying public. “Why not give the taxpayer a little bit of a break?” she asked.
McInerney said Southern Pines has been able to provide services and carry out other projects without having to revert to loans and increasing taxes, as other towns and counties have had to do more frequently.
“North Carolina is in big trouble because we had tax cuts in the mid-1990s,” McInerney said. “We’ve lost $1 billion worth of state taxes that were cut, and now we’re in trouble. Revenue-neutral sounds good to me. We’ve got things to do.”
Walden ultimately opted with Haney and McInerney for a reduction of about $36,000 in revenues by reducing the rate to a flat 41 cents.
“My concern is, will we have to raise taxes in the future?” Walden said.
“That is my concern,” Sonnenberg said.
