Following the vote setting the tax rate to $0.63 per $100, Bob Carruth wrote an editorial covering the reasons behind that decision and the parameters surronding it. The Independent Tribune didn’t post this on their website. In spite of that, they provided this community with a great service for handling an article of this length, and handling the rebuttal from the dissenting commissioners. Here’s the text of that editorial.
How IT Happened
Tax Increase. It is my guess that no matter who you are, if you live in Cabarrus County, this has been the main topic of conversation this week, which greeted most of us in the paper come Wednesday morning. Of course, as I have heard from many of our citizens, this is probably the worst thing that I, Joni Juba, or Carolyn Carpenter could have done such a thing to the citizens and taxpayers in the county. Those that take an interest in what happened really fall into one of three camps: the first group understood the what the county was facing going into this budget year, and although they do not like the fact that taxes had to be raised, they see it as a necessary evil; the second see this as an opportunity for political gain, either by accident, or by the intentional engineering of this situation. For these two groups, who make up a very small minority of the county, no explanation is necessary or needed. The largest group, however, that is owed an explanation, is the group of people in our county who wonder – What Happened? I hope by the end of this article, I will show you the background of what led the county to this point, by pointing to several key events and decisions since 1998, all of which worked together to create this situation.
1. 1998 Alternative Revenue Referendum. In late 1997, after the passage of a school bond which built several schools in Cabarrus County, the Board of Commissioners at that point appointed a task force of community leaders, to recommend ways to fund school construction without using debt. The task force’s number 1 recommendation was to ask the voters to approve a 1% transfer fee on the sale of real estate in the county, coupled with a 1% local option sales tax. To counter this proposal, the newly formed Cabarrus Taxpayers Association, along with the state realtors and building associations, worked together to defeat the proposals, who some estimate would bring in over $10 Million to fund local school construction, without raising property taxes. Due to the timing of the vote, along with some “facts” presented by the CTA to the referendum, it was defeated.
What was interesting about this referendum, however, was the promises. “Put Kids First”, Raise Kids, not Taxes” were the rallying cry for this group. We were told we “….could build all the schools we wanted to, and never have to raise you taxes”. Some bold statements were made that the county had anywhere from $96-$115 Million to build schools with. The lasting legacy of the referendum was two-fold: it led to the election of Coy Privette, Arne Fennell, and Richard Suggs to the Board of Commissioners, and created a situation where the county faced no other choice than to issue debt (borrow money) to build schools.
2. Non Voter Approved Debt. One would think that with $100 Million in the bank, that with the promises made during the campaign, that we would have started building schools, right? Think again. In 1999, the board of commissioners, among them Coy Privette, voted to borrow $30 Million without voter approval, to build schools. It happened again, in 2001, for $40 Million, and again in 2003, for another $40 Million. As with the first time, Commissioner Privette approved each of these actions, even making the motion on most of them. Although all of this money went to build schools, which I also supported, the question remains – where’s the $100 million that he said we had?
The most shocking debt issue, was the one which occurred in 2002. In 1999, the county received a one-time windfall from Phillip Morris, settling a multiyear tax dispute. The total of this amount was $20 Million, which was initially used to fund the construction of the Arena & Events Center. Had this money been used for that purpose, then we would have paid for the center with cash, and not had anymore debt; however, in early 2002, the decision was made to again borrow – this time $26 Million, which was used to for two purposes – to build a new school administrative building & auxiliary gyms at 5 high schools, and to take $19 million out of the Arena & Events Center, which would be put back into the county’s fund balance. Had it stayed there, there would be no problems.
Due to this borrowing, mainly unknown to the taxpayers of Cabarrus County, the amount of debt service to be paid in 2006, compared with the 1998-99 tax year, has more than doubled, from $11 Million that year to $26 Million in this year’s budget, a 136% increase in this category. The total interest that will be paid over the next 20 years for this venture is $70 Million, which could be used to build 5-6 new schools.
3. Use of Fund Balance to Cover Deficits. Beginning in 2002, due to structural deficits that began to appear, board began to use the fund balance to cover the deficit. In 2002, the amount was about $13,000,000. In 2003, it took $5.5 Million. Last year, it took a little over $1 Million. Wonder where that money came from? All you need to do is refer to the $19 million that was taken out of the Arena in 2002 to see how this deficit was covered. As a result of this practice, all three major rating agencies that the county uses gave the county a negative outlook on our bond rating, which is currently AA.
4. Budget - 2004. In 2004, the Board of Commissioners were presented with two different budgets. One was for a 56 cent tax rate, which would ensure we were staying within our policy of a 15% fund balance, which is one of the primary factors in our achieving a AA bond rating to begin with. The other was for 53 cents, but in order to achieve it & maintain an appropriate fund balance, we would need to cut several critical programs such as parks, libraries, and our 4-H programs, all of which are key to our quality of life and which most Cabarrus County residents use. The important thing to take from this process was the insistence by Commissioner’s Privette, Freeman, and Suggs, that none of these programs would be cut, that it was not necessary, while taking the position that it was “not our responsibility to balance the budget – that’s what the county manager’s job is.” This action by the board not only led the negative outlook being issued for our bond rating, but also caused us to start this year with over $3 Million that had to be made up to cover the revenue gap caused by the action.
These four things set the stage for what was to occur this year.
- Going into this year, the county was faced with a $14 Million deficit that had to be filled. Since fund balance that had been used in the past was not available this year (unless we wanted our bond rating downgraded from AA to A or worse, which would have been a disaster for borrowing money in the future.) we had to look elsewhere for money to balance the budget.
- Most of the county budget is tied up in three areas: Debt, which must be paid first, mandated programs, which include most of our social service spending, and critical governmental functions such as planning & zoning and public safety. These categories, when I analyzed them using a 53 cent tax rate, accounted for almost 50 cents of the total. The remaining 3 cents, or about $5 Million, was left to operate and maintain four parks, four libraries, a vibrant county extension program, and provide services to our senior citizens, to include veterans. Needless to say, it is in this latter category that we would have had to reduce to balance the budget.
- Our budget process this year was an interesting one. In the past, we listened as each department presented their budgets, then voted on the budget as a whole, after the public hearing. This year, we added a new twist – we asked all spending for each department to be broken down into discretionary and mandated spending, so we could see where cuts would come from. In addition, we asked for a vote from the board after each department’s budget was presented, thereby allowing each commissioner to identify what would be cut to achieve a $14 Million reduction in spending. With the exception of the Legal department, whose budget was $302,000, there was unanimous consent to each department’s budget. Not one single item of reduction was identified by Commissioner Privette or Freeman during the process. In fact, after the public hearing on the night of the 14th, they actually made the motion for a 53 cent tax rate, but sat for over 45 minutes in silence when asked what to cut. The only things they could offer was that we could expect growth to cover the shortfall ($14 Million? The average annual growth in revenue over the past 10 years has been about $3 Million per year), or to demand that the county manager balance the budget. After more than 45 minutes had passed, it was evident that they had no real solutions, but were only trying to make political hay. They new by voting the way that they did, it would virtually assure themselves of re-election, and the almost certainty of gaining control of the county government, and your future, next year.
- Two good things did come out of the budget hearing – in light of the use of fund balance over the past few years, which put the county in financial jeopardy, The board adopted a policy, which included the following: 1) In the future, recurring expenses would only be covered by recurring revenue, such as property & sales taxes; 2) the county’s undesignated fund balance would not be allowed to fall below 15%; and 3) funds collected by the county above the 15% fund balance, would be placed into a capital reserve fund, which would be used to defray the cost of new school and other public construction, thereby reducing the amount of money the county needs to borrow.
Finally, we also adopting a new program in the county, that will allow anyone whose household income falls below $19,200, and whose primary resident is valued at $150,000 or less, to get a 50% homestead exemption on their property. This will help to defray the overall impact on our most vulnerable citizens of the increase in taxes.
I realize for most the citizens of the county, including myself, this has been a hard pill to swallow. I, too, must pay this extra tax, which will equal $175 for my family, in the same year two children get their drivers licenses, and one starts college. As some portrayed as early as March of last year (I have already mentioned his name several times) that I was eager to raise your taxes, I did not do this with any joy at all. I also realize that I, along with commissioners Juba and Carpenter, have paid a tremendous political price for our decision.
Leadership often calls upon to do things that unfortunately, are not popular, nor easily explained to those who in the long run would benefit the most from the decision. I have come to realize there are two ways two types of elected leaders – those who try to meet problems head on, and deal with them from a position of integrity, and those that position themselves to exploit those among us who for what ever reason, have not been able to get the information that they need to make an informed decision. I only promise to do one thing for the citizens of this county – to do what I believe to be the best for our citizens, whatever the political fallout. To do less would compromise everything I hold dear, and turn me into something I am not.
Thank You.
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