Cabarrus Cheap Seats

“Finance is the art of passing money from hand to hand until it finally disappears.” - Robert W. Sarnoff 

Update Note [April 23, 2007]: I figure since The Cabarrus Youth Tax: How Your Kids Might Pay For Their Own Schools became the most read article on this blog over the past couple of weeks, I would re-run this post from one year ago (April 22, 2006 to be exact).  It’s especially pertinent as this Monday night the details of the North Carolina Research Campus (NCRC) Tax-Increment Finance (TIF) Bonds are due to the Kannapolis City Council.  Over the next few months, you’ll hear how the County’s participation in the will cause your taxes to go up.  It’s true that your taxes will go up; but it’ll happen whether or not the County participates in the TIF.  The reason that the taxes went up had more to do with what happened more than five years ago. 

Here’s the post from April 2006:

In 2005, many voters wondered where the higher tax rate came from. Unfortunately, it was only then that the facts were coming out as to why. This is the post will explain why our tax rate is higher and why the entire blame rests on the shoulders of Privette, Freeman, and Suggs.

Living Within Our Means

After a review of summary budget figures from 1999 through 2005, operational expenses grew at about the same rate as revenue. I know, it’s hard to believe because such trusted sources as Harold Smith and Coy Privette tell us that the County is spending money hand over fist. He’ll say that John Day has no restraint. He and his friends will write letters to the editor accusing the school board of having no fiscal sense. So, before we get too far into it - let’s look at the numbers.

Over the 6 years starting in June 30, 1999 and ending June 30, 2005 - revenue grew by about 35%. Most major expenditure areas grew at that same rate or less: Education grew by 32%, Public Safety grew by 33%, General Government grew by 14%, and Human Services grew by 29%.

The only major expenditure area to outpace spending - debt service. Debt service grew by 45%. Voter-approved debt service actually shrank by 35%. How could this have happened? The voters approved a bond in 1996 and another in 2004. What could account for this growth rate?

The answer is Non-voter approved debt. Because the Commission under Privette, Suggs, and Freeman abandoned the tradition of engaging the public in the question of school funding - instead moving to a system where they made the decision by their own decree Non-voter approved debt service grew by nearly 260%! In 1999, non-voter approved debt service was a little more than $4 million dollars per year…at the end of 2005, debt service on debt incurred by Commission fiat was nearly $15 million dollars!

This coming fiscal year, it will grow to $16.4 million dollars. It will peak next year at $19.5 million dollars per year. That is NOT INCLUDING the money to cover the school bonds.

What does this mean to you? Well, let’s start with the principal. In 1999, the County owed $90 Million dollars in total debt (both voter-approved and non-voter-approved). In 2005, the County owed nearly $178 million dollars (this does not include the entire 2004 education bond). In 1999, each Cabarrus County Citizen owed $720. In 2005, the amount grew to $1178. This will grow as the bond money is spent and the jail debt is incurred.

The debt that Freeman, Suggs, and Privette agreed to will not retire until 2023.

What happened?

Well, it was the confluence of a several factors.

In 1996, voters approved a bond package to finance a growing need for schools. That bond was sold on the premise that a plan would follow that would avoid future borrowing. Local leaders agreed to come up with a funding plan that would pay for schools without borrowing too much money.

In 1998, a proposal was on the ballot with a 1% land transfer tax and an increase in the sales tax. This measure was soundly defeated. This defeat came partly from efforts by the now-defunct Cabarrus Taxpayers’ Association. In an earlier post, I covered how this entire ad was hogwash. CLICK TO READ ANALYSIS Coy Privette and Richard Suggs were both active in the Cabarrus Taxpayers’ Association at the time.

While it played loose with the facts, the ad did help to get Coy Privette into office in 1998 and Richard Suggs in 2000. From 1999 to 2001, the County was building up the fund reserves through taxes and financing school construction through those avenues. School construction was financed primarily through the bond in 1996; but after CTA-backed candidates took office, they cut the tax rate and began to use the fund balance to finance school construction initially. When they came to the end of that - they agreed borrow money using Certificates of Participation (COPS); because this method didn’t require voter approval. Because of voter ignorance, they could do this without raising too many concerns because they were “keeping taxes low”

In 2001, the budget situation changed abruptly. As shown in the attached graph the county moved from generating surpluses to generating deficits. Now, there are those who will tell you that this was because they were using those revenues to build new schools. That’s only half true.

According to the FY2006 budget section on debt, The money for the construction of the schools came from three separate agreements by the Board of Commissioners:

March 1, 2001 - $40,000,000
August 28, 2002 - $26,390,000
August 1, 2003 - $40,770,000

The Board of Commissioners agreed to nearly $110 million dollars in debt. It was only after this, in 2004, did they hold a another “tax force” like the one put together nearly 7 years earlier. You can read the minutes here. They only did that to avoid a lawsuit with the Cabarrus County Board of Education and as a ploy to keep the bond off of the ballot.

That’s right. We came full circle; because lo and behold - we had us another bond issue…a mere 8 years after the one in 1996. It passed. What’s funny was that bond was for $97 million with a portion going to RCCC. The voters got the opportunity to agree to less at the ballot box than Privette, Freeman, and Suggs got to by their own decree.

On top of that, during the Privette/Suggs/Freeman majority - nothing was done about controlling development. As a matter of fact, the Board was involved with lawsuits with the City of Concord over development standards. For instance, the City of Concord felt that cul-de-sacs should be large enough for fire trucks to turn around in…the Board, at that time, felt differently.

What did we have when the citizens of the County were delivered from this madness? A fund balance that kept our AA bond rating by the skin of our teeth, 9,000 homes in inventory without adequate schools to service them, and $200 million more in debt.

And this brings me to my next point.

How Coy Privette, Robert Freeman, Richard Suggs, and Arne Fennell Raised Your Taxes

Yes, Coy Privette, Richard Suggs, Arne Fennell, and Robert Freeman raised your taxes. How can this be if the rate was reduced under their tenure; but raised once they were out of the majority? The answer is in their agreement to go into debt.

Well, you have to accept something as fact: If government wants to not tax, they have to decide to not spend. If that is true then the only way to lower taxes is to lower the spending rate - not to merely defer it. Agreeing to debt defers spending and therefore defers the tax needed to cover that spending - it does not reduce the tax paid…it increases it (when interest is factored in)

As was mentioned before, expenditures for general government operations (Public Safety, Education, General Operations, etc.) ran at or below the pace of tax receipts. Someone should write John Day a Thank You note.

However, there’s one part of the budget that’s outpacing revenue growth: debt service. Overall debt service has grown by 45% as opposed to the 35% growth in revenue.

In 1999, about $0.10 per $100 valuation went to debt service. In 2005, that rate was $0.17 per $100 valuation. By 2007, it could grow to nearly $0.20 per $100 valuation. That’s the Cabarrus Youth Tax. The taxpayers of the 2000s and early 2010s will pay more for debt service than the taxpayers in the 1990s did.

The decisions made in the earlier half of this decade will reverberate for two more decades. My son will be in college (cross fingers) by the time that those debts are paid off. What’s the total amount? With principal and interest - $161,141,199. The 2005 numbers do not include School Bond or Jail debt…that comes later.

Therefore, Coy Privette, Richard Suggs, and Robert Freeman did NOT LOWER TAXES…they only DEFERRED them

Bottom Line

In 1998, I would have voted against the sales tax and the transfer tax. I probably would have even voted for Coy Privette. On all counts, I couldn’t. While I was old enough (20 years old), I was a student in Missouri at the time. The CTA flyer sounded plausible. I’m sure a lot of what we’re hearing from Coy and his friends sounds plausible.

However, for all of the “plausibility” of their rhetoric 8 years ago, their more recent policies left the the County is saddled with hundreds of millions more in debt, and a fund balance that was scarcely adequate. And the fiscal responsibility they love to talk about? Well, in all fairness Privette and Freeman did vote in the 2005 to keep the fund balance at 15%, return excess fund balances to a capital improvement fund, and to offer tax relief to low-income homeowners…when they were in the minority. Those ideas came from Juba, Carruth, and Carpenter when Carolyn Carpenter was Chair. From past policy, I think that if this election puts some combination of Coy Privette, Richard Suggs, Robert Freeman, or Marrlyn Burns in the majority that they should hire Carolyn Carpenter as a consultant for budgeting ideas; because she was the only one who can make their “fiscal responsibility” rhetoric policy.

But before you go vote - ask yourself this question: Can this county really afford more of the budgeting schnanigans of the Privette/Freeman/Suggs regime? Do we need leadership that only looks for someone else to blame? Can you afford another decade of fiscal hocus pocus?

This voter can’t.