05/24/17 — County may raise taxes for schools

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County may raise taxes for schools

By Steve Herring
Published in News on May 24, 2017 9:04 AM

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Wayne County Commissioner Joe Daughtery and several other board members have suggested that the county needs to look at options, including a possible tax increase, to save nearly $4 million in state funding for county schools.

A slight wording change in the state budget could be the only thing standing between Wayne County and the tax increase that otherwise would be needed in order to preserve nearly $4 million in low-wealth funding for the county schools over the next two years.

The rub is that commissioners will not know the fate of that provision until possibly well after their June 30 deadline to have a budget in place.

And the tax rate cannot be changed once the budget is adopted.

To get around that Catch-22 Wayne County commissioners Tuesday morning instructed County Manager George Wood to research how they could implement an interim budget and delay approving a tax rate until after the state budget is in place.

Should the change fail to be included in the state budget, commissioners indicated a willingness to increase the tax rate in order to save the nearly $4 million.

And they said any additional revenue generated by that increase would be earmarked for teacher supplements.

The possibility of such an increase was broached by Commissioner Joe Daughtery, a staunch advocate for tax rate reductions.

As a low-wealth county, Wayne County is eligible to receive low-wealth education funding from the state.

The county has some latitude in how to use the money to meet school district needs.

The district received nearly $7 million in low-wealth funding in the 2015-2016 school year, and the amount of funding a county is given depends substantially on how much that county is doing to raise its own money.

That is based on a complicated formula comparing the average effective tax rate for North Carolina to the county tax rate.

The current state average effective  tax rate is 66.9 cents per $100 of property value, while the rate the state used for Wayne County is 66.8 cents.

However, since the state operates on a biennial budget the tax rate it is using for Wayne County is two years old and does not reflect the most recent local tax cut that lowered the rate to 66.35 cents per $100 of property value.

That means the difference is somewhat larger than what the state is basing its figures on, Wood said.

But even that still slight disparity means that the county does not technically meet the state's threshold for full low-wealth funding, he said.

Also, should commissioners consider an increase they would need to bring the rate up from 66.35 to ensure the threshold is met, Wood said.

The  average effective tax rate is a moving target because it has been gradually rising over the past several years, Wood said.

It will be higher next year based on the trend line, he said.

Because of that it will take some time to come up with an estimate for how much the county tax rate would need to be increased to meet the state funding threshold, he said.

It would not take a major increase, he said.

A provision in the state House budget proposal provides an exception to the tax rate rule  for counties where military bases are located as long as the county has an average daily membership of more than 23,000 students.

In those cases, the schools would receive the same amount of supplemental funding for low-wealth counties that they received in fiscal year 2012-13.

That provision is not in the Senate version of the budget.

Wayne County is lobbying to not only keep that provision in the final budget, but to have the number reduced to 17,000 or 17,500 in order to fall under the exemption.

Wayne County's current average daily membership is around 18,826.

"My concern is the recent development in regards to losing school funding," Daughtery said. "We are a tenth of a point less than what the cutoff rate is for that low-wealth funding. I suppose my question here is would it be prudent for us to adjust our rate too be at that benchmark rate?

"Would it be prudent for us to tick that up just a tad, make sure that we ensure that our school system gets that $2 million?"

The county is being punished for having a lower tax rate, Daughtery said.

"But at the same time we have got to look at it from the standpoint of protecting the funds going into our school system," he said. "We certainly cannot make up a $2 million deficit."

If it not handled in the state budget what are the county's options adjusting the tax rate after the fact, Daughtery said.

County Attorney Borden Parker said the county could not adjust the rate once it has been set. The only exception would be if the school board sues and wins.

The county does not want that, Daughtery said.

The option is to pass an interim budget which is basically the current year budget, Wood said.

"You pass that for like three months, and you hold off setting the tax rate until after the state does theirs," he said. "Then you come back and put in your full budget with the tax rate. You can't change the tax rate, but you can delay."

The county needs options in the event the wording is not changed in the state budget, Daughtery said.

"That is $2 million and our school system needs it desperately," Daughtery said. "I am throwing it out on the table. I think we need to consider what our options are."

"I agree with Mr. Daughtery, if we have to increase our tax rate -- and I am just throwing this out -- and it is going to collect $500,000 more, but it's going to get the school system $2 million," Commissioner Wayne Aycock said. "That is just good business."

Commissioner Ray Mayo called using an interim budget a "no-brainer."

Daughtery said the amount is actually only about $80,000.

"But the thing to remember is that whatever you do, if it doesn't get fixed in the state budget it is a two-year delay. So it (loss of funds) is going to affect you for two years not one," Wood said.

So instead of being $2 million it would be $4 million, he said.

The state law that allows a county to adopt an interim budget is silent on how the tax rate would be handled.

Wood said he will contact the UNC School of Government and will talk to Parker as well as to how to proceed.