Counties hit fund balances to balance budgets

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It was not an easy budget season for counties, and the numbers from the Association's annual survey of county property tax rates reflect that.

Of the 100 counties, 76 maintained the same property tax rate from 2009-10, 13 raised property taxes, two decreased rates, and nine went through property revaluation. Of the nine counties that revalued their property, three counties adopted a rate that was below the revenue neutral rate, two counties adopted the revenue neutral rate and three counties adopted rates higher than the revenue neutral rate.

While very few counties actually experienced a property tax increase, many counties avoided a rate increase by using fund balance, a practice that is not sustainable long-term, said NCACC Executive Director David F. Thompson.

"Counties did a great job of balancing their budgets, but revenues are continuing to decline," Thompson said. "Property values are not growing, property tax collection rates are dropping and sales tax revenues are not growing. The past two years have been tough on county budgets, and next year will be more of the same."

Hertford County appropriated $1.1 million of fund balance to create a balanced budget without a property tax increase, according to County Manager Loria Williams. Ashe County Manager Dan McMillan said his county needed $2.3 million of fund balance to avoid a property tax increase, and Davidson County and Halifax County each appropriated a little more than $2 million of fund balance to keep rates steady.

Rutherford County's budget included several steps to make up for revenue shortfalls. According to County Manager John Condrey, the budget included a 1.25 percent reduction to public schools, the community college and the health department, three furlough days for county employees, and a reduction in the county's 401(k) contribution from 5 percent to 3.75 percent.

Forsyth County was hit with a double whammy in its property tax base, according to Budget and Management Director Ronda Tatum. The county's property tax base actually declined, and the county's collection rate was also lower, resulting in a deficit of almost $2.9 million in property tax collections when compared to 2009-10.

Rowan County maintained a steady rate with several budget reduction actions, including the elimination of eight positions and cost-of-living adjustments and/or merit raises for employees, and an increase in the cost of health insurance for employees. The moves reduced county spending by more than $1 million for the second straight year, said County Manager Gary Page.

Mitchell County managed a 4 cent reduction in the property tax rate, in part because the county appropriated $750,000 of fund balance. The county's fund balance still remains around 20 percent, said County Manager Chuck Vines.

Cumberland County reduced its rate by 2.6 cents and provided employees with a 2 percent cost of living increase. The county is benefitting, in part, from the quarter-cent sales tax approved by voters in May 2008 that has been in effect since Jan. 1, 2009.

Madison County maintained its tax rate thanks to the use of fund balance to offset revenue losses from declining deed transfer and development fees, a projected reduction in sales tax revenue and an increase in county foster-care costs.

"The budget was a challenge," said McDowell County Manager Chuck Abernathy, whose Board of Commissioners approved a budget that held the property tax rate steady. "Sales tax revenue is down, interest income is down, fees for services are down, and the rate of property growth was flat."

Gaston County managed to hold its property tax rate steady despite adding $5.2 million in debt service for voter approved bonds. County Manager Jan Winters said the debt was the equivalent of 4 cents on the property tax rate. Winters and his Board of Commissioners absorbed the costs by eliminating some vacant and part-time positions, appropriating fund balance and deferring some capital, maintenance and vehicle replacement projects.

Montgomery County commissioners voted to increase the property tax rate by 5 cents but were still forced to make major cuts. County Manager Lance Metzler said the county has suspended its longevity pay program, ended contributions to the 401(k) program, implemented a hiring freeze and started a reduction in force.

The cumulative effect of losing the corporate income tax for the past two years and part of the county lottery funds for 2010-11 will have a significant impact on Lee County, said County Manager John Crumpton.

"Lee County will have more than $800,000 less to spend on school debt service and construction projects," Crumpton said. "This represents 2 cents on our tax rate. We expect that if the ADM is not restored next year, we will probably have to consider raising property taxes next year to fund school capital."

Several counties reported that their overall budgets had decreased by more than 10 percent from 2008-09, including an 18 percent reduction in Catawba County, which has reduced its budget by more than $6.5 million the past two years.

RNR = revenue neutral rate if revaluation occurred