he hopes to prepare a budget that doesn't carry as steep a tax rate increase as had been predicted. Some estimates have been as high as eight cents.
The situation appeared rosier with an upgrade in the county's bond rating and a relatively low interest rate when the first school and college bonds were sold Tuesday.
County officials had hoped voters would approve the additional sales tax as a means of relieving the load on the property tax. But voters shot down that proposal Tuesday, just as they overwhelmingly turned back a proposed land transfer tax in November.
Revenue from either tax would have added $2 million or more yearly to county coffers. It would not be enough to stave off a property tax hike but would have blunted the sharpness of the increase.
Now the county has run out of options and faces either a steep property tax increase or sharp operational cutbacks.
McSwain was more upbeat than expected in a Thursday interview. Although the tax hike is inevitable, he thinks it may not be as bad as predicted.
For one thing, the recent upgrade in the county's bond rating paid off big time Tuesday when the first $40 million in education bonds were sold.
Financial Services Direct-or Lisa Hughes said the bonds were bought by Chicago-based Hutchinson Shockey & Hurley at a 4.162 percent interest rate. The 13 bids were highly competitive, and the highest was 4.323 percent offered by an Atlanta firm.
McSwain says any interest rate under 5 percent is considered good these days. He said county projections were being based on a 5 percent rate in calculating budget figures.
Don't Raid Fund Balance
The county has a current fund balance in excess of $17 million, an attractive bundle of money that some people say should be used to offset the property tax.
But under no circumstances will McSwain entertain such action. Nor does he expect the Board of Commissioners to go along with the idea.
"Any manager will tell you, 'Do not use the fund balance for operating costs,'" McSwain said. "The fund balance is one-time money. It's there for emergencies, and it should never be used to apply to operating costs except in the most extreme emergency."
Nevertheless, Moore County has a history of using the fund balance to keep the tax rate low, and last year McSwain succeeded where previous county managers had failed. He persuaded the commissioners not to raid the fund balance to balance the new budget.
"That was a very positive thing," McSwain said.
McSwain said that by leaving the fund balance untouched, the county was able to build up the balance further and the staff was encouraged to make cost saving in several directions.
What that action accomplished is a chain reaction. The untouched fund balance, at 24 percent of the budget this year, was a major factor considered by Moody's and Standard and Poor's in issuing a significant upgrade in the county's bond rating.
The upgrade from "good to excellent," in turn, helped attract the low bid when the county sold the bonds Tuesday.
Neither Hughes nor McSwain will estimate the saving in terms of tax dollars, but one unofficial estimate placed it at several hundred thousand dollars.
McSwain is putting together a budget that does not raid the fund balance, a practice that is regarded as basic financial common sense. He said the status of the fund balance helped to upgrade the bond rating, the bond rating helped to secure a lower interest rate on the bonds, and all of this saves money for taxpayers in the long run.
He praises the Board of Commissioners for taking a courageous stand last year in the decision not to plunder the fund balance.
"Our board stood up and stepped forwarded to do what was appropriate," McSwain said.
The Local Government Commission, the state agency that serves as a fiscal watchdog for counties and municipalities, recommends that counties maintain a fund balance no lower than 8 percent of the total budget. However, Hughes said the commission's recommendation is not a legal requirement.
McSwain said the county is obligated to issue the $69.5 million in bonds approved by voters in November.
That package includes $54 million for the public schools and $15.5 million for Sandhills Community College. The sale Tuesday includes $32 million for the schools and $8 million for the college. The remaining bonds will be sold later when the institutions are prepared to move ahead with other projects.
McSwain said it is a big-ticket item, as well as the construction projects in the planning to meet county needs, including a major expansion of the jail.
"We've got to pay for that," McSwain said.
However, he pointed out that about 65 percent of the county budget consists of mandated expenses, or allocations required by state and federal laws. There is little that the county can do to reduce these costs.
Impact Fees?
One other alternative tax is a possibility but is not under serious consideration -- an impact fee that would be applied to new building projects, including major developments.
However, officials say an impact fee has shortcomings, not the least of which is the opposition generated by contractors and developers. It was a well-funded campaign launched statewide by groups representing contractors and real estate firms that buried the land transfer tax effort last year. The transfer tax was defeated in every county that placed the measure on the ballot in November.
An impact fee requires legislative action, which is a cumbersome process and not necessarily a sure thing.
Colin McKenzie, chairman of the Board of Commissioners, said an impact fee would not amount to as much revenue as would either a land transfer tax or an additional sales tax because it is a one-time collection.
The impact fee is levied at the time a building is erected, and that is the only time it is paid. The land transfer tax, on the other hand, would be levied each time there was a deed transfer, and the sales tax would be applied every time a customer buys just about anything.
Nick Picerno, who won the Republican nomination for a seat on the Board of Commissioners Tuesday, cannot participate in the budget-making process this year, but he is a member of the new County Government Efficiency Advisory Board that is meeting to examine ways to improve county operations.
At a candidates' forum in April Picerno was the only candidate for county commissioner who said he would not vote for the additional sales tax. He is sticking to his resolve not to levy new taxes and to curb spending.
'Nice Levels'
Picerno said the county has overlooked its continuing growth, estimated at 2 percent a year. Because of its diversity and relative affluence, the county continues to grow in spite of a nationwide economic slowdown.
As winner of the Republican primary, he is the presumptive winner of the November general election because he will face no Democratic opposition.
Property revaluation went into effect last year and represented a substantial increase in the tax base, but Picerno said the county did not lower the tax rate to keep the rate "revenue neutral." He says that amounts to a rate increase.
"Right now we're sitting at a very nice level," Picerno said. "We need a good fund balance."
So far, the efficiency advisory board has spent most of its time working on utility rate-setting policy, but Picerno says the board will look at a policy covering the fund balance and the tax rate.
"It's a sophisticated process," he said. "I'm real happy with what I heard yesterday."
Despite its history of using the fund balance to keep the tax rate low, the county has rarely actually dipped into the fund balance to meet budget needs. In most years, revenues were sufficient to cover the amount designated from the fund balance. Exceptions were earlier years when all counties were hit by cost-cutting measures brought on by a shortfall in state revenues.
Moore County has a property tax rate of 44.5 cents this year. Added to this is 3 cents to support the Advance Life Support (paramedic/ambulane) system.
Contact Florence Gilkeson at 947-4962 or by e-mail at florence@thepilot.com.
