Dare County Budget in Dire Straits

If Dare County seeks and gets legislative approval for a 1% occupancy tax increase and chooses to direct that tax revenue away from the General (operating) Fund and into the Beach Nourishment Fund, it will close the door on that funding source for the future. The maximum occupancy tax allowed by the state is 6% and the county currently collects 5%, with one percent already allocated to beach nourishment and one percent allocated to the visitors bureau.

Meanwhile, the Dare County Board of Commissioners are about ready to impose a sizable tax increase on property owners during a time of economic hardship, unmatched in recent history.

Last week, County Manager, Bobby Outten, offered the board preliminary estimates during a budget workshop that shows the county faces a $4.1 million shortfall for the coming year. He asked for guidance in how to handle the problem.

Outten said it will take an increase of 3 cents (11%) in the ad valorem tax rate to balance next year's budget, which is predicted to receive $2.9 million less in revenues and may require $1.2 million more in requested expenses. And such a tax increase, without spending cuts, will only get the county through to the next fiscal year. Outten then pointed to additional, nondiscretionary debt for the year 2012 which is expected to result in more budget shortfalls.

For example, he said the first $1.1 million payment on the county's new multi-million dollar communications system and larger (state required) increases in employer contributions to the employee retirement program will be hitting the county in another year. Also, the projected $4.1 million shortfall does not take into account over $6 million that was cut from the current year budget, cuts that included almost $3 million in employee related benefits. Outten saw little chance any of those cuts could be reinstated, without sizable cuts in other areas, even if a tax increase is imposed for the coming year. (Note: County documents show that even though cuts were made in preparing the current 2010 year budget, it is estimated the county will overspend the budget by approximately $3.8 million this year. See chart below.)

Outten told the board that the county’s undesignated fund balance has shrunk to around 17% since 2006, placing it below the desired 19-21% level. He said it would take a minimum of $600,000 to get the balance back to a level that “rating agencies can tolerate.” “It will have repercussions for us in the financial market…when we are borrowing money...for example for communications system…if we don’t get our fund balance within the range we set”, he said.

In a separate and equally controversial area of county fiscal policy, the board of commissioners, with Warren Judge, Chairman, is expected to receive a resolution, at their May 3rd meeting, from the Dare County Shoreline Commission, with Warren Judge, Chairman,  supporting a 1% increase in the county's occupancy tax rate in order to assist the Town of Nags Head with its planned $35 million beach nourishment program. A 1% increase in that revenue source nets about $3.25-3.75 million per year, almost enough to cover the county's general fund budget deficit for the coming year. Although allowable, there has been no reported talk, by any commissioner, of using that funding source to rescue the county from its current budget crisis. A 1% increase in the property tax rate would net about $1.7 million.

Judge, who has been a strong proponent of beach nourishment over the past ten years, would like to see new occupancy tax revenues used for that purpose. Recent talks, during shoreline commission meetings indicates Judge has the backing of at least a majority of his board, who also wants to see sand pumped onto the beaches.

If Dare County seeks and gets legislative approval for the occupancy tax increase and chooses to direct budget saving revenues away from the general fund and into the beach nourishment fund, it will close the door on that funding source for anytime in the future. The maximum occupancy tax allowed by the state is 6% and the county currently collects 5%, with one percent already allocated to beach nourishment and one percent allocated to the visitors bureau.

The two hour workshop presentation was solemn, detailed and brought few smiles to the faces of the county commissioners.

"I for one, don’t want to see any tax increase," said commissioner Jack Shea.

"I have a real problem with cutting medical care benefits in this county," said commissioner Allen Burrus, referring to comments that the county med-helicopter was due for major overhaul in two years.

While not advocating such action, Outten offered the example that 41 higher level positions in county government, with associated benefits would about equal the expected $4.1 million deficit. The county hires about 740 employees. He also told the board that eliminating 16 lower-level positions that are currently vacant would save the county about $650,000 per year.

"I'm a republican and I don't like any kind of taxes, but we can't cut 41 jobs and put people out on the streets at a time when so many other people are out of work”, said commissioner Mike Johnson, adding, “there is no way the economy is going to be back and bail us out next year.”

By the end of the budget workshop, all commissioners agreed they wanted to see a new budget show some “shrinkage” in county spending to complement what is sure to be a tax increase for the coming year. It was clear that while Outten was asking for “guidance” from the board, the board was also asking him to help them find some way to make a dire situation more palatable to citizens in the county. “You’re the county manager,” said one commissioner during the meeting.

To view a video of the entire budget workshop, go to http://www.darenc.com/video/ and click on April 19th Budget Workshop. A second workshop is planned for April 27th, afterwhich Outten hopes to present his final budget proposal to the board on May 17th, a week later than normal.

Footnote: It was also noted during the workshop that talk is, the towns of Nags Head and Southern Shores are likely to present as much as two cent ad valorem tax increases in their upcoming budget proposals.
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