Transfer tax may go to voters in ‘08

The Alleghany County Board of Commissioners opted to pay down debt and make safety a priority with new funds that will be coming to the county through Medicaid relief and potential new tax revenues.

The new revenues would come to the county through one of two proposed new taxes approved last month by the state. Alleghany has the ability to seek one of the two new local option taxes. One of the taxes is a . 25 cent sales tax, while the other is a .4 percent tax on deed transactions.

The commissioners voiced their support for the deed tax, which they said would affect only about 10 percent of the county's population and would help raise an estimated $400,000 per year. The point-of- delivery sales tax, they said, would raise about $200,000 per year and would affect everyone. A statewide sales tax distributed on the basis of population would give counties like Alleghany, which have small retail establishments, twice the benefit of a point-of-delivery tax.

However, there is a catch. In order to enact either of the two new taxes, the county is required to garner a favorable result from its constituency via a voter referendum on the matter. "Some counties may not exercise their option on either one, but I'd be very surpised at that,” said Chair Ken Richardson.

The commissioners could have called for a special election on the tax this year, but that would have caused additional expense and would have left little time to promote the move through a program described by the commissioners as ‘education' about the tax.

After some discussion, the commission agreed to hold the referendum on the matter at some point in 2008. The majority of the board favors the deed tax, but many local and statewide realty groups oppose that option.

Medicaid Relief

The commissioners discussed several pieces of state legislation during a workshop meeting, which was held on Aug. 29. Richardson noted that the Medicaid relief package made North Carolina the 50th state in the nation to take the burden of Medicaid off of its counties.

"The expense was growing at over 10 percent a year,” said Richardson. The state will be taking over the county's share of the Medicaid program over a three year period, with the burden completely taken over by the state as of July 1, 2009. As part of the deal, Alleghany will have to give up a one-half cent sales tax, of which a large portion goes to the school system.

However, a ‘hold harmless' provision in the bill that guarantees the county at least $500,000 per year will mean a budgetary windfall in Alleghany, which will see net gains from the bill of around $400,000 per year for the next three years.

County Manager Don Adams said the $500,000 per year figure is based on the state's projection of sales tax revenues. The $400,000 gain is a combination of current budgeted items and revenues that will come to the county from the state.

Adams said the county is pretty sure to get the revenue as projected for at least the next few years, but projections going far into the future are harder to predict with any degree of precision. However, the school system likely will lose about $100,000 per year in revenues in the third through fifth years of the phase out plan, which means the county still will net $200,000 to $300,000 in gains over its current expenses and revenues.

Richardson said that he would like to see the county use the funds to pay down its debts. He said a debt pay down would give the county leverage if it needs to make big purchases in the future.

Commissioner Doug Murphy asked when the county's debt would be coming off the books, to which Adams responded that some debt comes off every year. However, Adams pointed out that paying the extra amount on the principal will speed up the payoffs on the debts.

Adams noted, "If you'll recall, we're not at our maximum capacity to borrow money, but $8 to $10 million would put us over our maximum capacity. Looking at that amount would ‘max out' our credit.”

Commissioner J. Warren Taylor said trying to budget any long-term expense with the money would not be wise. "It would be like getting a raise and in three years it will go away,” he said. "I agree with Ken on investing in our loan portfolio and trying to get that paid down.” Murphy said, "Paying off our loans and reducing our debts would make it favorable to go to the LGC (Local Government Commission) if we needed to borrow money down the road.”

Adams pointed out that the county can now borrow $1 or $2 million, but a $10 million loan would be harder to justify. He said paying down debt has two benefits. First, it would help save interest expense to the county and, secondly, it would open up capacity for future needs.

Commissioner Milly Richard-son called the proposal "a stroke of genius.” She noted that in the volatile state of the economy the nation is in, such a move is even more wise. "The people who elected me are asking for fiscal prudence and that is exactly what we are going to do,” she said of the plan.

Chair Richardson noted that a full 10 percent of the county's budget goes toward debt service. "As we reduce that debt, we will reduce the amount of money that taxpayers are paying” toward the county's debts.

 

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