GRAHAM, N.C. — The Alamance County Board of Commissioners unanimously adopted a resolution setting 7.88 cents as the maximum tax increase to cover the cost of school and community college bonds, though time will tell what it really is.
"If both bonds pass, it will require a property tax increase," County Manager Bryan Hagood said. "How much should that increase be?"
The commissioners held an hour-and-a-half special meeting Monday to hear how much $189.6 million in bonds for the Alamance-Burlington School System and Alamance Community College would increase local taxes, and settled on a more or less binding maximum tax increase for the N.C.Local Government Commission, which is part of the state's approval process for local government borrowing and a step toward putting the bonds on the Nov. 8 ballot.
"When it's time to borrow, if the interest rates have gone through the roof, we will have the ability to set the property tax rate as we need to," Hagood said.
Hagood talked the commissioners through scenarios with a maximum 10-cent increase to the 58-cents-per-$100 in property value with a minimum of just less than 2 cents, which he called "speculative." A quarter of a cent in additional sales taxes would go along with the lower end of those estimates.
Hagood started the commissioners out with the worse-case scenario that he and the county finance staff worked out last year: A 12- to 13-cent tax increase based on the assumption the county would borrow $190 million all at once, which is the most expensive way to borrow and not what ABSS or ACC plan to do.
"That will not happen," Hagood said.
The borrowing won't be all at once, Hagood said, and borrowing as needed over several years leaves the county with a 10.05-cent property tax increase.
"If the commissioners do nothing else — if the county does nothing else — just the timing of the projects," Hagood said.
ACC plans to borrow about $27 million by fiscal 2021, Hagood said, with the remaining projects staggered over fiscal 2023 and 2024.
ABSS would have to start paying off its $150 million in borrowing in 2020.
Any borrowing for repairs and maintenance of criminal justice or county government facilities — not covered by the bond, but county responsibilities — would be timed to avoid tax increases, Hagood said.
The tax increase falls to 7.88 cents, Hagood said, if the commissioners raise taxes in fiscal 2019-20 and keep that money in capital reserves until the borrowing starts, instead of three "natural" tax increases as the county borrows money — 8.61 cents in 2020-21, 1.21 cents in 2021-22, and 0.23 cents in 2023-24.
The up-front tax increase doesn't raise as much money over time, so there won't be a surplus long-term, but puts enough money into the county's hands when borrowing starts that the sharper tax increases aren't necessary when bills come due.
While it could mean asking voters to approve bond measures knowing "yes" would mean a significant tax increase the next year, the commissioners liked the idea with its near-term pain and long-term benefits.
"I would just as soon do the up front, get it out there, then it's set and it's a lower tax rate overall," Commissioner Bob Byrd said. "I think it will serve the taxpayers overall better than to wait a couple of years and then go up to a higher rate, which stays with us for a long period of time."
In fiscal 2015 — 2016, under a less conservative board of commissioners, the property tax rate went up 5 cents.
Pooling financial resources could bring the possible tax increase down to 7.12 cents, but it reduces some flexibility.
As it is, revenue sources and reserves for ACC, ABSS and county government are separate for accounting purposes, which makes it easier to track what's coming in and out, but inefficient. For example, Hagood said, the county has $3.4 million in reserve from the sale of some county property, which will be used only for county projects. The county is paying off its debts faster than ABSS, so it will have the capacity to borrow again sooner than the school system.
"The county is really bringing a lot to the table," Hagood said. "Because we are paying debt down very quickly, we have a large amount of reserves we could throw into the mix."
Combining gets tricky. For one thing, some sales-tax revenues and all lottery funds are reserved for public school building and maintenance needs, which would have to be preserved through budget reconciliation, County Finance Director Susan Evans said.
"I'm assuring you that we're looking at making sure lottery funds and school-system sales taxes are always used properly and the way that they're supposed to in this plan," Hagood said.
The core of this idea is making sure money dedicated to paying down debt isn't used for regular operational expenses as loans are paid off, as county government has often done in the past, but that could also make it harder for the county to help ABSS with its day to day expenses.
"The only reason we've really looked at this model is because of the scope of the debt," Hagood said, "more than we've ever borrowed before. ... But it will put pressure on operations."
Byrd and Commissioner Eddie Boswell both said they were leery of the idea.
One of the more controversial ideas, paying down the principal of the loan later, could bring the tax increase down as low as 5.4 cents if it's combined with the up-front tax increase and combined finances.
With municipal bond debt, interest payments decline over the 20-year loan while principal payments — what's actually been borrowed — remain steady.
"This is not like mortgaging your house where your debt service remains equal," Byrd said. "In government debt, typically principal payments are equal."
Structured debt puts the biggest principal payments at the end of the loan when, Hagood said, there is more money to pay them off because the interest is already paid down, but that does mean there is more interest to pay off.
The state also frowns on the idea and wanted to make sure the commissioners knew about the downsides including possibly not being able to use structured debt when the county really needs it, say if the county grows quickly and needs to build more schools fast.
Commissioners would need to meet with the Local Government Commission before going with structured debt. Board chair Amy Galey said she would be happy to do that if the board thought that was the best approach for taxpayers.
"In my opinion, we represent Alamance County, and if it is legal, then LGC should allow it," Galey said. "We answer to the taxpayer."
Possibly the most popular idea Monday was an additional quarter-cent sales tax increase the county has a right to levy but hasn't yet. Projections based on what other Piedmont counties are bringing in are about $4.8 million per year, Hagood said, or the equivalent of 3.62 cents of the tax rate, and doesn't have to be done in combination with any of the other ideas. But, Hagood said, all these combined could bring the tax increase as low as 1.9 cents, but Hagood called that "speculative."
The commissioners would need to decide on a sales-tax hike by mid-May, Hagood said, so it could be put on the Nov. 8 ballot as a referendum. He recommended dedicating those sales tax revenues to the capital plan in the referendum.
"So the public knows what happens if they vote it in," Hagood said.
The commissioners went with the 7.88-cent maximum because they can't yet count on combined finances, structured debt payment or the sales tax getting through the board, LGC or the voters.
