Capital needs in Macon pit capacity vs. affordability

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Capital needs in Macon pit capacity vs. affordability

The Macon County Board of Commissioners met on Feb. 3 to discuss funding capital projects. Macon County government photo

Macon County has a long, expensive list of capital needs over the next decade, and commissioners took nearly three hours on Feb. 3 to weigh their options as North Carolina’s budget season begins in earnest.

“I think it’s a good time for us as commissioners to go through and lay out any priorities or ideas that you would like to address this year,” said Jim Tate, chairman of the Macon County Board of Commissioners. “Of course we can do it at any time, but when we’re discussing budget it’s especially helpful to our county team to highlight any highs that we want to see them take care of as we move into this year.”

First, Ted Cole of Davenport & Co. presented commissioners with a quick rundown on the county’s financial health.

Based on financial statements from Jan. 19, Macon County’s credit rating with Moody’s is Aa2, which Davenport called good. Only 225 counties in the nation and 23 of 100 North Carolina counties have achieved this rating. The next highest rating is Aa1, and above that, AAA.

Macon County’s general fund has grown substantially in the past six years, from just over $48.7 million to just over $57.5 million. Expenditures, however, haven’t grown as quickly. In fiscal year 2016, total spending was $42.8 million, compared to $49.9 million in fiscal year 2021.

Fund balance — akin to a government “savings account” — has also risen by more than $15.8 million to $37.8 million over that time, good for a 63% balance-to-expenditures ratio that puts the county on solid financial ground among its similarly situated peers who average around 39%.

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“We are in an excellent financial position in Macon County. We do it as good if not better than any rural county in the State of North Carolina,” said County Manager Derek Rowland.

Currently, Macon County has about $27.5 million in tax supported debt that will cost the county $33.4 million with interest as it’s paid off over time. Assuming no additional debt is incurred, payments will peak at $3.9 million in 2023 due to last year’s Macon Middle School bond, but then slowly decrease to less than $1 million in 2032.

“You have capacity,” Cole said of the county’s ability to borrow money. “You’re lower than the averages and the medians.”

That’s good news for Macon County, as commissioners have identified nine capital improvement projects through 2032 that if approved could be funded through debt.

The most immediate are for a new Franklin High School stadium facility at a cost of $14.6 million in fiscal year 2023 and 2024, and for a new or renovated FHS at a cost of more than $80 million through 2024 and 2025, although a forthcoming need-based grant application from the North Carolina Department of Public Instruction could bring as much as $50 million to help pay for it.

Department requests for all capital projects through 2032 total $179 million, including an $8.5 million indoor firing range for law enforcement training in 2029, although grants and other outside funding could allay more than $70 million of that.

None of the projects are guaranteed, and all would be subject to commission approval before any spending actually occurs.

Cole then proceeded to present several scenarios that outlined what it would look like if the county decided to fund some or all of the projects.

The first case assumes that commissioners fund the entire $179 million wish list but also receive the maximum $50 million grant from the state. That scenario would push the debt service-to-expenditure ratio to nearly 12% in 2026, nearly three times the level if no borrowing occurred.

Although Macon County has the capacity to borrow that much, affordability quickly becomes an issue — a 2-cent tax increase would be needed by 2024, or a 4-cent tax increase by 2026, even with the projected growth in property values.

The second case is identical to the first, except that it assumes the $50 million grant doesn’t materialize. Predictably, the debt service-to-expenditure ratio jumps to nearly 18% and that 4-cent increase in 2024 becomes 5.5 cents, or about 8.5 cents in 2026.

Those two cases are both extremes, and Cole said he thought that the $50 million wasn’t an all-or-nothing venture; it’s likely some amount will be awarded – perhaps not $50 million, perhaps not $0.

Key to paying for the projects will be how the scheduled 2023 countywide property revaluation affects taxable values.

Macon County Tax Administrator Abby Braswell told commissioners that she was projecting a 39.98% increase in values over the 2019 revaluation. If that holds up, total taxable value of property in the county would jump from $7.9 billion to just over $11 billion, led by Burningtown and Smithbridge townships.

Right now, Macon County boasts the fourth-lowest property tax rate of North Carolina’s 100 counties; 1 cent on the property tax rate generates $803,000, but Cole said when the revaluation occurs, he expects that to climb to $984,000. If the revaluation falls short of that, his two cases for affordability of the $179 in capital spending would need to be adjusted.

Then, there’s the scenario that a number of Western North Carolina public bodies — including Haywood County — had to face in 2021. If property values increase and the tax rate stays the same, revenues still increase as do homeowner tax bills.

Many local governments, including Waynesville, opted basically to split the difference with taxpayers by lowering the tax rate slightly, which still resulted in higher tax bills. Some taxpayers called it a “backdoor” tax increase because the tax rate wasn’t lowered to the point of being revenue-neutral based on the previous year. But with inflation and the ever-increasing cost of materials and salaries, revenue-neutral rates weren’t practical for most.

“Over the next 11 months, we’re going to closely watch the sales, because that’s what’s going to give us the values we’re going to use to change that $11 billion number,” Braswell said.

Braswell also noted the continuing positive trend of sales tax collections, which have been up substantially in most of Western North Carolina since the onset of the Coronavirus Pandemic in early 2020.

Macon County’s collections through the first four months of the current fiscal year (July through October, 2021) are up 15.3% year-over-year, good for a $713,000 increase.

Commissioners have also indicated a willingness to explore a quarter-cent sales tax increase, which would need to be approved by voters at the ballot box. If it is, it would generate an additional $1.7 million in revenue each year.

At the conclusion of the meeting, Tate conducted an informal poll of the commissioners, all of whom were favorably disposed to moving forward with the improvements to Franklin High School in some form or fashion.

“The question is not whether or not we’re going to do it. We’ve all decided we’re going to do it, so how do you pay for it? My thought on it is we need to investigate this Article 46 [enabling legislation for a sales tax increase] and consider a quarter-cent sales tax increase to help fund the school,” Tate said. “To me, in my mind, 100% I would rather help pay for the upgrades to Franklin High School with sales tax among people passing through our county helping pay for it versus laying it all on the backs of ad valorem and property taxes.”

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