Gov. Beverly Perdue laid out a proposal last week to increase the state’s sales tax by three-quarters of a cent to fund education.

The move would generate an estimated $850 million for the state’s public schools, community colleges and universities — money Perdue says is necessary to make up for the Draconian cuts to education at the hands of Republican legislators.

“We owe it to our children and our state to stop these cuts and make education a priority again — a fraction of a penny for progress,” Perdue said in a conference call with news reporters last week.

North Carolina is now 49th in the nation in per-pupil funding for education. Perdue said she was dismayed by what she considers the sell-out of the state’s long-standing reputation as a leader in education in the South.

“When I see a list with North Carolina in per pupil funding worse than Mississippi, Alabama, Arkansas — all these states that for generations had tried to be more like North Carolina — I feel like there is something really dangerous happening to North Carolina,” Perdue said. “It is shameful. It is wrong.”

But, the sales tax has no hope of passing muster with the Republican-controlled General Assembly, according to Sen. Jim Davis, R-Franklin.

Republicans are chalking Perdue’s proposal up to campaign posturing in her re-election bid this year.

“It is not going to go anywhere in the House or Senate,” Davis said.

Davis said an economic recovery is the best bet for boosting state coffers, and a tax increase would run counter to a recovery.

“We believe the economy is still very fragile and that money is best left in the hands of the private sector in the hopes that it will generate jobs and consequently increase revenue under the present tax structure,” Davis said.

But, Perdue is pitching the tax hike as an investment in children.

“I have never met a parent or a grandparent that actually didn’t want a better life for their child or grandchild than they’ve had themselves,” Perdue said.

The argument frames Republican lawmakers as putting the interests of children second.

“Of course she wants to make us out like bad guys so she can win the election,” Davis said.

But, Davis said Republicans’ stance against a tax increase is equally looking out for the interests of children.

“I don’t want anyone’s grandchildren or my grandchildren to inherit this legacy of debt,” Davis said.

He also questioned whether more money is always the answer.

“We believe the educational system has problems that money won’t fix,” Davis said.

Perdue will likely find allies in the ranks of public schools and universities. Bill Nolte, the assistant superintendent for Haywood County Schools, said education is hurting and could use any help it can get.

“If the governor or any other elected official can stop the bleeding, good for them,” Nolte said.

The Haywood County School system has lost $8 million and more than 120 positions during the past three years, Nolte said.

The result is larger class sizes and fewer teacher assistants. Teachers also have less help dealing with at-risk students, with students who can’t speak English and with special needs students — which takes time away from teaching the rest of the class.

Schools can brace for more cuts this coming year when a stream of federal stimulus money that until now had softened states’ budget crises is phased out.

Nolte admitted that the Republican leaders are keeping the promise they made to voters when they swept to power — namely that they would let a 1-cent sales tax initially billed as a temporary recession measure finally sunset and make up the difference with cuts.

“That is exactly what they did,” Nolte said. “They cut taxes that were being used for education and other essential services. I don’t think anyone can say they were surprised.”

Political instant replay

The debate over a sales tax increase for education is largely a replay of last year’s budget showdown between the Republican-controlled General Assembly and the Democratic governor. Republicans say Perdue has no chance of changing the outcome this go around and that her sales tax pitch for education is already dead in the water.

Last year, the governor vetoed the state budget crafted by Republicans. She wanted a sales tax increase to offset cuts to education. Both the House and Senate had enough votes to override the governor’s veto, however.

The Senate had a veto-proof majority of 31 Republicans compared to 19 Democrats. In the House, five Democrats joined with Republicans to override the governor’s veto.

To have any hope of success this time around, the governor would have to swing two Republicans in the Senate to her side and keep the five Democrats in the House from breaking ranks.

Even then, a bill to increase the sales tax by three-quarters of a cent could be far-fetched. It would require bringing a vote to the floor of the General Assembly — and since Republicans control the agenda they won’t even let it come to a vote, Davis said.

Perdue vowed to take her message on the road and hopefully raise enough Cain that voters will demand action.

“I am going to go in every legislators’ backyard to get this funding passed,” Perdue said. “I hope the people of the state think about this.”

Swain County’s Tourism Development Authority will appeal to county officials for a 1 percent increase in the room tax rate.

The tax on overnight lodging currently stands at 3 percent. The proposed increase would bring in at least an additional $100,000 annually to support tourism initiatives.

Monica Brown, chair of Swain County’s Tourism Development Authority board, said the idea came from business owners who approached her about raising the tax. The extra money could help fund special projects without burdening local residents.

“Basically, there is a lot of capital stuff we would like to help the county with,” Brown said. “It would give us more funding to work.”

Such projects could include helping the Great Smoky Mountain Railroad construct an engine turntable or Bryson City restore the historic courthouse for a visitors center and museum. The extra funds could be used toward beautification efforts and signage near the Nantahala Gorge, the site of the 2013 World Freestyle Kayaking Championships expected to bring thousands of visitors to the county.

“(The tax is) more for promotion of tourism in Swain County overall and a main part of that is the appearance,” Brown said.

The county can currently use up to 30 percent of its current room tax collections on capital projects, including the Christmas lights featured throughout downtown Bryson City.

A 3 percent tax is already tacked on to a visitor’s room rate. If someone pays $100 to stay the night in a Swain County hotel or inn, he or she will pay an additional $3, not counting sales tax, to occupy the room. If the increase is approved, that visitor will pay an extra $1 — for a total of $4 — each night.

Brown said the authority wanted to be “conservative” so it will only seek a 1 percent jump in room tax, although state law allows a room tax of up to 6 percent.

Jackson County has recently proposed increasing its room tax to the full 6 percent. More than half the counties in the state already levy a room tax of more than 3 percent, with a definitive trend in recent years among counties to increase the rate.

The Swain County tourism agency is “Right in line with what we are doing across the state,” Brown said. “And, an increase in the room tax is not going to impact the number of visitors to your area.”

The tourism authority has raked in between $300,000 and $353,000 a year in room tax revenue since at least 2006. Swain is one of the few counties that has escaped a downturn in its room tax collections as a result of the recession.

“We have enjoyed pretty steady room tax numbers in Swain County,” Brown said.

The tax has remained at 3 percent since its inception in the 1980s.

The extra 1 percent would be kept separate from the other 3 percent, which funds mostly marketing and promotions, said Karen Wilmot, secretary of the TDA board and executive director of the Chamber of Commerce.

The Tourism Development Authority splits its advertising dollars between print and online media. About 70 percent of the advertising budget funds traditional print ads, while the remaining 30 percent targets Internet users. Like other Western North Carolina tourism agencies, Swain County’s TDA focuses its efforts in North Carolina, South Carolina, Georgia, Florida and Tennessee.

“We tend to take a really conservative approach to our advertising,” Brown said. “We try to do a lot with a little bit of money.”

The key to obtaining support for the 1 percent increase will be reminding residents of how the Chamber of Commerce and tourism authority has used the room tax to benefit the county, Brown said.

“I want everyone to understand the focus of the tax,” Brown said. “How it benefits the community as a whole.”

But, in order to obtain the increase, the agency must appeal to local government officials and its constituents for support.

“I honestly don’t know” when the measure could be put to a vote of county commissioners, Brown said.

The tourism agency will need to  discuss the possible increase with the county commissioners and then with its lodging owners before even thinking about the vote.

It’s a “lengthy procedure,” Brown said.

Mixed reviews

The idea of an increase received mix reactions from lodging owners in the county who had not heard about the possible change.

“I would not be wanting to add any more to my guest’s room fee than I need to,” said Ed Ciociola, owner of Calhoun House Inn & Suites. But, if it helps advance tourism in the county, he said he would approve of the rise.

A handful of inn, motel and hotel owners vehemently disapproved of the plan, however.

“I am definitely not in favor of any new taxes,” said Blain Slobe, owner of Two Rivers Lodge. “I don’t see raising the tax 1 percent as helping tourism at all.”

If people are spending more money each day on their room bills, they will cut down on the number of days they spend in Swain County, he said.

Several cited the still slow-growing economy as a crucial reason for forgoing the increase.

“I think 3 percent is high enough,” said Mercedith Bacon of West Oak Bed & Breakfast & Cabins.

Bacon said that the tourism agency does an adequate job with the resources it already has and that businesses are still fragile following the recession.

“I just don’t think this is the time,” Bacon said.

A couple of business owners said they would like to hear more information before deciding whether to oppose or support a 4 percent tax rate.

“I don’t think I can say yay or nay,” said Mort White, owner of Hemlock Inn.

Brown was not surprised by people’s responses when they initially heard about the potential increase and said she thinks the majority of business owners will eventually favor the move.

“I think there is almost a knee-jerk reaction” to oppose the tax, Brown said. “I think we just have to let them know what it’s going towards.”

By the numbers: Current tax rates

• 3 percent: Swain, Clay, Graham, Macon, Mitchell, Yancey

• 4 percent: Haywood, Buncombe, Transylvania, Cherokee

• 5 percent: Henderson, Madison, McDowell

• 6 percent: town of Franklin, Watauga

*Jackson County has proposed an increase to 6 percent.

Collection rate for Swain

• 2006-2007    $305,352  

• 2007-2008    $320,820  

• 2008-2009    $309,802  

• 2009-2010    $335,353  

• 2010-2011    $352,437

Share your opinion

The Swain Tourism Development Authority board meets at noon on the last Wednesday of each month at the Chamber of Commerce. This month, however, it will be held Jan. 18.

Macon County might postpone revaluating property — again — from 2013 to 2015, a remarkably different response to the crushingly bad housing market than Jackson County is taking.

Richard Lightner, longtime tax assessor for Macon County, said there simply hasn’t been enough property changing hands to set meaningful property values. And most importantly, he said, it would be difficult to set accurate values that Macon County could adequately defend from costly legal appeals. Property owners who disagree with a county’s revaluation have the legal right to challenge on a state level.

By waiting, more selling and buying will have taken place, though Lightner emphasized there’s no crystal ball he’s holding that allows him to read the future — and no guarantees that the market will be better then. Still, just by adding years to the process, one can safely assume some pieces of property will have sold, he said.

Macon and Jackson are similar on the tax fronts because of the communities of Highlands (in Macon) and Cashiers (in Jackson). Both communities are dominated by high-priced, multimillion-dollar homes, at least pre-recession prices. Those homeowners currently shoulder the bulk of the tax burdens in both counties. In Jackson County, by way of example, 57 percent of the tax base is located in just two townships: Cashiers and Hamburg, both in the southern end of the county.

Here is the key issue for taxpayers, the why-you-should-care, bottom-line point: Macon, by likely postponing a revaluation until 2015, would keep the tax burden predominantly on its higher-end residents in Highlands, and spare tax increases for the short term to the county at large. Jackson, by comparison, is looking still to do its revaluation in 2013, which means revaluated property, coupled with a revenue-neutral budget would, almost inevitably, shift the tax burden from the Cashiers area to the less-affluent areas of the county.

“It seemed that most of the pushback about delaying beyond 2013 came from taxpayers in the southern end of the county,” Jackson County Manager Chuck Wooten said in explanation. “Property owners in the southern end could see larger declines in tax value while those in the northern end will see smaller declines, which could result in less taxes for the citizens in the southern end versus more taxes for the northern end.”

Revaluations in North Carolina must take place at least every eight years. Jackson County has the option of pushing back until 2016. Macon County must do its revaluation by 2015.

What’s not in question is what revaluation will mean for both counties: declining values when compared to the boom housing years. Jackson County did its last revaluation in 2008, and Macon County in 2007. Both counties opted to postpone revaluation past a four-year cycle, which they’d gone to because escalating land prices were causing sticker shock to taxpayers. This means Jackson County is using property values set in about 2007, and Macon County is using property values determined in 2006.

New values would mean “the $150,000 home on one acre would probably go up; undeveloped land and more expensive home will have a decrease,” Macon County Commissioner Kevin Corbin said in a recent meeting on the revaluation.

And that would shift the tax burden.

“I don’t have a problem with that per se,” said Macon Board Chairman Brian McClellan, who lives in Highlands and works as a financial advisor there. “If a big house loses value, they should get a tax break. My issue is, if we don’t have good comps, then we don’t want to be at risk defending a lot of revaluations we might not be able to defend.”

Corbin said that he does have some questions about whether Macon County should just go forward, like Jackson for now is set on doing, “and let the chips fall where they may.”

“When is our economy going to return? Maybe we are living in the new normal,” Corbin said.

Macon Commissioner Bobby Kuppers, a U.S. Naval Academy graduate and former commander of a submarine, said the board should be clear in the message it sends to the county’s citizens.

“I think we can say, with some degree of certainty, where those chips are going to fall,” Kuppers said. “If we do the revaluation (in 2013), we owe it to the people of this county to warn them, ‘Incoming Chips.’”

Lightner added, “Those people you see at the grocery store or getting their car fixed, the burden of the chips are going to fall on their laps.”

Commissioners Ron Haven and Ronnie Beale indicated they would support postponing the revaluation.

“The people this would hit the hardest are the very people who can least afford it,” Beale said.

A vote by commissioners is expected in Macon County next month.

In Haywood County, the tax rate would have to bump up three cents for the county to bring in the same amount of money as last year.

Overall, the property values in the county were down following the recent revaluation, the first countywide appraisal in five years. To offset the slightly smaller tax base, the county would have to raise the tax rate from 51 to 54 cents.

County Manager Marty Stamey presented the budget to county commissioners at their meeting Monday, where he painted a picture of fiscal austerity.

“We’ve got less people working than in ‘05 and we’re doing the same amount of work, in some cases we’re doing more work,” said Stamey. “This is the new norm, doing more with less.”

Here’s what the new tax rate would mean based on how your property performed in the revaluation:

• For residents whose property values dropped by at least 5 percent, tax bills will be less.

• Those whose values were perfectly stagnant will see around a 5 percent increase. So for a home valued at $100,000 — both in 2006 and this year — the bill will go up by $27.

• Properties that increased in value will also see a hike in their tax bill by about the same percentage.

Throughout the budget process, commissioners have said they’re committed to a neutral tax rate.

“I think that’s fair because the county’s taking in the same amount of money if they’d not done a reval,” said Commissioner Kevin Ensley. “I don’t know any other way to do it, except keep [the rate] the same, and then we’d have to make a lot more cuts than we have now.”

“We’ve made cuts the last three years and it’s bare bone,” said Commissioner Bill Upton.

While the property tax side of the budget will remain constant, wilting sales revenues mean the county will still have to make some cuts. Most notably, education — both Haywood County Schools and Haywood Community College — will be slashed 3-percent.

Sales tax is the county’s other main money spinner — it accounts for 15 percent of revenue — and it’s down 3 percent over last year. Thus the cuts to schools, which claim a large share of the county’s budget — about 25 percent of the county’s entire budget goes to education.

While a 3-percent cut may sound small, it is indeed a hit, given that the school system asked the county for an increase on what they were given last year. Instead, they’re now losing $430,000.

Stamey said he realized the schools’ need and asked them to dip into their fund balance to cover their losses from state and local defunding.

“These are difficult decisions, ones that we don’t like to make, but we have to do it to keep a revenue neutral budget,” said Stamey.

For the schools to get that money back, commissioners would need to tack another two thirds of a penny onto the property tax rate.

Commissioners will hold a public hearing on the proposed budget at 5:30 p.m. on Tuesday, May 31, with a vote scheduled for their regular meeting at 5:30 p.m. on Monday, June 6.

Haywood County’s tax rate versus tax base

Tax base before revaluation: $7.258 billion

Tax base after revaluation: $7.086 billion

2010 tax rate: 51.4 cents

2011 tax rate: 54.13 cents

What is revenue neutral?

A revenue-neutral tax rate means the county will bring in the same amount of revenue despite changing property values. Usually, property values increase so the tax rate can come down. But property values on average went down slightly in the recent countywide revaluation. The tax rate will go up to compensate for the smaller tax base.

The official revenue-neutral tax rate allows for a minor increase from newly built homes and buildings that are added to the tax base year to year.

No increase in taxes, more funding for the new public library, the same amount for the schools and a more than 3 percent overall drop in spending highlight Jackson County’s proposed budget for the upcoming fiscal year.

Does the proposal simply sound too good to be true? Well, it’s not, interim County Manager Chuck Wooten reassured commissioners this week when presenting the fruit of Finance Officer Darlene Fox and his labors.

The proposed budget would total just more than $58 million; the general fund would come to just more than $49 million. A budget work session is set for 1 p.m. on Monday, May 9, when commissioners meet with the Jackson County Department of Social Services. At 2 p.m., they will walk through the proposed budget with Wooten to determine what, if any, changes they want to make.

“We just trimmed every department,” Fox explained before the meeting while passing out copies of the budget to reporters.

County employees won’t see a pay increase for the second consecutive year, and there is a net decrease in county employment by 17.1 positions (through elimination of open positions, consolidation of some duties, and privatizing some of the solid waste operations).

Additionally, Jackson County would give the school system the $235,000 extra in capital outlay administrators requested recently. School leaders said during a work session with commissioners that the money was necessary to fix roofs, buy security cameras and meet other basic facility needs.

School board members and administrators also requested commissioners hold steady at the same nearly $6.8 million amount budget this year, which is accomplished under the proposed budget.

The new Jackson County Public Library in Sylva would see funding increase from $500,000 to $675,000.

Mary Otto Selzer, who attends virtually every commission meeting, including this one, was pleased with the proposal. She is the co-chair of the Friends of the Library committee that raised nearly $2 million in donations and grants to furnish and outfit the new library. The former investment banker praised the working budget for containing sufficient funds to keep the library operating at 45 hours per week.

“The county and community have made a significant investment in this new facility and we want to have it open and accessible to serve the communities needs,” Selzer said. “The community had hoped our new library would be able to increase its hours of operation from 45 to 60 hours per week  — the minimum level recommended by the state — but this is wonderful news in view of the current financial climate.”

Selzer said Librarian Dottie Brunette is working to set the hours of operation for the new library complex (they are in process now of moving the libraries books and other resources to the building). Brunette, Selzer said, is hoping to offer at least a couple of days with evening hours to better serve working families.

Funding for nonprofits in Jackson County was held at current year levels. New dollars amounting to $7,000 was provided for Mountain Projects; Webster Enterprises has new funding in the amount of $10,000; and The Community Table, which requested $10,000, was recommended for $5,000.

“It’s not a surprise – it’s a tough economic climate,” said Amy Grimes, executive director of The Community Table, a group helping feed those in need. “Anything we can get in the form of financial assistance is a help.”

Wooten said the financial climate seems to be improving.

“Jackson County continues to feel the impact of the economic slowdown even though some signs suggest things may have bottomed out,” Wooten wrote in his introductory remarks to the proposed budget. “Foreclosures are up and building permits are down; but, overall, it seems we may be witnessing the beginning of a slow recovery.”

Wooten noted that while the ad valorem tax rate of 28 cents would remain the same, and that the fund balance (the county’s rainy day fund) would go untapped, “overall the projected ad valorem tax value and revenues are less than were budgeted in fiscal year 2010-2011.”

The projected tax base is $11,323,240,141, or $74.5 million less than the current fiscal year.

Haywood County, like everyone else, is bracing for the impact of state budget cuts. But the good news is that they may leave the budget fray with fewer scrapes than they thought.

In Raleigh, budget committees have been busily trying to bang out cuts in the billions, and while nothing is yet final, a proposed House budget released last week gave a view of the carnage that may be to come.

So Haywood commissioners met with county staff to hash out what this might mean for the county’s budget and the services that rely on it.

Though there will certainly be state cuts that will fall to counties to pay for, but County Manger Marty Stamey told commissioners at a budget workshop last week he’s not as concerned as he could be.

“Best case scenario, we’ll be $250,000 out, which is good,” said Stamey, meaning that a mere $250,000 shortfall would be their best landing in the budget fallout. “A lot of counties would be proud to be where we are. People say what they want to say, but budget-wise, we’ve done the right things over the last few years.”

The county’s budget is still in flux, waiting on both state cuts and the reaction of other groups, such as community colleges and the school system, which may come to the county for helping plug holes from state cuts of their own.

Currently, community colleges are looking at a 10 percent reduction in state funding, while K-12 education was slightly shielded, only facing an 8.8 percent cut.

One area where the county might feel some crunch is in its health and human services budget. The state is seeking to reduce spending there by $527 million, including $527 million in Medicaid, $67 million for mental health services and half of the funding for senior centers. Also on the chopping block are Community Care block grants and Smart Start spending.

“Human services are really busting at the seams for demand in this county,” said Stamey, noting that a decline in services would affect many citizens harshly.

Another proposal that staff said seemed likely to come through is the closure of four state prisons. Though there’s no word yet on which prisons would close, it would shift the burden of housing prisoners serving time for misdemeanors to county jails.

Stamey reported that, while Sheriff Bobby Suttles said he was confident he could house the criminals currently in the system, predicting whether they’ll have room in the future is impossible.

“That’s one reason that we think we might need to have higher contingency this year, for things like this, because that’s an unknown,” said Stamey.

On the revenue side, Finance Director Julie Davis told commissioners that the picture is no clearer there.

Surprisingly, said Davis, the property revaluation that happened this year isn’t what’s throwing projections into turmoil.

Usually, property values would go up with a revaluation, requiring counties to tinker with the tax rate to offset would would otherwise be an unpallatable rise in property taxes.

But due to the stagnant real estate market, the total value of property remained nearly flat in the recent revaluation — requiring little adjustment to the property tax rate to bring in the same amount of revenue as last year.

Sales tax is a different story, however.

“Sales taxes have been up and down. Looking at the comparison to last year, four months they’re up compared to the current year and three months they’re down,” Davis said. “Were chasing a moving target on revenues.”

The fluctuation makes it hard to predict how much money the county can bank on from sales tax next year, but year-to-date on average, sales tax collections are down 10 percent over last year.

In light of that, and state-level slashing, a property tax rate increase might not be out of the question.

Overall, though state cuts do look grim, Stamey said he’s confident in the county’s ability to stay afloat without undue carnage. But, he said, there just aren’t any solid numbers yet to be had, so it’s impossible to know for certain.

“We’re at the mercy of a lot of people’s budget’s right now to sort of figure out our budgets,” said Stamey. “I feel like I’d be doing us an injustice right now [to give numbers].”

The picture painted by county staff was in broad strokes, an overview of what could be coming in stead of the nuts and bolts of what to do about it. But that was purposeful, according to Davis.

“We specifically did not mention numbers or the revenue neutral rate because there is so much up in the air right now,” said Davis.

Commissioners will be meeting throughout the spring for more budget talks, though they noted that much of it is out of their hands.

As Commissioner Kevin Ensley said, “so if the state leave’s us alone, we’ll be alright.”

A state budget is expected by early June.

Haywood schools talk budget

Haywood County Schools could be facing a budget shortfall of $4 million if the state House of Representatives proposed budget gets adopted. The school board held a public hearing on Tuesday to hear community feedback and discuss what cuts might mean for local schools.

The reductions would mean 46 positions would be slashed within the system. Teacher assistants would be scaled back by 49 percent, textbooks by 68 percent and dropout prevention programs, school technology and staff development initiatives, among other things, would be eliminated.

See www.smokymountainnews.com Thursday for an update on the public hearing and the impact of threats to school funding.

Budget concerns that the state will dump responsibilities on local governments, and anecdotal assessments of the current economic climate, dominated a meeting last week of Macon County’s elected local leaders.

The informal, relatively freewheeling discussion took place over plates of steak and potatoes in a conference room at the county’s airport. Elected leaders from Franklin, Highlands and Macon County took part, joined by the towns’ and county’s top administrators.

Describing Highlands as the “bellwether” economic indicator for Macon County, Commissioner Ronnie Beale queried Mayor David Wilkes about the spending mood in his better-heeled-than-most town.

Wilkes, who owns and operates three outfitting stores in the Highlands and Cashiers areas, responded the retail sector seems to be emerging normally from the winter doldrums.

“Business is picking up as it usually does, and people seem to have a comfort level,” Wilkes said.

He added that the huge second-home population of Highlands has helped some to insulate the town. Though more-regular folks might forgo the expense of traveling to the area, those who have invested in a real house have proved more likely to continue spending part of the year there regardless of the depressed economy, Wilkes said.

Macon County Manager Jack Horton told elected leaders that Macon County had eight housing starts last month, one of which was in Highlands. Though not outstanding when compared with the housing-boom days, Horton said that number does represent an uptick for the county.

Highlands Commissioner Larry Rogers, who owns a construction company in Highlands, said business is still very slow, as did Beale, who runs a construction company in Franklin.

State eyes county savings

Looming ominously over the discussion were fears the state’s $2.4 billion or so shortfall will result in future hard times for local governments. Gov. Beverly Perdue earlier this month sent unhappy shockwaves through the leadership of the state’s 100 counties with her suggestion counties pick up the tab for some state functions by tapping into the $2.1 billion they collectively hold in reserve through fund balances.

Macon County’s fund balance is healthy, representing about 25 percent of its budget. The state requires counties to keep a reserve of at least 8 percent. The state pointed to these robust fund balances as proof that counties aren’t hurting as much as the state and can afford to take on more responsibilities.

“We don’t feel like we should be punished for being prudent with our money,” Brian McClellan, chairman of the commission board and a financial advisor in Highlands, said of Perdue’s plan. “We don’t think it’s a good idea for them to eyeball our county fund balance.”  

In an interesting reversal of fortunes and a now-the-shoe-is-on-the-other-foot kind of way, county commissioners in February sparked a very similar reaction from local education leaders, when, during a budget work session, commissioners discussed the need for school administrators to give up some of their own $3 million fund balance for the good of the county.

“Their fund balance is our fund balance,” Commissioner Bobby Kuppers said then.

The irony, such as it was, went un-remarked upon at last week’s meeting.

County Commissioner Kevin Corbin, who previously served 20 years on the board of education, said he believes the state will impose a cut of about 8 percent for schools.

“We’re all going to have to live within our means,” Corbin said, adding there’s no way for the county to pick up the tab for state education cuts.

Also of concern to local leaders in Macon County is that Perdue’s proposed budget would force counties to pay for workers’ compensation for public school and community college employees. The state may also cut the county’s share of corporate income taxes.

Jackson and Haywood county commissioners held similar discussions last week. The N.C. Association of County Commissioners had sounded the alarm the week before, calling on counties to voice their concerns.

David Thompson, director of the N.C. Association of County Commissioners, said it was “very disconcerting” that counties could be asked to tap their fund balances — saved up over the years often with an eye toward school construction or future building projects — as “the silver bullet to manage the state’s budget crisis.”

Haywood County commissioners passed a resolution last week opposing the state shift of funding duties, particularly for schools. Among proposals on the table: the state would take 75 percent of the county’s share of lottery money intended for schools and make counties pay for new school buses.

“The state said they aren’t going to have any new tax increase but they haven’t said anything about pushing the costs on to us and us having to do tax increases,” Haywood Commissioner Bill Upton said.

Despite its vibrant façade, downtown Waynesville hasn’t been immune to the economic recession.

So Richard Miller was surprised, to put it mildly, when he learned his downtown building doubled in value over the past five years — at least according to the county’s appraisers. Miller disagrees with their assessment.

The book value of Miller’s building on Main Street went from $431,000 to $800,000 in the recent countywide property revaluation.

Property values determine property taxes: the higher the value the higher the tax. And that’s what concerns Miller.

If his taxes go up, he’ll have to charge more in rent to cover the cost.

“Could the businesses stay in business if they had to pay that much more in rent?” Miller said. “I’m afraid one of my tenants would leave if I said rent goes up by that much a month.”

The Kitchen Shop and the Blue Owl art gallery occupy Miller’s building at the corner of Main and Church streets.

Most commercial leases automatically go up if property taxes go up, thanks to a clause built in to the lease for just this occasion. Merchants will then have little choice: either absorb the rent hike or pass it along in the form of higher prices to customers.

“The result? Fewer customers, fewer purchases, less profit, more overhead, and more and more doors closed,” said Jonnie Cure, a free market advocate and past downtown property owner. “Too many businesses come and go on Main Street in Waynesville as it is in this horrible economy.”

The steep increase witnessed by commercial property is the exception to the rule in the property revaluation. Residential homes and land largely went down, or at best increased slightly.

Canton saw significant hikes to commercial values as well: a 13 percent increase overall for the downtown district. If higher property taxes force up rent prices, it could break small businesses, said Charles Rathbone, owner of WNC Sign World in downtown Canton.

“The business owners here could not as a rule support that kind of increase,” said Rathbone. “They are struggling every day to keep the light bill paid.”

Rent is cheap in downtown Canton compared to Waynesville, but merchants are still operating in the margins, Rathbone said.

On average, property values in downtown Waynesville went up 28 percent, with the larger jumps seen on Main Street. Miller said Main Street has been singled out.

“Why is Main Street being punished for being successful?” Miller said.

Downtown Waynesville is a selling point for the whole county, said Buffy Phillips, director of the Downtown Waynesville Association.

“We are clearly doing something right,” Phillips said. “Realtors always say if they have a buyer who is on the fence, they drive them down Main Street to close the deal.”

It doesn’t seem fair that their success resulted in such large jumps in property values, which in turn will hurt the very merchants who are the life blood of downtown’s vibrant scene, Phillips said.

Main Street storefronts remain in high demand, however. Downtown Waynesville has only a handful of vacant storefronts, with only a couple on Main Street itself.

While downtown Canton has generally been flush with storefronts for lease in recent years, several have been snatched up lately. New downtown business that have just opened or are coming soon include a computer shop, an office for an outpatient physical therapy provider, an automotive shop and a new restaurant.

“It is beginning to fill,” Rathbone said.

What it means for taxes

In downtown Waynesville, higher property values carry a potential triple whammy: they not only determine county and town taxes, but also a special assessment to support the Downtown Waynesville Association, a self-promotion arm for downtown merchants.

Phillips said DWA will likely lower the tax rate in the Main Street district. That means that even though property values went up, the amount paid in taxes won’t go up by the same percentage.

At the county and town level, however, commercial property owners who saw their values go up shouldn’t expect a lower tax rate to offset the increase.

On average, property values flat lined. Although some obviously went up while others went down, the total value of all the property in the county is the same after the revaluation as it was five years ago.

How commercial is calculated

Commercial property is valued differently than residential homes and land. The values for homes and land are based on sales of similar property. But there are usually not enough sales of commercial buildings to establish an accurate baseline.

“It is hard to find commercial properties that are truly comparable,” said Ron McCarthy with RS&M Appraisal firm.

So instead, commercial property values are derived from the prevailing rents in an area. Even if the property isn’t being leased, appraisers calculate how much rent income the building would potentially generate if it was.

While residential homes and land were appraised by an in-house team of county appraisers, the county contracted with a private firm, RS&M Appraisal, to do commercial property.

Regardless of the rent-based appraisal formulas, Miller disagrees with his assessment. Rents have not gone up 28 percent in five years, so why did property values, Miller asked.

On the rise

Commercial property values increased in the latest Haywood County property appraisal. Here’s the increase for certain districts compared to five years ago.

Waynesville downtown: 27.9%

Canton downtown: 14.6%

Maggie Valley downtown: 8.8%

Clyde downtown: 3.8%

Russ Avenue in Waynesville: 9.5%

South Main Street in Waynesville: 3.6%

Champion Drive in Canton: 26.7%

This isn’t the easiest time to be a real estate agent in Jackson and Macon counties, not with the crippled housing market and a customer base that is, in most cases, hard pressed to find the dollars to buy new homes.

Nowhere is it tougher than the upscale communities of Cashiers and Highlands, a market catering to second- and third-home owners. Here, where houses just a few years ago routinely sold in the millions, the bottom has fallen out.

Terry Potts isn’t complaining. But, as the owner of four separate real estate offices in Highlands alone, Potts perhaps is experiencing even greater pain than most agents.

“In most cases, property has been selling for about half the tax value,” Potts said of the market in Highlands, adding that what has sold are, generally, bank foreclosures.

“I think that’s why they put it off,” Potts said. “And I do think the values are going to drop a good bit — if they truly use values of (properties) that have sold.”

“It” would be the property revaluations, now scheduled to take place in both Jackson and Macon counties in 2013. Countywide appraisals were last conducted in Jackson in 2008 and Macon in 2007, at practically the peak of the housing boom in Western North Carolina.

Macon County commissioners decided to postpone its revaluation from 2011 to 2013; and Jackson County recently opted to push its back one-year from 2012 to 2013. State law mandates revaluation takes place at least every eight years; both counties had been on four-year cycles.

The issue?

‘True’ market value

In both counties, the tax assessors predicted difficulties with calculating true market value when little property has sold. Bobby McMahan, Jackson County’s tax assessor, recently told commissioners one township with 4,000 parcels had just three property sales in three years — hardly enough to establish a baseline.

McMahan wanted commissioners to delay Jackson County’s revaluation until 2015. This would have meant, however, that taxpayers would continue paying taxes for several additional years on what are now hyper-assessed properties. Some residents, particularly those living in southern Jackson County, cried foul — and not just over the possibility of shouldering an unfairly large tax burden, but about the overall level of services the Cashiers area receives back.

“The emotional irritation is that there is a miniscule percentage coming back to southern Jackson County and these townships,” said Phillip Rogers, who lives near Cashiers in the Hamburg Township.

“I’m personally contributing property taxes on two houses … I don’t mind paying the taxes as much as I mind not getting a return on services,” Rogers said.

But even if property values are lowered, it’s unlikely to provide residents such as Rogers tax relief, as he knows. In light of falling property values, Jackson and Macon counties would have to raise the tax rate if they want to bring in the same amount of money.

“That’s true,” agreed interim Jackson County Manager Chuck Wooten of the options facing local leaders. “In order to be revenue neutral there would have to be an increase.”

Wooten estimated that staying revenue neutral in Jackson County would require a tax-rate increase of the current 28 cents per $100 valuation to the mid-30s.

The largest drop in property values, not surprisingly, is expected in the Glenville and Cashiers area — the same areas where they had risen so rapidly over the first part of the decade.

Norman West, a longtime real-estate agent, primarily works in Cullowhee, the fastest growing part of the county population-wise, according to the 2010 Census.

Even so, things aren’t good, West said, “but we tend to be a little more insulated than some other communities” because of Western Carolina University.

West said what Jackson County has yet to truly contend with is the crash of high-end developments — granted, many lots in such developments already have been through foreclosure, but he believes there are many more to come. The fallout from the Great Recession isn’t over.

“These are uncharted waters,” West said.

Things that roll downhill

Jack Debnam, a real-estate agent who serves as chairman of the Jackson County Board of Commissioners, acknowledged local leaders have been placed in an unenviable position.

To offset the lower property values when revaluation starts in 2013, they will either have to raise taxes or cut county services.

Commissioners might face that dilemma sooner than 2013, however. The county already faces a budget shortfall. Wooten has asked each department to cut 5 percent from their budgets in the coming fiscal year.

There is every likelihood state leaders will shift portions of the $2.4 billion budget deficit they are facing downhill to local governments. After that, there’s nowhere downhill to go — again, local leaders are left to slash services or raise taxes.

“We just don’t know where the state’s going to put us,” Debnam said.

In Macon County, Bob Holt, a Franklin resident and real-estate instructor for Southwestern Community College, said during the first quarter of this year, sale prices were running at 63 percent of the assessed value. He expects to see values drop after this evaluation.

Richard Lightner, Macon County’s tax assessor, said his office could ask commissioners to delay the revaluation again, up to 2015, but that he doesn’t plan to do that.

“I think we need to adjust to where reality is right now,” Lightner said. “The whole premise of doing a revaluation is to equalize the market values.”

Lightner said the lower- and median-priced homes are generally stable — it’s the high end, speculative markets that are down.

While some counties bring in a specialized appraisal firm to conduct the revaluation, others do it in-house with their own staff. Macon County has done theirs in-house in the past, but Jackson is contemplating bringing the reval in-house for the first time.

Lightner said Jackson is likely to “have a difficult time” if it does. Macon is well along in the revaluation process — some 30 percent of property values are done. Jackson is just starting.

Additionally, Macon has experience doing revaluations in-house; Jackson County does not.

“They’re starting from scratch right now,” Lightner said. “I wouldn’t want to do one like that.”

If Jackson commissioners insist on sticking to its target of 2013, Lightner said he expects Jackson County tax-office staff will be unable to make as many on-site evaluations as Macon County, and instead will be forced to rely more on computer-generated assessments.

Haywood County’s property revaluation was a massive undertaking: appraisers had to lay eyes on 50,000 properties, from condos to fast-food joints to farms, and judge whether they had gone up or down in value over the past five year.

Hundreds of property sales from 2009 and 2010 set the bar for new values on the county’s property rolls. But just because a similar home across town sold for $200,000, does it mean yours would also?

In the world of real estate, location is everything, whether it’s a few blocks down or the other side of the ridge.

This year, the county developed a highly-engineered method called “neighborhood delineation.”

The formula carves the county up into nearly 1,000 neighborhoods. From there, the county essentially wrote its own computer program to calculate property values, taking dozens of variables into account. Each variable takes the value up or down a notch, but is only as good as the baseline assigned to the neighborhood.

The methodology is impressive, said Randy Siske, a Realtor and president of the Haywood County Board of Realtors.

“The last time we had a revaluation, the biggest complaint from the real estate community was they were comparing apples and oranges,” Siske said. “I think they really made an effort to compare apples and apples.”

Before, the county was divided into just 17 townships. All of Maggie Valley was lumped together, or all of Bethel.

Now, clusters of just 30 or 40 similar properties make up a neighborhood.

David Francis, Haywood County tax collector, pointed to a map of Hazelwood where a conspicuous donut hole appears in the middle of one neighborhood. A condo unit along a residential street was carved out and made its own “neighborhood” rather than lumping it in with the houses around it.

“That’s how close and how drilled down this is,” Francis said.

When county’s appraisal team reached the final stage of revaluation — a drive-by of every property on the books to double check their formulas — they had identified some 700 neighborhoods. But during their final drive-bys they kept creating more and more.

One appraiser trolling the back roads of Fines Creek left in the morning to survey what she thought was one neighborhood and came back to the office with three: Betsy’s Gap, Price Town and Turkey Creek.

“They were finding out that some neighborhoods were a little broad so they broke them down further,” said Haywood County Tax Assessor Judy Ballard said.

And further and further apparently, until they had added another 250 neighborhoods by the time reval was done.

“Neighborhood delineation” was lot of work on the front end — entering not just the number of bedrooms, square footage and whether a home has a garage — but also the school district, proximity to town parks or mountain views.

Those appealing their property values may have a harder time making their case.

“I think it is going to be more difficult for property owners to get through the appeal process,” Siske said. “I’m not saying there aren’t properties out there that need to be appealed. But finding a property that is $100,000 off in value I think it is very much less likely.”