Friday, July 12, 2024

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Graham, NC 27253
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Budget games

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Why is it, we always wonder, that taxpayers are the very last ones any public official takes into consideration when setting their annual budgets?

We noted last week a few options that commissioners could employ to avoid raising property taxes beyond the revenue neutral level.

One or two commissioners raised these or similar possibilities, but were shot down by staff. In each case, their ideas seemed to fail because they ran up against long-established accounting tricks that government bureaucrats use to pad the bottom line.

Let’s review the history inasmuch as these two budgetary devices (i.e., gimmicks) are used year after year in a way that disadvantages the average taxpayer.  And most commissioners don’t appear to have caught on to the annual shenanigans played by the professionals.

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We apologize, in advance, to our readers that these issues get somewhat “into the weeds” of detail, but we’ll try to outline the basics as simply as possible.

 

Sales taxes

One of the most popular ploys that local finance officers and city/county managers use to game the system against taxpayers is their annual “assumptions” in estimating the sales tax revenues over the coming fiscal year.

Sales taxes typically are the second largest source of revenue for local governments – behind property taxes.

At the county level, official year-end audits demonstrate that for at least the past eight years, through June 30, 2022 – which are the latest fiscal years for which numbers are posted on the county’s website – actual sales tax revenues have beat budgetary projections by between 1.3 percent (the Covid year of 2020) and 60.12 percent (the year after, in June 2021).   

[Story continues below chart of sales tax revenues (budgeted vs. actual) for each of most recently audited eight fiscal years. Source: audits of Alamance County government, fiscal years 2015 through 2022.]

That’s an average understatement of revenues of 17 percent per year, totaling more than $36 million over the past eight fiscal years.

That $36 million cumulative figure translates to an average of about $4.5 million per year.

Why is that significant?

Because the lower-than-actual number is used as a basis for determining what level of property taxes will need to be collected in order to fund the county’s budget for a particular fiscal year.

In hindsight, because sales tax revenues have come in so strong year after year, property tax rates could have been lower – a layman’s calculation would suggest between 1 to 2 cents lower – each of the past eight years.

We’ve questioned why county manager Heidi York’s estimate for sales tax growth, 7.7 percent, is so much lower than what local municipal managers are estimating, which is generally above 20 percent.

When the topic was raised by the commissioners this week, York replied that for the “past three to four months” sales tax revenues have come in below expectations.

That may be true, but, if so, it would represent the first time in recent memory that sales tax revenues have, indeed, come in lower than the previous year’s estimated amount.

She subsequently provided this newspaper with data showing that the county’s recent sales tax revenues are proportionately weaker than the state as a whole – and running somewhat lower than they had been a year ago (at least for January through March, which are the latest months for which the county has received sales tax revenue from the state).

The county manager also provided a factoid that she conveniently omitted saying Monday night. For the year as a whole, sales tax revenues are, so far, coming in about 4.69 percent higher than last year.

 

Fund balance

Another, even larger pot of available money is the fund balance, or so-called savings account, maintained by the county.

We find the exponential growth in this fund particularly ironic.  While usually referred to as a “savings” account, it actually represents, in our judgment, the results of over-taxation from the past.

In each year, of at least the past eight, county management has consistently underestimated the cumulative amount of money it will take in – not only from property taxes, but also sales taxes (see above), and other fees and special charges.

Meanwhile, management has also continuously underestimated its total expenditures, thus creating a sizeable surplus at the fiscal year’s end.

That overage each year is then rolled over into the fund balance.

And we’re not talking about small amounts.

During just the past eight years, this overage has totaled more than $53 million.  Those millions have been added to the fund balance – which now stands (or did on June 30, 2022) at over $84 million.  Granted, some of this accumulation, apparently about half, is already obligated for future expenditures, or is in a form that isn’t readily spendable.  But the other half isn’t.

[Story continues below chart showing the growth in county fund balance from 2014 through June 30, 2022.  Source: audits of Alamance County government.]

Only once (in 2017-2018) was the amount plowed back into savings totaled less than $1 million; twice, it was as much as $13 million to $14 million; on average, $6.6 million has been added in each of the past eight years.

In our judgment, it would be perfectly reasonable to dip into these reserves to refund the money taken from taxpayers. This could be done in the form of a lower tax rate (determined one year at a time), to offset the previously over-taxed levels that they have paid in.

But, ironically, county officials seem to treat that fund balance as almost sacrosanct or untouchable – at least when it comes to tapping it to repay, or assist, taxpayers.

But just wait for the next pet project or favored cause that county government or a particular commissioner wants to fund – such as a mid-year pay raise for county employees.

Then, we suspect, any hesitation to dip into the “savings” will quickly vanish.

And the over-taxation – through higher property tax rates – will continue unabated, i.e., yet another example of business as usual.

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