Tuesday, March 28, 2023

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School board skeptical of commissioners’ option for financing court expansion with funds set aside for school capital projects

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Patsy Simpson challenges whether commissioners have authority to take funds previously designated for school system capital projects for court expansion

A proposal to tap into capital reserve funds normally set aside for the Alamance-Burlington school system – in order to pay for a $65 million expansion and renovation of the Judge J.B. Allen, Jr. Court House – drew fire from school board member Patsy Simpson at the tail end of the school board’s latest meeting Monday night.

Alamance County manager Heidi York told the commissioners last week that the county could siphon approximately $2.9 million in capital reserves currently set aside for ABSS to cover debt payments for the courthouse expansion and renovation, potentially eliminating the need to increase the county’s property tax rate in order to fund the project.

School board chairman Sandy Ellington-Graves briefed school board members on the proposal toward the end of the board’s meeting Monday night, as part her semi-regular report from a committee she serves on, a joint Capital Oversight Committee (OSC), which typically convenes every other month and met last Thursday at Impact Alamance’s headquarters in downtown Burlington.

The OSC committee was established several years ago to oversee the implementation of two bond packages that voters approved in November 2018: $150 million for ABSS and $39.6 million for Alamance Community College. The “OSC,” as it’s frequently termed by county, ABSS, and ACC officials, is comprised of: the commissioners’ chairman, John Paisley, and their vice chairman, Steve Carter; school board chairman Ellington-Graves and vice chairman Ryan Bowden; and ACC trustee chairman Blake Williams, as well as the top-ranking officials from the county, ABSS, and ACC.

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“The commissioners are discussing ways to fund the new courthouse,” Ellington-Graves told her fellow board members. “One of those ways they are considering is reappropriating capital reserves for ABSS.”

The school board’s chairman, however, emphasized that, even if the county commissioners opt to use the school capital reserves, “it does not impact the $3.3 million” in so-called yearly “pay-go funding” for capital expenses that the commissioners had previously pledged to provide for ABSS each year.

ABSS chief finance officer Kim McVey told the school board Monday night that the school capital reserve funding “is an additional allocation based on some of their sales tax [revenue] that we have been allowed to use to fund some of our major projects.” The CFO went on to say that, years ago, the commissioners looked at how they were allocating capital funding “and tried to do a recalibration,” so that ABSS would be able “to know what we could count on.”

“The $3.3 [million], our regular allocation for capital, is still in place, but they want to reappropriate some of our capital reserves to help fund the renovation of the courthouse,” McVey said Monday night.

 

‘Taj Mahal jail’
“Do they have the statutory authority to take money?” Simpson asked. “Why would we allow them to reduce the amount of money we have historically received for capital improvement for them to build the Taj Mahal jail? As a school board member, I don’t understand. They just throw out stuff along with the increase in taxes – and this is a conservative board, too. How can we agree, in any form, or do we not have to agree? Do they have the statutory ability to take money? I know the sales tax has increased…We got $1 million; they got $38 million. But I’ve never seen in the budget process where they said, ‘you’ll get 3 percent, or 1 percent, or 2 percent of the sales tax.’”

The school system’s CFO responded, “These are continuing conversations.”

“We would be crazy,” Simpson shot back, “to say, ‘give us less money in capital improvement,’ with all of this we need done. We’re blessed – we’re out there shopping. We want our tax dollars to go up so that we can get more money, and it’s not necessarily to build a jail,” Simpson added, repeatedly misidentifying the purpose for which the capital reserve funding would be used as a “new jail,” rather than an expansion and renovation of the county’s criminal courts building.

“I am not for it,” Simpson continued. “I don’t understand why they even started this dialogue without consulting with us first. That is not a source of revenue that they should be able to just use because they decided that we need a new jail. I don’t think they ever gave the public a vote on the new jail…the courthouse, whatever. We didn’t vote, but they got to vote on our bond. They think they can just take our tax dollars and appropriate it without even asking us – no, conservative board, you don’t have that authority.”

Simpson was the only school board member who spoke out about the proposal Monday night. She also asked school board attorney Adam Mitchell of the Tharrington-Smith law firm in Raleigh to research the legal ramifications of reappropriating any sales tax receipts and report his findings at the school board’s next meeting in two weeks.

 

Statutory provisions for distribution of local sales tax receipts
The North Carolina statutes that govern the distribution of revenue from the first-half cent (Article 40) sales and use tax and second half-cent of the local sales and use tax (Article 42) state that 40 percent of sales tax receipts under Article 40 and 60 percent of receipts under Article 42 may be used only for public school capital outlay.

Alamance County commissioner Bill Lashley – who along with commissioner Craig Turner serves as a liaison to the school board – told The Alamance News Monday night that the commissioners aren’t considering reappropriating the local sales tax receipts that ABSS receives through the county.

“They [ABSS] have two buckets that get filled up at different percentages,” Lashley explained. “That is theirs. What they are [concerned about] is reapportioning the 8 cent increase in property taxes from the bond that benefits from an increasing tax base. ABSS receives 5.64 cents [in revenue from property tax collections] that goes into capital.”

Lashley noted that, when the property tax rate was increased in June 2019, to begin funding debt service for the two bond packages, one penny on the tax rate yielded between $1.25 million and $1.3 million. But one penny currently yields $1.6 million in property tax revenue, he told the newspaper Monday.

The school board’s chairman, Ellington-Graves, also confirmed for the newspaper in a subsequent interview that the percentage of sales tax revenue that ABSS receives from the county wouldn’t change, under the proposal that was presented at the OSC meeting last week.

Other sources of capital funding that ABSS receives – which includes proceeds from the state education lottery, civil fines and forfeitures, and local sales taxes – would remain untouched, Ellington-Graves emphasized in a subsequent interview Tuesday morning. “The plan maintains the $3.3 million capital outlay allocation (pay-go); there’s no reduction,” she said.

Ellington-Graves added that she had confirmed with the county manager that the capital reserves that may be reappropriated in order to help fund the courthouse expansion and renovation would come from “additional funding generated by growth in the overall value of the county’s tax base.”

“Without using capital reserves, [ABSS] would have $62.5 million” in capital reserve funding by 2033,” the school board chairman told the newspaper. But, based on the current proposal to tap the reserve funding for the courthouse project, Ellington-Graves said that ABSS would have $27.8 million in capital reserve funding by 2033, based on a financial analysis that a consultant (Davenport Public Finance) has developed for the county.

In 2022, ABSS received $12.7 million from local sales tax receipts, under the Article 40/ 42 provisions, Ellington-Graves said, citing figures that the county’s consultant provided to the OSC committee last week.

By comparison, ABSS received $7.8 million in local sales tax receipts in 2019.

Davenport’s analysis shows that ABSS would receive $8,049,507 in Article 40/42 sales tax revenue each year from 2023 until 2046, according to a copy of the consultant’s analysis that the school board chairman provided to the newspaper Monday night.

The OSC heard three possible scenarios for funding the courthouse expansion and renovation during its meeting last Thursday. Under the third option, the county would finance $47 million in debt; use $10 million in federal stimulus funding (under the American Rescue Plan); and use up to $10 million in capital reserve funding, starting with a “reapportionment” of $2,160,000 in revenue from ABSS to the county for the fiscal year that begins July 1, based on a copy of the presentation that Ellington-Graves furnished to the newspaper.

 

‘It’s going to sting a little bit’
During a break in Monday’s board meeting, ABSS superintendent Dr. Dain Butler acknowledged to the newspaper that the current proposal to tap the capital reserve funding for the courthouse project “is going to sting a little bit.”

At the same time, Butler said that, while Davenport’s analysis shows that the capital reserve fund balance for ABSS would dip to its lowest point (estimated at just over $3 million) in 2024, that pot of money would steadily replenish over the next few years and nearly double, to $7.2 million, by 2026.

For her part, Ellington-Graves confirmed this likely financial impact to ABSS in a subsequent email to her fellow board members Tuesday afternoon, which she furnished to The Alamance News Wednesday morning.

“The impact to ABSS appears to be most challenging in 2024…with healthy growth afterwards,” the chairman explained in her email to her fellow school board members. “In 2024, the capital reserves fund balance will dip to $3.1 [million] but rebound each year following with expected growth to reach $27.8 [million] in 2033 and $145.7 [million] in 2046.” Those revenue estimates appear to be based on the spreadsheet that Davenport developed for the county, which was presented to the OSC committee last Thursday.

In her email to her fellow school board members Ellington-Graves explained that, according to the county manager, these estimates are predicated on the assumption that 1 cent on the tax rate currently generates $1.6 million in revenue. But, due to the increase in the total value of the county’s tax base produced by the recent property revaluation, 1 cent on the tax rate is expected to generate between $2 million and $2.2 million in future fiscal years, the school board chairman added in her subsequent email to her board colleagues.

Additional details will also be provided at the school board’s work session on March 14, Ellington-Graves said Monday night.


See earlier coverage of commissioners’ discussion about using capital funds for court expansion:

Feb. 26 at commissioners’ meeting: https://alamancenews.com/courthouse-expansion-cost-now-estimated-at-67-million-can-it-be-built-without-a-property-tax-increase/

Feb. 2 commissioners’ retreat: https://alamancenews.com/county-eyes-school-systems-capital-reserves-to-pay-off-debt-for-courthouse-expansion/

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