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Budget postscript: I know, I know … we’ve spilled a lot of ink on the subject of budgets already, including in this week’s column, but there’s a lot to unpack.
That includes plenty of comparisons — some fair, some overly simplistic — between the proposed 20% tax increase in the City of Wilmington budget, which is still being discussed ahead of a vote next month, and the unchanged tax rate of the New Hanover County budget, which was passed this week.
I’ll save the Wilmington budget for another column — and say here only that we’ve got some more reporting to do — but I did want to add an endnote to our reporting on the county budget.
I’ve written, at length, about the county’s unsuccessful attempt to tap its $292-million Revenue Stabilization Fund (RSF), which hinged on getting a supermajority four-out-of-five vote from commissioners. And we’ve reported on the county’s Plan-B, tapping a host of lesser-known reserve funds, as well as borrowing additional money, acknowledged by County Manager Chris Coudriet as ‘one-time’ tools that don’t fix the county’s fundamental problem — that it’s spending more than it’s bringing in.
Notably, the budget funds a lot of services with bipartisan support, and this year’s process was refreshingly civil. The primary debate throughout wasn’t what to fund but how to fund it. So, for this piece, I won’t rehash in depth who voted for what and why, but I do want to look at one key argument for this year’s budget structure and one key criticism.
The criticism, from Democrats Stephanie Walker and Rob Zapple, was that avoiding a tax increase — whether that was by using the RSF or other ‘one-time’ tools — set a bad precedent (in essence, the slippery-slope argument), and would also create a wider gap between revenue and expenditures next year.
“There will be a reckoning,” Walker said on Monday, before casting the sole vote against the budget.
A side note: That gap is going to be compounded if the $320-million school bond, which has bipartisan support, passes. Debt service for the bond is expected to be around 1.75 cents per $100 of property value in next year’s FY2028 budget. In theory, that could make any additional increase difficult. But it could also open the door to a modest tax increase, because no one would be able to say ‘no tax increase,’ full stop.
But back to this year’s budget. I think Coudriet and his team did an admirable job of being financially ‘creative’ after being sent back to the drawing board. I’d go further and note that there are good arguments for spending down some of the funds that Coudriet ultimately tapped into.
Take, for example, the bucket of money that catches ‘overflow’ from the fund balance, the county’s main reserve fund. There are guidelines, both from the state and the county itself, on the ‘floor’ for this fund — a minimum balance that keeps the county prepared for disasters (like major storms) but also opportunities (like land preservation). There is also a county policy ‘cap’ on this fund.
Philosophically, you can understand why: too much reserve money suggests the county is taking in more than it needs, indicating it should either invest that money in the public or lower its tax rate. The county’s overflow bucket is earmarked for future capital outlay, which is fine, but if it's growing too large, that suggests it's not being put to use and is, instead, just accumulating like couch change (except on the order of $2 million, not a few bucks).
Likewise, take the $5 million from capital projects, either from interest money that’s been borrowed but not spent yet, or on projects that came in under budget (yes, I keep saying, that does actually happen). There’s not usually this much of this kind of money, but since there was this year, why not reinvest it in the public?
There were more complaints about the borrowing — to the tune of $13.6 million — that helped close the budget gap.
The county has borrowed in the past, usually for capital outlay (including fleet vehicles and other equipment), but not every year. Last year, the county didn't use any borrowing to balance the budget.
It's not a sustainable policy for making ends meet (if the Tea Party were still around in force, they’d likely be gathering their pitchforks). Even without rising costs, the other ‘one-time’ tools are likely to be significantly depleted next year, meaning more borrowing, and, well, the county has excellent credit, but it’s not unlimited. And, of course, borrowing isn't free — interest payments mean taxpayers are paying more later than they would upfront this year.
As I've said elsewhere, there is a case to be made for borrowing to spare taxpayers a rate hike for this year — but the ‘terms and conditions’ of that shouldn’t be the kind of thing that you just swipe through and click ‘agree.’ Elected officials should be clear that this year’s budgetary maneuvering, however creative, is a patch job, not a new roof.
Which takes me to the argument for this year’s budget, articulated by Republican Vice-Chair Dane Scalise — but also to some extent Zapple, when he came around to vote for it. During the budget negotiations over the last few months, Scalise noted several times that while the current economic situation is tough, he’s optimistic about near-term improvements.
A lot of that centers around sales tax, which is the county’s second-largest source of revenue after property taxes. For years, sales tax revenue came in considerably above budgeted levels: revenue exceeded predictions by $9 million in FY2021, $16 million in FY2022, and $7 million in FY2023. But then revenue leveled off, coming in at or slightly below predicted levels for FY2024 and FY2025
This year, the amount again came in below expectations. And, while there have been several plausible arguments about what’s driving lower revenue levels over the last few years — economic uncertainty, the cost of living, shifts in tourism and commuter worker behavior — this year, there was a notable data point: a sales tax refund to Novant in the amount of $8,582,291.
According to county staff, as a nonprofit, Novant is entitled to request refunds on sales tax paid on eligible purchases, dating back up to three years. This year, Novant performed a ‘three-year lookback’ and requested a refund, which took $8.5 million out of sales tax revenue.
Compressing three years of refunds into one year distorts this year’s sales tax revenue picture, driving a refund rate of around 210% that depressed revenue, even though gross sales were actually up 4.5%. If you diluted that increase by spreading it back over three years, you’d likely see a different trend line, and this year would look less like part of a plateau and more like a new uptick in revenue for the first time in a few years.
That’s certainly a rosier picture. But, at the same time, it’s not nearly enough to account for the roughly $25-million shortfall that county staff had to solve for this year — and it will take significant increases in sales tax revenue to fill next year’s gap. Otherwise, we’ll be back to the same debates over cutting services or raising taxes — both uncomfortable options.
Scalise said of his optimism for next year, “that’s a bit of a hope, a bit of a prayer, but I don’t think it’s unreasonable hope, it’s not an unreasonable prayer.”
And look, I grew up in New Jersey in the 80s. I’m not not going to make a Bon Jovi reference about livin’ on a prayer — which is well and good for rock and roll but not the kind of thing a fiduciary would recommend, especially as a long-term plan.
Which is to say, I’m all for optimism — and I don’t know anyone rooting against economic prosperity — and there are certainly many people grateful that this year’s county tax rate didn’t go up, for whom an extra hundred bucks would make a real difference. But I think we should remain clear-eyed about the odds and the stakes. Because in about nine months, budget negotiations will start up again, and people will be asking, ‘if we avoided a tax increase in 2026, can’t we just avoid it again in 2027?’
And that question, based on all of the above considerations, will be much trickier to answer next year.
Elections Director: Barring an unexpected intervention by the state elections board, it seems that DeNay Harris, the embattled elections director for New Hanover County, will soon be out of a job.
Harris has been on paid administrative leave for two months, longer than she’d been on the job before friction between her and the county and eventually the county elections board came to a head. In accordance with state law, the New Hanover County Board of Elections filed a petition to remove Harris.
Because the petition was unanimous and bipartisan, the state was expected to grant the request — opposition has, historically, been more common if the local board petitioning to remove its director had changed in makeup or politics. In this case, the same five people who hired Harris agreed they wanted to fire her.
On Thursday, several sources familiar with the situation told me, on condition of anonymity, that Sam Hayes, executive director of the North Carolina State Board of Elections, had agreed to the removal of Harris. These sources, I’ll note, were reliable and had little reason to lie or guess, especially since the decision will be public soon enough.
According to an NCBSE spokesperson, Hayes’ decision won’t be final for 20 days — which will be June 9 — after which it will be public. The state board could intervene with a majority vote, which would then involve a hearing. Again, that’s possible but unlikely; the state board is as unlikely to overrule Hayes as much as Hayes is unlikely to overrule a unanimous, bipartisan petition.
But, while the writing is on the wall, for the sake of accuracy, I’ll say it’s a wait-and-see until June 9. After that, there are some follow-up questions, like how the county board overcomes the not-so-great publicity around this chapter in order to recruit a new local elections director, or whether it promotes from within. And, since Harris has lawyered up, deferring media inquiries to attorney Gary Shipman, there could be litigation.
Disclosure notice: Rob Zapple is a member of the WHQR Board of Directors, which has no say in editorial decisions.
