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HomeMy WebLinkAboutAgenda - 04-05-2011 - 8bGRANGE COUNTY BOARD OF CUMMISSI4NERS ACTION AGENDA ITEM ABSTRACT Meeting Date: April 5, 2011 Action Agend Item Na. SUBJECTS Sales Tax Distribution Method for Fiscal 201112012 DEPARTMENT: Financial Services PUBLIC HEARING: 4Y1N} No ATTACHMENT~S~: Attachment 1, Property Tax Levies for 2010-2011 Preliminary ~range'County Levies} Attachment 2. Qrange County Sales Tax Distribution Options 2009- 2010 Attachment 3. Property Tax Rate Impact by Local Government of Change in Sales Tax Distribution INFORMATION CONTACT: Clarence Grier, (919) 245-2453 Michael Talbert, (919) 245-2153 PURPOSE: To review Sales Tax Distribution Options and to confirm that the Orange County distribution of local option sales tax will remain based on Population for fiscal year 201112012. BACKGROUND: The Board of County Commissioners was first granted the option of a one ~1 } cent Local Government Sales and Use tax by the General Assembly in 1971. Ar#icle 39, which allows the County to levy the tax, also spells out two different options for the County to select for distribution of the funds between the County and municipalities. This distribution option not only applies to the original one ~1}cent sales and use tax, but to all local government sales and use tax levied in Qrange County. The first option is to distribute the sales tax collected based on Population. The formula takes the County's population and adds all individual municipal populations. The percent of each individual municipalities population divided by that grand total is used to allocate the sales tax revenue. This method has been used by Orange County for at least the last 20 years. The second option is to distribute the sales tax collected based on the Ad Valorem Property Tax Levied by each taxing unit of local government. Attachment 1 lists the 2010-2011 Property Tax Levies by taxing unit of local government as provided by the North Carolina Department of Revenue. Qrange County is the taxing unit of local government for not only Orange County, but for all special tax districts located in Qrange Gounty. Attachment 2 provides an estimate of sales tax revenues distributed within Orange County by municipality, Under option one, only the 2 County and cities and towns receive sales tax revenue. Under option two, in addition to the County, cities and towns, and ail special tax districts also receive sales tax revenues. The Board of Commissioners has two different methods available to distribute sales tax revenue and each has distinct advantages and disadvantages to the County. There are no new revenues created. The two options are different methods to distribute existing sales tax revenues. CURRENT SITUTATICN~ Orange County has used the Population Method for the distribution of sales tax revenues for at least the last 20 years. If the Board wishes to change the method of distribution, the Board of County Commissioners must adopt by resolution during the month of April the method of distribution of sales tax revenues to be in effect for the next fiscal year. If the Board fails to adopt a resolution changing the method of distribution, the method of distribution currently in effect continues for the following fiscal year. FINANCIAL IMPACT; Attachment 3 estimates the property tax rate impact on local governments of a change from a Population based distribution to the Property Tax Levy method. if the Board of County Commissioners were to adopt the Ad Valorem Property Tax Levy distribution option for local option sales tax, it would have a negative material impact on all cities and towns. The County and all special taxing districts would benefit from the change at the expense of the cities and towns. Estimated amounts of revenues gained by the County & Special Taxing Districts: o Orange County $ 874,082 o Chapel Hill Garrboro City Schools $2,164,116 o All Fire Districts $ 392,286 o Chapel Hill Downtown Service District $ 18,542 Estimated amounts of revenues lost by the Cities & Towns: o Garrboro $ 939,743 o Chapel Hill $2,224,773 o Durham $ 648 o Hillsborough $ 209,268 o Mebane $ 74,627 State law currently provides only two options for the County to select. Same counties have successfully sought additional options that allow a balance between the two existing options. There are also counties that have agreements Memoranda of Understandings with their local municipalities that provide for a compromise position between the two existing options. If the County changed from the `Population' to the `Ad Valorem' option, the County would gain $874,482 and the towns would decrease by $3,449,419. Using a cost sharing arrangement between the towns to make the County whole based upon the percentage of sales taxes each town receives would provide the following impacts: Orange County $ 874,082 Increase Chapel Hill (65.65%) ($573,807) Decrease Carrboro (23.99%) ($209,689) Decrease Hillsborough (8.14%) ($ 71,168) Decrease Mebane (2.16%) ($ 18,870) Decrease Durham (0.06%) ($ 548) Decrease Certainly, no municipality desires a change from the current method selected by the County for sales tax distribution which would reduce its sales tax revenues. However, each municipality also remains at risk that the County might one day in the future select the other available option. Each year a future Board of County Commissioners will decide this issue within the authority granted by State law. There is an effort within the N'C General Assembly ~a North Carolina League of Municipalities' legislative goal} to place further limits on a County's ability to make this decision in the future. REC~MMENDATI~N~S~: The Manager recommends no change in the options selected at this time. However, the County has limited ability to increase or control future revenues beyond property taxes and the distribution of sales tax revenues, During a difficult budget period, a future Board of Commissioners might view a change in the sales tax distribution formula from a different perspective Ito the detriment of the towns at that time}. Growth management practices and a lack of utility infrastructure in the rural ~non~municipal} areas of Grange County ensure that the `Population' method of sales tax distribution will always benefit the municipalities. As urban centers intensify density and sales tax revenues grow, the disparity between the two formula options will increase. ,~... 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