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HomeMy WebLinkAboutAgenda - 05-03-1993 - VII-D ORANGE COUNTY 1 BOARD OF COMMISSIONERS Action Agenda ACTION AGENDA ITEM ABSTRACT Item No _p Meeting Date: May 3, 1993 SUBJECT: 1992-93 Budget Status DEPARTMENT Budget PUBLIC HEARING YES NO X ATTACHMENT(S) INFORMATION CONTACT Memo from Budget Director Sally Kost, ext 2151 TELEPHONE NUMBER Hillsborough 732-8181 Chapel Hill 968-4501 Mebane 227-2031 Durham 688-7331 PURPOSE: To receive a report on projected revenues and expenditures for 1992-93 and on proposed legislation in the North Carolina General Assembly that would affect the distribution of intangibles tax proceeds. BACKGROUND: The Budget staff has completed preliminary projections of 1992-93 revenues and expenditures. Lower than expected revenues in several major revenue categories are being offset by higher than anticipated receipts in other categories. Expenditures are expected to be well within budgeted appropriations. If there are no changes to the current process for distribution of intangibles tax proceeds, 1992-93 revenues are now projected to slightly exceed expenditures, without the use of any appropriated fund balance. If the General Assembly does adopt the proposed legislation, Orange County would not receive its expected August 1993 intangibles revenues until June 1994 . Because of the County' s accounting conventions, this would result in a reduction in the General Fund' s total fund balance at June 30, 1993, but would not change the available undesignated fund balance. Staff will explain and demonstrate how the proposed legislation might affect the balance sheet and financial condition, and provide a brief review of activity in major revenue categories. RECOMMENDATION: The Manager recommends that the Board receive the report as information. 2 MEMORANDUM TO: John Link County Manager FROM: Sally Kost, Budget Director SUBJECT: To report on the Status of the Current Year Budget and Changes being Considered by the General Assembly Concerning the Distribution of Intangible Taxes DATE: April 29, 1993 I am pleased to report to you that the overall revenue and expenditure picture for 1992-93 looks very solid as we reach the end of April . We expect that final expenditures for the year will be comfortably within the approved budget, probably in the range of 98 . 5 to 98 . 75 percent of authorized appropriations . The revenue picture is complicated by likely changes by the General Assembly that will affect State collected and State-shared revenues, most notably intangibles taxes . I will address this point in a little more detail later in this memorandum. That change notwithstanding, we think that our 1992-93 revenues would exceed expenditures by several hundred thousand dollars, without using any of the nearly $1 million of fund balance that has been appropriated. In recent months, we have monitored the budget very closely as it has become apparent that we would be facing revenue shortages in two areas - property taxes and investment earnings . However, we are optimistic that these shortages will be offset by expenditure controls and by other revenue sources which are projected to exceed the budgeted amounts . Property Tax Base Over the past several months an ad hoc committee consisting of the Tax Assessor, Revenue Collector, Budget Director, Finance Director and Assistant County Manager has met several times to study the tax base issue . The 1992-93 budget was based on a tax base of $3 . 875 billion, with revenue from this tax base budgeted to generate nearly $32 million. The actual tax base is projected to fall short by approximately $50 million of the budgeted base . It appears that the final audited property tax base for 1992-93 will be in the range of $3 . 82 to $3 . 825 billion. 3 Sixty percent of this tax base shortfall, or $30 million, is in the personal property component of the tax base . We had projected what we felt a reasonable growth factor of 5 percent in personal property, in keeping with our experience in recent years . Instead, we are seeing a decline in this component of the tax base of about 1 to 2 percent . It appears we underestimated the impact of the recession in 1991 on local business and personal property acquisition decisions . Figures obtained by the County Assessor indicate that only 1, 700 new cars were registered in Orange County in 1991, compared to the 3, 900 vehicles that might have been expected. The shortfall in real property, which is approximately $20 million, is largely attributed to a slower rate of growth than originally projected, and a larger portion of private property converted to public purpose (e .g Department of Transportation right-of-way- along the Interstate 85 corridor and 15-501) and therefore exempted from payment of property taxes . Investment Earnings The other revenue shortfall we anticipate this current year is interest earned on the County' s investments . Last year when the budget was being developed, we were earning interest in the range of 4 to 4 . 5 • percent . Estimated earnings for the current year were based on the lower end of this range . Throughout the year, interest rates have declined and our current earning rates are in the 2 . 5 to 3 percent range . State statutes limit investment of public fund in secure and risk-free investments, thus our interest rate is lower than the more risky and/or long-term investment areas . The current budgeted amount for investments is $538, 000 . We are estimating that we will fall a couple hundred thousand short of this budgeted amount . Revenues Exceeding Budgeted Amounts Offsetting a large portion of these shortages are charges for services, particularly in the Office of the Register of Deeds and in the Sheriff' s Department . In addition, intergovernmental revenues in the Department of Social Services will exceed the budgeted amounts, largely because of Medicaid reimbursements and higher than anticipated indirect costs payments . We are also projecting that we will exceed the budgeted amounts in sales tax receipts . The one cent sales tax, which is used for general operations of County government is projected to exceed the budgeted amount for this revenue source by approximately $200, 000 . The two one half cent sales taxes combined, are projected to exceed the budget by roughly the same amount . Unless you or the Board of Commissioners indicate disapproval of this approach, we propose that any half-cent sales tax revenue above the budgeted figure be retained in the General 4 Fund to help offset the unanticipated revenue shortfalls . The Board adopted this approach last year to strengthen the fund balance picture for the 1992-93 budget . Intangibles Tax For the past two years, the total amount of intangibles tax proceeds distributed to all local governments has been frozen, with the State keeping growth in this revenue source . Orange County accrues the intangible tax proceeds received in August, to the prior year. For example, intangible receipts received in August 1992 were budgeted and received as revenue for the 1991-92 fiscal year. Intangibles receipts for the current fiscal year are those receipts we would receive in August 1993 . We are one of a handful of counties which actually accrue intangibles . There are two components of the intangibles receipts distributed to local governmental units . The primary component is actual tax revenue generated on a tax rate of 25 cents per $100 of value on primarily stocks and bonds held as of December 31 and payable by the following April 15 . For Orange County, this is approximately $1 . 8 million. The second component of the intangibles tax distribution is a reimbursement to local governments because of changes made by the State to the intangibles tax base . Prior to 1986, the State also levied the intangibles tax on money on deposit, money on deposit with insurance companies and money on hand. The State compensates counties and cities for this lost intangibles tax revenue . For Orange County this reimbursement is equal to approximately $250 , 000 . Pending before the General Assembly (SB 28 or HB 134) is legislation to change the timing of the State' s distribution of the intangibles tax to local governments . Under these proposed bills, the reimbursements portion of the intangibles distribution (the smaller portion) would continue to be distributed in August . The larger portion of the distribution, the actual tax receipts (an estimated $1 . 8 million, plus any growth) , would be distributed to local governments the following June . This legislation, strongly supported by the Association of County Commissioners, would have a very positive long-term effect on local governments because it would enable local governments to automatically receive the annual growth on these revenue streams . For local governmental units which do not accrue intangible taxes, this legislation has no fiscal impact, other than potential cash flow impact since these funds would be received in the same fiscal year as budgeted. For local governmental units which accrue these funds, the net impact on total fund balance is one year' s loss of the intangibles tax receipts since revenue received in June 1994 obviously cannot be accrued back to the 1992-93 fiscal year. Sensitive to the cash flow issue for local governments, the General Assembly also is considering changing the distribution of another 5 revenue source, Inventories Reimbursements . This revenue source is approximately $800, 000 for Orange County. Under the proposed funding plan, the inventories reimbursements would be paid to local governments in two installments : GO% of the distribution by August 31 and the remaining 40% by April 30 . While it would be desirable for the State to find some "hold harmless" provision to keep Orange County from experiencing an apparent revenue shortfall, we do not think there would be a serious adverse impact on the County' s financial position if the legislation passes as proposed. Ken Chavious has discussed the potential impact of this legislation with an analyst at Moody' s, and was told that the changes would likely not hurt the County' s bond rating. While there would be a significant reduction in the County' s total fund balance, there would be no change in the available undesignated fund balance in the General Fund. We will be prepared to explain and demonstrate the accounting conventions that make this so at the May 3 Commissioners' meeting. Conclusions I hope this information is helpful . We will be prepared to, further share or explain any of this information presented here at the Commissioners' next meeting. •