Even with higher tax rate, Sylva budget a squeeze

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Even with higher tax rate, Sylva budget a squeeze

sylva Sylva residents will likely see their tax rate skyrocket 42 percent this year, but town commissioners say that even the steep increase won’t let them do much beyond simply balance the budget.

“I don’t have any magic solution to any of this, but I thought long and hard,” said Commissioner Barbara Hamilton. “It was just a no-choice decision we had to make, and I hope the public will realize that.”

Going into this budget season, it was a foregone conclusion that taxes would have to go up by some amount. The county revaluation was expected to deliver a decline in property values, a state law had taken away towns’ ability to levy business license fees, and it had been 12 years since any rate increase had taken place in Sylva — last year, commissioners borrowed from the town’s savings just to make ends meet.

But when commissioners first began contemplating a 42.5-cent tax rate — a much higher number than the existing 30-cent rate — they’d planned it to include a half-cent to put aside for capital purchases and two cents for community improvement projects on the board’s list of priorities.

“That just went out the window,” Hamilton said.

A drop in revenue

The reason largely stems from Harris Regional Hospital, owned by Duke LifePoint. Hospital property makes up a significant portion of Sylva’s tax base, and the county tax assessor had placed its value at $42 million. In April, the town learned that Harris was appealing the decision, claiming that the property was actually worth $13 million. Realizing the dispute wouldn’t be resolved before the new fiscal year started, the town began reworking its budget to absorb the $127,000 tax revenue decrease that would accompany the $13 million valuation.

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But last week, town leaders learned that the hospital wouldn’t be paying any property taxes at all — not even on the $13 million it argued was a fairer value for the property — until the appeal was over. Another $90,000 had to be cut from the budget.

“That’s extraordinary, having hundreds and thousands of dollars being cut from your budget on a moment’s notice,” said Commissioner David Nestler.

At the beginning of the budget process, Sylva’s spending plan would have been able to remain revenue-neutral by raising the tax to 33 cents, said Town Manager Paige Dowling. With the fallout from the hospital appeal, that revenue-neutral number is now 37 cents. And that rate wouldn’t even address increased costs in other areas or provide revenue to prevent the down from meeting its budget with savings, as it did last year.

Balancing the budget

Some help in making up the shortfall from the hospital came when the estimated 30 percent increase in employee health insurance costs came in at only 22 percent — still a hefty increase but less than anticipated — but other cuts had to be made. The fire department budget went down by $7,000 and some small cuts were made in board and Main Street Program training, as well as fuel for sanitation, police and street.

But the biggest cut was in contributions for retirement benefits, which fell from $100,000 to $50,000. According to Nestler, that’s a big deal.

“This decision is where we cross the line from having a very efficient budget into having a fiscally irresponsible budget,” Nestlre said. “We’re not putting enough into that account plan for our future.”

The town is required to provide certain retirement benefits to its employees, and by setting away the recommended amount into a designated account each year, funds gather interest and accumulate so that when an employee retires, paying out the benefits doesn’t cause the town financial hardship. Given the convergence of circumstances this year, the town had no choice but to cut the contribution. That’s a decision likely to come back to bite, Nestler said.

“If you put $50,000 in it a year, you can handle that, but if you defer putting money into the account, one year you’re going to have to find $180,000, and that’s a tax increase to pay for that,” he said.

There’s a certain amount of bad feeling toward the hospital around the board table these days.

“It’s not a policy that comes out of any sort of commitment to the community,” Nestler said of the hospital’s decision not to pay. “It’s the antithesis of that.”

“I hate to make them look like bad guys, but that’s not being a good community partner,” Hamilton agreed.

The hospital, meanwhile, contends that it’s only looking to balance fairness for itself with community obligation.

“It is important to us that the property valuation is fair and consistent with true market value, which is why we are appealing the current property tax valuation,” reads a written statement the hospital issued. “We are committed to fully meeting our fair share of tax obligations and working through this process with the county to reach a resolution.”

The hospital declined to comment further on the situation.

Not unanimous

Of the six board members, five agreed that the 42.5-cent tax rate, though an increase, was the best choice. But Commissioner Harold Hensley held fast to his commitment to low taxes.

“I couldn’t support that much because it will hurt a lot of people,” Hensley said of the proposed rate.

The way he sees it, the town made it just fine before the hospital was even a taxpaying entity, and while taxes do need to go up, he doesn’t see the need to raise them more than 6.5 percent — the amount by which Sylva’s value dropped with the revaluation. Other board members have pointed out that Sylva hasn’t had a tax rate increase in 12 years, but Hensley holds that the rate shouldn’t necessarily have to change. In 2008, for instance, the county revaluation revealed heightened values, which translated into a tax increase for homeowners at the time.

“My theory was if you’re paying $1,000 one year and next year it’s $1,500 or $2,000, your taxes just went up,” Hensley said. “So you (the town) can’t say you don’t have more money. You didn’t get it on a rate increase, you got it on a revaluation.”

Of course, that’s not how the revaluation panned out this time around, and Hensley’s point of view is a minority on the board.

“I cannot believe that 12 years went by and they did not raise taxes at all,” Hamilton said.

Hamilton and Nestler both say they expect to hear from unhappy town residents but hope the public understand that they only did what they felt like they had to do.

“There’s nothing really to show for it,” Nestler said of the rate increase. “We don’t have any extra money to do anything for the town. We’re just maintaining services.”