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Macon starts budget in good financial health

Macon starts budget in good financial health

As Macon County looks ahead to fiscal year 2023-24, the county has big decisions to make to address the many pressing capital needs in its school system. But it also sits in a healthy financial position, primed to take on debt, if necessary, to address county needs.

“The booming local economy has allowed us to mitigate budget pressures that have been brought about by inflation, growing demand, supply chain compilations, and an extremely tight labor market,” said County Manager Derek Roland. “We’ve been able to take the additional revenue that we have seen generated and mitigate many of these pressures.”

According to Abby Braswell, Macon County’s tax administrator, the county continues to grow its sales tax revenue, this fiscal year for the five-month period between July and November the county collected 12.6% more than the previous year. Though Braswell did point out that the growth rate was down slightly from the year-to-year growth between 2020 and 2021, when sales tax collections were 16.5% higher during the same five-month period. 

“We’ve been kind of riding this roller coaster at the top for a couple years now in regards to sales tax,” said Braswell. “That was interesting to me that last year we experienced 16.5% growth, this year for the same five months we only experienced 12.5% growth.”

The county monitors sales tax closely and budgets sales tax conservatively. 

“Budgetarily, I think we will be OK, but I just wanted to point that out,” said Braswell. 

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This fiscal year revenues collected through December are exceeding expenditures in the county by $11.2 million. During the same period last year the county’s revenues exceeded expenditures by $12.2 million. 

Mitch Brigulio of Davenport Public Finance, the county’s financial advisor, presented commissioners with the overall financial state of the county during its Feb. 9 meeting, as it relates to the county’s credit rating and its ability to borrow money. According to Brigulio the county has a double A rating, two spots from the highest public rating possible. 

“You’re starting from a position of strength in terms of your credit rating,” he said. “You have access to the capital markets, and you have access to borrow money and you can borrow that money at an attractive rate based on your credit rating.”

Not all counties have to have a public credit rating and Macon County did not have one until 2018 when it issued limited obligations bonds to repair Macon Middle School. 

Brigulio noted that over the last three years, revenues have exceeded expenditures by an increasing margin, creating a growing unassigned fund balance. Growth in sales tax revenue is the primary driver of the growing revenue. 

“The challenge is, how do you budget for that?” asked Brigulio. “Sales tax is such a volatile revenue source, if we hit a recession, what happens to that sales tax? Are you really going to continue to grow at 10, 11, 12% per year on sales tax? It’s hard to be comfortable budgeting at those levels, so there’s really no surprise that we’re seeing this growth in the fund balance. That a challenge, a good challenge.”

It also creates opportunities for the county to use its fund balance on its capital plan in the years to come. While Macon County has historically had an informal policy of keeping a 25% unassigned fund balance, that level continues to grow. Brigulio has suggested formalizing a fund balance policy closer to the current actual level of unassigned fund balance to show lenders that the county is using its money in a productive way. The current median unassigned fund balance for counties nationally is between 30-35%, Macon County currently has over 40%. 

“If you were to set a policy target minimum at 40%, you would still be above the median within that group,” said Brigulio. “You would still be in very good shape compared to your rating category and you would have the ability to spend $15 million on other projects as opposed to just holding it in fund balance.”

Brigulio used that $15 million number to demonstrate examples for funding the Franklin High School Project according to two different scenarios — one in which the county does not receive grant funding, and the other in which the county receives $50 million in needs-based grants from the state. 

If the county does not receive grant funding, it will need to issue $14 million in debt 2024, and $102 million in debt in 2025. This would require an additional 4.5 cents on the current property tax rate to cover the debt service. If the county does receive grant funding, it would need to issue $14 million in debt in 2024 and $54 million in debt in 2025. This scenario would require an additional 1.17 cents on the current property tax rate to cover the debt service. 

If the county were to succeed in passing the article 46 sales tax referendum, it would only need an additional 2.8 cents in property tax for the no-grant scenario; it would need no tax increase in the case that it does receive grants. 

All scenarios assume the $12 billion tax revaluation. Macon County currently has the third-lowest property tax rate in North Carolina. 

“So, pretty impactful there getting that additional grant if you’re able to do it,” said Brigulio. 

“In the 10 years that I’ve presented budgets, this is the strongest financial position that Macon County’s ever been in,” said Roland. 

As is the typical process for working out a county’s budget, over the next three months Roland will work with department heads and outside agencies on their budget needs, and he will present the recommended budget to the county commission on May 9. The commission will have budget work sessions in June. 

At the Feb. 9 budget kick off meeting, commissioner John Shearl inquired about commissioners being more involved in the budget process. 

“I would like to be a part of meeting the department heads and having them present their budget in front of us as commissioners and the county attorney, county manager, finance officer and the general public to build this budget,” said Shearl. “It would be nice if we participated, and it would be great for the taxpayers if this board sat through this entire budget process. I’d like to help build this $59 million budget.”

After lengthy discussion about the budget process, Shearl made a motion that the board sit through all meetings between department heads and the county manager that create preliminary budget requests, in public meetings. The motion died for lack of a second. 

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