Macon budgets for capital, considers quarter-cent sales tax

Macon County has $180 million in capital projects scheduled through 2029. File photo Macon County has $180 million in capital projects scheduled through 2029. File photo

Capital needs are at the center of Macon County’s budget process for fiscal year 2024-25 and the county is in a good position to fund several big-ticket items. Even so, commissioners are considering another look at the quarter-cent sales tax option. 

“As we look toward fiscal year 25 and the budget, capital has been the theme,” said County Manager Derek Roland. “With respect to capital in the coming fiscal year, this is a once-in-a-generation budget. This budget will provide the vehicle for some of the most significant capital expenditures in the history of this county.”

Macon County has the lowest property tax rate in the state of North Carolina at $0.27 cents per $100 of assessed value and looks to be able to maintain that position even as it undertakes major capital projects. One penny on the tax rate generates about $1.25 million for the county.

Some of the explosive economic growth that Macon County experienced during the pandemic and the years that followed appears to be leveling off. While the county saw a 12.6% increase in sales tax collections between 2021 and 2022, there was only a 0.43% increase for the same period between 2022 and 2023.

Real estate sales in Macon County at the end of the 2023 calendar year were down 5% in Highlands and 18.5% in Franklin. However, the average sales price has continued to climb, increasing by $150,000 in Highlands and $10,000 in Franklin throughout 2023. That’s part of a 65% increase in the average sales price in Franklin between 2019 and 2023, and a 110% increase in Highlands during the same period.

The tourism industry has seen a similar trajectory.

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“The pandemic ignited travel and tourism across Macon County,” said Roland.

Occupancy tax collections in Nantahala came to about $150,000 in 2023, which is a 127% increase from pre-pandemic levels. In Franklin, occupancy tax collections in 2023 were $490,000, which is about 117% more than in 2019, and in Highlands, the latest occupancy tax collection of $1.5 million is 96% above pre-pandemic levels.

“You see a strong travel and tourism industry that took off during the pandemic, much like our real estate, but it’s now coming back down and settling into what I feel like is a new normal,” Roland told the board.

Macon County currently has an AA2 credit rating from Moody’s and an AA credit rating from Standard and Poor’s.

“You are in very good shape here on your credit rating,” said Mitch Brigulio, financial advisor for the county. “You have access to the market to borrow money, should you choose to do so, at attractive rates.” 

From FY 2020-21 to FY 2022-23, Macon County’s fund balance has grown by $13.8 million, as compared to $2.8 million from FY 2017-18 to FY 2019-20. The county has about $22 million of outstanding tax-supported debt, which is low relative to the size of the county. Most of that debt is tied to the Macon Middle School project, and the county is scheduled to pay a significant amount of that over the next five years.

“You have the capacity to take on additional debt,” said Brigulio.

This capability for taking on additional debt will be important for the county, which has a $180,000,000 capital improvement plan to be paid out between 2025 and 2029. This plan includes items like the new high school and Highlands School renovations, as well as recurring allocations for schools and other services.

“Over the next five years, you’re able to complete $180 million of capital projects, $146 of which comes in 2025,” said Roland. “You’re able to do this and never fall below $7 million in your capital reserve fund that has been established for capital projects and never fall below $25 million in your fund balance.”

According to Roland, the county can do this without having to raise its current tax in the coming fiscal year.

“You can accomplish all that without compromising your ability to do future capital projects as well,” said Roland.

This is of key importance for the county, as the school system, amid the new Franklin High School project, is already looking ahead to the need for a new East Franklin Elementary School. The current building is overcrowded and has maintenance issues.

According to Superintendent Josh Lynch, after undergoing a site assessment, the school system was advised that it would not be economically feasible to fix the current school building.

“We had to pivot and move in a different direction, so that would be an entire school looking forward in the future,” said Lynch. “It is our oldest elementary school currently.” 

Other needs within the school system include a renovation and expansion at Cartoogechaye Elementary School, which has reached its capacity and is having to use auxiliary space as classroom space, Nantahala wastewater unit and Highlands soccer field.  

“My board will have a chance to look at all of these, prioritize them and bring them back to you as a prioritized list as we move forward,” said Lynch. “But I just wanted you to have this in front of you as you’re beginning your budget process.”

Commissioner Josh Young inquired about the school system’s ability to realign schools to alleviate overcrowding. With Bartram Academy consolidating into the new Franklin High School, that building will be vacant after the completion of the project. According to Lynch, the school system could look at moving current pre-K classrooms from Iotla Valley, South Macon and Cartoogechaye to that building, which would free up space within those schools. However, it wouldn’t help East Franklin Elementary directly because it doesn’t have any pre-K classes.  

“However, we could then begin to look at redistricting those lines to free up space and shuffle,” said Lynch. “Depending on how we move forward that could definitely be a possibility in the future.” 

Total cost projections for the Highlands School project sits at just under $5.5 million. During the budget kickoff meeting Feb. 8, commissioners awarded a contract to Vannoy Construction to be the construction manager at risk for the project.

The Franklin High School project is now projected to total $127 million. The county was awarded a state grant to pay for $62 million of the project, and will now be on the hook for about $65 million. It has already spent $3 million on the project for design services and architectural firm LS3P is currently completing construction documents.

“Franklin High School is something we’ve planned for, we’ve discussed, we’ve held meetings, we’ve had setbacks, we’ve spent approximately $3 million in design fees hoping that one day this would become a reality,” said Roland. “In the fiscal year 25 budget, that project becomes a reality.”

However, the budget kickoff meeting didn’t come without another close call for the Franklin High School project. Despite his insistence that he is completely on board for a new Franklin High School, Commissioner John Shearl made a motion that the decision to move forward with the project should be put to a referendum on the November ballot.

The board was split, with Paul Higdon joining Shearl in voting for the referendum. But with Young, Danny Antoine and Chairman Gary Shields voting against it, the motion failed. By a margin of 3-2, the board approved a motion to enter into the RFQ selection process for a construction manager at risk for the Franklin High School project.

During the Feb. 8 meeting, the board also considered a referendum for the quarter-cent sales tax on the November ballot. When the option to increase the sales tax by one quarter of a cent appeared on the Macon County ballot in 2022, 55% of voters rejected the measure. At that time, revenues from the additional tax were going to be earmarked for the high school project.

The quarter-cent sales tax, which would apply to residents and out-of-towners alike, is projected to accrue about $2.4 million for the county annually.

“If we get the quarter-cent, we could essentially drop our mill rate by two mills,” said Young. “I think it’s a strong point to make to the people that we could collect funds from pass-through revenue and offset our local mill rate by two cents and keep all our CIP fully funded.” 

Brigulio, the county’s financial advisor, said that the nature of Macon County’s economy supports Young’s idea.

Roland told the board it was smart to continue pursuing alternate revenue sources.

“I think Commissioner Young made a great point with the quarter-cent sales tax,” Roland said. “That can go back on the ballot in fiscal year 24. All that does is give us $2 million more on an annual basis that we don’t have now. We can use that to reduce the tax burden on Macon County citizens, to help us do more capital projects, however this board sees fit to do that.”

Macon County will continue the budget process with department requests, which are due to the county manager by March 14. After the manager has met with department heads, schools and outside agencies, he will present a draft budget to the board of commissioners May 21. The expected adoption date is June 11.

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