New commissioners told in December it's 'imperative' sales tax method remains

May 19—ROCKINGHAM — The idea of the Richmond County government changing the sales tax distribution method back to per capita has never been a very likely outcome — especially under the previous Board of Commissioners — despite the unified demand for it by all six of its municipalities two years in a row, but documents obtained by the Daily Journal provide insight into how unlikely it is and why.

The four newly-elected commissioners met with the out-going commissioners, county administrators and department heads on Dec. 2, 2020 as part of their orientation to their new role, which also includes classes the commissioners can attend at the UNC School of Government in Chapel Hill on various topics related to local government. As part of this orientation meeting at the Richmond County Airport, which included presentations by relevant department heads and County Manager Bryan Land, a PowerPoint slide obtained by the Daily Journal informed the new commissioners — and reminded the incumbents — that the sales tax allocation must stay in place.

The slide, entitled "Budgetary Points of Interest," reads: "Imperative the sales tax allocation stay in place to cover the increase cost of our biggest asset — our own employees."

Of the two slides under "Budgetary Points of Interest," this point is the only one that constitutes a recommendation that the commissioners support a specific position, whereas each other points simply describe a current budget item, legal restraint or guideline for the commissioners. The preceding slides include a brief breakdown of General Fund revenues, a pie chart of the allocation of revenues, a brief breakdown of General Fund expenditures and a pie chart of the allocation of these expenditures. The slide following the "points of interest" is a state map showing which counties have the highest property tax rate (Richmond's $0.83 tax rate per $100 valuation is among the top 15 highest in the state), and later a timeline of tax rate increases comparing the county's to that of all six of its municipalities.

County Clerk Dena Cook did not record minutes of this orientation meeting because it was "informative," meaning no actions were being taken by the commissioners.

The idea that increasing employee salaries is a major reason for the county's need to change to ad valorem, which was expected to result in a $675,000 annual increase in sales tax revenue, is consistent with some prior statements by Land and other local officials over the past year, but does not show the full picture.

This orientation came about a month before the county held their first mediation meeting with the cities of Rockingham and Hamlet over the cities' threatened lawsuit over breach of contract stemming from one of Land's leading justifications for ad valorem, which was the the cities hadn't paid to support the new 9-1-1 Center which the cities and county had agreed they wouldn't have to do in 2015. In the mediation, the parties were working to find a resolution to the sales tax issue, which has threatened the continued existence of multiple municipalities and the financial health of Rockingham and Hamlet, and all six municipalities had called on the county to change the sales tax distribution method back to per capita as a start.

It also sheds new light on the county missing the agreed upon deadline of April 30 — which is also the deadline to change the sales tax distribution method each year — to meet with the municipalities to discuss a solution to the sales tax issue, as laid out in their tolling agreement. The municipalities each submitted dates that they could meet with the county in April, but officials from each stated that they received no follow up until April 27 when they were asked their availability in early May. Rockingham City Manager Monty Crump told the Daily Journal at the time that he believes this lack of follow up and the resulting missed "violated the spirit" of the tolling agreement which calls for a "good-faith effort" to meet in April and which is in place to stave off the lawsuit by Rockingham and Hamlet against the county over breach of contract stemming from the change to ad valorem.

In an email last week, Crump added that, "Not meeting in the month of April with each town as the county had agreed to do was problematic and frustrated towns efforts to include any help in next year's budget."

The orientation was attended by incumbent Commissioners Rick Watkins and Tavares Bostic, along with the out-going Chair Kenneth Robinette and Commissioner Ben Moss. All of the new commissioners were in attendance: Jeff Smart, Justin Dawkins, Toni Maples, and Andy Grooms, according to Cook. Cook could not recall if incumbent Commissioner Don Bryant was in attendance.

Grooms confirmed last week that Land "made his case" for ad valorem during the orientation.

The change from a per capita sales tax distribution method to an ad valorem method reconfigured the way in which sales tax revenues were distributed in Richmond County between the county government and its six municipalities. Instead of being distributed in proportion to population, which typically favors municipalities, these revenues would now be distributed based on property taxes levied, giving the upper hand to the county which has major industry on its tax books.

Land did not respond to multiple requests for comment on May 13 and May 14. The Daily Journal reached out to all seven current county commissioners for comment for this story. Bostic, Bryant, Maples and Dawkins did not respond. Both Smart and Watkins declined to comment in light of the county's budget meeting on May 19. Only Grooms responded.

Public explanations for ad valorem

In an email to the then-commissioners so that they could "have at their disposal when discussing the board decision to change sales tax distribution methods," which Land forwarded to the Daily Journal on April 29, 2020, and in the Board of Commissioners' meeting on April 6 prior to the ad valorem vote, Land has described a number of different factors leading the county to want to increase its annual share of the sales tax revenue via a change to ad valorem.

Most explicitly, in his budget message for the 2020-2021 budget, finalized on May 12, 2020, Land wrote that changing to ad valorem was the third step in the county's plan to end its reliance on transfers of significant amounts of enterprise fund money to balance the General Fund following multiple letters from the North Carolina Treasurer's Office flagging this practice. Enterprise funds are meant to be self-sustaining, meaning fees for services go directly into providing those services and aren't used anywhere else in the budget.

"Finally, the third step in the process [to end enterprise fund transfers] was the change of sales tax distribution method which will increase the sales tax revenue allocated to the County's General Fund," reads Land's '20-'21 budget message.

Land stated in the email that among the reasons new sales tax revenue was needed, and thus why ad valorem was necessary, was that the 2020 budget for Emergency Services and Code Enforcement had increased "in excess of $1,781,632." He referred to previous conversations with the commissioners about a "trend going on in government for additional cost to be shifted to the County level," and along with that "we are receiving fewer and fewer reimbursement dollars from the Federal and State side." He lamented that the county — which increased its tax rate by $0.15 from 2005 to 2007, reduced it by $0.12 in 2008, then increased again by $0.04 in 2018 — has had to raise taxes in the past while most of the municipalities hadn't increased their tax rates since the early 2000s.

He said that the practice of raising tax rates to balance the budget "stifle growth and economic development," adding that the county "could not afford" to increase its tax rate again.

Prior to the vote to change to ad valorem, Land told the previous Board of Commissioners that it was needed because of the eight new telecommunications staff needed at the new 9-1-1 Center, which he implied the municipalities should help pay for. This statement triggered a lawsuit over breach of contract by Rockingham and Hamlet who argue that it violates an agreement they signed with the county in 2015 stating that neither city would have to pay to support the center, which the parties involved are currently working to avoid.

Since 2018, the salaries for Emergency Services have been the largest salary increase in the county's budget. As of the proposed 2021 budget, it has increased by $590,226 to the department's request of $1,190,105 for the coming fiscal year, which consistent with Land's request for the department. Other departments seeing salary increases over this time period are: tax administration which has increased by about $46,000; the jail which has increased by about $136,000; building inspections which has increased by about $57,000; ambulance/rescue which has increased by about $100,000; the health department which has increased about $110,000; and social services which has increased by about $480,000. The sheriff's office is one that has seen a decrease since 2018, with about a $119,000 reduction in salary.

Land added that ad valorem was needed because the previous year Rockingham and Hamlet had relinquished to the county a portion of the property that they provide code enforcement for, increasing costs to the county. He said that the two cities transferred 2,270 new properties to the county's responsibility, which he calculated would bring a $201,636 annual cost to the county.

Context for the 'imperative'

Grooms explained that the presentation dealt with the always-rising insurance and healthcare costs for employees, the concern that many county employees have "hardly had any raise in the last 4 years," and the county's positions that still need to be filled. Asked how the idea that the sales tax allocation shouldn't change was presented, Grooms said it was Land's "recommendation only," as opposed to a demand that the maintain it.

"The facts were laid out and it was made clear that the decision was the boards to make," Grooms said in an email.

Grooms agrees that the sales tax distribution needs to remain in place.

"It is 'imperative' in the sense that the alternative would be to either raise property taxes to an astronomical uncompetitive amount simply to cover cost or do nothing and watch the county go bankrupt," Grooms said. "Keeping our property taxes as low as possible is a plus not only to all citizens who have to pay them, but is key when trying to recruit new industry. As we are already the 89th out of 100 highest tax rate in NC we can not afford to go higher. I want to see the county in the position to lower them if anything."

The county staff and the department heads gave an "accurate, detailed portrayal of the county situation," according to Grooms.

"No information or inquiry I've made has gone unanswered or been half hearted," he said.

With the county and municipalities in negotiations on how to resolve the dispute over the vast increase the county has seen in sales tax revenue over their projections, money which has been directly taken from the municipalities, Grooms said he sees a path forward.

"The clear path is keeping ad valorem and continuing to help our municipalities as much as financially possible," he said.

Watkins said of the negotiations, which he has been a part of with respect to Dobbins Heights and Hoffman, "have been positive and productive."

Communication with the municipalities

This presentation came three months before all six municipalities came together to ask the county to revert back to per capita with eight months-worth of sales tax figures reported by the state showing that, from May 2020 to December 2020, the county had received $1,975,879 in new sales tax revenue as a result of ad valorem, far beyond Land's projection of $675,000 in new revenue annually.

"The Richmond County Board of Commissioners has new members with fresh perspectives and new leadership to guide them into the future," the statement read. "With open ears and open minds, the County Board of Commissioners should see that returning to the 'per capita' model of sales tax distribution is absolutely necessary for the overall well-being of our county."

The county did not take any steps to change the distribution method, meaning ad valorem is locked in for at least another year. No municipal official reached for this story commented on whether knowing the county viewed it as "imperative" that ad valorem remain would have changed their strategy going into mediation, the joint statement in March, and now the recent discussions over a solution.

Rockingham City Manager Monty Crump, when reached for comment via email last week on the presentation to the commissioners regarding the sales tax distribution, expressed frustration that this explanation of "covering the cost of county employees" is "completely different than the one(s) given by the County Manager in March and April 2020."

"This continued changing, ever-evolving county narrative and futile attempts to explain and blame away the pernicious cause and effect of this sales tax change on anyone other than the former Board of Commissioners and current management makes it a very challenging task for all municipalities to conduct their affairs for a multiple of reasons," Crump said.

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Reach Gavin Stone at 910-817-2673 or [email protected]