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Reval Redo Packs A Fiscal Wallop

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With the General Assembly pondering legislation that would allow for a reval redo in Mecklenburg County, the fiscal fallout at a local level is starting to take shape. Mecklenburg Commissioner Bill James, a Republican who represents District 6, donned his cub reporter’s hat and blasted out an e-newsletter today that recapped some the latest developments:

The County Manager, Harry Jones, and Finance director, Dena Dioro, outlined the impact of the reval redo on the County budget last night and it isn’t pretty.

To start off with operating programs will start $25 million below existing levels (though no one knows what exactly that means but essentially it means we spent money we didn’t have and now have to have a new lower baseline or starting point).

The Capital Fund that pays for construction will be reduced by $6 million so Mecklenburg will take a $32 million hit to its overall operating budget. Reductions to the Capital Fund will lower the amount of construction money next year but shouldn’t impact the bonds that are about to be sold.

The County Manager in his comments last night, after Dena Dioro’s presentation, indicated that groups that get money from the county likely won’t be getting increases and that it was ‘very unlikely’ that CMS would receive any increase.

The problem is actually more severe than just the $32 million reduction starting July 1st because that number doesn’t include ‘refunds’. Refunds to taxpayers who were over-taxed are believed to be up to $22 million on top of the $32 million cited above (and that doesn’t include interest at this point).

A debate occurred on the County Commission with newer board members expressing frustration that they are being forced to deliver program cuts from problems caused by an earlier board.

The central question is whether the Mecklenburg County Commission, made up of 6 Democrats and 3 Republicans, will attempt to raise revenue to offset the $54 million cost.

From my perspective, I have an issue with allowing tax refunds to be taken from ‘fund balance’ (the County’s savings). I believe that a reserve should be established to pay for anticipated prior refunds. Such a reserve would necessitate additional cuts beyond the $32 million noted.

Raising taxes to pay for refunds however is rewarding bad behavior. The government took money from taxpayers they weren’t entitled to by force and now that they have to give it back and reduce their budgets it would be inappropriate to raise taxes on people to pay for those tax refunds.  The ‘reval’ tax rate last year was actually ‘revenue positive’ meaning that a tax increase was also embedded in the reval tax rate like a reporter during the gulf war.

According to County Management last night the impact on the City and Town budgets will not be uniform because most of the serious errors occurred in the City of Charlotte (Myers Park, Elizabeth, Eastover and Dilworth) and in Cornelius for certain lake property.

While the County will estimate a ‘net’ reserve of 20% (of major errors) for budget purposes; that impact will be more severe within the City of Charlotte and the City budget adjustment will be larger as a percentage than the Southern towns because City property owners had more errors and larger errors.

The County Commission went through the reval legislation in Raleigh and has come up with some suggestions and recommendations which the County Attorney will transmit. These suggestions and recommendations are related to improving the bill not substantially changing it.

So the City and CMS are also at a fork in the road:

  • Will the City budget for a reduction in services in their upcoming budget as the County is doing?
  • Will CMS recognize that the County will have a lower ‘starting point’ and has no additional money to provide?
  • What will the impact be on County, City and CMS budgets of this adjusted starting point?

The County is prepared to take its budget ‘medicine’ and lower its budget for the money that was ‘stolen’ from taxpayers via excessive and erroneous values. With the City, CMS and CPCC get the memo?

In essence, people receiving City & County services received excess funds that had revaluation been done correctly would not have occurred. Money for Schools, Parks, Libraries, colleges and City services are overstated because excessive values resulted in excess tax collections. People and groups that receive government money have been living on a sugar high and now comes fiscal detox.

Expect a lot of wailing from certain quarters from folks who will say that regardless of the theft of property owners tax dollars from the failed reval – programs are more important than people who own property.

Should taxes be raised by the City and County to offer refunds? Is that at all fair and reasonable? I don’t think so.

However that question is answered, the City and the Towns need to start planning now for their portion of this reval reset.

If we are going to cut $25 million from the operating budget of the County and close to $15 million from the City (estimate) – what would you cut?

Thoughts?

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