Ruffin: I’ll seek a nickel increase in tax rates

Mar. 07, 2013 @ 07:18 PM

County Manager Mike Ruffin says he intends to ask elected officials later this spring to raise property tax rates by 5 cents per $100 of assessed value to cover rising debt payments.

Ruffin relayed his intentions to County Commissioners Thursday, during a discussion of the county’s capital plan in which he also said administrators are likely to suggest holding a $125.5 million bond referendum late in 2014.

The warning of a prospective tax increase followed comments Ruffin made early in February during the commissioners’ winter budget retreat.

Budget planners said then the county was looking at roughly a $16 million shortfall between projected revenues and expenses, largely due to rising debt payments.

“I’ve been saying it for a month, since the retreat,” Ruffin said during a break in Thursday’s meeting. “A $16 million gap, 90 percent or more of it for debt, there’s the nickel right there.”

But Thursday’s briefing suggested that the county has not one but several options for dealing with debt payments coming on line now that its two major construction projects, a new courthouse and human-services complex, are finished or nearly so.

Ruffin wants commissioners to raise taxes to cover payments in one go, increasing them by 6.7 percent, to stabilize rates the following years.

“With that nickel, I don’t think you’ll need to raise property taxes again for five years,” he told commissioners, later qualifying that by saying he meant increases for purposes of covering debt.

A move now would also mean stabilizing debt-related tax levies at an overall rate lower than would be the case if commissioners raised rates by smaller amounts each year, he argued.

“You’re banking money for several years out,” Ruffin said.

The manager’s comments and the briefing materials his staff gave commissioners underscored that a series of year-by-year rate increases is another possibility.

It’s possible to raise just as much money over five years – $77.6 million – by raising the tax rate by a bit more than 2½ percent for three years in a row, pulling it back slightly the fourth year, and then resuming with a 2.3-percent increase in the fifth.

Faced with similar debt-payment issues for water and sewer infrastructure, Durham’s City Council opted for incremental, year-by-year increases in water rates. City officials say they prefer that strategy because it avoids the “sticker shock” to customers of a big, single-year price increase.

Another argument nowadays is that it’s possible that inflation – now running at about 2 percent annually – will rise in response to the U.S. Federal Reserve’s moves to expand the country’s money supply to stimulate the economy.

N.C. State University economist Michael Walden, an adviser to both the county and the city, last month told commissioners that inflation, tame for now, could become an issue “two or three years down the road.”

Economists generally agree that inflation is good for debtors and bad for creditors, as those who owe get to pay off their debts with dollars that aren’t worth as much, in practical terms, as they were when first borrowed.

The gain to the debtor in that scenario comes from waiting to accumulate the reserves necessary for each year’s payment.

But Ruffin argues that voters knew when they supported countywide bond issues in 2001, 2005 and 2007 that higher taxes were part of the bargain. And commissioners here, unlike their counterparts in some counties, have been slow to pass them on.

That’s in part because the county has waited to borrow money for schools and other facilities until the buildings involved are finished, and in part because the economy here was so good, he said.

Commissioners didn’t comment Thursday on the strategic choice. For them, Ruffin’s plan could mean they could run for re-election in 2016 three years after the county’s most recent tax increase.

As for the prospect of a bond issue, Ruffin said the county will need to raise money for school repair and construction.

Estimates suggest the Durham Public Schools would be the ultimate recipient of $115.2 million of the $125.5 million the manager thinks officials will wind up putting on the ballot. The rest would go toward open-space preservation and work at the N.C. Museum of Life and Science.

Commissioners some skepticism about the size of the potential allocation to the schools, given that enrollment growth in the DPS system is flat.

“We really need to look at current enrollment versus capacity in the buildings,” Commissioner Ellen Reckhow said, questioning the need both for some of the renovations and the new construction DPS leaders have signaled they want to undertake.

Commissioner Wendy Jacobs agreed. “Two elementary schools are included in this and I’m wondering why, based on enrollment, that we’re projecting that need,” she said.