News

Facing rising costs, city may seek sales tax referendum

Although Councilman Jerry Smith gives thumbs down for higher property taxes, the council finds that revenue options are limited as government costs rise.

By Bill Moss, Published: March 7, 2019

Hendersonville City Council members had endured two days of financial forecasts, volleyed 10 “revenue options” and seen their feedback memorialized on sticky notes a facilitator plastered onto poster board when Councilman Steve Caraker pitched his ask for the next budget get-together.

“Could you make it a higher building so I make sure I die when I jump out the window?” he said.
Gallows humors aside, the council this week confronts two major decisions affecting the 2019-20 budget, one on the spending side, the other on the tax side. Council members on Thursday will look at a request for firefighter/EMTs costing close to $1 million by 2021 and take up a resolution that asks the state Legislature for permission to put a local-option sales tax on the ballot.
During the budget retreat on Feb. 22, Fire Chief Joe Vindigni presented a detailed a report on the shortcomings of the city’s first responder service. Made by a consultant, the report covered call volume, response time and factors like “civilian survivability” when fires spread beyond the room of origin and “minutes to defibrillation” in a cardiac arrest.
The bottom line, the report concluded, was the city needs more firefighter/EMTs — as many as 21 more — and a new fire station to serve the south side of Hendersonville, likely on Spartanburg Highway.
Vindigni asked the council to endorse an application for a federal SAFER grant (Staffing for Adequate Fire and Emergency Response) to hire 15 more firefighters.
“The more people we put in, the higher the chance of getting the grant there is,” Vindigni said. “They’re looking at how close to the standard you’re going to get. I would go as high as you let me.”
Under terms of the grant, the Department of Homeland Security and FEMA would cover 75 percent of the cost in year 1 and 2 and 65 percent in year 3. By year 4, the city would shoulder the whole cost — $845,000, which comes out to about a nickel increase in the city’s tax rate.
“I’m thinking we’re probably going to reduce the number from 15,” Councilman Jerry Smith said this week. Why? “I think it’s a result of all the other things that we heard at the (budget planning) meeting — things we know we have to pay for and realistically our ability to pay for them.”
Smith ticked off the items on the list, in both day-to-day operations and longer range capital funded with cash or debt. They included health care insurance, state-mandated retirement contributions, the new police station, renovation of Fire Station 1 downtown, a new Fire Station 3 on the southside of town, “the expected salary increase just based on people staying employed and moving up salary ladder,” the downtown bathrooms. Plus, “there is obviously the ongoing cost of what it takes to maintain the city.”
“You put all those things together and you try to maintain a reasonable tax rate and it means some things have to be modified to meet those parameters,” Smith said. “Certainly fire protection is very important to me and to other council members but we’re just weighing that with the other priorities. I really should say not just fire protection because most of what they do is first responders” such as car crashes and medical emergencies.

Local-option sales tax

Councilman Jeff Miller said he, too, is thinking the firefighter cost needs to be trimmed. Early budget talks, he said, involve asking department heads, “Tell us your pie in the sky and we’ll see what we can do.”
But even if the city adds no new personnel, health care, retirement and regular pay increases mount up.
“Payrolls and benefits are hammering us,” he said. “You’ve got to take care of your people. You’ve got to be competitive or they’re going to go somewhere else. … It’s not a whole lot of fun to be a City Council member right now with the numbers we’re looking at.”
In one exercise in the city budget retreat, a facilitator asked council members to rank potential revenue options — including property taxes, a quarter-cent sales tax, municipal services districts (such as downtown and the Historic Seventh Avenue District), service fees, payments in lieu of taxes (imposed on nonprofits), occupancy taxes, water and sewer rates and bond issues.
Although property taxes ranked low in terms of council members’ preference, North Carolina law bars or restricts tax and fee options that were once available or are common in other states.
“We would love for the Legislature to give us a menu of other opportunities to raise revenue as our community grows,” City Manager John Connet said. “The only true control over revenue the city council has right now is the property tax. We would like the folks in Raleigh to understand that if we don’t have other means of raising revenue we have to put it on the property tax payer. That’s why we’re continuing to talk to our legislators about other options.”
That appeal starts formally Thursday night. The council is scheduled to take up a resolution asking the Legislature to allow the city to hold a referendum on a quarter-cent sales tax. Two council members say they favor the local-option sales tax, even if getting approval in Raleigh seems to be a long shot.
“From the reaction I had last year when I was trying to push it, I got a big fat no across the board,” Miller said. “The retail lobby was very against letting municipalities levy it and to a degree I understand. It gets confusing” when sales tax fluctuates across city lines. “It could help the city because honestly there’s a lot of sales that go through the city. (But) I got shot down pretty hard last year when I was trying to do it.”
Miller is not confident the Legislature would be more receptive this year.
“I’ve received no indication that it’s going to be more readily received,” he said.
The resolution points to the proportion of tax exempt property in the city, including a nonprofit hospital campus and its physician practices, two county courthouses and other county buildings and many nonprofit agencies. The total nontaxable valuation is $404 million, the city says, shielding roughly 20 percent of the total real estate value from the tax rolls.
The quarter-cent sales tax “would be a major advantage for us that would spread out some of the cost to the user because a lot of people that are using our services are not people that live in the city,” Smith said. “This would spread out the cost to more of them. And in my opinion that’s a very minor tax increase.”
Smith agrees that the chance of approval in the Legislature is remote. And even if the city got approval, it’s far from certain that voters would say yes. Henderson County voters overwhelmingly rejected a quarter cent local-option sales tax in 2016.
“My impression is the same as Jeff’s,” Smith said. “We don’t have much chance of getting it but you don’t get it if you don’t ask. Where I am frustrated is the law requires you to have a referendum so ultimately the citizens can vote it down. The General Assembly is not making a decision or imposing a tax. They’re allowing people to vote on whether they want the tax.”
If a local option sales tax is off the table, along with options like development impact fees and privilege taxes, the council may be looking at keeping the tax rate about where it is — 49 cents per $100 valuation — and banking the gain from a 25 percent valuation increase in the new assessment.
During the budget retreat, Connet urged the council and the city’s population to “change the conversation” from one of problems to one of solutions even as social media has overwhelmed old-fashion civic discussion. The City of Four Seasons, with a population of 14,165, swells to many times that when the tourists and local visitors drive in to work, shop and dine.
“What we know is we play bigger than we are,” Connet said. “We’re the county seat, a destination, a commercial center, a full service municipality (with) the second largest utility in Western North Carolina and we’re a growing a community. Whether we want them to or not, people are coming and we’re a customer service leader. We need to change the conversation with our citizens. We can’t provide everything for you, we need you to partner with us or, again, you can’t afford to live here.”