Cumberland County’s Sales Tax Distribution Squabble: An Example of What’s Wrong in America

9 February 2016

This column addresses a matter specific to Cumberland County, North Carolina which includes the city of Fayetteville. Even though the situation is specific to the city and county where I live, examination of what is happening shines a bright light on the dysfunctional and ineffective political conditions that are present across America.

For some period, the County of Cumberland and the nine municipalities located in the County were seeking agreement on how to distribute sales tax revenue to the county and those municipalities. Fayetteville is by far the largest of the municipalities and was the only one disagreeing with the distribution formula proposed by the County. By State law, county commissioners decide how these funds are to be distributed. The distribution can be done one of two ways. As is currently done, by Per Capita Distribution where the total of the county-wide population (in incorporated and unincorporated areas) and the populations of each municipality are used to calculate a proportional per capita distribution.  The other is Ad Valorem Distribution where the sum of ad valorem (property) taxes levied by the county and each municipality in the immediately preceding fiscal year are used to calculate a proportional share of sales tax proceeds.

In 2004 Fayetteville annexed areas of Cumberland County that added some 43,000 residents to the City. Given that annexations reduce the amount of sales tax distributed to the County, a 2003 agreement was reached that called for the City and towns to reimburse the County or one another half the sales tax distribution gained because of annexations. The initial agreement was for ten years but was extended in 2013 for three years. Former Fayetteville Mayor Tony Chavonne was in office during the period leading up to and when the extension was signed. Without equivocation, he says the extension came about because the City and County could not agree on a distribution arrangement beyond the ten year agreement. He adds that the reason for the extension was to allow time to settle the matter.

Fast-forward to 27 January 2016. No agreement has been reached regarding future sales tax distribution and the three-year extension is about to expire. The County wants to extend the current agreement for ten years. Eight of the nine municipalities are willing to accept this extension of the agreement because it will not cause any reduction in their receipts. Fayetteville Council members are refusing to sign because they argue the ten year agreement was intended to allow the county to prepare for future reductions in the County’s sales tax income. Further, the current agreement has caused Fayetteville to reimburse the County and other municipalities nearly 60 million dollars total for fiscal years 2004 thru 2015. The County Commissioners are refusing to negotiate. Per comments by County Commission Chairman Marshall Faircloth, the Commission’s position is that the proposed ten year agreement extension is a compromise; consequently, there is nothing to negotiate. As was the case in 2013, the County is saying if Fayetteville does not agree to extend the current agreement, the Commissioners will change the distribution method to ad valorem. That change would financially benefit the County while reducing income to Fayetteville and the other municipalities. The negative impact of a change on the other municipalities puts pressure on Fayetteville.

So, Fayetteville and the County are at an impasse. The pressing question is how should this matter be settled? I agree with newly installed Fayetteville City Councilman Kirk deViere. In a meeting of Cumberland County Citizens United, after Chairman Faircloth had presented the county’s case, deViere said what’s needed is “collaboration.” That is, the county and municipalities working together to come to an arrangement that serves all the people fairly and well. My thinking is achieving this goal would require elected officials and staffs to put on the table every piece of information that should be considered. Because the aim of those who represent the county and municipalities is to protect their turf, collaboration is probably a pipe dream. The accepted practice is every entity for itself.

I have made a long listing of what I see as needing to be on the table. Here are just a few of those items:

1. Primary Tax Generating Area. Fayetteville’s Mayor, Nat Robertson, and City Manager, Ted Voorhees, led an information meeting on 13 January 2016 that was open to the public. One slide in the prepared presentation read: “Taxable sales within Fayetteville accounted for 82.6% of the county-wide total sales for FY2009 (the last year for which data is available). Under the state distribution methods, for FY2015 Fayetteville could only receive approximately 25% to 36% of the sales tax distributions.” It would appear reasonable that this be a point for consideration in determining fair distribution.

2. Full Disclosure Regarding Bragg Annexation. Sometime after the annexation of some 43 thousand and the initial distribution agreement were in place, Fort Bragg was voluntarily annexed to Fayetteville. In spite of the existing agreement, somehow the county claimed 100% of the sales tax portion from that annexation. Commission Chairman Marshall Faircloth justifies that action by saying Fayetteville does not provide any services to Bragg. Former Mayor Chavonne points out those services such as public safety in the City are impacted by the presence of personnel from Fort Bragg. He also explained that as part of the annexation, Fayetteville made a substantial financial investment to run a water line to Fort Bragg. Faircloth also mentioned that Fayetteville receives benefits from franchise and Powell Bill revenues based on the Fort Bragg annexation. There should be open discussion as to what this is, how much is received, and what is mandated to be expended by the City against that income.

3. Clear Assessment of Financial Resources. In print and in person, Faircloth talks about Fort Bragg residents attending County schools, but says nothing about the Impact Funding received from the Federal Government to help offset the associated costs. There is also no mention of the new funding stream to schools from red light camera fines.

4. Total Picture of Ad Valorem Method. I suppose in an attempt to promote ad valorem tax distribution, the Commission Chairman also states that 7 of 10 large cities in North Carolina use that arrangement. On this point, Tony Chavonne emphasizes that Fayetteville has very few industrial properties in the City. The 7 cities pointed to by the Chairman most likely have substantial industrial properties; therefore, the ad valorem procedure does not disadvantage them as it would Fayetteville.

5. Legitimacy of Budgeting/Spending Levels. Fayetteville is now responsible for providing police and fire services to some 43 thousand citizens no longer served by the Cumberland County Sheriff’s Department. In the 16 January meeting of Cumberland County Citizens United where Faircloth spoke, Fayetteville Councilman Ted Mohn presented information on increases in the Sheriff’s budget along with other County and Fayetteville financials relevant to this discussion. In spite of the dramatic reduction in the number of citizens served, the Sheriff’s budget increased from $33,285,663 in Budget Year 2006-2007 (first full year after 43,000 annexation) to $48,419,606 in Budget Year 2015-2016. That’s a 45% increase. Over the same time period, ad valorem tax receipts in Fayetteville did not cover police and fire department costs in any one year. The annual shortfalls start at $4,278,160 and stand at $8,447,215 for the current budget year. Mohn advises that the figures used here for the City and County were accurate at the time budgets were adopted.  Budget amendments are often done throughout the year so the final numbers once the budget year ends may be a little different.

The listing goes on. Just the information above cries out for thoughtful negotiations resulting in a sales tax distribution method that serves the County, Fayetteville, and the eight other municipalities as a whole in a fair and productive fashion. Instead, I contend Cumberland County Commissioners and eight municipalities pressured Fayetteville City Council to, on 28 January 2016, agree to extend the current agreement for three years. Mayor Nat Robertson and Councilman Bobby Hurst were the only “No” votes. Councilwoman Kathy Jensen was not present. Hurst got it right when he said the can has been “kicked down the road.” By my count this is the third kicking.

Those who are politically entrenched wonder why many Americans are disgusted with government and why Donald Trump is doing well in his presidential quest. It is because of the kind of “do nothing, fix nothing, walk on some citizens” activity described here. This stuff is happening at every level of American government and many of us are fed-up. I hope this sales tax distribution “can-kicking” will bring more citizens of Cumberland County, including those in municipalities, to get informed and involved in making government work for the good of all, not just for individual groups, separate municipalities, or those residents of unincorporated areas of the county.