Postponing the Storm or Why You Should Thank Your Commissioner

If you own property in Dare County the odds are you got a tax cut on Monday night. The Dare County Board of Commissioners postponed the county-wide property tax revaluation from next year to 2013. If you don't own ocean front property you can call your Commissioner and say thanks. The odds are very good they just saved you a bunch of money.
Here's the skinny, when the county last revalued property for tax purposes the value of ocean front property was at an all time high, both in absolute terms and relative to other coastal property.   This means that ocean front property assumed a major share of the property tax burden.  In Nags Head, under the current valuation, property east of the beach road accounts for about more than third of the total property value for the town.  Even though it is about 20% of the total parcels in the town.   Ocean front owners felt the sting of revaluation in 2005 when their bills jumped substantially more than the 10% that tax revenue was increased.
Now the situation is reversed.  In the declining real estate market ocean front and other high value properties will result in a tax bill decrease for those owners whose property has dropped in value much more than the more affordable homes in the County and an increase for the majority of non ocean front owners. While ocean front homes are seeing prices drop by as much as 50%, homes in the lower price ranges have only declined 10% -15%.
So what does this mean for revaluation?  Its pretty simple, if the county uses current values a much greater share of the ad valorum tax burden will fall on residents and non ocean front owners.
To try to get a handle on just how much I worked up an example.  I used 3 properties. An oceanfront with an old value of $1,000,000, two Westside properties valued at $500,000 and $300,000 respectively.  For the purpose of the example I used a tax rate that generated a total $1,000 in taxes from the properties.  Then I adjusted the values to reflect the new reality, decreasing the Ocean front value by 50% and the Westside by 25% and 10% respectively.  This results in a tax savings of over 20% for the oceanfront and a tax increase of over 40% for the lowest value property.  The table at the close of this piece lays out the numbers,  The chart below shows the change in dollar amounts for each property.

This chart does not perfectly reflect the distribution of value from oceanfront to the west side but it does provide a sense of the potential impact of revaluation. You can make your own calculations if you desire.
Imagine the storm of protest when the Commissioners adjust the tax rate to reflect the new values 70% plus see increases ranging from 10% to 40%.   The county staff noted that revaluation "will result in a small tax increase for a significant number of Dare County residents" (see Note 2 for the staff's full discussion)  No one knows exactly what the impact would be but there is not doubt that for the lowest value properties in the county the increase could be substantial.
The Commissioners made a decision to postpone the storm for a few more years. Interestingly, both the initial postponement from 2010 to 2011 and the second to 2013, had the effect of placing the change in a year with municipal elections rather than county commissioner balloting.   If there is going to be a storm, I guess it will fall on town leaders.  You will have to wait a year to let the county board know what you think at the ballot box.
Revaluation is often combined with effective tax increases.  Many years ago it was pretty easy to hide this effect but the state now requires that local governments publish the revenue neutral tax rate - the rate that would maintain the amount of tax levied.  Any increase from the revenue neutral rate is a tax increase.  In the last revaluation the county had a significant tax increase that was hidden from most tax bills by the effects of revaluation.  This time it will be different.  Any revenue enhancement (tax increase) will come on top of the shift in relative value to bulk of the taxpayers.
Thanks Commissioners.  I appreciate the tax break but you can't postpone the storm forever.   I hope you have your slickers on.
Ciao


Note 1:
This table lays out the calculations I used for the chart.

Impact of New Property Values on Tax Bills
	Old Values		New values
Total tax revenue	$2,000		$2,000
Tax rate	$0.111		$0.175
Location	Ocean Front	West side 1	West side 2
Value	$1,000,000	$500,000	$300,000
Property Tax	$1,111	$556	$333
Change in Value	50%	25%	10%
New Value	$500,000	$375,000	$270,000
New Tax	$873	$655	$472
Tax increase or decrease	-$238	$99	$138
% Change	-21%	18%	41%

Note 2: This is the text from Commissioners board packet explaining the current situation regarding revaluation.

Back in the fall the Board postponed until 2011 the ad valorem tax revaluation that was scheduled for 2010. At that time the Board discussed the possibility of revisiting this issue and further postponing the revaluation until 2013 when revaluation is required by the state statutes. Since the fall real estate values have not changed significantly. As such, using a revenue neutral rate for a 2011 revaluation will result in a small tax increase for a significant number of Dare County residents and will generate no new revenue for Dare County. We are at a point in the revaluation process where, to avoid added expenses and unnecessary work, the Board needs to decide whether to postpone revaluation until 2013 or continue with the revaluation for 2011.

Who's fleecing who?

For what it's worth I sent the following comment to NC Nightly News about this segment on the Fleecing of America

You opened with and ended with scenes of communities fighting flood risk. One seemed heroic and one horrific. You piece on the raging rivers in Fargo focused on a plan to divert the Red River. You failed to mention the cost of that project is the hundreds of millions of dollars. It would protect an area that has seen repeated flood damage and claims under flood insurance. Bravo for the people of Fargo, they are fighting the flood waters.
Lets look at a different community, coastal North Carolina. These communities are also threatened by flooding, flooding by hurricanes. Flooding the threatens the homes and businesses of just as Fargo is threatened. These communities didn't have a flood last year or the year before that but they are trying to prepare themselves in advance of the flood.
What I don't understand is why Kure Beach is fleecing America while Fargo is not. Both communities are trying to deal with floods. In both communities the projects protect value far beyond their cost. Yes the nourishment projects will need additional sand to maintain them, just as Fargo's levees will need to be maintained. The only difference is that nourishment projects will also provide a recreational amenity for the largest industry in America – tourism. How is building economic infrastructure and storm damage protection a bad thing. It may be good television but its bad journalism.
Finally lets look at New Orleans. The Nightly News broadcast has trumpeted the federally funded recovery of a great American city. This is a great story but it begs the question if we rebuild a city that is built BELOW SEA LEVEL and spend billions protecting it from flooding, why shouldn't a town in coastal North Carolina receive the same benefits. Maybe one day you will explain the difference.

Ciao

Food Tax Errors or Learning to Love Crow

My previous post: Food Tax redux or Fiscal Dieting 101 used the wrong data. I mistakenly picked up the Land Transfer Tax numbers instead of the Prepared Foods Tax receipts.   In fact Prepared Foods tax receipts have fluctuated within a 10% range of the last three years and rose a total of 15% the 2 years prior to that.
I guess folks are still eating out about as much as they were.
I am sorry for any trouble my  mistakes may have caused anyone.
Thanks to Ray at EOD and Sandy at the Outer Banks Sentinel for questioning my numbers.

BTW:  Anybody know a place that serves black birds - preferably fried crow?
Ciao

Food Tax redux or Fiscal Dieting 101

This post is all wrong. I used Land Transfer Tax reciepts not Prepared Food tax receipts. Thanks to those who questioned my numbers

Reading  Russ (Russ's Outer Banks Journal) and Ray (Eye on Dare) debating the impact and equity of Dare County's Prepared Meals tax got me wondering what the impact of our economic downturn has been on restaurant revenues.  We hear from the Outer Banks Visitors Bureau that vistors are still coming but the meals tax revenue tells a different story.  Collections have dropped dramatically from a high of $15,186,779 in FY 04-05 to a mere $4,029,807 last year with little relief in site.
The chart above provides graphic proof of the downward trend.  The bars are monthly collections and the red line is a rolling 3 month average that smooths out the collection peaks and provides a better seasonal trend line.
What this says is that everyone - tourists and locals alike are spending a lot less money on eating out and that means a lot less money in the pockets of all the wait staff and kitchen staff not to mention restaurant operators.  I suspect that restaurant spending is mirrored in souvenir spending.  The food tax numbers are much easier to extrapolate the the sales tax numbers that include so many different types of goods.
Russ and Ray had different takes on the impact of this tax on locals.  Ray saying pointing out that locals paid it along with our guests while Russ points out that the actual amount of the tax on each meal is immaterial.  Actually both are right and I will show you how.
Russ already demonstrated that $1 tax on a $100 dinner probably is not the deciding factor in most peoples minds.  I know that my choice of a large coffee as opposed to the double mochachino that Russ drinks isn't based in the 3 cents tax savings.  However locals do eat out.  wander into Mama Kwans or Island Pizzaria or the Bubba's Bar B Que and you will see your friends and neighbors, more now than in the summer but every meal gets taxed.
Lets assume that half the meals tax revenue in the winter months is paid by locals.  That is a conservative assumption for starters,  Looking at the monthly totals we see that winter collections are about two thirds of the summer month collections.   That means that even in summer, locals generate about a third of the meals tax (assuming their eating habits are consistent).  For the peak year this means that locals paid about $4,000,000 in FY 03-04 or $1,600,000 last fiscal year.  Assume 30,000 locals and thats $147 for every man woman and child in the county in FY 03-04 or $52 last year.   Multiply that times 2 or3 or 4 family members and it starts to add up.  You can argue the assumptions at the margins but any way you figure it the locals ante up a healthy (or unhealthy depending where you eat or what kind of tea party you like) amount in prepared foods tax.

OK so what? you already knew all this from reading Russ and Ray.    What this points out is that while the prepared food tax hits locals there is a tax that doesn't.  When you compare the occupancy tax to the prepared meals tax the differences is dramatic.  For meals the low is about 66% of the peak but for occupancy the Feb. revenues are no more than 3% of the peak.  There are virtually no tourists in Feb and hence no taxes.    If you want a tax that tourists pay and locals don't then occupancy is your tax of choice.  I know you wanted another chart so here is the same chart as above but for occupancy tax.  Wow what a difference.
Which finally leads us back to Nags Head and beach nourishment.  When Mayor Bob Oakes drafted his funding plan for local nourishment projects he chose a new occupancy tax as the primary funding source.  This is both a shrewd political and financial choice.  This tax has been more stable and more palatable.  It undercuts opposition to nourishment based on the "I don't want to pay for it" rationale.  Assuming it gets levied, it will be interesting to see if this tax gets repealed as the sales tax was overturned.  It will be a harder sell since its pretty clear that locals don't pay much of this tax.

OK, that's my 2 cents worth.  Hope I have enough left to cover the tax on a "No Name" at Country Deli - tax or no tax still the best sandwiches east of Jockeys Ridge.
Ciao