Supporting Document

General Fund

The General Fund contains all governmental services that do not generate sufficient revenue to support their activities (Police, Emergency Services, Recreation, Public Works, Administration, Recycling, Planning/Inspections, etc.). The General Fund is balanced with no increase in the current property tax rate of $0.295 per $100 valuation. This rate will provide approximately $2,175,055 in property tax revenues based on an expected collection rate of 97.0%. The Town’s tax base is split among two counties – Watauga, and Caldwell. Watauga County represents approximately 96.0% of the total property tax base. Caldwell County accounts for the remaining 4.0%. The total property tax base (including vehicles) is estimated to be $764,000,000, which is slightly higher than FY 2002-2003, and is based on information from the Watauga & Caldwell County Tax Offices. A penny on the tax rate is projected to generate approximately $76,400 in revenue. The Town’s property tax base is estimated to be approximately 85% residential and 15% commercial.

The FY 2003-2004 Recommended Budget for the General Fund totals $3,747,590 or 1.78% more than the FY 2002-2003 Adopted Budget of $3,681,975.

Water and Sewer Fund

The Water and Sewer Fund contains all water production, water distribution, wastewater collection and wastewater treatment activities of the Town. This fund is self-supporting. The Water and Sewer Fund contains no water or sewer rate increases for FY 2003-2004. This will be the second consecutive year with no rate increase for Town water and sewer customers. Current rates are expected to provide sufficient revenues to support all Water and Sewer Fund operations. The FY 2003-2004 Recommended Budget for the Water and Sewer Fund totals $1,254,205. This is a 2.01% increase over the FY 2002-2003 Adopted Budget of $1,229,475. Additional funds are being transferred and set aside in the Water/Sewer Capital Reserve Project Fund to help in funding major water and sewer capital needs/expansions.

Capital Reserve Project Funds

The Capital Reserve Project Funds (General and Water/Sewer) exist as a financial tool to help in the financial planning of future capital projects. In recent years, Town Council has adopted a number of financial policies related to increasing the amount of money contributed to these Funds. In the FY 2003-2004 Recommended Budget, the General Fund and the Water/Sewer Fund will both continue to make significant financial contributions to the Capital Reserve Project Funds. The amounts appropriated will be $412,750 and $230,000, respectively.

The total proposed contribution to the Capital Reserve Projects Funds for FY 2003-2004 is $642,750, or approximately 13% of the Total Recommended Budget. This allocation compares favorably to the $782,000, or 16% appropriated in the FY 2002-2003 Adopted Budget. A separate updated Capital Projects Budget Ordinance, to designate formal project appropriations, will be presented to Council later in the year.

FISCAL OUTLOOK

Estimating revenues is always challenging. This year (as well as last), we have faced more uncertainty than usual because of the following three factors:

1. The Economy – the NC economy is still in a slowdown and the recovery schedule is still uncertain due to national concerns such as terrorism, and post war Iraq.

The Governor – the Governor has recommended not funding the promised hold-harmless payments to local governments for the state-repealed taxes in exchange for the one-half cent sales tax. This decision would cost Blowing Rock $15,000.

The Legislature – the State’s FY 2003-2004 budget is still in limbo and the deficit is projected to be up to $440 million for the current state fiscal year.

Therefore, revenue estimation for the upcoming fiscal year reflects an extremely conservative approach by the Town.

SOURCES OF REVENUE

Ad Valorem Tax (Property Tax)

Two characteristics of the property tax distinguish it from other forms of taxation and underlie the methods of determining tax liability and enforcing collection. The first characteristic is that the property tax is levied on property itself, not the owner. The second is that the tax is measured by the value of the property as a marketable item, not by the owner’s ability to pay. Thus, it is often called an "ad valorem" tax, from the Latin phrase meaning "according to value". In North Carolina, property tax rates are customarily expressed in dollars per $100 of valuation. The maximum property tax rate allowed in North Carolina is $1.50 per $100 of valuation. In Blowing Rock, the property tax rate is $0.295 per $100 of valuation. On a $250,000 home, the total annual Town of Blowing Rock property taxes due would be $737.50.

In FY 2002-2003, the General Assembly approved higher exemptions for senior citizens aged 65 or older and for citizens who are 100% disabled and subsist on a specified household income that does not exceed $18,000 annually. This action, while attempting to reduce the impact of the overall tax burden of this population, does result in a nominal loss of property tax base for the Town.

Total Ad Valorem tax revenues (including current and prior years, motor vehicles, and penalities/interest) are projected to be $2,247,055 in FY 2003-2004. In North Carolina, this is the only significant source of revenue that the State allows local governments to control.

Sales and Services

The City has a number of services that it "sells" to the public. These services are covered in the Town’s Fee Schedule. There are no services, except water and sewer, solely supported by "Sales and Service" revenue. All others are augmented by property tax revenue, to some degree, to meet service demands. For example, only a fraction of the Parks and Recreation Department’s budget is supported by revenue generated from program registration fees. Property tax revenue and other General Fund revenue support most of the Parks and Recreation Department’s budget. Some services which produce "Sales and Service" revenue include:

Commercial Solid Waste/Recycling Fees

Building Inspections/Zoning Fees
Cemetery Fees
Recreation Fees
Water/Sewer Charges

This source of revenue will provide approximately $289,765 in revenue for next fiscal year to the General Fund. Water and sewer related charges (and interest) are estimated to total $1,254,205 in FY 2003-2004.

All Town-collected fees for services, as well as water and sewer rates will remain unchanged in the Recommended FY 2003-2004 Budget. A detailed list of all fees/charges can be found at the Schedule of Fees/Charges section of the budget document.

State-Collected Local Taxes

In FY 2003-2004, there are three statewide revenues whose estimates depend on economic forces: Utility Franchise Tax, Telecommunications Sales Tax, and Beer and Wine Tax.

The assumptions for the utility franchise, telecommunications sales tax, and the beer and wine taxes anticipate only nominal growth over the prior year largely due to the numerous changes in the revenue formulas in recent history and the sensitivity to which these revenues respond to weather and market forces. The General Assembly, in 2001, replaced the utility franchise tax on local telephone service with a new sales tax on telecommunications. The Town will experience its first full fiscal year of telecommunications tax revenue on June 30, 2003.

Currently, each town’s utility franchise tax is based on actual receipts from electric service only within the municipal boundaries. The League of Municipalities anticipates statewide growth in the 1.5-2.5% range. However, they note that these revenues are highly sensitive to the weather. Mild winters, cool summers, and any significant rate increases or decreases can cause these receipts to change.

These funds are collected by the State and are distributed to the Town based on the actual receipts from the providers of these services and commodities within the Town limits. This revenue source is expected to be $138,610 for FY 2003-2004. These are strictly General Fund revenues.

Sales Taxes

The Local Option Sales Taxes now consist of a one-cent sales tax, and three one-half cent sales taxes. The authority to implement a third one-half cent sales tax was approved by the General Assembly and approved locally by the Watauga County Board of Commissioners in 2002 and replaced the State reimbursements for repealed local taxes. In this exchange, the General Assembly repealed the local government reimbursements for the intangibles tax, inventory tax, homestead exemption, and sales tax on food stamp purchases effective July 1, 2002. Based on North Carolina League of Municipalities estimates, the Town will lose approximately $15,000 in revenue in the one-half cent sales tax exchange for reimbursements.

Two and one-half cents of the seven cents paid in sales tax on retail sales in North Carolina represents the local share of this local option sales tax. This tax consists of a one percent tax that was first levied in 1971, a one-half cent tax levied in 1983, a one-half cent tax levied in 1986, and the recently approved 2002 one-half cent. The State of North Carolina collects the sales taxes and distributes them to the local units. Sales tax revenues are distributed on a proportional population basis to municipalities in Watauga County as opposed proportional local government ad valorem levies. Sales tax revenues (including the new one-half cent proceeds) are projected to be $315,000 in FY 2003-2004. This is strictly a General Fund revenue.

Hotel/Motel Occupancy Tax

A hotel/motel occupancy tax is levied on the gross receipts from the rental of transient accommodations in the Town of Blowing Rock. These taxes are collected locally with a current tax rate of 3%. Presently, these taxes support the various tourism-related operations of the Town. These taxes are estimated to be $347,660 for FY 2003-2004.

Powell Bill Street Allocation

The use of these funds is restricted to maintaining, repairing, constructing, reconstructing or widening any public street or thoroughfare within the Town limits that is not State-maintained. Bridges, drainage, curb and gutter, sidewalks and other necessary appurtenances are also approved uses of these funds. The determination of the amount of the allocation comes from a formula containing a municipality’s local street miles and population. To receive funds, each municipality must file an annual certified map and an annual expenditure report. Due to the Governor and the General Assembly using proceeds of this revenue source to supplant State revenues, we anticipate a reduction in Powell Bill funding in FY 2003-2004. This revenue is estimated to be $80,000 for FY 2003-2004. This is strictly a General Fund revenue.

ABC Revenue

These proceeds come from a contribution from the local ABC Board from the sales of alcoholic beverages. The revenue is estimated at $125,000 for FY 2003-2004.

Grant

The Recommended FY 2003-2004 Budget has included $90,000 in revenue from a NC Department of Transportation Enhancement Grant for the South Main Street Sidewalk Project.

Other

Other miscellaneous revenue includes: gasoline tax refunds, privilege licenses, interest income, miscellaneous income, cablevision fees, parking tickets, 911 contributions/donations, book sales, park lease, snow removal reimbursement, etc. These funds are expected to be $114,500 for FY 2003-2004.

Fund Balance

On June 30, 2003, the Undesignated General Fund Balance is projected to be approximately $1,000,000 or 26% of FY 2003-2004 General Fund revenues. There is no fund balance appropriated in the proposed budget. According to the Local Government Commission, the minimum level of undesignated fund balance available for appropriation - to enable the unit to meet current obligations, to prevent the unit from experiencing cash flow difficulties, and to aid the unit during emergencies, is 8% of the prior year's expenditures. However for units of local government of our population and budget size, the average fund balance ranges from 50-75%. This budget includes an appropriation of $90,000 to increase the Town fund balance.

EXPENDITURES BY FUNCTION – GENERAL FUND

General Government (Governing Body, Administration/Finance, & Central Government)

This function accounts for $833,530 or 22.24% of the total General Fund budget.