*This is one of several articles that will be written as a result of the December 19, 2022 joint meeting between Macon County Commissioners and Macon County Schools.*
During the December 21 joint meeting between Macon County Commissioners and the Macon County Board of Education LS3P representative Paul Boney updated county leaders on the status of the proposed more than $100 million Franklin High School Construction project.
To date, Macon County officials have obligated $1,147,893 for the proposed Franklin High School project, with the majority of that funding being allocated to LS3P for the schematic design work to develop the proposed plans to rebuild the high school facility. According to County Manager Derek Roland’s summary of the project last week, the last board action for the high school was taken in October when county leaders voted to approve the schematic designs completed by LS3P for a new high school facility and to submit those designs to the North Carolina Department of Public Instruction for approval, which is required by law.
Despite the more than one million dollars that have been spent on the project, there are currently no funding mechanisms in place to carry out the build of a new school facility. The sales tax referendum that was on the November ballot would have generated around $2 million annually, which would have been used to cover the debt payments on a loan that would have built the new facility, however, because that measure didn’t pass, the county has no definite funding source for the build.
Moving forward, Roland noted that construction cost estimates are expected to be presented to the board for phases 1 & 2 by late January, early February. Boney noted that if that timeline is maintained, and funding is allocated, a new Franklin High School could begin construction in Fall of 2023, however, he was transparent with the board, that generally, not everything lines up perfectly.
Commissioner Danny Antoine referred to a recent tour of the high school facility as being “eye-opening” and said that while it is apparent the school needs significant changes, he believes it is also imperative to be mindful of taxpayer dollars and to avoid “wasteful spending.”
Both Commission Chair Paul Higdon and Commissioner John Shearl stated they didn’t see the issues at Franklin High School as being an “emergency” and that with new members of the board of education and the county commissioners, they would like to see if there were possibilities of new ideas for funding possibilities. Shearl said that after he toured the facility, he didn’t see the need for a new facility at all and thought the county should reconsider renovating the existing facility as a way to lower project costs.
Commissioner Josh Young said he had no problem “showing all his cards” when it came to his support of a new Franklin High School facility and said that he supports allocating a portion of the county’s fund balance right now to get phases 1 & 2 started as soon as possible.
Shearl’s comments supported spending funding from the county’s fund balance for the project as well saying that after talks with representatives with the UNC School of Government, it is “political suicide” for the county to maintain a fund balance that is 70 percent of the annual budget.
Ways the proposed Franklin High School Project can be funded
County governments have the authority to generate revenue in two main ways— through property taxes (the primary source of revenue in the general fund accounting for $31,169,114 or approximately 57% of total revenue in FY 23’) or sales taxes (an estimated $12,173,788 or 21% of total revenue in FY 23’). The sales tax referendum was voted down on the November ballot, so an increase in sales tax to fund the project is currently off the table, although it can be voted on again in a year. That leaves an increase to ad valorem taxes to fund the proposed $118 million project.
To be clear, there are several other factors to consider when looking at funding the project that would impact how large of a property tax increase would be needed, however regardless of any and all of the factors, at the end of the day, some sort of property tax increase would be inevitable. Elements that will impact the amount of increase needed to fund the new school facility include things such as reducing funding obligations elsewhere in the budget to free up revenue for the school project. Options to accomplish that would be eliminating positions, paying off existing debt, and/or reducing individual department budgets. While these actions would free up existing revenue within the county budget and reduce the amount of tax increase needed, it wouldn’t fund the project completely.
Commissioners also suggested that “value engineering” would help reduce the overall cost of the proposed project, which in turn would mean a lesser tax increase would be required to fund it. “Value engineering” is defined as a systematic, organized approach to providing necessary functions in a project at the lowest cost. Value engineering would take the existing plans and proposed $118 million project and looking for ways to substitute the proposed materials or methods with less expensive options.
Pursuing grant opportunities is another way to fund a portion of the proposed project to lessen the property tax increase that would be required to make it possible. Macon County Schools in the process of once again applying for the state’s need-based construction grant which would provide the county with $50 million toward the cost of the new facility. Macon County’s last application for funding was denied. Macon County Board of Education member Hilary Wilkes said from her understanding, while many people look at Macon County having the third lowest tax rate in the state as being a good thing, she believes it can also be a negative, especially when it comes to applying for grants. Having such a low tax rate causes Macon County to score lower than counties with higher tax rates applying for the same grants. Macon County will find out if they are approved for the lottery funds in May 2023.
Lastly, another way to reduce the amount of tax increase needed to fund the project would be to allocate a portion of the county’s existing fund balance to cover the cost of construction.
What is a fund balance?
Counties across North Carolina maintain a fund balance that could be utilized in the event of emergency situations to ensure county services and functions continue. It is essential for county’s to maintain an adequate amount of fund balance available to Emet their cash flow needs during the months in their revenue cycles when outflows exceed inflows. As a reference point, counties use the 8 percent fund balance metric, which represents only one month’s worth of expenditures on hand, as a bare minimum. Anything less than that may result in devastating effects on the fiscal health of North Carolina governments, according to the LGC.
While 20 percent of total expenditures is the minimum threshold for counties to maintain in a fund balance established by the Local Government Commission, across the state, the average fund balance amounts increased by 5 percent during the pandemic resulting in an average annual fund balance for the state being 34 percent. According to the LGC, Local governing boards should develop a fund balance policy that requires they maintain a fund balance that is consistent with that of their peers. The policy should include corrective action should the fund balance fall below the intended targets. According to the LGC, because Macon County has general fund expenditures below $100,000,000, the county’s fund balance policy should aim for a median fund balance percentage of 39 percent and a minimum threshold of 20 percent.
A 2020 report of county fund balances showed that compared to 20 other counties of similar populations (between 25,000 and 49,999) at 53.87 percent for a population of 36,544, Macon County’s fund balance was the second highest, ranking behind Bladen County which reported a fund balance of 54.37 percent for its population of 34,475. Montgomery County nearly tied with Macon reporting a fund balance of 53.61 percent for its population of 27,724. Of the 20 counties in the same group as Macon, Davie County reported the lowest fund balance at 20.20 percent for a population of 43,227. The same report showed that Macon County’s available fund balance was $27,867,351 which is comparable to Jackson County’s fund balance which was reported at $24,334,706.
Because of the county’s existing available fund balance, which currently sits at $42,110,863 or 74.35 percent of the county’s total annual budget, Macon County is in an incredibly strong financial position, Just like when an individual goes to the bank to get a loan and the individual’s assets and credit score factor into what interest rates and funding they are qualified for — county funding via loans are the same way. Because the county has a strong fund balance, the county qualifies for a top credit rating, therefore having access to the best interest rates available and greater choice in lending options.
Assuming Commissioners voted to allocate the entirety of the county’s $42 million fund balance, the county was awarded the $50 million need-based construction grant, and the county was able to reduce the overall cost of the proposed project by $10 million through value engineering, at $108 million, the total estimated cost of the proposed high school project would still require a property tax increase of some sort to cover the remaining $16 million of the project.
While the price tag for renovations and repairs to the existing Franklin High School facilities may be less, funding options for repairs vs new construction are different. The $50 million need-based grant the county has applied for to construct a new facility can only be used for new buildings, therefore wouldn’t be available for renovations or repairs.
And while the county is considering funding for the Franklin High School project, they have to be mindful of other ongoing projects as well as future facility needs throughout the district including the needs at Highlands School, ventilation issues at Macon Middle School, and other annual capital outlay needs.