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Tax cut challenge for Chatham County

By Tom Glendinning
Posted Tuesday, November 2, 2010

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Pittsboro, NC - The tax cut issue in Chatham County, NC will come, whether it is planned or not. The strategic responsibility will be to balance the drop in real estate values in two years with the demands of financing the borrowed amounts from the last three years.

Exactly when the next valuation is due, the debt service hits a record high. Without some creative solution to this problem, Chatham could face the highest allowed tax in the state of $ 1.40/$ 100 property value. Basically, the real estate values are approximately 25 % too high in the current post-crash market. The timing of Chatham's valuation could not have been worse. Crash in October, 2008. Mandatory valuation time and date: January 1, 2009.

Since the state mechanics law requires that the values express sales from the previous term of the valuation, in our case four years, and sound practices use six months of sales data, the values remained at the market highs because there we no sales after the crash. Previous sales were high. A change in state law would be required to alter practices to reflect actual current Full Market Value (FMV) with the same flexibility as the real estate market expresses.

If this value increase holds and the market does not recover, then, by 2012, the values will fall by 20 % to equal true 2009 prices. A local realtor said that we have a seven year inventory of residential property. No relief is indicated via economic recovery in a flooded housing market.

The added debt service of $ 9 - 12 million in 2012 will increase mandatory spending by 9-12 percent of the total budget and by 11-14 percent of the pro rata revenue (from property taxes).

The published tax rate is $ 0.6219 per $ 100 dollars of value.

In simple terms, subtract loss of 20 percent of value based on actual sales at that time and the tax rate becomes $ 0.7774/$100. Add the 12.5 % increase for debt service on the previous budget, the tax rate becomes $ 0.8746/$100.

A five percent per year increase in spending (cost inflation and salaries) for three years over projected rate with no reductions will yield a rate of $ 1.005/$100, no compounding included.

That is a 40 percent increase in taxes without any change in spending allocations. 60 % with inflation! A nice gift from the previous commissioners.

This analysis is simplistic, but a valid projection. It does not account for changes in fund balance, total property value (with new construction), any tax cuts, stalled county construction projects (if the NC Board Of Education allows), or acts of God.

A reduction in spending of a full 22.5 % in 2013 will allow a rate of $ ..6779/$100, given the inflating factors mentioned above, a $ 0.05/$100 increase.

Vote your pocketbook and your conscience on November 2.

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