The usual Town Council majority voted last night to approve spending $35,000 to hire a beach-nourishment financial planner, even though the Council has not committed to doing a project and, as dissenting Councilman Gary McDonald said, “We can come up with [the] scenarios” for financing, without a consultant’s assistance.
Mayor Tom Bennett and Councilmen Jim Conners and Christopher Nason voted in favor of a budget amendment that was described in the meeting agenda as “half of the total amount due for financial planning from DEC Associates, Inc. for beach nourishment.” For some reason, the dollar amount of the amendment was not indicated on the agenda.
The Beacon erred in its report 9/30/19 in believing that the dollar amount had deliberately been left open-ended, to be decided at the meeting. When we looked in the 76-page meeting packet posted online, we did not see a page indicating that the amendment authorized the transfer of $35,000 out of the unassigned fund balance to expenditures.
The page was there. We apologize for our oversight.
As we wrote on Monday, the father-son team who owns DEC Associates, Inc., a Charlotte-based firm, told the Town Council seven months ago that it would charge the Town $35-$40,000 to develop a financial plan, set up a “beach fund,” and decide what monies would go into the beach fund (i.e., do the “planning”); and then another $30,000 to work on finding the financing.
According to Mayor Bennett, who spoke with The Beacon after the Council meeting, DEC Associates gave him a “worst-case scenario” for an up-front estimate now of its total services: $70,000. When asked if $70,000 represented a cap on costs that would be paid to DEC Associates, in the event the Town approves beach nourishment, the Mayor was noncommittal.
Earlier during the meeting, Mayor Bennett confirmed that all of the Dare County beach towns that have done beach nourishment—Duck, Southern Shores (for the Pelican Watch beaches), Kitty Hawk, Kill Devil Hills, and Nags Head—have used DEC Associates.
The Mayor further showed by his comments that, although he has not publicly shared what he knows, he is well-informed about the financing methods that are available for beach nourishment. He explained, for example, that Duck used special obligations bonds to pay for its 2017 beach nourishment, which will undergo “maintenance” in 2022.
He indicated that he has spoken with officials in the other towns about their projects.
SPECIAL OBLIGATION BONDS SIDESTEP VOTERS
Unlike general obligation bonds, special obligation bonds do not require approval by voter referendum. They are secured by a limited or specific revenue source: In the case of beach nourishment, those property owners who are presumed to benefit most directly from the project supply the revenue through increased real-estate taxes.
That means that oceanfront and oceanside property owners are taxed more than property owners who live farther away from the ocean, but who still benefit substantially from the beaches.
The truth is that Duck, Kitty Hawk, Kill Devil Hills, and Nags Head have all used special obligation bonds to raise the financing needed for their beach projects, and Mayor Bennett knows this.
For as long as The Beacon has heard the Town Council discuss beach nourishment, the majority has clearly stated its preference—we call it bias—for special obligation bonds and the creation of municipal service districts. We heard this bias again last night.
Mr. Nason even acknowledged that he didn’t know about other bonds and revenue-raising methods that could be used, even though DEC Associates went through them all at the Council’s February planning session, which Mr. Nason did not attend, but was videotaped.
The idea that DEA Associates is going to shed some great light on “how we finance this thing,” as Mayor Bennett said, i.e., provide insightful “recommendations” that the Town Council and staff cannot make on their own, strikes The Beacon as absurd.
In 2007, Nags Head voters rejected a general-bond referendum for a beach-nourishment project that was estimated to cost $32 million. Thereafter, the elected officials of Nags Head rejected the will of the voters and embraced special obligation bonds, and other officials in nearby towns have followed suit.
MSDs: TAXING OCEANFRONT PROPERTY OWNERS MORE
When a town pays for beach nourishment with special obligations bonds, it pays for the debt by sorting properties into “municipal service districts” and levying different tax rates on the owners, according to where the property is located relative to the beach. The same would be true for a special obligation bond that pays for “another improvement,” such as a highway, recreational park, or sidewalk.
The Town Council majority might have capitalized the $1.2 million South Dogwood Trail sidewalk with a special obligation bond and sought revenue from the homeowners along South Dogwood Trail, rather than appropriate the money from the Town’s unassigned fund balance, which is used principally for natural-disaster relief.
A sidewalk is arguably a “transit-oriented development project,” which, under N.C. law, can be paid for with a special obligation bond.
The same could be said for the multi-million-dollar canal dredging project, another “transit-oriented” project, which property owner Trish Farinholt pointed out in public comment last night, was capitalized through equal taxation on all property owners, not by taxing only those who own canal-front property or boat in the canals.
In 1974, North Carolina passed a law that allows municipalities to establish MSDs, which are commonly referred to as Business Improvement Districts, in order to raise capital to fund a project that is beneficial to the community. Through MSDs, towns can levy varying increments of taxes on property owners, based on who is presumed to benefit most directly from the improvement.
According to Mayor Bennett, Duck had two municipal services districts for its beach-nourishment tax funding: The “oceanfront” MSD picked up 50 percent of the cost of the fill project; and the “oceanside” MSD picked up 30 percent. The remaining 20 percent came from the Town, in general, which did not increase its tax rate.
Here is how the Town of Duck describes its project funding on its website:
“The project cost was approximately $14,057,929 and was funded through revenue derived from the Dare County Beach Nourishment Fund ($7,094,929), with the remaining $6,963,000 funded through a combination of General Fund appropriation of the Municipal Service Districts (MSD). That is, the Town’s portion of the cost of the project was funded by a contribution from all of the taxpayers in Duck (no tax increase occurred for this portion of the funding) with additional funding provided by property owners in the project area, both oceanfront and non-oceanfront (MSDs). The Town issued Special Obligation Bonds to pay its portion of the project cost with debt service for the bonds to be paid back over a five-year term, ending in FY 2022. The debt service cost to the Town is $1,221,390 per year for the five-year term with additional funding being provided from the Dare County Beach Nourishment Fund.”
See Duck Beach Nourishment Facts & FAQs: https://www.townofduck.com/beach-nourishment-project/faqs/.
(One way to look at the burden placed on Southern Shores property owners in an oceanfront MSD is to say that they are disadvantaged whenever a dollar is deducted from the Town’s General Fund for another high-priced project, such as the South Dogwood Trail sidewalk, that doesn’t benefit them at all. Pitting Us-vs.-Them is never a good idea in town government or community relations.)
Who doesn’t benefit from the beaches?
The Dare County Beach Nourishment Fund contains monies set aside by the county from the 6-percent occupancy tax that it levies. The set-aside is 2 percent of the total annual occupancy-tax revenue collected.
Ms. Farinholt, who owns a flattop at 69 Ocean Blvd., summarized the case for “general fairness” in funding, if a beach-fill project goes forward, when she said:
“All of the property owners should pay equally for the beach renourishment. There should not be any districts. There is one district, and it’s called Southern Shores, the town. Raise the taxes across-the-board.”
Whether you live near the corner of Hillcrest Drive and East Dogwood Trail, at the corner of Trinitie Trail and Gravey Pond Lane, or on Duck Woods Drive, you benefit from the ocean and the tourist dollars that both the ocean and oceanfront rental property owners bring in Your house would have considerably less value if it were in most any other non-coastal town in North Carolina. In fact, you probably wouldn’t be here.
CHANGES IN THE LAW THAT BENEFIT PROPERTY OWNERS
Since the Town of Duck approved its two MSDs in March 2015, the N.C. law about such entities has changed. In 2016, the N.C. General Assembly passed several significant amendments to the MSD statutes: MSDs are not without their detractors.
Two relevant changes include:
1) Adding the requirement that all new MSDs must be created, modified, and/or abolished by ordinance.
To establish a new MSD, as the Southern Shores Town Council would be doing, the enabling ordinance must receive majority support of the voting members present at two consecutive meetings of the Council.
2) Giving property owners more direct input in the MSD creation and modification process.
Property owners now may petition the Town Council to request:
i) The creation of a specific MSD;
ii) The exclusion of a property parcel from an MSD; and
iii) The removal of a property parcel from an MSD.
The N.C. statute directs a municipal governing board to adopt a process for considering all properly submitted petitions at regular intervals.
In the case of an exclusion request, the property owner must file his or her petition in writing within five days after the public hearing on a proposed municipal service district has been held.
For background on the statutory changes, see: https://canons.sog.unc.edu/2016-changes-municipal-service-district-msd-authority/
The Beacon believes the Southern Shores Town Council may have its hands full with petitions.
The Town could have prepared a report for all property owners that summarizes the coastal-engineering consultant’s reports in simpler, less obtuse terms—not the deadly prose they are in—and outlined the financing methods available, including special obligation bonds, but it didn’t.
It also could have reached out to property owners, both resident and non-resident, in its newsletter, but it hasn’t.
Ms. Farinholt aptly concluded the discussion about funding last night when she observed to the Council: “You’re much less likely to spend your own money than you are [the money of] all the folks who live out of town.”
You’re also much more likely to run into obstacles.
STORM DEBRIS REMOVAL DELAYED
The removal of roadside storm debris started Sept. 24, Interim Town Manager Wes Haskett reported last night, but the work has been done by only two trucks.
Mr. Haskett explained that the two contractors hired by the Town underestimated the amount of debris and the time it would take them to pick up and dump that debris, choosing to disregard the Town’s more realistic estimates.
Truckloads of debris must be dumped in Mann’s Harbor, which is an hour-long round trip from Southern Shores, said Mr. Haskett, who added that additional trucks “will be working as soon as possible.”
Upon being asked by Councilman Newberry whether the contractors had a street schedule for roadside debris pickup, Mr. Haskett replied that he didn’t know.
Councilman McDonald then interjected that he had spoken with workers in the street near his home and been informed that the pickups are done “randomly,” with “large piles” being the priority, so that the workers are not continuously starting and stopping.
Mr. McDonald said he had been informed that six more trucks would soon be available.
Ann G. Sjoerdsma, 10/2/19