ZEBULON — The $20.6 billion state budget includes about $5 million in so-called “hold harmless” funds to help more than 100 municipalities which haven’t financially recovered from the legislature’s 1988 decision to repeal the inventory tax.
State lawmakers hoped a slight increase in local sales tax rates would gradually offset lost inventory tax revenues that commercial-heavy towns like Zebulon depended on. But, for many, it didn’t. So in 2002, state lawmakers enacted a 10-year payment program intended to help municipalities balance their budgets until they fully shifted their dependence on hold harmless funds to recurring revenues streams.
But municipal leaders say the recession made it harder than they expected to transition away from hold harmless funds, which are awarded based on an economically-driven formula. Although hold harmless funding dipped from $29 million in 2002 to $12 million in 2008, it rose to about $26 million in 2010.
In August 2012, the state’s final hold harmless payment totaled about $10 million to 114 municipalities. And since then, local leaders from across the state – including Zebulon – visited the capital to lobby for an extension. It made a difference, according to representatives with the League of Municipalities, a nonpartisan advocate for cities, towns and counties.
“City officials actively discussing the budgetary hole created by the sunset of the transitional hold harmless with their legislative delegations played a significant role in the decision of the legislature to partially extend it,” said Paul Meyer, director of government affairs for the league.
Sen. Chad Barefoot, a Raleigh Republican who represents Franklin County and most of eastern Wake, also pushed to extend hold harmless funds. He said budget writers sympathized with business-friendly towns like Zebulon, which is home to a major GlaxoSmithKline facility and has a strong industrial base in the Zebulon Industrial Park.
“What you saw was both chambers trying to help manufacturing towns in really bad shape,” Barefoot said. “I’m really happy we were able to get this done. For eastern Wake and for me, it means a lot.”
The one-time payment of $5 million – half of what this year’s hold harmless total allocation would have equaled in full – is a far cry from the amount sought by Barefoot and 12 other legislators in five separate bills. Those proposals extended hold harmless funds in full by at least a year. Since none of those bills made it out of committee, Zebulon Mayor Bob Matheny was grateful for the $200,000 his town is projected to receive.
“I would like to have gotten the full $400,000 or so, but we’re happy with what we do have and are ready to move on,” Matheny said.
Zebulon raised property taxes 1.25 cents to 52.5 cents per $100 of property value to help complete this year’s $7.9 million budget – which was passed without the expectation of hold harmless funds. Matheny says Zebulon can’t use hold harmless funds to rescind the 2.4 percent property tax increase because state law mandates municipalities pass their budgets and set their tax rates by July 1, which the town did.
Instead, the hold harmless funds will go into Zebulon’s $6.2 million reserves fund, which Zebulon pulled $490,000 out of to balance the budget.
“Now we’ll only have to use about $290,000” from reserves, Zebulon Town Manager Rick Hardin said.