Memo-03-14-2017-Item-13

March 14, 2017

MEMO TO:        Mayor Barber and Board of Commissioners

FROM:             Frank A. Rush, Jr., Town Manager

SUBJECT:       Resolution Supporting Seasonal Population Adjustment Factor for Sales Tax and Other State Revenue Distribution (Summary & Suggested Motions)

The Board of Commissioners is asked to approve the attached resolution supporting the inclusion of seasonal population in the official population estimates used by the State to distribute sales tax revenue and other State revenues.  As you know, the use of official population estimates does not accurately reflect the significant economic contributions, sales tax payments, and service demands associated with our second homeowners and visitors, and the attached resolution seeks a legislative remedy for this issue.  The attached resolution also specifically expresses concerns with S126 (copy attached), recently introduced in the NC Senate by Senator Harry Brown, and urges the NC General Assembly to utilize an alternative, State-funded strategy to achieve Senator Brown’s goal to provide additional revenue to rural counties in NC. 

As discussed with the Board in recent years, the State’s current sales tax distribution formula among the 100 counties is based 75% on the point-of-delivery / point-of-sale and 25% on the official population estimates of the counties.  The 25% portion that is based on official population estimates currently includes a population adjustment factor aimed at least somewhat at addressing seasonal population, with Carteret County currently adjusted from 1.0 to 1.14.  This adjustment factor still significantly understates the ENTIRE population of Emerald Isle and Carteret County.  As you know, the Town’s official population estimate is nearly 3,800, but the peak seasonal population is nearly 40,000.  More importantly, Emerald Isle is structured to provide infrastructure and services to a population of nearly 40,000, not a population of 3,800.  In an effort to provide additional revenue to rural counties, S126 would eliminate the current population adjustment factor and replace it with a new adjustment tied to the NC economic development tier system, thereby reducing Carteret County’s adjustment factor from 1.14 to 0.90, further ignoring the significant seasonal population in places like Emerald Isle and Carteret County.  Based on estimates prepared by Finance Director Laura Rotchford (also attached), S126 could result in an annual loss of sales tax revenues of up to $83,000 annually for Emerald Isle, and Carteret County and its 11 municipalities could collectively lose up to $1.3 million annually if S126 ultimately becomes law.  Other tourism-dependent communities are similarly harmed by S126, including other coastal communities and mountain communities with a significant seasonal population.  The attached resolution notes Emerald Isle’s support for Senator Brown’s goal to provide additional revenue for rural counties, but urges the State to utilize an alternative, State-funded strategy to achieve this goal.

The attached resolution also specifically requests that the NC General Assembly enact legislation establishing a “seasonal population adjustment factor” to be applied to the distribution of sales tax revenues and other State revenues distributed to all NC counties and municipalities on the basis of population.  The resolution notes that such a “seasonal population adjustment factor” could be applied by adjusting the official population estimate for all 100 counties and all municipalities in the State by adding an amount equal to two (2) times the number of housing units for each jurisdiction that are reported for “seasonal, recreational, or occasional use” in the most recent decennial US Census.  This US Census data is regularly reported, is consistent for all NC counties and municipalities, and is presumed to be accurate, thus making it easy and fair for the State to apply to the distribution of sales tax and other State revenues that are distributed on the basis of population. 

If such legislation is enacted, essentially, two (2) times the number of housing units used “for seasonal, recreational, or occasional use” would be added to the official population estimate used by the State.  For example, if Carteret County’s reported population used by the State for revenue distribution is 69,826 and there are 15,402 housing units used “for seasonal, recreational, or occasional use” in Carteret County in the 2010 US Census, then Carteret County’s population would be adjusted from 69,826 to 100,630.   At the municipal level, if Emerald Isle’s reported population is 3,797 and there are 3,931 housing units used in Emerald Isle “for seasonal, recreational, or occasional use” in the 2010 US Census, then Emerald Isle’s population would be adjusted from 3,797 to 11,659 for State revenue distribution purposes.  In reality, there are usually more than 2 people in each housing unit that is used “for seasonal, recreational, or occasional use”, but I think the use of the “2 per unit” adjustment is reasonable considering the wide variety in size of seasonal housing units and the wide fluctuation in the percent of the year that units are used across the entire State of NC.  The Board should note that even if a seasonal housing unit is never used during the year that there are still significant service demands just by the existence of the unit – the same costs exist for Police protection, Fire protection, street maintenance, storm water management, beach nourishment, etc.

I have had several conversations with Representative McElraft about this issue, and, at Representative McElraft’s request, I am working to arrange a meeting with Town officials, Representative McElraft, and Senator Brown to discuss our concerns with S126 and the proposed “seasonal population adjustment factor”.  I remain hopeful that we can affect a positive change for Emerald Isle, Carteret County, and other tourism-dependent communities.

I look forward to discussing this issue with the Board at the March 14 meeting, and recommend approval of the attached resolution.