Memo-03-14-2017-Item-11

March 14, 2017

MEMO TO:           Mayor Barber and Board of Commissioners

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

SUBJECT:           Resolution Supporting Dedicated State Revenue Source for Beach Nourishment (Summary & Suggested Motions)

The Board of Commissioners is asked to approve the attached resolution formally expressing the Town’s support for the establishment of a dedicated State fund and revenue source for beach nourishment.  The attached resolution specifically supports two potential State revenue sources that are included in the recently updated NC Beach and Inlet Management Plan (BIMP) – the reallocation of a portion of the existing State sales tax revenues collected in the 8 oceanfront counties on short-term lodging sales  OR  a new seasonal State sales tax in the 8 oceanfront counties.

As you know, there has been discussion about a potential dedicated State funding source for beach nourishment for many years, however, the effort has never gained sufficient traction to achieve this goal.  The State has historically provided funding (from direct annual appropriations) to match Federal funds appropriated for beach nourishment in NC, but has rarely provided State matching funds for locally-sponsored beach nourishment projects (the Bogue Inlet Channel / western EI nourishment project in 2005 is one exception).  With more communities actively engaged in or pursuing locally-sponsored beach nourishment projects, there appears to be greater momentum building for a dedicated State funding source for beach nourishment in the future, and a few coastal legislators appear to have greater interest in this issue.

The recently updated BIMP projects future annual beach nourishment costs in North Carolina, and identifies a need for approximately $50 million annually.  The BIMP recommends the establishment of a State beach nourishment fund that would provide 50% matching funds (with local government providing the remaining 50%), which would require annual State revenue of approximately $25 million.  The BIMP outlines 5 potential dedicated State funding sources, all derived from the 8 oceanfront counties only, for a new State beach nourishment fund:

  • a new half-percent (0.5%) seasonal State sales tax, levied only during May, June, July, August, and September in order to generate sales tax revenues primarily from beach visitors, which would generate approximately $25 million annually,
  • a new State ad valorem tax of 10 cents per $100 levied only on non-NC property owners, which would generate approximately $26.4 million,
  • a new 1% State meals tax, which would generate approximately $15.1 million, and theoretically be combined with  
  • a new State land transfer fee of $1 per $500 transaction cost, which would generate approximately $10 million, and
  • the reallocation of 50% of the existing State sales tax collections on short-term lodging sales, which would generate approximately $25.2 million.

A new dedicated State fund for beach nourishment would obviously be helpful to all NC beach communities engaged in beach nourishment, including Emerald Isle, and would reduce the Town’s reliance on local tax revenues and/or enable more substantial beach nourishment efforts in the future.  Any of the 5 new revenue sources would be helpful, although all 5 are likely to face political opposition if / when the NC General Assembly considers these options.  The attached resolution formally expresses Emerald Isle’s preference for either the reallocation of 50% of the existing State sales tax revenues collected in the 8 oceanfront counties for short-term lodging sales (hotels, motels, vacation rentals)  OR  a new half-percent (0.5%) seasonal State sales tax. 

In my opinion, the best option included in the BIMP is the reallocation of 50% of the existing State sales tax revenues collected in the 8 oceanfront counties for short-term lodging sales (hotels, motels, vacation rentals).  This approach does not require any new taxes, and thus would seemingly not be controversial to taxpayers in the affected area.  It also includes a logical link to beach visitors, and acts as a sort of direct “user-tax”.  It also generates sufficient revenue to meet projected State-wide needs (the full $25 million).  Of course, the reallocation of these existing State revenues (currently allocated for other needs in the annual State budget) will create the need for the NC General Assembly to identify $25 million of budget adjustments elsewhere in the State budget.  However, it has been widely reported that the State budget is operating with a significant annual surplus, which may make this option more feasible.  Perhaps more problematic, however, is the fact that this “earmarking” of these State sales tax revenues from this particular industry in these particular 8 counties for a particular (beach nourishment) purpose could set a precedent for other industries, other regions of the State, and other purposes.  This precedent could cause some legislators to oppose this option.  

Other than the reallocation of existing sales tax revenues, the new half-percent seasonal State sales tax is preferred over the other options included in the BIMP.  Most notably, this additional sales tax would apply only during the 5 peak summer months, thereby impacting beach visitors more significantly than permanent residents.  It is also only generated from the 8 oceanfront counties that will or may engage in beach nourishment, and would generate sufficient revenue to meet projected State-wide needs (the full $25 million).  Although sales tax is generally preferred over property tax or other tax sources, any new or increased tax is likely to face opposition, even in the 8 oceanfront counties, particularly from residents in those counties that do not live on or near a barrier island.  Despite this likely opposition, this approach seems to be slightly more politically acceptable than a land transfer tax, meals tax, or ad valorem tax on non-NC property owners (I am not certain that such an approach is even legal). 

The NC Beach, Inlet, and Waterway Association (NCBIWA) and other coastal local governments are currently working to advance the BIMP recommendations to the NC General Assembly, and I am hopeful that these efforts may finally yield a positive result.  If nothing else, I believe these efforts will promote additional dialogue, which will hopefully move us all collectively a little closer to the goal of a dedicated State fund for beach nourishment in the future.

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