Memo-09-13-2016-Item14

September 13, 2016

MEMO TO:           Mayor Barber and Board of Commissioners

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

SUBJECT:           Resolution Supporting Proposed Carteret County 1/4 Cent Sales and Use Tax for Navigation Dredging - (Summary & Suggested Motions)

The Board of Commissioners is scheduled to consider the attached resolution expressing the Town’s formal support for an additional 1/4 cent sales and use tax in Carteret County to fund future navigation dredging projects in the County.  The Carteret County Board of Commissioners has scheduled a public referendum, as required by NC General Statutes, on the proposed additional 1/4 cent sales and use tax for November 8, 2016. 

Periodic navigation dredging of the Bogue Inlet connecting channel and the AIWW crossing is necessary to keep these waterways safe and accessible for area boaters, and is important to the quality of life for our residents and the vitality of the local tourism industry.  Unfortunately, Federal funding for the Bogue Inlet connecting channel has essentially disappeared, with the exception of hurricane-relief funding, and funding for the AIWW crossing, while more available in recent years, is also likely at risk of future Federal budget reductions.  As you know, the State administers a dedicated funding source for navigation dredging projects, and is currently utilizing a 33% local cost-share for the use of State funds for these projects.  On 5 occasions in the past 11 years, the Town, the County, and other area local governments have worked together on an ad hoc basis to assemble local funds for navigation dredging.  This process was / is cumbersome and uncertain, and ultimately much of the local funds provided were derived from property taxes in each jurisdiction.  Additionally, the future reliability of these local contributions is uncertain, and the Town has discussed the need for a dedicated local funding source for these projects on several occasions in the past.  The proposed Carteret County 1/4 cent sales and use tax would create a dedicated local funding source for navigation dredging in the Bogue Inlet connecting channel (and the AIWW crossing, if needed in the future) and in other vital waterways in Carteret County. 

The proposed 1/4 cent sales and use tax, if approved by the voters, is expected to generate approximately $2.5 million (perhaps approaching $3 million) annually for navigation dredging in Carteret County.  The County has indicated, via a formal resolution adopted by the County Commissioners, that it will segregate these revenues from other County funds, and has indicated that the appointed Waterways Management Board will oversee and administer these funds.  Commissioner Candace Dooley currently serves on the Waterways Management Board.  Assuming 67% State funding for the Bogue Inlet connecting channel in the future, and also assuming that Onslow County (and Swansboro?) would provide 50% of the local share, the estimated annual cost for navigation dredging in the Bogue Inlet connecting channel is likely in the $75,000 range.  (For example, a total annual cost of $450,000 would likely be funded as follows:  $300,000 from the State, $75,000 from Onslow County, and $75,000 from the new 1/4 cent sales tax revenues.)  With an estimated $2.5 million generated annually by the new 1/4 cent sales tax, there should be sufficient funds available to meet the future navigation dredging needs in Bogue Inlet. 

As noted earlier, the AIWW crossing has continued to receive Federal funding in recent years, although it has become more and more uncertain over time.  The AIWW crossing is usually dredged every 3 years, at a cost of approximately $1 million per dredging event.  If it ultimately becomes necessary, it also seems likely that sufficient funds would be available for the AIWW crossing in the future.  Assuming a total cost of $1 million, a 67% State cost-share, and assuming no contribution from Onslow County, the estimated local cost would be approximately $111,000 annually for the AIWW crossing (i.e., $333,000 every 3 years).  Again, with an estimated $2.5 million generated annually by the new 1/4 cent sales tax, we would hope that these funds would be made available for the AIWW crossing if necessary in the future.

Most significantly, I am hopeful that revenues generated from the new 1/4 cent sales tax would also be available to assist in funding the next (and any other future) significant Bogue Inlet channel realignment project undertaken by the Town.  In addition to the inlet stabilization and beach nourishment benefits associated with future Bogue Inlet channel realignment projects, there are also significant navigation benefits associated with these projects, and the Town should aggressively pursue funding generated from the new 1/4 cent sales tax.  As discussed with the Board in recent months, we are in very early planning stages for the next Bogue Inlet channel realignment project, and anticipate that it may occur in FY 20-21+/-, with a preliminary estimated price tag of $15 million.  Assuming 67% State funding for the next Bogue Inlet channel realignment project ($10 million), the local share would be approximately $5 million.  It is my hope that a combination of existing room occupancy taxes earmarked for beach nourishment and funding from the new 1/4 cent sales tax for navigation dredging would enable the Town to minimize its contribution for this project (from the Future Beach Nourishment Fund; derived from special district property taxes and General Fund property taxes).  Assuming a local cost-sharing scenario of $3 million from room occupancy taxes, $1.5 million from the 1/4 cent sales tax, and $500,000 from the Town, with an estimated project life of 15 years, this equates to an estimated annual cost of $100,000 (from the 1/4 cent sales tax) for future Bogue Inlet channel realignment projects.  Again, with an estimated $2.5 million generated annually by the new 1/4 cent sales tax, there should be sufficient funds available to assist the Town with the next (and any other future) Bogue Inlet channel realignment projects. 

If one adds up the annual 1/4 cent sales tax funding projected for the 3 navigation dredging projects impacting Emerald Isle that are described above, it equates to an estimated annual contribution of $286,000 from the 1/4 cent sales tax.  If the new 1/4 cent sales tax generates $2.5 million+ annually, it seems reasonable for Emerald Isle to “count on” average annual funding of at least $286,000 for projects benefiting western Carteret County.  If the referendum is approved, and the new funding source is implemented, it will be important for Emerald Isle’s representatives on the County Commissioners and the Waterways Management Board to make the best possible case for 1/4 cent sales tax funding for these 3 navigation dredging projects in the future.

The Board should note that the attached resolution assumes that the revenues generated by the 1/4 cent sales tax would eliminate the need for the Town (and the other municipalities) to provide funding for the local cost associated with major waterways such as the Bogue Inlet connecting channel and the AIWW crossing (and other major waterways in the County).  I am not certain if this detail has been fully clarified yet, and it will be important to express the Town’s desire to eliminate the need for Town funding for navigation dredging in the Bogue Inlet connecting channel and the AIWW crossing (and other major waterways in the County) if the 1/4 cent sales tax is approved.  The Town previously provided $15,000 toward Bogue Inlet connecting channel dredging in FY 05-06, $16,000 in FY 11-12, $15,000 in FY 13-14, and $10,000 in FY 16-17.  The Town also provided $45,000 toward AIWW crossing dredging in FY 05-06. 

The Board should also note that other, non-major waterways in the County (i.e., not currently maintained by the US Army Corps of Engineers and/or not eligible for State funding assistance) may also be eligible for funding from the new 1/4 cent sales tax revenues, and the attached resolution assumes that Town funding may be required to match any County funding from the new 1/4 cent sales tax revenues for other waterways in Emerald Isle.  For example, the Town may wish to seek funding for navigation dredging in the old Emerald Isle ferry channel, within or leading to the Emerald Isle Public Boating Access Area, within the Bogue Sound Drive canal, and/or the McLean Drive canal at some point in the future, and I would expect that the Town may be required to match any County funding that might be secured from the new 1/4 cent sales tax revenues for these projects.  I presume that the proposed Waterways Management Board will be tasked with developing policies regarding the use of the 1/4 cent sales tax revenues and any required matching funds.

The Board should also note that, although the County Commissioners have clearly stated their intent to dedicate the 1/4 cent sales tax revenues for navigation dredging, future Boards of County Commissioners are not legally bound to use the funds for this purpose, and could adjust and/or add to the list of eligible expenditures to be funded by the 1/4 cent sales tax revenues. 

Finally, the Board should note that an additional 1/4 cent sales tax levied by the County, if approved by the voters, will be paid by permanent residents, second homeowners, and visitors in the same manner as the existing 6.75% combined State and local sales and use tax.  As you know, the State and local sales and use tax is charged on many items, including retail purchases, vacation rentals, certain services, and other items.  The County has estimated that more than 50% of the sales tax revenue is generated by visitors to Carteret County, thus the use of sales tax revenues for navigation dredging needs is likely preferable to the use of property tax revenues for these needs.

I have attached a “Talking Points” information sheet prepared by Carteret County for your information in case it’s helpful to you on this issue.  Additionally, the Board and the public should note that Carteret County officials will host a series of special public information meetings about the proposed 1/4 cent sales tax referendum around the County in the coming weeks.  One of these meetings will be held in Emerald Isle on Tuesday, September 27 at 6 pm in the Town Board Meeting Room.

Due to the previously expressed need for a dedicated local funding source for navigation dredging needs, the potential additional funding for future Bogue Inlet channel realignment projects, and other potential dredging projects in Emerald Isle in the future, I recommend approval of the attached resolution.  I look forward to further discussion about this issue at the September 13 meeting.