Correction: this version of the story corrects the spelling of Beth Schrader's name and corrects the year in which Amazon began collecting sales tax from North Carolina purchases.
As New Hanover County officials continue work on the budget for the new fiscal year, which proposes to raise the tax rate by 5.5 cents, they face the same uncertainties that dog the county's budgeting process each year: delayed data and unpredictable revenue impacts. Those factors are responsible for the projected shortfall in New Hanover County’s current budget, according to county officials.
In her financial update at the commissioners’ May 16 meeting, county finance director Lisa Wurtzbacher noted that projected revenues were on target at the end of the third quarter except for revenues from sales tax.
As of the quarter’s end, March 31, almost $3.5 million had been received in sales tax revenues, just under 49 percent of the amount budgeted for the year, Wurtzbacher said at the time. That could result in a $2 million budget shortfall for the fiscal year, which ends June 30.
“We are seeing about 3 percent growth in sales tax revenues, but that is not what we budgeted,” she said.
To hit the budget figures, county sales tax revenues would need to grow 7 percent over those of the FY 2014-15, and several factors now make that unlikely, Wurtzbacher said earlier this week.
“We’re not just not growing at that [higher] rate. We are also seeing more sales tax refunds: the amounts we’re seeing this year are dramatically higher,” she said.
Those sales tax refunds are made to the county itself as well as to county-related entities like the Cape Fear Public Utilities Authority, New Hanover Regional Medical Center, New Hanover County Schools and Cape Fear Community College. All of those organizations are exempt from paying sales tax, meaning that the county cannot keep its portion of the sales tax for expenditures made by four large organizations in New Hanover County.
Beth Schrader, the county’s chief strategy and budget officer, said this fiscal year’s tax refunds are up 40 percent over last fiscal year’s.
Budget projections are also difficult because of the “imperfect” quality of the numbers it’s based on, Schrader added. “Information anyone is using is four months behind,” she said Monday. “Budget projections are as much art as science.”
For example, information on purchases made in North Carolina in, say, December – an important month for consumer spending – is collected by the state and reported to the county in March, she explained.
Then there was the Amazon effect. Schrader said in FY 2014-15 the county experienced a large increase in sales tax revenue that she attributes largely to the fact that Amazon began charging North Carolina customers sales tax in February 2014. But what appeared to be about 13 percent in sales tax growth ended up being only 10 percent, she said.
County staffers begin working on the next fiscal year budget about 18 months in advance of the fiscal year start. They look at past budgets, try to allow for a variety of factors that could affect revenues and expenditures, monitor what’s going on with the state legislature and with counties and municipalities across the state, Schrader said. But, she added, they are always operating on the basis of four-month old sales tax data, they don’t know how much the county will have to refund to nonprofit and government agencies, nor what the rate of actual sales tax growth will be.
For now, “We are seeing real growth,” just not at the 7 percent rate, she said.
Wurtzbacher said the county monitors sales tax revenue is a good indicator of how the economy is doing, and it’s clear that the county economy is growing at a rate of about 3 percent.
