Friday, May 30, 2014

Davidson Budget: The Bad

Nobody who has Davidson's best interests at heart wants Mi-Connection to fail.  Period.

We should all be thankful that Mi-Connection just posted its best quarter ever in its creeping effort to get to self sufficiency.  Also, we should all be eternally grateful to outgoing Mi-Connection Chairman John Venzon for the work he's done to get the company headed in the right direction.  We said so here last year as he and his family departed for Kansas City and as he steps down as Chairman he leaves the company with breathing room.  The story in this week's Lake Norman Citizen outlines what a truly awful situation he was handed by those who chose to buy the operation when he agreed to take on the challenge of fixing it.  Hopefully, his contributions won't be lost to history as this story plays out.

However, nobody should believe that being in the communications business is in the long-term interest of our town no matter what the current headlines say.  Getting into the cable business was a bad decision that has cost our town dearly in lost opportunities.  Money that could have been spent enhancing our town has instead gone to bailing out a business we never should have entered in the first place.

That money and those lost opportunities are what once again make Mi-Connection the "Bad" part of Davidson's budget.

Below is the current Mi-Connection situation and how it impacts Davidson's finances in next year's budget.

The town has to set aside $1.3 million this year to cover Mi-C obligations.  What the town owes Mooresville is still growing year over year as well.  It's not shown on this slide, but at the end of FY 2015 Davidson will only have $900k set aside to cover the $1.7 million owed to our "business partners" to the north.  Any relief from this $1.3 million/year drain on taxpayers by 2017 is not likely.  2017 is the first year Mi-C could possibly be sold.   It's much more likely that relief is not in sight until sometime after 2020 and that assumes nothing throws the operation off track in the meantime.  (Something like a major new player such as Google coming on the scene in the local region.)

These annual expenses drain coffers and prevent the town from doing important things like moving forward aggressively on a new fire station or building more greenways - things the town both needs and/or wants.  They have caused the town to implement high solid waste fees for single family homes, and they have kept our tax rate artificially high.

At the public hearing on May 13th, Commissioner Fuller made a very deliberate effort to point out that Davidson's tax rate is the 2nd lowest among the list of towns in the state that Davidson uses a benchmarks for various comparison.  You read that correctly.  Davidson does in fact have the 2nd lowest tax rate among this list of towns - 4th lowest if you also include Cornelius and Huntersville.  One might question if all those towns are true benchmarks, but nonetheless, our rate is not too bad by comparison.   

But only looking at it that way is like putting lipstick on a pig.  

A town's tax rate is driven by a number of factors including the size of the tax base, commercial percentage of tax base, population, and the services provided under the property tax.  Smaller towns with lower tax bases need higher rates to bring in enough revenue for the bare minimum of services.  On the "services provided" side of the equation, many of Davidson's benchmark towns do not have a solid waste fee at all or the fee is much lower than Davidson's $201 for single family homes.  They pay for solid waste pick up out of property taxes.  The rate might be higher, but the overall cost to live in the town might be lower.  Only looking at the rate is not an apples to apples comparison.  Unfortunately, the town currently does not have the data broken down in a way that provides that view.

However, there is one thing for sure if we're only looking at the property taxes.  Mi-Connection costs Davidson about 7.75 cents on our tax rate.

Without the "Mi-Connection tax", Davidson would have the lowest rate among our benchmark towns and even be lower than Huntersville - a town with over 4 times our population.  Only Cornelius would be lower locally.  This would all be true even with the town keeping the huge "tax hike" after the last revaluation when the rate was not lowered to revenue neutral as it should have been.

Think about what that could mean for economic development.  Think about what the story could be if one could showcase all our town has to offer and be able to say we have a truly low tax rate.  There may still be issues with the total cost of living in the town, but from a business's point of view the lower property tax rate would stand out. 

With that in mind our Board needs to keep its eye on the ball and take the steps necessary to prepare for an exit from Mi-Connection.  As things get "better" for Mi-Connection in the short-term, the temptation will be to think maybe being in the cable business isn't such a bad idea.

That's not a mistake we should make twice.

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