Raise taxes or cut programs? State asks Carolina Beach how it plans to address financial concerns

In letter, Local Government Commission expresses worry over declining fund balance
As the Carolina Beach Boardwalk becomes less crowded, businesses try to stay successful with...
As the Carolina Beach Boardwalk becomes less crowded, businesses try to stay successful with various strategies. (Source: WECT)
Updated: Nov. 28, 2018 at 5:24 PM EST
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CAROLINA BEACH, NC (WECT) - At the end of every fiscal year, the Local Government Commission takes a look at each municipality’s financial situation, searching for abnormalities or areas of concern.

Earlier this month, the commission notified Carolina Beach about concerns that the town is headed for potential financial trouble.

Carolina Beach’s fiscal year ended on June 30, and for the third year in a row, the ratio of the town’s fund balance compared to its expenses dropped.

For 2018, that ratio, according to the LGC’s analysis, was 31.24 percent, which is down 13.42 percent from where it was in 2017, and down 22.94 percent from its position in 2016.

The state calculates the percentage of fund balance available as a percentage of the municipality’s expenses to see if the town could survive an unexpected increase in expenses in the first six months after the fiscal year ends, or on the flip side, an unexpected downturn in revenues.

For a town like Carolina Beach, those unexpected expenses aren’t difficult to imagine. The town has spent $870,000 in the last three months recovering from Hurricane Florence.

Additionally, the town is well below the average percentage of similarly-sized municipalities, which run a 72.91 percent ratio of fund balance to expenses.

On Nov. 14, the LGC informed Carolina Beach the town would need to provide an accounting of the financial situation, and what the council plans to do to grow the fund balance, and thereby the percentage, over the next three years.

There are only two paths forward. As Interim Town Manager Ed Parvin told the council at a work session Tuesday, the only way to grow that number is to increase revenue — most likely meaning raise taxes — or cut out some of the programs and amenities the town offers residents.

Council members noted that neither of the options would be popular with citizens, and the choices in the coming weeks and months may be tough. The council was presented with a draft response at the meeting, but the consensus was to give it to the town attorney before signing off.

Carolina Beach has 45 days from the date of the letter to respond to the LGC, meaning it needs to have an answer by Dec. 29.

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