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Annexation Rules Could Generate Major Debates in 2009

Property owners' concerns conflict with cities' chase for cash

By Sam A. Hieb

February 05, 2009

GREENSBORO — Municipal annexation will take center stage during the General Assembly’s new session as the N.C. League of Municipalities deals with efforts to reform the state’s annexation laws put forth by property owners upset over paying city taxes for services they don’t need or want.

Anything standing in the way of annexation, whether it’s third-party oversight or a vote by affected citizens, could reduce cities’ ability to collect new revenue. New revenue will be hard to come by, as cities face the stark realities of the economic meltdown.

In order to better prepare cities for those realities, the league sent out a memo to mayors and administrative members urging them to consider reducing expenditures for the current fiscal year, adding that such “reductions may be easier to make now…..than they would be if delayed until after the revenue situation becomes clearer.”

The Obama factor

The state, with an expected budget shortfall of $1 billion to $3 billion, likely will not be much help. While cities are lining up for federal funding for infrastructure improvements proposed by the Obama administration, no one is sure how such funding will be distributed.

“There are many unanswered questions right now on the federal stimulus package,” league director of governmental affairs Director Kelli Kukura wrote in an e-mail message. “While we are working with various involved parties, we have no definite information on what funding for municipalities may be available in any federal stimulus package.”

Making matters worse is the municipalities’ ability to borrow money is being hindered by a poor bond market. Cities and towns that have scheduled a debt-issuance ban expect interest rates to be higher, if the bonds can be sold at all. As a result, capital projects financed by voter-approved bonds will have to be delayed. There are plenty of projects out there. Bloomberg News reported that U.S. voters approved a record $67.3 billion in bonds for state and local governments.

For example, Greensboro had $205 million in municipal bonds on the November ballot, and all but one, $50 million for a renovation of War Memorial Auditorium, passed. The municipal bonds followed $651 million in Guilford County bonds passed in May, leaving commissioners to agonize over how to pay for them.

League hungers for revenue

Even under such extreme economic conditions, the league’s 2009-10 legislative agenda has two main components — more money and more oversight. It highlights infrastructure spending, a main component of the Obama administration’s federal economic stimulus plan.

When looking at the league’s agenda, policy analysts believe that the league’s agenda spells out one thing: higher taxes.

“North Carolina citizens better hold onto their wallets,” said Chris Hayes, a senior legislative analyst with the N.C. Civitas Institute. “It seems the league’s first and highest priority is for more and greater taxes and taxing options for cities and towns. Apparently the league’s solution is more revenue first, reduction in spending second.”

Since “securing a strong foundation — roads, bridges, transportation systems, water, sewer, and storm-water facilities, and affordable housing is both a local challenge and a statewide concern,” the league will seek legislation to provide additional funds for municipal infrastructure, “including long-term permanent sources of dedicated revenue, additional local option revenue sources and state bond packages for infrastructure needs.”
The league also follows state and federal templates on energy, seeking to “enhance the ability of municipalities to implement energy efficient practices and programs, and to remove obstacles to doing so, through incentives, funding and research.”

Water is a major concern, considering the fact that “North Carolina’s rapid growth and limited water resources may require policy changes to ensure efficient use and an adequate, sustainable water supply for all uses.”

With that in mind, the league will push for “legislation or administrative changes to provide for the gathering of data for all water withdrawals sufficient for basin-wide modeling and future allocation decisions.” In addition, the league will seek similar changes to address “inequities and inconsistencies in the issue of notices of violations and civil penalties for sanitary sewer overflows” and to “codify the obligation of governmental agencies with regard to payment of local government stormwater utility fees for agency facilities.”

Issue No. 1: annexation

Hanging over the legislative agenda is the annexation issue, which could be addressed by the newly elected legislature in the coming weeks. Both the league and citizens opposing annexation have met with the Joint Legislative Study Commission on Municipal Annexation. The league’s proposals to the commission were centered mostly on providing citizens with more information leading up to the annexation process and more time to organize petitions, file legal challenges, and, most important, pay water and sewer assessments.

Existing law states that property owners may pay special assessments in up to 10 annual installments. The league’s proposal would require cities to allow property owners in annexation areas up to 20 years to pay any special assessments for water and sewer.

Regarding petitions and legal challenges, existing law states that residents have 60 days to file a challenge in court and 90 days to petition the Local Government Commission if a city fails to provide any of the four major tax-supported municipal services — police, fire, solid waste, and street maintenance — within 60 days of the annexation. The league’s proposals would extend the time to file a court challenge to 75 days and a petition to the commission to 120 days.

One other proposal that supposedly would addresses taxpayers’ concerns is the date at which annexation becomes effective. Existing law states that unless the annexation is effective in June, the last month of the fiscal year, taxes are prorated based on the number of full calendar months remaining in the fiscal year after the effective date. If the effective date is during the period of Sept. 2 to May 31, the prorated taxes will not be billed until the following fiscal year, meaning a larger-than-anticipated property tax bill.

The league’s proposal would require city-initiated annexations to become effective June 30, thus reducing the need to prorate taxes for a partial fiscal year.

While annexation will be one of the league’s most critical issues in the coming year, the fact that it’s not on the legislative agenda tells annexation opponents that the league simply isn’t interested in real reform.

“Right now, they’re on the defensive,” said Daren Bakst, a legal and regulatory policy analyst of the John Locke Foundation. “Where’s the agenda? It’s just ‘more money, woe is us.’ There’s still no recourse for people about to be annexed.”

Sam A. Hieb is a contributor to Carolina Journal.

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