This article was published in the Lenoir News-Topic.

With no more certainty than they had last week about state tax reforms that could cut into city revenue, members of the Lenoir City Council passed the city’s new budget Tuesday afternoon, voting 4-3 to hold the tax rate steady at 56 cents.

But because of the uncertainty surrounding revenues, City Manager Lane Bailey said the city will put some expenditures that are in the new budget on hold for now. Depending on the amount of revenue lost, the city may cancel spending on capital projects and road resurfacing for the 2013-14 fiscal year.

“If the General Assembly in Raleigh does nothing to further harm local governments, then the budget before you is balanced – and balanced without a tax increase,” Bailey told City Council members. “But – and this is a big ‘but’ – if they make changes to the way local governments can collect revenue, then it could be substantially out of balance.”

Bailey had recommended raising the property tax rate to 57.128 cents for every $100 of value. That would have been an increase from the 2012-13 rate, but it was the rate needed to produce the same level of revenue as in 2012-13 because the overall value of property in the city declined this year after the countywide revaluation.

City Council members squared off on the proposal. They split evenly but were all staring down the barrel of the same gun: tax reform being debated in the General Assembly in Raleigh, which may include measures that will cut revenue for municipalities. The amount Lenoir could lose depends on which measures make it into the final budget. The Senate’s version of the budget would mean a loss of about $700,000, while a middle-of-the-road deal between the House and Senate would still result in a $350,000 loss.

The new fiscal year begins July 1, but the General Assembly is all but certain to miss that deadline, leaving local governments across the state unsure of their own budget figures. Unlike the state, they must adopt at least an interim budget measure by July 1. Lenoir had postponed its budget vote twice.

Municipalities are able to make amendments to change spending after passing a budget but cannot change the tax rate.

Mayor Pro Tem T.J. Rohr, Councilman Ron Stilwell and Councilman Ben Willis, as well as Mayor Joe Gibbons, who cast the tie-breaking vote, voted to leave the tax rate at 56 cents. Councilman Todd Perdue, who also favored holding the tax rate steady, could not attend the meeting.

Rohr, as he had at the previous meeting, argued that taxes should not be raised when the budget could be balanced without raising them.

“Every year, we debate this issue about whether to increase taxes or not,” he said. “There’s the boiling lobster argument, which is that if we only increase it one cent, it’s not going to bother people. … But each year we do that, it just adds and adds, and it’s like putting a lobster in boiling water versus putting it in cold water and turning up the heat. We just keep increasing taxes.”

Stilwell argued for a second look at the budget to avoid a tax increase, saying there were “wants” in addition to “needs” being funded.

“There’s never been a budget I’ve seen that there hasn’t been some fat in it somewhere,” he said.

Councilmen Lewis Price, Merlin Perry and David Stevens voted to raise the tax rate to 57.128 cents.

All three argued that declining to raise taxes now would likely result in larger increases farther down the road.

“Put it in a contingency fund if you want to,” Perry said. “It’s just something that we’ll have to do in two years, or one year from now, anyway.”

Willis had hoped the council could adopt an interim budget, saying he did not feel comfortable deciding what any increase should be until the state budget was final and the city knew how much it would lose in revenue.

“There’s just so many unknown factors,” Willis said. “How do we make a smart choice on how we raise the tax rate?”

Bailey had initially considered an interim budget that would allow city operations to continue into July without adopting a 2013-14 budget and tax rate. He said last week that further research showed that wasn’t feasible, in large part because delaying setting the tax rate would not allow the city to offer discounts to people who pay their taxes early.

Currently, about half of the taxes levied are paid in July, and without that discount, Bailey said, it was possible that many people would put off paying their taxes until January, which could create a cash-flow problem for the city in the rest of 2013.

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