The Price of Liberty is Eternal Vigilance
County Council Meeting July 18
Agrees to take over CARTA debt obligation
18% sales- tax cap to apply only over long termWarwick Jones
As we expected, the County will take on the burden of CARTA's debt. However, it will not need to tack on $6 million to the planned bond issue for transportation and greenbelts. To fund the next payment that is due to CARTA's bankers of $1.1 million, it will draw on funds that already have been budgeted for transportation from the sales tax but which have not been used. Although Council committed to making the remaining payments on CARTA's debt, there was no decision as from where they will be drawn, except that they will be derived from the half-cent sales tax.
Funds for debt will not be sought in bond issue
Last night's decision took away the concern that voters might have in approving the bond referendum. We and others thought that if the $6 million for the debt repayment were simply added to the total to be raised, some voters would be soured and vote against the bond issue. Council members at the time of the 2004 referendum on the sales tax told voters that CARTA would receive a maximum of 18% of sales tax proceeds. Tacking on the $6 million and then repaying CARTA's debt would have taken the percentage well above 18%. As many voters in 2004 were unhappy about funding CARTA at any level, the conspicuous disregard by Council of past promises threatened possible retribution at the coming November poll.
How real is the 18% ceiling?
But is Council making an attempt to stick with the 18% ceiling? It says it is, but really it isn't. There was a semantic play in the Council discussion but our understanding is as follows. CARTA will be held to the 18% ceiling over the long term, presumably the life of the sales tax. The total funds that it receives can be a maximum of 18%. In the near term it may exceed 18% but there will need to be a compensating fall in subsequent years to below 18% to bring the average to 18%. It sounds good and fair, but it isn't.
What about the time value of money?
The simple averaging assumes that the there is no time value of money. A dollar received this year has far more value than a dollar received 20 years hence. Take this extreme and hypothetical example. Let's say CARTA gets 100% of the sales tax for 12.5 years and 0% for the remaining 12.5 years. Its average receipt would be 50%. But as a rational person, what half of the funds would you take, those in first 12.5 years or the second? Clearly, you'd take the first 12.5 years because the funds have more value. A precise calculation is not possible at this stage but if the Council imposes the simple averaging process described, CARTA will do well for in present value terms, it will be receive an average well above18%.
Staff to work on guideline
We spoke with Staff and they agreed with our opinion that simple averaging ignores the time value of money. But we understand that the County is working on some financial guidelines (our term not staff's) that will ensure that will bring the average to 18% as soon as possible and limit the opportunity for CARTA to exceed the 18% cap.
The decision to fund CARTA was unanimous. Interestingly, a number of Council members spoke of the need for the 18% cap over the long term but nobody raised the issue of the present value of money, and the advantages that were being passed to CARTA with what was proposed. There was also some discussion of formalizing the 18% cap. But as members pointed out, any decision to formalize the cap can easily be changed by Council any time in the future.
No report in Post and Courier
Interestingly, there was no report again by the Post and Courier. It failed to report on the discussion on CARTA at last week's Finance Committee meeting and again last night. The local TV had coverage so Charlestonwatch is not alone in thinking it is of interest. Wonder why the P&C is disinterested?