Unwrapping the Land Use Exemptions + Gross Sales Receipts Matter

We interrupt your holiday shopping with a spicy post.

I’m not done wrapping presents. This blog is partly to blame.

You may remember from my previous piece about the approved Transient Occupancy Tax increase that the live stream of the December 12 Nelson County Board of Supervisor meeting was hindered by technical issues. Since that post, the recorded meeting videos have been uploaded to the county’s YouTube channel, and I finally got a chance to stream some of it. And so did several readers, who pointed me to remarks made by Supervisor David Parr that genuinely alarmed them because it had to do with a scenario in which the land use exemption would be removed and a gross receipts tax would be implemented, as a means of augmenting county revenue to fund future projects. The remarks were made during a presentation by the county’s financial advisor, Ben Wilson, the VP of Davenport & Company LLC. Supervisor Parr’s remarks begin around the 1:02:20 mark of the video.

“Mr. Wilson, does this debt capacity report make any assumptions on whether we as a county would be eliminating our land use taxation or implementing a gross sales tax?” Parr asks.

“It does not,” Wilson replies. “If there are any additional revenues that are available that could change this, really that second scenario does assume that there are going to be additional revenues available. So if you were to try to get to that $75 million level, if there were projects to fill that, there would need to be additional revenues of some sort. I mean, at a very base level you could just adjust the budget but that’s not going to be possible. So if there is another revenue source like that, it is factored into the second analysis, but the $57 million just assumes that the budget stays constant at a 2025 level of about $3.9 million.”

“That’s what I thought,” Parr says. “I just wanted to make sure.”

It’s hard to make out the graphics from the YouTube stream, but here is the Davenport slide that juxtaposes the $57 million dollar and $75 million dollar scenarios.

As you can see, the jump from the $57 million scenario to the $75 million scenario is achieved with an additional $18 million. According to my email exchange with County Administrator Candy McGary, the Larkin property land purchase “is the only project that has been obligated by an official financial commitment (the Bond Anticipation Note). So far, the Board and School Division are committed to proceeding with projects 2 and 3 with preliminary design phases in process and discussions regarding financing of the completion of these projects occurring in the very near future.” McGary then added the following clarification (emphasis hers):

“At this time, the Board HAS NO intention of eliminating the land use tax reduction program or going to a gross receipts business tax; this has not been discussed by the Board and Supervisor Parr clarified this at the December 12th meeting. Secondly, in order to afford the ability to borrow $57 million per the debt capacity analysis, the County must maintain an annual debt service funding level of $3.9 million, the current debt service budget is $3.3 million so an additional $610,000 will be required beginning in FY25. The strategy put forth by Davenport requires maintaining a debt service reserve, which was initially funded by a one-time transfer of funds of $2,300,000 in FY23. As current debt is retired, the payments related to that debt are to be set-aside in the reserve to supplement the constant annual level funding of $3.9M to pay the current debt obligations up to $57 million.  As long as the Board provides recurring funding of $3.9M for debt service, this will remain constant with no new recurring revenues needed and the reserve funds will be used to cover any additional debt payments beyond the $3.9M as new debt is incurred – up to the $57M (see page 11 of the Dec. 12 analysis). The debt retirement payment set-aside concept is similar to paying your car off and then financing the purchase of something else using those same funds to pay for that debt – you are rolling those same funds into a new purchase; keeping the same level of debt load.”

The above represents merely a portion of a lengthier explanation McGary provided regarding the Larkin property purchase and the Davenport analysis. I’m skeptical this post will appease many people’s concerns regarding both matters, and there’s still much to discuss regarding our county’s financial strategies and project goals. However, as someone who represents clients who would be significantly impacted by the removal of the land use exemption, as well as the implementation of a gross receipts tax, I figured this was an issue worth delving into.

Now, back to wrapping presents and showing property, not necessarily in that order.