TO: Mayor and Members of City Council
THRU: Douglas J. Hewett, City Manager, ICMA-CM
FROM: Jeffrey Yats, Assistant City Manager
DATE: April 14, 2025
RE:
Title
Consideration of Cumberland County’s Proposed Amendment to the Sales Tax Distribution Agreement
end
COUNCIL DISTRICT(S):
Council District(s)
All
b
Relationship To Strategic Plan:
Goal 5: Financially Sound City Providing Exemplary City Services
Executive Summary:
In 2023, Cumberland County and the City agreed to an amended sales tax redistribution model that froze the City’s sales taxes at the FY 2022 actual amounts, with growth being rebated to the County. The City, along with Hope Mills and Spring Lake questioned the calculation basis of the agreement, with the City withholding $1.6 million from the County pending final agreement.
Since that time, the County has proposed a settlement. The first part of the settlement requires the City to pay the remaining $1.6 million from FY 2024. The second part of the settlement shares the FY 2025 sales tax growth, with 50% going to the County and 50% remaining with the City.
The estimated net impact, meaning the increase after payment, is estimated to be between $2.5 million and $3 million.
Background:
The sales tax redistribution agreements began in 2005 and have been amended or renewed multiple times. The original intent of the agreement was to offset the negative impacts of annexations to the various municipalities and the County. The distribution of sales tax was based on per capita distributions, meaning as the City increased its population, through annexation, it would have received a greater amount of sales tax, and reduced the amount going to other communities.
In exchange for redistribution, the County agreed to maintain the per capita sales tax distribution. However, in 2023, the County notified the City they were now going to move to the ad valorem levy methodology for sales tax distribution. This distribution model is based on the ad valorem levy within the County and significantly benefits the County, while reducing the sales tax revenues to the communities. As part of the revised agreement, the County required the City to rebate any growth in sales tax above the FY 2022 amounts back to the County, effectively freezing the City’s revenues at the FY 2022 amount. The proposed revision shares that growth 50/50 between the County and the municipalities.
Issues/Analysis:
N/A
Budget Impact:
The City is anticipated to net between $2.5 million and $3 million.
Options:
Accept the agreement as presented or provide additional information.
Recommended Action:
Approve the proposed agreement.
Attachments:
Type here