Schools brace for lost revenue

Published 8:35 am Wednesday, November 18, 2009

SMITHFIELD—Officials with Isle of Wight County Schools say the division will be affected in many ways by International Paper Co.’s decision to shutter the Franklin mill.

While the county stands to lose an estimated $6.2 million — or about 12.7 percent — of its tax revenue, the school division will lose a dedicated community supporter, and the employer of many students’ parents and staff members’ spouses.

The largest taxpayer in IOW

Steve Jenkins, the division’s chief of operations, told the school board that for the 2010 fiscal year, the total budget for Isle of Wight County is $104.1 million, of which $97.7 million is for its operating budget. Tax revenue from IP represents about $6.2 million, or roughly 6.3 percent, of the operating budget.

“IP is the largest taxpayer in the county,” Jenkins said during a work session at Smithfield High School on Tuesday. “It has a substantial effect on the county’s revenue and, frankly, its ability to fund schools.”

Meanwhile the school division’s budget totals $61.2 million for fiscal 2010 and will receive 43 percent of its funding — $26.1 million — from the county. That total is a $3.4 million reduction in county funds from the previous fiscal year.

“I think that the outlook for us for funding for education appears to be pretty grim at this time,” said school board chairman David Goodrich, who represents the Smithfield District. “We still have to look at the fiscal impact that this is going to have on the division.”

Vice chairman Kenneth Bunch, who represents the Carrsville District, agreed.

“It looks like it’s going to be tough,” Bunch said.

Personal property taxes

Of primary concern are reductions in personal property tax revenues, which include taxes on machinery and tools.

According to Jenkins, personal property in the county is currently valued at more than $1.06 million, of which $578,200 — or 54.2 percent of the total — is represented by IP. The county collected $19.3 million in personal property taxes in 2008. $5.7 million of that tax money, or about 30 percent, came from IP.

“This is where you really see the magnitude of the IP closure,” Jenkins said. “It’s primarily in the machinery and the tools. Most of the plant is equipment, whatever they need to produce paper. It’s half of the (personal property) holdings in the entire county.”

Jenkins said the 2011 fiscal year would not be adversely impacted by the closure of the mill in the spring of 2010 because IP will still be required to pay taxes on machinery and tools for an additional 12 months.

But 2012 would be a different story because of its 1986 revenue sharing agreement with the City of Franklin.

“We won’t receive $5 million in property taxes from IP, but we’ll still have to pay the City of Franklin $1 million because payments are made in arrears,” Jenkins said. “(But) those payments would be greatly reduced in the future, starting in (fiscal) 2013.”

The agreement between Franklin and Isle of Wight gives the city 17 to 18 percent of tax revenues from a 6.37-square-mile area of southern Isle of Wight, including the paper mill. In exchange, the city agreed never to annex the area.

The human element

Jenkins said many people — students, teachers, staff and administrators — would also be affected by the mill’s closure.

“IP was a substantial community supporter,” Jenkins said. “Some of the schools hardly ever bought any paper because the paper plant provided it to them, in many cases.”

He added, “There certainly are students whose parents work at IP, and staff whose spouses work at IP. There likely will be some students transferring. Parents are likely to find jobs elsewhere and move their families. I don’t know the effect of that — it may be small; it may be large.

“It is also possible that there are some families that have their children currently enrolled in private schools, and, with parents having lost their jobs, would return their kids to public schools.”

Real estate taxes

Jenkins made the case that the county wouldn’t feel the pinch so much over real estate values and real estate tax collections. He said real estate values in the county totaled $3.97 billion, of which property owned by IP is valued at $174 million, or 4.38 percent of the county total.

Additionally, Jenkins said the county collected $21.8 million in real estate taxes in 2008, including $500,000 — about 2.3 percent of the county total — from IP. The county is budgeted to collect $22.5 million in 2010.

“The holdings of IP, while substantial, are pretty small,” Jenkins said.

He added that IP’s real estate taxes were “a fairly substantial amount, but not insurmountable.”

Raising the rate?

According to figures provided by Jenkins, Isle of Wight County has the lowest real estate tax rates in Hampton Roads at 52 cents per $100 of taxable value.

Since every penny in the real estate tax rate generates $440,000 in revenue, the county would have to raise the real estate tax by 14 cents, to a total of 66 cents, to make up for the loss of IP tax revenue.

“I don’t mean to imply that the way to get out of this mess is to increase property tax rates,” Jenkins said. “However, I think all strategies are probably on the table and are something that may or may not be considered.”

If Isle of Wight were to raise the real estate tax rate to 66 cents, it would only pass two localities in Hampton Roads: Gloucester County has a rate of 61 cents, and the rate in York County is 65.75 cents. By comparison, the rate is 72 cents in Southampton County and 77 cents in Franklin.

“Part of the reason our (real estate tax) rates are so low has been because International Paper was here. It is a very large taxpayer in a relatively small county with a relatively small population. We’ve certainly enjoyed lower rates as a result of it.”

At the end of the work session, Herbert DeGroft, who represents the Hardy District, cautioned the other board members about the estimations that were being put forth.

“The thing we have to be cautious of (is) that government is proverbial in its underestimations of lost revenues, as has been proven all during this year by the state,” DeGroft said. “Until things settle out with International Paper and any other associated businesses, we have to be careful with what we anticipate.”