FRANKLIN

Isle of Wight County reportedly owes Franklin about half a million dollars in back payments from a revenue sharing agreement with the city.

According to City Manager Amanda Jarratt, the agreement specifies that Franklin is to receive between 17 and 23 percent of all taxes the county collects from businesses and county residents residing within the portion of the Carrsville Highway corridor stretching from the Blackwater River to the city’s airport. This agreement, Jarratt said, was first enacted in 1986 as a court-ordered alternative to the city’s plans to annex the land on which International Paper’s Franklin mill is located. The Virginia General Assembly has since prohibited independent cities from annexing new territory, though towns may still do so.

For the past several years, the county has paid Franklin about $720,000 annually, which equates to about 17.8 percent of Isle of Wight’s tax revenue from the aforementioned area. Per the terms of the agreement, the county is required to recalculate its payment every 10 years, and, according to Jarratt, should have increased its payment to about $900,000 beginning in 2016 based on a formula that looks at new investment along the corridor, and also what she termed “fiscal stress factors.” The new payment equates to about 21.8 percent.

The county is not disputing the new payment, and in fact, it was Isle of Wight County Administrator Randy Keaton who brought the matter to the city’s attention, Jarratt said. Assistant County Administrator Don Robertson explained that in 2016, when the revenue sharing agreement was up for renewal, the county and city had several conversations back and fourth. Due to employee turnover in the county’s and city’s finance and administrative offices, the matter was never resolved. The county has agreed to pay the city about $512,000 for what is owed for fiscal years 2017 through 2019, Robertson added, which will be spread out over two payments. The first payment will total about $362,000 and be paid during the current fiscal year (meaning before June 30). The second payment will be combined with the $900,000 the county will owe Franklin for fiscal year 2020, for a total of $1,050,000. This will be paid in August of this year.

During an emergency called meeting on Thursday evening — only three days before the city is scheduled to adopt its 2019-2020 budget — Jarratt informed Franklin’s City Council of this latest development in the budget process. She and the city’s financial staff have recommended that the Council make no changes to the cuts and tax increases proposed in Franklin’s 2019-2020 draft budget. Instead, use the unexpected windfall from Isle of Wight County to replenish the city’s unassigned general fund cash balance. About $559,000 was pulled from this source of funding to balance the city’s budget for the current fiscal year, Jarratt said, and as a result, the city’s cash balance stands right at its policy minimum of 15 percent.

Replenishing the general fund with the money from Isle of Wight would bring the city’s cash balance back up to 18 percent, Jarratt said, adding that this will help the city be in a stronger position when it gets bond rated this summer in preparation for taking out loans to pay for upcoming capital improvement projects, such as its share of the cost of construction of a new Southampton County Courthouse.

Mayor Frank Rabil agreed that the city needed to show financial strength for its upcoming bond rating, and to begin saving money for capital improvement projects the city will need to begin within the next two to three years. Vice Mayor Barry Cheatham added that with the city’s cash balance in its current state, there was nothing set aside for emergencies and “no wiggle room whatsoever.”

Councilmen Greg McLemore and Linwood Johnson, however, both suggested that the money from Isle of Wight could be used to restore full funding to the Downtown Franklin Association. The city’s proposed 2019-2020 budget calls for the city’s contribution to the DFA to be reduced by $35,000. McLemore’s motion to allocate $35,000 from the Isle of Wight windfall to the DFA ultimately defeated 2-5, with only him and Johnson voting in favor of the proposal.

Jarratt then asked the Council for a vote on whether she should modify the draft budget ordinance to be signed on Monday to reflect a 4-cent tax increase instead of 6 cents, explaining that her proposed budget had been based on the 4-cent tax increase she had originally recommended. The revenue from the additional 2 cents that the council had chosen to advertise for its public hearing, she said, is also currently planned to go toward replenishing the city’s general fund cash balance. However, she added that the City Council could choose at a later date to allocate funding from one or the other of these revenue sources back into the budget to reverse some of the proposed cuts.

Cheatham made the motion to let the tax increase in the draft budget ordinance stay at 6 cents, which passed 6-1. McLemore was the dissenting vote.

As for the payment’s impact to Isle of Wight’s $79.1 million 2019-2020 budget, which was adopted on Thursday, Robertson said that “nothing was cut.” He explained that earlier in the week, the county’s commissioner of revenue, Gerald Gwaltney, had estimated that International Paper would end up paying about $300,000 in additional machinery and tools taxes that the county had not anticipated, due to having put a new machine into operation. This, plus the $720,000 payment to Franklin that had already been budgeted, would take care of the county’s $1,050,000 payment in August.