DURHAM — A slim majority of the City Council voted to dip into the city's savings account to pass a budget containing a 54-cent property tax rate, ignoring strongly worded advice from the finance director.
The $355.5 million budget earmarks millions to increase employee salaries and account for skyrocketing fuel costs. The owner of a $200,000 home will pay $1,080 in property taxes under the new rate.
The new tax rate represents a 7.5 percent increase over a rate which would not raise tax bills.
Monday's heated discussion and split vote offered a snapshot of how the new council interacts and marked another political victory for Mayor Bill Bell.
Council member Farad Ali reversed his vote from last week, when he voted with Eugene Brown, Diane Catotti and Mike Woodard in backing a budget with a tax rate of 54.57 cents.
He agreed Monday with Bell, Mayor Pro Tem Cora Cole-McFadden and Howard Clement III to cutting the city's projected reserves -- known as the fund balance -- by about 7 percent. That netted about $1.5 million, accounting for the difference in the dueling tax-rate proposals, plus another $250,000 earmarked for reducing a backlog of unserved arrest warrants.
Interim Finance Director Keith Herrmann warned the council not to cut the fund balance, saying it could jeopardize the city's AAA bond ratings.
Durham is one of 19 cities in the country to enjoy an AAA rating with all three rating agencies. That means the city is seen by Wall Street as fiscally sound and thus enjoys lower interest rates when it borrows. The rating agencies chastised Durham in 2003 when it dropped its fund balance, Herrmann said, saying failure to shore up city reserves could result in a drop in ratings. That would mean higher interest rates.
"It will cost the city in the long run," Herrmann said.
"I can't say definitely it will lead to a downgrade [in the credit rating]. But it is a red flag, a sign of a lack of will."
But Clement called that "fear-mongering" and said he didn't think dropping the fund balance would have any impact.
"I think in light of the economic uncertainties that we all are experiencing, I think the wise course is to have a tax rate that is reasonable and less burdensome on the majority of our taxpayers," Clement said.
Catotti countered that reducing the tax rate from 54.57 cents to 54 cents would save the owner of a $200,000 house just $10.
"I know the tax increase is going to be a huge burden for everyone," she said. "I just think we need to keep this in perspective."
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