WINTON – Out with the old, in with the new.

The method of how two specific pots of state sales tax money is distributed from Hertford County local government to the county’s public school system will change, based on the actions of the county’s Board of Commissioners here Monday during their regularly scheduled meeting.

Commissioner Johnnie Ray Farmer was on the agenda and led the discussion of that particular issue. He later introduced a motion to change the distribution method to an “as needed” format. That motion was approved following a long discussion on the topic.

“This is an attempt to correct something we did two and a half years ago that we probably shouldn’t have done,” Farmer said. “I was chairman (of the board) at the time. I guess you might say that my hindsight is better than my foresight.”

He said the issue dealt with how Hertford County local government disperses Article 40 and Article 42 state sales tax, which is returned to each county and portions of each earmarked for public school capital outlay projects.

“The (state) statute says that money comes to the county and the county holds it until the schools have a need, a capital outlay project,” Farmer noted. “Then the schools come to the county and ask for that particular pot of money and the county distributes that money as needed.”

Farmer said the reason he was bringing this up to his board colleagues was based on a recent conversation he had with Dr. Michael Perry, Superintendent of Hertford County Public Schools.

“He informed me that the school system has a lot of capital needs,” Farmer said. “He said they have buildings that needed a new roof, or a new heating and air conditioning unit. Plus they know they’re going to have to replace Ahoskie Elementary School sometime in the future with a new school.”

HCPS is receiving the state sales tax money from Article 40 and 42, but the way those funds are being distributed is something Farmer said he wants to change.

“The deal I made with then School Board Chairman Ron Baker (now retired) was that we were having some disagreements at that time (over the distribution method) and I said we’ll just give it to you (without an expressed capital need),” Farmer recalled. “That was a mistake on my part because I didn’t know how they were spending it.”

Over the past two years, the Article 40 and 42 sales tax proceeds has generated $750,000 annually for HCPS, according to Farmer.

“If we are to build a new school, then that’s $1.5 million already set aside for that project,” Farmer noted. “But by us already giving them that money, we don’t know what they did with it. We don’t know if they used it for a new roof or whatever. I would hope that if it hasn’t been used for any specific projects then it would be in their fund balance.”

The deal Farmer struck with Baker was that the county would forward the sales tax money to the school system on a monthly basis instead of holding it until a capital need was present.

“What I’d like to do now is to follow the state statute, which is we keep the money until a request is received from the schools expressing a need for capital improvements,” Farmer said. “That request needs to be brought before this board for our approval.

“That way we can build that money up and when we need to build a new school we’ll already have some money set aside,” Farmer added. “Now they have that money, plus they get the (North Carolina) lottery money used to build schools. Then when they get ready to build a school they’ll come to us and say we’ve got to build them one and they’re the ones already with all the construction money.”

If that scenario unfolds, Farmer said the only option to generate the funds necessary to build a new school would be through an increase in property taxes.

“It’s the county commissioners’ responsibility to buy the land and build the school,” Farmer said. “We need to plan on how we’re going to pay for it. Part of that plan needs to be start setting aside this Article 40 and Article 42 sales tax money into a capital outlay fund to build a new Ahoskie Elementary School. We did the same thing for the new courthouse when we decided a few years ago to set aside all of the quarter-cent sales tax money to help pay for that project.”

Farmer motioned for the board, per state statute, hold the Article 40 and 42 sales tax funds for school capital outlay and pass that money on to the school system per request and approval of the county commissioners.

“From talking with the (North Carolina) County Commissioners Association, we are the only county that does this, gives this money to our local school system ahead of time,” said Commissioner Howard Hunter III. “I’m in agreement with Commissioner Farmer about holding those funds back until it’s time to build a new school.”

County Manager Loria Williams said she needed to clarify a few points made by Farmer. She said that according to the state statute, 30 percent of Article 40 sales tax and 60 percent of Article 42 sales tax is mandated to be set aside for school capital purposes.

“The practice for most counties is to set that money up in a capital reserve fund, with the school system requesting that money on a project-by-project basis,” Williams noted. “That (request) normally happens during the budget planning process. What we’re doing now is not sending it to the school system once a month, but once we receive a distribution or allocation, which comes to us from the (state) Department of Revenue, we, in turn, send their (school system) portion to them once it’s received in our hands.”

Williams said that looking at the most current audit (2011) of Hertford County Public Schools, they list $2.6 million in a capital reserve fund.

“I say that because I don’t want the public to assume that the local school system is spending $800,000 (in sales tax proceeds) on an annual basis,” she stressed. “Their capital reserve funds is a cumulative fund, it’s been built over a number of years.

“Once you send that money over there, it is true that their philosophy, determination is how they capitalize their needs; they get to dictate that 100 percent without any interaction or discussion from the governing body,” Williams added. “That is atypical across North Carolina.”

Williams said she wanted it to be clear that Hertford County Public Schools is not doing anything wrong with how they handle or the interpretation of their capital needs.

“This particular pot of sales tax money is county money; it’s not school money,” she noted. “The General Assembly said we must set aside a certain amount for school capital projects. It is this board’s authority to determine how those funds should be spent on an annual basis and that is what we’re clarifying here today. You decide, you and the school board must reconcile what capital projects are going to be approved for any given year. We write the checks based on the invoice, that’s the process done all across our state.”

Hunter offered a second for Farmer’s motion and it was approved without objection. The newly approved distribution method of Article 40 and 42 sales tax money from the county to Hertford County Public Schools is effective immediately.