The McComb city board voted Tuesday to put $424,152 in excess property taxes collected in 2010 into an escrow account — a move that brings the city into compliance with state law after McComb collected more money than allowed.
Mayor Zach Patterson questioned the figure, and board attorney Wayne Dowdy said the measure was a necessary response because the city has broken state tax laws since October 2008, when the board did not lower the millage rate after increased property values led to a spike in taxes.
The decision came after the board spent more than an hour discussing a city audit compiled by accounting firm Banks Finley, White and Co. of Ridgeland.
Representative David Ewing said the firm worked with city administrator Quordiniah Lockley and accounting firm Faust & Associates to reduce the amount of money to be placed into escrow, from an original total of more than $700,000.
The accountants and Lockley discovered that property taxes were paying for debt services and disability and relief funds — two accounts that are tax-exempt. Removing property tax revenues from those accounts made up the difference.
In response to the excess revenues, the property tax rate is expected to decrease by 0.93 mills to 40.01 mills, and the share of millage contributing to the general fund will drop by 4.49 mills to 26.10.
“The years that I’ve been auditing this town, I’ve never run across this particular issue,” Ewing said. “We kind of had to wrestle with this one. Here, our responsibility as an auditor is to recommend that in accordance with state law and regulations that an escrow account be set up.”
State law allows a city to collect no more than 10 percent more in tax revenues than it did in the highest of three prior years. Dowdy said state law mandates that the city must immediately set up an escrow account upon discovering an excess.
The escrow money cannot be spent for a year. The city will be able to include it in the budget year that begins Oct. 1, 2011.
Patterson took exception to the figures, as well as to which year the fiscal 2009-10 tax revenues were compared to. He believed both firms went by 2008, but the firms used 2007 figures, which showed more revenue.
Faust & Associates went by 2008 figures first, then discovered the city could compare its rate to the highest of the prior three years.
“The only number I can go by is number I read in the newspaper, and that’s the number that concerns me most because that’s widespread as to what happened and what occurred,” the mayor said. “When I read something in the ‘Surprise Journal’ that talks about ... $424,000 over the amount and that needs to go into escrow, I need to know how we got there.”
Lockley gave the $424,000 figure at a city budget work session last week. Selectmen Melvin Joe Johnson and Wade Lamb were the only board members that attended.
“The bottom line was, as I gathered from the newspaper, we need to lower the millage rate,” Patterson said. “Before we go that far and before we announce something like that, I think it’s important that we put a finer point on the numbers to find out what the numbers are.
“The way it was reported or the way I heard, we made a screw-up or we messed up when we didn’t lower the tax rate, the millage rate back when property values were assessed,” he continued. “When I read something like that, it smells like political garbage to me. ... I’m a little concerned about the fidelity of those numbers.”
The mayor also inquired about other figures, such as property tax revenue from the Grand Gulf Nuclear Power Plant. State law diverts part of property taxes from the plant to cities and counties in the plant’s service area.
As the mayor spoke to Ewing and the board on other items that could be backed out of the budget, Dowdy offered to read the law on how the board should handle the excess funds.
“No, no, no, no,” the mayor said. “I’m talking about Grand Gulf. I don’t need you to read me a law.”
As Dowdy explained his reasoning for offering to read, Patterson raised his voice, telling Dowdy, “I clearly understand the law.” The mayor continued questioning how the auditors decreased the escrow amount to $424,000.
“I think we did our due diligence in terms of researching the law, and I think with two CPA firms getting together and settling on the number, we did our best,” Ewing said. “I think we also went back and made sure the additional assessment was correct number. We came to the conclusion that we exhausted all efforts to ensure we included everything.”
Patterson responded, “We can certainly make a mistake. Even two accounting firms can.
“What do you do with that money when you put it in escrow?” he added. “What can you do with it? These are the things we need to know before we can raise taxes, lower taxes, raise the millage rate and so on.”
When reached for comment this morning, Lockley said that the city was supposed to put the funds in escrow in 2009, which would have made them available for the 2010-11 fiscal year, which begins Oct. 1.
State law mandates that the money cannot be returned to the taxpayers but can be used in future budgets.
The mayor also took exception to Lockley receiving a recommendation from the state Audit Department to set up an escrow account for the excess funds over the phone instead of in writing.
“But that’s what the state statutes require,” Ewing responded.
Selectman Danny Esch asked Dowdy to read the law regarding the escrow account and excess property tax revenues.
Dowdy said that Pike County supervisors, as well as the towns of Summit, Magnolia and Osyka, reduced their millage after a county-wide reappraisal in August 2008.
“If (an increase of more than 10 percent) happens, then you have violated the law,” Dowdy said. “This was made known by (County Tax Collector) Joe Young’s office that the millage rate should’ve been reduced back when you were setting up your budget for 2008.
“You’ve been violating the law since Oct. 1, 2008 ... and as your lawyer, I advise you to straighten out this legal problem immediately.”
The mayor said state law is violated if the city budgets more than 10 percent instead of collects more than that amount. Lockley said it’s violated when more than 10 percent is collected.
Dowdy offered to read the law again, touching off a shouting match between the two that ended with Patterson telling Dowdy, “You cannot interrupt me! I’m the chair of the board, and you cannot interrupt me!”
Patterson again announced his request to see the figures of the city’s 2010 property collections compared with those collected in 2007.
“Sometimes you go over 10 percent and there’s no way it can be projected,” he said.
