The Waxhaw Board of Commissioners spent much of its August 25 work session looking several years into the future—and the financial picture presented to the board made one thing clear: Waxhaw has some significant choices ahead.
The meeting focused on the town’s five-year capital improvement plan, its cash position and fund balance, the cost of maintaining day-to-day operations, and the various ways the town could pay for major capital projects.
Town staff and the town’s financial advisors helped give the board a clearer picture of the consequences of the choices before them.
Waxhaw is in a strong financial position—but that doesn’t mean there aren’t problems ahead
Davenport Public Finance, which has served as Waxhaw’s financial advisor since 2017, told commissioners that the town is starting from a position of strength.
Davenport’s analysis indicated that Waxhaw’s revenues have historically covered its ongoing expenses, while the town has also accumulated substantial fund balance. The town has maintained its financial policies calling for a fund balance of at least 30% of expenditures, while management has expressed a preference for maintaining approximately 40%.
The BOC is concerned about what happens if Waxhaw continues spending at its current rate while simultaneously taking on the costs associated with growth and major capital projects.
The Cost of Inaction
One of the most striking portions of the presentation involved a scenario showing what could happen if the town simply continued on its current path.
The Town Manager explained that the current operating budget is already in a structural deficit position, requiring some use of fund balance. Under one of the scenarios presented, if the town continued funding its capital projects from cash without making corresponding adjustments, its fund balance could eventually fall dramatically.
If the town continued drawing down its savings to pay for capital projects and operating costs without changing its financial strategy, it could eventually find itself needing a tax increase simply to rebuild its reserves and support ongoing operations.
Growth is part of the problem—and part of the solution
The discussion also highlighted a fundamental tension facing Waxhaw.
Growth increases the town’s tax base, but it also creates additional demands for infrastructure and services—demands that are not covered by the additional property tax revenue.
The board discussed the large amount of residential development that has been approved in Waxhaw over the years and the resulting need for transportation improvements.
Developers may provide some traffic mitigation as part of their projects, but those improvements don’t solve the broader transportation problems created by excessive residential development.
That leaves the town paying millions of dollars for road improvements and other infrastructure.
At the same time, Waxhaw needs growth in its tax base to help pay for those services.
The financial presentation therefore reinforced an issue that has become increasingly important for Waxhaw: not all growth is equally valuable to the town’s long-term finances.
Residential development brings additional residents who require services and infrastructure. Commercial development, on the other hand, can diversify the tax base without creating the same level of demand for municipal services.
During the discussion, commissioners emphasized the need for future boards to be more deliberate about the type of development Waxhaw seeks.
Rather than simply accepting whatever development is proposed, the town should have a clearer idea of what it wants developers to bring to the community.
The immediate problem is cash flow
There is also a more immediate issue facing the town.
Waxhaw’s cash flow is seasonal. The first half of the fiscal year is the tightest because much of the town’s property-tax revenue does not arrive until December through March.
At the same time, the town has substantial capital expenditures planned.
Staff identified three major projects—Kensington, Pine Oak and paving—as particularly important to the near-term cash-flow analysis.
If those projects had been paid out all at once during the first six months of the fiscal year, the town would have faced approximately $3.1 million in additional cash outflows on top of its normal spending.
Instead, staff restructured the timing of those expenditures.
Paving was moved toward the spring, while the timing of Kensington and Pine Oak expenditures was adjusted so that the town would not unnecessarily create a cash-flow problem during the period when revenues are at their lowest.
Staff emphasized that Waxhaw remains in a good financial position. The problem isn’t that the town doesn’t have the money. The problem is that the timing of when money comes in and when it goes out matters.
This distinction between fund balance and actual cash on hand was an important part of the presentation.
Cash isn’t free
Another important point from the discussion was that keeping large amounts of cash readily available has an opportunity cost.
Waxhaw earns investment income from money that can be placed in accounts earning interest. The town currently budgets roughly $500,000 in investment income but has typically earned closer to $1 million.
That investment income is an important source of revenue.
If the town has to move money out of those investments to cover short-term cash needs, it can lose some of that investment income.
In other words, spending cash today can have consequences beyond the amount of the check being written.
That is one reason the town is considering whether some combination of cash, grants and borrowing might make more financial sense for large capital projects.
What about borrowing?
Davenport laid out several potential ways Waxhaw could finance its capital program.
Those include:
- Grants
- Paying for projects directly from cash (“pay-as-you-go”)
- Installment financing
- General obligation bonds
- A combination of these approaches
Davenport’s representatives emphasized that paying cash is attractive when the town can do so while maintaining a healthy fund balance.
But large projects can consume a significant amount of cash, and rebuilding that cash balance after it has been spent can take years.
General obligation bonds are potentially attractive because they are backed by the full faith and credit and taxing power of the town. Because voters must approve them through a referendum, they also provide a higher level of security to lenders and can therefore offer better borrowing terms.
But there is an important catch: GO bonds aren’t something the town can decide to use at the last minute.
A referendum requires substantial advance planning, and the Local Government Commission must approve the financing. Davenport emphasized that the process is not automatic.
Installment financing is another option, but it generally requires the town to pledge an asset as collateral. That can make it more difficult to use for projects such as streets and sidewalks, which don’t make particularly attractive collateral for lenders.
The taxpayers ultimately carry the responsibility
One particularly noteworthy portion of the discussion involved what the Local Government Commission looks at when evaluating proposed debt.
Davenport explained that the LGC wants reasonable assurance that a town will be able to repay its obligations. That includes looking at the town’s financial position and whether it has sufficient resources and future revenues to service the debt.
In some cases, the LGC may want a local government to acknowledge that a tax increase could be necessary to support the debt.
That gets to the heart of the issue.
Borrowing doesn’t eliminate the cost of a project. It changes when the cost is paid and spreads it over time—with interest.
And ultimately, taxpayers are responsible for the town’s taxing power and therefore for supporting its debt obligations.
The board has more work to do
The August 25 meeting was ultimately about establishing a financial baseline rather than making a final decision.
Town staff told commissioners that the board will need to provide direction on which general strategy it wants to pursue: continuing to pay for projects primarily with cash, using a blended approach, or pursuing general obligation bonds.
That decision will determine how staff and Davenport structure the next phase of the analysis.
The board is expected to continue the discussion at its September work session.
Waxhaw has strong finances today. But the combination of infrastructure needs, previously approved residential growth, rising operating costs and an ambitious capital improvement program means that today’s financial strength does not guarantee tomorrow’s financial flexibility.
The choices made over the next year or two could determine whether Waxhaw makes relatively modest adjustments now—or faces much larger financial pressures later.
And that makes the town’s decisions about growth, spending, taxes and debt worth watching very closely.