FAQ 2 — The Federal Project

Date: 09/03/2020

Regarding: Frequently Asked Questions (“FAQ”) Pt. 2 — The Federal Project

The North Topsail Beach Board of Aldermen has collected questions from the emails submitted regarding the Federal Project. The Board and staff are working to answer as many questions as possible in a timely fashion. If you do not see your question specifically addressed, it is most likely that staff is gathering information on the topic and hopes to include the information on the next FAQ. But if you want to double check with staff or submit clarifying questions on new information, please email the town clerk at townclerk@ntbnc.org. Given the volume of inquiries, please be patient as we work through the materials and present information

View the complete list of public comments here.

Follow-up items from FAQ 1:

8. How much money has been spent to place and maintain the sandbags at the north end? How much has been spent in the last 10 years for beach nourishment north of the town hall?

The short answer to your question is that the north end has received approximately $8.1 million since 2012 while the south end has received approximately $18.6 million. “

A citizen replied to this answer in FAQ-1 as follows: The answer is somewhat misleading in that it fails to acknowledge that none of the expenditures were for new sand in the central area of the Town that includes Ocean Sound Village and Hampton Colony, which is why we do not believe we have been treated equitable by past administrations.

You could also add Ocean Ridge to this list of the central area of Town. Again, the short answer is these properties are in a CBRA zone and as such the beach (berm) is not eligible for storm damage recovery with Federal dollars. What is covered in the CBRA zone is the existing ‘natural dune system’ called Cat B in FEMA jargon. The Town has received bids for a truck haul project to restore this dune system in the central area of Town with reimbursement by FEMA for dune loss due to Hurricane Florence. The project should start in November once turtle season is past.

9. “Project located in same area NTB spent $15 million dollars in 2014, on which $14 million in debt remains.” Additionally, did the $15 million project only impact the southern most 4 miles and was it planned or was it in response to hurricane damage?

The 2014/2015 Phase 5 Project, funded through a loan from the USDA, was planned before recent named storms but was instrumental in minimizing damage to homes and infrastructure during Hurricane Matthew in 2016, Hurricane Florence in 2018 and Hurricane Dorian in 2019. The Federal Project would impact the same area as this 2014/2015 project.

After these two storms, this area received FEMA-funded restoration, which included the following:

PHASE 5 Nourishment Projects

New Items:

1. What is the total annual tax revenue within the 4 miles of south NTB?

The underlying taxable value for that area is approximately $413 million. The property tax rate in North Topsail Beach is $0.41 per $100 valuation, which means the current annual revenue generated is just shy of $1.7 million. This $1.7 million is obligated to other projects and expenses, so the town will need additional revenue to fund the Federal Project. For example, the 2015 Project annual payment is approximately $1 million and 25 years remain.

2. In addition to explaining the cost not covered by the Fed, I have not heard or seen any commentary as to how our leadership has addressed how we might be able to control or mitigate costs to the town and residents. NOTE: There are current ongoing costs that will be eliminated once this project is completed.

Please note that the Federal Project continues over a 50-year period, so no costs will be eliminated in the near future. However, the dollar amount will be considerably less over that 50-year period with the Federal Project than doing the same beach re-nourishment cycles every 6 years on our own.

At this point, the biggest uncertainty in costs are the re-nourishment cycles, since no one knows future construction costs or interest rates and are hard to predict. The Corps initially estimated re-nourishment costs at approximately $900 million for the 50-year project in 2019, but as the towns worked with the Corps, the Corps re-evaluated their estimated re-nourishment costs down to $672 million, quite a drastic difference in a short period of time. And while we are pleased that the overall price decreased, it leaves a lot of uncertainty about the drastic cost changes in the future, and the Corps is unable to give us a firm or even capped cost.

3. We already have occupancy taxes at 6%, which is typical for most counties in NC. Given the sheer cost of maintaining a beach, I don’t see a problem with raising it to 10%. I’ve paid that level of occupancy tax at many other resort locations on the east coast, particularly in SC and FL.

The question was addressed in the Question 1 answer, but here is a look at the dollar effect.

The State of North Carolina does not grant an inherent right to local governments to impose an occupancy tax; it is only by specific permission from the Legislature that a local unit of government may impose this tax. Furthermore, it is uncommon in the State of North Carolina to see an occupancy rate in a given county exceed 6%. Even so North Topsail only receives 3% of that 6% tax, as Onslow County keeps the other 3% for Tourism activities in the County.

Unfortunately, Onslow County does not return its share of occupancy taxes to North Topsail Beach as Pender County does for its municipalities, such as Surf City. In a normal year, the 3% Occupancy Tax coming to North Topsail Beach is about $1 million dollars. Imagine how much further we would be in beach nourishment and protection of our $1 billion dollars of real estate that generates $6 million dollars in real estate tax to Onslow County each year, if we also received the 3% Occupancy Tax retained by Onslow County but generated by vacation rentals in North Topsail Beach.

4. Town officials need to find a way to fund this project. Don’t let us down at the 12th hour! Perhaps paid parking would help fund this effort. We have lots of visitors enjoy our beaches, so perhaps the visitors can help the taxpayer’s in funding this effort.

We have received many comments such as yours that suggest ‘paid parking’ would help offset the cost of beach nourishment. The Board of Aldermen believes that everyone who enjoys “Nature’s Tranquil Beauty” should be willing to support beach nourishment efforts to maintain this treasure we know as our beaches. Current contributors include property owners who pay real estate tax and vacation rental guests who pay occupancy taxes. So, the question becomes “Why shouldn’t day visitors support beach nourishment through paid parking?” Hopefully, this potential revenue stream can be instituted by the Town, and please know, there are efforts by town officials to make this happen. However, expected revenue from parking will not cover the cost of the Project.

5. We are ready and willing to help in any way we can to ensure this project is a success. We cannot let this one go just because the last Phase 5 project was a failure.

Actually, the Phase 5 project was and continues to be a success. The main purpose behind shoreline protection is not a recreational beach. That is a byproduct of the main function, with is a robust engineered dune structure, designed to protect the homes and infrastructure behind the dune line. In that regard, the Phase 5 project was very successful, but beaches do erode. Here in North Topsail Beach, that erosion rate is about 2 ft/yr on average. Therefore, the Phase 5 beach would have been in need of re-nourishment in 2022 after initial construction in 2015; however, Hurricane Matthew and Hurricane Florence increased erosion dramatically. Thus, FEMA stepped in to reimburse the Town for the Hurricane Matthew truck haul project this past winter and spring that restored the dune system in Phase 5.

FEMA will also reimburse us for the Hurricane Florence dredge project in the engineering design stage to replace that beach sand loss. Assuming the Hurricane Florence FEMA work is completed in the 2021-2022 dredge season and given the anticipated 2024 start of the Federal Project, we would be slightly ahead for normal re-nourishment cycles.

6. To me it would seem best to try to utilize the power of nature to facilitate accumulation of sand. A jetty system can yield significant success in that endeavor. Costal management professionals generally frown on this approach as it has significant impact on erosion rates to the down current shoreline. NTB has the benefit of undeveloped federal lands down current so implementation will not have the effect of damaging residential properties.

For this discussion, a jetty is unfortunately off topic. We are currently in an Environmental Impact Study to determine the best solution for erosion at the northern end of the Island. Additionally, for Phase 5, this is currently not a viable option. We have to consider possible solutions as they become available for each phase. Financial and legal constraints do not allow for the Town to act autonomously and pursue any method. The proposed solution for erosion and storm mitigation in front of the Board is a federal project for the Phase 5 section of Town (southern 4 miles of Town limits).

7. …don’t hear Surf City whining about financing the project. Why not? How are they going to work out their portion of the project? If you have met with them on many occasions and know the answer, why not tell us and maybe we can advocate for something similar.

The Army Corps of Engineers has offered low-interest financing for the initial construction cost of the Federal Project since the funds came through Congress as Hurricane Disaster Relief Authorization Funding. As far as we know, Surf City will completely finance its $25 million share. Our concern is that our existing USDA loan for the Phase 5 project still has a large outstanding balance, something near $14 million, that we must repay. This loan currently requires about 33% of our total beach fund, a revenue of about $3 million each year.

And while we cannot speak for another town’s decisions, we can definitively say that despite our geographical proximity, we have several differences from Surf City. The tax bases are different. Surf City has a greater commercial base, both on and off the island. North Topsail Beach has also taken on more beach re-nourishment projects than our counterpart. Within the last 12 years, the Town of North Topsail Beach has embarked upon two major beach projects on its own. The Town of North Topsail Beach has taken a proactive approach to beach nourishments, and as such, our financial reserve for beach projects is lower.

8. Before voting NO to the project, there needs to be a joint meeting with Surf City and the appropriate agencies to work out the more specific details, and there should certainly be a public meeting to make sure all voices are heard. If we withdraw from the project, there will be a clear discrepancy between property values for Surf City vs NTB. Buyers will know that Surf City beaches are better, and that NTB deliberately declined to take the opportunity to get the improvements.

Officials from North Topsail Beach and Surf City have been meeting on a regular basis since the funding for the Federal Project was announced back in November 2019 by Senator Tom Tillis. The towns have asked for clarification of many of the components of the Federal Project, including the financing details, in-kind credits, new easement requirements, and, most recently, the Project Partnership Agreement (PPA). Unfortunately, the PPA has many requirements on the part of the Towns and State which have taken some time to clarify with the Corps.

The second part of your question about ‘public meetings’ is being addressed in the best possible way given COVID-19. We have requested comments that are read during the Open Forum of each Board meeting for the last few months. We are getting out answers to your questions through this FAQ document format as well as individual replies to emails directed to Board members.

The third part of your question about discrepancy in property values between the two towns if we do not participate in the Federal Project could be answered as follows: North Topsail Beach nourished the Phase 5 beaches in 2015 to preserve dwellings and infrastructure which thus relates to property value. Surf City has never nourished their beaches other than the recent truck haul dune restoration work funded in part by the Surf City and by FEMA.

Whether NTB joins the Federal Project or not, the Town is committed to beach re-nourishment and nourishment along the entire 11 miles of shoreline. It is just a matter of figuring out financially how to afford it.

9. It would be a huge mistake to withdraw from this project and could put the entire future of our town in peril. …. There are many opportunities to increase revenues for the town including, paid parking for nonresidents, commercializing our public beach accesses, adding a water slide, wading pool, and splash pad for families to the island. There could be a beach use fee, levied by the town of NTB, not Onslow County, for vacation renters that is separate from the sales taxes that they pay and all proceeds should go directly to this project. Small shops could be added to the property where the town building is now and a smaller town building could be utilized. The funding for this project can easily be accomplished without increasing taxes on residents and property owners. Thank you for providing ideas to increase revenues for the Federal Project without increasing taxes. We covered the paid parking in other answers, but the water park is a new idea. Unfortunately, this would require a commitment from a developer, commercial land in Town on which to build, and enough revenue from sales tax and real estate tax on the proposed water park to make a difference. Plus, in our opinion there would be a loud cry of opposition to a commercial water park in “Nature’s Tranquil Beauty.” The ‘beach fee use’ idea is not viable in North Carolina since our beaches are in the public trust, not private property. We could seek commercial advertising at CAMA accesses in exchange for the commercial entity maintaining that cross over, but again, not a big revenue source for the Federal Project area. Developing ‘small shops’ on the Town Hall property again would take a commercial developer and a change to commercial zoning for that property. As before, the Town would only gain sales tax revenue and property tax revenue. In general, the board understands that residents and property owners want limited commercial development in town. Yes, we would like to find ways to fund the Federal Project and thus value all the input the board has received from our citizens. However, due to the costs associated with the project, which have quadrupled over the time since its development first began, it is inevitable that taxes will need to be raised for the town to be able to both afford this project, and address competing needs, such as replacement of the South End Fire Station, which also directly supports homes in the Federal project area.

10. I have two properties on the ocean in North Topsail Island, and have received information that the town is turning down the grant from the feds for beach renourishment. THIS IS A TERRIBLE MISTAKE. One of my properties is a lot, which I have been told is no longer buildable because there is no dune. Wouldn't you like my tax dollars? If I have a non-buildable lot, I will pay you NO $$.

This is a great question because it allows for explanation of one the caveats in the Project Partnership Agreement (PPA) with the Army Corps. For each vacant lot and for each unbuildable lot, the non-federal partners (i.e. Towns of Surf City, North Topsail Beach and the State of North Carolina) must pay 100% of the cost of the Federal Project going across that beach section. Keep in mind that the Federal Project is part of the Storm Damage Reduction Mitigation Program by the Corps and as such is intended to protect structures and infrastructure. Without a structure on vacant or unbuildable lots the Corps ops out.

11. I see the project is primarily sand replenishment 4 miles north of Surf City line; I see pictures in the web site of town map. Can you give an estimate location of where this ends relative to a major landmark or address on Island drive?

Yes, we use this address as an approximation: 3828 Island Dr.

12. What do we expect the tax implications of this project to be on property owners and occupancy tax bills going forward (say yearly for the next 5 years)?

We have previously addressed occupancy tax, so we do encourage a review of those answers. To this specific question’s point, the occupancy tax rate will not change based on this project. If you look back at FAQ 1, we explain that occupancy is designated by local accts approved by the State Legislature. NTB receives 3% of Town occupancy. Onslow collects an additional 3%. If the County would agree to distribute some of their revenue to the Town or if the State increased our collection (although it is unlikely that the State would charge a collective tax much greater than the already imposed 6%), the Town could increase this revenue. There are legal aspects that makes an increase to this revenue stream difficult to rely on.

As for other tax implications, property tax will almost assuredly increase if the Town pursues the Federal Project. The Project’s expenses exceed any other revenue stream the Town can pursue. Other ideas are welcomed to offset the cost, but ultimately, property taxes are expected to increase if the Town participates in the project.

13. Will there be/ ( how much) a financial difference for those north of the end of the project vs. those who receive replenishment on the ocean side of their property.

The Board is examining different options for a Municipal Service District (MSD). How this will take effect has not been decided. The Town could do any combination of the following: increase the tax rate town-wide, increase the taxes in only the Federal Project area (i.e. Phase 5) to reflect the direct benefit to those properties and/or tax the properties with the most direct benefit from the project (oceanfront) at a higher rate.

14. Does CAMA have a position - do they have a role- in this discussion?

CAMA does not have a financial opinion. But from a permitting standpoint, all proper permitting will be obtained.

15. How is that possible that TB was able to renourish their beach cheaper than the Federal project????? Why don't we do the same?

The Town of Topsail Beach had a separate Federal Project approved by the Corps but chose not to accept the PPA for their project. One of the main reasons that Topsail Beach did not accept their PPA was that Topsail Beach already had a town-funded beach nourishment plan in place that was less expensive than the Corps plan. Also, Topsail Beach had already started beach re-nourishment activities, such that the Corps sand fill placement area would not add further protection.

To answer the next part of the question “Why don't we do the same?” We have done the same, if you consider that the Phase 5 project in 2015 was in reality North Topsail Beach’s answer to the slow progress of getting approval for the Federal Project. As you know in other answers, the Town spent $17 million to construction the dune and berm system in Phase 5. The higher cost of the Corps plan for this same area is due in large part to the tremendous volume of sand that will be placed to build a much larger dune and berm system, i.e about 4.5 times more sand in the same area.

16. If NTB opts out, we do not have to pay a penalty?

The Town has not signed the Project Partnership Agreement yet, so at this time, no penalty and no obligations.

17. I would like to see a comparison of the federal project with the 2014/15 phase 5 project that has already been constructed, and already has a periodic renourishment plan that the town is or should be planning to finance. These projects cover approximately the same stretch of beach and have similar goals of maintaining an engineered beach that will qualify us for FEMA funding for repairs after a named storm. I don't recall the duration of the phase 5 renourishment plan. Was it 30 years or 50 years? And I don't recall the phase 5 project being nearly as expensive in total cost as the federal project. If we are already committed to the phase 5 project, do we really need the federal project? Which one is less costly for the town? Which one provides us protection for a longer period? What are other benefits of the federal project that we do not get from the phase 5 project?

Here's one interesting thing to note: after a named stormed, it won’t be FEMA that the Town works with to restore the Federal Project area; we would be working with the Army Corps of Engineers. In Federal Projects, where a federally-declared storm occurs, the Army Corps would request emergency funding from their own Agency to restore the damage.

The initial construction cost is wildly different coming in at about a total of $95 million for the same stretch of beach that Phase 5 covered for a total of $17 million but places 4.5 times more sand in the same area.

The Army Corps of Engineers estimates that the Federal Project has a re-nourishment requirement of approximately $672 million over 44 years down from their first estimate of $893 million. This re-nourishment requirement is the ‘big benefit’ as the Federal Government pays 50% of this cost but the Town’s share is still costly.

The Town has not committed re-nourishment in Phase 5 yet as explained elsewhere due to on-going restoration for Hurricane Matthew and Hurricane Florence, where reimbursement is covered by FEMA. In fact, once we restore Hurricane Florence damage in 2021-2022, the first ‘technical’ re-nourishment cycle for Phase 5 might not be needed until 2029, if we were not part of the Federal Project.

The Federal Project is driven by the Army Corps of Engineers; we operate subject to their terms. The benefit is more material for the beach and presumably more protection at a subsidized rate. The downside is that the Town cannot control the cost and there is already $14 million of debt outstanding on the same strip of land.

18. What is the main factor for increasing the price of the project? And is this factor expected to continue to increase over the life of the project? Senators Burr, Tillis and Rouzer noted the economic soundness of the project, claiming a benefit-cost ratio of 3.47 to 1, what is the discrepancy versus your research? Did your research reveal other financial opportunities for partial funding of the project? Will compatible sand be used in the project? - this is especially important for a project that is this long-term. Does the Town have access to compatible material for the life of the project?

The main factor for the increase cost is the availability of ocean certified dredges. There are only five companies in the United States who have ocean certified dredges and by US law only US dredge companies can bid on Federal Projects. Thus, it comes down to supply and demand.

The Corps conducts economic studies every two years if an approved project is not constructed. This benefit to cost ratio is a big driver in the Corps decision of what project should be constructed next. Our 3.47: 1 ratio is the highest in the South Atlantic Division of the Corps and so a main reason we were chosen for construction. The Town did not and would not do a separate benefit-cost study as we do not have the resources nor would the Corps accept it anyway. But we did have to pay along with Surf City for the Corps internal costs in conducting a given benefit-cost review.

Sand source issue: Yes, a beach compatible sand grain size must be used. As part of the project development process back in 2007-2010, the Corps identified about 12 off shore sand borrow areas. These are Federal borrow areas so designated by the Corps, the Town was allowed to use a portion of one of them for the Phase 5 project. As you may know, the Corps borrow site for the Phase 5 project contained too many rocks which ended up adding almost a $1 million to the Phase 5 project. The Corps is hard at work trying to identify another one of the pre-approved borrow area with less rocks. One closer to Topsail Beach is being considered now that Topsail Beach elected not to sign their PPA with the Corps. It is the Corps responsibility to identify a large enough borrow source for the life of the 50-year project.

19. Will any tax increases related to the implementation of the next phase of the project be distributed among all properties in NTB, or will any such increases fall only on the are NOT benefiting from the project?

We do not have that answer yet. It is very likely that taxes will increase if we elect to sign the PPA, but to what extent and to whom, that is uncertain.