Suit alleges improper diversion of more than $40 million
A group of Currituck County homeowners, in partnership with the Corolla Civic Association (CCA), has filed a lawsuit challenging Currituck County’s use of its occupancy tax funds.
The suit, filed in Currituck County Superior Court on May 6 by attorney Casey Varnell of the Kitty Hawk law firm of Sharp, Graham, Baker and Varnell, names Currituck County, the Currituck County Tourism Development Authority, the Currituck County Board of Commissioners and County Manager Daniel Scanlon II as defendants. It specifies that Scanlon is a defendant "both in his official capacity and in his individual capacity."
The suit alleges that the county has not complied with the N.C. General Assembly's 2004 amendment to the occupancy tax law requiring the use of funds for tourism. The suit charges that the county improperly diverted more than $40 million of the tax proceeds to the county's general funds for use on a variety of expenses.
The plaintiffs seek a declaratory judgment clarifying exactly how the county may spend tax proceeds in the future and a permanent injunction mandating that the funds no longer be used for other improper uses and requiring "restoration and replacement into the [Tourism Development Authority Fund] of all occupancy tax proceeds...that are found to be unlawfully used and disbursed."
CCA President Barbara Marzetti confirmed that all of the named plaintiffs are members of that organization, as well as Currituck County property owners and taxpayers, “including Occupancy Tax on their vacation rental properties."
In a statement to the Sentinel, Marzetti said that complaints that "the County was spending most of the additional OT revenue on projects far from the tourist areas" and concerns that of "the $40 million extra collected, less than $40 thousand was spent on beach nourishment from 2005 to 2018," led to the formation of the CCA in 2011 "to represent the interests of residents, visitors, residential property and business owners in COBX [Currituck County's Outer Banks]."
She added that, for a while, CCA regularly met with county management to hammer out the issue, but those discussions later broke down and, by 2018, the organization had retained legal counsel.
Another plaintiff reached by the Sentinel, Corolla resident Philip Schneider, said the county has “just ignored the long-term health of the beaches here, which is the life-blood of the whole area.“
Currituck County Manager Scanlon released a short response to the Sentinel, stating in an email that the Currituck County Commissioners will "vigorously defend Currituck County in this action, but do not intend to litigate the issues outside of the judicial process."
Under the provisions of the 2004 state law at the heart of the case, two-thirds of the 6% occupancy tax on short-term lodging rentals of hotel and motel rooms and homes are to be used only for "tourism-related expenditures, including beach nourishment," with the remaining one-third used "to promote travel and tourism."
But the suit alleges that Currituck County improperly diverted the tax proceeds to the county's general funds for use on a variety of unauthorized expenses, including public safety services and equipment, infrastructure at the Maple Commerce Park, restoration of the county's "Old Jail," construction of Veterans Memorial Park and road maintenance and water projects in locations in the county "not commonly frequented by tourists."
Noting the beach nourishment projects undertaken in neighboring communities, Schneider said the problem in Currituck County is just as serious as elsewhere on the Outer Banks: “The erosion we’ve seen in recent years has [resulted in] some areas where we only have about ten feet of sand at high tide. And it never used to be that way. We used to have a much wider beach.”
In posts on the Corolla Civic Association Facebook page, supporters of the suit said they were tired of the inaction on beach nourishment. "While Dare County nourishes...Currituck sits and wonders," said one post.