Corolla: Past, Present ... and Future?

(sent to Commissioners prior to their Winter Retreat 2017)

Corolla is a small North Carolina beach community located in Currituck County on a narrow barrier island between the Currituck Sound and the Atlantic Ocean.  Today its five square miles and twelve miles of beachfront host around 50,000 visitors each week during the summer.  The beaches, stores, restaurants, attractions and roads are very crowded.  Compounding the problem are the natural forces of beach erosion that continue to shrink an already too crowded beach.  As a result, since 2005 property values have dropped by 40% and they show few signs of recovery.  

The crowding is only going to get worse as there is still 30% of the residential land yet to be developed.   Compounding the problem are the new development trends to squeeze more people per acre, so crowding could get much worse.  But it hasn’t always been this way and there are things that County management can do to re-capture Corolla’s value and keep it a beach vacation leader for decades to come.

In the early 1980’s a prominent east coast beach vacation destination was the Dare County beach: communities like Nags Head, Kitty Hawk and Duck.  The area then had wide beaches, new rental homes and plenty of restaurants and entertainment options.   Dare County grew rapidly, attracting further investments in new homes and new commercial venues.  

But crowding of beaches, stores and highways became an issue for Dare County.  Beach erosion was beginning to take its toll with narrowing beach widths making beach-crowding worse.  Dare County oceanfront property values dropped and some homes in Kitty Hawk even dropped into the ocean during major storms.  Investments began to dry up as property values and rental rates declined. This was good for Currituck’s Outer Banks.

By 1990 Corolla became the bright “new-kid-on-the-block” for vacation home investors.  A twelve-mile-long paved road had been completed north of the Dare County line, most subdivision roads had been paved and Food Lion announced the opening of a year-round grocery store as part of the first major commercial shopping center serving the area.  There were few restaurants and no nightlife, but family vacationers were attracted to the twelve miles of wide, uncrowded beaches as well as to the historic Whalehead Club and Currituck Lighthouse.  Over the next 15 years residential investors spent an average of $100 million per year in home construction with commercial investors following at a rate of about $10 million per year.  Early investors saw their property values grow dramatically.  Corolla rental rates were 30% higher than Dare County’s, but still the Corolla homes were full during peak season.  The Corolla Food Lion and Harris Teeter grocery stores, although only heavily used three months of the year, registered the highest sales of any store in their chains.   Business was booming.

In 2005 Currituck County conducted its every eight-year property tax re-assessment. They found that Corolla’s property, less than 5% of the County’s land area, had grown to 2/3 of the County’s total assessed property value.  As a result, the County could keep its service levels the same, but it could cut property taxes in half.  There are two reasons for this.  First, according to County property records, property values on the beach are twenty times higher per acre for both vacant and developed property.  Second, the costs to provide County services are ten times lower since the number of fulltime residents is low.  For example, in Currituck COBX school kids are less than 1% of the total and COBX receives only a tiny share of community development and human services.  Most if not all of the COBX Sheriff and EMS service is paid by Occupancy Tax.  Thus, vacation communities generate significant discretionary tax resources for the County.  Mainland residents are 95% of the County’s population and receive more than 95% of the County services, but they pay only 35% of the cost.   Having a beachfront vacation area is great for County residents and the good management of this asset is thus a very important requirement for County government.

But by 2005 Corolla was now supporting almost 40 thousand vacationers and 10,000 cars per week in peak season.  With only 5 square miles Corolla was hosting a population density equivalent or greater than many of the home cities of the guests. Crowded roads, crowded stores and crowded beaches were eroding the restful family atmosphere that had been so attractive only a decade ago.  Natural beach erosion continued to narrow the beach.   In 2003 Hurricane Isabel decimated Corolla’s dunes, destroyed beach stairs and dune walkways and washed under some oceanfront homes.

Investors saw these issues and tightened their purse strings.  By 2005 both residential and commercial investment dropped to less than a third of previous levels.  The competition from so many other homes in Corolla was keeping rental-home cash-flow down. Nevertheless in 2005 the County voted to increase the Occupancy Tax on rentals by 50%, even though the Currituck Chamber of Commerce testified against the increase citing the “weak rental market.” But the County raised the rate anyway. Beginning in 2005 the number of Corolla homes for sale rose sharply, but the rate of home sales and sold prices dropped dramatically.  Folks who needed the rental income to make their mortgage payments were in trouble.

Between 2005 and 2013 County management did little to impede over-development of an already too crowded Corolla.  Pleas to restrict development were ignored.  The County did nothing to mitigate beach erosion. Crowding continued to worsen.

 In 2013, the County tax re-appraisal discovered that the total property value in Corolla had declined by 40% from 2005, four times the national average decline due to the 2008 housing crisis.  In 2013 the County-wide tax rate had to be increased by 50% to maintain the same level of County services.  Corolla tax bills only grew a little, but mainland taxpayers began paying $2.5 million more each year in taxes.

Since 2013 the Corolla issues have continued to worsen.  Beaches continue to narrow and our peak population density now exceeds 10,000 people per square mile.  Although the level of new investment remains low, its focus has been in two areas detrimental to the value of neighboring properties.  The first has been the rise of the “event” home.  These are large homes by “single-family” standards, eight to 24 bedrooms.  They advertise to host special events with 75 or more additional people in the homes for the events.  During the week there is a heavy increase in traffic around the home for guests and support contractors, as well as a significant increase in late night noise.  This degrades the family vacation experience of all neighboring homes.  

Further, these larger structures, built only ten feet from the property line, represent a fire hazard to their neighbors.  There have been several instances where a single large home fire was so hot that it destroyed its neighbors despite prompt response from the fire department.  

The second disturbing investment focus has been construction of high-density condos, duplexes and townhouses on small parcels.  County records show a doubling of the number of bedrooms per acre for new construction.  If this trend is allowed to continue the remaining 30% of land would bring an additional 60% more people to an already too crowded community.

County management has begun to recognize that they have a problem, but they have not yet developed a viable economic improvement strategy.  Most recognize that they have to rein-in over-development, but they are undecided on the best approach.  Some recognize that strategic investment in the County’s Outer Banks could restore its economic vitality.  In the past the County has made some good choices such as development of the Southern Outer Banks Water System completed in 2005, that supplies clean drinking water to homes and businesses in Corolla.  The County has stepped in to take over responsibility from developers for wastewater management in some communities.  They have imposed strong restrictions on stormwater runoff for new development.  The County has also used some of the Occupancy Tax funds to maintain and improve the Whalehead Club property, build multi-use paths along portions of NC12 and improved several public beach access areas.  

But, the pressing problem of beach erosion has almost been ignored.  A strong rationale for the State to authorize the County to raise its Occupancy Tax (OT) rate by 50% fourteen years ago was beach nourishment, which was specifically noted in the 2004 statute.  Occupancy Tax has raised $120 million in revenue since 2005, more than enough to cover the estimated $30 million cost to restore Corolla’s beach to match the width of the newly restored Dare County beach; but the County has only spent $40 thousand on beach nourishment.   Not even a drop in the bucket.

I estimate that a $30 Million investment to restore Corolla’s wide beaches would lift property values by more than 10% adding $300M to the Corolla tax base by the time of the 2020 revaluation. Without the County’s commitment to restore the beaches Mainland taxpayers can expect the Corolla tax base to continue to decline by at least 10%.  This 20% swing in tax base is worth $4 to $6M per year in tax revenues.  If the County keeps deferring this action the Mainland tax payers will hav etc make up the difference.

On the topic of beach nourishment for Corolla an argument was made by the County manager at last year’s Commissioner off-site that beach replenishment “does not work”.  None of the Commissioners questioned this statement even though they were aware that all the beach communities to the south that compete with Corolla were doing it.  While it is correct that maintaining a useable beach width over decades requires repeating the process from time to time, the process clearly works.  There is 90 years of experience in over 400 beach communities in the US. http://asbpa.org/2017/03/14/new-national-beach-restoration-database-now-online/     The estimated annualized cost for Corolla is only about 15% of the Occupancy tax revenue. It’s a cost of continuing to do beach tourism business that has attracted more than $3 Billion in private investment.

There are a few in County management who seem to have written off Corolla and favor the development from scratch of a “diversified” tourism and commercial economy on the mainland.  They have already invested almost $20 million of Occupancy Tax dollars towards a new YMCA, the Maple Commerce Park, the Rural Center, ball fields and playground equipment with no realistic, a priori, quantitative assessment of economic return to the taxpayers.  To solve the County’s growing tax problems a few in County management tout plans for a new Moyock Mega-Site, Currituck Station, that seems to be a much larger version of the failed Maple Commerce Park.  

The arguments made in support of this and other investments show little understanding of the basic business factors of market size, customer decision factors, competitor capabilities and County offering discriminants.  Further there does not seem to be a grasp of the huge magnitude of new mainland investment they would need to attract to offset the decline in value of the $5 billion in investments already made by the private sector in Corolla.  

An example of this is the hoopla about the 3,000 acre Moyock Mega-Site.  Although the County’s track record for successful development of this type is non-existent; the upside, if ever fully developed, is an increase in tax base of less than $300 M.  And since the site would be a year-round venture it would require full County services, not generating the discretionary tax resources that a vacation community does. Unless the County management faces up to the economic realities of the current situation and future options it has no chance to reverse the declining trend in property values in Corolla and the increasing trend in County tax bills on the Mainland.

So.   What should the County do?

Over the past year the County’s current Land Use Planning exercise has stimulated constructive discussions among Corolla residents, rental property owners and commercial company operators.  We agree on and highly recommend that the County take action in four areas to reverse the decline in property values in Corolla:

1.   Limit occupancy density of new and remodel residential construction

2.   Encourage commercial development of new family attractions, but prohibit conversion of commercial areas for residential use

3.   Restore the beaches to a competitive width

4.   Work with State and Feds to open their 1,000+ acres of nature area for year-round responsible ecotourism

These investments of time and money by the County are by far the highest payoff investment opportunities benefiting all the citizens of Currituck.  All of these investment are financially affordable from the tax resources generated by Corolla alone.  We urge our elected Commissioners to discuss and adopt plans to implement each of these initiatives at this winter’s off-site working meeting.

Now I’ll briefly discuss each of these ideas in a little more detail.

1.   Limit occupancy density of new and remodel residential construction

·      Limit occupancy permits per parcel to no more than current Corolla average

·      Require one parking space per bedroom with independent access

·      Limit impervious lot coverage to 30% in all cases

·      Larger setbacks for larger homes

·      Sprinkler systems for homes > 5,000 square feet

2.   Encourage commercial development of new family attractions, but prohibit conversion of commercial areas for residential use

·      Restaurants

·      Shopping

·      Recreation

3.   Restore the beaches to a competitive width

·      We are losing market share already

·      Let’s not lose any homes

4.   Work with State and Feds to open their 1,000+ acres of nature area for year-round responsible ecotourism

·      Estuarine reserve near VOH a good start

·      Fairfax County, Huntley Meadows Park a great example

·      Adequate tourist parking, restrooms behind the dune

·      Multi-use paths and gravel road to Swan Beach behind the dune

5.   Work with Northern Beach Communities to get traffic and parking off the beach to restore the beach to its highest and best use