Zebulon, other NC towns face loss of state funding

amoody@newsobserver.comaspecht@newsobserver.comMarch 1, 2013 

— Three Triangle-area towns are among the 114 North Carolina municipalities hoping the General Assembly will extend a 10-year funding program that will disappear if not renewed in next year’s state budget.

In 2002, the N.C. General Assembly started a program known as “hold harmless” funding to help local governments affected by a decision in 1988 to repeal the inventory tax.

Over the years, some North Carolina cities and towns had made up for the loss of inventory tax revenues through a one-half-cent sales tax increase – but many could not. Legislators hoped that hold harmless funding would provide temporary assistance until municipalities replaced lost inventory tax revenues with a growth in sales taxes.

Many hold harmless recipients saw gains in sales tax revenues until 2008, when the recession took hold. By 2012, 114 municipalities, including Zebulon, Selma and Dunn, still received a share of nearly $10 million in hold harmless money from the state.

If hold harmless funding isn’t renewed, some say they’ll be forced to explore raising property taxes, cutting services or trimming payroll to make up for budget shortfalls.

Zebulon, the only Wake County town receiving hold harmless funds, would lose what equates to 5 percent of its current operating budget. Zebulon received more than $400,000 in 2012. In budget terms, $400,000 equals 6 1/2 full-time Zebulon employees, or a 5- to 6-cent increase in property taxes per $100 of assessed value.

“That’s over $90 per man, woman and child in this town,” Zebulon Mayor Bob Matheny told commissioners at a recent meeting. “That’s a lot of money, per capita, to lose.”

Zebulon’s loss of hold harmless money would be the sixth greatest in the state, per capita.

While rural towns with slow economic growth would be most affected by the end of hold harmless funds, cities such as Asheboro, Greensboro, High Point, and Mount Airy also stand to lose out. Winston-Salem received the highest payment of hold harmless funds in 2012: $1.98 million. Though that number makes up only 1 percent of the city’s budget, City Manager Lee Garrity described the potential loss of that money as “significant.”

“It’s equal to a one-cent (property) tax increase or cutting 30 to 40 employees,” Garrity said.

Garrity says state Sen. Peter Brunstetter, a Winston-Salem Republican, told him it’s unlikely a bill would be passed by the Senate, which shot down a bill extending the funds last year.

Matheny, meanwhile, is holding out hope he’ll gain an ally in Republican state Sen. Chad Barefoot, a freshman legislator who represents Zebulon. Matheny said he spoke with Barefoot at a recent meeting, but that they didn’t discuss Barefoot’s position on the issue.

“(Barefoot) seemed receptive and willing to listen and talk to us,” Matheny said.

Barefoot, reached by phone Wednesday, said he’s still researching the issue and is “in the process of reviewing the town’s position and any budgetary options the state may have with respect to extending the hold harmless funds.”

Moody: 919-829-4806

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