Municipal leaders say the tax overhaul tentatively approved in the Senate last week would cut so much local government revenue that, to balance their budgets, theyd ultimately have to raise property taxes.
Senate President Pro Tem Phil Berger, who is sponsoring the plan, touts it as a break for most taxpayers because it flattens the income tax rate, repeals the estate tax, and eliminates the 2 percent local food sales tax, among other changes.
But, by repealing the food sales tax, the local privilege license tax and a sales tax reimbursement to local governments, Bergers plan cuts more than $150 million in annual revenue from local government when fully implemented in 2018, according to the N.C. League of Municipalities, a nonpartisan advocate for cities, towns and counties.
Those losses were not offset by other tax changes that keep municipalities (financially) whole, Paul Meyer, the leagues director of government affairs, said Saturday.
Bergers hometown of Eden, for instance, would need to raise property tax rates 6.91 cents per $100 of property value an 11.3 percent increase to compensate for $650,000 in revenue its estimated to lose in fiscal year 2018-2019.
Raleigh, meanwhile, would need to raise property tax rates 3.74 cents a 10 percent increase to compensate for $19.5 million in revenue its estimated to lose in fiscal year 2018-2019. Raleigh Mayor Nancy McFarlane disputes the notion that local government can become leaner while still providing the level of service residents expect.
Its so easy to say you can just cut, but there comes a time when cities start to deteriorate, McFarlane said. Raleigh has a triple-A bond rating. I think we have the second-lowest costs in the entire state for services. Were already incredibly lean and thats why were successful.
Amy Auth, Bergers deputy chief of staff, suggested local government can turn to other revenue streams to support local services: For example impact fees, water fees and other local taxes, she said Friday.
Auth also pointed out that Bergers plan allows counties to reinstate the 2 percent food sales tax in 2015.
We heard folks loud and clear: the vast majority of North Carolinians believe the state should not tax food, Auth said. But if local governments think it is appropriate to tax food in order to maintain that revenue, they have the option to reinstate a tax. The legislature should not collect a food tax if local governments receive the revenue.
Unlike the tax reform bill passed by the House, Bergers tax reform plan revives a debate over privilege taxes, which some in the Senate have sought to repeal since 2009.
A privilege tax is an annual fee municipalities levy on businesses for operating within their jurisdiction. Repealing it would cost N.C. municipalities about $70 million, the League of Municipalities says.
Local leaders value privilege taxes because theyre some of the states least regulated. But opponents say the taxs malleability makes it easier for local governments to abuse.
We believe the high privilege taxes being levied by some local governments are archaic and unfair, Auth said. They are a disincentive for businesses to move to and create jobs in North Carolina.
Although national conservatives like Grover Norquist, president of Americans for Tax Reform, praised Bergers plan for providing relief to North Carolinians, leaders of struggling towns like Zebulon cant promise cheaper living.
Zebulon, still reeling from the effects of the recession, is already planning a 1.25-cent property tax increase to balance the fiscal year 2013-14 budget. The increase will bring the towns tax rate to 52.5 cents per $100 of property value the highest in Wake County.
Bergers plan, when fully implemented in 2018, strips Zebulon of $125,600 in revenue, according to the League of Municipalities. Thats equal to a 1.4-cent tax increase.
To prevent further tax increases, the town plans to freeze four vacant positions between the Zebulon Public Works and police departments. The town also postponed the purchase of three police cars, finance software, street paving, a data server, and a drainage project at Zebulon Elementary.
Zebulon Mayor Bob Matheny said he was insulted by the lack of concern for municipalities. It wasnt even a month ago that Matheny and Rick Hardin, Zebulons town manager, drove down U.S. 264 to Jones Street, where they lobbied legislators to keep revenues balanced.
I think (the tax plan) is brutal to municipal government and illustrates that the legislature apparently doesnt care about municipal government, Matheny said. And when I say that, I mean the citizens that live within a municipal governments corporate limits.