Johnston County and its towns could see their sales-tax revenue soar if state lawmakers approve a plan to reallocate the money.
The plan – crafted by Sen. Harry Brown and baked into the Senate version of the budget – would allocate much of the sales tax money based on population, instead of keeping the money where sales occur. That would benefit smaller and rural counties, while some urban and touristy counties would lose millions.
Last month, Brown brought leaders from 40 rural counties to Raleigh to lobby the legislature for the tax change. Representing Johnston were County Commissioners Chairman Tony Braswell, Commissioner Jeff Carver and County Manager Rick Hester.
Of all the counties that have backed the proposal, Braswell said, Johnston would be one of the biggest winners. On the other side of the equation, Braswell acknowledged that some counties would come out losers.
“It’s sort of good news/bad news, double-edged sword,” he said. “We had to go against other counties, but if it’s going to work for Johnston County, it’s gotta be good.”
According to projected figures, Brown’s plan would boost Johnston’s sales-tax revenue by $1.2 million, or 4 percent, to $31.7 million in the 2016-17 fiscal year. The impact becomes far more dramatic in fiscal year 2019-20, when Johnston would rake in an increase of $5.7 million, or 16.8 percent, for a total of $39.7 million.
In addition to the county’s coffers, projections show all 11 of Johnston’s towns would benefit as well.
For fiscal year 2016-17, all but one town would collect close to 3 percent more in sales taxes. For the towns’ 2019-20 budgets, the gains would be about 12 percent across the board. The exception is Archer Lodge, which stands to collect increases at rates similar to the county.
That means an extra $63,543 for Smithfield’s next budget, and $291,903 for fiscal year 2019-20. In Selma, the respective annual boosts are $22,594 and $103,790. In Clayton, the impact is $87,275 and $400,934.
Added together, Johnston and its towns would reap more than $1.4 million in extra sales-tax revenue next fiscal year, and more than $6.7 million in fiscal year 2019-20.
Based on how much retail shopping occurs in Smithfield, Town Manager Paul Sabiston said neither the current distribution formula nor Brown’s proposal gives Smithfield a big enough share of the sales taxes it generates. Sabiston would love to have the extra money that Brown’s plan promises to give Smithfield in the short term, he said, but it raises new concerns down the road.
Namely, Sabiston said, the proposal restructures sales taxes so that all monies flow through Raleigh before reaching local jurisdictions. That worries Sabiston and other local leaders around the state, who prefer the present system, where local dollars are collected locally. The current structure makes it difficult for lawmakers in Raleigh to keep funds originally promised to counties, cities and towns.
“Let’s face it, if the money is coming across your desk in Raleigh, it’s a lot easier to take larger and larger shares of it,” Sabiston said.
McCrory vows veto
Not everyone in Raleigh has hoped on board with Brown’s plan, and some of the harshest criticism has come from House Republicans.
On the same day as Brown’s news conference, Gov. Pat McCrory issued a news release vowing to veto the proposal.
McCrory called the legislation the “Tax Increase, Redistribution and Spending Act.” It’s the first time this session that the governor has promised a veto before a bill passed both the House and Senate. His spokesman also said he plans to veto the entire state budget if the sales tax provision is included.
“This bill will result in a tax increase for millions of hardworking middle-class families and small business owners throughout North Carolina,” the governor said in the release. “Redistribution and hidden tax increases are liberal tax-and-spend principles of the past that simply don’t work. More importantly, this bill will cripple the economic and trade centers of our state that power our economy.”
McCrory has criticized the plan before, but the news release was his first formal rebuke.
Brown says it’s wrong to view his plan as a “redistribution” of sales tax dollars.
“This plan finally corrects that decades-long redistribution of wealth from poor areas to urban areas,” the Senate majority leader said. “It helps ensure all North Carolina counties benefit from tax dollars.”
Brown says that criticism of the change has been overblown. “I think a lot of the attention given to this bill has been focused on the exaggerated and the extreme,” he said. “We’ve heard it called a lot of unfair names like the Robin Hood plan.”
Asked about McCrory’s opposition, Brown called on the governor to propose a different solution to the state’s urban-rural divide.
McCrory said his “N.C. Competes” jobs incentive plan would address the problem. “The best thing the Senate and General Assembly can do for the less populated areas across our state is to pass and allow us to implement the N.C. Competes jobs strategy which will benefit travel and tourism, agriculture, manufacturing and nearly every economic sector in our state,” he said the day of Brown’s rally.
The N.C. Competes plan passed the House months ago, but the Senate wants to tweak the incentives program to direct a higher percentage of jobs funds to rural counties.
The sharp words highlight a bitter divide between the executive branch and the Senate. Brown issued a response to McCrory’s criticism late that afternoon.
“I can’t figure out if Pat thinks he is the governor of Charlotte or the mayor of North Carolina,” Brown said. “Today, over 100 local officials from across the state came out in support of sales tax fairness. Sadly, the governor’s tone-deaf response to their overwhelming support is doubling down on a 2007 sales tax policy change that kicked rural North Carolina in the teeth.”
Sen. Tommy Tucker, a Union County Republican, suggested his own renaming of the sales tax distribution bill.
“I call this the Tax Reclamation Act,” he said. “We are reclaiming the dollars we’re spending in Charlotte.”
How would the sales-tax changes affect Johnston?
Based on projections, a reallocation of sales taxes included in the Senate’s budget would mean more dollars for Johnston County and each of its towns. Here’s how the changes would affect local coffers next fiscal year, and in fiscal year 2019-20, when the impact is expected to grow.
Source: Gov. Pat McCrory’s Office.