Deal struck on land-sale tax option

House, Senate leaders confident it will pass

State lawmakers are poised to adopt a $20 billion budget that includes a proposal so disliked -- a land transfer tax option for counties -- that even Senate leader Marc Basnight couldn't get one approved for a county in his district a few years ago.

This weekend, House and Senate lawmakers could give counties that option if they adopt the budget proposal that Basnight and House Speaker Joe Hackney worked out. Legislative leaders said Thursday night that they have the votes to pass the compromise budget, despite heavy opposition from real estate agents and home builders who have spent hundreds of thousands of dollars in campaign contributions and lobbying campaigns.

The vote will put many lawmakers opposed to the levy on real estate transactions in the position of having to support it in order to pass a budget that includes things they like. The proposal includes more than $850 million for construction at UNC campuses and state prisons, water and sewer projects, and green space preservation; a minimum of 4 percent raises for state employees; and $37 million for additional judges, prosecutors and court staff.

"People will probably say we spent too much, but we're a big state and a growing state," said House Majority Leader Hugh Holliman, a Lexington Democrat.

Wake and other fast-growing urban counties have clamored for options to raise revenues beyond increasing property tax. They like the idea of using a land transfer tax to pay for new schools and other infrastructure because it is more closely tied to growth.

At the same time, poor, rural counties are struggling to keep up with rising Medicaid bills. They have wanted the state to assume their share of that tab so that they, too, can keep property taxes down.

The budget proposal aids both groups. The counties would swap a half-cent of their sales tax revenues in exchange for the state's taking over their Medicaid bills.

The proposal then allows the counties either to increase local sales tax by a quarter-penny, or increase the land transfer tax that home sellers pay from 0.2 percent to 0.6 percent. Neither tax increase could be done without voter approval, something many lawmakers insisted upon.

Six counties in northeastern North Carolina have a 1 percent transfer tax, and officials there say it has helped keep property taxes down.

"It's all positive as far as we're concerned," said David Thompson, executive director of the N.C. Association of County Commissioners. "It's a good negotiation. A good negotiation is defined as all the parties not necessarily getting everything they want, but getting what they need."

Tim Kent, the CEO of the N.C. Association of Realtors, didn't see it that way. He said lawmakers should not be using the budget to deal with what he called an unrelated issue.

"Previous legislatures have been criticized for including special provisions in the budget, and there's enough interest in having it dealt with in a separate vote as opposed to rolling it in with a $20 billion budget vote," Kent said.

Hackney and other House leaders pushed for the land transfer tax option to be included in the budget. They had acknowledged that it would be unlikely to pass as a stand-alone bill but said it belonged in the budget as part of the plan to help counties with their Medicaid bills.

"It's part of the Medicaid solution," said Hackney, an Orange County Democrat.

Some drama remains about whether votes are there to pass the budget, which would increase state spending by about 7 percent over last year's budget. Last month, Senate Democrats killed a similar deal when several said they could not support the land transfer tax option. Basnight did not discuss the agreement when the Senate Democrats first caucused Thursday, which suggested to some that a deal was still far off.