Under the Dome

Tax plan stirs debate on rural aid

Republican Sen. Harry Brown is fighting to change how sales taxes are allocated.
Republican Sen. Harry Brown is fighting to change how sales taxes are allocated. cseward@newsobserver.com

In lobbying for a shift in how $2.5 billion in yearly sales tax revenues are distributed to local governments across the state, Sen. Harry Brown has faced stinging criticism – from some Republicans and Democrats who do not want to see a “redistribution of the wealth.”

Brown argues that the change simply restores a formula that had been in place for 20 years.

Brown’s plan, which passed the Senate last week, would split the revenues, with half staying in the county where a sale took place and half then distributed based on county population. Currently, the majority of those revenues – 75 percent – stay in the county where the sale occurred.

Brown’s shift would boost rural counties that have limited shopping options. About 20 urban and tourism-heavy counties would see less revenue.

Brown counters his opponents by pointing to a 2007 change in the state’s sales tax allocations.

A little history is in order, he says. From 1987 to 2007, the state used the same 50-50 split in revenues that Brown now is seeking.

Since 2007, the current 75 percent standard has been in place, with 25 percent distributed based on population.

Brown has blasted that 2007 decision repeatedly in recent weeks.

“It killed 83 counties across the state,” he said. “What this bill does is correct that wrong. It helps those rural counties that got kicked in the teeth in 2007.”

He’s also been critical of the legislature’s leaders at that time, who happened to be Democrats.

“The leadership that year led efforts that robbed and redistributed money from poor rural counties to rich urban counties,” he said.

But the 2007 law was more complicated than just a change in percentages.

While changing the distribution formula, lawmakers also diverted revenues from a half-cent of the local sales tax into the state’s general treasury. In return for scooping up that tax revenue, the state agreed to also take over a piece of the responsibility for funding Medicaid – the government health insurance program for the poor, elderly and sick. Counties, which had been covering some Medicaid costs, no longer do.

Poor, rural counties had shouldered the largest share of Medicaid costs as a percentage of their overall budget. But many urban counties spent a smaller percentage of their budgets on Medicaid, and the loss of that slice of the sales tax revenue would have given them a net loss.

So, the 75-25 distribution formula was put in place to ensure all 100 counties benefited from the “Medicaid swap,” as it is called.

The result: Most counties saw their sales tax receipts drop, but they had more money overall because Medicaid expenses were gone.

Rep. Bill Brawley, a Mecklenburg County Republican and opponent of the current proposed sales tax shift, says Brown has been oversimplifying the 2007 change. Other House Republicans have voiced concern.

“The idea that the small towns were hurt in 2007 is patently false,” he said. “They were the biggest gainers, and now what they’re doing is coming back and asking for more.”

A 2009 study by the UNC School of Government supports Brawley’s assessment of 2007. Once counties got back the money they’d been spending on Medicaid, rural counties saw overall revenues increase by up to 14 percent.

The gains were far more modest in urban counties that had a smaller Medicaid burden: Wake had a projected 0.06 percent increase, while Durham was projected to get 0.91 percent more.

Given that history, Brawley said rural counties shouldn’t get an additional boost at the expense of their urban counterparts.

“That’s not fairness,” he said. “That’s basically saying, ‘We made a deal, and I’m keeping what you gave me but I’m taking back what I gave you.’”

Staff Writer Colin Campbell

Heard under the dome

Report: Tax vote for schools is ‘done deal’

A provision that would allow counties to raise local sales tax rates to fund school construction appears to be a done deal in the budget talks that are still ongoing.

Rep. Ken Goodman, a Democrat whose district includes part of Robeson County, told The Robesonian that when the state budget is approved, all of the state’s 100 counties will have the option to hold referendums to raise the local sales tax.

“I just learned a couple days ago that the Senate budget proposal already includes a provision to allow all counties the option to increase their local sales tax by one-quarter of a percent – if approved by the voters – for school construction,” said Goodman, who along with Robeson County’s other House representatives are primary sponsors of the local options bill that the House is apparently poised to approve.

“I have been told that the House finance chairmen agree that because of the growing number of counties wanting to be included under the local bill that they will not challenge that provision in the Senate budget proposal. This is a moot issue. It’s a done deal,” Goodman said. “Any approved budget will include a provision giving counties statewide the option to increase their local sales tax by one-quarter of a percent for school construction with voter approval.”

The current budget deadline is Aug. 31.

The money report

Sitting Republican state senators raised more than $1.3 million in the first half of 2015, compared with $475,000 brought in by sitting Senate Democrats, according to an analysis of campaign finance reports filed recently at the N.C. State Board of Elections.

The Senate has 34 Republicans and 16 Democrats. Setting aside the fundraising of Republican Sen. Buck Newton and Democratic Sen. Josh Stein, both of whom are expected to run for attorney general in 2016, sitting Republicans outraised sitting Democrats $1.2 million to $110,000, an 11-1 margin.

Stein raised about $365,000 in the first six months of the year, the vast majority of Senate Democrats’ total take. Newton’s campaign brought in $168,000.

Republican senators had about $2.1 million in cash on hand as of July 1, while Democrats had $1.3 million.