NC cities look at ways to strengthen revenue base

Published January 14, 2015

by Gareth McGrath, Wilmington Star-News, January 13, 2014.

As the Republican-led General Assembly has moved to simplify and lower the state's tax structure in recent years, local governments have often found themselves on the back foot – politically and financially.

The GOP credits the package of tax cuts and the elimination or loosening of regulations and programs approved since they took over the legislature in 2011 for the state's improving economy and stronger fiscal position. But the moves also have left municipalities struggling to cover the increasing costs of providing services even as the decisions in Raleigh, including rescinding involuntary annexations by municipalities and the privilege license tax, prove largely popular with the public and business communities.

For Wilmington and many other municipalities, a legislative priority this year is to regain some of the fiscal tools in their toolboxes that they've seen whittled away in recent years.

"We just think it's important that cities have flexibility, financial options and that we don't need to be putting all our eggs in the property tax basket," said Scott Mooneyham, spokesman with the N.C. League of Municipalities.

The privilege license tax, which the league of municipalities estimates will cost cities and towns $62 million in revenue, is a decades-old tax that is meant to cover a municipalities' costs for such things as fire and police protection of the businesses within its limits. The General Assembly voted to do away with the tax during last year's short session.

Wilmington Mayor Bill Saffo said the loss of the privilege tax, which is expected to have a $2.3 million impact on the city's budget, and the inability to now annex areas adjacent to the city means officials have to look at other ways to generate revenue to keep up with the level of services that residents have come to expect.

But those options are few – although the mayor said the city still has some large tracts that can be developed within its limits.

"We would like to see that base broadened," he said, alluding to the increased focus on property taxes that municipalities could be forced to rely on for new revenue.

That Gov. Pat McCrory is the former mayor of Charlotte is a plus, Saffo said, noting that the governor has said he plans to work on coming up with a funding program to replace some of the lost privilege tax revenue.

"I believe he has a very good understanding of what we're dealing with," he said. "But he also has to deal with legislators in both the House and Senate that may not always see the same way he does."

Another proposal that's percolating in Raleigh is a proposed change in how the state distributes sales tax revenue.

Some lawmakers, including state Sen. Harry Brown, R-Onslow, have discussed shifting to more of a per capita system from the current distribution formula that largely benefits more urban counties that have shopping centers or are tourist meccas – like New Hanover County. That's because most of the revenue, generally 75 percent, goes back to the counties where goods are sold. Twenty-five percent is distributed among the counties based on population, according to the state Department of Revenue. The revenue is then shared between county and municipal governments.

At an estimated $54 million for this fiscal year, sales tax revenue represents the second largest contributor to New Hanover's budget after property taxes. And unlike the county's property tax base, sales tax revenue has shown strong growth in recent years as the economy slowly rebounds.

But some rural legislators feel that distribution method is tilted to the state's larger, more urban counties – which are already seeing most of the economic development and job growth in the state.

That's prompted groups like the N.C. Metropolitan Mayors Coalition to propose that the real issue isn't a simmering urban-rural divide, but a lack of development and resource opportunities for rural areas.

"The question is whose responsible to devise such a development plan and fund it," said Julie White, the group's executive director, noting that historically that has fallen under the state's purview.

She added that the coalition plans to work with others to come up with ideas that can be economic development "wins" for both urban and rural areas within the larger regional economy.

Those are likely to include proposals for improved and increased transportation and economic incentive programs – something Saffo said is absolutely vital if North Carolina wants to remain competitive in attracting and retaining businesses.

"We need those programs," he said, ticking off film, historical preservation incentives and job-development grant programs as "must haves." "If we don't, it's going to have dire consequences for us here and across the state."

The General Assembly reconvenes on Wednesday in Raleigh.

http://www.starnewsonline.com/article/20150113/ARTICLES/150119928/1015/news0101?template=printart

January 14, 2015 at 9:35 am
Frank Burns says:

Note to all the schemers and planners, a tax hike is unacceptable. NC taxes are already way too high.