N.C. bill could pressure cities to raise taxes or cut spending

Published May 21, 2014

By Jim Morrill

Originally posted in CharlotteObserver.com

Posted: Tuesday, May. 20, 2014

RALEIGH A bill tentatively approved Tuesday by the N.C. House could pressure city officials across the state to raise taxes or cut services, according to the director of the League of Municipalities.

His comments came after the House tentatively passed a far-ranging, 56-page tax bill. Among other things, it would replace the privilege license tax cities collect from businesses and cap it at $100.

Legislative staff estimates the change would cost North Carolina cities $25 million a year and Charlotte alone $8.5 million.

“You’ll see cities go one of two ways: across-the-board service cuts or across-the-board tax increases,” said Paul Meyer, executive director of the N.C. League of Municipalities.

Local governments may have dodged another financial bullet Tuesday.

A Senate bill on hydraulic fracturing, or fracking, contained a provision that would have capped the amount of tax revenues cities and counties receive at 8 percent over those of the previous year. Local government groups argued that would limit their ability to pay for bonds or keep up with growth. The measure was pulled from the bill for further study.

But changes to the business privilege license tax remain alive.

Statewide, 330 cities impose the tax. Charlotte caps its at $10,000 per business. The minimum is $50 per business location. It is generally tallied at 60 cents for each $1,000 of revenue a business generates.

One longtime critic of the tax is former Democratic Sen. – now Mayor – Dan Clodfelter. Clodfelter called the current tax “a crazy quilt,” with individual cities levying it in different amounts with different criteria. That doesn’t mean the mayor likes the current changes.

“If we repeal the tax we’ve got to replace the tax so we don’t mess up local budgets,” he said recently. “I think the tax is archaic and can’t be administered fairly. (But) I’ve never proposed to eliminate it without providing a substitute.”

Meyer calls the state’s estimate that the changes would cost $25 million “the rosiest of all projections.” That’s because it assumes cities would tax all businesses in their jurisdictions, not just some. Take Raleigh, for example. The city is projected to lose $3.4 million under the proposed change.

Now it levies the privilege tax on 20,000 businesses. The state based its projection on the assumption it would find and tax an additional 28,000, according to Meyer of the municipal league.

Democratic Rep. Paul Luebke of Durham said the current tax may have its problems, but it was unfair to change it in a way that would hurt cities. Durham stands to lose $2.2 million.

“Durham should not have to take that kind of hit,” he said during the House debate.

The bill passed 83-35, with 10 Democrats, including Rep. Tricia Cotham of Matthews, joining Republicans to pass it.

Republican Rep. Bill Brawley of Matthews said the loss of the tax would force cities to make priorities. He called the revenue loss “a manageable situation.”

“It does not require the loss of a single firefighter, a single policeman, a single ambulance,” he told colleagues.

Charlotte City Manager Ron Carlee is not recommending any property tax increase this year. The city’s general fund budget for the upcoming year is expected to be about $580 million. The business privilege tax comprises about 3 percent of that amount.

Meyer was also watching the proposal to cap city and country tax revenues at 8 percent above the previous year.

“Whenever the legislature is in session, there’s always friction between state and local governments,” he said.

Morrill: 704-358-5059

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