Paying today for hamburger tomorrow

Remember the old Popeye cartoons? J. Wellington “Wimpy” was a moocher who repeatedly promised, “I will gladly pay you tomorrow for a hamburger today.” But the reverse is true when considering property taxes. Property owners are paying taxes today on an anticipated payday in the future.

Our legislators opened a can of worms when they agreed to discuss and offer possible reforms to property tax laws. With income, sales and use taxes or many other forms of taxes the payment is required when the transaction is conducted. That isn’t the case with real estate taxes.  

Cities and Counties are creations of and are subordinate to the General Assembly. The legislature has almost total control over what they can do and how they generate revenues. The two primary revenue sources are sales taxes, accounting for approximately 18 percent of total revenues, and property taxes, amounting to about 50 percent.

The state has an established sales tax rate of 4.75 percent, with cities and counties authorized to levy an additional 2.75 percent, either by having a voter referendum to approve the addition or by getting authorization from the General Assembly. With property taxes there has been a general “rule of thumb” that taxes would imposed at around $1.50 in taxes for every $100 valuation in property; that amount can be exceeded to help retire voter-approved debt.

North Carolina law requires all counties to conduct real property revaluations at least every eight years to reflect current market values and more accurately assess property taxes. About half of our 100 counties do so every four years to offset the “sticker shock” from big tax increases and ensure values more closely align with the marketplace.

Locally elected government officials say they are caught between a rock and hard place. Population growth and rising costs put pressure on them to fund law enforcement and public safety, jails, water and sewer treatment plants, schools, public health services, recreation and employee salaries. State law requires they must operate with a balanced budget. Property taxes are one variable with which they can have some discretionary authority to meet these demands.

But according to a recent report from The NC Chamber, total county revenues in our state grew over 35 percent over the decade ending in 2023. Most of those increases (approximately 80 percent) came from sales and use taxes and can be attributed to strong consumer spending, as well as significant population increases. But property tax revenues grew by about 15 percent during the period.

According to a presentation from the Tax Foundation home values in our state have grown faster than the national average. Between 2018 and 2023 real property values rose an average of 12.26 percent and property tax revenues increased by 5.27 percent, suggesting the counties offset more than half the valuation increase by reducing rates, however in 64 of our 100 counties the growth in property tax revenues exceeded the growth in real estate values.

Property owners are complaining about the large increases in property taxes they are being assessed and our lawmakers are listening.

Other states have instituted property tax reforms. Some of the proposed solutions include capping annual increases in assessed values at perhaps 3-5 percent or instituting targeted tax relief programs, such as increased homestead exemptions, limiting taxes capped as a percentage of homeowner income or even deferrals for seniors. One reform that seems to be gathering popularity is called “levy limits,” in which total revenue growth from existing properties would be capped.

As might be expected, each of these proposals has advantages and disadvantages. Lawmakers will be tasked to consider how to prevent property owners from having frequent large tax increases while not putting local officials in the box of being unable to meet county needs. And how do you initiate reforms that will be beneficial to rural counties losing population and consumer spending while, at the same time, addressing the needs of growing urban counties? It is probably out of the question that the legislature might offer counties some additional sources for revenues to take some pressure off property taxes. Perhaps lottery proceeds?

We don’t expect much will come of these proposed property tax reforms this year. For one thing it is an election year and all 170 of our legislators will be standing for election. Further, a legislature that cannot even pass a state budget is unlikely to come together to tackle and resolve an issue with such significance this year.

Tom Campbell is a Hall of Fame North Carolina broadcaster and columnist who has covered North Carolina public policy issues since 1965.  Contact him at tomcamp@carolinabroadcasting.com