Progressive Voices

Primary season is upon us and voters across North Carolina are faced with many candidate choices on the national, state, and local levels. In 24 counties, including Orange, Edgecombe and Cumberland, voters will also be deciding whether or not to approve a new revenue source to help fund local services and infrastructure. This choice was made possible by the state legislature's decision to give counties the authority to raise new revenue through either an additional .4 percent land transfer tax or .25 cent sales tax, 33 counties have taken the issue to their ballots. To date, only six counties have been successful- all approving the additional sales tax.

Unquestionably, all counties- rural and urban, fast-growing or those with declining economies- have a long list of important needs that justify raising new revenue. From building new schools to repairing aging water and sewer systems, making investments in our local infrastructure is critical to North Carolina's future. Data confirm that good schools and public amenities are the primary considerations for families' location decisions. Without adequate funding for schools and other public goods and services, growth will slow and populations may even decline as families chose to move to communities which offer a better quality of life.

Conservative groups, however, claim that counties are awash in cash and call on voters to reject either new revenue source in favor of spending cuts. In addition, the NC Association of Realtors and NC Home Builders Association have once again launched intensive campaigns against the four local land transfer tax proposals in Orange, Ashe, Gates and Polk counties. They claim the transfer tax will hurt local economies and home sellers - something that has not occurred in the six North Carolina counties which currently have a one-percent transfer tax. 

Unfortunately, most opponents of the new revenue options misunderstand and misrepresent the great need all counties have for additional revenue to pay for current and expanded services. Even worse, their arguments overlook the most important question that voters should be asking: Will my county use the new revenue source to invest in my community's future or will they simply use it to lower property taxes?

Some, like leaders in Orange County, have clearly stated their intent to use the new revenue source to fund new infrastructure, but others are unabashed in claiming that, if passed, they will use the new revenue to replace part of their property tax. This is troubling not only in that counties will be left in the same position as they are already in, but also because the property tax may in fact be the best revenue source available to them.

Many supporters of the new revenue options are saying that the primary local revenue source, the property tax, is too high and the additional transfer tax or sales tax should be used to take pressure off the property tax to fund growing community needs. What is left out of this discussion is that North Carolina's property taxes are actually quite low. According to 2004-2005 census data, North Carolina's property taxes are among the lowest in the nation. We are ranked 38^th, collecting $744 per person in property taxes compared to the national average of $1,132.

Raising property taxes may actually be the best way to pay for improvements in local infrastructure in many communities, especially if changes to the property tax system, like requiring more frequent revaluations, are made to take pressure off the need to raise rates annually to cover basic county services. Also, compared to the sales and land transfer taxes, it is a fairer, more adequate and more predictable revenue source that is paid by everyone in the community. Homeowners, renters, and businesses all contribute. It is not entirely fair to lower-income homeowners and renters who spend a higher percentage of their income on housing costs than others, but policies can be implemented to help mitigate the impact on low-income residents.

The property tax is also more adequate and stable — meaning that in times of economic downturns like we are currently experiencing, counties can count on property tax revenue being there to meet their budgets. The transfer tax is dependent on the health of the housing market. Some years, it may perform well above expectation, but already in 2008, the growth of the existing .2% land transfer tax in all counties has declined by 12%, a result of changes in the housing market. Sales tax revenues also decline during economic downturns as people buy fewer taxable goods. Rising gas prices will further constrict consumer spending and impact sales tax growth. And, of all the options, the sales tax hits low- and moderate-income families the hardest. 

First and foremost, voters should decide whether or not they want to replace a fair, stable, and adequate revenue source- the property tax- with either of the new local options. At the very least, the promise to residents should be that any new revenue source will be used solely to pay for current unmet needs and the costs associated with growth. Will residents be voting this May to swap one revenue source with another or will their votes help to improve the quality of life in their communities? Let's hope voters in these 24 counties and their elected leaders send a message to the rest of the state - additional revenue is needed and new revenue should be used for savvy new investments.

Meg Gray Wiehe is a Policy Analyst at the N.C. Budget and Tax Center

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This entry was posted on Thursday, May 1st, 2008 at 10:11 am and is filed under Progressive Voices. You can follow any responses to this entry through the RSS 2.0 feed.