Progressive Voices

On August 29, voters in Clay County North Carolina defeated a ballot proposal that would have allowed county commissioners to increase the local real estate transfer tax by 0.4%. As required by state law, the fund generated by the increase would have gone toward school construction costs. With 39% having voted in favor of the tax, the vote was closer in Clay County than it has been in many of the other 19 counties that have attempted to pass this tax increase. But that won’t stop opponents from claiming that this defeat signals the need for the state to repeal the authority of counties to levy this tax.

Unfortunately, there are two aspects the transfer tax debate have not been adequately addressed – the fact that the transfer tax is not always preferable to raising property taxes and that the state may need this revenue source more than the counties. If the drive behind increasing local transfer taxes is truly about how best to pay for school construction needs then raising the property tax is often the wisest option.

Take Clay County for example. The need for new revenue is hardly in dispute – the county only has one school campus which is overcrowded and needs another building. As a rural, mountainous county there are undoubtedly lots of outsiders buying up land for future development or building vacation homes, making the transfer tax seem like an attractive way to make outsiders and carpetbaggers pay their fair share. But Clay County already has a fair and stable, albeit unpopular, means of financing local responsibilities – the property tax. In fact, Clay County has the third lowest effective property tax rate in the state according to the Association of County Commissioners.

There may be some counties where the transfer tax makes sense. The transfer tax makes the most sense for fast-growing counties with primarily residential property and effective property tax rates at the high end of the spectrum. Unfortunately, far too many counties are looking to the transfer tax as a way to cut or keep from increasing local property taxes.

In addition to rethinking which counties, if any, should raise the transfer tax as opposed to property taxes it’s time to discuss the state’s infrastructure needs, how to finance them and how best to confront the false claims being made by realtors and homebuilders. According to the Asheville Citizen Times the Realtors’ Association spent over $36,000 on the Clay county fight alone. Local officials and supporters of increasing the tax will never be able to compete with that level of resources from the opponents.

It may be time to force the Realtors to pick on someone their own size, so to speak. In this case that would be the governor and the General Assembly. In addition to leveling the political playing field by moving this battle to state level, it can also be argued that state government may need this revenue source as much as if not more than local governments. The state’s infrastructure needs, such as maintaining roads, preserving open space, and building affordable housing, also need to be addressed. It is a little known fact that the state already levies a small real estate transfer tax and raising the tax at the state level may be the only way to make sure the fight between advocates for the tax and the realtors association is a fair one.

Local infrastructure needs are hardly in dispute, but too many counties are looking to the transfer tax merely to avoid raising property taxes. Moreover, the Realtors are apparently willing to spend whatever it takes to defeat these local ballot referenda. Somewhere in the middle of this circus is the group that deserves attention but is not getting it – the school children and their need for decent school facilities in which to learn. If everyone on both sides of this issue can collectively focus on the children, perhaps it will be possible to have a rational, fact-based discussion.

Elaine Mejia is the Director of the N.C. Budget and Tax Center

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This entry was posted on Monday, October 6th, 2008 at 4:51 am and is filed under Progressive Voices. You can follow any responses to this entry through the RSS 2.0 feed.