Gov. Pat McCrory says his “biggest concern” about the N.C. Senate’s draft state budget is the plan embedded in it to shift hundreds of millions of dollars in sales-tax revenue from urban to rural counties.
The proposal “will have a major negative impact on economic centers across the state, and [on] travel and tourism centers in the mountains and on the coast,” McCrory said an interview this week with The Herald-Sun.
He added that the Senate plan undermines local authority, as it targets the proceeds of a portion of the sales tax that county governments ultimately have the power to decide whether or not to levy.
“It’s not our tax,” McCrory said. “It’s a local tax. It’s not a state tax, it’s a local tax, and I believe in local control. We have to keep reminding ourselves that when we talk about that portion of the sales tax, it’s the local portion, and I don’t think it’s Raleigh’s decision.”
The Senate plan is the brainchild of the chamber’s majority leader, Sen. Harry Brown, R-Onslow, who’s argued that the state has to do something to help rural counties that lack much of a tax base of their own.
The solution Brown and his allies offer is to target the revenue that flows most prolifically from big-box retail stores and regional shopping centers like Durham’s Streets of Southpoint mall.
Such operations, they argue, attract and depend on customers who come from rural areas. In their view, it’s only fair for much of that money to flow back to the customers’ homes.
The shift would affect the revenue generated by 2 percent of the sales tax rate. At present, 75 percent of that money stays at the “point of collection,” meaning the counties where goods and services are actually purchased.
The remaining 25 percent is shared with counties across the state, the N.C. Department of Revenue handing it out to them on a “per-capita” basis in accord with their population, according to a summary written by legislative staffers.
Brown’s plan would flip that on its head.
By fiscal 2019-20, at the conclusion of a four-year phase-in, only 20 percent of the money would still be staying in the counties where the sale actually took place. The remaining 80 percent would be split amongst counties on a per-capita basis.
And that translates into major losses for places like Durham, major windfalls for counties like those Brown and other Senate leaders represent, and some odd side effects.
For Durham’s county and city governments, legislative staffers estimate the plan will take away about $26.2 million in potential revenue over four years.
The county government, which shares with the state the responsibility for funding the local schools, would lose $14.0 million in that time. The city of Durham would lose $11.9 million. Raleigh and Chapel Hill would also incur small losses because some of their territory is in Durham County.
The legislative estimate factors in other changes Senate advocates of the plan say will expand the sales-tax base and thus soften the blow. McCrory’s staff figures the actual impact of the plan locally will be much heavier.
Communities in neighboring Orange County, however, would see a windfall thanks to one of the plan’s oddities.
Legislative staffers reckon they’d receive about $12.6 million more under the Senate plan over four years than under the present split. The Orange County Commissioners would have $7.6 million more to spend. Chapel Hill would get $3.4 million more, Carrboro $1.2 million, Hillsborough $364,577 and Mebane $109,825.
The oddity isn’t just that Orange County, as one of the state’s wealthiest communities, would benefit from a plan ostensibly set up to help its poorest. Orange also has a relatively small sales-tax base by choice, as its political leadership wanted to keep its retail sector small and limit the ability of big-box retailers to set up shop.
Elsewhere, the home counties of the Senate’s five highest-ranking leaders could see a combined $159.7 million windfall over four years, presuming they take advantage of all their local-option sales-tax authority, according to the legislative staff estimate.
Of that, $35.9 million would go to governments in Onslow County, home not just to Brown but also the U.S. Marine Corps’ Camp Lejeune. Another $40.3 million would go to governments in Wayne County, home to Senate Deputy President Pro Tem Louis Pate and the Seymour Johnson Air Force Base.
Military installations are a mixed bag for local economies, offering stable employment but not much in terms of tax base. Local and state governments can’t tax federal land.
The Senate’s GOP caucus secretary, Sen. Fletcher Hartsell, is from Cabarrus County, which stands to receive $20.1 million more from the plan over four years, according to the legislative staff estimate.
Cabarrus is on the edge of Charlotte. It has major retail centers, and is home to most of the state’s motorsports industry.
Local boards in Randolph County, home to Senate Majority Whip Jerry Tillman, are in line for a $34.4 million windfall over four years. And those in Rockingham County, home to President Pro Tem Phil Berger, could get nearly $29.0 million more.
Randolph and Rockingham are on the edge of the Triad, the Greensboro/Winston-Salem/High Point region that on the whole has had a harder time than the Triangle in handling the decline of tobacco, textiles and furniture manufacturing.
McCrory made it clear he believes the loss of sale-tax revenue in urban areas will trigger an offsetting round of property tax increases.
“I do think it’s a major tax increase on millions of people in North Carolina, a kind of hidden tax increase, just transferred to the counties and cities,” he said. “You’ve got a choice there, but you’ve got to be truthful about that.”
His point about local control, meanwhile, implied a more expansive view of local-government authority than is common among GOP legislators.
Most hold to the view that there’s really no such thing as local government under the North Carolina constitution, as cities, towns and counties only have the powers the General Assembly delegates to them.
But McCrory, in saying the portion of the sales tax at issue is a “local tax,” was echoing a point he made in the early 2000s as mayor of Charlotte, when he led other city mayors in fighting a decision by former Gov. Mike Easley to impound shared revenue to help balance the state’s books amid a recession.
Follow Ray Gronberg on Twitter @rcgronberg
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