The North Carolina General Assembly — more specifically, the Republicans in the Senate — are proposing a sweeping change in the way sales taxes are funneled back to the state’s counties and cities.
And it’s a change that would be devastating, crippling, scary, a game-changer for Dare County.
If it happens, Dare County will lose from $9 million to $15 million of revenue annually from its general fund budget of just $101 million.
The amount is equal to about half of the funding county allocates to schools, more than the entire Emergency Medical Services budget, and 91 percent of the amount allocated to the sheriff’s office, 911 communications, and the jail.
If it happens, the county’s property owners could see their taxes increase as much as 12 cents per $100 of valuation to replace the lost revenue.
Dare County’s ad valorem tax rate is now 43 cents per $100. If the Senate succeeds in ramming through its sales tax redistribution plan, property owners could be paying up to 12 cents more — 55 cents per $100 — to keep the same level of services we now have.
The tax bill on a $200,000 house in unincorporated Dare County is now $860. It could be $1,100.
And, on top of that, Dare’s municipalities will also lose funds and would require ad valorem tax increases of 5 cents or more to replace the lost revenue.
Currently, local sales and use taxes are distributed in North Carolina based 75 percent on point of the sale and 25 percent on a county’s or city’s population.
This is for a reason. Counties with more commerce and tourists need more infrastructure than would be required by their population alone. These counties need to provide more services for the increased number of people who travel there for shopping, work, or vacations.
Of course, the current formula then favors larger counties that are economic hubs or counties that attract a lot of tourists — but, again, for a reason.
As a result, smaller counties, which are usually also poorer counties, struggle to fund schools and essential services. Funding, especially for schools, in smaller, poorer areas is a long-standing problem for most states.
And it’s one that should be addressed, but not the way that the Senate has proposed.
The proposed legislation, Senate Bill 369, would flip the formula for distributing sales tax — and then some. Eighty percent would be distributed based on population and only 20 percent on the basis of point of sale and would be phased in over four years.
“The current system takes money out of our counties, which are struggling, and gives it to cities that are thriving,” Sen. Harry Brown, an Onslow County Republican and sponsor of the bill, said at a news conference he organized earlier this week.
The current system, Brown said, is “stealing from the poor to give to the rich.” The Senate proposal will be more fair and equitable to the state’s poorest counties.
The legislation is sponsored or co-sponsored by 13 senators — 12 of them Republicans, even though income redistribution is not generally not a tool favored by the GOP.
The proposal would benefit 83 of North Carolina’s 100 counties, he said, and representatives from a dozen or more of those areas spoke about their support in the senator’s news conference. Of the 17 counties that stand to lose funds if the plan becomes law, Dare County would lose the most.
That is because the county has a relatively low year-round population of only 35,000 people, which ranks it about 68th out of the state’s 100 counties. But with the large influx of visitors during the tourist season, the county must be prepared to serve a population of about 300,000. That places Dare at somewhere between the size of Cumberland and Durham counties, the fifth and sixth largest in the state.
Out-of-state visitors generate the bulk of Dare’s revenue from sales tax, which, in turn, allows the county to serve the visitors with increased law enforcement, fire protection, emergency medical services, trash pickup, water, and the like.
Dare’s economy is also dependent on its clean, accessible beaches and its inlets that provide access to the ocean for its recreational charter boat industry.
The county and its towns have already invested millions of dollars in beach nourishment. One project in Nags Head has been completed and another four are set to begin next summer. In addition, the county has budgeted $3 million for a new fund for inlet maintenance, beginning next year.
If the new sales tax plan becomes law, beach nourishment and dredging will become unaffordable luxuries.
Sales tax revenues do more than support the tourist economy. In addition,Dare is one of the state’s “donor” counties — a county that returns sales tax revenue to the state and other counties. According to county figures, Dare County has returned more than $80 million in sales tax revenue in the past 10 years.
Opposition to the Senate plan is coming not only from Dare and other counties with tourism economies but also from larger counties that are commercial hubs and from many members of the House and Gov. Pat McCrory.
Several members of the Dare County Board of Commissioners are making weekly trips to Raleigh to lobby legislators, and Bob Woodard, the commission chairman, has spoken passionately about the “devastating” effect the plan would have during his updates at the board meetings.
?The Dare County Board of Commissioners is committed to fighting this every step of the way until the final vote on the state budget is taken,? Woodard said this week. ?We are also committed to keeping our citizens informed as to our efforts. It is important for everyone in Dare County to know the negative effect it will have on them individually if this sales tax redistribution plan goes into effect. As Gov. Pat McCrory has warned, this legislation will decimate our travel and tourism sector.?
At his press conference this week, Brown said the opposition is “focused on the exaggerated, the extreme.” Phased in over four years, he said, the plan will have “little effect.”
It is true that the estimated loss of revenue by the North Carolina General Assembly staff is “just $9.3” million at the end of the four-year phase-in. However, the estimate is based on an annual sales tax growth rate of 3.5 percent, which Dare County officials say is too low.
Dare County finance director Dave Clawson is “conservatively” estimating a sales tax growth in this fiscal year of 5 percent. Using that annual growth rate, the loss to Dare in fiscal year 2019-20 would be $15 million.
Brown has also said that tourism hubs, such as Dare, have lower property tax rates and the “tax capacity” — whatever that means — to absorb the sales tax funding cut.
I assume that he means we can afford to hike property taxes by 25 percent or so and barely feel the pinch.
That’s really a myth.
It’s true that Dare County has the sixth lowest ad valorem tax rate in the state at 43 cents per $100 of valuation. Property owners in some smaller counties pay much higher rates. In Hyde County, for example, the rate is 64 cents per $100. It’s 69 cents in Tyrell and 79 cents in Washington County.
However, Dare County also has some of the highest property values in the state. County officials say this makes Dare a “low rate, high value” county, while others are “high rate, low value” counties.
The result is that while Dare County property owners are paying at a much lower rate than homeowners in other counties, they are often still paying more in ad valorem taxes.
Rep. Paul Tine’s office came up with some examples based on information from www.city-date.com.
- An average 1,500 square-foot home in Dare County is valued at $239,000. At 43 cents per $100, the owner is paying $1,029 in ad valorem taxes.
- An average 1,500 square-foot home in Nash County is valued at $100,500. At 67 cents per $100, the owner is paying $740 in ad valorem taxes.
- An average 1,500 square-foot home in Richmond County is $79,230. At 81 cents per $100, the owner is paying $641.
Brown also makes the argument that some smaller, poorer counties are getting less in sales tax funds because their residents are traveling to other nearby counties to shop and, therefore, paying for such things as schools in the counties where they are spending their money.
Well, that argument won’t work for Dare County. Nobody comes to Dare County to shop because the prices are lower. In fact, if anything, it works the other way around. For instance, folks in Dare County sometimes go to other adjoining counties to buy gas because the cost is lower there.
Finally, toward the end of Sen. Brown’s news conference, we get down to some of the real political nitty-gritty.
“I understand Dare County will have to give a little,” he said this week. “But past leadership has looked out for Dare County.”
He said the same thing at the news conference when he introduced the bill last winter, and the comment is a reference of former Sen. Marc Basnight of Manteo, who was the powerful Senate President pro tem for almost two decades.
Most who know him and were observers during his leadership agree that brought many good things to Dare County — and to all of North Carolina.
So how long will Dare County have to pay for this perceived political wrongdoing?
There are good reasons to address the problem of economic fairness and parity, especially when it comes to such issues as the education of North Carolina’s children.
However, the Senate tax redistribution plan is not the answer. It will only throw money at poor counties, while wrecking a thriving tourist economy.
Furthermore, a major change in policy such as the way sales tax revenues are distributed among counties should not be crammed into a 508-page budget bill that includes many “special provisions” that have not been given proper public debate or scrutiny.
Senate Bill 369 has never been discussed or debated on the Senate floor. It was filed on March 23 and sent to the Senate Committee on Finance on March 24. And there it has sat ever since.
Instead of considering it as a stand-alone bill, the Senate leaders chose to include it in that chamber’s version of the budget. The sales tax plan is not included in the House budget.
However, by sticking it in the budget, the Senate has now guaranteed that the issue will get less public scrutiny and debate — along with other “special provisions.”
“It seems somehow lazy and undemocratic to ram through complex and controversial changes with one vote,” Patrick Gannon, a political columnist in Raleigh, recently wrote.
As a matter of fact, Sen. Bill Cook, who represents Dare County, voted for the Senate budget because, he said, it had many good things in it. Too bad one of them was the sales tax plan, though he later said he would work in a conference committee to remove the redistribution plan.
That’s where the proposed sales tax distribution formula is now — being considered by a big group of negotiators in a conference committee of House and Senate members. And most of that will happen behind closed doors — again without much public debate or scrutiny.
Rep. Paul Tine, who represents Dare, is co-chairman of the House budget conference committee. Cook is a member of the Senate committee.
The House is making an effort to give the public some input on some of the policy provisions that made their way into the budget by holding committee hearings. It had one this week on controversial proposals to change coastal stormwater rules.
Nothing like that is happening in the Senate.
If you live in Dare County or own property here, you can try to have some input into the process by contacting legislators to let them know your views on the sales tax plan.
You can reach Paul Tine at Paul.Tine@ncleg.net. You can reach Bill Cook at Bill.Cook@ncleg.net.
Click here for a list of House budget conferees.
Click here for a list of Senate Budget conferees.
