by Sarah Curry
Director of Fiscal Policy Studies
Tuesday was a big day for many political races across North Carolina, but some of the races that were overlooked by major media outlets will affect citizens the most. There were thirty bonds on ballots across the state in more than a dozen counties, and all of them passed. Sales tax referendums were not so lucky. A total of ten counties had the optional quarter-cent sales tax on the ballot, and only two counties decided to pass the tax increase.
These two local government issues are similar in that one is a tax increase while the other is an increase in spending that is likely to lead to a tax increase. When a local government’s board decides to fund government operations they can choose from a long list of options for the necessary revenue, the most common being raising taxes, using existing tax revenue, or issuing new debt.
During this election cycle, many decided to offer general obligation bonds to pay for schools, streets and sidewalks, parks and recreation, water systems, and other items. While some might argue that these are appropriate functions of government, should debt be issued to fund these initiatives? General obligation bonds are a general obligation of the citizens of the taxing jurisdiction. So while they offer the lowest interest rate of available debt vehicles, they are supported by all the taxing power of the local government. According to North Carolina law, a general obligation pledge is not subject to the $1.50 per $100 valuation property tax rate limitation. So will property taxes increase to pay for these bonds?
Iredell County has already said property taxes will increase nearly 9 percent, Raleigh will increase taxes by more than 4 percent, the town of Blowing Rock will increase theirs by 3 percent per year for the next 10 years, and the city of Hickory has said the rates will increase but has not given an amount. While cities and counties are not required to increase their property taxes to pay for the bonds, most eventually increase property tax rates to pay for the increased debt service. This is what Cabarrus County said about their bonds,
General Obligation bonds are low-interest loans often used by municipalities to finance capital (building and repair) projects that are above-and-beyond the scope of the annual operating budget. They are secured by the County’s tax rate, which the County pledges to levy in order to provide for the repayment of the debt.
When local governments are spending "above-and-beyond the scope of the annual operating budget," it is hard not to believe that all bond referendums will eventually lead to property tax increases. In total, bonds passed during the November 4th election will increase local county and municipal debt by over $1 billion.
Here are the results from the November 4th, 2014 bond referendums:
Sales taxes did not fare so well during this election. Only two of the ten counties with a sales tax increase on the ballot saw that measure passed. Anson and Ashe Counties increased their sales taxes by a quarter-cent, making their combined local and state sales taxes 7 percent. While the two that passed were tight races, many of those that failed did so overwhelmingly. Since the 2007 legislation that gave counties an option to vote for a quarter-cent sales tax, there have been 106 referendums held in 66 counties. Of those 106, 29 have been approved.
Here are the results for the sales tax referendums. Remember, while all the counties gave a reason for the sales tax increase, there is no legal restriction requiring the governing board to spend the additional revenue on these specific projects. The additional funds will go into the county’s overall revenue and be distributed based upon the current boards budget, regardless of what was promised during the election.
Many of the counties that had a sales tax on the ballot also had bonds on the ballot. While all the bonds passed, the sales taxes did not. It leads one to think that counties and cities have learned that citizens are more likely to vote for a bond, which will eventually raise their property taxes, instead of voting for an immediate sales tax increase. Bond referendums should be required to disclose the amount the property tax will increase to pay for the bond. If that change was implemented, would bonds pass as frequently as they do under the current system? Maybe it’s time citizens voting for a property tax increase through a bond are given all the information — as is the case with the sales tax.
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