Press Release

JLF analysts question Clay’s proposed land-transfer tax hike

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RALEIGH — Clay County tax revenues climbed by more than 40 percent per person over the last five years, a fact that suggests the county does not need a new land-transfer tax. That’s the conclusion of John Locke Foundation analysts who have studied Clay County’s budget figures.

Clay County commissioners are asking voters to address the tax in a referendum scheduled on the Friday leading into Labor Day weekend. “Clay County commissioners need to practice more honesty in government,” said Joseph Coletti, JLF Fiscal Policy Analyst. “Tax revenues per person, adjusted for inflation, climbed 43 percent in Clay County between fiscal year 2002 and 2007. Sales tax proceeds have driven this increase.” (See this graph for details.)

Commissioners are asking voters Aug. 29 to triple the land-transfer tax, also known as the real-estate transfer tax. “This tax increase would affect every home sale in Clay County,” said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “The tax for a $200,000 home would climb from $400 to $1,200. Commissioners say they need to raise taxes for the annual payment on a loan to build a new school. Our analysis suggests that Clay County government could address its needs by setting better priorities with its existing resources.”

“And taxpayers should remember that commissioners’ statements about how they would use new revenue are not legally binding,” Sanera added. “Once they raise a tax, the law says they can use new tax revenue for any legal purpose.”

A land-transfer tax is not the best option for school construction, said Terry Stoops, JLF Education Policy Analyst. “If Clay County needs to build a new school, commissioners should put a school bond referendum on the November ballot,” he said. “If approved by voters, a bond would be transparent to voters and allow for tax revenue to be obligated for the debt.”

“Land-transfer taxes are ill-suited for paying for school facilities,” Stoops added. “There is no guarantee that revenue from a land-transfer tax would remain a stable and sufficient source of funding.”

Clay County leaders say the tax would generate $300,000, even during a slow market, Coletti said. Taxpayers should question the way Clay County has spent its increased tax proceeds from the past five years, he said. “Commissioners could have used some of this money to address school needs,” he said. “Instead, they have used it to pay debt service on the recently completed jail with flat-screen televisions and space to hold up to 60 inmates. The jail could last 49 years if the inmate population grows at the same rate as the general population. The jail might have been needed, but it likely could have been built in cooperation with a neighboring county or two.”

“Having taken on a bond to build a jail and pay for it with property taxes, do commissioners think voters will be less inclined to pay taxes for a school?” Coletti asked. “Flat-panel TVs for inmates and hidden taxes for residents appear to be county commissioners’ priorities.”

Counties cannot raise the real-estate transfer tax without a local referendum. Nineteen counties have pursued that option since November 2007. Voters have rejected each real-estate transfer tax hike. Last November, voters rejected this option by a four-to-one margin. Nearly two-thirds of voters said no to real-estate transfer tax increases in May.

The timing of Clay County’s referendum is suspect, Sanera said. “The fact that the commissioners set the election on the Friday before Labor Day shows that they are not only desperate, but they are also banking on an extremely low voter turnout to pass their tax increase.”

“The opportunity for Clay County citizens to vote Aug. 29 provides a check on the county commission,” Sanera said. “Citizens, when given the chance, are rejecting tax increases and sending a message to county commissions: live within the means of county taxpayers.”

For more information, please contact Dr. Michael Sanera at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].

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We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

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