JLF experts question Clay County’s proposed $200,000 tax hike

October 13, 2010

RALEIGH — Clay County commissioners say a $200,000 sales-tax hike would help them pay for a new school, but John Locke Foundation researchers explain in a new Regional Brief that the numbers don’t match the rhetoric.

Voters will decide Nov. 2 whether county commissioners can raise the local sales tax rate by 0.25 cents. As they cast their ballots, JLF experts urge them to consider the real costs associated with a new elementary school, the need for that school, and the difficulty of keeping track of Clay County’s government spending.

“Clay County’s requested tax increase offers voters the opportunity to decide if they have confidence in commissioners’ stewardship of county taxpayer dollars,” said Dr. Michael Sanera, JLF Director of Research and Local Government Studies. “Our research leaves us with more questions than answers about commissioners’ management of scarce tax dollars.”

A $200,000 sales-tax hike would be equivalent to a 1.4-cent property tax hike, Sanera said. He analyzes the proposal with the help of report co-authors Joseph Coletti, JLF Director of Health and Fiscal Policy Studies, and Dr. Terry Stoops, Director of Education Studies.

Commissioners have pledged to use additional sales-tax revenue to pay for a new 25-classroom elementary school in Hayesville, Sanera said. A $10 million interest-free loan from the federal government allows the project to move forward.

“Voters should not be fooled into thinking that Clay County can rely on an extra quarter-cent of sales tax alone to pay the bill for this school,” Sanera explained. “Taxpayers will be required to repay nearly $715,000 a year over the 14-year life of the loan, more than double what the sales tax would generate if revenues grow by 5 percent annually.”

It’s unclear how Clay County plans to cover the rest of the bill, Sanera said. “As of mid-October, the county commission has not established a definitive repayment plan for the bond debt,” he said. “This has not stopped Clay County officials from hiring a construction management company and opening the bidding process to architects and design firms.”

Beyond concerns about the costs, voters should consider whether Clay County actually needs a new school now, Sanera said. “Student enrollment has fluctuated significantly since 2000,” he said. “Enrollment spikes in 2007 and 2009 do not appear to have initiated any permanent growth trends. Enrollment trends suggest Clay County will have about 1,375 students by the 2015-16 school year.”

“Student enrollment changes do not provide school officials and county commissioners with a compelling reason to build a new primary school,” Sanera added.

There’s another key issue for voters to address, Sanera said. “They must weigh how much they trust county officials to use new tax revenue as promised,” he said. “State law allows sales-tax revenue to be used for any legal purpose, and the current commissioners cannot bind future boards to use this money just for the Hayesville school. Even if commissioners stick with the plan, there is no end date for the tax. The higher tax rate will remain after the bond is repaid in 14 years.”

Voters will have a hard time determining how county commissioners are spending the money, Sanera said. “Clay County is one of the least transparent county governments in the state, earning a D grade from the NCTransparency.com website,” he said. “The county posts no financial information, meeting minutes, or resolutions online. Nowhere on the county’s website can citizens find any mention of the sales-tax vote.”

Since the General Assembly decided in 2007 to give each North Carolina county the chance to seek voter approval for higher sales or land-transfer taxes, voters have rejected higher taxes 68 times in 85 tries.

“Citizens at all levels — federal, state, and local — are frustrated with excessive and wasteful government spending,” Sanera said. “They believe they are not getting value for their tax dollars. County spending is no different. Clay County voters have a chance to send commissioners a clear message Nov. 2.”

Michael Sanera, Terry Stoops, and Joseph Coletti’s Regional Brief, “Tax First, Duck Questions Later: Highly secretive Clay County wants voters to approve a tax increase,” is available at the JLF Web site. For more information, please contact Sanera at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].