Press Release

New JLF report shows slight decline in local government tax burden

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Click here to view and here to listen to Joseph Coletti discussing this report.

RALEIGH — The average North Carolinian surrendered more than 4.5 percent of his personal income to fund city and county government in the 2009 budget year, according to a new John Locke Foundation report.

That percentage is down slightly from 2008, though the report’s author says that decrease does not necessarily signal that local governments are significantly scaling back their demands on residents’ paychecks.

The local tax and fee burden continues to top more than $2,000 a year in five of North Carolina’s largest cities.

“The typical resident of the median county in North Carolina paid $1,304 in taxes and fees to county and municipal governments in the 2009 budget year,” said report author Michael Lowrey, a JLF policy analyst. “That’s up slightly from an inflation-adjusted $1,298 figure for 2008. But as a percentage of personal income, the number dipped slightly from 4.77 percent to 4.56 percent.”

Lowrey cautioned against misreading the numbers. “It’s likely that the figures actually understate the impact of local taxes and fees,” he explained. “Personal income figures are based on the 2008 calendar year, which showed increases for the state as a whole. The worst of the economic downturn is not captured in these figures.”

While the state’s average personal income figure grew in 2008, local governments’ tax and fee revenue dropped by about $250 million during the budget year that stretched from July 2008 through June 2009. “Sales tax receipts fell by more than $400 million, miscellaneous taxes and fees were off by $250 million, but property tax collections increased by nearly $500 million compared to the previous year,” Lowrey said. “Compare lower budget-year tax collections to calendar-year income figures that were still rising at the time, and it appears that local governments are taking a lower percentage of personal income.”

The average resident in the median county forked over 4.33 percent of personal income to local government in 2009, but Lowrey says the average North Carolinian actually fares worse. “The average North Carolinian actually pays a higher percentage, since many of the state’s larger counties have above-average local tax and fee burdens. When this is factored in, a state average would amount to 4.56 percent of personal income.”

Among the state’s largest cities, Charlotte ($2,360 per person), Chapel Hill, Asheville, Mooresville, and Wilmington had the highest local government burdens. They topped the list of 34 ranked municipalities with at least 25,000 residents. Jacksonville ($1,041 per person), Thomasville, Indian Trail, Goldsboro, and Fayetteville ranked lowest in local government burden among the larger cities. Lowrey calculates the burden by adding all local taxes and fees collected in the city, then dividing by the total population.

Three coastal communities — Kill Devil Hills, Carolina Beach, and Oak Island — had the highest local per-person tax burdens among the 92 ranked N.C. communities with populations between 5,000 and 24,999 people. The report ranks each of these communities, along with more than 200 municipalities with populations between 1,000 and 4,999 people. Even residents of more than 200 municipalities with populations of fewer than 1,000 people can see how their communities rank against their peers.

By The Numbers: What Government Costs in North Carolina Cities and Counties FY 2009 is the 13th such report published by the John Locke Foundation. Lowrey used the most recent data available from the State Treasurer, Bureau of Labor Statistics, and Bureau of Economic Analysis to construct rankings of local government cost on a per-person basis. For counties, he also constructed rankings on a share-of-income basis.

Lowrey continues to highlight a problem that helps skew data. Nearly 30 communities missed state deadlines to file their State Treasurer’s Annual Financial Information Report.

“Graham and Hoke counties and 27 municipalities missed the deadline to submit audited financial statements to the state,” Lowrey said. “Whether those local governments filed the statements after the deadline or not, the information still is not available from the treasurer’s office. Without those reports, By The Numbers cannot include local tax burdens for those communities. Complete reporting would result in a somewhat higher combined county municipal median tax burden.”

Lowrey also repeated his annual warning against comparing the relatively high per-capita tax numbers in resort communities to those in other N.C. cities. Communities with larger numbers of second homes and resorts — combined with small year-round populations — will see larger per-capita tax burden figures, he said.

Among the 10 most populous counties, Durham (5.50 percent), Mecklenburg (5.48 percent), Guilford (5.14 percent), New Hanover (5.02 percent), and Buncombe (4.87 percent) ranked among the top 25 N.C. counties in average cost of local government. Wake (4.67 percent), Gaston (4.64 percent), Union (4.58 percent), and Forsyth (4.54 percent) ranked near the middle of the pack. Cumberland (3.41 percent) ranked among the 25 N.C. counties with the lowest tax burdens.

North Carolina collected $17 billion in state tax and fee revenues from July 1, 2008, to June 30, 2009. That’s 5.2 percent of state residents’ personal income. Local governments collected an additional $14.9 billion in property, sales, and other taxes and fees. That’s another 4.6 percent of personal income.

“Combined, they represent a state and local tax and fee burden of about 9.8 percent,” Lowrey said. “Federal collections raise the total tax burden on North Carolinians to approximately 27.1 percent of personal income, on average.”

Taxpayers should consider the role their elected leaders play in setting tax and fee burdens, said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. “Cities and counties often pay the costs of mandates from the state and federal governments, but many local governments also create their own fiscal problems through overspending,” he said. “While the economic downturn and some communities’ failure to report data skew this year’s results, long-term trends have pointed toward a rising cost of local government in North Carolina.”

Lowrey and Coletti stress that a high cost-of-government ranking in the By The Numbers report does not equal a judgment that a city or county is governed poorly.

By The Numbers is a tool that represents factual data only, without editorial comment or bias,” Coletti said. “The best way to compare your city or county to others is to find municipalities or counties of similar size and demographics.”

“This report helps taxpayers evaluate whether the services they receive from local government merit what they are paying for them,” he added. “We hope taxpayers will continue to ask about the proper role of local government and its relationship to the state. It’s important to keep these discussions alive and to ensure our local leaders remain accountable to taxpayers.”

The John Locke Foundation Policy Report, “By The Numbers: What Government Costs in North Carolina Cities and Counties FY 2009,” is available at the JLF Web site. For more information, please contact Joseph Coletti 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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About John Locke Foundation

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.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.