October 13, 2010

RALEIGH — Alleghany County commissioners are relying on pure speculation as they push a $160,000 sales tax hike. That’s the conclusion John Locke Foundation experts reach in a new Regional Brief.

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 whether commissioners are wise to speculate about future state education spending levels.

“Alleghany commissioners base their pitch for this $160,000 tax hike on the premise that the state will reduce education spending in the upcoming budget,” said Dr. Michael Sanera, JLF Director of Research and Local Government Studies. “Any state education cuts are entirely speculative at this point, and they likely would be offset by spending increases from other sources.”

The $160,000 sales-tax increase would be equivalent to a 0.9-cent property-tax hike, Sanera said. He analyzes Alleghany’s 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.

“Over the last decade, there has been a steady increase in state, federal, and local education funding,” Sanera said. “In 2008-09, public school spending in Alleghany County topped $11,200 and continued to exceed the state average. Despite a decade of robust education spending, Alleghany County commissioners have joined others across the state in arguing that counties must raise taxes now in order to offset possible state cuts to public schools.”

This plea ignores the fact that a number of outside funding streams will compensate for any local reductions in teaching positions, Sanera said. “The federal EduJobs law gives Alleghany more than $365,000 to fund an estimated seven teaching positions this year, while state lottery proceeds will continue to fund two or three elementary school teaching positions every year,” he said. “Plus Alleghany County also can expect more than $168,000 from North Carolina’s new federal Race to the Top grant.”

A new tax might not be the best way to offset any potential shortfalls, even if commissioners choose to look outside the school system, Sanera said. “The county budget for operating expenses in the 2010-11 budget year is $570,000 higher than it was in 2008-09,” he explained. “That additional spending is 3.5 times more than the county expects to generate with the new sales tax. The new tax — on its own — would not be enough to cover operations of the office of the Register of Deeds.”

Sanera offers a word of caution to those who believe the proposed tax hike is too small to cause much concern. “While the value of the tax to county coffers is relatively small in a given year, the tax increase is permanent,” he said. “There is no provision to repeal the tax automatically if the commissioners’ speculation about state education budget cuts is wrong.”

There’s also no guarantee commissioners would use the additional sales-tax revenue to shore up local education spending, Sanera said. “Regardless of what county commissioners might say as they raise taxes, the new revenue would flow into the county’s general fund. Current commissioners and future commissioners could use the money for any legal purpose.”

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. Alleghany County voters have a chance to send commissioners a clear message Nov. 2.”

Michael Sanera, Terry Stoops, and Joseph Coletti’s Regional Brief, “Speculators’ Tax in Alleghany? County commissioners seek tax grab based on guesses,” 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].