January 11, 2004

RALEIGH — Local taxes and fees in Charlotte totaled more than $2,018 per resident in 2002, ranking North Carolina’s largest city No. 1 for local government costs among major cities for the third year in a row, according to a new report from the Center for Local Innovation. Wilmington, Durham, Hickory, Chapel Hill, and Asheville rounded out the top six in combined costs per person out of 25 cities with at least 25,000 residents. Wilson, Kannapolis, Burlington, Thomasville, Goldsboro, and Jacksonville ranked lowest in taxes and fees — although the presence of major military bases in the latter two cities was a major factor in reducing their apparent tax burdens.

“By the Numbers 2004: What Government Costs in North Carolina Cities and Counties” is the fifth such report published by the Center, a division of the John Locke Foundation. Policy analyst Michael Lowrey authored the study, which used the most recent data available from the State Treasurer, the Census Bureau, and the Bureau of Economic Analysis to construct rankings of local government cost on a per-person basis — as well as, for counties, a share-of-income basis.

Local government costs rose in the vast majority of North Carolina counties from 2001 to 2002, the CLI report stated. In the median county, city and county taxes, fees, and charges consumed 4.21 percent of personal income in 2002, up from 4.07 percent in 2001. Local government costs were nearly 13 percent higher than the median measured for FY 1993-94.

Among the 10 most populous counties, New Hanover (6.2 percent), Durham (5.84 percent), Mecklenburg (5.45 percent), and Guilford (4.92 percent) ranked relatively high in average cost of local government. Gaston (4.57 percent), Forsyth (4.31 percent), Buncombe (4.30 percent), Cumberland (4.16 percent), and Wake (4.08 percent) were in the middle of the pack, while Davidson (3.13 percent) ranked low.

The report showed that while local government costs declined slightly on average from 2000 to 2001 — to 4.28 percent of statewide personal income, down from 4.33 percent in 2000 — the average cost increased in 2002 to 4.44 percent, with the increase due entirely to higher property-tax collections. Many jurisdictions raised their property-tax rates during the 2001-02 period, in part to compensate for revenue losses imposed by state leaders as they sought to balance the state budget.

“Local governments were having a hard enough time dealing with their own fiscal challenges, and then state politicians in Raleigh came along and made the problem far worse,” said Chad Adams, the new director of the Center for Local Innovation and the Vice-Chairman of the Lee County Commission. “By withholding local revenues, they generated a round of property-tax increases that probably wouldn’t have happened otherwise — and this predates the new sales tax that counties were ‘allowed’ to impose in 2003 to replace additional local revenues withheld by the state.”

The CLI report showed a longer-term trend was of local governments consuming a growing share of household budgets in North Carolina. In 1994, for example, localities took 4.06 percent of income, on average. And local revenue collections in the median county grew from an inflation-adjusted $785 per person in 1994 to $968 in 2002 — a real increase of 23 percent.

On average, the report concluded, North Carolinians paid just over 30 percent of their household income in taxes and other government fees and charges in 2001-02 — 18.9 percent to the federal government and 11.4 percent to the state and local governments. This total burden was significantly lower than the 33 percent estimated for 2000-01, but the change was due entirely to lower federal tax collections after a series of tax cuts in Washington.

In North Carolina, property taxes alone consumed more than 2 percent of income in 2002, or just over $500 per person.

On a regional basis, high-tax counties were somewhat more likely to be found in Eastern North Carolina and in major urban centers, while low-tax jurisdictions were more common in the Piedmont and mountain regions. Sixteen of the 25 counties with the highest local government costs as a share of income were located in the Coastal Plain and Sandhills regions, while 15 of the 25 lowest-ranking counties were in the western Piedmont or mountains.

Lowrey was careful to note that a high tax-burden ranking in “By the Numbers 2004” does not necessarily mean that a city or county is poorly governed.

“Whether a jurisdiction is ranked high or low in cost of government is not the end of the debate over fiscal policy — it is merely the beginning,” he wrote. “Citizens of North Carolina’s cities and counties must decide whether the services they receive are worth the price they and their fellow residential and business taxpayers are paying in local taxes and fees.”

For more information on “By the Numbers 2004” or North Carolina fiscal policy, contact Chad Adams at 919-828-3876 or check out the JLF briefing book on state and local issues, available online. The full “By the Numbers 2004” report is also available online.

-30-