October 3, 2007

Click here to view and here to listen to Dr. Michael Sanera discussing this Regional Brief.

RALEIGH – Graham County voters should consider the millions of dollars their local government has overcollected or spent on non-essential items in recent years. A new John Locke Foundation Regional Brief shows Graham County government has $7.5 million available to spend on high-priority government functions.

Taxpayers can read the brief before they consider allowing the county government to raise the local sales tax by a quarter-cent or the real estate transfer tax from 0.2 percent to 0.6 percent. “Graham County commissioners are asking voters November 6 for new ways to take more of their money,” said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “One choice is to raise the tax on almost everything people buy in Graham County. That option would increase county revenue by $155,000 in the first full budget year.”

The other option is a 200 percent increase in the real estate transfer tax, Sanera said. “The higher tax would apply to the sale price of all property, including new and existing homes. When a home is sold for $200,000, the homeowner would pay a transfer tax of $1,200. If approved, this new transfer tax is expected to increase county revenues by $220,000 in the first full budget year.”

The JLF report shows Graham County government doesn’t need to take the additional money away from taxpayers, Sanera said. “If Graham County tax revenues increase only as fast as the combined rate of population and inflation growth during the next 10 years, total revenues will increase 29.5 percent,” he said. “This increase is more than adequate to pay for county needs, including new school construction.”

This year the General Assembly gave every county a chance to raise either the local sales tax or the real estate transfer tax. The new tax options were part of a deal involving the state relieving counties of local Medicaid expenses. The deal also called on counties to forfeit a half-cent of local sales tax.

Counties cannot raise the taxes without a local referendum. Graham and about one-third of the rest of North Carolina’s counties are asking taxpayers for the right to raise their taxes, Sanera said. A JLF research team is analyzing the potential impact in each county. Working with Sanera are Joseph Coletti, JLF Fiscal Policy Analyst; Terry Stoops, JLF Education Policy Analyst: and Justin Coates, JLF Research Intern.

“Even though Graham and other counties were forced to give up some revenue as part of the Medicaid deal, they benefit from another part of the deal called the ‘hold harmless’ provision,” Sanera said. “It guarantees that Graham County will have at least $500,000 in additional funds that can be used to meet other county needs.”

That $500,000 is just one piece of Graham County’s $7.5 million in funds available for high-priority government functions. Graham County government already has cash reserves of more than $4.5 million, Sanera said. “That’s about 34 percent of the county’s annual budget, far more than the 8 percent cash reserve the state requires,” he said. “The county could meet the state requirement and still have $3.4 million to help with existing government needs or to provide much-needed tax cuts.”

Graham’s budget numbers show the county has no problem coping with growth, Sanera said. “Between 2001 and 2006, county per capita revenues increased by 6.9 percent after adjusting for inflation,” he said. “Population growth has been paying for itself because real county revenues are growing at a faster rate than population. New county residents are contributing more than their fair share of county revenues.”

If county government had confined its budget increases to the rate of inflation plus population growth since 2001, the county would have collected $3 million less revenue in 2006 than it actually collected, Sanera said. “This amount could — and should — be returned to the taxpayers.”

The report offers recommendations for Graham County to address its projected student enrollment growth. The report also draws attention to county government’s questionable spending practices, Sanera said.

“Either a sales tax increase or a land-transfer tax increase at this time would only encourage more wasteful and inefficient spending,” Sanera added. “County voters need to demand that the county live within the taxpayers’ means. This Regional Brief has outlined ways for Graham County to find plenty of money to meet its needs.”

The John Locke Foundation’s Regional Brief, “Graham County Doesn’t Need to Increase Taxes,” 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].