Guilford voters should beware impact of tax, bond votes

April 20, 2008

Click here to view and here to listen to Terry Stoops discussing the education bond portion of this Regional Brief. Click here to view and here to listen to Michael Sanera discussing the sales tax portion of this Regional Brief.

RALEIGH — Guilford County voters should consider their local government’s history of overspending on school construction projects, as they decide the fate of a $457 million school bond referendum next month. The John Locke Foundation delivers that warning in a new Regional Brief.

JLF analysts also find that taxpayers would likely face a hefty property tax hike to pay for a four-part bond package totaling $671 million. Higher property taxes are likely, even if voters also endorse an increase in the local sales tax, according to the Regional Brief.

“While the sales tax on the ballot for Guilford County voters May 6 is not tied formally to the four bond referendums they’ll consider the same day, proponents of the bonds have suggested that the sales tax increase could be used to pay a portion of the debt service on the bonds,” said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “That suggestion is misleading. The sales tax increase would raise an estimated average of $21 million per year over 10 years. That would pay only a small part of estimated debt service on these bonds.”

Guilford County commissioners asking county residents to approve a quarter-cent increase in the sales tax rate. Voters will also consider the $457 million bond referendum for K-12 public schools, along with bonds for Guilford Technical Community College ($79.5 million), the Greensboro Jail ($114.6 million), and parks and recreation projects ($20.2 million).

As voters consider the limited impact of a sales tax increase on paying for new debt, they should also consider the need for new school bonds, said Terry Stoops, JLF Education Policy Analyst. “The Guilford county school system has a history of overspending on school construction projects,” Stoops said. “One report concluded that the Guilford schools built between 2000 and 2006 had the highest per student cost for middle and high school construction among eight comparable school districts.”

“In other words, the adjusted per student cost was 70 percent higher for Guilford middle schools and 57 percent higher for Guilford high schools than the per student costs for school building projects in these comparable districts,” he added.

Overall, the K-12 bond would add seats at an average cost of nearly $67,000 per seat, Stoops said. “One school project would cost almost $300,000 for every new seat added,” he said. “Schools need not cost this much. And that’s not all. Under the proposed K-12 bond, $63 million would be spent on five school renovation projects that would add no seats to existing buildings.”

Voters should be concerned about more than just the historical record. To cover new debt tied to the four-part bond package, the current property tax of $1,383 on a $200,000 home could increase by $253 for a total of $1,636 by 2012, Sanera said. “That’s an 18.3 percent increase,” he said. “County commissioners have already increased the property tax rate by 2.99 cents per $100 in property value for this year. If voters pass the four new bonds, the added debt service will require an additional property tax increase of 12.66 cents by 2012.”

“On the other hand, the estimated $16 million from the first full year of the proposed sales tax increase equates to only 3.74 cents in property taxes,” Sanera added. “Commissioners cannot make a good case that the sales tax hike would do much to cover the additional debt from the bonds.”

Guilford County commissioners could avoid a proposed sales tax increase for five years by diverting $83.4 million in existing revenue streams to high-priority county government functions. “The savings and revenue reallocation recommended in this Regional Brief would generate more than five times the amount of money the sales tax increase would provide to Guilford County,” said “That means the county could adopt the ideas in this report and delay a sales-tax increase for five years.”

Guilford County revenues have grown 16 percent faster than the rate of inflation plus population growth since the 2001 budget year, Sanera said. “Guilford raised $54 million more from its taxpayers in the 2006 budget year than in 2001,” he said. “The average family of four paid $488 more in taxes in 2006 than in 2001. A family’s income would have been forced to jump by 31 percent to meet the increase in county government revenues during the past five years.”

Guilford County government doesn’t need to take additional money away from taxpayers, Sanera said. “If Guilford County adjusted its revenue stream to grow only as fast as the combined rate of population and inflation growth, total revenues would increase 42.5 percent during the next 10 years,” he said. “This increase is more than adequate to pay for county needs.”

“The May 6 vote provides the opportunity for Guilford County citizens to be heard,” Sanera said. “Citizens, when given the chance, are rejecting tax increases.”

The John Locke Foundation Regional Brief “Does Guilford Need a Sales-Tax Increase?” is available at the JLF Web site. For more information on the education bond referendum, please contact Terry Stoops at (919) 828-3876 or [email protected]. For more information about the sales tax referendum, please contact Michael Sanera at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].