JLF report questions Columbus’ proposed sales tax hike

October 9, 2008

RALEIGH — Columbus County commissioners could avoid a proposed sales tax increase for 15 years by diverting almost $14.2 million in savings and existing revenue streams to high-priority county government functions. That’s a key finding in a new John Locke Foundation Regional Brief.

“The savings and revenue reallocation recommended in this Regional Brief would generate almost 15 times the amount of money the sales tax increase would provide to Columbus County,” said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “That means the county could adopt the ideas in this report and delay a sales-tax increase for 15 years.”

County commissioners are asking voters to approve a quarter-cent increase in the sales tax Nov. 4. “Commissioners say they need to raise taxes to pay for pressing capital projects,” Sanera said. “Our report shows that Columbus County government could address its needs by setting better priorities with its existing resources.”

“And taxpayers should remember that commissioners’ statements about how they would use new revenue are not legally binding,” Sanera added. “Once they raise a tax, the law says they can use new tax revenue for any legal purpose.”

Even though Columbus County voters already rejected a sales tax increase in November 2007, Columbus has joined the latest group of N.C. counties asking taxpayers for the right to raise local sales or real-estate transfer taxes. Sanera leads a JLF research team analyzing the potential impact in each county. Working with Sanera are Joseph Coletti, JLF Fiscal Policy Analyst, and Terry Stoops, JLF Education Policy Analyst.

Columbus County commissioners cannot argue that local schools are underfunded, Sanera said. “Over the last five years, the school population has decreased by 1 percent,” he said. “Inflation-adjusted local school spending also decreased, but inflation-adjusted state spending jumped by 11 percent. Federal per-pupil expenditures also increased by 18 percent.”

“If the school district has facility needs, county commissioners and the school board need to show taxpayers how they would spend the $12.4 million the state has promised for capital improvements over the next 10 years,” Sanera added. “Commissioners should also follow this report’s recommendations for reducing education costs without hurting classroom instruction.”

Columbus County revenues have grown 29 percent faster than the combined rate of inflation and population growth since the 2002 budget year, Sanera said. “Columbus raised $10 million more from its taxpayers in the 2007 budget year than in 2002,” he said. “The average family of four paid $736 more in taxes in 2007 than in 2002. A family’s income would have been forced to jump by 47 percent to meet the increase in county government revenues during the past five years.”

Columbus County government doesn’t need to take additional money away from taxpayers, Sanera said. “If Columbus County adjusted its revenue stream to grow only as fast as the combined rate of population and inflation growth, total revenues would increase 29 percent during the next 10 years,” he said. “This increase is more than adequate to pay for county needs.”

Most counties pursuing tax increases have an overly large reserve fund, Sanera said. “Columbus County has the opposite problem,” he said. “The County violates a state rules requiring commissioners to hold 8 percent of their budgets in cash for emergencies. Instead of holding 8 percent or more of the budget in reserve, Columbus County has a deficit of $703,000. This deficit gives county voters little confidence that county government would handle funds responsibly from the proposed tax increase.”

In 2007, 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 the local sales tax rate.

“Even though Columbus and other counties were forced to give up some revenue as part of the Medicaid deal, they now benefit from another part of the deal called the ‘hold harmless’ provision,” Sanera said. “It guarantees that Columbus County will have at least $500,000 in additional funds that can be used to meet other county needs. Columbus actually fares better than that, with more than $2.7 million in the first full year and $56 million over 10 years.”

The JLF report also draws attention to Columbus County government’s questionable spending practices, Sanera said. “Columbus County gave $55,000 in economic incentives to a few selected private businesses from 2004 to 2006,” he said. “Taxpayers should consider this corporate welfare before they decide whether the county needs a new source of money.”

Counties cannot raise the sales or real-estate transfer taxes without a local referendum. Commissioners across North Carolina have pursued that option 58 times since November 2007. Voters rejected each real-estate transfer tax hike. They also rejected most sales tax proposals. In all, voters have rejected 50 of 58 proposed local tax increases.

“Most voters see through the misinformation about the ‘need’ for more tax revenue,” Sanera said. “In all the counties voting on tax increases, revenues grew faster than the combined rate of population growth and inflation between 2002 and 2007. The average increase was almost 19 percent. In the same time period, state government spending has outpaced inflation and population growth by 6 percent. This government growth rate cannot be sustainable.”

“The November 4 vote provides the opportunity for Columbus County citizens to be heard,” Sanera added. “The results of the 58 county tax votes in the past year are informative. Citizens, when given the chance, are rejecting tax increases.”

The John Locke Foundation’s Regional Brief “Does Columbus Need a Sales-Tax Increase?” 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].