October 13, 2008

RALEIGH — Polk County commissioners could avoid a proposed land-transfer tax increase for 12 years by diverting more than $11 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 12 times the amount of money the land-transfer tax increase would provide to Polk 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 land-transfer tax increase for 12 years.”

County commissioners are asking voters to triple the land-transfer tax, also known as the real-estate transfer tax, Nov. 4. “This tax increase would affect every home sale in Polk County,” he said. “The tax for a $200,000 home would climb from $400 to $1,200. Our report shows that Polk County government could address its needs by setting better priorities with its existing resources.”

Commissioners have pledged to use 100 percent of the proceeds from the tax hike to pay for farmland preservation, Sanera said. “This commitment is meaningless,” he said. “Taxpayers should remember that commissioners’ statements about how they would use new revenue are not legally binding. Once they raise a tax, the law says they can use new tax revenue for any legal purpose.”

Farmland preservation raises its own set of questions for taxpayers, Sanera said. “The county would accomplish this goal by buying development rights from farmers,” he said. “Once purchased, farmland would be locked up permanently, depriving the county of future increases in the tax base.”

Polk has joined the latest group of N.C. counties asking taxpayers again 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.

Polk County commissioners cannot argue that local schools are underfunded, Sanera said. “Over the next 10 years, the number of students in Polk County public schools will decrease by almost 12 percent,” he said. “If the school district has facility needs, county commissioners and the school board need to show taxpayers how they would spend the $3.5 million the state has promised for capital improvements over the next 10 years.”

Polk County revenues have grown 30 percent faster than the combined rate of inflation and population growth since the 2002 budget year, Sanera said. “Polk raised $4.6 million more from its taxpayers in the 2007 budget year than in 2002,” he said. “The average family of four paid $964 more in taxes in 2007 than in 2002. A family’s income would have been forced to jump by 48 percent to meet the increase in county government revenues during the past five years.”

Polk County government doesn’t need to take additional money away from taxpayers, Sanera said. “If Polk County adjusted its revenue stream to grow only as fast as the combined rate of population and inflation growth, total revenues would increase 40 percent during the next 10 years,” he said. “This increase is more than adequate to pay for county needs.”

County commissioners have easy access to one piece of Polk County’s $11 million in funds available for high-priority government functions, Sanera said. “Polk County government already has cash reserves equal to 37 percent of the county’s annual budget,” he said. “The state requires an 8 percent reserve for emergencies, but that leaves almost $5.7 million that’s still available to spend on pressing needs.”

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 Polk 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 Polk County will have at least $500,000 in additional funds that can be used to meet other county needs. Polk actually fares better than that, with an average of $540,000 per year for the next 10 years.”

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 Polk 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 Polk Need a Land-Transfer 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].