JLF report questions Wilkes’ proposed sales tax hike

April 21, 2008

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

RALEIGH – Wilkes County commissioners could avoid a proposed sales tax increase for 11 years by diverting $16.7 million in 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 more than 11 times the amount of money the sales tax increase would provide to Wilkes 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 11 years.”

County commissioners are asking voters to approve a quarter-cent increase in the sales tax May 6. “Commissioners have indicated they need to raise taxes for school improvements,” Sanera said. “Our report shows that Wilkes 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.”

Wilkes is one of more than 20 counties asking taxpayers this May 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.

Wilkes County commissioners cannot argue that local schools are underfunded, Sanera said. “Over the last five years, the school population has decreased by 1 percent, while inflation-adjusted local school spending has increased by 8 percent,” he said. “That’s not to mention the inflation-adjusted 1 percent increase in state spending and the whopping 25 percent increase in federal spending.”

“If the school district has facility needs, county commissioners and the school board need to show taxpayers how they would spend the $13 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.”

Wilkes County revenues have grown 23 percent faster than the combined rate of inflation and population growth since the 2001 budget year, Sanera said. “Wilkes raised $10.5 million more from its taxpayers in the 2006 budget year than in 2001,” he said. “The average family of four paid $632 more in taxes in 2006 than in 2001. A family’s income would have been forced to jump by 40 percent to meet the increase in county government revenues during the past five years.”

Wilkes County government doesn’t need to take additional money away from taxpayers, Sanera said. “If Wilkes County adjusted its revenue stream to grow only as fast as the combined rate of population and inflation growth, total revenues would increase 30.8 percent during the next 10 years,” he said. “This increase is more than adequate to pay for county 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 Wilkes 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 Wilkes County will have at least $500,000 in additional funds that can be used to meet other county needs. Wilkes actually fares better than many counties, with $1.7 million promised in the first year and $19 million expected over 10 years.”

Counties cannot raise the sales or real-estate transfer taxes without a local referendum. Twenty-eight counties have pursued that option since November 2007. Five counties placed both options on the ballot in November. Voters rejected each real-estate transfer tax hike. They also rejected most sales tax proposals. In all, voters have rejected 27 of 33 proposed local tax increases.

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

The John Locke Foundation’s Regional Brief “Does Wilkes 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].