Consider these taxing times for the Raleigh City Council, as it considers whether to raise taxes, and if so, how much, at a time when the economy's in trouble and citizens' finances are too.
Top city officials, including Mayor Charles Meeker and City Manager Russell Allen, say Raleigh's pent-up capital needs can't wait any longer. A decade without property-tax hikes from the mid-'90s on, they say, simply masked a swelling backlog of critical projects that were delayed and past due: road expansions, new parks, a bigger police-public safety center, and water and wastewater plant expansions to keep up with Raleigh's fast-growing population.
"The city's tax rate has gotten so low, it's hard to do business," Meeker says.
Allen's argument: Construction costs are going up fast, so what you put off today, you pay more for next year and in succeeding years. Meanwhile, interest rates are low, making it a good time for the city to borrow—if not for taxpayers to have to start paying back.
In the last three years, Meeker and past councils increased the property tax rate by 5 cents—from 38.5 cents per $100 assessed value to 43.5 cents. He and the current council are considering a similar increase this year as they try to fashion a 2008-09 budget, due in two weeks. Meeker says that even after another increase, Raleigh's tax rates will be the lowest of any city in North Carolina.
After a third public session on the budget Monday, however, it's far from clear whether Meeker can convince four other members on the eight-member body to vote with him for higher taxes, at least at the level Allen—with Meeker's apparent support—is recommending.
Complicating the task: The county's recent revaluation increased property assessments by about 40 percent, but the average residential increase was in excess of 50 percent, with many homes raised far more than that.
Post-revaluation, the "revenue-neutral" tax rate for the city—the equivalent of the old 43.5 cents—would be 33.17 cents. In other words, a homeowner with an "average" revaluation of 40 percent or so would pay roughly the same amount in taxes as before.
But Allen's proposed budget called for a 5-cent tax increase, to 38.17 cents, raising taxes for a homeowner whose property is now assessed at $200,000 by at least $100 a year, and probably more, given the higher residential assessments. And that would come on top of a county tax increase of 2.5 cents approved Monday by the Wake County Commissioners. Unwelcome numbers for many when gas is $4 a gallon.
There is one bit of good news for Meeker and council members. Their decision this year to substantially increase impact fees on new construction—a major issue in last fall's elections—is expected to net an additional $4 million to $7 million over the coming year, depending on how much is built.
Since each 1 cent of property taxes is equal to $4.7 million in revenue, appropriating the higher impact fees will allow the council to cut Allen's 5-cent increase to 4 cents without doing any else.
It may also serve as a reminder that past Raleigh councils refused to increase impact fees at all between 1987 and 2005, when a small increase was enacted. (Even now, with the '05 fees roughly doubling this year, Raleigh collects only about 60 percent of what state law would allow the city to charge builders and developers.) That's a lot of money Raleigh didn't collect, or spend on parks and roads, that this council wishes it had.
Similarly, Raleigh is one of just two Wake County municipalities (Fuquay-Varina is the other) that don't collect "capacity fees" for developers for water and wastewater plant expansions. In Cary, for example, capacity fees for a single-family house are $4,323; in fast-growing Holly Springs, where the fees are the county's highest, the charge is $6,000 per house.
Councilor Russ Stephenson is pushing his colleagues to consider capacity fees. He's suggested phasing them in over several years to ease the pain to a shaky homebuilding industry—but so far, he says, he doesn't have four other votes.
Raleigh's lack of capacity fees is a central issue as the council considers the big-ticket capital projects that are driving the need for higher taxes in Allen's budget:
Levying capacity fees would keep future tax rates lower in Raleigh too. But they'd have no effect this year. Bottom line, Stephenson says: "We have a good, long-range capital plan. But in the current economic climate, we've got to do a better job of separating the wants from the needs."