In tough economic times, Raleigh wrestles with tax increase 

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:

• The $226 million Clarence Lightner Public Safety Center. The city has outgrown its police headquarters, the building attached to City Hall. Allen's pushing a plan to tear it down and replace it with the new, 17-story Lightner center, named for Raleigh's only African-American mayor. Councilor Philip Isley, a Republican, says he wants to postpone all optional capital projects, including this one, until the economy is stronger. Even then, he says, Raleigh should build several public safety buildings across the city, not just one. Councilor Thomas Crowder, a Democrat, is eyeing a different downtown location for the central station. It's "the hole in the ground" on Hillsborough Street (opposite the Clarion Hotel) where developer Ted Reynolds has been unable to get a high-rise hotel-condominium project started during the seven years he's had options to buy the land from the city. It will be available in a few months if Reynolds' latest option expires and the city doesn't renew it, Crowder notes. Building there, he says, would save the city an estimated $6 million that Allen has budgeted to relocate the police temporarily while the current station is being replaced. Crowder's idea: Don't tear the old one down until the new one (on Hillsborough Street) is finished; then, sell the old one, with its prime location facing Nash Square, to a residential developer.
• 
  
• The $223.5 million remote operations center. Raleigh has long planned to relocate its sanitation trucks and other big equipment out of downtown to a new, bigger and more centralized location off Capital Boulevard near the Beltline (the old Westinghouse site). Right now, they're parked on what used to be Devereaux Meadows, a city ballpark that could be highly valuable if sold for residential or mixed-used development. Allen's anxious to get started, saying the project's been put off long enough. Isley says wait, and other councilors are asking questions, too.
• 
  
• Parks bonds. Voters approved an $88.6 million bond issue for new and expanded parks last year. Raleigh's gotten behind the growth curve here. The question is, issue the bonds (adding debt repayments to the budget) and start to catch up now? Or fall back another year (or two)?
• 
  
• Road bonds. Been in traffic lately? Raleigh receives virtually no state aid for roads, so it's resorted to periodic local bond issues to pay for widenings, intersection improvements and such. Allen pitched another one for '08 of $120 million. But Meeker said Monday it's not going to happen, at least not this year.
• 
  
• Utility plants. They're the big begonia. Raleigh's literally running out of room at its water-treatment and sewage-treatment plants. Expanding them, and building an additional water plant on Lake Benson, is a $500 million capital cost over the next five years that the city can no longer avoid unless it decides to stop admitting new residents.  Stephenson, who heads the council's public utilities committee, has pushed for "tiered rates" on water usage—which would cost industrial users more and encourage everyone to conserve—but Allen says the city's at least a year away from having the software to handle them. Right now, everyone's charged a flat ("constant") rate for water. And Stephenson points out that, since Raleigh doesn't charge capacity fees to developers, taxpayers are saddled with an estimated 96 percent of the cost of plant expansions. In Cary, he notes, the figure is 75 percent—keeping property taxes down.

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."