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Thursday, August 6, 2015

N.C. Senate relents, will only screw cities a little bit now

Posted by on Thu, Aug 6, 2015 at 1:23 PM

ILLUSTRATION BY SKILLET GILMORE
  • Illustration by Skillet Gilmore

This morning, the N&O’s Colin Campbell reported on the Senate Republicans’ new “compromise” plans on sales-tax distribution and the state’s economic incentive programs. The backdrop to this, which I wrote about at some length in June, is a session-long effort to steer money away from the state’s thriving municipalities toward poor, struggling rural areas beset by the demise of tobacco, textiles, manufacturing and their own bad policy choices.

In political terms, this effectively means taking money from Democratic areas and redistributing it to the Republican strongholds they represent; the political machinations are all the more clear when you remember how the Legislature’s Republicans redrew local districts in Greensboro and Wake County to make their local bodies more GOP-friendly whether actual voters liked it or not. As state Sen. Josh Stein, D-Wake, a likely AG candidate, told the INDY: "There's a lot of hostility toward the million residents of Wake County in the Senate."

Right now the state gives 80 percent of its sales taxes to the point-of-sale location—i.e., if you buy something in Wake County, Wake County keeps 80 percent of the sales tax—and allocates the remainder based on counties’ populations. Because these metros have developed themselves as commerce hubs, people from rural and suburban counties tend to drive in to buy stuff, so the Senate sees this formula as being unfair to them. 

Earlier this year, the Senate proposed flipping it: doling out 80 percent based on population and 20 percent to point-of-sale. In a word, this would have been devastating. Wake County estimated that by the time the plan was fully implemented in 2020, it would be losing some $40 million a year. Other large counties, including Durham and Mecklenburg, expected to take big hits, as well. And they included it in their budget, which meant the more moderate House had to at least consider it. 

But it didn’t go over well. Members of the House called the redistribution scheme a form of communism. (Kinda true if you think about it.) Gov. Pat McCrory, the former mayor of Charlotte, threatened to veto the entire budget if this provision remained, a rarely potent threat from a man essentially neutered by his own party this year. 

So the Senate backed off a little, separating the sales tax from its budget, and, as of this morning, unveiling a new, slightly watered-down plan. Per the N&O

Senate Republican leaders rolled out a compromise Thursday addressing jobs incentives and a controversial plan to change how sales tax revenues are distributed among counties.

The new Senate economic development bill – now separated from legislative budget talks – softens the impact of the sales tax revenue plan, which had prompted outcry from some urban and tourism counties that would lose money.

This new bill, which Senate President Phil Berger called “a plan that everyone should be able to embrace,” splits the baby: 50 percent to point of sale, 50 percent based on competition. 

And how would that affect local governments? 

According to a nonpartisan legislative analysis, plenty. About four-fifths of the state’s smaller counties stand to benefit at the expense of the others. For instance, Wake, and all of its municipalities, would take a 3 percent hit by 2020, amounting to about $6 million a year in sales-tax revenue for the county itself and another $3 million for the city of Raleigh. Durham County would take it even more on the chin, with an 11 percent loss (which amounts to $6 million a year as well). The city of Durham would get docked 11 percent, too, amounting to a little over $7 million a year. Mecklenburg would lose 5 percent of its sales-tax revenue, almost $12 million a year; Charlotte, 4 percent. 

(“We are following with great interest,” Raleigh city spokesman Damien Graham emailed me when I asked for comment.) 

The biggest winners, meanwhile, are Jones, Greene and Caswell counties, which will get 41, 38 and 37 percent boosts, respectively. Coincidentally, Jones County is represented in the Senate by Majority Leader Harry Brown, who just so happens to be this legislation’s biggest backer. 

The Senate isn’t backing down so much on its plan to reconfigure the state’s economic development incentive program to benefit rural counties at the expense of urban ones. How either of these proposals will fair in the House, which has to some degree thus far resisted the Senate’s war on cities, remains unclear. 

In the meantime, you can read through the data yourself. 

Local Sales Tax Distribution Comparison Chart


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