News: CJ Exclusives

Counties Push Tax Hikes With Public Funds

Actions by some county leaders raise questions of illegal advocacy

Educating without advocating is a fine line that county commissioners are required to walk as a number of local tax options go before North Carolina voters this May. But some observers say local government officials are violating state law by using public dollars to wage media campaigns to persuade voters to support the tax increases.

“They are spending tax dollars so that they can get more tax dollars,” said Tim Kent, executive vice president of the N.C. Association of Realtors, an organization opposed to a land transfer tax that four counties will vote on this year.

Conduct by county commissioners is raising the question of how far is too far when it comes to elected officials dipping into the public purse to educate voters about a ballot referendum. County governments are free to spend public money to educate residents about potential tax increases, but they are prohibited from using such funds to actively lobby for passage of the new taxes.

Individual elected officials are obligated to strike a similar balance. County commissioners may support a ballot referendum but they may not use public funds or resources to do so.

The current quandary stems from a budgetary provision approved by the General Assembly last summer that gradually transfers the Medicaid funding burden from the state’s 100 counties to the state government. In exchange, counties are required to surrender revenues from a number of sources to the state.

The budget also allows counties to impose one of two new taxes — a quarter-cent local sales tax or a 0.4 percent local land transfer tax.

Before levying either tax, however, counties are required to give voters the final say through a ballot question. Counties can place both the sales and land transfer tax on the same ballot, but if voters approve both, county commissioners can implement only one of the two.

One-fourth of North Carolina’s counties already considered one or both of the local tax options in 2007, with overwhelming results against the increases, especially the land transfer tax. A total of 27 counties voted on the new taxes — 11 counties on the land transfer tax, 11 counties on the sales tax, and five counties on both.

All 11 counties with only the land transfer tax on the ballot voted against it by a 75 percent majority. The results were mixed for the sales tax — five out of 11 counties approved the increase. Voters appeared particularly incensed when both taxes appeared on the ballot. Five counties that voted on both the land transfer and sales tax rejected them by solid majorities.

The general failure of the referenda in 2007 did little to curb interest among counties in putting the tax increases before voters again this year.

Twenty-two counties have placed either the sales tax or land transfer tax on the ballot for the primary May 6. Three counties have opted to put one of the taxes on the general election ballot Nov. 4.

Six of the counties — Columbus, Cumberland, Gates, Greene, Henderson, and Moore — tried to pass one of the tax increases in 2007, but voters shot them down. Even if voters reject the taxes, counties are free to continue placing them on the ballot in subsequent elections.

Education or advocacy?

Although local governments can’t spend taxpayer dollars on advocacy, some homeowner and property rights organizations say that’s exactly what is happening. In addition to questionable activity by elected officials in individual counties, critics say the N.C. Association of County Commissioners stepped over the line by conducting at least two seminars that taught county commissioners how to sell the new taxes to voters.

The most recent event, conducted Jan. 24 and entitled “Strategies for a Successful Referendum,” featured representatives from four counties where voters approved the local-option sales tax in November. During the session, county officials shared tips on how to successfully campaign for the tax increases.

Among other tactics, county commissioners and other elected officials helped create citizen-action groups to advocate for the taxes and conducted surveys to determine what message would best reach voters. One county “developed a one-page brochure about the need for the additional sales tax revenue and distributed it to citizens in the months leading up to the election,” according to an article published on the NCACC Web site.

Another article, “Get Ready for Round 2,” describes a seminar Sept. 19 that gave elected officials from 45 counties advice on how to persuade voters the initiatives on the ballot in November were a good idea. “[B]ecause most citizens aren’t too keen on new taxes, counties face a big challenge in educating them on why the options are so essential to their counties’ futures,” the article says.

The article quotes Kim Gazella, a former communications coordinator for Friends of Wake County and advocate of a $970 million school bond passed by voters in 2006. She suggested some ways counties could get “educational materials” to citizens.

One way is to “piggy back” on documents already being sent out by including material in citizen newsletters; property tax and utility bills; and paychecks and stubs for employees, Gazella said.

She also described the fine line between educating citizens and telling them how to vote, saying counties have a “stewardship responsibility” to educate people about anything connected with the initiatives short of saying “vote yes.”

“That’s really the line you don’t want to be crossing when you’re doing a public education campaign,” Gazella said.

But some observers are concerned that county commissioners have already crossed that line. Kathy Hartkopf, legislative liaison for the government watchdog group North Carolina FreedomWorks, said supporters of the taxes are waging “serious and costly advertising campaigns.”

“Counties have employed various advertising techniques: direct mail, television and newspaper advertising, radio, recorded telephone calls, yard signs, billboards, and public information events,” she said.

During the months leading up to the November election, a number of county officials were very vocal in advocating for the land transfer tax, Kent said.

Pender County was one of those, he said. According to minutes from a meeting of the Pender County Board of Commissioners on Oct. 15, at least one commissioner presented a $100 check to the leader of a local political action group formed to back passage of the land transfer tax.

The minutes also say that other commissioners contributed $100 out-of-pocket to help fund the group, although it’s unclear whether they did so during or before the meeting.

Pender County’s land transfer tax referendum failed by a 75 percent majority.

Selling the tax

Counties can’t stipulate on the ballot where revenue from new taxes would go, but local governments and citizen-action groups formed to support the tax increases often claim new monies would fund projects such as public parks and school construction.

In Pitt County, for example, an advocacy group, Citizens for Education Construction, said proceeds from the sales tax “will be dedicated to addressing construction needs at both Pitt Community College and [in] the Pitt County Public School System.”

Despite such assurances, county commissioners are not required to use new revenue for school-related funding, but they can devote the funds to any legal purpose.

At least one county has used the threat of raising local property taxes as a bargaining chip for persuading residents to vote for the land transfer tax. Richard Blackburn, chairman of the Ashe County Board of Commissioners, said board members would be forced to raise property taxes on all county residents unless voters approve a land transfer tax on the ballot in May, according to The Mountain Times.

Other counties have financed public opinion polls to gauge the willingness of voters to accept the new taxes. Prior to the election last year, Chatham County spent $6,000 on a poll, which found 47 percent of respondents opposed to the land transfer tax, according to the Chatham Journal. The referendum ended up failing, with 69 percent opposed and 31 percent in favor.

In a similar move, the Orange County Board of Commissioners voted Feb. 5 to pay the firm Hertzdog Research, LLC, $10,000 to conduct a telephone survey on voters’ attitudes toward both tax increases.

Publicly funded poll

The publicly funded poll found that 46 percent of respondents would vote “yes” on the sales tax compared with 28 percent against. The numbers were reversed for the land transfer tax, with only 31 percent supportive and 50 percent opposed.

In addition to surveying opinions about the taxes, the poll queried voters on their demographic data — such as age, race, and gender — and asked them to name their primary source of news and information.

Following the release of the survey, a Hillsborough resident filed a petition with the Orange County Board of Elections asking the board to investigate “apparent violations of election laws by Orange County” in connection with the poll.

“An examination of the poll and its questions reveals that it is calculated to be used as a tool for advocacy by the Orange County Board of Commissioners for the passage of the land transfer tax,” the complaint said.

Despite the survey’s finding that most voters oppose the land transfer tax, Orange County commissioners still chose that option during a Feb. 19 meeting. The referendum will appear on the ballot May 6.

Orange County has faced further criticism for hiring a consultant to handle a media campaign to purportedly educate voters about the tax. Commissioners unanimously voted March 19 to pay Ballen Media up to $100,000 in taxpayer funds to handle an advertising drive leading up to election day.

“I am contacted daily by voters in Orange who are very upset that $110,000 ($10,000 for the poll, $100,000 for advertising) of their tax dollars are being used to convince them to further tax themselves,” Hartkopf said.

Impact on homeowners

Kent is concerned about the impact a land transfer tax would have on homeowners. “This is clearly an issue of private property rights and housing affordability,” he said.

“We think it’s unfair to make people pay a tax for the ‘right’ to sell their property,” he said. “That’s the first part. The second part is that adding a tax at the time of sale strips people of their equity, drives up cost of housing in North Carolina, and narrows the list of people who can qualify for the dream of American home ownership.”

In a slumping real estate market, the land transfer tax would further erode homeowner’s equity when they do manage to find a buyer. Hartkopf said residents who sold a $200,000 home would pay $800 for the land transfer tax alone.

Amy Newton is one homeowner in Orange County who would be penalized if voters approve the tax this May. Her husband received a job in Texas and moved there last October. In November, they put their house up for sale.

“Because the market is down, it’s not showing much, and if we have to wait until May, we’ll have to pay this land transfer tax in addition,” Newton said.

The tax would hit the Newtons hard since Amy is becoming a stay-at-home mom. They had planned to use the equity from the house to help meet additional expenses.

“We’ll end up losing about $1,200,” she said. “Any amount is not good, but it especially hurts, since I’ll be quitting my job to stay home with my 22-month old.”

David N. Bass is an associate editor of Carolina Journal.