News: CJ Exclusives

JLF Analysts Critique Alexander Tax Plan

County commissioners seek sales tax increase Jan. 8

RALEIGH – Alexander County commissioners could free almost $5.3 million for high-priority county government functions, without raising tax rates. That’s the message in a new John Locke Foundation Regional Brief.

The $5.3 million figure includes new money expected from the state, along with savings gained from the elimination of non-essential county spending, said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. Taxpayers can read the brief before they consider allowing the county government to raise the local sales tax.

“As Alexander County voters cope with their holiday shopping bills, county commissioners are asking them to approve a quarter-cent increase in the local sales tax January 8,” Sanera said. “The extra tax would increase county revenues by more than $477,000 in the first full budget year.”

The JLF report shows Alexander County government doesn’t need to take the additional money away from taxpayers, Sanera said. “If Alexander County tax revenues increase only as fast as the combined rate of population and inflation growth during the next 10 years, total revenues will increase 39 percent,” he added. “This increase is more than adequate to pay for county needs, including new school construction.”

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 local sales tax.

Counties cannot raise the taxes without conducting a local referendum. Twenty-seven counties held referendum votes in November. The real-estate transfer tax failed in all 16 counties where voters had a chance to reject it. More than half of the counties considering sales tax increases also rejected those tax hikes.

Alexander is the only county asking voters for a sales tax hike in January. A JLF research team has analyzed the potential impact in each county. Working with Sanera are Joseph Coletti, JLF Fiscal Policy Analyst, and Terry Stoops, JLF Education Policy Analyst.

“Even though Alexander and other counties were forced to give up some revenue as part of the Medicaid deal, they benefit from another part of the deal called the ‘hold harmless’ provision,” Sanera said. “It guarantees that Alexander County will have at least $500,000 in additional funds that can be used to meet other county needs.”

That $500,000 is just one piece of Alexander County’s $5.3 million in funds available for high-priority government functions. Alexander County government already has cash reserves of more than $2.3 million, Sanera said. “That’s 8.5 percent of the county’s annual budget, a bit more than the 8 percent cash reserve the state requires,” he said. “The county could meet the state requirement and still have $129,000 to help with existing government needs or to provide much-needed tax cuts.”

Alexander’s budget numbers also show the county has no problem coping with growth, Sanera said. “Between 2001 and 2006, county per capita revenues increased by 10.1 percent after adjusting for inflation,” he said. “Population growth has been paying for itself because real county revenues are growing at a faster rate than population. New county residents are contributing more than their fair share of county revenues.”

If county government had confined its budget increases to the rate of inflation plus population growth since 2001, the county would have collected $2.2 million less revenue in 2006 than it actually collected, Sanera said. “This amount could — and should — be returned to the taxpayers in the form of tax cuts.”

The report points out that Alexander stands to collect $2.3 million in state, local, and lottery funds for school capital needs this budget year, even though school enrollment is expected to fall slightly over the next decade. The report also draws attention to county government’s questionable spending practices, Sanera said. “Alexander County has given $190,000 in economic incentives to businesses and corporations from 2004 to 2006,” he said. “Taxpayers should consider this corporate welfare before they decide whether the county needs a new source of money.

“A sales-tax increase at this time would only encourage more wasteful and inefficient spending,” he added. “County voters need to demand that the county live within the taxpayers’ means. This Regional Brief has outlined ways for Alexander County to find plenty of money to meet its needs.”