Boxed in by state budget deficits, sluggish sales tax receipts, Medicaid mandates, and politicians’ unwillingness to cut or hold the line on services, counties are raising property taxes more frequently to make ends meet.

Last session, the General Assembly siphoned $850 million by dipping into trust funds, draining reserve funds, and collecting temporary taxes. With these onetime revenue sources drying up, tax watchdog groups are concerned that property taxes may continue to be targeted by local governments looking for cash.

There’s basis for the concern. Over the past three years, 63 of the state’s 100 counties raised property tax rates at least once, and 85 counties increased revenues through both rate increases and property reassessments. The trend doesn’t appear to be abating. Eighteen counties increased rates this fiscal year.

“North Carolina taxpayers have taken a big hit,” said Pete Sepp of the Washington-based National Taxpayers Union. “Localities have been told they can’t expect the funds they’re used to. County-level taxes may be on the rise dramatically,” he said. “It appears especially in the Northeast and Mid-Atlantic, that property tax increases will be well above people’s ability to pay, particularly in an economic downturn.”

According to the N.C. Association of County Commissioners, the average North Carolina county relies on property taxes as the largest single source of its revenue: 35 percent in fiscal 2000-2001. Intergovernmental income, commonly known as state reimbursements, accounted for 24 percent, while sales taxes provided 12 percent, and user fees and miscellaneous sources made up the rest. When Gov. Mike Easley withheld local reimbursements last year, 89 counties increased their sales tax rates by a half-cent to compensate for the loss, and the search for cash continues.

The prospect of higher property tax rates alarms Jonathan Hill, director of North Carolina Citizens for a Sound Economy, a group whose members monitor and speak out on tax issues around the state.

“Counties will be forced to look at everything they can,” Hill said of the challenge facing county commissioners. “Raising rates is difficult and our members across the state are fighting them,” he said. I think they’re more concerned about this than any other tax. They’re really mad about it.”

Inhumane tax increases

Hill said the argument that counties need the rate increases is faulty because property reassessments, required by state law at least every eight years, provide an automatic revenue increase. Almost half of the counties revalue property more frequently than that, and 24 counties have revaluations scheduled for 2003.
“This (property revaluation) should be an adequate way to pay for growth,” Hill said. “Reassessments plus rate increases are a double hit on taxpayers. This country is built on ownership and private property rights, and this is an attack on private property rights.”

Hill said that property taxes are “vicious taxes” and that have a devastating effect on military retirees and others living on fixed incomes. “Think about it. You pay for 30 years and think you own something and have an asset. People work all their lives to retire and not have a payment. If you’re 75 and living on a fixed income, how do you come up with it (property tax)?”

The consequences, Hill said, can be life- changing. “People have to find the money to live on. A lot of them have to move, get equity loans or do reverse mortgages just to live in the home. It’s unfair.”

Sepp said he learned this summer of a man in Connecticut who demolished part of his house to decrease its value in order to pay property taxes. That’s extreme behavior, but not unique. The Christian Science Monitor told of an upscale community in New Jersey that tried to secede from its more urban county, in part because of increased property taxes.

Disgruntled North Carolina taxpayers have access to an appeals process.

The first stop is the local Board of Equalization and Review, but if the taxpayer isn’t satisfied with the outcome, the issue can be argued to the state’s Property Tax Commission, which meets monthly in Raleigh.

Wade Wilmoth, a commission member and Realtor in Boone, says the five-member board hears everything from individuals unhappy with vehicle taxes to large corporations taking issue with the appraisal of a shopping mall.

“Most people feel something isn’t right with the comparables in their neighborhood,” Wilmoth said. “Only a very small group of people actually appeal.” Although he’s been a Realtor for 30 years, Wilmoth says property taxes don’t seem to be of great concern to people when they’re buying property. “People ask about them (tax rates), but it doesn’t seem to be a red flag in making a buying decision.”

Ron Aycock, executive director of the N.C. Association of County Commissioners, says local officials are in a tough spot when it comes to property taxes and serving their communities.

He said the state’s difficult economic times put an added financial strain on counties, which are required to pay just under 6 percent of Medicaid costs. Two years ago that chunk of expenses accounted for 27 percent of the average North Carolina county budget. Only education received a larger portion of funds, at 31 percent.

“Part of the problem is that in a declining economy people lose jobs, lose their health insurance, and then become eligible for Medicaid,” he said. “That doesn’t sound like much, but when it’s applied to large numbers of people, it (Medicaid cost) is big and the counties are responsible.” This fiscal year, counties are expected to spend $450 million on Medicaid.

Aycock also thinks it is necessary to change the current revenue structure to match today’s information economy, including taxing some services.

But, he foresees resistance. “When you begin talking taxes, interest groups crop up and say ‘oh no, not me,’” he said.

Taxpayers must become activists

The National Taxpayers Union recommends citizens take a number of steps if they hope to control property taxes. “Be pre-emptive. Go to commission meetings. Review budgets. Question expenditures,” he said. “We’re often deterred from asking hard questions, but you must do it. We’re the ones who have to set it straight.”

Expenditures, he said, should receive as much scrutiny as the property taxes that will be levied to fund them. “Unmet needs are redefined every year to meet the requests of the teachers unions and others,” Sepp said. “We must ask things like ‘are we paying too much for services? Are we offering extraneous services? Can some services be provided cheaper by private enterprise?’”

Joyce Fernando, an antitax activist and member of the Wilmington chapter of Citizens for a Sound Economy, is asking those very questions of Wilmington-area officials and residents of New Hanover County. “Property taxes are much too high here in Wilmington,” she said.

Her goal is to eliminate them, but she said, “It’s probably a dream.” Nevertheless, she plans to continue raising awareness of local tax issues, as she has for 23 years, and discouraging what she sees as “further exploitation of the taxpayer.”

Aycock said commissioners are already making hard choices such as those advocated by Sepp and Fernando as counties try to balance local taxes and services.

“Counties over the past two years have made substantial cuts and where needed, increased property taxes,” he said. “There’s no magic here. It’s like running a business. You have to make priority judgments.”

There’s at least one thing on which everyone agrees: Citizens will benefit by becoming involved in local public policy.

“If people would learn more about their county budget, that would be wonderful for everyone,” Aycock said.

Martinez is assistant editor for Carolina Journal.