RALEIGH — North Carolina cities and counties are beginning their planning process for the fiscal year beginning July 1, 2004. The picture isn’t pretty. After several years of tough budget choices, partly due to overspending and economic recession and partly due to raids on local revenues by the state, the decisions aren’t getting easier. And after several years of rising local tax burdens, it looks like they might rise again in 2004.
The most recent study of city and county costs by JLFs’ Center for Local Innovation looked at 2002 data and began to pick up the effects of the recent, recession-era tax hikes. The share of personal income consumed by city and county taxes in the median North Carolina county was 13 percent higher in 2001-02 than it was eight years before. Moreover, the trend will worsen in next year’s report because it will begin to register the proceeds of that “local” sales-tax increase imposed on North Carolina households and businesses by Gov. Mike Easley and the General Assembly.
The North Carolina economy is recovering a bit, thus marginally improving the state’s fiscal outlook, but there is little prospect of alleviating the gloom now settling over many local governments. Among the jurisdictions facing projected deficits are:
• Durham. City officials are talking about a budget gap for 2004-05 of between $8 million and $19 million. Pressures to target the crime problem in Durham, one of the worst in North Carolina, are running up against continued slackness in revenue collections and the city’s already burdensome taxes, which rank among the highest in North Carolina in the latest CLI report. Some council members are proposing a tax increase of between 4 and 5 cents per $100 of property value.
• Charlotte. The Queen City’s property-tax rate has remained stable for years, but increases in the county rate, sales-tax rates, and other levies have pushed city residents’ tax burden to the highest in the state, according to the CLI study. Charlotte staffers are projecting a $6 million deficit in 2004-05, with annual gaps rising to an estimated $26 million by 2006-07.
• Forsyth County. Education officials in Winston-Salem and Forsyth County did inform voters in 2001 that passing a $150 million school bond might result in a property-tax increase of, at most, 4 cents per $100. Now county leaders are citing the increased debt load as one of the factors creating a possible $12 million deficit in the county budget for FY 2004-05. Since Forsyth’s taxes already went up in 2002, and the new gap would require a 5-cent tax hike to cover, Forsyth officials are on the verge, at the very least, of developing credibility problems with local taxpayers.
• Cabarrus County. This booming community just northeast of Charlotte has already seen property-tax bills soar 25 percent after a revaluation. Now school officials are seeking approval for $82.5 million worth of construction projects, which they want county commissioners to finance through certificates of participation — without a vote of taxpayers, in other words. The damage could add up to 8 cents on the tax rate, or another 14 percent hike in tax bills. In a familiar pattern, local leaders promise to “alleviate” the impact of the tax increase by asking the state legislature to approve new ways to tax residents for education, including a real-estate transfer tax or additional sales tax.
• Iredell County. Tax collections are coming in lower than expected for 2003-04, though expenditures are also lower so there likely won’t be a deficit through June 30. But Iredell taxpayers could be looking at a property-tax hike next year to balance a growing budget.
* Greensboro. The city manager says that North Carolina’s third-largest city will have to increase the property-tax rate in 2004 or else face “significant cuts.” As in Durham, Greensboro is struggling with a crime problem that its officials want to address by hiring more police officers and raising their pay. At the same time, local economic developers are pressing the city for more incentive giveaways to selected corporations, deals that if successful will mean projects that impose service needs on local governments without generating commensurate levels of tax revenue to pay for them.
These trends of escalating cost for local services, upward-driving tax burdens, annual rounds of fiscal nail-biting, and battles with state officials over revenue authority and tax sharing do not bode well for sound government or the health of North Carolina communities. Solutions lie in innovation, in setting firm priorities for city and county spending, in sorting out some joint fiscal responsibilities among localities and the state (e.g. Medicaid), and in making use of competitive contracting and other forms of privatization to deliver core public services at acceptable levels of quality and cost.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.