RALEIGH – There just aren’t enough temptations for local officials to raise their property taxes. That’s why tax increases have been so rare across North Carolina over the past few years.
Just kidding.
Property taxes are up in most counties and many cities. In 2005 alone, according to the N.C. Association of County Commissioners, nearly half of the state’s 100 counties enacted property-tax hikes. The longer-term trend is evident from data reported in JLF’s Agenda 2004 briefing book. It shows that local-government revenues in North Carolina grew by 40 percent from 1992 to 2002 after adjusting for inflation and population growth — far faster than the national average. The percentage of income consumed by NC local taxes has also grown over time.
City and county politicians attempt to justify their fiscal choices in a number of ways. At the city level, apologists argue that the cost of providing services to new developments exceeds the revenue generated in taxes, fees, and charges. At the county level, officials cite state-mandated costs in areas such as school construction and Medicaid as primary factors in “forcing” them to enact tax increases.
Now, unfortunately, they have a brand-new reason to opt for higher taxes instead of getting their costs down through priority-setting, performance-based management, and privatization. The just-enacted bill creating a North Carolina state lottery has a provision that rewards high-tax jurisdictions with a larger slice of the revenue pie. As described in the New Bern Sun Journal, officials in Craven County seem distraught that it isn’t in a position to score a bigger jackpot:
The state’s new lottery may pay off for Craven County schools with a windfall of about $1.1 million once the lottery is fully operational, according to data from the report.
“Although $1.1 million for the county is a decent amount, it would be much larger if we had a higher tax rate,” David Clifton, assistant superintendent, told Craven County Board of Education members at its monthly workshop.
The intention here was to combat the “crowd-out” phenomenon in which lottery revenues come to supplant other taxes and fees dedicated to education. Similar to the “maintenance of effort” provisions often found in Medicaid and welfare legislation, the rule is designed to discourage counties from using expected lottery proceeds to offset tax reductions. What it will actually do in practice is motivate local officials to enact significant tax increases, as they will argue that every $1 raised with a higher tax rate will generate more than a dollar of total revenue.
One irony here is that some lottery proponents sold the idea as an alternative to tax increases. Remember House Speaker Jim Black’s reaction to the initial vote count, which didn’t bode well for the lottery’s passage? He proceeded to talk up a bill creating a local-option sales tax for counties to use for school construction. If lawmakers won’t give us a lottery, he clearly suggested, additional taxing authority would be necessary to meet the need.
It was never an either/or decision, of course. Counties will continue to push the sales-tax bill in 2006 and beyond. And that may well include counties that go ahead and hike their property taxes in the short run to score more lotto dough. Delightful outcome all around – for the politicians. Not for the taxpayers.
Hood is president of the John Locke Foundation.