Local Governments Ask: What Recession?

This week’s “Daily Journal” guest columnist is Michael Lowrey, Associate Editor of Carolina Journal.

CHARLOTTE — Times may be tough all over, but they’ve been least tough so far for the state’s local governments. Despite substantially lower sales tax receipts, the state’s counties and municipalities have avoided making hard choices about the services they provide by increasingly relying on property taxes to fund operations.

For 13 years, the John Locke Foundation has put out a report called By The Numbers, which looks at the cost of local government. The latest edition covers fiscal year 2009 (July 1, 2008 – June 30, 2009). BTN relies on audited financial information that all of the state’s counties and towns are required to file each year with the state treasurer’s office.

In fiscal year 2007, the state’s counties and municipalities took in $14.51 billion in revenues. That number included $7.1 billion in property tax receipts, $2.75 billion in sales taxes revenues, $1.87 billion in water and sewer receipts, and $2.73 billion from taxes and fees.

The economy started to slow in fiscal 2008. Even so, local governments took in an extra half billion dollars — revenues were up to $15.09 billion — but all of it came essentially from higher property tax collections. Sales tax receipts were up only about $55 million, and water and sewer fees were up about the same amount, while collections of other taxes and fees actually fell by some $77 million.

By fiscal 2009, the economy really had gone in the tank. Local sales tax collections fell to $2.39 billion, a $400 million drop (15 percent) compared to the previous year. Collections of other taxes and fees were off by more than $250 million. Water and sewer revenues fell by $50 million. Total local government tax and fee collections, though, were $14.81 billion, or off only about $250 million — 1.6 percent — compared to fiscal 2008, as counties and cities responded to lower sales tax and other revenues by again increasing property tax rates.

Property tax revenues came to $8.19 billion, up a half-billion dollars compared to the previous year, and up over $1 billion — a 15 percent increase — compared to two years earlier.

Excluding water and sewer receipts, in fiscal 2007 the state’s local governments got 56 percent — $5 of every $9 they collected — from property taxes. Two years later, property taxes came to 63 percent —$5 of every $8 — of nonutility receipts.

Judging by the number of counties that are opting to hold referendums to increase the local sales tax, it would seem that many county commissioners are beginning to question how much longer the public will stomach higher property tax rates.

Property taxes are the most politically charged way local governments fund operations. Each landowner is sent a bill, so each taxpayer knows exactly how much property tax he is paying, and any increases are apparent. In contrast, most people have no idea how much they pay in sales taxes or other taxes and fees. And, of course, property values haven’t been going up recently.

But voters across the state weren’t in the mood for higher sales taxes this past November, with referendums failing in all 14 counties in which a higher rate was on the ballot.

So as the state’s economy continues to make a slow climb out from the Great Recession, more localities may find they need to become more aggressive in doing more with less. As the numbers in the latest BTN show, overall county and town budgets across the state have been affected only minimally to date by the recession.