When Orange County voters rejected a 2008 land transfer tax referendum by a 2-to-1 margin, county commissioners shouldn’t have been surprised. Their own pre-election poll showed support at just 31 percent. Despite appropriating $100,000 for a public education campaign, voters barely budged.
Commissioners hope the result will be different this fall when voters decide whether to approve a quarter-cent hike in the sales tax rate. The same 2008 poll that predicted the transfer tax defeat showed that 46 percent of those surveyed would support the sales tax hike.
If approved, Orange County’s sales tax rate would jump to 8 percent sometime in 2011 and generate an estimated $2.3 million per year in additional revenue.
For the new effort, county commissioners have approved a $40,000 publicly funded information campaign. That doesn’t sit well with Roy Loflin, spokesman for the Orange County chapter of FreedomWorks, but his group hasn’t made a decision about what role to play in the discussion. Loflin has heard rumblings that some residents may be friendlier to the sales tax if it prevents another hike in the property tax rate.
Orange County’s rate stands at 85.8 cents per $100 assessed valuation. The county ranked fifth statewide in per-capita property tax collections in fiscal year 2008.
Frustration over high property tax bills bubbled to the surface last year in the form of the Orange County Tax Revolt movement. Bryan Berger, the Carrboro resident who started the movement with a sign planted in his yard, opposes increasing the sales tax rate, just as he does the property tax rate. The retired businessman isn’t swayed by talk among commissioners that some of the money might be used to recruit business and ease county reliance on residential property owners. Berger thinks taxing and spending are the county’s problem, not the solution.
But the idea of fending off a property tax increase and helping recruit business at the same time does sway others.
Joe Phelps, former mayor of Hillsborough, thinks raising property taxes again would be “crazy.” He said the county has engaged in wasteful spending on things like outside consultants and new buildings downtown, and the sales tax would help spread the burden of paying the bills.
Phelps said the county needs to expand its commercial tax base, an issue he talked about when he campaigned for a county commission seat this year. Incumbent Barry Jacobs defeated Phelps in the Democratic primary.
Phelps points to the recruitment success of next-door-neighbor Alamance County. Microsoft reportedly is considering locating a data center in Mebane, a few miles from the Orange/Alamance line.
Orange County Manager Frank Clifton agrees the county needs to diversify the tax base. He said a lack of utility infrastructure in two of three county economic development zones makes the areas tough to market. He likens the situation to a shoe store with no shoes inside. “While we’ve got the land zoned and we’ve got an attitude that we support economic development occurring and business expansion in those areas, without the utilities in place, you don’t have anything to sell,” Clifton said.
Unless a shift to a commercial or retail tax base occurs, Clifton believes it will be difficult to fund basic services without increasing property taxes, which account for 76 percent of revenues.
The head of the Hillsborough/Orange County Chamber of Commerce wants the county to “help level the playing field” with tools such as matching grants, tax credits and incentives, a revolving loan fund, and a streamlined approval process for building or renovating. “So many other organizations have other items and tools at their disposal to help attract businesses that Orange County doesn’t have,” said Margaret Wood Cannell.
If Orange County recruits only by using incentives such as tax abatements for specific companies, it would be a waste of taxpayer money, says Duke University economics and political science professor Mike Munger. In an e-mail, Munger wrote that surveys of business leaders and consultants show incentives are the very last consideration and are usually a way of breaking ties between locations already considered to have a friendly business climate.
Munger recommends governments think long term and focus on the overall business climate so that companies conclude they can make a profit and expand over time. Key factors include a manageable tax and regulatory burden, laws that don’t hurt productivity, effective infrastructure, affordable housing, and an educated workforce.
The debate over whether to use new tax revenue for economic development will be moot if the referendum fails. Since 2007, more than two-thirds of the 60 attempts statewide for tax hikes have failed. In 2010, however, six counties have approved them — Duplin, Hertford, New Hanover, Onslow, Randolph, and Wilkes. Voters in Robeson and Watauga counties will vote in August, and six counties will decide Nov. 2 — Orange, Alamance, Bladen, Cherokee, Columbus, and Montgomery.
Donna Martinez is a contributor to Carolina Journal and co-host of Carolina Journal Radio.