State may consider revenue-growth cap

May. 10, 2014 @ 03:22 PM

Tucking the idea into an otherwise-unrelated bill, a N.C. General Assembly study committee has proposed putting a cap on the amount of new property tax revenue a city or county can take in from one year to the next.

If passed, the measure endorsed by the Joint Legislative Energy Policy Commission would allow cities and counties to grow tax revenues by no more than 8 percent a year.

Staffers from two lobbying groups, the N.C. League of Municipalities and the N.C. Association of County Commissioners, immediately notified their members of what both labeled an “unprecedented” piece of legislation for this state.

The property tax “is the main revenue source for cities” in North Carolina, said Erin Wynia, a league lobbyist. “It’s one of two they control at the local level. For cities, this is a really important issue.”

The genesis of the proposal – buried in the text of a draft bill that otherwise addresses oil and gas drilling – was unclear.

Tax law is normally the province of another study group, the Revenue Laws Study Committee, that’s proposed nothing like the 8-percent property tax revenue cap. It does, however, want to cap at $100 the cost of a city business “privilege license.”

A key tax-law writer, state Sen. Bob Rucho, R-Mecklenburg, sits on both panels and co-chairs the energy policy committee. He didn’t respond Friday to an emailed request for an interview.

Minutes from the energy panel’s meetings earlier this winter and spring didn’t offer any clues. The committee met and endorsed the draft bill on Thursday; the minutes of that most recent meeting are unavailable.

Annual audits indicate that in Durham, both the city and county would have run afoul of an 8-percent limit on property tax revenue growth at different times last decade.

The county would have breached it in fiscal 2007-08, when it took in $197.1 million, a 9.4 percent increase on the $180.1 million in current and back taxes it collected the year before.

The city, meanwhile, saw its property collections hit $119.2 million in fiscal 2008-09, a 10 percent increase on $108.4 million in revenue the year before.

Both governments have been well under the 8-percent growth mark since, in no small part because the 2008 recession put a damper on real-estate development.

There were tax increases in the years they topped the 8-percent mark, the county in fiscal 2007-08 raising its levy by 2.5 cents per $100 of assessed value and the city a year later following suit with the equivalent of 3.95 cents per $100.

The city’s increase amounted to an 8 percent increase in its tax rate.

Its budget that year included a major spending increase on employee pay, a reserve to cover then-fast-rising fuel costs and money to begin paying off bond issues voters approved in 2005 and 2007.

The energy study committee’s proposed cap targets revenues, not the actual tax rate, which implies that local officials will have to adjust the rate to stay under it.

In targeting only tax revenue, the measure doesn’t address levies like the $1.80-a-month trash-collection fee the city imposed last year on homeowners. Local political activists have labeled such fees as regressive. In response, a majority of the City Council has signaled interest in repealing the waste fee this year and making up the difference with the property tax.

City Budget & Management Services Director Bertha Johnson said the text of the bill omits “a lot of detail,” with “a lot left for interpretation.”

A tax increase isn’t the only thing that potentially can trigger a breach of the cap.

Other possibilities include a revaluation of the tax base, the successful recruitment of a big new business, a major business’ purchase of “a large quantity” of taxable equipment or an audit that finds a key property owner has been delinquent in paying its taxes, county Tax Administrator Kim Simpson said.

Simpson added that she’s “very concerned” about the cap proposal. She also was unhappy about its emergence from an unexpected source.

“What, I didn’t think they were going to hide anything anymore,” she said when told which committee had come up with the idea. “Isn’t that interesting?”

But the oil and gas bill was likely to get the attention of local officials anyway because it calls for stripping cities and counties of the authority to bar drilling in their borders.

While unprecedented in North Carolina, revenue-growth caps are used in other eastern U.S. states.

A Wall Street credit-rating provider, Standard & Poor’s, reported last year that Delaware, Maine, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island and West Virginia all have some variant of one.

In some states, the effects are minimal, but in others, they have “put practical limitations on [local-government] financial flexibility,” the S&P report said.

S&P hadn’t made any credit-rating changes because of the caps, some of which were relatively new. But it promised bond investors that it would consider them as “one of several factors” when assigning ratings to local-government debt.

Durham’s city and county governments both have AAA credit ratings, the highest available, from all three major rating agencies.