Voters in Mecklenburg, Guilford, and Rockingham counties each rejected a ballot initiative to increase its local sales tax by one-quarter cent. Under these referendums, consumers would have paid 25 cents in additional sales tax per $100 spent on goods and services subject to sales tax. The sales tax increase was expected to generate around $32 million for Mecklenburg County, $14 million for Guilford County, and $1.5 million for Rockingham County in additional local revenue each year.
This rejection of a sales tax increase highlights the tenuous reality of funding for public education in North Carolina. Last year, state lawmakers passed a tax plan that significantly reduced revenue available for public schools and other important public services. The tax plan has proven to be more costly than state policymakers’ initial estimate and the implications of this self-imposed revenue crisis will reverberate across the state in the years ahead. Meanwhile, some local governments are bracing for the revenue losses associated with the elimination of the local privilege license tax, which goes into effect next July.
Of the three counties rejecting a proposed sales tax increase, Mecklenburg County has experienced significant growth in its student population in recent years. Charlotte-Mecklenburg Schools (CMS) is the second largest, and one of the fastest growing school systems in the state. For the most recent 2013-14 school year, more than 144,000 students were enrolled in CMS, with nearly 10,000 additional students entering CMS classrooms since 2008. Guilford County has experienced modest growth in its student population (1,326 additional students) while the student population for Rockingham County has declined (990 fewer students) since 2008.
State funding for education has declined in recent years and this is the reality for many school systems across the state. This declining state support has meant funding cuts for Teacher Assistants and inadequate funding for textbooks, among other education areas. Consequently, local governments are increasingly challenged with finding other funding sources to make up for state funding cuts or reducing education services, or a combination. For CMS, state funding dropped by $68 per student (a total loss of nearly $10 million) and $188 per student for Rockingham County (a total loss of around $2.5 million) since FY 2011-12 (see Table below).
The quarter cent sales tax increase was an effort by these local governments to generate additional revenue for their respective public schools. Few options exist for local governments to generate revenue because their taxing authority is controlled by state lawmakers. Local sales taxes and property taxes typically represent major revenue sources at the local level. While increasing the local sales tax rate would generate additional revenue for local governments, it is important to note that sales taxes fall heavier on low- and moderate-income taxpayers who spend a larger share of their income on state and local taxes compared to more well-to-do taxpayers. Absent policy tools that help offset the regressive nature of such taxes, such as the state EITC that state lawmakers allowed to go away at the end of last year, the additional funding raised from increasing the sales tax would disproportionately affect low- and moderate-income families.
The rejection by voters in these counties to increase their local sales tax to help fund public schools raises larger questions that have lasting implications. Particularly, how will North Carolina lawmakers ensure that public schools are adequately funded and that all students are afforded a quality education, regardless of where they live in the state? Furthermore, will the state fulfill its constitutional duty and ensure a high-quality education for all children? Addressing these questions will certainly play a role in determining whether North Carolina can compete for good-paying jobs in a 21st century economy and help ensure viable, thriving communities across the state.