The North Carolina Senate plans to take $17.6 million currently destined for local governments to pay for part of its newest round of tax cuts.
A provision buried in the fine print of the Senate budget approved this week would eliminate a pool of funds that were slated for distribution to county and municipal governments. The House did not touch these funds, but the Senate needed the money to cover the costs of several expensive tax cuts.
Good intentions actually helped pave the road that got us to this juncture. Last year, the legislature revisited how sales tax revenues are distributed to local governments in an effort to make sure sales tax revenues reached rural communities. Without going into all of the gory details (see our post from last year for an overview), the legislature created a new pot of money to help out counties that lose out under the baseline arrangement. Some of the new money came from expanding the sales tax to services last year, but the legislature kicked in another $17.6 million so that no county would lose revenue when the rest of the sales tax revenue was divvied up. It was a practical way of partially addressing a real problem: help the more rural or suburban counties without hurting urban ones.
But now the Senate has decided it wants that money back, and the only reason is to pay for more tax cuts.
It wasn’t a preordained necessity to stick it to local governments. The House found ways of increasing teacher pay and meeting its other modest aspirations without dipping into the pot of funds designated to bolster sales tax distributions. .But the Senate’s apparently insatiable drive to slash taxes is forcing them to go back on the compromise they struck last year, and to withdraw this little bit of help that had been slated for local governments.
Senate leaders claim that, because they plan to charge sales taxes on more services next year, they’re really not hurting county and city governments with this move, but that’s not really playing it straight with North Carolina. It’s not clear how much new revenue will actually be raised through the new sales taxes the Senate wants to impose, and regardless, counties would still have to go without the $17.6 million that the Senate wants to take back.
Last year the Senate took a few small steps to help local governments that serve struggling parts of the state; now they’re raiding those same coffers to fund the newest tax cut scheme.