NC Budget and Tax Center

At the legislature: One step forward after three steps back in funding local government

Wednesday, members of the House Finance committee voted in favor of House Bill 900 (HB900), which allows North Carolina cities and towns to increase their local sales tax by a quarter cent. This local sales tax increase would have to be approved by a majority of local residents via a local referendum.

The proposal is being considered on the heels of state lawmakers steadily limiting and restricting revenue options for local government in recent years. The repeal of the local privilege tax in 2014, for example, resulted in nearly $63 million in less annual revenue for cities and counties across the state. Corporate income tax dollars were no longer dedicated to school building and infrastructure after the 2013 tax changes. And overall, tax cuts passed since 2013 that largely benefit the highest income earners in the state and profitable corporations have resulted in around $3 billion less in available revenue for public investments and that impacts local governments as well as state public programs and services.

The argument by proponents of the bill is that it provides a needed revenue option to cities and towns so that they can invest in infrastructure and bring jobs to their communities. It does, but is unlikely to fully address the unmet needs in communities and alleviate the fiscal pressures that local governments face. So, one step forward after three steps back – that’s not progress.

The diminished revenue resulting from tax cuts has served as an excuse for state lawmakers pushing the cost of public investments, like public education, down to counties, cities, and towns. For the 2018-19 school year, approximately $293 million in additional funding would be needed to fully fund state-mandated class-size requirements for K-12 classrooms in public schools. If state lawmakers fail to provide the needed additional funding, the cost and burden will fall onto local communities across the state.

Local municipalities need all the support they can garner to help ensure they have adequate resources to meet the needs of their residents and communities. Accordingly, HB900, even in its limiting form, is probably welcomed news for local officials.

However, it is important that we acknowledge the big picture and consider how we get back to being able to invest in the schools and businesses and workers who together drive our economic future forward. For that, we need a reconsideration of North Carolina’s failed tax-cut experiment.

Cedric D. Johnson is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.

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