Legislators formally revealed a plan Monday to shift the way sales tax revenue is distributed across the state, outlining an effort to help rural counties with more funding from the tax on goods.
Under the proposal, the shift would be phased in over three years, moving from a system weighted toward sending tax revenue back to where the sales are made to a system where the money is distributed strictly on the basis of population.
“I think this is one of the most important bills we’ll see this session,” said Senate Majority Leader Harry Brown, a Jacksonville Republican. He called the current system outdated, and described it as responsible for dividing the state into “two North Carolinas.”
Lawmakers provided a chart that shows the effect of the change by comparing last year’s distribution to what would happen when the change is fully in place for the fiscal year that ends in June 2019.
That five-year snapshot of change shows stark differences.
Small, rural counties would be the biggest beneficiaries. According to legislative staff calculations, Jones County, one of the counties Brown represents, would see about $2.7 million in sales tax revenue in 2018-19, up 163 percent from $1 million last year. Other small counties would see increases of 100 percent and more over that five-year span.
Durham, Mecklenburg, Buncombe, Watauga and four coastal counties would see decreases in sales tax revenues.
Dare, which is the biggest beneficiary of the distribution plan currently in place, would see a 59 percent reduction in 2018-19 compared with last year.
According to Brown’s office, the five-year effect is that:
▪ Wake would be about even, meaning the county would collect about the same revenue in 2018-19 as it did last year.
▪ Durham would be down 9 percent.
▪ Johnston would be up 43 percent.
▪ Mecklenburg would be down 7 percent.
The estimates include a projected 3.5 percent annual growth rate in sales tax revenue.
The current formula uses a point-of-sale and population formula that also applies a “multiplier” to certain counties that magnifies what they get. The plan Brown proposed would phase out those multipliers.
Brown described the proposal as reforming an antiquated system that has rural residents subsidizing wealthy counties.
“For years, a disproportionate share of tax revenue has been redistributed to urban, prosperous areas of the state, where large shopping malls and commercial centers lure their rural neighbors to drive in and spend their hard-earned sales tax dollars out of town,” he said.
The plan is different from a proposal Brown previewed earlier this month, as it would be phased in over three years. Brown described the plan in at a news conference Monday. He was flanked by Republicans from both chambers.
Sen. Joel Ford of Charlotte, whose county would lose millions in the change, denounced the proposal.
“It’s socialism,” said Ford, a Democrat. “It’s a redistribution of wealth.”
Helping low-wealth counties is a state responsibility, Ford said, and it can be done without hurting wealthier counties.
Commissioners from urban counties argue that they support the roads, sidewalks and other infrastructure shoppers use, and that growing counties can’t afford to lose revenue.
“It will have a significant impact on the county if there’s a redistribution of funds,” said Wake Commissioner James West. “We are hoping it will not happen.”
Wake’s budget is already tight, West said. “Right now, we don’t have any extra revenue,” he said. “We have more requests than we have money for.”
Some winners and losers
Here are some projections of how sales tax revenue would shift over five years under the proposed legislation. This assumes 3.5 percent annual growth in sales tax revenue.
Durham, -9.2 percent
Mecklenburg, -7.4 percent
Dare, -59 percent
New Hanover, -13.5 percent
Wake, .1 percent
Jones, 163 percent
Johnston, 43 percent
Orange, 30.8 percent
Chatham, 58.4 percent