Rural officials rally, but controversial sales tax bill may die in NC House

As more than 200 rural officials lobbied for a shift in sales tax revenues Wednesday, one Mecklenburg County lawmaker said he believes the House will defeat the proposal that more than any has split urban and rural legislators.

“I think we’re going to beat it,” said Republican Rep. Bill Brawley of Matthews, who co-chairs the House Finance Committee.

His comments came on a day when North Carolina’s urban-rural divide stood in sharp relief.

Leading senators joined officials from rural counties that would benefit from the tax shift in a rally outside the General Assembly.

In a House debate over a jobs bill, GOP Rep. Mike Hager of Rutherford County offered an amendment that he said would help rural economic development.

“We really do have two North Carolinas,” he said.

And in a news conference about health care legislation, Republican Sen. Tom Apodaca of Hendersonville said, “We’re going to owe it to our rural hospitals to … give them a little more assistance than we do our major hospitals.”

The General Assembly reflects a paradox of N.C. politics – the reascendance of rural power in one of the nation’s most rapidly urbanizing states. The re-emergence has coincided with the rise of Republicans, who tend to come from rural counties and metro suburbs.

Almost all Republican leaders in the Senate and the House are from rural areas.

“The rural-urban divide is still the greatest divide in this building,” said GOP Rep. Charles Jeter of Huntersville.

This week, the Senate passed a bill that would redistribute sales tax revenues. Now, most taxes stay in the counties where sales are made. The change would distribute more revenues on the basis of population. It would shift millions of tax dollars from 21 mostly urban counties, such as Mecklenburg, to 79 rural counties.

Dana Fenton, who lobbies for the city of Charlotte, said it would cost the city $20 million over four years and Mecklenburg $65 million over four years.

At the rally, lawmakers from both parties told supporters it would help poorer counties. Sen. Tom McInnis, a Republican from Rockingham, urged officials to lobby their House members as well as Gov. Pat McCrory, who opposes the change.

“Let them know how much of a game-changer this is for rural North Carolina,” McInnis said.

GOP Sen. Harry Brown of Onslow County, the measure’s sponsor, called it “one of the most important, if not the most important, bill that we’ll see this session.”

To help justify their case, supporters pointed to a 2007 law that changed the way sales tax revenues were distributed. Until 2007, tax revenues in every county had been allocated like this: 50 percent based on where the sales took place; 50 percent based on population. The new formula allocated 75 percent of revenues by the point of sale and 25 percent by population.

Sen. Tommy Tucker, a Union County Republican who supports the current proposal, called that “reverse Robin Hood.”

But the 2007 shift was more complicated. It was part of a broader Medicaid swap.

At the time, counties paid 15 percent of Medicaid costs. For poor counties with larger Medicaid rolls, that represented a high proportion of their budgets. In 2007, the state began to pay all Medicaid costs. In exchange, the state kept a portion of local sales tax revenues.

Because urban areas stood to lose more by losing a portion of sales tax, the state adopted the 75-25 formula to mitigate the effect.

A 2009 report for the University of North Carolina School of Government called the compromise “a win for counties.”

“Low-wealth counties will gain the most,” it said, while richer counties also stood to gain. The report said eight poor counties increased their net revenue by at least 10 percent a year. More than 20 counties, including Mecklenburg and Wake, saw gains of less than three percent.

“All of the big counties that were supposed ‘winners’ benefited less than 3 percent from the 2007 change,” Brawley said.

He said continued urban migration will continue to tilt population – and the proposed funding formula – to the favor of urban counties.

“Small counties will eventually be left in worse shape than they are now,” Brawley said.

“The problem being raised in these poor counties is real and needs attention. And I want to support enthusiastically efforts to help these counties grow. But the sales tax redistribution will not accomplish that.”

This story was originally published August 12, 2015 at 7:18 PM with the headline "Rural officials rally, but controversial sales tax bill may die in NC House."