Escalating a battle with GOP lawmakers, Republican Gov. Pat McCrory on Monday called a proposal to redistribute more sales tax revenues to rural areas “class warfare” that would raise taxes on “millions” of North Carolinians.
“I disagree with this type of class warfare,” McCrory told WFAE’s Charlotte Talks. “...It’s almost John Edwards-type language being used by my own party.”
The governor was referring to a proposal from Sen. Harry Brown, a Jacksonville Republican, that would change how local sales tax revenues are distributed.
Brown wants to send more sales tax revenue to rural areas, which he said have suffered as urban areas have grown and become more prosperous. He says there are “two North Carolinas – one that is booming and one that is busting.”
Edwards, the former U.S. senator and presidential candidate, often talked about “two Americas” of haves and have-nots.
In a statement, Brown said, “It’s unfortunate that the governor seems more concerned about attacking bills – even before they’re filed – rather than discussing solutions to serious problems.”
Local sales taxes today are mostly distributed based on where purchases are made, which benefits tourist destinations and cities with large retail destinations.
Brown’s proposal would distribute local sales taxes only on a per-capita basis. Under that plan, a number of urban areas would see significant cuts, including Mecklenburg County, which would lose nearly $68 million a year.
McCrory called Brown’s “a poorly thought-out bill” that would force local governments to raise property taxes. “The math,” he said, “doesn’t add up.”
McCrory has criticized the bill before, saying it not only “breaks the bank (and) breaks a promise” but “divides North Carolina.”
“I hope we can put aside the name-calling,” Brown responded, “and have a frank and open discussion about an antiquated sales tax distribution formula that hurts the vast majority of North Carolina counties – just like we did when I supported the governor’s transportation bill, which moved road money from rural to urban areas.”
Brown said last week that he might make some changes to his bill to lessen the impact on urban areas.
Rucho tries for ‘win-win’
Sen. Bob Rucho, a Matthews Republican, has offered a competing proposal that also would shift local sales tax dollars to rural areas, based on population. But his bill wouldn’t impact urban areas as much.
Rucho’s proposal would have a “hold harmless” provision, which would keep local sales tax funding at no less than a 2013-14 level. Only revenue increases – from growth and by adding more services to the sales tax base – would be divided on a per-capita basis.
Take Mecklenburg County.
It got $193 million from the sales tax in 2013-14. Under Rucho’s plan, it would never get less. Under his estimates, revenue would grow steadily. Mecklenburg would get $237 million in 2018-19, an increase of nearly 23 percent. It’s unclear how much more the county would get if the formula remains unchanged.
Under Brown’s plan, one state projection estimated Mecklenburg would lose nearly $68 million by 2018.
Wanda Reeves, director of finance for Mecklenburg County, said the county estimates it could lose 30 percent of its sales tax revenue under Brown’s plan. Sales tax makes up about 15 percent of the county budget, which funds schools, parks, libraries and social services.
“There will be some impact to us,” Reeves said. “There are some mandated services that we have to accommodate – we have to provide services for schools, for the jails. It could be property taxes that we have to raise.”
Losing sales tax revenue would cut into money the county pays for debt service.
The county hasn’t analyzed the impact from Rucho’s bill.
Rural counties also would get more under Rucho’s proposal. Jones County, which got about $1 million in sales tax revenues in 2013, would get about 63 percent more under Rucho’s plan by 2018 compared with 182 percent more under Brown’s.
Rucho said urban areas hold jobs that support many people who come in from surrounding counties.
“We increase the amount of money going to rural counties without destroying the economy of the urban centers,” Rucho said Monday. “Isn’t that a win-win for everybody?”
Charlotte researches impact
The city of Charlotte, which is trying to plug what could be a more than $30 million shortfall for the upcoming year, is concerned the sales tax changes could dig a deeper hole.
In January, before the bills were filed, the city estimated that changing sales tax distribution to a population basis could cost it $29 million a year.
A state analysis of the impact of Brown’s bill shows less of an impact, with a loss of $2.6 million compared with how much money the city would be expected to have in four years.
The city’s chief financial officer, Randy Harrington, said Monday the city is still studying the bills to see how they affect the city.
Today, the local sales taxes within Mecklenburg County are handed out based on the city or town’s share of the total property tax base.
The Brown bill would change that intra-county distribution based on a city and town’s population. That could lessen the impact to Charlotte.
The Rucho proposal would grow city sales tax revenues by 2018.
Bills’ fates uncertain
Shelly Carver, a spokeswoman for Senate President Pro Tem Phil Berger, said the Eden Republican will back whichever bill is endorsed by the GOP caucus.
“(He) believes both Sen. Rucho’s and Sen. Brown’s sales tax bills address a concern that everyone – both Republicans and Democrats – can agree on: The current approach to distributing sales taxes is hurting North Carolina,” she said.
If either sales tax bill passes the Senate, it would go to the House. There, its fate appears to be uncertain.
“I can’t speak for the whole House, but of those that I have spoken with, there is a lot of concern that this is very unfair to urban areas,” House Finance Chairman Jason Saine of Lincoln County, which would gain under both proposals, said.
“I share that concern and I am very apprehensive to support either option at this point.”
Bills filed by GOP Sens. Harry Brown and Bob Rucho would redistribute sales tax revenue in North Carolina. Rucho’s would hurt urban counties less.
Here’s how each would affect Mecklenburg County in 2018-19 under estimates provided by the General Assembly’s fiscal staff.
▪ Brown Bill: Mecklenburg would get $198.57 million.