Charlotte, Mecklenburg County increasingly look to sales tax hikes

For two decades local government has turned to targeted sales taxes to help fund special projects – a convention center, football stadium renovations, a new uptown arena, new art museums, a baseball stadium and a light-rail line.

To foot the bill, the city and the county have raised the sales tax on hotel and motel rooms three times, rental cars two times, restaurant and bar tabs once, and the overall sales tax once.

Those special taxes generated more than $150 million last year. That’s 25 percent of the city of Charlotte’s entire general fund budget.

Now Mecklenburg County is seeking another hike – a quarter-cent increase to the general sales tax – to fund what’s widely considered a need: pay increases for teachers. Money would also be spent on the arts, libraries and Central Piedmont Community College.

But the proposed increase would push Mecklenburg’s sales tax to 7.5 percent, which would be tied with Durham and Orange counties for the highest in the state.

And it raises questions as to why the city and county have levied so many special taxes for what some would consider nonessential needs – and whether any of that money could be redirected for educators, libraries and the arts.

Created by the legislature, most of the special tax revenue comes with restrictions, which would require an act of the General Assembly to lift.

An Observer analysis shows that even if local government had the ability to spend the money in different ways, there is only loose change left that hasn’t been spent or committed.

Deputy City Manager Ron Kimble said those taxes – which are mostly dedicated for tourism by state statute – are “tapped out.”

Mecklenburg commissioners have said the new sales tax would be spent on raises for Charlotte-Mecklenburg employees (80 percent), Central Piedmont Community College (7.5 percent), the Arts and Science Council (7.5 percent) and the county library system (5 percent).

Of those needs, the arts and cultural facilities are the only ones that already have a dedicated tax. But the city of Charlotte does not direct those tax dollars directly to the ASC.

The ASC is an umbrella organization that raises money for the arts and then distributes money to groups such as the Charlotte Ballet, Children’s Theatre of Charlotte and the Mint Museum.

Kimble said he hasn’t heard any discussion – either formal or informal – about using existing sales tax dollars for the county’s proposals. Before the Mecklenburg Board of County Commissioners voted 5-4 to put the tax increase on the November ballot, Kimble said he didn’t have any conversations with anyone from the county about how and whether existing taxes could be used.

Sales tax or property tax hike?

Mecklenburg County estimates that the proposed quarter-cent sales tax would generate about $35 million in its first year.

If the county wanted to give more money to Charlotte-Mecklenburg Schools, as well as the other entities, it could instead also raise the county property tax rate by about 3 cents for every $100 of taxable value. The current county tax rate is 81.57 cents.

Proponents of using sales taxes to raise revenue have often said the taxes shift some of the tax burden to people who may work and shop in Mecklenburg but live somewhere else.

Others, however, have said that relying on sales taxes can place an unfair burden on people with lower incomes because they spend a greater percentage of their income on basic necessities, some of which would face higher taxes under the county’s proposal.

The Mecklenburg commission, in putting the tax on the ballot, is taking advantage of a 2007 state law that allows counties to increase their sales by a quarter-cent for any purpose.

“It would put less pressure on our property tax,” said county commission Chairman Trevor Fuller. “We can’t keep going to the same bucket every time, particularly if we have another bucket that we can have access to.”

County Manager Dena Diorio said she didn’t speak with commissioners about whether it was more practical to use a sales tax or property tax to raise more money.

“Have we had a conversation?” Diorio said. “They may have talked about it amongst themselves but we haven’t had a conversation (about taxes).”

Sales taxes can be more volatile than property taxes. In boom times, revenues surge. During the recession, sales taxes can plunge, making it hard to budget for the future.

“I think they understand that,” Diorio said about the volatility of sales taxes. “Anyone who has been on the board gets that. We also have volatility with property taxes.”

John Hood of the conservative John Locke Foundation in Raleigh opposes the tax increase. However, Hood said that if the county were going to raise taxes, he would prefer commissioners increase the property tax.

“The property tax is transparent to most taxpayers,” Hood said. “You get a bill. Even if you are paying out of escrow, you get a bill.”

He added: “With sales tax, you have no idea over a course of a year how much tax you pay, unless you dutifully save up your receipts.”

The combined property tax rate for Charlotte and Mecklenburg County is $1.284.

That combined tax rate for the city and county is higher than Raleigh’s combined tax rate, as well as Asheville, Fayetteville, Wilmington and Winston-Salem’s. It’s lower than Greensboro and Durham’s combined tax rate.

Arts funding

The county’s proposal would set aside 7.5 percent of the quarter-cent sales tax for the ASC. That’s about $2.6 million.

Bernie Petit, communications manager for the ASC, said the group has tentatively endorsed using the money for field trips and in-school programs ($1.5 million); operating and project grants ($850,000); and $275,000 for new initiatives, such as training, marketing and a data project.

The ASC is eligible for money from one of the city’s hotel/motel occupancy taxes, which generates $16.4 million a year.

That tax is usually referred to as a “general tourism” tax, and the enabling legislation lists a number of uses: maintaining and operating convention centers, civic centers, performing arts centers, coliseums, auditoriums and museums as well as art or cultural programs.

The city and the Charlotte Regional Visitors Authority spend most of the money on Time Warner Cable Arena, as well as maintenance and operating subsidies for Bojangles’ Coliseum and Ovens Auditorium.

Petit said the ASC doesn’t receive any direct funding from the CRVA, though the tourism authority spends money promoting cultural events and also performs “back of the house” services such as HVAC or plumbing for some facilities, such as the arena and Ovens Auditorium.

He said the Cultural Life Task Force, a 22-person volunteer group, recommended this year that the ASC and CRVA “strengthen their relationship,” which could include more direct funding.

The ASC will receive $2.9 million from the city this fiscal year. The group’s total revenues for 2012 were $13.9 million.

Though the ASC doesn’t receive any direct money from the general tourism tax, the city has spent heavily on arts facilities.

In 2006, the city enacted a new 5 percent tax on rental vehicles. That paid for the city’s share of the cultural campus on South Tryon Street, which included a new home for the Mint, and construction of the Knight Theater, the Bechtler Museum of Modern Art and the Harvey B. Gantt Center for African-American Arts + Culture. The city spent roughly $90 million on the buildings, which are used rent-free.