City: No tax hike, but loss of business tax weighs on budget

The city of Charlotte said Friday that it won’t raise property taxes for the coming year, although it’s possible that proposed pay raises for employees could be cut if the city can’t close a roughly $16 million shortfall.

The question at the city budget retreat Friday was whether the General Assembly will replace the Business Privilege License tax, whose repeal will cost the city $18.1 million in revenue for the coming year.

The loss of the business license tax would offset most new property tax and sales tax revenue the city is expecting from the healthy economy, City Manager Ron Carlee said at the meeting.

But Carlee said he believes the city won’t have to raise property taxes for the fiscal year that begins in July.

It’s possible, though, the city could face tax increases or significant budget cuts in future years, city officials said, depending on what state legislators do.

Besides uncertainty about the loss of the business license tax, it’s possible the General Assembly could change how sales tax revenues are distributed. The city said that could cost it $29 million for fiscal year 2017.

“That means either reduced services or higher taxes,” Carlee said about a worst-case scenario for the end of the decade.

The loss of the Business Privilege License Tax flared up during the budget meeting as a possible campaign issue in the mayor’s race in the fall.

Democratic Mayor Dan Clodfelter, who has said he might run for mayor, is a former state senator who supported changing the Business Privilege License Tax and other tax-reform issues, some of which could cost the city revenue.

Carlee said during the meeting that the Business Privilege License Tax “was a mess, and it needed serious reworking.”

But he said he wished it would have been “reformulated” instead of eliminated.

Council member David Howard, who has already announced he is running for mayor, criticized legislators for cutting the tax and leaving the city with a hole in its budget.

“I won’t let them off the hook like that,” Howard said, referring to Carlee’s comments.

Cloldfelter defended the legislature’s action on the tax.

“It’s a shared mess,” he said. “The League of Municipalities was invited to present alternative proposals and didn’t. Time ran out.”

After accounting for the loss of the business license tax revenue of $18.1 million, the city’s first look at the budget shows a $15.7 million shortfall.

That is based on projected general fund revenue of $586.5 million and expenses totaling $602.2 million.

Those expenses include a 1.5 percent increase in the operating budget; a 3 percent raise pool for city employees; and higher costs for trash and recycling pickup contracts.

At this point in the budget cycle, it’s not uncommon for the city to show a projected gap between revenue and expenses. If the economy continues to improve, and tax revenues increase, that gap could shrink.

Carlee said the city would either reduce or eliminate the proposed pay increase to balance the budget if there is no replacement for the business tax.

Besides the mayor’s race, City Council members are also up for re-election in the fall. That means it’s unlikely there will be any significant interest in a property tax increase this year.

But residents could be paying more for city services.

The property tax and the sales tax mostly fund the city’s general fund, which covers services such as police, fire, roads and planning and zoning.

A number of other city services are so-called “Enterprise Funds” that rely mostly on user fees for revenue.

Charlotte-Mecklenburg Utilities, which now goes by Charlotte Water, has said customers might face rate increases that average about $50 a year for the next seven years. Charlotte Water is also considering raising water rates on people who use the least amount of water to achieve budget stability. That could cost those users about $17 a year.

People who use more water might save on their water bills if a rate for small users is enacted.

The city gave council members a list of unfunded needs that could be included in the budget. Among them:

• $1 million to improve technology. That would include upgrading the city’s telephone system and creating a way to handle public records request faster.

• $10 million toward a rental assistance program for low-income residents. The program is being managed by the Foundation for the Carolinas. The city still has to pay about $6 million into the program.

• $4 million to build a bridge over Interstate 85 north of W.T. Harris Boulevard in 2016 instead of 2018.