A new bill introduced by Republicans would amount to a back-door reinstatement of former Democratic Gov. Beverly Perdue’s much-reviled sales tax increase, which helped balance the budget and pay for schools during the Great Recession.
However, critics say the new sales tax would prevent local governments from determining how their own revenues are spent.
The Senate version of House Bill 1224 would force all North Carolina counties to increase their county sales tax to a rate of 2.5 percent. Most counties’ tax rates are set at 6.75 percent: 4.75 percent goes to the state, while 2 percent (or 2 cents) goes to counties.
Only Durham, Orange and Mecklenburg counties have higher rates7.5 percent, 7.5 percent and 7.25 percent respectivelybecause voters approved a sales tax increase for transit.
Under the bill sponsored by Sen. Bob Rucho, R-Mecklenburg, county commissioners would have the option of using the extra 1/2-cent mandatory tax rate increase for education only, for transit only, or 1/4 cent for each.
Counties could also use 1/4-cent for either transit or education, plus 1/4-cent for “general purposes.”
This leaves counties like Wake in a difficult position. Many counties would choose to use the full 1/2-cent to pay for education programs likely to be slashed in the upcoming budget. And, since education more urgently needs the funding, the bill could indirectly prohibit counties from also raising sales taxes for transit if they enact increases for education.
Durham and Orange would be unaffected and could keep their higher rates.
Sen. Dan Blue Jr., D-Wake, said that this version of the bill would preclude Wake County from imposing a ¼-cent tax hike for education if, by referendum, it decided to also levy the transit tax.
“The ability of Wake County to join with Durham and Orange is substantially impacted,” Blue told Rucho.
Wake County Commissioners have been procrastinating on whether to put a transit tax on the ballot. The bill would give commissioners like Republican Paul Coble, who opposes a transit referendum, an out.
“Please don’t represent this bill as being helpful to Wake County in any way, shape or form,” said Sen. Josh Stein, a Raleigh Democrat.
But Rucho insisted the bill gives counties “more flexibility.”
Republicans on the Senate Finance Committee tried to present the bill as giving counties such as Wake options to enact tax in quarter increments up to half a percent, with a generous general-purpose option.
“Just like the system with our statutes now, you have flexibility in how you use that quarter percent general purpose,” said Sen. Rick Gunn, a Burlington Republican.
But other Senate Republicans were unhappy that their party colleagues would allow counties to collect revenues through an increase in local sales tax.
“I can see if it’s for transportation or education, but I have a problem with ‘whatever, we just want to raise the tax,’” said Sen. E.S. Newton, a Republican from Wilson.
Erin Wynia, the legislative and regulatory issues manager for the North Carolina League of Municipalities, said the bill ignored the role of local governments in economic development.
Wake County Democrats also said that a universal cap was problematic.
Stein noted that 73 counties are at a 2 percent sales tax rate, and some may only want to go up to 2 1/4 percent.
“Right now, they can do it for general purposes,” Stein said. “They have law enforcement needs and if they need a Public Safety Center they can do it, and if they have economic development needs, they can do that. This bill restricts the flexibility of counties to be able to do what they want to do.”
This article appeared in print with the headline “Transit or education?”