Repeal of business tax to take toll on municipalities

by Ronnie Wall, president of NC League of Municipalities, published in News and Observer, November 13, 2014.

Well before the N.C. General Assembly voted to repeal local business privilege-license taxes last spring, the 540 cities, towns and villages that make up the North Carolina League of Municipalities recognized changes were needed and had been working with state lawmakers to that end.

The complete repeal of the privilege-license tax at the end of the current fiscal year, though, creates a $62 million fiscal cliff for municipalities that will be difficult for many to overcome without property tax increases or significant cuts to municipal services. Some have suggested that the pending repeal is a big-city problem or that previous changes to sales-tax collections will make up the difference. The numbers simply do not support that conclusion.

In Burlington, where I am mayor, the repeal of the privilege-license tax will mean losing $564,612. The estimated proceeds from changes to sales-tax collections will not even cover 30 percent of those losses. Small towns like Calabash on the southeastern North Carolina coast will see losses that, as percentages of their budgets, will well exceed the multimillion-dollar losses in some of the state’s largest cities. To make up for the $141,488 loss in Calabash, the town would be forced to double its property tax rate, and earlier sales-tax changes will hardly make a dent in the deficit.

Haw River, Morrisville, Carolina Shores, Pineville, Siler City and Morganton are just a handful of other cities and towns that will experience significant losses.

With the pending repeal in mind, the League of Municipalities will host the first in a series of regional meetings in Southport in Brunswick County on Dec. 3 to foster a statewide conversation about the future of municipal finance and services. This meeting series, “A Path Forward: Vibrant Cities Today and Tomorrow,” will not just focus on the pending revenue loss for cities and towns but also examine the broader challenges facing municipalities as they deal with significant population shifts against a backdrop of state policies that limit municipal growth and potentially alter traditional roles of government.

As a part of this conversation, it is critical that North Carolinians consider the important role that modest property tax rates have played when it comes to job creation, the expansion of existing businesses and the recruitment of new businesses to the state. Services that cities and towns provide help to create a desirable quality of life, and that attractive quality of life is another key component of the economic development equation.

The desire to create an optimal tax structure that encourages economic growth is a laudable goal. Putting more pressure on property tax rates and city services will not achieve that goal.

Ronnie Wall is mayor of Burlington and president of the Board of Directors of the North Carolina League of Municipalities