Starving cities and towns will not lead to economic success

Editorial by Wilmington Star-News, December 4, 2014.

Starving its cities will not propel North Carolina to economic success. Those cities – places like Charlotte, Raleigh, Wilmington and much smaller municipalities – are where most of the state’s jobs, people and services are located.

So it is understandable that tension arose between city leaders and a legislative counterpart on Wednesday when the N.C. League of Municipalities met to discuss the effect of the General Assembly’s abolition of the privilege tax. The decision is one in a series of legislative actions restricting the authority of incorporated cities and towns to raise revenue.

The legislature also abolished involuntary annexation, which had for half a century allowed cities to take in areas that had become urbanized and whose residents were taking advantage of city services and infrastructure. In killing annexation, taking away the privilege tax and considering a push to cap local sales taxes, the Honorables in Raleigh are putting cities and their residents in a bind.

Growth and business privilege taxes have allowed cities to relieve the burden on property owners for the cost of municipal services that, for the most part, residents need and want. The repeal of the privilege tax will cost North Carolina cities and towns $62 million annually, according to the N.C. League of Municipalities, which represents those communities.

In Wilmington alone, the hit will be $2.3 million. Unless the city council wants to cut services to the bone, it will be hard pressed to fill the gap without increasing property taxes.

To his credit, Rep. Frank Iler, R-Brunswick, attended Wednesday’s meeting in Southport, and understandably felt the need to respond after listening to officials of Southeastern North Carolina cities and towns criticize the legislature’s decision. He says the League had sent only bullet points but no proposed alternatives to the legislature while the privilege tax was being discussed.

That’s not entirely accurate. The League had supported the concept of setting reasonable limits so that similar businesses know what to expect regardless of where they decide to locate and to avoid excessive taxation. But while cities and towns are created and regulated by the legislature, the reason their residents incorporated was to have some degree of self-determination.

They should be permitted to set their own fees and to decide what types of business are desirable for their community and which ones they’d like to discourage, and tax them accordingly.

While businesses have a point that some communities have gone overboard, further restricting cities’ ability to generate new revenue without offering any alternatives is detrimental to the state as a whole.

When the Honorables were discussing the privilege fee last year, they said they’d be willing to work with cities on ways to replace the lost revenue. That hasn’t happened.

It is past time to have that discussion, in earnest.

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