Wrong way to help rural areas

Editorial by Wilmington Star-News, April 7, 2015.

Harry Brown of Jacksonville, the majority leader of the N.C. Senate, is right when he notes that the state's rural areas are lagging their urban neighbors in economic growth.

He is wrong, however, in proposing rural counties and small towns boost their budgets by taking sales-tax revenue away from urban areas.

Under the current law, when you pay sales tax on an item the majority of that money goes into the state treasury. The local portion is sent back to the county where the sale was made and is divided among the county government and other municipalities.

(For the record, New Hanover is considered the only urban county in the eastern portion of the state.)

Since many people in rural counties go to urban counties for shopping, dining, etc., Brown maintains that those folks are subsidizing the budgets of the urban counties. Legislation introduced by Brown would change the way the sales tax revenue is distributed back to the counties, basing it on population instead of where the money was spent.

So in theory, a rural county could collect zero in sales tax revenue but receive $1 million back. An urban county could send $50 million in tax revenue to the state and receive the same per-capita portion back as the rural county.

Meanwhile, although the urban counties love having shoppers come from out of town, being a regional retail destination comes at a cost, ranging from infrastructure and development to public safety and marketing.

There is no doubt that rural areas that have seen both manufacturing and agriculture jobs disappear need help – especially with vital infrastructure such as water and sewer – but the reality is that the state is becoming more urban and its economy is being driven by the fast-growing urban areas. Helping rural North Carolina should not come at the expense of those urban areas.

The good news is that Brown's legislation – Senate Bill 369, titled the Sales Tax Fairness Act – is already being met with considerable opposition and with counterproposals that would help the rural counties without hurting urban counties.

Sen. Bob Rucho, a Republican from Mecklenburg County, has introduced Senate Bill 608, which expands services that are taxed. The revenue, like in Brown's proposal, would still be distributed back to counties based on population rather than where the money was spent. The idea behind Rucho's bill is that the urban counties would make up any lost money through new sales taxes.

Rucho told The News & Observer of Raleigh that the sales tax could be expanded to services like barbers and dentists, although his bill doesn't outline exactly what services would be newly taxed.

Over in the House, HB 518, a bipartisan effort, would allow counties to raise the local sales tax by a quarter cent, generally without voter approval.

Brown says neither plan would work because there's simply not enough taxable activity in the rural counties to create a significant amount of revenue. He's probably right, but at least it would be a start.

Meanwhile, perhaps rural areas will have to look at other revenue sources such as increased property taxes or bond referendums to take care of essential infrastructure.

No one likes tax hikes, but it's obvious, too, that rural leaders know it takes money to keep towns and counties running. They just shouldn't expect their urban neighbors to foot the bill. Those cities and counties have plenty to pay for, too.

You can track bills in the General Assembly at www.ncleg.net.

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