City fears huge losses
High Point officials are bracing themselves for the possible loss of millions of dollars to city coffers as a consequence of a state tax proposal.
The Republican leadership of the N.C. General Assembly is making tax reform a priority and has introducted Senate Bill 394, which would cut major state tax rates in an effort to make them more competitive with neighboring states and make the tax system simpler and fairer.
Proponents claim the changes would be “revenue-neutral,” bringing in the same amount of money that the current system produces for state coffers.
City officials are dubious of this, and say the proposed reductions and eliminations of various taxes in the bill could result in a “staggering and awesome” three-year loss of $16.3 million in general fund revenues for High Point.
City Manager Strib Boynton said legislators have sought to assure local governments that tax reform will be revenue-neutral, but they haven’t explained how they will achieve this.
“They say, ‘We’ll find something to protect all cities on tax reform,’ but we haven’t seen it. We want to see some sort of analysis, evaluation, some numbers in black and white,” Boynton said. “I would think if the legislature is really serious about this — and reform is probably needed; I’d certainly go along with that — then study it for a year and make sure you know what the evaluations are. Otherwise, these knee-jerk policy shifts don’t always turn out the way one expected.”
The Senate bill would lower income and sales tax rates and make things like personal property services, entertainment and recreation and other services subject to state sales tax to help offset the cuts.
It also would eliminate all state and local business privilege license taxes and the local distribution from beer and wine excise taxes, as well as reduce the local sales tax on food from 2 percent to 1 percent.
All would translate into lost revenue for High Point and other cities, but the biggest hit, by far, would come in the form of the repeal of local utility franchise taxes that is proposed in the bill — estimated at $12.2 million over the next three budget years for High Point.
Proponents in the legislature argue that reducing taxes will translate into a stronger economy while providing a stable revenue stream.
Boynton is already projecting a city budget shortfall of $2.7 million to $3 million for the fiscal year that begins July 1, in large measure because of several million dollars the city gets through the state and Guilford County that could be cut. The city’s entire operating budget totals about $328 million, with an additional capital budget of about $140 million. The City Council has given Boynton direction to produce next year’s budget with no property tax rate increase.
This will be all the more difficult, he said, if the changes proposed in Senate Bill 394 come to pass, because the revenues at issue fund core city services.
“That’s all general fund — police, fire, garbage, parks and recreation, transportation,” he said. “This is a major structural change in revenues if the legislature does this.”