RALEIGH — Legislation passed by the North Carolina Senate last week, to reconfigure how the state’s $2.5 billion in annual sales taxes are distributed among counties and municipalities, could hit the House floor within days.
If passed in its current iteration, the bill will distribute 50 percent of the state’s sales taxes based on population and 50 percent based on where the taxes were initially generated. Currently, only 25 percent of sales taxes are distributed by population.
“Everybody felt that when we talked about it, that 50-50 is something that was the case prior to 2007, so it would be more palatable to go back to 50-50,” said state Sen. Tom McInnis, R-Richmond, who represents Scotland County.
As originally proposed by state Sen. Majority Leader Harry Brown, the bill provided for a shift to the other end of the distribution spectrum: 80 percent based on population and 20 percent to point of sale.
As the bill shifts taxes away from urban shopping districts where a high volume of sales take place, Scotland County officials have been knee deep in the effort to see it passed. Laurinburg Mayor Tommy Parker was one of 220 North Carolina elected officials to attend a rally in Raleigh last week in hopes of pressuring House members and Gov. Pat McCrory to support the bill.
“I think that the rally that we had last week was a defnining moment of revery member of the General Assembly to let the urban counties understand the dire financial conditions that hte rural counties in North Carolina are currently in,” said McInnis. “The rally was a bipartisan event that shows that every rural county in North Carolina will be positively affected if this bill becomes law.”
Laurinburg is likely to see a 9 percent increase in tax collections next year under the formula change. Other low-income regions could see to 30 to 40 percent increases — money that could improve schools and infrastructure to attract new employers.
“We have small populations. We have limited resources,” Parker said. “We need all the help we can get.”
Likewise, Scotland County Board of Commissioners Chairman Guy McCook represented the county at a July conference at the General Assembly. The county stands to gain seven figures in sales tax revenue annually.
But other municipal leaders around the state are opposed to the change. About 20 counties — mostly urban or vacation destinations — likely would see revenues fall.
Pine Knoll Shores Mayor Ken Jones visited with state House members with other Carteret County leaders. Their coastal communities would see an average 9 percent reduction in the tax receipts, according to a legislative bill analysis.
Jones said some counties to benefit from the reallocation already get more financial help from the state, such as for public schools.
“There’s a lot of inequities already, and why would we on top of that pit the haves against the have nots?” Jones asked.
State Rep. Garland Pierce, D-Wagram, believes that there is a sufficient preponderance of legislators from rural areas in the state House to give the bill a chance at passage.
“The 50-50 split is ideal,” Pierce said, though he lamented that the issue has added to the divide between the state’s urban and rural areas.
“That’s been the conversation lately, and we need to bring that conversation to where we’re all one North Carolina. We all benefit — some of us might have more resources, but we need to level that playing field so that we can all come up together.”
Kevin Leonard, executive director of the North Carolina Association of County Commissioners, has been in a difficult spot since Brown, R-Onslow, rolled out a more dramatic formula change in March.
The association is keeping neutral even as leaders of individual counties support and oppose it passionately. At the same time, Leonard said, the association continues to lobby for a “plan that will support and protect all 100 counties.” That could include restoring the counties’ original share of state lottery profits and giving counties more power to approve sales tax increases.
“There’s no doubt that this is a challenging issue for an organization that represents 100 counties that have significantly different views on the same subject matter,” Leonard said in an interview.
The North Carolina League of Municipalities has a similar juggling act. The League’s primary goal is “ensuring that all of our members’ concerns are heard and to try to help fashion a solution that helps all of our members,” spokesman Scott Mooneyham said.
McCrory threatened last month to veto a sales tax redistribution bill. Now senators have attached it to an incentives bill the governor wants.
Harnett County Commission Chairman Jim Burgin, who supports the formula change, said a lot is riding for all the counties on whether the adjustment becomes law.
“It’s an issue of economic fairness,” Burgin said.
The “NC Competes Act” also modifies the guidelines for distribution of state economic development funds through the One North Carolina Fund and Job Development Investment Grants, which McInnis says make those initiatives “more equitable for rural North Carolina.”
Relevant to Tier One counties — the classification for the most economically distressed areas in the state — the bill reduces the job creation requirement for industries to qualify for JDIG funds to 10, and allows the state to provide up to three dollars through the One NC Fund for every one provided by local governments.
“It will be a game changer for education in every rural county in North Carolina if the legislation is passed as it is currently written, and it will be a further game changer for economic development due to the better eligbiltiy requirement sof the JDIG fund and the One North Carolina fund,” McInnis said.
Mary Katherine Murphy can be reached at 910-506-3169.