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Back You are here: Home News Local and State News Local County Commissioners Discuss Property Tax Rate Impact On Sales Tax Distribution

County Commissioners Discuss Property Tax Rate Impact On Sales Tax Distribution

By WILLARD KILLOUGH III
Managing Editor

NEW HANOVER CTY - The Carolina Beach Town Council is considering adopting a reduced property tax rate for the upcoming 2012-2013 fiscal year. Much to everyone's surprise, if a local government lowers their property tax rate, they reduce the amount of sales tax revenues they get back from the state and county.
The City of Wilmington is proposing a higher tax rate and would stand to collect even more in sales tax revenues.
In either case, the amount of sales tax revenues distributed to the County and Towns of Wrightsville Beach and Kure Beach would be impacted by any increase or decrease in the property tax rate adopted by Wilmington and Carolina Beach.
During a meeting of the New Hanover County Board of Commissioners on Monday May 21, county manager Bruce Shell explained, "The County is proposing a revenue neutral tax rate which means the property tax rate is adjusted to produce substantially the same revenues as the previous year. In simple terms, the County still requires the same amount of revenue to operate so if property values drop, rates must be raised to provide the same level of services. The revenue neutral tax rate for New Hanover County is 55.4 cents per $100 of value. The current rate... is 46.55 to be raised to 55.4. That is estimated to produce revenue for the next fiscal year equal to the revenue that would have been produced for the next fiscal year 2012-2013 for the current tax rate if no revaluation had occurred."
He explained, "The value of a penny today is $3.3 million, it will go down to $2.8 million in fiscal year 2012-2013."
The recommended budget is $269 million or 2% above this year’s budget.
During budget discussions County Commissioner Rick Catlin raised the issue of sales tax distribution within the County.
He said, "I was made aware Friday of a kind of a backward impact of our sales tax allocation. Carolina Beach is trying not to go revenue neutral. They are trying to find cuts in their budget where they don't have to raise their rates all the way up to revenue neutral. They've become aware that that's going to cost them $240,000.... and that's still preliminary."
Catlin explained, "That's a disincentive for communities to lower their tax rate. And we're seeing that because we've never gone backward before. It's almost a calculus problem that the more you try to save your local taxpayers money, the more you are punished by the distribution of the sales tax. The more you raise your taxes, the more you are rewarded by the distribution of the sales tax."
Catlin explained, "I think the City of Wilmington is looking at slightly more than revenue neutral so they are going to get a bigger piece. So you've got one community that's raising taxes and one community that's lowering taxes and the one that's lowering taxes is being punished by this situation."
He said, "I was in Raleigh this weekend and spoke to some folks up there about what we could do to fix that, but that's not going to happen this year."
He said, "Right now we have a problem in Carolina Beach."
Currently the revenue neutral tax rate for Carolina Beach would be $0.2621 cents per every $100 of property valuation. That would allow the Town to generate the same amount of property tax revenue as the year prior to the recent countywide revaluation.
At the Council's May 8, meeting the Council considered a rate lower than the revenue neutral rate bringing it down to $0.235.
Catlin explained, "Bruce you had mentioned in a conversation Friday that there may be a way for us to equalize that but I would like your input on that."
Shell explained, "There are two methods to distribute sales tax. The County Commissioner's make that decision. You have a population method and you have a property tax ad valorem method. The wisdom of the General Assembly was to put that decision with the Board of County Commissioners with each county. The reason I believe that was done is because the counties have a much larger burden of providing services with 85% or so being mandated by the state. And the state has mandates dumped on it by the feds."
Shell explained, "When you look at that you see that counties that have a larger tax base often have a higher tax rate because of those responsibilities. I said all that to say, if you go to a population base to provide the same level of services, I don't have the number, but it would be a fairly significant property tax increase in New Hanover County."
He explained, "The other side of the coin is, if a municipality decides to go below revenue neutral and actually not get as much sales tax, it does put them in a tough spot but the alternatives are tougher on the citizens than what you have playing out before you."
Shell explained, "What can we do for Carolina Beach? The Board could decide if it chose to, to treat it as an outside agency and give it extra funding. That's the only real solution that I see there. You have that latitude to do that. My opinion... is that the state legislature not mess with that sales tax ratio. That is a very slippery slope. As you know we fund schools and the dynamics with schools is changing dramatically. That would be the latitude, to create additional funding at the local level to support those municipalities."
He explained, "In Carolina Beach's case, they do get some break because with that drop their citizens
are paying less property taxes. So if they get a lesser sales tax coming in the government clearly has to tighten its belt to work."
Catlin said, "That would be $240,000 on a preliminary number. If this board decided to contribute that to Carolina Beach so they wouldn't suffer the consequences of trying to be below revenue neutral, would that actually be a net decrease to us because what they're not getting we are getting so would we basically be giving it back to them?"
Shell said, "I would not put it in the relationship with sales tax. If this board decided to contribute to that municipality it would be something you would do out of the general coffers. I would not put it as a relationship to sales tax because you don't have the authority to do that."
Shell explained that a decision by one municipality affects to distributions of sales tax revenues collected in the County back to every other local government.
Commission Chairman Ted Davis explained, "If the City of Wilmington raises their tax rate, what happens then is, their percentage of tax that's levied increases, that means the County's share goes down, schools goes down, Carolina Beach, Wrightsville Beach and Kure Beach all go down."
County Commissioner Jason Thompson added that County Fire Tax Districts also would see a reduction.
Davis said, "If everybody doesn't go forward with revenue neutral tax rate, then somebody is going to get more money and somebody is going to get less."
Catlin said, "It's a bizarre situation that we are living in going backward, we've never had to face this before" commenting on the fact that historically countywide revaluations of all properties resulted in an increase in the tax base, not a decrease as witnessed due to the current economy.
Shell explained, "We've talked with municipalities about consolidating Parks for example, and we mentioned that to Carolina Beach and the City of Wilmington and others and those are certainly talks... that can be conducted in the future. Those are ways to cut the cost for the municipalities other than the revenue side."
Commissioner Davis pointed out another factor in the discussion is whether or not the City of Wilmington will be allowed to annex an area of Monkey Junction. He explained, "If that goes through, once again, you have your sales tax levy being changed for the city. The city will benefit. Everybody
else will not. That's why I know for a long time I've been against forced annexation because while the City benefits from forced annexation through being able to levy more taxes, the county takes a loss just like Carolina Beach, Kure Beach and Wrightsville Beach takes a loss."
A public hearing on the County's proposed 2012-2013 budget will be held on June 4th at 6PM.