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Wilmington City Council Concerned With State Tax Reform Bill And

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WILMINGTON - Pending State legislation has local city and county leaders concerned with the potential loss of revenues after recently adopting their own budgets for the 2013-2014 fiscal year.
The concern focuses on House Bill 998, Tax Simplification and Reduction Act.
According to the Tax Foundation, bill 998 would "Reduce individual and corporate income taxes while broadening their bases, in addition to lowering the combined state-local sales tax and expanding the tax to some services. These changes move North Carolina away from income taxation and towards consumption taxes in an effort to increase future economic growth and make the state more rate-competitive with its neighbors. They would also reduce distortions and waste associated with a complicated and non-neutral tax code."
The last major reform of the State's tax code occurred in the 1930's and the code has since become outdated and complicated.
The North Carolina League of Municipalities says the House version of the bill is more protective of municipal revenues. Now in the Senate, the League opposes changes primarily due to the elimination of the food tax, privilege license tax, and sales tax refund for cities.
During their June 18, meeting the Wilmington City Council adopted their 2013-2014 fiscal year budget to begin July 1, with no tax increase.
Later in the meeting Mayor Bill Saffo explained, "I was notified this week... yesterday with the Metro Coalition of Mayors in respect to the possibility with the tax reform bill about the elimination of business and privilege license fees which are fees we collect here in the city. I would like to know what the specific impact will be for the City of Wilmington. Because I know there will be a shortfall. There's money that will be taken away from monies that we appropriate for fire, police and streets. I would just like to know what that specific impact is because I do believe the citizens have a right to know what that impact will be because we are either going to have to cut the service or we are going to have to raise the revenue to adjust for that."
He explained, "I just need to know what that impact means for our community. This has come at the very end of the [legislature's] session. It was my understanding that we would not be hurt in any way shape or form but it seems this could be a significant impact for the City of Wilmington."
Council member Laura Padgett said, "Cities and counties have to balance our budgets and that's what we've just done is create a balanced budget and adopted it. And the very day we are finishing that process the state has done a significant turn around and taking significant money out of our budget will cause it to become unbalanced pretty quick. Citizens need to know that's going on and it puts local governments in the position of  [saying] well the state gets the credit for cutting taxes but then we have to raise taxes in order to cover what we were expecting with their indication we would have, and now they've turned the other direction and are looking for money that we've been collecting to balance their budget. Very disappointing."
Saffo explained, "I do believe we need to have a discussion about it because if this thing passes after we've already passed our budget we are going to have to make some accommodations for that."
City Manager Sterling Cheatham said the bill has not yet been adopted. He said, "They haven't taken action so we really don’t know what action they are going to take and we don't know what fiscal years would be impacted. Depending on the legislation that you look at we would have a modest impact on next year's budget with a rather significant impact on out years. Until they actually take some action we can give you the implications for each of the bills under consideration but we don't have a specific decision made by the General Assembly yet."
Padgett said, "It is important to note to that these are licenses and fees that cities put in place and they are basically saying we can no longer collect."
According to the North Carolina League of Municipalities, as part of the six-month 2013-14 Municipal Advocacy Goal-setting process through which the input of all N.C. cities and towns came into play, member cities established League policy on tax reform.
At its most basic level, it said that cities would support any tax reform plan that held cities and towns harmless by jurisdiction from proposed changes to both the state and local tax codes. No forms of taxation were favored or opposed. Cities simply asked that municipal revenue streams would generate, at a minimum, the same amount of revenues that they generated for each city before tax reform.
The League explained in a bulletin last week, "Up until Tuesday's June 11, revised Senate proposal, all existing tax reform packages attempted (in different ways) to protect cities, and for that, municipal elected officials are extremely appreciative" and, "We continue to promote those principles with legislative leadership in both chambers as the session rolls towards its conclusion."
According to the League, "The House tax reform plan is the most protective of city revenues, as it reforms the existing state tax code without requiring cities to levy any additional taxes to keep individual towns whole.  Unfortunately, the Senate tax reform plan, which is on the Senate floor for final approval next Tuesday, will cost cities approximately $160 million annually once fully phased in -- primarily due to the elimination of the food tax, privilege license tax, and sales tax refund for cities. Additionally, the proposed "replacement" revenue source in that plan is out of municipal officials' control -- it relies on counties to levy a new local food tax, which, if imposed, would be shared with cities."
According to data released by the League of Municipalities earlier this month, the loss of revenues for Wilmington in the 2014-2015 fiscal year would be -$1,318,828 eventually leading to as much as a 7% increase in property tax bills. For Wrightsville Beach, the loss in the 2014-2015 budget year could be -$101,486. For Carolina Beach, that number is -$107,726 and for Kure Beach the anticipated reduction in revenues for 2014-2015 would be -$46,815.
Those figures continue to get worse over a number of years forecasted by the League through the 2018-2019 fiscal year.
According to the League, " As the House passes its budget and the Senate passes its tax reform plan, both chambers are poised to vote not to concur in the others' work product, setting up a grand negotiation between House and Senate leadership. We expect finance and appropriations matters to be negotiated simultaneously, starting next week. At this point, city issues are clearly still in the mix, and we'll need your support and presence as the climax of the session draws near, to keep the protection of city revenues front and center."
The Senate was scheduled to take up the legislation on Tuesday June 18, but it was withdrawn from the calendar and rescheduled for the following day.
According to the League, "Many municipalities would need to enact significant property tax increases in order to make up for the revenue lost under the Senate's version of HB 998. During the Senate debate on the bill, several members cited these figures and conversations with their city officials about them when expressing their opposition to the bill."
The League reported that, "Senate President Pro Tempore Phil Berger said that municipalities would have two options under the proposal for addressing their lost revenues – either encourage their county to reinstate the 2 percent local sales tax on food under the authority provided to it in the bill, or cut spending. Sen. Berger did say that he was "always open" to discussing additional revenue options for municipalities. League members adopted the expansion of municipal revenue options as an advocacy goal for the 2013-14 biennium."
New Hanover County recently adopted their 2013-2014 budget with no tax increase and reduction in funding for social services, public transit and other expenditures.
According to Todd McGee, The North Carolina Association of County Commissioners (NCACC) Public Relations Director, "With more than 40 counties having already adopted budgets for 2013-14, the NCACC is urging legislators to adopt a tax reform plan that does not negatively impact county revenues."
“Any tax reform plan that results in decreased revenues to county governments is not really tax reform, but rather a shifting of funding responsibilities to county governments,” said NCACC Executive Director David F. Thompson. “If tax reform results in lost revenues to counties, counties will be forced to either raise taxes or cut services.”
McGee explained, "The Senate version of H998 repeals several county revenue streams, including the local sales tax on food and the refund on sales tax that counties pay. The plan also modifies the sales tax base slightly and phases in a cap on sales tax refunds from non-profits, which should generate more revenues for counties. When all elements of the plan are taken together, the NCACC estimates a net annual loss of more than $87 million to N.C. county governments, leaving counties to choose how to fund this state tax break – make cuts in services, re-levy the existing sales tax on food, or increase property taxes."
He explained, "The House plan moderately expands the sales tax base and leaves in place the county sales tax on food and the county refund for sales taxes paid. The NCACC estimates the House’s adopted version would expand the county sales tax revenue base by more than $74 million when fully implemented in 2018."
The NCACC has prepared a page on its web site with a county-by-county comparison of both versions of H998. You can access the information by visiting
The NCACC reports that New Hanover County currently collects sales tax revenues of $41,071,005. Under the House version of HB998, the County would realize an additional $2,238,778 in revenues.
Under the Senate version of the bill, that figure shows a decrease of revenue by $998,154.
The options to make up for that loss are to cut services, raise property taxes or re-levy a sales tax on food.