Commissioners considering transfer tax

If there is a County-wide item on the ballot, then all County voters could vote. Given what that turnout will probably be, putting it on the MAy primary might make more sense, as it appears that there might be some interest in at least one office on that particular ballot.

I support the goal of the transfer tax--raising more money to pay for needed infrastructure. But I don't believe it is a good option for Orange County where the rate of growth is relatively low. And I especially do not support it in Chapel Hill and Carrboro where gentrification is rampant. I hope before the commissioners put this out for a vote there are local discussions about the impact this tax could have on affordable housing. We know developers and realtors will pass this cost along to buyers rather than having it take a bite out of their outrageous profits. We need to be looking for ways to REDUCE the cost of housing, not raise it even further.

Perhaps the tax could be structured to exempt "affordable" homes and have a series of tiers in which higher taxes would be charged for larger & larger transactions. This would be based upon the fact that larger houses would typically need more infrastructure. OWASA has a similar tiered structure for hooking up to the water & sewer system.

Speaking of taxes - how much dough have we gotten from the "Education" lottery?

And as always, we must note the larceny of tax funds for war profiteering and imperial adventurism. If we got our money back, we wouldn't have these local tax dilemmas. But - back to reality - without an opposition party, we are on our own as far as funding local needs.

There are two local taxing options - sales or a transfer tax. It's generally accepted that the sales tax option is regressive. Not so clear is the case of the land transfer tax - which, if implemented poorly, can also be regressive.

I won't support the transfer tax approach if it doesn't tie property tax rates to transfer tax revenues. I'm also inclined to oppose any proposal that doesn't direct this revenue to a specific purpose - my preference is to reducing the outstanding county debt - then one that dumps this "easy" money into the general fund.

I believe the final version of the law did not require that revenues be shared with the municipalities, but there's nothing stopping the BOCC from crafting a revenue sharing plan. If they do plan to share, I'd rather the revenue, as with the county, be directed to tax abatement and debt reduction.

All in all, though, putting this on the referendum this year would be irresponsible. We need to put together a prudent proposal that incorporates property tax abatement, shared revenue, directed debt reduction and then clearly, widely educate the good taxpaying folks of OC on the implications of yet another tax.

When an existing home is sold,i.e. resale, there is no additional burden on infrastructure. The increased burden comes with new development and housing. Therefore, current homeowners on there way out end up paying, albeit through a one time charge, for the lions share of new burdens on infrastructure from which they will not benefit. Interesting.

a couple of comments:
1) there is no authority under the new legislation for the county to simply re-appropriate a share of the proceeds to municipalities.
2) there is no authority to exempt homes below a certain amount or have a tiered system based on value.

Dare I challenge the basic premise here as it relates to Orange County? Orange County's population has grown about 4% total from 200 to 2006--(from about 116K to 120K) In that same time period the budget grew from 117 million to almost 169 million. While I understand that some responsibilities have been shifted from state to local level, I remain unconvinced that new people moving into Orange County is the primary source of our increased budget.

Gerry,

On no local authority, I figured as much.

Once again, it is clear to me that there may be no more important reform than getting home rule instituted in North Carolina. The lack of home rule will prevent a myriad of progressive reforms that can move us toward a sustainable future.

I firmly believe that if we abide by the unnecessary and burdensome no home rule system, we cannot meet the challenges of environmental degradation, weakening democracy, unfair taxation, etc.

The state legislature has no business dictating what local governments can do.

Hmmm.. a 44% increase in budget with a 4% increase in population. I am having trouble making a connection, too, Anita. Of course I get slammed whenever I try to mention fiscal conservation in these parts....Avery county for example seems to do about the same level of service, with about 1/3 the property tax rate.
Wonder where the disconnect is??

"Dare I challenge the basic premise here as it relates to Orange County? Orange County's population has grown about 4% total from 200 to 2006–(from about 116K to 120K) In that same time period the budget grew from 117 million to almost 169 million. While I understand that some responsibilities have been shifted from state to local level, I remain unconvinced that new people moving into Orange County is the primary source of our increased budget."

Anita, if you assume a basic 3% rate of inflation during this period (which is I think a reasonable assumption), the 117 million dollar budget in 2000 grows to 140 million in 2006. If you then take the 4% population growth during that same period it would require 145 million to service OC in 2006 at the same level as in 2000. That is about 14% below the actual budget. I would guess that the cutbacks in Federal and State services that the county has been asked to pick up explain a fair portion of that 14 percent difference. I wouldn't be surprised if, after removing the inflationary-based increases and the shift in burden of services, that any remaining increase could be attributed to new growth.

You also have to look at how much migration there has been out of the county. If migration out is greater than immigration in (which I suspect), then I wouldn't attribute budget increases to growth. Another factor to consider is the average price of housing and how that changes from year to year.

The point is not to argue that Anita is wrong, but to emphasize that this is a complex situation and needs to be thoroughly analyzed before implementing a new tax that could fall disproportionately on the backs of the low and moderate income portions of our community.

As for the increase in the County's budget - perhaps increases can be tied to annual increases in student membership coupled with increases in per pupil funding in addition to county debt incurred for constructing new schools to meet the growing student membership in both the OCS and CHCCS districts.

I was actually pointing to future development. There is much new development on the boards including high density development, which I suppose would mean an acceleration of growth and resulting required infrastructure and services. The stress would be on both the towns and county.

I was under the impression that the transfer tax was aimed as much at future growth and providing additional revenues to support that growth as the current budget problems. It was also my understanding that each new household requires more revenue that the additional property tax that would be generated.

Of course if the housing market goes bad that could reduce any anticipated growth.

According to a rank order of cities by size, Chapel Hill is the 16th largest city in the state. Between 2000 and 2006, it grew by less than 3%, ranking it as 26th in growth rate. Average growth rate among the 30 largest cities was 13%. Huntersville (where is that?) grew by 55%; Fayetteville by 39%; Raleigh 29%; and Durham 12%.

I think we've had a lull in growth, but I'm seeing signs that will change.

Some of those growth rates for cities aren't as much a jump in population as in annexations. Fayetteville had a heck of a big annexation recently.

County rates are probably a better stat to look at.

for a great growth trends map, see:
http://demog.state.nc.us/demog/prog31.html for 2000-2010 and
http://demog.state.nc.us/demog/c06estc.html for 2000-2006
(Orange is in the modest growth, net in-migration category)

along with 2000-2010 projections
http://demog.state.nc.us/demog/grow0010.html

and 2006 estimates:
http://demog.state.nc.us/demog/prov06pa.html

some projections including 2005 estimates:
http://demog.state.nc.us/demog/pop0030.html

I did some county-by-county trends analysis at work, see:
http://ncbilldrafting.wordpress.com/2007/08/13/2010-census-projections-r...

"The state legislature has no business dictating what local governments can do." -- Mark M.

I wish, I wish. Towns and counties are literally creatures
of the NC General Assembly and derive totally their
powers from it. Every single power of the local governments
is granted to towns by the legislature in specific bills,
and if anything is not specified, power resides only in the
state, not the town. It does seem ridiculous how many
times the town has go to, hat in hand, to the legislature
for permission to do some specific thing. Just as an
example, we had to get a bill passsed to allow the town
to put the Denver boot on illegally parked cars.
Philosophically, why would the state legislature care about
such a detail?

Gerry, thanks for the clarification. I believe both options were being discussed late into the process.

The inability to tier the tax is a real deal breaker.

Gerry, is there anything that prevents the BOCC from sharing some of the tax?

Beyond Anita's, Mark's, Joe's, Terri's points, which have touched on growth, the transfer tax does best where either property churn or buildout is high.

Between the constraints inherent in our local carrying capacity (as Terri has been posting on), the (some would argue artificial) constraints inherent in our planning policy and macro-economic forces, churn seems to be the only avenue left for this revenue stream in Orange county.

I'd hate to see the OC, unintentionally or not, adopt policies that encourage churn in housing. Even if they did, based on my neighborhood and some surrounding ones, houses sure aren't flipping like they used to - which gets back to my point about using this intermittent and somewhat unpredictable revenue stream for tax abatement and future debt reductions (reserves, etc.).

George your points about inflation's impact on the budget are important and well taken from my end. It actually supports my point that population growth and increased services required by such is not the cause of the budget issues we face in Orange County. However you slice and dice it, we are all somewhat responsible for the budget increase and we are all benefiting from the county's services and expenditures. So from a philosophical perspective, shouldn't we all help pay for it? Why are we considering putting a disproportionate burden on people who sell their existing homes (and who have paid the same taxes as the rest of us all along)--- rather than spreading the responsibility around to everyone who owns property and uses the services?

Maybe we should encourage more economic and commercial growth as a way to increase the tax base? Maybe extend utilities into our EDD's so they're ready for development? Maybe we should speed up the process by which we allow new commercial development so that we bring those properties "online" more quickly and get those properties into the tax base? Maybe we should consider a special development category that allows already developed commercial property to increase its density (and thereby its tax value) and be "redeveloped" on its existing site more quickly and at less cost to the owner than current processes allow? Maybe try to recapture some of the sales taxes that Orange County residents are donating to Durham, Wake, and Alamance counties?

We have over 20 years of data that show us that the current development mix we have in this county (I believe aoubt 87% residential, about 6% commercial, and about 7% nontaxable property, along with whatever sales tax we get) is going to result in yearly tax increases to fund the services we want or require spending down reserves. I guess figuring out a way to assess a new tax on a segment of the population is one way to increase your funding,--and at this point may be the only realistic quick fix-----but I would hope that we could be more creative than that over the long haul.

It would seem that with our slow rate of growth in OC and our continued increases in necessary services (whether by choice or by courtesy of our federal or state government relieving themselves of certain obligations) that future tax increases are essentially a foregone conclusion. I guess the question is whether we want to pay now (increased sales taxes or property taxes) or pay later (transfer taxes). Certainly paying later may be the least painful for some residents, particularly those homeowners on fixed incomes. Although I've heard arguments that it will raise the cost of home ownership it would seem that the additional cost upfront (0.4 percent) would be tempered by the lower annual property taxes. As Anita asked, are there other options we haven't heard?

Will asks:
"Gerry, is there anything that prevents the BOCC from sharing some of the tax?"

As a corollary of what Joe C says above: "Every single power of the local governments is granted to towns by the legislature in specific bills, and if anything is not specified, power resides only in the state ..."

the legal question is not whether anything forbids the county from sharing the money with the towns, the issue is whether anything authorizes it. I believe not. On the list of things counties are authorized to expend money on, one is NOT grants to towns.

Now of course, one could get there in a roundabout way by having the county pick up some municipal expense that both cities and counties are authorized to spend money on, and making it a totally county program (recreation, for example). Of course this is complicated by Chapel Hill being in Durham County (and Durham city being in Orange Conty as well)

Anita, I don't want to enlarge an unimportant detail,
but I've followed this debate about our supposed lack
of commercial tax base for a long time, so I am
curious about the development mix that you cite.
What does "7% non-taxable property" mean? If it refers
to land area, it's not meaningful since building value
far exceeds land value, and if it's by value,
what is the worth placed on the UNC campuses and hospitals?
Also, into which category, residential or commercial, are
large apartment complexes?

My understanding from the EDC is that, of the 13% of the land that is not currently used and/or zoned for residential purposes, including apartment complexes and such, about 1/2 (of the 13%) is occupied/owned by entities that are tax exempt, and the remainder is zoned for commercial use. That includes UNC and all the other local, state, and federal occupants--for example, the various town halls, the courthouse, the TOC's, the schools, etc. I will check with the Economic Development office to be sure I am saying that in a way that paints an accurate picture Since the Economic Development Director position in OC is currently vacant, it may take some time to verify that statistic.

I wonder if the home rule problem has been seriously debated at the Association of County Commissioners. It's hard to believe that any local governments around the state would be happy with the state dictating what powers local governments can exercise.

If a majority of counties agree that it is bullshit, then they should mount a serious campaign to do away with it.

It's not just NC. Here is a chart explaining "Judge Dillon's Rule" and how the various states are impacted:
http://www.celdf.org/portals/0/pdf/Home%20Rule%20State%20or%20Dillons%20...

I'm not so sure that there is much of a ground swell for "complete" home rule right now, or the stomach to fight the battle required to achieve it.

Fred, thanks for posting the Dillon's Rule article. It's interesting that in today's context with the recent corruption
in Raleigh, but no hint of it in either Chapel Hill or Carrboro (note here that I mean corruption, not controversy -- the town councils doing something that many people don't like is not corruption) Dillon's law should be repealed for NC.

However, according to the old Poli Sci courses that I
took, the NC situation goes back to the revolution, way
before there was an Iowa or a Judge Dillon. As briefly
and simply as I can recollect and it:
After the revolutionary war, but before the US had a
constitution, there was a loose confederation of 13 states,
whose president was (prize for anyone who knows).
Each state acted like a
country, eg., printing money, maintaining an army, signing
international treaties. While the power remained in each state, the system didn't work. So we held two
sessions of the Continental Congress in Philly in
1783 and 1785 (dates??), where there was a tug of
war between delegates who wanted a strong federal
government and those who wanted to maintain the
power in the states. A compromise was reached called
"Federalism", by which some specific powers (primarily
the three actions above) flowed upward from the
states to the feds, and anything not specified would
remain with the states. It was not surprising that the
states rights' side won, given that the context was that
the country had just escaped from the tyranny of a
British King, i.e., a strong federal government.

Then each state went its own way, and NC went very
conservative, maintaing all powers in the state government
in New Bern?, then Raleigh. The state legislature
assigned specific powers to counties and towns,
clearly stating any non-specified powers remained at the
capital. This was the unilateral government relationship,
with power flowing downward, as opposed to federalishm,
in which power flowed upward. It continues to this day,
causing lots of nuisance problems for counties and towns.

One more point that was noted in the Dillon article.
In NC and in the southeast, there were many corrupt
local governments before approximately 1900. The
answer to this was the conversion to the council-manager
form of government, in which a professional manager
runs the day-to-day operation of the government, while
the council, in theory, provides philosophical guidance.
This reduced the power of the elected officials and
significantly reduced their opportunity for
corruption. It worked, and even today, there is little corruption in the local governments in NC.

Now Joe, I'm sure that every school boy and girl knows that John Hanson was the first of the seven men who served as President under The Articles of Confederation, proposed on June 11, 1776, but not agreed upon by Congress until November 15, 1777. Then that cherry tree fellow became President under the United States Constitution.

I think Ruby, at 5:45 Friday, got the way I feel about the transfer tax exactly right. You don't pay the tax if you don't move. So it is essentially a lifestyle tax. Is there a reason why we want to discourage people from moving? It is kind of like the cigarette or alcohol tax but I don't see the social gain from discouraging mobility or the social cost of someone moving. Some people's lifestyle or career choice requires them to be mobile. Is there some reason why that is undesirable for our society? It is a tax that taxes the few with what seems to me to be an arbitrary criteria, not based on their ability to pay or the cost of their action to society. Not what I want. The sales tax is regressive. While the current property tax in not ideal, it seems to me to be preferable to the proposed alternatives. It seems to me the property tax would be fairer if were based on "current use" as it is in some states rather than "best potential use" as it is in NC and many other states. Also, why not a tax on new housing that will at least pay for the infrastructure cost engendered and because it would be a tax rather than a fee it would be less regressive and if graduated might even become progressive.

In a nutshell, we should be taxing things we want to discourage. This would be fair as well as moving us toward environmental and social change that is necessary.

But there are two major obstacles - 1) the state won't let us make our own decisions on the local level & 2) for some reason, this is accepted by the local governments (apparently in the same class as gravity and the Catholicism of the Pope).

I am not sure I buy the idea of taxation for social engineering or a great deal of social engineering in one's personal life at all. I guess it depends on who is doing the engineering. I was just acknowledging that taxes are sometimes used in that way and I couldn't see the transfer tax justified in social engineering terms or any other terms except perhaps simplicity and the argument that it doesn't affect many people in any one year. It doesn't seem fair to me. I think a much fairer tax would be a County income tax.

We are currently hog-tied by a myriad of social engineering policies. The challenge is to alter those policies to promote the health and welfare of ordinary people by linking the ill effects of choices that are made with higher taxation in order to mitigate (and hopefully suppress) that behavior.

The common rebuttal offered to this concept is that no-one can accurately pass judgement on what is desirable or undesirable. But the fact is, we know enough about the negative effects of so many things (smoking, disposable crap, air & water pollution, gigantic houses, waste generation, hoggish water & energy use, etc.) that it is relatively simple to tie cause to effect and assign a proper tax level.

Jim, we have a fee on new housing, called the impact fee, and
it's substantial, about 5,000 per new house, primarily for the
schools. We always recognized that an impact fee whose value
is the same, regardless of the value of the house, from a
mobile home to a McMansion, is extremely regressive, but
all attempts to levy an impact tax, as a percentage of the
house value, has been squashed by the legislature.

The opinion I'd like to hear is how the counties who have
much more severe school funding crises than we do, should
cover their costs. The realtors say "Don't tax home sales",
of course, and no one wants more property taxes, but these
negative statements don't get the kids out of trailers.
Tom Fetzer, former Republican conservative mayor of
Raleigh, when asked that question this morning on the TV
show, NC Spin, replied that non-profits are taking too
much money from local governments. Thanks, Tom.

As Kirk noted above county growth rates are more informative than city rates.

Population, percent change, April 1, 2000 to July 1, 2006
North Carolina.............10.1%
Alamance County..........9.1%
Chatham County...........21.7%
Durham County............10.6%
Guilford County............7.3%
Orange County.............3.9%
Wake County...............25.3%

So why does it seem like we're growing so much? Look at the figures from 1990-2000:
North Carolina.............21.3%
Alamance County..........20.9%
Chatham County...........27.3%
Durham County............22.8%
Guilford County............21.2%
Orange County.............26%
Wake County...............48.3%

So obviously growth is slowing down in the entire region, but especially in Orange County (566% change). Looks like our elected officials are doing something right.

be careful, you are comparing 10 years of growth one decade with six years of growth another decade. If you control for that, most all counties have roughly the same growth relative to the state average for both decades except Chatham up and Orange and Guilford down.

I agree that care needs to be taken in comparing the different time references. But any way you look at it, Orange County growth is down--whether compared against itself or its neighbors. I was opposed to the transfer tax because of the gentrification effect before I did this investigation. Now I am even more against it. At the current slow rate of growth, it won't accomplish what the commissioners want--funding for additional infrastructure.

I'm leery of introducing new tax revenue streams when both the OC and Chapel Hill are still behind in making structural changes in the way they manage their fiscal and operational prerogatives.

Joe,
If the impact fee were substantial enough it would pay for the new schools we build in Orange County. Does it? How much of Carrboro High School or any of the other new schools built in OC over the last few years was paid for by impact fees? When I have a chance I intend to figure out how the amount of an impact fee is arrived at. If someone wants to tell me I'd appreciate it. It just strikes me that if the legislature won't give the Counties fair, progressive tax alternatives citizens should not approve a new tax just because it is not the property tax. From the perspective I currently have an income tax or perhaps an impact tax on new houses are fairer than an increase in the property tax but the transfer tax (for the reason I stated above) and certainly an increase in the sales tax are not.

Part of the problem with determining a fair rate for the impact tax is the school system staff. Neil Pederen has typically asked for inflated funding. I can't remember the exact number, but when impact fees were initially being discussed, Pedersen put forward a very high number. This is further complicated when the impact fee is supposed to pay for future costs and Pedersen has habitually floated high future costs.

Jim, as I recall, the impact fee would have to be something like 10x higher to be enough to actually cover school ocnstruction costs. But that would get to the point where the impact fee itself would be a huge factor in supressing the number of houses being built in Orange County.

Since the local governments in Orange County depend on
the NC General Assembly to grant them their powers,
it is revealing to see how different the typical (statewide)
elected official is from our local elected officials.
In the many annual meetings of local government officials
that I attended, it seemed like almost every local elected offical
was in the real estate business at some level. We in Orange
county are simply very atypical of the state. I've never
see the summary of employment of the members
of the legislature, but I'll bet the real estate is very well
represented. This of course means that, statewide, we'll
get very little sympathy.

Dwight Bassett, Chapel Hill's Economic Development Officer, was kind enough to send me some information from the Orange County EDC reports that show the residential/non-residential statistics. A few highlights:

41% of Orange County's land is in the use value program and is taxed at a reduced rate, because it is used for forestry or agriculture.

9.6% of land in the county is exempt from ad valorem taxes.

more information is available on the Orange County EDC website in the State of the Local Economy reports.

My take away from this data is that the %'s of taxes generated by the various categories (residential, non-residential) aren't changing very much in relation to one another and haven't been for a while.

I think the transfer tax, if enacted, would cover any transfer at the time you pay for your tax stamps. Most "pre-sales" are really just offers to purchase, with some earnest money down, and they are therefore not technically "sold" just yet, so I think they would have to pay the tax unless they closed prior to the law being approved.

YOu can't get a mortgage or convey a title on a dwelling until you have a physical dwelling to convey.

Just like the current revenue stamps ($1/$500) is paid at closing, so would the new transfer tax be paid. No closing, no payment.

that's correct, it will be collected at the same time as the current 0.2% ($1/$500) statewide transfer tax, same tax base, etc.