I've been writing about local government funding and the relationship of the state to the locals for a couple of decades now. Given that we saw a serious 'no' vote on the real estate transfer tax and are in the midst of another discussion over property taxes, I thought I'd get another revenue source that's not talked about all that much on the table.
This from the Letter from the Editor in the latest issue of The Carrboro Citizen:
Much has been made of the Orange County tax revolt, but few suggestions in the way of real reform have come out of it. A couple of weeks ago, we asked in all sincerity for those who think the county government is wasting money to point out just what programs and services ought to get the axe. I put the same question to folks on OrangePolitics. There were a couple of responses involving across-the-board cuts, but no one did the work the commissioners will have to do — offer real cuts affecting real services and real people.
The push-back on taxes is part of a long-running back and forth over how to fund local government and it underlines how the tools we have — property taxes and sales taxes — are limited and inefficient and are skewing policy. We are hell-bent in Orange County to increase our commercial tax base not solely because we want to provide in-county jobs, but in order to reduce the property-tax burden on homeowners. We’re doing that despite the fact that the cards are stacked against it having a great effect, because more than 40 percent of the county’s land is taxed under the agricultural use-value program and another 10 percent is owned by nonprofit entities (mainly Duke and UNC).
In the coming years, it will take several million square feet of commercial space just to keep up with residential construction and several million more to significantly alter the ratio of residential to commercial. Throw in the fact that financing for commercial projects has all but dried up and the likelihood that public uproar would make building megamalls and factories difficult, and you can see why adding commercial square footage is not the answer.
Under the current system, the only surefire way to reduce the property-tax burden would be to gut school funding. By making our schools lousy – by, say, lowering teacher pay to attract less adept educators and eliminating extra-curricular activities, advanced courses and efforts to reduce class size – we could cut the budget this year and ensure a reduction in housing demand, home values and property taxes for years to come.
Don’t like that idea? Me neither.So here’s another one that makes more sense: a countywide income tax.
In addition to being a more progressive way to raise revenue, an income tax would not unfairly burden those with valuable land but little income — a much more direct way to achieve one of the chief goals of increasing commercial space.Several states have this system. Maryland allows its counties an income tax and tax rates there range from about 1.2 percent to 3.6 percent. The idea might not be best for all counties in North Carolina, but in places like Orange County, where income growth is fairly robust, it might.
I know what you’re thinking and, yes, everyone I’ve pitched the idea to has had an initial reaction akin to Munch’s “The Scream.” But once the idea that an income tax coupled with a very serious reduction in property tax sinks in, it doesn’t seem so far-fetched.
It is also a lot more politically feasible than you might think, since it would actually reduce the cost of owning a home and thus not raise the ire of the same forces that fought the real estate transfer tax.Although no one’s pushing the idea hard right now, it’s being studied by legislators and local government organizations. Naturally, before Orange or any other county could adopt an income tax, enabling legislation and a tweak of the state’s tax laws would be required.
And given the current climate in our county, such a move would need to be accompanied by binding assurances that the new revenue stream really would result in a significant drop in the property-tax burden.Figuring out how to implement a system would be difficult. But not nearly as difficult as figuring out how to continue with the current system and not ruin the very things that make us proud to call Orange County home.
Issues:
Comments
Wow
This is the WORST idea I've ever heard of. I think we need to, as a county, take a hard look at the services we offer and consider other alternatives. What about charging for the bus in CH? How come that's never on the table? It seems that a reduction of free services is not a bad thing, especially in this economy.
Glad somebody else has pointed this out
"... more than 40 percent of the county’s land is taxed under the agricultural use-value program ... ."
You said a mouthful there (added emphasis is mine). This is a massively abused tax loophole. Close just this one, and your tax troubles are gone.
It's a political third-rail, however.
To your main point: county govenment has forfeited all trust in the ability they now have to confiscate wealth. I'l be damned if I will support yet another means for them to fleece me.
"Much has been made of the
"Much has been made of the Orange County tax revolt, but few suggestions in the way of real reform have come of it. A couple weeks ago, we asked in all sincerity for those for those who think the county government is wasting money to point out just what programs and services ought to get the axe. I put the same question to folks on OrangePolitics. There was a couple of responses involving across-the-board cuts, but no one did the work the commissioners will have to do -- offer real cuts affecting real services and real people"Why aren't across-the-board tax cuts "real cuts affecting real services and real people?" They are real cuts, etc. It is a very succinct and very simple way of doing it. There might be a few instances where it couldn't be applied but mostly it's so easy even a caveman could do it.If you instead leave it to the discretion of the commissioners then the problems begon. If they try to cut X then the constituency for X screams like crazy. If you try to cut Y then the constituencey for Y screams like crazy. If you try to cut any particular thing then its constutient screams. But across-the-board cuts eliminates all that. BTW, the above is roughly akin to what goes on with earmarks in the US Congress. Each Congressman gets pork for his own district and his constituents say "Hey, that's pretty good, we got this project done with US taxpayer money." They don't stop to think that it's not really such a good deal after all because their own tax dollars are going to fund the pork in the other 434 congressional districts. The reason more people didn't answer the question of where the county should cut money in a different way, suggesting specific cuts here and there, is because most of them don't know and don't care what the county spends money on. They just grumble about paying taxes but pay them, and every now and then, like now, the grumbling mounts and they revolt. Saying the budget should be cut across the board by X percent is a perfectly valid position. It's not a matter of whether the county is wasting money. It may be wasting some money, but that's not the point. If someone says they want X percent less then that's what they want. If the cuts are made and they decide it's too much and they want some services restored then that's what they want. Or if they cuts are made and they're fine with it then it turns out they were paying more than they thought was necessary all along. But just dismissing valid suggestion for tax reduction out of hand is one of the reasons people get angry and revolt.
Ready for a county income tax?
An income tax is well worth looking into. I think also Sales tax, raising impact fees and the dreaded transfer tax are well worth looking into as well as some combination of the 4. It's obvious the system we have is broken and we need new sources of revenue. Impact fee and transfer tax put more of the burden on new growth (new growth does not pay for services they consume) which is causing a major portion of the problem. (ie new students mean building new schools no excess capacity, schools 50% of budget)Thx
All Cuts Are Not Equal
"Saying the budget should be cut across the board by X percent is a perfectly valid position."Jose, I don't believe that all cuts would be equal. For instance, a cut in the budget of Recreation & Parks would not, IMHO, have the same effect as a cut in the budget for Child Protection Services or Emergency Services. And with the projected cuts in State funding for several of our key social services then cuts in these areas would have an even more dramatic effect. I think the budget will have to be looked at item by item and we will need to decide what we, as a County, absolutely need versus what we would like to have. Needs will have to prevail over wants.
I'm not saying that an
I'm not saying that an across-the-board is necessarily the best thing and I'm not arguing for it per se. I'm just saying that it's a valid position for someone to promote of it's what they want. It shouldn't be dismissed out of hand just because it doesn't get into a lot of details.
How many of you really think
How many of you really think our Commissioners know what is in the budget?First the BoCC gives the staff some kind of goal late in the calender year. The only thing I heard was no tax increase. I am sure if there is more someone will speak up. I have sat threw these budget work sessions and they discuss overall items for departments for example we need to add a new position or increase a part time to full time. If you were expecting a line by line descussion its not happening. When I ran for commissioner back in 1996 I requested a line by line copy of the proposed budget. There is not enough time for a part time elected leader to review the budget unless maybe they are retired or something. Also remember the staff doesn't finish there work until early May and the budget has to past by the end of June. Now if the BoCC was working on it say 4 days out each week then it can be done. Create a local income tax does not solve the problem. It may spread the tax burden differently. In order to spread the tax burden you have to diversify the tax base. Tranfer tax was an attempt to spread the burden but failed. We have had commerical zones for 20(?) years now and little has happened. The reason why there is little if any, is the lack of water and sewer in these zones. If you ask what a company needs 90% will say water and sewer availablity. Banks and insurance companies aren't likely to talk with you let alone provide funds or coverage without water and sewer.
Believer here ...
Poppalax, the OC commissioners undoubtedly know what's in the budget. The screening/endorsement process for local electoral candidates always includes confirming they have enough time to do the job. The winners must also demonstrate a thorough understanding of the job.
not true
what you have said is not true. many elected officials in local as well as state and federal positions vote on numerous pieces of legislation that they have not read at all.
please don't tell me you really believe what you have said.
very often these officials get a briefing from staff or others that may have actually read the material...
all it takes to win an election is to get more votes than the next guy. it has very little to do with "understanding" or "enough time to do the job". come on....
what "the job" is changes from day to day, week to week. It is impossible to know, other than the basics, what is expected of an elected official at any given time. Legislation is dynamic...
wow...
I'm for looking into the
I'm for looking into the issue. We don't know exactly how it will play out in practice, so we need to run some stats and crunch some numbers. If the tax proves to be more progressive and not hurt people who have, for example, inherited valuable land but do not have the income to pay the taxes for it.
Other Taxes
I am all for a County income tax. I think the Income Tax is the fairest tax I pay. It taxes on the ability to pay. When I first heard the County was considering the transfer tax, I wrote to the members of the BOCC opposing it as arbitrary and suggesting they try to get approval for an income tax. I also posted something similar on this site on the transfer tax thread. Reading the recent discussions on taxes on this site, it has become clear to me that the County’s current dependence on real estate taxes is causing a great deal of distress and an alternative is needed. I still find the transfer tax arbitrary. There are two things mentioned above the fascinate me, the amount of the County that is under agricultural use value and the possibility of increasing the impact fee. I assume the 40% agricultural use valuation is based on the amount of land and not the valuation. The number seems awfully high to me. Does that mean that 40% of the land in Orange County is actually farmed? I assume that there is County staff that verifies these claims. I have a friend who bought agricultural land in another County as an investment. He arranged to have it continued to be farmed and then after a number of years sold it for development. He had to pay a few years of back taxes on it when it was sold (I think 3.) to cover the additional tax he would have paid if it was not agricultural land. One fair way to increase revenue would be to increase the number of years of back taxes that must be paid when agricultural land is sold for development, kind of like a fairer transfer tax. It would be a tax paid when land use changes to a pattern that requires greater government investment.While an increased impact fee seems reasonable, since it seems like residential development does not pay for the infrastructure needs it engenders, I have problems with the social implications of a fee rather than a tax based on value. I have asked this indirectly on another thread, does the County pay for any capital expenditures with current funds or funds put aside in advanced? I hope not. It seems to me that as a growing County debt is a good thing because there will be more people in the future both using and paying for the infrastructure.
Ag use in Orange
A year ago I posted here about the importance of farming in Orange County.http://www.orangepolitics.org/2008/04/importance-of-farms-in-orange-countyFor those who rarely tour the unincorporated parts of the county I'd highly recommend the upcoming 14th annual Piedmont Farm Tour on April 25 & 26. Orange is still predominately rural, and for those who like to eat, who like the local farmers markets, who like the fact that Orange boasts two Weaver Street Markets, a Whole Foods and several restaurants that feature locally and sustainably grown foods, you might want to think twice about proposals that would raise the barrier to entry to new local farmers.In the past couple years the average age of farmers has risen from 55 to 57. Despite renewed interest in farming as a vocation, this area is exceptionally hard to get started in precisely because of initial costs already. What happens when farmers are priced right out of Orange? Is that really a scenario that anybody sees as desirable? How does that jibe with lipservice given to greening the area and attempting sustainability? Mike Swaim
Great suggestion
The Farm Tour is a great thing and a good way to connect with where food comes from.Head on up to Hurdle Mills sometime if you have any question about the amount of agricultural land. You also have to remember that silvaculture falls under use value. There may be a few people playing fast and loose, but in my book our local farmers need all the support they can get. OC has seen an increase in the number of farms. I am told that there are not enough farmers to keep up with the demand fueled by the growth in farmers markets in the OC, Chatham, Alamance, Durham region. Insitutional buyers are going local as well. I would not be surprised if that long-sought new 'economic engine' for our region turns out to be agriculture.
I don’t think anything I
I don’t think anything I said would raise the barrier to the entry to new local farmers. If it would, let me know. It would in fact put a (slight) barrier in the way of developing farmland for non-agricultural purposes, if anything increasing the amount of land that stays as farmland. Is it the comment that the County should (and I suppose they do) verify claims for farm use valuation the problem? Jim Rabinowitz
They do not
"Is it the comment that the County should (and I suppose they do) verify claims for farm use valuation the problem?"Yes - it is the (a) problem, and no, they do not. Case in point: Recently, it was brought to the County's attention that two large lots in the Carrboro planning district were being used as a commercial enterprise, yet paying agricultural 'use tax' rates. No matter that this commercial enterprise had been the case for decades, or that the County and Town were well aware of it. It had to be pointed out to them, repeatedly, until they did something about it. Just a few years' worth of back taxes applied, et voila!, the County gets an extra $50 grand they didn't have before. Finding and proving this problem took a private citizen 20 minutes using the County's own GIS tool and database.Why is so much 'spec land' held under the ag-use rate now, when not so much as a clover has been raised for agricultural purpose? Do we really think that such properties are being held for the timber value? Why is an undeveloped 2 acre residential lot taxed at 36 times the rate of a nearby 10 acre undeveloped residential lot? The County is simply not doing anything proactive about addressing these inequities. Qualifying for ag-use tax rate is a VERY low bar to reach, and because the use tax rates are very low (on purpose) it is well worth one's while to get so qualified.Until and unless this use-tax abuse problem is dealt with, along with wildly out-of-whack spending indiscretions over the past 20 years, discussions about taxes around here are going to stay nasty.
Wait a second, let me see if
Wait a second, let me see if I undertand...the County and the Town of Carrboro knowingly charged a lower tax rate than they shoud have on a certain piece of land? Isn't that equivalent to giving public money to the person that owns that land in the form of not taking money from them they should have taken and usng the tax money from the rest of the people to cover town and county expenses instead? If I understand that correctly and if it really happened then that seems like a pretty big thing to me, especially it if went on over a long period of time like the post says.
it is demonstrably and undeniably true
... and not to be pedantic but it is the County's job, not the Town's, to enforce the use-tax laws properly and equitably. They did not do so, and I contest that they still do not do so. No additional revenue sources should be considered without a comprehensive audit of existing sources made available for public inspection.The same organization capable of revaluing every single private property in the County is jolly well capable of confirming compliance with the use-tax laws.I agree with you, this is a pretty big deal, but so far, none of the local newspapers to whom this story has been presented have been willing to publish anything about it.
Nice Try
The property is not within the taxing jurisdiction of the Town of Carrboro. And even if it were, we do not have any input on the tax value. It is determined by the County, as Inventor61 says.
Another approach
Why aren't we aggressively seeking non residential development to build our tax base? We have 3 economic development districts that are well located for commercial development . Nickel and diming existing residents is one approach to raising revenue I guess, but welcoming development that creates jobs and builds a tax base that doesn't demand schools and social services seems a lot more logical to me.
BCBS decided to build their LEEDS Platinum building, which generates 360,000 per year in property taxes, on new land they purchased in Durham rather than on land they already owned in Orange County or in one of our economic development districts. Does anyone besides me consider that unacceptable or a loss to this community?
What about RHO? 125 employees, they left Chapel Hill because they could not jump through the hoops necessary to expand their HQ.
Shouldn't we be working hard to retain the tax base we have?
Isn't it a problem that Harris teeter and top of the hill are two of our county's largest employers?
BCBS Expansion
Speaking as a neighbor of the BCBS headquarters building (the glass one near Exit 270), I would expect my neighborhood to have been supportive of an expansion. Obviously, a lot would have depended on the details but BCBS has been a very good neighbor. Although we might prefer to see some residential facing Old Durham Road, given the other possibilities, I think we would have given BCBS a fair chance. The traffic would obviously have been an issue but the fact is, once BCBS established flex hours, it just isn't that big a deal now. It was before - I could tell their change in policy just from the change in traffic. And now they are busing people in; I don't know from where. Anyway, from a neighborhood point of view (and this is me speaking based on my guess of what my neighbors would think) it's too bad they chose not to pursue. Linda Convissor
Rho
Rho was not "seeking to expand its headquarters"--it was renting space in Orange County, it had outgrown the space (and was in fact in three separate rented offices spread out over two distinct properties), and was seeking to rent a single space that was large enough to hold the entire company. No such space was available for a lease in Chapel Hill for a reasonable price. It had nothing to do with "jumping through hoops" of government regulation, and everything to do with the availability and pricing of rental space.
residential to commercial
I think we are (finally) seeing the kind of focus on commercial and economic development we've needed and as southern Orange is redeveloped the ratio of residential to commercial will start to even out. But countywide that ratio is going to budge very little — maybe from 80/20 to 70/30 (totally guessing here on the numbers).As far as recruitment and job growth goes, I think having space for UNC spinoffs is the most natural route. Not all of that is going to happen in a commercial building. Look at all the space on MLK that has gone off the rolls in the past 20 years. That's happening all over town. The trend is in the opposite directionLast time I checked UNC, UNC Health Care and the city school system were the largest employers. The largest commercial in the county are BCBS (which is a non-profit) HR Prime payroll, Harris Teeter, GE and PHE.
Here's what focus looks like
Here's what focus looks like to me. We define the kind and type of businesses we want. We define where we want them and make sure the land would be available if someone wanted to buy it and how much it would cost. We make sure the site is shovel ready, or could get that way quickly. We figure out a review and approval process that takes no longer than six months. We find those businesses, wherever they are. We trumpet our desire to have these types of businesses on our websites. We let the NC Dept of Commerce know we've got an approval process that works if these businesses are interested. We send out our representative to meet with these business decision makers and recruit them to our community. We work with whatever partners are necessary--state, federal, international, etc---to make it happen. We assign an internal customer service rep/staff liasion to work with the developer and get the review and approvals done. And we actually meet the 6 month approval timetable. If what we want is a redevelopment, we do exactly the same thing.One idea is to develop a design portfolio of "allowable prototypes." It would enumerate things like the maximum square footage you allow on raw land for various usages, the amount of parking allowed per square foot of building, whatever other things the site needs --stormwater management, lighting, setbacks, landscaping, etc. It's almost a "recipe book" and the deal is, that buildings that meet those standards get an expedited review. What I hear from everyone who works in this field around the state and around the nation is that the key to getting businesses interested in what you've got to offer is a predictable and reasonable review and approval timeline, and being clear and explicit up front about what we will approve and what we won't.
A county income tax?
Does this mean that people who worked in Orange County but lived outside the county would be subject to that tax as well as those who live in the county who may or may not work in the county?MIght that have an impact on businesses deciding to locate in Orange since business profits would also be subject to an income tax? Has anyone actually thought this through?
Not a business tax
Works like your state income tax. Typically applies to individuals in the county of residence.Also, it would help local businesses and business owners who rent because it would lower property tax.
more on income tax
Actually, an income tax usually applies to any resident of the jurisdiction, and any income earned there. For example, a resident of York County South Carolina who works in Charlotte owes North Carolina income tax on the part of his income earned in North Carolina, but not income on interest and dividends. North Carolina gives a credit for income tax paid in South Carolina for any income earned by such a person in North Carolina, so there is no double taxation (If NC had a 7% marginal rate and SC a 6% marginal rate, the person might owe NC 1% and SC 6%, or maybe the other way around). If there was a county income tax in just one county, then the usual structure might have the tax paid by those who reside OR work in that county, there is no credit to apply (except maybe for a commuter who resides out of state). If several NC counties had it, then there would be a reciprocal credit between the counties. Of course the actual legislation could forbid what above is usually called a "commuter tax" and apply it just to residents.
It is a business tax if the business earns income.
State income taxes do not work like that. If you work in the state you owe income tax for the money earned in the state (ask New Jersey residents or Connecticut residents who work in NY and/or NYC). However there can be rules about double taxation.No one knows about the total tax liability for a business until the rules of the tax are known and then ability of the county and residents to control their appetites. It really is a hypothetical.How progressive would the tax rates be? Interestingly enough, when I moved 20 years ago from Ulster County, NY to Orange County NC I thought, oh boy, I am going to get a tax reduction. Was I wrong on both income and property taxes. While NY had a maximum 10% tax bracket as opposed to 7% for NC, I found that one reached the 7% so quickly my income taxes in NC were greater than in NY. To add to the increased income taxes. my property tax rates for Orange County where also greater. However, I did have more in Federal Tax deductions :-). Just goes to show that all assumptions are dangerous
Another approach
From http://taxprof.typepad.com/files/milne-carbon-tax-article-vjel.pdf:
Two local areas have chosen to enact modest carbon-related energy
taxes. In 2006, the voters of Boulder, Colorado approved a Climate
Action Plan Tax,
which imposed a tax on the end users of electricity collected by the utility.
The tax rates were set for 2007, but the city council has the ability to raise
the rates up to specified caps in subsequent years. The maximum rates are
0.49 cents per kilowatt hour for residential users, 0.09 cents per
kilowatt hour for commercial users, and 0.03 cents per kilowatt hour
for industrial
users. The revenue is used to finance the city’s climate action program,
which aims to reduce the local greenhouse gas emissions to seven percent
below 1990 levels by 2012, and tax rates are based on the amount each
sector will receive for programs under the climate action plan.
In the region surrounding San Francisco, California, the Bay Area Air
Quality Management District has imposed a fee that has more of the
features of a traditional carbon tax. The tax base is explicitly defined in
terms of emissions, but it also covers greenhouse gas emissions beyond
carbon dioxide. Starting in 2008, industrial facilities and businesses that
are subject to air quality permit requirements must pay a fee of 4.4
cents per ton of greenhouse gas emissions. The fee is estimated to
generate $1.3 billion annually which the District will use for its
climate programs. In
early 2008, San Francisco Mayor Gavin Newsom announced his intention
to put a city carbon tax before voters, and the Department of the
Environment was instructed to prepare options. Under the Mayor’s
revenue-neutral proposal, revenue would be used to reduce the payroll tax.
Patrick Oglesby
comment on the discussion
from Vicki Boyer It seems to me that any kind of carbon tax would deter new business from locating in Orange County. And am I not correct that any kind of new tax, income or otherwise, would require the permission of the state legislature?? Do you think it probable Orange County could obtain permission for an income tax? And if the county asked the legislature for an income tax, how would that impact the possibility of getting legislative permission to add to the sales tax in order to fund transportation? The state may prefer to keep some of these sources of income for themselves. I know it is difficult to find new ways to raise money, but this discussion is one the county needs to have. No one likes being asked to give up more than they already do, but our current economic crisis will require not just holding the line on expenses but finding new income as well. Perhaps the county should start buying lottery tickets.......