The courage to invest in our state’s future

By Ellis Hankins, NCLM Executive Director From April 2007 Southern City

If we are not careful, if we don’t have the necessary courage, we could let North Carolina’s strong foundation crumble.

North Carolina and our residents face significant public infrastructure needs. A comprehensive study by the N.C. Rural Economic Development Center identified $16.3 billion in water and sewer capital needs between now and 2030. There is a $65 billion funding gap on the state’s road system and well over $10 billion in municipal street needs beyond that.

Many factors contribute to these needs: aging facilities that need to be replaced or upgraded; more stringent regulations that necessitate renovations; and rapid growth in some areas that causes traffic congestion, school overcrowding and similar problems.

Some respond to these needs by saying that local governments can just raise their property tax rates. Many have done that, but there is a limit to the level of property taxation, a question of what is reasonable, not just what is legally allowed. When we discuss a new revenue source with legislators, we often hear, “Why don’t you just raise your property taxes?” This year is different. Some legislators are concerned about property taxes being too high — the result of rapidly escalating property values in some resort and some urban areas. Bills this session propose property tax relief and some of these would significantly alter the local tax base.

Another common response to water and sewer infrastructure needs is that municipal officials should raise water and sewer rates. Rates will go up, but, unfortunately, rate increases alone will not provide enough funds to do what is needed in many communities, especially smaller towns.
A land transfer tax is a tax that is levied when property is sold. The seller pays a percentage of the selling price as a tax. Bills introduced in this General Assembly session would authorize a statewide or local option land transfer tax of 1 percent.

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A land transfer tax would provide significant revenue for many local governments, and we believe that this tax would be a reasonable tax, part of an overall fair and equitable tax system only paid upon the sale of real property. If low-income or some special groups need assistance, special provisions could be made. Some communities, especially in rural areas, may need assistance other than a land transfer tax.

Signs have popped up along North Carolina streets and highways in recent days, in public rights-of-way, blasting the so-called “NC Home Tax.” With those signs, the N.C. Association of realtors® has launched a campaign against statewide authorization for a real estate transfer tax, what they have labeled a home tax.

North Carolina residents and lawmakers should consider some key points before reaching any conclusions about a real estate transfer tax.

Anyone who has ever bought or sold a house knows the cliché that drives the desirability and the price of a house: Location, location, location. How can home equity grow when a house is located in an unsafe neighborhood, in a community with inadequate schools or bad roads or unsafe water? Housing values increase on the foundation of a solid infrastructure.

Seven counties already have authority to levy a land transfer tax, and six have levied it for a number of years. The seven with this tax authority are Camden, Chowan, Currituck, Dare, Pasquotank, Perquimans and Washington counties. Some of those counties have experienced rapid growth, and more is on the way. What is proposed this year is just allowing the rest of the state to use this revenue source.

Increases in property taxes and water and sewer rates, while inadequate to address the problems, would also be more burdensome on taxpayers. Property tax increases would affect all property owners annually. Water and sewer rates are typically paid monthly. Would citizens rather pay more every year or a small additional percentage upon the sale of property?

Many infrastructure needs are tied to the booming growth in this state. A real estate transfer tax is the revenue option most closely related to that growth.

The existing deed stamp tax was first enacted in 1967. This similar tax has not harmed growth in NC. More than 30 states already have some form of real estate transfer tax.

Could there be alternate revenues to a real estate transfer tax? Sure. The League is not wedded to this one solution. Our cities, towns and counties need a permanent and dedicated revenue source for funding infrastructure needs. Doing nothing is not an option. If nothing gets done in this legislative session, realtors and home builders might declare victory prematurely. Sound development cannot and will not continue without the foundation of a strong infrastructure. REALTORS and home builders should not want to kill the goose that is laying their golden eggs.

I don’t know a municipal official who takes pleasure in levying a tax on an individual or his or her property, but public facilities cost money. Our homes would be worthless without clean water, good roads and transportation, adequate schools and other infrastructure. Our homes would be worthless if we let North Carolina crumble. Don’t let North Carolina crumble.

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