WILMINGTON – When lobbyists for the City of Wilmington grouped with their clients Friday morning to develop a wish-list for the legislative session ahead, city council members learned that tax reform may be on deck for many a lawmaker.
While the election season has brought “happy talk” from incumbents and newcomer candidates for the N.C. General Assembly and other state government seats, ahead is likely a hard session about cuts, shifts and tweaks, said McGuireWoods Consulting Senior Vice-President John Merritt, whose company will lobby Wilmington’s wishes in Raleigh.
“You can’t get rid of all taxes and create a $10- or $11-billion hole and not do something significant to plug that in terms of new revenue,” Merritt told council at a planning retreat Friday morning. “Where will it come from? Will it come from increased consumption taxes? Sales taxes? Will it come from any kind of treatment of the privilege tax that you have now?
“There’s going to be a real discussion about the reallocation of the way tax dollars come in and the way tax dollars pay for things,” he said.
For one, Merritt noted “some inequities” in the way New Hanover County apportions its sales tax dollars to municipalities. “I think you need to be committed for the conversations you’re having right now with the county to look at what’s fair, the costs you bear, the costs they bear.”
If talks are in store related to sales tax distribution change, the city might want to look for help at the state level, said Merritt. “It may be a different formula, a different idea,” he said.
Counties in North Carolina have the option every April to choose either population or property value as the basis for distributing sales tax revenues. New Hanover County has long gone with the latter, ultimately meaning the county by far gets the largest share of the money.
“Even though most of the sales tax collected in New Hanover County comes from Wilmington (83 percent), the city only receives a small percentage (21 percent) back from New Hanover County,” information from the city states. “The rest goes to the beach towns and other parts of the county.”
For representation in Raleigh, the city as of Nov. 1 is paying McGuireWoods $5,000 a month for the duration of the state legislature’s upcoming “long session” that could extend into summer 2013. Its lobbying team present Friday included former N.C. House member Jeff Barnhart, who for six terms represented Cabarrus County as a Republican.
“As far as the sales tax allocation,” Barnhart told the city council, “I think that’s very possible as part of the whole tax reform process…. I think that’s a strong possibility.”
Harrison Kaplan, another McGuireWoods partner, said the legislature’s session to begin Jan. 9 will place “jobs and the economy as a top priority. And as part of that will be tax reform,” likely starting in the Senate. “We’ve heard rumors of different things but nothing is definite. Things are still kind of up at the 10,000-foot level.”
Those rumors include moving away from certain income and corporate taxes, or reforming income tax with eliminations of deductions and reducing the sales tax. “And whatever the Senate passes may run aground in the House,” Kaplan said. “It’ll be really interesting to see how this all plays out.”
He added that 60 percent of the new legislature will be freshmen and sophomores per the general election ahead.
Wilmington City Councilman Kevin O’Grady said he would like to focus on the “extra burden that is on city taxpayers to support the region and the county…. Cities naturally become the center of activity in the region or county, therefore people come to the city to use those services and the city taxpayers pay for them.”
“That for me is a better argument for why the taxes have to be distributed differently,” O’Grady continued, adding that “if baseball passes, it’s on the city taxpayers–and it shouldn’t be. That should be a regional expense.”
O’Grady was referring to the $37 million bond referendum facing Wilmington voters this general election. If it passes, the city would have the authorization to pursue that level of financing for the construction of a city-owned baseball stadium that would host an Atlanta Braves minor-league team, an initiative seen by council members as a potentially tremendous booster for economic development. The plan, which would add 2.5 cents to the city’s property tax rate, has attracted vigorous support and opposition (click here and here for related stories).
Council members including Laura Padgett noted they did not want to chase the “dead horse” of involuntary annexation power that the legislature killed in its last session, even reversing such annexations the City of Wilmington conducted in the Monkey Junction area. With that ability to grow no longer an option for the city–or any other municipality in North Carolina–Padgett said she’d like to see lawmakers enable “tools to act like grown-up cities and raise the money to pay for those things.”
Added Padgett, “We need to be positive about tax reform.”
Bottom line, Merritt said, the city’s basic financing structure “needs to be protected as we go through this very difficult time.”
Contact Ben Brown at [email protected] or (910) 772-6335. On Twitter: @benbrownmedia
