I won't suprise anyone when I say that local governments are currently in a tough fiscal situation. North Carolina's state government doesn't have as much to give local governments as it once did, but local governments still have counties, cities and towns to run. Local governments are being forced to either cut spending or to look within themselves to increase revenue sources not dependent on a trickle-down from State government. One such source is property tax revenue.
Because the formula for property tax revenue only involves two variables, there are only two ways to increase that revenue. Local governments can either raise assessed values of property or they can raise tax rates.
Raising assessed values is easier said than done for at least two reasons.
First, in general, assessed values can only change during a revaluation year. So, unless local governments are ready to put the time, effort, and money into conducting a complete revaluation, this is a significant barrier to raising assessed values. Second, and maybe more to the point, assessed values which substantially exceed fair market value as of the revaluation date are illegal. For some local governments who are legally required to revalue this year or next year, this is actually compounding the budgetary problems because market values may have declined since their previous revaluation - causing a reduced tax base.
The question becomes: Will local governments raise their tax rates to meet budget shortfalls? Some say, "No." Some say, "Maybe."
As reported by Kevin Maurer of the Star News, New Hanover County is starting to have this very discussion. Faced with an impending reduction of its property tax base due to a January 1, 2012 revalutaion, the New Hanover County tax administrator told Maurer that the county is looking at a $9 million loss in revenue at the current tax rate. Maurer quotes New Hanover County Commissioner Brian Berger as saying: "I will not be comfortable passing a budget that will result in higher taxes....We should be serious on the board about cutting spending so that nobody sees a higher tax bill."
On the other hand, Mike Hixenbaugh of the Fayetteville Observer reported that an increased property tax rate in Robeson County might be on the table. According to Hixenbaugh, Robeson County was expecting a $4 million shortfall, which was doubled after the unveiling of Governor Purdue's budget plan last month. To make up for that additional shortfall, Robeson County would need to increase its current tax rate by 10%. Hixenbaugh quotes interim Robeson County Manager Ricky Harris as saying: "We're as lean as we can be this year....[The state] is trying to hit us for another $4 million, and we don't have anywhere else to cut, unless we look at laying off employees. We have to consider everything." Simultaneously though, Hixenbaugh quotes Robeson County Commissioner Tom Taylor as saying that the Board of County Commissioners still hopes to follow through with an August, 2010 pledge it made to Robeson County citizens to lower property taxes by about 2%.
And then there is Iredell County. Jim McNally of the Statesville Record & Land reports that Iredell county leaders would need to raise property tax rates by about two cents per $100 (a 4.5% increase over the current rate) to make up for a declining tax base due to decreased property values. McNally quotes County Commissioner Ken Robertson as saying that "it could take a total of a nickel increase." On the other hand, Commissioner Renee Griffith reportedly raised her concern that a raise would strip Iredell County from its position as one of the five North Carolina counties with the lowest property tax rates.
Given the budgetary shortfalls faced by nearly all local governments, we expect to hear alot more about raising property tax rates. Sooner or later, some tough decisions are going to have to be made.
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