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Henderson government needs no extra funding

JLF analyzes impact of land transfer tax hike

Contact: Dr. Michael Sanera
919-828-3876
msanera@johnlocke.org

October 05, 2007

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Click here to view and here to listen to Dr. Michael Sanera discussing this Regional Brief.

RALEIGH – Henderson County voters should consider the millions of dollars their local government has overcollected or spent on non-essential items in recent years. A new John Locke Foundation Regional Brief shows Henderson County government has $19.6 million available to spend on high-priority government functions.

Taxpayers can read the brief before they consider allowing the county government to raise the local real estate transfer tax from 0.2 percent to 0.6 percent. “Henderson County commissioners are asking voters to approve a 200 percent increase in the real estate transfer tax November 6,” said Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “The higher tax would apply to the sale price of all property, including new and existing homes. When a home is sold for $200,000, the homeowner would pay a transfer tax of $1,200. If approved, the transfer tax is expected to increase county revenues by $3.7 million in the first full budget year.”

The JLF report shows Henderson County government doesn’t need to take the additional money away from taxpayers, Sanera said. “If Henderson County tax revenues increase only as fast as the combined rate of population and inflation growth during the next 10 years, total revenues will increase 48.1 percent,” he said. “This increase is more than adequate to pay for county needs, including new school construction.”

This year the General Assembly gave every county a chance to raise either the local sales tax or the real estate transfer tax. The new tax options were part of a deal involving the state relieving counties of local Medicaid expenses. The deal also called on counties to forfeit a half-cent of local sales tax.

Counties cannot raise the taxes without a local referendum. Henderson and about one-third of the rest of North Carolina’s counties are asking taxpayers for the right to raise their taxes, Sanera said. A JLF research team is analyzing the potential impact in each county. Working with Sanera are Joseph Coletti, JLF Fiscal Policy Analyst; Terry Stoops, JLF Education Policy Analyst: and Justin Coates, JLF Research Intern.

“Even though Henderson and other counties were forced to give up some revenue as part of the Medicaid deal, they benefit from another part of the deal called the ‘hold harmless’ provision,” Sanera said. “It guarantees that Henderson County will have at least $500,000 in additional funds that can be used to meet other county needs.”

That $500,000 is just one piece of Henderson County’s $19.6 million in funds available for high-priority government functions. Henderson County government already has cash reserves of more than $12.9 million, Sanera said. “That’s about 10 percent of the county’s annual budget, more than the 8 percent cash reserve the state requires,” he said. “The county could meet the state requirement and still have $2.6 million to help with existing government needs or to provide much-needed tax cuts.”

Henderson’s budget numbers show the county has no problem coping with growth, Sanera said. “Between 2001 and 2006, county per capita revenues increased by 2.6 percent after adjusting for inflation,” he said. “Population growth has been paying for itself because real county revenues are growing at a faster rate than population. New county residents are contributing more than their fair share of county revenues.”

If county government had confined its budget increases to the rate of inflation plus population growth since 2001, the county would have collected $10.3 million less revenue in 2006 than it actually collected, Sanera said. “This amount could — and should — be returned to the taxpayers.”

The report offers recommendations for Henderson County to address its projected student enrollment growth. The report also draws attention to county government’s questionable spending practices, Sanera said. “Henderson County has given $335,000 in economic incentives to businesses and corporations from 2004 to 2006,” he said. “Taxpayers should consider this corporate welfare before they decide whether the county needs a new source of money.”

“A land-transfer tax increase at this time would only encourage more wasteful and inefficient spending,” he added. “County voters need to demand that the county live within the taxpayers’ means. This Regional Brief has outlined ways for Henderson County to find plenty of money to meet its needs.”

The John Locke Foundation’s Regional Brief, "Henderson County Doesn’t Need a Land-Transfer Tax Increase," is available at the JLF web site. For more information, please contact Sanera at (919) 828-3876 or msanera@johnlocke.org. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or mkokai@johnlocke.org.

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