The new tax plan

Local governments still not sure of benefits
Jul. 17, 2013 @ 06:14 AM

The North Carolina General Assembly is quickly working to pass a new tax plan that revamps current law.

On Tuesday, the House passed a compromise package and sent it to the Senate for debate and passage before working on the revenue side of the state's budget.

North Carolina Gov. Pat McCrory called the compromise a "positive signal" for job creation and tax cuts on income taxes.

But, on the local level, there are still unknowns as to how the new overhaul will impact county and local government.

"From what we are seeing from the Commissioner's Association is that the plan is favorable to local governments," said Carl Classen, Rutherford County manager. "We don't have any hard figures at this point."

According to preliminary estimates, local governments will gain $14.6 million across the state for fiscal year 2013-14 and $36.2 million in FY 2014-15. But, there is some skepticism among some government officials about how those additional funds will be distributed.

"Because we are in such an economically depressed area, I think the increases will apply to the big cities and they are going to come out smelling like roses," said Cathy Swafford, finance director for the Town of Spindale.

Spindale had a tough budget process having to overcome a $149,000 shortfall. Swafford said it was handled through fund balance transfers and other cuts to the budget. The Town would have been affected by an early proposal to eliminate the sales tax refund. Swafford said it would have cost Spindale $15,000 annually. Lawmakers elected to keep the sales tax refund as part of the new package.

"As long as we aren't hurt, I'm not too concerned about it," Swafford said. "I do not think we are going to see any of that economic benefit they are talking about."

And, Spindale was not alone.

Rutherfordton also faced a budget shortfall and had to overcome it in a similar fashion. One part of the new tax plan includes repealing the current 3 percent franchise tax on electricity sales, replacing it with a 6.75 percent combined state and local sales tax rate. Karen Andrews, Rutherfordton town manager, said the town garners about $373,000 in franchise tax fees each year.

"I don't know what effect that will have on the town just yet," Andrews said. "I haven't seen enough of the bill to know."

Forest City is in the same boat.

In his budget message, Town Manager John Condrey indicated Forest City is estimating over $300,000 in franchise tax collection due in large part to the Facebook Data Center. Condrey said the franchise tax collection for Forest City has doubled over the last three years.

"This was one of the factors the Town was looking at with its agreement with Facebook," Condrey said. "I just don't know specifically what it means for us at this point."

Additionally, the state will cap the gas tax. One way that will have an effect on local government is through the Powell Bill Fund which combines population and road miles within the town limits. Funds go to each municipality that have town-owned roads and the funds come from the gas tax. Andrews said Rutherfordton is anticipating nearly $137,000 from the fund for this fiscal year.

"Depending upon usage, I don't know if capping that will affect us or not," Andrews said. "We're going to wait and see what this all might mean."

On the county level, Classen said he is also taking a "wait and see" approach because of concerns over school funding as well as the potential impact to other organizations such as Rutherford Regional Health System.

He shared Swafford's concerns over the disbursement of local government increases.

"We certainly hope the best for our brethren but we don't want to be pulling up the rear," Classen said. "We want to also benefit from these programs and we are waiting on the details."