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or Truth 
The John Locke Foundation
is a501(c)(3) nonprot, nonpartisan researchinstitute dedicated to improving public policy debate in North Carolina. Viewpoints expressed by authors do not necessarilyrefect those o the sta or board o the Locke Foundation.
200 W. Morgan, #200Raleigh, NC 27601
phone:
919-828-3876
fax:
919-821-5117www.johnlocke.org
regional
brief 
Does Hertford Need aSales-Tax Increase?
County already has $6.2 millionin available funds
D
r
. M
ichael
S
 anera 
, J
oSeph
c
oletti
, t
erry
S
toopS
 A 
pril
2008
No. 54
e
xecutive
S
uMMary
The Hertford County commissioners are asking county residents toapprove a sale-tax increase on May 6.County residents defeated a sales-tax increase in November 2007 bya vote of 61 to 39 percent. There is no limit, however, to the num-ber of times the county commission can put the tax increase on theballot or how much tax money the commission can spend on public“education” campaigns in favor of the tax increase.This
 Regional Brief 
nds that Hertford County’s problems are not
created by a lack of funding. The almost $6.2 million in savings
and revenues identied in this report total more than 11 times the
amount that the proposed sales-tax increase is estimated to produce(see Figure 1). If the county used this money instead, it could delaya sales-tax increase for over 11 years.County revenues have grown 15 percent faster than population
and ination since Fiscal Year (FY) 2001 (see Figure 3). The totalamount of revenue for FY 2006 was more than $2.4 million morethan in FY 2001. By FY 2006, the average family of four was pay
-
ing $412 more in taxes than in FY 2001. It would take a 30 percent
increase in family income (current dollars) to match the increase in
••••
The authors thank John Locke Foundation research intern Clint Atkins for his assistance with this report.
 
does hertford county need a sales-tax increase?regional brief
Figure 1. Hertford County Projected Revenue and Savings
revenues that the county has received over
the last ve years.
1
If Hertford County were to adjust itsrevenue stream for only population and
ination increases, the county’s revenues
would increase 25.1 percent over the nextten years.
2
Hertford County schools are not under-
funded. Over the last ve years, student
population has
decreased 
by nine percent,
while local spending, adjusted for ination,
has increased by three percent, state spend-
ing adjusted for ination is up 16 percent,
and federal spending is up one percent (seeFigure 2).If the school district has facility needs, thecounty commission and school board needto show taxpayers how they would spendthe $2.1 million in state money providedfor capital improvements over the next ten years.
Hertford County beneted from the
Medicaid swap more than many NorthCarolina counties. While 23 counties are
receiving only the state’s promised “hold
harmless” amount of $500,000 a year forten years, Hertford County receives more
than $1.1 million the rst full year and a
total of $21.1 million over ten years (seeFigure 1).
••••
Hertford County’s cash reserves are more
than 17.6 percent of its annual budget.The state requires all counties to haveeight percent of their budgets held in cashfor emergencies, but Hertford County hasover 9.6 percent more than that minimum.This means that the county has almost $2.2million in cash that it can spend on press-ing needs. This represents more than fourtimes the amount that the proposed salestax would raise. In other words, the countycould use this available cash for the nextfour years instead of new sales-tax revenue,which is estimated to be worth only about$540,000 per year.
B
 ackgrounD
In its 2007 session, the North Carolina Gen-eral Assembly relieved all counties of paying the portion of Medicaid expenses that hadbeen forced on counties, in exchange for thehalf-cent sales tax that the counties leviedto help pay those expenses.
4
In addition, thelegislature voted to give counties the optionto ask voters to approve new tax increases.Options include increasing the sales tax byone-quarter cent, tripling the land-transfertax rate from 0.2 to 0.6 percent, or not hik-ing taxes at all. The legislature also requiredcounties to put those tax increases to an advi-sory vote of the people. If voters approved,
•
Revenue Gains1 year10 years
Gain from Medicaid swap (FY 2008-09)$1,136,319$21,142,762Estimated school capital (Avg based on projections)$414,480$2,102,282
Revenue Growth
Revenue in excess of population and inflation (FY2006)$2,449,754$24,497,538
 TOTAL$4,000,553$47,742,582Fund balance in excess of state requirement (FY 2006)$2,179,001$2,179,001
Potential extra availability$6,179,554 $49,921,583Revenue from Sales Tax Increase$539,691 $7,053,851
 
 
John locke foundationdoes hertford county need a sales-tax increase?
county commissioners were allowed butnot required to increase taxes. If both taxincreases were on the same ballot and bothwere approved, commissioners could imposeonly one tax increase, not both.In November 2007, there were 27 coun-ties that put sales-tax or land-transfer taxincreases on the ballots for voter approval,
and ve of those counties put both tax
increases on the ballots. Alexander Countypassed a sales-tax increase in January 2008. All told, there have already been 33 separate votes (16 over land-transfer tax increases and17 over sales-tax increases). Voters defeated27 of the 33 requests for tax increases. Vot-ers rejected all 16 of the land-transfer taxincreases and 11 of the sales-tax increases.In the May 6 election, 24 counties haveput tax increases on the ballot, 20 propos-ing sales-tax increases and four proposing land-transfer tax increases. Six of the coun-ties that saw tax increases voted down inNovember are asking voters to vote again fora tax increase in May (Cumberland, Gates,Greene, Henderson, Hertford, and Moore).There is no limit to the number of times thatcounty commissioners can place a proposedtax increase on the ballot, or how much taxmoney commissions can spend on public“education” campaigns requesting that votersapprove the tax increase.
p
uBlic
S
chool
S
penDing
5
By far, counties spend more money on public
education than on any other area. Total localgovernment spending in North Carolinaon public education was $2.68 billion — or$1,934 per pupil — for the 2006-07 school year. Nearly 25 percent of all expenditureson public schools come from local tax rev-enue. Given the amount of taxpayer moneyinvolved, sympathetic appeals for schoolfunding should not come at the expense of 
sound scal policy.
County governments and school boardsshould hold expenditures of local tax dollarsfor education and additions to public schoolpersonnel in proportion to changes in theirschool populations. In Hertford County,from academic years 2002-03 to 2006-07,
Figure 2. Hertford County Student Population, Personnel,and Spending, 2002-07
Local PPE:+3%StatePPE: +16%FederalPPE: +1%TotalPersonnel:+1%ExceptionalChildren: –8%ADM: –9%
-15%-10%-5%0%5%10%15%20%
Notes: ADM stands for Average Daily Membership of students. PPE stands for
Per-Pupil Expenditures. All PPE gures have been adjusted for ination.
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