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regional brief No.

43

Does Ashe Need a Land-


Transfer Tax Increase?
County already has $9.4 million
in available funds

Dr. Michael Sanera, Joseph Coletti, Terry Stoops


April 2008

for Truth
Executive Summary
• The Ashe County commissioners are asking county residents to
triple the land-transfer tax rate on May 6 (from 0.2 to 0.6 percent).
Commissioners intend to spend the new tax revenue on capital
improvements primarily for schools, but also for debt service on the
new law enforcement center and expansion of the library.
• Commissioners’ intentions are not legally binding. Once passed, all
new revenues, by law, may be used for any legal purpose.
• This Regional Brief finds that Ashe County’s problems are not cre-
200 W. Morgan, #200 ated by a lack of funding. The $9.4 million in savings and revenues
Raleigh, NC 27601 identified in this report total nearly 10 times the amount that the
phone: 919-828-3876 proposed land-transfer tax increase is estimated to produce (see
fax: 919-821-5117 Figure 1). If the county used this money instead, it could delay a
www.johnlocke.org land-transfer tax increase for almost 10 years.
The John Locke Foundation is a
• Ashe County schools are not underfunded. Over the last five years,
501(c)(3) nonprofit, nonpartisan research
institute dedicated to improving public
student population has increased by three percent, while school per-
policy debate in North Carolina. Viewpoints sonnel have increased by seven percent and local spending, adjusted
expressed by authors do not necessarily
reflect those of the staff or board of for inflation, has increased by 21 percent. In addition, state spend-
the Locke Foundation.
ing adjusted for inflation is up two percent and federal spending is
up seven percent (see Figure 1).
The authors thank John Locke Foundation research intern Clint Atkins for his assistance with this report.
d o e s a s h e c o u n t y n e e d a l a n d - t r a n s f e r ta x i n c r e a s e ? 

• If the school district has facility needs, the that the county has over $4.5 million in
county commission and school board need cash that it can spend on pressing needs.
to show taxpayers how they have used has This represents 4.6 times the amount that
used the 21 percent increase and how they the proposed land-transfer tax would raise.
would spend the almost $4.3 million in In other words, the county could use this
state money provided for capital improve- available cash for the next 4.6 years instead
ments over the next ten years (see Figure 1). of new land-transfer tax revenue, which is
• County revenues have grown 22 percent estimated to be worth only about $982,972
faster than population and inflation since per year. Based on this item alone, the
Fiscal Year (FY) 2001 (see Figure 3). The county does not need to increase the land-
total amount of revenue for FY 2006 was transfer tax.
almost $3.7 million more than in FY 2001. • Ashe County benefited from the Medicaid
By FY 2006, the average family of four swap more than many North Carolina
was paying $580 more in taxes than in FY counties. While 23 counties are receiving
2001. It would take a 38 percent increase only the state’s promised “hold harmless”
in family income (current dollars) to match amount of $500,000 a year for ten years,
the increase in revenues that the county has Ashe County will receive $8.9 million over
received over the last five years.1 ten years (see Figure 1).
• If Ashe County were to adjust its revenue • From FY 2004 to FY 2006, Ashe County
stream for only population and inflation gave $350,000 in incentives to a few
increases, the county’s revenues would selected private businesses.3 This practice is
increase 35 percent over the next ten years.2 unfair to the hundreds of businesses in the
• Ashe County’s cash reserves are 25.3 county who are, at times, forced to compete
percent of its annual budget. The state with tax-subsidized businesses.
requires all counties to have eight percent
of their budgets held in cash for emergen- Background
cies, but Ashe County has over 17.3 per- In its 2007 session, the North Carolina Gen-
cent more than that minimum. This means eral Assembly relieved all counties of paying

Figure 1. Ashe County Projected


Ashe CountyRevenue and Savings

Revenue Gains 1 year 10 years


Gain from Medicaid swap (FY 2008-09) $658,712 $8,942,652
Estimated school capital (Avg based on projections) $417,440 $4,252,949

Potential Savings
Eliminate economic incentive giveaways (2004-2006 Avg) $116,667 $1,166,670

Revenue Growth
Revenue in excess of population and inflation (FY2006) $3,676,232 $36,762,318
TOTAL $4,869,051 $51,124,589

Fund balance in excess of state requirement (FY 2007) $4,537,275 $4,537,275

Potential extra availability $9,406,326 $55,661,864

Revenue from Land Transfer Tax Increase $982,972 $12,303,244

regional brief
 d o e s a s h e c o u n t y n e e d a l a n d - t r a n s f e r ta x i n c r e a s e ?

the portion of Medicaid expenses that had 17 over sales-tax increases). Voters defeated
been forced on counties, in exchange for the 27 of the 33 requests for tax increases. Vot-
half-cent sales tax that the counties levied ers rejected all 16 of the land-transfer tax
to help pay those expenses.4 In addition, the increases and 11 of the sales-tax increases.
legislature voted to give counties the option In the May 6 election, 24 counties have
to ask voters to approve new tax increases. put tax increases on the ballot, 20 propos-
Options include increasing the sales tax by ing sales-tax increases and four proposing
one-quarter cent, tripling the land-transfer land-transfer tax increases. Six of the coun-
tax rate from 0.2 to 0.6 percent, or not hik- ties that saw tax increases voted down in
ing taxes at all. The legislature also required November are asking voters to vote again for
counties to put those tax increases to an advi- a tax increase in May (Cumberland, Gates,
sory vote of the people. If voters approved, Greene, Henderson, Hertford, and Moore).
county commissioners were allowed but There is no limit to the number of times that
not required to increase taxes. If both tax county commissioners can place a proposed
increases were on the same ballot and both tax increase on the ballot, or how much tax
were approved, commissioners could impose money commissions can spend on public
only one tax increase, not both. “education” campaigns requesting that voters
In November 2007, there were 27 coun- approve the tax increase.
ties that put sales-tax or land-transfer tax
increases on the ballots for voter approval, Public School Spending5
and five of those counties put both tax By far, counties spend more money on public
increases on the ballots. Alexander County education than on any other area. Total local
passed a sales-tax increase in January 2008. government spending in North Carolina
All told, there have already been 33 separate on public education was $2.68 billion — or
votes (16 over land-transfer tax increases and $1,934 per pupil — for the 2006-07 school

Figure 2. Ashe County Student Population, Personnel, and


Spending,
Ashe2002-07

25%

Local PPE: +21%

20%

15%

Exceptional
Children: +9%
10% Federal PPE:
Total Personnel:
+7% +7%

5%
ADM: +3%
State PPE: +2%

0%

Notes: ADM stands for Average Daily Membership of students. PPE stands for
Per-Pupil Expenditures. All PPE figures have been adjusted for inflation.

J o h n l o c k e f o u n d at i o n
d o e s a s h e c o u n t y n e e d a l a n d - t r a n s f e r ta x i n c r e a s e ? 

year. Nearly 25 percent of all expenditures funding will add an estimated $210,893 in
on public schools come from local tax rev- school capital funding for the 2007-08 school
enue. Given the amount of taxpayer money year and a comparable amount every year
involved, sympathetic appeals for school thereafter.
funding should not come at the expense of In order to stretch those dollars to handle
sound fiscal policy. the expected growth, the school system
County governments and school boards should redirect funds away from low-prior-
should hold expenditures of local tax dollars ity projects, reduce the size of the school
for education and additions to public school bureaucracy, pursue ways to reduce construc-
personnel in proportion to changes in their tion costs, redirect existing revenue streams,
school populations. In Ashe County, local and implement sound facilities alternatives.
spending for education has significantly out- With proper planning and “outside the box”
paced school population growth. From aca- thinking, the school district can manage
demic years 2002-03 to 2006-07, there was a enrollment growth using proven, cost-effec-
three percent increase in student population. tive construction, renovation, and mainte-
At the same time, there was a seven per- nance solutions that are taxpayer-friendly
cent increase in personnel and a 21 percent and enhance educational opportunities for
increase in local spending (see Figure 2). students.
The cost of educating exceptional chil- In addition, the county should consider
dren is considerably higher than educating these options, which would dramatically
students that do not have a disability. In this increase school capacity at minimal cost:
way, significant increases in the number of 1. Demand that the legislature raise the cap
exceptional children may necessitate greater on charter schools
increases in local school spending. In the case
of Ashe County, the percentage of excep- 2. Implement an Early College program at
tional children increased by nine percent over a local community college
the last five years. So the 21 percent increase 3. Create an offsite ninth-grade center
in local, inflation-adjusted spending was not 4. Use public/private partnerships to build
wholly the result of needing additional funds and renovate schools
to serve an increase in exceptional students.
5. Adapt vacant facilities and office build-
Finally, the increase in local funding for
ings to schools
education was not an attempt to offset fund-
ing changes from the state and federal levels. 6. Create satellite campuses for students
Over the last five years, the state increased interested in specialized programs
per-pupil expenditures in Ashe County by 7. Increase participation in the NC Virtual
two percent, adjusted for inflation. Federal Public School
per-pupil expenditures increased by seven
percent during the same period. Local and Per-Capita Revenue Increases
federal spending on the Ashe County Schools Between FY 2001 and FY 2006, Ashe Coun-
outpaced enrollment growth. ty’s per-capita revenues have increased by 22
The North Carolina Department of percent after adjusting for inflation6 (see Fig-
Public Instruction (DPI) projects that Ashe ure 3). This means that new county residents
County Schools will add 541 students over are contributing more than their fair share
the next ten years, a 16.7 percent increase. of county revenues. In other words, popu-
The school planning division of DPI projects lation growth has been “paying for itself ”
that the Public School Building Capital Fund because county revenues are growing at a
will provide Ashe County with $2.1 million faster rate than population, which has grown
over the next ten years. Moreover, lottery by only 4.6 percent since FY 2000. In addi-

regional brief
 d o e s a s h e c o u n t y n e e d a l a n d - t r a n s f e r ta x i n c r e a s e ?

tion, if the county had lived within its means Economic Incentive Giveaways
— that is, if its budget increases had been in Ashe County has given $350,000 in eco-
line with population and inflation increases, nomic incentives to businesses and corpo-
rather than exceeded them — over the last rations from FY 2004 to FY 2006. Giving
five years, the county’s FY 2006 revenues large corporations economic incentives, also
could have been almost $3.7 million lower. known as corporate welfare or corporate
That surplus amount could and should be socialism, is taking much needed money
returned to the taxpayers in the form of tax from county taxpayers and local small busi-
cuts. nesses and giving it to large corporations in
If the county started living within the exchange for promises of creating new jobs.
means of its citizens and held revenue Often the promised jobs go to outsiders.
increases in line with increases in population The long-term impact of these incentives on
and inflation, county revenues would increase economic growth is questionable, to say the
35 percent over the next ten years. least. It is unfair to force existing businesses
to pay taxes that, at times, go to a competing
Medicaid Swap subsidized business.
The state is taking over the county portion
of Medicaid over three years, but it is also Available Cash Reserves
taking a portion of revenues from counties, Ashe County currently has cash reserves
too. The legislature included a “hold harm- that total $6.6 million. This amount is 25.3
less” provision to guarantee that each county percent of its annual budget.8 The State
ends up with at least $500,000 more available Treasurer’s policy manual states that county
in its budget each year for ten years.7 Because undesignated fund balances should not drop
Ashe County’s net Medicaid savings were below eight percent of total expenditures.
more than the $500,000 “hold harmless” Ashe County, however, holds $4.5 million
amount, the county gains $8.9 million over more than the state-mandated eight percent.
the next ten years (see Figure 1). In other words, the county has collected

Figure 3. Ashe County Real Per-Capita Locally Generated Revenue,


FY2001-FY2006 (in FY2006 dollars)
Ashe County
Locally Generated Revenue per person, adjusted for inflation (FY2001-FY2006)
(2006 $)
$850

$796
$800 Amount actually collected

$750
22%

$700
Growth pays for itself
$651
$650

$600

$550

$500
2001 2002 2003 2004 2005 2006
Fiscal Year
Source: State Treasurer's Office
Source: State Treasurer’s Office

J o h n l o c k e f o u n d at i o n
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$4.5 million in taxes above the eight percent Notes


strongly recommended by the Treasurer 1. Annual Financial Information Reports provided
— cash that is currently available to help by counties to the State Treasurer’s Office, www.
with existing needs, provide much-needed tax nctreasurer.com/DSTHome/StateAndLocalGov/
cuts, or both. AuditingAndReporting/AFIR.htm.
Since the proposed land-transfer tax 2. U.S. Department of Agriculture projections
increase would bring in only almost $1 mil- of Gross Domestic Product deflator (www.
ers.usda.gov/data/macroeconomics/Data/
lion per year, this existing $4.5 million over- ProjectedGDPDeflatorValues.xls) and N.C. State
age could be used for four and a half years Demographics Office population projections.
instead of the new tax. 3. “The Incentives Game: North Carolina Local
Economic Development Incentives,” N.C. Institute
Conclusion for Constitutional Law, June 2007, Appendix:
This report shows that Ashe County is not in NC Local Incentive Data, ncicl.org/Incentives/
financial difficulty. In fact, most North Caro- NCICLincetiveRpt.pdf.
lina counties do not face revenue crises that 4. Over the next three years, the state will take over
require tax increases. Nevertheless, 48 county the 15 percent of Medicaid expenses that the counties
had previously been required to fund. See State Law
commissions have placed tax increases on the
2007-323 (House Bill 1473, Sections 31.16 and 31.17).
ballots since the legislature authorized county
5. N.C. Department of Public Instruction (NC
residents to vote on tax increases. Six coun-
DPI), School Planning Division, “ADM Growth
ties placed tax increases on the ballots in both Analysis, 2007–2017,” September 2007; NC DPI,
November 2007 and May 2008. School Planning Division, “Public School Building
In all 48 counties, revenues grew faster Capital Fund: 10 Year Planning Projections, 2007–
than population and inflation between FY 2016,” June 27, 2007; NC DPI, Division of School
Business Services, “FY 2007-08 Estimated Lottery
2001 and FY 2006. The average increase
Distribution,” August 2007; NC DPI, “Statistical
is almost 22 percent. In addition, state gov- Profiles,” 2003–2007, accessed February 2008; NC
ernment has grown 38 percent faster than DPI, Division of School Business, “2006–2007
population and inflation between FY 2001 Selected Financial Data,” accessed February 2008;
and FY 2008. Obviously, this government NC DPI, Education Statistics Access System, “Final
ADM,” accessed February 2008. Inflation adjustments
growth rate rapidly outstripping population
used the GDP Deflator published by the Federal
and inflation growth cannot be sustainable. Reserve Bank of St. Louis.
The May 6 vote provides the opportunity
6. County Annual Financial Information Report
for Ashe County citizens to be heard. The (AFIR) from State Treasurer’s web site, www.
results of the 33 county tax votes last Novem- nctreasurer.com/lgc/units/unitlistjs.htm.
ber and January are informative. County 7. North Carolina General Assembly, Fiscal
voters rejected 27 of the 33 tax increases. Research Division, “Medicaid 3 Year 500K”
Citizens, when given the chance, are rejecting projections, 2007.
tax increases. 8. Undesignated fund balances per the office
Regional Brief No. 43 • Revised May 6, 2008 of the N.C. Department of the State Treasurer
and telephone calls to individual counties, www.
nctreasurer.com/lgc/units/unitlistjs.htm.

regional brief

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