The final version of the recently passed tax reform bill left substantial cuts to municipal revenues statewide on the cutting room floor. For Garner, that means a roughly $300,000 swing in annual revenue.
The new legislation will actually add slightly to revenues of towns like Garner according to estimates from the League of Municipalities, a far cry from the previous version. Until the last minute, a ban on privilege license taxes, elimination of a sales tax refund and repeal of local food tax would have cost municipalities big – an annual cost escalating as high as $164 million statewide by 2016-17.
“The last Senate offering included all those three,” said Paul Meyer, director of government relations at the League of Municipalities. “These items were in play until the final deal was struck.”
The state annually sends local governments a refund on all sales taxes municipalities incur. And while the state does not collect taxes on groceries, a two-percent sales tax on most other items is passed on to municipalities.
The Tax Simplification and Reduction Act, H.B. 998, passed the General Assembly on July 17 and was signed into law by Gov. Pat McCrory on July 23. It dramatically alters the tax landscape in the state.
The increased revenue for municipalities in the final version stems largely from an expanded sales tax base thanks to eliminated exemptions. But the final 20-page version saw several sections cut from the prior version, which had been 35 pages long.
For Garner, the original Senate version would have cost the town more than $200,000 in the 2014-15 fiscal year, and even more in subsequent years. The League advised municipalities to reach out to local legislators to voice their discontent.
“When you have town managers and finance directors from 400 plus cities and towns contacting you, that makes a bigger impact than five or six members from the League trying to contact the representatives,” Garner finance director Emily Lucas said.
Instead, the final version will net the town an extra $32,000 in the coming fiscal year. It generates even more in coming years as more provisions come into effect: nearly $82,000 in 2014-15 with gradual increases after that.
“Most things go into effect July of 2014,” Lucas said. “We wouldn’t have added a program or done another project because of any new numbers we have.”
The swing represents more than 1 percent of anticipated total town revenue by 2014-15.
Meyer, who has been working with legislators all session, credited local governments for responding to requests to appeal to lawmakers. He said those efforts were crucial in helping the General Assembly understand the importance of the cuts.
When asked whether there was relief when the final legislation passed, he initially just chuckled.
“We were happy the General Assembly has responded to the needs of the municipalities,” Meyer said. “Cities and towns had already been cutting budgets through the recession. If the legislature had dictated another loss of revenue, they would not have had a choice but to raise property taxes or cut services.”
Earlier versions of the bill could have cost Garner even more. The elimination of utility franchise fees would have cost the town roughly $1 million per year. That change had been eliminated at the League’s urging earlier in the process.