Property taxes are too high. What are the questions to ask?
What is a tax? Taxes, fees and utility rates are not the same thing. Decades ago, Popular Government published an article by professor Charles Liner explaining why stormwater utility “fees” are in reality a tax. They are the most regressive tax in North Carolina. At last count, about 104 local governments charge such “fees.” I litigated that for 10 years with some success against Durham and Greensboro.
Why do local governments love to add fees or rates that operate like taxes? They get more money without having to call this new money “taxes.” Fees are nondeductible to individuals, while taxes are deductible. For individuals, it is a loss both ways.
There are many more examples: The North Carolina Supreme Court has just allowed class certification for those paying water and sewer utility “fees” in Raleigh. The question is whether these are properly imposed fees. Years ago, Durham had School Impact “fees.” We won an $8 million class action. Checks were written by homebuilders, but it was homeowners who paid all of it in mortgage payments.
Apex is currently being sued by a class over its recreation “fees” on developers. Apex now has a yard waste fee that applies every month whether anything was picked up or not. I am glad the town picks up yard waste. Until recently, it was paid for by sales and property taxes. If it were based on the number or weight of the yard waste, it would be a fee. The way it is charged, it is really a tax and a highly regressive one.
The most egregious example is $100 citations for drivers running red lights. The biggest problem is that 80% to 90% of those cited are actually innocent of the crime. The second problem is that this is a “tax” on innocent drivers, some of whom don’t even live in the city. At one point, 15 cities used this funding mechanism. Now only Greensboro does. Charlotte is considering it.
My conclusion is that a limit on the property tax rates will be ineffectual unless it includes fees and rates that are taxes in a true economic sense.
Are there practical problems with levy limits on true property taxes that are tied to population growth and inflation? Yes. 1. A local government cannot factor improvements in levels of service. 2. While local government can count the buildings in town there is no ready way to count population in the middle of the decade when tax rates are reset. 3. Inflation measured by any of the several measures, such as CPI or the GDP deflator, will not be available at the local level. 4. State budgets have purported to be limited by population and inflation for the last 15 years. The growth in spending has gone way beyond that “Tabor” calculation by various budget gimmicks. State appropriators use “reserves,” which are then spent off budget. Cities can do that as well. Think of all the JDIG (a targeted economic incentive) money that simply delays money required to be spent in later years by businesses not in favor by the JDIG Committee.
I am a victim of large property tax increases. This is not because of a fundamental flaw in the property tax but because the Wake County commissioners and Apex council members where I live are all liberal Democrats. A majority of the voters in Wake County want much more spending on higher levels of service and/or waste. This is democracy. My side lost in city and county elections.
What else can be done? The General Assembly could look at three reforms that would help: 1. Some nonprofits that act like business should not get exemption from property or sales tax. Some hospitals pay their executives tens of millions per year in compensation. 2. Expand eligibility for elderly, lower income folks to defer tax until death or sale with interest accrued at the legal rate. There is no reason why their heirs should get the benefit of deferred tax. 3. Agricultural deferred taxes come due in full upon sale for nonagricultural purposes. Local government recaptures three past years of deferred tax plus the legal rate of interest. That could well be a recapture of the deferred amount for 6-8 years instead of three.
There is one myth that should be refuted at every turn. “We don’t like property taxes because only people like us pay them. Tenants don’t.” That is a myth. Property taxes are paid by tenants. In reality, property tax is part of the rent, except for the truly homeless.
Paul Stam spent 16 years in the North Carolina House of Representatives — the last 10 as Republican leader and then speaker pro tem.
