Proposed sales tax bill could divide urban, rural counties in NC

CORRECTION: Due to an editing error, The Daily Tar Heel misrepresented the headline of the story as "Proposed sales tax bill could unite urban, rural counties in NC" on Tuesday's front page. The headline should reflect that the proposed sales tax bill could divide rural and urban counties in NC. The headline has been updated to reflect this change. The Daily Tar Heel apologizes for the error.

A bill in the N.C. legislature could reallocate hundreds of millions of dollars from urban retail centers like Chapel Hill to rural communities — and it has elicited criticism from both sides of the aisle.

The N.C. House of Representatives voted overwhelmingly against the economic development bill — commonly known as the N.C. Competes Act — during a concurrence meeting Aug. 19, but the debate is far from over.

While the N.C. House drafted the bill to include Gov. Pat McCrory’s economic initiatives, the N.C. Senate added a controversial provision to shift sales tax revenues to lagging, largely rural counties.

“I think this is one of the most important bills we will see this session,” Senate Majority Leader Harry Brown, R-Onslow, said at a March press conference when he unveiled the tax redistribution plan.

The current scheme has segmented the state, providing huge advantages to booming urban areas while neglecting other counties, Brown said.

Wake County receives $145 million from sales tax revenue annually, compared with nearby Warren County’s $2.4 million, Brown said. Likewise, Mecklenburg County receives $193 million, while neighboring Anson County receives $2.8 million, he said.

“In fact, the current system has allowed Mecklenburg County to receive more sales tax revenue than (more than) 50 of our least prosperous counties combined,” Brown said. “That’s just not right.”

The current debate about sales tax redistribution can be traced to 2007, when rural counties sought relief from Medicaid expenses. To relieve this burden, North Carolina assumed financial responsibility for Medicaid in exchange for a half-percent of sales tax revenues. The legislature also divided another two percent among the counties based primarily on location of sale and, to a lesser extent, population size.

“That was a good deal for pretty much every county, but particularly rural counties, because they were just being buried with their Medicaid expenses,” Sen. Terry Van Duyn, D-Buncombe, said. “Urban counties were keeping a larger portion, but the rural counties were happy to do that because they were saving so much money on the Medicaid switch.”

While the new plan seeks to aid rural communities, skeptics have proposed alternatives for bringing them up to speed with the rest of the state.

Van Duyn, one of 12 who voted against the bill on Aug. 11, said that in order to close the financial gap between rural and urban counties, the legislature should instead focus on initiatives ranging from high-speed internet to education and transportation infrastructure.

“I opposed this bill because I felt that it did not meet any of the real needs of our rural counties, and it hurt our urban counties, which are our economic engine,” Van Duyn said.

Mitch Kokai, director of communications at the conservative John Locke Foundation, said increasing school choice by opening rural charter schools and facilitating independent school vouchers could be key to growth in rural counties. He also said the government needs to facilitate private businesses providing necessary services in rural North Carolina.

“If there is need for high-speed internet, there are market providers that will meet that need,” said Kokai. “If you open up those opportunities, which tend to be less open to people in rural areas, then you’re going to see economic benefits down the road.”

Patrick Woodie, president of the N.C. Rural Center, said isolated rural counties have to work together regionally to advance their economies, while counties adjacent to urban areas should utilize their proximity, since mobility allows for trade and commuting.

“Urban North Carolina depends upon a supply of labor from rural communities that are near them,” Woodie said. “So we think there’s great value to exploring and understanding and building upon those interdependencies in a way that helps everybody,” he said.

The bill will now move to a conference committee where Republicans and Democrats will attempt to find a compromise on the issue, though many worry it’s dubious that one will be reached.

“I wouldn’t hold my breath that it’s going to happen,” Kokai said.

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