The Legislature’s New Sales-Tax Plan Is Going to Cost Durham Big | Durham County | Indy Week

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The Legislature’s New Sales-Tax Plan Is Going to Cost Durham Big

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Many of the plan's chief beneficiaries would be poorer rural counties in the southeastern part of the state. However, the two biggest gainers—Guilford County and Mecklenburg County—are metro areas, owing to confusing quirks in existing law that the new bill seeks to rectify.

The distribution system proposed by SB 126 is at least easier to explain than the current one—a product of flip-flopping legislation intended to help rural counties. For the purposes of understanding SB 126, here's what you need to know: SB 126 would tweak the distribution of a half-cent sales tax redistributed back to governments on a per-capita basis. Each county's per-capita allotment is multiplied by an adjustment factor, initially created to make sure rural areas didn't lose out on revenue because they didn't have commercial hubs.

If SB 126 were adopted, those factors would be tossed out and replaced with a flat adjustment rate for each economic tier. In Durham's case, the county would go from a factor of 1.14 to a factor of 0.90—which means it would get 90 percent of what it would receive based on population alone, as opposed to 114 percent. Durham's drop in adjustment factors, combined with its large tax base, accounts for why the city stands to lose as much as it does.

"The adjustment factor for them had affected them positively, and now it would affect them negatively from a pretty far extreme from one side to the other," says Scott Mooneyham, director of public affairs for the N.C. League of Municipalities.

With a budget in excess of $400 million, a loss of $2 million doesn't seem like much for Durham. But the change is being floated at a time when the city is already facing a budget shortfall of nearly $5 million as work begins on the next year's budget, and officials look to invest in affordable housing, youth programs, and street improvements.

Budget staff at a city council retreat on Friday said the change would be a "significant loss" for the city. Sales taxes make up about 32 percent of the city's $180 million general fund, second only to property taxes (which may need to be raised to close the budget gap).

That $2 million in sales-tax revenue could help cover the bill for several needed projects, like hiring thirty new Durham firefighters, implementing the second phase of a program that allows Durham police officers to take their vehicles home, or funding about a quarter of the city's affordable housing wish list for the next year.

Although SB 126, which was introduced February 22, is still in committee, the fact that its primary sponsor is Senate Majority Leader Harry Brown signals that it's worth watching.

This article appeared in print with the headline “Spread the Wealth."

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