Issue: To Adopt a Resolution Opposing Senate Bill 369, the Sales Tax Fairness Act

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1 TOWN OF OAK ISLAND TOWN COUNCIL AGENDA ITEM MEMO Agenda Item: Consent Agenda 3 Date: Issue: To Adopt a Resolution Opposing Senate Bill 369, the Sales Tax Fairness Act Department: Admin Presented by: Lisa Stites, Town Clerk Presentation: None Estimated Time for Discussion: N/A Subject Summary: A proposal in the state Senate would drastically change the method of distributing sales tax revenue. The proposed change could have significant negative effects on the Town of Oak Island and Brunswick County in terms of revenues received. Brunswick County and several municipalities in our area have already voiced their opposition to the proposal. It is important that the Town of Oak Island is also heard on the matter. Attachments: Resolution Opposing SB 368, the Sales Tax Fairness Act Press Release from Brunswick County on the topic Press Release from Gov. McCrory s office Sample letter Recommendation/Action Needed: Approval of the Resolution is recommended Suggested Motion: I make a motion to adopt the Resolution Opposing SB 369, the Sales Tax Fairness Act, as presented. Funds Needed: none Follow up Action Needed: If the Resolution is approved, staff will forward copies to the appropriate state leaders.

2 WHEREAS, Senate Bill 369, the Sales Tax Fairness Act, would fundamentally change how sales taxes are collected and distributed among counties and municipalities in North Carolina; and WHEREAS, said changes would convert local levies into a state sales tax, with state-levied allocations flowing through the state s annual appropriations process and thus continually subject to changes by the state before ever reaching local entities; and WHEREAS, said changes would then distribute the sales tax revenue to counties on a per capita basis and distribute the local portion of the revenue within counties solely on a per capita basis, with no option for counties to use an ad valorem method or a combination of the two; and WHEREAS, the population counts for Brunswick County and its municipalities do not account for significant summer population increases, or for the infrastructure and services, including law enforcement, fire and rescue, and water, needed to support this population increase; and WHEREAS, dredging and beach nourishment projects are vital to protecting North Carolina s coastline and North Carolina s tourist economy, and with the loss of federal funds for such projects, growth in sales tax revenue to coastal counties and municipalities is necessary to meet that need and support the tourist economy; and WHEREAS, Senate Bill 369 would result in losses to Brunswick County s municipalities estimated to total nearly $2.5 million in fiscal year alone; and WHEREAS, the total impact of the complex and far-reaching Senate Bill 369 has not been determined, but appears to benefit some at the expense of many others; and WHEREAS, Senate Bill 369 would negate any input or authority the County and local municipalities had in levying sales tax and in how that revenue was distributed amongst themselves, and make it effectively a state tax subjecting revenues local entities depend on to the state s annual appropriations process. NOW, THEREFORE, BE IT RESOLVED THAT the Oak Island Town Council hereby opposes Senate Bill 369, the Sales Tax Fairness Act, and encourages state representatives to address any concerns about the current sales tax and distribution without creating additional problems like those presented in Senate Bill 369. Adopted this the 11 th day of August, Attest: Lisa P. Stites, CMC Town Clerk Resolution Opposing Senate Bill 369, the Sales Tax Fairness Act Mayor Betty W. Wallace

3 Brunswick County Media Release For immediate release: 8/6/15 Contact: Amanda Hutcheson, (910) Pending state legislation to impact Brunswick County, municipalities Bolivia, NC Two items of pending North Carolina legislation have the potential to cause negative financial impacts to Brunswick County and its municipalities. One bill, introduced in the House, would exempt builders from paying property taxes on some inventory for several years, with no later repayment. The other, a proposal to distribute sales tax revenue across the state based more on population counts and less on the location of the sale, would adversely impact counties like Brunswick with tourism-driven economies. The most recent sales tax proposal was included in the Senate budget, and like several sales tax bills proposed this year, may negatively impact Brunswick County and its municipalities. Using information from the Fiscal Research Division, Brunswick County Finance staff projected Brunswick County s growth and projected sales tax revenue in future years under the current distribution method. Staff then compared that amount to the projections in the latest sales tax proposal. The most recent projections include a growth rate for Brunswick County of 3.5 percent. Brunswick County s fiscal year sales tax growth is projected to be 10 percent, and the county s recent history of growth in sales tax revenue has been between 6 and 12 percent. Some of the state-provided models showing projected revenue also include assumptions that Brunswick County Commissioners would propose two quarter-cent sales tax referenda, and that these referenda would be passed at an election.

4 The latest projections show Brunswick County government losing more than $1 million a year from fiscal year through fiscal year , compared to the county s projections under the current sales tax distribution method, if current trends continue. In , Brunswick County is projected to lose $1.86 million under the proposed method. Those numbers are even greater when factoring in Brunswick County s municipalities. Brunswick County and its municipalities combined will lose a total of $9.64 million between fiscal year and fiscal year with the proposed sales tax legislation, compared to projections under the current sales tax method, if current trends continue. Another bill, House Bill 168 or Exempt Builders Inventory, would also reduce Brunswick County s tax revenue by allowing for a tax exemption for properties held for sale by builders. The bill includes an exemption, not a deferment, of commercial and residential property meeting certain requirements for up to five years. The deferment would apply to the value of some to commercial property, including subdivision and land improvements, until issuance of a building permit or sale of the property, according to analysis by the North Carolina Association of County Commissioners. Residential property improvements to land and buildings would be exempt until sale. The most recent version of the bill even removed the requirement that, to qualify for the exemption, a builder be a licensed general contractor. The commercial exemption would apply for a maximum of five years, while the residential exemption would apply for a maximum of three years. Though amounts vary each year, Brunswick County could lose an estimated $1.5 million in property tax revenue each year under the proposed legislation. House Bill 168 passed the House in June, and was sent to the Senate for approval. The bill has been referred to the Senate Finance and Appropriations committees.

5 In April, the Brunswick County Board of Commissioners passed resolutions opposing House Bill 168, and another opposing one of several bills introduced to modify the sales revenue distribution. Both resolutions decried the loss of revenue to local governments that would result from the legislation in question. If both bills were to become law in their current form, Brunswick County would lose an estimated $2,505,618 in revenue, equivalent to cents on the county s current property tax rate, with no corresponding decrease in unfunded expenses mandated by the state. End

6 New 50/50 Sales Tax Legislation Projection County With Municipalities County Only New Legislation Current Difference New Legislation Current Difference FY $ 34,219,626 $ 36,290, $ (2,071,281) FY $ 20,490,712 $ 21,730,995 $ (1,240,283) FY ,171,930 37,742,543 (2,570,613) FY ,075,021 22,615,332 (1,540,311) FY ,145,667 39,252,245 (3,106,578) FY ,691,015 23,555,272 (1,864,257) FY ,291,183 40,822,335 (3,531,151) FY ,415,730 24,538,305 (2,122,575) Totals $ 142,828,407 $ 154,108,029 $ (11,279,623) Totals $ 85,672,478 $ 92,439,904 $ (6,767,427) Sales Tax Distribution County with Municipalities Sales Tax Distribution County Only $42,000,000 $26,000,000 $40,000,000 $24,000,000 $38,000,000 $22,000,000 $36,000,000 $20,000,000 $34,000,000 $18,000,000 $32,000,000 $16,000,000 $30,000,000 FY FY FY FY $14,000,000 FY FY FY FY New Legislation Current New Legislation Current

7 Governor McCrory Will Veto Unfair Tax Redistribution Bill Jul 21, 2015 Raleigh, N.C. Governor Pat McCrory said he would veto Senate Bill 369 which would change the sales tax distribution formula in North Carolina. This bill will result in a tax increase for millions of hard working middle-class families and small business owners throughout North Carolina, Governor McCrory said. Redistribution and hidden tax increases are liberal tax and spend principles of the past that simply don t work. More importantly, this bill will cripple the economic and trade centers of our state that power our economy. The best thing the Senate and General Assembly can do for the less populated areas across our state is to pass and allow us to implement the NC Competes jobs strategy which will benefit travel and tourism, agriculture, manufacturing and nearly every economic sector in our state. The General Assembly must also pass the Connect NC bond proposal so North Carolina voters can decide this November on projects that will build roads, improve our universities and community colleges, state parks and build the infrastructure North Carolina needs to grow jobs. The Governor said SB 369 would be more accurately titled the Tax Increase, Redistribution and Spending Act. When the phrase 'hold harmless' is used by politicians to defend tax increases, hold on to your wallet, the Governor said. This legislation will decimate our travel and tourism sector, particularly in our mountain and beach communities, shop owners and their employees who depend on tourism for their livelihood. Instead of pursuing left-wing ideas that continually fail, it s time for the General Assembly to get to work on job creation for all North Carolina. Among the significant public investment that has been made in rural North Carolina since Governor McCrory was sworn into office in January 2013, is $84 million from specially targeted funds and programs to grow the economies of non-metropolitan areas. These targeted funds include $66.7 million from the Rural Infrastructure Authority. The One North Carolina Fund has spent $16.3 million, the Underserved and Limited Resources Community Grants program has invested $1.75 million and the One NC Small Business Fund has given $200,000 in grants.

8 July 28, 2015 Governor Pat McCrory Mail Service Center Raleigh, NC Dear Governor McCrory: We, the undersigned Brunswick County mayors, are writing to express our strong opposition to proposed changes in the distribution of local sales tax revenues. We base our opposition on the following grounds. First, the proposed changes would have a significant adverse financial impact on our towns and the County. Over the next four years the proposed changes, if enacted and under conservative growth assumptions, would result in approximately $10,000,000 in lost revenues. This is of particular concern since our beach communities are not receiving funding needed for beach nourishment. Most Brunswick County Towns, as well as the County, face the prospect of having to raise taxes to provide the needed infrastructure to support the significant tourist industry which brings hundreds of thousands of visitors to our beaches. While property values decreased 10% in this year s appraisal, Brunswick County and its towns worked hard to mitigate the impact of this decline and either raised taxes to remain revenue neutral or did not adjust their tax rates and absorbed the loss of revenue resulting from lower property values. Second, we are very concerned about State control of sales tax revenues. Our experience with distribution of lottery funds and other state- controlled revenue streams has not been positive. Accordingly we fear that whatever the initial financial impact, it will only become more detrimental as time passes. Third, we are concerned about the continued efforts of some in the state legislature taking actions to reduce the funding available to local governments. Last year the repeal of the privilege license fees cost local governments $62 million and to date no action has been taken to replace these lost funds. Finally, we note that many of the sales tax revenues generated during our tourist season come from persons who are not residents of North Carolina. Taking those funds and redistributing them to other parts of the state is fundamentally unfair since we bear the costs of infrastructure to support this revenue stream from those outside the State of North Carolina. For the above-stated reasons we are strongly opposed to changes in the distribution of sales tax revenues and urge you to oppose such changes. Thank you for your consideration of our concerns. Sincerely, Mayor Andrew Sayre Village of Bald Head Island Mayor, Mike Allen Town of Belville Mayor, Craig Caster Boiling Springs Lake

9 Mayor, Dewey Smith Town of Bolivia Mayor Mary Knight Calabash Mayor, Walter Goodenough -Town of Carolina Shores Mayor Pro-temp, Deborah Ahlers - Town of Caswell Beach- Mayor, J. Alan Holden -Town of Holden Beach Mayor, Brenda Bozeman Town of Leland Mayor, Betty Wallace - Town of Oak Island Mayor Debbie Sloane-Smith -Town of Ocean Isle Beach Mayor, Walt Eccard -Town of Shallotte Mayor, Robert Howard - City of Mayor, Becky Dus - Town of St. James Mayor, Ron Watts - Town of Sunset Beach Mayor, Judy Galloway - Town of Varnamtown