Editorial: Law puts cities on fiscal cliff

Jun. 01, 2014 @ 01:22 AM

How much is a politician’s promise worth?

This state’s municipalities have to hope it’s worth at least $62 million, because that’s how much they will lose each year starting July 1, 2015.

A measure fast-tracked by the General Assembly, which passed both houses on Thursday and was signed into law hours later by Gov. Pat McCrory, will eliminate local business privilege license taxes.

Some municipalities don’t assess much in those taxes, and some charge quite a bit. Statewide, the revenue collected totals $62 million.

Lenoir collects about $125,000 a year, equal to about what 1 cent in the property tax rate raises.

Charlotte collects $8.5 million a year from the tax, and when he was mayor there McCrory not only defended the tax but defended increasing it.

Now, however, he has had a change of heart and echoes the argument that the inconsistency in the tax from city to city was bad for business.

McCrory and legislative leaders promise that they will plug the hole they have blown in so many municipal budgets – next year.

The General Assembly begins its session next year in May, so municipalities that are losing this revenue source will enter their budget-planning season uncertain how or whether the legislature will live up to its promise. Last year, all tax and budget issues remained in limbo until after the July 1 start of the budget year, and unlike the state, local governments are legally barred from starting the budget year without a budget.

North Carolina has been down this road once before.

After the legislature decided many years ago to eliminate the ability for local governments to tax businesses for the value of their inventories, some municipalities made up for the lost revenue through a one-half-cent sales tax increase – but many could not, and in 2002 the legislature started providing so-called “hold harmless” funding to provide help until sales tax growth filled the lingering budget gap, the Raleigh News & Observer reported last year. By 2012, 114 municipalities still received hold harmless money from the state.

Last year, that money was cut from the state’s budget.

It seems unlikely that the current leadership of the General Assembly would leave such an open window for how long it might plug the budget hole it has created, and local governments have precious few ways to make up for the revenue.

That means the only certainty local officials have as they plan over the coming year is that sooner or later they well may either have to cut services or raise taxes.