N.C. economic development bill causing rural vs. urban feud over distribution of sales taxes

The North Carolina Senate on Monday approved an economic development bill that has caused a rural vs. urban battle over how sales taxes are distributed, Colin Campbell reports for The Charlotte Observer. "The bill softens the impact of earlier proposals on the sales tax revenue plan, which had prompted outcry from some urban and tourism counties that would lose substantial money. The effort in the Senate is aimed at pumping more state money into areas of the state, generally smaller and more rural, that have not seen the same prosperity as in larger counties."

Republican Senate Majority Leader Harry Brown "had earlier called for distributing 80 percent of revenues based on population and only 20 percent based on the sale location," Campbell writes. "The Senate’s new proposal would split revenues, with half staying in the county where the sale took place and half then distributed based on county population. The change would take effect in 2016."

"Rural lawmakers said the change is crucial to help funding as jobs and retail shift toward urban areas," Campbell writes. Sen. Ralph Hise, a Republican from rural Mitchell County, told Campbell, “We have areas of this state that aren’t growing, that are declining in population. We have to make sure that our rural areas are sustainable. We’re trying to change a system so that we can become one North Carolina.”

But Senate Minority Leader Dan Blue, an urban Democrat from the state's second most populated county, "questioned how much the sales tax change will help rural counties, some of which would get a boost of several hundred thousand dollars—hardly enough to build new schools," Campbell writes. Blue told him, “It’s still not going to provide the services that these counties deserve."

An Observer editorial on Monday called the bill a "ham-handed attempt to help struggling rural counties." While a 50-50 split might sound fair, "the Senate’s plan fails to account for the fact that the 75-25 split was the result of a 2007 compromise in which the state took the responsibility of Medicaid funding from the counties."

"Rural counties, whose biggest budget expense was Medicare and Medicaid, benefited the most," the editorial states. "So leaders agreed to give urban counties a heftier sales tax slice to help with their biggest expense—schools."

While the bill is expected to be defeated in the House, "that shouldn’t be the end of the discussion about offering economic uplift to our neediest regions," states the editorial board. "Lawmakers should immediately propose new legislation setting up a grant program to build schools, retrain workers and seed economic development efforts in the poorest rural counties. It’s not as if we can’t afford it. Despite tax cuts that helped top earners and squeezed the working class, we have a $400 million-plus budget surplus. Why not just ease the cuts a bit and aim that money at struggling areas? It would be a much more sensible response to the very real needs in rural counties." (Read more)