Happy 4th of July! I hope that you and your family will have a fun-filled, safe holiday.
I want to update you on some items of concern in the General Assembly over the past few days and some that will be considered in the coming days.
SENATE DELAYS VOTE ON STATE TAKEOVER OF COUNTY SHARE OF MEDICAID
Yesterday, the Senate Finance Committee scheduled a hearing to consider a new plan to completely eliminate the county share of Medicaid. However, the decision was made to delay the vote and continue negotiations with the House in an attempt to include a state takeover of Medicaid as part of this year’s budget. The citizens of Vance and Warren counties are paying as much, if not more, of their local property tax dollars for the five percent share of the federal Medicaid program than they are spending on public schools.
This year it will cost over $520 million for the state to fully assume the Medicaid costs of all 100 counties. This amount is anticipated to grow to over $600 million over the next few years. The two largest factors driving up the cost of Medicaid are a) costs associated with nursing home care and b) prescription drug medications.
Last week the Senate attempted to pass a plan that would have required counties to give up one-half cent of the local sales tax in exchange for the state’s taking over their Medicaid costs. For counties that wanted to keep the one-half cent sales tax, it would have required county governments to re-authorize the tax. Support for this plan unraveled because revenues for cities would have been reduced as a result of future growth.
The new proposal does not involve requiring the counties to raise a half penny, and the cities will not be adversely impacted. The state takeover will be phased in over a three-year period with the state taking over 25 percent in the first year, 50 percent in the second year, and 100 percent the third year.
BUDGET NEGOTIATIONS STALL OVER TRANSFER TAX OPTION
This past week the Senate agreed to a continuing resolution that will keep state government operational for another 30 days as the House and Senate, along with the Governor, work out differences over the $20 billion state budget. Going into the budget negotiations, the Senate position on major issues were as follows:
1. Allow the remaining one quarter sales tax enacted in 2001 with the promise that it would be temporary to expire which equates to a reduction of $258 million in recurring revenues.
2. Allow the top tax income tax rate of 8 percent to expire and return to the 2001 rate of 7.75 for reported income over $100,000, which will equate to a reduction of recurring revenues of $90 million in 2008/2009.
3. Phase in a state takeover of Medicaid over a three year period (see above).
4. Provide county commissions the power to raise a one-half cent sales tax with 75 percent of the additional revenue mandated for infrastructure needs.
5. Implement a nonrefundable Earned Income Tax Credit equating to a cost of $30 million.
The House appears willing to agree to a package as follows:
1. Keep the one-quarter cent sales tax imposed in 2001, which equates to retaining $258 million in recurring revenues.
2. Allow the top tax rate of 8 percent to expire and return to the 2001 rate of 7.75 percent for reported income over $100,000, which will equate to a reduction of recurring revenues of $90 million.
3. Agree to a three year phase in of a state takeover of Medicaid.
4. Implement a refundable earned income tax credit equating to a cost of $50 million.
5. By local referendum, allow counties to increase the sales tax by one-quarter cent or levy a property transfer tax by .4 percent.
The transfer tax has been described by its proponents as a tax on growth. It has been described as a “home tax” or a “tax on equity” by its opponents.
Granville County Commissioners unanimously requested that its legislative delegation give them the power to impose a one percent property transfer tax. By a 4-3 party line vote, the Franklin County Commissioners voted to support a transfer tax option, though no request for legislation to that effect was made of the legislative delegation. In response to a formal request by the Granville County Commission, I introduced a local bill for Granville County to allow the citizens to decide by referendum whether they wanted to allow the Granville County Commission to impose a transfer tax. Both Granville and Franklin counties are experiencing high rates of population growth due to their proximity to the Triangle. This growth is resulting in increased infrastructure needs with regard to public schools, water, and sewer.
House Speaker Joe Hackney represents Chatham County which is experiencing exponential growth due to its proximity to the Triangle as well. In fact, Chatham County Commissioners have imposed a moratorium on new housing construction due to the uncontrolled growth.
The House leadership has communicated that the Senate must agree to the above listed items as a complete package. Twenty-six Senators are needed to accept the House “package.” The “sticking point” is that twenty-six Senators do not yet support a local referendum to allow the people to decide whether a .4 percent transfer tax should be imposed.
I have received over 100 e-mails in opposition to the transfer tax from citizens in my district over the past few months. These e-mails were generated by the North Carolina Association of Realtors who oppose this tax. This organization has not sought to explain that the proposals being considered in Raleigh would require a vote by the people in a county before such a tax could be imposed.
Over the weekend, I began to receive a barrage of e-mails from Chatham County citizens, imploring me to support allowing the citizens of Chatham County to vote on the issue of the transfer tax. Currently, six counties have this power, and all six are located in Senate President Pro Tempore Basnight’s district. (I should note that Senator Basnight supports extending the transfer tax option to all counties.)
There has been much criticism aimed at the Senate over its split on the issue of the property transfer tax. Our body had been criticized as being bought and paid for by the real estate lobby.
Such criticism fails to address the key reason many Senators are reluctant to support any measure that would allow counties to impose a property transfer tax. The major personal investment creating wealth by most taxpayers is the equity they have built in their homes. A tax at the time of the sale of a home would reduce the total amount a homeowner would receive as a result of the sale. A person selling a home for $100,000 would have to pay to the local county government a transfer tax of $400 if the House proposal were adopted and the citizens in a particular county voted in favor of a referendum.
Labeling this tax as a “home tax” has generated widespread opposition by the electorate. Until the public expressly agrees that they want an option to impose a transfer tax in order to keep annual property tax rates stabilized, the Senate will not have the votes to pass a budget that includes a transfer tax option.
I hope that you will share your concerns, opinions, and suggestions with me. It is a privilege to serve as your Senator, and I want to serve you well.
Best wishes to you and to your family as we celebrate our nation’s birthday!
Sincerely,
Doug Berger