Chairman Smart proposes 0.25% sales tax increase to help municipalities

ROCKINGHAM — Board of Commissioners Chair Jeff Smart at the county’s budget work session this week put forward an idea he hopes can be part of the solution to the ongoing dispute between the county and its six municipalities over the sales tax distribution method. He also confirmed in an interview that the commissioners will present a solution — born out of the discussions with the municipalities over the last several weeks — prior to June 30 which will involve the sharing of county revenue.

Smart said he will seek to gain support from the other commissioners, as well as municipal leaders, to put a measure on the primary ballot in spring 2022. This measure, to be called Article 46, would increase the sales tax rate from 6.75% to 7%, and 100% of the new revenue from that 0.25% increase would be distributed to the municipalities, based on an as-of-yet undetermined formula, according to Smart. This increase would mean an extra $0.25 in tax for every $100 spent.

This is expected to produce about $1 million in sales tax revenue, based on calculations by Finance Director Cary Garner Jr., though this number will fluctuate depending on the amount of money people spend within the county each year.

Smart explained that this money is intended to offset the revenue losses suffered by the municipalities as a result of the county switching to an ad valorem sales tax distribution method last year. And, by raising sales taxes on everyone making purchases in the county, including people traveling from other areas or passing through, the burden of increasing tax revenue for local governments is taken off of property owners and presents the possibility of the county and municipalities being able to reduce property taxes in the future due to the new revenue source, according to Smart.

“We definitely need to keep our expenses under control but the bottom line is there’s just not quite enough revenue in this county to meet expenses for everyone and for so long we, and past commissioners, past elected officials, past managers, had chosen to put the burden on the property owners,” Smart told those in attendance at the budget session Tuesday, which included the other commissioners, county administrative staff, department heads, and several city council members from Rockingham and Hamlet. “It’s just my gut feeling as chairman that [raising property taxes] is not the way we need to go.”

Smart added that the county’s property tax rate of $0.83 per $100 valuation is in the top 10% highest in the state, which he, along with County Manager Bryan Land and other county leaders, argues hurts industrial recruitment efforts.

The Board of Commissioners must pass a resolution in support of putting Article 46 on the ballot, and then present that to the Board of Elections, as laid out in North Carolina General Statute 163-287. Smart said that the language explaining the measure on the ballot is a template, and thus is not determined by the commissioners. So it’s up to the commissioners — and municipal leaders who get on board — to communicate this sales tax increase to voters.

Smart said in an interview that he hadn’t told any municipal officials about his idea prior to voicing it at the end of the budget session.

“In order to get something like this passed we need everyone in on this because it’s the voters’ decision,” he said. “If the voters turn this down then we’ll have to look at something else but ideally [increasing sales tax] would be the best. There’s just not enough revenue coming in to cover the expenses comfortably without eliminating some of the crucial benefits that we have.”

Asked after the budget session if Article 46 and the resulting revenue would be part of a larger solution to the municipalities’ losses at the hands of the county, as opposed to the only solution, Smart said “it’s a possibility.”

“I’m just suggesting [Article 46] to go forward to try to make things work,” Smart said. “Either way we go with the tax situation somebody is going to be out — we’ve got to have a little more revenue. However, rather than put that burden on the property owners, if we go sales tax then that creates a little more tax for everybody not just us citizens.”

The municipal leaders who were in attendance included Hamlet City Manager Matthew Christian, Hamlet Councilwoman Abbie Covington, Rockingham Mayor Pro Tem John Hutchinson and Rockingham Councilman Gene Willard.

Asked for comment on Smart’s idea, Christian expressed skepticism.

“I’m not sure which problem this solves and I hope they did the math right,” Christian said. “We’ve been misled and the narrative has changed — the only thing that hasn’t changed is the county’s inaction on solving these critical issues.”

Christian also expressed frustration that the commissioners and county administration didn’t discuss the broader conversation about the sales tax dispute during the open session, as several municipal officials were led to believe they would.

Meetings bear fruit

The county commissioners each met with municipal leaders early this month to discuss a way to resolve the sales tax situation as each government prepares their 2021-22 budget. Those meetings have not been made public, though in interviews multiple municipal leaders have expressed mixed feelings about the negotiations, which still represent significant progress compared to where things stood this time last year.

Smart said in an interview after the budget session this week that he “got a good feel for how we can help” the municipalities through his meetings with municipal leaders.

“We will definitely present something to them — their need is that we need to do that by June 30,” Smart said. “We’re going this fiscal year for them so they can apply whatever monies that we share with them … That’s when they need it for.

“Obviously we’re going to come up with a number and present that to each municipality and get everybody to sign off on it, and when that happens I’ll present it to the commissioners for approval,” Smart continued. “And then the sharing will take place.”