Further review for tax reform

Tax reform discussions draw attention of NCACC committee

• Meeting PowerPoint presentations (PPT)

By Rebecca Troutman
Intergovernmental Relations Director

Members of the NCACC Tax and Finance Steering Committee engaged in a serious give-and-take regarding North Carolina's economy and underlying tax structure during their Nov. 17 meeting. Afterward, members visited the Legislative Office Building to hear discussions from a meeting of the Interim Joint Finance Committee on Tax Reform. NCACC President Elect and Wake County Commissioner Joe Bryan, who chairs the NCACC steering committee, briefly addressed the joint legislative committee.

NCACC President Elect Joe Bryan of Wake County addressed the Interim Joint Finance Committee on Tax Reform on Nov. 17 and emphasized the collaborative partnership between the state and its counties. He asked that the county voice be included in tax restructuring efforts. (Photo by Jason King)

Prior to the field trip, Barry Boardman, the General Assembly's chief economist, offered committee members an overview of legislative discussions to date on tax modernization. He emphasized that the tax restructuring conversation is not unique to North Carolina. A number of states are asking similar questions about their system of taxation: Is it functioning? Does it meet the state's budget needs? Does it grow? How volatile is it?

While the N.C. Senate looked at complete modernization during the 2009 long session, the House sought a more deliberative discussion centered on sales taxes. With a special provision permitting the Senate and House finance committees to meet outside of session to discuss tax modernization, the study committee began meeting in November.

According to Boardman, the joint finance committees laid the study's groundwork at their first meeting – consider taxing more services and investigate different tax structures. Compared to other states, North Carolina is at the lower end of taxing services, taxing roughly 30 of the 170 services available for taxation.

Boardman said he believes counties have a vantage point, since broadening the tax base would increase the local sales tax base as well. Asked for his prognosis for tax change, Boardman emphasized that he is an economic prognosticator, not a political one, but that the legislative discussions are happening for a reason.

Boardman also provided steering committee members with an economic outlook and forecast. He said most economists agree that the national and global economies are moving out of recession but he is concerned that North Carolina may be bouncing around at the bottom, describing the current state of the recovery as "the investment phase" – helping Wall Street, not Main Street.

As the economy emerges from recession, it takes a while for businesses to feel comfortable about hiring, Boardman added. He is closely monitoring temporary employment – one of the leading indicators for economic recovery – which appears to be improving. Building permits were also up, but with credit still tight, he said he is concerned about the commercial construction market. He also noted that economists are now discussing whether sales tax collections will ever recover to the pre-"Great Recession" period.

The steering committee also heard a presentation on the status of the bonding opportunities provided via the American Recovery and Reinvestment Act (ARRA) from a representative of the State Treasurer's Office. Tim Romocki, director of the Debt Management Section with the State and Local Finance Division, provided a high-level overview of the current municipal bond market, ARRA's finance provisions, and market take of the new and expanded bonding mechanisms.

While banks are reluctant to lend money over longer terms and continue to be partial to general obligation debt, the Local Government Commission is seeing some movement in the "Build America Bonds" program, and private placements are on the upswing, according to Romocki. He said tax credit bonds are still limited due to banks' uncertainty regarding their profitability – now and in the future.

He said counties with successful "BAB" placement include Gaston for school construction, Brunswick for sewer infrastructure, and Catawba for hospital facilities. Catawba has also been successful at issuing one of the new Recovery Zone Economic Development Bonds on behalf of its community hospital.

Haywood County has directed some of its Recovery Zone Facility Bonding allocation to International Paper for new equipment.

Buncombe County was first to issue Qualified School Construction Bonds. More counties will seek approval during the LGC's December meeting.

The steering committee set its next meeting dates for Feb. 18 (10 a.m. – 2 p.m.) and May 20 (9 a.m. – 1 p.m.). Meetings will be held at the Albert Coates Local Government Center.