Voters Likely To Approve Tax Limitation

By John Hood

RALEIGH — If Speaker Destin Hall and other leaders of the House of Representatives get their way — and I strongly suspect they will — voters will decide this fall whether to amend the state constitution to limit the growth of property-tax burdens across North Carolina.

Here’s how the ballot item would read: “Constitutional amendment requiring limits on property tax increases by local governments.” If most voters say yes — and I strongly suspect they will — the General Assembly will then specify by statute how the limits would function.

Although the details might change, what supportive lawmakers intend to do is cap the growth of local tax collections on assessed property at population growth plus general price inflation. That’s already the rule the General Assembly follows, more or less, when fashioning the state budget. It seems reasonable to most legislators, and to me, to establish a similar speed limit on property taxes.

Now, my choice of words here is far from arbitrary. When I say that the General Assembly “more or less” caps state spending growth at inflation plus population growth, I mean to underline that the cap applies only to the General Fund. Most state spending now occurs outside the General Fund, as it is either financed by federal revenues and user charges or is funded “above the line,” through revenue diversion, rather than formal appropriation. Neither makes the state spending cap worthless. It still imposes necessary fiscal discipline and helps to explain how North Carolina has reduced the state tax burden over time while also funding core services.

Similarly, a constitutional “levy limit” on property-tax growth won’t keep counties and municipalities from funding core local services or making capital investments in infrastructure to accommodate future population growth and economic development. It won’t slam the brakes. Rather, it will act as a governor on the accelerator, keeping the vehicle of government from speeding recklessly.

For example, I believe state lawmakers are likely to apply the growth cap on property-tax revenues to preexisting properties, not new residential, commercial, or industrial development. Tax-policy consultant Jared Walczak calls this option the Brownsville model, after the Texas jurisdiction of that name, and contrasts it with the Boise model (where the levy limit applies to both new and existing property) and the Boston model (where new construction is added to the cap itself).

My John Locke Foundation colleague Joe Harris prefers the Brownsville model, and I tend to agree. A primary motivation for property-tax reform is to keep current owners, be they households or businesses, from experiencing sudden huge spikes in property values and the tax bills that result from them. At the same time, property-tax collections ought to bear some relationship to expansion and development, so that localities can deliver services commensurate with growing demand.

The Boise model is too tight, the Boston model often too loose. The Brownsville approach, Harris argues, “offers the most transparent and accurate constraint on tax growth.”

I know many local officials are upset about the prospect of a constitutional constraint on property-tax burdens. But I would advise them to focus on how it ought to work, not whether to have one. While some policymakers in other states are flirting with the idea of abolishing property taxes altogether — replacing them, wholly or partially, with higher sales taxes — that’s not where North Carolina leaders are going. They seek to retain property taxation as a reliable and relatively efficient means of funding services such as public safety and infrastructure that benefit people in rough proportion to the “stake” they have in the community.

Given how up in arms some homeowners are about dramatic revaluations, however, and the fact that nearly three-quarters of respondents to a recent Carolina Journal Poll favor the House’s proposed constitutional amendment, local leaders should embrace discretion as the better part of valor here.

Statewide levy limits aren’t new or weird. They’ve worked reasonably well in other places for decades. I strongly suspect they’ll work well in North Carolina, too.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).