‘Revenue neutral’ tax rate creates confusion in property revaluation year

Published 3:24 pm Monday, June 22, 2009

A recent exchange between Polk County Manager Ryan Whitson and Tryon resident Paul Weidman reflects some of the confusion and concerns surrounding the tax rate adjustment (see letters in Friday&39;s Bulletin). Weidman calls for a &dquo;revenue neutral&dquo; tax rate, which would give the county about the same property tax revenue it took in during the current fiscal year.

County commissioners have indicated recently they are planning a revenue neutral rate, in large part to minimize the burden on taxpayers during a difficult economic time.

But commissioners also have considered a &dquo;revenue neutral plus growth&dquo; rate as they are instructed to do by the N.C. Institute of Government in a revaluation year. The growth rate allows the county to factor in an increase based on average annual tax base growth from improvements, such as new lots and buildings, since the last revaluation in 2001. In Polk County, the tax base has grown an average of 5.9 percent annually over that period.

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If Polk County does not include the growth factor it would forgo revenue from new buildings and lots in the past year. The county then misses new revenue it would have received in any other year, revenue that comes purely from tax base growth and not a tax rate increase.

In a non-revaluation year, if someone builds a new house or creates a new lot, the county gets revenue from that addition to the tax base. If the tax base was $100 million at the start of the year and someone builds a $200,000 house, that pushes the tax base to $100.2 million, and the county sees more revenue without raising its tax rate.

In a revaluation year, the county has to include the growth factor to the tax rate to ensure that it still gets that revenue from improvements. Otherwise, the county is effectively keeping the tax base unchanged.

For that reason, some county commissioners and town council members have said they think their respective governments should include the growth factor, particularly since they are facing such bleak revenue forecasts. Government officials note that taxing everyone at the full, current value of their properties ensures that everyone is paying their fair share.

However, other county commissioners and town officials have contended they must keep taxes as low as possible considering that taxpayers are already struggling to make ends meet in the slumping economy. Anything that increases taxes could put taxpayers in a deeper hole and further weaken the local economy, they argue.

In his exchange with Weidman, Polk County Manager Whitson notes that the word &dquo;increase&dquo; is part of the confusion about tax rates.

He notes that the &dquo;revenue neutral plus growth&dquo; rate is an increase from &dquo;revenue neutral,&dquo; but it is not an increase in the effective tax rate from the previous year.

The &dquo;revenue neutral plus growth&dquo; rate is intended to give the county what it is due without a tax rate increase, while the &dquo;revenue neutral&dquo; rate, in effect, would be a tax rate cut. That&squo;s because in a non-revaluation year the only way the county would get the same revenue as the previous year, when there have been improvements to the tax base, is by lowering the tax rate.

Confusion due to the revaluation also was evident in recent exchanges between the county manager and Sunny View Fire Chief Marty McGuinn. McGuinn argued that a &dquo;revenue neutral&dquo; rate was a rate cut and would give his department less revenue than it received in the current year.

Whitson noted that it would be a rate cut from a &dquo;revenue neutral plus growth&dquo; rate, but it would still give him the same revenue his department received in the current year.

The county has indicated that it plans to go with a &dquo;revenue neutral&dquo; rate for all of the fire departments.

The county and the three local towns have only a little more than week left to finalize their budgets for the new fiscal year. They must approve budgets by June 30.