May 29, 2008

Is Fair really Fair? CT says no - but of course - they're wrong.

Thursday's Coastland Times editorial focuses on the proposed tax rates of some local towns. Duck up, Southern Shore down and KDH up. Different responses to economic times that have seen land transfer tax revenues cut in half in the last 2 years. In Duck's case the increase will pay for new projects and an ambitious goal for the town's savings account. The paper doesn't comment on the planned rates but rather focuses on the possible impact on the shared tax revenue each jurisdiction receives. The editorial closes with this comment:
The budget game gets very sticky, and final decisions become more difficult, when the full extent of the town tax cuts are considered in view of a shared revenue system that actually penalizes tax cuts.
It seems the CT doesn't think the current system of distributing shared tax revenues is fair. There are different formulas for each shared source but there is one consistent element within the plans; the County and towns share a lot of money and most of it is distributed based on each jurisdictions share of all the property taxes levied in the County. If Kitty Hawk levies 10% of the taxes then it gets 10% of the money. Its not quite that simple but the principal of fairness embodied in this formula is the same across the board.
The CT's comment implies that towns somehow have a right to a particular portion of the revenue, that each town government should be treated equally. The principal behind the current formula doesn't treat governments fairly, it treats individual taxpayers fairly. Each dollar in property tax paid by a taxpayer in a Dare town is matched by the same amount of shared revenue. For example in 2007 each tax dollar was matched by about forty cents in occupancy tax. If you paid $200 to Nags Head they got $80 if you paid it to Southern Shores they got the same amount. If a government raises taxes then everybody's share gets smaller and yes if Southern Shores cuts taxes then every taxpayer gets a little bigger share. Treating taxpayers fairly eliminates the need to figure out who is doing government right, if in fact such a concept even exists. Southern Shores says they are frugal. I say they ought to spend money on beach access, like KDH and Nags Head. Who is right? In fact each government chooses its own path as directed by its voters. Presumably each one is right or maybe both are wrong. In the end the is no correct standard for local government expenditure that we can use to share revenue. The current formula solves the problem, it treats all governments the same and focuses on tax payers.
There are two other formulas that get suggested for distributing revenue, population and point of origin. In fact the state combines these two methods when it distributes sales tax to counties. About half the money the state distributes is shared each way. Of course Dare County does a lot better on the point of origin share. Population formulas short change the county in general becuase so much of our sales tax revenue comes from our guests (tourists not piping whatevers). As this blog has argued before the population formula makes sense only when all the shared revenue comes from people benefiting but this clearly is not the case in Dare County. Permanent residents pay a minority of all the property and sales taxes in the county. There is no equity in forgetting non-resident property owners when we hand out tax support. Those owners pay property taxes too.
Likewise census population formulas don't recognize the actual population numbers a jurisdiction serves. Nags Head serves over 40,000 residents on a summer weekend. Maybe we should use that peak population to distribute taxes. Who would that penalize? Well it would penalize those areas that don't promote rental homes and businesses (like TTtWLMGtTB[see note]). In fact it probably would more closely reflect what a point of origin formula would provide.
A Point of Origin formula sends the tax dollars back to jurisdiction that generated them. Here Nags Head and Duck are the big winners. These towns have low population but large rental cottage economies. These towns alone account for nearly half the occupancy tax collected in the county, but should they get that money right back? Probably not. First of all it is not politically popular since large voting blocks don't necessarily get large money blocks. Further it hurts areas that may need help developing economic resources that don't have the necessary revenues to start the job. Think Tyrell or Hyde County. This is why the State mixes both formulas population and point of origin when it shares state sales tax.
What these two formulas share is a govenment centric view. They overlay the formula on town boundaries and of course since the towns are different each formula has winners and losers. The current formula, in effect, ignores those boundaries and treats taxpayers equally no matter where they live. Each tax dollar paid gets the same benefit.
The Coastland Times may think this penalizes local governments but are local governments really what matters? I suggest that what matters is the people who pay the taxes. Lets not penalize them to feed the inflated egos (or dreams) of the towns and their so called leaders.
Note;TTtWLMGtTB= The Town that Won't Let Me Go to the Beach = Southern Shores that has zero public beach accesses. Zero. see this post


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