Dependable Erection

Thursday, November 29, 2007

Transfer tax revisited

You may recall that back in August, the General Assembly gave counties in North Carolina a bit of discretion in enacting new sources of revenue. Counties could add a quarter of a cent to the sales tax, or increase the tax on property transfers by .4 percent. In Durham the transfer fee is currently .2 percent, so that would have increased the tax to .6 percent (60 cents per hundred dollars, or $600 on a one hundred thousand dollar sale)

The catch was that voters in the county would have to approve the increase. Sixteen counties around the state put the transfer tax increase on the ballot, and it was defeated in every case. Chatham County was the nearest to Durham to ask voters to weigh in on this.

The conventional wisdom is that the real estate and development lobbies successfully argued to voters that taxing home sales unfairly put the burden of financing new schools and other infrastructure on current residents who are selling their homes, and not on newcomers. In one stunning moment, i heard the president of the Durham Association of Realtors actually speak in favor of impact fees, which would be assessed on new development, even the Realtors at the state and local levels have lobbied against these in the past. We'll see if that marked a change in actual policy or merely a convenient rhetorical device.

Regardless, most county commissioners in the state are now convinced that the transfer tax is dead in the water.

A recent poll done by Public Policy Polling for Wake County yields some interesting results.
The most important message to convey to the voters is that there are costs associated with growth and that they will have to be paid through some form of taxation. Foes of transfer tax measures this fall created the impression that not paying was an option. It isn’t, and the counties with referendums this fall failed to get that message across to their citizens.

In order to leap that hurdle we prefaced our poll with the statement that ‘Wake County is growing rapidly and must increase its revenue to pay for new schools, parks, roads, water and sewer.’ Given that background and before being asked about alternative ways of paying for growth, poll respondents supported a transfer tax by a margin of 49-40%.

Support for the transfer tax increased when folks were given the choice of a transfer tax or another form of taxation. For instance when pitted against the specter of property tax increases, a transfer tax was preferred by a spread of 59-20% among survey respondents. If counties effectively communicate that a transfer tax will help relieve the burden of property tax increases, their voters are much more likely to support a referendum.

Lots of folks out there want to live in the fantasy world that all the new people who move into the Triangle will increase municipal revenues enough to pay for all the new infrastructure to support them. Those folks no doubt are comfortable with their kids spending their entire scholastic careers in trailers.



  • A few years back I devoted a lot of effort in support of school impact fees, even speaking before the NC House Finance Committee.

    I still support them, but I doubt we'll see them in Durham. The opponents---the contruction and real estate lobbies---are too well-heeled, but more importantly the taxpayers don't seem particularly offended at footing the bill for new schools.

    The same goes for the transfer tax.

    By Anonymous Anonymous, at 6:16 PM  

  • I oppose a transfer tax for a whole other reasons -- enough of this nation's economy hinges on the artificially inflated housing market as it is. When it crumbles, as it is doing in entire regions of the country right now, it's going to drag a lot under with it. It could well have a similar effect to when the unregulated stock market crashed in 1929, as it's all pegged on pie in the sky pricing and cutting corners with appraisals and lending practices.

    I'd rather not have important priorities like new schools and safe roads predicated on such shaky ground as our community's ability to buy and sell houses.

    By Anonymous Anonymous, at 12:20 PM  

  • Fair point.

    On the other hand, pegging a community's revenues to sales taxes can result in even greater swings when the economy dips, which we may very well see in the coming year. There's no easy answer, especially in a culture where the dominant meme is that taxes are evil and people need to do everything in their power to avoid paying them.

    By Blogger Barry, at 12:25 PM  

  • Since new schools and new roads are a result of new people, I support sources of revenue that tap growth. I haven't seen an impact fee scheme yet that pays for all of the new infrastructure, but they help defray the costs.

    Of course, perhaps 1/2 of our ~2%/year growth is organic, Durhamites making new Durhamites the old-fashioned way.

    No, I'm not suggesting that we tax babies or the production thereof.

    By Anonymous Anonymous, at 12:51 PM  

  • >>No, I'm not suggesting that we tax babies or the production thereof.<<

    Oh, let's do this -- I haven't gotten laid in years and would get off scott free!

    By Anonymous Anonymous, at 1:55 PM  

  • The sales tax is a much more stable, dependable source of revenue as compared to the transfer tax. Sure, there are fluctuations with each - but ask Dare County what happens when you budget transfer tax revenues. They are currently seeing about a 35% decrease in revenue as a result of the slowing real estate market...and they were touted across the state as the "shining example" of how wonderful the transfer tax is.

    By Anonymous Anonymous, at 4:38 PM  

  • That was not my expereience in California during the recession of '91 - '92, when my ex-wife's teacher's union negotiated a three year, no raise contract. Property taxes there are collected by the state at a flat rate state wide (1.125%, if memory serves) and are locked into the purchase price paid for the home by the current homeowner. (The famous Prop 13).

    Property taxes and sales taxes collected by the state are then doled back out to the communites for their school districts based on arcane, but theoretically fair formulae ensuring that no district is significantly underfunded compared to any other district.

    When the state went into recession in the early 90s, sales tax revenues dropped significantly, while property tax reviews dropped only marginally. Only those folks who had bought at the top of the market were able to adjust their property taxes downward due to falling prices.

    Nobody is making the claim that transfer taxes are going to do more than fund some of the new infrastructure and education needs brought on by population growth. They're certainly not as important in the grand scheme of things as impact fees, which are barely able to get off the ground in NC, but have become increasingly common in CA.

    Compared to the lottery, property taxes are a very stable form of municipal revenue.

    By Blogger Barry, at 4:46 PM  

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