With federal cuts in focus, NC lawmakers examine local property taxes

Property taxes are usually a local matter in North Carolina. The rates are set by city and county governments, and the money collected is spent on city and county parks, schools, roads and law enforcement.

But state lawmakers have taken a keen interest in the topic, after North Carolinians across the state have complained about rising property taxes. A legislative committee on Wednesday continued to zoom in on how the state assesses, collects or uses property taxes.

Although the state government generally isn’t involved in setting the rates or deciding how the money gets used, the state legislature is now looking at whether it should insert itself into the conversation regardless — raising hopes of tax relief by some property owners, along with fears of meddling by some local government leaders and workers.

“I think we need to look at our elected officials that we've elected for the role that they are to fulfill and not micromanage,” said Rep. Brian Turner, D - Buncombe.

But as Republican legislative leaders look at ways they could potentially cut property taxes, they also have to contend with other factors: Republican President Donald Trump recently slashed federal spending in part by shifting hundreds of billions of dollars that used to be paid by the federal government — for education, health care, cybersecurity and more — onto state and local governments.

"We've seen a lot of federal changes that are going to have impacts on how we govern at the state and local level and how we are able to finance this," Whitney Afonso, a public policy professor at the University of North Carolina School of Government, told lawmakers Wednesday.

And not all counties are equally equipped to handle those increased costs. Afonso, whose research focuses on property taxes and income taxes, pointed lawmakers to a map Wednesday showing that the state's large, urban areas tend to have much larger property tax bases than smaller rural areas. But those smaller rural areas, which also tend to be represented by Republicans in state or local politics, are also much more reliant on federal programs such as food stamps and Medicaid, and will therefore be hit even harder by Trump's cuts.

That could add political wrinkles to efforts by GOP lawmakers to cut property taxes.

“I hope that we can start to focus on the front end of things … how we really got into this situation of costs being so inflated,” said Rep. Jonathan L. Almond, R-Cabbarus.

Smaller, rural counties could bear more of the brunt of new costs associated with Trump's efforts to shift costs for government benefit programs to local governments, Afonso said. There are also challenges for the bigger counties, where most of North Carolina's growth is happening.

"Our growing areas, on the flip side, are having to invest in new infrastructure," she said. "New wastewater systems, new schools. Those are very capital-intensive, and very costly as well. And so there's no one easy picture to paint of our local governments across the state. But we do expect to see some pretty impactful changes coming from the federal government."

Another recent trend under Trump and his Department of Homeland Security Secretary Kristi Noem has also seen the federal government so far pay significantly less for Hurricane Helene relief than expected, pushing costs to city and county governments in western North Carolina, Afonso noted. That has drawn complaints from Democratic Gov. Josh Stein, Republican U.S. Sen. Thom Tillis and others. 

Suggested solutions

The state House kicked off the effort to study property tax cuts, launching a new committee to study options late last year.

The state Senate followed suit, starting its own committee on the topic this month. Neither committee has so far suggested any new legislation; the Senate committee hasn’t met.

Abir Mandal, an analyst for the Tax Foundation, a pro-business think tank based in Washington, suggested to lawmakers a new system that would limit how much money cities and counties can collect from property taxes, including provisions to automatically lower rates if the local tax base increases — perhaps due to an increase in property values or the construction of a large new factory.

Levy limits, as that policy is called, would cap the annual growth in total property tax revenue from existing properties. If the property values rise faster than the cap, then the tax rate would automatically go down. New construction would be exempt since that reflects population growth.

While the policy could lead to cities and counties being forced to cut property tax rates regardless of what local leaders favor, Mandal said there would still be a way for rates to be kept at the same levels or even raised. There would have to be a vote on it by local residents, he said.

Under North Carolina’s current system, city and county leaders are allowed to raise or lower property tax rates on their own, without needing additional approval from voters. But funding additional projects like new roads, schools or parks with bonds can sometimes only be accomplished by popular vote. Bond referendum votes sometimes, but not always, lead to property tax hikes.

New York and Washington, D.C., use the levy limit policy he’s proposing for North Carolina, Mandal said.

“Levy limits are the best approach,” he said.. “First of all they directly constrain the total tax burden, it's still market based, so we do not introduce distortions… [It] doesn’t discriminate between homesteads, doesn't discriminate between commercial property, and residential property.”