Legislature Approves 1/2-Cent Tax Increase

The legislation also received preliminary approval from the N.C. Senate Tuesday and will go before the chamber today for a final vote.

The additional revenue will be used to repay state municipalities some of the $333 million that Gov. Mike Easley withheld in local funding last spring, said Rep. Joe Hackney, D-Orange.

Under a previous bill, local municipalities would receive a larger percentage of sales tax revenue starting in July 2003.

But the bill approved Tuesday gives counties the option to collect additional revenue from consumers starting Dec. 1 and continuing until June 30, 2003.

Legislators say the state's budget deficit will push most local governments to adopt the increase so they can meet individual budget needs.

Local officials marched around the legislative building Monday when the House first took up the legislation and came back Tuesday to encourage senators to enact it.

Hackney said counties would need additional forms of revenue to survive the fiscal year without having to cut important programs.

"(Local officials) came begging down here for the bill to be passed," he said.

Hackney said the sales tax will help counties recoup about two-thirds of the funds Easley withheld from them.

An earlier proposal that would have given local governments the ability to enact a half-cent sales tax failed in the House 57-60 in July.

The proposal would have raised about $252 million in revenue for municipalities.

The proposal failed when Republicans and some Democrats banded together in opposition -- saying the bill placed too much of a burden on N.C. citizens.

Easley still withheld the money to help account for the state's nearly $1 billion budget shortfall for the last fiscal year.

Six state counties, along with several cities and towns, have sued N.C. Revenue Secretary Norris Tolson, who is in charge of distributing the funds.

The lawsuit contends that the state did not keep its promise to allot a certain amount of money to local governments.

Hackney said counties need the additional funding to protect education, social services and public transportation.

Sen. Virginia Foxx, D-Guilford, said the legislation would have a major effect on a large number of North Carolinians.

She said the tax "will hurt the working poor (but) not the poorest" because food is not taxed under the legislation.

Foxx said that "although the General Assembly did not levy the tax, it allowed the opportunity."

"We don't need to be raising taxes," she said.

She said the public will resent another tax increase and blame "greedy politicians."

"North Carolina already has the highest tax rate in the nation," Foxx said. "The state seems to be insatiable in wanting to tax everything."

But Sen. Howard Lee, D-Orange, said the long-term effects of the sales tax could be beneficial to counties.

"Over time it could allow local governments to reduce other tax sources, such as property taxes," he said.

But Foxx said the state should have cut its own budget instead of leaving counties to fend for themselves.

Lee said that he doubts the sales tax increase will refund the money local governments lost but that he believes something needed to be done.

He said, "We still have to supplement their budgets."

The State & National Editor can be reached at stntdesk@unc.edu.