Resources and Financial Capacity

This post is ripped directly from Asheville, NC 2010: A Financial Crossroads, a report prepared by Asheville City Staff to put our current economic position in perspective. I’ll be featuring excerpts from the report from time to time. Click here to read all eleven pages.

Through their ability to spread the tax base over a greater portion of a region’s wealth, many growing cities in North Carolina have been better positioned to match resources to service demands. However, tax base sharing alone is typically not the only resource cities have to balance the cost of services, infrastructure and capital investment required to maintain an economically competitive and vibrant city and region. Other forms of revenue diversification are used to provide tax relief to citizens who reside within the municipal boundaries.

Property Tax Revenues

In North Carolina, property tax is typically the largest source of municipal revenue and one of the few sources which local governments have the power to set the rates. Asheville’s budgeted $45.5 million in property tax revenue for fiscal year 2010 makes up almost half of the General Fund revenues. Growth in real estate property values in Asheville since 2000 has yielded steady increases in property tax revenue. That growth has masked some of the financial challenges Asheville is facing now. From 2000-2008, the property tax rate decreased by $.14 while collections increased by 80%.

Sales Tax Revenues

Property tax rates can also play a part in the distribution of sales tax revenues. In North Carolina, sales tax revenue is divided among local governments based on one of two methods: the per capita method or the ad valorem method. Buncombe County uses the ad valorem method, which means that sales tax revenue is divided between the county, the local municipalities, the city school district, and the rural fire districts based on each entity’s share of the total county- wide ad valorem tax levy. Over the last twenty years, the City of Asheville has seen a significant decline in its share of the county-wide ad valorem tax levy, and thus a corresponding decline in its share of the sales tax revenue distributed to Buncombe County. Table 3 illustrates this decrease in the city’s share of county-wide sales tax revenue. This decline is primarily due to two factors: 1) growth patterns which have led to a greater share of development occurring outside the city limits; and 2) property tax rate decisions during revaluation years in which the city lowered its rate more than other taxing entities in Buncombe County. To quantify the financial impact of this decline, if the city had been able to maintain its share of the ad valorem levy at the 1990 level, it would have received approximately $3.0 million more in sales tax revenue in FY 2008-09. It should also be noted that Asheville’s current sales tax share of 19.60% ranks 16th among the 18 cities in North Carolina with populations 50,000 and above. Only Gastonia and Cary receive a smaller share of their county-wide sales tax revenue.

Occupancy Tax Revenues

Occupancy taxes are collected from individuals who pay for a room or a space in a hotel. In 2006-07, Buncombe County collected more than $6.5 million in occupancy tax revenues. Local legislation states that these revenues must be transferred to the Tourism Development Authority and used for the purpose of promoting tourism in the county. Asheville does not have access to these funds to support city facilities or infrastructure. Buncombe County’s county-wide room occupancy rate of 4% is the second lowest of 15 metro areas surveyed. In several communities, the general assembly has authorized both a county and a city within that county to levy an occupancy tax. Cities in the survey group that currently have authorization to levy their own occupancy tax include Greensboro, High Point, Wilmington, Chapel Hill, and Gastonia. All five of these cities levy an occupancy tax of 3.0%, which produces revenue ranging from $985,000 in Chapel Hill up to $3 million in Greensboro. This tax is used by many communities, particularly those with active tourism industries, to provide tax relief to local residents who carry the cost of municipal services and infrastructure that benefit visitors.