CARY — Town leaders in Cary and Morrisville are making plans to adjust to the loss of hundreds of thousands of dollars in revenue from privilege taxes, levied each year to businesses.
Gov. Pat McCrory on Thursday signed a bill into law that strips North Carolina municipalities of the ability to set and levy privilege taxes.
Starting in July, the law will limit the types of businesses that municipalities can tax. Next year, the law will prohibit levying a privilege tax altogether.
Cary expects to collect $1.7 million this year in privilege tax revenues. Morrisville expects to collect about $860,000.
McCrory noted that Republican state lawmakers pledged to find ways to offset the loss in the next legislative session, potentially saving the state’s municipalities from losing a combined $62 million when the tax ends.
In the meantime, local leaders are searching for ways to maintain the same level of town services without raising taxes and fees.
The town hasn’t yet determined how, or if, it will recover the loss, according to Karl Knapp, the town’s budget director.
“It is possible that our revenue collections so far this year justify increasing our ... (budget) projections for other revenue sources, such as sales tax,” he wrote in an email.
“If that is the case, the additional revenue from those sources could compensate for the loss of privilege tax,” Knapp wrote. “If not, the Town Manager would need to recommend reductions in spending to offset any loss.”
Morrisville plans cope with a $130,000 loss in privilege tax revenues by pursuing fewer state and federal grants for roads and sidewalks, said Jeanne Hooks, the town’s budget manager.
To qualify and acquire some grants, municipalities are required to provide matching fund levels. Morrisville will simply rein in the amount of money it sets aside to pursue those grants, Hooks said.
“The bigger issue comes next year,” she said.
If the state doesn’t find a way to recoup the money, it’s unclear how Morrisville and Cary will fill their voids when the tax is banned in 2015.
Hooks is trying to stay optimistic. The amount of privilege taxes collected this year equates to 3 percent of Morrisville’s proposed budget.
“It’s reasonable to assume that if (other) revenues continue to grow ... there could be a feasible solution where it’s not passed on to residents,” she said.
In Cary, some are skeptical the town can lose $1.7 million without it affecting town services or residents.
“I find it hard to believe that a city of our size can just ‘absorb’ that revenue loss,” Cary Town Councilwoman Lori Bush said. “We’re discussing $100,000 here and there in our budget right now. You can’t have ($1.7 million) fall out of your wallet and not notice it.”
Smaller Wake County towns aren’t as affected by the new law.
Holly Springs stands to lose $42,000 in privilege tax revenues when the tax is banned, according to Mary Hogan, the town’s finance director.
Fuquay-Varina stands to lose about $49,000, spokeswoman Susan Weis said.
Apex doesn’t levy a privilege tax.
McCrory, the former Charlotte mayor, said the bill was needed because some towns have abused the tax by applying it “inconsistently, creating confusion and expense for our businesses.”
Holly Springs Mayor Dick Sears said he thinks most cities and towns – including Raleigh, which stands to lose $7.6 million in 2015 – levy the taxes fairly.
“The good guys are being punished for the very, very few bad guys,” Sears said.
Specht: 919-460-2608; Twitter: @AndySpecht