City's ability to raise revenues limited
Existing state and local laws greatly restrict how much money the city has to operate, or how it can increase revenues in order to maintain the current level of services.
City’s property tax dollars
About 60% of the city's money to operate comes from property taxes home and business owners pay on their property - almost all of that money is only enough to pay for the city's police, fire and debt costs each year. All other funding comes from sales taxes or fees.
City's sales tax dollars
Businesses inside the city limits account for more than 80% of all sales tax collected in New Hanover each year, but the city receives only about 20% of those sales tax revenues. Most of the remaining money – more than 70% – goes to New Hanover County, which is able to keep its property taxes lower because of this subsidy by city taxpayers. The city has no say in how this revenue is distributed; only New Hanover County or the NC General Assembly can make that change.
In addition, each time New Hanover County raises its property tax rate, the city’s share of sales taxes decreases unless the city raises its tax rate. From 1999 - 2012, New Hanover County has raised their property tax rate five times and their fire district tax six times (city residents don’t pay a fire district tax). The city raised its property tax rate only twice in the same period, resulting in a loss of millions of dollars in sales tax revenue to the city. See the chart to the right for details.
What about a commuter tax?
Most states don’t have annexation. Cities in those states charge commuter taxes or income taxes to get money from those who use city services. Why can’t we do that? In North Carolina, cities are not allowed to charge commuter taxes or income taxes. Any such change would have to be made by the General Assembly.
City’s funding from the state
The city gets a small amount of funding from various state sources but has no say in how much the city gets – that is determined by distribution formulas set by the state. These funds come from sources such as utility and cable franchise fees, a portion of ABC sales made in NHC, and taxes on beer/wine.
What about fees?
Trash collection, downtown parking and stormwater are all funded by fees paid by customers. Trash and stormwater fees are paid monthly by customers who live in the city and sign up for these services. Parking fees are paid by anyone who parks downtown. All three of these are “enterprise funds,” which means they are self-supporting and cover their costs based on what they charge customers, just like a private business. However, if these businesses can’t cover their costs with fees, they must raise their fees, much like a private business raises the prices for products they sell. Or, the city can subsidize these funds with money from its General Fund Budget. Only the parking fund has received an ongoing subsidy from the city’s General Fund.