A Taxing Proposal

Bo Frizzell says he loses sleep at night trying to figure out how to save Scotland County money. 

Frizzell, a Republican who chairs the county’s board of commissioners, saw an opportunity in September to save $1 million a year by handing over emergency medical services (EMS) to a private contractor. 

“It ain’t that our people do a bad job,” Frizzell said. “We can’t afford to give them the resources that they need.”

But after an impassioned discussion in which some commissioners said they didn’t want to turn their backs on local employees, the board voted 4-3 in September to maintain control of EMS. 

After the vote, Frizzell said Scotland County, in rural southeastern North Carolina, might raise its property tax rate to upgrade EMS. He doesn’t want to do that, especially since commissioners just cut the county’s property tax rate—then the state’s highest—by almost 30% this summer. 

County leaders statewide face similar dilemmas. Some say their choices will get even tougher if voters approve two proposed amendments to the state constitution on the November 3 ballot. One would cap the state’s income tax rate at 3.5%, while the other would require the General Assembly to limit local governments’ property tax increases. 

Republican lawmakers say the amendments would lock in tax changes they’ve made over the past decade, rein in local spending, and shield homeowners from skyrocketing property tax bills. “You worked hard to own your home,” state House Speaker Destin Hall posted on X in September. “You shouldn’t be taxed out of it.” 

But critics, including liberal groups and local government officials, argue the amendments would threaten funds for schools, social services, and public safety. They say service cuts, higher sales taxes, and new fees could offset any savings.

Scotland County is already hunting for new revenue. It increased EMS-related user fees, which doubled in some cases. It will also ask voters in November to hike the county’s sales tax. 

Frizzell said commissioners have to save money where they can, but there’s little left to cut in the county’s $56 million budget. “If you don’t ever do nothing to cut, then what’s going to happen? You’re going to have to increase taxes,” he said.

‘Their Whiz-Bang Machine’

Republicans began overhauling the state’s tax policy soon after taking control of the General Assembly in 2011. They flattened the income tax in 2013 and steadily reduced the rate. Currently 3.99%, it’s already lower than other southeastern states’. South Carolina taxes income above $30,000 at 6%. Georgia has a flat rate of 4.99%. Virginia taxes most incomes at 5.75%. (Tennessee and Florida don’t tax income.)

Additional cuts are on the way. By 2033, North Carolina’s income tax will drop to 2.99%. Lawmakers also plan to phase out the corporate income tax, which at 2% is already among the lowest rates in the country.

While most North Carolinians pay less in taxes than they did 15 years ago, the changes have shifted more of the burden to poorer residents. The combined state and local tax rate for the lowest 40% of earners increased from 9% to more than 10% after Republicans took power. For top earners, the rate fell from 9.7% to 7.5%. 

“The wealthiest North Carolinians and corporations are the ones who will get the most money back, and for most of us, our lives will become more expensive,” said Isabell Moore, who leads North Carolina Families for Public Schools, a project of the left-leaning nonprofit Down Home NC. 

Income taxes account for about half of North Carolina’s general fund, which pays for schools, state employees’ salaries, and other expenses. Republican lawmakers say a lower income tax rate will spur economic growth, but most economists caution that tax cuts don’t pay for themselves. 

“I desperately wish that when policymakers say, ‘Let’s lower tax rates because it will bring more economic activity,’ they would write down some numbers,” said Wendy Edelberg, a former chief economist at the Congressional Budget Office and a senior fellow at the Brookings Institution. “How much more economic activity? Where is this economic activity going to come from? Is it more businesses? Is it the businesses that we currently have doing more economic activity?”

Many Democrats, including Gov. Josh Stein, warn that already-scheduled tax cuts might lead to a financial crisis. Stein said in March that the state could have to cut $2.8 billion in spending in 2028, “equivalent to firing about 30,000 teachers and shutting down all our state psychiatric facilities.” 

Republicans, including Senate leader Phil Berger, have dismissed those claims, arguing that previous warnings of revenue shortfalls haven’t come to pass. 

A Berger spokesperson did not respond to an interview request, but the Senate leader told The Assembly in an interview last year that the state’s economic growth “will address any static concerns that analysts have about future revenues. It’s always been the case that the growth has far exceeded what those analysts plug into their whiz-bang machine.”

The income tax amendment would cement one of Berger’s top legislative priorities just before he exits the political stage. Berger, who lost his primary in March, pushed a 2018 amendment that capped state income taxes at 7%. More than 57% of voters approved it.

Like that amendment, the one on this year’s ballot won’t cut the tax rate, but it will make it all but impossible for future lawmakers to raise it. Passing an amendment requires approval from both three-fifths of lawmakers and a majority of voters. 

Given the state’s divided electorate and legislative gerrymanders that have entrenched GOP power, Democrats are unlikely to win the supermajorities necessary to amend the constitution anytime soon. Even if they did, voters might be reluctant to hike their own taxes. 

Critics say that could leave the state unable to respond to crises or address changing needs.

“It’s one thing to support a policy position that can, when it shows to have a negative impact, be undone,” said Alexandra Forter Sirota, executive director of the liberal NC Budget & Tax Center. “But when it’s locked into the constitution, that’s much harder to do.”

‘You’ve Got to Do It’ 

North Carolina does not levy a statewide property tax, but all 100 counties and most municipalities do. Property taxes generated about half of counties’ and almost a quarter of cities’ and towns’ budgets this year, according to the Budget & Tax Center. While state and federal grants are typically earmarked for specific purposes, property taxes can build schools and police stations, fix potholes, supplement teachers’ pay, and meet other needs.

Under state law, local governments can’t charge more than $1.50 per $100 of appraised value, though no county comes close to that limit. Rates range from 22.2 cents in Carteret, home to expensive coastal properties, to 93 cents in economically distressed Bertie. 

“We actually have low property taxes,” said Kevin Leonard, executive director of the North Carolina Association of County Commissioners. “And people are moving here from other parts of the country, [and] they’re pleased to be paying the property taxes that they have. Stories abound from commissioners having constituents call them and say, ‘This property tax bill, is that for the month?’ No, it’s for the entire year.”

But rising home prices have led to higher property tax bills, and seniors and people on fixed incomes are struggling to keep up, said Brian Balfour, vice president of research at the conservative John Locke Foundation. A cap, he said, “serves as protection for property taxpayers.” 

“With property values shooting up, that should not really be a blank check for local governments to just go on spending sprees because they’re able to collect so much property tax revenue,” Balfour said.

Capping property tax increases, however, would limit local leaders’ ability to make spending decisions, said Chris McLaughlin, a tax and finance expert at the University of North Carolina at Chapel Hill School of Government. They have few other ways to raise revenue, he pointed out. 

“The question is, who should be making those choices—state representatives or those local governments? That’s a policy question,” McLaughlin said.

Frizzell, the Scotland County board chair, says local leaders best understand their communities’ needs. “When the government puts so many rules and regulations on you, at what point are you free?” he said. “I think big government needs to let the commissioners run our county.”

Frizzell and other commissioners pushed back this spring when the General Assembly enacted a 12-month pause on property tax revaluations in Scotland and 10 other counties to shield homeowners from higher bills. Lawmakers later exempted four counties, including Scotland, from the moratorium, though it’s not clear why. 

State law requires counties to reappraise properties every eight years. This year’s revaluation increased Scotland County property values by an average of 60%, according to County Manager April Snead. Many of the county’s 33,000 residents—about 23% of whom live in poverty—experienced sticker shock. 

Scotland County has suffered for decades from the decline of textiles and tobacco. Before commissioners cut the property tax rate this year, it compensated for its small tax base by having the state’s highest rate. But despite the rate reduction, the reappraisal means that many property owners will likely pay more in taxes. Under the old rate of 99 cents per $100, the owner of an $80,000 property paid $792 a year. If that property were reappraised at $150,000 and taxed at the new rate of 69.9 cents, the owner would pay more than $1,000. 

Frizzell said the additional revenue would mostly go toward administering the food stamp program. The One Big Beautiful Bill Act that Congress passed last year shifts more of the program’s costs to states. North Carolina put the onus on counties.

“When the state passes down things like that, you’ve got to do it,” Frizzell said.

Frizzell isn’t optimistic that voters will pass a quarter-cent sales tax hike in November, which would generate about $1 million a year. Though voters in about half of North Carolina’s counties have raised their sales taxes, Scotland voters have rejected similar measures twice in the last decade. 

Sales tax hikes are a tough pitch in a poor county because they hit low-income residents harder than property taxes. But Frizzell also thinks it’s difficult to ask residents to pay more when commissioners decided not to save money by outsourcing EMS. 

Even so, Leonard said legislative efforts to constrain local officials stem from the misconception that counties spend money willy-nilly. “It’s not like they are saying, ‘Oh, windfall, good for us, we’re going to go and do all this stuff,’” he said. “I think there are some members of the General Assembly who believe that that’s happening. From my perspective, that is not happening.” 

‘Please Lower My Taxes’

McLaughlin predicts North Carolina voters will approve the amendments. “Your average voter who is not going to be particularly well-informed about this issue looks and says, ‘Hey, yes, please lower my taxes,’” he said. 

Polls suggest he’s right. An Elon University survey at the end of August found that 68% of respondents supported the income tax cap, while 71% backed the limits on property taxes. 

But Forter Sirota said she believes voters will ultimately be turned off by the “vague language” in the property tax amendment. Among other things, the measure doesn’t specify the caps’ severity; lawmakers will determine that later.

“I think folks know a bad deal when they see it,” Forter Sirota said.

Liberal groups are scrambling to convince voters that the amendments will hurt public schools. Moore, who leads North Carolina Families for Public Schools, called them a “double whammy”: the income tax cap could mean less state funding, and the property tax cap will prevent counties from raising money in response. 

A less predictable critic is Paul “Skip” Stam, a former Republican House leader from Wake County. Stam said some GOP House members told him they were hesitant to support the amendments but felt they had to for the Senate to pass the long-overdue budget this summer.

“They went along with it this year sort of grudgingly because the Senate was demanding it,” Stam said. 

Hall, the House speaker, did not respond to requests for comment. 

Republican state Sens. Lisa Barnes of Nash County and Michael Lee of New Hanover County were primary sponsors of legislation to put the income tax cap on the ballot. Both are seeking reelection in swing districts—and touting their efforts to lower taxes. In 2018, the last time Republicans placed an income tax cap on the ballot, they were also facing a difficult midterm election.

Stam said the proposed amendments are “bad policy” that could lead to more government borrowing at higher interest rates—and more taxes. 

“They haven’t thought about that,” Stam said. “It’s very poorly thought out, poorly structured, unfair, and goofy.”

Frizzell said that if it were up to him, Scotland County wouldn’t levy a property tax at all, and the state wouldn’t have an income tax. He believes that the sales tax is “the only fair tax out there.” But the county needs money. 

It also needs to address its EMS crisis. Residents have complained that ambulances can take more than 25 minutes to respond to calls in the northern part of the county. The county’s goal is the 14.5-minute average response time for rural America. 

“There’s a lot of things that have changed since our September meeting,” Commissioner Jeff Shelley said when the board met on October 13. He didn’t elaborate, though he might have been referring to the county EMS director’s recent retirement announcement. 

In any event, the board reversed its vote against privatizing EMS. The five commissioners unanimously agreed to contract with Charlotte-based Atrium Health to take over the county’s EMS. County officials predict a five-year deal will save nearly $6 million.

“If you try to keep everything the same, then your expenses are going to go up,” Frizzell said. “You’ve got to change with change. If you don’t change with it, you’re going to get left behind, and that’s what’s happened in Scotland County for a long time.”

Additional reporting by Jeffrey Billman and Ren Larson.