The Voter’s Choice: Proposed Land Transfer Tax Chatham County Ballot Referendum November 6, 2007

Chatham County Overview Current Population: 60,052 a Projected Growth: Expected to triple over next years b School Enrollment: Expected to increase at least 4% per year c Current County Budget: $76.5 million Current Property Tax Rate: 61.7 cents per $100 of property value ($926 on $150,000 home) a US Census estimate for 2006 which tend to be conservative b Triangle J Council of Governments estimate c NC State University Study, March 12, 2007; could be very conservative

Land Transfer Tax Summary Assessed one time only when property is sold Based on 0.4% of the sales price Combined with $1,000 reduction in current school impact fee assessed on new homes (action approved by Board of Commissioners on Aug. 20, 2007)

Land Transfer Tax Summary Assessed on a home, commercial building, land or other real estate, including sales and any exchanges of property for value Paid at closing by the seller, as required by state law Commissioners have voted to spend 85% of the revenues on schools

How is the Tax Calculated? Property sold for $100,000: 0.4% X $100,000 = $400 land transfer tax Property sold for $150,000: 0.4% X $150,000 = $600 land transfer tax Property sold for $300, % X $300,000 = $1200 land transfer tax

Potential Impact of the Tax* Land transfer tax (LTT), if approved by voters, would generate a total of $3.5 million in = 5 cents on property tax rate However, reducing the school impact fee from $2,900 to $1,900 would mean that the net gain or new revenue would be $2.5 million in = 3.4 cents on property tax rate If LTT is not approved by voters, no new revenues are generated, but county would retain school impact fee revenue at $2,900 *Based on Chatham Co. Finance Office estimates

What is Excluded from the Tax? Motor vehicles & personal property Gifts or inherited property, such as land divided for children or grand-children Building a home on property already owned Will-related transfers Foreclosures (or deeds in lieu or foreclosure) Term leases Government property transfers Consolidation or merger transfers Any legally mandated transfers Any transfers where nothing of value is provided in exchange

What is Covered by the Tax? Traditional real estate sales Exchanges of property for money or other property Deeds of nonprofits and religious groups Timber deeds

The Impact on New Homes New homes (including land) valued at $250,000 or below would see a drop in overall taxes due with a 0.4% land transfer tax combined with the reduced impact fee Those building a new home on land they already own would pay $1,000 less than before, because the land transfer tax would not apply and the impact fee would be reduced by $1,000

Potential New Revenue Generated Over Five Years $2.45 million* $2.58 million* $2.7 million* $2.84 million* $2.98 million* * Chatham Co. Finance Office estimates. Includes land transfer tax revenue minus the reduction in school impact fee revenues

How Would Revenues be Used? By state law, revenues of the land transfer tax could be used for any lawful purpose However, the Chatham Co. Board of Commissioners has voted unanimously to use 85% for schools, including new and renovated facilities

School Needs County’s 5-Year Capital Plan includes a new high school & middle school Many schools in the county are already over- crowded and nearly all are in need of major renovations Modulars at Northwood High

School Growth Projections If conservative school growth projections of 4+% growth per year are accurate, the school system will need a new school about every 2 years Only the new high school and middle school are currently funded through the county’s capital plan

Leveraging Borrowed Funds The additional revenue from the land transfer tax, if approved, also could be used to help the county increase its borrowing capacity In , the county could potentially borrow up to $43 million* in additional funds for schools and other needs * The Local Government Commission uses various factors in determining how much money the county could actually borrow.

Comparison to Other Revenue Sources Revenue SourceEst. Yield ¼-cent sales tax$1 million a 1-cent property tax$720,000 b Education lottery$931,485 c School impact fee at $1,900$2 million d School impact fee at $2,900$3 million d Proposed land transfer tax$3.5 million d FOOTNOTES ON NEXT PAGE

Revenue Chart Estimates a Estimate from the N.C. Association of County Commissioners b Estimate from the Chatham County Tax Office c Estimate from the N.C. Dept. of Public Instruction d Estimate from the Chatham Co. Finance Office

How does the land transfer tax differ from the school impact fee? There are several notable differences. See the chart on the next page

School Impact FeeLand Transfer Tax Flat fee, regardless of value Based on 0.4% of value Applied only to new single-family homes (including mobile homes) Applied to all real estate property sales & exchanges Paid by the permit applicant Paid by the seller at closing Dedicated to school facilities Not restricted by state law, but county would use funds for facilities

Background Information 7 counties on or near the coast have had the authority to levy a 1% transfer tax since 1990 Counties have been asking the General Assembly for several years to have the same chance for voters to approve other revenue options Until this year, the General Assembly had not extended this authority to any other counties

Background Information The new legislation provided for a 0.4% tax, not the full 1% land transfer tax, to be approved by voters The 2007 General Assembly also did give counties the authority for a voter referendum on a ¼-cent sales tax However, the sales tax would be distributed in a way that would limit the county’s revenue to around $1 million in , as compared to $3.5 million for the 0.4% land transfer tax

Ballot Wording Ballot wording cannot be revised…set by state law. This means that voters have a choice on the ballot on Nov. 6 th to decide FOR or AGAINST the following measure: Real property transfer tax at the rate of up to four-tenths of one percent [0.4%] of value or consideration

Voter’s Choice The voters of Chatham County have the opportunity to choose whether or not the county will have another option for paying for its increasing facility needs. Please take the time to get your questions answered and vote on November 6 th.