Agenda - 09-20-2007-2c - Laserfiche WebLink

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Page 1 of 2 Donna Coffey From: LEE MANDELL [LMandell@NCLM.ORG] Sent: Friday, August 24, 2007 2:27 PM To: The nclgba mailing list ' Subject: [nclgba] Medicaid Tax Swap Many of you have been asking for an explanation of the local sales tax impact of the Medicaid Swap provisions in the budget bill (HB1473). What follows below is from the League's GA Session Wrap-Up Legislative Bulletin, the full version of which is now available on our website: ~:/lwww.nclm.org/Legal/Bulletin/2007/08-24-07.htm. Lee Lee M. Mandell, Ph.D. Director of IT and Research/CIO NC League of Municipalities PO Box 3069 Raleigh, NC 27602-3069 Phone: 919.715.3933 Fax: 919.733.9519 The big news in the budget, of course, was the Medicaid relief package and "sales tax swap" that was used to accomplish it. With passage of the state budget, the General Assembly adopted aphased-in take over of the county share of Medicaid expenses. As the state assumes county Medicaid expenses, it will, in turn, take over a portion of the local option sales tax revenues. The last one-half cent local option sales tax-Article 44-is the affected tax. The state will take over one-half of this tax (that is, one-quarter cent) effective October 1, 2008 and take over the remaining one-quarter cent effective October 1, 2009. Municipalities currently receive a share of the proceeds from the Article 44 sales tax and will be reimbursed for the loss of those revenues. The method of replacement includes a growth factor. The first one-quarter cent lost will be replaced by a payment equal to one-half of what each municipality receives from the Article 40 local sales tax. The Article 40 tax is a one-half cent tax distributed back to the county level on a per capita basis, so the first hold harmless, which begins October 1, 2008, is equal to half of this one-half cent - in other words, aquarter-cent, just like what is being taken away. Since there is growth in the Article 40 tax proceeds, there will be growth in the hold harmless payments. Effective October 1, 2009, municipalities will receive a second hold harmless payment equal to one-quarter of the one-cent Article 39 local sales tax. This is a tax distributed back to the county area on point of delivery, just like the tax being taken over by the state. Again, the hold harmless payment is tied to the amount received from an existing revenue source so any growth will be included. The money for the hold harmless payments to cities comes from the counties' share of sales tax revenues. The NC Department of Revenue will make both hold harmless payments directly to cities, and there is no expiration date on this hold harmless. In a related measure, the state budget changed the Article 42 local option sales tax from per capita to point of delivery distribution, which will affect the total amount of tax proceeds returned to each county area for distribution among the county and the municipalities in that county. [1"his change does not affect the method that counties choose to distribute tax proceeds among the county and its municipalities -either per capita or ad valorem.] 8/28/2007