Bond Analysts vs. Bond Supporters: Tax Hikes vs. Cost Savings

The question of whether the $3.1 billion in higher education bonds will raise taxes in North Carolina Counties sparked heated debate this week between bond supporters and research analysts.

“[T]he facts are indisputable,” said Locke Foundation President John Hood in a letter to The News & Observer of Raleigh (Aug. 25). “Although most of the $600 million in bonds for community colleges will not have to be matched by counties, some will. We estimated the potential cost at just over $53 million,” Hood added.

“More spending for community colleges necessitates less spending for something else,” said Pope Center for Higher Education Policy Director George Leef. “An ‘opportunity cost’ always exists, including, in the unusual case of surplus revenue, tax reduction.”

Earlier this month, Leef issued a research paper stating that, if passed, the bond proposal would cause some counties to raise taxes to pay for their portion of the construction that the bonds would initiate. Part of the law authorizing the bonds requires counties to provide matching funds for construction of new community college facilities.

The paper and an Aug. 17 editorial to The News & Observer in which Leef outlined his findings prompted fiery and immediate response from bond supporters – a press release from the Community College System on August 17, a letter from State Treasurer Harlan Boyles to Governors Hunt, Martin, Holshouser, and Scott on that same day, an op-ed by C. Ronald Aycock of the N.C. County Commissioners Association to The News & Observer and a letter from William Stanley to Hood. All argued that bonds will not raise taxes and could, in fact, save taxpayers’ dollars.

“Facilities are 100 percent the obligation of the counties unless the state voluntarily, through bond issue or appropriation, assist with capital expenses,” said Boyles. “Without this bonds, the full responsibility for the $600… would be on the counties, but these bonds will relieve a large portion of their fiscal burden.”

“First,” Leef responded to his critics, “the apparent ‘savings’ to counties are necessarily illusory because cost is merely shifting elsewhere. If a county has to spend $3 million in order to get $6 million in bond proceeds, the $6 million has to come from somewhere. That cost will be borne by all state taxpayers”

“Second,” he added, “it is highly unlikely that, in the absence of the bond proposal, the counties would contemplate spending anything near $600 million.” The Pope Center and the Lenoir News-Topic have both sited anecdotal evidence that the increased share of the bonds for community colleges – a $300 million increase over last year – was leading to proposals for low-priority projects that might otherwise go unfunded.

“The fact that there are costs involved is not an argument against the proposal,” Leef wrote. “It’s a matter of weighing costs against benefits – and that is best done by the people of a county who have the most information about their community college, not by voters all over North Carolina.”

“It is almost inconceivable that a conservative-based organization like your would oppose a referendum that provide local government choice on these matters,” said Stanley in his letter to Hood.

“As a 501 (c)(3) organization, we cannot [oppose the bonds]. Nor will we encourage our readers to support the referendum,” responded Leef. “However, we will continue to write about the issue in ways that raise the level of people’s comprehension about the probable impact of their votes.”