What is the economic impact of building a new jail? | Eastern North Carolina Now

    Publisher's Note: This article originally appeared in the Beaufort Observer.

    At the November 4, 2013 Beaufort County Commissioners' meeting William (Buzz) Cayton spoke during the Public Comment section of the agenda on how the board has gone about making a decision to build a new jail in the Chocowinity Industrial Park. You can listen to his comments below.

    In those comments you will hear him refer several times to "people who pay taxes" that will be increased if a new law enforcement complex is built, no matter how it is financed.

    We think those comments raise a very legitimate question of "just who will pay for this jail?"

    The answer to that question is not as simple as some people think. Many with whom we talk assume it will be the property owners who pay the taxes. But that is only partly the case. As a matter of fact, everybody in Beaufort County, and people who buy things in Beaufort County will pay for a new jail. Here's why.

    Even people who do not own real estate, and relatively little personal property, pay property taxes. They do so because the owners of the property they rent or lease, whether residential or commercial, have to factor in the taxes they pay into the rent or lease payments. Thus the "incidence" of the property tax is on the people who use property, and that includes virtually everyone and most businesses in the county and their customers.

    And speaking of businesses, they pay property taxes also but most pass most, if not ultimately all of those taxes on to the customers who buy goods and services from those businesses. When you go to the grocery store, Wal-Mart, Lowes etc. and buy products there you pay property taxes that are assessed on that property. When you pay your phone bill or electric bill you pay property taxes. The owner of the shopping center may be the one who lists and writes the check for the property taxes, but that is passed along to the tenants and ultimately to the customers if the business stays in business long enough.

    But there is a much more serious problem with raising property taxes. And that is what economists call "opportunity costs." Opportunity costs is the concept that if you spend money for one thing you cannot spend that same money for something else. For example, if a business has its property taxes raised by a thousand dollars that is a thousand dollars that they cannot spend for salaries or benefits, such as health insurance. If the county raises property taxes you have to factor in what businesses could have done by investing that money into productive business activity that would have returned benefits to the county's economy. Thus, if the county pays two million dollars a year in principal and interest on jail financing that is two million dollars that, for the most part, is sucked out of the local economy and does not go to produce greater productivity of the economy. Apply the "multiplier" and you have a devastating impact on business growth and development.

    Finally, to see the real practical impact of raising property taxes you have to look at the margin. That principle holds that many businesses, particularly in hard economic times, operate very near the margin of staying in business and going out of business. We know one business (a convenience store) that recently went out of business because when the county put pressure on them to pay their property taxes the company could not meet its payroll and pay its gas bill and pay the $5000 it owed in property taxes. The bank "was not making business operating capital loans" so they had no choice but to close the doors. That property now sits vacant and is not paying sales taxes that the county would have been collecting and eleven people are out of a job. The owner told us that he could have paid $4000 but that would not have sufficed with the Tax Office. They warned him: Pay in full or we foreclose. He had a "triple net lease" on the property that was owned by a landlord. The lease required the tenant to pay the property taxes. So when he could not pay the $5000 he would have been in default on the lease and the landlord would likely have kicked him out. Bottom line: For want of $1000 the county lost a business and eleven families are hurting. Ironically, that $1000 is exactly how much the property taxes went up as a result of re-valuation and the subsequent rate increases which one member of the Board of Commissioners explained as "only two cents." No, it was not a two-penny increase. It was a cost of a family's life savings. They now are struggling with trying to keep their home. Two of their former employees face foreclosure. And all of the vendors who served that business are now hurting at their margins.

    Listen to Mr. Cayton, a very astute businessman (who happens to be one of the publishers of the Beaufort Observer), state it simply for this board and ask yourself: How many of those sitting up there behind that table really know what they did when they raised property taxes in recent years.