North Carolina Limits Cities’ Ability to Grow

By: - July 6, 2012 12:00 am

North Carolina cities, which have enjoyed broad annexation powers for more than five decades, will have a harder time absorbing surrounding areas thanks to a new state law the legislature approved in May.

Before the new law took effect, North Carolina cities were allowed to amass unincorporated territory even over the objections of the residents of those areas. Those rules often dismayed suburbanites, but were hailed by city officials as a proven model for maintaining their tax bases and securing cities’ fiscal health.

Under the new law, North Carolina’s annexation process will look more like the process in most other states. Most significantly, residents of unincorporated territory will be able to vote up or down on whether to be absorbed into a city. As in other states, the new rule is likely to make annexations rare because of the higher taxes that come with city residency.

City officials argue that suburbanites often consume city services, so they should help pay for them through taxes. They say the old rules helped avoid the budget problems plaguing cities in other states by allowing them to grow beyond the limited tax bases of their urban core.

Many North Carolina cities, including Charlotte and Raleigh, enjoy AAA bond ratings. Annexation powers aren’t the entire reason for that — for example, the oversight of cities provided by the state’s Local Government Commission is also a key factor — but it’s generally regarded as part of the story. “That law was often cited as the best urban policy in the nation,” says Ellis Hankins, executive director of the North Carolina League of Municipalities.

To critics, though, the financial benefits for cities show precisely what was wrong with the old law: Suburbanites were being annexed and taxed against their will to boost city budgets. “It is all about the money for them,” says Catherine Heath, who leads the StopNCAnnexation Coalition. Heath argues that it’s more democratic to let suburban taxpayers vote as a prerequisite for annexation.

That argument didn’t win out in Raleigh until after the 2010 elections, which brought to power a Republican-controlled legislature that was more skeptical of annexation than its Democratic-majority predecessors. In 2011, the state approved a law that allowed areas facing annexation to block the takeover if 60 percent of property owners in the area signed a petition opposing it. A court threw out that law because only property owners — not renters — were allowed to sign the petitions, leading the legislature to approve the new law this year. Governor Bev Perdue, a Democrat, allowed it to become law without her signature.

Despite her group’s victory, Heath fears that cities will try to reestablish their annexation powers sometime in the future. “It’s not the end of the conversation,” she says.

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.